The collapse in commercial property
Towers of debt
Concerns are switching from the residential to the commercial sector
FROM a distance Potsdamer Platz looks a bit like its old self. Once the central hub of Berlin, before it was turned into a rubble-strewn no-man’s-land divided by the Wall, it is now surrounded by shiny new towers. Get a little closer, however, and it becomes clear that many buildings are just façades painted onto giant hoardings that rise ten stories high between actual office blocks.
This subterfuge makes for a far more pleasant view than that provided by vacant lots. It also points to an unusual degree of restraint among developers in Europe’s second-largest property market (by transactions). The commercial-property market in most other parts of the developed world is in deep trouble.
Unlike other property busts, this downturn has not been driven by speculative overbuilding but by investors’ overenthusiasm. Commercial property was a popular asset class for much of this decade. Institutional investors who lost a lot of money when the dotcom bubble burst were persuaded that switching from the stockmarket into property would diversify their portfolios and reduce their risk. Cheap finance was plentiful. Investors could indulge in a version of the “carry trade”—borrowing at a low interest rate to buy buildings and counting on the rental yield and capital growth to more than cover their financing costs.
That strategy looked smart when rents and capital values were rising and vacancy rates were low. But as cheap financing has dried up and economies have tumbled into recession, investors have become badly exposed. According to Marcus & Millichap, an estate agent, the office-vacancy rate in Manhattan climbed by more than three percentage points in the first half of the year, to 11.2%. As tenants have disappeared, rents have fallen too—by 16% over the past year, Marcus & Millichap reckons.
Property prices have also been badly hit. Moody’s, a rating agency, estimates that American commercial-property prices dropped by 7.6% in May alone, leaving them almost 35% below their peak in October 2007. Prices would have gone down even further had not transactions dried to a trickle (see chart). Owners are loth to sell into a falling market, although some distressed sales are occurring.
All this sounds like a replay of the downturn in the residential-property market, where easy borrowing terms allowed homebuyers to push prices to extreme levels. To add to the sense of déjà vu, property loans have also been bundled into complex financial instruments, known as commercial mortgage-backed securities (CMBSs). The riskiest of these, mainly those issued between 2005 and 2007, are now running into trouble.
Realpoint, a credit-rating agency, says that nearly $29 billion of CMBSs, around 3.5% of the total, have become delinquent (ie, borrowers have not kept up interest payments) in the past 12 months. It thinks the delinquency rate could reach 6% by the end of the year. Richard Parkus of Deutsche Bank reckons the default rate could eventually reach 12%. Together with bad construction loans, that could push the losses of American banks on commercial property to $200 billion-230 billion. Many small banks will go under as a result.
European banks are exposed to property, too. The good news is that the two biggest euro-zone economies, France and Germany, have seen only modest declines in rents and prices. But one of Italy’s biggest property companies, Risanamento, is fighting to stave off its creditors. And pain is being felt all around the periphery of the euro area. In Spain (see article) and Ireland vacancies are surging, property prices are plummeting and cranes are standing idle.
Prices are plunging across central and eastern Europe, too, although the volume of transactions remains slim. Yields in many of these markets were driven down by hopes that they would, in time, converge with those in mature European markets. Vacancy rates in cities such as Budapest have surged to about 15% while those in Prague have almost doubled (to roughly 10%) over the past year. Some of the biggest falls in rents are taking place in Russia. Rents in Moscow have fallen by 63% in the 12 months to the end of June although they are still the third-highest in Europe (after the West End in London, and Paris). With almost one-fifth of office space empty, further falls in rents and prices seem likely.
Asia has not been spared either. The worst-affected property markets in the region have been financial centres such as Singapore and Hong Kong. Shrivelling bank balance-sheets have meant shrinking demand for office space, as armies of bankers have lost their jobs. Singapore’s swankiest business district led the retreat in office rents across the region, shedding more than half between June 2008 and June 2009, according to Cushman & Wakefield, a consultancy. Hong Kong was not far behind with a 43% drop in the same period. Mumbai (down by 40%) and Shanghai (32%) were the next hardest hit.
There are some signs that the speed of the downward adjustment is slowing. In Hong Kong, office rents in the prime central district declined by 20.1% in the first quarter. The fall was much more moderate, but still 10.4%, in the second. Looking ahead, Singapore seems particularly dicey, because 8.3m square feet (770,000 square metres) of new office space will be coming into the market by 2013. According to CLSA, a broking firm, oversupply will also weigh heavily on office property in China. Vacancy rates in Shanghai and Beijing could rise to 35% in 2010 from around 17% and 22% respectively today.
A year ago everyone was worried about losses on residential-property loans. If the latest data are any guide, both American and British house prices may be finding a bottom. Concerns are now switching to the commercial sector. History suggests downturns in that market last for years, rather than months. Almost 20 years have passed since the Japanese property market peaked. Prices still fell by 4.7% last year.
Charlemagne
Unwelcome, President Blair
Europe does not yet know what kind of foreign policy it wants. It may soon have to choose
WHY does the thought of a “President Tony Blair” in Europe make people so cross? Something about the idea sends prominent euro-politicians into paroxysms. Take Daniel Cohn-Bendit, co-leader of the Green faction in the European Parliament: he calls a Blair candidacy “absurd”, damning him as a zealous advocate of the Iraq war that divided Europe, and blaming him for “Thatcher-inherited neoliberal politics” that sowed the seeds of today’s economic crisis.
The holder of the new position, to be created by the much-debated Lisbon treaty, would speak for the 27 national leaders and chair their summits for a term of two and a half years, renewable once. The job is not “President of Europe”, as some call it, but president of the European Council, the bit of the EU controlled by national governments. The holder will have to work with the European Parliament (which hates the Council) and the European Commission, a hybrid executive bureaucracy.
Apart from Mr Blair, other possible candidates mooted so far include Felipe González, Paavo Lipponen and Wolfgang Schüssel, ex-government heads from Spain, Finland and Austria respectively. None triggers the same reactions as Mr Blair. He is the only prospective candidate with his own protest website, www.stopblair.eu, signed to date by 32,000 people.
Why such animus? Doubtless some people think Mr Blair loathsome, even wicked, for his actions as Britain’s prime minister between 1997 and 2007. But that is not a common view among the senior European politicians and officials who also oppose him. Something else is at work: a telling rejection of what a President Blair would say about the EU, and its foreign-policy goals.
Oddly, Mr Blair is not even a confirmed candidate. But last month Britain’s minister for Europe, Glenys Kinnock, caused a sensation when she was quoted as implying that he had Britain’s official backing. This undammed a torrent of hostility. Continental commentators sniffed that Mr Blair was a phoney, who called himself a European but never made the British love Europe (they should try). British newspapers lazily declared that Mr Blair was in it for the salary and perks, and called his successor, Gordon Brown, “Machiavellian” for promoting his cause. Alas, the story was untrue. Lady Kinnock, a former member of the European Parliament, had been a minister for about five minutes when she was asked about Mr Blair. Winging it, she called him her government’s candidate; this was a blunder, not a clever ploy.
The episode did Mr Blair no favours. But it may have done the EU a good turn. It is time that Europeans had a proper debate about the global presence they want. The Lisbon treaty creates two big new foreign-policy posts. Apart from the council president, there will also be a beefed up “high representative”, a kind of foreign minister who will chair meetings of EU foreign ministers (ie, will have political power) and be a vice-president of the European Commission (ie, will have pots of money, thousands of staff and offices round the world). Possible contenders include Carl Bildt, Sweden’s foreign minister, who says he does not want the post, and Olli Rehn, the Finnish enlargement commissioner, who probably does. Some talk of Dora Bakoyannis, foreign minister of Greece, or Ursula Plassnik, an ex-minister from Austria.
Most people in Brussels are confident (indeed, overconfident) that the two new jobs are coming soon. Conventional wisdom says the Irish will be sufficiently cowed by the economic crisis to vote Yes to Lisbon in early October, allowing EU leaders to discuss the new jobs at a summit later that month. Remarkably, most other details have not been nailed down. Lisbon is silent on the question of how the council president and high representative will avoid getting in each other’s way.
Inside the Brussels bureaucracy, the view is that the high representative will be the more powerful figure; the post’s budget, staff and institutional reach count for more than the fancy title of “president”. In Paris and London, by contrast, the view is that the council president, as the envoy of national leaders, takes primacy. France’s president, Nicolas Sarkozy, has in the past suggested Mr Blair would make a fine president. Of late he is reported to have cooled on the idea, although he would still want a big hitter.
France sees Europe as the lever for achieving global clout. For all its wariness of Europe, Britain’s position is not that dissimilar. It sees the EU’s population of 500m people and its economic heft as a route to relevance on issues such as climate change. As David Miliband, Britain’s foreign secretary, said in June, if Europe wants to avoid a “G2 world” shaped by China and America, the EU needs to offer itself as a partner for “G3 co-operation”.
Big power, soft power or no power?
This matters. If great-power diplomacy is Europe’s goal, it needs a council president who is seen as a peer by world leaders (well hello again, Tony). But not everyone agrees. Senior figures in the Brussels foreign-policy establishment (and in Germany) argue that the EU enjoys “moral and legal legitimacy” precisely because its overseas actions are not based on the interests of a few big states, but are approved by consensus. Smaller countries say similar things, mainly out of fear of being bullied by big members. Fredrik Reinfeldt, the prime minister of Sweden, holds the rotating presidency of the EU. He says small and medium-sized countries “are not interested” in an over-strong president; he prefers to speak of a “council chairman” rather than a president.
In the end the decision may be taken by default. EU jobs are awarded in long, unpredictable horse-trading: leaders may give one job to a star, and the other to a plodder, thus fixing their relative clout. If it were to be, say, President Schüssel and High Representative Bildt, the high representative would run foreign policy. If the EU ends up with two plodders, irrelevance beckons.
America's recession
The beginning of the end
New GDP figures suggest some hope for America’s economy. But the pain is far from over
FIGURES released by America’s Commerce Department on Friday July 31st confirmed what most had expected: America’s economy suffered yet another quarter of falling output in the three months to the end of June. The world’s largest economy shrank at an annual rate of 1% in the second quarter. At least as of June 30th, America’s economy was still contracting, thus the country's deepest post-war recession was not over.
But the news has been greeted with something approaching relief. For one thing, the decline was smaller than many economists had predicted, and a lot less than the dramatic 6.4% annual rate of contraction of the previous three-month period. For another, there are reasons to hope that conditions improved in July. And some newly released data about earlier months give reasons to cheer too.
These suggest that the decline in economic activity may have bottomed out at last. The S&P/Case-Shiller index of house prices in America’s 20 largest cities rose for the first time since July 2006 in May, by 0.5%. Americans also bought more houses in June than they did in May: sales of new single-family homes rose by 11%. All of this suggests things are getting brighter in the troubled housing market.
A sense of an end to the decline is also apparent from the Federal Reserve’s most recent “Beige Book”, a twice-quarterly publication in which the Fed sums up its assessment of the economy based on reports from its 12 constituent regional reserve banks. The latest, released on July 29th, indicates that activity has begun to stabilise, albeit at a low level.
All this may explain Barack Obama’s comment on Wednesday that America “may be seeing the beginning of the end of the recession”. Reaching a bottom does not mean a quick rebound in economic activity, however. The recovery is expected to be shallow and prolonged because American consumers, worried about unemployment and the collapse in the value of their homes, are seeking to reduce their debts, and thus will not spend as freely as once they did.
House prices still have a long way to go before they return to the level of a year ago (let alone to their peak). The Case-Shiller index may have risen in May but it remained 17.1% lower than a year earlier, when prices had already been falling for almost a year. Another concern is that the flexibility and mobility of America’s workforce, long a strength of the economy, is limited as long as Americans find themselves unable to move home because of negative equity (when the value of a house is less than the mortgage on it). The situation is likely to persist until prices recover more.
A greater worry is the bleeding in America’s labour market. Unemployment typically continues to rise even after GDP starts to increase, so pain for workers is far from over. Already 9.5% of the workforce is unemployed, and 144 of America’s 372 metropolitan areas reported unemployment rates of at least 10% in June. More jobless will probably mean less shopping and a slower recovery. The latest consumer-confidence numbers show that Americans are jittery: an index from the Conference Board, a research group, fell to 46.6 in July from 49.3 in June. The quarterly GDP report also makes it clear that consumer spending, which rose slightly in the first quarter, dropped again in the second, by 1.2%. The good news, therefore, was more a result of government stimulus than evidence of a real, sustainable recovery in private demand.
The Commerce Department has also revised its estimates of just how bad 2008 really was, saying on Friday that American GDP expanded at a mere 0.4% last year, much less than its earlier suggestion of 1.1%. This means that the economy will have to grow even more than earlier thought to recover to the level before the crisis. The beginning of the end may be in sight, but recovery is some way off.
Pace of GDP Contraction Slowed in Second Quarter
WASHINGTON -- The U.S. recession appears to be near an end, government figures suggest, even as revisions to prior years' data show that the downturn has been even more severe than previously thought.
Gross domestic product fell at a seasonally adjusted 1.0% annual rate April through June, the U.S. Commerce Department said Friday in the first estimate of second-quarter GDP. That was better than the 1.5% decline Wall Street economists had expected.
MarketWatch's Hot Stocks: Industrials
0:59Stocks for companies that make materials used in manufacturing and construction, such as rolled steel, plastics and packaging, gained some steam Friday in anticipation of an economic recovery later this year. MarketWatch's Christopher Hinton reports. (July 31)
GDP fell 6.4% in the first quarter and 5.4% in the fourth quarter, at the pit of the recession. The third quarter of last year was revised to show a much sharper drop than first estimated. The numbers were revised as part of the government benchmark revision to data going back several decades.
GDP has now fallen four-consecutive quarters, the first time that has happened since quarterly records began being kept in 1947.
But with the pace of decline waning, "the worst recession since the Great Depression is likely coming to an end," said Sung Won Sohn, a professor at California State University.
The main engine of the economy, consumer spending, surprisingly fell last quarter. Job fears and stagnant wages appear to be keeping wallets tight, and are seen muting the economy's expected recovery in the second half of 2009.
What limited the rate of contraction were much smaller declines in exports and business spending. Also, inventory liquidation took less of a bite out of the economy; company replenishing of goods should boost output going forward.
The recession began in December 2007, according to the semi-official arbiter, the National Bureau of Economic Research in Cambridge, Mass. The nonprofit research group uses a broader definition of a recession than do many economists, including industrial production and employment. Another popular definition of a recession is two consecutive quarters of a shrinking GDP.
Baldor Electric employees work inside the company's factory in St. Louis in June, the final month of the second quarter.
White House 'Beer Summit' Becomes Something of a Brouhaha
U.S. Brewers Say Meeting With Professor, Policeman Should Be All-American Affair
ROBERT TOMSHO
The president's plan to toss back a few cold ones with some high-profile guests at the White House has the American beer industry hopping mad.
This afternoon, Henry Louis Gates Jr., the Harvard professor and race-relations expert, and James Crowley, the police sergeant who controversially arrested Mr. Gates, are to stop by for a round of brews that President Barack Obama hopes will promote racial comity.
The meeting is raising some sensitive issues, such as: What kind of beer?
Capitol City Brewing, a pub located a few blocks from the White House, lobbied Obama to serve its 'Equality Ale.'
Obama Hopes To End Brew-haha With White House Beer
2:08President Barack Obama will drink Bud Light when he sits down to end a feud between Professor Henry Louis Gates and Cambridge Police Sergeant James Crowley. Simon Constable offers suggestions on what could be on tap for the two White House visitors.
Late Wednesday, White House spokesman Robert Gibbs hinted the presidential cooler will likely be stocked with what he understood to be the two guests' own personal favorites -- Red Stripe and Blue Moon.
"The president will drink Bud Light," Mr. Gibbs added.
The problem is that all three beers are products of foreign companies. Red Stripe is brewed by London-based Diageo PLC. Blue Moon is sold by a joint venture in which London-based SABMiller has a majority stake.
And Bud Light? It is made by Anheuser-Busch -- which is now known as Anseuser-Busch InBev NV after getting bought last year by a giant Belgian-Brazilian company.
Among rival brewers, the news fell flat. "We would hope they would pick a family-owned, American beer to lubricate the conversation," said Bill Manley, a spokesman for the Sierra Nevada Brewing Co., a California-based brewer that happens to be family-owned.
Jim Koch, founder of Boston Beer Co., which brews Samuel Adams, decried "the foreign domination of something so basic and important to our culture as beer."
Genesee Brewery, Rochester, N.Y., released a statement congratulating the president for having beer at the meeting but adding: "We just hope the next time the President has a beer, he chooses an American beer, made by American workers, and an American-owned brewery like Genesee."
Richard Neal, a Massachusetts Congressman who has also written the White House amid the beer ferment, also hopes the meeting will promote beer-drinking nationalism. In a not-so-subtle dig at Bud, he said he knew he and the president "both share a common interest in fostering the success of American-headquartered companies."
In a statement, David Peacock, president of Anheuser-Busch, said the company "would be proud if Budweiser, Bud Light or any of our beers" is served at the White House meeting. A spokesman for the joint venture that sells Blue Moon said the company is happy it is being considered. Diageo declined to comment.
![[beer mug]](http://s.wsj.net/public/resources/images/OB-ED722_BrMgBV_NS_20090729231618.gif)
It all started about two weeks ago when Sgt. Crowley, who is white, arrested Mr. Gates, who is black, at his Cambridge home after responding to a call about a suspected break-in there. Each man accused the other of belligerence. President Barack Obama added fuel to the fire last week by saying the police had behaved "stupidly."
Seeking to calm the situation, the president then invited both men to the White House for a friendly beer.
For the past several days, David von Storch, co-founder of Capitol City Brewing Company -- which owns a brewpub just a few blocks from the White House -- has been lobbying the administration to serve his company's "Equality Ale."
"What better beer to have them drink than the only beer brewed in the District of Columbia, Capitol City Brewing Company Equality Ale!" Mr. von Storch wrote in an email he sent Tuesday to several White House staffers.
Kyle Watkins, a White House staff assistant who got one of the messages, emailed back that he would pass along the suggestion on but didn't know if it would go anywhere. Reached by phone, Mr. Watkins declined to discuss the matter.
In general, the White House strives to showcase American food, wines and traditional concoctions at official meals and parties. Sometimes, even menu items with a foreign provenance are Americanized. In the George W. Bush White House, a favorite chocolate dessert was referred to not as a French-style soufflé, but as a "chocolate freedom."
![[Beer at Capitol City Brewing Co.]](http://s.wsj.net/public/resources/images/P1-AQ906_BEERal_CV_20090729185028.jpg)
Andrew Cutraro/Redux for The Wall Street Journal. When questioned by reporters on Tuesday, Mr. Gibbs, the White House spokesman, tackled the beer issue head-on. "As I understand it -- I have not heard this, I've read this, so I'll just repeat what I've read, that Professor Gates said he liked Red Stripe, and I believe Sergeant Crowley mentioned to the president that he liked Blue Moon. So we'll have the gamut covered tomorrow afternoon. I think we're still thinking, weather permitting, the picnic table out back. All right?"
Dan Kenary, president of Boston-based Harpoon Brewery, said he wanted to make a run at getting some of his beer into the meeting but couldn't find any intermediaries with close White House contacts. "I think just showing up at the gate with a case of Harpoon would make them look at us funny," he said.
Maureen Ogle, author of "Ambitious Brew, The Story of American Beer," said that by holding the summit, the President risks criticism from groups working to persuade the public to drink less alcohol.
For instance, there is the Woman's Christian Temperance Union, which led the fight for Prohibition in the early 20th century. Rita K. Wert, the group's national president, said her organization is disappointed that the president is serving beer at all. "There are so many other beverages he could have chosen that would have served just as well," she said, mentioning lemonade or iced tea.
Signs of Life in the Housing Market
The good news is that government efforts to prop up prices didn’t do much.
GERALD P. O’DRISCOLL JR.
The economic crisis began with a housing downturn that spread to housing finance, and then to the entire economy in the form of a deep recession. Stability in the financial sector and growth in the economy will not resume until there is recovery in housing. But what will constitute a recovery in housing?
While the news this week about an uptick in home prices and sales in some markets is encouraging, those anticipating a return to pre-bubble price levels will find the wait to be a long one. In some markets it might not happen for a decade or more. Other markets may never return to pre-crisis prices—certainly not when adjusted for inflation.
Unfortunately, many public policy proposals have been aimed at propping up home prices, or at least cushioning their fall. Nothing could be more counterproductive.
The housing downturn was a classic bursting of an asset bubble. The suddenness of the collapse was frightening and, for a time, prices seemed to be in a free-fall, especially in over-heated areas in Arizona, California, Florida and Nevada. But the cure for falling prices in the aftermath of a speculative bubble is, paradoxically, to allow them to fall.
In housing, as with other assets, falling prices clear markets. They do so by making homes more affordable. During the bubble, homes had become out of reach for many people. In some areas—such as the San Francisco Bay area—households with a median income could not afford a median-priced home. This locked first-time buyers out of the market and made existing homes the currency for purchasing another home. To get around this, creative financing (such as “liar loans”) sprang up to enable some to acquire a substitute currency. We know where that led—defaults and bankruptcies.
Another way falling prices clear markets is by raising future expected returns. This draws in speculative buyers. The very process that fueled an asset bubble can be harnessed to help stop a downward price spiral. When home prices fall sharply, banks and others help facilitate a process to sell homes more quickly than during normal conditions. That is what’s happening in Phoenix and other cities right now as speculators scoop up homes on the brink of auctions. Often a buyer will allow a prior owner to remain in the home as a renter at a much reduced cost. The new buyers can cover some or all of their costs and hold the properties until such time as home prices actually turn up again.
First-time home buyers also contribute to the housing recovery process. People who thought that they were shut out forever discover that they can become homeowners. I know of a young woman and her fiancé who are now proud homeowners where heretofore they had been renters. They are helping restore a local housing market by restoring sales.
Government programs to prop up home prices have been half-hearted and ineffective overall, and mercifully so. A successful program to prop up home prices would have aborted the recovery process. It would have created an overhang of unsold, over-priced homes. Speculators would have held off buying and first-time buyers would have remained frozen out of the market.
That is what happened in the aftermath of the Savings & Loan crisis of the 1980s. Congress created the Resolution Trust Corporation (RTC), which took over the bad assets of failed S&Ls. Most of those assets comprised commercial, not residential, real estate. But the principle was the same. Prices needed to fall to revive sales.
The RTC has been hailed as a success, and it was, but not at first. Its original policy was to “warehouse” the assets so as not to push prices down further. But as those assets were set aside, the commercial real-estate market froze up. Only when the RTC decided to dump the assets did real-estate markets start functioning again. Texas was the epicenter of the S&L crisis and the collapse of commercial real-estate prices. When the RTC changed course, Texas recovered and the rest is history.
For all the talk of the failure of markets, what is actually working is markets. What failed were government policies of cheap credit and attempting to make housing affordable by stimulating demand. As amply demonstrated by Thomas Sowell in his new book, “The Housing Boom and Bust,” land-use restrictions and “smart growth” (read no-growth) policies are the culprit for the lack of affordable housing. Stimulating demand through cheap credit only fuels unsustainable price bubbles. The way to avoid a future housing bust is to stay away from demand-stimulating and supply-restricting housing policies. Meanwhile, keep letting markets work.
Mr. O’Driscoll is a senior fellow at the Cato Institute. He was formerly a vice president at the Dallas Fed and a vice president at Citigroup.
Farmers Can Feed the World
Better seeds and fertilizers, not romantic myths, will let them do it.
NORMAN E. BORLAUG
Earlier this month in L’Aquila, Italy, a small town recently devastated by an earthquake, leaders of the G-8 countries pledged $20 billion over three years for farm-investment aid that will help resource-poor farmers get access to tools like better seed and fertilizer and help poor nations feed themselves.For those of us who have spent our lives working in agriculture, focusing on growing food versus giving it away is a giant step forward.
Given the right tools, farmers have shown an uncanny ability to feed themselves and others, and to ignite the economic engine that will reverse the cycle of chronic poverty. And the escape from poverty offers a chance for greater political stability in their countries as well.
But just as the ground shifted beneath the Italian community of L’Aquila, so too has the political landscape heaved in other parts of the world, casting unfounded doubts on agricultural tools for farmers made through modern science, such as biotech corn in parts of Europe. Even here at home, some elements of popular culture romanticize older, inefficient production methods and shun fertilizers and pesticides, arguing that the U.S. should revert to producing only local organic food. People should be able to purchase organic food if they have the will and financial means to do so, but not at the expense of the world’s hungry—25,000 of whom die each day from malnutrition.
Unfortunately, these distractions keep us from the main goal. Consider that current agricultural productivity took 10,000 years to attain the production of roughly six billion gross tons of food per year. Today, nearly seven billion people consume that stockpile almost in its entirety every year. Factor in growing prosperity and nearly three billion new mouths by 2050, and you quickly see how the crudest calculations suggest that within the next four decades the world’s farmers will have to double production.
They most likely will need to accomplish this feat on a shrinking land base and in the face of environmental demands caused by climate change. Indeed, this month Oxfam released a study concluding that the multiple effects of climate change might “reverse 50 years of work to end poverty” resulting in “the defining human tragedy of this century.”
At this time of critical need, the epicenter of our collective work should focus on driving continued investments from both the public and private sectors in efficient agriculture production technologies. Investments like those announced by the G-8 leaders will most likely help to place current tools—like fertilizer and hybrid seeds that have been used for decades in the developed world—into the hands of small-holder farmers in remote places like Africa with the potential for noted and measured impact.
That investment will not continue to motivate new and novel discoveries, like drought-tolerant, insect-resistant or higher-yielding seed varieties that advance even faster. To accomplish this, governments must make their decisions about access to new technologies, such as the development of genetically modified organisms—on the basis of science, and not to further political agendas. Open markets will stimulate continued investment, innovation and new developments from public research institutions, private companies and novel public/private partnerships.
We already can see the ongoing value of these investments simply by acknowledging the double-digit productivity gains made in corn and soybeans in much of the developed world. In the U.S., corn productivity has grown more than 40% and soybeans by nearly 30% from 1987 to 2007, while wheat has lagged behind, increasing by only 19% during the same period. Lack of significant investment in rice and wheat, two of the most important staple crops needed to feed our growing world, is unfortunate and short-sighted. It has kept productivity in these two staple crops at relatively the same levels seen at the end of the 1960s and the close of the Green Revolution, which helped turn Mexico and India from starving net grain importers to exporters.
Here, too, the ground seems to be slowly shifting in the right direction, as recent private investments in wheat and public/private partnerships in maize for Africa re-enter the marketplace. These investments and collaborations are critical in our quest to realize much needed productivity gains in rice and wheat to benefit farmers around the world—and, ultimately, those of us who rely on them to produce our daily food.
Of history, one thing is certain: Civilization as we know it could not have evolved, nor can it survive, without an adequate food supply. Likewise, the civilization that our children, grandchildren and future generations come to know will not evolve without accelerating the pace of investment and innovation in agriculture production.
Mr. Borlaug, a professor at Texas A&M University, won the 1970 Nobel Peace Prize for his contributions to the world food supply.
What if Washington Were a Ghost Town?
What FDR and Nixon might say to their partisan heirs.
If Franklin Delano Roosevelt, president of the United States through the Great Depression and World War II—if FDR, that canny old political operator, that shrewd judger of men, that merry spinner (“First thing we do is deny we were in Philadelphia!”) that cold calculator (he put Joe Kennedy to head the first Securities and Exchange Commission, setting the fox among the foxes), that patient and knowing waiter-outer of events—if FDR were advising President Obama right now, what would he say?
He might look at the lay of the land and tell Mr. Obama something like this:
“My friend, you’re in a bit of a fix. Falling polls, decreasing support for health care. Beyond that, you’re stuck in a bit of a lose-lose. If you don’t get a bill along the lines you’ve announced, you’ll look ineffective and weak—a loser. If, on the other hand, you win, if you get what you asked for, it will all be a mess and all be on you. The system will be overwhelmed, the government won’t be able to execute properly, the costs will be huge. The new regime will thoroughly discombobulate things just in time for everyone’s complaints to reach a crescendo by Election Day 2010.
“But I have an idea, and hear me out. You already have Medicare, a single-payer national health-care system for those 65 and older. Little Harry Truman was the first American to get a Medicare card in 1965, did you know that? LBJ hauled him in for a ceremony. Anyway, Americans like Medicare. So here’s the plan. From here on in, every day, start talking about it: ‘Medicare this, Medicare that, Medicare.’ Get your people in Congress to focus on making the system ‘healthier.’ It’s rife with waste, fraud and abuse, everyone knows that. And there’s the demographic time bomb. Come together in a great show of bipartisan feeling with our Republican friends and announce some serious cost-saving measures that are both legitimate and farsighted. Be Dr. Save the System. On thorny issues like end-of-life care, put together a bipartisan commission, show you’re open to Republican suggestions.
“Then, at the end, get your Democratic majorities to make one little change in the program—it’s now open to all. You don’t have to be 65. The uninsured can enroll. Do it in the dead of night if you have to, you’ve got the votes.
“And then, and only because you’ve all made so many institutional and structural changes, you’ll have to give Medicare a new name. I’d suggest ‘The National Health Service.’
“Voilà. You now have the single-payer system you wanted.
“Everybody wins. You get expansion, Republicans get cost control, the system is made more secure, and the public for once isn’t terrified.
“Republicans of course will say they won—they defeated a brand new boondoggle nationalized health system. Fine. But people will start referring to the National Health Service every day, and they’ll believe they have one, and they’ll believe you gave it to them. And you can run in ’12 saying you did. That’s what I’d do!”
Before departing in a cloud of cigarette smoke and martini fumes, FDR just might add, “A second option, though lacking that special spark of deviousness, is the Wyden-Bennett bill. it’s cost-neutral, it’s not single-payer, but everyone gets coverage. And that was the point, wasn’t it? You can brag about health care for all and fiscal prudence. Not bad!”
***
If Richard Nixon—one of the great vote counters, a man who loved policy more than politics but was very good at the latter until he wasn’t anymore, a man who acted so very tough because his heart had been broken, not only by Watergate but by other things (he was right about Alger Hiss and still they wouldn’t honor him; he gave liberals everything in terms of domestic programs and still they wouldn’t love him)—if he met in Washington with the national Republicans of 2009, he might, just might, say something like this:
“Men, and a few ladies, and it’s wonderful to have you here, you’re in a good position and a bad one. Good: The American people are peeling off from nationalized medicine or socialized medicine or whatever you call it. Bad: I’m not sure the peeling off has anything to do with you. There’s something going on that I never foresaw, and it’s the fact that you don’t seem anymore to be the face of the party or of the movements within it. People with TV and radio shows do. Media people! There’s a plus to this but a minus, too. They’re sucking all the oxygen out of the room. You think they’re supporting you, but they’re really supplanting you! You’ve got to figure out how to come to the fore more and break through. But that’s small beer. Big thing is the current debate.
“You still haven’t given the American people coherent alternatives and arguments, or not so the people have noticed. You’ve got to have a strategy, and you’ve got to be serious. Put all internal jockeying aside and remember your philosophy, the thing that made you be a Republican and not a Dem.
They’re calling you all Dr. No, but that’s not really taking off, so don’t worry about it. But they are tagging you as guys who think this is all just about politics. Remember, the majority of the American people don’t care at all about your political prospects. Why should they? Unlike everyone in Washington and the media, they’re not political obsessives. They actually have lives. They care about what happens to them when they’re sick. So stop the ‘Obama’s Waterloo’ stuff—what a mistake that was, to make yourselves look cynical and purely partisan!—and refocus. Come back to first principles and prudent warnings, but always within a context of clear patriotism. At the end of the day, America needs a successful president. It’s dangerous to have a wounded duck six months into a presidency in a dangerous world. So help him by gently instructing him. He’ll hate that, because in his mind he’s the teacher and you’re the student. Point out that there’s a lot the president doesn’t understand, come forward every day with your ideas, talk them up, get them out there.
“For instance: As you know, doctors keep fees up and order expensive tests because they’re afraid of malpractice suits. They pay terrible insurance premiums. We have to reform that. Stop calling it “tort reform”; normal people think a tort is something you eat for dessert. Call it the Limiting Lawyers’ Windfalls bill. No one likes lawyers anymore, Perry Mason’s dead. And make it real when you talk. Here you can pinpoints an Obama weakness that you’re not even exploiting. He won’t go near legal reform because his biggest backers and contributors are the trial lawyer’s lobby. He talks about the common good—give me a break. As Jack Kennedy used to say, and so eloquently, here you can really stick it to him and break it off.
And speaking of JFK, try to seize back a bit of the issue of health in general. Remember physical fitness and vigor and 50 mile hikes on the C&O Canal? Completely captured the public imagination. JFK himself didn’t do it, he wasn’t insane, and he had the bad back. He sent Bobby and that fat Pierre Salinger. Anyway, go with that: personal responsibility, strength, health. Steal it from the Dems. But don’t imitate their censorious tone: ‘Ya can’t smoke, put down that doughnut.’ Let me tell you, doughnut eaters are the largest growing demographic in America. Don’t get crossways with them!”
Stocks Edge Higher as Hot Month Ends
Stocks moved slightly higher on Friday, helped by data showing a slower pace of contraction in the U.S. economy than expected.
The Dow Jones Industrial Average was recently up about 19 points, trading at 9182. Its component Chevron gained 1.2% after reporting its second-quarter earnings dropped 71% due to lower oil and gas prices compared to a year ago.
![[Markets Data]](http://s.wsj.net/public/resources/images/MDGpromo_D01222009151210.jpg)
In the week's most anticipated economic release, the Commerce Department said prior to Friday's opening bell that gross domestic product shrank by 1% in the second quarter compared to the year-ago period. That was better than the 1.5% expected by economists.
However, the report also contained a bit of unpleasant news as the government revised its reading of first-quarter GDP to show a 6.4% slide, worse than the original 5.5% reading.
Overall, the GDP data were enough to keep investors' recent optimism alive, with many looking for the economy's output to begin rising by year's end. That sentiment has led to a furious rally in July, with the Dow up 8.2% for the month heading into Friday's session. Barring a sharp swoon before the closing bell, the Dow will close out its best month since October 2002.
Alfred Kugel, chief investment strategist at Atlantic Trust in Chicago, said Friday's data bolstered his confidence that the economy is turning a corner, with GDP likely to turn positive for the current quarter once the next round of data are in hand.
However, he said Atlantic Trust stopped adding stock to its clients' portfolios about a month ago, guarding against a possible correction to the market's sharp rally from its bear-market lows.
"We're sort of in this transition from hope and expectation regarding the economy to reality," said Mr. Kugel. "I don't know if I'd rush out to buy stocks right now, but I wouldn't mind owning them."
Other market yardsticks edged higher on Friday, pushing closer to key round-number benchmarks. The Nasdaq Composite Index rose 0.4%, trading nine points shy of 2000. The S&P 500 gained 0.3% to trade 11 points from 1000 -- a level it hasn't crossed since last November.
In particular, S&P 1000 is an important milestone for traders who use a popular strategy of betting on differences between shares of the broad measure's components versus the price of widely traded futures contracts on the Chicago Mercantile Exchange.
While most market veterans expect the S&P to make it to 1000 soon, they say there could also be volatility as traders either take incremental profits or get more aggressive with the index just shy of the mark.
"The market seems to be really targeting that level, like a moth going to a flame," said Roger Volz, director of equities at BGC Partners in New York.
Among stocks to watch, Amerigroup tumbled 9% after the health insurer said that it had reversed a prior-year loss caused by litigation. Electrical equipment maker Stoneridge tumbled 11% after it said that it swung to a second-quarter loss.
Brush Engineered Materials swung to a second-quarter loss but forecast profits for the third quarter. Its shares rose 9%. Heating-equipment maker Graham rose 6% after its earnings beat estimates.
Oil futures rose nearly $1. The dollar was weaker against the yen and the euro. Treasury prices rose. The 10-year note was up 25/32 to yield 3.518%.
Thursday, July 30, 2009
What Would the Founders Think of ObamaCare?
The "liberty-mad" rebels would have a tough time understanding how anyone could support the president's health care vision.
Is health care a “right?”
The liberal wing of the Democratic Party has long sought to make it so, and they may be on the verge of achieving their goal. Legislation currently winding its way through Congress would effectively make health care (or more properly, health insurance) open to every American citizen via government subsidized dispensation.
Of course, no such “right” is enumerated in our founding documents — or is it?
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. … That to secure these rights, Governments are instituted among Men …
So wrote Thomas Jefferson in the most radical and oft-quoted passage of the Declaration of Independence. An extremely wide reading of these words could conceivably include government-run health care. After all, both “life” and “happiness” are threatened by disease and injury.
(Liberals who would follow down this rhetorical road would do well to tread carefully. The same wide reading of the “life” clause of the Declaration could just as easily be used by conservatives to justify protection of the unborn: if government is justly instituted in part to secure life, then outright abolition of abortion could reasonably be inferred to follow.)
But of course, the founders meant for no such wide-ranging interpretation. Rather, the “life” clause of the Declaration refers to the government’s responsibility simply to not kill its citizens, and to protect them from harming one another. (John Locke certainly inspired Jefferson’s pen with his Second Treatise of Government, where he wrote that “no one ought to harm another in his life, health, liberty, or possessions.”) Certainly you will search in vain throughout the Declaration, the Constitution, the Federalist Papers, the minutes of the Constitutional Convention, and the ratification debates which followed for the argument that government should be responsible for every citizen’s medical care.
Nor is this surprising — the entire raison d’etre of our national existence is the desire for less government in our lives, less taxes and regulation, not more. Let us never forget the glorious antipathy to tax that was the tinder which nourished our revolutionary flame.
Our founders would be astonished to learn that the tax-hating citizens of their limited republic were now on the verge of swallowing the mammoth new tax rates which will be necessary to create a new, government health care regime (but will never be enough to sustain it: per Maggie Thatcher, the problem with socialism is that eventually you run out of other people’s money.)
Surely this prospect would horrify the men who drafted our founding documents and waged our republican revolution, for a government which controls your medical decisions has power of Orwellian proportions. Barack Obama and his legions in Congress do their best to conceal this (aided, as always, by a pliant press), cleverly framing the issue as one of choice — the government-run option will be just another competitor in the market, they say. Or, as Obama put it, “if you like your health plan, you can keep it.” But this is pure chicanery: government is never just another competitor — it can offer services and goods at far below market value, driving any sensible profit seeker out of the business.
So what will you do when you have no other option? When the government refuses to pay for your dialysis because you are over 65 and it isn’t “cost effective” to keep you alive (as happens in Britain)? Or when you have to wait six weeks for that MRI, never mind your crushing headaches (as happens in Canada)?
Nothing. The government, under the rubric of securing your “life,” has instead gained complete mastery over it. The founders would no doubt observe these monstrous proceedings and wonder what on earth they fought for.
What indeed. In 1775, a British emigrant arriving in Maryland surveyed the fermenting colonial scene and concluded that Americans had gone “liberty-mad.”
The madness, it seems, has subsided.
No comments:
Post a Comment