On the final day of Telecosm 2006 in Lake Tahoe, Steve Forbes opened, followed by PFF board member John Rutledge. Steve Forbes gave a largely upbeat presentation about the U.S. economy; John Rutledge gave a similarly upbeat presentation about the Chinese economy, rebutting recent allegations that the Chinese have been manipulating US currency reserves. The alleged phenomena of "Islamo-fascism" became an issue between them.

More detail on Forbes: He opened with a lot of cheering material on the state of the U.S. economy, touching on the world economy as well. Figures cited include 25% global economic growth since 9/11. He recommended with appropriate irony the World Bank's "Doing Business" survey, which essentially scores how difficult it is to set up a business in a given country. Rankings on this survey are now coming to the attention of developing countries leaders, spurring change. Then he ran down some challenges:

1) Inflation. He recommends following the price of gold. Less than $300 per ounce is trouble, so is more than $450. Classic Forbes. I have little insight into whether this is right or wrong.
2) Taxes and entitlements. He's looking to growth of the global economy in India and China to raise standards of living enough that we can afford our government's liabilities in the future. Hope so.
3) Demographics--the phenomena of low birth rates, leading to underpopulation.
4) Trade--free trade is under assault, with nonsense rhetoric about trade deficits. I quote: "Forbes has had a trade deficit with its paper suppliers for 89 years. We buy more paper from them than they buy subscriptions from us." Trade deficits have been around for 350 years of the 400 years of history since Jamestown, and the US is doing fine. Trade deficits just mean, well, trade--we have money, other people have goods.
5) The War. He assesses the situation in Iraq as a result of totalitarian ideology--following from the influence of European fascist and communist intellectuals on the Middle East early in the twentieth century. (John Rutledge took vehement exception to this, which I describe further below). But Forbes went on to talk about a possible solution to sectarian conflict in Iraq--The Alaska solution. In Alaska, every resident gets a cut of oil revenues. If this were done in Iraq, sectarian violence would ease because everyone would have a stake in peace and trade, even those sects that do not have oil.

John Rutledge opened with a sharp attack on the concept of "Islamo-fascism." "'Islamo-Fascism' is the kind of word made up by people who have not yet applied for a passport." He added, "It is very easy to blow up people you have never met." It seems undeniable that the United States, before 9/11, had made little effort to learn about the Middle East and had utterly failed to develop relationships there from which insights into local problems could be acquired. And it seems unlikely that many such relationships have been developed since then. So we had better follow John's advice.

I wondered what exactly it is about the premises that there is a thing called "Islamo-Fascism" that John takes issue with. Perhaps this; the totalitarian movements of early twentieth century Europe had in common with Islamic extremism roots in economic crisis. But the European movements were for the most part secular, directed against traditional church hierarchies, amongst other things. And they for the most part were not directed against outsiders (i.e. Americans). After all, the United States had not been called upon to get involved in Europe in the same way the U.S. has been involved in the Middle East. Our entry into WW's I and II was welcomed by Europeans in a way that our entry into the Middle East has generally not been welcomed. No wonder, our intervention in WWI and WWII was better informed and arguably competent, much harder to resent.

So I don't have the impression that European intellectuals have had a tremendous influence on Islamic extremists. Islamic extremism is directed outward, less against local leaders. It is not secular; indeed, aspects of it might be traced to gaps in secular education. Its doctrines concerning women seem, also, unfortunately, to follow from certain religious doctrines (such as the idea that women lack souls), which liberal Islam has struggled to overcome (as did liberal Christianity). Charles Lewis has noted that this in turn fuels economic crisis, for it means that half of their population, the female half, is not encouraged to seek out higher education, and then they cannot add much value to the labor pool.

But I digress. More John Rutledge. He explained the significance of the enormous gap in assets between China and the United States. We have capital. They have labor. Capital now flows easily and quickly between nations. This gives rise to rapid economic changes--turbulence. Many are better off, but some are truly not (the textile workers in North Carolina). Thus, he said, we have "oversold free trade." I take it what he meant was most emphatically that trade should not be held back, but that the disruptions that follow from it could well be handled more sympathetically and imaginatively. (One of my favorite distinctions, the difference between constitution interest and action interest, springs to mind).

In any case, this turbulence is a natural result of the enormous gap in asset allocation between the US and China and India and the rapidity with which this gap is being closed. They are entrepreneurial, educated, focussed on innovation. China needs a stable currency (as does everyone else) and so has pegged their currency to the dollar. Assertions that they are manipulating the currency are nonsense.

He also had some splendid insights into the follies of basing policy on data, particularly macro-economic data (such as the jobs figures currently disturbing Wall Street). By the time it is collected, it is out of date. When it has been revised six months later, it has usually turned out to be wrong. Better to base policy on large-scale changes. And/or on the outlook for Mom & Pop businesses, which is where most economic growth happens. Are these small businesses able to get capital? Or are they having to go to loan sharks?

All for now.