Sunday, May 27, 2012

Poor starving children in China...

It is said that American parents used to admonish their children to eat their dinner because "there are poor starving children in China."* In a recent interview with the Guardian, IMF chief Christine Lagarde invoked the poor starving children metaphor when speaking about Greece [emphasis added]:
So when she studies the Greek balance sheet and demands measures she knows may mean women won't have access to a midwife when they give birth, and patients won't get life-saving drugs, and the elderly will die alone for lack of care – does she block all of that out and just look at the sums?

"No, I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens." She breaks off for a pointedly meaningful pause, before leaning forward.

"Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax."

Even more than she thinks about all those now struggling to survive without jobs or public services? "I think of them equally. And I think they should also help themselves collectively." How? "By all paying their tax. Yeah."
In summary, Lagarde is admonishing the Greeks to get on with eating their vegetables. This seems to be a clever piece of negotiating on her part as a way of pushing two parties towards a middle ground, becuase last week, the WSJ reported that she was pushing Germany to accept eurobonds:
International Monetary Fund head Christine Lagarde Tuesday called on euro-zone governments to accept more common liability for each other's debts, saying that the region urgently needs to take further steps to contain the crisis.

"We consider that more needs to be done, particularly by way of fiscal liability-sharing, and there are multiple ways to do that," Lagarde told a press conference in London to mark the completion of a regular review of U.K. finances.
I wrote last week (see A Canadian's roadmap to Greek struggles) that to expect Europe to show both a carrot and a stick to the Greeks. Lagarde offered them a carrot last week in the form of tacit support for eurobonds. Now she is showing them a stick.

* I can still recall the Doonesbury cartoon from the 1970's of the Chinese parent admonishing his son to eat his jellied duck web because there are poor starving children in West Virginia.
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
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1 comment:

keithpiccirillo said...

This seems to be a more objectively credible interpretation to me than Mish's explanation, which concluded it was a way to make Grexit hastier.
The Machiavellian subterfuge and brinkmanship is great. I've beem reading about game theory and Equilibria. Credit Suisse had a pdf on it two years ago, and many of the main money centers and hedge funds must be tweaking their outcomes on a regular basis.
My main point in writing about this, and in my readings about the Eurozone is that maybe blog writers should familiarize themselves with dual process theory. To paraphrase Daniel Kahnemann, we all have System 1 thinking, which is emotional, instinctive and is effortless, operating all the time, but cannot not draw inference and is rote and ingrained from the passing of time. It carries baggage both good and bad.
The System 2 requires deep thought, and empiricism, and conclusions can't be put out before associations are more than spurious. Inferences can't be postulated without order and sequence, an emotional coherance of ideas that support each other if you will. There is a chasm between believing and knowing.
Your last asterisked line is a good example of how ethnocentric every culture can be.
I have an amusing recent real life humorous story from China that I will post that shows how Chinese and Americans interact and some of the head to head consequences.