After my recent focus on the dysfunctional US democracy I return now to one of my favorite topics: Chapter 27 in the long-running saga of efforts by the French Government to deny or retard the internet.

Life was indeed simpler in the 1980s when the French were a world leader in e-commerce with the proprietary Minitel system. While my more adventuresome friends frolicked on the Minitel "rose" (you know who you are) I got sufficient kicks ordering my train tickets at 3615SNCF (once a geek always a geek). While the Minitel system was indeed well ahead of its time it was the perfect Cartesian closed system for the French — electronic ordered but not too disruptive. When the World Wide Web spread in the 1990s France lagged behind due in part to the success of the closed Minitel system. This was not unlike Japan’s slower acceptance of GSM-based smartphones due to the great success of the i-mode phone system. When France belatedly joined the web generation it always appeared suspicious and reluctant — much as if it had concluded that www really stood for wild wild west.

I will skip the French Government’s earlier dirigiste efforts to build its own "Google-like" search engine or slow the spread of e-commerce (read Amazon) and cite but two current examples. First a law recently passed by the French legislature which prohibits Amazon and others from providing free shipping on orders of books in France (under prior law booksellers are already limited to offer no more than a five percent discount to list price on new books). Second legislation recently proposed by the French Interior Minister to prohibit Uber and other car service companies from picking up passengers in LESS than 15 minutes after the order is placed.

As loyal readers of this blog know I am a great fan of modern car dispatch services like Uber and Hailo and I am both a decent Francophone and a great Francophile but this latest proposal really pissed me off. Paris is dear to my heart and the year my then-fiancée Maarit and I lived in Paris stands as one of our happiest; however next to Death Valley California Paris is one off the worst places on earth to get a taxi. Thus I was overjoyed this past September when we flitted around Paris in nice cars at reasonable expense at all hours of the day and night thanks to Uber. Average wait time? Five to six minutes.

Under the proposed new law intended to "enhance competition on a level playing field" we would have had to stare at our summoned car for 10 minutes before getting in. Not only is the proposed legislation deeply anti-consumer it is retrograde and techno-phobic. In the end it will not only deprive French citizens and tourists of an efficient and consumer-friendly new service but also retard the development of potentially competitive French services that leverage mobile internet technology.

Let them eat cake while they wait for their taxi.

Thirty years ago this fall my fellow law school classmate Ron Wright and I released a computer game at Yale designed to help teach pre-trial discovery (an aspect of Civil Procedure) to fellow law students. It seemed to us then as I still believe that there are aspects of the law well suited to be taught by the famous case method (e.g Constitutional Law Torts etc.) and there are other more practical subjects that can best be taught via a simulation game.

Today this is perhaps obvious. In 1983 gamification was far from accepted practice. Nonetheless a courageous and intellectually vigorous Yale Law professor Owen Fiss supported our efforts and our "game" became widely used in law schools across the US.

Here is a link to a New York Tines article written about our efforts later that year. The text of the article is reproduced below.

Happy Birthday.

NYTimes.com

When Thomas Glocer was a first- year student at Yale Law School it took him 10 hours to complete the final assignment for Prof. Owen Fiss’s civil procedure class.

It took his friend Ronald Wright 12. And afterward both students said they had not learned as much as they should have from the exercise.

This month first-year law students at Yale are spending one and a half hours doing the same assignment and they may learn more from it than either Mr. Glocer or Mr. Wright did.

Professor Fiss one of Yale’s three professors teaching civil procedure this semester is replacing what was a written exercise with a computer game created by Mr. Glocer and Mr. Wright.

The game is designed to teach students about discovery – the pretrial process by which litigants obtain information from each other. With the game Yale joins a growing number of law schools – including Harvard the University of Minnesota and University of Illinois – using computers as teaching aids.

Until now Professor Fiss would present his students with a set of problems concerning a case they were familiar with. Each problem would be designed to investigate a different aspect of discovery. He would ask them to answer questions using the Federal court rules of civil procedure as guidelines.

”What happened most of the time with the written exercise” Mr. Glocer explained ”is that students would not use the rules but simply paraphrase them to support their preconceived conclusions.” ”Discovery is actually an interactive process” Professor Fiss said the other day. ”It is easier to teach students this with a computer than with a written exercise.”

This month four students at a time have been acting out discovery while the computer mediates. The four sign on to a computer terminal two as attorneys for the plaintiffs two as attorneys for the defendants.

It is the goal of the plaintiffs to acquire as much information as they can from the defendants who begin the game with all available information in their possession. This is done by way of a dialogue carried on between words on the screen and responses litigants type into the terminal.

According to Mr. Glocer a typical dialogue between attorneys for the plaintiffs and the defense might include the following exchanges with the computer acting as judge:

COMPUTER: Attorneys to the plaintiff would you like to have discovery of the testifying experts’ report?

PLAINTIFF: Yes.

COMPUTER: Attorneys to the defendant Jones and Smith do you object to allowing plaintiffs’ discovery of the testifying experts?

DEFENSE: Yes.

COMPUTER: Using the global objection code reprinted below please specify why you refused the plaintiffs request for the testifying experts’ report.

DEFENSE: The item is subject to absolute work-product protection.

COMPUTER: I’m surprised you missed the correct objection to the requested discovery. Your argument that the testifying experts’ report was subject to absolute work-product protection is incorrect. Had you objected on the proper ground that the item was protected expert information I would have awarded you the costs for your motion.

”This is real-life interaction with the rules” said John Morris a first-year law student. ”A paper just gave you a big fact situation then sent you out to find the rules. You’d just sit down with a book and say we’ll try this and this. The discovery game is dynamic.”

The game assures that plaintiffs appreciate the cost of litigation by closely following their budgets.

”Obtaining the report from expert witnesses will cost plaintiffs at least $150 if they are successful” the computer might say to the plaintiffs before asking them their plan for action. When funds dry up the computer warns they can go no further – unless they get a loan. The program gives loans too.

”There has to be a way of taxing frivolous attempts” Professor Fiss said. ”This is hard to do in a written exercise.” Emphasis on Process

It is the process that is important in this game. Nobody wins or loses. ”That would be too Harvard” said Mr. Glocer.

A number of Yale law professors say they are optimistic that the discovery game will be success and could lead toward greater acceptance of the computer at Yale.

”I’m delighted with the Fiss experiment” said Harry Wellington dean of Yale Law School.

”At Yale we do not need to use computers to save money” the dean added. ”With our high faculty-student ratio we also do not need computers for teaching assistance. But I see this as an evolutionary process and we are dedicated to using anything we can to make the teaching process better. The computer is as usable as blackboard and chalk.

”I look forward to playing the game.”

Since my post last week on the extreme approach on the national debt ceiling and government shutdown being taken by Senator Ted Cruz and his Tea Party followers in the House there are signs that cooler heads may prevail. However even in these baby steps towards a negotiated solution Republican and Democratic leaders have been acting like representatives of two warring foreign states rather than members of the same government. The President lets it be known that he might be willing to consider a shorter-term extension of the debt ceiling if he receives a proposed bill without preconditions. House Republicans indicate that they might vote to extend the debt ceiling if the government remains shutdown in the interim so they do not lose leverage. And on and on it goes.

Am I the only one who is reminded of the long-running Palestinian peace talks? One side will not discuss peace while certain elements of the other fire rockets; the other side won’t come to the table unless settlements are frozen again. I could have chosen Iranian or North Korean nuclear talks or Northern Ireland or Syrian peace talks. We expect this sort of gamesmanship and mistrust between mutually suspicious foreign nations; however it still comes as a surprise at least to me when elected officials of the same government act this way.

The question I am always left with is: "Why did you run for elected office in the first place if not to serve the best interests of the Nation and its people?" In a similar vein "Is the job of Congressman really so great that it is worth holding the Nation to ransom just to get re-elected?" As Ive said before in these pages we deserve better.

As I write Ted Cruz is working overtime to provoke President Obama into shutting down the US Government and possibly invite a default on our national debt. It is hard to see any winners in this sick game of political chicken other than Senator Cruz himself. I will skip over the legislative history of why Congress must repeatedly vote to raise the national debt ceiling and approve a continuing resolution other than to observe that it is tantamount to going on a shopping spree with the family credit card and then later informing the store that members of the family still needed to separately approve those charges before they can appear on the credit card bill. In other words Congress passes individual legislation that requires the government to spend money and then threatens to shut down the government because it does not like the total amount of spending.

Senator Cruz is being blamed by Democrats and moderate Republicans (yes there are some left) alike but it seems to me he is the only winner here. He profits while our nation suffers because if the President flinches and accepts some modification of or delay to the Affordable Care Act (the primary House Republican demand) then Cruz comes out a winner. Alternatively if the Republicans decide they cannot again be backed into the nihilist corner of the party that shuts down essential government services then Cruz can play his favorite role of the last man of principal standing among Republicans in Washington. Either way his stature as a 2016 Presidential candidate is enhanced.

The wisdom of the Affordable Care Act (AKA Obamacare or ACA) is open to debate. However since its passage by both houses of Congress in 2010 it has been largely upheld as constitutional by the US Supreme Court and implicitly ratified by the national electorate in the 2012 Presidential election since both President Obama and Mitt Romney made the ACA a key election issue. Today Senator Cruz and his House Republican followers are fighting a rear-guard effort to defund or delay the Act. Republican Senator John McCain an early opponent of the ACA nonetheless has criticized the right wing of his party for holding the financial health of the nation prisoner to their attempt to repeal the Act. He has privately commented that they are bad losers who refuse to accept the result wise or not of the democratic process.

So what is the connection between Ted Cruz and Miley Cyrus? Both the Senator and the singer follow in a long line of narcissists who cynically deploy shock tactics to gain attention and notoriety by pushing the then accepted norms of behavior. In this they are no different from Janet Jackson’s famous "wardrobe malfunction" at the 2004 Super Bowl (when some of her curves just happened to escape her dress on national television) Madonna’s repeated and well-orchestrated efforts to push the boundaries of sexual decorum or a long list of rappers’ misogynist murderous and drug-embracing rants. It is the role of music and the arts to push boundaries and occasionally make us uncomfortable. Until this week I had not thought that this was also a prime qualification for the US Senate.

Whatever we may think of Ted Cruz and the substance of his politics his "take no prisoners" style and insistence on breaking the accepted government norms has catapulted the elitist freshman senator from Texas to national prominence and a good shot at the 2016 Republican Presidential nomination. Whatever happens to the country in the meantime be damned.

Even before Edward Snowden confirmed the extent of signals intelligence undertaken on a systematic basis by the US National Security Agency the issue of governmental or commercial capture of information relating to individuals had been heating up. Now in the aftermath of these revelations European government officials in particular have expressed their outrage and demanded responses ranging from the suspension of US-EU trade talks to the development of a separate “European Cloud” to store regional data. While many of these protestations of moral outrage remind me of Captain Renault’s declaration in the film Casablanca that he “was shocked shocked to find that gambling is going on here!” –- right under his well developed Gallic nose I do believe important principles are at stake in the tradeoff between individual privacy and institutional data collection as well as in the tradeoff between national security and international comity. However just because I believe in a right to privacy protection from unwarranted government intrusion and commercial exploitation does not mean that these rights should be absolute. My problem with most of what I’ve read to date and what prompts me to write today is that the debate has been one of polar absolutes rather than the careful set of tradeoffs which I believe is required.

I begin with the principle that each human being on the planet has an inherent right to privacy and the conditional ownership of most data relating to himself. As noted above I do not believe these rights to be absolute – these rights can be individually waived by the citizen through informed consent collectively waived by her and her fellow citizens through the political process or implicitly waived by conduct which puts other members of society at risk. I will not here enter into the debate as to what exactly constitutes informed consent other than to note that there is a legitimate question both legally and ethically as to whether the “I Agree” button which the Apples Facebooks and Googles of this world employ to get would-be users to agree to 10 pages of clickwrap terms and conditions is or should be effective.

More interesting to me is a range of implicit consent which I believe individuals grant to their governments through the police power to protect them. So for example I have never been explicitly asked by the New York or London Metropolitan Police to consent to having my image recorded by the thousands of video cameras deployed in these great cities; however having been born in New York and having lived for many years in London I believe I have implicitly waived whatever inherent right I may have once possessed to maintain the privacy of my image so that the police authorities can more effectively protect me from actual or potential threats. Would it bother me if the NYPD shared with the FBI access to its database of a thousand videos of me walking through Times Square? Not particularly. How about with MI5 or MI6? Now I’d begin to worry but not complain. How about the Russian or Chinese clandestine services? Now I would like this sharing to be limited to occasions of specific and violent threat but as a practical matter my only true protection is through laws adopted by my elected officials or my fundamental rights under the US Constitution.

I offer the above example to illustrate that issues of individual rights to privacy are seldom black and white and require a careful balancing of the importance of the societal/governmental issue presented versus the individual’s rational expectation of privacy. So on this basis I do NOT believe any government should have the right to intercept and listen in to my phone calls or to open and read my physical or e-mail; however I do not have an issue with a court granting a search warrant to enter my home or tap my phone or email if there is a reasonable basis to believe that I have committed a crime or am planning a violent terrorist act.

Now so far I have largely dealt with the issues of individual consent versus governmental data capture within a single nation committed to the rule of law. I think the issues get much more complicated in cases such as NSA/Snowden where the US government allegedly collected vast amounts of information concerning non-US individuals. As in the case of targeting foreign nationals for drone assassination I think the US will come to regret exploiting its current significant technological superiority once other nations perhaps less benign in their intentions begin to close the technology gap. My concern here is to treat citizens of other countries no differentially than the US treats its own citizens other than in very special circumstances such as when the US is at war with that country. The risk of course is whether we would feel equally comfortable if the Islamic Republic of Iran intercepted and listened to all international phone calls to or from the US?

I have no similar reservation with respect to one nation spying on another. Both through traditional human intelligence work (literally spies) and long-standing signals intelligence countries have been spying on one another since ancient times. I do have an issue with governments spying on the commercial enterprises of other nations to steal their intellectual property but this has less to do with human rights than my deeply held belief in fair competition.

So where does this all leave us? I expect and want my government to protect my country and my family from threats foreign and domestic. I recognize that rights to privacy are not and should not be absolute. I recognize that other less legalistic societies than the Anglo-Saxon may balance these principles differently. And I also recognize that law enforcement sometimes needs to “bend a few rules” when in hot pursuit or when the danger is great and imminent but these cases should be few and far between and disclosed as soon as possible afterwards to avoid undermining the legitimacy of the government taking such action and to prevent other governments reflexively responding in kind.

As we converge towards a more integrated global information society we need an international public conversation about individual rights and the role of governments in protecting the citizens of their respective societies when their tools now easily extend across borders. So while Edward Snowden has likely violated US law perhaps the international debate his case has spawned can provide some lasting benefit.

Margaret Thatcher the formidable former Prime Minister of the United Kingdom and leader of its Conservative Party died this week at age 87 and even in death she remains controversial and divisive.

I met the Iron Lady only in her less ferrous later years. While the big hair and big handbag remained the once-steely leader within had begun to recede. What remained then and is much present this past week is Maggie the icon and symbol. Her supporters and detractors continue to divide neatly along political and geographic lines: She is alternately the saviour of Britain and architect of its modern economy or the heartless enemy of its northern working-class. As with so much else concerning Lady Thatcher both may be true.

Was she right to break the back of the trade union movement in the UK? To send an armada thousands of miles from home to reclaim the Falklands? Or to resist deeper integration for Britain in the EU? Fair minded people can disagree on these and other aspects of her record in office.

What should be beyond debate is her victory for women in government and diversity in general. However even here "the Lady’s not for turning" to borrow her oft-quoted phrase. In her politics Margaret Thatcher cared little for liberal concepts such as diversity and affirmative action for minorities. However as a very real symbol of equal distribution of talent across the sexes and social classes the grocer’s daughter did much to blaze the path for working women everywhere.

This week as Lady Thatcher is remembered for her often divisive speeches and at times heartless policies we should also recall what she achieved for liberals everywhere — the example of a strong-minded principled woman leading her nation.

Why would anyone in their right mind wade into the debate on bankers’ pay who did not himself work for a bank? This is the unusual place in which I find myself drawn irresistibly by the proposed EU legislation which seeks to cap bankers’ bonuses at one times base salary (or if two-thirds of shareholders approve and certain other conditions are met two times base).

It is not surprising that such a law would prove politically popular – a similar but even broader initiative in Switzerland received 68% of the votes in a referendum this past weekend. After all there are far more non-bankers than bankers and financial institutions in Europe and the US have not exactly covered themselves in civic glory across the financial crisis large trading losses and LIBOR-rigging sanctions-evading and money-laundering scandals. However if popular appeal is to be the measure of financial policy making then I would propose draft legislation requiring the ECB to deliver a one kilo gold bar to each non-banker in the 27-member Union.

It is said that bankers are "overpaid" and that the nature of their bonus compensation drives them to take wild risks with the capital of their institutions and thereby put the savings of ordinary citizens and the finances of national treasuries at risk. Experience over the past five years has indeed suggested that many financial institutions were able to "privatize the gains but socialize the risks." However this to me supports the case for higher capital requirements firewalls to protect depositors enhanced oversight and trading rules for derivatives and even rules requiring clawbacks and deferred equity payouts. It does not make the case for caps on bonuses unless the purpose is not promoting a more sound financial system but either societal revenge for bad banker behavior or a Continental stitch-up of the City of London.

First let’s look at the issue of whether bankers are “overpaid.” What does this really mean? Overpaid relative to the tellers (if any remain) in the bank? Relative to teachers firemen or other professions of perhaps greater societal value? I could get comfortable with such claims if applied consistently across all endeavors. Thus are Lady Gaga Tom Cruise and Wayne Rooney not similarly overpaid? While these individuals no doubt possess good performing or sporting talent can it really be said that their contributions to society are worth millions? Are they more deserving? Do they work longer hours? I think not. They are simply the beneficiaries of specialized labor markets in the entertainment and sports industries. While it is true that a Rooney scoring slump is unlikely to cause a global financial meltdown neither do I believe that capping bonuses are the best means to reduce systemic financial risk and protect small account holders.

Second let’s look at the form in which compensation is delivered. Banks have traditionally paid most of their professionals a large portion of their total compensation in the form of variable pay (bonus) not salary. This has the virtue of not burdening the institution with high fixed costs during weaker periods and paying their top performers more than their weaker ones. So for example if a star banker can bring in $25 million in business for the year would shareholders begrudge paying her 10% of the revenues and keeping the other 90%? Under prevailing practice such a banker is usually paid a base salary between $200000 and $400000 per year; however if her bonus is now capped at one times base she cannot be paid more than $800000 under the new law. The immediate answer is to raise her salary to $1000000 and then she can be paid total compensation of between $2000000 or $3000000 (if shareholders approve). However this leads to two unintended consequences. First if the banker in our example has a bad year and only brings in $5000000 in business we will have grossly overpaid her in salary for weak performance. Second we will have driven up the fixed cost base of the bank and in the event of a downturn the firm will have little choice other than to make deeper job cuts even if this is not in the interest of the bank its shareholders or our banker.

Finally my issue with the proposed bonus cap approach is that it will drive economic activity away from the regulating geography and away from banks into the large shadowy world of non-bank banks such as hedge funds. While the proposed EU legislation is intended to apply to the worldwide operations of EU domiciled banks and to the operations of foreign banks in the EU it still leaves many institutions out of its ambit. So for example a Hong Kong based trader for Bank of China could be paid a 500% bonus but his counterpart across the street at HSBC in Hong Kong would be limited to no more than 200%. How long do you think it will take for our trader to cross the road? How about HSBC itself? Have we forgotten that this mighty UK headquartered institution is after all the Hong Kong and Shanghai Bank? How long until it repatriates? Pity that the Prime Minister exhausted his goodwill in Brussels with his December 2011 veto of the Euro treaty rather than a fight such as the current EU attack on the primacy of the City – a set of rules which will actually hurt the UK economy.

A larger problem with the proposed EU legislation is that it only purports to cover “banks.” However there are thousands of “non-bank banks” making loans trading derivatives and making markets in over-the-counter securities among many other bank-like endeavors. The London based colleagues of our HSBC trader need only drive from Canary Wharf to Mayfair to join a hedge fund and be compensated freely. While it is true that hedge funds by and large do not serve small depositors their investors do include the pension funds in which many ordinary workers participate and if protecting depositors and the public treasury is the goal there are as argued above better ways than compensation controls to meet these policy objectives.

The only good thing I can think to say about the new EU bonus-capping legislation is that it will serve as a stark reminder to other industries of the need to police their own houses lest they wish to let the politicians in to botch the job for them.

Perhaps I noticed it more starkly because I was sick and working a reduced schedule this week. Frankly with two kids in New York City private schools I usually ignore the daily onslaught of emails announcing school raffles parent coffee mornings walks in support of a variety of worthy causes and the like. However the week I read them all. Including all too frequently the blast reply-to-all from the email-challenged parent confirming that Dakota’s missing pink cardigan could not unfortunately be found in her daughter Tiffany’s schoolbag.

Now don’t get me wrong. I think all parents have a moral obligation to take an active interest and involvement in their children’s education. However I was struck by the difference between the New York and London schools our children have attended. During the seven school years Mariana and Walter attended English schools they received an excellent education from teachers who cared deeply about their students. Among their pedagogic talents they had also mastered the use of the class email list. Nonetheless they managed to resist the urge to over-communicate or as their charges would say they did not inflict the dreaded T.M.I.

It is of course easy to criticize and harder to suggest what level or form of school communication is optimal. Moreover parents have different attitudes toward how much information is too much and they also receive different amounts of daily email. So here is my suggestion for schools or other organizations to fit information output to the differing information needs and desires of their stakeholders. First developing a sound communication strategy should not be conflated with establishing an optimal email policy. There are many tools available: web sites community wikis RSS and Twitter feeds Facebook and Tumblr pages YouTube videos and podcasts Google+ circles Instagram photo sharing as well as plain old mail and telephone. Second the individual seeking to share information should ask himself how urgent is the communication? Does it need to go to the entire community or just a subset? Is a responsive action required or is it just an FYI communication? Once these and other similar questions are answered a suitable communications strategy can be determined.

We all love our kids and we are all subjected to far more information than we can hope to process and act upon. Schools are in an excellent position to start establishing the norms of communication that their students will carry forward to their next schools employers and other institutions.

Before I left for Winter holidays I gave the keynote address at the annual fundraiser for the Japanese Chamber of Commerce In New York. I reproduce below the text of my talk.

What Japan’s Lost Decade(s) Can Teach the West

Thank you – it is a great pleasure for me to be here today. When I was approached to deliver this keynote address I readily accepted because I feel a great debt of gratitude toward Japan and the Japanese people.

Let me explain why. My wife Maarit and I lived in Japan for the better part of the year 1989. It was a very special time for us. Let me remind you what was going on during this period.

The bubble had not yet burst;

The Nikkei was over 38000;

Emperor Akihito was about to take the Chrysanthemum throne;

The Yomiuri Giants had just won the Nippon World Series;

Chonofuji was the reigning Sumo champion.

And most importantly for our family the American law firm Davis Polk decided to send me to their Tokyo office.

Now for the lawyers in the room you know that one of the many healthy aspects of Japanese society is that lawyers while respected for their learning are not exactly seen as productive members of the business establishment.

I was treated with great kindness and generosity and Maarit and I were fortunate to be adopted by a circle of curious Japanese friends who took great pride in showing us the splendors of the country from the smallest shrine in Tokyo to the giant Buddha in Kamakura with Kyoto Mt. Fuji Nikkō and other attractions thrown-in along the way.

We learned a great deal from our gracious hosts as I did in all my business interactions then and across the next two decades when I travelled frequently to Japan for my next employer Reuters Group PLC. And it is this theme of learning from Japanese experience which I have chosen to make the core of my talk today.

After the financial bubble broke in Japan in 1989/1990 the country entered a challenging period of deleveraging restructuring and adjustment to low growth and deflation. These have been called (mostly by western pundits) Japan’s “lost decades” – although I always found the term inaccurate and somewhat disparaging since many of my Japanese friends continued to live well and enjoy the fruits of a prosperous and culturally rich nation. I will come back to this point later.

Nonetheless the title stuck so I adopt it today with a twist:

“What can the West Learn from Japan’s Lost Decade(s)”

Since Western Europe and in all likelihood the US as well has entered a period of prolonged low growth low interest rates and low inflation or deflation and all these countries must tackle challenging deleveragings it seems to me they have much to learn from Japan.

Let me read you what one prominent economist has written:

“We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress [which characterized the nineteenth century] is over; that the rapid improvement in the standard of life is now going to slow down [at any rate in Great Britain]; that a decline in prosperity is more likely than an improvement in the decade which lies ahead of us.”

[JM Keynes 1930 Economic Possibilities for our Grandchildren]

The author was not talking of the EU US or Japan today but of the United Kingdom in 1930 – and it was the great economist JM Keynes.

So why do these great deleveragings/recessions repeat? First a little economic theory.

Deleveragings in a given economy occur when the level of debt to income exceeds an amount that can be serviced. Fortunately for all of us such events do not occur often – the collapse of the Weimar Republic in the 1920s; and the Great Depression of the 1930s in the US are prominent examples. Unfortunately we have entered such a period again as can be seen in Japan during the last two decades; in the US post 2008 and in the Southern tier of Europe today.

While these dramatic deleveragings occur only once a generation the lesson of how to overcome them is reasonably well understood even if not universally practiced. In general there are four tools which can and should be used to restore the debt to income ratio of an economy.

1. Austerity
2. Debt reduction (through default or agreed restructuring)
3. Wealth transfers from rich to less rich; and
4. Debt monetization

Since I’m not a trained economist I will not go further into the theory but turn instead to the experience in Japan.

While private sector debt has been reduced in Japan and the overall economic conditions have improved slightly government borrowing and deflation have caused total debt to rise toward 500%. Thus Japan has remained stuck in a difficult deflationary deleveraging for some 20 years with nominal growth (real GDP plus inflation or in this case minus deflation) trailing nominal interest rates. What I believe is needed is a healthy dose of debt monetization – or the printing of money – to reflate the Japanese economy and begin to bring the debt to income level into balance.

This perhaps is the one lesson Japan could take from the actions of the US Fed under Ben Bernanke. And the decisive election on Sunday of Shinzo Abē who campaigned on a platform of looser monetary policy and stimulative works projects is an indication that this lesson is being applied.

But let me turn now to the more numerous lessons which the Japanese experience can teach the West.

1. First I would list the importance of social harmony or at least social cohesion. Sadly I saw this at work when I visited Japan in the weeks following the Tohoku earthquake and resulting Tsunami. I have always been impressed by the willingness of the Japanese people to unite for a collective goal.

2. Second and closely related a more narrow (some would say more equitable) distribution of income education healthcare and other core social goods. For example the Gini coefficient for Japan averages about 10 points more favorable than the US across World Bank UN and CIA measures.

3. Third a savings culture which has largely internalized the national debt. While this dampens consumption and therefore income it means the Japanese are not beholden to the debt-purchasing whims of foreign powers – unlike Greece Spain and indeed the US.

4. Fourth an advanced manufacturing base which has the power to compete globally while maintaining good jobs domestically. Modern Japan’s success here owes much to the historic cultural traits of Monozukuri (or making things) and Kaizen (continuous improvement).

5. Fifth world class public infrastructure from Shinkansen bullet trains to bridges ports and roads that support a very integrated supply chain.

6. And sixth in my view a more human and humane conception of the purpose of economic growth and its relationship with the common good of the nation and of the environment.

It is this last point I would like to develop a little bit further and then conclude with.

In a remarkably prescient article in the Fall 1995 edition of Foreign Affairs Eisuke Sakakibara a prominent MOF official questioned the West’s obsession with economic growth as an end in itself. Noting the tendency of what he termed “Progressivism” to pit one nation against another to drive economic activity beyond the capacity of the environment to support it Sakakibara questioned the accepted model of unlimited consumer-driven growth. Since the end of the Cold War and the defeat of communism as the only significant rival to Western Progressivism the logic of pursuing economic growth for its own sake has gone largely unchallenged.

However what if the two “lost” Japanese decades are not so lost after all. What is wrong with a country which has an unemployment rate of 4.5%? A per capita wealth greater than the US and a positive balance of payments?

So to conclude I would emphasize two core lessons which Japan can teach the West:

First the importance of social cohesion and national unity at a time when we see daily news videos of violence caused by the economic restructuring in Europe.

And second the need to reflect more broadly on what should be the goals of contemporary society: (i) economic growth at any cost or (ii) the greatest good for the greatest portion of society consistent with peace among neighbors and the protection of the environment.

As with all my visits to the country I find that Japan has much to teach us.

* * * * * * * * * *

Here is my latest post to The Economist’s Lean Back 2.0 blog reproduced for convenience below.

Major events that occur in the physical world like Hurricane Sandy often remind me of how far we have come as a society in the great analog-to-digital conversion of our times. While weather forecasting and a significant amount of civil preparedness and communication rely on the internet the devastating impact of the storm is a tragic reminder that we still largely inhabit an analog world. Two Sandy stories in particular caught my attention.

First the New York Stock Exchange led so ably by Duncan Neiderauer made heroic efforts to reopen its equity trading floor on the third-day of the storm while much of New York City including the schools remained closed. This would simply be another noble story of recovery were it not for the fact that a majority of equity trading has long since moved to electronic trading systems including those operated by the NYSE itself. This raises the obvious question of whether physical threats such as more frequent “once a century” weather events and the ever present risk of terrorist action should not accelerate the transition to all-electronic trading which can be made resilient through remote disaster back-up systems.

The other Sandy story came from a close friend who visited a local New York bookstore a couple of days after the storm. He told me how shocked he was to see the store security guard eject a polite woman who asked to charge her mobile phone via one of the store’s electrical outlets. In fact my friend was so surprised at this lack of community spirit at a time when so many were without power that he questioned the store manager. The latter simply stated that it was “corporate policy” of the national chain to which the store belonged.

I cite this last example not simply to highlight how insensitive some businesses can be but also how misguided bricks and mortar retailers can be in formulating a winning strategy in the face of the Amazon digital onslaught. One of the few advantages such real world retailers still possess is that they actually inhabit the real world. Far from shunning potential or perhaps existing customers in need during a time of crisis these stores should be setting up free charging stations to help members of the community. This particular book selling chain (and there are very few remaining) had previously recognized the benefit of encouraging potential shoppers to spend more time in their stores by installing Starbucks branches in its larger units.

So what do these two Sandy stories have in common? In the NYSE case we see an example of an institution clinging to an analog model when completing the transition to digital would reduce cost and improve reliability. In the book seller case we see a large corporation that failed to use the physical presence it possessed to compete on service with online retailers which had every other advantage. Strategy consists of accurately assessing your relative strengths and weaknesses and then acting upon them in the face of external events. With climate change likely to increase the variability of weather events we should all consider and regularly adjust our analog to digital strategies.