Opening Up
By Kevin
Deal!
The recent Lexington on The Economist gave a pitch on the merits of openness, to migration and trade; and then analysed how far US has come. His analysis on America emphasize the inclination towards isolation and warned how dangerous it could be while urging support for greater openness. Singapore's openness to migration appeared particularly alarming to locals in the recent years and prompted our government to take steps to distinguish the privileges between Permanent Residents and Citizens as well as take more social action to aid the needy citizens. Personally, I think the over-embrace of foreigners here is often disturbing for those who cling to Singapore as home; ironically, that's actually the people whose support the government really needs.
Nevertheless, the arguments for openness were great, I particularly like the anecdote used in the first paragraph.
A LONG time ago, the rising seas turned Tasmania into an island. A few thousand inhabitants were cut off from contact with the Australian mainland. Their technology regressed. They forgot how to make bone tools, catch fish and sew skins into clothes. It was not that they grew less intelligent. Their problem was that they no longer had many people to trade with. It took a lot of effort to learn how to carve needles out of bone. So long as there were plenty of people with whom to swap needles for food, it made sense to acquire such skills. But in a tiny, isolated society, there may have been room only for one or two needle-makers. If they both fell off cliffs, the technology died with them. When the first Europeans reached Tasmania, they found natives whose only shields against the winter chill were seal-fat smeared on their skin and wallaby pelts over their shoulders.
Innocent Prisoner’s Dilemma
By Kevin
Speaking for those trapped...
You've heard of Prisoner's Dilemma in Economics and Game Theory; but Professor Daniel Medwed of Utah identified and came up with the concept of 'Innocent Prisoner's Dilemma.
It's interesting and if you could imagine yourself in the shoes of those 'innocent criminals', you'll find it really frustrating - much like the good old Prisoner's Dilemma of game theory. Thanks to Justin, I discovered that The New York Times produced a really good video on it, discussing the case of a black man who was jailed for 29 years being wrongly convicted of murder and robbery, now free only on parole. Essentially the life of the man is ruined by the system that serves to trap him within a mistake that was made by others.
Lawyers-to-be, especially those interested in criminal laws should really give this a good thought.
The Bad Side?
By Kevin
Democracy Working
After all the 'hype' about the resilience of the emerging economies, The Economist seem to have featured some of our South East Asian countries is rather bad light in one of the recent issues. While talking about Philippines' recent elections, they hinted at the economy's untapped potential and the lack of political will to do something about it. And then they presented a skeptical tone towards the current Thailand government's ability to garner the support of the country.
Finally, the drama in Malaysia drew some criticism and sarcasm once again. In many sense, these articles have a 'When will they grow up?' attitude, suggesting that the events in each of the countries are all too familiar. Indeed, in some cases it is difficult to be hopeful that things would change. When it comes to politics, the region is still immature in the conduct of democracy and economic development may have increased but the fruits of prosperity not as well distributed as one would like.
Catching up on economic growth is an extremely important step towards altering the politics although it is not always a guarantee that this would occur. Yet we should not think of any particular political system as an ultimate destination. Our experience with evolution is that several models of existence would sustain; the changing circumstance will continue to push these models and systems to evolve.
Monetary Policy
By Kevin
As I mentioned about the difficulties of governing Economies and Greenspan's disclosure on his workings on a paper in defence of his policies, The Economist recently wrote in their column about Greenspan's recent defence of himself. Those interested might want to access his paper here.
Managing Money
In general, The Economist adopts a rather sarcastic tone when discussing Alan Greenspan's role in the build up to the Subprime Mortgage Crisis in 2007. They are arguing that central bankers are around to ensure macroeconomic stability and therefore are expected to 'play safe' and manage the economy. That is, if reducing short-term interests rates could rein in the housing boom, that should have been applied. Even if Greenspan couldn't have identified the bubble, and that the house prices are not related to the interest rates that central bankers could influence, the leverage growth in securitised markets might be worth managing:
By looking only at the effect of monetary policy on house prices, Messrs Bernanke and Greenspan also take too narrow a view of the potential effect of low policy rates. Several economists have argued convincingly, for instance, that low policy rates fuelled broader leverage growth in securitised markets.
Of course, having just read Dot.con and Lord of Finance, I do realise that central bankers' attempts at interfering with specific market booms have often been ineffective or with rather disastrous results and thus choose to focus only on economic fundamentals like price inflation. Greenspan does have a point when he suggests that the central bankers are unable to deal with a global force that are changing the conditions of the economy. Very often, these efforts may create further imbalances that merely postpones a crisis.
Like I say, no one claims monetary policy is easy to conduct - it's too often more of an art than a science.
Governing Economics
By Kevin
The Maestro
Many have attributed the housing bubble that eventually resulted in the Subprime Mortgage Crisis to the previous, one of the longest serving Federal Reserve Chairman, Alan Greenspan. We are pretty familiar with Greenspan, who have written Age of Turbulence. In his book, he highlighted his general argument against anyone who would finger-point him as allowing a bubble to inflate. He pronounce that it is impossible for anyone, whether the regulatory body or not, to accurately identify a bubble.
As for the Subprime Mortgage Crisis, politicians in the United States still blames it somewhat on Alan Greenspan and now that everything is cooling down, Greenspan offers his own defence. Although Greenspan was nicknamed 'the Maestro', he subtly attributes the period of great prosperity and low inflation to the globalization forces and technological advancement more than his skills at handling the monetary policy of US. In any case, he outlines his job at the Federal Reserve as an observer trying his best to keep to fundamentals of the economy and the crisis therefore comes as a surprise both because of how the economic agents have basically defied market assumptions namely on the issue of counter-party surveillance. Essentially the government cannot possibly provide the 'self-interest' that is supposed to drive the free market.
No one says that managing the economy is an easy job. Sound economics decisions by governments often turns out to be political disasters anyways so sometimes politicians stop heeding economists altogether. The recent issues that confront Tim Geithner is essentially similar; the economy is picking up thanks to his plans but people are unhappy with him. Figures on employment are not helping him anyways since the recovery is 'jobless' so to speak. Management of the economy is a huge balancing act for the government.
The idea of government has gone really far since the days of Locke's conception of the social contract. The philosophy of governance in the modern world is just getting more complicated.
Taxing Criminals
By Kevin
Want to commit a crime? Pay taxes first...
The Economist ran an interesting story about "a government-issued stamp that is expected to remain unpurchased, but which users of illegal goods must, by law, affix to substances they are not allowed to possess". Essentially, the government is creating another layer of crime above a crime. It's as good as saying you should not be stealing people's money, but if you do really steal, then you've to pay taxes on your loot. If you avoid the taxes, you're committing tax evasion plus theft.
Authorities seem to believe that the tax helps to further punish people who are arrested for a crime (since the inability to discover the original crime would make the taxes lame anyways) and thus serve a higher level of deterrence to the crime. I wonder if criminals would bother to discover that they would be penalized twice for a single crime.
The Marijuana Tax Act of 1937 was cited as an early conception of taxing illegal drugs. It is interesting that old bureaucracies sometimes like to make an act inconvenient rather than ban it outright. Maybe it just happens to drugs; Singapore could actually try applying extremely steep taxes on Chewing Gums rather than ban it outright.
Blended Value
By Kevin
Into the Blender!
Just when people are lambasting financial institutions and entities like hedge funds, Jed Emerson who coined the concept of 'Blended Value', suggests that these financial entities can play a positive social role. Fast Company had an interview with him about this in 60 seconds.
As reported on Economist Online, Jed thinks that hedge funds which focuses on fundamentals mirrors sustainably investing, meaning that they would act to move capital to places where they are used properly and for good of the society.
Trading according to rigorous fundamental research can often mirror sustainable investing, which seeks to profit by taking into account social and environmental factors, he says. Fundamental hedge funds are far more likely than other investors to try to identify a firm’s off-balance-sheet exposures, of which a growing proportion may be “environmental or social liabilities present in a market or company but not explicitly accounted for in traditional numeric valuation or mainstream investor analysis”.
He makes an important point about 'Shorting', which The Economist goes on to discuss. As a matter of fact, the market is kind of biased towards growth and that should be the case since the economy is usually growing but then if people are not rational enough to sell, then there has to be short-sellers who are rational enough to sell but don't have the shares in the first place. This way, buying and selling would reflect a more fundamental value. This is of course, an ideal - prices hardly reflect any reality in moments. But at least we know that the bulls and the bears are almost right the same number of times (half of the time each; which reflects dynamism of the market). And so there's no way we should have anything against them.
Automated Eyes
By Kevin
I stumbled upon Tineye, a 'reverse image search engine'. It basically allows you to upload an image and then perform a search for pictures that are similar to the image. This is the beginning of answering a question my friend have posted me a couple of years back when he asked if the Internet can help us find out the name of a person from a photo of him/her. Alternatively, if you have a picture of a place, you might want to upload the image to search for where exactly it is. Alas, Tineye is not yet capable of all that, to quote from the Wiki article:
A user uploads an image to the Web application search engine or provides a URL for an image (or for a page containing the image). The search engine will look up other usage of the image in the internet including their time of appearance and including modified images based upon that image. Tineye does not recognise objects or persons in an image, it recognises the entire image, and some altered versions of that image. This includes differently sized versions of the image.
The search engine is provided by Idée, Inc., a Canadian firm that also produces other image-matching technology products, like PixID. A demonstration of the power of this product is shown in this video that follows:
It purportedly helps client tracks usage of their photographs or images online and print publications to manage image license and also to 'uncover unauthorized image usage', and it kind of reminds me how it makes patent trolls' job easier, reflecting a worsened state of gridlock. In other words, while the software may help to raise the opportunity for transactions and thus contribute value to creators, it might potentially discourage mashups in the area of graphic designs. Of course, it has a potential for good as well; scanning through a film can help the production crew find out whether they have obtained permission for all the images or clips used and would thus know what to filter out if they are unable to identify the owners.
The potential of such technology always works both ways and eventually it will be up to Economics to resolve the issues.
Game Theory & Politics
By Kevin
Well, it's a game...
Christopher Beam on Slate.com framed the Senate (or any democratic deliberative body) as "the world's greatest collective-action problem". In a way, it is. Debating on issues and surfacing potential problems stakeholders might face and arguing on the different consequences on different parties is one thing about parliaments and national assemblies but then decision-making is another.
In democracies, debates and discussions are known to hold up decision-making and the same is reflected in bureaucratic bodies where power is shared across several individuals. This dispersion of power calls for coordination to get anything done and thus allow game theoretical analysis to dissect the dynamics involved in any of those coordination outcomes (ie the final decision).
In some sense, this is a trade-off; deliberation this way that involves the coordination game ensures that the outcome cannot be entirely fair though it might provide an illusion of it. In the first place, reality includes a spectrum or even several dimension of opinions and no system can be designed to capture and aggregate this complexity. The authors of Thinking Strategically mentions this in one of the chapters on elections. As a result, we are left with the political game that is manipulating the legislative structure although everyone hates to admit it. In some sense, Singapore's structure might churn out better results in terms of efficiency and do 'the right thing'. The idea then, is to move the game away from the ballot box in the first place, to somewhere further and higher.
Gridlocked
By Kevin
Trapped in Fragments
A couple of months back I stumbled upon this book by Michael Heller (a lawyer), Gridlock Economy. It raised a very interesting question in the introduction and convinced me to borrow the book. The book went on to look into different parts of the modern economy where hurdles to economic activities are created because of structures built within the modern economy used to spur economic activities in the first place. It's an irony we can't ignore. The author framed them as a 'Tragedy of the anticommons'; this idea is from Michael Heller himself so the book is more or less a vehicle to get greater audience exposed to it.
Anyways, it started this way;
A few years ago, a drug company executive presented me with an unsettling puzzle. His scientists had found a treatment for Alzheimer's disease, but they couldn't bring it to the market unless the company bought access to a dozen patents. Any single patent owner could demand a huge payoff; some blocked the whole deal. This story does not have a happy ending. The drug sits on the shelf though it might have saved millions of lives and earned billions of dollars.
I thought this is exactly the sort of problem that is going to plague the field of microeconomics in the modern world. The world's complexity naturally mean that the mesh of technological advancement, legislative hurdles and logistical difficulties in the market would introduce new problems for us to solve. I didn't quite manage to read much of the book but I'll try to spend some time researching stuff in this area soon. Meanwhile, USA still probably going to continue being the hot bed for patent disputes.