Black Hawk Down in Music

Best Line I Have Read Today

The fundamental basis of capitalism is that mistakes must be borne.

That's professor Charles Wyplosz in FT commenting on the central banks' joint efforts in providing liquidity to curb the transformation of the sub-prime problem into a massive credit crunch.

What I Would Watch Over Christmas

Learn more about it here.

The K.G.B. Is better Than an M.B.A

That has to be the best line I have read today so far. And there is some validity to that statement as well because of the language and other training intelligence agents have to go through. So the spy school may very well be one of the best prep schools for international business.

Other contenders, from the same story include:

-- [I]t should not be surprising that former agents became free-market enthusiasts.

--Mr. Shvartsman suggested that he had F.S.B. backing for corporate raiding, a term that is often more than just a figure of speech in Russia’s bare-knuckle business world.

All of the above is from a story also in NYT about the extensive role fomer intelligence agents have in Russian business today. Read the whole thing here.

China Sovereign Fund Acquires Morgan Stanley Stake

The stake taken by CIC will be passive and give the investment firm no special rights to name directors, Morgan Stanley said in its press release. CIC will purchase equity units that will be converted into common shares on Aug. 17, 2010, at prices between a still-undetermined reference price and a premium of 20 percent to that price. The units will pay a fixed annual rate of 9 percent on a quarterly basis.

That's the latest from NYT, more here.

Wonder what WSJ would have to say on this given its recent unfriendly stance towards foreign acquisition of US assets.

Ronald Coase and Steven Cheung

Coase once remarked that “a theory serves as a base for thinking,” but he never explained explicitly what he meant or developed the idea. Cheung, a friend of Coase for several decades, has inadvertently taken up the task.

With his widely read literary economic essays, Cheung forcefully demonstrates the analytical power of economics and almost single-handedly launched a unique literary tradition in the Chinese-speaking world.

If the economist can help improve the efficiency of resource allocation by advising policy makers, then his helping the general public to acquire the economic way of thinking would have an even more profound impact. As such, Cheung’s endeavors are meaningful to both the profession and the development of economics.

More here.

Why Africa Does Not Develop?

My research shows that this is indeed the case. The countries from which the most slaves were taken (taking into account differences in country size) are today the poorest in Africa. This can be seen in figure 1, which shows the relationship between the number of slaves taken between 1400 and 1900 and average real per capita GDP measured in 2000. As the figure clearly shows, the relationship is extremely strong. As well, the relationship remains robust when many other key determinants of economic development are taken into account...

According to my calculations, if the slave trades had not occurred, then 72% of the average income gap between Africa and the rest of the world would not exist today, and 99% of the income gap between Africa and the rest of the underdeveloped world would not exist. In terms of economic development, Africa would not look any different from the other developing countries in the world.

More here. BTW, professor Nathan Nunn, the author of the piece summarized above is now at Harvard, not Canada's UBC.

Professor S.C. Tsiang Part II

My good friend Dennis, I believe it was him, back at college days sent me a picture of professor Tsiang circa 1992. Thanks, Dennis.

For an evaluation of professor Tsiang's contribution to monetary theory, this is the best place to start.

蔣碩傑 S.C. Tsiang

It's indeed my greatest honour to have my 500th post devoted to one of the best economists in the 2oth century:

S. C. Tsiang or in Chinese 蔣碩傑

This is a brief story of him by the late John Fei posted on the Chinese Hayekian Soceity website.

蔣碩傑先生，湖北應城人。民國7年（1918）出生於上海。父蔣作賓曾任陸軍部次長、國民政府委員和軍事委員會委員、駐德國公使兼駐奧地利全權公使、駐日公使和大使、內政部部長、安徽省政府主席。民國10年開始與兄、姊共同受教於家庭教師朱子秋（留日）。15年插班進入姨母張默君創辦的神州女學附屬小學的四年級。17年轉學南洋中學附屬高小二年級，並於翌年進入南洋中學。22年11月赴日本。23年春進日本慶應義塾大學預科。26年4月續就讀於大學本科，7月因「蘆溝橋事變」發生而回國。在預科時曾修理則學，奠定思維方面不易犯理論上錯誤之基礎，日後並敢於指出一些經濟學名家之理論缺失。

民國31年秋，在經濟學大師海耶克（Friedrich A. von Hayek）的幫助下得到獎學金，因此重回劍橋，進入倫敦政經學院的研究所。撰文批駁凱因斯（Keynes）有關人口成長與就業關係的論文，刊登於當年11月份的Economica（英國著名的經濟學雜誌），此為首度正式發表的學術論文，心中甚喜。翌年又於Economica 上為文批判卡爾多（Nicholas Kaldor）的股票投機學說，從此致力於流動分析（flow approach）的理論發展。第三篇論文則批評了在劍橋大學三十餘年的資深教授庇古（A. C. Pigou），並蒙庇古覆文認錯，因此將其書《就業與均衡》修改了二章。34年，得博士學位，於劍橋首次見到張公權（嘉傲）和胡適，同時得到該校象徵最佳博士論文的「赫其森銀牌」（Hutchinson Silver Medal）。

PS. If anyone could locate a picture of professor Tsaing, please let me know.

The Best Blogpost I have Read Today

I was having dinner with someone the other evening who commented that there were many people who didn't seem talented or industrious when he knew them, years ago, but somehow they had now ended up making large amounts of money.


Here's my take on this. It's either a proof of the fact that God doesn't exist (how could he possibly let this happen!?) or, more likely, a proof of the fact that he does exist and that he wants you to be humble.

That's by Emanuel Derman up at Wilmott.

WSJ's Strange Turn to Economic Nationalism

Commenting on the injection of funds to UBS from an investment arm of the Singapore government, WSJ editorial wrote:

UBS Chairman Marcel Ospel said he's "delighted to welcome these new long-term strategic investors." The markets seemed equally so as the bank's shares ended up 1.4% in yesterday's trading. But the problem for UBS and other big financial institutions is that sovereign wealth funds are no ordinary investors. State-controlled and often opaque, they are driven by different motivations than private investors. Politics may trump business interests. Who knows.

More here.

Does the editorial writer who did the piece really think that he or she, not the ordinary investors who have to fork over their hard-earned greenbacks to purchase shares of UBS, is the only one who realizes that the new investors of UBS might have motiviations other than private investors? What on earth makes he or she thinks that her/her sense is much sharper than that of the market? If that is not hubris, what is?

Why can't the writer go ahead and simply say he or she would rather prefer UBS to go belly up and its shareholders suffer losses than the firm being resecued by "non-western" financial institution so long as there is no "western" money available for a cash injection?

空姐經濟學

Apple Daily reported today:

今 年 24 歲 的 Kennis ， 指 資 方 過 去 一 年 不 斷 削 減 福 利 ， 令 她 忍 無 可 忍 ， 又 指 機 艙 服 務 是 體 力 勞 動 工 作 ， 容 易 傷 及 腰 背 手 腕 ， 「 公 司 唔 建 議 我 幫 客 人 搬 行 李 ， 因 為 太 重 會 傷 腰 ， 但 客 人 又 會 要 求 我 咁 做 。 」 另 一 空 姐 陳 小 姐 稱 ， 資 方 的 做 法 「 好 似 訓 導 老 師 罰 學 生 咁 」 ， 「 我 都 唔 想 病 ， 但 我 比 做 office 更 容 易 病 ， 飛 機 空 氣 燥 ， 一 咳 就 好 難 好 。 」 亦 有 遊 行 人 士 指 ， 即 使 是 患 輕 微 感 冒 也 可 以 影 響 耳 道 ， 在 機 艙 環 境 內 耳 膜 甚 至 會 出 血 。

I presume the ladies who complain about all those work harzards are well aware of them when they first sign their contracts years ago, if so, the terms of the contract must in their own evaluations worth the risks assumed. Why complain now? And if the current pay, everything considered including the slashed medical benefits, is below their earnings elsewhere I presume they would quit right away instead of participating in a strike, aren't they?

The fact of the matter is that with Cathay's eroding MONOPOLY PROFITS because of intensifying competition coming from other airlines, especially those budget airlines, Cathay is no longer able to share as much with its workers as before.

So these Cathay ladies are actually bitching and moarning about their declining level of monopoly rents shared with the company, not that they are being exploited by the greedy capitalists.

But I am willing to bet with you readers that if the strike drags on, sooner or later, 李卓人之流必然会走出來攻擊貪婪的資本家。

To Hong Kong's so called Pan-democrats

Property is an indispensable ingredient of both prosperity and freedom... It is a serious mistake, unfortunately often committed by the U.S. government in its foreign dealings, to define freedom to mean exclusively democracy, for, as noted above, ordinary citizens may enjoy a wide range of economic and legal freedoms along with personal rights without being able to choose their government.

That is from Richard Pipe's Property and Freedom on pages 286 -- 287. Pipe is Baird Research Professor of History at Harvard.

Seems like HK's self-proclaimed democrats are committing the same mistake as well. BTW, if you like Property and Freedom, do get his Communism as well, a slim volume that would walk you through the tragic history of attempts to build communist society on earth.

Electable Dictators

Bryan Caplan up at Econlog asked an excellent question:

What do the electable dictators have in common?

And he went on to offer several possible candidates like

1. The electable dictators deliver peace and prosperity.

2. The electable dictators give the people the policies they want.

3. The electable dictators are the best brain-washers.

More here.

My question is:

if electable dictators do know they will win even in a fair election, why we don't see more dictators who restrain from rigging election or usher in a regime change from dictatorship to a more open polity? What they will have to lose by doing so? Sharing their wealth and power with somebody? Wouldn't they already need to do so, at least to some degree even in a dictatorship?

Bottom Billion

The Bottom Billion has been picked by the Economist as one of the books of the year 2007.

The Economist's review of the book wrote:

Its author, Paul Collier, an Oxford economics professor, has spent 30-odd years puzzling mainly over sub-Saharan Africa and trying to work out why so many of its 48 countries have become basket cases. Crammed with statistical nuggets and common sense, his book should be compulsory reading for anyone embroiled in the hitherto thankless business of trying to pull people out of the pit of poverty where the “bottom billion” of the world's population of 6.6 billion seem irredeemably stuck.

Here is another positive review from Martin Wolf at FT.

Just when you plan to rush out and buy the book, first read what another economic guru on Africa Bill Easterly has to say about the book:

With such a statistical muddle, to remake other societies on the basis of what numbers flicker across Oxford computer screens is at best hubris, and at worst irresponsibility. If Collier’s statistical analysis does not hold up under scrutiny, unfortunately,then his recommendations are not a reliable guide for deploying foreignaid, technical assistance, or armies.

Economists should not be allowed toplay games with statistics, much less with guns.

More here.

Doing Good While Doing Well

From Ming Pao:

"商界今日在天水圍覓商機，而月底舉行的「亞洲遊戲展2007」，昨首次將招聘會移師天水圍，由於工作不要求經驗，又有交通接送和午飯供應，150個空缺吸引了1300多人面試，當中不乏區內中年婦女、新移民家庭及失業者...

新力市場推廣部副總經理項明生表示，以往5年均在人流較旺的地區招聘，吸引數百人面試，沒想到這次吸引了千多人，「天水圍區人太多、工作太少了」。該公司指除了是天水圍居民外，某些家庭因素如單親人士會優先考慮。表現良好者更可轉聘為長工"

More here.

This is exactly what the phrase doing good while doing well means. 張超雄，收到冇？

支持凌尉雲 2008 再戰立法會!!!!!!!!

HK just had a Legislative Council (HK's legislature) by-election this past Sunday.

Whom did I vote for? Candidate no.6 Ling Wai-wan.

Reason? Simple.

Just check out her election platform posted above or you could read it here.

What's next?

支持自由市場的朋友, 現在是時候團結起來, 看看如何協助凌女士明年再戰立法會!!!!! Please kindly leave your suggestions in the comments section on how we could help. Thanks!

Best Lines I Have Read Today

Politics in the USA is no longer Elephants and Donkeys; it is now conservative Pigs and liberal Bonobos. The pigs are smart but only care about what's in their trough. The Bonobos are polymorphous perverse and great lovers, but will be extinct in short order.

More here.

Capital Account Liberalization: Doom or Boon?

In a forthcoming paper in Journal of Economic Literature, Stanford professor Peter Henry wrote:

The lion’s share of papers that find no effect of liberalization on real variables tell us nothing about the empirical validity of the theory, because they do not really test it. This paper explains why it is that most studies do not really address the theory they set out to test. It also discusses what is necessary to test the theory and examines papers that have done so. Studies that actually test the theory show that liberalization has significant effects on the cost of capital, investment, and economic growth.

More here.

HT to Simon Johnson for the pointer.

Hoover Scholar, Kitty Hawk, and China

Alvin Rabushka, the David and Joan Traitel Senior Fellow at the Hoover Institution, and a longtime advocate of the flax tax, wrote:

A Wall Street Journal editorial on November 26, 2007, complained of China’s refusal to allow the USS Kitty Hawk and its carrier battle group to dock in Hong Kong on Thanksgiving day. China relented a day later after the fleet was on its way to Japan. The Journal charged that China stole Thanksgiving family dinners from American sailors as 290 crew members of families had flown into Hong Kong to meet them.

On this action, the Journal proclaimed that China is not a reliable military partner. On what basis did the Journal believe that China was a reliable military partner? Is China to accede to every U.S. request or dictum, without the freedom to change its mind in response to U.S. actions such as selling military upgrades to Taiwan’s missile defense system?

...Secretary of the Treasury Hank Paulson, other U.S. government officials, and Members of Congress routinely advise China on what it must do and how it must behave on a host of issues, from the exchange rate of its currency to human rights. These suggestions are invariably rejected as China pursues its own course. China is no longer a land of coolies and compradors serving Western interests. How would the American government and people respond if China routinely advised the United States on what it must do and how it must behave? Hectoring China is likely to be increasingly unproductive as it gains in strength and influence.

More here.

How to Make Sense of China's FDI

In spite of the causes for concern, standard economic rationales for FDI take on unexpected new forms in China, and may justify some, perhaps even much, of China’s outward FDI. Three rationales are of note.

First, the internalization theory of FDI, appropriately reinterpreted, suggests that Chinese companies, with vast experience in navigating complex bureaucracies, might do well in countries with similar institutional environments.

Second, in certain maturing industries, outward FDI from China, even into advanced economies, might make economic sense. This ownership reversal, which we develop from the perspective of Grossman and Hart (1986), argues that the party possessing manufacturing capabilities becomes the “boss” as the locus of competition shifts from innovation to production cost and quality control.

Third, China’s outward FDI may be justified economically to SOE insiders who overvalue control due to their distrust of markets and sense of national pride. This third rationale can continue as long as those who control China’s business enterprises continue to accept below-market share valuations in exchange for these perceived benefits of control.

That is the conclusion from a very interesting paper by NYU's Bernard Yeung and two coauthors entitled: Perspectives on China's Outward FDI. Read the whole thing here.

Greenspan on Sub-prime

"Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country .... With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. ... [W]here once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s."

That's Greenspan on Sub-prime back in 2005. David Warsh has more.

In Defence of Monoply?!

Is monopoly worth defending, these two economists say yes in this forthcoming book. And here is what Gordon Tullock has to say about the book.

"Denouncing monopolies is a standard part of most elementary economics courses. These two authors are attempting to start a revolution by arguing that permitting people introduced new products to have a monopoly even if the creation is not patentable. At first this seemed simply bizarre, but reading the book convinced me they were right. This is one of the many cases where governments have gone astray. This is, however, unusual in that most economists have made the same error. They changed my mind. In view of the strength of their arguments and their clear reasoning I anticipate a revolution in teaching economics. It should also make a revolution in the thinking of many economists."--- Gordon Tullock, University Professor of Law and Economics, George Mason University

Institutions Vs Culture: What is the Main Driver of Economic Development

Greg Clark from UC Davis said:

Most economists think English political institutions ensuring free markets and individual incentives caused the Industrial Revolution. Consequently efforts to aid areas like sub-Saharan Africa, with living standards now BELOW those of the Stone Age, have focused on getting them "good" institutions. However, my book, "A Farewell to Alms," argues from the long historical record that good incentives -- secure property rights, low taxes, stable governments -- often just produce complete economic stagnation...

Even now dirt-poor Malawi has better economic incentives than rich Sweden, where the government seizes 50% to 60% of an extra income wage earners produce, and distributes free medical care, education and pensions. My book argues instead that modern growth is largely a cultural achievement. Societies cannot grow without a cultural transformation.

James Robinson at Harvard reacted to Clark's cultural thesis, his main point is that good insttiutions matter in a nation's economic development.

Read more here on their debate of the topic up at WSJ.

Logic of Life

Logic of Life is the title of a forthcoming book by Tim Harford, the author of the Undercover Economist. More info here.

Markets for Everything, Laptop Edition

A laptop for a hunderd dollars. Have you got one yet? Here is how you could do well by doing good. More background and details in this NYT story.

Facts and Fallacies Regarding MNE in China

Many otherwise well-informed experts on international economics believe that US FDI in China is large, that US multinational enterprises (MNEs) have significantly enlarged the US-China trade deficit by shifting production aimed at the US market to Chinese affiliates, and that this production shift has undermined investment at home and in other countries.

Current conventional wisdom also suggests that US MNEs are moving cutting edge R&D to China, in order to take advantage of vast legions of low cost technologically skilled workers. Our recent research, based on comprehensive surveys of US multinational activity in China, suggests that each one of these suppositions is largely false.

More here.

Jim Buchanan on John Rawls and Bob Nozick

Ever since reading Hayek's brief remark in Law, Legislation and Liberty that his approach to the subject matter at hand seems close to that of John Rawls, at least the earlier works of Rawls, I am interested in learning more about the alleged similarity between the two great minds. That is why I have recently purchased quite a number of books both by Rawls and by others on him, more here.

Therefore, I am extremely encouraged also by learning that Jim Buchanan has high regard of Rawls' work.

According to this blog entry:

Buchanan also spoke highly about Rawls. I think I mentioned that Hayek had said that his approach was similar to Rawls. I think Buchanan said he did not think that comment was surprising. I also believe I remember Buchanan saying that he thought more highly of Rawls than of Nozick.

Best Question I Have Read Today

Lynne Kiesling up at Knowledge Problem asked:

What is a good policy for ensuring that Pareto-relevant externalities are reduced or eliminated? How do we determine if an externality like the one he's describing is relevant or irrelevant?

Best Sentences I Have Read Today

From Martin Wolf at FT:

For we must remember that bad though irresponsible and unaccountable wealth often is, an irresponsible and unaccountable state is far far worse.

From J. Bhagwati at Columbia University:

This is also why the work carried out at the World Bank on corruption, which is a bunch of statistics without nuanced conceptualization, is not merely unsound but also counterproductive and must be shut down by the developing countries which tend to become its unjustly maligned victims.

Both quotes could be found here.

The Unit

The show is called the UNIT. CBS in the US is showing the third season. The show isn't broadcasted here in Hong Kong. So you have got to get the show's DVD. Both seasons one and two are now available at the local video stalls. Or you can get them online here.

The show is certainly one of the best in this genre. And no, it is not just about gun-fighting for guys. The plot is quite thick.

Books I Bought Recently

1. Capitalism Without Democracy: The Private Sector in Contemporary China

2. Incentives: Motivation and the Economics of Information

3. John Rawls: His Life and Theory of Justice

4. Rawls

5. Day of Empire: How Hyperpowers Rise to Global Dominance--and Why They Fall

Oh my gosh, 國父是計劃經濟支持者?!

下文節錄自國父的 <<建國方略>>:

商业战争，亦战争之一种，是资本家与资本家之战争也。此种战争，无民族之区分，无国界之限制，常不顾人道，互相战斗。而其战斗之方法即减价倾轧，致弱者倒败，而强者则随而垄断市场，占领销路，直至达其能力所及之期限而止。故商业战争之结果，其损失、其残酷亦不亚于铁血竞争之以强力压迫也。此种之战争，自采用机器生产之后，已日见剧烈。

彼司密亚丹派之经济学者，谓竞争为最有利益之主因，为有生气之经济组织；而近代之经济学者，则谓其为浪费，为损害之经济组织。然所可确证者，近代经济之趋势，适造成相反之方向，即以经济集中代自由竞争是也。美国自有大公司出现，即有限制大公司法律，而民意亦以设法限制为然。盖大公司能节省浪费，能产出最廉价物品，非私人所能及。

不论何时何地，当有大公司成立，即将其他小制造业扫除净尽，而以廉价物品供给社会，此固为社会之便利。但所不幸者，大公司多属私有，其目的在多获利益，待至一切小制造业皆为其所压倒之后，因无竞争，而后将各物之价值增高，社会上实受无形之压迫也。

大公司之出现，系经济进化之结果，非人力所能屈服。如欲救其弊，只有将一切大公司组织归诸通国人民公有之一法。故在吾之国际发展实业计划，拟将一概工业组成一极大公司，归诸中国人民公有，但须得国际资本家为共同经济利益之协助。若依此办法，商业战争之在于世界市场中者，自可消灭于无形矣。　

廢話

勞工及福利局局長張建宗說：

去年訪港旅客數字達2,520萬人次，今年首9個月，訪港旅客總數按年升約9.6％。然而，澳門的旅客人數也不斷上升，去年訪澳旅客數字約2,200萬人次；今年首8個月升約22％。香港居民佔訪澳旅客總數的31％。

對香港及澳門來說，內地旅客都是最主要的客源，各佔兩地旅客數字超過一半。去年的1,359萬名訪港內地旅客中，約200萬人先到香港再往澳門；而在1,200萬名訪澳內地旅客中，約38萬人先遊澳門再來香港。 由此可見，港澳兩地的旅遊業發展，並不存在惡性競爭。相反，藉彼此的良好合作，有龐大的發展空間。

全文

什麽是惡性競爭, 什麽是良性競爭 ?

When people compete, the prevailing rules of the game (like the exisiting legal system) govern how they compete. As long as they compete in ways that are consistent with those rules, they are perfectly legitmate to do so.

由是觀之，只要不違反既定遊戲規則，澳門把所有內地遊客奪去又如何？

Government --- The Micky Saver

Today's edition of the HK Standard reported:

Mickey Mouse and his mates at Hong Kong Disneyland look set for another massive cash handout - courtesy of the taxpayer

More here.

Back in 1999, when the HK Disneyland project was still on the drawing board, my former colleague (and coauthor) at the Chinese University of Hong Kong professor Kwong Kai-sun had challenged the wisdom of having the project where the HK government is a majority shareholder.

Specially, professor Kwong criticized many assumptions contained in a government study which hailed the benefits that could be expected from the project. More here.

Positive Externality

In response to my earlier commentary on infrastructure investment, a loyal reader to this blog Ming wrote:

I think the problem of infrastructures are even worse than SOEs.For SOEs, people aware of their ongoing financial burden on the government. For infrastructures, they call them "investment" which generate "postive externality". You can never say they are in deficit.

Indeed, positive externality has been used by the HK government to justify many of its so called infrastructure investments. HK Disneyland is a prime example where government investment was justified on the ground of positive externality. Read more here.

The sad fact is that the government never explains how private actors fail to internalize the externality before getting its visible hand got involved in the first place.

Build the Road, and the Cars Shall Come

Today's The Standard reported:

"The HK$7.8 billion Hong Kong-Shenzhen Western Corridor is being underused by as much as 89 percent, a government official admitted yesterday... the government had earlier estimated a daily usage of around 29,800 trips on the corridor - the fourth vehicular corridor to enter Shenzhen via Shenzhen Bay Port.

However, actual usage only rose from 1,400 trips in July to 3,256 in September, or about 11 percent of the estimate."

More here.

If a private company wrongly anticipates demand, the company will face financial problem. If the financial problem is severe enough, the company will go out of business. At the minimum, such failure will force the firm to learn from their mistakes and try to avoid the same error the next time around. That's the way the free market ensures that limited resources will be in the hands of those entrepreneurs who better anticipate what their customers want.

Unfortunately, this is not the way the government works. Instead, more infrastruture projects are in the pipeline according to this government document. The government never learns because it does not need to. It can tax and it can inflate.

The Cheung Theorem

"任何行业律师愈多，其权利界定愈有问题。称之为张氏定律吧。"

That's Professor Steven N S Cheung talking. More here.

My translation:

"Property rights delineation will be rendered problematic with the presence of a large army of laywers in a profession".

Should China Adopt a More Flexible Nominal Exchange Rate Regime?

Many people, economists included, have urged China to adopt a more flexible nominal exchange rate regime. (The emphasis is deliberate here)

Reasons for advocating such a nominal exchange rate regime are two-folded:

1) It would help facilitate adjustment in global current accounts;
2) It would enhance the effectiveness of China's monetary policy.

Latest research shows that both claims are way overblown. More here.

Milton Friedman vs Paul Krugman

Paul Krugman is a respected trade theorist. But he does not speak authoritatively on subjects on which he has no expertise. Monetary economics is not his field of expertise. Krugman’s research background does not qualify him as an authority on Milton Friedman’s work.

Krugman’s scholarly publications rarely mentioned Friedman and,when they did,they acknowledged the contributions of Friedman and monetarism in a way that contradicts his (2007a) essay on Friedman. Friedman’s reputation is intact despite Krugman’s deplorable efforts to denigrate him and his contributions.

Damn, here's more from Anna Schwartz, a long time friend and co-author of Milton Friedman.

Here is the target of Anna Schwatz's attack, Paul Krugman's "Who was Milton Friedman?"

Markets for Everything, Japanese Edition

Want to dress like a street corner vending machine? Yes, you can do it in Japan. More here from NYT.

State Failure?

It says that through various activities — extortion, usury, contraband, robberies, gambling and Internet piracy — organized crime accounts for 7 percent of Italy’s gross domestic product.

The "it" above refers to a study conducted by confesercenti, an association of small businesses. More from NYT here.

Next time when you visit Italy, make sure you pronounce the word "pizza" in the right way and not "pizzo" which means protection money given to the mafia.

If you want to learn more about the economics of mafia, start at this classic treatment on the topic.

Masonomist

Years from now, perhaps people will be saying that something big got started recently at the George Mason University department of economics. Maybe if you become a Masonomist now, you will be getting in early on a trend that will soon catch on much more widely .

Read on. Here's more on Masonomist, and more.

Needless to say I am proud to be a Masonomist myself.

Leonid Hurwicz, LSE, and Kaldor

We all know that L Hurwicz just won the Nobel prize in economics. We also know that London School of Economics is an excellent school for learning economics. And finally, we know Nicholas
Kaldor was a famous economist.

I guess not everybody knows that Hurwicz was a student of Kaldor at LSE. It would be interesting to find out whether Hurwicz had studied under Hayek or not as they were both there around the same time in the 1930s.

More on Hurwicz here. Hat tip to David Warsh for the pointer.

China Contemplates Reform on Stake Cap on Banks

The China Banking Regulatory Commission is evaluating whether to raise or lower the stake cap on foreign lenders' holdings in banks.

Chairman Liu Mingkang told The Standard it is now looking into synergies and problems brought about by the 20 percent cap. Any decisions will be announced by the first quarter of next year.

More here.

China should let foreign lenders have higher stakes in Chinese banks, that should be an indispensable way to wean state banks from their dependence on taxpayers' support. More importantly, it will intensify competition among banks and improve credit allocation.

Notable Book

International trade has shaped the modern world, yet until now no single book has been available for both economists and general readers that traces the history of the international economy from its earliest beginnings to the present day. Power and Plenty fills this gap, providing the first full account of world trade and development over the course of the last millennium.

More here.

A Simple Explanation of Mechanism Design

In its current form, mechanism design theory provides a general framework to study any collective decision problem. A mechanism design problem has three key inputs:

· A collective decision problem, such as the allocation of work in a team, the allocation of spectrum for mobile telephony or funding for public schools;
· A measure of quality to evaluate any candidate solution, for example efficiency, profits or social welfare;
· A description of the resources – informational or otherwise – held by the participants.
A mechanism specifies the set of messages that participants can use to transmit information and the decision that will be taken conditional on the messages that are sent.

Once a mechanism is in place, participants effectively “play a game” where they send messages (e.g., a bid in an auction) as a function of their information. The goal is to find a mechanism with an equilibrium decision outcome (sometimes required to be unique) that is best according to the given measure of quality. The strength of mechanism design lies in its generality: any procedure, market-based or not, can be evaluated within a unified framework.

More here.

Best Journal Article I Have Read Today

"As it is, it is one of the great paradoxes of economic science that every act of competition on the part of a businessman is evidence, in economic theory, of some degree of monopoly power, while the concepts of monopoly and perfect competition have this important common feature: both are situations in which the possibility of any competitive behaviour has been ruled out by definition."

From Paul J McNulty, Economic Theory and the Meaning of Competition, Quarterly Journal of Economics, 1968.

Professor Steven Cheung on Hong Kong vs Shenzhen

今天，深圳的人口刚好高于香港的一倍，但政府的支出却倒转过来，香港不知高出多少倍。只看这一点，不用看其它，中国大事开放——像香港那样放，或港深一体化，香港要大事调整的项目实在多，而在这调整期间，香港人会苦不堪言。

That is from Professor Steven Cheung's blog, more here.

Listing Decisions, Chinese Style

From today's Hong Kong Standard:

The Chinese government will support state- owned enterprises to list shares in Hong Kong, contrary to reports that there are directives to limit public floats overseas, the head of the State- owned Assets Supervision and Administration Commission (SASAC) said yesterday.

SASAC chairman Li Rongrong said it was not up to the agency to determine on which market SOEs should list - rather, it is the boards of companies that make those decisions.

More here.

Question:

Now the companies are state-owned enterprises (SOEs), though they have already gone through a corporatization process. I probably can safely assume that the government holds controlling stake in these companies.

If true, presumably I can safely assume that government representatives dominate the boards of these companies. If so, then we have a situation where government officials, as resprenstatives of the state's interests, will determine where government-owned enterprises will list. Do you really believe that they will make that decision based on economic criteria and not on political ones.

If not, what's the difference between delegating the authority to make a listing decision to the board of the SOEs and having it made by your colleagues, Mr Li?

Winners Please....

The Nobel Prize in economics was awarded today to three Americans for their work in mechanism design theory, a branch of economics that looks at the design of institutions in situations where markets do not work properly.

Leonid Hurwicz of the University of Minnesota, Eric S. Maskin of the Institute for Advanced Study in Princeton, New Jersey, and Roger B. Myerson of the University of Chicago shared the award for “having laid the foundations of mechanism design theory,” the Royal Swedish Academy of Sciences said.

More from NYT.

Assorted links and comments from the blogsphere:

Freakonomics Blog; Marginal Revolution, more from the WSJ.

Prominent Labor Economists Said M-Form Soceity Has Arrived in the US

Here's the hypothesis evolving among these and other academics. Technology and globalization are boosting demand for the most-educated workers, those prized for abstract or conceptual skills. Top hedge-fund managers aren't being replaced by computers; they're harnessing them, to their great profit.

By contrast, technology and globalization are eroding demand for workers who do routine tasks in factories and offices, many of whom are high-school or even college grads. The voice-mail system does away with switchboard operators; back-office software eliminates bookkeepers; robots replace assembly-line workers. Or the work is shipped overseas to a foreign factory or an office linked to the U.S. by fiber-optic cables.

But technology and globalization are not eroding demand for personal-service workers. Those tasks can't be done by computer or shipped offshore. The services have to be delivered here in the U.S. -- and in person -- either by natives or by immigrants.

Here's more from WSJ.

FT Reviews Super Crunchers

Here it is. Do buy the book, highly recommended.

What's Wrong with That?

A. A story in the paper indicated that the government would soon announce a tax cut;

B. The stock market index went up on that very same day;

C. An editorial writer at a prestigious international paper attributed the stock market's performance to that story.

What's wrong with that?

Answer: Other factors might have caused the rise in the stock market index, not the news about the possible tax cut.

And the editorial is found in Wall Street Journal. I kid you not.

Read it for yourself here.

Books, More Books

1. The Conscience of a Liberal by Paul Krugman.

2. Memoir of Nobel prize winner Jim Buchanan, a new and expanded version of what used to be called "Better than Plowing".

3. In Defense of Monopoly.

Is It Possible to Explain Human History in 7 Chapters?

Yes, according to a forthcoming book by Nobel prize winner Doug North, Stanford political scientist Barry Weingast and U of Maryland economics professor John Wallis.

Manuscript could be downloaded here. Thanks for Dani Rodrik for the pointer.

海盜經濟學

林行止專欄今天提到學弟 Peter Leeson 有關海盜經濟學的研究，有興趣的讀者可上他的網站下載論文。

The Tyranny of the Market?

When fixed costs are substantial, markets provide only products desired by large concentrations of people. As a result, people are better off in their capacity as consumers when more fellow consumers share their product preferences.

Small groups of consumers with less prevalent tastes, such as blacks, Hispanics, people with rare diseases, and people living in remote areas, find less satisfaction in markets. In some cases, an actual tyranny of the majority occurs in product markets. A single product can suit one group or another. If one group is larger, the product is targeted to the larger group, making them better off and others worse off.

The above is from Joel Waldfogel's forthcoming book The Tyranny of the Market. (有看林行止專欄的對 Joel 應不會陌生，他就是批評聖誕節交換禮物的傳统是浪費的那位經濟學家。)

Questions to Joel:

1) I just fail to see how the fact that others' wider product range compared with mine will affect my welfare. For that to go through, it seems you need to have a very specific kind of utility function.

2) Wouldn't there be incentives in the market to lower those fixed costs so that more consumers with preferences at the tail end could be served?

Best Book Review I Have Read Today

In the same interview, Ms. Klein also tellingly remarked, "I believe people believe their own bulls---. Ideology can be a great enabler for greed."

When it comes to the best-selling "Shock Doctrine," that is perhaps the bottom line on what Klein herself has been up to.

That's from a book review on Naomi Klein's Shock Doctrine by my former teacher Tyler Cowen in the New York Sun. More here.

A New Phase of Financial Globalization?

No, yes? Read it for yourself here.

"Econometrics is in deep Trouble"

This line pretty much summaries McCloskey and Ziliak's position on the current usage of signifinant tests in econometrics:

"If McCloskey and Ziliak are right—that merely “statistical,” Fisherian significance is scientifically meaningless in almost all the cases in which it is presently used, and that economists don’t recognize this truth of logic, or act on it—then econometrics is in deep trouble."

The paper is part of a (an on-going?) debate between McCloskey/Ziliak and Kevin Hoover/Siegler.

I like this bit of the paper best (on the response of the academic elites to the McCloskey/Ziliak thesis) :

One eminent econometrican told us with a smirk that he agreed with us, of course, and never used mechanical t-testing in his own work (on this he spoke the truth). But he remained unwilling to teach the McCloskey-Ziliak point to his students in a leading graduate program because “they are too stupid to understand it.”

Another and more amiable but also eminent applied econometrican at a leading graduate program, who long edited a major journal, told us that he “tended to agree” with the point. “But,” he continued, “young people need careers,” and so the misapplication of Fisher should go on and on and on.

Bill Easterly on ABD

Highlights:

-- United Nations Conference on Trade and Development, a body that has long distinguished itself by promoting all the bad ideas that stifle both trade and development.

-- But any Asian leader who hasn't already figured out that trade should be mainstream after Asia's world-historical trade explosion is past the point of rescue anyway.

-- Successful trade booms (and the accompanying infrastructure demand) come about through letting free market entrepreneurs run wild to find things foreigners want rather than consulting ADB bureaucrats on designing a "national development strategy."

-- All of which goes to show that the ADB's fundamental problem is that it needs advice from successful Asian countries more than they need advice from it.

More this WSJ oped.

Chicago, MIT, George Mason University

[A]t Chicago, they say "Markets work well. Let's use markets."

At MIT, they say "Markets fail. Let's use government."

At GMU, they say "Markets fail. Let's use markets."

More here.

China's Alleged Pro-FDI Bias

The hypothesis of the existence of such pro-FDI bais in China originated from MIT professor Huang Yasheng.

Now some reseachers garner evidence indicating that such a bias does not exist:

"Recent arguments that China's FDI inflow is inefficiently large because weak institutions deter domestic investment while special initiatives attract FDI are thus either unsupported or not unique to China."

Read the paper here.

Terracotta Army

This is a very nice photo of terracotta army taken by Chris Lee up at HK Digital Vision. Check it out here.

The Economics of Private Army

The private security firm Blackwater is again on the news, here is a recent NYT headline story.


Are private security contractors really trigger happy cowboys as some pundits choose to believe they are?

Finally an insider says no. And this insider pretty much spells out the logic of why private security personnel is far more economically than formal military personnel.


Bottomline:

"[C]ontractors are cost-effective. Blackwater contractors, for example, are generally paid $450-$650 a day. More important, unlike U.S. servicemen, they usually receive no benefits and are paid only for the days they work."

Here is the story.

Question: I am curious whether the contractors or the companies which hire them pay for the ammunition used in the war zone. Who pays for ammunition, holding other factors constant, surely would determine the trigger pulling behaviour of the frontline private security contracters.

Life and Death

"There's a limit to how many times you can read how great you are and what an inspiration you are," he says, "but I'm not there yet."

Here is a sequel to an earlier post. Do pass it on, may be you would be able to help other folks.

Nice

On the left is excellent art work by Peter Selgin, the twin brother of George Selgin, another prominent Austrian monetary theorist and advocate of free banking.

Did Hayek and Robbins Deepen the Great Depression?

The answer is NO according to Larry White, one of the prominent Austrian monetary theorists and advocates of the free banking ideal.

Here is what Milton Friedman claimed they did, from Larry's paper:

I think the Austrian business-cycle theory has done the world a great dealof harm. If you go back to the 1930s, which is a key point, here you hadthe Austrians sitting in London, Hayek and Lionel Robbins, and saying you just have to let the bottom drop out of the world. You’ve just got to let it cure itself. You can’t do anything about it. You will only make it worse.… I think by encouraging that kind of do-nothing policy both in Britain and in the United States, they did harm.

What's the real culprit then?

Real Bills Doctrine.


Read Larry's paper here.

Greg Mankiw Cited Work By My Co-blogger

This is from Greg Mankiw's blog:

A Reading for the Pigou Club

Here is supply-side guru Arthur Laffer together with coauthor Wayne Winegarden:

Of the two primary policies being proposed to address global warming—the capping and trading of emissions and the taxation of emissions—we favor the taxation of emissions. We suggest that a pro-active environmental policy should include an appropriate carbon tax fully offset by a static dollar-for-dollar across-the-board reduction in marginal income tax rates. If implemented with taxpayer protections, this policy would mitigate many if not all of the adverse economic costs from reducing carbon emissions. (My Emphasis)

Here is the link.

Who's Wayne?

Not only did we attend the same graduate school but we were roomates for about 4 years. Wayne graduated a year ahead of me and we have the same professor serving as our dissertation adviser.

Wayne worked in Hong Kong for a couple of years before returning home to the US.

This is a profile of Wayne.

Property Rights Guru

Gary Libecap, formerly at U of Arizona, has now moved to UC Santa Barbara. Gary is an expert on property rights and US economic history.

An important point which Gary helps enlighten me in his work is why property rights might not always evolve in an efficiency-enhancing manner. His best work thus far, in my view, is certainly Contracting for Property Rights.

Now Gary has a new book out called Owen Valleys Revisited, more information about the book can be found here.

覆明：對不起，教授的文稿目前只在友儕間傳閱。

某教授的最後一堂課

While displaying photos of his bosses and students over the years, he said that helping others fulfill their dreams is even more fun than achieving your own.

More here.

教授

前天剛收到教授為高斯主辦的一個研討會所提交的論文，The Economic System of China, 長六十二頁，仍未及細看。

個人最喜歡是教授 74 年的 A Theory of Price Control，至少精讀了ニ、三十遍，最後一節到今天還是似懂非懂。

When Supercrunchers Meet Antitrust

I am almost done with reading the fantastic book Supercrunchers, and here are some of my thoughts:

1) In the early days, if you want a suit, you go to the nearby tailor to get one tailored made for you. Boom, with technological advances come pre-made suits that come with all sizes. You just go to a nearby department store and pick the one that fits. Now with supercrunchers, it comes full circle once again where you have services and goods pre-selected and pre-packaged to serve individual needs.

2) But what interests me more is the possibility to pursue perfect price discrimination with the advent of supercrunchers. With that, it completely transforms the monopoly problem from one of efficiency to one of equity. The traditional textbook type argument for why monopoly is bad is because the firm will produce stuff at a level where price exceeds marginal cost. That is an efficiency argument. You cannot use that type of argument anymore now that perfect price discrimination is feasible. Distribution of gains between the producer and customer becomes the only relevant issue under such circumstances. What is interesting to see is whether the prevalence of perfect price discrimination will render it necessary to change at least part of the antitrust law

Sharing

I have reached a critical juncture in my life where important decisions again have to be made. So I try to read something which is inspiring. And inspiration I have found once again in Steve Job's 2005 speech at Stanford. This is the best bit:

"...Sometimes life hits you in the head with a brick. Don't lose faith. I'm convinced that the only thing that kept me going was that I loved what I did. You've got to find what you love. And that is as true for your work as it is for your lovers.

Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle. As with all matters of the heart, you'll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don't settle."

More here.

Best Line I Have Read Today

[T]he United States protects competition, not competitors. Read more here.

Mrs. Watanabes

Guess who has the ability to move FX market these days?

Mrs. Watanabes from Japan. Read more here.

Steven Pinker

Here is an interesting review of Harvard evolutionary psychologist Steven Pinker's latest book, The Stuff of Thought. Highly recommended.

問答

記者： 啊乜太, 為何你忽然支持民主？

乜太： 別大驚小怪, 如果作為 Hayek 的學生 Abba Lerner 可支持計劃經濟，我作為殖民地的過氣跑腿，支持民主又有何不可？

記者：真民主先生，你為何突然熱衷於這小島的民主大業？

真民主：凡是敵人反對的我就支持。

記者：誰是敵人？

真民主：你，你，你，你...

Books I May Want to Get Eventually

1. Dick Posner's new edition of Law and Economics. Get it here.

2. The Panic of 1907.

3. Alan Greenspan's The Age of Turbulence

4. A new biography of one of the most influential members of the Austrian School of Economics Ludwig Von Mises. This remains the best introductory volume on Mises' economic thoughts.

學習

最近為學好中文一口氣讀完一整套董橋的散文集。不全懂，但喜歡。中大舊同事Y知悉這事後笑說：你年紀大了。

是的，只在數年前我看的書十之八九都是用英語寫成的。 過去十多二十年，用得着中文的機會實在多。 九八年回港後的第一份工，要為公司的首席執行官朱小華寫中英文講稿，才驚覺自己中文底子單薄。

加入報社後年多，機緣巧合地替《華爾街日報》寫了篇評論文章，留英的舊同事Y 看後告我：如你駕馭中文的能力和英文的一樣好，相信你的文章會有更多讀者。打後我下大力氣努力改善自已的中文語言能力，離開報社後仍然如此。

I am not satisfied with my English language ability as well. Even today, I spend a lot of time and effort looking up meaning of new words or different meaning of words which I have encountered before. You need to learn how to use those words in making a sentence as well. In addition, with the advent of the internet, I will also use the computer to help me learn pronounce words that hithero I may know how to use but not pronounce. It requires a lot of hard work. But what doesn't?

Best Paragraph on Randomization

Randomized trials are very popular techniques these days in economics, here is one non-technical summary of what it's all about:

The sample size is the key. If we get a large enough sample, we can be pretty sure that the group coming up heads will be statistically identical to the group coming up tails. If we then "intervene" to the heads differently, we can measure the pure effect of the intervention. Super crunchers call this the "treatment effect". It's the causal holy grail of number crunching: after randomization makes the two groups identical on every other dimension, we can be confident that any change in the two groups' outcome was caused by their different treatment. (italics in original)

That is on page 49 of Ian Ayres' Super Crunchers.

Best Line I have Read Today

Political scientists are at fault, he said, because they haven’t “got a clue about how to build a democracy.”

More here.

Assorted Links

Here is a story on ingenious ways to pursue wealth transfer without the public knowing it.

Here is a profile of professor Robert Barro in the latest issue of IMF's Finance and Development. Here is the new macroeconomics text by Bob.

Pitting Americans Against Americans

In lobbying, that is. Here is a fasinating story in NYT on how Indian outsourcing firms have fine-tuned their lobbying strategy ahead of the US presidential election next year.

Best Line I have Read Today

“To understand Singapore,” he said, “you’ve got to start off with an improbable story: It should not exist.”

More here. That's Singapore's founding statesman Lee Kuan Yew talking.

Antitrust Law -- Chinese Style

After a long gestation period, China has finally got its own antitrust law, here (sorry folks, in Chinese only) is a commentary by Citibank's China economist Shen Minggao who previously taught at Peking University and got his Ph.D. in economics from Stanford University.

Bottom line:

《反垄断法》明确将“国有经济占控制地位的关系国民经济命脉和国家安全的行业”排除在反垄断范围之外。这一特例相当于通过法律的形式确定了国有企业垄断的合法性。与市场经济国家的反垄断法不同，国家安全一般是针对外资并购而言的，而在中国，非国有企业也受到了与外资企业同等的待遇。 由于法律没有规定哪些行业属于关系国民经济命脉和国家安全的行业，事实上存在着这样的可能性，即凡目前国有占控制地位的行业都属于需要保护的行业。

A one line summary: Existing privileges enjoyed by SOEs are exempted from the law.

My Mentor

In reviewing this book written by my former thesis advisor Richard Wagner, Peter Boettke wrote in the Austrian Economists :

"Wagner is perhaps the best political economist in the Viriginia School tradition, and he is amazingly creative in the way he utlizes the history of ideas (in politics, philosophy, sociology, and economics) and contemporary streams of research (Austrian, public choice, new institutional, economic sociology, agent based computational modeling, emergence studies, etc.) to address the intricate matrix of institutions and human behavior that produce social order."

Wagner was a student of Nobel Laureate Jim Buchanan and he once told me he was Ronald Coase's, another Nobel Laureate, research assistant while at graduate school.

覆讀者明：感謝您的支持，想不到兩年多後仍有人記得何洋這名字。那兩年爬格子歲月可能真的沒有白費。

Subprime mess: An Austrian Explanation.

Bottom line: Fine-tunning by the Fed is the culprit of the current subprime mess.

Here it is, and hat tip Larry White up at Division of Labor for the pointer.

Addendum:

For those who want to know more about Austrian monetary theory and business cycle theory, visit this website. And more here.

China's Productivity Surge Helps Raise Income

This is what I think is the more important message in this NYT story, though the author puts more on weight on labor shortage as a contributing factor to wage rise in China.

Get This Freddy Boy, It's Our Money Not Yours

A story in the HK Standard reported that:

...Asked whether the government would invest more money on Hong Kong Disneyland to attract more tourists, Secretary for Commerce and Economic Development Frederick Ma Si-hang said the government is considering all the possibilities and more investment is not ruled out.

The former secretary [for economic development and labor] Stephen Ip Shu-kwan had said more investment was not possible ... but the government's decision is not rigid. We will not rule out any possibility," he said.

However, Ma stressed the government is only a shareholder and should not get involved in the management of the theme park. He added that Disneyland, "should think of a way to solve the problem [of decreasing visitors]."

Read the whole story here.

Picture this: If you were an owner with a 57% stake in a company and the managment team has continously failed to deliver on performance during the past two years since the firm in question. Would you, as a majority owner, sit back and wait for the same old management team to turn around the firm as implied by Freddy's remarks up top, or would you go ahead and dump the useless management team just like that.

What would you do?

Guess 99.999% of my readers would choose the second option. Then why Freddy is so stupid? No he is not. Afterall, it's not his money which is at stake, it's yours and mine i.e. tax payer dollars we are talking about here. That's why.

Books I have Been Reading

1) Wages of Destruction. A new economic history book on Nazi Germany.

2) China's Financial Transition at a Crossroad. The title says its all.

3) Gut Feelings.

4) Moral Minds. Go read the book review by game theorist H. Gintis further down the page. Then read this review in NYT by Stanford philosopher Richard Rorty.

Funny thing is according to the author Harvard professor Marc Hauser, apparently Rorty had not read the book before writing the review. Could you imagine such a reputed scholar like Rorty would do anything like that! Amazing indeed. Hauser's claim could be found in the new material section of the paperback edition (p. 8)

5) Super crunchers

"A lively and yet rigorously careful account of the use of quantitative methods for analysis and decision-making.... Both social scientists and businessmen can profit from this book, while enjoying themselves in the process."—Dr. Kenneth Arrow, Nobel Prize winning economist, and Professor Emeritus at Stanford University

唏噓

離港前與 L 在咖啡廳碰面，說舊事談未來，往事混着從杯內徐徐升起的薄湮幻化成一帳帳舊照片。

三年前初遇 L，共事同一報社。L 個子不高，面上掛着的是少年得志留下的一股傲氣。其實在那時他在公司裏的地位已大不如前。

L 話不多，和同事的關係也不怎麽樣。 久L被公司外放塞外，繼而被解僱。剛為人父的L ，境況的確堪憂。闊別三年，L 面上少了那傲氣卻添上幾分滄桑，展露出一種人在經受沉重打擊後自覺需要鼓起勇氣重新上路的心境。

覆讀者 Leona: 感謝您的留言。離開報社快兩年，其時還沒有WSZ的專欄，我是社論主筆之一。

感慨

從讀者回應的多寡看, 王迪詩 (Daisy) 在信報的專欄，應有不少讀者。我對王文的觀感，她的一位讀者巳替我道出：

小姐，我善意提醒一句，在大聲否定某種論調之前，最好先搞清楚你想批評的論調的內容。思想不夠深刻不是罪過，但若連基本的功課都不做就信口開河，就未免顯得自己太懶惰和無知。

我在想，假如王小姐在美國而不是香港唸本科，情況是否會好些。道理很簡單，在美唸本科，王小姐根本不能挑法律作主修，她的學養和眼界 ，在接觸多種不同的學科後必能得以拓寬不用靠扮 smart ass 來 取悅讀者。

And given her punishing and hectic schedule, I would imagine she would be more inclined to bring a copy of Tuesday with Morris with her on a business trip rather than Hayek's Constitution of Liberty. So I doubt she has that much time to beef up her general knowledge after graduation.

Or May be I am totally wrong, may be an author no longer needs to check her facts and even logic so long as her work is able to attract readers. May be her writing style, which appeals to readers' emotional response instead of their intellect, is exactly what readers are after these days.


三年前肥佬黎對我說: Gary, 你不用在文章內講邏輯說道理，光駡人就行。
我答: I do not know how to write a piece without an argument.


那年我三十九歲，若當時我和Daisy 同年即二十八歲，也許我的答案會不一樣！？

Who Did the Marking?

The book you see above is Frank Knight's Ethics of Competition. Guess who left the marking in the above book?

Hint: A renown professor famous for his work on justice. HT to Adam Smith Lives for the picture.

記招

X -- 記者
Y -- 天才

X: 可否說一下你 n 歲入大學的感想？
Y: N*N = N to the power 2

X: 和比你年長的同學溝通有困難嗎？
Y: 你不是比我年長嗎？你說我們溝通有問題嗎？

X: 你最敬佩的人是...
Y : Fischer Black

X: 什麽？誰？可否再說一遍？是不是你老爸？
Y: Oh no, forget it. Next!

感動

Ratatouille 最精彩的一幕，無疑是食評家Anton Ego 在片末的一段獨白。

In many ways, the work of a critic is easy.

We risk very little yet enjoy a position over those who offer up their work and their selves to our judgment. We thrive on negative criticism, which is fun to write and to read. But the bitter truth we critics must face is that, in the grand scheme of things, the average piece of junk is more meaningful than our criticism designating it so.

But there are times when a critic truly risks something, and that is in the discovery and defense of the new. Last night, I experienced something new, an extraordinary meal from a singularly unexpected source. To say that both the meal and its maker have challenged my preconceptions is a gross understatement. They have rocked me to my core. In the past, I have made no secret of my disdain for Chef Gusteau's famous motto: Anyone can cook. But I realize that only now do I truly understand what he meant. Not everyone can become a great artist, but a great artist can come from anywhere.

It is difficult to imagine more humble origins than those of the genius now cooking at Gusteau's, who is, in this critic's opinion, nothing less than the finest chef in France. I will be returning to Gusteau's soon, hungry for more.

感謝楊懐康為我提供原文。

Modernization Thesis Reevaluated

The modernization thesis championed by political scientist Seymour Lipset argues that socioeconomic development would eventually lead to democratic development.

A new paper reevaluates the thesis and concludes:

Our overall conclusion is that the relationship between income and democracy and the widely-accepted modernization hypothesis need to be reevaluated, with much greater emphasis on the underlying factors affecting both variables and the political and economic development path of societies.

Our results indicate that countries have embarked upon different development paths, most likely at some critical junctures during their histories, and while some paths have led to democracy and prosperity, some others involved non-democracy and relative poverty.

Although democracy and prosperity coevolve along the virtuous development path, there is no evidence that income has a causal erect on democracy conditional on the development path.

Consequently, there is no reason to expect income changes over 5, 10 or even 20 year intervals observed during the post-war era to lead to signifcant changes in regimes above and beyond those experienced by the world as a whole.

What's New at My Alma Mater?

New faces, many of them.

Read more here.

In case you don't know, one of my former teachers is having an on-going, on-line book forum on his blog, here is the first installment.

Will More Foreign Aid Help?

Bottom line: No.

I like this bit best:

Aid advocacy leads to perhaps an even more serious problem. There is a limited stock of good will and good intentions in the rich world and the question becomes whether this stock is best harnessed by mobilizing more aid, or by pursuing alternative actions that could have a bigger impact.

Now that is an excellent opportunity cost thinking. Read more here.

往事

在書局看到國內新出版的一套譯介奧國經濟學(Austrian Economics)的專著，譯者是姚中秋，一段往事随之在腦海中浮現。

多年前還在報社任職時，因工作需要，要為評論版找來一批支持自由市場的撰稿人，就此透過當時還身在廣州的薛兆豐認識了中秋‧不太稔熟，且素未謀面，可心裏就認定，他是有心人。要為在中國推廣奧國經濟學，盡他力所能及的一分力。

一天突然收到中秋的電郵，告我出於某些特殊原因，他不便再向我們供稿。不久我也離開了報社。

年多前，老師余赴禮向我提過他協辦的中國海耶克學會，知道中秋兄為這學會的成立，花了很大的功夫。 此後便沒有再讀到聽到姚中秋三字。 直至今天 that is。

The Era of Ben Bernanke Has Just Begun!

A couple of days ago, a column in the local paper Hong Kong Economic Times criticized Bernanke for not lowering the Fed Funds rate. You could tell reading through his arguments that the writer lacks knowledge of elementary monetary economics.

So you want to hear what an expert in monetary economics has to say about Ben's latest move to cut the Fed's Discount Rate, read here.

The Most Intelligent Commentary on Sub-prime "crisis"

Here is the bottomline:

The deeper moral is simple. Financial markets exist to do risky things. The more risk they take, the higher the (expected) returns. You can use regulation to squeeze risk out of a segment of the market, say banks, but you don’t eliminate the risk, you just move it elsewhere. New segments, say hedge funds, emerge to take over the risk and the high (expected) returns that go with it.

The problem is that little is known of the new segment and its players, so the armies of regulators and supervisors that protect us look in the wrong direction because they don’t know where to look. There has been much talk about regulating the hedge funds; it might happen, so the game will move elsewhere.

The only way to eliminate financial crises is to fully eliminate risk. Kim Jung Il knows how; eliminate financial institutions. But that means no (expected) returns. (my emphasis)

The post is witty, well written and mostly jargon free. It tackles the sub-prime issue at a conceptual level that is hard to find in your daily paper. No, you won't even find it in your copy of FT or WSJ. Read the whole thing here.

The Only Blog Post that You Must Read Today

No, no excluding this one of course. What it's about?

First Fundamental Theorem of Welfare Economics.

Any body worth his salt as an economist SHOULD read it.

Should I Read This or Not?

Despite heaps of praises piled on Greg Clark's Farewell to Alms, read here and here, David Warsh at Economic Principals begs to differ. His comments are harsh at times.

Who is right?

陳方安生在當上民主女神前說了些什麽

Mrs Chan said the Government's policy has always been characterised as positive non-interventionism. The Government does not intervene unless it is in the overall public interest to do so. Its involvement in the Cyberport is a natural extension of this process. (My Emphasis)

That is from a 1999 HKSAR Government Press Release, read more here.

So You Want to be Rich?

Then read this.

And this is what a reviewer of the book said:

"This short and entertaining book packs a vast amount of serious information about your brain, about your mind, and about your money. You will learn a lot when you read it for the first time and you will probably want to read it again to learn some more."

-- Daniel Kahneman, professor of psychology, Princeton University, and winner of the 2002 Nobel Prize in Economics

Puzzle of the Day

My sister in law has a Ph.D. from Cambridge. Whenever she dispenses her opinion, my wife and her parents (my inlaws were both graduates from Peking University back in the late 1950s, no small feat indeed) listen.

It doesn't matter what topic is being discussed, it does not matter that my wife and my inlaws start with different views on the same matter, they will automatically switch side and accept my sister in law's view without hesitation.

And the question is why?

Is it because she has her Ph.D.? But isn't it the case that her Ph.D. only represents her expertise in certain area of study not in all areas.

Is it because the fact that she has got her degree signals to others that she is smart (like higher IQ), so people who have received less education believe that in matters that they are not completely sure how to deal with themselves, it is better to delegate the task of workng out a solution to those who have higher IQ. The presumption is that higher IQ people have a better chance of figuring out the best course of action. Is there any basis on this claim?

Is it because higher level of educational attainment indicates higher level of IQ and problem-solving ability as well?

Those readers who are knowledgable in neuroscience and psychology, educate me.

I Wish I Were Him

But I am not. Here is Gary Shiu.

Milton and Money Stock Control

Although Milton did not prevail in his quest to have the Fed maintain a constant money-growth rate, he did prevail in his insistence that policy be apolitical and rely to the maximum possible extent on market judgments. He lost a battle but truly did win the war.

That's from St.Louis Fed's Bill Poole. More here.

Chicago Price Theory is Back

I am extremely happy to report that Transaction Press has decided to reprint Milton Friedman's classic Price Theory text as well as Gary Becker's Economic Theory.

Meantime, publishers have also offered both paperback and hardcover versions of Frank Knight's Risk, Uncertainty and Profit.

To learn more about the origin and development of the Chicago School of Economics, you can't miss this.

Your Imaginery Friend Just Might be Real

Yet the new research on priming makes it clear that we are not alone in our own consciousness.

We have company, an invisible partner who has strong reactions about the world that don’t always agree with our own, but whose instincts, these studies clearly show, are at least as likely to be helpful, and attentive to others, as they are to be disruptive.

That is from a fascinating story from NYT, more here.

What I would like to know though, is what are the rules of interaction between these conscious and unconscious portions of our mind. How are these rules set in order to guarantee that each part serves our overall interests?

Nobel Laureate Is Leaving My Alma Mater

It is official. Vernon Smith will be leaving in 2008 for Chapman University. Here is a story in LA Times.

大前研一

近日心情不怎麽樣，因為人也因為事。 閑時讀的不是文學，就是與經濟学無關的書。

最近一口氣讀了大前研一的即戰力、創意的構想、和專業主義。看罷有點像漫無目的地上網的感覺。讀不出大道理也讀不出系统的理論推演，卻又總會在那最意想不到的角落讀到大前先生作為商業顧問多年沉澱下來的睿智。

意難平

留學英倫曾與我共事的L告我, 從同事口中得知高層對她不滿, 着她早為未來打算。

Not that she wants to stay at that damn place, but you need to make a living right, and you have bills to pay as well, what else could you do until you find eh..eh.. another "opportunity". In most likelihood, one is more likely to get a lousy job under such circumstances . That is why I put the word opportunity in parenthesis.

This is what our Chief Executive called the best economic situation in 25 years?

Casual empirism suggests to me that a lot of the late 30s and early 40s crowd somehow feel stuck, they fail to sense that there are opportunities out there waiting for them. Do you guys out there feel the same or is it just me?

Beautiful Mind

My former professor Tyler Cowen, co-blogger up at Marginal Revolution, is profiled in New York magazine. Read more here. Actually the piece is a review of Cowen's latest book, "Discover Your Inner Economist."