Wednesday, February 28, 2007

Can Econometrics Trace the Roots of Autism

Economics professor Michael Waldman of Cornell said yes in an article featured in a WSJ story. Read more here.

Instrumental Variable is the key. Pros and cons of the technique are discussed in the story as well. As for me, I don't think I have anything more to add given my limited knowledge in econometrics. Comments are open though.

Tuesday, February 27, 2007

Fuzzy Logic

From a story in the HK Standard:

Legislator Ronny Tong Ka-wah said despite suspected cartel behavior locally among supermarkets, property markets, fresh pork suppliers, ports and exhibition services, the lack of any independent and neutral body charged with adequate investigative powers to detect and substantiate claims would make enforcement of fair competition difficult, if not impossible...

Although there exist few barriers to entry into Hong Kong markets, Tong believed existing business conduct that impeded competition was particularly worrisome for foreign investors who were new to the market."

Read more here.

Wouldn't one expect Mr Tong to at least understand the contradictory nature of his own argument highlighted above?

Anti-competitive behaviour means returns for incumbents higher than the interest rate;

If barriers entry are few, competitors who want a cut of the higher return would jump into the fray;

Returns would return to normal as competition intensifies.

Why worry, Mr Tong?

Monday, February 26, 2007

Success is Not an Entitlement

A very, very interesting story in WSJ about Starbucks reported that:

"People close to the Seattle company said they weren't surprised when Chairman Howard Schultz sent a memo to executives on Feb. 14 warning that the chain's growth had moved Starbucks too far from its roots. In the memo, which surfaced on a blog last week, Mr. Schultz lamented the loss of the coffee-bean aroma in stores and conceded fast-food chains and other competitors threaten to steal Starbucks's customers."

Read more here.

Starting out as a coffee shop famous for offering personal touches and drinking experiences to drinkers, Starbucks encounters problems when it begins an aggressive expansion plan.

To ensure quality and ease of management (in technical jargon, to minimize transaction costs), Starbucks needs to standardize and do things, while good from an efficiency viewpoint, that would diminish the unquiness of the drinking experience that it once offers its customers.

The experience of Starbucks seems to suggest there is a negative relationship between number of outlets and the kind of experiences such outlets could offer their customers. More outlets, less of a unique experience offered to customers.

This conjecture seems to be supported indirectly by the fact that when McDonalds decides to offer gourment coffee and compete with Starbucks, the company does not simply sell better coffee at its ordinary outlet. Instead, McCafe is set up for this purpose.

HK's Economy, Not as Free as it Seems?

"The late economist saw what he wanted to see and ignored some fundamental accommodations in Hong Kong’s laisser-faire economy.

Milton Friedman was without doubt a great economist and, more important, one who, for good or ill, influenced politicians including Ronald Reagan, Margaret Thatcher and Augusto Pinochet. But his much quoted praise for Hong Kong was based on brief visits and a tendency, the norm among economists as most other humans, to see only what he wanted to see.

So Friedman saw low taxes, private ownership of most utilities, no tariffs, no foreign exchange controls, no government intervention in industry. The low ratio of government spending to GDP in Hong Kong contrasted with that of its then-sovereign power, Britain, and explained much about the divergent economic performances of “socialist” Britain and “free” Hong Kong...

What Friedman cared not to notice about the Hong Kong of the era of Cowperthwaite and later was that in three key areas of policy affecting the people the government was more socialist than its UK counterpart."

Read more here.

Sunday, February 25, 2007

Lazy Parents, not Capitalism, are the Culprits for Their Children's Weight Problem!

Blame has been laid on capitalism on creating products like TV, fast food, computer games...etc for the rising trend of obesity among children. Not so fast, read this from today's edition of SCMP:

"Lazy parents are helping fuel a rise in obesity among children because they are unwilling to join them for workouts, a survey suggests...

About 40 per cent of parents preferred watching television or studying with their children on most nights during the week, with sports ranking just sixth in a list of activities.

At weekends, nearly two-thirds of parents went shopping with their children, mistakenly believing this was a form of exercise.

According to the children, nearly one-third of parents said exercise too took much energy and they preferred to rest during their leisure time..."

Read more here.

Wednesday, February 21, 2007

Does Publishing in Top-tier Journals Necessarily Reflect Better Scholarship?

U. of Warwick's Andrew Oswald says no.

Here is the full paper and the abstract is provided below:

"Scientific-funding bodies are increasingly under pressure to use journal rankings to measure research quality. Hiring and promotion committees routinely hear an equivalent argument:‘this is important work because it is to be published in prestigious journal X’. But how persuasive is such an argument? This paper examines data on citations to articles published 25 years ago.

It finds that it is better to write the best article published in an issue of a mediumquality journal such as the OBES than all four of the worst four articles published in an issue of an elite journal like the AER. Decision-makers need to understand this."

HT to Austrian Economists for the pointer!

"What You Call Home, They Call Hell"

Best Blogpost I Have Read Today.

Bryan Caplan on why college enrollment does not increase despite rising wage premium of college degree holders over non-holders.

Tuesday, February 20, 2007

Frank Knight on Mr Keynes

"Knight scribbled “Nonsense” and sometimes even stronger comments throughout his copy of the General Theory (Patinkin 1981, 289). In his milder published review, Knight(1937, 122, n22) objected to the tone of the General Theory: “it has become quite the fashion to account for differences in intellectual positions by psycho-analysing, or somehow ‘explaining’ one’s opponent (and the example of following the fashion having in this case been set by Mr Keynes)”."

This is a segment from a very interesting paper by Bob Leeson, a researcher on Milton Friedman's work. Read more here.

Doug North in Hong Kong

1993 Nobel Laureate Doug North will be in HK. Professor North will deliver a lecture at the Chinese University of Hong Kong on 1st March. More information here.

Saturday, February 17, 2007

Holiday Readings

For those of you interested in competition law, here are a few new titles on the topic. May be you would want to read them over the Chinese new year holiday eh?

1) Lectures on Antitrust Economics;

2) The Antitrust Enterprise;

3) Antitrust Law

Enjoy! Wish you readers all a healthy and prosperous Year of the Pig

Mr Strategist

"Three years ago "there was a lot of interest in, and concern about, the use of small pox as a weapon. I was involved in a meeting that included a number of bioweapons experts, and after considerable discussion, I asked how long it would take for a smallpox epidemic deliberately started in the U.S. to spread around the world. The answer was 'Not long.'

Then how practical are infectious diseases as bioweapons?... But I was struck by the fact experts in bioweapons are not strategists, and by the thought that if our experts hadn't thought of this, could we be sure that others, including terrorist organizations, had?"

Smallpox, in a nutshell, cannot rationally be used as a weapon because it would spread too quickly, a kind of self-inflicted wound and mutually assured destruction."

Who's doing the talking? Tom Schelling in an interview with WSJ by his student M Spence. (I do not know Spence is Tom's student until I read this story) Read more here. Tom's take on
China is very interesting as well.

Here is Tom's biography.

Friday, February 16, 2007

Back to the Basic

Singapore has just announced that it will slash corporate income tax (though it plans also to raise GST). Recently Singapore has done the right things to give its economy a boost. It has just deregulated the mail business and allowed gambling (in fact a few casinos are in the works)

No more new industrial policy initiatives, no more grand plans, no more visions.

The principle behind their recent spate of new economic policies is simple: Deregulation and Let the Market do the Work.

My sense is that with continual gobal competition, Singapore will be forced towards further opening up its already quite liberalized economy. There is simply no other options to it and there is nobody else (or nothing else to count on as it is not resource-rich) it can count on except by relying on market forces.

What about HK? Well, look north and there is somebody whom we can always count on. Deregulation, what's the rush?

My Take on Competition Law in HK

Readers seem to have an interest in some of my previous posts on competition law. Guess it is time to clarify my position.

I look at the topic mainly from a comparative institutional perspective.

Scenario I, no competition law:

Imagine there is no competition law, which is now the case in HK. Yes, you might have some collusion in price setting, and yes you might have some "unfair" business practices here and there. And these "anti-competitive" acts cost the economy.

Short of government barriers, I do believe that most if not all of these "anti-competitive" acts would be wiped out in time. That is I believe that most if not all, short of government imposed barriers to entry, so called "anti-competitive acts" would not exist for long. The reason why I believe this to happen is simple: profit.

Supposedly "anti-competitive" acts bring profits, and plenty of them. That will send a signal to businessmen to divert their energy and resources from other uses to the one in question. Profits will revert back to the normal rate of return before long.

Hence it is expected that the costs imposed on the economy as a result of the remaining "anti-competitive" acts (i.e. those acts that would not be wiped by competitive forces) would be low.

Scenario II, with competition law

With competition law, some of the "anti-competitiveness acts" might be eliminated sooner than they would be without the law. These are the pluses for the law.

But enforcement is not a free lunch. Several costs to society are involved.

a) Direct costs of staffing the enforcement agency, costs of investigation, and the costs of operation of the judicial system;

b) Indirect costs imposed on society when a beneign act of business is found guilty;

c) Indirect costs imposed on society when businessess fail to defeat their rival in the market and try to get rid of their opponents through complaining their rivals for engaging in "anti-competitive" acts (the microsoft case comes to mind)

Bottom Line:

I do not have any numbers in hand. But my inclination is to believe that net cost to soceity would be lower in scenario I. Wish somebody would be able to conduct empirical research on this topic sometime soon.

Thursday, February 15, 2007

Oh Oh !

"It is difficult to imagine Hong Kong not introducing a competition law soon as the city is lagging behind even places such as Papua New Guinea, one of England's foremost experts in the field says. Nicholas Green QC yesterday told a seminar organised by the Asian Competition Forum and the Civic Party that various forms of competition law had been in place for years in countries such as India and South Korea...

Even Papua New Guinea had had the legislation in place since 2002, Mr Green said. He believed Hong Kong, which this month ended a three-month consultation on a competition policy, would follow the international trend."

That is from a story in today's edition of SCMP, read more here.

In the 1950s and 1960s, it was fashionable for a lot of developing countries to pursue absurd economic policies like import substitution, industrial policies and economic planning, would Mr Green consider it a mistake that HK did not follow that "international trend" back then?

When protectionism was in vogue, would Mr Green advise HK to follow that "international trend" as well?

Great News from Fairfax, Virginia

My alma mater has just made two hires:

One is economics professor at Washington University at St. Louis and a founding member of Intenational Society of New Institutional Economics John Nye while another is Gary Richardson originally with UC Irvine.

Needless to say, my alma mater's economics program will be beefed up as a result of these faculty members coming on board. This is especially good news for those who are interested in economic history.

While I was a graduate student there, only Jenny Roback and Joe Reid were interested in economic history. I hope they will hire more historians of economic thought in the future.

HT to Cafe Hayek for the pointer!

Tuesday, February 13, 2007

Say No to Vision

HK's Chief Executive contender Alan Leong recently said:

"Mr. Tsang stands for 40 years of administrative experience as a civil servant. Administrative officiers do not need a vision. They only need to carry out the policies of the Governor and British rulers. It is administration with an elitist mindset.”

Read more here.

Indeed, one popular criticism of Donald Tsang (that is the same Tsang in the quote above), another contender's campagin slogan "I'll get the job done" is that it lacks vision.

I assume what both critics who attack Donald for his lack of vision and Alan Leong mean by the word vision is this: the "[u] nusual competence in discernment or perception; intelligent foresight". (Source)

According to this definition, I consider it a good thing that Donald lacks vision because I believe that neither Donald nor Alan has unusual competence in discernment or percetion nor do I believe that they have intelligent foresight.

BTW Mr Leong, isn't the whole point of having democracy is NOT to rely on particular attributes and characters of the person in charge of the government but rather on the institutions and procedures of the political system instead? If so, why do you want us to support you because you have vision? A vision which prompts you to try to force competition law, minimum wage, maximum working and similar visionary policies down our throat?

F. Hayek has repeatedly argued in his works that our primitive yearning for some wiseman to lead us has time and again resulted in the infringement of personal liberty and freedom.

Monday, February 12, 2007

Does Competition Law Get its Job Done?

Both Chief Executive contenders in HK, Donald Tsang and Alan Leong, vow to introduce competition law if elected.

A new cross-country study reported that:

"We find, in ordinary least squares regressions, that the scope of a country's competition law is positively associated with the perceived intensity of competition in the country's economy. However, we find no evidence that the scope of competition law is positively associated with an objective proxy of the intensity of competition. Moreover, instrumental variables regressions, though preliminary, do not indicate that the scope of competition law affects the perceived intensity of competition."

Read the paper here. This should give Mr Tsang and Mr Leong pause in their rush to introduce competition law in HK. And here is my previous post on the same subject. Here is a blog on HK's competition law.

Hayek vs Posner on Law

Here is Posner's view on Hayekian perspective of law, and here is another one.
Now there is a reply from Hayekians.

Here is Don Boudreaux's answer to Posner.

New Books by Tom Sowell

Conflicts of Vision, new edition. I have read the first one, it is really, really good. And it is supposedly Sowell's favourite as well.

Basic Economics, 3rd edition. I have read the first, it is alright but still a good introduction.

Other than Sowell's two new books, also watch out for Steven Landsburg's (author of Armchair Economist) new book.

Sunday, February 11, 2007

Best Line I have Read Today

"A German would rather say he had inherited his fortune than say he made it himself."

This line is attributed to German economist Hans-Werner Sinn in a WSJ oped by Nobel Prize winner E. Phelps. Read here.

What it Takes to be a Private Banker in Asia?

WSJ has an interesting story on the booming private banking industry in Singapore.

Besides knowledge on financial products, to be a private banker one also has to learn how to choose correct attire (such as not to wear golden shoes) and use forks and knives in the appropriate manner. One also has to learn basic etiquette like don't ever touch the head of a Thai, don't wear black to a Chinese wedding, and eat before going to an Indian party so your hungry stomach doesn't gurgle while waiting for a late meal. It is actually quite interesting, read more here.

Another interesting bit is that the private banking industry in Asia is a far more labor-intensive mode of business than its counterpart in Europe. Whereas a private banker in Asia handles about 30 clients, an equivalent banker in Europe handles 10 times more at 300!

Any clue as to why that is the case?

Saturday, February 10, 2007

Best Economic Story of the Day

A story in New York Times on India reported that:

"[S]ix years ago, after partial deregulation of the leather industry, Mrs. Partipan found a leather factory job. She sewed everything from handbags to jackets and earned $3 a day. She learned that she could earn as much as an additional $7 a day by doing extra sewing at home in the evening and on weekends, when other factories were desperate to finish orders."

How is she going to resolve this problem matching her labor supply to the demand?

Mobile phone is the answer. And no she does not get it herself but somebody else has it. Read on.

Thursday, February 08, 2007

What It Could Have Been Matters

Today's WSJ reports:

"European Union officials hope Boeing Co.'s surging fortunes will complicate its efforts to stop government support for European rival Airbus. The EU today was expected to ask the World Trade Organization to examine Boeing's revenue recently, a time when the Chicago aerospace titan is resurgent, when considering a long-running trade dispute over aircraft subsidies. It hopes the more-recent results will demonstrate that European subsidies for Airbus aren't hurting Boeing." Read more here.

If your subsidies cause me to lose customers and lower my revenue as a result, the fact that now my revenue has increased does not mean that your subsidies have not hurt me.

The bottom line: Without subsidies Boeing could have earned more revenue than it has now. And yes, even after its recent surge. That is what matters.

The Road to Serdom, Definitive Edition

The publication plan for the Collected Works of F. Hayek is back on track again. Here is the latest installment, Hayek's The Road to Serfdom.

Wednesday, February 07, 2007

Hong Kong in Japan's Footsteps

Our Chief Executive (CE) hopeful (and incumbent CE) Donald Tsang was quoted as saying:

"Chief Executive Donald Tsang Yam-kuen yesterday pledged to increase infrastructure spending to create job opportunities... He said that each year the government set aside about HK$29 billion for infrastructure, but might only spend "$25 billion, $24 billion, $23 billion"...He said the government should return infrastructure spending "to the right level" and he hoped to create a development bureau to oversee the execution of infrastructure projects. "

Read the story here.

But why stop there? If government spending is such a miraculous tool to create jobs, why fix the cap on such spending at HK $ 29 billion? Why not raise that "right level" to HK $ 59, $ 69 and $ 79 billion so that more jobs could be created?

By the way, WHAT is the "right level" and WHO is to decide what is the "right level" anyway?

Confusing Correlation with Causality!

Consumer Council has put out a report advocating the merits of having a competition law in HK.

One of its claims:

"Enactment of a cross-sector competition law will not jeopardize Hong Kong's favourable business environment and should, instead, enhance its competitiveness."

What's the evidence? The report continues:

"This is reinforced by the fact that according to the 2006 Heritage Foundation Country Competitiveness Rankings, the US has the highest ranking in competitiveness, but is also one of the earliest economies to have a cross-sector competition law. In the Foundation's survey, Ireland, a small economy similar to Hong Kong and the United Kingdom are ranked 5 like Hong Kong, while Australia and Singapore (which has recently enacted a cross sector competition law, ranked 7. These economies are considered by the Heritage Foundation to be among the world's most market-oriented jurisdictions and they have cross-sector competition laws."

But isn't the fact that HK, without a competition law for so long, can maintain its high place in ALL of the different competitveness or free market ranking at least suggests to the Consumer Council people that, well, may be HK really does not need a competition law to boost its competitiveness?

Second, we can question the Consumer Council's claim from a different angle. HK's is able to transform itself from a barren island to an economic powerhouse without the need to have a competition law, how much marginal benefit a competition law would bring? How much such a law would cost? Is it worth it? The Consumer Council document is silent on this.

And finally, the fact that the US, Australia, Singapore and GB are advanced economies and all of them have competition law DOES NOT IMPLY that these economies derived competitiveness from having a competition law in place. All it shows is that there is a correlation between the strong economies mentioned and their having a competition law. It CERTAINLY DOES NOT SHOW that the introduction of the competition law causes economies to prosper!

The fact that advanced economies like the US or UK have competition law might very well mean that only such wealthy countries could afford such a costly piece of legislation.

Tuesday, February 06, 2007

Introduction to Modern Economic Growth

J B Clark Award Winner D. Acemoglu has a book manucript on modern economic growth, read it here. Beware, it is 718 pages long!

If you want a shorter text, you may consult this, this and this as well.

China Fact of the Day

"Under Indira Gandhi, India nationalized banks, restricted foreign investment and created numerous barriers for the private sector. Even at the height of all this, the importance of the India private sector far exceeded the level in China today."

That is from a piece in FT.

Thursday, February 01, 2007

Martin Lipset Passed Away

Formerly at George Mason University and Hoover Institution, world renowned sociologist Martin Seymour Lipset passed away last year. I learn about the news only after reading this WSJ piece.

Chain that Leviathan, Now!

Both incumbent Chief Executive (CE) Donald Tsang and Legislator Alan Leong have by now announced their plans to run for the CE post. Read here and here.

Ask yourself this question, imagine now that the CE were to be chosen through direct election and Alan were to win the race, would HK people be better off in terms of their enjoyment of economic freedom?

The answer is no because he is an advocate of competition law, maximum working hours, minimum wage and other populist policies...

What if Donald Tsang were to win?

The answer is still no because he is pretty much supportive of the same thing.

Now you see the crux of the problem. The issue is not democracy. What we need is a mechanism through which government power is limited, constrained, chained.

Sadly, no candidate sees that as a problem that needs to be addressed.


This is a quote from Hayek's Law, Legislation and Liberty Volume 3 p.21 that makes the very same point that I am trying to make above:

"[D]uring the English Civil War the abuse of its power by Parliament 'had shown to men who had previously seen only the royal power as a danger, that Parliament could be as tyrannical as a king' and this led to the 'realization that legislature must also be subjected to restriction if individual freedom was not to be invaded."