File This Under Shoddy Reporting

A small scale rally in Macao (now part of China) on the first of May resulted in scuffling between policemen and the participants of the rally. Read about what happened here.

After the incident, most reports, stories, and commentaries cited corruption as one of the main reasons why it happened. See an example here. (For those who do not understand Chinese, scroll down and you'll see an English translation of the piece).

But is corruption really the culprit?

Let's check out the facts.

According to Transparency International , Macao ranked 26 out of a total of 163 in its latest Corruption Perception Index (2006). The higher the ranking a place got, the less corrupt a place was. US got a ranking of 20 while HK was placed at 15. In fact, Macao has a far cleaner government according to that index compared with countries like Taiwan (34 place) and South Korea (42 place). Check out the latest index here. And if you check out the World Bank's Governance Indicators, the results are not that far off from the CPI index put out by the Transparency International.

If Macao indeed has a relatively clean government compared with others (this is a very important qualifier, for we are not talking in relative not absolute terms here), then why so many reporters, analysts and pundits jumped to the conclusion that corruption was one of the major culprits which caused the May day incidient there?

I have an answer, but first let you tell me what do you think first! File this under Shoddy Reporting.

No Free Competition Law

A lot of people who are in favor of the competition law fall into the trap of comparing apples and oranges without knowing it.

They think if the market weren't working (equivalent to market imperfection), the government needs to do something about it (or correcting the wrongs in the market if you like). What they forget to inform us is that they are implicitly assuming that doing something about market imperfection is costless. In fact, it does cost us, a lot!

Here is one instance where the Supreme Court in the US is trying to lower the costs of running the country's competition law.

Competition Law Hurts Competitiveness

Awhile back, I have a post lamenting the Consumer Council's report advocating competition law in HK has committed the error of mistaking correlation as causality.

I then find out a reader at HK Competition Law , which has a link to my post, has made some not so friendly remarks about my post.

People have different views, that's fine with me. But that should not preclude exchange of ideas in a civilized manner, at least that's what I believe. A case in point, the gentleman up at HK Competition Law holds the view that there should be a place for competition law in HK. I don't. But that difference in opinions has not prevented the conduct of civilized exchanges between us.

The reader then went on challenging me to show him research which indicates how competition law blunts competitiveness. I thought it is a no-brainer. At least economic theory would tell us such might be the case. Instead of wasting readers' time on going through detailed economic anaylsis, I would recommend you readers to read this open letter first. If you decide to have more stuff to read after finish it, let me know.

The bottomline of the letter (and it is signed by 240 economists and let me also disclose that a couple of these economists are my former professors and Ph.D. dissertation adviser):

"Many of these cases are based on speculation about some vaguely specified consumer harm in some unspecified future, and many of the proposed interventions will weaken successful U.S. firms and impede their competitiveness abroad."

No Quick Fix for Yuan

Matt Slaughter at Dartmouth has an excellent oped in WSJ, here's the bottom line:

"Put it this way: In a counter-factual world where over the past decade China allowed the yuan to float against the dollar, the U.S. would still have run a large and growing trade deficit with China. The real economic forces of comparative advantage that drive trade flows operate regardless of which nominal prices central banks choose to fix."

More here.

India Fact of the Day

1) According to the Planning Commission of India, 600 million people — roughly half the population — are off the electric grid.

2) Transparency International estimated in 2005 that Indians paid $480 million in bribes to put in new connections or correct bills.

Read more here.

What's missing in the story is about the price of electricity. Who has the final say on the electricity price in the face of chronic shortfall of supply to meet demand?

More Powerful Computers, Less Crime?!

From NYT:

"RODNEY MONROE, the police chief in Richmond, Va., describes himself as a lifelong cop whose expertise is in fighting street crime, not in software. His own Web browsing, he says, mostly involves checking golf scores.

But shortly after he became chief in 2005, a crime analyst who had retired from the force convinced him to try some clever software. The programs cull through information that the department already collects, like “911” and police reports, but add new streams of data — about neighborhood demographics and payday schedules, for example, or about weather, traffic patterns and sports events — to try to predict where crimes might occur."

Here's more.

Wondering whether such technology could be utilized in warfare as well so that military depolyment could be made more efficient. But what if your opponents do the same? That seems to be a major difference between the use of such technology in combating crime and the use of such technology in war. The spending and use of such technology is asymmetric in the case of cops vs gangsters (ie cops have more resources to spend on such technological devices than the bad guys) whereas such may not be the case in war situation.

Special Interest Legislation is Popular?!

Bottomline:

"Special-interest" legislation is popular.

That is from Bryan Caplan's oped in WSJ, read the whole thing here.

Market for Everything, Chinese Style

"In a stunning illustration of how the market economy has overtaken communism, Party members were able to purchase generic self-criticisms from commercial Web sites capitalizing on the campaign, which in turn necessitated a new rule that required self-criticisms in handwritten form."

This is from p. 48 of Susan Shirk's China: Fragile Superpower.

Janet Yellen on Chinese Economy

For all of those who have doubts about the high investment rate in China and worry about the quality of those investments (and these investments' impact on bank soundness):

..."Economists with whom we met at some multilateral institutions have observed that a substantial share of investment is financed not by banks but by firms from their own internal funds; in other words, enterprise saving is very high. This suggests that the high pace of investment poses fewer risks to the banking sector than it might otherwise..."

This is from Janet Yellen at the San Francisco Fed, read the whole thing here. Janet of course is the wife of Nobel Prize winner George Akerlof.

Father of Organizational Economics Passed Away

This is from NYT:

"Alfred D. Chandler Jr., an economic historian who revolutionized the writing of business history, shunning the old debate about whether tycoons are good or bad, and instead arguing persuasively in almost two dozen books that it was the emergence of professional management that propelled modern capitalism, died on May 9 in Cambridge, Mass. He was 88."

Read more here.

As my friend Kurt Schuler told me long ago, Chandler deserves a Noble Prize in economics.
Here is David Warsh on Chandler. Major works of Chandler could be bought here.

David Laidler on Milton Friedman

Here is the abstract:

Milton Friedman is rivaled only by John Maynard Keynes as the most influentialpolitical economists of the 20th Century. His approach was that of a classical liberal, rather thana conservative, though this put him on the political right in the United States.

Friedman’s work demands to be evaluated all of a piece, but his outstandingly important technical contributions toeconomics influenced the development of the discipline in ways that extended far beyond thepurview of any particular political agenda.

Read more here.

Interesting Quick Read

Bob Frank on what needs to be done to dissolve opposition to a road pricing scheme in the Big Apple. Here is info on Bob's forthcoming book.

Bob Hahn and Paul Tetlock urging the US government to cut down on regulations in order to promote prediction markets.

Paul Rubin on Folk Economics. HT to Greg Mankiw for the point.

Why Demand for Signalling Surged?

Gary Becker and Kevin Murphy, two of the best minds in labor economics, contributed an article on the cause of rising income inequality in the US in the latest issue of The American, read it here.

Becker and Murphy attribute the rising income gap as an outcome of the increasing demand for skilled labor (with skilled labor defined as those who get more years of schooling). As I am a believer of the signalling theory of education, the puzzle is why there is a surge in the demand for more signalling among job seekers? Is it the changing structure of the economy (computer, internet...service sector growth in general)? What is so special about an investment bank job or a computer coding job which requires more signalling on the part of job seekers' type compared with say a car manufacturing job in Detriot? I don't have the answer, do you?

Summer Reading

Summer is quick approaching, here is a list of books that I would like to get and read:

1) Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity
by Bill Baumol, Bob Litan and Carl J. Schramm.

Let's see what one of the reviewers said about this book:

"In our lifetimes, humans passed a remarkable milestone. Most people now live in a capitalist economy. This is not, however, the end of history. As the authors of this path breaking book show, there are several distinctly different types of capitalism and it takes a mixture of two of these types to get all the economic, social, and political benefits that capitalism affords."—Paul M. Romer, STANCO 25 Professor of Economics in the Graduate School of Business at Stanford University

Here's another.


2) The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It
by Paul Collier

Here's what Larry Summers has to say about the book:

"A persuasive and important challenge to current thinking on development."

3) Finally, a popular economics book (I guess it is anyway) by my former professor Tyler Cowen, read more here. I have heard Tyler and Alex, his co-blogger at Marginal Revolution are working on a macro textbook! That is something that we should all looking forward to.

Hong Kong's Health Care Reform: The Next Battleground

With the government's mind set on introducing a competition law, the next policy battle is definitely on how HK should reform its medical sector going forward.

Indeed, in the Chief Executive election held earlier, candidates debated on this very topic. Read more here.

In the marketplace for ideas, it seems far more people in Hong Kong agree that the government should continue to play a prominent role in the medical sector than those who oppose it. As a result, the issue of whether we would like to see more government involvement or less is not much discussed. The focus of the debate is mostly concentrated on, given the level of government involvment, how should one go ahead and make the system more sustainable.

Personally, I am more interested in the first question. My position is that the level of government involvement in the sector should be reduced. And for those readers in Hong Kong who would like to read more on this topic, I would recommend:

1) The Cure: How Capitalism Can Save American Health Care by David Gratzer. The late Milton Friedman wrote a foreword for David's book.

2) Crisis of Abundance by Arnold Kling. Arnold is the co-blogger up at Econlog.

Book Review of the Day

"Every year there are three or four non-fiction books that have to be read, and this is one of them."

Guess which book Tyler Cowen, my former professor, is referring to in the above quote.
Read the whole review here.

Consumer Protection Laws Actually Harm Consumers

As the enactment of a competition law seems like a forgone conclusion, some in HK have started contemplating whether we would need a consumer protection law. Read more here.

Let's take a close look of an example of how one government agency in the name of protecting patients (consumers of drugs) actually harms them.

FDA in the US rejected Genasense, a new drug developed by a small company Genta to treat patients with CLL. Genat filed an appeal in early April.

And according to an oped in WSJ:

"Genta's announcement of the filing included a statement from one of the expert physicians: "It is puzzling that they would deny approval to a drug that met its primary and key secondary endpoint, especially since these findings were observed in the only randomized controlled trial that has ever been conducted in patients with relapsed CLL."

The FDA's handling of Genasense lays bare the all too common, aggressive incompetence of the FDA's cancer-drug division and should lead to an immediate examination of its policies and leadership, followed by swift corrective action. As for the FDA's belief that their power to control us and even deny us the pursuit of life itself is unlimited under the Constitution, we can only hope the appeals court disagrees. An agency that blocks progress against deadly diseases -- while arguing that its power to do so is above challenge -- is in dire need of a court supervised review."

Read the whole thing here.

Well, why I should I trust this writer you say. Sure, so you want scientific evidence on why the costs of having a FDA outweigh the benefits. Read this, and decide for yourself whether you still want it afterwards.

The Regulation of Innovation and Economic Growth

The 1st George Mason University Law School and Microsoft Conference on the Law and Economics of Innovation is to be held this coming Friday, take a look at the heavyweights who will attend the conference here.

Papers are downloadable. The papers by Bob Cooter, Daniel Spulber and Joshua Wright are recommended.