Hong Kong is contemplating to introduce minimum wage, see here.
Now, Hong Kong's economy has consistently been ranked as one of the freest economies, if not the freest economy in the world.
Economic theory tells us that the presence of competition renders it impossible for exploitation to occur. As Professor Steven N S Cheung said in his latest column:
七十多年前英国的鲁宾逊夫人（Mrs. Joan Robinson）推出雇主剥削劳工的可能性，但只可以在缺乏雇主竞争的情况下出现。 (Gary's translation: Seven decades ago, Mrs J Robinson pointed out the possibility of labor exploitation in the absence of competition among employers)
Intense competition among firms should be one of the main characteristics of a Hong Kong's free market economy. If that is the case, there should not be exploitation. And if there is no exploitation, why the government is rushing to introduce minimum wage? Something is seriously wrong here.
Thursday, July 16, 2009
Wednesday, July 15, 2009
Economists Have No Clothes
No, I did not say that. Apparently the title of this post is the paper title of a paper Jim Buchanan delivered at a recent History of Economic Thought Conference in Richmond.
According to a brief write-up of Buchanan's presentation, this is what he said:
“Economists have been parading around, really very naked, walking around in space,” Buchanan said. “It’s time to recognize that.”
More here. The shot up top is a picture of Jimmy in action at that same conference.
Sunday, July 12, 2009
Tyler Cowen vs Justin Lin
Lin wrote in this piece that small banks are good for developing economies, Cowen is reluctant to endorse Lin's view.
The gist of Cowen's argument is this:
But what if those institutions (Gary's note: big banks) start to arise naturally, from market forces, as indeed they will at some point? Should they be discouraged or shut down or somehow taxed at disproportionate rates?
The gist of Cowen's argument is this:
But what if those institutions (Gary's note: big banks) start to arise naturally, from market forces, as indeed they will at some point? Should they be discouraged or shut down or somehow taxed at disproportionate rates?
Are You a Free Market Supporter? A Self-test
Thursday, July 09, 2009
Micky Economics
Hong Kong's legislators would soon vote on whether to allow the government to convert its loans to the territory's Micky Land into equity according to this story.
What amazes me is the kind of argument that has been used to support the construction of Mickey Land in the first place and now its extension. The argument for building Micky Land, as least as it appears to me, is the following:
1. Build it (means Micky Land) first, and visitors would come!
Couple of years down the road, not that many visitors show up, the argument for extension relies on this:
2. Not that many people turn up because the park is too small. Build a larger park and visitors would come.
Amazing indeed. My sense is that if the whole enterprise is fully funded by the parent company of the local Micky Land, it would have been shut down a while ago. Amen.
What amazes me is the kind of argument that has been used to support the construction of Mickey Land in the first place and now its extension. The argument for building Micky Land, as least as it appears to me, is the following:
1. Build it (means Micky Land) first, and visitors would come!
Couple of years down the road, not that many visitors show up, the argument for extension relies on this:
2. Not that many people turn up because the park is too small. Build a larger park and visitors would come.
Amazing indeed. My sense is that if the whole enterprise is fully funded by the parent company of the local Micky Land, it would have been shut down a while ago. Amen.
Sunday, July 05, 2009
Plastic Bag Charge and the Alchian-Allen Theorem
HK is slated to introduce its plastic bag charge at retail outlets starting tomorrow. Here is the story.
What interests me is whether, with a fixed charge of 50 cents per bag, and say if you are contemplating to buy just one item(suppose you need a bag for this, otherwise the constriant is not binding anyway), a customer would pick a relatively more expensive item than he or she would without the plastic bag charge. The reason for this is that the relative price of the more expensive item should fall with the introduction of the plastic bag charge.
I do not invent this line of analysis of course, this is only one application of the Alchain-Allen Theorem.
What interests me is whether, with a fixed charge of 50 cents per bag, and say if you are contemplating to buy just one item(suppose you need a bag for this, otherwise the constriant is not binding anyway), a customer would pick a relatively more expensive item than he or she would without the plastic bag charge. The reason for this is that the relative price of the more expensive item should fall with the introduction of the plastic bag charge.
I do not invent this line of analysis of course, this is only one application of the Alchain-Allen Theorem.
Friday, July 03, 2009
Social Planner and Overconsumption
In my last post here, I explained why overconsumption is a problematic concept.
But there is a deeper conceptual issue here. One that goes to the heart of traditoinal welfare economics. It is the presumed existence of a social planner whose objective function embodies the interests of all members of the society. In other words, the social planner chooses the best course of action which maximizes the society's welfare function. Think about this. Other than implicitly assuming that there is an alternative, optimal consumption pattern which maximizes the welfare of society, how could one lament that the actual pattern of consumption involves over-consumption?
But this way of looking at the problem of overconsumption is wrong headed as Jim Buchanan long pointed out in the 1950s. There is no such social planner. To think there is is to commit the error of the fallacy of composition, that if at the individual level, the chooser picks among alternative choices within constraints, then this must also be true for the society as a whole.
There is another way to think about overconsumption and that relates to incentives. And that is the modern way of thinking about over-consumption. Individuals' might under-consume or over-consume if the consumption of a good generates externalities. (Over-consumption if the externalities are negative and vice-versa) Obesity is a good example. A lot of people lament that more and more people are eating too much resulting in a rising number of obese adults (or even children). The lament usually follows with the complaint that public health resources are being diverted and re-allocated to cure illnesses that are caused by obesity, implicitly ranking those other uses the public health resources are previouly devoted higher than the current ones (used in curing illnesses which result from obesity). In this sense one can then conclude that when people make consumption decisions, they do not take into account the consequences of resources being redirected to cure illnesses resulting from their decisions. Over-consumption thus results.
But let's think beyond this stage. Why I do not take those health consequences into account when I make my consumption decision? Is it because public health services are offered by the government? How can one fail to incorporate such negative health consequences resulting from over-eating if one were to shoulder all medical expenses?
From this perspective, over-eating can only occur with the backdrop of a particular institutional set up, here a public health care system. And if the health care system is privately provided, over-eating stops to be a problem. In other words, in the second way to look at over-consumption as an incentive problem, whether the claim makes sense or not depends on the institutional set up within which individuals make decisions. With private health care, individuals internalize the health consequences of their eating decisions, and over-eating as one manifestation of the phenomenon of over-consumption becomes irrelevant as a public policy problem.
But there is a deeper conceptual issue here. One that goes to the heart of traditoinal welfare economics. It is the presumed existence of a social planner whose objective function embodies the interests of all members of the society. In other words, the social planner chooses the best course of action which maximizes the society's welfare function. Think about this. Other than implicitly assuming that there is an alternative, optimal consumption pattern which maximizes the welfare of society, how could one lament that the actual pattern of consumption involves over-consumption?
But this way of looking at the problem of overconsumption is wrong headed as Jim Buchanan long pointed out in the 1950s. There is no such social planner. To think there is is to commit the error of the fallacy of composition, that if at the individual level, the chooser picks among alternative choices within constraints, then this must also be true for the society as a whole.
There is another way to think about overconsumption and that relates to incentives. And that is the modern way of thinking about over-consumption. Individuals' might under-consume or over-consume if the consumption of a good generates externalities. (Over-consumption if the externalities are negative and vice-versa) Obesity is a good example. A lot of people lament that more and more people are eating too much resulting in a rising number of obese adults (or even children). The lament usually follows with the complaint that public health resources are being diverted and re-allocated to cure illnesses that are caused by obesity, implicitly ranking those other uses the public health resources are previouly devoted higher than the current ones (used in curing illnesses which result from obesity). In this sense one can then conclude that when people make consumption decisions, they do not take into account the consequences of resources being redirected to cure illnesses resulting from their decisions. Over-consumption thus results.
But let's think beyond this stage. Why I do not take those health consequences into account when I make my consumption decision? Is it because public health services are offered by the government? How can one fail to incorporate such negative health consequences resulting from over-eating if one were to shoulder all medical expenses?
From this perspective, over-eating can only occur with the backdrop of a particular institutional set up, here a public health care system. And if the health care system is privately provided, over-eating stops to be a problem. In other words, in the second way to look at over-consumption as an incentive problem, whether the claim makes sense or not depends on the institutional set up within which individuals make decisions. With private health care, individuals internalize the health consequences of their eating decisions, and over-eating as one manifestation of the phenomenon of over-consumption becomes irrelevant as a public policy problem.
Wednesday, July 01, 2009
A Good Book, Overconsumption and Really Big Firms
I am half way through Justin Fox's excellent book on the development of the idea of efficient financial market "The Myth of the Rational Market."
A line on page 157 caught my eye:
"Galbraith(Gary's note: he is referring to Harvard economist John Galbraith)...likened American corporate executives to Soviet apparatchiks: the bureaucratic administrators of a vast system geared toward overconsumption and waste."
Galbraith of couse is concerned about the bigness of some American enterprises. But it is totally wrong-headed to compare such large corporations in the US with those giant sized SOEs found in the former Soviet Union. To see where Galbraith went wrong, just think that the size of a firm in the US is a result of competition, not imposed from above as some divine order by the planners at the top of the Soviet government. To miss this point leads one to question Galbraith's understanding of basic economics.
More generally, the Institutionalists of which Galbraith belong worry that economic theory which has been built upon a period where firm sizes are small would not be applicable to a situation where firm sizes are large. So they are worry about the divergeent of interests between managers and shareholders. True. But if they just go a step further, based upon the economic theory the applicability of which they questioned, they should see the conflict between managers and shareholders also implies an opportunity for someone to figure out a profitable way to resolve such conflict. There is a five dollar bill on the sidewalk as they say. Indeed, the emergence of the market for corporate control and institutional investors where shares of publicly listed firms are once again concentrated in a few hands are attempts to resolve such conflict in a profitable manner.
I have always found the attack on capitalism for its encouragement of over-consumption puzzling?
Who set the dividing line beyond which consumption becomes excessive? God? Or John Galbraith or some other government official? And what's wrong with over consumption? If the person in question places a higher value on the stuff he or she consumes than the rest of the society, what's wrong if her or his consumption level exceeds the dividing line? Of course, I realize there are a lot of objectives other than attaining the best use of resources, but those ain't and should not be part of the research focus of economists in my humble opinion.
A line on page 157 caught my eye:
"Galbraith(Gary's note: he is referring to Harvard economist John Galbraith)...likened American corporate executives to Soviet apparatchiks: the bureaucratic administrators of a vast system geared toward overconsumption and waste."
Galbraith of couse is concerned about the bigness of some American enterprises. But it is totally wrong-headed to compare such large corporations in the US with those giant sized SOEs found in the former Soviet Union. To see where Galbraith went wrong, just think that the size of a firm in the US is a result of competition, not imposed from above as some divine order by the planners at the top of the Soviet government. To miss this point leads one to question Galbraith's understanding of basic economics.
More generally, the Institutionalists of which Galbraith belong worry that economic theory which has been built upon a period where firm sizes are small would not be applicable to a situation where firm sizes are large. So they are worry about the divergeent of interests between managers and shareholders. True. But if they just go a step further, based upon the economic theory the applicability of which they questioned, they should see the conflict between managers and shareholders also implies an opportunity for someone to figure out a profitable way to resolve such conflict. There is a five dollar bill on the sidewalk as they say. Indeed, the emergence of the market for corporate control and institutional investors where shares of publicly listed firms are once again concentrated in a few hands are attempts to resolve such conflict in a profitable manner.
I have always found the attack on capitalism for its encouragement of over-consumption puzzling?
Who set the dividing line beyond which consumption becomes excessive? God? Or John Galbraith or some other government official? And what's wrong with over consumption? If the person in question places a higher value on the stuff he or she consumes than the rest of the society, what's wrong if her or his consumption level exceeds the dividing line? Of course, I realize there are a lot of objectives other than attaining the best use of resources, but those ain't and should not be part of the research focus of economists in my humble opinion.
Tuesday, June 30, 2009
No Free Lunch
民協馮檢基批評，政府過去一年公屋越建越少，醫療事故頻繁，未有積極製造就業，更無回應小班教學訴求。 More here.
So what should we do about it? I bet Mr Fung is going to say that we need more resources to be devoted to building new public housing, to buying better medical equipment as well as employing more medical staff, and more jobs for building roads to nowhere, tennis courts where no one uses, railways where utilitzation rate stays low....
Does he understand that more of these things require that we have less of other things? Who is going to pay for these things? And why? How can he tell the things we get as a result of giving up other things are more valuable than those things that we have (or are forced) to give up?
So what should we do about it? I bet Mr Fung is going to say that we need more resources to be devoted to building new public housing, to buying better medical equipment as well as employing more medical staff, and more jobs for building roads to nowhere, tennis courts where no one uses, railways where utilitzation rate stays low....
Does he understand that more of these things require that we have less of other things? Who is going to pay for these things? And why? How can he tell the things we get as a result of giving up other things are more valuable than those things that we have (or are forced) to give up?
Monday, June 22, 2009
Go, Go, George Mason
According to this latest ranking of Economics Dept, my alma mater is assigned a rank of 85 among the top 10 percent of top level institutions (it's a world wide ranking, not just confined to higher learning institutions in the US).
It is ranked above:
Indiana U, Bloomington, ranked 91;
U of Washington, Seattle, ranked 100;
George Washingtonm, ranked 130.
HT to Greg Mankiw for the pointer.
It is ranked above:
Indiana U, Bloomington, ranked 91;
U of Washington, Seattle, ranked 100;
George Washingtonm, ranked 130.
HT to Greg Mankiw for the pointer.
Thursday, June 18, 2009
Wow! Samuelson on Economic History
This bit from an interview of Nobel lauerate Paul Samuelson really surprises me:
Very last thing. What would you say to someone starting graduate study in economics? Where do you think the big developments in modern macro are going to be, or in the micro foundations of modern macro? Where does it go from here and how does the current crisis change it?
[Samuelson's response]: Well, I'd say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that's the raw material out of which any of your conjectures or testings will come.
And I think the recent period has illustrated that. The governor of the Bank of England seems to have forgotten or not known that there was no bank insurance in England, so when Northern Rock got a run, he was surprised. Well, he shouldn't have been. But history doesn't tell its own story. You've got to bring to it all the statistical testings that are possible. And we have a lot more information now than we used to.
More here.
Very last thing. What would you say to someone starting graduate study in economics? Where do you think the big developments in modern macro are going to be, or in the micro foundations of modern macro? Where does it go from here and how does the current crisis change it?
[Samuelson's response]: Well, I'd say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that's the raw material out of which any of your conjectures or testings will come.
And I think the recent period has illustrated that. The governor of the Bank of England seems to have forgotten or not known that there was no bank insurance in England, so when Northern Rock got a run, he was surprised. Well, he shouldn't have been. But history doesn't tell its own story. You've got to bring to it all the statistical testings that are possible. And we have a lot more information now than we used to.
More here.
Tuesday, June 09, 2009
Larry White Moves to George Mason
Great news, Larry White, who has done a lot of work in advancing the theory of free banking will start teaching at my Alma Mater starting next fall.
Here is a bio of Larry in Wiki, and here is Larry's dissertation, "Free Banking in Britain" available free for download courtesy of IEA in England.
I met Larry a couple of times back in my graduate school days, twice when I visited the campus of U of Georgia where Larry used to teach, and once when I was attending a FEE Austrian Economics Seminar up in New York with my fellow classmate Wayne. Larry is a softspoken gentleman, and a graduate of UCLA.
HT to Taking Hayek Seriously for the pointer.
Here is a bio of Larry in Wiki, and here is Larry's dissertation, "Free Banking in Britain" available free for download courtesy of IEA in England.
I met Larry a couple of times back in my graduate school days, twice when I visited the campus of U of Georgia where Larry used to teach, and once when I was attending a FEE Austrian Economics Seminar up in New York with my fellow classmate Wayne. Larry is a softspoken gentleman, and a graduate of UCLA.
HT to Taking Hayek Seriously for the pointer.
Monday, June 08, 2009
Cheung's Theorem
政府什么也不要管吗？不是的，政府还要做的项目多得很。我要重复此前说过的：医疗行业的一个大麻烦，是求医的人往往不知道购买的是些什么。鱼目大可混珠，浪得虚名之辈历来不少。在权利与责任界定这重要话题上，政府的工作重要。但他们要懂得分辨哪些工作他们要做，哪些应由市场处理。原则上，这分辨不难，只是做起来，政府的官员会因为自己的权力与利益，漠视了社会整体的需要。因为这一点，我对中国医疗改革的前途不看好。鱼目既然容易混珠，混水摸鱼的行为容易产生。
This is from Professor Steven N S Cheung's latest column, more here.
Several implications follow:
1. In situation where the problem of information asymmetry is serious, and where the government intends to intervene , we should expect more officials to act in ways that contravene public interests, like soliciting bribe, defining rights in such a way which would benefit their supporters...etc
2. It cautions against those who automatically ask for the visible hand to step in when information asymmetry prevents the market from discharging its ususal function.
The same asymmetry information which negatively affects the operation of the market also encourages or provides a better cover for officials to benefits themselves instead of working for the public interests. So the results generated by government intervention might be worse than that delivered by the market.
Furthmore, even if the incentive problem articulated by Professor Steven Cheung is resovled, say all officials are Angels, you would still encounter the Hayekian type knowledge problem. For officials would need to know exactly when to intervene and how to intervene. As the Professor mentioned, "但他们要懂得分辨哪些工作他们要做，哪些应由市场处理". We differ on this point because the Professor thinks the officials would do a pretty good job in this area if the incentive problem articulated by him could be ignored. I am far less sanguine about the officials' ability to resolve the knowledge problem.
This is from Professor Steven N S Cheung's latest column, more here.
Several implications follow:
1. In situation where the problem of information asymmetry is serious, and where the government intends to intervene , we should expect more officials to act in ways that contravene public interests, like soliciting bribe, defining rights in such a way which would benefit their supporters...etc
2. It cautions against those who automatically ask for the visible hand to step in when information asymmetry prevents the market from discharging its ususal function.
The same asymmetry information which negatively affects the operation of the market also encourages or provides a better cover for officials to benefits themselves instead of working for the public interests. So the results generated by government intervention might be worse than that delivered by the market.
Furthmore, even if the incentive problem articulated by Professor Steven Cheung is resovled, say all officials are Angels, you would still encounter the Hayekian type knowledge problem. For officials would need to know exactly when to intervene and how to intervene. As the Professor mentioned, "但他们要懂得分辨哪些工作他们要做，哪些应由市场处理". We differ on this point because the Professor thinks the officials would do a pretty good job in this area if the incentive problem articulated by him could be ignored. I am far less sanguine about the officials' ability to resolve the knowledge problem.
Wednesday, June 03, 2009
How a Law Student, with No Prior Knowledge in the Auto Industry, Helps Restruture it
A very, very, very interesting read. More here.
Tuesday, June 02, 2009
Why the Worst Get On Top
The title of this post of course is taken from a chapter in Hayek's Road to Serfdom.
Now Bryan Caplan has offered another answer in addition to that offered in Hayek's work:
[A]ll successful politicians are big liars by the absolute standard we routinely apply to the people we personally know.
More here.
You can read a condensed version of The Road to Serfdom here for free.
Now Bryan Caplan has offered another answer in addition to that offered in Hayek's work:
[A]ll successful politicians are big liars by the absolute standard we routinely apply to the people we personally know.
More here.
You can read a condensed version of The Road to Serfdom here for free.
Sunday, May 31, 2009
Nice Cover
A soon to be released book named In Fed We Trust has a really nicely
designed cover. You can pre-order the book here.
Saturday, May 30, 2009
The Most Damning Blogpost I Have Read Today
At least now we have finally gotten away from personal attacks, so let me say that Sachs is an inspirational and hard-working intellectual. His ideas on Africa are only sometimes totally wrong, the other times they are only fatally wrong.
More here. Blows again are exchanged between Columbia's Jeff Sachs and NYU's Bill Easterly.
More here. Blows again are exchanged between Columbia's Jeff Sachs and NYU's Bill Easterly.
Tuesday, May 26, 2009
Best Line I Have Read Today
"Besides, the sight of two middle-aged white men mud-wrestling on African aid may entertain the audience."The two middle-aged white men refered to in the above quote are no light-weights, they are Columbia's Jeff Sachs and NYU's Bill Easterly.
Read more about their latest exchanges here.
Eat Your Way to Eternity
Gary Becker wrote:
the negative health consequences of being overweight and even obese will generally be significantly lower for children than for adults. The reason is that aside from very extreme obesity, the really harmful effects to overweight children will not usually kick in for another 25 or more years when they are in their forties or older. However, one can reasonably expect sizable progress during the coming decades in the development of drugs, such as lipitor, that will reduce the health consequences of high cholesterol and excess weight for heart conditions, diabetes, and some cancers. From that perspective, perhaps even ignorant and impulsive children are not acting so stupidly by indulging themselves in their eating since the future will likely see the development of drugs that will alleviate many serious medical conditions.
More here.
I see an externality being generated here. Say if the kids do not eat so much junk food or drink that much soda, they would not get overweight or even obese...then resources that would have been dedicated to cure illnesses which are byproducts of being overweight and obese could be used for something else. Afterall, scarcity rules. No?
BTW, as I have moved to a new job, and the position I am in does not allow me to freely comment on whatever stuff I like, hence the non-frequent up-dates of this blog, but I will try. So stay tuned.
the negative health consequences of being overweight and even obese will generally be significantly lower for children than for adults. The reason is that aside from very extreme obesity, the really harmful effects to overweight children will not usually kick in for another 25 or more years when they are in their forties or older. However, one can reasonably expect sizable progress during the coming decades in the development of drugs, such as lipitor, that will reduce the health consequences of high cholesterol and excess weight for heart conditions, diabetes, and some cancers. From that perspective, perhaps even ignorant and impulsive children are not acting so stupidly by indulging themselves in their eating since the future will likely see the development of drugs that will alleviate many serious medical conditions.
More here.
I see an externality being generated here. Say if the kids do not eat so much junk food or drink that much soda, they would not get overweight or even obese...then resources that would have been dedicated to cure illnesses which are byproducts of being overweight and obese could be used for something else. Afterall, scarcity rules. No?
BTW, as I have moved to a new job, and the position I am in does not allow me to freely comment on whatever stuff I like, hence the non-frequent up-dates of this blog, but I will try. So stay tuned.
Tuesday, April 07, 2009
So you want to learn cutting edge monetary theory without all the high-powered math?
Then you should take a look at these lecture (scroll down, the notes are at the very bottom of the page) notes written by Neil Wallance, one of the founding members of the New Classical School, for his undergraduate monetary theory course.
Enjoy!
Enjoy!
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