Quoting Charlie Munger

"The cash register did more for human morality than the congregational church. It was a really powerful phenomenon to make an economic system work better, just as, in reverse, system that can be easily defrauded ruins a civilization. A system that’s very hard to defraud, like a cash register, helps the economic performance of a civilization by reducing vice, but very few people within economics talk about it in those terms." Charlie Munger, Vice Chairman of Berkshire Hathaway

The above quote is taken from the address by Charlie Munger during the Undergraduate Lecture to students of the University of California (Santa Barbara) on the 3rd October 2003. While the quote itself states how innovations assist the development of business and human progress agood proportion of the 25 page document is a reminder that microeceonomics( I prefer Price Thoery) is far more useful than is often acknowledged and is deserving of a higher profile than macroeceonomics. In addition, it states the very valid point that quantitative analysis added rigour to the discipline of economics but that the complexity of human interaction ensures that the pursuit of certainty is not entirely possible.

However, I categorically reject his view that the endevaour for free trading with China would lead to differential rates of economic growth in China's favour and therefore the ultimate supplantation of the US by China. He assumes that China's growth and domination is a given and that is an assumption that history, together with dispassionate analysis and simple use of an algorithm suggests to be an overstated but unlikely matter. I would bet against him on that.

Is Google taking on Microsoft?

A number of software corporations that tried to frontally compete against Microsoft did not succeed much but that may have as much to do with the latter's business ability than the aggressive tactics that many claim that the largest software firm employs. Still, my understanding of any market is that no corporation can enjoy the extreme dominance that Microsoft does regarding any service without attracting an equally capable firm sooner than later.

An article in the NYT reports here that Google is the latest firm to frontally seek to compete with Microsoft. In itself the story is an interesting case of industry reporting because it exposes the different views that the two companies have about the future of computing in general. the story suggests that Google considers that most work processes will move to the internet and therefore it is considering the placement of applications that may be accessed through that medium. On the other hand, Microsoft does appear to consider the internet as a mechanism for supporting computing services and considers the high regard that Google is reported to place on Cloud Computing as ill-informed.

To my mind, I see in this the possibility of Microsoft's hubris in considering that cloud computing has no chance. It ought to review the intelligent decisions institutions such as universities are taking in moving a host of services onto the internet. secondly, since university campuses constitute the places in which the per capita use of a variety of computer applications does take place, Google's experiment is not as bad as one may think. This does not necessarily imply that most computing services will shift wholesome to the net and into Google's palms but it is possible that a substantial number of them will be efficiently delivered through the web.

In addition, the article exposes one of the distinguishing facts about Google's creative style and that is tied to speedy execution. Because Microsoft has the sustained tendency for the late release of products, it should be less sanguine about facing a corporation whose creative talents operate on a five month cycle. Whichever way the battle goes, all users of software products and services will benefit from the intense competition between two firms with immense reserves of cash and human resources. My guess is that a good proportion of the applications will migrate to the web in the medium term and that some of that will continue to be provided by Microsoft.

China's Measured at Today's Prices

For a country that is growing comparatively fast and very highly populated, the most appropriate measurement of China's Gross Domestic Product remains an unsettled matter for a number of dispassionate economists. News articles in recent years have suggested that that China's GDP has been underestimated and that the economy is therefore substantially larger than official statistics indicate.

Eduardo Porter mentions here, that a crucial weakness in the conventional estimates failed to take account of the price changes in the 1980s makes it clear that the economy in comparative terms is substantially smaller. Comparing against the most updated prices in China shows that the Chinese economy is indeed large but is not as close to other economies whose size is measured with more recent prices. From this situation, it is clear that considering Purchasing Power Parity (PPP) is not an abstraction and ought to be taken into account if meaningful comparison of economies is to be used in public discussion. It is also clear that future demand for energy in China would probably be higher than anticpated to ensure that it maintains the level of expansion as it is still very efficient. On the positive side is that fact that the need for an effeicient alternative to petroleum remains in the comercial intrest of both china and India.

Price Fixing by UK Supermarkets

The Office of Fair Trading of the UK has levied fines totaling £116 million against Sainsbury's and Asda following their admission to having engaged in price fixing for dairy products. Given that these firms have admitted to the charges and opted to settle the matter, one cannot reasonably argue about the size of the fine itself or the punitive nature of that settlement. As this story states, a number of other supermarkets in the UK have not reached an agreement hence investigations will continue against them.

It is noticeable however that the offenses for which the firms are charged occurred between 2002 and 2003. This leads to the thinking that either the OFT is more inclined to act after firms have benefited from the offenses or that timely detection of price fixing is particularly difficult. Given the enormous sums that it raises while levying fines, the OFT should consider the development of a random price tracking algorithm to detect movements in price that suggest price fixing. Put forensic economists to work here because it is seems that price fixing is more prevalent than is immeditely evident.

Why Make Use of the iphone a Nuisance?

Apple has gone from a corporation that designs and makes computers and related software and into other successful electronics products such as the iPod and the iphone. it is while bearing this in mind that I keep wondering why this corporation enters into agreements with mobile phone companies in order to tie the sale of the iPhone to specific networks and thereby restrict their use to networks that the phone manufacturer approves.

This anti-competition device is particularly ill-informed since it effectively compels purchasers of the product to use it on pre-selected networks. This news item on the BBC news site reports on the penalty that users who wish to buy an unlocked phone have to pay. That customers have chosen to pay an 87% "tax" to ensure the retention of the freedom of choice of network should be instructive to the networks but especially to Apple Inc. iphone owners will search for an alternative mechanism to unblock the device and this will happen pretty quickly as has already happened.

Recalling an earlier post here in which Steve Jobs argued against the futility of the DRM, it may make sense for him to review the numbers and the additional costs that is imposed on purchasers through this anti-competitive device. Mr. Jobs knows what the outcome of this unnecessary and expensive imposition will be. My hint: consumers will circumvent it.

Quoting Edward Glaeser

"Over the past 230 years, the definition of economics has changed from topic to method. While economics was originally defined by the task of running a government and then the understanding of formal markets, the field has come to define itself by a scientific approach to human society". Edward Glaeser

Wrong Advise for Africa

Advise to developing countries in particular and to Africans in generall comes at the rate of a dime for a a dozen. In this piece from a South African newspaper is a rather curious set of prescriptions that show only that there's a correct appreciation of the problems of poverty but hardly an understanding of the proper approach to creating growth. Among these is the the obsession with self reliance and the big role for agriculture and use of tariffs for protecting industries.

While I must be cautious because the story may have reported carefully, I can wager that this approach is bound to lead to failure. Given the large informal sector there, it is evident that deliberate effort to increase informality in the economy is just poorly informed. Structural reform of African economies is an imperative and it must lead away from the distorted informal economies towards freer trade. As John Kay states, the insistence on regional and decoupling from the world is equally wrong-headed. Africa's citizens must not miss the glaring lessons of history. Slogan alone do not a high income create.

Rolling Stone Assesses the War on Drugs

Ben Wallace-Wells of Rolling Stone magazine dissects the effects of the War on drugs and laments the great waste of nearly half a trillion US dollars. Essentially, it argues correctly that the war on drugs has little to show for the enormous sums spent, property destroyed and lives consumed. For anyone with a little exposure to dispassionate analysis of both the theory and the examination of the empirical facts, this is not new but is a pointer to what ideologically-driven policy often leads to: disaster and waste of resources.

As if this requires repaet on this blog, I will rehash what is clearly evident from that piece and others. First, the best approach to narcotics use reduction policy should concentrate not on outright ban but on treatment of addicts who consume a disproportionate amount of the drugs. A second lesson is that manufacture, distribution and retail of drugs requires a highly organized corporate structure and is often responsive to changes and effects of the eradication efforts. Disruption of supply simply drives up price in the short term and this creates an incentive for increased supply while wrong theories are used to keep the fight going. Finally, as stated in the book Freakonomics, the gangs make a deliberate calculation about when to confront their competitors and when cooperation is more desirable. There's no reason to work harder at a failed policy.