Income Distribution in Sports

Writing in the Real Clear Markets site, Steven Malanga sheds some light on the disparities in the earnings of NFL players, while alluding to other sports too. one of the points that is made clearly is that the income inequality in the sports industry is akin to that of the national economy. All the attempts to moderate those incomes within the industry seem not to yield much benefit especially as the league owners and unions pursue inconsistent objectives. One clear example is the insistence on a random draft for rookies and salary caps.

Income inequality in sports may mirror that in society but one has to say that sports leagues that insist on caps and other anti-competitive measures are probably not going to fully appreciate that mechanisms for efficient redistribution of income are hard to design. Taking account of the differences between sports teams and a national economy, i read the figures with caution but must state that this article emphasizes that distribution of some talents makes the income distribution to assume a power law.

India a Leader in Trading Medical Services

I encountered the table above while going through this piece on India's Igovernment site.

This blog has mentioned here and here about the ability of dental surgeons and professionals in regulated industries to exercise market power by restricting entry into the profession. As stated, these professional associations extend the training periods and place arbitrary barriers to entry by other professionals in respect to providing less technical procedures such as extractions and basic dental care. Often this is compounded by resorting to scare stories about the mishaps that may occur even where the data shows that the probability of such mishaps is very low or non-existent.

The table illustrates one of the reasons India's success in the area of medical tourism. Comparing the prices for the treatment of various surgical conditions confirms the financial prudence in opting to undergo the medical procedures for patients from the UK and the US. Granted that the cost is not the only consideration but given the material costs advantage for India on most of these four procedures.

For the presidential candidates in the US, the cost of medical care is a primary campaign issue and it may be of assistance for their advisers to review these figures keenly. Knowing the serious impediments that come with providing the level of care that Us citizens demand, India appears to provide an alternative for insurers to consider. Its just a pity that tooth extraction is not easily traded across borders because the savings are not sufficiently large. In the areas of the more delicate and expensive medical procedures, the table tells the story lucidly: outsourcing in medical care is an option. Indeed, this may just provide the market pressure to reduce the high rents that regulated medical professionals extract.

Indonesia Quits the OPEC Club

Trust governments to reconsider their options when confronted with the facts and changing conditions. For a large number of low-income nations, one of the most annoying impediments is the existence of the oil producing and marketing cartel otherwise known as OPEC. This story on the CNN site shows that Indonesia's energy minister has given notice of its withdrawal from the organization by year's end.

This is an interesting phenomenon for the reason that the decision has been made because of the realization that Indonesia's oil supplies are insufficient to meet its internal demand. effectively therefore, it does not make sense for a net consumer of petroleum to be part of an organization that is committed to maintaining prices that allow for the extraction of large rents. To my mind, this reversal proves a couple of points. First, as a long-standing member of OPEC, Indonesia's leaders seem to be convinced that the coordinated action and allocation of supply results in increased prices for petroleum beyond what would be cleared by the market. The second is that it is probably possible to predict the degree of commitment to the organization based on observable factors as the size of reserves versus the domestic demand.

Does Harvard Exercise Scarcity Power?

If asked the question about my views on Harvard university, I would state that it is not only an impressive academy with a strong faculty throughout various disciplines but also that it appears to want to win the race of accumulation. An alumni of Harvard University writes in the NYT and debates with herself about the Alma mater's large and growing endowment fund.

Granted that the university's main administrators have probably considered that keeping the endowment growing is important to ensure that the institution is assured of future survival, I find that the author makes a lot of sense in questioning the policy regarding the endowment in addition to the sustained fund raising effort. While it would be completely absurd to consider the endowment as a slash fund to be spent in its entirety, it is clear that she thinks that there is a serious disconnect between the investment policy and the expenditure of that money. As it currently stands, it appears that the exemptions granted to the endowment funds run by US universities merely ensure that college presidents bear the clout that goes with the size of the fund in addition to providing its fund managers with hefty income. I do not think that the requirement that foundations spend a prescribed proportion of their funds is just and so would argue that they be freed of this requirement as opposed to introducing the same strictures to endowment funds run by colleges.

Carroll Bogert answers herself about the reason that her colleagues continue to send cash gifts to the school. The very rational reason is that they all expect that their offspring would want to study at Harvard and daddy's prior contribution may be a deciding factor in a close decision for a highly desired place. While the author wonders whether the critical thinking taught to her colleagues is suspended in the matter of contributions to the school, it is palpable that they have retained the ability to see a little further into the future and to understand that the university could exercise market power over the admissions. On the whole, it is far better to see its alumni begin to question the logic of accumulation as that is a debate that Harvard's administrators should have with its hyper-literate alumni and benefactors.

Dental Highway to Improved Income

My concern with economic competition in services such as dental care in the United States has been recorded on this blog. Now comes this interesting paper that has featured on a post on the Freakonomics blog that makes the claim that there's an appreciable economic value to having good teeth as it affects income for women especially. Following the brilliant argument that Dubner puts forth and the conclusion that this effect suggests that there's a consistent beauty premium, leads me to wonder how to consider the fact that the dental profession in the US and most probably other parts of the world maintain high barriers to entry.

Taking it as a given that good dental care improves the future income of an individual places dentists in a situation where they are not only able to charge premium prices for the specific dental services that would improve the economic value of teeth but are vicariously responsible for income distribution when they ration dental care. This postulation could be tested by finding out whether areas that have a higher concentration of dental surgeons have higher incomes because of that care or because of the fact that those inhabitants are bound to be significantly wealthier to begin with.

Quote of the Day

"Whether you look closely at individual innovators or step back and survey the broad sweep of economic growth all the way back to the palaeolithic era, you find a common thread; neither progress nor stagnation is an accident." Tim Harford in Logic Of Life p. 216.

Volvo Aiming for Absolute Safety

If the ownership of a car can tell anything about the individual, it appears that buying a Volvo will soon mean more than sleek designs, high degree of safety and high income. In this article appearing in the IHT, Volvo has just announced that it has taken on the daring challenge of ensuring passengers in its cars of zero injury or mortality by 2020. The ambition is impressive but thinking from the perspective of one appraised of principles of economics in addition to an understanding of human behavior, I think that this must be viewed with delightful skepticism.

I question this because to make an absolute safe car may be altogether feasible through cutting-edge engineering but I suspect that it is not possible to make it an affordable and reasonably operable machine. As reported in the story, a Swedish government officer doubts that this can be fully achieved. If this attempt could systematically reduce the levels of mortality worldwide from 1.2 million per annum by a significant factor, then that would be success. Studies have shown that vehicle mortality rates tend to be a higher in countries where affluence is creating a first time cohort of drivers where the infrastructure is insufficiently prepared for those numbers. I expect that injuries from traffic accidents would continue to rise as more people acquire new motor vehicles in lower income countries. Since it is unlikely that they will be buying Volvo's, the car maker will still be producing very safe cars but they will not be what everyone drives.

Yahoo! Shareholders Battle Board of Directors

It is unsurprising that the recriminations against the management and Board of directors of Yahoo! have started. Predictably, they are based on whether the decision to snub Microsoft Corporation's offer of acquisition was commercially prudent. IHT reports here that Mr. Icahn is questioning the prudence of the decision to reject what he considers a decent offer. In seeking to replace the existing Board of directors and interest Microsoft in completing the deal, he is perhaps being too presumptuous. This is because it may not be in Microsoft's interest to acquire a corporation whose major shareholders and board are at serious odds of its prospects.

However, what this situation illustrates is the fact that a proposal for acquisition by a large firm is fraught with risks such as a shareholder's revolt irrespective of the decision to go one way or the other. It is also clearly evident that the substantial holders of Yahoo1 stocks are most interested din an early deal that would be of benefit only in the event of an acquisition by a large corporation such as Microsoft.

Chasing Music Pirates

Without doubt, nothing animates the executives who run the major music labels more that the fact that piracy is common. However, given the levels of reported piracy, I have always wondered whether the strong enforcement approach that holders of digital rights in music adopt is the best way to spend their money. Owen Gibson reports in the Guardian here that piracy in respect of digital piracy is growing. Measured against the aggressive efforts by the top music selling corporations to disrupt peer to peer distribution networks in addition to engaging in legal suits against operators of the networks, the return appears to be extremely modest. I have argued here before that much of the response from the main music majors in respect to piracy appears to be ill-informed.

Since legal downloads exist side by side with illegal downloads, it may be of more benefit to seek an understanding of the considerations informing the decision to purchase legal downloads while retaining an affinity for illegal downloads too. Because their clients are internet savvy and committed to sharing music, it is unlikely that this fight can be won at reasonable cost unless the internet was completely shut down. The paradigm has shifted and good money should not be spent fighting the digital sharers when it could be used to enhance the experience regarding legal downloads.It seems as if the opportunity cost to his single minded approach to stopping all sharing is rather high.

Reading Inflation from the CPI

A popular concern for everyone who makes purchasing decisions is the extent to which the buying power is eroded by inflation. This is in spite of the fact that a clear understanding of the computation of the official inflation figures and the causes is not well understood. In all honesty, not many economists and pundits too understand the limits of the published figures on inflation. Writing in the regular column in the NYT, David Leonhardt explores some of the oddities that emerge from the composition of the CPI basket in addition to the implications that emerge from benchmarking against the official figures.

It draws on the fact that the CPI is an aggregate measure to the extent that it is comprised of goods and services that are weighted in the basket. for individual purchasers though, the real rate of inflation for their income may be different from the average because of the consumption decisions that they make. The most perceptive point in the piece though is the fact that there tends to be a lag in the inclusion of certain goods such as models of automobiles whose costs may drop commensurately with an increase in quality. Nearer the end, he alludes to the earlier finding by professional economists that the index tended to overstate inflation and the revision that occurred. the nice piece is not only a primer on inflation and the difficulty in its delicate calibration, but that economic aggregates must be read carefully.

Polluter Pays

One of the more regular arguments on this blog is the need to apply a Pigouvian Tax to the problem of carbon emissions in order to internalize the costs of the pollution. Earlier today, an acquaintance sent this story to me and it reminded me of the fact that while the problem of global warming is real, the required but absurd responses required for the issue of global warming. The story states that Estonian authorities have responded to methane production by levying a flatulence tax on cattle. If this policy move was not a smart application of first principles regarding externalities, then it would be entirely laughable. In taking account of the fact that in livestock keepers in nations such as New Zealand are responsible for a disproportionate amount of methane emissions every year, I am constrained to keep the laughter aside and say that economics is certainly on the march.

A cursory search on the BBC news site here shows that five years ago, an equivalent flatulence tax measure was vehemently resisted by farmers in New Zealand. nevertheless, that is not to say that it is an altogether bad idea even if it the name makes it sound ludicrous.

Microsoft Fails to Acquire Yahoo!

For a considerable time now, Microsoft has been waiting to conclude an acquisition of Yahoo and the deal seems to have collapsed early this week ostensibly because the latter did not accept the enhanced offer of US$ 33 per share. Considering that the initial offer was made while Yahoo shares traded in the US$ 19-20 range, it appears that Microsoft was prepared to pay a hefty premium to make the acquisition and ensure that it is able to compete with Google.

With the expected acquisition having failed, the combined wisdom from these separate pieces in the Slate Magazine and the Timesonline lead to two main conclusions. Firstly, knowing that acquisitions are fraught with danger of failure, Microsoft was extremely eager to make succeed in this acquisition by offering such a large premium. Secondly given that Yahoo! appears to be struggling in taking market share away from Google in respect to advertisements, its managers should have taken the perceptibly generous enhanced offer. My random conclusion is that either firm requires renewed thinking to determine the line of attack against Google as they are both devoid of ideas. Which implies that there's no guarantee that the acquisition would have worked well for either side. What is regarded as failure today may turn out to be lucky escape for Microsoft.

The Gini Needs a Deviation Measure

No person interested in development economics has not heard of the immensely useful Gini Index and its broad use in telling about the degree of income inequality in a country. I find in readings that several assumptions are made about what it implies in addition to its utility in policy. In the Slate Magazine here, Mark Gimein highlights some of the methodological limitations by comparing the respective Gini measures for the US and India and reaches the conclusion that on its own, the Gini coefficient is not very useful in telling much more than the aggregate. The implication is that many pundits use the Gini Coefficient in a way that leads to the suspicion that it is being incorrectly substituted for poverty figures. Conclusions and proposals for policy leading from these comparisons are therefore understandably error-prone.

I accept that as a broad measure of inequality, the Gini is a fantastic innovation but it is demonstrably incomplete. To my mind, it is comparable to the statistical mean which is not too useful without mention of the standard deviation since the mean on its own tells nothing about the dispersion of the data from which it is derived. Perhaps what needs to be developed for use alongside Gini figures is the equivalent of the standard deviation so that one can make reasonable inferences about multiple countries with similar Gini scores but whose average incomes vary substantially. It cannot be correct to state that the level of inequality is the same in two countries on account of equivalent Gini scores when the respective per capita incomes are US$ 1000 and US$ 20,000.

Dentists Protecting Turf

It has been argued in an earlier post here that in spite of the failure to ensure coverage for US citizens, the American Dental Association was fundamentally opposed to any initiatives to allow dental therapists without full training to provide routine care. according to this NYT report, it appears that they are losing the argument because Alaska has allowed a number of professionals with capability to provide routine dental care to consult with patients.

As would be expected, the ADA continues to argue against through scare tactics involving allusion to uncontrolled bleeding. While I note that proper care is required, maintain that it is indefensible that a child with cavities has to wait for four years to receive dental care from the therapists whose skills the members of the ADA so disparage. Given the high income that some dentists have and their ability to restrict supply by keeping working for fewer hours, it is clear that the therapists are infusing competition while serving people without access. For as long as the population grows much faster than the ADA will allow training, the therapists must continue to provide basic dental care in the rest of the US too. There's no reason why the dental care should not operate as a market.

Allocating Seats at the British Library

An interesting story by Sarah Lyall appearing in the NYT discusses the predictable response that followed the relaxation of the admissions policy into the British Museum's library section. It appears that following the expansion and relocation of the facility, the number of readers exploded and this has let in a number of students who are not as studious as the traditional and older readers.

To my mind, this relaxation of policy should have been predictable because it is the direct price cut for entry into the library. Any facility with a seating capacity of 1480 against an active membership of 127,000 should understand this as a pricing problem. the demand for seats is much higher than the supply and therein lies the possibility of useful trades through appropriate pricing of the seats.The older and more studious users of the library ought to pay for the privilege of keeping the flirtatious students from the facility.

One of the brilliant economists from London should help to sort this out and prevent the library from this severe rationing. It may even get the less serious undergraduate students realize that answering calls in the reading rooms is an inefficient way to spend money spent to secure seats. From the chief librarian's perspective, this should be a nice problem to have as it is evdience of the value of those spaces.

Buffet Completes a Sweet Merger

Mars is most known to many people as a very good brand of candy but it has just made an equally sweet move by buying up the chewing gum corporation Wrigleys. The Guardian traces the details of the merger and supplements with the fascinating background about the serendipity of the finding by the founders of the acquired firm that selling chewing gum was superior to the soap and baking soda. No surprise though that Warren Buffet of Berkshire Hathaway was involved in the deal and it is to his credit that he is commended by Wrigley's owners as the guy whose cheque was considered truly good.

I am however surprised that the deal cost $ 23 billion at the total cost of the deal. However, while I am a cautious observer large business mergers, I think that this one stands a high chance of being all sweet and chewy for the shareholders.As warren Buffet states, the balance sheet of the acquired firm is far more straightforward and easier to understand than that of many an investment bank. That says a lot and confirms Warren Buffet's keen eye for good businesses.

GDP and Immigration

I am often confounded by the tendency to take GDP figures so seriously especially when the resulting figure is the result of very broad aggregates and subject to large errors in calculation. Tim Harford's piece in Slate Magazine reviews a paper that proposes a fascinating approach to GDP. Its implications and conclusions are surprising as well. By showing that emigration from poorer countries raises annual incomes of individuals by as much as 50%, it should provide a sobering fact to those promoting anti-immigration policies. Just ask what it takes to stop a person from raising annual income by that much.

To my mind, it shows that the pay off from relocation is so high that when legal mechanisms are closed off, then people will understandably make desperate moves like using a rickety raft to cross seas or fill up a truck at the risk of suffocation.very strict laws meant to keep immigrants away work to the advantage of smugglers.

Food Crisis: Old Ideas Still Valid

Continuing the discussion about the causes of the food crisis and what the appropriate role of governments should be requires some reference to this dated but largely sound piece at the Foundation for Economic Education. E.C. Pasour argues argues cogently against the fallacy of that "Malthusian Spectre" and the danger that governments may react by restricting trade in food through price controls and control on land sizes.

Since it is three decades since this article was written, one would hope that the lessons have been learned. My worry though is that the worst ideas come to the fore at such times because of the inescapable panic that result from an increase in food prices. No need to preempt the piece but it makes the clear argument that reduction in the property rights of producers of food through uninformed state intervention causes a reduction in supply. Adding the point stated by Amartya Sen in the book Poverty and Famines, he reiterates that contrary to popular contention starvation and hunger are not necessarily the results of a reduction in supply of food but often the inability to purchase adequate food supplies. essentially therefore, hunger is best viewed as a problem of income.

Any Gains from The Food Crisis

Many commentaries state that there's a food crisis out there but I am cautious about the use of the word crisis because of very liberal use for everything today. Prices of cereals have risen rapidly in the last year and this has led to panic. As with the prices of crude petroleum, many forget to make comparisons based on real as opposed to nominal figures and thereby fail to account for inflation.

In my reading, I found that this piece by Paul Krugman explains clearly what are the causes while another NYT piece by Keith Bradsher here shows how farmers in Australia are responding to severe drought in many ways, including the substitution of grapes for rice as the former requires less water and has a higher margin for volume.

Let the Middle Class Grow

Foreign Policy Magazine is known for very pithy and well-argued pieces covering international affairs. In the current issue, its Editor in Chief, Moises Naim argues with himself by asking the question about whether the world can afford a mass middle class. With the benefit of hindsight and looking at the questions being asked about human contribution to resource depletion and global warming, to question whether human progress is sustainable in the future is not altogether surprising.

Having to contend with the fast growth rates of both India and China and the implications for consumption should they build decent sizes of a middle class is something that may cause worry to a large number of people. In my view though, to question the viability of an expanded global middle class points me to Malthusian theories and the assumption that physical resources are fixed in quantity. This assumption is incomplete because it fails to reckon with the fact the limits on physical resources do not apply to human ingenuity and technology. Naim hedges by stating that Malthusian theories have been proven incorrect in the past and thereby implies that the 21st Century society should not count on as much luck.

Looking at the dreadful history of human development and the squalor that was common to humanity until three centuries ago, I am convinced that the world can afford that middle class. Among the attributes of middle class living is that income expansion allows for a proportionately smaller part of income to be used in procuring food. So notwithstanding the rise in prices of commodities, it is precisely because of the growth of such incomes and an expanded middle class that the citizens of India and China will do well. It is also significant that increased demand will lead inevitably to increased supply with the effect that those prices will be substantially moderated. For these obvious reason, I would not be worried about the creation of a real middle class as they will be able to care for themselves and pay for the risks of their age.

Global Warming as a Precursor for Crimes

Most commentaries on global warming concentrate almost exclusively on its possible effects on the proliferation of disease, droughts and rising sea levels. Nicholas Kristof writes this fine piece for the NYT and highlights the unforeseen consequences of drastic climate change. Drawing from separate studies by Edward Miguel and Emily Oster, he posits that vulnerable women in most low-income societies may suffer from violence and homicide.

These studies show that people with low political power who also suffer from discrimination are even more vulnerable in predominantly agricultural societies.The studies are interesting because they suggest a common cause for the witchcraft trials in Western Europe and the execution of elderly women in Tanzania more recently. To my mind, the principles that are applicable show that in periods of scarcity, elimination becomes more attractive and the lack of stable institutions exposes the politically weak to such elimination. Lynchings witnessed three centuries apart had a very subtle but real economic motivation.

Limits of Micro-Loans

The dilemma of most low-income countries is that a majority of the citizenry often have no employment or regular incomes. The Grameen Foundation based in Bangladesh and the micro-finance movement has had deservedly high acclaim following the award of the Nobel Peace Prize to its founder, Mohammed Yunus. A cursory view of its website and records show that the institution has provided lots of small loans to a lot of people in Bangladesh while its equivalents are intensifying their efforts all over the globe.

This naturally leads to the issue that James Surowiecki addresses intelligently in the New Yorker. His article questions the degree to which the faith in micro-finance and micro-loans is justified especially regarding its ability to effectively tackle mass poverty. Among the difficulties are that the borrowed sums are often too small to facilitate meaningful business expansion in addition to the tendency for the sums to used to respond to emergencies. His clear answer is that the character of the manner in which the loans are provided and managed naturally limits the amount of income growth that comes from them. Citing an article by Karol Boudreaux and Tyler Cowen which appeared in the Wilson Quarterly.

In sum, micro-finance and micro-loans is an extremely useful factor but what most indigent people require is employment. Provision of employment should be the central concern of the governments of most low-income countries. Entrepreneurship is glorious but highly successful firms are most efficient creators of employment than are small enterprises.

From Supercrunchers to Disaster Algorithms

Decision making by numbers is gaining respect for accuracy and overall utility as Ian Ayres argues convincingly in Supercrunchers. In spite of the harsh commentary by a number of reviewers on Amazon, I insist that the subject of the book demonstrates the power and limitations of techniques for quantifying phenomena and using those results for public policy or business strategy. My rating of the book would award a 4 star for demonstrating the diverse ways in which regression analysis and randomized testing could be applied meaningfully.

IBM has constructed a model that is intended to guide in the management of disasters and their mitigation. I am unable to make much of its real capability from the description here but still consider that if it is deployed primarily in assisting with decisions on the responses that work in managing the crisis, then it is likely to be a very useful model.

However, it is also described as an instrument for automating complex risk decisions and begins to sound as if it is a glorified model that financial houses use in predicting what next year's bond prices will be. My reluctance is driven by the fact that the complexity of the mathematics used in the model is not necessarily correlated to the overall accuracy of the model. To what extent is th e construction of this algorithm different in approach to those that many hedge funds used to diminish risk. As an earlier post on hedge funds reported, John Kay thinks that a model is just as weak as the assumptions built into it in addition to the inherent weakness of the model itself.

Abusing Evolution to Explain Economic Behavior

As a student of economics, I have had no problem in admitting the necessary principal theories in explaining a number of phenomena at hand. Indeed, the rise of behavioural economics on the one side and the fact that data is often unavailable in sufficient amount and of high quality to test general assumptions is a fact that a good number of professional economists would concede. Despite this necessary concession, I remain skeptical of the tendency to ascribe to evolutionary theory certain aspects of human economic and social behavior.

In this thoroughly enjoyable piece in Slate magazine, Tim Harford asks why there is a strong human tendency to resist price rises even when the fundamentals of supply and demand would make that price hike quite rational behavior. He cites the fact that manufacturers are loathe to raise prices for items such as PlayStations and X-box 360s in spite of the fact that such pricing action would equalize demand and supply and increase profits. I am fully agreed with him until he resorts to using purported behavioral instincts emerging from early evolution of the human species.

That evolution has real scientific backing cannot be gainsaid but I think that the evidence that it came with pre-programmed behaviour is not supported by science today. As Tim Harford clearly writes, the clever theories given for the existence of this odd behavior is unconvincing. This blogger finds the evolutionary explanation unconvincing too. Biology is a powerful instrument for explaining human behavior but that is no reason to use intuition to attempt explanations for economic behaviour.

Take Some Investments Away from Real Property

For many astute observers of world financial markets, it is clear that this is almost certain to be a very difficult and humbling year. For that reason, the housing crisis that has precipitated this series of financial crises has almost been written about to the extent that it is difficult to say anything new about it. What I suspect is less clear to students of economics is why all this started with housing. Especially since the conventional wisdom is that owning a home is one of the safest ways to invest one's money.

Writing in the regular NYT column, David Leonhardt writes about how US citizens came to be overinvested in real property and housing. Understandably, it all goes to the question of incentives generally and those that deal with the relative advantages -provided by public policy to housing and mortgages. Not only is a higher proportion of taxes deductible for real property but the nominal figure is also high. Considering the first principles that would suggest that people would respond to the incentives, it is altogether understandable that investments would not only be moved into property but they would be kept there in the belief that they would never lose value.

Before there were greedy corporations pushing mortages that were unaffordable for some together with a variety of creative financial instruments, the tax code was already tilted towards house ownership. What is unclear is whether the conventional wisdom has been exploded.

Should WIPO be Concerned With Cyber Squatters?

A number of posts on this blog have been dedicated to commenting about the difficulty in calibrating the degree of protection for IP rights holders. Whereas I am completely in agreement that a measure of rights is required to spur innovation, I am less sympathetic to the absurd claims that more stringent Intellectual Property rights should be bestowed upon corporations because innovation would otherwise come to a complete halt.

This document on WIPO's site, states that the WIPO has reported that the phenomenon of cyber squatting is increasing. To my mind, cyber names are numerous and the DNS system should be less concerned with a dispute between individuals on cyber names. It is quite unlikely that an individual that takes up a popular name would be able to use the same to market competing products for long before the customers of the genuine corporation are alert to the fact. For that reason, I am at a loss that WIPO even considers the phenomenon of cyber squatting as worthy of this much attention.

Carrying out a successful business on the Internet is a desire of many but one that only a handful of businesses will be capable of. Against that background, I ask why WIPO even considers cyber squatting a sufficiently serious vice to deter through arbitration. There are good number of firms that are less worried appropriations of names by cyber squatters primarily because most of the individuals doing this are unable to make much use of recognized brand names. I am inclined to think that save for a few cases, cyber squatting is just not very profitable and corporations should not negotiate with cyber squatters.

Japan Trying to Halve Garbage

Reduction of waste is a worthy endeavour where the goal is to reduce the costs of its disposal. Still, the measures reported here about Japan trying to reduce garbage by 60% obviously require rethinking. As a nation of some very affluent people, I am certain that the quest to reduce waste and cut down on the levels of garbage produced should not go to the extent of asking for citizens to carry their own chop sticks.Instead the approach should try to alter the relative incentives in using disposable chop sticks against the reusable ones. As i recall too, the disposal chopsticks are often made of wood and are perfectly replaceable.

Taxing the use of plastic bags as this blog has reported here and here recently would be the most appropriate way to go about it. It may help to recognize that any waste that occurs is driven not by the fact that Japanese society is obsessed with consumption but because there are no competitive alternatives. The spokesmen for the environment ministry ought to be cognizant of the fact that the highly productive economy would also be characterized by consumption. Again, it may help to look to Ireland as imposed austerity is not useful. It is unlikely that this is the last mention of this because many countries will be grappling with the quest for cleaner environment without taking a look at the most successful example. Bureaucrats pushing that ambitious goal would benefit from looking to Ireland.

Thomas Sowell On Economic Facts and Fallacies

This blog featured a quote here of the economist Thomas Sowell from an essay which I found rather incoherent. However, that was not intended to be an overall view of his work as an economist. I accept that he is a pretty clear thinker and good reviewer of data in trying to test the conventional views about differences in income between women and men, race inequality and other normative issues such as income distribution. He gets credit for his keen eye for data to support the views that he propounds and is known to be a myth buster regarding economic fallacies in this book.

In this podcast on the Library of Economics and Liberty site, he speaks rather clearly and at length about the issues of poverty, inequality in income and educational attainment, population size and immigration. His views on all but the last are not only pretty solid but appear to find immense support in the data that he marshals for the discussion. A good economist he certainly is, but he is less lucid and candid when he tackles the subject of immigration towards the end. I am certain this is because of the reluctance towards the acceptance of immigrants today among political conservatives.

As is noticeable, when questioned on his view about immigration policy, he quickly returns to an argument about a nation needing citizens more than workers. I do not know whether this theory is even testable and consider that his interviewer lets him get away with it as he has had a very good interview on his core subject of economics and its applications. Core contradictions are discernible in the fact that immigration is substantially responsible for the fact that the US remains one of the few high income countries with a young and growing population size. The distinguished professor trips when he attempts to justify a conservative political position that is at odds with the facts of immigration.

Not Ethanol But a Carbon Tax

There is understandable and altogether justified concern for global warming in many countries today. What one sees less of is well-considered arguments for the policy responses that individual governments may take or for a degree of coordinated action to respond sensibly to this issue. As this article by Jeff Jacoby of the Boston Globe reports, many people have considered that resorting to bio-fuels in general and ethanol in particular is one of the ways. Then things began to go wrong because the assumption was that corn growers must be granted subventions.

This would not be a defensible approach from first principle for many reasons but it has now turned out that the calculations were wrong and lots of public funds have gone to waste. Many politicians who supported this approach appeared to be merely intent on distribution of public funds to their constituencies. On the other hand, there was serious objection to the support for ethanol based on the flawed thinking that the rise in prices would lead to food shortages in low-income countries whose citizens would be priced out of the food market.

Since the piece is very well written, there's not much to add save that the approach to ensuring the reduction of use of carbon fuels is clear. It has been argued on this here before, a carbon tax would be a superior instrument.

Ethiopia's Central Bank Finds Fool's Gold

I think that the cynicism that libertarians have for government is confirmed almost every day whenever revelations of unbelievable corruption and incompetence is revealed. A story reported here and here about the discovery that a proportion of the bullions of gold in the National Bank of Ethiopia were fake would be funny if it were not tragic. Gold reserves and bullion in every central bank is considered the very basis upon which fiat money is issued with confidence.

Because all the facts are not out yet, I must be circumspect but this tells any curious student two main things. First, corruption and incompetence in the public sector can be quite baffling and the third is that considering that Ethiopian currency, the Birr is one of the stronger ones in the east African region, then the currency market is all about faith and perception. The gold standard is really dead! Consider that all this happens when the price of gold is rising.

Paying For Windows Vista

My personal preference in the use of computers is without doubt the Mac but I hasten to add that in my professional work, I bow readily to the ubiquity of PCs. So i tend to use the Mac at home and the windows-based PC at my place of work. As with most people, computing life started with the PC until I came to the realization that it is highly unlikely that windows will be sufficiently safe, convenient and stable enough to meet my overwhelming approval. I realized pretty late that given the wide use of the Windows operating system means that it must trade off some safety and stability to make it conveient for use by novices.

A story appearing on the NYT states that even influential managers within the Microsoft Corporation faced serious difficulties with functionality of the Windows Vista. Randall Stross carefully dissects the material presented at a lawsuit against Microsoft regarding the weaknesses of Vista against the guarantees that were promised.

Reading through the story as stated, one may come to the sensible view that the deadlines linked to the launch of this product ensured that it was released well before it was sufficiently refined in order to meet the expectations that consumers had. Besides the confusing labels such as "Vista Ready" and "Vista Capable", I am convinced that the internal communication reveals that in spite of the disappointment, the decision to go ahead was not necessarily an easy one.

Still, the main lesson for this blogger is that the mechanism for pricing of software is completely wrong-headed. This is because the later versions that are more stable are cheaper and carry larger discounts. Early adopters, who pay most of the initial costs and whose troubles and mishaps help in accumulating knowledge for plugging the gaps and correcting the mistakes get a very bad deal. Is there no reason why the early adopters should be made to understand that the initial versions of the software are really beta versions and that they will without doubt suffer from instability and compatibility problems? In exchange for this admission, the guinea pigs ought to get a significant discount since the feedback from them would probably lead to the betterment of the product which would perhaps increase demand. Come to think of it, the upfront discounts would not be appropriate perhaps because software companies such as Microsoft have to ensure that they make the most money from the first versions before the pirates cash in.

Does This Fake Ferrari Harm Sales ?

This blog featured a post about a dispute between Ferrari and a customer who extensively modified a genuine Modena 360. The thrust of the claim by Ferrari was that the modification resulted in a non-genuine car that should be stripped of the recognized car maker's logo. This blogger argued that the demand for a genuine purchaser of a item to alter his property by accommodating the demand for removal of that logo is at odds with the right of the purchaser to utilize his property in accordance with his wishes. Having sold the vehicle and received its full value, there ought not be any further demands on the manner of its use and modification.

It appears that that that was an even simpler case because there is now a fake Ferrari P4 made in Thailand that is on display in Brussels. The interesting bit from the story is that this is an imitation of the classic model and is run on a Subaru engine. On this occasion, there may be a weak case for limiting the ability of the constructor of the fake Ferrari to pass off. the surprising fact though is the wholesale conflation of the dangers of pirated goods and the false analogies with fake medicines. That the Authentics Foundation has to use a fake Ferrari to make the case for counterfeit drugs is an exhibition of the weakness for stricter IP claims especially regarding electronics and other goods. the connection that is being suggested here is spurious because counterfeit medicine is harmful not because its manufacture are intent on undercutting excessively priced branded names.

In my reading, the broad trend here is that as technology improves, there will be individuals with the ability to create imitation products and that their number will continue to rise. what is clear is that the corporations such as Ferrari would spend their money to improve the recognition of authentic products and spend less money and time on fighting the aspirational imitators. Indeed, public resources should be used sparingly in the quest to fight product piracy. As for the aggrieved corporations, I am unconvinced that these fake Ferrari's really hurt either the sales or the image of the authentic ones. To insist on wiping them out and making analogies with dangers to health from fake drugs is the disingenuous quest to extend the reach of IP regimes. As it is, any purchaser of expensive and genuine products could affordably verify authenticity by starting with the tips at the Authentics Foundation site.

Who Owns This Modified Car?

An interesting story appearing in the Times here, illustrates the absurdities that arise form an exaggerated extension of the concept of trade marks. While Dan Cawley legitimately purchased a Ferrari 360 Modena and paid its full costs, the corporation is intent on restraining him from the uses to which he can apply his property. I am surely at a loss as to what the corporation thinks it is protecting by starting a fight with its client for modifying the vehicle, which has become almost beyond recognition as a Ferrari 360 Modena.

Granted that Ferrari may have property rights in its unique trade mark, I am almost certain that anyone who qualifies to be their client would notice that the limousine that Dan Cawley has created is not a Ferrari at all. I think that this aggressive application of IP rights ought to fail. As Dan Cawley states, he ought to be able to make any modifications to his property as he wishes because in spending the many Sterling pounds that were exchanged for the car, he acquired exclusive right to it. That modification leaves Ferrari with no loss save that Dan has probably compromised the stability and performance of his own car.

Use Chemistry to Determine Alcohol Taxes

The one area in which governments receive little resistance when applying taxes is in respect to alcohol and cigarettes. It is almost taken for granted that there is justification for hiking taxes on these two since they are not considered completely essential. In the UK in particular, one of the debates has been on applying taxes to the category of alcoholic beverages known as "alcopops". This is a category of alcoholic beverages that are sometime brightly colored and altered taste but do have a significant alcoholic content. the conventional wisdom is therefore that this leads to the consumption of a higher quantity than would be otherwise consumed.

In this news item, the Conservative Party of the UK is now proposing to raise taxes substantially on this category of alcoholic beverages because they are argued to cause binge drinking. Indeed, the major argument is that this category of beverages are problem drinks and that increased taxation on them would be used to reduce taxes on the others.

Apart from my curiosity about the tag "problem drinks", both parties seem to be unwilling to correctly define the problem. To my mind, the issue is not the consumption per se, but the quantity that are consumed. the appropriate response would be informed by the realization that "alcopops" may merely represent a concentrated form of alcohol. A better way to consider taxation of alcoholic beverages is to calibrate taxes based on the quantity of alcohol by volume irrespective of the name of the product. In that way, there would be no need for the cross-subsidy but all consumers of alcohol would pay taxes in accordance with the quantity of alcohol that they consume as opposed to brands that they chose. After all, inebriation results from the amount of alcohol ingested and not the name.

Record Crude Prices: whose benefit?

Sometime this week the real price of a barrel of petroleum reached a new record when it momentarily surpassed the highest price set in 1980. Due to the fact that the main producers of crude petroleum are a concentrated club of countries, one sees this new price as a necessary boon to the countries and by extension, to their citizens. Yet it is not always so.

High prices may be good for producers but the economies of most petroleum producers are characterized by subsidies for petroleum fuels and other basic commodities. So while food prices have risen dramatically in countries that import petroleum fuels, these price increases have began to affect the economies of petroleum producing nations. This story in the NYT illustrates clearly the fact that producers of petroleum and other commodities are not immune from these dramatic inflationary pressures. The reason is simply because given its uses in industrial manufacturing and transportation, energy costs are a major driver of inflation in a large number of countries. Added to this is the tendency for most of the petroleum producers to peg their currencies to the US dollar which has been dominant world currency but is presently getting weaker relative to alternatives.

In order to forestall further unrest, the governments are taking the option of either extending the subsidies or raising wages for public sector employees. This is surely no solution because these subsidies can only be maintained for as long as the prices of crude petroleum remain high and the accumulation of reserves continues. What one can be certain of is that the prices cannot remain this high for the long term. Granted that there's no silver bullet, the solution lies in structural reform of these economies and yet this is unlikely when crude petroleum prices remains that high.

Cash for The Girl Child

A common characteristic of underdeveloped societies is the bias that families show towards male children and adult males over their female equivalents. While few people still argue that this bias no adverse developmental effects, it has been found that the mere identification of that fact and injunction to families to treat both sexes equally hardly suffices.

A story reported here, shows that the government of India has initiated an experiment to raise the value of the girl-child to families by providing a number of incentives intended to ensure that certain desirable benchmarks are met. As it states, the state undertakes to provide direct cash incentives for families to ensure that their girl children receive vaccinations, are retained in school and eventually delay marriage until they are at least 18 years old.

While one may object that no parents ought to be "bribed" to provide equal chances for their children, I am fully in support of this idea because the children will invariably benefit from this irrespective of the biases that their parents may hold. With the commencement of the "Dhan Laxmi" pilot scheme through 11 blocks in separate states, it is possible to track the uptake and the benefits and measure the effectiveness of the programme through a randomized study. I will preempt the results by stating that this is in most probability a good investment in Indian children. The rest of the world should watch keenly.

Quoting Philip Musgrove

"Of course, what economists think they know is often a mixture of what they know and what they only think, including their more ideological positions and beliefs." Philip Musgrove, In, Health Economics in Development P.24

Trading In Elephants

Conservation of the elephant is one matter that places many African countries such as Kenya and other southern African countries in conflict at the global stage. The essence of these arguments is that there's a surplus of elephants in southern African game reserves in Zimbabwe, South Africa and Botswana. On the other hand, most East and West African countries have had declining elephant populations since the 1960s because of poaching and illegal hunting.

The value of the elephants for these countries is in the revenues from tourism and the possibility that the ivory may be traded. Since it has a market value, there is substantial trade in ivory supported through illegal hunting. At the 14th CITES Conference of Parties, a substantive agenda item was concerned with a review of the moratorium in trade on ivory. Understandably, Kenya and Mali, being countries whose elephant populations continue to face the threat of illegal hunting, proposed an extension of that moratorium while South Africa and Botswana wanted to be able to get rid of existing stocks of ivory in their custody. In the end, a sub-optimal agreement was reached to extend the moratorium for another another twelve years though the final agreement was for an extension of nine years.

In this article on the BBC news site, the South African government announces that it will allow a cull of elephants to control their population. apart from the protests of the conservations groups who claim that this is inhuman and who are opposed to any interference with the animals, it is clear that this state of affairs is far from efficient. As first principles in economics would state, parties do benefit from trade and the east Africans should offer to buy the elephants from the south African nations to boost their own elephant populations and tourism. The revenues generated from toursim could be used to compensate the south African governments in addition to designing systems for the protection of the animals from illegal hunters. It is clear that the mere extension of moratorium after another at the CITES meetings will neither stop illegal hunting to support the demand for ivory. As it appears so far, the South Africans are bearing the burden of an international agreement built from emotive arguments without consideration of trade between the parties.

Bookmakers Deserve Their Profits

Granted that bookmakers create a product from sports events and make decent returns from designing and taking odds on the outcomes, the basis of this claim by sport organizing bodies in the UK is just beyond belief.

Essentially, their demand is to share in profits generated by bookmakers who take the risks associated with the outcome of the events. To my mind, this is a reflection of the inability of these bodies to generate their own revenues hence the alacrity in clipping a share of the profits of anyone connected to sports. They should fail in this. If, as they state, their claim is based on the need to assist in fighting match fixing, then a close observation of the odds and some clever forensics work suffices. Sharing profits will not ensure that there's less match fixing especially as the sports bodies will have an incentive in ensuring higher incomes for the bookmakers. This proposal ought to fail for being utterly disingenous.

Public Costs of Obesity: Myth or Fact?

There's an unhealthy obsession with the fact that a proportion of citizens of many countries are classified as obese. While I am reluctant to accept the claims of impending doom from the Obesity Epidemic, I am not opposed to benign public education and tax measures on the high calorie foods that lead to weight gain and subsequent health problems for individuals. What I have been opposed to in earlier posts such as this, is the imposition of any diet plans on students or adults under the guise of reducing future expenses to the state from morbidity that is driven by obesity.

I was therefore surprised by this piece by Daniel Engber in the Slate Magazine which summarizes a paper by Dutch researchers challenging the conventional view that providing medical care for fat people is inherently more expensive. Starting with the received wisdom that morbidly obese people have shorter lifespans, the consequence of this is lower medical costs on the whole. Essentially therefore, the cost savings argument that is used to justify interference with individual choices is not well-considered. There may remain a legitimate reason to make obesity a public health issue but cost savings on health expenditure is not one of them.

All that's left than are the secondary arguments of productivity losses and improvements on quality of life. As I may add, all these are important but rest entirely within the domain of personal choice. Or don't they?

Chandigarh Should Look to Ireland

In an earlier post here, I extolled the fact that Ireland has made great efforts at achieving near plastic free status entirely through the careful application of elemental principles of Pigouvian taxes. Now, the Indian state of Chandigarh has decided to pursue similar objectives through an entirely different route. Chandigarh has chosen to brandish the bureaucrat's most potent weapon: an outright ban. I am surpised that the idea appears popular as reported here.

While it is understandable that state officials may share the public's concern about the adverse effects of indiscriminate use of plastic bags, it appears that some economist did not remind them that the problem is not plastic per se but the failure of manufacturers and users to pay the cost of proper disposal. In other words, plastic bags are not adequately priced. Following the path of least resistance involves a rehashing of the dangers and great harms caused by the use of plastic retail bags and therefore to easily resort to a law and order approach of indiscriminate bans. I wish them luck but are certain that this ban will not efficiently accomplish that goal or at all.

Why Punish Investment Bankers?

"Lord knows I suffer from the riches of bankers, like everyone who lives in London or New York alongside them. But the fact they are paid as they are is a matter for individual resentment, not official intervention". John Gapper

It is difficult to add much to this concise statement in an article in the Financial Times because the clamour for the regulation of wages for investment bankers is ill-informed. This is essentailly because not all investment banking institutions have been as casual in pushing out products of dubious value and laws ought to be able to assign responsibility without wholesale condemnation. Given a choice, I would much rather have a slight raise of the marginal tax rate than wage regulation.

Do Information Markets have Limits?

Information markets are gaining a good name as fairly accurate predictors of events in the future. more pertinently, they are used now to test the probability of electoral outcomes for specific candidates in addition to sporting or other events. Accepting that I have simplified the logic behind it, it is claimed that information markets are approximations of futures markets to the extent that they allow informed players to wager bets and stake money in the results. They have been accurate predictors of the outcomes political contests and in cases even been more accurate than pre-election opinion polls. So far so good.

General excitement in the discovery of a new tool brings to mind the fact that novelty leads to the possibility that its real limitations are not taken into account. David Leonhardt, writing in the NYT here, identifies some of the existing weaknesses of Intrade and how those are being exploited.

As if the lesson deserves to be stated again, the exuberance was obviously unwarranted because the equity markets in which information markets are modeled are not perfect predictors either. Therefore, Intrade may have a thin market with a small number of really savvy traders on some of the calls. This sounds to me as the same problems that afflict a number of futures markets too. The article nails it with the statement that these markets are not as advanced as their most vocal supporters may claim.

Hugo Chavez's Dangerous Bluff

Hugo Chavez is reported here to have sent out a threat lacking subtlety about cutting off the US from supply of crude petroleum. One wonders whether he understands what the real effects of this would be. The US is still the major buyer of crude petroleum and it is a sensible argument that any real conservation efforts from the US would be critical for prices to fall internationally. Taking account of the unintended effects, US consumers may simply purchase petroleum from an alternative source or start on a long overdue conservation effort through improvements on engine standards and an alternative energy source.

Once the SUV drivers are compelled to demand cheaper fuel and labs set to provide an alternative source, it would be a matter of time before crude petroleum producers have more petroleum than they can sell. Mr. Chavez ought to be careful what he wishes for because he may just have it. He may be a brilliant polemicist but he should review this threat.

Data Rules Baseball

Any person familiar with American sports will have noticed the claims by the Mitchell Report stating that a number of baseball athletes did take performance enhancing drugs some years back. These drugs are the Human Growth Hormone and steroids that are banned by the Major League Baseball. From the perspective of economics, it is easier to understand the incentive for an athlete to take banned substances weighed against the possibility of capture and suspension. Financial rewards that come even with a moderately successful sports career in the MLB today is substantially high in my view to tempt a number of athletes into taking that risk.

One of the athletes that has been named in the report responded by appointing statisticians to supply statistical evidence showing that the accusations in the report do not apply to him. This NYT piece put together by a group of statisticians and the Economist Justin Wolfers have looked at the data and drawn very interesting conclusions. It makes for an interesting read but is clear that there was clearly selection bias in the data and the metrics used in exonerating the athlete. In addition, it states that Roger Clemens had a very unique late career when considered against the historical record of peers. To their credit, they state that evidence of drug use cannot be gleaned from an examination of the data but that it is clear that Roger Clemens had a very unique career history and that the reason cited in the report in defense of his record is not supported by any data. However, the argument remains open and Ray Clemens may yet provide the exculpatory data and analysis but I do not bet on it. Teachers of economic theory and emprirical economics may cite this case to make classes fun while demonstrating the value of all that data crunching.

Ireland Nearly Plastic-free

Development economists have named Ireland the Celtic Tiger in reference to the great achievements in economic growth and improvement of the material conditions of citizens that that the country accomplished over three decades. Indeed, an earlier post highlighted the country's sensible and admirable approach to policy questions. Responding to another public policy question, this report in the NYT shows that creative societies do not stop applying the most basic principles of economics to those questions.

Irrespective of the views that may be adopted by the majority, it is evident that plastic bags are cheap and convenient for carrying groceries but are an aesthetic and environmental nuisance. As a purist would suggests, a tax on plastic bags ought to be imposed to ensure a reduction in their use and the possible rise of an alternative. Through the imposition of a tax on plastic shopping bags, Ireland saw a 94% reduction in their use and this has persisted. Outright bans would hardly have been half as effective.

In addition to the willingness to apply the basics of economic theory, the success of the initiative must be attributed to the fact that the bags were imported hence strong protectionist pressure from a domestic manufacturer was absent. One can only hope that when the facts are clear and the policy objective is understood, then the application of the principles could be this easy. And as successful!

Will Ryanair Charges Change Travellers Behavior?

While I have not taken any flight aboard its planes, Ryanair is a corporation that I have lots of respect for because it has perfected a mechanism to ensure air travel at very competitive prices. Part of the strategy appears to be that it keeps the flights very simple and saves customers from paying for the style that goes with flying and thereby only provides a seat and minimal entertainment and snacks during flight.

A story here shows that the corporation has introduced the idea of charging for luggage that its passengers carry onto flights. The plan is to allow only a single piece of luggage and to resort to punitive charges in a bid to alter the behavior of its customers. As the story states, the rates applied for extra luggage could surpass the amount paid for the ticket itself.

In spite of complaints from consumer organizations quoted on the piece, the express announcement that the airline intends to ensure that there is little luggage to transfer to the hold is defensible. Its easy to see that for a lower budget airline, quicker turnaround times added to a low staff costs are immensely significant factors. It would be worthy of assessment whether consumers in the future opt to travel light and save money or simply take up the costs. Travellers would have to consider the value of carrying three bags onto a flight across cities. While I am unsure about the determination of the price, one can see that someone in this corporation knows that incentives can be used to change behaviour. It may be that passengers fail to respond in the expected way but for as long as they do not travel with a competitor, this may be a welcome revenue stream. Flights may be run inexpensively but perhaps not so for luggage. I am sure that competing airlines are observing this very keenly.

Is Northern Rock the End of Gordon Brown?

Forecasting about the futures of politicians is a game that this blogger eschews because I think that it is the hobby for charlatans. However, it is clear that since his elevation to the premiership, Gordon Brown has faced really difficult times and takes responsibility for bad policy decisions of his government. Anatole Kaletsky of the Times writes about the decision by Gordon brown to save Northern rock, a bank that has faced financial difficulty.

It is a fine article in terms of the analysis of the errors of the convoluted arrangement and the fact that it will merely ensure that tax payers assume the risks while the profits from the rescue package are largely taken by private corporations. I agree that it does not represent a good deal for British tax payers and represents political opportunism. As the piece states, as it stands, this is merely the "nationalization of risks and the privatization of gains".

This blogger accepts that the risk of contagion makes it necessary to attempt to forestall the collapse of banks. However, in light of the principle of considering the opportunity costs of such a delayed and expensive package in addition to the moral hazard, it is clear that decisions to save banks should be the exception as no bank should be saved at all costs.

The Lessons of High Commodity Prices

Part of the argument regarding global trading has been the uninformed view that commodities from low-income countries are available at low prices hence the poverty of farmers and the citizens of commodity exporters. Less informed commentators even suggests that there is a widespread conspiracy to keep citizens of low-income countries poor by depressing the prices of these commodities. Prices of agricultural and other commodities have risen substantially in the last three years and this has been a boom for the citizens of these countries who grow these commodities.

One of the commodities that has seen a rise in prices internationally is palm oil from which is produced most edible vegetable oils. This story shows that the price hike has led to rising incomes but the more important factor driving that trend is the rise in demand for the product. Indeed, the increased demand is a boon but it has had several unintended consequences. One of these is that fact that food prices are trending upwards too with serious consequences on the ability of low-income people to purchase sufficient amounts. Equally interesting is the smuggling and movement of the product to markets where the subsidy levels are lower such as Singapore. The differences in policy are creating real opportunities for arbitrage and more market distortion.

As the high prices provide incentives for growing more crops both for bio-fuels and for food, the products will find use in the industries that will ensure higher returns for the producers. The lesson is that the clamour for higher prices for commodities is fine but efficient markets should be the better choice. As is expected with commodities, the real prices will come down over time even if it looks extremely idiotic to mention that in January 2008.

Trade Between the UK and China to Expand

Gordon Brown is on a visit to China and part of the news coverage from BBC news captured the discussion of the expected expansion of trade between the UK and China over the medium term. However, I am inclined to believe that neither the British Prime Minister nor premier Wen Jiabao are sure that trade between the two countries would expand 50% by 2010. How could they be so specific?

Surely, the two must be aware that there's no way that international trade is bound by a linear formula that would tell about the amount of future trade flows with that degree of accuracy. Indeed, through trade agreements and mutual cooperation agreements, the trade would expand. Still, the idea about pinning a specific number is meant to impress the press and the businessmen in the audience.

What is required is an unequivocal undertaking towards unilateral trade liberalization which would expand trade between the two nations and other nations too. There's no need to pluck from a magic hat to illustrate the importance of trade between the two nations. impressive part about the event is the confidence that Gordon Brown exhibits that Chinese manufacturing could be gelled with the UK's service industry advantage for the mutual benefit of both.

PFI Projects Fails Value for Money Audit

There is a reasonable argument for outsourcing functions that are performed by the public sector to the businesses under the Private Financing Initiative. The logic is that the public sector in most countries is not so established to undertake routine repairs and maintenance work and therefore it is sensible to have outside corporations contracted for those tasks.

Oftentimes the private corporations present very competitive bids in the first instance and after the vigilance is reduced, begin to hike costs and engage in profit maximization at the expense of the tax payers. This report states that the national Audit Office of the UK found that there's an almost tenfold variation in the prices for carrying out certain tasks. This flagrant overcharging gives the idea of outsourcing and private public partnerships a bad name. Still, it appears that design of the system to ensure that the public gets value for money. Granted that the report appears to have highlighted the worst cases of abuse by contractors, even outsourcing and private contractors may game the system.

Are Think Tanks Useful?

Arguments about the contribution of think tanks to public policy remain in spite of the existence of very influential institutions in both Europe and the United States. This argument is rehashed here and provides a definiton then proceeds to traceing the emergence of think tanks in the UK and the policy influence that a select number have had. While this blogger acknowledges readily that the variety of think tanks in the UK and most of the world is no evidence of their utility, it is disingenuous and cynical to state that this influence has been the exception.

An interesting point that may be mentioned is that the quality and utility value of ideas put forth by think tanks is varied and that it is possible that some are sharper with advocacy than with research. It is also incorrect to argue that the only value that think tanks would have is to directly influence policy because those that maintain opposing views possibly cancel each other out. Public education on the workings of the market mechanism and the benefits and costs of alternative economic policies through research forms a significant activity by major think tanks.

Apart from the IEA, the Adam Smith Institute and Globalisation Institute in the UK, there are a number of influential think tanks generating cutting edge research in the UK and other parts of the world. However, the US remains the capital of think tanks with a very rigorous research and publication record in areas of public policy.

Betting on India or China

To the extent that a natural experiment on economic development has been set up, the different political systems and trajectories taken by India and China will be instructive . The reason for this being that they are large in both geographical and population terms in addition to having a largely rural and peasant populations. Pertinent differences between them starts with the fact that China's development is based predominantly on manufactured exports while India's growth is presently driven by a service industry of highly educated citizens. added to the differences in the drivers of growth is the fact that India is defensibly classified as a democracy whereas China's government is still authoritarian.

For this blogger, the nation to bet on has been India on account of the fact that its democratic system of governance may be cumbersome, but it allows for a variety of policies to be tested and discarded. On the other hand, China is able to keep dissent underground and make difficult decisions momentarily but that this is impossible to maintain indefinitely. Indeed, a number of publications show that China may be calm but is not necessarily conflict free. Some of the main posts on this blog have therefore consistently questioned the conventional wisdom stating that China's rise into an economic power is inevitable.

John Kay seems to consider that India's growth model based on export of services is unprecedented while China's approach seems to be in the tried and tested path of attracting peasants from land and into wage manufacturing. It states that this industrialization model allows for mass participation in the economy. Will India have to revise its growth drivers before China is compelled to address the political reforms that it's citizens will demand? The experiment is on and the next decade will begin to yield answers.

Scottish Criminals Subsidize Football Teams

A certain category of crimes are motivated by desire to derive economic benefits from an activity that is considered illegal. Governments are therefore resorting to statutes that ensure that the proceeds of crime are confiscated by the state. In an earlier post here, I have stated my reluctance to support laws that are designed to directly confer benefit to police forces or other law enforcement units. The main reason being that this leads to a distortion of incentives towards pursuit of criminals who hold property. In addition, there are a number of activities such as narcotics enforcement that could be handled by structured legalization because the profits from them arise from the fact of illegality in the first instance.

BBC News reports that in pursuit of its laws defining the treatment of the proceeds of crime, the Scottish Government has dedicated ₤2.2 million to support schools-based football teams. The Cashback for Communities Scheme focuses on this activity and is probably intended to get public support for the overall scheme. However, I am reluctant to accept that this is an efficient way to use the money in addition to questioning the assumptions about supporting youth activity to deter future crimes.

In addition, this cash injection is an overt subvention to both the Scottish Football Association and by extension the professional football clubs who would employ the successful students from the coaching. Affluent enterprises such as professional football club should not benefit from the confiscated property of criminals. This merely demonstrates the bizarre effects of the zest to punish criminals. Greater thought ought to go to better use of the money.

Let Apple Price its Music

This IHT story shows some really bizarre actions by the European Competition Commission against Apple. The substance of the action is that the commission accused apple of unfairly making British buyers of music from the iTunes stores in the UK to pay a higher price than equivalent consumers in the rest of Europe.

Despite my unqualified enthusiasm for enforcement actions that increase the degree of economic competition, I am not sure that the commission is working in the the interests of the consumers by trying to impose a standard price within the EU countries. Instead, the Commission would be better advised to seek to abolish the requirement that buyers of music must use a payment card that was issued by a bank based in the country from which the purchase is being made.

Considering that music is a now a good being purchased and delivered through the internet and consumers should not be compelled to make purchases from specified sites based in certain countries in the first instance. That restriction is a far greater hindrance to competition that harms consumer interests than the price discrimination that that the commission is sweating about. In a single market, consumers ought to be able to purchase goods using a card issued in any member country.

Even more puzzling is that this complicated situation is the result of different requirements of copyright laws. The story suggests that part of the settlement will lead to the creation of a single market for music. That is what the Commission should have sought in the first place and left the matter of prices alone.

Choosing Between Income and Purchasing Power

One hears many comments with varying degrees of sophistication about the inevitability of China's economy overtaking that of the US in respect to absolute size. This blogger considers that forecasts in the growth of GDP based on today's rates are bound to be highly inaccurate over the medium to long term. Therefore, I am quite circumspect and consider that the probability of that happening to be slim.

What one hardly hears is the possibility that incomes of residents of the UK will catch up and overtake those of US citizens. Reading this piece from the BBC News site, I was astonished by the claim that that UK incomes will surpass that of US residents. Knowing that the US economy is especially vibrant, the reasons cited for that fact are even more telling. One of the reasons has been that the UK economy has grown consistently since 2001 and the other is the relative weakness of the US dollar.

Surprisingly, while the average income for the UK resident has passed that of the US resident for the first time since the 19th century, the relative openness and competitive nature of the US economy implies that the US resident maintains the higher purchasing power. Sustained growth and intense internal competition appear to be the harbingers of high income and meaningful purchasing power.

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.