Can Regulation Save Angkor Wat?

A couple of months ago, I attended a conference in the Cambodian City of Siem Reap. Naturally during the stay, I and some colleagues visited the ancient city and religious complex of Angkor Wat and was impressed not only with the scale of that cultural edifice but also with the degree of scientific knowledge that led to the construction of a building that precedes by centuries Asia's most valued structure, the Taj Mahal. 

Thereafter, I took some readings, watched a documentary speculating on the both the purpose and the religious leaders who brought the construction to its height. All this while, I wondered how to justify the inclusion of those pictures on a blog dedicated to the discussion of applied economics and public affairs.

It appears now that I need not have worried because Ben Doherty of the Guardian states that the Angkor Wat complex is threatened because of the illegal extraction of water by corporations. As it is, the land on which the complex is based is an original swampy area that enabled the planting of rice from the reverse flow of melted glaciers of the Himalayas. Rising number of tourists is creating a demand for more water whose extraction from the ground threatens the foundation of the ancient religious city.

Wearing my thinking cap, this situation illustrates once gain the fact that tourist receipts that are arguably helping to fund the conservation of the complex have the unintended consequence of leading to water extraction whose longer term effects are yet unknown. there's no clear policy response here save to estimate the amount of water extracted and charge hotels and other establishments for that extraction since the state owned corporation is unable to supply sufficient water. Regulation here is necessary and a sensible reaction because the businesses that thrive in Siem Reap rely to a large extent on the enormous tourist appeal of the Angkor Wat complex. The number of visitors is impressive but I am certain that Ben Doherty has got the population of Siem reap right because I assessed it at far more than 200,000 people.

Currency Manipulation Has Limits

Reading many analyses of China's export performance today, I always wonder that everyone has an opinion on the merits maintaining a low exchange rate as part of trade policy. to my mind, many people are probably misreading China's export competence as entirely driven by currency manipulation and this may lead to a policy disaster before long. Ttrue, maintenance of a low exchange rate vis-a-vis the US$ has allowed China to maintain a trade surplus for a long time. Opinions are understandably divided whether the US should try and coerce China to revalue its currency appropriately or whether as Anatole Kaletsky states in the NYT here, this is part of the new Asian model of growth and development that the US would be well advised to learn to accommodate.

While I have not studied currency pegs much, it is clear to me that the copy cat tendency of mostly Asian countries in competing in currency manipulation so as not to lose export opportunities can only work for so long. For all China's capabilities, it is unlikely that a low currency alone will ensure all anticipated growth for all time because of the ability of other competing nations to engage in the race to the lowest currency. Tim Webb of the Guardian newspaper states that Brazil has already thrown out an alert to the possibility that further aggressive manipulation could result in a "currency war". Brazil may not be China but given the copy cat effect of currency manipulation and the rush to ensure exports, this policy will not be effective for most of these players for long because it is far too easy to copy.   

Musing on Laffer Curve and Government Size

I attended a brain storm session with some officers of the public sector together with some scholars and a few professionals of various background sometime during the week. While it was not specifically mentioned, many suggestions seemed to take the Laffer Curve as embodying truth. As a libertarian, I was led to think more clearly about the contradictions that inhere from supporting tax cuts as a mechanism of raising more revenue.

My personal view is that at all times, it is more preferable to consider the lower marginal tax rate in designing policy. This means that while I may be reluctant, policy choices may sometimes require raising the tax rates as a matter of fact. What I found disturbing is that a fiscal conservative should be careful in arguing that more taxes follow from lowering tax rates because of the assumed rise in total tax collection. To my mind, this is inconsistent because if that were true, then the rise in revenues would mean that lower taxes lead to bigger government. And that's why I maintain that lower taxes as supported by libertarian thinking is more defensible because it merely argue for letting individuals or corporations to keep a greater share of their incomes. Anything beyond that is to overstate the need for lower taxation.

Isocrates Warns Modern Greece

Vanity Fair published this microscopic view of the Greek economy and culture by Michael Lewis whose description suggests how they country gamed its way into the EU monetary union system through subterfuge. It is an article worthy of careful reading as it suggests that the monks of Vatopaidi monastery are too clever for the overpaid, corrupt and unsophisticated bureaucrats.  His conclusions about the prognosis for the Greek economy into the future are a serious cause to worry as both the public and bureaucrats are unwilling to examine the society's many shortcomings and structure incentives differently.

"Democracy destroys itself because it abuses its freedom and equality. because it teaches its citizens to consider audacity as a right, lawlessness as freedom, abrasive speech as equality, and anarchy as progress".

Lewis picks up Isocrates' injunction above  which forewarned about the dangers of democracy without responsibility. I doubt that democracy condones free riding and widespread mendacity. With monks as smart as the those in the Vatopaidi Monastery, Greece yet has a future albeit one that will require living in a more spartan way.

Niederhoffer on Being Wrong

The discussion about what were the real causes of the financial crises of the last two years will not end with a firm resolution and I have resigned myself to that. And while dwelling on blame is not useful in my view, what I know is that hedge fund managers have got a bad name and yet they have been the most gracious losers among the whole lot of people who took risks. In my view, most bankers who were culpable got way far too easily and those that survived are now back to profitability without proper public acknowledgement of their culpability. 

On the other hand, hedge fund managers seem to be the real adults in the financial services industry because many of them took it on the chin and went on with their lives without crying for public support or blaming others. Among them is Victor Niederhoffer who had good investment record but also had two of his hedge funds collapse out of bad investment calls. 

His interview in Slate Magazine here with Kathryn Schulz provides his views about the errors that he committed on two occasions and the losses that he took when the funds collapsed. That he is a smart man is not in doubt and in the interview, his admission of errors and hubris is reason to respect his candour and sense of self-criticism. But more importantly is that hedge fund managers get a bad rap when most of them went down with their ships while banks got bailed out through public money. Banks should not be too big to fail and like hedge funds, their failure would be good for markets.  

How to Cut Airport Queue Times

A couple of days back, I was on a queue at the Schiphol Airport in Amsterdam when I overheard a conversation between a group of three people that I surmised were traveling together.  In summary form, one of them urged the others to stick to the queue that he had taken because the nearby queue had a number of darker skinned people whose documents would be subject to more onerous scrutiny and therefore would slow down the queue.

To my mind, this piece of wisdom shows two things about airport security. The first is that many travellers understand that the perception of danger by travellers is regionally and perhaps racially concentrated as well. The second and most important point is that travellers know that the measures at these borders lead to a waste of time for other travellers.

Crime is Enemy, Not Gangs

In the last couple of months, I have been particularly alerted to the fact that most private and even public policy is based on very limited evidence and big assumptions. One need not be a very keen reader of the more popular books by professional economists to understand that a large portion of conventional wisdom is flat out wrong when examined empirically. One such area is that of crime reduction and suppression where a lot of untested but popular assumptions that seem sensible are often used to anchor policy.

Writing for  Econlib Russel Sobel summarizes the idea that the whereas law enforcers readily pursue destruction of gangs, the empirical evidence suggests that that approach is wrong-headed. Arguing cogently, the rise of gangs may be associated with higher crimes but the direction of causality is that insecurity causes the upsurge in gang formation. Having reviewed some time series data, he alludes to a paper showing that gang activity is rational response by youth who face a risk of violent crime. As a result, the single-minded quest to eliminate gangs is ineffective policy because gangs arise out of failure of the state to provide protection that is required. Unintended consequences of a successful suppression of gangs may be a rise in crime because of the eroded protection that gangs provide to individual members.  In summary, the paper leads to the conclusion that law enforcers should destroy crimes, not gangs.

OPEC at 50

On 14^thSeptember 2010, the Organization of Petroleum Exporting Countries (OPEC) will be fifty years old. It was formed in Baghdad with the main idea of collective action to increase the rent on oil by the five original member countries. In many respects, this is one of the most blatant forms of cartel organizations in the world and has significant power on energy prices.

My view of the OPEC is that its membership is entitled to control their petroleum and have often used petroleum resources and prices for political purposes too. The profile of its members is interesting because these tend to be hard core dictatorships who expect to use their vast resources as tools of foreign policy. The statement by the secretary General of OPEC here maintains its actions have contributed to faster recovery from recent economic trouble.

So its definitely an achievement for an organization to be alive for half of a century and with expanded membership. I am less confident that it claims to be a source of global supply and price stability because many low-income countries suffer the effects of coordinated petroleum price setting. I am certain that the nett effect of the existence of OPEC is not positive.

Professor Mankiw's Advise to First Years

It is not for nothing that I follow a number of famous professors of economic, not least of whom is Gregory Mankiw. That he is a highly capable economist is not in doubt and I often find that his textbooks provides sound ongoing education for me. In this week's piece in the NYT, he has some advise to students joining colleges during this summer.

While I think that he is perfectly placed to offer that advise because he is a professor, the quality of the advise astounds me. he does not only stress the need for students to seek to appreciate the subject of economics but goes ahead to explain why that is indeed important. Added to that is the injunction to learn some facility with numbers in the form of statistics and probability theory while being alive to the fact that psychology would supplement a fuller understanding of human behavior. In perfect humility that is rare among accomplished professors and best selling author, he is alive to the variety of advise that first year students will be bombarded with. Accordingly, he tells them to ignore advise as they judge fit. that too is true but I hope that they all cut out or mark this page and read it as they start the exciting academic journey.

If I could add to that list, it would be that every student should try and understand principles of a natural scientific discipline and some course in logic. Given the ubiquity of information of varying veracity, ignorance is not virtue and very thin specialization makes people myopic.  

Kenya's Population Below Forecast

Kenya conducted a population and housing census sometime in 2009 but the results were not released by the Kenya National Bureau of Statistics until sometime this week. The most interesting fact in that data released has been totally missed by the press and commentators and instead there are stories about how the country's population is growing by at least one million people annually. In my view, the statement that the population grows annually by 1 million people is not useful at all especially if neither the base nor  the doubling time is unstated. And yet press statements have concentrated on trying to push through the idea of high population growth rates with undertones of a demographic disaster.

The point that has been completely missed is that the forecasts made about Kenya more recently had placed its population at a minimum of 40 million people. The complete count from the highlights show that Kenya's population is at 38.6 million. That is still a large population as it places Kenya among the top 50 largest countries by population. what is shows is that the Malthusian understanding of population growth remains the dominant lens for viewing demographic phenomenon. 

One presentation included on the site states that the whole undertaking was accomplished at a cost of US$ 104 million. At a cost of US$ 2.7 per individual, it looks like an efficient way to capture data that should find better use than merely broadcasting ethnic composition and sending stories of impending demographic disasters. The dialogue should move to why a country with a large youthful population is not undergoing a Demographic Transition and reaping the demographic dividend that is necessary for take off.  Another notable feature of the results is that settlement in Kenya is still overwhelmingly rural with 67% of the population resident in rural areas.