Lessons From a New Copier

I was trying to figure out how to use the new copier in a certain corner of the office where I work when I noted that machine makers have a sense of humour. On the left hand corner of the surface of the plate is a warning stating that it is illegal to use this copier for generating photocopies of bank notes, cash, passports, certificates, securities and stamps. Having seen this, I rubbed my eyes and asked myself why this warning was necessary.

Thinking about it, it is clear to me that this item sells in various parts of the world and it may well be that in some countries, making copies of currency is forbidden. Now, the manufacturers of this machine seem to consider it their duty to warn users that making these copies would be criminal activity. I think that this manufacturer is being very kind to its customers but is merely reacting to the need to issue too many warnings in order to forestall any vexatious litigation.

To my mind, some managers considered that since the machine could be used to make forgeries, it may be in their interest to ensure that no person may claim that the machine facilitated criminal action. I am sure that this is not the way to go because people should understand that in purchasing a machine, the maker has in mind that it would be used for lawful purposes only. And that's why I was amused that a manufacturer of this machine assumes the responsibility for this warning. I would have thought that anybody who is capable of using this complicated gadget should know that copying currency may be a crime. The notice would be more accurate if its added that copying the following items with intent to use them as original is forbidden. 

Can Citizenship Be a Commodity?

Whereas many students of economics attribute little value to the issue of identity, it is a fact that professional political scientists and other people think that it is an important factor in political organization. The evidence for this is seen in the tendency for most decisions in public affairs to find interpretation from the standpoint of identity at macro or micro-levels. In a word, identity is real for most people and no wonder countries are organized in an exclusive sense with citizens recognized and the others labelled as foreigners.

There is a small degree of migration across countries with people prepared to take risks and uproot their families in pursuit of employment or security in other parts of the world. So what one sees is a real demand through legal and illegal means for entry into safer and more open countries with prosperous firms that may provide employment.

Mathew Yglesias of Slate Magazine writes about the Island of St Kitts and Nevis which offers citizenship for sale at the sum of US$ 250,000 per person. The article goes on to state that this steep price has not failed to attract takers and further that this market-based approach may serve the United States much better as an element of immigration policy. Needless to state, I am totally in agreement because if the demand for a product is high, then the real value could be captured by using a market mechanism both to ensure its distribution and also to make price act as the rationing mechanism. As Yglesias states, there is scope for tweaking the mechanism to ensure that there is diversity but that does not take away the validity of using the market to ensure that immigrants pay for the right of residency or settlement. To my mind, it matters not if other countries adopt the same policy because the market will ensure that each country's residency charge is adjusted according to the demand for settlement. Over time, that price would correlate highly with democracy and openness and would point to what conditions people prefer to live under.    

Apple Stock Reflects Value of its Products

In my view, Farhad Manjoo's articles in the Slate mMagazine have been reliable sources of information on technology. His latest piece involves the analysis on Apple and specifically its stock performance over time. bBased on the numbers in this article, the Apple stock has risen by more than 32% since the death of Steve Jobs  some months ago. The author identifies clear drivers of the stock price as being a good set of high margin products such as the iPad, iPhone and the Macintosh computers. All this is uncontroversial and the dominance of Apple in these markets suggest that its profits are guaranteed for a while. Indeed, Farhad goes on a limb and states, tongue in cheek perhaps, that he would recommend a buy for anyone with money to invest.

I agree that Apple stock is a great buy but I am less inclined to believe that any savvy person should consider the  P/E ratio in making that decision. My reason is that it is true that Apple's P/E ratio is still lower than that of other comparable firms but that should not lead to the conclusion that Apple's numbers should match those. It may just be that the other firms are now due for a downward adjustment. tThis change would still make Apple a good buy in relative terms and not necessarily because it would rise further. In other words, the P/E is a guide yes, but it does not tell one whether it is Apple that will rise or others with a lower ratio that will be coming down. Apple is a good buy because its management makes fine products with a higher margin that its competitors and which satisfy its buyers. With these factors established, the P/E ratio is a red herring.

 

  

Lamy Muses on Free Trade and Food Security

Observers of the goings-on in the arena for international trade sometimes carry different views about the reason for the failure to complete the Doha Round. To my mind though, it is clear that one of the reasons that I discount is the claim that the WTO has not had truly capable leadership. In many respects, Pascal Lamy and his colleagues in Geneva are faced with the political problems that depress the possibility for substantial freeing of trade. 

One sees further evidence of the thought leadership and clear understanding of the fine but clear distinctions between the political and economic barriers to liberalization among countries. Addressing a policy audience during the Economist Conference early this month, Pascal Lamy ably dissects the issue of food security and the potential of trade to ease price shocks and shortages. The most poignant points in my mind is that very little food is traded across borders to begin with and further that governments are wont to respond to shocks by cutting off the movement of food across borders and thereby exacerbating that problem of supply and prices. Having observed that most food exports come from a ridiculously small number of countries, he unequivocally states that international trade in food is necessary to diversify sources by increasing competition and ensuring that supply comes from the most efficient producers. 

This is a very succinct summary of the state of agriculture products in world trade and good primer for introducing thinking around the benefits of trade. There is an obvious paradox that while the vast majority of the world's households derive livelihoods from agriculture, the proportion of their production that is traded stands at 7%. It cannot be difficult to figure out that the reason is the absence of free trade around agriculture. An old profession that is yet to be substantially freed from political encumbrances. 

Largest Embassy May Be White Elephant

Reading this article reminded me of an old blog post here on the US Embassy building in Baghdad. At the time, the tenor of the post was that this was the most expensive and expansive embassy building in the world at the time. At the time, the overall costs could have been attributed to the need to fortify the grounds that hold the building together with the residences of the embassy stuff. To my  mind then, it was also a testament to the fact that the US foresaw a continuing role for it in that country for the foreseeable future.

Five years hence, it is clear that the combat mission is being drawn down with the result that the compound now looks unwieldy. It illustrates that telling the course of war and US engagement in the future was not accurate at that time. At the same time, the concerns for safety of workers means that the embassy compound is a fort that does not predispose embassy staff to meeting with Iraqi's. So without looking at the vast expense, this embassy building risks becoming a white elephant. As one official asks, "what prompted the designers to build it in such scale?"

General Uhm's Five Star Lecture on Development

The one area in which I concede to state involvement is the provision of security within institution run by constitution. I have noted with amazement the fact that in the US in particular, military leaders often find lucrative positions in directorships in corporations ostensibly to provide strategic views and insights. Today, I have just watched the clip by Peter Von Uhm, the Chief of Defense of The Netherlands and confirmed my view that some military leaders are indeed deep thinkers with an understanding of what their contribution to stability and peace is.

In the very incisive presentation, he alludes to his family's history as the motivation for his choice for military life and how the gun, while seen as a simple instrument of violence and conflict, qualifies as a peace builder when used in a controlled and legally regulated manner. He walks his listeners through historical data on conflicts and human suffering and how the world has become increasingly safe over the last few centuries and attributes this to democratic control of military and violence through states. As if that were not enough, he ties the story together with growth and development by stating the empirical fact that stability and trade beget further peace because trade and exchange make conflict unduly expensive. In this way, trade and peace are self-reinforcing. This would be fantastic teaching aid for a class on economics and development. 

Five star presentation from a five star general.   

Stopping The Gold Thieves

Reading through this article on the rise of burglaries and robberies that affects South Asians resident in the United Kingdom just got me thinking about the burdens of  wealth and the advantages of fiat money. That story highlights the rise of thefts among families from south asia who are known to keep substantial amounts of gold as savings.  This form of saving is attributed to the preference by these families to save through precious metals with a known record for keeping its value over generations.

It is unsurprising that when the owners of commodities in great demand may face the risk of theft especially when the price of gold has appreciated remarkably in recent times. To a thinking robber, it is probably less risky to steak jewelry from a family house than attempt a bank robbery or other goods. In addition, the package would be valuable and yet manageable both in terms of ease of hiding and the ability to convert the items into cash with minimum risk of detection. However, I am unsurprised that the owners of the property are unable to find either safe boxes in banks or  to insure their property. This does not make sense to me especially since the vulnerability to theft and conversion of gold would lead to equally ingenious ways for ensuring its safety. Thinking about the fact that a family that claims to live modestly owned that much gold suggests that a bank would offer to keep the property for a fee. In my sympathy for the loss of property keenly acquired over generations, I think a fee-based repository for the jewelry is missing from the market. In my estimation, it will not be long before it is available. This would be a good problem for a crowd sourcing solution.  

Business Leaders Dont Need Medals From State

I have never quite understood why people who work in difficult situations in commercial enterprises think so highly of gifts of recognition awarded by states and their agencies. This idea came back forcefully to me when I read that a former CEO of the Royal bank of Scotland has had a Knighthood recalled because of ostensible mismanagement of the firm in which he was head. Patrick Wintour of the Guardian writes that Fred Goodwin had the Knighthood recalled and the decision as communicated to him by by a committee of five officers of the State in the U.K.

To my mind, I think that irrespective of the demonstrated incompetence that Goodwin had exhibited, it surprises me that everyone seems to think that this affects his reputation adversely. My contention is that the state should not be giving the marks of ostentation to business people and imagine that they are very highly valued unless they were sold. I would like to find out how much Fred Goodwin would pay for the Knighthood if it were sold to him because then it would reflect objective value. Since the state used tax payers money to call Fred to a meeting and awarded a medal made out of the funds of other tax payers, I do not think that Fred should really mind giving it back.

Now, I hope that medal could be auctioned to the highest bidder and the money dedicated to better public purposes. the state has no reason to appease entrepreneurs who go into a business and excel because their reward should come from their enterprises. As it stands, I am unsure whether the recall means that the decision to award the medal was wrong in the first place and who is to take responsibility for that.