Kevin L, Author at Kevin Low

Another sort of Criticism

After penning the entry on Yuan’s appreciation, I come to observe another sort of criticism that is used on China that does contribute to the global imbalance and probably needs more attention than the currency but is an issue the Chinese government have way less control. That is the lack of spending by the Chinese, which is something repeated time and again. The Economist’s Banyan column recently compared India to China:

Levels of capital and infrastructure investment [of India] compare favourably with China’s. And, much more than in China, the hot story in India is domestic demand. India is no mercantilist adding to global imbalances. It imports more than it exports, creating much needed global demand.

Although the article goes on to discuss the flaws of the Indian economy, especially its lack of participation in the supply chains that link up much of the emerging economies of Asia as a result of their focus on exporting services rather than industrial goods. Industrial production in India remains largely in the hands of a huge number of medium-sized enterprises.

Anyways, back to the fact that China is under-consuming; James Surowiecki explains on The New Yorker why the Chinese don’t spend. He briefly ponders over culture, but goes on to focus on the nature of their economy, and the structures that are reducing access to credit and thus raising the need to save, which means perenially low consumption.

In a sense, the culture revolves around the idea of investment for the future, saving first so that one would be able to spend them. The long history of struggles and uncertainty means the Chinese are probably more risk adverse than their Western counterparts and reluctant to take on debts. In a period of growing wealth, the Chinese naturally hopes to put aside money for the future (be it studies, starting a business, a family or just for rainy days).

As the economy develops, it’ll mature and eventually shift towards higher credit and lower savings. The large investment that the government is pumping into the economy will have to induce greater efficiency in use of capital to help speed up the maturity. Till then, Americans will still get the chance to complain about Chinese inability to spend in the consumer sense.

Deflation!

The recent entries seem pretty obsessed with money markets and the more talked-about economies. I’m keeping up with my readings of The Economist and that probably explains. Following the article I previously mentioned about Japan’s looming deflation. They probed further and devoted a recent article in the leader section to the issue.

The Economist followed up with an article highlighting the problems associated with the return of deflation. Japan is encouraged to loosen their monetary policy, worry less about inflation and more about deflation. Interestingly, they even tried to draw parallels between Japan and some other developed economies’ experience today.

Decaying Plastics, Melting Ice

We are dependent on oil not only for energy but something almost as ubiquitous in modern day products. Shaking off other aspects of our dependence on oil is thus as important as diversifying sources of energy. And some Koreans just found out how to make an alternative kind of plastic way faster.

Meanwhile, Brian Palmer wrote a piece on Slate.com about how we might be able to overcome bacteria resistance to anti-biotics, a problem we have faced since the invention of anti-biotics. Fighting evolution is not the ultimate solution, as Palmer argued; he believes we need to adapt the rules of evolution and manipulate the bacteria with other strategies to overcome the problem.

Johann Hari writes on moreIntelligentLife about how Arctic is changing as experienced by the Inuits living there. Many of us may know about climate change and perhaps some of the sciences behind it but our lives goes on pretty much the same except for periodic violent weather we might intuitively attribute to climate change. To climate scientist, arctic is at the front line of this phenomenon and Hari writes convincingly about the reality of climate change in the arctic and how the lives of the Inuits are affected. The writing reflects a deep respect for those who lives in the arctic; something lacking in most other appeals for attention to global climate change. Ultimately though, it reflects how people are all looking at the problem with different lenses and focusing on different consequences. If anything is to be done at all, we’ll have to connect the different groups together.

On other green matters, Nina Shen Rastogi asks on Slate.com, Should You Flush Your Drugs Down the Toilet?

Insuring Nothing

Tyler Cowen mentioned something about product insurance at one part of his book, Discover Your Inner Economist. He says that one should not argue with his wife when she insist on buying product insurance even when you know that the results are economic analysis are at your favour. Presumably, there are some other cost-benefit analysis taking place, at the level where the cost of winning the argument greatly overwhelms the benefit (which of course is the cash saved on the product insurance). The Economist asked why people continue to buy them even when products are unlikely to fail, which means that these product insurances are immensely profitable for the electronics retail sector. The researchers who examined purchase data from a big electronics retailer for over 600 households from November 2003 to October 2004 concluded that the purchases were linked to the shopper’s mood. Of course, a less-than-rational wife might be the explanation, but even the wife has a sound explanation for that:

[…] the emotional tranquillity that comes with buying a new warranty is not in itself without value, even if “rationally, it doesn’t make sense”.

But I find an ingredient missing in this story; the researchers probably falsely assume that all the shoppers have got the same level of perceptiveness. And I believe perception have all to do with the purchase of product insurance. Think about it, when was the last time you had a product which failed and the warranty period was just over and you blame yourself for not buying additional coverage? But how about the last time when you did buy the product insurance and it didn’t fail at all within the span of its usage, not once? Just like the belief that we’re unlucky enough to always join the slowest queue in the supermarket; our erroneous perception of the frequency we get unlucky can make us more frustrated with a product insurance unextended than a product which didn’t fail after we bought the coverage despite the fact that they probably inflicts the same cost on you. Obviously it actually hurts you more when you think back and regret not extending coverage; you probably won’t even think back on how stupid you were to buy product insurance for a reliable product since you’re using it happily.

This creates a bias for purchasing product insurance. Our faulty perception supplements our faulty memory in suggesting that buying product insurance would be the wise choice, going by the seemingly sound argument of ‘if the product fails, I’m protected; and even if it doesn’t, I get a peace of mind plus the retailers deserve the reward if they recommended me the durable kind of good’. You could very well have realised that if the product was that durable the manufacturer would already have taken a cut for that on the retail price and that if the product ran a high chance of failure the retailer wouldn’t even offer you the product insurance in the first place. And if your wife has anything to say about that, it’ll probably be “Must you be that calculative?”

Rising Yuan, But not now

In one of the economics essay I’ve written for A Levels Practice, I argued that the appreciation of Yuan is unlikely to solve the trade surplus problem that they have and thus reality will not play out as the Americans choose to believe – trade imbalance will continue to mount and China may risk deflation, following the fate of Japan in the past. I was very lucky because during A Levels a somewhat similar question came out and I made the same sort of argument with points already in my mind.

Most journals and publications I read insist on the need for Yuan to be revalued, giving little credit for the fact that China already allowed it to appreciate against the dollar substantially compared to the past. Without the unpegging of Yuan to the Dollar in 2005, trade imbalance could have been worst. That doesn’t mean that it was the appreciation of Yuan that naturally lend its hand at achieving balance; it was mainly the gradual appreciation and the timing it was allowed to appreciate. The Economist analysed China’s side of the Yuan policy. It gives a balanced account of how political forces and potential economic problems makes China hesitant about revaluing its Yuan.

It is unfair that America always seem to put China into bad light by hinting that China could make a difference (since its central government wield a whole lot of power) but don’t want to. The fact is that there are way too many instances where Americans had the power too, but then they’d exclaim that all sorts of lobbying and market forces are in the way. If China were to give in to this sort of pressure, it would make them way too weak. Besides, America isn’t always right (in fact, most of the time it isn’t); China has done too well in their transition from central planning to market economy so far and will continue to create their own path.

The Becker-Posner Blog also features Becker and Posner’s individual views on the need for China to revalue the Yuan and when so.

More Economics Notes!

Just a couple of days back, I was searching for Economics essay questions just for fun and I stumbled upon Fiveless, an initiative by Zhuoyi from RJC 2 years ago when he was doing A Levels. It was a site with a wonderful array of materials for various subjects. Since Zhuoyi actually took A Levels the same time as me, I was kind of disturbed by the fact that I hadn’t stumble upon this site earlier when I was preparing for my exams. But there’s a chance that if that had happened, I wouldn’t have started ERPZ, thinking that someone else has already took up the job.

In any case, I wrote to Zhuoyi to inform him that I would like to consolidate the materials he has so nicely done up and make them available on ERPZ; he kindly agreed and I’m glad to push out the first set of materials that resulted from this ‘collaboration’. It’s a set of 40-page economics notes, summaries and cheat sheets. I’ve updated some of the statistics Zhuoyi has compiled in the notes, altered the formatting slightly to give a more consistent look, added content pages (that are frankly pretty much for the sake of cosmetics) and added very minimal of economics content. I hope I can find time to fill in the gaps because I’m aware that the notes lack content on some topics required in A Levels, but for now, it’s already pretty impressive. The link is also available under Economics Section.

All credit goes to Zhuoyi who’ve made such a great set of notes and generously shared them online under the Creative Commons Remix License. Anyone interested in building upon the work I’ve continued can leave a comment to request for a editable document version of the file from me.

Holding Ideas

Some students struggle with social sciences and humanities like Economics, Geography and History because they think they can’t hold two contradictory ideas at the same time and not take a side. Economist are somewhat famous for being able to do that and often criticized for being that way. As a matter of fact, humans are remarkably capable of doing that; we overrate our consistency of thought and the need for ideas that don’t contradict. When we demand scientific proofs for certain claims yet openly express faith in certain religious claims, we’re adopting contradictory frameworks of proof.

The reason why these subjects require that we hold contradictory ideas or for us to withhold judgment of these ideas is the lack of a proper quantitative approach to evaluating them. We might be able to come up with pros and cons but we are unable to assign a positive figure to denote the value and significance of the pro and a corresponding negative figure for a con and then evaluate them in an accounting matrix that will tell you which is better and how much better. Any attempts at that will be subjective and arbitrary anyways. As a result, it is important that students of these subjects hold on to them without judging but maintain the ability to dissect and analyse these ideas, zoom into certain features and investigate different aspects of it when necessary. More importantly, we’ll have to master our language and internalize the nuances of the typical jargons used in the field to discuss these observations we make.

As humans, we will definitely have preferences for some explanation over others as well as some outcomes over others and this is a reason behind all the disputes that social scientist usually have with each other, including high profile ones by economists. And worst, unlike sciences where there are experiments everyone can agree on to check their ideas and theories to discover ‘the truth’, the search for truths in social sciences have often ended in vain because of the dynamic nature of the field. Scientists might not agree before a discovery is confirmed (Linus Pauling, a super-Nobel laureate with 3 Nobel prizes famously believed that DNA’s structure should be a Triple Helix) but once it is confirmed, we find little delusional souls continuing with their false beliefs unless they are ignorant of the confirmation. Economics had its share of control experiments that happened in the world, often by chance. Unfortunately, they can never be repeated perfectly and their results are never agreed upon by experts in the field.

This is not to say that the subjects offer little value to the world; in fact the dynamic nature of these fields mean that there is always questions to answer and things to explore readily. And that is why we need more people to be able to hold different ideas at the same time and have different opinions on the same issue under different sort of circumstances and be able to see the world this way.

Back in Competition

A recent article on Slate.com revisited the theme of competition, something I’ve been writing about (here and here) in response to their articles. Ray Fisman discusses studies on whether man or women are more competitive and whether any difference is explained by nature or nurture.

More importantly perhaps, he questions the significance of competition in our world and whether it is a good thing at all. I believe, like many other things, a balance has got to be struck somehow. Once we reach a certain threshold whereby competition achieves positive gains, its cost will start outweighing benefits.

Look whos trailing.... — Look who's trailing....

But perhaps the problem isn’t one of female passivity—many have claimed that if women ran the world, there wouldn’t be any wars, and anyone who has read testosterone-driven Wall Street accounts like Liar’s Poker, or more recently House of Cards, might question whether all-out competition is the best way of managing our economy. If competition is nurture rather than nature, perhaps we’d all be better off if we lost a little of our warrior instincts.

I know it sounds rather like an economic analysis but this applies for practically everything. We are entering an age of sophistication where competition basically consist of sub-units of collaboration, which is in turn divided into sub-units of competition. Just think about it, when we work at a company, we may be competing with our colleagues for attention from boss but the whole department, together with the boss is collaborating to compete against other departments and other bosses to a higher level and the company on the whole is collaborating to compete against a rival company and the industry as a whole (perhaps beverages) is competing against another (say food, they’re all competing for consumers’ stomach space). Competition and collaboration are not ends of a spectrum but co-evolutionary forces that shapes the world and our sophisticated activities.

How many lightbulbs does it take to change a planet?

Problem is, how many people it takes to make the change?

95, according to Tony Juniper, Executive Director of Friends of the Earth in UK, in his book of the same title. When I first saw this book at Central Library, I thought it had tips and nitty-gritty details about how one can do his part for the environment in his daily actions. Coming from his background as an activist, this book is far from a step-by-step guide but instead a huge tome for policymakers to think about the many environmental issues that plague us ranging from climate change to biodiversity. His perspective is very British but the vast range of recommendations are very useful in any context. Some of his 95 ideas are quite overlapping and repetitive and not all are very solidly supported by data, but otherwise he makes quite good arguments for his recommendations. He infuses a lot of his personal experiences with Friends of the Earth, and it touches me to see how much has been done by activist groups for the environment, despite its being David in a David-versus-Goliath battle against Big Government and Big Multinationals.

I cant possibly list all 95 ideas here, but I have spent the past few days compiling them into Word document. I dont own this book after all, and it will be good for me to remember and keep in mind all these ideas that can come in very useful in future if I decide to go into environmental activism. An idea I found interesting is the creation of corridors for wildlife to migrate as a result of climate change, rather than creating static, fixed-border reserves that do not allow animals to migrate poleward for instance in the event of rising temperatures due to global warming. It seemed like quite a “duh!” solution but it has not been implemented yet. His being an expert on birds brings another dimension to his ideas, which care a lot for biodiversity and bring a very local, on-the-ground view about the effects of environmental ruin on wildlife.

The book is not just a must-read for environmentalists and environment activists but also for policymakers and politicians who need to know and be concerned about the environment because of its wide-ranging impact not just on biodiversity but also on equality and democracy for example. He supports his ideas with justifications that are economic as well, so he is not exactly one who advocates for a poorer quality of life for us all so that Earth can be saved.

Go borrow this book from the library now!