With the Subprime Financial Crisis, the global economy tumbled, trade flows scaled down rapidly as economies started contracting. Initially, during the boom, trade was growing faster than global income, implying that the global growth, mainly concentrated in the already developed parts of the world economy was gained from increasing specialization and division of labour through trade and exchange. And for a slight contraction in the global economy, a lot of these supply chain will face problems in-between and go bust, resulting in a huge contraction in trade since the businesses relied on each other heavily for business. Daniel Gross discusses the decline of trade, and the implied slowdown/reverse of globalization on Slate.com. The situation is probably not as serious as Gross makes it sound.
The crisis is leading to a re-organization of globalization, towards greater degrees of cooperation and perhaps with less imbalances. With economists finding a better means of carry trade, and more reasons for Asia to get together, the world won’t be drifting apart that soon. In the latter article from Banyan column, The Economist highlights the strengths of a more integrated Asian economy and the challenges facing Asia.
The world seem to have accepted the global multilateral trade isn’t exactly going to be possible with all that decline in trade and rise of calls for protectionism and so regional multilateral trade and economic integration is the second best thing. Forming trade blocs or even common markets would do a great deal to help further globalization and put it on a path with more supranational bodies’ control. The idea is that having authorities in the process of globalization might help make it a better force in this world.
In an entry with the same title on my blog, I detailed my experience at The Coffee Bean recently that didn’t quite start nicely but ended off pretty intellectually. I’m quoting the gist here:
I approached the counter with a maths worksheet in my hand (I was planning to work out some problems there while I sipped on the tea since I had some spare time on my hand and needed to exercise my mind) and made my order. The young man serving me immediately asked if I intended to sit around to study.
I commented that I’ll probably be around for half an hour and asked if it’ll be a problem. He replied that there’s an event downstairs and they anticipate a crowd so they discourage people from studying at the cafe. I kept quiet and took my receipt. I thought that the Large Chai Latte should at least buy me 30 minutes of time at the cafe.
This post is a discussion seeks to answer the question: “If a cafe wants to maximize their profits from a crowd and yet is limited by their available seats, how do they discourage people from studying there besides using attitude (which I assume is something I experienced)?” So before answering that question, we list out the factors that would encourage one to study at the cafe and see if there’s anything we can do to manipulate them:
Things that encourage one to study at a cafe
Good lighting; makes reading comfortable
Extremely hot or cold drink; takes you longer to drink and the taste of the drink don’t change that rapidly over time which means more excuse to stay at the cafe longer
Quality drinks; makes for nice beverage while you study and you probably won’t mind ordering one more and staying longer
Comfortable seats; allows you to study comfortably and sit at the cafe for longer time without feeling discomfort physically.
Technically speaking, removing any of these would help to reduce the time people stay around the cafe and also discourage studying. On the other hand, attitude (on part of the service staff) won’t help to reduce the determination of people studying at the cafe. In fact, it turns off people who genuinely just want to chill at the cafe for a while without discouraging the studying students. When one plans to stay at the cafe for a long time to study and sip on drinks, service at the counter makes up only a small part of the experience, whereas for customers who are interested to get a good drink and sit for a while, the service at the counter makes up half of the experience. In other words, giving people attitude is the worst possible solution compared to removing any of the above.
I strongly recommend the dimming of lighting, which doesn’t harm people out to relax but makes studying tedious and difficult. But this is not always possible since The Coffee Bean that I went to utilizes the in-building lighting that they probably have no control over. It’s not wise to compromise the quality of the drinks since it sends out the wrong messages and is disastrously difficult to control. That leaves us with modifying the seats.
I got this idea when I was at Saizeriya Restaurant at Liang Court; they feature a drinks bar where you pay about $6 bucks or so and get to drink lots of different drinks and it’s free flow – literally a drinks buffet. At first, I wondered why the seats there were so narrow and small; the cushion were thin and not exactly comfortable with prolonged sitting. Later I rationalized it as a means to get people out of the restaurant as soon as they’re done with the food. Of course it’s not going to put off people determined to try all the drinks, but at least they’ll finish with their affair and get out fast.
So here’s some prescription for cafes who hopes to attract people there for a drink and to sit around for a while (after all, if the cafe was empty you might think the drinks suck) but discourage students from spending their entire day studying there, the best move would be to adjust lighting according to your needs to adjust demand. Where this is not possible, modify the seats to make prolonged sitting uncomfortable.
The weeks seems to be passing faster as the entries on ERPZ becomes more frequent. The one-entry-per-day rate now is not exactly very sustainable without additional support from guest writers and contributors so I’m once again calling out for interested parties to leave a comment with your emails so I might be able to contact you and get your contribution up.
The linked article mentioned about the ‘paradox of choice’, which is the topic of Barry Schwartz’stalk on TED.com. He explains the disadvantages of being offered too many choices and the problems associated with the implications of having too many choices in the first place on the psyche of the person after making the decision, citing Dan Gilbert’s presentation in the same TED conference.
Barry is another great speaker, mixing humour consistently throughout his talk with a steady flow of cartoons. The point he makes in our escalating expectations is very real and worth pondering over for anyone who wants to exert discipline on their thinking to keep their mind healthy. He claims he wrote the book, The Paradox of Choice to explain to himself why he felt worst when he got a better jeans than he previously did.
I read the review of Alan Greenspan’s book 2 years back in The Economist, but didn’t buy it until late last year when I went on a book-shopping spree. The book gone on to stay on my book table (yes, I seriously need a bookshelf) for another year or so before I dusted it two weeks ago and began reading it. In any case, I bought an updated version, which features an epilogue detailing Alan Greenspan’s take on the Subprime Financial Crisis and his prescriptions.
I was immediately surprised by Alan Greenspan’s clear writing and simple style so contrary to his famous inscrutable public announcements about the Fed. It is this that earned The Economist’s rare praise:
Sub-heading of the book review: “Not many surprises in this memoir-cum-essay except that it is an unexpectedly enjoyable read.”
Book Review Quote: “[D]espite everything, the book turns out to be first-rate. It engages on different levels: it is intelligent in a way that few popular books on economics manage or even try to be; and, wonder of wonders, it is a good read.”
The book begins as a memoir, detailing Greenspan’s childhood, interest in music, schooling, economic/technical inclinations and his long career in the Federal Reserve Bank where he was Mr Chairman. His memoir ends somewhat abruptly in retrospect at the eleventh chapter, The Nation Challenged. Beginning with the chapter, The Universals of Economic Growth, he went on with his economy essays and analysis of various economies, industries and trends. Like what The Economist says, Age of Turbulence is a good read, his memoir was very neutral and he was very humble about his work at the Fed. His accounts of the workings of the Fed provides non-American readers a good starting point to learn about their system. Greenspan’s essays on the world economy and economics stays faithful to his belief in the power of free markets and respect for the freedoms and rights that the American Founding Fathers have sought and preserved.
He defends his views that no one can possibly identify a bubble and actively sought to burst it before it gets too big and cause a crisis in its subsequent burst. As a matter of fact, this is the case because anyone who can confidently identify the bubble can profit from it by going against the flow and thus end up defusing it before it builds up. At times, when the so-called ‘irrational exuberance’ exerts too powerful a market force then regulators wouldn’t actually be able to defuse it anyways. He seem to sigh at the voter’s expectations that the government is almighty and is disappointed by typical politicians who doesn’t seem to understand the meaning of ‘trade-offs’. These are typical economist’s perennial concerns about the world in democracies that never seem they’ll ever go away.
As a pragmatist, Greenspan shows great appreciation for the rule of law that has maintained the workings of the market and fostered a culture of trust so essential to capitalism. And reflecting on that, Greenspan gives suggestions on how the emerging economies need to improve their governance and legal systems to catch up with their prosperity and march towards developed status. These are valuable insights gained from Greenspan’s 19 years of being the Chairman of the Federal Reserve Bank. Indeed, Greenspan confesses that he knows little about international economics until he took on this role since his work at Townsend-Greenspan & Company (which closed following his nomination to that post) deals little with the economies of other nations.
Overall, Age of Turbulence provides wonderful insights into workings of the capitalist system of America and great ideas about emerging economies, the direction the world economy is heading to – knowledge significant to any economics students and economist-wannabe.
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 Yorkerwhy 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.
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 Economistfollowed 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.
Reads for this weekend are here. Farhad Manjoo muses whether anyone would be able to stop facebook. From expanding, that is. The site has really amassed a huge group of user in a short time and people have been wondering if it would be able to generate revenue and such. Truth is, Facebook has really changed the stuff we do online quite very much and helped the Internet leap ahead as a tool for social networking.
Daniel Gross wrote about his tour to China’s most important dam and muses over his inability to find a chocolate bar there. He got Slate.com readers to send in excuses for not being able to find a chocolate bar in China. Examples included:
“Your quest for chocolate at the Three Gorges would be like me looking for Chinese dumplings at the Hoover Dam,” wrote one Beijing resident.
Jokes aside, for your watching pleasure, check out Shashi Tharoor’s recent talk on TED.com about soft power, with particular reference to India.
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?”
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 Economistanalysed 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.
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.
