Monetary Policy

As I mentioned about the difficulties of governing Economies and Greenspan’s disclosure on his workings on a paper in defence of his policies, The Economist recently wrote in their column about Greenspan’s recent defence of himself. Those interested might want to access his paper here.

In general, The Economist adopts a rather sarcastic tone when discussing Alan Greenspan’s role in the build up to the Subprime Mortgage Crisis in 2007. They are arguing that central bankers are around to ensure macroeconomic stability and therefore are expected to ‘play safe’ and manage the economy. That is, if reducing short-term interests rates could rein in the housing boom, that should have been applied. Even if Greenspan couldn’t have identified the bubble, and that the house prices are not related to the interest rates that central bankers could influence, the leverage growth in securitised markets might be worth managing:

By looking only at the effect of monetary policy on house prices, Messrs Bernanke and Greenspan also take too narrow a view of the potential effect of low policy rates. Several economists have argued convincingly, for instance, that low policy rates fuelled broader leverage growth in securitised markets.

Of course, having just read Dot.con and Lord of Finance, I do realise that central bankers’ attempts at interfering with specific market booms have often been ineffective or with rather disastrous results and thus choose to focus only on economic fundamentals like price inflation. Greenspan does have a point when he suggests that the central bankers are unable to deal with a global force that are changing the conditions of the economy. Very often, these efforts may create further imbalances that merely postpones a crisis.

Like I say, no one claims monetary policy is easy to conduct – it’s too often more of an art than a science.

Governing Economics

Many have attributed the housing bubble that eventually resulted in the Subprime Mortgage Crisis to the previous, one of the longest serving Federal Reserve Chairman, Alan Greenspan. We are pretty familiar with Greenspan, who have written Age of Turbulence. In his book, he highlighted his general argument against anyone who would finger-point him as allowing a bubble to inflate. He pronounce that it is impossible for anyone, whether the regulatory body or not, to accurately identify a bubble.

As for the Subprime Mortgage Crisis, politicians in the United States still blames it somewhat on Alan Greenspan and now that everything is cooling down, Greenspan offers his own defence. Although Greenspan was nicknamed ‘the Maestro’, he subtly attributes the period of great prosperity and low inflation to the globalization forces and technological advancement more than his skills at handling the monetary policy of US. In any case, he outlines his job at the Federal Reserve as an observer trying his best to keep to fundamentals of the economy and the crisis therefore comes as a surprise both because of how the economic agents have basically defied market assumptions namely on the issue of counter-party surveillance. Essentially the government cannot possibly provide the ‘self-interest’ that is supposed to drive the free market.

No one says that managing the economy is an easy job. Sound economics decisions by governments often turns out to be political disasters anyways so sometimes politicians stop heeding economists altogether. The recent issues that confront Tim Geithner is essentially similar; the economy is picking up thanks to his plans but people are unhappy with him. Figures on employment are not helping him anyways since the recovery is ‘jobless’ so to speak. Management of the economy is a huge balancing act for the government.

The idea of government has gone really far since the days of Locke’s conception of the social contract. The philosophy of governance in the modern world is just getting more complicated.

Morality of Markets

I’ve previously introduced Michael Sandel’s lectures on Justice in Harvard. I haven’t finished the series despite great interest in it but I recently watched another of his lectures, one at Chautauqua where he talks about the Morality of Markets. In some sense, I was particularly interested in this issue and believe that all those trained in Economics should be made to study it. After all, Adam Smith was a Moral Philosopher. The philosophical element of Economics is becoming lost in our study of it today.

Markets Corrupts?

That is what makes this particular Michael Sandel lecture extremely insightful. He starts with the idea that we’re now plagued by market triumphalism and he tries to question what is wrong with that. As often in his lectures, he poses a scenario either hypothetical or based on actual proposals in the real world and then solicits opinions from the audience. He eventually surfaces his points and ideas from the responses of the audience and does a brilliant summary of the issue.

He gives a good and important point in his conclusion of this lecture that explains why we should not allow markets to expand indefinitely in our lives. In other words, there are areas where markets can, indeed serve the best interests of the societies especially when we all can agree that the market system gives an accurate and fair valuation of the good or service involved. Unfortunately there are values out of the consideration of the market that we might cherish and therefore we should not allow particular goods or services to become commodities to be traded and transacted. The danger of the markets is that it leaves its mark on the commodities that are traded; the values that we cherish becomes diluted, corrupted by the market system.

The example of paying a child to read is important in illustrating this. We should cherish reading not because of the monetary gains but the intrinsic value derived from joy of reading and learning. Therefore when we start paying children to read, it sends out the wrong messages and distorts the valuation of reading. The trick then, perhaps is a solution around this limitation of the market, to be able to remove that mark that market leaves on the thing traded. Unfortunately there’s no easy solution and possibly none. This is a strong argument against markets and while it is applied to a small group of tricky issues, they are worth pondering over.

Michael Sandel makes Political Philosophy and Moral Philosophy not only accessible to the public and ordinary, non-philosophy students but also makes extremely relevant connections between traditional Western Philosophy and the issues plaguing us in the modern world. It’s really fortunate that we are able to access his lectures even though we are not studying in Harvard or in America. There are other videos of his public lectures available on

The Mad Hatter’s Tea Party in America

Who would think that Colin Goh, a Singaporean columnist, writer and film-maker based in New York, would write something about politics in The Sunday Times? Best (or worst, depending on what you think about politics) of all, his column usually features in the generally light-hearted Lifestyle segment. I normally skip his columns because he keeps writing about his baby and his otherwise banal life in New York, but I was intrigued by his column title for today’s article: “Mad Hatters and US politics”. I read on, to much curiosity and realisation.

He describes how US politics is now quite farcical thanks to the tea party movement that is taking root across much of America. This tea party movement is against big government, and wishes to claim back ground it thinks the government is infriging upon. And of course, this tea party movement is aligned with the Repbulican party and most (if not all) of its values: free markets and no government intervention “whether in the economy, healthcare or the environment”. I felt quite vindicated by his views, as someone who’d profess to be a Democrat if living in America. But let’s not argue about the views of the Democrat. The whole farce about politics in America today is that Republican opposition to policies and initiatives that the Democrats are proposing, can range from sensibly valid to stubbornly nonsensical.

Colin says that “The US government is ‘broken’ because of the political impasse between the two dominant parties, and the revival of the conservative movement.” And he uses Newton’s Third Law of Motion, that “every action is met by an equal and opposite reaction”, to describe the resistance of the Republicans to Democratic measures. He then writes that the conservatives seem unable to see the light about the whole crisis: that “lack of regulation just caused the biggest economic meltdown in years”, and that “the loudest opponents of regulation just happen to be… those evil bankers and corporations”. And I totally agree with him when he finds it “baffling… that conservatives are blaming the sorry state of the nation on the Democrats, who merely inherited the mess” from George W Bush.

And the Republicans are becoming a party of No just as Obama is saying that they should not be doing, for the sake of the nation. While I find it quite wrong for Obama to continue pushing through, by force, legislation on health care reform, the fact that no Republican agrees at all on anything despite already having some of their suggestions integrated into the policy does not make sense. I shall not go into details about health care reform, but suffice to say that as a Singaporean and someone who’s more liberal, I believe that health care reform is necessary and many people sadly are just unwilling to feel the pain in the short term for potential benefits in the long term (as much as this piece of legislation is flawed… which piece of legislation isnt?).

Donna Brazile, in The Mercury, also alludes to the tea party movement (the Republicans and the tea party movement are almost one and the same now) and their vehement resistance to President Obama’s health-care reforms. It gives more detailed examples of how Republican senators who campaigned for certain ideas in the bill to be included in the legislation but yet did an about-turn and dropped support for it in this final stretch of the race towards implementing the bill. It is not like President Obama did not offer them an open hand to reconcile differences, but the chasm between the two sides is probably too huge to surmount.

So has the Mad Hatter (what a coincidence, Tim Burton’s Alice in Wonderland is coming to screens near you now!) taken over the Tea Party in America, and made all these Tea Party-goers bonkers?

The source might be slightly biased given that Donna Brazile was a former campaign manager for Al Gore, former vice-president of America and a Democrat. Nevertheless, the problem remains: two polarised parties unable to agree on anything, unwilling to compromise, and hence unable to govern. For the good of all America, please come together to do something. It might be true that President Obama’s views might not reflect the views of the WHOLE population, but to sit there and just say “No” without concrete action (they provided the suggestions to change, but they tend dropped the support for those changes… those are concrete suggestions, but is that concrete action?) will not move the nation forward.

Goodbye to EU?

EU - Tower of Babel?

We read frequently in the news about the demise of Pax Americana or the rise of the post-American world. I am not about to discuss at length the decline of America, but I want to bring attention to what many people might have neglected as they watch America’s supposed decline: Europe’s concurrent decline. And Europe’s decline is also of its own making, though of a different nature compared to the Americans: the financial crisis and its aftermath triggered all these claims about America’s decline, but it is the EU (European Union) and the way it operates that will do Europe / the EU in as a global power.

In Time magazine this week, The Incredible Shrinking Europe discusses why EU is beginning to lose its shine as a global power of equal importance compared to America and China. The magazine recognises that it is not that Europe is becoming poorer or that the people in the EU are suffering (unlike in America right now), but rather how the EU administration does things.

I highlight some of the main problems I see with the EU.

Some problems with the EU that have affected its standing in the global arena:

1. EU is too huge. Managing 27 member nations that each want their own voice to be heard is a mess. Obviously there will be countries that dominate (large ones like France & Germany), but its actions seem to be confounded by the differences in opinion between many of the nations, which will hamper what it is trying to say and do. Germany wants to work closely with Russia but the Eastern European nations in the EU are terrified of getting closer to Russia due to fears of the Cold War / Soviet Union days. This makes EU decisions on issues regarding Russia difficult and contentious.

2. EU seeks too much consensus. It goes for the “least-bad options”, which may be useful in slowly amending the status-quo, but when it comes to crucial decisions necessary to reform, the EU might fail because it decides to go for the lowest common factor instead of what is really best even if it might hurt. The procedure and the eventual selection of the permanent President and Foreign Minister reflect this. Picking two affable and unoffending people, Belgian Prime Minister Herman van Rompuy and British Lady Catherine Asthon, may have achieved the purpose of happiness amongst all EU members, but it does not help EU if it really wants people who can “stop traffic” and portray images of leadership, decisiveness and power.

3. EU has too many underwhelming leaders. With regard to too many, it now has 4 leadership axes that will potentially create much conflict. There’s a permanent EU Council President and EU Foreign Minister, on top of the original leaders: the rotating presidency (amongst the EU nations) as well each country’s heads of government / state. This is a “complex mechanism” that makes it difficult for constructive work. It could encourage turf wars as well as make it difficult to show solidarity. Who is American President Obama supposed to call when he needs help from the EU? Chances are, he will probably end up calling French President Nicolas Sarkozy, British Prime Minister Gordon Brown or / and German Chancellor Angela Merkel, because he will directly enlist their help rather than go through the EU before reaching these leaders who make the decisions. Especially given current conditions, chances are he’ll skip calling Europe and go straight to other nations (that are, not coincidentally, emerging powers) like China, as evident following the Copenhagen climate summit where EU was almost totally sidelined despite having hosted the key summit in Copenhagen, Denmark.

4. EU is not as democratic as it claims to be. The way the Lisbon treaty was rammed down the throats of governments was evidence of how the EU parliamentarians and decision-makers just wanted to get things done without getting sufficient support from the people for their actions. The French and Dutch in 2005 first rejected amendments to the European Constitution. Then with the Lisbon treaty, making Ireland go through another referendum to force it to ratify the treaty (making little and unexplained amendments in the treaty along the way) does indicate of some undemocratic tendencies.

The United Nations (UN), with close to 200 members, has even more members, but while the UN may often be described as inefficient, it is still serving a huge purpose as a gathering of world governments that can act together in times of crises. At very least, it still has the symbolism and serves a purpose in its existence. While the EU has created much benefit for the member nations, it often seems to undermine or contradict local government decisions, probably because there is an isolated European Parliament that is rather insular to the real, on-the-ground views of the EU citizens.

In addition to this article in Time magazine, Time magazine interviewed EU Foreign Minister Lady Catherine Ashton for her views about EU. She does a good job with the publicity, but we will wait and see how she manages to get her job done given the difficult conditions she’s been placed in.

In my opinion, the EU has a lot of potential to create a balance of powers between America and the East / ascending developing nations such as China, India & Brazil. Indeed if we talk about the decline of Pax Americana, Europe should by right be part of the decline as well because it is after all closely allied with America and part of the West that is seeing stagnation / decline in political and socioeconomic spheres in the global domain. The EU can still serve as a role model in terms of an economic model that generally promotes cooperation and creates wealth for its denizens (but less so after the Greek debt crisis) as well as a relatively peace-loving actor on the global stage that can serve as a reminder for cooler heads to prevail in dealing with touchy issues like Iran and North Korea.

Taxing Criminals

Stamp Duty
Want to commit a crime? Pay taxes first...

The Economist ran an interesting story about “a government-issued stamp that is expected to remain unpurchased, but which users of illegal goods must, by law, affix to substances they are not allowed to possess”. Essentially, the government is creating another layer of crime above a crime. It’s as good as saying you should not be stealing people’s money, but if you do really steal, then you’ve to pay taxes on your loot. If you avoid the taxes, you’re committing tax evasion plus theft.

Authorities seem to believe that the tax helps to further punish people who are arrested for a crime (since the inability to discover the original crime would make the taxes lame anyways) and thus serve a higher level of deterrence to the crime. I wonder if criminals would bother to discover that they would be penalized twice for a single crime.

The Marijuana Tax Act of 1937 was cited as an early conception of taxing illegal drugs. It is interesting that old bureaucracies sometimes like to make an act inconvenient rather than ban it outright. Maybe it just happens to drugs; Singapore could actually try applying extremely steep taxes on Chewing Gums rather than ban it outright.

A Request

The Joke

Hello everyone, my name is Peng Sing and I will be writing under the screen name, Scherzo (pronounced ‘S’care-Zoh’) which stands for “Joke” in Italian. You’ll find out more about me in the times to come… if I am able to sustain my interest in contributing regularly.

This post is actually a request; something that has been bothering me lately. It is a timely request, because more and more young people are becoming interested in politics/political commentary. But too many fall prey to euphemism, dishonesty and witch-hunting (personal attacks).

I came across a speech by Loh Kah Seng, given during the launch of “Men in White” at a library, which got me thinking a bit. The main excerpt which caught my attention was how he aptly describes a social phenomenon among our youth in the recent years:

“There is a tendency for young Singaporeans to read our past for inspiration and vilification. This is not surprising and is part of the enduring appeal of history. Inspiration because the past provides positive precedents, or heroes, of an earlier generation of Singaporeans (also young and idealistic then) struggling to make Singapore a better, fairer and more open society. Vilification because history also provides what appears to be proof of what some present day young Singaporeans want to believe – that the government is repressive, manipulative and narrowly neo-liberal. In short, we read Singapore history for Lim Chin Siong and Operation Coldstore.”

There’s a whole load of anti-establishment/anti-PAP angst that show up frequently on the Temasek Review and many other Internet portals that discuss Local Affairs. It is there where you can find these Singapore’s Neo-political-liberalists. My impression of them is that they love to go about scrutinizing every single piece of pro-government literature that comes out in mainstream media with “critical thinking skills” they picked up from god-knows-where. Very often these are senseless personal attacks at various political figures, or simply emotionally charged posts that appeal to the reader. They always seem to make sense at first, but upon full of logical fallacies that are either misleading or isolated cases that are exaggerated.

Be wary of:

Appeals to popularity – just because something is popular/unpopular, does not mean it is correct. Eg. “Majority of Singaporeans are disappointed with budget 2010. Singapore is going down.” Because everyone is upset about something, does not mean that it is harmful. Note that the use of ‘Majority’ as well: Majority of Singaporeans? Anti-government activists are also Singaporeans! And where did he get his numbers from?

False-dichotomies – Something that is not good, does not mean that it is bad. Be alert for people that present you with only 2 options, do not let them fool you into thinking there is no room for alternatives or to remain neutral.

Red Herrings – Used as a distraction. Eg. The PAP is not putting enough emphasis on keeping a tighter leash on PRs, what’s worse, incentives for childbirth have been stagnant for the past few years Clearly, immigration and childbirth incentives have little in common, but is roped into the argument to make the PAP look bad when in actual fact the argument at hand is about immigration policies!

I Forgot What This Fallacy is Called – But it is still a fallacy. When considering reading peoples’ interpretations of social/political trends, always take note of how his ideas are presented. Was the trend drawn from data/reliable observations? Or was it the other way round? There is likelihood that many poor/dishonest political commentators base their conclusions from their opinions/emotions first, then find ways to support their conclusion, often leaving out on purpose vital pieces of information that actually prove them wrong.

Finally, remember to address all the other political parties that isn’t PAP as ‘non-ruling parties’ and not ‘opposition parties’. It brings about a very negative connotation and is subconsciously perpetuated to those growing up; ‘opposition’ appears to be rather disruptive as compared to non-ruling.

It is unfair, if not difficult, to instantly label various political parties that don’t begin with ‘P’ and end with ‘AP’ to harbour malicious intents. They may ‘oppose’ the PAP sometimes, but where Singaporeans are concerned, they are addressing the concerns of a group of Singapore Citizens. As much as they like to find fault in our government/PAP and have peculiar ways of doing things, we must bear in mind that most of their intentions are good.

These are habits of the mind, to be critical of others’ thoughts as well as your own.

Have fun poking fun at lousy political blogs/articles/comments on Temasek Review! 😀

Game Theory & Politics

Well, it's a game...

Christopher Beam on framed the Senate (or any democratic deliberative body) as “the world’s greatest collective-action problem“. In a way, it is. Debating on issues and surfacing potential problems stakeholders might face and arguing on the different consequences on different parties is one thing about parliaments and national assemblies but then decision-making is another.

In democracies, debates and discussions are known to hold up decision-making and the same is reflected in bureaucratic bodies where power is shared across several individuals. This dispersion of power calls for coordination to get anything done and thus allow game theoretical analysis to dissect the dynamics involved in any of those coordination outcomes (ie the final decision).

In some sense, this is a trade-off; deliberation this way that involves the coordination game ensures that the outcome cannot be entirely fair though it might provide an illusion of it. In the first place, reality includes a spectrum or even several dimension of opinions and no system can be designed to capture and aggregate this complexity. The authors of Thinking Strategically mentions this in one of the chapters on elections. As a result, we are left with the political game that is manipulating the legislative structure although everyone hates to admit it. In some sense, Singapore’s structure might churn out better results in terms of efficiency and do ‘the right thing’. The idea then, is to move the game away from the ballot box in the first place, to somewhere further and higher.

Carving up the USA?

Equal Frags

I stumbled upon this creative but mad article that proposes cutting up the United States of America into 50 states of equal population size. The aim of this exercise is to equalise “congressional overrepresentation” from small states and rural areas. This would be quite important today considering that Congress representation is such that each state, regardless of population size, gets the same number of votes, which makes the small, rural states wield extra power. This extra power can come in handy to block bills unfavourable to them, as witnessed in the process to pass the cap-and-trade bill where small rural states, expected to be severely disadvantaged due to their agricultural economy, have used their votes to block the passing of the bill or try squeeze some concessions and caveats in return for votes. Neil Freeman discusses some advantages and disadvantages on his website.

Erasing the current borders of the USA is not a new idea. From as early as 1975, people have proposed the notion of carving up the USA into 38 states based on cultural and physical aspects of the territory. Professor C Etzel Pearcy realigned the boundaries based on newer and evolved concepts such as population density, urban sprawl and transport routes. Not quite how one normally decides a boundary (usually based on physical relief: rivers or mountain ranges for example), but still worth considering for the better of jurisdiction and administration. But of course, such measures are really controversial: will the people in power today want to yield their power to someone else, or have their powers curtailed? I am quite sure not.

And I am reminded of closer to home, when electoral boundaries are redrawn every now and then to accomodate for changing population sizes, according to the government.

Some entertaining ideas for you to think about this Lunar New Year.

State & Markets

Now for political enlightenment...

While reading about Bihar’s Recovery, it dawned on me the importance of basic government structures in an economy. This sort of realisation had come to me while I was reading about the Haiti crisis and I really think all students of Economics should remind ourselves of the government structures working in the background implied in what we call a ‘Free Market’.

As observed from the article on Bihar, which interestingly is where the Buddha gained enlightenment (according to historical records), the state’s investment in infrastructure, maintaining order, a culture that respect the rights of all citizens (that can only be created from top down) often influenced very much by the enforcement of laws, as well as giving people freedom to pursue the market activities.

When we argue about the importance of not having government interventions in markets, and that state presence should only emerge in the case of market failures, we often neglect the notion that a government is in place in the background to honour the legal tender and anarchy is not the ruling ideology of the day. Trust in the free market is also important and it is upheld by law and order, which once again, falls on the government. As we’ve seen from the earthquake in Haiti, more room for market and less state is not always a good thing. Yet after acknowledging the need for a state we want to combat its advancement into various aspects of society that are usually governed by culture or self-organizing.

Maybe working on the margins of that would help Bihar discover this balance of state and market spaces.