Volume 3 Issue 40: Two-Cent Economics

Greece Ran Out Of Ink

Now, Greece is in even deeper shit than they were. They ran out of ink to print tax forms. So, essentially, they don't even have enough money to collect taxes. So screwed.

Which Country Has The Fastest Internet?

Streamyx

Here.

Korea has the fastest internet in the world. No surprises there. It comes in with a whopping average download speed of 17.62 Mbps or if you can't count in bits, it is roughly 2.2 MBps.

I think what is possibly more embarrassing is the fact that Malaysia, with all the boasting about its first-world infrastructure and Multimedia Corridor and whatnot, it comes in with a paltry 179 KBps. It is lower than Singapore (335 KBps), obviously. But it is also slower than Thailand (268 KBps), Vietnam (374 KBps), and even the Philippines (213 KBps). So what's this self-denial (more like self-bluffing) that we have good infrastructure and that people want to invest in Malaysia? Malaysia has complacency and poor attitude to go with its slow internet. The only consolation (as always, we are able to find consolations) is that we are better than Indonesia (129 KBps).

Why Watching TV Makes Us More Stupid

Most times, we take everything we see on TV for granted. Typically, when an expert says something on TV, we tend to believe that it is true. But do you know the real facts? Here is how glaring the kind of misinformation that goes on on TV:

A Media Matters analysis of evening cable news programs reveals that just 4.1 percent of guests who discussed the debt-ceiling debate were actual economists. This lack of credible economic experts helped create a media environment in which political and media figures could spread misinformation. 

... 

Many economists criticized the deal, saying that budget cuts would only weaken the economy and further drive up unemployment. But their voices were largely absent from CNN's, Fox News', and MSNBC's coverage of the debt-ceiling negotiations. 

... 

These results are similar to a February 2009 Media Matters report showing that only 6 percent of guest appearances discussing the stimulus bill on cable news programs and network Sunday shows were made by economists. At the time, the lack of economic expertise on television helped lead to massive amounts of conservative misinformation, including the widely repeated falsehood that government spending wouldn't stimulate economic growth and employment. 

... 

This misdirection apparently had consequences. An August Reuters/Ipsos poll found that 49 percent of respondents supported cutting government spending as a means to stimulate the economy -- far more than those who supported actual stimulative policies like extending unemployment benefits and extending the payroll tax cut.

If you push this a little bit further, it is more or less a self-reinforcing cycle. Because the masses watch TV, they get this really dumb ideas in their heads, and they vote for the politicians that convince them about the dumb ideas, and then those politicians appear on TV to present even more dumb ideas to even more people. The vicious cycle continues.

Volume 3 Issue 39: Intelligent Investing

Adding armor where there is no damage?

Great story. Who would have that the following was possible?

During WWII, statistician Abraham Wald was asked to help the British decide where to add armor to their bombers. After analyzing the records, he recommended adding more armor to the places where there was no damage!

Do read  the whole article.

Volume 3 Issue 39: Two-Cent Economics

Countering the Contagious Western Economic Illness

Here, Mohamed El-Erian says it exactly like it is:

The very fact that we are posing this question is novel and notable it its own right. You can add this to the list of previously unthinkable things that we have witnessed lately. That list includes, just in the last few weeks, America’s loss of its sacred AAA rating; its political flirtation with a debt default; mounting concern about debt restructurings in peripheral European economies and talk about a possible eurozone breakup; and Switzerland’s dramatic steps to reduce (yes, reduce) its safe-haven status. 

The answer to the emerging markets’ question would have been straightforward a few years ago. It is not today. 

In the world of old, the West’s economic malaise already would have pulled the rug from beneath most emerging-market countries. Indeed, the conventional wisdom – supported by many painful experiences – was that when the industrial countries sneezed, the emerging world caught a cold. 

Today, however, several (though not all) emerging-market countries are benefiting from years of considerable efforts to reduce their financial vulnerability by accumulating huge amounts of international reserves. They have also paid back a significant share of external debt and converted much of what remains into more manageable local-currency liabilities. 

This sharp balance-sheet improvement has been instrumental in enabling emerging countries to bounce back strongly from the 2008-2009 global financial crisis, whereas the West continues to hobble along. Indeed, until the recent renewed downturn in America and Europe, the emerging world’s major policy concern was too much growth, mounting inflationary pressure, and economic overheating. 

Today’s emerging countries have considerable policy flexibility and much greater latitude to act than they had in the past. Accordingly, faced with a weakening global economy, they confront two basic policy choices.

Driving Too Slow Can Be Dangerous

There is such a thing as the speed limit is too low. In fact, it can be extremely dangerous.

Suicide Rates in Greece Up By 40%

This story is so sad. But it should serve as a lesson to us all. If Malaysia does not reform its economy, we will become like Greece in about 15-20 years time.

Volume 3 Issue 38: Intelligent Investing

Computer gamers solve problem in AIDS research that puzzled scientists for years

This article reports that a tonne of computer gamers managed to solve a DNA problem in AIDS research that had stumped many a scientist for years. While that statement is not entirely accurate, it's still a pretty amazing feat. There is a lot of untapped creativity in this world and I foresee that finding ways to tap into this sort of latent creativity could potentially become a whole new industry of its own. Do read the whole article.

Volume 3 Issue 38: Two-Cent Economics

Even Economists Are Human



Some of you may know Steven Levitt, even those of you who are not economically-inclined. If he even remotely sounds familiar, that is because he is the co-author of Freakonomics and Super Freakonomics. This week, I thought I'd take a path off the serious issues and share a more human side of economists. Watch the video above and read the source here. Steven Levitt talks about the story about adopting his daughter from China.

Christina Ronaldo

After reading this article on why Christina Ronaldo thinks he gets boo-ed, I just can't help laughing. 

Here is what Christina thinks:

“I’m sad because I hear referees saying they will protect skilful players, but while some are untouchable it seems I can be mauled.”

“I think that because I am rich, handsome and a great player people are envious of me,” he said. “I don’t have any other explanation.”

To see the truth why no one protects the girl who cried wolf, watch the video below. It is a MUST WATCH.

Spongebob Is Bad For Children

I always knew that there was something wrong with that cartoon sponge. Research has shown that now :)

Biggest Employers in the World

The Pot calling the Kettle black.

Volume 3 Issue 37: Intelligent Investing

Jedi Monetary Policy

Here is some added perspective on how monetary policy works. Jedi mind tricks.

When you can make a credible commitment to a policy goal, you don't have to work as hard to hit it; markets will do the work for you. Mr Wright suggests that the Fed could pull a similar trick for a different variable, like long-term interest rates. (The Fed could target an exchange rate, which would almost certainly make for potent stimulus. But it would generate an international uproar and would likely lead to a wave of protectionist retaliation.) If the Fed were to declare its intention to buy bonds until rates hit a specific level, markets would help push the rate toward that level, leaving the Fed with less to do than if it were to keep its policy goal unclear and try to hit the target through brute force.

Can the SNB keep up the peg? We are about to find out if the force is strong with this one.

Dessert:
Found out that you can even trade on correlation. Perhaps I have been ignorant.

Volume 3 Issue 37: Two-Cent Economics

The Failure of Economists

Paul Krugman thinks that economists as a profession have failed the people. All in all, an interesting read.

Do you agree? Many people have claimed that success is a bad teacher. What about failure?

Economics of Sex

Not as interesting as I thought, but still, something to spice up your Saturday.

Currency Manipulating For The Win?

So it is OK for Switzerland to cap the CHF to the EUR, but it is not OK for China to peg the RMB to the USD. Is the SNB not manipulating the CHF? Where is the shouting from the US? Oh wait, the cap doesn't affect the US. So they don't have to pressure the Swiss.

Volume 3 Issue 36: Intelligent Investing

An Ode to Chess

Once every year, I like to participate in the Merdeka Chess Rapid tournament. When I was much younger, I went to these tournaments playing for a prize. With expectations come pressure, joy, and inevitably disappointments. However, looking back, these were probably among the best times of my life. It wasn't just chess and the people, but I felt that it was events like these that built my character and in some way made me who I am today.

As time goes by, the expectations for these events kind of grow smaller. I have become rusty (some people call it complacent), and I no longer play with the same drive and motivation as I did half a lifetime ago. But, I can't say I have less fun. Below is a game from the tournament. Despite the numerous mistakes that I made throughout the game, I am still satisfied due to the neat ending.

Volume 3 Issue 36: Two-Cent Economics

The Folly of Models... Sometimes - Part 2


Taken from Brad DeLong:

John Kay:

Economics: Rituals of rigour: "The two branches of economics most relevant to the recent crisis are macroeconomics and financial economics…. [Macroeconomics's] dominant paradigm is known as “dynamic stochastic general equilibrium” (thankfully abbreviated to DSGE) – a complex model structure that seeks to incorporate, in a single framework, time, risk and the need to take account of the behaviour of many different companies and households. The study of financial markets revolves meanwhile around the “efficient market hypothesis”… and the “capital asset pricing model”…. A close relationship exists between these three theories. But the account of recent events given by proponents of these models was comprehensively false. They proclaimed stability where there was impending crisis, and market efficiency where there was gross asset mispricing….

[M]istaken claims found substantial professional support. In his presidential lecture to the American Economic Association in 2003, Robert Lucas of the University of Chicago, the Nobel prizewinning doyen of modern macroeconomics, claimed that “macroeconomics has succeeded: its central problem of depression prevention has been solved”. Prof Lucas based his assertion on the institutional innovations noted by Mr Greenspan and the IMF authors, and the deeper theoretical insights that he and his colleagues claimed to have derived from models based on DSGE and the capital asset pricing model. The serious criticism of modern macroeconomics is not that its practitioners did not anticipate that Lehman would fall apart on September 15 2008, but that they failed to understand the mechanisms that had put the global economy at grave risk….

The academic debate on austerity versus stimulus centres around a property observed in models based on the DSGE programme. If government engages in fiscal stimulus by spending more or by reducing taxes, people will recognise that such a policy means higher taxes or lower spending in the future. Even if they seem to be better off today, they will later be poorer, and by a similar amount. Anticipating this, they will cut back and government spending will crowd out private spending. This property – sometimes called Ricardian equivalence – implies that fiscal policy is ineffective as a means of responding to economic dislocation.

John Cochrane, Prof Lucas’s Chicago colleague, put forward this “policy ineffectiveness” thesis in a response to an attack by Paul Krugman, Nobel laureate economist, on the influence of the DSGE school…. Cochrane at once acknowledged that the assumptions that give rise to policy ineffectiveness “are, as usual, obviously not true”. For most, that might seem to be the end of the matter…. But Prof Cochrane will not give up so easily. “Economists”, he goes on, “have spent a generation tossing and turning the Ricardian equivalence theory, and assessing the likely effects of fiscal stimulus in its light, generalising the ‘ifs’ and figuring out the likely ‘therefores’. This is exactly the right way to do things.” The programme he describes modifies the core model in ways that make it more complex, but not necessarily more realistic, by introducing parameters to represent failures of the model assumptions that are frequently described as frictions, or “transactions costs”.

Why is this procedure “exactly the right way to do things”? There are at least two alternatives…. Joseph Stiglitz – another Nobel laureate – and his followers favour a model that retains many of the Lucas assumptions but attaches great importance to imperfections of information…. Another possibility is to assume that households respond mechanically to events according to specific behavioural rules, rather like rats in a maze – an approach often called agent-based modelling…. Another line of attack would discard altogether the idea that the economic world can be described by any universal model…. [M]odels, when employed, must be context specific. In that eclectic world Ricardian equivalence is no more than a suggestive hypothesis…. The generation of economists who followed John Maynard Keynes engaged in this ad hoc estimation when they tried to quantify one of the central concepts….

Consistency and rigour are features of a deductive approach, which draws conclusions from a group of axioms – and whose empirical relevance depends entirely on the universal validity of the axioms. The only descriptions that fully meet the requirements of consistency and rigour are completely artificial worlds, such as the “plug-and-play” environments of DSGE – or the Grand Theft Auto computer game.

For many people, deductive reasoning is the mark of science…. But this is an artificial, exaggerated distinction. Scientific progress – not just in applied subjects such as engineering and medicine but also in more theoretical subjects including physics – is frequently the result of observation that something does work, which runs far ahead of any understanding of why it works. Not within the economics profession. There, deductive reasoning based on logical inference from a specific set of a priori deductions is “exactly the right way to do things”…. Economics is not a technique in search of problems but a set of problems in need of solution. Such problems are varied and the solutions will inevitably be eclectic. Such pragmatic thinking requires not just deductive logic but an understanding of the processes of belief formation, of anthropology, psychology and organisational behaviour, and meticulous observation of what people, businesses and governments do.

The belief that models are not just useful tools but are capable of yielding comprehensive and universal descriptions of the world blinded proponents to realities that had been staring them in the face. That blindness made a big contribution to our present crisis, and conditions our confused responses to it. Economists – in government agencies as well as universities – were obsessively playing Grand Theft Auto while the world around them was falling apart.

Taxes on Prostitutes

Yes, in Germany, even prostitutes get taxed.

Volume 3 Issue 35: Two-Cent Economics

The Folly of Models... Sometimes

Jokes aside, while models hardly ever reflects truly what happens in the real world, they are still very important because it gives us a way to think about the real world. It is true that in the real world, there can be no ceteris paribus, but it does allow us to isolate certain variables and analyze their causes and effects.

If you really think about it, everything we do is based on models. For example, how do you know that the next time you push the door, your hand would not penetrate the door and you along with it? How do you know that the next time you turn your car keys at the ignition, the engine will start? Some of these things are done so often that we forget they are derived from models of what we do every day. The models are induced from past experience. Our past experience with doors suggest that when we push against the door, it will open.

What happens when one day, we push against the door, and we fall right through it? The consequences would be mind-boggling. It will totally change the way we perceive doors. Economic modelling is much like that. When things are all fine and dandy as things turn out the way we predict, we tend to go along happily with our lives. When things don't quite turn out the way we expect them to, we become dumbfounded, and stricken with fear or shock. In the stock market, the first reaction of many "investors" would be to panic and sell.

This explains why we need to have good models and frameworks. A good model helps us to think of things in good times and in bad. It tells us when things are turning bad or when people are just panicking for no reason. It tells us whether the sky is really falling when chickens are running helter-skelter screaming, "The sky is falling". When you think about it, this applies not only in economics, but in real life as well. What is your framework for life?