Thrills and Shrills, a gregarios introvert

New Blog

2011-08-03T20:36:00.000-07:00

The URL of my new blog is http://keatyang.blogspot.com/

The major reason why I started a new blog is because this blog has a very puerile name. In my own (porous) defense this blog was started when I was 16, and we all did stupid things when we were young. (So never get a tattoo, see how fast your taste changes as you age?)

So there will be a private-public life distinction going on here. This blog will henceforth be a collection of my personal thoughts and ramblings, and the other economics blog will be more focused on economic issues and my research interests.

"Stamping" inflation out of national woes

2011-07-30T07:28:00.000-07:00

The Star reports that the government is considering a food stamp programme to help alleviate the burdens of Malaysians in accommodating inflation. In a nice coincidence I was drafting this post a few days back, so in principle this is a programme that I endorse strongly.

The gradual phasing-out of subsidy programmes announced by the government has become a national woe, leading many to view the adjustment of commodities in the domestic market to world prices a painful pill to swallow in the short term. In all fairness the long term benefits that accrue from subsidy removal programmes
are huge. However that doesn't mean that we should act as strict utilitarianism and ask those who are harmed the most by this transition to sacrifice for the greater good. As income is not catching up with the removal of subsidies and the general rise of the price level, most Malaysians are feeling the pinch as their purchasing power declines.

As an aside,there is a link between net disposable income (wages,capital gains etc minus taxes and added with subsidy/allowance/benefits), the price level and purchasing power. It follows logically from
purchasing power = net domestic income/price level that we get:
Change in purchasing power = change in net disposable income/change in price level

Why is a food stamp programme a good idea?
Perhaps if one were to ask Bill Clinton this question he might answer it all depends on what you mean by "good."So let it be noted that the main criteria behind my support for the programme are 1) the efficacy of the food stamps to sustain the purchasing power of affected groups as Malaysia adjusts to the world price for hitherto subsidised commodities, 2) the potential role of the programme as a stabaliser, and 3)the empirical backing for the multiplier effect of the programme.

Efficacy of food stamps to sustain purchasing power
The efficacy of food stamps to sustain purchasing power should not be evaluated chiefly by how much it maintains purchasing power by increasing net disposable income to offset inflation. Purchasing power ought to be sustained and/or increased with a combination of nominal wage adjustments,tax effects, inflation management in addition to entitlement programmes like food stamp programmes and unemployment insurance. Furthermore the case for the efficacy of food stamps is consolidated in the sense that it achieves the objective of protecting the purchasing powers of citizens without introducing the price distortions, resource misallocation and deadweight loss to the economy introduced by subsidy programmes. In a related vein, my objection to the blanket-subsidy programme in place is that it applies to people for all levels of income. By subsidising say, the fuel of gas-guzzling cars we are essentially imposing an implicit penalty on people who do not own expensive gas-guzzlers. In essence this is a regressive penalty for the lower income group, it would be the same as asking residents in low-cost apartments to pay a 25% property tax so that we can levy a 15% property tax for those living in penthouses or condominiums. In addition, subsiding the high-income group is akin to saying at higher levels of income, an additional 1 dollar has the same utility as an additional 1 dollar at lower levels of income. This is a fallacy for a welfare state that justifies its social welfare programmes out of Benthamite philosophy! (See Reinhardt for instance). So in summary the food stamp programme is a good idea for it achieves the desired social goal without the problems introduced by subsidy programmes.
The potential role of the programme as a stabaliserThe Economist newspaper recently published an article about the food stamp programme in the United States of America. The article observes that "spending on food stamps has risen so quickly because, unusually, almost all the needy are automatically and and indefinitely eligible for them." This makes the progamme a good stabaliser since spending on the programme will automatically increase during a recession and decrease during a boom.So in instituting this programme we not only have a mechanism that maintains the purchasing power of citizens in an equitable manner, it also helps moderate the swings in recessions and booms. Of course architects of the programme must be careful to delineate the cut-off point and above all be sensitive to the marginal tax that may be affected, or else in its efforts to break out of the "middle-income nation trap" it might inadvertently introduce an income trap with its policies. This conjecture will be discussed in the policy challenges part of the post.
The empirical backing for the multiplier effect of the programme
From the same Economist article above,

"When Moody’s Analytics assessed different forms of stimulus, it found that food stamps were the most effective, increasing economic activity by $1.73 for every dollar spent. Unemployment insurance came in second, at $1.62, whereas most tax cuts yielded a dollar or less."

So in addition to all of the advantages discussed above it appears that food stamps generate more income per dollar spent. Automatic fiscal stabalisers that have a high (relatively speaking) multiplier effect is the holy grail of all discretionary fiscal policies. Rarely are there any effective mechanisms that can stimulate the economy automatically without having economic rationality hijacked by populist but harmful politicking.

Policy Challenges
Perhaps the greatest policy challenge is to delineate the cut-off points. Civil servants drafting out the proposal must first decide whether the value of food stamps issued is a linear function of income (that is decreasing value of food stamps issued as income increases), or would it be a much more "piece-wise" approach i.e. (food stamps valued at MYR X for the income range a to b; food stamps valued at MYR Y for the income range c to d etc etc). In addition it is worth reiterating that I said "Purchasing power ought to be sustained and/or increased with a combination of nominal wage adjustments,tax effects, inflation management in addition to entitlement programmes like food stamp programmes and unemployment insurance." I have warned of the dangers of inadvertently institutionalising an income trap in our efforts to break out of the middle-income nation trap. This blog post from Prof Greg Mankiw sums up my fear.

My suggestion to the DPM is to draw in officials from the revenue agency, central bank, treasury,social welfare department and the economic planning board to draft out the proposal together. The success of the programme, and that of eliminating the danger of an institutionalised income trap requires a broad view, not just implementing a food stamp programme in isolation.

Update:The minister for Women,Family and Community Development says that the programme is targeted mainly at the poor. The federal poverty(absolute) level in the Peninsula is RM430/month. So the effects discussed above would be small(since absolute poverty according to official figures have gone down) but still significant. Yes,I know someone fudged the data for poverty by redefining the baseline, but that is something for another blog post. This also means that policies targeting sustainable purchasing power will have to come from nominal wage adjustment(which is why the minimum wage law was legislated), marginal tax adjustments in the future and of course, whether the Central Bank will validate inflation (it elected not to raise interest rate in the last round).

"It makes economic sense, if you think economically."

2011-07-28T20:21:00.000-07:00

One day in the midst of an economics class amongst a sea of hungover and facebook-occupied freshmen I began to ponder the implications of the Economics professor's statement.

"It makes economic sense, if you think economically."

There's an air of dissonance to the statement, unsettling even for it projects a sense of nihilism. If a single problem can make various forms of sense, "common sense, social sense, moral sense" what have you, that would have meant a single objective problem would have equally valid explanations drawn from established theories from varying disciplines. Of course in most cases this is fine, the world is sufficiently complex that a lot of factors are at work simultaneously.

But what if all of these trustworthy tools of academia- fortified by statistically significant empirical evidence - offer significantly different predictions? That would mean a moment of crisis for all of social science, as hard sciences like physics (quantum mechanics vs theory of relativity) could empathise.

That led me to think about the notion of the economic man, the rational decision maker populating economic models that came to life from Morgenstern and von Neumanns' pages. Economists are prone to be exasperated when they are accused of being out of touch with reality to populate their models with such agents. Yet one can easily see how economists come to such expectations of the ordinary Joes, it just follows logically if one's goal is to optimise scarce resources, even when some of the payoffs are random and/or only probabilistic. Yet psychologists(Kahnemann and Tversky for instance) have aptly demonstrated that empirical evidence weights unfavourly against the economists' expectation, and when one looks at the data set they presented one could only think that it then,to modify my professor's quote " to make psychological sense, if you think psychologically."

So what do we make of all these? In spite of how much economists (especially those writing textbooks) pride themselves to ground their thoughts more on positive rather than normative analysis, the expected utility theorem is in effect a logically superior normative analysis.On the other hand, Cognitive Psychology and some sub-fields of Sociology may offer better positive descriptions of the behaviour of agents. For a science that aims to study how to optimise scare resources, all scientific endavours within Economics is fueled by the motivation to make the most all of scare resource. Economists are widely documented to be the ones with "economically correct" answers (see Thaler for instance).

Ultimately my opinion is that research in Economics should continue in two distinct but ultimately convergent paths. The first concerns the question "how do we optimise?" which is built up on the surfeit of theorems that have blessed our understanding of how the economy works; the second concerns "how do agents actually behave?" which could be built up and drawn from psychology,sociology and behavioural economics. Perhaps the best anecdote is provided by Richard Thaler, who in modifying Friedman's billiard player analogy offered that perhaps the expert billiard playing making strategic moves with his understanding of physics and mathematics is to economists as the average players who plans at most 2-3 strategic moves ahead as that of the average decision maker.

Only when we are certain of how the actual behaviour of agents diverge from rational behaviour that we can offer policy prescriptions that are guided by reason, supported by empirical evidenced and refined by moral intuitions.

Suggested Reading

"Choices, Values and Frames." Daniel Kahnemann and Amos Tversky. Published in American Psychologist, 39:4,341-50
"Prospect Theory, An Analysis of Decision under Risk". Daniel Kahnemann and Amos Tversky. Published in Econometrica, 47:2,263-91, 1979.
"Mental Accounting Matters." Richard Thaler.
"Toward a Positive Theory of Consumer Choice." Richard Thaler.

Inflation:Now you see it,now you don't?

2011-07-03T13:42:00.000-07:00

Priscilla Lim,a PhD candidate at the University of Nothingham Malaysia campus recently wrote an op-ed to The Star questioning whether empirical evidence catches up with anecdotal ones on the erosion of purchasing power due to inflation.From what I could gather she argues that for the moment there doesn't appear to be adverse effects from inflation since "residents in Kuala Lumpur have similiar purchasing power with their counterparts in Singapore.Their purchasing power also tops that of Shanghai,Beijing and nearby Bangkok and Jakarta." Her reasoning is that since all these comparison countries do not implement subsidies but "wages have risen in tandem with the rapidly rising costs of living in those countries" there shouldn't be an erosion in purchasing power. However she noted that due to the subsidies and "stickiness" (in my own words) of domestic prices to adjust to changes in world prices, along with wage adjustment lags would eventually lead to upward pressure on wages. The implication is of impending cost-push inflation (which may or may not lower purchasing power,depending on how nominal wages adjust).

My thought is that inflation(with a lag in wage adjustment) is not only imminent but it is already upon us after the round of subsidy rationalisation as measured by upswings in Core Inflation (Inflation excluding food and transportation prices), as pointed out by Hisham in this post. I will now summarise why the statistics cited by Priscilla understates the reality that we are in fact affected by inflation at this moment and would like to point out empirical inconsistencies with her explanation for "stagnant wages."

On Catching Up with Purchasing Power
It would be misleading to generalise the purchasing power of citizens between nations with the purchasing power of the residents between major cities of nations.Major cities become so because they tend to specialise in important economic activities that affords their residents a higher standard of living compared to their counterparts in other parts of the country.Confounded data leads to false conclusion. It is conceivable that in a country afflicted with extreme regional economic inequality that residents living in major cities tend to have a higher standard of living compared to their counterparts in other countries and the majority of their fellow citizens in other regions. As an analogy suppose you were asked to investigate the educational level of countries. If we select the highest-ranked universities as comparison groups the United States of America would be leading other countries, but does that mean that on average Americans have the highest standard of education in the world? According to OECD, the answer is no. Likewise we cannot generalise that because the residents in Kuala Lumpur have coped well with inflation by achieving purchasing power parity with other advanced cities, Malaysians as a whole are doing well.

Empirical inconsistency for the explanation of stagnant wages
Stagnant Wages is explained in the op-ed by invoking labour theory with "an over-supply of labour." This is achieved by looking at 2 groups, the low-skilled labours and the market for "fresh-graduates or junior executives." The hypothesis required to support the phenomenon observed with the former group is rejected by empirical data (elaborated below) while the latter group would be more apt as evidence for "inadequate training" rather than the effect of the over-abundance of junior executives.

Implicit Xenophobic and protectionist tendencies affect public and economic policies much more than we are aware of. Malaysians in particular are prone to the heuristics of blaming immigrants for unemployment and stagnant wage issues. Arguments like "(The Willingness of immigrants to accept lower wages) undermines the job opportunities for many of the “low-income to hardcore poor” Malaysians who do not mind taking on these jobs as it may be their only opportunity to earn a living" sound intuitively appealing, but it is worth knowing that economists analysing the impact of immigrant inflows to the labour market in the United States of America have failed to find statistically significant net impact of immigrants on the net job growth of American-born workers.

However in rejecting the explanation the onus is upon me to show why it is false. In order to confidently express that immigrants do not affect the job prospects of local workers we would ideally want a study that studies the net impact on productivity after controlling for all factors except for the flow of immigrants. A study by Giovanni Peri (summary here) does just this, and concludes that

"Data show that, on net, immigrants expand the U.S. economy’s productive capacity, stimulate investment, and promote specialization that in the long run boosts productivity. Consistent with previous research, there is no evidence that these effects take place at the expense of jobs for workers born in the United States."

Of course the data is drawn from the United States of America, yet there is no reason to assume that the same explanation cannot be applied in Malaysia.

P/S Of course a high nominal inflation would not be a problem if wages adjust to keep real inflation at bay. However, resentment and disapproval on the way inflation is handled by the authorities even if real inflation remains at zero is possible, since people have a bias towards nominal evaluation.
For further reading on the matter see "Money Illusion" published in The Quarterly Journal of Economics, 112:2,341-74 by Eldar Shafir,Peter Diamond and Amos Tversky.

The Economics of Proxy Votes

2011-01-16T09:56:00.000-08:00

A recent news report on the viability of "proxy votes" got me thinking about the the mechanisms of elections. My skepticism is grounded in economic analysis, and this post sums up my concerns.

Historically across democracies, elections (rigged or not) are rarely won by virtue of one vote. Taken individually, the marginal vote of any voter has little impact on the outcome. Victories in elections are thus decided in terms of what I'd call a "total relativity," "total" because the votes garnered by candidates are aggregated, but "relative" because the aggregate are compared amongst candidates and the one with the highest aggregate relative to others is declared the winner.

What this means is that an election is essentially a zero sum game. An additional gain of one vote for a candidate means that the other candidates have lost one vote in relative terms. So to an individual voter their marginal votes have little influence on the outcome, but the converse holds for candidates I.E. a marginal vote will be more significant to a candidate than to a voter. That this is exacerbated when an election is close is self-evident as candidates joust for swing voters.

The way I see it it seems to be the rule of the world that democratic governance means the representation of those who both voted and had their votes prevail. What about those who chose not to exercise their civil right to vote? It probably meant they had little stakes on the political issues characterising a particular election. The apolitical nature of those who could not be bothered to vote - while worrisome to the civic-minded - has no impact on an election. Consider:

Suppose that of all eligible voters, there is a fraction of them, k, that couldn't be bothered to exercise their votes. To all candidates in a district then the votes to fight for in order to win an election is now (1-k) multiplied by the number of eligible voters. Assume that there are only 2 candidates competing, and candidate A got a percent of votes while B got b percent of votes. If a(1-k)>b(1-k), A wins and if a(1-k)<b(1-k), B wins. So no matter what k is, so long as one candidate does better than the other in relative terms, there is no effect on the election. Our democratic principle is thus empowered by the will of the majority when voters chose either one of A or B. Whether or not there are a lot of people who chose not to vote does not concern us if we are chiefly concerned with the outcome.

Now suppose we introduce a "proxy vote" system and now the k fraction of voters who could not be bothered to vote are allowed by law to "transfer" their votes to some other voters. So that means that campaign managers will now have an incentive to "capture" the "k" votes out there and have it transferred to voters who are certain to vote for the candidates they campaign for. This leads to one of of the following outcomes:

1)If the number of votes garnered by candidates A and B are equal, that is a=b, then the outcome is contingent upon who is more able to capture the "k" out there.
2) If a is slightly greater then b or vice versa, then again the outcome is contingent upon who is more able to capture the "k" out there.
3) If the election is a landslide election with a sufficiently greater than b, then it doesn't matter who captures the "k" proxy votes out there if k is not a sufficient force to overcome the preference of the majority.

Scenario 3 does not bother us politically because it does not compromise the central tenet of democracy that is the prevail of the will of the majority. The economics of 3 however is very "inefficient" if capturing "k" votes has become such a norm that campaign managers incur a lot of cost to obtain them. Such efforts that promote no change in outcome are considered "wasteful" as they divert resources away and offer no gains. Just like the arms race, both A and B would still have had their relative positions maintained with or without incuring the extra costs to capture those "k" votes, and the fact that they both incurred those costs and had no change in their relative position thus made both worst off.

Scenario 1 and 2 do bother us politically and in an indirect manner, economically. Politically it means that democracy is redefined to be representation to he/she who is both most able to put additional weight to their votes and prevail. Is it still democracy when the majority prevails not because they have the people behind their numbers, but because they can make their votes count by "manipulating" the weightage of their votes? Economically, an election is valuable so long as it achieves its desired goal - which is to defend the tenet of democracy especially in safeguarding the will of the majority. If a "public good" such an election can no longer deliver its benefits, and now comes with an additional cost of wasteful campaign costs, to what degree is public welfare served?

This sounds distasteful if you are civic-minded. I understand that the "proxy vote" consideration comes from the intent to promote civic participation in democratic governance. If a proxy vote system makes no change in outcome as in 3), then why introduce it with the burden of the costs I have mentioned? If a proxy vote does change the outcome of an election at the expense of compromising our democratic principle, the question is - is such "civic proxy voting" ever going to justify the bastardisation of democratic voting?

PS: I have made the argument that proxy voting is a "transaction" between those who could not be bothered to vote to those who are committed to vote for a candidate. In reality of course a proxy vote might be desirable due to geographical,social or even personal constraints. However, that doesn't mean that the model I have described here is completely inaccurate, this post is of course a simplified abstraction of reality.My argument is that if preference are more or less stable from the onset, converting indifferent votes to impactful marginal votes is costly regardless of how it affects the outcome of an election. I have implicitly made the argument that apolitical eligible voters are rather selfish in the sense that they'd "sell" their votes away with the "rational actors assumption." This is meant to apply probabilistically across a population and there is no reason to assume that people who couldn't be bothered to be vote would suddenly be bothered about the consequences of transfering their votes to people with vested interests.

Information Assymetry,Moral Hazard and Adverse Selection

2011-01-13T17:36:00.000-08:00

What happens when there is information assymetry in the market? Market failure.
For those of you who have taken any microeconomic courses before you'll probably be able to identify the principles making up the title of this blog post from this report from The Star.

What I have been up to

2010-12-31T19:39:00.000-08:00

Due to some of my commitments (which includes play) I have neglected my blog for awhile. Since the end of the exams I have read Robert Frank and Philip Cook's "The Winner Take All Society," wrote an op-ed "Microfinance Institutions: Friend or Fiend" for SNED's website, wrote a report reviewing KIVA's organisational practice and have now completed my draft proving theoretically on how a U of T Eng Sci degree can act as a signalling mechanism for information assymetry when it comes to hiring Engineers with U of T Engineering Degrees (So it probably has to be polished, get nasty stuffs commented on how this is a lousy paper before I get to send it for publication, have it sent back for review, resend and whatever circus acts one has to go through to publish in a journal in the Cirque du Soleil that is academia). I am currently reading Justin Fox's The Myth of the Rational Market.

The highlight of my Winter Break was my trip to Toronto. I had a great time sight-seeing around Toronto but the best part was spending time with all of my friends. (To the drunk guy hailing North Korea and Kim Jong Il at LCBO, it was weird bumping into you). Incidentally the Toronto trip also provides real life examples of economics principles in action, which may be featured in subsequent posts.

Happy 2011 everyone,and to us in Quebec it means an effective consumption tax of 13.5% after midnight. Here's to a year with more solutions to our pressing problems.

Co(r)n Law

2010-12-16T09:19:00.000-08:00

This essay is among my few amateurish attempts to argue in the realm of normative judgements. To be fair to readers I ought to point out that my political view is that of a moderate liberal. This essay is also written in inspiration from a spiritual-economics post from Mr Wise, a former Grade 12 English teacher of mine whose virtue and honesty as a good, pious Christian taught me a lot about life. I am not knowledgable in religion or well, anything at all, but I hope this adds weight to your concern with a perspective of Economics, a subject that I am at most moderately capable of articulating.

Co(r)n Law

In the 19th Century much debate raged about the Corn Laws, a tariff designed to shield local producers of corn in England from cheaper imports. The acrimonious debate was ostensibly about the inefficiency the law entailed and the burden it encumbered on the poor, but in all sense it was a proxy war regarding the distribution of wealth among the then prevalent social classes in England - the capitalists, the landowners and the workers. It took superhuman analytical skills and very lucid arguments, chiefly in the contributions of David Ricardo and his penetrating analysis to repeal the Corn Law. Along with its repeal, went also the inefficiency of merchantalism as a great empire rose in the surfeit of its disproportionately distributed "wealth of nation" brought about by free trade.

Fast forward to the 21st Century, the social classes of old is non-existent. The humble diner owner down the street where I live is a capitalist in all sense; but a neurosergeon, a "worker", makes more money now than he does. So now that social classes cannot be delineated by job functions alone, the social class war is now a war between the rich and poor, the right and the left. And just like how the social class was had never truly extinguished but merely changed in its appearance, so had the Corn Law. It's successor is of course, the Con Laws.

(Here's a review of what constitutes an economic rent. In economics, an economic rent is the excesses beyond the minimum required to prevent something from being directed to an alternative use. If a factor is compensated at the minimum of what its owner is willing to receive to prevent it from being used in an alternative method, then it is paid at its transfer earnings. Economic rent = Excesses + Transfer Earnings. The following example illustrating the concept assumes that there are no non-monetary advantages.
Keat Yang is a soccer player making $5 million per year. If his pay is reduced to just less than $2 million per year he would decide to become a model for Adidas instead. The money paid to me to prevent me from leaving the soccer club and model for Adidas is thus $2 million, my transfer earning. The economic rent I get is $3 million, what is paid in excess of the transfer earning. An important caveat of course is that what constitutes an economic rent or a transfer payment varies across individuals/firms. For the whole professional soccer player association as a whole, the $3 million from my $5 million wage is an economic rent because if I were to be payed any lower I'd still choose to be a soccer player anyway if I am paid anything above the minimum of $2 million that is my transfer earning. To my soccer club, say Arsenal, that $5 million is a transfer earning because if they do not pay me that much, a small club called Real Madrid might walk in with an offer an hijack me away).

The principle problem with the Con Laws is that they are an institutionalised mechanism meant to extract economic rent at the expense of the greater good. I admit this argument will probably rile up my Conservative counterparts, especially honest ones who think that people should not have what they rightfully earn taken away. I must say this is a belief I share with conservatives. I do not object to Russel Peters, Fernando Torres or Steve Jobs making their millions, because society clearly benefit from their work efforts. Wealth distribution is among the chief causes of idealogical faction between the left and the right, and a pertinent argument is to what degree is government involvement required to distribute wealth in an "equitable manner." I do not have the moral authority to decide how much of wealth have to be taken away from Bill Gates to be given to the poor homeless person on the street, because I cannot make the poor person better off without making Bill Gates worst off.

Yet it would be an overarching argument to say that all the wealth of the rich are well-earned. My major concern is that when the system is tweaked to institutionalise economic-rent seeking behaviour for dubious, overinflated "contributions" to the world of certain people that spreading the wealth around would be desirable. Take the financial sector as an example. A lot of start-ups that benefited mankind like Google were made possible in part because of bankers and the financial market. However, some quarters in the financial sector, the derivatives market for instance, are manipulating the system (New York Time coverage) to guarantee to themselves the economic rent at the expense of potential competitors and to the potential "Googles" hoping to have cheaper accessibility to the derivative markets. It is in this that a standard approach in positive economics can be used to illustrate the inefficiencies caused by such Con Laws, as David Ricardo did to help repeal the Corn Laws. Using a standard Welfare Economics Analysis, we have a strong case that such "cartelisation" empowered by such Con Laws had essentially guaranteed economic welfare inefficiency. The market price for derivatives can be reduced with the addition of more suppliers in the trading house. As the gap between what consumers would be willing to pay and how much they actually have to pay increases; the gap between what suppliers would like to receive and what they actually receive increases, we have an increase in social welfare up to the point of equilibrium. Even when the size of the gap between what consumers would be willing to pay, and what suppliers are willing to receive, and what they actually pay and receive remains the same as it was, an electronic trading system would reduce industrial cost and hence we also have a strong case for productive efficiency.

Another strong example of the Con Laws (Or in nerd-speak you can call it Corn Law V2.0) we have the lobbying group and lobbying firm employed by farmers for agricultural subsidy. Part of the food crisis we are facing now can be attributed to such subsidy scheme, which essentially yet in a twisted manner serve the same function as the Corn Law in Ricardo's era. An unjustifiable subsidy to inefficient producers distorts the price signal for the planning of crop cultivation and raises the relative price of imports that would have been "cheaper" were it not for such artificial impositions. The result is of course and badly-coordinated argricultural sector that brought along with it a food crisis.

Given what we understand from Public Choice Theory and the Impossibility Theorem, I understand that people plead apathetic to political and economic issues. Why incur the cost of examining these issues when its marginal effect on each individual is so small? Yet we continue to fume over our social class war of the rich versus the poor. The poor would see a conservative party in the mould of the Sheriff of Nottingham, the manifestation of a political power to stymie the efforts of their Robin Hood. The Rich would see a liberal party as a mould of the dreaded Robin Hood, a manifestation of political power to rob from the not-evil Rich to give to the poor.

Arguing in such a vacuum is a futile exercise with no physical reality. Conservatives or Liberals, Democrats or Republicans, a common threat to us all are the Con Laws.

PS: Tea-Partyers and fanatical Conservatives, I don't really understand your economics. Congressman and Senators who bend on over to secure economic rent for vested interests, I admire your ability to say what you will do "for our children" in camera only to enact laws that makes me and my future generations starving and dying. For people who are gaming the system, I wish they give me an Inception-style dream device and I can recreate Dante's Inferno for you.

Velk on QE2

2010-12-14T20:29:00.000-08:00

Tom Velk from McGill's North American studies observed that the market is not responding to the Federal Reserve's QE2 programme. In the same commentary Velk also provided the underlying principles of the financial market as we understand it and argued that because prospects of growth are anticipated to be grim and that the counter-recession programmes have hampered the perceived solvency of most countries, the markets simply won't budge.

(For readers with no economics background, Quantitative Easing is (typically) the purchasing of government securities to lower the interests they pay by using money printed by the central bank, as empowered in the law of its creation. The purpose is to create additional supply of money so that commercial banks will lend them out and hopefully, spur growth to bring a country out of a recession. There are a few psychological factors that should in theory, spur investments and spending in an economy.
1. When short-term interest rates are low and firms are not responding, lowering the yield of long-term interest rates by purchasing government securities (or other financial instruments) will create more money in the economy so that no one has the incentive to hoard it as a store of value.
2. If the economy expects that there are prospects for growth, borrowing when it is cheap right now might pay off in the future when the economy recovers.
3. A slightly more "evil" twist to see this is that when investors think that inflation(rise in price of goods) that is about to accompany growth when the economy recovers will decrease the value of their assets, they will be be more inclined to invest in assets; or in the case of firms, instead of holding the money they have as part of their capital, will invest it instead. Either way, because of the fear that their assets might lose value, these individuals or firms will spend right now, thus collectively veering the economy to recovery.)
For a take on QE in combating a liquidity trap that mired us in this depression, I recommend Paul Krugman's Return of Depression Economics. Alternatively you can read this post from some lousy wannabe.
An important caveat: The success of any round of QE is contingent of the Federal Reserve and by extension, the government's ability to persuade the market that the recession is but a glitch and prospects for future growth is solid. Velk's commentary is arguing that as of now, the Fed and the government has not succeeded in doing this thus far).

Instead of piling their faith on the government programmes and the central bank, as Velk argued, investors are flocking to a more "tangible" store of value in commodities like oil, gold etc. The gold-bug camp argues that because investors are jitterish about the run-away inflation that seems plausible when the economy recovers and that the Federal Reserve might not be able to rein-in the excess of supply of money, the price of gold is skyrocketing.(For non-economics readers again, what we mean by this is that investors are worried that the excess supply of money will make their money worthless because inflation caused by the rise of the price of goods will take away the value of their money. Think about the stories your parents told you about how Char Mee Hoon used to cost 5 cents.An illustration can be found here, linked from Greg Mankiw's blog). In this I share the view of economists who disagreed. Scott Sumner for instance, argued that the increasing price of gold is not due to the fear of inflation afflicting North America, but rather the increase in demand for gold from China, where the people are hedging against the inflation in an overheated market. (Scott Sumner's post was made accessible from Hisham's blog).

It is in this that I think using the soaring price of gold to argue that investors are spooked by inflation overstates the case against QE2. I admit however, the credibility of governments and central banks are under siege. What we need right now is not the fear of inflation, but rather inflation to hurtle us out of this mess. The key in achieving that while assuring the market that it will be placed under control would require the satisfaction of these conditions:
a) That policy makers explicitly target an inflation rate.
b) To provide a stable macro-economic conditions for investors.
c) Enact policies (tax cuts, government spending etc) to boost real income and create a feedback loop of recovery.

In all sense the economy is analogous to a game of music chair. If everyone pretends that the music hasn't stopped and keeps on passing the parcel, the game goes on. What we need then is to get all these players to continue to pass on the parcels by making them believe that the music is still going on, regardless of what it may be objectively. When the music is played back, we'd all still be trudging along.

On what I think about austerity packages right now, I quote Keynes " In the long run we're all dead."

A Cartel in the Derivatives Market

2010-12-12T09:38:00.000-08:00

The New York Time's latest coverage alleging a cartel formed amongst "big banks" in the oligopolistic derivatives market is an interesting one. In standard Economics textbook it is often said that the stability of a cartel lies on its ability to enforce its ground rules among its members.

In this case it appears that the cartel might actually be strengthened on the legislative side with the support of a Republican-controlled Senate. But then a Judiciary that is interested in interpretting law rather than focusing on upholding the law might thwart that.

As an added twist, if a cartel were to be formed there are incentives for outside firms to stay out of the cartel and then cheat by producing more and selling at the price created by the output restrictions of the firms involved in a cartel. However in this case, since total market power is created by law to be concentrated on the hands of the members of the cartel, only members in the inner circle benefit.

In my humble normative judgement, I think economics should be a focal point of the impending debate. In an utilitarian view point, the cartel should be broken down and transparency is paramount because the benefits accrued to society in greater and cheaper accessibility to derivatives far outweights the cost (profits of "Big Banks", whatever "Big Banks" mean). On a Just Deserts theory viewpoint, it is hard to make a case that the members involved in his cartel deserve the economic rent (which mean institutionalised guarantee of maximum profits, which may be negative,zero or positive) by virtue of their contribution in providing a valuable service, because the additional value attested by the profits is artificially sustained by forcefully keeping potential competitors out.

Towering Prosperity

2010-12-09T14:43:00.000-08:00

To its proponents, towering skyscrapers bustling with economic activities encapsulate the progressive nature of the community.They are grandiose architectural successes etching closer and closer to the sky as communities engage in an arms race to boast that only the sky is the limit. To its staunch opponents, they are but hollow phallic symbols showcasing garish extravagence. Fervent supporters of skyscrapers are quick to point out that major global city centers have one - the Empire State Building in New York; Taipei 101 in Taipei etc. Some would even go as far as arguing that the construction of skyscrapers causes economic growth.I am skeptical of such arguments on the basis that correlation is not causation.

Just because skyscrapers are found in major city centers in the way doesn't prove that their construction brings economic growth. In an ironic(and iconic) twist, Burj Dubai, the skyscraper that was to be inaugurated as the tallest skyscraper in the world was renamed Burj Khalifa in gratitude to the U.A.E for bailing Dubai out of a property bust. Using skyscrapers to predict economic boom or gloom would yield a prediction no more accurate then say, flipping a coin.

There is always a "construction lag" between the time investment decisions are made and the time a skyscraper is completed. The fact that skyscrapers tend be completed in times of boom doesn't mean that investment in skyscrapers per se contribute to growth. Rather the macroeconomic conditions were such that investors expected inflation to pose enough justification to invest now in a skyscraper (because their money will be worth much less in the future); or are expecting interest rates to increase as the Reserve Banks try to cool down an overheated market. Either way, the decision to build skyscrapers is an effect of a booming economy rather than the other way around.

Of course, a keen reader might observe that the flip side can also be true. The completion of a skyscraper might also predict a bust. (Hence the Skyscraper Index). If investment decisions are made in a market fuming with irrational exuberance, where nobody entertains the idea that the bubble will burst, then the completion of a skyscraper under such condition is inevitably accompanied with a period of gloom. When the dust settles in the aftermath of the bubble's burst, what we are left with are a glut of towering buildings appraised with low values that would have seemed preposterous months ago.

By now, how confident can we be with the causal relationship between skyscrapers and economic growth?Skyscrapers can't even be used reliably to establish a correlational relationship with a boom/bust outcome. And in what sense is a skyscraper beneficial for growth? In thinking of building one we also have to take into account the high cost in maintenance such buildings incur. If the presence of a skyscraper signals to investors on how serious a party is in the development of an area, as an economics student I have to ask, would the same be achieved by building a vast network of infrastructure connecting to the site?

So hopefully you can all see that not only is it dubious to claim that building skyscrapers drives growth, correlating skyscrapers with specific outcomes is equally questionable.

I am not opposed to growth and I am willing to entertain the idea that skyscrapers can contribute to growth if I am presented with strong evidence. What I am unwilling to accept is the junk-economics people try to sell me by cherry-picking data and packaging dubious correlational arguments into undisputed causal ones.

Unabashed self-promotion

2010-10-31T09:02:00.000-07:00

I will be speaking on the 3rd Day of McGill's Smart Business Week along with MES VP Chris Turlica and STOP VP Danielle Lalonde. The event is open to all McGill students and it is free.

The Microfinance Debate at McGill

2010-10-14T20:39:00.001-07:00

So in between academics and getting my life in order I also involve myself in some of the clubs that interest me here at McGill. The student body is very active and discourses are often intellectual or inane, depending on context. (Topics range from changing the world, gender inequality etc etc to well why the Toronto Maple Leaf is suddenly on a hot streak, killing the Pittsburgh Penguins 4-3 yesterday night).

Anyway I have also successfully obtained a position as a contributor to Student Network for Economic Development so the goal is to turn in an article on microfinance every week.

Being the contributor can be a very humbling position because quite often you have to be prepared to answer question and engage in discussions. Sometimes I correspond on behalf of the club with the school's paper and well basically anyone who is interested in anything about Microfinance. This is the interview with SNED and my response on behalf of it.

Do you think that Microfinance, due to its effectiveness, has diminished the credibility of the World Bank and IMF?
Yes, if you look at the resources that the World Bank and IMF have poured into tackling the issue of poverty the results are dismal and even counter-effective at times. What the World Bank and IMF didn't understand was that there is no one-size-fit-all policies when it comes to tackling something as tacky as poverty. Glocalisation would be a more effective way of approaching it. Microfinance is not always successful in all parts of the world, and a good example that comes to mind is India(government mandated loan requirement forces Microfinance Institutions to be reckless in handing out loan and not informing borrowers that these are loans and not handouts). What we have to understand is that any approach in microfinance has to be tailored to the varying needs of different communities. So in terms of incorporating such understanding in their business models, MFIs (Microfinance Institutions) are successful and hence the perceived diminished credibility of the World Bank and the IMF.

Do you think that Professor Yunus, whose area of expertise is in Banking, is going in over his head by now endeavouring to change the health of Bangladeshi Citizens? Shouldnt that be the government of Bangladeshes job?
No, Grameen Bank is a social enterprise that has a different objective compared to other types of firms in the market. A social enterprise is utility-maximising rather than profit-maximising,so the priorities of social enterprises are to maximise community welfare with market-based solutions, rather than to be solely driven by profit and shareholder value per se. You can see a social enterprise as an entity that bridges the efficiency of businesses with the soul of humanity. While governments are mandated by its citizens to implement policies to look after the well-being of society, they are notorious for enacting costly, sinkhole projects in spite of the noble intentions behind such initiatives. What makes it more difficult for any government to function is the scarcity in resources that it has to grapple with, particularly in terms of funding. Fiscal austerity is a perennial concern for foreign investors, or government treasury bond holders; in a similiar vein the issues of taxation, transparency in government also cripples governments in a way. Professor Yunus's initiative is desirable in a way in that it steps up to the expectations that the government failed to meet. If Grameen is able to come up with social-business models that can cater to the health needs of Bangladeshi citizens then it would be a gain to the economy (sinkhole projects are a deadweight loss). Social-enterprises can have a comparative advantage in certain projects (as results in microcredit can attest), and it certainly is better for governments to allow social enterprises to replace them in areas where these social enterprises have a comparative advantage in.What this differs from say,privatising social welfare programmes is that social enterprises still take into account social welfare rather than to be profit driven. So it is one thing to look at privatisation of public goods in askance, but there is a distinction between social enterprises and firms that seek to maximise only profit. In fact I would go as far as saying that part of the government's major objective is to allow an efficient distribution of resources, so having social enterprises replacing them in certain roles in the economy is their job. This is why I don't think Professor Yunus is overeaching in terms of trying to work on this healthcare project

Will social business deter FDI within a country because it will make it appear greedy if they are working for - profit? Is that such a bad thing?
There are no empirical data that I have seen that links FDI flows with the fear of appearing to be greedy, so what I have to offer is plausible conjectures but is nonetheless backed up by my observation (though I ought to remind you that I might have an observer bias in this). What is plausible is that it will probably not have that huge an impact on FDI flows on two grounds. First,at the short and medium run at least, FDI's generally flow to regions that act as manufacturing hubs rather than consumption hubs. So regions that offer cheaper materials and labour are attracting FDIs because they are cheaper to operate and not because they have a potential market that can be tapped into.As in the case of China, it might be the second biggest economy in the world but it is still dependent on exports and the market of potential consumers is not the number of its population, but is estimated to be in the region of 300 million,roughly the size of the population in the USA. So even if they are profit-driven, workers in impoverished regions offering cheap labour to attract FDI will not stop working on accounts that the companies they are working for is profit-driven or greedy, simply because the need for wages is higher.Consumers who are also workers in this region then will exert little pressure on the foreign firms investing in the country, so this is where there is minimal impact on FDI flows. Secondly, under the pressure from "ethical shareholders" and consumer activism, firms seem to be altering their behaviour when it comes to operating their business. While they remain committed to shareholder value and profitability, we are seeing firms who are incorporating some degree of community welfare in their business. (Think of Starbuck's fair-trade policy, environmental-friendly commitment. These are ways to promote themselves as green companies for sure, but at least such marketing efforts is good for the communities that they operate in).

An altered behaviour of firms is not a substitute for social enterprises to be sure. But in their difference in goals, social enterprises are offering consumers around the world to compare the behaviour of social enterprises and the mainstream profit driven enterprises. This gives purely profit-driven firms pressure to put on their best behaviour. So overall I think social business do not affect FDI's flow, but it does provide consumers around the globe to compare the behaviour of social businesses and purely-profit businesses, which in turn altered the behaviour of profit-driven firms to take into account any externalities they impose on the community, and ways to enrich the community that they operate in. So the impact is not only minimal, it also brings about a good change.

After this, the Daily's contributor wrote an article about microfinance and the social changes it has brought.

Of course, not everybody agreed. A graduate student with the pseudonym Ted Sprague disagreed and instead assailed microcredit as a tool in exploiting and enslaving the poor. In it he is also critical of the capitalistic system as a whole and his arguments, while well-intended does strike me as being too dogmatic and not objective enough.

(Note: I consider myself centre-left leaning, so don't get me wrong and think that I am here espousing market-fundamental values, I subject my view to skepticism too and that is why I limit whatever I present).

My commentary will be published on Monday's issue and I will then post a link to this post.

Update: The commentary I mentioned about can be accessed here.

Steroid-fuel growth

2010-08-30T17:15:00.000-07:00

I do not share the enthusiasm of China's spectacular GDP growth nor celebrate the "inevitable" rise of the country as the biggest economy of the world. Recently it has usurped Japan as the world's second biggest economy and market sentiments are mixed, with one camp predicting the country to hurtle with the same feverish expansion rate while the other predicting a sluggish growth and possibly a collapse due to speculations and "gluts." I lean towards the skeptics of China's growth in the latter.

The New York times recently published this article on the Chinese government's expansive (and expensive) influence in the economy. To be sure state mediated growth is crucial to a country's development. On the other hand I doubt that the massive clout granted to State-Owned Enterprises in crowding out the private businesses in China is sustainable and efficient. In a country where the Gini Index (measuring income inequality) lingers around 40 (but admittedly improving from 2009 to 2010), I wonder how much of the growth in GDP actually trickles down to improving the quality of life of the working class citizens. Real-estate that is unfortunately plunged in feverish speculation remains out of reach and unaffordable to many.

Which poses an interesting thing to look into. Could the spectacular growth in GDP be mostly a circus performance of State Owned Enterprises exchanging money and overcrowding the domestic and international market with moderate impact in enhancing the quality of life for the workers toiling away in factories?

For fans of history, the Japanese model of Keiretsu could be seen as a classic market failure with severe repercussions on the economy. With a business alliance formed around a bank, corporations are under no pressure from shareholders or alternative capital markets to make wise investments and even worry about sustainable profit (if any at all). So the strategy was to break into the world market by pricing competitors out even though it means taking a hit in the short run. Eventually it all broke down and despite it's technological progress, Japan was caught in a lost decade. (Insight gained from Paul Krugman's "Return of Depression Economics")

Similarly without the limitations imposed by private financial institutions, state-owned banks can dole out money like sugar daddy to state owned enterprises which might make imprudent investment decisions, and all the while crowding out efficient private businesses while they are at it. Apart from that, I wonder if there is really a demand for the capacity of the infrastructures constructed under the stimulus plan. All of these seems to point to a "growth-recession" to me.

Note: "Growth Recession" is when the economy is expanding but not enough to utilise its excess or "glut" of capacity. This is also something I learned from Krugman's "Return of Depression Economics."

I could be very wrong, but I don't see any reason to celebrate China's triumph but plenty of reasons to worry about it.

Inflate out of Deflation?

2010-08-12T01:00:00.000-07:00

Suppose you were the Vice President of Sales for the Coastal Region of Acountrylah of Crazy for Coconuts, a cafe specialising in offering refreshing drinks. Acountrylah has a tropical climate, though the coastal regions are exposed the monsoon season periodically. As it is now a monsoon season, your sales have been plummeting and demand for your drinks has fallen. In order to narrow the gap in sales caused by seasonal variation, you have decided to issue vouchers to stimulate sales.

Even though your vouchers are trading at 10 cents over the Ringgit (So in this case a RM50 voucher costs only RM5) - sales are still not picking up. Perplexed by this response, you spoke to your QC manager and even employed the service of a consultation firm to see if there is something wrong with your product. The customers surveyed assured you that your product is fine and tastes as good as they are accustomed to. So again, you remain confused. If the vouchers are picked up by customers, why isn't anybody using them?

A little bit of investigation shows that most customers are hogging the vouchers so that they can use it when the monsoon season ends. To your greater annoyance, there is a "carry trade" going on where people buy the vouchers from your coastal region and sell it to people in the non-coastal region at a higher price, but still less than the face value of the voucher. (This exploitation of arbitrage opportunity is profitable to those who are exploiting it). Essentially you are trying to sell your drinks for "free" (vouchers can only be used when there are purchases of a certain amount on a single receipt of course). This outcome has stymied, even rendered your efforts to stimulate sales futile. Even though there is a huge amount of vouchers circulating around, nobody is using it and thus your little economy is in caught in a "liquidity trap." (Liquidity Trap = plenty of money around but little transaction)

In a stroke of genius, you decide to choose one of these two options. First, you can declare that vouchers that are worth RM50 will be worth, say only RM5 at the end of the monsoon season. Two, you put an expiry date on the vouchers, and will no longer acknowledge it when it is not a monsoon season. As a result, sales are picking up again and people are using the vouchers. Your cafes are selling drinks and you have successfully narrowed the gap in sales due to seasonal variation.

Of course, the parable above is an exercise in theory on what to do with the US economy. With the Federal Reserve Bank's recent revision of outlook from "moderate" to well, a more gloomy outlook and unemployment rate at an obstinate 9.5%, the Federal Reserve Bank has decided to maintain its monetary base with a $2 Trillion by buying more Treasury Securities with the proceeds from its mortgage backed security that has matured. With deflation now a major source of concern, and that the expansion of monetary base (which must be said, is substantial by historical standards) having no impact on inflation (and spending), it seems pretty likely that the US is now caught in a liquidity trap. The drop in productivity and fall in consumer spending suggest that this is highly likely.

So recall the two options the VP of the Coastal Region of Crazy for Coconut in Acountrylah faced. Option one is essentially a form of inflation (when a voucher worth RM50 is worth only RM5), and what this tells us is that inflation can potentially lift us out of a liquidity trap. So perhaps printing more money (quantitative easing) to induce inflation can help stimulate the economy once again as people will spend now(if they spend later their money becomes weaker because of inflation) instead of hogging it for fear of their money losing its value? Inflation also helps to reduce the real value of debts the US currently holds in addition to paying off some of the outstanding debts.

As sound as this proposal might seem in a hypothetical world, it could lead to serious negative repercussions in the real world, especially when applied to the context of present day US. Inflation and quantitative easing spooks investors and bond-holders. If a inflate-us-out-of-here policy is in place, bond-holders will likely demand higher interest rates to protect their investments (and also a high premium to compensate for the risk assumed). In addition, it is hard to quantify how such a policy will negatively impact on market confidence on the US government's ability to implement and coordinate sounds fiscal policy and how it casts doubt on the Federal Reserve Bank's ability to exercise sound monetary policy. A currency crisis is very likely and a feedback-loop inherent in such currency crises might exacerbate the problem more, provoking a crisis as severe as that of Argentina,Mexico or even the Asian Financial Crisis of 1997.
This sounds like too huge a risk to run.

So now we have option 2. Slightly unlike the parable, I do not suggest pulling out the Greenback out of circulation. Instead, a sub-money can be introduced to the economy in coordination with the tax cuts enacted under the fiscal stimulus programme (American Recovery and Reinvesment Act 2008). Yes,various studies have proven that tax cuts can be more effective than government spending, but this recession is unlike any other and the uncertainties it entails makes it more sensible to many to hold on to their money in lieu of spending. (To be fair I have no empirical data to back this up, though intuitively speaking it seems like this is the case. Perhaps a study on the spending and saving habits of those who received their tax cuts could be useful).

Instead of granting citizens Tax Credits, perhaps the citizens can be made to pay the full amount of taxes they owe, and the tax cuts they are entitled to be given in the form of spending vouchers. Such vouchers should be stripped of their function as a store of value by law (so banks and other financial institutions will not pay interests on it) to prevent an incentive of hogging it. However it must be indexed to inflation by having the government guaranteeing the real value of the voucher when it is pulled out of circulation and transferred into cash to ensure that people will use it as a form of money (but without its function as a store of value). An expectation of inflation in the future and the fact that this sub-money is non-interest bearing is likely to build up the momentum to escape from a liquidity trap, though I will not go as far as saying that this is guaranteed. In short, this sub-money is a medium of exchange and an instrument of accounting. If it were me, since I get no interest in saving this sub-money and that things are relatively cheap (because of deflation), I'd spend/invest right now and get ready to reap rewards in the future.

On whether or not the government has the right to force people to spend their money indirectly (as in introducing a sub-money that cannot function as a store of value to force spending) is beyond the scope of this post.
I must also say that I have not given it thorough politico-economic thought so I am in no position to elaborate on that side of it. Though it must also be mentioned that isn't the Federal Reserve empowered by law to do whatever it takes in extenuating circumstances to prevent a downward spiral of the economy. If that were the case doesn't that also apply to a government trying to veer the economy to recovery?

Unabashed Showoff

2010-05-21T21:24:00.000-07:00

Ey! Who is that?

A thank you to the teachers who have nominated me. I am also flattered by those who will stop me just to offer their congratulations.

More posts soon.

Is China saving the world?

2010-01-05T20:23:00.000-08:00

The obese, financially unrestrained , shopping binging American, the ideal customers for any retailer, is gone. With the world's greatest economy mired in the Great Recession after the 2008/09 Financial Crisis, export-driven economies around the world have been hit badly. This is yet another textbook example on how when American sneezes, the world catches a cold. The world have been pretty much dependent on American Consumers, who consumes 53 times as many products as that of the average Chinese (Green Living Tips).

Obama's visit to China and dialogue with President Hu Jintao on the need to "rebalancing" the global economy underscores the global imbalance that is hitherto too reliant on the consumption of Americans (Surowiecki). Can China be the engine that "hyperspaces" the world out of this recession, "Beam us up Scotty" style?

My favourite economist thinks so.
These graphs are taken from Professor Danny Quah's blog.
These graphs shows the growth of the GDP of the ESE economies prior to and after the 1997 Asian Currency Crisis. It includes the extrapolation of the graph were the 1997 Asian Crisis not to occur and impact on the ESE economies and an actual graph on the growth of the GDP of the aforementioned economies after taking in the impact of the Asian Currency Crisis.

Graph 1

Graph 1 shows the GDP growth of the ESE economies excluding that of Japan's when the Asian Currency Crisis hit. As the graph shows, there is a small cumulated underperformance of GDP caused by the ACC.(Of 5.1% according to Professor Quah).

Graph 2

The impact of China's GDP growth on the entire ESE economy is striking over here. Without China, notice how large the underperformance is. The accumulated underperformance is 21% (Quah).

So an implication is that China's share of the GDP growth is 15.9%, by having graph 2 - graph 1.

In short, China has been silently playing the role of the propeller all along, contributing a lot to the GDP growth of ESE Asia and in a way, the world.

The question is, is China's ability to consistently and incrementally increase its GDP output good for the world? What if we indulge in some counterfactual thinking to make an assessment?

It is true that China's GDP growth in theory, should help increase the disposable income of the Chinese, thus increasing their consumption. More consumption means increased aggregate global demand, thus subsequently stimulating increasing aggregate global supply and directly , the global GDP output. The problem is, sometimes looking picture at the aggregate distracts us from peering at things that are fundamentally more important. The purchasing power of Chinese Consumers have increased, but it is still not enough than what it ought to be when its growth is based on the model of artificually reducing costs (not enforcing minimum wage, devaluing the Yuan by pegging it to the US Dollar at a lower rate than what it ought to be).

Counterfactual thinking leads me to think that if the Chinese workers are to be paid more, with higher disposable income, then global economic output could have been higher. Hence, I think there is a "Global Consumption Gap," and consequently a global GDP gap that is caused by not only unemployment and underemployment, but also of China's growth model.

Graph 3

Graph 3 is taken from John Ross's blog, showing China's monthly changes in trade surplus "calculated as a three monthly moving average in order to avoid any purely short term distortions" (Ross).

This shows that the trade surplus of China has been decreasing, precipitiously to during the economic downturn. However, do note that the trade surplus is due to a decrease in export (because global consumption decreased during the financial crisis) compared to its import.
Ross notes that :"Under the impact of the financial crisis both China’s exports and imports have declined. But its imports have declined far less than its exports."

Finally he summed up this wonderful post of his by stating that:
"This trend in China’s exports and imports would be by itself insufficient to offset the depressive effect on world trade of the fall in demand from the US."

Sure, China can save the world, but it could have played a greater role, if only China's consumer have the money...and appetite.

Notes:
I have focused too much on the comparatively lower per capita income of China in the lack of China's consumerism. This could be misleading because I have neglected some Chinese virtues like putting aside money to save, a Confucian value that shapes much of the character of the ethnically Chinese citizens. However, the Surowiecki post places much more weight upon other things, the economic system of China, the limited financing and so on. Ultimately though, Surowiecki and I both agree on the need for the Chinese workers to have higher disposable income, and a different approach towards growth.

I think I volunteered to have myself ripped off(price discriminated)

2009-12-29T20:08:00.000-08:00

Update: Joshua, who used to work as a Barista told me that Starbucks does not use extra coffee when drinks are upsized. In general a shot of espresso is used to prepare any given drink (unless you pay for extra shots).
The conclusion is still the same, what this means is that the profit margin is understated.

If you are reading this, I am in a grave need of your help. I am in peril...THEY GOT ME! Well actually, if I have time to write a blog post, the reality is, I am physically safe. The only thing damaging to my psyche is...I think I might have volunteered to have myself ripped off.Well maybe ripped off is too strong a word, I volunteered to have myself price discriminated is much more technical and correct.

I like that Seattle-based coffee chain(you know,the one named after a character in Moby Dick), but their marketing strategy is way too clever, that even some economics students will be fooled. This is the problem, when you frequent one of the chains of this Seattle-based coffee company there are myriads of coffees to choose from, with 3 different "sizes" that you can opt for. (Actually there are four, do you know that you have the option of telling the Barista you want it "short"?The "short" sized coffee is around 8OZ at roughly 15% cheaper than the smallest of the 3 size available on the menu.Something to think about for another day.)

The difference between each size of coffee is RM1. The difference between each size of coffee is 4 OZ. A tall sized Frapucinno(12 Oz) costs RM13.50, a grande one (16Oz) RM14.50 and a Venti (20Oz) one RM15.50.

The "rational" ones would go, hey if I wanted a 16Oz Frapucinno, I should pay RM14.50 to get a grande one. The "rationale" is that since RM13.50 buys a cup of 12Oz coffee, then one Oz should cost RM1.125. If one wants 16 Oz of coffee, he is willing to pay RM18. However, now that he can get the same amount of coffee for RM14.50, he has saved RM3.50. Talk about Consumer Surplus! Thanks, Starbucks!

On second thought, did the "rational" guy who saved RM3.50 got himself a "good deal"? First, understand what you drink. So it seems like the drinks are essentially made of the same ingredients, coffee beans, steamed milk (or hand foamed milk, which in essence are still milk), and water. So why is a Capucinno priced differently from a latte? Maybe I am wrong, because a Mocha uses an extra ingredient - chocolate, that is why it is priced differently, right?

The question in, how much "extra" cost is imposed on this coffee chain to add the chocolate to your coffee, and come to think of it, how much extra coffee beans must they use to add in the extra 4Oz of coffee to your grande sized order? This is when the math comes in.

The cost for your cup of coffee has two components, the fixed cost and the variable cost.
Total cost for a given cup = fixed cost+variable cost.
The fixed cost includes the premium for the rental of the shop, and maybe the allowance for depreciation of the capital goods (blender, fridge,etc). The employees work across shifts as the shop has a standard operating hour, so I consider the wages to be a form of "fixed" cost.

The variable cost on the other hand is of course chiefly the price of the ingredients, from coffee, to milk and sugar and utility bill.

As the name suggests, the fixed cost is constant. The variable cost on the other hand, changes. If you order a venti sized coffee, then it costs Starbucks just a little bit more of coffee beans, water,sugar and milk to produce your drink.

If we ASSUME the fixed cost for a given cup of coffee to be RM5 and the marginal "variable" cost for each additional 4 Oz of ingredients,including coffee,milk,water and chocolate to be RM0.15, then the function for the differently sized coffees are

Tall: RM5+3(RM0.15)
Grande: RM5 +4(RM0.15)
Venti: RM5+ 5(RM0.15)

So the cost of one the respective coffees are
Tall: RM5.45
Grande: RM5.60
Venti: RM 5.75

So the profit for selling the different sizes of coffee are
Tall: RM8.05 (RM13.50-RM5.45)
Grande: RM8.90 (RM14.50-RM5.60)
Venti: RM9.75 (RM15.50-RM5.75)

The profit margin (Profit/Retail Price) sheds light on how much are consumers who order differently sized coffee charged differently adjusted for the size of the coffee they order.

If A orders a Tall Coffee, the profit margin for the coffee shop for that transaction is 59.63%.
When B orders a Grande Coffee, the profit margin for the coffee shop for that transaction is 61.38%.
When C orders a Venti Coffee, the profit margin for the coffee shop for that transaction is 62.90%.

So why am I made to pay more,adjusted to the size of my order compared to another consumer who ordered differently?

In short, the coffee shop makes more profit from me compared to the next guy who ordered a size or two sizes smaller than my venti coffee. (In other words, it also means that for every additional RM1 I spend to upsize my drink, the coffee shop makes an additional RM0.85).

Thoughts:
First of all, I wasn't forced to buy the coffee anyway (actually I bought two blended drinks in one go, a Toffee Nut Frap and a Chocolate Cream Chip, both Ventis). The truth is, I enjoyed the coffee and I value my experience in the coffee shop to be much more higher than the money I paid (Nice view, relaxing, great ventilation,using the WiFi to check my university application and so on). Since this transaction is a non-zero sum game, I think I have made a net gain (sort of) from it.

Secondly, the marketing strategy of this chain is amazing, talk about the wonderful and stealthy application of price discrimination, I believe the profit margin could have been higher for some "special drinks" - Mocha for instance. That said, I think it will be correct to attribute the exploration of this topic to the Undercover Economist - Tim Harford though I haven't read his book. (I think it was Hobart who introduced this book to me when I was 16).

Thirdly, the fact that the profit margin the coffee chain for someone who orders a larger sized or more "special" drink compared to another who doesn't does not mean that the coffee chain is evil. It is pretty pragmatic in making people who want to pay more to pay more and vice versa. (There is always the short option).

Finally, the fact that I have ordered 2 Ventis in a go suggests I have a long long way to go to financial prudence. Just in case any family member or relative is reading this, I was verifying the Law of Diminishing Marginal Utility.

The Wan Tan Mee Uncle presents : A lecture in the application of the Law of Diminishing Marginal Utility in Business

2009-12-16T21:12:00.000-08:00

My father, being a street-food connoisseur (an informal one at that), has his fair share of stories involving famous street hawkers. As the story goes, there is a Wan Tan Mee uncle who refuses to sell individual customers more than 4 "sui kaos" (dumplings) at a time. Of course, not all customers are chuffed, and some are grudgingly tolerating the apparent "arrogance" of the uncle.

On a very superficial observation, it seems like the uncle is acting in a very irrational manner, if people want as much dumpings as they want, then he should supply as much dumplings as demanded right? After all, Revenue = Price x Quantity, and since Price is fixed, then he should strive to maximise his profit by increasing the quantity sold.

It turns out that the Wan Tan Mee uncle, like the proverbial Kung Fu Masters you watch on TV, knows what he is doing. Better yet, he is an expert in what he is doing. My dad's friend, amused (or maybe annoyed) with the antics of this uncle, asked him about the "quota" for customers. The wise uncle explained that he did not (and still does not) want his customers to feel "sickened" by the food as a result of having too much of it.

Unintentionally, the Uncle has applied a Microeconomics Principle - The Law of Diminshing Marginal Utilities. Sui Kows are normally a side dish to Wan Tan Mee, so the "usefulness" as in satiating your hunger is not really that much. However, it derives its utility from "satisfaction." So you gain quite a sum of utility from your first Sui Kow. Assuming that the "usefulness" of the Sui Kow is fixed in terms of satiating hunger, then the "extra" or marginal utility from consuming another Sui Kow stems from your satisfaction. The problem is, you derive less satisfaction from consuming more Sui Kows.

Algebraically, the satisfaction you get from consuming an additional sui kow(for example) is
S(x) = 1 - 0.05(x)
Where X is the number of Sui Kows you consume and S(x) is your marginal utility for consuming one additional unit of Sui Kow.
So by the time you consume 2o sui kows, your marginal utility (for satisfaction) is 0. Any more than that, and you have a negative "satisfaction" (This is when you start hating Sui Kows).

So ultimately, it seems like the uncle is not being irrational after all. He is a competent entrepreneur who applies Microeconomics Principle well.

P/S: The satisfaction model is constructed on the basis that "usefulness" and "satisfaction" under the concept of Utility are mutually exclusive.(When satisfaction increases, usefulness decreases. Case in point: Do you really need 10 pairs of high heels?) That means P(U) + P(S) = 1. Hence to get the function of satisfaction, simple algebra will give you P(s) = 1 - P(U).
Of course, not everybody's "full" threshold (capacity for food) is same, it varies among individuals. Still, the conclusion is the same. I.E. in mathematical terms, the satisfaction function is a family of function with infinite number of members.

Let's play Monopoly..in a bigger scale?

2009-12-10T04:43:00.000-08:00

I think, no word in Economics could have invoked more fear, outrage and rare enough, a consensus among Economists that its existence is detrimental than MONOPOLY. Those who have taken the Principles of Microeconomics of the "dismal science," can easily tell you that Monopolies offer lower total utility(or a negative one) to the community and is a form of market failure. (Unless of course, if it is a form of natural monopoly, in which this will be regarded as much more "desirable).

P/S Bear with the unless of course, on the other hand, and sentences like then again...this is a perennial trait of economists or would be economists.

Firms can morph into a monopoly, and governments around the world have enacted laws to safeguard or enforce market competition and to prevent monopoly. The spirit of competition laws then is to preserve market competition (again, in the exception of natural monopolies, though the shift of paradigm might change this).

So if governments around the world share the consensus that market competition should be safeguarded or enforced for the benefits of all, is it safe to conjecture that the same notion should be enforced in the global level? China is gradually morphing into the equivalent of a monopolistic player in the global arena source , and its unbridled growing capacity is creating a great sense of unease.

Will China's rise be detrimental to everybody else? There seems to be no spillover effect to some of its neighbours, and rising negative sentiments from disenchanted neighbours and other nations are starting to jeopardise the growth brought about by China's export oriented model. With the demise of free-spending American consumers, China is finding it increasingly difficult to sustain this promising double digit economic growth. Factoring in its weak domestic consumption, a net flow of jobs towards a region where most of the population in its vast rural areas are incapable of spending on items that aremore than necessary, what we see is a bleak picture for all the players involved in free trade. (This argument is not new, for those who have read my essays, papers or attended the seminar in class where my partner and I presented on the topic of globalisation and outsourcing).

So back to the ultimate question, should the WTO, the body "overseeing" international trade, introduce the equivalent of competition laws to safeguard and enforce competition among nations in the global arena, in view of China's monopolistic dominance? I could foresee some arguments against such a move, and it will mostly be based upon the logic that the reason why China is able to dominate is because of its comparative or absolute advantage in producing what the world needs. My response is : Really? Just how much of China's growth is because of relative factor endownment(the abundance of natural resources) or relative factor intensity( the availability of necessary infrastructure and labour with skills to keep it easy)? True, the aforementioned factors played a huge role, the question is do these factors play a bigger role or is it more because it is a bubble fueled by an artificially and forefully devalued currency? I reject the notion that China is the country that has the comparative or absolute advantage in producing everything (this is a truism).

Hopefully, the question on whether or not to introduce the equivalent of an international competition law provides motivation to study this issue in international trade and to enhance global and public discourse on China's monopoly.

Thoughts before leaving

2009-07-02T22:25:00.000-07:00

The luggage is packed and I am leaving in less than 24 hours. I feel no sadness about leaving, probably because I seek solace in the fact that Penang is just 4 hours away from KL. Somehow,I think I am going to miss the creeky, ancient staircase that leads to the upper floor in the house.

I have been busy for the past few days packing and googling the net to search for blogs of people who want to share their ICPU experience. There is a consensus that it is fun,but busy. The admissions requirement of some of the Universities is pretty high, and it evokes a familiar feeling.

I spoke to Jian Wei about the cut off point and the scores required to get into some decent Universities. I told him this made me recall how it felt when I first got into Chung Ling in form one. The principal and the teachers told us how hard we must work to get into the A classes, the classes where they group the academically gifted ones together. I used to wonder if I was able to make it into an A class, everyone in school seemed smart and better prepared than I do. It turned out that those doubts I have about myself is nothing but paranoia, it wasn't hard getting into an A class.

Then I remembered how it felt a few days before my Installation as the youngest President in CLHS Junior Jaycees Club's history. Perhaps it was how President Roosevelt felt about the great task that was about to encumber him. A friend told him if he were successful,he would be fondly remembered as the greatest President America had. He said if he failed, he would be remembered as its last. This sentiment is what I shared when I was installed as President. Although the magnitude of the challenges he faced dwarfed mine like how the Sun dwarfs a ping pong ball, I think both of us shared the same fear of failing. This from a man who exhorted his nation to be brave and persevere, that "the only thing we have to fear is fear itself." I could not have done it without the Board of Directors in CLHS Junior Jaycees, and it was hard for me learn while I lead. We did it nonetheless. We turned around an ailing club.

So sometimes, I find that I am constantly paranoid. (A curse inherrited from my mum). I hope I'll do well in ICPU. (I have secretly set a goal myself to achieve a score that is higher than the cut-off point)

As for my friends and the memories in Penang, I will miss you guys.

I hold this truth to be self-evident :"I am a cynic."

2009-06-30T20:15:00.001-07:00

Perhaps one of the most enduring quote in the history of America (and perhaps the world) could be attributed to the Declaration of Independence.

"We hold these truth to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life,Liberty, and the pursuit of Happiness."

If there were ever one for us Economists, I think it could probably be attributed to Adam Smith's The Wealth of Nations. Indeed, this is one of the most enduring quote in Economics.

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages. "

In other words, people respond to incentives. However, I do agree with the Freakonomics authors in expanding the definition of the word "incentive" and not merely confine it to the monetary or economic sense. After all, if Osama's incentive were purely money, I think I might have just won the Noble Peace Prize for coming up with an ingenious mechanism for world peace - bribery. (Bribing extreme terrorists to be exact)

That said however, I do find it insightful once you begin to look people through the lens of an economists. Instead of staring blankly at people (most of the time it is because I am day dreaming about *ahem, talking to Jessica Alba), I begin to guess the underlying incentive for people to act in a particular way. So I suppose I am very much a cynic. However, fear not, for I am not overzealous and my conjectural exercise is merely a hypothesis. The data collected and analysed (by observing your behaviour and the outcome), would only then be turned into a conclusion.

Securities Commission Scholarship Interview - A guide

2009-06-09T06:19:00.000-07:00

I applied for the Securities Commission Scholarship sometime back in March (after the release of the SPM Results). For the benefit of those who do not know what is the Securities Commission (SC), it is a regulatory agency empowered under the Securities Commission Act to oversee and regulate the trading of the financial tools. (Eg Shares, aka common stock listed in Bursa Saham Malaysia Bhd, bonds, trusts, and other financial instruments) It also serves to develop the financial industry.

The fields of discipline offered under this scholarship are :
- Business Administration
- Law
- Economics
- Islamic Finance and Banking
- Investment Banking
- International Business
- Accountancy
- A-levels (for holders of the Pre-U Scholarship)

Note: The scholarship is a free ride. It covers tuition fees, allowance, books etc.

There are 4 rounds of assessments applicants have to go through. (Excluding the essay submitted with the application form)
1st Round : Preliminary Screening
2nd Round: Case Study
3rd Round: Online Psychometric Test
4th Round: Q and A session

First, I shall start with the essay that is required of all applicants. Applicants are required to write a HANDWRITTEN essay "of not more than 1000 words on past achievements and future career aspiration in relation to the application of this scholarship."
Now, the SC Scholar Selection Panel have come across a lot of essays throughout the years, so what you would probably want to do is to make your essay stand out. Hence these are the advice I would give you:
-Do not write a letter that merely states your extracurricular activities. IE, I was the Head Prefect in High School, I represented the school in Frisbee Competitions, I was a school debater etc.That is what your resume is supposed to do, and what your stacks of certificates testify. Hence, what you should write is WHAT YOU HAVE LEARNED by participating in such activities or holding such offices. Add your personal experience, your opinion, your reflection. Link that to your job scope when you serve the SC. In other words, HOW DO ALL THESE CONTRIBUTE TO THE SECURITIES COMMISSION'S OBJECTIVES? All in all, your personal experience will be testimonial to your character, virtues and leadership abilities. By sharing the experience on how you have led the club with your board proves that you are both a capable leader and a team player. This is better than writing "I am a good leader and a team player.I am also very honest. bla bla bla"
I think the experience in the Young Entrepreneur Programme and the Citigroup Stock Challenge will give you some insights.

- Provide some insights from your observation/reflection of incidents around the world that has to do with the position in the SC that you will serve in the future.Eg, You've read about how the former SEC (The USA equivalent of the SC) Chairman Christopher Cox was partly responsible in the Financial Crisis I.E allowing the banks to overleverage themselves, his laidback leadership, his penchant to push for deregulation etc. What have you learned from all this? (Though your essay is not to criticise the SEC, or to present a ten-point plan to solve the problem,but merely to point out what you have learned from this)

Summary on writing an essay for the SC Scholarship:
Write more about what you have learned from your ECAs rather than the position you've held. To modify a quote someone from ReCom, "you are more than just the sum of your grades", "you are more than just the sum of your achievements." (I am sorry because I have forgotten which thread have I read this from and I can't remember your name. Please send me an email and I will edit this post to include your name. )
Include your opinions and the idealogy that you subscribe to in your essay. Remember to link all these to the objectives of the SC, to show how you can contribute as an SC employee (which is ultimately the goal of this scholarship) . The last advice on the essay writting is of course, to be creative within the leeway.

Now, in around two week's time (or perhaps longer), you will probably receive a call from the SC to inform you that you have been shortlisted for an interview. Congratulations! You are one step closer to your dream of working for the SC. For out of state applicants, you are required to travel to the SC Building in Mont Kiara, KL for the interview. Your travel expenses will not be reimbursed. The SC Building is in the middle of nowhere, right next to the National Science Centre. It is hard to get transportation to go there, since some taxi drivers don't know where it is. The best landmark to use is of course, the national science centre. If you stay in any of the hotel in Bukit Bintang, it will cost your less than RM20 to go to the SC Building. Do let them know if you have problems going to the SC Building, they are glad to help you.

First Round Assessment: Preliminary Screening
Next, let us move on to the first round assessment, the Preliminary Screening. Basically, this is just a typical interview in which you will be assessed by a panel comprising of two SC Employees. You are required to register with the receptionist, and you will be given an access card. Go to the library, (which is normally where the interview is conducted). You will be ushered into the waiting room with the other applicants from the other age groups. So Pre-U students will have the chance to meet with the undergraduate applicants. This is a good opportunity to make new friends, and besides that, lunch will be provided. (Though everybody seemed to nervous to touch anything). You will be summoned to your panel of interviewers. This is a normal interview in which they ask you to introduce yourself and typical questions like

-Apart from your academic qualifications, why do you think that you deserve this scholarship?
-Tell us about your family.

They will also ask questions about your essay. So if you don't really understand anything about fiscal policy, DON'T WRITE IT IN YOUR ESSAY. You don't want to give them an impression that you are just putting words to make your essay impressive.In other words, DO NOT INSULT THE INTELLIGENCE OF THE INTERVIEWERS. They are after all, smart people selected to work in the SC. They are experts of their field, so, do not pretend to be knowledgable if you are not.

Second Round Assessment: Case Study
So, if you have made it through to the second round assessment, you will receive a phonecall from the SC. This is by far the most interesting assessment throughout the interview. The second round assessment will NOT BE CONDUCTED by the SC. They will outsource this job to a HR firm. Representatives from the firm will brief you on your task. You will be required to do a case study, and this is where all the fun is. They will give you a report that describes the role you will play, and the problems that you are required to solve. Most of the time, this will be a policy-making case study. In the "report", there are views and perspectives from distinct special interest groups. As an independent taskforce committee member, you are required to make recommendations and formulate a viable policy. You will be given 30 minutes to work out everything on your own (No discussion, no brain storming). After that, you will be summoned one by one to present your policies and make your recommendations to the representatives from the firm, who will assess you. Once everyone in your group is done, you will all be gathered in a room to come up with a policy and reach a consensus in a given period of time. The representatives from the firm will observe your discussion (or should I say,debate.) Their assessment are kept confidential of course, but you might find the following advice useful.

Advice:
First of all,use the following guidelines
a) Capture the essence of the case study and identify the tasks
(What are you required to do? What recommendations? What sort of policy?)
Note: Someone in our group devoted his time to criticize the problem and blamed one of the special interest groups in the case study. He did not come up with any concrete measures, but merely treated us to an emotionally packed sermon. Of course, for failing to identify his task, he did not make it to the third round assessment. I hope this highlights the importance of identifying your task and to capture the essence of the case study.

b)Identify and balance the needs of the special interest groups
Preferably, you need to come up with a win-win situation. Therefore, you must be able to make concessions with the other applicants in your groups. Pragmatically speaking, you need to balance the gains and losses of the special interest groups in the case study.
In other words, give everyone something to take home. You can't have a policy in which a side has all to gain and the other has all to lose. In the real world, such policy won't even survive a vote in Parliament.(Who wants to attempt a political suicide?) Even when you have come up with your balanced policy, be prepared to make concessions with the other applicants so as to reach a consensus as a group. Sometimes you have to stand your ground on an issue, but sometimes, you have to take a step back. So go in with an open mind, attempt to see things from the other's perspective, and then decide on the best course of action to take.
In my group, everybody worked together to draft out a policy, but there was one little provision in which me and one applicant couldn't agree on.I had to work out a concession that one very agressive fellow applicant.In the end, we all reached a consensus. The representative nodded in agreement when we worked out the concession and I knew I've made it.

c) Be explicit in your policy
Do not insert ambiguous languages that could be interpreted in a variety of ways. Be explicit in your content. If you are introducing regulations, make them clear. Take this assessment seriously.

Summary : Overall, this is a task that puts your knowledge and people skill to the test. Teamwork is crucial in this round. If you must disagree with something, say something nice first. When the applicant who spent all his time delivering a sermon emotionally made his presentation to the group, the agressive applicant interjected, complete with an exasperated look and tone with "Yeah yeah I know what you feel, but what do you ACTUALLY HAVE TO PROPOSE?!" Ouch! Needless to say, Mr-I-am-delivering-a-sermon here wasn't very happy.

Don't do that.

Instead, say something nice like me. "I recognise the sentiments that stems from this issue, and I concur with Mr-I-am-delivering-a-sermon. However I think that we have to(insert what needs to be done,and your policy recommendations.) "That helped me to get the job done, and everybody liked me more than Mr Aggressive. So this are little things in which you have to learn, while Mr Agressive is doing exactly what is required, he lacked a little bit of tactfulness.

Finally, and importantly, MAKE CONCESSIONS IF IT IS REQUIRED. Learn to understand that you won't have everything your way. This is the art of policy making that I thought they should teach at the Kennedy School of Government. That said however, remember, if there are issues you think you need to stand your ground, do it. In my case, I didn't want to allow advertisement on beer and cigarettes. Mr Agressive wanted that(He insists Malaysia allows such advertisement to be aired, guess who has the last laugh?). So what do I do? I took half a step back. We worked out a concession in which beer and cigarette companies are allowed to advertise, but they must not in anyway , display images of beers or cigarettes. So what that is allowed under this provision is that they can only display the name of their brand, definitely not their product.

Third Round assessment: Psychometric Test
This is my graveyard. I got a call from the SC to go to my third round assessment online two days after I have returned from the second round assessment. I was in a buoyant mood and was acting recklessly when I took the test. This led to my downfall. I FAILED THIS ASSESSMENT.
This is a test that asks you to rate statements relative to its impact on your motivation for work.There is no right or wrong answer, but your answers will represent your character. The bad news is, you can only do it once.

Let's say its something like this.

How do you find working in an environment in which protocol has to be strictly adhered to.
You will need to click on the answers based on the scale of :
It highly demotivates me, it demotivates me, it does nothing to me, it motivates me, It highly motivates me.

After some deep analysis of the structure of the SC, I think candidates who fulfilled the following criteria are highly desirable by the SC.
Note:This is just my opinion. If it works for you, you may send me flowers, PM me for my address. If it does not, do not haul molotov cocktails into my house. You have a brain don't you? Courteously speaking, VIEWER DISCRETION REQUIRED. If you make are here to follow my advice blindly, PM me, I would love to know you, you can be my slave.

Desirable characterics for SC employees:
Since this is not a profit-driven,self-interest regulatory agency, therefore you need to
a) Be comfortable working in an environment that requires adherence to protocol
b) Have no problems working in an agency that has no commercial interest
c) Work hard (Duh, every single employers want that)
d) Eager to seek challenges in work
e) Welcome critisim from peers or superiors to improve on work performance
f) Self-motivated
g) Have no problem taking a supervisory role
h) learn continuously even after graduation (Lifelong learning)
i) Be content with a competitive salary

VERY IMPORTANT NOTE: Even though I have broken down the desirable characteristic of an SC Employee to you, you are still obliged to answer truthfully even if you know that your answers will jeopardise your chance in getting the scholarship (like me). After all, it is no use if you have accepted the scholarship, graduated, and then feel miserable when you are working for the SC because you won't get bonuses. There is more to life than just scholarships. As a scholar(I'm a JPA scholar, not an SC scholar) myself, I don't think the "scholar" label makes you any more smarter than anyone. It is not a badge of honour. It is an obligation.

Fourth Round Assessment: Q and A session
I didn't attend this round mainly because I didn't go through the Psychometric Test. According to my sources however, the fourth round is like a briefing in which you and your parents are invited to have a dialogue with the SC. They will state out explicitly what they expect of you, and you have to return every summer for your internship (if you are sponsored to study abroad) . I think if you can make it to this round you are more or less guaranteed the scholarship.

So, for those of you who want to spread this guide around, feel free to do so. But seriously if you only read this blog for this guide, you suck.

A new beginning (For this blog)

2009-05-25T21:47:00.000-07:00

For those of you who have noticed that this blog had went blank a few days ago, it was because I have inadvertently deleted a few posts. After that,I have decided to delete all previous posts, to signify a new chapter in my life. The last few months was quite hectic for me, and I have been commuting to KL for scholarship interviews. I shall share my experience on those scholarship applications on the next post.

Right now, things have taken a turn for the better, and for the first time, I felt hopeful. It is funny how surreal everything can be once what was improbable was suddenly possible. I have always lived with doubt; and even though I have persevered, this irrepressible doubt shadows my actions.I'm no longer attempting a long shot just across the half way line, now I have the ball in the penalty box. I might not score a goal, but I have a better chance of scoring one in this position than from the half way line.

An introspective observation clearly shows that I am, in many ways, very lucky. Lucky in terms of opportunities extended to me, and at least for the nine times I have failed, I have managed to succeed once. Now that I have been granted a stage, it is time for my ability to take me as far as I can go.

Right now, I am waiting for the arrival of the parcel with anticipation and apprehension.