Spontaneous Order

Wise Words on Minimum Wage, Jim Buchanan edition

2011-01-07T18:48:00.000-08:00

While the ignorant and those with their own hidden agenda are out celebrating the imminent introduction of minimum wage in Hong Kong starting this May, I dig out this reader's opinion by my former teacher Jim Buchanan to share with you to celerbrate (?!) the occasion:

"The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that "water runs uphill," no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores."

James Buchanan Wall Street Journal 1996

Here is a story on HK's minimum wage:

http://economictimes.indiatimes.com/news/international-business/Hong-Kong-OKs-minimum-wage-law/articleshow/6180516.cms

A Very Interesting Interview of Uzawa

2010-09-01T18:00:00.000-07:00

Here are some interesting bits:

On Joan Robinson and James Meade:

We had the first Far Eastern Meeting of the Econometric Society, in the summer
of 1971 or thereabout, inviting James Meade, Michael Bruno, and Joe Stiglitz
from abroad. After the meetings were over, I organized a three-day seminar
meeting at the gracious villa of the Development Bank of Japan in Hakone. James
Meade gave an opening lecture, really a beautiful lecture, typical of him. Then
Joe Stiglitz asked him, “What Joan Robinson would say if she were here?” Meade
was quite upset and replied, with a stern voice. “I have not come this far to
hear that name!”

On Friedman and Lloyd Metzler

No, before that. When I had an offer from the University of Chicago, I was very
concerned with [Milton] Friedman. I did not want to do anything with Milton
Friedman. But Lloyd Metzler was very insistent that I come to Chicago. One day,
Metzler came to Stanford to urge me to accept the offer from Chicago. We had
lunch together and I asked him how things were done in Chicago. I asked him the
most important thing to me, that is, what were the relations between him and
Milton Friedman. Metzler said “Oh, I am getting along with Milton very well,
because I don’t pay any attention to what he says.” That was a classic statement
typical of Metzler. A few year before that, about four years before that,
Metzler suffered from a serious disease, a brain tumor, and he had a major
operation. That was the reason why I was invited to come to Chicago, because he
was the House Keynesian. So, I was invited to come to Chicago to work with him.

Here's the link.

I am back!!!!

2010-08-18T08:24:00.000-07:00

I know, it has been a while. Just realize that the last post I have here is back in March, almost half a year ago.

In this WSJ piece, apparently some Basel Committe economists have done regression work which shows that imposing higher capital standard on banks will bring in long-term benefits which outweigh short term costs....

Since I am not an econometric expert here, I would not quibble with their results. But then again at least I know this: imposing higher K-standard would likely raise the bar for entrants in the banking industry. And this in turn means the banking sector would be less competitive than it would have been if the K-requirment has not been lifted. Now that has got to be costs to the economy as a result of this reduction in competitiveness in the economy, and I am not sure that this costs of the unintended consequence of an apparently "beneficial" policy have been taken into account by the researchers.

A Harvard Undergraduate Cracked the Secret Code behind the Mortgage Backed CDO

2010-03-17T00:25:00.001-07:00

The story is in WSJ's blog, details here.

Why Economists Have So Little to Say About the Crisis

2010-01-24T22:29:00.000-08:00

That's a topic Nobel Laureate Jim Buchanan recently talked about at a lecture at U of Richmond.

The Paul Krugman Test

2010-01-14T18:20:00.000-08:00

"My attitude is this: if you are getting attacked by Krugman, you must be doing something right. "

That is one of very interesting lines from this excellent interview with Chicago's Gene Fama.

John Taylor on Rose Friedman

2009-12-21T18:20:00.000-08:00

At the memorial for Milton three years ago, Allyn and Rose were talking. Allyn said how I liked to tell students about the MV=PY license plates when I introduced the quantity equation in myclasses—undergraduate and graduate. Rose told Allyn “We should get those plates for John”. Well several months later, Cindy Sparks called and said she had these plates. “Did I still want them?” she asked. Of course, I said and in a few weeks they showed up to my great delight.

That's from Stanford's John Taylor on Rose Friedman, read it here.

Thanks Milton and Rose for their unfailing efforts to promote the cause of free markets. In times like this, where everyone thinks Keynes is the economist to turn to, we free market economists need to follow the footsteps of Milton and Rose in resisting the temptation to let the government take over affairs which should remain in the private domain.

Best Line I Have Read This Morning

2009-12-21T17:00:00.000-08:00

"做人唔係壞人已經開心"

Who said this?

Wong May-wan, wife of newly minted Nobel Lauerate (Physics) Charles Kao. The line is taken from this story.

For those who do not read Chinese, let me try to translate this line:

"One should be thankful for being a good person."

Gifts I would like to have for Christmas

2009-12-13T22:23:00.001-08:00

Professor Steven N S Cheung on Ronald Coase

2009-12-06T18:07:00.000-08:00

With the kind approval of the Professor Steven N S Cheung , below is what he contributed to the recently concluded Ronald Coase Conference. Thanks to Kempton, via Zhaofeng Xue, some pictures of the conference are now available here.

Ronald Coase: My Once and Future Mentor

Steven N.S. Cheung

I arrived in Chicago in the fall of 1967 to take up a Post Doctoral Fellowship in Political Economy. Soon after settling down at the I-House, I went and knocked on the door of Ronald’s office. Rather timidly I introduced myself: “My name is Steve Cheung, a student of Armen Alchian. I spent three years reading your paper on social cost.” Having said so I noticed how Ronald’s office was immaculately clean and tidy, with everything arranged on the shelves like the Tiananmen parade this past October 1. My heart began to beat faster when I noticed that right there, on one of the shelves, were all eight editions of Marshall’s Principles lined up in order.

Ronald was sitting and reading a book, and the desk had nothing on it except the one book. I was standing there staring at the Marshall editions, trying to see where the order may have been misplaced. It took some time because the various editions were indicated in Roman numerals. Deciding that there everything was on order, I heard Ronald ask, still reading: “What is my paper on social cost about?” I was taken aback by such a warm response from a man who was ‘up there’, paused a few seconds, and replied: “Your paper is about the constraints subject to which market contracts are made.” He looked up, then slowly stood up, smiled, shook my hand, and mumbled something to the effect that at long last someone understood his paper. He asked whether I already had lunch, and would I join him for lunch. Of course I had not had lunch.

That was the beginning of a fruitful friendship. We often walked the Chicago campus to discuss ideas and the proper directions economics should take. In and out of the economics profession Ronald is the most firm-minded man I have ever met. This firmness inspired me as it rendered a feeling of strangeness in dimension, but we had no difficulty finding subjects of common interest to talk about. He was the master, and I was the student seeking to become a master. I was revising my doctoral thesis on sharecropping for the U of Chicago Press at the time and was expanding a paper on the choice of contracts. Ronald strongly supported what I was doing. We both thrived on intuition. We shared the view that we must investigate what is going on in the real world, that economics must be capable of being applied if it is to be of interest, and Ronald endorsed my insistence in keeping the theory simple while digging deep into the facts. From Armen I gained a thorough understanding of demand, and from Ronald I learned how to handle cost. It is essentially a combination of the law of demand and the concept of cost that have underlined all my economic writings ever since, supported by details of facts whenever possible.

In December 1980, at the AEA meeting in Detroit, Ronald urged me with his usual firmness to return to teach in Hong Kong. He said China was opening up, and that my knowledge of economic systems, combined with my command of the Chinese language, made me the only qualified person to explain to Beijing about economics if they wanted. It was perhaps too ambitious a task to attempt. Years later, apparently unhappy about the development of economics, Ronald urged me to advance our kind of economics in China. Again, an ambitious task! I never expected to achieve any measurable results. I am no reformer, but I took Ronald’s advice, results or no. Almost 30 years have gone by, during which time I published some 1,600 articles in Chinese. A search on the Chinese Internet suggests that the results are astonishingly measurable. Of course I know that a lot of what happens on the Internet does not count, but ripples there have been aplenty, and some results seem like waves. There is no smoke without fire, I presume.

I have had the honor to acknowledge my intellectual debt to Coase on two public occasions. First, for Ronald’s retirement from the editorship of the Journal of Law and Economics in 1983, I published a piece entitled “The Contractual Nature of the Firm.” I started thinking about the subject when discussing things with Ronald in 1968: this was followed by an in-depth investigation of piece-rate contracts in Asia, but the accumulated ideas did not see the light until 15 years later. This article is still being cited quite a bit today. A second tribute, which I composed with pride and anticipation, was when the New Palgrave invited me to write on “Ronald Harry Coase.” Years later people told me the piece was submitted to Stockholm.

Coase Conference

2009-12-02T02:01:00.000-08:00

A conference in honor of Ronald Coase's work will be held at U of Chicago starting this Friday. Here is the link to agenda and papers for the conference. HT to Kempton for the pointer.

A few words of appreciation on Coase by professor Steven N S Cheung would also be presented at the conference, thanks to professor Cheung, I would be able to post them after 5 Dec. So stay tuned.

A noteworthy paper on Coase and Neoclassical Economics is written by Harold Demsetz for this conference. I have read it and would blog more about it later.

What is Austrian Economics?

2009-11-23T23:07:00.000-08:00

NYU's Austrian Economics guru Mario Rizzo has this to say. Here is the entry Mario wrote for the New Palgrave.

I met Mario once when I was attending the FEE Austrian seminar, a real scholar and gentleman. It was also at FEE where I met Israel Kirzner for the first time.

Speaking about Austrian Economics, my teacher Richard Wagner would have a new book on the subject due out in early next year entitled, "Mind, Society and Human Action."

Go Mason

2009-11-21T10:27:00.000-08:00

My alma mater George Mason has a world ranking of 39 in business and economics according to this report.

Cutie Economics: A Review of SuperFreakonomics

2009-11-20T17:21:00.000-08:00

The title of this blog is the same as the book review I wrote for the Hong Kong Economic Journal's web version (not available in its hard copy). Here is the acutal URL. A good friend told me that as the paper would take the piece out in a couple of days, so in case you miss it, I have it all here for the record.

Cutie Economics: A Review of Superfreakonomics

Suppose you were an economics professor. Let's say you run into a colleague down the hall and start commenting on how cute his economic research is, your eyes would most likely turn black as soon as you done talking. Your colleague most likely would reciprocate your praise with jabs straight to your face. The reason for the violence is simple: you just don’t describe an economist's work as cute. It would be treated as an insult, period. After all, have you ever heard anyone describing John Maynard Keynes' or Milton Friedman's work as cute? Even just once?

Economists have used their skills to answer some real hard answers. During World War II, Milton Friedman used technical economics to find out the optimal size of fragments of an anti-aircraft shell to maximize its effectiveness. Another Nobel Laureate Tom Schelling applied game theory to the armament race between the US and the Soviet Bloc during the cold war era. One could label such novel applications of economic theory as cool, but certainly not cute.

Some economists did try to write books that attempted to project a different image about economics, to “cutify” economics so to speak. "New World of Economics" written by economists Dick McKenize and Gordon Tullock, came to mind as a prime example of that genre. The result, nevertheless, could hardly be described as a big and lasting success.

That changed in 2005. Steven Levitt, a professor of economics at University of Chicago paired with New York Times writer Stephen Dubner hit it big with their new pop economics book entitled “Freakonomics” that year. Their formula of success? Well, let's just say they successfully project an image of economics that no authors before them have done before or dare to do so. They make economics looks cute. Four years later, Levitt and Dubner do it again with a sequel called “Superfreaknomics.”

The message of the new book is clear: Incentives matter. With that message, it immediately follows that people would choose the least costly way to achieve their goals given a menu of alternatives. In many real life situations, however, it simply is hard for the untrained eyes to figure out what the least cost action is. Now what is so intriguing about the book and what makes it such a good read is the authors' ability to walk the reader through a maze of seemingly impenetrable facts and render them comprehensible. It is Sherlock Holmes at his best. An example might help illustrate what I am talking about here. Combing through accident statistics, the authors convincingly reveal the counter intuitive result that it is actually safer to drive home drunk than to walk home drunk. In other words, the expected cost of driving home drunk in terms of the chances of losing one’s life in accidents is actually smaller than that of walking home.

Similar style of analysis is also at the heart of the controversial Chapter 5. This chapter, dealing with topics on global warming and possible solutions to the problem, draws fire from all quarters including Nobel Laureate Paul Krugman. To its critics, this chapter portrays an inaccurate picture of the urgency of global warming and makes exaggerated claims of the potential effectiveness of eco-engineering. There are other environmental issues covered in the book that critics also find wanting. I think these criticisms miss the mark. The message in that chapter, as in others, is that we need to do some hard thinking whether the current ways of dealing with global warming are indeed the least cost methods of doing so. Nothing more, nothing less.

Further elaborations and extension of material already covered in the book could have made it a better one. In Chapter 1 on prostitution, for instance, the authors report that customers who purchase prostitutes' services pay an extra 16 US dollars if they have to go through a pimp (p.38). The authors then go on to point out that those customers who use the pimps as middlemen also tend to purchase more expensive services.

Now the authors could have further explored the relationship between paying extra for a pimp’s services and getting more expensive services from the prostitutes. Two economics professors Armen Alchian and Bill Allen have pointed out decades ago that if a fixed charge per unit is applied to both cheap and expensive variants of a good, the expensive variant becomes relatively cheaper. As an implication of the Law of Demand, a larger quantity of the more expensive variant of the good would be sold. Economists call this the “Alchian and Allen Theorem." A wide range of phenomena like why relatively more expensive apples are exported relatively to cheaper ones can be explained by this theorem. This theorem seems to apply with equal force in the market for prostitutes' services.

Similarly, the authors could have used the story with regard to the police's effort to arrest pimps (p.40) as a real world example of rent dissipation. A rookie cop who tried to crack down on prostitution thought arresting pimps an effective means of achieving his ends. His acts backfired. For once the original pimps were put behind bars, the value of being a pimp was then up for grab. The ensuring competition to be the next pimp turned brutal, and the value associated with the vacant pimp job was competed away.

But those are minor quibbles of an otherwise freaky book. As an added bonus, if you care to read about "the first instance of monkey prostitution in the recorded history of science," there it is on P. 215. And no, I like the book not because my favorite economist Professor Steven N. S. Cheung's work (the paper they cited is "The Fable of the Bees: An Economic Investigation," Journal of Law and Economics, April 1973) is cited on p. 175 when the authors discuss the problem of externality. Go get it and prepared to be freaked out.

Doug North on Williamson and Ostrom

2009-11-18T00:45:00.001-08:00

NIE

2009-11-16T22:24:00.000-08:00

No, I am not talking about that NIE (New Institutional Economics). I am talking about New Interventionist Economics.

Have not head of it? No problem, I have not either before I come across this paper by Austrian economist Roger Koppl. Enjoy!

Misled by Transaction Costs

2009-11-05T17:57:00.001-08:00

That is the title of a paper delivered at a conference held GMU Law School by UCLA professor Harold Demsetz.

Bottomline:

Organizational efficiency cannot be established simply by knowing the properties of organizational forms...The second erroneous notion is that the efficiency of an organizational form can be determined by transaction cost considerations.....(p.9)

My quick response to the first point:

Now what professor Demsetz refers to in his first point is that exogenous conditions may render it efficient to have commons in one location while private property in another...so one cannot make a judgement on the efficiency properties of an institutional arrangement by looking at the organizational form and its properties alone (ie commons vs private ownership).

The key word here is alone. Even if professor Demsetz's point is valid, ie one has to examine exogenous conditions which govern/dictate an organizational form, there might still be choices to be made by economic agents. For instance, while both commons and private property are organizational forms which would help individuals to tackle their day to day problems under a set of given exogenous transactions, one organizational form might still be better than (less costly to maintain and operate) the other. Hence, the properties of the organizational forms might still matter even if we pay heed to professor Demsetz's point.

Or do we really have to?

Once a given set of exogenous conditions are set/given, by implication of the maximization postulate, wouldn't the least cost organizational form be automatically taken up by individuals? If so, why bother with the properties of the different organizational forms at all? Because we know that whatever properties the ultimate choice of organizational form would have (common vs private property), they would be optimal in any case. What is, is efficient.

Let us call this point "Organizational Properties Irrelevant Theorem", what do you think?

A Bad Day

2009-10-28T07:59:00.000-07:00

An old friend called. He told me he was fired by his company. I was and am still in shock.

One is never prepared for such things in life. Think of it this way. As an free market economist, you talk about how a person's separation from his job only means that other jobs might be waiting for his application..bla bla bla....It may take some time, but he would find his match anyway if he or she searches hard enough. You say all this in a cool and almost cold-blooded manner.

But now imagine this. What if that person is your best pal? your spouse? your best graduate school room mate? your brother? Can you tell him straight in the face: no problem, what you are encountering is only a transitory phenomenon, and the labor market soon or later would come up with a job to match your skills.

No, I cannot. Hence, I did not say a word to my friend when I first heard the bad news.

My role, then, I realize, is not to be an economist. I am his friend. I am only a listener.

Then it hits home to me that, may be, just may be, every economist who does not believe in free market might have similar experiences of what I have just said above. It is thus not surprising to me at all that some economists hold such skeptic views on the market. They start blaming the free market for their loved ones' plight. Their personal experiences might have clouded their view.

Adam Smith, in his Theory of Moral Sentiments, did mention something like a person is more likely to care about his little finger than the sufferings of peoples thousand and thousands of miles away. But I don't know whether he went on to examine how this could affect peoples' perception of the free market.

But here is the real puzzle: Why others who share similar experiences of what I have encountered today stick to their original free market beliefs despite the bad experiences? How could they? Can they tell their loved ones what I did not dare to say to my friend. Answer is, I don't know. But do you?

This is a really bad day.

The Pacific

2009-10-27T02:06:00.001-07:00

Best Sentence I Have Read Today (and yes it is related to Superfreakonomics)

2009-10-21T19:06:00.000-07:00

"Ancient Romans watched gladiators in much the same way that we read angry bloggers."

This is from Nathan Myhrvold former Chief Technology Officer at Microsoft.

The line refers to the controversies stirred up by Chapter Five of the sequel to Freakonomics, Superfreakonomics. Read more for yourself here.

I will soon write up a book review for a local paper here in Hong Kong (and yes it will be in English), hopefully soon. And yes I have read it already. My bottomline assessment: better than the last one.

Oliver Williamson, Elinor Ostrom and New Institutional Economcis

2009-10-13T17:37:00.000-07:00

This is a piece I wrote for the Hong Kong Economic Journal. The piece would only appear on the website of the paper, not the hard copy. Tell me what you think.

And yes, I still think that Professor Steven N S Cheung has a shot at the prize.

Be Careful When You Want to Use Statistics from the UN Next Time

2009-09-30T03:19:00.001-07:00

Read this piece from the always insightful development guru Bill Easterly.

Bottom line: International agencies make up numbers in a bid to have bigger budgets. Sad.

Paul Romer, Charter Cities and Credible Commitment

2009-09-29T18:03:00.000-07:00

Paul Romer, yes the new growth theory guy, quit his job at Stanford in an all-out effort to promote an idea to help developing countries grow out their adject poverty. The idea is called Charter City. The bottom line is that a developing country could sign an intenational treaty with another country so that a presumably better set of institutions could be imported to a designated special economic zone in the former.

The biggest issue of course is how to resolve the credible committment problem:
That is, how to prevent the government of the developing country to renege on its promise to allow a foriegn set of institutions to be implemented on its territory.

In this interview, Paul nicely addressess this issue. The piece is interesting throughout, but I like this bit especially:

"Economists seem to think that we should propose things that are acceptable and that political systems will pursue, but that we should avoid proposing or even discussing things that are controversial or politically incorrect.

I think we’d do our jobs better if we just said what’s true without trying to be amateur politicians. "

What Masonomics is All About

2009-09-24T20:08:00.000-07:00

This short commentary by Russ Robert provides a neat and crisp description what is so special about Masonomics.

Dick Posner = Keynesian ?!

2009-09-24T19:53:00.000-07:00

Dick Posner wrote:

"Keynes was the greatest economist of the twentieth century."

Amazing, read more here. What is left of the Chicago School?

Best Line on Economics that I Have Read Today

2009-09-18T00:50:00.001-07:00

"A little economics is a dangerous thing."

From MIT's emeritus professor Franklin Fisher "Diagnosing Monopoly" Quarterly Review of Economics and Business, 1979.

Cute but Irrelevant Economic Studies

2009-09-13T19:11:00.000-07:00

"A flood of cute but irrelevant studies of issues of no conceivable economic significance has been undertaken simply because a cute but irrelevant natural experiment had been conducted."

The lament is made by LSE's Willem Buiter, read more here.

Cheung's Theorem

2009-08-31T17:58:00.000-07:00

"The havoc that inflation or deflation would cause is negatively related to the degree of freedom individuals in an economy enjoy in choosing contractual arrangements that best fit their interests."

This is from Professor Steven N S Cheung's column (in Chinese) today. Read more here.

Raising Rival's Cost, Yummy Edition

2009-08-12T05:17:00.000-07:00

According to a report in the latest edition of Businessweek:

"Rather than wait to be forced into caloric transparency, Yum! Brand is embracing it. The Louisville company, owner of KFC, Taco Bell, Pizza Hut, Long John Silvers, and A&W, has pledged to post calorie counts at its 3163 corpoate-owned locations nationwhile by 2011..."

Why Yum! Brand active attitude towards mandatory calorie disclosure, you ask.

Well, the answer is this:

"Yum is also helping to lead a lobbying effort in Washington to extend any federal law to stand-alone restaurants."

And why is this bad?

The story goes on to reveal the answer:

"The National Restaurant Assn. says calculating calories may be too costly for small restuarant owners."

In other words, Yum's lobbying effort would help raise its rivals' costs and drive them out of the businesses not because Yum is better at what it should be good at, delivering good food at lowest possible cost. But because Yum is far better in lobbying than its rivals.

The whole story is here.

Superfreakonomics

2009-07-28T01:47:00.000-07:00

Just when you think Freakonomics is freaky enough, the authors of Freakonomics have a new book due out later this year which guarantess to freak you out more. It is called Superfreakonomics.

The publisher's page for the book is here.

Phelps on Hayek

2009-07-27T00:57:00.000-07:00

Back in 2008, Nobel Prize winner Ed Phelps delivered a lecture on Hayek in Vienna!

Exploitation, Minimum Wage, Hong Kong

2009-07-16T06:46:00.000-07:00

Hong Kong is contemplating to introduce minimum wage, see here.

Now, Hong Kong's economy has consistently been ranked as one of the freest economies, if not the freest economy in the world.

Economic theory tells us that the presence of competition renders it impossible for exploitation to occur. As Professor Steven N S Cheung said in his latest column:

七十多年前英国的鲁宾逊夫人（Mrs. Joan Robinson）推出雇主剥削劳工的可能性，但只可以在缺乏雇主竞争的情况下出现。 (Gary's translation: Seven decades ago, Mrs J Robinson pointed out the possibility of labor exploitation in the absence of competition among employers)

Intense competition among firms should be one of the main characteristics of a Hong Kong's free market economy. If that is the case, there should not be exploitation. And if there is no exploitation, why the government is rushing to introduce minimum wage? Something is seriously wrong here.

Economists Have No Clothes

2009-07-15T02:54:00.000-07:00

No, I did not say that. Apparently the title of this post is the paper title of a paper Jim Buchanan delivered at a recent History of Economic Thought Conference in Richmond.

According to a brief write-up of Buchanan's presentation, this is what he said:

“Economists have been parading around, really very naked, walking around in space,” Buchanan said. “It’s time to recognize that.”

More here. The shot up top is a picture of Jimmy in action at that same conference.

Tyler Cowen vs Justin Lin

2009-07-12T19:20:00.001-07:00

Lin wrote in this piece that small banks are good for developing economies, Cowen is reluctant to endorse Lin's view.

The gist of Cowen's argument is this:

But what if those institutions (Gary's note: big banks) start to arise naturally, from market forces, as indeed they will at some point? Should they be discouraged or shut down or somehow taxed at disproportionate rates?

Are You a Free Market Supporter? A Self-test

2009-07-12T18:34:00.001-07:00

Question: Do you think the government should support businesses or the free market?

Yes or No?

The answer can be find in this book, and this is a recent profile of one of the authors the book. And yes he is from Chicago's Business School.

Micky Economics

2009-07-09T19:04:00.000-07:00

Hong Kong's legislators would soon vote on whether to allow the government to convert its loans to the territory's Micky Land into equity according to this story.

What amazes me is the kind of argument that has been used to support the construction of Mickey Land in the first place and now its extension. The argument for building Micky Land, as least as it appears to me, is the following:

1. Build it (means Micky Land) first, and visitors would come!

Couple of years down the road, not that many visitors show up, the argument for extension relies on this:

2. Not that many people turn up because the park is too small. Build a larger park and visitors would come.

Amazing indeed. My sense is that if the whole enterprise is fully funded by the parent company of the local Micky Land, it would have been shut down a while ago. Amen.

Plastic Bag Charge and the Alchian-Allen Theorem

2009-07-05T19:22:00.000-07:00

HK is slated to introduce its plastic bag charge at retail outlets starting tomorrow. Here is the story.

What interests me is whether, with a fixed charge of 50 cents per bag, and say if you are contemplating to buy just one item(suppose you need a bag for this, otherwise the constriant is not binding anyway), a customer would pick a relatively more expensive item than he or she would without the plastic bag charge. The reason for this is that the relative price of the more expensive item should fall with the introduction of the plastic bag charge.

I do not invent this line of analysis of course, this is only one application of the Alchain-Allen Theorem.

Social Planner and Overconsumption

2009-07-03T19:21:00.000-07:00

In my last post here, I explained why overconsumption is a problematic concept.

But there is a deeper conceptual issue here. One that goes to the heart of traditoinal welfare economics. It is the presumed existence of a social planner whose objective function embodies the interests of all members of the society. In other words, the social planner chooses the best course of action which maximizes the society's welfare function. Think about this. Other than implicitly assuming that there is an alternative, optimal consumption pattern which maximizes the welfare of society, how could one lament that the actual pattern of consumption involves over-consumption?

But this way of looking at the problem of overconsumption is wrong headed as Jim Buchanan long pointed out in the 1950s. There is no such social planner. To think there is is to commit the error of the fallacy of composition, that if at the individual level, the chooser picks among alternative choices within constraints, then this must also be true for the society as a whole.

There is another way to think about overconsumption and that relates to incentives. And that is the modern way of thinking about over-consumption. Individuals' might under-consume or over-consume if the consumption of a good generates externalities. (Over-consumption if the externalities are negative and vice-versa) Obesity is a good example. A lot of people lament that more and more people are eating too much resulting in a rising number of obese adults (or even children). The lament usually follows with the complaint that public health resources are being diverted and re-allocated to cure illnesses that are caused by obesity, implicitly ranking those other uses the public health resources are previouly devoted higher than the current ones (used in curing illnesses which result from obesity). In this sense one can then conclude that when people make consumption decisions, they do not take into account the consequences of resources being redirected to cure illnesses resulting from their decisions. Over-consumption thus results.

But let's think beyond this stage. Why I do not take those health consequences into account when I make my consumption decision? Is it because public health services are offered by the government? How can one fail to incorporate such negative health consequences resulting from over-eating if one were to shoulder all medical expenses?

From this perspective, over-eating can only occur with the backdrop of a particular institutional set up, here a public health care system. And if the health care system is privately provided, over-eating stops to be a problem. In other words, in the second way to look at over-consumption as an incentive problem, whether the claim makes sense or not depends on the institutional set up within which individuals make decisions. With private health care, individuals internalize the health consequences of their eating decisions, and over-eating as one manifestation of the phenomenon of over-consumption becomes irrelevant as a public policy problem.

A Good Book, Overconsumption and Really Big Firms

2009-07-01T17:50:00.001-07:00

I am half way through Justin Fox's excellent book on the development of the idea of efficient financial market "The Myth of the Rational Market."

A line on page 157 caught my eye:

"Galbraith(Gary's note: he is referring to Harvard economist John Galbraith)...likened American corporate executives to Soviet apparatchiks: the bureaucratic administrators of a vast system geared toward overconsumption and waste."

Galbraith of couse is concerned about the bigness of some American enterprises. But it is totally wrong-headed to compare such large corporations in the US with those giant sized SOEs found in the former Soviet Union. To see where Galbraith went wrong, just think that the size of a firm in the US is a result of competition, not imposed from above as some divine order by the planners at the top of the Soviet government. To miss this point leads one to question Galbraith's understanding of basic economics.

More generally, the Institutionalists of which Galbraith belong worry that economic theory which has been built upon a period where firm sizes are small would not be applicable to a situation where firm sizes are large. So they are worry about the divergeent of interests between managers and shareholders. True. But if they just go a step further, based upon the economic theory the applicability of which they questioned, they should see the conflict between managers and shareholders also implies an opportunity for someone to figure out a profitable way to resolve such conflict. There is a five dollar bill on the sidewalk as they say. Indeed, the emergence of the market for corporate control and institutional investors where shares of publicly listed firms are once again concentrated in a few hands are attempts to resolve such conflict in a profitable manner.

I have always found the attack on capitalism for its encouragement of over-consumption puzzling?

Who set the dividing line beyond which consumption becomes excessive? God? Or John Galbraith or some other government official? And what's wrong with over consumption? If the person in question places a higher value on the stuff he or she consumes than the rest of the society, what's wrong if her or his consumption level exceeds the dividing line? Of course, I realize there are a lot of objectives other than attaining the best use of resources, but those ain't and should not be part of the research focus of economists in my humble opinion.

No Free Lunch

2009-06-30T01:36:00.000-07:00

民協馮檢基批評，政府過去一年公屋越建越少，醫療事故頻繁，未有積極製造就業，更無回應小班教學訴求。 More here.

So what should we do about it? I bet Mr Fung is going to say that we need more resources to be devoted to building new public housing, to buying better medical equipment as well as employing more medical staff, and more jobs for building roads to nowhere, tennis courts where no one uses, railways where utilitzation rate stays low....

Does he understand that more of these things require that we have less of other things? Who is going to pay for these things? And why? How can he tell the things we get as a result of giving up other things are more valuable than those things that we have (or are forced) to give up?

Go, Go, George Mason

2009-06-22T18:38:00.001-07:00

According to this latest ranking of Economics Dept, my alma mater is assigned a rank of 85 among the top 10 percent of top level institutions (it's a world wide ranking, not just confined to higher learning institutions in the US).

It is ranked above:

Indiana U, Bloomington, ranked 91;

U of Washington, Seattle, ranked 100;

George Washingtonm, ranked 130.

HT to Greg Mankiw for the pointer.

Wow! Samuelson on Economic History

2009-06-18T18:29:00.000-07:00

This bit from an interview of Nobel lauerate Paul Samuelson really surprises me:

Very last thing. What would you say to someone starting graduate study in economics? Where do you think the big developments in modern macro are going to be, or in the micro foundations of modern macro? Where does it go from here and how does the current crisis change it?

[Samuelson's response]: Well, I'd say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that's the raw material out of which any of your conjectures or testings will come.

And I think the recent period has illustrated that. The governor of the Bank of England seems to have forgotten or not known that there was no bank insurance in England, so when Northern Rock got a run, he was surprised. Well, he shouldn't have been. But history doesn't tell its own story. You've got to bring to it all the statistical testings that are possible. And we have a lot more information now than we used to.

More here.

Larry White Moves to George Mason

2009-06-09T06:01:00.000-07:00

Great news, Larry White, who has done a lot of work in advancing the theory of free banking will start teaching at my Alma Mater starting next fall.

Here is a bio of Larry in Wiki, and here is Larry's dissertation, "Free Banking in Britain" available free for download courtesy of IEA in England.

I met Larry a couple of times back in my graduate school days, twice when I visited the campus of U of Georgia where Larry used to teach, and once when I was attending a FEE Austrian Economics Seminar up in New York with my fellow classmate Wayne. Larry is a softspoken gentleman, and a graduate of UCLA.

HT to Taking Hayek Seriously for the pointer.

Cheung's Theorem

2009-06-08T18:22:00.000-07:00

政府什么也不要管吗？不是的，政府还要做的项目多得很。我要重复此前说过的：医疗行业的一个大麻烦，是求医的人往往不知道购买的是些什么。鱼目大可混珠，浪得虚名之辈历来不少。在权利与责任界定这重要话题上，政府的工作重要。但他们要懂得分辨哪些工作他们要做，哪些应由市场处理。原则上，这分辨不难，只是做起来，政府的官员会因为自己的权力与利益，漠视了社会整体的需要。因为这一点，我对中国医疗改革的前途不看好。鱼目既然容易混珠，混水摸鱼的行为容易产生。

This is from Professor Steven N S Cheung's latest column, more here.

Several implications follow:

1. In situation where the problem of information asymmetry is serious, and where the government intends to intervene , we should expect more officials to act in ways that contravene public interests, like soliciting bribe, defining rights in such a way which would benefit their supporters...etc

2. It cautions against those who automatically ask for the visible hand to step in when information asymmetry prevents the market from discharging its ususal function.

The same asymmetry information which negatively affects the operation of the market also encourages or provides a better cover for officials to benefits themselves instead of working for the public interests. So the results generated by government intervention might be worse than that delivered by the market.

Furthmore, even if the incentive problem articulated by Professor Steven Cheung is resovled, say all officials are Angels, you would still encounter the Hayekian type knowledge problem. For officials would need to know exactly when to intervene and how to intervene. As the Professor mentioned, "但他们要懂得分辨哪些工作他们要做，哪些应由市场处理". We differ on this point because the Professor thinks the officials would do a pretty good job in this area if the incentive problem articulated by him could be ignored. I am far less sanguine about the officials' ability to resolve the knowledge problem.

How a Law Student, with No Prior Knowledge in the Auto Industry, Helps Restruture it

2009-06-03T19:42:00.001-07:00

A very, very, very interesting read. More here.

Why the Worst Get On Top

2009-06-02T18:14:00.000-07:00

The title of this post of course is taken from a chapter in Hayek's Road to Serfdom.

Now Bryan Caplan has offered another answer in addition to that offered in Hayek's work:

[A]ll successful politicians are big liars by the absolute standard we routinely apply to the people we personally know.

More here.

You can read a condensed version of The Road to Serfdom here for free.

Nice Cover

2009-05-31T18:03:00.000-07:00

A soon to be released book named In Fed We Trust has a really nicely

designed cover. You can pre-order the book here.

The Most Damning Blogpost I Have Read Today

2009-05-30T23:23:00.000-07:00

At least now we have finally gotten away from personal attacks, so let me say that Sachs is an inspirational and hard-working intellectual. His ideas on Africa are only sometimes totally wrong, the other times they are only fatally wrong.

More here. Blows again are exchanged between Columbia's Jeff Sachs and NYU's Bill Easterly.

Best Line I Have Read Today

2009-05-26T19:03:00.000-07:00

"Besides, the sight of two middle-aged white men mud-wrestling on African aid may entertain the audience."
The two middle-aged white men refered to in the above quote are no light-weights, they are Columbia's Jeff Sachs and NYU's Bill Easterly.
Read more about their latest exchanges here.

Eat Your Way to Eternity

2009-05-26T18:08:00.000-07:00

Gary Becker wrote:

the negative health consequences of being overweight and even obese will generally be significantly lower for children than for adults. The reason is that aside from very extreme obesity, the really harmful effects to overweight children will not usually kick in for another 25 or more years when they are in their forties or older. However, one can reasonably expect sizable progress during the coming decades in the development of drugs, such as lipitor, that will reduce the health consequences of high cholesterol and excess weight for heart conditions, diabetes, and some cancers. From that perspective, perhaps even ignorant and impulsive children are not acting so stupidly by indulging themselves in their eating since the future will likely see the development of drugs that will alleviate many serious medical conditions.

More here.

I see an externality being generated here. Say if the kids do not eat so much junk food or drink that much soda, they would not get overweight or even obese...then resources that would have been dedicated to cure illnesses which are byproducts of being overweight and obese could be used for something else. Afterall, scarcity rules. No?

BTW, as I have moved to a new job, and the position I am in does not allow me to freely comment on whatever stuff I like, hence the non-frequent up-dates of this blog, but I will try. So stay tuned.

So you want to learn cutting edge monetary theory without all the high-powered math?

2009-04-07T18:56:00.000-07:00

Then you should take a look at these lecture (scroll down, the notes are at the very bottom of the page) notes written by Neil Wallance, one of the founding members of the New Classical School, for his undergraduate monetary theory course.

Enjoy!

Listen Up Secretary Geithner

2009-03-27T19:28:00.000-07:00

A Utopian re-regulated financial sector, as envisaged by some pundits, would seek to avoid financial institutions’ taking excessive risks that could create systemic fragility, and give supervisors enough power to forestall any bubbles they saw developing. This regime would continue to facilitate the smooth and safe channeling of savings into socially productive investments, guaranteeing the future prosperity of a newer, low-risk world.

Before Americans — or Canadians — put too much stock in this imaginary future, however, they should ask if a regulator could recognize excessive risk and fragility as it began to emerge, could spot the point at which a boom that delivered socially productive innovation became a destructive bubble and subsequently design measures to halt the transformation without also discarding productivity gains. And they should ask how this wisdom would be translated into regulations that could be understood, followed and enforced by ordinary human beings in an environment where disagreements about how to interpret them will inevitably arise, and where decision makers’ own interests are affected by regulations’ interpretation.

The crucial point, which must not be missed in a populist rush to re-regulation, is that today’s financial systems in the U.S. and elsewhere are not the product of an unregulated market, but of a long history of interactions between regulatory interventions and private innovations in response to them.

The above is from the extremely wise Canadian monetary theorist, a student of the late Milton Friedman I believed and a retired professor at U of Ontario, David Laidler.

There are other bits in the piece where Secretary Geithner should pay attention, like this one:

First, as the U.S. financial system reconfigures, its evolution may be no more satisfactory under a newly minted set of rules designed to prevent past accidents than it would be if the process were driven by piecemeal, profit-seeking trial and error on the part of the private sector.

Regulators and the politicians who oversee them must remember that the profit motive is ever present, and that those who found ways to make money under past regulatory models will seek to do so under the next regime, too. The trick will be to design incentives so individuals’ behaviour stabilizes the system, rather than undermines it.

Read the whole thing here. And a list of David Laidler's works could be found here.

How To Win a Nobel Prize in Less than 30 Pages?

2009-03-26T17:56:00.001-07:00

If you can do this.

HT to Peter Klein at Organization and Markets.

Sentence to Ponder

2009-03-26T01:57:00.000-07:00

Back in graduate school circa early 1990s when I was taking Macro II taught by Tyler Cowen, I vividly remembered he once decribed the RBC (Real Business Cycle) view of what happened during the Great Depression in the 1920-30s as follows:

All workers decide to take a long vacation at the same time.

That is what I learn as part of the then State of the Art Macroeconomics. Seriously hope that those economic gurus who are at the helm power do not subscribe to that view.

If you were the President, imagine what your response would be if you senior staff told you, "you know what, my former professor told me that the current downturn has nothing to worry about, high unemployment only reflects workers have similar preferences with regarding to their leisure/labor choice." Amen!

What Do You Call a Nerd in Ten Years?

2009-03-10T07:07:00.000-07:00

BOSS.

Source here.

It's a story about Quants, yes the math genius/nerds (delete whatever is appropriate) that have some commentators blamed them for indirectly causing the current financial mess through their math models which help create all the complex financial products.

But if math geeks and their models were indeed the source of the current problem, how reliable would it be now that governments all over the world are using similar models created by the same geeks to help assess whether banks are viable (the US Treasury is stress testing the major banks as I type and I know as a fact that HKMA, the local banking sector watchdog, asks local banks to perform such stress test all the time).

Advice from the Thugs to the Treasury Secretary Geithner

2009-02-23T17:17:00.000-08:00

This is the best part:

The unanimous opinion among The Thugz was that you must base your work around a time-tested law of ghetto capitalism: losers must die in full view. What? This doesn’t make sense. O.K., well, let me explain. Your first mistake (more accurately, your predecessor’s error) was to mix the bad apples (banks) with the good (banks).

By doing so, you forgot what makes capitalism so much fun: winners win at the losers’ expense, and everyone gets to watch and laugh. Sort of like public hangings, except reported on the financial pages. Otherwise, why read The Wall Street Journal? (my emphasisi in bold)

Bottom Line:

The moral is: don’t ever take the joy of death away from the public. Because if you don’t see losers in pain, you begin to think the game is rigged.

Read the whole thing here.

Books I Have Been Reading

2009-02-20T18:57:00.000-08:00

1. Animal Spirits by Yale's Bob Shiller and Nobel Laurate George Akerlof.

2. The Science of Fear by Daniel Gardner. I am more and more interested in the behavioral aspects of economics, though I do not necessarily suscribe to their policy prescriptions.

3. Bernanke's Test by the same guy who wrote a book on Chicago School of Economics.

Clash of Economic Ideas

2009-02-20T18:44:00.000-08:00

For those who are interested in the debate of the 1930s on the potency of different economic policies in fending of economic downturn, which of course is relevant to the current debate on how to react to the current economic crisis, Austrian economist Larry White at U of Missouri St. Louis, is in the process of writing a book on the topic.

Here is one of the chapters. (Scroll down the page and you will see it, Larry is presenting the paper at the NYU market process seminar)

Dr Doom

2009-02-20T18:40:00.000-08:00

An interview of NYU's Nouriel Roubini, aka Dr Doom, in WSJ, more here.

Here are the best bits:

What exactly is Nouriel Roubini's economic philosophy? "I believe in market economics," he says, with some emphasis. "But to paraphrase Churchill -- who said this about democracy and political regimes -- a market economy might be the worst economic regime available, apart from the alternatives.

"I believe that people react to incentives, that incentives matter, and that prices reflect the way things should be allocated. But I also believe that market economies sometimes have market failures, and when these occur, there's a role for prudential -- not excessive -- regulation of the financial system. The two things that Greenspan got totally wrong were his beliefs that, one, markets self-regulate, and two, that there's no market failure."

How could Mr. Greenspan have been so naïve, I ask, hoping to get a rise. "Well," says Mr. Roubini, "at some level it's good to have a framework to think about the world, in which you emphasize the role of incentives and market economics . . . fair enough! But I think it led to an excessive ideological belief that there are no market failures, and no issues of distortions on incentives. Also, central banks were created to provide financial stability. Greenspan forgot this, and that was a mistake. I think there were ideological blinders, taking Ayn Rand's view of the world to an extreme.

Digusting Line of the Day, and the Winner Goes To

2009-01-28T22:48:00.000-08:00

Dave Wenhold, of the American League of Lobbyists, said lobbyists bring expertise to the job. "Just because you are registered to lobby doesn't mean that you are evil, " he said.

I got this line from this post up at Cafe Hayek.

So You Think the Government Can Spend Its Way Out of Our Current Predicament?

2009-01-22T23:41:00.000-08:00

Even FDR's treasury secretary, Henry Morgenthau, said in 1939, "We have tried spending money . . . and it does not work . . . we have just as much unemployment . . . and an enormous debt to boot." Nor did a decade of infrastructure spending help the Japanese escape three recessions and a decade of stagnation. It did, however, saddle Japan with a national debt burden four times ours.

That's Mike Boskin from Stanford talking in today's WSJ, more here.

U of Chicago's Finance Guru on Post-crisis Regulations

2009-01-10T19:20:00.000-08:00

More generally, current events are certain to produce more regulation, and
much of it is likely to be counterproductive. My longtime colleague, George Stigler, was famous for his argument, buttressed by empirical evidence, that regulators are eventually captured by the regulated. As a result, regulation often has results opposite those intended.

---- That's Chicago Business School's Gene Fama talking

More here.

Correct me if I am wrong, I think Hong Kong's financial sector czar Dr Chan Ka-keung was Gene Fama's student. Wonder what he thinks of his mentor's thoughts on the matter.

Best Movie Line of the Day

2008-12-27T09:45:00.000-08:00

It's from a movie about the life of Wing Chun kung fu master Ip Man, who was also one of the Bruce Lee's martial arts teachers.

Background of the line: Another kung fu master goes to master Ip's house and requests the latter to have a match with him. The line goes like this:

Challenger: So you don't want to have a match with me.

Ip Man: No. It's just that you come at a wrong time as my family and I are having dinner right now.

Ip continued: What about you? Have you eaten yet?

Challenger: No

Ip: Then why don't you join us?

Now that's real Martial Spirit right there!

Movie of the Year

2008-12-27T09:39:00.000-08:00

This year's "Movie of the Year" goes to:

Ip Man

Here is the trailer

Idiots

2008-12-03T06:05:00.000-08:00

立法會保安事務委員會討論策略發展委員會建議簡化專才輸入計劃的安排，多名議員質疑會加劇競爭，令本地大學畢業生在金融海嘯下搵工更難。

That is from today's Ming Pao, more here.

The fallacy inherent in the legislators' plea to stop importing talents from outside of HK is that they see the economy as a fixed-size pie. If some people get a large share of the pie, then others inevitably would get smaller slices. Zero-sum thinking.

That metaphor, market as a fixed-sized pie, is wrong.

A better metaphor for the market is that it is an exchange nexus. As more people participate in the market nexus, the extent of divison of labor could be further extended, the more productive the economy would become. A larger pie for everybody. And that, the enlargement and the extension of the market through increasing the number of market participants, is one of the fundamental drivers of the wealth of nations.

BTW, don't blame the legislators to be such idiots. YOU voted them in, remember? Disclosure: I DID NOT VOTE AND I WILL NOT FOR THE MANY ELECTIONS TO COME.

Are We All Keynesians Now?

2008-11-24T06:42:00.000-08:00

Amid the unfolding global financial crisis, countries across the world are fast in deciding pump-priming is the way to go in engineering a recovery of their economies.

If my memory serves me right, about a decade ago, economists, especially those from the IMF and the US Treasury were asking all those troubled economies afflicted by the Asian financial crisis to keep their fiscal house in order before they could gain access to any emergency aid from the IMF or the US(?).

Now, the same economists, (I am assuming here that the economists at US Treasury or IMF who are advising the US government say were either the same ones or have recieved very similar training to those who doled out the advice to leaders of Asian economies ten years ago) are now advocating their governments to spend their way out of the problem.

What has caused this shift in mentality?

Hypocrisy anyone?

Hong Kong = Rent-seeking Paradise

2008-11-23T22:13:00.000-08:00

"Social welfare expenditure [in Hong Kong] had increased by 80% from $20 billion in 1997-98 to $36 billion in 2007-08, representing the second largest share of government recurrent resource allocation"

And No, I do not make this up, it is from the Secretary for Labour and Welfare, Mr Matthew Cheung Kin-chung. More here.

So please repeat after me: Good bye Capitalism, Welcome Welfare State.

My sense is that this is going to get worse as the global financial crisis unfolds. Stay tuned.

Bush on Capitalism

2008-11-14T06:02:00.000-08:00

President Bush was talking a lot of sense in the following speech:

-- History has shown that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market.

-- Like any other system designed by man, capitalism is not perfect. It can be subject to excesses and abuse. But it is by far the most efficient and just way of structuring an economy.

-- Ultimately, the best evidence for free market capitalism is its performance compared to other economic systems.

-- The record is unmistakable: If you seek economic growth, if you seek opportunity, if you seek social justice and human dignity, the free market system is the way to go. (Applause.) And it would be a terrible mistake to allow a few months of crisis to undermine 60 years of success.

In other words, our trust on free market is not based on faith or belief, it is based on development experiences throughout the course of history. And we trust the free market not because it is inherently perfect or good in an absolute sense, it is simply better than all the EXISTING alternatives. Unless humans are lucky enough to stumble on another system better free market, if we want to prosper, there is simply NO other way.

For the full speech, read here.

All the recent BS about free market fundamentalism is simply that, BS. No sophisticated free market supporter subscribes to that strawman anyway.

BTW, for those on the left who want to criticize Milton Friedman and other intellectual leaders of the free market, please, please at least read through their stuff before attacking them, not by imaging something they had said or believed and then criticized them on stuff that they did not write or say.

Read the damn books/papers or shut the (insert a four letter word here) up!

Learn Property Rights Economics from its Guru

2008-11-06T06:06:00.001-08:00

Here is the opportunity. More importantly, it is FREE, for now anyway. The chapters are from professor Yoram Barzel's property rights economics text. The first edition came out 1989 and the second one came out in 1997, I read both and the text is an excellent introduction to the subject though professor Barzel's writing can be dry at times. My guess is the online chapters indicate that professor Barzel is preparing the third edition of the book.

Needless to say, I am a true fan of professor Barzel's work. Not only because he was a former colleague of professor Steven Cheung, also as a result of his extension and elaboration of the Washingtonian Approach to Transaction Cost Economics pioneered by Steve (where the measurement problem occupies the center stage of the paradigm). The other alternative of course is that advocated by UC Berkeley's emeritus professor O E Williamson where asset specificity, incomplete contracts, bounded rationality, and opportunism are its major focus.

(An aside: I once believed that the measurement approach to TCE was at least inspired by the characteristic approach of consumer theory pioneered by Kevin Lancaster. So I asked the professor sometime ago in 2005 if that was the case. Guess how the professor responded? The attributes embodied in the goods in Lancaster's are exogenously given, whereas the attributes were endogenously determined in the measurement approach. Brilliant.)

I quite enjoy his Theory of the State book a bit, unfortunately the book fails to grasp the attention of most economists. In Steve's three volume works Economic Explanation (in Chinese) the theory of the state has received little and limited coverage. I once pointed that out to the professor. The professor agreed and promised to write more on this when it is time to revise the works. Recently, the professor reminded me that he would start working on revising the three volume works very soon. So stay tuned.

Can Keynes Save Us All?

2008-11-05T19:19:00.001-08:00

A short answer is no, and that's the conclusion of this interesting piece by Nobel Prize winner in economics (2006) Edmund Phelps in FT.

This bit is my favourite, at the very end of the piece:

Capitalism theory stresses diversity in sources of new commercial ideas, in the pool of entrepreneurs available for their development, in sources of finance – angel investors, venture capitalists and the rest – and in the array of end users.

It also stresses how important it is that owners of financial and business enterprises be accountable to no one (except their own consciences) – thus free to use their intuition – in contrast to the strict accountability rightly required of state employees. Thus a greatly increased presence of the central government in a country’s investment sector could constrict innovation and lower the quality of the innovations that are made. We would be left still in a slump.

At the end of his life Keynes wrote of “modernist stuff, gone wrong and turned sour and silly”. He told his friend Friedrich Hayek he intended to re-examine his theory in his next book. He would have moved on. The admiration we all have for Keynes’s fabulous contributions should not sway us from moving on.

Butch Cassidy and the Sundance Kid

2008-11-04T00:49:00.000-08:00

Thanks to W H Yeung at Next Magazine for allowing me to post this latest column of his before it officially appears in tomorrow's addition of the magazine. Enjoy!

「致命的自負」觸發金融海嘯

格林斯班退休近三年，再出席國會聆訊，為任內的金融政策問責。卸任後尚要問責，情況堪稱罕見，然而誰又可以否認這不是個非常時期？無論中外報章，都大字標題說他為過去疏忽監管金融衍生工具認錯。真的嗎？細閱他的演詞及他對議員質詢的回應，說他「認錯」無疑是太沉重了。
自由經濟有瑕疵

中外報章說他「認錯」了，看來是本此番對答而言吧：眾議院政制改革委員會主席華士文（Henry Waxman）問：「以今視昔，你是否囿於意識形態（ideology），做出了不該做的事？」答：「是的，我發現了一個瑕疵（flaw）。我不知道這個瑕疵有多嚴重或會否持續。但我為此深受困擾（distressed）。」華士文眾議員口中的「意識形態」不用說是指資本主義自由市場經濟引伸出來的放任政策了。不管大家怎麼樣想，然而橫看側望，我都見不到格林斯班有哪個地方是「認錯」了。資本主義自由市場經濟不是個玫瑰園，即使這個「意識形態」像有格林斯班說的有瑕疵，只消證明放任政策勝過人類歷史上嘗試過的任何體制，那不便夠了嗎？要驗證自由經濟這個優越性倒又沒有半點難度。就算在風雨飄搖的今天，若然有選擇，你會願意回到三十年前中國尚未開放的日子嗎？就算不是走這樣的回頭路，今天你會考慮移民到北韓、古巴或委內瑞拉等堅持社會主義優越性的國家去嗎？

格林斯班亦凡人而已格林斯班在聯儲局待上了十八年，他對經濟運作的認識肯定比世界上99.99%的人為多。然而不辯的事實是，他亦凡人而已。哪怕市場真的發生了一些他過去沒有察覺到的事情，以致判斷出錯，那也沒有什麼好值得大驚小怪的吧？說到底，他已屆八十三歲的耄耋之年。即使認錯，那又有啥大不了，更何況他只是說察覺到自由市場有一些令他困擾的瑕疵，他不是對這個體制信心崩潰啊！況且誰說資本主義自由市場經濟是不許有瑕疵的？海耶克不早便告訴我們了嗎？市場錯綜複雜，根本上沒有人可以隨時隨地完全掌握全局；過去沒有，現在也沒有，甚至將來也不大可能有。即使格林斯班坐鎮的聯儲局有全世界最鼎盛的經濟研究隊伍，有最完備的經濟數據，再輔以最了不起的超級電腦，他亦不見得便全知全能掌控一切吧！要不然他不便能列寧、毛主席、卡斯特羅所不能，搞起計劃經濟來了嗎？

何方神聖猛火密襲格林斯班出席國會聆訊的當天，《紐約時報》刊登了跟美國財長保爾森作的專訪，講述從九月十二日雷曼倒閉到國會通過七千億元救市方案，那個多月間他的日日夜夜。當中他有這一句發人深省的自白：我恍惚是神槍手與智多星。到底是何方神聖向我連珠砲發猛火密襲？（I feel like Butch Cassidy and the Sundance Kid. Who are these guys who just keep coming?）保爾森口中的情境，是羅拔烈福及保羅紐曼的名片《神槍手與智多星》（Butch Cassidy and the Sundance Kid）最後的一個鏡頭。

這兩個專門打劫銀行及解款車的美國大盜逃到南美洲的波利維亞，給大軍重重圍困，彈盡糧缺更受了傷，試圖突圍，哪有希望？正當他們冒槍林彈雨死命衝出屋外的一剎那，電影定鏡，只聞一把聲音：「開火！」隨諸而來的是一陣彈雨槍聲。保爾森何等樣人也？美國財政部什麼經濟數據沒有？其通訊、電腦硬件又怎不完備、先進過人？那麼他又豈不對經濟情況有個第一時間的通盤掌握？再者，保爾森又不只是財長而已；出仕之先，他是高盛這間華爾街第一大行的主席。身經百戰，什麼大場面他沒有見過？他對實際金融運作的認識又怎不勝過9999%的人？然而以他的條件、閱歷，他亦不得不從實招來，承認不知道金融市場發生了什麼事情。這般複雜的體制有個格林斯班口中的瑕疵，正常呀！

資本主義撞正大板？《神槍手與智多星》裡有這最後的對白：羅拔烈福：且慢，那不是我們的天敵Lefors嗎？保羅紐曼：Lefors？不是，你問來做什麼？羅拔烈福：嚇得我，我尚以為這一趟撞正大板了。（For a moment there I thought we were in trouble.）我不知道當他想起《神槍手與智多星》時，保爾森有否記起電影落幕前這最後的一句對白。這一趟資本主義自由市場是撞正大板了嗎？麻煩是有的，但經此一役，世界便從此回到社會主義大鑊飯的洪荒年代嗎？當然不會。如今甚至鎖國超過半個世紀的北韓不也開賭場、搞加工特區、讓南韓人前去「觀光」了嗎？（餓殍遍野，何光之可觀有哉？）像戴卓爾夫人說的：TINA —— There is no alternative —— 捨自由經濟，人類別無選擇！

技術枝節阻住地球轉

依我看，金融海嘯最是棘手之處，是在超級電腦的催谷下，金融衍生工具發展得太快，但完成買賣這些衍生產品所需的配套環節，譬如怎樣管理好買賣雙方萬一不能完成交易的風險（銀行投保CDS，AIG賠不起那怎麼辦？）；票據交收機制如何才可以追上交易步伐（以次按為基礎CDO給降低評級，了無成交，無從定值，那又怎麼辦？）；按市值入賬（mark-to-market）的會計準則形同迫使金融機構自動破產，以致整個金融體系僵硬冰封，這個準則在這非常時期應否堅持下去？……等等。不過，凡此種種，都是技術層面的枝節，跟市場能、官僚不能，這個自由經濟的大前提無涉。技術枝節又焉能動搖根基，令建基於私有財產的市場體制崩潰？這一兩個星期來儘管衝擊不絕，技術問題已在逐一解決。譬如面值超過六十兆美元的CDS 票據市場終於發展出了個有效的交收系統，冰封的市場有望解凍。銀行家朋友又告之，以次按為基礎的CDO債券無疑大跌價，面值一元的票據只賣得兩角錢，但有成交。換言之，海嘯過後，整個金融系統是在一步步地恢復運作了。只要市場繼續復元，那麼不管多大的問題也有望解決了。

致命的自負

格林斯班沒有和盤托出，說他看到資本主義自由經濟有個什麼的瑕疵。要是讓我在堆填區觀天，問題的癥結，是海耶克說的「致命的自負」（The Fatal Conceit）—— 有了超級電腦，好些華爾街上的才俊便長了個僥倖之心，以為自己真的懂得了投資必賺的竅門，義無反顧、搏到盡，在次按的基礎上滋長出五重、六重以至更多的衍生產品。頭重腳輕，終致出事，也是常理之中了。問題是這些才俊哪裡來這個必賺之心？先前BBC訪問了一個這樣的才俊，他是唸「理論物理學」（Theoretical Physics）的，數學了得但對市場供求運作一無所知。他知道的是如何炮製模式，設計形形色色的金融衍生工具。他說這些模式涉及複雜的方程式 —— 不是一條、兩條以至一百條方程式，而是八十萬條！一個有八十萬條方程式的模式有多複雜，我想也不敢想。

與天公比高然而在華爾街上的金融機構來說，有科學家設計出了這般複雜的模式，而超級電腦又運算出精準不過的數據，那麼天下萬物 —— 包括必賺的投資 —— 又怎不盡在掌控之中？掌控一切，那又跟全知全能的上主何異？自負得像毛主席那樣「欲與天公試比高」，那麼不費吹灰之力不便可以作必賺的投資了嗎？人人都以為懂得必賺之術，釀出一場金融海嘯也是理所當然的吧。

如何收拾局面？這位華爾街科學家說今後搞金融的該先學點經濟學，認識市場供求為何物。是的，吃了這麼大的苦頭，怎到你不學得謙卑點？甚至格林斯班、保爾森不也承認世界複雜，大有他們不認識、不明白的地方。最是不好對付的是，好了瘡疤忘了痛，雨過天晴、境況好轉，運算能力更強的超級電腦出台，人們便不難再興「與天公試比高」的歪念了。怎麼辦？怎麼辦？

If you are a macroeconomist, do not read further than this

2008-10-23T00:01:00.000-07:00

I have always thought that the issue of the relationship between financial markets and the "real economy" was really deep. I thought that it was a critical part of macroeconomic theory that was poorly developed. But the economics profession for the past thirty years instead focused on producing stochastic calculus porn to satisfy young men's urge for mathematical masturbation.

That is Arnold Kling speaking, more here.

Who's Who?

2008-10-13T06:53:00.000-07:00

Two pictures with two guys, one of them is a famous actor and other one is the newly minted Nobel Laureate. Guess who's who?

Paul Krugman on the Subprime Mess

2008-10-13T06:10:00.000-07:00

Look, I do not like Krugman and I think there are other economists who deserve more to get that your know what I am referring to prize.

Still, I have got to say that Krugman articulated quite well what triggered the whole subprime mess in this Youtube vid, enjoy!

Economic Downturn + Minimum Wage in HK = What a Deadly Combination

2008-10-11T23:54:00.001-07:00

According to the Sunday edition of Ming Pao:

多個勞工團體今早遊行到政府總部，要求政府訂立最低工資及標準工時。

Another story in the same paper, it reported that:

勞工及福利局長張建宗表示，金融危機對勞工市場影響未完全浮現，香港不能倖免，預計年底失業率會上升，但未能確定會否差過SARS時的低位。

Alright, let me get this straight, folks here in HK want minimum wage to be introduced right around the time when the ripple effects of the unfolding financial crisis in the US begin to affect the local economy. Nice timing, indeed, eh? Guess if minimum wage were indeed introduced soon, my sense is that uemployment might surge up to say 7-8 percent or even low double digit number.

Just when HK needs all the flexiblity required for prices to adjust efficiently and effectively to the large negative economic shock originated from the financial crisis, some folks here actually believe that instilling inflexible prices is a good thing for Hong Kong people. Shame on them!

Is Recapitalizing the Banks By the Government the Answer to Restore Confidence in Financial Markets?

2008-10-11T07:02:00.000-07:00

The answer is a yes for a growing number of economists according to this WSJ story:

The government's plan to buy equity in financial institutions, announced Friday by Treasury Secretary Henry Paulson, is an idea that many academic economists have championed from the start of the crisis.

Here is more.

However, just days ago also in the WSJ, Gary Becker does not believe taking equity stake in banks by government is a good idea:

One troubling provision is that the government can take an equity stake in banks it helps. Some economists have proposed a similar role for government equity in these banks. I believe it is unwise to give governments equity in private companies, even if the government does not have voting rights in company policies.

Many examples in recent history, such as the current Alitalia fiasco, show that political interests outweigh economic ones when governments have some ownership of private companies. This is likely to happen in this bailout if some banks that are helped decide to sharply cut employment in the districts of some congressmen, or to transfer many jobs overseas.

Read the whole thing here.

The Scariest Sentence I Have Read Today

2008-10-03T20:59:00.000-07:00

"When the price of credit-default swaps on some company's bonds gets way too high, people look at that and it affects the stock price, it affects their ability to borrow, it starts to affect their credit rating, and their rating affects the credit-default swap price in turn. It becomes a spiral."

Here' s more.

Bernanke and the Financial Accelerator Model

2008-10-03T19:16:00.000-07:00

After the recent two weeks of tumult in the American economy, consumers couldn't be blamed for wishing they had a crystal ball that could help them see into the uncertain future. Will there be a recession? How bad would it be? Should Congress and the White House launch a $700 billion Wall Street rescue mission?

The closest alternative to a crystal ball, in the real world, is a computer model of the economy. Back in the 1980s, one such model was created by none other than Ben Bernanke, who's now at the center of the crisis as the chairman of the Federal Reserve.

That is from a story in NPR covering the financial accelerator model invented by none other than Ben Bernanke and NYU professor Mark Gertler. More here.

Best Line On the Unfolding US Financial Crisis I Have Read Today

2008-09-29T00:28:00.001-07:00

Virtually all of the franchise value of Goldman and Morgan is human capital. The folks at these firms are the most innovative product developers and skilled risk managers that the world has ever seen.

---That is from a new blog with rotating contributors from the Columbia Business School, interesting throughout, more here.

Head You Lose, Tails I Win

2008-09-23T23:45:00.000-07:00

Do we want to live in a system where profits are private, but losses are socialised?

--- That is a question posed by U of Chicago professor Luigi Zingales on the appropriateness of the Benanke--Paulson rescue package, more here.

As Reagan Would Have It: Government is the Problem

2008-09-23T23:16:00.000-07:00

Many monumental errors and misjudgments contributed to the acute financial turmoil in which we now find ourselves.

Nevertheless, the vast accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie Mac.

The poor choices of these two government-sponsored enterprises (GSEs) -- and their sponsors in Washington -- are largely to blame for our current mess.

--- That is from an excellent oped by professor Charles Calomiris at the Columbia Business School and his coauthor in WSJ, more here.

Amusing Pair of Sentences on the Unfolding Financial Crisis I Have Read Today

2008-09-21T23:41:00.000-07:00

--- From Gary Becker

Despite my deep concerns about having so much greater government control over financial transactions, I have reluctantly concluded that substantial intervention was justified to avoid a major short-term collapse of the financial system that could push the world economy into a major depression.

--- From Richard Posner

In effect, the government's power to repair the crisis that Wall Street created has been delegated to Wall Street.

More here.

路人甲, Morris and Randy

2008-09-04T23:00:00.000-07:00

九七年秋的一個晚上，獨個兒從華盛頓飛往三藩市面試，飛機上暗黃的燈光散落在我手中捧着的小書，淚水滴在橙黄色的書紙上分外動人。書的名字叫 Tuesday with Morris.

********

面試成功，九八年回港工作。

********

十年後的一個懶洋洋下午，一口氣把 The Last Lecture 讀完，心情平靜。

*******

是過去十年的生活令我變得麻木、泠漠起來？

*******

To me, reading The Last Lecture reminds me of reading one of those pop self-help books written by Anthony Robbins.

Yes, it is tragic that Randy's life was being cut short by a terrible illness. But I also believe it is a fact that a lot of people, in fact I would venture to guess 90 percent of the people, could not achieve what Randy did achieve in his forty some years in existence. Therefore, some people like myself , may not relate to the feelings, messages and lessons relayed in Randy's book as much as when reading Tuesday with Morris. Guess it's because most of us are ordinary folks. Randy's achievement certainly inpires us, but I doubt many of us could attain his level of achievement even if we try our best to take down those brick walls blocking our way.

**********

Some walls are simply made of steel or concrete. Or may be what I wrote above only reflects my weakness, my lack of determination to achieve life goals. Whatever. Just live your life the way you think best for you.

Harold Demsetz's New Book

2008-08-26T00:56:00.001-07:00

The book is due next month. Check out the table of contents here.

Best Line I Have Read Today

2008-08-26T00:21:00.000-07:00

Spaghetti is undoubtedly a delicay. But better leave it to the restaurant.

No, it is not about food, it is actually about free trade agreements, read more here.

My Alma Mater Ranks Above U of Southern California

2008-08-25T18:05:00.000-07:00

No, no I do not make this up, that is according to the latest ranking of the US News and World Report. See it for yourself here.

假如我是劉先生

2008-08-19T20:16:00.000-07:00

Disclaimer: All the following did not happen

At a press conference:

Reporter: What are your feelings now that 1.3 billion are sad that you could not compete the other day?

Mr Liu: You see, I do this stuff because I like it, I enjoy it, not because 1.3 billion people want me to do it. Make this fact clear, will you?

Tomorrow, if I decide to be a marathon runner, that is what I will do, and I won't do what people want me or expect me to do, or even what my country wants me to do, have I made myself crystal clear?

Reporter: Will you compete again in four years?

Will you marry in four years, who knows? And who would plan that far anyway. Again I might decide to compete in the marathon event in 2012.

Reporter: What is your future plan then?

No, I do not have a plan, the government has a plan, the police has a plan, I DON'T.

Next question please...

干預炮製出梁展文案

2008-08-12T01:25:00.001-07:00

Thanks to Yeung Wai-hong at the Next Magazine for letting me publish his editorial in the next issue of the magazine here first! Enjoy!

說梁展文一案的癥結是他的「酌情權」，殆無異議。要是沒有「酌情」沽售（或不沽售）紅灣半島的權力，他又何來輸送利益給新世界發展之嫌？可是「酌情權」這問題核心又來自哪裡？那無疑是伴隨政府干預市場而來的孿生兄弟了。

政府不插手干預市場則已，一插手則必然賦與主責官僚若干酌情空間，（政策是死的，人才是活的；無權酌情，何以推行政策？）從而衍生私相授受的機會。故此根絕貪污之道不是增加監管規條而是減少干預，否則擴大廉署編制一百倍、一萬倍仍將歸於徒然。像太史公說的，利字當頭，「刀鋸之誅」又豈嚇得倒「舞文弄法」之輩？

眾所周知，涉案的紅灣半島是個干預樓市的居屋項目 —— 以低於市價給中下家庭提供居屋。這更不是一般的居屋，而是有私人發展商參與的計劃（新世界是政府的拍檔）；故此政府有責任在限期內為發展商提供買家，否則要賠償。

不巧，紅灣半島建成，為了救樓市，董建華先是判了八萬五突然死亡，進而停售居屋。跟新世界訂定的合同又如何是好？按協議，要麼真金白銀賠償其損失；要麼便按個公平價格出售紅灣半島給新世界；捨此之外，別無他途。當時梁展文為房屋及規劃地政局的常任秘書長，率領地政總署、屋宇署及律政署的專家談判出賣物業；事出突然，無先例可援，你說他的酌情空間又有多大？

事後孔明可能會說這是個不平等協議，然而不可不知者，引入私人發展商建造居屋，其主旨乃在加快居屋供應以平抑樓價。居屋價格既然由官家訂定，利潤有限；不加入多重保障，頭腦正常的發展商肯參與嗎？倘若買入紅灣半島新世界真的得享「暴利」，關鍵是政策反覆，從壓抑樓價一百八十度轉為停售公屋救市，製造了上下其手的酌情空間。

若然沒有政府干預樓市在先，若然干預沒有在壓抑樓價的洶湧群情下升級，引入私人發展商參建居屋；若然政策一以貫之，沒有建華之亂炮製的反反覆覆，那麼高官們又何來混水摸魚的空間？
於此可見，要是梁展文確有濫用酌情權之嫌，問題的根源是干預政策不斷升級變質，製造出愈來愈大私相授受的灰色地帶。不從減少（甚至廢除）干預市場入手對付貪污，一味增加監管，疊床架屋，重重監管那又伊于胡底？

事實亦然。香港不是有個威名遠播、專門對付貪污的廉政公署嗎？爆發這般觸發公眾關注的大案，廉政公署至今不吭一聲，難道我們的貪污??星沒有絲毫角色？再者，防止貪污是廉署的主要職責之一。干預升級、政策反覆炮製出偌大的酌情貪污空間，敢問廉署又可有治亂於源，從減少干預入手積極預防貪污？

尸位素餐，嚴格而言可能算不上是貪污，然而食公眾之祿而葬送公眾利益，那又與貪污何異？

Best Conclusion I Have So Far Today

2008-08-07T21:00:00.000-07:00

And doesn't the fact that Hong Kong's made it this far without antitrust give you a moment's pause about the domestic benefits of these laws?

More here.

Best Line I Have Read Today

2008-08-05T20:18:00.000-07:00

But the success of other nations should not be taken per se an indication that America is in decline.

That is Gary Becker talking, more here.

Needless to say I am in agreement with Becker on this one. That's why I do not subscribe to any of the views about Hong Kong being marginalized as China continues to grow or Hong Kong will be overtaken by Shanghai or other major cities in China very soon bla, bla, bla........

Now this is progress

2008-08-05T19:21:00.000-07:00

According to a story reported in China's Caijing magazine, a tax firm (let's call it firm A) in the coastal Zhejiang province has filed a complaint to the court that a local government has violated the newly implemented antitrust law.

According to the story, firm A complains that another tax firm (let's call it B) has been allowed to have an office at the local government building while similar demand from firm A is denied. Apparently firm B has close government ties with the local government. Hence, the complaint. It will be very interesting to see how the court rules in this case. Stay tuned for more reporting on the case.

Here is the story, sorry folks in simplified Chinese only.

Now even if the mainland's antitrust law does allow cases against the government (some other jurisdictions as well like Australia), one wonders why in HK government's consultation paper on competition law, the government is exempted from the law.

Books I Plan On Getting

2008-08-04T01:41:00.000-07:00

1. The Price of Everything: A Parable of Possibility and Prosperity The author Russ Roberts was a former student of Milton Friedman and the author of earlier economic novels like the Invisible Heart and the Choice.

2. Stealing from Each Other: How the Welfare State Robs Americans of Money and Spirit. Author Ed Browning is an expert in public finance.

3. The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It. No, this is not simply another I told you so kind of book, it is by Bob Shiller, who wrote the Irrational Exuberance a couple of years back.

4. The Best Book on the Market: How to stop worrying and love the free economy by E Butler.

5. Fixing Global Finance by Martin Wolf, the FT columnist.

6. Morals and Markets: An Evolutionary Account of the Modern World by Dan Friedman.

My friend Ming talked about his disappointment of the annual book fair in Hong Kong here. In general I am in total agreement with him. But this year it is a bit different, I got Milton Friedman and Anna Schwartz's A Monetary History of the United States for HK$ 30. And the book is in EXCELLENT CONDITION.

The apparent missing of prestigious mainland publishers is what really upsets me at the bookfairs in recent years.

And also Ming, I do not know you are interested in learning more about economic history, otherwise I would recommend David Lande's Weath and Poverty of Nations, Eric Jones' European Miracle , Ken Pomeranz's the Great Divergence, Jared Diamond's Guns, Germs and Steel and Greg Clark's Farewell to Alms.

Oh My Go......

2008-08-04T01:30:00.000-07:00

Three in every four Catholics agree on the need for a minimum wage law, according to a survey by the Hong Kong Catholic Commission For Labour Affairs...

So reported in today's edition of the HK Standard, more here.

If people are so eager to help out, here is a suggestion, how about setting the minimum wage at say HK$ 10,000 and and ask those staunch supporters of minimum wage to pay a special fee to top up the wages of workers who qualify for the minimum wage (the rate of the fee can say vary according to different income levels). My bet is the proportion of minimum wage supporters will drop dramatically if the fee were to be imposed.

Afterall spending other people's money (employer's) to do good is not quite the same as spending one's own eh?

Randy Pausch 1960 --2008

2008-07-28T07:20:00.000-07:00

Professor Randy Pasuch passed away...here is more from ABC, and here from his colleague at UVA.

My condolences to his family.

Marty

2008-07-27T22:45:00.000-07:00

David Warsh has written an extremely lucid review of Marty Feldstein as head of the NBER. More here.

Web 2.0 Is this It?

2008-07-24T06:50:00.000-07:00

I have heard a lot about Web 2.0 of late and its business potential. I have no clue what it is though. But if the Web 2.0 business model can bring more stuff like this vid, hey, I am totally for it.

This short video is pretty amusing. I, for one, is sick and tired of all campagin stuff ahead of HK's September Legislative Council election. So please sit down, relax, and watch this vid, enjoy!

HT to Division of Labor for the pointer!

林行止、香港、會計師

2008-07-24T01:42:00.000-07:00

「香港怪現象之最是會計師經常評論政經事務，此為世界所無的香港畸態。」

The above line appears in Mr Lam's column today. Right on. More here.

Me

2008-07-22T20:37:00.000-07:00

Recently I was invited by L, my former colleague who is now working for Hong Kong Economic Journal, to contribute a piece to his paper commemorating the paper's 35 anniversary.

A few people have missed it when it was published last week and asked me to reprint here. I am not so sure because of my concern about copyright issues.

Now the problem is finally resolved because one can read it for free online, and the link is here.

Bogus Economics

2008-07-22T20:24:00.000-07:00

A guy wrote in today's (23 July) Hong Kong Economic Journal making a case for the minimum wage:

第二、客觀來說，低技術勞務市場並不存在刻意的價格操控情況。但在現今互聯網的年代，僱主所擁有的似乎是完全的市場資訊，當某個僱主了解到其他僱主願意付出的工資價格後，他是沒有誘因去把工資無故提高的。

If a worker can produce 10 dollars worth of stuff, and the worker is currently paid nine dollars. (Let's put aside the question of why the worker gets paid less than his or her contribution for argument's sake). Comes another employer, turn on his computer, check out his competitor's offer to workers, and discovers an opportunity to make profit (by paying a bit more than nine dollars this empolyer in question can bid away that worker who can produce stuff worth ten bucks and the employer in question can pocket a bit less than a dollar difference as profits). My guess is , TEN OUT OF TEN EMPLOYERS would do what they can to lure that worker to work them and in the process bids up the wage of the worker to ten bucks, his or her productivity.

Other parts of his piece are equally silly and it is not worth my time to comment on it.

Probably only the writer of the piece would not do something when he sees that kind of profit opportunity, but then again he is not a boss, otherwise he would not have that kind of time to write such silly article anyway.

Coase on China

2008-07-21T23:28:00.000-07:00

Below is the introduction Ronald Coase delivered at the beginning of the China conference which we have talked about here before. Thanks to Linda, Professor Steven Cheung's wife, for kindly providing me with a copy of the introduction and granting me permission to reproduce it here:

China’s Economic Transformation

Ronald Coase

July 14, 2008

I now have the very pleasant task of welcoming you to this Conference on China’s Economic Transformation. When Steven Cheung wrote in 1982 his pamphlet for the Institute of Economic Affairs in London on the question “Will China go capitalist?” a question that he answered in the affirmative, I was one of the few people who agreed with him.

But I thought in terms of 100 or 200 years, not 25 or 30 years. What happened in China was a complete surprise to me, its scale, its character and speed – which means that I did not understand what was going on. I therefore determined to hold a conference that would uncover the facts about this extraordinary series of events. We sought out those best able to inform us, academics, businessmen, government officials, about the facts about what happened. I think we succeeded. We have a series of fine papers that greatly enlighten us about what has happened in the years since 1978. As we intent to publish an edited version of these papers (and of the discussions) in a book, they will inform a much wider audience.

Of course, although we will learn a great deal about what happened, it is not to be expected, although some things will be made clear, that there will be complete agreement in the views expressed – nor is it desirable that there should be. A subject in which everyone says the same thing is a dead subject and one which will not progress.

Competition in the market for ideas is as valuable as in the market for goods. The truth is found as a result of the clash of ideas. And it will be so at this conference.
Our first paper by Steven Cheung will be delivered by him on DVD. It is long (about 2 hours) and I decided to divide it into two parts, each about an hour in length with an interval with refreshments in between.

Unfortunately, one of our important discussants, Professor Mundell, will not be able to attend on the first day but will give his views on Tuesday morning. I should explain here that while I speak as though I organized this conference, in fact all I did was to have the idea that such a conference would be a good thing. The actual organization of the conference was carried out by Ning Wang, assisted more recently by Lennon Choy and Marjorie Holme. I have been largely a spectator and admirer of their work. I should also say that, approaching 98 years of age later this year, I get extremely tired and almost certainly will not be able to attend all the sessions. But those who present papers at sessions I do not attend should realize that my absence is in no sense of judgment on the worth of their papers.

I now turn to Steven Cheung’s talk. I came to know Steven when he came to Chicago from UCLA in 1967 on a fellowship and was later in 1968 appointed an assistant professor. I don’t remember how we met. But when we did, we formed an immediate bond and we had the most enjoyable and productive talks together.

Unfortunately for Chicago, he decided to leave Chicago and go to the University of Washington where he had as colleagues Douglass North and Yoram Barzel. However, our relationship did not end and Steve wrote a series of splendid articles published in the Journal of Law and Economics of which I was editor. Then, in 1980, Steve received an offer from the University of Hong Kong. I urged him to accept. I thought it would be a fine place to observe what was happening in China. Just how valuable it would be I did not then realize. But you will learn from his talk what he has gained from his close observation of events in China over the years. I won’t hold up this really important talk any longer. So here we have Steven Cheung speaking on China’s Economic Transformation.

PS. Kempton, sorry for not posting this piece on the Free Lunch with Steven Cheung site, as I lost the email you sent teaching me how to post stuff on that. Would you mind helping me to upload this post over there as well. Thanks a lot!