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Archive for the ‘Economics and Culture’ Category

Christmas specials from the Economist

Posted in Economics and Culture, Links, tagged , , , , , , , on December 22, 2013| Leave a Comment »

Indian mothers-in-law – Interesting article on Indian family culture.

Why the French are miserable – Excerpts below, much more in the article.

Romantic miserabilism was experienced as a form of pleasure. “Melancholy”, wrote Victor Hugo, “is the happiness of being sad.” It was treated as a noble state, a higher aesthetic condition. “I do not pretend that joy cannot be allied with beauty,” wrote Baudelaire in his diary. “But I do say that joy is one of its most vulgar ornaments; whereas melancholy is, as it were, its illustrious companion.” Much of this tradition is firmly fixed in today’s French mind. Hugo’s poem “Melancholia” is required reading for French lycée students, as is Alfred de Musset’s “La Nuit de Mai”, whose narrator laments that “Nothing makes us so great as great sorrow.”

……

Perhaps the best exemplar of miserabilism among contemporary French fiction writers is Michel Houellebecq, the controversial Goncourt-prize-winning novelist, in such nihilist works as “Whatever” or “Atomised”. His characters invariably lead empty, often sordid, always disillusioned lives. “In the end,” writes Mr Houellebecq in “The Elementary Particles”, “there’s just the cold, the silence and the loneliness. In the end, there’s only death.”

……

Perhaps the French need dissatisfaction and thrive on doubt. “There is a certain pleasure taken in being unhappy: it’s part of an intellectualism of French culture,” says Ms Senik. “Malaise and ennui are to France what can-do is to America: a badge of honour,” wrote Roger Cohen in the New York Times recently. Pessimism does not preclude pleasure. All that sitting around at pavement cafés, looking fashionably discontented, can be fun. Optimism is for fools; sophisticates know better. Bleak is chic—especially when opening another bottle of Saint-Emilion and reaching for the three-tier cheese trolley.

A short history of hotels – I must have visited dozens of hotels this year and spent lots of time there (business travel, meeting, personal travel, dining, sightseeing, etc.), so it’s interesting to learn more about the industry.

In the future the hotel may offer neither bland uniformity nor authentic warmth but a proliferating number of experimental worlds in which to insert yourself. Who do you want to be next time you hand over your passport and check in?

Special report on museums –  Are we in the golden age of museums? The museum boom in China seems wasteful. I just realize from the article that I’ve visited all the top 3 most popular modern art museums, and 6 of the top 10. But I still don’t understand contemporary art. Think I should read up more before visiting next time.

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Michael Pettis on China’s economic restructuring

Posted in Books, Economics and Culture, tagged , , , , , , , on October 27, 2013| Leave a Comment »

I just finished Michael Pettis’ new book on China recommended by Tyler. He uses a neat framework to think about China’s growth and how it fits in the global system. I’m probably more optimistic about China’s long-term growth outlook than Michael Pettis, although we might be thinking in a different time horizon.

Things I agree:

1) Continue rising debt to GDP is not sustainable, and at some point debt will be rising faster than debt-servicing capacity.

2) The structure of the economy (implicit government guarantee, distorted price signal, etc.) makes it vulnerable to capital misallocation, and the surge in credit and investment to GDP ratios suggest there are lots of wasteful investments.

3) Economists are bad at predicting turning points and adjusting their expectations during major turns in growth cycle.

Things I don’t necessarily agree:

1) The assumption that China must rebalance toward a greater reliance on consumption. I don’t think consumption is inherently better than investment from a growth prospective (it matters for income distribution and social welfare, but that’s a different question). A debt-fueled consumption boom is probably worse than a debt-fueled investment boom. Michael Pettis noted that wasting money is always value destroying, but consumption is about spending money with no monetary return, while bad investment might still earn some returns. In general the classification between consumption and investment is not well-defined (housing, education, types of investments, etc.).

One could argue that investment is more likely to be debt-financed relative to consumption and hence less sustainable, or that stronger consumption could encourage investments in the service-producing sectors that are likely less capital intensive. Those are valid points for rebalancing but don’t change my view about consumption versus investment. I think investment helps drive long-run productivity growth, while consumption is the ultimate end, and there is a trade-off to be made by each country. I see debt-financed investment and types of investments as the main problems, not investment per se.

A few other issues regarding consumption share: Data are not very good so we probably should assign less weight to the level of consumption to GDP. Singapore also has a very low consumption share but its model seems to be sustainable. Admittedly Singapore is a small economy and China probably won’t get away with the type of current account surplus Singapore has. My point is that for sustainable economic growth, institutions are likely the key, not consumption level.

2) I think China’s growth is more likely to slow sharply at some point as the economy deleverage, but I don’t think a lost decade of very slow growth is a necessary outcome. Reforms are key, and China is slowly moving forward. FX appreciation and strong wage growth have been happening, There are also some limited progress on improving social safety net and hukou reforms, while gradual liberalization of interest rates, further hukou and land reforms, and energy price reforms are also on the agenda. These are all steps that should help redistribute income to the households.

I think the party leaders’ main objective is to stay in power. As long as reforms are consistent with this goal, I think they will continue to pursue them. The progress might be too slow to solve the existing problems, with lots of powerful vested interests trying to stifle reforms. But there are not many emerging economies where the top leaders seem to be serious about reforms.

Assuming China hits the debt limit and growth slows down sharply, my base case is that this will help trigger some serious and difficult reforms, like what happened during Zhu Rongji’s time. The government and state-owned enterprises will likely have to shoulder the bad debts, and they seem to have enough resources to do so (i.e. selling assets).

I’m more worried about political and social instability, a topic Michel Pettis doesn’t focus on in the book. Barring major instability, I’m relatively optimistic about China’s long-term economic outlook.

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The Past, Present, and Future of Economic Growth

Posted in Economics and Culture, tagged , , , , on October 26, 2013| Leave a Comment »

A paper by Dani Rodrik summarizing his recent works on growth & development. In his view the two dynamics behind growth are 1) development of fundamental capabilities in human capital and institutions [structural reforms], and 2) structural transformation [industrialization and moving labor into high productivity industries]. The first is slow and difficult, and most successful catch-up stories follow the second method until they reach middle-income [resource rich countries exception]. At that point the first dynamic would also be needed to break into high income level.

He noted that successful economic transitions rarely grown rapidly because of across the board institutional reforms, but most marked by sequential relaxation of one binding constraint after another, using policy tools that are tailored to local circumstances.

He noted six stylized facts about economic growth: 1) Growth has increased over time. Asia growth rate is incredible/unprecedented. 2) Convergence has been the exception rather than the rule [no tendency for poor countries to growth faster than rich countries]. 3) Economic development goes with productive diversification [not specialization]. 4) Industrialization and manufacturing exports have been the most reliable levers for rapid and sustained growth in the past. 5) Manufacturing industries are special in that they tend to exhibit unconditional convergences. 6) Most successful economies have not been ones with least state intervention

He is less optimistic about catch-up in other developing economies (like Africa or India) in the future due to 1) weaker Western growth which could lead to less tolerance for industrial policies, 2) change in manufacturing industries towards more capital and skill intensive, and changes in global supply chains with less positive spill-over for developing countries, 3) increased global competition, esp. from China, and 4) increased environmental awareness/concerns.

Applying Rodrik’s framework, China needs to continue to reform its institutions to move up. I think it fares well on the human capital front. India is more concerning. Its rigid labor law & socialist policies hinder growth in the manufacturing sector. It’d need to find sectors that can help employ large numbers of relatively unskilled workers, absorb foreign technology, and build linkages with domestic economies. Otherwise it’d likely continue to perform below its potential. Opening up to multi-brand retail would be a good start, but so far no international multi-brand have entered yet, likely due to policy & political uncertainty and unclear requirements.

Abstract: Developing countries will face stronger headwinds in the decades ahead, both because the global economy is likely to be significantly less buoyant than in recent decades and because technological changes are rendering manufacturing more capital and skill intensive. Desirable policies will continue to share features that have served successful countries well in the past, but growth strategies will differ in their emphasis. Ultimately, growth will depend primarily on what happens at home. The challenge is therefore to design an architecture that respects the domestic priorities of individual countries while ensuring that major cross-border spillovers and global public goods are addressed

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Beyond Korean style

Posted in Books, Economics and Culture, tagged , , , , , on October 26, 2013| Leave a Comment »

The Economist has a special report on Korea this week, touching on the social issues it faces. Here‘s the concluding article.  It cited a report by McKinsey Global Institute and also a highly readable book “The Impossible Country“. Both are good reads to understand Korea better. The former focuses more on structural economic issues, while the latter provides good information on politics, culture, and the economy.

Korea is a highly stressful country to live in. It has one of the highest suicide rates, very long working hours, and alcohol consumption well above Japan’s. This all stems from a very competitive society, starting when one is a child all the way up. Beside needing to spend a lot on children’s education (private + extracurricular) to get ahead, parents also spend a lot to live in a good district, on branded accessories, expensive alcohol for guests, and plastic surgery, all to look good among peers (luxury sales growth in Korea is among the highest in world). Hence a lot of middle income households are feeling stressed and running high household debt. There seems to be a shift in sentiment in recent years toward improving living standards, but I don’t think much has changed yet. Korea will probably need to change its growth model going forward.

I read the McKinsey report a while back. Below are some stylized facts I saved. There are also many interesting charts in the report.

PS: Going to Seoul next month and looking forward to try the ideal bibimbap.

Korea has gone from a nation where divorce was almost unheard of to having one of the highest divorce rates among OECD. It has the highest suicide rate in the world (31.7 per 100,000 people in 2011).

Only about 44% of Korean households have two incomes (vs 57% across OECD). Koreans also shoulder high monthly payments for housing loans and spend more on private education than almost any society on earth. More than 60% of respondents cited burden of education and child care as the reason not to have children.

Korea’s household saving rate has fallen from around 19% in 1988 to 4% in 2012, among the lowest in OECD, and the proportion of middle-income households operating in deficit (paying out more in expenses every month than they take in) has jumped from 15% to 25%. If monthly principal payments for mortgages were counted, nearly 55% of middle income households could be considered in deficit.

Wealth of Korean families is nearly 3 times as concentrated in real estate as wealth of US families. Real estate makes up about 74% of household assets. About 90% of loans have floating interest rates. Monthly debt service averages 25% of income, more than twice the debt service ratio of US households. The average mortgage is for 51% of home price, and many purchasers take out additional higher cost loans from 2nd tier banks. The spread on a loan to cover 80-90% of a purchase price is 4pp over a 50% LTV loan, or twice the premium charged in the US.

Overall, service sector productivity (valued added per employee), is 30-57% below levels in the US, UK, and Germany. Service wages are 55% of manufacturing wages, larger gap than in Germany, Japan, UK, and US.

Korean economy is dominated by SMEs. In SMEs, which account for 88% of employment, pay is about 62% of large-company rates. The productivity of Korea SMEs is only 35% of that of large companies. SMEs account for 99.9% of estimated 3 million plus companies in Korea, and 96% are small companies with fewer than 50 employees.

Manufacturers shifted 17% of their production to overseas plants in 2010.

According to Hyundai Research Institute, unemployment rate would be closer to 11% if full accounting were made of the unemployed and underemployed. It estimates that about 803,000 Koreans are involuntary part-timers. Part-timers make only about 65% of full-time pay. Some 30% of labor force is self-employed, compared with 10% in other advanced economies. More than 80% of self-employed work in local services, including a large number of older workers who launch their own business after retirement.

Korea’s college entrance was the highest in OECD in 2011, but graduates are having more trouble find good jobs than graduate from vocational high schools. McKinsey estimates that the net present value of the lifetime earnings of a Korean who goes through private school and university is less than the NPV of the earnings of a high school graduate.

Nation ranks highest on internet accessibility, airport one of the best, and highest smartphone penetration in the world. -Tourism revenue accounts for only 2.4% of GDP compared with OECD average of 3.8% (ranges as high as 10.2% in Spain). Employment in tourism accounts for 2.2% of jobs compared with 5% across OECD.

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Misc. links

Posted in Economics and Culture, Links, tagged , , , on October 17, 2013| 1 Comment »

Nobel in Economics

Links to economists’ comments on the winners. Good opportunity to brush up on the efficient markets hypothesis and behavioral finance. This might be a good place to start. I guess the bottom line for those who ask “what should I invest in?” type of questions is stick with low-cost index fund.

Scott Adams’ Secret of Success: Failure

Key points: Success caused passion more than passion caused success; have a system, not goals; stay in the game.

TED talks are lying to you

Excerpts:

…society had no interest in new ideas at all unless they reinforced favorite theories or could be monetized in some obvious way. The method of every triumphant intellectual movement had been to quash dissent and cordon off truly inventive voices.

……

Using Vincent van Gogh as an example, the author declares that the artist’s “creativity came into being when a sufficient number of art experts felt that his paintings had something important to contribute to the domain of art.” Innovation, that is, exists only when the correctly credentialed hivemind agrees that it does. And “without such a response,” the author continues, “van Gogh would have remained what he was, a disturbed man who painted strange canvases.” What determines “creativity,” in other words, is the very faction it’s supposedly rebelling against: established expertise.

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Most Addictive Thing on Earth

Posted in Economics and Culture on November 12, 2008| 2 Comments »

Steven Levitt asked his readers to guess what Becker thinks is the most additive thing on earth. Here’s how Levitt thinks about addiction:
…an addictive thing has the following characteristics:

1) Once you start consuming it, you want to consume more and more of it.

2) Over time you build up a tolerance to it, i.e. you get less enjoyment out of consuming a fixed amount of it.

3) Pursuit of that good leads you to sacrifice everything else in your life to get it, potentially leading you to do ridiculous things to try to get the good.

4) There is a period of withdrawal when you stop consuming the good.

The answer to the question’s here.

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Culture

Posted in Economics and Culture on November 11, 2008| Leave a Comment »

When we live in a different country and see how other people do things, we tend to reflect on our own culture. Growing up in different places might have broaden my mind a bit, but reading this article on Iceland tells me there are much more out there to explore. Although Iceland’s culture is very different from Asian culture, I find it makes just as much sense. It is interesting to think about how each society evolves its own culture and norms that works for its people.

Below are some interesting bits from the article:

Highest birth rate in Europe + highest divorce rate + highest percentage of women working outside the home = the best country in the world in which to live. There has to be something wrong with this equation. Put those three factors together – loads of children, broken homes, absent mothers – and what you have, surely, is a recipe for misery and social chaos. But no….in terms of wealth, health and education – they are champions of the world…in so far as one can reliably measure such things…Icelanders are the happiest people on earth.

But none of this happiness would be possible without the hardy self-confidence that defines individual Icelanders, which in turn derives from a society that is culturally geared…to bring up happy, healthy children, by however many fathers and mothers…’Patchwork families are a tradition here,’ explained Oddny, who was off work, at home, on the Thursday morning we met, looking after her youngest child. ‘It is common for women to have kids with more than one man. But all are family together.’ When a child’s birthday comes around, not only do the various sets of parents turn up for the party, the various sets of grandparents – and whole longboats of uncles and aunts – come too.

It is a largely pagan country, as the natives like to see it, unburdened by the taboos that generate so much distress elsewhere. That means they are practical people. Which, in turn, means lots of divorces. ‘That is not something to be proud of,’ said Oddny, with a brisk smile, ‘but the fact is that Icelanders don’t stay in lousy relationships. They just leave.’ And the reason they can do so is that society, starting with the parents and grandparents, does not stigmatise them for making that choice. Icelanders are the least hung-up people in the world. Thus the incentive, for example, ‘to stay together for the sake of the kids’ does not exist. The kids will be just fine, because the family will rally round them and, likely as not, the parents will continue to have a civilised relationship, based on the usually automatic understanding that custody for the children will be shared.

At a British university a pregnant student would be an oddity; in Iceland, even at the business-oriented ReykjavikUniversity, it is not only common to see pregnant girls in the student cafeteria, you see them breast-feeding, too. ‘You extend your studies by a year, so what?’ said Oddny. ‘No way do you think when you have a kid at 22, “Oh my God, my life is over!” Definitely not! It is considered stupid here to wait till 38 to have a child. We think it’s healthy to have lots of kids. All babies are welcome.’

The country is crawling with writers, painters, film makers and – like Oddny – accomplished musicians…As for writers, half the population appears to have written a book…Why is there such an abundance of artists in Iceland? What drives them? ‘We do it so as not to become mad,’ replied Haraldur, who is tall, nervy and thin with eyes that have the concentrated energy of a laser beam. Not to become mad? ‘Yes, to keep the beast at bay.’ The beast? ‘The beast is Iceland, this island on which we live with its terrifyingly harsh nature, its bitter ever-changing weather.

PS: Sadly, this fascinating country was on sale on ebay due to its banking crisis.

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Mating preference and sanity from Marginal Revolution

Posted in Economics and Culture on October 17, 2008| Leave a Comment »

Alex pointed us to this research:
The Environmental Security Hypothesis says that in tough times men will prefer women who are good at production, generally older, taller, heavier, less curvaceous women with less body fat.  In good times, they will prefer women who are good at reproduction, generally younger, shorter, lighter, more curvaceous women.  Pettijohn and and Jungeberg look at the characteristics of playboy playmates from 1960 to 2000 and find:
Consistent with Environmental Security Hypothesis predictions, when social and economic conditions were difficult, older, heavier, taller Playboy Playmates of the Year with larger waists, smaller eyes, larger waist-to-hip ratios, smaller bust-to-waist ratios, and smaller body mass index values were selected. These results suggest that environmental security may influence perceptions and preferences for women with certain body and facial features.
Things look pretty grim nowadays. Let’s see how people’s preferences and demand change.
Meanwhile, Tyler asked what do we do to stay sane:
Here’s a project asking people to list five things they do to stay sane.  I’m going to arbitrage and ask only for one thing you do to stay sane.  Please leave your answer in the comments.
I try to listen to beautiful music at least once a day, I don’t check my portfolio even in the best of times, I hug a loved one at least one more time than was expected (with adaptive expectations this is hard to sustain over time but I have my tricks), and also I avoid television advertisements as much as possible.  That’s four, you need only offer one.
For me: Eat out in a good, quiet Japanese restaurants; discuss ideas with people I admire/respect; take a walk along the river with my MP3; watch a good movie; and reflect on my life/memories/goals.
I guess just a good night sleep is enough to keep me sane. What’s wrong with being insane anyway.

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A break from the financial news

Posted in Economics and Culture on October 16, 2008| 2 Comments »

Cato Unbound recently has a debate on education (a good break for me from the financial market news). In a nutshell, Murray argued that our university system is highly inefficient and inadequate, and most people would benefit from a different kind of education system and mindset. Carneiro thought the situation is not that bad. Bryan used signaling as a model to explain why we are stuck in this inefficient system, while Carey gave reasons why he likes the university system.

Murray’s argument goes back to the nature vs. nurture debate. Is IQ fixed, or can we improve it with deliberation as Flynn suggested. To what extent can we changed our inherent traits? And is early intervention the best way to do it as Heckman advocated. All fascinating topics for me to explore further.Here’s an excerpt from Flynn on how to become smarter, the whole essay is well worth reading.

These comments about interventions may seem to imply that no one can really hope to improve on his or her genetic endowment. This pessimism is no more in order than pessimism about whether people can improve on their physical endowment for running. To do so, you must either have good luck or make your own luck. Either a happy chain of circumstances will force you to train throughout your life or you can develop a love for running and train without compulsion. Training will not override genes entirely, of course. There are runners I cannot beat even when I train more than they do. But I can run rings around every couch potato within 20 years of my age.

There is one way in which individuals can make their own luck. Internalize the goal of seeking challenging cognitive environments — seek intellectual challenges all the way from choosing the right leisure activities to wanting to marry someone who is intellectually stimulating. The best chance of enjoying enhanced cognitive skills is to fall in love with ideas, or intelligent conversation, or intelligent books, or some intellectual pursuit. If I do that, I create within my own mind a stimulating mental environment that accompanies me wherever I go. Then I am relatively free of needing good luck to enjoy a rich cognitive environment. I have constant and instant access to a portable gymnasium that exercises the mind. Books and ideas and analyzing things are possessions easier to access than even the local gym.

PS for those interested in Economics: Bloomberg’s Tom Keene interviewed some of the best economists recently, among them Blanchard, Dixit, Levitt, Schelling, Sachs and DeLong (oops, back to the economy again).

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There is Free Lunch

Posted in Economics and Culture on March 15, 2007| 3 Comments »

I went to a Japanese restaurant in China town with two American friends and had a free lunch. The restaurant is known for serving foods with reasonable quality in large portions and at low prices, so there’s usually a long line waiting in front of restaurant at any given time. The services and attitudes of the waiters are generally bad but given the price/quality/quantity combination, it’s a place I revisit.

 

So how did I end up with a free lunch? My friends and I each ordered a main dish. On top of that, one friend also ordered a sushi dish that he believed was not fresh based on the appearance (he didn’t try it) and his past experience (we both lived in Japan and tried lots of sushi). So he told a waiter he wanted to cancel the dish. The waiter believed the sushi’s fine (it looked fine to me as well, but I couldn’t tell without trying it) and said the dish will be charged even if not consumed.

 

Given the US’s customers-centric belief, my friend found that unacceptable and said he’d walk out at that moment if he were to charge for it. So after some heated exchanges and the waiters’ consultation with managers, they decided to get us out. All this happened while I was enjoying my bento set. I told them I’m satisfied with my food and am going to pay for it (given they let me finish the food of course), but they didn’t want that and wanted us out. So I had a free lunch, and I should be grateful the quarrel started late enough that I could at least finished half of my food (I should have eaten that last piece of salmon).

 

Now a bit of economics, the economists are still right that there’s no free lunch (it’s only free on our part, not for them). After walking out of the shop, I initially thought their decision was irrational. They could have just lost the income from one small side dish and get money from our main dishes and drinks (and they’d probably resell the sushi dish later given my friend didn’t touch it), instead they decided to forego all the income, not to mention the potential revisit of the consumers and negative evaluations. But given more thoughts, I think it could be a rational behaviour after all. As I mentioned, the shop is never lack of customers, so there’re little incentives for them to encourage revisit through good services (they’re confident in their price/quantity/quality combo and the long lines prove they’re right). So it’s reasonable to assume that the psychological benefits they obtained were greater than the cost of losing sales and the potential sales.

 

There’re probably cultural factors involved as well. From my perspective as an Asian, I would find my friend’s behaviour unacceptable as well if I were the waiter unless someone has actually tasted the food and found it bad. I think the frame of reference is different for the two cultures. For the US, the customers seem to have the right to decide whether foods are in an acceptable quality and could decide not to pay for it if that’s the belief. But for us (at least for me and the shop), we tend to think that once something’s ordered, we’ve the obligation to pay for it, unless we could prove that the quality’s bad (even in that case, it’d still depend on which aspects of the quality, if it’s not health-related concern, most Asians would probably still put up with it and pay for it, but never order it again). Given my friend didn’t try the food and the cheap price of the shop; it’s really subjective to judge whether a sushi dish is of acceptable quality. So I wouldn’t side with my friend this time and that difference arises from our different beliefs of consumer rights. But thanks to him I had a free lunch.

 

So if you want to have a free lunch in China town, go to Misato (the Japanese shop) with a US friend, order your meal plus a side dish, and then say the side dish is of unacceptable quality (or not what you expected), but remember to do this after you finish or almost finish your meal. There you go, a free lunch.

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