Economist of the World

Fundamentals of Economics & Core Issues in Economics

2011-01-23T17:15:00.004Z

Amer N. Raja

FUNDAMENTALS of ECONOMICS

The Aim & Scope of Economics:

The study of economics is aimed at finding the natural law governing an economy and its scope is to find the ideal principles for the working of an economy based on those findings.

There is no such Thing as Free Lunch:

It is the most fundamental law of nature that every thing has either monetary or non-monetary value. Though generally things have both monetary and non-monetary aspects, never the less for the purpose of simplicity and understanding we only consider monetary aspect of things in economics.

INVISIBLE HAND

This is the most vital as well as an extremely difficult idea to logically explain, and however absolutely impossible to mathematically prove it. Perhaps in order to understand it one needs to think beyond logic and one may comprehend it after one's own peculiar experiences. How the invisible hand plays it role in making financial shifts among individuals, groups and even among nations can be understood by studying natural phenomenon viz., the animal world, the plant world, the rotation of the solar system, the rain, diseases, wars, natural disasters etc. Moreover the mental state of an individual changes continuously and mysteriously which affects one's decision making and other faculties that results in changes in one's economic/financial conditions. Uncontrollable and unpredictable invisible factors beyond human control brought financial changes.

Defining Economics:

Economics deals with the efficient management (by the individuals & entrepreneurs) of scarce resources to satisfy unlimited human wants by applying science & technology in the market.

* Efficiency can be defined as doing things in a best possible manner.

Basic Economic Problem:

Scarcity of Resources, Unlimited Wants & Choice:

It is a known fact that our resources (time, raw materials, land, human resources, machines, money etc.) are limited while our wants are unlimited and recurring therefore we have to make some choice among available alternatives to satisfy our wants.

Economic Resources:

Economic resources can be broadly divided into following four categories:

o Land & Raw Materials:
These are free gifts of nature. All things derived from nature are included in this category.

o Labor:
It consists of the contribution of human beings.

o Capital:
It consists of plant & Equipment.

o Mind/Entrepreneurial Ability:
Entrepreneurial ability refers to the ability to organize production and bear risks. Some people are more intelligent and have the gift of managing things better than others. It is due to their contribution that societies develop. Due to this reason we categorize this resource separately from labor.

Motivating Force - Self Interest:

It is the self-interest that makes us act. Here it is also very important to mention that economics cannot be separated from other fields of study. All knowledge is interrelated. Adam Smith, who has significant influence in formulating modern western economic thought, was a professor of moral philosophy, which deals with finding the ideal kind of life. It is a fact that every individual tries to gain best from his/her available resources to make one happy. It is assumed that individuals will follow his/her interest to make choice among different alternatives. It is also important to mention here that self-interest is entirely different from selfishness. As a general rule of life: "Enlightened Self Interest is the best interest".

*Selfishness is a short term while enlightened self-interest is a long-term phenomenon.

Logic & Logical Fallacies:

All interpersonal communication is based on logic. Likewise all human knowledge, that is experiences and views of all human beings since inception, is also communicated on the base of logic. Though logic fails at very minute as well as very huge levels, still because of human limitation in our interpersonal communication we are dependant on logic. Logic can be defined as a science of correct reasoning.

o Logical Errors/Mistakes:
Here we will mention the two main fallacies of logic that makes human knowledge erroneous. They are:

§ post hoc, ergo propter hoc fallacy (association as causation)
It occurs when one incorrectly assumes that one event is the cause of another because it precedes other.

§ Fallacy of composition
It occurs when it is incorrectly assumed that what is true for each individual in isolation is also true for an entire group.

Demand & supply:

In any economy prices of goods are determined by the interaction of demand and supply. All study of economics revolves around these two fundamental concepts.

o Demand:
Demand is a relationship between price & quantity demanded of a good in a given period of time while keeping other factors like tastes, preferences, status etc. constant i.e., considering only price as a determining factor.

o Supply:
Supply is relationship between price and quantity supplied of a good in a given period of time while keeping other things constant i.e., considering only price as a determining factor.

CORE ISSUES IN ECONOMICS:

Role of Government:

The proper role of government should be as minimal as possible. For efficient management, civil society is much more important and efficient than political society.

The market, by the interaction of demand and supply, not the state, should set wages and prices. Similarly monetary policy should also be set by interaction of market forces. Taxes levied by the government should be minimal. Lower taxes would provide the fundamental incentive for the entrepreneurs and individuals to work hard and to reinvest for greater profits that would consequently raise economic activity. The role of government should be as minimal as possible so government should do only those things private citizens can't do for themselves. The corruption level is extremely high in public enterprises and also the efficiency of public enterprises is much lower than that of private enterprises.

Government should control its expenditure and it should match expenses with revenue. Bigger government is the biggest problem. Therefore decentralization and only taking those tasks that private enterprise cannot perform; are highly desirable for efficient management.

Rules and regulations should be formulated with a view for maintaining justice among members of the society and law should be equal for all.

Tariffs and other barriers to trade should be completely abolished, gradually. Free trade can greatly and rapidly improve the general economic condition and consequently social condition of the society. In short, government governs best which governs least.

Entrepreneur & Entrepreneurship:

Entrepreneurship is a vital aspect for economic growth and development. Because of its importance this should be studied in depth. Entrepreneurs are gifted individuals who have the gift of managing resources and have keen foresight to visualize things much better than ordinary people. High growing economies provide viable environment and freedom for the entrepreneurship to grow that eventually led to the development and growth of economies.

Economic Growth:

An important element and field of study in economics is economic growth. Essentially the motive behind all economic activity is in raising the standard of living. We study that how standard of living is raised. Education plays a pivotal role in raising general standard of living in the long run. Capital formation results from prudently managing resources and by finding new ways to improve the present means of production by using new technology; that is a consequence of knowledge gained by acquiring education. Therefore capital formation is the key factor for economic growth.

Trade:

Exchange, monetary or non monetary, is an integral part of any human activity. Human exchange views/goods/services etc because they feel that they will gain by exchanging. However, in economics we are only concerned with monetary exchange of views/goods/services etc. It is wrongly assumed that our world is a zero-sum world where gain by some is loss of other. Factually and fortunately we are living in a positive sum world. If this had been the case then progress in our world would have never been possible. Never the less it does not entail that in all monetary exchanges both parties will equally gain. Moreover the value gained in an exchange between two individuals or groups can never be evaluated precisely by the third party because the value of an exchange is very different for different individuals.

Free and greater trade, free from force and coercion, would result in comparatively more fair deals and consequently the chances of greater gains by both parties are more realizable.

Factually accurate information is not fully known that results in greater imbalances from trade. As a hypothetical rule we can very easily infer that where accurate information is known both trading parties gain.

Competition:

The prevalence of competition in the filed of economics in world is universal, because of scarce resources and in numerous and recurring wants. Where competition has negative implications, it has also positive implications. It is the element of competition that drives different individuals to excel from others, which results in greater discoveries, technological advancements and pursuit for finding new ways to earn greater profits that consequently raise general prosperity level in the world. It is unethical aspects of competition where some individuals initiate force and fraud that causes violence in the society. Competition can never be eliminated from any society; rather any attempt to eliminate competition would result in regression and more violence. Therefore, check should only be imposed on negative effects of competition.

Cooperation:

For the efficient management of the resources (time, skills, natural etc) human need to cooperate to make optimal use of these resources. Moreover most of the natural resources need to be transformed for use and to make them valuable. Groups need to cooperate to be successful. Cooperation juxtaposed with positive competition is an ideal combination for efficiency.

Specialization & Comparative Advantage:

Natural inequality among humans is a fact of life. Economics aims at efficient management; therefore to make best use of human resources different individuals specializes in those particular fields in which they can be better than others because of their natural abilities. Due to this reason some individuals have comparative advantage over others.

Information:

Information is very important for making informed rational decisions. However accurate information is impossible by any individual because of the human mind, because every human being is unique, and also due to unpredictable future. Information about market behavior is extremely diverse and ubiquitous. Therefore it is not possible for any individual to accrue the available information and our decisions about future at best are mere estimate with enormous possibilities.

Profit & Loss:

The expectant and prevailing profit and loss are the determining factors for the investments. It provides the criteria for the goods and services to be produced. Where in the short run demand of the products is the primary factor in stimulating the investment trends, profit or loss is the litmus test for products produced in the long run.

Trade Off:

It's a general principle that in order to gain something one needs to loose something. The most important resource for an individual, time is limited. Therefore no one can do all the things oneself, so a rational individual focuses one's time on those tasks where one can perform best. However it is quite impossible to precisely quantify the time one put in some particular activity is equal to the forgone activity/activities. Nonetheless for the purpose of understanding this concept economists assume that the price of engaging in some activity is equal to the cost of the other activity/activities one has forgone.

Price Theory:

Demand for and supply of products determines their prices in the market. It is wrongly asserted by the majority of the people that cost of goods determines the prices of the product. In actuality it is the marketing activities of the producers and the perception of the consumers about the products that determine the prices of the products. As a general rule higher the prices lower will be the demand and vice versa. However in some cases due to the nature of the product and the marketing efforts of the producers higher prices lead to higher demand.

Causality -- Cause & Effect:

Despite limitations of logic, causality is the most important phenomenon in understanding economic theory and practice. Excluding mega-microscopic and mega-macroscopic phenomenon, every cause has some effect and that effect is a cause of some other effect ad infinitum. Due to this cause and effect relationship in a world of numerous individuals and groups their actions has great impact on other elements in the economy. Despite the complexity of this relationship that is also chaotic, understanding this relationship can help enormously in making good estimates about the future and to form comparatively sound opinions about the market trends.

Labor Economics:

In this field we study that how wages are determined. Like all other markets the wages are set by the interaction of demand and supply. Higher wages can only be achieved by greater investment and economic activity in the long run. Employment and unemployment are also the key issues that we study in this field. Ups and downs in the economy are the facts that cannot be avoided. Higher consumption level asks for greater capital investments that will raise general wage level and results in lower unemployment.

Uncertainty:

No one knows the future. It's the fear of future that is an integral part of our lives and also an impetus for human activity. This factor of uncertainty gave birth to the idea of risk. There is always degree of risk in all human activities. As a general rule: "higher the risk, higher the reward". Uncertainty is also nature's law of rewarding and punishing the human actions. Moreover it is also a way of nature of teachingand making known new ideas to the new participants and making room for the new and efficient members.

Public Finance:

The filed of public finance is directly related with role of government. Bigger the government, larger the funds are needed to finance it. The accountability principle is of pivotal importance in public enterprises because the ownership of these enterprises has no personal owners. Moreover, fund should be received from those who get benefits from that service.

Money & Banking:

Banking in an economy is the determining factor for gauging its performance. Money is the medium of exchange that facilitates transactions among participants of an economy. Banks play the role of intermediaries. Interest rates and value of currency with relation to other international currencies is set by central banks. However ideally it is best that market forces of demand and supply determine them.

Consumption & Saving:

Raising the consumption level is key factor to all economic activities for reducing costs, creating employment, raising standard of living and eliminating poverty.

On the other hand, raising consumption greatly can result in undue depletion of resources in a given market and cause inflation. If this situation prolongs that would result in recession to depression. Therefore a sagacious policy of moderation is the ideal combination.

Marketing:

Marketing is the key for stimulating demand and consequently enhancing economic activity. Entrepreneurs have the sharp ability of marketing to understand the economic environment and knowing the customer demand ahead of time and finding new segments that would consequently raise general standard of living.

Cost & Production:

Every thing entails cost. Finding the best methods to produce goods at minimum possible cost is essential for firms to earn profits and compete successfully.

Technology:

Technology makes the difference between the present age and the previous one. The problems faced by humans in all times are quite similar yet the technology of their respective eras determines the mode of production as well as way of living. Technology is of utmost importance for understanding economics because by applying it we enormously reduce costs and even reach new markets that could not have been possible with out technology. Moreover it raises standard of living by simplifying the complex tasks.

Poverty:

The problem of poverty is the focal point in the field of economics. Ignorance is the main cause of poverty. The best way to eradicate poverty is by spreading knowledge.

Should the Fed Push the Dollar Down?

2011-01-23T17:10:00.002Z

Luc Vallée

Not according to Ronald McKinnon, economics professor at Stanford and a senior fellow at the Stanford Institution for Economic Policy Research. In Wage Increases: The Win-Win Answer on China Trade, published in the Wall Street Journal, McKinnon argues that "High Chinese productivity will lead to higher (Chinese) pay and a reduced trade surplus—but not if Washington keeps pressuring Beijing to fiddle with the dollar exchange rate."

We most often hear about the opposite position from the likes of Paul Krugman. These economists are advocating a depreciation of the US dollar on the ground that it would allow for a quick re-balancing of the American trade deficit with China. Nothing is less certain. The plea made below by contrarian economist Ronald McKinnon, against pushing the dollar down, is based on sound arguments that rely on letting "nature run its course".

Anyways, keeping a stable exchange rate with China could prove to be a more sustainable policy in the long run. Rather than engage in a currency war with the Chinese, forget about the trade deficit with China, let them drive their own show and let us focus on adopting an appropriate monetary policy for America.

If China keeps interest rates too low for too long to maintain the Yuan undervalued, it will end up importing inflation which eventually will lead to an appreciation of the Yuan in "real" terms. In time, this real appreciation should cause the American trade deficit with China to improve. If on the other hand, Chinese inflation does not rise, it probably justifies keeping interest rates at their current level and arguing with the Chinese to increase rates is a waste of time. Conversely, trying to be more accommodating than the Chinese in the hope of engineering a weaker dollar goes against the conduct of a sound and non-inflationary monetary policy. It could affect upward US inflation expectations which would truly be disastrous.

Here is the piece:

"Recent Chinese labor strikes—particularly in the heartland of manufactured exports in Guangdong and the Pearl River Delta—have taken most observers by surprise. Labor shortages in and around Shanghai and Beijing are also widespread. Many local governments, especially on the developed eastern seaboard, have increased minimum wages by 15% to 20% this year.

"A wage explosion fed by labor militancy is obviously disconcerting to Beijing. But in the long term China's wage increases should reflect its remarkably high productivity growth in manufacturing. Higher wage growth would have two great advantages for China and the rest of the world.

"First, Chinese wages would become closer to those in the more mature industrial countries, thus reducing protectionist pressures. Second, higher wage settlements would reverse labor's declining share in China's national income. With a shift away from business profits—which have become exorbitantly high in recent years—to greater household disposable income, consumption would naturally rise and reduce China's trade surplus.

"For wages to grow less erratically, what should China's long-term exchange-rate policy be? Much of the world, particularly Asia, is on a dollar standard. Most Chinese exports and imports are invoiced in dollars, as are international financial flows. China's net saving surplus is manifested mainly in a huge buildup of liquid dollar claims. In this dollar-based world, a fully credible fix of the yuan/dollar rate is the key to encouraging sustained high growth in Chinese wages that matches productivity growth.

"In contrast, bashing China to appreciate its currency is counterproductive. If Chinese employers fear that the yuan will be higher in the future, then they become loath to grant large wage increases in the present. Producers of export products could be bankrupted if they granted high wage claims in yuan only to find out afterward that the yuan had also ratcheted upward, making the effective wage increases much larger in dollar terms.

"In a world where competing goods from other countries (including the U.S.) are all invoiced in dollars, a safely fixed yuan/dollar rate allows a Chinese employer to estimate more precisely what wage increases are commensurate with expected future growth in labor productivity. If any one employer offers less, others could well bid away his most prized workers.

"The earlier experience of Japan shows the importance of the yen/dollar rate in determining wage growth. After the inflationary chaos and disorganization following World War II, in 1949 the Japanese government with American financial assistance unified the battered currency (got rid of multiple exchange rate and payments restrictions) and fixed the central rate at 360 yen per dollar.

"With this dollar anchor, the postwar Japanese miracle unfolded: From the early 1950s to 1971, GDP and labor productivity in manufacturing began to grow by about 9% per year while growth in money wages was in excess of 10%, more than twice as high as in the U.S. With stable wholesale prices, trade was roughly balanced and so was international competitiveness.

"But in August 1971, President Richard Nixon shocked the world by forcing the other industrial countries—Japan, Canada and those in Western Europe—to appreciate against the dollar. Nixon imposed a tariff on all industrial imports until the other industrial countries agreed to appreciate, which they all did by the following December. Japan appreciated by 17%. As early as 1970, the expectation of dollar depreciation caused huge hot money flows out of the U.S. Foreign central banks intervened heavily to buy dollars to prevent their currencies from appreciating more than what was agreed to with Nixon. The result was a world-wide loss of monetary control, great inflation, large business cycle fluctuations, and slow economic growth in the 1970s into the '80s.

"Because Japan had by then emerged as America's foremost industrial competitor, the U.S. mistakenly began "bashing" Japan to force further yen appreciation. The yen rose to a high of 80 per dollar in April 1995 from 360 per dollar in August 1971. Hot money inflows first contributed to land- and stock-market bubbles in Japan in the late 1980s. But after these burst in 1990 and the overvalued yen rose even further, the economy was thrown into a deflationary slump from which it has yet to recover. By the end of the 1970s, money wage growth had slumped to less than in the U.S.—and Japanese wages are actually falling in 2010.

"What is the lesson for China? Exchange rate appreciation and money wage growth are substitutes in the long term. But an erratically appreciating exchange rate with the associated hot money flows does long-term damage to the economy. Best to keep the exchange rate safely fixed near 6.83 yuan/dollar—as it had been for two years through mid June. Then gently explain to would-be China bashers that Beijing fully respects—and even encourages—workers to bargain in good faith for higher wages to match high productivity growth in manufacturing, which Chinese employers can more readily accept if they expect the yuan/dollar rate to remain stable.

"Nevertheless, the U.S. Congress is again threatening to impose punitive tariffs on imports from China unless the yuan is appreciated. To contain the political risks from trade protectionism, the People's Bank of China bowed to this pressure on June 19 and depegged the yuan in favor of managed floating against an (unspecified) basket of foreign currencies. Whether this ambiguous "float" will succeed in defusing U.S. protectionist pressure remains to be seen.

"But any systematic yuan appreciation—or threat thereof—will immediately restart the hot money inflows and, in the longer term, slow money wage growth. Moreover, a discrete sharp appreciation won't defuse the situation because it would be unlikely to reduce China's trade (i.e., net saving) surplus on which the Americans are so focused.

"Behind this unnecessary political crisis is a widely held but false economic belief: that the exchange rate can be used to control any country's trade balance—the difference between its saving and investment. The imbalance actually arises from a large saving deficiency in the U.S.—with very large fiscal deficits and low personal saving—coupled with "surplus" saving in China from high business profits and buoyant government revenue.

"The yuan/dollar debate that continues in Washington is more than a distraction. The threat of appreciation may well impede the natural process by which Chinese wages rise as fast as labor productivity in manufacturing, leading to greater unrest and perhaps even a Japan-like Chinese bubble."

How can Portugal push its GDP

2011-01-23T17:07:00.001Z

Bhasker Siddharth (*)

After Greece, Portugal can be the next big prey of the recent recession. What new can Portugal do at this stage? How can it push its GDP?

GDP = C + I + G + X – M, how can Portugal play around with this equation to increase the GDP?

The challenges in front of Portugal are

1. Portugal’s public debt is 77% of GDP (2009) and external debt is a whopping 223% of GDP (2009). In these circumstances there is no easy way of spurring the economy through Government spending or Government investment.

2. Gross national saving has gone below 10% of GDP which shows unavailability of domestic saving for investment.

3. Devaluing their currency to boost export is not an option.

4. With stringent labour laws it’s hard to see productivity rising in near future.

Thus it is clear that it’s hard to find more money for domestic investment either from household or from the Government. The challenges don’t end here. Even if Portuguese start saving more and Government gets a relief package from EU, the next question would be where to invest. Where should the Government be spending money?

The usual suspects may not be the ideal options. For example, Portugal’s road density is already amongst the highest in the world (Length of motorway per capita; Portugal: 249.3, USA: 253.05; 2006 OECD data). Portugal fairs well in most of the other such development parameters. Thus, starting new infrastructure projects may not bring desired results, although they can bring inflation over time (Read point #5 here to understand why). Portuguese households are saving less and consuming more. Domestic production hasn’t been able to keep pace with consumption, which has resulted in a trade deficit which stands at € 1.6bn today. So giving more money in the hands of consumer will not solve the problem as the money can just end up increasing the value of imports, exactly the way it has happened in the USA. In the age of open economy the increasing domestic demand can very well be satiated with foreign imports, thus not doing enough to spur up the domestic industries.

Perhaps I am pointing towards the simple sounding way of doing something about the factors of production in order to ensure that the domestic industry create more goods and services. However, these factors are either too constrained (Land for obvious reason, Labour due to unfavourable but popular labour laws, Capital due to the challenges described above) or take a long time and effort to start showing results (Labour and Enterprise). Also, two or three of these factors must work together to show desired results.

So what can be done now? The question is still unanswered. While increasing domestic production will need both capital and time, where can the Government focus in the mean time to avoid slumping further down?

The answer lies in exploring the Balance of Payment Accounts, specifically the foreign savings or savings of rest of the world.

When your total domestic savings is not enough to meet your domestic investment, then the savings of the Rest of the World needs to flow in. So the first thing is clear, the current state Portugal is in, it needs to get money from Rest of the World. Now, the rest of the world can pay for 2 things

1. Portugal’s export

2. Portugal’s domestic investment

As briefly discussed above, boosting export would mean increasing productivity and reducing cost and it may take a longer time. Second way is to get the Rest of the World invest in Portuguese economy. Again a tricky option keeping the current economic situation in mind where Portuguese economy is said to be looking straight down the barrel.

Well, there is another simple and straight forward way of attracting the foreign savings. Specifically the household savings of rest of the world and that is through tourism. This can be one simple straight forward way to ensure that the savings of rest of the world’s comes to your country. Portugal surely has a rich historical heritage and numerous breathtaking natural views to attract savers (people) from all around the globe. This is one area which must be focused by the Portuguese Government at this moment.

There are parts of developing world which are getting richer by the day with increasing disposable income. There is scope for Portugal to place itself amongst the top tourist destinations in the world and in the process firmly plant themselves in the radar of tourists looking for new destinations. Tourism not only brings foreign capital to fund domestic investments but also helps create direct employment and supports multiple other industries indirectly. Thus it can be an ideal sector for initial investment the Government can look for in order to ensure a healthy flow of fund.

I hope the Portuguese government sees the potential in this sector and provide the backing this industry deserves. This could be the first realistic step towards a sustainable recovery.

(*)Mr. Bhasker Siddharth is Master in European Business. Today works like Senior Business Analyst at Efficio

Infosys Founder Nilekani On the Future of India

2010-12-27T15:29:00.004Z

India is complex, complicated and very difficult to understand. Yet, it is a fascinating country full of fascinating people. My trip to India was certainly the most revealing and insightful one I have ever made. Who could make sense of it? In this TED Talk, Nandan Nilekani, co-founder of outsourcing pioneer Infosys presents his ideas to help rethink India’s economic and social structure in order to allow it to pursue its phenomenal growth.

Nilekani stepped down from Infosys in mid-2009 to head a three-year government program to provide every Indian with a unique identity card. Prior to that Nilekani had published a book, Imagining India, about India's economy and the crucial issues it will face to reach its economic potential. He proposes a framework to help India maintain its demographic advantage, to promote democracy and education and to protect the environment for the next generations.

In the TED site Thomas Friedman is quoted as saying: "Seattle has Bill. Bangalore has Nandan. What makes Nilekani unique? For me it comes down to one phrase: great explainer."

Nilekani had also exposed many of his ideas and written many insightful comments about economic life in India in his short-lived blog, Nandan's Blog.

Also you can find out more information about the latest TEDIndia events by clicking on the link.

The End of Globalisation

2010-10-30T17:21:00.000+01:00

Luc Vallée

Globalisation, a force for good in general, is at risk of losing its status ... again! But this time the threat may not come from youths eager to demonstrate and/or unionized workers wanting to protect their high paying jobs. Although these segments of the population are likely to participate in the second wave of attacks on globalisation, the core of the protests is likely to come from much more powerful interest groups: business leaders, high skilled workers, consumers and even government.

In the past business leaders have been ambivalent about opening boarders. In the one hand, they recognized the value of competition and valued the opportunity to grab new markets by expanding internationally. Yet, on the other hand, those businesses that had the hardest time adapting to this changing environment have been more reluctant to embrace free-trade and supported at least some form of protectionism.

High skilled workers have also generally benefited from globalisation and the more so when their skills could be protected by intellectual property rights. For a while this protection seems like it would offer a permanent bonanza to makers of “content” but the Internet and the Napsters of this world are rapidly changing the rules of the game. And the rest of high skilled workers who could not benefit from such dynamics increasingly feel the heat of Chinese and Indian Ph.D.s. Already an engineering degree which requires years of investment in education and hard work (compared to finance for instance) has become a commodity. As a result, most engineers in America earn next to nothing compared to other (protected) professionals. This has incited many to enrol into costly MBAs and other management programs to pull themselves out of an increasingly miserable situation.

Moreover, consumers who were the major benefactors of cheap goods until recently are now indebted or jobless. The other side of the split personality of consumers (they need to work as well in order to consume) is taking over and making many realize that they are puns in a game which is not being played with their genuine interests in mind; in spite of the rhetoric from the multinationals and their lobby.

Finally, governments which have been backing free trade for several decades are sensitive to the new found preoccupations of their constituents. And while they had to assume more powers to deal with the financial crisis, their interest and incentives to intervene in the affairs of the markets have increased substantially. Regulation is making a come back and free trade will not be exempted from its grip.

The danger is that this new coalition of protectionists tips the balance of power too far into the other direction and kills the goose laying the golden eggs. Unbridled emotions of the mob combined with justified moral outraged could produce a swing of the pendulum that would kill incentives and destroy the benefits provided by the efficient allocation of resources of a market economy.

Free Traders are indeed in need of a plan. Body of the Article

What happens when currencies are not valued right?

2010-10-30T17:19:00.001+01:00

Nwakego Eyisi

Understanding paper money

What does a dollar, Yen, Pound Sterling, Yuan and Euro mean?

Paper money is a reflection of the health of an economy, in other words it moves in the same direction with the economy it represents.

For instance when the right policies are made it attracts capital flows or foreign direct investment. Capital flows creates jobs and increases economic growth. It also means the country is richer. When this happens the national currency appreciates.

The exact opposite happens when bad policies are made, it leads to capital flight and a reduction in economic growth, (in other words the country is poorer) eventually the currency depreciates or loses value.

Usually when a country’s currency loses value it means that export oriented industries will do well (for countries that are productive) and vice versa when the currency appreciates. That is one reason governments (for export driven economies) intervene to keep (or peg) their currency at a certain level.

Currencies (Yuan, Yen, Dollar) and fundamentals

Does a rigged currency reflect the true state of these economies?

“China is a top destination for capital but has a currency that is grossly depreciated”

“The Yen should trade higher because of capital flows and the strength of the Japanese economy”

“The EURO (currently) does not reflect the fundamentals of a productive German economy”

“Brazil and South Africa’s currencies are probably too strong (overvalued) for their economies”

If the big players (China, USA and Japan) are manipulating their currencies it means there is a distorted picture of the health of these economies (and the global economy by extension).

For instance Japan flooding currency markets with cheap Yen to reduce its value might help export oriented (Toyota, Mazda, Honda) industries but what would it do to savings and consumption? what about asset bubbles and inflation?

It is the same argument for China, where the authorities has not allowed the Yuan to appreciate when the markets demands that it appreciates.

Restive capital and add ons from global recession

This does not bode well for capital. Even when capital moves to countries (Brazil, Switzerland) where it is guaranteed higher returns it still creates problems because it is not wholly market driven. That is why Brazil imposed taxes on capital flows because it hurt the economy.

In 2007/2008 countries around the world lowered interest rates to accommodate the recession. This tinkering of interest rates makes capital restive because capital typically moves to regions of higher returns. Let’s not forget that low-interest rates debases paper money because central banks inflate and flood the markets with cheap money when interest rates are lowered.

Add this to the current currency wars and it is easy to predict anemic growth going forward.

Leadership, Intangibles & Talent

2010-10-30T17:15:00.002+01:00

Michael Folkman

Going through this quarter’s articles, blogs and research, the key word or theme for this quarter is “complexity” and in particular how organizations should be embracing what is inherently complex, rather than trying to simplify and standardize across the board. This desire to simplify can range from high-level decision-making to talent management, where in many cases things are not always as they seem.

We transcript a part of the articles, those who want access to all the articles please contact the author (he’s into the contact list) or visit his web page www.fourgroups.com

Engagement

Regular readers of this update will know that employee engagement has been flavour of the month in corporate boardrooms for some time now. It seems that organisations are waking up to the fact that engagement and the willingness to go the extra mile in terms of discretionary effort is not necessarily down to pay and benefits but a far more complex and intangible set of criteria that require specific insight and understanding of culture, relationships and values. Given the number of conferences and seminars on offer covering engagement it appears that there is a cottage industry developing to guide senior executives through this tricky area.

However, with engagement unlike some areas of corporate development, teaching executives about how to engage their people suffers from a number of inherent difficulties. Firstly, can something as naturally intangible as engagement be taught in a systematic manner? Secondly, do organizations and more specifically, senior executives actually want engagement given the change in outlook and culture it will require? Michael Specht lists five criteria for successful engagement:

• Involvement in decision making

• Feel they are able to voice their ideas, & managers listen to these views

• Have line of sight between employee performance & company performance

• They have career development

• When the organization is concerned for employees’ health & wellbeing

To this I would also add strategic and e case for improved engagement is something all organizations are striving for? Well, I’m not convinced that many are willing or able to undertake the necessary changes in outlook and culture to achieve this. Digging a little deeper it appears that pursuing engagement as a key strategy in boosting performance is going to require change or a reversal in corporate attitudes that many executives may find too unpalatable or difficult to achieve even if they wanted to.

By looking a little closer we can actually start to understand what an organization would look like if it were to really focus on cultivating engagement as a key value. To start off with one of the main requirements of engagement is to give people autonomy or control over their role and an active say in decision-making. This came up in a provocative blog post by Paul Gillin5 entitled Gain Control by Giving it Up, where he talks about a new book called Open Leadership by Charlene Li6. In her book Li puts forward the notion that the traditional model of focusing hierarchical reporting and concentrating decision making and influence in the hands of a few senior executives is damaging to organisational performance. This is not a new idea but on this evidence I think Li makes a very strong argument. “Open Leadership will make a lot of people uncomfortable because it proposes that the only way to govern effectively in a transparent business world is to give up control and trust people to do the right thing.” “Li asserts that today’s business world is too complex and competitive to permit organizations to continue to manage the way they have since the Industrial Revolution. That top-down philosophy assumes that people are idiots who can’t accomplish tasks without instructions, rigid rules and constant oversight.”

“New business leaders set examples, demonstrate confidence and create cultures that tolerate intelligent, wellintentioned failure.” Li is not alone in her views on the damaging nature of traditional organisational structure, these are reflected in an excellent blog post by Gary Hamel7 in the Wall Street Journal. “I believe that many of the tools and methods we use to manage people at work are ill-suited to the challenges of succeeding in today’s “creative economy.” All too often, legacy management practices reflexively perpetuate the past—by over-weighting the views of long-tenured executives, by valuing conformance more highly than creativity and by turning tired industry nostrums into sacred truths.” “We should remind ourselves that dogma often masquerades as truth, and that we are often comforted by the deception. There are many who would prefer a lazy ramble along the gentle contours of the tried-and-true then a hard scramble up the rocky incline of the untested and unproven.” Hamel goes on to cite HCL Technologies CEO Vineet Nayer as someone who has successfully managed to “invert the pyramid” and empower employees so that they are at the heart of the organisation. “We must destroy the concept of the CEO. The notion of the ‘visionary,’ the ‘captain of the ship’ is bankrupt. We are telling the employee, ‘You are more important than your manager.’ Value gets created between the employee and the customer, and management’s job is to enable innovation at that interface. To do this, we must kill command-and-control.” This same view of challenging the traditional role of leaders is echoed in a Financial Times article by John Kay8: “Domineering chief executives often fill their boards with cheerleaders, and rarely seek sceptical counsel. An army of professional advisers can hardly wait to get its hands on fees. The independence of equity analysts is compromised by their association with deal making banks. Both analysts and journalists find their access depends on good relations with the businesses they cover. Many of the worst deals were widely applauded when announced. The modern cult of the heroic chief executive is at the root of the problem.” To underline the need for radical change in the role of organizational leaders, Gary Woodill9 argues that traditional management of activities such as strategic reviews, long-term business planning and centralized setting of objectives is a waste of time. “What is interesting is that new methods have been developed in providing companies foresight, at least for a few years. But most strategic planning is an extension of the past.” Giving up what we have long held to be productive and positive is something that Jeff Sutherland blogged about10: “Study after study at MIT and around the world show that incentive bonuses cause people to perform worse if they have to do any thinking in their job. (Hopefully, that is most of us.) Of course, all the research shows performance appraisals demotivate people but we still hand out performance appraisals thinking that will help employees improve performance proving that much of what we think and do is fundamentally flawed.” In her book Li argues that decentralizing power is an inevitable change that organizations are going to have to make. I think that many organizations or those leading them run a mile from this concept and most organizations are currently moving in the opposite direction. Advances in technology and the recession have meant that organizations are monitoring and looking to standardize their employee’s activities on a greater scale than ever. With greater monitoring and the unsuitability of traditional organizational command and control, mediocrity is perpetuated and people are forced to take a narrow view of their role in the organization. A blog post by Johnnie Moore discusses the idea of “closing the field”: “services get analyzed by experts and chopped into smaller functional units. Front and back offices are created; some back office functions then get outsourced. Each unit is given its own performance targets. For example, a call centre operator has to clear 60 calls a day. Inevitably, everyone learns to game the system; one way to deal with lots of calls is to cut people off or pass them along - leading to even more calls later etc etc.” In short, what is required is not a new strategy to focus on engagement but a new organizational culture that places engagement at its heart to highlight the difficulties in effecting cultural change, Gautam Ghosh12 highlights a video entitled “Culture eats Strategy for Lunch”. The reality is that the vast majorities of organizations have a culture or organizational structure that suits the command and control indset. Advances in technology have meant that it is becoming easier and easier to micro manage and standardize procedure to the nth degree. The upshot of this is that it actively disengages people from their role and perpetuates poor performance. My feeling is that faced with the choice of giving up control and influence or maintaining the status quo the vast majority of modern executives will go for the latter. Part of this is inevitably down to the herd mentality. As with bonus culture, the negative effect on performance is well acknowledged. The reason cited by executives however for sticking with bonus culture is that everyone else is doing it. It will take a brave leadership team to abandon the traditional command and control mindset. This does not mean engagement will not continue to feature heavily in discussions and in seminars and conferences. Enterprises will still continue to roll-out annual engagement surveys and I suspect many organizations will be on the hunt for marginal increases in engagement, if it means the culture stays the same.

RESOURCES: OWNERSHIP & ALLOCATION

2010-10-30T17:07:00.002+01:00

Amer N. Raja

Definition of Resources:

Resource can be defined as anything that can be employed to satisfy human needs and wants. As the aim of all economic activity is to satisfy some human needs or wants and so because of their ability to fulfill that function, resource is of utmost importance in Economics and other Social Sciences. Therefore, for satisfying human needs and wants, resources (material) like water, land, animals, oil, etc are required and by employing human labor and organization on the natural resources we produce other products either naturally (like fruits, vegetables, cattle/fish farming, golf course etc.) or by employing knowledge (science and technology) we produce many other products and services (cars, electronics, hospitality advertising etc).

Types of Resources:

As per our definition of resources, all things that can satisfy some human need or want are a resource. Air and overall habitable planet is a must for very fundamental human need to breathe and live. This fundamental resource has never been taxed by human for it is beyond their power to control as well as available in plenty. There are other resources like land, labor (with varied intelligence), water, animals, minerals etc known as natural resources which are limited and their human ownership varies from society to society and from time to time. The value added resources are those which have been derived by applying human skill and knowledge on combination of other natural resources. The examples consist of simple table to money and to machines like cart and motorcar.

Ownership of Resources

Ownership is a major problem concerning all human activities. It will not be an exaggeration to say that ownership of the resources is the main problem. There are few wars that are fought on the basis of principle but for the aggressive party in general there is some hidden motives to gain ownership over resources and through this impose their own agenda.

There is a fundamental principle in Economics which is - TINSTAFL - an acronym of "There is no such thing as free lunch". In other words, according to Economics nothing is free. What about the natural resources: air, land, labor etc? What are their costs? Who primarily own them? The Creator or they are just as it is? This definitely lead us to consult the other branches of knowledge theology, anthropology etc.

In the very beginning when there were no such issues of over population and political or national borders, how the ownership of resources among human was determined? Originally the own-able resources supposedly would have been owned by family head and allocated as per his discretion or if some of the family member does not agree he may leave alone or most probably with his own supporters. At that time conflict might have existed because of jealousy, anger, greed, arrogance or such other factors. However, our concern here is not to find the causes of war but to determine ownership of resources. Yet battles are fought to gain power over one's own tribe or neighboring tribes that eventually can determine ownership of resources. The other view is that they (populace) signed some social contract through which a governing team was formed and they also were responsible for allocation of resources. This vague social contract concept is the foundation of modern nation states. In other instances, some religious code might have been the determining factor in appointment of governing team and allocation of resources.

Ownership in case of idea – Someone discovered the cure for a disease, let’s say cancer, who will own the idea? Once inventions/discoveries are made, they can become a great profitable resource. Their ownership cannot be fully controlled, either it is propagated voluntarily or others somehow copy or independently discover it. Whoever uses that discovery/invention is entitled to own the idea.

Ownership in case of uncultivated/abandoned land – Who owns the land, owns the material from it. Generally, it is the government, rulers or conquerors do so?

ALLOCATION OF RESOURCES:

The next issue is the transfer of the ownership or resources. We do not live in a stationary world and also all resources are not fixed. Primarily land is a fixed resource but by applying skills and technology on land we can enormously increase the output from land in the form of vegetable, fruits, cotton, multi-storey construction etc. The ownership of the products remains the entity of the producer or owner of the land till it is not sold. In practice, the excess output is sold in the market and through exchange the ownership title changes from seller to buyer. Also the labor/experts sell their services to the buyer. In these cases, price mechanism (supply and demand determines price of a product/service) determine the allocation of resources. The seller sells their product or service in exchange of cash to the buyer that changes the ownership of the product as well as service (for a limited time). This also applies to industrial production along with livestock and other businesses. Inheritance, gift and charity are other methods through which ownership or resources can be changed. Then, government or rulers also give the ownership of resources to some individuals.

Other ways in which ownership of resources changes that however theoretically unapproved are stealing, robbery, coercion and capturing the produce, service or land.

Case: Ownership on Moon. It will be a good case to study that how ownership can be determined on the moon. Ultimately, it is owned by the Creator. Now, is it acceptable that whoever, reaches their first owns the moon or anyone who can reach their can own the piece or the one who has first reached there, prevents other and battles are fought and winners owns the space on moon. If someone has the other resources like capital, spaceship etc and wants to offer a visit to the moon open as a tour operator and own a resort there, does he/she need some permission, if so why?

Stephen Hawking On Our Place In The Universe

2010-09-13T00:46:00.002+01:00

Stephen Hawking, the famous professor from the University of Cambridge and Leonard Mlodinow, a physicist from Caltech recently wrote "The Grand Design". It is to be published tomorrow. Below you can read an adaptation from this book for the Wall Street Journal. The article was published in the WSJ under the title "Why God Did Not Create the Universe: There is a sound scientific explanation for the making of our world — no gods required".

The piece is fascinating on a scientific level but also as a reminder that our place in the universe is rather small and the result of a series of coincidence. Could we just disappear? The universe would survive but without us. Try imagining that. If a tree falls in the forest and nobody is there to hear it tumble, has it really made noise? If the universe exists without humans, does it reallly exist?

If you ask me why is this relevant for the market, I'll respond, once again, that it is an exercise in thinking out of the box. Investors who really make money and can avoid big disasters are out of the box thinkers. This allows them to better identify paradigm shifts before they occur.

Please read the Hawking article below:

"According to Viking mythology, eclipses occur when two wolves, Skoll and Hati, catch the sun or moon. At the onset of an eclipse people would make lots of noise, hoping to scare the wolves away. After some time, people must have noticed that the eclipses ended regardless of whether they ran around banging on pots.

"Ignorance of nature's ways led people in ancient times to postulate many myths in an effort to make sense of their world. But eventually, people turned to philosophy, that is, to the use of reason—with a good dose of intuition—to decipher their universe. Today we use reason, mathematics and experimental test—in other words, modern science.

"Albert Einstein said, "The most incomprehensible thing about the universe is that it is comprehensible." He meant that, unlike our homes on a bad day, the universe is not just a conglomeration of objects each going its own way. Everything in the universe follows laws, without exception.

"Newton believed that our strangely habitable solar system did not "arise out of chaos by the mere laws of nature." Instead, he maintained that the order in the universe was "created by God at first and conserved by him to this Day in the same state and condition." The discovery recently of the extreme fine-tuning of so many laws of nature could lead some back to the idea that this grand design is the work of some grand Designer. Yet the latest advances in cosmology explain why the laws of the universe seem tailor-made for humans, without the need for a benevolent creator.

"Many improbable occurrences conspired to create Earth's human-friendly design, and they would indeed be puzzling if ours were the only solar system in the universe. But today we know of hundreds of other solar systems, and few doubt that there exist countless more among the billions of stars in our galaxy. Planets of all sorts exist, and obviously, when the beings on a planet that supports life examine the world around them, they are bound to find that their environment satisfies the conditions they require to exist.

"It is possible to turn that last statement into a scientific principle: The fact of our being restricts the characteristics of the kind of environment in which we find ourselves. For example, if we did not know the distance from the Earth to the sun, the fact that beings like us exist would allow us to put bounds on how small or great the Earth-sun separation could be. We need liquid water to exist, and if the Earth were too close, it would all boil off; if it were too far, it would freeze. That principle is called the "weak" anthropic principle.

"The weak anthropic principle is not very controversial. But there is a stronger form that is regarded with disdain among some physicists. The strong anthropic principle suggests that the fact that we exist imposes constraints, not just on our environment, but on the possible form and content of the laws of nature themselves.

"The idea arose because it is not only the peculiar characteristics of our solar system that seem oddly conducive to the development of human life, but also the characteristics of our entire universe—and its laws. They appear to have a design that is both tailor-made to support us and, if we are to exist, leaves little room for alteration. That is much more difficult to explain.

"The tale of how the primordial universe of hydrogen, helium and a bit of lithium evolved to a universe harboring at least one world with intelligent life like us is a tale of many chapters. The forces of nature had to be such that heavier elements—especially carbon—could be produced from the primordial elements, and remain stable for at least billions of years. Those heavy elements were formed in the furnaces we call stars, so the forces first had to allow stars and galaxies to form. Those in turn grew from the seeds of tiny inhomogeneities in the early universe.

"Even all that is not enough: The dynamics of the stars had to be such that some would eventually explode, precisely in a way that could disperse the heavier elements through space. In addition, the laws of nature had to dictate that those remnants could recondense into a new generation of stars, these surrounded by planets incorporating the newly formed heavy elements.

"By examining the model universes we generate when the theories of physics are altered in certain ways, one can study the effect of changes to physical law in a methodical manner. Such calculations show that a change of as little as 0.5% in the strength of the strong nuclear force, or 4% in the electric force, would destroy either nearly all carbon or all oxygen in every star, and hence the possibility of life as we know it. Also, most of the fundamental constants appearing in our theories appear fine-tuned in the sense that if they were altered by only modest amounts, the universe would be qualitatively different, and in many cases unsuitable for the development of life. For example, if protons were 0.2% heavier, they would decay into neutrons, destabilizing atoms.

"If one assumes that a few hundred million years in stable orbit is necessary for planetary life to evolve, the number of space dimensions is also fixed by our existence. That is because, according to the laws of gravity, it is only in three dimensions that stable elliptical orbits are possible. In any but three dimensions even a small disturbance, such as that produced by the pull of the other planets, would send a planet off its circular orbit, and cause it to spiral either into or away from the sun.

"The emergence of the complex structures capable of supporting intelligent observers seems to be very fragile. The laws of nature form a system that is extremely fine-tuned. What can we make of these coincidences? Luck in the precise form and nature of fundamental physical law is a different kind of luck from the luck we find in environmental factors. It raises the natural question of why it is that way.

"Many people would like us to use these coincidences as evidence of the work of God. The idea that the universe was designed to accommodate mankind appears in theologies and mythologies dating from thousands of years ago. In Western culture the Old Testament contains the idea of providential design, but the traditional Christian viewpoint was also greatly influenced by Aristotle, who believed "in an intelligent natural world that functions according to some deliberate design."

"That is not the answer of modern science. As recent advances in cosmology suggest, the laws of gravity and quantum theory allow universes to appear spontaneously from nothing. Spontaneous creation is the reason there is something rather than nothing, why the universe exists, why we exist. It is not necessary to invoke God to light the blue touch paper and set the universe going.

"Our universe seems to be one of many, each with different laws. That multiverse idea is not a notion invented to account for the miracle of fine tuning. It is a consequence predicted by many theories in modern cosmology. If it is true it reduces the strong anthropic principle to the weak one, putting the fine tunings of physical law on the same footing as the environmental factors, for it means that our cosmic habitat—now the entire observable universe—is just one of many.

"Each universe has many possible histories and many possible states. Only a very few would allow creatures like us to exist. Although we are puny and insignificant on the scale of the cosmos, this makes us in a sense the lords of creation."

This post was originally published on the Sceptical Market Observer.

Looking For The Next Big Thing?

2010-08-27T12:00:00.004+01:00

My son asked me the other day how does one become rich. Obviously, being 14, what he really wants to know is how to become rich without lifting a finger ... except to play Call of Duty. I told him that if I had bought him a few thousand shares of Apple when it was a few dollars a share less than a decade ago, he would have done well by any kid standards. Unfortunately, I only bought him a hundred share at $ 50. Not bad. But not enough to make him rich. I told him that if he had enough insights to identify the next big thing, he could probably make a killing but not to count on it to make a living.

If you are yourself looking for the net big thing, listen to this video recently found on TED.com. Right out of a Super Hero movie, Tan Le explains how a new form of remote control developed by Emotiv Systems uses brainwaves to control digital devices and digital media.It's not only the technology which seems unreal. Tan Le herself conveys the image that she is a science fiction character. She is not a representative of the organisation chosen for her ability to deliver a clear and concise presentation on a complex matter in flawless English. She actually is the co-founder and President of Emotiv Systems. A glimpse of the future? Young, Asian, Female and in total command of the English Language. You have to admit that she defies the stereotypical image of today's CFO. I was truly impressed.

Gems like this one are the reason why, even though I have been very pessimistic about the short-term outlook and the probability of a U.S. recovery in 201o, I am rather optimistic about the long term prospects of the human race.

This blog was originally posted on THE SCEPTICAL MARKET OBSERVER

Follow up On Housing

2010-08-23T11:30:00.003+01:00

Guest Post by Keith Porter

I got several follow ups on my piece about Housing the other day.

Sheryl Owen kindly sent me the ABC's of Home Ownership, which I enjoyed, thank you.

Luc forwarded on this from an other LinkedIn member, John Weatherby: Comment on "The Sceptical Market Observer: Is home ownership the problem?"

"From the other side of the pond, I would have to say that there is a sentimentality to this. It may be similar in the UK. The US considers its roots as a farming nation. We still have not left the medieval mentality that power is tied to land. Therefore the more evenly land is distributed the more even power is distributed is still the thinking here. The United States still puts a higher social status on land ownership even in an economy that has been long removed from being driven from land rents.

"I really do not see an economical nor political reason in today's world for preferring land ownership over renting. We are far removed from the fief system. However, the fief mentality that land equates to power and status still exists. In the US those losing houses due to mortgage crisis are being billed as homeless. Politicians and citizens seem to think it is somehow horrible that these people might rent a home instead of own one. More renting might actually increase the ability of workers to move from job to job and decrease the natural rate of unemployment because fewer people are tied to a region because they have a house there that they presently can not sell.

"One thing that may be showing in the data, and I will note this is pure speculation, is a difference in attitudes possibly driving a difference in investment. In cultures that see less power in land it is possible investment is driven more toward productivity. In the US, there is a lot of financial investment in real estate. Much of that investment is not really productive. It is mostly a transfer of land and perhaps some wealth. Less social emphasis on land might allow more financial capital to flow to real capital and perhaps better growth rather than land speculation or the mere transfer of assets. The US government's emphasis in tax codes and encouragement of home ownership has no doubt distorted production and investment from some sectors into single family home production and financial investment."

And finally, This week's Economist also talks about the subject in the article.

This blog was originally posted on the Sceptical Market Observer.

Chinese Yuan and flexibility

2010-08-10T08:57:00.002+01:00

Nwakego Eyisi

Chinese Yuan and flexibility

Chinese authorities announced plans on Saturday to make the exchange rate more flexible, while ruling out a large, one-off move in the Yuan’s value. China’s central bank says it plans to keep the Chinese Yuan “stable” and there will be no immediate revaluation of the currency says the BBC.

Stock markets from New York to London to Hong Kong reacted positively to the announcement.

Currencies were also up, with the Korean won and Malaysian ringgit both rising over 2% against the US dollar.

Background

China does not allow its currency to float but rather pegs the Yuan to the dollar which depreciates its value so that Chinese goods are cheaper and knocks out competitors on the international market. This has worked well for China’s export driven economy. China saves a lot so that the investment from savings primarily goes to support manufacturing and export while the remainder (savings) is exported to the US.

The US has consistently accused the Chinese of cheating and exacerbating the imbalances that has fed the global credit crunch. The US economy is driven by the consumption component of gross domestic product (GDP) while the Chinese economy is driven by the export component. High consumption in the US has fed Chinese exports and savings

Every country needs to consume, save/invest, export and import according to her resources as dictated by markets. China has not been consuming enough and the US has not been saving. This imbalance has fed the global recession.

The demise of the US consumer will hurt China in the short run. While the US, UK amongst others need to save more so they can be more productive and increase exports. Greater export is crucial for the US and Western Europe to escape their debt trap.

Global Expectations

What a flexible Chinese currency is expected to achieve is alter this export driven model. A flexible currency is expected to push up the value of the Yuan which will increase the price of Chinese goods abroad and reduce exports. This also means that the Chinese will have to save less and consume more. The expectation of the US and Europe is that a flexible Yuan will increase the price for Chinese goods – If China sells less the US sells more!

Short run implications

Allowing some flexibility for the Yuan might not cause it to appreciate but depreciate. This is because Chinese exports markets in Europe and the US is in a recession. Lack of demand will reduce investment in China and eventually exports. A reduction in exports will hurt the Chinese economy because it is primarily export driven so that the eventual outcome is a depreciation of the Yuan. A depreciation for the Yuan means that China will continue to out sell the US and other competitors (they are more productive anyways) even in this downturn

Long run implications

In the long run as China consumes more and saves less their economy will benefit from increased productivity and Beijing will allow the Yuan to appreciate a lot more as a result. Market forces will reallocate excess savings into more production to serve growing demand in China and elsewhere. This is a more efficient use of Chinese savings and will grow the Chinese and global economy, instead of the inefficient way (buying US debt) it has been utilized which has had a negative effect on the global economy.

Conclusion

In the short run, its more bad news for Washington and Brussels - a flexible Yuan will not boost US exports but hurt it.

Pressuring the Chinese to allow flexibility for the Yuan will only help China become the biggest economy in the world sooner than later

A Long Term View on Job Creation in America

2010-08-10T08:50:00.004+01:00

By Luc Valllée

Looking at the dismal number of jobs created during the last few quarters in an economy that grew quite rapidly - thanks to the stimulus - is rather discouraging. Moreover, almost everybody now expects that the effects of the stimulus will start to fade and that growth will slow down at least until the end of the year. Going forward what this means is that job creation will also likely be even more sluggish. Some pundits even predict that unemployment will worsen again and peak toward the end of this year.

In Jobless Numbers Are Worse Than You Think, Paul Godek, an economist at Compass Lexecon in Washington D.C., takes a long term perspectives and looks at job growth since the early sixties (look at graph above) to illustrate the extent of the shortfall in jobs today. His conclusion is that "the economy has generated about 12 million fewer jobs than expected", something that never happened on this magnitude in the past. This gives you an idea of how long it is going to take to come back to full employment even if job creation was proceeding at a normal pace. Paul Godek's article was published in the Wall Street Journal last Friday. I only reproduced below the relevant excerpts.

In terms of employment, how bad is this recession? Last month's unemployment rate was 9.5%, according to the Bureau of Labor Statistics (BLS). But the jobs picture is even worse than that rate suggests.

The BLS defines the jobless rate as the number of unemployed as a fraction of the labor force. If one person in a labor force of 10 people is unemployed, the unemployment rate is 10%.

The problem is how the BLS counts the jobless. It defines the unemployed as those who are "out of work but have been seeking and are available for work." Those out of work but not "seeking work" are not considered to be unemployed—and are thus not counted in the labor force.

As one might imagine, the definition of "seeking work" is less than precise. According to the BLS, you are seeking work if you "have actively looked for work in the prior 4 weeks" (See the BLS Web site for the definition of "actively looking" for work.) Those without jobs and not seeking work—the people not considered to be in the labor force—are often referred to as "discouraged workers."

If people without jobs become discouraged and stop seeking work, the unemployment rate will decline (other things being equal). On the other hand, if people become hopeful about future employment, job seeking will go up—as will the unemployment rate.

This way of measuring job availability is clearly flawed. One simple alternative would be to measure the labor force as the number of people with jobs. Unemployment would be determined based on increases or decreases in the number of people employed relative to historic job growth.

The number of nonfarm private jobs has been growing steadily since the 1950s. That number reached a peak at the end of 2007. Between 1958 and 2007, the number of U.S. jobs grew to 115.4 million from 43.5 million—about 2% per year on average. The steady upward trend reflects the long-run growth of the economy and increased participation in the labor force.

The nearby chart compares employment and that trend. It shows the percentage difference between employment and the trend line generated from monthly employment figures over the past 50 years (July 1960 through June 2010).

What we see is astounding. For almost 25 years—between 1984 and late 2008—the level of employment never fell to more than 3% below the trend line. Over that period, total employment grew by more than 36 million.

Employment fell briefly to about 6% below the trend during two previous recessions: in 1975 and again in 1982-1983. During those periods, the unemployment-rate peaks were 9% (in 1974) and 10.8% (in 1982). The unemployment rate in 2009 peaked at 10.1%.

By 2010, however, employment had fallen to about 10% below the trend, far below any previous level in the last half-century. These figures indicate that as of the first half of 2010, the economy has generated about 12 million fewer jobs than expected. In other words, things are not as bad now as they were in the early 1980s; they are much worse. Recall as well that the unemployment rate of the early 1980s was the result of the ultimately successful battle against inflation.

Preserving the American Dream: Free Markets vs. Government intervention and everything else between…

2010-04-28T13:27:00.003+01:00

By Orphe P. Divounguy

On April 5th 2010 5:30pm, I attended a lecture by prominent economist Irwin M Stelzer, co-founder and former president of National Economic Research Associates, senior director and fellow of the Hudson Institute, former resident scholar and director of regulatory policy studies at the American Enterprise Institute. Irwin M Stelzer is a well known conservative who has edited many news articles and wrote a book on neo-conservatism.

Neo-conservatives unlike traditional conservatives are generally comfortable with the welfare state, and while rhetorically supportive of the free markets, they are willing to allow some interference for overriding social purposes. This is well documented in the Cato Institute’s Michael Tanner’s book Leviathan on the right, how big government conservatism brought down the republican revolution.

Dr. Irwin Stelzer described what he believes to be the role of government in a free, capitalistic society. He made the following comments:

1. Government has to enforce and maintain competition. Capitalism is the system that we’re trying to protect and so any alternative to competition is a return to control by one entity and that is often the state. Government should enact policies that ease new entrants access to the markets. Society must be open and mobile.
2. Where there exist natural monopolies and competition is not possible, Government can and should step in.
3. Social costs of consumption (externalities) must be internalized. Taxation is less intrusive or responsive to government failure (corruption, loopholes etc…) than is regulation. Mr. Irwin Stelzer prefers a tax to regulation.
4. Government intervention is sometimes necessary to offset market failure. Sometimes there are problematic incentives systems and government should put in place incentives to deal with these market imperfections (moral hazard, corporate governance etc…) For example:
1. In the case of the latest financial crisis, bankers had the incentive to maximize short term profits so they were willing to take on risky positions and to make outrageous bets. Banking encourages excessive risk.
2. Politicians had every incentive to make finances available for homeownership even to people who couldn’t afford these homes (political cycles, re-election etc…)
5. Government has an obligation to ensure that capitalism prevails and produces “fair” results.

Although I disagree with most of what was said at this lecture, I am not a politician, I am an economist. As an economist, I have a responsibility to myself and to the hundreds and thousands of people who read my research papers, my blog articles, a responsibility to those who choose to engage with me in searching for economic solutions to the problems we face in our world today (unemployment, poverty, crime etc…). I owe it to the academic community and to my readers to report the content of Mr. Irwin Stelzer’s lecture and to leave it to discussion.

To what extent do I agree with Dr Stelzer? We do not live in a First Best setting. Markets are not completely free. In fact Dr Stelzer’s lecture reminded me of the Theory of the Second Best. The Theory of the Second Best concerns what happens when one or more optimality conditions cannot be satisfied in an economic model. Canadian economist Richard Lipsey and Australian-American economist Kelvin Lancaster showed in a 1956 paper that if one optimality condition in an economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the ones that are usually assumed to be optimal. Economists and policymakers must be very careful. This means that in an economy with some unavoidable market failure in one sector, there can actually be a decrease in efficiency (in my case my concern is household welfare) due to a move toward greater market perfection in another sector. In theory, at least, it may be better to let two market imperfections cancel each other out rather than making an effort to fix either one. This is where Dr Stelzer and I began to disagree: Dr Stelzer proceeded to make recommendations such as increased taxation as a trade-off for regulation in order to promote a slow return to the First Best setting. I suggest that we should encourage neither. Increased taxation reduces the household ability to save or invest, causing a direct affront to the american dream of entrepreneurship, ownership and the capitalistic system that Dr Stelzer is trying to preserve. The First Best setting is the free market, the point where optimality conditions are met.

My policy recommendation: It is better to do nothing and to let market imperfections cancel each other out rather than allowing government to intervene.

An excellent example to support my claim, often used when teaching about the Theory of the Second Best:

Consider a mining monopoly that’s also a polluter: mining leads to tailings being dumped in the river and deadly dust in the workers’ lungs. Suppose in addition that there is nothing at all that we can do about the pollution. But the government is able to break up the monopoly. Allowing for more competition in most cases increases production, reduces prices and increases quality of service. The problem here is that increasing competition in this market is likely to increase production (since competitors have such a hard time restricting production compared to a monopoly). Because pollution is highly associated with production, pollution will most likely increase. This may actually make the world worse off than before.

Some thoughts on the Demise of Defined Benefit Pensions Plans

2010-04-28T13:25:00.002+01:00

By Luc Vallée

Till well into the 1990s, there was a certain smugness about the soundness of defined benefit pension plans – they were widely seen as the right way to provide people with a secure retirement. Swollen by the bull markets of the 1980s and 1990s, actuarial surpluses seemed invulnerable. Many corporate sponsors not only suspended contributions, but also adopted more aggressive policy portfolios.

They racheted up equity weights – just in time for the 2000 stock market crash. Surpluses vanished and many sponsors increasingly saw DB plans as an expensive nuisance, to be minimized or gotten rid of, if possible. Seeing the volatility of equities as intolerable, many plans shifted to much more conservative policy portfolios – they moved massively out of stocks – just in time to miss the next equities bull market which started in 2003. Then, searching for yield and security through a shift into alternative assets, funds helped to set the stage for the 2008 financial crisis, another nail in the coffin of corporate DB plans. Too much money doing the same thing at the same time is always dangerous.

Now, corporate DB plans are out of favor and the aging baby boom faces insecure and probably impoverished retirement prospects. What happened?

While market conditions didn’t help, blaming it all on the market is too easy. More was involved. For instance, the conceptual framework governing policy portfolios certainly didn’t help. A simplistic application of the efficient market hypothesis and modern portfolio theory, it did not handle the realities of markets well. Policy portfolios were not the optimal, passive asset allocation policy benchmarks that they were commonly believed to be. Particularly in the context of crisis-prone markets that were swinging in and out of bubbles, policy portfolios were in fact high-risk three to four year bets.

In 1998, I was asked to evaluate a proposed new policy portfolio. While it wasn’t my principal area of expertise – which is international equities portfolio management, both internal and external, as well as the organization and philosophy of portfolio management – I was the in-house generalist who could be called upon on an ad hoc basis to tackle any subject that required a fresh, independent assessment. For example, in the months before the October 1987 crash, I was asked to evaluate portfolio insurance – I advised against it, recognizing that lack of liquidity in a crisis would doom the strategy.

My introduction to the subject of policy portfolios was a real eye-opener. With the pension plan’s risk appetite swollen by a sizable surplus, the proposal recommended jacking up the equities weight, with the recommendation to be reviewed in three or four years as part of the next scheduled asset/liability study. I firmly rebutted the recommendation and all of its conceptual underpinnings. Convinced, the plan sponsor agreed with me and stayed with its existing policy portfolio and investment philosophy for another four years, saving 11.2% between 1998 and 2002.

It was an interesting exercise. Asset allocation is well-known to be responsible for about 90% of fund volatility. However, with uncertainty being the central reality of markets, meaning that statistics such as standard deviations and correlations are inherently unstable, institutional asset allocation can never be a passive process. It has to be a continuous, active process driven by research, creativity, and insight, all expressed in astute and timely execution. As such, the process merits considerably more on-going analysis, management, and professional expertise than the typical fund is equipped for.

That said, for many DB plans the real killer may have been in the mathematics of the plans themselves. Presumably driven by the urge to minimize short term costs, they adopted an actuarial methodology in which the accrual of liabilities, and consequently their funding, was heavily back-end loaded. Some idea of the back-end loading can be estimated by simulating such a DB plan in a spreadsheet. In the simple one that I did for the purposes of this article, about 40% of the liability for an employee accrues between ages 60 and 65, while two-thirds accrues between ages 55 and 65. Throw in longevity increases and the back-end loading will be even more extreme.

Think about what this may mean. In the US, the baby boom was from 1946 to 1964, an 18 year period during which the annual number of babies born essentially doubled. This wave of people reaches age 55 between 2001 and 2019 – and reaches 65 between 2011 and 2029. And during this period – from 2001 to 2029 – a substantial portion of funding for the baby boom’s retirement benefits may have to be put in place – at least two-thirds of it in the case of baby-boomers in back-end loaded DB plans. Such a funding bubble can’t be good for the viability of the plans.

Why hasn’t all of this been more obvious and talked about? Several things may have been masking the phenomenon.

First of all, unavoidably, a corporate plan sponsor and the beneficiary of a DB plan do not have the same interests. The beneficiary needs a plan run by a real fiduciary, one who designs, funds, and manages the plan exclusively in his long term interests. This is rarely possible. Instead, the typical plan sponsor can be expected to be driven by market forces to focus on profit maximization in the interests of shareholders, with short term considerations frequently driving decisions.

At the same time, the complexity of pension plan management easily promotes a silo mentality. Each level and piece of the management puzzle tends to be the purview of distinct professions and responsibilities, each focused on their own specific tasks, each assuming that the rest of the puzzle is being adequately taken care of by someone else. As a result, each participant would tend to be oblivous to the overall picture and its implications.

Accounting standards would also have tended to mask the problem. In a corporate plan sponsor’s financial statements, the DB liabilities shown are past service liabilities, namely the present value of what retirees and employees are owed as of the date of the financial statements. It doesn’t show how much more an employee would be owed if he stayed till retirement. From an accounting point of view, that’s a contingent liability – it hasn’t yet been earned – it doesn’t have to be reported, even if it may represent the funding over the next decade of over two-thirds of a baby-boomer’s retirement.

Further complicating an understanding of the evolution of DB liabilities is the wave of restructuring and cost-cutting that has been taking place as corporations struggle to survive and adapt to the competitive pressures coming from globalization and technological change. For an employee, it has become rare indeed to be able to stay with the same employer for the span of an entire career. So, during what should have been the final ten years of a long and fruitful career, many baby boomers face unemployment and job transitions – in the process, many may have effectively lost at least two-thirds of their expected pensions.

How the baby boomers’ retirement prospects will ultimately shape up remains uncertain. However, the decision – made unknowingly decades ago by many people – to effectively back-end load the accumulation of retirement savings won’t have helped.

Nature, Man and Economics:

2010-04-28T13:17:00.008+01:00

Amer N. Raja

Understanding Nature as a whole, marvelous and fine-tuned system, is the very basis for right socio-politico-economic thought and consequently for correct socio-politico-economic decision-making and action. Nature consists of the cosmos, its objects and components as well as the planet Earth including its living and non living things. Although Man is also a part of Nature, we will study it separately because of his special characteristics and thinking capabilities. The important thing to note is that the Universe has a system without any human existence but this fact does not exclude the necessity of some power to manage this system.

As per our understanding, based on senses, there is no effect without cause, no system without some governing force; therefore it necessitates having some power or authority to run it. Besides, that highly sophisticated system definitely needs to have a Creator as well as a Maintainer.

It is very important to understand Nature (cosmos, planet, man etc.) for without its proper understanding, no one can ever be a good Economist just like one cannot become a good footballer without proper knowledge of the rules, field, football and players.

Cosmic system:

There are billions of galaxies in the universe. Then, there are the planets, the stars and moons. They are moving in a certain pattern. There are complex and numerous gases which are very essential for the maintaining of that system. This is a very intricate system but is intact and working on some unknown pattern.
The planet Earth has its own surface and atmosphere conducive for particular kinds of living beings. There is air and water, rivers and oceans, mountains and valleys, fruits and vegetables, trees and plants, minerals and stones, gases and liquids and many other things. Further, there are different kinds of animals, insects, birds and fish, etc. who do not have any knowledge of good and evil. They act on their instincts and there is no change in their pattern since known times. They are neutral to everything by default.

As we all know, all living beings both animals and plants at least need some food as well as some shelter for survival. The Creator of Nature has provided all the basic elements like air, water, light, oxygen, carbon dioxide, etc., required for living. Based on their instincts they know their ways to get food from nature and means and suitable place for shelter. There is also a very sophisticated system of extinction and reproduction. The pollination by the insects, birds and air for immovable living beings (mainly plant) is there. There is a natural balance through fire, death, floods, evaporation, fertilizer and rain. Cattle eat grass, lion hunts deer, vulture eats carrion, insects eat leftovers and helps in decomposition, and so on and so forth... Probably there is neither pleasure nor pain or there is complete consolation. That system works in some intricate mechanical pattern without any emotions attached.

Now comes another animal, Man:

What a piece of work is a man, how noble in reason, how
infinite in faculties, in form and moving how express and
admirable, in action how like an angel, in apprehension how like
a god! the beauty of the world, the paragon of animals—and yet,
to me, what is this quintessence of dust?

(Shakespeare)

Man is the most dynamic and versatile of all animals. He can crawl like insect, walk like baboon, hop like kangaroo, run like cheetah, swim like fish, glide like bird (with material aid) and above all, he can think and innovate. In physical appearance and habits it shares many things with other member of its genre (animals). However, it is very different when it comes to his spiritual, intellectual and even physical capabilities. He has a free will. He is a thinking being. He has knowledge of the things. He has innate knowledge of good and evil. He is superior to all other animals and overcome other animals to a considerable extent. Also, species of all other animals are quite homogenous while the variations among men are enormous. The greater the abilities, the greater the challenges. Moreover, man has the ability to innovate as well as the special faculty to lie. Because of these characteristics laws of wild animal world does not apply to human world. Further, with man it is not matter of survival but of thrival, of excellence, of understanding, of self actualization and of pursuing truth and prosperity to be happy.

Cosmos, planet and other creatures were there but when man enters in this equation, he starts interpreting. As he interprets, there emerge different views about the nature and phenomenon. Some are contradictory to facts therefore some interpretations are absolutely wrong.

Knowledge is typical to man. Knowledge and the process of acquisition, application and transfer are of utmost importance for clearer understanding and correct conclusions.

Understanding of nature and man is an activity conducted by man to give form to fields of knowledge like Economics. In the prevalent economic school of thoughts, human psychology is well taken into account but nature is not given due credit. However, nature plays a pivotal role in economic well being of an individual/s as well as group/s.

Let's take the example of a football game. A person knows all the tricks of the game but does not have any idea of the field. If there is no field, no game is possible. How can weather and altitude affect the game? These are all important for one to become a good player.

Economics and Nature

Study of nature is very important for Economics. Natural resources and geography are
the bases of individual as well as group's wealth. All our food, energy and even travel is based on nature. Sunshine, rain, air, wood, minerals, oil, gas, etc is a complete set of resources made available for humans. Further, micro-organisms like bacteria and viruses can jeopardize any human system.

In one way or other all places have their own natural advantages. Wealth of individual or a group is measured by the amount of goods and assets owned. Raw assets like oil, fertile land, gold or any other mine, availability of fresh water, sea, etc are the main constituents of wealth.

In the bygone days, when there would have been no money, barter was the probable medium of exchanging material things and would have consisted of substantial amount of natural resources possessed.

Value Added:

However, as the society develops, man is bestowed with knowledge of the mechanism of the things. Discoveries and inventions result in adding value to raw products which in some instances increase the value of final products manifold. Never the less, we see sharp differences in progress of some societies rather than in others. It is, at this point, the systematic study under specialized fields of Social Sciences that helps in understanding and formulating a better system for a society’s optimal working for the benefits of its members.

Keeping things in the right perspective ensures right understanding and smooth functioning. As a good physician cannot be a good specialist if he has not good understanding of the whole system (human body): its components, their inter-relationships, effects on other parts, limitations etc. Similarly, no one can be a good economist without having good understanding of the whole system.
In a nutshell, nature is extremely vast and has its own system of working. Man is only one part of that Nature. Nature is not dependant on man but man is dependent on Nature. Further, man can make use of Nature (human as well as general) for his own betterment. This is the area where study of socio-politico-economics can help.

Cities: Urban Studies & Urban Economics

2009-11-03T14:26:00.003Z

Amer N. Raja

Emergence of Cities:

Since inception man's aim has always been to improve one's standard of life and to attain happiness. Further man is a need as well as desire driven being. However, life is a continuous activity surrounded with problems. If these problems left unsolved gradually it leads to chaos. Therefore, the purpose of knowledge as well as man's activities has always been to solve the problems.

As our knowledge about the beginning of human race is very limited, therefore it is impossible to precisely know the way of life of primitive humans. As human race emerges from a pair of a man and a woman, Adam and Eve, over a very long period of time humans multiplied exponentially. For varied reasons they split into sub groups and start moving away from the herd. There emerges the concept of migration. As they were forced to move they have to find a habitat that fulfills their basic needs of food, clothing, shelter and comparative security. Water is the very basic human need. Therefore, there is historical trend that human habitation has always been in proximity to resources of potable water, like rivers and wells. After fertile land and water resources are secured that provide the fundamental sources for basic needs, man strives for luxuries. Trading is the means of securing the rare, precious, value added and better goods. Traditionally, sea was the most advanced way of transferring goods and people with comparatively greater ease and speed to far away places. For this reason, we also find the emergence of large cities bordering coasts.

Problems and Growth of cities:

The desire for improving one's standard of life is innate. Trade and favorable geographical location of cities results in bringing prosperity to the cities. Mainly construction and trade activities increase because of prosperity that increases the demand for artisans and workers. Higher compensation attracts the artisans and workers from far off areas, with the passage of long time these migrants also settle in cities and grows exponentially. This kind of increase generally leads to haphazard growth of cities that creates multifarious problems like sanitation, housing, traffic, water, pollution, crime, disease etc. From the study of archaeological sites like Mohnjedaro we found a highly developed city with a web of roads and sanitation system.

Administration of cities:

Whenever some people start living together there emerges the need for some organization as well as laws for the running of the day-to-day affairs for business transactions, as well as resolving conflicts arising due to social interaction and for maintenance of law and order. Large cities with citizens from different races and religions require greater need for administration. This need results in analyzing and formulating plans and polices according to the prevalent technology, knowledge and social thought of the populace.

Mega cities, as we know today, are similarly established on these grounds. However, there is a significant difference in their organization, which is also result of technological factors, is that they is much more planning and similarity in their organization than their ancient simulacrum.

Urban Studies and Urban Economics:

The emergence of big as well as mega cities calls for specialized field of study. Therefore, academia has extensively worked on the problems faced by cities under the fields of Urban Studies and Urban Economics. Under Studies is a more comprehensive, holistic and objective oriented approach for catering the theoretical as well as practical requirements of the cities. It encompasses all the technical, social, political, economic and legal areas pertaining to cities. On the other hand, Urban Economics focuses on the monetary and financial aspects of all the areas studied under urban studies.

Urban economics is mainly focused on the study of urban domains focusing on the context of geographical location, transportation cost, and placement in production and consumption decisions. Besides it also tries to find the raison d'être of cities viz. the reasons for their emergence, how urban area is used with in cities, and the relative location of one city with other city and their suburbs, and density of its population. Furthermore it also studies the problems and their economic impact, costs and their solutions like: housing, pollution, crime, health issues, education, sewage and sanitation, urban sprawl, economic agglomeration, infrastructure development, public recreation facilities, economic planning, inflation, wage rate, mobilization & transit costs, and public finance.

The modern issues, as a result of unprecedented economic and technological growth, that urban economists faced and to find their solution along with other urban study specialists are:

1. Environmentalism/Eco-cities/Externalities: They are costs or benefits resulting from any economic activity that the unrelated parties incur. There are both negative and positive externalities. Pollution is an example of negative externality while planting trees around the boundary of any business establishment is an example of positive externality. Ecological sanitation is also a method used for attainting goal of healthy sustainable environment. It can be viewed as a three-step process dealing with human excreta: (1) Containment, (2) Sanitization, (3) Recycling and finding the best way of managing them. Establishment of an eco-industrial park is of special focus in it where businesses cooperate with each other and with the local community in an attempt to reduce waste, efficiently share resources (such as information, materials, water, energy, infrastructure, and natural resources), and produce sustainable development, with the intention of increasing economic gains and improving environmental quality.

2. Infra structure development & Transportation: Because of the impact of transportation, it is studies as an independent subject as Transportation economics associated with civil and mechanical engineering. Commuting and transportation are integral parts of any economic activity; therefore transportation is of main concern in urban economics. It has both positive and negative externalities. Further congestion, colloquially known as traffic jams, are a big problem as they result in slower speeds and longer lead times. The effects of congestion are:

Stress and frustration of commuters that may boost road rage and affect their health. It causes fuel waste and air pollution.

A special demand and supply study is undertaken in it. Where demand is measured as total distance traveled during all trips and supply is the available capacity of transportation options. Moreover financial implications to build and to support a transportation network are also special area of study.

Moreover transit-oriented development, traffic calming and sustainable urban infrastructure are also areas of special interest in this category.

3. Public Finance/ Municipal Finance/Government. Finance: Revenue and expenditures are the essential features of any organizational activity. There financing methods and budgeting are the area of study under the topic of public finance.

4. Population studies: In it the characteristics of the urban citizens are studied. Another phenomenon is that of Urban Migration is also of key importance.

5. Housing: Burgeoning population causes a problem among other things of housing. Affordable and environmentally sustainable housing are the tasks concerning Specialists of Urban studies and as well as economists. Landscape urbanism as well as public housing projects are some of the measures to resolve this issue.

6. Urban planning: Urban planning is a branch of land use planning and deals with the efficient placement of land use activities, infrastructure and settlement growth across an individual city or town The problems arising out of urban sprawl (unplanned, rapid and expansive urbanization) are a special area of interest for city planners. However, in it we also study various other issues. Another task of urban planning became urban renewal, and re-invigorating inner cities by adapting urban planning methods to existing cities, some with much long-term infrastructural decay. Some extreme measures like urban secession is a city's secession from its surrounding region; to form a new political unit are suggested for this purpose

7. Problem of Poverty, crime & Unemployment: Poverty is the main cause of crime and unemployment is another feature promoting crime. These features are important part of urban economics for the aim of economics is towards better standard of living and prosperity.

8. Urban Economic policy: It refers to the actions that local governments take in the economic field. It covers the systems for setting government deficit as well as the labor market, national ownership, and many other areas of government.

9. Economic geography: It is the study of the location, distribution and spatial organization of economic activities across the cities and its suburbs. It focuses on the Location theory, like industrial zones & economies of agglomeration and retail and wholesale businesses, on transportation and trade, and on the changing value of real estate. Urban economic geography is closely connected with topics as transportation, agriculture, industrial location, world trade the Geographic Information System, and the Spatial planning and function of business activity.

NIGERIAN BANKS, RECAPITALIZATION AND THE EVENTUAL TRAGEDY

2009-11-03T14:22:00.003Z

Akwuobi Chinedu

Close watchers of the developments in the banking sector of late will attest to the fact that the wide speculation that all was not well with the sector is a sacred fact. Not a few analysts believe that the cause of the problem is from the industry operators who engage themselves in all manner of unethical, unprofessional practices such as a disregard for corporate governance, failure in risk management practices, profit inflation and other unethical conducts which has bedeviled the industry. However, analysts are yet to realize that the reason why our banks (those that survived) survived the consolidation exercise is the same reason why they are spending so much which has resulted in some industry players resorting to unethical practices that brought us to where we are today.

It is no news that during the recapitalization era, when the CBN mandated all the banks operating in the shores of Nigeria to recapitalize to the tune of 25billion, banks whose shareholders were unable to garner such amount resorted to the capital market through public offers and right issues. These banks flooded the primary market at regular intervals with their offers without proper appraisal of the long term cost implications of their actions. Hence the new shares which were created to raise enough capital is now taking a large chunk of the annual profit in the name of dividends. As though that is not enough, some banks, in a bid to satisfy their shareholders, declare bonuses on year on year basis which has lead to further cost implications.

Also, the manner in which these offers were raised was questionable. First, the prices were fixed arbitrary without an appropriate (if any) book building process. As well as a scenario where the NSE practically insisted that at least 80% of the issue must be underwritten which further guaranteed the success of these issues without recourse to fundamentals, which in ideal cases will form the bases for such “huge” success. As a result, these “successful” offers bloated the market capitalization of our banks to unsustainable heights.

TOP TEN MOST CAPITALIZED BANKS

S/No COMPANY VOLUME PRICE VALUE

1 First Bank 29,006,297,207 16.00 464,100,755,307.78

2 Zenith Bank 25,117,195,029 14.60 366,711,047,423.40

3 UBA 21,556,462,463 12.80 275,922,719,520.00

4 GT Bank 18,653,748,614 14.04 261,898,630,535.46

5 Ecobank 7,218,075,642 27.96 201,817,394,950.32

6 Union Bank 13,509,726,273 13.98 188,865,973,302.13

7 Stanbic IBTC 18,750,000,000 8.37 156,937,500,000.00

8 Oceanic Bank 22,221,369,213 6.27 139,327,984,965.51

9 IBPlc 18,860,014,978 6.45 121,647,096,608.10

10 Diamond Bank 14,475,243,105 7.97 115,367,687,550.04

Source: Nigerian Stock exchange

From the foregoing, it is clear First bank lead the rest with 29,006,297,207 shares outstanding, followed by Zenith, 25,117,195,029; And then Oceanic, UBA, and Intercontinental bank with 22,221,369,213, 21,556,462,463 and 18,860,014,978 outstanding shares respectively.

As at 2004, prior to the 2005 recapitalization exercise, UBA for instance, has 2.6 billion outstanding shares, a miniature of what we have today. First Bank, aside being the most capitalized, has a company policy of declaring bonuses and dividends almost on yearly basis which has impacted negatively on the company’s ability to retain a large chunk of earnings for investment purposes. Hence, looking at the financial risk and the competitive nature of the banking industry, it could get to a time when earnings cannot carry the shares outstanding.

Therefore, there is a need for a massive reduction in the floats of our banks if the current cost implications are to be averted. There is an urgent need for a massive share reconstruction which will not only create value for the shareholders by raising the value of their shares but also help to reduce cost in the long term. This could be achieved through share buy back (Repo), which, although in the short term appears costly but will invariably save huge funds in the long term, which will be hitherto used to service shares in the form of dividends.

While so many analysts will quickly disparage my opinion as anti growth, it is necessary to stress here, that, it is better to have a pair of shoe that is strong than to have two that can hardly be relied on.

The banking sector as has been stated many times accounts for up to sixty percent (60%) of the entire market capitalization of the NSE, which has lead to the industry exercising an over bearing influence in the stock market at the expense of other sectors. Hence a reduction in share volume will curb this anomaly and foster the growth of other sectors.

Akwuobi Chinedu
Dept. of Economics
Alvan Ikoku Federal College of Education
Owerri
IMO STATE

Leadership, Intangibles & Talent Q3 2009

2009-11-03T14:18:00.003Z

Michael Folkman

Welcome to 2009’s third quarterly review, as with previous issues, engagement continues to be at the forefront of people’s thoughts. Behind the engagement debate however there seems to be a growing call for a wider reappraisal of the fundamental way corporations are organised and for me personally, this is the most interesting aspect of this quarter’s articles. Other themes include;

• Shifting the Organisational Pyramid

• The McLeod Review on Employee Engagement

• The Leader/Manager Debate

• Line Managers who Lead

• The Intrinsic Motivation of Autonomy, Mastery and Purpose

• The Irrationality of Human Behaviour

• Tomorrow’s HR Professionals - A Multi-Disciplinary Background

Articles are included from the likes of Harvard Business School, Henry Mintzberg, HR Magazine, McKinsey, the McLeod Review, the Partnership Institute, Personnel Today, Strategy + Business and TED. Comments and feedback are of course welcome. Q3 2009

Shifting the Organisational Pyramid The general consensus of commentators from a broad spectrum of disciplines is that the traditional organizational pyramid is not fit for purpose. See below to find out more. We are also seeing a notable increase in articles and blog posts focusing on recruitment in the upturn. Whether this is wishful thinking or a genuine sign of improving economic times remains to be seen.

On a continuing theme from previous updates, there can be no doubt that this year’s hot topic is employee engagement, whilst an acknowledgement of it’s importance is widespread, there remains considerable uncertainty around putting an effective engagement strategy into place. Furthermore as the discussion develops, it is becoming increasingly hard to separate engagement from other organizational issues such as; leadership, talent management and innovation. The McLeod Review on Employee Engagement July saw the release of the UK government backed McLeod Review[1] looking into the impact of poor employee engagement in the UK. Undoubtedly this is a strong endorsement of the positive effect of engagement on performance. However, there has been criticism from some for the lack of new insight or practical suggestions. I think that this is slightly missing the point and the report is far from the “recycled rubbish” claimed by Nicholas Higgins[2]. In a similar vein, Personnel Today[3] explicitly criticises the lack of practical suggestions. In my view, the job of this report is to make CEOs sit up and take note and raise what is traditionally seen to be a “soft issue” up the corporate agenda. The report is also meant to raise the issue of engagement for businesses of all sizes, again I think this is something that it achieves. As a first step in an ongoing process, this report gives HR directors the evidence to support the case for taking a serious look at engagement. Although short on new ideas there is no doubt that the Mcleod Review brings together lots of data and evidence supporting the argument for an increased commitment to engagement. A good summary by John Ingham can be found[4]. There is nothing revolutionary in the report and it is easy to see why some in the industry are frustrated by it’s lack of specifics. However as a document making the quantitative case for increased investment in engagement it is pretty solid and for those not directly involved in HR and its related disciplines, it is a good introduction. Despite the shortcomings, the conclusions reached by McLeod are likely to resonate with many. In short, McLeod is calling for a more sophisticated approach to people management. The report openly argues that due to amongst other things changing demographics and technology, engagement is not something organisations can approach with a one size fits all mentality. True engagement is focused on the needs of each individual. Furthermore, if organisations buy into this assertion, the role of line managers has to evolve away from the traditional administration/assigning tasks role to a more collaborative/coaching type approach, as McLeod states;

“Many people we spoke to identified managers’ approaches and behaviours as key factors in disengagement – as one respondent said, they sometimes act as “a great impermeable dampproof course.” Jeff Kelly, of the Partnership Institute, told us at a round table discussion for this review: “There is a territorial problem and a comfort zone problem. Many feel comfortable with managing staff on an adversarial basis and don’t want to give it up.” My feeling is that what is being called for in the McLeod Review goes much further than encouraging organisations
to adopt a formal engagement programme. If organisations are to fully realise the benefits outlined in the report it is going to require a complete rethink in the way corporations manage and engage their people. Curiously enough there have been a number of other articles published this quarter that I feel more explicitly reflect the findings of the McLeod Review. Interestingly, these articles are all written by people from a variety of backgrounds or disciplines yet the underlying message is very similar. The Leader/Manager Debate To kick things off, Henry Mintzberg has created a buzz with a look at the perennial manager/leader debate[5]. This was also a topic covered in the previous issue. In this article Mintzberg is critical of the traditional role of corporate leaders who he brands as aloof and disconnected from the workforce, therefore having little idea of what is actually happening in the organisation. It is this disconnection that hampers so many organisational initiatives. In Mintzberg’s view, corporate America is overled and undermanaged.

True leadership is something that may only be required on an ad hoc basis, in particular during times of uncertainty or dealing with specific challenges or unknowns. These are the challenges which we most associate and value strong leadership with such as charisma, determination and vision. Effective management on the other hand is something that requires a more mundane yet equally valuable approach. “As Stanford University emeritus professor James G. March put it: "Leadership involves plumbing as well as poetry." Instead of distinguishing leaders from managers, we should encourage all managers to be leaders. And we should define "leadership" as management practiced well.” At the heart of Mintzberg’s criticism is that the traditional corporate pyramid encourages and supports this disconnection between leaders and the rest of the organisation. Jamie Notter[6]. has an good summary of the Mintzberg article and picks up on his assertion that organisations need to review the usefulness of the prevailing hierarchical model of organisational design. Line Managers who Lead The notion of line managers who lead is explored in this recent McKinsey article[7]. An idea that is coming from a similar direction to Mintzberg, instead of training managers in process and administration, they can improve productivity by empowering the peoplearound them. In this way managers can be seen as catalysts to creativity, innovation and devolved decision-making. In particular managers need to address the issues that are of particular relevance to them and their people. This can be anything from dealing with interpersonal issues to customer relationships. The article goes on to say; “To unlock a team's abilities, a manager at any level must spend a significant amount of time on two activities: helping the team understand the company's direction and its implications for team members and coaching for performance.”

This prompts the question, is the traditional top down business model fit for purpose in the 21st Century? To highlight this confusion between management and leadership, one particular criticism outlined by Mintzberg in another article[8] is what he refers to as leading through information or “deeming” as he terms it. This is where leaders deem that certain targets need achieving, such as sales need to rise by 10% or we need to cut 15% of staff. By any definition this is not leadership and as such is unlikely to engage or motivate employess apart from through fear. Dismantling the organisational pyramid is also the topic of a Strategy + Business
article[9]. Ostensibly discussing talent management, the theme is the same as Mintzberg’s argument and calls for a fundamental reassessment of how organisations engage with their employees. The article argues that the traditional career progression structured through an organisational pyramid structure is outdated and not fit for current and future demographics. Instead organisations need to take a more sophisticated and flexible approach to career development based on the individual. The Intrinsic Motivation of Autonomy, Mastery and Purpose Further evidence to support a radical reappraisal in the way organizations structure themselves is outlined by Dan Pink who delivered an entertaining TED talk[10], well worth the 20 minutes if you have the time. In it he discusses the failure of bonuses and incentives to improve performance. Contrary to popularly held beliefs in the corporate world at least, the basis of Pink’s talk is that traditional monetary incentives fail to boost performance in all but the most mundane or mechanical tasks. Citing a number of scientific sources, Pink states that the traditional reward structure used by organizations is not an effective means of motivation. Clearly this view undermines many of the assumptions that organizations implicitly make about motivation and performance. In getting rid of the traditional carrot and stick approach, Pink focuses on three areas of what he terms “intrinsic motivation” of autonomy, mastery and purpose. In discussing the role of autonomy, Pink is another to go against the orthodoxy and directly criticise the traditional organisational pyramid which concentrates decision-making in the upper echelons. By removing self-direction, organisations are undermining the ability of employees to fully engage with their work. At the same time feelings of unfairness are likely to grow. Clearly, Pink is suggesting that organizations need a fundamental rethink in the way that they motivate their employees. As Pink repeatedly summarises; “there's a mismatch between what science knows and what business does.” The Irrationality of Human Behaviour As if that isn’t enough, we are continuing to see an increase in articles focusing on the “irrationality” of human behaviour. In a posting on the Harvard Business School site Jim Heskett[11] kicksoff a decent discussion about a recent HBR article[12] by Dan Ariely. Again, this has significant implications for our approach to management theory and assumptions about human behaviour. “Reactions to our efforts as managers reflect what each individual receives in relation to what he or she perceives and expects. Because this is highly subjective, the argument goes, generalizations (many of them currently taught in conventional courses) about how to manage are practically useless. Instead, managers should encourage employees to set their own goals, appraise their own achievements, and reach their own conclusions about how to improve. Managers should also spend more of their time inspiring (through stories) and devising engaging activities from which employees may, to some extent, choose.” Are you starting to see a theme here yet? Whilst there is no shortage of new ideas being put forward, within the HR specific press, the focus has been more inward and arguably more pessimistic over recent months. Tomorrow’s HR Professionals A Multi-Disciplinary Background In particular, HR Magazine in the UK has run a series of articles that have a generally pessimistic view of the furture for HR. The debate seems to have moved on from the rallying cry for HR to be provided with a seat at the top table to a questioning of whether the function can actually make a strategic contribution.

For example, David Woods[13] cites a Logica survey with the headline figure claiming that 70% of HR Directors feel that they do not have sufficient information to avoid a widening skills gap. Given new technology and information available to HR professionals, is there any excuse for this? Elsewhere, Maurice Duffy[14] muses on the future of HR. In a strongly worded article, he articulates a potential future for HR where it is able to contribute significantly to organisational effectiveness. Unfortunately, Duffy is skeptical whether the majority of current HR practitioners are capable of delivering this vision. As Duffy states; “My view is that HR is populated with too many self-seeking, blame-shifting blockers and manipulators who kill the enlightened view and restrict and choke organisational progression. You know them - the pen- pushing administrators and positioners, who tell the business what it cannot do, build processes and systems that inhibit or dilute any sensible simplicity that is a key requisite in the current world where change, speed and innovation are the new business imperatives.“ On a similar note, Rhonda Eckert has a blog post[15] asking whether HR is in danger of becoming extinct? She
echoes Murray in her assertion that tomorrow’s HR professionals are going to come from a multi-disciplinary background. Maybe not the end of HR but possibly signifying a shift in the experience or requirements for HR professionals. Likewise, Jan Kingsley at ASPEL[16] talks about the fragmentation of learning and its possible resolution, saying “L&D is becoming more specialized with people developing specific competencies and skills in discrete areas, for example, becoming specialists in coaching, facilitation or learning design. This is being driven in part by
customer and client expectations, but also the use of technologies which makes the whole issue of learning much more complex. Navigating this maze of information and techniques and overcoming their inherent complexities will be a major factor in making L&D much more effective.” While debates on the specific themes will no doubt continue, the possibilities for HR and leadership going forward are intriguing and imply a number of changes. While the recession has almost forced people to reflect on their organizations and practice, the seeds of
the future may well be taking route already.

Michael Folkman, Director

michael.folkman@fourgroups.com

[1] http://fourgroups.com/link/?86
[2] http://fourgroups.com/link/?87
[3] http://fourgroups.com/link/?88
[4] http://fourgroups.com/link/?89
[5] http://fourgroups.com/link/?90
[6] http://fourgroups.com/link/?91
[7] http://fourgroups.com/link/?92
[8] http://fourgroups.com/link/?93
[9] http://fourgroups.com/link/?94
[10] http://fourgroups.com/link/?95
[11] . http://fourgroups.com/link/?96
[12] http://fourgroups.com/link/?97
[13] http://fourgroups.com/link/?98
[14] http://fourgroups.com/link/?99
[15] http://fourgroups.com/link/?100
[16] http://fourgroups.com/link/?101

Brazil and its economic self-fulfilling prophecies

2009-11-03T14:14:00.003Z

Estela Lutero

Although crisis has begun in the United States and Europe at the end of 2007, until September 2008, Brazil was not touched. In the third trimester of 2008, the Brazilian GDP had increased 6.8%. But with the fallen of the Lehman Brothers, that caused a gradual hold of the world financial system; there was a drastic effect on credit. In Brazil, 19% of the credit had foreign sources. The collapse of those lines irradiated a chain effect, thus restricting the credits for production. At the same time, national banks were also having a hard time to get money abroad. Adding all of these, domestically Brazilians felt the credit crunch, for instance while financing automobiles. Inside, the recession process was a little different from elsewhere, because, in Brazil the retraction was being pulled by the industrial sector. So keeping the positive expectations of the entrepreneurs would be a good solution. And the government was aware of that.

In a self-fulfilling prophecy, Lula, president of Brazil, stated on October 4, 2008: “There [in the USA], the crisis is a tsunami. Here, if it reaches us, it will be a marolinha (high wave), not even good enough for surfing.”

Lula’s words were well supported by the wealthy financial situation Brazil was building. Brazil got into the crisis with resources. Recent macroeconomic policies have insulated the economy from external shocks. There were U$ 205 billion in international reserves. Moreover, the domestic demand was increasing 9% yearly. The investment rate was also growing. Inflation was stabilized. And very important: a wealthy and solid financial system. The Brazilian Government did not have to spend a penny to rescue banks , as it happened in other countries.

Some investment programs were also important such as the Program for Accelerated Growth (or PAC) which was not scaled back. The PAC came into being in January 2008 and is a public-private infrastructure program with US$283.3M being invested primarily in energy projects up until 2010. Additionally, The BNDES, the Brazilian Development Bank adopted a very aggressive attitude toward credit concession in order to protect production against the impacts of the global financial crisis.

The results came soon, after two trimesters of GDP fall, GDP showed an increase of 1.9% in the second trimester of 2009 - manufacturing sector, with an increase of +2.1%, and services +1.2%. For 2010, Brazilian government is betting that the GDP will go up by 5% in 2010.

Moreover, with some recent events, it is easy to foreseen that the optimist wave is here to stay. The world cup in 2014, the Olympic games in 2016 and sub-salt prospects (petroleum) will definitely stretch the positive environment. These events have brought positive prospects for the infrastructure, industrial and service sectors and have placed Brazil among the world’s biggest players.

In the long-run the subset reserves alone are expected to generate a turnover of US$440 billion in terms of technological development, increase in industrial capacity, construction of shipyards and job creation.

Meanwhile, the World Cup and the Olympic Games will lead to the construction of new sports venues and improve the transport and telecommunications infrastructure, the electricity supply and security, health, hotel and tourism services.

According to a study commissioned by the Brazilian government to calculate the economic impact of the Olympic and Paralympic Games on Rio de Janeiro, based on an investment estimate of US$14.4 billion the events are expected to generate a turnover of US$51.1 billion, 120,000 direct and indirect jobs a year in the period leading up to the games and 130,000 jobs a year afterwards.

Along with the favoring conjuncture mentioned here, there are many other structural reasons for Brazil to keep its optimism, such as: its strong domestic market growing in purchase power and proportionate to the population; largest food exporter in the world ensuring foreign market sales on a significant scale under any scenario; and its diversified foreign market with buyers in the whole world, while exports of goods and services with added value are growing.
This is no doubt that Brazil's growth expectation for 2010 of 5% of GDP is highly likely.

Estela Lutero is Master in Economics (Universidade Estadual de Campinas). She is Senior Project Manager at Auctus and Infrastructure Economics Consultant in Brazil. Contact mail: estelalutero@hotmail.com

Towards Holistic Economics

2009-10-03T05:42:00.004+01:00

Amer N. Raja

Money, because of its usability and value, is being considered as the most vital factor in Economics. To the majority and even the way the subject is being taught, it is considered that Economics is all about money. Why is money, a currency note - nothing more than a piece of paper talked of and loved so much? A better designed and mass produced paper of same size as Dollar will never get as much value as the Dollar itself. If that paper can solve problems - and to many monetary authority Officials, it seems it can - then why not print Dollars as much as possible, distribute it to everybody and see whether it works like the Midas' touch. Factually, it cannot. We all know that what actually happens when more paper - Dollar - is produced, its value falls like a house of cards and jeopardizes the whole monetary system. That much excess without any proper backing like gold or precious metals or production capability of an economy will eventually lose its trust, Value.

If it is not about paper/money, then what is Economics? Is it about expectations? When consumers have good expectations from the value derived from their purchases, they tend to buy more and if they expect better returns, they will invest more. Similarly, businessmen will take more risks if they see more profits for their capital invested. Likewise, professionals will work with confidence and can work more freely and diligently with the assurance of better remuneration.

Is Economics the art of negotiation, by understanding the human psyche, or an attempt to get the better deals? By better understanding the consumer behavior, businessmen can offer their products and services and at such a price where they can get best results. On the other hand, consumers will try to bargain to bring down the prices as much as possible. It is about smart negotiations. This is one of the areas of study in psychology. Can Economics then be considered as Psychology?

As is generally the case, Government owns the land in a present nation state structure; it also appoints Officials on key posts for disbursement of various funds, management and control of money and capital market - so is Economics about gaining power? The politics for winning mass support and reaching realms of power and later on, appointing cronies on key governmental posts and forming the cliché to better off a certain group and keep the masses happy - is this what Economics is all about?

Economics is about activity. Fundamentally, the aim of all human activities is to make one happier. From there, we can infer that it is a systematic study of moral philosophy as was with Adam Smith who left his own field to venture in Economics where he concluded that happiness is possible by increasing one's own welfare and that of the society in general.

Or, is it about observing the natural phenomenon and keeping records of the seasons to get better crops, and finding ways to being saved from tornadoes, floods and other natural calamities? Or, to gain some specific knowledge of geology or of similar kind in order to discover precious metals or other natural resource rich areas, and later, selling them to increase wealth.

Well, through specialized knowledge of marketing and advertising smart promotional schemes, businesses can increase sales enormously and consequently fetch higher prices. Does that imply that marketing and advertising are actually economics?

We also see complex equations and much scary looking sophisticated series of formulae and statistical methods with exquisite colorful graphs to befuddle the minds of people by calling themselves Economists. Is Economics then, the application of various mathematical and statistical methods like calculus, probability, time series analysis, etc.?

Thus, it would be better if we change our perspective while looking at these disciplines. No one can be a good specialist in some field unless one is a generalist.

Every effect has a cause and that cause will in turn becomes a cause for some other effect, ad infinitum. Causality is very fundamental in human activity so it means that if we have better knowledge of causes and effects that will make one wealthy. Then, can Logic be Economics as well?

Without any doubt innovations play a pivotal role in making big money. Is the study of gaining a particular knowledge and skills Economics?

The magic of sweet talking and sensational tirade is undeniable. Is mastering communication skills to get things done from others, Economics?

The list is exhaustive and can go on and on. Still then, what is Economics?

Broadly speaking, as there is something of vaguely defined Economics in every other field, so there is something of vaguely defined every other field, in Economics. Thus, it would be better if we change our perspective while looking at these disciplines. No one can be a good specialist in any field unless one is a generalist. In that light, Economist, Sociologist, Political Scientist, Logician, Anthropologist, etc. are all confusing callings. For clearer understanding, it would be more appropriate to integrate these fields of Social Sciences into one field, since no issue is independent of other factors pertaining to other fields of Social Sciences. This will result in a more realistic and comprehensive analysis/study giving due importance to the related factors.

When it comes to practice, we find that CEOs are hailing from different fields like engineering, finance, marketing, etc. and since managing of affairs in the most suitable manner depends on one's general overall understanding, it is thus required of that top Manager to be a good generalist which will help in removing the bias. This holistic approach in analyzing issues can result in better decision-making for sustainable and successful outcome while playing fairly in the business world.

24th IVR world congress: Global harmony and rule of law

2009-07-06T10:23:00.002+01:00

September 15-20, 2009 Beijing, China

XIV World Congress of Philosophy of Law and Social Philosophy will be held in Beijing on September 15-20, 2009. The main theme of the 24th IVR World Congress is “global harmony and rule of law”. The concept of harmony has figured prominently in both eastern and western philosophical traditions, and can be interpreted to
describe the developmental goals of many societies. Unlike the more often invoked concept of “globalization”, “global harmony” captures many of our shared ideals concerning the relationships among countries, cultures, and legal systems, as well as between human kind and nature. By proposing to examine the role of the rule of law in promoting global harmony, the hosts of the 24th IVR World Congress hope not only to give greater voice to traditions and contemporary thinking in non-western cultures, but also to suggest new dimensions of collaboration among eastern and western scholars.

Working Groups

Please send your proposal for special workshops to both the following two persons:
Prof. ZHANG Qi (for academic affairs): ivrcongress24@gmail.com
Mr. YIN Bao-hu (for administrative affairs): papers@chinalawsoicety.com

Please Contact Us

You are encouraged to register your interest for the Congress so that you could be informed of updated information of the Congress in due course. Please visit the website regularly for the latest news and updates.

Contact us by the following details:

Mr. GU Zhao-min, Director-General
Overseas Liaison Department, China Law Society
No.63, Bing Ma Si Hutong, Xicheng District, Beijing, 100034, P.R.China
Tel/Fax: 8610-66510410
Email: ivr2009@chinalawsociety.com.

Welcome Message

Professor Sir Neil MacCormick

(Professor Emeritus, Public Law and the Law of Nature and Nations in the University of Edinburgh)

The 24th World Congress of IVR (the International Association for Philosophy of Law and Social Philosophy), to be hosted by China Law Society, will be held from 15 to 20 of September, 2009 in Beijing, China.

The theme of the Congress is Global Harmony and Rule of Law. Lawyers, scholars and jurisprudents around the world are warmly welcome to Beijing for the 24th World Congress of IVR.

The International Association for Philosophy of Law and Social Philosophy (IVR) was founded in Berlin on 1 October 1909. The purpose of the Association is the cultivation and promotion of legal and social philosophy at both the national and the international level. The Association is open to all relevant scholarly disciplines. The Association regularly organize a world congress every two years in cooperation with one of its nations sections.

The IVR world congresses are known as a forum for free exchange of ideas and development of friendship among jurisprudents all over the world.
As a national academic organization of law, China Law Society (CLS) is dedicated to the development of rule of law, the protection of human rights and the maintenance of justice and peace. CLS has over 110,000 individual members and nearly 300 organizational members throughout China. The Academy of Jurisprudence, as
one of its organizational members, is also the national section of IVR and a close partner of the upcoming Congress. One of CLS’ major functions is to promote international exchanges in the field of law.

The 24th World Congress of IVR, as usual, is expected to enjoy participation of a large number of scholars, jurisprudents and lawyers from all over the world. The local organizing committee will spare no effort for the Congress preparations and will make the Congress a good opportunity for free communications and for making of
friendship. In addition, arrangements will be made for participants to visit such places as the Forbidden City and the Great Wall. Those who would like to have a more extensive tour in China are also welcome to choose any of the post-congress tours that will be recommended later on. The local organizers sincerely believe that all congress participants would have a fruitful and pleasant stay in China. I hope that many scholars from all over the world will succeed in making a visit to Beijing for this special opportunity to open up dialogue where we have had relatively little contact until recent years. An open world of mutual and meaningful communication is high among our common objectives.
Another is simply the cultivation and renewal of friendships across national borders and over different continents. Many of my own close friendships date from meetings at IVR Congresses, and the two-yearly World Congress gives an ideal opportunity to see many people one would otherwise miss. It will be a pleasure to meet all IVR Participants in Beijing in September 2009! On behalf of all IVR members world-wide, I warmly thank the Organising Committee for the Beijing Congress for the work they are doing to make this possible.

What field we work from

2009-07-06T10:19:00.000+01:00

Where we are

2009-07-06T10:17:00.002+01:00

Comming soon

2009-05-23T03:41:00.001+01:00

Comming soon.

What field we work from

2009-05-22T03:38:00.001+01:00

Where we are

2009-05-22T03:36:00.001+01:00

What field we work from

2009-04-26T23:02:00.000+01:00

Where we are

2009-04-26T23:00:00.000+01:00

Press Release by Senator Kevin Brady

2009-04-24T22:15:00.001+01:00


	PRESS RELEASE

For Immediate Release April 3, 2009		Statement of Congressman Kevin Brady Ranking Republican House Member *Employment Data Further Undermine Credibility of Administration* *Budget Forecast*	Press Release #111-5 Contact: Christopher Frenze Executive Director (202) 225-3923

	I would like to join in welcoming Commissioner Hall before the Committee this morning. The employment data released this morning show the impact of the deepening recession. Payroll employment declined by 663,000 in March, with losses broadly shared among major industry groups. The unemployment rate increased to 8.5 percent, and current trends suggest that further increases are likely in coming months. The job figures reported today add to the growing body of evidence indicating that the Administration’s economic forecast is much too optimistic. The unemployment rate is already significantly above the Administration’s forecast for all of 2009. The Administration projects that real GDP will fall 1.2 percent in 2009 and rise 3.2 percent in 2010, compared with a Blue Chip Consensus forecast of a decline of 2.6 percent in 2009 and an increase of 1.9 percent in 2010. The CBO forecast of a 3.0 percent decline in 2009 GDP also shows how far off the Administration is likely to be for 2009. The Administration’s unduly optimistic economic assumptions are a major problem. These optimistic assumptions are a key foundation of the President’s budget proposals, and lead to artificially low deficit and debt projections. No wonder The Economist called the assumptions in the Administration’s budget “deeply flawed” in an article entitled, “Wishful, and dangerous, thinking.” Their effect is to make the Administration’s expansive new spending proposals look less threatening than they actually are. The reason the Democrats’ Congressional budget resolution got so far off track is that it is based on the President’s budget proposals. This is why a variety of accounting gimmicks are needed to hide the true costs of the Administration’s dangerous spending spree in the Democrats’ House budget resolution. As the Washington Post said last week, in this resolution “Congress deals a blow to ‘honest budgeting.’” The Democrats now are attempting to shoehorn expensive Administration proposals based on unrealistic economic assumptions into a House budget resolution that uses more realistic economic assumptions from the CBO. A realistic economic forecast would indicate that the fiscal situation is already very grim, with exploding deficits and debt for the foreseeable future. According to a recent study of many financial crises by Professors Kenneth Rogoff and Carmen Reinhart that has become an instant classic, the U.S. national debt can be expected to increase by $8 trillion to $9 trillion over the next three years. According to Rogoff, inflation of 8 to 10 percent is one likely way the government will end up financing the huge run-up in federal debt. He compares the coming economic environment to the 1970s, which was a time of rising inflation, weak economic growth, and rising unemployment. The Democrats’ budget will add yet more deficit spending and debt to the huge amounts of each already in the pipeline. The result will be much higher taxes and inflation in the future, and lower economic growth. Higher inflation in coming years will further reduce the American standard of living as incomes and retirement funds are further eroded. The last time Democrats controlled both ends of Pennsylvania Avenue for a significant length of time was in the 1970s and stagflation was the result, so nobody should be surprised if history repeats itself. I’m pleased to welcome the panel of witnesses before us today. TARP certainly raises a number of very troubling issues, but the central one is why we still do not have a credible, effective, and transparent financial rescue plan in place.


	###
433 Cannon House Office Building • Washington, DC 20515 • (202) 226-3234 Fax (202) 226-3950 • www.house.gov/jec/




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OPEC Dollar Excuse for high oil prices debunked

2008-07-21T03:38:00.002+01:00

CONGRESS OF THE UNITED STATES
JOINT ECONOMIC COMMITTEE

WASHINGTON, D.C. -- The OPEC oil cartel’s attempt to blame high oil prices on the lower foreign exchange value of the dollar is refuted in a new study released today by Congressman Jim Saxton, ranking Republican member of the Joint Economic Committee (JEC). The new staff study, The Dollar and Oil, analyzes a number of factors contributing to high oil prices, including the cartel’s supply restrictions and inadequate investments made by members of OPEC. As late as 2004, OPEC maintained a price target range of $22 to $28 per barrel. Despite sharply higher world demand and continual price pressures since, the cartel has continued to restrict its oil production even as prices surged well over $120 per barrel.

“The oil cartel always seems to have an opportunistic and disingenuous explanation for oil price increases at any point in time, and the foreign exchange value of the dollar is merely the latest excuse,” Saxton said. “Even with oil prices at sky-high levels, the head of OPEC recently asked, ‘Why should we invest in spare capacity that will not be used? We see plenty of spare capacity until 2020.’ Obviously, the OPEC cartel is quite satisfied with the current supply and demand conditions in the oil market.

“If OPEC were to ramp up its production capacity and produce more oil, oil prices would fall. The lifting cost of oil in the key Persian Gulf producing states is less than $5 per barrel, so the monopoly profits generated by the cartel’s supply restrictions are truly obscene at current market prices of oil. As the study notes, excessive oil prices caused by the cartel amount to an “OPEC tax” on already struggling economies around the world,” Saxton concluded.

08-4 Frontiers of Real-Time Data Analysis by Dean Croushore

2008-04-14T08:44:00.000+01:00

Working Papers 2008: Abstracts

FRONTIERS OF REAL-TIME

Associate Professor of Economics and Rigsby Fellow
University of Richmond
Visiting Scholar
Federal Reserve Bank of Philadelphia
March 2008

This paper describes the existing research (as of February 2008) on real-time data analysis, divided into five areas: (1) data revisions; (2) forecasting; (3) monetary policy analysis; (4) macroeconomic research; and (5) current analysis of business and financial conditions. In each area, substantial progress has been made in recent years, with researchers gaining insight into the impact of data revisions. In addition, substantial progress has been made in developing better real-time data sets around the world. Still, additional research is needed in key areas, and research to date has uncovered even more fruitful areas worth exploring.

If you wish to download the WP08-4, please copy the link below into your browser:

http://www.philadelphiafed.org/files/wps/2008/wp08-4.pdf

Labor Market Weakness: won' t be improved by tax increases and protecsionism

2008-04-06T03:40:00.001+01:00

April 4th, JOINT ECONOMIC COMMITTEE
SENATE OF UNITED STATES OF AMERICA

LABOR MARKET WEAKNESS: WON'T BE IMPROVED BY TAX INCREASES AND PROTECSIONISM
- Hoover Policy must be rejected -

by Senator Jim Saxton

WASHINGTON, D.C. -- Congress should not react to disappointing labor market figures and other economic data by enacting policies reminiscent of the Hoover Administration, Congressman Jim Saxton, ranking member of the Joint Economic Committee (JEC) said today. This morning, the Labor Department released data showing no statistically meaningful change in payroll employment in March and an increase of the unemployment rate to 5.1 percent. Recent weak economic data have led some to compare current economic policies to those of the Hoover Administration, without apparently knowing what the Hoover Administration’s policies actually were.

“Those who compare recent economic conditions and policies to those of the Hoover era should recall the mistakes made in the Revenue Act of 1932,” Saxton said today “Instead of reducing the tax burden, Congress passed and President Hoover signed into law steep increases in personal income tax rates, estate tax rates, and many other taxes.”

“As I have previously noted, the top personal income tax rate was raised from 25 percent in 1931 to 63 percent under the 1932 Act, more income was subjected to the income tax, and the estate tax burden was more than doubled. The salient provisions of the 1932 Act moved in exactly the opposite direction of the recent tax relief legislation passed in 2001, 2002, and 2003. However, many of the critics of the recent tax relief legislation advocate increases in taxes reminiscent of those contained in the 1932 Revenue Act, even as they exaggerate the degree of recent economic weakness by evoking the Great Depression.

“It is absurd to compare current economic conditions to those of the Hoover years, a time when the unemployment rate was as high as 24 percent. Unfortunately, there are Americans now experiencing unemployment and other difficulties, but these are nothing like the scale seen in the Great Depression

“It is especially ironic for those portraying the current economic situation in the darkest possible colors to advocate huge tax increases. If the economy were as weak as the critics contend, a tax increase would only repeat the destructive mistakes of the Hoover era. Tax increases impose additional economic costs on the economy in any phase of the business cycle, but would be particularly destructive at a time when the economic and employment outlook is fragile. Protectionism in addition to tax increases was demonstrated to be an especially lethal policy mix during the 1930s, but the majority in Congress seems oblivious to this fact,” Saxton concluded.

GOLD – Mirror on the Credit Crisis by Jeff Nichols

2008-03-21T04:47:00.001Z

Monday, March 17, 2008

Regardless of gold’s short-term price swings – both up and down – as investors and speculators react to the unfolding credit crisis, one thing is certain: Down the road, six months or more, gold will benefit from the Federal Reserve running its printing press at high speed, hoping that easy money will solve the current crisis of confidence.

The Fed is trying to reassure financial markets that it stands ready to back up or bail out the big banks. But, so far, this has not worked – nor is it likely to as long as confidence is lacking in those at the nation’s economic helm and at the vulnerable banks and financial institutions.
The roots of today’s problem are years of excess, easy money, and lack of financial oversight. And now there is no easy way out.

Americans have been living beyond their means – as households and as a nation – for years, spending money we don’t have mostly for things we don’t need. Individually, we have been enjoying easy credit afforded us by the Fed and domestic lenders. As a nation, we have counted on the willingness of foreign central banks to finance our spending and our wars by accumulating more and more of our debt.

Printing more money may postpone the day of reckoning but won’t avoid it. This is what the U.S. central bank tried in the 1970s – but, in the end, we just had more inflation, higher interest rates, and a more painful economic adjustment.

Today, we see easy money cheapening the U.S. dollar as the exchange rate vis-à-vis the euro, for example, falls progressively to new historic lows. The flip side of this depreciating coin is higher prices for oil and agricultural commodities – making it more expensive for all of us to drive our cars, heat our homes and office buildings, and feed our families. These are the early signs of a more endemic inflation down the road

We expect the price of gold to continue moving higher with big swings – up and down – around a rising trend. A gain of another 10 or 20 percent in the months ahead seems increasingly likely. And, with the right confluence of economic and geopolitical developments we could see gold spike to US$1500 or US$2000 or even higher in the next few years.

Jeffrey Nichols
Managing Director
AMERICAN PRECIOUS METALS ADVISORS
Office: 914-737-6655 / cell: 914-907-2022 /
email: JNichols@MetalsAdvisors.com

Welcome

2008-03-04T02:42:00.000Z

Welcome to the Blog Economist of the World. This blog continue the relationship started in Linkedin. A group for Economist around the world where we can comment the Economics Perspectives and Economic Theory and make a Community of this excellent profession.

Is true that the Group is for Economist, but Financial Managers, IT Managers and Financial Accounting have a place with us and are welcome.

Á la mémoire de mon père, Ingénieur Alfredo Jesús Gil y Gil. Merci beaucoup.