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29 November 2005

All done and great

I just finished uni for the year. I had to have my last essay in by midnight tonight. And Libby and I worked until the last minute (and a little beyond) tweaking it until it was absolutely perfect (sort of). But I sent it. And it's finished. And so am I. So tomorrow we're going to the beach unless it rains.

White Stripes

I heard The White Stripes for the first time yesterday. Maybe I'm the last person in the world to realise this, but they're way good.

Crappy Communism

Everyone knows that communism is hopelessly inefficient and has been entirely discredited. There might have been some doubt 50 years ago, but since the end of the Cold War there's no question that capitalism has won. The bureaucratic, centralised control of the economy could never have really expected to compete with the dynamism of the free market.

Which makes me assume that the Economist had made an enormous mistake when it says that China has 20% of world GDP, the US has the same and India has only 8% of world GDP. Surely they must mean China has 2% or something like that. Maybe they mixed up the numbers for India and China. India is a promising capitalist democracy, and has approximately the same number of people as China. The Economist is usually very reliable with their figures, so I'm surprised they made such an embarassing mistake.

Treble and Bass

I was wondering why my computer music was sounding so much better than normal this morning. I discovered it was because I had both the laptop speaker and the external speakers turned on. The external speakers have good bass but almost nothing else. And the laptop speakers, as usual, have no bass at all but really nice sounding tinniness. Combined together they actually don't sound that bad.

Too many damn jobs

Apparently, according to the CIA unemployment is lower in Australia than in the US. Quite a bit lower. 5.5% in the US, and only 5.1% in Australia. Wasn't their low, low unemployment rate the one thing Americans had going for them? I actually did think it was lower in the US, but I guess the CIA don't have a lot of interest in inflating the figure.

23 November 2005

Poverty Reducing Growth

Poverty Reduction and Growth Facility arrangements seek to promote poverty reduction by removing impediments to strong, sustainable growth and a viable external position. IMF Conditionality Guidelines

The Poverty Reduction and Growth Facility looks pretty similiar to what I'd expect to see if I was to develop a Poverty Perpetuation and Growth Facility. In fact I get the impression that the biggest difference between the old Growth Facility and the new Poverty Reduction and Growth Facility is the first two words. I like the IMF in many respects, but they sure say a lot of funny things.

We love capital markets

...disqualifying "odious" debt [(i.e., debt related to arms purchases, debt accumulated by previous non-democratic or corrupt regimes, etc.)] would involve a radical change in the validity of creditor claims and the sanctity of contracts, which would have adverse implications for the operation of capital markets. IMF

So that's why they can't drop the debt. It's obvious when you think about it. We can't allow any "adverse implications for the operation of capital markets."

When I read the reasons they offer, it sounds even more bollocks than when I try to explain it. I'm opposed to their policy, and I think I could make a better argument than that.

22 November 2005

Political Courage

I love this sort of statement. It typically comes from business people, and right wing politicians who've got what they wanted. There's not question that the reforms are beneficial. That goes without saying. I'm sure left wing politicians would be the same, except they don't often seem to get what they want these days.

... politicians have shown considerable leadership, that is, political courage in support of some ideal. Many if not most pillars of economic reform were highly unpopular when initiated, and remain so to this day. Nicholas Gruen in Reforming the Agenda

Chavez profits on oil deal with American poor

Hugo Chavez has just arrange a deal to provide heating oil to a bunch of poor families in America for a heavy discount. Oil prices have gone up a lot in the past little while, and a lot of families can't afford the to buy it. So Chavez is selling some of his cheap oil to them. What a bastard!

If you didn't know how keen Chavez was to use his oil to help everyone, then you'd think it was purely political. But he's been selling cheap oil to the poor in other countries too, and no one talks about it. I'm no supporters of pseudo-democracies, but all us western democracies only do a marginally better job of representative government. If you look at what it is, and not what it claims to be, then perhaps there isn't much difference.

18 November 2005

Somali Phones

Telecoms thriving in lawless Somalia This is an amazing article about the private telecommunications industry in Somalia. The country had no government at all, and yet phone and internet services were booming. Small villages were getting access to wireless internet just by running in single phone lines. Very nifty.

Greener Markets

In analyzing the competitive processes of a laissez-faire economy, one must recognize that capital outlays (investments in new plant and equipment either by existing producers or new entrants) are not determined solely by current profits. An investment is made or not made depending upon the estimated discounted present worth of expected future profits. Alan Greenspan

A while back I talked about investment by monopolies. I said that monopoly profits aren't required for a good level of investment, and that it was up to capital markets. Although I don't agree with some of his assumptions, in that article he makes a very persuasive case for eliminating antitrust laws and letting capital markets manage prices for us. Using the capital markets and not the "productive" markets to manage competition is the key point, and one I haven't heard discussed properly before. It's not up to consumers to keep business honest, but up to investors. And I trust investors to know what's good for them far more than I trust consumers.

The other interesting distinction he makes, which is related to my post about predatory pricing below, is that between high prices and low costs. Both can contribute to high profits, but only high prices are a problem. If a company makes money because it's the only one efficient enough to charge prices low enough, that isn't the fault of the company. But if it charges prices that are high, and uses other methods to keep competitors out, then that is a problem. As he says, the problem is prices and not profits.

Alan vs Predator

I have to read about predatory pricing for my business subject. Apparently most economists don't believe it really exists, because it's not rational. Because the incumbent company makes a loss, and there's no guarantee it will work anyway, they say that no one would try and do it.

But does it count as predatory if they are still making a profit on their reduced price? An incumbents costs will almost invariably be lower. They have previous investment, brand awareness, technical knowledge and economies of scale. You could make a pretty deadly pricing scheme that was above cost in most cases. Which means that the predatory pricing can continue indefinitely, and so no one is likely to enter. Perhaps in the big "natural monopolies" which require large investment any potential entrants know what the behaviour of the incumbent will be and don't bother. Perhaps the reason you rarely see predatory pricing is because business people know how effective it is.

I still feel that Jetstar's pricing is clearly competitive. We had decades of no low-cost airlines, and high profits for Qantas. Within 24 months or something of Virgin Blue arriving, Jetstar shows up and starts selling flights at below cost. I guess we'll find out how predatory it is if Virgin Blue sticks around.

Linucks Whyliss

It got working good at uni the wireless on Ubuntu. Good stuff Ubuntu. And Debian. And even UNSW. When the software is supported by OS community it just works. Stupid Cisco.

17 November 2005

Wonderful Walmart

In my study-induced meanderings I found a nice post on Walmart, much of which I disagree with.

I agree that the return on equity is the real figure to be looking at. That's the "profits to capitalists" that the left complain about and 22% is mighty high. There's nothing wrong with a high ROE, but when Walmart complains that it can't pay wages that are any higher or prices would go up, that's not strictly speaking true. I suspect that the issue is that if they paid their staff more than minimum wage there'd be the opportunity for other businesses to come in and undercut them on price. I think this is supported by Walmart execs recently suggesting that the minimum wage be increased. The point is that even if a worker is worth a lot more than their current wage, the stock market will punish you if you don't extract as much as you can from them.

In poor countries I agree that Nike factory jobs are often the best option available. However, in many cases options have been previously removed from farmers by taking their land by force. Whether it's economic or physical force, they end up effectively have only one choice, and that is to work in a factory. I realise that this process usually has very little to do with the foreign companies that benefit from their labour, although not always, but I think it's misleading to suggest that a Nike factory is the best option of many.

The issue of wages vs prices is a valid point, but I suspect that the overall effect is a transfer of wealth from the poorest to the middle class. It's true that the poorest Walmart workers get cheaper food, but so do the middle class workers who haven't had their wages cut. Even if output is increased, "making the pie bigger" and all that jazz, I would argue that the workers on minimum wage need the income more than America needs the cheaper food.

One interesting outcome is that I reckon America's low minimum wage makes the economy look very good. It forces workers to work far more, even while their productivity is increasing. If you doubled minimum wage to something like the Australian minimum, output would probably drop significantly as people went from 60 hour weeks to 40 hour weeks.

Women’s Assets

I've wanted to do a study on the relationship between the proportion of female employees in a company and the company's return on assets. There are so many problems with attempting to determine wage discrimination against women. Last year I read a pretty convincing study suggesting that gender-based wage discrimination didn't really exist. Women earnt less for the same sorts of jobs, but not because they were women. It's always going to be very hard to measure things like "how bad do you want it?" I would guess men tend to want it badder, but I don't know and I don't know how I would find out.

So I thought about other ways of measuring discrimination. Ultimately it's a violation of the efficient market hypothesis. In theory, if women earn less for providing identical skills, then businesses that employ them should make more money. You can really look at stock market returns, because at that level the profits are abstracted. If a business earns higher than normal profits for any reason, people will invest and the rate of return will eventually fall to a normal level. Which means you have to look at the return on assets, and importantly the assets per employee. That's because companies that use assets well will be given more assets. So you need to look at how well assets are used by each employee. If women are discriminated against in wages, then they'll utilise their assets better than men.

I just found an article that talks about a study that's related. Except it's look at female business owners, rather than female employees. It found that the return on assets for female-owned businesses was that same as for business owned by men. Which doesn't tell you that women aren't discriminated against, just that their management style isn't any more profitable. Their style might even be better, and their employees might be happier and so on, but they don't make more money. Or, use their assets better. However, they didn't look at return on assets per employee which I think is a more significant figure.

I don't think there is a lot of doubt that capital markets are pretty efficient, but that doesn't necessarily mean that labour hiring practices are efficient. I'm inclined to think they are, because the temptation to exploit any inefficiency would be too great. If there was discrimination, then you'd be a fool not to try and hire only women. Which would eliminate the discrimination pretty quick.

But I'd still like to do the study.

15 November 2005

Grassroots Politics

With the amount of violence our governments get us involved with, you can make a case that terrorism is really just grassroots politics. The same people in charge of a pro-market government would be applauded by most of the world.

I know it's politically incorrect to equate government-sanctioned violence with terrorism outside vegie coop sorts of circles. But I really do think that sometimes it's that simple. It's not that terrorism is necessarily acceptable or justifiable, but that government-sanctioned violence is so unbelievably bollocks. Whether or not terrorism is acceptable or justifiable is a whole other, much uglier conversation.

Sad Failures

I did real bad in my accounting exam. I've done nowhere near enough study. I only started looking at some of the topics this week. 40% of the exam (two questions) were really hard. Well, actually pretty easy. But since I hadn't done any study, they seemed hard. Which is annoying. I prefer it when exams are hard, than when I just feel stupid or lazy.

There's a small chance I'll fail. Especially if they give me no marks for those two questions, which they could because my answers were pretty random. I just wrote done everything I could think about the topics in no particular order. At first I was worried about failing. Then I got more worried about getting my first pass mark. Then I realised that I can only fail or get a credit, because of the way the averages work, so I felt a bit better and went back to worrying about failing.

The other funny thing is that while I was plonked down reading about stupid foreign currency translation reserves before the exam the girl came and sat down opposite me. We kind of sat and studied together for an hour and had erudite conversations about stupid foreign currency translation reserves. It's good to hang out with someone that I have have so much in common with. I found out her name too.

No Jihad for You

Some people claim to love jihad but don't respect their own parents … you need permission from your parents to go to jihad. If your mother says no to jihad, then no jihad. Allegedly said by Benbrika, one of folk who've recently become popular with the police

I love that! If only more politicians and terrorists listened to their mothers.

10 November 2005

Matt’s Comment

Matt made a good point. It's often difficult to work out someone's value to a business. However, the theory is that if someone is working for less their the value of their labour another business will come along and offer them more. It never works like this, because there are so many cleaners and not enough cleaning jobs. And people can't shift out of industries into other industries that easily.

But if labour markets were fluid, and no one was forced to work to survive, then efficient market theory would suggest that everyone would earn the equivalent of what they are worth to a society. And what they are are worth is the maximum society is willing to pay to have something done. Even if a business doesn't think cleaning is valuable, the government does and so it has a value.

If the costs of that cleaning get too high, then businesses will start going bankrupt or prices will go up. Eventually the government will decide that cleaning isn't important enough and will remove the regulation. But I'm sure there are plenty of businesses in Australia that would be willing to pay someone $100,000 a year to get them to clean somewhere. Lucky for them they won't ever have to because there are enough cleaners that prices are continually bid down.

But if someone would be willing to pay $100,000 a year for something, and someone else is willing to accept minimum wage (or less) to do it, who is to say what that person should be paid? If someone is paying them to do it, then they are definitely worth it. Bob Snuffles might not be worth minimum wage to his employers, but he's worth it to society. It we want clean floors then we should pay for them.

I reckon that the supply and demand for cleanliness looks something like this.

Cleanliness of city

Cleaning is pretty important, so I'd reckon that businesses wouldn't reduce their consumption that much with price rises. Which is why the orange line is so steep. But the blue line is really unsteep because there are lots of cleaners, they don't have many other skills, and it's probably hard for them to get other skills. And most importantly, they have to work to survive, so they'll take what they can get.

The blue line is very much determined by the sort of society we've built. It's not really the fault of cleaners that they get hardly any of the value of their cleaning. And it's not really anything clever that businesses have done that means they get almost all the value of their cleaning. In this instance minimum wage is trying to make sure workers have enough to live on, but also to divide the value a bit more evenly.

By the way, that diagram doesn't relate particularly to my previous post about minimum wage. That was about what doesn't get shown on these diagrams.

I don't think there is an ethical line. Why are sweat shops unethical when poverty wages in Australia aren't? Is it the degree of oppression that determines whether or not it is ethical? Poor workers in Australia are in a very similar position to sweat shop workers. Sure, they're willing to work for that wage - no one is forcing them. But if you give all the power to employers, then I'm almost sure that the majority of people will be working on wages that are just enough to feed them and their children. Which is economically efficient? You're getting the right amount of output, and allocating your resources to all the right places. But then crime goes up, and you start having social revolutions. I'm all for social revolutions, but unlike those Marxist fellows I don't think that oppressing the poor is a good way to create one.

I strongly believe in the social contract. I think that we're only obliged to participate in the society as long as it lives up to the contract of distributing the benefits of community around. And when you get a bunch of people who've decided not the participate in society, it tends to get very bloody and crazy. You don't even have to use words like equity at all. I look at redistribution of resources as an investment in avoiding a class war. It's perfectly rational, and has nothing to do with compassion at all.

Crazy Group

Despite our crazy accounting group being so crazy, for some reason we got full marks for our group assignment on income taxes. I think it's mostly thanks to Xuan, who's a total champ.

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