Saturday, August 28, 2004

Random Commission Interview Notes

Notes from all over in preparation for commission interview. Didn't use any of it in the end, as they didn't touch on current affairs. Pardon the terrible indenting, some how, everything goes awry when I cut and paste from Word.

US Troop Reshuffle
Long term, over 10 years so as not to affect political situation
Current huge number of troops stationed in Europe – little relevance today
New warfare, no need for large military bases, more mobility with small bases around the world
Save taxpayer’s money, bring troops home
Strengthen US security by not defending allies all the time, stop being tied down by allies
Lay foundation for bigger US involvement?
European local economy affected by US pull-out
China threatened because no pull out from Japan

MM Lee Speech
Stay competitive by cost reduction – variable wage component, reduce CPF contribution, reduce fees and taxes, raise GST(?)
High growth due to engines of growth in China and India, FTAs with US, Japan, Australia, NZ
Maximize opportunities with bilingualism, less fierce competition than in China
Challenges faced by young generation – SARS, recession, Asian financial crisis
Need to fight complacency

Building homes in West Bank
Israelis uncompromising, expand illegal Jewish settlements, excessive force against protesters
Palestinians uncompromising in driving out Jewish
Need for US to reengage.

Peace based on 1) Taiwanese restraint on calls to independence 2) China’s willingness to use force 3) US consistency in maintaining status quo
Time running out – economics will make Taiwan dependent on China, while with time, independence will become entrenched in Taiwanese political identity, resulting in fewer options
Problem with Pentagon urging large arms transfers to Taiwan – while there is a need to strengthen Taiwanese military to prevent slide into conflict, US not consistent in engaging dialogue
Challenges of rise of China
Economic expansion boost growth in region
Uncompromising in sovereignity issues
SEA countries could be forced to take sides in US-China crisis

Indonesian Elections
Megawati alliance with Golkar and 2 other minor parties PPP and PDS, giving them positions in government
If Bambang wins, Democrat Party will strengthen and undermine Golkar, also Mega’s last term in power
Golkar mobilize support at grassroot level
PPP win Muslim vote (via NU)
Political culture of personality based and traditional authority oriented
Concerns of corruption – benefits Bambang, untainted by status quo parties
Bambang going for people’s coalitions rather than party alliances
Strength of grassroots independent of parties

Regional Hotspots won’t erupt into war
Nations have vested interest in stability.
Inter-dependence for economic prosperity
Common threat of terrorism

Baby Problem
Maternity Leave
Family Unit
Financial incentives

Medishield Premiums up
Raise premiums to cope with higher bills
Get more to join to bring down costs of premiums
Force people to subscribe to medishield before other products

US Elections
Kerry supported in Europe for more conciliatory stance

First Economic Roundtable
Fiscal Policy
Tighter than rest of Asia
Hard to loosen further due to high propensity to import, so government spending gets leaked out
Long-term supply-side perspective not beneficial – personal income tax cuts affects 30% of Singaporeans, while GST hikes hurts 70%. CPF cuts also hurt lowest income group
Fiscal stimulus policy should target poor – social welfare, poor have highest marginal propensity to consume, poor higher marginal propensity to consume local products
More done to tackle structural unemployment, chronically ill, elderly, especially with declining CPF
Overly prudent fiscal policy leading to deflationary impact, with FDI flows harder to attract.
Underestimate role of domestic demand? Focus on service sectors
Design of prudent social safety net

Monetary Policy
Review of exchange rate policy
Trade-weighted currency policy based on trade in goods, excluding trade in services and capital flows
Risks of losing out to pegged currencies in case of devaluation of US dollar
Exchange rate depreciation does not work because of high import content of Singapore’s exports mean that rise in costs of imported inputs will erode gain from exchange rate depreciation? Service oriented industry have much larger domestic component so perhaps exchange rate is important
Underestimate risks of deflation
If exchange rate not used to ease economy, then adjustment to solve competitiveness problem will occur through correction of domestic prices such as real estate and wages, resulting in dangerous deflation
Fear uncalled for as ASEAN on reflation
Structural problem of huge current account surpluses due to reduction in investment rate decrease rather than saving increase
Policy recommendation of returning surpluses to people through ERS and Singapore shares, better targeting and design of surplus distribution

Regional competitors catching up
Globalisation implies economies of scale more important – small market is a disadvantage
Regional hinterland is weak now
High costs centre
Region hotting up competition due to reduction in inefficiencies
Irrational competition via government subsidies
Why do Singaporean workers demand high wages? Due to high costs of home ownership and transportation, taxes.
High costs must come with high returns – need to generate new business opportunities, regulatory framework, competition structure
Economic decision making dominated by government – correlated errors, eg over-allocation of capital in property
Chinese boom not so dependent on SEA labor and capable of sucking away FDI.
Malaysia challenging strongly with Port Klang, KL International Airport, Multimedia Super Corridor, Tanjung Pelapas
Obstacle – Structural Weakness in Economy
Distorted decision making
Prices do not reflect true economic value resulting in distorted economic decision making, due to dominant role of government in ownership of key factors of production and consequent influence on prices, resulting in poor allocation of resources by entrepreneurs.
Government set artificial targets such as maintaining manufacturing share of GDP – skew policies to target, damage elsewhere in economy
Role of manufacturing in job creation?
Biases in Policy Against Domestic Investment
Attract FDI, no comparable effort to promote domestic investments.
Underestimate domestic demand
Over-reliance on Certain Sectors
Over-reliance on MNC and GLC.
Policy shift to SME recently
MNC not optimal in job creation
Lack of Competition Hurts Competitiveness
Service sector dominated by GLC – poor productivity
Labor Issues
Workforce able to cope with economic shift? Especially with ease of entry of skilled foreign workers
Viability of manufacturing sector need critical mass of technical workers
Question of whether wage policy has reached effectiveness in targeting competitiveness
Regional Integration
FTAs detract us from regional integration?
If US were to sign FTA with regional players, our advantage would be eroded
Cost Issues
Role of government agencies pushing up costs, e.g. power, transport, due to target return of capital
Use of price mechanism to allocate scarce resources, e.g. transport, water tax, foreign worker levies, result in high costs with increase in demand. Government entities functioning too much like profit centers
Policy Implication
Product-weighted exchange rate regime
CPF cuts blunt but effective in the past, but as Singapore liberalize, policy makers will find less instruments at their disposal (fiscal, exchange rate).
Focus on ASEAN hinterland

Fiscal policy ineffective in managing aggregate demand in downturn due to high import leakages
Over-emphasis on fiscal prudence burdens economy
Need for social safety nets to address aging population, rising structural unemployment
Policy biases towards MNCs and manufacturing
Pricing mechanisms to allocate scarce resources leads to eroding competitiveness

Wednesday, August 18, 2004

Key Ideas in Economics Summary

The Modern Stuff
Douglass North
- Institutions = Any socially imposed constraint upon human behaviour, the rules of the game for human interaction
- Institutions limit and guide human interaction and choice thus affecting economic activity
- Key institutions: market, firm and supply contracting
- Dynamic economy
- Transformation and transactional costs
-->Transaction cost = cost of specifying what is being excahnged and enforcing the subsequent agreement
--> Enforcement cost = informal constraints restricting exchange to small group = formal legally enforced rights applicable to large group
--> Specification cost = costs of measuring what is being exchanged (e.g. quality)
- Creating efficient institutions
--> Effective traditions of hard work, honesty and integrity which lower costs of transaction
--> Low cost of information -> ideas easily spread
- Role of state
--> Ensure contracs made in society are kept
--> 3 levels - 1st party (self), 2nd party (retaliation from others), 3rd party (public loss of face and law)
--> Danger of enforcer inflation -> increased costs within economy
--> Need for governmental and intergovernmental enforcement in large economy -> require global govt?

David Pearce
- Sustainability
- Opportunity cost in environmental decision making
- Different forms of capital : Man-made, Human, Natural, Social
- Rising/constant capital rule as condition for sustainable development
- Weak and strong sustainability - weak = total not reduced, strong = components not reduced
- Measuring sustainability - Saving + Appreciation(Human) > Depreciation(man-made + env + social)
- Critical Natural Capital: eg ozone layer
- Equity: inter and intragenerational equity
- Trade offs via valuation of environmental resources so better choices can be made
- Valuing the environment: makes case for preserving environment
- Paying for harm to environment via taxes
- Total econ value = actual use value + option value + existence value
- Precautionary principle as basis for environmental policy making

Amartya Sen
- Social choice theory ??
- Poverty and Famines
-->Entitlement-endowment approach
-->If price of food rises but not income -> famine
-->Famine arises when growth disproportionately benefits one section of population over others -> pull on prices
- Role of women in development
- Freedom and development
-->Capability approach -> emphasize capability, rather than the actual product
-->Increase in capability -> increases freedom -> development

Anthony Giddens
- Third way: Combine market with govenment steering influence, in democratic society with a commitment to community goals
- Self and social structure
- Class structuration and reshaping them by providing greater opportunity
- Individualism to create solidarity within communities
- Globalisation: Use individuality to build new democracies based on community values to counter globalisation
- Third way values: :Equality, Protection of vulnerable, Freedom as autonomy, No rights without responsibilities, No authority without democracy, Cosmopolitan pluralism, Philosophic conservatism

Jose Bove
- Anti capitalist globalisation
- Technology stripping meaning from life
- Emphasis on free trade, capitalist growth models fails to understand and meet needs of ordinary people
- Popular protest vs neatly constructed ideological theories
- Free trade in agriculture destroy power of small farmers, making them subserviant to capitalist agribusinesses.
- Countries no longer choose own food policies
- Alternative institutions for world trading
--> Right to impose own tariffs
--> Prevention of multinational food producers from dumping cheap produce in local markets
--> Abolish right of multinationals to patent on living things
- Critique of malbouffe, junk food.

Secret & Lies - Bruce Schneier

Security Processes
- Compartmentalize
- Secure Weakest Link
- Use Choke Points
- Defense in Depth
- Fail Securely
- Leverage Unpredictability
- Simplicity
- Enlist Users
- Assure
- Question

Detection and Response
- Detect Attacks
- Analyze Attacks
--> Detect
--> Localize
--> Identify
--> Assess
- Vigilance
- Watch the Watchers
- Recover from Attacks

- Prosecute Criminal Activity

Manage Risk
- Insurance
--> Compensation
--> 3rd Party Liability

Outsourcing Security Processes
Average Joe vs Expert
- Due to internet mechanism, threats can spread
Deal with problem, not ban
No technical solutions for social problems -> Laws
Secrecy aids attackers
Government regulation - misdirected and slow
Private assessment, consumer reports
Licensing, liability insurance
Trust entities to limit risk Problem is not technology but the use of technology

Complementary Currencies for Social Change - Bernard Lietaer
Complementary Currencies
- currencies that are operating on a smaller scale than the national level, and that can solve social, environmental and education problems.

Currency and Governments
- Unstable currency equals unstable governments
- Whether fix currency or float, unmanageable currency problem is a result, same if IMF dictates fiscal policy

Corporate scrip
Some examples of "corporate scrip" (a private currency issued by a corporation):
- Frequent flyer miles are private currencies issued by airlines.
- Disney Dollars can be used on par with U.S. dollars at most Walt Disney World locations.
- Canadian Tire money is a scrip issued by Canadian Tire Stores and Mastercard. It is now gaining popularity in bars, where people can sometimes spend it at par.
- Trilegiant Corporation is issuing its own Netmarket Cash for electronic commerce.

Corporate scrip can be used to abuse workers. In 1931 W.A. Bechtel was paving roads in Northern California. Workers were paid $4 a day in scrip and charged half of that for food and a rented tent. Because of the scrip, workers couldn't choose another tent or food.

Complementary community currency systems
Some examples of private currencies issued by communities:
- Time dollars are a tax-exempt kind of money that lets people convert their personal time into purchasing power by helping others in the community. Everyone's contribution is valued the same: an hour for an hour. The time dollars earned helping others can be used to receive services or help from someone else. When someone spends time dollars, someone else earns them. They can be saved up or they can be given to someone else who needs help.
- Fureai kippu are japanese private currency systems to pay for any care for the elderly that isn't covered by the national health insurance.
- Ithaca HOURS local currency is issued by a local community organization in Ithaca, New York. Ithaca HOURS are printed and exist physically. In Ithaca people can go to the farmer's market and buy vegetables and eggs with them, or even pay part of their rent.
- LETSystem is a self-regulated trading network supported by its own private currency, equivalent in measure to the national currency to make the system more practical.

The LETSystem units are information about an individual's position within a trading community. All accounts begin at zero, but nobody needs to earn before spending, because accounts can have unlimited negative balances. This information is disclosed in the network. If someone goes away leaving a negative balance nothing happens. But people could refuse to trade with that person until he or she has put his/her account into better shape. That is why balance and turnover details are available to all the other people who hold an account in that LETSystem.

So LETSystem can be considered an honor system. Most of the other complementary currencies (with the exception of Ithaca HOURS) work in a similar way.

The problem with conventional money systems: the global casino From Bernard Lietaer's book The Future of Money: Creating New Wealth, Work, and a Wiser World:

Your money's value is determined by a global casino of unprecedented proportions: $2 trillion are traded per day in foreign exchange markets, 100 times more than the trading volume of all the stockmarkets of the world combined. Only 2% of these foreign exchange transactions relate to the "real" economy reflecting movements of real goods and services in the world, and 98% are purely speculative. [...] Unless some precautions are taken soon, there is at least a 50-50 chance that the next five to ten years will see a global money meltdown, the only plausible way for a global depression.

And Lietaers adds in the interview:
There is practically no way today for a developing country to have a reasonable monetary policy within the current rules of the game. [...] Whether you fix your currency to the dollar or let it float, you end up with an unmanageable monetary problem, like Brazil, Russia or Argentina have experienced. Eighty-seven countries have gone through a major currency crisis in the last 25 years. Their fiscal policies are imposed by an International Monetary Fund (IMF). I am afraid that if the United States had to live by the rules that are imposed on, say, Brazil, the United States of America would become a developing country in one generation.

This system is based in scarcity, as Lietaer says in another interview:
We can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all. The scarcity is in our national currencies. In fact, the job of central banks is to create and maintain that currency scarcity. The direct consequence is that we have to fight with each other in order to survive.

Gift economy
On the contrary, complementary currencies issued by communities create a gift economy based on cooperation instead of competition. These mutual credit systems do not require any centralized money supply management. Every user can 'issue' LETSystem units, because there is no negative balance limit. The only requisite is that every transaction must be registered at the LETSystem Registry to be disclosed for other people at the LETSystem. So this system avoids scarcity and therefore complementary community currencies cannot be subject of speculation.

The foreseable future
The Internet facilitates global communications, so a community does not have to be limited to a geographic area. Systems like LETS are easy set up with a computer connected to the Net. Quoting Lietaer: "It enables us to consciously design money to work for us, instead of us for it."

Due to complementary community currencies and to corporate scrip, conventional currencies will lose their hegemony, although they will not disappear. Lietaer says these currencies are "complementary" and not "alternative" to national and supranational currencies like the Dollar, the Euro, etc.

What is money?
An interesting point of the interview is the definition of what money is:
I define money, or currency, as an agreement within a community to use something as a medium of exchange. [...] And most of the time, it's done unconsciously.The agreement can be conscious or unconscious, coerced or free. Most of us don't consciously choose our money. So currencies (and therefore, money) are like The Matrix; they exist and work because we believe in them.