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Books, essays and others Economics History & heritage Science & technology Society

[2477] Diamond, consumer choice theory, marginal revolution, Marxian economics and the paradox of value

From those precursors of food production already practiced by hunter-gatherers, it developed stepwise. Not all the necessary techniques were developed within a short time, and not all the wild plants and animals that were eventually domesticated in a given area were domesticated simultaneously. Even in the cases of most rapid independent development of food production from a hunting-gathering lifestyle, it took thousands of years to shift from complete dependence on wild foods to a diet with very few wild foods. In early stages of food production, people simultaneously collected wild foods and raised cultivated ones, and diverse types of collecting activities diminished in importance at different times as reliance on crops increased.

The underlying reason why this transition was piecemeal is that food production systems evolved as a result of the accumulation of many separate decisions about allocation time and effort. Foraging humans, like foraging animals, have only finite time and energy, which they can spend in various ways. We can picture an incipient farmer waking up and asking: Shall I spend today hoeing my garden (predictably yielding a lot of vegetables several months from now), gathering shellfish (predictably yielding a little meat today)? or hunting deer (yielding possibly a lot of meat today, but more likely nothing)? Human and animal foragers are constantly prioritizing and making effort-allocation decisions, even if only unconsciously. The concentrate first on favorite foods, or ones that yield the highest payoff. If these are unavailable, they shift to less and less preferred foods. [Guns, Germs, and Steel. Chapter 6: To Farm or Not to Farm. Page 107. Jared Diamond. 1999]

A lot of words.

Luckily, any economics student who has his or her bases covered will understand this as [latex]\frac{dy}{dx} = \frac{P_x}{P_y}[/latex] in one way or the other. Simple! We can thank the marginal revolution that began in the late 19th century for that. Marginal revolution also solved the paradox of value. Indeed, marginalism is the foundation of modern microeconomics, regardless of your cup of tea.

And oh, did you know that the marginal revolution also made Marxian economics in its original interpretation completely obsolete?

Categories
Economics

[2476] Postponing the European crisis to 2013

I am in the opinion that the expected sovereign debt and banking crises in Europe have been postponed to the end of 2012 or early 2013. There are two reasons why I think so.

The crisis in Europe is essentially two-fold. One is due to government debts. Two is the risk of default by European banks. The two sides are interrelated but it is useful to separate them.

The sovereign debt crisis has been postponed thanks to the establishment and the expansion of the European Financial Stability fund. The EFSF would not be exhausted until the end of 2012 even if all debts repayment or refinancing by the infamous PIIGS (Portugal, Ireland, Italy, Greece and Spain) is financed through facility. The potential rating downgrade of sovereign debts of stronger economies, namely Germany and France, may hurt the likelihood of success of on the EFSF front but I will wait until that actually happens.

I am taking this position because by December 2012, total principal and interest payments made by the PIIGS government is projected to be EUR700 billion. That is below the total size of the EFSF.

The following graph shows principal and interest payment obligation of all the PIIGS government cumulatively. Looking at it, without the more permanent European Stability Mechanism which is supposed to kick start in the middle of next year, trouble will come only around February or March 2013.

The banking crisis meanwhile has been postponed until next year thanks to the soft loan facility provided by the European Central Bank. It has been reportedthat banks in Europe will require EUR700 billion next year to pay up their debts. Since the facility offered by the ECB is at the moment limitless (there will be a limit because already the total loans made by the ECB attract considerable question), the problem on this front too has been postponed to 2013.

This of course says nothing of recession and economic recession is another issue altogether.

Categories
Economics

[2475] Issues with the ECB’s soft loan

It was reported that European banks took out EUR489 billion worth of cheap loan from a facility provided by the European Central Bank. The Wall Street Journal revealed these banks will require more than EUR700 billion to meet their obligation next year, with more than EUR200 billion debt maturing in the first quarter of 2012 alone.

The facility is designed to avert or reduce liquidity crunch in Europe. These are two-fold. One, so that the bank have enough money to not default. Two, so that these banks do not cut loans to individuals and businesses.

Given the near panic that prevails in today environment that is ever looking for the big bazooka solution, it is understandable that the facility provides comfort and reduces the likelihood of bank runs.

But the interest rate of 1% is so low that there is an opportunity for some banks that have a better position than others to profit at the expense of the ECB. Some could probably borrow and reinvest in higher yielding assets like government finance to get essentially free pure profits. The Journal indeed did mention that the French President Nicholas Sarkozy has suggested this to kill two birds in one stone: the banks get their refinancing and the money flows into government coffer through the sales of sovereign debts to further postpone the sovereign debt crisis farther into the future.

Discounting banks which actually need the facility to refinance themselves in time when massive amount of debts are maturing, would the presence of the better-positioned banks compete with those who truly need the funds?

I would imagine some kind of controls is present in the ECB but in time of near-panic like this, I expect the controls to be weak. The tighter the controls, the longer it will take to disburse the money and that is not good. There is no time decide who really needs it. Just give it out and worry about it later.

The tightness of the loans would depend on the size of the facility. I tried to look for it but I have not found it. I would think it should be more than EUR700 billion so that the facility would be too big for the whole of 2012 requirement.

So, I would guess some banks would make pure profit. So, the presence of controls would not answer the crowding out concern.

Also, even if some of the banks actually needed the loan, what exactly prevents the banks from hoarding it like what happened in the United States with money from Troubled Asset Relief Program. Lending cost to businesses and consumers were high but the banks had access to cheap fund. The banks were saved

So, really, the facility is saving the banks. Liquidity issued faced by individuals and businesses will not be solved by the loan facility from the ECB.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
p/s – an extremely helpful Q&A by FT Alphaville.

Categories
Politics & government

[2474] So bankrupt of issues, they squabble over an insignificant banner

I have been using the word farce all too often these days. I find this is really bad because it suggests that my vocabulary is limited. I admit, it is limited to simple words but to demonstrate it in the public so openly, especially for a person who regularly pretends to write columns in both online and the more traditional newspapers, it is bad business. But I really cannot help it. There are so many instances where the word describes exactly what the instances are.

Here is yet another one of those farces that is becoming a national issue: at a small protest at UMNO headquarters organized by university students, somebody without approval lowered down a banner that had the Prime Minister’s face on it. The protestors were highlighting the issue of academic freedom, responding to events that demonstrated much more needs to be done with respect to undue political influence exerted by the federal government on Malaysian campuses.

And guess what attracted the most attention nationally?

You would be too kind to the farcical politics to suggest the issue of academic freedom is the crux. Or maybe even freedom of assembly.

The biggest issue by far that has arisen from the whole brouhaha is the act of lowering the banner. Granted, the act itself was wrong but is that really the biggest issue UMNO has over the incident?

And it does not end there. The education deputy minister Saifuddin Abdullah whom decided to entertain the protestors at UMNO HQ by agreeing to accept a memorandum from the student group has been asked to resign by some for the whole farce.[1] Indirectly, some UMNO members and supporters are blaming the deputy minister for that.

Really? Seriously? A resignation for such a trivial thing?

C’mon, UMNO members. There are ministers with actual scandal like Shahrizat Jalil and she is getting away with murder.

In the end, do you know what does this illustrate?

Quite simply, it is the bankruptcy of issues. Of all issues there to pick from, UMNO and its members chose the most trivial to fight for.

I say it again. This is a farcical fraca. Petty. This should be a comedy or a satire played in the theater, not on the national stage. Alas…

Maybe, this is a manifestation of a conservative-liberal tussle within UMNO, but surely, there are bigger conflicts to play out, something less petty to sweat over.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — KUALA LUMPUR, 20 Dis — Datuk Saifuddin Abdullah kini berhadapan dengan serangan daripada beberapa pihak dari dalam Umno dan proparti itu, dengan ada yang mendesak agar beliau meletakkan jawatan berhubung insiden menurunkan bendera wajah Datuk Seri Najib Razak, Ahad lalu.

Serangan itu dibuat menerusi mesej-mesej Twitter dan entri dalam blog-blog.

Timbalan Menteri Pengajian Tinggi itu, yang dilihat sebagai antara pemimpin Umno bersikap terbuka dalam isu-isu berkaitan penuntut institusi pengajian tinggi (IPT) dan Akta Universiti dan Kolej Universiti (AUKU) digesa memikul tanggungjawab insiden kumpulan mahasiswa menurunkan dan kemudian menaikkan semula bendera Najib di pekarangan ibu pejabat Umno di sini.

Selain kritikan di dunia siber, Persatuan Alumni Pemimpin Pelajar IPT Malaysia bercadang berhimpun di pekarangan Kementerian Pengajian Tinggi di Putrajaya petang esok.

Presidennya Mohd Shahar Abdullah berkata, pihaknya mahu melahirkan sokongan kepada kepimpinan Najib selaku perdana menteri dan presiden Umno susulan insiden kelmarin. [Saifuddin jadi sasaran desakan letak jawatan susulan insiden bendera Najib. The Malaysian Insider. December 20 2011]

Categories
Conflict & disaster Society

[2473] A world without Iraq

I was almost late for my morning history class. I ran as fast as I could while trying to keep my balance on ice and snow. By the time I entered the classroom, I was gasping for air. For the not very athletic me, it was not easy to breathe hard during a cruel Michigan winter. As I settled in my seat thinking my heart was about to explode and my lungs collapsing, the instructor said, “Today will be about what ifs. What if you were early?”

The class burst into laughter at my expense.

After several minutes of friendly pokes, the instructor began to share his plan for the day. “But seriously, today will be about what ifs.” What if Venice and other cities had not monopolized the spice trade? What if old European powers were unsuccessful at colonizing Asia? What if Dien Bien Phu did not happen? What if the United States had not entered the Second World War? There were many more what ifs.

We were discussing colonialism in Asia and we were exploring the importance of certain events by trying to imagine an alternative history where those events did not occur. It required a broad understanding of history.

It also required all of us in the class to do our voluminous readings. A lot of us, being freshmen and still patting ourselves on our backs for getting into a storied school, did not finish our reading. We gave it a stab anyway. We had enough imagination to run wild.

That old memory reran in my mind as President Barack Obama finally, for better or for worse, fulfilled one of his election promises. The US is officially withdrawing from Iraq after more than eight years since the invasion that toppled the former Iraqi President Saddam Hussein.

The withdrawal ceremony was being telecast ”live” on CNN. As I sat in my chair listening to Leon Panetta making his speech, my mind wandered to Egypt, Libya, Tunisia and the rest of the Arab world. Remembering my freshman lesson, I asked myself, ”What if the US had not invaded Iraq back in 2003?” Would Saddam Hussein’s regime have become a victim of the Arab Spring?

We will never know but nobody can say that would have been impossible. Whether a person is supportive of the war or vehemently rejects the invasion, he or she cannot deny that Saddam Hussein was a ruthless dictator.

That makes his removal desirable to some extent. If the 2003 invasion was legitimate in some ways, many in the anti-war camp would support or at least not reject the invasion. If Saddam Hussein was toppled organically by Iraqis just like how Hosni Mubarak, Muammar Gaddafi and Zine al-Abidine Ben Ali were toppled, many more would support the regime change.

An Arab Spring for Iraq would have been ideal. It would have removed a dictator without causing bad blood among various sides. Yes, it would be eight years later but in a time of terrorism and religious extremism, a world without the 2003 invasion of Iraq could have spurred deeper co-operation between the US and those that mattered.

A world without the war would have the US possibly swamped with goodwill of the kind it received in the aftermath of the September 11 attack but soon after squandered in the run-up to the 2003 war.

It could be the case, or it could not. Just as Japan in the Second World War made the colonized natives realize that colonial European powers were not invincible, the US invasion also reminded the Arabs that their dictators were not gods.

Sure, the United States of the 2000s was not Japan of the 1900s that was seriously underestimated first by the Russians and then later all the colonial powers in South-east Asia. Still, what is possible is not always evident until somebody makes it a reality. The US with its unmatched military might removed Saddam Hussein. The US made possible a regime change.

Or — this might sound repulsive, especially for those in the anti-war camp but consider this — the Arab Spring might not have happened without the 2003 invasion.

An alternative reality without the war would have taken away the realization of the possibility, and possibly affected the psyche of the Arabs. What was possible would have remained only one of the possibilities deep in the minds of ordinary men, never to surface to the real world.

A world without the war also would have taken away the anger against the US. The US in many parts of the Middle East and Northern Africa had close relationships with many Arab dictators. The relations were maintained in the name of stability and much to the detriment to the freedom agenda.

The ordinary man in the streets of the Arab world, already with a low opinion of the US, saw the relationship as a constant reminder of how much they disliked their own autocrats. This only added to local frustrations that had nothing to do with the US directly. All that anger and frustration, along with the cumulative effect of all those issues, created a momentum to push history to converge to a point that sparked the Arab Spring.

Without the war, part of the momentum would not have existed. The cumulative anger without the invasion might not have been enough to start the Arab Spring. That sans-Iraq anger might have been just a weak undercurrent, never to surface and threaten the dictators’ expensive boats, rocked gently by the pleasant waves.

There are a lot of other considerations as well. Maybe without the war, the US would have enough money to bail out Europe. Maybe, Obama would not have been elected as the president. Maybe, we would be still swimming in cheap oil. Maybe. Maybe. Who knows, really?

At least we know one part of history is ending. At least we know the next chapter is a whole new world, for whatever it is worth.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malaysian Insider on December 18 2011.