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Economics Education Liberty Society

[1716] Of spark plug for liberalism in poor societies

Education empowers individuals by enabling them to utilize their faculties, freeing themselves from tyranny. With reasonably educated individuals dominating the society, the creation of a liberal society becomes more possible than ever. Self-empowerment is the seed to the creation of a liberal society and education is the key to such empowerment. Without the empowerment, individuals would forever stand timid in the face of tyranny, unable to rationalize the reason for liberty.

Education is the sculpture of a society and its importance cannot be overemphasized. Yet, the issue of education has always bogged me down. I struggle to answer the question whether the state is required in providing individuals with education, especially in poor societies.

I am predisposed to answer no.

The path is chosen due to my minarchist tendency which seeks to limit the roles of government to simply the protection of individual liberty and private property only. This is the only social contract which a libertarian seeks. Anything more increases the opportunity for tyranny.

All other areas should be left to means of individuals in the society. The reason for that is the market in many cases has proven to be more than capable to play roles played by statist state as effective if not better. It is part of the spontaneous order doctrine so close to the heart of libertarianism.

The issue of education and the state arises when I come to consider the effect of endowment on eventual outcome. In a poor society, attainment of education requires a quantum leap. Resources well beyond the means of the poor are required to invest in education.

It is not uncommon for children of poor families to face strong pressure to forgo basic education in order to answer immediate question surrounding matter of survival. Without coercion by the state in form of compulsory basic education as well as other aids, it would be highly probable for these children to stay away from any kind of formal education. As they grow up, they would become susceptible to manipulation of the elites whom might have insidious plan to promote themselves in a society. Through this manipulation which usually comes in form of populism, a mob could easily overrun individuals, transgressing individual liberty with impunity.

Only a strong liberal culture could fight such tendency fearsomely. It is worth repeating that the birth of a liberal society is only possible through self-empowerment usually brought upon by education. By education, I do not mean simply the ability to read and write. I am referring to the development of the critical minds which take more than merely learning about humanities and sciences. I speak of liberal education which students are able to explore their potential freely.

Leaving education to the workings of market of a poor society may not encourage the creation of a liberal society. There is always competing demand between immediate demand and the future prospect. Not too many people have the luxury of looking beyond a hill when no food is guaranteed on a table everyday, assuming there is a table in the first place.

The misalignment of temporal requirement for education could perhaps be tweaked to impress on individuals the importance of education through market means without the use of force. For instance, a philanthropist or foundation could fund schools or offer need-based scholarships, making the cost of education of a child more bearable to poor families. To bring the idea farther down the road, a corporation in need of talents could adopt a child by financing the child’s education. Graduated individuals under such program could repay their sponsors when they start their professional career.

Then again, this only repeats the problem of citizenship for liberals and mismatched timelines: the ones most likely to make such bond for the children would be the parents while the children really had no say in the matter. As they matured, they found themselves in bond they did not choose to be in.

How well private institutions tailored for basic education fares against the idea of universal basic education has yet to be explored however. Even on the surfaces, private institutions may disfranchise the poor for reason made clear earlier. And I am uncertain how a system dominated by private institution for basic level encourages a society’s progress towards liberal ideals.

All that considered, it seems that the institution of universal education on the basic level supported by the state looks promising in creating a liberal society, especially for poor societies. As for affluent societies, the problem of endowment is less of an issue. It is probable that members of an affluent society are well-educated and liberal enough in their outlook to fight tyranny.

The progression towards an affluent society however requires education and this creates a conflict in my thinking. Ignorance is a barrier to self-empowerment and liberty.

Perhaps, universal basic and general education with involvement of the state for poor society is the spark plug for liberalism. Perhaps, I am trying to be too rigid, ignoring a virtue of pragmatism.

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

p/s — Milton Friedman’s The Role of Government in Education is an essential read. Friedman’s Free to Choose is for further reading. For wider scope, the Friedman Foundation has more.

Categories
Economics Environment

[1710] Of solution or shut up

The Kedah state government has come under criticism for its decision to log timber in its water catchment areas. While I disagree with the decision, I feel too many sides are criticizing the state government without providing any solution — with the exception of Sahabat Alam Malaysia (SAM).

Here, I want to offer two solutions to the issue that will leave those trees in peace:

SAM rightly pointed out that Penang needs to compensate Kedah for refraining from logging timber within the water catchment areas from which Penang draws its water supply. In everything that we do, there is always an opportunity cost and Kedah is no different in this respect: one of those costs involves the decision to log or not to log.

A similar idea of compensation was proposed at the United Nations Climate Change Conference held in Bali, Indonesia last year with the objective of halting the destruction of rainforests. The origin of such an idea itself goes back to 1937 when economist Ronald Coase first proposed it. I will not bore you with the economics but what I am trying to do is demonstrate that this idea is not as novel as it sounds.

While SAM gets the idea of Coase, the state-to-state compensation is not as on target as I would like it to be. It does not link the issue with the market and any state-to-state compensation may amount to a water subsidy in the end.

A better compensation method will see consumers themselves compensating the owner of the catchment area and, in this case, the owner is the Kedah state government. This is also the reason why I do not prefer the idea of having the federal government compensating Kedah. This allows the opportunity cost to be included into the water bill of Penang folk. With that, the opportunity cost faced by Kedah will be flipped and eventually provide the state with a chance to reassess its priority. Needless to say, that translates into higher charges for water consumption for Penang folk.

The beauty of this suggestion is that it also encourages water conservation. It reveals the true cost of water to consumers and allows the consumers to appreciate the problem faced by Kedah even more. It is a model for advocating more sustainable water consumption.

The second solution involves property rights. Those who wish for a guaranteed continuous clean water supply from Kedah can purchase rights over the trees or a tract of land within the catchment areas. At the right price, the Kedah state government will sell the rights to the trees and be relieved of the temptation to cut them down. This, of course, only works if the new owners do not succumb to the temptation of cutting down the trees for money.

But the two solutions somewhat digress from my original thought. What I am trying to say is this: please offer solutions. Criticism, however justified, is simply not enough.

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

p/s — a version of this article was first published by The Malaysian Insider.

Categories
Economics

[1707] Of build-sell or sell-build?

Tony Pua (okay, okay, MP Tony Pua) raised an interesting issue in his blog. There, he expressed his approval for the build first and then sell later arrangement (build-sell) proposed by the Selangor state government in replacing sell while building arrangement (sell-build?).[1]

While the build-sell model does have its benefits, namely having the potential of reducing the number of cases of buyers being cheated by developers, the currently popular sell-build structure does have its benefits too.

First of all, it allows individuals to purchase home at a cheap price. Developers, assuming there is no fraud involved, will be willing to sell yet to be built or completed homes at a discount to accommodate any risk undertaken by the purchasers. Furthermore, time value for money faced by the developers encourages them to accept smaller amount from purchasers here and now compared to any time in the future.

Secondly, it encourages developers to be bold and thus, encourages growth in the construction industry. This is due to convenient cash flow. If the developers had to wait for months before they could see the first cent of revenue coming in, I think a lot less developers would be willing to participate in building homes. Or at least, smaller developers would have less opportunity to do business. Small developers most likely could not withstand the large net outflow of cash they would have to suffer between the start of construction and completion date. In the end, not only the construction industry could see less growth, a build-sell world could create a world close to a monopoly in which only large developers which could withstand sustained net cash outflow until the date of completion survive. I am well aware that financial institutions are there as underwriters but then again, through what limited experience I have, banks are very risk-averse and that increases cost of doing business.

Anyway, I am ambivalent in the debate between build-sell and sell-build, if there is a debate at all. But I am certainly would be unhappy if the state decided to coerce developers into adopting a particular structure.

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

[1] So when I read that the Selangor state government intends to implement the “build then sell” concept of housing, I’ll all hands in support. [Build The Sell. Philosophy Politics Economics. July 2 2008]

Categories
Economics

[1706] Of when to extract oil?

I tend to get excited when I see familiar things.

At the WSJ, the famed Feldstein explained why prices of crude oil are up. Among the explanation written how the decision to extract oil from the ground comes about and how it affects prices:

Unlike perishable agricultural products, oil can be stored in the ground. So when will an owner of oil reduce production or increase inventories instead of selling his oil and converting the proceeds into investible cash? A simplified answer is that he will keep the oil in the ground if its price is expected to rise faster than the interest rate that could be earned on the money obtained from selling the oil. The actual price of oil may rise faster or slower than is expected, but the decision to sell (or hold) the oil depends on the expected price rise.

There are of course considerations of risk, and of the impact of price changes on long-term consumer behavior, that complicate the oil owner’s decision — and therefore the behavior of prices. The Organization of Petroleum Exporting Countries (the OPEC cartel), with its strong pricing power, still plays a role. But the fundamental insight is that owners of oil will adjust their production and inventories until the price of oil is expected to rise at the rate of interest, appropriately adjusted for risk. If the price of oil is expected to rise faster, they’ll keep the oil in the ground. In contrast, if the price of oil is not expected to rise as fast as the rate of interest, the owners will extract more and invest the proceeds. [We Can Lower Oil Prices Now. Martin Feldstein. Wall Street Journal. July 1 2008]

This is real economics, not a hunt for scapegoats, i.e. blame the speculators.

And oh, it is familiar because that is exactly what my environmental economics professor taught me back in Ann Arbor.

Categories
Economics

[1703] Of comparative advantage versus food sovereignty

Just one of those articles which try to point out that the idea of food sovereignty is flawed.

One relates directly to trade: Is it best to specialize in whatever food grows best in a country’s soil, and trade it for all other food needs — or even, perhaps, specialize in services or manufacturing, and trade those for food?

Or is it best to seek self-sufficiency in every type of food that will, weather permitting, grow within a country’s borders? [Hoarding Nations Drive Food Costs Ever Higher. Keith Bradsher. Andrew Martin. New York Times. June 30 2008]

I have been skeptical to the idea of food sovereignty from the beginning. Food sovereignty in its essence is protectionism, hurts trade and subsequently makes us all poorer (on average, of course).