Category: Economics

Categories
Economics Liberty

[946] Of is liberty an end or a mean?

In reading libertarian literature, it’s relatively easy to find an idea that states that liberty is not a mean but rather, it’s the end. However inspiring the idea might be, is it true that liberty isn’t a mean but instead, the highest political end?

The reason I’m asking this question is that I’m uncertain if liberty is the highest political end. Rather, I think happiness is the highest political end.

In economics, students will learn the concept of saturation point of a person. This is the theoretical point where all wants and needs of the person are satisfied and another unit of “wants and needs” good won’t increase the well being of the individual. Let me demonstrate this concept.

If a monkey has one million bananas and it’s impossible for this monkey to finish it all while discounting temporal issue — to make it clearer, the monkey is so full that another banana down its throat would cause puking, and this would happen before the monkey get to its 1,000,000th banana, discounting interest rate — would the monkey be happy with the addition of one more banana to its wealth, if the monkey could count at all?

No.

From purely economic point of view, happiness is achieved through the fulfillment of wants and needs. This comes from the concept of utility which is the basis of welfare economics. Through this, I’d postulate that restriction to the satisfaction of wants and needs leads to unhappiness. Extrapolating the idea, the pursuit of happiness will include commodity trading (why must it includes trade? Remember why trade occurs in the first place!), whatever the commodity might be, physical or spiritual, if it’s tradable. In order to trade to pursue happiness, a person must be free to trade.

However, surely if one is free to do anything but yet, the person is unable to improve his welfare by moving closer to his saturation point, such true liberty is useless. Surely, liberty is useless when a person is unable to achieve happiness.

Through this, it seems to me that liberty is only a mean to achieve happiness with happiness being the end, not liberty.

This begs another question, is there any other mean to achieve happiness besides liberty? Is it possible to achieve happiness without liberty? Not just economic liberty but liberty in general.

I need to read more. Through experience however, I’m inclined to say without liberty, achieving happiness is harder than it should be.

Categories
Economics Environment Politics & government

[939] Of climate change and global warming are market failures

From time to time, somebody will point it out to me that libertarianism and environmentalism have opposing ideas in them. Perhaps.

I however manage to merge the two philosophies together because I understand market failure (as well as externality). The concept of market failure is what many libertarians refuse to accept despite the economics behind it. I’d be damned if I ignore market failure and call myself a graduate of economics. I reached to this conclusion when I first encountered tragedy of the commons as an economics undergraduate.

I’m a classical liberal in the sense that I’ll accept market solutions as superior to government solutions as long as market failures are absent, in most cases.

A few days ago, British economist Nicholas Stern published the Stern Review on the Economics of Climate Change:

The scientific evidence is now overwhelming: climate change presents very serious global risks, and it demands an urgent global response.

This independent Review was commissioned by the Chancellor of the Exchequer, reporting to both the Chancellor and to the Prime Minister, as a contribution to assessing the evidence and building understanding of the economics of climate change.

The Review first examines the evidence on the economic impacts of climate change itself, and explores the economics of stabilising greenhouse gases in the atmosphere. The second half of the Review considers the complex policy challenges involved in managing the transition to a low-carbon economy and in ensuring that societies can adapt to the consequences of climate change that can no longer be avoided.

The Review takes an international perspective. Climate change is global in its causes and consequences, and international collective action will be critical in driving an effective, efficient and equitable response on the scale required. This response will require deeper international co-operation in many areas – most notably in creating price signals and markets for carbon, spurring technology research, development and deployment, and promoting adaptation, particularly for developing countries.

Climate change presents a unique challenge for economics: it is the greatest and widest-ranging market failure ever seen. The economic analysis must therefore be global, deal with long time horizons, have the economics of risk and uncertainty at centre stage, and examine the possibility of major, non-marginal change. To meet these requirements, the Review draws on ideas and techniques from most of the important areas of economics, including many recent advance, including many recent advances.

Climate change and global warming induced by human are forms of market failure and externality, as with many other environmental problems.

Categories
Economics Humor Liberty

[936] Of The Onion on North Korean nuclear test

I haven’t shared anything about the recent North Korean nuclear test. So, what do I think of the test?

Well, I’ll let The Onion does the talking for me (via):

PYONGYANG, NORTH KOREA—A press release issued by the state-run Korean Central News Agency Monday confirmed that the Oct. 9 underground nuclear test in North Korea’s Yanggang province successfully exploded the communist nation’s total gross domestic product for the past four decades.

Long live communism…

Categories
Economics Liberty Politics & government

[935] Of Greg Mankiw is a libertarian!

I first became familiar with Professor Gregory Mankiw while I was at Michigan. I and many other economist wannabe at Michigan used his book during our macroeconomics classes. He of course became publicly prominent when he served the Council of Economic Advisers. He became more prominent (well, infamous really but that depends on your point of view; really, the point of view of most Americans at that time was increasingly protectionist) when he expressed support for outsourcing. In Friedman’s The World is Flat:

During the 2004 election campaign we saw the Democrats debating whether NAFTA was a good idea and the Bush White House putting duct tape over the mouth of N. Gregory Mankiw, the chairman of the White House Council of Economic Advisers, and stashing him away in Dick Cheney’s basement, because Mankiw, author of a popular college economics textbook, had dared to speak approvingly of outsourcing as just the “latest manifestation of the gains from trade that economists have talked about at least since Adam Smith.”

Mankiw’s statement triggered a competition for who could say the most ridiculous thing in response. The winner was speaker of the house Dennis Hastert, who said that Mankiw’s “theory fails a basic test of real economics.” And what test was that, Dennis? Poor Mankiw was barely heard from again.

Also, the Big Mac controversy.

When I first found out that Prof. Mankiw blogs, I became his regular reader.

Last Friday, I asked him are you a libertarian. The next day, he answered yes.

Sweet.

Categories
Economics

[933] Of what’s next, Malaysia?

A couple months back, I was having lunch somewhere outside of Kuala Lumpur with several strangers. One of them — upon discovering that I’m an economic graduate from abroad — asked me a very macroeconomic question. He wondered which sector Malaysia should concentrate on now. I almost choked myself to death when I heard that. I was unprepared for it with a devil’s food cake so full in my mouth. Unable to form an immediate honest opinion, I played it safe and offered an answer that didn’t require too much thinking. I blurted out that Malaysia should concentrate on services. While he was swayed over by the points I offered, I was not. I know that was a lazy man’s answer and is practically, a complete bull. It’s too general to convince anybody inside economics. Zoom forward, I’m still unsure which direction Malaysia should head for. However, I think know where to start though that starting point wouldn’t be astounding at all.

I do think the person that asked me the question was concerned with Malaysia’s current emphasize on agriculture. Between the Badawi administration economic policies and Mahathir’s, current policies appear regressive. Despite appearance of current policies, I’m unwilling to criticize harshly as others had simply because I’m unable to offer solid alternatives. The best I could say right now is to diversify and see which industries are sustainable.

To be fair, the current administration realizes that something gigantic is on the move and it’s affecting Malaysia. The People’s Republic of China as well as India are attracting the very jobs that Malaysia had prospered on. These jobs had once pulled Malaysia off the extraction stage to the manufacturing stage. I’m not sure if Malaysia is moving up the value chain towards services but I’ll wager there’s a real structural change in the economy. I suspect this structural shift is one of the reasons for the current debate on Malaysian unemployment rate.

The problem is that it’s not Malaysia on its own that’s causing the structural change. Instead, it’s the PRC and India that are forcing the structural change on Malaysia. When PRC and India moving up the value chain, it’s only natural the two regional giants to compete with Malaysia. Further, competition doesn’t come from the extraction and manufacturing only. For example, India itself is coming strong on service-based industry. Characteristic of an advanced economy is that it’s dominated by service-based industry. India is not an advanced economy and it’s not even as developed as Malaysia’s. So, if you aren’t distressed yet, this is the time to panic.

In economics, there’s a theory that says a country will specialize in products that utilize the country’s abundance factor. Keeping in mind that PRC and India have approximately two billion people between them, with vast track of land and huge reserve of capital, it’s quite hard to see what Malaysia should specialize in and not face heavy competition.

And so, here comes agriculture.

Revisiting the current administration’s obsession with agriculture, I don’t think it a bad idea after all, at least in the short run. Malaysia has the comparative advantage in agriculture. Whether this is a cliché or not, Malaysia is blessed with excellent climate for agriculture. History itself has shown how kind agriculture has been to Malaysia.

Yet, there are only so many lands. On top of that, different needs are competing for the same fixed quantity of land, showing the fact that Malaysia cannot rely on agriculture forever, even if the third agricultural revolution is upon us.

Perhaps due to my limited knowledge and exposure as well as lack of creativity, in all honesty, I don’t know what is the next step for Malaysia. Except for a few areas, everyone else seems to be able to do something better than Malaysia could. Nevertheless, I know where to start. It’s education. By education, I’m not saying we should specialize in the education industry. Oh my goodness, no.

Any economy has dynamic equilibriums. This is even more so when the world is interconnected once again after so many decades of protectionism and short-sightedness. This dynamism demands adaptability.

It takes a highly educated population to allow a country to adapt perfectly and quickly to changes. With proper knowledge, they would be able to ride out structural and even cyclical changes in the economy through sheer creativity. Flexibility will allow mobility both during the best and the worst of times.

But we need not robots in place of thinking men. If we had needed robots, no need us all of so many ivory towers. Let’s build grand factories in place of schools and colleges instead if we had needed for robots instead of thinking men.

We need are thinking graduates; critical minded individuals that would be able to adapt for themselves. Individuals that are proactive. Individuals that race not with each other to be robots, but individuals that strive to be humans. Cold and warm, mad and sane, all of these emotions with heavy doses of rationalism whenever it matters.

For that, the education system must provide students the liberty to explore possibilities. For that, we need a liberal education. A system that not only allows but even encourages its members to challenge orthodoxies in science to culture to religion to everything. A system unimpeded by conservatism.

The current system is unable to give birth a society that could decide and take the right next step for our country. Our system produces robots. While some of these robots achieve consciousness later in life, time is a luxury the country can’t afford.

Besides, for too long, Malaysian economy has been dictated from the top. Though perhaps a certain degree of central planning does have its virtues, it isn’t as natural as an economy that’s run from the bottom and everywhere. A highly educated society would democratize economic planning — flattens it out as Friedman would say — hence making the economy more organic. And of course, freer.