Categories
Economics History & heritage

[908] Of Phelps and Prize in Economics

As a blog that pretends to know economics, it’s embarrassing for me to not to blog about Edmund Phelps when he was awarded with the Prize in Economics earlier this week. Almost all blogs that love economics are celebrating his achievement. So, today, I want to celebrate his achievement too.

In modern macroeconomics, students learn that there is a trade off between inflation and unemployment. If inflation goes up, unemployment goes down and vice versa. Those who are familiar with economics will know that this refers to the Phillips curve.

The problem with the Phillips curve is that in macroeconomics, in the long run, nominal factor does not affect real factor. Inflation is a nominal factor and so, in the long run, inflation does not affect the real economy. Despite that, the original Phillips curve says that inflation affects real component of the economy.

Phelps added inter-temporal dimension into the Phillips curve. In essence, his research suggests that current expectation of future inflation affects future Phillips curve. This is the expectation-augmented Phillips curve and with that, he solved the nominal-real problem. In simple terms, the Phillips curve could move around.

The new Phillips curve is dynamic and it shows that there’s no trade off between inflation and unemployment in the long run. The new model also able to explain the stagflations of the 1970s and the low unemployment and inflation rates during the 1990s. The old static Phillips curve can’t explain those two historical events.

I learned that in class and he won the Prize in Economics for it. Last year, the winners contributed to the advancement of game theory. And yup, I learned about that in class too.

p/s – economists for full-cost accounting. Yup, among them are Greenspan and Mankiw. Mankiw call this group of economists as the Pigou Club.

Categories
Economics Humor

[893] Of Malay-shire and globalization

Cool ads by Tesco, UK.

Sunday Times Magazine, UK. Fair use.

Hail globalization.

Categories
Economics

[889] Of from sugar shortage to sugar subsidy

The inefficiency in the sugar market has gone from bad to worse. In order to combat sugar shortage, the government now plans to import sugar at a higher cost and sell it locally at a lower controlled price:

IPOH: Malaysia has identified several sugar-producing countries in the event the item has to be imported to meet demand, especially during the festive season.

Shafie said if sugar was imported, the retail price would be similar to sugar produced locally but the wholesale and industrial prices might differ.

If the plan goes through, that would basically mean that the government is subsidizing sugar further, doing the same thing that is making the shortage possible. The problem would have been solved through the liberalization of the sugar market at no cost at all. Unfortunately, the government plans to undo the shortage through more expensive means.

That’s our government at work; our money mishandled.

Categories
Activism Economics Environment Society Sports

[885] Of Belum-Temengor: a possible alliance between the greens and the pharmaceutical industry

The Malaysian Nature Society (MNS) with cooperation of TVG at KLCC — a major local cinema — is screening “Temengor – Biodiversity In The Face of Danger” for free. The film is a documentary on Temengor, part of the Belum-Temengor forest complex up north in Perak. It’s the largest continuous forest in Peninsular Malaysia and is currently facing deforestation. The documentary itself was produced by Novista and is being screened in conjunction of the Belum-Temengor Campaign. The campaign itself was launched earlier this year and I’ve given it a passing mention back on Earth Day 2006. I won’t talk about the film per se but instead, I want to share my opinion on possible alliance the campaign organizers could forge to make their effort more successful .

The documentary mentioned several reasons why Temengor should be preserved. One of the reasons concerns the pharmaceutical industry. The narrator in the document said that deforestation there threatens the possible development of new drugs. She went on further that tropical flora species are major contributors to drugs development. Therefore, each day of deforestation reduces humankind’s chance to discover new medicines to fight diseases. One sentence struck me so deeply and it roughly goes something like this: “just as mankind starts to open up the treasure chest, the content begins to disappear.”

After the documentary ended, there was a Q&A session conducted by a representative from MNS. The audience — there were about 30 people in the hall — had a discussion and I shared my thought with everybody. I asked the society’s representative whether the organizers had come in touch with the pharmaceutical industry. My rationale for contact is simple: destruction of the forest reduces the chance the pharmaceutical industry to discover new drugs and essentially, chance to make more money through patents. In essence, the pharmaceutical industry has every incentive to stop deforestation and protect its potential goldmines.

Representative answered that while it’s a good strategy, Malaysia doesn’t have a strong patent law, especially when it comes to the protection of local interest. Somebody followed-up on it and asked whether the government plans to draft a relevant law on it. The representative said that there’s already a draft on it. Given how the current free trade agreement with the United States is heading which is giving lots of stress on intellectual property, I suspect that law would come sooner than later.

In The Carbon Wars by Jeremy Leggett, the author wrote that climate changes cause damages and adversely affect the insurance, or rather the reinsurance, industry. With every damage caused by climate change-related disasters, the cost of business for the industry goes up. Hence, the insurance industry has every reason to support action to slow down climate change. Right now, the reinsurance industry is one of the industries that are actually taking a proactive stance to combat human-induced climate change.

Similar alliance could be created between the greens and the pharmaceutical industry. It’s in the industry’s best interest to protect the its revenue source. Thus, this rationalizes an alliance between the greens and the pharmaceutical industry.

So far, the organizers have only contacted with the banking industry. While the banking industry’s involvement in the Belum-Temengor campaign is encouraging, I don’t believe the banking industry has a strong incentive to save the environment as the pharmaceutical industry does.

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

p/s – when the Pope said something that isn’t too admirable, regardless his intention, for me it was like “here we go again”. I’m glad that the Pope later apologize and hence possibly closed the controversy down. But it seems the apology isn’t sincere:

VATICAN CITY – Pope Benedict XVI “sincerely regrets” offending Muslims with his reference to an obscure medieval text that characterizes some of the teachings of Islam’s founder as “evil and inhuman,” the Vatican said Saturday.

But the statement stopped short of the apology demanded by Islamic leaders around the globe, and anger among Muslims remained intense. Palestinians attacked five churches in the West Bank and Gaza over the pope’s remarks Tuesday in a speech to university professors in his native Germany.

Moreover, some Christians are disappointed with the Pope’s apology. They said the Pope shouldn’t have apologize. Sorry is the hardest word for them it seems.

Whatever it is, a Catholic school in South Bend isn’t happy regardless of what the Pope said. Reason is, the school — Notre Dame — just got kicked in the ass by a school called Michigan:

SOUTH BEND, Ind. (AP) — Take that, Notre Dame.

No. 11 Michigan finally put a Big Blue bruising on the second-ranked Fighting Irish in a 47-21 rout Saturday — the most points scored against Notre Dame at home in 46 years.

And Michigan won’t say sorry to Notre Dame. Nope. No way.

Categories
Economics

[882] Of controlling price to curb shortage

In economics, price ceiling introduces shortage given the right condition.

In Malaysia, price ceiling combats shortage in the same condition:

Controlling prices to ease sugar shortage
13 Sep 2006
Fay Angela D’cruz

KUALA LUMPUR: Fine sugar has been made a controlled item, with its price fixed at RM1.55 per kg in West Malaysia, and RM1.65 per kg in Sabah and Sarawak.

This move follows the tendency among refineries to produce more fine sugar as it was not a controlled item, resulting in the shortage of coarse sugar in the market.

Before the decision, fine sugar was sold between RM1.90 and RM2.50 per kg. Coarse sugar is controlled at RM1.40 per kg.

Domestic Trade and Consumer Affairs Minister Datuk Shafie Apdal announced the decision, which is effective from today.

He said the government hoped the move would help solve the coarse sugar shortage in the retail market.

May a higher being saves us all.

For previous entries on sugar shortage, see post [824] Of sugar: price ceiling and oligopoly, [810] Of doctor says sugar is unhealthy and [763] Of honey, ah sugar sugar.