I want to blog but I am too tired and too tied with work.
For story behind the picture, go to Metblogs KL.
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[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.
[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]
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[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.
Democratic presidential candidate Barack Obama promised a more active approach to faith-based social programs on Tuesday in a bid to bolster his support among evangelical and religious voters.
Obama visited a community ministry in a conservative region of the election battleground state of Ohio to unveil a plan to reinvigorate faith-based community programs first pioneered by President George W. Bush. [Obama Courts Evangelicals With Stress on Faith. Reuters via New York Times. July 1 2008]
A write-up at the BBC somehow provides a scarier picture:
A council involving religious groups would help to set the national agenda, Senator Obama said in his speech. [Obama backs faith in public life. James Coomarasamy. BBC. July 1 2008]
Is McCain taking similar stance or is it just Obama outflanking the Republican candidate?
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[1704] Of open thread #1
Let see how this goes.
Hmm, looks like the effort is an utter failure. The comment section is still empty 24 hours later.