Category Archives: News & Politics

News & Politics, Politics

Subsidized holidays for Europeans

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Okay, the headline is pure sensationalism and the anti-EU slant is blatant since this is an article from the Murdoch-owned The Times, but even after filtering out the propaganda, I think it’s still a pretty dire example of EU socialism. It’s a scheme to subsidize holiday travel for under-privileged citizens of the EU. From the article:

The scheme, which could cost hundreds of millions of pounds a year, is intended to promote a sense of pride in European culture, bridge the north-south divide in the continent and prop up resorts in their off-season.

Tajani, who unveiled his plan last week at a ministerial conference in Madrid, believes the days when holidays were a luxury have gone. “Travelling for tourism today is a right. The way we spend our holidays is a formidable indicator of our quality of life,” he said.

Now, this might not sound so bad if you think of it as just another form of economic stimulus though you’d think that they’d come up with better ideas to stimulate the economy than funding subsidies. How about throwing more money into education and job retraining programs instead? But what is really annoying is that the EU still wants to increase its expenses when the budgets of many of its member countries aren’t in such hot shape. Greece recently had one of its worst bond sales ever and there’s now a real chance that it could get ejected from the Euro.

The talk of traveling for tourism being a right also makes it a good case for making a distinction between positive and negative rights. I don’t really want to go into this debate again but it’s just one more example of how adding more and more “rights” just dilutes the really fundamental ones that actually deserve the moniker.

News & Politics, Politics

Greek lessons

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I have to admit that I’m one of those who have been following the travails of the Greek government with a touch of schadenfreude. As this article in The Economist put it, how can the German government justify giving aid to Greece when Greek public sector employees get to retire earlier than German ones. Germany has for years been reforming its own welfare programme to save money while Greece has been happily pretending it could afford its bloated public sector workforce, going to the extent of fudging its statistics and outright lying to creditors about its liabilities.

It’s also worth remembering that the Haiti earthquake happened not too long ago and still needs money to rebuild. While it’s true that corruption and mismanagement played a part in the ineffectiveness of the Haitian government, exacerbating the damage caused by the quake, it’s impossible to argue that the quake was anything other than an accident that the Haitians had absolutely no control over. By contrast, an entire generation of Greeks was complicit in the decisions that led Greece into the mess that it currently finds itself in. How then is it morally justifiable to help the Greeks when there are so many other more worthwhile causes that require finite resources?

This blog post, again from The Economist, is very sympathetic towards the Greeks, but to me, they still reinforce the impression that the current problems are the result of specific choices made by the Greek government beginning in the 1980s. By successively voting for governments that continued those policies, the Greek people chose short-term wealth and growth without a care for whether or not these policies were sustainable, and so are complicit in them. Should they be saved from the results of their own choices?

Finally, shouldn’t the principles that apply to countries be equally applicable to individuals? I don’t begrudge the appeals for aid in cases where clearly the people involved have troubles that are none of their doing. Orphans come particularly to mind. But I do get annoyed when I see articles in the newspapers about how the government should be considerate towards people who have accumulated unsustainable levels of credit card debt or how richer people should contribute towards the welfare of those who have incurred responsibilities that they never had the ability to bear. Why should those who have worked hard to live within their means be punished and those have been short-sighted and irresponsible be rewarded?

News & Politics, Politics

Economists are cheap / Engineers are terrorists

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A couple of amusing articles by way of Marginal Revolution and the Freakonomics Blog. The first article from the Wall Street Journal details some of the quirky habits of famous economists. We learn for example that Milton Friedman routinely returned the telephone calls of reporters collect and that a dinner served by John Maynard Keynes skimped on the food so much that Virginia Woolf complained about him serving only three grouse for eleven people. John Siegfried, the secretary-treasurer of the American Economic Association, never cares about the the color of the cars he buys and simply asks for whichever color is cheapest, while Robert Gordon of Northwestern University will drive an extra half-hour to get to a cheaper grocery store.

Economists are also less likely to donate to charity. Research by Yoram Bauman and Elaina Rose of the University of Washington showed that economics majors were less likely to donate any money than graduates from other majors. Even students who didn’t major in economics gave less to charity after taking introductory economics classes. The rationale is that economists are more aware of economic efficiency and find many types of economic decisions made by other people wasteful. This of course extends to gambling as well and the article claims that casinos make very little money from economists.

The second article appeared in Slate and covers a paper by two sociologists Diego Gambetta and Steffen Hertog who after studying 400 radical Islamic terrorists from more than 30 countries, noticed that engineers were three to four times more likely to be violent terrorists than their peers who studied finance, medicine or the other sciences. The next most radicalizing specialization was Islamic Studies but it came a distant second. The same trend also appears to be true anecdotally. 8 of the 25 hijackers involved in the 9/11 attacks were engineers and two out of the three founders of the violent Lashkar-e-Taibi group believed to be behind the attacks on Mumbai were engineering professors.

The articles cites a couple of reasons why this trend exists. One is that engineering is a popular subject of higher education in developing countries and many of the graduates who picked engineering expected it to be a pathway to high-status employment. Thus, they have been frustrated by the corruption and repression in many Middle-Eastern countries which stymied the modernization that they expected and led to joblessness among highly educated jobseekers.

Another reason might be that engineers have a tendency to be more conservative and religious, while possessing a mindset that seeks greater order and stability in society and disdaining ambiguity and compromise. They may believe that only a rigid adherence to religious laws can bring about the orderly society that they crave. In any case, intelligence agencies have already noticed that terrorist groups are aware of this and spend extra time and effort to gather recruits from engineering schools, especially since they possess valuable technical skills that can make them better terrorists.

News & Politics

Idiotic economics

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A couple of examples of dodgy economics thinking in the effort of protect jobs via Marginal Revolution:

In Allentown, Pennsylvania in the US, the local Service Employees International Union (SEIU) made complaining noises about the free work done by a teenager in pursuit of an Eagle Scout badge. The teen, Kevin Anderson, worked for over 200 hours to clear a path in a local park after noticing that there were missing connections. The SEIU was sore however as the city had laid off union members due to the recession and had demanded that no volunteers be allowed to do any work for the city. They particularly insisted that no one except union members may pick up a hoe or shovel, plant a flower or clear a walking path.

Since the issue blew up in their faces, they’d since been forced to concede that they won’t take any official action but it still makes for a rather ridiculous stance to take. It’s a classic textbook example of the lump of labour fallacy.

Meanwhile in Italy, a bank trying to persuade its workers to retire early struck a novel deal with its unionized employees. If they accept the bank’s offer and retire, they will get to choose from either one of two benefits: the traditional one-time payoff or the bank’s promise that their jobs will be given to their children. If they choose the latter, the bank still reserves the right to interview the relatives put forward by the retirees and to verify their qualifications, but ultimately it amounts to a hereditary jobs programme. Unsurprisingly, this has drawn a great deal of criticism, even from the national union bodies.

According to the article, as odd as it seems, this practice isn’t exactly rare even in modern day Italy. It cites the example of the hereditary nature of the post of  painters allowed sketch tourists outside the Uffizi gallery in Florence, which as the article notes, is doubly ridiculous when you realize that a talent for painting isn’t exactly heritable.

News & Politics

The economics of prostitution

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I’ve read a couple of interesting articles recently on the economics of prostitution so I thought I’d conflate them in a post. First of all, U.S. News & World Report wrote an editorial on a chapter in SuperFreakonomics about the subject. I enjoyed the earlier book, Freakonomics, by Steven Levitt and Stephen Dubner so I suppose I should pick up the sequel one of these days. Anyway it appears the authors have been getting some flak for that chapter because they asked the question: why don’t more women choose to become prostitutes?

According to their data, more women were prostitutes in the past, 1 out of 50 American women in the 1910s. This is because prostitution used to be much more lucrative. The wage premium for prostitutes however declined over time as society became less uptight about sex and men found it easier to find willing sexual partners without having to pay for it. This is straightforward demand and supply. The authors claim that during holidays, such as 4th of July weekends in the U.S., demand for prostitutes spikes and prices go up accordingly. This is apparently enough incentive for women who hold normal jobs to become prostitutes just for that particular time of year.

Similarly, The Economist reviewed a book last month on prostitution in Georgian London. The book, bearing an extremely long title The Secret History of Georgian London: How the Wages of Sin Shaped the Capital similarly claims that prostitution was much more prevalent in the past. In the case of 18th century London, up to 1 in 5 women were engaged in the sex trade and fornication in public was apparently commonplace.

This book points out a different, but related, reason why more women chose to become prostitutes in the past. Because widespread prejudice kept women out from many jobs that were available to men only. As women in the workplace became more readily accepted and young girls could gain a better education with the financial opportunities that entails, the relative premium of prostitution was reduced.

Both examples indicate that surprise, surprise, the flesh trade is as much subject to demand and supply as any other form of market transaction. This suggests that if government authorities around the world were really serious about reducing the numbers of women who choose to take up the profession, decriminalizing it, if not outright legalizing it, would be the way to go. As with drugs, the illegal status of prostitution merely serves to  inflate the market price of the “product”, thereby increasing the supply of women who are drawn to it. Meanwhile stricter social attitudes make young men more sexually frustrated, increasing the demand side of the equation.

News & Politics, Politics

Thoughts on the 2010 Malaysian Budget

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Before I go into my views on the budget, I’d like to express my disappointment with the poor quality of the discourse that I’ve read on the topic over on the LYN forums. Most people over there, including at least one moderator, seem to be basing their evaluation of it entirely on how it benefits or harms them personally, completely discounting its effects on a wider scale. While this is somewhat predictable, I’ve also known LYN to offer intelligent and knowledgeable commentary on important issues in the past which is why this particular disappointment is so galling.

To me the most interesting aspect of the new budget is the re-introduction of the property gains tax. The original announcement of a 30% tax on gains made from the disposal of a property purchased within the first two years of acquisition  and dropping down in subsequent years seemed bold and promising to me. Since I’ve long been an advocate of capital gains taxes in Malaysia, I felt that this was overdue even though as someone with someone with significant investments in REITs, this would personally hurt me. I see today however that this has been toned down to a mere 5% tax regardless of length of tenure, which seems pitiful to me.

The other major move that most people are talking about is imposing a RM50 service charge on each credit card issued. Currently, it’s not clear whether this is going to take the form of an explicit tax or a mandatory minimum annual fee but the intent is clearly to rein in the preposterous pace of credit cards issuings in the country. Ordinarily, I abhor government-led social engineering even when I agree with the intent, but in this case I believe that the intervention is mild enough to give it a pass. However, I doubt that this will have any major effect as it will be easy enough for the banks to issue rebates to offset the cost.

The various tax breaks including the increase of personal relief from income tax are obviously designed to win some popularity with the voting public but was it really necessary to also throw in a 1% decrease in the tax rate for the highest income bracket? This looks like a particularly unwise move when the government deficit is expected to rise to record levels. Even if the government insisted on keeping the fiscal taps open for stimulus purposes, it would have a better idea to spend the money on a negative income tax on the poorest Malaysians rather than giving a tax break to the richest. A negative tax would effectively be a subsidy for cheap Malaysian labour which should also help to reduce the incentive for employers to hire foreign labour which so many Malaysians seem to be upset about.

Finally, I think that completely opening the financial sector to foreign equity is a great move. In fact, to those who argue that reducing the top rate of income tax would be useful in attracting top tier talent to the country, I’d argue that levelling the playing field is a far greater incentive. It would be even better if the government had the political capital to do away with silly NEP quotas and restrictions, but this is still a good start.

Overall, I favor an economic policy that concentrates on building the fundamentals for consistent and reliable growth rather than trying to jump start the economy for quick spurts of growth. For this reason, I disagree with the tax exemptions for the Iskandar project and believe that it will only open the door to more cronyism and corruption. A good budget should be fiscally responsible and while I agree that turning the taps completely off at this time would be unwise, I believe that the government has not made enough of a commitment to reduce the deficit in the future and I fear that this could lead to increased inflation expectations in the future.

News & Politics, Politics

Saudi Arabia seeks compensation for reduced oil consumption

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In a move so outlandish that one would expect to see it only in an Onion article, Saudi Arabia has demanded that if the rest of the world reduces oil consumption due to efforts to combat global warming, it and other oil producing countries should be compensated for the corresponding loss of revenue. That’s about as heinous as drug pushers telling government authorities that they should be compensated if addiction treatment programmes successfully reduce their customer numbers.

While this is the first time I’ve heard of it, it appears that this has been the position of the Saudis ever since the first global climate talks in Rio de Janeiro in 1992. This time however they’re claiming that this is a “make or break” position for them, meaning that other countries must agree to pay compensation for reduced oil consumption or they’re going to walk out of any talks. Of course, Saudi Arabia and other oil producing countries need to diversify away from an economy that’s almost a hundred percent dependent on oil sales, but it’s not clear to me at all why other countries need to pay up to help them achieve that.

The wealth that the oil producing nations have earned from their black gold is already the stuff of legend, so what have they been spending it on if not preparing for a day when oil is no longer king? Furthermore, it’s not as if the oil is an infinite resource. In fact, if anti-global warming initiatives fail to reduce oil consumption, their oil would just be depleted all that much faster. Do they expect the world to compensate them for the loss of that oil then? It’s like asking their customers to pay for the same product twice.