Tag Archives: money

Recent Interesting Science Articles (May ’09)

I haven’t had as much on the Internet as I’d have liked this month, so apologies for having only two articles this time. The first one is an odd feature from New York Magazine that doesn’t really count as a real science article at all, but is relevant enough that I think merits inclusion. The article mentions in passing research by Kathleen Vohs of the University of Minnesota’s Carlson School of Management on how just the act of thinking about money influences how people act and behave.

In one experiment, she found that it was possible to influence how much people were willing to collaborate on group efforts simply by switching screensavers. Eighty percent of the group who had been given screensavers of floating dollar bills to stare at chose to work alone. Eighty percent of those who were given screensavers of exotic fish chose to work together with others. The article goes on to make some not entirely scientific generalizations about how the current recession can be seen as being a plus for changing people’s priorities and making them better people, but the initial point alone is good food for thought.

The second article appeared in The Economist and explores the link between creativity and the experience of living abroad. It covers research by William Maddux of INSEAD and Adam Galinsky, of the Kellogg School of Management in Chicago who used a simple test to determine the level of creativity of their test subjects and linked that to whether or not these people had any experience in living abroad. They found that sixty percent of those who had overseas experience managed to solve the problem compared to only forty two percent of those without that experience.

A follow up experiment aimed at measuring the participants’ ability to come up with creative solutions to difficult negotiating positions also turned up similar results, suggesting that it is the experience of living abroad opens minds to new possibilities and expands their creativity. One easy criticism is that their stated problem may not be a good test of creativity, especially the sort of creativity that is associated with writers and artists like Rudyard Kipling, Pablo Picasso and Ernest Hemingway, but my personal instinct is that they’re probably right and that living abroad should tend to open up the minds of young people and enable them to think out of the box. It would particularly interesting to see student exchange programmes being organized on a widespread and systematic basis to take advantage of this but that would likely be too expensive.

Index funds in Malaysia

Since I got into, well, not exactly an argument, but at least a rather heated discussion over this topic on the LYN forums, I thought it might be interesting to write down a summary of my posts there and also what I’ve learned from that thread. Please note that all of this mostly applies only to Malaysia.

Now I’m just a neophyte investor and I don’t make any claims to exceptional knowledge or skill. But I do take care to read through the basics and try to educate myself in whatever it is I’m getting into. One of the most basic and well known ways to invest your money is through the stock market. You can either do it yourself, picking stocks that you personally believe will do well and pray, or you can entrust it to “professional” mutual fund managers and pray. I’m guessing that most working people don’t have the time or inclination to actually do their own research and will opt for the latter. That’s what I did and this is where things get interesting.

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Dr. Mahathir’s comments on fractional reserve banking

I noticed Dr. Mahathir’s latest outburst on Sunday in The Star. My initial impression was that it was more of his usual anti-Western drivel. A line like, “He suggested that everyone should go back to producing goods and services although the profits would not be that massive,” doesn’t make much sense when you realize that finance is a service industry. It’s also hard to take his anti-capitalistic rantings seriously when he’s done his part while he was Prime Minister in joining the finance bandwagon by trying to turn Malaysia into a regional financial centre. Citing Islamic finance is no excuse either because although Islamic banking should, in theory, be full reserve banking, no actual banks that call themselves Islamic do this.

Once you do get past the irritating anti-Western attitude, the basic criticism against fractional reserve banking is more worthy of close examination. At the risk of sounding like one of the crazies myself, I admit to feeling something sympathetic at times to the skeptical attitudes towards fractional-reserve based fiat money of people like Ron Paul. What Dr. Mahathir apparently doesn’t get is that a full reserve banking system gives less power to governments to influence the money supply, not more.

With the current fractional reserve system, regulators have a wide variety to tools to either increase or decrease the money supply: interest rates, reserve ratios, quantitative easing (printing money) etc. Under a full reserve system that is still based on fiat money, the government would be forced to print money as required in a publicly obvious manner. If it chooses to print money faster than the rate of growth of the economy, it would be explicitly causing inflation. In the inverse case, it would be explicitly causing deflation. This is all wonderfully clear and simple, but I suspect that governments rely heavily on the obfuscation of the current system to achieve their contradictory goals.

Of course, what the libertarians really want is a return to the gold standard, or something similar backed by some other physical commodity. There would no chance at all of money being created out of thin air then, but governments would have also have almost no control over the money supply. Somehow, I really doubt that’s what Dr. Mahathir wants.

Rethinking savings

I’ve been meaning to make this post for a few days now, but work prevented me from finding the time to do it. It also feels particularly funny to write a post like this on a day when the banks in Malaysia have announced cutting interest rates and penalties for credit card holders to reduce their debt. (For the record, reducing these charges only encourages accumulating more debt, but then again, the government is probably thinking that increasing consumption, even if it has to be fueled by increasing debt, is a good thing in a depressed economy.)

My subject today is savings. Now, traditionally, people think of savings as an unalloyed good. That’s the whole point of the parable of the ant and the grasshopper after all. However, one thing that people don’t usually think about is that ultimately savings equal capital, as in the capital of capitalism. This is because unlike the ant storing its food for winter, nowadays, we don’t save money by stuffing cash under the pillow. At the very least, we put it the bank and expect the bank to pay us interest for the privilege of safeguarding our money for us. For those who aren’t risk adverse, there’s no end to the array of possible investments your friendly financial planner is willing to sell to you.

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