A friend and also a board member of Lion Rock Institute (LRI, www.lionrockinstitute.org) in HK, Mr. Dan Ryan, wrote a paper, "How to Make Hong Kong Uncompetitive". LRI is HK's first and independent free market think tank.
Mr. Ryan is protesting the HK government's decision to put up an Anti-trust or Competition regulatory body. He argues that HK's low tariffs, low taxes, little or no barriers to entry of firms, are what makes the economy free and competitive, that there is no need for a government agency to ensure competition.
He also observed that some big law firms in the US and Europe are positioning to get into HK in anticipation of law suits and legal cases that the planned Anti-trust body will hear. And a number of HK academics are gearing to be appointed as officials of the planned body.
Mr. Ryan is right, definitely. Competition or anti-trust regulatory body is first and foremost, a bureaucracy. Creating a new bureaucracy immediately creates 2 costs automatically: (1) taxes and fees to establish and sustain that bureaucracy, and (2) compliance costs to those regulated (hiring of lawyers, auditors, PR guys, etc.) that will help represent them in arguing with competition bureaucrats.
It's also true that academics -- them with PhDs included -- are among those who salivate to be appointed as government regulators, and enjoy the perks and popularity of being "public servants" while screwing the public with taxes, fees and regulations that somehow limit competition.
I urged LRI to continue this kind of public education. Many free marketers around the world are looking at HK as one of the models of a free market economy for our respective countries. If HK degenerates to become a bureaucratic country, we'll have less "models" in our fight.
People are also watching HK whether the force of socialist government of China will ultimately pull HK towards big and interventionist government philosophy, or HK will retain its Copperwhite legacy and free market tradition.
I believe that HK's unilateral trade liberalization is a good model, not those high profile, highly bureaucratic trade negotiations in the WTO. If a government really wants to give its people the freedom of having more choices for their consumption and production needs, then just liberalize international trade,
unilaterally, no ifs and conditionalities that other countries should also open up their markets to you. After all, people trade with each other; countries and governments don't.
I'm still looking around what other economies have unilateral trade liberalization policy aside from HK. The other 3 are Singapore, Dubai and Georgia. The latter has enacted a zero tariff on imports just a few years ago. I'm not sure Brunei, Estonia and Chile could be among the unilateralist free traders.
----------
See also:
Free Trade 1: Estonia's Free Market, Globalization, May 09, 2006
Free Trade 2: Unilateral Trade Liberalization, May 17, 2006
Free Trade 3: Protectionism Perpetuate Poverty, September 05, 2006
Free Trade 4: FTA in APEC, July 09, 2007
Free Trade 5: Business, Rock Music and Cycling Globalization, July 17, 2007
Sunday, March 30, 2008
Thursday, March 27, 2008
9 outstanding free market institutes
The Atlas Economic Research Foundation (www.atlasusa.org) will give 9 winning institutes (from 180 applicants) up to $100,000 grant each for the next 3 years, courtesy of the Dorian & Antony Fisher Venture Grants.
The winners are:
Alternate Solutions Institute (Lahore, Pakistan)
Bluegrass Institute for Public Policy Solutions (Kentucky, USA)
Canadian Constitution Foundation (Calgary, Canada)
Cathay Institute for Public Affairs (Beijing, China)
Fundación Ecuador Libre (Guayaquil, Ecuador)
Fundación F. A. von Hayek (Buenos Aires, Argentina)
IMANI: Center for Policy and Education (Accra, Ghana)
Istituto Bruno Leoni (Turin, Italy)
New Economic School-Georgia (Tbilisi, Georgia)
I know and have personally met the Presidents or Executive Directors of 5 of those winning think tanks: Khalil Ahmad of ASI Pakistan, Chris Derry of BIPPS USA, Feng Xingyuan of CIPA China, Franklin Cudjoe of IMANI Ghana, and Paata Sheshelidze of NES Georgia.
Congrats to all of you guys! You're doing well, and you deserve that prize!
I also congratulate Atlas' panel of judges because I sincerely believe that all the winners deserve the award.
I kidded Jo Kwong, Atlas VP for Institute Relations, that our group Minimal Government, did not pursue hard this award because we were waiting for a $1M prize that Atlas may give away soon! :-)
The free market movement around the world is still small. The number of statist institutes and think tanks in our respective countries should easily outnumber us by 10 to 1, or more. The free market-oriented think tanks should support each other; otherwisem, the statists, the lovers of more government, more taxes, more regulations, will trample us further in the public policy debates.
The winners are:
Alternate Solutions Institute (Lahore, Pakistan)
Bluegrass Institute for Public Policy Solutions (Kentucky, USA)
Canadian Constitution Foundation (Calgary, Canada)
Cathay Institute for Public Affairs (Beijing, China)
Fundación Ecuador Libre (Guayaquil, Ecuador)
Fundación F. A. von Hayek (Buenos Aires, Argentina)
IMANI: Center for Policy and Education (Accra, Ghana)
Istituto Bruno Leoni (Turin, Italy)
New Economic School-Georgia (Tbilisi, Georgia)
I know and have personally met the Presidents or Executive Directors of 5 of those winning think tanks: Khalil Ahmad of ASI Pakistan, Chris Derry of BIPPS USA, Feng Xingyuan of CIPA China, Franklin Cudjoe of IMANI Ghana, and Paata Sheshelidze of NES Georgia.
Congrats to all of you guys! You're doing well, and you deserve that prize!
I also congratulate Atlas' panel of judges because I sincerely believe that all the winners deserve the award.
I kidded Jo Kwong, Atlas VP for Institute Relations, that our group Minimal Government, did not pursue hard this award because we were waiting for a $1M prize that Atlas may give away soon! :-)
The free market movement around the world is still small. The number of statist institutes and think tanks in our respective countries should easily outnumber us by 10 to 1, or more. The free market-oriented think tanks should support each other; otherwisem, the statists, the lovers of more government, more taxes, more regulations, will trample us further in the public policy debates.
WHO and property rights confiscation
The perception that there is widespread “market failure” in public health care has prompted many government health ministers and bureaucrats, upon the prodding of health activists, some policy writers and media people around the world to advocate more government intervention as “government solution to market failure.” And the World Health Organization (WHO), through its InterGovernment Working Group on Public Health, Innovation and intellectual Property (IGWG), will be one of the the chief instruments of such bigger involvement by governments.
In late April this year, government health officials, health activists and lobbyists for more government involvement in health care – and more taxes and bureaucracies for such additional intervention – from many countries will head to Geneva, Switzerland, to attend the continuation of the second session of the IGWG.
Among the planned additional interventions that will be discussed by the attendees, are for WHO member-governments to encourage: (1) entry of cheap drugs via parallel importation and/or copying without bio-equivalence testing; (2) local production through huge subsidies to chosen players; (3) issuance of compulsory licenses (CL); and (4) price controls.
The reason for the above respective measures are as follows: One, there is the persistent pressure to deliver “cheap at all cost” drugs even without strict bio-equivalence testing that will ensure equivalent efficacy and safety of medicines. Two, big multinational pharmaceutical companies do not prioritize in their R&D and production drugs for many poor country diseases. Three, compulsory licensing is allowed even in WTO’s trade-related aspect of intellectual property rights (TRIPS). And four, price controls will allow more sick people to have access to otherwise expensive but effective drugs.
A longer discussion of these old and new government interventions and related issues are tackled by the new paper, “Increasing access to medicines: Civil society commentary on the IGWG draft Plan of Action”. It is a report jointly sponsored by 24 independent think tanks and institutes from 21 countries, including Minimal Government Thinkers. (If interested to see the document, send the author a private mail)
Due to space constraints, we will briefly discuss only the “copy” drugs and CL. The IGWG’s draft Action Plan conflates “copy” drugs with generics drugs. The latter are required to pass “bio-equivalence” testing for a reference drug or product. If drugs do not go through this testing by a rigorous and scientifically-capable drug regulatory body, then these are just “copy” and very often, substandard drugs. Most counterfeit, unsafe – and cheap – drugs fall in this latter category and they can be dangerous if not fatal, to patients.
When a patient takes substandard or fake drugs, treatment failure happens. The patient either feels no improvement after taking the medicine, or develops resistance to genuine drugs while the disease may be mutating inside the body of the patient. So a hunt for “cheap at all cost” drugs can backfire.
On CL, assume there are 100 different medicines to cure AIDS patients. About 1/4 of them can cure an average patient in 7 to 10 years; another 1/4 can eradicate the disease in 5 to 6 years; another 1/4 can do the job in 3 to 4 years; and another 1/4 can control the disease in 1 to 2 years. But among the "top 25" medicines, about half are effective but have some adverse side-effects or cause allergies to people who have other diseases (diabetic, have hypertension, etc.) and the other half are plain effective.
Which of those medicines will be issued compulsory license (CL) by governments? The bottom 3/4, even if they are cheap, readily available and can also fight the disease? Not a bit. It's those in the top 10 or 15 most effective medicines, which are also among the most expensive.
And this tells us one thing: the selective application of CL is driven by envy, by the simple desire for quick-fix solution through more unproductive government intervention.
Huge investments by innovator companies do not matter. What matters is to spot who among those innovator companies have the most effective medicines, then disrespect their patent and intellectual property rights, copy the effective medicines for use by a government corporation or crony generics manufacturing company which spent very small, if ever, in expensive R&D. And the state that issued the CL is now a "hero" while the innovator companies that invented the effective drugs and resisting the CL are now the "villains".
Instead of interfering with the market for medical treatments, governments should step aside. Scrapping taxes on medicines would be a good start. In the Philippines for instance, medicines are slapped with an import tax of 5 percent and a value-added tax of 12 percent.
Geneva next month will be crowded with many technocrats and bureaucrats who have little appreciation for respect for private property, and they won’t hesitate to further incite national governments to extend their intervention and adapt confiscatory policies that disrespect the property rights of innovators and freedom to choose of patients.
Patent busting and price controls might bring cheaper drugs in the short term, but they threaten the well-being of poor patients and stifles medical innovation over the long haul. Governments can achieve “cheaper medicines” by simply getting out of the way and allowing more competition among innovator companies to reach out to the patients and their physicians.
In late April this year, government health officials, health activists and lobbyists for more government involvement in health care – and more taxes and bureaucracies for such additional intervention – from many countries will head to Geneva, Switzerland, to attend the continuation of the second session of the IGWG.
Among the planned additional interventions that will be discussed by the attendees, are for WHO member-governments to encourage: (1) entry of cheap drugs via parallel importation and/or copying without bio-equivalence testing; (2) local production through huge subsidies to chosen players; (3) issuance of compulsory licenses (CL); and (4) price controls.
The reason for the above respective measures are as follows: One, there is the persistent pressure to deliver “cheap at all cost” drugs even without strict bio-equivalence testing that will ensure equivalent efficacy and safety of medicines. Two, big multinational pharmaceutical companies do not prioritize in their R&D and production drugs for many poor country diseases. Three, compulsory licensing is allowed even in WTO’s trade-related aspect of intellectual property rights (TRIPS). And four, price controls will allow more sick people to have access to otherwise expensive but effective drugs.
A longer discussion of these old and new government interventions and related issues are tackled by the new paper, “Increasing access to medicines: Civil society commentary on the IGWG draft Plan of Action”. It is a report jointly sponsored by 24 independent think tanks and institutes from 21 countries, including Minimal Government Thinkers. (If interested to see the document, send the author a private mail)
Due to space constraints, we will briefly discuss only the “copy” drugs and CL. The IGWG’s draft Action Plan conflates “copy” drugs with generics drugs. The latter are required to pass “bio-equivalence” testing for a reference drug or product. If drugs do not go through this testing by a rigorous and scientifically-capable drug regulatory body, then these are just “copy” and very often, substandard drugs. Most counterfeit, unsafe – and cheap – drugs fall in this latter category and they can be dangerous if not fatal, to patients.
When a patient takes substandard or fake drugs, treatment failure happens. The patient either feels no improvement after taking the medicine, or develops resistance to genuine drugs while the disease may be mutating inside the body of the patient. So a hunt for “cheap at all cost” drugs can backfire.
On CL, assume there are 100 different medicines to cure AIDS patients. About 1/4 of them can cure an average patient in 7 to 10 years; another 1/4 can eradicate the disease in 5 to 6 years; another 1/4 can do the job in 3 to 4 years; and another 1/4 can control the disease in 1 to 2 years. But among the "top 25" medicines, about half are effective but have some adverse side-effects or cause allergies to people who have other diseases (diabetic, have hypertension, etc.) and the other half are plain effective.
Which of those medicines will be issued compulsory license (CL) by governments? The bottom 3/4, even if they are cheap, readily available and can also fight the disease? Not a bit. It's those in the top 10 or 15 most effective medicines, which are also among the most expensive.
And this tells us one thing: the selective application of CL is driven by envy, by the simple desire for quick-fix solution through more unproductive government intervention.
Huge investments by innovator companies do not matter. What matters is to spot who among those innovator companies have the most effective medicines, then disrespect their patent and intellectual property rights, copy the effective medicines for use by a government corporation or crony generics manufacturing company which spent very small, if ever, in expensive R&D. And the state that issued the CL is now a "hero" while the innovator companies that invented the effective drugs and resisting the CL are now the "villains".
Instead of interfering with the market for medical treatments, governments should step aside. Scrapping taxes on medicines would be a good start. In the Philippines for instance, medicines are slapped with an import tax of 5 percent and a value-added tax of 12 percent.
Geneva next month will be crowded with many technocrats and bureaucrats who have little appreciation for respect for private property, and they won’t hesitate to further incite national governments to extend their intervention and adapt confiscatory policies that disrespect the property rights of innovators and freedom to choose of patients.
Patent busting and price controls might bring cheaper drugs in the short term, but they threaten the well-being of poor patients and stifles medical innovation over the long haul. Governments can achieve “cheaper medicines” by simply getting out of the way and allowing more competition among innovator companies to reach out to the patients and their physicians.
Tuesday, March 25, 2008
Friedman and the market
Dr. Andrei Shleifer of Harvard U. recently wrote a paper titled "The age of Milton Friedman". In that paper, he wrote, "In the Age of Milton Friedman, the world economy expanded greatly, the quality of life improved sharply for billions of people, and dire poverty was substantially scaled back. All this while the world embraced free market reforms."
"Amen" to this paper by Shleifer. Free market + less government regulation and taxation of business, but more government protection of private property rights, are indeed among the most important policies not only for rapid economic growth but also for respect of individual freedom. In fact, protection of the citizens' right to life, right to dignity, and right to private property, is the single most important function of government. All other functions are either minor or unnecessary.
Friedman was a believer of individual freedom more than forced equality. Because forcing equality among people would mean pulling down, if not killing, creativity and innovation, and encouraging laziness and personal irresponsibility.
"Amen" to this paper by Shleifer. Free market + less government regulation and taxation of business, but more government protection of private property rights, are indeed among the most important policies not only for rapid economic growth but also for respect of individual freedom. In fact, protection of the citizens' right to life, right to dignity, and right to private property, is the single most important function of government. All other functions are either minor or unnecessary.
Friedman was a believer of individual freedom more than forced equality. Because forcing equality among people would mean pulling down, if not killing, creativity and innovation, and encouraging laziness and personal irresponsibility.
Migration and Freedom 3: Remittances and Guest workers
The WB released its report titled Migration and Remittances Factbook 2008. The top 5 recipient countries in remittances in 2007 were:
The Philippine's remittance figure rose from its 2005 level of $13.57 billion, and 2006 level of $15.25 billion.
In terms of country source of remittances in 2006:
Total remittance flows worldwide in 2007 were estimated at $318 billion, of which $240 billion went to developing countries. Not included here are remittances via informal channels.
These are huge amounts, much bigger than all foreign aid by rich and big countries combined. remittances are direct people-to-people transfer of resources and income, whereas foreign aid is government-to-government transfer.
Many governments, the Philippines' included, impose plenty of regulations and regulatory fees to their people planning to work abroad or already working abroad. Much of those mandatory fees are indirect tax grabs.
-------
On April 06, 2006, I made these observations:
Migration and welfare: why they mix together
The "guest worker" and similar proposals related to migration is a hot topic in the US these days. In Europe, raising the mandatory retirement age and migration is a continuing hot issue too.
Some people, including previous migrants who were granted residency or citizenship in their adopted countries, want to restrict if not close the migration door since they're already in, because they see the influx of more migrants as potential competitors for the jobs or professions that they are currently practicing. If they think that way, then the locals and original citizens who were displaced, even temporarily, when they were allowed entry, should have been correct in opposing the entry of early batches of migrants.
If you are a businessman in the US or western Europe or Japan, with global competition getting more fierce, you have 2 main choices to bring down your costs and enable you to sell at a more competitive price: (a) relocate your business or factory outside to countries where labor, taxes, land lease or rental, are cheaper, or (b) retain your business or factory in your country but hire cheaper labor, that migrants are willing to supply.
The argument of some people against the "guest worker" program in the US is that it will encourage more illegal immigration because more and more people will just make their way to the US (esp. from Mexico where one can literally run or to the border). The program proposes that those who don't have the papers to stay in the U.S. legally will be allowed to stay as long as they could find an employer who will hire them. This will irritate and give undue friction to people who apply for migration through legal ways because this is a costly and time-consuming process. Thus, the "guest worker" program is seen as rewarding violators of US migration laws while penalizing those seeking formal and legal migration entries.
I think the "guest worker" program is one way to circumvent the bureaucratic process by the US immigration laws. Many people in the US, businessmen and ordinary households alike, are in desperate needs of hiring foreign workers (like a Filipino household with young children in need of a Filipina nanny), but the US immigration procedure is so bureaucratic and strict, so some guys lobbied to have "guest worker" program rather than lobbying to change and relax the current immigration laws.
Governments (US, European, others) are supposed to be out of the picture in voluntary contracts between private companies and their potential employees, between private households and their potential household workers. Labor costs in those countries are expensive mainly because of rigid labor laws like high minimum wage, mandatory health insurance, unemployment insurance, maximum working hours, paid leaves, etc. So some migrant households would rather hire their relatives or neighbors from their original countries to render household work for them at a much cheaper pay.
But the governments of rich and welfare countries would assert that they need to intervene in the private and voluntary contracts between employers and potential workers because of the "social welfare to be given" to the new-comers. One medium- to long-term option is to cut government welfare programs in exchange for tax cuts. A household who got cheap foreign workers to help in their house and take care of the kids already experience welfare, much better and more direct than some government welfare programs that require high and multiple taxes to sustain. With tax cuts, households can save more for their own HMOs and other personal and pension needs someday.
The US government can learn from the current serious "French (and German and Italian and Dutch and...) labor problem". The labor laws of the latter are so "rigid", so "pro-labor", that companies and households are not hiring many people, so that unemployment is so high (10-11% unemployment rate for France for the last 30 years). The government and labor laws are too interventionist and threatening that many companies and households are scared to hire additional workers.
Meanwhile, one report today in the international papers, the Danish government is proposing to raise retirement age from 65 to 67 (in Sweden, they're proposing retirement of up to 69 or 70+ years old). That is, for the younger generation to work longer, to maintain the expensive welfare system for an ageing and "greying" population. Another option by the Danish government is to allow more migrants, young ones. They will work long and hard, to pay high taxes, so the generous pension of the retirees will be paid by the government.
On the extension of retirement age, one may ask -- which gives more welfare: more pension but retirement age of 67 or older, or less pension but you retire at 65? And you go back to the Newtonian 3rd law of motion: for every action, there is an equal opposite reaction. Reformulated in the current issue as: for every welfare, there is an equal opposite diswelfare.
(See also, Migration and Freedom 2: Taxing residents abroad, March 19, 2007)
1. India, $27 billion
2. China, $25.7 billion
3. Mexico, $25 billion
4. Philippines $17 billion, and
5. France, $12.5 billion.
The Philippine's remittance figure rose from its 2005 level of $13.57 billion, and 2006 level of $15.25 billion.
In terms of country source of remittances in 2006:
1. US, $42 billion
2. Saudi Arabia, followed by Switzerland and Germany.
Total remittance flows worldwide in 2007 were estimated at $318 billion, of which $240 billion went to developing countries. Not included here are remittances via informal channels.
These are huge amounts, much bigger than all foreign aid by rich and big countries combined. remittances are direct people-to-people transfer of resources and income, whereas foreign aid is government-to-government transfer.
Many governments, the Philippines' included, impose plenty of regulations and regulatory fees to their people planning to work abroad or already working abroad. Much of those mandatory fees are indirect tax grabs.
-------
On April 06, 2006, I made these observations:
Migration and welfare: why they mix together
The "guest worker" and similar proposals related to migration is a hot topic in the US these days. In Europe, raising the mandatory retirement age and migration is a continuing hot issue too.
Some people, including previous migrants who were granted residency or citizenship in their adopted countries, want to restrict if not close the migration door since they're already in, because they see the influx of more migrants as potential competitors for the jobs or professions that they are currently practicing. If they think that way, then the locals and original citizens who were displaced, even temporarily, when they were allowed entry, should have been correct in opposing the entry of early batches of migrants.
If you are a businessman in the US or western Europe or Japan, with global competition getting more fierce, you have 2 main choices to bring down your costs and enable you to sell at a more competitive price: (a) relocate your business or factory outside to countries where labor, taxes, land lease or rental, are cheaper, or (b) retain your business or factory in your country but hire cheaper labor, that migrants are willing to supply.
The argument of some people against the "guest worker" program in the US is that it will encourage more illegal immigration because more and more people will just make their way to the US (esp. from Mexico where one can literally run or to the border). The program proposes that those who don't have the papers to stay in the U.S. legally will be allowed to stay as long as they could find an employer who will hire them. This will irritate and give undue friction to people who apply for migration through legal ways because this is a costly and time-consuming process. Thus, the "guest worker" program is seen as rewarding violators of US migration laws while penalizing those seeking formal and legal migration entries.
I think the "guest worker" program is one way to circumvent the bureaucratic process by the US immigration laws. Many people in the US, businessmen and ordinary households alike, are in desperate needs of hiring foreign workers (like a Filipino household with young children in need of a Filipina nanny), but the US immigration procedure is so bureaucratic and strict, so some guys lobbied to have "guest worker" program rather than lobbying to change and relax the current immigration laws.
Governments (US, European, others) are supposed to be out of the picture in voluntary contracts between private companies and their potential employees, between private households and their potential household workers. Labor costs in those countries are expensive mainly because of rigid labor laws like high minimum wage, mandatory health insurance, unemployment insurance, maximum working hours, paid leaves, etc. So some migrant households would rather hire their relatives or neighbors from their original countries to render household work for them at a much cheaper pay.
But the governments of rich and welfare countries would assert that they need to intervene in the private and voluntary contracts between employers and potential workers because of the "social welfare to be given" to the new-comers. One medium- to long-term option is to cut government welfare programs in exchange for tax cuts. A household who got cheap foreign workers to help in their house and take care of the kids already experience welfare, much better and more direct than some government welfare programs that require high and multiple taxes to sustain. With tax cuts, households can save more for their own HMOs and other personal and pension needs someday.
The US government can learn from the current serious "French (and German and Italian and Dutch and...) labor problem". The labor laws of the latter are so "rigid", so "pro-labor", that companies and households are not hiring many people, so that unemployment is so high (10-11% unemployment rate for France for the last 30 years). The government and labor laws are too interventionist and threatening that many companies and households are scared to hire additional workers.
Meanwhile, one report today in the international papers, the Danish government is proposing to raise retirement age from 65 to 67 (in Sweden, they're proposing retirement of up to 69 or 70+ years old). That is, for the younger generation to work longer, to maintain the expensive welfare system for an ageing and "greying" population. Another option by the Danish government is to allow more migrants, young ones. They will work long and hard, to pay high taxes, so the generous pension of the retirees will be paid by the government.
On the extension of retirement age, one may ask -- which gives more welfare: more pension but retirement age of 67 or older, or less pension but you retire at 65? And you go back to the Newtonian 3rd law of motion: for every action, there is an equal opposite reaction. Reformulated in the current issue as: for every welfare, there is an equal opposite diswelfare.
(See also, Migration and Freedom 2: Taxing residents abroad, March 19, 2007)
Tuesday, March 18, 2008
Oil Politics 4: Is Expensive Oil Good for the World Economy?
One blogger asked, "could there be a danger for a bubble burst if oil prices dramatically and suddenly decreased given the current economic woes and enviromental concerns?"
I think world oil prices are heading north more than head towards the south. The trend is there: investors with lots of cash who are afraid to put their money in the banks because they don't know who will follow next to Bear Stearns, so they park their money in oil, gold, silver, other commodities. Here, they are assured of protection from high inflation and good returns, at least in the next few months.
Besides, with more globalization, more people around the world are working harder, they move more often, and use more petroleum or oil-substitutes more often.
So, is expensive oil good for the world economy? In a sense, Yes. The volume of cars and trucks on the roads, the boats and ships on the seas, and airplanes on the skies, will remain the same if not become plentier. But with higher oil prices, only more essential and more productive trips are made; the less essential and frivolous trips are postponed and substituted by online communications.
What about the poorer sectors and people of the world? Expensive oil will hurt them, true. But so will cheap oil in the form of "over-consumption" of the commodity, which leads to more traffic congestion, more pollution, more diseases, and less investments and R&D to fuel-efficient cars, "green" energy alternatives.
Meanwhile, the world is now getting accustomed to 3-digit oil prices. After the symbolic $100 a barrel has been reached about 2 months ago, the next "target" was the all-time high price of $103.7 a barrel, which was the current equivalent value of the $30+ touched in 1980 during the Iran hostage crisis. This week, the $110 has been touched, and as the trend continues, a $115 a barrel or higher, may not be too far.
The net gainers of these are the oil exporting countries (OPEC or non-OPEC members) of course, plus the speculators who make big profit margins with the continuing oil price spikes. They just collect higher revenues for the same volume of oil they sell and export. Prices of gold (has already touched the symbolic 4-digit level of $1,000 an ounce), silver, rice, wheat, many other commodities are rising anyway, so must oil.
If economies are generally competitive and there is easier entry and exit (near "contestable market" condition) for firms, high prices will attract new entrants and producers, either of the same goods or substitute goods. As oil prices continue to rise, the more profitable will be the “alternative energy” sectors, from windmills to solar to biofuels, etc.
On a related note, I posted this last February 28, 2008.
Inflation in oil exporting countries
As world oil prices tend to stabilize around the $100/barrel price, inflationary pressure building up in many oil-importing countries is understandable. But when the same pressure builds up in oil-exporting countries themselves, it's a little bit of news.
Well, not exactly. With so much money made from selling ever more expensive oil, inflation will surely happen in many oil-exporting countries -- if the supply of goods and services needed in those countries do not correspondingly increase. Remember that price increases only when the growth of supply of certain goods and/or services do not rise correspondingly with growth in demand.
More imports and trade liberalization, including increased inflow of workers and professionals from other countries who provide the services needed by the local people, will help tame inflationary pressures. For instance, if more Arab people will demand more modern health services, and if the number of healthcare facilities (clinics and hospitals, health laboratories, etc.) and health professionals do not expand, then those rich Arabs will flock to existing facilities and health professionals and crowd out their poorer countrymen and expats, resulting in high inflation in the health industry.
-------
See also:
I think world oil prices are heading north more than head towards the south. The trend is there: investors with lots of cash who are afraid to put their money in the banks because they don't know who will follow next to Bear Stearns, so they park their money in oil, gold, silver, other commodities. Here, they are assured of protection from high inflation and good returns, at least in the next few months.
Besides, with more globalization, more people around the world are working harder, they move more often, and use more petroleum or oil-substitutes more often.
So, is expensive oil good for the world economy? In a sense, Yes. The volume of cars and trucks on the roads, the boats and ships on the seas, and airplanes on the skies, will remain the same if not become plentier. But with higher oil prices, only more essential and more productive trips are made; the less essential and frivolous trips are postponed and substituted by online communications.
What about the poorer sectors and people of the world? Expensive oil will hurt them, true. But so will cheap oil in the form of "over-consumption" of the commodity, which leads to more traffic congestion, more pollution, more diseases, and less investments and R&D to fuel-efficient cars, "green" energy alternatives.
Meanwhile, the world is now getting accustomed to 3-digit oil prices. After the symbolic $100 a barrel has been reached about 2 months ago, the next "target" was the all-time high price of $103.7 a barrel, which was the current equivalent value of the $30+ touched in 1980 during the Iran hostage crisis. This week, the $110 has been touched, and as the trend continues, a $115 a barrel or higher, may not be too far.
The net gainers of these are the oil exporting countries (OPEC or non-OPEC members) of course, plus the speculators who make big profit margins with the continuing oil price spikes. They just collect higher revenues for the same volume of oil they sell and export. Prices of gold (has already touched the symbolic 4-digit level of $1,000 an ounce), silver, rice, wheat, many other commodities are rising anyway, so must oil.
If economies are generally competitive and there is easier entry and exit (near "contestable market" condition) for firms, high prices will attract new entrants and producers, either of the same goods or substitute goods. As oil prices continue to rise, the more profitable will be the “alternative energy” sectors, from windmills to solar to biofuels, etc.
On a related note, I posted this last February 28, 2008.
Inflation in oil exporting countries
As world oil prices tend to stabilize around the $100/barrel price, inflationary pressure building up in many oil-importing countries is understandable. But when the same pressure builds up in oil-exporting countries themselves, it's a little bit of news.
Well, not exactly. With so much money made from selling ever more expensive oil, inflation will surely happen in many oil-exporting countries -- if the supply of goods and services needed in those countries do not correspondingly increase. Remember that price increases only when the growth of supply of certain goods and/or services do not rise correspondingly with growth in demand.
More imports and trade liberalization, including increased inflow of workers and professionals from other countries who provide the services needed by the local people, will help tame inflationary pressures. For instance, if more Arab people will demand more modern health services, and if the number of healthcare facilities (clinics and hospitals, health laboratories, etc.) and health professionals do not expand, then those rich Arabs will flock to existing facilities and health professionals and crowd out their poorer countrymen and expats, resulting in high inflation in the health industry.
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See also:
Oil Politics 1: Bush vs. Chavez? March 12, 2007
Oil Politics 2: Oil prices and climate change, October 30, 2007
Oil Politics 3: $100/barrel Oil Price and Petroleum Taxes, November 13, 2007
Inflation and CBs 3: "Bank of Last Resort"
I am not in favor of a central bank like the Fed, bailing out certain banks because they're "too big to fail". The Fed provided a credit line of around $30 B to Bear Stearns, which was bought by JP Morgan for only $2/share when less than a month ago it was trading at $90/share.
Then I read that had the Fed not acted so, other bigger banks like Lehman Brothers would be next to possibly free fall. And possibly threaten others like UBS, City and Morgan Stanley. Could this be true? I feel that the above-mentioned banks were too gigantic to be dragged down.
I hope that the next banking reform there will be that the Fed will just concentrate on setting monetary policy, no “bank of last resort” function, no bank supervision and bail-out function?
The private banks themselves should put up their own “bank of last resort”, use their own money that will be used to put up and maintain such bank. When that bank decides to bail out one or a few banks, it’s the bankers’ money that will be on the line, not the public’s. This will hopefully remove any “moral hazard” problem in banking.
On another note, a number of economic analysts are discussing how to stop inflation, and how central banks (CBs) or federal reserves can help to attain this goal. CB’s tight interest rates and other contractionary monetary policies over the long term, cannot reign in inflation. If interest rates are high to “warn” people not to spend too much, then entrepreneurs who have to borrow to start a new business or expand an existing one will have difficulty, the high cost of capital they will pass on to consumers, which can set inflationary pressure itself.
Central banks are among the remnants of central planning thinking of socialist school of thought. Central bankers maybe a “necessary evil” at the moment but nonetheless, they are unproductive bureaucrats who can better help the economy fight huge inflation spikes by becoming entrepreneurs who produce more goods and services, the best way to fight huge price spikes.
* See also: Inflation and CBs 2: Panama has no Central Bank, February 20, 2008
Then I read that had the Fed not acted so, other bigger banks like Lehman Brothers would be next to possibly free fall. And possibly threaten others like UBS, City and Morgan Stanley. Could this be true? I feel that the above-mentioned banks were too gigantic to be dragged down.
I hope that the next banking reform there will be that the Fed will just concentrate on setting monetary policy, no “bank of last resort” function, no bank supervision and bail-out function?
The private banks themselves should put up their own “bank of last resort”, use their own money that will be used to put up and maintain such bank. When that bank decides to bail out one or a few banks, it’s the bankers’ money that will be on the line, not the public’s. This will hopefully remove any “moral hazard” problem in banking.
On another note, a number of economic analysts are discussing how to stop inflation, and how central banks (CBs) or federal reserves can help to attain this goal. CB’s tight interest rates and other contractionary monetary policies over the long term, cannot reign in inflation. If interest rates are high to “warn” people not to spend too much, then entrepreneurs who have to borrow to start a new business or expand an existing one will have difficulty, the high cost of capital they will pass on to consumers, which can set inflationary pressure itself.
Central banks are among the remnants of central planning thinking of socialist school of thought. Central bankers maybe a “necessary evil” at the moment but nonetheless, they are unproductive bureaucrats who can better help the economy fight huge inflation spikes by becoming entrepreneurs who produce more goods and services, the best way to fight huge price spikes.
* See also: Inflation and CBs 2: Panama has no Central Bank, February 20, 2008
Friday, March 14, 2008
Popularity and piracy
More popular songs, medicines, rubbershoes, cellphone models, any invention, tend to get pirated more than their less popular counterparts. This is a regular pattern. And this is being done not only by individuals, households or firms, but also by governments. The case of compulsory licensing (CL) of popular drugs against AIDS, cancer, TB, etc., is an example. Only those drugs that are more effective will be
issued CL or be copied by copycat manufacturers; the other less popular, less effective medicines, are left alone.
If I were a singer, say a famous rock star, and my songs and CDs are being pirated in many countries around the world, I could cry foul and sue IP infringement all over. But the cost of enforcement, by going through litigations in so many places, is much
much higher than the benefit of piracy being controlled or minimized.
One attitude I could choose, is to allow piracy of my songs and CDs, I won't run after the pirates. Then my songs will be heard even in the remotest and poorest villages in poor countries because my CDs are sold dirt cheap there. Many people on earth would have heard of my songs and known my name and my band. The manufacturers of known brands, whether sports equipment or cellphone, car and tv manufacturers will take note of this, and pretty soon, I will be swamped with plenty of offers for commercial endorsement. That's where I will make lots of money. Also, I can do live concerts in many cities around the world, I can charge high, and many people will still come and pay the high tickets because of my popularity, courtesy of my pirated songs and CDs.
It's a matter of "internalizing the externalities" of piracy. But then again, this is one option that IP owners can take. They can take the opposite tack, which is full and costly enforcement of IP rights.
I think that both approaches can be merged. If certain taxes and government regulations related to invention and composition will be removed or at least drastically cut, then the cost of production, distribution and marketing of songs, medical innovations, other agricultural or industrial inventions, will become lower, which translates to higher profits to inventors and innovators, which attracts new players and competitors, which translates to lower prices, which reduces the incentives for piracy.
issued CL or be copied by copycat manufacturers; the other less popular, less effective medicines, are left alone.
If I were a singer, say a famous rock star, and my songs and CDs are being pirated in many countries around the world, I could cry foul and sue IP infringement all over. But the cost of enforcement, by going through litigations in so many places, is much
much higher than the benefit of piracy being controlled or minimized.
One attitude I could choose, is to allow piracy of my songs and CDs, I won't run after the pirates. Then my songs will be heard even in the remotest and poorest villages in poor countries because my CDs are sold dirt cheap there. Many people on earth would have heard of my songs and known my name and my band. The manufacturers of known brands, whether sports equipment or cellphone, car and tv manufacturers will take note of this, and pretty soon, I will be swamped with plenty of offers for commercial endorsement. That's where I will make lots of money. Also, I can do live concerts in many cities around the world, I can charge high, and many people will still come and pay the high tickets because of my popularity, courtesy of my pirated songs and CDs.
It's a matter of "internalizing the externalities" of piracy. But then again, this is one option that IP owners can take. They can take the opposite tack, which is full and costly enforcement of IP rights.
I think that both approaches can be merged. If certain taxes and government regulations related to invention and composition will be removed or at least drastically cut, then the cost of production, distribution and marketing of songs, medical innovations, other agricultural or industrial inventions, will become lower, which translates to higher profits to inventors and innovators, which attracts new players and competitors, which translates to lower prices, which reduces the incentives for piracy.
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