How Videogames Flourish Under Free Markets

Former hedge fund Kessler argues that Videogames will inspire many of the most important innovations in the coming years which would overshadow government’s influence.

Mr. Kessler writes, (bold highlights mine)

But without gaming, this technology would be expensive, one-off stuff that never sees much use. Much as keyboards and mice and fast graphics have driven corporate productivity for 40 years—killing carbon paper and Correcto Type—the next decades will be driven by tools that can harness voices and gestures.

All it takes is one application. High-margin industries like finance usually deploy these things first: The early adopters could be traders in commodity pits signaling like crazy folk. The rest will follow.

Videogames will influence how next-gen workers interact with each other. Call of Duty, a military simulation game, has a mode that allows players to cooperate from remote locations. In World of Warcraft, players form guilds to collaborate, using real-time texting and talking, to navigate worlds presented in high-resolution graphics. Sure, they have funky weapons and are killing Orcs and Trolls and Dwarves, but you don't have to be a gamer to see how this technology is going to find its way into corporate America. Within the next few years, this is how traders or marketers or DNA hunters will work together. No more meetings!

Even the entertainment and media businesses will be transformed. In 1985, Neil Postman of New York University wrote a book, "Amusing Ourselves to Death," disparaging the media for ruining discourse. Postman died in 2003, but I wonder what he'd think today: Online ad sales are now more lucrative than newspaper advertising, as marketers follow their customers. Netflix video streaming will change the cable TV business. The videogames Rock Band and Guitar Hero have taught the media how to package something that's at least 30 years old, in this case music you play along with, and sell it as if it were new.

The mass expansion of videogames only reflects on how specialization via technology has swiftly been diffusing into the highly competitive marketplace. The videogames industry today is estimated at $21 billion, according to Venturebeat.com and is expected to balloon to $68 billion, according to arstechnica.com. (includes the graph below)

And part of this growth will come from social network gaming.

According to Red Herring,

Farmville and other social games won't be needing Farm Aide support for 2011. According to a recently released eMarketer report, social gaming will reach a billion dollar business this year.

Not that the techsphere is reeling from the news. Considering the massive growth of Facebook and Zynga platforms for social gaming lately, this impressive statistic is hardly surprising, though it's nice to have the numbers to back it up.

According to the report, nearly 62 million Internet users, making up 27 percent of the online audience, will engage at least one game on a social platform monthly this year, a sizable increase from the 53 million who did so in 2010. US consumers will spend $653 million on social gaming for 2011, a hearty boost from the $510 million they spent last year.

Count me as one of the free riding game players (presently active in Knights of Camelot and Napoleonic wars but am rethinking if I should continue)

I think the idea that video games will serve as one of the most important source of innovation is spot on. That’s because video games seems emblematic of free market forces at work where competition drives innovation through the technology platform, where game developers tap the specialty market segments through various genre of games, which has been rapidly growing along with explosive growth of web usage.

While Mr. Kessler rightly attributes the origins of some of the past technological innovations to the government, it is important to point out that the market, and not the government, has fuelled the widespread use.

As rightly Peter Klein explains, (bold highlights mine)

But technological value is not the same as economic value. That can only be determined by the free choice of consumers to buy or not to buy. The ARPANET may well have been technologically superior to any commercial networks that existed at the time, just as Betamax may have been technologically superior to VHS, the MacOS to MS-DOS, and Dvorak to QWERTY. (Actually Dvorak wasn't.) But the products and features valued by engineers are not always the same as those valued by consumers. Markets select for economic superiority, not technological superiority (even in the presence of nefarious "network effects," as shown convincingly by Liebowitz and Margolis).

In short, those cited figures—billions in dollars—account for as the economic value of these videogames. It’s not just the game, but how people spend for it which sustains and grows the industry and at same time satisfying millions of users.

From the investment perspective, surging video and online social network games seem as one great area to explore.

Celebrities of Globalization: Charice Pempengco and Journey’s Arnel Pineda

2 fantastic Filipino international music superstars Charice Pempengco and Arnel Pineda, the lead singer of a pop rock band of the 80s Journey, represent as shining examples one of the miracles of globalization.

Charice Pemepengco (left) and Arnel Pineda (right)

[sorry I am not aware of the billing order for the two celebrities thus made use of family name alphabetical order. Nevertheless portraits from Wikipedia.org]

The stepping stone to newfound stardom for these Filipino artists:

Charice Pempengco, according to Wikipedia.org (bold emphasis mine)

Pempengco made minor appearances on local television shows and commercials, but essentially had fallen off the radar after her stint at Little Big Star. It was not until 2007 that she gained worldwide recognition after an avid supporter started posting a series of her performance videos on YouTube under the username FalseVoice. These videos received over 13 million hits which, according to Reyma Buan-Deveza, makes Pempengco a "YouTube singing sensation"

Arnel Pineda, lead singer of popular 80s rock band Journey, based on the accounts of the mainstay members on this interview:

______________

Arnel Pineda’s biography according to Wikipedia.org here

My observations:

-The recent career success of both Filipino artists has been founded on the crucible of technology, social mobility, and importantly in response to a global audience.

-Both artists have defied the traditional-conventional vertical (organizational) process of discovering talent for the music industry.

In the case of Ms. Pempengco, her seeming unsuccessful debut in the local TV contest (one of the orthodox way of talent scouting) had been representative of the failure of the select judges to appreciate her talents in lieu of the market.

But that didn’t deter her. The viral (word of mouth) ramifications diffused over the web apparently neutralized the rigid and discriminatory screening process that eventually launched her newfound fame.

In short, 13 million hits demolished the subjective opinions of a handpicked few who presupposed ascendancy over the market’s opinion or appreciation over her talents.

Although one might interpret that Ms. Pempengco’s genre of music appear to cater to international audience more than the local ones, which may be partly true, I would suspect more of the rigid screening ‘syndicate’ based process as responsible for missing out in identifying her talent.

After her international success, local outfit have been quick to embrace her.

Of course, her perseverance and creativity had also been instrumental to the advancement of her aspirations.

In the case of Mr. Pineda, while years of exposure may seem to have augmented his recent career glory, the orthodoxy in the artist talent scouting system surely didn’t—as Mr. Pineda’s career didn’t make any significant headway.

Of course, this was not until Journey’s direct discovery through the internet (via Journey’s guitarist Mr. Neal Schon), which serves as a testament to the technology-aided short-circuiting of the archaic agent based process.

While it may be true that Mr. Pineda or Ms. Pempengco’s case could be, for the moment considered as unique, nevertheless, such trends appear on the way to radically alter the conduct of business as manifested in the music industry.

-Lastly, the Pempengco and Pineda ‘rags to riches’ success story appear to be representative of the internationalization or the global integration of the marketplace. In particular, the expanded access to a global pool in the matching of ‘specialized’ talent-to-‘niche’ audiences.

Think of it, if one of the three variables (technology, social mobility, and a global audience) had been encumbered, then the many would not have appreciated the magnificent repertoires provided by these newly discovered highly talented Filipino artists.

In short, the democratization of information (via technology platform) and increasing social mobility appears to have played a crucial behind-the-scenes role in the success story for these Filipino celebrities of globalization.

And count me in as a fan of the market elected talents.

Capitalism And World Peace

Here is a wonderful Christmas gift for humanity: World peace!

Citing a study from the Human Security Center at the University of British Columbia, the Democratic Leadership Council (DLC) notes that the world has become more peaceful

Their observations (from DLC): (italics original)

Wars are less frequent: The Center's 2009/2010 report group finds 34 conflicts, including 5 international wars in Afghanistan, Iraq, and the Congo Basin. This is a lower total than at any time since the 1970s, reflecting the fact that warfare in Europe has almost vanished, with exceptions in the Caucasus; and that the numbers of wars in East Asia, Southeast Asia, and Latin America have also plummeted. And despite the Iraq, Afghan, Somalia and Yemen conflicts, the Center argues that wars in the Muslim world are rarer too, reporting a decline of 70 percent in the scale of conflict in these regions.

Great-power wars are rare: No war has pitted great powers -- meaning any of the world's 10 biggest economies -- against one another since the Sino-Soviet clashes of 1969. No war among Asian states has broken out since the Sino-Vietnamese war of 1979; the last war among European big powers is now 65 years in the past. All three intervals -- the great-power, the European, and the Asian -- are the longest periods of peace in the historical record.

Wars are less bloody: The report, reviewing the grimmest statistics, finds that the average war in the 1950s killed 20,000 soldiers and/or guerrillas each year, with war deaths averaging 155,000 in each year of the decade. Figures for the 1960s, 1970s and 1980s were similar. In the new millennium's first decade, the casualty rate was about 3,000 per war; the average for all wars combined, having fallen to 95,000 by the 1990s, has been 27,000 (and 17,000 annually since 2002, with an all-time low of 11,000 in 2005.)

The identified socio-political reasons: (all bold emphasis mine)

Some are political and military: (a) decolonization and the end of the Cold War mean there are fewer nationalistic or ideological reasons to fight, (b) the spread of democracy may produce less belligerent governments, (c) today's great powers are both less bellicose and less vulnerable than they used to be, with armies, air forces and navies strong enough to deter potential aggressors, (d) lots of international activism, from peacekeeping missions to sanctions on potentially aggressive states; and (e) with notable exceptions in East and South Asia, fewer border and land disputes.

And importantly, the economic driver...(all bold emphasis mine)

Economic issues too may play a part: lower trade barriers, more open economic policies, more efficient logistics industries and better communications technology speed up and deepen integration across borders through trade and investment, strengthening mutual interests and reducing reasons for conflict. The report suggests that a 10 percent increase in FDI reduces a nation's chance of international or civil war by about 3 percent, and that globalization reduces the reasons a country might want to fight:

"[T]he most effective path to prosperity in modern economies is through increasing productivity and international trade, not through seizing land and raw materials. In addition, the existence of an open global trading regime means it is nearly always cheaper to buy resources from overseas than to use force to acquire them."

Since politics is ultimately about economics (allocation of scarce resources), where the great Bastiat once said if goods don’t cross borders then armies will, then the improvements in the economic sphere has preceded the marked progress in the socio-economic dimensions. This has been manifested by the apparent lesser degree of political interest towards nationalism, and conversely, a greater tolerance for democracy.

[As an aside, it would be greatly misplaced to suggest that markets operates under the auspices or the graces of governments as markets have existed even prior to the advent of governments. The fact that markets also exists in spite of manifold government regulations, or what is known as as regulatory arbitrage, or circumventing (going around) regulations, is a testament to the innate dominance of markets over politics.]

Of course, technology has also played an important role by vastly enhancing social connectivity. Yet the innovation in technology front has likewise been a product of free market forces.

In short, the deepening trends of free markets (globalization) buttressed by technology has influenced the evolving geopolitical institutional framework, in spite of the recent crisis.

Importantly, the market economy (or capitalism) and war represents as two antipodal forces from which mankind can only choose one.

As the great Ludwig von Mises wrote in Omnipotent Government, (bold highlights mine)

Social coöperation and war are in the long run incompatible. Self-sufficient individuals may fight each other without destroying the foundations of their existence. But within the social system of coöperation and division of labor war means disintegration. The progressive evolution of society requires the progressive elimina­tion of war. Under present conditions of international division of labor there is no room left for wars. The great society of world-embracing mutual exchange of commodities and services demands a peaceful coexistence of states and nations. Several hundred years ago it was necessary to eliminate the wars between the noblemen ruling various countries and districts, in order to pave the way for a peaceful development of domestic production. Today it is in­dispensable to achieve the same for the world community. To abolish international war is not more unnatural than it was five hundred years ago to prevent the barons from fighting each other, or two thousand years ago to prevent a man from robbing and kill­ing his neighbor. If men do not now succeed in abolishing war, civilization and mankind are doomed.

Bottom line: The world appears to be on the path to a deepening degree of acceptance of the politics of free trade (capitalism) than from militant (nationalistic) politics, as Professor von Mises predicted. The only major counterbalance to this is inflationism.

Merry Christmas!

How Capitalism Saved The Chilean Miners

Daniel Henninger at the Wall Street Journal asserts that the successful rescue of Chilean miners as signifying victory for capitalism.

Mr. Henninger writes, (bold emphasis mine)

This profit = innovation dynamic was everywhere at that Chilean mine. The high-strength cable winding around the big wheel atop that simple rig is from Germany. Japan supplied the super-flexible, fiber-optic communications cable that linked the miners to the world above…

In an open economy, you will never know what is out there on the leading developmental edge of this or that industry. But the reality behind the miracles is the same: Someone innovates something useful, makes money from it, and re-innovates, or someone else trumps their innovation. Most of the time, no one notices. All it does is create jobs, wealth and well-being. But without this system running in the background, without the year-over-year progress embedded in these capitalist innovations, those trapped miners would be dead.

In short the technology, instruments and expertise used to save the trapped miners had been a product of capitalism.

This reminds me of the great classic, “I, Pencil”, from Leonard Read which states that market, using the pencil as example, is driven by spontaneous order: No no one exactly knows how to make the pencil in the entirety, yet people using division of labor, specialization and voluntary exchange concertedly allows the pencil to be produced and be used by us, the consuming public.

Here is an excerpt from Mr. Read, (bold highlights mine)

Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others. Now, you may say that I go too far in relating the picker of a coffee berry in far-off Brazil and food growers elsewhere to my creation; that this is an extreme position. I shall stand by my claim. There isn't a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how. From the standpoint of know-how the only difference between the miner of graphite in Ceylon and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can be dispensed with, any more than can the chemist at the factory or the worker in the oil field — paraffin being a byproduct of petroleum.

Here is an astounding fact: neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me. Each one wants me less, perhaps, than does a child in the first grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know how to use one. Their motivation is other than me. Perhaps it is something like this: each of these millions sees that he can thus exchange his tiny know-how for the goods and services he needs or wants. I may or may not be among these items.

Capitalism is almost always the unheralded and unappreciated hero, for incidents like the successful rescue of Chilean miners, but has undeservingly served as the scapegoat for failures of the political order.

Are Food Shortages The Result of Extreme Weather?

This news from yahoo says so,

Deadly riots in the streets of Mozambique over sharply higher food prices have left 13 dead. Anger is growing in Egypt and Serbia as well. Panicked Russian shoppers have cleared the shelves of staple grains. And the devastating floods that have left as many as 10 million Pakistanis homeless are also raising concerns about the country's ability to feed itself.

A series of isolated disasters? Not at all. The common thread: extreme weather, which is putting pressure on food supplies around the globe.

Like any politically biased article, this seems focused on a post hoc fallacy (after this, therefore because of this) argument.

Extreme weather conditions has exacerbated but not caused the existing imbalances or shortages.

In almost every instance, shortages happens when the price mechanism isn’t allowed to function.

And because agriculture is one of the most, if not the most, politically sensitive sector in any economy, it has been the least open to international commerce, hence, the inherent imbalances from the lack of trade and investments which extrapolates to reduced output or the lack of supply. In short, supply constrains have been caused by government policies which has distorted the price mechanism.

This is especially accentuated in developing economies whom lacks capital to develop idle lands which has been aggravated by aforementioned protectionist measures.

Subsequently this has resulted to a massive loss in productivity from the underlying mismatch in the yield gaps and the land availability (abundance of fallowed lands) as shown below by the most recent World Bank Study Rising Global Interest In Farmlands.

Of course, the law of demand and supply has always been at work, such that in the recent episode where food prices spiked in 2007-8 combined with the recent trends of globalization, governments have used current dynamics to exploit on these gaps by allowing for crossborder investments (seen below).

So obviously the answer to the problem of shortages is to allow markets to function, which hopefully the du jour acceptance of globalization might diffuse openness into the world’s agriculture sector.

And of course, no one has been talking about the way global governments have been printing money which has been artificially boosting demand for food and obversely depreciating value of currency relative to real goods.

For the mainstream, what is NOT sensational but real, hardly matters.

Can Government Prevent Disasters?

I am disheartened by the news of the recent bus tragedy in Benguet whereby some 41 people died when the Bus fell into the ravine.

Yet we hear some sectors intuitively propose government to intervene, in the assumption that government can indeed forestall disaster. Again “romancing the government” without examining the cost benefit tradeoffs.

Here is why I think government can’t help in preventing disasters, (even if you install a communist government)

1. Government officials don’t know and can’t tell the future.

2. Government officials don’t know and can’t tell ALL the ongoing changes in the environment.

3. Government officials don’t know and can’t tell ALL the spontaneous actions of tens of millions of people.

4. Government officials don’t know and can’t tell ALL the conditions of the vehicles that people use.

5. Government officials don’t know and can’t tell ALL the impact of the interactions of the people, the vehicles and the environment.

In short, it will ALWAYS BE A KNOWLEDGE problem.

So unless, someone can enlighten me on the supposed omniscience of government, from such premises, no matter what the government does, they won’t be able to prevent disasters.

At worst, they could enhance it.

How?

First, every government intervention entails a bureaucracy.

Two, every bureaucracy comes with financing charged to taxpayers. So if the government plans to reduce accidents by having people NOT to travel by imposing onerous taxes, then this would be the way to go. That’s because people will be too poor to travel. Yet quality of life can be associated with impact of disasters (Think Haiti)

Three every regulations will benefit one group at the expense of the other.

A great example of this would be the Philippine Maritime industry.

Out of the world’s 176 worst maritime disaster, the Philippines owns 6 of them and has the inglorious status of having the worst, the MV Dona Paz.

Well, it’s NOT that the maritime industry has been lacking regulation. The fact is the opposite the industry have SATED with regulations.

As I previously wrote,

It is a peculiar development why despite the repeated accidents by the same shipping company, consumers continue to patronize such private entity. The answer is the lack of choice.

None in the media has brought out the fact that the domestic shipping industry is a very tightly regulated industry.

Imagine, aside from 5 agencies that directly supervise the industry; namely, Maritime Industry Authority, Philippine Ports Authority, Bureau of Customs Bangko Sentral ng Pilipinas and the Philippine Shippers Bureau, there are another twenty six (26) other agencies directly or indirectly regulate the inter-island freight shipping industry (NEDA’s Philippine Institute for Development Studies). Incredible red tape!

THIRTY ONE Agencies regulating the Shipping Industry yet the repeat disasters?! Why?

Because the bureaucratic red tape has served as a substantial barrier from competition to the benefit of the incumbent industry players.

And when consumers have been left with no choice, they will be forced to patronize even when the services offered are inferior or when their lives are put to risk. Ergo, the repeat disasters.

Another, there is such a thing called “regulatory capture”. It’s when the interests of the industry have “captured” the regulators, or when regulators and the protected industry dance the proverbial tango.

In many instances, regulators find their career outside public service in the industry which they once regulated. In short, the interest of the regulators tends to align with the interest of the regulated for personal motives such as career or otherwise. (As I said regulators are HUMAN Beings and look after their personal interest FIRST). Thus, by keeping chummy they open the doors for laxity in supervision and risk of disasters.

Four, regulators are obsessed with rules and NOT with pleasing the consumers. Yet rules don’t and won’t incorporate everything that is known for the benefit of society. The fundamental premise of which anew is the Knowledge problem and of the interest of diverse groups involved in shaping the laws.

So instead of looking for the welfare of their clients or the consumers, industry providers will be forced to pay attention FIRST to comply with the web of laws.

And the cost of compliance is the obverse side of disaster, industry players tend to stick by the standards (regulations) and ignore the cost of a potential disaster from a black swan or a random event.

Remember life is dynamic, new technology, environmental changes and evolving consumer patterns among others contribute to “randomness”. Even new laws contribute to changes in people’s behaviour, which add to randomness or life’s complexities.

At the end of the day, if an accident from a black swan event happens, then the industry players can go scotch free since they are outside the ambit of government imposed standards.

Of course, unless consumers are deemed to be so dumb, then always the excuse for government intervention.

But in contrast to this, consumers can always be empowered to render discipline on the providers, if given the chance.

That is if they allow competition to determine their cost-benefit tradeoffs relative to the price, quality and safety of the product they use or consume.

It’s funny and an irony how we tend to TRUST the people to make the “right” choices about the leadership in elections, yet degrade their capabilities when they account to choose for their own self-interest which they have a direct stakeholding, when dealing with personal needs and wants. It’s a reasoning gone backwards.

Another, outside regulations and the consumers, the other source of discipline are tort laws. If the judicial system will be facilitative into rendering judicious resolution and indemnity to the aggrieved parties, then obviously no business interests would in the right mind NOT to seek the interest of the consumers because they will and can be sued out of existence.

In short, you don’t need more government intervention, what you need is more competition and judicious facilitation of tort laws.

___
Update:

I’d like to thank Nonoy Oplas for his most valued input (see comment section).

Nevertheless, let me clarify that the Jeepney industry can’t be classified as an open competition but a regulated competition. As an analogy, if you have (x number of) pets in a cage and throw food into it, your pets will “compete” for the food you throw. There is “competition” but the competition is limited by your actions (as pet owner), or in the case of the Jeepney, the government.

Jeepneys are essentially covered by a slew of regulations, these includes franchise restrictions, territorial coverage, allowable fees to charge (public tolls), vehicle type and engine specifications, road use, traffic regulations—the latter, of which are vacillatingly implemented, and perhaps many more (this would need to be researched and a topic for another day).

Thus, I wouldn’t generalize that discourteousness of many Jeepney drivers as a result of “competition” but from a combination of many of these regulations which has skewed the behaviour of drivers towards “incivility”.

One shouldn’t forget the uneven application and occasional boorish behaviour of the implementing officers and notwithstanding the “palakasan” attitude as a result of political dependence could also be contributing factors. So there are many many many factors influencing the Jeepney industry.

Since buses have “higher barriers to entry”, one might say they seem more professional in competition. But I have my reservations. This needs more research before making any conclusions. Some like Victory Liner which has been a favourite of mine seem to respond to “competition”.

The transport sector is more a regulated competition than a free market competition. Hence, the beneficial effects from competition may NOT be apparent, since they are suppressed.

Of course, in agreement with Nonoy's suggestion, open competition, the abolishment of government agencies, facilitation of the tort laws, and the rule of law should matter most. One can use the this experiment as example.

Privatize Pag-Asa or Open Weather Forecasting To Competition

Weather forecasting personnel from the government institution are reportedly in mass exodus.

According to the Inquirer,

The Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) has lost 24 key personnel, most of them experienced weather forecasters, in the past 10 years to lucrative offers from abroad, the Inquirer has learned.

Brain drain is not the only disturbance beclouding the state agency, on whose forecasts depend the lives of countless Filipinos. The problem of outdated equipment has battered it for years.

According to PAGASA personnel who talked on condition of anonymity, most of the weather forecasters have accepted offers from the state weather agency in Dubai, which is strengthening its forecasting system in its bid to attract investors and tourists.”

This is to be anticipated for the following reasons:

One, PAGASA is just one of the many tentacles of government agencies and thus becomes the object of concern only when political expediency calls for it.

Two, because PAGASA’s priority is based on political whims, thus, her financing is also subject to political priorities.

[I’d like to add that “brain drain” is a non-sequitur here, brain drain is the result of government or bureaucratic failure.]

Evidence from the same article,

After 1998, PAGASA decided to chuck the master plan.

But Nilo said the Arroyo administration was more supportive of PAGASA’s plan calling for much-needed equipment improvement.

In 2005, Nilo and PAGASA embarked on a new plan that included the upgrading of PAGASA’s existing Doppler radars.

Unfortunately, the Arroyo administration toward the end of its term slashed PAGASA’s budget for 2010.

The agency had submitted a P1.7-billion budget covering personnel and maintenance expenses and including capital outlay for the purchase of new equipment. But it was told by the Palace to stay within the ceiling of P614 million.

For 2009, PAGASA got a P757-million budget that included some amount for capital outlay.

Three, because government bureaus are likewise subject to public opinion, PAGASA serves as a favorite whipping boy or “passing the hot potato” (blame) for political leaders. In politics, which essentially is a zero sum game, someone has to take blame, hence if it is not greedy entrepreneurs it is the small fry (bureaucrats). Never will the blame fall on themselves or the bureaucracy or the legal system that supports it.

From the same article,

PAGASA has been under a microscope after failing to accurately track Typhoon “Basyang” (international codename: Conson) and its officials were publicly reprimanded by no less than President Benigno Aquino III.

The agency has upgraded the capability of two of its Doppler radars to improve storm tracking. Aside from that, the new radars can now provide information on wind speed, wind direction and rainfall amount.

The agency is set to upgrade five more radars in the coming months.

As shown above, government always are almost always reactive in approaching social problems, and that’s because the primary concern of politicos have been to generate favorable public opinion, since the essence of the preservation of their politically privileged status is in the substance of a popularity contest . Hence, since social issues are fungible or concerns which varies on a fleeting day to day affair, so goes with the political priorities.

Finally what people don’t see is that weather forecasting services could be better offered by the private sector.

In the US private companies are reportedly much better or more accurate in weather forecasting.

This from the Fox,

Private companies with a lot at stake would often rather pay for private forecasts than rely on the “free” forecasts from the government. Hugh Connett, the president of Bridgeline, a gas pipeline company in Louisiana, claims that the government’s hurricane forecasts are too imprecise. He says that private companies such as AccuWeather do it better, because they give more accurate predictions and provide hour-by-hour forecasts of a storm’s path.

His position is not ideological – Connett’s firm monitors the past accuracy of hurricane forecasters to make sure paying extra for the private service is worth it.

It is not just for hurricanes that private forecasting comes out on top. A new study by Forecast Watch, a company that keeps track of past forecasts, found that from Oct. 1, 2006, through June 30, 2007, the government’s National Weather Service did very poorly in predicting the probability of rain or snow. Comparing the National Weather Service to The Weather Channel, CustomWeather, and DTN Meteorlogix, Forecast Watch found that the government’s next-day forecast had a 21 percent greater error rate between predicted probability of precipitation and the rate that precipitation actually occurred.

In looking at predicting snow fall from December 2006 through February 2007, the National Weather Service’s average error was 24 percent greater.

“All private forecasting companies did much better than the National Weather Service,” the report concludes.

The government doesn’t do any better with forecasting temperature. For the largest 50 cities in the U.S. over the last year, ForecastAdvisor.com ranks the National Weather Service’s overall predictions for high and low temperatures as well as precipitation as dead last among the six weather forecasting services they examined.

It has only been in the last several years that comparisons between government and private weather companies have been possible, as the National Weather Service has made its data more readily available. But none of this should be very surprising. Incentives matter. If the private companies don’t do a good job, they go out of business. Government agencies never even shrink.

The key difference? Private sector is subject to profit or losses, thereby are incented to produce accurate or precise forecasting or risk losing capital, whereas the public sector’s performance goes only on the spotlight, when problems emerges.

Thus, from motivational issues, the lack of incentive to serve consumers, scant funding to shifting public priorities by political leaders, the mass personnel exodus from the government agency should be expected. The alternate solution isn't for government to spend more but to open weather forecasting to competing private enterprises.

Ludwig von Mises laid out the premise why governments are no better in providing "public services" needed by the people (bold emphasis mine).

In public administration there is no connection between revenue and expenditure. The public services are spending money only; the insignificant income derived from special sources (for example, the sale of printed matter by the Government Printing Office) is more or less accidental. The revenue derived from customs and taxes is not “produced” by the administrative apparatus. Its source is the law, not the activities of customs officers and tax collectors. It is not the merit of a collector of internal revenue that the residents of his district are richer and pay higher taxes than those of another district. The time and effort required for the administrative handling of an income tax return are not in proportion to the amount of the taxable income it concerns.

In public administration there is no market price for achievements. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive.

The Free Market Evolution of 'Chinese Food'

The amazing video below is an account by Jennifer 8 Lee of how popular Chinese Food evolved. (hat tip: Jeffrey Tucker Mises Blog)

Jennifer 8 Lee concludes with...

``So, the thing is, our historical lore because of the way we like narratives are full of vast characters, such as, you know of Howard Schultz of Starbucks, and Ray Kroc with McDonalds and ASA Chandler with Coca-Cola. But you know, it’s very easy to overlook the smaller character-oops- for example like Lem Sen, who introduced chop suey, Chef Peng, who introduced General Tso Chicken, and all the Japanese Bakers, who introduced fortune cookies. So the point of my presentation is to make you think twice, that those whose names are forgotten in history can often have had as much, if not more impact on what we eat today."

Here is Friedrich von Hayek on spontaneous order...

``Many of the greatest things man has achieved are not the result of consciously directed thought, and still less the product of a deliberately coordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand."

Unfortunately as Jennifer 8 Lee laments, such wonderful accomplishments has hardly been appreciated.

Rotarian Ludwig Von Mises' Message To Fellow Rotarians: The Principle Of Solidarity

I am pleased to discover that Dr. Ludwig von Mises was a Rotarian.

And in one of Rotary's tabloid, Dr. von Mises wrote about the principle of solidarity, a message I hope to share with fellow Rotarians.

From Dr. Ludwig von Mises (emphasis added)

"Service" is the device of the Rotarian.

In no sphere of human activity can this principle find an application on a larger scale than in economics. Human society being based on a division of labor, the work of individuals is of necessity piecework only. Every human being performs one task only and his activity is limited to a narrow field. Unaided by the work of others he cannot exist.

The manner in which every individual arranges his life presupposes the activity of other members of society in occupations which harmoniously complement his own work and vice versa. If we consciously specialize in one kind of activity, we can do so only because we count upon other individuals being ready to serve us just as we are prepared to serve them. It is here that the great principle of solidarity, which govern society, comes into play.

The principle of solidarity, however, does not lose its force at the frontiers of a country. Economic solidarity does not unite compatriots only, but it ties together all peoples. The European feeds on, and clothes himself in, the products which America, Asia, Africa, and Australia supply, giving in exchange the fruits of his industrial efforts. The present standard of life of all nations is based on the enormous increase of productivity of human work which has been made possible only by an international division of labor...

To recognize the need for solidarity in economic life and to affirm it by conscious action is service in the sense in which a Rotarian uses the word.

The Revivalism of Friedrich Hayek's Ideas

Great stuff by Professor Russ Roberts at the Wall Street Journal on "Why Friedrich Hayek Is Making a Comeback"

(all bold highlights mine)

He championed four important ideas worth thinking about in these troubled times.

First, he and fellow Austrian School economists such as Ludwig Von Mises argued that the economy is more complicated than the simple Keynesian story. Boosting aggregate demand by keeping school teachers employed will do little to help the construction workers and manufacturing workers who have borne the brunt of the current downturn. If those school teachers aren't buying more houses, construction workers are still going to take a while to find work. Keynesians like to claim that even digging holes and filling them is better than doing nothing because it gets money into the economy. But the main effect can be to raise the wages of ditch-diggers with limited effects outside that sector.

Second, Hayek highlighted the Fed's role in the business cycle. Former Fed Chairman Alan Greenspan's artificially low rates of 2002-2004 played a crucial role in inflating the housing bubble and distorting other investment decisions. Current monetary policy postpones the adjustments needed to heal the housing market.

Third, as Hayek contended in "The Road to Serfdom," political freedom and economic freedom are inextricably intertwined. In a centrally planned economy, the state inevitably infringes on what we do, what we enjoy, and where we live. When the state has the final say on the economy, the political opposition needs the permission of the state to act, speak and write. Economic control becomes political control.

Even when the state tries to steer only part of the economy in the name of the "public good," the power of the state corrupts those who wield that power. Hayek pointed out that powerful bureaucracies don't attract angels—they attract people who enjoy running the lives of others. They tend to take care of their friends before taking care of others. And they find increasing that power attractive. Crony capitalism shouldn't be confused with the real thing.

The fourth timely idea of Hayek's is that order can emerge not just from the top down but from the bottom up. The American people are suffering from top-down fatigue. President Obama has expanded federal control of health care. He'd like to do the same with the energy market. Through Fannie and Freddie, the government is running the mortgage market. It now also owns shares in flagship American companies. The president flouts the rule of law by extracting promises from BP rather than letting the courts do their job. By increasing the size of government, he has left fewer resources for the rest of us to direct through our own decisions.

Hayek understood that the opposite of top-down collectivism was not selfishness and egotism. A free modern society is all about cooperation. We join with others to produce the goods and services we enjoy, all without top-down direction. The same is true in every sphere of activity that makes life meaningful—when we sing and when we dance, when we play and when we pray. Leaving us free to join with others as we see fit—in our work and in our play—is the road to true and lasting prosperity. Hayek gave us that map.

Despite the caricatures of his critics, Hayek never said that totalitarianism was the inevitable result of expanding government's role in the economy. He simply warned us of the possibility and the costs of heading in that direction. We should heed his warning. I don't know if we're on the road to serfdom, but wherever we're headed, Hayek would certainly counsel us to turn around.

Quote Of The Day: Market Oriented Principles Makes The Difference

That's the key criteria in selecting emerging markets, according to Templeton's chief honcho Mark Mobius, on his latest outlook, Spotlight on Southeast Asia.

His article dwells on the situation in Vietnam.

Mr. Mobius writes, (bold emphasis and italics mine)

``The big question in Vietnam remains whether the Communist government is willing to adopt a market-oriented economic model as China’s communist government had done. Lenin’s statue is still standing in Hanoi. However, more and more leaders from the market-driven and commercially oriented southern region of the country have been joining the government and influencing economic policies. In addition, many young Vietnamese who have lived, worked and studied overseas are returning home to help build up its economy and participate in the anticipated high growth in that country.

``It is important for the Vietnamese government to focus on broadening the privatization process in the economy. In this way, they can reap the potential benefits of privatization, just like other countries that have adopted similar market-oriented principles. One of Vietnam’s strengths is her people – a hardworking and ambitious local population coupled with a large population living overseas, the “viet kieu”, who are capable of contributing know-how and capital to grow the country at a faster pace."

Emerging markets aren't equal. The difference lies in the political economic trends towards market-oriented principles or free(r) markets.

Celebrating Earth Day With Free Markets

There are two ways to celebrate Earth Day.

The first path, if we opt to follow the environmentalists solution; the most efficient way to reduce Carbon Footprint would be through atavism (bring life back to the medieval ages) or simply commit suicide.

As Michael S. Berliner, Ph.D. writes,

``Such is the naked essence of environmentalism: it mourns the death of one whale or tree but actually welcomes the death of billions of people. A more malevolent, man-hating philosophy is unimaginable."

But hostility to human affairs on the environment has long been here.

Professor Pierre Desrochers in the Financial Post writes, ``The idea that Nature is in fragile balance and under constant threat from human greed goes back much further than is generally believed.

``In his treatise On the Testimony of the Soul published more than 1,800 years ago, at a time when the world’s population was about 30 times lower than it is today, the theologian Tertullian noted with horror that humans have “become a burden to the Earth; the fruits of nature hardly suffice to sustain us; there is a general pressure of scarcity giving rise to complaints, since the Earth can no longer support us.” Fortunately, he added, “plague and famine, warfare and earthquake, come to be regarded as remedies.”

``Human existence was also long blamed for changes in the weather, as researchers Hans von Storch and Nico Stehr explained in a recent scientific article. Well before a supposed “consensus” blamed our use of coal, oil and natural gas for climate change, periods of cooling or heating over the last few centuries were attributed to various manmade causes such as witchcraft, deforestation, the invention of the lightning rod and then wireless telegraphy, cannon shots in the First World War and nuclear testing."

But since, people have outlasted such pessimism and will continue to do so.

And apparently beyond all the environmental ruckus, life has been improving.

Writes Bjorn Lomborg, ``But consider this: In virtually every developed country, the air is more breathable and the water is more drinkable than it was in 1970. In most of the First World, deforestation has turned to reforestation. Moreover, the percentage of malnutrition has been reduced, and ever-more people have access to clean water and sanitation."

So George Carlin's "Saving The Planet" video which we blogged last year George Carlin on Saving The Planet, should be a comic refresher anent the fallacy from the demagoguery engaged by extremist environmentalists.



The second way to celebrate Earth Day is to recognize that we are in a much better position to acknowledge the importance of our planet.

Again Bjorn Lomborg, ``But in a world in which most developing countries depend almost exclusively on fossil fuels to power their economies, it's both impractical and immoral to insist that the only solution is for everyone to drastically cut carbon emissions. This approach might make sense if we were able to offer developing countries practical, affordable alternatives to coal and oil. But we cannot— and as long as we can't, all we're really doing when we call for massive carbon cuts is asking the world's poor people to continue living lives of misery and deprivation...

"...we might consider one of the fundamental lessons of the past 40 years of environmental concern. You cannot expect people to care about what the environment may be like 100 years from now if they are worrying about whether their children have enough to eat. With this in mind, we should focus on the many more immediate problems faced by the developing world today — problems such as malnutrition, education, disease and clean drinking water."

In other words, the path to a better environment is to for economies to prosper first.

How? Through free markets.

Professor Pierre Desrochers anew, ``It was not regulation or green activism that provided for improvements in the quality of our environment over the last few decades but rather a process inherent to the market economy, leading to ever more efficient innovations and an ever more economical use of resources." (underscore mine)

The World Bank agrees, (bold highlights mine)

``A new report from the World Bank, International Trade and Climate Change: Economic, Legal, and Institutional Perspectives, says liberalization of the global trading system will be a key factor in helping developing countries reduce their greenhouse gas emissions and adapt to climate change.

“Climate change is a global challenge requiring international collaboration,” said Warren Evans, Director of Environment, World Bank. “One area where countries have successfully committed to a long-term multilateral resolution is the liberalization of international trade. Integration into the world economy has proven a powerful means for countries to promote economic growth, development, and poverty reduction.”

Said Evans, “Improving future human welfare is a goal shared by both global trade and climate regimes. Yet both climate and trade agendas have evolved largely independently through the years, despite their mutually supporting objectives. Since global emission goals and global trade objectives are shared policy objectives of most countries, and nearly all of the World Bank’s clients, it makes sense to consider the two sets of objectives together.”

Amen

Filipinos Adore Facebook and Is "Asia's Social Media Network Capital"

Developments in the cyberspace is only confirming what the world knows about the Philippines, our addiction to "connectivity".

In the SMS sphere, we have claimed the title as the "text capital of the world" (wikipedia.org), whereas in the cyberspace, the Philippines appears to annex the title as the "social media network capital of Asia" with particular particular preference for "Facebook". (how about Facebook capital of Asia?)

This from Comscore, (bold highlights mine)

``In February 2010, Internet users in the Asia-Pacific region averaged 2.5 hours on social networking sites during the month and visited the category an average of 15 times. Across markets, the Philippines showed the highest penetration of social networking usage with more than 90 percent of its entire Web population visiting a social networking site during the month, followed by Australia (89.6 percent penetration) and Indonesia (88.6 percent penetration).

``Social networkers in the Philippines also showed the highest level of engagement on social networking sites averaging 5.5 hours per visitor in February, with visitors frequenting the social networking category an average of 26 times during the month. Strong engagement was also exhibited by Internet users in Indonesia (5.4 hours per visitor and 22 visits per visitor), Australia (3.8 hours per visitor and 20 visits per visitor) and Malaysia (nearly 3.8 hours per visitor and 22 visits per visitor)."

As discussed in How The Information Age Is Changing Our Lives, the growing use of social media worldwide is also a phenomenon being unraveled in Asia and the Philippines. Otherwise said, the information age is clearly becoming the "new norm".

For the Philippines, this only means that our political economy will increasingly be influenced by the rate of scalability of our adaption to the information age, and this should prove positive for free markets, as our social nexus to the world percolates.

Example of Good Deflation: Productivity and Technology Improvements

If you read the economic news, you'd have this impression that falling prices or deflation is "bad" for the society. Really now?

Below is an example of "GOOD" deflation, where you get more value for your money; as seen through the evolution of computers-not just in terms of prices but importantly in the quality of the product!

From 4 Block world,
(hat tip: Professor Mark Perry)

How Free Markets In The Telecom Industry Aids Economic Development

The global telecom industry best exemplifies how competition spurs economic development.

The growth in mobile use has been phenomenal; some 5 billion people are expected to be subscribers by the end of 2010- that's about 75% of the world population!

And mobile broadband (internet) takeup is also expected to exceed a billion users from 600 million as of 2009!

What makes this astounding is that the gist of the growth has been in the developing or poor economies. In short the poor is benefiting from free trade!

The following charts are from the World Bank's Development Indicators....
And that's because competition has prompted for a sharp decline of prices or fees for mobile services.

In short, the wonders of competition and technology based DEFLATION! (Darn the mainstream for painting deflation as evil)


And lower prices has attracted widespread demand which has led to this astounding growth!


These are emblematic of basic economic laws at work.

Competition drives prices lower, lower prices prompts for more demand, and finally widespread use indicates enhancement to people's lifestyle via enhanced connectivity, greater access to information, the lowering of transaction costs, more efficient markets, greater market breadth, influences on how politics are being shaped, introduces new services and importantly, more prosperity.

So in contrast to protectionists, who are so naively averse to competition and blame everything else to globalization, when domestic policies (bubble policies, regulatory quirks and bias, protectionism, cronyism and statism) have been the culprit for their woes, competition is and will be a MAJOR plus.

Proof?

This magnificent article from Jenny C. Aker and Isaac M. Mbiti of the Boston Review (hat tip: Mark Perry)

[bold emphasis mine]

``There are some good reasons to believe that mobile phones could be the gateway to better lives and livelihoods for poor people. While some of the most fundamental ideas in economics about the virtues of markets assume that information is costless and equally available to all, low-income countries in sub-Saharan Africa are very far from that idealization. Prior to the introduction of mobile phones, farmers, traders, and consumers had to travel long distances to markets, often over very poor roads, simply to obtain price (and other) information. Such travel imposed significant costs in time and money.

``Mobile phones, by contrast, reduce the cost of information. When mobile phones were introduced in Niger, search costs fell by half. Farmers, consumers, and firms can now obtain more and in many cases “better” information—in other words, information that meets their needs. People can then use this information to take advantage of arbitrage opportunities by selling in different markets at different times of year, migrating to new areas, or offering new products. This should, in theory, lead to more efficient markets and improve welfare.

``An emerging body of research suggests that perhaps theory is meeting reality. In many cases, these economic gains from information have occurred without donor investments or interventions from non-governmental organizations. Rather, they are the result of a positive externality from the information technology (IT) sector.

``In Niger, millet, a household staple, is sold via traditional markets scattered throughout the country. Some markets are more than a thousand kilometers away from others with which they trade. The rollout of mobile phone coverage reduced grain price differences across markets by 15 percent between 2001 and 2007, with a greater impact on markets isolated by distance and poor-quality roads. Mobile phones allowed traders to better respond to surpluses and shortages, thereby allocating grains more efficiently across markets and dampening price differences. Mobile phone coverage also increased traders’ profits and decreased the volatility of prices over the course of the year.

``The benefits of mobile phones are not limited to grain markets or to Africa. Robert Jensen, a UCLA economist, found that in the Indian coastal state of Kerala, mobile phones reduced price differences across fish markets by almost 60 percent between 1997 and 2001, providing an almost-perfect example of the “Law of One Price”: when markets work efficiently, identical goods have the same price. Even more impressive, mobile phones almost completely eliminated fisherman’s waste—the catch left unsold at the end of the day—by allowing fishermen to call around to different markets while at sea, choose the market with the best price, and sell accordingly. Mobile phones resulted in welfare improvements for both fishermen and consumers: fishermen’s profits increased by 8 percent, and consumer prices declined by 4 percent."

The article further deals with how the free market in telecoms has influenced improvements to education, health services, financial transaction (mobile banking) and governance (vigil on corruption).

Read the rest here.

Applied to the Philippines, mobile subscribers are estimated today at 72.8 million, according to the Streetinsider.com, or about 80% of the entire population!

Yet popular mobile usage is helping facilitate the introduction of new services as financial intermediation or mobile banking.


Where a big segment remains unbanked, mobile banking is helping to close this gap.

Writes the McKinsey Quarterly,

[bold emphasis mine]

``In the Philippines, for example, mobile-subscriber penetration is almost 80 percent, but banking penetration is only around 35 percent, leaving 21 million mobile subscribers with no bank account. If operators in the Philippines could bring mobile-money penetration rates among the unbanked into line with those achieved by best-practice operators elsewhere, they could acquire four million to five million new customers and add two to three percentage points of growth to their revenues. And these numbers don’t include earnings on loans and deposits, which we conservatively estimate could be a further $60 million to $80 million. Introductory mobile-money services also set the stage for additional cross-selling and up-selling in the future. In addition, eight million unbanked people in the Philippines don’t have mobile phones, and mobile money could make phone subscriptions more attractive to this segment."

From the development aspect, it is worthwhile to repeat that competition impacts the world in general positively.

In terms of investment, in the Philippines, industries that revolve around the growth of mobile banking should be a worthwhile field to consider.

The Final word from Friedrich August von Hayek,

``Competition is essentially a process of the formation of opinion: by spreading information, it creates that unity and coherence of the economic system which we presuppose when we think of it as one market. It creates the views people have about what is best and cheapest, and it is because of it that people know at least as much about possibilities and opportunities as they in fact do. It is thus a process which involves a continuous change in the data and whose significance must therefore be completely missed by any theory which treats these data as constant."

Yes, the telecom industry is essentially validating Hayek.