The Deepening Of The Information Age: News Sources And Ad Spending

If educational trends appear to be turning digital, the same dynamic seems to take hold with the way people use media.

A poll says that in the US, while news acquisition by the public has been mainly through TV, the internet, as major competitor, has rapidly been catching up.

According to Pew Research (chart also from them)

The internet is slowly closing in on television as Americans' main source of national and international news. Currently, 41% say they get most of their news about national and international news from the internet, which is little changed over the past two years but up 17 points since 2007. Television remains the most widely used source for national and international news -- 66% of Americans say it is their main source of news -- but that is down from 74% three years ago and 82% as recently as 2002.

The study further notes that the less educated has remained as the last bastion or the key consumer of TV.

In other words, the less educated will likely be the last segment to adapt to the deepening use of technology.

And such transition appears to be corroborated by corporate ad spending on a global scale, where online spending has been fast closing on the gap with TV.

According to the Economist,

GLOBAL spending on advertising will grow by 4.5% in 2011, double the rate of the previous year, according to ZenithOptimedia, an ad agency. This will be led by online advertising which will increase by 16%. Television advertising will also grow, led by emerging markets, where it is an especially dominant medium. But spending on print advertising will fall by around 1%. Extending print-media brands online offers some hope of reversing the downturn, but digital ad revenue will not replace that lost by print in the foreseeable future, according to the World Association of Newspapers.

Changes have been happening at the margin.

These suggest of the broadening use of digital web based technology for a substantial share of our social activities.

Traditional mass based lifestyle tailored to the industrial era have been paving way to the information age characterized by social connectivity predicated on competition, diffusion, diversity, and specialization; an environment which can be identified with the great Austrian economist F. A. Hayek. Even TV programming trends appear as exhibiting similar symptoms (chart above from the same Pew study).

Overall, this means that lifestyle and commerce will increasingly evolve towards niches—or based on shared interests or specific ethos, that will be marked by more competition.

The implication is that statistics based on aggregates will likely become more irrelevant. In addition, investments will likely center on these growth “niche” areas. (yes, that’s an investment tip alright)

Some Insights From The Legalization of Taiwan’s Sex Industry

Taiwan’s sex industry will be legalized.

This from Forbes.com,

What sets Taipei apart from, say, Beijing or Hong Kong is that the government is legalizing the sex trade instead of squelching it. Taiwan will formally decriminalize prostitution in November, but it will be legal only in certain areas. Officials are now studying where those areas should be; one proposal would allow studio-style brothels in parts of Taipei. The explanation for this move to live and let live: The world's oldest profession happens to be one of Taiwan's best organized.

Read the rest here

Some thoughts

-Perhaps in realization of the futility in eradicating prostitution through legal means, the Taiwanese government finally relents to its legalization.

Just a reminder, contrary to popular wisdom, edicts don’t stop the demand and supply or the economics of deemed 'immoral' activities such as prostitution, drugs, gambling or etc., instead they get to be diverted from official channels to the underground with accompanying unforeseen (mostly untoward) consequences.

-as seen with most accounts of prohibition laws, the adverse side effects have been legalized criminality or corruption. As the article notes

“Inconsistent law enforcement also troubles the trade. Police prey on lone streetwalkers while taking bribes from pimps to protect the prostitutes who work for underground brothels, the collective charges.”

-The government’s epiphany did not come impulsively though; major lobby groups by the stakeholders and their supporters had been forged and grew powerful enough to advance the thrust towards decriminalization.

Quote of the Day: Decentralized Education

As the centralized control over the content of education fades, the diversity of choices will undermine the existing political order.

That’s from Professor Gary North on how digital technology or the internet will radically transform or democratize the educational process which subsequently will likewise spillover into the socio-political realm.

An earlier related post: A Bet On Free Education

The Code of Silence On Philippine Inflation

Today’s headline yells “Prices, fares, toll go up” where the report shows of widespread price increases in food, energy and transportation costs.

This would be inconsistent with Bangko Sentral ng Pilipinas (BSP), or the Philippine central bank, claim that inflation in 2010 was within target set by the government agency. While it may be true that statistical figures may partly have reflected their stated goals, with barely a few days into 2011, statistics and media headline appear to be swiftly headed in opposite directions.

2010 may have signified the twilight of the seductive face of inflationism. And 2011 would most likely prove the BSP wrong.

From tradingeconomics.com

Yet nowhere in both articles say why prices of politically sensitive commodities have begun to surge, as reports only narrate on what has been happening.

One would only suspect that the government, media and the economic profession have deliberately opted to observe a code of silence that leaves the public groping in the dark.

No one likes to take the blame for any untoward events, much especially for the power hungry political leaders, the bureaucrats and her worshippers as this would erode their credibility and the attendant votes and political-economic privileges that go with it.

But as we have long stated--the lethal cocktail policy mix (here and abroad) of artificially suppressed interest rates, fiscal “stimulus” spending (pump priming), monetary operations (quantitative easing) from central banking authorities and the latent impact of other welfare or redistributive policies all conspired to these unfolding events abetted by the integration or globalization of finance.

One needs to see only a booming broad based domestic credit market in the automobiles, residential, consumer loans and other consumer loans, to know how the policy of punishing savers and rewarding debtors via low interest rates have been gaining ‘traction’.

From tradingeconomics.com

Portfolio flows into the local market from foreign institutions have most likely been representative of international arbitrages or a global carry trade in the search for higher yields. They are most likely impelled by the same low interest rate dynamics, and taxpayer funded money from pump priming and from bailouts.

These, alongside remittances, are reflected in the exploding record forex reserves. And rapidly expanding foreign exchange implies more Philippine peso in circulation, unless they are mopped up or absorbed by the BSP.

All these suggest of a blossoming business cycle in play that has been prompted for by the combined dynamics from government policies here and abroad.

Good days would eventually come to an end.

Consumer price inflation which is politically unpalatable especially for the Philippine setting, where the Philippines is shown as the most sensitive to food inflation in Asia (see chart from businessinsider.com), would eventually compel government to drastically tighten.

When this happens depends on the level or degree of rate of increases in consumer price inflation which will likewise be reflected in the interest rates.

But before that happens, expect the private sector to bear the brunt as the principal scapegoat for alleged economic 'greed', when the main culprit is no other than political greed.

And this will be met by a gamut of price controls which only exacerbates the situation.

Inflation’s alter ego, price controls are meant to deflect on the culpability of government, as the great Ludwig von Mises explained,

``those engaged in futile and hopeless attempts to fight the inevitable consequences of inflation—the rise in prices—are masquerading their endeavors as a fight against inflation. While fighting the symptoms, they pretend to fight the root causes of the evil. And because they do not comprehend the causal relation between the increase in money in circulation and credit expansion on the one hand and the rise in prices on the other, they practically make things worse.”

Only the truth shall set us free.

How Statistics Don’t Measure Up To ‘Global Imbalances’

People’s way of conducting commerce has always been changing, i.e. from agriculture to industrial and now to the information age. However statistics used by vested interest groups to promote certain policies don’t.

Presently global trading platform has been shifting towards a supply chain network.

This from Xinhua,

Measuring global trade in line with the principle of "the country of origin" fails to reflect the complexities of global commerce where the design, manufacturing and assembly of products involves several countries, experts said...

"The concept of country of origin for manufactured goods has gradually become obsolete," said Pascal Lamy, director-general of the WTO, in a speech to the French Senate in October.

"What we call 'made in China' is indeed assembled in China, but what makes up the commercial value of the product comes from the numerous countries," said Lamy.

"For instance, every time an iPod is imported to the U.S., the totality of its declared customs value (150 U.S. dollars) is ascribed as if it were an import from China," said Lamy, adding that "In fact, according to American researchers, less than 10 of the 150 dollars actually come from China and all the rest is just reexportation."...

This means that current trade data used and extrapolated by the mainstream does not accurately account for the genuine picture.

From the same article... (bold highlights mine)

Sheng Guangzu, head of China's General Administration of Customs, told Xinhua in an interview in April that much of China's trade surplus was "transferred" from foreign-funded enterprises operating in China.

In the first 11 months this year, exports of foreign-funded enterprises totaled 779.14 billion U.S. dollars, accounting for 54.7 percent of China's total exports, according to China's customs authorities.

The data also showed that, during the same period, foreign-funded firms generated 112.51 billion U.S. dollars of trade surplus, accounting for 66 percent of China's total surplus.

In short, 'global imbalances' are not what they are projected to be.

The take away is that those arguing about global imbalances, aimed at advancing the cause of mercantilism via protectionism and inflationism, using old statistics are either missing the big picture by unwittingly parroting popular misperceptions or deliberately engaged in economic sophistry.

As Mark Twain rightly pointed out: There are three kinds of lies: lies, damned lies and statistics.

Quote of the Day: Macroeconomics Is Not A Science

Macroeconomics is not a science. We don’t understand the way the economy works in any way shape or form akin to way physicists understand the solar system, say. We shouldn’t pretend otherwise.

Professor Russ Roberts (Cafe Hayek) on Hayek's pretense of knowledge.

How Global Equity Markets Performed in 2010

Here is the tabulation of the final returns of global equities for the year 2010 (based in local currency; courtesy of Bespoke Invest)

Contrary to the prognostications by the mainstream, most equity markets posted positive gains. (Double dip, where?) Only 19 national benchmarks suffered losses or 22% out of the 83. Again this may seem like a rising tide phenomenon.

While emerging markets peripheries led gainers, some developed economies such as Denmark and Sweden posted significant gains of over 20%, whereas Austria, Norway and Germany posted above 15% increases (European crisis anyone?).

More on Europe: Obviously the tailenders had been those directly hit by crisis—Greece Spain and Italy. But the divergent performances between crisis and non-crisis economies suggest of insulation and not of a contagion—again which the mainstream significantly misread.

The top 10 represented a mélange of emerging markets. Nevertheless the rankings can be seen in the following order: South Asia, Eastern Europe, Southeast Asia and Latin American EM’s.

The Philippine Phisix ranked 11th.

G-7 and BRICs had mixed performances. The race of 2010 belonged to the EM peripheries.

For 2011, I don’t think there would be much of a difference, except that I expect BRICs, who dominated 2009, to vastly improve their showing this year and possibly close on the gap with EM peripheries.

I certainly don't share the opinion that developed countries with all its internal tethers to outperform EM economies (periphery or the BRIC).

The Economist: Top Charts Of 2010

The most popular charts of 2010 from The Economist

Despite High Education Levels, Filipinos Workers Among The Lowest Paid

From the Yahoo news

The ILO's "Global Wage Report 2010" also noted a paradox in Philippine wage trends: Higher education did not correlate with higher wages, contrary to the pattern in many other parts of the world.

The ILO's "Global Wage Report 2010" also noted a paradox in Philippine wage trends: Higher education did not correlate with higher wages, contrary to the pattern in many other parts of the world.

In the Philippines, low pay--particularly among domestic workers--"is partly caused by the lack of proper wage protection, notably the common practice of excluding such workers from the application of minimum wages," said the latest report.

And while low wages are correlated with low educational attainment in most parts of the world, the Philippine case seems to be the opposite.

"Surprisingly, the Philippines seems to represent an interesting exception to this common pattern, registering a high incidence of low wage employment among those with a primary and secondary education," the report said. (all bold emphasis mine)

So what does all these suggest?

Here are some:

In contrast to common wisdom, education per se does not automatically translate into jobs or employment.

There is a great deal of mismatch between the educational output and the jobs demanded in the marketplace. The shift towards the information economy is likely to enhance the requirements for work specialization as niche markets expand.

The investment environment likewise determines employment conditions. Excessive government intervention only serves to reduce opportunities by distorting investment and labor markets.

Low wages does not translate to more employment.

Of course all these have policy ramifications.

Mass (free and compulsory) education and low wages are not optimum policy options that deal with socio-economic development.

Interventionism (via manifold regulations and inflationism) only makes good instruments for the promotion of the interests of politicians and to the specific groups they implicitly represent than of the general public. This applies to public education as well.

Professor Barry Simpson explains,

Public education, with the added feature of compulsion, reduces the cost to politicians of making wealth transfers. The cost of making transfers is diminished by reducing the opposition to transfers. If politicians can reduce the cost of transferring wealth by reducing the opposition to them, then they can continue to authorize transfers to interested parties for a price.

At the end of the day, good intentions don’t square with economic reality. And the Philippine experience is a demonstration of such unintended consequences.

Firecrackers and Social Signalling

Many Filipinos greet the New Year with a bang-literally.

During New Year’s eve, they turn the streets into virtual war zones, despite all the years of gory casualties from one moment’s fun.

And this comes despite repeated government intervention by prohibiting and or regulating the manufacture sale and use and media’s bombardment to show harmful effects of such activity.

Many Filipinos fondness for firecrackers, despite its high risks, I see as the following;

-It represents a form of informal traditionalism. It is somewhat like fiesta where New Year is annually commemorated but unlike fiesta where the means of celebration is not entirely accepted by the community.

-Exploding firecrackers could be seen as a form of sublime status signalling aimed at drawing upon public’s attention. The dominance of male usage enhances this ‘masculinity’ or ‘machismo’ syndrome.

-This activity can also serve as an expression of socio-political opinion, which had been used as signs to protest against the Marcos regime or even as opiate- an avenue to vent personal frustrations for some. In short, in my opinion, there are many psychological factors behind its persistence and not limited to a single dominant variable.

-With respect to social signals, I don’t share the view that firecrackers are representative of the flawed mentality particularly symptomatic on the ‘poor’. To what category defines poor? Will people earning $2 a day (moderate poverty as defined by World Bank) really sacrifice or exchange subsistence (food) for firecrackers? This defies logic.

The fact that the $16 million firecracker industry has reportedly been constantly growing reveals that such allegation is unfounded. The industry won’t and can’t grow if it had depended on the ‘poor’.

Alternatively, this means that it is the middleclass and the rich that has continually financed the industry’s growth.

As a side note, the local firecracker industry has turned international, with a local outfit partly hosting the World Pyro Olympics. The internationalization of the industry means a growing market for its ‘quality’ products abroad.

-It isn’t capitalism fault too. Some maliciously argue that manufacturers are out there to find new markets to sell. This is grossly misleading.

The fact that firecrackers have long been a part of this society (here is an article which links to the Pinoy ethos to Chinese origins), and the fact that government has repeatedly imposed different forms of restrictions (from bans to selective regulation) to the supply-side which has failed to curb the growth of the industry means that the supply side have only caught up with existing demand and not the other way around.

To repeat for emphasis, supply caught up with extant demand. As to whether demand constitutes as psychological or cultural or social expressions is actually beside the point. The fact is there has been demand for firecrackers.

Instead, what bans have nurtured have been an underground movement which has only weakened product quality and contributed to the statistics of injuries.

Some have used the Davao prohibition as a regulatory success story, which apparently many statists sees as a matter of implementing 'political will'.

Well, I am unsure of the veracity of the claims to the success story (to what degree is the success- 100% or absolute compliance???)

Yet even if true, Davao’s micro dynamics (1.3 million population 2007 census) would certainly be different with the NCR (11.5 million 2007 census) and with the rest of the nation.

Importantly, where Metro Manila is the political capital of the Philippines this implies that as home of lawmakers and equally lawbreakers (those who think they are above the law-mostly through patron-client relations), such diversity and inequality in the distribution of political power may translate to complexities in the implementation of such regulations.

One must be reminded that it does NOT take only political will (again strictly a supply side view) from political leaders but likewise the conformity of the populace with the regulation (demand side).

As 1923 Pultizer Prize William Allen White (1868-1944) wrote to his anxious friend, ``You can have no wise laws nor free enforcement of wise laws unless there is free expression of the wisdom of the people -- and, alas, their folly with it. But if there is freedom, folly will die of its own poison, and the wisdom will survive."

So people either choose to comply with laws (or regulations) or they don't. Think People Power Revolution. And that's the demand side which the opinion makers frequently forget to account for.

Have a wonderful 2011!

The False Khodorkovsky Truth On Globalization

The Street’s Eric Rosenbaum pins the blame of the 2^nd guilty verdict on Russian Tycoon Mikhail Khodorkovsky, which allegedly had been manipulated, to globalization.

He writes, (bold emphasis mine)

In any event, if we have long ago left behind the Cold War and entered the age of globalization, it's pretty clear that globalization means turning a deaf ear to serious human rights and legal rights issues for trade partners like the US, Russia and China, or at least often being hard of hearing.

When a tycoon rots in prison because he was getting too powerful, and too democratic, or when a Nobel Prize winning political dissident is serving a long sentence and his family barred from going to Sweden to accept the Nobel on his behalf -- and yet the major US move in relation to China is to win a dispute at the World Trade Organization over the unfair support of China for its automobile tire manufacturers -- that's the lips speaking truth to the way the powerful act in the age of globalization, as opposed to the lip service that once again overflows with blabber as Khodorkovsky quietly read his book in the metal cage of the Russian court room.

We'll say thank you very much for that cheap plastic mobile for our baby's crib, China, and, thank you very much for the oil that's not coming from those unstable Arabs, Russia, and forget about Khodorkovsky until his next trial, and let Chinese democracy die a silent death. And of course, when it comes down to it, we'll hem and haw and we'll say it's not our place to interfere in the internal affairs of other countries -- except of course, when it's the internal affair of manufacturing car tires.

It’s certainly misleading to impute the seemingly untoward developments in Russia’s domestic political front to globalization since the current body politic of Russia has evolved around the dynamics of the previous polity (Lenin-Stalinism) compounded by the ongoing changes in the economic and international dimensions.

As Stratfor’s George Friedman notes, (bold highlights mine)

Glasnost, or openness, had as its price reducing the threat to the West. But the greater part of the puzzle was perestroika, or the restructuring of the Soviet economy. This was where the greatest risk came, since the entire social and political structure of the Soviet Union was built around a command economy. But that economy was no longer functioning, and without perestroika, all of the investment and technology transfer would be meaningless.

In other words, Russia’s politics have gravitated around the impulses of ‘command mentality’, which she has yet to slough off.

So with or without globalization, the so-called issues of ‘human rights and legal rights’ would still be in place, because of the embedded political structure that operates in Russia.

And perhaps it could even be under worse conditions if a political regime under isolationism had prevailed, since international pressures towards domestic policies would have been muted.

Myanmar and North Korea should be good examples of such isolationist paradigm. Incidentally according to Human Rights Risks Atlas 2011, among the highest “human rights” risk nations, Myanmar and North Korea ranks 5^th and 9^th respectively whereas Russia is ranked 14th.

The top 4 is DR Congo, Somalia, Pakistan and Sudan—obviously countries that have been least exposed to globalization.

As an aside, China is ranked 10th mostly due to recent geopolitical developments. According to African online,

China fell two places from last year’s ranking into tenth place. It is notable that these rankings were released on the day when China would not allow its’ citizens to see the Nobel Peace Prize Ceremony because Chinese political prisoner Liu was being honored. China is ranked worst or joint bottom of the league in several key classes.

These include violation categories such as freedom of speech, the press and religion, minority rights, judicial independence, and arbitrary arrest and detention.

Overall, to link globalization with human rights violations seem not only unfounded, but importantly, a strawman meant to score political talking points.

And here is the morality aspect.

If I decide not to patronize my neighbor’s store, who is reputed to be a wife beater, out of my perception of ethics, what then is my right to impose my sense of morality to the others who don’t share my views? Doing so would be playing into the hands of the same command mentality (human rights abuse) game which the author so abhors. And this would be tantamount to the proverbial ‘pot calling the kettle black.’

Lastly, it would be uncalled for to imply that globalization or growing free trade as politically inhumane. That’s because it would be in almost everyone’s self interest to see the others in good stead in order to promote his own.

Adam Smith wrote in his magnum opus, the Wealth of Nations, the dynamics of unintended social cooperation from the pursuit of one’s own interest.

He calls this the invisible hands, (bold emphasis mine)

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestick industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it. By preferring the support of domestick to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the publick good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

And as we have earlier pointed out, the string of years of world peace have coincided with the growth in free trade. We seem to see the similar parallels in the growth of economic freedom and free trade along with reduction of human rights violation risks (China would be the exception rather than the rule).

Bottom line: In general, where people trade, social cooperation expands, where politics rule, social cooperation deteriorates.

Creative Destruction: 20 Things That Have Gone Obsolete From Last Decade

Below is a showcase of capitalism’s creative destruction-a hallmark of progress and innovation.

From Huffington Post: (hat tip Prof Mark Perry)

The last ten years have brought us a windfall of new gadgets and gizmos, and with them, a new way of life.

Since 2000, we've gained iPods and iPads, Travelocity and Twitter, Facebook and Foursquare, BlackBerry smartphones and Android devices, Xboxes and Wiis, among many other new services, sites, and electronics. We're now poking, tweeting, Googling, and Skyping.

See slide here

What this means:

Jobs had been created (in new flourishing industries) and lost (on obsolete sectors).

While changes do not affect everyone similarly, the net result is a positive or a net gain for consumers (and the society) as seen in:

-increased conveniences brought about by better quality of products and services

-greater access and selection

-heightened productivity

-enhanced wellbeing

-added purchasing power (via growth deflation-more supplies)

Overall, real wealth has increased (despite government’s inflationism)

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.

Graphic: Contrast Principle

Below is a nice graphical rendition of the contrast principle, courtesy of Jessica Hagy’s Indexed, or seeing the difference between things and not absolute measures (changing minds.com) or best represented by the axiom “what you see depends on where you stand”

Video: Remembering 2010

Great stuff... (hat tip Professor Russ Roberts)


...it's been a good life indeed (great music from One Republic)

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!

Should Economics Be Left To The Economists? Is Economics Value Neutral?

At a recent assembly, I counselled a promising and youthful colleague, who had been rebuffed in trying to introduce classical liberalism to the economics departments of one of the elite schools in the Philippines, that since we eat, drink and sleep economics—where everyone engage in making and acting upon choices around the world of scarcity—that economics must not be left to the economists.

My point is since these elite schools have benefited from the current arrangement, there would be no incentive to assimilate changes that would only risk undermining their stature.

And I further added that politics is essentially economics, where politics signify no less than economics in morality’s clothing. Morality here, I am speaking of depends on whose sense of morality gets to be argued and or implemented; is it the minority, the majority, the despot, the King?

Thus, since economics is ubiquitous, it must be learned by everyone.

And for those in the know, it would be our civic duty to teach economics even in the non-traditional sense in our non-conventional way. In warfare, this is known guerrilla tactics.

As Ludwig von Mises once said,

Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man's human existence.

Nevertheless the main aspect that differentiates the mainstream and classical liberalism would be the former’s emphasis on mathematical or empirical formalism vis-à-vis the latter whose analysis are based on logical deductions via praxelogical axioms or methodological individualism.

For instance, the mainstream would argue that their brand of math and statistical models based economics can be value neutral or value free when applied scientifically.

But this is would only be partly true because:

1. We are dealing with human action where every action involves subjective value preferences and ethical judgments.

As Murray N. Rothbard wrote, (bold emphasis mine)

I am not taking the position, now fashionable in many quarters, that there is no such thing as a value-free economics, that all economic analysis is inextricably shot through with value assumptions. On the contrary, I believe that the main body of economic analysis is scientific and value-free; what I am saying is that any time that economists impinge on political or policy conclusions, value-judgments have entered into their discussion. My conclusion, then, is that economists must either make their value judgments explicit and defend them with a coherent ethical system, or strictly refrain from entering, directly, or indirectly into the public policy realm.

In short, it would be inescapable for economists to fall for the value trap once they incorporate analysis based on the socio-political spectrum.

For instance, opportunity costs may not all be quantified in monetary terms as there would psychic and disutility costs. Thus, value free or value neutral can hardly be realizable except under classroom environment.

2. Economics is not the same as natural science.

Economics, as Jörg Guido Hülsmann wrote in MISES: The Last Knight of Liberalism, is a science with clear political implications, not a mere intellectual exercise.

Bottom line: Economics is human action.

Doug Kass On Gold As ‘The Emperor's New Clothes’

Investment manager Doug Kass predicts that gold will plummet in 2011 by $250 or about 17-20% from current levels.

He writes,

Surprise No. 9: The price of gold plummets by more than $250 an ounce in a four-week period in 2011 and is among the worst asset classes of the new year…

My surprise is that next year the price of gold has the potential to become the modern-day equivalent of Hans Christian Andersen's "The Emperor's New Clothes," a short tale about two weavers who promise an emperor a new suit of clothes that are invisible to those unfit for their positions, stupid or incompetent. When the emperor parades before his subjects in his new clothes, a child cries out, "But he isn't wearing anything at all!"

With a finite supply, gold has historically been viewed as a tangible asset that increases in value during uncertain (and inflationary) times. No wonder it has become such a desirable asset class following the Great Decession and credit crisis of 2008-09. Gold bugs remind the nonbelievers that for thousands of years, gold has been a store of value and, given the current state of the world's financial system, gold is the best house in a bad neighborhood of asset classes.

But gold, which may be the most crowded trade around, is viewed now as a commodity for all seasons -- during inflation, deflation, low or high economic growth.

There is a body of thought that maintains gold holds little intrinsic value, that it is only a shiny metal with limited industrial value that throws off no income or cash flow (and, as such, its value cannot be determined or analyzed with any precision based on interest rates or any other measure).

Mr. Kass argues that gold has been rising out of misplaced faith or equivalent to a “religion” (with reference to gold bugs), which apparently has been spreading like wildfire.

When we say people adapt a faith or religion based outlook, this extrapolates to fundamental evidences being discarded in favor of a desired outlook or outcome. In short, a form of rational ignorance or deliberately sidelining information that opposes on one’s belief.

Here Mr. Kass parrots the mainstream view that gold has little intrinsic value (commercial value) even while citing the role of gold as money for thousands of years which of course is a self-contradiction.

Mr. Kass does not mention how and why gold, among many other commodities and the paper money system as competition, emerged as money for thousands of years. And this would be similar to abandoning evidence or yet represents as another form of rational ignorance.

It is important to remember that one of the most essential functions of the emergence of commodity money is its marketability. And what is seen as marketable is likewise seen as having high commercial value. Of course the other important qualities of commodity money would be its being divisible, durable, recognizable, homogenous, high value per unit and scarcity.

Well I don’t deny that gold may correct given its recent steep rise as no price trends goes in straight line even as gold prices seem to be consolidating at the moment.

But I wouldn’t depend on the dismal track record of Mr. Kass’ predictions, since he also predicted gold prices to fall back to $900 levels for this year, which palpably went to the opposite direction.

And given that most of what he predicted didn’t emerge in 2010: strong US dollar, falling treasury yields, war in the Middle East, retirement of Warren Buffett, Central bank tightening and etc…, most which I rightly argued against, this only goes to show how fatal wrong predictions from a “faith” based analysis can be.

To give credit to Mr. Kass, he had been right that the stockmarket would correct by 10% during the first half of the year. But his overall predictions went the opposite way.

If gold bugs have been blindly bullish, as Mr. Kass alleges, so has Mr. Kass been perfervidly bearish and apparently in staunch denial, which after all, just shows that gold “atheism” can also signify a form of rational ignorance that is likewise cut from the same cloth as with gold bug zealots-dogmatism.

Graph: Warren Buffett's Berkshire Hathaway Portfolio Holdings

Here is a bubble chart of the portfolio holdings of Warren Buffett's flagship, Berkshire Hathaway from gurufocus.com

Berkshire's portfolio has been mostly into 'blue chips'.

This would be understandable considering the heft and expanse of the estimated $197 billion portfolio.

Reductio Ad Absurdum on Wage Disparities, Supply of Labor and Exports

In trying to demonstrate the importance of the distinction between causation and correlation, my favorite marketing guru Seth Godin asks “Does a ski trip to Aspen make you a successful bond trader, or do successful bond traders go skiing in Aspen?”

This applies to political economic analysis as well.

Mainstream analysis, particularly those of the rigid Keynesian persuasion, would take the former - ski trip to Aspen make you a successful bond trader-over the latter as the answer or correlation mistaken as causation.

Applied to the political economic sphere they would argue that in order to preserve employment at home, the policy prescription should be a mercantilistic one: inflate (currency devaluation) or impose protectionism (limiting trade via tariffs). Never mind if this flawed argument has been a discredited idea even by 18^th century economists. For Keynesian mercantilists, subtraction and not addition equals prosperity (gains).

Their assumption, which mostly signifies from a reductionist perspective, oversimplifies trade as operating in fixed pie wherein one gains at the expense of the other (zero sum).

And this is supported by their rationalization which sees every economic variable as homogenous.

And through selective statistical aggregates, they derive the conclusion that only government, equipped by the knowledge on how to adjust the knobs, can rightly balance out the interest of the nation. [Applied to Seth Godin’s riddle, government should send everyone to Aspen to make them all successful bond traders!]

And also from such perspective they see employment as the only driver of businesses and of economies-forget profits, capital, productivity, property rights, market accessibility and everything else-in the rigid Keynesian world, what only counts are labor costs.

In other words, labor cost, not profits, determines investments which subsequently translate to employment. Thus for them government policies must be directed towards accomplishing this end.

It has further been alleged that the supply of labor accounts for as a vital part in determining wage levels.

The reductionism: large supply of labor equates to low wages and consequently export power.

Let’s see how true this is applied to the real world.

Since labor basically is manpower then population levels would account for as the critical denominator.

One might argue that demographic distribution per nation would be different, which is true, but the difference does not neglect the fact that population levels fundamentally determine the supply of available labor.

Here is the world’s largest population, according to Wikipedia.org,

Given the reductionism which postulates that large labor force equates to low wages, then we should expect these countries, including the US and Japan to have the lowest wage rates in the world!

Yet even without looking at wage statistics we know this to be patently false (as seen from the bigger picture)!

Since wage levels are different per nation or per locality, perhaps the best way to gauge wages would be to use minimum wages as a yardstick.

Minimum wage account for as the national mandated minimum pay levels that are directed towards the lowest skilled workers.

Going back to the mercantilist postulate, since the largest population (largest pool of available labor) per continent belongs to Asia,...

...then the mercantilist logic implies that the lowest wages should be in Asia. Chart courtesy of Geo Hive (xist.org).

Yet according to the International Labor Organization (ILO), based on median minimum wages per country (US $PPP) the lowest wages would be in South East Europe and the CIS!

Asian wages are even higher than Africa and Southeast Europe and the CIS. Another disconnect!!

In addition, if broken down on a per country basis, based on the level of minimum wages in 2007 (PPP US$).... (again from ILO)

We would find that NONE of the largest or most populous countries (all in red arrows) are at the lowest echelon, except for Bangladesh and the Russian Federation seen at the lowest decile. (Yet the latter two are NOT export giants)

In pecking order, China, Brazil, Indonesia, Nigeria Pakistan and India are mostly situated at the upper segment of the lower half of the graph.

Meanwhile the Philippines can be seen on the higher second quartile, and the US having the highest minimum wages (among the highest populated nations), along with European countries.

So what this proves?

There is hardly any correlation between population levels (supply of labor) and wage levels! The assertion that supply of labor equals low wages is outrageously naive and inaccurate!

And let us further examine how these minimum wage levels impact exports. The following chart of the world’s largest exporters is from Wikipedia.org

And I would also include global competitiveness as measured by the World Economic Forum (Global Competitiveness report)

So what do we see?

We see a strong correlation between the world’s biggest exporters and the most competitive nations. And one might add to that HIGH minimum wages!

While it would be tempting to argue that high minimum wages equals strong competitiveness/exports, we would be falling for the same post hoc argument trap of misreading correlation as causation like those employed by rigid Keynesians.

The real answer to such wage disparity is the high standards of living in developed economies which arises from the greater capital stock (or productive assets in the economy) and a higher productivity of the citizenry.

As Professor Donald J. Boudreaux explains, (bold highlights mine, emphasize his)

Low-wage labor is generally not low-cost labor. The reason is that the productivity of low-wage workers in China and other developing countries is much lower than is the productivity of workers in America. While low-wage foreigners outcompete high-wage Americans at many low-skill, routine, and repetitive tasks, high-wage Americans can (and do) outcompete low-wage foreigners in those tasks that can be performed efficiently only in advanced economies that are full of the machinery and intricate infrastructure – physical, legal, and cultural – that raise wages by raising worker productivity

In short, high American wages aren’t a disadvantage; they are a happy reflection of the fact the typical American worker is a powerhouse of production.

In short to argue from a wrong premise would mean wrong conclusions.

Why?

Because for politically blinded people, their intuitive tendency is to selectively pick on events or data points (data mining, e.g. low value low skill industries, China) and deliberately misinterpret them (to create a strawman-China's low wages stealing American and Filipino jobs) in order to fit all these into their desired conclusions (cart before the horse reasoning-erect trade barriers).

They similarly deploy false generalizations based on the perceived defects interpreted as a general condition (fallacy of composition-low wages equals export strength).

These represent not only as sloppy ‘blind spot’ thinking but likewise, a reductio ad absurdum or a conclusion based on the reduction to absurdity.

Caveat emptor.