Sunday, August 29, 2010

Tories to return Asil Nadir's GBP440,000 donation...

... if he is found guilty of fraud.

Well, obviously. A political party can't take money which has been gained through fraud. But they also couldn't return money to someone who has not been found guilty. Innocent until proven guilty.

It seems like it is the right thing to do from a moral perspective.

The incentives don't work so well though. That is a lot of money, and the main ruling party now has an incentive to ensure he is not found guilty. I hope that institutions are strong enough to withstand any pressure which may now come as a result of this decision. Is giving perverse incentives good morals?

Graduate tax or top-up fees

The Scotsman recently carried an interesting report indicating that the Scottish Government is considering a Graduate Tax*. Apparently though, top-up tuition fees have been ruled out

I approve of making graduates pay more for their education. The benefits of educating a young child are large and they are felt by the whole of society since having basic reading/writing and numerical skills as well as the ability to apply certain logic skills are beneficial not only to the individual but also society at large. As the level of education rises, there are still social benefits, but the balance between social and private benefits change. By the time one reaches Post-Graduate level, society actually benefits very little from your increased education. That's why most masters (especially those with almost zero social benefits such as MBAs) tend to be funded by the individual rather than society (through taxes).

At undergraduate level, there are social benefits, but most of the gains go to the individual and not society. That is why it is fair that students contribute at least some of the costs of their own education. There has been some debate in the economic blogosphere about what universities actually do.

Given that it tends to be wealthier people who go to university, why should poor people's taxes pay for rich people's education?

This situation rightly leads us to ask how we can best achieve this. One option is a graduate tax, another is top-up fees.

A graduate tax does what it says on the tin. I don't mind this idea, provided that there is a minimum earnings threshold. It somehow seems unfair though that someone who does a degree that leads to a large individual reward in the finance sector might repay the same amount as the person who earns a much smaller amount but whose study has led to higher social return through, for example, the arts.

Top-up fees are paid up-front. I am against up-front payment. It prevents poorer people from studying; it means that the student takes a lot of the risk of studying (likely resulting, overall, in not enough people studying certain subjects from a socially optimal perspective); it doesn't charge the student based on what they earn, but on what their parents earn.

An alternative is to price degree courses at their market prices. That is, you are charged for your degree whatever the market will bear. But you don't pay anything up front. This means that university is free at the time you attend. Repayments are made after graduating but are contingent on income. In this way, more funds are available to finance tertiary education, and the people who benefit are paying. The more you earn, the more your pay.

This also allows those who do degrees which society benefits from but which are high risk for individuals to repay less or nothing at all. For example, people who do arts degrees may earn very little throughout their lives, but their existence can be seen as positive for society. They therefore repay little, leaving society (which benefits) with the bill.

If the Government determines that there are an insufficient number of people (i.e. fewer than would be socially optimal) studying certain subjects, then the cost of these degrees can be reduced - or subsidised by society. This might include, for example, degrees in engineering, sciences or languages. Similarly, there may be degrees which are over subscribed from a social point of view (maybe psychology, for example). Supply and demand will force the cost of these degrees up and reduce their number.

In this way, the people who benefit, pay - whether that be society or the individual. The individual doesn't take the risk - for example, someone who does a Finance degree but does not earn much, this is effectively 'insured' by the state (society). There is some degree of control in order to encourage people to study courses which are socially useful. Students do not pay up front ensuring that poorer people are not discriminated against. Finally, this is a means to increase funding to universities to ensure high quality teaching and research, increasing both the social and private benefits of tertiary institutions.

*Disclaimer - the article is written by a friend of mine.

Ne pas savoir parler sa langue maternelle...

J’écoute souvent Radio France Internationale et l’une de mes émissions préférées est Sol Majeur. Vendredi il y avait un chanteur congolais qui s’appelle So Kalmery. J’étais très étonné quand il a dit qu’il « ne savait pas parler sa langue maternelle » et qu’il l’a apprise d’adulte en Belgique.

C’est comme si on a une langue maternelle dite « naturelle » même si on ne la parle pas. Personnellement, ça me paraît bête de se dire qu’on possède une langue qu’on ne parle pas. D’abord les langues changent tout le temps – est-ce que ma vraie langue maternelle est de l’anglais modern ou de vieux anglais ? Et puis c’est comme si on oublie complètement la réalité.

Je me demande si ce n’est pas un peu pareil avec les religions. On se dit chrétien, musulman, juif, hindou, ou quoi que ce soit, mais on n’y croit pas. Des fois même nos parents n’y croient pas mais on a des liens émotionnels avec une identité religieuse. Du coup, sa religion n’exprime pas vraiment ce qu’on croit, mais plutôt un accident d’histoire d’il y a quelques centaines d’années qui a fait que nos ancêtres s’adhéraient a certaines croyances bizarres au lieu d’autres. A quoi ça sert ?

Friday, August 27, 2010

Time for Malawi's President to Go

I've always been a big fan of the Malawian President, Bingu wa Mutharika. His policies have brought economic stability and strong growth (well, he is an economist by training), hunger has been reduced and there has been great in-roads into corruption.

But he is now behaving really quite bizarrely and, I am afraid to say, starting to show signs of a destructive megalomania.

First of all he forced through a change in the Malawian flag because, he said, the country is now developed, and developed countries need a different flag. Aside from the fact that this is non-nonsensical, it shows he is becoming totally out-of-touch with reality. It also suggests that he wants to run the country as his property.

Yesterday, he threatened to shut down 'lying newspapers that are hell-bent on tarnishing [my] Government's image'. Malawi has wonderful press freedom, but THIS is an incredibly stupid and dangerous thing to say.

He says that the press is wrong to report that people are starving since Malawi has a food surplus. He may or may not be correct, but in any case, one does absolutely not preclude the other. Believing that it does suggests a leader who is out-of-touch with both logic and not open to new information if it feels wrong in some way to him.

Besides which, a threat such as this should not come from a President, but should be pursued through the legal system or a Press Complaints Commission.

I thought wa Mutharika would not succomb to that African problem of good leaders being corrupted by power, but he is proving me wrong. It's time to see these warning signs. It's time for wa Mutharika to go.

Friday links

1/ The management consultancy scam (HT: MV)

2/ Confessions of a facebook stalker

3/ Colour photos of Russia a century ago (HT: Aidwatch)

4/ What goes on in the brain when we experience déjà-vu?

5/ Why we are suckers for stories of our own demise

6/ Like it or not, parents shape their children's sexual preferences

7/ Does parenting rewire dads?

Thursday, August 26, 2010

Britain and India as the two Mother Countries of the Empire

Somewhat less exciting following the discovery that my book is worth a small fortune, but whilst reading a book published in 1924 called The Economic Development of the Overseas British Empire, I found out some interesting facts.

A little after the turn of the 20th century, there was debate as to whether Kenya should become a dependency of the Government of India. The British Government was concerned about the treatment Africans would get and, despite considering it, issued the following statement in 1923:

Primarily Kenya is an African territory, and His Majesty's Government think (sic) it necessary definitely to record their considered opinion that the interests of the African natives must be paramount, and that if and when the interests of the immigrant races (largely Whites and Indians) should conflict the former should prevail. But in the administration of Kenya His Majesty's Government regard themselves as exercising a trust on behalf of the African population and they are unable to share or delegate this trust the object of which may be defined as the protection and advancement of the native races.

There was some anti-Indian sentiment in Kenya at the time, and it was one of the few areas of the Empire in which people of all ethnicities and nationalities did not have equal rights under the law (de facto can be different). In particular, Indians did not have the same right of abode, doing business and settlement as they did elsewhere in the Empire. This was strongly resented by the Government of India, which followed the above statement by banning Indians from migrating to anywhere except Ceylon (Sri Lanka) and Malaya (Malaysia) for several years. Given the demand for Indian labour all over the Empire at the time, this was a strong statement.

I am only realising from this book, the importance of India as a 'Mother Country' of the British Empire. Indian labour built large parts of the empire, Indian traders were paramount, and Indian intellectuals and apparently administrators were used.

My valuable used book

So I was just relaxing in a bath reading my book* when I came across an interesting paragraph I wanted to blog about. I googled the book title so I could put in a link to it and found that it is for sale for $1,250 on Amazon! The book is called The Economic Development of the Overseas British Empire and I have a used copy printed in 1924 that I paid about R50 for. It is in average condition, but I definitely won't be reading it in the bath again.

*Part of the Insights into the Exciting Lives of Economists series :)

I've got a new article out...

Title: Income, Gender and Consumption: A Study of Malawian Households

It is available from the Journal of Developing Areas. Below is a summary:

Theoretical models indicate that relative “power” of the male and female in a household matters for household consumption. In particular, household consumption should be skewed towards the preferences of the more powerful member.

The paper uses three proxies for “female influence” in the household: Female has secondary education or above; De facto female head of household; Female contributes greater than population average to total household income. Greater female influence is associated with increased proportion of household consumption of education; farming; hygiene; women’s clothing; and girls’ clothing. Female influence is negatively associated with consumption of fuel and male clothing.

Heckman two-step consumption function models are run to estimate the impact of male and female income share on each of several household consumption categories. Both relative income and education matter, and results reflect this. For example, as the share of female income in total household income increases, consumption of girls’ clothing also increases. Lower male education results in lower consumption of this category.

The impact of share of male income and share of female income is often non-linear. For example, as the share of household income accruing to the female increases, so does consumption of hygiene products, but this occurs at a decreasing rate.

The results suggest that Governments can use redistributive policies to redirect resources to household members whose preferences tend to be closer to their own policy objectives. For example, this may involve directing benefits towards mothers if child nutrition as seen as an important area to target.

The cost of job creation

The US Government has spent around $218.7 billion on an internal stimulus package and created 749,142 jobs and provides this information freely on the internet in great deal. Aidwatchers points out that this is slightly less that $300k per job and wonders whether it might not have been better to just give these people $300k each and let them stay at home and read poetry.

I understand and have a lot of sympathy for this viewpoint. But - as I seem to constantly say - production (of goods, services) matters. These people are now producing things so there are more things in America for people to consume than there would be. That has to be a good thing. Of course, the negative part is that 749,142 are consuming less leisure, so that is a cost. In addition, there might be issues regarding the targeting - are they producing things that people want? If work itself has a value - and I think it does - then this has to be taken into consideration too.

I'm not sure where the balance lies in this case, but in my mind - despite all these things - these seem like expensive jobs to create.

Tuesday, August 24, 2010

Monday, August 23, 2010

Diseased Pariah News

"Diseased Pariah News was a humorous magazine about HIV/AIDS published in San Francisco from 1990-1999, in 11 issues, each with a print run of up to 5,000."

All issues are now available online HERE. This is *excellent* work.

(HT: Megan)

Friday, August 20, 2010

Friday links

1/ British public accepts need for spending cuts

2/ Osborne most popular Conservative chancellor ever. Goodness-that's not one I would have expected.
3/ The BBC summarises well where the cuts will fall across Government. Watch that DfID space...

4/ Are internships institutional exploitation? I have some sympathy.

5/ An economist plays Monopoly (HT: The Lady V)

6/ Fun with serious data. Changing life expectancies. Look at the impact of HIV in South Africa.

7/ How to be a successful psychopath. Successful psychopaths who are company directors, high-ranking lawyers, economists???

8/ How to apologise. Different types of apology work with different people.

9/ Saudi court mulls verdict to cut defendent's spine. After all, it's in the Koran, and that is the literal word of God. Why should humans stop and think?

Wednesday, August 18, 2010

How my $5 ash tray is worth $30

I’ve got an ash tray that I paid precisely $5 for in Zimbabwe* a few months ago. It is a nice clay one with a hippo as if it is popping its head out of the water. A couple of days ago I arrived home to find it was missing from its usual place. The cleaner had been and I thought that she had either tidied it into oblivion or else ‘borrowed’ it. I was quite angry, and was already mentally writing her a note to request it be returned to its original position.

When I moved into the next room and found it was broken with a sorry note next to it. Then I got upset. Why did I get upset over a $5 ash tray?

Apart from the fact that I was already having a bit of a down day, it was worth a lot more than $5 to me. In classical economics, you buy something because you must value at *at least* the price you pay. If you value it less, then you won’t buy it. But there is no upper limit. In fact, I would have paid more than $5 for it.
So right from the start, if it broke, my feeling of loss would be more than losing $5. But then there are other factors. When I bought it, I had lots of other potential souvenirs to choose from. By the time I left Zim, I had only that (and several trillion Zim dollars). That pushed its value up further.

Then, I owned it. Economic psychology shows that when we own something, we automatically put a higher value on it than if we did not own it. This is not 100% logical in the pure, classical sense. But it may have evolutionary reasons.

I started to wonder how much I would be prepared to pay to get that ash tray back. That would then be a good representation of how much it was worth to me. I reckon around $30 to $40. Another way of putting it is that I was about as upset to see that broken ash tray as I would have been to have lost $30 to $40 from my wallet.

That is quite a lot for an ash tray for a non-smoker.

*$5 US, not Zim.

Donors’ stupid rules

We have a nameless donor here which gives money rather generously to the Government of Lesotho. One of the things it funds is training sessions for civil servants. This is good. But it asks for the exact number of people who will attend first. If fewer people attend then money spent on, for example, lunch is expected to be returned.

This makes sense since why should it pay for people who were not there? It is also useful since it does want to account for all its money and minimize corruption opportunities.

But it makes it practically impossible to organize any training session. For example, if 25 people sign up to any course, then it is highly unlikely that 25 people will attend. There are many genuine reasons for this; for example, people get sick here, regularly and at short notice. People also often have to look after other sick people at short notice. Cars are not of the highest quality and regularly break down preventing people from getting to work. Emergencies happen at work and people have to do something at very short notice. Meetings that have to be attended are called at short notice and people often don’t know until the last minute that they have to go abroad for work. All this means that, there will never be the 25 people who were expected at the course.

So funds have to be returned but there is no Government money to fill the gap. The paperwork is tiresome. And, all in all, it probably isn’t really worth the effort.

Unfortunately, this donor, is seeking to minimize corruption opportunities to almost zero and to ensure that organization is at 100%. But neither of these are optimal.

Risk should be optimized, not minimized.

For example, I choose to cross the road, despite the fact that there is a risk. I get in a car, eat in restaurants, drink more than I should. I sometimes even take the risky decision to leave my house in the morning – and that despite the impact on my blood pressure of going to work, some days! All this because taking some risk is worth it for the benefits.

In this case, the result of minimizing the risks is that the training doesn’t happen – so there are no benefits either.

Secondly, if only total perfection is acceptable, we wouldn’t do very much.

I see this constantly in the Ministry of Finance. Partly due to other people being constantly critical of work, there is a culture of ensuring that everything that is done, is as perfect as it can be. This means that a long time is spent perfecting documents. The cost is high in terms of time but there is very little value added usually. The concept of diminishing marginal returns doesn’t really sink in. So everyone produces very little work but makes sure that when something is done, there is very little to criticize on it, or – more likely – involves either management or a large group of people so that no one will take any criticism. That also ensures that any work will take a long, long time to do.

It is a real pity that donors, which should be setting good examples, are sometimes worse that Government in terms of stupid petty rules that encourage laziness by giving excuses not to do anything, discourage taking the initiative – indeed punish it, and being cautious to the point of not getting anything done.

Why even bother?

Friday, August 13, 2010

Friday links

1/ Personal finance advice on napkins

2/ Debt is in the genes

3/ The sacrifices of the slain aid workers

4/ What do universities do?

5/ Confessions of a porn MILF

6/ Halal holidays

7/ The rise and fall of the launderette

Should wages be raised at any cost to employers?

According to five out of the six people interviewed by the Public Eye's Vox Pop, yes. One person says this is the case, even "the company would shut down with such an adjustment".

I think we need to go back to some basics here. In the world, and in a country (in the long run) we can only consume what we produce. Our wages allow us to purchase the product of other people's hard work. But in exchange, they can purchase the product of our hard work.

If I earm more money then I can buy more things that other people have produced. But wait - where are the extra things I am buying coming from? You have to work harder to produce them (thank you very much).

But what do you get out of it? Probably more of my money. What will you do with that? You will want to buy more of the things I make and so I will have to work harder to make them. What is happening is that we all have to produce more things - either through harder work or through smarter work (we can call it 'productivity' if we like).

So, it seems that we can all have higher wages if we all produce more and there is no problem. And this is what happens in real life; Wages and productivity are very closely linked.

What happens though, if we don't produce any more? We all have more money (great), but we have no more things to buy (less great). With a limited supply of 'things', but lots of cash floating around, you will want more of my cash to sell me the product of your hard work. And I will want more of your cash. So we all raise our prices. This is inflation.

So, if you want to ask your employer for more money, you'd better work harder or smarter. Else all you are doing is creating inflation. Or maybe making your employer go bust and making yourself unemployed. Fun.

Zuma's visit to Lesotho

Maybe South Africa does want something from Lesotho, after all. A pretty good bargaining chip to help us sort out some of those border problems which have been causing so much hassle...

Amusing Road Scenes: Ministry of Finance Edition

See all Amusing Road Scenes.

Click on image to enlarge.

Driving into Ministry of Finance carpark a few days ago - at 7:50 - 10 mins before work starts - a man stopped his car right in the middle of the gate that is the only entrance. He got out and started to inspect his room.

I got out of my car and asked him if he'd broken down. "No."
- So your car works?
- Yes
- So you can move it?
- Yes. I just need to sort this out.

He was looking at a little scratch on his roof. I've no idea what happened. The barrier didn't come down on him. Maybe a security guard threw something and it hit his car. Maybe something fell down.

I got really angry. Had the man noticed at all the *huge* queue of cars building up? I doubt it.

- I'm sorry for whatever's happened to your car, but there will be accidents on the Kingsway (main road) if you don't move your car,

I said. Water off a ducks back. I repeated rather more angrily. Slowly other people started to get out of their cars. The security guard repeated to him what I said in Sesotho. He begrudgingly got back into his car and moved it.

The man has an office down the corridor from me and I normally say Hi to him. But that total lack of consideration for other human beings (did he even notice other human beings existed?) and the danger he was posing (not that that would have entered his mind for even a second, probably), got me pretty annoyed.

Thursday, August 12, 2010

Don't ration! Increase prices!

South African farmers may soon have to apply for water licences which will force them to "cut back on the use of surplus water, but would not be denied essential water required for efficient food production".

The aim is noble - the method is stupid.

What is surplus water? How can a state licencing authority know what is 'essential water' better than the farmer knows?

If the aim is to reduce water use on farms, then increase the price and trust the farmers to know what is the best and most efficient use of the resource. It's not rocket science.

Of course I won't take your money - it's lunchtime!*

That is what I was told recently when I went to pay my local taxes like a good citizen.

Every quarter a bill is supposed to be put in my letter box for local taxes - they are supposed to pay for services like rubbish collection. In fact, since I got here, this is only the second one I have received. I lost the first one and assumed it would be added to future bill, but no future bill came during the fiscal year.

This time, after asking three people where the correct building was to pay my tax, and then asking further people in there where to go, I finally managed to speak with someone.

Unfortunately, it was lunch time. And I can't pay my tax during lunch hours. No. What I have to do is to take time off work and pay it during working hours. Of course, if I take time off work, there is less production in Lesotho and the country is poorer as a result.

But that's okay. That is the choice that has been made. Less wealth, more leisure. It's the same choice Europeans make compared with Americans. It's just a pity that here, less wealth means less education, less health, less roof on house, less basic food stuffs.

Of course, equally unfortunately, it is also reasonably likely that production won't actually be impacted upon very much as many people are taking time out of doing very little work anyway.


Friday, August 6, 2010

Friday links

1/ Who killed more people in the Bible?

2/ Count the passes - how you can miss really important things.

3/ Goldman Sachs bans swearing

4/ In defence of the macroeconomic forecasters (thank you!)

5/ Professions with the highest depression rates. Apparently not the Development Set.

Lesotho in The Economist!

This week's Economist has an article on the role of the Chinese in Lesotho.

Who should run universities?

An article in today's Public Eye (that I, unfortunately, cannot find online), reports that staff at Limkokwing University have given management two weeks to address various grievances or they would strike.

Their letter reportedly states: "How can a Masters degree holder report to someone with an Associate degree in Mass Communication, or whatever?". At first this seems kind of a fair point. But really, education should not be the only thing that determines position. Other skills matter too. In particular, soft skills such as ability to communicate well with others, work hard, think logically, persuade others etc. matter.

There is absolutely no reason why a competent person with a lower level of education should not be the boss of someone with more education but who is less competent. In the Lesotho civil service, it is, in fact, illegal to promote someone based on merit. Only education, training and longevity matters. The result is that incompetent people who contribute little but have masters degrees can get promoted above competent hard workers. Of course, we eventually lose the competent people - either because they get fed up and find work elsewhere or because they become so demoralised that they stop contributing much.


The article also reports the letter as saying: "This is a university; it has to be managed by doctors and professors."

I'm sorry? Having a PhD makes you a good manager? The skills you need to get a PhD and be a useful academic are totally different from those required to be a good manager. A good manager is a good communicator, a good motivator, highly organised, has great inter-personal skills, knows how to praise and punish, has an intuitive understanding of people and their psychology, and can see the bigger picture.

A good academic has to spend long hours working alone, is highly specialised. My experience of academia (I have a PhD) is that many academics are not good communicators and not great at interacting with other people - indeed, they are in academic precisely for this reason. Many are also badly organised - think the crazy professor with hair flying everywhere.

In addition, it takes many years and a lot of money to become a good academic. There are more managers in the world and many of their skills are intuitive.

Of course, it is possible to be a good academic and a good manager - but, in general, should doctors and professors really be managing a university?

Wednesday, August 4, 2010

How not to save money

I remember when Leeds United nearly went bust. In order to save money (and the club), the manager at the time - David O'Leary, I think - introduced various austerity measures (seems like the right term in the current economic climate).

These measures included getting rid of all paper towels in bathrooms at the Club and replacing them with hand dryers.

Here, at the Ministry of Finance in Lesotho, we should also be tightening our belts. Happily though, a few weeks ago, we have just introduced paper towels in bathrooms. Great!