Monday, January 30, 2006

The story of two cows

I have come across this satirical humour. It goes like this:


You have two cows. You create a website for them and advertise them in all the magazines. You create a Cow City or Milk Town for them. You sell off their milk before the cows have even been milked to both legit and shady investors who hope to resale the nonexistent milk for a 100% profit in two years time. You bring Tiger Woods to milk the cow first to attract attention.

You have two cows. They've been sitting there for decades and no one realized that cows could produce milk. You see what Dubai is doing; you go crazy and start milking the heck out of the cows in the shortest time possible. Then you realize no one wanted the milk in the first place.

Since milking the cow involves nipples the Gov't decides to ban all cows in public. The only method to milk a cow is to have a cow on one side of a curtain and a guy milking the cow on the other or to hire females and train them to milk the cows ... The debate is still going on.

You have two cows. Some high Gov't official steals one, milks it, sells the milk and pockets the profit. The Gov't tells you that there is just one cow and not enough milk for the people. The people riot and scream death to the Gov't and carry Iranian flags. The Parliament, after thinking for 11 month, decides to employ ten Bahrainis to all milk the cow at the same time and so cutting back on unemployment.

You have two cows. One is owned by Syria and the other is controlled by Hizbollah.

You have two cows. Both are voting for Mobarak!

You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyze why the cow dropped dead.

You have two cows. You go on strike because you wanted three cows.

You have two cows. You count them and learn you have five cows. You count them again and learn you have 42 cows. You count them again and learn you have 2 cows. You stop counting cows and open another bottle of vodka.

You have two cows. Both are mad.

You have 2 cows, though there are 500 people who claim that they belong to them because either cow may or may not have stepped on their land at one stage or has a link to their family farming history.

Several people will die as a result of this argument due to shootings. The govt claims the cows and says that they are govt property but offer no explanation and as the army will come along and take them, no one will query it.

All the proceeds of the milk will go in to the pockets of the 1 or 2 govt officials from whichever department they came from. If they sold the milk to local companies then they will have sold it for an inflated price and will have actually given less milk if any at all, and will have made up some 'official explanation' for this.

Though if the customer is external ...from the UK or US then they would give the milk AND cows and will be convinced to waive the fee as it will mean 'diplomatic relations' will exist and that they will be considered an 'ally'.

Wednesday, January 11, 2006

Morals are cashable commodities

Consumers don't often get rewarded for making right "moral" choices when allocating their limited resources to a range of products. Often it is the case that when we add attributes to our criteria for any products or services, it limits/narrows our options, and nobody likes to have fewer options than his/her fellow man. However, others do argue that in making the right "moral" choices in what goods and services we consume, "virtue is its own reward". I find this latter belief untrue in principle, but useful to teach in practice.
The concept of fair trade is an ethical as well as a moral one. Ethical for companies to support and moral for the consumers on the shop floor, who have the option to buy in favour of fair trade or otherwise.

I have my mind set in favour of fair trade and can't stomach the proposed wild goose chase that constitutes free trade (a matter I have discussed at length here).

However, there is an issue in the fair trade arena that threatens to nullify its benefit over the long run. The issue is that, fair trade products are differently priced to non-fair trade products (they normally cost more). Price discrimination is a common tactic used to segment the markets between the rich and the "no so rich", and in this case, fair trade products are priced to cater for the richer end of the market because they cost more.
The argument used to justify higher fair trade prices is so that poor third world farmers can earn a bit more money without compromising the profit margins of the large supermarkets selling the products (due to higher input costs). A deeper look at this, however, suggests that in addition to the luxuries afforded by the wealthy, supporting fair trade looks to be another. What about the lower middle class and below who, in the west, earn enough to support a poor farmer in a developing country through the purchase of his/her produce? It appears that incorporating pricing strategies in matters that are mostly driven by a noble intention to help the poor distorts the outcome and compromises the cause all together.
This raises the question:

1. Is the moral issue of fairness, especially where the livelihoods of other humans are at stake, another cash cow?
This I ask because supermarkets make margins for their "trouble" but there is no compelling evidence that supports a view that fair trade farmers are now happily living in a better deal world.
In terms of restoring the global wealth imbalance, fair trade is just but one small engine chugging along, one of the final frontiers in the "war against global imbalance". However, there is a compelling argument in favour of development but critiquing fair trade as a viable vehicle over the long run, given its vulnerability to exploitation. Read it here.

What are your comments?

Wednesday, January 04, 2006

Pricing pollution may hinder development

When a noble principle can generate the wrong outcome
What good is the Kyoto treaty really?
To set a backdrop from which I can commence, I start by stating that I support a reduction in global warming. It is not fair that we (the current users of the world’s resources) maximise our utility at the extreme expense of our future offspring. What lies ahead for our future generations is a world of climate-related disasters, from El niño to whatever other calamities await. It is plain immoral (religion aside) to cast such a sinister die into the lives the future. If our great grand parents did to us what we are doing to our future great grand children, there wouldn’t be much of a world to live in today.

Now comes the economics…

The last twenty years of world economic development place us in a completely different context as our great grand parents. Today it is evident, more than ever, that everything in life has a price; even the air we breathe. Corporations have exhausted the old money making routes and now crucially have to be very creative to survive. For example, these days, the most advanced of investors can trade in volatility options, a concept that is not easy to grasp today (unless you are the trader), let alone 20-odd years ago. However, this is a fine example of the "right" kind of creativity that has made the world economy more formidable.

Looking at the "wrong" kind of economic creativity…

The Kyoto treaty is basically the machine that will transform the free air we breathe into a cashable commodity. This will come about in the following way:
1. We all (poor, rich, young and old) agree that industrialised nations need to reduce their emissions of greenhouse gases, principally Carbon Dioxide, over the next decade. This concerns us all.
2. Because some of the world’s largest polluters are also some of the most powerful (and also the most self-satisfying) they can and have objected to a scheme that collectively makes the world a better place for everyone, including themselves.
3. The outcome is that the proper objectives of the Kyoto treaty cannot be met. Instead, we end up with a treaty version that is watered-down to appease the bully nations.
4. The Kyoto treaty will then provide a complex system, which will allow some countries to buy emission credits from others (from around 2008).
The Western nations have already developed (as far as industrialisation is concerned anyway). China is now heavily industrialising, the effect of which can be seen on the commodities markets. Once the Kyoto treaty is fully in play, the world’s poorest countries will only just be starting their development or will still be somewhat stagnant and requiring a lot of room for finessing.
Given that the poorest countries are literally held back by the richest through market distorting trade barriers, and that rich countries taunt the poor ones with the prospect of unattainable free trade, what will happen when poor countries finally get their act together but find that they can't manufacture or industrialise because there is a cap on the total amount of world pollution and developed countries have all the pollution permits?

The only outcome for poor countries will be to buy permit credits, leased to them by rich countries, so that they are not in infringement of the Kyoto treaty. Poor countries have not got the money to lease permits from developed countries, and it is a well-known fact that it is far easier to enforce the law on the poor than the rich. In fact, in some cases, rich countries ignore internationally agreed law, or side step it to suit themselves. But the same rich countries will gladly point-out an attempt by a poor country to ignore international law and aggressively pursue the matter until the poor country has been brought to "justice" so that a bad example is not set. This is just one example of the manifest disequilibria in today's world.

The above situation can be likened to the current focus on China as a major (negative) risk to world economic growth going forward. This is (partly) through its effect on the price of oil and where that consequently leaves developed economies and their highly energy reliant consumers. Given that alternative forms of energy are not yet at the point where the world can migrate away from oil-junkie status, China’s rapid economic development, and hence it’s massive reliance on oil, is not being celebrated as the move towards a global re-balancing that it is, instead, one would almost interpret it as wrong because it's progress presents oil supply issues for developed countries.
Therefore, one can infer that when poor countries start to develop, like China has, there will be two huge hindrances from the west:
1. Trade barriers and
2. Having to buy a right to pollute from the stewards of the polluting licences(essentially countries in the west that can afford the licences and have already done their industrialisation (their share of pollution)).
The argument that will be used to enforce the pollution issue against poor countries will be that the environment is at stake. However, right now, somehow this same argument is not good enough for some developed countries to agree to it.

Much like money itself is not the cause of evil, it is the greed for money that causes evil, the Kyoto treaty will not be the cause of the hindrance to economic growth in poor countries, but it will be the mechanism through which the personal agenda of developed nations will hide behind an emission law when it suits them, a move that will stifle the attempts of poor countries to break away from poverty following an economic development path similar to most western nations.
Being fully aware that poor countries don't strike many an analyst as prime candidates for rapid economic development, my conclusion assumes that poor countries would rather have the opportunity to develop lie somewhere in their future, rather than have their fate sealed tomorrow (figuratively).

Tuesday, January 03, 2006

Happy new year...and lame jokes

Well done for making it this far, there are those who didn't. Spare a moment for them and count yourself lucky.

That done, here are two lame jokes that serve as a warning of what can happen when people take themselves too seriously:

1. Did you hear of the economist who dove into his swimming pool and broke his neck?
He forgot to seasonally adjust his pool.

2. ECONOMISTS do it cyclically
ECONOMISTS do it on demand
ECONOMISTS do it risk-free (in reference to the risk-free interest rate)
ECONOMISTS do it with crystal balls
ECONOMISTS do it with interest
ECONOMISTS do it with models
ECONOMETRICIANS do it if they can identify it. Applied econometricians do it even if they can't.
ECONOMISTS do it discretely AND continuously.
ECONOMISTS do it on Leontief's table.

ECONOMETRICIANS do it with dummies.

If you're sitting there shaking your head in utter disbelief at the absolute lack of humour in these two jokes, just think, it could be worse. You could have been the originator.

Have a prosperous 2006.