My fan club

Dinidu has a post on a certain someone who's been stealing posts off this blog and putting them up as his own. I don't quite know whether to be flattered or mad. I guess I'm leaning on the latter. The plagiarizer is so pathetic that he not only copied the posts, but the name of the blog as well as my "about me" section, including my favorite books list!

I mean, even I don't particularly like the name "Deane's Dimension". It's the 8th grade science geek side of me, which normally is not on display here. (Once upon a time, I was really into "time travel" stuff.)

Anyways, More at Din's : the bugger even refuses to take them down!

Why Women don't get into politics

Don Boudreaux has an interesting explanation :

Women are more decent than men.

Fewer women than men itch to lord it over others. Also, women are less willing than men to perform the countless asinine stunts and soul-shriveling pandering necessary to win political office. [link]

Hmm. It's a question I've often thought about, why is it that men vastly outnumber women in politics almost everywhere in the world? frankly, I don't know for sure. But I'll try..

It could be that the conventional wisdom is right. The world is less cosmopolitan than we comspolitians think and women in most societies are expected to stay at home, and therefore there's less of them in most professions. Political representation works on a regional basis, where there's a greater likelihood of people getting into the politics (running for public office) from non-urbanized, more traditional areas than any other profession. More traditional means, there's more of a chance that women are expected to stay home or be in more "acceptable" women-roles rather than running for public office. This results in fewer women getting into politics overall, lowering aggregates significantly.

Note that Hillary Clinton is a senator from New York, not Texas. Although Mayawati, the Chief Minister of India's Uttar Pradesh, who is also from a lower caste, is probably a counter example.

I guess it's a question for the freakonomists.

The biggest Big Government

Karu Jayasuriya, Sri Lanka's Minister of public administration has confirmed something I've been saying for a while on this blog : Sri Lanka has the world's largest government. That's in addition to having the largest cabinet (literally) and having an enormous legislature.

Here's an LBO report on what Karu said at a Sri Lanka Administrative Services Association meeting:

"From our population (21 million), there is one public servant for every 17 citizens and that is the world biggest public service sector," public administration minister Karu Jayasuriya said. [..]

The island's public servant to citizen ratio is larger than India's ratio of one to 80 citizens and USA's ratio of one to 240, he said.

"The state sector is too big for a poor country like ours… Some sectors are filled from various appointments given at various instances and for different reasons."

Last year Sri Lanka earned 508 billion rupees in taxes, but 282 billion went for the salaries and pensions of state workers, indicating that 55 cents out of every tax rupee collected went to state workers. [..]

The public sector expenses grew mainly because of hiring of unemployed graduates, new recruitments to the public sector, including the security forces, and payment of allowances.

Sri Lanka also has more than 100 ministers. Jayasuriya himself crossed over from the opposition and helped make the magic number.

Jayasuriya says that despite the overstaffing, the administrative sector in the public service has a dearth of 1,600 employees. [link]

Now read that last line again, there's a dearth of employees despite overstaffing? are you kidding me?! Sigh. This sort of nonsensical situation is only possible in governments.

But despite correctly identifying Sri Lanka's Mega Government as a problem, Minister Jayasuriya goes on to "appeal to public sector employees to provide a responsible and productive service". Right. Were they really waiting around for Karu Jayasuriya to come and tell them to be "responsible and productive" ? This patronizing has to stop, policy makers need to come to their senses and start cutting down on this massive government, that's the need of the hour. Public sector won't become productive if their overstaffed. That defies logic. If they do this, if we decide cut down the size of government, then our taxes can be lowered or put to better use, instead of being eaten up to pay salaries of bureaucrats.

Like I've said before, this is not a debate of Big-government Vs. Small government. This is a debate between Mega Government Vs. Biggish government and on this, there's only one reasonable side.

Related posts on Deaned : Where your taxes Go, The myth of the open economy, obstacles to growth

Priorities for global development

I wrote this post on prioritizing funding for global development issues on the Beyond Borders blog. The post is based on the Bjorn Lomborg's work at the Copenhagen consensus and this highly recommendable TED Talk. The key insight from Lomborg is basically this,

• There are lot of problems in the world - commutable diseases, AIDS, malaria, climate change - it would be great if we can solve all those problems. But we don’t.
  
  
• Contrary to the focus of many development forums, there should be a focus on solutions to problems, rather than problems themselves. Because at the end of the day it's solutions that matter no matter how grave the problem is.

Read the whole thing at BB.

Making sense on Inflation

Ajay Shah points me to this article on this economist article on Inflation on emerging economies, arguing it bare resembles to the great inflation of developed countries in the 1970s. With inflation of about 25% in Sri Lanka and with the Central Bank more or less claiming that inflation is a petroleum/agricultural phenomenon (as opposed to monetary) it's an article well worth a read.

Here's a few key paragraphs,

Many policymakers in emerging economies argue that serious monetary tightening is not warranted: higher inflation, they say, is due solely to spikes in food and energy prices, caused by temporary supply shocks and speculation. Higher interest rates cannot call forth more pigs or grain. They expect inflation to ease later this year as higher prices prompt an increase in supply (food prices have started to edge down over the past month) and as sharp rises in commodity prices drop out of year-on-year comparisons.

Yes, food inflation is likely to slow later this year; but that does not mean rising headline inflation can be ignored. The synchronised jump in global food prices suggests that there is more to the story than disruptions to supply. Prices are also rising partly because loose monetary conditions in emerging economies have boosted domestic demand. These economies have accounted for over 90% of the increase in global consumption of oil and metals since 2002 and for 80% of the rise in demand for grain. This partly reflects long-term structural forces, but it is also the product of a money-fuelled cyclical boom. Peter Morgan, of HSBC, says that the initial shock to food prices may have come from the supply side, but the strength of income and money growth helps to validate higher prices. Were monetary conditions tighter, rises in food prices might be offset by declines elsewhere, keeping inflation under control. [..]

According to conventional wisdom, the monetary-policy mistakes that caused the Great Inflation are much less likely today because central banks are independent of politicians. But unlike the Federal Reserve and the European Central Bank (ECB), many central banks in emerging economies (notably China, India and Russia) are not fully independent. In another echo of the 1970s, they often face intense political pressure to hold rates low to boost growth and jobs.

Emerging economies are also in danger of repeating the blunder of central bankers in the rich world in the 1970s: they focus on core inflation as a reason for holding interest rates below the headline inflation rate. But negative real interest rates then further boost demand, while rising inflation expectations trigger bigger pay claims. Unless central banks tighten their grip soon, inflationary expectations could surge. [link]

"Core Inflation" has recently become a pet-word for Central Bank Governor, Ajit Nivard Cabraal, and forget "fully independence", Cabraal was one of the key campaign figures in the incumbent president's election in 2005 before being appointed as the Governor of the CB.

So if anyone's serious about CB Independence, then Cabraal needs to be fired. That's a pipe dream, at least until Mahinda Rajapakse remains the president.

Try vegetarian.

The advert above from PETA asks people to "Turn over a new leaf and try vegetarian". Now, Imagine if how it would look if they promoted hunger....

p.s. the advert is in Kannada - talk about peaching to the converted! sigh. NGOs.

[Link via India Uncut. For more peta-humor, click here]

Religious-Conflict ignorance, again!

Last time, it was Obama's ignorance which became abundantly clear when he commented that Sri Lanka has a religious conflict. Today, it's Newsweek's turn. In an article titled "War is the answer" The newsweek comments,

In addition to being an ethnic conflict, the Sri Lankan civil war is a religious one: most Sinhalese are Buddhist, while most Tamils are Hindu. [link]

Obviously Obama reads the Newsweek. Heh. But seriously, let's rest it. Sri Lankan conflict is many things, what it's not is a religious conflict. The fact that most Sinhalese are Buddhist and most Tamils are Hindu (and all Mulims are well, muslims) doesn't mean that the conflict is drawn along those lines. That's like saying that in a war with say, the Americans and Japanese was a conflict between short people and tall people.

Other than that, the article is well worth a read.

Does this sound Familar?

1.15 As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests.

1.16 That is precisely the path that we began over 4 years ago in pursuit of our own national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification and demonization we have endured from across the political divide.

1.17 Yet there are telling examples of the path we have taken from key economies around the world. For instance, when the USA economy was recently confronted by the devastating effects of Hurricanes Katrina and Rita, as well as the Iraq war, their Central Bank stepped in and injected life-boat schemes in the form of billions of dollars that were printed and pumped into the American economy.

1.18 A few months ago, the USA economy confronted a severe mortgage crisis, which threatened to spark an economy-wide recession.

1.19 The USA Central Bank again responded by injecting over US $160 billion between December, 2007 and March, 2008, to provide impetus to the American economy and prevent a worse crisis from happening....

1.22 Here in Zimbabwe we had our near-bank failures a few years ago and we responded by providing the affected Banks with the Troubled Bank Fund (TBF) for which we were heavily criticized even by some multi-lateral institutions who today are silent when the Central Banks of UK and USA are going the same way and doing the same thing under very similar circumstances thereby continuing the unfortunate hypocrisy that what’s good for goose is not good for the gander....

1.26 As Monetary Authorities, we commend those of our peers, the world over, who have now seen the light on the need for the adoption of flexible and practical interventions and support to key sectors of the economy when faced with unusual circumstances. [link]

It shouldn't. Because unlike the Reserve Bank of Zimbabwe, whose governor made these observations (pdf link), the Sri Lankan Central Bank refuses to accept that inflation is a monetary phenomenon (they think it's a petroleum phenomenon) . At least the Zimbabweans are honest with the source of inflation, with inflation at 355,000 I guess he has no choice.

[link from Greg Mankiw]

Jack be Nimble, Jack be Quick, Jack suffers from a quick fire dick

That's from the Island's kiddies page yesterday. No kidding. The Island, of "Pubic Money" fame published this poem on it's children section, the Happy Island.


See this for a full page picture of the page which includes the poem. Heh. The kids these days I tell you...

The Island think it's the work of a net terrorist:

We wish to bring to the notice of our readers that there has been a sinister attempt by an unknown group to disrupt the operations of this newspaper and to tarnish its image through electronic means.

It all began in 2006, when a London-based correspondent warned us against such a move.

Recently, another newspaper, too, became a victim of hackers who tampered with its website.

The e-mail accounts of the editor and the features editor of The Island are the targets through which they sought to disrupt our system by transmitting specially designed programmes. We adopted precautions but we now learn that on Tuesday, when we usually print the children’s section issued on Thursday, we got badly beaten.

An infected junk document ate into an innocent poem that a young contributor had sent in to share with others, after the proof reading stage.

The ill effects of the attack were noticed yesterday as well in the main section of the paper but we managed to eliminate them in time for printing.

We have initiated a thorough investigation into the incident and apologise to our readers, especially children, for the mishap. [link]

Aney meh, editor, go to hell machang. Someone screwed up editing, admit that and move on, life's like that.

Update (2.20pm) : Some guy at groundviews points to the source of the rhymes which the Island copied from. There goes the whole "infected junk document ate into an innocent poem that a young contributor had sent in to share with others" stuff. I mean, anyone who has used a computer more than a week knows that's just pure B.S. This could be the site in which the Island 'journalist' lifted the poem from, pretending to be an innocent young contributor.

[more at Indi's, Ravana's and groundviews]

The Milton Friedman Institute is launched

Here's an excerpt from the News Release from University of Chicago.

The University of Chicago is establishing a center for path-breaking research in economics to build upon the strengths of economists throughout the University and to honor the contributions of Milton Friedman, considered by many to be the leading economist of the 20th century.

The University’s investment in facilities will be about $200 million, with half of that amount establishing an operating endowment and the remainder allocated for facilities and other start-up costs. The majority of the funds will be raised in donations from alumni and business leaders around the world.

“The goal of the Institute is to build on the University’s existing leadership position and make the Milton Friedman Institute a primary intellectual destination for economics by creating a robust forum for engagement of our faculty and students with scholars and policymakers from around the world,” said President Robert J. Zimmer. “The Milton Friedman Institute will continue Chicago’s extraordinary tradition of creating new ideas that stimulate the academic world and innovative approaches that influence policy.” [Read More]

Go see the website. Yet another outpost fighting for liberty. Excellent.

National Freedom Front has no vision

No really, if you click "vision" on their website it comes up empty.

The truth about food prices

is that no one really knows why they are so high. At least for sure. Everyone has their own pet theory or scapegoat - peak oil, speculation, ethanol, hungry Indians, Ben Bernanke, you name it. This dawned to me when Tyler Cowen blogged about this Ajay Shah piece I sent him with little to add.

Ajay Shah's take is probably the most interesting one I've read on the topic. Do read it. More from me on food prices, read this.

GOP's Ralph Nader

Could be Bob Barr. The former republican seeking the nomination of the Libertarian Party. From Reason,

The smallish room Bob Barr booked for his presidential announcement was overflowing with journalists. I've seen every Ron Paul 2008 event held at the venue, and they never drew this sort of interest: There were, I think, four working reporters at the press conference announcing the haul from the first moneybomb. But Barr's announcement drew live reporters from the Los Angeles Times, USA Today, and The Washington Post (even if it was the famously snarky "Sketch" author Dana Milbank). Barr foreign policy pal Doug Bandow stood by him at the podium, and foreign policy maven Jim Bovard sat in the audience.

Read the whole thing.

Conservatives breathed a sigh of relief when Ron Paul said he won't run in third party, the LP literally offered him the nomination if he wanted it, Paul seem to want to reform the GOP from the inside, best of luck to him. If Paul ran he might have taken off just enough votes off McCain to make him loose some key states, and therefore the election.

Now what we have is a situation where most GOP activists are not enthusiastic about their nominee. McCain is not your out-the-box conservative, he's not the religious-right's man, nor does he excites the fiscal conservatives. Barr, can and should cash in. He sounds much more conservative than Ron Paul, although he's lot less principled (Barr supported the Patriot Act for example). But if he gets the LP nomination, he should give McCain a run for his money.

This would mean an Obama presidency, but if Barr gets enough votes and "Naders" McCain that will teach a lesson the section of the GOP who are increasingly hostile to it's libertarian wing.

Free lunch and Freeconomics

Chris Anderson, the editor-in-chief of Wired Magazine wrote this very interesting piece based on his forthcoming book "FREE" where he argues that following the pattern of the Web that $0.00 will be the future of business. My beef with the article at the time was this section,

Milton Friedman himself reminded us time and time again that "there's no such thing as a free lunch.

"But Friedman was wrong in two ways. First, a free lunch doesn't necessarily mean the food is being given away or that you'll pay for it later — it could just mean someone else is picking up the tab. Second, in the digital realm, as we've seen, the main feedstocks of the information economy — storage, processing power, and bandwidth — are getting cheaper by the day. Two of the main scarcity functions of traditional economics — the marginal costs of manufacturing and distribution — are rushing headlong to zip. It's as if the restaurant suddenly didn't have to pay any food or labor costs for that lunch.

Surely economics has something to say about that?

It does. The word is externalities, a concept that holds that money is not the only scarcity in the world. Chief among the others are your time and respect, two factors that we've always known about but have only recently been able to measure properly. The "attention economy" and "reputation economy" are too fuzzy to merit an academic department, but there's something real at the heart of both. [link]

In fact, the word isn't externalities. Chris is really missing the point about the phrase "there ain't no such thing as free lunch. Friedman didn't mean you won't get to have free lunch in the literal sense. What Friedman meant had more to do with opportunity costs rather than "externalities". Any economist would tell you that "cost" is simply what you have to give up to get something (reputation economy, etc. like Chris suggests) and not necessarily monetary. Even if your aunt invites you for lunch, there's still the cost of the time which you could have used to say, read something (opportunity cost) and of course your aunt, or at least someone along the line is footing the bill. So no, there ain't no such thing as a free lunch.

I've blogged about this in the past. Chris is featured this week on EconTalk with Russ Roberts in which he discusses the no free lunch concept, which Russ rebuts, quite accurately. Do listen to the podcast, it's interesting overall.

I'd be sure to pick up Chris' book when it arrives, especially since it's priced at $0.00. More on freeconomics and the economics of "free" later.

Terrorists and Government win in the rigged Eastern Polls

It seems the Pillayan group(TMVP) a break away (still-armed) group of the Karuna faction a break away faction of the LTTE, who contested under the government's election symbol and patronage seems to have won the elections in the Eastern province after reports of ballot stuffing, voter impersonation and general violence. In short, surprise, surprise, the government and it's armed buddies have rigged the election.

Surely, someone has to call it right? No? See, it's often mistakenly thought there's a war against terror in Sri Lanka. Nonsense. Most Sri Lankans, the ruling party and particularly the president is fine with terrorrism as long as the terrorists are on 'their' side.

Official results are here.

Mike Gravel's biggest moment

er..

WTF headline of the day

Comes from the Daily Mirror :

West responsible for cyclone in Burma.

How fitting it was a direct quote by Champika Ranwaka. Do check out the comments section, this is confirming my increasing cynicism of democracy, I mean forget an informed electorate, doesn't democracy at least require a not-retarded one?

Meanwhile in other news, BBC reports that, Great tits respond well to warming. Hallelujah

[links sent by NM and via IU respectively]

Reducing Poverty or Creating Wealth?

Yesterday's Daily Mirror FT had an article by Anila Dias tittled Reducing Poverty - What lessons can we learn?. Overall the article does a decent job of summarizing the recent report on poverty indicators (pdf link). It also correctly identifies the fact that whatever reduction there has been in poverty has little to do with the Government's handout scheme (the Samurdhi programme) and even points out a startling hypocrisy in the program when it says,

[..]the Census of Public and Semi Government Sector Employment 2006 reports that the Ministry of Samurdhi and Poverty Alleviation employed around 24,000 persons. This translated to one Samurdhi official for around 117 poor persons whose monthly benefits would have totalled around Rs.12,000. It is likely that the administrative costs of maintaining such a large contingent of staff would have exceeded total welfare payments to beneficiaries! [link]

Hypocrisy isn't a new word for governance, particularly in Sri Lanka. I (somewhat) agree with the article in general, but I think the problem of "poverty reduction" need to be thought differently. Poverty after all, is the natural state of the world. We don't create poverty, poverty just is, poverty is what you get if you don't do anything. Wealth is the unusual thing, so the question to ask is not "How do we reduce poverty?" but "How do we create wealth?"

The moment you frame the question this way, you will stop thinking about subsidies, charity, handouts and free milk and start thinking about enterprise, microfinance, education, infrastructure and markets. That's the kind of thing that will get people out of poverty even faster.

If ever there is one mechanism which stops wealth creation and sustained poverty, that's bad economic policy, and we have an abundance of that in Sri Lanka. History stands testament to the fact - and I know of no exception - that the simplest mechanism for creating wealth is economic freedom - that's free markets, rule of law and property rights. These are the institutions we need to be promoting.

In fact, Sri Lanka's own situation with poverty rates - with the Western Province almost eliminated abject poverty, is a test-case for this hypothesis. As Shjanta Devrajan, the World Bank's South Asian chief notes,

The reason the Western Province grew so fast is that it benefited the most from economic reforms. Trade liberalization and industrial de-regulation led to a boom in manufactured exports such as garments and electronics. These factories were concentrated in the Western Province, which halved its poverty rate.

Meanwhile, the rest of the country is heavily dependent on agriculture, which has seen very little growth. The reason is that there has been very little reform in agriculture. Owing to land regulations, farmers in Sri Lanka are forced to grow paddy, even though they can earn much more from growing fruits and vegetables. Fertilizer and other subsidies are also geared towards paddy farmers. Attempts to reform land regulations, or transform subsidies to across-the-board support for any crop, have been unsuccessful.

In short, Sri Lanka is a textbook case of how globalization works. Where there is liberalization, the economy booms; where there is no reform, the economy stagnates.

Do read the whole thing and resulting comments from his blog.

That kind of sums it up.

Nowadays, this blogs updates almost semi-daily, most of it is not on blog aggregators such as Kottu, so if you'd like to keep tabs on what's going on, subscribe to my live feed.

Why We Shouldn't Study

A friend emails me these two adverts from the Sunday Observer :
(click images to enlarge)

and this one..

the email also goes on to say,

From the early ages of our lives our parents, teachers and relatives told us so many good things about education. But sometimes we come across situations where we have to think twice about them!

hmm. Maybe so, but maybe the secretary's job description doesn't include the occasional blow job for the chairman. But hell, who'd want to work for the Central Bank anyway!

Fairness, idealism and other atrocities

You gotta love P.J. O'Rourke.

Where Your Taxes Go

The Daily Mirror has this report today,

Making a stunning disclosure yesterday House Leader and Senior Minister Nimal Siripala de Silva told Parliament that six Nation Building Ministers were using 43 vehicles, incurring a staggering monthly fuel bill of Rs. 752,500. [..]

Minister de Silva said each minister was paid a monthly fuel allowance of Rs. 17,500 for each vehicle and that there was no move to purchase new vehicles for these ministers. [link]

I keep telling my friends for the what we have in Sri Lanka, is not that great debate between American Liberals and American Conservatives about Big Government vs. Small Government, we are talking about is absolutely freakin huge government vs. more-than-big government. We are not even at a stage where we can even begin to have that debate of big vs small government.

Sri Lanka not only have the world's largest cabinet of more than 100 Ministers, but possibly the world's largest (per capita) bureaucracy with 1 bureaucrat per 20 persons. Most of our tax money (56 cents of every tax rupee) goes to paying salaries for these bureaucrats and even more of it for maintaining this massive bureaucracy, in fact in his last budget speech, the President proudly declared (pdf link) that all government revenue (your taxes included) have been used for recurrent expenditure (salaries, pensions, subsidies, etc.) and all the capital expenditure (your roads, hospitals, etc.) was financed through debt.

So if you are one of those people who feel mushy about the fact your taxes are funding infrastructure and suchlike, think again. Also, if you are on of those people who think that the "tax payer" is rich people, think again too. Tax payer, thanks to the VAT, is everybody. So forget about ducking income tax guys, if you buy soap, you pay taxes. In fact if you just hold money, even without buying anything, you'd still be hit by the inflation tax, which will squander nearly 30% of the value of your money. Inflation is a result of having a massive government, with government printing money to keep itself afloat.

So yeah, whether you like it or not, we need to cut down the size of government. We can certainly start by cutting down the number of vehicles the 6 nation building ministers use, then perhaps cutting down the number of nation building ministers (seriously, what exactly does a 'nation building' minister do ?), then the size of the cabinet, and then cutting down on the number and scale of state institutions (that's CEBs, Railways, SLTB, Mihin Lanka). In short, Privatize and liberalize, and maybe then, we can have that big government vs. small government debate.

HilBama's Broken Window Fallacy

James Pethokoukis of Capital Commerce points out a serious flaw in all those new "green collar" jobs Barrack Obama and Hilary Clinton hope to create in their plans to battle climate change. He writes,

As Clinton said in one presidential debate, "This issue of energy and global warming has the promise of creating millions of new jobs in America. It can be a win-win, if we do it right."

Heck, if climate change was a sham, it almost seems that it would be worthwhile to fabricate it, given all the apparent economic benefits. Then again, maybe not. Here is what William Pizer, an economist at Resources for the Future and a lead author on the most recent report from the U.N.'s Intergovernmental Panel on Climate Change, said at a symposium earlier this week here in Washington: "As an economist, I am skeptical that [dealing with climate change] is going to make money. You'll have new industries, but they'll be doing what old industries did but a higher net cost.... You'll be depleting other industries." [link]

So here's an idea for Obama and Clinton, next time try throwing stones at random windows, that way the people who fix windows will make a profit, and so many window-fixing jobs will be created and that would help the economy.

None of the democrats apparently have never heard of the broken window fallacy. In one of his most famous works, Fedric Bastiat, the 19th century French economist, wrote about the broken window fallacy about people who talk about the "economic benefits of war" adhere to. In an essay tittled What is seen and the unseen, Bastiat argued that while breaking windows will certainly benefit the window-fixers(glaziers), at the expense of other actors. He wrote,

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented. [link]

Broken window fallacy, and Bastiat's essay could help in explaining the futility of how the Sri Lankan government is supposedly "creating jobs" for thousands of "unemployed graduates" by offering them jobs in an already over-bloated government.

Incidentally, the annual Bastiat prize for journalism is open for entries. Tragically, I can't name a single print or electronic media journalist from Sri Lanka, whom I can recommend for the prize.

Mihin Air

..Has been grounded until further notice. Now, His Excellency is trying to fly on his own. Budget-airline no.

The "Money" in Sex

This piece by Amit Varma on victimless crimes reminds me of something I've been thinking of recently about illegal prostitution.

Like I wrote earlier on this blog, there's no such thing called free sex. Sex has costs, just like any other thing, not all of it is monetary - emotional baggage, burden of relationship, so on. But money can (and often is) used to incentivise sex between two consenting adults (think flowers, booze, etc) none of this is considered a crime. But when money changes hands directly - without flowers intervening for example - it suddenly becomes a crime. Hypocrisy? not a new term for governance is it?

Who is John Galt? (the movie)

According to Cato's blog, the movie of Any Rand's Atlas Shrugged is finally set to start shooting later this year.

Scott Holleran at Box Office Mojo is all over the Atlas Shrugged movie project. A few days ago he talked to Michael Burns, vice chairman of Lionsgate, the studio that is planning to make the film. He confirmed that Angelina Jolie will star as Dagny Taggart. Burns says John Galt should not be played by a movie star but by an actor with “an incredibly remarkable face, a face that just pops out at you,” to which his Randian interviewer responds, “A face with no fear, no pain, no guilt?”

Read the whole thing.

I have read both Atlas Shrugged and Rand's other acclaimed work, fountainhead. I appreciate the contributions Rand has made and accept part of her philosophy of objectivism, but I find some of it repulsive. Particularly objectivism's modern day interpretations like the stuff dished out by the Ayn Rand Institute.

Anyway, the book is a good read and I look forward to seeing the movie.

What's Up With Food?

As you probably know, the world's food prices are soaring. So far I've come across two basic explanations which I find reasonable for the hike in food and commodity prices.

• Increased demand, constrained supply.
  
  This one is straight from your basic Econ 101 textbook. The increase in demand is attributed to the high growth rates in China and India, the newly richer Indians and Chinese demand more food. The supply hasn't kept up with demand hence the rice in food prices.
  
  The reasons for the supply constraints are attributed to the use of agricultural land for bio fuels (ethanol in the U.S. for example). This is yet another example of how climate change hysteria and resulting policy is actually doing more harm than the climatic effects of the supposed phenomena (I call it Al-flation).
  
  Second reason (See Tyler Cowen's excellent piece in the New York Times) there isn't enough international trade in foodstuff and the everywhere in the world there's a plethora of government interventions in the agriculture markets distorting price signals which stops produces from effectively responding to the increased demand.
  
  Also the resulting panicky situation from high food prices creates even more government intervention like putting in place price controls like in Sri Lanka and banning export of rice in India all of which destroys incentives for increased production.
  
  
• It's created by loose monetary policy.
  
  This time the culprit is the U.S. Federal Reserve. The explanation is the monetary expansion in the U.S. via lower interest rates is causing higher inflation and a weaker dollar. Most commodities (including agricultural commodities) are priced in dollars, and when the dollar weakens the prices of commodities in terms of dollars go up. This also invites speculation of future declines driving up the prices further. See this chart from WSJ for example,
  
  The chart shows rapid increase in the price of oil in terms of dollars relative to euros since September 2007, about the time the US Fed started it's loose monetary policy practices. The hike in oil prices in terms of euros is fairly moderate, like the WSJ says, "had the dollar merely retained the same purchasing power as the euro, today's price of oil would be below $70 a barrel"
  
  Add to this picture that some developing countries (like Sri Lanka and India) partially pegs it's currency to the U.S. dollar basically importing U.S. inflation in addition to creating it's own inflation by printing money to finance government expenditure at home, we have a hike in almost all prices including that of agricultural commodities.

What is the true story? I think a bit (or a lot) of both. Sri Lanka being a net food importer is directly seeing the impact of these increases. The poor in particular who spend most of their earnings on foodstuff are really feeling the pinch. This is on top of more than 20% inflation even without food prices factored in (food inflation stands at about 34%) due to loose monetary policy by the central bank as a result of financing unsustainable government spending.

A pertinent question to ask is whether the high price of rice in particular, which didn't have much interaction with the global markets until recently be explained by generally high inflation alone. General inflation is probably the driving factor, but somehow I don't think captures the complete picture. It's possible there is an increased demand locally for rice due to people abandoning close substitutes like bread given the high price of wheat.

Now I'd love to see some numbers supporting that, something which is unfortunately sorely lacking in Sri Lankan media.

Related articles on food prices:

• Fed's blender (interest rate explanation)
• Freer trade could fill the world's rice bowl (Cowen - recommended)
• Food Fight (trade-based explanation)
• On rice and corn laws
• How low interest rates are driving up prices