Thursday, May 29, 2008

Green light for de-pegging?

The National
The UAE and Qatar could abandon their currency pegs to the dollar and move to a basket of currencies within months, causing a five per cent appreciation before the end of the year, a Merrill Lynch report said yesterday [May 25].
Saudi Arabia was unlikely to follow until late next year, Merrill said in the report entitled “US green light for the GCC”.

The US Treasury made mention of Gulf currencies for the first time “in recent history”, according to Merrill. The US investment bank took the focus on rising inflation as a sign that Washington no longer fears that the dollar will weaken significantly or that it will begin to lose its status as the world’s reserve currency if governments in the six-member GCC remove their pegs.

Removing the dollar peg would allow Gulf central banks to raise interest rates as a means of constraining money supply and controlling inflation. However, many UAE officials have spoken publicly against such a move because it could cause instability and reduce the value of their dollar-denominated savings in dirhams.

While recognising that the inclusion of GCC currency issues in the US Treasury report represented only “a modest change in focus”, Merrill concluded that it was nevertheless “a big signal for the currencies of the GCC”.

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Wednesday, May 28, 2008

Demand curves:
They slope downwards, don't they?

Monday, May 26, 2008

All of inflation's little parts

Very cool graphic showing the inflation pie. For the U.S., that is. It would be nice if the UAE had inflation data like this.

Via Growthology.

Speaking of inflation, Zimbabwe, you ain't seen nothin' yet. Perhaps the Mugabe's Obesity Tourism Strategy isn't working. (Thanks for that one, Juandos.)

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Sunday, May 25, 2008

Economists take advantage of people's weaknesses

Washington Post
The world of the behavioral economics, which melds psychology, finance and emotion, seeks to explain and sometimes exploit why we do what we do when it comes to investing. It is a field that has become more accepted lately, particularly since 2002, when Princeton University psychologist Daniel Kahneman was awarded the Nobel Prize in Economics for, as the Swedes put it, integrating "insights from psychology into economics, thereby laying the foundation for a new field of research."

Kahneman is a director at Fuller & Thaler, a firm whose other namesake is Richard Thaler, a prominent University of Chicago behavioral economist and a frequent collaborator with Kahneman. Two of the funds the firm manages that use behavioral methods have beaten Russell benchmarks from their inception through the first quarter of this year. Not surprisingly, Fuller & Thaler is not the only firm using such techniques. Firms ranging from J.P. Morgan to AllianceBernstein say they seek to capitalize on the faulty investor mind.

For instance, Fuller & Thaler likes to pay close attention to analysts who may be anchored on a stock, not raising their earnings-per-share estimates enough even though positive information has come out about the company. Fuller & Thaler's investment team pounces before the analysts realize they were wrong. As Kahneman said in an interview, "I think that betting on mistakes of people is a pretty safe bet."

Good for them. My interest in talking to the likes of Kahneman, Thaler and other behavioral economists and personal finance advisers -- besides confirming that I am not dumb -- was to understand these mistakes and what there is to do about them. "I don't think you can fix what's in your head," Thaler said. "What you can do is train yourself to say, 'This is a risky situation, and this is the kind of situation where I get fooled.' "

I asked Kahneman what fools us most frequently. That was simple, he said: overconfidence. "It's the idea that you know better than the market, which is a very strange idea," he said. "Individual investors have no business at all thinking they can do better."

Why do we? "It's because we have no way of thinking properly about what we don't know," Kahneman said. "What we do is we give weight to what we know and then we add a margin of uncertainty. You act on what you think will happen." That's what I did by buying Citigroup. But Kahneman added, "In fact, in most situations what you don't know is so overwhelmingly more important than what you do know that you have no business acting on what you know." Oops.

Barbara Warner, a financial planner with Warner Financial in Bethesda, said she sees a lot of overconfidence among two groups of people: relatively new investors to the market (me), particularly recent business school graduates (not me), and retirees (never, with my investment sense). The latter group can be exceptionally frustrating. "Now they have entirely too much time on their hands to devote to CNBC and Money magazine," she said. "People suddenly think they are smarter than they used to be because they have more time to pay attention to it."

That's a disastrous situation, Kahneman said: "The more closely you pay attention, the more you do things. And the more you do things, the worse off you will be." For proof, he pointed to groundbreaking research done by one of his former students, Terrance Odean, now a professor at the University of California at Berkeley.
Odean said he saw two options: Be dumb and let others make money off you, or just buy a no-load index mutual fund and stop focusing on beating the market.
Don't think about it, it will only cost you.

Here's how the American Economic Association allocates its portfolio.

Thursday, May 22, 2008

Smoking and the hive mentality

Researchers have found that smoking cessation works best when you concentrate on groups.

The New York Times reports:
The study, by Dr. Nicholas Christakis of Harvard Medical School and James Fowler of the University of California, San Diego, followed thousands of smokers and nonsmokers for 32 years, from 1971 until 2003, studying them as part of a large network of relatives, co-workers, neighbors, friends and friends of friends.

It was a time when the percentage of adult smokers in the United States fell to 21 percent from 45 percent. As the investigators watched the smokers and their social networks, they saw what they said was a striking effect — smokers had formed little social clusters and, as the years went by, entire clusters of smokers were stopping en masse. So were clusters of clusters that were only loosely connected.

Dr. Christakis described watching the vanishing clusters as like lying on your back in a field, looking up at stars that were burning out. “It’s not like one little star turning off at a time,” he said. “Whole constellations are blinking off at once.”

As cluster after cluster of smokers disappeared, those that remained were pushed to the margins of society, isolated, with fewer friends, fewer social connections.
The new study also looked at smoking initiation but, because many more adults were stopping smoking than starting in the years of the study, its main focus was on cessation. Still, Dr. Christakis said, smoking initiation followed the same patterns as cessation: people started and stopped smoking in groups.
The study and the obesity study that preceded it, said Duncan Watts, principal research scientist at Yahoo! Research in New York, provide a new view of society.

“We tend to think of individuals as atomized units, and we think of policies as good or bad for individuals,” Dr. Watts said. “This reminds us that we are all connected to each other, and when we do something to one person, there are spillover effects.”
Traditionally, economists think of individuals as atomized units. It is not immediately apparent to me that economists will need to abandon that tenet to explain these facts. Some relationships are part of our environment, taken as given just as we take larger economic conditions as given when we make individual decisions. Other relationships are choices. Thus, if an individual wants to quit smoking he knows that changing his circle of friends will make a difference -- that is, if nonsmokers will admit him. Or he knows that making a pact with friends to all quit smoking together can make a difference.

Carpooling regulations

Over at UAE community blog Seabee outlines the hoops that Dubai government Roads and Transport Authority have created in order to carpool legally. The plain if nontransparent reason for these regulations is to protect the government's monopoly in public transport - both bus and taxi.

Dubai is not the only government that protects taxis. Check out these examples to be found at Carpe Diem.

For earlier posts on taxis, and taxi regulation in the Dubai and the UAE click the label "taxis" to this post.

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Buildings go years without utilities

Would you build if you didn't have reasonable assurance you'd get utilities for the building? What investors would tie up their money with these prospects? There are a not insignificant number in Sharjah and Ajman. Emirates Business 24|7 has the story:
Some 30 towers with hundreds of residential and commercial units are sitting empty following a wait of up to five years for services such as electricity, water and sewerage, said real estate sources in Sharjah and Ajman.
The CEO of Sharjah's Noor Al Mamzar Property, Khalid Abdul Aziz Al Suwaidi, said the waiting list for public utilities was "years' long", in both emirates, but the problem was worse in Ajman.
Al Suwaidi said he knew of developers in Sharjah, who had to wait four years for services after obtaining their building licences.

And he said the problem was different in the two emirates because Sharjah produces its own power, while Ajman is dependent on federal sources. Ajman has already experienced power cuts as the demand on the electricity grid has outgrown supply. As a result, new buildings cannot be hooked up to the main network until more power is created.

Sources close to the negotiations, who did not wish to be named, told Emirates Business Ajman has already reached out to international companies to discuss building its own power plants. Ajman officials recently held meetings with representatives of a Canadian firm to discuss building a power plant – which could cost as much as Dh1bn – powered from gas from coal.

Meanwhile, the waitlist for utility services has grown so long some investors have begun to treat a notice of confirmation that supply will be provided from the municipality as a commodity that can be sold. These investors then sell projects that will be hooked up for much more than they paid for the land, without every building anything, said Obeid Al Tunaiji, CEO of Al Tunaiji Property. The promise of electricity and water, he said, has become enough to increase the value for developers.

Emphasis added. It simply makes no economic sense in the Gulf to build power plants fired by gas from coal.

Thanks to The Sandbox for the pointer.

Tuesday, May 20, 2008

Travel boom, bust or bubble?

Dubai and its imitators fashion themselves as tourist destinations. Are they in danger of overbuilding?

The Economist:
Booming emerging economies are the great hope of the world's travel and tourism industry. Dubai is the most shimmering example. It has only a tiny percentage of the United Arab Emirates' oil reserves, and so is straining to turn itself into a regional hub for finance, travel and high-class tourism. Three palm-shaped island-resorts are being built: the Palm Jumeirah (pictured), the Palm Jebel Ali and the Palm Deira. The Burj al-Arab, curved like a sail and on another artificial island, is the world's only seven-star hotel—with its own helipad, naturally. Dubai also boasts the Middle East's first indoor ski-slope.

About 30% of Dubai's GDP depends on travel and tourism, but Sheikh Mohammed bin Rashid Al Maktoum, Dubai's ruler, wants the industry to grow much more. He is the driving force behind the construction of Dubailand, a tourism and entertainment complex divided into seven theme worlds that are Dubai's answer to Disneyland. By 2015 Dubailand is aiming to attract 15m tourists [the population of the country is 5m of which 1.5m are citizens], roughly 40,000 visitors daily.
And, Asia, Beware Benidorm:
In the 1960s the governments of Spain, Portugal, Italy and Greece encouraged the building of hotels and other tourist infrastructure, which seemed the fastest way to catch up with the wealthier north. During the 40 years of breakneck development that followed, vast stretches of the Spanish coast were concreted over, transforming the Costa del Sol into the Costa del Concrete and attracting hordes of tourists in search of sun, sea and sand. Some Greek islands have come to resemble a Hellenic Hong Kong, with high-rise hotels and traffic jams.

Some people in tourism made good money, but in recent years even they have started to notice how the ugliness and the noise is keeping visitors away. The government in Madrid grew so concerned that it bought tracts of seaside land itself, to stop developers from getting their hands on it.

As tourism is about to explode in the developing world, governments should heed such lessons.
Thanks to Secret Dubai for the second link about which she offers this analysis.

What, you may ask, is Benidorm?

Oil bubble? Economists wonder

James Hamilton at Econbrowser:
I do not believe that speculation is the reason oil went from $60 to $120 a barrel. The biggest part of that longer term trend is due to fundamentals, not speculation. Notwithstanding, it does appear that speculation has gotten ahead of those fundamentals in the most recent developments.

For the bubble to continue, we would need to see ever-increasing volumes of investment money pouring into the futures markets, and continuing stagnation in global production to ratify them. Even if the former occurs, my best guess is that the latter will not.

Charles Engel at RGE:
The problem for economists is that the market for oil is so complicated that we cannot very accurately calculate what the price of oil “should be” if there is no bubble. We have to read the entrails to figure out whether the price is really reflecting market fundamentals – demand, supply, real interest rates – or has a bubble component. As I look at the rising price, I wonder which story is most plausible: (1) the markets have been surprised over and over about demand by end users and production capabilities; (2) markets have been surprised over and over about how low real interest rates are; (3) there is a bubble. These stories may go together, in fact. Indeed, it is hard to see how a bubble could get started all by itself, or how it could go on for a long time before it popped.

Paul Krugman:
If the price is above the level at which the demand from end-users is equal to production, there’s an excess supply — and that supply has to be going into inventories. End of story. If oil isn’t building up in inventories, there can’t be a bubble in the spot price. ... So my challenge to people who say there’s an oil bubble is this: let’s get physical. Tell me where you think the excess supply of crude is going.

Arnold Kling at EconLog
I do not believe that the oil price today reflects a bubble. So in that respect, Krugman and I are not on opposite sides. Nonetheless, I do think that his model of the oil market has some strange properties.

Krugman ignores two elements of the oil market. Explictly, he ignores forward prices. Implicitly, he ignores the decision by producers either to pump oil or keep it in the ground.

UPDATE: More from James Hamilton.


Saturday, May 17, 2008

Carpe Diem, human browser

Did you know that wheat prices are actually down?

Or, "According to data available from the USDA, expenditures on food as a share of disposable personal income have decreased from a high of 25.2% in 1933 to a low of 9.7% in 2004. In 2005 and 2006, there were insignificant increases to 9.8% and 9.9%, respectively."

Or that, "since late 2006 male employment in the U.S. has been stagnant, while female employment has continued to grow. From April of last year through April 2008, men have lost 131,000 jobs while women have gained 781,000 jobs."

Or that there's at least one monopoly that's raised price faster than OPEC has been able to. Perhaps President Bush could make a diplomatic mission to the sheik of USPS.

If not, then maybe you should make Carpe Diem a regular read (besides the words there are lots of nifty charts, too).

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Friday, May 16, 2008

Beer roundup

Several stories on beer and economics. [Click on image to read sign on store.]

1. Inflation - A Lunch in Zimbabwe (Ian Brakspear) : "During the meal, one of my mates was drinking beer — 750ml bottles of Castle Lager (fondly called bombers). He ordered a fifth one, was advised that the price, which when he ordered his first, second, third and fourth ones was 160 million [Zimbabwean dollars] per bottle, had gone up to 340 million per bottle.
That's right — during lunch there was a price increase…"

2. Time - The Rich Drink Better Beer, Not More (Daniel Hamermesh) : "The reason is simple: it takes time to consume quantities, while the consumption of high-quality goods takes no more time than low-quality goods; and as we get richer we have no more time — we all face 24 hours in the day."

3. Prices of other goods - Miller CEO says more Americans are drinking cheap beer :

MILWAUKEE - Consumers still want different types of beers, but for a growing number with empty pockets, that means less expensive ones, the chief executive of Miller Brewing Co. said Thursday.

The Milwaukee-based brewer saw a small increase in sales of economy beers like Milwaukee's Best starting in January, at the expense of higher-priced brews, Tom Long told The Associated Press in an interview.

It's a direct result of people having less disposable income as they grapple with higher gas and food prices, he said.

4. Let's not forget that in 2006 Congress made this American Craft Beer Week.

Does OPEC remember the 1980s?

Michael Giberson, over at Knowledge Problem, writes about Marc Vatter's analysis in "OPEC's Demand Curve."

High prices induce a number of adjustments, some of which have long term repercussions. Last time there was an oil price shock at all comparable to the present was around 1979-1981, when world oil prices reached near $100 (in $2008). High prices then helped support continued growth in non-OPEC oil supply (which really got started during the oil crisis of 1973) and spurred substantial consumer interest and investment in energy efficiency. Over time the adjustments contributed to a nearly 20-year long period (roughly 1986-2004) of prices below 1973 prices in real terms.
He sums up his estimates by saying, "we should not expect prices to fall below [$81 a barrel in $2008] for long" given current non-OPEC supply and world oil consumption.
Two of the economics profession's warhorses remember the 1980s. Gary Becker has a post on the rising price of oil in which he discusses why oil is not headed to $200/barrel. Richard Posner is rooting for $200/barrel oil.


Preston McAfee, All Star

My old pal Preston McAfee is waking waves in the economics profession again. As always, good waves. His innovations as editor of Economic Inquiry come in for special praise by Steven Levitt at Freakonomics. Bravo, Preston.

Thursday, May 15, 2008

Chris Blattman, human browser

As regular readers will have noted, The Emirates Economist has a new favorite human browser, Chris Blattman. More links today via Blattman:

1. Tackling corruption gets tougher every day. Blattman points to a post at Global Integrity Commons about corruption in Nigeria, and in specific, "a discouraging trend of Nigerian lawmakers declaring greater personal assets than they currently posses in order to build in a cushion that accounts for corrupt gains while in office. ... Official Secrets Acts across many Commonwealth nations are an unfortunate legacy of the British colonial period that provide officials with an easy excuse to withhold information from the public."

2. Love and romance in the Kingdom of Saudi Arabia. Blattman points to a series by Katherine Zoepf, writing in The Lede and the New York Times: Out With the Boys for a Night of Numbering ("chasing cars containing young girls and trying to give the girls their phone numbers via Bluetooth, or by holding written phone numbers up to their car windows"); Q&A about love and romance in Saudi Arabia; and Love on Girls’ Side of the Saudi Divide ("A cellphone picture of Alia’s fiancé — a 25-year-old military man named Badr — was passed around, and the girls began pestering Alia for the details of her showfa. A showfa — literally, a “viewing” — usually occurs on the day that a Saudi girl is engaged").

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Wednesday, May 14, 2008

George Mason University struggles with enrollment

The National reports,
The first American university to open a campus in the UAE said it would not compromise admission standards to recruit more students – even if that meant leaving empty places on courses.

George Mason University opened in Ras al Khaimah in 2006 and still has fewer than 100 students enrolled in its bachelor’s degree programmes.
I've last track of the number of American universities that have announced that are entering the market in the Gulf only to abort before ever breaking ground. (There have been exceptions, like Virginia Commonwealth in Qatar.) It's not a money pot, and it may be more like a money pit. It will be interesting to see whether George Mason makes it in the long run. Ras al Khaimah is not a rich place.


Monday, May 12, 2008

New Yorker covers sex trade in Dubai

It's all here.

Some excerpts:
Stella Rotaru’s cell-phone number is scribbled on the wall of a women’s jail in Dubai. That’s what a former inmate told her, and Rotaru does get a lot of calls from Dubai, including some from jail. But she gets calls from many odd places—as well as faxes, e-mails, and text messages—pretty much non-stop. “I never switch off my phone,” she said. “I cannot afford to, morally.” She looked at her battered cell phone, which has pale-gold paint peeling off it, and gave a small laugh.

Rotaru, who is twenty-six, works for the International Organization for Migration, a group connected to the United Nations, in Chisinau, Moldova. She is a repatriation specialist. Her main task is bringing lost Moldovans home. Nearly all her clients are victims of human trafficking, most of them women sold into prostitution abroad, and their stories pour across her desk in stark vignettes and muddled sagas of desperation, violence, betrayal, and sorrow.

Her allies and colleagues in this work are widely scattered. An ebullient Dubai prison officer named Omer, who calls Rotaru “sister,” has been a help.
I wanted money, and I was deceived,” Lena said. (Some of the names in this article have been changed.) She was from a village in northern Moldova. She had high, thin eyebrows and a worn face. “I was nineteen. My boyfriend told me I could be a waitress in Portugal. We had been together for a year and a half.” Her boyfriend organized her trip, paid her airfare, drove her to Odessa, and put her on a plane to Lisbon. A friend of his met her flight, and told her that the waitress job had fallen through. He offered to take Lena to Dubai, where there was, he said, more work. He seemed trustworthy, and they flew there together. An Arab met them in Dubai, and the next day a woman from Uzbekistan took her to an apartment.

“That was when I realized I had been sold,” Lena told me. “Because she gave money to the Arab guy, and my passport was taken.” There were six Moldovan women already at the Uzbek woman’s place. They were working, they said, as prostitutes in discos, all paying off travel debts that the “she-pimp,” as Lena called her, claimed they owed her. Their clients were mostly Arabs and Russians. “The she-pimp was very aggressive,” Lena said. “She beat disobedient girls.” Lena was put to work.

She ended up spending a few years in Dubai, on and off the street, in and out of jail. After escaping with two other women, Lena went to the police, who arrested her. The Uzbek woman declined to hand over the passports of her ex-workers, and went on with her thriving business.
For Moldovan women, the Balkans were the major destination until six or seven years ago. Now, according to La Strada [an anti-trafficking group], it’s Russia, Turkey, Israel, and the United Arab Emirates, particularly Dubai.
At police headquarters in Dubai, an official served me coffee in beautiful china. She wore a black full-length hijab. We talked about the influx of Eastern European prostitutes. “Some men want blond hair, pale skin,” she said. “Where there is a market, there is a problem.” She had worked with Stella Rotaru on the repatriation of Moldovan detainees. Every case was difficult, she said, because Moldova had no embassy or consulate in the United Arab Emirates.

Dubai, one of the seven United Arab Emirates, is, in the world of human trafficking, the quintessential destination. A city-state boomtown on the southeast coast of the Persian Gulf, it has a population of 1.4 million, nearly eighty-five per cent of whom are foreign-born. There are hundreds of thousands of construction workers, housemaids, waiters, and shop clerks from South Asia alone. For traffickers, it’s an almost perfect recipe: mass immigration, mass transience, a tremendous concentration of money and anonymity, and a robust demand for labor. Many migrants arrive on contracts that look a great deal like trafficking: they owe either travel agencies or their employers substantial debts (as much as two years’ pay) for their recruitment, are not allowed to change jobs, and, although the practice is illegal, routinely have their passports taken by employers. The prostitution market is huge. Between tourism, naval traffic (the port of Dubai is one of the world’s largest), a three-to-one ratio of males to females, and the traditional sequestering of local women, the demand side of Dubai’s commercial sex industry never flags.

Prostitution is hardly invisible in Dubai. At an intersection, I saw four Eurasian-looking women solicit customers. In one bar, with an English-pub theme, the prostitutes told me that they were from China, Thailand, Vietnam, Kenya, Ethiopia, and Ghana; in another, from Turkey, Egypt, Iran, Iraq, India, Jordan, and Moldova. (The Moldovan was blond and looked hard-used; she wouldn’t tell me much.) And a great deal of the local prostitution is “closed site”—in apartments, massage parlors, and brothels.

In 2005, the U.A.E. was dropped into Tier 3 in the State Department’s anti-trafficking rankings, down there with Burma. That did not fit the brand being so painstakingly built in Dubai, which has aspirations to become a world business capital and mass tourist destination, with the world’s largest snow dome and what will soon be the world’s tallest building. In 2006, the emirate passed an anti-trafficking law that helped get it hoisted to the Tier 2 Watch List, where it remains, along with Mexico (and Moldova).

Dubai is an autocracy, ruled by Sheikh Mohammed bin Rashid al-Maktoum. The space for civic institutions is minuscule. Still, a modest private shelter for battered women and children, called City of Hope, has subsisted since 2001 in a beachside suburb. Its founder and director is Sharla Musabih, an American-born Emirati who has been married for twenty-five years to a local businessman. She generates a certain amount of animosity in Dubai. City of Hope takes in victims of domestic violence—housemaids, wives, their children. It also shelters trafficked women.
The police in Dubai were not especially happy when I turned up in their precinct. Even an Interpol captain with whom Rotaru had conducted, via phone and text, long searches of the rougher souks and sections of Old Dubai for captive women who had called her—with at least one spectacular rescue to their credit—suddenly remembered that he was not authorized to speak to a journalist.

The brake on Russian economic development

Aleh Tsyvinski and Sergei Guriev:
Medvedev [Dmitry Medvedev’s election as Russia’s new president] seems to understand that sustaining growth will not be easy: oil prices cannot rise forever, and the “low hanging fruit” of basic economic reform and prudent macroeconomic policies have already been picked. According to Medvedev, the only solution is to empower private initiative and innovation.

Inequality and corruption are the main obstacles. Despite Russia’s recent economic achievements, both remain at alarmingly high levels. According to Forbes magazine, there were 87 Russian billionaires, with combined wealth of $471 billion, a figure second only to the United States. Yet their net worth accounts for roughly 30% of Russia’s GDP, whereas America’s 469 billionaires are worth only about 10% of US GDP.

More importantly, inequality of opportunity is very high as well. According to a recent survey, a majority of Russians believes that acquiring wealth requires criminal activity and political connections. Only 20% believe that talent matters. These beliefs are self-fulfilling prophecies.

Aside from the relatively small middle class and the even smaller business and intellectual elite, most Russians neither take risks to become entrepreneurs nor favor economic and political liberalization.
According to a recent large survey by the European Bank of Reconstruction and Development, only 36% of Russians support democracy and a mere 28% support market reform, by far the lowest among all transition countries on both counts.

The other major barrier to growth is corruption. In another World Bank-EBRD survey, 40% of firms in Russia reported making frequent unofficial payments, and roughly the same percentage indicated that corruption is a serious problem in doing business. Unlike in other emerging markets, corruption has not declined with economic growth; it remains as high as in countries with one-quarter the per capita income of Russia.
My emphasis. Thanks to Greg Mankiw for the pointer.

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Friday, May 09, 2008

She said what?

Will she stop at nothing?

Hillary Clinton staying positive:
I have a much broader base of support. Senator Obama's support amongst hardworking white American is fading again. I have support from whites who have not gone to college.

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Thursday, May 08, 2008

Free gas

This about sums it up.

Bryan Caplan has a New York Times op-ed that at first looks like attention-whoring (look I'm an economist that supports a gas tax holiday), but isn't (the reasons he gives in support should make Clinton and McCain blush if they are capable of that).

Finally, throwing caution to the wind, ere is an unrelated free gas story from France.

Sharjah tightens regulations on laborer housing

When workers at Dubai company rioted in Sharjah where they were housed by the company it was Sharjah whose name made the international headlines. It's not surprising that the result will be further Balkanization of the UAE economy. Sharjah is no longer willing to house workers on the cheap for companies that employ them in another emirate (read, Dubai). The National has the story:
Two senior members of the Sharjah Government confirmed that the law was in the final stages of approval and just weeks away from coming into effect.

They said they were pursuing the amendment to the current legislation to improve law and order following a series of protests and violent skirmishes over the rising cost of living.

“Most of the companies are in Dubai, but the workers live in Sharjah,” said Sheikh Sultan bin Ahmed, chairman of the Sharjah Commerce and Tourism Development Authority. “The companies will be forced to either register their workers in Sharjah or find new accommodation in Dubai or the other emirates.

“If anything happens, it is usually Sharjah to blame,” said Sheikh Sultan, who added that the number of workers living in the emirate greatly outweighed the number of police officers available to contain labour protests.

However, the move would be unpopular with workers who commuted from Sharjah to escape Dubai’s high rental rates, said Burhan Turkmani, the general manager of the Dubai-based Al Rabiah Trading company, a food importer.

“Sixty per cent of my employees live in Sharjah,” he said. “It’s far too expensive for certain employees to live in Dubai.

“These people, they live there, they spend much of their income in Sharjah, their children go to school in Sharjah, and they only go to Dubai to work. It may be a bit harsh. Food prices and the cost of living are going up, so people are suffering as it is.”

With a more affordable cost of living than Dubai and lower operating costs for worker compounds, Sharjah has attracted thousands of construction labourers. Many are employed in Dubai or Abu Dhabi, where construction is expanding rapidly.

In recent months, Sharjah has been rocked by violent protests.

In April, more than 600 Asian labourers were arrested after a protest in the Al Nahda district. Workers from the Tiger contracting company attacked police with stones and bricks from an upper storey of a building under construction, the emirates news agency WAM reported.

Weeks earlier, about 1,500 rioting workers set alight management offices in a labour camp, clashing with police and officials.

Shehab el Orabi, the senior development manager at the Waterfront real estate project in Dubai, said he understood Sharjah’s motive for amending its labour law.

“I fully agree with them. Why would I have to take care of problems arising from labour camps there if they [workers] were not even working in Sharjah or contributing to the local economy?”

Mr Orabi said implementation of the law would likely encourage companies to build more modern accommodation facilities in proximity to the places that the men worked, thereby cutting the travel time to work and reducing the number of vehicles on the road.

About 250,000 vehicles travelled through Sharjah every day to locations outside the emirate, 50,000 of which were trucks, Sharjah officials have reported.
According to The National's story Sharjah's new regulations apply both to (1) laborers who are housed in company provided compounds as well as (2) workers in higher salary categories who find their own housing and commute from Sharjah to Dubai. I am surprised that group (2) is the target of the legislation. [Although it is not beyond imagination that if not, then companies in category (1) would turn their workers lose to find housing in order fall under category (2).]

Thanks to the Kipp Report for the pointer.

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How stupid are American voters?

Not that stupid. Hillary's gas tax holiday backfired. Barack reminded voters how he is different.

Wednesday, May 07, 2008

Salon is wrong for one simple reason

It misses the point the elasticity of supply for gasoline a state is much higher than it is to the United States as a whole.

As Leonard Burman explains on the NewsHour:
GWEN IFILL: There have been tax holidays proposed at the state levels, because the tax money isn't all federal tax money in a gallon of gas. Does it work differently at a state level? Is it preferable on a state level?

LEONARD BURMAN: Well, it can work at a state level, especially if it's a small state. If the state of Delaware decided to eliminate its gas tax, they could get as much gasoline as they wanted on the free market. They could go anywhere from Pennsylvania to New Jersey.

The problem is that, if you do it at the federal level, that's the entire country. There are no other places within the country where we can get additional gasoline.

Sentence of the day

Forming neuron connections may cause harmful side effects.
That's from a New York Times article on the work of Tadeusz Kawecki, an evolutionary biologist at the University of Fribourg, “If it’s so great to be smart,” Dr. Kawecki asks, “why have most animals remained dumb?” He designs experiments to breed smarter flies and test them against standard flies.


Monday, May 05, 2008

Good and bad ideas for Indian agriculture

India may ban food futures trading - Financial Times
India’s finance minister said on Monday he was considering a blanket ban on trading in food futures, underlying growing concerns in Asia over the role of hedge funds and financial market traders in the recent surge in commodities prices.

If India imposes a ban, it would come only five years after the country introduced such futures trading as part of a broader push to develop India as a leading financial centre.

Speaking on the sidelines of the Asian Development Bank annual meeting in Madrid, P. Chidambaram said his worries over market speculation were shared by governments across the region and that India was “facing a very grave crisis on the food front”.
Right. Make it all the more difficult for farmers to know what they will get for their crop, and see what that does for agricultural output.

UPDATE, May 6: Financial Times reports,
Mr Chidambaram's re-marks drew a strong rebuke from two senior, Indian-born officials of the ADB [Asian Development Bank], highlighting concerns among international institutions that costlier food is leading to trade protectionism and new market distortions.

Rajat Nag, ADB managing director-general, told the Financial Times that trading restrictions "send the wrong signal and are just not -productive".

Ifzal Ali, ADB chief economist, described banning futures trading as "a political gimmick" intended to pander to voters.

Weighing into the debate, Jean-Claude Trichet, president of the European Central Bank, said yesterday speculation was not responsible for food price rises. "At the source . . . was a supply phenomenon and a demand phenomenon, which was explaining most of what we have," he said.

But there are success stories in agriculture coming out of India. For example,
Middle-class Indians are eating more and better food. Yet its population of 1.1bn is growing at about 1.4 per cent and food grain production increased just 0.9 per cent last year, according to ministry of agriculture statistics.

Agricultural growth has steadily decelerated because of years of under-investment as attention has focused on high-growth manufacturing and service industries.

But big strides can be made with relatively simple measures. In Kurthia, which is 40 km from the bustling holy city of Varanasi, the e-choupal consists of a computer in a modest house rigged with a small satellite dish. Farmers pose questions that are e-mailed to ITC -agricultural scientists and experts at agricultural -institutes. [ITC is the Indian agribusiness-to-hotels conglomerate]

Yogesh Bhrigulanshi, a farmer and the ITC local manager in nearby Bisuari village, says rice yields have risen 70 per cent, to 3,900kg per acre, since the arrival of the e-choupal. "We used to use fertiliser without any knowledge," says Mr Bhrigulanshi. "We used to use pesticides for any disease on plants. Now we know which pesticide to use and if it needs to be used."

ITC plans to invest $1bn on e-choupals in the period to 2015 to connect farmers to information, products and services. The hope is that as rural incomes rise, farmers will buy more products and services, ranging from seeds and fertilisers to insurance and healthcare.

Rural standards of living have improved.
But this is the most pertinent to the banning futures story: "Knowing the fair market value of crops allows farmers to fetch better prices and circumvent local traders who used to dictate terms. Farmers can also sell wheat and other crops to ITC." Thanks to Marginal Revolution for ITC story.

There is something that Mr. Chidambaram and I agree on:
Mr Chidambaram said on Monday that “food being converted into biofuels is the single biggest reason why we are facing this crisis.” He added: “To put mildly, [the conversion of land for biofuels] is foolish, to put it strongly it is a crime against humanity.”
Meanwhile, US farm lobby defends biofuel while Suspend biofuel rules, say British MPs.

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Raise the price; end the nonsense

State-owned Adnoc (Abu Dhabi National Oil Company) persists in pricing diesel well below its competitors. Truckers naturally flock to Adnoc, creating long queues that spill out onto the streets causing traffic jams. It's a problem I identified before. Now the manager of Traffic Affairs at the Ministry of Interior is getting into the act.

The reasonable solution would be for Adnoc to raise its price to the market level. That's not what Adnoc is proposing however. The Nation reports,
Col Gaith al Mazroui, the manager of Traffic Affairs at the Ministry of Interior, said talks were under way between the department and Adnoc to find ways to end the congestion.

Col Mazroui said the Traffic Affairs Department had suggested diesel sales to lorries heavier than two-and-a-half tonnes be limited to specific hours of the day.

Adnoc should consider setting up dedicated diesel vending forecourts on roads outside of the main urban areas, while it had been advised to increase the number of diesel pumps, said Col Mazroui.

Adnoc should begin a publicity campaign urging drivers to fill up only when it was absolutely necessary, he added.

A meeting would be held soon to decide on the proposals.

Congestion at the Adnoc stations is mostly limited to the northern Emirates, which has just 49 Adnoc petrol stations to service Sharjah, Ajman, Ras al Khaimah, Umm al Qaiwain and Fujairah. By contrast, Abu Dhabi has 127 Adnoc stations.
Read it all here.

There would be many would be grateful if the traffic congestion created by underpricing was solved. I wonder what the politics are that inhibit Adnoc from simply raising the price on diesel.


Camel jockey compensation coming?

Will the promised payments to child camel jockeys finally take place? Perhaps. The National reports:
Thousands of former child camel jockeys in four countries are a step closer to being compensated by the Government.

A senior Ministry of Interior delegation left for Pakistan yesterday, marking the start of an undertaking to track down and compensate the former jockeys.

The Government has previously said it would compensate jockeys who were trafficked and repatriated over the past 16 years.

The seven-member delegation will also travel to Bangladesh, Sudan and Mauritania over the next four weeks to meet government officials, as well as some of the former jockeys – some of whom are now adults – and their families.

Under the compensation plan, the jockeys will receive a minimum of US$1,000 (Dh3,673) regardless of how long they spent in the sport.

Those who sustained injuries while riding will receive larger amounts, while families of boys who died will also receive compensation.

“We will give [compensation] to anyone who worked as a rider in the Emirates – if you worked as a rakbee [rider] in the UAE, then we will give you compensation,” said Col Naser al Minhali, director of the Naturalisation and Residence Department at the ministry before flying to Lahore, the first stop on the mission’s trip to Pakistan.

“The Emirates was not forced to give compensation, but the UAE realised it had a problem and wanted to abolish it, and indeed has abolished it and found a solution.”
Read the rest here.

Click "camel jockeys" to read more on promises made. Reminds me of Xeno's paradox -- if you always go part way you never get there.


Saturday, May 03, 2008

Abaya redefined

In six years of living in the UAE I witnessed a rather dramatic evolution in abaya styles worn by local women. It was certainly not a majority even among young women, but many abayas were adorned with clear glass sequins, or black tufts of fabric, and some even added color to the basic black abaya. It was as if it was acceptable to wear an abaya to cover your clothes and create uniformity, and at the same time add another layer to express flamboyance or individuality. I found it puzzling.

The National has a story on this subject. Some extracts:
Embroidered crystals of black, blue and white glitter on the sleeves of Nouf al Hamly’s open abaya and the lining of her shaila.

Both pieces of clothing are impeccably matched to the midnight blue blouse and white skirt that the 22-year-old laboratory technician is wearing underneath.

Her sister Reem, 21, a student at Zayed University, on the other hand, has chosen a more demure version of the traditional outfit: plain and closed from the front so that the clothing beneath it is hidden from public view.

From traditional wear to fashion statement, the abaya is undergoing a massive transformation, much like the Emirati women who wear it. The subtle differences in the sisters’ outfits offer a perfect illustration of how some young women are pushing the limits of creativity while still respecting their culture.

“We have to stick to traditional boundaries, but that does not mean that we have to lose our femininity,” says Nouf al Hamly, whose point is emphasised by her perfectly presented hair and meticulous make-up.

When Reem shops for an abaya though, she says likes to “make sure it covers the right parts”.

“The way I wear my shaila and abaya is purely religious,” she adds. “I don’t like to attract attention.”
In part, the trend may be driven by the increasing financial independence of Emirati women.

Seven UAE civil servants in 10 are now women, according to official estimates, and a report by PricewaterhouseCoopers suggests the UAE has the highest rate of women studying in university in the world.

“Now that the Emirati woman is a working woman and a productive part of society, her abaya is reflecting that change,” reflects Nouf Al Hamly.

Both she and Ms Hashem hasten to add that they choose what abaya to wear by how hectic they expect their day to be.

“If I need to go around and walk a lot, it is easier for me to have it open with jeans under it,” Ms Hashem says. “Abayas are thinner now too, for practicality, and because of the hot weather.”

I've students who sometimes wear the shaila and sometimes don't why that is. Their answer: depends on whether it's a bad hair day or not.

There are advantages to being able to throw on the black abaya and shaila. It's an immediately classy looks even in the basic versions without a lot of bother.


Friday, May 02, 2008

$300,000 watch is right for the UAE

Thursday, May 01, 2008

Ever wonder why rice is not endangered?

There's a demand for it, and secure property rights for producers.

Worried about recycling paper in order to save trees? Don't be. Producers have an incentive to plant more trees in order to serve the demand for wood pulp that goes into making paper.

Let's apply that idea to endangered plants and animals. Someone has. Read it in the New York Times "An Unlikely Way to Save a Species: Serve It for Dinner":
[Gary Paul Nabhan] has spent most of the past four years compiling a list of endangered plants and animals that were once fairly commonplace in American kitchens but are now threatened, endangered or essentially extinct in the marketplace. He has set out to save them, which often involves urging people to eat them.


How dumb is the American public?

Greg Mankiw and Paul Krugman - two economists, who often disagree - agree that Hillary Clinton and John McCain are full of it.

Clinton and McCain have proposed that to benefit the US consumer the federal gas tax (18 cents a gallon) be lifted for the summer. Mankiw and Krugman agree that in fact the benefits would flow almost exclusively to the producers, not the consumers. For those of you who've had Economics 101 you'll understand that's because the short term demand and supply for gasoline are both highly inelastic.

Of course Clinton would then argue we need a windfall profits tax on producers. And at the same time blame the oil companies for not taking a long term view on investment. Is she hypocritical, stupid or ignorant? -- it doesn't much matter to me.

Clinton and McCain are also in agreement that to address the problem of global warming there should be a cap-and-trade system for carbon emissions. Economists have estimated that a consequence would be an increase in the retail price of gasoline by 35 cents a gallon.

Obama argues against the gas tax holiday saying it's pandering for votes, and a gimmick because it only saves the average American family $30. But even he's wrong: he's assuming the price will come down 18 cents. Again, the price would come down very very little.

Or you can listen to Leonard Burman explain it in an interview at the NewsHourPBS. Once he gets rolling it's good.

Finally, here's another good explanation which focuses on the point that Clinton's policy adds up to chasing your own tail. You end up where you started.

UPDATE - The Washington Post also takes a look at the economics. The story reminds Greg Mankiw of this exchange between Adlai Stevenson had with a voter:
During his 1956 presidential campaign, a woman called out to him, "You have the vote of every thinking person!" Stevenson called back, "That's not enough, madam, we need a majority!" (source)