Quotulatiousness

September 12, 2011

Is the People’s Liberation Army a paper tiger?

Filed under: China, Economics, Military, Weapons — Tags: , , , — Nicholas @ 09:36

An interesting article at Strategy Page looks at the myth and reality of China’s army and navy:

You don’t see much in the media about the poor training of Chinese military personnel. You don’t hear much about the poor leadership and low readiness for combat. But all of this is common knowledge in China. There, the military is not walled off from everyone else. Cell phone cameras and the Internet make it easy to pass around evidence (often in the form of “hey, this one is hilarious”). The government tries to play up how modern and efficient the military is, but most Chinese know better, and don’t really care. China is winning victories on the economic front, and that what really counts to the average Chinese.

Meanwhile, U.S. military leaders and defense industries are looking for a sufficiently impressive foe to help scare more money out of Congress. The Chinese Navy (or, more correctly, the Chinese Peoples’ Liberation Army Navy) is now the favorite candidate, for navy and defense industry analysts, to become the new Big Bad. Just how dangerous are these Chinese sailors and their ships? It turns out that, on closer inspection, not very.

This is the sort of thing that what went on during the Cold War. Russian military prowess was hyped by the American military, and their defense suppliers, to justify further increases in defense spending. When the Cold War ended, it was revealed how the Russian military, and defense manufacturers, played the same game. It also revealed that Russian military capabilities were far less than the hype indicated.

The basic weapon for this sort of thing is FUD (Fear, Uncertainty and Doubt). Works every time, although it is difficult to pitch the Chinese navy as a crack force. Most of their ships are elderly, poorly designed and rarely used. Their nuclear subs are worse than the first generation of Russian nukes back in the 1960s. The most modern Chinese ships are Russian made, Cold War era models. Chinese ships don’t go to sea much, not just because it’s expensive, but because Chinese ships tend to get involved in nasty incidents. Like the submarine that killed its crew when the boat submerged (and the diesel engines did not shut down when the batteries kicked in, thus using up all the oxygen.) Breakdowns are more common, as well as a lot of accidents you don’t hear about (weapons and equipment malfunctions that kill and maim.) Nevertheless, the Chinese are working to change this. Ships are going to sea more each year, and troops are getting more training. But unless the corruption is curbed, this could all be wasted.

Of course, if China isn’t the big military threat to the rest of the world, how will the Pentagon get Congress to go along with its perpetual demands for more funding?

September 11, 2011

The Canada Pension Plan and moral hazard

Filed under: Cancon, Economics, Government — Tags: , , , , — Nicholas @ 11:37

An interesting post at Worthwhile Canadian Initiative looks at the overlooked failure in pension markets. I found this bit of information to be quite interesting, as it addresses a conversation I had with Dark Water Muse a few months ago:

Governments provide pensions in one of two ways. Pay As You Go (PAYG) plans use current contributions to fund current benefits. The Canada and Quebec Pension Plan were, when they were first introduced, PAYG plans. The moral hazard risk a worker faces with these plans is political: a politician will design the plan so as to maximize his or her chances of re-election.

The design of Canada and Quebec Pension Plan has created large benefits for the first generation of recipients (current voters) and a much lower rate of return for future recipients (future voters). Now those gainers were the generation that entered the labour market in the Great Depression and fought in World War II, so one could argue that the windfall gain they experienced was merited on equity grounds. The point here is merely that the design of PAYG pension plans reflects the interests of the designers (for re-election) as well as the interests of the contributors and recipients.

The Canada and Quebec Pension Plans are now transitioning into fully-funded plans. The Canada Pension Plan Investment Board was, as of June 30th 2011, managing $153 billion in assets. Some is managed directly by the board, the rest is managed by “partners” ranging from Istanbul-based Actera Group to New York-based Welsh, Carson, Anderson & Stowe. I suspect that the CPP, roaming the world with billions to invest, is able to negotiate low management fees, and there must be savings associated with economies of scale in investing. But the possibility of moral hazard — someone getting rich by diverting away a tiny percentage of the return on $153 billion, or a politician exerting pressure on the CPP investment board to make electorally-sound investments — remains.

In sum, while private pension markets suffer from moral hazard, it’s not clear that governments can solve the problem.

In my discussion with DWM, I claimed that the CPP was a PAYG system (in extreme examples, like the US social security system, this can be compared to a Ponzi Scheme), while DWM — claimed that the system was fully funded from investments. As the quoted section above shows, we each had part of the answer.

It’s hard to believe that the CPPIB (the organization that handles the investments of the CPP) can remain immune to government meddling — buy this company’s stock, invest in that company’s risky-but-located-in-a-marginal-riding new venture, etc. As long at the CPPIB can remain independent of political pressure, the system might work.

September 10, 2011

How much damage to personal liberty will the new US/Canadian security deal inflict?

Filed under: Cancon, Economics, Liberty, USA — Tags: , , , — Nicholas @ 11:35

An article in the Globe and Mail discusses — in very general terms — the new security deal negotiated between the US and Canadian governments:

U.S. and Canadian negotiators have successfully concluded talks on a new deal to integrate continental security and erase obstacles to cross-border trade.

Negotiators have reached agreement on almost all of the three dozen separate initiatives in the Beyond the Border action plan, said sources who cannot be named because they are not authorized to speak publicly on the matter. The few remaining items mostly involve questions of wording and should be settled in time for an announcement in late September.

[. . .]

Opponents have raised alarms that an agreement would cost Canadians both sovereignty and personal privacy. But failure to implement the agreements could further impair the world’s most extensive trading relationship, and put manufacturing jobs across the country at risk.

Details of the agreement are closely held. But goals outlined earlier include specific proposals to co-ordinate and align such things as biometrics on passports, watch lists, inspection of containers at overseas ports and other security measures.

[. . .]

Canadians who believe that the United States has sold its liberty because of fears for its security, or who resist any further economic integration with the troubled economic giant, are likely to oppose the Beyond the Border proposals.

I don’t oppose trade with the US — far from it — but I do feel very strongly that the US has reduced the liberties of its citizens in pursuit of security (check the topic SecurityTheatre for lots of examples). I don’t want to see that trend exported to Canada in exchange for better economic access to their markets.

September 7, 2011

How much more will “green” renewable power cost?

Filed under: Britain, Economics, Environment, Government, Technology — Tags: , — Nicholas @ 09:37

In short, lots more than ordinary power generation:

The Telegraph has obtained a policy document, dated July, that seems to suggest that the government is considering a walk away from the most expensive renewables — and now we can see the full copy online. Two No 10 advisers challenge the Department of Energy and Climate Change’s utopian cost predictions, and say energy bills will be much bigger than we’ve been told.

What isn’t in contention is that energy itself will be much more expensive. DECC’s argument is that we’ll all start insulating our homes more — so our utility bills won’t reflect the higher per-unit energy costs. No 10’s energy expert thinks this is nonsense.

The Cameron advisors also suggest that government policy should be “open” to ditching some of the most expensive renewables — such as offshore wind power.

What’s the real cost of wind and solar?

     The former power director of the National Grid, Colin Gibson, now estimates that the lifetime per unit cost of onshore wind is £178 per megawatt hour (MWh), and offshore wind at £254/MWh. Nuclear is £60/MWh. The figures DECC provides don’t account for the huge additional transmission costs of wind.

     Note how much more expensive reality is than the clean, green vision. Government figures reckoned onshore wind cost £55/MWh and offshore wind £84/Mwh [. . .] compared to gas at £44/Mwh. Politicians seeking to dump the renewables policy could argue that green-minded civil servants sold them a pup. They’d be right.

September 6, 2011

Stephen Gordon: no case for stimulus in Canada (yet)

Filed under: Cancon, Economics, Government — Tags: , , — Nicholas @ 12:15

As he points out in the article, Canadians who are calling for the federal government to indulge in US-style stimulus spending are not paying attention to the Canadian economy:

Employment in the U.S. is far below its pre-recession levels, and employment in the construction sector has been hit particularly hard. So there is a strong case to be made for a U.S. program of infrastructure spending — and many U.S. observers are making that case.

Neither of these conditions holds in Canada. Although unemployment rates have yet to return to pre-recession levels [. . .], the number of jobs lost during the recession has been recovered, and July employment levels were 1 per cent above their pre-recession peak.

Switzerland devalues the franc

Filed under: Economics, Europe — Tags: , , — Nicholas @ 12:06

In what appears to be a successful attempt to devalue their currency, the Swiss have announced that they will peg the franc at €0.83, or SFr1.20 to the euro:

The Swiss National Bank in effect devalued the franc, pledging to buy “unlimited quantities” of foreign currencies to force down its value. The SNB warned that it would no longer allow one Swiss franc to be worth more than €0.83 — equivalent to SFr1.20 to the euro — having watched the two currencies move closer to parity as Switzerland became a “safe haven” from the ravages of the eurozone crisis.

The move stunned currency traders, and sent the Swiss franc tumbling against other currencies. Jeremy Cook, chief economist at currency brokers World First, said it was “intervention on a grand scale”, and the start of a “new battle in the currency wars”.

“That was the single largest foreign exchange move I have ever seen … The Swiss franc has lost close on 9% in the past 15 minutes. This dwarfs moves seen post-Lehman brothers, 7/7, and other major geo-political events in the past decade,” Cook said.

Is the freelancing sector the “new industrial revolution”?

Filed under: Economics, Liberty, USA — Tags: , , — Nicholas @ 09:03

Sara Horowitz, founder of Freelancers Union, presents an anecdote-heavy but data-poor view of the surge in freelancing as “the Industrial Revolution of our time”:

It’s been called the Gig Economy, Freelance Nation, the Rise of the Creative Class, and the e-conomy, with the “e” standing for electronic, entrepreneurial, or perhaps eclectic. Everywhere we look, we can see the U.S. workforce undergoing a massive change. No longer do we work at the same company for 25 years, waiting for the gold watch, expecting the benefits and security that come with full-time employment. We’re no longer simply lawyers, or photographers, or writers. Instead, we’re part-time lawyers-cum-amateur photographers who write on the side.

Today, careers consist of piecing together various types of work, juggling multiple clients, learning to be marketing and accounting experts, and creating offices in bedrooms/coffee shops/coworking spaces. Independent workers abound. We call them freelancers, contractors, sole proprietors, consultants, temps, and the self-employed.

And, perhaps most surprisingly, many of them love it.

I’m in this category myself, as a self-employed technical writer. I buy my own tools, pay my own taxes (reminder to self: next tax installment due on the 15th), and — within reason — set my own working hours. Of course, my clients have a lot to say about when my working hours tend to be, so it’s more an extra degree of flexibility than it is total freedom. But it works well for me.

September 5, 2011

False ideas about investment risk

Filed under: Economics — Tags: , , , , — Nicholas @ 10:25

Dan Ariely points out that most people have no idea at all about some of the key questions on investment risks:

To this point, we’ve run a number of experiments. In one study, we asked people the same question that financial advisors ask: How much of your final salary will you need in retirement? The common answer was 75 percent. But when we asked how they came up with this figure, the most common refrain turned out to be that that’s what they thought they should answer. And when we probed further and asked where they got this advice, we found that most people heard this from the financial industry. Sort of like two months salary for an engagement ring and one-third of your income for housing, 75 percent was the rule of thumb that they had heard from financial advisors. You see the circularity and the inanity: Financial advisors are asking a question that their customers rely on them for the answer. So what’s the point of the question?!

In our study, we then took a different approach and instead asked people: How do you want to live in retirement? Where do you want to live? What activities you want to engage in? And similar questions geared to assess the quality of life that people expected in retirement. We then took these answers and itemized them, pricing out their retirement based on the things that people said they’d want to do and have in their retirement. Using these calculations, we found that these people (who told us that they will need 75% of their salary) would actually need 135 percent of their final income to live in the way that they want to in retirement. If you think about it, this should not be very surprising: If you add 8 hours (or more) of free time to someone’s day, they will probably not want to spend this extra time by going for long walks on the beach and watching TV — instead they may want to engage in activities that cost money.

You can see why I’m confused about the one-percent-of-assets-under-management business model: Why pay someone to create a portfolio that’s 60 percent too low in its estimation?

And 60% is if you get the risk calculation right. But it turns out the second question is equally problematic. To show this, we also asked people to tell us how much risk they were willing to take with their money, on a ten-point scale. For some people we gave a scale that ranges from 100% in cash on the low end of the risk scale and 85% in stocks and 15% in bonds on the high end of the risk scale. For other people we gave a scale that ranges from 100% in bonds on the low end of the risk scale and buying only derivatives on the high end of the risk scale. And what did we find? People basically looked at the scale and said to themselves “I am a slightly above the mean risk-taker, so let me mark the scale at 6 or 7.” Or they said to themselves “I am a slightly below the mean risk-taker, so let me mark the scale at 4 or 5.” In essence, people have no idea what their risk attitude is, and if they are given different types of scales they end up reporting their risk attitude to be very different.

September 4, 2011

UK “will lose 2 to 3 per cent GDP a year for around 20 years” on renewable energy subsidies

A report in The Register says that the subsidies for green renewable energy will be a big net drain on the national economy:

The UK’s headlong rush into renewable energy — one ignored by the rest of the world — will hit British jobs and then general incomes, an economic study finds.

The report, The Myth of Green Jobs by economist Professor Gordon Hughes of Edinburgh University, examines the long-term impacts of subsidising expensive “green” renewable energy projects. It says that if the UK continues to do so, it will lose 2 to 3 per cent GDP a year for around 20 years. If reducing CO2 emissions is your goal, says Hughes, your economy really can’t afford renewable energy.

[. . .]

“All forms of green energy tend to be substantially more expensive than conventional energy, so there is a trade-off between higher costs and lower emissions,” writes Hughes. “This trade-off is not specific to green energy, since there are many ways of reducing emissions of greenhouse gases. Hence, the starting point of any assessment of such programmes should be the total cost per tonne of carbon dioxide saved — or its equivalent — which will be incurred by relying upon different measures or policies to reduce emissions.”

California is apparently not in deep enough trouble

Filed under: Bureaucracy, Economics, Government, USA — Tags: , , — Nicholas @ 10:44

Otherwise, there’s no explanation for yet another extension of the state’s regulatory reach into the lives of everyday citizens. The most recent example is a bill that (at least on first look) appears to mandate workers’ compensation coverage, detailed pay slips (with all deductions clearly indicated), and paid vacation time for babysitters. Coyote Blog would like to see even more of this kind of thing:

I know this is exactly the kind of thing you would expect me to oppose, but I have decided this is exactly the kind of thing California needs. I am tired of average citizens passing crazy requirements on business without any concept of the costs and injustices they are proposing, and then scratch their head later wonder why job creation is stagnant.
I want to propose that California do MORE in this same vein. Here are some suggestions:

  • Every household will have to register for a license to conduct any type of commerce, a license to occupy their house, and a license to hire any employees. Homeowner will as a minimum have to register to withhold income taxes, pay social security taxes, pay unemployment insurance, pay disability insurance, and pay workers comp insurance.
  • Households should have to file a 1099 for every payment they make to contractors
  • All requirements of Obamacare must be followed for any household labor, including payment of penalties for even part-time labor for which the homeowner does not provide medical insurance
  • No alcohol may be purchased by any individual without first applying for and receiving a state liquor license
  • No cigarettes may be purchased by any individual without first applying for and receiving a state cigarette license
  • No over the counter drugs may be purchased by any individual without first applying for and receiving a state over the counter drug license

And the list goes on. But they’re not just being randomly generated: they’re all things that ordinary businesses in California already have to do.

September 3, 2011

Surge in “escort” ads in cities hosting political conventions

Filed under: Economics, Media, Politics, USA — Tags: — Nicholas @ 10:46

It should be no surprise that the cities hosting the Democratic or Republican party conventions have a brief spike of activity in certain businesses:

The sex workers of Tampa, Florida, and Charlotte, North Carolina, can get ready for a spike in business at the end of next summer: the Republican and Democratic National Conventions, respectively, are coming to town. In the last electoral cycle, the political jamborees were held in Denver and Minneapolis — and there seems to have been a coincidental surge in the local market for sex.

The economists Scott Cunningham and Todd Kendall discovered this by examining advertisements in the “adult services” section on Craigslist, the online ad service. (Craigslist has since closed down this section.)

Using postings in Seattle and Philadelphia as a control group — these cities did not have almost 50,000 visitors descending on them for a few days — the economists estimated that advertisements selling sexual services increased by 29-44 per cent in Minneapolis during the Republican visit and 47-77 per cent in Denver when the Democrats arrived. I’m not going to make jokes about oversexed politicians, largely because the majority of visitors appear to have been journalists.

An even more amusing letter was posted to The Economist on the same general topic:

SIR – You note that call girls are being drawn from far and wide to service America’s political conventions (“On the trail”, July 3rd). While standing in line to register for an American Economic Association annual meeting some years ago, I overheard someone remark that the prostitutes of New Orleans look forward to the arrival of economists in town. While glancing at my colleagues in their ill-fitting suits and dragging cardboard suitcases, I heard the following clarification: “It’s their opportunity to take a week off.”
Robin Watson
Berlin

September 2, 2011

US flood insurance is “a veritable bucket of fail”

Filed under: Economics, Government, Politics, USA — Tags: , , , , , — Nicholas @ 12:12

Felix Salmon on the state of US flood insurance:

Ben Berkowitz has a big report on the the National Flood Insurance Program — something which is a veritable bucket of fail. In a nutshell, it undercuts private insurers and therefore is the only game in town; it insures only a small minority of homeowners; and it loses gobs of money. In September 2005, the NFIP was $1.5 billion in hock to the federal government; that number has now ballooned to $21 billion, and is certain to rise further.

There’s a simple answer to all these problems: let the NFIP raise its rates. And I don’t understand why it’s not being allowed to do so. If the rates rose, then that might allow private insurers into the flood-insurance game, giving consumers a choice and helping to get the word out about how insuring your home against flood damage is a really good idea. The NFIP could become profitable, and thereby start paying back all the money it owes. And while homeowners are quite price sensitive when it comes to flood insurance, the fact is that so few homeowners take out flood insurance right now that the number would be unlikely to fall dramatically if rates went up to a reasonable level.

Doubts about Britain’s next proposed high speed rail line

Filed under: Britain, Economics, Environment, Technology — Tags: , , — Nicholas @ 08:12

The Economist is usually pretty gung-ho about high speed rail development in general, so this article expressing some serious doubts is noteworthy:

Earlier this year the coalition government announced details of a £32 billion ($52 billion) super-fast railway line from London to Manchester and Leeds via Birmingham (see map). Philip Hammond, the transport secretary, claims it will be a “fast track” to prosperity. If the project goes ahead—and there is still, just, time to reconsider—the final route, and Stoke’s transport fate, will not be decided until 2012 at the earliest. The first trains won’t reach Birmingham until 2026, and Leeds and Manchester until 2032-3.

There are practical reasons to favour a new north-south line. Good infrastructure lasts a long time: Britain is still enjoying the fruits of Victorian railway investment. At some point in the next 20 years the existing west-coast main line will face a capacity crunch. Upgrading lines is disruptive and expensive, so constructing a new one appears sensible. The vision of a futuristic train scything across Britain at 250mph (400kph) is appealing.

But although the plan has cross-party support, the British public is not entirely convinced. Objections have so far focused on two concerns. First, the environmental damage, particularly to the Chilterns, an area of “outstanding natural beauty” and home to many well-off voters. Second, the business case for the line: the projected doubling of long-distance rail use by 2043 seems ambitious.

Time perspectives

Filed under: Economics, Education, Media, Technology — Tags: , , , — Nicholas @ 00:06

H/T to Chris Myrick for the link.

September 1, 2011

Toronto’s HOV lanes should become toll lanes

Filed under: Cancon, Economics — Tags: , , — Nicholas @ 12:24

Like everyone else, I hate paying tolls, but my time is worth more than the toll to use the faster route. The C.D. Howe Institute is proposing converting the existing (and additional planned) high occupancy lanes on highways to toll lanes:

Car-pool lanes on Canadian highways should be converted to high-occupancy toll lanes to reduce congestion and generate revenue for municipalities, says a C.D. Howe Institute report released Wednesday.

High-occupancy toll lanes differ from high-occupancy vehicle lanes by allowing solo drivers to use them, but at a cost. The lanes require that individual drivers pay to use them, but vehicles carrying more than one passenger can drive on them for free.

“When you have bad congestion, the only way to maximize capacity of the highway is to restrict and manage access,” said Ben Dachis, author of the report. “You do that by charging people for that access.”

My commute into Toronto is pretty much at road speed until I get off the 407 ETR (a toll road) and get on the southbound 404 (a non-toll road with an HOV lane in each direction). That’s about the halfway point of my journey, but I’ll spend 75% of my travel time on the second half of my commute. The HOV lane is rarely full to capacity, and there are always “cheaters” who use the lane even though they’re alone in their vehicles (you can tell because they dart back into the regular lanes at the first hint of a police cruiser ahead).

In my own case, converting the HOV lanes on the 404 to toll would only save me 10-15 minutes, as the Don Valley Parkway does not have HOV lanes, but saving 20-25 minutes per commute would be quite worthwhile for me.

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