Tuesday, June 30, 2009

Giant Pool of Money

Finally got around to listening Giant Pool of Money last month which I found very entertaining but left unexplained was the origin of the giant pool of money. In some sense this giant pool of money subscribes to the global savings glut hypothesis. Menzie Chinn argues that this hypothesis should be put to rest and that it was mostly a mirage of the data. Macro & Other Market Musings expands on this.

If there was no global savings glut then where did this giant pool of money come from? Perhaps the global savings glut is no different then assertions that the world is awashed in liquidity and that money was sloshing around the globe pre-crisis. There is still much that I don't understand about this.

Manipulative economists

Source: Author’s manipulation of data from Amiti and Wei (2005), originally from IMF sources on trade in services.

Richard Baldwin's rebuttal of Alan Blinder's assertion that 30 million to 40 million jobs are potentially offshorable was striking not for the claims but the label of the graph (emphasis mine).

Perhaps rephrasing this as recomputation of data versus manipulation would be better.

Chipped credit cards

Visa and Mastercard are not quite accepted everywhere - while in Penang, shopping at the Tesco I had my Visa card refused because the card issued by a U.S. bank was not chipped. Chipped cards require a PIN for the transaction while unchipped cards require managerial pre-approval which can be a tedious process especially when the checkout lines are long. Canada, Europe and Asia have embraced chipped credit cards. It appears that U.S. is the only large country that has decided to lag behind and stay with 20th century technology.

Things I remember doing

While in Penang I was doing things that I used to do that I have not done recently:
1. Padlocking the gate in addition to locking it
2. Drinking Kickapoo

Upscale hawker food in Penang

The Starbucks phenomenon in Penang/Malaysia seems to have spawned the creation of "upscale hawker" food. These are restaurants that serve hawker food at 2-3x the hawker price albeit at a more upscale ambience - some of them even with WiFi which I discovered at the e-Gate plaza.

These establishments offered coffee at half the price of Starbucks although WiFi connectivity wasn't all that fast nor was it always possible to connect. Of the places that I tried, Noodle Station and Starbucks worked with my laptop but not Hongkie Kopitiam.

Internet access in Penang

I was too jet lagged to do anything the first five days when we were in Penang but the next time I visit I will have to try to get Internet access. The WiFi at the place we were at did not work.

There are two ways to do this:
1. Subscription with a broadband company. There are at least 3 that I looked into:
a. P1
b. DiGi
c. Celcom
The first two required a contract for 2 years so those were out. Celcom was offering month to month Internet for RM$68 (384Kps) or RM$98 (3.2 Mps, I think). I would also have to shell out between RM$160-RM$200 for a USB modem.

2. Going to Starbucks but at RM$12.00 for a cup of coffee per visit and if I were to visit 10 times I may as well start paying for Internet access. There are cheaper alternatives to Starbucks and those may be good options which I will blog about next under upscale hawker food. Visiting these places are cheaper assuming that all I have is coffee and under some circumstances it would even be pleasant but with 2 picky eaters going to any of these places was trying at best.

Visiting Penang

We stayed for 10 days at a condominium found via VRBO. For the most part the stay was good.

1. Right next door to Tesco which also has a McDonalds and Pizza Hut as well as a food court among other shops inside.
2. Close to my mom's condo.
3. Great pool and not very crowded except on weekends.
4. Plenty of restaurants across the street at the e-Gate plaza: Secret Recipe, Old Town, Tao's (a Japanese restaurant), Noodle Station, Subway, a pasta and pizza place, a Vietnamese place and perhaps one or two others that I can't remember. We only ate at Old Town which serves hawker food at "upscale" prices. Starbucks is also there.

1. WiFi in the pool area did not work for us. We had two laptops and neither one would connect.
2. Traffic noise was loud because the building and condo was right in front of the highway.
3. Not enough pots for cooking - a toaster oven would also be nice as well as more than one trash can.
4. Having a washing machine was nice but there was no facility for drying e.g. rods to hang our wash.
5. The condo also seemed to get dirty very quickly and we vacuumed every day and mopped every other day. We had to get our own vacuum cleaner and mop so it would have been nice if these were also provided.
6. Meeting the "neighbors" and presenting ourselves to the security guards was awkward since we weren't really residents.
7. The intercom system was not activated which made it inconvenient for visitors.

In the end I'm not sure if I'd stay here again mainly because of lack of WiFi and the lack of intercom. (I'd like to minimize the interactions with the security only because they don't seem too pleased to let people in and out and we had only two fob access cards.) But the convenience of Tesco, the nice pool and being near my mom's place may trump everything in the end.

Maybe other alternatives will come up when we make our next trip home.

Monday, June 29, 2009

Flying Air Asia

For those in the U.S. griping about charges for baggage, Air Asia a low cost carrier brings a la carte pricing to the extreme. Charges for:
1. Airline tickets
2. Baggage (depending on weight)
3. Advance seating
4. Adminstrative charges

Even though the tickets from Bangkok to Penang were about US$40 per person, all the charges eventually doubled the price of the tickets.

Have been away

Have been away the past few weeks visiting Penang and Bangkok. Left Dulles June 13 and arrived in Bangkok at 11:30 pm on June 15 where we spent two quiet nights at the Pantip Court (www.pantipcourt.com). As expected, we were extremely jet lagged waking up at 3am. Breakfast here was not too bad and was included in the price of our 2-bedroom apartment. The apartment itself was spacious and equipped with necessities (thought we noticed it did not have a DVD player which would not serve well with a longer stay). Internet access was also free. On the afternoon of June 17 we left for Penang on an Air Asia flight.

Wednesday, June 3, 2009

Turning Ford around?

In a Fortune article on Alan Mulally the CEO of Ford, the strategy seems to be to go with shared platforms to reduce costs. And then there is this [emphasis mine]:

The story of how Mulally revived Ford's best-known sedan is a quintessential demonstration of the Mulally method - analyzing a situation using accepted facts and then winning over support through persistence. Here's the story, told by Mulally:

"I arrive here, and the first day I say, 'Let's go look at the product lineup.' And they lay it out, and I said, 'Where's the Taurus?' They said, 'Well, we killed it.' I said, 'What do you mean, you killed it?' 'Well, we made a couple that looked like a football. They didn't sell very well, so we stopped it.' 'You stopped the Taurus?' I said. 'How many billions of dollars does it cost to build brand loyalty around a name?' 'Well, we thought it was so damaged that we named it the Five Hundred.' I said, 'Well, you've got until tomorrow to find a vehicle to put the Taurus name on because that's why I'm here. Then you have two years to make the coolest vehicle that you can possibly make.'?"

It just sounds like a very confused way to remarket the Taurus. Why not just wait until the new model is ready?

Our experiment with Roomba

My sister wanted a Roomba so we got one for her but before giving it to her I decided to try it out. It works a lot better than I thought in that it picks up a lot more dirt than I can see in the basement which is carpeted. Unfortunately, it is a small area and it seems like it would be a lot more efficient if I just ran the vacuum cleaner for a few minutes versus waiting about an hour for Roomba to traverse the entire area. It may be more thorough than I am in cleaning but ... unless it is a large area which needs to be frequently cleaned it just seems very inefficient.

Is healthcare part of compensation?

As reiterated by Mankiw:

A common argument, often made by ostensibly sophisticated commentators, is that the United States needs to reform its health care system to maintain its international competitiveness. Regardless of your views of health care reform, this particular argument is, to put it bluntly, nonsense. Long ago, Paul Krugman wrote a nice piece demolishing the whole concept of international competitiveness as a motive for national economic policy. More recently, the Congressional Budget Office has done a nice job explaining why the idea of international competitiveness as a reason for health care reform is fallacious. The passage below, from page 167 of the CBO analysis, is written in the CBO's traditional understated way, but the point is clear:

Some observers have asserted that domestic producers that provide health insurance to their workers face higher costs for compensation than competitors based in countries where insurance is not employment based and that fundamental changes to the health insurance system could reduce or eliminate that disadvantage. However, such a cost reduction is unlikely to occur, except in the short run.

The equilibrium level of overall compensation in the economy is determined by the supply of and the demand for labor. Fringe benefits (such as health insurance) are just part of that compensation. Consequently, the costs of fringe benefits are borne by workers largely in the form of lower cash wages than they would receive if no such benefits were provided by their employer.

Replacing employment-based health care with a government-run system could reduce employers’ payments for their workers’ insurance, but the amount that they would have to pay in overall compensation would remain essentially unchanged. Even though changes to the health care system could have various effects on the supply of labor, the underlying amount of labor supplied at any given level of compensation would hardly beaffected by a change in the health care system. As a result, cash wages and other forms of compensation would have to rise by roughly the amount of the reduction in health benefits for firms to be able to attract the same number and types of workers.

But what if the worker does not know the value of the health insurance package? When I receive job offers, the only real number I pay attention to is gross wages. Health insurance is something I expect to be provided and the value of the package to me is unknown. Enrollment in Kaiser costs me nothing and then the contribution for health insurance increases if I opt for PPO or a plan that offers more choices. But the true cost itself is not known.

What if I tried to enroll myself in health insurance? Kaiser's individual rates are around $500 per month but it costs employers less than that since there is some pooling of risks. Do I include the $500 in my evaluation of a job offer? No.

What should employers do? They should explicitly state this in job offers. What is the implication of workers not knowing the cost of health insurance but expecting it as a right? If a firm makes an offer, it has to be higher to offset the cost of purchasing individual health insurance. But as noted earlier, there are some gains to pooling health risks. Government can play a role by providing partial risk pooling that an individual cannot give to a HMO or PPO.

The mechanics would be something as follows:
1. Firm makes an offer without health insurance plus an offset for the worker to participate in government health insurance.
2. The government pays part of the premium and the individual pays part of the premium equal to the offset from the firm. (This does not exclude the role of private insurers since the government can contract with them as well.)
3. What if the worker opts out and chooses to take the money? Under this scheme it would be disallowed. The worker has to participate just as I participate at minimum with Kaiser. If I opt for more choices then some allowance can be given and I would contribute a portion of my salary greater than the offset.

What's wrong with this argument? It points out that the fallacy is perhaps not so fallacious after all. True, firm costs do not fall if the monetary offset provided equals the insurance that the individual can buy in the market. But what if pooling of risks along with some bargaining power can achieve some reduction in insurance costs?