To be rational to use reason. To be heartless is to lack compassion or morals/ethics, something like a sociopath.
EconLog have a good article on this very subject.
This is more of a philosophical question. Is being rational, using the facility of reason or your mind mean you lack compassion?
That is the real kicker, Adam Smith nailed this centuries ago. You can be completely self directed in your production and consumption and people still benefit more, than if you allowed someone else to determine or direct your actions. The invisible hand!!
This is the difference between a free, bottom-up market (capitalism) and a directed top-down market (statist = socialism, communist, nazism, rabid environmentism).
I suggest reading some Julian L Simon (Ultimate Resource) or Ayn Rand, or even "7 effective habits". The human mind is the powerhouse, the fount of capitalism.
As my older brother used to say when we were whining and complaining, "Get a grip (with reality)" i.e. no amount of whining and complaining is going to change your situation. You have to think and act.
Have Fun
Thursday, August 25, 2005
Wednesday, August 17, 2005
Economic illiteracy - 1
Is this bordering on a political opinion piece... maybe
Here is a quote the maiden speech from a certain new Aussie senator.
"The purpose of the economy is not to produce the lowest price product for the end consumer. That may be a consequence of a good economy but it is not the purpose. The purpose of the economy is to create the greater nexus between the wealth of the nation and its people, and it generally does this through small business."
Drop the NOT and that is THE purpose of an free market/capitalist economy.
"The purpose of the (free market/capitalist) economy is to produce the lowest price product for the end consumer."
The senator's belief is that the economy exists to increase the connections (greater nexus) between the wealth of the nation and its people. It portrays the wealth as being static, and does not mention how this wealth is created. If you believe wealth is static, redistribution of that said wealth is just around the corner.
Why build a mine, run a farm or business if it is not to offer (produce) the most product at the cheapest price to every other producer/consumer.
This more product at a cheaper price is the driver, the purpose of the economy which creates the wealth the senator speaks connecting to everyone.
Every producer will want to connect to as many consumers as possible, and every consumer wants to connect to as many producers (of the same product) as possible. Anything which gets in the way means the market is less free than it could be.
If the senator wants more connectivity between producers and consumers, get rid of excessive government regulation and subsidies.
The senator needs to read some real economics. Bastiat is a good start.
The other underlining issue for the senator is the lack of investment and migration to regional areas. He is trying to answer and provide solutions to the question: why do people move and live in the city?
The answer is labour specialisation. In a city you can become more specialised at what you do, making yourself more productive and earn higher wages to boot.
Regional areas due to lower populations don't allow specialisation to occur to the same degree. This is why there are few if any brain surgeons and DBAs in regional areas.
Have Fun
Here is a quote the maiden speech from a certain new Aussie senator.
"The purpose of the economy is not to produce the lowest price product for the end consumer. That may be a consequence of a good economy but it is not the purpose. The purpose of the economy is to create the greater nexus between the wealth of the nation and its people, and it generally does this through small business."
Drop the NOT and that is THE purpose of an free market/capitalist economy.
"The purpose of the (free market/capitalist) economy is to produce the lowest price product for the end consumer."
The senator's belief is that the economy exists to increase the connections (greater nexus) between the wealth of the nation and its people. It portrays the wealth as being static, and does not mention how this wealth is created. If you believe wealth is static, redistribution of that said wealth is just around the corner.
Why build a mine, run a farm or business if it is not to offer (produce) the most product at the cheapest price to every other producer/consumer.
This more product at a cheaper price is the driver, the purpose of the economy which creates the wealth the senator speaks connecting to everyone.
Every producer will want to connect to as many consumers as possible, and every consumer wants to connect to as many producers (of the same product) as possible. Anything which gets in the way means the market is less free than it could be.
If the senator wants more connectivity between producers and consumers, get rid of excessive government regulation and subsidies.
The senator needs to read some real economics. Bastiat is a good start.
The other underlining issue for the senator is the lack of investment and migration to regional areas. He is trying to answer and provide solutions to the question: why do people move and live in the city?
The answer is labour specialisation. In a city you can become more specialised at what you do, making yourself more productive and earn higher wages to boot.
Regional areas due to lower populations don't allow specialisation to occur to the same degree. This is why there are few if any brain surgeons and DBAs in regional areas.
Have Fun
Tuesday, August 16, 2005
Articles on CAPM model
This blog has a entry to some essays written by Arnold Kling about the Capital Asset Pricing Model (CAPM) developed by Fischer Black.
It is worth reading all the essays. They are easy to find by using the articles by the same author link on the left side of the techcentral station website.
It gave me a couple of ideas on how to get the most diversified portfolio. Basically you want to hold stocks which have a very low correlation with each other (or covariance). I had a quick google for ASX share betas and didn't find much. Most stock betas relate the stock's correlation to the market. In a way that is bad, considering that some indexes are weighted and therefore the correlation is actually a correlation to the those (more heavily weighted) stocks.
On the ASX there are plenty of indexes available and even some exchange tradable funds which are index funds.
So is holding a index fund the most diversified portfolio available to an Australian based investor?
If there exists a most diversified portfolio, how was it's performance against the index over the last 2,5 and 10 years?
To be competitive with an index fund, the portfolio will need to minimize the number of rebalancing actions required to reduce the overall transaction cost.
The other interesting idea from the CAPM is that individual investors control their risk exposure. One example was taking a low risk stock and using margin (debt) to leverage into a higher risk.
Have Fun
It is worth reading all the essays. They are easy to find by using the articles by the same author link on the left side of the techcentral station website.
It gave me a couple of ideas on how to get the most diversified portfolio. Basically you want to hold stocks which have a very low correlation with each other (or covariance). I had a quick google for ASX share betas and didn't find much. Most stock betas relate the stock's correlation to the market. In a way that is bad, considering that some indexes are weighted and therefore the correlation is actually a correlation to the those (more heavily weighted) stocks.
On the ASX there are plenty of indexes available and even some exchange tradable funds which are index funds.
So is holding a index fund the most diversified portfolio available to an Australian based investor?
If there exists a most diversified portfolio, how was it's performance against the index over the last 2,5 and 10 years?
To be competitive with an index fund, the portfolio will need to minimize the number of rebalancing actions required to reduce the overall transaction cost.
The other interesting idea from the CAPM is that individual investors control their risk exposure. One example was taking a low risk stock and using margin (debt) to leverage into a higher risk.
Have Fun
Tuesday, August 02, 2005
Australian trading partners
I still can not believe the lack of research in some of the opinion pieces in the newspaper. China is not our biggest trading partner.
Here are the facts (from the ABS May 2005 Trade figures) and this release from ABS from 2004
Trading partners (AUS$) overall
#1 US -$10.9 Billion
#2 Japan +$6.7 Billion
#3 Germany -$6.7 Billion
#4 China -$6.6 Billion
#5 South Korea +$4.3 Billion
Go and read these publications, they are free and they will set the record straight. The most interesting facts are what each of these countries trades with Australia. Most of the trade from the US and Germany (and France) is capital goods.
How many years of cultural cringe have we had to put up with when Australia is called a commodity economy, somehow implying with a certain smugness the backward nature of our gold plated BBQ economy (Meat,Bread (wheat), gold, iron and coal/coke).
It is our comparative advantage!
The other interesting fact is the growth of India and China and the massive trade we do with our New Zealand friends. Given the potential size of both India and China compared to NZ the trade potential is enormous.
Have Fun
Here are the facts (from the ABS May 2005 Trade figures) and this release from ABS from 2004
Trading partners (AUS$) overall
#1 US -$10.9 Billion
#2 Japan +$6.7 Billion
#3 Germany -$6.7 Billion
#4 China -$6.6 Billion
#5 South Korea +$4.3 Billion
Go and read these publications, they are free and they will set the record straight. The most interesting facts are what each of these countries trades with Australia. Most of the trade from the US and Germany (and France) is capital goods.
How many years of cultural cringe have we had to put up with when Australia is called a commodity economy, somehow implying with a certain smugness the backward nature of our gold plated BBQ economy (Meat,Bread (wheat), gold, iron and coal/coke).
It is our comparative advantage!
The other interesting fact is the growth of India and China and the massive trade we do with our New Zealand friends. Given the potential size of both India and China compared to NZ the trade potential is enormous.
Have Fun
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