Wednesday, December 27, 2006

Be Happy

Here are few resolutions for the new year. I took liberty to borrow economic terms and put them to personal use:

Sustainable growth: aim to grow everyday. Expand your horizon. Learn something new.

Low inflation: in economic terms low inflation is one of the pillars to stable economic system. To achieve low inflation monetary discipline is required. On a personal level discipline is required to achieve one's objectives' in life. Making new year's resolutions is easy; sticking to them is the hard part and this requires discipline.

Low unemployment: stay productive. Be creative. Be passionate about what you do, and if you don't think you are.. well at least act like it. Attitude takes you a long way!

Diversify: try something new. Make new friends. Read a book you wouldn't usually read. You never know what you might find!

Be happy: isn't this what its all about? Or is it? It is noted that despite the world economy making headway towards prosperity in modern time, individual happiness have not budged according to surveys (where else.. The Economist, 23rd December 2006). World economy has grown at an annual rate of 3.2% per head since 2000 which is half way towards best decade ever in terms of growth. But happiness as measured by national surveys has not changed much over 50 years (same source).

Economic progress while elevating countries and the world overall to better standards of living, is no guarantee of higher individual level of happiness. It is once asked would you rather be a happy pig or a sad Socrates? Well the evidence is showing that pigs are not becoming any happier as they grow fatter!

So if economic progress and individual prosperity are not the key to happiness, what is? Perhaps a value system that channels progress and prosperity in a meaningful direction. Find out what this value system for you is and stick to it.. And remember to let others find out for their own.

Friday, December 22, 2006

Fixed or Relative?

Should the US worry more about China's current account surplus or that of the oil producing Gulf countries (GCC)? Let the US worry about what it wants. But it seems the US is more worried about China as evidenced by the US's secretary of treasury Henry Paulson's visit to China lately. The Economist magazine in its December 9th, 2006 issue had a differing opinion-by the way The Economist does not like to call itself a magazine its too demeaning, rather it calls itself a newspaper or news publication.

The Economist argued that the US should be more worried about the surpluses of the GCC countries. See the counterpart to the surplus is America's huge deficit which it is actively trying to reduce. While China's surplus is estimated at $200 billion, the oil-exporting countries are expected to run total current account surplus of $500 billion this year according to The Economist.

The main culprit of this surplus is the undervalued Chinese currency, in America's view. The undervalued currency encourages imports from China and restricts exports to it. While the US has succeeded in making China push up its currency lately, GCC countries still peg their currency to the dollar. This resulted in GCC currencies being undervalued while oil prices are soaring!

The article concluded that it is best for GCC countries as well as the world if the dollar peg was abandoned and instead shifted to currency basket.

The moral question for the day is: should our values be fixed or relative? Should they be fixed according to religion or some sort of moral code or change according to circumstances? It seems the argument in economics runs against fixed. I don't have the answer to that. But you can worry about what you want. In the end you are probably worrying about the wrong thing!

Tuesday, December 19, 2006

Economics of Forgiveness

Can you believe the scene in Kuwait's parliament over the issue of loans?! What a mess! Well the issue at hand is the proposal, more like demand, for government to forgive loans taken out by consumers. If you're out of town dropping in please excuse the lack of logic! Such is the country we live in and its unfortunate that some members of parliament are the ones making such demands.

One would think there is a crisis in consumer loans repayment to instigate such demands. But no. It is documented that default rate does not exceed 2.1% which is no crisis by any measure. So what is the fuss all about?! What good will come out of the government paying down consumer loans in excess of 4 billion KD ($14 billion)? Short term interests of member of parliament and consumers alike at the expense of the long term interest of the country and the future of its citizens.

According to Kuwait Central Bank report such measure would cause a number of severe negative economic impacts. One such impact is a hike in inflation. Another is encouraging consumerism. Fairness is another issue especially for those who did not borrow. Today we are blessed with healthy oil revenue, but this is no excuse for depleting the wealth that should be shared with future generations.

Finally a philosophical note. If forgiveness is a positive trait in a moral sense -that's what all religions teach right?- why would it be so bad in this economic sense? Think about what forgiveness leads to in both cases. In a moral sense when you forgive someone -who has wronged you- in essence you release yourself from retaliation. You set yourself free in a way. You become independent -you are no longer dependent on certain behavior or action to take place. But in an economic sense the exact opposite is happening. Forgiveness -as also witnessed in some communists systems where the country is the sole provider- leads to dependence. Dependence on the system to correct your mistakes and pick up the pieces you dropped. See forgiveness in a moral sense leads to independence and personal growth, while in economic sense it only breeds dependence and stagnation. Those are my two cents for the day!