Nothng breaks my heart more than seeing a cop hassle a motorcycle taxi driver.
It's like watching a someone snatch bread from a beggar's hands and then perhaps give him a solid bash to the head.
I saw this happen yesterday, in front of KFC. The cop had the driver by the collar, and was giving him the stern, CCP educator lecture. The driver had tears streaming down his face.
Now, as I understand it, Chinese culture works like this. You are supposed to endure hardships and persecution. You gain face from not complaining and not crying. I've never seen a Chinese man cry.
Most of these guys, like most of China, operate without licenses. They make a pitiful 2 kuai per ride. That is, unless they can find a passenger that can endure a long bumpy ride or a gullible foreigner.
Now the biggest expense that most Chinese guys of working age have is the kid's education. I'm not talking about college either. Elementary school can be quite the financial burden.
So you can expect that this guy was thinking, how the cao is my kid going to go to school if this bastard fines me, demands a bribe or (the worst) confiscates my cycle.
Economists are frequently berated for focusing on market distortions and flawed policies in the third world when there are plenty floating around the first world. But a quick look at the cyclists face will tell you why these things are worse in the third world than the first. That guy has absolutely nowhere to go. There are no easy to get supplementary jobs, even with the currently overheated Chinese economy. A man making two kuai per ride minus cost does not have an attractive plan B.
Andy Mukherjee finds that the Bush administration has manage to increase exports to China in one area: policy incoherence. China has announced it will be seeking exchange rate flexibility AND convertability.
To be clear: convertability means that it will become legal and easy to exchange Yuan into dollars. Exchange rate flexibility in this case means that the Yuan/Dollar exchange rate will be allowed to fluctuate more, that it will be more determined by the market.
If China were just going to float the Yuan and let the market totally determine the exchange rate, then this would make sense. The major motive for adopting capital controls (i.e. abandoning convertability) is that you can have a fixed exchange rate and a monetary policy under the government's control.
This is because of one of the great "you can not have what you want" truths. You can not have free exchange of currencies, an independant monetary policy and a fixed exchange rate.
China, however does not want a total float. They want the currency to move up and down in a preselected band. If they make the Yuan convertable, this will be harder to do without fucking up monetary policy.
What about the Bush administration? Well, who knows why the Chinese government does what it does? I won't pretend that I know, in fact I use that question to answer an awful lot of questions about China, such as, "why is the square so shiny while the streets and sidewalks are full of rubble?"
Still even if we don't know why this decision was made we do know that this is what the U.S. Treasury wanted. Mukherjee lays it out thus:
If that looks like an attempt to link two moves that don't need to be bundled together, consider statements by those who're pushing China to change its currency regime. Even they have made confusing demands. Donald Evans, until recently the U.S. commerce secretary, said in June that for China to qualify as a market economy, the yuan ``needs to be convertible, not revalued.''According to Evans, ``the lack of free flow of capital leads to an un-level playing field.''
That view seems to clash with what U.S. Treasury Secretary John Snow has been saying all along. Last month Snow said that the Bush administration is engaged in ``tough-minded diplomacy'' with the Chinese to ``achieve the desired result which is a flexible currency.''
Pressure was applied and the decision was made. The evidence is circumstancial but significant.
In economics we play a game. The name of the game changes but the rules are the same: pretend people are waaaay the fuck more rational than they actually are.
It's important to remember that this is a game. It is an assumption for building interesting and tractable models, not something economists actually believe. Everyone who's thought about it for a half a second realizes all models are idealizations and there should always be a comfortable layer of irony insulating a researcher from his model. The number of silly pop-science articles would be cut in half if this realization seeped into the minds of the literate public.
This however does not excuse us from trying to develop models that are closer to homo sapiens sapiens than homo economicus. The study of the varieties of rationality and irrationality in economics has been called bounded rationality. I have never been pleased with bounded rationality. The nice thing about the old rationality models was that there was usually an easily agreed upon most likely choice for your rational actor. It was amongst other things a way to keep researchers honest. Not so with bounded rationality. There are many actually existing types of bounded rationality and many more ways to theorize about the ways we are bounded. There are many programs with inconclusive evidence for and against.
This disturbing pluralism removes the guards against an economist gerrymandering his theory to get the result he wants.
While I welcome the introduction of cognitive psychology into the domain of economics, trying to solve the problems of economics by importing the problems of cognitive psychology was, well, depressing. It's like trying to solve traditional sociology problems by using anthropology, i.e. trading in one set of problematic institutions for another. No disrespect to either of those fields, which are wonderful storehouses for knowledge of the varieties of human belief and behavior. But I doubt one would describe the theories of one as more accurate than the theories of the other. The same goes for economics and psychology.
But now I am heartened. As reported in The Economist, neuroeconomics is starting to poke its beak through the shell. If this all works out it is quite a deal. Not only do we possibly get a more accurate reading of human behavior, we get some nifty underlying principles AND some very sound seeming empirical methodologies that may keep researchers honest.
For any one who has ever looked at a game theory puzzle and just despaired at the gap between what's on the paper and what a human would actually do, this is an exciting time.
Brad Setser's weblog is a must read for anyone trying to understand the precarious situation of exchange rates right now. He is especially good on the U.S. - China exchange rate, which is of paramount importance to lao wei like myself.
I particularly recommend his reading of China's unsolicited financial advice to the American government. . This happened a couple weeks ago. The Chinese equivalent of the treasury department, under pressure to revalue the Yuan from the U.S. treasury and Bretton Woods institutions, got to lecture the Bush administration on fiscal prudence.
It was a fun bit of schadenfruede for just about everyone in the world who isn't part of the Bush treasury department. It also contained some bits of spacey nonreality - the sort of beliefs one prays that top officials don't have. Setser's post is a useful reminder to those carried away by schadenfreude.
China has some very good reasons to want to move the exchange rate, independent of whether the Bush administration wants it. Remember -just because a Bush staffer says it, doesn't mean it's wrong. Still, no one likes to be bullied, least not the Chinese government. It's worse when the bully is right - suffer a loss of face from being pushed or make a bad decision out of petulance.
Brad DeLong flagged this washington post story story while worrying about the value of the dollar.
Taylor pointed out that the Treasury is also prodding foreign governments to achieve faster economic growth, which should increase demand for U.S. exports, and it is trying to persuade China to change its fixed-exchange rate policy by allowing its currency, the yuan, to rise. A higher yuan would be likely to slow the flood of Chinese goods into the U.S. market because those products would become more expensive for U.S. consumers.
So the IMF and the U.S Treasury department have decided that China needs flexible exchange and (probably) a stronger Yuan. China's position is less clear. They also seem to think a stronger Yuan will be needed along withreforms of state owned companies, an anti-monopoly policy and a shiny new donkey. The time frame is the only question and of course that could be a way signalling the government's unwillingness to do anything.
China Daily ran this article on the exchange rate situation. Notable mainly because it implies that China Daily had to ask the IMF what the Chinese government thought about flexible exchange rates.
It seems like the rate at which the Chinese RMB is pegged to the dollar is going to come unpegged some time in the near future. The Chinese are trying to use a monetary policy and are apparently sick of pretending to have capital controls. After those two decisions are made the government gets a third decision for free. The People's Money must float like a leaf in the pond of international finance.
The government has not put forth a timeline, as that would only aid speculators. Frustrating speculators is a chief source of amusement for governments everywhere, even when those speculators might be helping out. The government has also hinted that it certainly won't allow a "clean float" that it will intervene to assure stability. That I take for granted. Floating a currency produces constant sources of minor irritation. Governments can't help but scratch.
Now just about everybody thinks that the RMB is due to revaluate, or appreciate, versus the dollar. The government could do this or, if the currency is floated, the market will probably do the same thing.
The costs and benefits of a strong currency versus a weak currency vary from time and place. It all comes down on a seesaw between the value of an exporting job and the value of a cheaper assortment of imports. I don't have a real good grip on what importance these things are to China today. I have a sneaking suspicion that the guy making these decisions doesn't either.
I can tell you what it means to me: happy dance.
I'm a foreigner who just traded in a bunch of dollars to RMB. Over the next year I'll be earning a bunch of RMB, a good portion of which I'm planning to spend on consumer goods from the US: coffee, books and of course the happy whiskey fairies. If the RMB appreciates I benefit sure as any speculator does: I get drunk, frapped up and literate for less. Whoo-hoo.
Now this only does benefit me as long as the market doesn't get carried away. Speculators could get all stupid and throw their cash into China as if piles of rubble were going to be the next big consumer fad. They could overburden the RMB with their cash until, oh lets say, the US textiles industry starts to look competitive. Then this ripening middle class would not be able to afford to pay the exorbitant (by their standards) sums I charge to teach English to their loud, germ ridden little emperors and empresses.
So, then risk. I get risk. China gets risk.
I also happen to get some whiskey. But China might be the one that needs a drink.
Fortunately for China, Baiju (and anything else that tastes that much like liquid compost) will always be cheap. Ganbei, China! You are even more capitalist now. Just wait until you get some democracy. Then you might need to dry out the whole bottle.
Tyler Cowen has a snap review of Growing Public, that Peter Lindert book I was talking about a little while ago. Cowen takes Lindert's discomforting vision in good stride. Lindert in his own good natured way is trying to put a hefty dent in the neoliberal consensus, at least when it comes to the welfare state.
On a slightly relevant side note, I have added a furl link to the sidebar, for whenever I come accross an interesting article. If you click on the link you should get a list of articles. I think that maybe it would be possible to make the furl page a larger part of this blog. I'll look into it.
A teacher of mine from UC Davis, Peter Lindert has a new book out on the mixed blessings of European welfare states. I have not read this book yet, but true to form, it looks as though anyone looking for a clear moral about the superiority of american or european styles of welfare statecraft had best stay away.
Lindert's lectures are interesting, surprising and plausible. It is pretty amazing but he actually made economic history extremely entertaining, whether through dramatizing the debates between the Federal Reserve Banks prior to the Great Depression or through his moving summary of labor mobility's effect on the incomes of blacks in the south.
The best thing about having taken economic history from Lindert was the sheer number of things that I learned that could enrage people of about any given political persuasion. From the subject of inequality in America to the more hopeless aspects of the New Deal, there is at least one thing that would make you squirm in every class.
ps.
you really ought to read his essay on the links between democracy and growth. It is, I know, a longish pdf file but it is worthwhile and pretty unheadachey for something written by a professor.
In the intellectual kingdom, economics is situated on the border of politics. Economists have all sort of interesting things to say on a host of policy matters, from free trade to crime. Any time a policy addresses incentives, there's an economist who has something to say about it.
This lends economic debate a kind of danger that many of its practitioners find titillating. It can not be doubted that the thrill of influence is major motivator of economists especially the type that Richard Posner calls "public intellectuals." That is the kind of learned generalist that can speak to both the academic audience and the rest of us.
This danger leads to a much more exciting type of debate than is generally found in the social sciences. Even where economists are wrong, they are usually wrong about something that is important to someone. The other social sciences occasionally get this urgency, but must usually settle for the mere thrill of being right as opposed to being right and influential, which is slightly sexier.
The discipline's connectedness to policy has some predictably negative consequences. Some things seem too important to be left up to science. Not only that but despite it's fancy mathematical dress, economics is subject to the same vagaries, and problems of irreducibility that plague and bedevil debates in the other social sciences.
This gives economists a means and a motive to deform the truths of their science or to cherry pick those truths to serve a political end. More than any other type of scientist the economist must know the world of spin. There is a certain kind of permanent Lysenkoism that afflicts the field.
The saving grace is that it is actually very hard to pull off the mix of fact, theory and propaganda that is required of the economist public intellectual. Even the best ones, Keynes, Freidman, Krugman and Becker get the mixture wrong and spoil the brew every once in a while.
Even better the language that economists speak is an excellent tool not just for creating policy initiatives but for taking good, hard whacks at other policy initiatives. You do not wish to be caught with the less than optimal mix of theory, propaganda and fact. If you do there are many highly educated, eloquent people with a really excellent reason to very publicly pull down your pants, and thoroughly spank you.
The incentive to publicly say foolish things is stronger during an election year, and so is the incentive to embarrass those people, provided they belong to the opposing party. This paper purports to be a guide to the many debates and public spankings that occur on the border of policy and economics.
Homework Assignment
So I was at work . . .
I have a customer dressed in business casual. She and I start talking, I don't remember about what or how. (I dislike talking to customers, it's a flaw).
Somehow that leads to a discussion of finance. She finds out that I have a B.A. in economics but I'm still stuck with the Bucks. (No, not those bucks, I don't have many of those).
She tells me that her company might have a JOB for me. Helping poor people get their finances in order. Maybe even in the east bay where I wish to move.
Like an idiot, I get excited.
She goes to get some guy who gives me his business card. (Alarm bells! Who the hell goes recruiting at the effing mall?!)
Days later, I talk to this guy.
There is no job.
I'm not even sure there is a company. Before I hang up the phone he extracts a promise from me to attend some meeting with him and his people. I come away with the impression that this is actually a multi-level marketing scheme. Like this might be the AMWAY of banks.
I do not attend this meeting.
A few days after that this guy gets ahold of me, and tells me that he was worried about me, why I didn't attend the meeting. He adopts a motherly tone he certainly has no right to. I give him some excuse (motherly tones inspire that). In reality I was off having fun with my friends because I would rather do that than have some Willy Loman try to convince me that I need to pay him to help me with MY finances.
Bugger that. Let's see. I have $9,000 in student loans, about $2,000 in savings and about enough income that I can slowly pay these off while still making 401k contributions.
There's only one thing you do in this situation. Pay off your debts. It's like making an investment equal to the interest rate I would be paying if I didn't, but with no risk.
I may not be able to get a job with my degree but I certainly can make financial decisions with it. Especially when I have no options.
Last week I was mad about this. This week I am curious.
I agreed to meet with Mr. Loman. I'm going to let him pitch me, and then report back as to whether his company really is a pyramid scheme. If so, I will print his company's name, and give it a nice slander.
Everything You Know is Wrong
I once had a philosophy teacher in junior college. He was, the wrongest man I've ever met.
You've met these people before. Frequently they are smart, but something inside them causes them to diverge sharply and turn 180 degrees from everything you believe.
Now personally with me there are a lot of ways to be completely different from me. I have two uncles who disagree with me on every issue and also with each other. I am a contrarian. I think the only thing I'm really good at is disagreeing with people.
This college instructor pretty much thought that history had this little dividing line. On one side was Plato, Socrates, John Locke, The founding Fathers, Some Scientists, Environmentalists and Socialists; on the other side were the sophists, and what they turned into: politicians and PR men, and big nasty plutocrats that employed them. The first group were the jeremiahs who were right all the time but nobody listened to. The second group made lots of money, smoked cigars and foisted their ill-educated offspring onto community college professors.
He was a leftist and he did seem to believe that everything in the world was the fault of America although more specifically it was the fault of the Republican party.
By being completely wrong about everything he had pretty much invited me to spar with him in front of the class by saying many stupid things and forcing me to disagree with him. The teacher, I gathered liked Plato and admired Socrates. So I read I.F. Stone's Trial of Socrates and Karl Popper's The Open Society and It's Enemies. Those books were fantastic because they were written by progressives and criticize Socrates from a progressive perspective. So I happily found all sorts of maddening threads of arguments in Socrates that this poor fellow was not prepared to acknowledge let alone confront. (In junior college, torturing teachers was what torturing customers is to me today).
But there was another person in the class (a hippy) who always agreed with him and forced to be even crankier and break-up the little love fest the always seemed to get going.
So one day as usual the hippy was blathering on about the rapacious nature of capitalism and bringing up something awful that Nestle had done. I think Nestle had advertised in the third world causing people to stop breast feeding. I'm not sure how the line of causation went but I bet it involved billboards featured the Quik Bunny ravenously suckling on a human teat.
anyway, sorry about that. The hippy blather was the cue for teacher man to launch into American Corporations are ruining the world speech. But I stopped him short. I informed him that Nestle was a Swiss corporation.
"Oh. I wonder why I assumed that." was his response.
Something inside me has always been frustrated that I couldn't come up with a poignant response to the man's wide open rhetorical question. I love answering rhetorical questions for people too.
What's the point of my story?
Well Jane Hadden has a lovely opinion piece to go along with it. Reading it is kind of like getting that snappy comeback years later.
Thoughts on Ads
this was in answer to friends question on why firms advertise when it seems like they could save money if they don't. He wanted to know what classes he should take to learn about this.
As to your inquiry, the course catalog revealed a number of classes that would probably contain some of the information you would be looking for. I happen to be enrolled in an upper division econ course right now with some bearing (however slight) on your question.
There are lots of ways to look at social phenomena and the economic perspective is not always what people prefer. The resource economists have a class on marketing, ARE 140. One of my roommates is in it, but they seem mostly concerned with the supply side of advertising. Capturing a share of a market of consumers and so on. they talk about business us of marketing to increase demand and profits.
My own study indicates the following about advertising. Start with your question about coke and pepsi. These two advertise mainly to try differentiate themselves in the minds of consumers. The vast majority of us will pay the same price for either coke or pepsi. We are indifferent to them (I find myself in this category, I even like Rum & Pepsi on par with Rum & Coke). But if even a small percentage of the market is willing to pay as low as five cents more for (say) Coke then Coke will earn higher profits.
They earn higher profits not even by charging that additional 5 cents to that part of the population (though they may try to do that if there is a way). Since Coke and Pepsi are sold next to each other everywhere for the same price the part of the population that is willing to pay 5 cents more simply always buys coke.
Okay so that's why they advertise, but only part of the story. The rest of it comes in through the notion of a Nash equilibrium. A Nash equilibrium (contrary to A Beautiful Mind) in this context is a point where no firm has an incentive to change his strategies given what he knows and doesn't know about what other firms are doing.
I spoke earlier about adertising increasing demand, but it doesn't always work. If coke and pepsi both spend the same amount on advertising then (assuming that gullibility is evenly distributed through the population) they will probably steal the same amount from each other, ceteris parebis. They only increase profits when one side doesn't advertise. The side that doesn't advertise loses profits so yer damn straight they both advertise.
If both firms choose not to advertise they probably would reduce their considerable advertising budget and make more profit. But both firms are too afraid that if they don't advertise the other will, so they both advertise. So the Nash equilibrium is one of lower profit for both. Too Much Coffee Man has put the point rather nicely
http://www.tmcm.com/comics/105_advertising.gif
So that's the minimalist picture of what a certian kind of advertising is about. The economic perspective is not alway what people are looking for nor the best.
The American Studies department offers a class on the american media, and the sociology department offers a lower division course on pop culture and an upper division course (apparently taught by a Dickens character, a fellow named Grindstaff) on mass communications which promises "to examine the relationship between the media and social structures. History of media-state relations. Emphasis on current european and pluralist theories rather than content analysis."
If you want my opinion this class is likely to contain a poorly presented gloss on the history of media-state relations backed up some astoundingly remote theoretical presentations and a few unsupported assertions that the media conspires to prop up the existing corporate government order by some or another unspecified means.
I must admit to a huge bias, even animosity towards this type of 'sociology'. Economists are frequently accused of practicing science from an armchair (and maybe with a snifter of brandy) but at least we have price and unemployment data to work with. Marxist and "European pluralist" theories are often so startlingly a priori that one gets the impression that the author has escaped from isolation only to be hired by the university to write some whacked out manifesto drossed up with elaborate prefix and suffix infused words like posthypertranstructuralist whatchamajigger.
So my answer is that there probably isn't any good classes on advertising. The American studies and sociology classes are probably uncut bullshit, and the econ courses are probably too minimalist for satisfaction.