An open letter to the prime minister from Catherine Lim, a Singaporean writer who was chided by the last PM, in 1994, who told her to join a party if she wanted to express her opinions about politics.

Speaking about OB markers (which I discuss here; I believe the threat quoted in the textbook is the very one directed at Lim in 1994), she says

The second feature of the new model of governance is the systematic use of fear to silence existing dissident voices and discourage potential ones. While there has always been a climate of fear under PAP rule, the new model seems to have developed it into a distinct strategy of control, making special use of an instrument that has come to be known as the ‘out-of-bounds markers’. These are rules which stipulate what Singaporeans can and cannot say should they choose to criticise the government. The effectiveness of the markers is derived from their being deliberately left undefined and unexplained, for two obvious reasons. Firstly, it allows the government to have its own interpretation of each case as it arises, to suit its purpose. Secondly, since no one knows when or whether the markers are being overstepped, everyone plays safe by practising self-censorship, which can be a more effective curb than direct censorship.

Microeconomics

Last regular class. Tonight's presentations are on exchange rates by country. Some discussion of ratios; what does "1.45" mean when used to describe the cost of the Singapore dollar? Currency traders write "USD/SGD.....1.45" when one US dollar is equal to S$1.45. You can see how that can be confusing. Currency is so much fun because everything is relative, nothing's fixed. You can't say that A went up, you can only say that A/B went up. Imagine all the currencies floating in space, with nothing solid around. If they all drift "up" but one moves more slowly than the others, it actually drops.

Adding to the confusion are NEER and REER. NEER is nominal effective exchange rate; it's the exchange rate of A versus a weighted basked of other currencies. It's the closest you can come to talking about A without talking about A/X. It's A vs the crowd. REER (real effective exchange rate) is the same thing but each currency, including A, is adjusted for local inflation. Note that the rate called "real" doesn't correspond to a real number that you could get at an exchange window. Timor-Leste's banking authority has a nice explanation

China. The yuan dropped dramatically from 1980 from 1980 to 1993, as measured against the dollar, against a basket, or against an inflation-adjusted basket. The rate against the dollar has been fixed or nearly fixed ever since, but the real and nominal rates have fluctuated.

Chile has tried many different exchange rate policies. When the inflow of US dollars started to decline in 1982/83. Huge recession; real exchange rate plummets due to high local inflation.

Malaysia. Huge shock in 1997 as the ringgit plummets by every measure. About 3 minutes into a 5 minute presentation, after much discourse, the first of two partners says "I'm going to start with ...". Sigh. What's the secret to public speaking? Practice. This is the very last class presentation of the semester, and it ends up going 8 minutes. Is there the slightest hint that anybody's practiced for any presentation all semester long? Nope. The second partner for this presentation started at 4:30. Minute seven is too late to offer "a short explanation of short selling". This is the same pattern that shows up in a lot of papers: asked for a two-page memo, many produce four or five. I wonder how much this reflects peoples' work habits? Do most produce big brain dumps on every angle imaginable to prove mastery of the subject? This is the absolute opposite of my style, which is to try and find a handful of important points and ignore the rest. Maybe that's a project manager's instinct to rein in scope at all times. The secret of prioritizing is not in what you make number one, it's in what you choose to ignore.

Of course, looking at another group's report for the Taxi medallion case, which is light years better than my group's, with better research and a more economics-oriented analysis, plus colored charts and graphs!, I can see the drawbacks to my approach.

My question is, if a central bank has to intervene and spend billions of dollars of foreign reserve, did they (the bank or the government) just lose most or all of that money? Did the country just become 30 billion dollars poorer? I didn't get a direct answer when I asked in class, though the prof helped clarify the difference between buying foreign reserves and selling them. Buying foreign reserves is nice: your local companies, having sold a million dollars of widgets to Americans, comes to you (the central bank) with a million US dollars and you can just print some local money and give it to them. Free money (okay, there are some inflation issues and whatnot ...). But if you have to spend your rainy-day US dollars to prop up your rapidly depreciating local currency, you are not exactly losing the wealth that your reserve embodies, but you are exchanging for ... rapidly depreciating assets. So I would assume that a good chunk, if not all, of the foreign reserve spent during a crisis is indeed lost forever.

So China is buying huge amounts of foreign money every day. Why isn't its inflation sky-high? The central bank issues bonds to "sterilize" the new money. That is, if Chinese exporters go to the central bank with US$10b they made today, the central bank gives them CNY75b and also issues almost CNY75b in bonds at the same time. So the people buying the bonds give the central bank CNY70b, and the total money supply stays fairly constant. In 20061H, China sterilized 88% of inflows. So the money supply in China stays fairly level (mostly—see also here), keeping inflation low as China's economy continues to explode. But the foreign account balance remains way out of whack, pissing off the US. Now the central bank holds US dollars, but owes renminbi; if the US dollar drops vs the renminbi, which it pretty much has to in the long run, the central bank will lose a lot of money. I imagine China's thinking on this future problem is, some currency problems in the future are a small price to pay, and a small problem to have, if it helps us industrialize the whole country. So, if I have this right, the US is getting huge amounts of cheap goods from China (and outsourcing the pollution required to make those goods to China) in exchange for some cash and expertise now and lots of IOUs on future US production (US Treasury bills); in exchange China is getting the cash and impetus to modernize. Even if the US debt to China ends up getting paid at a discount, it seems like both countries still come out ahead.

Microeconomics

A classmate gives a special presentation on the self-regulation model on construction in Singapore. The problem for regulators is, if you miss something, it's really hard and expensive to fix a finished building. So you take a long time to carefully check all the plans and demand lots of changes. And you probably still miss something. So it's not a great system. The notion is to get the contractors and engineers to self-regulate. Unfortunately, I couldn't identify from the presentation the specific things that Singapore does to make this work and avoid the obvious fox/henhouse problem.

Imperfect and asymmetric infomation. Dealing with moral hazard. Some solutions include deductibles, health screening for insurance. Regulatory role in markets. Improve transparency; limit secrecy.

Adverse selection. In markets with asymmetrical information and a mix of good and bad products, you end up with bad products taking up a disproportionate amount of the market. (Joel Spolsky claims this has already happened in the programmer job market, where the good programmers are rarely on the market but the bad ones get recycled there every few months. Based on my experience hiring, I can't disagree.) Charts and graphs ensue. Extended warranties as hard-to-fake signals of car quality. Caesarean rates in Brazil: as high as 98% in private hospitals.

As much schadenfreude as I get from this story of conservative authors suing the ultra-right-wing Regnery press, what prompted me to post is the quote below. The authors accuse Regnery of selling books very cheaply to wholly owned subsidiaries such as the "Conservative Book Club", thus reducing the royalties paid to authors.

"The difference between 10 cents and $4.25 is pretty large when you multiply it by 20,000 to 30,000 books," Mr. Miniter said. "It suddenly occurred to us that Regnery is making collectively jillions of dollars off of us and paying us a pittance." He added: "Why is Regnery acting like a Marxist cartoon of a capitalist company?"

I love the cognitive dissonance. The thought process implied here starts with tribalism: "everyone in my tribe is good and everyone in your tribe is bad", taken to the next level: "everything bad is in your tribe". If a conservative business is acting poorly, by definition it's acting non-conservatively. E.g., it's impossible for anything sharing my ideology to be bad, so it must actually have your ideology. It must be a betrayal.

Any similarity to the mainstream conservative thought these last years, or to the stabbed in the back meme, is no doubt coincidental.