29 December 2007

Food for the Starving

Food aid has been criticized by some. Many believe that handing out food reduces any incentive for aid recipients to make food for themselves. It creates a psychology of dependence.

I have a solution to this problem. Before giving food aid to an individual, measure his or her height with a ruler, measure his or her weight, calculate the body-mass-index (BMI) and if the BMI is less than 20, the individual is most likely starving, which means you give him food. If the individual has a BMI over 20 then do not give him food.

Whether 20 is the right number is in dispute and maybe medical experts may think another number is preferable. Nevertheless, using the BMI is an excellent way to quickly and simply discriminate between the truly hungry and the moochers.

By rationing food in this way, more food can be saved for people who desperately need it. Severe starvation begins when a person has a BMI less than 16. If an aid organization wastes too much food resources feeding a fat man with a BMI of 30, all that food is wasted because it could have saved the life of someone with a BMI of 16 or less.

Saving food means that less food needs to be purchased. This means that more money is saved. More money saved is very important because hunger is not really caused by a lack of food but by poor distribution of food. The reasons for poor distribution of food is mainly political, e.g. wars and corruption. With the money saved from not feeding those who don't really need food, extra money can be put into soldiers, cars, and guns needed to transport the food. Extra money can also be put into lobbying for powerful governments to restore peace in warring areas through the deployment of peace keepers.

28 December 2007

The Voice of the Poor

Around about now is the third anniversary of the Indian Ocean Tsunami that killed more than 200,000 people. Immediately after this disaster, aid organizations were swamped with money.

The major fear I have with aid organizations is whether they are doing a good job. There are sites like Charity Navigator that rates charities based on the proportion of money going towards helping and feeding the poor rather than being wasted on administration. This information comes from tax returns. The problem is that even if a charity gives 95% of donations to the poor, the money may not be used well. The aid workers may not know what they're doing.

For example, there has been news that Save the Children built environmentally friendly houses in Indonesia after the Tsunami that were untreated. Because of this, the houses were quickly eaten up by termites and subsequently they had to be destroyed.

There needs to be a way to force greater accountability onto charities. I have a solution.

If you give money to, say, Oxfam to help some Indonesians, you want Oxfam to make the Indonesians happy. The best way to know if the Indonesians are happy is to ask them. The problem with charity or philanthropy is that often the poor people who need help don't get to tell donors which charity they prefer. There is no democracy in the system.

When I have enough money, I will set up an organization. This organization will send people into poor areas. Workers will go around randomly asking poor people which aid organization they believe is the best. The information is then published on a website.

After a disaster like the Indian Ocean Tsunami, workers would go to places affected like Aceh, Indonesia, and randomly ask people questions. On the questionnaire the subjects are shown some logos and names of aid organizations working in the area. The subject then identifies which aid organizations he or she likes most. Once the results are tallied, they are published on the Internet. This allows donors and philanthropists to identify which aid organizations have the greater support among the poor.

One potential problems with this idea is if there is fraud. A worker from Oxfam may dress up as a World Vision worker and start hitting people to defame World Vision.

Hilton Gives to Charity

There are many super-rich who give generously to charity, e.g. Bill Gates, Warren Buffet, and Ted Turner. Now Paris Hilton's grandfather Barron Hilton is donating 97% of his net worth to charity. The move might leave less money to Paris and Nicky Hilton.

The money will go to the Conrad N. Hilton Foundation. The website says the following: "Be ever watchful for the opportunity to shelter little children with the umbrella of your charity; be generous to their schools, their hospitals and their places of worship. For, as they must bear the burdens of our mistakes, so are they in their innocence the repositories of our hopes for the upward progress of humanity."

18 December 2007

The Seal Clubbers

I have just read an opinion piece titled Who Will Defend the Seal-Clubbers?

As you can probably tell from the title, the author defends seal-clubbing. He claims that it's okay because there are so many seals in the world and that they eat too much fish. It is okay to kill them then. By not killing them you are dooming the fish to extinction because seals are fat consumers of fish.

I suppose when Adolf Hitler II comes along and starts killing humans because we are using up too much resources like oil then the author of this opinion piece will support the killing of humans too.

Then the author talks about how seal clubbing is nothing compared to the many cows killed for meat everyday. He then talks about China and how organs are harvested there. I suppose if other people do it, it must be okay. According to Wikipedia this is a fallacy, a red herring (see Two Wrongs Don't Make a Right).

Who's to say many people aren't appalled at the actions of the Chinese government or the actions of farmers?

Further Reading:
Protect Seals (Humane Society USA)
Clubbing Baby Seals (Warning: disturbing video from PETA)

17 December 2007

Plant Your Own Trees Online

If you feel bad about polluting the world with your car you can buy carbon offsets, which reduce carbon dioxide emissions by investing in technology or by planting trees.

Some people believe that there are many companies out there that take your money but don't actually do anything.

This is why I believe that there needs to be some accountability. What would be a great idea is a firm that carbon offsets by planting trees but, to allow customers to verify that everything is legit, the customers can walk into the plantation themselves to look at their own trees. Each tree will have on its trunk a label with the customer's name written on it.

I have been searching on the Internet and there does seem to be some sites that allow you to do this. E.g. at Rainforest Rescue.

Giving customers an opportunity to inspect for themselves in person I believe will wipe away any doubts about legitimacy.

13 December 2007

Santa Claus is Un-Christian

I have heard many Christian say that Santa Claus is part of their religion, and they must teach their children about Santa. This is not true.

Before we start, we must agree on some fundamental things. Firstly, we agree that Santa Claus is a lie. No reasonable adult will believe that there exists a fat man who speeds around the world in a sleigh powered by flying reindeers. Once we can agree on the obvious fact that Santa is a lie, then we can get to the biblical stuff.

Colossians 3:9-10 says, "Do not lie to each other, since you have taken off your old self with its practices and have put on the new self, which is being renewed in knowledge in the image of its Creator."

These verses alone state that Santa is sinful. Santa is a lie. Lies are sinful because they go against the Word of God, and hence Santa is sinful and un-Christian.

Some atheist parents agree but like to lie to their children about Santa. They believe then that Christian children should not be taught to give away this secret to other children and spoil Christmas for the atheist children. But the bible says otherwise.

Matthew 18:15 says, "If your brother sins against you, go and show him his fault, just between the two of you. If he listens to you, you have won your brother over."

James 5:19-20 says, "My brothers, if one of you should wander from the truth and someone should bring him back, remember this: Whoever turns a sinner from the error of his way will save him from death and cover over a multitude of sins."

Some Christians agree that lying is sin but they reason that we are all sinners and that we are not perfect. They also say that Jesus is forgiving and that Christians will be forgiven of our sins. This is not true. Consider Hebrews 10:26-27, which says, "If we deliberately keep on sinning after we have received the knowledge of the truth, no sacrifice for sins is left, but only a fearful expectation of judgment and of raging fire that will consume the enemies of God."

Sure, sin is tempting, but we must try not to sin. Imagine if you're a woman and your husband saw a sexy girl and thought to himself, "I know I shouldn't sleep with her, but we all sin so never mind, I'll just sleep with her."

Some say that Christianity promotes love, faith, and generosity, which are values Santa teaches, so it's okay to preach about Santa. But Scientology teaches all those things, and I don't think your priest or pastor is going to recommend you tell your kids about that religion.

12 December 2007

The Ethical Hedge

The Genocide in Darfur is very worrying. Over 200,000 people have been killed and several million are at threat. The genocide is carried out by the Sudanese Government, which is funded mainly by PetroChina.

The Save Darfur Coalition is urging people to divest or sell stock in PetroChina (see Divest for Darfur). It is also urging people to get their fund managers to divest from unethical companies as well.

If we assume that the firm was accurately priced to begin with, if many ethical people divest from PetroChina, it would become undervalued and unethical people would spot a cheap stock and start investing in the firm, thereby reaping the profits. Divestment or negative screening then effectively causes a transfer of wealth from ethical people to unethical people.

What I suggest is that ethical people keep their money in PetroChina and buy even more stock. As the firm's price-earnings ratio increases, unethical and self-interested investors will steer clear thereby keeping much the profits of the company in the hands of ethical investors. These ethical investors then donate dividends to a charity that acts against the unethical firm, e.g. the Save Darfur Coalition.

As the unethical company starts to perform badly, its earnings drop, its share price drops, your profits drop, and your donation to the charity drops, and so this system self-corrects. The severity of immorality caused by the firm is proportional to the amount going to the charity that combats the immorality and so you have effectively hedged against it.

The Ethical Hedge, as I call it, can be done not only on PetroChina but other unethical firms such as those found in the Vice Fund.

This idea will work if the charity chosen is effective. There is some controversy over the effectiveness of the Save Darfur Coalition.

Update: Even though I'm Australian, I have been reading up on the American Elections and interestingly Barack Obama invests in the Vanguard FTSE Social Index Fund. He invested in this after divesting from a fund that invested in companies that fund the genocidal Sudanese government. At the Sudan Divestment Taskforce, arguments are made that targeted divestment can be effective. The argument I made was that if ethical people divested, the firm would be undervalued and unethical value investors would spot an undervalued stock and start investing in it. However, would these unethical value investors invest in the stock if they believe that the divestment program would continue to reduce the stock price? Buying stock and then having the price fall is not what investors want.

10 December 2007

Rudd Signs Kyoto

Australian Prime Minister Kevin Rudd has ratified the Kyoto Protocol, leaving the U.S. as the only country left out. I think this is a good move. Some people I talk to do not like it. Here are some of their arguments.

Big polluters China and India don't have to cut their emissions by much.
Climate change is like 200 kids urinating into a pool that they all eventually swim in. Each individual deciding not to pee in the pool isn't going to make much difference, but it is going to make the pool slightly cleaner. But if everyone has that attitude, no one is going to stop. Rich countries much stop first because developing countries will literally die if they stop. Most of the energy used in India and China is used for necessities like transport and food preparation. In Australia and America it is mainly used for luxuries. I think it is fair therefore to ask for higher reduction from richer countries.

I also think this should apply for individual within a country. That is, rich people within Australia should cut back more than poor people within Australia. For this to be achieved, I suggest the government tax all sources of energy, from natural gas to oil to coal, and then once this happens we all pay more for energy thereby forcing all of us to conserve energy. To stop poor people from paying too much, simply give them means-tested energy vouchers they can use to buy energy. For example, for every dollar you earn less than $30,000 per year you receive x kilojoules of free energy.

Australia is a small country. It won't make a difference.
It will make a difference. Even a small difference is a difference.

The economy will suffer because businesses will have to pay more for energy inputs.
The economy might slow down if we cut cardon emissions. But consider this. The economy will be boosted if we allow an Australian child sex industry to develop.

In fact, that is a good analogy. In many places all over the world the child sex industry is still going strong, but leaders of some countries have put their foot down and stopped it. It may not make that much of a big difference to stop child abuse in one small country if you consider child abuse all over the world, but it is a difference. These countries suffer economically from the lack of a child sex industry.

If I happen to save one child from sexual abuse, cynics may say that saving one child will make no difference because one child is abused every 13 minutes. If I save one child, another child will be abused 13 minutes later and so on ad infinitum. While this is true, I think it's better to save one child than to save no child.

I read in the news yesterday that, now that it is signed, the price of groceries, electricity and petrol are expected to go up dramatically.
Of course, that's expected. I would hope petrol prices go up because that will stop people from polluting too much.

I suggested vouchers for poor people who will be hit with higher energy bills. This will ensure that most of the cost burden will be on the rich.

Food prices going up may also be due to Americans producing less food to eat because they are instead using that food to make biofuels to run their cars. Apparently they want to rely less on Middle Eastern oil. The price hike may also be caused by instability in the Middle East, demand from Asia, and even the exchange rate. So don't blame everything on environmental regulation.

09 December 2007

Is Hair Trade Fair Trade?

There is a piece today in The Age talking about whether the international hair trade is fair.

Firstly, let me say that I hate getting my hair cut. I do it only because I have to. I have to cut my hair because when it get too long it gets into my eyes. Having hair strands stabbing at surface of your eye is not pleasant.

It surprises me therefore that some people are willing to pay money not to remove hair from their head but to have hair put on them! Most people pay barbers to remove hair. Hair is like rubbish and the barber is like a rubbish collection. A person who wants hair extentions then is like a person who wants to pay money for rubbish. As they say, one man's trash is another man's treasure.

What troubles me is that The Age is going on about how hair in Australia doesn't actually come from Europe and that most of it comes from Asia! But wait, what is so horrible about that? Hair is hair. Why does it matter where it comes from? The article then goes on about how they are worried that people in Asian countries, especially in India, China, and Russia, are being exploited. Some children as young as 12 give their hair.

This I don't think is a major problem. When I was 12 my parents made me go to the barber to get my hair cut. Most parents would do this because long hair is hard and costly to maintain (e.g. you have to use more shampoo). It is actually more economical to cut your hair when it grow to a certain length. So if children are going to have their hair cut anyway, why not sell it and make some money from it? Why not? This money can be used to buy education and health products for the kids.

08 December 2007

When Women Complain about Having it All

Time after time we see studies showing that women do all the housework, all the child rearing, and so on. Even career women who work juggle career and family. Every time I see women read these studies they always complain. They complain that the man does not do enough.

What I find strange about this phenomenon is that the women themselves are complaining about something they choose to do. No one is forcing women to cook, to clean, or to raise the children. We do not live in a theocratic Islamic or Christian society where traditional norms are etched into laws that bind our day-to-day lives. We are free to live however we want. Yet surprisingly many women choose themselves to cook, to clean, to take care of the children, and to work. If they choose to have it all, why complain?

Sometimes women marry men who they think are kind people. Then it later emerges that they are lazy men who don't want to do any work. The solution to this problem is simple. Just get a divorce. Some women may not like doing all the cooking or cleaning, but maybe the man is providing so much to the family that she cannot possibly get a divorce. For example, if the man is earning one million dollars a year and is funding a luxurious lifestyle for the woman, then this woman may feel like she has to return some of the generosity.

Some men do not like doing the housework maybe because they think it makes them look less manly. Most women like manly men, so they shouldn't complain about a man who doesn't want to cook or clean. In fact, they should be happy that he is being a lazy manly man. For those women who want a man who cooks and cleans, then it is the woman's responsibility to filter out lazy men before marriage. This filtering out process can be achieved simply by asking the man if he would cook or clean. E.g. say, "Fred, if we get married, will you cook and clean for me?" It is like a job interview. I the man breaks his promise, there is always divorce. In most free country, leaders try to deregulate the marriage market as much as they try to deregulate the labor market.

07 December 2007

The Democratic Ethics Fund

Socially Responsible Investments are investment funds that invest in ethical companies. For example, a fund manager may choose not to invest in companies that sell tobacco or harm the environment.

I believe the main problem with most SRI funds is that it is difficult to know what is ethical and what is not. That is why I suggest the creation of a democratic ethical fund.

Those who invest in this fund have the right to vote for the company the fund invests in. What is ethical then is defined by those who put money into the fund. This means that firms, if they want to receive capital, will need to appeal to the people.

04 December 2007

Howard's Baby Bonus is Pure Upper-Class Welfare

Tabloid trash The Herald Sun is going on and on about how there is a baby boom in Australia that has raised total fertility rate to 1.85 babies per woman, the highest in Australia's history.

Birth rate increased from 1.76 babies per woman to 1.85 babies per woman (according to The Herald Sun). The Baby Bonus costs taxpayers $1 billion.

One billion dollars to produce 0.09 more babies per woman!

Remember you need 2.1 babies per woman to prevent population decline. Total fertility rate of 1.85 is not even close to enough! As a comparison, in Niger the average woman has 8 babies.

Economists at the Centre of Independent Studies believe this increase in birth rate of 0.09 is just random fluctuation, kind of like how the temperate changes over time during a day.

Why would Howard/Costello put heaps of money into something that doesn't work?

Given that this Baby Bonus is only available to a woman who earns over $50,000 a year, this smells like upper-class welfare!

Internet Users Around the World Help Feed the Poor

Link: Fight Hunger Click-to-Feed Map

Feeling cynical about human nature? The link above might help. At the United Nation's Fight Hunger Website, where a simple mouse click can generate a meal for a starving child, you can see in real time through Google Maps where each of the clicks are coming from in the world.

What surprised me most was the diversity of locations--Norway, Argentina, Spain, India, America, and so on. Looking at this is a reminder to me that not everyone is cruel and heartless.

Make sure you read One-Click Charity Sites to see my list of one-click charity sites.

03 December 2007

Don't Listen to Bogle and Diversify Across Countries

American index fund guru John Bogle warns that you should not own too many funds. He also believes you shouldn't hold international funds, i.e. non-US funds. He said the following:
I am not persuaded that international funds are a necessary component of an investor's portfolio. Foreign funds may reduce a portfolio's volatility, but their economic and currency risks may reduce returns by a still larger amount. The idea that a theoretically optimal portfolio must hold each geographical component as its market weight simply pushes me further than I would dream of being pushed. (I explore the pros and cons of global investing in Chapter 8.) My best judgment is that international holdings should comprise 20 percent of equities at a maximum, and that a zero weight is fully acceptable in most portfolios.
This piece of advice from Bogle I think is a huge mistake. Picking countries, and especially having a bias towards your own country, goes against the point of indexing, which is to capture all returns from the market.

In the same way that you buy an index fund to get broad exposure to the market without having to risk selecting stock, so too investing in many countries gives you broad exposure to the world market without the risk of selecting countries. Why select your own country and not another? Rational investors cannot be patriotic.

Asset class diversification, e.g. investing in shares, property, fixed interest, and cash, can protect you when, say, the share market starts to go wobbly. Your holdings in fixed interest and cash will stabilize your investment. Diversification across countries helps when a shock occurs that is specific to one country. Suppose you live in Iraq just before George Bush declared war against Saddam Hussein. You wouldn't want to keep all your money in Iraq.

Update 4/12/07:
I've found evidence on the Bogleheads forums that Bogle has recanted his old position:
....consider having a large chunk of foreign equity in the portfolio. I'm well-known for ignoring overseas investments--I thought they were too expensive and too full of speculative accounting practices. However, I'm worried about the US economy now--our excessive borrowing for costly wars, an underfinanced pension system and the dollar's weakness. In the next few years, I'm planning to put as much as 20% of my equity holdings into foreign stocks. That includes 10% in developed countries and 10% in emerging markets.
The US economy is not the be all and end all. As I always say, a rational investor cannot be patriotic. Patriotism is irrational. Patriotism should be listed alongside framing, loss aversion, etc as a cognitive flaw in behavioral finance textbooks.

Bogle always warned us to buy and hold and not try to time the market. If we do time the market what happens is when a company is going well we buy and miss out of the gains. If the company does poorly we sell and miss out on the rebound. Bogle seems to have done the same thing with countries. He is country timing! When the US is doing well relative to non-US shares, buy US shares. But when the US is doing poorly relative to non-US shares, sell US shares. Same thing.

Some people love Bogle. I admire Bogle a lot. I am not anti-Bogle. The man is a true financial heavyweight whose advice has saved many investors from the greedy hands of financiers. But I think it's important not to idolize him as a God. When you research financial advice you should diversify across many advisers.

Many of my friends who invests in focused portfolios gave the following quote to me:

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." ~Warren Buffet

Oh, Warren Buffet! The prophet has spoken! Many people interpret this as an argument against diversification, but I see it as an argument for it. How do you know what you're doing? How does your fund manager know what he's doing? If you truly believe the market is efficient then you can't really know anything that the market already knows. So you diversify because of ignorance and don't pretend that you know something.

What if you really think you do know something the market doesn't know and because of this you can beat the market? Well then become a day trader and forget about indexing.

Toys Not Made in China

Many parents have been worried about traces of lead in toys that come from China. Even though the Chinese Communist Government is nominally communist, its economy is largely capitalist to such a high degree that some call China an anarchist society. Because there is so much specialization, it is very difficult to keep up with where which component came from. One city in China specializes in buttons, another city in China specializes in fabric, etc.

Many parents believe they can avoid dangerous toys simply by looking for toys that are not made in China. The belief here is that quality standards in America or Australia are superior to those in China. However, this is not the whole story. Although the dangerous toys were made in China, they were made there by American companies. They were subsequently imported into America for domestic consumers. American toy companies failed to pick up the problem and after the toys were imported into America, Government health regulators failed to pick up the problem as well. This then is evidence of total failure by many parties.

Another difficulty is that many products made in the USA or made in Australia actually use components that are made in China or made elsewhere. Take a good like a car. Even though the car itself may be assembled in Australia, the engine may come from America, the tires may come from China, and so on. Even though the engine may come from America, the components used to make the engine may not come from America. E.g. the spark plugs may comes from Italy, the pistons may come from Thailand, etc. This difficultly is seen in candy manufacture:
Country-of-origin labeling is one thing but ingredients in many foods come from multiple nations—making it impossible for even an investigative foodie to know what he or she is eating. Take candy for instance. Although you most likely won't find a "Made in China" label on any of the sweets you find in the candy aisle of your neighborhood store, it's a given that at least one ingredient in your favorite treat was sourced from China, a former FDA official told a North Carolina daily. Chocolate bars, marshmallows, soft drinks, gumdrops, and chewing gum are just some of the items containing flavoring agents and preservatives such as carageenan, gum arabic, and vanillin (vanilla flavoring) that are Chinese imports.

01 December 2007

Perth's Property Boom

At work a co-worker was telling me that she wanted to go to Perth because property prices there were booming. She told me that she planned to move there in one year and that after she moved there she and her family would become "very rich."

I said that there are worries about bubbles in the Chinese sharemarket. For example, PetroChina's price to earnings ratio, which was about greater than 80 suggests the firm is overpriced.

She said, "But that doesn't affect house prices."

But it does. Economic boom in Perth is mainly driven by the Chinese buying iron ore from the Western Australians. Miners, engineers, etc move to Perth, and when they get there they have to live somewhere, which generates demand for houses, which leads to higher house prices.

Ron Woods in a piece titled Mining Boom Teeters shows how well correlated Perth house prices are with base metal prices. He says that the mining boom in Perth looks to be over mainly because of recession in America. What has America got to do with China? Just about everything sold in America is made in China. If the Americans are spending less because of recession and sub-prime worries, that reduces demand for Chinese goods, which reduces demand for the factor inputs that make those Chinese goods, which includes base metals from Australia.