Sunday, 18 November 2012

Google Nexus 7 - An Early Christmas Present for Myself

I have recently splashed out online on a Google Nexus 7 tablet for $240 from Kogan. I may need to pay for expensive dential surgery in the future, so I need to start saving money, which means that this Christmas period I will not be going anywhere but will stay home. I need to keep myself occupied while I'm at home. I figure the Nexus 7 will keep me occupied with ebooks, games, web browsing, and so forth, and that will distract me from going out of the house and spending money on movies, holidays, etc. Some people claim that ebooks and games cost money, but there are plenty of free ebooks on the internet if you’re willing to read classics whose copyrights have expired, and there is a huge supply of good free games on the Google Play store. It looks like cheap entertainment to me.

Sunday, 5 August 2012

The Myth of Good Debt and Bad Debt

A friend once told me the following:
If you borrow money to buy an asset that depreciates, this is bad debt, and you should avoid it. If you borrow money to buy an asset that appreciates, this is good debt.
This is crap. One reason is because it's very difficult to actually know whether an asset will appreciate or depreciate. For example, most investors who purchased subprime securities before the GFC wrongly assumed house prices only went up. As a result, borrowing money to buy an asset really only magnifies risk because, if the asset goes down, you lose more.

Another reason why this rule is crap is because it completely ignores the cost of borrowing, the cost of holding the asset, as well as whether the asset generates any income.

For example, suppose you borrow money from a loan shark at 20% in order to buy a house and assume that this house appreciates at 5% per year. You will actually be worse off than if you took out a car loan at 8% and purchased a car that depreciates at only 1% per year. In other words, if the cost of borrowing is so high, it doesn't really matter if the asset appreciates or not.

Some assets may appreciate over time but have extremely high costs. For example, suppose you purchased a run-down apartment that needs constant maintenance. As the landlord you need to fix the showers, clean the walls, replace the tiles, put more concrete on the driveway, and so forth. You may purchase an apartment that appreciates at a mere, say, 1% per year but if it costs you $1,000,000 per year to maintain this apartment, what is the point? These holding costs aren't necessarily in the form of fixing showers and tiles but may include council rates, land taxes, and other taxes or fees.

Another factor ignored when focusing only on asset price changes is the income-producing potential of the asset. If you take out a margin loan with your bank and borrow money at 8% to invest in shares of a company whose stock price depreciates at 1% per annum but it has a dividend yield of 10% then you are better off than someone who takes out a mortgage and borrows at 6% to invest in a house that appreciates at 3% per year and pays rental yield of only 3%.

In summary, if you borrow money to buy an asset, you need to look at a lot more than asset price changes. You need to look at everything that influences on costs and benefits. The idea that borrowing money to invest is a good idea simply because you expect the price of the asset to rise is thoroughly refuted in the examples above. Other things to consider include holding costs, costs of borrowing, and how much income the asset produces.

Chinese Buying Australian Farms

Read more: Sell the farm to buy a future as China's food bowl

There have been worries expressed at Chinese agricultural interests buying Australian farm land. The main issues with this seem to be the idea that the Chinese investor will use the land for Chinese interests rather than Australian interests. Many say that if a Chinese investor owns Australian land and grows food on it, it will export all its food back to China and leave nothing for Australians or it will export so much to China that food prices will rise.

The only thing I have to say to this argument is that it is already happening. It doesn't matter if the farmer is Chinese, Australian, American, or any other nationality. Investors only care about making more money and will export their products to wherever there is highest demand. Australian farmers and especially miners (e.g. BHP) already export significant amounts of agriculture and resources to the rest of the world, especially Asia. To think that simply changing the nationality of the investor will change anything is absurd. If Australians want to limit how much food is exported overseas, it can implement this by imposing trade restrictions on farmers, but this is highly unlikely as politicians should recognise that there are many benefits to farmers exporting their food overseas.

Patriotism is a tool that rich people use to ensure poor people are loyal and obedient to them. When patriotism is not profitable, rich people are quick to drop it. Farmers would love to tell Australians to support the local industry and buy Australian made food as they benefit from the higher demand. But farmers are very happy to start exporting the bulk of their food to other countries to maximise their profits rather than keep it all in Australia to lower prices for Australian consumers.

The same story unfolded in the Australian retail sector. Australian retailers will tell Australian consumers that they need to be patriotic and support Australian products. Of course they will say this because they are making money off the Australian consumer. But the Australian retailers like Harvey Norman, Myer, and so forth have nothing against importing cheap products from overseas, quadrupling prices, and then selling it to gullible Australian consumers.

Tuesday, 24 July 2012

Similarities Between Economic Development and Prostitution

Rapid economic growth in Asia e.g. China seems to have occurred after these countries have opened themselves up to foreign trade and capital. This all seems to fit in with supply-side economics. Wikipedia defines supply-side economics as follows:
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices. Typical policy recommendations of supply-side economists are lower marginal tax rates and less regulation.
In other words, in order to foster economic growth, it is important that policies are implemented that meet the demands of businesses because ultimately, all wealth is created by business.

This theory is remarkably similar, in my opinion, to prostitution. In the market for sex, prostitutes work hard in order to make money from customers. In order for prostitutes to improve their standard of living, they have to implement policies that appeal to customers, e.g. they have to maintain their appearance. Similarly, supply-side economics suggests that workers and government, in order to improve their standards of living, must prostitute themselves to global businesses. In other words, the Chinese government and its people must reduce its wages so low and demand that its people work so hard so that a company like Nike will be interested in coming over, exploiting the Chinese workers, and paying them for it.

Hence, in order for countries to develop their economies, they must become better prostitutes. They have to undercut their fellow prostitutes and work harder and harder at providing better services to their customer, i.e. global business. In other words, they must become better prostitutes.

Update 25 July 12

I have been thinking about this issue a little more and have the following to add.

Many people argue that prohibition, whether it is prohibition of alcohol, sex, or gambling, doesn't work. When the US prohibited alcohol, what it found was that drinking alcohol went underground. Organised crime supplied the liquor and made enormous profits. By legalising alcohol, the US government was able to essentially destroy the criminal element in the liquor industry. In the Australian state of Victoria, liquor, gambling, and prostitution are legal but highly regulation. Premises that sell liquor must have a liquor license that it purchases from the state government. The same applies to prostitution. Under the Sex Worker Act in Victoria, there are laws about use of condoms and the frequency by which prostitutes must be tested for STDs. The main argument for tax and regulate versus prohibition is that demand for sex, alcohol, or gambling will never go away. It is better therefore for the government to regulate these industries to allow consenting adults to participate freely but to protect minors and other vulnerable members of the community. Tax and regulate also allows government to earn revenue by selling licences as opposed to all the proceeds of crime being siphoned off by mobsters.

In my opinion, the prostitution theory of economic development works the same way. In the same way that there is a large group of men who, due to their innate sexual desires, will always demand sex, so too there will also be a large group of wealthy people who, due to their innate greed, will always want to grow their wealth. The best way for wealthy people to grow their wealth is to invest.

Instead of prohibiting prostitution, it is better for government to harness the innate sexual desire of men for the benefit of society. By taxing and regulating prostitution, government can collect extra revenue and can allow prostitutes to earn a living and thereby improve levels of employment. In the same way, government, instead of prohibiting the greed of wealth men (i.e. turn to communism) the government can allow wealth men to indulge their greed and invest, start businesses, and employ workers. This allows the government to collect more revenue through various taxes, e.g. company tax, land tax, transaction taxes, etc. It also allows government to harness the greed of these wealthy people (or capitalists) to increase levels of employment. In the same way that men exploit prostitutes, capitalists exploit workers. The benefit of exploitation is that jobs are created. As one economist famously said, the misery of being exploited by a capitalist is nothing compared to the misery of not being exploited by a capitalist. In other words, we are all prostitutes. We sell our talents for money, but that is what puts food on the table and that is what drives global GDP and improves standards of living.

In the same way that government cannot control men's desire for sex, gambling, or liquor, so too government are nothing compared to the power of the international capitalist class. As a result of natural greed, corruption, and so forth, there will always be an elite group of people who control nearly all the wealth. Government do put up a fight, but the existence of tax havens and loopholes make this fight quite futile. The ruling capitalist class will always exist just as men will always desire sex. It is better then for government to accept this and do what it can to sell its people to the capitalists. In other words, if capitalists are like men who are willing to pay for sex, governments are pimps, and workers are prostitutes.

Prostitutes can go it alone and try to get business but there is danger in this. There can be beaten up by customers. If the prostitute has a pimp, the pimp will protect the prostitute but the prostitute must give a certain percentage of her earnings to the pimp. Government is no different. Workers are prostitutes but governments build roads, build utilities, and ports. They build these things to make country to more attractive to capitalists. In the same way, pimps or brothel owners will build buildings, provide condoms, and so forth. These are the essential infrastructure necessary to attract customers and facilitate trade. In the same way that prostitutes pay a proportion of their earnings to the pimp or brothel owner, so too the worker pays a proportion of his or her earning to the government in the form of taxation. In the same way that some pimps treat their prostitutes better than other pimps so too different government treat their citizens in different ways, from the cruel dictatorships to the benevolent dictatorships to the democracies and republics.

What is the take-home message from all this? Communism is prohibition and capitalism is prostitution. If we want higher standards or living economic progress, we must prostitute ourselves and allow ourselves to be exploited.

Holidaying Cheaper than Staying at Home?

I have started taking two weeks off from work. In a bid to save money, I have decided not to go on holidays. Rather, I will just stay at home. However, I am quickly finding that staying in Australia can be quite expensive and that perhaps a trip to Asia might have been cheaper.

I have only just started my two-week holiday, but already I have been invited by other people to eat out and watch movies. Watching a movie in Australia sets you back about $20. Eating out can vary between $15 to $30. I remember during one day I ate out during lunch and dinner and then watched a movie afterwards. I spent $70 that day.

Return tickets for flights from Australia to a country like Thailand or Cambodia can be purchased for around $500 to $800. The cost of living e.g. in Cambodia is significantly lower. Meals are only around $5 and you can sleep at a guest house for $10 a night. Of course, it all depends on what you do. I am starting to think that if I go to Asia, rent a cheap hotel, and then do what I normally do during a holiday (i.e. surf the Internet) then it might be cheaper to go to Asia.

Another benefit of going to Asia is that I can detach myself from my family and friends at home. When you take a holiday, you are looking not only for a change in scenery but also to get away from your annoying friends and family for a few weeks. I really ought to consider this next time.

Saturday, 21 July 2012

Recreation conformism

When you take a break from work (e.g. if you take a few weeks of annual leave or do something over the weekend) there is usually a set formula for what you should do. Young people are supposed to do something with their girlfriends or boyfriends. Older people should do something with their spouses, preferably go on a holiday to an exotic destination.

I don't do any of that. I am in my late twenties and I spent my free time doing things that are quite different to what most people do. For example, during my free time I like to read novels, write, or even do my tax return or spend time with family. Some people think there is something wrong with me, that I should be out with my girlfriend, but I don't have a girlfriend and automatically people think there is something wrong with me and that I should get one.

For a long time I have gone along with it, trying to please others by attempting to do normal things, but all of a sudden I have realized that I don't have to. I don't have to conform and no one can make me. I have to learn how to stand up for myself and tell other people that they cannot tell me what to do.

Saturday, 14 July 2012

Greenmax Yam and Mixed Cereal

It's great having breakfast, lunch, and dinner, but in between these meals there is always the need for something quick to tame hunger. Something quick that can fill me up include the following: coffee, tea, instant noodles, and Milo. The problem with coffee and tea is that they have caffeine, which is not good when you want to be able to fall asleep at night. Instant noodles have too much salt, which can lead to high blood pressure. Milo is essentially 60% sugar, so stay away if you want to avoid obesity, tooth decay, and diabetes.

I have recently discovered Greenmax Yam and Mixed Cereal. It can be prepared simply by mixing the powder in the satchel with hot water, and you have a very warm soupy beverage. It tastes very nice and fills you up. According to the nutrition information, it is high in fibre and low in salt and sugar. It is an excellent beverage if you are feeling hungry but aren't willing to spend a long time cooking a full meal. It is healthy, tasty, filling, and convenient.

Sunday, 8 July 2012

Where there is a profit there is a rip off

The article Mr Money: the most profitable car companies claims that consumers looking to buy cars should consider buying from car manufacturers who are highly profitable. According to the author, these companies, because they are profitable, are able to offer more discounts:
For customers in the market for new cars, it's essential to know which makers are rolling in money and therefore able to lower their prices or offer incentives such as zero per cent finance or free insurance. Equally, it's just as important that consumers know if they're buying from a struggling manufacturer which might be unwilling or unable to offer good deals or even offer a little flexibility on price.
However, I think this is the wrong way to think about company profitability and finding a car that is value for money. Suppose a can of Coke costs $1. Suppose I buy it from someone who sells it for only $1 and hence that individual makes no profit. Suppose I buy it from someone who sells it for $10 and therefore makes a $9 profit. Clearly I am being ripped off by the provider who sells the Coke for $10. All else equal, the higher the profit, the greater the rip off.

If a company is many enormous profits, a customer should wonder how that company many enormous profits in the first place. There is a good chance that it has ripped off consumers by charging prices that are well above costs.

Monday, 11 June 2012

Using GST to force Victorian tax reform

According to an article in The Age titled State could be big loser in tax plan, the Commonwealth government is thinking of forcing states to get rid of inefficient taxes such as car registration and land transfer duty. It will achieve this by tying GST payments to the states' progress on tax reform. The launch of the GST was supposed to remove inefficient taxes, but what eventually happened was the states simply kept these taxes. By linking GST payments to progress on tax reform, the Commonwealth can effectively force the states to reform their tax systems or suffer the consequences.

Most taxes on transactions are inefficient because they distort economic action. For example, land transfer duty prevents a company from moving its business to better location because of the costs. For an employee who works full time, land transfer duty puts a huge cost on relocation, which means that if he has to travel for two hours everyday to get to work he may choose not to move closer to work due to land transfer duties.

A tax like car registration is completely unfair because you pay approximately $600 regardless of whether you do a lot of driving or do very little driving. The amount you pay should be based on how much damage you do to the road, which is why I think getting rid of car registration and making up for the lost revenue with an increase in fuel tax would be great. The problem is that the states cannot tax fuel, only the Commonwealth can.

How to block Youtube comments

I hate it when I'm watching a movie or show online on Youtube and then someone reveals a spoiler in the comments. I also hate how Youtube is filled with vulgar comments. Thankfully, I have found a solution. It simply involves having Firefox and installing an add-on called YouTube Comment Snob!

This add-on not only allows you to block all comments but also, if you want, allows you to filter out ones with too many spelling or punctuation mistakes, which ensures that the comments that remain are likely to be the more educated ones. I would recommend this add-on for teachers who want to block vulgar comments so that Youtube is safe for children.

Image: waxpancake

Sunday, 10 June 2012

Facebook is not to blame for burglary

The Age has published an article titled The problem with oversharing: why burglars like you using Facebook. The article suggests that if you posts something on Facebook that burglars will know exactly where you are and, if you are not home, they will go into your house and rob it.
IT SEEMS harmless enough: announcing your holiday plans on Facebook or uploading that dinner party photo to Twitter. But according to cyber safety experts, such posts are a gift to burglars and stalkers. ''Not only are you telling me where you are, you're telling me where you're not,'' says cyber safety consultant and former police officer Susan McLean. ''And I could get that photo, run it through a program and find out exactly where it was taken.'' One New South Wales family learnt just how dangerous this can be when they were robbed at knifepoint recently, hours after their daughter posted a photo of her grandmother's savings - in cash - on Facebook. Just before midnight, two men broke in and demanded to speak to the girl, who was not home. They then stole money and property from her terrified mother.
It is certainly possible that you can reveal your location by posting pictures to Facebook, but how Facebook differs to a website is that it is not open to the public unless you allow it to be. Only people you approve to see the pictures can see the pictures you post. And if your friends are the ones robbing you, you should not be approving them on Facebook to see your photos anyway. If you don't know whether your friends are burglars or not, posting a picture on Facebook is no different to if you handed a physical photo to that friend, only Facebook is far cheaper and efficient. The problem therefore is not Facebook but that you shared photos with a friend who you shouldn't have.

Thursday, 7 June 2012

Did Samsung copy Apple?

Apple is up to no good again. In an effort to impede the success of Samsung's flagship smartphone, the Galaxy SIII, Apple is suing Samsung.

Apple should focus on making phones. The fact is that just about all phones are copies in that they take existing technology and improve it. The iPhone is not original and copied technology e.g. the touchscreen and app idea came from the IBM Simon. The iPhone 4S is definitely an improvement on the IBM Simon, but nowadays the 4S is an overpriced dinosaur. For the same cost (or slightly more) you can get far more powerful smartphones e.g. the HTC One X. This is just natural evolution of phone technology.

Sunday, 3 June 2012

Facebook phone is a good idea

There is an article on The Age titled Facebook smartphone? Dumb idea that criticizes the idea that Facebook may create its own line of smartphones.

The article states that there is not much money to be made in smartphones. According to the article, there are two ways of making money in the smartphone industry: the Apply way, which involves creating a phone that is worth $150 and then selling it for $800, thereby making huge profits and making Apple one of the biggest publicy owned companies in the world; the Android way, which involves creating a phone at a cost that varies from $100 to $800 and selling it for only a little bit more, thereby making small profits.  The article assumes that Facebook will opt for the Android way and maybe use the free and open Android operating system or create its own operating system and gain market share by heavily subsidizing the phone and lowering its cost considerably. Facebook intends to make money by gaining large market share and then putting ads on the phones.

I don't think this is a bad idea. However, the article states that this is a poor idea because Facebook is already integrated in most Android and iOS phones. This may be true but Facebook does not control the prices of these phones. Rather, Apple, Samsung, HTC, and so forth control the prices. If Facebook makes a phone, it can subsidize heavily and undercut the rest.

I wouldn't mind buying a supercheap phone and have ads on my Facebook. I'd rather see ads on my Facebook than pay more money on a phone. Comparing smartphones with 1GHz processing power only, currently you can buy a iPhone 4S outright for about $800. You can buy an HTC Desire HD smartphone with 1GHz processing power for $380 outright and unlocked. Suppose Facebook offered a smartphone that was only $150 outright and unlocked with Facebook installed with ads. I certainly would buy it. In terms of value for money, it makes sense. Anyone who is smart with money will do the same things. Facebook will steal customers from Apple, Samsung, and HTC phone users and make more money from advertising revenue. Sounds very smart to me.

Saturday, 26 May 2012

Government failure is not an excuse for more privatization

According to the Institute of Public Affairs's article Behavioural Economics: An Excuse to Tax and Regulate, claiming that free markets are inefficient because people are irrational does not give an excuse for government to intervene because bureaucrats are also irrational people. According to IPA, there may be market failure, but there is also government failure. IPA states the following:

Cooper and Kovacic argue that the bureaucrats who regulate those decisions are likely to have biases that undermine the effectiveness of government intervention.
Regulators are like the rest of us. They are over-confident, thinking they can understand complex behaviour. Hindsight bias leads them to believe events are more predictable than they are. And, unsurprisingly, they are driven by action bias - a tendency to favour interventionist solutions when faced with a problem.
In fact, regulatory biases could be worse than market ones. Behavioural economics tells us that irrationality is everywhere. But the marketplace provides firms and consumers with instant or near-instant feedback. In a competitive market, psychological bias can lead to failure or loss of market-share. With such feedback, market participants will change their actions. Make a mistake, lose money... do better next time.
This is a fair argument. It is true that bureaucrats are far from perfect. But government failure is not really the product of irrational behaviour. Rather, government failure is usually the product of rational behaviour. In a free market capitalist system, what tends to happen is that a very wealthy class or merchants or capitalists emerge. This is what happened during the Industrial Revolution in Britain when a class of merchants started to challenge the power of the aristocracy or gentry. When a powerful class of capitalists emerge, they tend to influence government. Given that bureaucrats and politicians are rational self-interested people, they are also corrupt and accept benefits from wealthy capitalists. Hence free markets are not really the answer to government failure. Free markets only exacerbate government failure as free markets lead to wealth concentration in the hands of capitalists and this in turn leads to corruption and government failure.

The answer to government failure is democracy. The way to make sure that governments don't always give in to the demands of capitalists is to try to force them to give in to the demands of the people, e.g. by members of the public demanding action from their representatives and voting according to what they want. It may be true that the demands of the people can lead to economic inefficiency, e.g. trade unions, welfare, and so forth are all economically inefficient according to mainstream economic textbooks, but these policies protect the people and if the people do not demand it then the government will simply give in to the demands of capitalists and what capitalists want (i.e. a monopoly for their businesses) is also inefficient. In other words, economic inefficiency will always exist because government officials are rational. They will auction off their position to the highest bidder. The best fairest outcome occurs when what government can give (i.e. the funds from taxation revenue) is distributed more or less equally.

Sunday, 20 May 2012

Sacrificing sunlight for affordable housing

According to Chasing the sun among high-rises a heated issue, there is significant resistance to high-rise development in Melbourne's CBD, mainly because of fears that high-rise buildings would destroy sunlight.

Victoria is facing a massive housing affordability crisis that is  resulting in middle-class people paying exorbitant rent or massively inflated prices (and therefore interest repayments) on their homes. Giving first home owners grants only increases demand for houses and pushes house prices up even more. The answer is to increase the amount of accommodation. One way of doing this is to build outwards. Another way is to build upwards. In the face of a housing affordability crisis that is crippling this country, I am surprised that there are people more concerned about sunlight at lunchtime. Governments need to let property developers build more accommodation. Increasing supply is the only way prices will go down.

Monday, 14 May 2012

The Advantages of Online Dating

I have read a piece in Scientific American titled The Scientific Flaws of Online Dating. The article pretty much said that online dating is flawed because humans are not good at selecting compatibility based on details found on a profile, such as income, height, or age. This, in my opinion, is a poor reason for someone to not try online dating mainly because this flaw exists in offline dating as well. If your friends set you up on a date, they are selecting based on very superficial traits such as income, height, and age as well. If you go to a pub or bar, you are doing the exact same thing, judging someone based on physical appearance and then, when you're talking to a potential date, you ask about income, occupation, interests, and so forth.

One of the key advantages of online dating, in my opinion, is that you are in control, as opposed to using your family or friends to set you up with someone. This makes it easier to walk away from a bad relationship. For example, if your friend sets you up with someone and the relationship goes bad, your relationship with your friend can suffer. Furthermore, negative rumours may spread among your circle of friends. Finding someone online allows you to date in secret and, if something goes wrong, your circle of friends or your family are unaffected. Some argue that the ease of walking away from a difficult relationship in online dating is a negative, as it makes it more difficult for you to stay close to someone you like. I disagree. If I am with someone, I don't want her to stay with me because she feels she is trapped. I want her to be with me through her own choice. If she is staying with me because she doesn't want to cause problems with her friends or family, we may not be compatible, and this incompatibility can manifest itself into problems later on.

Another argument against online dating is that it is easy for people to lie in their profiles. They could give the wrong height, income, or age. This also applies with offline dating. When your friends set you up with someone, your friends may have received incorrect information. Poor profile pictures is a problem that exists in online dating that would not exist e.g. if you met someone at a bar. However, if you meet someone online and then go on a first date, only to realise that he or she looks nothing like the profile picture, simply finish up the first date and then end it there. Simple.

Another potential issue is privacy. If you put your profile up, your friends, family, and coworkers may find it and this may cause embarrassment. This is a fair point, but I get around this problem easily by putting up a very bland and generic profile. Most dating sites nowadays allow you to put up private pictures that are only revealed to people you approve. This means I can browse profiles of other females and if I see someone I like I can share my private pictures with her. Of course this would not really work well if everyone does this. But that is not the case.

Sunday, 1 April 2012

Capitalism is Corruption

Capitalism is a system whereby wealth is in private hands. Communism is a system whereby wealth is in public hands. Capitalism is by definition corruption. Corruption is defined as putting public money into private hands. For example, if a politician receives a bribe by a company for a permit to mine in an area, then instead of the company paying taxes, i.e. paying the people, he is instead paying the individual politician who pockets the money. Hence bribery or graft is the privatisation of public money. It is a move to capitalism from communism.

Capitalism is a brilliant tool for increasing economic growth and increasing prosperity. What is most unfortunate about capitalism is that it flies in the face of what most people consider is fair, i.e. powerful and corrupt people control the economy and the workers are effectively slaves, some slaves more fortunate and more free than others. The optimal system therefore is a mixed economy, a capitalist economy with a communist redistributive taxation system that takes money from the rich to give to the poor. This is a good compromise. Most advanced economies already do this, e.g. America, Australia, Sweden, and Norway. However, poor countries cannot afford communism. They need capitalism to drive the economy. This is why poor countries are corrupt and why they need to be corrupt in order to develop.

Many developing economies nowadays, e.g. China, India, Russia, and Thailand have enjoyed significant economic growth, and most people agree that these countries are highly corrupt. This is because these countries have embraced capitalism and hence they have embraced corruption.

Karl Marx argued that countries undergo a natural evolution from feudalism to capitalism to socialism. Under capitalism, the rich use the workers for profit and pay workers a wage. Over time, workers accumulate wealth through their income and with wealth comes power. This allows workers as a whole to demand sick leave, public holidays, weekends off, and so forth. Over time, capitalism tends to evolve into socialism because exploitation of workers tends to give workers more power as workers accumulate wealth.

Many conservatives argue against socialist ideas, saying that socialist ideas hurt the economy. This is generally true. Take for example public holidays. The government deeming e.g. Christmas Day to be a public holiday is a socialist initiative that benefits the working class. It is a detriment to capitalists whose  factories and other businesses have to be shut down for a day. In large factories that mass produce, one day of stoppage can mean millions of dollars in lost revenue. Socialist ideas hurt the economy. However, once an economy develops, if the government does not give workers their socialist demands, the alternative is worse. In a country that is already developed, the alternative to socialism is fascism. Fascism is defined as rule of the country by the powerful and for the powerful. Fascism will come about if there is an absence of communism. Without communism, the working class is impotent and the capitalist class control the government. If the capitalist class control the government, they will, through rational self-interest, implement policies that are anti-competitive and can lead to monopolistic inefficiencies. If we assume that humans are all greedy and are "rationally self-interested" then fascism is the direct by-product of capitalism. In a capitalist economy, those who have money and power will have an incentive to use government to eradicate competition, which means they will use government to eradicate rival capitalists. Politicians will, through rational self-interest, accept bribes or political donations from lobbyists, and the anti-competitive policies implemented will be detrimental for the economy. The only things standing in the way of fascism is communism, as the people as a whole can demand that government implement policies that benefit them. The force of democracy then leads to a situation in which politicians who want to please both voters and lobbyists, find a compromise. This compromise between the fascism promoted by capitalists and communism promoted by workers is normally called a "mixed economy" or even "socialism."

Friday, 30 March 2012

Next Eleven Frontier Market Countries

Back in 2001, Jim O'Neill from Goldman Sachs coined the term BRIC to denote four countries with very large populations that he predicted would dominate the world economy in the future. His predictions turned out to be correct. Today the BRIC countries dominate the world economy and even challenge the G8 in world politics.

Goldman Sachs has now moved on from the BRICs and have developed the Next Eleven ("N-11"), a group of eleven frontier market countries. The firm has created the Goldman Sachs N-11 Equity Fund for investors who believe the N-11 countries will experience significant growth.

Sunday, 11 March 2012

How to Not Worry about Parking or Speeding Fines

Today I received a parking fine of $66, but I am not worried. I walked back to my car to find a parking inspector standing there. I was with my grandmother, and she apologised to the man The parking inspector seemed apologetic and told me that he felt bad that he had to fine me but that he was only doing his job. I told him not to worry and to give me the fine.

I do not worry too much about parking fines or speeding fines. I believe that most fines are tools by government to raise revenue and that--especially with speeding--it is dangerous for drivers to obey the speed limit. There was a moment in my life when I was very cautious about obeying speed limits and I found that most of the time on the road I kept my eyes on the speedometer and not on the road. This resulted in some very near misses. I almost ran over a pedestrian I also didn't see because I was too busy looking at my speedometer. (For your information, the pedestrian was jaywalking anyway.)

Although I may have received a $66 fine, I will recover this simply by salary sacrificing more money into my superannuation fund. Under Australian income tax law, every dollar you earn above A$37,000 is taxed at 30 per cent. However, if at work I were to instruct HR to salary sacrifice a portion of my income into my superannuation fund, the amount that goes into my super fund will be taxed concessionally at 15 per cent. Therefore, for every dollar that I salary sacrifice into my super fund, I will save 15 cents. In order to recover $66, I would need to salary sacrifice $440 (66*100/15). Suppose I wanted to pay this all off within a year, then because I get paid fortnightly and because there are 26 fortnights in a year, then I would need to salary sacrifice $16.92 (440/26) or around $17 per fortnight in order to recover my fine in a year. Of course, we need to account for inflation and opportunity cost. If I were to take $66 and invest it in the stock market, I would optimistically say I'd get a return of 10 per cent per annum, and so because I am fined $66 then within a year I have actually lost $72.60 (66*1.1). If we do all these calculations again with the adjusted fine of $72.60, I would need to salary sacrifice $18.62 (72.60*100/15/26) or $19 per fortnight in order to recover my losses.

I have explained this concept to some people who are very sceptical. The most common counterargument people give is as follows: "If you can just print money out of nowhere by salary sacrificing into your super fund, why don't you just salary sacrifice everything?" The answer to this is simple: there is a $25,000 limit on how much you can salary sacrifice into your super. If this is the case, why don't I simply salary sacrifice to the limit? The answer is because that would have a massive impact on cash flow and current spending. Although money you put into your super fund is taxed concessionally, the downside is that you have to wait until you are around 65 years old to take it out. For me that means waiting over thirty years to access the money. If I salary sacrificed to the max, my present income would drop considerably and although my retirement thirty years from now would be brilliant if I salary sacrificed to the max, it would come at the severe detriment of my youth. Therefore, I make it a policy to sacrifice a token amount of $100 per fortnight into my super fund and increase it bit by bit as I receive parking or speeding fines. If I were to increase the amount I salary sacrifice by only $20 in order to recover the costs of a parking fine, this would have a negligible impact on current cash flow and current spending. I would barely notice it. It follows then that this system of getting a reimbursement on your parking fines by salary sacrificing only works if you don't get fined every day. If this happens, your current income would decrease sharply and you will definitely feel it.

The parking fine I received today was from a private operator, but most fines are from the state government. If you salary sacrifice into your super fund, the tax concession you get is your gain at the expense of the commonwealth government. Effectively you have transferred money from the commonwealth government to the state government. However, much of state government revenue (around 50 per cent) is in the form of commonwealth government grants. By taking away money from the commonwealth, there is a good chance the commonwealth will cut back on the amount they give to state governments. Therefore, if you are fined by the state government and recover your money by salary sacrificing into your super fund, you recover your money from the commonwealth government who in turn recover their money from the state government. Therefore, when the state government fines you and you salary sacrifice, you hand over your money to the state government who then gives it back to you. There is no net effect.

Monday, 2 January 2012

My experiences with a Jehovas Witness

There is a Jehovas Witness woman named Kristie who keeps visiting me, oftentimes with her children. She came over yesterday with her daughter. I am happy to discuss religion with her, but the reality is that I had my whole family, including my wife, all in the house with me, and all of them I know are against Jehovas Witnesses, so I didn’t want to be seen as associating with the enemy by talking with a Jehovas Witness. 

I tried to tell the Jehovas Witness this, saying that my family is against the religion and therefore I am not too comfortable exploring the faith. I said this mainly because I wanted them to go away. Kristie then sort of accused me of being passive and subservient, that I did not consider all the facts before making a decision on what faith to follow, instead just following whatever religion I was told to follow. I could have escalated this and told her that my family don’t actually coerce me, that I just want to fit in or assimilate into the culture that I am in. But I decided against it. Instead I nodded my head and stayed silent. The silence became a little awkward, so Kristie changed the subject. 

My wife then confronted me, telling me that Jehovas Witnesses were crazy people. I made the mistake of engaging in an argument with her about whether religion was good or bad for a society. That went on forever. I should have followed the principle I followed when I spoke with the Jehovas Witnesses and stopped arguing before the argument escalated into a war.