Self-selection

Self-selection is a term used to indicate any situation in which individuals select themselves into a group, causing a biased sample. It is commonly used to describe situations where the characteristics of the people which cause them to select themselves in the group create abnormal or undesirable conditions in the group.

Self-selection is a major problem in research in sociology, psychology, economics and many other social sciences.

Self-selection makes it difficult to determine causation. For example, one might note significantly higher test scores among those who participate in a test preparation course, and credit the course for the difference. However, due to self-selection, there are a number of differences between the people who chose to take the course and those who chose not to. Arguably, those who chose to take the course might have been more hard-working, studious, and dedicated than those who did not, and that difference in dedication may have affected the test scores between the two groups. If that was the case, then it is not meaningful to simply compare the two sets of scores. Due to self-selection, there were other factors affecting the scores than merely the course itself.

Self-selection causes problems for research about programs or products. In particular, self-selection makes it difficult to evaluate programs, to determine whether the program has some effect, and makes it difficult to do market research.

The term is also used in criminology to describe the process how specific predispositions would make an offender to choose a criminal career and lifestyle.
Source: http://en.wikipedia.org/wiki/Self-selection

The Economics of the Great Despression by Eric Carbonnel

Most people think that the United States is borrowing most of the world’s savings to fund the deficit. Ben Bernanke, the chairman of the Federal Reserve, who is presiding over ever higher inflation rates, even made a speech in 2005 called “The Global Savings Glut and the U.S. Current Account Deficit.”

The speech makes it sound as if the rest of the world has way too much savings, so much so that they don’t know what to do with it except loan it to the United States.

People think that the excess dollars that go overseas due to the U.S. trade deficit are being loaned back to us. This is not entirely true. To be sure, there is a lot of real foreign investment happening in the United States, but it’s not nearly to the extend reported.

So where does all that extra currency that purchases all those U.S. Treasury Bills to fund a large part of the deficit come from?

The countries that are the U.S.’s major trading partners create it.

China is the best example. When someone in the U.S. buys something in the U.S. that was made in China, that U.S. vendor bought that product from a Chinese businessman and paid in U.S. dollars.

The Chinese businessman then deposits those dollars into his checking account at his local Chinese bank. The bank then converts those dollars to yuan, the official Chinese currency. Now, the local bank has a glut of dollars and a shortage of yuan, so it sells the extra dollars to the People’s Bank of China and buys more yuan.

As long as the trade between the two countries is in equilibrium there is no problem with this. But when one country is running continuous trade deficits and the other continuous surpluses, as the United States and China currently are, a problem arises.

In the case of China, because there is more currency flowing into China than out, the People’s Bank of China ends up with a huge glut of U.S. dollars. Under the rules of the game of international trade and currency exchange they are supposed to sell those excess dollars on the Forex (foreign exchange market) and buy yuan.

But that would mean that there would be a glut of dollars and a shortage of yuan, which would cause the dollar to fall in value and the yuan to rise.

This means Chinese goods would then become very expensive in the U.S., slowing China’s exports, and that’s the last thing China wants.

So to get around the international trade and currency exchange game, China bends the rules. The People’s Bank of China takes the extra dollars and neutralizes them by buying a dollar-denomenated asset, most often some sort of interest-bearing investment instrument, like U.S. Treasuries.

This keeps the yuan from rising and the dollar from falling.

This is known as “neutralizing” or “sterilizing” excess currency inflows. The funny thing is that the U.S. was doing the same thing by sterilizing excess gold inflows all through the 1920s to keep the dollar artificially low and exports up, and it was one of the major factors that contributed to the Great Depression.

So if the People’s Bank of China used excess dollars to buy U.S. Treasuries, and didn’t buy the yuan on the Forex to sell to the businessman’s local bank, where did the People’s Bank of China get the yuan?

Answer: China creates it!

During recent years, the U.S.’s current account deficit has been financed primarily by money created by the central banks of other countries, in particular China.

Therefore, it is not a matter of the United States using up all the rest of the world’s savings to fund its deficit. It is a matter of the deficit being financed by the central banks of the United States’ trading partners, and, for their part, Asian central banks in particular have consistently demonstrated their ability and willingness to create money in order to finance the U.S.’s current account deficit.

So China is now sterilizing excess currently inflows just like the United States did in the 1920s. But why hasn’t China fallen into a depression like the U.S. did when it played the sterilization game?

Because China has added a little twist.

In the 1920s, Europe paid for U.S. imports with gold, and the Federal Reserve would cheat gold by locking it away instead of expanding the currency supply to match, thereby preventing the commensurate inflation it would have caused, keeping the price of U.S. goods low, and insuring a continuing trade surplus.

This was hugely deflationary.

As the rest of the world bought cheap American goods, gold would just disappear into the black hole of the Federal Reserve and the world money supply would contract.

And when currency contracts, deflation ensues.

When China sterilizes excess currency inflows, however, it’s extremely inflationary. For every excess dollar that China neutralizes by buying U.S. Treasuries, the People’s Bank of China has to conjure up a commensurate amount of yuan out of thin air.

...

As a result of all the currency games being played by China (and other countries), the total U.S. deficit has grown to over $7 trillion since the dollar was taken off the gold standard by President Nixon in 1971. These deficits are sustained by fiat currency from other central banks around the world.

All the while, these foreign banks are hoarding ever increasing amounts of U.S. debt (in the form of Treasuries) and artificially propping up the value of the dollar.

Much of our debt cannot be repaid, and if our trade partners begin to dump U.S. Treasuries on the world markets, the whole credit bubble will implode, resulting in a worldwide depression.

The longer governments and central banks try to cheat the free markets, the greater the pain will be when the correction occurs. Remember, in the end, fixed markets lose, and free markets always win.

I believe that inflation has slowed in China due to fears about deflation. When those fears fade, inflation picks up again and China will sell dollars to save its currency. This hyperinflation in China combined with the crashing value of the dollar will cause most fiat currencies to lose all value and will spell the end of the world's paper based currency system.

Source: http://www.marketskeptics.com/2009/01/economics-of-great-depression.html

Keynesian economics

In economics Keynesianism (pronounced /ˈkeɪnziən/, also Keynesian economics and Keynesian Theory), is based on the ideas of twentieth-century British economist John Maynard Keynes. According to Keynesian economics the state should stimulate economic growth and improve stability in the private sector - through, for example, interest rates, taxation and public projects.

The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936.

In Keynes's theory, some micro-level actions of individuals and firms can lead to aggregate macroeconomic outcomes in which the economy operates below its potential output and growth. Many classical economists had believed in Say's Law, that supply creates its own demand, so that a "general glut" would therefore be impossible. Keynes contended that aggregate demand for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output. Keynes argued that government policies could be used to increase aggregate demand, thus increasing economic activity and reducing high unemployment and deflation.

Keynes argued that the solution to depression was to stimulate the economy ("inducement to invest") through some combination of two approaches:

- a reduction in interest rates.
- Government investment in infrastructure - the injection of income results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.

A central conclusion of Keynesian economics is that in some situations, no strong automatic mechanism moves output and employment towards full employment levels. This conclusion conflicts with economic approaches that assume a general tendency towards an equilibrium. In the 'neoclassical synthesis', which combines Keynesian macro concepts with a micro foundation, the conditions of General equilibrium allow for price adjustment to achieve this goal.

The New classical macroeconomics movement, which began in the late 1960s and early 1970s, criticized Keynesian theories, while New Keynesian economics have sought to base Keynes's idea on more rigorous theoretical foundations.

More broadly, Keynes saw his as a general theory, in which utilization of resources could be high or low, whereas previous economics focused on the particular case of full utilization.

Some interpretations of Keynes have emphasized his stress on the international coordination of Keynesian policies, the need for international economic institutions, and the ways in which economic forces could lead to war or could promote peace.
Source: http://en.wikipedia.org/wiki/Keynesian
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This is obvious in Singapore, where our Government builds overhead bridges, disabled-friendly walkways etc. to stimulate the construction industry. So, yes, Marina Bay Sands IR will be built at all costs.

E-cow-nomics

SOCIALISM: You have 2 cows, so you give one to your neighbour.

COMMUNISM: You have 2 cows. The State takes both and gives you some milk.

FASCISM: You have 2 cows. The State takes both and sells you some milk.

NAZISM: You have 2 cows. The State takes both and shoots you.

TRADITIONAL CAPITALISM: You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

MALAYSIAN BUMIPUTRAISM: You have two cows, the State takes one and gives it to your bumiputra neighbour. From the milk you sell from the remaining cow you buy a bull and mulitply your herd. The State takes 30 per cent of your herd as it grows and give them to your bumiputra neigbour. Your bumiputra neighbour has a kenduri each time they receive a cow.

UMNOPUTRAISM: The State takes 30 per cent of your herd and parks them in Switzerland in the name of some UMNO official or close relatives, friends and sons-in-law.

MALAYSIAN GOVERNMENT-LINKED OR BUMIPUTRA CORPORATION: You have two cows.
You employ mainly bumiputras to milk them. But both cows have been sent to the kenduri, so the State gives you more cows and write off the losses of the first two. After several kenduris later, you invite an American or German Corporation to turn around the losses. The Japanese have however already taken their two original cows back home to Japan.

AN AMERICAN CORPORATION: You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyse why the cow has dropped dead.

A FRENCH CORPORATION: You have two cows. You go on strike, organise a riot, and block the roads, because you want three cows.

A JAPANESE CORPORATION: You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called 'Cowkimon' and market it worldwide.

A GERMAN CORPORATION: You have two cows. You re-engineer them so they live for 100 years, eat once a month, and milk themselves.

AN ITALIAN CORPORATION: You have two cows, but you don't know where they are. You decide to have lunch.

A SWISS CORPORATION : You have 5,000 cows. None of them belong to you. You charge the owners for storing them.

A CHINA CORPORATION: You have two cows. You have 300 people milking them. You claim that you have full employment, and high bovine productivity, and arrest the newsman who reported the real situation.

AN INDIAN CORPORATION: You have two cows. You worship them.

A BRITISH CORPORATION: You have two cows. Both are mad.

A MALAYSIAN CORPORATION: You have two cows. You signed a 40-year contract to supply milk at RM0.06 per litre. Then midway through, you raised the price to RM0.60 or you cut the supply. When the buyer agrees to the new price, you change your mind again and now want RM1.20.
The buyer decided you can keep the milk, who rather go look for milk that comes from recycled cows or the cow urine instead. At the end your two cows retire together with the Prime Minister.

A SINGAPOREAN CORPORATION: You have two cows. Whenever prices of GST, ERP, PUB and kopi-si go up; one cow-peh and the other cow-bu.