New economic thinking

LAST weekend, over 400 top economists, thought leaders, three Nobel Laureates and participants gathered in Hong Kong for the fourth Annual Institute for New Economic Thinking (INET) conference, co-hosted by the Fung Global Institute, entitled “Changing of the Guard?”



So what was new?

In the opening session, Dr Victor Fung, founding chairman of Fung Global Institute, quoted Henry Kissinger as saying, “Americans think that for every problem, there is an ideal solution. The Chinese, and Indians and other Asians think there may be multiple solutions that open up multiple options.”

That quote summed up the difference between mainstream economic theory being taught in most universities and the need to build up a new curriculum that teaches the student to realise that there is no flawless equilibrium in an imperfect world and that there is no “first-best solution”.

Instead, what is important is to teach the aspiring economist to ask the right questions, and to question what it is that we are missing in our analysis. It is important to remember that theory is not reality, it is only a conceptualisation of reality.

Nobel Laureate Friedrich Hayek, one of the leading thinkers on open societies and free markets, explained why the practice of mainstream economics is flawed. In 1977, he said, “A whole generation of economists have been teaching that government has the power in the short run by increasing the quantity of money rapidly to relieve all kinds of economic evils, especially to reduce unemployment.

Unfortunately this is true so far as the short run is concerned. The fact is that such expansions of the quantity of money, which seems to have a short-run beneficial effect, become in the long run the cause of a much greater unemployment. But what politician can possibly care about long-run effects if in the short run he buys support?”

Sounds familiar on present day quantitative easing?

In his 1974 Nobel Laureate Lecture entitled “The Pretense of Knowledge”, Hayek showed healthy scepticism: “This failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences an attempt which in our field may lead to outright error.”

Hayek understood what is today recognised as quantitative model myopia. What cannot be easily measured quantitatively can be ignored. Then it is a small step to assume that what can be ignored does not exist. But it is precisely what cannot be measured and cannot be seen the “Black Swan” effect that can kill you.

In other words, economists must deal with the real world of asymmetry information, that there exists Knightian uncertainty, named after University of Chicago economist Frank Knight, what we call today unknown unknowns.

Unknown unknowns arise not just from accidents of Mother Nature, but from the unpredictability of human behaviour, such as market disorder, which is clearly complex and ever-changing.

If unknown unknowns are common in real life, then a lot of the economic models that appear to give us precise answers may be wrong. In other words, for every question, there is no unique answer and the solutions are “indeterminate”.

George Soros, who helped found INET, explained his theory of reflexivity based on the complex interaction between what he called the cognitive function (human conception of reality) and the manipulative function (the attempt by man to change reality).

His theory of reflexivity in markets differs from mainstream general equilibrium theory in one fundamental aspect. General equilibrium models assume that market systems are self-equilibrating, going back to stable state. Borrowing from engineering systems theory, we now know that this is a situation of negative feedback a system that gets disturbed fluctuates smaller and smaller till it returns to stable state.

The trouble with nature and markets is that positive feedback can also happen. The fluctuations get larger and larger until the system breaks down. Nineteenth century Scottish scientist James Maxwell discovered that steam engines can explode if there is no governor (or automatic valve) to control the steam building up.

At about the same time, English bankers learnt that banks can go into panic regularly without the creation of a central bank to regulate the system. Markets therefore need a third party the state to be the system “governor”. Free market believers think that the market will take care of itself. John Maynard Keynes was the first to recognise that when free markets get into a liquidity trap, the state must step in to stimulate expenditure and get the economy out of its collective depression.

In the 21st century, we have evolved beyond Keynes and free market ideology. Belief in unfettered markets has created a world awash with liquidity and leverage, but the capacity of advanced country governments to intervene Keynesian style has been constrained by their huge debt burden.

Larry Summers has pointed out that Keynes invented not a General Theory, but a Special Theory for governments to intervene to get out of the liquidity trap. The fact that we are still struggling with the liquidity trap means that economists are searching for new solutions, such as borrowing from psychology to explain economic behaviour.

The INET conference introduced the thinking of French literary philosopher, Rene Girard, and his theory of memetic desire, to explain how social behaviour more often than not get into unsustainable positive feedback situations, either excessive optimism or pessimism. How do you get out of such situations? Girard introduced the concept of sacrifice. We will have to wait for the next conference to explore this new angle.

Intuitively, all life is a contradiction. The sum of all private greed is not a public good. It does not add up. Someone has to sacrifice, either the public or a leader.

Schumpeter's great insight about capitalism is that there is creative destruction. He only restated the old Asian philosophy that change is both creative and destructive. But out of change comes new life.

In sum, contradictions are creative. What is new is often old, but what is old can be new.

 
Tan Sri Andrew Sheng is president of Fung Global Institute.

China sends peace message

The Boao Forum reiterates the need for regional stability for Asia to continue to enjoy economic prospects.



THE Boao Forum for Asia, which concluded in the small town of Boao on southern China’s Hainan island, has reached an important consensus from Asia.

Major Asian leaders want every country in the continent to ensure regional stability so that Asia will continue to enjoy its fast-paced economic prosperity.

Speaking at the opening of the forum, which was running for its 12th year, Chinese President Xi Jinping was the first to make clear his stand – China will not wage a war unless its enemy severely threatened its sovereignty.

He said that China would continue to resolve any differences and disputes it has with its Asian counterparts amicably while expanding cooperation in the continent.

“On the basis of maintaining the sovereignty and safety of our territories, we will work hard to maintain good relations with our neighbours as well as overall peace and stability in our region,” he said.

Xi said China is a peace-loving nation whose people have deep and painful memories of the war and revolt era.

He said China and its Asian neighbours relied on each other as China could not develop in isolation from the rest of Asia and the world, while the world could not enjoy prosperity and stability without China.

“Over the past decade, trade among Asian nations jumped from US$800bil (RM2.4 trillion) to US$3 trillion (RM9 trillion). Trade between Asian nations and other countries increased from US$1.5 trillion (RM4.6 trillion) to US$4.8 trillion (RM14.6 trillion).

“That means trade in Asia is open. Regional and global cooperation goes hand in hand and does not go against each other. Everyone benefits from such cooperation.”

Myanmarese President U Thein Sein said that his government would place great emphasis on collaboration, transparency, accountability and inclusiveness in its political, economic and social reform processes.

He said in spite of the increasing global challenges, uncertainties and high risks, all Asian nations should be able to remain successful in the continent by upholding regional political, social and economic stability continuously.

Kazakhstan President Nursultan Nazarbayev said in order to boost the efficiency of cooperation, all Asian nations need to work together, coordinate with each other more and have a common action agenda.

He said they should explore their decision-making mechanism, accommodate the position of all countries and be more open to the outside world because no country could stay immune from the global impact.

Sultan of Brunei Sultan Hassanal Bolkiah said Asean has a role to play in promoting peace and collaboration.

Brunei’s Asean Chairmanship theme of “Our People, Our Future Together” this year reflects the vision of the Asean founders who believed open conflict would endanger the development prospect of its members.

Thus, they would be committed to refrain from the use of force.

“As the world becomes more and more connected, Asia’s success will contribute to a greater good in the global arena. We all share a collective responsibility in shaping a successful future.

“We are about to face competing political and economic interests and this will pose a threat to our resolve for partnership and harmony,” he said.

Indian Corporate Affairs Minister Sachin Pilot said Asia was one of the fastest growing continents in recent years but rapid growth would not occur if each country does its own thing in isolation.

“Good economics and robust growth are only attainable when there is understanding with each other.

“I am delighted to hear what the Chinese President was saying about how we need to have more peace and prosperity for us to grow.

“The global economic recovery can take 10 or 20 years, depending on how focused we are in Asia,” he said.

Australian Prime Minister Julia Gillard pointed out that what North Korea and South Korea were doing on the Korean Peninsula by provoking each other was the last thing Asia wanted to see.

“There, any aggression is a threat to the interest of every country in the region.

“For this reason, I do welcome the growing cooperation of all regional governments to prevent conflict on the Korean peninsula and to counter North Korean aggression.

“That cooperation is also a sign of what would be needed in future as we face other security challenges.

“Asia must be a region of sustainable security in which habits of cooperation are the norm,” she said.

Besides the latest tension on the Korean peninsula, Asia faces other security threats, especially the Kashmir conflict, Gaza Strip tension and counter-claims of islands and sea borders by China, Japan, Korea, Taiwan, the Philippines and Indo-China.

For the sake of regional stability and integration, to start off with, the forum’s vice-chairman Zeng Peiyan proposed for more infrastructures to be built to connect Asian nations together.

“There are two main things we need to work on.

“Firstly, we should establish exchanges and cooperation between each Asian economy on planning and building infrastructures such as electricity, railway, road and telecommunication.

“Secondly, we need to find a solution to the huge financing gaps in infrastructure development in Asia.

“Between 2010 and 2020, Asia will need some US$8 trillion (RM24 trillion) or more to fund infrastructure projects to sustain the current levels of economic growth.

“It will be good that each nation sets up an investment fund which specialises in providing financing services for the construction of such infrastructures,” said Zeng.

Made in China
By CHOW HOW BAN

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North Korea likely launch nuclear missiles: China warns troublemakers at her doorsteps!

On April 6, Chinese Foreign Minister Wang Yi expressed severe concern over the current tense situation on the Korean Peninsula to U.N. Secretary General Ban Ki-moon over the phone, and said Beijing "does not allow troublemaking at the doorsteps of China."

In wake of the rising tensions on the Korea Peninsula, for the regional peace and stability and to safeguard China's national interest, it is necessary to address relevant sides over the issue:

To DPRK: do not misjudge the situation

The Democratic People's Republic of Korea (DPRK) has many reasons to strengthen the arms and technology, and there are legitimate concerns of their own national security, but there is no reason to violate the relevant resolutions of the United Nations Security Council to engage in nuclear testing and launch missile using ballistic missile technology, which cannot shirk its responsibility in upgrading tensions on the peninsula last year.

The DPRK has its own special circumstances, political needs, policy choices and political language style, which is its internal affairs and the outside world has no right to interfere in. But if its choice and words intensifies the Korean Peninsula tensions and affects peace and stability in the region, it becomes the international issues. The situation’s development on the peninsula will not necessarily go according to the ideas and expectations of the DPRK.

To the United States: do not add fuel to the flames

Even with the United Nations Security Council’s resolution on the Korean Peninsula issue, and has legitimate concerns over the nuclear non-proliferation and security issues, unilateral sanctions from the United States against the DPRK which are beyond the UN resolutions would be counterproductive and will add pressure to the situation.

For decades, sanctions, pressure, isolation against the DPRK initiated by the United States is one of the root causes of conflicts on the peninsula. Since the 1990s, U.S. government policy toward the DPRK has swung between engagement and isolation, making the DPRK doubtful of the sincerity of the United States, and giving an excuse to the DPRK in violation of the agreement.

The United States, as the superpower whose comprehensive national and military strength is far stronger than the DPRK's, is in a strong position; therefore, any strong move will only increase tension on the peninsula.



To South Korea: do not miss the focus

With the "protective umbrella" provided by the U.S., South Korea’s security is still fragile. Due to the geographical location and military deployment, South Korea would become the biggest victim if any conflicts and wars break out on the peninsula.

The south and north peninsula have had a period of increased contacts and exchanges, and South Korea's new government has repeatedly expressed its willingness to implement policy toward the DPRK which are different from the Lee Myung-bak government.

Being one of the major parties of the Korean Peninsula issue, South Korea should play the role to cool down the tensions on the Korean Peninsula, rather than pushed by the DPRK or the United States.

To Japan: do not fish in troubled water

Every time North Korea test-fired a satellite or missile, Japan will deploy so-called "interception" in a big way. This is largely a move of Japan taking the opportunity to adjust and increase in arms.

During the process of the Six-Party Talks in the past, Japan sometimes played the role to hold back the process by entangling in some particular issues. This short-sighted strategy and using the pretext of the DPRK "threat" to develop armaments and adjust security strategy will only increase complicated factors in the regional situation.

Warfare and chaos on the Korean Peninsula does not meet the interests of any party. The war caused by trouble will have impact on regional peace and stability, endangering regional cooperation and win-win situation, hurting any party that causes trouble.

Although the situation on the peninsula has not come to the point when conflicts can be triggered at any moment, it has brought harm to regional peace and stability.

Not allowing troublemaking at the doorsteps of China means to stop the vicious circle of tension on the peninsula, to prevent any party from stirring up trouble, to oppose creating tension on purpose, and to say no to render the use of force to resolve the problem. Words and deeds that intensify the tensions on the Korean Peninsula should be condemned and opposed.

Not allowing troublemaking at the doorsteps of China is not China's "Monroe Doctrine". China does not seek spheres of influence. China intends to maintain regional peace and stability on the Peninsula, and determine its own position and actions in accordance with the Peninsula situation on its own merits. At present, it is not without hope to maintain peace and stability on the peninsula.

The pressing matter of the moment is that all parties should calm down and restrain, move to ease the tension as soon as possible to create the conditions for the situation to change.

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Why do some youngers resort to extreme violence?

Child serial killers”, “Kids murdering their parents” – these are the headlines we are increasingly seeing in the news.

Last month, a 19-year-old Japanese teenager allegedly killed and dismembered his mother because he did not like her apparently, and also because he wanted to know more about dissection.

It’s shocking that a teen who is still considered a minor under Japanese law would resort to murder for something as mundane as “not liking his mum”. I’m sure we have all disliked our parents at some point of our lives but letting that be the reason to do away with someone who gave birth to you in cold blood is absurd.

Two other recent cases of alleged parental murder and harm were sparked by computer use and gaming.

The first, reported in China Daily (chinadaily.com.cn), happened in Ziyang, Sichuan province. The 14-year-old boy is said to have mixed farm chemicals into the family’s cooking oil, which led to his parents, elder brother and sister-in-law suffering stomach problems and vomiting. The boy later confessed to his crime and said he was upset over his mother banning him from playing computer games.

Another 18-year-old boy – from Yuen Long village in Hong Kong – was arrested on suspicion of stabbing his father to death and wounding his mother. According to a source at the scene, a fight had broken out when his father tried to stop him from playing video games.

Why has it become so “normal” for teens to solve problems with violence?

In New Mexico in the United States, 15-year-old Nehemiah Griego allegedly shot his parents and three younger siblings in January. The incident left the public wondering how a sweet, home-schooled teen described as a doting older brother – who has no history of violence or anti-social behaviour – could commit such an act.

According to a New York Daily News report (nydailynews.com), Griego appeared “unemotional” when confessing to the murders but turned animated when discussing his favourite violent video games.

Could it be, then, that overexposure to blatant violence in the video games caused him to “go rogue” and violently kill his family?

It’s not unreasonable to assume that repeated exposure to violence on television and in games might have an impact on youth development. It is true that exposure to violent media results in desensitisation to violence. Furthermore, media violence rarely shows the consequences of violence.

However, the media-violence link isn’t as simple as a headline would have us believe. The teens’ personality is a major factor in determining whether screen aggression will lead to aggression in the real world. A recent article in the Review Of General Psychology journal asserts that exposure to violent media has a much greater impact on those who are more emotionally reactive and less agreeable, careful and disciplined than their peers.

In addition, teens who are isolated and have few connections to healthy adults and a lack of identity and purpose (what one of the researchers, J. Kevin Cameron, calls “empty vessels”) are at higher risk of identifying with perpetrators of violence in television and video games, and might therefore be more likely to engage in violent behaviour.

This conclusion seems more plausible than the notion that violent media invariably leads to an increase in violent behaviour.

Therefore, it makes sense to limit exposure to media violence, but it is not realistic to completely shield our teens from it. Parents should be aware of the TV programmes, movies and video games consumed by their teens. Talking to teens about the things that they see on the screen is also important.

However, I believe the bottom line is to build a strong relationship with our teens. It is this meaningful connection with our teens that will enable them to empathise with others and make sense of what they watch on screen.

If you notice your teens exhibiting signs of anti-social behaviour or a sudden change in their lifestyle and behavioural patterns, find a way to talk to them so it won’t reach a point where they just “snap”.

On the other hand, we, as parents, must recognise that we may not always have all the answers. Whenever we are in doubt, we should seek professional help, so that situations do not turn too “dangerous”.


TEENS & TWEENS
By CHARIS PATRICK

Charis Patrick is a trainer and family life educator who is married with four children. Email her at star2@thestar.com.my.

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DAP strongman Lim Kit Siang's biggest political gamble

A victory against Johor Mentri Besar Datuk Abdul Ghani Othman would mean the first time in the DAP veteran’s 50-year political career that he has defeated a major Malay challenger. A loss would see him packing out of Johor and, probably, out of politics as well.



DAP adviser Lim Kit Siang, who is contesting in Gelang Patah, is not as invincible as he might seem. He has been defeated before – not once but five times in a career that spans nearly five decades.

Besides, Kit Siang and his junior – DAP secretary-general Lim Guan Eng – have upset the apple cart in Johor and sparked the sudden disbanding of the three-man state DAP candidate selection committee.

State DAP chairman Dr Boo Cheng Hau, one of the panel members, has told friends he had invited Kit Siang in good faith to fight in Gelang Patah, which he had earlier been eyeing.

The veteran politician accepted but he is bringing along his “cronies” and this has caused bitter in-fighting and dissension among state leaders.

Kit Siang would need all the support and help he can get from Dr Boo, the current assemblyman for Skudai, one of the two state seats in the parliamentary constituency. (The other is Nusajaya.)

If he crosses the Johor chief, as he and Guan Eng had done, Kit Siang could hurt his chances in Gelang Patah.

The Lims, who control the party, are also bringing Liew Chin Tong from Bukit Bendera in Penang to Kulai and fielding “Superman” Hew Kuan Yaw in Labis.

Kit Siang and son, who is the Penang Chief Minister, had also used their “central power” to move current elected representatives from one seat to another in Johor.

All these moves, insiders say, is to cut Dr Boo down to size, as he seldom sees eye to eye with Guan Eng.

Besides, if Barisan Nasional fields Mentri Besar Datuk Abdul Ghani Othman in Gelang Patah, as is widely speculated, Kit Siang will probably face the toughest political fight of his life.

A victory would see him make history by defeating a Malay candidate and capturing a constituency that is synonymous with the ambitions of Umno.

On the other hand, a defeat would send the DAP stalwart packing – not only out of Johor but, probably, also out of politics.

Kit Siang is pushing 72 and a defeat may well sound the death knell of his long and illustrious career.

He has contested in 10 parliamentary and eight state seats, the first in a by-election in Serdang, Selangor in 1968.

He moved to Malacca, then back to Selangor, and, after that, to a disastrous showing in Penang with his failed Tanjung projects to wrest the state from the Barisan.

After his defeat in 1999, he emerged in Ipoh Timur in the 2004 general election and remained there for another term.

He is trying out Johor, as he did in Penang and Perak – a tried and tested strategy to expand the DAP’s reach, to find new territories for the party and to help the opposition front capture Putrajaya.

His nomadic political lifestyle is part of a strategy to also centralise national attention on himself and to make the state he migrates to the focal point of his party’s national election battle.

He never contested to serve as MP but, always, to expand the party among mostly Chinese voters.

While his political enemies have coined for him the phrase “touch and go politician” to describe his migratory practices, Kit Siang remains confident of his politics.

He hopes his venture into Johor, designed to take the Barisan by surprise, would have the “awe and wow” effect for the upcoming “mother of all battles”.

By his calculation, Kit Siang is sure of the Chinese voters, who form a slight majority in Gelang Patah. But he had not banked on the Barisan pulling a surprise of its own.

Ghani entering the fray, if it indeed happens, is wholly unexpected and is fraught with danger for Kit Siang.

This would make it a “Malay vs Chinese” electoral fight, the first time in Lim’s 50-year political life that he would be facing a major Malay challenger.

Besides, Ghani is mild-mannered, soft-spoken and enjoys a special relationship with the Chinese in Johor who, unlike their cousins elsewhere, did not wholly contribute to the 2008 political tsunami.

Kit Siang’s confidence is drawn from the party’s performance in Sarawak in the 2006 state polls, where it contested in 15 state seats and won 12, 10 of them with big majorities.

The DAP also won the Sibu seat by a slim majority in a hard-fought battle with the Barisan in a by-election.

With such a performance behind him, the hardcore politician is tuned to the possible – confident and willing to bet everything in one throw of the dice.

But the Lim dynasty, in their over-confidence, has upset the apple cart that had been carefully nurtured by Dr Boo in Johor.

Not only is the Gelang Patah contest much in doubt now, the party’s entire foray into Johor is being questioned by state DAP leaders.

Comment By Baradan Kuppusamy

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