moments of reflection

Life can be amazing in many ways. Looking back, the moment when I was at home, just walking with my parents can be so amazingly beautiful. I look back with nostalgia and I know that I am not an ambitious man.
I have attended lots of competitions in my last year of high school. Every time, I could go to the place myself, since it is in the city, but my papa will always accompany me there. When I was in the competition, he will be waiting outside, for hours. I am the least patient person in the world and I would never want to wait for anything, not even for a couple of minutes, even for the things I love a lot, at least not for hours. I once asked him why he would accompany me to every competition, he just told me that he enjoyed the conversation on the way, which has become a kuxury after I got into a boarding school and I became immersed with my work, dating and hanging out with friends.
Every weekend I will come home from boarding school. Every time I set out for school again, he will be with me again. I sometimes wondered has he ever experienced a moment of boredom on his way back alone? or a moment of disappointment when I have been silent the trip to school? I never know these answers and I wish I will never know. This way, I might not feel so guilty.
Love in silence.

thoughts on academics

Life in academics is both stressful and exciting. I constantly feel the excitement of the possibility of constantly learning , and yet feel stressed that there is simply so much to learn, so much to read and so much to write about.

True Legacy of Nobel Prize--Dynamite

I have always wondered why Nobel include Peace as part of the Nobel Prize. For me, it is like a joke, one needs nothing more than standing in the right side to win this prize, regardless of intentions and consequences. Unlike Physics, one does not need real talent and real break-through to win this restigious prize. I later heard that Nobel include peace prize because he want to compensate for the invention of Dynamite. That explains it all.
Dynamite is a great invention, but it is a double-edged sword. Used properly, it is extremely helpful in saving labor and just doing great things. However, used in the hands of the untrustworthy, this could be very destructive. I believe the Nobel Peace prize is exactly like dynamite. Used well, it can promote peach, used improperly, for example to serve the political interest of some nations and people, it could be more destructive than A-bomb, in that it could bring instability to countries.
In general, I do not trust human beings. Human beings are capable of doing great things, but more often than not, that capacity is overshadowed by selfishness, irrationality, stupidity, and biasedness. After all, we can witness rhetoric dominating over reason everyday.
I heard a Chinese won Nobel peace prize. I am not impressed. Frankly, I do not give a shit. After all, what really would matter is something more concrete. Winning awards in Physics, medicine , economics and so on might count. Bring a country to develop economically rapidly for 30 years might count.

on happiness and Philips curve

I have been on the top of the world, and it felt great. But every time, it was transient. It will be followed by a sudden downfall. I ask myself, can such happiness ever be lasting? The answer is no.
I do not mean that people cannot be happy. Given certain life path, some people are always happy and others not. This as I would call it using an analogy from economics, a natural level of happiness. It is determined by people's attitude towards life, their gratitude versus greed, and their characters.
This description is all about smooth path in life. However, when life present you with a success or something very pleasant, one feels happier than his normal state of happiness. However, this kind of happiness is transient--when that surprise fades or ends, one feels the contrast and feel down--lower than his normal state. One might well postulate, that what if one is always successful, does that make him the happiest person in the world? The answer is no. The key lies in the adaptiveness of our mind, our mind adapts to that frequency of good things, and is no longer "surprised" by success. Just like the Fed can improve the economy by surprising the market with its manipulation of interest rate, but it can not systematically surprise the market. There is a short-term correlation between inflation on the growth rate, but as the market adapt to the higher inflation rate, the growth rate declines to the original level with the higher inflation rate. When the inflation rate declines to its original level, the market enters "depression". Just like high inflation does not place a country on a high-growth path, neither does success or wealth place one on a higher level of happiness.
The question is, in economics, we will not manipulate the inflation to stimulate the economy during normal times, do we then want good surprises in our life?

Politician or economist?

I vividly remember going to Prof. Rolleigh's office one day and asked tentatively : What is the criteria that we used to define whether a country's currency is overvalued or undervalued? With his usual sense of sarcasm, Prof. Rolleigh retorted:Waht do you mean by "we", politicians or economists? Assuming you are asking about economists, there is no consensus as far as I know.
I respect Krugman's trade model in explaining the new trade pattern after WWII, and feels he is truly an expert on trade stuff (but not currency), but after reading his writing on new york times, I cannot help wondering has he switched to a politician?
Paul Krugman's writing has revealed many assumptions he has made very implicitly and they are hard to defend. Prof. Love had it right, whenever we reach a conclusion, we were using a model implicitly, and without specification, our model can be so crude as to be inconsistent and flawed with stupid assumptions. For one thing, there has not yet been a model that can establish convincingly that any country should have no trade surplus whatsoever. This is not only counter-factual but also unsupported by theories. This might be a plausible conclusion to reach if all countries are identical, or there are all representative countries, an assumptions economists make all the time, however wrong it is.
Another serious problem is his use of China's central bank buying US assets as evidence is simply wrong. There are many sources of accumulation foreign exchange reserve. One is of course CA account--trade surplus, but the other, more relevant here is hot money and FDI. They are a big source of increase in reserve.
I am by no means denying the existence of trade surplus. It is huge, there is one thing that politicians always fail to grasp, when we look at the trade surplus to GDP ratio, maybe not so big. I am a boring person, and I love playing with economic data. One day, I did this for all economiess whose data is availabe. I get a time series data for their trade-surplus ratio from 1994 to 2008. I averaged them, and get rid of the ones with negative ratio. Then I get rid of any economy who had a trade deficit from 2000 to 2008, when there has not been a widespread currency crisis as in 1997. I ranked all the economies from highest to lowest. Mainland China is 19th! I will not conceal the fact that some economies are oil-exporters. But not all. Singapore(18/1000), Hong Kong (8.6/1000), Malaysia (7.7/1000 including the crisis in 1997). and MANY developed European countries are with much higher ratio than China(4/1000).
Finally, I need to poiint that China need to accumulate some net foreign reserve (foreign reserve-foreign liability) because of its poor fiscal stance. By poor fiscal stance , I mean consolidated debt ratio to GDP, which is two times higher than that of US, a country notorious for high debt ratio.

trade surplus to GDP ratio

Data speak louder than politicians.


countries
trade-surplus GDP trade/surplus/GDP (‰)
Kuwait
48.039 148,024 0.324535211
Saudi Arabia
95.762 369,179 0.259391786
Algeria
30.6 140,577 0.217674299

Singapore

39.157 182,232 0.214874446

Iran

70.797 331,015 0.213878525

Norway

59.983 381,766 0.157119806

Malaysia

29.181 191,601 0.152300875

United Arab Emirates

39.113 261,348 0.149658693
Hong Kong
28.038 215,355 0.13019433

Sweden

38.797 406,072 0.09554217

Republic of China (Taiwan)

32.979 379,000 0.087015831
Netherlands
52.522 792,128 0.066304941
Russia
76.163 1,230,726 0.061884611
People's Republic of China
296.2 4,909,280
0.060334713
Switzerland
28.776 500,260 0.057522089
Germany
109.7 3346702 0.032778538
Japan
131.2 5067526 0.025890346

some thoughts on the growth theory

I have outlined some specific crtique of the growth theory in a previous blog. In this entry, I cannot give any thoughts on modeling, but merely talk about something that the new models should strive to explain, because it has been generally lacking in the literature.
First, I guess the most obvious absence concerns corporations. The models have not given a uitable role for corporations, given our obsession of national corporations. I think one core issue that needs to be addressed before a good model can be developed is that whether the nationality of the corporation has any influence over the decision of location, employment and managerial stuff. I think the answer is absolutely positive given the cost of information and existence of transaction, cost of monitoring, and other forms of friction imposed by language and culture. What is needed here is to quantify these effects, and I expect them to be heterogeneous among countries and regions. My hunch is that these friction cost will be smaller inamong European countries than among other regions. I feel teh absolute value of this friction will have some important implications for the growth model. This primitive model might explain the
Second, the distribution of wealth.
Third, the role of financial market and things like exchange rate regime

a rational view of superstition

I. A baseline model of superstition
superstition, that is common,. for example, people in China do not want to write will, because they fear that the fact that they write will may cause death. In other words, superstition is a belief that action A will cause event B (event B is an undesirable thing). This causality need not be absolute. More formally, let's suppose the probability that B will take place is f(x,y), where x is a vector denoting all other relevant aspects of life, while y takes on value about action A. y can take on only two values 0 and 1 (1 means making action A, and 0 not) in this case. and for any x0, f(x0,0)II.Extension of the model
This is the basic model of superstition, however it is incomplete and naive in that it assumes no dynamics and adaptation or expectation. People's belief does evolve. People is not always 100% sure about the superstition. From now on, I will only look at the continuous case, and the result can be easily generalized to discrete case. There two possibilities--1) superstition is true. 2) superstition is false. There are different probabilities involved. Here I take Baysian view of probability. People adapt this belief with the actual data.
III. A complete model of choice under the influence of superstition
1. action A-->event B (desirable)
to be added (key:cost of A)
2. action A-->event B(undesirable)
to be added
IV.Example and explanation (to be revised)
Suppose that superstition goes that action A leads to event B (undesirable). If that superstition is rampant in that region, then it is likely that people will have a a priori distribution favoring the superstition is true. Because people is risk-averse, people are not likely to make action A. Thus there will be few data and people with this superstition cannot update their belief. thus that superstition may continue. Even in the presence of data, incomplete information (non-dissemination, distortion) and wrong interpretation ( guilt of association, causality vs. association) may fail to dispute the superstition.
(why superstition are prevalent?)
V. Afterword
This is just a small game with behavioral economics. I love economics, maths and so forth not because I like the manipulation of numbers and functions, but rather, they leads to a nice way of looking at the world. It is fun and that is all that matters.

critique of Solow Model

One serious drawback of the Solow Model the single good it has in the model has only homogeneous quality. This is an unreasonable assumption, with consequences in conclusion. Because of this set up, technology innovation has to be interpreted as efficiency improvement--that is with the same input of labr and capital, the economy is able to produce much more. However, this assumption is unrealistic. In most areas of the world, what can be witnessed is that techonology improves the quality of the products, leading to so-called "climbing the quality ladder". However, if we model the technological innovation as improvements in quality and thus introducing a continuum of quality of the goods, we can accomplish much more. We then have to introduce multiple goods, since quality only matters when there is substitution. But to do this, we also have to abandon the competitive market assumption, without which the whole model could be ridiculously complicated. What I hope to show is that, when there is a small difference in A(t), the less developed counties could still specialize that technology-intensive industry, but reaping less benefit. Another possible consequence is that with higher growth rate (that is higher dA/dt), less developed countries might find it harder to catch up.
This is only a sketch of the model, there are so many things left out and not thought out. Also, currently I do not have the ability to formalize this hypothesis.
Also, I have the crunch that if monetary stuff are introduced, then we might have a model to explain the exchange rate level's influence on growth rate and catching up.

luck as an explanation in cross-country difference in growth

Luck as an explantion has been explored and dismissed by the economics profession. However, from what I read, there are two pieces missing from the luck explanation.
1) Luck is largely explained in terms of multiple equilibria. Many economists oppose this by saying this explanation might explain difference in the short run, but fail to explain the long run stagnation as the country should have coordinated better. Firstly, time allows for coordination is doubtful. Second, and more pertinent to my point is that these economists neglect the dynamics inherent in the economics matter. One result of equilibrium have influence over latter developments. Because of an innovation as a result of a good equilibrium, the economy might be able to revolutionize its whole economy, making itself much more advanced than other economies. They might gain from this afvantage by enjoying more surplus from trade. Apersonal experience on this dynamics is ....
2) randomness

A New way of calculating GDP and its implications for Theories

As proposed by Nordhaus, there should be more scientific way of national accounting for nonmarket accounts. The most important two things for me is 1)nonreproducible assets and 2) non-market activities. These two have implications for growth theory.
1) Oil-rich countries create noise in our data. They are indeed poor countries, since they produce less than what is being accounted for. Without this noise, it is likely that, when plotting growth rate with log of GDP per capita, the band at the wealthy end will be with almost no outliers (with the exception of Luxembourg). Indeed there is reason to kick them out of growth data all together, since they present a very different story from other countries.
2) Growth rate in poor countries might be over-estimated because part of the increase in GDP might result from transformation of nonmarket activites into market activities, thus weakening the case for convergence.

convergence or divergence

When looking at data that plot average growth rate of GDP to log GDP per worker/capital, evidence of convergence can never been found. Unless we restrict the countries to OECD countries, introducing once again sampling bias. There are might be three reasons behind this lack of backing from data.
1. true lack of convergence. This may imply the standard growth model that economists have been so happy with are incomplete at least or wrong.
2. The fundamentals (I mean fundamentals in a narrow sense--institutions mainly, not including education, which I would want to be modeled endogenously) are different. It is very reasonable to expect that rich countries tend to have good fundamentals while poor countries might not.
3. Poor countries tend to have reversals in fundamentals due to political instability brought by poverty. this point is similar to point 2, but there is a subtle difference in that, point 2 takes a static view of poor countries, on average, have bad institutions. While this take a more dynamic view. If I take a Markov Matrix to represent the chance of countries staying on or changing into different state of institutions (effective, mediocre, and bad), the function of going from good to bad (relatively) should be a decreasing function in the wealth of the country. This can be partially confirmed by the shape of the distribution. The band of growth rate is often narrow at the wealthy end, and VERY broad at the poor end. ( there is some outlier at the wealthy end and I will talk about these in "A New Way of calculating GDP and Its Implications for Theories"). If we clean out periods of regression resulting from institutions reversals, we might get good evidence for convergence.

on technological progress and growth

Prof. Love said I have comparative advantage in trade, analyzing things with heterogeneity. Ok, let me do this.
In growth theory, so many models (Ramsey, Solow, Cass-Koopman) has used a single commodity model. I think this simplification could be modified. I would divide the economy into two industries--technology-intensive and labor-intensive (euphemism for technology-nonintensive). If Country A is a leading country in technological innovation, while country B is only catching up by borrowing the innovation from Country A. However, there is a time lag because of the patent law. Also, Country B also has to incur some cost in using the technology developed by Country A to adapt it to its own country. With this setting, I wish to show that country A will always have a comparative advantage in the technology-intensive industry, and thus specializing in it, while country B, never specializing in industry B. Thus, even with the possibility of technology leak, the technological progress made by country A will not be shared by country B, because country B does not have the industry with the innovation.
There are two extensions to this model.
Extension 1:
Consider countries specializing in many different industries (exogenously determined). Progress made in basic R&D may benefit one industry exclusively (or a weaker version, disproportionately)--leading to rapid technological innovation in that industry. Thus, countries where that sector is bigger will benefit more, leading to higher growth rate. This might be a case for industrial strategic planning as done by Japan.
This line of thought has implication for interpreting data on growth. When we look for evidence of divergence or convergence based on a couple of decades' data, what we see might be distorted--countries may concentrate in different industries depending on their wealth. For example, what we see as evidence for divergence might merely be result of the industry that rich countries (like banking) focused on had a boom in that time period. A boom in an industry can last for some extended period of time, thus 20 year period data should be interpreted carefully.
Extension 2:
This is complicated and I have not yet thought it out. I might want to add heterogeneity in the quality of final products making it more compatible with new trade theory.

recent things

This summer is horrible. Actually, not the summer perse but the consequences. After getting back from the summer, I feel so out of shape, and when I went tot the pool, today, I realized that I had to redo the whole torturing process of getting used to swimming. This is not the worst, after all, I can, after some time and with some effort, recover that strength. But the worst is in economics. This week, I have not generated any worthwhile ideas after reading the paper. I hve some random ideas from time to time, but the quality is significantly lower than last term's and when I actually present them, I do not feel convinced and lost interest even in presenting them in the first place. What has gone wrong with me?
I hope this is just a transitory thing, and no hysteresis is present. Hmm, maybe after reading some more thought provoking paper, I would be able to get some new ideas. Oh, yes, Love asked me to build a file on my ideas. Should do that when I have time, but it is kind of ironical for me, since I have little of value of keep track of right now.

中肯，理智的评论：走出“六四”悲剧的阴影

来源: 民族之林 于

要学会走出“六四”阴影

《联合早报》2009

● 张汉音　作者曾在新加坡任教，目前是台湾辅仁大学社会学系教授与系主任

　
　二十年前中国大陆的六四事件是一个政治悲剧，是一个需要吸取教训、但应该走出其阴影。

　　一批满腔热血、希望国家通过政治变革走向美好未来的学生，由于对国情和世界情势缺乏深刻的理解，不懂得中国在现在这个阶段不适宜採用西方式的自由与民主政治制度，也不懂得西方式的自由与民主制度未必就是最理想的制度，结果，在国内政治制度的某些弊病的刺激下，在胡耀邦逝世的悲情冲动下，决定以悼念胡耀邦逝世为动员旗帜，通过大游行，来宣示主张立即引入西式自由的政治诉求。

　　他们的行动兴奋了西方世界的神经。在西方反华势力的大规模 “声援”下，学运的核心分子受到了鼓舞。他们把最初要求为胡耀邦“平反”，改为高悬“打倒邓小平”的横幅，更在天安门广场耸立起象徵美国制度的自由女神之像；并且把学运拉上了与民主政治相违背的不妥协之路，“不达目的，誓不罢休”。主张中止绝食示威和撤离天安门广场的学运领袖被撤换，整个学运和不了解大局的数十万市民同情者，被操纵在客观上与外国反华势力相呼应的几个头脑简单的极端分子的手中。如是便导生了一次完全超乎执政党预料之外的严重政治危机。

如果激进民主派的愿望得以实现

　　中国的近代历史和苏联的解体历史告诉我们，激进民主派所主张的在现阶段照抄西方式自由制度的愿望一旦实现，或者纵然只是戈巴乔夫类型的主张在当时和现在的中国获得实施，中国所得到的就不是善良的学生们以及善良的国内支持者们所想像的那种社会自由、政治民主、官员廉洁和国家全面发展，而是国内战争、国家裂解和经济大倒退，如同前苏联那样。

　　苏联解体之后，从1991年到20世纪末，俄罗斯国内生产总值比1990年下降52%（1941年至1945年的战争期间仅仅下降22%）；卢布贬值，物价飞涨五千多倍；俄罗斯人均预期寿命下降了4岁。此外，在俄罗斯阻止车臣独立的战争中，死亡人数达数万人之多，俄国与格鲁吉亚交战期间又有数千人亡命于枪弹之下。

　　可以断言，中国如果被极端民主派导入前苏联的覆辙，除了国家的分崩离析与国际地位的一落千丈，中国在经济和人的生命方面所蒙受的灾难一定不会小于俄国。

　　不仅如此。韦伯（Max Weber）曾经指出，任何大国都不希望自己的邻国强大，担心邻国的强大会挑战和威胁他自己的强者地位。这是百年之前的论点。由于当今地球村的时空压缩，那时的邻国和现在的邻国已经不是一个概念。在当今的时代，美国或西欧的某些国家不喜欢中国复兴强大已经如同他们不喜欢地理邻国强大一样，再加上这些国家向来笃信弱肉强食的强霸逻辑，所以从冷战时代开始，直到二十一世纪的今天，除了在冷战后期需要联华制苏而有所收敛之外，美国一直没有放弃过牵制和抑制中国的发展，没有放弃过以人权和民主的名义去支持达赖喇嘛以及留住美国的中国极端民主派、极端自由派，支持中国国内的异议分子，希望他们在某个时候能够扮演推翻中国执政党和分裂中国国土的角色。

　　法国虽然与美国有别，但是从萨科奇总统和巴黎市长支持达赖喇嘛的做法，我们也不难看到他们的用心。这些国家的这种黑黑的一面，可以解释为什么在六四之前，美国和西欧会有那麽强大的势力要为天安门广场上的反政府抗争擂鼓呐喊，并且提供资金援助。这些事实也可以帮助我们作出这样的合理推断：即使在中国裂解之后，他们仍然不会就此罢手，他们还会像对付俄国和南斯拉夫那样，进一步挤压中国和操弄中国内部的亲西方势力以及其他破坏势力，以尽可能多地牺牲中国利益的方式来断除中国将来作为大国而崛起的可能性。

邓小平的“壮士断臂”决策

　　在此次学运期间，时任总理的李鹏曾经与学生代表谈判，劝学生以大局为重撤离天安门广场，结束示威活动，但是没有成功。时任总书记的赵紫阳去广场看望学生，劝他们停止绝食，也没有成功。政府宣布戒严，依然没有成功。

　　于是中国的执政党便面临一个极其困难的选择：要么答应学运的要求，立即实行美国式的言论自由制度，让邓小平下台，其实也是让共产党下台，任由激进的民主派和自由派把中国引入万丈深渊；要么採用暴力对极端分子实行镇压，但是极端分子混在无辜和不明大局的学生与市民之中，受到后者的保护，採用暴力必然会伤害无辜，决策者会为此而付出沉重的政治代价。

　　这是一种没有赢、只有输的决择，是一个究竟要顺水推舟、选择大输、抑或是逆势而动、选择小输的抉择。

　　邓小平是一个具有超凡睿智与洞察力的政治家，也是一个具有卓越务实精神和超强政治意志力的政治家。他不像戈巴乔夫那样天真。他也懂得中国还暂时不能满足民众的一些理想主义的期待，像美国那样开放媒体和其他许多公共场合的言论自由，因为他看得到常人看不到的后果：现在的中国一旦完全开放言论自由，西方反华势力必然会乘机而入，西藏、新疆和内蒙的分裂主义分子必然会乘机而起，中国必然会分崩离析，经济改革必然会半途而废，中国必然会再一次被远远地抛在世界主流的发展历史之外。

　　事实上，此次学运恰好显示，目前的中国只要稍稍放开一个西方式的政治自由缺口，就会有人把它搞成冲击社会根基的滚滚洪水，导致不用暴力则难以制止的失控局面。作为一个卓越的务实主义者，邓小平比胡耀邦、赵紫阳更加英明、更加果断地在理想和现实之间划出了一道界限：把今天归于现实，把理想留到明天。

　　于是，邓小平做出了他一生之中最痛苦的抉择：壮士断臂——用沉痛、但是可以承担的个人政治代价和政党政治代价，去换取解除那更加沉痛、而且中华民族已经不能再予承担的代价。

　　邓小平的决定引起了极端民主派的深仇大恨，也难以得到欣赏西方式民主自由制度的一部分知识分子的谅解。但是他的决策挽救了中国的经济改革、国内和平和大陆的政治版图完整，挽救了民族的复兴之路。

　　回首“六四”,最重要的是要引以为鉴，把复兴中华的路走得更加理性。

　　极端民主派要做的不是继续制造为他们自己平反的舆论，更不是想方设法地唱衰大陆发展或者在大陆的执政党与民众之间挑拨是非，制造混乱，而是要反省自己在六四学运中的错误主张以及他们对一百余名无辜死难者应付的原罪之责，做一些有利于人民团结和国家发展的建设性工作。

　　中国的执政党更需要吸取教训，要在领导经济发展的同时尽快实现政府的廉洁化和公仆化；要认真倾听民众的声音，倾听反对者的声音，将这两种声音的表达和回应纳入合法的制度化轨道；要在中国探索出一条符合中国国情、在民众接受度和功能有效度方面不低于美国的民主政治道路。

quotes from a movie

Erica:
The more predictable we are, the more vulnerable we are.
I blame instinct and training.
As a mother I know that if someone tried to hurt my son, there's nothing I wouldn't do to stop them.
The next blood that spills is gonna be theirs.
Anna is fighting dirty. We want to win this war; we can't bring knives to a gunfight.
Sometimes you have to lie to people to protect them.
We have to fight them the same way they're fighting us - one step at a time.
That's what Anna does. She takes our emotions...uses it against us.
Anna:
There is no greater incentive for a human male than a damsel in distress.
If we've learned anything is that emotion is weakness. Love is the greatest flaw of humans and our best tool to break them.
While they play politics, we'll take action.
I welcome opposition. It can only strengthen one's agenda.
There will always be obstacles in your way. It's not if you remove them, but how.
Father Jack
Rattlesnakes are God's creatures, too. Doesn't mean they're good for us.
If we're gonna win this war we can't go off the rails. We can't lose sight who we are.

聪明

"身边满是聪明的人－－数学哲学天文外语。但是聪明的人未必是智慧的人。"
--摘自“斯语”
Oh God, Please make me wise enough to know what I want from life.
Oh God, Please make me smart enougth to get what I want from life.
Oh God, Please make me courageous enough to dismiss what others think of me.

What economic policy should China adopt?

Professor Rogoff from Harvard and author of the book This Time is Different, commented that Chinese real estate is facing a burst, which will lead to a nation-wide recession, which will in turn impede regional and global growth. His prediction is based on his extensive research on financial crisis in that every financial crisis is preceded by a run-up in real estate price that is unsustainable, and ultimately leads to a banking crisis and then to a currency crisis. However there is something dubious in his arguments. Though the run-up in real estate prices is a necessary condition for a financial crisis, it is not a sufficient one. His extensive documentation did confirm the former, but not the latter. Thus the fear of a full-blown financial crisis is overly-exaggerated. Second, even if a burst in real estate takes place and leads to a banking crisis, the following links are less concrete and my observation on the subject leads to the conclusion that the burst might be a blessing in disguise, which I will analyse shortly.

Even though the rising real estate price does not justify over-pessimistic forecasting, it should be noted that the distortion in real estate prices has and will impair the efficiency of Chinese economic development. Then how should the central government respond? My prescription differs from many policy makers and economists in that it accepts "cold-therapy" as the optimal way of deal with the bubble. In other words, it turns away from the method of "constraining the bubble" and let price decrease in a gradual way, which might be theoretically appealing, but impossible in practice. Another difference lies in its holistic treatment of three major monetary areas: inflation, exchange rate and over-heating. Here is how it will work:

1. through fiscal policy, monetary policy and administrative policy of command economics, the government should burst the real estate bubble in one stroke.

2. what many feared--NPL (non-performing loans) will take place for sure. The banks will suffer, but the PBC can purchase all these NPL's from the commercial banks by printing money. Meanwhile, the PBC should increase reserve requirement (RR) dramatically to freeze liquidity to prevent possible inflation resulting from increase in money supply. This act will return a healthy balance sheet to commercial banks, which never had that.

3.Inflation should not be curbed to 2%. It could be higher. The reason we fight inflation is that common people's life will be harder because of inflation, but once the real estate price has decreased, the life is much more bearable even with inflation, and with a low housing price, people do not have the need to save that much for housing in the future, as will lead to an increase in domestic demand.

4. Inflation could be beneficial. Assuming relative PPP holds, RMB will face depreciation pressure, relieving it from appreciation pressure. Hot money inflow will decrease, further relieving the PBC's need to sterilize and maintaining an onerous international reserve.

5. Who will get hurt? Speculators' in the real estate market. Fortunately, they are the robber barrons of the country with disproportionate amount of wealth. (They were first from the export industry from Wenzhou, and now the coal mining barrons from the notorious ShanXi province). Thus a negative wealth shock to them will not significantly reduce aggregate demand. Another benefit is to teach the Chinese investors an lesson on risk, which they have forgotten after thirty years of relative calm and stable development. This lesson will be valuable especially if China wish to liberalize its financial sector in the future.

6. Financial Reform MUST be carried out at the same time! With a bail-out, the moral hazard problem must be contained with regulation. "No second bail-out" must be made credible, whether through criminal laws or other way. State for example should refrain from coercing the banks into policy lending through administrative tools. Policy lending can still be carried out, but not through coercion but through more market-oriented ways--like subsidy to lending, or partial insurance on that specific policy lending. This part, I admit, is hard to implement, both because of political reasons but also economic ones.

Chen Guan--the obstacle to Chinese economic development?

A strange phenomenon in China is the concept of Chen Guan, and the controversy surrounding it. From a purely economic point of view, the power and existence of this force stymies the growth of small entrepreneurship in urban areas, which in turn has some serious implications for economic welfare.

The existence of the peddlers and vendors would serve as a cushion for peripheral individuals during the transition period. Utilizing available capital and combining it with some talent and mostly diligence, people without a steady income can maintain a living after income shocks, introduced by such events as massive-layoff during the reforms of state-owned enterprises. The existence of peddlers and vendors in turn assures a cheap market which will further alleviate the economic woes of families confronted with income shocks.

However, abstaining from regulation is not without potential problems. the first concern is the source of the commodities. It has been common for individuals to steal things from the state-owned enterprises and sell them later. However, this concern should not so much an argument against eliminating Chen Guan as an argument for state-owned enterprise's reform.

Second, the concern of the adverse selection. This proposition is odd, concerning the disasters over the food safety regulation in recent years. Food safety regulation is of more importance than the quality control of those small commodities and yet the government has failed to address this problem. The real problem, clearly does not lie in the sales section.

Third, the concern of crowding out "mainstream economic activities". From this point of view, the deregulation of peddlers would lead to an increase in the number of peddlers since the "job" is no longer troubled with risks posed by Chenguan. This change in the relative reward would pose a threat the profitability of shops and department stores. The logic is sound. But whether the possible result pointed out would actually take place depends upon two things 1) the elasticities of the supply of the peddlers 2) the cross elasticities of the peddlers' goods and goods sold in regular stores. Neither of these has available empirical data for us to draw conclusions, though the chances that the worry might come true is indeed good.

Even with this possible consequences, some economists most notably, Prof. Huang in MIT Sloan School of Management argues that the real driving force behind China's development is these small peddlers, instead of those crony capitalists and business tycoons, whose sources of income are questionable at best. he envisions China to be a country of small entrepreneurs. I am not going to analyze his point in detail, but I need to point out that he has put more emphasis upon welfare economics which might not be the preponderant concern of this nation, longing for prosperity. In Clifford Geertz's Peddlers and princes it has been documented that a nation of peddlers can enjoy economic development or near-take-off, but not anything more ambitious. The competitiveness of the nation, might need to be elevated through strategic planning. Once again I am not arguing for the existing government policies, which is inefficient and corrupt. The goals are justified, while the methods needs transformation.

Let me return to the original topic of Chen Guan. I have not reached anything conclusive ,as to whether to eliminate this force, yet. The benefits are clear and desirable and the possible consequences are likely. Even though I do not have enough empirical data to give me a clear calculation result, it is my estimate and intuition that the benefits of curbing this force at least would outweigh the drawbacks, especially when we take non-economic concerns into consideration.

带一本书去巴黎

quoted from my best friend's best friend's blog. I should definitely read this book sometime. Thank you, XX, for recommending me such a wonderful blog

《带一本书去巴黎》给了几个人看了，他们也都写下了异常精彩的篇章。回想自己当初看的时候就说要写下一点什么，始终没有提起精神来认真写下，空余万千思绪在心头。

这两天，看了xx、向子和小猪写的文章，又忍不住留了很长的评论。既然是这样，我想倒不如整理一下这些评论，顺便梳理一下自己的思路，算是留一点积淀。

林达带着他们的《九三年》来到巴黎。巴黎确实是个文化积淀极深的圣地，每一处遗迹背后都有深重的历史。不知道有意还是无意，他们所游历的地方，往往能和大革命前后那段充满争议的岁月联系起来；于是，他们也借机回顾了一下大革命的历史，也顺便道出了他们的思考。

在我看来，法国大革命，其实就是有识之士的改革精神，与民众对现实的不满结合起来的产物。知识分子希望利用民众的力量完成社会变革，却不知道民众的要求远在他们的目的之外，更不知道他们没有能力制约民众的力量。民众的力量被发动以后，革命形势失去控制，知识分子们骑虎难下，裹挟着法兰西走向动荡。相比起那些深受人文主义、启蒙思想熏陶的上层知识分子，下层的民众对于“民主”“变革”只是有个简单而模糊的概念而已；当民众们有机会时，他们只会选择最简单直接的手段——暴力革命——来实现他们的目标。

可能和性格有关，我好像一直都不大喜欢“革命”这个词——这个词通常意味着流血与冲突，甚至是可怕的狂热。很明显，林达对过分狂热的暴力革命不太感冒，而我也正正偏向温和改革。但是，但凡社会改革，总归要有人民的支持才能完成；远离民意的闭门造车式的改革，是注定要失败的。相比起当一个有煽动力的领袖，当一个改革家要更为困难。因为后者，不能任由民意驰骋，不能放任“多数的暴政”；他们总是要当磨心，苦心经营，如履薄冰，一个不小心，就要承受身败业衰的后果，压力是无比巨大的。当然，二者也有一个很不美好的共同点：他们都很有可能为自己的事业付出沉重的代价，比如生命。

自1789年开始，法兰西经历近百年的动荡，无论如何这不能说是一件太好的事。我看到大家的文章貌似都对法国大革命有一点批判，或者说，有一点重新的思考。但是在这里，我却想重申教科书上的观点：法国大革命是一场进步运动。不论如何，法国大革命（包括其后续）推动了法国社会的进步，最终确立了现代国家制度，并且让更多人（包括法国人和其他国家地区的人）的思想得以进步。为了推动社会进步，在不同的时刻，社会可能需要不同方式的变革，而不论这种方式是暴力革命或是温和改革，都是最终必须推进的，这里面有一定的历史必然性。所以，改革和革命本身其实并无高下之分，关键只是在于如何选择，以及如何将变革对社会的危害减到最低。

小猪将文革与法国大革命联系起来了。是的，这两个时代的人民的精神状态，确实有相似之处。这种狂热，来源于民众对革命、对社会的不认识。人类本身一点都不高贵，只有有思想力的人，并能用理性指导行动的人，才应当是社会的尺度。因此，思想的革命，必须是社会革命的先导。

写到这里，我想我们的同龄人们（乃至其他的一些人）也应该从中看到一点什么。我很少看到我的同龄人们赞同文革的那种狂热状态的，却是经常看到他们对他人、对社会发出偏激的、霸道的意见。如果我们总是以偏激的态度看待一切，我们又和那些历史中我们不认可的人有什么不同呢？千万不要做落在猪身上的乌鸦。学会平和与妥协，是真正的成熟。

大家也有联系到中国的民主法制发展，但是我不想讲这一部分。总觉得那有违我的初衷；而且，这种联系未必一定很恰当。一千个人心中有一千个哈姆雷特。看同一本书，大家有不同的感悟，互相交流产生思想的沟通与碰撞，是相当美好的一件事。也说到了，每个人都可以自由地以理性的方式表达意见，并且每个人都尊重其他人以理性方式表达的意见，这才可以造就民主。

最后鸣谢xx、向子和小猪，是你们督促了我这个懒鬼，做一点有益的思考。

Illusion and Disillusion--Change of sino-Us relationship

Almost all websites display news on the debate of exchange rate of RMB to Us dollar. Almost all western media, led by Paul Krugmna attacked Chinese "exchange rate manipulation". all western media ridicule the response of Chinese prime minister Wen. They conclude that China is becoming less cooperative with its gaining of power. Is that the reality?

The truth is China is getting disillusioned by the acts of US. For years, China has been soft diplomatically toward US, taking almost accomodating stances toward US foreign policy, not much complaint when US foreign policy threatened its own interest. It culminated when Jiang Zemin when asked about US military deployment in Asia, commented : China welcomes US involvement. China did not confront US in the hope that US would later take a less confrontational attitude toward China. It is within asian philosophy that when someone is antagonistic toward you, bear it without complaint, the other side will change with time. This is clearly NOT happening. With time, Us has taken this non-confrontation as acquiesce. Continued arm-sale to Taiwan, unfair comments on Tibet (where CIA was heavily involved in the past), and all other small provocation never stopped. I read millions of media coverage on China, which make doubt if I were ever in China the year before. The distortion is beyond imagination and it seems the yellow journalism were everywhere. Chinese leaders may be getting disillusioned, perhaps, that confrontation is all that it can expect from US. Then why should China continue taking an accomodating stance? Absolutely no reason.

Moreover, many western people viewed Chinese exchange rate as outraging and they deem it disobedient of China not to follow what the US suggest--revalue.

Is RMB undervalued? the answer will come soon. but first look at the history.

In 1997, US treasury "advised" China to devalue RMB drasticallty. China refused. Ensuing were flooding comments ridiculing Chines foolhardy attempt to keep RMB strong.

For the more than 10 years that followed, RMB barely depreciated IN REAL TERMS. and in the recent years, it has offset all its depreciation with more conspicuous appreciation, though not enough to satisfy Americans. The puzzle is, a currency that thought need to be devalued, how come it suddenly become undervalued, without any depreciation (improved economic development has been adjusted with REAL term calculation)?

Economists point to the fact that China has such a huge reserve. This is as convincing as economists pointed out that high inflation keep unemployment low in the past. We still understand so little of economics to get a conclusive answer. And Partial answers can be ridiculously wrong--just like philips curve. Having listened to a political economy professor from Brown, I now understand more about this. The reserve exist simply because of America limit what China can import. China wants to buy high-tech machines to replace its own crap at home, but America will not let it. It is just like there are two people, A buys from B freely, but will not let B buy what he wants. Isn't it then ridiculous for A to complain that B will simply not buy from A? People point to PPP. another crap. The sample is problematic at best and I do not want to get into that detail now. And the crap with tradeable and nontradeable. How we draw the line makes a difference. Is the high-tech machine tradable?

Why should China listen to US on its OWN monetary policy, anyway? Let's suppose China did. before 1997, US and World Bank advised that it is inefficient for China to keep so much reserve. Suppose China listened, then when aisian financial crisis hurt, China would need IMF too. then it will have to devalue like Korea. then in 2010, China will again to revalue. Without depreciation in 1997, China is asked to revalue 20% minimum now. Imagine a drastic depreciation in 1997. Chinese RMB will be so volatile that will decimate its trade sector, esp. with its crappy financial sector. Then China will no longer be talked about by ECON students as an example of "growth miracle" but instead will be analysed as " growth disaster" For now, it might be just "diplomatic disaster"? But who cares? It is the life of its domestic people the leaders should care, not those people, trying to find a scapegoat frenetically.