Year 2015 in Review

Thanks for the support, readers! Hope that you find the blog enriching and useful in your daily life. 🙂 Have a great 2016 ahead!

Here’s an excerpt:

The concert hall at the Sydney Opera House holds 2,700 people. This blog was viewed about 28,000 times in 2015. If it were a concert at Sydney Opera House, it would take about 10 sold-out performances for that many people to see it.

Click here to see the complete report.


The Economics Book (DK) (Part 2)

Protestantism has Made Us Rich (Religion and the Economy). Recent research has reflected that Protestantism has no effect on economic growth. Protestants believe in hard work and frugality as they believe it will lead to salvation. The money earned will be reinvested in the future and grow the economy. Religion might make a difference to the wealth of nations.

The Poor are Unlucky, Not Bad (The Poverty Problem). A lot of things are out of one’s control. Such as property prices, education costs, job prospects etc. Therefore, the poor are just unlucky. The question is whether the poor should be given handouts. John Stuart Mill believed the State should intervene and help those truly in need. Amartya Sen believed that ‘poverty is about limitations in capabilities and functioning’ Extreme poverty is defined as earning less than $2 a day.

Socialism is the Abolition of Rational Economy (Central Planning). Marx believed in socialism. This means state ownership of production and limiting competition. This involved heavy central planning. Without competition, there is little information or incentive for efficient production. Therefore, this is in direct conflict with capitalism. The state decides on the prices of things. However, it is very difficult to determine this. Money is less important in Socialism. However, if you derive values of products from their labor costs. It is not the true market price. Central planning committee has to decide what goods people want so that the factories can produce them. Some argue that only the free market can provide the right incentives and information. The Socialist system in Russia collapsed.

In the socialist commonwealth, every economic change becomes an undertaking whose success can be neither appraised in advance nor later retrospectively determined. There is only groping in the dark. – Ludwig von Mises

Capitalism Destroys the Old and Creates The New (Creative Destruction). People seek new markets and new profits through innovation. This will lead to certain emerging industries and certain sunset industries. This concept was coined by Joseph Schumpeter. Entrepreneurs are the big driver of this. There are two types of technological innovations ‘Sustaining’ and ‘Disruptive’.

New products and new methods compete with the old, not on equal terms but at a decisive advantage that may mean death to the latter. – Joseph Schumpeter

War and Depressions (1929 to 1945). Economics is the ‘science of scarce resources’. After a crisis, an economic stimulus is needed. Keynes believed in government spending to get out of a recession. By controlling money supply and public spending, it was possible to kick start the economy. Economics had two branches, microeconomics and macroeconomics. After Keynes in the 1930s, people began to fall back on the free market.

Unemployment is not a Choice (Depressions and Unemployment). People used to think unemployment was a choice as people had too high wage expectations. As prices fall, value of wages rise, therefore, there is a need to retrench people. People are thus trapped in unemployment and firms are under producing. In 1936, Keynes published his most important work. In modern times, unemployment remains a problem. Unemployment is not just a problem with individuals. It is a problem with the economy. This is known as ‘involuntary unemployment’. Even a free market will not return the market to equilibrium easily. One way to solve unemployment is to force people to take a pay cut. However, not many in reality will accept this. This is not a realistic solution. He believed in fiscal stimulus and it doesn’t matter how. The ISLM model is very popular nowadays. Many people don’t want their wage to fall as they are constantly comparing themselves with their peers.

The sooner involuntary unemployment is disposed with, the better. – Robert Lucas

The treasury could fill old bottles with banknotes and bury them…and leave it to private enterprises on well-tried principles of laissez-faire to dig the notes up again. – John Maynard Keynes

The difficulty lies not in the new ideas but in escaping from the old ones. – John Maynard Keynes

Some People Love Risk, Other Avoid It (Risk and Uncertainty). People don’t just make decisions on probability. Risk averse people tend to have lower returns and risk seeking people tend to have higher returns. In order to attract people to take on risk, you need to provide higher returns. Risk is different from uncertainty. Uncertainty is when you don’t know the outcomes.

Profit arises out of the inherent, absolute unpredictability of things. – Frank Knight

Government Spending Boosts the Economy by More than What is Spent (The Keynesian Multiplier). Government Spending will create employment. The workers will then spend more, creating even more employment. Keynes was a strong advocate of government spending. A standard estimate is that every $1 of government spending might create an increase in income of $1.40 through these secondary effects. ISLM (Investment, Savings, the demand for Liquidity, and the Money Supply).

Besides the primary employment created by the initial public works expenditures, there would be additional indirect employment. – Don Patinkin

Economies are Embedded in Culture (Economics and Tradition). It is a common belief that people are rational. However, Karl Polanyi countered this why saying is that culture drives economic life. People desire status in society and therefore work hard in getting there. An example of his theory in action is in the Trobriand Island tribe. He didn’t believe that markets and social structures could exist harmoniously.

The economic system is, in effect, a mere function of social organization. – Karl Polanyi

Managers go for Perks, Not Their Firm’s Profits (Corporate Governance). Not all companies are run in the best interests of their shareholders. Nowadays, management have a huge say in how a company is run. Also, the problem stems from passive shareholders. Berle and Gardiner founded the modern corporate governance. This is to ensure that management acts in the interest of shareholders. However, in the 2008 financial crisis, corporate governance failed.

The Economy is a Predictable Machine (Testing Economic Theories). Econometrics is the testing of economic variables through mathematical means. However, past performance is no guarantee for future performance. There are many variables to consider.

Intermediate between mathematics, statistics, and economics we find a new discipline which…may be called econometrics. – Ragnar Frisch

Economics is the Science of Scarce Resources (Definitions of Economics). Scarcity forces economic choices. ‘Science of human actions in the face of limited resources with multiple uses.’ ‘Human needs are infinite, yet there are only a finite amount of resources.’ This definition has been wider accepted.

We Wish to Preserve a Free Society (Economic Liberalism). Prices should reflect total market information and governments should aim to protect that. Friedrich Hayek was a very influential economist. He didn’t governments had the ability to shape society. He was right when those states with planned economies would head to a totalitarian state. Some economists defended Socialism. Hayek argued that all individuals were very sure of what they were doing and market had imperfections. He believed in the free market. The government should intervene only to restore the market to its free market state. Therefore, the state should only have a limited role.

The more the state ‘plans’, the more difficult planning becomes for the individual. – Friedrich Hayek

Industrialization Creates Sustained Growth (The Emergence of Modern Economies). More people work in cities, obtaining a higher level of skill and education. This leads to cultural change and business growth. Future generations will also enjoy this. Simon Kuznets created this idea. He saw that factories will take over farms one day. Industrial Revolution helped Britain in the 18th Century. In modern society, there is now a move to the service sector.

Different Prices to Different People (Price Discrimination). Price discrimination is possible even in markets with only a few firms. Firms want to charge according to how much each customer is willing to pay. There are generally three types of pricing models. The first to charge each customer the maximum he/she is willing to pay. The second is to reduce the price for each additional unit sold. The last is to identify different customer groups and charge each group accordingly. This might allow people like students to benefit as they can now afford to watch a movie.

Price discrimination is the act of selling the same article produced under single control at a different prices to the different buyers. – Joan Robinson

Post War Economics (1945 to 1970). It was a difficult time for economies to rebuild. The UN was formed in 1945. Keynes was lauded for his emphasis on fiscal policy when there is an economic crisis. However, Asia and Russia did not fair so well. The impossibility theorem shows that there is no perfect voting system. Perhaps a country’s growth can be measured by other factors.

In the Wake of War and Depression, Nations Must Cooperate (International Trade and Bretton Woods). Gold initially backed paper money. After the Great Depression, many tried to devalue their currency, making exports more attractive. Restrictions on trade only help to prolong the Depression. In 1944, delegates agreed to peg currency against USD. This was governed by the IMF, where they could distribute emergency funds. In 1971, President Nixon suspended the dollar-gold link (Bretton Woods system). There is a need for nations to cooperate and open trading doors to others in times of crisis.

All Poor Countries Need Is a Big Push (Development Economics). Poor countries require investments in infrastructure and industry simultaneously. Only governments can afford to do this, not corporations. Poor countries need a big push. Massive capital injections are necessary. Infrastructure and Factories are 1 set. You need both for the economy to start going. Many industries are linked to another. When one does well, the other might or might not do well also. Thus, it is possible to go from nothing to everything. It is hard for private enterprises to drive this. Governments need good knowledge of the forward/backward industries. A good state should not allow too much government intervention. The UN offers aid to developing countries.

Most industries catering for mass consumption are complementary in the sense that they provide a market for, and thus support, each other. – Ragnar Nurkse

People are influenced by Irrelevant Alternatives (Irrational Decision-Making). In theory, people make decisions based on probability. However, research has proven that people switch irrationally to other products. Maurice Allais didn’t believe people sought the greatest utility as this is based on assumption and choices are often co-related. ‘The violation of independence takes place in situations of uncertainty.’ People often violate the independence axiom. People generally like alternatives.

Governments Should Do Nothing but Control the Money Supply (Monetarist Policy). Keynes didn’t believe in controlling the money supply. However, Milton Friedman believed that controlling the money supply will work. Money will affect output in the short run and prices in the long run. The failure for people to spend in a recession prolongs it. The problem of state intervention to reduce unemployment led to high inflation. He claims that fiscal stimulus causes inflation and should be avoided. ‘Money should grow at a modest, constant rate in order to keep inflation low.’ He believed in the short run that output will increase in the short run and in the long run prices will increase. Inflation and unemployment is governed along the Philips Curve. There is such a trade-off. However, there is a natural rate of unemployment. Some argue that people e predict government’s plans and therefore in the short run, the Philips Curve is vertical. It is possible for both unemployment and inflation to increase together. This is known as stagflation. Nowadays, monetary supply is controlled, as is fiscal policy. In the 1990s, countries used exchange rate or change interest rates to impact inflation.

The More People in Work, The Higher their Bills (Inflation and Unemployment). There was research that reflected periods of high inflation coincided with low unemployment. Governments could pick their point on the Philips Curve. However, in the 1970s, both unemployment and inflation moved together. The Philips Curve did not take into account people’s expectations of inflation. According to him, there is no trade off. There is only a natural rate of unemployment in every economy.

People Smooth Consumption Over their Life Spans (Saving to Spend). People save money and take into account their lifetime income when spending. When government spending increases, people’s spending increases by a multiplier of that. However, in reality, ‘the ratio between household consumption and income over the long run turned out to be stable.’ Individuals anticipated how much people they needed in the future and started to save. People save when they are young, spend when they are old. This is the life-cycle hypothesis.

‘Permanent income hypothesis’. ‘Successive generations seem to be less and less thrifty. – Franco Modigliani

Institutions Matter (Institutions in Economics). Some economists investigate the role of institutions in the State. They are important as they set the laws, customs and traditions of a society. People tend to follow them. Tension is rooted in colonial origins. When institutions degenerate, problems start for the economy.

People Will Shirk If They Can (Market Information and Incentives). Banking bailouts are moral hazards. When no one is watching, people put in less effort. This is because actions are hidden from the other party. This is known as ‘moral hazard’. Principal can’t monitor the agent all the time. Wording the contract in a certain way might prevent this from happening. Banks who think they are too big to fail might keep thinking that the government will bail them out. This causes them to take on excessive risk.

Theories about Market Efficiency Require Many Assumptions (Markets and Social Outcomes). Market efficiency requires assumptions that price completely reflect customer preferences etc. Walras believed that markets, without intervention, can reach a stable equilibrium. Only under certain conditions could a set of markets remain in equilibrium. The first welfare theorem states that ‘any pure free-market economy in equilibrium is necessary ‘Pareto efficient’. The second welfare theorem states that ‘any of these Pareto- efficient distributions can be achieved using free markets.’ Using a Contract Curve. For the theories to hold, people need to rational and respond to market signals. There cannot be externalities or economics of scale.

An allocation of resources could be efficient in a Pareto sense and yet yield enormous riches to some and dire poverty to others. – Kenneth Arrow

There is no Perfect Voting System (Social Choice Theory). To evaluate the well-being of a society, values of individual members need to be taken into account. There must exist a system for them to state their preferences. ‘It is impossible to devise a voting system that truly reflects the preferences of an electorate’. Some prefer A to B, and B to C, but also C to A. With an ideal voting system, it is not possible to satisfy all the assumptions, one being that there should be no dictator. Arrow’s theorem is now being widely applied in society.

The Aim is to Maximize Happiness, Not Income (The Economics of Happiness). Joblessness is a main course of unhappiness. In the 1930s, GDP calculations came about. Rising GDP meant increasing wages and jobs, falling GDP means unemployment. However, there is little correlation between GDP and real social welfare. High GDP could lead to widening income disparity. People in richest countries need not seem the happiest. The concept of the ‘hedonic treadmill’ was introduced. ‘Keeping up with the neighbours’. In modern times, different indicators have emerged.

Economic things matter only in so far as they make people happier. – Andrew Oswald

Policies to Correct Markets Can Make Things Worse (The Theory of the Second Best). The real market consists of many distortions which are linked. Correcting one might worsen others. Governments need to act with caution. In some cases, there are no best solutions and distortions can be permanent, thus one has to rely on second best solutions. Sometimes, it is better to leave an imperfection alone rather than interfering.

Make Markets Fair (The Social Market Economy). The Social market was perceived to be fair as it ensured the equal distribution of wealth. Armack believed in the government playing a minimal in the economy. Industry will remain in private ownership but the government will provide several public goods, including pension and taking care of unemployment. Many of the European countries thrived under the social market system. China’s economy is now a ‘socialist market economy with Chinese characteristics’.

Over Time, all Countries Will be Rich (Economic Growth Theories). Poor countries can reinvest their capital into machinery/infrastructure that can increase output to a larger extent than rich countries. This is known as convergence, over time all countries will be rich. This is basically poor countries can grow quickly and catch up. However, Solow’s theory does not hold true in reality. There is little evidence supporting Solow’s theory.

Globalization is not Inevitable (Market Integration). It is the integration of markets. Government’s policies can hinder market integration (fusing many into one). Price differences between different countries are eliminated. Easier transportation contributed to this. Most tariffs have been scrapped. Institutional rules also hinder markets. Dani Rodrik was against ‘deep integration’. Market integration, democracy, and sovereign nation states cannot co-exist. Only two out of the 3 can co-exist. There would be no sovereign nation states should the institutions have to change. Democracy will be affected as well. In modern times, countries avoid deep integration and still keep their institutional rules. Globalization is not all good as well.

Socialism Leads to Empty Shops (Shortages in Planned Economies). The state protects shops from bankruptcy. Therefore, firms do not bother about costs. Therefore, ‘Socialism leads to empty shops.’ Planned economies could not produce enough at the correct quantity. Concept of ‘soft budget constraints’ and ‘hard budget constraints’. Firms had little incentive to supply goods and services efficiently. Kornal argued that the ‘soft budget constraint’ was a feature of the planned economy. Even the major European and US banks were in the ‘soft budget constraint’ category as they feel that they can be bailed out. Even in a free market economy, there are both ‘soft budget constraints’ and ‘hard budget constraints’.

What Does the Other Man Think I Am Going To Do? (Game Theory). ‘Minimax rule’ is to minimize the maximum loss on any turn. Cournot, in 1938, started analyzing the issue of game theory. Game theory is the strategy in which people behave in every situation. People sometimes have to make independent decisions in non-cooperative situations. People will select their best strategy based on the fact that opponents are also selecting their best strategy. ‘Each player’s strategy is optimal against those of the others.’ This is the Nash equilibrium. However, when this strategy is employed, it is often not the optimal result for the group. Therefore, it is better to co-operate. People suffer from bounded rationality.

You know what you are thinking, but you do not know why you are thinking it. – Reinhard Selten

Rich Countries Impoverish the Poor (Dependency Theory). Rich countries exploit free trade by trading with poor countries on terms that favor them. The rich get richer, the poor get poorer. This is known as the ‘dependency theory’. The rich set their own terms and make it favorable for themselves. However, some developing countries isolate themselves and instead, choose to trade among other developing countries.

You Can’t Fool the People (Rational Expectations). Keynes model fails to take into account people’s expectations. Fiscal policies only work in the short run. People anticipate effects of government fiscal policy. They will predict future prices based on an economic, rational model in their heads. Government can take people by surprise in the short run. Under rational expectations, ‘Unemployment is determined by the productive capacities of the economy: the productivity and technological capacities of its firms and the efficiency of its markets. Policy makers cannot boost the economy beyond this level of employment.’ Lucas believed in modelling based on people’s preferences.

People Don’t Care About Probability When They Choose. Humans seek to boost their expected utility. However, people tend to ignore probabilities. People prefer the ‘known unknowns’ to the ‘unknown unknowns’. They show a preference for known odds. ‘People want to know more about the unknown, unquantifiable risks that expected utility cannot account for.’

Similar Economies Can Benefit From a Single Currency (Exchange Rates and Currencies). Some believe in the free floating exchange rate. After WWII, the Bretton Woods system was based on a fixed exchange rate system. However, this led to a balance of payment system (between imports and exports). In Europe, they adopted the floating exchange rate system. If countries are of similar size and growth, they can choose to adopt the same currency as it will eliminate foreign exchange gain/losses. It is not realistic to have a global currency as well. A country with its own currency can control money supply and interest rates. The Euro was an example of a common currency. However, there was certain criteria for countries to meet before they could enter the EU. ‘National debt cannot exceed 60% of GDP and annual deficit cannot exceed 3% of GDP.’ The ECB is now the common central bank. However, risk sharing through transfer of tax revenues did not occur. Individual countries could still set their spending and tax levels. Within the Euro area, massive differences emerged. Some countries had huge deficits, while some had huge surpluses. This led to a few nations requiring bailout, including Greece. There is debate whether a common currency is the best thing for the Eurozone. Even fiscal transfers need political consensus.

Famine Can Happen in Good Harvests (Entitlement Theory). Famine can occur even there is a surplus of food, especially when wages have plunged. The way food is distributed also causes a problem. ‘It is far more common for food supplies to be unavailable to those who need them the most.’ Food price rising also is a major issue that needs to be addressed. Amartya Sen is a major contributor in this field

Contemporary Economics (1970 to present). Friedman opposed Keynesian ideas and believed in controlling inflation. He also believed in the free market. This marked the period of the deregulation of financial institutions. Liberalization of markets. Capitalism did not fair well during the crisis and some were even starting to believe in Marxism. The Laffer Curve.

It is Possible to Invest Without Risk (Financial Engineering). VAR was introduced, so was CAPM. Countries were experiencing inflation in the 1970s and the US experienced trade deficits. Restrictions on the CME was lifted in 1972. Forward and futures contracts emerged. Derivatives were invented to hedge positions. It also provides high leverage. Derivatives contracts were soon traded on the exchange. Cash settled derivatives were very risky, as there was no need to exchange the underlying. It was hard to price derivatives until the Black-Scholes model emerged. There should be a no arbitrage rule. In 2008, the financial markets collapsed in spectacular fashion.


The Economics Book (DK) (Part 1)

The book serves to give a better understanding on economics theories. The power of economics is felt everywhere. Economics is what moves countries. It is not just about numbers and graphs/charts. The subject is more of an art than science as it is driven by the rational/irrational behavior of humans. ‘The Wealth of Nations’ by Adam Smith in 1776 kicked start modern economics. Soon came the market economy. This is generated separated into macroeconomics and microeconomics. A hands off approach is known as laissez-faire. Others such as Karl Marx believed in state intervention. Neoclassical economics occurred in the 19th century. There are many other schools of thought now.

In economics, hope and faith coexist with great scientific pretension and also a deep desire for respectability. – John Kenneth Galbraith

The first lesson of economics is scarcity: there is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregards the first lesson of economics. – Thomas Sowell

Economics is, at root, the study of incentives: how people get what they want, or need, especially when other people want or need the same thing. – Steven D Levitt

Let Trading Begin (400BCE to 1770 CE). Trading, even barter trading occurred a long time ago. Plato and Aristotle wanted to come up with a normative (moral implications) approach on an economy. In the 15th century, governments started to monitor fiscal surplus/deficits, imports/exports, taxes. In the 17th century, the stock exchange was established. In the 18th century, economics became a lot more scientific. This was when the macro-economy was born.

Property Should Be Private (Property Rights). Aristotle believes that private property will give people the incentive to trade and get rich. There are three different beliefs here. The first is that everything is common and that everyone can use them. The second is that the property be held and used collectively. The third is that property is private and that people can do as they choose. 3 reasons against public property (no one will maintain it, people have little incentive to trade, people will be selfish). Government can take over private property as well but usually the home owner will be compensated with the market price.

It is clearly better than property should be private, but the use of it common; and the special business of the legislator is to create in men this benevolent disposition. – Aristotle

What Is A Just Price? (Markets and Morality). Some believe that prices are a function of supply and demand. In the past, it is believed that sellers get to fix their prices. The moral issue is that the seller gets excessive profits and deceive customers. Thomas Aquinas believed in a ‘just price’ setting. There are different views to this, depending on whether you are for government intervention.

No man should sell a thing to another man for more than its worth. – Thomas Aquinas

You Don’t Need to Barter When You Have Coins (The Function of Money). Kublai Khan used money in the 13th century. Money is ever-present in today’s society. It is hard for barter to work in the long term. ‘Money is transferable and deferrable’. There are two types of money: commodity (example gold coins) and fiat money (paper money).

Make Money from Money (Financial Services). It started off from the Medici family in the 14th century. The initial tools were to finance trade in commodities. The next was to open many branches, managed by different partners. The last was to accept customer deposits. Long ago, banks already dealt in foreign currencies. The economics of banking include lending wisely, gathering deposits, spreading risks to earn economics of scale. Banks must be careful to avoid ‘a run on the bank’ situation. Bills of exchange were developed to guarantee delivery of goods. Derivatives brought about the financial crisis of 2008. Banks engage in ‘network externalities’, meaning that they collaborate with each other to get more information. Co-operatives started (example is Grameen Bank, Rabobank). Bank failures can have serious implications on the economy. That is why regulation is in place to prevent them from going under.

A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain. – Mark Twain

Money Causes Inflation (The Quantity Theory of Money). Jean Bodin came up with this idea. An increase in money supply increases inflation levels. This is because as people become richer, there is too much money circulating and not enough goods, leading to inflation. Real and nominal side of the economy emerged. People chase ‘real money’, not ‘nominal money’. MV=PT ‘P is the price level’; ‘T is the transactions that take place’; ‘M is the supply of money’; ‘V is the velocity of money (a constant)’. However, recent research has proven that velocity is not constant. V affects output and employment. A rise in interest rates will lead to rise in V. Quantitative easing is when central banks print money and buy government debt. This helps to reduce interest rates.

Inflation is always and everywhere a monetary phenomenon. – Milton Friedman

Protect Us From Foreign Goods (Protectionism and Trade). Limiting import of goods causes more money to be retained in an economy. Some believe in a free market, some believe in protectionism. There was causing that money outflow will lead to currency devaluation. Thomas Mun concluded that how the trade and payments balance out matters. His idea was to import and then value-add on the product before exporting it. Adam Smith believed the wealth of all nations as a whole mattered. Nowadays, many people believe in free trade. Hence, the FTAs signed between countries. Protectionism is quite rare nowadays.

The Economy Can Be Counted (Measuring Wealth). William Petty attempted to measure national income and GDP. He wanted to quantify different countries’ performances. GDP is the total value of all the goods and services exchanged for money within a country in a particular period. Other indicators have emerged, such as GPI (Genuine Progess Indicator), HPI (Happy Planet Index).

Let Firms be Traded (Public Companies). The purpose of the stock market was for more efficient capital allocation and diversification of risk. The East India Company was one such example.

Wealth Comes from the Land (Agriculture in the Economy). Wealth stems from production and the output of the farmer. Manufacturing can also produce surpluses. Theodore Schultz also believed in the power of agricultural development, especially in poor countries. Henry George believed that land should be held in common. However, Adam Smith believed more in labour than in land.

If we knew the economics of agriculture we would know much of the economics of being poor. – Theodore Schultz

Money and Goods Flow Between the Producers and Consumers (The Circular Flow of the Economy). The circulation of money is very important. The ‘multiplier effect’ was introduced in the economy. That is why government stimulus package is crucial. Quesnay believed in low tax and investing in equipment to generate more money. Macroeconomic performance via income accounting was born (income and expenditure flow). The classical model focuses on three factors: land, labor, and capital.

Private Individuals Never Pay for Street Lights (Provision of Public Goods and Services). Public good (hard to prevent someone from benefitting, by enjoying it you can’t diminish someone’s else enjoyment, can’t stop non-payers from using them). Government has to step in to provide these. Problem of ‘free-riding’. Non-excludability and non-rivalry.

Where the riches are engrossed by a few, these must contribute very largely to the supplying of the public necessities. – David Hume

The Age of Reason (1770 to 1820). A fresh approach of looking at the economy was needed. Adam Smith was central to this development. He believed in a free market, capitalism, with a limited role for the state. This was also the period of Industrial Revolution. David Ricardo was also very influential. He showed how less productive countries could benefit from free trade. The relationship between supply and demand was established.

Man is a Cold, Rational Calculator (Economic Man). Individuals are all self-interested and want to maximize well-being. Yet, they want to minimize cost in achieving the above. Cost-benefit analysis. People are rational. This is how behavioral economics comes about.

The Invisible Hand of The Market Brings Order (Free-Market Economics). Man, even without his knowledge, acts in the wider interests of society. This is known as laissez-faire (leave business alone) economics. When demand for a product exceeds supply, people will bid up the price. Suppliers will see this opportunity and compete to supply more products. This will eventually reach equilibrium. Same works for employment: also based on the invisible hand. However, recent criticisms to his theory is that market might only produce products for the rich and fair prices may change in times of scarcity. Innovation and competition can help lower prices. Consumption is the sole end and purpose of all production’ – Adam Smith. There are two types of labor ‘productive’ and ‘unproductive’. Division of labor results as there are more specializations. As there is more capital, there can be more savings in the economy. Later on, neoclassical economics emerged. Maths was used to seek a solution on how prices can reach equilibrium. Keynesian economics believed in government intervention. This debate has carried on till today.

The Last Worker Adds Less to Output than the First (Diminishing Returns). This is the diminishing marginal returns theory. It explains not only why it costs more to produce more, but also why countries struggle to get richer if their population expands without improvements in technology.

The earth’s fertility resembles a spring that is being pressed downwards where the effect of additional weights will gradually diminish. – A R J Turgot

Why do Diamonds Cost More Than Water? (The Paradox of Value). Hardly anything can be exchanged for water. However, a diamond doesn’t serve much uses but is worth a lot as it is in limited supply. Diminishing marginal utility. Water is abundant, but diamonds are scarce. One extra diamond has a high marginal utility and so commands a much higher price than an extra cup of water.

Make Taxes Fair and Efficient (The Tax Burden). Tax allows the transfer of happiness from one group to another. Efficiency means both effectiveness in collection and maximizing tax revenues. Fairness needs to be taken into account when designing a policy. In the past, people believed that only agriculture was value adding. Modern tax suggests final tax to goods sold to customers. Taxation on market failures is also common.

Divide Up Pin Production, and you get More Pins (The Division of Labour). Focusing on a task can mean more speed and skill. Therefore, leading to higher productivity. Although a division of labour might lead to poor job satisfaction. It is good to specialize in something. Nowadays, companies like to outsource certain parts of the process.

Every expansion of the personal division of labour brings advantages to all who take part in it. – Ludwig von Mises

Population Growth Keeps Us Poor (Demographics and Economics). Thomas Malthus argued that population growth puts a strain on resources. Social and economic reforms are very common. ‘Mathusian trap: higher living standards are always choked off by population growth.’ However, this is not true in modern society. People are becoming increasingly affluent. Technology and productivity has improved, leading to better standards of living.

Meetings of Merchants End In Conspiracies to Raise Prices (Cartels and Collusion). Competition drives down prices. Monopolies set prices by restricting output. Oligopoly is when a few suppliers collude. This is how cartels are formed. It is possible to use legislation like anti-trust laws to counter this. Small cartels are easier to manage. There is the possibility of self-interest in a cartel. A famous cartel is the OPEC. There is usually an enforcer in a cartel. Cartels are not common as it is hard to maintain.

Economists have their glories, but I do not believe that antitrust law is one of them. – George Stigler

Supply Creates its Own Demand (Gluts in Markets). Jean-Baptiste Say didn’t believe it was possible to over produce. Once a product is made, it creates a market for other products. This is the flow of money. People will have to spend the money that they eventually earn. ‘Supply creates its own demand’. Overproduction is very rare. On the other hand, Keynes believes that growth only comes with increased demand. He believed that if people saved money, it would no longer be in circulation. This would lead to a decrease in demand for goods, causing unemployment.

Borrow Now, Tax Later (Borrowing and Debt). It makes no difference whether the government borrows or taxes now. Borrowing is deferred tax. People are indifferent to the method used. This is the Ricardian equivalence (debt neutrality). The modern debate is that borrowing and taxes occur at different rates and timing. Life expectancy matters as well. It predicts that if government uses fiscal stimulus measures and spend more now, the people will receive heavy tax in the future. Therefore, people are indifferent now. This is not true. ‘There is a limit to which governments can borrow and tax’.

The Economy is a Yo-Yo (Boom and Bust). Under consumption and over production are the causes of economic turbulence. The economy is cyclical in nature. How to fuel the boom. People will get richer during a boom. However, when the supply exceeds demand then it will force companies to cut prices. This will lead to a downturn. Government intervention can help cool a heated economy.

Universal competition or the effort to always produce more, and always at a lower price…has been a dangerous system. – Jean-Charles Sismondi

Trade is Beneficial for all (Comparative Advantage). Time is essential. Make what you are good at doing best only. The others will make the reminder of the products. Then trade to exchange these goods. Setting price floors and restricting imports lead to deadweight losses. You will profit by doing what you are best at. Whether you are capital intensive or labor intensive, you will have an edge if you trade. Protectionism normally doesn’t work. It appears that those countries which have cut tariffs have achieved better growth.

Industrial and Economic Revolutions (1820 to 1929). Capitalism started. There was a shift from agriculture to industralisation. The supply and demand curve was developed. Marx believed in less of a market economy, but rather one where production is owned by workers and there was no private property.

How Much Should I Produce, Given The Competition? (Effects of Limited Competition). Duelling duopolies. The Nash equilibrium is making an optimal decision when you not know what the opponent will do or react. This is an example of game theory. The optimal output for a duopoly is more than a monopoly but less than perfect competition.

Phone Calls are Dearer Without Competition (Monopolies). A monopoly is generally defined as having more than 25% of market share. The problem of a monopoly existed almost 2000 years ago. John Stuart Mill believed that collusion is more common than a pure monopoly. Monopolies push up prices by limiting supply. The monopoly market can also enter the labor market. Monopolies produces deadweight losses and less consumer surplus. Sometimes, a monopoly can lower the price and also achieve greater revenue. They also have to advertise less as they are already quite large. They can engage in predatory pricing. Most countries have natural monopolies running the utilities. For some natural monopolies, fixed costs are so high that forcing them to lower their price might lead to losses. This is when the government needs to step in.

Whatever renders a larger capital necessary in any trade or business, limits the competition in that business. – John Stuart Mill

Crowds Breed Collective Insanity (Economic Bubbles). Bubbles occur when there is speculation, causing prices to veer from the fair value. This is dangerous as bubbles will eventually burst. “Let the buyer beware” is good advice. ‘Crowds breed collective insanity’. Never underestimate the power of mass media.

Let the Ruling Classes Treble at a Communist Revolution (Marxist Economics). Some places have planned economies. Marx believed in a different economic system. Feudalism was born. Communism will be brought about by revolution. He believed capitalism will eventually hit a downfall. Bourgeoisie vs the proletariat. Those who held production were ‘the ruling party’. He felt that a commodity’s value depends on the labor necessary. Companies will want to pay as little wages as possible. They will also seek to improve technology in the company. This often leads to less human involvement or a poor work environment. The ruling class will tremble once the working class have a revolution. Capitalism believed in the formation of monopolies. Socialism is when the majority of the people have the power. Marx believed in moving a planned economy based on common ownership. Modern society has proven Marx wrong. Death of communism.

The proletarians have nothing to lose but their chains. They have a world to win. Working men of all countries, unite. – Karl Marx

The Value of a Product Comes From the Effort Needed to Make It (The Labor Theory of Value). A certain amount of effort is needed to convert a raw material to a finished good. Marx had his labour theory of value. ‘All commodities, as values, are realized human labour.’ – Karl Marx. Ultimately a value of a good must be derived from the labor costs. Value is determined by the normal amount of labour we expect its production to take. Marx believed in seeing the fruits of your labor and going through the whole process, not just a tiny step of the process.

Prices Come From Supply and Demand (Supply and Demand). Value can be derived from the previous chapter. It needs to be fair for both the consumer and producer. The supply and demand curve was formed. ‘The Marshallian Cross’. The equilibrium is the intersection between the supply and the demand. Firms are price takers (assumption). There is a need to separate fixed and variable costs. Prices are not the only factor that affects demand. Customer tastes and preferences also matter. Producers can entice demand by advertising and giving promotions. Short term products need more price alterations to achieve equilibrium.

In every case the more of a thing is offered for sale in a market the lower is the price at which it will find purchasers. – Alfred Marshall

You Enjoy the Last Chocolate Less Than the First (Utility and Satisfaction). Consumers will only buy more of something if the price falls as they don’t enjoy as much utility from the subsequent purchases. Too much of a useful thing would be no use. Law of diminishing marginal utility. Alcohol is different. The more of which is consumed, the more people enjoy it. People make decisions based on risk appetite and not really their DMU.

When the Price Goes Up, Some People Buy More (Spending Paradoxes). These are Giffen goods. Demand rises when price rises. It has to be an inferior good, where people buy less of it when their income increases. This is because there are other sources/alternatives around. Substantially a large percent of their spending is on the product. No alternatives currently to the product. There is need to outweigh the substitution effect.

A System of Free Markets is Stable (Economic Equilibrium). Leon Walras attempted to establish equations for the general market equilibrium. This is similar to Newton’s three laws. The sum of all excess demand in an economy equals zero. His work builds on the supply and demand graph. The whole economy is interlinked. His equation was reduced to just price and quantities. Flaws in the model. His equations were too technical for most to understand. John von Neumann exposed flaws in his model. Arrow and Debreu, in the 1950s, derived conditions in which Walras’ model would hold. Partial equilibrium analysis is the basic.

The equilibrium re-establishes itself automatically as soon it is disturbed. – Leon Walras

If you Get a Pay Rise, Buy Caviar not Bread (Elasticity of Demand). Changes in income alter the level of demand. This is how the elasticity of demand came about. When prices for bread changes, demand doesn’t vary much as there are few substitutes. Other more expensive items might be more price-elastic. Engel’s law ‘demand for food is income-inelastic’. Demand for expensive items grew as quickly as the increase in income. Inferior goods are those when demand falls when prices increase.

Firms are Price Takers, Not Price Makers (The Competitive Market). This is due to perfect competition. There are a large number of firms. Every firm is selling the same product. There are no barriers to entry. An opportunity for excessive profit will drive more firms to enter the market. There is almost no industry in reality which can fit this model. The world is dynamic and not as flat and static as Marshall’s model.

Make One Person Better Off Without Hurting the Others (Efficiency and Fairness). Pareto efficiency. Pareto believed in ‘ordinal utility’ or relative happiness, rather than ‘cardinal utility’ or absolute happiness. ‘No one can be made better off without hurting someone else’ This is Pareto optimality or Pareto efficiency. Everyone is assumed to know what they want and want to trade to maximize their own utility.

The Bigger The Factory The Lower The Cost (Economies of Scale). Fixed costs is the same, variable costs is reduced. Average cost decreases. Specialization in labor and investment in machinery can aid this process.

The Cost of Going to The Movies is the Fun You’d Have Had at the Ice Rink (Opportunity Cost). This is known as opportunity cost. True cost include both direct costs and opportunity costs.

Economics brings into view that conflict of choice is one of the permanent characteristics of human existence. – Lionel Robbins

The value of something was determined by what had to be given up in order to get it. – Friedrich von Weiser

Workers Must Improve Their Lot Together (Collective Bargaining). There are more employees than workers, therefore they hold the balance of power. Therefore, workers need to act together to fight for their rights. There are unions present to help them with it. However, those jobs that are protected by the Union enjoy better benefits than those which are not covered by the Union.

If a group of workmen concert together, and send representatives to conduct the bargaining on behalf of the whole body, the position is at once changed. – Beatrice Webb, Sidney Webb

People Consume to Be Noticed (Conspicuous Consumption). Rich like to purchase expensive goods to flaunt their wealth and status. This is known as ‘Conspicuous Consumption’. Expensive goods or branded goods are also known as ‘Veblen Goods’.

Economic behavior is driven by psychological factors. – Thorstein Veblen

Make the Polluter Pay (External Costs). Government can step in and force polluters to pay. These are known as negative market externalities. This idea came from Arthur Pigou and the tax is known as ‘Pigouvian tax’. Governments use this to reduce carbon emissions. However, how much to tax can be big issue.


Audit Analytics by Sean Elrington

Data analytics is useful for good governance as it provides better assurance as compared to manual sampling. Is the need to hire consultants necessary for straight-forward audit tests? It can help recover unnecessary spending. There may be resistance from the other departments if audit wants to perform 100% checks. There are still auditors which do not use data analytics.

Common Objections to Using Audit Analytics. Some auditors are too busy to learn and to change. The data may not be readily available. In addition, the cost has to be justified. Some are too intimidated by change. You need an understanding of ERP, database structures, views, tables etc. The benefit is that you might save time for data analysis. How will analytics help audit productivity? As it requires less man-hours, analytics can be useful. Although in the short-run, probably more work will be required. If the error is systematic, testing 100% of the population might not be very useful. In such cases, it will be better just to test a few samples and fix the control first. Analytics is here to stay.

Questions that the IT manager will ask you. Why can’t the auditors use Excel? Excel has its limitations on data size. Random sampling is not a good way to detect fraud. Data can be amended easily in excel and it does not have much data security. Sorting can be slow and Excel lacks functions like Benford’s Analysis. Modern audit software have data logs too. It is good to host the data on a server especially when there are multiple users. If you rely on the IT department to generate data for you, there is a risk that the data could be manipulated before being provided to you. There is an issue of how much access that an audit should be given. Data should be obtained from production and not the data warehouse. In the data warehouse, bad data might have been removed already. Application controls rely on passwords and roles to work. Relying on the controls in the ERP system might not be useful when there is collusion. Data might be present from different systems and auditors can’t simply draw the data from one ERP system.

Considerations when choosing audit software. Some of the functions that are heavily used are extract, join, relate, summarize, stratify, classify and age. Continuous monitoring is a lot more expensive and complicated. Is training a big consideration? Do you need to write your own scripts? Or can you buy scripts? What is your required return on investment? Will learning the software help the auditors in their career development? How much technical support is needed? What are the server requirements?

Analytic Software Tools. Picalo is a free tool that can be downloaded online. Some of the other software besides Excel are TopCATTs, Arbutus Software, IDEA, Monarch, Picalo, ACL. ACL usually requires a lot of training before users will know how to use.

Testing for Duplicate Payments. One can test both exact and fuzzy matches. There are multiple reasons why this might occur. First, you have to ensure that there are no duplicate vendors by scrutinizing the vendor’s details. For exact match testing, you can use ‘Substring’; ‘Include’; ‘Exclude’; ‘Alltrim’ formulae to remove dashes, hyphens etc. Testing should be performed on fields like Invoice Number, Vendor Number, PO Number, Date, Amount etc. Deconstruction techniques are used for Fuzzy matches. They use techniques like Soundex, Soundslike, HEX etc. Some of the algorithms are Levenshtein distance, Metaphone etc.

P2P Vendor Analytics. Some of the objectives are 1) vendor master file is correct; 2) employees are not vendors; 3) no duplicate or unused vendors. Match vendor information with employee information. Check out vendor addresses to ensure that they are not mail drop addresses used by delivery services. Sort the number of vendors by payments per year. Use a vendor name fuzzy match. Find vendors with missing fields to check whether the vendor master is well-kept or not.

Purchase Card Analytics. Objectives are 1) only authorized employees are using cards; 2) card purchases are acceptable. Try and detect transactions by authorized card-holders. Find cardholders not in employee master file. List top spenders by department. Find transactions in excess of authorization limits. Identify weekend and holiday purchases.

FCPA analytics. Objectives are 1) test that there are no suspicious payments made to individuals or entities; 2) verify that gifts received are permitted. Identify payments made to high risk countries. Identify cash payments. Identify unusual gifts. Identify credit card spending with unusual Merchant Category Codes. Find unusual vendors, like PEPs etc. Flag out payments with the words ‘facilitate’. Match to watch-lists, world-check etc.

P2P Payment Analytics. Objectives: 1) POs are unique and properly filled; 2) SODs are working; 3) controls to match invoice and PO amounts are accurate. Detect split purchases. Find duplicate payments. Find POs that were raised late. Look out for people who can create and approve their own POs. Look out for unauthorized purchasers. Ensure that there is approval for all POs. Compare a list of payments to prohibited vendor lists.

GL Analytics. Objectives: 1) Only authorized employees are making GL entries; 2) GL entries are acceptable. Detect duplicate GL entries. Look for suspicious wordings like ‘park’; ‘temp’; ‘reverse’; ‘suspense’. Detect GLs made at odd timings. Detect payment voucher and look out for approvals etc. Look out for frequently changed or reversed accounts. Find temporary accounts.

Healthcare Analytics. Objectives: 1) procedures billed to the correct code; 2) appropriate charges are billed to correct account; 3) reasonable timeline of patient activities.

Fraud Facts. Whistle-blower hotlines are a great way to detect fraud. Some level of fraud might be acceptable. It depends on the organizational culture. It is not the auditor’s responsibility to detect fraud. Look out for transactions with fraud symptoms. In general, there are two types of fraud: 1) Fraudulent financial reporting and 2) misappropriation of assets. It is hard to distinguish whether it was an honest mistake or fraudulent. The top from the top must be correct.

Common Business Frauds. You might need the help of a skilful financial auditor to deconstruct fraudulent financial reporting. Financial fraud is a very serious matter. Misappropriation of assets often involve kickbacks. Multiple payees could be an issue. Duplicate payments are a potential source of fraud too. A shell company could be used to deliver fictitious services. Detect maintenance which has been performed too frequently. Physical inspection of works/goods can help. Look out for defective delivery of goods/services by having good IC over the receipting of goods and services. See how often different employees reject or accept goods based on their quality. Inaccurate pricing is one of the type of risks too. Contract rigging means awarding to the lowest bid, but later subsequently changing the product specs so that the contractor will have to deliver more and thus can earn more money. Check contracted projects over their original budgets. Contract rigging is difficult to detect if you are not familiar with the goods. Bid rigging is very difficult to detect. Ensure that there are no phantom employees or contractors. Look out for invalid employees’ wages.

Interesting Fraud Stories. The fraud triangle occurs when there is 1) opportunity; 2) motivation; 3) rationalization. Don’t let non-trained employees do the accounts. Do not let the salespeople collect the cash. Be wary of bribery to win contracts etc.


The 1 Hour China Book by Jonathan Woetzel and Jeffrey Towson

This book will give you a good background into China. China has really grown into one of the biggest economies in the world. China is getting more prominent now. Both the writers are professors. There are 6 trends that shape China. These are macro-economic trends that have an impact on businesses. The six trends are 1) urbanization; 2) manufacturing scale; 3) rising Chinese consumers; 4) the brainpower behemoth; 5) money – and lots of it; 6) the Chinese internet. All of these trends are a source of potential revenue. There are many academics who have studied these topics.

Urbanization. Many have moved from the countryside to city. An average of 18.5 million move to cities each year. It’s a natural development to an industrial landscape. This is a cultural phenomenon. This is for many, the hope of a new life. There will soon be 1 billion city dwellers in China. The urbanization rate is about 50% now. The number of cities increasing will rise. There are currently 14 cities with more than 5 million people. Mega cities will form in future. Shenzhen was a village in the 1980s. However, it has emerged into one of the most cosmopolitan cities around. It is necessary to build a thriving city. Ordos in Inner Mongolia is also a well-built city now. However, it was built too quickly and is a ‘ghost’ city now. Xian is also a growing city with a huge population. Urbanization means wealth. Disposable income and spending power is increasing. China Vanke is the world’s biggest real estate developer. It engages in middle class residential property. The founder of the company is Wang Shi. It was a real rags-to-riches story. Guangdong was one of the first few cities to be developed in the 1980s. Shenzhen was designed as a Special Economic Zone around 1983. It was gold. Shenzhen was a boom-town for all sort of products. The movement of people in Shenzhen created demand for his real estate projects. In 1991, the company went listed on the Shenzhen stock exchange. In 2012, their revenue exceeded $16 billion and employ over 16000 people and have presence in over 54 cities. Now, he is the Chairman and also a philanthropist and environmentalist. Vanke was in the right place at the right time. It was cost efficient and extremely fast. China is a series of clusters, not a continent. Qingdao, Beijing/Tianjin are example of clusters. There are over 20 clusters in China. Infrastructure, like high-speed rail, has facilitated trade and transport within each cluster. Massive inflows of people will present problems like infrastructure/pollution etc. Water is a big issue in China. The water supply cannot keep up with the development. Water quality is bad due to heavy discharge into sewers/rivers. Supply is only 1 issue. Water conservation and treatment is another. Construction is a very big industry in China. It is still going to play a huge factor today. Pre-fabrication is where factories build part of the real estate and then these parts are transported to site and assembled. This greatly speeds up the construction process. The Chinese urbanization is a great social experiment. However, other issues like income disparity etc will start to emerge.

Vanke has a business model it calls “5-9-8-6”. Start construction within 5 months of land purchase. Kick-off sales in the ninth month. Achieve 80% of the target in the first month. And sell out 60% once the project has opened up for sales. This enables the company to retrieve cash faster than its competitors. – Jonathan Woetzel/Jeffrey Towson

Huge manufacturing scale. Nowadays, most things are ‘Made in China’. Export is a big thing in China. They have competitive advantage because of their immense size. It contributes over 40% to the GDP. The manufacturing scale is incredible in China. They have low labour costs and benefit from economies of scale. There has been a move towards high-tech manufacturing. Most of the manufacturing is now tech-related. Huawei Technologies is one of the most global Chinese company now. It was founded in 1987 by Ren Zhengfei. In 2012, they achieved a revenue of $36 billion. They have over 150,000 employees globally. The founder was also a rags-to-riches story in Shenzhen. There was a huge focus on trying to improve technology. Initially, to avoid stiff competition from Ericsson etc, Huawei targeted third tier cities where there was less competition. Their plan worked. In the early days, they made money from selling telecommunication equipment to hotels and small enterprises. In 1997, they expanded globally and also focussed on less developed cities. They use a ‘low-cost + customization’ strategy to knock out competitors. More than two-third of their revenue is outside China. Huawei is one of China’s most renowned brands. They rode on the manufacturing mega-trend. They invest 10% of their income in R&D and invest heavily in human capital. Lastly, they cultivated the ‘wolf’ spirit in employees. They were smart to only focus on telecommunications. They managed to retain employees by issuing stock options. To win in China, you must go low-cost. Although some of the Chinese companies might lack branding, they win on political and cost advantages. China managed to dominate the hi-tech sector like ultrasound scanners etc. Selling and distribution costs are also kept low by the Chinese companies. Watch out for the fight in the middle areas. Going global is normal for Chinese companies, but are they going to win the long run? The Chinese are ambitious.

Rising Chinese consumers. Customer behaviour is influenced by psychology, culture etc. The future of the world will be China and Asia. The wealth lies in China. Chinese consumers are still over value-the-money things. Their economy is opening up and becoming less protectionist. Master Kong sells cup noodles and they are a big success. It has about 56% market share in China and worth about $16 billion. The founders are billionaires. Now, they expanded into the drinks segment. Their product is standardized and at low-cost. Now, customers are becoming more brand-conscious as spending increases. There is also better brand loyalty. Spending patterns have changed and are similar to Westerners now. The Wang Brothers founded the firm, Huayi Brothers, that does advertising and film production. They are known as the ‘Warner Brothers’ of China. The Chinese cinema scene is starting to take flight. Rising consumer wealth has weird effects. The meat consumption in China is increasing with more wealth. Tyson Foods is one of the largest meat processors who have entered China. Consumer demands are sky-rocketing. The value chain has to adapt to ensure that it can meet customer demand. Farming is an up-and-coming sector. COFCO is the largest supplier of products and services related to Agriculture in China. It is a state-owned company. It is a massive company. They oversee the entire supply chain. GDP growth has slowed to about 6 or 7%. The Chinese middle class are the future

Money – and Lots of It. China practises market capitalism. Their foreign reserves, deposits, trade surpluses are huge. Shanghai is now a massive financial district. It was largely fields and small houses in the 1990. Shenzhen opened up in 1979. In 1990, the Pudong region in Shanghai was re-developed. Now, there is a robust financial system that works well. Ownership and control of certain financial institutions might not be so clear. Ping An Chairman, Peter Ma, runs a huge insurance and financial services company that is bigger than Prudential, AIG, Metlife combined. The firm offers a wide range of services, other than just insurance. It is truly a success story. They are also have trust, brokerage, banking services. There are 4 huge local banks in China. They are ABC, CCB, BoC and ICBC. All of them are state-owned entities. ICBC is usually the world’s biggest bank by market capitalization. Most of the lending goes to state-owned enterprises and other local government. Shadow banking has emerged in recent times. However, it is not safe in nature and should be avoided. Non-bank FIs have stepped up lending. However, some of these are not being tightly regulated. The wealth management market is growing rapidly in China. WMP lending is also largely off-balance sheet. Shadow banking is risky in China. Chinese debt has increased rapidly in the past few years.

The Brainpower Behemoth. The Chinese are fast and flexible in their processes. They are able to adapt really quickly. There are also many able engineers in the field. In 2012, there were 7.5 million graduates from China. Their education output and numbers are huge. Suntech Power is a tech company who is in the solar industry. They are also known for their rapid innovation. They have over $3.4 billion in revenue. Suntech has both brainpower and low-cost manufacturing. Dr Shi Zhengrong is from WuXi. He came from humble beginnings and worked his way up the ranks. Wuxi had sufficient infrastructure and he used it as a base for his company. They also compete with Western brands in the same industry by selling globally. The company also received much government support along the way. Cost innovation is very common in China. They make increment improvement to existing products. Getting cheaper is the way to go. R&D expenditure in China has surged dramatically. Some of the big MNCs have their R&D centres in China. Employees will work on product development and research etc. Manufacturing + R&D will give you success in the long run. Many of their tech giants have huge cash pools. Huawei is investing a lot into technology. There is a mismatch between University education and employment. There are simply too many graduates but not enough jobs. IP Theft is an issue as well. The patent filing growth rate in recent times have signalled the quality of brainpower that China has.

The Chinese Internet. The Internet is moving very rapidly and the Chinese are quick to adopt it. E-Commerce is a huge thing nowadays. Some of them are addicted to the Internet and spend too much time on it. Tencent Holdings is one of the top 10 Internet companies in the world. They are known for the messaging service, QQ. It started in Shenzhen by the founders Pony and Tony. It was like MSN. There are more than 700 million QQ users now. They also invented WeChat, which is the next big thing. It has a market capitalization of over $100 billion. There are many offering other than chat, such as internet storage, dating services, gaming etc. The business model is very scalable and can cross borders very easily. They also tie up with many famous European gaming companies. Chinese are very big on instant messaging and online music. A lot of the youth like to watch online videos. The Chinese spend a lot more time online than Americans. Internet addiction might be a potential problem in China. The Chinese are also very active online and have a big presence. Word-of-mouth is a great way to market your ideas and push your products. E-Commerce is the next big thing in China. Baidu and Alibaba are huge in China.



Love Your Job: The New Rules for Career Happiness by Kerry Hannon

Introduction. Start the day with gusto. Focus all your efforts on a task. Stay fully present when needed. Value yourself and charge accordingly. Be optimistic and look at what went right. Push in fresh directions. Network more. Learn to go places. It is possible to learn lessons even from your dog.

Curing the Workplace Blues. When were you last excited about work? How to reignite the passion/excitement for your job? Most people are not satisfied with their jobs. Job satisfaction is at an all-time low. People are also changing jobs more frequently. Job security might not always be there. Promotional prospects may not always be clear and defined clearly. Quitting isn’t such a good idea unless you have secured something else already. Unemployment can go on for prolonged periods of time. Sometimes, one needs to take a hard look at themselves. Even if you find small rewards, it is possible to keep going. You need patience to keep going. Try to follow your heart when looking for a job you like. However, quitting and entering a new career might not be feasible for some. Money is a big issue as well. Learn to fall in love with your work again. It is important to make work your source of joy, not just for a pay-check. Some people suffer from job fatigue and burn-out. Be wary of the symptoms of job burnout. Be careful as you might unknowingly turn to substance abuse. Complaining without doing anything won’t change the situation. ‘Speak now or forever hold your peace’. Speak up if things are not right. You have to take ownership of your work and ask how you can improve at your work/job. For instance, you could try learning someone else’s work. Get a kick out of learning something new. Look hard at your habits, routines which you can change. Take control of your workplace happiness. It is really possible to learn to love your job. Some form of exertion/challenge is important for you to like it. We all dread the Sisyphean condition. Adopt the HOVER (Hope, Optimism, Value, Enthusiasm, and Resilience) mind-set. Always keep an open mind and be open to possibilities. Mid-career workers tend to avoid challenges as they feel they don’t have the right skills to cope. Learn to keep at least 3 to 5 year goals. To love your job, one also needs to take care of your body. Autonomy and empowerment are the key to success. Never ever lose sight of the goal. Do it for yourself. If your immediate boss sucks, you might need to take immediate action.

Creating the Blueprint for Your Dream Job. Do some soul-searching. Write down the aspects of the job that give you meaning. Putting it down helps you gain clarity. Write down exactly what you do outside work. Identify the specific aspects of work which you dislike. To me, my job is a passion and mission. The joy of the finished product is important for me. Document what are the skills necessary for you to thrive at work. Write down your dream job title. Our jobs are an integral part of our persona. It gives us a sense of pride. Ask yourself what are your main priorities in life? Is it to attain a high income? All of us want to make a difference in our workplace. If your job scope keeps changing, treat it as a challenge. You don’t have to be the 70% who doesn’t feel engaged at their work. Document what are the aspects which make your job alive. There will always be magic moment in your work. People who can see meaning in their work are less likely to job-hop. People with supportive supervisors are also less likely to quit. Remember that you are the architect of your career. You may lose interest in your job if you lose the human touch of not connecting with colleagues etc. Learn to have more face-to-face conversations. Are you present in your workplace? Try and communicate your passion with others at your workplace. Master your current role and find ways to expand it. Spend more time with people whom you hardly talk to in your company. Put energy into the things you like. Establish your work goals. Try to get involved in a special project etc. A career is not a ladder, it is a jungle gym. For instance, you can obtain lateral moves to another department. Listen to your internal compass. You may not simply be after a job title or high pay. Consider hiring a career coach if you can afford it. However, please perform your due diligence on them first. You have to trust the person enough for you to reveal information etc.

Do an MRI on your Work and your life. Complaining about your job gets you nowhere. Change comes from within. Unearth the ingredients that cause your unhappiness. Be willing to make compromises. In your 50s, changing job is almost impossible. Sometimes, it is appreciation that you are after. Write down the key areas of your life that matter to you. Find out whether you work better in a team etc. Are you a self-starter? Do you like your co-workers etc? Create a job budget and weigh the pros and cons. Review it every few months ‘What does your work really mean to you?’ You must understand what your motivations for work are and what needs your work are meeting. There are some people who just work for the love of it, not for the money. Why do people work? 1) identity; 2) meaning; 3) community; 4) engagement; 5) money; 6) benefits like life insurance; 7) validation Ask yourself what are you getting out of work? Jot down the moments when you feel stressed or disinterested. Training can make a big difference and keep you interested in your work. If you are working long hours, find out which aspects of work you can delegate or be more efficient in. Is your desk too messy that it is affecting your productivity? Learn to unclutter. You might not be able to change a bad boss, but you can view him or her differently. Start small and move the ball forward slowly. Check and monitor your progress using a to-do list etc. Keep a journal for self-musing. Consider taking a self-assessment test. One test to consider is the Myer-Briggs personality indicator test. Ultimately, you have to choose happiness. Find ways to make a positive contribution at work.

Refresh Your Attitude – The Keystone to Your Love Your Job Action Plan. It’s not realistic for everyone to say ‘Love your job and you’ll never work another day in your life’. Sometimes, we all feel challenged at work. The job is what you make of it. Refresh your inner mentality. Ask for new projects and hone new skills. If you feel bored, chances are that you will hate your job. Take a breather and relax. Develop a strategy to change things. Try not to waste time over the petty stuff at home. Seek a change in your work culture. Challenge yourself to find ways to improve your work processes and efficiency. The small things can make a huge difference. A positive thought a day can change things. You can create purpose at work by changing your tasks or building relationships at work. Having the human touch at work matters. Write down all the negative thoughts you experience. Use affirmations to guide you. A positive image in the morning and help you through your day. Hope is vital. Optimism involves you to take an upbeat view of your work. Keep a journal and be grateful for the little things that have happened. You can use hand-written emails. Value is critical. To increase your sense of value, it is important to keep learning new things on the job. This will turn your mind on. It is important to get your mind engaged. When you are enthusiastic, people want to be around you. Be eager to take on new assignments. Resilient people do not get bogged down with the past and look forward. Get your HOVER on. It isn’t normal for one to stay on in the same job for life. Resilience involves anticipating risk and change. Get connected to your colleagues and network. Learn to choose optimism. Learn something new. Think like an entrepreneur and find ways to add to your own branding. Look at the big picture and write down your vision statement. Get in shape and manage your energy levels. Be thankful for the fact that you are employed and earning a decent wage. Focus on the people around you. Surround yourself with positive people and learn to slow down. What if you are bullied at work? Size up the situation. Document the episodes of bullying so that you will have evidence against the person. Talk to the bully and be polite about it. Take your complaint to a higher power. There is no need to inform others that you are looking for a job. Re-connect with your old friends as you never know where those connections might take you. Money woes at home will affect your ability to concentrate at work. Ensure that you have sufficient savings for retirement. You can take up free courses in investing to earn passive income which you desire. Create a budget for your account. You need to be in decent physical shape to perform your best in your workplace. Keep walking. Regular sleeping patterns can provide the boost of energy you need. Meditation can help you calm down and relax.

So if you can just do one thing to make a change right now, learn something new. If you can’t make it work related, do it in the context of your life. – Kerry Hannon

Beyond the Job Description. Do things on the edges of your job. No one will redesign the job for you. You will need to do it yourself. Give back to the industry that you are in. You need to enjoy your work now, and not someday in the future. IBM has a corporate service corps that helps people build their skills and hone their leadership potential. You must ask what you want to get out of life. Volunteering, sponsoring and mentoring are some of the ways to get your energy back. Volunteer in an NGO. Check with your HR whether there are such programmes available. Large corporations usually have a big CSR event. Try to mentor someone else in your office. Sponsoring means helping the other person to grow in their career. Aggressively seek to promote their careers. Also, look for mentorship opportunities outside your firm. Career mentoring is very important nowadays. It is also possible to find mentees in University settings etc. If you have a sponsor, chances are that you will be more motivated at your workplace. To motivate yourself at work, get up to speed with your industry. Read the trade publications to understand the latest trends. Do some sleuthing to find out new opportunities in the department. Ask for new duties. Believe that you can handle these new duties. Say yes to new responsibilities. Adjust the way you connect with your co-workers. Step away from complaining about work. Instead, support your co-workers when they are down. Lunch with your new colleagues and forge bondings with them. Make eye-contact with your co-workers. Laugh more. Even if you hate your boss, don’t let this affect your work output. Your work is your reputation. Start building that trust with your boss and ensure that you can deliver the projects on time as you promised. Keep a paper trail of your difficult interactions with your boss. Take a poker face and do not flare up or whine excessively when you are unhappy. Get to know your boss better. Here are 10 ways for you to manage a younger boss. 1) Manage your attitude; 2) Talk about the elephant in the room; 3) Concentrate on what you have to offer; 4) Find the silver lining; 5) Get hip to texting; 6) Prepare for less face time; 7) Note your latest achievements; 8) Steer clear from age-centric comments; 9) Keep your skills current; 10) Don’t act old. Keep track of which activities give away your personal satisfaction. Cut back on the interruptions. Work smart so that you feel in the zone and feel engaged in your work. Learn to delegate simple tasks. Stop procrastinating on work assignments. Get involved in extra-curricular activities. Pick up hobbies outside work.

Everyone must keep growing and developing, gaining intellectual stimulation as a way of guarding against the inevitable disappointments that come with any job. – Paul Drucker

No matter how difficult your boss is, keep your side of the street clean. If your unhappiness with him impacts your work output in any way, and you let it affect your productivity, or start withdrawing or calling in sick, that will come to bite you, not him. Your work is your reputation. – Kerry Hannon

Seriously, procrastination is a losing proposition for you and for those who are depending on you to deliver the goods. Learn to recognize its signs. It might be that you click onto a news story to read online, and that leads to another link and then another. The trick is to find a way to reward yourself for tackling an assignment that you’re trying to avoid. – Kerry Hannon

How to Build Flexibility into Your Job. Flexible hours will tend to motivate one to work harder. You can also partake in the activities that you like. Working from home gives you autonomy and control over your time. Flexibility matters as you get older. People are motivated by different things. Not that many people are motivated by pay. The accounting sector is known for allowing employees work flexibility. Remember that it is important to keep your skills sharp. It is great if you have control over when you work. Is telework for you? Can you make it work? However, working from home also has its risks. It might inhibit career growth. Your manager may not know how well you are performing. If you let your job morph into your life, that spells trouble. Firstly, your workday might have no limits. Therefore, it is important for you to establish that. It is important for telecommuters to remain connected to the office. It is important to maintain face-time with your colleagues/employer. You might miss out on workplace connections if you tele-work. Try your best to meet your colleagues for lunch face-to-face etc. Check in with your supervisor once in a while. Network with those people in your industry. Put enough money into your 401(k) to ensure you have enough for retirement.

How to Upgrade Your Game. If there is something you want to learn, you should be proactive about it. Learning doesn’t have to be job related or job specific. Learning shifts your brain. When you stop learning, your brain will de-generate. Learning is lifelong in nature. Your mood improves when you learn. Seek out openings. Be accountable for your job. It is important to have faith in your abilities. Do not harbour negative stereotypes about older workers. Learn to think like an entrepreneur. Workers need to stay relevant in their jobs. Transform your life on an on-going basis. Besides learning, you need to be a doer as well. You can learn when you travel and experience a new culture. For courses, try to get your company to support if possible. Track down related programmes so that you can learn. There are many online courses like Coursera which you can sign up for. You might try certification programmes. If your firm is good, consider taking a sabbatical. A short sabbatical of up to 2 months would be sufficient. You must also think how the sabbatical benefit the company can. Ultimately, you are the architect of your career.

What gives your job meaning and the occasional flashes of magic is getting smarter in the process, adding value not only to your own bag of tricks but as a way to help your company achieve as well. – W. Timothy Gallwey

How to have the ‘What’s Next?’ talk with your boss. It is unlikely that you will get what you want without asking for it. Persuade your boss that you would like a change. The time is now. Firms are thinking of ways of how to retain employees. Understand that if you are good, the boss will need you. You must be sure of what you are asking for. Are you passionate about what you want? How quickly do you want something to happen? You need to go through the following 6 steps: 1) What’s in It for them?; 2) Play your cards close to your chest; 3) Talk to colleagues who have made similar changes; 4) tweak your elevator speech; 5) Make a formal presentation; 6) Make Some Noise. It is important to negotiate pay when you first join and along the course of your career too. If you want a higher pay, you need to show what additional work you have done. A 5% increment is normal. A 10% increment is more suitable for a promotion. Do not give an ultimatum or you might lose your job. Consider taking on special projects in the company. Do your current job to the best of your ability. Practise and memorize your pitch. If you want to quit, make sure you have an exit strategy. You have, to some extent, a power to change your attitude at work.

What do you have to lose? Your supervisor can always say no, and you’re right where you are now. But if you say nothing, management will never know that you’re ready to take on different duties or learn something new, or even that you’re unhappy where you are. – Kerry Hannon

Ideas for Further Reading. The inner game of work: Focus, Learning, Pleasure and mobility in your workplace by W. Timothy Gallwey. Leading the life you want: skills for integrating work and life by Stewart D. Friedman.


Affordable Watches by WatchTime

Five Affordable Zenith Watches for New Collectors. They are known for their El Primero movement. They had early aviator watches. Leon Morane wore a Zenith when he flew faster than 100km/hour. The French Air Force during WWII chose Zenith’s Montre d’Aeronef Type 20. The Zenith Pilot Type 20 Extra Special is someone that one could consider. It comes on a 45mm case with an oversized crown. The Captain line started in 1952. The Captain Power Reserve has a 40mm and a power reserve indicator and 50 hours of power-reserve. It also uses an in-house caliber. It has a very classical and dress watch look. The Pilot Big Date Special runs with the 5Hz movement and has 50 hour-power reserve. It is a chronograph watch in a 42mm case and there are only 2 counters. The first El Primero chronograph was launched in 1969. The El Primero Original is a remake of the classic one in 1969. The case size is 38mm and there are 3 dials. If you prefer a 42mm case, consider getting the El Primero 36,000 VPH as it also has the tri-compax look, similar to the El Primero Original.

Five Affordable Rolex Watches for New Collectors. Rolex is one of the most renowned brands in the world. The Oyster Perpetual 36mm range is the entry point into the brand. Rolex also uses 904L high grade stainless steel. It has a patented Twinlock clasp and has a sapphire crystal. Their movements are all chronometer grade and also contain the blue Parachrom hairspring. There is also a free-sprung balance. The Rolex Explorer is a rugged timepiece and comes in a modern 39mm. It uses the caliber 3132 and has blue Chromalight hour markers. The Rolex DateJust II fits about any outfit. The DateJust II in 41mm was launched in 2009. The watch features a cyclops lens for the date and some of them feature a fluted bezel. Rolex Submariner, in 40mm, is one of the most iconic watches around. It was the first watch to hit a 100m water resistance in 1953. It was essentially a tool watch. The watch comes with the Triplock crown and has a rotatable 60-min bezel. The clasp has the glidelock system. The Rolex Milgauss, in 40mm, was created in 1956 for engineers and technicians. It is renowned for its magnetic shielding and the watch can withstand up to 1000 gauss. In 2007, the orange second-hand were introduced. Some of the latest models come with the green sapphire crystal.

Three Affordable Omega Watches for New Collectors. The Omega Speedmaster Moonwatch Professional was introduced in 1957. It is iconic, in 42mm, and has a black dial with a hesalite crystal. It is a 3 dial hand-wound chronograph, with no-date. The Constellation series was launched in 1952. Omega is known for their chronometric achievements. In 2007, the Co-Axial calibres were introduced. These movements had better chronometric performance over time and are COSC certified. Consider getting the 38mm Omega Constellation Co-Axial. The Seamaster Aqua Terra has 150m water resistance. The 41.5mm one has the 8500 calibre and can withstand up to 15,000 gauss. It also has a transparent case-back.

Five Affordable Montblanc Watches Under $5,000 (SGD 7,000). Montblanc is a master of fine watch-making. The first wristwatch was launched in 1997. The Montblanc Star Traditional Collection Date Automatic comes in 39mm and has a classic style. The dial has an intricate spiral guilloche pattern. Next, consider the TimeWalker Collection Voyager UTC in 42mm. It has a GMT feature for keeping track of a second time zone. This is a good watch for travelers. The Meisterstuck Heritage Moonphase comes with sun-burst dials and both polished/satin surfaces on their 39mm case. It has the moon-phase complication. It has a very classic styling. Next, consider getting the World-Time GMT Automatic. All displays are set via the crown only. It comes on a 42mm case. Lastly, do consider getting the TimeWalker World-Time Hemisphere in 42mm. The mechanics behind it is phenomenal.

Five Affordable Luxury Watches from SIHH 2014. There are affordable watches with a price range between SGD 8,390 to SGD 16,780 that were released. The first is the IWC Aquatimer Automatic in 42mm with an internal rotating bezel. It comes with 300m water resistance. Panerai launched the Luminor Base 8 Days Acciaio in 44mm. It uses the 8 day movement P.5000. It has a 44mm case and the classic crown-protection system and the sandwich dial. There is also an exhibition caseback. The Calibre de Cartier Diver received a lot of attention at SIHH. It is ISO 6425 certified and has 300m water resistance. Very few dive watches have met this certification. JLC launched their 38mm Master Ultra Thin. It is only 7.58mm thick and is available in steel. Montblanc released their Meisterstuck Heritage Perpetual Calendar in 39mm. It is a huge bargain for a watch with so many features.