When amateurs outperform professionals, there is something wrong with that profession.
If ordinary people, with no medical training, could perform surgery in their kitchens with steak knives, and get results that were better than those of surgeons in hospital operating rooms, the whole medical profession would be discredited.
Yet it is common for ordinary parents, with no training in education, to homeschool their children and consistently produce better academic results than those of children educated by teachers with Master's degrees and in schools spending upwards of $10,000 a year per student-- which is to say, more than a million dollars to educate ten kids from K through 12.
Nevertheless, we continue to take seriously the pretensions of educators who fail to educate, but who put on airs of having "professional" expertise beyond the understanding of mere parents.
One of the most widespread and dramatic examples of amateurs outperforming professionals has been in economies that have had central planning directed by highly educated people, advised by experts and having at their disposal vast amounts of statistical data, not available and probably not understandable, by ordinary citizens.
Great things were expected from centrally planned economies. Their early failings were brushed aside as "the growing pains" of "a new society."
But, when centrally planned economies lagged behind free market economies for decade after decade, eventually even socialist and communist governments began to free their economies from many, if not most, of the government controls under central planning.
Almost invariably, these economies then took off with much higher economic growth rates-- China and India being the most prominent examples.
But look at the implications of the failure of central planning and the success of letting "the market"-- that is, millions of people who are nowhere close to being experts-- make the decisions as to what is to be produced and by whom.
How can it be that people with postgraduate degrees, people backed by the power of government and drawing on experts of all sorts, failed to do as well as masses of people of the sort routinely disdained by intellectuals?
What could be the reason? And does that reason apply in other contexts besides the economy?
One easy to understand reason is that central planners in the days of the Soviet Union had to set over 24 million prices. Nobody is capable of setting and changing 24 million prices in a way that will direct resources and output in an efficient manner.
For that, each of the 24 million prices would have to be weighed and set against each of the other 24 million prices. in order to provide incentives for resources to go where they were most in demand by producers and output to go where it was most in demand by consumers.
In a market economy, however, nobody has to take on such an impossible task. Each producer and each consumer need only be concerned with the relatively few prices relevant to their own decisions, with coordination of the economy being left to supply and demand.
In short, amateurs were able to outperform professionals in the economy because the amateurs did not take on tasks beyond the capability of any human being or any manageable group of human beings.
Put differently, "expertise" includes only a small band of knowledge out of the vast spectrum of knowledge required for dealing with many real world complications.
Nothing is easier than for experts with that small band of knowledge to imagine that they are so much wiser than others. Central planning is only the most demonstrable failure of such thinking. The disasters from other kinds of social engineering involve much the same problem.
Surgeons succeed because they stick to surgery. But if we were to put surgeons in control of commodity speculation, criminal justice and rocket science, they would probably fail as disastrously as central planners.
Aug. 21 (Bloomberg) -- China Citic Bank Corp., the banking unit of the nation's largest investment company, said it held $1.18 billion of home mortgages secured by Fannie Mae and Freddie Mac, making up all of its holdings backed by real-estate loans.
Citic Bank held a total of $1.25 billion of mortgage-backed securities, of which 98 percent are rated AAA. At the end of June, the company had set aside 15 million yuan ($2.2 million) of provisions for the overseas bonds rated Alt-A and collateralized debt obligations, it said.
Citic Bank also owned an additional $403 million of institutional debt issued by the two U.S. home-mortgage companies as of June 30, the Beijing-based firm said in a statement to the Hong Kong exchange yesterday.
The U.S. government-sponsored companies tumbled yesterday in New York trading to the lowest level since at least 1990. Rising borrowing costs and evidence that demand for their debt was waning last month prompted Treasury Secretary Henry Paulson to seek the authority to pump unlimited amounts of capital into Fannie and Freddie in an emergency.
The investment in mortgage-backed debt by Fannie and Freddie makes up 3.25 percent of Citic Bank's total debt investment.
Aug. 21 (Bloomberg) -- The Australian and New Zealand dollars gained on speculation their declines are overdone given demand for commodities and the countries' interest-rate advantage over the U.S. and Japan.
Australia's currency climbed for a second day as the yield premium of Australian two-year government bonds over similar- dated U.S. Treasuries widened to the most in two weeks. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials advanced for a third day, helping trim the drop in the Australian and New Zealand dollars to 10.7 percent and 6.6 percent respectively in the past month.
``We expect to see a bounce over the next month as the Australian dollar has fallen too far,'' said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation's largest lender. ``Commodity prices will tend to support the Australian dollar.''
The Australian dollar rose to 87.27 U.S. cents as of 10:05 a.m. in Sydney from 86.90 cents late in Asia yesterday. It touched a 25-year high of 98.49 cents on July 16 before sliding to a six-month low of 85.93 cents on Aug. 13. It may appreciate to 87.50 cents today, Capurso said. The currency, called the Aussie, climbed to 95.78 yen from 95.66 yen.
The New Zealand's dollar advanced to 71.29 U.S. cents from 70.99 cents late in Asia yesterday. It fell from a six-week high of 77.60 cents on July 16 to 68.26 cents on Aug. 13, the lowest level in a year. The currency, known as the kiwi, strengthened to 78.22 yen from 78.16 yen.
Commodity Prices
The Australian and New Zealand dollars are the second and third-best performers among the 16 most-traded currencies in the past five days as commodity prices halted their slide.
Commodity prices influence the Australian and New Zealand dollars because raw materials account for 60 percent of Australia's exports, while sales of commodities including lumber make up 70 percent of New Zealand's overseas shipments.
``Given the speed and magnitude of the currency's descent over the past month, we look for the New Zealand dollar to consolidate near-term,'' Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington, wrote in a research note. The currency is trading at ``fair value'' given interest- rate spreads with the U.S. and commodity prices, she said.
The difference in yield between two-year Australian and U.S. government bonds widened to 3.56 percentage points this week, the most since Aug. 4. The yield advantage of 10-year New Zealand debt over like-dated Treasuries increased to 2.38 percentage points this week, the most since July 10.
Australian government bonds gained, pushing the yield on the 10-year note down 5 basis points, or 0.05 percentage point, to 5.80 percent. The price of the 5.25 percent security due in March 2019 rose 0.394, or A$3.94 per A$1,000 face amount, to 95.738.
New Zealand's government debt was little changed, with the benchmark 10-year yield at 6.18 percent and the three-year yield at 6.25 percent. Yields move inversely to prices.
Aug. 21 (Bloomberg) -- Japan's commodity stocks advanced after Goldman Sachs Group Inc. predicted oil will rally this year, while Nintendo Co. slipped after being sued for patent infringement.
Mitsubishi Corp., which generates more than half its profit from raw materials trading, was bid higher by 2.7 percent. Seven & I Holdings Co., Japan's largest retailer, climbed 1.8 percent after nationwide convenience store sales rose 11.7 percent. Nintendo retreated 1.9 percent after it was sued by a Maryland electronics company over devices used in its Wii game system.
``Oil producers and trading companies look like some of the better bets at the moment,'' Juichi Wako, a strategist at Nomura Holdings Inc, said in an interview with Bloomberg Television. ``Investors can't shake the concern that profits are going to be dragged lower due to the external economic picture.''
The Nikkei 225 Stock Average was little changed at 12,846.19 as of 9:11 a.m. in Tokyo. The broader Topix index was little changed at 1,233.45.
Nikkei futures expiring in September fell 0.2 percent to 12,830 in Osaka and dropped 0.5 percent to 12,835 in Singapore.
Aug. 21 (Bloomberg) -- Japan's exports rebounded in July as China replaced the U.S. as the nation's largest customer.
Shipments overseas rose 8.1 percent from a year earlier, after declining for the first time since 2003 in June, the Finance Ministry said today in Tokyo. Shipments to China climbed 16.8 percent to a record, with the value surpassing those sent to the U.S. for the first time.
Today's number may not be enough to alleviate concern that waning global demand will tip the world's second-largest economy into a recession. The Bank of Japan this week described growth as ``sluggish'' for the first time in a decade, citing weakening exports as well as higher commodity costs.
``The rise in exports doesn't necessarily mean they're solid,'' Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo, said before the report was published. ``It just shows exports are going to slow gradually rather than drastically as demand from Asia and Europe weakens.''
The yen traded at 109.61 per dollar as of 9:20 a.m. in Tokyo from 109.75 before the report. The median estimate of 18 economists surveyed by Bloomberg News was for exports to increase 5.3 percent.
Exports to Asia advanced 12.7 percent to the highest ever. Shipments to the U.S. fell 11.5 percent, the 11th monthly decline. Exports to Europe gained 4.1 percent, the first increase in three months.
Import Bill
Imports climbed at the fastest pace in two years, surging 18.2 percent from a year earlier, as oil prices soared to a record. That caused the trade surplus to narrow 87 percent to 91.1 billion yen ($830 million), the ministry said.
The biggest drop in exports in seven years caused the economy to shrink last quarter, robbing it of the main driver of its longest postwar expansion. Gross domestic product declined an annualized 2.4 percent in the three months ended June, the worst reading since the third quarter of 2001, when Japan was in a recession.
``Exports aren't strong enough to propel the economy as the slowdown spreads worldwide,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. ``The economic stagnation will become clearer.''
Toyota Motor Corp., Japan's biggest company, this month reported its biggest earnings decline in five years as U.S. sales slumped. The automaker on Aug. 7 scrapped its goal of selling 10.4 million vehicles in 2009.
Toyota's Sales
``Growth in exports is expected to remain only modest for the time being, due to the slowdown in overseas economies,'' the central bank said in its monthly report yesterday.
Even demand from Asia, the destination of about half of Japan's goods sent overseas, has waned this year as accelerating inflation prompted central banks to raise interest rates, slowing growth in the region. A recent easing of commodity costs may revive shipments to Asia and other emerging markets, according to economist Richard Jerram.
``If the recent decline in commodity prices is sustained, then it should allow growth in Japan's major export markets to pick up in 2009,'' said Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo.
Amid the medal-bedecked pageantry of the Beijing Olympics, it’s easy to forget that China holds another, less savory distinction: It maintains one of the more repressive regimes of religious persecution. As the recent travails of one missionary group demonstrate, even with the world watching, the host country remains as intolerant of religious freedom as ever.
On Sunday, August 17, members of the Sheridan, Wyoming, mission group Vision Beyond Borders arrived at Kunming Airport in Yunnan province with 315 Bibles they planned to give out to Chinese Christians. (Similar Bibles can sell on the black market in China for the equivalent of six months' salary.) The group’s leader, Pat Klein, told reporters that customs officials seized the Bibles even though they were printed according to strict Chinese requirements.
"The authorities at the airport kept asking us to leave and producing pieces of paper which they said proved that bringing more than one Bible per person into the country was illegal," Klein said. "But it all looked bogus to us."
So Klein and his two traveling companions staged a sit-in at the airport in protest. They were videotaped and awakened during the night. The next day, Klein was told their Bibles would be returned to them when they left the country, but the group didn’t believe these assurances and abandoned their protest empty handed.
Ironically, last year China denounced “false rumors” that Bibles would be banned from the Olympic Games, insisting that 10,000 Bibles would be distributed in the Olympic Village. However, there are no subsequent reports confirming they went through with their promise.
And so, the airport standoff between American Christians and Chinese officials has ended, having lasted only 30 hours. Chinese Christians, on the other hand, struggle day in and day out to observe their faith under tyrannical Communist rule. Unlike their American brethren, persecuted Chinese Christians don’t have a free nation they can return to.
With this eposide, therefore, the Beijing Olympics have helped cast international focus on a serious and much ignored issue: the plight of Chinese Christians and other religious believers in the People's Republic. Indeed, not even the presence of George W. Bush prevented the Communists from arresting well known underground church pastor Hua Huiqi on his way to a church service with the President on August 10. Hua was beaten unconscious last year for trying to assist residents whose property had been seized to make way for Olympic construction, and then served six months in jail.
The President took the opportunity during the service to call for greater religious freedom in the Communist country. (Ironically, at virtually the same moment, three American Christian activists were being arrested in Tiananmen Square, during a protest against the Chinese policy of forced abortion in Tiananmen Square. The group carried a banner reading “Jesus Christ is King” in English and Mandarin.)
The Beijing church Bush attended, the Three-Self Patriotic Movement, is one of the three officially sanctioned Christian churches in China. However, millions of Chinese attend underground “house churches” like Pastor Hua’s instead, at great risk to themselves.
A 2006 United Nations investigation found widespread government torture in China, with particular abuse inflicted on house church worshipers as well as Tibetan Buddhists, Uighur Muslims and members of the Falun Gong.
According to Ashley Dingler of the East Asian for International Christian Concern, the months leading up to the Beijing Olympics witnessed a marked increase in Communist crackdowns on believers:
"We've seen a huge increase in the numbers of house churches that are being raided, especially the leaders of the house churches are being taken into custody. In early March, there were 70 [leaders] taken at one time."
A report issued by Dingler’s group explains that many cheap consumer goods for sale in the U.S. are produced by slave labor, by workers whose only crime is their faith. Ironically, one of the products manufactured this way are decorative Christmas lights:
"Their fingers bleed, but they press on, for if they don't make the day's quota – 5,000 bulbs – they are beaten. Inmates like these often make the Christmas lights that decorate the trees of Christian believers around the world. Their crime? Preaching the Gospel of Jesus Christ. House church pastors are sent to work camps after their arrest, and in some respects, these are the lucky ones, for they survived the standard interrogations that greet most Christian leaders after they are detained; several are killed or 'disappear,' never to be seen or heard from again.”
This persecution is nothing new, of course. Religious faith of any kind is anathema to China’s Communist Party, which began persecuting the nation’s faithful even before taking power in 1949. Over the years, this persecution has waxed and waned depending upon who was in charge of the country and what kind of face they wanted to present to the world. Relative freedom in the 1970s was followed by thousands of arrests, which continue to this day.
However, Christian groups in the West insist that, as in ancient Roman times, their faith is actually thriving under state persecution.
A recent survey on religion concluded that the number of Chinese who describe themselves as religious is three times more than the official estimate. The figures are astonishing: an East China Normal University study estimates that 31.4 percent of Chinese – approximately 300 million -- are religious. “About 200 million are Buddhists, Taoists or worshippers of legendary figures such as the Dragon King and God of Fortune, and 40 million are Christian,” according to 2006 Pew Global Attitudes Project.
This makes the news coming out of China both heartening and depressing. Not surprisingly, Rev. Rick Warren raised the topic during his “Saddleback” conversations with both Presidential candidates earlier this week.
Asked what the U.S. should do to end religious persecution in China, Iraq and other nations, Senator Barak Obama replied that, “one thing that I think is very important for us to do on all these issues is to lead by example. That’s why I think it’s so important for us to have religious tolerance here in the United States. That’s why it’s so important for us, when we are criticizing other countries about rule of law, to make sure that we’re abiding by rule of law and habeas corpus and we’re not engaging in torture because that gives us a moral standing to talk about these other issues.”
Responding to the same question, Senator John McCain asserted that he would use the “presidential bully pulpit” to pressure oppressive countries to halt religious persecution.
McCain evoked the example of President Ronald Reagan:
"He said to those people who were then captive nations: The day will come when you will know freedom and democracy and the fundamental rights of man. Our Judeo-Christian principles dictate that we do what we can to help people who are oppressed throughout the world. And I'd like to tell you that I still think that even in the worst places in the world today and the darkest corners, little countries like Belarus, they still harbor this hope and dream someday to be like us."
Perhaps such words will inspire China’s millions of believers to hope and pray for a more peaceful future. Assuming, that is, they are allowed to read and hear them.
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