Nonsense, horsefeathers, and idle musings from a decade in South Korea (2002-2012).


31 July, 2011

How Would He Know?

By Aaron
31 July, 2011

Yet another entry in the "How Would He Know?" ledger:

Company executives are paid too much, Minister of Knowledge Economy Choi Joong-kyung said in a seminar sponsored by the Federation of Korean Industries, a leading business lobby group, in Jeju on Saturday.

Choi said large companies should establish sustainable business practices to prepare for the future and play a more socially responsible role.

“Large companies are paying too much salary for senior management,” Choi said in a speech during the seminar at the Lotte Hotel. “They should reduce that amount and instead invest in young adults to prepare for the future.”

Upon reading this, my mind immediately went to this Econtalk interview with Thomas Sowell from early 2008, in which Sowell discussed the matter of "excessive" CEO compensation at American firms. Asked if CEOs, as a class, were overpaid, Sowell replied: "I've never paid a CEO, so I have no way of knowing."

Sowell went on to point out that few people get their knickers in a twist over the salaries of people like Alex Rodriguez or Oprah Winfrey. Sowell notes that, as of 2008, the average CEO salary in America was about $8 million, about 1/3 of what Rodriguez was earning from the New York Yankees and about 1/80 of what Winfrey was raking in by annoying the bejeezus out of me. Why no mass uproar or Congressional hearings about these egregious overpayments?

The fact is, as Sowell observes, the only people who know what a CEO - or an athlete, or an actor - is worth are the ones who pay them, that is, the owners of the operation. And given that large companies routinely see annual revenues (and, ideally, profits) in the hundreds of millions or billions of dollars, why would they be penny-wise and pound-foolish by hiring the cheapest people for executive positions? Why not just go down to Seoul Station and get a homeless guy to run the company? I'm sure his services would come cheap.

Given that Mr. Choi is not paying these CEOs (indeed, I can't find any record of private sector experience on his part), how could he possibly know if their salaries are appropriate? Choi simply seems to believe that CEO salaries can only be gotten at the expense of other workers - a zero-sum fallacy which, as a PhD economist, he should be smart enough to avoid.

Granted, Korea has had its share of shortcomings in protecting shareholder rights, which could lead to executive compensation packages that make a firm's dispersed ownership unhappy. This, however, is another matter entirely. Something tells me that, even in a world of perfect protection of shareholder rights, folks like Mr. Choi would still be unhappy if those shareholders approved certain levels of compensation for their executives. In typical bureaucratic/academic fashion, if folks are not behaving as Mr. Choi believes they should, then they must be misbehaving.


29 July, 2011

'Free' is a Very Good Price

By Aaron
29 July, 2011

I just discovered, via Tom Palmer, that volume one of the collected works of Frédéric Bastiat are available, as an ebook, for free download here at the Online Library of Liberty. Of course, you can also buy the dead-tree edition of the same book for a pittance at Amazon, and you can read the Wall Street Journal's review of it here.

Don't say I never give you anything to read.

Happy Birthday, Milton!

By Aaron



Sunday is the 99th anniversary of the birth of the late economist Milton Friedman, who won the Nobel Prize in 1976 for his work in monetary theory. Even more important than his academic work, however, was his devotion to individual liberty and a free society. And as this excellent Reason tribute (also above) shows, Friedman was a true gentleman who could argue both politely and forcefully for his beliefs. Indeed, Friedman's PBS series Free to Choose (1980) - particularly the debate sessions that made up the second portion of each episode - is an invaluable resource for anyone wishing to learn how to exchange ideas without frothing at the mouth or resorting to personal insults. And for reading material, I cannot recommend highly enough Friedman's two best works for the average (i.e. non-economist) reader: Capitalism & Freedom and Free to Choose. The former, which I first read as a young skeptic of markets, did as much as any book to sway my thinking in the early years.

Finally, I'll leave you with some of Friedman's classic quotes:
"Concentrated power is not rendered harmless by the good intentions of those who create it."
"Hell hath no fury like a bureaucrat scorned."
"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand."
"Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another."
"Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless."
"The most important single central fact about a free market is that no exchange takes place unless both parties benefit."


28 July, 2011

Debt Ceiling Rap

By Aaron
28 July, 2011

Because it made me laugh, and because Remy's heart is, as ever, in the right place...

(See the video here if it's not showing up in the post)

27 July, 2011

Muddy Water

By Aaron
27 July, 2011

“I had to abandon my car because rain started coming in through the doors,” said Kim Na-sik, 34, who was on his way to his office near Daechi Station. “I can’t believe I even made it to work. I was worried about leaving my car behind but we had no choice. All the people driving around me had to abandon their cars.” [From this Joong-Ang Daily story]

Anyone who doubts the Korean work ethic need look no further than that quote for confirmation. I can't believe the fellow even bothered to go to work after all that. Call me lazy and disloyal, but if I had to abandon my car in the middle of a flooded road, I might be inclined to think that I had the perfect excuse for a day off - or, at the very least, that I'd better go home and get some dry socks. So here's to Kim Na-sik, winner of today's "Way to Man Up and Do Your Job" award.

Speaking of Seoul's epic floods, they're as good a reason as any to post these two versions of "Muddy Water," a great American tune originally written by Phil Rosenthal and performed by his bluegrass outfit The Seldom Scene. The first version below is the Scene's original, followed by Nick Cave & the Bad Seeds' 1986 cover of the tune. I offer them here for comparison's sake, and because this is my favorite song about floods (and don't we all have one?). As an aside, I know that Cave, in his music and writing, has been greatly influenced by the work of William Faulkner, and I've long thought that Cave's version of "Muddy Water" ought to be the theme if anyone ever manages to make a film version of As I Lay Dying.

But on to the tunes:






Powerful Distortions

By Aaron

Yesterday I linked to an article which details the increasing popularity of those gleaming glass-and-steel office towers sprouting up around Korea and, more importantly, the cost of cooling them in the summer months when those floor-to-ceiling windows turn the offices into greenhouses. I noted that, in addition to being beautifully modern in appearance, the prevalence of these structures likely stems in some part from electricity prices which are kept artificially low by government subsidies and mandates.

Well, as if on cue, the Joong-Ang Daily today ran this story which details the Korean government's plan to raise electricity rates - but not by so much that the revenue will fully cover the cost of power generation. Of course, you can't sell something for less than the cost of producing it for very long before your balance sheet starts drowning in red ink, which is precisely what's happening over at the Korea Electric Power Corporation (KEPCO). Moreover, the distorted prices are causing consumers to make wasteful choices of their own, at least from an environmental perspective:

Korea Electric Power Corp. (Kepco) has had an accumulated loss of 6.1 trillion won since 2008. According to Kepco, Korea’s electricity charges are only about half the average of Organization for Economic Cooperation and Development countries as of 2009.

With prices kept low, many households rely on electricity for heating in Korea’s cold winters rather than using oil, which is more efficient.

As ever, when governments monkey with market prices, the effects are seldom small or isolated, and the Korean electricity market is no exception. Industrial facilities account for approximately half of all electricity usage in Korea, meaning that the below-market prices are effectively a subsidy to, for instance, local manufacturers. Defenders of the subsidies argue that this makes these firms more competitive in the global market, as it allows them to produce at a lower price. This "competitiveness," however, is superficial and artificial. It's superficial because it comes at the expense of local taxpayers who must fund these subsidies, and it's artificial because if and when the subsidies become unsustainable (either economically or politically), these firms - having never learned to use electricity more efficiently - may find themselves unable to compete in a free, open market.

Were a I silver-lining sort of fellow, I'd take solace in the fact that the Korean government is at least allowing electricity prices to rise, thus moving them closer to their true market price. And were I an optimist, I'd think that the government might slowly but steadily continue to remove its distortions (for, by instance, 10% per year for ten years) and allow market prices to emerge. Hell, I could even hope that the government might remove itself from the energy business altogether.

But alas, while I can do silver linings, I have trouble mustering much optimism in this instance.



26 July, 2011

Upcoming Events at the Center for Free Enterprise (Seoul)

By Aaron
26 July, 2011

I just received an email from Casey Lartigue of the Center for Free Enterprise (CFE), located here in Seoul, regarding two upcoming events. I encourage everyone in the area to attend. Hell, if you're out of the area, buy a plane ticket and get to Seoul.

See CFE's website for more info or to RSVP, but here's the basic information:

  • CFE is scheduled to host a roundtable discussion on Tuesday, August 2, from noon-1:30 p.m. If you plan to attend then please RSVP by Monday morning, August 1, with your name as you would want it on your name tag and any particular affiliation you care to admit to in public (or none at all, that is fine, too). We probably have space for about 20 people. The session will be conducted in English, the speaker will be Marcus Cole, a professor at Stanford University Law School. The title of his talk is “Freedom, the Rule of Law, and the Wealth of Nations.” If you have already RSVPed then please confirm this with me.
  • We are also finalizing a huge event for August 9 involving the Mayor’s Office. It is currently scheduled for 10:30 a.m.-12:45 p.m. in Seoul, I should be able to update this within a day or two.

Unfortunately, I doubt I'll be able to attend the 2 August event with Mr. Cole, but I hope to be at the following event. Say hello if you see me there.


25 July, 2011

A Tuesday Buffet of Goodness (26 July, 2011)

By Aaron
25 July, 2011



Just some random recent links:
  • Here's the ever-lucid Don Boudreaux with a quick explanation (also above) of what economists mean by "unintended consequences." In essence: intentions are not results.
  • Speaking of unintended consequences: all those new glass buildings going up around South Korea sure look better than the old concrete structures, but not surprisingly, they turn into greenhouses in the summer. Why, then, are so many organizations - public and private - building them? Could it be that the electricity market in South Korea is so distorted by subsidies and mandates that it does not accurately reflect supply and demand? If building tenants were forced to pay the true cost of cooling their offices, would we see still so many of these purty glass buildings?
  • While few would object to better representation of women on corporate boards, government quotas may actually do more harm than good for the fortunes of females in the workplace (to say nothing of how said quotas will impact the companies involved).
  • Megan McArdle cites the recent deadly train accident in China as yet another reason to be skeptical of the "Benevolent Autocrat" theory.
  • Why has the United States suddenly decided to invite North Korean diplomat Kim Kye Gwan to New York for a chat, even after North Korea's reprehensible behavior over the past two years? Victor Cha weighs in. at the Wall Street Journal's "Korea Real Time" blog.
  • Also at the KRT blog, Evan Ramstad notes an interesting twist in the recent battle over university tuition in South Korea: students at online schools are asking the government to not subsidize students at brick-and-mortar universities...unless they also help those at cyber schools.
  • And yes, I am envious of this fellow's job.

22 July, 2011

Vernon Smith on This, That, and Adam Smith

By Aaron
22 July, 2011

Vernon Smith may be one of the least visible of the recent Nobel Laureates in economics: I've never seen him on a TV talk show, nor in the op-ed pages of my morning paper, much less hiding behind my sofa (where Joseph Stiglitz and Myron Scholes like to hang out).

No, Smith just gets up in the morning, does exciting work, wins his Nobel, and goes to bed. And if he has a spare moment, he sits down with Reason Magazine's Nick Gillespie to discuss experimental economics, Adam Smith, and the Great Depression, among other topics. Here's their interview (which can be seen here if it's not showing up on this page):




21 July, 2011

Strangest News Story of the Week

By Aaron
21 July, 2011

Via the Korea Herald comes this, by far the oddest news story of this week - and perhaps in all of recent memory:
A male teenager was arrested Wednesday for sexually violating the corpse of a woman who had fallen from an apartment following an apparent suicide.

The 16-year-old high-school student told police that he wanted to see “what would happen.”

The incident happened in an apartment complex in Cheongju, North Chungcheong Province on Monday.

According to police, he found the 68-year-old woman dead in a garden at 3:40 a.m. He sexually violated the body and then reported finding her to the police, they said.

If you're first reaction to this story is "oh, god...ugh," then know that you've met at least one of the criteria of sound mental health. The police in Cheongju, however, won't be so quick to label as loony our young necrophiliac, and thus my favorite sentence in the Herald's story: "Police are looking into whether he [the corpse-raper] is mentally ill."

Now, I'm no trained mental health expert, but I think I can save the Cheongju PD some time and money in this instance. Normal, well-adjusted 16 year-old boys are prone to all manner of debauchery and they're certainly - as the expression has it - as horny as a three-balled tomcat. As a rule, however, they don't go around molesting the dead. Asking a crazy person why they did something is a fruitless undertaking, as you're requesting a logical explanation from a fundamentally illogical (or, in clinical terms, "fucked up") person. So how 'bout we just write this kid down as officially screwed up and spend the money on more pressing matters?

(h/t: ROK Drop)

20 July, 2011

Lartigue on Benevolent Autocrats

By Aaron
20 July, 2011

Drawing on recent work by William Easterly, Casey Lartigue (of the Center for Free Enterprise here in Seoul) has a must-read piece in the Korea Herald this week. In it, Lartigue questions the theory of "benevolent autocrats" and wonders just how much of South Korea's economic rise can be attributed to the dictatorial powers of strongman ruler Park Chung-hee. A sample:

For all of their alleged expertise at guiding the economy, Easterly notes that growth rates swing more wildly under autocrats than democrats, and often without radical changes in policy. Growth continues either immediately or within a short time after an autocrat dies suddenly or is assassinated, and that's without a successor waiting-in-the-wings (in South Korea's case, after a short dip, the economy took off after Chun Doo-hwan replaced Park). There are many things going on in a country, from mass movements from the rural to city areas or perhaps the ending of tyranny or civil war. Yet, the "benevolent autocrat" theory highlights one guy when the results are good and blames many factors when there is failure.

Read the rest here. In addition, here's Easterly discussing his "Benevolent Autocrats" paper on Econtalk.

As readers of this site may recall, this is a topic that is near and dear to my heart. Indeed, I suspect that there's a paper lurking somewhere in my head, if only I could find the juice to write the damn thing.

19 July, 2011

On "Excessive" Price Hikes

By Aaron
19 July, 2011

Just about everyone living and working in Seoul these days can attest to the recent surge in prices. Whereas a year or two ago I could easily eat a reasonably healthy restaurant lunch for under 5,000 KRW (about $5), I'm now hard-pressed to get a feed for less than 6,000 KRW - and even that's a rare bargain. Groceries, too, have become more expensive: milk that recently went for 1,600 KRW per liter is now 2,000 KRW per liter in my local supermarket. Of course, none of this should be surprising, not when the Bank of Korea, for whatever reason, can't get a grip on the inflation that continues to bugger the local economy (the CPI rose by 4.4% in June, 2011).

Speaking of skyrocketing prices, the Joong-Ang Daily today has a piece detailing the financial pain associated with these rising prices, particularly where restaurant meals are concerned. As part of the story, two chaps from the Korea Food Business Institute took a gander at the recent price hikes at local restaurants and concluded:

“In the case of popular restaurants, they buy ingredients like meat, vegetables and seasoning in bulk and that lowers the cost of their supplies,” Kim said. “And considering that most popular restaurants own their own buildings and don’t have to worry about rent going up, the hike was too much.”

I wonder if either of these two has ever run his own restaurant, or any other business for that matter. And not being the owner-operator of any of the restaurants surveyed, how is it possible for them to say that a price increase is "too much?" Only individual consumers - who make the choice to patronize or avoid a particular business - are in a position to decide if any price hike is excessive. But as long as these restaurants remain in business and attract these customers, we must conclude that their decision to raise their prices was the "correct" choice.

Not being a restaurant operator myself, I wouldn't have the first clue about what the "appropriate" price for any food item might be; I only know what I'm willing to pay.


18 July, 2011

Tim Harford on the God Complex

By Aaron
18 July, 2011

Alright, then, I'm back. I've been on vacation recently and thus away from the nitpickery that characterizes this site, but a man can't neglect his cyber-barnyard forever. And so, in an attempt to regain my posting rhythm, I'll allow Undercover Economist Tim Harford to do my toe-tapping for today with his latest TED Talk. I don't often post TED videos - and generally can't even bear watching them in their entirety - but Harford's talk deserves 18 minutes of your time, so here it is (or here, if the video isn't showing up below):