Fixing Homelessness

Soup kitchens are great, so are shelters and such. They provide people in-need with the necessities to jump-start their lives. But there're intrinsic problems with these services provided by both public and private entities. Limited supply, lack of availability, and exclusivity prevent various organizations from truly resolving the issue of homelessness and poverty.

I think the problem of homelessness is rooted deeply in the mismatch between one's psychology and social norm. Some folks wonder the street because there is nothing else they could do; they are denied access to public services, such as libraries, restaurants, and grocery stores, due to their poor hygiene accumulated from days and weeks out on the street. Without access to such places, their lives are stuck in a vicious cycle that further limits their outlooks despite any will to improve themselves. Over time, continuous rejections lead to dejection, corroding away any remaining confidence, self-respect, dignity, and hope one has for himself.

The question is: how do we break this cycle? How do we help the people who have the will to change their lives for the better?

Here is a case where we should be thankful for materialism (not to be confused with consumerism). Fortunately, our society respects people based on just proper hygiene, clean clothes, and good manners. The abundance of second-hand clothing stores solves the clothing problem, cheap laundromat helps, and good manners can be learned - all it takes a little understanding, which is innately human. This leaves us with the last issue: hygiene.

So the answer? Showers. Yes, community showers.

The government (and also NGOs) should look into financing community showers for the homeless. These venues could stand on their own, or be part of an expansion project on existing social enterprises. Doing so, we necessarily, though not sufficiently, close the gap between the individual and the social norm. If homeless people could improve their hygiene at a public shower, they gain instant acceptability into the society. This means that they now have access to public services and more places to spend their time instead of wondering the streets and occupying metro stations. They could be reading at a library or surfing the internet to increase their knowledge. The low barrier to learning provides an outlet for the homeless.

More importantly, good hygiene and clean clothing raise a person's confidence and self-respect levels, thus breaking the vicious cycle with renewed hope and aspiration. And over-time, community showers could also change the image of urban homeless, when they are no longer perceived as "dirty, smelly, and idle".

As my fellow physicists would say, when conventional models fail to match the empirical, it's time to go back to the drawing board and work out a new theory.

EDIT: JULY 7th, Now, be inspired by this beautiful short-film below...

The Social NetWAR (Part 2/2)

Of the three big social networks, I find LinkedIn to have the highest potential. LinkedIn offers an irreplaceable and invaluable services.

Less than 13% of Facebook users are above the age of 44; the majority of users are between the age of 18 and 25. Despite LinkedIn's smaller user pool, the majority of LinkedIn users have higher education level and higher income. This makes LinkedIn a channel to a "niche" market. There is a reason for this, and that reason is the intrinsic value of the services it provide: professional networking.

http://www.quantcast.com/linkedin.com/demographics

People working in the same industry are bound to have "3rd level" connections (for example: A knows B, B knows C, so A is connected to C). However, this connection is difficult to be unveiled through probability and randomness of strong and weak network-interactions; there is simply no time at an interview for you and the interviewer to go through your entire network to find a mutual connection. Enters LinkedIn. LinkedIn fully reveals a person's professional network. This network access allows firms to improve its hiring decisions, speed up negotiation processes, and allow faster information flow. In terms of value creation, LinkedIn wins.

Despite some analysts are predicting Facebook will disappear in 8 years, sharing the fate of MySpace, I think Facebook will remain as a large social network that plays a large part in the lives of Generation Y. But as we grow older and get busier with our professional and private lives, Facebook will see a reduction in activity levels unless it captures the attention of the next generation. Exactly how Facebook could achieve such? Time will tell.

EDIT: Looking at the stock prices since my last post, $26 is indeed the best time to buy.

The Social NetWAR (Part 1/2)

Three weeks ago I witnessed a historical moment via Internet, the Facebook IPO. At that time, I forecasted that its price is over-valued at $38, I also wrote that $26 is a more reasonable price.

This morning while I was at the local cafe, Facebook fell below $26 for the first time, but by the time I met my friends at O’Burger for lunch, the price went above $26 once again. Is today a good day to own a portion of Facebook? I think so, if you are looking for some pocket money due in 3 months.

But for folks like myself who always look at the fundamentals and look into the long run, we only care about how Facebook will perform years down the road. In the next few paragraphs, I hope my insights will influence your investment decisions.

To look at the fundamentals, it means we have to put Facebook into the global, long-term perspective. To my knowledge, there are currently three players in the social “netWAR” (excuse the pun): Facebook, Twitter, LinkedIN. As much as I am a fan of Facebook, I am skeptical of its potential.

1. Services and Clients

As a service that helps people connect with one another on a daily basis, for Facebook to be an effective marketing machine, it’ll have to incorporate more details than what a regular person would share on the internet. Facebook will need to perfect its algorithm to extract information about a person’s preferences beyond what a person likes, reads, and posts. There is a huge untapped potential in what a person chat about with his friends, regular hang-out spots, daily routines, dietary habits, sleeping patterns... many of which is not usually shared, but could be extracted using advanced algorithms.

Because of the sensitivity of such information, Facebook will need to over-come regulations the same way bankers got their ways on Wall Street. This is problematic.

For Twitter and LinkedIN, they operate on a less information-sensitive platform. After all, “tweets” and resumes are meant to be shared, but not the things you chat about on the Facebook messenger.

Whereas Facebook certainly emphasizes the “social” part of social network, LinkedIN focuses more on the “network” aspect. This has huge implications for investors and analysts.

The types of ads on LinkedIN are inherently different than those on Facebook. Whereas Facebook sells a little bit of everything, from discount t-shirts to brand-name perfumes, LinkedIN offers a platform for high-end professional services such as financial, consulting, career, and planning services. If we assume the effectiveness of social marketing is the same for Facebook and LinkedIN, LinkedIN has a greater marketing potential because it has a higher per-contract value than that of Facebook; and this is simply because of the nature of goods/services advertised.

However, I think the real power of social network is beyond advertising; the most effective way to achieve marketing results is by harnessing the power of the masses. KONY2012 anyone?

Lately I joined Twitter (@pieconomics), and I find the Twitter to be the more powerful marketing machine.

1. Because we are dealing with non-sensitive information on Twitter, we are more likely to keep many acquaintances and strangers within our Twitter network. This makes the Twitter network more dense, thus greater information exposure.

2. Your Facebook page is a space for both you and your friends, whereas Twitter is your own space. This makes a person more likely to give updates on Twitter than Facebook, which implies that information is more recent and more frequent on Twitter.

3. With the emergence of Twitter, many celebrities and businesses have gotten on board. On Facebook, we are careful in choosing what we "like" to avoid having our newsfeed spammed by ads. On Twitter, we are less careful. This means a greater exposure to businesses, thus greater potential.

That's all the time I have, in the next part, we'll discuss the "externalities" each social network brings, and which is the most valuable.

Dutch Disease: Cure and Prevention

Policy makers have placed a lot of attention on the Dutch Disease in Canada. Some analysts have noted that for every job created from oil sands, another is lost elsewhere, hence a reason to shut down or slow down the project development.

I've spend much time grinding in my mind on solutions to the Dutch Disease the last few days. Whether you believe in a shut-down or slow-down, I think it's worthwhile to seek solutions beyond the oil sands. Because fundamentally, Canada should take advantage of the high oil price to gear up for the tough times ahead. To resolve the issue, various players in Canada need to cooperate and collaborate: provinces and the fed, oil companies and manufacturers.

The problem of Dutch Disease in the Canadian context is unique thanks to our constitution. The responsibility for natural resources belongs to the provinces, not the federal government. Because of such, the fees and taxes collected are largely allocated to the provincial account. This means that the province could spend the money as it wishes, thus putting upward pressure on inflation and housing prices within the province. At the same time, some transfer payment is made to less-developed provinces, namely Quebec, as an artificial way to balance regional development. However, the positive impact of transfer payment is hardly ever seen. Quebec continues to lose population; it experienced slower growth in the last few decades.

The solution, I believe, lies in changing the industries across the nation. Policy attention should focus on how to make Canadian manufacturers more competitive on the global market such that even if our goods cost, countries will still purchase from us. One way to help the industries is through selective tax-cuts to lower the financial burden for manufacturers to adjust for the changing market. The government could also sponsor training programs to make their workers more efficient, thus offsetting the higher cost of production. Furthermore, R&D credits could also be granted for firms to expand their product line. If Canadian manufacturers are able to become more competitive, the effect of Dutch Disease can be minimized.

On the provincial level, the Albertan government should take advantage of its resources to diversify its industries. By diversifying businesses, Alberta would start to attract skills workers of various backgrounds, which is essential in developing new industries, such as the space, IT, automotive, biomedicine, and renewable energy. The government needs to create policies to lower barriers to entry in these non-oil sectors to help these firms emerge. Moreover, it also makes sense for Alberta to start investing money instead pursuing rapid infrastructure development within the province. By allocating wealth outside of the province, Alberta diversifies risks and achieves a more stable growth. Investments in secondary-education will also help the province in the long run.

Lastly, oil companies need to understand the critical roles they play in Canadian economy. They need to work with local industries to assist them rather than blocking entries. Oil companies should look into providing discounts to domestic industries and expertise. By collaborating with local businesses, they form a  network with fluid information flow. This helps non-oil companies better manage risks and thus maximizing output potential.

If the provincial government could collaborate with the fed, and the oil companies cooperate with industries to make Canadian manufacturing more competitive. Not only do these strategies cure but also prevent the Dutch Disease. So when the prices fall and oil runs dry, Canadians would still benefit from a sound and competitive economy.

The Curious Case of Canada

Rather sticking with the "environmental" arguments, the NDP is recently stepping into a territory that it probably shouldn't venture into: the economy.

But, on the subject of "Dutch Disease", NDP Leader Thomas Mulcair has the right idea that it needs to be "cured". As I explained previously, because Canadian regional economies are structured differently -BC and Alberta have concentrations of natural resource sector, and Ontario and Quebec have larger industrial base- the gain in one region is the loss of another. General Motors, for instance, is shutting down one of its two assembly lines in Oshawa, leaving thousands without work.

Mulcair wants to shut down the oil sands project to save the economy. This doesn't work for several reasons:

1. To "cure" the Dutch Disease, Canadian dollar must devalue to make exports more competitive. Since Canada adopts flexible exchange rate, Mulcair has to control Canadian money supply on the international money market. The only country able to do this for a sustained time is China. Oil may bring in foreign dollars, but it does not print money.

2. The Dutch Disease is caused by rising commodity prices. Oil is only one of the resources. To effectively ease the symptoms of the Dutch Disease, Mulcair needs to end all other natural resource exports: mining, lumber, natural gas, fishing, water, wheat... Why single out the oil sands?

3. Natural resources are inputs to manufacturing. Rather than "shut down" the oil sands, Mulcair could've simply ask to place a cap on oil export. Since Canadian manufacturers also benefit from Alberta's oil sands, it back-fires to shut down the oil sands.

The guys in blue aren't that much more brilliant than the Orange.

1. Harper-led Tories have criticized Mulcair for preaching "Canadian resources are a disease"; this kind of rhetoric just shows how the Tories don't understand the issue-at-stake either.

2. Tories' arguments such as "raising the taxes will drive away the oil companies and create unemployment" is just bogus. If oil companies want to leave Alberta, go ahead ;) Where else are they going to find oil?

3. Alberta government plans to spend $16Billion on infrastructures over the next 3 years. While that's all good until the inflation takes place, housing bubble rises, and the little cashier at Tim Horton's makes $20+/hour. How about some plans to improve secondary-education resources or to save for the future when all that oil is gone?

Oh silly Canadian politicians... When it comes to the issue of Dutch Disease, it isn't even a matter of "Left Vs. Right" clash in ideology. I'll let you make your own conclusions, and I'll talk about some viable solutions next time.

Understanding Dutch Disease

Sickness could be very troubling; it makes the body ache and the mind cloudy. Some sicknesses go away on with a few days of proper care and timely rest, others...well, don’t disappear as easily. Nonetheless, a good doctor will point to you the right direction on the road to recovery.

But let’s look at another kind of sickness, sickness of Canadian economy, the symptoms of which persist regionally today.

The diagnostic process to cure economic sickness is one similar to reading 20th century American literature; it requires knowledge and active reasoning. Unfortunately, I find the players in the Canadian political game today lacking both, the Orange and the Blue alike. Worse, the media coverage on these stories has been nothing but misleading and unclear.

The “question” in question is the “Dutch Disease”. NDP Leader Thomas Mulcair has criticized Alberta’s oil sand project for hurting the Canadian economy; he’s actually quite vocal about it.

But before we get too far, we need to talk about “what is Dutch Disease?”, its causes, symptoms, and solutions. This isn’t difficult, we only need to borrow a concept from your first-year microeconomics course: the law of supply and demand -when the demand goes up, holding all other factors constant, the price also goes up.

The rapid growth of developing nations in the last decade, such as China and India, increases the demand and the price of raw materials. This increase in price makes natural resources more valuable, thus provinces such as British Columbia and Alberta benefit from this resource boom, as their export brings in higher revenues.

“So what” you ask?

Well, let’s add in currency exchange into the equation. To trade with Canada, one must use Canadian currency, meaning they need to purchase Canadian dollar on the money market. As such, the increase in export also increases the demand for the Canadian dollar. Thanks to the law of supply and demand, we know that the increase in demand must also be accompanied by an increase in price, holding all else constant. The “price” here is the value of Canadian dollar against another currency. So in other words, when countries buy resources from Canada, Canadian dollar appreciates.

So what’s so bad about having a strong currency? Doesn’t that mean we can head to down to the States shop-till-we-drop?

Yes indeed.
But if you are selling certain things, having a strong currency may not so appealing.

The Ontario and Quebec manufacturing sector, for example, took a big hit from the resource boom. The reason for it is beyond the fact that the resource boom makes production more expensive; the appreciating currency makes Canadian goods more expensive on the global market, so foreign firms buy less of Canadian manufactured goods.

This is precisely what the “Dutch Disease” refers to: the decline in the manufacturing sector as a result of resource boom. Such phenomenon happened in the Netherlands in the 1970s, hence the name.

Now that we understand what economic impacts ACTUALLY take place, we are in position to take a position in this “Orange Vs. Blue” war. It turns out, Mulcair doesn't know what he's talking about, neither do Harper and his goons. I'll save that for next time;)