Background - After the fallout of the Dot.com Bubble, America was able to regain its economic footing through low interest credit and an exploding housing market. As construction created new wealth and opportunities for American families to live in larger and more valuable homes, interest rates and sub-prime mortgages encouraged less-than ideal borrowers to apply for loans that they could not afford to pay back. These as delinquencies rose, investment banks found it harder and harder to sell this bad debt while individuals could not sell their newly acquired homes due to falling home prices from rising foreclosures. This left many people with homes they could not sell or pay for with banks that could not afford to stay in business.
The First Step.
Clearly before a solution can be created, a villain must be identified. As easy as it would be to place the blame on the big, bad investment banks or the government, the real blame should lie on the less-than credit worthy borrowers. Just as we would not victimize someone who buys a gun and then shoots their own foot, we should not be victimizing people who tried to live beyond their means and failed. They made a bad decision and saddling the cost of that bad decision onto responsible Americans would not only be fiscally irresponsible, but also immoral.
However the banks are also not without fault. They have no one but themselves to blame for their current financial situations. They made poor choices and government bailouts would only encourage this type of behavior while placing all of the risk of this bad debt on the American public.
How to deal with it.
Banks should negotiate on their own with their customers about the terms of their loans. Those who cannot because they have already failed are already past the point of salvation. A government bailout will only mean that the intense and devastating losses will be spread out over more time and across more people who had less to do with the meltdown than anyone. Instead of spending nearly $2 trillion (about $6700 per American), Americans would be better off with leaving that money in their own pockets to jump start saving for a new, cheaper house. The banks that fall could easily be bought out by those who don't and those who don't will be given a perfect opportunity to lend to the Americans who need to move out of their ill-gotten homes. These new loans should obviously be taken with greater consideration, however they should provide a springboard into a future of more responsible lending under greater regulation.
The Final Product.
The greatest and gravest question we all must ask here is: where should the money come from to fix this problem? Many in Washington and on the news stations seem to think that we should all share the burden. However this would be irresponsible because it would only pass the cost onto future generations while never truly addressing the problem in its fullest extent. Bipartisanship and regulation are excellent tools that we have at our disposal, but the best tool we can utilize at this point is tough love. Let people understand the gravity of their actions. Letting home prices go down will allow more American families to buy homes for the first time while job losses will depress wages and encourage businesses to hire new workers. Lower wages will be offset by lower home prices and banks will rebound. Its a business cycle, albeit a bad one.
Wednesday, September 24, 2008
Friday, August 22, 2008
Airline Industry - United States
Background.
Since the dawn of aviation, governments and private enterprise have wrestled over who should dominate the skies. In the beginning, government regulations prevented companies from raising or lowering prices to ensure the viability of the airlines and their services to the general public. However nearly forty years ago, the government stepped away from this approach in favor of a more market-oriented system. American airlines were now allowed to adjust prices in accordance with supply and demand. Almost immediately new, discount airlines sprouted up, people across the country who had never been able to fly before now had new opportunities to travel within reach, and other airlines consolidated or disappeared costing the industry thousands of jobs. For nearly four decades this situation tentatively continued with new airlines popping up or failing as the market demanded.
The Problem.
However in recent years things have changed. Ticket prices have risen as the price of oil and unionized labor drive up costs. The attacks of September 11th shattered much confidence in the industry and a slew of the once invincible carriers have declared bankruptcy and/or sought government bailouts. The American airline industry, however, seems to be the most fraught with problems. Short flights around Europe and East Asia routinely run at a fraction of the cost of their American counterparts and while airlines like Qatar Airways and Singapore Airways offer brand new A-380's (Airbus's luxurious new flagship), Northwest Airlines has started charging for light snacks and American Airlines has started charging for checking a bag. Expecting delays at American airports have now become the norm rather than the exception. Despite the obvious, previously mentioned rise in the cost of inputs, why have American carriers suffered so acutely? The industry is quick to blame unions and spiking fuel costs, however Japanese, South Korean, and many European carriers face identical issues and have not knocked on the government's door asking for free money in the name of keeping jobs.
One Solution.
One fairly obvious solution is to repeat the successes of the past. Deregulation increased competition and efficiency and reduced costs before, so it very well could work now too. Despite the advances of the past, American airports are still closed entirely to foreign carriers for domestic flights, even though many American carriers operate outside of the US. Opening the US market to more carriers would bring new companies into the US to employ American workers, share the cost of rental spaces at airports, and, most importantly, reduce prices for American travelers. But this is only the first step. Because of the reduced costs and prices that deregulation brought in the past, more and more flights are being offered without a matched capacity at the airports. Wait-times on runways mean paying more personnel to wait on passengers when they could otherwise be in the air or off the clock. Increasing the number of air traffic controllers and the number of runways available at large airports would increase demand by enticing passengers with greater efficiency and would reduce costs for airlines by reducing payroll costs (flight attendants are only paid for the time they are on board) and fuel consumption (keeping ventilation and lights on require energy, even if the plane is stopped at the gate). These suggestions are just a start. Obviously increasing fuel efficiency in aircrafts, keeping flights full, and reasonable concessions (on both sides) with unions would also help. However these three should send the industry in the right direction immediately.
What should be done?
These suggestions are clearly not the only possibilities. What should airline executives, the general public, and governments do to bring the industry out of its funk? Or is the industry simply doomed at the death of cheap oil and labor?
Since the dawn of aviation, governments and private enterprise have wrestled over who should dominate the skies. In the beginning, government regulations prevented companies from raising or lowering prices to ensure the viability of the airlines and their services to the general public. However nearly forty years ago, the government stepped away from this approach in favor of a more market-oriented system. American airlines were now allowed to adjust prices in accordance with supply and demand. Almost immediately new, discount airlines sprouted up, people across the country who had never been able to fly before now had new opportunities to travel within reach, and other airlines consolidated or disappeared costing the industry thousands of jobs. For nearly four decades this situation tentatively continued with new airlines popping up or failing as the market demanded.
The Problem.
However in recent years things have changed. Ticket prices have risen as the price of oil and unionized labor drive up costs. The attacks of September 11th shattered much confidence in the industry and a slew of the once invincible carriers have declared bankruptcy and/or sought government bailouts. The American airline industry, however, seems to be the most fraught with problems. Short flights around Europe and East Asia routinely run at a fraction of the cost of their American counterparts and while airlines like Qatar Airways and Singapore Airways offer brand new A-380's (Airbus's luxurious new flagship), Northwest Airlines has started charging for light snacks and American Airlines has started charging for checking a bag. Expecting delays at American airports have now become the norm rather than the exception. Despite the obvious, previously mentioned rise in the cost of inputs, why have American carriers suffered so acutely? The industry is quick to blame unions and spiking fuel costs, however Japanese, South Korean, and many European carriers face identical issues and have not knocked on the government's door asking for free money in the name of keeping jobs.
One Solution.
One fairly obvious solution is to repeat the successes of the past. Deregulation increased competition and efficiency and reduced costs before, so it very well could work now too. Despite the advances of the past, American airports are still closed entirely to foreign carriers for domestic flights, even though many American carriers operate outside of the US. Opening the US market to more carriers would bring new companies into the US to employ American workers, share the cost of rental spaces at airports, and, most importantly, reduce prices for American travelers. But this is only the first step. Because of the reduced costs and prices that deregulation brought in the past, more and more flights are being offered without a matched capacity at the airports. Wait-times on runways mean paying more personnel to wait on passengers when they could otherwise be in the air or off the clock. Increasing the number of air traffic controllers and the number of runways available at large airports would increase demand by enticing passengers with greater efficiency and would reduce costs for airlines by reducing payroll costs (flight attendants are only paid for the time they are on board) and fuel consumption (keeping ventilation and lights on require energy, even if the plane is stopped at the gate). These suggestions are just a start. Obviously increasing fuel efficiency in aircrafts, keeping flights full, and reasonable concessions (on both sides) with unions would also help. However these three should send the industry in the right direction immediately.
What should be done?
These suggestions are clearly not the only possibilities. What should airline executives, the general public, and governments do to bring the industry out of its funk? Or is the industry simply doomed at the death of cheap oil and labor?
Wednesday, August 20, 2008
Cambodia's Economy - Tourism
Clearly this post is more of me venting about my frustration in Cambodia these past two weeks. However I think my experiences emphasize many of Cambodia's biggest problems and clearly illustrate the double-headed demon that comes with double-digit economic growth.
First, a little background.
Cambodia, like much of SE Asia was dominated by the French for roughly 100 years before declaring itself independent after WWII. After years of civil unrest, the Cambodian Communist Movement (known as the Khmer Rouge) was able to seize power in 1975 after US bombings and incursions in the early 1970's destabilized the US-backed Cambodian government. From 1975 to 1978, the Khmer Rouge completely destroyed the economy, killed 1.5-2 million people (mostly intellectuals and other "political enemies"), abolished currency, the postal system, and families, and sent the country spiraling back towards the stone-age. In late-1978, Vietnam invaded because of Cambodian incursions into Vietnam and by early-1979 defeated the Khmer Rouge. For nearly 15 years, Vietnam controlled Cambodia through a puppet government headed by Hun Sen, the current prime minister. However in 1993, a new settlement created a democratic government. Despite political and economic aid from foreign countries, Cambodia still faced an insurgency from the Khmer Rouge until 2003 and still faces political and economic hurdles.
Today Cambodia's economy is growing at a break-neck speed, fueled largely by tourism. The tourism industry accounts for nearly 70% of exports and Cambodia's enchanting beaches in the south and its incredible temple structures (such as Angkor Wat) give it a perfect opportunity for exponential growth (the ticket sales for Angkor Wat alone accounted for nearly 0.5% of GDP in 2008 alone). However this potential is, in the views of many, being squandered.
The Problem.
While the government dumps money into renovating aging tourist sites and creating new ones, basic infrastructure issues make it nearly impossible to pass through the country without a great deal of effort or money (and often times both). Over 90% of the road leading from Siem Riep (the 2nd largest city and home to Cambodia's largest tourist attraction) to Bangkok is not even paved. The 100 mile road takes approximately 5 hours to traverse vs. the 4 hours it takes to get from the border to Bangkok despite the fact that it is roughly half as far. Scammers target tourists in some of the most seedy ways and going to the police is more likely to result in another scam than any sort of legal protection. However these issues are dwarfed by the obvious descrepencies between action and policy. The Sihanoukville airport was renovated last year to offer beautiful beaches without the need for long, bumpy bus rides, however no flights arrive or depart from its runways. Railway tracks link Bangkok with Battambang, Battambang with Phnom Penh, Phnom Penh with Saigon, and Sihanoukville with Phnom Penh, but only one train makes its way from Phnom Penh to Battambang and back per week. Clearly trains and planes exist (tour agencies are more than willing to book your flights from Siem Riep to Phnom Penh and back), but they simply aren't used for unexplained reasons. Policing faces a similar problem. Taxi drivers and tour guides have seen exponential growth in wages and business, however police officers, government agents, and tourist police have seen next to nothing in the way of improvements, despite the boom in the industry. This clearly drives them to run scams like charging double for a tourist visa (at Poi Pet these days a $20 visa will cost you 1200 Baht (roughly $38).
The response.
The government however claims that they are simply too poor to address any of the obvious problems and overlooks the obvious ones. Cambodia's government is definitively poor compared to many countries in the world, however with such stunning economic growth and being the world's largest recipient of economic aid (save Afghanistan and Iraq), why haven't we seen any degree of improvement in the last five years?
The question.
What should/can the Cambodian government do to address these problems and maintain economic growth in its tourism sector? Can we blame the government for not addressing the issues, or is it simply the tourists' fault for falling for these scams and planning to go to a country with such horrible infrastructure? What should be done and who should do it?
First, a little background.
Cambodia, like much of SE Asia was dominated by the French for roughly 100 years before declaring itself independent after WWII. After years of civil unrest, the Cambodian Communist Movement (known as the Khmer Rouge) was able to seize power in 1975 after US bombings and incursions in the early 1970's destabilized the US-backed Cambodian government. From 1975 to 1978, the Khmer Rouge completely destroyed the economy, killed 1.5-2 million people (mostly intellectuals and other "political enemies"), abolished currency, the postal system, and families, and sent the country spiraling back towards the stone-age. In late-1978, Vietnam invaded because of Cambodian incursions into Vietnam and by early-1979 defeated the Khmer Rouge. For nearly 15 years, Vietnam controlled Cambodia through a puppet government headed by Hun Sen, the current prime minister. However in 1993, a new settlement created a democratic government. Despite political and economic aid from foreign countries, Cambodia still faced an insurgency from the Khmer Rouge until 2003 and still faces political and economic hurdles.
Today Cambodia's economy is growing at a break-neck speed, fueled largely by tourism. The tourism industry accounts for nearly 70% of exports and Cambodia's enchanting beaches in the south and its incredible temple structures (such as Angkor Wat) give it a perfect opportunity for exponential growth (the ticket sales for Angkor Wat alone accounted for nearly 0.5% of GDP in 2008 alone). However this potential is, in the views of many, being squandered.
The Problem.
While the government dumps money into renovating aging tourist sites and creating new ones, basic infrastructure issues make it nearly impossible to pass through the country without a great deal of effort or money (and often times both). Over 90% of the road leading from Siem Riep (the 2nd largest city and home to Cambodia's largest tourist attraction) to Bangkok is not even paved. The 100 mile road takes approximately 5 hours to traverse vs. the 4 hours it takes to get from the border to Bangkok despite the fact that it is roughly half as far. Scammers target tourists in some of the most seedy ways and going to the police is more likely to result in another scam than any sort of legal protection. However these issues are dwarfed by the obvious descrepencies between action and policy. The Sihanoukville airport was renovated last year to offer beautiful beaches without the need for long, bumpy bus rides, however no flights arrive or depart from its runways. Railway tracks link Bangkok with Battambang, Battambang with Phnom Penh, Phnom Penh with Saigon, and Sihanoukville with Phnom Penh, but only one train makes its way from Phnom Penh to Battambang and back per week. Clearly trains and planes exist (tour agencies are more than willing to book your flights from Siem Riep to Phnom Penh and back), but they simply aren't used for unexplained reasons. Policing faces a similar problem. Taxi drivers and tour guides have seen exponential growth in wages and business, however police officers, government agents, and tourist police have seen next to nothing in the way of improvements, despite the boom in the industry. This clearly drives them to run scams like charging double for a tourist visa (at Poi Pet these days a $20 visa will cost you 1200 Baht (roughly $38).
The response.
The government however claims that they are simply too poor to address any of the obvious problems and overlooks the obvious ones. Cambodia's government is definitively poor compared to many countries in the world, however with such stunning economic growth and being the world's largest recipient of economic aid (save Afghanistan and Iraq), why haven't we seen any degree of improvement in the last five years?
The question.
What should/can the Cambodian government do to address these problems and maintain economic growth in its tourism sector? Can we blame the government for not addressing the issues, or is it simply the tourists' fault for falling for these scams and planning to go to a country with such horrible infrastructure? What should be done and who should do it?
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