An untimely rambling.

Paul Krugman's latest discourse on the banking system in the US of A makes an interesting read; my point of relevance being my field of study and some personal interest. He essentially says that Goldman Sachs' sky rocketing profits in the third quarter, the gradual return to the practice of excessive wages for the Wall Street hierarchy does not spell the end of the crisis, as some might have been inclined to believe. The unemployment rate (not just restricted to the US) is still high, investors are wary which explains the flourish/profitability in trading operations and not long term investments.

But there’s an even bigger problem: while the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole.

He further mentions CitiGroup and Bank of America - the "weakest links" of the banking systems, still posting losses (which the CNN article helps to break down and explain better), he writes about how banks are still not lending, and lending is what the US economy needs to spearhead investment, jobs and future growth.

According to the Lawrence Summers (Chief Economist for the Obama administration), "There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system." It paints a depressing picture of the situation at hand today (though according to the CNN article, Goldman Sachs has apparently paid back $10bn of taxpayers money to the US government). Main Street is still suffering, the ripple effects of this crisis is still being felt all over the world, and Singapore is venturing options of providing efficient and effective labour at an even lower wage. I find the inequity instrumental in the failings of the financial infrastructures this past year.

I believe that in a capitalist society equality of income is never desired. It can backfire, provide a disincentive for people to work harder, essentially resulting in a dwindling level of efficiency. With companies excessively looking for ways to cut cost, (outsourcing) this would create further exacerbate the situation. As idealistic as it sounds on paper, most people (those who do not particularly care about the field economics) champion for equal wages, for bridging the rich-poor divide (which, to some extent I support) and reach an idealistic utopia - sounds familiar?

Think about it. You work 10 hours a day and earn $100. Your friend works for 5 hours a day and also earns $100 in a truly equal society. Seeing your friend laze around on his couch while you are frantically trying to finish up the report and have it on your boss's table by the end of the day, will undoubtedly make you question yourself. Why are you working twice as hard as he is, and still getting paid the same amount of salary as him? In effect, he gets paid twice as much as you are (in five hours) by putting in half the effort.

Economists and social scientists can draw up thousands of complex models, with minimal error that can, and has rightfully predicted a lot of outcome in the long term. However, models, in my opinion, can never have the capacity to account for the one crucial factor, the last piece of a very complex puzzle you can say - human capital. We cannot substantiate human capital and condense it into a variable (X or Y, or a number between 0 to 1) and put it into the model and expect it to generate precisely, the future of our state, and our economy. If we did, this financial crisis would have never happened.

The question about low wages for Singapore was posted on one of my subject forums - funny thing is that the subject has nothing to do with Economics. In fact far from it. Singapore's export dependency can't be helped, and its land size, and population contribute to its vulnerability against global factors on the financial platform. Everything, including water is imported and while Singapore still retains a lot of higher skilled work, outsourced by MNCs from Europe or the USA, the fast rise of its neighbours - not even India and China - like Indonesia might change the status quo in the future. A lot of my colleagues/friends/classmates seem to be under the impression that because Singapore's a 'tiny red dot', nothing world shattering will ever happen to them. Contrasting that with the constant complaints about how foreign talents are sweeping away jobs from the locals (at 1/4 the salary) amuses me.

This is why I am love reading Economics. In my freshman year, while trying to adjust to the aggressive transition from Junior College life to University life, I had momentarily lost my passion for the subject. The more I read about the financial situation of the world today, the more I am beginning to appreciate it again. Precisely because I can apply things I am learning in the classroom, to the real life out there - true I can do without the complex formulas from time to time, but no matter...