Business & Economics: March 2007 Archives

The line between "virtual" money and "real" money is very fuzzy, especially in an age where even real money is earned and spent mostly electronically. I get my paycheck directly deposited to my bank account, I manage that account through a website, I spend the money with a credit card, and I pay off the credit card through another website. I rarely handle cash, even for very small transactions. So what's the difference between a Chinese yuan and a QQ coin?

HONG KONG -- China's fastest-rising currency isn't the yuan. It's the QQ coin -- online play money created by marketers to sell such things as virtual flowers for instant-message buddies, cellphone ringtones and magical swords for online games. ...

Then last year something happened that Tencent hadn't originally planned. Online game sites beyond Tencent started accepting QQ coins as payment. The coins appeal as a safer, more practical way to conduct small online purchases, because credit cards aren't yet commonplace in China.

At informal online currency marketplaces, thousands of users helped turn the QQ coins back into cash by selling them at a discount that varies based on the laws of supply and demand. Traders began jumping into the QQ coin market as an opportunity to make a quick yuan off of currency speculation.

State-run media reported that some online shoppers began using QQ coins to buy real-world items such as CDs and makeup. So-called QQ Girls started accepting the coins as payment for intimate private chats online. Gamblers caught wind, too, and started using the currency to get around China's anti-gambling laws, converting wins in online mahjong and card games back into cash. Dozens of third-party trading posts sprouted up to ease transactions, turning the QQ coin into a kind of parallel currency.

The only thing that separates QQ coins from yuans is that the former isn't issued by a government... but then that's never been a requirement in the definition of "money". Wikipedia offers a pretty standard set of criteria that I remember from my economics classes:

Money is generally considered to have the following characteristics, which are summed up in a rhyme found in many economics textbooks and primers: "Money is a matter of functions four, a medium, a measure, a standard, a store".

1. It is a medium of exchange: A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.

2. It is a unit of account (also called a "measure" or, alternatively, a "standard" of relative worth and deferred payment): A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions. A unit of account is a necessary pre-requisite for the formulation of commercial agreements that involve debt.

3. It is a store of value: To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved - and be predictably useful when it is so retrieved.

Electronic currencies like frequent flier miles or QQ coins have all these characteristics, and in many cases are far more stable than currencies issued by smaller governments.

What's particularly interesting is that QQ coins are undermining the Chinese government's control over their monetary supply.

The rapid rise of the QQ coin has caused angst for the government in China, where circulation and trade of the real currency is strictly controlled. Last month, 14 Chinese ministries and China's central bank together waged a QQ coin crackdown of sorts, calling on companies to stop trading them in order to prevent money laundering. ...

Despite the Chinese government warnings, people continue to trade QQ coins. The new capital controls, in fact, have given them new scarcity value, driving up the price by 70% in recent weeks, says Milly Chen, who trades QQ coins.

"Over the past months, the system has been getting more complicated to transfer credit, and there is less supply" she says.

It's very difficult for governments to restrict free/"black" markets except through political oppression... which is one of the communists' strengths.

(HT: My brother Nick.)

Here's a brilliant article by Steven E. Landsburg about how the poor have gained far more leisure time than the rich over the past several decades.

As you've probably heard, there's been an explosion of inequality in the United States over the past four decades. The gap between high-skilled and low-skilled workers is bigger than ever before, and it continues to grow.

How can we close the gap? Well, I suppose we could round up a bunch of assembly-line workers and force them to mow the lawns of corporate vice presidents. Because the gap I'm talking about is the gap in leisure time, and it's the least educated who are pulling ahead. ...

About 10 percent of us are stuck in 1965, leisurewise. At the opposite extreme, 10 percent of us have gained a staggering 14 hours a week or more. (Once again, your gains are measured in comparison to a person who, in 1965, had the same characteristics that you have today.) By and large, the biggest leisure gains have gone precisely to those with the most stagnant incomes—that is, the least skilled and the least educated. And conversely, the smallest leisure gains have been concentrated among the most educated, the same group that's had the biggest gains in income.

Read the whole thing, but his second conclusion is is especially spot-on:

Second, a certain class of pundits and politicians are quick to see any increase in income inequality as a problem that needs fixing—usually through some form of redistributive taxation. Applying the same philosophy to leisure, you could conclude that something must be done to reverse the trends of the past 40 years—say, by rounding up all those folks with extra time on their hands and putting them to (unpaid) work in the kitchens of their "less fortunate" neighbors. If you think it's OK to redistribute income but repellent to redistribute leisure, you might want to ask yourself what—if anything—is the fundamental difference.

(HT: Sound Mind Investing.)

Oh good grief, who can think of an idea worse than allowing TSA airport screeners to unionize?

During consideration of the 9/11 Commission bill, the Senate approved this amendment that would give Transportation Security Administration airport screeners the right to unionize. There are 45,000 TSA airport screeners. Opponents of the move argue it would add more bureaucracy to the system and interfere with the agency’s flexibility. Supporters say the amendment allows for flexibility in reassigning workers. President Bush has indicated he would veto the final bill if the provision was included.

Great, so they'll get paid more and work slower. At least there's hardly any corruption or crime associated with labor unions!

The cinematically-named Mexican billionaire Carlos Slim says that building solid companies does more to benefit humanity than giving away money, and he's right in principle.

The world's third-richest man, Mexican telecom magnate Carlos Slim, poked gentle fun at the philanthropy of Bill Gates and Warren Buffett, and said businessmen can do more good by building solid companies than by "going around like Santa Claus" donating money.

Slim on Monday announced a new $450 million foundation for health research and care _ a minor slice of his estimated $49 billion fortune.

But Slim said he had no interest in competing with Gates and Buffett, who lead him on the Forbes magazine's list of the world's richest and have donated much larger shares of their fortunes. Slim is gaining rapidly on the two heavyweights with a fortune that grew by $19 billion last year _ the largest wealth gain in the past decade tracked by Forbes.

"Our concept is more to accomplish and solve things, rather than giving; that is, not going around like Santa Claus," said Slim, as he cracked jokes, smoked a cigar and outlined business plans at a rare news conferences. "Poverty isn't solved with donations.

Mr. Slim is right, but I believe that there is a place for both charitable giving and not-for-profit investment in technological research and development. I'm far from well-informed about Gates, Buffet, or Slim, but my understanding of the Gates Foundation is that it doesn't just hand out cash, but rather it invests in infrastructure and research that bypass the political causes of poverty, such as tyranny and anarchy.

I'm curious to learn more about how Gates' and Buffet's fortunes are being used, but from what I've read they aren't giving money away "like Santa Claus". While I'm not sure if Slim's jibes are entirely accurate, I agree with his perspective in principle.

(HT: The Pirate.)

Do any of you have any advice for how to collect about $2000 from deadbeat renters who didn't pay their last month's rent or utilities? I've found a couple of debt collection agencies online that don't charge any fees unless they collect, but I can't tell how reputable they are. I'm not sure how I could get screwed by them, but this is a whole new situation for me. Thoughts?

I hadn't considered it before, but since women live longer than men it really makes sense that women earn less. If your life is 10% longer, then your time is certainly worth less!

Update:

In case it wasn't clear, this post is facetious. Everyone's time is equally valuable.