“Audit the Fed Bill”

Last week, the U.S. House of Representatives passed a law that would allow after-the-fact audits of central bank decisions, after the similar legislation introduced by Ron Paul in the late 2009.

Seeing news like this, I felt it such a joke, and how easy people without knowledge get manipulated by demagogues who hold the flags of “For Freedom”, “For America”, “For Equality”, “For Peace in the Universe”… These things used to, always, wave towards other countries, especially countries with conflicting values/ideologies from American’s; and this time, ridiculously, it is towards its own country, its own central bank.

Why do I say it a joke? Well, when people talk about “audit”, it always referring to some covered, under the board thing must be happening, and that the institution is not showing/presenting the public what is going on. But this is not the case at all in Fed. On the book side, like all the other financial institutions, and even more than that, Fed’s all the administration and all the flow of funds, and borrowing and lending records are subject to private auditing firms’ audit regularly, and also are subject to GAO’s audit. Even after the 2008, all the allocation of stimulation funds have been proved to be clear. On the other side, the monetary policy part, Fed is also subject to the full audit by GAO. Fed has been publishing all the FOMC meeting materials three weeks after each meeting, disclosing documents and stuff, not only to GAO, but also to the general public. The chairman and officials report to the congress and work with the treasury’s department regularly to report the monetary policy decisions as well. It holds press conference, mass media communication, educational programs, and all kinds of channels throughout the whole Federal Reserve System to communicate with the public what is going on. To say transparency, Federal Reserve is one of the most transparent central bank in the world, and the most transparent agency in Washington D.C..

However, where does this “Audit” bill come from? For GAO’s audit, there is one exemption, that is to keep the FOMC meeting not disclosed within the three week period. And this bill is attempting to remove this exemption. Why did they keep this exemption in the past? For many reasons, one of which is for the sake of stability, while one other, and the most important one, is for the sake of independence. Federal Reserve keeps the report undisclosed for a short period to allow a short period adjustment of the market, and to avoid the sudden shock and speculative behaviors. For the sake of independence, one of the main quality Fed has to maintain as a central bank is to make effective monetary policy based on economy, not on politics. This bill directly allows GAO to access to the FOMC, which simply means that Fed’s decision making has to subject to the congress. Politicans may provide different pressure and mandate on Fed based on their personal political goals. This is a direct attack to Federal Reserve’s independent quality.

What did Bernanke say (refer to Reuters):

Bernanke said it would be a “nightmare scenario” if politicians decided to second-guess monetary policy. “That is very concerning because there’s a lot of evidence that an independent central bank that makes decisions based strictly on economic considerations and not based on political pressure will deliver lower inflation and better economic results in the longer term,” Bernanke told the U.S. House of Representatives’ Financial Services Committee.

Paul’s bill would direct the Government Accountability Office, an independent, nonpartisan congressional agency, to conduct a Fed review, and it would remove an exemption monetary policy has enjoyed.

Bernanke said the very notion of a monetary policy audit was misleading. “The term ‘audit the Fed’ is deceptive. The public thinks that auditing means checking the books, looking at the financial statements, making sure that you’re not doing special deals, and that kind of thing. All of those things are (already) completely open,” he said.

What that means is that from now on, congress is going to intervene the monetary policy decision making, which directly means that Federal Reserve is at a turning point of losing its independence of decisions from the political government.

This is serious and important, but why?

To understand why, we have to know what is the function and history of Federal Reserve System:

(Here is a short interesting video introducing the Federal Reserve System that I find really interesting to watch)

The Federal Reserve System is the central banking system of the U.S., created on 12/23/1913 under the Federal Reserve Act. The primary motivation for creating the Federal Reserve System was to address banking panics. Other purposes are stated in the Federal Reserve Act, such as “to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes”. Before the founding of the Federal Reserve, the United States underwent several financial crises. A particularly severe crisis in 1907 led Congress to enact the Federal Reserve Act in 1913. Over time, the roles and responsibilities of the Federal Reserve System have expanded and its structure has evolved.

The Congress established three key objectives for monetary policy—maximum employment, stable prices, and moderate long-term interest rates. The first two objectives are sometimes referred to as the Federal Reserve’s dual mandate. Today, its duty includes conducting the nation’s monetary policy, supervising and regulating banking institutions, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions. The Fed also conducts research into the economy and releases numerous publications, such as the Beige Book.

Here is a list of current functions of the Federal Reserve System:

• To address the problem of banking panics
• To serve as the central bank for the United States
• To strike a balance between private interests of banks and the centralized responsibility of government
  • To supervise and regulate banking institutions
  • To protect the credit rights of consumers
• To manage the nation’s money supply through monetary policy to achieve the sometimes-conflicting goals of
  • maximum employment
  • stable prices, including prevention of either inflation or deflation
    
  • moderate long-term interest rates
• To maintain the stability of the financial system and contain systemic risk in financial markets
• To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system
  • To facilitate the exchange of payments among regions
  • To respond to local liquidity needs
• To strengthen U.S. standing in the world economy

The Federal Reserve System’s structure is composed of the Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks, numerous privately owned U.S. member banks and various advisory councils.

The Board of Governors, also known as the Federal Reserve Board, is the national component of the Federal Reserve System. The board consists of the seven governors, appointed by the president and confirmed by the Senate. Governors serve 14-year, staggered terms to ensure stability and continuity over time. The chairman and vice-chairman are appointed to four-year terms and may be reappointed subject to term limitations. The Board’s most important responsibility is participating in the Federal Open Market Committee (FOMC), which conducts the nation’s monetary policy. Its financial accounts are audited annually by a public accounting firm, and these accounts are also subject to audit by the General Accounting Office. Board members are called to testify before Congress, and they maintain regular contact with other government organizations as well. The chairman reports twice a year to Congress on the Fed’s monetary policy objectives, and testifies on numerous other issues, and meets periodically with the Secretary of the Treasury.

A network of 12 Federal Reserve Banks and 25 branches make up the Federal Reserve System under the general oversight of the Board of Governors. Reserve Banks are the operating arms of the central bank. Reserve Banks conduct research on regional, national and international economic issues. Research plays a critical role in bringing broad economic perspectives to the national policymaking arena and supports Reserve Bank presidents who all attend meetings of the Federal Open Market Committee (FOMC).

The FOMC is the committee responsible for setting monetary policy and consists of all seven members of the Board of Governors and the twelve regional bank presidents, though only five bank presidents vote at any given time. It is the Fed’s monetary policymaking body. It is responsible for formulation of a policy designed to promote stable prices and economic growth. Simply put, the FOMC manages the nation’s money supply. The FOMC typically meets eight times a year in Washington, D.C. At each meeting, the committee discusses the outlook for the U.S. economy and monetary policy options. The FOMC is an example of the interdependence built into the Fed’s structure. It combines the expertise of the Board of Governors and the 12 Reserve Banks. Regional input from Reserve Bank directors and advisory groups brings the private sector perspective to the FOMC and provides grassroots input for monetary policy decisions.

According to the Board of Governors, the Federal Reserve is independent within government in that “its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government.” Its authority is derived from statutes enacted by the U.S. Congress and the System is subject to congressional oversight. The members of the Board of Governors, including its chairman and vice-chairman, are chosen by the President and confirmed by the Senate. The government also exercises some control over the Federal Reserve by appointing and setting the salaries of the system’s highest-level employees. Thus the Federal Reserve has both private and public aspects. The U.S. Government receives all of the system’s annual profits, after a statutory dividend of 6% on member banks’ capital investment is paid, and an account surplus is maintained.

Why do we need independent central banking system? (Courtesy to Federal Reserve Bank of Philadelphia) 

After knowing the structure and functions of the Federal Reserve System, it is easy to understand why we stress so much about the independence of the monetary policy decision making. It is the most important of all principles of a sound central banking.

Despite research that indicates countries with independent central banks generally produce more desirable economic outcomes, it strikes many people as odd that in a democratic society we leave monetary policy decisions in the hands of nonelected policymakers who can act with independence.. Central bank independence means that the central bank can make monetary policy decisions without fear of direct political interference. It does not mean that the central bank is not accountable for its policies.

Over the past 30 years, many countries have acted to increase the degree of independence of monetary policymaking from short-term political influences. These moves reflect empirical research that generally shows that developed countries whose central banks have greater independence tend to have lower and more stable inflation without sacrificing employment or output, thus benefiting from more stable economies and better economic performance. Since January 1, 2010, here is a sampling from some news reports of what central bankers have faced in other countries:

Argentina’s president fired the governor of the central bank when he refused to transfer $6.6 billion in foreign-exchange reserves to the government’s coffers to meet fiscal expenses ahead of next year’s election.

South Korea’s president, not surprisingly, has urged the Bank of Korea to go slow on its exit strategy from accommodative monetary policy. However, to underscore the point, he sent a vice minister to attend a Monetary Policy Committee meeting for the first time in a decade.

Japan’s new administration has put increasing pressure on the Bank of Japan to increase lending. This month, the new finance minister said he was looking for even more cooperation from Japan’s central bank.

Mexico’s president has appointed a new governor for the Bank of Mexico, after clashing with its former governor over the central bank’s reluctance to cut interest rates.

It is important to remember that the Federal Reserve does not select its own goals. Instead, Congress sets the goals it wants the Fed to pursue with monetary policy. The Federal Reserve Act states that the Fed should conduct monetary policy to “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Since moderate long-term interest rates generally result when prices are stable and the economy is operating at full employment, it is often said that Congress has given the Fed a dual mandate.

What central bank independence does mean is that Congress has left the decisions of how best to achieve this mandate to Fed policymakers. Why did Congress design the Fed this way? There are two very good reasons.

First, monetary policy affects the economy with sometimes long and variable lags, but elected politicians, and even the public, often have shorter time horizons. Monetary policy actions taken today will not have their full effect on the economy for at least several quarters and perhaps as long as several years. That is why monetary policy choices today must focus on the intermediate to long term and anticipate what the economy might look like over the next one to three years.

Moreover, there can be a conflict between what monetary policy may be able to achieve over the short term versus its impact over the long term. For example, in the short term, it might seem expedient or even desirable to try to spur economic growth and employment by setting excessively accommodative monetary policy. Yet, this will only lead to very bad economic outcomes in the long term — including higher inflation, higher interest rates, and an eventual tightening of policy to control inflation that may be detrimental to the economy. These outcomes would be inconsistent with the long-term goals set by Congress. Delegating the decision-making to an independent central bank that can focus on long-term policy goals is a way of limiting the temptation for short-term gains at the expense of the future.

The second important reason to give monetary policy decision-making to an independent central bank is to separate the authority of those in government responsible for making the decisions to spend and tax from those responsible for printing the money. This lessens the temptation for the fiscal authority to use the printing press to fund its public spending, thereby substituting a hidden tax of inflation in the future for taxes or spending cuts.

This can be especially important when governments face huge deficits and may choose to look to the monetary printing press to improperly fund fiscal needs — as in Argentina today. The fiscal authorities should not think of the central bank as a source of funds or a piggy bank simply to avoid the difficult choices of cutting spending or raising taxes. Efforts to politicize central banks can be seen as a way for the fiscal authorities to strengthen their influence on the printing press to avoid difficult fiscal choices.

History is replete with examples in which central banks became agents for a nation’s fiscal policy or a means for a political party to remain in power. Just in the 20th century think of the hyperinflation in Germany between the World Wars; think of Italy before the euro; think of the numerous financial crises in Latin America, and the current economic chaos in Zimbabwe to name just a few. The consequences — higher inflation, currency crises, and economic instability — are not good.

Indeed, we live in a world of highly mobile capital and financial markets that are constantly assessing the credibility of governments and their central banks to maintain price and economic stability. In such a world, the mere threat that monetary policy might become politicized can damage the nation’s credibility. It can raise fears of inflation that send interest rates higher and currencies falling.

How does Ron Paul’s Bill hurt Fed’s independency?

The bill does not refer to an “audit” in the usual accounting sense of the term, since the Fed’s financial statements and controls are already subject to extensive outside audits by the GAO and a public accounting firm. Rather, this proposal is an attempt to reduce the independence of the central bank through the threat of a political action. In particular, the GAO could be called on to investigate a monetary policy decision whenever any member of Congress opposes a decision to change interest rates. This would undermine the Fed’s credibility and its ability to conduct monetary policy in the long-term interests of the American public. It would allow any legislator to demand the Government Accountability Office, or GAO, to “audit” the Fed’s monetary policy decisions.

In a conclusion, these efforts that would politicize the Federal Reserve here in the U.S., are deeply troubling. While many try to interpret these efforts as logical or inconsequential, they are not — they are misguided and potentially damaging to the nation’s economic well-being. From an economic standpoint, since the passage of this “Audit the Fed” Bill, it would be interesting for an economist to standby and watch what is happening towards the “New Age” of the American Central Banking.

Further Reading:

Independence + Accountability: Why the Fed Is a Well-Designed Central

FAQs: Fed Basics

Ron Paul’s Latest “Audit the Fed” Bill Passes the House, 327-98

LIBOR Scandal

Seeing newspapers all about LIBOR, it really took me a while to realize what is going on. Here is a summary of what I understand about the whole thing.

(If you are tired of all the words, scroll down to the bottom 🙂 )

Where did it all start?

“Representative Randy Neugebauer is seeking more information from the Federal Reserve Bank of New York on its communications with banks that are involved in setting the London interbank offered rate.

Neugebauer in a letter released today asked for all communications from August 2007 until July of this year between employees of the New York Fed and staff at the 16 banks pertaining to Libor rate submissions. Neugebauer is a Republican from Texas.

The Fed has come under increased scrutiny from lawmakers critical of its record as a bank supervisor after the New York Fed released documents on July 13 showing it was aware that Barclays Plc (BARC) underreported Libor rates in 2008. Barclays was fined a record 290 million pounds ($450 million) last month for rigging interest rates and the scandal cost Chief Executive Officer Robert Diamond his job. At least a dozen banks are being investigated.

Chairman Ben S. Bernanke defended the Fed’s response to Congress last week, saying the U.S. central bank cooperated with other regulators and suggested a fix. The documents released by the New York Fed showed that Timothy F. Geithner, then the president of the regional Fed bank, sent a memo in June 2008 to Bank of England Governor Mervyn King recommending changes to how Libor was calculated. ” – From Bloomberg on 7/23/12

I am sure, to a lot of people, it is still not clear what is going on.

First of all, what is LIBOR? (Courtesy to http://www.bbalibor.com)

LIBOR – The London Interbank Offered Rate (LIBOR) is the primary benchmark for short term interest rates globally and is used as the basis for settlement of interest rate contracts on many futures and options exchanges. It is used in many loan agreements throughout global markets, including mortgage agreements; and is also considered a barometer to measure the health of financial money markets.

Whereas central banks (such as the BoE, the US Federal Reserve and the European Central Bank) fix official base rates monthly, LIBOR reflects the rates at which contributor banks borrow money from each other each day, in the world’s ten major currencies and for 15 borrowing periods (‘maturities’) ranging from overnight to 12 month loans. Once calculated, all LIBOR figures – including all of the contributors’ individual submitted rates, as well as the benchmarks calculated from them – are distributed by Thomson Reuters. The figures appear on more than one million screens around the world and are widely reported by the media, wire services and online. They are also available for analysis and examination by financial practitioners, authorities, academics and others.

LIBOR is not an interest rate; it is a benchmark used by banks, securities houses and investors to gauge the cost of unsecured borrowing in the London interbank market.

LIBOR is the basis for a range of financial instruments. Derivatives based on LIBOR are now traded on exchanges such as LIFFE and the Chicago Mercantile Exchange (CME) as well as over-the-counter. LIBOR is also used as the basis for many types of lending, from syndicated and commercial lending to residential mortgages.

Which factors influence LIBOR rates? (Courtesy to http://www.bbalibor.com)

LIBOR rates are dependent on a number of factors including local interest rates, banks expectations of future rate movements, the profile of contributor banks (contributor panels are reviewed bi-annually), liquidity in the London markets in the currency concerned etc.

Surprise!! (Courtesy to Knowledge@Wharton)

After reviewing the basic definitions and usage of LIBOR, one would be so shocked or better work, puzzled by the news that banks are manipulating it, for it’s such an important financial/trade benchmark.

Well, that all starts from its method of calculation.

On every London business day, between 11:00am and 11:10am London time banks which contribute to the LIBOR-setting process send their interbank borrowing rates directly and confidentially to Thomson Reuters. Thomson Reuters undertakes high-level validity checks; discards the highest and lowest contributions (the top and bottom 25%); and then uses the middle two quartiles to calculate an average. This methodology is sometimes called a “shaved mean” or a “trimmed mean”. On each London business day this process is followed 150 times to create the LIBOR rates for all the ten currencies and 15 borrowing periods (or ‘maturities’) in which the LIBOR rate is set. These figures are then distributed by Thomson Reuters by midday. Thomson Reuters makes public all contributions, including the outliers in the top and bottom quartiles, and these can be seen on a range of financial vendor screens around the world.

On its surface, it seems highly unlikely that any one bank could manipulate such rate, but it is not true. For example, if one bank has its true rate that is supposed to be on the top 25% of all the submitted, it intentionally reports a low figure at the bottom 25%. That way, another bank’s rate, which is supposed to be thrown away, is lifted up from the bottom 25% into the middle percentiles that are calculated into LIBOR rate. Imagine every bank doing that!

For it to be used in reflecting the reality, everyone has to work with the honor code, otherwise, essentially, LIBOR rate is just a hypothetical rate which every one of the 20 banks thinks how much they could borrow funds.

Or, on the other hand on contrary to the first surprise, why would people still use it as a benchmark if it is so easy to be manipulated!!

According to its official website, because:

•it is long established

•it reflects the largest range of international rates

•it has a wide commercial use

•it has a wide international dissemination

•it has a transparent calculation mechanism

•it provides a robust settlement rate

•the banks represented on the panels are the most active in the cash markets and have the highest credit ratings

After all, there is just one reason, because they have done so in the past; and “they” means everyone.

How much does it influence us??

In theory, LIBOR reflects what banks expect to pay to borrow every day in deals with one another. The system intends to reflect the bank’s real cost of money, incorporating the up-to-the-minute assessment of risk of lending to the participating banks. LIBOR rates affect a large number of end borrowers, including corporations and municipalities, and households, student loans, and credit cards. About half of the adjustable-rate mortgages in the U.S. track LIBOR. The higher the rate is, the larger the borrowers monthly payment.  (for more information in this part, refer to Guhan’s Trends)

First-Lien U.S. Mortgages by Type, May 2012

Prime			35,505,295
	Fixed		31,602,412
	ARM		3,772,655
		Libor-indexed	1,629,599
		Treasury-indexed	1,222,130
		Other index	920,926
	Other		130,228
Subprime			1,172,296
	Fixed		700,263
	ARM		470,746
		Libor-indexed	368,991
		Treasury-indexed	66,642
		Other index	35,113
	Other		1,287
Total

Why did regulators not know?? (Courtesy to Knowledge@Wharton)

Well, that is not true. Since beginning in 2007, the gap between LIBOR rates and market-set rates began to widen, especially after the Lehman Brothers Bankruptcy. All regulators more or less know about it. However, during that period and now, it is important for them to consider the financial system, which is centered on banks. Settlement on this may entail a much worse situation than the already precarious system, plus, the lower rate can increase banks profit and confidence.

Why not change it now? (Courtesy to Knowledge@Wharton)

Since it has been so widely used and “useful”, it is clear that pension funds, mutual funds, municipalities and other investors are likely to have been hurt as well. A string of banks are waiting to pay the billion dollars in damage, while their shareholders do not seem quite happy about. Other casualty is public confidence in banking, although it again proves that banks cannot be trusted and need tighter oversight and restrictions. It is also impacting the U.S. presidential campaign, although the Dodd-Frank reform supported by both sides does not seem to be able to regulate much about the London market.

Although a lot of other existing and widely used benchmark rate may seem to be more transparent and may subject to more regulations, many of them don’t have the same quality as LIBOR including the consideration of risk in interbank borrowing. Nevertheless, many researchers/economists believe that in the end, LIBOR is going to be replaced.

(I absolutely love the picture below 🙂 )

Wondering Around the Zoo

A group of us went to the Cleveland Metroparks Zoo. When I was young, my aunt used to work at a local zoo in my hometown. My best childhood memories lie in those moments in the zoo feeding monkeys and bears, and running after peacocks. Like every zoos in the world, it was always full of tourists, parents with kids. However, it was probably around my middle school years, the land of the zoo was sold to a local university, and the animals were transported to everywhere else.

And today, it was my first time visiting zoo after the many years. And all those childhood memories were flashing in my mind. Walking around the zoo in such a good weather, you just felt the amazingness of nature and universe. Giraffes were strolling right next to you in the field; ostriches were staring at MacDonald box; some birds were dropping poops accidentally right there above you… After dwelling inside cubicles facing concrete walls and thousands of other individuals in your same species forever and ever, I really forgot that there is such a big world outside there that is enjoying its own wonder.

Besides enjoying the nature, luckily, we had a behind-scene opportunity, talking with some of the staff members in the zoo and visiting koalas and some Africa animals, and were able to scratch a giant hippo. It was quite interesting to see the so many trade-offs and balances they have to make in order to keep the zoo sustaining and thriving.

As a zoo, how to balance the limited land area with the demand of having more animals? How to choose which animal to take and how many to keep from billions of species out there? How to fulfill the goal of education, preservation, entertainment, and research? And most importantly, as a non-for-profit organization, how to sustain?

You often hear people arguing that economics is just some tools for people to exploit others, to maximize one’s own private utility, a bourgeois, avaricious product. That could be right, to some extent. Just like religion could lead to world peace and massacre; just like science could modernize daily life and destroy the universe, so is economics. It simply is just a way to decide whom to give to how much given the fact that we only have this limited pie to feed a ton of gluttonous hungry kids. You can give the whole pie to one kid, or you can divide it up to all of them, or you can give this one a larger portion, that one smaller portion, etc. No one can tell you how you should divide. Applying to everyday life, it is an art, a philosophy.

Since we are at the zoo, let’s start with some economics about non-for-profit.

It is hard to combine these two concepts for a lot of people. Since non-for-profit, you are not suppose to think “profit” which i.e. economics to many people. But, if non-for-profit does  not think “for profit”, how can it survive? Who can forever fund it for all its operations, and who would like to fund it? Like the zoo in my hometown, it ended up with selling all its land to someone else and dispersing its animals.

First of all, again, all economics activities are to maximize some kind of outcome (utility) under the limited resource (budget constrain). So is non-for-profit. Different from for-profit, they aim at maximizing whatever they are for. Say for the zoo, they maximize their goal of educating public about animal, wildlife, and to preserve wildlife, endangered species, etc.

For a zoo, in order to run successfully, they need money to get animals, to feed and take care of them, to build infrastructures, to put up all kinds of boards, videos, events, shows to attract tourists and to educate them, and they also need to pay for researchers to conduct research in order to better preserve the species. Of course they can not fulfill this goal if they go bankruptcy. However, at the same time, they cannot charge a horribly high fee for admission, because that will turn people away, which obey their goal.

So where are these tremendous need of money come from? Donors, tax payers, foundations, for-profit activities, and admissions. Donors and foundations are always the big source for non-for-profit organizations. However, they funding is often limited to certain activities that only relate to fulfilling the organization’s goals, for zoos, like maintaining animals, doing animal research, etc. What about the rest of the coverage, e.g. administration, management, daily expense, maintenance, etc.? That has to be covered by the organization themselves.

Putting all activities in a chart where horizontally we have “profit” going towards right, and vertically we have “goals” going up. Most of the times, these organizations have goals that can hardly bring back money directly. Animal research may better protect animals in the zoo, but may not add more tourists or higher admission fee. But you always have to pay a lot to researchers and to give them comfortable environment to do research (damn!).

So we can put them as highly related to goals, but highly nonprofitable.

In order to not go bankruptcy, we have to move the dot to the right to get some profit. For zoos, how to do that?

Just walk around the zoo, did you see those little gift shops? Restaurants? Face paints? Carmel ridings? Picture takings? Feeding animals? Or maybe some associated hotels, water parks, golf courts, on the side?

These activities merely relate to the goals of the zoo, but they bring profit (hopefully…). Smart zoo managers have to spread these evenly around the zoo, so that visitors will unintentionally spend money around at these places.  Combining the lost from those highly unprofitable but awesome animal research with the “highly profitable” but commercial activities together, we ideally bring the balance of the zoo to equalization, avoiding it to go bankruptcy.

Sounds easy, but it is hard to do. Customers and donors will always complain some non-for-profit organizations are too commercialized, or have too much unrelated activities. That will bring the stars down from positive directions on “goal-axis”. And in reality, a lot of times, gift shops and other associated “for-profit” activities are not really running well and might even bring down the revenue.

And that’s why we need economists planning for the zoo 🙂

Articonomics

Economics, is an art. It fascinates me, because of its complexity, its omnipresent, its philosophy, and its beauty. Articonomics is for me to share my view of the world through economics, and to host discussions and debates for all who share the passion and feeling towards economics.