U.S. treasury securities: Why China keeps buying them?

Chinese around the globe were outraged by a comment by a boy on Jimmy Kimmel Live, in which he joked about killing Chinese people to help erase the U.S. debt. ABC swiftly apologized, saying the network “would never purposefully broadcast anything to upset the Chinese community, Asian community, anyone of Chinese descent or any community at large.”

According to the U.S. Treasury, China now owns 23% of the U.S.’s treasury securities. (Hong Kong is among the top ten holders, if we break down the “Caribbean Banking Centers” and “Oil Exports” into their constituent countries.) The U.S. was closed to default just two weeks ago, and its fiscal outlook doesn’t look that good either. According to conventional wisdom, a country can only lower its debt-to-GDP ratio by 1) growing out of debt; 2) inflating away its debt; 3) defaulting. With the U.S. economy still struggling to grow enough (growth rates average around 2% in recent quarters), and the inflation rate still hovers around lower-than-preferred level, defaulting seems to be a tempting choice.

So why would the Chinese want to hold the U.S. treasury securities anyway? According to Stephen Roach, a former Chairman of Morgan Stanley Asia, “China buys Treasuries because they suit its currency policy and the export-led growth that it has relied on over the past 33 years.” Or to be precise, he argues that China kept buying U.S. treasuries in order to keep its exchange rate low, which stimulates export.

China has recycled about 60% of these reserves back into dollar-denominated US government securities, because it wants to limit any appreciation of the renminbi against the world’s benchmark currency. If China bought fewer dollars, the renminbi’s exchange rate – up 35% against the dollar since mid-2005 – would strengthen more sharply than it already has, jeopardizing [competitiveness] and export-led growth.

Yet China is changing its development model from an export-led to a more consumption-led one…

China has made a conscious strategic decision to alter its growth strategy. Its 12th Five-Year Plan, enacted in March 2011, lays out a broad framework for a more balanced growth model that relies increasingly on domestic private consumption. These plans are about to be put into action.  An important meeting in November – the Third Plenum of the Central Committee of the 18th Chinese Communist Party Congress – will provide a major test of the new leadership team’s commitment to a detailed agenda of reforms and policies that will be required to achieve this shift.

… which suggests that China may not need to buy as much U.S. treasuries as before.

Rebalancing is China’s only option. Several internal factors – excess resource consumption, environmental degradation, and mounting income inequalities – are calling the old model into question, while a broad constellation of US-centric external forces also attests to the urgent need for realignment.

With rebalancing will come a decline in China’s surplus saving, much slower accumulation of foreign-exchange reserves, and a concomitant reduction in its seemingly voracious demand for dollar-denominated assets. Curtailing purchases of US Treasuries is a perfectly logical outgrowth of this process. Long dependent on China to finesse its fiscal problems, America may now have to pay a much steeper price to secure external capital.

Roach forecasts that “[t]he days of its open-ended buying of Treasuries will soon come to an end.” That seems to be a logical conclusion. Furthermore, China always aspires to make the renminbi a global reserve currency one day, which can rival with the U.S. dollar and the euro. To do so China would have to “vote by its feet” by divesting its U.S. dollar portfolio. It is only a matter a time that China will stop supplying the cheap capital to the west, and the bigger question, when the time comes, would be: how the global economy can adjust to the new landscape?

(I calculated China’s holding of U.S. treasury securities to be 23% of the total outstanding securities. My source is here. It is more than double than the 11% figure mentioned by Roach in his article. One reason to reconcile the difference is that the 11% figure is “China’s share of America’s publicly-held debt”, while mine is China’s share of treasury securities. I still haven’t figured out what is the difference between “publicly-held debt” and “treasury securities”, however.)

Saudi Arabia and Security Council: Good pose, bad tactics

Can you believe that? Saudi Arabia was elected for the first time to hold one of the 10 non-permanent seats on the UN Security Council — and then rejected it a few hours later. According to the New York Times:

The Saudi Foreign Ministry released a statement rejecting the seat just hours after the kingdom’s own diplomats — both at the United Nations and in Riyadh, the Saudi capital — were celebrating their new seat, the product of two years of work to assemble a crack diplomatic team in New York. Some analysts said the sudden turnabout gave the impression of a self-destructive temper tantrum.

But one Saudi diplomat said the decision came after weeks of high-level debate about the usefulness of a seat on the Security Council, where Russia and China have repeatedly drawn Saudi anger by blocking all attempts to pressure Syria’s president, Bashar al-Assad. Abdullah has voiced rising frustration with the continuing violence in Syria, a fellow Muslim-majority nation where one of his wives was born. He is said to have been deeply disappointed when President Obama decided against airstrikes on Syria’s military in September in favor of a Russian-proposed agreement to secure Syria’s chemical weapons.

According the Saudi Foreign Ministry’s press release:

[I]t is unfortunate that all international efforts that have been exerted in recent years, and in which Saudi Arabia participated very effectively, did not result in reaching reforms required to be made to enable the Security Council to regain its desired role in the serve of the issues of peace and security in the world.

Saudi Arabia believes that the manner, the mechanisms of action and double standards existing in the Security Council prevent it from performing its duties and assuming its responsibilities towards preserving international peace and security as required[.]

I blogged in my last post about the benefits (and the efforts required) of getting a seat at the UN Security Council, and am quite surprised to learn about Saudi Arabia’s decision. If it wants to change “the manner, the mechanisms of action and double standards” of the Security Council — which do exist in my opinion — it would be better for it to stay in the Security Council, voice those opinions, and try to change the processes as much as it can. The tactic of rejecting the seat would definitely give Saudi Arabia the media limelight in the very short run, but I doubt anything with the Security Council would change in the longer-run. The conclusion of a FT op-ed is sensible:

[T]he Saudi rejection of a council seat will heighten its sense of estrangement from the world community and raise new questions about decision-making in the kingdom, encouraging speculation over policy incoherence and competing centres of powers within the regime. The necessity for a more concerted and effective international effort on Syria is undeniable. But a fit of anger will not build more influence or ensure better policies.

Further reading: The UN Security Council, Council on Foreign Relations

UN Security Council: How much does a seat worth?

The 2013 United Nations Security Council election will be held next week during the annual UN General Assembly. As the UN’s most powerful agency, the Security Council has 15 seats, filled by five permanent members (China, France, Russia, UK, and US) and ten non-permanent members. Each year, half of the non-permanent members are elected for a two-year term. The five new members will take up their seats on January 1, 2014 and will serve until December 31, 2015.

The five current members that will end their term this year include Morocco, Togo, Guatemala, Pakistan, Azerbaijan. Candidates for these seats include Chad, Chile, Gambia, Georgia, Lithuania, Nigeria, and Saudi Arabia. It is notable that most of these countries are not big economic and political powers, and if “power politics” is true, why would these states even attempt to run in the first place? The campaign is expensive itself, and if elected, active participation in the Security Council is an even more expensive diplomatic activity. New Zealand, for example, has already started the campaign to win a seat for the 2015-2016 term.

So just why would small states want to get a seat at the Security Council? According to a Journal of Political Economy paper by Ilyana Kuziemko and Eric Werker of Harvard, a country’s U.S. aid increases by 59 percent and its U.N. aid by 8 percent when it rotates onto the council.

… we have argued that nonpermanent members of the U.N. Security Council receive extra foreign aid from the United States and the United Nations, especially during years in which the attention focused on the council is greatest. Our results suggest that council membership itself, and not simply some omitted variable, drives the aid increases. On average, the typical developing country serving on the council can anticipate an additional $16 million from the United States and $1 million from the United Nations. During important years, these numbers rise to $45 million from the United States and $8 million from the United Nations. Finally, the U.N. finding may actually be further evidence of U.S. influence: UNICEF, an organization over which the United States has historically had great control, seems to be driving the increase in U.N. aid.

That sounds like other countries may want to give favor to these non-permanent members in exchange for votes, and this sounds like a persuadable theory. But here Kuziemko and Werker held back.

What do these results imply about the politics of U.N. aid disbursement? Since the Security Council effect is limited to UNICEF and, to a lesser extent, the UNDP, the findings do not seem to describe a setting in which many smaller players are trading influence for aid. Of course a more detailed analysis of agency leadership and vote patterns might uncover more subtle manifestations of logrolling. However, these results do provide positive support for the U.S. power hypothesis. As some of the funding for U.N. agencies is in the form of voluntary contributions earmarked by donors for specific projects, these findings should not be seen as evidence that the United States is abusing its leadership at U.N. agencies to spend other donors’ monies in the U.S. national interest. Yet the findings are suggestive that the United States is using UNICEF, and possibly the UNDP, as a vehicle in the conduct of its foreign policy.

Here I find it difficult to understand why there is a positive correlation between seats and aids. Kuziemko and Werker seem to suggest that there is a correlation but not a causation, and they did not explain why countries would receive more aids when they are on the Security Council. And if the U.S. wants to “control” the other non-permanent members by providing aids, it should support the smallest and weakest states to join the Security Council; this would be quite contrary to the fact that over 70 UN Member States have never been Members of the Security Council.

Anyway, the study was far short of a vote-buying study, which I would have hoped for (because it would be more interesting), but Kuziemko and Werker explained why such a study would be difficult in practice in the end of their paper.

Ideally, a study of vote buying in the United Nations would test for the ability of Security Council aid to influence actual voting. Unfortunately, this is difficult for two reasons. First, we cannot observe the counterfactual: how the country would have voted in the absence of vote‐buying activity. Second, votes themselves are strategic. Agenda setters typically know, before putting a resolution up for a vote, the preferences of each member. Perhaps this is why most Security Council resolutions are passed unanimously and why failed resolutions are rare; recall that the 2003 resolution to authorize the invasion of Iraq never actually came to a vote. As a result of these identification problems, we believe that actual outlays of aid are the most trustworthy way to measure the presence of vote buying in the Security Council. By providing extra aid to nonpermanent members of the council, especially during years in which council votes are especially important, agenda setters have implicitly revealed their faith in the Security Council’s relevance in world affairs.

Janet Yellen and central banking: The Harvard connection

I applaud President Obama’s decision to nominate Janet Yellen to be the next Fed chairwoman — indeed, the first chairwoman in the Fed’s history. This is very much a victory of the public: the White House clearly favored the other top candidate Lawrence Summers, and if it weren’t the strong opposition by the general public (and many bloggers), Democratic Senators may not have supported Yellen and “vetoed” Summers. The White House would now need to stand firmly behind Yellen to repair some of the collateral damage that they have done to her creditability by letting the Yellen-Summers race to linger on. I believe a swift confirmation by the Senate would be helpful, and it would likely be the case (remember how Nobel laureate Peter Diamond withdrew his nomination to the Fed after Senate Republicans suggested that he was unqualified?)

Yellen has all the credential to excel at that role: she has been a professor in economics at Harvard, LSE, and Berkeley, and has extensive policy background by serving as Chair of Council of Economic Advisers, President of San Francisco Fed, and currently the Vice-chair of the Fed. She wants tighter financial regulation (is it why the financial industry prefers Summers?), and has been instrumental in implementing the “forward guidance” policy to build unemployment down.

Talking about Yellen’s background at Harvard, I cannot stop myself thinking about how interconnected Harvard is to the central banking world. Yellen was indeed Summer’s professor when he did his PhD at Harvard, and Summers went on to become one of the youngest tenured professor in Harvard’s history, Harvard’s president, and currently a professor at the Harvard Kennedy School (HKS). The HKS Mossavar-Rahmani Center for Business & Government that he now directs has many former central bankers on board, including the outgoing Bank of England deputy governor Paul Tucker. The former Greek prime minster George Papandreou — who “started” the European debt crisis by revealing the government deficit is 12.7% rather than 6.7% (which is far higher than the European 3% limit anyway) — has been a fellow at the HKS last year, and his successor Lucas Papademos taught a class on central banking here. Robert Zoellick, the former World Bank president and the newly-appointed chairman of Goldman Sachs’ “board of international advisers”, is a fellow at the HKS. The school is also frequently visited by many central bank governors: for example, Prasarn Trairatvorakul, Governor of the Bank of Thailand, came yesterday; Mario Draghi, President of European Central Bank and a former fellow of HKS, will speak tomorrow; Raghuram Rajan, the new-appointed Governor of Reserve Bank of India, and Ignazio Visco, Governor of Bank of Italy, will come next week. And of course, there are many former senior IMF officials around too, including my advisor Carmen Reinhart, and her long-time co-author, former IMF chief economist Kenneth Rogoff.

But despite all these amazing resources we have, it is indeed puzzling that discussion on macroeconomic issues among the HKS student body is rather meager. There is no student organization that focuses on macro and finance to begin with. Students appear to be more interested in other part of public policy: international development, security issues, electoral politics, social policies, etc. There is certainly a missing gap that needed to be filled.

Leadership: Distinguishing adaptive from technical work

At the Harvard Kennedy School, students aspire to be public “leaders”. But just what “leadership” entails? Ronald Heifetz’s Leadership without Easy Answers offers insights. The book basically has two key arguments: first, it distinguishes “technical problems” from “adaptive challenges”; and second, it distinguishes “leadership” from “authority”. I will only focus on the first argument here.

In our daily life, there are problems of which there is a definite answer: these problems are technical in the sense that we know already how to respond to them. For many problems, however, no adequate response has yet been developed. In case of disaster, such as the 9/11 attack, there would not be a “right” answer as to how we should respond, and these are the times for leadership. People will look to authorities in these time, but for answers they cannot provide. Heifetz’s idea is that the system would need to adapt, and it is the leader’s role to help the organization adapt and face the real challenge — the leader cannot, and would not, be able to be in a position to provide all the answers (because there may be no answer).

I copy below the three types of situations that distinguish adaptive from technical problems.

These Type I situations are somewhat mechanical: one can actually go to somebody and “get it fixed.” Many medical and surgical problems are of this sort, and many of them are life-saving. From the doctor’s point of view, these provide gratifying moments when she can say, “Finally somebody has brought me a problem that I can solve!” Although the patient’s cooperation is crucial in these situations, the weight of problem-defining and problem-solving rests with the physician. The patient looks to her to provide a prescription that at once will offer direction (take this medicine), protection (the medicine will overcome the infection), and order (you should be able to resume normal activity within the week).

Of course, many situations that bring people to doctors are not so technical. We can separate these adaptive situations into Types II and III. In Type II situations, the problem is definable but no clear-cut solution is available. The doctor may have a solution in mind, but she cannot implement it. And a solution that cannot be implemented is not really a solution; it is simply an idea, a proposal. The patient must create the solution in Type II situations, though the doctor may play a central role. Heart disease sometimes presents a Type II problem. The patient can be restored to more or less full operating capacity, but only if he takes responsibility for his health by making appropriate life adjustments. In particular, he will have to consider the doctor’s prescriptions for long-term medication, exercise, diet program, and stress reduction. He will have to choose among these. Type II situations can be managed in a mechanical way only partially by the physician. She diagnoses and prescribes, but her recommendations will have side effects requiring the patient’s evaluation of the tradeoffs. What new balance should he reach between cutting down the intensity of his job, getting exercise, or eating better? The patient has to recognize his own problem enough to provoke adaptive change. The responsibility for meeting the problem has to be shared.

In these situations, the doctor’s technical expertise allows her to define the problem and suggest solutions that may work. But merely giving the patient a technical answer does not help the patient. Her prescribing must actively involve the patient if she is to be effective. The patient needs to confront the choices and changes that face him. The doctor’s technical answers mean nothing if the patient does not implement them. Only he can reset the priorities of his life. He has to learn new ways. And the doctor has to manage the learning process in order to help the patient help himself. The dependency on authority appropriate to technical situations becomes inappropriate in adaptive ones. The doctor’s authority still provides a resource to help the patient respond, but beyond her substantive knowledge, she needs a different kind of expertise-the ability to help the patient do the work that only he can do.

Type III situations are even more difficult. The problem definition is not clear-cut, and technical fixes are not available. The situation calls for leadership that induces learning when even the doctor does not have a solution in mind. Learning is required both to define problems and implement solutions. Chronic illness and impending death from any cause often fit this category. In these situations, the doctor can continue to operate in a mechanical mode by diagnosing and prescribing remedies (and a “remedy” of some sort can usually be found). Yet doing so avoids the problem-defining and problem-solving work of both doctor and patient.

— Ronald Heifetz, Leadership with Easy Answers, pp. 74-75

Financial consulting: Good business

Lobbying by financial firms is nothing new. In the past decade the finance and real estate industries more than doubled spending on lobbyists, reaching $474m in 2010, according to FT, citing figures from the Center for Responsive Politics. An IMF working paper published in 2009 found that banks which spent more on lobbying performed the worst, expanded their loan books faster, made riskier loans and had more loans go sour. It concluded, “Our analysis suggests that the political influence of the financial industry can be a source of systemic risk.”

But the more interesting phenomenon has been the rise of financial consultants, which has been recently picked up by the media such as Time magazine and the Economist. According to the Economist, citing Kennedy Information, a research firm, “the global financial-services consulting business posted record revenues of $49 billion in 2012, a fifth of the consulting industry’s total”.

A firm stood out in this industry: Promontory. The firm was founded by former Office of the Comptroller of the Currency (OCC) head Eugene Ludwig after he stepped down from the government, and is staffed by some of the most senior regulators around the world, including the former chairs of U.S. Securities and Exchange Commission (SEC) and U.K. Financial Services Authority (FSA). If you are interested to know who’s who, the New York Times has helpfully consolidated a list. It is certainly a big business: The New York Times reported that “Mr. Ludwig regularly travels by private jet and earns more than $30 million annually, making him better paid than top executives at many big banks.” Indeed, Mr. Ludwig is living in one of the 20 most expensive homes in Washington D.C. too.

The firm claims to do “consulting” only, not “lobbying” (it has been a “registered lobbyist” but decided to give up that status in recent years). On the bright side, the firm helps companies to comply with new financial regulations as they are becoming growingly complicated. The regulators can also “outsource” part of their formal supervisory power to these financial consultancies, although how well this type of “self-regulation” works in practice remains doubtful, as it necessarily creates “a conflict of interest between the consultant’s loyalty to the company that pays it and to the regulator it must report to”. This draws scrutiny by the U.S. Congress recently, amid growing unease over their influence and their close ties to federal authorities.

But on the dark side, these people certainly would know where the regulatory loopholes are — and make huge money out of it. According to Bloomberg:

Promontory Interfinancial Network, a company that makes it easy for a wealthy depositor to keep FDIC-insured cash in separate accounts at multiple banks. It offers customers up to $50 million of FDIC insurance, 500 times the single-account limit approved by Congress.

The loophole Promontory exploits is the FDIC rule that allows an individual to open up federally insured accounts of up to $100,000 at an unlimited number of banks.

Promontory arranges for the customer’s money to be divided among banks, with each receiving less than $100,000 so all of the cash is FDIC insured. The receiving banks pay Promontory a fee, and in return, Promontory directs deposits to them.

And more interestingly:

Promontory charges banks more in fees, about $12.50 per a $10,000 one-year CD to get access to federally insured funds, than the FDIC itself charges in insurance premiums, typically $5-$7 per $10,000 deposited.

FDIC Chairman Sheila Bair says she’s surprised that Promontory gets a higher fee than her agency. “That’s an interesting question,” she says. “I’ll have to look into that.”

Oh yeah, you have to realize that the protection is not given by Promontory actually, but by the public (in terms of deposit insurance). In effect, they are making money out of nothing. That is good business.

Workaholics: Get a life

The Economist blogged on a same topic that I have explored in an earlier blogpost here. That showed data from the OECD that in a vast majority of its member countries, people are working fewer hours than they did in 1990.

While people do generally work less hours in these OECD countries, the reduction in hours is hardly significant. The only two exceptions are Korea and Portugal. Korea has successfully grow its economy while cutting the working hours of its average people by an astonishing 500 hours per year, although Koreans still work the longest hours among the OECD countries. Portuguese, on the other hand, are working less too, but they probably failed to raise their productivity by a even faster pace, and that is how they find themselves in economic turmoil now.

I’m personally more interested in a related article by the Financial Times on how you can tell you are a workaholic.

The Bergen Work Addiction Scale was presented last year in the Scandinavian Journal of Psychology and uses seven basic criteria to identify work addiction. The questions are scored on the following scale: (1) Never; (2) Rarely; (3) Sometimes; (4) Often; and (5) Always.

● You think of how you can free more time to work.

● You spend much more time working than initially intended.

● You work in order to reduce feelings of guilt, anxiety, helplessness and depression.

● You have been told by others to cut down on work without listening to them.

● You become stressed if you are prohibited from working.

● You de-prioritise hobbies, leisure activities and exercise because of your work.

● You work so much that it has influenced your health negatively.

According to the study, scoring “often” or “always” on at least four of the seven questions suggests you may have a problem.

Measuring poverty: Different approaches

The New York Times today has an interesting article on how to measure poverty. To oversimplifying things, there are probably three ways to measure poverty. The first one, as Hong Kong is now trying to do, is to set a “poverty line”: people whose income falls below this level would be considered “poor”.

The second one, as the US has done, is also an absolute measure in the sense that it estimates the minimum income needed to avoid extreme hardship.

In the 1960s, when the government first came up with the concept, it decided you were poor when you had to spend more than a third of your cash income on what it considered the minimally acceptable diet. It made sense, sort of. Americans spent a much bigger share of their incomes on food and a lot less on other things like health care.

But personally I like the last method, used by many European countries, which is a measure of relative poverty, because, ultimately, the “poverty” we see in big cities is not quite the same thing as “poverty” in many third-world countries.

Less tolerant of inequity than the United States, they prefer to measure deprivation in terms of people’s relative position: the poor are those who earn less than half the income of a typical citizen in the middle of the income distribution.

I would guess that this measure of relative poverty would be quite correlated to the Gini coefficient. It would be interesting to see how relative poverty in Hong Kong has changed over the years if  I could have the data and make a graph later.

Course bidding: Is auction always the best?

I’m back to Harvard where I have to decide on which classes to take in the new semester. Naturally, some classes (or professors) are more popular – much more popular – than others. So there exists a natural economic question: how should we allocate the scarce resources (seats) to all the students?

The Harvard Kennedy School and Harvard Business School have offered very different solutions to the same problem. At the HKS, students are allocated “points” so that they can “bid” for a class if the number of students wanting to enroll exists the number of seats. Each student has up to 1000 points to use in the whole year. And if the clearing “price” is less than you bid, you will get the extra points back.

That sounds like a fair system and a simple economic model, where supply and demand determines a equilibrium price and quantity (which is capped). But closer examination of the system raises some questions. In this year, the most expensive class goes to Ronald Heifetz’s “Leadership” – at 998 points! The high price has no problem in itself, after all, if you are willing to (almost) give up bidding any other classes just to do “Leadership”, it is entirely your choice. But what will happen next year? Students who observed this price would either bid 1000 points, so they can take the course for sure, or zero point, because you will think that placing 900 points in the bid would not get you into the class, so why even bid for it? This would discourage some people to even enter into the “marketplace”. And if there are sufficient amount of people who would decide not to bid, in some year you may be able to win the class by just bidding for one point! That is to say, the clearing price of the most popular course would likely fluctuate a lot between zero and 1000.

Just across the river, the HBS has a different system. There are 900 MBA students a year, and around 60 elective courses. Every student would have to put the preference of the 60 courses from one to 60. Then, students would be randomly assigned a number from one to 900, with student “one” being allocated her top choice. Student “two” would then get her top choice, and so on. If the top choice for student “900” is already full when it gets to her round, she will then get her second choice (if that is full too, her third choice). After the first round, each student would have got one course. Then the same process goes into the second round – this time starting from student “900”. The same process goes on until all the courses are allocated. Therefore, each student should get a combination of “good” and “bad” courses in this system.

This example shows that price theory may have its limit, and indeed, price may not always be the best tool for an economy to allocate resources. The HBS model owes very much to the pioneering ideas of Alvin Roth, then a Harvard professor, and last year’s Nobel laureate in economics. His researches in “market design” and “top trading cycle” have helped patients to get kidneys, universities to admit students, men and women to find their spouses – “markets” where price does not actually work that well. For interested readers, you can visit Professor Roth’s blog here.

The “busy trap”: How we get into it?

I can’t agree more on how a recent New York Times article describes my life:

If you live in America in the 21st century you’ve probably had to listen to a lot of people tell you how busy they are. It’s become the default response when you ask anyone how they’re doing: “Busy!” “So busy.” “Crazy busy.” It is, pretty obviously, a boast disguised as a complaint. And the stock response is a kind of congratulation: “That’s a good problem to have,” or “Better than the opposite.”

Notice it isn’t generally people pulling back-to-back shifts in the I.C.U. or commuting by bus to three minimum-wage jobs  who tell you how busy they are; what those people are is not busy but tired. Exhausted. Dead on their feet. It’s almost always people whose lamented busyness is purely self-imposed: work and obligations they’ve taken on voluntarily, classes and activities they’ve “encouraged” their kids to participate in. They’re busy because of their own ambition or drive or anxiety, because they’re addicted to busyness and dread what they might have to face in its absence.

But the question is why people would become so busy and enjoy so little leisure? It is totally opposite of what economists predict: as people become richer, the marginal utility of extra income decreases, and people would work less. That is why we get a backward-sloping labor supply curve.

One key point to note is that people nowsdays seem to choose to be busy voluntarily. In theory, people who are more efficient should get his/her work done more quickly and they should then have more time to enjoy life, yet these are the very people who appears to be the busiest. Many of them who have a 9-6 job would fill their remaining hours of the day with lots of social activities, second job, classes, etc… If people are happy to be so busy, that is not an issue. Yet the question is, why people choose to be so busy when they have a choice to be less busy and live a happier life? Is it a inter-temporal choice to work harder now and relax in the future? Is it insecurity in a competitive world to feel you aren’t working? Are these highly-efficient people just more determined to go an extra mile and are more willing to push themselves to the limit (so much like running a marathon is a disutility, but people still love it)? they can So are these people irrational? Or, are we just irrational?