Mugabe, now 84, has cast his country into ruin.

• Inflation is running at more than 100,000% a year. Farmlands extend for miles without cattle or infested with weeds.
• Zimbabwe's production of tobacco, once the second-biggest in the world, has tanked from 237M kilograms in 2000 to 70m last year.
• HIV or AIDS has hit nearly a 20% of the population.
• Life expectancy has dived from the highest in sub-Saharan Africa to 36 years, one of the lowest.
• Some 80% of Zimbabweans have no formal job.
• Many have reverted to the subsistence economy.

If fair elections were held, no rational people would elect the same man who has driven them to such a dire state. However, the chances of fairness are slim. According to this week's Economist

"The media are hugely stacked against the opposition, which is rarely given even a cursorily polite airing by the all-state-run radio and television services. The election commission is chaired by a Mugabe man, a former general. The registrar-general, another loyalist, presides over an electoral roll that is notoriously unreliable and incomplete, and contains thousands of dead people whose votes are expected to go to the president. Unless voting is extended beyond one day, many town-dwellers may be unable to cast their ballots, because there are too few urban polling stations. The diaspora, some 2m-3m mostly disenchanted Zimbabweans, is barred from voting."

The country's last chance seems to be the Southern African Development Community (SADC), an alliance of 15 countries. The SADC currently supports Mugabe, for a variety of reasons relating to political history and selfish motivations. They are also one of the last organizations that Mugabe cares about. If Zimbabwe's groundswelling opposition becomes so strong that it forces SADC to withdraw their support, Mugabe might finally feel some pressure to hold fair elections. However, we probably won't know much about the status of these talks until it's too late. Most independent monitoring groups, including all those from US, have been banned by Mugabe.

Update 1: April 1, 2008. The election is in a run-off, and over a week has gone by with no official winner yet published. The more time that goes by, the more exposed the election is to corruption and manipulation.

Update 2: April 7, 2008. According to this article on Bloomberg, Mugabe has militants invading white-owned farms, which is bringing up tensions that he hopes will sway the election his way in its final days of countdown.

Rival goods are those that are possible to be possessed completely and for which one can limit sharing. Examples include your house, the Google duo's private jet, my sandwich. Nonrival goods are those that can be shared almost limitlessly without added expense or resources. These types of goods include software programs, recipes, blueprints, the really annoying American Idol contestant's last hit song. In essence, most nonrival goods relate to ideas .

One of the biggest economic policy issues in today's world is how to create incentives to produce more and more new nonrival goods while maximizing the distribution of current nonrival goods. In other words, how can you incentivize Microsoft to keep coming up with new software while giving away current software to as many people for as little cost as possible?

Find a solution to that and you find a solution to many economic woes of our intellectual property age - patent law debates, DRM issues, international infringement cases, digital publishing restrictions, recipe stealing and a whole host of others. Hmm, if anyone is hunting for a dissertation topic, I sense that a few dollar signs might be associated with anyone who can call herself an expert in this field.

One thousand people were at the 59th street store in Manhattan. Spike Lee was among the crowd outside Prince Street. The Philadelphia mayor even tried his best in his town, before he was heckled out of line by spectators and news media.

Many people waited for hours only to end up walking out with a simple piece of paper apologizing that there were no more iphones available that day, but that the customer would definitely get one on Monday. Or maybe Tuesday or Wednesday, depending on shipping times.

Traditional economists would say that Apple failed to maximize profits by missing the supply and demand equilibrium. It seems as though the internet has facilitated a new rule... As long as you can hype up the supply shortage before it occurs, the marketing blitz will ensure an even greater return.

Not coincidentally, this change comes just weeks after a breaking story of a massive slave labor industry scandal in the rural province of Shanxi. Outrage exploded across the country when it was found that hundreds of farmers, including many children, were forced to work without pay and were enslaved in brick kilns against their will.

These events are significant, because under China's authoritarian regime, Chinese don't have freedom of speech or freedom of the press. Dissent is not tolerated. Authorities can arrest and imprison people who threaten stability, as the party defines it, and any group that dares to protest is treated brutally.

So when public outrage leads not to government censorship and discipline, but instead to accommodating changes to the legal system, this is a sign that the authoritarians are letting their grip slide. It's no leap to political freedom, but it's still something.

Despite the progress that the new laws promise to make, China still has a severe problem with enforcement. The enormity of the country's landmass and population make it almost impossible to monitor a majority of companies, and the opportunity to "cheat" creates a competitive spiral that tends towards the often cheaper alternative of non-compliance.

Perhaps in this case social unrest will become the country's secondary monitoring system. As communication improves and information is allowed to travel more freely, lawbreakers will start to fear their neighbors first before the police.

-- "Most of the observed increase in globally averaged temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations. This is an advance since the Third Assessment Report's conclusion that 'most of the observed warming over the last 50 years is likely to have been due to the increase in greenhouse gas concentrations."'

-- "Global atmospheric concentrations of carbon dioxide, methane and nitrous oxide have increased markedly as a result of human activities since 1750 and now far exceed pre-industrial values determined from ice cores spanning many thousands of years. The global increases in carbon dioxide concentration are due primarily to fossil fuel use and land-use change, while those of methane and nitrous oxide are primarily due to agriculture."

-- "The primary source of the increased atmospheric concentration of carbon dioxide since the pre-industrial period results from fossil fuel use, with land use change providing another significant but smaller contribution."

-- "Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global mean sea level."

-- "The observed widespread warming of the atmosphere and ocean, together with ice mass loss, support the conclusion that it is extremely unlikely that global climate change of the past fifty years can be explained without external forcing, and very likely that it is not due to known natural causes alone."

-- "Anthropogenic forcing is likely to have contributed to changes in wind patterns, affecting extra-tropical storm tracks and temperature patterns in both hemispheres."

-- "Temperatures of the most extreme hot nights, cold nights and cold days are likely to have increased due to anthropogenic forcing. It is more likely than not that anthropogenic forcing has increased the risk of heat waves."

-- "Since the Third Assessment Report (in 2001), progress in understanding how climate is changing in space and in time has been gained through improvements and extensions of numerous datasets and data analyses, broader geographical coverage, better understanding of uncertainties, and a wider variety of measurements."

-- "Eleven of the last 12 years (1995-2006) rank among the 12 warmest years in the instrumental record of global surface temperature (since 1850)."

And it is impossible to ignore the motivational powers of his words. Listening to his well-articulated facts - how 20,000 people die every day from poverty, that over 2.8 billion people are fighting for their lives on less than $2 per day, that millions are suffering from horrific, yet treatable, diseases, - strains every heart in the room.

Certainly, on first glance his approach sounds reasonable. Bed nets cost only $5 each and can completely eliminate malaria outbreaks from villages. Fertilizer can triple crop growth and free a family from subsistence farming. Irrigation systems can bring water to villages that are now forced to drink from polluted streams. Train systems can allow people to travel to marketplaces and hospitals.

It is easy to draw the lines – buy bed nets, fix disease so people can work and earn money, eliminate poverty. Buy fertilizer, fix farming so people can sell their crops and earn money, eliminate poverty. Buy irrigation systems, fix water supplies so people can work and earn money, eliminate poverty. Buy train systems, fix transportation so people can use functional marketplaces, eliminate poverty. Sachs packages a list of these instructions and others into a “Big Plan” that becomes a comprehensive operations manual for solving the poverty trap.

The above logical ties aren’t a solution because they don’t answer the question, “Who’s going to buy?” Sachs’ response is “foreign aid” and “UN spending”. But foreigners and the U.N. have already been dumping billions – no, trillions -- into impoverished areas for decades. Sachs’ instructions aren’t rocket science. It didn’t take a genius to figure out that fertilizer would help people eat more.

These instructions and the hype surrounding them are a hollow distraction from the problem that has been plaguing the good intentions of foreign donors for the last century:

The money just doesn’t get there.

Sachs proposed during his speech that for “one day’s Pentagon spending” (which he equated to $1.5 billion based on the most recent military budget), we could cover all of Africa’s impoverished areas with bed nets for five years and eradicate malaria. Well, over $2.3 trillion has been spent on foreign aid since the 1950s (measured in today’s dollars), which means that we (the better-off nations) have already spent 1,500 times Sachs’ proposed price tag, and malaria is still there. What happened to all that money?

William Easterly, a known opponent to Sachs’ Big Plan, says that the money we keep spending never gets to the bed nets (or the fertilizer, or the water, etc.) because of the minefield of obstacles that line these countries’ political and socio-economic environments. Some of the obstacles that are well known by established researchers of foreign aid include: “…[T]oxic politics, bad history (including exploitative or inept colonialism), ethnic and regional conflicts, elites' manipulation of politics and institutions, official corruption, dysfunctional public services, malevolent police forces and armies, the difficulty of honoring contracts and property rights, [and] unaccountable and excessively bureaucratic donors.”

Unless we know that money from the outside can get through these obstacles, knowing what to spend it on won’t do any good.

I enjoyed Sachs’ speech, and am glad that he is motivating people to care about the issue and contribute to finding a solution. But focusing on the aid side of the equation will only lead to future disillusionment from the citizens of wealthier countries if their money continues to be wasted. There must be some way that economists can attack this fundamental problem. Certainly with talent such as Sachs’, if properly guided, this generation should have a good shot.

The index to the right (click on the image to see a full-sized version) is based on the purchase price parity theory of exchange rates, which says that currency values should adjust so that identical goods end up being priced the same in the long run. The chart shows what the Big Mac should cost in the local currency if it were to be priced at the exact same cost in US dollars. If the actual price is over the predicted price, the theory predicts that the currency will devalue in the long term. If the actual price is below the predicted price, the currency should appreciate.

Based on this chart it looks like Iceland is way out of whack on the upside and should be plummeting in the future. We can also see why everyone is peeved about China's resistance to appreciating its currency - it's undervalued by about 56% based on this measure.

Interestingly, a new index might be trumping the Big Mac Index in the near future. The iPod's market reach is growing exponentially, and it too is an identical product that could lend itself to similar price comparisons. The iPod also has the advantage of being consistently produced in China, whereas Big Macs include costs of local country labor (with different educational backgrounds, demographics, etc.) that can further distort the price of the good.

Only time will tell whether an iPod index will have the same success as the Big Mac index in forecasting exchange rates. Even if it does, I highly doubt that it will become as popular. The product is too sterile and still remains at a price-point better suited for middle class yuppies than for the average citizen, which means it lacks the familiarity appeal of the Big Mac index.

Besides, can a consumer product really be the key to global forecasting without a special sauce??

In addition, the invitee list has certainly not failed to gather some of the world's best names in business, non-governmental organizations and politics. Eric Schmidt of Google, Mahmoud Abbas of the PLO, and Pascal Lamy of the WTO, to name a few.

Hot location, hot itinerary, hot guest list. How could this gig go wrong?

Despite the flash, everyone knows that the key to this program's success will be whether the meetings conclude with action plans and commitments or simply expanded contact lists and mild hangovers.

So don't feel so bad if you weren't invited this year. If you've sat in even one boring business meeting in your life, you've already learned the key to the success of even the world's most important meeting: assign responsibility. You can get the hangovers on your own terms (and save yourself the tux rental).

To better understand this dilemma, we first need to answer the question, “What does it mean for an economy to overheat?”.

The meaning of this term can certainly vary depending on the context, but in general an economy that is overheating is growing so fast that its production capacity is being maxed out and spurring a risk of inflation. In China's case, overheating also has significant meaning within the banking industry. The country has long been plagued by mismanagement of risk. Banks lend money to borrowers who are insolvent at interest rates that are way too low to compensate for the risk of nonpayment. This is due in part to the lack of quality information that would allow let lenders to differentiate among borrowers of better and worse standing. More problematic, however, is the cushion the lenders think that they have when making loans. For so long banks were state owned and loans were implicitly backed by the government. As it was widely known that the government would be very averse to bank failures, loans were made with more ease and less consequences.

Today, even though the banking sector has progressed in the direction of the market economy with the loosening of state controls and the entrance of foreign competitors, it still has a long way to go. Basic education on how to manage risk is still lacking and practices of corruption and misinformed decision making still need reform. A combination of recent capital injections made by the government and the Chinese populations’ extraordinary savings rate have made the banks awash in liquidity, which is encouraging them to be even more careless with their investments.

It is everyone's fear that one too many bad loans will be signed and investors who have been fueling the dramatic growth will soon peer into the hollow shell of their worth and flee. Memories of the 1997-98 Asian financial crisis are far too prominent in investors’ minds for them not to be cautious about China.

So given the risk of inflation and financial meltdown, what is the solution?

One scenario is just to let things roll without interfering. This would entail letting the banks overextend themselves to the point of failure and producers push themselves to the point of widespread inflation, and then hoping that market forces would make the corrections necessary for growth to start occurring at a more sustainable pace thereafter. Of course the “correction” period would result in a high loss of jobs as construction projects stall due to loss of funding and factories tighten shifts. Not to mention the problem of having nowhere to put the 10.3 million newcomers to the Chinese workforce who are added each year from population growth alone.

Understandably, the Chinese authorities view this solution as political suicide. Given that the country’s economy is still centrally managed, the government is taking advantage of the tools it has to try to directly control the growth itself. The problem is that the country is using the wrong tools.

Take the coal industry as an example. China is beautifully rich in this resource, with its reserves surpassed only by the United States and Russia. Eyeing regulation of coal production as a way to put a stop to growth, Chinese authorities have required that mines be formally authorized and obtain approval prior to operating. However, the industry is boldly disobeying these orders and thousands of unauthorized coal mines are popping up all over the country. Coal mine operators view the profit opportunities too great to pass up. In the Mongolian province, which is very rich in coal, illegal coal mines have helped its economy grow by roughly 20% each of the past two years. In addition, rolling blackouts due to power shortages in 2003 and 2004 encouraged local authorities to build plants illegally to keep their economies from faltering.

Even the government’s own previous mandates are working against them now. In recent years the Chinese government placed controls on energy prices to (guess what) encourage growth. These low prices are so deeply embedded into China's systems that its economy virtually depends on inefficiencies and waste of resources to keep functioning.

China's landmass is too large and the coal mines too numerous for the state authorities to monitor everything. And it certainly doesn't help that over 4,500 government officials were identified as owning illegal stakes in coal mines last year.

Another area that the authorities have tried to regulate is the auto sector. Production of passenger cars has increased dramatically within China, and the country is now the world's largest vehicle market by unit sales after the United States. This was driven in part by years of government promotion when the industry was seen as a critical driver of growth and industrialization. Local governments are still trying to offer deals and incentives for plants to be built in their provinces. Meanwhile, the national authorities think that the cutthroat price competition that is occurring in the industry will soon discourage the entrance of large manufacturers that will be able to compete in the long term with the technological superiority and brand awareness of the US, Japanese and European manufacturers. In response to this fear, new pronouncements released this week require that a company must either achieve capacity utilization of 80% or produce a certain quota of vehicles before it can build a new plant.

It is obvious that the beast has gotten too big for China to control through these types of measures. Once again China is repeating the symptoms of the disease that is a state-run economy: The government accumulates incomplete information, makes sweeping decisions based on an inevitable mix of personal incentives and national interests and then forces all minorities to submit to a majority solution. This process, by choking off the variety and diversity of voluntary exchanges made possible in a free market prevents effective decision making and real-time responses to supply and demand.

Instead of releasing more ad hoc legislation aimed at industries where the government authorities have lost control, perhaps they should focus on more simplistic endeavors best suited to politicians. Interest rates should be raised, and the yuan should be allowed to float. These two monetary policy tools are unbiased across industries, can be easily monitored from a central authority, and can have almost an immediate impact.

The Chinese are fumbling around with kettles and cauldrons while the whole world around them is screaming to use Tupperware and Teflon. Perhaps they’ll start to listen soon, but hopefully it won’t first require getting burned.

Vietnamese police are accusing employees in ABN-Amro's Hanoi branch of trading illegally with the country's state-owned Incombank. According to the police, the trader on the Incombank side, Nguyen Thi Quynh Van, was unauthorized to trade foreign currencies, and the 500 foreign exchange trades that ABN-Amro made with this woman over the past three years resulted in undue losses for Incombank.

Repercussions for Van are serious. According to the Vietnamese police, she stole passwords to complete the trades. If found guilty she could could face death by firing squad. Four others, from both ABN-Amro and Incombank, are also being detained.

The Western media is proclaiming this an outrage, and they are sending a message to investors that the Vietnamese government is interfering in a backwards manner.

Yes, ABN-Amro has denied the claim. And Van’s punishment seems severe to most Western cultures. But has anyone considered the fact that the Vietnamese police might be in the right?

For instance, the Western media doesn't seem to be acknowledging money transfer documents provided by ABN-Amro that show that in 2005 and 2006, Incombank Hai Phong and ABN-Amro transferred only “netoff” over 30 times. This indicates that the banks were transferring only the net amounts of canceling contracts instead of transferring the full amounts each time as required by banking rules. In addition, on many spot delivery contracts the two sides did not pay within the required two-day timeframe. Equally suspicious is that the exchange rates applied on certain contracts exceeded the State Bank of Vietnam's allowed levels over 20 times. Finally, no one has yet denied that Van was not authorized to perform the trades.

If the legislation and punishments were clear before these transactions were completed (note that there has been some dispute regarding which authoritative body should handle the case from Vietnam's side), and if the conclusions from these documents are correct, it may just turn out that ABN-Amro is in the wrong. If this is the case, the Vietnamese police should be congratulated for catching the error and punishing the entity that committed the crime. It is exactly this type of law and enforcement that is lacking in so many underdeveloped nations and keeps them from developing strong economies.

And even if ABN-Amro was in the right, there is still something to be said to the Western media about addressing all relevant facts. Too often we are anxious to slam emerging economies for their weaknesses. It would benefit many to learn when to wake up to their strengths.

As recent as two years ago, 20% of ICBC'sloans were non-performing. Fake mortgages were rampant, and loans to government entities were made at far from arm's-length interest rates.

Despite all these red flags, investors are still keen on getting a share of this bank because they think the government has extra motivation to make sure things run smoothly before the upcoming 2008 Olympics. A banking crisis would severely sour the media surrounding the games, so if for nothing else than a PR initiative, the government would probably smooth any worries with capital injections or other tools to get them through their moment in the spotlight.

In addition, all the building and clean-up activities planned as part of the country's preparation to host the 2008 Games have led economists to forecast 10 percent annual growth until the torches are lit.

But what happens when all the medals have been donned, the stadium lights dimmed, and the souvenir t-shirt vendors departed? The loans extended by ICBC go well beyond 2008. What extaordinary motivation will the government have to guarantee bad debt then?

Seems like bliss to any techie hopeful. But, unfortunately, Mr. Alexander and Mr. Kreinberg weren’t quite satisfied.

They decided to stretch their luck a little further and try out the option game. The game of choice? Today’s white-collar crime favorite, BackDating Bonanza.

It is alleged that Alexander and Kreinberg created a slush fund of options from which they profited by over $171 million. Some were given to favored employees, others acted as paper piggy banks for the executives. An option is essentially a contract that, when signed today, allows a buyer to have the opportunity to buy or sell an asset at a given price. The key to the contracts is the uncertainty – an option to buy a stock at $10 tomorrow doesn’t really have much value if you know for sure that the stock will be worth only $5 tomorrow. What “backdating” does is that it essentially takes the information someone knows today and structure a contract that would have been favorable, had they signed it yesterday. Under the wrong circumstances, this is as crooked as it gets.

And for Alexander, Comverse paradise started to crack last spring. First there was an SEC inquiry, then an investigation followed suit. A couple of months went by, and word of criminal charges began floating around.

And suddenly, he vanished.

As of July 11 of this year, Alexander could not be reached. The house was vacated. The family gone.

Enough days went by that the police started searching for him, and then the search escalated into a full-out manhunt. Alexander and his family left the country. A spotting was made in Sri Lanka, in August, but for weeks there was silence.

Finally, a trail of large bank transactions led U.S. authorities’ focus to Namibia, the south African country recently made famous by Angelina Jolie’s recent adoption of a Namibian baby. Alexander, probably attracted to the large Israeli expat community in the country, had settled his family there, enrolled his children in an international school, and was even shopping for real estate. Namibian authorities, cooperating with the FBI, caught Mr. Alexander and had him arrested.

Who ever said accounting was boring?

* A provision that requires companies that under-fund their pension plans to pay additional premiums for the Pension Benefit Guaranty Corporation (the country's last-resort insurance system for pensions that go bankrupt: see Market Racket archive) ;
* An extension of a requirement that companies that terminate their pensions provide extra funding for the pension insurance system;
* Improved accounting rules to increase the transparency of pension funding;
* Elimination of loopholes that allow under-funded plans to skip pension payments;
* Increased caps on the amount that employers can put into their pension plans, so they can add more money during good times and build a cushion that can keep their pensions solvent in lean times; and
* Protection against companies with under-funded pension plans that dig deeper holes by promising extra benefits to their workers without paying for those promises up front.

The short version? Basically companies have to pay what they promise to pay and 'fess up when they're running short.

The idea of the new legislation was to prevent disasters à la GM whereby companies used to be able to promise boatloads of pension benefits to employees without taking a hit to their financial statements, only to find out later that they weren't able to pony up the cash when the checks became due. Whereas promises to employees used to be buried in footnotes to financial statements, soon companies will have to recognize these under-funded liabilities directly on their balance sheets.

So, it may seem logical that companies who in fact have under-funded pensions would want to put the brakes on the imbalance in light of these harsher consequences. One way to do this is to "freeze" pension plans, either by no longer enrolling new employees, or by no longer contributing to the pensions of existing employees. This seems pretty rational, but what is really grabbing people's attention is that even companies with fully funded pensions are implementing freezes. To some, the Pension Protection Act is motivating even companies that are in the black to stop offering pension benefits. Isn't this a bad result?

Well, maybe not. One tricky thing about pensions is that there is generally a long time lag between when a promise is made to an employee and when that employee starts collecting. An employee considers a pension benefit as a component of compensation, and may accept a lower salary now for a higher pension later. However, in the span of, say, an employee's 20 year career, this individual's employer could easily witness huge economic swings, major industry revolutions and several generations of management, all which could affect that employer's ability to live up to the pension that it promised. Before the Pension Protection Act and recent changes in accounting rules, that company could show the benefit of paying lower salaries to its employees without directly recognizing the detriment of the pension that it would have to pay out later. Here we have a classic case of informational asymmetry: the lack of transparency leads employees to make misinformed decisions because he doesn't know enough to place a high risk factor on the pension to be collected.

Improving accounting disclosures and closing loopholes that encouraged this risk mismatch is better for everyone. Investors will have a better idea of a company's health, employees will better understand the nature of the promises made to them, and the strain on our country's pension insurance system (PBGC) from "surprise" collapses like GM's will be less severe. This is all vitally important for our economy's health, especially as we enter the coming dark cloud of baby boomers who will soon swamp our retirement protection capacities.

Given all this, is it any wonder that companies across the board are taking a hard look at their pension plans? Even those that aren't in an underfunded position now can't be criticized for recognizing that expenses in the future will be larger than ever before. Would it really be better for them to continue providing pension benefits until they reach a point where they can no longer fund them?

It may be the case that recent criticisms of the Pension Protection Act are spawning from our country's slow wakening to the reality that our citizens are going to have to find alternative means for funding their retirement. Easy roads like defined benefit pension plans, 401(K)s and social security are developing more and more potholes each day.

Perhaps energy spent critiquing these market forces might be better spent taking a fresh look at Investing 101.

According to Chinese law, the seriousness of a crime is measured by the profits that the counterfeiter would have made. This is in contrast to US law, which tends to look at both the profits made by the guilty counterfeiter as well as the damages to the plaintiff, which are often measured by the plaintiff's lost profits. In the Zippo case, Mr. Zheng's price to his distributors was proven to be about 37 cents per lighter. And there we have the disparity.

Not only do China's valuation methods create large differences in what are perceived to be approprite fines, they also create safe havens from jail time. Cases are organized by tiers in China such that those involving sums less than 50,000 yuan rest in "administrative" courts and are disallowed from including jail time as punishments. In many cases these disputes don't even get scrutinized by the police.

For this reason, counterfeiters are hardly discouraged from continuing their business. A fine like $12,500 will not knock out Mr. Zheng's factory, and most likely he will reallocate his resources to yet a new counterfeit product in the near future.

This flaw in China's legal system has created a huge problem for the country. It is estimated that between 15 and 20 percent of Chinese goods are counterfeit. Imagine if one out of five dollars you spent was on fake products.

A couple of years ago 60 Minutes did a show where a crew travelled to a few towns in China known for their counterfeiting madness. They found full factories dedicated to making fake Callaway golf clubs; entire shopping malls filled with name brand stores - none of which were real; and even Harry Potter books that were written by authors other than J.K. Rowling.

Chinese policemen have therefore been quoted as saying that they are easy on counterfeiters so that they don't produce social unrest. The problem has gotten so out of hand that the livelihoods of entire communities depend on the production and sale of counterfeit goods.

The Zippos case was yet another win for the counterfeiters. Until Chinese lawmakers decide to make sentences for the guilty punitive, the industry will not cease. And even though China's GDP is benefitting heavily from these operations, it is in the country's best interest to change. Counterfeiting will continue to be a significant barrier to foreign investment, as CEOs of foreign manufacturers won't be able to sleep at night knowing that a patented mold in their Chinese auto plant could be so easily stolen and plopped into a counterfeiter's factory down the block. In addition, fake goods carry with them no warranties, health standards or other controls that prevent malfunciton and serious harm to consumers.

But, as with many problems in economics, the consumers often make the law. As long as there is demand for counterfeit goods, the counterfeiters will win. The cheap smokers out there may get utility out of their 37 cent lighters in the short term, but what happens when Zippo Manufacturing goes broke? Won't the allure of their fakes fizzle too?

In fact it depends on where you are. Some states, like Arizona, don't recognize price gouging and simply view price increases like those in today's oil prices as natural as any other tides in supply and demand. Other states, like Louisiana, attack fiercely by assigning biting penalties and dragging executives through court when companies take "excessive profits", as many were deemed to have done during Hurricane Katrina, for example.

Which view is better for the economy? Should companies be restricted from raising profits when demand soars? Again, this is a matter of perspective. Some think that any and all detriments to consumers should be prohibited, even if short term pain leads to long term gain. Others view "excess profits" as rewards that keep more vital participants in the industry, contributing to its ultimate long-term health.

No matter what side you're on, the key is to make guidelines clear in advance. Not recognizing price gouging is easy: just make sure the law states it is that way, and that it's gonna stay that way. If price gouging is going to be recognized and restricted, the "gouge" should be well defined and formulaic. Many states fail the market by defining gouging post-facto, such as in this recent oil up-tick or after the hurricanes. Not telling companies what's fair beforehand and then punishing them with fines later imposes great uncertainties in the industry. Uncertainty leads to inefficiency, and that can never be good, no matter how you look at it.