The causes of South Africa's next bout of capital outflows

Background

Capital flows have far-reaching implications for monetary, fiscal and financial policy. South Africa has a relatively large current account deficit that is financed by capital inflows. A reversal of capital inflows could have serious economic consequences. While the economic effects of capital flow reversals have been studied for South Africa, less is known in terms of what prompts capital flow reversals. This is the central question addressed in this note. Our analysis shows that the probability of a capital flow reversal increases in relation to:

•     Higher debt service costs.
•     Slower economic growth.
•     Sovereign ratings downgrades.
•     Higher government debt.

The effects and causes of capital flow reversals

Empirical work shows that capital flow reversals have a negative impact on the economy (for a good summary see Smit et al. (2013)). Capital flow reversals cause:

•     Sharp currency depreciations.
•     Declining economic activity.
•     Declining asset prices.
•     Current account reversal if unaccompanied by reserve buffers.

Smit et al. (2013) shows that a capital reversal of 50% reduces economic growth by 0.3 percentage points in the first year and by 1 percentage point the following year. The 10 year government bond yield increases by 3.2 percentage points in the first year following the capital flow reversal and  by a further 1.7 percentage points the next year.

Studying the determinants of capital flow reversals is justified given its effects on the economy. It is also important in the context of economic movements recently – South Africa needs to be aware that the potential for capital flow volatility increases as the Fed tapers down its quantitative easing programme. At the same time, SA policy makers need to be cognisant of the effects of a possible EU quantitative easing (QE) programme. By no means does another QE imply an increase in capital flows – this depends on the factors that influence flows (the core research question of this note).

The literature usually cites growth differentials, interest rate differentials, foreign exchange reserve, prices, financial policies and fiscal sustainability as factors that influence capital flows. We study the impact of some of these factors on capital flow reversals. A short description of the possible effects of these variables on capital flows are summarised in Table 1:

Table 1: The influence of macroeconomic variables on capital flows

Variable	Effect
Interest rates	Higher interest rates provide higher yields for foreign investors. These yields could lead to higher capital inflows. However, these yields need to be adjusted for risk. If the risk adjusted interest rate is still low, or when a country’s public finances are perceived to be unsustainable, then changes to the interest rate could have no effect on capital flows, or even lead to a reversal if rates lead increases the probability of debt default.
GDP growth differentials	Higher GDP growth could lead to an increase in net capital inflows. This often serves, alongside the stock market, as an indication of potential future gains for investment.
Expectations	Expectations regarding the financial stability of a country are important is assessing whether foreigners will invest or not. We assume that these expectations can be measured by a country’s risk rating (caution – this is usually only a measure of risk regarding a country’s foreign denominated debt). It is expected that there will be an outflow of capital when expectations worsen, i.e. a lower rating.
Inflation	Investors are often interested in real returns to investment. Inflation erodes those returns. In inflation targeting countries, high inflation would mean higher interest rates. These higher interest rates in return would reduce economic growth.
Exchange rates	It is not the level of the exchange rate that might cause an inflow or outflow, but the view about whether the exchange rate will depreciate or appreciate. While exchange rates are endogenous to capital flows, we model exchange rate deviations from equilibrium to proxy foreign investors’ views on currency movements. As an example, an investor would want buy goods in domestic currency cheaply and sell it when the currency depreciates. Here it is assumed that investors analyse this from an equilibrium perspective – assuming that any movement away from equilibrium will move back to equilibrium.

Methodology

We are interested in variables that increase the probability of a capital flow reversal from an empirical perspective. The explanatory variables include South Africa’s GDP growth differential with G7 GDP growth, debt service costs, the interest rate differential between South Africa and USA’s federal funds rate, foreign reserves as a per cent of GDP, Fitch sovereign ratings, sovereign debt as a per cent of GDP, high interest rates (measured by squaring interest rates) and inflation. Having so many explanatory variables in a regression framework can easily bias the results making inference about the size and sign of the explanatory variables impossible. As such, we use a model[1] that explicitly takes account a large number of variables without biasing the statistical significance of the estimates. Our model is estimated over 1997 to 2013q1. Our measure of capital flow reversals is measured as a binary variable that equals 1 whenever net capital flows as a per cent of GDP is less than zero and equals zero otherwise.[2] The model is set up in a way that multiple combinations of equations are estimated. In total 2^9 (512) models are estimated (there are nine variables). Our methodology allows us to evaluate the parameter distribution - The distribution helps us to assess the significance of the coefficients (i.e. how far the mode, mean and median deviates from zero) as well as whether certain variables are more important than others (as measured by the Posterior Inclusion Probability (PIP)). The PIP varies between 0 and 100, where 100 indicate that a variable was significant in modelling capital flow reversals in all 258 model combinations.

Results

Table 1 summarises the first set of results. The mean coefficient should be interpreted with caution. The model is a probit model and the results do not have an elasticity interpretation. The mean’s sign, however, is important. We see that higher GDP growth differentials and higher levels of reserves reduce the probability of capital flow reversals. Higher GDP growth differentials imply that macroeconomic fundamentals are good relative to the rest of the world and serves as a signal for potential investors. Higher reserves imply a higher probability of being able to absorb adverse economic shocks better. Higher debt service costs, higher sovereign debt and another sovereign ratings downgrade increase the probability of capital flow reversals. The probability of capital flow reversals for South Africa decreases in the case of higher interest rate differentials. Higher interest rate differentials can attract capital due to higher returns.

Table 1: The determinants of capital flow reversals

	PIP	Mean	SD
Growth differential	10.8	-0.02	0.09
Debt service costs (DSC)	34.3	0.26	0.09
Reserves	65.5	-0.23	0.20
Interest rate	5.3	-0.01	0.04
Inflation (infl)	9.4	0.01	0.06
Ratings (Fitch)	37.5	0.41	0.62
Equilibrium fx	15.9	0.01	0.03
Debt	18.0	0.02	0.06
Very high interest	10.3	0.00	0.00

One way to interpret the results is to analyse the probability of capital outflows over different values for our explanatory variables (everything else is evaluated at their respective means). Figure 1 shows that the probability of a sudden stop varies over different shares of reserves to GDP, different GDP growth rates and different sovereign ratings. The probability of a sudden stop is then compared when debt service costs are moderately high versus when debt service costs as a per cent of GDP is zero.

Figure 1: Probability of capital flow reversals

The vertical axes show the probability of capital flow reversals (outflows). If it equals 1 then capital flow reversals are a certainty. The horizontal axis measures the actual levels of reserves, GDP growth and ratings respectively. Reserves as a per cent of GDP vary from 3 per cent to 10 per cent as an example. The ratings are assigned numerical values where the highest rating, AAA, is assigned a 1. As is expected, the probability of a capital flow reversal decreases alongside the accumulation of reserves, higher credit scores and higher growth differentials. Interestingly, higher debt service costs are associated with a higher probability of capital outflows. In the case of having positive growth differentials, debt service costs matter a lot in terms lower the event of capital outflows. The probability of capital outflows is larger when the exchange rate has deviated far from equilibrium. Currency deviations from equilibrium often imply possible currency speculation – this can greatly affect the movement in capital flows.

Conclusion

Capital flow reversals could come about due to a number of reasons. Poor performing macroeconomic indicators such as slow GDP growth and low-rated sovereign bonds could result in an outflow of capital. Our results show that a higher level of reserves serve as a signal to manage potential economic shocks, and hence reduces the probability of a sudden stop. Higher debt service costs, alongside higher government debt increases the probability of capital flow reversals substantially.

There are some interesting policy considerations that emerge from this analysis. If the objective is to avoid an altogether outflow of capital then there are a couple of policy options. Unfortunately policy options that worked for one country during a particular period might not be that effective for another country (see Magud et al. (2011) on the effectiveness of different capital controls). It should be useful to rank and quantify the effects of various policies that mitigate capital outflows. This reduces the risk of getting things seriously wrong – such as unattended consequences of a tax on speculative flows. A convincing proposal has been put forth by Korinek (2010) to impose a Pigovian tax on inflows to mitigate possible amplification effects, or externalities, caused by outflows. Korinek (2010) using a welfare theoretic foundation for risk-adjusted capital regulations, calculates the externalities caused by various types of flows for Indonesia. He shows that externalities are amplified during crises periods. The largest externality from flows comes from dollar debt, followed by inflation linked debt. The least distortionary flows come from non-financial FDI and portfolio investments.  Regrettably little is understood regarding the macroeconomic effects of different types of flows since most studies use only aggregate measures. Thus, the correct policy response should control for the type of flows too controlling for country specific effects.

References

Magud, N., Reinhart, C.M. and Rogoff, K.S. 2011. Capital controls: Myth and reality – A portfolio balance approach. National Bureau of Economic Research. NBER Working Papper 16805.

Korinek, A. 2010. Regulating capital flows to emerging markets: An externality view. University of Maryland working paper.  

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[1] We use a Bayesian Model Averaging (BMA) that estimates multiple combinations of models and averages out the coefficients. We use a flat prior indicating our lack of knowledge of the importance and size of the different variables. This implies that the likelihood function has a stronger weight than any prior chosen by the researcher. 

[2] There are alternative measures such as any deviation in capital flows of more than one standard deviation.

Can we predict the next winner of the Nobel Prize in economics?

The best way to learn new software is to experiment with data in order to answer some interesting question. My experience with R has been cool. I have also found the transition from Matlab to R (for economic applications) quite easy. There is a ton of available guides on the web to help you get into R. R’s graphics is pretty amazing too.

Now that I have R (and Rstudio as platform) I needed an interesting question. Most students in economics come across binary response variables at some point in their lives. But, a lot of students do not always ask interesting questions and also do not explore the data correctly. So here I will attempt to illustrate how one can use a simple regression to predict possible Nobel Prize winners in economics.

You can find numerous Nobel prediction cites: see here.

The point about this blog entry is to explore some of R’s commands and then to fit (imperfectly) a model that predicts possible winners. To do this I had to gather a bit of data. The following data (and their sources) were collected:

• Previous winners (winners)
• Previous JB Clark winners (winners)
• The top 2000 ranked economists according to REPEC criteria (top 2000)

Of course this data is not sufficient to build a proper model – you would need control for age (the youngest ever winner was Arrow aged 52), you will need a variable indicating gender (there was only one female winner) and possibly a variable indicating the importance of a specific paper in shaping economic thought. But the data we have is not too bad. The data gives us an idea about which universities improve your chances of winning, the field of study and the importance of that field presently in helping understand serious economic questions as well as relying on previous prizes in economics to help predict a winner.

I now have a little model that has Nobel Prize  as dependent variable (binary: 1 = won, 0 = have not won yet). Our explanatory variables include university rank, author rank, gender and JB Clark medallists). The university with the highest rank also had the most Nobel Prize winners. A university with no previous winners will receive a rank equal to zero. Author rank depends on the REPEC author ranking list. I scaled the rank so that 0 means highest REPEC rank. I must admit that my gender variable was constructed by my own understanding of gender names – it would be a very time consuming process to Google 2000 ranked authors to ascertain their gender – fortunately this variable is highly insignificant in predicting winners. The JB Clark medal variable is also a binary variable where 1 = won and 0 = have not won.

It was quite a tedious task to correctly map all 2000 candidates with the list of Nobel winners, their universities and JB Clark winners. Please send me a request if you would like this data – it is currently sorted according to REPEC ranking.

Now we are ready to use R. I use the ggplot2 package for nice looking figures. The data looks as follows after loading it:

Table 1: The data

	Name	Nobel	Bates	Gender	Uni	Rank
1	andreishleifer	0	1	1	0.07	0.0304
2	jamesjheckman	1	1	1	0.13	0.0345
3	robertjbarro	0	0	1	0.07	0.0487
4	josephestiglitz	1	1	1	0.07	0.0500
5	petercbphillips	0	0	1	0.04	0.0746
6	daronacemoglu	0	1	1	0.06	0.0822
7	robertelucasjr	1	0	1	0.13	0.0944

Andrei Shleifer is currently the highest ranked on REPEC. The other columns are the explanatory variables. I would first like to summarise the data before I estimate the little regression. About 63% of JB Clark medallists have gone on to winning a Nobel Prize. Some of the JB Clark medallists are still too “young” to win a Nobel Prize. There are approximately 10% of female candidates in the list of REPEC author rankings.

Next I estimate the Probit. All the slope coefficients, except for gender, are significant:

Table 2: Regression output

            Estimate Std. Error z value Pr(>|z|)   

(Intercept) -2.12882    0.39778  -5.352 8.71e-08 ***

Bates        1.21190    0.25903   4.679 2.89e-06 ***

Gender       0.41422    0.37742   1.098    0.272   

Uni          7.04045    1.59790   4.406 1.05e-05 ***

Rank        -0.06406    0.01549  -4.136 3.53e-05 ***

Remember that an increasing number in rank means that you are ranked lower on REPEC. The results make sense to me: The probability of winning a Nobel Prize increases if you were a previous JB Clark medallist, if you are a male (gender is not statistically significant so little weight should be assigned to being male or female), if you attended or are lecturing at a university that hosted previous winners and a higher rank on REPEC (in this case 0 is the highest rank).

There is no direct interpretation of the coefficients. One way to evaluate the coefficients is by means of predictive curves. The Figure below shows the probability of winning. The y-axis is the actual probability while the x-axis varies the REPEC rank. The different shades of blue control for the university rank. The figure shows that the probability of winning a Nobel Prize is over 0.6 with a very good publication record and having attended a university that hosted Nobel laureates.

Figure 1: Prediction curves

We can use this model to predict likely winners. The results will also contain past winners as well as people who have passed away (obviously they cannot win) – we can use this to evaluate the fit of the model. The table is sorted according to the probability of winning. The results, while interesting, are not that reliable. There were a number of academics who have won, but that score a fairly low probability of winning.

The results suggest that Kevin Murphy has a very high chance of winning sometime in the future:

Table 3: Likely winners

REPEC           Name Nobel Bates Gender  Uni   Rank    Probab 

2      jamesjheckman     1     1      1 0.13 0.0345 0.6592267

13       garysbecker     1     1      1 0.13 0.1917 0.6555262

142     kevinmmurphy     0     1      1 0.13 1.3531 0.6277450

162    kennethjarrow     1     1      1 0.13 1.5665 0.6225621

213     stevenlevitt     0     1      1 0.13 2.1345 0.6086614

256  daniellmcfadden     1     1      1 0.13 2.5273 0.5989653

306      davidmkreps     0     1      1 0.13 3.0071 0.5870391

449   amichaelspence     1     1      1 0.13 4.3881 0.5522986

20      paulrkrugman     1     1      1 0.08 0.2650 0.5173747

1     andreishleifer     0     1      1 0.07 0.0304 0.4952882

4    josephestiglitz     1     1      1 0.07 0.0500 0.4947874

27  lawrencehsummers     0     1      1 0.07 0.2978 0.4884562

6      daronacemoglu     0     1      1 0.06 0.0822 0.4659186

805    jonathanlevin     0     1      1 0.13 7.9372 0.4618090

67     jerryahausman     0     1      1 0.06 0.7140 0.4498638

497     robertmsolow     1     1      1 0.06 4.9049 0.3466185

667        rajchetty     0     1      1 0.07 6.4323 0.3365476

12  martinsfeldstein     0     1      1 0.00 0.1817 0.3035090

40        davidecard     0     1      1 0.00 0.3929 0.2987970

There are many interesting questions that one could ask with available data. In this case I was curious to get an idea of who the likely Nobel Prize winners will be. Unfortunately the Bates medal has the largest weight in predicting winners in this model. This is definitely not a realistic model. But it illustrates some interesting concepts – if you want to win a Nobel Prize make sure to go to a university that where many Nobel laureates made a name, make sure to have a good publication record and try to win a JB Clark medal.

Some thoughts on South Africa's exchange rate

The weaker rand exchange rate raises alarms in the monetary policy sphere. The rand depreciated by 23% against the US$ from January 2012 to December 2013. This has implications for people wanting to take a holiday in the US or purchase anything that has a $ tag assigned to it. Apart from the worrying tourist, the central bank has to keep an eye on the exchange rate as it could lead to higher inflation. A final issue related to the rand is the trade deficit narrowed – and why it has not narrowed.

In essence three economic questions arise: (i) Is the rand permanently weaker (i.e. what has happened to the equilibrium exchange rate), (ii) what is the effect of the weaker rand on inflation (i.e. what is the exchange rate pass-through) and finally (iii) how do imports and exports respond to the rand.

I will summarise the results here in case you don’t have time to read the entire section.

·    The rand’s equilibrium value to the US$ is R8.50. The rand is thus undervalued and should start appreciating (given that SA or the rest of the world don’t undergo some massive structural change).

·    Rand appreciations are shorter lived than depreciations. Depreciations are usually more persistent over time.

·    The exchange rate pass-through to inflation is time varying; i.e. it changes over time and across different policy decisions. The current exchange rate pass-through is low, however, depends on low and stable inflation.

·    The trade deficit did not narrow since the rand depreciation. Both export and import volumes increased. Imports simply increased more than exports. Some researchers argue that this is due to a J-curve effect. I, however, argue that the response of certain imports is inelastic to the exchange rate. This means that if SA imported exchange rate inelastic imports, then any rand depreciation would have a very small effect on decreasing imports.

11.    Some (important) preliminary statistics of the exchange rate

Figure 1: The rand is not alone – Other developing countries’ exchange rates have also depreciated

Source: Bloomberg

South Africa’s rand is not the only developing country exchange rate that depreciated; The Indian rupee along with the Brazilian real depreciated by similar margins. The Chinese yuan remained at similar levels only because of its massive reserves – the Chinese actively intervene to maintain a stable currency. 

The top row of Figure 2 illustrates the distribution of depreciations vs. appreciations. Notice that large depreciations occur quite frequently. This is supported by the fact that depreciations are more persistent. Appreciations are small the majority of time. There are, however, periods of massive appreciations. These occur at low frequencies as appreciations are abrupt. Row two of Figure 2 shows that the r/$ exchange rate is much weaker than it historical averages (comparing the average of 1990 until 2013 vs. the average since inflation targeting). We also see that the rand is weaker than an HP-filtered exchange rate (a measure of the long-run exchange rate).

Figure 2: Appreciations are abrupt while depreciations are persistent

Source: South African reserve bank and own calculations

It can be argued that the rand fluctuates around its steady state (equilibrium) if one can identify the factors that determine it. The figure above illustrates that the rand does not deviate too much from such a steady state (assuming that this steady state is represented by the smoothed line).

This paper shows that interest rate differentials, productivity differentials, openness and the government’s budget balance determine the equilibrium value of the rand. Thus any deviation from the rand away from equilibrium will tend towards equilibrium later. The author finds that it takes just under a year for the rand to move back to equilibrium.

  

The paper above shows that:

·        * If SA interest rates increase by 100 basis points relative to US interest rates then the exchange rate will appreciate by 0.8 percentage points.

·        * If SA GDP growth increases by 1 percentage point relative to its trading partners then the exchange rate will appreciate by 1.3 percentage points.

·         *A 1 per cent increase in the government deficit will appreciate the currency by 1.5 percentage points.

Figure 3: The equilibrium exchange rate in 2011Q4 was R8.15 to the US$

Source: de Jager

22.      On exchange rate pass-through to consumer prices

How will the SARB react to the weaker exchange rate? This depends on what they believe will be the impact on inflation. If the exchange rate depreciation translates into higher consumer price inflation then the probability of an interest rate hike increases. So not only are consumers concerned about higher prices due to the exchange rate, but also higher interest rates from the SARB to curb inflation.

Econometric analysis that measures the exchange rate pass-through to inflation over time shows that it has decreased since implementing inflation targeting (see Figure 4). The highest pass-through occurred in 2002 and 2003 at a time when inflation was very high and volatile and the exchange rate very weak. Currently the pass-through is close to zero. This means that the weaker exchange rate hardly translated into higher consumer prices. In Figure 4 the exchange rate pass-through is highest over four quarters. Exchange rate shocks almost dissipate completely over three years.

  

Figure 4: Pass-through has been lower since inflation targeting

Is it reasonable to assume that low pass-through will persist? If this can be assumed then we need worry very little about the possibility on an increase in interest rates due to exchange rate pass-through. But to make this assertion we need to know what causes high vs. low pass-through.

We use the pass-through coefficients in Figure 4 as a dependent variable and analyse likely factors that influence it. The most important determinants of exchange rate pass-through is the extent of mark-ups and inflation (see Table 1). A 1 per cent increase in mark-ups reduces exchange rate pass-through by 2.71 per cent on average. This seems counterintuitive at first but makes sense given that monopolies are able to absorb price shocks. Perfectly competitive firms that operate at the margin have no choice but to pass-on higher prices when a shock occurs. High and volatile inflation increases exchange rate pass-through by large margins. This highlights the importance of a credible monetary policy: If firms expect inflation to be contained by the monetary authority it knows very well that high inflation will be reduced by an increase in interest rates. These firms trust the SARB to do its job and they are thus not that much concerned about the exchange rate shock and could absorb it. This story is however dependent that depreciations do not occur for much longer periods than one would normally anticipate.

Table 1: Low pass-through depends on low and stable inflation

Variable	Mean	Standard deviation
Market concentration (PCM)	-2.71	0.43
Neer	-0.01	0.04
Neer-squared	0.00	0.01
Inflation	1.00	0.77
Inflation-squared	0.02	0.04
Output gap	-1.23	0.99
Government debt (gov)	0.06	0.14
Variance inflation	5.39	1.53
Variance Neer	-0.74	0.23

33.      Some imports do not respond that strongly to an exchange rate depreciation

Imports have grown by 24.8%, 2.71 and 14.3% during the first three quarters of 2013 while exports grew by 11.3%, 5.1% and 13.5% over the same period. The consequence is that the trade deficit worsened and payments to SACU countries increased.

So by how much do imports respond to exchange rate depreciations? To control for income effects we used G7 growth as a proxy and to control for long-run vs. short-run effects we estimate these elasticities in a dynamic panel setup (we use Pesaran’s (1999) PMG methodology). Aggregate imports decrease by 0.8 per cent given a 1 per cent exchange rate depreciation. But we are only interested in import components. We see that building equipment, petrol, metals and transport equipment have a less than one per cent decline when the exchange rate depreciates. Coincidentally minerals, vehicle equipment, machinery and appliances contributed the largest shares of import in 2013. This analysis helps explain why imports have not decreased in line with the exchange rate depreciation.

Figure 5: Recently SA has imported more inelastic goods

44.      So what do we make of all this?

The concerns about the devalued rand are probably overstated in the media. Exchange rate pass-through to inflation is still low (partly thanks to credible monetary policy and firms absorbing the exchange rate shocks); the rand has deviated from its equilibrium – it is expected to return to its equilibrium (i.e. close to R8 against the dollar). As a negative, the exchange rate has not reduced the current account deficit. Imports have increased in response to the rand depreciation despite muted household consumption growth. While it is difficult to say whether this is a permanent trend (it could reflect fixed contracts that were signed over a specified period), the likely future appreciation will deter import growth – probably causing the current account deficit to persist.

55.      Appendix: The probability of an appreciation is not too low

In one of the previous sections we were interested in whether the exchange rate will depreciate indefinitely. We mentioned that an indefinite depreciation is not realistic if the structural fundamentals of our economy are maintained. These structural fundamentals, as mentioned above, are informed by the interest rate differential, GDP growth and the government’s budget balance. We estimate the probability of an oncoming appreciation by using a probit model. Our dependent variable is a binary variable that equals 1 in case of a rand depreciation and zero when the rand appreciates. Unfortunately some of the data is only in quarterly frequency with the latest update in 2013Q3. We can use this as a gauge on how useful the model is in picking up the likelihood of an appreciation. Figure 6 shows that the probability of an appreciation from 2013Q3 was less than 20%; the rand has not appreciated since then. On the right hand side of Figure 6 we examine how probable a depreciation is on a scale of interest rate differentials (assuming that all the other variables are evaluated at its mean except for growth). 

Figure 6: The probability of an appreciation vs. depreciation?

In pursuit of the real

It seems like I have forgotten what is real. All I see are infomercials, adds, cars, computers, mobile phones and other types of electronic gadgets. In addition to tangible things, I also see how we race through time being occupied by making money, visiting friends or experiencing thrills that let the heart pulsate. Before we know it we have become part of a rat race, engulfed by desires, pleasures and "easy way outs". And this makes me wonder if I am really myself or am I just simulating what is required for an artificial world system to work?

To make the point clearer; when I was young I made an effort to keep myself busy with activities outside home walls, I was forced to spend many hours by myself and as a consequence had a lot to think about. I was also very concerned about the well-being of others and would make genuine attempts to improve the lives of others. My mind was not yet programmed, or rather deceived by things that have absolutely no substance. I find myself now doing the opposite. I care for myself more than others and am consumed by noise that adds little life substance.

To fill the void and to keep ourselves occupied (we have other people and machinery that simplify our lives thus making more time available) we turn to entertainment. Our main goal is being happy right? This is the greatest illusion ever! We revel in drunkenness, desires of the flesh, money and status while there are real struggles across the world. We call ourselves human, but what we are is something very far from it. Most likely these words will just fall on deaf ears since we already believe the lies around us.

It becomes close to impossible to distinguish the real from the fake. Even if we realise that we are living a lie we find it very hard to escape too. It is a struggle for our lives and our souls. This I believe is the biggest challenge that humanity has ever had to face. In true adversary we realise what it is to live. In struggling we appreciate life for what it really is - this is but a glimpse in time, so important, yet so fragile. This is all we have. If we don't struggle, if we don't experience pain we become disillusioned and mindless. I would much rather know myself in pain and struggle than lose myself in endless pleasures.

Sometime fighting to become oneself again becomes disheartening. Especially when you see yourself succumb frequently to the very thing that you wish to escape. Often we want to be part of the thing that we wish to escape. But knowing this truth and trying to deceive yourself will only lead to despair.

Despair, purposeless and deceit; these words describe our reality when we purchase from the world. From experience, the only true escape from these lies is faith in God. This is simultaneously an easy way out but also the hardest to accomplish. It requires a total dilution of the ego - pride. Fortunately it is God, not us that does all the work. I personally struggle to distinguish between reality and that which poses to be real. I know that only God is real. I do not have to visibly see Him (the world deals in appearances), my heart knows Him and my soul thirsts for Him. Even if I have everything that the world has to offer and not have God, I would be but a speck of dust, a simulation that follows worldly rules. Yet, I experience the pain of betraying myself to a world that is not real and all I can hope for is God's endless mercy. I can only hope to escape all of this if He is completely in charge. I have experienced too frequently how my strength fails me. There is no hope, but there is only God.

Morality, judgment and love

We hold ourselves to certain moral standards. The obvious one is do to unto others as you want others to do to you. Yet I observe how "moral" people are swift in passing judgment based on ambiguous evidence. From experience I have learned that those who claim to be proponents of morality are indeed very far from being moral. In fact they are just as immoral as I am when I judge them. The difference is that I do not claim to be a moralist and I also do not attack morality but rather pursue it. In a world filled with injustices and heinous crimes one might almost be justified to ignore strangers who look "different" to what society dictates. But what in the end drives the decision process to ignore or befriend a stranger. And, based on logical inference, and if we dare call ourselves moralists, shouldn't we first examine the person before making inference about his existence by mere hints of clothing, race, sex etc.? And where does this lead us in terms of helping the needy (not necessarily the poor)?

If the answer evades you we may look at the actions of the great moralist in history. While there are many to choose from, I choose Jesus as an example. He regularly met with society's outcasts. He protected the life of a prostitute, made friends with tax collectors, had meals and drank with society's rejected and healed the sick. On the other hand he judged Israel's religious leaders of following man-made rules at the cost of loving one's neighbour, he exposed their insincere motives and showed that pride lay behind the veil of "righteousness". A few things happened during this process - the poor and needy were elevated while the proud were humbled. This brought some form equality, or equilibrium to the society.

What is then implied when we claim to be disciples of our moral leaders but do not follow them? It can only mean two things: Either we are hypocrites, or we are sincere followers but somehow are not able to live according to their moral code. If we hold this moral code in high esteem then surely all our available energy should be spent on trying to live morally. But since most of us do not spend all our energy on this it would mean that most of us are hypocrites. This matter is more serious. Instead of realising our corrupt nature we are completely oblivious to it or in denial. I guess this is why we become so disdained with many Christians who give us plenty of examples of false judgment. And most often you will hear an excuse and justification for their actions rather than a simple acknowledgment of being in the wrong and trying to set the record straight. Not only are a majority of these excuses illogical but it also reveals something sinister about our ideas of morality, good and evil and life.

I find myself bemused at trying to figure out how to change people's attitudes towards racial differences, class divisions and image perception. The only answer is love. Yes, the same love that you have heard from many people, read about in books and even experienced. But the honest truth is that our society is crumbling due to a lack of love. More dissent and hatred is replacing values that are essential to being human. Many books have been written about Love thy neighbour as you love yourself. Our wise God knows what is best for us. Even if you don't believe in a God, seeing the world from our neighbour's eyes might just soften our hardened and unlearned hearts about humanity.

But love has a cost too. It requires sacrifice. And the sacrifice is the ego. It is pride inhibits the ability to love those around you. It is not about survival of the fittest. There is also no joy in spending hours hating others, ignoring the plights of the needy and impressing on others that you are important. Let go. Work hard. In the end the investment is worth it. If you really want to discover who you are and what your purpose is then you need elevate the needy and humble yourself.

The world is a mysterious place where interesting events unfold and people from various backgrounds change continuously. We are part of something and we need to learn that to be part of that something means to love. We cannot function as individuals, but a collective species we may make great strides in doing what is best for each other. May God forgive us our many trespasses and may he guide our bodies, minds and hearts to seek and follow His will first.