November is "No-Credit Card" month

I have a long-standing argument with J. about using credit cards or cash for local merchants. She pointed out to me that Espresso Royale has signs asking customers to pay in cash for small orders as they paid thousand of dollars in credit cards fees last year. Many places in Ann Arbor still don't accept American Express because of their higher fees compared to VISA or Mastercard.  The opposing view is that when businesses accept credit cards people tend to spend more, so what they may lose in fees, they gain in sales volume. So, my argument with J. has been that it's also necessary to know how much Espresso Royale's sales went up after they switched to credit cards. And who carries a fat wallet of cash anymore?

My reason for using credit cards has been less lofty - it's easier to keep accounts of what went where. The opposite reason of why you use cash not to have a 'paper trail'. The other advantage of using credit cards is that you are not spending your money, but rather the bank's money and in case of fraud or wrong charges, you are safe as long as you complain within 30 days. I have used this to get wrong charges taken off (somehow the fraudsters are always magazine subscriptions departments).

On the flip side, it has been shown that people who use credit cards tend to spend more being more indifferent to pricing. Different areas of the brain light up when you have to dish out cash, as opposed to paying for it in the future using a credit card. The mind also automatically discounts costs that are far away in the future as opposed to immediate enjoyments. I happen to be in the 'dead beat' category - people who pay their credit cards on time, who don't overspend  and are almost never late. Though even the most on top-of-the-game person, as the credit card industry has shown, will also miss on a few payments, or be late and tends to be charged about $30-45 dollars (my recollection of an NPR story) a year in fees/fines.

Then there are my German friends who refuse to use credit cards in general,because they did not want the government to know how they were spending their money.  Big Brother is surely watching and the credit card companies certainly track every single expense. In fact, AMEX makes no real bones of the fact - they provide you summaries of what you spent in the whole year and MINT (not a credit card company, but an aggregator of the information) offers comparisons to what amounts others spent. They don't wholly make clear, or obfuscate how this data is shared and/or sold to interested parties. (Note to self: turn up privacy settings to maximum for credit cards and Mint). 

So, November has been decided as  "Credit-Card Free Month" to empirically find answers to the following:

• Is it possible to actually live in today's world without a credit card?
• Does it make it easier to save? by way of making us more conscious of spending ?
• ... or just by spending less to begin with.

Based on my analysis of past purchases on the credit card the things that I will have to give up for  the next month will be:

• Amazon purchases
• Groupon or Living Social purchases
• Online purchases of any sort - REI, Adorama, etc.

Having to not use a credit card means that we will be forced to shop locally and we will have to use the long-lost art of writing checks at the grocery store.

Where your electronics come from

If you didn't catch this story on the radio, or live where you can't hear this live, you might want to take a look at This American Life: The apple factory. Especially, if you are an Apply fanboy, or any kind of nerd who likes technology, or any consumer in the First World who uses products that are Made in China. They are cheap, and you can hear why. The justification for the sweatshops above is standard economic theory: the rising tide of globalization lifts all boats, even little ones in far-off places. The alternatives are much worse. But, it helps to consider what the least of all evils is.

Global Energy Transitions

The Economist's Global Intelligence Unit published a report on the transition of energy demand from East to West.
The trouble with reading such reports on controversial topics is that the first thing to look for is who is sponsoring the report, and who is writing the report. In almost all cases, the Economist does not have a byline, so the reports are mostly anonymous.  This report comes with the  caveat that the report and the conference was sponsored by Shell. Like all energy companies, their record has been less than stellar. One hopes that one can trust the authority of the authors: serious academics, policy makers and a long-time Greenpeace activist.
Report on Global Energy Conversation: Transitions from West to East
One the most startling facts is that India and China have increased their energy consumption by 116% and 149% in the last 20 years. In contrast, America has increased it by 19% (but their consumption was already very high). See: Key Findings

This brings me back to an excellent book that got a lot of press when it first came out, but has been somewhat been lost in the noise. Jared Diamond's Collapse. A review was posted on the literary blog. His main thesis is that civilizations have many reasons to prosper, but in many cases they fail because they fail to respond to environmental challenges appropriately. He presents case studies of  the past and present using examples from Rwanda, Easter Island, Australia, Montana, etc. 

Is Doing a PhD a waste of time?

This article showed up in the Economist a while ago (December, 2010) but I got to reading it only now. I am currently in what can be described as 'evangelical zeal to read magazines' that have been piling up.

While this article -- The disposable academic: Why doing a PhD is often a waste of time -- might be late in coming, it's still an interesting read in the manner of the perfect 20/20 vision of hindsight.

One thing many PhD students have in common is dissatisfaction. Some describe their work as “slave labour”. Seven-day weeks, ten-hour days, low pay and uncertain prospects are widespread. You know you are a graduate student, goes one quip, when your office is better decorated than your home and you have a favourite flavour of instant noodle....Whining PhD students are nothing new, but there seem to be genuine problems with the system that produces research doctorates (the practical “professional doctorates” in fields such as law, business and medicine have a more obvious value). There is an oversupply of PhDs. Although a doctorate is designed as training for a job in academia, the number of PhD positions is unrelated to the number of job openings. Meanwhile, business leaders complain about shortages of high-level skills, suggesting PhDs are not teaching the right things. The fiercest critics compare research doctorates to Ponzi or pyramid schemes.

It's true that it takes a number of years, and perhaps your best ones. I sometimes felt that I spent all my youth in school. Of course I was much better off than students in anthropology and physics who on average take 7-10 years. As a PhD who is no longer working in academia, and for the record most of my friends who finished one are not working in academia either, I have never regretted for a moment taking/or wasting years finishing the degree. I enjoyed doing it and I had many rich experiences that were totally unconnected with academics, which I would never have enjoyed if I had a regular 9-5 job.

Academics tend to regard asking whether a PhD is worthwhile as analogous to wondering whether there is too much art or culture in the world. They believe that knowledge spills from universities into society, making it more productive and healthier. That may well be true; but doing a PhD may still be a bad choice for an individual.

Now being done, I have not suffered greatly either. I admit that it may not reflect the experience of every PhD as it is in a 'somewhat useful' and currently 'somewhat hot' field of biomedical engineering. It may not make sense for everyone to do one. And as the article points out, everyone does not have the right motivation or reasons for doing one.

Many students say they are pursuing their subject out of love, and that education is an end in itself. Some give little thought to where the qualification might lead. In one study of British PhD graduates, about a third admitted that they were doing their doctorate partly to go on being a student, or put off job hunting. Nearly half of engineering students admitted to this. Scientists can easily get stipends, and therefore drift into doing a PhD. But there are penalties, as well as benefits, to staying at university. Workers with “surplus schooling”—more education than a job requires—are likely to be less satisfied, less productive and more likely to say they are going to leave their jobs

As the article points out there are about 100,000 PhDs minted each year and only about 16,000 new academic positions. People have to find work elsewhere, or may choose to find work elsewhere. The central assumption of the article that the PhD should lead to a academic job is not entirely correct. There are lots of well-paying, and often better-paying jobs in industry, non-profits, think-tanks, government, and startups. The article states that only 57% of the student actually finish a PhD casting some doubt on the enterprise. People quit for various reasons and I think that for many it might be the right decision. As in most things in life, the training and experience can always come handy later. I do agree that it's best to quit early. I am not quite sure if you can treat it as a 'sunk cost' if you quit in the 6th year of your program.

I do agree that there is an oversupply and universities should practice, as the article calls it, more voluntary birth-control. In addition there should be more training for PhDs who will be looking for non-academic jobs and developing soft-skills given that 90% of the people will not pursue jobs in academia.

Many of those who embark on a PhD are the smartest in their class and will have been the best at everything they have done. They will have amassed awards and prizes. As this year’s new crop of graduate students bounce into their research, few will be willing to accept that the system they are entering could be designed for the benefit of others, that even hard work and brilliance may well not be enough to succeed, and that they would be better off doing something else. They might use their research skills to look harder at the lot of the disposable academic. Someone should write a thesis about that.

NCAA Bracketology

I am participating in the March Madness NCAA basketball bracket for the first time. It's $5 to buy in and there are 7 of us in the office pool. The exercise of picking teams and the results with no clue as to what is good or bad is rather interesting.

For those who do this seriously, the whole picking the bracket thing is quite an arcane art. There are folks who will 'analyze' your bracket for a fee. Sports betting and stock markets are places where statistics are as a wit once said, "There is lies, damned lies and statistics". As in the stock markets there is no real optimal strategy. So what is promised is mostly some mumbo-jumbo with a generous dash of snake oil. Such knowledge gives someone like me comfort since chance levels the playing field for us all: noobs, rubes, and the armchair jocks.

The theoretically possible brackets are 2^63 ~ a few quintillion. This means that while a perfect bracket is possible, it is out of the realm of probable events. ESPN has offered a $1M prize for someone who manages to do that. There is a better chance of finding a cure for AIDS than getting a perfect bracket. After the first 32 matches -- only 317 people out of about 6 million brackets submitted had perfect picks. It should be mentioned that 5 people had it completely wrong which is a considerable feat as well, though easier to get it all wrong than all correct.

It is obvious that it can't really be a few quintillion possibilities. All match-ups are not even odds. So, if you factor the seeding in question adjusting probabilities (for eg: #1 has a much better chance then a #16) you come down to a more manageable number a probability of 1:150,000,00. Still an improbable event. As of this morning 9am EST, the leaders on the leaderboard do not have a perfect bracket. It's down to only 3 people who made just a single error so far and it's only Day 3. So, ESPN will most likely never give up its 1M prize in the course of NCAA history, or even in the course of human history.

Back to the office. K.T. who has picked straight seeds is actually winning the office the pool. She was winning quite handsomely till the first 32 matches were played. As there were only 3 upsets, she was on top. However, as of this morning, she was still winning, but she picked Pittsburg to win and they lost in an upset to Butler. Implication: She's not going to make too many points in subsequent rounds. Hence the default no-brainer strategy may do well on average, but will never win. You need to pick some upsets. You need to take some risks.

I decided to use a three-prong strategy:

a) the National Bracket
This is the average of everyone's bracket. It is said to be a good strategy, actually the strategy that is guaranteed to be so safe that you will avoid embarrassment - meaning you won't finish last in your office pool. This will overcome my lack of knowledge of the game. It's like picking an stock index fund. Nothing spectacular, but avoids personal manias. It was a little different from straight picks, accounting for sentiment. I had left sentiment out of while doing this, so I picked MSU to win (they lost) and my home school to lose (they won). If I had shown some loyalty I would've been 20 points richer and if Michigan continues to win, it's going to destroy my future earnings. Shameful!

b) Taking a few risks
But, winning is what counts, so to win some, you gotta gamble some. So, just by simple probability there are a few good gambles. For example, looking at past histories of the Elite Eight and Final Four, it's obvious that all #1's do not make it to the Final Four. So, I put in one #2 in the Final Four. Now, if I had taken advantage of the maximum allowed 10 brackets I could have hedged my bets across the different selections, but then that would ruin the fun of the office pool and also increase my exposure to more than $5. I picked Florida(#2) in the Final Four and gambled on UConn(#3) to make it the Elite Eight over SDSU(#2).

c) Game Theory
Since everyone mostly thinks OSU is going to win, it makes sense to just go with OSU to neutralize the points from that win. KT and LT had picked Pitt to win and since Pitt lost last night, the huge risk of picking a different winner did not pay off. So, now everybody else in the office pool has OSU picked that result is not that interesting. It's going to boil down to the Final Four picks that really going to make the difference.

So, as of today how am I doing? I am in third. It must be said that of all the people in the office pool, I have the largest possible points remaining (PPR). So while I am losing by 30pts, it could well go my way. Let's see. In full disclosure, I have not yet watched a single game.

Novel Use of Cap and Trade

After this morning's 9am weekly lab meeting, I think it's time to adopt the 'cap and trade' idea used for carbon credits to discussions and questions during lab meetings. The idea occurred to me as someone droned on and on for the umpteenth time with impunity. There are always people who fear too silence, especially their own, during a meeting. They feel obliged to say something no matter how irrelevant or tangential it may be to the question at hand. Then there are those who take an unbearably long time to report on their activities of the past week. The 3-minute timer in their heads never goes off.

I put forth a Cap and Trade Meeting format for all the efficient managers of meetings everywhere. Assuming a lab group of 12 people, we start off with everyone getting 3 questions and 5 minutes of talking time. If you feel obliged to say more or cannot control your natural enthusiasm then you have to buy 'talking time' from someone who would rather be quiet. The currency of exchange can be money, or even something arbitrary, or more useful (as in the case of the present author) a mug of coffee.

This balances fairness and freedom. You can't really avoid the noise polluters from polluting but it does provide an incentive to talk less and talk more sense as a consequence. The wonderful aspect is that perhaps there will be a time when no once wants to say a single word and everyone preserves their talk time. Ah! then that silence will be so golden. It will be a Zen moment.

Not much love

The local independent bookstore in Ann Arbor - Shaman Drum is closing down and is selling everything at a 35% discount (really 35%, not just 'up to 35%'!). I went there last week and it was a like a a garden that was picked clean of the most beautiful flowers. I know of people who have been camping out there for days.

However, after some searching I did get a few books that I have always wanted at a nice knocked-down price and I wondered how they ever escaped the notice of the thousands of other book lovers in the City of Ann Arbor.

Shaman Drum has(d) the best and most knowledgeable staff and a great selection of books. It was a bookstore's bookstore. It's always great to have people around who can not just show you around, but also make great suggestions and tell you that your choice is excellent. Of course, good service is appreciated, but not everybody would like to pay extra for it. For a college town, it did not have such great discounts compared to Borders across the street. Perhaps, there is something fundamentally wrong in having a book-lover or music lover run a bookstore. I have yet to see them make money on a consistent basis. Either you are a lover or a seller.

When I checked out the lady at the counter packed my books in a Shaman Drum paper bag that read: "Shaman Drum Bookshop (www.shamandrum.com)" on side, and "Love your Local" on the other. Apparently, not much love for the local and independent. Like the paperbag this local, independent bookstore is going to get recycled too.

The tall and and short of it

Life is an escape. Everyone is trying to escape or hide from something. I am trying to hide from labels. The specific label I seek to be furthest from is 'Starbucks latte-drinking liberal'. The first thing I ever bought in the United States was a coffee from Starbucks. After seeing that on city street corners Starbucks joints sprout like weeds after the rain, I have been avoiding them ever since. I have embraced everything local (Yes! I am that guy now). I have other more legitimate reasons to avoid Starbucks. My problem with Starbucks is their pretentious fancy sizes - tall, venti, grande. Can you trust such a place to give you a honest cup of coffee when they can't their sizes right? The other is that the coffee is way too expensive. I also learnt that if you drink their grande Java Chip Cookie Coffee don't bother eating the rest of the day.

It is well-known that all size and flavors of coffee that you order regardless of the price advertised are within a few cents of each other. The different prices are to fleece the price-blind, but not lose the price conscious customer. What economists call 'price discrimination'. One would think that price range between the cheapest and the costliest of about $7 dollars would keep most coffee shops happy and in business. But, not Starbucks. They have one more trick up their sleeve in this sneaky price discrimination business. Their smallest size is never advertised. You can order it at ANY Starbucks, but you will fail to see any mention of it on the chalk board or menu. Why? Tim Hartford has discussed this at length almost two years ago, yet the word hasn't got out.

I have tried the Starbucks short twice already and I been served without the barista batting an eyelid. The second time I was offered a second shot or espresso - 'free'. For my Starbucks savvy, I presume. Besides, saving valuable cash in this oil-strapped world, it tastes better for the reasons the article explains. Trust the Americans (Texans in particular) to ruin everything by emphasizing size over substance.

*In some fairness to Starbucks: Most of the money made goes into the pockets of the owners of the real estate. Corner shops don't come cheap.

Why the iPhone is like a razor

Yeah, the inevitable has happened - Apple has dropped the price of the iPhone by a whopping $200, or caused AT & T to step in with a subsidy. I felt a malicious glee in imagining the faces of all the suckers who bought the iPhone last year. The shiny new 3G iPhone was now within the reach of even this mostly starving, Ramen-eating grad student.

Shaving this morning (I occasionally make time for this activity) I realised, as P.T. Barnum once said, I was almost about to be the sucker of the minute. It's the razor blades thing all over again. The price of the razor is subsidized by the blades. Even the printer-makers like HP and gang figured this out long time ago. No wonder that printer is ridiculously cheap at $60. It's the paper and ink that's gonna get yer wallet.

So, AT & T are selling their razor blades at $69.99. Without taxes and surcharges that is $840. Add another $200 for the hardware (trust Apple to make it obsolete in a year's time). So you are paying about $1040 for the year, or about $2.85 per day. If you factor in taxes, etc. it is about $3 a day. Which is about the price of a small cup of coffee, or 5 packets of Ramen. So, if I give up eating and drinking, I can afford it. I may be hungry and naked but at least I won't get lost with the GPS and I can always check my email, ANYWHERE!

Take your pick!

Economics of God

From The Economist:

Religion cries out for a biological explanation. It is a ubiquitous phenomenon—arguably one of the species markers of Homo sapiens—but a puzzling one. It has none of the obvious benefits of that other marker of humanity, language. Nevertheless, it consumes huge amounts of resources. Moreover, unlike language, it is the subject of violent disagreements. Science has, however, made significant progress in understanding the biology of language, from where it is processed in the brain to exactly how it communicates meaning. Time, therefore, to put religion under the microscope as well.

Scientists in Europe have embarked on scientific quest for God. Even if religion or God are scientifically baseless, there can be numerous economic and social benefits. It is said that humans and chimpanzees are the only species that laugh; religion separates us from our cousins on the evolutionary tree. Really, a sticky 'meme' such as religion could not have survived if it did not confer any evolutionary benefits.

(the) long-term co-operative benefits of religion outweigh the short-term costs it imposes in the form of praying many times a day, avoiding certain foods, fasting and so on.

Indeed, research has shown the religion-based groups tend to survive longer as compared to secular groups, which are four times more likely to break up. The fear of the supernatural, or the after-life makes people cooperate. God is the ultimate stick and Heaven the ultimate carrot. We all know that incentives work!

As Dr. Wilson points out "... Secularism is very maladaptive biologically. We're the ones who at best are having only two kids. Religious people are the ones who aren't smoking and drinking, and are living longer and having the health benefits."

It is hard to separate religion from culture and group membership. Even there was a God, or not we want to belong to some group. Atheism can be intellectually and scientifically more honest, but can lead to impoverishment and even alienation in other ways.

Used or New? Forget it!

As any college student can attest, there is a HUGE secondary market in textbooks. The average price of a textbook is between $100-$120, and many students sell their books at the end of the semester, or buy used ones at the start of one. So, what do you do? Buy used or new?

There are cost, quality and time trade-offs. Many students order books online and have to wait, often up to 2 weeks, to get their textbooks.(Some online sellers are based in India and China and mail economy editions.) To save money, you lose time and might have to hunt the book down in the library, or check it out for a 4-hour reserve for the first couple weeks. For this reason, a student wrote in the campus rag asking professors to make the list of textbooks available before courses actually started.

The publishers aren't twiddling their thumbs either. To add insult to the injury of high-priced textbooks, they bring out new editions every other year. Once a new edition is out, the price of the old one falls considerably, and there are no used books to go around for that semester at least. One commenter (see below) wrote, "Does calculus change so much that it needs a revised edition every other year?"

The Economist blog reports a new model of selling - FREE! For students, anything free is welcome. There are a number of additional benefits: It gives professors more options, and you can learn from a book that best suits you and not get stuck with the prescribed textbook that is too 'dry', or more plainly 'sucks'.

The question is, "Is this a viable business model? based on ads?" I don't think so. Since this is not YouTube, I would not visit the site again once I have downloaded my books for the semester. A better model would be to charge a fraction of the cost, say between $5-$10, to generate some revenue and give the author more money than he would make from royalties. The volume should compensate him enough since more people would be inclined to buy the book in the first place. Perhaps, this is what future textbook authors need - a low barrier to entry.

Blogs were laughed about when they first appeared as alternative media. Now they have been co-opted by every major company and publication. I cannot see why we don't have more of these textbooks download sites. Wouldn't you write one too? This is where market economics will best serve the purpose of giving more choices and options to both consumers and suppliers and sidestepping the middlemen - the publisher and the professor to some extent.

Banker to the Poor

If you want to make money on the stock market all you need to do is to remember to 'buy high and sell low'. Correct advice on what to do, but ultimately useless since it does not tell how. Similar is the concept that 'free market economics and education' is the answer to the problems in developing countries. Pray tell me how?

Muhammad Yunus's book 'Banker to the Poor' is an extraordinary tale of an extraordinary person doing rather ordinary things for the most ordinary of people. It is a story of great courage and determination in the pursuit of an idea that was considered to be doomed from the start.

Muhammad Yunus is a patriot, who gave up a professorship in the U.S. to return to his country in 1971 following independence to help rebuild the new nation of Bangladesh. He got disillusioned with his first job at the Planning Commission and accepted professorship at Chittagong University. All along Yunus was really hunting for a cause. Before he hit upon the idea for Grameen in 1976, Yunus tried a number of things to help the villages around Chittagong university.

If Yunus hadn't been the head of the Department of Economics at Chittagong University, he would have been booted out by the bankers and officials when they first heard his hare-brained scheme to lend money to poorest people, ones who had no credit history or collateral. It was a scheme that was not only against all banking principles, but also against plain logic. The said that the poor would simply use the money for their own needs and not for a business and the project would surely fail.
Yet, he persisted and they lent him some money for a pilot scheme.

Only upon reading the book did I realise that in addition there were also social conditions that Yunus had to fight against. Yunus knew that he needed to target women to really make a difference. In Bangladesh most women observed purdah, left all economic decisions to the male in the household, so even getting them take the credit that was being offered was hard. On one hand were the religious right who claimed that women running businesses and taking loans was against Islamic law. On the other hand were the communists who insisted that this was 'capitalist' plot to rob the poor of their despair and rage.

Yunus is a devout Muslim, but not an Islamist. He tries to shy away from 'isms' and and he writes:

I am not a capitalist in the simplistic left/right sense. Bu I do believe in the power of the global free-market economy and in using capitalist tools... The able-bodied poor don't want charity. The dole only increases their misery, robs them incentive and, more important, of self-respect.
Povery is not created by the poor. It is created by the structures of society and the policies pursued by society. Change the structure as we are doing in Bangladesh, and you will see that the poor change their own lives.

It wasn't that Yunus simply had faith in the poor, he saw them differently. He did not see the poor as beggars but as potential entrepreneurs. Yunus did not patronize them gave them a thimbleful of help and hope and they responded. But why were the poor so much better at returning the money that Grameen lent them? Because that was their only chance to get out. It wasn't charity that they were seeking, all they wanted were the barest means for self-empowerment.

In hindsight all this seems quite logical, but many such schemes have failed to take off in other places. Why? Understanding a good idea is one thing, but implementing it is another. There is nothing small or simple about microfinance. It requires very specialized skills, lots of energy, and an acute understanding of local conditions. Grameen's success can be credited to the remarkable innovation and adaptability of their schemes. After every project Yunus and his team refined their program. In the early years, new hires were chiefly asked to observe and then criticize current schemes, and then they were asked to give their own ideas and suggestions for improvement.

Yunus isn't much of a believer in the 'trickle-down' theory and for a long time opposed the World Bank. Even schemes to directly help the poor are flawed. According to him, almost 75% of aid money is spent on commodities, technologies, and salaries of experts from the donor country itself. The rest of the money, if not embezzled, is spent on making the locals dependent on donor technology as opposed to harnessing local tools and technology effectively. And in most cases all development benefits and advantages are always captured by the privileged.

He mocks the per capita system of assessing economic growth. In his opinion, a correct measure of a country is assessing the per capita growth of the bottom 50%, more realistically the bottom 25%, of the population.

Microfinance, the hare-brained scheme of 1970s has now attracted the attention of the largest and biggest banks. With 97% of the loans being honored, they see it as another way to make a profit. While they can't realistically be expected to match the evangelical zeal of Yunus and his Grameen Bank, they still need to lend to the poorest. Currently, as the Economist recently reported, these banks are still vary of lending to poorest and are mostly lending to institutions, like Grameen, who have a proven track record. Ironic, huh?

It is easy to dismiss Yunus's aim to eradicate world poverty by 2050. In the 25 years of the Grameen bank's existence, it has not made much of dent in eradicating poverty in Bangladesh and there are no comprehensive studies to show that microfinance really alleviates poverty. But, it did make a difference to 6.6m of its borrowers. It did change the idea of how banking for the poor works. How many of us really are interested in being part of a solution?

Krugman on Friedman

In the New York Review of Books, Paul Krugman deconstructs the late Milton Friedman in his essay: Who was Milton Friedman?

If Keynes was Luther, Friedman was Ignatius of Loyola, founder of the Jesuits. And like the Jesuits, Friedman's followers have acted as a sort of disciplined army of the faithful, spearheading a broad, but incomplete, rollback of Keynesian heresy.

If Economics was a Church, Friedman is already on the fast-track to canonization (his zealous followers are seeing to it). No one disagrees that Friedman was one of the greatest economists of the 20th century; however, Friedman is lionized by economists and the general public for different reasons:

Moreover, Friedman's effectiveness as a popularizer and propagandist rested in part on his well-deserved reputation as a profound economic theorist. But there's an important difference between the rigor of his work as a professional economist and the looser, sometimes questionable logic of his pronouncements as a public intellectual. While Friedman's theoretical work is universally admired by professional economists, there's much more ambivalence about his policy pronouncements and especially his popularizing. And it must be said that there were some serious questions about his intellectual honesty when he was speaking to the mass public.

So, the lay public can hardly be blamed since Friedman himself was responsible for much of the misrepresentation and subsequent misperception of his ideas by public. The disconnect between Friedman's bold rockstar-like public and his more cautious academic pronouncements reveal Friedman to be a more complex than the simple tag-line 'biggest champion of liberty and capitalism' suggests.

The larger issue the article bring up is: if you wish to market yourself as a public intellectual then there better not be any ambiguity and self-doubt. Your band of followers are looking for a clear message and once you get on the roller-coaster there is no getting out.

The Tragedy of The Commons

Last night when I was renewing my library card at the AADL, the local public library, the librarian politely informed me that I had $4.00 in fines and if I wanted to pay some of them. Having to pay library fines is something I have struggled with all my life. I usually OD on books and despite my furious reading speed I don't have enough time to read all of them by the due date. There was a time when I thought that having to pay fines meant something was wrong with my character; something I needed to improve. I have since rationalized that paying fines is a way to support your local library.

So, I told her: "Sure! I would love to pay the all the fines and support my local library!".
She said: "You are already supporting your local library through your taxes."
I said: "True, but there are some, like me, who use the resources disproportionately!".

She laughed so hard that everbody in the checkout line wondered what I had said. I think she laughed because she looked like a disproportionate user herself! It is quite a club at the AADL. Ann Arbor, is a disproportionately overeducated town, full of self-styled experts and polymaths. You know you are in Ann Arbor when 'serious' books have hold queues with over 200 requests. I call this phenomenon the NPR Effect.

The public libraries in the US are fantastic. They let you borrow as many materials as you want; they will get whatever you want. The libraries do much to educate and engage the community. Perhaps it is less true in Ann Arbor, but in general the public does not use its libraries as much as it should. The public library seems to be a perverse example of the tragedy of the commons-free access and unrestricted demand for a finite resource ultimately dooms the resource through over-exploitation. Here, a great public resource for which the public is paying taxes is being under-utilized. A tragedy indeed!

Old posts on: Fines and library nostalgia.

If you are not okay, then I am okay!

We all know from experience, as the article suggests, that for true happiness we should have - "experiences" over commodities, pastimes over knick-knacks, doing over having.

Economic prosperity and happiness are unrelated. The Economist writes:
"Happiness, as measured by national surveys, has hardly changed over 50 years. The rich are generally happier than the poor, but rich countries do not get happier as they get richer. The Japanese are much better off now than in 1950, but the proportion who say they are “very happy” has not budged. Americans too have remained much as Alexis de Tocqueville found them in the 19th century: “So many lucky men, restless in the midst of abundance.”

Lord Layard and Mr Frank both blame habit and rivalry for this stagnation of morale. People grow accustomed to what they have—however much of it there is. Moreover, having a lot of things is not enough if other people have more. A rising tide lifts all boats, but not all spirits.

For economists, this is radical stuff. They traditionally argue that people best serve themselves and the public by minding their own business."
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As we well know, people do not mind their own business and there is a good reason for it. Quite sadistically, our own happiness is mostly relative; we are happier if we are better off than our peers. Your misery has a lot to do with my happiness. Economic growth is good but does nothing to ensure happiness. As the leader to the article (access required) points out - Capitalism ensures economic growth, but to ask of it to also ensure happiness is to ask too much of it.

Previous post on this topic.
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In the same edition the Economist also surveys the big questions of neuroscience:
"Modern neuroscience has taken many directions, and this survey will not attempt to look at all of them. Instead, it will concentrate on four areas that may shed light on individual identity: the study of the emotions; the nature of memory; the ways that brains interact with each other; and the vexed question of what, exactly, consciouness is."

The economics of global warming

Last year, Al Gore made a rather spirited effort to inform the public about global warming, which he called 'An Inconvenient Truth'. In my opinion, those who deny global warming are not unlike the people who the deny that the Holocaust ever took place. Only now the stakes are much higher - this time it's the whole planet.

For a change, Tony Blair had a good idea. He had Nicolas Stern prepare a report on global warming and its economic consequences. Like any good bureaucrat Stern came up with a 700-page report.

From the Economist:
"The purpose of Sir Nicholas’s report—commissioned by Tony Blair—is to deal with the argument of people who accept that climate change is happening, but who say that trying to do anything about it would be a waste of money. This argument is heard occasionally in Europe and frequently in America, where, for added potency, it is combined with the notion that European attempts to tax carbon are part of a conspiracy by socialists determined to undermine the American way of life.

Sir Nicholas’s argument is that, far from undermining the American way of life, attempts to mitigate climate change may help preserve it. He argues this by setting the costs of allowing climate change to happen against the costs of mitigating climate change."

Further:
"Previous estimates of the costs of climate change—as a result of more hurricanes, more floods and rising sea levels, for instance—have been somewhere between nothing and 2% of global GDP... As a result, Sir Nicholas maintains that if greenhouse gas emissions go on increasing at their present rate, global output is likely to be between 5% and 20% lower over the next two centuries than it otherwise would have been."

Appealing to people's consciences about the consequences of their actions is not effective. Also, a holier-than-thou attitude turns many people off and you are left preaching to the choir. What is more effective is showing how it affects your wallet, not only tomorrow, but today.

The Cost of Things

Terrorists committed a heinous, horrible and cowardly crime in Mumbai again today.
Mumbai will be back on its feet again tomorrow and will not let you terrorists scare or rob it of its spirit. Shame on you!

In a way it was an odd coincidence that I went to see Al Gore in an Inconvenient Truth today. I wanted to stay away since I have been subjected to a lot of Powerpoint Poisoning in my short life, but reviews from my labmates, Roger Ebert, Lawrence Lessig and Ashutosh were too overwhelming to ignore. Al Gore makes a presentation - even the great Edward Tufte would approve - that would be no small crime to ignore.

As Al Gore compared 9/11 and global warming, I thought about today's blasts and last year's downpour (which figures in the movie) in Mumbai. I can see why Gore is having so much trouble getting his point across. I am reminded of Peter Sandman (via Freakonomics):

According to risk communications consultant Peter Sandman, “risks that scare people and risks that kill people are different."He uses the equation: Risk is equal to hazard plus outrage (hazard + outrage = risk) to assess situations and determine people's reactions. The equation is quite simple, according to Sandman. "When hazard is high and outrage is low, people under-react and when hazard is low and outrage is high, they overreact."

While the bomb blast toll figures are still being updated, last year 750 people died from torrential, record-setting rains that soaked Mumbai. While murder and violence is definitely deplorable, I consider it one of the great injustices in the world that we cannot punish ourselves or others for being accomplices in the murder of the planet and its ecosystems.

While India is still nowhere near the USA in terms of its emissions, we and other developing countries are fast catching up. While I am all for rapid economic growth, it often and unfortunately correlates with a larger ecological footprint. Will we choose to be different? Historically speaking, we won't. We see this with regards to health: Richer and more educated people are in better health than poorer and less educated counterparts. Substitute people with countries and health with the environment and Bjorn Lomborg's assertion that "... air pollution diminishes when a society becomes rich enough to be able to afford to be concerned about the environment." makes perfect sense (hat tip: Amit Varma).

I am all for economic progress but the environment is too important to be expected to simply piggyback on a prosperous economy. As Jared Diamond has pointed out in his book Collapse - (review), China and India's economic success might be a Pyrrhic victory. "Sin now, atone later", might have worked in the past, but if the Gore charts are to be believed, we might not have the luxury of turning the clock back on the damage done. It is easier said than demonstrated. Only if environmental costs and benefits were as tangible and easily quantifiable as economic success stories via freer markets, or terrorist attacks. Cracking ice-shelves will never beat bomb blasts in terms of outrage.

More:

The best way would be to reconcile market forces and environmental issues. The set of articles in this issue of the Economist make very interesting reading(see). There are some excellent ideas.

But it is very, very tricky.
In one of the examples the writer talks about Panama. It is more economically and environmentally advantageous for Panama to bottle and sell its water from its freshwater lakes than allow it to flow out into the Miraflores locks for operating the Canal, but the US will never allow it.

So even in such cases where both economic and environmental imperatives are aligned reality pans out differently. In any case, sooner or later, rich or poor, the whole planet will have to pay.