The economy doesn’t (always) tend towards equilibrium as classical economics textbooks suggests. But things are worst when things tend towards an equilibrium that doesn’t benefit the society in general, many social phenomena that I’ve described in a previous post. The social/market forces are pushing the situation towards something no one wants; without an authority mandating stuff, no one have the incentive to help reach the collectively beneficial outcome.
In a recent article by James Surowiecki in The New Yorker, he discusses how success of big banks builds upon success and bring about the mega big banks that results in a concentrated banking system. It is thus possible that we allowed banks to grow big and stay so because the market naturally tends towards that and we have problems assessing the welfare gains from increasing bank sizes, as suggested by Surowiecki:
The trouble is that the “market” for banking is so distorted—by switching costs, by government subsidies and guarantees, and by the banks’ market power—that it’s hard to know whether big banks are adding value or are simply exploiting their oligopolistic positions.
The only problem that we know with the concentrated banking system is that they increase financial risk. That being said, regulations will have to start moving towards managing the risk that is contained in the financial system and if this really do result in policies that have to limit the size of banks then so be it. The government is the only one who can act as a dam holding up the floodwaters of market forces.
This week’s package of video, audio and reads is a little more on the lighter side, starting with a short 3-minute talk by Dr Laura Trice about asking for praise. After that you might like to listen to Dan Ariely‘s talk on our buggy moral code, a topic I’ve always been interested in.
In news, you might be encouraged to understand that Genius and talent is overrated and social forces can manipulate the motivations to create genius sheerly through encouragement as argued by Steven Levitt in SuperFreakonomics.
I’ll like to take the chance to introduce Knowledge@Wharton, which offers high quality content as well as podcast on economics and business issues of the day. You might like to listen about questions posed on Net Neutrality.
This is a book review written long ago before kevlow.com existed and was previously housed in another blog by Kevin L.
It was a very abrupt purchase. Harris was giving it a 50% discount together with another book by Khaled Hosseini, A Thousand Splendid Suns. I just bought both together since they’re pretty decently priced for fiction. I normally don’t like to own fiction books because they’re usually printed on lousy paper for paperback versions and mostly because they have no particular reference value unlike non-fiction (not to mention the fact that I don’t re-read books).
Kite Runner is one of the rare good books that gives you a story based on a setting and culture very foreign to our own. As Asian, I can understand the way females are treated and how some of the traditions are somewhat biased against them although they are fortified with justifications usually based on the idea of ‘protecting’ the women. In the book I get to see the Pashtun people’s version of such in Afghanistan. I’ve long read about the Pashtun people in one issue of The Economist long time ago and I understood how they were more or less more abiding by their traditions and customs than that of the Muslim types of law (please don’t correct me if I’m wrong because I wrote all that based on my impression of what I’ve read in the article and I shan’t take responsibility for making any mistakes here).
In essence I saw the book as a narrative to learn about the lives of people in Afghanistan before the Soviet Occupation and all the subsequent wars fought there. I learnt the excuses of the different warring parties and I learnt about the lives of the people there after that. Otherwise, the narrative is about brotherhood, betrayal, ethnic discrimination and foreign cultures. It is definitely refreshing to get a dose of fiction amidst all the non-fiction reading I’ve been doing, including a ‘Apache, mySQL and PHP in 24 Hours’ (which of course I didn’t even read for 5 hours not to mention attempting to learn the entire book in 24 hours).
I’ll recommend it to people who’d like to know more about the Middle East, the diversity there, the relationship between Pakistan and Afghanistan in terms of the people. Alternatively, people who would like to see the people’s perspective of Afghanistan through their modern history would most likely be interested to explore the book as well. At times you’d find their cultures weird, extreme and slightly unnecessary but you will also find a thick sense of ties and kinship that you’ll almost find nowhere outside Asia.
This is a book review written long ago before kevlow.com existed and was previously housed in another blog by Kevin L.
After 2 months of reading I finally finished Naomi Klein’s powerful book, Shock Doctrine. It was a long ride deep into the dark old mines of history on the different ‘economic revolutions’ all around the world: Argentina, Chile, China, Russia, Bolivia and Poland. It was a book that was written with intentions to put down Milton Friedman, clearly anti-corporatist and in some sense, anti-globalization. From this book I understand finally how the term ‘anti-globalization’ have been mis-interpreted by so many people, even myself. I once thought that it means being against the integration of cultures, economies and companies but then I realised it gets way deeper than that.
The idea of anti-globalization is usually used to mean being against the way the phenomena is taking place in our world, that inequality is rising and corporates are like taking over the world while people in poor countries work in sweatshops, suffer in silence and endure the hardship only to realise generations later that nothing changes. It is the discovery of a certain helplessness in the bottom layer of the world. Shock Doctrine is clearly about that, and more.
In a clear but otherwise way too long writing, Naomi presented a very complete picture of how pure ideology-driven economist are used by corporates and government to advance their self-interest. And of course, in a capitalistic perspective, self-interest is just profit and money. She didn’t over turn free market theories on how a perfectly free market is able to dilute power and increase freedom but she did show that the approach that allows for extreme free market is not exactly compatible with democracy and worst of all, economist have been naive about how a free market can be brought to exist. Case after case cited in the book, firms are privatize just be selling it out to the private sector without proper valuation of the assets and this hasty act would not only delay the attainment of a market equilibrium that would be at least more socially optimal but also create new forces that increases the inertia of the market. In other words, it makes the market less free.
In the area of corporate America and politics, Naomi is suggesting that the corporate people have penetrated politics too deeply with CEOs becoming civil servants in top positions of the government and politicians being lobbied by powerful companies with CEOs receiving incomes more than 400 times the average person on the street. And because of that, government becomes ran like corporations, public sector jobs being slashed and direct public spending is reduced while outsourcing (locally, giving contracts to companies) all the functions that can be done by the private sector. Worst, it is infected by a touch of cronyism; and this probably explains why contracts are rarely distributed by bidding and that the contracts concentrate in the hands of the few big firms that are always ‘aiding the government’ with ‘planning’.
It has been a good read anyways and while Naomi Klein has a rather extreme stance, my reading of Joseph Stiglitz have helped me appreciate the gravity of the matters she was talking about and I could understand her thinking. As always, the writer do give us a gleamer of hope about what the future may turn out to be when the ‘Shock Wears Off’ and how we can prevent similar stuff from happening again. I would recommend this book for people who have no fear of heavy non-fiction reading, a thorough interest in learning how and why corporate America is seen in bad light.
