As The Economist reports on the need for a whole scale re-invention of the state of Michigan, an investor in Detroit has come up with an interesting proposal to utilize the unused land in the largest city of Michigan and attempt to restore economic activity in the city that is hollowing out.
There is much potential in building up engineering capabilities of the population of Michigan to kick-start newer, more tech-intensive industries. The small start-ups may be slow to hire and would begin with the best brains, subsequent growth would help raise employment figures. Like what is mentioned in The Economist article, the state has no quick-fix to return to prosperity and will have to toil long and hard to develop newer industries. This could be considered a punishment for having lobbied so hard to maintain the inefficient automobile industry and the refusal of firms in the state to carry out restructuring.
On the other hand, the urban farming idea in Detroit might be a good start given that it might offer the chance to warm up the construction industry. Nevertheless, reviving Detroit would do little to help the state of Michigan if the other towns and cities don’t come up with new ideas on how to rise again. Moral of the story of procrastinating change: Someone will have to pay the bill someday.
With so many people obsessed with the Internet in China and yet even more obsessed with curbing the addiction of them, Google should be making money in China. But apparently it didn’t quite beat Baidu.com that much and thus decided on a ‘New Approach‘.
The Economistdiscusses the issue at length, citing how Google has come to this after experiencing hackers attacks. They also talked about the similar kind of problem other big sites are facing from China.
Tech Crunch noted that Google’s stance in this case is more about business; perhaps the hacking attacks have been around for a long time and Google has gathered the evidence but lately, they reviewed their business and decided that the cost of maintaining the engineers and censorship is too heavy given the gains they made.
Clive Thompson from Wired wrote a great piece on Groupthink; the main question is whether you can persuade people to like something by convincing them that others also like it?
And the experiments cited in the article gave interesting results that leaves us somehow worrying if our ‘destinies’ are determined by pure luck. It appears that for the very best and very worst, evolutionary forces would more or less elevate or eliminate them in long run but for most of the ones in the middle, their fate could be a matter of chance.
The article seem to imply there’s little way out of the problem of groupthink of such grand scale; it is suggested that the use of social cues for many decision-making is wired into our nature.
Days ago I stumbled upon a recent dispute between Fox and Time Warner Cable. The basic idea of the dispute was that Fox wanted more money from Time Warner for carrying their channels and Time Warner didn’t want to. The whole thing ended up with publicity campaigns on both sides (Rolloverorgettough.com for Time Warner Cable and Keepfoxon.com for Fox) to make use of TV viewers’ support to raise their bargaining power. They eventually settled the dispute so viewers will continue seeing Holmer Simpsons munching on doughnuts.
It is interesting how Lauren Collins explained in The New Yorker how Time Warner Cable was basically using a forced-decision device since there’s a spectrum of other options available to them. Time Warner Cable could have just absorbed the price increases and sacrifice their profits. By running the Ad campaign, they’re signaling to Fox that they’ll not accept any changes to the pricing of the deal – either get paid the same or no more screenings of Fox programmes; effectively introducing a Morton’s fork. At the same time, like what Collins mentioned in the article, “The strategy in a nutshell: couch potatoes as human shields.” The company handling Time Warner Cable’s campaign, Purple Strategies is pretty amazing; they are basically specialist in positioning stand in public for organizations or political bodies in ways that allow them to maneuver themselves under different circumstances.
The incorporation of strategic movements in corporate lives is going to become increasingly common, which gives us more reason to check out Dixitt and Nalebuff’s Thinking Strategically or their newer Art of Strategy.
The day Google Nexus One came out, my co-workers were looking at the features and thinking to themselves, “When is this going to come to Singapore?”. While it didn’t take long for people to start complaining about the confusion and frustration created by the weird relationship between Google, the handset-maker HTC and the mobile operators.
Good? Or Goo?
Perhaps the somewhat disturbing problem is that Google have started becoming somewhat ‘evil’; The Economistreported on how they were telling everyone they weren’t intent on having their own phone but eventually came up with this awesome one. Google’s model for developing the phone is typical of course, using an open source mobile phone operating system, contracting the hardware development to an experienced handset manufacturer in an emerging economy with loads of hi-tech industries (in other words, Taiwan).
This contrasts starkly with the Apple model of production, which involves enclosed development. Perhaps this war of phones and wider consumer electronics will demonstrate which model of development would prevail in long run. I tend to think Google’s strategy is more robust but Apple should be able to hold out for quite some time still. Being a Mac user, I’ve confidence in Apple’s ability to churn out products that they would eventually manage to market to the mass market and aid consumers to love them. Google might want to spruce up their ability to do just that.
I was looking for George Arkelof and Robert Shiller’s Animal Spirits in the library but it was on loan so I decided to look for something else in the Call Number 330 (which some library-goers might note is the ‘Economics’ section) area. I stumbled on ‘Free Market Madness‘ by Peter Ubel.
Ubel’s book is a pretty simple and short one, I took only one and a half day of on-and-off reading to finish it, one of my fastest timing for a non-fiction. Admittedly, the text and paragraph spacings are pretty wide and the book is thin for a hard-cover one. It is largely about behavioural economics, a topic which I hardly have a hard time understanding so the speed by which I finished the book didn’t really surprise me. Nevertheless, I hardly consider Ubel’s Free Market Madness to be that good a book.
For a start, I understand that Ubel is trying to make a case for government intervention in the economy for markets where consumers are ill-placed to make wise choices and where market imperfections like the inadequacy of useful information and the apparent misalignment of producer’s interests and consumer’s interests are significant. He focuses on the case of junk food causing obesity though he touched on other cases such as insufficient retirement funding and overspending on branded drugs. Unfortunately, while he makes a good case for the fact that humans are not entirely rational (something we all know at least implicitly), based mainly on the study of other behavioural scientists and economists, he didn’t give very outstanding or original proposals on how to get around this problems. Even then, he fails to make a good connection with how the conflict between the short-term-self and long-term-self can be resolved by the governments; the question of what sort of happiness/well-being (long term or short term) the ‘Big Brother’ he is advocating should maximize it left to speculation by the reader.
The little technical issues in the examples he cited in his book is by and large criticized by David Gordon, senior fellow of the Mises Institute. Austrian School economists probably think that no one can be innocently obese; it takes two hands to clap and producers and consumers must agree on the transaction for it to take place. In other words, people are obese through a process of attempting to maximize utility within their own accounting. On the other hand, Ubel thinks that the faculty accounting on the part of the consumers need to be rectified – in other words, internalities need to be addressed. The problem is we cannot exactly agree on which accounting is correct; after all, if one’s belief in the goodness of a product can provide additional positive experience in consuming it, the faculty accounting can have such a self-fulfilling effect. I believe I have the tendency to agree with the ordinary economists that humans would have a fair degree of foresight and self-control and in an event where they lack such discipline and ability, the market punishes them very much in the way evolution eliminates those who lack the fitness.
His proposals are rather unoriginal, citing stuff like fat taxes once mentioned in The Economist, default options, persuasion campaigns (largely moral suasion) and possibly outright ban. He did discuss implications on liberty and such but doesn’t dwell much on it – often it seems to me like he’s saying ‘I just want everything to be good and right, I don’t care how’.
I do agree with Ubel, that humans in our age needs more self-control and the public’s awareness of the ills of the markets, the ills of different products that are so ubiquitous in our world today needs to be improved. This self-improvement in discipline and improvement of public knowledge can come from bottom-up rather than top-down. After all, given the circumstances today, it is likely that the group with better knowledge of the markets, those making wiser market decisions and the ones who have better self-control is going to thrive. Parents will have to recognize that and respond accordingly (not too much to hope for given the limited rationality of humans I hope) when educating their children and developing them. And I must have to say that in markets like healthcare and pharmaceutical products, doctors like Ubel himself will have to take the responsibility of protecting their patients from the ills of the market/industry. The imperfect information is really too serious in this market and Ubel is right to say that doctors are practically making decisions for patients – doctors’ recommendations are almost equals to patients’ choice (doctors can’t possibly give their diagnosis to patients and get them to choose medicine for themselves). The government can only do so much to protect the doctors from manipulation by the industry and thus defend the interests of the patients. Physicians themselves will have to take the big step to be responsible doctors.
On the whole, Free Market Madness gives us good idea of how behavioural economics came into being and how traditional economic analysis of indifference is difficult to apply in today’s complex world. As a result, rationality of human beings becomes undermined today. Beyond that, it makes a good alert on the problems humans might have with markets that makes us poor economic agents – in long run we will get exploited somehow. We will need to exploit back by becoming producers of certain exploitive products ourselves or try to defend ourselves through self-restraint and aggressive self-education. Otherwise, if the book is hoping to inspire any sort of action, it might need to be much more.
Our views towards climate change are often tinted with a veil of emotions – fearful of our children’s safety, the prospects of more disasters and such. As a result, we proceed as cautiously as possible when studying it and would rather we err on the side of exaggerating the effects of climate change than to downplay it. Robert P. Murphy, an economist specialized in climate change economics, gave the whole story a more objective treatment in his article, The Benefits of Procrastination: The Economics of Geo-engineering
The article mentions some interesting geo-engineering schemes that are currently explored, but the main issue of the article is not the technologies involved but the cost-benefit analysis for the choice between waiting for more options to fight climate change and fighting it now through emission reductions. He argues for wait-and-see approach towards climate change and encourage geo-engineers to get on with their innovations and research.
Murphy believes that procrastination might give us a better assessment of the effects and extent of climate change our economic activity is resulting in and thus allow us to respond with more effective initiatives without compromising our economic growth at present and paying too high a cost from preventive measures such as reducing emissions.
Interestingly, discount rates isn’t even the issue. The significant idea Murphy is after is that we could buy time to refine our assessment of climate change and also the means to tackle them. And that it’s worth it. I’m not sure if the potential life loss from the risk is accounted for but his suggestions would sound insane to those who are suffering at the frontline of climate change, like the Inuits in Arctic region.
Even as an economist-to-be, I know that these issues is not always about economics and when we are thinking about global issues and aggregating cost, we almost definitely will leave out the non-monetary cost borne by the fringe groups. Perhaps Murphy could re-do his calculations and analysis after he reviews the cost of the effects of climate change even using more conservative estimates of the effects.
As I was mentioning a couple of weeks back, I have been reading Thinking Strategically by Avinash Dixitt and Barry Nalebuff. This is a pretty old book, being first published in 1991 and the version I was reading is the 1993 paperback re-issue – there was no more revisits to this book by the authors since then but it’s been in print until now. I believe it’s largely used as readings for undergraduate economics students as well as students of business or management schools.
The 2 authors are great teachers of Game Theory in Princeton and Yale and have often adapted the principles this somewhat mathematical subject to the less mathematical real world. Thinking Strategically is a great attempt at discussing strategic thinking that follows from game theoretical analysis for the layman.
The good thing about ideas on strategic thinking is that their principles hold even when the examples they are attached to often become obsolete or arcane – that is not to say that Thinking Strategically features arcane examples. Most of the examples used to bring ideas across in the book are simple, often bordering trivia but they illustrate the essence of the concepts and can be used to explain the principles for similar but more complex issues. One of the case studies brought up that I particularly love is the one about a three-way duel where we have 3 shooters of varying abilities.
Each shooter fires at someone (or something) each round; there’s is fixed order as to who gets to shoot first. The one who’s allowed to shoot first is a poor shooter with an accuracy of only 30%, the second has an accuracy of 80% and the last is a sharp shooter who shoots with an accuracy of 100%. The question is that if you’re the first shooter and allowed to go first, who would you choose to shoot?
An analysis of this “game” gives us a surprising but convincing result. If you choose to shoot the average shooter, and succeed, you will definitely lose because the next in line would be the sharp shooter and he would shoot you. If you choose to shoot the sharp shooter and hit, the average shooter will shoot you, leaving you with a 20% chance of survival. And even if you survive, you only have 30% chance of hitting him later. You might say, this mediocre shooter is so lousy, he’ll probably have to lose anyways. But you can actually raise your chances of winning by choosing a more intelligent strategy: To fire into the air.
This way, the average shooter will get his turn and attempt to shoot the sharp shooter since shooting you and succeeding mean he’ll have to die when the sharp shooter’s turn comes. If he succeeds, the mediocre shooter gets to try his hands at killing the average shooter. If he fails, the sharp shooter will immediately kill him and that once again, leaves the mediocre shooter with a chance of 30% to kill the sharp shooter. The somewhat counter-intuitive strategy of shooting at no one raise the chances of the mediocre shooter winning substantially.
The principle alluded by this example is that if you’re a weak player; it is wise to allow the stronger players to make their moves and get rid of all each other before making a move and fire your best shot at the one left standing. Now that we surface the principle, the logic of such a choice becomes more intuitive.
Thinking Strategically is a great read for students who likes to think and don’t mind re-reading some of the statements in the book a couple of times to understand the explanation behind some strategic moves. It teaches an important skill of looking forward and reasoning backwards and shows you the power of its application in all sorts of “games”. The book might make you feel like you’ll become smarter but trust me, it’s not that easy to apply strategic thinking that quickly in real life and often, we need a degree of foresight that we would almost definitely lack.
ERPZ explores quite a lot of stuff; from matters about studying smart to the huge issues surrounding economics and the environment. This are the efforts to cover what students need to learn about and know (true to our objective of ‘Educating students about being students’), but we seem to have missed out something really important in today’s world and that’s “Leadership”.
I started out reading a recent issue of Fortune Magazine, which featured an article on How to build great leaders, uncovering the different MNCs methods of identifying and grooming leaders for their organzation. A second article on leadership discusses the leadership during a crisis or recession. Talent on Tap, an article from The Economist talks about the increasing trend of getting temporary big bosses to sit in the autonomous firms and thus helping to tide the firm over a crisis or avert one.
Finally, an article from Knowledge @ SMU discusses the implication for leadership in individuals with different degree of self-monitoring. They suggested how high self-monitor individuals stand out as informal leaders although the low self-monitors are the ones who ends up in position of authority. I like to think that high self-monitors are suitable for ad-hoc leadership roles or to lead during special circumstances, perhaps why firms need temp bosses. In long run, during ordinary day to day management and leadership, the consistency of low self-monitors probably stand out and will become more important. If you’re interested to find out whether you score high on the self-monitoring scale, you can check out this test.
While we tinker with the idea that governments and politics are important sources of forces for the good when it comes to climate, corporations are already doing loads in the real world with the advent of Corporate Social Responsibility.
To be frank, CSR can sometimes be make-up for the company’s public face but there are still substantial number of firms who are doing real big good stuff and tackling different aspects of social costs the company might have inflicted on the society. Knowledge @ Wharton introduces the CSR moves of Campbell, which covers not only environmental actions but also social programmes (mostly to do with employees).
The Economist thinks little of CSR but highlights the ordinary good that firms and companies does by just doing their own stuff (manufacturing, marketting, improving, innovating). The newspaper argues that business people should probably trumpet these achievements of fostering innovation, cooperation between groups and individuals across the globe besides being so engrossed with CSR.
Sometimes I guess if you look on the bright side, everyone is probably doing good through being selfish – the central idea of economics.
