economics Archives - Page 15 of 24

Subsidies and fundamentals

Huge amounts of subsidies goes into fuel and energy. The companies are not necessarily being the ones subsidised to produce the fuel but rather, domestic markets of net exporters tend to be protected somewhat from international energy prices through subsidies. The notion is to help maintain internal price stability and hence cope with cost of living.

Australia is one of the few markets who are net exporters of natural gas for example and yet do not really “shield” its domestic market from international price impacts. The result is that the recent price spike in natural gas had Australians screaming in pain and for perhaps the first times in decades, businesses and households are seriously considering disconnecting from the grid and electrifying.

But there can be a middle ground. Subsidies can exist for these energy exporters to protect their domestic users given that these exporters stand to gain when the energy price increase. How can they share these windfall with their own economy and the users in local market? The government can subsidise users but make the subsidy transparent. This way, households are not paying the full prices and they are also given information about how much the government is helping to make them affordable. At the same time, it becomes more politically acceptable to pull back on such subsidies for those heavy users who are higher on income brackets and can afford it.

For far too long, we shield the markets from the proper price signals and artificially create false sense of affordability by subsidies, we reduce the resilience of our economies and contribute further to wastage and carbon emissions. Making subsidies transparent is a great first step, towards removing this political gridlock around domestic energy tariffs.

Cutlery on the go

I was going through a security check and the security officer saw that my bag had fork, spoon and chopsticks. They were from my portable dinning cutlery set. The officer was amused and asked me to remove it from my bag to check. He then realised it was more for sustainability and that I was not some homeless dude lumbering around.

Lots of disposable cutlery can be saved from bringing your own cutlery set around. That reduces material waste. But at the same time, what we eat matters too!

Cutting down on meats especially beef reduces significant amount of carbon emissions and also animal waste. The globalised world has more diversity in diets so that helps to disperse demand for different food products but the way food is produced had become a lot more industrialised and intense in those particular areas where crops and livestock are produced. This means more logistics, centralisation of profits and inequality.

If you were to make a choice to change your cutlery use or your diet, I’d prefer you think more about your diet.

Volatility of incentives

I believe that incentives drives behaviours. That is why big bureacracies are bound to retain mediocre individuals and repel talents. It is why high-paying jobs attract more people even if they are soul-sucking. It is also why high-impact but mediocre-paying jobs like teaching and nursing have people leaving in droves.

But incentives can also be volatile because market signals in the short term may not be a good reflection of fundamentals. That’s why people end up behaving in sub-optimal ways in pursuit of short-term gains. This could involve forging qualifications, attempting to get an increment from attending some third rate data analytics course, etc.

Can we trust incentives alone to govern our societies? Probably not. Because our purpose is greater than just responding to sticks and carrots. So more important to identify what purpose we want to fulfill and allow that to drive us forward. Blind pursuit of incentives bring us nowhere.

Saving the earth

A friend in the finance industry who probably makes more than 150k annually repairs different stuff as a hobby. He volunteers to help people with repairing household appliances like electric fans, water kettle, and he also learnt how to fix bikes.

He has since fixed a few worn and old rusted bike by derusting them, replacing the broken components. And then he sells off the bike to cover the cost of replacement parts. He doesn’t get paid for his time. Yet he is satisfied because he knows he’s doing his part for the earth.

By market forces, his time would have been worth more and can be more productively spent. But he’s not valuing time the way the market does; and he is certainly not valuing the earth the way our market does. He is using the market to satisfy his needs while trying his best to “save his earth” by his individual efforts.

The market does not automatically align incentives for the best outcomes; and if the government doesn’t have the courage to do it. We have severely limited time left to be valued, if at all.

Direction of effort

In which direction should one direct his or her efforts? Would it be in the direction of goals? Or the direction of one’s preference and interests? I’ve come to discover more and more than following one’s interests and one’s goals are different and we can set ourselves and our outcomes on very different paths when we pursue one or the other.

Being aware of what journey we are on becomes important when we look at what we are trying to get from it. Often, when pursuing a journey towards goals like career, money and recognition, we forget that we signed up to something that sacrifices our interest and passion, then we get upset about not getting those. Meanwhile people who might find themselves trying to follow their interest complaining about lack of income or opportunities.

We can’t have the best of both worlds no matter how many examples we find in the world to hold up. And we don’t always fully understand the sacrifices and pains involved until we eventually reach that level. When we direct our efforts we must be reminded which path we’re moving along; that determines what the path yields.

Valuing time

As one grows older, one comes to value time more. It’s maybe the busier lifestyle from the commitments accumulated over a longer life, or perhaps becoming more cognisant that time is running out somehow. Time is an interesting object interwined with ones’ life and ability so much that when we consider how we can value it, the whole concept of valuation falls apart pretty quickly.

One person’s time is different from the other depending on how the time is used and what sort of talent underlies the time of that person in question. The opportunity cost of time is also really subjective and hard to determine; because the actual point in time and the place or context determine the alternatives possible.

Is productivity and trying to not “waste” time by trying to produce more output really about valuing time more? Or is it a greater mark of respect for the time we have when we actually use it for much-needed leisure? Is time only well spent when it generates economic fruits?

These questions are important because our society and the pressure of our culture around us constantly presses a particular view on these things upon us. We can be more conscious about how we can better value and approach our time and the way we spend it.

Imagining futures

Do you imagine a future you want to be in? Then what do you do? Do you take steps towards it?

Or do you imagine a future you don’t want to be in; and then try to take steps to prevent it?

The second approach means you have to be driven by fear. It’s more tiring than being motivated by possibilities. So it’s important to take your pick how you want to envision futures and move towards it.

Demand response to the future

The market system likes to pretend the consumer is king and producers are just responding to market demand. It is usually an excuse to avoid the responsibility of building a better future. The market system constantly tries to get ahead by shaping demand, through advertising and influencers. The whole system of exchange of influence and money takes place within the market context and that’s enough to refute the claim that consumers reign sovereign.

And that means consumers needs to be more conscious of what stories they are taking in. And more than being passive receivers of goods and services, consumers have more chance than ever to shape them. Demand is usually decentralised but it can respond to so many things beyond price signals. The problem with our economic view of the market is that we only try to capture market power in the form of price-setting and ability to substitute (even this is not so well considered despite the crazy mathematical gymnastics required).

Sustainability cannot depend on corporates championing causes and trying to come up with new products and services. Consumers need to and can respond by requesting to reuse their bottles, avoiding products with too much packaging, reducing gifting of everyday items with expensive packaging.

The easiest criteria to default towards is convenience and costs but we can also think in terms of alignment of values and cost to the future. If we are able to adapt our demand to these dimensions, we can co-create a future we want to be part of.

Market for talents

Are talents born? How would you know a baby is going to be a star violinist, or a top notch computer programmer? How would these kids first be incentivised to try things out to begin with? It’s more likely that there’s a market for the particular talent which the kid was exposed to and hence got started, and found himself or herself being able to do it well and hence the resources around him/her was attracted to support the development.

The market for talent is vital to encourage and develop talents. It is the presence of the market that allows people to aspire towards being a ‘successful X’ – be it a musician, or a chef, or mathematician. Kids don’t just wake up one day, look at a long path into the forest and say they want to work towards being a cross country runner.

Singapore have been able to nurture and attract talents essentially by drawing proven talents from elsewhere into the market and then celebrating them. The value of doing this can be powerful if resources are poured into directing the nurture of local talents concurrently. Careful thinking about this market and its design is important so that structures can be put in place to ensure this is a virtuous circle. Those identified as talents should be able to support others who are trying to develop themselves. Pay-it-forward type of mentorship should be encouraged.

And those who have benefited personally and individually can pool resources to nurture the next generation. It’s akin to successful lawyers or bankers giving back to their alma mater to start scholarships that support new lawyers and bankers.