Tag Archives: economy

Dynamic cost-benefit analysis

One of the most power tools that economics have brought to the world is cost-benefit analysis and really assessing what is the constitution of cost or benefits at various levels: individuals, firms, regional government, national government, countries.

Where it fails is the ability to properly ascribe who cares about what. The assumption around rational, selfish agents cannot possibly hold in reality. On the other hand, there is radical inconsistencies when you perform such optimisation on behalf of “government” which is staffed by human agents and with politicians have their own agenda. Over the years, these poor assumptions have made room for more colourful, richer analysis of agents, decision-making units at different levels.

Now if we move our attention to the dimension of time rather than perspective of our agents, we realise another issue. We can assess somehow the cost and benefits of today if we use our imaginations but to stretch it to the future would require even more manipulations. And the uncertainty make render the exercise less fruitful than one may expect.

Alas, we continue to use these tools expecting them to work while not having proper assessment of whether they work or not when the outcomes play out in reality. It is not the issue of calculating those figures but how we incorporate them into our judgment that matters. Yet with limited budgets and resources, most have chosen to opt for a semblance of the exercise, paying a smaller cost but getting almost none of the benefits.

Trash & waste

About 81 years ago, Dorothy Sayer, a British writer penned these words:

A society in which consumption has to be artificially stimulated in order to keep production going is a society founded on trash and waste, and such a society is a house built upon sand.

Dorothy Sayers (1942), Why Work

In the article, I’m amazed by the clarity which Dorothy Sayers foresaw the world post-war, with piercing critique of the economic system we have created. The economics that she was schooled in was one of observations of the market, of history and of human psyche itself.

The second world war has ended for more than 70 years now; and as predicted by Sayer, we had immediately jumped back into the business as usual, where work and labour was valued only by money. And this is why we churn out more waste our planet can scarcely handle (both in terms of carbon emissions and lots of material wastage).

Sayer’s remedy has to do with appreciating our work in a different way and valuing it more. And much of it certainly sounds like echoes of the messages around ESG, corporate social responsibility and sustainability these days. Yet she also points to something deeper, points revolving around values of work, of the things we do in society, and value that is created to serve lives and human beings, not abstracted by the market in the form of price signals.

Her full essay can be found here. I confess of course that my shared faith with Sayers help me appreciate the essay in a deep way. If you do care about sustainability and our world, even if you are not a Christian, surely some of the points she brought up should give us a deeper motivation to drive us to live in a manner that is a part and yet apart from this market system?

Structuring environments

When is it good for something to be structured and when is it good for it not to be? It’s not entirely clear. I think humans do enjoy a bit of both. At some level, the world is structured but it is also messy and complex. There is land and sea, forests and deserts. But there are also ecosystems and lots of freedom to roam within the realms you find yourself in.

What happens when an environment is too structured? Problem solving becomes playing games, more about figuring out the rules and toying with it than to really deal with problems at hand. This is how the big companies develop more bloat and bureacracy with politics.

And what if the environment lacks structure?Outcomes become less reliable. The randomness can create uncertainty and encourage inefficiency. Yet at the same time it can build resilience.

What do you want for yourself? For your kids? For your staff? How would you structure it?

Managing cuts

There will be a time cuts come when excesses are deemed to have gone overboard. This applies to overstocking, overhiring, and having the wrong structure to deal with a problem. At some point, what is deemed as a correction occurs. Question is how did things get derailed or misaligned? Why do we not know? Should we think something is amiss when governance mistakes can be buffered by growth?

Maybe something to think about as we go through a period of layoffs, cuts and sense of rising prices and real rates trying to make a comeback. As we manage the cuts that has taken place, it would be useful to ask ourselves to what extent do we want to enable growth irresponsibly.

Fast and mindless growth can hurt twice. First when they forsake and leave some behind. Second when they end up with cutbacks that might leave some folks worse off than if it hadn’t happened.

Gestating for scale

I loved my laksa example when it comes to talking about scale and growth. How long do you think a concept or idea needs to gestate before it experiences mass adoption and succeed? And does success mean growth and scale? Or can success mean mastery towards perfection?

Take Toast Box; they took the simple breakfast fare of the Southeast Asian chinese, created a system to deliver it elegantly, and scaled in it a big way. But how long did it take for the kaya toast and half-boiled eggs to gestate in the cultural environment before they were ready for this Toast Box model?

When something is gestating, there is growth as well. The growth may be of a different quality and require a different environment. Just as the pre-mature foetus won’t be able to survive the environment outside the womb independently. This may sound like the “infant industry” argument but perhaps different – I’m advocating that we don’t apply the same standards to evaluating business growth across all kinds of businesses or business ideas.

At the end of the day, it is a question of what capital is seeking. To replicate and produce more of itself without care for the impact to the world, or making a difference along the way

End of oil III

In the absence of the price signals I wrote about in End of Oil II, what do we do? And besides, there had been so many recent fiascos about carbon markets that this instrument risks losing its credibility entirely and make it even harder for carbon emissions to be priced.

Pricing carbon is not just about credits of course. Carbon taxes are forms of prices and if we want to be stigmatising carbon emissions, we can even call it a fine but then the difficult is that we all are emitting carbon so at the end of the day the price will still be sort of a “license to pollute”.

Perhaps better to suggest and highlight that the taxes, credit revenues are going to be reinvested into decarbonisation. In any case, we do need more investments, funds and support towards that. What better way to fund it than to use the proceeds from carbon pricing to achieve that?

And we really can’t wait for the private initiatives and the market to get that going. At the same time, governments cannot afford to try and design the perfect market for it all to work. Rather, if carbon credits is not going to take off, the whole slew of regulation will need to be rolled out including renewable portfolio standards, carbon taxes, renewable gas blending mandates, ban on internal combustion engines, etc.

Layoffs and humanity

There’s been loads of news of layoffs in tech and it coincided with huge investments made in Artificial Intelligence as well as the launch of a beta version of ChatGPT that somehow took the world by storm. The recency effect led people to think that the layoffs somehow might have something to do with the fact that AI might be taking away more jobs and so on.

For a long time, human labour have been relied upon to move good around, help with loading and unloading from transportation, stock-take and do records by hand. These jobs have gradually been replaced by machines though in rare instances, having a human do the job is still more efficient or effective. Switching human labour for machines is nothing new. And it has been a good thing because machines free up human to take on more challenging kinds of problems.

This is how the ratchet of progress takes place. We invest time and effort in developing machine solutions which would eventually be able to replace human effort. And once the solution is adopted across the board, there are so many people who are freed up to work on further solutions and the ball keeps rolling. From a fundamental perspective, the world is progressing and civilization advances.

It is strange that our economic system, the market system that we have lauded and embraced do not exactly work in the same way. It creates incentives and competition towards progress but the result is a lot of stress, anxiety, and pain when new solutions are adopted and manpower is freed up. This is because firms and businesses are not adapted in our system to focus on innovation for progress but simply innovation for profits. And when this is the case, unemployment is a logical approach towards the adoption of new solutions.

When firms and businesses cannot think broadly enough to embrace what is fundamentally beneficial to society and mankind, then individuals, talents and smart people like you and I, will have to develop the courage to step out and do the work that the world needs. Because in many ways, that is what makes us human. That’s what AI cannot replace.

Rainfall & showers of blessing

It’s been a really wet Lunar New Year season. The downpour was incredible and yet it did not flood. My expat friends were quite impressed by our drainage systems.

Well, we have had episodes of “ponding” which were pretty severe before. And the government agency PUB had stepped up on drainage management. Things have obviously improved since and to be really fair, we are really capable of continously improving the system as long as we are not complacent about what we have achieved.

We often take these things for granted here in Singapore because problems are either solved even before they occur or done for us such that we don’t even notice. The difficulty is that we are no longer capable of dealing with the problems when they do come. For example, our contingency plans for transport disruption is atrocious partly because we had been able to keep things going well.

In the next stage of our development, we need to develop resilience not through anticipating challenges but learning to live through them and deal with them. Otherwise, we are developing a fragile population.

End of oil

Many years ago when I first thought about the study of Economics, there was the prevailing concern about oil reserves running out and the world running out of fuel. It was 2005 and the economist even had an issue where the cover page was showing the reflective colorful swirls of oil. The economists would argue that the world will never run out of oil because towards the last drop of oil left, the price of oil would be so high no one would want it. And perhaps many other alternative technologies which were not commercially viable would have become so before oil runs out.

Those were days when we technically already know about greenhouse effect and the global warming potential of carbon dioxide. And I was particularly fascinated with the recurring debates between the Malthusians (and neo-Malthusians) and the others weigh on the hope of technology (and possibly economics).

It is funny how more than 17 years later, I’m in a career to try and reduce (and eventually end) the dominance of oil. Not to promote an alternative technology, not to rail against the political power of oil but to create a future that we all want to step into. Because climate change is an existential danger for us all and the planet as we know it. And because I believe our current economic system can be superceded by one that works for the future and not the tradition notions of wealth and fortune.

Sizing the slices

How much time do we take to bake a pizza compared to working out the even-ness of the distribution of various ingredients on the pizza and then slicing it all up into sufficient slices to be shared around the table. And why does that matter. So it matters when there are different people involved in baking the pizza and thinking about the size of the slice they will be getting later. There may be some putting different topics and determining how evenly distributed they should be and so on. And then there’s the guy determining how the slices are cut. And then maybe some kind of system determining who gets which particular slice. Maybe that is by a ballot or random system.

And yes in case you’re already suspecting, I’m thinking about the economy. An economy where people are obsessed with trying to secure a bigger slice for themselves will not behave very optimally to enlarge the overall pizza. Because their energies are caught up in the distribution process; then resources aren’t quite properly allocated. The best approach is to maximize the size of the pizza before splitting it up. But the challenge is that the way we determine the split can affect how to maximize the size.

And then how do you deal with people in the overall scheme of things, who genuinely has very little to contribute to the size of the pizza but is very much part of the overall process? Do you exclude them from the distribution? How are they going to affect the others who are productive? And if you do include them, will you be disincentivizing those who are contributing a lot more to producing the pizza?

As an economy moves from the early stage developments to more mature stages, and with more specialised industries and niches in the economy, these questions will crop up more often. What we need to do is to take a stance on which direction and how we want our markets to be headed. And what would we sacrifice to make that work.