Virginia Issues Apology for Slavery

Discussions on the collective effects of slavery on the descendants of the enslaved and the extermination of the indigenous American populations on the determination of America's racial relations remain obscured by accusations of exploitation and apologist explanations that it was justified and justifiable on the basis of the moral code of that time. Here is an example of moral courage that came centuries too late for those who lived and died as slaves but the moral ambiguity is being put to rest. Enslavement of people of all races for whatever reason is inconsistent with high-minded political formations based on expansion of human freedom. The legislators and people of the State of Virginia deserve my congratulations. That state can then seek greatness without hypocrisy.

Quote of the Day

"There is no nonsense so errant that it cannot be made the creed of the vast majority by governmental action". Bertrand Russell

Ken Livingstone Understands Applied Economics

Apart from the proven contribution to global warming, another externality that results from increasing use of automobiles is that of road congestion in many mega cities. So who would be best placed to answer the question that Ken Livingstone, the Mayor of the City of London who introduced what was an unpopular measure in the apt name of the congestion charge. at the point of its introduction, there was widespread skepticism about its effectiveness and indeed some cynics simply stated that it was a measure meant to merely raise more revenue.

Writing in a blog entry in the Guardian newspaper, Ken Livingstone responds to the major criticisms that the initiative has encountered since its introduction in 2003. Among the successes of the Congestion charging initiative was that the number of automobiles going into the metropolis reduced by the number of vehicles going into the city by 70,000 in 2006 but also a concomitant expansion in the number of cyclists by n expansion in the number of cyclists into the capital's major roads by 72%. pessimists had forecast that shopping in the city would be reduced due to the charges and yet London outperformed the rest of the country in retail sales.

Following the admirable improvements, the mayor is contemplating an expansion into other parts of the city that are faced with road congestion and I will not hedge my bets here. It too will be successful. The moral of the story: intelligent application of economic principles in market design can solve common problems with a high level of efficiency.

The Three Faces of Milton Friedman

That Milton Friedman was the most influential thinker in the profession of economics in the last half of the 20th century is hardly in doubt. Following his demise in November 2006, a large number of obituaries and other tributes were generated and most were not only largely laudatory but extremely deferential in a way that would perhaps have embarrassed the great thinker. His accomplishments were numerous and indeed distinct and this was covered in an earlier post by this blogger who only met his thinking from his publications.

What has been lacking so far is a concise and systematic review of his accomplishments and perhaps faults as a human irrespective of his gigantic intellectual stature. Writing in the New York Review of Books, Paul Krugman has written a very elaborate and more incisive piece than I have encountered since Milton Friedman's demise. Krugman not only writes in style but also analyzes Milton Friedman's intellectual life as an Economist's economist, as a policy entrepreneur and a free market ideologue. For those who believed in the departed man as an absolutely clear thinker without academic or other blemish, this is one piece to read again and again. Krugman is in my view quite dispassionate in the sense that he not only elucidates the elder professor's singular accomplishments, but also states inconsistencies that emerged in proclamations as a public intellectual.

This is a piece to file because it makes me have even higher regard for the minds and intellectual ability of both men even if I detect that they would not agree much on policy prescriptions. Krugman writes with respect for the departed as any decent intellectual should. The subject of economics lives.

Steve Jobs Tests the DRM

Writing this piece on his thoughts on Music, Steve Jobs presents a very clever and valid argument for reviewing the system of Digital rights Management that the most dominant music corporations have imposed on Apple and in turn on buyers of digital music. He argues that the average iPod contains about 3% of music that is encoded with DRM, with the rest being music that is ripped from CDs which are not subjected to that stringent protection requirement. Running a corporation that sells the premier digital music player and has sold 90 million units, he presents really clear data that customers have bought about 22 songs for every iPod sold and yet most of these iPods carry about 1,000 songs each.

The burden of maintaining the FairPlay DRM that Apple developed to protect illegal copying of the music sold through the Itunes site appears to be largely in vain. The rational business case in Steve Jobs’ view (and I agree) is that the Music majors ought to consider a review of the placement of DRM systems on all songs sold online. Again, from the selected data that Steve Jobs presents, this conclusion is altogether irrefutable. Whether the four music majors will be amenable to this is altogether a different matter but the situation suggests that the imposition of DRM at present is a mere technological stunt that does not result in increase sales of music but merely displaces piracy and genuine sales to CDs. It is easy to understand the basic economics behind this behavior. Music buyers appear to prefer by a ratio of ten to one, the format that allows them maximum flexibility in transferring music. Because CDs presently allow for this, DRMs only serve to deflect purchases towards CDs and it may well be the reason why hackers have not tried enough to crack the FairPlay DRM system that Apple has put together at what I surmise is considerable cost.

With such elaborate data and much more at his disposal, why did it take Steve Jobs’ this much time to figure this out? Is it perhaps because it appears now that the iPods market dominance is momentarily unassailable? Cynicism aside, the economics of the case has been argued fairly cogently and the four majors must review the data and move towards making the expensive technological stunt that is DRM redundant.

Related Readings
International Herald Tribune

Prize It All!

Prizes and Design of Economic Incentives

One of the most profoundly informative books that I read last year was Fermat’s Last Theorem by Simon Singh. In short, the book takes the reader through a historical account of the three century search for the definite answer to a puzzle that the French amateur mathematician Pierre de Fermat posed. It also bears very interesting mathematical and scientific detail regarding the history of the search for the solution to the problem posed by an amateur mathematician. Notwithstanding the glorious history of science in general and mathematics, this problem was at one time regarded as completely intractable. Then an unhappy set of circumstances led to a late night encounter of Fermat's Last Theorem after which Paul Wolfskehl dedicated an enduring prize fund that acted as a supplementary incentive towards proof of the theorem. There was a surge of interest and the crunching and thinking began again to find this solution. Finally, the prize was taken apart by prof. Andrew Wiles who was not as moved by the financial expectation but by the obsession from mid teens. Without the intention to disparage prof. wiles intentions and declarations, no doubt the primacy of the problem was kept alive by the added incentive of a substantial prize of 100,000 German Marks. Fermat’s last theorem ceased to be a puzzle in 1995 when the solution by Professor Andrew Wiles was accepted.

Many economists now know that the proper design of economic incentives would concentrate mind power and ensure that a distributed and democratic search for a solution to a well defined problem is undertaken. This idea is not overly complicated because it involves an approximation of a market conditions by allowing for competition towards the claim of a sufficiently large prize and allows for knowledge to be built around different findings. Writing in the New York Times, David Leonhardt supports the view that innovation can be hastened with sufficient offer of prize money and reminds readers that the idea of navigation by longitudes was itself discovered by a watch maker partly responding to the incentive of the £20,000 prize. More recently, the X prize of US$ 10 million was a competitive challenge for researchers and thinkers to design a vehicle and ensure the first private space flight. The challenge that was thrown in 1996 but the prize was claimed after eight years. For such a highly technical feat, this was a stellar achievement over an acceptably short time at a comparatively low cost.

Recalling an earlier post on this blog about Sir Richard Branson’s undertaking to invest up to US$ 3 billion on the quest for an alternative fuel source, this blogger stated that the use of a prize would be far efficient and would almost certainly inspire a dedicated and cost-effective solution. Other public problems that should be pursued in the same manner are probably a vaccine or cure for HIV/Aids on the one hand and the cures for other costly diseases such as malaria and cancer. Prizes are an adequate approximation of markets that would ensure that only real solutions are paid for in addition to democratizing the search. A number of firms are also using this approximation of markets to harness brain power in the solution of business problems. Why shouldn’t Richard Branson take the example?

Related Readings
Freakonomics Blog

Netflix Prize

Madeleine Albright Takes on High Finance

Madeleine Albright Takes on High Finance

That fund managers design complicated instruments and execute huge trades and transactions cannot be denied. This leads this blogger to respect the conventional view that management of a hedge fund requires very highly specialized skills and capabilities. Daniel Gross of Slate magazine reports that there is a definite tendency for high profile individuals from the public sector to establish or earn appointments to hedge funds while totally bereft of prior investment experience. While Prof. Larry summers has also been appointed as a part time manager of a separate hedge fund, the entry of individuals with experience in the public service and no financial training is worthy of examination.

The Albright Capital Management not only bears the name of Madam Secretary Madeleine Albright but has put together up to US$ 329 million in seed money courtesy of a Dutch pension institution. Granted that this fund will be managed in consultation with experienced financial gurus, I am led to question whether Madeleine Albright underestimates the skills in running of such a fund. Among the large portfolio of skills that Madeleine Albright has proven to have are high level diplomacy, an understanding of political formations, the trajectory of failed states, serious authorship in addition to being a distinguished professor in her craft. The relevance of this explicit set of talents to running a hedge fund are not immediately apparent to this blogger.

However, that may well be the wrong question because all that hedge fund management may require is unquestioned intelligence which enables a diplomat to convince a pension fund to place US$ 329 of seed money in a newly registered hedge fund bearing the name of a person who has no trading experience, training in economics or finance. That is real diplomacy. I posit that it may well be that high finance is not as much about unintelligible financial models as hedge fund managers make it but about the command of markets and the economic principles that govern them. No doubt that ACM will have more clients due to the reputation of its principal, but whether it will register superior returns is an issue for future blogs.

Guangzhou City Bans Motorbikes

For a person who has not visited mainland China yet, I imagine that motorcycles would disproportionately account for the transportation needs of Chinese citizens in the cities. This claim finds confirmation in admittedly dated data showing that the proportion of motorcycles among registered vehicles grew from 23.4% in 1987 to 63.2% in 2001. China’s export success is also driven by significant exports of motorcycles and this is considered an intermediate step towards the manufacture and assembly of automobiles.

New York Times reports the curious fact therefore that Guangzhou, one of the most successful of China’s export cities has announced a ban on motorcycles and motorized bicycles. The main reason for the ban is that these forms of motorized transportation are contributing to crime and insecurity. This strikes me as a very casual approach to crafting public policy for a city that has seen this level of unprecedented growth. Migrant workers, whose low incomes are partly responsible for the China’s export capability, are most likely going to be adversely affected. The preferable approach would have been to concentrate on reducing crimes by catching criminals as opposed to the blunt instrument of attacking motorbikes because purse snatchers happen to ride on them. Credit though to the city it opted to offer modest cash in exchange for surrender of the motorcycles. This is a dangerous and ill-informed mixture of social and economic policies. Apart from generating a huge scrap yard, I am certain that this policy is wrong-headed. I will keep an eye on its effects.

Quote of the Day

"The most difficult lesson for the economist in business to learn is that it is easy to be too rational for one's own good." John Kay

Thinking about Energy with Newsweek Magazine

Newsweek Magazine’s Special Edition for December 2006 to February 2007 is dedicated to energy and is appropriately titled as “Breaking Out”, where the energy boom will lead us. It was interesting reading during the Christmas and New Year Holidays. Among its outstanding articles are those authored by Daniel Yergin, Fareed Zakaria, Gordon Brown and Mathew Simmons. Richard Branson of Virgin Group elucidates his vision of an airline operator exploring a US$ 3 billion investment in a green future. Of the interviews, Vinod Khosla, the venture capitalist presents his extremely perceptive views on the possibility of niche markets for alternative fuels from biomaterials.

A number of articles also present fascinating but contrarian views. Of these, the stand out piece is the interview with the Nobel laureate Dudley Herschbach. He presents the possibility that petroleum could be non-biological in origin and thereby confronts the conventional view that it is undeniably a fossil fuel. He narrates the outcome of the suggestive experiment conducted with a diamond anvil that recreates the intense pressure of the earth’s plates which produced methane. Separately, Kurt Eichenwald highlights Enron’s corporate and financial innovations such as weather derivatives and long-term energy contracts that have been adopted by other unrelated firms with some success. The moral of the story: “…often, even a corporate corpse carries a wallet.”

It is obvious from the publication that the search for an alternative or supplementary energy source in underway and that some of the ideas that are featured in the publication will be big winners in the lab and subsequently in the markets too. The challenge to human ingenuity and market reliability is posed here. We look out for the results. Five Stars for the editors.

My disappointment comes from the fact that for a very comprehensive review of ongoing research and cutting-edge ideas regarding the trajectories of energy research, investment and petroleum industry growth, I did not encounter any opinions or mention of the bold claims by the technology solutions firm Steorn and which formed an earlier post on this blog. I may have to adjust the odds below the 5% that I allowed then.

Data Breach at UCLA

The UCLA reports that there was a signicant data breach after hackers gained access to the its database containing records of up to 800,000 people. This blogger is not a data security expert but I still find some of the things that were overlooked puzzling. The information not only included the files of current and former students, staff and faculty, but the names and their social security numbers. While the UCLA spokesperson states that there is no evidence yet that the data has been misused, it is highly unlikely that such a sophisticated attack would be merely for fun. Some of that information will indeed be misused and there may be danger ahead. While sympathetic to the plight of the UCLA and the students, I wonder why institutions such keep such detailed information in the first instance. Shouldn't the lesson of the recent breaches be that minimalism is the way? Do not keep more data than is absolutely necessary. On the other hand, an institution that maintains records concerning 800,000 people ought to naturally find an encryption programme.

News Source: http://www.nytimes.com/2006/12/13/us/13hacker.html

How are States and Criminal Organizations Alike?

Without prejudice to the outcome of the investigations that will be conducted, I would be prepared to wager a substantial bet that Mr. Litvenenko was eliminated either by a certain state through its agents or by a nefarious criminal organization. It has now been confirmed that Mr. Litvenenko was poisoned by the extremely toxic Pollonium 210 isotope. It is highly unlikely that such a lethal and highly toxic element would be in the safe possession of any individual or group bereft of a high degree of organization and planning capability. Secondly, given the acceptance that the administration of this toxic agent required careful handling and storage, the individual who ultimately administered it must have been prepared to take great risks on behalf of the organization to ensure the elimination of the victim.

Bearing in mind that organized criminal groups do routinely eliminate victims through poisoning, I do not think that many of these would have the ability to procure, store, transport and place an agent to administer Pollonium 210 to the chosen victim. Certain nations and governments though have not only the capacity for all four, but are also known to have particular contempt for civil treatment of critics living outside the jurisdiction of those countries. States have behaved in a manner akin to organized criminal groups before but in the poisoning with Pollonium 210, one of them is the principal suspect.

Wonders of the World

Scholars and interested people may debate what truly deserves to be included in the list of human achievements considered as the Wonders of the World. Most of these however have to do with elaborate constructions that involved a high degree of engineering expertise in the medieval or middle ages. For all the achievements, how come the last century did not lead to a spectacular construction or achievement that led to a true debate about the displacement of the list of the Wonders of the World (WOWs).

Part of that answer must have something to do with two features that a good number of the Wonders of the World (WOWs) possessed. The first is that the these constructions were built in a world that was not unlike that of the twentieth century where ideas of freedom were very highly developed and expensively defended, with the result that indentured labour was largely unavailable. The second point is that the world assumed a more libertarian stance that would not allow for the construction of white elephants that most of the WOWS were. In essence, we are unlikely to see another construction matching the exquisite design and unabashed opulence of either the Taj Mahal or the Great pyramid of Giza because of the virtual abolition of indentured labour and the rise of representative democracy. This blogger will explore this hypothesis further by enumerating reasons for the claim.

Markets for Diamonds and bottled Tap Water

To my mind, one of the most fascinating ideas is why there are markets for some products and services in the first instance. Leaving aside the rhetorical bit of this question, I often wonder why markets exist for products that rational people perhaps would not buy at all or in the quantities and prices that are more common. For instance, many people purchase pure tap water that is bottled in plastic under the guise of mineral water at a premium. In many instances, the cost of the good is far above what the equivalent quantities of petroleum would be. Ornamental diamonds too are quite expensive, considering that it's all an isotope of carbon. It is to be granted that there are products that have real utility but are enhanced with specific branding and therefore carry a discernible premium derived from that brand.

However, why wouldn’t one take the time to find out exactly what real mineral water is in order to distinguish it from tap water sold in cheap plastic bottles? I assume that it is not elitist to state that this is the cost of failure to fully search for and base economic decisions on information. Sticking to the formation of markets that fail to pass my arbitrary test of rationality, the above items are some that I find completely puzzling and those that perhaps would cease to exist or seriously reduced if only the purchasers knew better. I will be adding to the list as I try to understand how these markets form.

Tribute to Milton Friedman

Speaking to the University of Chicago Magazine for November-December 2006 issue, Prof. Kevin Murphy states, “A really smart person will come up with what you would come up with,” Murphy answered, “only faster. A genius will come up with something that you would never come up with, no matter how long you worked on it.”

Without doubt, Milton Friedman is one in that category. Not only were his ideas very influential in the field of economics but his particular approach aided in giving it the respectability that it has as a scientific endeavor. Added to this is the fact that he was part of the intellectual establishment now recognized as the Department of Economics of the University of Chicago. That establishment has been assigned it own label and mark, known as Chicago approach to economics.

That he received the Nobel prize for economic sciences is not a surprise. Farewell Milton Friedman,but the discipline of economics lives.

Saddam is Convicted: So What?

"But there is no event so plain and clear that a determined human being can't find ambiguity in it". Lev Grossman (Time Magazine September 11 2006)

As the week began yesterday, the press was filled with news about the conviction of former Iraqi president Saddam Hussein. Judging from the limited access that this blogger saw of the press coverage of the trial, it would take a naive person to be surprised that the conviction came. Still, the very eloquent pronouncement of the death penalty jolted some and I am among them.

I am unsure of what its immediate and long term political consequnces will be in Iraq or elsewhere. However, the gleeful sentiments expressed by certain Iraqi leaders and joined by Presdent Bush suggest to me that there's been so much gloom about prospects for peace in Iraq that the pronouncement of the death penalty over a pitiable old man should be cause for celebration. The timing of the judgement was especially convenient in respect to the mid-term elections in the US but it could all be the result of very random and mutually exclusive events.

Madonna and the Baby

I make an exception below to comment on a purely social matter that is pertinent.

Over the last couple of weeks, the press in Africa, Europe and the US were filled with stories of the difficult legal process that baby David Banda has gone through in order to be formally and legally adopted by Madonna and her husband. This is one case in which there are unlikely to be winners because enduring questions that cannot be adequately answered. Madonna and her family are making a very brave step by opting to adopt a child from a separate continent, race and yes, that word culture. Typically uninformed objections and support for the process covered the press pages about whether all this was an exercise in vanity and therefore inimical to the best interests of little David. To their credit, Madonna and her family went about that process with dignity and minimum comment.

A story in the press today reports that she finally went on the offensive by attacking the bunch of those opposed to the adoption of baby Banda and that is where she completely lost the sympathy and respect on my side. Appearing on the Oprah Winfrey show aired on the 25th of October, she alleged that the press maelstrom was hurting all orphans in Africa. That is just pathetic. To my mind, it is akin to another argument recently heard that any adverse comment on the state of the war in Iraq would be "aiding the enemy". The attacks were not worth responding to especially when it is also reported that the father of the child may be having second thoughts about the adoption. Bad advice from whichever publicity firm she employs! While most of the attacks and support for her desire to adopt were really strident and sometimes personal, she has merely ensured that a more critical eye will be cast on her in terms of the parenting outcomes regarding David. She cannot win this and the sooner she stops parenting through the press the better. Fight no one now as your greatest obligation is to David for whom you now have elected to try your best as a parent. While at it, try and get David's biological father to rediscover some higher regard for you. A sanctimonious sermon on Oprah Winfrey show is not the way.

Can Spammers Really Spell Well?

I know that the sheer number of commercially driven spam mail is a reflection of the extremely low cost of sending them relative to the possibility that a substantial gain will ensue from a limited number. I have kept count over the last few days and think that I receive between 4 to 5 spam messages daily. I could therefore not help noting that there are defining characteristics of the spam that I receive. The first is that spam mail appears to be replete with grammatical errors and spelling mistakes. The other is that the application of the correct pronoun is often wrong. My main question then is that if one expects an average person to be taken in by the possibility of earning 25% of US$ 25 million, wouldn’t that recipient be particularly suspicious of the large number of errors in that single e-mail? Perhaps this is the wrong question because it appears that the indubitable negligence does not affect the overall success rate. If it did, then I guess that some spammers would take the time to run the messages through some person or computer facility that could detect and clean out the most obvious errors. Finally, it could just be that a person led to share a portion of US$ 25 million just has little time to conduct a spell check and write correct grammar.

Nobel Peace Prize 2006

The Nobel Committee awarded the Peace Prize to Prof. Mohammed Yunus who is the founder of the Grameen Bank and the concept of Micro-lending and Micro-finance. The Nobel Committee never fails to surprise me because the odds for this individual were so low that they never featured in any of the discussions or commntaries on the most likly recipients.

My view is that this prize is richly deserved. Not only does the Grameen Bank represent a novel approach to helping the desperately poor, but more especially because the winner represents an institution with a replicable idea. Thus this is as much a prize for an idea whose originator proceeded to implement with significant success. Granted that the idea of micro-lending has its limits, it still represents sufficently original thinking about getting people to engage in profitable enterprise. No one can begrudge Prof. Yunus of this prize.

Nuclear NPT: In Search of New Paradigm

While the world was focused on the initiatives by the Islamic Republic of Iran to scale up uranium enrichment with the potential for the production of weapons grade material, North Korea conducts an underground nuclear test and reminds us all that we are juggling far too many balls. There have been predictable responses regarding the illegal move by North Korea but I wonder whether North Korea has not done it precisely because it is illegal. Being a rogue nation certainly ensures that one has international attention.

Two important questions come to this mind that is not thoroughly schooled in military affairs. The first one is whether North Korea really intends to maintain a set of military weapons with the intention to use them. Knowing Kim Jong Il, is it likely that he would be so daft as to try and attack while knowing that that such action would probably constitute the last executive action that he would take in North Korea? Judging from the actions that the leadership of North Korea is known for such as to overestimate the degree of control and influence that they may have on international affairs, the primary intent and timing of the test may be the result of different calculations and assumptions. Indeed, the North Korean establishment has communicated that it will abandon further development in return for reciprocation from the United States of America. At this point in time then, nuclear armaments or the threat of their attainment are a bargaining instrument.

The second question is informed by the fact that with the expectation of the Israeli bombardment of Osirak, there is no historical precedent of a nation that was successfully reversed once it took major steps towards being a nuclear power. As a matter of fact, the extremely brave tactical strike such as this one may not be entirely possible today. One may therefore ask, to what extent is the rest of the world determined to go to ensure that the North Korean Nuclear programme is permanently halted. More directly, the question asks what are the acceptable costs for maintaining the Non Proliferation Treaty and the Comprehensive Test Ban in their current forms. My fear is that irrespective of the degree of danger posed by North Korea’s development of nuclear devices, the more appropriate approach demands the adoption of a different mind set altogether. I suspect that most nations, whether classified as rogue state or not, would ultimately cobble together a nuclear device of some kind or other notwithstanding the best endeavors of the international community.

Scary as the implications of this may be, I do not foresee the CBT and Non Proliferation Treaty maintaining their present character within the next two decades while still successfully holding constant the number of nuclear weapon capable states at the current number. Presently, the prestige and respect that nations gain from cheating their way into the circle makes even clumsy attempts at attaining nuclear power status irresistible for desperate dictatorships.

The condemnations aside, background thinking on developing unambiguous symbols to communicate the costs that would be attendant to either use or transfer of nuclear weapons material to non-state combatants is worthy of pursuit. The determination of North Korea and other non-democratic states to acquire nuclear devices suggests that browbeating them will not work for long. The real danger lies in the fact that there will certainly be a panic among its neighbors with the consequence that there will be a real arms race in the region.

A new paradigm for regulating entry into the nuclear weapons capable nations club is required. Otherwise, the international community or whatever is left of it will continue to juggle many balls with the increasing possibility that one may drop.