Avinash Dixit: Fitting Profile

The year is about to come to a close and I have reviewed the number of blog posts that I made and it occurred to me that I have highlighted very few professional economists on the blog. It is suitable then to highlight a giant of the economics profession, Avinash Dixit. Jeremy Clift has written a very educative profile of Avinash in the current issue of Finance and Development magazine.

In it, he speaks to this professional economist and professor whose contributions to theory run from game theory, models of monopolistic competition to economic development. the interesting discussion reveals that he is not only alert but that his work is truly seminal to the extent that it has applications beyond what the initial papers could reveal. In all, the most interesting portion of the piece is the defense of economic theory and practice regarding the recent recession in the United states and other parts of the world. "Economic theory and economic analysis based on pretty standard theories told everybody that the situation was unsustainable, that there was going to be a house or price bust sometime. The timing is always unpredictable, but pretty much everybody knew that things were going to go bad."

Educating the Entrepreneur

One of the cliches heard when people talk about falling standards of education is that curricula are often too limiting and do not inculcate the "entrepreneurial spirit" in students. Argument against such a broad and ill-defined concept as "entrepreneurship" is difficult enough when people cite the fact that some of the more successful entrepreneurs were either school dropouts or did not have much schooling to begin with. Today, an article in the Guardian cites a discussion in which Richard Branson argued that many businessmen in the United Kingdom are over-educated.

There's a point in the discussion about what the merits or conventional education are today and whether it is possible for all to be entrepreneurs in any society. It seems to me that the argument that many mistake is that the failure to sit through classes and attain certification does not in itself demonstrate intelligence nor business capability. And that is a totally different argument from whether education by itself is useful or not. I think that Richard Branson has a point in questioning what the value of MBA education is but I do not see that he claims that these programmes are not useful. Instead, he demonstrates the understanding that these programs are not designed or even capable of instilling the so-called entrepreneurial spirit. To conclude, it is significant that he concedes to the fact that he is probably an outlier and therefore schooling is still the best shot for most people.

Nobel Peace Prize 2010

I knew very little of Liu Xiaobo when the committee announced that he would receive the award for the year's Nobel Peace Prize. And while I am completely impressed by China's achievements in some respects,  Sarah Lyall of NYT wrote about the ceremony that should have been a celebration but was more melancholic on account of the unoccupied chair reserved for the laureate. And while I still do not much about the recipient, the diplomatic response of the government has educated me about Mr. Liu Xiaobo's country and why his work is important.

Amazon's Curious Book Pricing Mechanism

I have owned an Amazon Kindle for a period approaching one year now and just recently noticed a very interesting fact. I am not sure whether it is very common but it displays the extreme ingenuity of Amazon's pricing system. A couple of weeks ago, I downloaded a sample of the book, The Rational Optimist on my Kindle reading device and read through it in bits and made the decision that it was worthy of buying after all. Soon after making the purchase,  I noted that the price of the download was US$ 14.99 and therefore slightly higher that the price that was quoted on the website.

In my curiosity to find out whether there was a price hike in less than a couple of weeks, I reversed the sale  and went to check on the Amazon site. I found out that the price for the Kindle version was US$ 11.99 and bought it off the website. Now this has got me thinking about the reason for this difference in pricing for the same item. I am sure that it is not about the variable costs of the wireless service that allows for the purchase but perhaps an attempt at price discrimination. And I am more inclined towards the latter for the reason that on other occasions, I have received alerts to versions of books that are available for US$ 0.00 but upon trying to download, realized that the books now cost US$ 2.00. It appears that I managed a small arbitrage trade this time but I am unsure whether i should develop a more sophisticated model for making purchases and ensuring savings.

Image source: Amazon.com

The Japanese Spirit

I came upon this oldish book by chance and think that I am educated about the way a Japanese scholar saw his country's history and currents that shaped it. Most interesting is the hypotheses for what makes the Japanese as seen by others. The most surprising part is the statement that Japanese people are not good at metaphysical thought and that this is related in some way to the Bushido. What I wonder is to what extent a book comprised of lectures given in the early 20th century could have confirmed or reinforced stereotypes about Japan and its people.

For those inclined to read through a very short book (available for free download in Kindle version) it may help to contemplate why the divine endowments to Japan's first emperor Jimmu were the mirror, the sword and the string of crescent-shaped jewels. Location 212-219

Nigerian Stories Told in Animated Movies

Animated movies have recently become a real profit puller for many movie studios and it is easy to tell why. I find these movies especially interesting because of the amazing confluence between technology, finance and the business side of making movies. While my keenness in this area is more recent, among the earliest movies of this kind that I watched was The Lion King which saw enormous success both on the screen and as a musical. As a story told against the background of the African Savanna, it confirms that African story telling could be successfully told in Hollywood.

A Nigerian film making corporation is taking African storytelling further by using authentic legends to tell stories in animated form. TransTales Entertainment, which was formed for US$ 5000 has ventured into making animated movies based on African legends and tales and seeks to market them worldwide. 

To my mind, the economics of the animated movie industry makes this the most cost-effective way for rich storytelling from other parts of the world to gain a foothold in the movie business. The reason being that animated stories rely on technology and while this may be expensive, it is takes out the need to get real top dollar actors into the movie. Also significant is the fact that animated movies with a fantasy element have a broad appeal to children and families and this draws families to watch the shows together thus ensuring a reasonable take on ticket sales.     

US Networks and 4G Services

One of the profound things that i learned from the book Simplexity is how modern electronics gadgets are crafted by very smart people but who are not perfectly alert to the vast difference in technical knowledge between them and users of those products. It is conceivable that  most of the technical specifications that electronic gadgets bear are not very meaningful to most buyers. To my mind therefore, this chasm of knowledge has made marketing professionals to use technical details in advertising for products in order to make them appealing to the buyers while fully aware that most of the facilities on those gadgets are hardly understood and even unlikely to be used.

David Goldman of Yahoo Finance confirms that these marketing tricks have been deployed by some mobile telephony networks in the US that claim to have upgraded their services to 4G capability when they clearly have not. The author claims that this is the result of a PR mess while I think that the main issue here is the deliberate quest to take advantage of the consumers who are none the wiser.    

How Cities Aid Ambition

I have kept this interesting piece on my browser for about a week now and just got to read through it a short while ago. It reminds me of the thinking on whether culture determine entrepreneurship or economic development. Coming to the article, the author who is obviously well-travelled across major European and north America cities, presents a very incisive understanding of the city-level culture and how this shapes the dominant professional clusters.

Worthy of reading for oneself, I am still struck by the keenness of the author in assessing what a city is bound to be best at and the distinctions drawn between cities in California, Cambridge (US),New York and Paris. Whether one agrees with the fact that Cambridge has cut for itself a niche in producing ideas on account of the existence of the "Intellectual Hub" while New York is best at cultivating interest in personal grooming and financial power, is less important than the ability to divide cities and make a coherent case for what they represent.

In all the most potent statement is the contrast between New York and Silicon Valley as it presents the central thesis of the article. Cities truly speak for something that every curious traveller should try to figure out. Here is the bold claim:

"Power matters in New York too of course, but New York is pretty impressed by a billion dollars even if you merely inherited it. In Silicon Valley no one would care except a few real estate agents. What matters in Silicon Valley is how much effect you have on the world. The reason people there care about Larry and Sergey is not their wealth but the fact that they control Google, which affects practically everyone."


HT: Ben Casnocha

Dont Cap Interest Rates for Micro-Loans

In earlier blog posts here and here, I examined the overall merits of micro-loans as a mechanism for defeating poverty. My argument then was that micro-loans are useful especially reducing the coercion and extortion of loans sharks because they provide a structured way for poorer people to acquire credit and to make repayments. At the same time, it is clear that for all power in social transformation, it is not a panacea to poverty because of the fact that most creditors run similar businesses based on labor intensive activities.

One known feature of most micro-loans schemes is that the interest rates payable on the loans are sometimes higher than what obtains in the formal banking system. Meddlesome politicians in India have therefore chosen to intervene by arguing for a cap in the interest rates charged by micro-loans institutions. As this article in the Economist states, the populist argument is that these institutions exploit borrowers because of the interest rates. My libertarian orientation aside, I am wondering what these public officials think the alternative interest rates would be and whether it is even right to compare interest rates between conventional banks and institutions that provide micro-loans.

Granted that insufficient understanding has never prevented many politicians from pronouncing themselves on an issue, one wonders why they would not urge their constituents to go for loans from the conventional banks that charge lower rates and leave micro-loans institutions alone. In my view, for as long as these loans are available as an alternative to loan sharks, many more households will opt for them.

Quoting Leo Tolstoy

"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear o the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him." Leo Tolstoy

This quote appears as a prefatory idea in the book recently published by Michael Lewis and it struck me as oh, so true. To my mind it alerts to the need for an open mind and a reflection based of evidence as opposed to ideology, political bias or any form of partisanship. Show me very clever people and one can often find that in at least one instance, they have failed to heed Tolstoy and yet still believe in the rightness of their cause or feeling. And this goes beyond partisan politics and even to sports and academia.

Does Electronic Money Have a Future?

Conventional wisdom holds that mobile telephony and related gadgets will form the entry point for low income countries to enter into and expand the digital economy. It is true that usage of mobile telephony in developing countries has developed so phenomenally and surprised many business analysts. indeed, with the exception of radios, I consider mobile telephony as the second most ubiquitous piece of electronic gadgets in most households in developing countries. Mobile phone service providers are now on the frontiers of innovation in these countries as they try to leverage on the largest networks available in order to provide other services.

One of these services is the M-Pesa service featured in the BBC news item that is available in Kenya that pioneered the use of mobile telephone platforms for the transfer of money and completion of payments. Essentially, the service relies on text messaging to allow payments to be made by one subscriber to another and is convenient for traders and people who wish to transfer money. It is unlikely that electronic transfers will altogether replace cash transactions soon because mobile telephony is not yet universal in many low income countries. Despite it wide acceptance, it is highly likely that claims such as use of electronic wallets to pay dowry are anecdotal. However, it is clear that further inovation will follow because every mobile network operator is developing a competing device. Of interest to me would be what innovations follow from creating the ability to transfer funds across networks.

Rerunning Formula 1 2008 On 2010 Scoring System

While writing the last blog post, I made reference to the continuing tinkering with the points scoring system in Formula 1 races. It argued that the more recent changes does not seem to make a difference to the outcome of the championship. Towards the end, the blog post stated that given the fact that the 2008 Championship also went down to the very last lap of the race, it is possible that the scoring system adopted in 2010 would yield a different winner. Concerned that I may have overstated, I went to the Formula 1 results archive to test that claim. The simple test involved ranking the championship winner and all other drivers who won at least one race in that year by using the 2010 scoring format.

The table on the above shows the finishing position of each of the seven drivers on the columns for each of the 18 races of that season, with the zeroes as code for drivers that did not finish that race. Clearly, I was mistaken to think that the championship results would have favored Felipe Massa due to his having won more races than Lewis Hamilton.  It remains that while the finish was still very close and was determined by that last race, Lewis Hamilton would still have been the championship winner. Truly, the scoring system requires massive tinkering to generate the excitement that Formula 1 bosses seem to think is lacking.

Formula 1: Fixing An Unbroken Points System

It is unlikely that any other driver will dominate the sports of Formula 1 racing as much as Michael Schumacher did. Not only did he win the highly technical event seven times, but he also retains the record for the highest number of wins for individual races. One of the more subtle indices of his dominance is the fact that the scoring system was revised by the sport's administrators ostensibly to add to the competition.  While I have remained skeptical of these revisions that are often sold to the public as instruments to for creating more exciting competition, I have never got to compare them against one another to determine whether they do make a difference.

Michael Wallace has gone a step ahead and written a piece in Significance Magazine here in which he compares the performance of the top five drivers of 2010 against the scoring systems used in this and previous seasons.  His findings show that despite the manipulation of the scoring systems, it is clear that the result would not have changed significantly. To my mind, this shows that sometimes even the people who run sports simply go for change for change's sake. Having said that, the results would probably have been different for the 2008 season during which Felipe Massa came so close to winning the championship but lost to Lewis Hamilton.  the results would have been different considering that Massa had won more races than Hamilton who had been more consistently placed as a podium finisher.

Informal Sector Medical Practice in India

While casually reviewing a report yesterday, I learnt that many developing countries are constrained by a disproportionately large informal sector. In some countries in Africa, Latin America and Asia, It is estimated that the informal portion of the economy equates to between half and 70% of the formal GDP. What the real effects of this is on overall growth are perhaps not properly quantified but my thinking is that a large informal sector cannot be a positive economic factor for an economy.

On the other hand, my assumption has been that  a large informal sector is possible especially because of the preponderance of agriculture production and small scale trade. It appears that the informal sector is now going into other professions that have been considered a part of the formal economy such as medicine. Michael Spectre's article appearing in the New Yorker Magazine illustrates how the rise of a "medical red light district" in one of India's main cities complicated the ability to properly diagnose and render treatment for tuberculosis.

Not only is there a number of ill-educated medical practitioners but they are complimented by diagnostic centres that carry out radiological tests and quacks dispensing medicine to poor and vulnerable patients. This superstructure is supported by the perverse incentives that allow for medical practitioners who are employed in public hospitals to have other clinics to which they channel patients seeking help from the public hospitals. This elaborate scheme of brokers means that public hospitals are direct competitors for the private clinics operated by the same doctors. The effect is understandable and has devastating consequences for patients because of the clear sabotage of public facilities.

In my view, this is perfect illustration that public sector professionals are sometimes the greatest obstacles to attaining positive development outcomes. Better pay for medical practitioners may help but I doubt that the lucrative practice would stop just because the doctors have better pay per month. Being doctors who understand that incorrect dispensing of medicine leads to drug resistance shows that they are moved by economic incentives against their better judgement. Part of the solution lies in realigning those incentives to the public interest by rewarding doctors for the health outcomes that they achieve.

How Vietnam Reached Mobile Penetration of 140%

Many people claim that the huge changes that have been attributed to computers in higher income countries will only be recorded in lower income countries through mobile telephony. The main argument being that the infrastructure required to utilize the mobile telephone is developed by the network operators and often through private developers. Evidence that supports this is that many low income countries have a quantum of mobile telephones that far exceeds the penetration rate of computers hence the mobile telephone is the development tool of our time.  For many developing countries, it is often stated as a matter of pride that the penetration rates of mobile telephony has gone beyond 50% and that this is  rare and important technological feat. 

Looking that this edition of the GSM Association's newsletter, I was amazed that Vietnam has a mobile penetration rate of 140%. In spite of Vietnam's really furious pace of economic growth over the last decade, this number is still worthy of understanding especially since the profile of countries with perfect penetration at 100% is very different. To start with, they tend to be small Baltic states and northern European nations where technology development is clearly ahead. 

Like other developing nations, the high rates of mobile telephone penetration in Vietnam and other countries reflects different circumstances. Among these are that many of these countries have corporations that are uninterested in interconnection hence the tariff across networks exceeds that within networks. The clever response from users is therefore to hold multiple SIM cards in order to communicate in the cheapest way. This is confirmed by the view that a number of callers have as much as three separate numbers. Secondly, the absence of number portability means that many of the mobile telephone users are unwilling to change their numbers by migrating to another network. In some instances, reactivation of lost SIM Cards is more onerous than simply acquiring a new one and so the subscriber base is smaller than the total number of SIM cards in issue.     

Registration of Sim card ownership is ongoing in many jurisdictions including Kenya, India and other countries but Vietnam seems to be trying to limit ownership to three. It is not clear to me what this will achieve as the acquisition of SIM cards by itself does not harm to the networks or subscriber. However, the government of Vietnam, which has a hand in all the mobile networks seems to think that Sim Card ownership ought to be rationed.    

Services Can Be a Source of Growth Too

A month ago, I started reading Ha-Joon Chang's latest book that took to exploding some urban legends about capitalism. Many of the arguments that he stated therein were very sensible and largely accurate because they involve careful and non-ideological survey of how markets function and how they fail to work well enough because of political or other reasons. In a  couple of the 23 chapters, I  was not only unconvinced but also found myself taking the opposite view from this accomplished professor.  The first of those was on industrial policy and the other was the claims made that manufacturing industry is essential even for high income countries.

While he may not necessarily be one, I have earlier alluded to the manufacturing fetish that many people have and the unduly high regard that they hold for manufacturing in comparison to services. John Kay's article here provides an argument showing why the assumed superiority of manufacturing is mistaken. The argument is so cogently stated that I will not attempt a summary of it. Instead, I will say that the increasing specialization by society provides opportunity for tasks to be assigned to those most capable of doing them at the lowest cost. He also explains using simple economics language why the belief that real work must issue sweat is a relic of agricultural society.   

Measuring Mobile Subscriber Growth

I have mentioned a couple of times in this blog of my interest in understanding how firms and other institutions use figures to communicate reality. My intention is not necessarily to identify faults but to ask myself why they chose a given method of rendering their data and not another. This idea was formed from my realization that when it comes to China and India, their large size is used to present data that tells one no meaningful or new information. As a result, some of the figures thrown out end up obscuring as opposed to illuminating any matter about the economy or businesses performance in those countries.

Looking at this article from the GSM Association's business briefing, I realized that the same broad errors are being repeated. To my mind, the title of the article and good portion of its contents present only one side of the correct picture. It correctly claims that the developing world today accounts for the four in every five connections for mobile telephony.  To which my polite question would be; So?

Consider that in accordance with the data presented in Table 1 of the piece, 84.7% of the world's population reside in the countries classified by the World bank Data as developing countries. It is not news therefore to state that mobile telephony growth there is growing. Indeed, it would be odd for acquisitions to be any other way. By virtue of the fact that a majority of the population reside in the developing countries, then growth there is expected to lead to the patterns that one sees. As a consequence, the explanatory variable should be population distribution across the developing and high income country divide. 

Growth in the high income countries is incomparable to that in the rest because they have nearly reached a point of saturation with a per capita mobile phone subscription of more than 1. So the reason 80% of new subscriptions occur in low and middle income countries is because it cannot be anywhere else. Noting China and India's demographic sizes also means that there raw numbers will drive those subscription rates when measured in units. Table 2 and 3 also show that population disproportionately determines explains subscription numbers.  

As an industry information article, I think that the GSM Association newsletter is very well done and I have used it to my own great advantage. However, its editors could consider the rendition of the data in ways that actually inform its readers. 

The Currency Fights Begin

In this blog post, I stated that the controlled conflict between the US and China over the relative value of their respective currencies was worthy of looking at again. While it is now common wisdom that the Chinese currency is undervalued, I confirmed even then that competitive devaluation cannot be a long term development strategy for facilitating exports. Annie Lowrey of Slate Magazine writes here that many ministers of finance are beginning to feel that any adjustment in other currencies, the Yuan aside, will have adverse effects on their ability to make exports.

Looking at the arguments that are resented in that piece, the concern for competitive devaluation is that it is a strategy that is open to any nation. As a result, a full scale adoption of currency devaluation as a way to facilitate more exports cannot work in the long term.

This state of affairs also exposes the fact that export-driven growth is a proven development strategy but the pursuit of the strategy can create imbalances since one's country's exports must result in imports by a counterpart. The big lesson in my view is not only that currency manipulation can only work for some time before it faces competition by competing nations, but also that every economy needs a fair balance between consumption and exports. But that is easier said than done because mercantilism is instinctively attractive to many nations.

Cheap Sneakers Still Ideal

Despite my general reluctance to accept the value of marketing, I am sure that the one are where demand reflects the marketing input is in sports equipment. Whether it is jerseys or trainers, the use of sophisticated marketing techniques, channels and sports personalities certainly drives people to purchase equipment at premium prices. And yet, as I stated in a blog post here and here, trainers and running shoes have a wide range in price and some are very expensive. 

My contention is further reinforced in this piece by Lesley Alderman in the NYT that cost does not seem to correlate with the prevention of injury, overall comfort and other variables that matter to runners. In that story, the reporter specifically follows a keen runner who has learnt over time that understanding one's gait is critical to the decision about comfortable running shoes. That athlete's feeling that cost does not provide as much advantage as is claimed is confirmed by studies conducted bears her out. In short, choosing a modest pair will work perfectly provided one picks the size that allows for some space, breaks them in for at least two weeks and ensures that it fits at the heel. 

Running barefoot seems to be gaining currency and the production of a show glove tries to simulate that that perfectly but ends up producing an expensive gadget. Perhaps an algorithm that weighs sufficiently the three variables mentioned above would suffice for choosing shoes while taking care that technology- infusion hardly affects performance and comfort.  

Rinderpest Follows Small Pox

Among other things, I have an amateur's interest in the history of diseases generally and more especially in the eradication of epidemics and serious diseases. I am therefore impressed by the scientific achievement that has worked in the background to lead to the declaration that rinderpest has been eradicated. Scientists at the Food and Agriculture Organization (FAO) announced that they have virtually ensured the eradication of the rinderpest, a viral disease that affects livestock.

Reading this piece by Ian Sample of the Guardian, the achievement marks only the second time that humanity has succeeded in eradication of a viral disease. While rinderpest affected livestock and therefore had effects on livelihood for animal keepers, Small Pox directly afflicted people and had caused human deaths for three millenia before its eradication in the early 1980s.

It is interesting to note that dedicated scientific enquiry and considered design of an eradication programme may lead to fantastic results that vastly improve welfare. This short history of eradication also proves that pathogens are very resilient and their eradication is the exception rather than the norm. Still, human ingenuity gives me hope that the odds for control, if not eradication, of some pathogens are higher than they have ever been. Of course, it is possible that with prioritization, well designed prizes could hasten the conquest of the disease causing viruses.

Quoting Kong Zi

This is a very obscure blog but I celebrate my 500th blog post with a profound statement from Confucius. I find it extremely helpful for it calls for modesty and humility. And who does not need that.

The Master Said, "He with whom neither slander that gradually soaks into the mind, nor statements that startle like a wound in the flesh, are successful, may be called intelligent indeed. Yea, he with whom neither soaking slander, nor startling statements, are successful, may be called farseeing". The Analects of Confucius by Tsai Chih Chung (Location 667 on Kindle Version)

Pricing Tickets for the Olympics 2012

While I am a complete skeptic about the economic value that accrues to a country for hosting international sports events such as the Olympic Games, I am impressed that London 2012 is going all out for a commercial to find value for tickets. Mark Tran of the Guardian reports that some tickets during the opening ceremony will go for the symbolic £ 2012. This will not necessarily be the price for all the 8 million tickets that will be available across the 26 events, but this pricing mechanism has my support and respect.

I am certain that there will be takers for the more expensive tickets even if I remain uncertain about the ability to sell all the 8.8 million tickets. Still, Lord Coe and his crew are right in trying to get the best value for the tickets because the cost overruns for the venues and the works require very savvy marketing to ensure that the games get as close as possible to breaking even.

Trade Diversification for Africa

The countries of sub-Saharan Africa have shows comparatively higher growth in GDP in the last few years in spite of the effects of the financial crisis. Understandably, this has created a lot of confidence in the overall managers and governments of the countries in the continent. As it is, the view is that growth of 5% annually shows that the countries are doing something well and have managed to overcome the effects of the financial crisis which has crystallized into a general economic crisis in Europe and the US. 

Due to the state of affairs in Africa, nobody would envy the continent of this new growth momentum but still be cautious about its prospects in the medium term. African countries in the early 1960s experienced growth rates akin to what is seen today and failed to maintain that for the medium term. Writing in The Root, Njaramba Gikunju addresses the background issues while covering the later realization by sub-Saharan African governments that they would suffer secondary effects of the crisis. What is less convincing and demonstrably false in that article is that trade with China as replacement for European export markets would be Africa's main avenue for maintaining growth and escape from poverty. 

To my mind, the continent of Africa gets lots of inappropriate advise but it is inconceivable that Chinese investments and trade opportunities alone would lift the continent's people out of poverty. Africa's main problem in trade is that it has a small portfolio of products to ship out and that these are primarily commodities. Trading the same with China, Brazil or India does not in guarantee faster growth in itself. trade diversification goes both in terms of new destinations for imports and exports in addition to diversification of products. It is not one or the other.  

Are Small Businesses Special?

The small business is now an important players part of the policy narrative. Policy discussions in many parts of the world have adulated small businesses to the extent that every policy measure is often considered inadequate unless it delivers some gains for small businesses. Richard Rubin's article in the Congressional Quarterly here offers a level headed questioning of the assumptions that there is something inherently superior about small businesses and that definition is itself an arbitrary classification of very diverse firms.

To my mind, he makes two points that resonate most with me. First, in the US as in many countries, the real definition of small businesses is such a problem that it makes little sense in the scheme of things. Most definitions concentrate either on turnover or the number of employees and these are fraught with dangers as there are many businesses that could have high turnovers and yet employ few people. the reverse is also demonstrably true. However, the political appeal that comes with designing policies to benefit the "small business" is one that politicians see clearly and therefore respond to. 

The second on is that nobody wishes to be seen as criticizing the corporate welfare given to firms defined as small enterprises, with the result that there are extremely perverse incentives due to tax concessions and other exclusions that are meant to help these businesses. Creation of the facility that allows individuals to report income earned from firms together with other income just makes tax policy and administration difficult.

It is clear that I am an agnostic about the view that small businesses posses specific attributes that make them particularly worthy of special regard above other firms. Indeed, there may be reason to believe that the discrimination against large firms in some instances causes massive distortions and creates stunted firms with lower productivity. The designation, small businesses is just a political term and has little relevance for market functions. 

Can Regulation Save Angkor Wat?

A couple of months ago, I attended a conference in the Cambodian City of Siem Reap. Naturally during the stay, I and some colleagues visited the ancient city and religious complex of Angkor Wat and was impressed not only with the scale of that cultural edifice but also with the degree of scientific knowledge that led to the construction of a building that precedes by centuries Asia's most valued structure, the Taj Mahal. 

Thereafter, I took some readings, watched a documentary speculating on the both the purpose and the religious leaders who brought the construction to its height. All this while, I wondered how to justify the inclusion of those pictures on a blog dedicated to the discussion of applied economics and public affairs.

It appears now that I need not have worried because Ben Doherty of the Guardian states that the Angkor Wat complex is threatened because of the illegal extraction of water by corporations. As it is, the land on which the complex is based is an original swampy area that enabled the planting of rice from the reverse flow of melted glaciers of the Himalayas. Rising number of tourists is creating a demand for more water whose extraction from the ground threatens the foundation of the ancient religious city.

Wearing my thinking cap, this situation illustrates once gain the fact that tourist receipts that are arguably helping to fund the conservation of the complex have the unintended consequence of leading to water extraction whose longer term effects are yet unknown. there's no clear policy response here save to estimate the amount of water extracted and charge hotels and other establishments for that extraction since the state owned corporation is unable to supply sufficient water. Regulation here is necessary and a sensible reaction because the businesses that thrive in Siem Reap rely to a large extent on the enormous tourist appeal of the Angkor Wat complex. The number of visitors is impressive but I am certain that Ben Doherty has got the population of Siem reap right because I assessed it at far more than 200,000 people.

Currency Manipulation Has Limits

Reading many analyses of China's export performance today, I always wonder that everyone has an opinion on the merits maintaining a low exchange rate as part of trade policy. to my mind, many people are probably misreading China's export competence as entirely driven by currency manipulation and this may lead to a policy disaster before long. Ttrue, maintenance of a low exchange rate vis-a-vis the US$ has allowed China to maintain a trade surplus for a long time. Opinions are understandably divided whether the US should try and coerce China to revalue its currency appropriately or whether as Anatole Kaletsky states in the NYT here, this is part of the new Asian model of growth and development that the US would be well advised to learn to accommodate.

While I have not studied currency pegs much, it is clear to me that the copy cat tendency of mostly Asian countries in competing in currency manipulation so as not to lose export opportunities can only work for so long. For all China's capabilities, it is unlikely that a low currency alone will ensure all anticipated growth for all time because of the ability of other competing nations to engage in the race to the lowest currency. Tim Webb of the Guardian newspaper states that Brazil has already thrown out an alert to the possibility that further aggressive manipulation could result in a "currency war". Brazil may not be China but given the copy cat effect of currency manipulation and the rush to ensure exports, this policy will not be effective for most of these players for long because it is far too easy to copy.   

Musing on Laffer Curve and Government Size

I attended a brain storm session with some officers of the public sector together with some scholars and a few professionals of various background sometime during the week. While it was not specifically mentioned, many suggestions seemed to take the Laffer Curve as embodying truth. As a libertarian, I was led to think more clearly about the contradictions that inhere from supporting tax cuts as a mechanism of raising more revenue.

My personal view is that at all times, it is more preferable to consider the lower marginal tax rate in designing policy. This means that while I may be reluctant, policy choices may sometimes require raising the tax rates as a matter of fact. What I found disturbing is that a fiscal conservative should be careful in arguing that more taxes follow from lowering tax rates because of the assumed rise in total tax collection. To my mind, this is inconsistent because if that were true, then the rise in revenues would mean that lower taxes lead to bigger government. And that's why I maintain that lower taxes as supported by libertarian thinking is more defensible because it merely argue for letting individuals or corporations to keep a greater share of their incomes. Anything beyond that is to overstate the need for lower taxation.

Isocrates Warns Modern Greece

Vanity Fair published this microscopic view of the Greek economy and culture by Michael Lewis whose description suggests how they country gamed its way into the EU monetary union system through subterfuge. It is an article worthy of careful reading as it suggests that the monks of Vatopaidi monastery are too clever for the overpaid, corrupt and unsophisticated bureaucrats.  His conclusions about the prognosis for the Greek economy into the future are a serious cause to worry as both the public and bureaucrats are unwilling to examine the society's many shortcomings and structure incentives differently.

"Democracy destroys itself because it abuses its freedom and equality. because it teaches its citizens to consider audacity as a right, lawlessness as freedom, abrasive speech as equality, and anarchy as progress".

Lewis picks up Isocrates' injunction above  which forewarned about the dangers of democracy without responsibility. I doubt that democracy condones free riding and widespread mendacity. With monks as smart as the those in the Vatopaidi Monastery, Greece yet has a future albeit one that will require living in a more spartan way.

Niederhoffer on Being Wrong

The discussion about what were the real causes of the financial crises of the last two years will not end with a firm resolution and I have resigned myself to that. And while dwelling on blame is not useful in my view, what I know is that hedge fund managers have got a bad name and yet they have been the most gracious losers among the whole lot of people who took risks. In my view, most bankers who were culpable got way far too easily and those that survived are now back to profitability without proper public acknowledgement of their culpability. 

On the other hand, hedge fund managers seem to be the real adults in the financial services industry because many of them took it on the chin and went on with their lives without crying for public support or blaming others. Among them is Victor Niederhoffer who had good investment record but also had two of his hedge funds collapse out of bad investment calls. 

His interview in Slate Magazine here with Kathryn Schulz provides his views about the errors that he committed on two occasions and the losses that he took when the funds collapsed. That he is a smart man is not in doubt and in the interview, his admission of errors and hubris is reason to respect his candour and sense of self-criticism. But more importantly is that hedge fund managers get a bad rap when most of them went down with their ships while banks got bailed out through public money. Banks should not be too big to fail and like hedge funds, their failure would be good for markets.  

How to Cut Airport Queue Times

A couple of days back, I was on a queue at the Schiphol Airport in Amsterdam when I overheard a conversation between a group of three people that I surmised were traveling together.  In summary form, one of them urged the others to stick to the queue that he had taken because the nearby queue had a number of darker skinned people whose documents would be subject to more onerous scrutiny and therefore would slow down the queue.

To my mind, this piece of wisdom shows two things about airport security. The first is that many travellers understand that the perception of danger by travellers is regionally and perhaps racially concentrated as well. The second and most important point is that travellers know that the measures at these borders lead to a waste of time for other travellers.

Crime is Enemy, Not Gangs

In the last couple of months, I have been particularly alerted to the fact that most private and even public policy is based on very limited evidence and big assumptions. One need not be a very keen reader of the more popular books by professional economists to understand that a large portion of conventional wisdom is flat out wrong when examined empirically. One such area is that of crime reduction and suppression where a lot of untested but popular assumptions that seem sensible are often used to anchor policy.

Writing for  Econlib Russel Sobel summarizes the idea that the whereas law enforcers readily pursue destruction of gangs, the empirical evidence suggests that that approach is wrong-headed. Arguing cogently, the rise of gangs may be associated with higher crimes but the direction of causality is that insecurity causes the upsurge in gang formation. Having reviewed some time series data, he alludes to a paper showing that gang activity is rational response by youth who face a risk of violent crime. As a result, the single-minded quest to eliminate gangs is ineffective policy because gangs arise out of failure of the state to provide protection that is required. Unintended consequences of a successful suppression of gangs may be a rise in crime because of the eroded protection that gangs provide to individual members.  In summary, the paper leads to the conclusion that law enforcers should destroy crimes, not gangs.

OPEC at 50

On 14^thSeptember 2010, the Organization of Petroleum Exporting Countries (OPEC) will be fifty years old. It was formed in Baghdad with the main idea of collective action to increase the rent on oil by the five original member countries. In many respects, this is one of the most blatant forms of cartel organizations in the world and has significant power on energy prices.

My view of the OPEC is that its membership is entitled to control their petroleum and have often used petroleum resources and prices for political purposes too. The profile of its members is interesting because these tend to be hard core dictatorships who expect to use their vast resources as tools of foreign policy. The statement by the secretary General of OPEC here maintains its actions have contributed to faster recovery from recent economic trouble.

So its definitely an achievement for an organization to be alive for half of a century and with expanded membership. I am less confident that it claims to be a source of global supply and price stability because many low-income countries suffer the effects of coordinated petroleum price setting. I am certain that the nett effect of the existence of OPEC is not positive.

Professor Mankiw's Advise to First Years

It is not for nothing that I follow a number of famous professors of economic, not least of whom is Gregory Mankiw. That he is a highly capable economist is not in doubt and I often find that his textbooks provides sound ongoing education for me. In this week's piece in the NYT, he has some advise to students joining colleges during this summer.

While I think that he is perfectly placed to offer that advise because he is a professor, the quality of the advise astounds me. he does not only stress the need for students to seek to appreciate the subject of economics but goes ahead to explain why that is indeed important. Added to that is the injunction to learn some facility with numbers in the form of statistics and probability theory while being alive to the fact that psychology would supplement a fuller understanding of human behavior. In perfect humility that is rare among accomplished professors and best selling author, he is alive to the variety of advise that first year students will be bombarded with. Accordingly, he tells them to ignore advise as they judge fit. that too is true but I hope that they all cut out or mark this page and read it as they start the exciting academic journey.

If I could add to that list, it would be that every student should try and understand principles of a natural scientific discipline and some course in logic. Given the ubiquity of information of varying veracity, ignorance is not virtue and very thin specialization makes people myopic.  

Kenya's Population Below Forecast

Kenya conducted a population and housing census sometime in 2009 but the results were not released by the Kenya National Bureau of Statistics until sometime this week. The most interesting fact in that data released has been totally missed by the press and commentators and instead there are stories about how the country's population is growing by at least one million people annually. In my view, the statement that the population grows annually by 1 million people is not useful at all especially if neither the base nor  the doubling time is unstated. And yet press statements have concentrated on trying to push through the idea of high population growth rates with undertones of a demographic disaster.

The point that has been completely missed is that the forecasts made about Kenya more recently had placed its population at a minimum of 40 million people. The complete count from the highlights show that Kenya's population is at 38.6 million. That is still a large population as it places Kenya among the top 50 largest countries by population. what is shows is that the Malthusian understanding of population growth remains the dominant lens for viewing demographic phenomenon. 

One presentation included on the site states that the whole undertaking was accomplished at a cost of US$ 104 million. At a cost of US$ 2.7 per individual, it looks like an efficient way to capture data that should find better use than merely broadcasting ethnic composition and sending stories of impending demographic disasters. The dialogue should move to why a country with a large youthful population is not undergoing a Demographic Transition and reaping the demographic dividend that is necessary for take off.  Another notable feature of the results is that settlement in Kenya is still overwhelmingly rural with 67% of the population resident in rural areas.  

Finding the Most Expensive Book on Amazon

Quite aside from Walmart Stores, I am sure that Amazon is one corporation with a very large number of goods available for purchase. This occurred to me as I discovered that the number of publications available for purchase with a Kindle e-reader device goes beyond 600,000 titles. And this is very impressive when viewed against the fact that Amazon also has a large database of physical books, furniture, music, software, computers, watches, furniture and other products available for shipment.

Coupled with the very large number of stock units is an effective search machine that allows for convenient search across the virtual store. It just occurred to me that it is far more difficult to find stuff on Amazon based on the costs than it is to find by name or use. For instance, I have concluded that textbooks are among the most expensive items on the Amazon bookstore. What I am unable to confirm is which single publication is really the most expensive throughout the book store today. Why is it that the search engine does not offer this capability?

Views On BART Movie Prediction Model

I spent the last weekend reading carefully the paper by three professors discussed in this blog post a week ago. They use a complicated statistical technique known as the Bayesian Additive Regression Tree (BART) model to work out a prediction of the receipts from the box office for movies based entirely on the script. The main factors that the model assesses are the Genre and the content variables which includes the storyline, kind of conflict all in the 23 content questions form. 

One need not be a studio manager or movie director to immediately understand the implications of this model on informing investment decisions across given scripts that are being considered for funding. I also think that this reiterates that a well-considered model can still beats so-called experts at making this kind of decision. To my surprise the model provides guidelines on possible Box Office receipts when the dollar value of making films varies over time. So the question I would ask the authors is how this time function was accounted for and whether the model can be tweaked to predict the number of tickets sold instead. As I have mentioned in a separate blog post, comparing movies by the number of tickets sold is more accurate when they are made in different time periods. 

Houses Not Special in UK Too

I asked here whether real property is still a special category of property and my answer tended towards saying that in the US, it appears that those days are long gone. The same fixation on the part of the public and their governments seems to have afflicted the United Kingdom where taxation policy tended to tilt in favour of home ownership. In spite of the fact that the slump in the UK appears to have been corrected and home values have not fallen precipitously, Larry Elliot of the Guardian argues convincingly that house prices will fall for a while yet.

Indicators of the underlying difficulties in real property markets are seen in the fact that first time buyers are unable to afford property and there is a big generational difference in the ability to acquire home. iIn essence, the ownership of homes favours the elderly citizens together with wealthier individuals. In a sense, that house prices in the UK and the US have faced difficulties and are bound to remain low for a while is a good case study for students of economics. One wishes that the laity understands that the problem was the belief pushed by interested lenders and brokers that home ownership is special.

Is Austrian School of Economics Back?

While I would not say that Austrian economics is mainstream again, this story in the Wall Street Journal profiles one of its main high priests and dedicated thinkers. I noted the resurgence of Austrian School theorists a while back when von Hayek's The Road to Serfdom was top of the Amazon bestseller list. And while I have read a much smaller number of Peter Boettke's works, than I would like, I readily concede that the austrian School is a powerful approach to explaining the limits of central planning on one side and the lottery nature of industrial policy.

My introduction to the Austrian School was an encounter with Von Hayek's Road to Serfdom which I found quite impressive in its rendition of the inherent weaknesses of statism especially in the area of economic management. I have since then considered it as one of the most ideal ways to introduce students of economics to the Austrian School generally and to an appreciation of the limits of state action on the other.  It is also a gentler way of introducing students to the subject political economy by avoiding the large models driven by mathematics. As most of the Austrian School theorists believe, understanding the first principles of economics is important in itself and the mathematics should aid understanding and not undermine it.

As the article concludes, the major problems for Austrian School economists is that while they are able to identify why state action may be harmful, they are not often able to generate much policy advise to fix problems. And that explains why Keynesians fall from favor but always arise again. the Austrian School is one of the most important and ne to which I am most partial.

Louisiana Monks Take On the Casket Cartel

For a country as free as the US, I still get surprised by the degree to which even the state governments try to regulate economic behaviour and choices. The WSJ reports that the Louisiana State Board of Embalmers and Funeral Directors has sent a subpoena to St. Joseph's monks for violating a state regulations by independently manufacturing and selling caskets within the state. I reiterate that regulatory institutions with such long names tend to be useful for nothing. However the membership of this institution set to regulate the sale of funeral merchandise is comprised overwhelmingly of persons with direct interest in the business.

Its nice to see the St. Joseph's trying to bust the casket sellers cartel under the guise of protecting the public and enforcing standards. That the colluding undertakers are so brazen is a sound lesson that the board is largely a conspiracy against the bereaved. These monks should and must win and be allowed to compete.

Houses Not Special Property Anymore

I am not a resident of the American continent but I think that the financial crises has clarified a point that beautifully illustrates the value of first principles in economics and how markets function. While there is understandable argument about the causes and the trajectory of the causative factors, what is clear to me is that the big myth and fallacy that housing as a category of property is not subject to downward price fluctuation has been shown to be untrue. David Streitfield of the NYT files a report whose basic argument is that the magic of house ownership as a sure and superior form of property is being painfully revised.

It states that the belief was reinforced by the fact that for more than a whole generation, real returns on housing were sufficiently high. This allowed many US citizens to take mortgages from which they would build household wealth due to price appreciation. Dean Baker of the CEPR buttresses the argument with the estimate that it will take at least two decades to recover the US$ 6 trillion in wealth lost since 2005. In other words, there is a surfeit of houses and making money out of homes is highly improbable.  Demand and supply do rule but those with an interest in selling houses and whose income comes from selling houses will obviously try to convince people that housing is a special category of property.    

Governments Find Blackberry Devices Too Secure

Soon after President Obama was elected, it was a matter of concern that he was reluctant to accept the surrender of his famous Blackberry phone and communication device. At the time, the concern was that the nature and extent of presidential communication required a high degree of security that would not be guaranteed by such a service. I blogged here that the Research In Motion, the corporation that manufacturers the device would take that as a challenge to assert that the degree of security for that device would make it fit for presidential communication.

Some two years later, a different set of governments have pressured the RIM into some concessions on security based on the thinking that the device provides a very tight level of security that national governments of a number of Asian countries cannot reach.  As the dated piece in the NYT states here, governments of the United Arab Emirates, Saudi Arabia and India are concerned that by guaranteeing a high level of privacy in communication, the security of states may be compromised. It seems that the device is not fit for a president but is too safe for citizens half a world away.

Images are subject to copyright and extracted from RIM website.

Another Formula For Box Office Receipts

To my mind, predictive analytics represents an interesting intersection between statistics, economics and other disciplines, all for the purpose of making decisions about the likelihood of certain events. One of the most impressive models of predictive analytics has been the model built by the firm called Epagogix. This algorithm uses only the script of a movie to make a forecast of the expected receipts at the box office. More recently, a number of financial houses converted their models and used them to predict the outcome of the soccer World Cup that ended last month.

And now two professors from the academy have published a paper here in which they discuss the value of an algorithm that would guide movie houses on the potential box office receipts by application of their mathematical formula. From Sarah MCBrides, blog post here, it looks like they have identified some useful nuggets for making the most out a script and studio bosses may be calling on them shortly. My concern though is not about the ability of a cold model to predict fairly complex business outcomes but that the sample of movies (200) appears to be small and  much less as compared to the number of movies produced worldwide.

As I undertake to read the full paper, I have no doubt that this algorithm is definitely more useful than the gut instincts of seasoned movie making experts.  As I had noted a while back, experts so called, are not as sophisticated thinkers as they claim. There's competition for Epagogix now and that can only be good for the movie industry.

HT: Freakonomics Blog

Rodrik on Authoritarian Development Models

A couple of days ago, I was attending a small meeting that was discussing the role of the state in society. As a libertarian, i was not surprised that many people take it for granted that the existence of the state means that it must undertake any activity that it chooses or that people urge it to take upon itself. tThe more surprising part for me was the poor reading of history by educated people. This was because an uncomfortably large number of people took it for granted that China and the east Asian countries have proven that there is a special formula for quick economic growth.

I have stated it here for a long time that China's development record is unprecedented and certainly impressive. What I am unwilling to yield is that there is a "China Model" which proves that political liberalization is a secondary matter in the quest for economic growth.  As I heard, China is very organized and provides a model worthy of emulation by Asian, African and other low income countries. I therefore find immense comfort in the more accurate and sensible interpretation of history by Dani Rodrik in this informative  article.

As it is, the piece is self-explanatory. Authoritarianism is mnot a short cut to growth and any leader who tries that model is more likely to fail than succeed.

FA Quotas Have Unintended Consequences

England's performance during the last World Cup was a great disappointment to the Football Association and it is understandable that they may want to change the situation. Predictably, they have gone for the most obvious excuse which states that young English players are denied a chance to improve by virtue of the large number of foreign players in that English Premier League. In an earlier blog post here, I suggested that this view is convenient but is ill-informed and suggested that the FA bosses should look at this book. In spite of that, the FA introduced a new rule that limits each team in the premier league to a squad of 25 players of which places an upper limit of 17 players that are not home grown. the ostensible reason is that the number of English players in the squads is bound to go up and thereby improve the performance of the English team in international tournaments.

It is difficult to argue with such a knee-jerk reaction especially since it resonates with a number of English supporters and players. And yet as Arsene Wenger reasons, it is bound to generate unintended consequences in the form of court cases especially when considered together with other rules.From that explanation, it seems that the FA did not carefully consider the adverse consequences of that rule and how players and managers may adapt to its imposition. The quota rule already looks like a bad idea even before it is in operation for a full season.

Mexico Must Sustain Drugs Legalization Debate

Reno Gazette Journal reports that Vicente Fox, a former president of Mexico openly stated that legalization of the drugs trade in Mexico would break the power of drug selling organized criminals. It is clear that the series of drug wars that Mexico and a number of South American countries have had did not wipe out the brutal traffickers but instead led to far too many deaths that were altogether avoidable. As I have stressed here, this hardware approach to fighting drug production and sale sounds good for moral absolutists but it has been demonstrated to be impracticable when balanced against social safety and freedom.

While a reversal of drug prohibition policy will not necessarily wipe out all the costs of drugs use, it will definitely save many Mexicans from the effects that arise from high profits being sought by illegal drug sellers. Whatever one's moral persuasion, Mexico's president should take the opportunity to follow up the discussion opened by a predecessor and advance debate to prepare for ultimate reform. The picture described by the Economist Magazine here means that Mexicans who neither consume nor trade drugs will continue to bear the cost of a politician's intransigence. And as implied, the drug gangs have the wherewithal to last for long. Saving lives and restoring peace should not be seen as succumbing to criminals but rather bowing to the force of reason.

John Kay on Economic Value of Arts and Culture

"Similarly, the economic value of the arts is in the commercial and cultural value of the performance, not the costs of cleaning the theatre. The economic perspective does not differ from the commonsense perspective. Good economics here, as so often, is a matter of giving precision to our common sense. Bad economics here, as so often, involves inventing bogus numbers to answer badly formulated questions." John Kay 

Boom Time for British Think Tanks

A story in the Economist magazine this week highlights the work of a number of new and older think tanks in the UK. The gist of the story is that the recent change in government in the UK has provided opportunity for a number of centre right of centre think tanks to influence policy. This is primarily because there is not only a new policy dispensation but that the magnitude of economic and social problems lend themselves to the adoption of reforms or new ideas.  

As a person who respects ideas, I think that this is indeed an auspicious moment for think tanks and a majority of those mentioned seem to have prepared for a change of government in order to bring forth fresh ideas. Equally impressive is the disclosure of the fact that the time horizons for IEA and Reform are completely different. In addition, they are not only prepared to provide new ideas for policy but are also alert to what they see as "Intellectual incoherence" in policies being accepted by the new government. 

To my mind, it is altogether a positive thing to see slightly dispassionate people dedicate intellectual firepower to a society's problem. And this is important even if not all those ideas are new or necessarily acceptable to me. The most important insight I extract from the piece is the view that perhaps intellectuals and policy wonks make an error by taking government functions as a given.  As the article states, Mr. Littlewood of the IEA thinks that government should have started on a fresh sheet of paper to define what are its functions and then wipe out all other programmes falling outside that remit.  As a Libertarian, I find that quite refreshing. More brainpower to think tanks of the world. 

Fiscal Sins of America's Political Parties

Whenever I go through analytical pieces and summaries of the state of the US economy, I never fail to notice the stated assumption that main difference between its two political parties is that one party is a better economic manager given to prudence with public finances. And quite unfortunately the majority of blog seem to proceed on this premise and often add to that the view that president Obama's administration is a huge spender of public funds like other administrations led by Democratic Party presidents.

I always muse to myself that as a grown up, the sharp distinction between the two parties is one that only partisans of one side or the other want to believe. And that is why I see this very informative and well-argued piece by David Stockman about the contributions of the Republican party in the fiscal mess that the US finds itself in today. I am reluctant to summarize it because the piece is worthy of careful study but its main idea is that too much expenditure is an equal opportunity error by both parties. In addition, the main assumption of the Supply side arguments of the Reagan administration seem to be catching up with the US as the tax cut fetish alone does not pay for itself as is argued simplistically.   

Of the four points that he makes, I disagree with the assertion that the suspension of the Gold Standard made inflation and too much expenditure inevitable. This point requires some contesting because there's no evidence for it in his illuminating piece. 

Indian Entrepreneur Urges Use of Markets Against Bribery

Corruption in both its grand and petty forms is a defining character of the public sector in many low income countries throughout the world. As a recognized problem, it is often quantified and its manifestations recorded and lots of books published about it. In spite of all the talk and discussions about corruption, the responses that have been adopted tend to be generic. These solutions often require ethical training for policemen, better surveillance, establishment of specific anti-corruption agencies, mandatory disclosure of income for politicians and tightening of rules and new laws against corruption. not only are these ideas uninteresting, they have had little effect in most corrupt countries.

An Indian lawyer and entrepreneur named Shaffi Mather has an idea that has stunned me both for its freshness but also because it introduces a profit element into the fight against corruption. In the TED talk on this page, he talks about having designing a business that uses a number of innovative tools and approaches by trying to fight corruption by adoption of a private and fee-based service to citizens who are faced with demands for bribery in order t receive public services. While the talk is slightly less than a year old, I find this a fantastic approach to a very serious problem that undermines growth in Africa and Asia in particular. Perhaps I should take a sabbatical and study his approach because he seems to have something to teach about business solutions to corruption.  

 

Benefits of e-reader Price Wars

In the last blog post here, i wondered what accounted for the price differential for the same titles of in e-book on Amazon. However. slightly related to that is the fact that the price for e-readers is rushing downwards very first. As stated here, Amazon has introduced two new Kindle e-book readers at much lower prices. One is a Wi-Fi  enabled e-book reader that goes for US$ 139 and therefore is the lowest priced of the main e-book readers.

While I do not understand how far the price war stated here will continue, I am sure of two things. first, it is clear to me that the e-book readers are becoming increasingly handy and are about to become regular electronic gadgets for many people. second and most important is the fact that Amazon's innovation has ensured that most of the value is appropriated by users of the devices. As is evident, today's cheapest Kindle is available for half the price charged a year ago and carries up to 2000 more e-books. And even the second device being launched is the same price as the Kindle 2 but with capacity for 2000 more books. That is a typical trajectory for electronic and new technology devices. may the price war continue.

Price Differences for Kindle Titles on Amazon

Browsing through Amazon's list of best selling titles for the Kindle, I noted an intriguing and non-trivial fact. A number of classics including Adam Smith's and John M. Keynes' popular publications are available in different editions suitable for the Kindle. However, one finds that the prices for the same text such as Adam Smith's, "The Theory of Moral Sentiments" are different. As stated on this page, separate versions of the same text are ranked at 317th and 318th respectively and yet the edition of the December 2008 costs US$ 2.95 while the August 2008 edition available for a 50% premium of US$ 5.79.

I wonder whether this substantial price differential has any effect of how many copies of each are purchased by browsers. I note that they may be different editions but they are probably similar in virtually all other respects. What am I missing about pricing Kindle editions of books on Amazon?

Aditya's Lame Attack on Charter Cities

Paul Romer's stature and reputation among professional economists is very solid. He is responsible for creating new ways for thinking about growth and this theory is called the New Growth Theory. More recently, he established a site in which he is discusses and updates his views on the new idea of charter cities. The idea is that high quality life and economic growth could be fostered in places by allowing new rules to be apply within sections of countries. His main example is the growth of Hong Kong by virtue of a different set of rules being applicable in it that were separate from those on the mainland. 

After the privilege of a meeting with Paul Romer in California, Aditya Chakrabotty dismisses the idea completely. To my mind, i think that the idea of charter cities leading to more Hong Kongs can be questioned legitimately, Aditya seems to have a different problem with the professor. To start with, he betrays his bias by sneering at the fact that Romer lives on a ranch overlooking the estate and further that Romer dismisses the concerns that assertions of sovereignty in many developing countries are often empty posturing. To tell the truth, there's no valid reason except for an ideological one for the harsh treatment of the professor's ideas. What a wasted trip!

Ferrari Rigged the Race Result

Formula 1 is a sporting competition that is unlike many others for a number of reasons, including the extremely fast and technology-dependent machines. In my view, it is also a distinct sporting activity in the sense that Formula 1 is a monopoly franchise which allows teams to enter up to two cars for every race.  What this means is that the individual drivers compete against each other while they are also part of a team as their total points per race add up to the team's score. In short, it is really two championships in one where drivers compete against each other but are also part of the same team.

Yesterday's race in the German Grand Prix race in Hockenheim attracted lots of deservedly negative commentary for the Ferrari team whose drivers won the first two places on the podium. With 18 laps to go before the end of the race, communication from the team to Felipe Massa curiously informed him that his team mate Fernando Alonso was faster. The same voice on radio asked Felipe to confirm that he understood the message.  It does not take much intelligence from regular viewers of the races to note that this was a hint that the leader should let his colleague overtake and thereby improve both their total points haul for the race in addition to improving the prospects of Fernando to rise in the points rankings for the individual drivers.

The FIA  reviewed the case and levied a fine of US$ 100,000 on the team for team orders that fixed the result finishing order  of the race. I think that the despite this explanation, team's tactics here were very crude because if a teammate is really faster, then he should not need the subtle aid of being let to go through as the faster driver should be able to master the speed and skill to overtake his team mate. While this may have been a defensible decision in the view of the team, it was so blatantly executed and the staged celebration between the drivers and the team president principal just reminded me that sometimes these smart guys underestimate the intelligence of their fans.

Hong Kong Tinkering With Success

Milton Friedman's hypothesis that freedom is a prerequisite for human prosperity was very difficult to refute whenever he pointed to Hong Kong. This was a small country with very little natural resources but thrived as a colony in the last half of the 20th Century. And because empirical facts will beat ideology, few people would refute the claim that there is a connection between freedom and prosperity. Hong Kong elevated the role of enterprise to such a degree that its highest political governor bears the title of Chief Executive.

The Economist shows that Hong Kong is now adopting a series of policies that would be a reversal of what its free market credentials have been. Starting with the introduction of a minimum wages, there is an industrial policy in place and other regulations that show that the size of government is growing steadily. At the same time, the maintenance of state-favoured monopolies in gambling and subsidies to entertainment industries.  With the exception of the laws to sensibly regulate monopoly power, I am unsure that these regulations, populist as they are, would be good for Hong Kong's growth. Much Just as the article claims, the country that comes closest to truly open markets is gradually ending the experiment and teachers of economics will be the poorer for it.

The Changing Books Market

When the iPad was launched with aplomb accompanied by serious media reviews, some commentators suggested that it would probably displace the Amazon Kindle. At the time, my guess was that it was not possible for the iPad to fully supplant the Kindle largely because the latter was a highly specialized product while the former was a more general and flashy gadget. To be honest, that assessment was based on my experience with the Kindle and reading of reviews and Steve Jobs' presentation on the capabilities of the iPad.

My reasoning that the Kindle would not be wiped out completely by the iPad seems to be borne out by the fact that both have grown in sales over that time. NYT's Claire Cain Miller writes that Amazon has reported that the sales of books for the Kindle have outnumbered sales for hard back books. That seems to suggest that e-book readership is expanding at the same time as ownership of the gadgets is spreading.    Analysts quoted in the story are making the inference that this is an inflection point at which e-books are acquiring stature as an important market for literature. I think that its too soon to say that but the trends suggests that as the prices of e-readers continue fall, the place of hard back books and other printed material will change fundamentally. The gadget of choice for most people will be revealed but I do not expect a single dominant gadget for reading.  

Multidimensional Poverty Index: Any Difference?

Two days ago, some scholars attached to a research facility in Oxford University together with the United nations announced the development of a new instrument for measuring poverty.  The Multidimensional Poverty index (MPI) is intended to take account of the geography and other variables that may affect the material condition of individuals and people. In detail, the piece report by the Radio Netherlands Worldwide site here states that the MPI is comprised of ten factors including education, health and standard of living and how these factors overlap at the household level.

As explained in the piece, the application of the MPI reveals that sub-Saharan Africa has deeper pockets of poverty but the south Asian nation of India has the largest number of poor persons by count.  In addition, this new index also places a further 400 million people in poverty when compared to the UN estimates show.

I am partial to the use of integrated data and innovative algorithms to provide meaning to phenomena. as a result, I concede that measuring poverty precisely has to be a complicated process because poverty is not only about income or the lack of it. However, as I stated earlier here, the production of new measures for different human can sometimes lead one to ask whether more indices necessarily lead to new knowledge or insights about poverty or how to respond to it. so while I respect the deep thinking hat has gone into construction of the MPI, i wonder whether it tells me much more than what common measures such as per capita incomes would. As described so far, I would agree with Paul Hoebink in the story that I remain unsure that a new index is nothing more than a mathematical stunt.

Making Data Useful For Soccer Management

Managers in sporting disciplines such as Baseball and Basketball know that the use of data provides a view against which tactics can be checked and diagnoses for outcomes made. However, their contemporaries in soccer have not yet been convinced of the value of the intense use of statistics. And while I am convinced that a degree of insights could be extracted from the use of statistical techniques, it is yet unclear how to deploy this data in the arena of soccer. This is because soccer has far too much variety and possibilities that make it difficult to design neat algorithms that predict outcomes accurately.

It is this dilemma of making use of the trove of data on soccer that has faced many coaches during the ongoing World Cup 2010 tournament in South Africa. Thomas Kaplan of NYT describes the situation that obtains and the difficult decisions that coaches have to make regarding what data choices to incorporate in their strategy.  There is obviously scope for use of data in decision making for tactics and other sports management issues but designing of those algorithms will still take a while. 

Use of data to determine decisions such as the value of a player, the methods of training and conditioning of players are already well-developed.  In spite of books such as this, the envy that soccer coaches have for baseball is justifiable. Number crunchers will need to find the metrics that matter most.     

Firm No From Grisha

A story on Grisha Perelman in the NYT escaped my attention but I got to it a couple of days ago. In a past blog post, I stated that Grisha appeared reluctant to formally accept the prize for providing the correct solution to Poincaire Conjecture. At the time, it was clearly premature to call it out as an outright rejection but it appears that he was not bluffing or trying to get media attention. Dennis Overbye confirms that in spite of approaches from the Clay Mathematics Institute, he has stated unequivocally that he will not accept the honour and the prize.  

This should put an end to it but I hope hat Grisha will take time to publish some information on what his disagreements are with the  "organized mathematics community".