Technology Can Cut Off Corrupt Governments

One of the most monotonous but true arguments deployed by people who are instinctively opposed to foreign assistance is that foreign aid raises corruption in many developing countries. The argument is very difficult to rebut because in many respects, the foreign assistance business is in the hands of developing country governments filled with dishonest people who face no disincentives for stealing public money. On a political economy level, it is also possible that foreign assistance displaces local sources of revenue and thereby isolates these governments from the pressures of responding to domestic business owners who would demand improved services. 

And yet for all these potent arguments, one is surprised that the solutions usually rest with the ideological position that because managing this assistance creates risks of embezzlement, then assistance should cease. My view is that as an ideological position, this stance is legitimate but it is less so as an analytical result. Henry Jackelen and Jamie Zimmerman write in Slate that the use of electronic payments would not only reduce the costs of administering aid programs but would also cleverly circumvent corrupt bureaucratic structures in which developing countries excel.  As they state, there is precedent for use of direct payments in executing development projects and their record suggests that the costs of implementing electronic payments into delivery of assistance would be recovered very quickly. 

Economists Too Have Apples Fall on Their Heads

It is fairly accurate to state that the formation of ideas about the profession to pursue is a very subjective process. And yet one of the most interesting things to read s how an individual navigated the various choices available and settled to being a lawyer, accountant or yes, a professional economist. I remember that every time I encounter a narrative by an economist about how they came to pursue the subject, it is often very well written and altogether authentic.

Among the descriptions that I have read about how a youthful and very intelligent person came to decide what area of academia to pursue are memorable accounts by Paul Krugman, Dani Rodrik, Gregory Mankiw, Avinash Dixit and Amartya K. Sen. A definitive feature of the very different individuals is that most of them came to study economics through various routes and motivating factors. I am unable to create links to all their musings save for the one by Avinash and Mankiw respectively which are readily available to me now.

In this short feature in the Harvard Gazette, Gita Gopinath describes how she settled for economics generally and to the subject of international macroeconomics and currencies. In her case, the subject was chosen because of the coincidence that she was considering her career choice at the time when a financial crisis occurred. This appears to have motivated her to seek explanations for an observed phenomenon. So in this case, the metaphorical apple that fell on her head was that of an international crisis. I suspect that Isaac Newton would add, "Isn't that familiar?"

Social Media As a Market

I do not read many market reports partly because I find the few that i have read monotonous and not illuminating in many respects in addition to the fact that I do not have access to many. However, i have recently tried to understand whether the phenomenon of social media can be understood using the conventional tools of price theory. To start with, it is clear to me that there is a huge market for a number of the most popular and that they exhibit characteristics of power law in respect to popularity. For that reason,I found the TED talk by Johanna Blakley truly novel.

To start with, she states that many media corporations tend to describe markets entirely through social a demographic lens. It must be that this is informed by the legacy of the industry. However, I agree with Johanna to the extent that social media may render this conventional approach less useful and has already overturned the dominant feature of male-driven media. So while I am less sure about her predictions and conclusions, I think that social media is being over hyped but holds potential for media corporations in ways that are seen and that are not easily understood yet. To say the obvious, social media is not a free pass to profitability.

Google Ranking Adjusted

Everyone with a little knowledge about search engines understands that the most valuable today is the google search engine. Given the number of websites out there, the fight to feature at the top of google rankings is intense. Corporations therefore go about it by trying to take rig websites to ensure that they feature prominently on the search game. Google has responded to the quest of corporations and site owners to manipulate the search engine by readjusting the algorithm that produces it results to account for the manipulation by content farms.

As explained in this piece in the Guardian, these content farms try to manipulate the search engine by generating lots of popular words and sticking those to websites which exist purposely to ensure that they show up in searches. Such systematic attempts to raise the profile of a business is obviously not illegal but may artificially inflate the frequency of a firm's appearance in common searches.  David Segal of the NYT explored the same phenomenon in this intriguing article which shows how a number of websites constructed to generate high ranking in search were implemented and led to successful results.

For a lay person, the story illustrates the fact that a prominent website presence has lucrative value and this makes the decision to try and manipulate the search engine all but inevitable. In addition, it shows that a dominant search engine such as Google must always be on the look out to ensure the integrity of results because once people understand the rough manner in which the ranking of pages is established, then they will try to manipulate it. In this way, Google's strength is also its weakness.

More on Book Pricing By Amazon

Since I started to read a number of books on the Amazon Kindle, I developed a keenness to understand the price differentials between the various editions of the same book. I have come to a few preliminary conclusions together with a few things that are puzzling.

My first realization is that the Amazon bookstore clearly posts different prices for the digital and paper versions of a book differently but also that the digital versions are not necessarily the cheaper version as I had casually assumed. This assumption was mainly informed by the subtle marketing statements that digital books once produced can be reproduced at little extra cost. Therefore, the marginal costs are much closer to zero than that of a hard cover or soft back book.

The second lesson that I learned is that even for the electronic versions of the same books, the Amazon website does post different prices dependent on one's IP address or purchasing history. As stated on this blog post, this implies is that two readers will buy the same title on the same date and time and pay different prices dependent on what part of the world they are making the purchase. Careful timing may offer an opportunity for arbitrage but I am certain that the algorithm soon catches up with this too.

Thirdly, sometimes the price for one version of a book such as this may cause exhibit a price spread of upwards of US$ 5 between the paperback and Kindle versions of the book. In my view, it appears that that this steep differential is temporary and has been occasioned by extra stocks of the physical copies. It is therefore prudent to offer a steep discount to clear this inventory and save space.  The electronic version does not have this character of occupying physical space and so is not subject to steep discount at this time.

Finally, my hypothesis is that with the distributional efficiency that comes from technology, e-book prices will be less prone to price fluctuations changes than other books are. And the way to test this is to take a sample of 2000 titles and create a price index of them over a long period of time. wWelcome to the fascinating economics of books.

Running Circles Around Greek Tax Collectors

Due to my libertarian inclination, I prefer that governments should set modest tax targets with comparatively low levels of income taxation. Indeed, my favourite tax quote is Sir William Petty's aphorism that was quoted here. As the statement suggests, there are people who are capable of paying taxes but opt to evade taxes and thereby record higher savings or consumption at the expense of others. In spite of my belief that heavy taxation of a few people is bad policy, I still retain the view that tax cheating is despicable behaviour.

And yet governments are not always blameless when a portion of capable citizens easily evade taxes. My argument is that complicated forms of tax reporting and collection give the excuse and opportunity for many capable earners from remitting their taxes promptly. And again, governments tend to look aside when the times are fine and only try to close tax gaps when the economy is doing poorly. Greece instituted some measures to identify and punish tax cheats in order to close its deficit but has had only modest success.

Suzanne Daley reports in the NYT that the level of tax cheating in Greece is so high and done with such shamelesness that government has had to respond. What this story states is that tax cheats and professionals who underreport income face incentives and therefore calculate carefully the probability of their capture. To my mind, the persistence in cheating is not only a dare to government but also a reflection of the citizen's feedback that they consider government to be incompetent. Thinking that the use of satellite photos to identify residences with swimming pools would catch enough of the tax evaders, the failure to execute promptly has led to purchase of pool covers which makes identification more difficult.

This would form background reading for a good lesson on applied economics because it illustrates that tax evaders, like all people, respond to initiatives to catch them. Revenue collectors must be equally nimble and smart and so far, the Greek service is neither of these. Perhaps governments should levy only taxes that they can collect.

Ronaldo: The Journalists are Wrong

Ronaldo Pictures

Apart from politics, it is evident to me that the arena of sports is the other in which partisan passion precludes reasoned judgement and measured commentary. I am led to this comparison for the reason that I have often heard the analysis of fans about the performance of an opposing team and been starkly reminded of the lazy analysis, ignorance and outright misrepresentation that accompanies most political commentary. Take as an example the announcement that soccer's leading striker  of the mid 1990s and early noughties was taking retirement.

Ronaldo Luis Nazario de Lima (aka Ronaldo) is certainly in any list of top scorers compiled by a dispassionate soccer fan and has many solid achievements that qualify him as an outlier in that competitive field. My admiration aside, I am completely amazed at the way leading sports journalists are describing his career and achievements.  The most accurate analysis of his achievements and demonstration of either the partisanship and ignorance of many journalists this one by Brian Phillips in Slate. 

That piece restored my remaining faith in taking journalism seriously since as a person who is reasonably familiar with his achievements and able to verify some of the claims made about the same career, it was obvious that most renditions about his vulnerability to injury and unfulfilled promises are complete nonsense. Ronaldo won every prize that a soccer player would strive for and each, at least with a repeat. What I remember most about him is that if ever there was a soccer player with the ability to finish efficiently and with ease, Ronaldo was it. This guy was the big game player who delivered by scoring and celebrates by flashing his right index finger in the air as if to say, "that's nothing". To conclude, the guy is certainly a better player than many journalists can check facts. 

Fall of the Dictators

Apologies to my very few readers but today's post is among the most political that you will read here. While I make no claims to having been particularly inspired, I think that I should state some thoughts about the ouster of Hosni Mubarak of Egypt late last week. In addition, its far safer to speak about the events that occurred in Egypt last week because outcomes are pretty clear now. 

In my view, the rise of such an unexpected event with the tensions and uncertainties made a mockery of pundits generally and the intelligence institutions because not only were they unable to predict the start of these events but seemed unprepared to deal with it once it started. As if one required a reminder, no despot can ever be completely immune to a rebellion and ouster. Indeed this is proof that most dictatorships are facades for very weak structures and leave no option for structured exits. As Hosni Mubarak just found out,  a 30 year dictatorship would collapse in 18 days.  As an absolute believer in human liberty, I applaud the youth and aged of most populous nation in the Arab world for saying enough and remaining steadfast before a frowning dictator. 

As I debate with myself what all this means, I am compelled to recognize that some lives were lost and therefore the price has been very high. A reluctant hero such as Wael Ghoneim has been identified and celebrated for his use of social media to keep information going and diverse people motivated to do their bit. On the other hand, I think that critical as it has been, the place of social media is probably being overstated in the outcomes. The existence of structural strains made it indubitable that some kind of release would be sought and the thinking being will deploy social media, among other tools to get positive change going.  

This story is not complete unless one takes into account the very measured response from the Egyptian military which effectively asked their commander in chief to take a break. Their role will yet unfold but the outcome would have been far more painful with more lives lost had the military chosen to stand with the despot. One would hesitate to state what would result from the unstoppable force of public demand against stubborn despots with lots of arms. My plea is that they remember that the Egyptian people have tasted freedom and would like to expand it.  Its always a good thing to see a despot fall and with two having fallen in the space of a month is bliss.    

The Intellectual And The Market Place

George Stigler is not only a first class economist but also a formidable polemicist who is not too deeply beholden to any philosophy. I have just read his collection essays in this rare book shows that the incentives faced by professors in the academy are not always conducive for maximum output in terms of teaching, research or promoting free thinking. An important and enduring issue tackled with a sense of humour that is uncharacteristic of an economist is on ensuring better economic literacy among common people. His views about why that elevated quest may be futile is by and itself worthy of a thesis in philosophy. The choice of the title comes from the final essay in the collection that contrasts the academy to the market place and wonders why these two are not natural allies.

Without doubt a superior book for introducing a lay and professional audience to the thinking on economics and the place of academies in the nation. Definitely deserving of five stars because of the due regard for Adam Smith, whose ideas are still profoundly correct in spite of the fact that he did not employ spreadsheet and high order mathematics.  

He makes the following profund statement in the title essay that is still demonstrably true almost half a century later: "I consider it shocking that more Americans have read The Affluent Society than The Wealth of Nations". Needless to mention, it is not only true of the US where a larger proportion of citizens have heard of Adam Smith than many other nations.