Tim Harford on Originality of Ideas

"Most original ideas turn out either to be not original after all, or original for the very good reason that they are useless. And when an original idea does work, the returns can be too high to be sensibly measured." Tim Harford in Adapt. p. 83.

How the Middle Class Takes Shocks

Searching the name Simon Kuper in the Amazon page will show that he writes very insightful books on the use of economics thinking in the analysis of soccer. He is also a contributor to the Financial Times and has a very informative piece here on the vulnerability of middle classes world over. It is pertinent because the whole world is presently riveted to the remote possibility of US debt default and the less remote one of Greek default and the subsequent contagion throughout interconnected financial markets.

The piece is perceptive and insightful in taking the focus to individuals and households and therefore, considering the micro-level effects and how these impose suffering on account of shocks to the income of individuals. Arguing that those who fall through the "trapdoor" tend to lose faith in the values that support capitalism and suddenly become vulnerable to support conspiracy theories and belligerent leadership, he seems to accept that a sudden economic shock has effects that go beyond the economy.

A response to this thesis requires proper consideration but I think that the government of Greece needs to make tough decisions today because the earlier decisions have been poor and have built up into a far larger problem requiring more sober policies.  And as that happens, I hope that the narrative that develops is not a distorted one rather than one that faces the tough facts as they are. Some Greek people lived far beyond their means and relied too heavily on public subvention.  Still, I am impressed with the thesis about how some people's political opinions evolves with the changes in their economic circumstances.   

Is Netflix the Panacea for Piracy?

This time, the blog takes a break from the concluded deal between the players union on the one side and the team owners on the other. Farhad Manjoo educates me with his articles on technology and business but I think that the latest piece on Slate is just plain wrong. The gist of his argument is that because of the ease of use of the Netflix subscription service, the piracy of digital entertainment in the form of movies may soon die down. he is obviously mistaken for a number of reasons.

I think that Farhad contradicts himself when he mentions early on that Netflix envisages a decline in the growth of subscribers on account of an upwards adjustment of subscription rates. One would think that he would then extend this argument further by stating that why are the subscribers unwilling to take up the service. My incomplete answer is that many of them know that with a certain level of difficulty, they would still be able to get alternatives or even similar movies through various channels including piracy. Secondly, I suspect that  a large proportion of the individuals who download unauthorized versions of entertainment are based in countries in which the streaming service is not available and are thereby unaffected by the availability of streaming services in the US. A third reason is that Farhad makes the big assumption that individuals think of unauthorized content and streamed content as alternatives and therefore consume one to the exclusion of the other.

To my mind, there is no reason to think that the pirates will be held back just because there is an expanded list of movies on Netflix. tThe solution instead is for the owners of these works to understand that while the material is rolled out by geography, the pirates think of the entertainment world as very integrated one. 

NFL Vs Players Union III

In this last blog post, I suggested that the owners of teams somehow used strong arm tactics to scrape away two percentage points from the players and that the real cost of this concessions would be borne by future players. In fairness, the owners also conceded to putting aside some money to ensure that retired players will receive some payments. However, I am surprised that the general assessment seems to be that this deal was fair.

Alex Marvez of Fox Sports covers the emotional session during which the agreement was declared to the public and concludes that there appears to be no ill-will between the sides. tThis may well be but as stated, i I think that the NFL is not only a cartel that hinders competition between franchises by sharing revenues and thereby dividing the market but that owners are aware of the very short careers of a majority of players and exploited it to the maximum. Looking at what has been declared of the collective bargaining agreement, i I am not sure that there was a commercially compelling reason for players to agree to the salary cap and cede 2% points in the overall revenue.  In light of the brinkmanship and tough negotiation, I see no reason to revise my view that players ceded much more and are the weaker side. I hope that further facts and analysis shows me otherwise for I wish to be better educated on the economics of the NFL teams. My best wishes for the next decade.

NFL vs Players Union II

I blogged here a while ago about select details about the financial structure of the NFL and the impending dispute with the players union. For some reason, I understood it that there would be brinkmanship on either side before an acceptable settlement comes up before the next season commences. Jeremy Singer-Vine goes through what is the preliminary proposal presented by the owners proposing that players would be entitled to 46-48% share of revenues as opposed to the even split that characterized the last agreement.

To my mind, the players seem to have ceded quite some ground with that 2-4% spread because I see nothing that shows that the economics of the NFL has changed substantially. Indeed, while this proposal is not concluded yet, reflects the vulnerability of players to the factors that the first blog post revealed. That players have a perishable lifespan in the game allows the team owners to wield substantial economic power. In addition, the existing players have merely preserved their pay by pushing the cuts to younger layers who will face the pay ceilings and salary caps.

The lesson: When two unions engage in discussion with each other, it is future workers that pay the cost. This may be worth bearing in mind in the season of sports and impending political lockouts.        

Sales Tax: Amazon Has A Point

Farhad Manjoo often does a fantastic job at the Slate Magazine in explaining the confluence between technology and business, but in seeing technology as business. His latest piece addresses his view on taxation by different US states on the taxation of goods sold by Amazon. As usual, the coverage of the issues is comprehensive.I am less sanguine about the conclusion that Amazon is reluctant to collect taxes on behalf of states because it has no incentive to do so. 

It is obviously true that Amazon is aware that a tax levy on goods that it sells would cause a reduction of quantities purchased. However, the view that Amazon is capable of putting up a system that would track and keep data on taxes due to each state enable the is only half true because keeping this clearing house is not without cost. In essence, I am reluctant to blame Amazon for the fact that states impose taxes that not only reduce trade but also impose tracking costs on businesses.With that in mind, it may be that the states that impose taxes externalize the problem of maintaining records while picking their revenue. I think Amazon is right to state its concerns about that. 

Rybka Plagiarized Code

My recent reading of the book from which this profound quote was extracted led me to wonder about the pressure and interesting life of top chess players and how they incorporate machine learning in their games. bearing in mind that Gary Kasparov, the world's highest ranked player lost to a computer a while back, it occurred to me that computer games would be the next platform for learning for elite players.

That's why more i was quite enamored with this occurrence where it was discovered that the Chess champion among computers known as Rybka, was disqualified for unauthorized use of code from other programmers. The hilarious title of the story aside, it is an illustration that the programmer of the four time champion learned from other open source codes and used it to enhance the performance of Rybka. Come to think of it, any champion could borrow Alekhine's defense or Capablanca's openings without being accused of plagiarism but once the play is in machine language, then different rules apply.        

The Age of Benevolent Dictators

A few months ago, I found myself in a discussion with an acquaintance who had visited the Libyan city of Tripoli in the last year. It is to be recalled that at the time, Egypt was in political turmoil due to unrelenting pressure by the citizens for resignation by the president and the leadership. As is common, there were various ideas about how far the series of protests would go throughout the nations of the Middle East and the north of Africa. The discussion started with arguments about what the trajectory of protests would take and which country would next be under pressure. My interlocutor stated firmly that Libya's government would have no reason at all for worry because of the better quality of life that it accorded its citizens. In his view, many people would willingly trade off political freedom for economic prosperity and that was it. While I do not recall exactly the words uttered, the libertarian bone in me was  disturbed by the assertion that benevolent dictators are going to be more safe and better for development outcomes.

Today, I got a copy of this piece by the Centre for International Private Enterprise (CIPE) that places a dispassionate argument dispelling the myth of the stability and prosperity of states under the rule of "benevolent dictators". Admitting that there are a number of seemingly prosperous states that have had authoritarian governments, the article makes the important point that this is no reason to conclude that democracy should be secondary to strong economies. And yet, the clear evidence that democratic systems have endured into prosperous economies does not seem to correlate with preference for the former. At the same time, it is clear that democratic systems may be difficult to work under but these governments are more likely to be interested in achievements that go beyond keeping the chairman and his comrades in power.  

For all its conciseness and clarity, this article is unlikely to convince everyone that democratic freedom is also most stable avenue towards economic prosperity. One need not only look at Intrade's main board on the chances of Gaddafi's survival to understand that this quest for benevolent dictatorships is ill-informed. We now know that among the governments in the neighbourhood of the Middle east, it is the Libyan government that has the toughest choices ahead of it now. It is also less likely that the regime will survive intact as there are some irreversible changes already afoot.

Is Tiger Beyond His Best?

A couple of weeks ago, Rory McIlroy won the US Open Golf Tournament for 2011 with an impressive and dominant display that started the comparisons to Tiger woods. Clearly, the winner deserved the glory and provides proof he is one of the top players and not just a rising star. And that brings me to the consideration about the prospects of Tiger Woods in the game.

I stated a while back in this post that Tiger Woods will be back after his tribulations and that he will still be among the players to beat. With more than a year gone since that assertion I think that I would still wager a considerable sum on his return. Tiger's injuries notwithstanding, my confidence in his ability comes from the fact that he plays a sport in which the physical diminution of skills does not occur as quickly and the range in ages of the top players is among the widest in professional sports today. Secondly, the skills that are required to perform in golf are built over time and may be improved over a longer stretch and this gives Tiger a significant advantage.

For that reason, articles such as this about Tiger being invincible probably overstate Tiger's supposed decline, if any and fail to mention the fact that PGA Rankings released last month should be read cautiously. For instance, while the ranking system places Tiger as seventeenth, it is clear to me that this is largely explained by the fact that he has played the least among all players ranked above him. Tiger will be back.

Duncan Watts Explains Market Bubbles

Reading Duncan Watts piece in Slate Magazine a couple of days back, I was reminded about one of the blog posts a while back on social media. To my mind, it is almost certain that the potential of social media as a whole is being overstated but the enthusiasm for investors and users makes this a difficult argument to make. The poignant point in Duncan Watts' argument is that it is not possible to tell what will constitute success for a firm and so the valuations and assessments on profitability are in many instances just guesses cushioned with convenient justification and hope. It is this enthusiasm that in turn leads to market bubbles irrespective of the industry.

Thus the limits of human ability to tell the future is part of the factors that generate bubbles. Hence by the time everyone agrees to the fact that an industry went through a bubble, it is merely because there has been a backward connection of dots to include stories that make the outcomes almost inevitable. As he concludes, the only certainty at the end of the bubble is that many people suffered genuine confusion and it is the subsequent neat story that is less credible and contrived.

And that explains why his book, Everything is Obvious will probably be one of the business books of the year. And that's because we will be referring to its sometime soon after the social media space has gone through the cycle described in the article. 

Story From A Lost Picture Now Found

Six years ago, I visited the city of Bangkok in Thailand for the first time and was fortunate to have a day to spare as a tourist. In my minimum travel, I concentrate on taking pictures of places of worship and was lucky to have camera around to take pictures at the The Grand Palace complex that neighbors the Wat Phra Kaew. The picture accompanying this blog post was taken during that trip and because I do not take notes, I could not recall the real name until I referred to a guide book today. However, I could still remember clearly that it was a set of temples near the palace and that one of the beautifully decorated temples held the most sacred statue in Thailand, the Emerald Buddha. 

In a separate place nearby is an abandoned palace for the royal family in Thailand. Both the temple and the palace side of the complex bear perfectly manicured lawns.

As I recall, the place was so full of tourists and guides and there are portions of the temple that require the removal of shoes with warnings that they are not always safe there is no guarantee that one will find a pair left behind. Somewhere within the temple complex is a very well-crafted and accurate model of the Angkor Wat complex in stone. It is only upon my visit to the latter, four  five years later did I recall the craftsmanship and its apparent accuracy. The enduring question in my mind then is why palaces and temples are either very close or combined in a single complex as in both Wat Phra Kaew and the Angkor Wat.

Economics: Barrier to Faster Commercial Flight

Writing in Slate Magazine, Brian Palmer presents an extremely informative and correct argument for the fact that in spite of the development of flying capability, airlines are not getting passengers faster to their destinations. The argument is simply that fuel costs limit the speeds at which these airlines would operate since faster machines that are already available, would run on more fuel.As it is argued, a 10% gain in flight speed results in 21% increment in fuel consumption. What this means is that mass raising the speed of getting airlines to travel between cities is not a matter of technology but economics. In other words, it is possible to substantially shrink the time between cities such as London and New York but the time gained would not be worthy of the additional costs of fuel.

Meaning that planes will not cross continents much faster and will instead get more comfortable. How's that for a lesson on trade offs and opportunity costs?

  

Is College Education For All?

In my libertarian stance, one of the few areas in which I concede to the need for government to spend public money is in public education. A republic of educated people is probably going to do better with respecting rights of individuals than any other alternative. And yet I am easily frustrated by the simple arguments about whether everyone should go for a four year college education or not. To my mind, this question is an obvious red herring because clearly, not everyone who is capable of going through the college curriculum thinks it worthy of his time.

My sense of worry that policy debates in education are getting increasingly pedantic was elevated when I read this article under the title, "Should All Kids Go to College?". Granted that questions like these are often posed so that the author could tackle both sides of a difficult and polarized subject, it is clear that it adds to the confusion.  It is abundantly evident that not all kids should go to college because not all kids want to and because one does not have to attend college at a pre-set time.

In conclusion, primary and high school education are worthy of worrying about in terms of the numeracy and literacy of minors. I am not sure that it is a policy issue to worry about the specific drop out rates in college since universal completion at college rates should not be expected. At the same time, the crude argument that there is an inherent and real distinction between vocational training and academic training is patronizing to poor kids and outrightly preposterous. Many people who maintain the argument that certain classes or people ought not to be taken through academically rigorous courses assume that competence is one equals inability in the other and cite the greatly admired apprenticeship system in Germany. Well, they are probably wrong because I have met a German professor of political economy who is also an apprentice in carpentry.  

Facebook Needs Revenues More Than New Subscriptions

It is a fair question to ask whether there is a return to a technology bubble as happened in the early part of this century. The only difference this time may be that it is driven entirely by what technology pundits and the press have aptly named as the social media. Clearly, the leader in this is Facebook which has accummulated more than half a billion users. Charles Arthur of the Guardian cites information here suggesting that it is beginning to plateau in the US, Russia and parts of Europe.

While I claim no special knowledge of the economics and drivers of the industry, I think it is unlikely that the reduction in the pace of growth of new users should worry Facebook's management. To my mind, the strong pace of growth over the last  few years is itself remarkable and was bound to reach saturation at some time in the future. The critical thing that social media corporations must worry about now is to build on the back of their strong subscriptions, the appropriate revenue models that begin to show profits. Students of business should keep a keen eye on this industry.  

The Outlier in The Middle East

Governments in the Middle East and Northern Africa have approached the clamour for political and social change in very similar ways and with little success and at great cost to lives of innocent people. The exception seems to be the Kingdom of Saudi Arabia where the monarchy has responded by opening the treasury and expanded welfare programmes and redistribution of the rents from petroleum to citizens through a variety of methods. As Neil MacFarquhar of the NYT states, it is clear that the strategy is to disarm the calls for political reforms by redistributing oil money from the state to citizens through increased construction of housing, raises in pay and contributions to clerics who are friendly to the establishment.

This approach is understandable since Saudi Arabia has comparatively large oil reserves and receives substantial rents for that every year. It is therefore capable of maintaining this distribution to placate citizens and momentarily quell any rising discontent. It is less clear that this approach is bound to work for a long time especially as public expenditures must have a limit and affects the development of private sector. That aside, this political trick should worry watchers of the oil markets because if this approach is maintained into the medium term, then it affects the incentives in the country to play Saudi Arabia's conventional role as the moderator of oil prices. I hope that the monarchy sees this as an opportunity to buy some time and start its reforms because it is unlikely that perpetual appeasement is a good trade off for reforms.

Quoting Gary Kasparov

Reading Garry Kasparov's book, How Life Imitates Chess, I underlined very many passages in the book and now find myself having to choose only one for this post. It is found on page 212 of the paperback version.

"When preference overrides objectivity to too great a degree, our growth is inhibited."

Walmart's Final Frontier

Many households in sub-Saharan Africa are especially vulnerable to shocks generated by rising costs of food and fuel. the reason for this is that in spite of the recent economic growth registered in many African countries, the majority of people still live on very low incomes. That the south African competition Commission and the Tribunal have allowed the formal entry of Walmart to take over a leading grocery chain in that country is both fascinating and portentous of good things to come. As argued here, South African unions may be concerned about the entry of Walmart into that country but its lower income people would benefit immensely from this.

The entry of Walmart in a continent that requires serious retail market development is understandably causing concern but increased competition in retail markets is a precondition for further growth. let African urban centers be the final frontier for Walmart. I hope to follow its progress in future blog posts.   

Boris Johnson Argues That Rugby Causes Less Violent Crime

Sometime last week, the UEFA Champions League finals took place in Wembley Stadium in London. The general conclusion was that on that day, the better club, FC Barcelona of Spain won the trophy. As is expected, the punditry went out to express opinions and theories on why FC Barcelona completely dominated the match and what that implies about the football tradition of England, where the vanquished team is based. As usual, most of the commentary was not worthy of reading, leave alone taking seriously.

In my view, the standout analysis of the match and its outcomes came from the Mayor of London, Boris Johnson. His article is definitely worthy of reading and reflection upon. And yet, he too missed a delicate point and made a common error. By way of summary, his argument is that the dominance of FC Barcelona suggests that the approaches chosen by English teams is manifestly inferior. Going further, he posits that England may be better suited for rugby, the sport in which it has produced a recent world beating team. No errors so far, except that he alludes to the fact that rugby is a distinct sport in the sense that areas with the highest participation in rugby are also areas with the lowest levels of crime.

Be that as it may, it is still a leap in abstraction unless he can prove that the direction of causality heads from Rugby towards low violence. Is it not just possible that areas that experience low levels of violence in the first instance are attracted to rugby? Mayor Johnson, correlation is not causation.

Facts From Mexico's Census

I have just encountered this dated article from the Economist website discussing the results of the official census in Mexico. Starting with the obvious, it assessed Mexico's population at 122 million people and reveals not only interesting changes in the demographic profile but also about household property ownership. A curious fact in the author's mind is the revelation that 93% of Mexican households own televisions while 82% own refrigerators. I am unsure what the ideal is but the point being made by the author that television shows in poor quality seems not to find support from households. To my mind, the goods are probably not substitutes and ownership may be related to price or the size of each household.

No census would be complete without a journalist pulling out data to contrast the ownership of mobile versus terrestrial lines. It emerges that in Mexico, the ratio is 66% to 25% in favour of mobile telephones. I find this even more interesting because in many countries, mobile telephones tend to be perfect substitutes for landlines that have historically been unavailable to low income people. Illiteracy among the youth is at less than 2% while it climbs to as much as one third for those above 75 years shows that the country has done well with expanding the reach of social programmes. Kudos too to corporations and governments for the fact that electricity connections are almost at the universal level.

Image from Wikipedia Commons

Fifa at The Crossroads

In general, I support private institutions that choose to organiza sporting activity based on agreed rules even if they attempt to consolidate across national boundaries. However, I have also come to the view that when a decision that could be reached through a market mechanism is reached by an alternative means, then it is difficult to preclude biases and corruption. Soccer fans have come to the stark realization that FIFA's methods have not only exposed its delegates and officials to possibility of inducement to corruption but that it is almost certain that its leadership at the regional and international level is corrupt.

Revelations here and here put it beyond doubt that the conspiracy has been blown and the evidence that this institution overlooked corruption is undeniable. No doubt FIFA will buy high-powered public relations  but that is looking at it the wrong way. This organization should take the simple mechanism of auctioning the rights to hosting events as a cleaner and more transparent method for assigning hosting rights for future World Cup tournaments.