Trade Warmongering?
By Kevin
Fist-fight
This HBR blog entry appear suspiciously like some sort of American propaganda against China. It's at best a wobbly piece of work suggesting subsidies helps allow firms to undercut competition temporarily at the expense of efficient firms (which economists already knows) and at worse a sort of warmongering article that risk fueling senseless protectionist retaliation.
All the statistics quoted are probably true; but the implicit argument relies on the notion that price should follow costs, which isn't always and the case especially when there is monopoly power and also when demand changes. There is this strange assumption that US goods and China goods are actually directly competing head-on. I honestly believe that at a certain threshold price level, the goods may not be consumed/purchased at all because of the availability of other substitutes. Moreover, for high-tech consumer products especially, which are often more of luxury goods than necessities, pricing above certain levels simply means that majority of the market may never bother to reach for it. The presence of competition from China helps to pull down the prices of even those products from EU or US, thus benefiting the consumers. Effectively, if the majority of consumers getting those goods are the ones from the developed world then China is actually subsidizing them when subsidizing their firms.
Whenever an economy tries to subsidize their industry to generate sufficient demand for itself, its market power can only be sustained insofar as its ability to produce more efficiently at a higher level of market demand. In other words, if they are truly less efficient, the subsidies will never be able to pay for itself and the ultimate gainers are the consumers. Otherwise, if the subsidies do pay for itself to the extent that the industry reaches a level of demand where they can compete effectively with those incumbent exporting countries without subsidies, it is then more efficient for them to take over the full production (assuming no diseconomies down the line).
I would recommend that countries scale down some of those industries sufficiently to maintain existing cost advantage sufficient to pose a threat to those firms once subsidies are withdrawn, then aggressively develop downstream industries for these products that are highly subsidized in order to enjoy the subsidies that countries like China is providing their industry. In other words, develop manufacturing firms that would consume steel and buy over those cheap steel from China (I'm assuming, as those HBR authors do, that they're completely identical in quality with the US/EU steel) and use them to produce output that can better compete with those from China. Use structural changes to bounce back from the competition rather than retaliate with cheap tactics such as publishing a HBR entry like that getting other nations to 'stand up to China'.
On the other hand, if the majority of consumers of the Chinese products are not the well-off people from the developed countries, but instead, the consumers of the third world, then China is effectivity subsidizing their welfare and raising living standards around the world by providing otherwise inaccessible products to them. If our global economy is to be powering development for the rest of the world for the next couple of decades, rich world politicians and business schools have to stop pandering to the big corporations and focus on what improves the welfare of people that ultimately matters: the lower strata of the society, the suffering children of the third world and reducing barriers to technological adoption by those who have yet to enjoy the 'high-technology' goods (& capital) of the developed world.
The Banking Sector
By Kevin
There or nah?
I've got this article sitting on one of my browser tabs for centuries; it's a great article I wanted to share and just write a thing or two about but I guess I've just been way too busy. Whatever the professor was talking about, it's indeed facts about the life of students especially those in the colleges in the city. It probably started out with LSE and UCL but then King's students hopped on and Imperial College students (none of whom are Economics students) decided that banking was for them. Being a student of LSE, I admit that the frenzy about banking in school got me a little curious. Yet beneath all the 'prestige', it is indeed just a job, one that is like every other and the same sort of considerations apply - whether you want the lifestyle and role it involve.
For students thinking about the course to do in university, your interest in the subject still matters more than the job it might land you in. For most professions, clearly you need to be trained in the area so there is little dispute for people who want to be doctors, lawyers, accountants or engineers. But just make sure you've chosen these 'jobs' because you're inherently interested in the work (the challenge it offers, the problems you've to solve and the techniques you may acquire) and not the remuneration. For other discipline which do not readily translate into specific jobs, have in mind where the field may lead you to but be open; and then charge at it and relish the experience.
And relating to what the professor mentioned about models, readers might like to check out my views on economics and models.
PW Question Analysis
By Kevin
Once again, it's the PW season and ERPZ is doing its part to make lives easier for students. We've taken a look at the two questions this year; both are related and rather similar, with 'Choice' being a more specific version of 'Access' and they can be approached with the frameworks we've laid down in previous years (here is last year's and here for more stuff).
Let me through!
Access
Aim: This project task encourages you to consider the issue of access and suggest ways in which access could be improved for a particular group of people.
Task: Identify an aspect of life in any community where access to a service or resource is a problem (eg: access to natural resources, education, healthcare, housing, etc).
Explain why the problem exists and its impact on the community concerned.
Draw up a plan to eradicate or reduce the impact of the problem.
As usual, we want to break down the question and tackle the problem in manageable, bite-sized bits.
- What kind of service or resource may not accessible to everyone?
- Why is it a problem for the community involved? Is it a basic need not met or simply a want?
- Why does the problem exists? Is it due to poverty, government do not provide it, too expensive even for the middle income etc?
- What specific group of people might be plagued with such inaccessibility? How does it affect them? How serious is the impact of this inaccessibility? Does it lead to other kind of problems?
- How should you go about to eradicate or reduce the impact? Simply provide it to the community concerned, or other issues ought to be considered?
Any real world examples of methods that tried to reduce the problem?
Choice
Aim: This project task encourages you to consider the importance and impact of choice in today’s world and to suggest ways to help people make more informed choices.
Task: Identify an area in which people make choices that affect the wider community (eg: in consumer goods and services, leisure, politics, economics, etc.)
Explain the positive and negative aspects of those choices and their impact on the community.Suggest ways of informing people about the wider impact of their choices with the view to encourage and/or discouraging particular choices.
And, here are some questions we want to ask ourselves:
- In what area do people make choices, and the outcome of their choice have an impact on the wider community? For example, people elect a particular person as president, and the chosen president will implement policies that affect the whole community.
- Why do people make choices in that particular area? (eg: to better their lives, satisfy wants)
- How do people make their choices? Do they research, and go through some thought process before deciding?
- What are the positive and negative aspects that results from making those choices, and its impact?
- What are the ways to help people make more informed choices that improve the community as a whole?
I'll try and come up with examples of potential project tasks but then again, if you face issues with coming up with ideas, there's plenty of ideation tools around and you can always check the PW page for more advice and guidance.
Deciding by a Coin Flip
By Kevin
Flip It!
We face major decisions; often binary in nature, throughout our lives. Should we start working or go to grad school? Should we take on the new job offer or stay on the current role? Coke or Pepsi? Perhaps when we are indeed faced with the situation of Buridan's Ass, a coin flip would indeed allow us to make a 'rational choice'.
Tim Harford cheekily introduces the latest experiment by the economist behind Freakonomics, Steven Levitt. It's worth taking a look about how economists might try to study what it is that places us on the margin. I wonder if jokers might try to screw up his experiment by filling in ridiculous nonsense (Xbox or Playstation?). Just a thought.
Indicators & Indications
By Kevin
Drowns People
I've been wanting to write something on this a really long time ago but I couldn't find time to do so. It's actually about application of the concept of confounders in our daily lives and learning. It is somewhat related to John Kay's Obliquity, which makes for a nice and easy read (and I highly recommend it to any self-righteous economist who thinks everything in the world is just about getting enough incentives in place). I first learnt about confounders in LSE100 (a course at LSE that I thoroughly enjoyed, raved about and accidentally did well enough at). It was almost common sense to me - of course there are things we cannot observe causing two different things which we could jointly observe, and would thus associate, possibly sometimes fabricating some sort of causation story for. Here's an example from the Wiki page:
We find that increase in ice-cream consumption is correlated with increase in incidence of drowning and we think that eating ice-cream may cause drowning (or vice versa) when it could be that people eat ice-creams on hot days and those are the days where more people take a dip in the sea or go to beaches and thus we observe more people drowning at the same time.
Perhaps that wasn't all that convincing because it was an example that is supposed to be obvious. Complexity arises when there are more than one variable involved and maybe when we are using proxies imperfectly. We make such mistakes not only in statistics but just inferences on a daily basis. We do make very smart guesses in our daily lives, such as that a ring on the fourth finger probably indicates the person is married but then of course it depends on whether that ring looks like a wedding band or some plastic accessory. The ring is the indicator and the marriage is its indication. But we obviously know that marriage is not about just the ring; and that aiming to get ourselves a ring doesn't buy us a marriage. Unfortunately, we sometimes behave this way when looking for a job.
As an Economics student in LSE, it is difficult not to be distracted by the vocal crowd of students who goes to networking receptions of companies from the financial industry - the same people from societies with vested interest in finance, banking, investments, etc. These are the people who may spend more time in interview rooms or assessment centers each week than classrooms or lecture theaters. These people are chasing jobs, or rather, those that gives them the money, prestige, and the external envy or perception of intelligence. Those are the indicators. And they think this indicates happiness or success (think about the last time you imagine you're in the shoes of some hot-shot banker and say to yourself, 'how nice it would be to get to drive big cars, buy big houses, don on expensive suits even if it means to be hated by the rest of the economy and insulted by the gutter press'). The joy and the satisfaction honestly is unlikely to come from the work itself for most people. Often, M&A bankers spend months studying potential deals that will not be struck and slides that are made simply goes into archives unseen or examined.
Banker-turned-musician
Stephen Ridley's story is an interesting analogy and many people complain that not all have the kind of talents that he did and would be able to achieve an alternative sort of 'greatness'. That sort of status associated with success is what people think makes them happy. In other words, money, together with the prestige, social status attributed to the work/job are the indicators, and they are confused with its indications - happiness, success, a good life. When things are laid out these way, we know there are confounders - all those money, status, 'good' job are nice things to have and maybe it just seem that people who 'have it all' are happy. They're expected to be, everyone thinks they are happy at least. You might know it when you get there; or you can try and discover the confounders - the little things in life that truly cheers you up. The autonomy over your time, the people you get to hang out with (your true friends, not the cool or rich people you hope to be friends with), the pure excellence in performing your job, learning to love the work you do and seeing the meaning of the things you do. Sure, you can get a high-flying job, then grow to like it, deal with its frustrations and end up being happy. More often than not, if you're struggling to even get there, it is quite likely it isn't for you in the first place.
Go down to get up
I've written a lot on happiness (see here, here and here). We know of the confounders that has been leading us to the wrong things but there are more. A spirit of excellence might bring you a great job that pays well but it is the spirit and keeping on with doing what you like that makes you happy. If someone who doesn't like the work you do come to establish a relationship between the work itself and the happiness or worst, the pay and the happiness, he'd come to be very disappointed when he tries it himself. Likewise, some people are happy making money, they like the idea of getting good returns by taking risks and they accumulate savings/capital which they use to reinvest (ie. take more risks) and generate greater returns. They are rich and happy but they didn't derive their happiness from the riches. In the chapter 'Why the rich isn't necessarily the most materialistic' of Obliquity, John Kay points out that rich people usually amassed their wealth not so much because they were working for it but for something else they really believe in and can passionately engage themselves with.
Don't be misled; I'm not saying that appearances are always deceiving and that you should be cynical about all sorts of indicators; clearly when the GDP per capita of US is higher than that of China, we can trust that US is richer than China, at least financially speaking, and the bucks they're getting from the output their produce (however worthless they might be in your opinion). But that does not necessarily suggests the people in US are living better lives and further inferences about happiness cannot be drawn. So spend some of your life finding confounders and establishing a more reliable relationship between the variables of your life and what your objectives really are - then shut out the noise.
Learning Grit
By Kevin
I just thought it'll be interesting to share this audio interview from The Economist. There's quite a bit of wisdom with what education should be seeking to deliver. In particular, there has to be more emphasis on feedback mechanisms and using tests results, and the things we learn from the (wrong) responses that the child gives. We're currently putting way too much weight on the preparation of tests as if the score is the end point. In reality, every tests provides some feedback to help the child improve and overlooking this is missing one of the most valuable resource that we generate at our schools.
In fact, I've written a long time ago on using tests.
PW Challenges
By Kevin
Jump!
A very short chat with my precocious cousin revealed some exceptionally astute observation about problems students generally have with Project Work. She identified 4 main challenges confronting typical J1 students working on PW:
1) Can't come up with good ideas.
2) Don't get good feedback from teacher-mentors.
3) Get put in a group with members they can't work with.
4) Can't pace themselves and end up having to scramble last-minute.
Obviously, these are some real problems that confronts students perhaps not only with the subject of PW but relating to working on projects in general. And it is actually good that these challenges that confronts students in PW are exactly the sort of thing that bugs adults in the workplace as well (except replacing teacher-mentors with supervisors/bosses). This shows that PW does challenge you to pick up skills that are vital at work and for your future, regardless whether you end up actually accumulating these skills. Sure enough, the assessment may not churn out grades that reflects how well you deal with those challenges (perhaps a single brilliant guy in the team and do everything for the team such that everyone gets an A) but Singaporeans need to face the fact that reality doesn't give us perfect scorecards either! Our income, happiness and relationships does not depend on how much efforts we put in or how well we have perfected our skills at certain aspects of life.
I want to try address some of these common challenges and suggests potentially 'good' responses. I'm not trying to solve some intractable life problems so don't expect that they are 'solutions'. There is no solution to a 'financial crisis' or 'terrorism' or 'sibling rivalry'. There are only responses but we can decide whether some responses are better than others.
1) Ideation
Different people has different sources of inspiration and ways of finding ideas but there are some tools everyone can use. The 'Random Word Brainstorming' method is a good way to start; there is a good brief explanation of it here. And they even provide a simple script that generates random words for you. Otherwise, one could always identify key themes or topics (somewhat related to the questions specified) and then work out an idea under each of them.
There's also a quiet paper-writing brainstorming method where a few sheets of paper are passed around each with a random word as a heading and everyone is made to write an idea relating to the random word and answering the question at hand when the paper is passed to them. This allows you to peek at what has been written and mix, match, combine bits of ideas to form new ones and properly give everyone equal weight on voicing their ideas (since quiet people may be less inclined to brainstorm out loud).
More importantly, judge the ideas only after they have been laid out. Be disciplined and not start raising problems or passing any form of judgments on ideas that have been raised (written or verbal). Not getting good ideas cannot be an excuse for mediocrity; you need ideas to thrive and PW is one of the rare subjects that actually forces you to exercise that ideation muscle more explicitly compare to other subjects where content is usually fed to you first.
2) Feedback
We don't get feedback when doing our exams; no one tells us if we write enough, or if our answer is right or wrong at the moment when you're putting them down on the script. In life when the waiter serves you at the restaurant, you may smile when he does a good job and frown when he doesn't but often even then, we smile and frown based on our moods or offer a neutral expression, how does he know what to do? What about comments and feedback forms in the malls or shops? Do you fill them in?
Your PW supervisor may give you good feedback on your work and tell you which part of your WR should be improved and how you could go about doing it. But more often than not, he/she won't. This is in part because they rather see how you deal with the problem and assess you than to steer you towards the way they want you to. They may warn you if you're dangerously astray but in most cases, they would leave you to do your stuff. So if you need feedback, get friends to read the writing, exchange ideas on how to improve, or even chase your teachers for remarks. Help them by asking specific and direct questions so they know which area you might need more support for? Ask them whether your interpretation makes sense within the context of the question, whether an additional issue you identified later in the project needs to be addressed, etc.
The bottom line: find and generate your own feedback, don't be passive about it.
3) Groupmates
We meet tough people in life. Often it's just mismatch of personalities or working style. There may be issues you disagree on or how to do about doing something. You'll have to learn to cope with that. It may be that everyone can agree on the same objectives and then agree to disagree on the method to arrive at them. Eventually a decision has to be made so it is more about managing the decisions; once it is made, everyone should follow through with it.
Spend more time with your groupmates than just doing PW. Get to know them, stuff outside work and learn to trust each other's abilities and efforts more. Share in each other's dreams and hopes for the future and for the assessment.
4) Procrastination
This is something we've previously thought about and covered here and here.
There are no quick fixes but hopefully you can transform your habits a little.
All the best and hope PW makes you a more mature and better person.
Morality of Markets
By Kevin
It definitely can buy you this book...
Jonathan makes it seems as if economists are pitted against philosophers in his WSJ article.
[Economists] have assumed a role in society that for the past 4,000 years has been held by philosophers and theologians. They have made our lives freer and more efficient. And we are the poorer for it. - Jonathan Last
The truth is that economics has always been an extension of philosophy. Adam Smith was a philosopher who wrote first 'Theory of Moral Sentiments' before 'Wealth of Nations'. He wrote first,
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instance to prove it.
Yet the most famous of Adam Smith's quote subsequently immortalized by generations of economists was:
"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own neccessities but of their advantages."
Jonathan focuses too much on what economist would consider 'static efficiency', which really is just one aspect of economics that is more easily analysed and subjected to greater scrutiny than its more important counterpart, 'dynamic efficiency'. Dynamic efficiency basically considers the long term efficiency consequences of different 'incentives' and signal mechanisms in the economy.
In other words, even the values, and attitudes that economics promote goes into the equation of dynamic efficiency - if it promotes destructive behaviours and interactions that is beneficial to actors in the short run but bad for the entire system, then there are grounds for these to be weeded out. In any case, the discipline acknowledges that competition or market forces are important in bringing about good outcomes but then by the second welfare theorem (when competition can't bring about the greatest welfare then there are ways to adjust the competition to motivate it to bring about that), we know that artificial frameworks and structures needs to be put in place to encourage what is good for dynamic efficiency.
That being said, Michael Sandel's book is definitely a good buy.
[Meanwhile, for those in UK reading this, you might want to enjoy an awesome Starbucks deal.]
Singapore, Malaysia?
By Kevin
As promised, I'm going to write more about my travels having gone so many different places in the past couple of months. It'll be mostly random photographs that capture moments of wonder, confusion, speculation over my trips. I'm going to provide little details about the contexts of my trips and practically nothing about what I did there except when I'm trying to bring out a point. This time, it's about my journey to San Francisco from London; by Virgin Atlantic.
I grabbed a copy of 'Business Destination', a cool-looking glossy magazine that caught my eye on the magazine shelf after I got my boarding pass checked at the boarding gate. I then hurried towards the gate that lead me into the jetway. Virgin Atlantic has an interesting color theme that seem to blend nicely together even if it seem a little unconventional. I found my seat and settled down; I love the feeling of having no heavy hand luggage and could simply slip my little day sack under the seat in front of me.
There, I opened the glossy magazines ostentatiously hoping to read something interesting about places but ended up just looking at glossy photos of them. Soon I stumbled upon this, which made me laugh.
Just to check if it really meant what I think it did, I flipped and check another photo:
Couldn't quite help myself and ended up taking the picture. It's funny for us when we imagine that people can't seem to wrap their minds around the fact that Singapore is already an independent city-state. True enough, it was 'Singapore, Malaysia' for about 2 years but then it was 'Singapore, Singapore' or just 'Singapore' for the next 47 years. Then again, I'm not sure if it's a worse mistake if the magazine thought Singapore was part of China.
Even then, we've come a long way to penetrate the consciousness of the world since our amazing 'development story' and next up our economy (or country, nation, city-state) is going to be more challenged than ever, perhaps more anxious than ever but needs to learn to be more hopeful than ever. If we believe that our growth path has always been dictated by the route that the western advanced economies have taken, then now is really the time we chart our own course. Perhaps towards a true 'Singapore, Singapore'.
Hindsight Bias
By Kevin
I've been reading Daniel Kahneman's Thinking Fast and Slow and was especially intrigued by Chapter 19 - The Illusion of Understanding. He talks about the hindsight bias and our tendency to overrate our prior expectation of the outcome that unfolded.
He talks about the implications on decision makers where people who took huge ridiculous risks and won the gamble were celebrated as genius (for seeing what was to come) whereas those who were prudent to avoid pitfalls and evaluated their options appropriately might be punished when they missed opportunities but are not rewarded when they managed to steer clear of a catastrophe.
Worst of all, when we imagine that we had always 'knew' this was coming or that history is narrated with an air of inevitability. Fact is that luck counts and convergence of incidents, accidents often bring about the outcomes we attribute to intention and manipulation.
Being aware of the bias doesn't help us feel any differently but we may be able to think about things more positively. When bad things happen, we need to downplay our tendency to think that it could necessarily have had been prevented (a common hindsight bias). We need to acknowledge the element of luck when giving credit - it may not necessarily be announcing it to everyone but when assessing performance we must think about that and ensure we're drawing conclusions from a big sample of observations.
Here's a video of his little sharing at my school a couple of months ago:
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