Monday 29 September, 2008
More awards than funds
Why do mutual fund rating services give so many awards? Best this, and best that, and best this of that? They are marketing tools, of course, but should there be some body to check on these awards?
Socialist America
The ongoing economic crisis has prompted many comments from many commentators. Here’s Swaminathan S Anklesaria Aiyar in ToI (21 Sep 2008), in an article titled Is America becoming socialist?
Says he, “Leftists suspect the US takeovers aim to rescue rich shareholders. Not so. The government will acquire 79.9% of the shares of these companies at virtually zero cost, pushing down the share price close to zero. So, rich shareholders have been wiped out, and the bosses of all three corporations have been sacked.
This is not a rescue of the rich. It is a rescue of ordinary people who need mortgages and a functioning housing market, which would have collapsed had Fannie May and Freddie Mac gone bust. The takeover of AIG will save millions of insurance policy holders from losing their coverage and annuities. The takeovers aim to prevent financial panic from spreading and dragging down the whole economy, as happened in the Great Depression of the 1930s.
The usual procedure in a capitalist welfare state is to let mismanaged companies go bust, penalising the shareholders and managers, and then provide safety nets to those adversely affected. But when corporations are so large that their collapse would endanger the entire financial system, it’s sensible even from a capitalist viewpoint to have a government takeover before they collapse. This is a sort of pre-emptive safety net. Moreover, preventing distress wins votes (or at least doesn’t lose them), and that’s vital in a democracy.”
Hey, are we missing something here? “Size matters.” Is that what our great champion of the great free market (nee capitalism) has to say? Why is it ok for a lot of small companies to go bust all the time, and a lot of people suffer the resultant misery in ‘small lots’, but not ok for a few big companies to go kaput in quick succession throwing a great many people into the deep end in job lots of thousands? Because people will lose faith in the system? Does that mean the system runs on faith and faith needs gods like the giant corporations?
And whoever thought the capitalism and socialism had anything to do with the bosses? In the former, the super-talented become CEOs; in the latter, they become commissioners. In either system, they can fend for themselves. It’s the countless small fry that economists worry about, don’t they?
Finally, if these shares are a bargain, why is Uncle Sam picking them up? Why doesn’t he let ordinary citizens gain from the opportunity? Because he has the money? In that case, shouldn’t uncle also be handing out loans to small entrepreneurs, taking shares in their companies as collateral, so that he can make big bucks - for running the welfare state – when these entrepreneurs grow big and string? Maybe he should be aiming for the commanding heights of the economy while he’s about it, using his tax dollars to dominate sunrise businesses and turn around sunset industries. What is he, really, state as capitalist? Or does he know things lay investors don’t?
Says he, “Leftists suspect the US takeovers aim to rescue rich shareholders. Not so. The government will acquire 79.9% of the shares of these companies at virtually zero cost, pushing down the share price close to zero. So, rich shareholders have been wiped out, and the bosses of all three corporations have been sacked.
This is not a rescue of the rich. It is a rescue of ordinary people who need mortgages and a functioning housing market, which would have collapsed had Fannie May and Freddie Mac gone bust. The takeover of AIG will save millions of insurance policy holders from losing their coverage and annuities. The takeovers aim to prevent financial panic from spreading and dragging down the whole economy, as happened in the Great Depression of the 1930s.
The usual procedure in a capitalist welfare state is to let mismanaged companies go bust, penalising the shareholders and managers, and then provide safety nets to those adversely affected. But when corporations are so large that their collapse would endanger the entire financial system, it’s sensible even from a capitalist viewpoint to have a government takeover before they collapse. This is a sort of pre-emptive safety net. Moreover, preventing distress wins votes (or at least doesn’t lose them), and that’s vital in a democracy.”
Hey, are we missing something here? “Size matters.” Is that what our great champion of the great free market (nee capitalism) has to say? Why is it ok for a lot of small companies to go bust all the time, and a lot of people suffer the resultant misery in ‘small lots’, but not ok for a few big companies to go kaput in quick succession throwing a great many people into the deep end in job lots of thousands? Because people will lose faith in the system? Does that mean the system runs on faith and faith needs gods like the giant corporations?
And whoever thought the capitalism and socialism had anything to do with the bosses? In the former, the super-talented become CEOs; in the latter, they become commissioners. In either system, they can fend for themselves. It’s the countless small fry that economists worry about, don’t they?
Finally, if these shares are a bargain, why is Uncle Sam picking them up? Why doesn’t he let ordinary citizens gain from the opportunity? Because he has the money? In that case, shouldn’t uncle also be handing out loans to small entrepreneurs, taking shares in their companies as collateral, so that he can make big bucks - for running the welfare state – when these entrepreneurs grow big and string? Maybe he should be aiming for the commanding heights of the economy while he’s about it, using his tax dollars to dominate sunrise businesses and turn around sunset industries. What is he, really, state as capitalist? Or does he know things lay investors don’t?
Jago to nonsense
Two companies seem to have this social relevance thing all figured out. They are Tata Tea (the Jagoo spots) and Idea Cellular Services. The former’s ads show (a) a voter asking a candidate if he has any experience in roads, bridges, and the rest and (b) an obnoxious young chap telling a middleclass group that if they are not voting on election day, they are asleep. Idea’s ads equate learning English with education.
The reason why Idea disgusts me needn’t be explained. It’s shameful we have to indulge this racial bullshit in 2008.
But Tata Tea is more subtle. The voter’s ire with the candidate is all wrong. He says the candidate should have experience of ‘running the country’. Actually, that’s only the ministers’ job, and only to a well-defined extent. A legislator’s main task is making laws. Even if he is to be included in a cabinet, he should bother more about policy than day-to-day operations. In fact, the trouble with our corrupted systems can be drilled down to legislators getting out of the law, which we elected them to frame, and getting into ‘running the country’, which we actually pay the civil servants to do.
And too many statisticians have pointed out too often that single votes cannot count. If the middleclass, as a group, decide that none of the candidates reflect their ideas, or they’d be equally unhappy if any of the candidates gets elected, they are better off treating election day as a holiday. Anyway, I wonder what this tea company wants to be associated with, and why.
Has someone out there figured out that if we perceive them as wasting money, we will also think they are doing so well that they have money to burn, and this is only possible if their product is exceptionally good (Much like a great batsman mocking bowlers).
The reason why Idea disgusts me needn’t be explained. It’s shameful we have to indulge this racial bullshit in 2008.
But Tata Tea is more subtle. The voter’s ire with the candidate is all wrong. He says the candidate should have experience of ‘running the country’. Actually, that’s only the ministers’ job, and only to a well-defined extent. A legislator’s main task is making laws. Even if he is to be included in a cabinet, he should bother more about policy than day-to-day operations. In fact, the trouble with our corrupted systems can be drilled down to legislators getting out of the law, which we elected them to frame, and getting into ‘running the country’, which we actually pay the civil servants to do.
And too many statisticians have pointed out too often that single votes cannot count. If the middleclass, as a group, decide that none of the candidates reflect their ideas, or they’d be equally unhappy if any of the candidates gets elected, they are better off treating election day as a holiday. Anyway, I wonder what this tea company wants to be associated with, and why.
Has someone out there figured out that if we perceive them as wasting money, we will also think they are doing so well that they have money to burn, and this is only possible if their product is exceptionally good (Much like a great batsman mocking bowlers).
Friday 19 September, 2008
Ad secretary
We have a simple way defining professionalism: “Hum kam bechne aye hain, izzat bechne nehin.” We have come to sell work, but our honour is not for sale.
And what does a professional find the ultimate dishonour? I think it’s when a buyer tells him what to do. You don’t tell a doctor how to diagnose, you don’t tell a hair stylist how to hold his scissors, you don’t even tell a charwoman how to sweep. Why does a client want to tell his agency’s art directors and copywriters how to make his ads?
On the face of it, it makes no sense. At times, the agency people may not ‘get it’. Yet, shouldn’t the client then ask himself why he hired the agency in the first place, and what may have gone wrong since? Are the people on both sides the same? Can he be blowing up an ordinary mix-up? Can a little chat clear up the matter, and bring the work back on track? In any of these cases, he’d get more for his money than by interfering to the level of insult.
I’m told this behaviour is not confined to the humble ad agency, but extends to even to the hoity-toity consulting agencies. Their reports are routinely dictated.
So why keep a dog and bark too?
I suppose there are two reasons.
First, the interfering client never wanted an agency in the first place; he wanted an ad secretary - an DTP operator-cum-typist (There is nothing wrong with either, but a typist's pride comes from words-per-minute and an operator's from his knowledge of software. Copywriters and art dircetors do not seek these.) He never hired an agency; he merely kept a scapegoat. The hiring process was a charade played to get his colleagues’ buy-in to his choice.
Second, he’s perverted. He trip in life is telling other people what to do, in other words: power. He’s like the director of a pot-boiler who ropes in a much feted art film actor to do an minor role just to slight the latter. “See, I bought him. For all the holier-than-thou platitudes about socially relevant art, he’s a commodity first and an artist next.”
It’s futile to attempt to explain his actions by ascribing him with rational mind of homo economus. The gains he seeks are beyond money.
But how does the agency cut its losses? Does business need to bring in ego massage as an acceptable service, not a kickback?
And what does a professional find the ultimate dishonour? I think it’s when a buyer tells him what to do. You don’t tell a doctor how to diagnose, you don’t tell a hair stylist how to hold his scissors, you don’t even tell a charwoman how to sweep. Why does a client want to tell his agency’s art directors and copywriters how to make his ads?
On the face of it, it makes no sense. At times, the agency people may not ‘get it’. Yet, shouldn’t the client then ask himself why he hired the agency in the first place, and what may have gone wrong since? Are the people on both sides the same? Can he be blowing up an ordinary mix-up? Can a little chat clear up the matter, and bring the work back on track? In any of these cases, he’d get more for his money than by interfering to the level of insult.
I’m told this behaviour is not confined to the humble ad agency, but extends to even to the hoity-toity consulting agencies. Their reports are routinely dictated.
So why keep a dog and bark too?
I suppose there are two reasons.
First, the interfering client never wanted an agency in the first place; he wanted an ad secretary - an DTP operator-cum-typist (There is nothing wrong with either, but a typist's pride comes from words-per-minute and an operator's from his knowledge of software. Copywriters and art dircetors do not seek these.) He never hired an agency; he merely kept a scapegoat. The hiring process was a charade played to get his colleagues’ buy-in to his choice.
Second, he’s perverted. He trip in life is telling other people what to do, in other words: power. He’s like the director of a pot-boiler who ropes in a much feted art film actor to do an minor role just to slight the latter. “See, I bought him. For all the holier-than-thou platitudes about socially relevant art, he’s a commodity first and an artist next.”
It’s futile to attempt to explain his actions by ascribing him with rational mind of homo economus. The gains he seeks are beyond money.
But how does the agency cut its losses? Does business need to bring in ego massage as an acceptable service, not a kickback?
Tuesday 9 September, 2008
Peculiar dignity
In a recent function, MP and actress Jaya Bachchan said, “Hum toh Hindi mein bolna pasand karenge. Hum toh UPwalle hain. Maharashtrawalle humein maaf karenge.” When translated it means, “I would like to speak in Hindi since I am an UPite. Maharashtrains will forgive me.”
This was taken as slight to Maharashtra and Marathi. Raj Thackeray gave a call to boycott not only all films starring the Bachchans, but also all products endorsed by the family. But he didn't stop there. He 'ordered' his partymen, indeed all Marathis to destroy all hoardings and posters featuring the family. The latter threat was promptly implemented.
Mrs Bachchan has since apologised for the remark, saying she said it in jest, and meant no harm.
But I hope the story doesn't end here. Let's say she didn't say it in jest alone, and it was pregnant with political meaning. So what? It was a civilised joke. And deserves, at worst, a civilised rebuttal.
Notice her words: “Maharashtrawalle humein maaf karenge.” Maharashtrains will forgive me. She demands forgiveness, doesn't beg for it. It can only mean that she expects, if not fairness, at least civilisation from her adversaries. She expects them to be agreeable when they disagree. This is a necessary condition for democracy, isn't it? What sort of dignity do we want that excludes basic democratic rights?
By deniying non-Marathi politicians the right to free speech and gentle dissent here, Thackrey and his goons is forfeiting all Marathi speakers' rights to these fundamentals elsewhere. He forgets that effectively Marathi is the second language in Goa and Karnataka. And there are large numbers of Marathis in MP.
Also, the Bachchan's don't own any of the ads the goons damaged. Companies do. Why punish companies for their ambassadors' politics?
And even if Mrs Bachchan owned those hoardings, how can you damage her property because you disagree with her politics? Even if what she did was wrong, who is Thackrey to decide (a) the occurrence of crime and (b) the amount and nature of punishment. What sort of dignity excludes the rule and protection of law? Is that the dignity that Thackrey will give this state if elected to office?
Why do Thackry's supporters believe that the hand the thrashes others will pet them? Or does he have no supporters at all, only goons?
This was taken as slight to Maharashtra and Marathi. Raj Thackeray gave a call to boycott not only all films starring the Bachchans, but also all products endorsed by the family. But he didn't stop there. He 'ordered' his partymen, indeed all Marathis to destroy all hoardings and posters featuring the family. The latter threat was promptly implemented.
Mrs Bachchan has since apologised for the remark, saying she said it in jest, and meant no harm.
But I hope the story doesn't end here. Let's say she didn't say it in jest alone, and it was pregnant with political meaning. So what? It was a civilised joke. And deserves, at worst, a civilised rebuttal.
Notice her words: “Maharashtrawalle humein maaf karenge.” Maharashtrains will forgive me. She demands forgiveness, doesn't beg for it. It can only mean that she expects, if not fairness, at least civilisation from her adversaries. She expects them to be agreeable when they disagree. This is a necessary condition for democracy, isn't it? What sort of dignity do we want that excludes basic democratic rights?
By deniying non-Marathi politicians the right to free speech and gentle dissent here, Thackrey and his goons is forfeiting all Marathi speakers' rights to these fundamentals elsewhere. He forgets that effectively Marathi is the second language in Goa and Karnataka. And there are large numbers of Marathis in MP.
Also, the Bachchan's don't own any of the ads the goons damaged. Companies do. Why punish companies for their ambassadors' politics?
And even if Mrs Bachchan owned those hoardings, how can you damage her property because you disagree with her politics? Even if what she did was wrong, who is Thackrey to decide (a) the occurrence of crime and (b) the amount and nature of punishment. What sort of dignity excludes the rule and protection of law? Is that the dignity that Thackrey will give this state if elected to office?
Thackrey's justification is that Marathi-speakers' feelings have been hurt! I respect feelings. I believe that those outside a problem undervalue feelings and face of the people involved, and over-value logic. Yet, I think this is way over the top.
Why do Thackry's supporters believe that the hand the thrashes others will pet them? Or does he have no supporters at all, only goons?
Friday 5 September, 2008
Employers' Union Zindabad
“Labour unions are bad because they force poor employers to set floor wages. This either drives employers out of business or makes them replace labour with machines. In either case, the poorest workers are rendered jobless or unemployable. There are any number of examples where unions have insisted on outdated rules be complied with, not caring of the harm to business by doing so. For instance, American railroad unions made railroads keep three men in the engine long after the companies had switched to diesel and electric trains which can be run by one driver alone.”
And so my author drones, all the time maintaining that he is not against unions, and if I can hardly hear him say anything in their favour, it's completely my fault.
Very well. May I ask, though, why he must pick an industry like railroads, which has long ceased to be economically viable across the world?
No matter how you look at it, you cannot probably run a railroad that people will use unless you subsidise it highly. Hence, it is convenient to blame any player you hate. You can always show failure. Few will ask you to establish causality (Prove that unions' unfair demands broke employers' back).
Also, why does he never talk about an employers' union or cartel setting wage ceilings? Instead, he, and many like him, keep repeating that an employer unwilling to pay 'market' wages will find his workforce lured away by others.
Now, I'd like to bring real life to bear on this, if I may. Let me take the example of computer operators in ad agencies. The thinking goes like this: “The operator's job is more or less mechanical. Anyone who has time can teach himself the designing software. It takes memory and hard work but neither talent nor aesthetic sense. There is no dearth of boys who desperately need work, so why pay 'too much'. We'll stick to an 'industry rate'. If that doesn't suit someone, too bad. He'll have to look elsewhere.”
I'm sure the 'industry rate' is not a price point, but a price band, and agency owners believe the band is wide enough to allow sufficient competition.
What if it isn't? What if the 'industry rate' is actually a wage ceiling, enforced by an unspoken diktat, the force of which will only be felt if anyone dares to step out of line. (“How dare you pay your operator so much, mister? You may be running a charity, we aren't. Back off, or we'll break your legs.”)
How does one know that employers do not meddle with market forces, more so in situations where employees are not united, leave alone unionised?
Does existence of market shifts – wage rises within the wage band or the upward shift of the entire band – prove the absence of wage ceilings? Can the market change preempt the shift, and render it redundant? For instance, can operators turn free-lancers in drove, and start marketing themselves as cheap art directors, competing with the agencies that refused to 'recognise' their worth. Can this lead to an overall lowering of quality, because these self-proclaimed art directors are nowhere near the real thing, yet agencies just cannot match their rates and retain their prestige?
If this does in fact happen, and I'm quite sure it is, surely it'll be an 'efficient result' of the agency managers' conspiracy. But is it a good one?
If giving good solutions is not the economist's responsibility, whose responsibility is it? The market's?
And so my author drones, all the time maintaining that he is not against unions, and if I can hardly hear him say anything in their favour, it's completely my fault.
Very well. May I ask, though, why he must pick an industry like railroads, which has long ceased to be economically viable across the world?
No matter how you look at it, you cannot probably run a railroad that people will use unless you subsidise it highly. Hence, it is convenient to blame any player you hate. You can always show failure. Few will ask you to establish causality (Prove that unions' unfair demands broke employers' back).
Also, why does he never talk about an employers' union or cartel setting wage ceilings? Instead, he, and many like him, keep repeating that an employer unwilling to pay 'market' wages will find his workforce lured away by others.
Now, I'd like to bring real life to bear on this, if I may. Let me take the example of computer operators in ad agencies. The thinking goes like this: “The operator's job is more or less mechanical. Anyone who has time can teach himself the designing software. It takes memory and hard work but neither talent nor aesthetic sense. There is no dearth of boys who desperately need work, so why pay 'too much'. We'll stick to an 'industry rate'. If that doesn't suit someone, too bad. He'll have to look elsewhere.”
I'm sure the 'industry rate' is not a price point, but a price band, and agency owners believe the band is wide enough to allow sufficient competition.
What if it isn't? What if the 'industry rate' is actually a wage ceiling, enforced by an unspoken diktat, the force of which will only be felt if anyone dares to step out of line. (“How dare you pay your operator so much, mister? You may be running a charity, we aren't. Back off, or we'll break your legs.”)
How does one know that employers do not meddle with market forces, more so in situations where employees are not united, leave alone unionised?
Does existence of market shifts – wage rises within the wage band or the upward shift of the entire band – prove the absence of wage ceilings? Can the market change preempt the shift, and render it redundant? For instance, can operators turn free-lancers in drove, and start marketing themselves as cheap art directors, competing with the agencies that refused to 'recognise' their worth. Can this lead to an overall lowering of quality, because these self-proclaimed art directors are nowhere near the real thing, yet agencies just cannot match their rates and retain their prestige?
If this does in fact happen, and I'm quite sure it is, surely it'll be an 'efficient result' of the agency managers' conspiracy. But is it a good one?
If giving good solutions is not the economist's responsibility, whose responsibility is it? The market's?
Thursday 4 September, 2008
All roads lead to hell
I am listening to an audio book on basic economics delivered by Dr X. In the lecture on subsidies, he first argues against price control, then for broadly social taxes to generate targeted prices. I’ve read this sort of thing in every introductory economics text and heard it repeated again and again on TV debates. I hold it as an axiom that when too many people agree on something, only three things are possible:
(a) What they agree on is so obvious that their saying it is redundant, e.g., the sun rises in the east
(b) They are actually saying different things without realising it, e.g., all men are equal (but I am more equal than you)
(c) Thinking has stopped and rote has taken over.
I strongly suspect that the third has happened in this case. Targeted subsidies assume perfect identification of beneficiaries. It also assumes the targeting will be wholly fair and seen as fair.
Now, educational reservations for scheduled castes & tribes are a form of targeted subsidy. If we think of marks as a currency, scheduled caste students have to have less of it to get reserved seats. Thousands of years of discrimination should make it extremely easy to identify the beneficiaries too. And since the benefits are, for all practical purposes, available only in state-funded educational institutions, the price is, in effect, paid by the broadest range of people.
Yet SCST reservation is one of the ugliest issues today, and has been so for as long as I can remember.
One reason for that is beneficiaries cannot be branded anywhere as easily as economists think. There are too many poor Brahmins out there who believe reservations should be income-based and not caste-based, and any number of other backward castes too, who are sore for being left out.
Second, education is directly linked to jobs. Being deprived of seats due to reservation is as bad as being deprived of jobs, and so on. In other words, subsidising a certain purchase of a certain group instantly and invariably affects all other purchases of all other groups.
If proponents of ceiling prices of farm products are brainless because they don’t think through the hundred and one unwanted penalties of their short-sighted policy, one can’t see how those who call for food coupons are vastly better.
And if a government is insanely overambitious in wanting to control every production and price so is one that thinks it can inspect every purchase. What stops me, a person with a Brahmin surname from paying a bribe and obtaining a SCST certificate? The temptation is huge.
Besides, if price control leads to unforeseen harms, why can’t it lead to unforeseen gains as well? For instance, paying less for food than I should (don’t see how though) allows me to buy more economics books than I otherwise could... which lets the bookseller keep a maid... which means the poor woman to send more money to her village... which lets her brother, the farmer, buy more fertiliser... I mean, why can’t a web of flawed markets cancel out each other’s shortcomings and create a unflawed economy?
Finally, can someone please suggest a book that defends price control in a way an economic innocent of above-average intelligence can understand? I don’t care if it was written by Marx himself.
(a) What they agree on is so obvious that their saying it is redundant, e.g., the sun rises in the east
(b) They are actually saying different things without realising it, e.g., all men are equal (but I am more equal than you)
(c) Thinking has stopped and rote has taken over.
I strongly suspect that the third has happened in this case. Targeted subsidies assume perfect identification of beneficiaries. It also assumes the targeting will be wholly fair and seen as fair.
Now, educational reservations for scheduled castes & tribes are a form of targeted subsidy. If we think of marks as a currency, scheduled caste students have to have less of it to get reserved seats. Thousands of years of discrimination should make it extremely easy to identify the beneficiaries too. And since the benefits are, for all practical purposes, available only in state-funded educational institutions, the price is, in effect, paid by the broadest range of people.
Yet SCST reservation is one of the ugliest issues today, and has been so for as long as I can remember.
One reason for that is beneficiaries cannot be branded anywhere as easily as economists think. There are too many poor Brahmins out there who believe reservations should be income-based and not caste-based, and any number of other backward castes too, who are sore for being left out.
Second, education is directly linked to jobs. Being deprived of seats due to reservation is as bad as being deprived of jobs, and so on. In other words, subsidising a certain purchase of a certain group instantly and invariably affects all other purchases of all other groups.
If proponents of ceiling prices of farm products are brainless because they don’t think through the hundred and one unwanted penalties of their short-sighted policy, one can’t see how those who call for food coupons are vastly better.
And if a government is insanely overambitious in wanting to control every production and price so is one that thinks it can inspect every purchase. What stops me, a person with a Brahmin surname from paying a bribe and obtaining a SCST certificate? The temptation is huge.
Besides, if price control leads to unforeseen harms, why can’t it lead to unforeseen gains as well? For instance, paying less for food than I should (don’t see how though) allows me to buy more economics books than I otherwise could... which lets the bookseller keep a maid... which means the poor woman to send more money to her village... which lets her brother, the farmer, buy more fertiliser... I mean, why can’t a web of flawed markets cancel out each other’s shortcomings and create a unflawed economy?
Finally, can someone please suggest a book that defends price control in a way an economic innocent of above-average intelligence can understand? I don’t care if it was written by Marx himself.
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