Wednesday 28 April 2010

Everyone but right-wing economists are wrong

In Law’s Order, David D. Friedman writes (while discussing contracts), “...consider a case that has recently been in the newspapers—the attempt by a Spanish judge to extradite Augusto Pinochet from England in order to try him in Spain for crimes he is accused of committing while dictator of Chile. Legal rules that immunize ex-dictators make it less expensive for them to commit crimes while in power. But legal rules that hold ex-dictators liable for such crimes make it more expensive for dictators to give up power. Pinochet is one of the rare examples of a dictator who voluntarily relinquished power to an elected government. If he ends up in a Spanish jail as a result, the next dictator may not make that mistake.”

Q 1.1.  Besides applying economics to a criminal case (which deals with irrational man), perhaps the argument stops short of good economics? Would the extradition not have deterred dictators in power and those with dictatorial ambitions from doing wrong?

Without the extradition, the logic runs thus: “I will torture to my heart’s content. When I am done with it, I’ll give some off some of my ill-gotten gains to the corrupt official of a democratic country, arrange for my exile, and ‘voluntarily relinquish power to an elected government’. History shows nothing will happen to me, because the reward for that is immunity from persecution.”
Extradition would change that, wouldn’t it?

Q 1.2.  On the other hand, when a smaller criminal gives himself up to the police and confesses, he is dealt with leniently. So is there a question of scale (unjustifiable extrapolation) here too?

In Monsieur Verdoux, Chaplin says, “Wars, conflict, it's all business. ‘One murder makes a villain. Millions a hero.’ Numbers sanctify.” By not applying the rules for common criminals to ex-dictators, we can prevent exactly that. (Anyway, voluntarily relinquishment is no more than a euphemism for being sacked by Uncle Sam.)

In The Economics of Law, Cento Veljanovski (while discussing adaptive responses to regulation) says, “There is now fairly conclusive evidence that seat-belt laws have not had a significant impact on road safety. This is not because they are ineffective in protecting vehicle occupants but because they encourage risk-taking and accidents by drivers. Road accidents are the result of the interaction of roads (their construction, topography, lighting and safety features), car design and use, and driver and pedestrian actions. As the roads and vehicles are made safer there is a natural inclination for drivers to take more risks by driving faster and less carefully, and braking too late. They substitute free, publicly provided road safety for costly, privately produced safety.

In the economic literature this effect was first recognised by Sam Peltzman in his work on the impact of compulsory seat-belt legislation in the USA. He argued that because seat belts reduced driver risks and injuries, drivers adjusted their behaviour by driving faster and with less care. This led to fewer driver fatalities and more pedestrian fatalities and injuries, and damage to vehicles, thus increasing accident costs. The economics of the drivers’ decision is simple to explain. A compulsory seat-belt requirement decreases the expected loss of an accident, and leads to offsetting risk-taking by more aggressive driving.

Peltzman tested this simple economic proposition using the US National Traffic and Motor Vehicle Safety Act 1966, which made the wearing of seat belts compulsory. Using statistical analysis, he found that occupant deaths per accident fell substantially as expected, but this reduction was entirely offset by more accidents to those not protected by seat belts, i.e. pedestrians and cyclists. While this finding was ridiculed at the time as fanciful, subsequent research by economists and traffic safety engineers has confirmed that compulsory seat-belt legislation has not resulted in a measurable decline in road fatalities.

Indeed, Peltzman18 has revisited his original research to note that the annual rate of decline in highway deaths in the USA was 3.5 per cent from 1925 to 1960, before the legislation was enacted and at the height of Naderism; and between 1960 and 2004 it was also 3.5 per cent!”

2.1.  Again, this analysis may be inadequate. First, distasteful as it may seem, the lives of people in automobiles may be more valuable (i.e., contributing more to the eonomy). Hence, the law does net good.

2.2.   Second, Peltzman didn’t check crippling injuries. Such injuries may be far costlier than deaths, more so if the latter is instantaneous (in which case the accident merely pre-pones the inevitable funeral).

2.3. Mental gymnastics apart, safety belts may have led to saving time (the most precious resource?) for motorists and their passengers, thus enriching the world. Shouldn’t he have looked into average speeds (assuming time saved is directly proportionate to that)? 

Thursday 22 April 2010

But Japan, Germany and China were utterly destroyed by the end of the Second World War…

And look where they are today. India is nowhere, which proves India will never be anywhere.

I agree with the conclusion, but find the evidence somewhat suspect.

Japan and Germany, as the rest of Europe, got huge sums of American aid after the War. And they didn’t have to bother about defence.

Also, in Japan’s case, America opened its market to it, perhaps in exchange of military bases (though this argument is somewhat specious, considering the Japanese had, and have, no choice but to allow those bases).

More important, war did not and cannot wipe out intellect. It’s funny how we go on and on about the importance of ideas in the knowledge economy while refusing to acknowledge that knowhow had anything to do with the rise of war ravaged economies of advanced countries.

Finally, one must wonder where China would be without its American market.

A French friend recently told me, “Don’t think India is getting attention because you are doing something right. We are interested only because we want a counterweight to China.”

Of course, but by that logic cannot the US’s interest in China have something to do with its spectacular rise? In the hullaballoo about some junior minister’s finger wagging at Obama, we nicely forget that (a) the Chinese economy is still far smaller than the United States’ (b) China's military strength is a small fraction of its supposed adversary’s and © its per capita income is smaller than poor European countries’. 

So, is China's ‘takeover of the global economy’ all the triumph of dictatorship, with US having no role to play in it? 

Incidentally, the hue and cry about China reminds one of something else: the Red scare during the Cold War.

Wednesday 21 April 2010

But who has the bigger economy?

“This Chinese girl says, ‘China will come apart if we have democracy.’ But India is a democracy, and probably far more diverse then China. In spite of our many separatist movements, we have managed to find solutions without breaking up.”

“But, help me on this, who is economically better off?”

“They are, undoubtedly. But many democracies in the West have much higher per-capita incomes than the Chinese. Besides, why should there be a trade-off? Would you agree to a trade-off in England?”

Unsaid: “Don’t be silly. How can you compare Chinese and Indians to white men? We can have democracy and good economies; you can’t. You have to choose.

And while we worship in the church of free trade, our high priest and intellectual forefather is Marx. As he proved, only money matters. So make some money, you beggar, before you open your mouth about sacred ideas like democracy.

At the end of the day (as in its beginning and high noon) men live by bread alone, more so if he is yellow, black or brown.”

Unsaid on my part: “There may be more democracy in certain countries than outsiders think. In fact, those unanimous votes may be targeted at outsiders.

If you know that your opposite party in a negotiation is over eager to exploit any disagreement within your ranks, what would you do? Surely, you will work out compromises internally and present an united front.

It may be the same with China and some Arab countries.

When the usual causes of change (elections, free press) are absent, we must play sleuth every time something changes.

Remember, the market is free because customers can vote with their feet. You don’t always need secret ballots.”  

What is the book pirate’s motive

Many books are now available for free online, as are movies. In most cases, these are not legal copies. So why do people upload them for complete strangers to download? Why break the law for people who you will never know and who will not even thank you? 

Idiot salesmen and financial crisis

Whenever there is a crash in any sector of the financial market, or the market as a whole, commentators rush out to condemn the big guys, the bosses with million-dollar salaries and billion-dollar bonuses.

Obviously, they are to blame. But blaming them doesn’t help at all because they are beyond the reach of any authority. They did as the liked and will do as they like, no matter how loudly the rest of us scream.

Perhaps a better target are the idiot salesmen who peddle these financial products to unsuspecting laymen. These salesmen have no idea of finance, probability or statistics and should not be allowed within miles of insurance policies or mutual funds.

Instead they are given nonsense scripts to convert into useless advise. Their real sales tool is their natural gregariousness, which they use unashamedly and perhaps unknowingly to play with people’s trust.

In recent years, some industry bodies (like the ones for insurance and mutual funds) have introduced qualifying tests. But companies take great pride in how they negate these. It’s either “Everyone passes” or “The ones that pass are not the ones that sell. The agent makes his wife give the test and get the certificate, then he goes out and sells. What you need is feet on the street. Why do you need any knowledge? It’s all theoretical (i.e., rubbish) anyway.”

So tests are no good.

Unless they are applied on-the-spot.  

Imagine something like this: An agent comes to see you for product A; you log on to a site that generates 10 random multiple-choice questions about products of that type; this agent has to answer those questions; his score comes up immediately; if it’s below, say, 5/10, you don’t talk.

It can actually work, if the tests are not administered by an industry (i.e., sellers’) body but by a (for-profit?) testing organisation.

Alternatively, such tests may be administered to everyone buying a financial product, i.e., either the buyer or his agent has to take the test. A low score won’t stop sale, but the buyer would know that he (or his agent) doesn’t know, and shouldn’t complain later.

Will people take these tests? No. Or they would have read something now, which they never do. But at least governments would have an excuse.

Also, these tests can be used on samples from time to time, and the scores published (like JDPower ratings), so as to put pressure on companies to pay attention on training.

Tuesday 20 April 2010

A cardboard box costs 100 euros at FNAC

I bought a camera at FNAC yesterday for 79 euros; today, I took it back, to return it and buy a costlier one. I was willing to go up to 179 euros.

First reaction: Collapse. “Why do you want to return it. There is just three of us in this department. I will have to check everything.”

“But I am willing to spend 100 euros more! Isn’t checking worth that?”

With greatest reluctance, the clerk agreed to see what he can do.

Second reaction: “Where is the box?”

“I threw it away.”

“Sorry, can’t accept.”

“Look, can’t you get another box?”

“No. Rule.”

“You mean you’ll walk away from earning 100 euros more because of a cardboard box (that the camera company, Kodak, makes in hundreds of thousands).”

“Sorry, but… You can speak to my boss.”

He looks for another box, shows me the rule, and nothing happens.

What can I say? I just hope this ‘can’t do’ attitude isn’t typical; I fear though that it is.

Monday 12 April 2010

Progress or democracy?

On the day (April 7 2010) FT reported Naxals had killed more than six dozen soldiers in Jharkhand, it ran a piece titled Progress and democracy collide in India by David Pilling. It was a shoddy piece which said no more that what readers could easily find out by Googling.

The title was the worst part.

How is taking away aboriginal land for mines without consent or compensation ‘progress’? If the government is forced to rethink on such evictions, why is that a  collision between democracy and progress? Cannot progress happen with a fair deal?

Singur is repeated ad nauseam. Does anyone in the West, or even in India, bother to explain what the rabble who threw away the gift of industrialisation from the heavenly Tatas want?

I am not saying the farmers were right. I am not saying the Tatas and the state government were wrong. I am not saying the farmers would have acted as they did even if Mamata Bannerjee & Co hadn’t muddied waters. I’m saying readers don’t know what happened and commentators cannot keep on repeating Singur without telling them.  

Or must capitalism take the form of slavery in the Third World? And anything remotely different should be condemned as indulgence in the luxury of democracy, one brown and black people cannot afford.   

Why artists are greedy with millionaires but let fellow artists have their work as gifts

Perhaps the amount isn’t important per se to the artist, but it is important because of what it means to the payer.

The artist gives what he values most, his craft; in return, he wants what the buyer values most, his money. In that fashion, and not through words which are empty to the buyer, the latter must show the former respect. And respect matters most.

With a fellow artist, the trade is in recognition and genuine prise.

Maybe the heart and head are not so different after all.

Sunday 4 April 2010

Shop-floor doctorates

Reading about the ‘alienation of labour’, etc, in economics, it suddenly struck me that I’ve never read or heard of a theory of worker motivation that was developed by a worker. These theories are all by managers.

In the egalitarian West, workers are probably workers because they cannot develop theories. However, there may still be some who may be sent to management school, trained to research and asked to come up with something.

Does it matter who does the research? I suppose it matters a great deal. How many books like A People's History of the United States  are there? Would A People’s History be the book it is if Zinn wasn’t an ex-shipyard worker? Aren’t histories of, say, the Indian Mutiny written by Indians very different from those written by Englishmen? Could Sharatchandra have written Bamuner Meye if he were a French expat?

Surely some programmes can be designed where workers are researchers and not subjects.