Chocolate and Gold Coins

Thursday, June 30, 2005

The Benefits of Outsourcing

Subra Srinivasan who blogs at 30's dog reads my blog and read the thread at Crooked Timber that I pointed to in this post. Crooked Timber always has the best comment threads. Subra found this exchange:

abb1 :

I mean, suppose you have a teenage son. You agreed to pay him, say, $50/week pocket money in exchange for him doing some chores. Let’s say one day a neighbor’s kid shows up and offers you to perform the same tasks for $30/week. What should your response be if you’re a rationalistic and impartial liberal person?

Jet to abb1:

Tell your kid to hire the neighbor’s kid and keep the $20 difference, of course!

Subra adds:

Isn’t this what off shoring and outsourcing is all about? I am so amazed by the simplicity of the response, to a potentially loaded question.

Read Subra’s post. Read the Crooked Timber comment thread.

Another Crooked Timber post with an excellent and hilarious thread is this classic: Ask a 19th Century Whaling Expert.

Krugman and Mercantilism

One of the pleasures of blogging is participating in intelligent discussions that spead throughout the blogosphere. This is the very nice thing about blogging: you can get together with people everywhere and share your thoughts on a subject. And many times, these collective thoughts are very intelligent, although thoughts are sometimes impolite.

One issue that spread through the blogosphere is the recent acquisition attempt by a Chinese (70% government owned) oil company CNOOC to purchase Unocal (a U.S. based oil company) for $18.5 billion. There are many in the U.S. who are upset this for various reasons. Economist Paul Krugman wrote the following in the New York Times:

Yet there are two reasons that Chinese investment in America seems different from Japanese investment 15 years ago.

One difference is that, judging from early indications, the Chinese won't squander their money as badly as the Japanese did.

The Japanese, back in the day, tended to go for prestige investments - Rockefeller Center, movie studios - that transferred lots of money to the American sellers, but never generated much return for the buyers. The result was, in effect, a subsidy to the United States.

The Chinese seem shrewder than that. Although Maytag is a piece of American business history, it isn't a prestige buy for Haier, the Chinese appliance manufacturer. Instead, it's a reasonable way to acquire a brand name and a distribution network to serve Haier's growing manufacturing capability.

That doesn't mean that America will lose from the deal. Maytag's stockholders will gain, and the company will probably shed fewer American workers under Chinese ownership than it would have otherwise. Still, the deal won't be as one-sided as the deals with the Japanese often were.

What kind of weird logic is this? We should only do deals with countries if we get the better of them? What modern-day economist thinks like this? Well, maybe Paul Krugman does.

He goes on to say:

The more important difference from Japan's investment is that China, unlike Japan, really does seem to be emerging as America's strategic rival and a competitor for scarce resources - which makes last week's other big Chinese offer more than just a business proposition.

The China National Offshore Oil Corporation, a company that is 70 percent owned by the Chinese government, is seeking to acquire control of Unocal, an energy company with global reach. In particular, Unocal has a history - oddly ignored in much reporting on the Chinese offer - of doing business with problematic regimes in difficult places, including the Burmese junta and the Taliban. One indication of Unocal's reach: Zalmay Khalilzad, who was U.S. ambassador to Afghanistan for 18 months and was just confirmed as ambassador to Iraq, was a Unocal consultant.

Unocal sounds, in other words, like exactly the kind of company the Chinese government might want to control if it envisions a sort of "great game" in which major economic powers scramble for access to far-flung oil and natural gas reserves. (Buying a company is a lot cheaper, in lives and money, than invading an oil-producing country.) So the Unocal story gains extra resonance from the latest surge in oil prices.

If it were up to me, I'd block the Chinese bid for Unocal. But it would be a lot easier to take that position if the United States weren't so dependent on China right now, not just to buy our I.O.U.'s, but to help us deal with North Korea now that our military is bogged down in Iraq.

So he would block a sale of a publicly traded company to a Chinese company simply because he views oil and oil production to be “strategic assets”. That sounds a lot like mercantilism. He also seems to prefer that China invade countries to acquire oil instead of buying it – well sort of.

No surprise that this article caused a great stir in the blogosphere. Tyler Cowen and Café Hayak put in their rebuttals. Then Alex Tabarrok of Marginal Revolution really laid into Krugman:

What really upset me about Krugman's column is not the bizarre economics but the illiberal politics. In the last twenty years China's economic growth has lifted hundreds of millions of people out of poverty and nearly unspeakable deprivation. China's abandonment of communism is one of the great humanitarian events of all time. And what does Krugman have to say about this improvement in well being? (I paraphrase).

'Watch out. Now is the time to panic. Their gain is your loss.'

It's hard to over-estimate how awful Krugman's column is. Consider this:

China, unlike Japan, really does seem to be emerging as America's strategic rival and a competitor for scarce resources...

'Strategic rival' is the kind of term that would-be Metternichs throw about to impress their girlfriends but what does it mean? Everyone is a competitor for scarce resources. Even those nice Canadians compete with Americans for scarce resources. Are Canadians a strategic rival to be feared? [Note Alex Tabarrok is a “nice” Canadian].

The real question is how do rivals compete? Do they compete with war or by trade? China is moving from the former to the latter but shockingly Krugman prefers the former.

By the way, is Alex Tabarrok accusing Krugman of having a girlfriend – and writing rot just to impress her in the New York Times? Is her name Hillary?

Then Crooked Timber, a very intelligent left-of-center blog came into the debate. Henry Farrell writes:

Alex Tabarrok denounces Paul Krugman as an “illiberal demagogue” who has forgotten his heritage as an economist. The reason: Krugman’s claim that China is a strategic rival, and his recommendation that the Chinese bid for Unocal be blocked.

On the other, if one state does see politics as a zero-sum game and is unlikely to be persuaded otherwise, then it may be a big mistake to concede strategic resources to that state – it may use them against you later. This is of course the reason that international trade in, say, advanced weapons systems, does not resemble a free market (whether control over oil companies is a similarly sensitive strategic asset, I’ll leave to the discussion section). Which means that if Alex wants to make a convincing case that Krugman isn’t just making a claim that runs against the usual normative biases of economists, but is actually wrong on the merits here, he needs to provide more evidence than an argument-by-assertion that China is now “moving” from war to trade.

I participated in a rather excellent comment thread (I cannot take much credit, I only posted 4 out of 60 comments).

Here are some quotes:

I’m sorry to say that you didn’t really understand Prof. Tabarrok’s complaint. Krugman’s editorial suggests nowhere that he is concerned about the military threat that a stronger China might pose to the U.S. and it’s allies (and admittedly, that might complicate a pure free-trade argument if you really feared it). Instead Krugman is worried that China will out-compete us economically.

It is clear that Krugman is concerned that China will own too much oil, copper, zinc, whatever commodity you like for his comfort. Why should we care? The Soviet Union was filthy rich in natural resources and what good did it do them? What economist today really cares about raw natural resources (other than brain power) as a source of economic power. THIS is the reason Tabarrok labels Krugman a neo-mercantilist.

Tabarrok clearly believes that China does not represent a clear and present danger to U.S. security unless we treat them like a threat. That’s a completely different issue.

And it is further clear that Tabarrok does not consider the possiblity that China would corner the market on strategic commodites to be a serious military threat to the U.S., and I would argue that most economists would tend to agree with Tabarrok.

Alex Tabarrok came in to defend me in the comment section.

Later I wrote:

I cannot speak for Paul Krugman so I cannot know what he was referring to when he mentions the “Great Game” but the purchase of a small oil company by a Chinese firm would not even be comparable to playing P-QR3 in chess. I would be more concerned if a Chinese firm tried to buy a Swiss Chocolate company because they could conceivable mess up that market (since what do Chinese know about chocolate?) but they could never control enough oil to make a difference.

Any mainstream economist would point out that there really is no difference between spending $10 billion on oil or on marble. These are commodities, and unless you corner the market, your impact on the market is essentially nil.

The thing that really bothers free trade economists like Alex Tabarrok and myself is that free trade has done a world of good for the people of China and India and the rest of the world so to start back down the protectionist path based on rather vague fears seem tragic. Let me put it this way: If Unocal went out of business, would we have cared? If China had spent $10 billion on new tanks, would we be quaking in our boots? (I’m glad they are not doing this). But if neither happens but instead one Chinese company buys Unocal and keeps their employees employed, we should be concerned?

I would agree that it would be wonderful if China would liberalize its society and allow elections and allow more freedoms. I definitely would love that. I don’t think the Unocal purchase is relevant for that issue one way or the other.

Alex Tabarrok excerpted a piece of the above comment and posted it in Marginal Revolution, (thanks Alex).

Read the whole thread.

Wednesday, June 29, 2005

Kailash Satyarthi: The Indian Emancipator

I seldom watch television, but last night I saw a fascinating documentary on PBS about a remarkable Indian man, Kailash Satyarthi, who risks his own life to save children and adults who are kept as virtual slaves by criminal gangs.

Kailash Satyarthi is India’s lodestar for the abolition of child labor. Over the last decade he has emancipated over 40,000 people, including 28,000 children from bonded labor, a form of slavery where a desperate family typically borrows needed funds from a lender (sums as little as $35) and is forced to hand over a child as surety until the funds can be repaid. But often the money can never be repaid—and the child is sold and resold to different masters. Bonded laborers work in the diamond, stonecutting, manufacturing, and other industries. They are especially prevalent in the carpet export business, where they hand-knot rugs for the U.S. and other markets.

Read more about Kailash Satyarthi.

The problem that Kailash faces once he has saved these children is he doesn’t really know what to do with them. Without parents to care for the children, (the parents are either dead or so in debt that they have sold these children into slavery), these children have no way of avoiding a hard fate. He tries to educate these children in a 6-month crash course, but that is clearly inadequate. He needs more resources to care for these children.

Caring for children who are enslaved by criminal gangs is also a theme in Sunil Laxman’s excellent piece on child prostitution:

Pimps and brothel owners terrorize the little girls who are ruthlessly taken away from their homes and families. They are beaten mercilessly, starved, or burnt by cigarette butts. Then they are gang raped. This is their “break-in”, when these children are reduced to mere shells of human beings. Their spirit is long dead by the time they are forced to accept “clients”. Then they are paraded in a line to a client, who “chooses” his favorite girl. And rapes her.

One rescued girl, probably about 14 years old, tells you that she had been in the “business” for 6 years. She, like all others, was exposed to multiple partners every single day, and had to “work” every day without rest. The prevalence of HIV/AIDS amongst these children is huge, worsened by a prevalent myth that sex with a minor or virgin will cure you of AIDS.

Read the full thing.

Charity might be helpful in providing safe homes and schools for orphans, but there doesn’t seem to be enough charitable resources to save all of these children from a hard fate. This is a tragic market failure because these children, if properly raised and educated, could easily pay back that expense with interest and have plenty of income for an excellent life.

One thought I had, although it might seem naïve from a simple game theory point of view, is to try to obligate these children who are saved and raised in charitable schools to help fund the school later in life. A lot of Americans send money to their old Alma Maters, (I bet few game theorist do). It isn’t unreasonable to assume that these children would be grateful for opportunity that the charity provided and would contribute a portion of their future earnings towards it. In this way, over time, the children of India would save themselves.

This is just a thought.

Tuesday, June 28, 2005

The Memory Dump Answer

Recently, I’ve read some blogs (like here) that complain that high school students in the U.S. receive easy A’s and they are ill prepared for college life. I was a teaching assistant for 6 years and a grader for 2 years before that, so I know very well what these bloggers are talking about.

There is one particular complaint that I have, and I have read similar complaint from others: students give answers that are essentially memory dumps of information stored and not organized.

I’ll give a simple example to illustrate the point. A professor might ask a straightforward question: “The United States experienced a period of ‘Stagflation’ during the 1970’s. What is Stagflation and what caused it?” The student will give back the definition of Stagflation and then describe the oil shocks that happened. That should be the end of the answer. Maybe a better answer would include the loose money policies of the Fed at that time, but basically, that’s enough. But the student is just getting started. She might go on to talk about WIN buttons, gas lines, Watergate, disco fever, bell bottoms, Patti Hearst, and basically anything else that happened to get mentioned in the professor’s lecture.

Why do students tend to give these long-winded confusing, sometimes-contradictory answers? They learn from high school that the teacher always gave full marks if the answer contained the phrase he was searching for and generous partial credit if the answer at least said a lot of vaguely reasonable things. In short: more is better. It cannot hurt you to dump more of your memory onto the page. Organization and coherency of thought are not expected in high school, they just want to see if you remembered the facts. And teachers are lazy: they don’t really read, they skim. If you skim, you ignore the irrelevant.

When these students get to college, they encounter lots of graders like me: people who worked very hard to get good grades and weren’t about to give full marks for a mess of an answer. That first semester in college is often a rude shock for many students. They always complained. I would try to be patient, sympathetic, and kind but I would convey a simple truth: “You’re not in high school anymore.”

Meeting the Parents

Here is a very interesting situation:

Well, I'm off for a few days' vacation to Orlando, Florida with Patrix. We'll be visiting Disneyworld, Universal Studios and the Kennedy Space center. We'll be joined by his brother and parents.

I'm rather frazzled at the prospect of meeting his Mom and Dad. I've never been in this situation of "meeting the parents". Oh well, they sound nice enough, and I'm sure the trip will go off okay, but I can’t help feeling...wary.

This is from “Exploring the Infinite Abyss”, Ashweeta’s blog.

Consider this: both Patrix and Ash write blogs that are sometime very personal, and Patrix’s blog contains 100 of pictures of Ash. Obviously, Patrix’s parents have perused both blogs with interest. What do you say to strangers who know you too well for comfort?

It’s a little like being a celebrity, I guess.

My advice:

This always works: include several sentences of the sort "Now I know where Patrix gets his [fill in the blank] from."
The fill in the blank could be "intelligence" "good looks" "wit" "charm" whatever. Also it doesn't hurt to complement them on raising their son to be a very good person.

Of course, you need to be a little bit subtle about this. If you say it all in the first 5 minutes, they know you are just buttering them up.

I will say that you can expect the following question from the parents: “What do you see in our son?”

Have a good answer for that one.

My wife stumbled a bit with that one but her charm was so enormous that my parents soon fell in love with her. Now they love her more than they love me. Familiarity breeds contempt I suppose.

Monday, June 27, 2005

Aphorism of the Day

"Those who would renegotiate the boundaries between church and state must therefore answer a difficult question: Why would we trade a system that has served us so well for one that has served others so poorly?"

-Sandra Day O'Connor in McCreary County, Kentucky, et al. v. American Civil Liberties Union of Kentucky et al. (which struck down the government display of the 10 commandments). [Link via Volokh.]

Vikram reminds me that I need to post these more often.

The Five Pirates Game

I read this game theory problem on Ravikiran’s blog and just laughed. It is amazing how otherwise intelligent people can be rather silly. People who believe the results of non-cooperative game theory are in for a rude shock when they finally encounter the real world. But first, let me describe the game:

There are five pirates (numbered 1 through 5) and 100 gold coins. Pirate 1 proposes a distribution (for example 100,0,0,0,0) and all the pirates vote. If more than 50 percent of the pirates vote down the proposal, pirate 1 is out with nothing (killed or otherwise sent off) and pirate 2 gets to decide. The question is, what should Pirate 1 propose.

As incredible as it may sound, I have read that the solution is (98,0,1,0,1). I won’t go into the logic of this solution except to say that pirates 3 and 5 are at a disadvantage because of the 50 percent rule and even numbers, so pirate 1 senses they will jump at anything and gives them as little as possible. Pirate 1 is a brilliant game theorist and is convinced that he will win 3 to 2 and get away with 98 percent of the loot.

But suppose pirates 2 through 5 are poor game theorists. They naively think that the loot ought to be evenly distributed. Therefore they vote down the “brilliant” solution of pirate 1 (he’s gone, he gets nothing) and pirate 2, not knowing anything about game theory, proposes that the loot be evenly split up. The others readily agree, since they have no way of knowing what will happen if they vote down the offer and they naively think that they should accept a “fair” solution, they agree.

This is the important point: the expected payoff for “brilliant” game theorists is zero. The expected payoff for “idiot” game theorists is 25 gold coins. Obviously it doesn’t pay to know anything about game theory does it? Ravikiran made the same point.

So here’s the question: what is wrong with traditional non-cooperative game theory? I will let my readers ponder this point for a week and then post my answer to that question next week, but if you have comments, they would be most welcome.

My Thoughts on Kelo vs. New London

Many people who love freedom and private property rights are aghast at the recent U.S. Supreme Court ruling on Kelo vs. New London that allows local governments to seize private property to resell to private real estate developers. Here are some links to other views on this issue: Volokh, Marginal Revolution, Coyote Blog, India Uncut, and a different view from Half Sigma.

I have several opinions about this:

1. This was not unexpected. The court had previously upheld similar cases in which local governments seized land for development. This may not be what the founding fathers had intended “seizing land for public use” but it’s what it means today – for better or for worse.

2. This was really a state court issue since the government in question was under state law (and not federal law) so the case was effectively lost when it failed in the Connecticut Supreme Court. This was Half Sigma's argument, and he did go to law school.

3. In some ways, the issue of the intended use of the seized land was irrelevant. If government wants your land, they can seize it tomorrow using the perfectly valid excuse that they want to build a school. After they bulldoze your house, you might then find out that they had no intention of building a school but rather they intended to sell it to private developers. What good would it do to sue in this case? Your home is gone. It might be better if the government is honest about the use of the land instead of deceptive.

4. Our private property rights are not protected by some document; they are protected by the right to vote. If we don’t exercise our right to vote in local elections (and I tend not to) then local governments will trample over our rights, and we shouldn’t expect courts to come to our aid and against a popularly elected government. The U.S. Constitution is a great document but courts will tend to ignore it if Congress and the state legislatures let them, and pushes them to do so.

5. There needs to be a better, more equitable, way of allowing firms to acquire large blocks of real estate. As it stands now, many if not most of the homeowners will get less than what they would have willingly accepted for their homes. On the other extreme, it would be madness to insist that 100 percent of homeowners had to agree to a deal that involved 100 or more homes: one jerk could spoil a great deal for 99 others. I proposed a 90 percent rule in this post back in February, when the Kelo case first came before the Supreme Court. With the 90 percent rule, almost all homeowners will be very happy with the deal and they’ll get much more money – which is only fair.

Sunday, June 26, 2005

The Lemonade Stand

In Patrix’s excellent blog, he describes a common American summer phenomenon: young children with a touch of entrepreneurial energy set up lemonade stands. They don’t make much money but they do learn a little bit about the market. Set your prices too high and you get no customers, set your prices to low and you lose out on potential revenue, and let your lemonade get warm and you get bad word-of-mouth.

Patrix is from India and he noted that the equivalent of the lemonade stand in India is not there. Sure, children do engage in commerce but its only very poor children and it is not for fun. Middleclass children simply don’t try to earn money for the most part because having to earn money is a signal of low class. Do the middleclass of India miss an important testing ground of entrepreneurial skill by passing on the lemonade stand experience, or is the lemonade stand overrated in teaching market lessons?

I’m somewhat inclined to believe its the latter. I remember my own little moment from my childhood of trying out a minor business. I was about nine years old. I took my father’s shoeshine kit and went door-to-door offering shoeshine service. I discovered the hard way that vanilla shoe polish is not the same as white shoe polish. I still remember the lady’s anguished cries, “Oh, you ruined my shoes.”

Well, that’s what comes of trusting your nice shoes to a nine year old. I also learned that if you run fast, you could escape your problems, at least temporarily. However, I would estimate that about 99.8% of everything one would need to learn to be a successful entrepreneur was left unlearned on that day. Nevertheless, giving little children the freedom to try to make an honest dollar via their own entrepreneur skill is precious: you never know.

Thursday, June 23, 2005

Crunch Time

Suppose you could, on rare occasions, use an extraordinary power to produce a week’s worth of work in a single day. There is a catch: the week’s worth of work in a single day will age you one month. Would you occasionally use this extraordinary power on rare occasions when you are really under the gun, or would the cost be just too high?

To me, this is no thought experiment; it’s the story of my life. I sometimes use this extraordinary power to get out of a fix. But I have grey hair in my 40’s. Is it worth it?

I cannot imagine really being any different than who I am. That really organized person might be a really good person but it wouldn’t be me. My little boy would look at that person and think, “Who are you?” I would rather he call me, “Daddy.”

Luckily for me, crunch time only comes two or three times a year. Otherwise, I might not make it to 70.

Wednesday, June 22, 2005

The Tendulkar Effect on Indian Cricket

In the United States on any Saturday in the summer months, there will be 14 Major League Baseball (MLB) stadiums that will be filled to almost capacity – around 50,000 paying customers. The teams will draw fans from a wide region. Sometimes people will take the family 300 or more miles for a weekend trip that includes watching several ball games. In most cases, there was a minor league team close by that was playing the same game of baseball and the stadium was empty. Why would these fans drive 300 miles, pay a whole lot more, just to sit in nose-bleed seats next to some 500 pound obnoxious slob? Why not just go see the local team?

A similar story plays out in India, but its much more extreme. In the United States, there might be more than 1000 MLB baseball games per year. In India, there are likely to be only a dozen major cricket matches in a year. For those games, the stadiums will be packed with as many as 100,000 fans. However, there are hundreds of domestic cricket matches played every year and the stadiums will be nearly empty. With so many people in India, the only opportunity that most of them will ever see a cricket match live is to watch a domestic cricket match, but nobody cares about domestic cricket, they only want to watch the 11-member national cricket team. Consequently, the only cricket players that make any serious money are the members of the national team and maybe a few substitutes.

Why is it that people will pay so much to see the superstars play the game and nothing to see the same game played at a very high level by relative unknowns? The answer is the Tendulkar effect. Sachin Tendulkar is the greatest cricket player in Indian cricket history. He is not the greatest because he has scored more runs than anyone or scored more centuries or won more matches or anything like that. He is the greatest primarily because he earns so very much more money than any cricket player ever did. The enormous amount of money he makes creates enormous amount of “buzz”about him, the national cricket team, and cricket in general. People watch sport to see millionaires run around and sweat. The Tendulkar effect in cricket is the same as the Tiger Woods effect in golf, the Michael Jordan effect in basketball, and the Babe Ruth effect in baseball.

The curious thing about sport in general is that people are interested in sports because the enormous money that sportsmen make and these sportsmen make enormous money because so many people want to watch them. It’s very circular. The same thing happens in game shows: would anyone want to watch “Who Wants To Make $1000”? I don’t think so. Of course, this virtuous circle could just as easily be a vicious circle: nobody is interested in the sport because nobody makes any money playing it and vice versa.

The reason why the Indian cricket team is not the best in the world, despite the enormous talent pool that they can draw from, is because the market for Indian cricket players is underdeveloped. There are only about a dozen players who big money playing cricket. And since advertisers would rather pay a crore (10,000,000 rupees = $250,000) to have Tendulkar pitch their product than pay a lakh (100,000 rupees = $2,500) to have the number 20 player in India pitch their product, there will never be more than dozen star players in India. If the BCCI (the Indian cricket board) wants to create the best team in the world, they need to shell out the money to promote the domestic game.

One reason why India does not produce good pace bowlers is simply because the ones they have produced don’t create as much buzz as a quality batsman. There isn’t as much money in bowling as there is in batting, so consequently the market produces more quality batsmen than bowlers. Also, the injury rate is much higher for pace bowlers, which greatly reduces the expected payoff of pursuing pace bowling as a profession. In general, most people with the talent to be great cricket players in India decide at an early age that pursuing cricket is a silly dream. There are one billion Indians and only 11 spots on the national team. The only ones who pursue their cricketing dreams are the independently wealthy (Ganguly) and the idiots. My guess is that quality pace bowling takes more intelligence than it would appear.

The BCCI can promote the domestic game by making the domestic competition more lucrative. They can announce a big cash prize for the winner and runner-ups of the domestic competition. This will create buzz. And if they want quality pace bowlers, they should simply pay for it. They could announce a special prize for the top 20 pace bowlers in the country and award crores for each of them (more for number 1, less for number 20). Seeing lots of people getting rich by being good but not enormously great pace bowlers will encourage more people with to pursue pace bowling and this will increase the effective talent pool. But more than anything, seeing that kind of money will create the buzz necessary to promote the domestic game and to increase the advertisement revenue of these players.

In sports as in anything else, you get what you pay for.

Tuesday, June 21, 2005

The Group Project in High School

My father is in town and I was recalling some memories of high school. One thing that I really disliked about high school was the tendency for teachers to take the easy way out and assign group projects instead of individual projects. The teachers would justify this decision by glibly saying that group projects teach people to work in groups which we to learn in business. This is nonsense! Before I attack that claim though, I will point out the obvious: the real motive for group projects is that it cut down on the number of papers the teacher had to grade by a factor of 4 (typically there were 4 people in each group).

I should say that I did learn something from group projects, but the lessons were largely unintentional. I learned that in a group project, almost all of the work was done by the member of the group who desired the best grade. I was always the member of the group who desired the best grade so I ended up doing 90% of the work while the other members took a free ride. This does teach some lessons in game theory, but it also creates resentment.

I work in a company where we do group projects all the time. I have lead projects and I have worked on projects led by other people. The similarity between a group project at work and a group project in high schools is essentially nil. In a business setting, the project manager assigns specific tasks to each member of the group. If I charge hours to a project that I do not work on I could be in serious trouble (its against the law). If someone works for me and fails to deliver on an assigned task, he won’t work for me again. You can only do that so often before its time to find a new job. Unlike high school, there are serious consequences for free riding.

My father gave an interesting example from his college days. He went to college on either side of WWII and this example came from immediately after the war. He remembered that he was always in a group with this person named Watanabe. Watanabe never worked with the others. He was very studious, and got good grades, but he didn’t want to cooperate on group projects. He said that because of Watanabe’s bad reputation, he was one of the few students voted down when his name came up for admission into the engineering honor society at school. Years later, his resume circulated at the company where my father worked and he recommended that the firm not even interview Watanabe. So in Watanabe’s case, the consequences for free riding were greater than he thought.

Well there is an interesting postscript to the story of Watanabe. Watanabe was a Japanese-American who had been interred in a camp on the West Coast during WWII. Interring U.S. citizens was a terrible violation of human rights. The fear of the Japanese caused us to bend the rules. But it was purely racist: we did nothing against the German-Americans and the Italian-Americans.

I don’t doubt that Watanabe left the camp bitter. He probably had the attitude that he would look after himself first and foremost and he was not going to volunteer for anything. In many ways, this shows how ethnic minorities that feel aggrieved will be less cooperative, a point I was making in my post: What Can Finland Teach Us? This is another reason why we shouldn't look to the Finnish schools as an example to reform the U.S. public schools.

Monday, June 20, 2005

Will Brazil Be the New Energy Powerhouse?

There was an interesting piece in the WaPo - Brazil's Biofuel Strategy Pays Off as Gas Prices Soar by Dan Morgan, about Brazil’s ethanol production:

About half the cane brought here [in Brazil] will be made into ethanol as part of a 30-year gamble to substitute fuels made from crops for imported oil.

The Sao Martinho refinery makes ethanol out of sugar cane. The process is cheaper than the U.S. method, which uses corn.

As international oil prices soar, that bet has put Brazil at the forefront of a "biofuels" movement in which many countries view sugar cane, corn, soybeans, beets, cornstalks and native grasses as cleaner, money-saving substitutes for oil produced in politically unstable countries.

Ethanol has always been derided in the U.S. as just a wasteful boondoggle supported by government subsidies. However, as the price of oil goes up, ethanol might be price effective. And unlike oil, we can brew ethanol forever.

I should point out that the article shows why the U.S. ethanol industry is a boondoggle. We subsidize our corn ethanol by 51 cents a gallon, then we place a high tariff on imported Brazilian ethanol, and still the Brazilian ethanol is competitive with the U.S. ethanol.

The United States imposes a stiff tariff on imported ethanol. But over the past 12 months, 160 million gallons of the Brazilian product still entered the country.

Exact comparisons are hard to come by, but mill manager Mario Ortiz Gandini said the mill can produce sugar for less than half the price of U.S. ethanol from corn. "No country can beat us," he said.

Why are we bothering to produce this commodity? I say, let the Brazilians have this market.

Man Misses Out on a Whole Lifetime of Happiness

This is sad.

Think about how much coffee he could have enjoyed.

Javanomics and Free Choice

I read an article in the WaPo Saturday that I should have commented earlier on. It was called Javanomics 101: Today's Coffee Is Tomorrow's Debt by Blaine Harden. Half Sigma commented about it here.

The premise of the article is just ridiculous. It points out that if you buy a latte (coffee with milk) every day for ten years, you could have used the same money to pay off a $7500 debt. I was thinking, “Is that all? I need to drink more coffee – it’s a bargain.”

The article starts out with a profile of a new law school graduate:

At a Starbucks across the street from Seattle University School of Law, Kirsten Daniels crams for the bar exam. She's armed with color-coded pens, a don't-mess-with-me crease in her brow and what she calls "my comfort latte."

She just graduated summa cum laude , after three years of legal training that left her $115,000 in debt. Part of that debt, which she will take a decade to repay with interest, was run up at Starbucks, where she buys her lattes.

Now, at this point we know that her $115,000 debt has almost nothing to do with her Starbucks habit. But the article goes that way anyway.

The habit costs her nearly $3 a day, and it's one that her law school says she and legions like her cannot afford.

"A latte a day on borrowed money? It's crazy," said Erika Lim, director of career services at the law school.

What is wrong with Erika Lim? What is her problem? Does she have a problem with students who go to her law school exercising their free choice? Just because they borrow money to pay for the outrageous tuition at law school, does that mean they have mortgaged their soul and the law school has the right to run the lives of their students?

The starting salary of a lawyer in the D.C. area is over $100,000 per year. Kirsten Daniels can pay off all of her Starbuck debt in about a week of labor. It will take longer to pay off her law school debt.

Starbucks didn’t respond to the article but another coffee place, Tully’s, did:

Its chief financial officer, Kristopher Galvin, said he had never before heard any complaint about the long-term financial impact of spending $3 a day on coffee, either for consumers or for students buying the drinks with borrowed money.

"I would guess, based on my years in college, that having lots of good coffee would help you get through college and help you pay back those student loans," Galvin said.

What isn’t mentioned is that all of that really good coffee adds up to more than debt, it also adds up to a lot of happiness. People are happy when they are free to choose. I would never say that people don’t make mistakes. But happiness comes from making your own mistakes instead of living out the mistakes that other people have made. I find it just incredible that anyone would seriously entertain the idea that they could, with just five minutes of looking at Kristen’s life, know better how to run Kristen’s life than Kristen could spending 24 hours a day 7 days a week running her own life. And Kristen isn’t exactly stupid; she has a law degree (which Erika Lim doesn’t by the way – is this part of the issue?).

I have a nice life. Sometimes I think about what makes me happy. And you know what I discovered? What makes me happy is the freedom to do whatever I like. I have enough money that if I want to go to Starbucks and have coffee, which I do from time to time, I can do that and not worry one bit about the expense. I have that kind of money, and that’s nice. And for someone who might be reading this post 2000 years from now (possible, you never know) the coffee at Starbuck in 2005 was really good. The 20 minutes I spend in the coffee shop savoring my coffee and just enjoying the moment is really nice.

It sounds like a MasterCard commercial: Coffee at Starbucks every day for 10 years: $7,500. The freedom to spend your money at wherever you choose: priceless. Some things money can’t buy, for everything else there’s MasterCard.


Patrix, who write an excellent blog called Nerve Endings Firing Away, comments:

I don't believe that this topic has been raked up again. I had blogged about this almost 2 years back when some idiot asked me to give up my coffee so I could become a millionaire. Crazy people!

Here's a sad story of someone who foolishly followed this advice and did become a millionaire...and missed out on the happily ever after part.

Sunday, June 19, 2005

The Rising Star at Work

Suppose you run a large business, and you naturally want to hire and promote the careers of talented employees. However, you have a dilemma. You have a very talented and capable young employee who is much better than most of the mid-level managers that she reports to. In a just world, you would soon promote her above these mid-level managers but in the short-run she has to report to them. This is a real problem: those managers have an incentive to derail the career of the rising star.

Ideally, your mid-level managers would be more talented than your junior employees, but that can only happen if you don’t hire any really talented junior employees. Your mid-level managers are people who have worked loyally for the firm for twenty years and have some competency but not enormous competency. You had to promote these people at some point or you had to let them go, and it is never easy to let people go who are loyal and have a career-worth of human capital in your business area. But these people will definitely feel threatened by people with more talent rising up the ranks. They might turn to nasty office politics to protect their privileged positions.

The mid-level manager will not want to just fire the rising star: that would be too bold. The rising star could be helpful to the mid-level manager. He can try to take credit for the rising star’s work. He might try to pretend that the rising star is one of many people who are helping grow the business area of the mid-level manager even if she is the superstar who really responsible for almost all of it. He runs the risk of alienating the rising star, but the worst thing that can happen, if no one catches his deceptions, is that the rising star becomes disillusioned and leaves. The mid-level manager doesn’t really need the rising star, so he will take that risk.

For a director of a company, you might wonder why those people who seem to be bright and capable and you might have considered fast-tracking for promotion instead leave the firm. You might suspect that office politics is the culprit but how can you know?

Here are some strategies for combating the negative effects of office politics:
1. Insist that you employees do any important communication via e-mail. Even if they meet and talk, insist that any major decisions be written in an e-mail immediately after for clarity. The purpose of the e-mail is to create a paper trail that makes it impossible for either the employee or the manager to “re-write history”. If the manager later tries to claim that the employee didn’t do X, she can point to the e-mail that said that she should do Y instead. She could not be blamed for not reading minds.
2. Cue in on the most important clue that the mid-level manager is thwarting the careers of lower level employees: high turnover. This is a no-brainer, but it’s surprising how many firms are slow to pick up on this clue. Every time an employee voluntarily leaves, have someone outside the mid-level manager’s office do an exit interview. If the employee hints that the reason why she is leaving is that she was not treated fairly, look at those e-mails and see if you can piece together the story. Sometimes, the e-mails will tell a clear story.
3. For rising stars, consider creating a parallel track for promotion that does not go through the current mid-level managers. She might have the talent to create her own little business area. Mid-level managers will not feel so threatened if they know that the rising star is not displacing them.
4. If most of your mid-level managers are mediocre but you are still making money, then you might as well focus on hiring more people of that quality. It may be more trouble than its worth to get superstars. You have to pay them a premium to attract them and they will get frustrated and leave eventually. Some firms hire only the best and some firms hire the rest. Know what kind of firm yours is and stick to that strategy.
5. Have some people keep an ear on the grapevine. If all of the junior employees are gossiping that so-and-so is an idiot, you should be aware of this.
6. If you catch a mid-level manager in something unethical, don’t hesitate to fire him and make an example of him. You want to send the message that there will always be a place in the firm for good employees who stay loyal. However, you also want to send the message that working in your own interest and against the firm’s interest will not be tolerated.

This essay is based on my observations of a rising star I know (not me). I think the rising star should start her own firm and put the bozos she works for out-of-business.

Friday, June 17, 2005

Aphorism of the Day

"Without risk, nothing new ever happens."

by Rita Golden Gelman, from a Starbucks coffee cup.

Democracy and Superficial Voters

Half Sigma and Futurepundit recently blogged about an interesting story in which people were able to guess the outcomes of elections by cueing in on a superficial trait: whether a candidate had a “baby face” or not. Apparently voters dislike candidates with baby faces, even though there is no correlation between looks and any measurable competency. In some sense, this might be like not voting for someone because the candidate has dark skin or long hair. If people are aware of this bias, maybe more people will try to ignore their prejudice.

However, there is a deeper issue here. How much do we really think about issues and whether one candidate or the other speaks to those issues? In local elections, I would not even know what are the issues; let alone what positions the candidates have on those issues. That’s a pity, but the nature of democracy is that there is little incentive for each of us to expend time and effort to learn about the issues and the candidates. My vote makes little difference in any election, and if I’m going to expend effort on something, I would like to see something in return.

Learning about the candidates and the issues is an act of charity, in a sense. Our effort benefits not just us but potentially everyone who would be affected by the outcome of the election. If we all learned about the candidates and the issues, we might elect more competent leaders and have a better government.

There are cases in which really bad people might have been prevented from coming to power if the voters had voted more responsibly: Hitler of Germany and Mugabe of Zimbabwe could have been stopped if the voters in their countries had voted heavily against them in the first place. Democracy is the check we citizens have to prevent the destruction of our liberties. This touches upon a question that was raised by Coyote Blog: what is our most precious right? He thought the right to property was more important, but I would argue that the right to vote is most precious because if that goes, everything goes.

But here’s the issue: how do we motivate people to care about voting? My idea is that we could pay people to care (admittedly, a classic economists’ cure-all). We could ask the candidates to submit an essay, or series of short essays, on what their positions are. They could debate each other in written form. Then the candidates could submit a quiz on their own material. On Election Day, you go to the polls and there would be a place where you could take the quiz. If you score well, you get a nice monetary prize. You would not have to vote to qualify for the prize, but you probably would vote, since you are there.

Candidates would have the incentive to make the quiz based on their main points. They want you to know what their main points are. If they submit stupid questions and stupid answers, you will get irritated at that candidate. And the benefit of this method of political advertising is that even with the cash prize it might be more cost effective as a means of conveying the information than a lot of 30-second political advertisements.

In a nation like India where a lot of people are illiterate, the written material could be turned into audio or even video tapes. The quiz could be set up on a computer screen so that someone with no reading skills could take the test. The departments of motor vehicles in various states have systems like that already. Of course it would be expensive to set all this up. It might be better in the long run to teach everyone to read.

Ideally one day we would be able to do everything on-line: reading the material, taking the quiz, and voting. I might be motivated to care what is happening in the local elections.

Thursday, June 16, 2005

India’s Market Liberalization Myth

Amit Varma of India Uncut has written a long op-ed for the Asian Wall Street Journal, and has posted on India Uncut. Here is an excerpt:

Indian Prime Minister Manmohan Singh is due to visit Washington in a few weeks, and editorialists and commentators have already started writing about the emerging economic power of India. New Delhi’s decision to start liberalizing its economy in 1991 is touted as a seminal event in India’s history, the moment when it threw off the shackles of Fabian socialism and embraced free markets. It is the stuff of myth-and to a large extent, it is exactly that.

While part of India has benefited from being opened up to foreign products and influences, most of the country is still denied access to free markets and all the advantages they bring. India opened its markets in 1991 not because there was a political will to open the economy, but because of a balance-of-payments crisis that left it with few options. The liberalization was half-hearted and limited to a few sectors, and nowhere near as broad as it needed to be.

Amit goes on to explain the barriers entrepreneurs face in starting a venture in India:

[E]ntrepreneurs find it next to impossible to get a legal permit to start a business at all. Street hawkers and shop owners in the cities often cannot get a license at all. (Even those who do have to comply with draconian regulations that offer so much discretion to the authorities that corruption is inevitable.) They survive by paying regular bribes to municipal authorities and policemen, which are generally fixed in such a way by this informal market that they can barely survive on what they earn, and cannot expand their business or build their savings. They are trapped in a cycle of enforced illegality and systematic extortion by authorities, which results in a tragic wastage of capital. It serves as a disincentive to entrepreneurship, as well as to urbanization, the driving force of growing economies.

Read the full thing.

When the government puts too many restrictions on businesses and entrepreneurs to operate legally, the net result is to criminalize business. Only criminals can operate their business profitably because they can cut through all of the red tape of regulation. Politics and not economics determine which businesses thrive and which go under. This sad story is repeated in many countries around the world.

What good reason should there be for government not to be on the side of business development and entrepreneurship? If you want business to thrive, if you want people to find meaningful work – and why wouldn’t you want this – you need to allow businesses to freely operate with a minimum of interference.

Wednesday, June 15, 2005

Researchers Who Enjoy Their Work Too Much

Here is an article [link via watchers of weasils] about sex researchers who find a link between pornography and sperm quality:

It might sound unlikely, but men looking at explicit pictures of two naked men with a naked woman have been shown to produce higher-quality sperm than those watching pornographic images featuring women only.

My question is this: how would one get a research grant to study this without looking like a complete pervert?

Call Girl

Saket Vaidya, who writes and interesting blog, tells of his conversation with a security guard (Ramesh) in his building. Ramesh told him some hot gossip about the “Gupta family” (name changed) who lived on the top floor:

One of the most outrageously disturbing things that he told me was that a certain Gupta Family* (name changed) who lived on the top floor of the building had fallen upon very bad days. And the mother had driven the daughter into prostitution. Ramesh’s words: “Maa Beti Se Dhandha Karwati Hai”. This particular daughter, he claimed was married last year but her husband left her because she was too “chalu” and she was forced to return to her parent’s house. And now, as per Ramesh, she was a high-profile prostitute. He claimed that he had seen the mother chauffer her daughter outside, on many nights at 9:00 pm, and return alone. The daughter returned home in a “black car” only very early in the morning.

Saket later learns more details about the “notorious Gupta daughter”. You can read it here.

There’s a moral here I think.

Tuesday, June 14, 2005

Live 8 Tickets Sold on eBay

Bob Geldof is upset. He has organized a free concert in London to raise awareness of African poverty. The tickets were given away by lottery, but some of these tickets have wound up on eBay, (imagine that!).

"I am sick with this," Geldof said in a statement. "What eBay are doing is profiteering on the backs of the impoverished.

By the way, how many people knew who Bob Geldof was before he started his anti-poverty crusade?

eBay responds:

"We live in a free market where people can make up their own minds."

"A ticket to the Live 8 concert is no different from a prize won in a raffle ... and what the winner chooses to do with it is up to them."

Reselling these tickets is not forbidden under British law.

Blaming eBay for being the market for these goods is easy. But really, what did he expect? If you give valuable commodities away by lottery, they will soon reach the marketplace one way or the other. This gives people who really want to see the concert the chance to do so.

It is ridiculous for Bob Geldof to blame eBay for African poverty. They have nothing to do with it. In fact, eBay has helped many poor people sell their items for more money than they would have gotten from a pawnshop.

The curious thing about all this is that Geldof seems to be doing the Live 8 concert as a publicity stunt. Isn’t his squabble with eBay just more good publicity? Maybe Geldof isn’t really all that mad at eBay.

Are We Paying Too Much for Advertising?

“It pays to advertise” but are we paying too much for it? Half Sigma has been exploring this issue in this post and in this post. Here is an excerpt:

In our marketing based economy, we usually have oligopolies selling goods which the sellers have tried very hard to present as non-fungible. Depending on the price elasticity of demand for the items in question, firms may find it more beneficial to compete on the non-price components of marketing. These marketing expenses are then passed on to consumers.

To use the toothpaste example, this might mean that it’s easier to sell a $2.50 tube of toothpaste than it is to sell a $1.25 tube of toothpaste. Imagine you were able to manufacture toothpaste and well it at a wholesale price point such that it could sell for $1.25 retail, half the price of other brands. Do you think you would sell any? Would the supermarkets be jumping at the opportunity to sell your budget toothpaste? Most likely not. You would have to spend huge amounts of money on marketing in order to convince consumers to buy it and supermarkets to stock it, and the end result would be that your marketing costs were so high that you now have to sell it for the same price as all the other toothpastes.

I think that Half Sigma has part of the story here. Advertising signals quality: low quality products compete on price and eschew advertising. There is a famous example of the Piels Brother Brewery ads that were extremely popular in the 1950’s. The brewery eventually went out of business. Legend has it that the ads brought so many new first-time customers to an inferior product that it created a huge amount of bad word-of-mouth. Eventually, the few people who used to buy the product because it was cheap and they couldn’t tell the difference between a quality beer and an inferior beer were too ashamed to buy the beer anymore. I don’t buy that storyline completely but I agree that it doesn’t pay to advertise an inferior product.

We learn that high-quality producers advertise more than low-quality producers. Since advertising costs money and quality production cost money we would expect that the well-advertised product would cost more and would be better quality than other products. If people don’t shop around and at least occasionally sample other products, there is the possibility that two identical products could sell for very different prices in the market place.

This is not just a possibility, it happens. Many manufactures of name-brand items will secretly sell the very same product as a generic item. Why do they do that? Because the advertising is a huge cost of the product, and if marginal cost of production is low, they might as well cut in on the generic market. Of course, they risk being their own competition. But they know most people don’t shop around and will never know that a generic product is just as good as the more expensive name-brand.

So the possibility exists that for many products you are paying extra only for the advertising and not for what is actually inside the box. But this can happen only for low-priced items. If manufacturers spend too much on advertising, people will try the no-name brands, and find one that is reasonably good.

The point I’m making is that shoppers do have to be savvy in the marketplace. You may well be paying too much for your toothpaste and your shampoo because you assume the well-advertised product is the best product. However, if everyone believes that, then we may be overlooking some quality products that are choosing to compete on price instead of on advertising.

Our Favorite Waiter

Yesterday was our wedding anniversary. We decided to go to our favorite restaurant: Raaga. Raaga’s food is good but the menu is not extraordinary. Actually, I haven’t really found any restaurant that serves extraordinary food here in the Washington D.C. region. What makes Raaga special for us is Mustafa. He is our favorite waiter.

What makes him the ideal waiter? He knows when we want his help and he knows when to leave us alone. If I begin looking around, he will see that from the corner of his eye and signal that he will be with me in just a moment. He always serves onions and pickle with our meal. He only does that for us, that I can see. Although chai is not on the menu, he makes it personally for us, and only he makes it right, (yeah, that’s right, the fellow from Bangladesh makes proper chai and the waiters from India give us teabag tea). It’s the little things that make a great waiter.

Yesterday we finished our meal and wanted our chai. Mustafa took our plates and then disappeared before we could request it. That seemed odd. Usually he is so attentive.

He came back a moment latter with a small plate. On it was rasmalai, gulab jamun and carrot halwa. He had place a candle in the carrot halwa and lit it. What a nice touch! And then we ordered our chai, which was just the way we like it.

When the check came, there was no charge for the special dessert, even though it was worth easily 8 or 9 dollars. Ordinarily I will tip about 10 to 15 percent. For Mustafa, I tip between 20 to 25 percent. Last night I left 30 percent. But service like that is hard to put a price on.

Sunday, June 12, 2005

Fun Finland Fact of the Day

This one comes from Suhail Kazi of Imaginathon (he also co-blogs at ChiensSansFrontiers). Recall that a few days ago I wrote what Finland can teach us. I wrote that the Finns were naturally more cooperative than Americans or Indians because of a lack of ethnic diversity.

Suhail recalled a survey (unfortunately, no link) that measured honesty among various people:

I read in an article somewhere about a "Honesty" survey done across several countries. The researchers placed a wallet stuffed with a decent amount, but not too much, of local currency, some officialese paper-chits, some smart cards, and a business card with their complete contact details in that city. These wallets were dropped off at several public places like train/bus stations, malls, cinema halls, park benches etc. Then they noted down how many people returned back the wallets, and what were the methods used. The results were mixed, as expected. In most countries the return percentage hovered around 60-75% (I recollect from memory). In some cases, the person directly landed up at the address given in the business card. Others just called up and asked the owner to come and collect it. Some points worth noting from the survey results.

So how did the Finns do? I would admit that it would be embarrassing if the Finns proved to be very dishonest. The Finns did not let me down:

Finland was the only country with 100% returns. 10/10 to their honesty.

That’s a small sample size. Considering that most nations’ citizens returned the wallet about 70% of the time, the p-value that the Finns are only as honest as everyone else is 3% which is significant but only barely. So probably the Finns are more honest, but we really need more data. Of course 10 for 10 is interesting because we cannot rule out that the Finns are pathologically honest either.

I remember a news reporter doing the same thing in the U.S. Perhaps 70% returned the wallet but I recall it was more like a little over 50%. It wasn’t anything close to 100%.

An interesting question is whether income inequality leads to a lack of cooperation. That would be the typical left-wing explanation for why Finland seems so cooperative. My observation from college was that the rich kids had less respect for private property than anyone else. They didn’t need to steal, but if they didn’t fear any consequences, they would take stuff that wasn’t theirs. Being poor doesn’t make you into a bad person, but the reverse could be true.


Suhail also has a humorous account of his experience misunderstanding the checkout guy at McDonald’s asking him if he would like to have his fillet-o-fish “fohyaatugo.”

Saturday, June 11, 2005

Lack of Diversity in Indian Restaurants in the US

Vikram Arumilli asks the question:

If you could open a restaurant, what kind of restaurant would it be, and what would you name it?

I think he dismisses the obvious option right away: an Indian restaurant - but not your typical Indian restaurant. You know what I mean. They come in two flavors. The North Indian restaurant has pindi chana, navrattan korma, saag paneer or mutter paneer, subzi, and yellow daal. The South Indian restaurant has idlies, dosas (way too greasy versions), vadas (again too greasy) and sambaar. No restaurants want to stray too far from the tried and tested formula. Prashant Kothari discusses this in this older still very relevant post.

But I know and you know that there is a whole universe of wonderful Indian cuisine that never shows up in the standard menu. All that good food you Mother, Mother-in-Law, Grandmother, Grandmothers-in-Law and auties could make. My Mother-in-Law can make at least two-dozen wonderful South Indian dishes that I have never seen on a restaurant menu. She makes these little stuffed eggplants with spices that is just incredible. And how about adding some delicious South Indian style vegetables (poriyal) to the menu.

For North Indian cuisine, why not be a little different? Why not offer chapathi instead of tandori naan, just to be unique. Hot chapathi freshly roasted and served right off the griddle would be a wonderful treat. And why not try some new dishes? There are dozens of different daal dishes, why only serve chana and yellow daal? I remember a restaurant in Minneapolis called Delites of India. They served only North Indian Vegetarian food. Their chef, Om Prakash, made several wonderful dishes I haven’t seen since even after eating in easily 50 different restaurants. He made dhansak, saag chana, dum alloo and many other unique dishes.

Here’s another idea: give your restaurant a fun Indian theme. How about cricket? Have pictures of the Indian cricket stars in giant mural-sized portraits on the walls and a few bats, balls, and stumps decorating the periphery. It will remind the Indians of home, and the pleasant times that Indians had watch the cricket matches. Maybe broadcast live cricket matches on the big screen television (you might have to show delayed matches most days because of the time difference).

As for the name of the restaurant: I like "Laxman's Knock".

The point is, if you want to make a success in you business venture, dare to be unique!

This post has done one thing: It has made me HUNGRY!


If you have a favorite Indian dish that you would like to see served at a restaurant, please comment about it.

Friday, June 10, 2005

Success: Can We Enjoy It?

In the comment section of my post on “Is Happiness a Zero-Sum Game?” Half Sigma (always an interesting blog) and I had a very interesting exchange. Before I talk about that, let me first consider an idea very alien to my own way of thinking.

Suppose that you worked really hard in an area – so hard that you became one of the 100 best in the whole world in your area of expertise. And suppose that most people couldn’t care less because your area of expertise was nothing they cared about.

This would seem almost too cruel. You strived your whole life to attain the summit of your profession only to get almost global indifference. What’s the point of working so hard to attain success if you cannot bask in its glory?

You get invited to one of those trendy jet-set parties where you can hobnob with the glitterati and inevitably some semi-celebrity asks, “Who are you?” You give an embarrassed look of “What, don’t you know who I am?” and then you do your best to explain it while maintaining your exalted self-image.

Of course, I think this is all quite ridiculous. But some people think otherwise. Half Sigma has the strong desire to be a top 100 blog but fears that even attaining the almost impossible goal will bring little joy since he apparently measures joy in the approval and the adoration of the public in large (perhaps that’s the problem).

I’m not going to belittle another man’s life goal. If he achieves top 100 blog status, he deserves accolades. He deserves to drive around in a Ferrari with a vanity plate that reads “TOP 100”. Well, he deserve the plate - he needs to earn the car.

But then what is the point of achieving this success if others don’t recognize it? They don’t count! Only bloggers count!

So here is the exchange I had with Half Sigma.

"You might have the ambition to be a top 100 blogger (I am assuming that you aren’t already a top 100 blogger because why would you be wasting your time reading this?) There are millions of blogs, and only 100 top 100 blogs. You can do the math. Your chances of achieving this goal are tiny."

I think I have a better chance of making it into the top 100 of the blogosphere than making it into the top 1% of U.S. society.

Without naming any particular blogs, I'll say that there are several blogs in the top 100 that plain suck.

Nice post. I may have to write about this topic again. Thanks for the plug.

Come on Half Sigma, name names! Douce? Wil Wheaton? Like they’re going to care what you think.

Anyway, here was my very tongue-in-cheek reply:

Hi Half Sigma
Well if you ever do make it to the top 100 blogs, I can tell everyone that I knew Half Sigma when he was a virtual unknown. And that might impress someone for some reason. I'll be able to deduct a little happiness from others because they know nobody.

Half Sigma responded with a note of fatalism:

"Well if you ever do make it to the top 100 blogs, I can tell everyone that I knew Half Sigma when he was a virtual unknown."

This is based on the assumption that having blog #100 would somehow make me "known." I doubt it very much.

It's not an elite club like being the in the top 100 CEOs, or the top 100 baseball players.

Baseball players? Pfft. Twenty years after they retire, they've blown their cash and they’re pathetic greeters in gambling halls.

Anyway, I related one of my favorite anecdotes about fame:

Hi Half Sigma
You just can't compare these things. I have the perfect anecdote for you. William Falkner, the greatest American author circa late 1940's was in Hollywood for a film adaptation of one of his novels. [Note, he wrote several screenplays for movies not based on his novels also] He was invited to lunch with America's greatest movie star at that time: Clark Gable.

What did they talk about? Well, Mr. Gable didn't read much. He asked Mr. Falkner: "What is it that you do?" Mr. Falkner explained that he was an author. Then he asked: "Mr. Gable, what is it that you do?"

Making it to the top 100 in anything is impressive, and we might as well be smug about if it does happen. And yes you're right, you might get that annoying question "What is it that you do?" but now you know how to throw that right back at them!

Stupidest Answer to a Job Interview Question

Question: “How are you today?”
Answer: “Irrelevant to the procedure.”

My wife was the interviewer. She’s going to recommend against this one.

This applicant is looking for a health care analyst position. She has a resume with almost every conceivable job skill listed in alphabetical order. It starts with academics (is that a job skill?), biostatistics, computer, data analysis, etc. My wife exclaimed, “She has the whole alphabet.”

I looked at it and noticed immediately an omission: “She forgot zoology.”

I’m not making this up.

Thursday, June 09, 2005

Is Happiness a Zero-Sum Game?

A zero-sum game is one in which whatever payoff one player gets in at the direct expense of the other players. Most games are like that: typically there is one winner and one loser. If I win, you must necessarily lose. My happiness depends on your misery. There’s no way we can both be happy…if our happiness depends on the outcome of the game.

Life is like a game, and we tend to play it like a game. Have you seen the bumper sticker: “the player who dies with the most toys wins”? People want to have a nicer car, a nicer home, a prettier wife, a smarter kid, and a smarter dog than their neighbors. If your happiness depends on that, then you are likely to be disappointed in life because it takes 99 people for every one person who achieves the top 1 percent in something. Odds are, you’ll be one of the 99. And even if you are in the top 1 percent, it will be a hollow victory because its not like if you achieve some meaningless goal you achieve nirvana.

Half Sigma (always an interesting blog) has an older post on status:

The total amount of status is actually fixed relative to the total population. If Uncle Sam gave everyone a check for $1,000, are we really richer? No, because it just creates inflation, the amount of goods and services available to buy don’t change. In the same manner, if we were magically able to give everyone a new Mercedes, would everyone’s status go up? No, because the amount of status in society is fixed. In this case, the Mercedes would instantly become a symbol of having low status because it would represent the default car that everyone, even fast food laborers, drive.

Half Sigma has a post about how television commercials cause unhappiness by making us want things we cannot afford.

I say that TV commercials are a major source of unhappiness because they show us all sorts of things that we can’t afford to buy.

People were probably happier before TV because back then they didn’t know what they were missing out on.

My wife use to watch the Home and Garden TV and she would salivate over the million dollar mansions. It used to irritate me because it would only create desire for things we could not have.

Here is a simple analogy. If you are reading this, you are probably a blogger. You might have the ambition to be a top 100 blogger (I am assuming that you aren’t already a top 100 blogger because why would you be wasting your time reading this?) There are millions of blogs, and only 100 top 100 blogs. You can do the math. Your chances of achieving this goal are tiny. But why would you want to make that your goal? Why wouldn’t you rather blog for the fun of blogging and get enjoyment out of having a few hundred interested people come by and read and comment on your blog? Isn’t that success enough?

The point is that we need to define our sense of happiness in a way that does not depend on the failure or success of others. We should be happy if we have a car, a home, a wife, a child, a dog (if you want one), and satisfying work. I have all that. I’m very happy. I also have a blog that some people read. Would I be happier if more people read my blog? I suppose, but really I don’t want to work any harder on it.

I remember a story that a professor told about the difference between success and happiness. He talked about a friend (call him Hans) who was from Austria but lived in the United States. Someone Hans knew (call him Fred) wanted Hans to contact a company in Austria the next time he visited his homeland so that Fred could negotiate a purchase of some merchandise. So Hans went to the Austrian manufacturer and told him of Fred, the rich American, who wanted to buy lots of his product. The Austrian manufacturer said, “I’ve got a nice house, I can go fishing every weekend, and I can eat out every Friday. If I have to work for your American friend and my Austrian customers, when will I have time to relax? No, I’m not interested.”

The Austrian businessman probably deserved to be driven out of business by a competitor in the long run, but in the short run, you have to admit, he was very happy.

Wednesday, June 08, 2005

What Can Finland Teach Us?

What can Finland teach an ethnically diverse country like the U.S. or India about how to run a socialist society effectively?


The Washington Post sent associate editor Robert G. Kaiser and Post staff photographer Lucian Perkins to Finland to discover what makes Finland work. Finland has the best education system in the world (so the Post claimed) and socialized medical system that is much less expensive than the U.S. medical system and works well for them. Finland, like other Scandinavian countries, has a level of public spending, high taxes, a very equitable distribution of income, and few people in Finland want to change that.

Finland is ethnically homogeneous. Robert Kaiser commented about that here. Basically everyone in Finland is a Finn, speaks Finnish, belongs to the Lutheran Church (although doesn’t attend regularly), and has a lot in common culturally with every other Finn. This does not describe the United States or India. If you could measure ethnic diversity, Finland would be on the left, United Kingdom would be more towards the middle, United States to the right of the U.K., and India would be to the far right. A casual observation is that mild tax-and-spend socialism works well in a country that is ethnically to the left but not so well in a country that is ethnically to the right. Why is this?

Socialism requires cooperation from the participants. People will cooperate to a limited degree, but the more cooperation you ask from people, the more selfish they tend to be. In the United States, most will leave a tip in a restaurant they never intend to visit again, most who regularly watch public television will donate $10 to $20 to public television (but not much more), most will vote in a national election but not in a small local election.

People in India behave more in the way that the non-cooperative game theorist would predict. I am told that if there is a piece of trash in the hallway in a luxury apartment, no one will pick it up and put it in the dustbin. I’ve been to India and have observed that men regularly relieve themselves on the walls in public. I would be willing to bet that this would not occur in a neighborhood where everyone is of the same ethnic group. People are more cooperative among their own “tribe”.

Socialism can be modeled by a simple game: the commons game. In the commons game there are n (n greater than 1) participants. For every dollar that the participant puts into the common pot, the society can buy a public good worth 2/n to everyone. Obviously, if everyone puts in the same amount, everyone gets a good that is worth double what he or she paid for it, which is a really good deal. But the free rider will think: if everyone else puts in their money and I don’t I get the benefits for nothing. Obviously the free rider is a stinker, but these people do exist, and they more likely to exist among groups that feel that they have been abused in the past.

This is the important point: people who don’t trust others in society will act less cooperatively and make socialism unworkable. They will shirk their responsibility to work hard, pay lots of taxes, and avoid taking too much from the public pot. They won’t feel so bad about their anti-social behavior because they don't care so much about these other people. They will feel that the money in the public money-pot is going to those others and they would prefer that the money would stay within their own family.

I believe that we humans have an instinct for cooperating with the “tribe”. The commons game came up all the time in our prehistoric past and humans did not have capitalism to help overcome the free rider problem. Think about warfare. People in the tribe had to put their own interest aside for the common good or the tribe might lose to another tribe. But this feeling of cooperation did not extend to other tribes for obvious reasons: the other tribe might be your enemy, either today or tomorrow. Instinctively, we will feel bad if we are uncooperative with our own tribe but less concerned about other tribes.

Yesterday, I wrote about a fascinating encounter that Saket Vaidya had on a quay waiting for a train in Mumbai. He was about to fight a fiend who was taking a village girl against her will when someone from the crowd intervened. If the crowd had backed Saket, the girl might have been spared an awful fate. But that’s not what happened. The person from the crowd told Saket:

Why are you involving your self with such people? Let him take the girl anywhere. How does it matter to us? Why should we interfere? He may get away, but perhaps we might get into trouble in the end.

My guess is that no Finn would be like this in Finland.

Think about this situation: you are going to play the commons game with a group of Moslems (if you are Moslem, change it to Hindus). One from the group says something stupid (like “The U.S. brought 9/11 on themselves”) and the others nod in agreement. Do you cooperate or free ride? I would not cooperate in this case.

Mild tax-and-spend socialism is a good fit for Finland. Laissez faire libertarian capitalism is a very good fit for India. The United States can tolerate a mild touch of tax-and-spend, but not much. India and the United States should compare themselves to Switzerland, which is divided by ethnicity and religion and is still very free and prosperous, and not to any Scandinavian country.

As a postscript, I would point out that the recent failure of the Europe Constitution is a failure of socialism. European countries are individually must less diverse that Europe as a whole. And if we include Turkey, Europe would be very diverse. A common economy over Europe would require a shift from mild tax-and-spend socialism to laissez faire libertarian capitalism, and Europe is not ready for that.

Tuesday, June 07, 2005

Blogs as an Educational Resource

Can you learn anything from blogs? Maybe. And maybe that knowledge will have a practical application.

Vikram Arumilli reads my blog regularly and has a nice blog Work In Progress. He read my post on spam. Here is the relevant excerpt:

I have a simple solution to the spam problem. The e-mail providers should simply charge the e-mail user a fee – maybe 25 cents – for each e-mail sent. The money would not go to the e-mail service or the government (leave them out of this) but to the recipient. If you send as many e-mails as you receive, it evens out, and e-mail is still free. If you receive tons of unsolicited e-mail, you are compensated for this bother. If you are a spammer, it becomes very costly to do business.

The big e-mail providers can easily switch to this kind of service overnight by asking the users to set up a money account when they open an e-mail account. They might ask for a one-time set-up fee of $10, which would pay for 40 e-mails. People like me would still have $10 in their accounts because we receive as much mail as we send. And if you discontinue service, the provider refunds your money.

It so happens that Vikram was taking an economics class. Guess what question wound up on the final? Here is an excerpt from Vikram’s post “Less study, more blogs”:

Well, today, this was a question on my Economics final exam:

5. (10 points) If you use email, you have almost surely received spam. Spam is almost free to the sender, while generating a cost on consumers and internet providers. For example, according to a February 13. 2005, New York Times article, "Hotmail alone catches about 3.2 billion messages a day."
(a) What economic concept most closely describes the spam phenomenon? Why?
(b) Describe one solution that would alleviate the spam problem and be consistent with the goal of maximum total surplus for society?

Of course, I shamelessly used Michael's ideas to answer part (b). So thanks, Michael, for writing a wonderful, educative blog, which is a delight to read daily.

Vikram: there’s nothing “shameless” about using other people’s ideas if you give credit, which you have done very nicely. That’s is what academics is all about.

But I have to admit that I would never have thought my blog would be at all useful. This was a nice surprise.

Of course, I’m assuming that the grader will agree that Vikram and I had the right idea. If Vikram doesn’t get full marks… maybe back to studying.

Monday, June 06, 2005

Preaching to the Choir

Are most pundits merely preaching to their own choir? Almost all of the readers of a particular political blog agree with the politics of that blog, so says Matt Miller in a New York Times editorial:

Is persuasion dead? And if so, does it matter?

The significance of this query goes beyond the feelings of futility I'll suffer if it turns out I've wasted my life on work that is useless. This is bigger than one writer's insecurities. Is it possible in America today to convince anyone of anything he doesn't already believe? If so, are there enough places where this mingling of minds occurs to sustain a democracy?

The signs are not good. Ninety percent of political conversation amounts to dueling "talking points." Best-selling books reinforce what folks thought when they bought them. Talk radio and opinion journals preach to the converted. Let's face it: the purpose of most political speech is not to persuade but to win, be it power, ratings, celebrity or even cash.

By contrast, marshaling a case to persuade those who start from a different position is a lost art. Honoring what's right in the other side's argument seems a superfluous thing that can only cause trouble, like an appendix. Politicos huddle with like-minded souls in opinion cocoons that seem impervious to facts.

Read the full thing.

I don’t agree that this polarization of thought is a new phenomenon associated with blogging. Blogging only reveals this inherent polarization of thought. There was never a time where people’s minds were like putty to be shaped by the clever oratory of a brilliant thinker. Most people have their politics pretty well defined by the time they reach adulthood, and all the reasoning in the world will not alter their views.

In one sense, this is depressing, and in another, not so bad. I think it is somewhat reassuring that most people have a natural immunity against the rhetoric of politicians. Otherwise, a clever but unscrupulous politician could persuade a nation to do very bad things. Admittedly, he might be able to persuade half of the nation to do very bad things but the other half will be very much opposed to it.

If you are a pundit, you cannot persuade many people. You might persuade a few people who basically agree with you on most points about one point they would ordinarily disagree with. No matter how clever your argument is, most people will ignore it if it doesn’t correspond to their preconceived political notions. So the pundit is most persuasive when he is perhaps least sure of his own arguments, because it’s when he is unsure then his views and his followers views aren’t already carved in stone.

But this is the question: if logic cannot move our political (and economic) views, where did they come from? Our parents had a big influence on us. But many views come about simply to rationalize behavior we already exhibit. For example, if you have had many casual sexual relationships, you might think that causing an unwanted pregnancy is not the moral sin the Catholic Church would say it is and maybe abortion is not so bad. Behavior drives your view of morality and politics and not the other way around.

Let me give you an insight about my own political and moral views and how I came to have them. This is an excerpt from a letter I sent to Keith Burgess Jackson (I haven’t read his blog since because I didn’t agree with his politics):

I basically believe in non-violence (which would make me a sort of liberal).

I hate guns. I oppose the death penalty. I don't eat meat and I don't wear leather if I can avoid it. I believe we should only attack countries that have attacked us (I supported the military action against Afghanistan because they were allied with Al Queda but I opposed the invasion of Iraq). I abhor torture. I also oppose abortion.

You might think that this is a good example of someone adopting a political philosophy and choosing my stand on the issues accordingly. But that isn't how it happened - it never happens that way. I kind of accidentally fell into most of these positions, began seeing a pattern, and enforced some order on the rest of these positions.

For example, I used to support the death penalty until I lived in Minnesota where they don't have it. Then I realized that the death penalty was unnecessary. My view against the death penalty harden when I learned that many people have been freed from prison because of DNA evidence when they were falsely convicted beforehand. Some of these people could have been executed.

I remember changing my mind about abortion when I was a teenager. I was in speech class and a frizzy haired girl who I thought must have been one of those damn liberals - (I was less liberal then) shocked me by giving a coherent speech against abortion. I never thought about it before but I thought that if a woman thought she should not be able to have an abortion - even if she were raped - maybe I should think about it more. What I decided was that even if we sure about the humanity of the unborn, if were even slightly unsure – suppose 1% unsure - then lots and lots of abortions add up lots of expected deaths.

I didn't become a vegetarian until I met my wife. She's from India and was not comfortable eating meat. I decided to give up some meat (beef and pork). Then I gave up poultry. Then I gave up fish. Then I gave up wearing leather (for the most part). But I did not marry my wife with the notion that her beliefs might fit into some non-violence philosophy. Also, my views on economics are based primarily on my education at the University of Minnesota, which are not liberal at all. My economic views are more-or-less classic free market libertarian.

It is just chance that the liberals got stuck defending abortion and the conservatives got to attack it. It could have been the other way around. I remember in the 1970's many Republican supported abortion rights because it fit their view of getting the government off of the backs of individuals (both father and son Bush supported abortion rights in the 1970's). Some liberals thought that the little fetus was a creature we must protect and defend like anyone else. But the National Organization of Women (NOW) changed everything. They insisted on abortion rights because they didn't want society dumping on them. Their view on abortion was the NRA's view on assault rifles - they wanted the option and they weren't going to let politicians take away that option. The NOW was strong in the Democratic Party - the rest is history.

So don't be so sure that your view on abortion or any other political view stems directly from a set of principles. Your views came first, the principles later.

By the way, it was this letter that I forwarded to Amit Varma of India Uncut that convinced him that I should be a blogger. He was able to persuade me of this in the end. If any pundit can persuade, Amit can.