Big ideas: Design vs Evolution

This was supposed to be a single post but I don’t like talking about concepts I haven’t previously introduced on the blog so I’m making the first post about design and evolution and then following it up with a post on movies and series.

Design

A design is an article/product/item of manufacture that is the result of an architect’s vision. The key in design is the presence of the final vision from the initial stages of the process. Likely to be the biggest achievement of design thinking is the wheel.

wheel-invention

Intuitively, the wheel is uniquely the product of design thinking as half a wheel or a wheel with angles would be close to useless. Therefore, if we are calculating the marginal value of each design step and the steps are sufficiently small we would never come up with the wheel. This is because at most steps, the direction towards the wheel will never appear like an improvement. It is only when the wheel is completed (or close to it) that its value starts to emerge. Accordingly, it seems alternative improvements will always be chosen over those that will lead to the wheel.

Graph for blog

When the wheel is only 20 or 30 percent completed and only a step or two ahead can be envisioned, it is unlikely that the design process would continue and lead to the final product.

Design thinking does however make the product highly fragile. Since in essence it relies on the synergy of the components and not their value in isolation, damaging a component creates a non-linear loss in value. For instance, adding a couple of angles to a wheel quickly deteriorates its value as it can no longer roll smoothly. This fragility does not have to pertain to the object itself, it can emerge from the environment for instance a wheel’s utility is fragile to not being on flat ground.

This same logic applies to buildings, they are a product of design thinking. You know a skyscraper is designed because knocking down a small proportion of the building causes it be useless (collapse). It is designed to lean on certain components more than others. (I might come back to this in the form of urban planning in some future post).

Overall the weakness of design is its fragility. It does have potential for unprecedented efficiency but it is very reliant on its designer. If the designer has no sense of history he may not incorporate proper systems into his design which fragilizes the whole endeavor.

Evolution

Evolution is all about small steps, where you try different things in different directions and choose the one that better improve the outcome. There is a caveat of conscious versus unconscious evolution but it’s not important for my purposes.

Through evolution it is possible that the outcome be enormously complex. Perhaps one of the more famous examples is echolocation in bats or dolphins, which is an enormously complex process that is more efficient than most of what modern technology has pieced together. Perhaps a more intuitive example of evolutionary outcomes is in scheduling your calendar. Gradually adding routine things to your calendar (gym, dance, learning, etc) is an evolutionary process because you evaluate each addition separately.

Things that evolve through evolution are generally very robust to variation and damage. For instance in the scheduling example, if suddenly one activity gets cancelled, the value of the others is usually not suddenly damaged and you still have the value of the other activities and the free time you gained from the cancelling. Similarly half a lung is still very useful, though it will obviously be able to produce only a fraction of the full lung’s oxygen. In fact most (if not all) of the organs of the human body share this feature.

Technical note: When dealing with evolved entities its usually less misleading to rely on the Law of Large Numbers.

The thing about evolution that makes it robust is that it does not forget the past. It is conscious of history and has systems to incorporate the past into its future behavior.

Putting it together

To me evolution vs design is an important question in almost all domains in life. Should one plan or play it by ear and deal with things as they come along?

The truth of the matter is that nature (which is almost fully a product of evolution) has a statistical validity that makes arguing against it a highly challenging endeavor. Whatever was not robust was ruled out by millennia of evolution. Therefore a proposal that is an alternative to nature, to be credible must have a significance level that can be juxtaposed to these millennia of evolution. I.E though taking a car (a designed object) to work may appear universally more efficient, but the lack of walking may lead to heart problems, unbalanced psychology, etc. The thing about evolution is that it feels no pressure to inform its user what the benefit of a certain heuristic/habit is, so great care must be taken when trying to replace such heuristics. Evolution may give us instincts to delay gratification but a design thinker may not accept such a delay because he/she does not see the benefit, and if you do not see it, then you cannot design around it.

Evolution doesn’t have to be uniquely genetic or cultural. For instance the heuristic to look left and right when crossing the street is probably both a cultural heuristic and a genetic tendency, it is a method of taking the past and using it in the future.

Similarly the economics debates which used to be in large part dominated by either evolution (pure capitalism) or design (communism), have now become dominated with a mixture.  Ideas of pure design have mostly been shut down, they have been replaced with arguments about the provision of platforms and are inherently of higher sophistication. Property rights and the rule of law are seen as such a platform and debates over the welfare state can be interpreted similarly.  It does seem however that there is quite a lot of emphasis on this kind of design thinking without much mention of fragility, and it’s obvious to me that with things like nukes, the internet, and even central banking(I find this one particularly interesting), we are quite a bit more fragile than we have ever been.

Do we need patents/intellectual property?

It’s easy to think that industries can’t work without patents, and this is very true to some extent. Many biotech firms make a loss year in and year out, hoping to survive until that patent gets accepted. But this is a static view of the world; let’s take a moment to consider how the world would look without these patents. To be sure demand for medicine and this kind of research would still remain and as long as demand remains, then there will be solutions. Maybe the political process will create funding for such projects, though that would probably not be very efficient. So how can the private sector profit without patents?  How do other industries which don’t have the luxury of patents/IP(intellectual property) property do this? Let’s start with the latter question.

The theory

If a fashion designer comes up with a great new style of dressing, but can’t patent it and the next day all others do something similar what has he gained? Well reputation of course. Monetizing reputation is then easy; this fashion designer will be the first to be called by people who want something designed. Or if he has a certain brand or logo associated with him, it will signal competency to the consumer boosting his sales. This same process is also present in finance, most notably, investment banking, one bank invents(or finds) a market, then, the other’s join in, nobody can claim that investment banks don’t have the incentive to innovate, in fact most of the media coverage suggests they innovate in excess. Part of what allows them to thrive is this lack of patents, which allows instant liquidity through the duplication of products. Reputation actually works surprisingly like patents; they give you a great name (which you can use to profit) but fade with time. I’m sure it’s no surprise to anybody that having a good reputation allows a company to charge a premium for its products and if no premium is charged then they have an advantage over equally priced competitors.

Music

Music is to me is the industry which is most undeserving of IP. US copyright protection is active until 70 years after the author’s death! Not only does protecting music not produce better music(no surprise since it’s an art and not a science) but the structure of IP law doesn’t even take into account how the market works. Most of the profits of music are usually made within 10 years of release so protecting it for another century seems kind of insane. Especially if you wish to use an extract from one of these artists after he dies, you have to be chasing down his heirs (who could be anywhere) to ask for permissions.

The theory described above is probably the easiest to prove in the music industry. Artists can improve their reputation by releasing popular music (which can be done with almost no cost, thanks to peer to peer sharing) and can then monetize it by using their reputation, perhaps to advertise or in concerts. The greater their reputation the higher they can charge for their concerts, and the more money they can get from advertising. Businesses (like movie studios) may also wish to contract them to create music for them. It’s hard to make a statement that is “ceteris paribus”(all things being equal) consistent, but since illegal pirating has commenced, I would say music has grown much more popular, there are more artists today than there have ever been. This is in fact partly helped by youtube (an example of how artists can make money without IP) but this was the case before youtube ever started. There is no doubt in my mind that more pirating of a given artists music, boosts his concert sales. Perhaps the most frustrating thing the about the music industry is that they are crippling peer to peer networking technologies which have very high potential welfare benefits for the everyday consumer.

Pharmaceuticals

So now to the real challenge, how would pharmaceuticals get developed? Well in a very similar way really, though the industry would probably own a lot more hospitals. So a pharmaceutical firm develops something spectacular, let’s say they cure aids. Then their brand value will rise and their hospitals will be more popular because their doctors there will be perceived to be the best in class. Even without hospitals, their medicines would become more popular due to the prestige associated with their brand. There is still an incentive to create these products, in fact the incentive to innovate is strengthened like never before, since there is no chance to sit back and relax through rent seeking (royalties), you must now always be one step ahead of your competitors, you are forced to keep innovating, cure cancer, Alzheimer’s, death, etc.

You’ve got to remember that IP at the end of the day makes things much more expensive, and could bring things out of reach of certain people in the world. Although it might not be a big loss for people on the music end, it holds back the private sector from being able to distribute innovative medicinal practices to people all over the world. If a firm develops a technology, it is under no real pressure to start distributing it, since it can just sit back and claim royalties from others who wish to do the dirty work. However those others will have to overcharge for the product and will probably not have much incentive to do this. Whilst in a world with no patents, the incentive is for these pharmaceutical companies to get this product to all markets they can identify before anyone else. What’s their incentive to do this fast if they have 20 years until the patent expires and can claim royalties without effort or investment? Let’s not restrict competition, whoever can save the most people first, wins.

Software

So now with the big boy of patents tackled, let’s go down to some chumps. Whilst the pharmaceutical industry is extreme in that the ratio of cost to create to the cost of copying is very high there are other industries which file thousands of patents without this ratio. One most extreme example is the software industry, most software innovation is incremental, created by teams of software engineers at very modest costs, worse yet most of these technologies quickly become obsolete. Each device (laptop, phone, etc) could potentially have hundreds of thousands of patents. We saw this summer how apple won a case over having rounded edges on smartphones. This creates endless opportunity to hamstring competitors.

The costs

In practice of course all these processes are very costly to our economy; we produce lots and lots of lawyers to protect these patents. Patents increase the prices of goods, they allocate resources to patent races(which is not a good competitive trait to base competition on, see my other post), there is a cost of having to look through the Patent and Trademark office every time you do something, there is of course a lot of  filing of defensive patents, which are patents which won’t necessarily yield royalties but they are there because you are scared someone else will file it, and of course patents give birth to patent rent seekers who buy large number of patents and only make money through fees and if necessary by suing . It seems obvious to me that if we had less lawyers taking care of this stuff, the innovation process would be much quicker, not to mention that the lawyers might maybe join a profession that actually directly helps competitiveness(and not by cutting off opponents feet). Let’s also not forget that we as tax payers generally have to pay to keep these(e.g patent office) public institutions running.

Fair use

In law “fair use” is a defense allowing for copying of short excerpts from a copyrighted work without a license. The rationale for this is that the transaction cost of negotiating a license for these is likely to exceed the value of the license. Yet even this law that has potential for being economically rational is so ill defined that the copyright owners can bring down this “short” phrasing to its bare minimum, for instance film studios insist that even a minute of their film is too much. Innovation comes in many forms, yet the most common is not the popularized “radical” but the “incremental” one. The lack of fair use objectivity in law is very damaging to the latter.

Global patents

One of the most vital advantages of the Chinese economy is in fact this lack of respect for patents, it allows their firms to have much lower costs of production, and this cannot be duplicated in the west because we fear the courts reining in on us. In fact in developing countries there is a reluctance to file patents, since it is in essence just telling your competitors your recipe. Another well documented global phenomenon is that patents cause inequality in society, a fact shown by various studies that should not really surprise anyone.

Some inventions are not patentable and could be just as valuable to society but having patent systems is funneling innovation to only occur in areas which are patented. For instance, the theory of relativity could not be patented, same for the theory of evolution, and our understanding of DNA and more recently the Higgs Boson breakthrough. Patenting directs our scientists to projects that can be patented rather than on pure scientific research(which might have much more productive output in the long run).

A video game called lord of the rings online, was initially a product you paid for, and once sales started dropping the owners made it free to play (making money through in game purchasing), and the game saw its profitability rise higher than ever before not to mention a much bigger player base (which will likely be beneficial on the next release of this company).  This is an example how the private sector can build models based around other ways of making profit. If every purchase gets duplicated by the net, then in the future we might see consumers cooperate to see products see the light of day, this is perhaps what kickstarter is accomplishing, if you expect that after the release the whole world will be playing your game and you’re not too sure about making an in-game profit system then you can just put your projects on kickstarter and wait for consumers to cooperate and give you funding for it.

We need to call out things by their real names, so what is a patent? It’s very simple, it’s a monopoly. In short I would not call for elimination for the whole patent system; I am not that extreme (though I obviously understand where that argument would come from). I would however wish for patents to end for all products except drugs and maybe some other expensive but easy to copy technology (emphasis on the maybe), this moderate stance is only because I’m afraid to meddle with a chicken that lays golden eggs (medicine).

Open source movements have definitely shown me that people will create not only for money but because they love creating, it’s self-fulfilling (an opinion shared by Akira Kurosawa in Ikiru). The private enterprise is resilient enough to find ways to satisfy demand without such artificial methods. Government intervention should be done when systemic and chronic market failures exist, these conditions are not met in our world as far as patents and IP are concerned.

Should feminists be suffering from existentialism?

Usually I don’t like him because he takes every chance he gets to jump on the “hate government bandwagon” but lets start with Thomas Sowell’s recent column anyway. He tell us what Ceteris Parabis is:

“The old — and repeatedly discredited — game of citing women’s incomes as some percentage of men’s incomes is being played once again, as part of the “war on women” theme.

Since women average fewer hours of work per year, and fewer years of consecutive full-time employment than men, among other differences, comparisons of male and female annual earnings are comparisons of apples and oranges, as various female economists have pointed out.

When you compare women and men in the same occupations with the same skills, education, hours of work, and many other factors that go into determining pay, the differences in incomes shrink to the vanishing point — and, in some cases, the women earn more than comparable men.”

Then lets move to this first paper here:

In 2003, a new law required that 40% of Norwegian firms’ directors be women—at the time only 9% of directors were women. We use the prequota cross-sectional variation in female board representation to instrument for exogenous changes to corporate boards following the quota. We find that the constraint imposed by the quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin’s Q over the following years, consistent with the idea that firms choose boards to maximize value. The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance.

Now on the the Bureau of labor statistics. On average women work less hours than men, men work 40 and women work 35 hours per week. So that’s another explanation of the mythical “gender wage gap”, you could try to argue that the dependent variable in the model should just be the earnings per hour, but it would not work because its natural that people who work more hours get the promotion. This study here also supports the BLS:

In our data, the median male physician with 10 years of experience works 11 hours per week more than the median female physician in our sample with 10 years of experience. Simply put, the majority of women physicians do not appear to work enough hours earning the physician-wage premium to amortize that profession’s higher upfront investments.

This is also backed by this study:

This paper documents and studies the gender gap in performance among associate lawyers in the United States. Unlike most high-skilled professions, the legal profession has widely-used objective methods to measure and reward lawyers’ productivity: the number of hours billed to clients and the amount of new-client revenue generated. We find clear evidence of a gender gap in annual performance with respect to both measures. Male lawyers bill ten-percent more hours and bring in more than double the new-client revenue. We show that the differential impact across genders in the presence of young children and the differences in aspirations to become a law-firm partner account for a large part of the difference in performance. These performance gaps have important consequences for gender gaps in earnings. While individual and firm characteristics explain up to 50 percent of earnings gap, the inclusion of performance measures explains most of the remainder.

Even though the equal pay act has existed since 1963, pressure from feminist groups continue to attempt to destroy equality. It was normal that women take a few decades to get close to men’s wages since even when you first passed the bill that didn’t suddenly bring women’s skills up to men’s standards, it had to take awhile. Yet this movement persists, earlier this year they tried to pass the “Paycheck fairness act” but thankfully the senate didn’t go for it.

If after all this time feminists have been masquerading equal pay under the veil of equal opportunity then I have a better approach for equal wages. Mandate women’s work hours to mirror mens hours! We also could try force the other sex to change, force men to work less hours!

Moving further up on the ridiculous scale: Women take some days off after giving birth, and even if parental leave is also a thing, the reality is women take more leave than men. So we could fix the wage gap by mandating all women to have abortions every time! Or biologically change men so that they can also have babies!

So there is no problem, meritocracy is at work, is it really a problem that women don’t prioritize wealth as much as men do?  I don’t think so. The market isn’t perfect but I have not seen conclusive aggregate evidence of market failure in this domain.

edit: here’s an interesting speech by Larry Summers on the topic http://www.harvard.edu/president/speeches/summers_2005/nber.php

The relativity of entrepreneurship types

Entrepreneurship takes three forms, these are productive, unproductive, and destructive. Some academics believe that the supply of entrepreneurs cannot be influenced by policy and the only thing that can be changed are the “rules of the game” which will change the mix of these three types of entrepreneurship, hopefully influencing entrepreneurs to be productive. Some of these types are fairly obvious whilst others might be surprising.

Productive entrepreneurship is fairly obvious, someone opening up a restaurant with fully vegetarian dishes is productive entrepreneurship. A good rule of thumb for identifying productive is if you can identify an unsaturated demand for it.

Unproductive entrepreneurship is entrepreneurship that doesn’t really benefit society but benefits individuals. An individual who trades with his own money through the stock market. Trading through the stock market doesn’t really add much value since for every dollar he makes, somebody else loses it, however price discovery and liquidity could be argued for but these are hardly productive activities. A clearer example is perhaps someone who buys a building and then rents the rooms, this literal rent seeking obviously doesn’t change much at all, it makes no difference who owns the property. The Law profession is also widely considered to be unproductive the majority of its activities result in mere transfers instead of value creation.

Destructive activities on the other hand could be for instance the selling of bad drugs(emphasis explained later) because people will die. Or a pyramid scheme, although it might seem that it’s just unproductive since the net result is a redistribution of money with people at the bottom losing their money, its unproductive because it could destroy confidence in the market and maybe hinder multi-level marketing companies.

This identification process can be tricky, for instance a libertarian might call a lawyer discovering a clause that allows a company to pay less taxes productive since he assumed the money is more productive in the company, whilst a communist might say that’s destructive since the state spends money for the benefit of all and this could affect the budget. Selling drugs would probably be considered by most to be a destructive form of entrepreneurship yet if the drugs don’t necessarily have violence or overdose associated with them, like in Amsterdam, its probably not destructive. This relativity puts a large emphasis on political parties representing the will of the people as to what productive is. This is especially important since evidence as to wether government can influence entrepreneurship is not very certain, however there is strong evidence that it can funnel it in the “right” direction.

Read more on these types here: Baumol_1990_

Vegetarians! An argument i’ve never understood…

Every once in awhile I run into people who tell me they don’t eat meat. Being an institutionalized meat eater the natural question that I ask is “why”. From there the answers can range from dietary to religious reasons, but every once in awhile I get the “because I care about animals” answer. Here, a moral dilemma arises, but not the obvious one, the dilemma is, do I want these animals to be wiped out from the planet or do I want to eat them?

The fact is that eating animals is the best way to save them, if Panda’s were the tastiest animals on earth, a whole industry would emerge that would help them survive. I promise anyone that while chickens taste good, they will never be extinct. Evolution failed before and now it fails once again, the best way for all animals to survive is to evolve into tastier versions of themselves.  Do chickens or cows really have a shot at surviving in the wild? It’s very likely that if we stop protecting them, they will be wiped out very quickly by bigger predators. We value productiveness in our economy so the choice is between making animals do manual labour or eating them.

Price gouging!

So my last post was about a critique of free markets so lets change direction. So what is price gouging? Its sort of like a limit on the profit margin you can charge, some states in the US have laws about how much margin you can make if there’s a disaster. So say a 10% margin limit means that if it cost you 100 dollars to come up with something you can’t sell it for more than 110. So why is this good? So you don’t get ripped off during a disaster, when your house is flying above your head, you probably don’t need some guy charging you 100 dollars for a bag of ice. On to the story:

A group of friends hear about a disaster hurricane event a couple of hundred miles away from where they are driving. So they decide to go buy packs of  ice for about a dollar each and drive down to the distressed area. They then stop in front of some residential neighbourhoods and start selling the packs for 12 dollars a pack. Lots of people run to them and start buying, then the police shows up and arrests them for price gouging. The people of the neighbourhood see this happening and they start clapping to support the police.

So what has price gouging accomplished? Its easy to think that these guys were being immoral and taking advantage of the people. But now lets use economics… there’s a finite amount of ice… so what’s the best way to give it around? The way to maximize utility, so give it to the people who need it most… so how do we do that? Some people want the ice to keep their baby formula the right temperature, others want it to keep their beer cold, others might want it for their medication.

We are actually fortunate that the price system comes pretty close to achieving maximum marginal utility, how does it do that? by maximizing profit, the seller’s profits are probably maximized by selling all the ice at the maximum price he can get away with. People who just want to keep their beer warm won’t be willing to pay so much as someone whose health could be on the line.  Would those friends even have showed up if the profit was capped at 10%? Would they spend hours driving to leave with a couple of dollars each?

The one disadvantage of the price system is that richer people will be negatively influencing the maximum marginal utility mechanism but in a given neighbourhood inequality probably isn’t very high and rich people might in fact still be inclined to think in terms of  long term “value for money”.

So all this not to say that all price gouging is bad, since there are many times were it is used to prevent fraudulent activity or times where everyone could have the same marginal utility.

My favourite critique of competition!

Perhaps the greatest appraiser of competition of all time is Hayek, in “the road to serfdom” he makes a point about competition being pivotal factor about why capitalism is one of the most efficient systems we can have because competition is an automated dynamic mechanism which cannot be replicated from a top down approach. It’s very hard to disprove that competition is great yet perhaps we can find holes…

So Robert Frank in the “Darwin Economy” describes an example of evolution being inefficient. Frank uses the example of competition within male deer. Deer compete with the environment to attain food and survive large predators, but they also compete amongst themselves over females. How do they compete? with their antlers of course, usually the bigger antlered deer’s wins the fights and get the female. So over time evolution dictates that they the average deer horn size will increase. Yet what matters is relative antlers size not absolute antler size, so in other words, the same hierarchical structure would exist even if all deer’s horns were halved. So if the deer could vote on decreasing everyone’s horn size(assuming they are rational) they would all vote for it because they would benefit as a species by not having to carry around X amount of extra weight when being chased by a lion.

So what’s something similar in the human competitive process. Once you get to thinking about it its very easy to come up with examples, interviews are one. What matter’s in interviews is that you be better than the other applicants(assuming a company is taking a fixed number of employees), so the more you practice the higher your chance of getting the job. But what if you could spend the months leading up to the interview actually getting better at the job? The whole world would benefit if everyone spent less time preparing for interviews and more time polishing their skills(which are sometimes not tested until your on the job).

Another example, maybe in dating, women favour blue eyes(not sure if this is true), but in reality blue eyes are more sensitive to sunlight and a genetic weakness because it usually means lower levels of melanin which means less protection from UV radiation.

This eugenics movement about optimizing the human race is completely misguided because it assumes which attributes are superior, Hitler deemed blue eyes to be superior… yet now we know they aren’t. You could argue that intelligence is an absolute that matters, but does it really? Steve Jobs wasn’t renowned for his intellect but his creativity, which is perceived to be exclusive from intellect and look at the value he created for the world. Even if we assume intellect creates more value how do we know it’s not because of the way we structured our society around it? Maybe if education was revamped other attributes would come out dominant. This kind of discrimination is the pretence of knowledge(start and finish with Hayek) and should not be taken seriously.

Redistribution of hours?

It seems pretty intuitive that we work for money, otherwise we would work for free, that’s not to say that everyone is miserable at their work but the goal is monetary is it not? So with that said doesn’t it seem strange that the wealthier people are, the more they work? Over the years more and more hours have been allocated to an increasingly smaller proportion of the population. This seems unintuitive…as you gain more economic security… the more work you have to put in to retain it? Does it not make more sense to seek social security(take care of kids, be a good husband, etc) next? It seems we got lost somewhere along the way.

So lets think about this skewed distribution of hours. Do we need more hours to do work because work is getting harder and harder to do? Not likely, technology ensures that we do what used to take hours in fractions of seconds and merely with the touch of a button. So productivity is up, yet real wage stagnation has ensured that in the US people to have work more and more hours to keep up with inflation. In Europe working hours have been reduced but there is still more room for improvement(especially in the UK). So with these facts in mind lets ask some incremental questions.

What is a job? Is it not a function in society that requires a number of hours to (hopefully) achieve a certain GDP output? So lets look at the economy in hourly terms. It seems we have trouble expanding our hours(create new jobs) but reduce our hours with ease(technology). Redistribution of wealth is often attacked because it is said to create moral hazard for those who don’t work. So what about redistribution of hours?

Lets say the economy had a certain number of workers, working 40 hours(the current UK average) and an unemployment rate of 20%(its not as high as it might sound if take into account part timers looking for full time and discouraged workers). What if we could redistribute those hours to those 20% so we could have 32 hour working weeks? This would be an especially effective measure to help people cope with recessionary periods where the unemployment rate rises. In the long run this kind of redistribution will result in there being  less inequality and probably more community involvement.

So what stops this from happening? The main obstacle is that some jobs are very hard to replace so training costs for some companies could dramatically increase. Additionally workers insurance programs will also guarantee an increase in costs, making this a losing proposition from the company’s point of view. This is where government can come in, especially since its mandates(worker’s inurance) discourage this from happening. Government can subsidize companies specifically to just the right amount so this becomes a profitable proposition, something like tax cuts for meeting a certain weekly quota in employee hours.

Some argue an altogether drop in working hours without thinking about GDP, an incentive of that might be more environmentally friendly economy. here‘s a lecture on that if your interested.

Some Answers to my own questions(if you have questions ask them in the comments):

Should this be mandatory?

This should not become a mandate policy because some people just like working and there might not be a reasonable substitute for their work, resulting in a potentially large GDP loss. Some people just don’t value social life as much (Mckinsey employees work 70 hour weeks, though their social work life balance reporting is very low).

Are people potentially equal?

Of course one of the main assumptions is that the people who are unemployed have just as much potential for productivity as those who are not.

What about the minimum wage?

Minimum wage structure creates some complications, especially when calculated in hours(not to mention that its currently probably too low for a reasonable standard of living). However practically this would be overcome by the fact that we would not mandate this policy.

Insurance and genetics

Insurance has two main concepts moral hazard, an effect that is present after signing up to insurance and adverse Selection one that is present before you sign up; the latter is the one that interests me today. What Adverse selection means is that people who feel they are more likely to fall ill will more likely go insure themselves and those who face less risks will not (related to the “it won’t happen to me” human failure). The case for government running insurance schemes is the ability to spread risks on a massive scale (the whole country) which can overcome adverse selection (which might draw in risky immigrants, so eventually this should be done on a global scale), simple enough.

The next point… is well…those of us who have seen the movie Gattaca are probably very aware of the social risks that could arise as scanning genetics becomes increasingly more available.  Clinton signed a bill in 2000 to ban such discrimination, essentially capping the information which insurers can use to accept or reject someone. It’s easy to ignore the big picture and merely accept that the threat is gone, ignoring the fact that this gave birth to a very real danger for market failure.

Not allowing for such information disclosure would be fine as long as both parties had an equal amount of information. But the fact is there is a very strong information asymmetry case to be made, where people are much more aware of the genetic or otherwise risks they face. As years go by an increasing proportion of us will know the genetic risks we face through medical tests(which we won’t share with insurance). This information asymmetry problem becomes more prominent every year and adverse selection is on its tracks. As the pool of people who sign up for insurance becomes increasingly more skewed, either the insurance industry will raise their premiums(if this happens gradually enough) and deter people with good genes completely or  an inevitable collapse for the health insurance industry, unless of course black market for genetic information is created.

So we will eventually have two choices, nationalizing, (better yet… globalizing) all of health insurance or allowing for discrimination. Just like always, the government solution will benefit the weak (genetically) by allowing them to pay a standardized (average) premium just like everybody else and the private solution will benefit the genetically gifted by charging low risk individuals lower premiums… a true return to the “survival of the fittest”.

Most of us have grown to accept the idea of choice discrimination (like smoking or drinking) but will the human masses really be able to accept innate discrimination?

The Fat tax!Should we punish individual freedom?

If you haven’t heard yet Denmark started the world’s first so called “fat tax”. Read up on it here . From a business point of view, this is a crippling approach, since the extra cost could mean it would be more profitable to produce in another country and import it back to Denmark. Even though the ERM II mechanism is present, there is still a conversion cost which makes the tax more viable. But if Denmark does eventually adopt the Euro, it would probably not be sustainable any longer(though perhaps by that time there will be further integration which will negate any loss in one countries trade deficit).

But the more interesting part is… does it make sense on a moral perspective? Depends on your point of view really… are you the kind of person who waits for his friends? or would you leave them behind if they slow you down? Assume the first option, how different is a “friend” from someone unknown to you, someone from the same country? I for instance don’t have much sense of nationalism and i don’t feel particularly closer to any one from my country of origin. So no i would not want to pay extra in taxes to accommodate health care just so someone will else can exercise their freedom to eat, the fact is, their freedom is weighing down on my wallet, and with less money, i have less options, and consequently my own individual freedom is  constrained.

I am not more sympathetic to someone with a choice to do something than i am to someone who has not, like a poverty stricken child just because the latter is not born or inhabiting the same km squared land(measured not even by proximity to my home, i might be living closer to another nationality than this person).

In fact you gotta punish the reckless behavior in some way, even if this is not the right way, it represents a new framework for thinking about how to stop this projection, half the US population will be obese by 2030. That’s 65 million more obese people in the US, additionally there will be 11 million more in Britain.

Being fat isn’t cheap either, although its not a very conclusive econometric study, this one, absenteeism could be costing about 1% of US GDP per year. If this effect were true, it would be much smaller in Denmark and Britain, but perhaps its much more appropriate for Denmark to apply it because poverty isn’t nearly as big a problem there(though GNI per capita is higher in the US, inequality is too, which leaves more people with less flexibility in their choices).

Using weight to adjust prices isn’t a new thing, we probably already have the infrastructure to do it, though only the ballsy RyanAir dared do this before by having weight based fees. In any case here’s a link arguing that its dystopian if your interested in reading more.

So whats the final note? well for me Taxing those who are going to use a higher proportion of healthcare makes sense. But the method employed is not very efficient because it creates this import advantage. Using guidelines which you can find here, its easy to just tax fat people directly. Taxing fat people directly for being fat is more efficient than taxing their food since if someone can get away with eating fatty foods(by keeping a balanced lifestyle, or winning the genetic lottery) why should they be punished? Of course people who are genetically fat, would be exempt again… they never had a choice.