Tall Order

"Too little attention in economics to second order and even higher order effects. This defect is quite understandable, because the consequences have consequences, and the consequences of the consequences have consequences, and so on. It gets very complicated. When I was a meteorologist I found this stuff very irritating. And economics makes meteorology look like a tea party."

- Charles Munger,
Vice-Chairman of Berkshire Hathaway Corporation

Dynamics of Fanatism

Imagine that you were in a cult. You believe that the world was going to end in 2007, and the only salvation was to believe that the mighty mothership of the Pink Invisible Unicorn would whisk you away on New Year eve, as was pre-ordained in an ancient holy text passed down by the Holy Unicorn herself.


New Year eve came. And there was no mothership. What would you do?


Rationally, you would think that is wise to reexamine your life and reassess your belief. But it is well-known that when a cult suffers from counter-evidence, it comes back stronger than ever. When cult members get setback as such, they become more fanatical.


The common explanation is cognitive dissonance: when you have given all you have to believe, you cannot possibly admit that you have made the wrong decision. You become more fanatical, more entrenched in your belief.


There is another explanation.


Imagine the same cult again. Now there are 20 members in the cult, of varying level of fanatism in belief. When the mothership fails to appear, who would be first to leave? Those who are least fanatical. Thus, the 'average fanatism' of the cult increase not because everyone suddenly became more fanatical, but because the least one left. And this increased fanaticism attracts more fanatics. And so on.


Now, for some real life applications.


University Rankings:

Consider a university that is unconcerned about quality of education and research. One that is more concerned about pleasing political masters in which reward and promotion of staff are based on connections rather than merit.

Who would be first to leave? The best lecturers. Who would remain? Those who would perpetuate the system. Quality would deteriorate. More good lecturers leave. Quality becomes worse. And so on.


Brain Drain:

Similarly, consider a country with misguided discriminatory policies that are obsessed with dividing wealth, ignoring real issues of competiveness and socio-economic inequality; without regards for merits and performance. This translates to huge incentive for the best minds and best companies to leave the country first. Situation deteriorates further, and more leave. Sounds familiar?


Racist Parties and Racial Politics:

This is the motivating example for me to write this post; the reason why the system perpetuates and becomes worse.


For now, what do you think?


Elanor

(Inspired by Eliezer Yudkowsky: Evaporative Cooling of Group Beliefs)

Ouch! (Ad hominem ad infinitum)

It started from here, in Nat's blog: "NST/Gov’t takes low blow at Tony Pua" where he opined on an NST article which basically says that Tony's ability to be an economic adviser is dubious because his previous company wasn't really well-run. And that the piece from NST quoted Jed Yoong's blog on the issue.

Tony went to Oxford for PPE; it would be ridiculously fun to mock his ability in economics. But that would be provincial. So I thought I would give a more objective comment on this matter on both Nat's and Jed's blogs:

Hi Jed,

Having been trained in Cambridge, and currently going through the sad post-graduate life in Cambridge still as an economics student, I find it odd to be standing on the side of Tony Pua (an Oxonian..) on this matter.

Your ‘critical comment’ on Tony is ad hominem in nature, akin to saying that a fat Chef can never cook healthy food, or a deaf Musician can never play good music (ehem, Eve Glennie).

To judge Tony’s credibility as an Economic Adviser, I find it best to go through his work as one, ie, read through his Budget (Nat provided a link) and compare it with the most obvious alternative, the real Budget. Tell me if you could find it severely misguided, and terribly lacking in economics insight relative to the actual Budget.

Tell me if you could … because I can’t.

And yes, Merry Christmas.

Elanor

Nat approved my comment, Jed didn't. And on Jed's blog today, there is this entry:

NOTICE
Filed under: macam2ada, stoopid

Commentators who repeat arguments that have been addressed will be ignored. Especially those from “protected spoilt brats” who have never worked in their lives and are caught in their student life bubbles. You are not adding any value to this adult forum.

If you can’t assimilate and digest information to come up with an intelligent, mature response, your comment will be deleted.

Life is too short.

Thanks.

Now, it would be extremely presumptuous to believe that this was directed to me. I am sure Jed received a lot of annoying comments on her blog due to this matter, and I can see how she could be irritated and hence the general 'notice'.

....
....

But let's say it is - purely for fun. How would I respond? Rationally, I shouldn't (note the title of this post). But that won't be fun. Let's see:


1) "protected spoilt brats" -

Okay, I can be a brat sometimes. I admit. The consequence of being the youngest in the family.


2) "never worked in their lives" -

Actually, I did. For three years, in economics research and policy-making related area. Unlike the rest of my friends, I eschewed jobs that would actually pay a decent wage to do something I believe in. Yes, I am that naïve... and stupid. Sigh.


3) "caught in their student life bubbles"

I am so naïve in fact, I decided to give myself more punishing by reading more economics back in Cambridge. My reason is so I could be better in what I do and contribute more when I go back home. Spending Christmas alone here, away from family and friends, mugging for an impending exams, makes me question my decision. Double sigh.


4) "adding any value to this adult forum"

It's like rain on my wedding day?


5) "intelligent, mature response"

It is because I used 'fat Chef', isn't it?


6) "Life is too short"

Triple sigh...


Elanor

You May Say I'm a Dreamer

Merry Christmas and a Happy New Year.

Here is a little dedication for everyone, for hope of a better beginning next year.

Elanor

Path Dependency, Part Two

What would your first reaction be (as in what would you do first) when you encounter a tap that refuses to twist in a public toilet?

Thank you for the responses =)

As most of you would have already guessed, there is no real answer. I have encountered such scenario many times before, and my first response was to turn the tap harder, and harder... and harder. It never worked.

And then I found out, almost all the time, all I had to do was to turn the tap the other way round (Chewxy!). Some taps, although rare, are made to turn the other way round (for whatever reasons, silly or otherwise, but this will not be the topic of this post). Instead of trying to turn the tap the other way round, I would always turn it to shut it further. And I realised I was not alone in doing this, because in places where taps were turned on by turning clockwise, most of the taps would be faulty through excessive force by frustrated people trying to wash their hand.

And here is where my original post comes in: history matters. We all learned from young to turn on the tap by turning anti-clockwise, and conditioned to accept the notion that leftey is loosey, rightey is tightey. It is ingrained in us all, so much so that the possibility that a tap might be made differently is so bizarre that most of us would never even think of it.

This is like racism in Malaysia.

We are taught to divide people by races from young, and conditioned to accept that Malaysians, as people, are divided. Sadly so, racism became our dominant social belief system that informs our politics, ethics and economics. We have accepted that politics in Malaysia translates to bigotry and prejudice, and economics is synonymous with discrimination and marginalisation.

Like it or not, we are all racists. And if you say "it is not US, it is THEM!", say that a few more times and reflect on it.

And we believe that racism is so deeply ingrained in everything Malaysia, that it is an immutable truth. But it is only as immutable as our perception that a tap can't be turned on by turning it clockwise and as true as that the northern hemisphere can only be drawn on the upside of a map.

Most of the time, history creates conventions that are helpful. Occasionally, some will outlive their usefulness. The important thing is for us to appreciate that the conventions are made to exist by our collective past actions in the first place and we can choose to change if we want to. History informs our present decision, but it doesn't dictate it.

Suppose one day all taps are made the other way round. We are not doomed to destroy all the taps and never wash our hands ever again just because we used to turn taps the other way round. That would be silly.

Suppose now we know that racist politics and economic policies will lead us further away from building a great and prosperous nation. We are not doomed to let our country decline further and be powerless in rejecting that racism will always be part of everything Malaysia in the future just because it used to be so in the past. That would be silly.

Elanor

Embrace Blogging

World Bank has another new blog out, this time on its Doing Business project. There is a short mention on Malaysia in one of the posts too.

An excellent addition to the World Bank Group existing blogs, which include:

• Private Sector Development
  
• Poverty and Growth
  
• End Poverty in South Asia
  
• Innovations in Emerging Markets

Careful observers would have noticed that World Bank's sister organisation, the IMF, has also started blogging, including by its very Research Director, the famous MIT professor Simon Johnson:

• Public Financial Management
• Simon Johnson's Blog

On a slightly tangential note, private sector from all over the world has long embraced blogging as useful tool of communication, and currently the public sector is fast following suit.

This note from David Miliband, the Secretary of State of Foreign and Commonwealth Affairs of the UK Government, succinctly captures the pragmatism of embracing blogging:

Politics should be about dialogue and debate, and new technology makes this more possible than ever. But the gap between politicians and the public seems to be growing.

This is why in my last ministerial job I began writing a blog. I found it a great way to engage with people: to explain my work and my thinking in a more personal and less formal way than the usual Ministerial speeches; and to hear directly what people thought of what I was doing.

As Foreign Secretary I want to keep blogging. But it will need to be a conversation with people across the world, as well as with the people of Britain.

At the heart of this is the idea that diplomats need to reach out beyond governments to talk to people – at home and around the world. I want to explain to you the decisions we are making and what we are trying to achieve. And I want to hear from you what you think about what we're doing, what we could do better, and how we can solve problems which affect us all, such as conflict, climate change and poverty.

And in stark contrast, these are the learned opinions of our leaders back home, which quite accurately reflect the overall perception on blogging by our government:

"There are no laws in the cyberworld except for the law of the jungle. As such, action must be taken so that the "monkeys" behave."

- Khairy Jamaluddin

"The public should be wise in identifying the websites of goblok (Indonesian slang for “stupid”) bloggers, who are willing to be tools of others to destroy the nation...

These writers do not have an Asian mentality but lean towards a Western thinking because they were educated overseas... Thus they assume that the Western style of democratic freedom is better. The goblok writers only have their own interests at heart and should be ignored"

- Information Minister Datuk Seri Zainuddin Maidin.

Sigh.

PS: I am still waiting for comments on my previous post =)

Path Dependency

I am a believer that in order to understand the workings of the world, history matters, a lot. Perhaps the word history evokes an overly donnish connotation, and conjures up images of dusty tomes in a dark library. What I really mean is that events in the past have crucial bearings on present and future events.


It also means that in the man-made world, I view nothing as being random. Sometimes events might appear random, but upon closer inspection, they can always be explained by appealing to things that happened before. For example, your girlfriend suddenly throwing a tantrum might seem ridiculously random. But we ALL know it is never random. It just means that you are too insensitive or lazy to know why.


It doesn't mean, however, that I believe everything is predetermined. I am the opposite of being fatalistic. The fact that present and future events are function of past events doesn't mean that they are predetermined. It is because every single event is a function of your own actions (and inactions) as well. And by extension, all our interactions. Everything is intertwined, and we are doing the intertwining. Outcomes in the future are for us to decide. Appreciating what happened before helps us to be more informed in how best to affect the future.


This brings me to the question I want to pose to my readers:

What would your first reaction be (as in what would you do first) when you encounter a tap that refuses to twist in a public toilet?

Elanor


UPDATE: It is not a rhetorical question; I will have a post on the question once I get an okay'ish amount of answers (by Arrested Development's standard, say, 5?).

=)

How Not to Blog

dot dot dot...

I am Thinking Now

A powerful and moving talk from a speaker whom I have much respect for:

___________________________________

About this Talk

Patrick Awuah left a comfortable life in Seattle to return to Ghana and co-found, against the odds, a liberal arts college. Why? Because he believes that Ghana's failures in leadership -- and he gives several mind-boggling examples -- stem from a university system that fails to train real leaders. In a talk that brought the TEDGlobal audience enthusiastically to their feet, he explains how a true liberal arts education -- steeped in critical thinking, idealism, and public service -- can produce the quick-thinking, ethical leaders needed to move his country forward.

About Patrick Awuah

After working at Microsoft for almost a decade, Patrick Awuah returned home to Ghana and cofounded Ashesi University, a small liberal arts college that aims to educate Africa's next generation of leaders. Its first class of students graduated in 2006. Read full bio »

___________________________________

A must-see; the talk gives great inspiration and reflection. Personally, many things he said resonated strongly with my ethics and worldview. The topics touched on are applicable to Malaysia and its people on so many levels: His idea on the urgency and importance of beneficent leadership and the need to foster a new generation of passionate, driven and ethical citizens for the future; and his personal decision to leave his comfortable life overseas to go back home and try to make a change.

But my description doesn’t do the talk justice. Go watch it.

Elanor

Wisdom from Partha

“As economics matters to us (economists), we also have views on what should be done to put things right when we feel they are wrong. And we hold our views strongly because our ethics drive our politics and our politics inform our economics. …

…(But) I realized that economics had increasingly driven my ethics and that my ethics in turn had informed my politics.”

- Sir Partha Dasgupta,

in Economics: A Very Short Introduction

He is inspirational; both intellectually and philosophically.

Elanor

Taking Notes on Justin Lin - Marshall Lecture 2007 (Part Two)

The second lecture was on transition; personally less insightful than the first. There is this part:

… [T]he East Asian economies were lucky in the sense that their governments needed to be pragmatic in their policies… . China’s Confucian culture—which has a strong impact in East Asia—is pragmatic in nature.

The core of Confucianism is ‘zhongyong’, the golden mean, which advises people to maintain balance, avoid extremes and achieve harmony with the outside, changing world.

The political philosophy and policy principles promoted by the communist leadership of Mao Zedong, Deng Xiaoping and Jiang Zemin, Hu Jingtao are, respectively:

‘shishiqiushi’ (finding truth from the facts),

‘jiefangsixiang’ (freeing one’s mind from dogmatism),

‘yushijujin’ (adapting to the changing environment); and

‘hexie’ (harmony); all reflecting the traditional Chinese culture of zhongyong.

Hmmm, never knew I am a Confucianist all along… :P

In sum, the most important insight I got from both lectures are the criticality of a pragmatic dominant social idea. Crucially, I believe it provided greater clarity and linkages to some of the hitherto disparate ideas in my worldview[1]. This theme implies that the fate of a nation depends ultimately the collective consciousness of the masses. The government, the most important institution in dictating the development of a nation, merely derives its power from the dominant social idea.

This put an important responsibility and burden on all of us in ensuring the future of our nation. It is clear that Malaysia’s current social dominant idea is destructive in nature, driven by racism, corruption and general apathy and distrust. Passivity on our part in will only seal the fate of this decline of our once promising nation.

Fortunately, the dominant social idea of our nation is solely ours and is a function of our solidarity. A positive change requires a combination of our collective determination to be involved, and our willingness to seek for the knowledge of what truly constitute progress and prosperity.

The future of our nation is in our hands; the opportunity to be proud of the place we call home lies in all of us. Make it happen.

Elanor

---

[1] For example, note this paragraph from my previous post which clearly illustrates my previously underdeveloped appreciation of the social dominant idea concept:

My greatest fear is that this problem is faceless and everywhere - there is no single source. The problem is in all of us, all our organisations, all interlinked together, feeding on each other and giving strength to the decline of our nation. Institutional crisis in Malaysia - the extremely racist mindset, the prevalence of corruption, the need to separate performance-reward structure and replace it with ethnicity/connection-reward structure, the lack of social cohesion, the decline in educational quality - are all linked together, feeding on each other and are not promoted by a single source. No, it is not due to the ruling political party or the oppositions but by our history, our society and every single one of us.

Taking Notes on Justin Lin - Marshall Lecture 2007 (Part One)

What I took out from the first lecture; part one is on development.

1. Development, the progress and prosperity of a nation, is dictated primarily by institutions.
   
2. Institutions, by construct of nationhood, is in fact determined by the one dominant institution, the government itself. Other institutions are mere derivations.
3. Government is in turn a function of its leaders.
4. Leaders are in turn motivated by its permanence by appealing to the dominant social idea of progress and prosperity.

That is, development is ultimately determined by the dominant idea of the masses on what constitute progress and prosperity. Should that idea be misguided, so would the fate of the nation be in peril.

Economic prioritization based on racial considerations as the dominant social idea?

I fear for the fate of my nation.

Elanor

Leaving on a Jet Plane

All my bags are packed, I'm ready to go

I'm standin' here outside your door

I hate to wake you up to say goodbye

But the dawn is breakin', it's early morn

The taxi's waitin', he's blowin' his horn

Already I'm so lonesome I could die

So kiss me and smile for me

Tell me that you'll wait for me

Hold me like you'll never let me go

'Cause I'm leaving on a jet plane

I don't know when I'll be back again

Oh, babe, I hate to go

Usefulness versus Truth – The Former Matters More

From John Kay’s latest piece – really can’t agree more with it; serves to partially represents how my philosophical world-view has changed in recent years. Also a pseudo-response to Rational Thinker’s excellent comment on my previous post.

“Why Rorty's search for what works has lessons for business
Financial Times 19 June 2007

When a student of business and economics wants to ponder the conceptual foundations of these subjects, Richard Rorty, who died on June 8, is the modern philosopher I recommend.

… What mattered to him was not the search for what is true, but the search for what works. The test of a model, a way of thinking or a theory is not truth but usefulness. …

… The modern economist is driven by physics-envy. Physicists have the best claim to hold a mirror to nature: their models have proved so useful that no one would think about heat, pressure or motion in any other way. Many people claim this is because these theories are true.

…The pragmatic Rorty argued that to say the theories are true adds nothing to the observation that the models are useful. This claim, applied to hard science, is a subject of continuing disagreement. But Rorty’s perspective is surely right for complex and fluid situations whose outcome depends on human interaction. The soldier’s war stories give insight into “The Way the World Is”, but in a very different way from the models of quantum physics. No individual soldier – no general – ever sees the whole picture; no one can ever, in this sense, hold a mirror to nature. The best accounts will eventually come from the military historian or the novelist who pieces together – and manufactures – a narrative from fragments of information and experience. There can be many such accounts, some better than others, none representing a unique correspondence with the truth.

And so it is with business and finance. I have often given an account of an event in business history and been confronted by a participant who offers an account of “The Way It Was”. But all he offers is an account of the way it was for him. Even an aggregation of such accounts can provide only a partial and controversial description of the whole.

… Economists often assert that economic theory says this or predicts that. But economic theory will never hold a mirror to nature. Good economic arguments are specific to their context. There are no universal economic laws, only trends and tendencies.”

The last paragraph is especially agreeable.

Elanor

PS: Also, read Greg Mankiw's nice and insightful paper: The Macroeconomist as Scientist and Engineer. To Rational Thinker again - I guess you are more of a 'scientist', and me an 'engineer' :)

Malaysia's Demise

Hoisted from my previous post; my response to a reader’s comment.

Hi Anon,

I am very sorry about the exclusivity of the post. About North's idea: economists have been increasing technical, relying on model building (equations), mathematics and statistics, to explain economics phenomenons. In a sense it is getting more like physics (disclaimer - this is an extreme oversimplification).

But according to North, while technical constructs are important, to truly appreciate how a country's economy performs, it is absolutely crucial to understand two things: history (what happened before really matters) and institutions (laws, regulations, political structures, social cohesion, mindset of the people, governance, education, corruption).

The more you look at Malaysia, the more you realise how truly true this is - mathematics and models explain very little about economic performance in Malaysia (and when they do explain scenarios, they are always not very interesting). Understanding the true fate of the nation does not lie in looking at the interest rates BNM sets, the exchange rates regime, the inflation rates and so on.

But rather, the fate is determined by what happened before (history) which shaped the institutional structures (institutions) the way we have now. Sometimes history shapes good institutional structures - sometimes it shapes very negative ones. Malaysia, I am increasing convinced, is stuck in a very negative path - we are having a crisis of institution, shaped by our history.

My greatest fear is that this problem is faceless and everywhere - there is no single source. The problem is in all of us, all our organisations, all interlinked together, feeding on each other and giving strength to the decline of our nation. Institutional crisis in Malaysia - the extremely racist mindset, the prevalence of corruption, the need to separate performance-reward structure and replace it with ethnicity/connection-reward structure, the lack of social cohesion, the decline in educational quality - are all linked together, feeding on each other and are not promoted by a single source. No, it is not due to the ruling political party or the oppositions but by our history, our society and every single one of us.

As an example, even without government's direction, our companies have racist policies by themselves - Maybank, and the call by the Bumiputera 'intelligentsia' to retain the racist policies that makes no business/economics-sense is a case in point. The decline is self-sustaining.

If the problem has a single source, the solution is clear - if it is faceless, the solution is… … sigh.

I do not have an answer for that. That is why it is my greatest fear - watching my country's slow but painful demise.

Elanor

PS: Akerlof's latest works is on how to systematically analyse economics by including identity - that is, instead of assuming everyone acting rationally, we have to consider how people will actually act based on their belief on how they should act based on society's expectation of how they should behave. Basically by making economics more personal again.

Look North

"In the analysis of economic performance through time it contained two erroneous assumptions: one that institutions do not matter and two that time does not matter...

...if the institutional framework rewards piracy then piratical organizations will come into existence; and if the institutional framework rewards productive activities then organizations - firms - will come into existence to engage in productive activities."

- Douglass C. North
Economic Performance Through Time, the 1993 Economics Nobel Prize lecture

"Douglass North could be the most important economist of the past fifty years. Yet ... North's work is little known and little recognized, even within the economics profession."

- Arnold Kling

If there is a need to articulate how my world-view on economics has changed after working for 3 years, looking and dealing with economics at a very practical level, is that I now finally could appreciate, empathise and be inspired by the work of Douglass North in a way that I could never do when I was still studying. It is my conviction that the insight is immense and the relevance even greater so, especially for one who aspire to be an applied economist.

Real-life economics analysis and policy cannot be untangled from a true understanding of institutions and norms and the impacts they have on economic performance and the future prosperity of a nation. Malaysians should know this - the most dangerous threat to Malaysia's future is not inflation, unemployment or the next currency/banking crisis, but the slow descent into an overarching but faceless crisis of norms and institutions in the socio-econo-political realm which would eventually lead us to global marginalisation. This, however, is a story for another day.

Back to North's idea, the famous online economist, Arnold Kling (adjunct professor at Cato Institute and previously an economist in FRB and Freddie Mac and author of Learning Economics) wrote this in his latest TCS Daily piece (it is a three-parter, but only the first is out):

Due North
Arnold Kling, 13 June 2007

Douglass North could be the most important economist of the past fifty years. Yet, notwithstanding his Nobel Prize, North's work is little known and little recognized, even within the economics profession.

...The most important economic problems we face are complex systemic issues, such as underdevelopment in Africa or the financial stresses caused by health care spending in the United States. For these sorts of issues, Douglass North is as important as Keynes was to macroeconomics. However, hardly any young economists have followed North's path.

Douglass North calls attention to three factors that are ignored by mainstream economists:

-- Institutions

-- Adaptation

-- Beliefs

In textbook economics, the only external environmental factors that affect the individual are technology and prices. Social norms, habits, and rules play no role. North shows that institutions are fundamental determinants of poverty and prosperity. ...

Textbook economics treats the economy as an allocative mechanism. The focus is on the extent to which resources are allocated efficiently and equitably. North treats the economy as an adaptive mechanism. As an economic historian, his focus is on how an economy evolves over the long term, constrained in many ways by its past. ...

Finally, textbook economics is devoid of cultural context. Mainstream economics assumes that any policy can be implemented anywhere at any time. In contrast, North sees economic behavior as anchored by institutions, which in turn are anchored by beliefs within the culture. ...

But perhaps North's idea is not as unappreciated as Kling conjectured; at least indirectly. Another Nobel Laureate, George Akerlof (Berkeley), together with Rachel Kranton (Maryland), has been very persuasive and forceful in spreading their latest and serious works on norms (identity and beliefs) and macroeconomic theory; which can be said to be an attempt to set economics on a new path, a path that departs from the theoretical foundations of modern macroeconomic models by including social norms for behavior into the theoretical structures. Anyone who are interested in where macroeconomics is heading to in the future should be interested in reading this: Identity and Macroeconomics, What are we missing?

This is taken from Akerlof's presidential address at the 2007 American Economic Association meetings:

The Missing Motivation in Macroeconomics, George A. Akerlof

Abstract
The discovery of five neutralities surprised the economics profession and forced the re-thinking of macroeconomic theory. Those neutralities are: the independence of consumption and current income (given wealth); the independence of investment and finance decisions (the Modigliani-Miller theorem); inflation stability only at the natural rate of unemployment; the ineffectiveness of macro stabilization policy with rational expectations; and Ricardian equivalence. However, each of these surprise results occurs because of missing motivation. The neutralities no longer occur if decision makers have natural norms for how they should behave. This lecture suggests a new agenda for macroeconomics with inclusion of those norms.

Conclusion
... The incorporation of norms based on careful observation imparts an appropriate balance to macroeconomics. The New Classical research program was correct in viewing models of the early Keynesians as too primitive. They had not been sufficiently attentive to the role of human intent in choices regarding consumption, investment, wages and prices. But that research program itself has failed to appreciate the extent to which the Keynesians’ views of macroeconomics were also reflective of reality, since they were based on experience and observation.

A macroeconomics with norms in decision makers’ objective functions combines the best features of the two approaches. It allows for observations regarding how people think they should behave. It also takes due account of the purposefulness of human decisions.

Personally, I find the idea very appealing - a crucial step into a highly exciting direction?

Best,

Elanor

Women

On MIX Breakfast today, Serena C and Ika discussed briefly on marriage and divorce and women in general. At one point, Serena said:

“They say 30’s is the new 20’s now”

Bless her :)

Anyway, the latest IMF’s Finance and Development (June 2007, Vol. 44, No. 2) focuses on the role of women, with the tagline “Unleashing the Economic Power of Women”. The three main articles are:

Smart Economics
Mayra Buvinic and Elizabeth M. King

This issue spotlights gender equality. In the first article on gender, we learn about the progress made so far toward fulfilling the targets set out in the third Millennium Development Goal (MDG3). Not only is MDG3 a vital development objective but it is also key to achieving several of the other MDGs.

Budgeting with Women in Mind
Janet Stotsky

One way for countries to pinpoint policies needed to reduce gender disparities is through gender budgeting, which involves the systematic examination of budget programs and policies for their impact on women. As "Budgeting with Women in Mind" explains, this effort to mainstream gender analysis into government policies has gained prominence in recent years.

Getting All Girls into School
Maureen Lewis and Marlaine Lockheed

Despite important progress in recent years, an estimated 43 million girls around the world are still not enrolled in school. The majority of them are from socially excluded groups. New strategies for educating these "excluded girls" must be found.

There is also an article by Governor Zeti.

And since we are on this topic, this is an interesting TEDtalk by Helen Fisher, on the Science of Love, and the Future of Women. The synopsis:

“Anthropologist Helen Fisher studies love: its evolution, its biochemical foundations and its vital importance to human society. She outlines the three stages of love (lust, infatuation and long-term attachment), shedding light on eternal questions like why we love, and why we cheat. She also discusses the natural talents of women, and their new significance in the modern world. She ends with a warning about the widespread use of antidepressants -- and a truly hilarious story of romantic pursuit.”

Watch it.

Elanor

Arrested Development going Undercover

Undercover economist Tim Harford's latest article on the FT is titled Arrested Development. Unfortunately, it is in no way related to this blog.

An okay read for a Saturday.

Sweet Lizard

My second article on theCicak, adapted from my previous post on Dividing Wealth.

Teehee…

Whole Brain Help

Valued readers,

I need help. I am currently looking for a free online test for the Hermann Brain Dominance Indicator (HBDI) thinking preference model. There is an almost identical one named Neethling Brain Instrument (NBI) whole brain model too.

I have done it before and found out that I am mostly a Blue-Yellow thinker which makes me both a left-right brainer (which mean I get waaay ambiguous results from simplistic left OR right brain test) and a logically chaotic person. Hmmmm.

Anyway, I want to redo the test, but unlike Myers-Briggs Type Indicator (MBTI) tests, I am having problem finding free online test for HBDI.

Can anyone help?

North’s Big Ideas

Important notes of the day… *jot jot*… from Arnold Kling:

Off the top of my head, North's big ideas include:

1. Economics is not ahistorical. You can't just jump arbitrarily from one economic pattern to another. For example, you can't turn Russia or Iraq into a western economy overnight.

2. Institutions evolve from history, technology, and cultural beliefs. And institutions are what lock in economic patterns.

3. If the institutions evolve to reward work and innovation, you will get work and innovation. If they evolve to reward piracy and expropriation, you will get underdevelopment.

If you try to reduce North to a bumper sticker, it would be "Institutions matter." But that phrase alone (which is probably all that most economists know if you ask them about North) does not convey the subtler points of his thinking.

Elanor

Dividing Wealth

We Malaysians are absurdly concerned about dividing wealth. Not redistribution of wealth from the well-to-do to the needy, but plainly about dividing wealth amongst different races, treating wealth as though it is like manna from heaven.

And when it comes to dividing stuff, we inevitably need to impose our judgement on what is equitable – on what proportion is fair. And after much observations, I realised there is a consensus – what is fair is a proportion that relates to the proportion of that race to the total population. I mean, it is totally logical and rational right?

If say you have three adopted sons – Ali, Ah Chong and Muthu – and you want to divide 15 sweets amongst them, it is only fair that each gets 5 sweets. Right?

Okay, let’s inject some realism to this analogy.

1. Wealth is created, not inherited

Let’s add some details to the above story. Say that you are not the owner of the sweets and your adopted sons actually work themselves to earn those sweets. Ali is the most hardworking and diligent, earning 8 sweets. Muthu is next, earning 5 sweets and Ah Chong, being the lazy lad that he is, only managed to work enough to get 2 sweets.

What happens now? Does the notion of fairness as articulated above – dividing equally – still apply? If our notion of fairness is so simplistic, what will happen?

Ah Chong, with only 2 sweets, is the one who needs the most help. So as a parent, you subsidise him – give him more sweets. And since Ali is over 'endowed', you either ignore him or tax him so that you could transfer some of Ali’s sweets to Ah Chong. Muthu, well, you treat him indifferently.

What you are doing, in fact, is to encourage laziness and punish effort. Done often enough, you will breed resentment in Ali, complacency in Ah Chong and promote disunity overall. Since Ali is not rewarded anyway, he might just be less diligent and earn fewer sweets – or perhaps he might just run away from home. Ah Chong, on the other hand, knowing that he will be helped anyway, might as just as well be lazier and be fed the sweets regardless.

And this is the key reason why dividing wealth in such an arbitrary manner is misguided – wealth is created, not inherited. There is no omnipotent Master of Corporate Equity handing out ownerships to the various races in the country, like the parent in the above example. The Government of Malaysia is not the owner of the wealth of the nation, and neither should it be an absolute arbitrator of equity and sorts. A good government is one that facilitates a thriving private sector through good governance and upholding the rule of law, not stifles the sector with silly regulations.

2. Looking Beyond the Racist Perspective

Let’s consider another addition of realism to the example. Now, instead of just 3 sons, you adopted 6 – Ali, Ahmad, Ah Chong, Ah Wong, Muthu and Siva. And now you have 30 sweets (say you accumulated them through a form of savings of sweets from your kids previously). And instead of starting of with nothing, your sons actually have some initial sweets to begin with.

Say, the initial starting points are -

Ali – 20 sweets
Ahmad – 5 sweets
Ah Chong – 23 sweets
Ah Wong – 2 sweets
Muthu – 25 sweets
Siva – 0 sweet

If you are a racist, you will group them together and you get:

Malays – 25 sweets
Chinese – 25 sweets
Indians – 25 sweets

So with your silly notion of racist fairness, you give each race 10 sweets each, and further divide it to 5 per individual. So now you get:

Ali – 25 sweets
Ahmad – 10 sweets
Ah Chong – 28 sweets
Ah Wong – 7 sweets
Muthu – 30 sweets
Siva – 5 sweets

Clearly, this manner of redistribution of sweets results in great inequality if you choose to look beyond the racist perspectives and see them as individuals. Is this what we want? Ah Chong is already rather well off – should we give him more just because he is Chinese? Siva is poor – should we not give him more just because he is Indian?

Let’s blind ourselves and look at our sons as well-to-do and needy:

Well-to-do – 68 sweets
Needy – 7 sweets

Would you redistribute your sweets differently now?

This is the second point – Malaysia has one of the worst inequality of income in the world and the worst in Asia. And the most ironic bit about this is that it is even worse if you look solely at Malays as a group. If we are really driven to eliminate socio-economic inequality, why are we still having indiscriminate policies that help Bumiputera regardless of whether he is a multi-billionaire or not? And why are low income Indians neglected despite the Government knowing well their woes since the very first Malaysia Plan? Because they are Indians and not Malays, and hence do not deserve to be helped even if they desperately need aids? Imagine a 7% discount for a Bumiputera bungalow of RM 5 million – that is RM 350,000 worth of ‘aids’ we are giving to a single Malay multi-millionaire, money that could be used to assist dozens of needy Indian, Malay and Chinese families.

When are we going to truly look beyond ethnicity and address real poverty?

Going back to the beginning, the simplistic notion of fairness and our policies based on this dogmatic pre-occupation of ethno-economic equality – it is both destroying our economic competitiveness and promoting disunity without truly addressing the true issue of socio-economic inequality. When are we going to realise this folly?

Elanor