Misunderstanding Scarcity

When economists say A is scarce people misunderstand that supply of A is fixed. In fact this misunderstanding lies at the core of mistrust of capitalism.

What economists mean when then say A is scarce is that, a copy of A can be of utility to only a fixed number of people.

There is a lot of difference between the two understandings. One grain of Wheat may be of utility to only a fixed people, but its supply can be increased by agriculture. e.g. Some people even grow wheat in desserts and space.

I think the only thing that is truly fixed in supply in this universe is enthalpy. But even that could change in a googol years before the heat death of this universe.

The story from now on

Our world currently has:

1. A common commodity of exchange per nation, which is infinite in supply.
2. A common commodity of exchange of one nation (USA) being used as the common commodity of exchange between nations.

This has lead to irrational behavior among the governments and especially USA like:

• Irrational credit & spending.
• Larger governments controlled by pull & lobbyists instead of merit & reason.
• Irrational wars. (It is no coincidence that the century of World Wars coincides with rise of fiat money).
• Richer religions capable of lobbying for irrational laws.
• Morally corrupt, Clandestine operations funded by the government.

Let me try to speculate how this will turn out:

The US congress will increase its statutory limit on federal debt and continue to pay back its foreign creditors in new devalued US$. The asians, especially the Chinese and the Russians will try to own a lot of gold instead of US government bonds. This will result in hyperinflation by the US government if they wish to continue to spend for their ambitious plans. If the US government keeps becoming a regulator instead of a facilitator of human activity, a mere 50 years is all that is needed for brain drain from USA. If enough chinese communist party members are still alive 50 years from now, the Chinese will go back to their communist ways, otherwise they will remain a profit seeking economy with strict regulations, no social freedoms and high growth. Indian economic growth will become unsustainable if the government does not allow privately owned infrastructure. If the western civilization do not continue to keep their economy well running and demography secular, they will not be able to maintain social freedoms. This will automatically result in end of social freedoms across the rest of the world because the west is the only reason why people believe social freedoms are good.

The story so far, Part 2

The ancient parasites used crude techniques like physical force & violence to live on the sweat of other people’s brow. Then came religion which used more subtle techniques like fear of ostracisms and argumentum ad baculums to loot people’s money.

Just as the human means to production i.e. technology, has improved over the ages, the parasites have also improved over time in their methods to newer and more subtler means to loot human production. It was not long after the market converged on gold as the common commodity of exchange, that the powers that be of this world realized that they could loot by controlling the supply of the common commodity of exchange. But this could not be done on any real currency like gold, which was chosen by the market for it scarcity among other reasons. What was needed was an imaginary common commodity of exchange, unbound by worldly restrictions like scarcity, called the fiat money. (Scarcity here being defined as that property which makes a loaf of bread to be of utility to only a fixed number of individuals).

Fiat money could be used to pay up debt, because the governments force you to use it as legal tender. If you choose not accept that your debt was paid off with their imaginary commodity they will make you accept it with physical force. Whats more, the governments can pay for what they want with their imaginary money, because they can create as much of it as they want. But they won’t do it out of a fear of devaluation, unless they want to wage a war or get out of a depression without increasing taxes. Of course, increasing money supply can lead to higher prices without higher wages, but that is not a problem if you use price controls and vary GSTs when production becomes unsustainable under the price control.

Back when the US economy had grown wealthy from economic freedom, the economies of this world had started using the US dollar as the common currency of exchange because, back then it could be claimed in gold. But they continued to do so even after the US dollar became an imaginary commodity whose supply was controlled by the US government. This put the US government in an interesting position. It could now pay for foreign currencies by creating more of the imaginary commodity – US dollar. So people & foreign economies who lend the sweat of their brow now to the US government for earning interest are paid back in new imaginary money which isn’t worth what it used when they lend it.

Back when currencies where easily transact-able versions of gold, credit was only provided to debtors who were truly capable of paying it back with interest. The creditors asked interest in return for their deferred consumption. However the liberals in society driven by their irrational desire for fairness (this is one of the liberal pillars of morality) believed that the needy were entitled to credit regardless of whether they were capable of paying it back. Fiat money helped them realize this desire. Now the governments could increase money supply and control interest rates of the creditors.

Since political parties earn by remaining in power, and since they could remain in power by temporarily please their voters while they remain in power, all governments chose to make credit cheap by creating more fiat money.

Fortunately there are no free lunches in this universe, so this subtle scheme to loot from the producers by devaluing their currency and paying the needy through cheap credit has & will lead to depressions and recessions.

Paul Krugman scorns at this doomsday attitude, and calls it moral fatalism. But I guess you know better now: No one can mess with reality.

Money Paradox

Money is a tool of exchange, which has very high liquidity and should ideally have an objective value.

Fiat money, do not have objective value. I say we should use a set of elements in this universe as money. The least valuable denominations will be the most prevalent elements and the most valuable denominations will be least prevalent elements. Of course things like chemical & nuclear stability of the element must also be considered. For convinience, certificates representing a predetermined quantity of these elements may also be used.

However fiat money does not have any of this, and was designed because real money suffered from a lose of liquidity and the resulting deflation when people hoarded these elements as savings instead of investing them in productive activities. This happens because people do not behave rationally.

This is why liberals endorse fiat money, which is a good reason. So they have made a scheme which will ideally only print fiat money as interest payments to goverment bonds bought by the people who want to hoard the fiat money. This will result in a small but managable inflation.

But unfortunately, fiat money makers of most nations do not follow the above expectated behavior strictly. Politicians love to magic fiat money into existence and simulate a fake economic boom.

So our species, being the only species capable of production now faces this economic paradox: Real money leads to deflation from irrational savings (a.k.a hoarding) and Fiat money leads to inflation from irrational spending (a.k.a magic money).

We can’t go back to barter system because we will have to sacrifice a lot of liquity in using a common medium of exchange.

There is one solution though: We should educate ourselves to be rational, so that we can go back from fiat money to real money and save us from the dangers of fiat money.

Money is a tool of exchange, which ought to have high liquidity and should ideally have an objective value.

Fiat money, do not have objective value. I say we should use a set of elements in this universe as money. The least valuable denominations will be the most prevalent elements and the most valuable denominations will be least prevalent elements. Of course things like chemical & nuclear stability of the element must also be considered. For convinience, certificates (real or digital) representing a predetermined quantity of these elements may also be used.

However fiat money does not have any of this, and was designed because real money suffered from a lose of liquidity and the resulting deflation when people hoarded these elements as savings instead of investing them in productive activities. This happens because people do not behave rationally.

This is why liberals endorse fiat money, which is a good reason. So they have made a scheme which will ideally only print fiat money as interest payments to goverment bonds bought by the people who want to hoard the fiat money. This will result in a small but managable inflation.

But unfortunately, fiat money makers of most nations do not follow the above expectated behavior strictly. Politicians love to magic fiat money into existence and simulate a fake economic boom or pay for a war.

So our species, being the only species capable of production now faces this economic paradox: Real money leads to deflation from irrational savings (a.k.a hoarding) and Fiat money leads to inflation from irrational spending (a.k.a magic money).

We can’t go back to barter system because we will have to sacrifice a lot of liquity in using a common medium of exchange.

There is one solution though: We should educate ourselves to be rational, so that we can go back from fiat money to real money and save us from the dangers of fiat money.

Revolution of rising expectations

India’s economy had virtually stagnated over a quarter-century until the early 1980s, with autarkic policies on trade and direct foreign investment. The expansion of the public sector had turned into an epidemic, trespassing into most areas of industrial activity, and not just utilities; and the licensing system had become a maze of irrational restrictions. With growth at 3.5% and population increasing at 2.2% annually, per capita income grew at a snail’s pace (the infamous “Hindu rate of growth”). It therefore failed to pull the mass of people out of poverty and into gainful, sustained employment. We should then have expected a “revolution of falling expectations”: The poor could have risen in revolt, bundling the ruling Congress Party out of power because there was no hope of improvement.

Yet this did not happen. Perhaps, when little progress takes place all around, the centuries-old Indian fatalism takes over. But when the poor begin improving, then the “revolution of rising expectations” is likely to arise. This is a direct result of the perception of real possibilities. Indeed, one of the finest members of the ousted BJP government, former Finance Minister Yashwant Sinha, remarked on how difficult it was getting to find the resources to fulfill the demands that he found in his parliamentary constituency for greater financial allocations. This is also the view of people who work at the ground level: The young of India, including children from the lowest classes and castes, have enhanced expectations from life; and so do their parents, who vote. And this phenomenon — of expectations aroused but unfulfilled — has cut across the much exaggerated rural-urban divide.

Industrialization is Mandatory

India cannot grow into a major economy on services alone. Since the industrial revolution, no country has become a major economy without becoming an industrial power.

Arvind Panagariya, a professor of Indian political economy at Columbia University, USA, puts the issue clearly. He noted that some have argued that India can focus on IT, grow rapidly in services, skip industrialization, and yet transform itself from a primarily rural and agricultural country into a modern economy. He dismissed such ideas as “hopelessly flawed” and “far-fetched”.

“The right strategy for India is to walk on two legs: traditional labour intensive industry and modern IT. Both legs need strengthening through further reforms ….”

Industrialisation cannot take off without adequate infrastructure: By one estimate, economic losses from congestion and poor roads alone are as high as US$4 to 6 billion a year. Cost of most infrastructure services in India is about 50% to 100% higher than in China. The average cost of electricity for manufacturing in India is about double that in China; railway transport costs in India are three times those in China. China has spent over eight times as much as India on its infrastructure.

If there are budgetary constraints, the answer is to privatise these infrastructure projects.

Job creation is much slower in India and will continue to remain so until India’s infrastructure is brought up to date to attract the many manufacturers who will come to use India’s low cost workers and efficient services.

Further Proof

I have further proof for my theory that Indian “players” tend to less collaborative in iterated prisoner’s dilemma type scenarios with more than 2 “players”. In other words, cooperation does not evolve in extreme competition like it does in other societies. The following is an experience I had.

Players: Vinod, Pradeesh and Me.

Background: I am busy doing a high profile project for Philips. No time for anything else. Pradeesh is busy too with his final semester academics. Vinod is an independent consultant, he has a job for us. The task is to make an online bookshop. This is the first project he is giving us. If this job goes well, it would mean that there will future prospects for business between Vinod and us. Pradeesh is excellent at website design. He can churn out excellent sites within minutes. He is also a quick learner. If needed, he is capable of writing the code for the e-commerce bookshop, but that will

Evil Ideas

Ask 1600 people to pay you a dollar if you correctly predict the winner of the next One Day International Cricket match between Team A and Team B. To the first 800 tell Team A will win and to the next 800 tell Team B will win the match. Surely, you will predict correctly to 800 out 1600 people and get 800$. Ask those 800 people to pay you a dollar if you correctly predict the winner of the following One Day International Cricket mach between Team A and Team B. To the first 400 tell Team A will win and to the next 400 tell Team B will win the match. Surely, you will predict correctly to 400 out 800 people and get 400$. You can keep doing this till there is only 1 sucker left.

Theoritically, this method can give you approximately 1192$. But practically you will earn much less than that.

Of course, you can earn more by extending the trick to a larger group of people who are willing to pay you something.

Unofficial Guide to Ethical Hacking of Girls

My cousin Margret once told me that girls could know whether a guy had a crush on them even if he didn’t explicitly express it. She proved that, if necessary, girls could even read the lips of a guy. That is, they could “hear” him from the movement of his lips.

Although I didn’t agree with her assumptions, I knew she was almost right. In fact, it is a well known fact that girls are programmed for such pseudo-psychic capabilities inorder to sustain life. A possible application of such abilities can be found when mothers raise their new born kids, or in espionage: FBI is known to have recruited many female lip readers for surveillance.

As with many forms of engineering, there are tradeoffs here too. For example, such pseudo-psychic capabilities make them vulnerable to prejudice and belief in empirical observations. That makes them exploitable or “hackable”. There are endless possibilities as to how such vulnerabilities can be put to use.

Consider a simple situation where you have a crush on a girl. What is the best way to make sure she knows it? Solution: Act foolish, when she is around, like you can’t find words to speak, like you lost all the guts (which you usually have) when facing her. Remember Harry Potter? He accidentally drooled his drink when Cho Chang looked his way. Something like that…

Although a hindsight bias will make you feel otherwise…I find that most geeks (including me) tend to act normal and very formal when their crushes are around. As if that girl is just like any other girl.

Love and Social Acceptance

How can you convince others that you are a successful and capable man? The best way is to be completely superficial in your choice of mates. What would you think if you saw a strikingly beautiful woman with a below-average-looking man? You would think that he must have some desirable hidden traits. Perhaps he is smart, sensitive or even rich. Seeing him with a beautiful woman would increase your opinion of his deep unobservable characteristics. Now, what would you think if instead you saw this same man with an average-looking woman with a terrific personality? Probably nothing, because you wouldn’t know she had a great personality.

If you are in a position where you need to convince others you have a nice personality, you need to pick prospective mates who have great observable traits. Indian bachelors should rejoice after reading this, because the custom of arranged marriages will allow you to do just that….

Happy Valentines Day!