Posts Tagged ‘Economics’

Faith is irrelevant? Not so fast….

July 14, 2010 3 comments

This might be a strange title for most of you to read. I can imagine some of you might be turned off already and I could definitely understand how you could feel this way. This is not an apologetic piece, meaning I am not defending my faith with what I write, it’s just a deeper glimpse into what I think about my faith. Thus I hope  no one reads this as some sort of proof about why non-believers should believe, because that is impossible. Whatever I write I doubt will convince anyone to change their worldview. At the same time, the success of writers like Christopher Hitchens/Richard Dawkins etc. and their critiques on faith are largely based on the assumption that  faith is a totally irrational exercise. I beg to differ.

Most of my popular posts have involved pictures, videos or charts of some sort, (which I think says something about my writing) so I’ll be smart and start with one of my own. (another side note: one thing I learned in banking is the skill of charting tautology when you don’t have something profound to say)

(Source: Wikipedia)

Some of you might know what this is and wonder where I am going with this. Before I get too wonkish here and bore you to death, this chart is simply an imperfect but useful tool in describing human preferences.  There are a few assumptions with this chart.

  1. We like stuff: Two goods X and Y measured in terms of quantity (in real life our choices are immeasurable, but for now lets work with what we have.)

    I could call X an Y corn and wheat like traditional economists do or perhaps even something zany like McNuggets and Frosties. In this case, I am going to stick with Money and Fame. X is money; as you move more to the right this represents more money that you have. Y is fame; as you move more and more “north” this represents a person getting more famous.

  2. Indifference: Each point on a curve represents a set of goods that one would be indifferent to possessing. (hence the name)

    Each curved line represents a point where our “utility” would be the same; each curve shows if you take a little money away (X) you’ll only be just as satisfied if you add a little bit more fame (Y)

  3. More is better: I3 is preferred to I2 which is preferred to I1 (Draw a line from the origin to the top right, following this line means you are increasing your “utility”)

    If we have a fixed amount of money and fame that extra buck or extra TV spot will always give us more utility.

  4. Convex: Curves are curved outward (as you start running lower on Good X, it takes an increasing amount of Good Y to leave you indifferent)

    The loss of utility in losing a significant amount of money can only be replaced by a larger sum of fame. Perhaps a person goes from a 7 figure job to a 5-6 figure job. This happens all the time, some rich dude decides he’ll become Senator or President.

  5. Differing Preferences: We don’t all have to want the same things, thus each graph is a representation of an individual’s wants.

    Some of us prefer money while other of us prefer fame, graphs can demonstrate individual preferences accordingly. A person who cares only about money might have his indifference curves lean towards the right and vice-versa.

  6. Insatiability: We can never reach a bliss point


As an econ guy (a rather mediocre B student), I think this model speaks well of our human nature: man, the animal with an inclination to “maximize his utility”. He faces a tough world where his resources are limited but his desires are infinite. Some people say this model stinks; as it does a poor job of reflecting the actual world. My problem is not that,  I am more concerned with how we apply this model as well as how we use it to address the dilemma: infinite desire but limited resources.

Individualist Critique

The problem is the “limited resources”. The answer: Let’s crank out more goods, better goods, faster goods, cheaper goods etc. and eventually we will find ourselves satisfied. Not that material possessions are the only things we could talk about here. Maybe we think about a prettier girl, a smarter guy, or a career that makes us feel worthy.  We better ourselves in every manageable way, life will undoubtedly improve. But does it?

For one, I think economists can “overrate” the idea of utility, or at least conflate it with the notion of satisfaction. Individualists tend to fall in this boat.  As long as we keep cranking out the goods (making more of them, making them cheaper, making them better) we will be in a better place than we were before. They say, let’s raise living standards for greater satisfaction.

This idea has its merits; most of us don’t want to return to the arduous 100 hour weeks with no one to thank us working with an ass that refuses to listen to anything you say. If you banking guys think I am talking about you: I actually meant try waking up at 5 AM in the morning in order to toil and plow with a stubborn donkey that refuses to carry any of your burdens. You screw up in banking, you get a “small” (meaning, still more than 99% of society) bonus. You screw up on your personal harvest, you, your wife and your kids probably suffer from malnutrition and possibly die. Shooting oxen while playing the Oregon trail was fun but nobody wants to literally live out those moments. Nonetheless, why do most people speak of work as if it were similar to navigating the Oregon trail??

In one way, we could see how the “standard of living” criteria is important, but it’s certainly not sufficient. For instance, I bring up banking not only to make a bad joke but also to demonstrate the idea that our “maximizing utility” is overrated. While we can certainly say many investment bankers are closer to the top right in terms of “utility”, its pretty clear having worked in the industry, coupled with all the comments saying how people hated their jobs, that perhaps this was by no means a path towards satisfaction. I would argue this applies analogously to other measures of worldly success.


“A just peace includes not only civil and political rights — it must encompass economic security and opportunity.  For true peace is not just freedom from fear, but freedom from want.” – Barack Obama at his Nobel Prize acceptance speech.

I agree wholeheartedly with his contention that this is what the world needs. Unfortunately, we go back to the issue of human insatiability. While Obama’s point is fair, that a certain standard of living can bring about an increased amount of happiness. I am not going to pretend worldly circumstances are insignificant; I am grateful I can prattle on and write this convoluted piece because of my material wealth. (or perhaps that of my parents) Regardless, when Obama stresses, “freedom from want”, I think he’s stretching the bounds of what is possible by mere economic means.

What’s the problem? It’s the “insatiable desires”.  Let’s live a life that acknowledges these circumstance and curtails our consumption, whether it’d be through governmental intervention or through some sort of self-withholding life philosophy. I am sure most of you would agree that this point has its merits. Tempering our desires and wants is a good thing and is something that is sorely missing in this consumer-based culture. Unfortunately, I think all we are really doing here is attacking the symptoms of the real problem. Merely forcing ourselves to consume less does little to address this issue of insatiability. We acknowledge the tendency but don’t attack the root cause.

Top-Dog Syndrome and a thought exercise

There’s a bunch of studies that show our human tendency to value relative success over absolute success. To put it in simpler terms:

If you could make $100,000 while everyone around you made $80,000 a year, it’d be a bit cooler especially since you knew you made a little bit more than the next guy.

You Other people
Relatively Wealthier $100,000 $80,000
Objectively Wealthier but… $110,000 $120,000

Now, what if I asked you if you could make $110,000 but everyone around you made $120,000. Objectively, you make more in this second scenario, yet most would choose the first scenario. It’s not so much how objectively good we are, but whether we are better than others. It’s strange because that last scenario is a tough one to swallow. Even if you think that you are one of those that would take the second scenario, there is something in us that tells us we need to be Top Dog in something. Our penchant for certain brands is indicative not just of our obsession with quality but also of our inclination towards goods that demonstrate where we sit on the totem pole.  Likewise, we are all familiar with athletes/celebrities who can’t seem to let go of their past glories.

The Great One

I actually don’t have a problem with our human condition of insatiability. At first glance, it may appear to be one of our weakest traits, a voracious appetite. In this existential dilemma called life, where we all question our place in this world and our eventual legacies,  the human condition put tons of weight on accomplishment, especially if it is something we do better than someone else. I will argue most of us will objectively do something that is quite unspectacular. We all want to be the Great one, yet inevitably our failings catch up with us, so we instead proximate our worth by comparison.

You might even find some Christians who answer that this insatiability is a flaw that needs to be fixed.  They are correct in one aspect of thinking, but I think they are selling our goals a little bit too short. I will take a C.S. Lewis stance on this and say: Perhaps there are things in this world that do not completely satisfy us; yet maybe this is a clue that tells us there is something that does.  Insatiable desires can be met by something, only if that something is infinite.

You see, it is not necessarily our appetite, it’s the way we are pursuing things that is so flawed.  When we are hungry its not like we turn to the Bible to meet our caloric-needs.  Yet when we are spiritually starved we seem to focus on the physical ways we can address this issue. I suppose this is where I have the biggest issue with these economic models or even Hitchens/Dawkins. The first acknowledges our desires but then remains agnostic as to how we solve our insatiable desire. Instead it offers up a model that demonstrates our inability to reach that point.  The second regards any sort of spiritual fulfillment as poppycock, offering rationality as the escape. Unfortunately, this leave us to acknowledge a deep existential dilemma: We all die soon? What’s the point?

Thus I find the Christian narrative the most relevant and fitting.


The modern atheists are correct in some respects, in that Christians probably need to think through their faith a little bit more. But a man-centered philosophy still reminds me of what I can’t accomplish, what I don’t know and death that I cannot overcome. I think that is also the point.

Christ turns this framework upside-down and inside-out. The message of the cross is simple; one that tells me I am incapable of doing good work on my own. It tells me my heart is restless and weary, and acknowledges a broken world tainted by imperfection.

You should probably ask,  “Well, how is this supposed to change me? What does this have to do with anything?” Insatiable desires are problematic insofar as our inability to find anything to satisfy our own craving. One of the biggest problems of this economic model is that it is one based on consumption. In this advertising day and age where everything is geared towards “What can you do for me”, we carry this attitude in everything that we do. Products are designed to fill certain voids or insecurities in our lives, but are insubstantial in leaving any sort of permanent mark.  Relationships sour easily because they become based on the question of, “What are the things that he/she can provide me?” When inevitably a person fails at one of these standards it becomes all the more simple to move on, regardless of the hurt or consequences from the lack of commitment.

Christ gives us a new model. The cross is not just an answer to our void and to our sin, it also gives us a new way of looking how we should live. We are used to the idea of fulfilling our own needs and our own desires, telling ourselves, “If I only had that lover, that car or that home this deep, existential despair will disappear.” Instead we begin to understand what it means to “take up the cross daily”. This new model show us one of our biggest problems is our own love of self. Our nature and instincts fight against what God tells us we should be: outwardly focused in our lives.  Yet the message is not merely one of self-flagellating asceticism.

When we see that God tells us our own accomplishments don’t matter according to his grace,  we don’t have that infinite ladder to climb on our own. You say faith is irrelevant and ignores everyday issues, but I beg to differ. Christ tackles this consumption problem head-on, by telling us the things of this world can’t satisfy us, but that He can. When we read, “What can man profit, if he gains the whole world, but loses his own soul”, this issue is acknowledged. He becomes the infinite resource. God tells us he did all the work, we need to trust in him to carry this work in our own lives. Don’t fall into existential despair. We were designed to be perfectly satisfied; it starts when we realize we can never be the Great One.

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Tax season – Anyone actually a fan of big government now?

March 8, 2010 3 comments

OK folks, so its tax season. I smile a little because my high school/college friends who suddenly were so gleeful about Politician X’s new proposal to expand coverage to Y program, need to now put their money where their mouth is and actually pay taxes. Except that well, they’ve found ways not to pay them…..

You see, I definitely have my share of left-leaning friends who have discussed the latest tricks/gimmicks in finding the biggest refunds on their tax returns. I find it a little bit inconsistent that somebody who generally supports increased government programs also are trying to find ways to prevent (at the individual level) such funds from reaching these programs. Look, I have no problems with finding tax refunds in themselves regardless of political belief.  In no way should Uncle Sam ride off these as my friend Peter calls em, “interest-free loans”,  especially if you weren’t supposed to pay taxes on it. I do have a slight issue when one extols the benefits of expanding education funding, works for a bulge bracket finance firm (as NKS once said, “they are working for the Machine they once raged against”) and then chooses to write off the 5 Brooks Bros. suits as a “uniform expense”.

Simplify the tax code…
But here’s the thing. For one, just practically speaking, if all of these taxes are being written off, why not just simplify the tax code to more flat taxes or consumption-based taxes. (The merits of the argument can be found here and here, so I won’t go into it too much).

Have the rich pay taxes means you should too
As for the solution of making the rich pay taxes. If you are making 70k  a year (not unreasonable for a guy working a couple years out of a top-tier school including bonuses etc.)  you are already at the top 30% of annual income meaning, comparatively speaking, you are rich. But another thing I think progressives need to consider the regressive nature of a befuddling tax code. A Gordon Gekko type with his accountants is probably gonna have an easier time maximizing his deductions over a working single-mother type and her recent-grad accountant at H&R Block. Friends, at least realize this, if you are finding a bunch of things you can write off, know that “the rich” are probably doing just the same. The mechanics can often be legal but quite sketchy, but regardless this is perhaps not the best way to raise revenue……

Also, ever play Sim City 2000? People don’t stick around if you raise taxes on them, your city begins to make Detroit seem like paradise and you lose tons of revenue. Soon you take out a bond from the dude who probably either worked for the Mob or Goldman (take advantage of low rates, float a bond!), you fall into major debt and then you realize realize the only solution is to press all the disaster buttons to turn your city into Sim Gomorrah 2000 and start all over. (But I digress…)

Annoying libertarians aren’t hypocritical (but they still are annoying)
At least libertarians don’t pretend they have some noble motives. Their candidness in their political beliefs wanting their own money, because its their own money, is certainly refreshing.  So I wonder if you are looking for all these deductions why not just jump to the libertarian ship and try to reduce the unnecessary taxes. If you are that concerned about social welfare, use those funds for charitable purposes. Efficiency-wise I’d pat you on the back and you could find the optimal rate to make sure roads and such are still paved.

“Trickeration” like uniform expenses and the like (which should be considered tax evasion) are most infuriating and inexcusable. Even if you are the staunchest libertarian completely paranoid of the IRS, I would still find your justification shallow. When you have a big Obama bumper sticker telling me how important health care is, I find it even more distasteful. Its really a simple game, where the taxpayer knows his chances of getting audited are slim to none.

My challenge to Libs
I could go on and on about how left-leaning politicians hypocritically store their income away in tax shelters (here’s one of many) But I don’t want to straw man a political philosophy, because the worst people in the world, politicians, act like well, politicians. I know there are plenty of liberals who aren’t like that as well.  Thus I offer a small challenge for my friends of the more-government-programs persuasion. Obviously, your tax code is between you and God, I mean, Government (sorry two different faith-based systems).  If you are trying to search for all these refunds, I am not calling you a bad guy if its legal, but why not vote for those who simplify the taxes to flat/consumption taxes. If you are gaming the system, I would implore you to consider your how this is totally antithetical to your political beliefs. If you feel you can use that money for better charitable purposes, see solution above. As for the libertarians, I just think you guys want a government that lets you smoke pot.

Mark 12:17

Game theory: Koreans and Hagwon

February 26, 2010 10 comments

As I have told a couple of my friends, the Korean formula for success in school has been remarkably simple: Hagwon and Beatdowns. Rote learning and repetition followed with discipline if anyone gets out of hand. Screw the carrot, just stick please. The second part is self-explanatory on why it works, lets go back to the first.

Koreans are notorious for their obsession with after-school school, otherwise known as hagwon. The premise is simple: as long as I give my child enough of a leg up against the competition he will  be able to differentiate himself from the pack and emerge victorious.

Except not so fast, you see this is what we call a prisoner’s dilemma…..(I actually did really poorly in game theory, so this could be total bull$#!t)

Ok quick prisoner’s dilemma lesson per Wiki:

Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one testifies (defects from the other) for the prosecution against the other and the other remains silent (cooperates with the other), the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?

Prisoner B Stays Silent Prisoner B Rats
Prisoner A Stays Silent Each serves 6 months Prisoner A: 10 years
Prisoner B: goes free
Prisoner A Rats Prisoner A: goes free
Prisoner B: 10 years
Each serves 5 years

The prisoners should of course both stay quiet and get their 6 months before they commit more crimes again. Unfortunately, each has an incentive to rat on the other guy. To put it simply, regardless of the other prisoner’s behavior one’s own individual utility is maximized by ratting on the other guy. If he rats, I can rat and get 5 or I can stay silent and get 10. If he doesnt rat, I can rat and go free or I can stay silent and get 6 months. Thus the expected outcome of this game or “Nash Equilibrium” is for both to rat on the other. (Notice how this fares the prisoners a worse outcome than if they both stayed quiet)

Now of course this “game” is not that problematic if we are actually talking about two felons here. But what if they are innocent? Both have incentives to rat on the other. It becomes rather unfortunate when this dilemma rears its ugly head elsewhere too. Let’s rephrase this scenario a bit:

Two Asian mothers are trying their best to get their kid into a top-tier school.  Each parent has discussed the notion of increasing their child’s workload at a hagwon. If one tutors (defects from the other) and the other chills out a bit (cooperates with the other), the tutored kid will get a leg up on the other kid. If both remain silent, both moms will have saved a lot of money. If both choose to tutor, each will lose a lot of money. Each mom must choose to tutor or chill out. Each one is assured that the other would not know about the tutoring before they sign up. How should the mother’s act?

Mom B chills out Mom B tutors
Mom A chills out Kids maintain relative performance Kid B gets a leg up
Kid A plays catch up
Mom A tutors Kid A gets a leg up

Kid B plays catch up

Kids maintain relative performance
Mom’s lose a whole bunch of cash

OK, this model is not perfect, (for one, this is a much larger game with more than two players, the payoffs might also differ in a few ways) but it should serve as a starting point in this debate. We can discuss the nitty-gritty later.

Within the context of this game, each mom has the incentive to tutor their kid no matter what the other mom does. As long as mom’s are more obsessed with making sure their kid can get a leg up on the other, the strategy of tutoring your kid will be always be played. This of course leads to a Nash equilibrium of a lot of Asian moms just wasting a bunch of cash.

How can I say this, doesn’t this affect everyone’s kids? Well yes and no, the important thing to remember is how Asian students are viewed within the context of college admissions. This is not a post on the merits/problems of affirmative action, nor do I want it to deviate into one.  On the basis of scores alone, Asian students would fill nearly four out of every five places in the admitted class not taken by African-American and Hispanic students. Again, I don’t care about arguing affirmative action right now (dont think removing AA would change this game either, nor do I think it should necessarily be removed), I am more concerned about the decision making of parents within the context of this game. In this case, since relative performance within race matters, this scenario is more painful to watch. Whether we examine SAT scores, GPAs or number of AP’s taken, if the median benchmark for Asians is simply shifting higher no one ends up at a better place than before.

Well, you could argue, “BDK, its better for these kids anyways since they are getting smarter, so it’s not a waste of cash”. I beg to differ. One concerned mother told me about the dilemma she has for her kid. She stated that her 8th grade son Mikey needed to take summer geometry course before he took geometry. The last time when he took algebra II, everyone else at his school had already taken algebra II in the summer. Mikey said himself, “everyone else was sleeping through class, while I was struggling to follow the teacher.”  I would argue that these other parents are doing a disservice to their kids in the future by not providing proper study habits. Nobody needed to take this summer class, but again it gave a leg up. This is also an epidemic with parents who find their kids “struggling”. Instead of teaching their kids to hash it out on their own for better or for worse, a grade lower than a A automatically prompts a tutor.

Per this Atlantic article on How a New Jobless Era Will Transform America:

“The ability to persevere and keep going” is “a much better predictor of life outcomes than self-esteem.” She (Jean Twenge) worries that many young people might be inclined to simply give up in this job market. “You’d think if people are more individualistic, they’d be more independent,” she told me. “But it’s not really true. There’s an element of entitlement—they expect people to figure things out for them.”

Over-tutoring prevents kids from really reaching out and finding any sort of entrepreneurial spirit. The formula has been simple, do everything mom says and you’ll go to a good school. But whats next? It should make parents wonder why so many SAT camps boast of tutors with 1500+ (now 2300+) SAT scores. I am sure the thinking is not: I wil send my kid to get tutored and pay thousands of dollars so he could eventually become an SAT tutor?  Or write a really dumb blog?

The article continues:

They’re used to checklists, he (Ron Alsop) says, and “don’t excel at leadership or independent problem solving.” Alsop interviewed dozens of employers for his book, and concluded that unlike previous generations, Millennials, as a group, “need almost constant direction” in the workplace. “Many flounder without precise guidelines but thrive in structured situations that provide clearly defined rules.”

Dare I say this might be the reason Asians find it difficult to rise to the top of management positions? I want to be careful here and overreach so I won’t necessarily conclude that. But certainly such controlled environments lead to more passive receivers of work rather than the movers and shakers in the corporate world.

I also want to be careful here about my own views on education. I respect and admire my own culture’s inclination to focus on education. Perhaps its the Confucius philosophy or it stems historically from  of preparing wholeheartedly for the Civil Service Exam. I just think the educational emphasis needs to be there without the fallback of tutoring every single time.

Well, whats the solution BDK? I don’t really have one. Games like this are usually solved with a commitment mechanism.For instance in the nuclear arms race, the US told the Soviets that if they ever picked up a missile fired by the Soviets on radar, US computers would already be programmed to launch a full, retaliatory arsenal back at the Soviets. I doubt a commitment mechanism to kill other parents for reneging on a deal not to tutor their kids is an optimal one.

Let me offer a different avenue (though incomplete solution). As one who played football and was pushed by a coach who believed in more probably more than I did in myself, I learned a lot more about overcoming obstacles; probably more so than solving a math problem I found easier than most else. As a scrawny kid surrounded by kids who were superior in every aspect of the game, I first recoiled a bit but then eventually attacked my weaknesses and became stronger both physically and mentally. While I am sure now every Korean kid has his sports, along with his orchestra and community service, I think allowing your kid to actually struggle in a sport that he really likes might end up serving him better in the long run. Perhaps this is why we see many successful athletes also rise to the prominent positions of power. Not because of raw smarts  but because of an ability to persevere and keep going.

Romans 5:3-4

Amazing video

January 26, 2010 Leave a comment

I find this my type of rap music awesome and the beat is tight!

I am sorry there buddy, if it sounds like invective…
Prepared to get schooled by the Austrian perspective…

I do think Hayek wins this battle…..

Categories: Economics Tags: , ,
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