Gill Eapen's Blog, page 92

Taxing

Taxes are necessary to generate revenue for the government to conduct activities that will not be effectively dealt with by markets due to externalities. The design of taxes, however, is of critical importance as a badly designed and managed tax regime will create more costs to society than what can be provided by the revenue generated by it. Taxing income, for example, is fundamentally inelegant as it creates a disincentive in the society against a "good". By establishing a disincentive...

Bleak oil

As the enthusiasm of super spike in oil price subsides, some have been reinvigorating old arguments of "peak oil" again. Ever since humans have been using oil, they have been worried about running out of it. Some have been shaken out of their skins seeing the future - a predicament in which we run out of oil and the world population grows exponentially. How nasty can that be as we deliver billions of babies around the world with no oil to heat our homes, no oil to drive our cars and no oil...

Triple threat

Many are worried about the high debt levels of individuals and countries as well as the possibility of currency collapses and financial turmoil. Although such worries may be justified in the short run, they may not have a significant lasting impact. For example, in the US, a recession, bailouts and misguided attempts at stimulation are all causing high unemployment and a lack of confidence. However, these are nothing new - recessions have happened in the past and they will happen again...

Tough choices

Economists and policy-makers generally consider maximizing utility as a worthwhile goal. However, it is quite possible that we are focused on the wrong thing. Minimizing disutility is an equally important policy goal. The gradient on disutility is likely a lot steeper and thus the incremental benefit to society by focusing on this is possibly higher. It is probably easier said than done as there is a trade-off here if we are trying to optimize societal benefit over time. For example...

Market inefficiency theorists

Some reserve the ultimate scorn for those who believe in market efficiency. This is the most fanciful notion to some as they clearly predict what "should have" and "should be" happening. I recently came across a quote on a web site that went something like "I understand and share your frustration. What should be happening is massive, self-reinforcing deflation." Yes, many "market inefficiency theorists" appear to be frustrated as they gaze at the ignorance of the world. They could not but...

Organizational evolution

Just like biological systems, including humans, organizations also benefit from evolutionary pressures. Evolution works on natural selection and any artificial constraint on it will yield sub-optimal results. Democratic systems generally allow (or expected to) the natural selection mechanisms to work on organizational evolution. Regulations, in general, have the exact opposite effect.

Events in the past few years clearly demonstrate  how organizational evolution can be arrested by...

The value of terrestrial exploration

Most of the earth - oceans and beneath the crust of the planet - remain unexplored. The fascination of space exploration has largely overtaken the need for studying our own planet. This is a valuable exercise as this will yield information that not only help us predict and manage natural disasters but also answer m0re abstract issues such as the origin of life. The resources dedicated to space exploration (even with the termination of some brain-dead ideas as going to the moon again) are...

Concave memories

The human mind, in spite of its immense capabilities, seems to have a great deficiency. It attaches more importance to later memories than those further past in time. This is only natural, as even using a somewhat naive computer memory model, we can perceive the dominance of short term memory over long term memory. This, however, has significant implications for policies and decisions in general.

For example, human relationships are largely driven by short term utility as the mind attaches m...

If you can't text, get out of office

Today's politicians, who live in the past, disconnected from contemporary technologies, belief systems and social interactions, are in no position to make policies that impact the future. Policy decisions have to be delegated to those who will be affected by them.  In the current political system - both the voters and their representatives are behind the curve. Representative democracy is not a good system in the presence of an exponential change in technology and environment, with...

Up syndrome

Many intuitively believe that the stock markets generally go up with time. This is based on the general presumption that productivity and wealth per capita are increasing over time. Reality checks in Japan (markets currently at 1985 levels) and the US (currently at 1998 levels) have dampened this optimism. More importantly, this belief system has been reversed, many now assuming that markets can only go down in the long term. A recent study from a leading economics school demonstrated that...