Sunday, October 06, 2013

Who wants manufacturing? Let's the machines make metal

If you listen to national or local politics you will notice that political leaders all over the world are trying to either create new manufacturing jobs or offering subsidies to bring manufacturing back to the US.

One example of these subsidies is the power subsidies offered by Ohio

Manufacturing jobs sounds appealing as they seem to offer decent jobs to people with medium and low level  training. Most of people don't realize is that the same people can be employed in service industry with almost no training. Manufacturing jobs are usually monotonous and the people who do the jobs don't enjoy it. The customer who see the products don't care if their products were made by real people or by robots because they don't have any direct interaction with the person making the products like tire or metal car doors or shirts.

Customers appreciate human interaction in services where another person is able to help them in ways machines are not able to help. Services like training kids, cooking great food, paintings, music, arts, therapy, sports etc are jobs that cannot be replaced with machines in the near future.

Policy makers should create policies that will eventually increase the number of teachers, nurses, artists, doctors, designers and entertainers instead of trying to increase boring manufacturing jobs which are best left to machines.

Monday, May 27, 2013

Growth and National Debt

Austerity proponents like Reinhart and Rogoff have suggested in their now infamous book This Time is Different that debt to GDP ratio higher than 90% has a signification negative impact on growth. Keynesians like Paul Krugman opposes this view.

Here's my take on this debate.

Why do macroeconomists want to link debt to growth? Will micro-economists argue that debt is the most important factor determining growth for companies?  Correlation does not imply causation.

High levels of debt can hinder growth for companies if debt financing results in lack of investment in areas that will result in higher revenue or making the company more profitable in the future. National economies should have the same result. If debt burden results in lack of investment to make countries more efficient then it will hurt growth but if cheap debt can create productive investment then debt is be good.

Saturday, December 15, 2012

Guns - Freedom and Safety

The recent tragedy involving the fatal shootings Friday of 26 people at a Connecticut elementary school - including 20 children - immediately reignited the debate about national gun laws.

I hope people don't see this tragedy and start demanding more regulations that will make it harder for people buy guns to protect themselves from criminals or to go hunting. Although the intensions of people who want more government regulation is good the outcome is usually bad. We can create laws that will make it harder for law abiding citizens to buy a gun but it will not stop criminals from getting more guys because by definition criminals do not care about gun control laws.

We don't ban fast cars or planes because car or plane crashes kill people but instead we make cars more safer to drive my deploying more safety gear in them. We can reduce the incidents of gun violence by creating gun free zones and screen people for guns before they get into schools, movies and other gun free zones. These screenings can be left to private owners / local community discretion. Metal detectors managed by private owners or just selective screening for anomalies by the security guard.

It's interesting to see left leaning people and liberals who believe in personal freedom and call themselves pro-choice wants to hand over their choice to government when it comes to guns in the hope that creating a law that bans certain types of guns will make them safer.

People should be free to keep guns at home for protection and hunting. Yes, some criminals and crazies will be able to sneak in guns but they would do that even if all guns are banned.

Saturday, December 01, 2012

Economics of Corruption

I was shocked recently to hear from some of friends with graduate degrees in computer science and engineering that some form of corruption is OK and necessary because running a government is a complex operation and greasing the palms of politicians and government employees makes government work faster.

Corruption or any use of public power for private gain has large negative implications beyond the amounts paid as bribes. I will highlight a couple here and point to few sources for details.

1) Corruption disrupts free markets and allows inefficient companies to thrive by shielding it from competition.

2) Corruption diverts government funds to people who are able to pay kickbacks and bribes instead of investing in most productive sectors like education, infrastructure and health services

3) Corruption creates moral hazards for companies and people when "buying" favorable tax structures and environmental regulation becomes cheaper than building an efficient and productive company.

Saturday, September 15, 2012

Will you mow your lawn if it costed you $10,000

Mowing lawn can cost anywhere from $25 to $200 depending on the size of the lawn. Will you mow your lawn if it costed you $10,000? Why is this hypothetical question relevant?  I want to explore immigration policies and the impact it has on wages.

Increasing the supply of people with a certain skill set will reduce  the price of that skill set in the market. If there are only 5 doctors who could do heart surgeries in the world then the price of a heart surgery will go up to such a level let's say 10 million USD so that those 5 doctors will perform only surgery on people who can afford 10 million USD. Is that a good thing for the doctors? Yes, doctors are likely to prefer to get higher salaries but it will also result in thousands of people dying because there are not enough doctors to perform the number of surgeries needed.

In any economic activity mowing lawn, picking fruit, programming computers or performing surgeries keeping the supply of skilled workers artificially low by strict anti-immigration policies will result in several lawns not being mowed, less fruits being grown, several computer systems not being built or many surgeries not being performed so there's case for immigration of people with the required skill set through legal means. If higher wage is the only interest of workers then they could also wish for the death of people with the same skill set in hope of higher wages. On the other hand allowing people to work in market where there's a higher demand for their skills will increase the total output of the world global GDP and also increase the national GDP as workers can work in countries where they are most productive.

What's the best action for policy makers? Allow legal immigration to industries where there's a shortage of workers.  An example would be to allow immigration to an industry where unemployment is less than 5%. What's the best action for workers? Acquire skills that will help them to compete in a global market place of skilled workers.

Saturday, June 23, 2012

Almost all humans are Humanists

Most people consider themselves as theists, atheists or agnostics but they don't realize that they are fundamentally humanist because they have not been exposed to situations which would reveal the fact that they are realists and humanists. Here's a hypothetical situation that might expose the truth.

Imagine that gods existed and they have decided to build a new intergalactical shopping mall where Earth is currently located and  they are in the process of destroying earth with "nuclear like" explosion. Will you stand up to the gods and tell them that they are wrong and fight for the survival of the planet ? If the answer is "Yes, I will fight for the survival of Earth" then you are a Humanist because you not only disobeyed gods but you derive your decision making process from something outside of gods' will.  Your decision making does not depend on existence or non-existence of god unlike atheists who might change their course of action once they are convinced that god exists.

According to The International Humanist and Ethical Union (IHEU) 
Humanism is a democratic and ethical life stance, which affirms that human beings have the right and responsibility to give meaning and shape to their own lives. It stands for the building of a more humane society through an ethic based on human and other natural values in the spirit of reason and free inquiry through human capabilities. It is not theistic, and it does not accept supernatural views of reality. 

So  almost all humans are Humanists ? 

Sunday, March 18, 2012

OWS Should Celebrate Inequality Demand Mobility

One of the recurrent themes in Occupy Wall Street movement of last year has been the increase in the income inequality in the last three decades. Although it's true that income inequality has increased over the last 3 decades in the US it's still below historical low levels over the past century as this report by IMF shows. Is I income inequality really bad ? Will inequality create a more wealthy world ? Is social mobility and economic growth more important than reducing income inequality ?

Inequality in income occurs due to various factors including luck, talent and hard work. A region in the world blessed with lots of rain or oil is likely to produce more wealth than a region which doesn't have either. A genius in consumer electronics in last few decades would have improved more lives, possibly become more wealthy, with iPhones and Tablets than an even smarter engineer who studied astrophysics and gravitational force on Mars.

Is it fair to steal or force rich people give money to the poor so that income inequality is reduced ? It's harder to answer this question in today's world where the rich are demagogued so let me reduce this problem to a simpler times and try to find an answer there. Imagine that we still lived in a world that sustained itself by farming and hunting. Let's say a farmer Tom worked hard and with some good luck produced 10,000 pounds of wheat while another farmer Harry could only produce 7,000 pounds of wheat either because he worked less hours or he planted bad seeds or he had some bad luck with the weather.

Is it better to force Tom to give a large portion of his produce to Harry or is it better to allow Tom to keep most of his wheat and let him decide what to do with his produce ? Tom may not need all the wheat he produce and therefore he will find ways to get rid off the excess wheat and will try to exchange his excess wheat for work or other produce from Harry or other farmers in the society. This will result in a system where the farmer who produced good results to continue to focus on more farming and others who have been less successful in either assisting the successful in his farm or taking on other forms of work. If a village elder decides to take away Tom's wheat and distribute it equally among all the villagers then Tom will have no incentive to work hard next year to produce the best result he could as he know that he will be paid by the village elder irrespective of his hard work.

The important thing to note is that a free market will distribute the means of production in a way to produce maximum wealth. What about next year when Harry wants to improve his farming skills or borrow farming equipment from others to improve his production ? What about Tom's and Harry's kids ? Will they have access to less farm land because of their father's mistakes or fortunes ? This is where income inequality meets social mobility. In order to ensure that the best hands are put at the means of production it's important to ensure that there are opportunities for people who have failed once due to bad luck get an opportunity to try again. If there's no social mobility then we will end up in a society with accidental millioners who will continue to control larger portions of production while the truly talented people will left behind without having the right amount of influence on important decisions.

In order to ensure social mobility in todays's world where formal or informal training and education is necessary to succeed it's important that every child gets access to the best education that the society can provide irrespective of the zip code or school district that they are born in. This means all public education should be turned into a direct payment to parents who can then choose to spend those dollars to send their kids to any public school they choose. This will ensure that the schools will compete for students and the good schools will get a larger portion of the students and expand into more franchises while the poorly performing schools will shunt down and will be replaced by franchises of excellent schools. Providing every child access to best education will set the stage for everyone in the society to have a good shot at either starting their own companies, creating the art they like, becoming athletes and pop stars or pursuing whatever career they want to pursue.

In order to encourage people to work exceptionally hard they should be promised exceptional rewards. If American Idol only awarded $10 and did not provide opportunity for winners to sign up lucrative record deals then thousands of young people will not prepare months for it. If college football didn't lead to million dollar contracts in NFL then thousands of young people wouldn't work hard tirelessly for years in high school and college to get to their goals. Why is it OK for college football coaches to earn multimillion dollar contracts while it's evil for corporate CEOs to earn the same ? College football coaches decide how 22 players on the field run up and down the football field but CEOs of multinational companies like Walmart decide where 2 million people stand and how they speak and interact with people and machines for 8 hours each day. It's really crucial for any society to get the brightest and the most hardworking among us in critical positions as those of a CEO of a big corporation. The best way to attract best talent and demand hard work is to promise success and glory for those work.

Great successes needs great motivation and to discoure success by robbing the rich and handing the money over to bureaucrats to distribute it among their lobbyists is not the best way to allocate resources. Government should be focussed on improving social mobility and forget about income inequality as there will always be income inequality in a society where an writer can write a book once and produce millions of copies of his work with little effort and there are so many factors including luck that will determine who produces more wealth each year. A flat tax that tells the society including the rich that we believe in fairness will result in society where the rich will not see the government as it's enemy and the respect for rule of law will be supreme. It's also unfair to give preferential treatment to capital gains taxes as if capital is superior to labor. Capital is nothing but savings from yesterdays labor. All forms of income should be treated equally with the same tax rate. There's also a need to create a small wealth tax similar to property tax as the wealthy enjoy the benefits of big portions of the government including army and police more than the poor. The army and justice system provide protection to wealth of every citizen and there should be a wealth protection tax for everyone which will provide for any reduction in taxes due to a flat tax system.

A society should be judged on how many people can move easily from poor to middle class and to the rich during their lifetime and not by how many people belong in each category.