Fundamental attribution error in judging capitalism/socialism

History has proven over and over that free markets are more efficient than centrally planned economies. However, over and over again, people continue to attribute United States' success in 20th century to second world war, immigration, having a head start, size, cultural aspects and few other factors. As everyone knows, US economy has grown almost every year and there should be something fundamentally different about its economy.

Take North Korea and South Korea - Same people, same culture, same start at second world war. One country is dying of hunger, while the other is one of the world's wealthiest. East Germany and West Germany - Per capita of West Germany was much higher than the East when the wall came down. and so on...

The affluent countries are either capitalist (or) had very rich natural resources like oil. What more proof do the people need? Wake up and stop looking to Govt for solutions. Wake up and take a pledge that you wont be fooled by liberals who promise to make you rich (or) the country better.

People tend to attribute successes of other people to fundamental attributions. That's exactly what's happening here. People tend to believe that US was either lucky to get rich (or) the Govt had something to do it. Wake up fellows...Economic forces are more powerful than the political forces. US Govt. had very little to do with success of the economy. It's the capitalist market that's doing the magic.

Which companies survived, which didn't and which won't in the Internet revolution?

In last decade, .com companies powered by Internet have successfully outgrown (or) have become threatening competitors to their offline equivalents. However, some companies and industries survived without quickly adapting to Internet. Let's do a quick retrospection on which ones did and why.

The companies which had to struggle to survive (or) didn't survive

• Book Stores and Libraries
• Newspapers and magazines
  
• Electronic Stores
• Movie rentals
• Middle men like lending agents, travel agents, insurance agents and used car auto dealers
  
• Middle men for household skilled trade like landscaping, plumbing, carpentry, flooring and so on..

The companies which didn't have to struggle as much

• Grocery Stores
• Retail Banking
• Hospitals and doctors
  
• Shipping Companies
• Electricity providers
  
• Apparel stores
• Restaurants / Coffee shops
• Auto rentals
• Airlines (Corporate travel probably went down)
  

The companies which I believe will have a run for their money in near future

• Movie theaters
• Furniture/Mattress stores
• New-auto dealers
  
• Realtors
• Retail banking
• Schools and universities
  

Any service that can be performed over Internet will eventually be and anything that can be sold over Internet will be.

Some companies survived without quickly adapting to Internet. It's obvious looking backwards and understand why these companies survived.

• Heavily capital intensive to start a new company (Retail banks, shipping, flights,...)
  
• Service needs an actual human being to be present.(e.g doctors, haircut, restaurants,..)
  
• The quality of service cannot be ascertained by just looking at a picture (or) where quality differentiation is high among similar items. (E.g. Not all tomatoes are same. People want to look at an actual tomato before buying. However all SONY DCR-360s are the same)

Notable exceptions are the ones I mentioned in the third bulleted section (New auto dealers, Realtors, schools,...). But they too will eventually go away.

The hope delivered by Obama

Obama talked a lot about "hope" in his presidential campaign. Obama has definitely already delivered on hope even before the elections. Hope that you don't need to have relevant skillset before applying for a job. Hope that you can convince people that you support the army while undermining and questioning their achievement. Hope that there are enough fools around who would believe you if you tell them what they want to hear. Hope that you can keep flip-flopping on issues and people will continue to believe you. Hope that you can attend anti-American propaganda church meetings and convince people that you are a patriot. Hope that you can apply for an executive job by doing social service. Hope that you can be an absentee at school for most of your term and get an 'A' grade.

Hope that anyone can become a president.

What's more wasteful spending? Iraq Or Monica Lewinsky

People have concerns about how their taxes are being wasted in Iraq war. Democrats blame Bush Office for wasteful spending and tax cuts for rich. But let's see the worst (or) most unpopular spending that last 2 presidents have done

• Bush - Iraq war
• Clinton - Hiring Interns like Monica Lewinsky and Paula Jones (when he was Arkansas Governor)
  

Clinton had alleged affairs with a Arkansas state employee, a white-house intern and allegedly many others as well. The funny thing to note is that Monica's salary for her internship is paid for by American tax-payers. Who gets the benefits - Clinton. Well, one may say that it's not much and that the amount is minuscule compared to what we spend in Iraq. But it speaks a lot about character of the president and the party who is counting on his record to win the election.

Innovation in Internet still has long way to go..

Innovation in Internet has still a long way to go. Internet has annihilated middlemen in many industries in last decade. However, the job is not finished yet. We still have middlemen in real_estate services, car sales, music labels, money lending services (peer lending has not succeeded as much), and .....credit cards (YES, credit cards too)

Credit cards act as middlemen between banks and customers. Credit cards end up charging outrageous 3-5% of each transaction and give most part of it back to the card-issuing bank. This is unacceptable in 21st century when you don't need a swiping machine to do the transaction. Something like paypal (or) a new form of internet currency will eventually replace them. Unfortunately this change will take much longer than others because of the heavy control of banks over the money supply.

On top of this, Internet will continue to enable things we haven't even thought of yet.

Proposition on gay marraiges, but none on bailing out banks

It's funny how American democracy and capitalism work. People get to vote on propositions on some issues in the ballot. We have a proposition-8 letting people vote on if gay marraiges should be legal. But, the biggest material expense for tax-payers, the bank bailout was never even on the ballet (or) on any proposition. The 700 billion dollar buyout is the probably biggest individual expense bill in recent times. No say for people on that. Only elected representatives (who were elected on realities based on 2004-2006) get to decide.

I really wonder if a proposition on bank bailout would pass if put to a public vote.

Bailout of banks: The power of "loss language" at work

I am currently taking the course of "Organizational behavior", in which we were taught about the power of "loss" language. It's amazing how the media, politicians and biased economists are effectively using the technique to convince people of the 700 billion dollar bailout of financial institutions.

They said "We invite risk of economic collapse if the bailout does not happen". Instead, they could have said "Bailout is essential to continued functioning of banks."

They referred to the $700 billion dollar plan as "bailout" instead of "rescuing banks" plan

Hedging everything in life

How peaceful the life would be if I could hedge everything I use for a long period of time (say 30 years) . If I could hedge things like specific quantities of milk, spinach, carrots, chicken and so on, it would make retirement planning so much easier. I could pay for all these costs much earlier. This kind of insurance would provide me great sense of economic security. Famines, wars, hurricanes would not affect the cost of running my life. In the long run, businesses would have incentive to reduce prices of products, to make these derivatives worthless.

Departmental stores can sell derivatives for food products like bags of rice and wheat. Hospitals can sell promises of future health care. Airlines could sell derivatives of flight tickets for direct routes. Starbucks could sell derivatives promising guaranteed price of lattes and so on.

Imagine a day when you go to Starbucks and the barista asks you "how much does your tall latte cost?"

How about olympics for videogames?

Kids are spending more time playing video games than playing outdoor games. So, why not have Olympics for video games like GrandTheftAuto™, Halo™, WiiTennis and so on?

We could have boxing, running, jogging and treasure hunt all in one video-game. These Olympics can happen over Internet so that no one even needs to leave his or her home to play (or) watch Olympics. This new form of Olympics will be a level playing field for all countries because everyone can easily afford a game console and internet connection. Most third world countries hardly win any medals in "offline" Olympics because of lack sports infrastructure in those countries.

Testing on animals and saving pain for humans

Using Animals for medical research is a controversial issue. Some question the necessity and cruelty of using animals for medical research. Many websites (e.g. http://www.stopanimaltests.com/) ask people to raise their voices for condoning animal testing. Others say the testing on animals helped expedite invention of medicines and achieved this with least human suffering.

Almost every medicine that came into market in last two centuries was derived from some form of animal testing. The experiments on these animals helped humans find medicines for many diseases, thereby reducing pain for humans. There is absolutely no question that the research has benefited human civilization.

Would the people who are against animal-testing come forward and take pledge that they would not take these medicines? I bet no one would take that pledge. Hypocrites! If you are against using animals for laboratory testing, then you don't agree with the process that was used in discovery of current medicines. If you are a principled person, don't take any of the available medicines.

But, we are living in a civilized world. Being civilized, we should have compassion on animals, we have control over. Wherever possible, laboratories should try to minimize pain for the animals. However, no regulations (or) new rights for animals are needed in this context. We need the laboratories to continue their testing (some way or other) and find cures for diseases, for which we don't have cure yet. Our civilization will be better off in next generation.

Apple should sell futures for IPhone

A new version of Ipod came out every year for past five years. IPhone had a new version within one year. Apple does such a good job with every new version that existing versions look obsolete. Apple's fans always want the newest Apple gadget. They wait for hours outside Apple stores whenever new versions come out.

What if Apple sold an future-contract to exchange current IPhone for a new IPhone? Let's say for an additional $100, buyer of current IPhone can buy a coupon that lets him exchange it for any new model that will "possibly" come out in next 2 years. I would definitely be interested in such a coupon.

I foresee two problems with such a contract.

• What if Apple does not release any new version before the option expires? This should not be a big problem because cell phone market is very competitive and Apple should innovate continuously to be relevant.

• How can Apple profit by giving you a new IPhone for just $100? Since most money on the IPhone is made from the cut Apple gets from AT&T service plan, subscribers could be forced to sign a new service contract when they use the $100 coupon.
  

PS: Someone told me that MSFT sold such kind of a contract right after Windows XP was released. The contract promised free upgrade to new OSes which MSFT might come out with in next few years. However, there was no new release of desktop OS for many years. Buyers of such contracts might have felt cheated.

Corporate tax laws should adapt to the globalization

Twentieth century corporate tax rules should adapt to the new global economy. If current tax rules continue, Governments will slowly run out of tax revenues.

Current rules dictate that companies have to pay corporate taxes to every country they operate in. If a British company makes profit of 'x' dollars in China, it has to pay a percentage of 'x' as corporate tax to Chinese Govt.

Internet and other forms of communication make this world flat. Companies can route transactions through a country which has least corporate taxes and pay corporate taxes to that country. Many companies are exploiting this flaw by routing some transactions through Ireland, which has least corporate taxes in the whole world. They pay 15% tax rate to Ireland for profits made all over the world.

Bermuda has zero tax on profits made from intellectual property sales. Many global corporations open a Bermuda branch and direct all IP revenues to that branch. Even worse, recently a US pharmaceutical company was accused of paying IP royalties to it's own branch in Bermuda and writing off the expenses in US.

American companies have to pay corporate tax of 35% to US Govt on revenues they make all over the world. They get to write off the taxes they pay to the other countries. For example, if a US company makes profit of $100 million in China where corporate taxes are 20%, they pay 20 million as tax to china and pay remaining 15 million to US. (They get to write off 20% they paid to Chinese Govt). But, as usual, there are loopholes. If a US company has a foreign subsidiary, the company can postpone paying corporate taxes until US subsidiary pays the money to the parent company.

Companies shift "mobile" revenues to countries with least corporate taxes. Governments should adapt tax rules to this new global economy. Otherwise the local companies which play by rules will be forced out of business.

Electing one Government for all policies is undemocratic

In democratic countries, citizens have the privilege of electing representatives once for every four/five years. In each electoral period, the representatives get to make decisions for the people in every aspect of society from gun laws to abortion, war, civil rights, taxes and so on. People don't elect different representative for each issue.

In such a system, an individual might have to compromise on an issue just because he cares more about some other issue. This can lead to a situation where people have to live by certain rules which only minority of people agree on. Let's take an example to demonstrate this.

Majority of people in US want next Govt to pull out of Iraq. Majority of people also dont want to tax rates to go up. Political parties stands for one or the other, but not both. If people care more about the war, then they end up with a Government with higher taxes. If people care more about taxes, they end up with the country's army continuing to operate in Iraq. Asking people to make such a choice is undemocratic.

People are forced to elect representatives who stand against some of their ideologies. That's why electing one Government for policy making in every sector is undemocratic.

This begs the question.. What's democracy anyways?

Oil exploration, liberals and the poor

Democrats yet again blocked oil exploration in US coast and Alaska on environmental concerns.

Who really benefits from coastal oil exploration? Oil exploration leads to increased production of oil which in turn brings down the price of Oil. Poor people suffer more from higher oil prices than the rich people. Rich people can easily afford oil at $5 per gallon. Poor people, who make $10 or less per hour, can't afford to drive at such high prices of oil.

Ask a poor person if he prefers $5 per gallon Oil (or) the risk of exaggerated environmental concerns from oil exploration. He would obviously prefer more oil exploration.

It's a paradox that Democrats claim themselves to be champions of poor. Democrats want to keep the air clean around them, even if it adversely affects the poor people.

Issues with privatisation of defense and homeland security

Since I heard about the controversy of how U.S. Blackwater security corporation operated in Iraq, I had been thinking a lot about if it's right to privatize defense and homeland security operations.

Blackwater provides security for high-target individuals in Iraq. The agency has license to kill, if the personal it protects are attacked. When attacked, the security guards engage in combat, effectively making them militia. These agencies operate under heavy legal protection and the judicial branch has absolutely no control over these agencies.

It's very hard to keep these private agencies from doing the wrong things. Here are some inherent flaws in privatization of army.

Possibility of corruption through non-transparent, no-bid contracts

How can the Government ever come up with a right price for a security deal? It's very hard to put a price on a security operation. What's the price to guard a street, when you don't know how you are going to be attacked next? When there are multiple agencies bidding for a defense contract, it's very easy for Govt bureaucrats to prefer one over another. Even worse, Govt can issue these contracts without bidding at all, which was often the case with contracts issued to Blackwater security.

Mistakes made by private parties are perceived more seriously

Blackwater allegedly mismanaged the security of it's own personal leading to their death. Public view mismanagement of a private security firm much more seriously and have a sense of being cheated. The relatives of the affected wanted details on the deaths of their kin. Due to national security reasons, the private agencies were shielded from judiciary. People can only voice their opinions with the Government, which itself operates in collusion with BlackWater.

Perception of private agencies as mafia

What's the main difference between mafia and a private security firm? The private security firm is operated under a Govt contract and legal protection. When Blackwater was hired to provide security in streets in New_Orleans following Hurricane Katrina, people saw Blackwater security roaming around the streets with guns in their hands.

Would people be more comfortable with army personal or private security agency? Private agencies work to maximize their profits, while armies don't. Armies are under legal scanner for wrongdoings, but it's very hard to micro-manage security done by private agencies. There is a widespread argument that Blackwater did not do enough to prevent looting in New_Orleans. (or) what if they colluded with armed gangs?

Conclusion

People who die working for private agencies do not get medals of honor. Do they deserve the honors? I believe private armies might work only for very narrow missions like personal security. Using private armies for larger missions like Hurricane Katrina and combat operations cannot be easily justified.

Representation without taxation

In most countries, people automatically earn their right to vote when they turn 18. I believe, at eighteen, most people don't pay enough taxes to be given a right to vote.

Government functioning is funded by taxes. Why should people who don't pay taxes get representation? This is same as a person who does not own any shares voicing his opinion in a shareholders' meeting. Alright, Government is not a for-profit corporation. But, it operates by tax revenue. People who don't pay taxes don't have much to lose to ask Govt to raise taxes. What if all the non-taxpayers get together to increase taxes to 80% to fund public programs like social security and Medicare?

My proposal is that only people who file tax returns should be given a right to vote. It's not unreasonable to ask people to file tax returns to earn their right to vote. Government needs to ensure that people have filed their tax returns before registering them as voters in every election. This would have a good side benefit of encouraging people to file their tax returns.

It's socialist to allow people who don't file tax returns to be allowed to vote.

How to judge candidates in presidential debates?

Choosing between the presidential nominees who have very similar ideologies is very tricky. 2008 democratic debates started off on right foot and the candidates expressed their opinions and solutions. However, after the contest came down to two candidates, Hillary and Obama, debates have become useless as no candidate wants to take new stand on issues. They want to stick to their stand and dodge the questions asked in the debates. Here are a few things I found to be funny.

Should the candidate be willing to change? (people might call him a flip-flopper)

In 2004 presidential debate, many said John Kerry was a flip-flopper and hence unfit to be a president. What's so wrong about being a flip-flopper? Let me take an example to put this into perspective. Let's say that at 12:00 AM, doctor told you that a medicine 'XXX' was good for your health. You took it and went to sleep. You woke up the next morning and FDA found new evidence that proved 'XXX' was harmful and could lead to death. Would you prefer the doctor to stick to his stand (or) would you prefer him to change his stand? Why not apply the same logic in judging presidential candidates?

People change their stand on issues for a reason. The reason could be a good one or bad. Candidates change their stand because they have new information (or) have different perspective about the problem . What's wrong about that? World changes every day and people's perspectives about issues have to change everyday. It's after all, a debate.

Who is worse...A candidate who sticks to what he believes in (or) a candidate who is willing to change his opinion. If a president does not fulfill his promises, he is called a cheater. It's worse if the president spends all his time in white_house, sticks to his stand and does not listen to people around him.

Obama and Hillary blame Bush on being stubborn and blame each other on flip_flopping on issues. Hilarious!

Candidates are judged by their past deeds in today's context

Obama blames Hillary for supporting NAFTA and her failed health care plans in her state. Not getting into details of the issues, the legislations might have been made with right sense of judgment. It's easy to look back today and blame on their shortcomings. Since she had the ambitions of becoming president back then, she had lot of incentive to get it right. But, she got it wrong. She tried and failed. So what? Wouldn't you want someone who is willing to try to fix your problems?

The problems of today's world are extremely complex and the dynamics of problem change everyday. It's practically impossible for anyone to solve a problem in today's context and get it to work for tens of years. When the world changes, solutions become obsolete. Looking back at a legislation that was passed 10 years back and judging it in today's context does not make sense. Shouldn't people look for vision and forward thinking abilities? BullShit! If those are the skills you are looking for, have them write exams in macroeconomics and critical_thinking.

I prefer a candidate who is willing to accept his mistakes and is ready to change, than someone who claims to have vision to get everything right in next 4 years.

Being too diplomatic and not taking a stand at all

As the democratic debates progressed, candidates, Obama and Hillary became more and more diplomatic. They declined to take stand on new issues (or) at least preferred not to have any sort of comment on certain issues. They realized that they can only harm themselves by having a stand than by not having one at all.

Each legislation has stakeholders. Each legislation creates some winners and some losers in the country. So, the candidates have become way too diplomatic and avoid taking stand on new issues. For example, no one took a firm stand on immigration issue or on border issue with Mexico. There is too much at stake by having a stand on these kind of issues. It would have been better if both candidates appointed comedians to talk in these debates. The debates at least would have had entertainment value. May be, Colbert participating in the race wasn't a bad idea at all.

However, the first few debates were good and people got to know a bit about these candidates. This was the case only with the latter debates.

Conclusion: Judge character and honesty, rather than achievements and failures

When choosing between candidates who have similar ideologies, it's better to vote based on candidates' character rather than their past achievements and failures. A president needs honesty and commitment more than the solutions.

The real questions that a voter needs to ask himself are
- What was the process by which the candidate solved the problems in the past? The real solutions themselves don't matter.
- Given absolute power, would the candidate listen to other people?
- Does he have the leadership to fend off the stakeholders if right solutions (from a majority perspective) and legislators are on opposite sides.

When it comes to presidential elections (democrats vs republicans), it would be easier to make a choice because the parties have some fundamental differences on certain issues.

Disclaimer: I have biased opinions about free_market_economy and republican way of solving economic problems. This could have affected my thinking about the democratic debates.

Capitalism and Environment

Capitalist economies have inherent charecteristics to destroy the environment. At least, that's how capitalism performed in the 20th century.

Automation leads to higher productivity, but increases energy consumption
Adam smith said that human beings are more productive when there is division of labor and when they work in a factory style environment. That naturally leads to factory owners automating the human tasks for higher productivity. Automation, at least the way it's done in 20th century, leads to higher consumption of energy. Automation of daily mundane tasks like dish_washing and laundry_service leads to an increase in energy consumption. For example, when people switch from postal mail to e-mail, it leads to creation of massive computer server farms. Computer server farms need energy to operate. The new century should define earth-friendly ways of automation (or) clean ways of producing energy.

Consumption increases as incomes raise
Free markets have proven to create richer societies and richer people. Richer people means more consumption. Consumption includes consumption of natural resources. Goods become cheaper to produce, which causes cyclic effect and increases consumption. Higher consumption correlates to higher production of trash and garbage. Evidently, average amount of trash each individual produces per day in U.S. is way more compared to other countries. Recycling is definitely the solution. However, recycling processes only recycle around 50-75% of what's consumed. Governments should aggressively discount waste management companies and promote excessive recycling. Governments could go further and use tax-dollars to achieve the golden dream of 100% recycling.

International trade imbalances force some countries to exploit more natural resources
A country with trade deficit has incentive to increase exploitation of natural resources to fill the gap. Greedier countries might cut down it's forests to create more short-term profits. Brazil is cutting down Amazon forest at a very fast pace. Brazil can survive in this competitive world market without selling ethanol. However, it wants to create more money. If Brazil never traded with any other country, then it might have the incentive to keep it's forests intact.

Bigger markets and fewer trade barriers increase the potential of free markets and make the civilizations better. However, creating bigger markets by opening up of international borders has huge environmental implications. The situation is exaggerated by the fact some of the environmental problems are global in nature and can't be solved at a national level.

Difficult to objectively measure benefits of environment friendly products
It's not trivial for Governments to come up with good incentives for corporations to create environment friendly products. Let's take the example of "Postal mail" Vs "Email". Automation of mail led to lesser consumption of paper and higher consumption of energy. How can the impact of paper on environment be objectively measured? How can the impact of computer server farms which provide email service be measured? Should we reward the product which helped reduce the deforestation? OR should we reward the product that consumes fewer energy?

Another example is maid Vs dishwasher. A maid can wash dishes just as clean as a dishwasher. Automation led to a situation where dishwasher is cheaper than hiring a maid. Capitalism led to increase in value of human capital, which in turn made hiring a maid more expensive.

Kyoto protocol is good but implausible
Kyoto protocol proposes a cap on carbon emissions for every country. Kyoto protocol puts onus of measuring carbon footprint on individual countries. This is like asking a student to grade himself. Trade imbalances and poverty drive countries to exploit natural resources at their will. Kyoto protocol works only if countries are also forced not to have trade imbalances. If there's no trade deficit, countries have incentive to provide their citizens cleaner air and water. It's economics which at the end of the day. So, make environmental rules which can play with economics.

Conclusion
Coming up with a formula for objectively measuring pollution footprint is key to the success of reversing pollution and global warming. Benefits of free markets should not be at the cost of screwing our planet. I hope, some day, market forces themseleves would provide a solution for this problem!

Hands-free earphones deter drivers' safety

When people talk over the phone, they have to multiplex brain processing between driving on the road and talking to person on the other side. People definitely don't split brain's time 50-50. Depending on the conversation & traffic, the percentage can tilt either way.

Now, let's compare between phone_in_hand and hands_free. When you are holding the phone, you hold steering with the other hand. The driver's brain is already in an alert mode that he has to concentrate on driving to not run into an accident. With hands_free, people can easily get carried away in their conversations.

The point that the driver holds steering with two hands when using hands_free makes the situation less safe.

Tata Nano and social responsibility

When Tata Nano was unveiled, not everyone in India was happy. Environmentalists said that it's a nightmare for already polluted Indian roads. Many Indians were concerned that Indian roads might get intolerably crowded.

Tata should rather be very well commended for their efforts. When available in market, Tata Nano would be the most fuel efficient car in India. It's not Tata's responsibility to control overall pollution levels in India. It's not Tata's mistake if everyone could now afford a car which in turn would make Indian roads crowded. It's Govt's responsibility to lay wider roads and build infrastructure.

As Milton Friedman said "Corporate social responsibility is fundamentally subversive". It's Tata's corporate responsibility to succeed in India's automobile industry. And, that's exactly what they are trying to do. If Indians are really worried about pollution (or) crowded streets, they should vote for legislations to fix the public transportation. There could be regulations to have higher minimum mileage for all passenger vehicles. But, Tata is not to blame for this!