The desire fir truth can clash with other motives. Material self-interest is the leading suspect, and social pressure for conformity is another force that conflicts with truth-seeking. In addition, some beliefs make us feel better about ourselves. Illusions endure because illusion is a need for almost all men, a need they feel no less strongly than their material needs.
Ordinarily, false beliefs lead individuals to take actions that would be optimal if the world were different. The private cost of an action can be negligible, though its social cost is high.
If agents care about both material wealth and irrational beliefs, then as the price of casting reason aside rises, agents consume less irrationality.
Rational irrationality implies that people have "demand for irrationality". The "quantity" is a degree of irrationality--the magnitude of the agent's departure from the unbiased, rational belief. The "price of irrationality" is the amount of wealth that agent implicitly sacrifices by consuming another unit of irrationality.
Neoclassical demand-for-irrationality curve: demand is a vertical line overlapping the y-axis, indicating an agent who has no desire to be irrational at any price.
4/08/2012
4/07/2012
Sweatshop
In the case “NIKE’s defense of its Vietnamese sweatshop”, NIKE faces the accusation that it exploits Vietnamese workers by providing bad working environment and infinitesimal wages. Some social groups and activists applaud Vietnamese government’s protection like minimum wage laws for domestic workers. They also call for American government to force NIKE and other multinational corporations to give workers higher wages and better welfare.
In my opinion, these arguments are wrong. One principle I learned from college is that good intentions can lead to bad consequences, and this motto can be applied in this case. Government’s protection is inefficient in enhancing workers’ well-being; it causes more inequality by creating favored groups and depriving people of rights to choose what they desire. Besides, those fervent humanists fall into economics fallacies and impose their own values upon Vietnamese workers.
Consequentialism contends that we should judge one action in virtue of its outcome. Minimum wage law is probably one of the worst laws ever designed and implemented because it causes huge loss to every group in society. When the Vietnamese government mandates minimum wage upon NIKE, it increases cost for NIKE to do business in Vietnam. NIKE, as a result, has to do something to cut the cost. In labor market, the demand for labor is highly sensitive to the change of price. Empirical researches show that on average when the price of labor increases by 1 percent, the demand of labor will fall by 3 percent. So it means that NIKE will have to hire fewer workers because of the minimum wages.
This is only part of the story. Minimum wage not only hurts employers, but also impairs the well-being of workers, whom the laws are targeted to protect. Welfare consists of wages and other subtle things like working atmosphere and health care. Now the wages are higher, it’s thus not unusual that workers will receive relatively less good working environment and health care coverage. In addition, more people will compete for fewer jobs because of the higher nominal wages, and the result will be that people bear more cost to get the jobs and more people stay unemployed. The reasons are straightforward: now that there are more applicants than job spots, people have to use other ways to get the job, either by waiting or bribing, but time is wasted for these unnecessary competition. So the minimum wage law is efficient because employers hire fewer workers, workers bear most costs to get the job and enjoy less welfare, and more people are rejected.
Some people may still argue that government should do something to protect domestic workers, but from my perspective, government’s intervention deprives people of free rights to choose jobs.
Think about why these Vietnamese workers continue to work for NIKE even though they complain that they can barely make ends meet. There are two possible reasons. First is that NIKE force workers to work for it, but that’s not plausible in this case because of the very presence of minimum wage law. One of the outcome of this law is that more people compete for fewer jobs, so company doesn’t have to stick to one particular worker: it has too many options. The second reason is: working for NIKE is the BEST option for these Vietnamese workers. In third-world countries, the alternative jobs may be prostitution, scavenging and smuggling. Compared with these jobs, making shoes in NIKE is less humiliating and more tolerable to Vietnamese workers. If the government allows its citizens to choose their jobs freely, these workers can decide whether to quit the job based on their own judgment of his situation. But with the government’s intervention, more people get unemployed, and thus they lose the chance to make comparison between different jobs. In addition, with the implement of protection laws, NIKE will find it harder to fire workers, and the bad side will be that NIKE workers are now the favored group of Vietnamese government: they get the job, and they aren’t easy to lose jobs. The irony will be that government intends to ask for benefit for its people, but it eventually creates more inequality than before.
At this point those compassionate social activists may step out, “Your argument is totally unethical! These Vietnamese people are living miserably without recreation and education. Isn’t it corporations’ social responsibility to enhance their well-being and make the world a better place? NIKE and other multinational enterprises must pay them higher salaries. If they don’t show social responsibility, we will boycott their products.” I admit that these arguments are charming, but I have to say these humanists have narrowed understanding about ethics and economics.
There is no company that is too big to fail, or there would not be drastic changes in ranking of profitable corporations every year. I agree with Milton Friedman that company’s priority is profit maximization and it’s important to minimize the cost. In the case of Vietnam sweatshop, NIKE seems to account for 5 percent of the Vietnam export, but it doesn’t mean NIKE dominates the market. Adidas, Reebok are all competitors of NIKE, and when they learn that NIKE earns great profit in Vietnam, they will invest in Vietnam and compete with NIKE. As long as the market is free, competition will force NIKE to give more attractive offers to hire Vietnamese workers, and thus Vietnam economy will develop. If we care too much about current benefit, the strict protection law may force companies to leave Vietnam. Similarly, boycott in the end impairs the benefit of third-world workers. Without enough work, these people will have no wages to support their families.
What about the ethics issues? Well, I think some of the Westerns are imposing their own values upon others, totally neglecting the difference in economy situations. Sure not very many people desire working hard in suffocating environment to make ends meet, but if we look back at how our ancestors survived by hunting and gathering, we can hardly believe that they had to worry about whether they could survive the winter. Third-world countries like Vietnam is poor, and it is even poorer when compared with developed countries like America. The difference of living standard will inevitably lead to different ranking of goods and services. What average Westerners take for granted, such as clean air, good education, may not be pivotal considerations of Vietnamese people. What they desire is food and less risky jobs. It’s unfair to force these people to judge things like Westerners do. Money is neutral and functions as medium of exchanges. It is physical goods and services that counts. And where do goods and services come from?
In conclusion, the condemnation of sweatshop is not convincing.
Voting
Rational ignorance occurs when the cost of educating oneself on an issue exceeds the potential benefit that the knowledge would provide.
Ignorance about an issue is said to be "rational" when the cost of educating oneself about the issue sufficiently to make an informed decision can outweigh any potential benefit one could reasonably expect to gain from that decision, and so it would be irrational to waste time doing so. This has consequences for the quality of decisions made by large numbers of people, such as general elections, where the probability of any one vote changing the outcome is very small.
Probability multipliers: make sentences tougher as the chance of being caught declines.
Anti-market bias
a tendency to underestimate the economic benefits of the market mechanism
People focus on the profit motive of the companies and neglect discipline imposed by the competition.
Business profit appears to be a transfer but benefits society; business philanthropy appears to benefit society but is at best a transfer.
Anti-foreign bias
a tendency to underestimate the economic benefit of interactions with foreigners.
The law of comparative advantage shows that mutually beneficial international trade is possible even if one nation is less productive in every way.
The prejudice stems from misidentification of money and wealth. The fallacy is not to treat all purchases as a cost, but to treat foreign transactions as a cost.
Make-work bias: a tendency to underestimate the economic benefits of conserving labor.
Pessimistic bias: a tendency to overestimate the severity of economic problems and underestimate the past, present and future performance of the economy.
Public lacks perspective.
4/03/2012
Government meddling with money
Governments don't obtain revenue like any other organizations as payment for their services, so they have different objectives and incentives. Inflation creates a tinsel atmosphere of prosperity.
Hyperinflation （恶性通胀）can totally destroy a country's economy.
The first phase: people face increase of price and respond to that: buy less now and wait for price to low, and at the same time demand more money.
Second phase: The price keeps soaring, now people buy things based on the expectation that price will only be higher. Price goes higher.
Third phase: government is forced to do something to relieve the price soaring by printing money, exacerbating the inflation.
Fourth phase: supply of money greatly surpasses demand of money, money loses its function as a medium of exchange, as a result it will be abandoned--in other words, it loses the credit.
The fatal problem with bimetallism:
Gresham's Law
Government mandates the ratio of two money, namely gold and silver. If the ratio is 1/20, it means that 1 ounce of gold is equal to 20 ounces of silver in value of exchange. But we all know that the actual value ratio is ever-fluctuating, so it is not unusual that the actual ratio deviants 1/20, which means one kind of money is overvalued and the other undervalued. But the fluctuation of price may make one situation happen: gold and silver become popular money alternatively. Finally the government has to adopt one medium of exchange, say, gold, and that will mean people who possess silver as money are now worsen off, they cannot use silver to trade stuff. The society is worsen off.
Hyperinflation （恶性通胀）can totally destroy a country's economy.
The first phase: people face increase of price and respond to that: buy less now and wait for price to low, and at the same time demand more money.
Second phase: The price keeps soaring, now people buy things based on the expectation that price will only be higher. Price goes higher.
Third phase: government is forced to do something to relieve the price soaring by printing money, exacerbating the inflation.
Fourth phase: supply of money greatly surpasses demand of money, money loses its function as a medium of exchange, as a result it will be abandoned--in other words, it loses the credit.
The fatal problem with bimetallism:
Gresham's Law
Government mandates the ratio of two money, namely gold and silver. If the ratio is 1/20, it means that 1 ounce of gold is equal to 20 ounces of silver in value of exchange. But we all know that the actual value ratio is ever-fluctuating, so it is not unusual that the actual ratio deviants 1/20, which means one kind of money is overvalued and the other undervalued. But the fluctuation of price may make one situation happen: gold and silver become popular money alternatively. Finally the government has to adopt one medium of exchange, say, gold, and that will mean people who possess silver as money are now worsen off, they cannot use silver to trade stuff. The society is worsen off.
Money in a free society
When society expands beyond a few families, the emergence of money is necessary and inevitable. Exchange is the prime basis of our economics life. Exchange occurs only because different people have different values on goods.
Exchange is inevitable because no one is omnipotent and omniscient. Specialization allows man to develop his best skills and gain benefit from his comparative advantage over others on what he masters. Autarky is the road to starvation and death.
The two problems with barter are: the indivisibility of certain goods and non-coincidence of what people want.
Since problems harass direct exchange, people figure out indirect exchange. We need a medium of exchange. For something to be a desirable medium of exchange, it should be marketable, i.e. it should be desired and wanted by most of the people. That is money. Based on this concept, it is clear that money should be connected with the cumulative development of a society, government has no rights to control the money to control people's economic activities.
Money is a commodity and price is the exchange ratio, somewhat accurately expressing people's value on that good. (I say somewhat because price is an average of all people's value on that particular commodity, but even that price is still an important gauge of how we value things.) Money is neutral, functioning as the medium of exchange.
Golds are traded in units of weight. How much money do we need? One problem with gold standard: if the supply of golds increase, the price of money may fall, and thus people will be worse off.If gold is simultaneously treated as money and real commodity, then we may get confused. Money's value lies in its exchanging function, not with its physical abundance.
Under current system, hoarding is actually good for others. Fiat money is intrinsically useless, what counts are goods and services.
The price of the money is its purchasing power in terms of all goods in the economy, and thus is related to the supply of the money.
Exchange is inevitable because no one is omnipotent and omniscient. Specialization allows man to develop his best skills and gain benefit from his comparative advantage over others on what he masters. Autarky is the road to starvation and death.
The two problems with barter are: the indivisibility of certain goods and non-coincidence of what people want.
Since problems harass direct exchange, people figure out indirect exchange. We need a medium of exchange. For something to be a desirable medium of exchange, it should be marketable, i.e. it should be desired and wanted by most of the people. That is money. Based on this concept, it is clear that money should be connected with the cumulative development of a society, government has no rights to control the money to control people's economic activities.
Money is a commodity and price is the exchange ratio, somewhat accurately expressing people's value on that good. (I say somewhat because price is an average of all people's value on that particular commodity, but even that price is still an important gauge of how we value things.) Money is neutral, functioning as the medium of exchange.
Golds are traded in units of weight. How much money do we need? One problem with gold standard: if the supply of golds increase, the price of money may fall, and thus people will be worse off.If gold is simultaneously treated as money and real commodity, then we may get confused. Money's value lies in its exchanging function, not with its physical abundance.
Under current system, hoarding is actually good for others. Fiat money is intrinsically useless, what counts are goods and services.
The price of the money is its purchasing power in terms of all goods in the economy, and thus is related to the supply of the money.
4/01/2012
The truth and myth of NGOs
Due to the accountability environment in which NGOs operate (i.e. how NGOs interact with their donors) they have literally been rendered unable to claim any such immunity, i.e. ineptitude, callousness and corruption—the entire market is subject to rank inefficiencies due to the way it operates and accounts.
The disempowerment of NGOs stems from the entities—people, corporations, or governments—that give them money.The first inefficiency is the inability for NGOs to consistently determine success. NGOs are supposed to act as intermediaries between donors and project beneficiaries. However, since the donor market has no standardized way of defining development goals, determining NGO partners, or deciding on resource allocation, NGOs have no standardized way to account for their activities. This leads to a vast spectrum of project quality without the ability to determine effectiveness, especially since comparison to private and public markets is, by nature, discouraged.
To continuously attract the donors, NGOs intend to put more of the money into short-term effective programs. Their different incentive from private companies is the source of inefficiency.
The disempowerment of NGOs stems from the entities—people, corporations, or governments—that give them money.The first inefficiency is the inability for NGOs to consistently determine success. NGOs are supposed to act as intermediaries between donors and project beneficiaries. However, since the donor market has no standardized way of defining development goals, determining NGO partners, or deciding on resource allocation, NGOs have no standardized way to account for their activities. This leads to a vast spectrum of project quality without the ability to determine effectiveness, especially since comparison to private and public markets is, by nature, discouraged.
To continuously attract the donors, NGOs intend to put more of the money into short-term effective programs. Their different incentive from private companies is the source of inefficiency.
Issues about Corporate Social Responsibilities
It looks like there are six hot topics on the corporate social responsibilities:
(1) Environment issues. (Generally, the negative externalities)
(2) MNEs (Multinational enterprises) whether they take the advantage of developing countries' flaw in law system to do business unethically.
(3) The development of stakeholder theory (that is, we should care about the public interest rather than making profits)
(4) globalization
(5) the impact of NGOs (non-government organizations) the so-called "public interest" group
(6) anti-corporation campaigns
Corporations and companies now face rigorous scrutiny. Thus companies are forced to adapt to the new situations in order to make future profits.
The costs and risks of corporate social responsibility
Those who advocate CSR disregard the consequent higher costs and fewer profits; they overestimate the number of people who also desire the things they fight for; and the advocates intend to impose their opinion and value upon others.
For companies, one most probable result of adoption of CSR is the higher cost of doing business.---or in other words, the performance of the enterprises will be impaired.‘Stakeholder engagement’ and‘implementing the triple bottom line’ could both prove costly exercises
Further decreases in pollutants may involve extremely high costs but only a
small improvement in air quality. For the environment mania, put them into Amazon forest.
Countries and regions differ widely in their physical and geographical characteristics, in levels of productivity and income perhead, and in the tastes and preferences of their people. Norms,standards and regulations, whether statutory or self-imposed by enterprises, should be allowed to reflect such differences. Insistence on cross-border uniformity may involve heavy costs which
bear chiefly on ordinary people.
Regulations and codes, whether imposed by public authorities or decided on
by big companies or groupings of firms, can reduce economic freedom and deprive people of opportunities.
Example: Minimum wage laws
Such a regime is anti-liberal, because of the ways in which it violates the principle of freedom of contract–the principle that people should be free to enter into non-coercive bargains and arrangements for mutual gain.
Among the freedoms that a market economy provides is freedom on the part of a large enterprise to decide for itself, within the limits set by legislation, what its ‘human resources’ principles and policies should be.
Some people may argue that multinational corporations should show developing countries people how to do the business by treating them well. For these people, the key to the economics progress is simple: big companies become philanthropists.
Companies have no democratic legitimacy ...[while] the NGOs ... have no more democratic legitimacy than we do ...
(1) Environment issues. (Generally, the negative externalities)
(2) MNEs (Multinational enterprises) whether they take the advantage of developing countries' flaw in law system to do business unethically.
(3) The development of stakeholder theory (that is, we should care about the public interest rather than making profits)
(4) globalization
(5) the impact of NGOs (non-government organizations) the so-called "public interest" group
(6) anti-corporation campaigns
Corporations and companies now face rigorous scrutiny. Thus companies are forced to adapt to the new situations in order to make future profits.
The costs and risks of corporate social responsibility
Those who advocate CSR disregard the consequent higher costs and fewer profits; they overestimate the number of people who also desire the things they fight for; and the advocates intend to impose their opinion and value upon others.
For companies, one most probable result of adoption of CSR is the higher cost of doing business.---or in other words, the performance of the enterprises will be impaired.‘Stakeholder engagement’ and‘implementing the triple bottom line’ could both prove costly exercises
Further decreases in pollutants may involve extremely high costs but only a
small improvement in air quality. For the environment mania, put them into Amazon forest.
Countries and regions differ widely in their physical and geographical characteristics, in levels of productivity and income perhead, and in the tastes and preferences of their people. Norms,standards and regulations, whether statutory or self-imposed by enterprises, should be allowed to reflect such differences. Insistence on cross-border uniformity may involve heavy costs which
bear chiefly on ordinary people.
Regulations and codes, whether imposed by public authorities or decided on
by big companies or groupings of firms, can reduce economic freedom and deprive people of opportunities.
Example: Minimum wage laws
Such a regime is anti-liberal, because of the ways in which it violates the principle of freedom of contract–the principle that people should be free to enter into non-coercive bargains and arrangements for mutual gain.
Among the freedoms that a market economy provides is freedom on the part of a large enterprise to decide for itself, within the limits set by legislation, what its ‘human resources’ principles and policies should be.
Some people may argue that multinational corporations should show developing countries people how to do the business by treating them well. For these people, the key to the economics progress is simple: big companies become philanthropists.
Companies have no democratic legitimacy ...[while] the NGOs ... have no more democratic legitimacy than we do ...
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