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August 2004

July 2004

Morality, individual -- Moral relativism (subjectivism) requires objective belief in individual

Basis of morality is identify of an individual. Without agreeing to what constitute I vs rest, we cannot even start to talk about morality. From individual you derive natural rights starting with his/her body proper. And then if he/her mixes labor with any previously unowned natural objects then the that becomes the property of that individual. Thus, you derive individual rights and the concept of morality. Thus, morality is to me is simple: Thou shalt not steal, Thou shalt not commit murder and all individual rights that are consistent with the above principles.

If somebody says to me that he disagrees with this and each person could have his/her own moral philosophy then I would reply: what does he/she mean by "each person"? Unless you define an individual and his sphere of influence (property) you cannot even conceive of having subjective views.

Thus moral relativism itself require absolute belief in individual identity (otherwise what do you mean by "subjective" beliefs and views?).


Low fee Index funds vs Actively managed Mutual funds

Investing in low cost Index funds may not always be best. Over 300 actively managed funds have beaten S&P over the past 10 years while 1,700 funds outperformed S&P over the past five years.

Consider this:
On Dec. 31, 1964, the Dow Jones hit 874, and on Dec. 31, 1981, it closed at 875. Unless you did dollar cost averaging you would have gained nothing in 17 years. But investment in individual stocks could have been profitable.

There are many well known equity mutual funds, such as, Legg Mason Value Trust (FUND: LMVTX), which have beaten S&P 500 over last 13 years.

See the following fool article: You can beat the market


Transactions and imperfect information

Any transaction suffers from three imperfections in information available: only buyers know exactly what they want, only sellers know exactly what they are trying to sell and nobody knows what is going to happen in future.

There is nothing you can do about not knowing the future. For example, it is impossible to test all conditions beforehand and sellers themselves may not know how their product/service will work in the future.

In second case, in a free market economy, sellers can take advantage of their "inside" knowledge about the product/service they are trying to sell.

In a highly controlled economy, Govt. might control technical quality of the product (like ensuring few defects per se) but might make mistakes in understanding what buyers want. Or sellers can lobby the Govt. resulting in abuse of Govt. powers to limit competition. This is real danger and whereever Govt. is given such powers, we see either shortages or wastage. Not because products are of inferior quality but because producers produce what they can and not what buyers want (including unnecessarity high quality products).


Poorer Countries should take advantage of Farm Subsidies by Rich Nations

Latest news from WTO negotiation Third-world countries always protest against huge agricultural subsidies given by rich nations like US, Europe etc. They charge that subsidies are causing prices of farm products to drop, causing farmers in poorer countries to loose their livelihood. Without a hint of irony they cite these subisidies as example of exploitation by rich countries! These countries then go about erecting trade barriers against agricultural imports in the name of protecting their farmers. Given the fact that people in the poor countries are dying of hunger and malnourishment these protests against "cheap" imports do not make any sense.

Since, farm subsidies make farm products cheaper, poorer countries should welcome them. Poor countries should remove all import barriers against subsidized farm products without waiting for WTO negotiations. Subsidized farm products will reduce poverty and malnourishment and thus they should thank rich countries for the subsidies as they represent net transfer of wealth from tax payers in rich country to the poorest people in poorer countries.

Apart from solving the problem of poverty this will help poorer countries in other ways. Since, rich countries have already spent money on subsidies, less money is available for investment in producing other products. Increased demand for other products because of savings from food and freeing of resources employed earlier in production of subsidized farm goods should make it easy for poorer countries to develop competitive advantage in production of other products.

In short term farmers in the poorer countries will face losses as they have to discontinue production of subsidized farm goods. However, in poorer countries agricultural production is still done mostly manually. Thus, there is little capital investment to really go waste. Land can always be utilized for other purposes without loosing much invested value. Labourer in poorer countries are also unskilled as thus the transition represents a great opportunity to invest in developing alternate skills.

Developing countries cannot use excuse of farm subsidies to erect import barriers. That will not be retialiation against rich countries but actually against consumers in developing countries.

This is not to argue against free trade itself. I am against using one injustice to perpetuate another injustice against a third party (consumers in developing countries). And the point is that countries benefit by unilaterally dismanting trade barriers irrespective of behavior of other countries.


Real job is application of will power

Cafe Hayek: Correct Thinking is a Job:

Labor itself is a consumption (of energy) and thus a disutility. Labor acts on its input to transform them into something more valuable by mixing with them its 'mental' and 'physical' energy. Whether labor generates wealth or not depends on:
1) Luck -- Because of uncertainity of future, what labor has "produced" (transformation of inputs) may not be ultimately valuable. Good example, is burnt food.
2) Application of consciousness towards the goal -- Food might get burnt during cooking if one is not careful to continuously monitor it. This is function of will power. Ultimately, only thing that a "human" labor can really contribute is application of will towards a certain goal.


Threaten to send troops to Iraq to get hostages released

Abductors are asking countries to abundan Iraq in return for safety of hostages. Instead, we should threaten to send troops if hostages are not released.

Every time a country backs down from Iraq to ensure safety of their citizens held as hostages by militants militants feel enboldened. It has almost become a ritual and it all started with retreat of Spain after the Madriad train bombing. An Egyptian was freed following a pledge from his Saudi employer to stop doing business in Iraq and a Filipino trucker was released when Manila withdrew its small military contingent. An Egyptian diplomat was kidnapped recently in order to force Egypt to abandon any plans to help Iraq build security. Seven men -- three Indians, three Kenyans and an Egyptian were taken hostage in order to stop Kuwaiti company from doing business in Iraq!

There is only solution to this atrocity: threaten militants with sending troops to Iraq if they don't release the hostages. There is no point in playing their game. Let's seige some initiative and upper hand in this struggle!


Quality Education for Students and Secure Retirements for Educators :: AO

Quality Education for Students and Secure Retirements for Educators :: AO: Tying Educators Pension to Future Taxes from Students will provide tremendous incentive for Educators to improve Quality of Education and also provide great opportunity to secure Retirement of Educators


"Even with billions of dollars spent on Education at various levels of Government, quality of public education is still poor. Various remedies that were tried over last few decades like reducing classroom size, increasing teachers-student ratio, and investment in high-technology have not yielded significant results. Significant percentage of high school graduates still cannot read or write decent English. Situation in other areas like science and mathematics is scary. Educators fervently resist any effort to introduce accountability and performance based pay as this will increase political interference and reduce their academic freedom.

Quite different problem is that of securing the retirement for many working class people. Solvency of social security system is being threatened by rapidly declining workers to retiree ratio and imminent retirement of the baby boomers. What if we can solve the problem of quality education and secure retirement for educators all at the same time by tying educators pension to the taxes from their students? This will provide significant incentive to educators to maintain and improve quality of education. The improved quality of education will help students to earn more income as they go out into real world. Taxes from the increased income of the students should help secure retirement of the educators easily."
Also, see http://econlog.econlib.org/archives/000536.html


Taking Terrorism Bull by its Horn :: AO

The aim of the Terrorists, especially, "Muslim" extremists, is to bring rule of  "Islam"  to the Middle East and to the entire World. The Taliban style regime, which they want to establish would be very hostile to the interests of Muslim women. It will take away their freedom to own property, to educate themselves and to  work outside. The  "Muslim"  extremists consider themselves superior to women. Muslim women, being the prime target of  "Muslim" extremists, should have tremendous incentives to fight terrorism.

We should recruit more Muslim women in our intelligence agencies (as we have shortage of Arabic speaking agents), and military. Muslim women recruits will be extremely effective in places where terrorism is active, such as Iraq, Kashmir and elsewhere.  Imagine,  Muslim women law enforcement officers firing on Muslim extremists!  Such a picture will be a tremendous blow to the thinking of  "Muslim"  extremists that they are superior to women. It will also make fight against "Muslim"  terrorists an internal one: Muslim women against their oppressors. It will also give Muslim women a very good source of income and allow them to get training needed for leading financially and psychologically independent life. Thus, recruiting Muslim women in fight against terrorism will have effect of introducing more modernity in Muslim world.


More immigration is the right anti-dote to Outsourcing :: AO

During the dot com bubble, there was tremendous demand for IT professionals. Because of constraints on the supply of IT professionals (immigration controls), their salaries shot through the roof. This was also a major reason why DotComs failed.

Right now jobs are flowing out to India, China, and elsewhere in search of cheaper labor. Remember, US is the largest importer of foriegn capital and this capital can easily flow instead to India and China. Thus the question for US is not just prevention of erosion of existing jobs, but attracting incremental capital. That can only be done if labor market is flexible. Because of restrictive quotas on IT immigrants and requirement to maintain existing wages for immigrants, US labor market is extremely inflexible. Opening of Indian and Chinese economy for foriegn investment means that this hidden flaw in US labor market is showing its consequences.

Opening of US immigration will reduce the wages in US, but at the same time make the products and services cheaper. What's the point of earning high nominal wages if you have to shell out huge amounts for services of doctors, lawyers, accountants etc. ? Combination of low nominal wages and cheaper services will be much beneficial than high nominal wages and high service costs for everybody.
See also

See post on how technology is causing reduction in jobs


Move to 100% reserve banking to avoid bank runs and costly bailouts using taxpayers money

Yet another bank (GTB) has broken the public trust and Govt. has emabarked on yet another bailout at the expense of tax-payers!

The reason given for the riskiness of banks is low equity held by banks. Govt. is thus needed to monitor the risk undertaken by banks. But this is nonsense as the reason low equity is held by banks is because Govt. allows them to get away with fractional reserves.

Anatomy of The Bank Run explains clearly how a bank run happens. Basically, banks have to maintain only fraction of their depositors money at hand, even though they promise to redeem to the depositors his/her entire deposit balance on demand. Thus banks depend on the assumption that not all of their depositors will demand all of their deposit at any given time!

Now if banks have to maintain only fraction of their depostitor's balance, that means, they can loan the rest of the amount to their customers. Imagine, for every 100 Rs. of deposit at the bank, they keep only, say, 25 Rs. while loaning 75 Rs. to their customers. And this all the while promising to you that entire 100 Rs. is available on demand. Isn't this a fraud? A few bad loans and resultant loss of confidence in the bank will cause a "run" on the bank as depositors flock to the bank demanding their money back!

So, Govt. first creates this monster problem by allowing banks to hold only fractional reserves and then claims power and responsibility to regulate the banks in order to control the risks undertaken by them! Not to mention put taxpayers money at risk by constantly bailing the failed banks. If Govt. instead enforces 100% reserve requirements on banks there would be no need to regulate banking. No need to control the loan portfolio of the banks as depositor's money will always be backed by full 100% reserves.