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Archive for the ‘Economics’ Category

The fairest of them all

For all our notoriety about being unemotional, unsocial, and unfeeling, economists have a preoccupation with issues of human happiness, at least from a theoretical point of view. One of the things we obsess over is something that we haven’t quite solved, which is the concept of fairness.

Recently, issues of fairness came up in the form of the sport that I love, where the debate is over prize money: should men and women get equal prize purses when there are less women competing? Since this is exactly the kind of thing I do for a living, this kind of philosophical question is going to drag me into dangerously nerdy territory.

The problem of the pie

Distributional issues involve trying to split two different ‘pies’: either I’m trying to divide up the costs of things between various people, or I’m trying to divide up wealth.  It is essentially the same thing; let’s focus on the cost allocation question in the simple example of postal services, good old fashioned letters you write with your hands. It becomes complicated when:

  • There are different kinds of costs. Some costs exist even if nobody sent any letters and are fixed (the rent on the storage buildings), and some are costs based on the sender/recipient (the gas for the trucks that need to drive out to the postal locations) and some are based on the number of letters (the number of workers at the postal processing centre).
  • Every letter costs something different. Some people are sending letters from London, to London, and others are sending them from the Shetlands to Fattiehead (I looked that one up, it DOES EXIST, lol – it was probably the least offensive English town name on the list of weird English town names). The cost for the storage buildings is the same for both letters but the truck that drives from the Shetlands to Fattiehead, the cost is much greater.

The question appears when you decide how to set the prices, because the costs need to be recovered from people who are sending letters. There are two extremes:

  • Everyone for themselves. One way to do it is if everyone pays the amount to send the letter that it costs the post office to send it.  That means services provided in central London are dirt cheap, and ones in the Shetlands are very expensive.  In a related example, if the cost of goods is reflected in the cost of shipping it wherever it needs to go, this explains why costs of food are several times higher in remote parts of Canada, where the price reflects the actual cost of getting food to those remote locations.
  • Smear the cost equally. Another solution is to charge everyone the same thing, regardless of if they are sending a letter from the Shetlands or central London. This means that letter senders in London are subsidizing service in other parts of the UK by covering more than their share of costs.
  • Some kind of compromise. Maybe the charges are done by zones; the same base charge for everyone, but ones that are north of central England pay a fixed higher charge. There are a variety of ways to design a system of postage stamp prices which would be somewhere between totally uniform prices and totally unique prices.

The problem has problems

There are major questions which need to be answered in designing a good way to cut the pie.

What about the different needs of different people? London has a significnatly higher level of income per capital than more remote parts of the country. Maybe access to electricity, internet, and postal services is poorer outside of Southeast England and these services are needed in order to encourage development. Should a concern for need mean that those who have lower costs shoulder a larger share of the burden?

What’s going cause the least interference? Economists are super concerned about ‘distortion’, and try to minimize the ways in which any cost or tax policy deviates from what would naturally happen in a market. This means that there is a certain pressure to maintain a cost structure that reflects what costs users of the system are actually incurring. According to the Ramsey rule for optimal commodity taxes, the most efficient way to design a tax system would be to impose the highest level of tax on things that people really need (milk and bread), and the lowest on things that are optional (luxury vehicles). (This is sometimes considered super unfair and will be discussed later). If the postage cost is the same across the country, then this may encourage more people in remote places to use post (increasing the cost to the system) and cause those in low cost areas to look for other ways of getting letters delivered (lowering the amount of subsidizing users). The gap in available funds to cover the cost is caused by the way the pricing encourages people to behave in ways they otherwise wouldn’t.

What’s efficient? Efficiency is considered in the sense of who would make the best use of a reduction in postage cost. Maybe the businesses in London are larger and more important for overall productivity than remote firms. Making the productive firms subsidize the cost means they have less available funds for other investments.  Also, maybe the postage system doesn’t *want* to encourage people to set up shops in the Shetlands, since that would be expensive, and keeping the price of business down in London would encourage more people to locate their businesses in the same place. Efficiency and distortion are often related concepts.

What is politically palatable? UK postal provider Royal Mail actually does have a Universal Service Obligation to serve everyone and charge an equal rate. This is done for both political and fairness reasons, which are often intertwined.  It is hard for a policy to publicly justify charging or taxing different groups differently, and society may have an innate concern for fairness and the protection of minority/vulnerable groups. This may mean that society is willing to forego a certain amount of efficiency or undergo a level of distortion to achieve a fairness aim, although the concepts of fairness, efficiency, and distortion don’t necessarily have to be at odds. For example, even though Ramsey would suggest the best way to tax goods is to tax basic necessities higher than optional luxury goods, it may be hard to sell such a policy to a group of poverty-sensitive voters.

What’s easy? In another example, electricity grids, and the generators that flow electricity through these grids, are often owned by two or more different sets of people. In order to determine how much to charge a generator for the use of its grid, the grid operator would need to know where power is being introduced/drawn out of the grid, in what levels, at what locations, the cost of the grid, and all of this would need to be measured in real time. The different cost that one generator imposes depends on every other user. Also, this would need to be *predicted*, as they are probably paying a price now and we don’t know where the power is actually going. The measurement of this is no small feat of mathematics and engineering, and it takes more money and effort to figure out how much to charge users than simply adding up the total and dividing by everyone. At the end of the day, after the debates about fairness, efficiency, etc, the real deciding factor is often which way is the cheapest way to figure out how to cut the pie.

What to actually do?

Out of the three ways to divide costs (everyone for themselves, smear the costs equally, or compromise), one seems to be more immune to public scrutiny than the other two, which is to just promise equal costs.  Is this absolutely the fairest, most efficient system based on the different needs of the people? Probably not in all cases, but it does not open the pie-cutting process itself up to scrutiny. For example, if everyone were to pay a different cost of postage based on a different cost of delivery, trying to identify everyone’s costs will be difficult; what about the always changing price of transport? What happens if two neighbours in a remote town decide to send letters on the same day? Does the price get halved? The pricing structure would need some kind of a system for justifying differences in pricing in order to avoid accusations of arbitrariness and unfairness.

Out of all the ways to allocate costs, there are winners and there are losers, and if the losers know they are losing, they may cry foul. While its  potentially better to think about what’s an efficient, non-distortive way to split costs, sometimes the easiest thing to do is to give an equal share to everyone unless there’s an extremely compelling reason to do something differently. It better be damn compelling. All the competing factors play may have legitimate arguments in favour of one way of cost splitting over another, but we live in a world where political palatability and doing something convenient/feasible tends to win out over other kinds of reasoning. Want to have a sports tournament? Pay gender divisions equal prizes. Don’t want to do that? Be prepared to show everyone the math you have done. Don’t have any math? See the first suggestion.

The biggest lesson you can probably draw from this is that economists spend a lot of time trying not to upset people that we allegedly have no feelings about.

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And in great timing, at work today we were talking about how to calculate option values correctly, and what it means for something to have an option. An example came up about prime number theory. I’m not sure what this means, since I can only be bothered to do a basic Google which tells me nothing, but from what I gather it can be one of two things:

1) There are an infinite number of prime numbers. The proof for this goes something like, if there were a finite number of primes, and the last one was n, then you could multiply all of the prime numbers up to n by each other, add one, and have created a new number that is indivisible by any of the prime numbers you just used.

2) Large numbers are really hard to factor, even for computers, because there is no way to do it elegantly.

Nobody really thought there would be any use for prime numbers, except basically people who like to do math for fun. Math hobbyists. The eventual value of primes was uncovered after it was discovered that they could be incredibly useful for encryption, and voila. The option value of playing with numbers.

 

 

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Centres of Gravity

So, I actually passed math!

Well, most of it.  Macroeconomics was my weakest section by far, but given the fact that I went from 0 knowledge in the area to kind of sort of understanding the mechanics of the Bellman (but not even coming close to a deeper comprehension of the Hamiltonian) is enough for me.  New standards!

So I dropped out of the required economics course for my degree and moved onto something that seems a lot more scary challenging.  Macroeconomics and Political Science are my two favourite courses so far (I only have four, so I guess it is redundant to say I like half of my courses more than the other half) and macro has presented me with some new ideas which are interesting, open for discussion right now, and in the process of happening.  How often can you say that about science?

Danny Quah (economics rock star extraordinaire) is our lecturer right now and presented us, on the first day, with an interesting illustration of the “average location, on earth, where the dollars are happening” – also known as the Economic Centre of Gravity.  It used to be somewhere in the trans-Atlantic, but is slowly moving to a place that’s *ahem* a bit further east.  Look at the prediction.

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So it starts out between Western Europe and the States (because that’s where everything was happening 30 years ago, but as Asia continues to rise, the average location of output starts moving East.

It’s weird to think about the implications of this.  I’ve never really given serious thought to what the changes mean; will trade start happening in a different currency?  Will children be learning a different language?  In fact, will parents send their children to universities in China?  Will trade happen on China’s terms more-so than it does now?

Just think about all the assumptions you’ve become accustomed to in your lifetime knowing that the United States, like it or not, is the global centre of cultural, economic and military power.

Professor Quah then moved on to the difference between “hard” and “soft” power.  It can be argued that even if China rises economically and develops military influence, they still will not be able to attain the “soft” power that the United States has, the ability to influence ideas and culture.  People in China still look up to American culture in ways they don’t even realize.  The music videos are very much modelled after American MTV culture.  Pizza Hut and Macdonalds are huge.  Starbucks has taken over every major city.  In a more important way, America will still retain a type of cultural influence over global policy in areas like its insistence on personal liberties and free-markets.  These are things that money cannot erase too quickly.

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So, if China cannot acquire soft power, then for a while, the world will have to divergent centres of of gravity, one which is economic and one which is cultural and public policy oriented.  The world has really only ever seen one centre of gravity (think about Britain and then the US).  Does that mean that holding the economic power will pull cultural influence towards the east as well?  Or maybe this time is different, and we will see a more permanent fracturing between the East and West?

I’m not entirely sure that China has the power, as of yet, to much influence cultural capital the way that the United States has.  China has so far been an amazing copy-cat, from technology to fashion to media. But imitation does not an innovator make.  In fact, the plagiarism is an implicit acceptance of America’s role as the cultural centre of the world; if it was not so influential, China would not lap up American ideas with such eagerness.

In order for China to unify the hard and soft centres of gravity, it would need to do something it has not done in very long; innovate.  I’m not sure what this would look like, or how they would achieve this, but without it, it is seems inevitable to see this sort of fracturing between the two kinds of power.

After all, it’s hard to copy someone, when you are supposed to be ahead of the game.

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River of Assimilation

A couple of weeks ago, Tetsuro read me part of a paper that he was going to submit for a class.  The paper was supposed to be on Youtube, but basically kind of took a bit of a detour into some of the inner workings of his mind and ended up sounding like a bitter, vitriolic rant against certain types of interracial unions that are quite common today.  While I tried to steer him back towards the original point of the paper (namely, Youtube, and that’s it) there was a section that I found particularly poignant.  In the revision, this section was lost, but I think it is important enough to be published publicly and shared with people for the greater good.

Despite the promises of Multiculturism, the fate of cultural minorities within Canada is to have our jaggedly multisyllabic ethnic identities worn smooth in the river of assimilation.

My mother’s name is Yoshiko Shigematsu, an unmistakably, unadulterated Japanese name. Her daughter’s name (my twin sister) is Hana Shigematsu, (that user-friendly familiar combination of a Western first name combined with the ethnic surname, such as Steve Chong or Jennifer Sahota), who upon marrying her French-Canadian husband, became Hana Levesque, whose daughter’s name is now Juliana Levesque. In just two generations, any legal signifiers of her Japanese heritage as now been effaced, effecitively removed from the public record. When my niece, Juliana Levesque (who is half-Japanese) introduces herself over the phone, people will assume she is white, and in a way that assumption is accurate. 

– Tetsuro Shigematsu, PhD Candidate, UBC Faculty of Education 

My Name Is . . .

And that had me thinking about the way we choose to name our children, particularly people of colour and immigrants.  My own name was Mengyao for the first few years of my life, a combination of “dream” and “distance” in Mandarin that was an homage to my father’s living in Canada at the time of my birth, scouting out a new country for my mother to eventually call home too.  Then before the age of four or five my parents decided to name me Rebecca because my white daycare workers could not pronounce “Yaoyao” in a way that I could understand.  Rebecca because my father read a Daphne Du Maurier novel by the same name in which the protagonist is haunted by the dead former wife of the man she marries (that dead woman is Rebecca, thanks Dad).   For years I wouldn’t touch my first name legally, and after a particularly stressful incident booking tickets to Costa Rica in 2008 under passport and legal names (which were different at the time) the decision was made to move to Rebecca as my first name.   Sometimes, I still ponder the greater ramifications of what I have done in the name of a bit of convenience (no pun intended).

Signalling

Mengyao has more weight for me than Rebecca, but I made a choice.  In economics, we have a theory called signalling.  Signalling is all about how in situations involving two parties, party A might know more about himself than he can communicate to party B, but needs to find a way to convey this information.   In these cases, party A will jump through certain hoops.  Signalling is an important theory in used car sales (is the car a lemon or not) and in hiring individuals (is the individual’s resume accurate or not).  An example of this is when people get university degrees *points at self*.  The idea is that even though the likelihood of using the information from my degree is low, my degree itself is a signal to other strangers that I am indeed, smart.  If I didn’t have this degree, you wouldn’t know it.

And so in North America I think that people of color generally do use signalling with our first names as a way of letting those around us know how comfortable they should be with us.  If your last name is of Asian descent, then your first name can be a traditional white name (signalling that you have assimilated reasonably into the culture, thereby your more anglicized counterparts should feel comfortable inviting you to picnics, sharing office gossip or letting you be their “cool Asian friend”) or your first name can be Asian (which signals that you are still more loyal to your traditional Asian roots, and therefore your peers, culture and comfort levels should be more centred around Asian-y stuff).  When I was looking at the graduation lists a few years ago, I noticed that some Asian students would have their English name first legally, followed by an Asian middle name, or an Asian name first legally, followed by an infrequently used English name.  Implicitly, I make micro-assumptions based on which one comes first, as I’m sure most people will.

The Benefits of Having an English Name

If you have read Freakonomics, it will have you believe that with a name that sounds “ethnic”, you are significantly less likely to be called back for an interview, given the job, or basically to succeed in life.  I can see some truth to this.  I was once told that the hiring process for residence advising did happen to weed out girls with Asian first names; whether or not this was done intentionally, these girls never seemed to make the cut.

In a more depressing way, having an English name in North America determines how much society is supposed to show concern for you.  I’ll give you an example.  In the 2010 Gaza flotilla raid, an American citizen, Furkan Dogan, was killed by Israeli forces with five gunshots at close range.  In 2003, an American citizen, Rachel Corrie, was killed by an Israeli military bulldozer during a human shield protest.  In terms of the publicity covering their deaths at the hands of the Israeli military, and American diplomatic involvement in each of these cases, AND in even the length of their wikipedia articles (you can find them here and here), you can see a stark contrast between the two.  I do suspect that a lot of it has to do with the “level of ethnic-ness” in their names, in the sense that something that isn’t English sounding isn’t considered American, and therefore is not of much concern.

Tetsuro once pointed out that even in the Olympics, the American coverage of Asian American athletes winning medals would sometimes diminish the magnitude of their achievements when these athletes had Asian sounding last names.  When I reflect back on this, I think Canada has much of the same problem; I didn’t know that Carol Huynh was the first gold medal winner for Canada at the Beijing Olympics until I read about her in a proposal to the National Film Board; considering we didn’t  have that many gold medalists that year, you’d think she would be profiled much more highly.

The Choice

And so this post boils down to the choice.  When you are a person of colour and your options are such that the road can be generally divided into two: choosing a name (for yourself or your children) that is Anglo-sounding and will result in better assimilation, or a name that pays homage to your cultural roots, then what is it that you do?  I know my parents eventually  bowed to pressure, and to this day they don’t regret renaming me Rebecca because they wanted me to have the best chances I could.  In other ways though, being Rebecca roughly coincided with when I stopped being Mengyao (when preschool started and I spent more and more time away from home).  The passage in the beginning of this post also makes me sad to think that entire generations of second, third generation children of immigrants, biracial children, etc, are being denied entire sections of their cultural identity.

Ultimately, I don’t have any easy answers for this.  All I can conclude is that we let our identities dictate the name that we choose for ourselves into adulthood, rather than letting our names dictate our identities.  And since none of us are so single-faceted, it’s our job to vocally advocate for the side of ourselves that isn’t represented in our first names.  It’s up to me to be self-aware of what makes me Chinese and to hold onto those things, even if I don’t sign Mengyao on all my credit card slips.

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Pizza as a Vegetable

Sorry that I’m missing.  My life has been taken over by self-admittedly selfish activities such as working out way too much, drinking, and otherwise being a burden on society.

Everyone knows I am a fat kid at heart.  Don’t let my svelt 113 lbs fool you.  I swear to God, I’ll order the onion rings and feel no guilt about it either.  There is an emergency cookie dough ball supply in my freezer right now, just waiting for the rainy day when they will get popped in the oven.  But even though I love all things butter/cheese/chocolate/bacon-laden, the story below is ridiculous.

If you haven’t heard last week:

Pizza keeps vegetable status on school lunch menus; House rules

That’s right.  Two tablespoons of tomato paste are enough even though a half a cup is a full serving.  I’m not sure if this is on a slice of pizza or the whole thing, but let’s give Congress the benefit of the doubt and assume they are talking about each slice.  This means one slice has roughly one quarter of a serving of vegetables.  If we are talking about the paste requirement covering (no pun intended) the entire pizza (assuming eight slices), that’s each slice having about three percent of a vegetable serving.

This is hilarious. But it also illustrates a failure of the government to do what they should be doing all along.

The free market (and people’s tastebuds) dictate what food products become successful, and there is no doubt in my mind that pizza is delicious enough to survive in the face of school lunch program regulations.  There will be junk food enthusiasts (like me!) who love pizza in all its greasy, cheesy goodness.  However, the role of government is to ensure market efficiency.  That market efficiency includes an obligation to account for long-term societal costs, to internalize those costs and to spit them out in some sort of society-protecting regulation.  That’s why alcohol and tobacco are heavily controlled and you can’t walk around killing people.  Pizza leads to childhood obesity, a cost that the government should have factored into its decision making process, knowing that the processed food manufacturers had no private interests to do this themselves.  The government’s role in the free market should be (IMHO) to therefore include these costs in producing school lunch regulations that protect students’ long-term health, to a reasonable degree. Within those options, students are obviously free to choose what tastes good to them, but at least then it wouldn’t be open season on their pudgy behinds.

What we have here is not only a blatant unwillingness to account for those costs and do what regulations were designed to do, but also an errant lesson in the science of what counts as a vegetable.  What are kids going to think now?  Is Kool-aid a fruit?

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Political Cowboys

One of the petitions currently going around Canada-land is the one condemning Stephen Harper’s changing of the official language on just about everything, from the “Government of Canada,” which is now the “Harper Government,” to “gender equality,” which is now “equality of men and women.”  From inflammatory to downright clunky, he’s managed to continue to ruffle the feathers of approx 2/3 of the Canadian population, and he does this from his comfortable minority government.  Personally, I’m not that offended that he now decides to refer to the government as the “Harper Government”; after all, statistically more than half of Canadians, and many feel that he is embarrassing us internationally, so really, he isn’t representative of Canada.  If anything, he’s just being honest about it?  Anyone with me?  . . . no?

On to the real point of this.  Regardless of how you or I may feel about Stephen Harper, he’s one of the more interesting political figures to hit Canada since that Shawinigan Handshake.  In Canada, having interesting political figures is most often some kind of a myth.  Having likeable ones is out of the question.

Look at America.  Everyone in office, and many notable contenders seem to draw a lot of polarizing opinions.  There’s scandals and conspiracy theories and reality tv deals, and illegitimate children, and statements about the incarceration of homosexuals . . . watching the election season is like watching a tv drama unfold.

Just think of Sarah Palin. Nuff said.

How, the interesting thing about recent politics is that it really hasn’t fit the idea of Hotelling’s principle in the last few years.  Theory will tell you that in a two party system, ideologies migrate towards the centre in a strategy to attract the most voters.   The idea is based on several assumptions, but lets pretend that a party is a shop and we are on a 1 km street.  The street represents the range of political opinions of the masses, and in general it is evenly distributed from east to west.

very liberal <————————centrist————————–>very conservative

In an ideal situation, the parties both set their platforms in the middle, one slightly to the right and one slightly to the left.

So why in both places are we seeing a rise in the number of controversial figures with more extreme views?  Maybe one of the original assumptions is wrong.  At least in Canada, Harper’s success can be partially attributed to more than one party being in the mix.   But the States has a clear two-party system.

Are people really distributed along the spectrum evenly?  Is there a gap in the centre?  A lot of things influence political opinions in America: geography, country of origin, race, income, you can go on.  Assuming that the distribution is even may be the problem.  Perhaps changing immigration patterns is causing individuals to shift their ideologies in a particular direction, and this creates a gap in the spectrum.

Either way, it makes for good dinner fodder.  Is this the only way to get people interested in what is going on?

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One of the first events that set in motion the birth of this blog was the Tedx Terry Talks conference way back in October (nerd-central to the maxxx).  I was so excited about being able to cross of something from my list of “UBC things I have one year left to do” that I forgot to come up with an actual idea.  Well, application to talk turnover was about 2 weeks, so with that in mind, I was pretty sure it would go horribly, and I was ready to bury it in the back of my head afterwards.   It went up today, and actually, it doesn’t look as bad as I thought it would.  I also realized that I’m getting used to seeing myself on camera.

It’s essentially the story of how environmentalism is a first world luxury.

And Shiggy’s.  I had to follow his unfortunately and was the walking non-tradiction. 😦

Now I’m awesome though.

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