Category Archives: Meandering Mind

The Invisible Hand in a Global Economy

In The Wealth of Nations, Adam Smith introduced the concept of The Invisible Hand. Buchholtz puts it this way: “…market competition leads a self-interested person to wake up in the morning, look outside at the earth and produce from its raw materials, not what he wants, but what others want. Not in the quantities he prefers, but in the quantities his neighbors prefer. Not at the price he dreams of charging, but at a price reflecting how much his neighbors value what he has done.” In other words, this self-interest drives creation of something of benefit to someone else – and to society in general!

The Invisible Hand, in a sentence, states that “The market place will not support a business that does not proffer a good or service that is more valuable than the sum of its raw materials.” In other words, if it costs you $50 to make a table but nobody will buy it for more than that, you go out of business and the resources are used by someone else. This is actually a preservation of scarce resources in a more efficient way than any central planning committee could manage!

That’s a policy that is more relevant in our times than “from each according to his means, to each according to his need.” For right now, many of us are living beyond our means and we are all in need of something. In our global economy, as our society of consumers grows and diversifies, we increasingly cede control of these resources from our local economies to the global one. So others are making resource allocation decisions for materials we may want for ourselves.

Not only that, we have a problem with the residue of the production of things. Pollution is the residue. The problem with pollution is that it does not function according to the Invisible Hand. For the person who buys the good that led to the pollution, the individual cost he pays is low compared to the value he receives. But for the person who hasn’t acquired that product, the pollution is only harmful. The cost is infinitely high. This is called the tragedy of the commons.

The true cost of producing a good, therefore, is the cost of producing it without negatively impacting ANY parties who receive no benefit. In other words, the only by-products or side effects which exist must be directly proportional to the amount of value received. One way to assure this is to force companies to produce zero pollution, with the by-product being a higher cost to the consumer.

I read somewhere that making a H2 actually causes less pollution than making a Prius. For a second I’d like to forget about whether that’s a fact or not and just suppose it is true – I’m trying to make a point. The consumer would have a choice between two vehicles which reflect the true costs of production. What about the gas you might ask. How about a gas tax which is used to fund carbon sinks around the country? Again, it’s about reflecting the true costs in the price.

Why haven’t more environmentalists adopted Smith as their champion? A law based on his work might well require a manufacturer to produce zero pollution that couldn’t be safely locked away somewhere. It would be in the same spirit as anti-trust legislation: protect the market forces and let them regulate. And it would be very simple to enforce, too. I can see a time when it would be unthinkable for a country NOT to have these laws in place.

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Being Happy vs. Feeling Happy

I was thinking about people who eat fatty or sugary foods or indulge in drugs or who steal or who act solely on impulse in general. They’re doing it because it feels good at the time or they think it will get them what they want. And in the short term it does – a burst of adrenaline or endorphins or whatever they think will make them happy at that moment. But that isn’t sustainable and they have to keep doing those things to get the feeling back or to prolong it.

Other people, and I like to think I’m in this group, have an internal happiness that is naturally sustained. For these people, what they gain from doing the negative behaviors are small in comparison to what they already have. So there’s less real value gained, especially compared to the consequences.

Why do these groups of people differ? I think it’s because one group has, at some point, taken a step back from their day-to-day lives. They’ve had the opportunity to stand outside themselves and see things a little differently. And often they tend to see things from a higher vantage point where they can get a view of the bigger picture.

In your daily life you see yourself through your own lens. When you make a choice you always know the reasons and think that they’re good reasons.

Others are rarely privy to your reasoning. They see your behaviors without the knowledge that you have come up with a good reason for it. And many times their observation is more accurate than yours.

Many times these reasons are just rationalizations for making the decisions you have made. This is called cognitive dissonance and it’s caused when you have two conflicting ideas. On the one hand, you think of yourself as being nice and generous. On the other you’ve just done something that is mean or selfish.

In fact, many times we choose first and come up with reasons later. When you’re faced this conflicting view of yourself, you come up with a reason why you would have done it. These are tough to shake off. No one likes to think they’re selfish, rude, mean, thoughtless or evil, but sometimes that’s what it is when you take away rationalizations.

You have to take that step back to see your real self sometimes. And those who are truly happy with themselves are happy with who they are in the world. These people look at themselves from the outside fairly often and adjust their behavior to match what they want. In effect they shape who they really are to match who they think they are.

Batching Emails

For the last few weeks I’ve been trying to spend less time as a slave to my inbox and so I’ve disabled email notifications on my blackberry and iPhone. That makes it easier to resist the temptation to jump on every single email that comes in, personal or professional. Then I can go through these at my leisure when I have time to think and respond.

I used to pick up my phone anytime it buzzed or dinged or rang or made any other of 100 goofy noises. I’d gotten really used to that and once I stopped it was hard to get over the urge to grab my phone and check messages every 10 minutes like I used to do. I’d get bored quickly and my attention wandered to who might be sending me some critical email. But eventually the urges subsided and I realized I hadn’t missed any critical emails and the world hadn’t crashed to a halt. More importantly I was able to concentrate on a single task and get through it faster.

Most of the time when I was checking emails constantly, I was forth from task to task like crazy. It’s similar to the computer systems’ multitasking functionality, such as last-in-first-out (LIFO) processing (whatever piece of information has just arrived, process that first and delay the current task) and extreme hard drive thrashing (going from the inside to the outside of the platter on each subsequent read or write). Obviously this isn’t very efficient. You lose a lot of time changing tasks and it’s stressful having them all open at once.

When you look at every email as it arrives, you’re basically saying “Anything that hits my inbox is more important than whatever it is I’m doing right now.” That is almost never the case, and even when it is, anything in an email can usually wait 3-4 hours before you answer it. For the really critical stuff, you can still grab calls. Many times you’ll find that the problems solve themselves before you can take care of them.

Now I find that I am much more efficient and this has probably cut out 5-10 hours a week (that’s a consulting week of about 80 hours) in wasted time and I feel more relaxed and in control. You can apply the same principles to anything you find hitting you in intervals. And most likely you already do – unless you run to the store every time you need a paper towel.

Loss Of Hierarchy In The Media

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Clay Shirky has put together an excellent presentation about the way that our media has become the opposite of hierarchycholarchy or heterarchy. Or what I have defined as “mass conversation“. And it occurred to me that five years ago I got all my information from either conversation or mass communication. But now it nearly all comes from mass conversation. Blogrolls, RSS feeds, forums and such. Especially for work.

Strange how only a few years can change so much about how you interact with the world. I thought it was especially interesting in Shirky’s talk about how China has changed its interaction. During the Sichuan earthquake last year, there was a massive explosion of this mass conversation. It was nearly uncontrollable until the government had to clamp down because of so many images, stories, videos blaming corrupt officials for the collapse of the schools. Whereas during the last major earthquake, the government refused to admit that one had occurred for nearly three months!

Daydreaming Leads To Eureka Moments

The WSJ has a good article about research linking daydreaming and “Eureka” moments. One interesting thing I noticed is that the brain works harder during daydreaming than working on complicated problems. Another is the fact that there is a brief period of calming activity just before an insight is made – almost as if the brain is trying to clear out the competing ideas and focus in on the right one.

I think that there is an explanation for this finding in a 1977 study (warning: PDF link) by Nisbett and Wilson where people were asked to tie two ropes together that were hanging from the ceiling. The ropes were just far enough apart so that if you grabbed one you couldn’t reach the other. In the control group very few people got the answer. But in the experimental group an experimenter accidentally nudged one of the ropes, turning it into a pendulum. In this group, within seconds most of the people immediately solved the problem by doing the same thing. When asked how they came to the right answer, nearly none of them could say where the idea came from.

So my theory is that in our daydream we see something that points us toward a solution to a problem that we’re concentrating on. It’s kind of like in a movie or TV show where the character will be listening to a story or will see something and then get a blank look on their face and then get a spontaneous new idea that solves the problem. The movie The Hangover has one of those moments in it and is very funny, in case you are looking for something to do. Maybe that’s where my stroke of insight came from and I just don’t remember it.

The Case For Mass Conversation

Human communication used to be one person talking to one other person and face-to-face – call this conversation. Then it was one person talking to many through writings, books, pamphlets and magazines – call this mass communication. In the electronic age, the telephone and telegraph joined the ranks of the conversations; radio and television were introduced as mass communication. But now with the Internet, we’ve entered an age where many people talk to many other people through email, blogs, twitter, facebook and the like. If this doesn’t yet have a name, I’ll call it “mass conversation” – not to be confused with mass conservation.

The Tyranny Of Planning

You remember those “Choose Your Own Adventure” books? They sucked after a while. I kept getting eaten by giant ants or falling into a black hole. Choosing your own adventure in travel can be the same. Take this cartoon, for instance. The image is of a couple at a travel agency looking through brochures. One says to the other “It all looks so great. I can’t wait to be disappointed.”

And it’s true – the more we plan and the more we put into some of the things we do, the less we get out of them. But if we simply go with what we are given, we have a great time. With few pre-conceived notions, we have a smaller chance of being disappointed. The surprise is a part of the enjoyment of the trip.

But ironically, I really enjoy planning trips. Oh, could I catch any good concerts or sporting events while I’m in town? What are the best places around for sightseeing? These types of things keep me up at night searching online excitedly. But it doesn’t make the actual trip any better.

So that led me to undertake the travel experiment that I am currently undergoing: I will plan as little for my next trip as possible, knowing nothing in advance but the dates of departure and return. The planning is essentially in what to pack – and I plan on packing very light.

This is probably part of a larger issue we have in our society with choice. According to Barry Schwartz, we have too much of it and it is ruining our lives. Any time we feel we could have made a better choice, we feel we should have. The more choices we have, the more potential we have to make a sub-optimal one. But if we have few choices, we focus on making the best of what we get.
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How Much Is Free Time Worth?

I’ve spent a good amount of time in contemplation of man’s balancing of work and so called free time – that in which he is wholly his own master. It is my considered opinion that I am truly lousy at striking this balance naturally and so I have begun to apply logic and economics to the problem, as best I can without actually knowing anything about logic or economics.

First, let’s start with some assumptions and concepts of value. I will assume that I get enjoyment and happiness from my free time and that is the value I’m seeking. To keep things simple at first, I’ll assume that there is no value to be gained from working other than monetary compensation. It might seem that the choice is easy, then: maximize free time and to hell with work!

But it’s more complex than that because money made from working can the value of each free hour. Money increases the diversity of experience through travel, eating out, decorating, etc. Going to the extreme of work makes no sense either: lots of wonderful toys but no time to play. Some balance between work and play is necessary to, in economics terms, maximize the total value of free time.

Staying with economics for just a minute, I’d like to introduce some concepts and make them relevant to the discussion.

  1. The total number of hours to devote to working and free time is zero-sum or fixed-sum. So the more time I spend working, the less I have free.
  2. The more scarce a resource, the greater its value. So the less free time, the more valuable each hour becomes intrinsically.
  3. Opportunity cost is the relative cost of making one choice over another – in other words the loss of total value of free time by moving the equilibrium in either direction.

Now let’s reach out into the real world and see how we can apply them. For example, most people I know are on a fixed-income salary. Each extra hour they work produces no extra money. So effectively you get what we typically observe – people work the minimum hours to satisfy requirements.

Now let’s address a hidden assumption here: that you control the number of hours you work. If, instead, you assume that hours worked are not controlled, we get something different. When the equilibrium is shifted in either direction, we get less total value of our free time. If that shift happens in the direction of free time, we can always find work to do to fill idle time so we can still maximize the value of our free time. But when the shift reduces our free time the problems begin.

What happens exactly? The total value of our free time decreases but the hourly rate increases. Whereas the hourly rate of our monetary compensation goes down. We’ll want to try to restore the previous equilibrium, though doing so is tricky and may be out of our direct control. This may mean renegotiating salary, looking for a new job or simply refusing to work the extra hours.

The salary renegotiation option is interesting – basically this is an attempt to reinstate a new equilibrium with a higher total monetary compensation. What I’m currently interested in is what this does to the ratio of the hourly values. If the value per hour of free time rises, is there an equivalent rise in the money per hour worked? Is the rise of one larger than the rise of the other?

If I go from working 40 hours per week to working 50 hours per week, how much more should I be making? If I was making $10 per hour before, should I make the same now (ie. $400 to $500 per week)? If my hourly rate is to go up or down, by how much?

English Is The World’s Second Language

I think I’ve said before that English is the universal language. Well I think it is better said by Jay Walker here in this TED talk, which is both a little scary and a little inspiring.
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His point is that the local language will always be the first one learned and the primary one used amongst people. But English is quickly becoming the world’s second language.

To use an example to drive the point home, China will next year become the world’s largest English speaking country. Every year 80 million Chinese students will take a test for which they have spent 12 hours a day for three years studying – and 25% of it will be scored on their mastery of English.

Wow!

Why Are CEOs Tall?

Ever hear someone say “People who are tall are more likely to become CEOs”? Something like 30% of CEOs are taller than 6’2″, versus 1% or so of Americans overall. The conventional wisdom says that taller people are put into authoritative positions by virtue of their height. Malcom Gladwell talked about this phenomenon in his book, Blink. But there’s a pretty obvious flaw in the argument.

Whenever you have a correlation like this in statistics, there are several possible cause-effect relationships. Either A caused B, B caused A, C caused both A and B or the correlation is a coincidence. In this case, I think we can safely rule out the CEO title causing the people to grow. And I also think we can rule out coincidence. But why does everyone automatically jump to the conclusion that tall CEOs got to be in that position just because they’re tall.

Some people have accepted the argument and rationalized it by saying that perhaps being tall made them better competitors or more domineering and leader-like and therefore better able to be CEO. I’ll leave that argument to them. It seems plausible enough, but I want to put forth another position: That being tall and being a CEO have a common cause.

Just as your environment shapes your way of thinking and personality, it can also shape you physically. In China, several of the locals I met used height and weight as indicators of social status: If you are taller and heavier, you are assumed to be of a higher social class. The difference in height comes from good nutrition, healthcare, access to food, and other things that don’t restrict your growth. If you are from a low status family, your growth may be hampered by lack of those things, and also possibly the toils of some manual labor.

The data seem to back up this theory. A study of middle-aged English men shows a 1-2 inch difference between the highest and lowest social classes. And the difference has been increasing since the 1920s. This difference doesn’t wipe out the disparity, but it certainly makes it much smaller. (NOTE: Several other studies seem to have found similar things but the research was gated and so I chose to use the single one above.)

So if we then substitute “from high status families” for “tall”, we get: People who are from high status families are more likely to become CEOs. Now this statement is something that would hardly surprise anyone. In fact, I’d say that this correlation is much stronger than that of height. So maybe there is something that makes taller men more likely to become a CEO, but I doubt it’s quite as big a deal as it seems – pun intended.