CDOQ

The problem with economics (capitalism) is that it assumes that the man is pursuing self-interest (the rational man). The problem with communism (Marxism) is that it assumes that the man is not pursuing self-interest. 

For how long can government subsidies in one nation fight the comparative advantage of another nation?

I spent most of the 2020 at home and I thought that it would result in a lot more reading than usual (~12 books a year).  I was wrong but not entirely, I read 14 books last year:)  2020 Books  Following are some random and interesting excerpts:  1. The Worldly Philosophers   There is a "preanalytic" process that precedes our logical scenarios, a process which we cannot escape, and which is inescapably colored with our innermost values and preferences. "Analytic work", writes Schumpeter, '...embodies in the picture of things as we see them, and whenever there is any possible motive for wishing to see them in a given rather than another light, the way in which we see things we can hardly be distinguished from the way in which we wish to see them.  2. Technology Strategy Patterns  When the good leader's work is done, his aims fulfilled, the people will all say, "We did this ourselves." - Lao Tzu  Definition of [technology] archite...

My discussion with Arne Tonning, a venture capitalist based in Oslo, on:  1.   GPT3 (a new generalized Artificial Intelligence model for Natural Language Processing) - what it is and what are its applications.  2. Epic Games fight with Apple and Google on 30% revenue share that App Store and Google Play charge for digital goods sold via in-app purchases on their app platforms.  3. TikTok ban in the US 4. How latest US immigration policy is affecting the tech industry

Markets are as efficient as democracies are egalitarian. 

Relationships obstruct efficient flow of capital and labor. 

Greg Mankiw has a good idea about how the government can distribute money to the people who lost wages because of the coronavirus pandemic. Since speed is of the essence, the government can not take the time to target the right people.  Basically, give money to all adults in the US until people can get back to jobs (i.e. a few months). Next year, when people file for taxes, people who needed the money, decided based on income differential in 2020 and 2019, can keep it and people who did not need the money have to return it.  Source: Wikipedia See the details here . 

Earlier today, I finished reading The Worldly Philosophers . It is one of the most fascinating books I have ever read. The following excerpt might tell you why:  "When the Chamber of Deputies in the 1840s legislated higher duties on all foreign goods in order to benefit French industry, Bastiat  turned out this masterpiece of economic satire:  PETITION OF THE MANUFACTURERS OF CANDLES, STREET LAMPS, SNUFFERS, EXTINGUISHERS, AND THE PRODUCERS OF OIL, TALLOW, RESIN, ALCOHOL, AND GENERALLY EVERYTHING CONNECTED WITH LIGHTING TO MESSIEURS AND THE MEMBERS OF THE CHAMBER OF DEPUTIES  GENTLEMEN,  We are suffering from the intolerable competition of a foreign rival, placed, it would seem, in a condition so far superior to our own for the production of light, that he absolutely inundates our national market with it a price fabulously reduced...This rival...is no other than the sun.  What we pray for, is, that...

If cash is king then credit is the queen who is running the world and cryptocurrencies are her illegitimate children that are driving the king crazy. Global debt to GDP ratio is 318% and cryptocurrencies market cap is $420B. 

I wonder how life would be like if the law of diminishing marginal utility applied to our five senses.

The banks are considered too big to fail: i.e if they go bankrupt the world may plunge into a  depression . Ironically, the solution to this "too big to fail" problem from the  2008 financial crises  has made the banks even bigger. Since then I have been paying more attention to the banking world. What do you think the banks do? In simple terms, banks are intermediaries between borrowers and savers. All they do is take money from savers who are looking for a return on their savings and give it to borrowers who are willing to pay interest on that money. Banks are at the center of how  capitalism  works today. And, that is what makes them  too big to fail  especially after the repeal of the  Glass-Steagall  act. A simple equation can explain how we got into the 2008 financial crises:  Return on equity (RoE)  =  Return on assets (RoA)  x  Leverage A bank's equity holders (shareholders) gain when the return o...

"Strange as it may seem to us, the underlying concern of American capitalism in the late nineteenth century was the possibility of sufficiency. Just as Marx had envisioned a world where everyone would have enough for a decent life, American capitalists were worried that people would stop buying their goods once they had enough things to live comfortably. There seemed no obvious reason why someone would replace a piece of furniture or a coat or a set of crockery simply because it was old. This problem was solved in large part through the influence of Edward Bernays , a nephew of Sigmund Freud , and principle promoter of his ideas in America. Bernays was intrigued by Freud's view that people are bundles of emotion, passion, and desire, and that the real motive for human action is the satisfaction of deep-seated desires rather than rational calculation. Bernays saw that American companies needed to transform the way people thought about their purchases, so ...

Charlie Munger , my hero, answered questions from his fans at " A Morning with Charlie" in Pasadena, California on July 1, 2011 (formerly, this annual gathering with Charlie was known as Wesco Financial Annual Shareholder meeting).    Just like all the other meetings with Charlie, this one offered wisdom, humor, and admiration for the man. I could not attend the meeting and am thankful to Morgan Housel  who complied the notes from the meeting for the Montley Fool. [click here for the original post]. Following are the notes: ----   On the Wall Street meltdown: It all started with an asinine bubble. The cause was a combination of megalomania, stupidity, insanity, and I would say evil on the part of bankers and mortgage brokers. And it was widespread. Alan Greenspan was a smart guy, but he totally overdosed on Ayn Rand when he was young. You can't give bankers the freedom to create gambling games. That's what it was. Wall Street was a gambling house, and th...

The invisible hand has become quite visible and people have found ways to use it for self-interest.

One of my heroes, Charlie Munger , recently wrote about the future of the US. See the educating article at http://www.slate.com/id/ 2245328/

Charlie Munger, one of my heroes, recently gave an interview on the BBC re why the current financial crises occurred. See the entertaining video at http://news.bbc.co.uk/2/hi/8326369.stm

Emotion is a much more powerful force than Rationality in decision making. Hence, the study of economics solely based on the behavior of "rational man" is flawed. Also, when making decisions one should think about how the decision will make people "feel" even if the decision is a perfectly rational one.

Quantitative easing from Marketplace on Vimeo .

If you have read any economics literature, you know that for all decision making it assumes that the decision maker is a "rational man". Well, I don't think many decisions are made based on rationality. Emotion is a much powerful force than rationality and plays bigger role in decision making than rationality. Now, think about leadership and inspiring people. A good leader must connect with people at an emotional level to inspire them. Think Gandhi, Martin Luther King, and others.