Tuesday, October 6, 2015

One Way to Find a Seat on the Subway

Recently, a man – a senior citizen – was arrested after he was accused of assaulting a pregnant woman because she had been sitting on one of those seats at the ends of the subway cars that are usually occupied by older people. This wasn't the first time that a pregnant woman was not shown basic human decency.

In order to make seating a bit more equitable, the Seoul City government decided to do something nice for pregnant women a few months ago. It designated certain seats as reserved for pregnant women and made its intentions unmistakable by making those seats bright pink. So far, however, it has failed to work.

When I first saw those pink seats, I knew that it was not going to be terribly effective. Although people pay to ride the subway, people don't have to pay for seats. The seats are, therefore, a type of commons; and I am sure that everyone is aware of the Tragedy of the Commons.

Everyone is looking for a seat. And the seats are in short supply compared to the number of people looking for seats. When one assumes (probably correctly) that everyone else is going to look for a seat without much regard for who is left standing, there isn't much room for consideration for others.

Bellum omnium contra omnes
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If it is difficult for pregnant women to find seats on the subway, then one can only assume that the only way to find a seat in the subway is to go full speed ahead – elbowing and maiming anyone who dares to stand in your way – damn the torpedoes!

But is that the only way to find a seat? I think there has to be a better way for people to persuade others to give up their seats for the more vulnerable members of society.

One method that often comes up is to shame those people who refuse to give up their seats for pregnant women or the elderly. In fact, public shaming has been proven to be useful in many instances. In a study that was conducted by the European Commission, it was revealed that shaming was one of the more effective methods of ensuring that people paid their taxes on time because, according to the study, “the psychological costs connected with tax evasion or financial costs other than the fine can be influential factor that deter people from cheating. For example, psychological costs might arise because people fear to be detected or publically shamed.”

So, perhaps shaming those people who refuse to give up seats for pregnant women on social media might be effective.

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However, shaming might not be as effective as people think. Of course, the most obvious reason why shaming might not work, especially in Korea, is because of Korea's bizarre defamation laws. However, even if Korea's defamation laws didn't make such a fetish out of preserving people's honor, naming and shaming would still not work too well. That is because according to a study that was published by the University of Chicago, shaming someone excessively could cause the person to continue engaging in the kind of behavior that brought about the shaming in the first place.

To explain, the study focused on whether or not sex offender registries were effective. The study revealed that as sex offenders found in the registries were stigmatized and shunned by society, it reduced their job opportunities and destroyed their social lives. As a result, the registries effectively “lowered the opportunity cost of choosing crime over legal activities.” In other words, this so-called “disintegrative shaming” that resulted from the registries drove them to continue their criminal behavior and made them more likely to recidivate.

So, if people who sat on those reserved seats were named and shamed, and if the naming and shaming were “excessive,” instead of learning not to sit there in the future, they just might continue to sit there because they might think that they have nothing left to lose.

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One method that I think is rather simple and underrated is simply asking people for a seat.

In many instances, people often assume the worst about each other. So, many people might think that if we ask someone for a seat, that could lead to a verbal assault, if not an actual assault. However, that may be a false assumption. According to several studies conducted by psychologists, it has been revealed that humans are, for the most part, cooperative and selfless – almost always willing to help one's fellow Man.

Seeing how that the majority of people are good and decent, I think that simply asking whether one can sit down would be more effective (and would lead to less conflict) than simply to engage in passive aggressive behavior.

So what do you think? Do you think politely asking someone to give up his or her seat is a good idea? Or do you think it's the worst idea since techno music? Leave a comment behind and who knows? It could lead to another blog post with you as a guest blogger.
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Thursday, September 24, 2015

When Vultures Feast on AIDS Patients

When I read about how the price of Daraprim, a drug used to fight a parasitic infection called toxoplasmosis, which is potentially life-threatening for people with weakened immune systems, such as those with AIDS or cancer, went from US$13.50 a tablet to US$750 a tablet after Martin Shkreli, a former hedge fund manager who runs Turing Pharmaceuticals, purchased exclusive rights to the drug, I knew that the pitchforks would be out in full force.

The Unique Problems of the Case

When I first heard this story, I immediately thought was that this was clearly a problem with the way patent laws are set up. Therefore, this had to be a government failure, rather than market failure. When I read more about the subject, I realized that I was only partly right.

Typically, prices serve as a type of flare gun. It informs people where supply and demand lies and where the most and least profits lie. Therefore, a 5000% profit margin is bound to attract competitors.

However, this is not one of those typical cases. Unlike markets for other goods like cars or smartphones, the market for Daraprim is too small for there to be enough room for competitors to create generic drugs. Also, the costs of manufacturing new drugs is prohibitively high. That is because there are fixed costs associated with building a new plant. There could also be lost revenue from having to discard the production of other (more profitable) drugs, getting samples of the drug, and figuring out how to make the generic product.

Therefore, even a 5000% profit might not be sufficient motivation for another drug manufacturer to jump into the business. To paraphrase an old saying, this town ain't big enough for two corporations.

This is NOT enough gold!!!
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Then there is also a problem with the common public perception of medications and what it takes to manufacture them. Not all drugs are equally easy to create. A good example of this is the drug known as Hyate:C. This drug is so difficult to manufacture that one person can end up causing a world-wide shortage of it if they use too much, as it actually almost happened in 2001 when a man's tragic 34-day treatment at Duke Medical University Center cost approximately US$5 million.

Hyate:C is also another example of a drug where the market is so small that it does not become profitable for there to be too many competitors. Back in 2001, Hyate:C's wholesale price came to about US$1000. I did a bit of Googling and I found that Advate, one of the dozen or so brands of Hyate:C, goes for a little under US$5000 today.

If investors buy up tech products that delay the next iPhone release, it may cause inconveniences, but no one dies from it. However, if you mess with drugs like Daraprim or Hyate:C, people will die.

The Not-So-Unique Solutions

(A) Leave the Market Alone

However, not all is gloom and doom. That is simply because in the real world, the sticker price is seldom what is actually paid. For example, let's say that I have invented the next big thing. I think it is the greatest thing in the world and that it will save humanity. Therefore, I decide to charge US$1 million for it.

But the story doesn't end there. Just because I say it will cost a million dollars does not mean that I will get a million dollars. That is because if there is no demand for my next big thing at that price, then it doesn't matter what the sticker price is. In reality, the actual price, as far as earnings go, is zero.

Supply and demand always wins.

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The same is true here. When Shkreli announced that he was going to sell the drugs at US$750 a tablet, the first thing that I thought was that this just was not going to happen. No matter how much people might need the drug, if it costs that much, people would not be able to afford them. Shkreli would then have a pile of useless medicine that he does not need or can sell.

Therefore, the first solution is to let the market be. After all, unlike the Hyate:C drug I mentioned earlier, pharmaceutical companies have gotten better at making AIDS medication to the point where AIDS is no longer an automatic death sentence. Therefore, missing a few doses no longer spells out your death.

As I typed this, I learned that Shkreli announced that he would lower the price of the drug, though no specifics have been given.

(B) The Invisible Hand of Twitter

Adam Smith is widely known for his book “The Wealth of Nations.” However, he wrote another book, which I don't think people given enough attention – “The Theory of Moral Sentiments.”

Long story short, Moral Sentiments is Smith's other theory that people should not act like dicks because acting like a dick has consequences.

The fact of that matter is that people are more considerate of our fellow human beings than we get credit for. That is why it was not surprising when social media exploded with outrage at this drastic price hike. When the most vulnerable members of our society are perceived to be harmed by the actions of a few sociopaths, people will rise to their defense.

Twitter is a double edged sword. It can needlessly ruin the lives of good men and it can also raise mediocrity to the stars. However, it can also lead to awareness of the plight of the unfortunate. Exposing what Shkreli did was one of those good things.

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(C) Shkreli Will Quit

Everything that I read about the man behind the story reeks of a Gordon Gekko-wannabe who, unlike his hero, has not read The Art of War.

Being a corporate vulture, I highly doubt that Shkreli plans to stay in the pharma business for very long. He strikes me as the type of person who will take off as soon as he gets his thirty pieces of silver. And all the better for it. More businesses (perhaps one or two at the most) that want to take advantage of the profits that he exploited (which probably will be profitable even if the pills do not fetch up to US$750) will enter the market, which will in turn increase choices for consumers (it seems choice is something that AIDS patients have lacked thus far); and the choices will inevitably lower prices.

But that's assuming that he makes his money back. The fact of the matter is that he's a commodities speculator and when it comes to any kind of speculation, any activity which harms the public automatically harms the speculator. In other words, if he makes a profit, he would have shown successfully that there is a market that was ready to be exploited, which will benefit everyone involved.

To explain, though this is probably not realistic, we have to play a “what if” game. Let's say that Shkreli's asking price of US$750 is not unreasonable. Let's say that people CAN actually afford the pills at that price. If that were true, then people would immediately think that those AIDS patients are spending a lot more money, and therefore, they are the clear “losers.”

But that depends on how far we look ahead. If we are talking only about immediate results, yes, those patients would be losers. However, in the long run, if other pharmaceutical companies realize that there are profits to be made because people are able to afford the hefty price tag, they will more than happily jump into the market. This will result in more competition, more choices, higher (though perhaps marginal) quality, and lower prices. The businesses will benefit, the consumers will benefit, and the speculator can take home a big fat paycheck.

But if he fails, an incompetent speculator would be driven out of the market and (maybe) prices will return to what it was.

Good riddance to bad rubbish!
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What Not To Do

The worst thing that anyone could do is to pass a law against this sort of behavior. The fact of the matter is that whenever governments get involved, there is usually unintended consequences. For example, if an artificial price cap is introduced, it would force drugs to be cheaper. However, it will seriously disincentivize pharmaceutical firms from producing much needed drugs like Hyate:C.

Oops. I spoke too soon. Oh well. That's politics for you.

Saturday, September 19, 2015

Paul Krugman vs The GOP: The Ultimate Oy Vey

In this op-ed piece in The New York Times, Paul Krugman gave the Republicans a much deserved drubbing for their circus show of a debate.

It's absolutely true that the GOP debate was a farce. I know, I watched it. If it wasn't painfully stupid, it was painfully insipid. Whereas the debate could have been a forum where the contenders espoused their vision about shared prosperity in a changing economy, they instead engaged in primitive chest-thumping and braggadocio.

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The one bit in the debate that I thought worth noticing was Carly Fiorina's quip about Trump's comment about her face. The rest of the three-hour spectacle was so mind-numbing that Michael Bay must have been jealous.

But I also found it quite amusing that Krugman would say this:

...some of the candidates went beyond expounding bad analysis and peddling bad history to making outright false assertions, and probably doing so knowingly, which turns those false assertions into what are technically known as “lies.”

For one thing, Krugman said in this very same column that the modern GOP economic discourse is “completely dominated by an economic doctrine — the sovereign importance of low taxes on the rich — that has failed completely and utterly in practice over the past generation.”

This doctrine that Krugman did not name is, of course, Trickle Down Economics, which he once said was akin to “being nice to the wealthy and being cruel to the poor.”

ALL the economics textbooks that have ever advocated Trickle Down Economics
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Whether or not one thinks that low taxes is a good idea, which of those Republican candidates ever said that the government should give more money to the rich? The answer is “no one.”

In regards to low taxes, Ben Carson said:

What made America into a great nation was the fact that we said "That guy just put in $1 billion, let's create an environment that's even more conducive to his success, so that next year he can put in $2 billion." And that's the kind of thing that helps us to grow. We can't grow by continuing to take a piece of pie and dividing it and redistributing it.

On the other hand, Marco Rubio said:

Well, first of all, capital gains and dividends is investment. That means someone is taking money they have access to and investing it in something. That’s how jobs are created. My father had a job as a bartender at a hotel. And the reason why he had a job as a bartender is because someone who had money invested in that hotel. Invested in building it, invested in expanding it, invested in modernizing it so people would keep coming back. And that’s why people visited that hotel. That’s why my dad had a salary, and that’s why he had tips.

The oversimplification of these two men's positions notwithstanding, none of the positions that we heard were about how the rich should remain rich because they deserved to be rich. In fact, both men's positions were rather uncontroversial positions about how additional wealth and jobs can be created when businesses are not hampered by burdensome regulations and steep taxes.

Obviously, low taxes and deregulation are NOT the only things that ensure job growth. Other things to take into consideration are financial and political stability, currency fluctuations, interest rates, boom-bust cycles, corruption, demographics, education levels, market failure, government failure, etc. etc.

These were topics that the Republican candidates should have discussed. However, instead of treating the voters like adults, none of these topics were brought up, which was all the more reason why the entire “debate” was such a waste of time.

Then again, can you imagine a political forum where politicians were actually honest and were forced to talk about real issues and real solutions? Voter turnout rates would fall into single digits! That is assuming, of course, that voters don't decide to express themselves on the streets.

Revolution IS the hell of it!
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However, that's not the point that Krugman was making either! In fact, Krugman's point, at least as far as economics goes, was that Bill Clinton's tax hikes were followed by a huge economic boom while George W. Bush's tax cuts were followed by a weak recovery that ended in financial collapse.

As an economist, a Nobel laureate at that, Krugman knows very well that economic booms and busts depend on many more factors than the few I already mentioned earlier – tax rates being only just one of them. Despite the fact that he is fully aware of this, Krugman decided to play the idiot and went into “correlation is causation” mode.

The fact is, aside from the tax hikes, the Clinton economy also benefited from the end of the Cold War, NAFTA, and the rise of the tech sector. On the other hand, the Bush economy was hampered by the tech bubble burst, the War on Terror, and the much bigger housing bubble burst.

In other words, unless absolutely mismanaged to the tune of Hugo Chavez, the Clinton and Bush economies would have boomed and busted regardless of which tax policy was pursued. The only difference would have been the degree of the booms and busts.

Krugman knows this. But he took off his economist hat and put on his partisan pundit hat instead, which does a disservice to those who read his columns to learn about economics.

So going back to his quote about false assertions and lies, I suppose the only appropriate thing to say is “Pot, meet Kettle.

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Thursday, September 17, 2015

Don't Vote. It Just Encourages the Bastards. (Part II)

I have never voted for anyone in my life. Well, I have cast votes for class presidents when I was in school. But when it comes to electing public officials, I have never cast a single vote for anyone.

There is a good reason for this. For one thing, I was not the citizen of the country of my birth, Brunei. Even if I had been, I would not have been able to vote as the country is run by an absolute monarchy. Monarchs don't tend to look kindly upon voting. And of course I was excluded from the voting process while I was in the US as I am a Korean citizen. When I came to Korea in 2011, that was when I finally had the right to vote for the first time in my life.

However, I did not vote in the 2011 mayoral election or in the 2012 presidential election or in the 2014 by-elections. Also, I do NOT plan to vote in the foreseeable future. There are two reasons.

Firstly, I find those politicians who actually make it through the system far enough to have a serious shot at getting elected to their desired positions, particularly executive positions, repulsive. Secondly, my single vote does not matter. No election has ever been decided by a single vote. Even close elections are not determined by actual votes but rather by the courts a la Bush v. Gore. So, I find the act of voting to be a waste of time and would much rather spend that time with my family.

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Going back to the process itself, seeing how they have to pander to the lowest common denominator, politicians often have to spout things that are unintelligent, indecent, and nonsensical. Even if they are not positions that they actually hold, by the time they become “viable” candidates, I simply cannot identify with any of them. If I were an economics professor, whether we are talking about Park Geun-hye or Moon Jae-in or Jeb Bush or Bernie Sanders or anyone else in between, I would give them Fs in the class.

However, it is a mistake to assume that politicians are stupid or incompetent. Politicians are NOT stupid or incompetent. They are good at their jobs, which is telling voters what they want to hear. After all, it was H.L. Mencken who said “If a politician found he had cannibals among his constituents, he would promise them missionaries for dinner.”

And the reason this problem exists is that many people seem to believe that if something is popular, then it must be a good idea. This is problematic because, regardless of our personal biases, what is true is that very few people are actually evil. The vast majority of people in the world, to some degree or another, believe in tikkun olam.

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That's the problem!

So why is it bad that people have good intentions? It's particularly bad for democratic societies because when people have good intentions, it becomes easy to create consensus. However, the problem is that many people lack knowledge or understanding to know what is actually a good idea. After all, economics, which so many electoral promises boil down to, can be quite counter-intuitive. Combine good intentions, consensus, and a lack of knowledge and what we end up with are things that are either ineffective or, worse, counterproductive.

For example, ask any average person in the street whether it is a good idea to assure more welfare to the poor and the elderly and most people will say that it is a good thing. However, ask that same person whether he or she would be willing to pay more taxes to support welfare for others and there is a good chance that he or she will not want to do so. And that's how we get ridiculous promises like the ones President Park made about increasing welfare benefits without increasing tax rates.

Or here's another one that politicians love to talk about – affordable higher education. While campaigning, President Park tried to woo younger voters by promising them that she would slash college tuition fees in half. Unsurprisingly, this campaign promise has not been kept. On the other side of the ocean, Bernie Sanders likes to claim that if elected president, he will make every public university tuition-free. Sure.

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Let's put aside the fact that these kinds of promises are made to be broken from the start. Even if it were possible for politicians to keep these kinds of promises, would it be a good idea to make college so affordable to so many people? Most people's gut reaction would be to shout “YES!” And I am sure that some will even post news articles that support how a well-educated population will increase a society's wealth.

The problem, however, is that many of these people do not consider marginal students – those who attend college for one or two years before dropping out and those who take a lot more than the traditional four years to graduate with a degree in Independent Studies – in their equation.

Recently, it was reported that Koreans rank first among OECD nations in terms of doctor visits and hospital stays. This is what happens when prices are artificially set below market price – the creation of excessive demand aka a shortage of goods, which is a direct result of government failure. If the cost of attending college is lowered, or even made free, something similar would happen. So it would seem quite likely that making college more affordable will encourage a lot of marginal students to waste a lot of time and energy and get very little (jobs that pay) to show for it.

Will the effect on marginal students overshadow the overall benefits to society? I do not know. What I do know is that people don't usually talk about marginal students when they talk about affordable higher education.

But which politician, aside from those who plan to retire, would dare to be honest with voters? There's a reason Eisenhower only talked about the military-industrial complex in his farewell address.

Public Choice theory assumes that everyone, even those politicians whom we vote into office to look out for the interests of the public, acts on self-interest. So, in the case of a politician, it's in his self-interest to get voted into office. Even if the politician does have the best of intentions, he/she wouldn't be able to do much if they were not in office. Therefore, to be successful, politicians cannot afford to actually pinpoint real problems and try to fix them. They need to find out what people want to hear and then tell it to them. Repeatedly.

The fact that the majority of voters do not actually understand economics or public policy or national security issues is a given. There are only twenty-four hours in a day and it is impossible for us to be experts at everything. What is disgusting about politicians is that they know better, or at least ought to know better.

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Monday, September 14, 2015

A Discussion - Stopping Businesses from Firing Pregnant Women

According to this article from The Korea Times (I promise that it's not another troll column), 5,000 female employees have been fired every year while on maternity or childcare leave since 2010. The total number of women fired come down to 26,755 women.

This is in spite of the fact that the Equal Employment Act states that an employee, male or female, who has a child aged not more than 8 years or a child in the second or lower grade of an elementary school, is guaranteed childcare leave up to one year. The law also states that the employer should reinstate the employee after childcare leave to his/her previous position or other position with the same level of salary (source).

When the only tool that one has is a hammer, then every problem begins to look like a nail. Similarly, when people think that the government is the solution, they tend to think of problems through the lens of the law. However, it's quite clear that laws are already in place, but they are routinely ignored.

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For example, someone that I spoke to on Facebook suggested that a good way to solve the problem would be to create a watchdog group that would fine and jail business owners who engage in such behavior.

However, I find that unlikely to work because even if such a watchdog group were created, I am almost certain those fines would be quite small. If the financial benefit to the firm is greater to fire the female employees than the fines would cost the business, the net gain would still compel them to fire their female employees. So, for a watchdog group of this sort to work, the fines would have to be substantial and I am just not sure if that is politically possible.

When Rational Choice Meets Ethics
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Therefore, I offer two possible alternative solutions to the problem that might offer a win-win way out for everyone.

The first solution is to create an all-women union (seeing how the Ministry of Gender Equality can't seem to do anything right). It's true that I am not a big fan of unions (see here, here, and here), but that is mostly because many unions tend to kill the goose that lays the golden eggs. Provided that this union's goals remain focused on specific policies that seek judicial employment practices... oh who am I kidding? Eventually, all unions that grow in power will ask for more and more and more. But there is no need to fight tomorrow's battle today. That will come in due time. For now, there's a fire that needs to be put out.

The second solution is to incentivize businesses to hire and retain female workers via tax credits. In other words, a work opportunity tax credit for women.

However, those are just two of my ideas. So, I open the floor to you, readers. If you think you have a good idea that is practical and workable (no, calling for torches and pitchforks is NOT a good idea), feel free to drop a line in the comments section.

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Wednesday, September 9, 2015

Whose History Are We Talking About?

According to this report from the JoongAng Daily, another old and favorite political fight has resurfaced as ten education superintendents, who are elected rather than appointed, released a statement opposing state-authored history textbooks in response to a government plan to standardize them.

The opposition to state-sponsored textbooks often uses the cover of democracy. It's a convincing argument. After all, if the government monopolizes history textbooks, and considering the government's reach, the government is basically saying that only its version of history is the correct version of history. Basically, everything else becomes 
historical revisionism aka heresy.

But talk to the opposition long enough and you realize that their opposition is not about freedom of speech or about breaking up the government's monopoly on such an important issue. What it comes down to is their opposition to beautify(ing) pro-Japanese activities and dictatorship.

So, we have to play a 
“what if” game. Let's say that we live in a separate reality where the president is not Park Geun-hye and the ruling party is not the Saenuri Party. What if the president were Moon Jae-in and the ruling party were the NPAD? Would these education superintendents still be opposing the government's plan to standardize history textbooks? Or would they be all right with the plan so long as the books brush aside the betrayal that was the Sunshine Policy or legitimize a progressive view of history and the State?

Yes, state-sponsored textbooks IS a problem. But that's not what these people (on both sides of the aisle) are actually debating. What they're actually debating is whose politics is reflected in those books 
– not the truth.

A plague on both their houses!

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Cheap to Eat the Rich

When Bernie Sanders is not excoriating the Koch Brothers, his other favorite villains are the Waltons. Sanders often likes to claim that the Waltons “own more wealth than the bottom 40 percent of America.”

Sanders never mentions how the Waltons got so rich – namely, by providing cheap goods and services that are in high demand. After all, the Waltons did not steal this money or gain it in some illegal manner. He simply mentions this fact as though the fact itself was some kind of evil.

However, the fact remains that Sanders is not the first politician to engage in rich-baiting. There is a long and sordid history of them. Naturally, therefore, the Waltons are not the first rich family to be despised.

Once upon a time, there were the Vanderbilts. Cornelius Vanderbilt, the family's patriarch, became one of the richest men in the world by building a railway empire across America. If his wealth is calculated for inflation and percentage of GDP in the present day, Cornelius Vanderbilt had amassed a total of US$147 billion in his lifetime. For comparison's sake, Bill Gates, the current richest man in the world, has a net worth of US$76.4 billion.

But how many Vanderbilts are there now who are still titans of industry? Fortunes come and fortunes go. Nothing lasts forever. Some day, like the Vanderbilts, even the Waltons will become a part of history. Just like how creative destruction brought us Netflix at the expense of Blockbuster or Samsung at the expense of Sony, Walmart will some day disappear to be replaced by something else. A new business will rise to the top and a new corporate dynasty will take hold – most likely by selling something that is highly in demand.

After all, despite the rhetoric, economic mobility is real – and it does go up AND down.

The hate, however, will go on. If it is not Sanders, it will be some other politician and if it is not the Waltons, it will be someone else. After all, what could be easier than hating public figures; especially rich ones?

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