Food for Thought

Writing Worth Reading

1. How Markets crowd out Morals (Boston review)

2. A Critique of the Modern University Part 1 and Part 2 

3. Why Nations Fail (New York Times)

4. Books Recommendations from Nasim Taleb (Farnam Street)

5. Academic Ethics under competition (Philosopher’s Beard)

7. Umberto Eco, The art of fiction (Paris Review)

8. Why fiction is good for you (Boston Globe)

9. What University rankings really tells us (New Yorker)

10. Twilight of the Elites, America after Meritocracy (The Nation)

How Markets Crowd Out Morals

Michael Sandel has lead essay in current issue of Boston Review on how markets can erode important goods and social norms.

We live in a time when almost anything can be bought and sold. Markets have come to govern our lives as never before. But are there some things that money should not be able to buy? Most people would say yes.

Consider friendship. Suppose you want more friends than you have. Would you try to buy some? Not likely. A moment’s reflection would lead you to realize that it wouldn’t work. A hired friend is not the same as a real one. You could hire people to do some of the things that friends typically do—picking up your mail when you’re out of town, looking after your children in a pinch, or, in the case of a therapist, listening to your woes and offering sympathetic advice. Until recently, you could even bolster your online popularity by hiring some good-looking “friends” for your Facebook page—for $0.99 per friend per month. (The phony-friend Web site was shut down after it emerged that the photos being used, mostly of models, were unauthorized.) Although all of these services can be bought, you can’t actually buy a friend. Somehow, the money that buys the friendship dissolves it, or turns it into something else.

This fairly obvious example offers a clue to the more challenging question that concerns us: Are there some things that money can buy but shouldn’t? Consider a good that can be bought but whose buying and selling is morally controversial—a human kidney, for example. Some people defend markets in organs for transplantation; others find such markets morally objectionable. If it’s wrong to buy a kidney, the problem is not that the money dissolves the good. The kidney will work (assuming a good match) regardless of the monetary payment. So to determine whether kidneys should or shouldn’t be up for sale, we have to engage in a moral inquiry. We have to examine the arguments for and against organ sales and determine which are more persuasive.

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Democracy, economic opportunity and capitalism

Fascinating essay on the interplay of economic inequality, democracy and capitalism. In order to have flourishing democracy, there is need of  interdependence among citizens but extremely rich people are not dependent on anyone thus work against social welfare of majority of the people. 

The rich may be identified by their independence from and command over others. Those two features make being rich very pleasant indeed. But they are also what make the rich bad for democracy, and indeed for capitalism. The problems I’m concerned with are not about justice. Perhaps it is unfair that some people are rich and others are poor, and perhaps it would be fairer to redistribute wealth from rich to poor, and from wealthy countries to poorer countries. But from my perspective that resembles debating the proper (re)arrangement of deck chairs. What I’m concerned with is the sinking ship - the threat the rich pose to liberalism itself by destroying its home: democratic society. Though my examples and figures are mainly taken from the American context, where the current debate about wealth inequality is most extensive, my analysis applies generally. Democracies are extended moral communities whose flourishing and indeed survival depend on the interdependence and equality of their members. The rich not only have no place in this model, but their very presence undermines it. Therefore, if we believe our democracy is worth preserving, we should offer the rich a choice: give up your money or give up your membership of our society.

Democracy and Inequality;

A Short History of Neoliberalism

Excellent, easy to understand essay on the history of Neoliberalism and how to fix it.

As a university lecturer, I often find that my students take today’s dominant economic ideology – namely, neoliberalism – for granted as natural and inevitable. This is not entirely surprising given that most of them were born in the early 1990s, for neoliberalism is all that they have known.  In the 1980s, Margaret Thatcher had to convince people that there was “no alternative” to neoliberalism.  Today, this assumption comes ready-made; it’s in the water, part of the common-sense furniture of everyday life, and generally accepted as given by the Right and Left alike.  But it has not always been this way.  Neoliberalism has a specific history, and knowing that history is an important antidote to its hegemony, for it shows that the present order is not natural or inevitable, but rather that it is new, that it came from somewhere, and that it was designed by particular people with particular interests.

If an economist living in the 1950s had seriously proposed any of the ideas and policies in today’s standard neoliberal toolkit, they would have been laughed right off the stage. At that time pretty much everyone was a Keynesian, a social democrat, or some shade of Marxist. As Susan George has put it, “The idea that the market should be allowed to make major social and political decisions; the idea that the State should voluntarily reduce its role in the economy, or that corporations should be given total freedom, that trade unions should be curbed and citizens given less rather than more social protection – such ideas were utterly foreign to the spirit of the time.”

So how did things change?  Where did neoliberalism come from? In the following paragraphs I offer a simple sketch of the historical trajectory that got us to where we are today.  I demonstrate that neoliberal policy is directly responsible for declining economic growth and rapidly increasing rates of social inequality – both in the West and internationally – and I make a few suggestions for how to tackle these problems.

Neoliberalism in the Western Context

The story begins with the Great Depression in the 1930s, which was a consequence of what economists call a “crisis of overproduction.”  Capitalism had been expanding by increasing productivity and decreasing wages, but this generated deep inequalities, gradually eroded people’s ability to consume, and created a glut of goods that could not find a market.  To solve this crisis and prevent it recurring in the future, economists of the time – led by John Maynard Keynes – suggested that the state should get involved in regulating capitalism.   They argued that by lowering unemployment, raising wages, and increasing consumer demand for goods, the state could guarantee continued economic growth and social well-being – a sort of class compromise between capital and labor that would forestall further instability. 

This economic model is known as “embedded liberalism” – it was a form of capitalism that was embedded in society, constrained by political concerns, and devoted to social welfare.  It sought to exchange a decent family wage for a docile, productive, middle-class workforce that would have the means to consume a mass-produced set of basic commodities.  These principles were widely applied after World War II in the United States and Europe.  Policymakers believed that they could use Keynesian principles to ensure economic stability and social welfare around the world, and thus prevent another world war. They developed the Bretton Woods Institutions (which would later become the World Bank, the IMF, and the WTO) toward this end, in order to smooth out balance of payment problems and to foster reconstruction and development in war-torn Europe.

Embedded liberalism delivered high growth rates through the 1950s and 1960s – mostly in the industrialized West, but also in many postcolonial nations. By the early 1970s, however, embedded liberalism was beginning to face a crisis of “stagflation”, which means a combination of high inflation and economic stagnation.  In the US and Europe, inflation rates soared from about 3% in 1965 to about 12% ten years later.  Economists debate the reasons for stagflation during this period.  Progressive scholars such as Paul Krugman point to two factors.  First, the high cost of the Vietnam War left the US with a balance-of-payments deficit – the first of the 20^th century – to the point where worried international investors began to offload their dollars, which set inflation rates rising.  Second, the oil crisis of 1973 drove prices up and caused production and economic growth to slow down, leading to stagnation.  By contrast, conservative scholars hold that stagflation was a consequence of onerous taxes on the wealthy and too much economic regulation, claiming that it represented the inevitable endpoint of embedded liberalism and justified scrapping the whole system.

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The Real Leadership Lessons of Steve Jobs

Walton Isaacson, author of authorized biography of Steve Jobs, offers real leadership lessons from his life and work at Apple.

His saga is the entrepreneurial creation myth writ large: Steve Jobs cofounded Apple in his parents’ garage in 1976, was ousted in 1985, returned to rescue it from near bankruptcy in 1997, and by the time he died, in October 2011, had built it into the world’s most valuable company. Along the way he helped to transform seven industries: personal computing, animated movies, music, phones, tablet computing, retail stores, and digital publishing. He thus belongs in the pantheon of America’s great innovators, along with Thomas Edison, Henry Ford, and Walt Disney. None of these men was a saint, but long after their personalities are forgotten, history will remember how they applied imagination to technology and business.

In the months since my biography of Jobs came out, countless commentators have tried to draw management lessons from it. Some of those readers have been insightful, but I think that many of them (especially those with no experience in entrepreneurship) fixate too much on the rough edges of his personality. The essence of Jobs, I think, is that his personality was integral to his way of doing business. He acted as if the normal rules didn’t apply to him, and the passion, intensity, and extreme emotionalism he brought to everyday life were things he also poured into the products he made. His petulance and impatience were part and parcel of his perfectionism.

One of the last times I saw him, after I had finished writing most of the book, I asked him again about his tendency to be rough on people. “Look at the results,” he replied. “These are all smart people I work with, and any of them could get a top job at another place if they were truly feeling brutalized. But they don’t.” Then he paused for a few moments and said, almost wistfully, “And we got some amazing things done.” Indeed, he and Apple had had a string of hits over the past dozen years that was greater than that of any other innovative company in modern times: iMac, iPod, iPod nano, iTunes Store, Apple Stores, MacBook, iPhone, iPad, App Store, OS X Lion—not to mention every Pixar film. And as he battled his final illness, Jobs was surrounded by an intensely loyal cadre of colleagues who had been inspired by him for years and a very loving wife, sister, and four children.

So I think the real lessons from Steve Jobs have to be drawn from looking at what he actually accomplished. I once asked him what he thought was his most important creation, thinking he would answer the iPad or the Macintosh. Instead he said it was Apple the company. Making an enduring company, he said, was both far harder and more important than making a great product. How did he do it? Business schools will be studying that question a century from now. Here are what I consider the keys to his success.

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Democratize Wall Street, for Social Good

Robert J. Shiller for the democratization of Wall Street:

At Yale, where I have been teaching for 25 years, I’ve been hearing a great deal lately from my students about financial innovations linked to social media. One such innovation, called crowdfunding, is embedded in the jobs bill signed into law by President Obama on Thursday. The idea involves Web sites that help many investors contribute small amounts of capital to projects that they read about online, and that might otherwise be starved for money.

Though the concept is being tried, in different ways, on sites like Kickstarter.com and Kiva.org, it is still very much an experiment, and its real-world benefits for small investors are still uncertain.

The new law, called the Jump-start Our Business Start-ups, or JOBS, Act, tries to regulate crowdfunding constructively. This innovation might be as well received as Wikipedia, which is constantly being updated and improved by a vast army of users. There may well be disappointments at first, but the concept can be tinkered with, like other democratizing financial innovations that have eventually delivered much good to society. I discuss many such examples in my new book, “Finance and the Good Society.”

Consider Wall Street in 1811. It wasn’t obvious then, but worldwide economic growth received a major boost that year from a New York law that allowed anyone who satisfied some minimal requirements to set up a corporation, with limited liability. The law turned out to be one of the most socially productive pieces of modern financial history.

By clarifying that shareholders would never be personally liable for a corporation’s debts, the New York law would allow investors to hold a diversified portfolio consisting of many stocks. That wasn’t feasible without first establishing limited liability, because of the risk that a lawsuit involving any company in the portfolio could bring a major personal loss. The New York law, proven successful, was copied globally. This created a pool of investors for which investment bankers could place shares.

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Behavioral Economics in public policy

Behavioural economists have found that all sorts of psychological or neurological biases cause people to make choices that seem contrary to their best interests. The idea of nudging is based on research that shows it is possible to steer people towards better decisions by presenting choices in different ways.That theory is now being put to the test.

“FREAKONOMICS” was the book that made the public believe the dismal science has something interesting to say about how people act in the real world. But “Nudge” was the one that got policy wonks excited. The book, first published in 2008, is about the potential for behavioural economics to improve the effectiveness of government. Behavioural economists have found that all sorts of psychological or neurological biases cause people to make choices that seem contrary to their best interests. The idea of nudging is based on research that shows it is possible to steer people towards better decisions by presenting choices in different ways.

That theory is now being put to the test. One of the book’s co-authors, Cass Sunstein, has been recruited by Barack Obama to the White House. Richard Thaler, the other co-author, has been advising policymakers in several countries including Denmark, France and, above all, Britain, where David Cameron has established a Behavioural Insights Team, nicknamed the Nudge Unit. The Nudge Unit has been running dozens of experiments and the early results have been promising*. In one trial, a letter sent to non-payers of vehicle taxes was changed to use plainer English, along the line of “pay your tax or lose your car”. In some cases the letter was further personalised by including a photo of the car in question. The rewritten letter alone doubled the number of people paying the tax; the rewrite with the photo tripled it. Changes to language have had marked effects elsewhere, too.

A study into the teaching of technical drawing in French schools found that if the subject was called “geometry” boys did better, but if it was called “drawing” girls did equally well or better. Teachers are now being trained to use the appropriate term. Another set of trials in Britain focused on energy efficiency.

Research into why people did not take up financial incentives to reduce energy consumption by insulating their homes found one possibility was the hassle of clearing out the attic. A nudge was designed whereby insulation firms would offer to clear the loft, dispose of unwanted items and return the rest after insulating it. This example of what behavioural economists call “goal substitution”—replacing lower energy use with cleaning out the attic—led to a threefold increase in take-up of an insulation grant.

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Market Economy to Market Society

Money can buy almost everything: The chance to shoot an endangered rhino, for example. A private cell in jail. Your doctor’s cellphone number. A surrogate mother. A US green card. Is this the sign of a healthy society? Michael J. Sandal, political philosopher at Harvard on the moral limits of markets. He also teaches “Justice” one of the most popular Undergraduate course at Harvard. Class Videos of the Course are available Here 

WE LIVE IN A TIME when almost everything can be bought and sold. Over the past three decades, markets—and market values—have come to govern our lives as never before. We did not arrive at this condition through any deliberate choice. It is almost as if it came upon us.

As the Cold War ended, markets and market thinking enjoyed unrivaled prestige, and understandably so. No other mechanism for organizing the production and distribution of goods had proved as successful at generating affluence and prosperity. And yet even as growing numbers of countries around the world embraced market mechanisms in the operation of their economies, something else was happening. Market values were coming to play a greater and greater role in social life. Economics was becoming an imperial domain. Today, the logic of buying and selling no longer applies to material goods alone. It increasingly governs the whole of life.

The years leading up to the financial crisis of 2008 were a heady time of market faith and deregulation—an era of market triumphalism. The era began in the early 1980s, when Ronald Reagan and Margaret Thatcher proclaimed their conviction that markets, not government, held the key to prosperity and freedom. And it continued into the 1990s with the market-friendly liberalism of Bill Clinton and Tony Blair, who moderated but consolidated the faith that markets are the primary means for achieving the public good.

Today, that faith is in question. The financial crisis did more than cast doubt on the ability of markets to allocate risk efficiently. It also prompted a widespread sense that markets have become detached from morals, and that we need to somehow reconnect the two. But it’s not obvious what this would mean, or how we should go about it.

Some say the moral failing at the heart of market triumphalism was greed, which led to irresponsible risk-taking. The solution, according to this view, is to rein in greed, insist on greater integrity and responsibility among bankers and Wall Street executives, and enact sensible regulations to prevent a similar crisis from happening again.

When we decide that certain goods may be bought and sold, we decide, at least implicitly, that it is appropriate to treat them as commodities, as instruments of profit and use. But not all goods are properly valued in this way. The most obvious example is human beings. Slavery was appalling because it treated human beings as a commodity, to be bought and sold at auction. Such treatment fails to value human beings as persons, worthy of dignity and respect; it sees them as instruments of gain and objects of use.

Something similar can be said of other cherished goods and practices. We don’t allow children to be bought and sold, no matter how difficult the process of adoption can be or how willing impatient prospective parents might be. Even if the prospective buyers would treat the child responsibly, we worry that a market in children would express and promote the wrong way of valuing them. Children are properly regarded not as consumer goods but as beings worthy of love and care.

A debate about the moral limits of markets would enable us to decide, as a society, where markets serve the public good and where they do not belong. Thinking through the appropriate place of markets requires that we reason together, in public, about the right way to value the social goods we prize. It would be folly to expect that a more morally robust public discourse, even at its best, would lead to agreement on every contested question. But it would make for a healthier public life. And it would make us more aware of the price we pay for living in a society where everything is up for sale.

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Why Some Countries Go Bust

Adam Davidson beautifully explained the basic idea behind “Why Nation Fails” .Daron Acemoglu gave a compelling answer to an old question of : why some nations are rich while other are poor? 

Historical answers:

Over the centuries, proposed answers have varied greatly. Smith declared that the difference between wealth and poverty resulted from the relative freedom of the markets; Thomas Malthus said poverty comes from overpopulation; and John Maynard Keynes claimed it was a byproduct of a lack of technocrats. (Of course, everyone knows that politicians love listening to wonky bureaucrats!) Jeffrey Sachs, one of the world’s most famous economists, asserts that poor soil, lack of navigable rivers and tropical diseases are, in part, to blame. Others point to culture, geography, climate, colonization and military might. The list goes on.

New Answer;

But through a series of legendary — and somewhat controversial — academic papers published over the past decade, Acemoglu has persuasively challenged many of the previous theories. (If poverty were primarily the result of geography, say, or an unfortunate history, how can we account for the successes of Botswana, Costa Rica or Thailand?) Now, in their new book, “Why Nations Fail,” Acemoglu and his collaborator, James Robinson, argue that the wealth of a country is most closely correlated with the degree to which the average person shares in the overall growth of its economy. It’s an idea that was first raised by Smith but was then largely ignored for centuries as economics became focused on theoretical models of ideal economies rather than the not-at-all-ideal problems of real nations.

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How To Be Creative

The image of the ‘creative type’ is a myth. Jonah Lehrer on why anyone can innovate—and why a hot shower or a trip to your colleague’s desk might be the key to your next big idea. Wall Street Journal has excerpt from his upcoming book “Imagine: How Creativity Works”.

Creativity can seem like magic. We look at people like Steve Jobs and Bob Dylan, and we conclude that they must possess supernatural powers denied to mere mortals like us, gifts that allow them to imagine what has never existed before. They’re “creative types.” We’re not.But creativity is not magic, and there’s no such thing as a creative type. Creativity is not a trait that we inherit in our genes or a blessing bestowed by the angels. It’s a skill. Anyone can learn to be creative and to get better at it. New research is shedding light on what allows people to develop world-changing products and to solve the toughest problems. A surprisingly concrete set of lessons has emerged about what creativity is and how to spark it in ourselves and our work.

The science of creativity is relatively new. Until the Enlightenment, acts of imagination were always equated with higher powers. Being creative meant channeling the muses, giving voice to the gods. (“Inspiration” literally means “breathed upon.”) Even in modern times, scientists have paid little attention to the sources of creativity.

But over the past decade, that has begun to change. Imagination was once thought to be a single thing, separate from other kinds of cognition. The latest research suggests that this assumption is false. It turns out that we use “creativity” as a catchall term for a variety of cognitive tools, each of which applies to particular sorts of problems and is coaxed to action in a particular way.

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Jeff Bezos - Taking the long view

Profile of Jeff Bezos as tech world’s alpha-animal after Steve Jobs. “Most importantly, he shares with Mr Jobs an innate understanding of the importance of thinking about high-tech products from the customer’s point of view”. 

The founder and chief executive of Amazon has often ruffled investors’ feathers by sacrificing short-term profits to make big bets on new technologies that, he insists, will produce richer returns for the company’s shareholders in future. He laid out this philosophy in his first letter to shareholders, penned in 1997, which was entitled “It’s all about the long term”.

His investment on Private Space flight.

Mr Bezos’s willingness to take a long-term view also explains his fascination with space travel, and his decision to found a secretive company called Blue Origin, one of several start-ups now building spacecraft with private funding. It might seem like a risky bet, but the same was said of many of Amazon’s unusual moves in the past. Successful firms, he says, tend to be the ones that are willing to explore uncharted territories. “Me-too companies have not done that well over time,” he observes.

Kindle and Kindle Fire

During the design of the original Kindle, for example, Mr Bezos insisted that the e-reader had to work without needing to be plugged into a PC. That meant giving it wireless connectivity. But he also wanted it to work everywhere, not just in Wi-Fi hotspots, and without the need for a monthly contract. This prompted the Kindle team to devise a new business model, striking deals with mobile-phone operators to allow Kindle users to download e-books without having to pay network fees. The ability to download books anywhere does not simply make life easier for users; it also encourages them to buy more books. The Kindle is an e-reader, but it is also a portable bookshop.

Similarly, with the Kindle Fire, Mr Bezos recognised that a tablet computer designed chiefly for consuming entertainment content is no use unless there is plenty of such content available. For many other tablet manufacturers, the question of getting content onto their devices seems to be an afterthought; but Amazon, like Apple, has assembled an ecosystem of books, apps, video and music to accompany its device. Moreover, Amazon can use cross-subsidies from the sale of digital content to keep the price of the Fire down, something that rival tablet-makers who do not sell content cannot do. Once again, Mr Bezos is playing a long-term game in the hope of establishing the Fire as the main rival to the iPad.

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Davos - Magic Mountain

New Yorker continue to set the bar high for fine reporting. This time Nick Paumgarten, staff reporter visited the davos to cover the annual world economic forum. The result is a first-timer’s impressions of Davos. People – right, left, uninvited or participant – like to project onto Davos their fears and fantasies about the way the world works. Mainly though, it’s an exercise in corporate speed-dating.

The annual meeting of the World Economic Forum, in Davos, Switzerland, was well under way when it officially commenced, early on a Wednesday evening in January, with an address, in the Congress Hall of the Congress Center, by Angela Merkel, the Chancellor of Germany. She had a lot to say about Europe. Some of it—“Do we dare more Europe? Yes, we do dare”—made the news. But outside the hall many Davos participants paid her no mind. They loitered in various lounges carrying on conversations with each other. They talked and talked—as though they hadn’t been talking all day. They had talked while sitting on panels or while skipping panels that others were sitting on. “Historic Complexity: How Did We Get Here?,” “The Compensation Question,” “Global Risks 2012: The Seeds of Dystopia”: over the course of five days, a man could skip more than two hundred and fifty such sessions.

Many Davos participants rarely, if ever, attend even one. Instead, they float around in the slack spaces, sitting down to one arranged meeting after another, or else making themselves available for chance encounters, either with friends or with strangers whom they will ever after be able to refer to as friends. The Congress Center, the daytime hub, is a warren of interconnected lounges, cafés, lobbies, and lecture halls, with espresso bars, juice stations, and stacks of apples scattered about. The participants have their preferred hovering areas. Wandering the center in search of people to talk to was like fishing a stretch of river; one could observe, over time, which pools held which fish, and what times of day they liked to feed. Jamie Dimon, running shoes in hand, near the espresso stand by the Global Leadership Fellows Program, in the late afternoon. Fareed Zakaria, happily besieged, in the Industry Partners Lounge, just before lunch. The lunkers would very occasionally emerge from their deep holes (there were rumors of secret passageways) and glide through the crowd, with aides alongside, like pilot fish. (The W.E.F. says that Davos is an entourage-free zone, but this doesn’t seem to apply to the biggest of the big wheels, like heads of state.) It is said that the faster you walk the more important you are.

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What is your favorite deep, elegant or beautiful explanation ?

Edge annual question for 2012 is “What is your favorite deep, elegant or beautiful explanation ?”Scientists’ greatest pleasure comes from theories that derive the solution to some deep puzzle from a small set of simple principles in a surprising way. These explanations are called “beautiful” or “elegant”. Historical examples are Kepler’s explanation of complex planetary motions as simple ellipses, Bohr’s explanation of the periodic table of the elements in terms of electron shells, and Watson and Crick’s double helix. Einstein famously said that he did not need experimental confirmation of his general theory of relativity because it “was so beautiful it had to be true.

192 contributors from divers fields answer this question.

Their answers are Here

The Doom Loop

Andrew Haldane, Executive Director for Financial Stability at the Bank of England has masterful essay on history of equity, leverage, risk taking incentive in the banking system. From 19th century to present day. “In evolutionary terms, we have had survival not of fittest but fattest. Its time to change.

In 1989, the CEOs of the seven largest banks in the US earned an average of $2.8 million, almost a hundred times the annual income of the average US household. In the same year, the CEOs of the largest four UK banks earned £453,000, fifty times average UK household income. These are striking inequalities. Yet by 2007, at the height of the financial sector boom, CEO pay at the largest US banks had risen nearly tenfold to $26 million, more than five hundred times US household income, while among the UK’s largest banks it had risen by an almost identical factor to reach £4.3 million, 230 times UK household income in that year.