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Recently a Russian was caught at the border trying to smuggle in 200 pounds of not cocaine, not heroin, but butter into Norway. The stash is worth in excess of five thousand dollars

In a bizarre example of external factors affecting consumer demand, Norwegians have eaten up the entire butter supply in the country. Norway doesn’t belong to the EU and so has high import duties. Butter is currently retailing at USD 52 per kilo.

It was all apparently a result of a fad diet that has Norwegians everywhere substituting fat for carbs.

A Norwegian company also has a butter monopoly right now, pissing off a lot of fat loving Norwegians. This Reuters report says that the Danes across the border are loving it, and laughing about it over their richly buttered breakfast toast.

i’d like to know more about this fad diet. Meanwhile, economic textbooks finally have yet another implausibly interesting example to illustrate market behavior. Thanks Janith for the heads up on this!

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Just watched Dirty Pretty Things.

It depicts a seedier side of London. A London where illegal immigrants sell their kidneys for a forged passport. The operations are butcheries, and some survive, most don’t.

The operations manager, lets call him the villain, justifies the whole thing because he is in the business of making people happy. The immigrant gets a passport so he is happy. The villain sells the kidney for ten thousand pounds so he is happy and a dying rich person get’s a new kidney and a new lease on life so they are happy.

When it comes down to it, it’s all just plain economics. The villain is exploiting a ready market, he is an intermediary. Intermediaries spring up wherever there is a demand for a product and a ready supply. He connects the buyer with the seller, and finishes the deal. Of course he is a villain because he uses sub-standard medical procedures, unqualified doctors and plainly exploits his suppliers. This is why many die.

He doesn’t use proper equipment and qualified doctors because he is a criminal. But also because he has to operate outside the system. And the system does not give health services to those outside its limits, because what it can’t see doesn’t exist. Illegal organ transplants are a criminal operation, never mind that most of its victims participate voluntarily, because they are desperate.

The desperate immigrants run away from home due to poverty or war. The countries they are running away from are often run by corrupt regimes where people have no rights. Banana republics exploited for their natural resources by their ruling elites and behind the scenes, multinational corporations with the implicit support of the very countries towards which the desperate immigrants run to.

So who is to blame? Where does the moral responsibility rest? Does morality even have a role? Morality here is outsourced, everyone is technically happy. Except those at the bottom who are just technically desperate. They are reaped like so many harvests.

The movie is great. Its poignant and, unlike the trailer, doesn’t have an annoying deep bass voice telling you how many people live in London.

yes.

Tuk tuks, even metre tuks, are ridiculously overpriced. Just do the math. A metre tuk costs Rs. 30 a kilometer. Your average car covers the distance in about ten. Regular tuk tuks will fleece you for even higher amounts.

Tuk tuk fares, like a lot of similar services, have not reached their optimum pricing. They are disproportionately high in comparison to income levels and costs of alternatives. The key figure would be something more than Rs. 10 but way less than Rs. 30. Just enough to incentivise a would-be driver to leave his car at home and take a tuk, as well as incentivise a would be bus traveler to fork a little extra for comfort. Profits will increase as more and more people are attracted to tuk tuks.

Tuk tuk pricing is a fascinating topic. Tuk tuk stands appear to take an almost cartel-like approach to charging fare. ‘Stands’ are wherever you see a collection of tuk tuks parked on a regular basis. Members of a cartel will enforce high prices and will then use their monopoly on the stand to block any new tuk tuks from starting business there. This has resulted in artificially high prices.

The advent of metre tuks have reduced prices, but even they appear to have priced their fare not based on actual market conditions but based on exactly how much they would need to undercut non-metered tuk tuk pricing to grab their market share.

Another factor that determines tuk tuk pricing: location location location. Outside Majestic City the tuk tuks cost you at least 50 percent more than anywhere else. A wise strategy in this case is to move away from MC and hail a tuk already going in the direction you’re heading in. If you stopped it in slow moving traffic and start bargaining, the driver will have no choice but to meet your price or risk the wrath of a thousand horns.

Most tuk tuks quote prices that incorporate potential bargaining loss. So they generally always expect to be bargained down. Tuk tuks in more rural areas are cheaper than those in Colombo i’ve noticed. Maybe a reaction to the lower income levels of rural citizens as opposed to Colombians?

Tuk tuk costs involve petrol, wear and tear and owner fees. Your average tuk probably does about 25kms per liter. This makes the petrol cost per kilometer something like Rs 4. Wear and tear and user fees can be (very) generously calculated to be Rs 10 per km, with this decreasing the further you go. But lay out the math to a tuk tuk driver and you’ll likely be accused of being a know it all, and threatened with violence.

I know because that happened to me once when i went from Pettah to Panchikawatte. The driver demanded more that what we agreed would be the rate. I was having a bad day and was in no mood to be fleeced, so we disagreed loudly. Unfortunately he didn’t appreciate my math skills. But luckily i had a menacing gear lever in my hand which i waved threateningly. And he went off grumbling.

Most tuk drivers are amicable fellows. They’re out to make living and therefore do what everyone else in the system does; capitalize. What they don’t realize is that low prices can be good for them as well as the customer, and can bring them more revenue in the long term. I think maybe a regulatory authority making taxi meters compulsory and fixing the rate can help, also solving transport issues in cities in the process.

Dad next to a mini cooper, NOT what we ended up buying

Well, it’s new to me, but it has had at least two previous owners and one leasing company has cast its ominous shadow over the documents. But somehow saying ‘i recently bought a used car’ doesn’t quite bring it, you know?

In the process, me and my dad (who helped) did a reasonable amount of price gauging, which generally meant studying classifieds, calling around and making test offers; quality checking: going around and testing vehicles out and judging them against price quotations, looking screwy eyed at sellers trying to make out hidden agendas; research: grilling mechanics, friends, bystanders and paranoid neighbors and anyone else who we suspected of having a modicum of knowledge about our target model.

Like any used car market, Sri Lanka’s has no shortage of lemons. It’s a jungle out there and information is highly asymmetric, which is a fancy way of saying that the sellers have all the knowledge. For that reason we steered clear of car salesmen. They have a reputation for ‘dressing up’ and palming off vehicles that will end up giving a lot of trouble, at exorbitant prices as well. Not all car salesmen are bad salesmen, but they are victims of the same same market law that plague all informationally assymetric markets; “The bad drives out the good”.

Admittedly worries about quality decrease as the car reduces in age. The newer the car is and the better the ownership record, the easier it is to trust what the seller is telling you.

Buying decisions center around two areas when it comes to cars. On the stochastic side, or the part of the decision that considers the actual car itself, things like brand, country of origin, parts availability, options (such as AC, power steering etc), durability, fuel consumption and commonness play a big role. Toyotas are top dog and can boast of being almost liquid assets, bought dear but sold quickly and often at a profit. Nissan and other Japanese brands come next with some exceptions like Subaru. Indian cars are slowly gaining recognition as well. I hope so, I ended up buying one.

But the biggest worrier for any buyer in the used car market is level of maintenance. The quality of the car ultimately depends on how it has been used, whether it has been serviced on time and if it has been ‘hacked’ or not. Buyers analyze potential buys by looking at mileage, wear and tear and general drive quality. But who are we kidding? These are used cars. Damages can easily be covered up so generally a buyer will take an experienced mechanic to check the car out and give the go ahead.

Economists have been all over the used car market. Like the insurance market, it’s a classic example of information asymmetry. An economist called George Akerlof said that since used cars enter the market after years of wear and tear due to many factors like the style of driving and general maintenance, buyers can’t conclude if the car is of superior quality or not. The safest bet then is to assume that car is of average quality, and pay an average price for it.

This means that sellers of used cars in top condition will not want to sell it because they won’t get the price they want. So top quality cars will be removed, reducing the average quality of the used cars in the market, causing buyers to drive prices down even further. This vicious cycle is described by Gresham’s law; which states that ‘the bad drives out the good’ (I’d like to apply this to our country’s political sphere and see what comes up sometime).

This uncertainty of quality levels leads to a long drawn out buying process, lasting sometimes for weeks. A buyer will ‘stalk’ the market until he is satisfied that he has obtained a reasonable amount of information to proceed with a purchase. Only then will he proceed to make serious offers.

Interestingly, buyers and sellers are interchangeable. Today’s buyer is tomorrow’s seller. So experienced buyers and sellers will both think they know how the other’s mind will work, and will try to second guess their moves. Sellers will generally price the vehicle at a premium and will then reduce reluctantly based on the offers that come in.

Sellers might be usually painted the bad guys here, but really everyone involved is doing some skullduggery of the other. If you’re a noob looking to buy his first car, take my advice and look beyond the shiny paint and body kit and consult someone with experience.

-label for your textbook

What if there was a different way to live? What of all the waste, over consumption and reckless consumerism is only a side effect of what we are taught? What if we could change the world if only we were taught things differently?

Economics is a study of the behavior of people. But it also advocates what the behavior of people should be. And this normative aspect of the subject is used to dictate policies of countries and has come to represent everything the world as a whole is aiming for; namely GDP.

If the world turns where the economists point then theoretically, if the economists point in a different direction, the world should follow. There’s a huge hue and cry being made about the recklessness the current global economy is showing towards the environment. Traditionally this fuss is primarily created by white people in rich countries, the rest of us are too busy trying to figure out policies that will feed our populations. But the white people have a point.

Take the Kick it Over Manifesto for instance

Imagine you are riding comfortably on a sleek train. You look out the window and see that the tracks end abruptly not too far ahead … The train will derail if it continues. You suggest the train stop immediately and the passengers go forward on foot. This will require a major shift in everyone’s way of traveling, of course, but you see it as the only realistic option. To continue barreling forward is to court catastrophic consequences. But when you propose this course of action, others – who have grown comfortable riding on the train – say, “We like the train, and arguing that we should get off is not realistic.”

These guys think that the world is being deluded by its own stupidity. And that economics students must revolt against their professors to fight what they call the ‘Thought Control in Economics’. This is essentially the continued teachings of neoclassical principles to students whereas those very principles are now being proven to be very bad for the world.

Concepts like consumerism are essential for GDP. And in the haste to increase GDP we don’t give two hoots for the ‘ecology’. Another idea is the idea of true cost, that is assigning the true cost of producing something; including the costs incurred to the environment in production, transport, overheads etcetera. Interesting concept, but practically iffy.

I think the fundamental question to ask is whether the world is greedy by nature and is economics simply giving a face to that greed by setting greedy goals? Or is it actually economic teaching that has made the current system so greedy?

If a change in economic attitude must come, from where must it come? Who should initiate it? The professors? The politicians? Maybe like Friedman said, true change will only come with a crisis. This is something that everyone needs to get with, for it to work.

So if you believe in changing the system go to http://kickitover.org and sign the manifesto. Can’t say it’ll do any good, but you might  feel cooler because the site looks very nouveau hip, if that’s your thing.

Today i mucked about manning market. I got a rubber slipper full of dead vegetable mixed with mud for it. An official from the traders association objected to my taking pictures but what the hell right, its not like their secretly using the market as a base to pilfer uranium while they sell vegetables for a cover right?

Most of the traders are friendly when you’re not standing still. Stand still here for a second and five people yell, hiss and poke at you to move. Even when they think you’re buying stuff. They get friendly or hostile when they find you’re from a newspaper, depending on what you want from them.

The naatami’s carry sacks of vegetables for a living. They pretty much make up the logistics network here. They get around 15 rupees per sack, and the stronger ones make about Rs 1000 a day.

They have a hard time walking about the mucky earth. The traders don’t exactly make it easy for them by throwing rotting vegetables in their paths to trip them over.

Its a cacophony of noise, movement, smells and colors. It all dies down at about 9 a.mm. i’m told. Probably one of the most happening places in Colombo when it’s open though.

More pics here

Following is a brief synopsis of the history of economics as i understand it together with a subjective viewpoint on its inherently oppressive nature. This viewpoint as written below does not necessarily reflect my personal opinion on economics, it is simply a viewpoint, that should stand alone in its own right.

-The Raj

Since industrialization humans have focussed on getting more efficient, becoming more profitable. I shouldn’t say humans in this regard, for it is mostly the capitalists who expound such thought processes into practical application. Economics after all, cannot be taken away from the self interest of its proponents, and when brought into the fray of politics, self interest largely depends on who is in power. And, money being tantamount to nearly everything in entering politics, most modern democracies flout the interests of capitalism over ‘what is good for the masses’. Of course this is cleverly disguised, more so from the politicians themselves, but GDP is not a measure of quality of life. Getting richer as a country, with it’s complete wealth distributed according to the laws of the Pareto Principle, is questionable as a purpose of being. Most modern economies can be highlighted as examples.

The prevailing ‘what is good for the powerful is good for the economy’ philosophy can be easily illustrated with simple look at the history of economics. Initial feudal establishments (which were centered around the absolute power of the landowning class and its default omni-ownership of all capital) crumbled with the increase of trade and the appearance of ‘marketplaces’. This only exacerbated with colonialism and eventually led to the Merchant class surpassing in wealth the landowning overlords of feudalistic society. Eventually, the reign of Merchants was the norm.

Mercantilism

‘Mercantilism’ was their philosophy. Mercanltilists were of the opinion that to prosper, a nation must sell more than it buys. In other words, its exports must exceed its  imports. This kind of thinking will seem absurd in the modern day world with interdependencies among nations causing more deficits than surpluses. A system like that cannot survive, for the simple reason that were every country in the world to follow identical princples, trade would simply halt! leading to eventual collapse of the system. As it happened Mercantilism survived for a long while, primarily due to cheap resources readily available from colonized nations and also by oppression of its own country’s peasant class, and economies in that day were controlled more by guilds of merchants that functioned more like cartels; monopolizing trade and commanding prices. Not very good for the quality of life of your average peasant, I would say.

Moving on, the rise of capitalism happened when the industrialists got into the game. They were a class of people who believed in the use of capital to control the arena of trade. They would supply capital to small scale artisans and contract merchants to sell them. This practice formed the basis of what would become the modern company.

Capitalism

‘Capitalism’ full blown, had names like the Dutch and British East India Companies as its flag bearers.  They allowed joint stock ownership and modern share markets found their origin here. They used their vast capital and trade monopolies to import cheap and sell dear. Making their owners’ wealth increase to previously unimagined proportions. Along with the emergence of capitalism, the seeds of the destruction of mercantilism were sown. Some advantage was gained to the common man with the abolition of protectionist measures like monopolies. And free market systems ensured competitive prices but along with its advantages the market economy also increased the sense of work ethic. Previously idyllic lives were now to be spent slaving at factories and workplaces eking out a living.

This hasn’t changed much. In the world of globalization and international trade, corporate interest is the main driving force behind ‘growth’. Obama treads lightly with BP because Obama possibly knows who has a fatal but light grip on his balls. The ecosystem and the small people making a living off it are not really significant. And this is not really a one off example. Trade barriers, free markets, international trade agreements, multinationals etc are all ‘good for growth’ but not really good for the increment of the quality of life of the small man. At least, such increment does not make the betterment of the common good its priority. Leading us to question the validity of the whole system, and our perceptions of human nature.

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