Institution and economic growth

Small firms are subcontractors either in their direct or indirect relation against large firms. They develop new technologies if doing so is incentive compatible, i.e. if entitled to the rents they generate by putting an extra effort to innovate. Therefore, in the program in which large firms decide the level of small firms’ effort to contract for, they must ensure that small firms enjoy a part of the rents and they remain incentivized to develop new technologies. To the extent that technologies help raise profits, it is rational for managers to do so. They often don’t, however, in reality. Such myopic behavior undermines large-firms’ long-term profits. As a result, both large and small firms are worse off. It is therefore necessary that lawmakers and regulators jump in and restrict large firms’ behavior by legislation (e.g. punitive damages) and enforcement. In so doing, a ground is maintained over which small businesses continue to innovate, grow to hire people and spawn skilled labor and entrepreneurs, and eventually let the economy grow. The contractual relationship between small and large firms highlights why and how the institutional devices of legislation and enforcement are critical for economic growth. Their quality are particularly important for developed economies, which are little aided by population inflation, the strongest booster for growth, and among the main features that distinguish developed economies that continue growing against those that don’t.

Social science of social scientists

Social scientists tend to pay little attention to the society often for the reason they are busy doing science. It is contradictory in that the society is where problems are and they do science to solve them. This is probably of reasons why progress in science does not translate at the same rate into progress of the society. I see the majority of social scientists are either i) from financially-unconstrained families or ii) from financially-constrained families but with high enough marks to win scholarships. During the formation period (i.e. in their youth), either group barely interact with middle and bottom classes. Such a tendency is stronger in areas of social science, for which demand for human capital is lower and so is supply from constrained families. It is therefore necessary to change policies as to education and human capital management to i) better incentivize licensed researchers to improve their understanding of the society and ii) facilitate those who have lower qualification but have richer understanding of the society to do social science research.

Sustainable economics

Economics rooted in western values is destructive, the impression I have formed for the past two years learning economics in the US. Its added value comes mainly out of progress of civilization. It views the nature as a subject to which they make changes rather than a subject from which they learn. It parallels a common mistake one makes in his/her relationship with family members and friends. An individual tends to put greater effort into changing others to the shape it considers ideal rather than accepting them at their own currencies and honoring them for what they are. Economics stems from a similarly erroneous presumption that mankind is superior to other species on earth both contemporaneously and historically and can make a more efficient use of resources.

Consequently, economics has contributed to spawning unsustainable systems destroying a sustainable one, the nature. A fact that is overlooked in the course is that the nature has sustained for billions of years, whereas the socio-economic systems the mankind created and tested had sustained only for up to thousands of years. Worse, the latest systems including the one for which capitalists play pivotal roles are expected to die out in hundreds of years upon the depletion of resource, unless necessary, smart corrections are made. The inefficient use of resources is, however, not the most imminent problem facing capitalist economies. Capitalism, which engendered the economies that proved to be more sustainable than communist economies in the sense that they preserve incentives of people to work hard, is also proving that it is fundamentally flawed and nearing the end of its life, or at least a major departure from its original shape.

Capitalist economies, with little check and balance involved especially during the aftermath of the Cold War, has suffered an ever-increasing inequality in wealth and is rapidly converging to an economic state in which individuals are left with little incentives to work hard. It is the state communist economies reached and found themselves unsustainable. Nevertheless, economists are still disproportionately exploring civilizational alternatives to cope with civilizational problems uncovered. I believe that such a bias or ignorance about non-civilizational alternatives is a reason they keep failing to find a way out. And that they really need to pay attention to eastern wisdoms which take into account both civilizational and non-civilizational solutions. I frequently find possible solutions to many unanswered (or poorly answered) fundamental economic questions out of eastern values that are planted deeply in Asian histories and philosophies. I may discuss them in more detail later.



The value of a person

Assume that the value of a person is measured by his or her marginal contribution to the society (MCS), which can be estimated by the difference between the value of the society with and without the person. It is speculated that a person who is more educated and experienced is likely to have a greater MCS. But a dimension that is often overlooked is its direction. The sign – either positive or negative – of the MCS is not necessarily a function of education and experience whereas its magnitude arguably is. As such, unless the distribution of the MCS for the highly educated and experienced is proven to be “substantially” negatively skewed in most states of the world, it is not only imprecise but also risky to assess the value (or expected contribution to an organization or the society) of a person primarily based on his or her education and experience and appoint them for high positions, especially for the positions that are systematically little monitored. They would be the subject of a higher variation, yet not necessarily a higher mean, of the MCS.

Research interest

PhD students often choose research areas and methodologies in their first or second years. It helps them develop early in their academic careers competence in selected subareas and research methods and distinguish themselves from fellow researchers. But, this seemly rational approach may later turn out to be irrational for a couple of reasons. It is particularly the case when the early decision serves to justify students’ not making much of an effort to learn about other subareas and analytical tools not actively used in their chosen subareas.

Firstly, researchers never know for sure – even if they feel confident at the time of decision – what questions they end up answering in the future. Confining themselves to particular research areas and methodologies in an early stage of their academic careers is like a golfer choosing an iron before seeing where to fly a ball, or an engineer selecting tools before knowing what to make. Secondly, research amounts to connecting dots (a metaphor for innovation used by Steve Jobs in his popular Stanford commencement speech in 2005), and the easiest way of increasing the scope of dots to which one is exposed is to explore subareas within the area they major. If widening the spectrum of dots helps one connect and rearrange them to innovate and, say, an economics PhD student choose to be specialized in industrial organization, it is the most efficient for her to explore other subareas of economics such as macroeconomics, econometrics, and financial economics before turning her eyes to relatively distant areas such as anthropology and chemistry.

OCASL 2nd place in Fall 2015

A picture taken after our last game against Still Kickin on October 31, 2015. At the game we lost 0-1 and failed to win first place for this fall season. But we, Spicy Boys, did great work and had a good season. Spicy Boys is a regional soccer team composed mainly of doctoral students at UNC and Duke. In the following winter, the team plays under a new name Spicy Boys II Men, while I am going to be off for the season. See you all again in Spring 2016.



Good and evil

The unresolved debate over the nature of human beings dates back to more than two thousand years ago in Asia. In around 300 B.C., Mencius developed a theory which brings to a conclusion that human nature is fundamentally good. Xun Zi opposed it with a theory which concludes that human nature is fundamentally bad. A stream of other schools of thought followed either of the two theories. In the warring states period, states had an incentive to develop more competitive ruling systems than those of others and, to do so, needed to appreciate whether people are born to be good or bad. It was because a good understanding of human nature would facilitate determining, for example, the size of costly judicial and security systems, which is a function of the amount of good and evil realized in the society. Philosophers (ruling system designers) viewed human nature as a proxy of the amount of good and evil observed in the society.

Their views, however I believe, were incomplete at best. The amount of realized good and evil is rather a function of how national systems (ruling systems then under the monarchy) are established and operated, not a function of how people are born to be. It has been well documented by several research that crime rates and suicide rates historically rose in years of a Republican in the White House and dropped in years of a Democrat. The former’s policies which involved corporate tax cuts and easier layoffs raised unemployment rate, and nation-wide depression caused by high unemployment resulted in a hike in crime rates and suicide rates. This is an example of how poorly-managed national systems increase the amount of good and evils observed in the society, among others. Nevertheless, we often see some politicians attribute realized bad social outcomes to national character or traits – which belong to a battery of human nature – while they are outcomes of the national systems the politicians design and run.

Arguably putting an end to the long-lived debate, democracy forms a surprising innovation. It enables people to determine and control the relative proportions of observed good and evil in the society. Precisely, in modern societies where democratic systems are installed (which are assumed to function as designed in this writing), the wedge between good and evil converts from the matter of human nature to the matter of choice. That is, the choice between a pair of certain short-term benefits and uncertain long-term losses expected from the practice of evil and a pair of uncertain long-term benefits and certain short-term losses expected from the practice of good. Or, in even simpler words, the problem of incentives.

Given the representative political system, it is now possible to pull up the proportion of observed good by delegating the right to operate and amend democratic – administration, legislation, and judicature – systems to those who are willing and able to do so in the following directions. The ways that reduce costs (and uncertainty) as to implementation of good and merits (and certainty) as to implementation of evil and that raise merits (and certainty) as to implementation of good and cost (and uncertainty) as to implementation of evil. That is, the extent to which democratic systems incentivize, as described above, each member of the society drives the relative proportions of observed good and evil.

Timely look

It’s been a year back in academia, spending a growing amount of time in this small, isolated, windowless, corner cubicle. Wish I now have a more nerd-like look. It’s time to dedicate myself to building up knowledge base my future research will build on, and how I look may showcase how successful I am in that. But, I will need to spare a growing amount of time to level up my oral communication skills at later stages of my education, at the expense of my time to do research. A distinct feature of business professors is that they teach MBA students and so are expected to be a good communicator as much as they are expected to be a good researcher, which are oftentimes conflicting missions. A timely look is always of the best quick-and-dirty proxies of where one stands.

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