Thursday, January 20, 2011

Creativity, Strategy & Ignorance in Economic Policy

How creative can one become in formulating economic policy? I would say, Very!

There are many layers of an economy that the policymaker can focus on. And one can simply choose one particular layer and be deliberately myopic.

Policy can be focused purely on consumption or production, the focus on one will have an impact on the other. One can become increasing adept at consuming or producing or making things. I would say that each one of us spend our entire lives perfecting the art of consumption or production. While we may think that we do all of that - work, eat, sleep - the share each component in our lives defines us, or rather our daily routine. Salary workers spend all their time working, with little time to eat or sleep. Those with cash spend all their time figuring out how to eat, and little time to sleep or do anything productive.

At a higher level, policy can be formulated to define the type of economic system that we prefer to live in or enclose ourselves in. Thanks to Adam Smith who popularise the exchange economy, there is no need for conscious charity and generosity - the world can pretend to do good when it is greedy and selfish - and in the end unfettered capitalism produces the ignoble result of global destruction.

In less enlightened societies, the focus on religious or racial characteristics - attributes which individuals can do very little about, being caught in the torrents of history - as defining policy pivots suffers the problem of being caught with results which are produced by the initial assumption made.

Strategy is therefore nothing but the self-restraint one puts on creativity.

It is the deliberate limiting of the global stage that we, like "creating" a bonsai plant, twist and turn each and every little branch and twig to produce a deformed product which we all then try to admire its twistedness.

In olden times, or rather since times immemorial, the object of dominant people is to invade and steal the fruit of other people labours - for our own benefit and at their expense. This is what we all dream of - the abhorrence of labour - and the only way that this can be done is to create a situation where the unfortunate will have to labour to the delights of others. This is in fact the real heaven that we are all secretly seeking in this dusty earth of ours.

But, alas!, how dismal. Simply for the pleasure of a handful of individuals, whole societies and communities are mobilised to dig up the earth to extract what we need for the moment and to throw away into the naked environment distilled poisons which we do not know how to use for now, and in so doing producing an environment that we all fear to be in.

The mass production of cheap and useless consumer products by the world's most populous nation demonstrated how those who slave do not have the pleasure of enjoying the fruit of their own labour. This is clearly an misguided policy.

The strategy to alter the demographics of a society by importing "young, educated and productive" new citizens in order to cure the ills of an aging society is one that is fraud with danger. The strategy is focused purely on the management of an informal whole will ignoring the condition of the individual constituents. The aging and the infirmed will remain so by the sheer force of nature, while the new, young and energetic will take over and create a sense of vibrant which the underlying layer of the aging and infirmed is unable to defend or retaliate. There is no salvation of the individual.

The degree of self-deception that policymakers can go is amazing. That household debt is now as much as half the national income and deemed to be a non-worrisome "even if it does look like a very big number" is nothing but an attempt for officials to pull wool over the eyes of the public. This is the result of banking ignorance, as they veer deep into consumer lending, unable to revive the budding corporate sector.


walla said...

There seems to be an optimal price on everything. By that i don't mean just market price but also life price.

I make something. First it's just by trial and error. Using innate intelligence, education, skill, determination, courage and sheer observation, I soon learn how to do it well. I write a business plan, draw up the production flowchart, borrow money, open a factory, employ workers, buy raw materials and tools, activate the marketing, sales, training and accounting functions, and soon i am in business, mass-producing the thing and fixing a selling price to the identified market.

As demand for my product increases, i increase my production elements. It seems the natural thing to do. That is, repeat the success formula and make it bigger. The sales figures enable me to enlarge my loans. The banker welcomes me with a cheezy smile to make up for the stiff upper lip the first time. He actually makes me an espresso himself.

The business hums along. But after a while, i start to get bored. i am not happy with the margins. Competitors are making inroads. Can i leverage on my achievement to increase my scale to pulverize them? I go for listing and tap sentiments and perceptions for more capital. To calm myself, i start reading economics and imagine myself as some guru. I strategize how to reverse engineer success stories so as to make it appear i had planned everything with uncanny acumen, unmatchable wisdom and superb intelligence.

My company lists and in the first ten minutes the share price shoots through the roof. Congratulations pour in and champagne bottles pop. I take my shares and hock them as collateral for more loans using the original success formula. On paper it seems my wealth has multiplied itself when actually i am just casting my net wider and further into the future and extending my exposures because my confidence that my luck won't run out outweighs my assessment of all the other micro-risks which go into what has made the success ride possible in the first place.

At night after a hard day's euphoria, i dream of building an empire next. The next morning and now dressed in the finest ermenegildo zegna and testoni, fingering a waterman black lacquer fountain pen, wearing an asian-sized lange sohne leather-strapped mechanical timepiece, and chauffeured to my spanking new headquarters in a stretch limousine cavernous enough to do push-ups, i swagger into the boardroom on broad shoulders and the gait of the next roman emperor.

Depending on one's assessment, they all smile the smiles of the hopefuls or the smiles of the hangers-on. Slowly lighting a cuban cigar like how it was done in The Godfather, i twirl it in the air and make my announcement. 'Gentlemen, we are going global.'

walla said...


The market picks this up and my wealth automatically increases by another two thousand percent. So too my confidence and ego. As the business expands and extends round the globe, issues i had never faced before in my backyard factory suddenly appear on my radar. My days now seem more packed than ever; the mobile rings incessantly; although it feels great to be needed as a vvvip, i can barely breathe. I try to delegate but it's hard. I want to know what's going on. And what's going on keeps expanding. I use an information system but it gives me only what is inputed by other people. None of it tells me the real feel of the situation or teach me how to look around the next corner. I start to find that my world of bricks and mortar has morphed into one where i am constantly on my toes trying to catch up with shadows, unknowns, imponderables and the politics of economics. I head for the nearest golf course followed by spa followed by the cozy lights of an inviting club. The head throbs, the pulse races and the bulge reminds me to have a med-check soon.

I am awakened in half-sleep mode by a call; one of the factories in some remote place is facing a riot. What, i yell? I actually have a factory there? Well, boss, the workers want higher wages but our margins are so thin if we give in, we will have to close down. I barked back no that will not happen. Fire the whole lot and grease some palms to make sure they don't make trouble. That includes the media, i add hopefully. I put down the phone, rub my eyes, look at myself in the grecian mirror and tell myself - close shave, can't have that burn my shares.

On the way to breakfast with an up and coming politician, i look out at the blur images of those heavy-hearted faceless people trudging to work and, to assuage my feather-light conscience, i slip off my leather shoes to feel the carpet in the car. My PDA buzzes. I read the message. Ah, that small company is finally happy to let me have a majority stake in it. They want the association with my reputable brand for themselves. I want to control their assets. They get some shares but won't they jump when they find they can't collateralize them because i will be denuding their assets and market share. Tough luck, kiddo's. It's a big shark eat small shark conporate world, i smirk.

I pass by some prayer place but tell myself i don't have the time anymore. Thousands depend on me for their well-being. Millions are involved everyday i breathe. I sneeze, the market trembles. Titan, goliath, king of the seven seas, aye me, man of destiny. I, robot.

Over a three-hundred dollar lunch with the fairest and sweetest damsel you can possibly imagine, i intimate that i might be interested to you know go into politics because i believe in the common man and the trials and tribulation of today's economic challenges. She looks visibly impressed. I make a mental note to check my tight schedule for a spot where we can explore more deeply socialization matters. She leaves and i sit there sneering at the bill from the waiter, smiling to myself how good life has been to me.

Then the roof which was patched after my shares had first gone through it caves in.

walla said...


As they say, when it rains, it pours. The market which i thought i had finally worked out collapses. The bubble which i thought i could preempt bursts. Someone had copulated with the gaussian copula until a virus surfaced and spread. Perception, the same thing which creates invisible wealth, returns to harvest grimly all hopes and beliefs. Since the world is wired to the zenith, billions disappear in seconds. People lose their jobs, cannot pay their mortgages due and are thrown out on the street without a roof over their heads or money in their pockets. Some head for the nearest public library which starts to look like a refugee camp. The turmoil is devastating. The dominoes fall like a deck of cards in a magic show gone awry.

My portfolio is also liquidated. Overstretching myself, i had confidently parlayed and triple-leveraged my holdings until who owns what is no longer traceable in this world of electronic records. Much like who actually own those indonesian coal mines beyond the creased pieces of paper shown to buyers.

I lose everything. Including friends, foes and my favorite fast-food franchise. The staff are all let off on some retrenchment scheme hastily cobbled together by a beleaguered global HR department. The board calls its last ashen-faced meeting. The lights go off all over the world for the last time. And the damsel doesn't call again.

All the same, i tell myself i didn't come so far without bucking the trend, so failure is actually an option.

Taking my last ride in the limousine due to be repossessed by a minder with logs for arms, furthermore tattooed with the SS runes, i head off looking for the nearest cheap motel. Suddenly the sky turns dark as heavy clouds roll by. A trickle, then more. As luck would have it, the car runs a flat just as thunders peal and lightning streaks across the portentous sky. I step out into the puddle. Right at the doorstep of that same old prayer place.

Grinning the cynical grin of a gangster about to face execution for his multitudinous misdemeanours, i walk into its quiet hall. And leaves the war-weary world behind.

walla said...


What kind of a place is this?, i ask myself sceptically. There's not a soul in sight in this holy place.

At that very moment as if my question has been heard out loud, someone coughs in the shadow and appears.

He wears a serene face. Like that of the Jade Buddha in Shanghai. Welcome! he says as if welcoming a long lost brother. The rain has finally come. It will last for some time, he adds as afterthoughts. You must be drenched, why don't you take off your coat and shoes and sit down for a hot cup of green tea with me, he thoughtfully suggests.

I do as bidded and sit next to him. The tea soothes a throat parched by thoughts of losses unimaginable. The feet seem to feel much more comfortable on the place's hard stone floor than on the plush carpet of that limousine, i note.

I gaze at him in the dim light of the hall. He is about my age, i think to myself. Lines of grey at the sides and an intelligent forehead with a set of peaceful eyebrows. The eyes, ah, they seem to gleam with some inner intelligence and wisdom i have not seen before in my old corporate world outside. That world seems a contrast here, i add to myself. All that hurry-burry, nitty-gritty, noisy-hustly. Here, time stands still, i opine for dutch courage.

As if reading me like an open book while i was reading him like an open manual, he says something which makes me almost fall off the rattan chair.

It's all about creativity, strategy and ignorance in economic policy, he says.

Groan, i think to myself. Not another one who follows that etheorist's blog. This world is going crazy, i mutter.

Since i have nothing to do anymore, i decide to humor him, a complete stranger. And what are your credentials for saying so?, i pose back.

Does it really matter? he asks back. Well if it comforts you, first class honours at LSE, summa cum laude at Oxford's Balliol and Harvard's MBA program, and a phi beta kappa at Stanford earning a PhD in strategy management.

What about a MacArthur foundation grant, a law fellowship at Cambridge's Trinity and stints at Chicago Uni, the Federal Reserve in New York, the World Bank and Daiichi Kangyo?, i almost wanted to joist back half in awed jest. But i hold my tongue instead, thinking to myself this guy must be the most qualified holy man on this planet.

He shakes his head and says, it doesn't matter. Did it matter in the world where you had just stepped out? he suggests.

With your credentials, why are you here, i ask back. He answers with a smile. For the same reason you finally find yourself here. To understand how to detach from valuation.

etheorist said...

Captivating read!

walla said...

There was a second part to that but blogspot's server seem to have annulled it.

That second part tried to embellish the notion of a 'life price' for everything whose determination first requires one to detach from the way we have been valuating things.

Maybe etheorist can delve into that notion if it strikes his fancy and come up with his usual brilliant insights.

walla said...

In any case, i now try to post the first segment of the full second part; that's all that remains:

He continues... let me ask you how do you valuate a thing? Based on the values of your inputs to make it add on your desired profit weighed against the risks you take and the price sensitivity of your market, rounding things up helpfully with a quantitative model that tries to pierce the veil of reality defined artificially? A long question there, a voice mutters inside me.

He continues...But how do you really value say the raw material or the tool or the human labour that goes into making the thing which is the root of your enterprise which is a descendant many generations after its first, original, parent enterprise?

I rub my chin, blink my eyes, wonder whether i was too hasty in coming in, try to remember that cozy spa many moons ago..but just say 'go on, please'.

Perhaps, the world we both knew was made messy by this process called aggregation. We aggregate trade figures. We aggregate people. We aggregate everything arithmetically. Then we say we have a system based on a model that everyone can accept because it is working. Of course it appears to work because everyone is accepting the way it is measured. But was our planet or our lives formed in order to operate according to this artificial construct that was designed without remembering the genesis of things? Perhaps the present upheavals are saying they all don't, what do you say? The fact events seem to depict nonlinear dynamics is signaling that we have conveniently simplified them to fit our basal desires, rather than to see them as what they are, detachable hooks to the firmament of life.

I think to myself maybe i should have added a postgraduate qualification in quantum mechanics from Gottingen to his pedigree.

In any case, i reply - but that's how the world works. It may not be perfect but it works with what it has. For instance, quantum mechanics work because we can test its predictions and find they concur with its theory, although i many will tell you it's all about probabilities and not reality.

What really happened our there was just plain vanilla unalloyed greed. People forgot to moderate and just glossed over their own irrational exuberance. I myself forgot my balance.

Ah, you are seeing some light in the darkness, he says. So let me ask you now, in your journey to find back balance, equilibrium and moderation in this chaotic complex nonlinear world, how do you price life, reality and people beyond the artificially computed market price that moves the world that you have left behind when you walked in awhile ago? Do you say that the most optimal price should take account of opportunity costs, for instance?

It will be too complex, i retort. Surely one can't be too sure of all opportunities that would be foregone when deciding on a single enterprise in their absence, and therefore it will be impossible to determine the final contribution for all the sharpest calculus we can use.

Given so, he replies, if we are willing to gloss over the present imprecisions of our artificialised world, why are we not willing to gloss over the present inprecisions of our real human world whose decision will perhaps make us kinder and more caring towards all and less inhibited to work at what really matter in life for everyone?

I must admit when i hear that, i am stumped for an answer. The image of her smiling at me contends for my attention. What am i doing here, i hear myself asking myself?