In this post, I talk about the definition of fairness in the context of economic transaction. Many of you may have simple framework based on free market principles to judge a transaction as fair or unfair. I have a different framework that is based on equality. This post should be read from a philosophical standpoint and not from a practical or enforcement standpoint.

Two Transactions

I will present two transactions to you. Both of them follow free market principles. I would like you to judge if these transaction are fair. First, a rich businessman approaches several equally rich engineers and arrives at $200 as a price for a job, which is given to least expensive engineer. Second, knowing that the price of the job was $200, the businessman goes to a poorer, desperate (for tangential reasons) engineers. The businessman uses the poorer engineers’ lack of bargaining power to establish $50 as the price for the same job. All the engineers are equally skilled and efficient at the job. My question is: do you think the second transaction was fair? If the businessman goes to the poorer engineers first and then to the richer ones, are the same transactions fair?

Fairness

If you argue that the all transactions were fair because they were all mutually agreed upon by the parties involved (free market economics), I respect your judgement, but I disagree with it. I think that fairness and free market principle are different entities altogether. I think that free market is just one of the many possible systems to distribute capital and resources.

My framework to judge fairness is based on equality. If the businessman *knowingly* exploits the lack of the bargaining power, which has got nothing to do with the job, I think that he is being unfair. You may ask me how I know that $200 is the “real” price for the job. The key term in my definition is “knowingly.” If the businessman genuinely thought that $200 was too much, and that $50 is reasonable, I wouldn’t call it unfair. In the second case, where the businessman approaches the poorer engineers first, he does not really know the price of the job, and so he negotiates the best he can. I wouldn’t call that unfair either. We assume here that the businessman used his bargaining position, which had no relation to the job, to treat people in different ways. Fairness goes the other way too. If the engineers were to treat different businessmen differently, I would call them unfair too.

What if it Happens to You?

I would like to put the same question in the context of your employer. Suppose your boss knows that you and  your colleague are both equally productive and equally valuable to the company. And he also *knows* that you are desperate to keep this job. Perhaps, you and your spouse  just had a baby, and cannot afford to change health insurance plans, while your colleague  can afford to quit the job and look for a new one because he has a richer ancestry. Or, perhaps, your colleague may be as desperate a you are. If your boss decides that only your colleague gets a bonus for no reason (your boss tells you so), would you still call that fair? Remember that reason why he decided to treat you unequally had nothing do your job, but other tangential reason, and everything here follows free market principles; you are free to walk away from your job if you don’t like the salary.

Personal Confession

I knew that the previous owner from whom I bought my car was going out of country in a few days. So I used that information to lower the price I paid for the car. In my opinion, I was being unfair to him because the value of the car had got nothing do with his going abroad. Will I be unfair next time I am a part of such transactions? I think I will be. I am not taking a moral highground. I think that the social cost of my unfair actions is not very high. I hope I will be less selfish if the social costs are high.

Relevance to Foxconn, Walmart and Apple

Clearly, everyone knows that Chinese workers are more desperate for work. The companies use this to exploit them. I have read many posts online that explain that it is fair because it follows free market principles, and that their life is better off as a result. I have to disagree with that reasoning. No one would complain if the employees has a decent standard of living. But we all know that condition of workers in Foxconn (link) and Walmart (link). The companies are not doing the worker a favour by giving them the job. It is business transaction in which the workers are being treated worse thay should be (based on my framework on fairness). The social cost of their actions is very high. That is the reason why their practices are frowned upon.

Practical?

I realise that enforcing my idea of fairness is not practical. Walmart can simply say that they genuinely believe that their worker do deserve health insurance. This is where government mandates come into play. I am not a fan of ideas that imply fairness if all rules are followed (government rules or otherwise). How would you decide if the rules are themselves fair? I think a judgement on what is fair should not have external dependence because it is a personal moral compass.

Other Frameworks

I have not had the time to read any of the following wiki links or books to which they refer. If you happen to know other frameworks (described in the links below or otherwise), do let me know.

a. Justice as Fairness: John Rawls conception of Justice

b. A Theory of Justice: A book by John Rawls.

c. Justice as Fairness: A Restatement: A book by John Rawls

d. The Theory of Moral Sentiments: A book by Adam Smith

e. The Idea of Justice: A book by Amartya Sen

Comment Policy:

If you diagree with me, provide your framework, and let me know what you think about the transaction with your employer.  It’s a simple “is it fair” question. Keep it to the point. Please do not explain free market principles to me in a hundred possible ways (willingness to pay, current value of the job to the engineer or businessman etc.). I have a different framework. Please respect it.

It was rather unpleasant to watch Gov. Rick Perry being applauded for overseeing capital punishments in Texas during the Republican presidential debate last year. Even a supporter of capital punishment usually agrees that it is not carried out with pride but with a disappointment that such punishments are necessitated in our society[*].

I noticed on wiki (link) that US is in really bad company with China, Iran, North Korea and Yemen in awarding death penalties. The rest of the “western” world (i.e., other than the US) does not see as many death penalties. China, Iran, North Korea and Yemen are some countries that are hated for their domestic policy. Countries with large number of capital punishment victims are usually totalitarian or dictatorial. US, on the other hand, is proud of being a “free nation.” Something was amiss. But then, the US is hated for it foreign policy. It has broken its own laws many times when they are deemed a threat to national security (link). There should be a factor that reconciles all these facts. I believe that it is the holier-than-thou attitude that reconciles the facts.

Before I elaborate, I stress that I am not using holier-than-thou with a negative connotation. Holier-than-thou is usually associated with hypocrisy. My use is more generic.  If you expect a better pay at work for reasons such as race, caste or nationality, that is holier-than-thou attitude at play, and it is frowned upon for its hypocrisy. If you work harder then your peers, and then expect a better pay, it is reasonable, but it is also a holier-than-thou attitude at play. There is nothing bad about it in this context.

Now, let me explain how the holier-than-attitude relates harsh punishments and domestic or foreign policies. The US is notorious for waging wars all the time. War is imposing your idea of what is right upon others. Similarly, harsh punishments are awarded to those whom we deem unfit to live in the society and deny them some of the basic rights that the rest of us enjoy. Both of them have elements of the holier-than-thou attitude. I see capital punishment as a tangible manifestation of that attitude, which brings people to believe that those who have done something terribly wrong are not worthy of living anymore.

I checked out punishments in some of the kingdoms. Larger kingdoms have obviously waged wars and expanded from smaller-sized kingdoms. Are the punishments for crimes in those kingdom equally harsh? I found that the Chola dynasty, a small dynasty, had very little punishment such as fines even for crimes such as murder (link). The Rashtrakutas (link) were a little bigger dynasty. The punishments were harsh, but some “high” caste people were excluded from such punishments. When we get to really big empires such as the Roman empire or the Mughals, the punishments were “cruel and unusual” (link, link, link). Execution by elephants were common. In the British Empire, I could not find examples of cruel punishments during its “glory” days in England. Some links (link, link) do indicate that punishments were harsh before the fall of the empire. There may be exceptions to the rule that ambitious empires also practise cruel punishment, but I would like to see some more study on the correlation (religion may also offer more information).

Few years ago, I answered a survey questionnaire in which a few questions about our opinion on women’s rights and environmental policies were asked. At the end of the questionnaire, I was informed that those who support equal rights for women are also likely to support strong policies to preserve the environment. This brings us to Ecofeminism (link), which has its roots in the belief that “the social mentality that leads to the domination and oppression of women is directly connected to the social mentality that leads to the abuse of the natural environment.” I think that this is just a fancy way to explain that the holier-than-thou attitude (or lack of) is responsible for many of our views.

[*] In the same way, military might is something that is forced upon us because we have enemies; displaying military might  (as during India’s Republic Day) is not something I am comfortable with.  Most agree that public hanging is unhealthy for a society. I don’t think that display of military might, similarly, is healthy. I think the US did the right thing by not releasing Osama bin Laden’s picture.

He suggests that India should not be worrying about economic inequality as much as worrying about the overall growth because actions to promote overall growth will benefit a state more than just targeting inequality. He argues that according to Gini Coefficient (link), which measures economic inequality in a region, Haryana, Kerala, Maharashtra, Tamil Nadu, Punjab and Gujarat are the most unequal states, but the same set of states are are more prosperous than the rest of the country. Thus, he concludes that inequality is not a good measure to assess well-being of Indian states. He implies that the Gini coefficient is meaningless because overall growth brings more people into a prosperous state and skews the wealth distribution. And also, because of presence of rich folks in Gurgaon, a fairly secure landlord in Haryana is counted as poor in the Gini Coefficient. The wiki article on the Gini Coeffieicnt (link) discusses the weaknesses in the measure. Swaminomic’s post says that some of the weaknesses are applicable in India’s case.

Against the harsh reality of farmer suicides, I am led to believe that the weakness do not play a role. This presentation (link) and this wiki article (link) indicate that Haryana, Kerala, Maharashtra and Punjab see some of the highest cases farmer suicides in the country. The claim that the inequality measure falsely indicates a fairly-rich person as a poor because the presence of richer folks is untrue in these cases. Inequality and poverty are very real in this case. Clearly, spending effort on the overall health has not benefited the very poor. Inequality needs as much attention as the overall economic health. A disguised trickle-down-theory (tried, tested and failed) argument will not convince me.

I do realise that the farmer’s suicide is an incomplete indicator. I am willing to look at other indicators, if any of you can provide them. Given an agriculture-based rural economy, farmers forms a major chunk of the population. So I think it would be hard to find indicators that support the contrary. The post says that GDP is an incomplete indicator, but it uses GDP to make arguments against Gini coefficient as an indicator (I assume. If not, then what?). There is a structural flaw in the argument, too.

First, the statistical analysis of price fluctuations in the posts is poor. The author of the blog post compares the monthly changes in the price of onion to that of oil. We have seen that oil prices have a two- or three-year cycle. Obviously, the monthly changes in oil prices is not as big as the changes in onion prices. A better statistical analysis is needed. Also, volatility of onion prices before and after the Onion Futures Act was passed is open to debate (link).

Second,  it is not a controlled statistical sampling of commodity value because there are a number of factors that affect each the price of commodity. The oil market has a seasonal supply-and-demand cycle, whereas the onion market experiences abrupt supply issues due to inclimate weather. There are plenty of other factors, including the price of oil, that determines the price of onions. Oil prices are globally uniform while onion price vary geographically. Future trading is not the only factor that differs between the two markets.

Third, if the cycle is two to three years long, ten-year data of oil prices fluctuation is not enough to statistically conclude anything about futures trading. We either need a different form of analysis for the data from the limited time period or need data from a larger time period. But it is hard to control all the factors when the time period is large. Thus, statistical analysis would likely be meaningless.

The authors may be right about their conclusion, but they have not provided sound evidence to back it up.

A view held by many is that the citizens on the country are ultimately responsible for the actions of the government. Thus, any state-sponsored activity, including terrorism, can be blamed upon every individual from the country. In theory, the government is suppose to reflect the views of the majority in the country, and therefore, the actions of the governments are indicative of the mass opinion in the country. I respect this view, but do not agree with it.

I question that basic premise of the argument that the government reflects the views of the majority. I have seen overwhelming evidence off-late that most democratically-elected governments today are plutocracies. First, there was the plutocracy memo (link) by the Citigroup. Second, I read this Al Jazeera article on the power of lobbying in the US (link). These pieces, among others, make me believe that common man has absolutely no voice in the governance of the country because he does not belong to the elite. Is my vote really worth a billionth of the value of all billion Indian voters put together? Regardless of what most of the country thinks, it is the wealth-driven lobbies, which dictate the domestic and foreign policy. That is disturbing.

Also, when we accuse a nation of being immoral, we should be willing to accept similar, well-reasoned aspersions on us. Let’s take Kashmir and the Northeastern India as examples, where our lawmakers have wrecked havok. We have rigged elections in Kashmir (link) and misused Armed Force Special Provision Act (AFSPA) in Kashmir and the Northeastern India (link) (Also look my post on Kashmir (link)).Based on these irresponsible acts, a Kashmiri or a Manipuri can easily label the rest of the nation as traitors. I am personally not responsible for these acts by our government. We all blame it on factors beyond our control such as the politicians and their vote-bank politics. Just like how I am not willing to take criticism for the atrocities my government commits (maybe, I ought to accept those criticisms), I do not want to blame another nation in entirety for actions of a few individuals of their government.

I apply the same moral compass in blaming bankers working for big banks for the sub-prime crisis. The contempt against the big banks for their hand in the crisis is well justified (link). But are we right in holding every individual who work in these firms responsible for the chaos? I assume that it is an “elite few” at the top who made those decisions that led to the downfall. Most worker have had no role in the crisis. Thus, I do not hold every banker accountable for the crisis.

There is one point for which I don’t have an answer. You may argue that the bankers have a choice to quit their job and work elsewhere. I think that’s a fair point. But I also think about the reality of their choice. After a fairly-long career, changing domains is not easy. The real choice is between a great lifestyle and being unemployed for a long time. Should one’s values be strong enough to punish oneself by being unemployed for no fault of their own?

This post appeared as a column in The Viewspaper (link)

What does it take to successfully run an oppressive regime? Is it necessary to keep the oppressed “just happy enough,” is it sufficient to keep them “just hopeful enough,” or is it safe to keep them “in the dark” about the world outside? For each of the ways, I found historical and contemporary attempts.

To keep the people “just happy enough,” the rulers have to provide the basic needs. Many religions had authorised slavery. Islam, in particular, had strict rules to follow (link) to possess slaves. Though slaves were considered inferior beings, cruelty was forbidden. They were entitled to receive food, clothing, shelter and medical attention. It was oppression, but the slaves were kept “just happy enough.” Slave revolts were uncommon; they happened only when the owners did not follow the Islamic laws.

A contemporary example that keeps people “just happy enough” is Iran. Iran’s 2009 revolution was unsuccessful not only due to a crackdown, but also due to the absence of workers’ support (link). Inequality in Iran is less severe than in other countries. Progress in labour laws and women empowerment have created ways to move up the social ladder. Despite the oppression, the regime has managed to keep the people “just happy enough.”

To keep people “just hopeful enough,” a promise of a good future is necessary. The British Raj in India followed (link) every major demand from the Indian national movement with political and economic reforms. They managed to diffuse the tensions, but did not make efforts to alleviate the plight of the country.

Today, Egypt and Tunisia are good example where economic reforms kept people hopeful, but not happy (link). Egyptian economic reforms helped many, but not all. In his Time column (link), Fareed Zakaria explains that reforms and revolutions go together. Economic reforms are the most dangerous phase in an autocratic regime. Reforms expose the people to new possibilities and create demands for better governance. Failure to meet the demands result in a revolution.

To keep people “in the dark”, access to education and information have to be denied. For instance, after Nat Turner’s slave rebellion (link), the Virginia General Assembly passed legislation making it unlawful to teach slaves, free blacks or mulattoes to read or write. Other restrictions were imposed to keep them uneducated and uninformed. Thirty five years later, after the civil war, the slaves were still illiterate.

Syria and North Korea are current examples of regimes that keep people “in the dark”. Reforms have never been carried out there. Fareed Zakaria’s column, referred above, says that they are not in danger of collapsing because the people have not been exposed to better options. Leaked Citigroup “Plutonomy” memo (link) also highlights the importance of keeping people uninformed. The memo talks about plutocracy in America, and how rich grew richer in capitalist-friendly countries. It emphasises that if the “rest of us” were in the dark about the existence of the plutonomy, it can strengthen the “plutonomy.”

Only time can tell which regimes are ticking time bombs waiting to explode. I also wonder how the army remains on the dictators side and obliges to kill its own people during a revolution. I guess I will never have a satisfactory answer to that question.

Note: This appeared as a column in The Viewspaper (link).

Wealth Mobility

“Wealth mobility” is an economist’s term for inter-generational movement on the economic ladder, which studies how one’s wealth is related to their parents’. Studies on wealth mobility (link, link, link) begin by categorising the parents on percentile-based income brackets, i.e., determine what percentage of people were richer than the parents in question, adjusted for inflation. Some are in top 10%, few more in top 10%-20%, more in top 20%-30%, and so on. The study also looks at the income brackets of their children. Thus, we get a table of numbers which conveys how many children, whose parents were in, say, top 10%-20% bracket, stay in the top 10-20% bracket, how many have moved to the top 10% bracket, how many to the 20%-30% bracket, and so on. We may call this ‘wealth-mobility table.’

If there is an even distribution of people moving across the income brackets, I will conclude that luck does not play a big role in being rich (for most people). If the results are skewed to show that rich children stay rich and poor children stay poor, I will conclude that luck does plays a big role and taxing the rich more is not all that unfair.

Conclusions

The studies (linked above) have concluded that upward mobility is hard, but possible. Most people stay in the same bracket as their parents did. I don’t think this is surprising because opportunities are plenty for the rich, while lacking for the poor. Thus, I wouldn’t call higher tax rate on the rich as class warfare.

Inequality Fractal

There is a small flaw in the studies linked above. They do not consider the fact that economic inequality is a fractal (link). Wealth is exponentially distributed in many countries. Top 0.1% of people are much more richer than top 1%, who are much more richer than top 10%, and so on (link). Thus, a person from any income range will find people who are 10 to 100 times poorer and people who are 10 to 100 times richer. This inequality fractal makes the studies’ linearly-distributed income brackets (Top 10%, 10-20%, 20-30% and so on) inappropriate. Better-designed income brackets will strengthen any conclusions that are drawn from the data.

Expected Results*

We expect a wealth barrier beyond which good wealth mobility is present among the rich. The rich and the super-rich children, both, have equal access to education and other opportunities. There are plenty of avenues to grow richer and plenty of risk of losing money. A dynamic equilibrium can be expected at the top. Note that there may not be just one barrier; there may be several barriers as we move down the income ladder depending of government policies.

Technology is know to be detrimental factor in economic inequality (link), i.e., it has widen the gap between haves and have-nots. But at the same time, we expect technology to move the wealth barrier towards the poorer side as technology makes in easier for everyone to avail education and other opportunities. In the next generation, technology may alleviate the economic inequality.

*Thanks to Karthik Swaminathan for inputs

Krugman also noticed (link) that Felix Salmon attributes (link) a similar reason (among others) for lack of central heating units in Mexico. A given Mexico dweller (including the rich) does not have central heating because other Mexico dwellers don’t have central heating. This “path dependency” creates a bad equilibrium, where one gets through the short-spanned Mexican winter without central heating.

Time columnist, Fareed Zakaria, explains (link) that reforms and revolutions often go hand-in-hand in oppressive regimes. He says that the most dangerous phase in an autocratic regime is when the dictator decides to reform the economy. Reforms expose the citizens to new possibilities and create a demand for better governance. When the government is not able to meet the demands, revolutions occur. This account (link) articulates the line of thought expressed by Zakaria. Zakaria also states that stagnant countries like Syria and North Korea have remained more stable. Thus, a lack of knowledge creates a bad equilibrium.

So, what is common among the English food, Mexico’s central heating, and the Egyptian uprising? They follow a demand-driven economic model, where a bad equilibrium is possible.

Going back a few years, a search term, “miserable failure,” linked to George W Bush. This “Google Bomb” was achieved in the following way: Suppose a link reads ‘apples’, but links to a webpage on oranges, Google makes as association between apples and the webpage on oranges. If there were 500 webpages had links reading ‘apples’ but pointed to oranges, Google search on ‘apples’ would have led to the webpage on oranges. Similar tactics were used on the search term, “miserable failure,” to lead it to George W Bush’s site. Today, Google’s algorithm is robust enough not to fall for the same tactic.

Bing also makes similar associations based on search strings (used in Google. Amazon eBay etc.) and the websites clicked by the users. Google hard-coded some synthetic, gibberish search string to lead to a specific webpage. After fifteen days of using IE to search for the same synthetic queries and then clicking the link, Bing made the association between the search strings and the webpages. This happened to less then 10% of the synthetic queries. Google then accused Bing of copying their result. Isn’t Google’s experimental results similar to Google Bombs?  The only difference is the source of the data. This just exposed the vulnerability of Bing, and nothing more. Yes, the data comes from the publicly-available results from a rival company. It was not intentional (benefit of the doubt). In the next update, Bing should try and reduce its dependence on that to be fair.

Two more experiments are needed to conclude that Bing copies Google. First experiment is look for common queries that give different results in Google and Bing. Google should freeze the results for that query and then observe Bing to see if the results on Bing change over time to match Google’s results. Second experiment is to look for commonly-used queries that give same results in both Google and Bing. Google should manually change their results and then wait for Bing to reflect the same changes. If Google had designed these experiments and disclosed the results, I would have given them some credit.

I am sure Google knows how to derive conclusions from a set of experiments. They should know better than conclude that Bing is copying Google based on their synthetic-query experiment. Google’s PageRank algorithm and search results (by Google and others) rely of statistical aggregates to work efficiently. Synthetic queries are not statistically significant. Google should not be crying wolf.

Update: Don’t you think that Google looked for examples other than “torsoraphy” and did not find any? If they did, don’t you think they would have reported that?

Q1.

a) 65% of hate crimes are antisematic.
b) He does not see Muslims condemning jihad.
c) If it (jihad and other bad things) were being done in the name of his beliefs, then he would be out on streets marching to Washington.

Then, why does is he not on the streets protesting antisematic crimes??? Why is he not on the streets for gitmo (where torture is carried out in the name of America’s security)?

Q2.

Muslims are not victims because only 8% of crimes are anti-islam. By the same logic, America is not a victim because only a small percentage of people who have died of terrorism are Americans (link). Does he believe so?

Q3.

He says he opposes the ground-zero mosque because the imam behind it is has not opposed Hamas and cannot not condemn America. Will he support the mosque if it were being constructed by someone who opposes jihad and says he loves America?