Of wasting ‘time’, ‘Good’ governance & stock markets

Is an idle mind indeed a devil’s workshop? I wonder how many lumbering leviathans have been lurking in the back of my mind & how many have come to the forefront while I stare at the ceiling fan do its job religiously. (As an aside, I find myself saying job & not work, because in strict scientific sense, the total work a fan does while spinning is, well, zilch). That brings me back to my original despondency: “How can I possibly waste so much of my time doing nothing constructive?” Okay, if ‘constructive’ sounds grand, I substitute it with ‘worthwhile’ and continue pondering till I exhaust all synonyms and start wondering if I’m indeed doing nothing, well aware that science would indeed consider it so!

That’s when the Economist in me awakens and tells me that in spite of being employable and with zillion other things to be concerned with, I have 'chosen' to do this ‘job’ of musing & staring at the openness beyond the windows & walls of my room, into, well, nothingness (Scientifically, it ought to be vacuum). This is not just debatable, but also makes for good TP (‘Time’ Pass for the uninitiated).

Though there are a myriad ways to look at the aforementioned problem and suggest solutions, I choose to resort to Economics because no other discipline explains Rational Choice Theory as efficiently and as effectively as Economics does.

As eminent professors, Paul Samuelson & William Nordhaus emphasize in their textbook, “…the flag of economics flies over its traditional territory of the marketplace, but it also covers the environment, legal studies, statistical & historical methods, art, gender & racial discrimination & even family life. But at its core, Economics is the Science of “choice”.

…Now had you observed carefully (I ain’t thwarting your free will by saying you should), you would have, in all probability, noticed my usage of two terms in & out of context: Science & Choice.

Drawing Parallels

Before advocating the principles of Economics unequivocally to all & sundry, let me throw a few disclaimers: I am a wannabe economist as much as someone with a scientific temper. I was introduced to the principles of Newton and Boyle before I proceeded to (Might I say, purely by choice) learn the principles of demand & supply. This has inherently instilled in me a few traits that keep resurfacing as habit patterns to emphasize the fact that I am science person at heart.

Now what has all this got to do in relation to this post? Well, let me try establishing the relationship. All those who are even remotely familiar with Microeconomics ought to know that the basic factors of production are ‘Land, Labour & Capital’. In other words, these are the fundamental resources required to build goods & services. What is strikingly apparent to me, here, is how the classical economists did very little insofar as incorporating ‘time’ as a factor into any system of production. This is also evident from the fact that ‘Productivity’ as a concept of measuring output in relation to input does NOT explicitly factor in ‘time’ as much as ‘cost’. Economics as a discipline, at multiple instances treats money and time as equivalents. Maybe the adage ‘Time is money’ sprung from an economic line of thought. The subsequent realization could have been how each of them could be valued vis-à-vis each other. ‘Time value of Money’ possibly originated at this juncture.

This is in stark contrast to the way classical physicists (the pre Quantum Mechanics ones) treated ‘Time’ or ‘Work’. Of course, the contexts are vastly distinct. Just that I can’t help giving this distinction a loud thought, while simultaneously pondering on the similarities.

Modern Economics, with its treatment of ‘Production Possibility Frontier’ and ‘Opportunity Cost’ throes light on how limited ‘time’ available to pursue different ‘activities’ (or ‘jobs’) affects our choices.

Science, as we all know, also attempts to put ‘bounds’ on a variety of things: From Human Intelligence to the immensity of Time, the vastness of Space and at its most extreme form, the size of the Universe. Modern Economics, and subsequently Management Theory, talks about ‘Bounded Rationality’ in decision making. This is probably the zenith of amalgamation of scientific theory in the language of Economics – Rational Choice theory at its optimal best!

In a world (or say, Universe) of scarcity, choosing one thing means giving up something else – In other words, a good amount of uncertainty is inherently built in our systems as far as our choices are concerned. Opportunity cost of a decision is the ‘value’ of a good or service foregone, in economic parlance. This has profound significance on the markets: Particularly the market which even the most common of men are ostensibly familiar with - The Stock Market AND the market which every entity in an economy ought to be remotely familiar with – The Money Market.

The Stock Market, they say, is the hub of the capitalist Economy. And the essence of any capitalist system is described by 2 variables –‘Information’ & ‘Choice’. The ‘Efficient Market Hypothesis’ assumes that any new information is absorbed in the market as & when it comes to light & is reflected in the stock prices. Uncertainty is inherently built into the system & is described by the variability of returns of any investment & the decision on one’s investment reflects one’s choice.

Science has an entirely different take on uncertainty & the resulting choices. One of the famous principles of Physics, ‘Heisenberg’s uncertainty principle’ tells us that ‘the more accurately we try to measure the position of a subatomic particle, the less accurately we can measure its speed, and vice versa’. Extrapolating this idea, we can think of one’s degrees of freedom getting curbed when one tries to understand ‘Space’ better than ‘Time’ and vice versa. (In fact, the sharp contrast in the connotation of the term ‘Degrees of Freedom’ by statisticians and by physicists makes for an interesting case study).

Having spoken about the markets & the choices we have in an economy brings me to another important question: ‘What constitutes ‘good’ governance in an economy?’ Well, my intention is not to embark on a quest to discover the answer for the same. Proponents and exponents of ‘Utilitarianism’ et al have already done a commendable job and a fund of knowledge is available on the same. What struck me as interesting and at the same time, daunting, in this transition phase from being a science aficionado to a wannabe economist is how one needs to dwell in subjectives in the latter discipline.

Science hardly makes an attempt to answer such subjective questions. It doesn’t attempt to unravel the mystery of human behaviour or prescribe an ideal way of living – It leaves such dicey choices for the politicians and the policy-makers. Mind you, I ain’t saying this is a shortcoming of science or even remotely hinting the superiority of one discipline over another. As Professor Stephen Hawking puts it, ‘Humanity’s deepest desire for knowledge and understanding of the underlying order in the universe is justification enough for the quest’. The objective nature of several scientific theories has, in fact, given us so many revolutionary technologies which have engulfed our lifestyle. Some of us have embraced these inventions and innovation; some of us scoff at these, while some cannot afford these.

Affordability…Ahh! Now that’s where the lure of Economics lies as far as I am concerned. That there is a high positive correlation between wealth & welfare has been established, time & again. Arthur Okun, the economist who had propounded the famous Okun’s Law had remarked in 1975 that “The conflict between equality & efficiency is our biggest socioeconomic trade-off, & it plagues us in dozens of social policy. We can’t have our cake of market efficiency & share it equally”. This is General Knowledge to us today, what with every opposition party & the fourth estate announcing it in bold letters or over a loud speaker every once in a while to let us know that they exist.

But what can an economist, an aspiring one at that, do about any of the aforementioned? Tim Harford says in ‘The Undercover Economist’ that “Economics is in many ways just like Engineering. It will tell you how things work & what will happen if you change them”. Ain’t that tempting enough? No? Then listen to what he goes on to say… “Economists study Power, Poverty, Growth & Development. What societies and their leaders do with the information is another matter. It is hard to wield the models that underlie such subjects and remain unmoved by the Real World behind them…So Economists often step beyond their role as engineers of economic policy & become advocates…” and he goes on to substantiate this by providing the example of David Ricardo becoming an early campaigner for Free Trade.

Armchair criticism can only do so much. Indeed, indeed…To carry the flag of Economics & feed placebos of progress to the needy & the underprivileged is one challenge every policy maker with a conscience would attempt time & again, intrepid & invigorated. These are murky waters and they may run deep. But having decided to take the leap, I am being consumed with this new found passion and I hope I live to make a positive difference. But for that to happen, I need to stop staring at the vacuum beyond my walls & windows and spring into action. Amen!

A semi-formal introduction

After several bouts of inspiration drawn from a few highly revered (and equally witty) blokes like Tim Harford, Dubner&Levitt and both my parents who are associated with economics, I have decided to document my everyday experiences from an economic perspective. T'is quite a coincidence that I attended my first lecture of global economic perspectives today and I devoured (quite painstakingly) an entire issue of the economist, the complexity of which anyone worth his/her economic salt would vouch for!

Now without digressing, let me quickly throw some light to the unsuspecting reader about the genesis of my blog's title- Why do I call myself the wannabe economist? For starters, try as my might, my fundamental understanding of economics is still not in place. And I am not quite sure who to attribute this problem to, considering every stakeholder in this (mis)happening is a rational member of the homo sapien species. How can I,as a wannabe economist, still grappling with the difficulties of this proposition and yet to come to terms with this fact, test this hypothesis? Very frankly, my sample size is pretty small (2-3 end term exams and 3-4 quizzes, if they qualify) and biased too.

But having said that, ain't all of us, who, in spite of our innumerable and ostensibly sustainable competitive advantages, wannabes in some way or the other? Before raising an eyebrow, consider the fact that we live in a highly volatile and dynamic environment which, at each plausible opportunity that can be seized, threatens to change its plethora of colours that it can take and leave us clueless and flummoxed? An optimist would, in all probability, decide to glorify and romanticize it and urge us to look at the brighter side of things and the variety of opportunities the situation presents to us.A pessimist would talk about how dilapidated and disfigured the state of affairs are and how a renaissance or reformation is imperative to save the cosmos.

But hey, I wanna be an economist - So, I just choose to rationalize it! And talk about rational choices and marginal utilities and market forces and phew, u name it, I blither about it. Well, I hope to be a little more euphemistic and politically(economically didn't sound right) correct from my next post.

Thanks for your patience. And don't blame yourself for wasting your valuable time(Erm, how do you value time btw? Valuation models more efficient than NPV and IRR,anyone?).You are after all, rational beings who would have weighed your future costs and benefits of going through this exercise even before you started moving your eyelids over this post (Subconsciously,maybe,but certainly). Allow me to convince you how, in the next post, in which I'll draw a cue from the honourable Tim Harford for whom I have truck loads of respect(Sorry,Tim, I didn't know a better way of quantifying my respect) and talk about the perceived costs and benefits of "wasting" time ;)

Until then, Au Revoir! :)