Monday, July 27, 2015

Just Who the Hell is this Homo Economicus Guy Anyway?

Since writing my previous post about what Homo Economicus would do about North Korea, some people have written me asking questions about what Homo Economicus would do to solve other problems that are plaguing the world.

I think it's very important to get this out of the way. In most cases, Homo Economicus would do absolutely bupkis. In fact, he wouldn't even care about many of the world's big problems unless they directly affected him somehow.

So, for example, what would Homo Economicus do to help to reverse climate change? The extent of his involvement in helping to do that would probably be limited to counting his money after making a very lucrative investment in Silver Spring Networks. That's assuming that he thinks the benefits of investing in Silver Springs Network is greater than the benefits of purchasing flood insurance for the Maldives.

What Broken Window Fallacy?
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What if He were a Politician?

The next set of questions that I received was then what Homo Economicus would do about “X” if he were a political leader in a democratic republic whose job security depended on achieving results.

Unfortunately, it's still very likely that he would do nothing. That is because, according to James M. Buchanan's public choice theory, politicians and bureaucrats are also influenced by self-interest and utility maximization.

For their own purposes to maximize their own utilities, the vast majority of special interest groups lobby for the interests of minority groups rather than the public at large. Therefore, seeing how purpose-driven special interest groups tend to raise a lot more money for their preferred political candidates than the general public tends to do, and after we factor in the fact that incumbency rates tend to remain high regardless of how unpopular politicians are, politicians have a lot more incentive to favor Big Oil or Big Pharma or Big Banks or Big Telecom rather than average voters. And this is especially true if the politician in question were Homo Economicus, who is always seeking to maximize his own utility.

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Vulcan vs. Ferengi

This led one reader to question my decision to compare Homo Economicus to the Vulcan race. After all, Vulcans may be an unemotional and calculating lot but the fact remains that they tend to have goals, such as the pursuit of knowledge and other Utilitarian goals, that go beyond their own narrow self-interests. Another reader therefore posited that it would be more appropriate to compare Homo Economicus to the Ferengi rather than to Vulcans.

I thought that this was a fair criticism. Upon looking a bit deeper into Star Trek lore, I think that it is fair to say that Homo Economicus is, indeed, closer to the Ferengi than the Vulcans. However, based on my rather limited knowledge about DS9, it appears that the Ferengi can become quite emotional – often giving in to anger, envy, and excessive greed. Feel free to correct me if I got my Star Trek lore wrong again.

Homo Economicus is not only completely emotionless, he also never gives in to excessive greed. That is because Homo Economicus, being the completely rational individual that he is, would never violate the Law of Diminishing Marginal Utility like the Ferengi or other intelligent beings, fictional or otherwise, would.

So, I think it would be fair to say that we would need to combine the most extreme characteristics of Vulcans and the Ferengi in order to come up with something that might resemble Homo Economicus.

In a Nutshell

Also, as I said before, Homo Economicus is not immoral. It's true that, like the Ferengi, he would sell his own mother for a nifty profit if the cost of selling his mother were not greater than the benefits he would gain (we have to keep in mind that getting arrested would be a rather large cost that Homo Economicus would have to consider if he ever decides to engage in human trafficking).

Economic rationalism says nothing about ethics. Hover, that is not to say that Homo Economicus will deliberately always seek to be unethical. Being arrested by the police or being ostracized by other members of his community, which would seriously hamper his business relations, are just some of the costs that Homo Economicus has to contend with. However, if the benefits outweigh the costs, he will not let something as trivial as ethics stop him from conducting unsavory business deals.

So there we go. In short, Homo Economicus is a supremely rational, amoral, profit-maximizing, and dispassionate sociopath whom many people in the world might become fascinated with, adore even, but would never want to meet in real life.

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So Why Bother?

If that were the case, then why would anyone bother with what Homo Economicus would do? After all, he only cares about himself and doesn't care about the interests of the public.

It is all about incentives. If Homo Economicus were a politician, he would be the last person in the world anyone ought to expect help from. If he were a private individual or just a businessman, no one ought to expect anything from him besides looking out for his own interests, as well as those of his shareholders.

However, if he were a private contractor who was paid handsomely to come up with  ideas for public policies that could effectively solve some of the world's problems, then I think we could entertain interesting, albeit often unpopular, means to resolve them.

Well, here's to the profit motive.

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Thursday, July 23, 2015

What Would Homo Economicus Do About North Korea?

Before I start, I think it is important to mention that the following blog post about the “appropriate” way to deal with North Korea is not an opinion that I personally share. Personally, every fiber in my being says that the only proper way of dealing with North Korea is to threaten it with disproportional, excessive, and over-the-top military action if the North Koreans ever threaten the safety and sovereignty of the Republic of Korea as they have in the past.

However, those are my personal prejudices at play – something that Homo Economicus would not suffer from.

What Motivates Homo Economicus?

Then where do we start? Firstly, I think it is important to define what Homo Economicus is motivated by. He is motivated by one thing only – maximizing his utility at minimal cost. This is the definition of being economically rational. It does not say anything about how a person can be rational ethically, socially, or humanely.

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Also, for this to work, I am assuming that Homo Economicus is Korean and currently lives in Korea. Interests and motivations can change depending on proximity.

So, for example, although many people think that the ideal solution for the ongoing Korean crisis between North and South Korea would be for the two countries to reunify into a single democratic republic at some point in the future, Homo Economicus would not care for that at all. Unless Homo Economicus is one of the dons CEOs of the chaebol class who would be able to purchase cheap North Korean property and assets from the new post-reunification Korean government, like they were able to purchase cheap South Korean property and assets under the Syngman Rhee administration, Homo Economicus would most likely suffer from financial hardships like the rest of the country should a sudden reunification take place.

Nor would Homo Economicus be moved by promises of future wealth, much less patriotism. Although many advocates of reunification admit that reunification will have its costs (their cost estimates tend to be comically low), they tend to sweeten the prospect of reunification by claiming that the Korean economy would enjoy an economic bonanza in the future.

Even if it were true that the Korean economy would benefit greatly in the future, Homo Economicus would still have to pay (a lot) for reunification one way or another. Besides, as the Time Value of Money has proven, ceteris paribus, having money now is always better than having money later.

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A Nuclear-Free Korean Peninsula?

So what would “maximum utility at minimal cost” look like in regards to peace on the Korean peninsula?

The end result has to be a cessation of all hostilities. However, Homo Economicus' version of “peace” is likely to be different from how everyone else perceives “peace.”

For one thing, would Homo Economicus think that denuclearization is a prerequisite condition for peace? That would seem unlikely. Assuming that Homo Economicus is Korean and lives in Korea, North Korea's nuclear weapons would pose no greater threat to him than its already existing arsenal of conventional weapons and WMDs. The only difference that North Korea's nuclear weapons make is that they will merely poison the rubble and corpses with radiation. Dead is dead. (A Japanese or an American Homo Economicus might reach a different conclusion, of course.)

So, would Homo Economicus prefer that the South Korean government adopt a more amiable position in regards to its negotiations with North Korea?

The North Wind and The Sun

We will have to look at the evidence. While the Sunshine Policy was in effect, the only time the North Koreans engaged in hostile acts was the Yeonpyeong Naval Battle that occurred in 2002. Six South Korean sailors died as a result, and the patrol boat, the PKM 357, sunk as a result of the battle. A movie about this naval battle was made just recently.

Since the Sunshine Policy was shelved, however, North Korean provocation has continued to grow. In July 2008, a few months after Lee Myung-bak had become president, the North Koreans killed a South Korean tourist, which effectively ended the Mount Kumgang tourism project. Of course, the North Koreans later sunk the ROKS Cheonan, which resulted in the deaths of forty-six sailors, and then shelled Yeonpyeong-do, which resulted in the deaths of two South Korean marines, two civilians, and millions in damages to private property.

If we look at this data, and only this data, I think it would be safe to assume that Homo Economicus would certainly prefer a return to the Sunshine Policy. However, that is not the only evidence that we ought to consider. After all, the Sunshine Policy came with its own hefty price tag, too. Case in point, the first Inter-Korean Summit of 2000 was marred by the fact that the South Korean government bribed the North Koreans with approximately US$200 million for the summit.

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So although it is likely Homo Economicus would prefer the South Korean government to adopt a friendlier tone to bring the North Koreans to the negotiation table, considering the pattern of erratic behavior that the North Korean leadership has consistently shown in the past (how's that for an oxymoron?), it is unlikely that Homo Economicus would think of the present North Korean government as a reliable negotiating partner.

Then other questions have to be asked – chiefly, if not this North Korean government, then who would Homo Economicus want the South Korean government to negotiate with?

Pay No Attention To That Man Behind The Curtain!

It is important to note that since taking power in 2011, though it remains to be confirmed independently, it is estimated that Kim Jong-un has executed seventy of his officials. For every action, there is a consequence. And one of the consequences that Kim Jong-un has had to suffer for these frequent purges and executions has been the (assumed) loss of the support of the elites.

So, in order to maximize utility, Homo Economicus would likely favor the South Korean and American governments to engage in clandestine activities to promote, empower, and enrich these elites. Flooding the China-North Korea border with cash intended to be funneled into individuals' pockets should be easy enough to do. But if there is a worry that the cash could wind up in the hands of the North Korean leadership, perhaps Bitcoins or other crypto-currencies might be alternative options to consider.

After all, one of the first lessons that people learn in Economics 101 is that people will always respond accordingly to incentives. Everything else is merely commentary.

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It is no secret that in order to retain the loyalty of the elites, the North Korean leadership spends millions to keep them pampered. The question is, can the North Korean leadership afford to continue to keep them pampered? Considering the rise of North Korea's black market and the private kickbacks and corruption that North Korean officials are able to enjoy at the expense of this slowly emerging bourgeoisie class, the North Korean leadership might already be fighting an uphill battle.

If the North Korean government is having difficulty keeping its elites in check, the South Korean and the American governments might be able to nudge North Korea toward regime change, though not regime collapse, by providing at least a large enough portion of these elites, preferably the more dovish civilian elites as opposed to those who are in the more hawkish Korean People's Army, with sources of income and wealth that are independent from Kim Jong-un's coffers.

It could be argued that a North Korean government that is not run by a progeny of Kim Il-Sung will lack legitimacy in the eyes of the North Korean people, particularly the denizens of Pyongyang. However, it is very doubtful that Homo Economicus would be overly concerned with the preferences of the North Korean people.
Assuming that the next crop of leaders who would replace Kim Jong-un are more “moderate” and are willing to cease hostilities in exchange for the lifting of sanctions and the opening of trade relations, Homo Economicus would be more than happy for the South Korean government to re-adopt the Sunshine Policy and never even breathe a word about requiring the North Korean government to dismantle its nuclear program.

This also in no way assumes that the next crop of leaders would remedy the country's dismal human rights record or pursue political reforms beyond what they think are necessary to cement their hold on power. As long as Homo Economicus' goal is merely peace between the Koreas, the topic of human rights might not even register in his mind to begin with.

Arguing With Myself

That is, of course, my take on what Homo Economicus might think about the matter. Although I have tried to remove as much of my own personal biases as possible, I recognize that I might not have been very successful.

Which is why I think it is important to note that I could be completely wrong about the whole thing.

One possible reason that I think I could be dead wrong about Homo Economicus supporting regime change in North Korea is the lack of transparent information about the political players in North Korea. There are far too many factors that remain unknown about what is going on in that country.

For example, the elites could be just as bad or worse than Kim Jong-un. Or a regime change might cause a bloody conflict between the doves and the hawks within North Korea, which could potentially spill across the border into South Korea AND China. That would certainly give pause to any of Homo Economicus' machinations.

It's entirely possible that the lack of reliable information could compel Homo Economicus to assume the position that it is preferable to deal with the devil he knows to dealing with the angels(?) that he doesn't know.

Therefore, I readily admit that Homo Economicus might simply advocate a return to the days of bribing the North Koreans for peace.

What he chooses to ultimately do will depend on cost-benefit analysis. Only after quantifying various things such as the costs of bribing the North Koreans for peace (national humiliation does not count), the financial costs of dead soldiers and sunken ships and other military expenditures, the benefits of the dividends of peace, the opportunity costs of forgoing regime change, etc. would Homo Economicus make a final decision.

Unfortunately, I do not have that data on hand
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What Do You Think?

So, here's my question to you. Do you think that any of these proposed actions would be beneficial? Are they even desirable? Would they be effective? Are they even realistic?

If you think that Homo Economicus might behave or think differently, feel free to let me know why in the comments section below.

Wednesday, July 22, 2015

Starting a New Series: What Would Homo Economicus Do About...?

Over the past two years, I have written at great length about economics and I have been a tireless defender of the free market for both its moral and practical virtues.

However, what is undeniable is that my blog is not very unique. Perhaps it might be considered unique when we look at the types of blogs that exist within the narrow confines of the K-blogosphere. However, when we look at the Internet in its totality, there are many bloggers – many of whom are actual economists who teach economics for a living (which, sadly, I do not) – who do the same thing that I do, except they do it much better.

For example, some of the blogs that I enjoy reading and I think are FAR superior to mine are Cafe Hayek, Library of Economics and Liberty, Marginal Revolution, and The Rational Optimist.

So what am I going to bring to the table that others have not already done before me? That is a question that I have been mulling in my head over the past few weeks.

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A few days ago, Chance Dorland invited me to participate in one podcast episode of “This Week Korea” along with Steve Miller, Teresa Chien, and Robert Koehler (who, unfortunately was not able to make it) where we talked about various topics such as the police filing suit against the organizers of the Sewol protest for damages, the NIS and its most recent scandal that involves hacking and allegedly illegal spying on Korean citizens, and Heather Cho's request that a New York court dismiss a suit against her for her “nut rage” episode.

Despite the fact that most of the show was spent talking about decidedly non-economic topics (and especially considering the fact that I sound like an imbecile when I do not have ready access to spell-check), it was a fun experience nonetheless.

Having a decidedly one-track mind, however, while we were recording the show, I could not help but think about how some of the real-life problems we were discussing could be “solved” by economics.

So, I began to flirt with the idea of creating a new series for this blog – What Would Homo Economicus Do? (The name is still tentative.)

We have to remember that, with the possible exception of genuine sociopaths, no one in the world actually lives like a Homo Economicus – the purely rational and self-interested person who seeks solely to maximize his utility at all times. Think of your typical Vulcan as the perfect example of Homo Economicus. No, not even Spock possesses the necessary qualities to be considered as an example of Homo Economicus as he is still partly human. Only a full-on Vulcan would qualify.

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In other words, Homo Economicus is not a pleasant person to be around. He is devoid of human follies or emotion or compassion or fancies and a proud free rider. He is the type of person who would need to do an objective cost-benefit analysis before deciding to rescue his own mother from a burning building.

However, Homo Economicus is not immoral. Far from it. He is simply amoral. Therefore, by using Homo Economicus as a vehicle, I think it would be possible to talk about things that normal people, with our sense of right and wrong, would not normally talk about when it comes to dealing with some of the world's most pressing problems – but more importantly, perhaps spark a debate about different and novel ideas that people would not normally talk about.

With that in mind, in the coming days, I will write and upload my first post for this new series – “What Would Homo Economicus Do About North Korea?”

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Friday, July 3, 2015

The Korean Military's Psychological Education

Last night, I read an article written on NK News. Typically, NK News is a publication that I have found to be informative and respectable. However, as I read this column about the Korean Army's jeongshin kyoyuk, the Korean military's psychological education that it administers to all members of the Armed Forces on a weekly basis, for the first time, I could not help but roll my eyes.

The following are my rebuttals to the points that were made in the column.

1. This writer over-estimates the effectiveness of jeongshin kyoyuk (the South Korean military's "psychological education.") In my time in the ROK Army, I learned that they are mostly PowerPoint slides that do nothing more than bore the listeners to tears.

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2. That being said, it is not a waste of time. Considering the fact that about half of South Koreans in their 20s seem to think that the Korean War began when the South invaded the North, the Korean military, despite its hamfistedness, is clumsily trying to correct this horrible wrong. Jeongshin kyoyuk can be streamlined and modernized, but it is not a waste of time.

3. "Since weekly sessions still regularly reference President Syngman Rhee and Park Chung-hee, whose administrations ended more than 50 and 30 years ago, respectively, education is outdated."

As someone who has served in the South Korean Army, I can say with absolute certainty that this was a load of bullshit. I only heard President Syngman Rhee mentioned once when the lecture was about the initial partition of the Korean peninsula and President Park Chung-hee was never even mentioned.

4. The military was not, is not, and will never be a warm and fuzzy organization that just wants the whole wide world to sing Kumbaya. The military's duty is to defend the country from its enemies when all other means fail. And that means it has to train to look at the North Koreans as the enemy and kill them if it is necessary.

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5. The North Koreans ARE the enemy. There are a lot of names of young boys etched on the War Memorial, some more recent than others, who were killed by North Koreans.

6. The North Korean system IS inferior. South Korea might not be perfect but unlike what happened in North Korea, millions of South Koreans did not die of starvation.

7. There are many reasons that North Korean defectors face many challenges in adapting to life in South Korea. Jeongshin kyoyuk is not one of them. The military states emphatically that North Korea is the enemy, but it has nothing but sympathy for North Korean defectors who are able to make it across.

8. Reunification policies come and go as politicians come and go. The Sunshine Policy was a disaster and this so-called Reunification Bonanza was nothing more than political posturing that was full of unsubstantiated irrational exuberance. It will have an even shorter footnote than the Sunshine Policy.

In the meantime, the North Koreans have thousands of artillery pieces aimed at Seoul (see here and here), various WMDs, and a huge special forces unit that has been trained to kill as many South Koreans as indiscriminately as possible.

So excuse me if I roll my eyes at this nonsensical sentimentalism in NK News and continue to view the North Koreans as a mortal threat to my country.

Monday, June 29, 2015

Samsung's Increased Maternity Leave

According to this article from The Korea Times, it appears that Samsung is unilaterally planning to allow its female workforce to take up to two years' of paid maternity leave.

The law, on the other hand, requires that businesses provide up to only one year.

It is not entirely clear why Samsung decided to be so generous suddenly. The article does state that it could lead to more loyalty from Samsung's employees and that other businesses from around the world calculated that they save quite a bit of money by doing this. However, considering how Korea is also referred to as the Republic of Samsung, employee loyalty might not be something that Samsung needs to be overly worried about.

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Regardless of the reasons, Samsung seems to have made this seemingly generous decision without being compelled to do so.

What is interesting, however, is the bit in the article that says:

As of last year, Samsung Electronics had 319,208 full-time employees globally, with South Korea taking up 31.1 percent. Entry-level female employees accounted for 48.3 percent, followed by senior working moms at 12.4 percent, the report said.

"The return rate after maternity leave was 91 percent last year after 92 percent in 2013," another company official said. "Therefore, we are not worried about a vacuum in our workforce as a result of this new policy and those who take a longer leave shouldn't be deterred by job insecurity."

Statistics can be odd sometimes. Samsung's spokespeople can probably say, without being disingenuous at all, that the company's return rate after leave is 91 percent, but it does not change the fact that entry-level female employees make up 48.3 percent of its workforce but that working mothers make up only 12.4 percent.

That is quite a significant difference. Is it possible that many of the entry-level female employees, who are mostly young and unmarried, tend to quit their jobs (or get fired) after they marry and/or get pregnant, rather than go on maternity leave; thereby guaranteeing that the company's return rate after maternity leave remains so high? Or is it possible that Samsung just does not employ pregnant women that much from the get-go?

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The article, as per The Korea Times' usual standard of journalistic excellence, does not explain. So one can't help but use one's own imagination. However, I doubt that one needs that much imagination (see here and here).

So, will Samsung's sudden generosity be beneficial for women? Personally, I don't think it will be helpful for women at all. And that is because I think these added benefits will simply compel a significant number of Samsung's Human Resources managers to accept fewer female job applicants from the get-go.

Case in point, according to this article from The New York Times, when the Spanish government passed a law guaranteeing greater maternity benefits, it was revealed that:

Over the next decade, companies were 6 percent less likely to hire women of childbearing age compared with men, 37 percent less likely to promote them and 45 percent more likely to dismiss them, according to a study led by Daniel Fernández-Kranz, an economist at IE Business School in Madrid. The probability of women of childbearing age not being employed climbed 20 percent. Another result: Women were more likely to be in less stable, short-term contract jobs, which are not required to provide such benefits.

Of course, in Samsung's case, upper management chose to increase the company's maternity benefits as opposed to getting their arms twisted by the Korean government. So, this might be comparing apples and oranges. However, it should be noted that Samsung is a very big multinational corporation; and like any large organization chock full of people, there is bound to be competing interests. And it should come as no surprise that some of those interests might not always be on the same page as that of corporate headquarters.

What is true, however, is that for the past few years, more women in their 20s have been employed than people from other demographic groups, especially compared to men in the same age group. However, it is also true that fewer women in their 30s and 40s are employed compared to younger women.

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The problems that women face are much more deep-seated in Korea's corporate culture, as well as Korea's familial culture. Therefore, without first making a serious effort to challenge accepted norms and mores, I think that increasing maternity benefits will only exacerbate matters further, rather than alleviate them.

Sunday, June 14, 2015

The Irrational Rational Fear of Cancer, MERS, and Terrorism

At the time of this writing, there have been fourteen deaths that have been attributed to MERS.

As a result, thousands of schools have closed, despite cooler heads warning that this was unnecessary. More than 20,000 tourists called off visiting Korea since June 5th, costing Korean businesses millions in lost revenue. Subsequently, the Bank of Korea has cut interest rates to a record low of 1.5 percent amid fears of a sharp fall in consumer spending.

As I had said before, however, I think that the fear of this virus has spread faster than the virus itself and that this fear is irrational. After all, this is not the first time an unusually strong strain of the flu virus spread in Korea. Also, statistically speaking, people ought to be much more worried about cancer and hypertension than about influenza or SARS or MERS or Ebola.

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So why do people overreact to relatively less dangerous things such as MERS and react so coolly to much more dangerous things like cancer? After all, the smoking rate in Korea is 42 percent – and even after the new tax takes effect and helps suppress demand, 34 percent of Koreans will remain smokers.

For all intents and purposes, people react disproportionately to different things due to different reasons.

Firstly, there is a difference in timing. Of the fourteen people who have died after having contracted MERS, the time that it took for them to die was a matter of days. Cancer, on the other hand, is often perceived as something that will occur some day far in the future. Despite what people say, we are all afraid of death. However, the further away death is perceived to be, the more abstract it becomes and the less we fear it.

Secondly, it's a matter of how much control we have. When we think of cancer, many of us tend to think that we have some control over it. We can quit smoking, eat less junk food, drink less coffee, apply more sunscreen, go for annual checkups, etc. Of course, we might not necessarily choose to exercise our convictions. How many times have we made the same New Year's resolution to drink less and exercise more and quit smoking? The point is that we feel that we can exert some control over cancer if we choose to do so.

But what about MERS or Ebola? Unlike cancer, diseases like MERS and Ebola feel like they are beyond our control. What if the disease is airborne? What if the lady sitting next to me on the bus is one of those patients who was quarantined but chose to go out to play a round of golf? We cannot see a virus; nor can we taste it nor smell it. And when we cannot control something, well...

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Thirdly, we also cannot ignore the power of imagery.

Many years ago, I saw a family friend die of cancer. She wasted away in the hospital. She lost weight, her hair, her youthful vigor, the sparkle that used to twinkle in her eyes. And the screams...

But toward the end, there was a calmness to it. Her system had been filled with morphine and she was finally asleep, peacefully. Her family had gathered all around her to bid her farewell. There were tears, hugs, and prayers. And then she was gone. The death of a loved one is tragic, but when people are given time to prepare for death, sometimes death becomes a little easier to accept.

On the other hand, however, what is the imagery associated with MERS? Violent fits of coughing, increased body temperatures, isolation and quarantine from all those that you love. Doctors and nurses wearing hazmat suits? Death suddenly seems abrupt and lonely.

What is the imagery associated with terrorism? Google ISIS and you will see. Or don't Google ISIS and spare yourself the unpleasantness.

Seriously, don't Google ISIS.
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Consider that MERS has killed only fourteen people and that thousands of schools have shut down. Also, despite the fact that only one Korean teenager has so far volunteered to join ISIS, the media spent a disproportionate amount of time worrying about ISIS's influence among Koreans. Also, the government has created spyware for smartphones that will watch out for, among other things, mentions of “IS” and “terrorism.”

So, for various reasons, we fear the wrong things much more than we need to and we fear those things that we do need to fear less than we ought to.

The kicker, however, is that this messed up set of priorities is perfectly rational; so long as we define “rational” as “that which is based on or in accordance with reason or logic.” So, it's the reasoning that is faulty.

I am reminded of a phrase that I once learned in a computer science class I took in school a long time ago – Garbage In, Garbage Out (GIGO).

For good or for ill, humans have never achieved the status of homo economicus and probably never will.

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Sunday, June 7, 2015

Documentary Review – The True Cost

Today, a correspondent who goes by the moniker “TheBoss” shared with me a link to a documentary called “The True Cost.” For those who are interested, you can watch it for free here.

This documentary explores the “hidden costs” of fast fashion. The filmmaker, Andrew Morgan, highlights the terrible work conditions and pay in garment factories located in third-world countries such as Bangladesh and Cambodia. The film goes to list the hardships that these workers face – urban squalor, polluted environments, deteriorating health conditions, broken families, etc., and, of course, also focuses on the avarice and ignorance of shoppers in the developed world, all the while accompanied by a moody score.

I have already written an article where I defended the existence of sweatshops. You can read it here.

However, I felt that I had to add a bit more for this particular documentary. Although this documentary lasted for about ninety minutes, one question that is never asked throughout the whole film is “as compared to what?”

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This is a very important question. Essentially, this documentary is about economics and it calls for economic reform. However, it is calling for sweeping economic reforms but, at the same time, refuses to talk about economics by ignoring this question.

When we compare the work conditions and the pay that workers in Bangladesh receive to those of workers in the developed world, they are, indeed, awful. There is no doubt about that. However, that comparison is misleading.

The real comparison that has to made is those Bangladeshi workers' current pay and work conditions with these workers' realistic alternatives in Bangladesh.

What this documentary gets absolutely right is that their working conditions are dangerous as evidenced by the collapse of a factory building in Bangladesh, which resulted in the deaths of more than a thousand workers. So the question is why do so many of these workers still choose to endure such harsh conditions and low pay? After all, no one is forcing them at gunpoint to work in these factories.

The fact that they still choose to work in these dangerous sweatshops is powerful evidence that these workers' alternatives are even worse.

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Throughout the film, various activists, and Mr. Morgan himself, call for changes to be made in the fashion industry. It demands that workers be guaranteed a living wage. It demands that consumers in the developed world change their shopping habits and attitudes about materialism in order to alleviate the strains that those workers suffer.

Let us be generous and assume that they succeed in their efforts. Let us say that those workers are paid a living wage (whatever the hell that means) and affluent shoppers' demand for clothing produced in the third world drops significantly. Then what would become of those workers?

Naturally, they would be forced to choose to toil at jobs that pay even less and in conditions that are even dirtier and more dangerous. Case in point, local NGOs in Bangladesh estimated the total number of female prostitutes was as many as 100,000 and UNICEF estimated in 2004 that there were 10,000 underage girls used in commercial sexual exploitation in the country, but other estimates placed the figure as high as 29,000.

The intent of this documentary appears to be shame its viewers into believing that we are pointlessly destroying the environment and prolonging the suffering of the poor with our materialism, over-consumption, and avarice.

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As Milton Friedman used to say, these people are soft of heart, but, unfortunately, they are also soft in their heads. This documentary was all emotion and no perspective.

Never mind that most of the documentary was filmed in countries such as Bangladesh and Cambodia – countries with poor records of protecting property rights and encouraging market activities that promote industry, trade, and economic growth – things that Mr. Morgan seems to think are harmful.

What this documentary did not focus on at all are the benefits that would not have existed had the global trade that fast fashion helped to spur did not occur. For example, this documentary did not mention at all that in the past eight years, Bangladesh's GDP has doubled and the same can be said for Cambodia.

This is how economies develop. Before the Miracle on the Han River, Koreans, too, lived in conditions that were not too different from those conditions that we now see in places like Bangladesh and Cambodia.

Many people in the developed world take our affluent societies for granted. Our ancestors had to suffer for our affluence to exist. The only difference is that we can see Bangladeshis and Cambodians suffer now but we cannot see the suffering that occurred in our own past.

Mr. Morgan and those other activists in his film may have good intentions. However, it does not change the fact that they all suffer from a debilitating case of economic ignorance; and it is this ignorance that is the true enemy of the poor.

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However, the point is that all of this may be moot in the not-too distant future because of improvements in technology. According to this article in The Economist, robots that can stitch and sew keep getting better and cheaper. Mr. Morgan might get his wish some day after all. The question is whether he will be happy with the results.