Tag Archives: bank

Steve Jobs And The Nature-Nurture Debate

a-young-steve-jobs-smelled-so-bad-he-had-to-be-put-on-the-night-shift-at-atariMany years ago, I dropped out of college. People have often asked me whether I felt fear when I dropped out of engineering college. But, people are cowards. They do not understand college dropouts. The night I decided to drop out, I paced on the terrace of the college hostel, throwing stones, watching their trajectories. I felt exhilaration and a great sense of relief. Then onward, I had all the time in the world to read whatever I wanted to read.  Everything I did since then—and before—was rooted in my absolute confidence in creating a world of sublime beauty and tenderness by pressing my fingers on the keyboard.  

In the years I spent there, I cut myself off from the outside world to read the tall pile of books in my otherwise Spartan wooden room. My hostel mates called it “The Eiffel Tower”. All they could hear was me shutting the door loudly behind their backs. So, they often loosened the screws of my room to see what went on inside my room. Each time they did, I filled those holes with my large collection of ancient pens and pencils. Once, they did not allow me to sleep till 2 past midnight because they wanted to know what was in my briefcase. It was a battle I won.

In one of those days, I read a speech by Steve Jobs on dropping out of college. It was beautifully written. If Steve Jobs were not a visionary leader, he would have been one of the greatest writers of our times and of all times. The impulse that drives men like Steve Jobs to lose everything for their beliefs is the same that drives me to burn inhuman energy to create a work of unparalleled beauty. Over years, I read his speech many times because what kept me going was that I loved to write. Nothing else mattered much to me. Years later, when I was working in a run-down building in Safdarjung, I wept reading a beautifully written eulogy. It was the most beautiful tribute written when Steve Jobs died. It was written by Steve Jobs’ sister Mona Simpson, a successful novelist who was unaware of his existence for the first 25 years of her life. Mona Simpson’s husband is a writer for The Simpsons.

Similarities do not end there. Steve Jobs’ biological father ran a popular Mediterranean restaurant in Silicon Valley. Once Steve Jobs’ biological father told Mona Simpson without knowing that Steve Jobs was his own son: “Even Steve Jobs used to eat there. Yeah, he was a great tipper.” Steve Jobs called his biological parents his egg and sperm bank. But, it was his egg and sperm bank that shaped him, and not the working class parents who raised him.

When Steve Jobs’ high school sweetheart visited his home for the first time, she wondered “how these hardworking, blue-collar parents, these people with common sense but so few books, gave him the space to be completely otherworldly. To be extraordinary, in fact.” But, Steve Jobs’ biological father was a PhD in Economics and Political Science. He was his mother’s teaching assistant when she was a doctoral candidate. Steve Jobs was born when his father was 23. When Steve Jobs was young, his girl friend gave birth to a child he was not willing to raise. He was then 23 years old. Jobs’ biological parents wanted him to be adopted by a wealthier couple that rejected him at the final moment because they wanted a baby girl, and not a baby boy. So much for the belief that parents prefer baby boys. Anyone who has read enough about gender knows that parents prefer to adopt baby girls.

Is Steve Jobs’ case exceptional? No. As Bryan Caplan points out:

“In early 1979, a pair of identical twin brothers who had been separated at four weeks were reunited after 39 years. Both named Jim, they discovered that they smoked the same brand of cigarettes, vacationed in the same town and both called their dog “Toy.” Struck by the story, psychologists at the University of Minnesota started studying separated twins that same year. Their efforts blossomed into the Minnesota Study of Twins Reared Apart, which ran for a quarter century, attracting world-wide fascination and antipathy.  The Minnesota researchers tracked down every pair they could find—and measured traits related to almost every aspect of life: health, cognition, personality, happiness, career, creativity, politics, religion, sex and much more. The Minnesota study reveals genetic effects on virtually every trait. The breakdown between nature, nurture and everything else varies from trait to trait. But Ms. Segal emphasizes the uniformity of the results—the consistent power of genes, the limited influence of parenting. Some findings go down easy: As most would expect, identical twins raised apart have virtually identical heights as adults. Some findings seem obvious after the fact: Genes, but not upbringing, have a pretty big effect on personality traits like ambition, optimism, aggression and traditionalism. Other findings perennially cause outrage: The IQs of separated identical twins are almost as similar as their heights. Critics of intelligence research often hail the importance of practice rather than inborn talent, but a three-day test of the Minnesota twins’ motor skills showed that how much you benefit from practice is itself partly an inborn talent.”

The Rape Culture: Living A Lie

There has never been a debate in which so many people were kidding each other.

If the enlightened liberals are right, India’s “rape problem” is the logical end result of a culture that teaches “bad attitude” towards women. They search for any deviation from the official feminist dogma, eager to root out such tendencies in supposedly enlightened men. Male intellectuals live in the fear of incurring the wrath of these harridans because a loosely constructed statement is enough to set off their radar. Intellectual discourse has become a tight-rope walk. But, at the root of all this lies the denial of the obvious: Sexual desire is a strong enough urge in men. There has never been a debate in which so many people were kidding each other.

People do not know that not long ago, there was another act that was considered an expression of aggression in the deep depths of one’s mind. It was the primary sexual activity of mankind. Karl Menninger, the most respected American psychiatrist in the mid-20th century said just that. It was also the most commonly diagnosed “mental illness”. When a mother once sent a young hooligan to him, Freud looked at the boy’s trousers and said that diagnosis was never so easy. Such psychiatrists were considered great benefactors of mankind. They were all living a lie. Continue reading

The Cure For Inflation

New Year’s day headlines in many newspapers was that the rise in food prices in India is at 19.83 percent.It is the highest in the decade and shows no sign of subsidence. Interestingly, The Finance Minister Pranab Mukherjee said that keeping a rein on inflation is a huge challenge for the Government. It is easy for the Government to blame businessmen, speculation and hoarding, and pretend that they are fighting inflation and managing “growth”, as money is a highly tangled economic subject. But, the real blame lies elsewhere. Prices would rise in general only if the money supply increases or the supply of goods come down dramatically. It is easy to find the culprit if one grasps the fact that a shortage of goods is an extremely rare occurrence and that it is not easy for an ordinary citizen to print money. Though the media uses loose terms like “food inflation”, inflation is everywhere, an increase in the supply of money and bank credit caused by the Central bank.

To understand inflation, one should first understand how money originated. In the past, a commodity (mostly gold or silver) evolved naturally as money through barter. For convenience, people kept the commodity in a deposit bank, which issued redeemable warehouse receipts, and these receipts started circulating as substitutes for commodity money. The Government seized the commodity and left people with fiat money which was made irredeemable through the abolition of gold standard, in course of time. As Ayn Rand wrote in Atlas Shrugged, “Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper.”

Money is manufactured in a complex process, in which government securities are purchased by the Reserve Bank of India (RBI), which is accompanied by the creation of new and additional checking deposits for the treasury. When the quantity of money is increased in this manner, too much money starts chasing too few goods and the purchasing power of money decreases, which leads to a rise in prices. It should be kept in mind that the rise in prices is merely an effect of inflation and the real cause is that the money supply has been “blown-up”, or overextended.

Inflation is purely a monetary phenomenon, no matter how hard the statists try to evade that fact. Intellectuals and politicians would want the public to believe that inflation is an act of God, over which we humans have but no control. Inflation however is a policy, and as any policy, it can be halted. Our government goes on with its inflationary policies because it wants to tax the public, but lacks the temerity to resort to it in so explicit a manner. Inflation is in fact a hidden tax everyone pays irrespective of their incomes. It is a tax, which hits the poor more than it hits the rich. The sections hit most by inflation are orphans, widows and the elderly who live on the buying power of life insurance policies, pensions and annuities. Inflation leads to a re-distribution of wealth from the poor to the state and its parasites.

If the gold standard and a free banking system were instituted, which means, if paper money were redeemable in gold specie, it would have put a rein on inflation. A century back, almost all economists believed in the gold standard. The governments all over the world have however, abolished the gold standard long ago to finance their policies of lavish spending and bribing the voters. The abolition of the gold standard led to the printing of currency recklessly, without any objective standards where the gold could have been the objective standard. The gold standard is the hallmark of a free society. If there was a gold standard in place, credit expansion would lead to an unfavorable balance of trade, and flow out of gold for the inflating country. The claim that gold standard is not flexible is just another way of saying that it prevents currency debasement. The fact that it is not flexible is precisely its merit. There is a long running propaganda from the part of economists of the establishment to make people believe that the gold standard has collapsed, and what we need is efficient monetary management. In the words of John Maynard Keynes, gold is out-dated, old-fashioned, a barbarous relic, an ancient fetish. What people failed to realize was that all this was mere propaganda fed by court jesters in order to persuade people not to use gold in real life. Gold standard did not collapse. It was destroyed using brute force and coercion.

Monetary management is simply a euphemism for continuous currency debasement. There would be no such thing as monetary policy in a world of sound, honest money. A year back, the Planning Commission deputy chairman Montek Singh Ahluwalia had said that there is no ’magic bullet’ to cure inflation. What he didn’t mention was that inflation was caused by the Central bank itself and that it could be cured to the extent it could be, through a free banking system and objective laws to make currency redeemable in specie. Nothing can be more ridiculous than the notion that the Reserve Bank of India, the institution that has created inflation in the first place has taken upon itself the task of taming inflation.

If one understands the real cause of inflation, the cure should be obvious. It is to halt the money printing press and institute the gold standard as soon as possible. The Reserve Bank of India should be abolished and a free banking system should be allowed to come into being. People often refer to Thomas Tooke’s dictum that “Free trade in banking is free trade in swindling.” Sadly, they are unable to see the apparent fact that a free banking system based on objective laws would put a halt to the inflation process. From the mid-eighteenth century to the first part of the 20th Century, when the United States was on a Gold Standard (It was not a fully consistent gold standard) prices steadily fell, year after year. If we are to adopt the Gold Standard, prices will fall continuously and boom-bust cycles would come to an end.

Inflation Myths

As food prices are soaring in India, quack economists are in the process of reinstating certain myths on inflation. Many are proposing false remedies. Such fallacies should be dealt with in some detail:

1)Finance Minister should fix the value of the Rupee.

A proposition of Amar Singh, the general secretary of the Samajwadi Party was that the Government should fix the Rupee-Dollar exchange rates. “If the rate is brought down to Rs 39 to $1 from Rs 43 now, inflation could be reduced by two to four percentage points swiftly.”, says he. Fixing of exchange rates can work only if the economy is on a Gold Standard. Amar Singh is talking of an entirely different kind of fixing the exchange rates-Fixed exchange rates in fiat money. Fluctuating fiat money is bad enough. How bad is fixed exchange rates in fiat money? The Government doesn’t have the information to fix exchange rates in fiat money. If left free, the exchange rate of fiat currencies would depend on the supply and demand of currencies in terms of other. Fluctuating fiat currency has its own demerits, like crippling international trade and not providing a check against inflation. But, it is any time better than fixed exchange rate in fiat money.

Under the Gold Standard, all currencies will be tied to gold, and exchange rates will be fixed at a particular rate and they would be fixed for ever. Each currency would bear a fixed relationship to gold and every other currency. It would be convertible at that rate whenever a conversion is demanded. The result of introducing the gold standard would be an international currency system. Under a gold standard, each currency would be defined in terms of gold. Gold is money and money is gold. One might ask why the government should define the currency as a particular weight of gold. The gold lying in the vaults of the central bank can’t be denationalized without redefining the currency as a particular weight of gold. Who should denationalize the gold? Definitely, it should be the Government as the Gold lies in the vaults of the central bank.

2) An increase in food subsidy would ensure low prices

As Henry Hazlitt and Ayn Rand had noted, “Government “aid” to business is sometimes as much to be feared as government hostility.” It is forgotten that the Government doesn’t create wealth. All it gives away is what it had taken in, whether directly or indirectly. By giving subsidies, the Government subsidizes the incompetent at the expense of the competent, and as a result, the whole society is made worse off.

3)In India, inflation was mostly caused by droughts.

Some Indian Economists with inadequate knowledge of the subject were pointing out in the past that inflation is not always a monetary phenomenon and in India, inflation has always occurred after major droughts. But, it is well known that the prices have been rising continuously in India for the past several decades. Their argument would imply that there were droughts continuously and material civilization is slowly disappearing, which, obviously isn’t true. It should be apparent now that it is utterly illogical to blame inflation on droughts and famines. It should also be kept in mind that famines are created by Governments.

4)A decrease in supply of goods is the cause of price rise.

Whatever be the popular perception, in reality, the tendency has been that the supply increases each and every year. If so, the real effect has to be that the prices should fall every year. (It happened in the United States when the country was more or less on a Gold Standard.)

Even in cases when supply has come down, as in Chile in 1970’s and Uruguay in 1960’s the role of falling supply has been minor in the price rise. The supply had only fallen to a certain extent, but the prices rose thousands of times. Moreover, if we take falling supply as a cause for general price rise, it would imply that the supply has been falling through out every year, as prices have been rising at an amazing pace. That would imply the general disappearance of human civilization, which obviously isn’t happening. Such an analysis would make it obvious that the falling supply is not the reason and something else is wrong. Moreover, if there was free trade, goods would move in to the country where there is falling supply. That would have solved the problem. It should be kept in mind that it is the Governments which are the biggest enemy of free trade.

It should also be taken in to account that supply would fall if there is an extreme rise in aggregate demand. It means that supply would fall with an increase in paper money, which obviously is one of the causes for a fall in supply in many of the cases. Every time inflation occurs, people scream that there is a fall in supply going on. It is so ridiculous. It was pointed out by Henry Hazlitt that “In Germany of 1923, after priced had soared hundreds of billions of times, high officials and even the people were blaming it on the shortage of goods and at the same time foreigners were buying German products at a price lower than what would they have had paid in their home country with their own currency or gold. Even in conditions of war, we do not see a general rise in prices due to a decrease in supply.”

A fall in supply also can’t explain the debtor/creditor effects of inflation. During an inflation, the debtors gain at the expense of creditors. A fall in supply of goods can’t explain this. Only an exorbitant rise in the amount of paper money can be an adequate explanation for this. Moreover, the argument that a fall in supply is the cause of inflation would imply that a rise in supply would lead to deflation and depression. It is obvious that a rise in supply would lead only to prosperity and this alone would be enough for us to reject a fall in supply as the cause of inflation.

Clamor For Protectionism

We have seen the cross of fixed exchange rates in fiat money. A few years back, Indian exporters were taking a hit as the Reserve Bank of India (RBI) didn’t allow Indian Rupee to freely fluctuate against other currencies. The Rupee, which was overvalued, appreciated considerably against the Dollar. This happened not just in India. As Henry Hazlitt noted in “Will Dollars Save the World?”, this was the policy followed by most European countries. Mostly Governments overvalued their currency, which led to a surplus of the overvalued currency and a shortage of the undervalued currency. This is an illustration of the often misunderstood “Gresham’s Law”. Gresham’s law states that “artificially overvalued money drives out of circulation artificially undervalued money”.(The definition that bad money drives out good is misleading, to say the least) The end result is commonly known as a “Dollar shortage”, accompanied with cries for dollar aid and rationing of imports. This policy has changed in course of time. Some countries follow the exact opposite policy-undervaluing their currency.

Paul Krugman, in his New York Times column, has pointed our attention towards China, which has pegged its currency at about 6.8 Yuan to the Dollar. China has a currency peg for a long time. This, Krugman says, is predatory leaving the Chinese manufacturers with a large cost advantage over its rivals, leading to huge trade surpluses. Krugman calls for protectionism to deal with the Chinese policy. The Yuan is undervalued, which makes price of exports low in terms of dollar. Foreigners find imports less expensive and exports more expensive. The Yuan, however, floats against other currencies.

It is important to see why it happens. Imagine that a good sells at 35 Yuan in China when the free market rate for Yuan is 3.5 Yuan. On a free market, that good would cost 10 Dollars. But, as a result of controls, one has to pay only 5 dollars. This makes exports from China cheaper for American consumers. The price is lowered by nearly 50%. So, it should be obvious that the Americans would want to import more from China in such a situation. In the same way, a good that costs $10 in the United States has a free market price of 35 Yuan. But, as a result of controls, the Chinese will have to pay 68 Dollars. That’s an increase of nearly 100%. As a result the Chinese would want to import less from the United States. It is almost as if in China, an import duty of around 100% is levied on American products. Who would want to buy American products at such a high price? This helps the exporting community in China at the expense of Chinese consumers and certain American producers.

Sounds economics tells us that if the Chinese government allows Yuan to appreciate, it would put a break on the inflationary boom. It would contain domestic inflation in China. It would also bring down the pressure on the US government to erect protectionist barriers. It is in the self interest of China,  to change its policies for good. Contrary to what Krugman wrote, China’s policies don’t pose a threat to the world. China is not “stealing” other people’s jobs. This is not to say that China’s currency policy is good. It unfairly punishes Chinese consumers, to whom the prices of American products appear high. Probably, things will change in the near future. Some economists, including Surjit Bhalla, had predicted that China’s exchange rate will appreciate significantly starting 2010. Bhalla expects a first year appreciation to about 6 Yuan per dollar from the present 6.8 level.

Krugman is of the opinion that China doesn’t act like other major economies in its currency policy. This is a half truth. It is true that most major currencies float against each other. But, most countries peg their currency against some major currencies. Moreover, Yuan floats against many other currencies, which has caused both appreciation and depreciation in the recent past. It should also be said that Yuan is stronger against the dollar than when China put a rein on its appreciation. Is Krugman justified in his claim that Chinese policy causes unemployment in the United States? It is true that some people in the US will lose jobs as of a slackening in exports, but a reduction in overall employment will be brought about only by coercive labor policy. Some producers might make losses, but it will be largely offset by the gains of consumers, which they will save or spend.

Donald Boudreaux has written a wonderful piece on “Freeman”, attacking the protectionist position. Protectionists, he says, abhor the fact that Americans are importing more from China. The policies of foreign countries make them uncomfortable. He rightly points out that the low priced Yuan will make Chinese products cheaper to American consumers. This doesn’t help the Chinese and harm Americans. Quite the contrary, in fact! It harms the Chinese economy, and helps the United States and other countries which trade with China. Protectionism would only prevent goods from being produced in a cost-effective manner. The theory of comparative advantage tells us that free trade would lead to resources being used in the most efficient way. Boudreaux illustrates the principle with a simple example. His elementary school used to sell tickets in a fund raising fair. These tickets could be exchanged for various items students want to purchase. What if the school had undervalued the tickets? Would it help the school? Obviously not! It would have helped the students at the expense of the school. Students would be able to buy more items at a lower price. So, things should be obvious by now.

Krugman doesn’t see anything necessarily wrong with the policy other than that the Chinese Government has fixed an unreasonably rate. He is wrong there too. The issue has become too contentious that there are more than two sides to it. One side believes in Government’s supreme wisdom to set the exchange rate. The other sides, mostly monetarists call for a free market in exchange rates. “Why should the Government fix the price of gold?” they ask. While freely fluctuating currencies are better than fixed exchange rates in fiat money, to call for a free market as a final solution is absurd. Advocates of a gold standard rightly understand that gold lies in the vault of the central bank, and to denationalize it, the Government should set a value so that it is possible to exchange it, one for one, for the currency claims on gold.

Exchange rates are, ideally, not to be arbitrarily set by the government, or to be left to the market to decide. Each currency should be strictly defined in terms of gold, and fixed permanently that it is interchangeable and redeemable at that weight. When done so, each and every currency would be anchored to each other at a fixed exchange rate, that seasonal fluctuations wouldn’t wreak havoc on the export or import communities. The maintenance of fluctuating exchange rates and protectionism would only reduce the incentives to innovate and hence impede it.