Book: Capitalism & Freedom

**Posted on aNobii on May 11, 2006**

Honestly, I have no idea how I could earn an eonomics degree without ever having to read this book.

Friedman starts off with the most fundamental belief of a liberal - a belief "in the individual's freedom to make the most of his capacities and opporunties according to his own lights, subject only to the proviso that he not interfere with the freedom of other individuals to do the same."

As such, in judging social arrangements, the question to ask is, "Does it promote individual freedom?"

He goes on to argue that in order to have a free society, you need a free economy. Then he lays down fourteen activities undertaken by the government which could not be justified. They include:

• Tariffs on imports and restrictions on exports
• Minimum wage rates, maximum prices
• Current public school system
• The present social security systems
• Licensure provisions
• National parks

This is quite a big challenge he brings to himself. I mean, this guy is arguing against requiring doctors to get a license!

He proceeds to argue very convincingly for each of the item. Every chapter is a gem. The thinking is rigorous, its clarity stunning. And they are filled with humor and insights that are a joy to read by themselves (think "Freakonomics").

Liberals are anything but idealistic. Friedman's basic argument is this: look, you can try to get the government to do something about an issue, and with luck you may see some quick effects. But once the government gets its hands into this, they are never gonna get out. That's the REALITY. Like in every institution, government's natural tendency is to seek to grow and expand its influence. Once the government minds the business it should't mind, it's gonna bring in evil effects that are gradual, indirect, and unfortunately, will go unnoticed for a long while. So please be prudent in asking for government's intervention. In other words, let the government be the umpire. Unless it's absolutely necessary, don't ask him to join the play.

If you are a liberal, you can't be a good one without reading this. If you are somewhere else in the spectrum, this book will give you plenty food for thought.

Oh btw, in case you think this is something new, he wrote this book back in 1962.

My bookshelf at aNobii

The secret gem of PSP

I bought a PSP yesterday so I could watch videos during my weekly commute to Guangzhou. I struggled for half an hour trying to get it to play the Google videos I downloaded. Turned out that I put the ".MP4" inside the file name while the extension ALREADY was MP4.

PSP's video playback quality is amazing. Much better than the alternatives I've looked at, including iPod video. And it's selling at half the price of most others. Yet Sony is not touting its strength as a video player at all. Why the reservation? Here's my guess.

First, why is it selling at a relatively low price? The video game business is a lot like the printer business. When HP sells you a printer, it doesn't earn much. After all, the printer is just a bait to get you to buy HP ink/toners for the next couple years, and that's where the real margin comes from. It's just another case of law of complements at work. The lower the price of a product (printer), the higher the demand for its complements (ink/toners). That's why you see laser printers selling at under $1000.

In the same manner, game console is just a bait to keep you buying games. How much are the console-makers willing to dole out to bait you? Microsoft, for one, is willing to lose US$150 per XBox! I couldn't find any data on how much Sony makes / loses for each PSP sold. But given its price tag, I suspect the margin is very low, if not negative.

I bought my PSP just for playing videos I acquire elsewhere. So chances are, Sony is losing money on people like me (and those who buy pirated games, of course) even if you count the 1G proprietary memory stick I bought. And that's probably why they are keeping PSP's amazing video quality low-key. But who knows? Maybe they'll exact revenge on me with an irresistable Winning Eleven XI.

Bye bye, gasoline?

Which do you prefer?

• Feed mid-east terrorism or mid-west farmers?
• Import expensive gasoline or use cheaper ethanol?
• Create farm jobs or mid-east oil tycoons?
• Fossil fuels or green fuels?
• ANWR oil rigs or "prairie grass" fields?
• Gasoline cars or cars with fuel choices?

This is a slide from the presentation by Vinod Khosla, one of the founders of Sun Microsystems. His VC is backing the development of replacing gasoline with ethanol.

The case for ethanol is compelling. It's cheaper, it's cleaner, it reduces our dependence on mid-east, it helps the farmers and thus helps reduce the need for agricultural subsidy, which is a rather explosive issue, as every Hong Kong-er can tell you, and, requiring no technological breakthrough, it's cheap to get started. Simply put, there's something for everyone except oil companies that do not embrace it.

Best of all, it's been proven plausible. In Brazil, driven only by consumer demand with no government subsidy, the share of ethanol-friendly cars (called "Flex-fuel vehicles") in car sales rose from 4% to 70%. And Brazil is already enjoying all the benefits mentioned above. All in three-year time.

The presentation is available here. It's one of the talks hosted at Googleplex. You can download it for your PC, iPod or PSP.

The light is better over here

A man is looking for his lost keys under the street lamp. His companion tells him that he's probably dropped them near his car. The man replies, "I know, but the light is better over here."

In a company I've worked for, management wanted to measure the contribution of each employee. They made us punch the time-card when we arrive for work and when we leave. They could then add up all the hours and see who logged the most.

The light is better over here.

In the equity market, data clearly show that the market behaves in nonlinear ways. The variables are not necessarily linked in a proportional manner, nor are outputs proportional to inputs. But we continue to apply linear models in predicting the market.

The light is better over here.

(The market example comes from A Mathematician Plays the Market)

(Image source)

(own) GOOOOAAAAAL!

A short collection of fascinating own goals that will delight fans (except when it's your favorite team's defender who nails that unstoppable "match-winner") and non-fans alike. The video makes it look like own-goals are not as rare you'd think.

Warning: after a couple of those you may get confused as to how soccer is meant to be played and who's playing against whom. In that case, walk away from your computer, take a deep breath and relax your mind before you continue.

http://video.google.com/videoplay?docid=-5879759145636232499

Run Forrest, Run!

It isn't exactly intuitive that a sports gears business and a music retail shop have anything to do with each other. But Nike and Apple - should I say iPod? - have made the connection look so natural you wonder why it's taken so long to materialize.

I don't see how any runners can resist the temptation. Heck, I am not a runner and I want to lay my hand on a set! This is a perfect showcase of what Nike does best - engaging ASPIRING athletes. And I suspect that every non-runner is an aspiring runner to varying degrees. So chances are, people like me will buy in the hope that it will turn them into runners. It probably won't. But that only makes the campaign all the more beautiful.

How about your own TV station?

If the price of a product goes down, all other things being equal, the demand for its complements rises, and vice versa.

If the price of gas goes down, demand for cars goes up.

If the price of PCs goes down, demand for OS goes up. That's why Microsoft refused to sell an exclusive license to IBM. Redmond wanted the PC market commoditized.

If the price of enterprise software goes down, demand for enterprise software integration goes up. That's why IBM - the current consulting firm IBM, not the old PC IBM aforementioned - is embracing the open-source movement like it's its favorite child.

In a video project, you acquire the gears, produce the video, market it, and distribute it to whoever wants it.

The likes of Google and YouTube are driving the price of video distribution to zero. So what happens when video distribution, which has previously been dominated by a few dozens (think TV stations), is now open to everyone with an internet connection? To be more precise, who stand to gain the most?

You are likely to produce more videos or buy more services to produce videos for you. Which means you are also likely to buy more online ads (Google ads, maybe?) to promote your videos.

And I won't be surprised that Macs, perceived by many to possess this supposedly-native superiority in dealing with videos, will grab some more points in PC market share as a result.

(See Joel Spolsky's introduction to complements.)

Thou must paint thy bathroom door green ...

You are living in an apartment building. Every resident is by default a member of the building's committee.

There's been an issue about how things should be decided around here. Some argue that the current simple majority rule should be replaced by dictatorship. Some say votes shall be casted in the form of money. Some argue that decisions should be made by the special 10% chosen by God through a lottery. Some propose setting up another committee to check against the power of the original committee. Some say that those in the minority of opinions should have a way to get things done the way they want. Some propose a democratic dictatorship with local characteristics, whatever that means.

Hold on, you say. What's the next issue the committee will decide on? The color of your bathroom door followed by how much you should save each month for the retirement of your dog.

Oh.

$1M in 6 weeks

Next time you're short on cash, consider this scheme:

Get yourself some professional-looking stationaries. Send out 64,000 letters, half saying that in the coming week the S&P 500 will drop, half rise. 32,000 people will be quite impressed.

The next week, send letters to those 32,000 people, telling half of them that S&P will drop, the other half rise. 16,000 people will be more impressed (don't forget to mention your dead-on prediction from the previous week).

The week after, send letters to those 16,000 people in the same manner. 8,000 will be very impressed after the 3rd week, 4,000 will be super impressed after 4th, 2,000 will be chanting your name after 5th. After the 6th week, 1,000 will call you god.

Then you send a letter to those 1,000 telling them to pay you $1000 in order to continue getting such predictions / letters. If every one of them pay - which is not surprising given your newly-acquired deity status - you'll net a cool $1 million without knowing what P/E means.

Of course, you may serve time for that too.

(An idea from A Mathematician Plays the Market)

Take care, fans of socceroo!

If you are drafted into your country's World Cup Finals team, you'd pay extra attention not to break your foot by dropping a bottle of aftershave (Canizares). Or damage your knee ligaments while reaching for TV remote (David Seaman). Or twist your shoulder while fishing (again, David Seaman).

Fans around the world shall be taking good care of themselves too. Especially the Aussies who've waited 32 years since their last Finals appearance and 12 years for their golden generation to crack it into the last thirty-two.

Hang in there mates!

Grue & Bleen

Let's call an object "Grue" if it is green before Jan 1, 2010 and blue afterwards.

And let's call an object "Bleen" if it is blue before the same date and green afterwards.

Now, all emeralds examined up to now have been green. One may feel confident that all emeralds are green. But one should feel EQUALLY confident that all emeralds are "grue."

That doesn't sound right, you say. "Grue" is too weird a concept. But is it?

Consider an alien whose color system includes "grue" and "bleen". By the same token, the concept of "green" must be very weird. "Green", after all, is something that is grue before Jan 1, 2010 and bleen afterwards.

Hm ...

(A paradox by Nelson Goodman. Mentioned in A Mathematician Plays the Market)

(Image source)