Education and Signaling

I’d linked to this video this past Friday too, but just in case you haven’t seen it yet:

And a bonus today, Bryan Caplan on the same topic:

What is common between the AER and markets in Nashik?

Not a joke, that is a genuine question.

The AER, by the way, is the American Economic Review. Getting published in the AER for an economist is like a cricketer getting to a century in a Test at Lords. Although drawing this analogy does remind me of what Harsha Bhogle said about Sachin and the Lord’s honours board.1. Nashik, of course, is a city in Maharashtra.

So what’s the reason for the title of today’s blog post?

Exhibit A:

Exhibit B:

Amid rising Covid-19 cases in Maharashtra, the Nashik district administration has now issued new restrictions to limit people from visiting the markets unnecessarily. The people in Nashik will now have to pay ₹5 per person for an hour every time they visit any market in the city. news agency ANI reports.

https://www.livemint.com/news/india/new-covid-19-restrictions-in-nashik-now-pay-rs-5-for-hour-long-market-visit-11617154785051.html

In the boring but functional language of the economist, no free entry in these markets anymore.2.

What should we anticipate in terms of effects of such policies? Why? Are these policies good, or bad?

  1. Frivolous visits to both markets become rarer than before. In both cases, that was the intended outcome.
  2. In Nashik’s case, the price isn’t just 5 rupees, but also the time that you will have to spend waiting in line before you can cough up the fie rupees. Plus, the fine print says that if you end up spending more than one hour, you will have to pay 500 rupees as an additional fine.
  3. 1000 dollars is steep even by American standards. It is just completely out of reach for most of the rest of the planet. 5 rupees is nowhere close to being a back-breaking amount for most Indians. Does that make the AER price too high and the Nashik price too low? I think so, but that then begs the question of what the price should be in each case.
  4. You’ll “bunch together” a number of separate visits to the market. You won’t just pop down to the market to buy half a litre of milk in the morning and then pop back later in the day for some onions. You’ll combine the two trips. That is the intended outcome, so this is a good thing! But in the case of the AER entry fee, you’ll want to “get your money’s worth” – which means there is a chance that your paper will end up being longer than would otherwise have been the case. This is nobody’s idea of a good idea!
  5. Neighbours might get together and deputize one person to go get the shopping done. Again, that’s wonderful! Authors will get together too, that is, co-authorship will go up. Free <cough> rider <cough> problems?
  6. At the margin, sellers in Nashik’s markets are incentivized to figure out home delivery options. Again, wonderful! Since getting published in the AER is anything but a perfectly competitive market (just the one seller, by definition), AER has no such incentive. But the substitution effect will come into play, no? Other journals will see more papers being submitted. And if those journals raise prices, then fewer papers will be submitted all around. Personally, I don’t see this as such a big problem.3

(Here’s Tyler Cowen on other, related points about the AER pricing.)

As a student of economics, you should be able to see the similarity between both of these pricing calls, and also see the differences. That allows you to begin to think through whether these will, in fact, be good ideas or not, and why. I’m sure that there are many other points to think about in both cases.

If you are a student of microeconomics (and who isn’t, really), it might be worth your while to think about what I am missing in my analysis. Please, feel free to let me know!

  1. Sachin famously never managed to score a century at Lord’s, and therefore his name isn’t up on the Lord’s honours board. Harsha Bhogle apparently asked whose loss it was, Sachin’s, or Lord’s[]
  2. To be clear, the AER thing was an April Fool’s joke.[]
  3. To be clear, research may not go down. The attempt to publish that research will. And I’m ok with that![]

What’s Up with the World Outside of Covid-19?

Yash Agarwal, ex-student and good friend recently shared this link on Twitter.

The last line of the article shared by Yash goes like this:

What is starting today is a new age of technological wonder, the Great Acceleration.

https://spectator.us/topic/great-acceleration-looking-forward-post-covid-age/

The background to this is that Tyler Cowen had written a book some years ago called The Great Stagnation. The basic thesis in that book is that innovation was slowing down, since the low hanging fruit in terms of technical innovation had already been picked. But the book also spoke about how this was not to say that innovation was forever going to be slow – it’s just that it had slowed down around then.

He wasn’t the only one, by the way. There were quite a few folks who were less than impressed with technological progress aobut a decade ago. Everybody has heard of the comparison between Twitter and flying cars, but there’s much more where that came from:

In the 2010s, we largely decided that we were in the middle of a technological stagnation. Tyler Cowen’s The Great Stagnation came out in 2011, Robert Gordon’s The Rise and Fall of American Growth came out in 2016. Peter Thiel declared that “we wanted flying cars, instead we got 140 characters”. David Graeber agreed. Paul Krugman lamented the lack of new kitchen appliances. Some economists asked whether ideas were simply getting harder to find. When the startup Juicero came out with a fancy new kitchen appliance, it was widely mocked as a symbol of what was wrong with the tech industry. “Tech” became largely synonymous with software companies, particularly social media, gig economy companies, and venture capital firms. Many questioned whether those sorts of innovations were making society better at all.
So it’s fair to say that the 2010s were a decade of deep techno-pessimism.

https://noahpinion.substack.com/p/techno-optimism-for-the-2020s

By the way, on a related note (although this deserves its own post, which will be out tomorrow) you may want to read this post by Morgan Housel in this regard.

In any case, Covid-19 has in some ways accelerated innovation, and that’s the point that Bruno Macaes1 is making in the article above.

Take transportation and energy: the demand for driverless cars and delivery vans boomed last year because people were fearful of getting infected. In response companies quickly scaled up their plans. Last October, for example, Waymo announced the launch of a taxi service that is fully driverless. Walmart announced in December its plans to use fully autonomous box trucks to make deliveries in Arkansas later this year. As retail goes online as a result of the pandemic, massive delivery volumes are now placing greater pressure on others to follow suit.

https://spectator.us/topic/great-acceleration-looking-forward-post-covid-age/

Note that without Covid-19, we would be having debate about automation, jobs and how technology is promoting inequality. That may well be true. But this is precisely why we study opportunity costs in college!


Perhaps the most interesting (to me) advance this past year has been in terms of we humans understanding how protein folding happens. Understanding is perhaps the wrong word to use (and note that I know as much biology as forecasters know about the future), but we have trained machines to understand it.

At CASP14 DeepMind produced an advance so thorough it compelled CASP organizers to declare the protein structure prediction problem for single protein chains to be solved. In my read of most CASP14 attendees (virtual as it was), I sense that this was the conclusion of the majority. It certainly is my conclusion as well.

https://moalquraishi.wordpress.com/2020/12/08/alphafold2-casp14-it-feels-like-ones-child-has-left-home/

As I understand it (and please note once again that I am no expert) this has the potential to change by orders of magnitude how we approach the treatment of a variety of diseases in this century.


But if you are anything like me, you are also curious to know about what else has been going on this past year. Again, before we proceed: this post is about the “what” in terms of scientific advancement. Tomorrow is a rumination about the “why”.

First, I’d referred to this interview in an earlier post, an interview of Patrick Collison by Noah Smith. It refers to some of what we have been speaking about, but much more as well:

I think the 2020s are when we’ll finally start to understand what’s going on with RNA and neurons. Basically, the prevailing idea has been that connections between neurons are how cognition works. (And that’s what neural networks and deep learning are modeled after.) But it looks increasingly likely that stuff that happens inside the neurons — and inside the connections — is an important part of the story. One suggestion is that RNA is actually part of how neurons think and not just an incidental intermediate thing between the genome and proteins. Elsewhere, we’re starting to spend more time investigating how the microbiome and the immune system interact with things like cancer and neurodegenerative conditions, and I’m optimistic about how that might yield significantly improved treatments. With Alzheimer’s, say, we were stuck for a long time on variants of plaque hypotheses (“this bad stuff accumulates and we have to stop it accumulating”)… it’s now getting hard to ignore the fact that the immune system clearly plays a major — and maybe dominant — role. Elsewhere, we’re plausibly on the cusp of effective dengue, AIDS, and malaria vaccines. That’s pretty huge.

https://noahpinion.substack.com/p/interview-patrick-collison-co-founder

Second, Caleb Whitney has a lovely blogpost on this topic, and shares with us this chart – and if this chart isn’t beautiful, I do not know what is.

The tiny red vertical line tells you when the cause of the disease was identified, and the tiny green vertical line tells you when the cure was licensed in the United States of America. And now think of what happened with Covid-19!2

There’s much more in that post, and there’s more on Patrick Collison’s website, Matt Clancy’s reading list, Matt Clancy’s Substack, and this blogpost by Eli Dourado. I am sure there is more I have missed – much more! – but isn’t that only reinforcing my point?


It is easy to get caught up in the short term pessimistic narrative, and be overwhelmed by it. It happened to me last year, as I am sure it did to many, many other people on this planet. I gave up on what until then had been my proudest achievement in terms of my work: posting here every single day.

But on a personal level, the past year has also taught me this, and I have Morgan Housel to thank for the central insight: the seeds of calm are planted by crazy.3

So when things are really bad and grim (and again, this is not over yet), look to the bright side. And not just because it’s a good thing to do! But also because the bright side is likely to be brighter precisely because of everything else being so goddamn dark.

Tomorrow, I’ll attempt to answer a question I have, and I am sure you do as well: why?

  1. I don’t know how to type out a c with a cedilla in WordPress, my apologies[]
  2. Please note, covid-19 ain’t over yet, especially here in India. That’s not the point though. The point is to ask if the kind of progress we have made this past year would even have been possible in the past.[]
  3. The reverse is also probably true, more’s the pity[]

A Review of Stubborn Attachments

I’d written a post last week, the title of which was “Growth. Just, only, simply growth.

There’s two books that I’d recommend you read to get a fuller understanding of the importance of growth. One is a book about the need for growth in an Indian context. It is authored by Vijay Joshi, and the title is India’s Long Road: The Search for Prosperity.1

There are many reasons why India’s Long Road is an excellent read. The one that is directly relevant here is his succinct summary of why growth in India over the long run is such a challenge:

India should strive for rapid, inclusive, stable and sustainable growth within the parameters of a political democracy.

In the book, Joshi explains why he chooses these aspects as being worthy of his analysis, covers how well India has done along these parameters thus far and what needs to be done from here on in. But the reason I am beginning my review of Stubborn Attachments by speaking about Joshi’s book is because Joshi speaks about growth as being more than just an increase in GDP over the long run.

Rapid growth as measured by GDP, yes, but not at the cost of the environment – therefore sustainable. Rapid growth, yes, but also stable. Rapid growth, yes, but also inclusive. And growth, yes, but not by sacrificing democracy.

You might say that Vijay Joshi is stubbornly attached to growth, but with qualifications.


Here is one way to think about Tyler Cowen’s book, Stubborn Attachments. It is as if he takes Vijay Joshi’s statement above and distils it down to its barest minimum. And in his distillation, he leaves us with the following:

Growth at all costs, except at the cost of human rights and concern for the environment.

It’s not just his own philosophy, but as he puts it, it is his recommendation that this be your philosophy too:

No punches are pulled, this is my account of what I strongly believe you should believe too. My bottom lines, so to speak.

https://marginalrevolution.com/marginalrevolution/2018/08/preface-stubborn-attachments-book-especially-important.html

How does he arrive at his stubborn attachment to prioritizing growth above all else, subject to only two constraints?

Before we begin our journey in terms of answering this question, a couple of things to note.

He is trying to answer the question of what is best for “our civilization”. And as the book makes clear, that’s all of us – every single person on this planet is his implicit definition of “our civilization”.

Second, a useful way of reading the book is to think of this book as his answer to the Ultimate Big Picture Question: “But what is the point of all this?”

I think of his answer as a sort of Pascal’s wager: we don’t know yet if there is a point or not. But if and when we discover what the point is, it is better to be prepared to deal with that point, whatever that point may be. And better prepared is, in his view, more growth.

So how does he arrive at his stubborn attachment? He begins by laying out his philosophical starting points:

1. “Right” and “wrong” are very real concepts which should possess great force.
2. We should be skeptical about the powers of the individual human mind.
3. Human life is complex and offers many different goods, not just one value that trumps all others.

Cowen, Tyler. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (p. 19). Stripe Press. Kindle Edition.

I have not the slightest objection to any of these points – they’re all but axiomatic to me.

So far, so good.

Next, how to choose which thing to get stubbornly attached to, given the points above? To arrive at that decision, there are, in his view, six things to consider:

  1. Time: Take the very, very, very long view when making a choice. This is not about dessert after lunch today and the implications of that for my future self. This is about dessert after lunch today and the implications for my daughter near the end of her life. More! It is about the implications for my daughter’s grand-daughter – and her grand-daughter, and ad infinitum. Make decisions about which things to get stubbornly attached to with the longest possible view in mind.

    Why, you ask? Well, think of it this way: would you expect your parents to take decisions that will benefit you tomorrow? Will you take decisions that will positively impact your children’s lives? Apply the principle of induction, and well, how could you not take the long view? (That is my argument, to be clear, not Professor Cowen’s. But I don’t think he’d disagree.)
  2. Aggregation: What if I want to go out for a nice dinner, but my wife prefers a nice light salad at home instead? My preference over hers or vice versa? Tyler Cowen has an easy way to resolve this: pick the option that maximizes long term growth, not short run pleasure. Nice light salad at home it is then, unfortunately for me. (He has a nice explanation later on in the book for why this makes sense, on pg. 52 of the Kindle edition.)
  3. Rules: I was telling some close friends about how I was not in favor of piercing my daughter’s ears while she was a baby. My logic was that she should choose for herself when she is old enough to do so. One of my friends asked if the same rule was applicable when it came to vaccination. Now, obviously, no: my daughter has had all her vaccinations. So really, the rule is she should choose when she is old enough to, except when it comes to issues of her health. Which, of course, has been the rule all along – I just didn’t state it well enough. The point, though is this: you have to be consistent with the rules you set for yourself, and for the game. Calvinball is fun to read about, but it is a poor way to live life.
  4. Radical Uncertainty: How can we know anything for sure? What if we are wrong? What if our actions have enormously negative unintended consequences centuries down the line? It is interesting (instructive?) to me that this is the one point among the six where Tyler Cowen doesn’t definitively say what his opinion/conclusion is when he ontroduces these concepts for the first time. It is almost as he if he is conceding the point that you can’t ever know for sure. But even so – or perhaps therefore – he is stubbornly attached to the idea of growth. What else is there, eh?
  5. How Can we Believe in Rights?: Professor Cowen says that this is undecided territory in philosophy – I don’t know enough to argue either way. But he also says that “some key elements of ethical reasoning do support the notion of objectively valid human rights, and, indeed, of their nearly sacred character.”
    As I said, I don’t know enough to comment authoritatively, but in my worldview, rights are axiomatic. How can you not believe in rights? There’s not much of a civilization left if there are no human rights. No?
  6. Common Sense Morality: Here is his definition of common sense morality – “Common sense morality holds that we should work hard, take care of our families, and live virtuous but self-centered lives, while giving to charity as we are able and helping out others on a periodic basis.” I’m more than ok with that description, but reconciling this with the more extreme utilitarianism view has, it seems, proven to be problematic. But he comes down on the side of common sense morality, and I’m happy to go along.

All right, so three basic points, and six things to consider. To which he adds two “moves”.

First, whatever it is that our civilization has been able to achieve so far is because of the productive power of our economy. Had our economy not been productive enough, Beethoven may have ended up being a farm laborer. Adam Smith could write about the division of labor precisely because society had been making use of the concept for thousands of years. We are where we are today precisely because of the productive power of our economy. Why not do more of it, then?

The second move is really a restatement of the first of the six things to consider. When in doubt, take the long term view, and whatever your long term view, make it longer.2


From these ingredients then – the three basic points, the six things to consider and the two moves – he reaches the conclusion that growth is a moral imperative. He makes use of a concept called a Crusonia Plant3 to arrive at this conclusion.

Growth, however, measured not by wealth, but by “Wealth Plus”:

Wealth Plus: The total amount of value produced over a certain time period. This includes the traditional measures of economic value found in GDP statistics, but also includes measures of leisure time, household production, and environmental amenities, as summed up in a relevant measure of wealth.

Cowen, Tyler. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (p. 30). Stripe Press. Kindle Edition.

And that, of course, is why I began with Vijay Joshi’s book. As I said, a maximizing Wealth Plus is essentially Vijay Joshi’s statement distilled.

And to do this – to maximize Wealth Plus – there are three questions we need to continually ask ourselves:

What can we do to boost the rate of economic growth?

What can we do to make our civilization more stable?

How should we deal with environmental problems?

Cowen, Tyler. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (pp. 32-33). Stripe Press. Kindle Edition.

Or, put another way, maximize growth subject to human rights not being violated, and subject to the environment not being ignored.

That is his stubborn attachment, and it is what he would like ours to be as well, all of us.

Please, do read the book to understand his defense of his view. The book is only 150 odd pages long, and written in an easy, conversational style.


I’ve been reading some of the reviews of the book in order to prepare for writing my own. Of the ones I have read, I am in complete agreement with the one that says that Tyler Cowen is basically saying let’s worship a community called humanity. And the one that I found most interesting was the one that put the argument in terms of optionality. I think that is another of way saying “Pascal’s Wager”.


Finally, what would my stubborn attachment be?

There are three reasons I have spent a large part of my review focusing on writing about Tyler Cowen’s assumptions, axioms and approach, rather than his conclusions.

  1. One of Ayn Rand’s unfortunate caricatures is fond of saying “Check your premises.” I have, for years, found that to be useful advice. And if you, like me, find yourself in agreement with Cowen’s premises, you should either reach exactly the same conclusion, or a closely related one (mine is closely related).
  2. Most of the reviews that I have read focus on the conclusions, or take issue with ways to implement the conclusions. See this review, for example. I found it enjoyable and instructive to think through Cowen’s premises, and they helped me make my own clearer. For the record, they are mostly the same, save for one, which leads me to my third point.
  3. Knowing is always and everywhere better than not knowing. I’d personally add this as a fourth axiom, in addition to the three he has listed out.

And so my own stubborn attachment: to know more, and to help other people know more. Ideas are the ultimate good. Not only can I share my ideas, I ought to share my ideas. You ought to share yours. Ideas should have sex! That, as Matt Ridley says, is what has built civilization – growth comes from “ideas meeting, and indeed mating.”

Wealth Plus, in other words, is an outcome of more people knowing more. What you really want to maximize is the spread of ideas. A civilization devoted to learning more, and helping everybody learn more, cannot help but accrue more Wealth Plus – it is an inevitable outcome. More, it is a guarantee of maximizing your chances of perpetuating this progress.

Or put another way, what provides nourishment to the Crusonia plant is the spread of knowledge, and without it, the plant may well wither.

And so my own personal stubborn attachment is to the accrual and spread of knowledge. Wealth Plus is a guaranteed, and welcome, consequence.

  1. The book started off as a collaboration between Vijay Joshi and TN Ninan. Things didn’t work out, for whatever reason, but that had a positive spillover for us readers, for now there’s two books to read. TN Ninan’s book is called The Turn of the Tortoise, and it is also worth a read.

    Joshi’s book is an excellent read in it’s own right, and it provides a pretty good summary of the Indian story since independence. That’s hardly surprising if you are a student of the Indian economy, for Vijay Joshi has authored two excellent books on this already, with his co-author IMD Little. One covers the Indian economy from 1964 until 1991, and the other discusses India’s economic reforms post 1991.[]

  2. Or that is how I understand it, at any rate[]
  3. read the first three paragraphs of this review for a short description[]

Maximizing Soul

I wrote this essay yesterday, and spent all day on it. I didn’t get anything else done. And in terms of the week coming up, that was an expensive thing to do. But as will become clear after reading this essay, I do not regret it one little bit.

David Perell on The Microwave Economy

David Perell’s latest essay resonated with me, and for multiple reasons. The essay is centered around a point that I have been playing around with for a while: we live in a society that overrates efficiency.

He uses the metaphor of a microwave meal in this essay. Not the kind of microwave meal that Krish Ashok has in mind, but rather the kind of microwave meal that a large number of urban Indians are increasingly familiar with. Cut packet, dump in a bowl, nuke and eat. That kind of microwave meal.

This is a meal robbed of its soul. It is functional, yes. It is, in its own way, nutritious enough. One could argue that it is tasty enough. But there is no romance, originality or effort in it. As Robert Pirsig might have put it, it is bereft of quality.1

Perell’s essay extends this point about the microwave meal to the economy.2 Most of what we do in our lives today is centered around the same misunderstanding of convenience that gave birth to the idea of a microwave meal. The result, as Perell puts it, is “an economy that prizes function over form and calls human nature “irrational”—one that over-applies rationality and undervalues the needs of the soul.”

What if, for example, I and my family decided to drive down to Goa for a holiday? Which route should we take? We would do exactly what every right-thinking person in our place would do: look up Google Maps. Whatever route Google Maps suggests is the one we will take. 

Here’s a quote from Zen and the Art of Motorcycle Maintenance, the first of Pirsig’s two books:

“The best ones connect from nowhere to nowhere, and have an alternative that gets you there quicker.”

He wrote this line in the context of learning which roads in America were the best for motorcycle riding, and the next two to three pages are lessons on how to ignore Google Maps. Google Maps wasn’t even on the horizon when the book was written, of course. It is just that Google Maps is the modern day evolution of the idea that Pirsig was battling when it came to choosing roads to ride on. 

That idea being efficiency.

A long, rambling drive through quiet serene countryside might mean an extra day, sure, but isn’t that a price worth paying – at least  worth considering? Pirsig isn’t arguing for never getting there, wherever “there” may be. He is saying the same thing that the poet did, years and years ago. We have lost the desire to stand and stare. The monk said the same thing when he spoke about the journey being as important as the destination. Getting there is important, of course it is. But how you get there is equally important, and we live in a society that doesn’t care about the journey anymore. 3

Our society over-applies rationality and undervalues the need of the soul. Pirsig knew this, of course. It is why the last part of his sentence speaks about an alternative that gets you there quicker. He knew the coming of Google Maps was just a matter of time.

Perell’s essay is a lament for what might have been: a world that prioritized the soul and not the other way around. There is a lot of truth in it, and I have absolutely no quarrel with Perell’s solution. But his essay helped me concretize something that I have been playing around with in my mind for quite a while, and that is what this essay is about.

Minimization, not Maximization

“We’ve overwhelmingly used our wealth to make the world cheaper instead of more beautiful, more functional instead of more meaningful.” 

That sentence, to me, is the core focus of David Perell’s essay, and I couldn’t agree more. In fact his argument grows even stronger on reflection, because I think the word cheaper is applicable to more than just prices. 

We have also used our wealth, for example, to make the world cheaper in the case of time.

I read more today than I did about ten years ago, but the reading is infinitely more bite-sized in comparison. I much prefer essays to books, blog posts to essays, and tweets to blog posts. 4 And I suspect I am not the only one. I can make the same argument in the case of sports. We as a society have deliberately and consciously chosen ODI’s over test matches, T20’s over ODI’s, and now of course we have The Hundred. Another argument: of all the hours that you have spent staring at video content across all devices, how many hours were spent in watching movies – as opposed to TV series, documentaries, YouTube videos or TikTok? 

When David Perell says that we have made the world cheaper, what I think he is saying is that we have figured out ways to cheapen the effort that we are willing to put into the act of consuming something. That something could be a meal, but it could also be extended to reading, viewing, or listening as well – and more besides. 5

The world has also been made cheaper in terms of effort.

I base my buying decisions on the buying decisions that others have made. My PowerPoint templates are standardized ones that Microsoft offers me. My tables in Excel are formatted as per the default mode, or based on the templates made available within the software. What to eat tonight is a function of an algorithm, the title of which is “popular in your area”. Relying upon my own research, or on serendipity is either a lost art, or has become one that is looked down upon.

I teach economics for a living, and the best definition of the subject that I have found comes from a textbook written by Alex Tabarrok and Tyler Cowen:

Economics is the study of how to get the most out of life.

The word “most” in that sentence necessarily implies optimization. And optimization necessarily implies maximizing something, or minimizing something. Getting the most out of life can be thought of in two ways. It could mean living life to the fullest (however you might define this for your own sake). It could also mean getting the most out of life by minimizing time, effort and cost spent on any activity. 6

Consider an example from my life. I love eating good food. In fact, the point of life, if you ask me, is to have as many good meals as possible. How can we apply the points in the paragraph above to my life?

A good meal on a Sunday, for example, could mean spending all day researching the best version of a recipe for a dish I have in mind, then walking to the market to get the best, freshest ingredients possible, then lovingly preparing them, and then getting the whole dish together, so that friends and family can have a wonderful, relaxed meal together.

I’d call that living life to the fullest. It is all but a guarantee that I get nothing else done on that Sunday, but I have maximized contentment.

On the other hand, I could just order the dish from a restaurant whose version I really like. Or I could decide that this particular dish is too expensive, and just make myself a sandwich instead.

I’d call this getting the most out of life by minimizing time, effort and cost. I haven’t maximized contentment, of course, but I have saved time and effort.

And as you may have guessed, I end up doing the latter far more than the former.

And this for something I really and truly love: eating. We feed our passions, even, by minimizing time, cost and effort, instead of maximizing contentment. Our necessities don’t stand a chance.

That is what we have become: a microwave economy.

The Rajan Economy

Chef Rajan is the chef de cuisine at the JW Marriott in Pune. He has, over the years, become a really good friend. By rights, he ought to be best friends with my doctor. For Chef Rajan has ensured over the past seven years or so that there are far too many inches on my waist. But it is for that very reason, of course, that he and I are such good friends. The man loves to feed people, bless him. 

The Rajan economy is his fiefdom in the JW Marriott. This fiefdom is the 24-hour restaurant in the lobby, called Spice Kitchen. 7 Procurement, staffing, menu design, day-to-day operations and customer relationship management – Chef Rajan is involved in all of these in one way or the other.

I, my extended family and a lot of other people in Pune are frequent visitors to his restaurant for a variety of reasons. There’s the attention to detail, the friendly customer service, the frequently changing menu and much else besides. But there is one non-negotiable rule that I’ve never broken, and he won’t consider breaking.

There’s never been a question about a discount on the bill.

Chefs who used to be in charge of the restaurant before him have waived off the bill on a couple of occasions – maybe a birthday being celebrated there, maybe some other occasion. Not, let me be clear, because I asked for it. It was their way of deepening the relationship with a customer. And once offered, of course, I was going to take it. Why wouldn’t I?

But ever since Chef Rajan has been in charge of the kitchen (which, if memory serves me right, was in 2015), there has never once been the suggestion of a discount. Not once.

And that has left me even happier as a customer over these past few years.

Because the Rajan economy is not about cost minimization. It is, instead, about maximizing customer delight. 8 The Sunday brunches, or brunches on special occasions such as Christmas day, are expensive affairs. 9 But I doubt anybody can walk away from that spread thinking that they did not get their money’s worth. The extent of the spread, its presentation, the quality of the ingredients, the number of times that freshly prepared batches are brought out of the kitchen – all of these speak to the quality of the restaurant. 10

Chef Rajan’s philosophy at the Spice Kitchen isn’t about cost minimization, it is about maximizing customer delight. Never once have I sat down for a meal at the Spice Kitchen and not been sent a little something that is over and above whatever is on the menu that day. If it is a special occasion, the little something could be quite elaborate. On other days, not so much. But there will always be a little bit more than expected, or a little bit more than is part of the stated deal.

You will pay full price, in other words, but you will get more than you bargained for.

I signed on for an online course conducted by Amit Varma last year, called The Art of Clear Writing. 11 It was a wonderfully organized course, and was slated to last a couple of months or so. But it is still not over! There is a community that has been formed of present and past students. Talks about writing are organized and a newsletter is in the works. Regular writing prompts are handed out to those who wish to continue practice writing. This writing regularly receives community-based feedback. Again, the price of the course is non-negotiable, but you will get more than you bargained for.

There are two ways to live life and conduct business, when thought about from the framework we have been dancing around in this essay so far. Charge the bare minimum and provide the bare minimum is one of them.

There is an argument to be made to go the Rajan/Amit way instead.

Soul Satisfaction is the Opposite of Cost Minimization

One of my favorite books to read was Anti-Fragile, by Nicholas Nassim Taleb. The key point in the book for me was that there are certain things in the world that don’t do well when exposed to risk. These things we call fragile. There are other things that don’t do badly when exposed to risk. These we call robust. 

Antifragility isn’t about not doing badly when exposed to risk. It is about getting better because of exposure to that risk. Or as he puts it in the book, robustness isn’t the opposite of fragility – it is antifragility.

In a similar vein, I think we have prayed for far too long at the altar of cost efficiency. We have focussed so much on ridding ourselves of inefficiencies in our society that we have killed off the idea of satisfying the soul.

But there is a very good reason for this – our ability to measure everything, everywhere. It may have been a blessing at one point of time, but today, I would call it a curse.

There is this part in a conversation between Tim Ferriss and Seth Godin in which Tim asks Seth about meditation. After Seth’s answer, Tim has a follow-up question about the length of time that Seth spends in meditating, and if Seth has a preference regarding time of day. Seth’s answer is worth quoting in its entirety:

“No. I don’t quantify that stuff. I quantify almost nothing in my life”

Our ability to measure and therefore quantify every single aspect of our lives is increasingly becoming a problem.12 The reason it is a problem is because quantification gives us the satisfaction of having done something about the task ahead of us – whatever that task may be. We have quantified our effort, and analyzing said quantification allows us to become “better” over time.

Let’s use a concrete example: I can measure the amount of time I spend staring at my phone daily. Apps that allow one to do this are freely available on, or even baked right into, all popular mobile operating systems. The reason I want to do this is because I have a lot of work to do in this quarter, and I want to minimize wasted time.

After a week of logging in the data, I can then decide how to either allocate my time on the phone better (more Kindle app, less Facebook), or reduce the number of minutes I spend on the phone daily. 

I might even get good at this. Maybe, after a month, I now spend markedly less time on the phone, and what little time I spend on it, I spend on “good” apps. The problem, however, is that I now have one more thing to do – track, analyze and optimize how I spend my time on the phone. 

That is, because I could measure time spent, I optimized it. The point, however, was to do more work this quarter, not analyze how I am spending my time instead. The quality of the work – what I refer to in this essay as soul satisfaction – is inherently immeasurable. And so we optimize the measurable, and continue to ignore the immeasurable.

It is, unfortunately, the immeasurable that is important.

Now you could, of course, attempt to measure the immeasurable. Chef Rajan, or somebody else at the Marriott could conduct a survey to find out how satisfied the customers are. Amit Varma might circulate a Google Form to find out how satisfied his students are with the course. 13

But even if this was attempted, the wrong thing would be quantified. 14 The customer’s satisfaction would be (imperfectly) measured. 

What we really want to measure is how soul-satisfied are the creators with their work, and measuring this is pointless: the creator already knows.

In our rush to find something to measure in order to prove that we are efficient, we measure, analyze and perfect cost, time and effort minimization. And we therefore fail to do what we set out to in the first place: good, high-quality work.

If you will forgive a lengthy extract in an already lengthy essay, David Perell points this out in his essay as well:

As Mumford observed almost a century ago, the world loses its soul when we place too much weight on the ideal of total quantification. By doing so, we stop valuing what we know to be true, but can’t articulate. Rituals lose their significance, possessions lose their meaning, and things are valued only for their apparent utility. To resist the totalizing, but ultimately short-sighted fingers of quantification, many cultures invented words to describe things that exist but can’t be defined. Chinese architecture follows the philosophy of Feng Shui, which describes the invisible — but very real — forces that bind the earth, the universe, and humanity together. Taoist philosophy understands “the thing that cannot be grasped” as a concept that can be internalized only through the actual experience of living. Moving westward, the French novelist Antoine de Saint-Exupéry said: “It is only with the heart that one can see rightly; what is essential is invisible to the eye.” And in Zen and the Art of Motorcycle Maintenance, Robert Pirsig describes how quality can’t be defined empirically because it transcends the limits of language. He insists that quality can only be explained with analogies, summarizing his ideas as such: “When analytic thought, the knife, is applied to experience, something is always killed in the process.” All these examples use different words to capture the same idea.

https://perell.com/essay/the-microwave-economy/

But a headlong rush to measure, analyze and optimize the measurable has resulted in us losing sight of the big picture. We have become a society of optimization through minimization. We’ve become very good at extracting the very last bit of juice out of a lemon. So good, in fact, that we’ve forgotten all about growing more lemons. 15

The point was to be as content as possible. We’ve settled instead for being as content as we possibly can be after minimizing costs, time and effort.

Soul Satisfaction Maximization

It is a mouthful, I’ll be the first to admit. And if anybody reading this can coin a better phrase, I’m all for using that one instead. But call it what you will, it is the idea that I am focused on, not its name. We need to move away from minimizing that which we can measure, and try and move towards maximizing that which we can’t.

Cowen and Tabbarok’s definition remains perfectly valid. Economics is indeed about getting the most out of life. All of us are often unclear about what we are optimizing for in life. Is it a fulfilling family life, or is it income, or is it something else? Every economics professor will sooner and later ask her student: “what are you optimizing for?”

I’d suggest a follow-up question: how are you optimizing for it?

And by way of example, let us return to my favorite thing to think about: food.

If, on a Monday night, you are wondering what to cook, don’t think about which recipe can be made as quickly as possible. That would be time, effort and cost minimization.

Choose instead, the recipe you want to make, and cut out everything else in your life that stops you from making that recipe. And if this still doesn’t give you enough time, then try to see if you can eliminate certain steps in the recipe. See if certain steps can be done in advance. See if hacks can be used to accelerate certain processes.

In other words, what you want to maximize is non-negotiable. Don’t give up on your dream. But compromises in order to achieve that dream – well, that is inevitable. 

Let me put it another way. Consider these two statements:

  1. This is all I have to give. Under these circumstances, which dream is most attainable?
  2. This is my dream. Given my circumstances, what do I need to do to attain it?

I argue that we have, as a society, grown far too comfortable with the first idea, and we need to learn to do more of the second.

But whatever you do, don’t microwave a meal. 

  1. I am a huge, unabashed fan of Robert Pirsig, and so is David Perell. Pirsig will make numerous appearances in this essay: consider yourselves warned.[]
  2. I’d go a step further and say that it is equally applicable to society at large. But I’d rather not go down the rabbit hole of teasing apart the differences between an economy and society in this essay, so I’ll use society from here on in, unless I’m quoting from Perell’s essay.[]
  3. NH4 until Kolhapur and then turn right for Amboli is what we usually do, in case you were wondering.[]
  4. “Prefer” here is used in the context of what I end up actually consuming of each, as opposed to what I claim to prefer.[]
  5. Perell’s essay has a lovely section on the music bit, especially. Do read it.[]
  6. And it could, of course also mean both at the same time. But even in this scenario, which of the two one focuses on the most is going to get us back to the point of this essay.[]
  7. His role has changed over the years, of course, and is greatly expanded today. For the purpose of this essay, I will focus on just the one restaurant.[]
  8. Which, over the long run, ought to lead to true profit maximization. But this footnote is another essay in the making, so we will leave it at that.[]
  9. By Pune’s standards. They are cheap compared to what’s on offer in Bombay.[]
  10. Taste is a subjective thing, and so I’ve left it out of the discussion here.[]
  11. Any shortcomings in this essay are down to me, of course, not Amit![]
  12. I can measure my pulse rate, my O2 levels, my hours of sound sleep, the number of steps I have walked, the number of calories I have consumed, the number of minutes I have spent looking at my phone (and with drilldowns to boot) and a dozen other things with just a smartwatch and my phone. And then tabulate it, analyze it and improve upon it.[]
  13. Neither of them have done any such thing.[]
  14. And it would be imprecisely quantified, but that is a story for another day[]
  15. And if I may be permitted to squeeze every last bit out of this analogy: or growing mangoes instead.[]

On X-Inefficiency

Yesterday, I wrote this in my summary of Bloom and co-authors’ paper on productivity in India:

Economists tend to not buy into this because they assume that profit maximization implies cost minimization
So in other words, if firms are not minimizing costs by adopting good management practices, it is because “wages are so low that repairing defects is cheap. Hence, their management practices are not bad, but the optimal response to low wages.”

https://econforeverybody.com/2021/02/23/notes-from-does-management-matter-evidence-from-india-by-bloom-et-al/

… which brought to mind of the topic of X-inefficiency, for the second time this year. The first was when Tyler Cowen wrote about it in January. Here’s Wikipedia:

X-inefficiency is the divergence of a firm’s observed behavior in practice, influenced by a lack of competitive pressure, from efficient behavior assumed or implied by economic theory. The concept of X-inefficiency was introduced by Harvey Leibenstein

https://en.wikipedia.org/wiki/X-inefficiency

X-inefficiency, in essence, is the idea that the economic theory idea about efficient firms in efficient markets is perhaps a little overblown. Here’s a quote from the paper itself:

The simple fact is that neither individuals nor firms work as hard, nor do they search for information as effectively, as they could. The importance of motivation and its association with degree of effort and search arises because the relation between inputs and outputs is not a determinate one. There are four reasons why given inputs cannot be transformed into predetermined outputs: (a) contracts for labor are incomplete, (b) not all factors of production are marketed, (c) the production function is not completely specified or known, and (d) interdependence and uncertainty lead competing firms to cooperate tacitly with each other in some respects, and to imitate each other with respect to technique, to some degree.

Leibenstein, Harvey. “Allocative Efficiency vs. ‘X-Efficiency.’” The American Economic Review, vol. 56, no. 3, 1966, pp. 392–415. JSTOR, http://www.jstor.org/stable/1823775

By the way, the entire paper is worth reading, because it contains multiple delightful nuggets. The Hawthorne effect, which I mentioned in yesterday’s blogpost makes an appearance, and it also helps one understand why microeconomic textbooks are a very poor way to learn about the real world. Consider this delightful quote, for example:

One idea that emerges from this study is that firms and economies do not operate on an outer-bound production possibility surface consistent with their resources. Rather they actually work on a production surface that is well within that outer bound.

Leibenstein, Harvey. “Allocative Efficiency vs. ‘X-Efficiency.’” The American Economic Review, vol. 56, no. 3, 1966, pp. 392–415. JSTOR, http://www.jstor.org/stable/1823775

OK, so people and firms are both not as efficient as econ textbooks make them out to be. This is not, to put it politely, headline material in the non-econ world. What might be potential solutions?

In situations where competitive pressure is light, many people will trade the disutility of greater effort, of search, and the control of other peoples’ activities for the utility of feeling less pressure and of better interpersonal relations. But in situations where competitive pressures are high, and hence the costs of such trades are also high, they will exchange less of the disutility
of effort for the utility of freedom from pressure, etc

ibid

In English, this means the following:

  • Government offices are unlikely to be as productive as private sector offices
  • Surround yourself with folks who are go-getter types
  • And this is my take: figure out for yourself a good boss/manager/mentor who will push you, but in a non-zero sum way

This last part is all but impossible, but oh-so-important.

In any case: x-inefficiencies. An underrated topic from micro!

Understand the beast that is finance

We’ve been building a series on finance here, and we’re not even at basecamp level just yet in terms of our ascent on Mount Finance. But I just realized that while I’ve started the series, I have not laid out two ideas that I think are central to thinking about finance. One idea for today, and the other for tomorrow.

Today’s idea is about zero sum games.

I’m big on non-zero sum games. Students at GIPE are probably sick and tired of hearing me uttering the phrase now, but it’s never going to stop. The world is where it is today precisely because of the fact that it is a non-zero sum game, and most of our problems in life and society would go away if only we understood and applied the principle in all walks of life. But that’s a separate post, and I’ll get to it one day.

For those of you who are unfamiliar with the concept, a trade in which both parties are left better off than they were before is called a non-zero sum game. Also called a double thank you moment, by the way.

Here’s the thing about finance.

It is not a non-zero sum game.

For me to win, you have to lose. There’s debate about whether this is true for all of finance or only a part of it, but options theory in particular is (at least in my view) definitely a zero sum game.

Options and futures trading is the closest practical example to a zero-sum game scenario because the contracts are agreements between two parties, and, if one person loses, then the other party gains. While this is a very simplified explanation of options and futures, generally, if the price of that commodity or underlying asset rises (usually against market expectations) within a set time frame, an investor can close the futures contract at a profit. Thus, if an investor makes money from that bet, there will be a corresponding loss, and the net result is a transfer of wealth from one investor to another.

https://www.investopedia.com/terms/z/zero-sumgame.asp

Speaking of the “for me to win, you have to lose” line of argument, consider this snippet of an excellent conversation between Tyler Cowen and Clifford Asness:

AUDIENCE MEMBER: How confident can you be that there will continue to be the steady supply of stupider investors on the other side of the trade so that you continue to make money?
ASNESS: That’s a great set of questions.
Backing up, you’re not going to believe me, you’re going to think I’m just copying you. But myself and a colleague, Antti Ilmanen — he’s Finnish, he didn’t just have odd parents — have been planning, we haven’t written it yet, to write a paper with the literal title, “Who is On the Other Side?” Just a little shorter version of what you said, because we do think that is a very disciplining question.

https://conversationswithtyler.com/episodes/cliff-asness/

In fact, if you ask me, this is the core differentiator between economics and finance. The study of economics is (ought to be?) about non-zero sum games. The study of finance is about zero sum games. It’s confrontational, it’s risky, it’s like sports. For there to be a winner, there has to be a loser.

Why I like watching and playing sports even when sports is very much a zero-sum game is also another post by the way. One day.

Still, back to my main point: finance is a zero sum game.

If you want to get into this jungle, do so with eyes wide open. I’m just sayin’.

Macroeconomics and Arguments

The best way to learn is by arguing with somebody.

Classes are boring, reading is passive, and videos are both of these things. But when you meet somebody who is well informed, thoughtful, respectful of your viewpoint but is willing to argue with you, well: Merry Christmas.

I’m well aware that social media leaves one with the impression that none of these things are true these days, but that is just our tendency to search out the bad, rather than the good.

When I teach courses in behavioral finance, for example, I often show a discussion between Richard Thaler and Eugene Fama:

That is not the point of today’s blogpost, but it is still a video worthy of your time, whether you’re interested in the topic or not. These two gentlemen (Nobel Prize winners both of them) hold diametrically opposite views when it comes to the efficiency of markets. But they spend a little over forty minutes here, engaged in perfectly civil conversation with each other, without once ceding an inch to the other’s viewpoint. The point isn’t the fact that we’re left without a clear understanding of who is right and who is wrong. The takeaway is that it is entirely possible to argue without turning the argument into a shouting match.

It is, as nine pm teaches us every night in India, a vanishing art.

Macroeconomics is a subject that lends itself to vigorous debate for a variety of reasons. One, and let us be clear about this, nobody has the slightest idea about what works and what doesn’t when it comes to macroeconomics. Yes, really.

Two, counterfactuals are impossible to come by, and so you can engage in endless games of but-have-you-considered.

Three, every macroeconomic crisis that I have had the opportunity to study as it has unfolded has led to all of what is listed below:

  1. Some old theories have been vindicated
  2. Some old theories have been falsified
  3. All theories have been updated
  4. We still don’t know quite what is going on

What’s worse is that the first two points depend almost entirely upon one’s point of view. And again, no, I am not making this up.

But I am not saying that this makes macroeconomics “bad”. This is precisely what makes it fascinating!

And the example du jour comes from two economists who love arguing with each other: Noah Smith and Tyler Cowen. The topic? President Biden’s proposed stimulus.

Blanchard’s argument that Biden’s bill is too large rests on the idea that this amount of spending will cause the economy to “overheat” — in other words, that inflation will rise. To prevent this, he suggests shrinking the size of the bill and financing more of it with taxes.

https://noahpinion.substack.com/p/covid-relief-isnt-stimulus-its-social

This is a point made by Larry Summers as well, by the way. For a good summary, see this Vox article.

Noah Smith’s point, and it one worth considering, is that this recession isn’t like the others. We say that every time there is a recession, by the way, but Smith’s point this time around is that the spending shouldn’t really be thought of as a stimulus, it should be thought of as social insurance:

If you get a check during a pandemic, you’re not going to go out and spend it at restaurants and bars, because…well, there’s a pandemic. Instead, you’re more likely to stick it in the bank, pay down debt, or pay the back rent that you owe.
In a normal recession, this is exactly what we don’t want people to do. We want them to take their government checks and go out and spend them, to restart the virtuous cycle of economic activity! But in a pandemic, it’s fine.
It’s fine because what we’re trying to do with COVID relief isn’t actually pump-priming — it’s retroactive social insurance. Some people, through no fault of their own, took a big hit from a risk that only a few people were paying attention to. In order to relieve those people’s suffering, we are giving them money that they can use to pay rent and buy necessities, as well as money to pay down debts so they have a bit more financial security.

https://noahpinion.substack.com/p/covid-relief-isnt-stimulus-its-social

The rest of the post is worth reading, because it identifies potential flaws in the argument he is making, and provides reasoned counter arguments. So well is this done that you begin to side with him…

…until you read Professor Cowen:

Leave aside the political question of how aggressively to pursue an agenda of a larger, more activist government (and keep in mind that I am more libertarian than many of the participants in this debate). Take a Big Government as a given. History shows that consumption still ought not be the priority.

It’s not as if there aren’t obvious candidates for alternative investment: green energy, broadband and public-health infrastructure for the next pandemic, to name a few. Yes, I am familiar with the argument that spending the extra trillion or so now will make it possible to spend more trillions later, including on such policies. But whatever kind of complicated political story you might tell, the basic laws of economics have not been repealed. Increasing current expenditures does, in fact, involve foregone future opportunities.

https://marginalrevolution.com/marginalrevolution/2021/02/investment-investment-investment-how-to-think-about-the-biden-stimulus-proposal.html

And his concluding paragraph is an excellent teacher at work, because he goes back to the Principles of Economics:

I say you can divide the commenters here into two groups.  Those who produce complicated arguments about why opportunity cost reasoning does not apply here, and those who stress the relevance of the opportunity cost of allocating another trillion dollars or two.  I believe that once you recognize that distinction, you know what to do with it next.

https://marginalrevolution.com/marginalrevolution/2021/02/investment-investment-investment-how-to-think-about-the-biden-stimulus-proposal.html

To which a pro-stimulus (or pro social insurance) person might say, “But people first!” Does that argument hold true? If this stimulus results in runaway inflation a couple of years down the line (students of the Indian economy might recall the years 2009-2013, so we’re not talking hypotheticals here), then was the stimulus in fact worth it? How do we balance this argument against the very real need to provide a stimulus today?

I am completely unsure about what the correct answer is – and that is my point in today’s post.

How can one not be fascinated by macroeconomics?

The Positive Externalities of Writing a Blog Post

If I ever meet Zeynep Tufekci, a beverage of her choice is due to her from me.

Last week’s post about her take on metaepistomology bought forth two very pleasant consequences. Whether they were intended or not is a question I myself have been grappling with, but I shall deal with that question (and that story) later on this week.

About those consequences:

  1. A student from the BSc program at the Gokhale Institute wrote in asking if we could have a discussion about metaepistomology – and you’ll permit me a self-congratulatory pat on the back for getting folks interested in a word as daunting as that. This of course means that I will have to spend a fair chunk of my time today reading up about metaepistomology myself, but I know that can only be a good thing.

    (Or do I?)
  2. Another student from the same program asked why a course on philosophy wasn’t a part of the program in a formal sense. To which I had no good answer, beyond saying that the course constraints were such that it could not be fit in.

Which, let’s be upfront and honest, is no answer at all. So, the topic of today’s blogpost: if there were to be a summer school, or a workshop, or a weekend course – whatever – on philosophy at the undergrad level, what all should it contain?

I don’t have a formal training in philosophy, having never taken the subject in my own undergrad days. It wasn’t on offer, I am sad to report, when I was doing my Masters. But I have tried to read a little bit here, and a little bit there, and have jotted down the list below as a starting point. Note that I have tried to ask what should be included in a summer school for students of economics who are studying philosophy for the first time, rather than first time students of philosophy. Also not that I am a complete amateur: please, point out obvious omissions!

That, I’m guessing should be more than enough for a 30 hour introduction, and the reading list is already monstrous.

So when I ask of you, what am I missing, I’m really asking the following: who/what would you include (and why) and who/what would you remove (and why). If there is anybody reading this who could help, please do write in.

Thank you!

Nilay Patel interviewed Marques Brownlee, and I took notes. Lots of notes.

I’ve been watching MKBHD videos for a while now, but a favorite activity for my daughter and I this past summer has been to watch them together.

As anybody who has watched them will attest to, they’re impeccably produced, and always manage to strike that perfect balance between being fun and informative. And trust me, getting that balance right is hard. But my daughter, who notices these things much more than I do, also points out his (Marques Brownlee‘s) diction, the way he sets up his backgrounds (or set, or whatever you call it) – and also how much better his voice seems to be than in other videos.

And since she’s mentioned it, it’s hard to ignore. It’s clear that a lot of work goes into producing these videos – and to put out over a hundred of them in one year is seriously impressive – which his channel did last year. What’s even more impressive is the fact that he plans to launch more channels this year, let alone videos.

I got to know about this in a very well done podcast, in which Nilay Patel spoke with Marques about what I wrote about in the preceding paragraph, and a whole host of things besides. Reading the transcript as an economist was interesting, for a lot of things resonated with concepts we teach (and don’t, but should) in class. They weren’t referring to the concepts, of course, for both are (probably) blessedly unaware of boring ol’ econ texts – they were just solving, or thinking, about the challenges they face in the course of their work.

But if you’re somewhere between the age of 18 to 24, and wondering where the hell (and how) to apply things we teach you in your classes – well what better way to learn than this? Ec101 applied to MKBHD videos – whatay way to learn, no?

Notes and brief explanations follow:

  • “You’ve got to embrace uncertainty.”

    A point that both of them agreed upon, and the context was noise in the background. As a statistician, when I think noise, I’m thinking randomness, and that makes this quote even better. You can have the most refined system in the world for doing stuff, but you have to make leeway for unanticipated stuff. Things can go wrong, pandemics can spread, neighbours can make lots of noise. Anticipate it: embrace it!

    The larger point, in simpler words: make a plan, of course, but budget for chaos. It’s always there.
  • “I couldn’t believe I was finding something that I didn’t see in those other videos. So I was like, the obvious answer is to add to that collection of information, so when someone else is choosing what to buy, they can make a better choice than I did.”

    Scratch your own itch is advice that you often hear in entrepreneur world, and Marques is speaking about exactly that over here. Except of course, he isn’t just speaking about it, he is quite literally doing it. In fact, he did it 11 years ago, and has just kept at it ever since. That’s a pretty good business model, if you ask me.

    Teach like you wish you had been taught is what I want to do in life, by the way, although I cannot claim to have come anywhere close to figuring a business model out.
  • “So there’s a lot more going on, but I think the teamwork of it all is something that can be pretty underrated.”

    Marques says this in the context of how he plans to scale up his work this year. Here’s the thing – learning how to do something (assuming you want to learn it in the first place) is a lot of fun. Teaching others how to do it is also a whole lot of fun.

    Building a team of such people, and getting them to do what you want to get done – and that too, just so – that is oh-my-god-hard. “Pretty underrated”? That’s pretty understated!
  • “We have a big cast of characters at The Verge. MKBHD, that’s just you. You are a pretty unscalable property. That group of people you’re bringing in and hiring, is that to help you spend more time in front of the camera or is that an attempt to scale you in a different way?”

    Marques’ answer is pretty instructive, but if you’re looking to start a business, and looking to scale it, one challenge you will face is getting folks to do what you want them to do, plus anticipating the fact that in businesses such as this one, Marques himself is the biggest draw. Imagine The Seen and the Unseen without Amit Varma, or Mark Wiens’ videos without Mark Wiens. You have two choices: plan on not scaling, or fight a very hard battle. It’s easy to draw a diagram that teaches you the theory of scaling – doing it in the real world is bloody hard.
  • “You were just intently focused on completing a motion graphics course that you had been taking. And now it’s several years later and you’re not that deep in the weeds. You’ve just hired a motion graphics person and you’re talking about scaling your business and using your facilities in a different way.”

    That’s part of a question that Nilay asked Marques, but if you’re not thinking pin factory, your econ prof and you need to talk. One important part of scaling is what Adam Smith referred to as the division of labor. You can’t – nobody can – do every single thing in a business. Some parts of it need to be outsourced to lawyers and PR firms, as they speak about in the interview later, some parts to motion graphics persons – whatever.

    But you have to let certain tasks go. Which tasks? To whom? How to recruit the most perfect person possible? How to get that person to stay? How to get that person to work with the other folks on the team? Pretty underrated indeed!

    Oh and by the way, this part we don’t teach you in college. We should, if you ask me, but we don’t.
  • “We’ve basically shot all of our videos with my directors on Zoom and I’m just like, “man, this is not even close.” It’s very fun, and then that novelty fades and you just miss having everybody there.”

    This might not be true (hopefully!) after 2021, but if you’re looking to intern this summer, or start work this year, this is a real problem. Americans have this thing they call “watercooler conversations”. If you’re Indian, we’re talking about chai/sutta breaks. Doesn’t matter if you’re a smoker or not, that’s not the point. Conversations in a more relaxed environment after you’ve been in the heat of battle together is where informal debriefings happen, and that is going to suffer this year. There are businesses trying to virtualize this – but color me skeptical. In person is always better, and that’s the worst part of graduating in this of all years.
  • “One question from our video team that I thought was really interesting: as you’ve been on the path of growing bigger and bigger, you haven’t had a boss. How do you grow and improve when the audience is overwhelmingly telling you that you’re great? Where do you find the incentive or the self-criticism to improve? You’ve obviously wildly improved over time, but where does that really come from?”

    Marques’ answer to this question is worth reading in its entirety, but the larger point is that you need people who have the ability to give you frank feedback. That’s hugely underrated. A spouse, a friend, a significant other, a business partner, a junior – whoever. But you need it!

    This reminds me of a reply that Seth Godin gave to a question Tim Ferris asked him in a podcast some years ago:

    “But the other kind is so rare, so scarce, so precious I only get little dribs of it now and then. Which is someone who gets you, someone who can see right through to your soul who, with generosity and care, can look you in the eye, hand you back something and say: I think this would be better if you did it again. I had a business partner, Steve, who was like that in 1979 and ’80, ’80 and ’81. And finding that again in a consistent way is really precious and really hard.”

    (It goes without saying: listen/read the whole interview. Just wonderful.)
  • “We’ve never really set view count goals, but we did have a goal to make 100 videos in the calendar year and we did end up doing that, which is great. A lot of that stuff that we’re aiming for is more, I guess qualitative is the word, but it’s hard to define.”

    What are you optimizing for? This is related to yesterday’s post, and it ought to be a question you ask yourself everyday. I don’t ask myself this question everyday, but I wish I did. It really and truly helps, because if what you are doing isn’t helping what you’re optimizing for, then you shouldn’t be doing it.

    Marques isn’t optimizing for views. He’s not looking to maximize hits, views or any of those metrics. He’s setting a target for quantity, as he says in the quote above, but he also is (implicitly in the quote, but trust me explicitly in his work) optimizing for quality. As I said towards the end of yesterday’s post, get the process right. The rest takes care of itself. (See also: Goodhart’s law)

    Also read this excerpt from Tyler Cowen’s interview of Jimmy Wales:

    “When we think about things at Wikipedia — for example, we could probably increase engagement if we use some of the very basic machine learning techniques to start showing people random promotional links to other things than Wikipedia and then have the machine learn over time how to show you links that are more interesting so that you end up staying on the site longer.

    Now, it might turn out that that’s completely normal and thoughtful, in fact, if you go to a well-known economist, that it turns out that the way to keep you on the site longer is to show you other concepts of economics and economic theory. But it might turn out, and probably would turn out, the best thing to do is, when you go to look up Tyler Cowen, to show you on the sidebar links to Kim Kardashian, Donald Trump, whatever the hot topic of the day is and so on, which is not really what you want from an encyclopedia.

    When we think about that, our incentive structure at Wikipedia is not to optimize time on-site. It’s to say, look, every now and then, normally at the end of the year, we say, “Hey, would you donate some money?” Nobody has to donate. The only reason people do donate — and this is what donors tell us — is they think, “This is meaningful. This is important to my life. This should live. This should exist.”

    Bottom-line: If you are not clear about what you’re optimizing for, you will struggle. Get that clear, for yourself, and be ruthless about sticking to it. (It’s easy for me to say this, but it is very difficult for me to do it. Just so we’re clear!)
  • “I live inside of Google Calendar and Google Tasks. I would be a lost human without those things. I kind of think about this a lot — how much time I spend doing the thing versus managing how we make the thing. And it turns out that the management part has become a lot more of my job, but almost necessarily, to make it a better thing.”

    Managing time is hard. It is really, really, really hard. I have tried I don’t know how many different things, apps, methods and what not, but it is hard. If you are going to make a plan (for spending your day, for studying for your exam, for starting a business, whatever) budget twice the amount of time you think you will take to do something, because you will waste time. That, I am sad to say, is my lived reality.

    Nilay’s next question is about exactly this, by the way.
  • “I think I tweeted a couple of weeks ago how many emails I get that are just like, “Hey, this is us. We’ve got this idea. When can we hop on a call?” But I don’t really want to do that. If you can’t get your idea down in a couple sentences in an email, it’s probably not a good enough idea.”

    Something that I have started to do over the last two years or so: whenever I have to give an assignment, it’s usually along these lines.

    “Write in fifteen sentences (or lesser) your understanding of [whatever it is that they’re supposed to write about]. No conjunctions, no colons, no semi-colons.”

    It is fascinating to me how what seems to be good news to the students turns out to be a problem, because Pascal.
  • “We say no to 99 percent of the things that we get offered to do. But that last 1 percent of things, we think very deeply about, and work with a lot of people to try to make the right decisions and pull it off well.”

    Derek Sivers has an interesting book about this.
  • “If it’s a bad product, it’s not worth doing it at all, even if we would’ve made a ton of money. If it’s a bad integration or if it’s a bad company to work with, I have to say no, because it just doesn’t fit. So that fit is often more important than the math of the per-minute or per-project basis.”

    The preceding questions (to this quote) are about what metrics Marques uses, and you should read about it if you are in this business, but the larger point is what Marques is saying here – and this was referred to earlier in this post as well. Metrics are all well and good, but do the work – and work means quality work. The rest follows.
  • “I know celebrity culture is different in everyone’s heads, but I look up to Michael Jordan the athlete and nothing else about him.”

    My personal opinion, but that is exactly how it should be. But that is a separate post in its own right.
  • “The way I see YouTube is, it’s kind of like driving for Uber. If you stop driving for Uber for a week, you won’t make any money that week. And I think adding more people to this team makes it feel like putting that Uber on autopilot so I’m not doing quite as much of the lifting, but it still has to drive.”

    Read The Four Hour Work Week.

Up until the last bullet point above, this post was 2,455 words in length. That, I suppose, is about enough for a blogpost. But there’s more, much more, in this interview. So please, read/listen to it in its entirety.

But hey, I’m clearly on a roll, so I cannot resist one final piece of advice. Take notes, and write down your thoughts about what you’ve consumed. Even if nobody else is ever going to read it.

It really and truly helps.