Economics as the study of incentives

  • Incentives should be studied. Incentives are what makes the earth revolve. Incentives are of several forms but majorly they are either economic, social or moral. Shit fucks up when you focus on one but ignore everything else.
    • For example, when parents were charged on being late to pick their kids up from daycare, more parents started coming late because they didn't feel the moral pressure due to paying up.
  • It reaffirmed my view that economic productivity, income and stock prices are more linked to persuasion than value or skill.
  • Value and skill can rather treated as a means of persuasion. Hence, a derivation and not a primer.
  • "Morality is about how people want society to be. Economics shows how society actually is." Why? Good economics uncovers incentives.
    • Institutions, individuals, ideologies and incentives.
  • It is extremely important to not get into the business of "correlation ain't causation". You must know what to measure and how to measure it.
  • People (individuals) and firms will always cheat (more for less) but we must build institutions that do not. Is this an example of an externality and need for governance?
  • Should only government sell commodities?
  • In the "bagel stealing" story, did only 13% people steal (even though there was no oversight) because they didn't have much to gain ("just a bagel") by stealing?
  • Drug dealing associations are built in a manner very similar to McDonald's. And yep the foot soldiers earn sub minimum wage and are there just with the hope to make it eventually big by rising the ranks. This often leads to a mismatch of incentives between the foot soldier and the leader for the soldier wants to take risks which might put spotlight on him (e.g. violence which disrupts) whereas the leader wants business uninterrupted.

Courage is in shorter supply: a take on capitalism

  • Courage is in shorter supply than genius.
    • Founding is about having the courage and will to take the risk of discovery or invention (0 to 1 rather than horizontal progress or globalisation).
    • Think for thyself. Ask contrarion questions. Seek secrets. Avoid competition. True moat only lies in moving forward and monopolies are great in short runs as long as they are not rent-seeking.
    • Last mover advantage and power rule (80-20) are more prevalent than it seems.
  • Paradoxes are an implicit part of language games. They are not to be resolved but to be understood.
  • Things to look into while building a company:
    1. breakthrough tech (10x or new)
    2. right timing
    3. should be a monopoly even if hyperspecialised (scale later horizontally and vertically)
    4. delivery and distribution should have strong network effects
    5. right team
    6. defensibility (move fast, break things)
    7. have you found a secret (or a mystery)?

Bare minimum economic policies

  • international trade is crucial
  • power of organised interestes
    • mohair problem
    • incentives and objectivity, where you stand depends on where you sit
  • barrier to entry looks attractive from the inside
    • gatekeep should only be present for weak-link (shit's as good as the weakest link) problems
    • gatekeep should be removed for strong-link (shit's as good as the strongest link) problems
  • protect individuals not firms
    • need for welfare as a means to protect the individual
  • step in the ring
    • don't cast stones from the sidelines
  • applause can be a substitute for cash

References

1. Naked Economics by Charles Wheelan
2. Capital by Thomas Picketty
3. Freakonomics by Steven Levitt
4. Capital and Ideology by Thomas Picketty
5. Das Capital by Karl Marx
6. The Communist Manifesto by Karl Marx
7. The collected works of Ludwig Wittgenstein
8. History of Western Philosophy by Bertrand Russell