The economics of bouncing back

I had earlier written about how the immediate bouncing back of Mumbai from the serial blasts that rocked it looked more like amnesia of a city than a spirit to bounce back. Last Friday, Hyderabad rocked under the blast in the Mecca Masjid on Jumme-ke-din; 12 people killed. Small riots broke out, but came under control within a few hours.

Had that happened a mere five years ago, such peace would have been unthinkable. Curfew was imminent and the loss of lives would have been much worse. But this, this bouncing back to life? Amazing.

A city choosing to move on because the day to day economics wont work – we saw that happen in Mumbai and then in Hyderabad. Is economics to blame for people for forget about riots and get back to life as soon as possible, because their livelihood depends on them doing the work? A few years ago, the same youth might have been unemployed, angst ridden and ready to cause mass-scale destruction just on the call of a selfish politician who would pay them a 100 bucks, a packed of biryani and desi daru for the rioting?

Guess if thats the way economics can make people saner, then hail the free markets. The Hindu quotes this as change in the social matrix, I would say the truth, its because of the change in the economic matrix in the city. People are ready to work hard, because the returns are guaranteed; more work, more pay. It cannot get simpler than this.

Skill vs Value: Freakonomics Moment

Why do day-to-day laborers who work in sweltering heat earn as much in a day as do IT engineers in an hour or even less? Why do teachers earn much less than a normal engineer?Even when we understand the amount of effort put in by  a normal IT coolie is less than that of any of the above. It may be disagreed vociferously that we are not coolies and that doing IT work needs skill, etc blah; but my experience tells me that its not a craft, just a checklist of skills to have and make a monkey do the job (well, atleast thats the direction Software Engineering seems to be taking ). Hey, anyway but seriously, lets come back to the question shall we?

Its actually not about the effort! Yes, my dears its not at all. Its as they about the skill. Or more specifically to define skill as, its about the value you create or have the skill necessary to be able to create such a value(wealth). Value here is more necessarily about the skill than about the value. So the more you are in a position to create/control value, the more your value is in the chain.

Now the above reason answers only half the question, that of daily laborers, teachers, soldiers getting much less than the IT engineers and they inturn getting much less than the celebrities. The unsaid second half of the question is ‘How can this problem be solved? A laborer can prolly get literate and move to be say a clerk. But what happens to a teacher or a soldier? Their value is irreplacable…’ The answer to this lies in free markets.

As of now the only factor that we talked about that determines the salary is ability to create value. Now the other factor is Supply & Demand. Say if all of a sudden all our soldiers start leaving the army, teachers too and the say the laborers too. Now how do we get all the work done? Pay them more dude. Or pay people who are actually willing to do only at such high price.

Well, this could be a better way to retain the best minds in the teaching field where they are actually creating a lot of value. And the best people on the field in army. As for the day laborers, the value will be evident once they stop doing work

So reiterate how do you retain your best minds in teaching jobs? Pay them more!

Vice Way to Building Social Value

Every haloed inner circle survives and grows by the basis of exclusivity. Exclusivity panders to the deepest desire of every human being: that of feeling special, valued. Inner Circles are just the result of this exclusivity applied to a subset of a social network. Exclusivity is not the only outcome of ‘belonging’ to a social circle, it also sometimes results in providing social, monetary and information value to the individual. Inner circles are a way to Information Asymmetry and as we can  see Information Asymmetry gives power which can then be used to achieve whatever is acquirable & desired.

Every one has at one time or the other always  have faced this demon of exclusivity and more often we (the teetotallers) have to had to deal with this devil of the inner ring. Closed smoking areas quickly morph to power puff tables, with all the bigwigs speaking in authorative tones about the adverse effect of the pithy sales performance on the teams. Dinner social drinking binges quickly giving way to making that quick pitch to the new VC in town or meeting that distant hotshot CEO of a new company of a friend of the friend of your drinking partner, your boss. As they say, good men go to heaven, bad boys go everywhere!

And its these vices that have the biggest potential to build valuable social networks. Think of it this way, you are a nice guy (loser) who works in his parttime in a NGO for kids and you are another guy who attends social drinking binges with your boss or a new colleague. Just ponder over this… who has the best chances to meet the new CEO or to make the grade in a new big project or a new job or a elevator pitch? It hurts but its the social drinker or a smoker. Your vice just became your wisest decision!

And when is the bigger chance that two new school boys become the best friends. When each worked on their homework together or when both planned and made that big new escape to bunking school and going to the newest Shiva 2006 (what losers!) first day first show? Huh?

Evidently, the most mischievous brats turn to be the best friends. The social drinkers become the power circle. The smokers the haloed cloud of conglomerates. And mom tells me its good to be a teetoller!!! Duh?!

Fathers & Mothers : Freakonomics

Close on becoming a Freakonomics freak heres a very very interesting conversation going on in the comments of this post than the post itself.