What’s the potential of on-line education?

About MOOC


Economic theories of education








Application to online education



Demand and Supply




Present and future structures







Do we need patents/intellectual property?

It’s easy to think that industries can’t work without patents, and this is very true to some extent. Many biotech firms make a loss year in and year out, hoping to survive until that patent gets accepted. But this is a static view of the world; let’s take a moment to consider how the world would look without these patents. To be sure demand for medicine and this kind of research would still remain and as long as demand remains, then there will be solutions. Maybe the political process will create funding for such projects, though that would probably not be very efficient. So how can the private sector profit without patents?  How do other industries which don’t have the luxury of patents/IP(intellectual property) property do this? Let’s start with the latter question.

The theory

If a fashion designer comes up with a great new style of dressing, but can’t patent it and the next day all others do something similar what has he gained? Well reputation of course. Monetizing reputation is then easy; this fashion designer will be the first to be called by people who want something designed. Or if he has a certain brand or logo associated with him, it will signal competency to the consumer boosting his sales. This same process is also present in finance, most notably, investment banking, one bank invents(or finds) a market, then, the other’s join in, nobody can claim that investment banks don’t have the incentive to innovate, in fact most of the media coverage suggests they innovate in excess. Part of what allows them to thrive is this lack of patents, which allows instant liquidity through the duplication of products. Reputation actually works surprisingly like patents; they give you a great name (which you can use to profit) but fade with time. I’m sure it’s no surprise to anybody that having a good reputation allows a company to charge a premium for its products and if no premium is charged then they have an advantage over equally priced competitors.


Music is to me is the industry which is most undeserving of IP. US copyright protection is active until 70 years after the author’s death! Not only does protecting music not produce better music(no surprise since it’s an art and not a science) but the structure of IP law doesn’t even take into account how the market works. Most of the profits of music are usually made within 10 years of release so protecting it for another century seems kind of insane. Especially if you wish to use an extract from one of these artists after he dies, you have to be chasing down his heirs (who could be anywhere) to ask for permissions.

The theory described above is probably the easiest to prove in the music industry. Artists can improve their reputation by releasing popular music (which can be done with almost no cost, thanks to peer to peer sharing) and can then monetize it by using their reputation, perhaps to advertise or in concerts. The greater their reputation the higher they can charge for their concerts, and the more money they can get from advertising. Businesses (like movie studios) may also wish to contract them to create music for them. It’s hard to make a statement that is “ceteris paribus”(all things being equal) consistent, but since illegal pirating has commenced, I would say music has grown much more popular, there are more artists today than there have ever been. This is in fact partly helped by youtube (an example of how artists can make money without IP) but this was the case before youtube ever started. There is no doubt in my mind that more pirating of a given artists music, boosts his concert sales. Perhaps the most frustrating thing the about the music industry is that they are crippling peer to peer networking technologies which have very high potential welfare benefits for the everyday consumer.


So now to the real challenge, how would pharmaceuticals get developed? Well in a very similar way really, though the industry would probably own a lot more hospitals. So a pharmaceutical firm develops something spectacular, let’s say they cure aids. Then their brand value will rise and their hospitals will be more popular because their doctors there will be perceived to be the best in class. Even without hospitals, their medicines would become more popular due to the prestige associated with their brand. There is still an incentive to create these products, in fact the incentive to innovate is strengthened like never before, since there is no chance to sit back and relax through rent seeking (royalties), you must now always be one step ahead of your competitors, you are forced to keep innovating, cure cancer, Alzheimer’s, death, etc.

You’ve got to remember that IP at the end of the day makes things much more expensive, and could bring things out of reach of certain people in the world. Although it might not be a big loss for people on the music end, it holds back the private sector from being able to distribute innovative medicinal practices to people all over the world. If a firm develops a technology, it is under no real pressure to start distributing it, since it can just sit back and claim royalties from others who wish to do the dirty work. However those others will have to overcharge for the product and will probably not have much incentive to do this. Whilst in a world with no patents, the incentive is for these pharmaceutical companies to get this product to all markets they can identify before anyone else. What’s their incentive to do this fast if they have 20 years until the patent expires and can claim royalties without effort or investment? Let’s not restrict competition, whoever can save the most people first, wins.


So now with the big boy of patents tackled, let’s go down to some chumps. Whilst the pharmaceutical industry is extreme in that the ratio of cost to create to the cost of copying is very high there are other industries which file thousands of patents without this ratio. One most extreme example is the software industry, most software innovation is incremental, created by teams of software engineers at very modest costs, worse yet most of these technologies quickly become obsolete. Each device (laptop, phone, etc) could potentially have hundreds of thousands of patents. We saw this summer how apple won a case over having rounded edges on smartphones. This creates endless opportunity to hamstring competitors.

The costs

In practice of course all these processes are very costly to our economy; we produce lots and lots of lawyers to protect these patents. Patents increase the prices of goods, they allocate resources to patent races(which is not a good competitive trait to base competition on, see my other post), there is a cost of having to look through the Patent and Trademark office every time you do something, there is of course a lot of  filing of defensive patents, which are patents which won’t necessarily yield royalties but they are there because you are scared someone else will file it, and of course patents give birth to patent rent seekers who buy large number of patents and only make money through fees and if necessary by suing . It seems obvious to me that if we had less lawyers taking care of this stuff, the innovation process would be much quicker, not to mention that the lawyers might maybe join a profession that actually directly helps competitiveness(and not by cutting off opponents feet). Let’s also not forget that we as tax payers generally have to pay to keep these(e.g patent office) public institutions running.

Fair use

In law “fair use” is a defense allowing for copying of short excerpts from a copyrighted work without a license. The rationale for this is that the transaction cost of negotiating a license for these is likely to exceed the value of the license. Yet even this law that has potential for being economically rational is so ill defined that the copyright owners can bring down this “short” phrasing to its bare minimum, for instance film studios insist that even a minute of their film is too much. Innovation comes in many forms, yet the most common is not the popularized “radical” but the “incremental” one. The lack of fair use objectivity in law is very damaging to the latter.

Global patents

One of the most vital advantages of the Chinese economy is in fact this lack of respect for patents, it allows their firms to have much lower costs of production, and this cannot be duplicated in the west because we fear the courts reining in on us. In fact in developing countries there is a reluctance to file patents, since it is in essence just telling your competitors your recipe. Another well documented global phenomenon is that patents cause inequality in society, a fact shown by various studies that should not really surprise anyone.

Some inventions are not patentable and could be just as valuable to society but having patent systems is funneling innovation to only occur in areas which are patented. For instance, the theory of relativity could not be patented, same for the theory of evolution, and our understanding of DNA and more recently the Higgs Boson breakthrough. Patenting directs our scientists to projects that can be patented rather than on pure scientific research(which might have much more productive output in the long run).

A video game called lord of the rings online, was initially a product you paid for, and once sales started dropping the owners made it free to play (making money through in game purchasing), and the game saw its profitability rise higher than ever before not to mention a much bigger player base (which will likely be beneficial on the next release of this company).  This is an example how the private sector can build models based around other ways of making profit. If every purchase gets duplicated by the net, then in the future we might see consumers cooperate to see products see the light of day, this is perhaps what kickstarter is accomplishing, if you expect that after the release the whole world will be playing your game and you’re not too sure about making an in-game profit system then you can just put your projects on kickstarter and wait for consumers to cooperate and give you funding for it.

We need to call out things by their real names, so what is a patent? It’s very simple, it’s a monopoly. In short I would not call for elimination for the whole patent system; I am not that extreme (though I obviously understand where that argument would come from). I would however wish for patents to end for all products except drugs and maybe some other expensive but easy to copy technology (emphasis on the maybe), this moderate stance is only because I’m afraid to meddle with a chicken that lays golden eggs (medicine).

Open source movements have definitely shown me that people will create not only for money but because they love creating, it’s self-fulfilling (an opinion shared by Akira Kurosawa in Ikiru). The private enterprise is resilient enough to find ways to satisfy demand without such artificial methods. Government intervention should be done when systemic and chronic market failures exist, these conditions are not met in our world as far as patents and IP are concerned.

Should feminists be suffering from existentialism?

Usually I don’t like him because he takes every chance he gets to jump on the “hate government bandwagon” but lets start with Thomas Sowell’s recent column anyway. He tell us what Ceteris Parabis is:




Then lets move to this first paper here:

In 2003, a new law required that 40% of Norwegian firms’ directors be women—at the time only 9% of directors were women. We use the prequota cross-sectional variation in female board representation to instrument for exogenous changes to corporate boards following the quota. We find that the constraint imposed by the quota caused a significant drop in the stock price at the announcement of the law and a large decline in Tobin’s Q over the following years, consistent with the idea that firms choose boards to maximize value. The quota led to younger and less experienced boards, increases in leverage and acquisitions, and deterioration in operating performance.

Now on the the Bureau of labor statistics. On average women work less hours than men, men work 40 and women work 35 hours per week. So that’s another explanation of the mythical “gender wage gap”, you could try to argue that the dependent variable in the model should just be the earnings per hour, but it would not work because its natural that people who work more hours get the promotion. This study here also supports the BLS:

In our data, the median male physician with 10 years of experience works 11 hours per week more than the median female physician in our sample with 10 years of experience. Simply put, the majority of women physicians do not appear to work enough hours earning the physician-wage premium to amortize that profession’s higher upfront investments.

This is also backed by this study:


Even though the equal pay act has existed since 1963, pressure from feminist groups continue to attempt to destroy equality. It was normal that women take a few decades to get close to men’s wages since even when you first passed the bill that didn’t suddenly bring women’s skills up to men’s standards, it had to take awhile. Yet this movement persists, earlier this year they tried to pass the “Paycheck fairness act” but thankfully the senate didn’t go for it.

If after all this time feminists have been masquerading equal pay under the veil of equal opportunity then I have a better approach for equal wages. Mandate women’s work hours to mirror mens hours! We also could try force the other sex to change, force men to work less hours!

Moving further up on the ridiculous scale: Women take some days off after giving birth, and even if parental leave is also a thing, the reality is women take more leave than men. So we could fix the wage gap by mandating all women to have abortions every time! Or biologically change men so that they can also have babies!

So there is no problem, meritocracy is at work, is it really a problem that women don’t prioritize wealth as much as men do?  I don’t think so. The market isn’t perfect but I have not seen conclusive aggregate evidence of market failure in this domain.

edit: here’s an interesting speech by Larry Summers on the topic http://www.harvard.edu/president/speeches/summers_2005/nber.php

Links 16/03/2012

I can’t just favourite links I like anymore… navigating through my browser is a logistical nightmare… that’s what blogs are for I guess! Reminds me of that trick Dumbledore did in Harry potter where he removed his memory and put in that bowl.

So Greg Smith, a Goldman Sachs executive quit and had some things to get off his back, it wasn’t too controversial in my opinion since he didn’t go into much detail about the how the evolution happened. However some interesting commentary on the piece emerged. The bloomberg piece is also surprisingly entertaining and so is Tyler Cowen’s. But the best part are the spin off’s, Darth Vader leaves the empire and a Muppet themed one from bbc(its funnier if you’ve seen the movie). It also goes well with this graph(its clearer if you click on it):

A man who predicts how many Olympic Medals each country will get!

This 1min video on Patents

Here’s a earnings and the 1% picture:

A model predicting celebrity marriages! Here’s a sneak peak!

Another post by Cowen on the effects of Porn Watching!

More Star Wars! How much does the Death Star cost to build?  Its about 13 thousand times the world’s GDP!

A fun TED talk on political  irrationality:

Who rules the world?

Is the government an efficient charity? 

Eight things we know about extending unemployment insurance

Seven things you learned about the transition from communism to capitalism!

And finally a stand up economist!

Redistribution of hours?








Should this be mandatory?


Are people potentially equal?


What about the minimum wage?


Paul Krugman Intro and inequality

So if you didn’t know who Paul Krugman is… here is an intro.

Here are a few articles I have piled up linked to inequality, they take like 2 min to read each.

A mind is a terrible thing to lose

The Return of Secular Stagnation

Its not about Welfare States

The 1% Across Space and Time

Taxing Job Creators

Where The Money is

Money At the Top

But the Top 0.1% isn’t diverse

Picking out conservative Presumptions: A Daniel Hannan Story

I still don’t generally check everything i post up here… but I should… it’s the bloggers responsibility to do so…just because you’re not misinforming your readers about what the other person said, doesn’t mean he wasn’t misinforming his own.

Nothing quite convinces me like a solid econometric model… i will eventually start doing my own but for now… i ran into this famous guy here… a very loud conservative who has been boasting lately about how he was right with his warnings about quitting the euro. I don’t really label myself as a liberal or conservative, i mostly just want a society where people are happiest… and I can defend that in a number of ways.

With the link posted above Daniel Hannan tries to convince his readers to follow his conservative path… let’s see if I’m conservative by the end of this post. So here we go:

1. Free-marketeers resent the bank bailouts. This might seem obvious: we are, after all, opposed to state subsidies and nationalisations. Yet it often surprises commentators, who mistake our support for open competition and free trade for a belief in plutocracy. There is a world of difference between being pro-market and being pro-business. Sometimes, the two positions happen to coincide; often they don’t.

I would have liked a clearer explanation between pro-business and pro-market, though so far it’s fairly neutral… I have always had difficulty buying Keynesian’s arguments.


How much does the central bank guarantee from deposits anyway? I think in the US its $85,000 per person. Now about this allowing to fail thing… it seems to me that these banks are profitable again… and it’s not like GM (which was also bailed out and profitable again) where the pieces and set up could just be bought by other entities should it have gone under, since the unique selling point of banks is their people, and going under probably means restructuring and firing, which would eliminate the only unique selling point of the bank. Also i would like to see a complete study on what could have possibly happened to various stakeholders with and without the bailout to make up my mind.

3. If you want the rich to pay more, create a flatter and simpler tax system. This is partly a question of closing loopholes (mansions put in company names to avoid stamp duty, capital gains tax exemption for non-doms etc). Mainly, though, it is a question of bringing the tax rate down to a level where evasion becomes pointless. As Art Laffer keeps telling anyone who’ll listen, it works every time. Between 1980 and 2007, the US cut taxes at all income levels. Result? The top one per cent went from paying 19.5 per cent of all taxes to 40 per cent. In Britain, since the top rate of income tax was lowered to 40 per cent in 1988, the share of income tax collected from the wealthiest percentile has risen from 14 to 27 per cent.

Now this is where i start getting skeptical, the link has no source to back up his point… it’s just someone agreeing with him. Also the numbers he quoting (apart from not knowing his source) are ridiculous, assuming they are true… they don’t tell us jack shit. Could it be that during that period, which is about when real wages started stagnating, the rich were paying a higher proportion because corporations were making record breaking profits? The rich weren’t paying more of the taxes by the magic of flat tax, they were EARNING ALOT MORE.

4. Those of us who believe in small government are not motivated by the desire to make the rich richer. We’re really not. We are, in most cases, nowhere near having to pay top rate tax ourselves; our most eloquent champions over the years have been modestly-paid academics. We believe that economic freedom will enrich the country as a whole. Yes, the wealthy might become wealthier still, but we don’t see that as an argument against raising living standards for the majority.

I’m not sure what to say this except… this, it’s not good enough to just get people out of poverty. What people care about is their relative wealth, and making inequality go higher will cause misery. We always unconsciously compare ourselves to the top, and with the globalized era being televised, it’s even more obvious.

5. We are not against equality. We generally recognise the benefits in Scandinavian-style homogeneity: crime tends to be lower, people are less stressed etc. Our objection is not that egalitarianism is undesirable in itself, but that the policies required to enforce in involve a disproportionate loss of liberty and prosperity.

Loss of liberty and prosperity for whom? The rich obviously right? The video at the end of the link he posted is the most ridiculous thing i have seen this week. If you’re really worried about the small business owner AND about inequality… how about you set up a new system and Tax accumulated wealth, this would mean that if you have a really good year, the high tax rate would not eat it up, there see? Protect the masses, protect the small business owners! Also studies show that well paid workers are more productive workers… imagine if everyone in the economy was well motivated? That would be real prosperity.

6. Nor, by the way, does state intervention seem to be an effective way to promote equality. On the most elemental indicators – height, calorie intake, infant mortality, literacy, longevity – Britain has been becoming a steadily more equal society since the calamity of 1066. It’s true that, around half a century ago, this approximation halted and, on some measures, went into reverse. There are competing theories as to why, but one thing is undeniable: the recent widening of the wealth gap has taken place at a time when the state controls a far greater share of national wealth than ever before.

It’s easy to make such a statement but there’s no evidence of causality, these presumptions are terrible… imagine setting up a policy based on this… read Krugman on this… it’s not voluntary state intervention, the state is taking a larger share because people are suffering…


At the expense of the General population? I’m glad he doesn’t use the word Majority because… oof that’s a close one. Let’s be theoretical about this, there’s over a thousand Billionaires in the US. Some of them have more than 1 billion too, that’s a trillion dollars… the cuts they were discussing of making the other day would save 50 billion(just to put it into perspective), with that kind of money you could send 5 MILLION people to higher education(purely theoretical of course).

8. Capitalism, with all its imperfections, is the fairest scheme yet tried. In a system based on property rights and free contract, people succeed by providing an honest service to others. Bill Gates became rich by enriching hundreds of millions of us: I am typing these words using one of his programmes. He gained from the exchange (adding fractionally to his net worth), and so did I (adding to my convenience). In a state-run system, by contrast, third parties get to hand out the goodies.

The state isn’t running the system, its correcting it… its VERY contradictory that he talks about, property rights and free contract… when those are in themselves government intervention.

9. Talking of fairness, let’s remember that the word doesn’t belong to any faction. How about parity between public and private sector pay? How about being fair to our children, whom we have freighted with a debt unprecedented in peacetime? How about being fair to the boy who leaves school at 16 and starts paying taxes to subsidise the one who goes to university? How about being fair to the unemployed, whom firms cannot afford to hire because of the social protection enjoyed by existing employees?

At a time in history the difference between private and public pay weren’t so big… but ever since the private sector started not sharing profits, this has changed. Also the public sector does have job security factored in… The capitalist system is the one filling in debt; private education is draining the poor… Capitalism created poverty which the government tried to correct (admittedly not well done) by subsidizing sub-prime loans and reducing debt.

10. Let’s not forget ethics, either. There is virtue in deciding to do the right thing, but there is no virtue in being compelled. Choosing to give your money to charity is meritorious; paying tax is morally neutral (see here). Evidence suggests that, as taxes rise, and the state squeezes out civic society, people give less to good causes.

See my previous post for this one

Anyways if your still… hope you enjoyed it or at least learned something about critical thinking!

Why tax them? they are humanitarians after all!

edit: the original article is here

The NYT had a nice and shiny article telling us about how many butterflies circle around the rich with their humanitarian contributions. There was a moment where i thought the tone of the article would change…

Officials in New York and Newark say the money from private sources will not replace existing public programs

But then the rest of the sentence had to follow

but will instead allow rapid experimentation with new approaches to old and seemingly intractable problems,

Yes of course these Billionaires are the new innovators and help us out a lot. But wait they get tax benefits… actually…do you know who was complaining when Obama was trying to end Bush era tax cuts? take a wild guess…no? Charities! Because they know that these billionaires aren’t doing these contributions out of the goodness of their hearts, and it would signify that less money would be donated.

Additionally contributing to charity in public and loud ways creates media attention, and if every person had a balance sheet, that would increase the “intangible assets”. Its not unilateral the benefits they obtain are substantial, heck i bet companies would pay(if they haven’t already and i am not aware of it) Zuckerberg millions to be in their adverts in the hope that his good name will rub off on them.

Here’s the piece de resistance of that sentence!

at no cost to taxpayers.

It might be true that these billionaires might discover more efficient ways of using the money, but if they are really worried about efficiency I imagine that people with their statures can easily advise government on effective uses, but the approach they are taking is one that attacks democracy, as few non-elect people decide how to best help the many. You don’t buy it? Well here’s another interesting thing i read here

Depending on the relevant tax rate, the dollars contributed to philanthropies by the wealthy could lead to losses of government revenue of as much as 50 percent of the money contributed.

It does harm democratic governance… if then the government is getting less significant sums of money from these loopholes, then who can make up the difference? that’s right the Taxpayer.

Inequality and Milton Friedman… presumptuous idealism

So these videos have been going around… and it being Milton Friedman… everyone just nods to these comments…

Although i agree with this chaotic feeling, the message one should get is… we don’t know. People don’t know how long they will live, and assuming they will be spending a certain % of their wealth per year according to how many years they have left is very much reaching. Going about this in such a presumptive manner is a non-enlightening way of looking at the world, we don’t really know what would happen, we have no evidence to suggest that a family based society is more creditworthy than an individualistic one. In fact there is not even a guarantee that it will turn individualistic, maybe people will just find alternative means to give money back to their families. This is all to say that I don’t know if I believe in inheritance tax , however maybe in a society with 100% inheritance tax they would not believe that reducing the inheritance would be the answer either. What I do consider thought provoking is that such a system would probably reduce hoarding of cash.
The free market isn’t perfect, why would the free market create unconditional institutions that would educate for free? The Free market as powerful a force as it is, needs something back, whether it be something now, or something later with interest, an interest much higher than expected because not all of the children will be able to make money back, and so the interest expected will be weigh down the ones that did. Taking a child to a high quality school, in exchange for a proportion of his future income, will still create inequality due to the interest he or she would have to pay that the richer child would not. Additionally there is also a moral slave issue here where we would be forcing the child upon a certain path for the rest of his life. You could argue that the risk can be taken in by other investors, as a form of securitization, but if government subsidies are required to motivate sub-prime mortgages, and even then they create such a crisis what reason is there to believe something much bigger in scale and much riskier would be better?

How bout an end to minimum wage? Real Wages in the US have stagnated for a few years now, and there is no evidence of the skill gap increasing. The market does not perfectly allocate skill with wage, a large factor is luck. Profit in enterprises has shown to have an upward bias, and the market creates a never ending friction between the employer who wants to pay the least amount possible, and the employee who wants to receive the most amount of money possible. The end of minimum wage just gives the employers more leeway.

Life Expectancy Bump or Peak?

I keep reading about the peak of Life Expectancy in the US… catch up here. This is ridiculous phrasing, Life Expectancy hasn’t Peaked, there is merely a bump in the road.

Why has it decreased? People are eating unhealthy food.

Why are they eating unhealthy food? Because its cheap and they can’t afford more luxurious dining.

Why can’t they afford it? Because they are poor.

Why are they poor? Because real wages have stagnated

Why have they stagnated? Increased corporate profitability has not been shared equally.

What can we do? When capitalism fails, the big guns come in, Government must act. Measures to tackle inequality must be taken. Chile’s concept of “Unidad De Fomento” must be adopted, indexed units of account, are the key to protecting the consumer from the “money illusion”. Read up on it here. It is the most innovative way to keep purchasing power constant.