Welcome to Economics 2.0

Too bad Adam Smith is nolonger alive. He would be so shocked to discover that his world of economics has been turned upside down. In The Theory of Moral Sentiments, Smith critically examined the moral thinking of the time and suggested that conscience arises from social relationships. His aim in the work is to explain the source of mankind's ability to form moral judgments, in spite of man's natural inclinations toward self-interest. Smith proposes a theory of sympathy in which the act of observing others makes people aware of themselves and the morality of their own behavior.

Ah!!! and then comes Facebook, Myspace, Twitter, and all those faceless enablers. What would Adam Smith say about our relationships in the cyberspace? Would these relationships still produce positive moral judgment in the manner and fashion that Adam Smith imagined?

Then comes Karl Marx. Marx argued for a systemic understanding of socio-economic change. He argued that the structural contradictions within capitalism necessitate its end, giving way to socialism. He believed that socio-economic change occurred through organized revolutionary action. He argued that capitalism will end through the organized actions of an international working class. He writes "Communism is for us not a state of affairs which is to be established, an ideal to which reality will have to adjust itself. We call communism the real movement which abolishes the present state of things".

Ah!!! Another painful experience. Poor Karl Marx. He never imagined that the working class of today would have no bosses to speak of, no factories to work at, no offices to go to, and no unions to join. He did not dream of stay-home moms making millions on the internet, sixteen-year-old kids creating billion-dollar companies and employing sixteen thousand programmers from sixteen different countries. Karl Marx did not imagine Economics 2.0.

And they keep coming. My favorite one is John Maynard Keynes, the proponent of the famous Keynesian Economics. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector (read Government) including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.

Ah!! and then comes online stores with no governments to control them. Today I can buy my cereal online from a store in Kentucky (USA), Lancaster (UK), Sidney (Australia) or Tokyo (Japan). And I can do this with the almighty credit card with no exchange rates to speak of. Where is Keynesian genius?

Welcome to Economics 2.0



Some Excerpts from Wikipedia

Why we Do not Drive a Flying Car Today

Manufacturers are famous for wasting money. If you doubt me check out the millions of prototypes that never saw the light of day. Go, for example, to the Smithsonian Institution's National Air and Space Museum. This place maintains the largest collection of historic air and spacecraft in the world. Here you will find the failed dreams of amazing engineers, including the various failures to bring a flying car to market.

Why don't we fly our cars today?

I think the answer lies in our inability to match creativity with human need. Whoever came up with the brilliant idea of a flying car never took into account why and how humans would like to fly. So many inventors out there are busy creating stuff that no body really needs. Just because you are a genius and can write complicated code does not necessarily mean that you should be creating stuff. I call that Creation Without a Cause. What a waste of money and time!

Everything we do should be directed towards solving problems and meeting human needs. Money is only made when businesses solve people's problems. Of course businesses exist to make money, don't get me wrong. But every business' success or failure depends on how well it executes on its goal of satisfying a human need.

So next time you sit down to program another widget, think about the problem you are trying to solve. If you can't come up with a problem you are trying to solve, don't burn energy.

Aquisitions, Lemons, and Cash Cows

Okay so if you did not know, I grew up on a farm. Not your typical farm, mind you. An open space where cattle graze free and the milk was as close to milk as it could get. That was long before milk started being manufactured in factories. And the cows have not complained since then. Oh, well. The cows don't really care. It's your life you are destroying. And plus, they will always be waiting for you to come to your senses.

my father had an obsession with buying cows. He had them all, mostly long-horned ones. "A cow's pride is found in its horns," my father used to say. So he acquired more cows. More cows with longer horns. Until one day it dawned on him. That raising cows was really not a business for him. It was a hobby.

A few days ago I was helping a friend of mine to structure his acquisition deal. I did not find out the truth until the end. He thinks of himself as a Moses of some sort. His mission is to save dying businesses. And with that, he has acquired more lemons than cash cows. Every time you enter into an aquisition negotiation with sentiments, you will end up picking up some long-horned lemons for yourself. Keep hobbies and business in sync. Notice I didn't say keep them separate.

Computer Tenants!! You are kidding, right?

I must start with a confession- I am not a computer geek. Except, of course a few rumblings on this blog which happen to be hosted by Google somewhere in the corners of one of their googlistic computers laying around an entire city somewhere. Talking about Google, you can't really talk about computers these days without saying "Google". Which brings me to my subject. Cloud computing. I started by telling you I am not a geek. I am an ordinary computer user who recently mounted up enough energy to buy a Mac so I can look cool. It did not work. I must confess that a PC could as well have served my purpose- or saved me the headache of switching between operating systems between home and work. Oh wait, I lost my trend of thought. Oh yes, now I remember. Cloud computing.

The first time I heard this phrase I was mesmerized. My friend, a self-proclaimed geek, was going on and on about the fact that sometime soon I may not need a computer anymore. I must confess that I thought he had lost his mind. What did he mean? Everyone says we have all become zombies glued to our screens. He went on to explain. And I listened. If you want to keep friends, your wife included, learn to listen. And listen I did. After all, he is my friend. He went on to explain the new world order of computers. A world of computing like I have never seen before. "Go on", I said. And go on he did.

"Cloud computing", he said, "is a form of computing where you do not need to own any physical infrastructure like servers, etc".

Now that sounded interesting. And being a frugal technology consumer that I am, anything that saves me one technology buck is worth my back. My friend went on.

"Today more and more businesses are avoiding huge capital hardware expenditure by renting computer space from third-party providers", my friend continued. To put it in perspective he gave me an illustration.

"A few years ago, if a company needed an ERP (enterprise resource planning) tool, or a CRM (customer relationship management) tool, they hired a savvy coder to build the entire thing from ground up or they went to some software lioness like IBM or Microsoft to provide a ready-made product. Either way, the cost of the product was in the neighborhood of hundreds of thousands of dollars. Today you can have the same product from salesforce or microsoft for a fraction of that amount. What has changed? The answer is very simple: Multiple tenants".

And with that he gave me another illustration:

"Suppose you owned a five-room house downtown portland and you wanted to rent it out. How much would you charge for rent?"
"About five thousand dollars a month", I said.
"You are right", he affirmed. "But suppose a group of five foreign exchange students wanted to rent the house and they wanted to share the costs, how much would you charge per room?"
"A thousand dollars per room. Wouldn't that add up to my five thousand dollars?"
"You are wrong", he lectured. "Why don't you try fifteen hundred dollars?"

That's profound, I thought. And thats how multiple tenancy works. One house for five thousand, one room for fifteen hundred. By renting the house in rooms, you actually end up making twenty five hundred dollars more than renting the entire house to one person. At the same time, the student who would not have afforded a whole house for five thousand now has a place to live for a fraction of the cost. How brilliant.

Welcome to the world of computer tenancy.

And forgive my typing errors because I am typing this on my phone while watching Jay Leno:)

Perspective

Perspective is key. For instance, if you were told that you would receive $1,000,000 for jumping out of a plane without a parachute, would you do it?

If you say "No," immediately, you would lose the opportunity for a million dollars. Why? Safety? No! Because you did not know the plane was on the ground with its emergency slide open, so you jumped -- but to the wrong conclusion.

How Many NOs Before a YES?

When I was growing up, my father (God rest his soul in peace) made it so clear to us that his NO meant NO and not MAYBE or LATER. Later when I started my first business peddling goodies at age 11, I brought this attitude to business. The first customer I approached made it so clear to me that he was not interested. I could almost hear my father screaming in my ears, “I said NO and I mean NO.” One day I decided to give myself a benefit of a doubt by returning to the same customer who had said NO to me. We were both surprised. After buying almost everything I had on me, my former rejection told me, “I have been looking for you everywhere. The moment you left, my wife convinced me that we needed your products. I tried to run after you but you had already gone too far. I am glad you came back.”

Since that time, it takes about four NOs for me to really believe someone is not interested.