Otara market with Mr. Keynes, Part I

One Saturday morning, as I was walking into the Otara markets, who should I bump into but Mr. Keynes. Dressed in a black suit and tie with his hair immaculately combed, he was definitely over dressed for Otara market. However, no one seemed to bat an eyelash, I suppose everyone there understands he's a product of a different era.

"Good morning Mr Keynes" I said. "A very good Morning to you too" said Mr. Keynes. "Have you come to shop for groceries?" I asked. "Good heavens, No. I'm here just to do my usual observations." said Mr. Keynes. I was curious as to what sort of observations but decided not to ask. "Would you mind if I walked with you while you shopped?" asked Mr. Keynes politely, I saw no harm in him doing so and I was keen to know what he was up to.

We came up to a fruit stall which sold imported fresh longans. At $8.00 a kg, they were a bargain compared to $10.00 from neighbouring stalls. As I walked forward to purchase the longans, Mr. Keynes held me back and said, "What you don't know is that this stall soak their longans in water to increase the weight of the fruit, many an unsuspecting buyer end up paying more for less fruit." I looked at him with an expression of disgust, he continued, "This is a classic case of information asymmetry, where the buyer does not have all the information the seller does. The efficiency expounded by free market theory starts with the assumption of information symmetry where both sides of a transaction have the same information. As you can see, this assumption falls short most of the time!"

"But doesn't the Freedom of Information Act ensure both parties have the same information?" I said. "Ahhh! That's provided if the buyer knows to ask the right question! Also, what stops the seller from lying? In the court of law, his word is as good as yours." countered Mr. Keynes. "This is also why so many people have ended up owning leaky homes, it's a sad state of affairs!" added Mr. Keynes.

"I come to Otara Markets to watch economic activity in action" offered Mr. Keynes. "The diversity of human motivation observed here is inspiration to an economist like myself. Free market thinkers believe that all economic participants are rational and all economic transactions are only carried out because it benefits both parties. This is frequently not the case!"

"Why wouldn't people be rational? I'm rational!" countered I. Mr. Keynes smiled and said "How could you be rational if you don't have all the information? Just now you almost got cheated by the water soaked longans." "Oh, ok." said I quietly. Mr. Keynes continued, "Free market thinkers assume people are simple automatons who only do things that benefit themselves. In reality, human motivation is far more complex than that."

"Look at that vegetable stall over there owned by Mr. Hawera" pointed Mr Keynes.  "Lots of people in the community buy there even though they are not the cheapest". "Mr. Hawera is a well known figure in the community who regularly donates fresh vegetables to the soup kitchens in the community. People are acting altruistic by buying from him even though they can pay lower prices elsewhere." As the price was reasonable, I bought most of my vegetables from Mr. Hawera after hearing what a good man he is.

Further on, we walked pass a fruit stall with good quality food at a cheap price. Surprisingly, there was hardly anyone buying from there. I looked to Mr. Keynes instinctively, knowing he'd have an explanation. "Mr. Tamaki who owns that store is also a well known drug dealer, no one in the community buys from him just to spite him!" explained Mr. Keynes.

"Altruism and spite are two human motivation that free market thinkers never want to think about. Not to mention the very obvious intentional information asymmetry of concealing the truth or lying!" said Mr. Keynes passionately. "Do you mean to say that human psychology is a main influence in economics?" I asked. "That's correct." replied Mr. Keynes.

"The master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher–in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician."

This morning's shopping is turning out to be a most insightful event.

Burn, London, Burn.

I was shocked when I saw the riots start in Tottenham. My bewilderment continued when it spread on to other parts of London. I myself wouldn't have expected something like this in a million years, but did anyone see it coming?

Professor Gus John, a fellow at the London Centre for Leadership and Learning of University of London, wrote to the UK Home Secretary warning of social disharmony back in early July. The authorities had warnings of social uprising but chose not to act on it. You can hear an interview with Professor Gus John here:

http://www.radionz.co.nz/national/programmes/ninetonoon/audio/2495486/professor-gus-john

The gist of his research points to the high youth unemployment and the cuts in social and education programs  that has left UK youths in a "Hopelessness that has turned into a fearlessness that knows no bounds". He also points to a lack of moral leadership which has seen many British MPs get away with massive tax payer frauds, financial bailouts of banks that has continuously rewarded themselves huge bonuses irrespective of the economic damage they've done.

The author Hari Kunzru sums it up nicely: "That's true of the kids smashing shop windows to steal trainers. It's also true of the MPs fiddling their expenses, the police officers taking backhanders, the journalists breaking into phones. Why wouldn't they? Why wouldn't any of us? The example has been set by our new masters, the one per cent for whom and by whom we're governed.
The ability of powerful actors in the financial markets to socialise risk while privatising profit appears, to the financial peasantry, indistinguishable from organised crime. No reason for the rest of us to stand on ceremony."

Think of the cost of riot damage and the cost of incarcerating the young criminals. Is it really going to be less than the cost of social, employment and education programs for youths? I certainly know which path I would like society to take! Social harmony to me is another externality that current economic thinking has excluded in its cost calculation. If we don't pay a price for social harmony just like we don't pay a price for environment protection, the cost will eventually come back and bite us in the bum!

I am afraid that the current conservative government in the UK does not seem to have gotten the message. London will once again burn and hopefully; not at the 2012 Olympic games.