Much ado about nothing

Imagine this situation: you are really very hungry and three food dishes are placed before you. You look at them and find that food on those dishes is unknown to you. You are allowed to choose and eat just one of the three dishes. You look at them one by one – on one dish, the food is colorless, odorless and bland. The next dish gives out a delicious aroma, but the food appears messy. The final dish is well organized and has a delicious aroma. What will be your choice?

For most people, their choice will be the dish with food neatly arranged and having a nice aroma. The choice may not change even if they are informed that the bland food is the most nutritious.

Talking about food, there really are two kinds of people – the first kind are people who eat to live and the second kind are those who live to eat. People of the second kind want their food to seem appetizing. They invest considerable time and effort to make sure that the aroma, looks and taste of their food is as perfect as possible.

Do you know? We really do not need the food that we eat.

Yes, you read it right! Why do we eat? Any five-year old will tell you that our body digests food and draws energy from it. Nutrients and glucose from food gets infused into our body and blood stream. Once food passes the taste buds in your tongue, your body may not care if the food is odorless, colorless or bland, as long as it contains essential nutrients. Imagine if some time in future, we find a way to directly infuse energy into our body and then we may have no use for our taste buds, even our tongue, teeth and the digestive system. This thought is not very far-fetched – look at how plants absorb energy from sunlight through photosynthesis.

So, those exotic recipes, cookery shows, cooking courses, contests, books, tips; all this…may be such a waste.

The price of everything

“Do you have common sense?” my seven-year old daughter once asked me. Obviously, I replied “Yes, I suppose so”. “Then, answer this question” she continued “a man goes to a car showroom to buy a car. He sees a car made of silver and another car made of gold. Why did he buy the golden car?” she asked (she is well aware that gold costs more than silver). “Maybe, because he liked the golden color” I said. “You’re wrong” she said “he bought the golden car because he had more money”.

She had a point. A car of any make, size or color would serve the purpose of transporting the man from one point to another. That is its ‘utility value’. But a ‘perceived value’ may be quite different from utility value of a car. Perceived value comes from factors like travel comfort, safety or style. The same is true for any product or service we buy.

Have you ever wondered as to how everything is priced? In an ideal world (all things being equal), the branded pizza that I ordered last week should have cost exactly the same as it would cost, if I made it in my kitchen.

If I was a die-hard believer on making a pizza myself from end-to-end, I will have to grow the wheat, grind it into flour to make the pizza base, rear a cow to give me milk to make cheese and butter; and grow the vegetables in my garden (I may take a few months to make one pizza). This choice is of course not available to most of us. The bottom line is that the cost of my pizza will be substantially lower than the branded one (not counting the cost of my time). I may take an alternate route - buy the basic ingredients and just “assemble” the pizza in my kitchen. It will definitely cost more than the “do-it-all-yourself” approach, but still less than the branded pizza.

Then, why should I be ready to shell out more money for a branded pizza, knowing that I was being robbed blind (with my eyes wide open)?

When you think about it, for the branded pizza outlet, the cost of making a pizza is the aggregate of four factors of production – men (cost of labor), material (cost of the ingredients, rent, electricity, advertisement and the like), capital (interest on loans) and enterprise (everything else that you can think of).

As is most often the case, the pizza outlet may have bought most of the ingredients and services from vendors and will have paid more than what it would cost it in a ‘do-it-all-yourself” model. Those vendors, in turn, will have sourced much of their wares from someone else. All this has a cascading effect on costs. But even with the cascading costs, economies of scale and bargaining power should drive down the real cost for the pizza outlet to even lower than what it will cost me to make in my kitchen.

We are back to the same question – why do we pay more for everything we buy? Is it because we have more money than we need, like the man who bought the golden car? Think about it.

Money matters

From barters, we have for long become accustomed to using money in our trades. Many things changed with the advent of money.

If you think about it, we are still using the barter system. The only difference is that money has become an intermediary; the means to complete an exchange. If you don’t agree, then answer this question – do you consume money? Of course not – you consume goods and services bought with money. And how do you make money - by exchanging something, like your labor. So effectively, you are exchanging your labor to buy something you wanted.

Money decoupled the barter transaction. In a barter trade, you knew exactly what you were giving up in exchange for something that you wanted. In the example of my previous post, you knew that spending half a day’s labor will get you one stomach full of food in exchange. If your neighbor asked you to spend a full day’s labor in exchange for one meal, you may disagree and demand that you need two meals in a day to survive. Today, if you buy yourself an expensive piece of clothing, it may never occur to you that you are bartering a day’s labor (for example) in exchange for your dress.

With money, came the disease of “poverty”. A simple definition of poverty is “the state of being poor”. A poor person is the one who lacks the means to access goods and services to meet his basic needs. The reference here is to absolute poverty and not relative poverty.

In the Stone Age, no one may have been ‘poor’ as natural resources were available in abundance to meet the needs of a tiny human population. Even today, Earth has sufficient resources to support the ever growing human race. Then why do we have the ‘poor’? The answer is clear – our economic systems have denied the poor access to basic necessities. Unlike in the Stone Age, our civilized society attaches a cost to every natural resource and consequently, to every human activity. In simple terms, for a poor person, there is a mismatch between his purchasing power and the cost of satisfying his basic needs like food, water, shelter, clothing, sanitation, education and healthcare.

As we shall see in future posts, the way we control access to natural resources, the way we price everything and the way we have arranged our economic affairs are largely responsible for creating conditions of absolute poverty for a large number of people.

Elementary economics

Our economic travails can be traced back to the origins of money. The origin of money can be linked to the origin of trade between humans and the resulting inequalities in access to resources. To understand why and how such inequalities arose, for a moment let us go back in time to the Stone Age.

If you lived in the Stone Age, you would pretty much get or make everything yourself. You would hunt animals or gather wild berries to eat, scrape and clean animal skin for your clothing and search for a cave to live in. These things were just there for you to pick; you did not have to trade anything that you had for something that you wanted.

If on some day, you feel too lazy to go hunting, you may grunt to your neighboring cave dweller to hunt for you (you would not have learned how to speak) and will promise to make a stone axe for him (or her) on the next day, in exchange for food. Now, if you need half a day (one meal time) to make the axe, you will demand one stomach-full of food in exchange for your labor.

Let’s add a layer of complexity to the situation. If you have a young child to feed too, you have two possible ways to barter your labor. You may either perform two chores in exchange for two meals, or demand two meals for one chore (and the neighbor can moan about inflation).

Your neighbor will have the choice to accept or reject your offer, or bargain with the knowledge that another fellow down the hill was ready to do the same job for one meal (that’s competition). For an exchange of two things to happen, prices of both must be exactly the same. So, the value of what your neighbor is ready to forego in your favor should be equal to the opportunity cost of your foregoing something in return.

In economics, the laws of demand and supply say that “all things being equal, higher the price, lower the quantity demanded” and “higher the price, higher the quantity supplied”. In a condition of economic equilibrium, the quantum of a thing being supplied is exactly the same as the quantum being demanded. For our story, it means that as long as there is someone ready to do the job for one meal, the asking price will not go up.

Alas! In the real world, all things are never equal. So, you will exercise your grey cells and grunt to your neighbor that your axe will be superior to the one made by the fellow downhill (your value proposition). To prove your claim, you may take two days to deliver the axe and make sure it is shining (value addition). If he buys your argument, you will make sure that the shining axe is shown to other cave dwellers too (publicity). Soon, you will have a full order book, become rich and will never have to hunt again (wealth creation).

The FUDGE factors

Chocolate fudge, anyone?

No, we are talking of something else. In the last post, we talked about being ready to accept change, because, as they say – change is the only constant in life.

We are emotional beings. Fear, Uncertainty and Doubt (FUD) affect our thoughts and cloud our perceptions. We may add two more to the list - Greed and Envy (GE). The FUDGE factors prevent us from making rational choices. A tiny whiff of a change triggers negative thoughts in our minds and we start resisting any event leading to changing the way we live. Some psychologists say that such thoughts emanate from our reptilian brain – supposedly a layer of the human brain controlling out instinctive behaviour.

Till the time we evolve into a more advanced species and discard our reptilian brain, just as our ancestors discarded their tails, we have to learn to overcome its influence. We can use our self-awareness to check how the FUDGE factors influence everything that we think and do.

The 14^th Dalai Lama said:

“We humans are social beings. We come into the world as the result of others' actions. We survive here in dependence on others. Whether we like it or not, there is hardly a moment of our lives when we do not benefit from others' activities. For this reason it is hardly surprising that most of our happiness arises in the context of our relationships with others.”

If we can re-organize our affairs and fundamentally re-design our social contracts, we can avoid some of the causes of the FUDGE factors. And that is not as difficult as it appears to be.

Dream Weavers

I know what I want from my life and so do you. But, do we know what others want for themselves? Acknowledging the unimportance of each one of us relative to this world makes us more tolerant and forgiving of other fellow humans. It also reminds us that each one of us is equal to the others and has the same right to exist, to get same opportunities in their lives as the others.

Each of us has the vision of an ideal life for ourselves. We want a successful, contented and happy life and do all that we can, to achieve our vision. As children, we start preparing ourselves for future as a grownup – where we have to compete with others for almost everything – degrees, job or money.

Look at the life of an average person– with an expected lifespan of 80 years, we spend the first 20 in preparing ourselves for the next 40; we spend the next 40 in struggling to achieve our vision, only to realize at the age of 60 that while we were at it, life may have slipped by.

We educate ourselves with what will sell in the market, rather than what we find interesting. No wonder, there have been no life changing inventions for a long time, as we cram on subjects to get high scores. We spend long years of labor to earn a living and try to amass whatever fortune we can, with the hope that we will live long enough to enjoy the fruits of our labor. Our ancestors were hunters and food gatherers. We may no longer hunt, but we still are food gatherers – as we toil away to gather enough for our future needs.

No wonder, in our eternal quest for more of everything, we are under constant stress and invite all kinds of health problems. Eventually, by the time we are through with 60 years of our lives, we can barely exist till the end of our lives.

Each of us has the same dream – of living an ideal life. For a moment, let us believe that the way we live our lives now, is not the only way.

What if we did not have to constantly worry about earning a living? What if we had the choice to educate ourselves which whatever catches our interest? What if we had the freedom to live in a way where we can achieve our true potential? What if we can live a life with a plenty of everything?

Although these may seem like mere day dreams, in the next few posts, let’s explore if there is even a remote possibility of living in such a dream-like world. To achieve these ideals, we may have to use a little imagination, a lot of our intellect and fundamentally change our ways. Most importantly, we have to be ready to accept change.

As with any journey of exploration, we must start from the beginning…

Dummies' world

Why do we read history and teach it in our schools? Choose from the options below:

1.    It’s good entertainment

2.    It makes us understand who we are and where we came from

3.    It makes us understand mistakes of our past generations so we may learn from them and avoid repeating them in future

You will agree that we don’t consider the last option when we read or teach history.

It may come as no surprise to know that most of our current problems are of our own making. Name any problem – hunger, poverty, sickness, war – you will find that our behavior is the root cause of most problems.

For example, we produce enough food to sufficiently feed the current world population. But we goof up in food distribution – with waste, protectionism and price distortions. Our current economic systems have not served us well, as evident from the fact that majority of the world’s people are poor. Our current political systems have not served us well either, as we draw imaginary borders around us, declare war on other humans and kill each other, as if they do not have a right to live. We pollute the environment with little regard to the adverse impact on our future generations.

All such problems are of our own making. We also have the ability to make everything so incredibly complex, that with the passage of time, we lose sight of our original intentions in doing any particular thing.

What distinguishes us from other species is that we are self-aware. With our intellect, we have the ability to unmake our problems, only if we make conscious choices to do so. Our intelligence is far superior than is reflected in our current state. We have learnt to become individually brilliant and accomplished. We have to do the same collectively.