Tag: signalling

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Economics Politics & government Science & technology

[2894] Free Breakfast Program: Welfare aid, targeting, social status and social stigma

As technology progresses with information becoming richer and more accessible, it is easier and easier to do targeted policy. Governments, especially those with conservative economic leanings compromising with democratic pressures, love targeting because in theory, it is cheaper and it avoids wastage. In fact, going back to basic microeconomics, it might even eliminate deadweight loss. I also love targeting, up to a point.

But just because we are able to do targeted policy does not mean we should do it. There are other considerations to be taken into account.

Targeting can create social stigma and that can be damaging in other ways. It does so through signaling, which means it lets other people know that a person is being targeted for some policy. This is something policymakers need to be mindful of, beyond the dollars and cents.

In a society where social status does matter, assistance could lower a person social status.

This is why government cash assistance program via automatic bank transfer is good, among other things. It keeps transactions private, and therefore gives no signaling to other people. So, it has minimal effect on social status if any.

But not all assistance policy can be private. Many do necessarily give out signaling affecting social status. The Free Breakfast Program for students to be introduced by the Ministry of Education in 2020 is one of such un-private assistance policy.

As a result, a program like the FBP cannot be targeted. This is especially so when it comes to kids who may take signaling from targeting wrongly, leading to bullying and social estrangement. At schools, we need to make learning as easy as possible, not harder for whatever reasons. Giving free breakfast for certain groups, which are the neediest, send signals to other better-off students that the beneficiaries are of a certain social class.

Schools at the elementary level are grounds for inculcating values. Some of the values we should inculcate is egalitarianism. And this makes signaling something to be thought of in designing policy relevant to the education system.

Our country is already divided in so many dimensions. We probably do not want to impress on our younglings of social divisions through yet another dimension. Targeting at this cost is not worth it.

In our specific FBP case, a blanket policy is better than a targeted policy. It muzzles the signalling, and fights the creation of social stigma that is the seed for future division in our society.

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Economics Society

[2543] Safety bought through ransom is a cost to society

Amid the political wrangling on Bersih and its aftermath, a son of two expatriates living in Kuala Lumpur was kidnapped. The kidnapping of Nayati became a minor sensation. Twitter was abuzzed with it. Posters were put up across the city and flyers handed out. Just outside of my office in Damansara Heights, just by the busy road, somebody hang a large poster of Nayati, appealing for information and help. Judging by the impressive and expensive effort, the parents are well-off.

He was found later outside of the city in Rawang and it was reported that the parents paid the kidnappers some unknown ransom.

I am glad Nayati was found and I am glad he is safe.

Nevertheless, it must be highlighted that Nayati is one person. The more important fact here is that we live in a society. The handling of the case gives signal to the society. That signal will inform future decision of both victims and criminals.

The “ransom solution” creates an expectation on the side of the criminals that crime pays. That creates adverse incentive.

When the incentive is big enough over the cost of crime (either through the increase of actual payoff or the higher probability of payoff), we can expect greater occurrence of kidnapping in the future. The ransom solution will create a systemic problem and it will make the society less safe.

For Nayati’s parents, the police may have helped them. Nayati’s father has thanked the police. In fact, if I were the father, I would thank the police for their aid despite paying off the kidnappers with my own money. In tough times, any help will be appreciated. And I do not blame the parents for paying off the ransom. No money worth more than the life of your loved ones.

But, from societal point of view, such emotional attachment should be stripped in favor of pure rational economic analysis.

When it is stripped, then the incentive structure will tell us that each ransom solution represents a failure of the societal institutions.

Any safety bought through ransom is a cost to the society as a whole. Call it negative externality; each time you pay, you may make somebody else worse off.

So, from societal perspective, the Nayati case is a failure. It will continue to be a failure until the kidnappers are caught and sufficiently punished to tell everybody that crime does not pay.

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Politics & government

[2357] A little less conversation, a little more action please

It is easy to dismiss any grand statement made by PKR nowadays. This is not at all unreasonble, unfortunately. PKR has a reputation of boasting to either boost its members’ morale or to attain higher ground while negotiating with other parties, allies or foes alike. Its claim that there would be a change of federal government on September 16 a few year ago is the epitome of they are capable . What happened in Sarawak solidifies PKR’s dented reputation. Now, PKR Selangor is stating that it is it is confident of winning two thirds majority in the state.

Whether that confidence is grounded in reality or in the clouds, I think it is wise for them to not make any claim colored by exuberant confidence any more. Talk is cheap and a person’s reputation can only suffer so much.

For the party to be taken more seriously, it needs to repair its reputation by proving its capability, rather than talking it up only to have the balloon pricked by a pin. By doing more and talking less, perhaps the party can build up its fast depleting reservoir of credibility. PKR needs to do this quickly because the gap in its reputation is substantial.

Although PKR is becoming a laughing stock each time its leaders open up their mouth — observe their justification for their selfishness in Sarawak; while the breakthrough is encouraging, the overall result is disappointing and the denial is astonishing — this is no laughing matter for those who believe in competitive democracy.

PKR is an important component of Pakatan Rakyat. For better or for worse, it is the leader of Pakatan Rakyat. As a leader, its reputation reflects the whole pact. PKR should not abuse its reputation as it is abusing right now. That is most unfair to other members of the pact.

Furthermore, in a country with history rich of opposition coalition breakup, the solidarity of Pakatan Rakyat should not be taken for granted by PKR. An asset can become a liability. There will be a point where PKR stops becoming an asset to other members of Pakatan Rakyat.

Categories
Economics Society

[2326] Conspicuous consumption in the train

When I first read Veblen’s The Theory of the Leisure Class, I found the idea of conspicuous consumption a bit ridiculous. In the book, he argued that individuals consume for the purpose of signalling his wealth. Wealth as a signal evolved from prehistoric social structure.

During barbarian times, what Veblen called successful exploits — primarily war but later as society became peaceful and orderly, through business — brought the great spoils to the victors. Success brought status and wealth. The society soon used wealth as a signal of success that brought status, while taking the causal relationship for granted. Slowly, it did not matter whether one is successful or not. Only wealth matters. Wealth differentiated individuals into classes.

Wealth is observed through either consumption or leisure. Long story short, through further evolution, the whole society in the end engaged in consumption to signal wealth and status. All that matters in the end are consumption. If one consumes some minimum level of goods or leisure, then one is accorded with some kind of respectability by the wider society.

Veblen called it conspicuous consumption and conspicuous leisure. It is conspicuous because individuals consume goods and leisure to — to put it crudely — show off.

As I said, I found the whole concept ridiculous initially. It could not be that we all consume to show off in conscious manner. After awhile however, I started to warm up to Veblen’s idea though there were some reservations, mostly because I accepted that there are individuals who engage in this type of consumption. After all, there is such a thing as a Veblen good. For example, a Ferrari. One of the reservation I had was not all consumptions are principally due to signalling. There are consumptions made out of necessity, even in a rich society. Even so, a majority of consumption of items that might be labelled as luxurious are done simply because individuals enjoy such consumption, not because they want to signal their status in a conscious manner.

That opinion of mine later changed.

While I was in Sydney, a majority of individuals, friends and strangers alike, had iPhone or iPod or anything Apple’s. Even I had one. Apple’s products were ubiquitous. It had become some kind of expected standard of consumption.

I only started to recall Veblen when I was riding a train in Kuala Lumpur. I did not see any Apple product, or at least, a majority did not own it. Consumption as a signal of wealth did function well in describing wealth difference between Malaysian and Australia societies.

As I switched on my iPod in the train, I kept holding it in my hand. I did that because I would like to control the player rather than allow it to randomize the songs for me. At one point, I asked myself, am I showing off in the way Veblen described more than a century ago? More question came to mind: what if whether one is aware that he or she is showing off is relevant? What if all of us are showing off, unconsciously?

Whether or not I was aware of the signalling, or regardless of my intention in consuming, I was effectively signalling my wealth, and arguably, status to others through my iPod.

I first read Veblen about five months ago. The first few months were a struggle that began with me trying to disprove Veblen. From disproving, I later tried to qualify his statements. In the end, Veblen won.