Some infinities are bigger than others

I just watched Fault in our Stars and of course started searching for the title of this post on Google. First a beautiful quote from this movie (Spoiler alert, if you haven't watched the movie).

In Hazel’s voice, Green writes,

“There are infinite numbers between 0 and 1. There’s .1 and .12 and .112 and an infinite collection of others. Of course, there is a bigger infinite set of numbers between 0 and 2, or between 0 and a million. Some infinities are bigger than other infinities.… I cannot tell you how grateful I am for our little infinity. You gave me forever within the numbered days, and I’m grateful.”

This quote actually touches me personally.....We'll leave that philosophy :)

But guess what, mathematically she is wrong. Yes Cantor proved that some infinities are bigger than other's but it was not the infinities between 0 and 1 or 0 and 2 or 0 and a million (infinities between all three of these are actually equal).

It was for example, infinities between counting numbers compared with real numbers that are unequal. Check the following link on science360.com. It has an awesome description. You may want to watch the video below first before reading the link on science360.com.

Cantor's Infinity Proof on science360.com

Someone might question why I am gathering what's already available on internet on my own blog? Well, because I don't want to forget this. Anytime, I browse my own blog, it's going to remind me of Cantor's infinity proof which I intend to teach my kid as soon as he is ready to understand (my elder one is still only 5).

Scottish Referendum

I wish I was good enough to write about it but here is Paul Krugman's article on Scottish Referendum. This is one of the many reasons why he is my favorite living Economists.

http://www.nytimes.com/2014/09/08/opinion/paul-krugman-scots-what-the-heck.html?_r=1

Difference in Economic Growth and Wages

I have been spending a lot of time on quora lately and I really like the website. If you are following the topics of your interest, you get to learn a great deal by reading some very intelligent questions and diverse set of pretty intelligent answers. Here is one question that someone asked today and I thought I'll share it here, so it is not lost in grand scheme of "quora".

http://www.quora.com/Why-do-corporate-profits-grow-at-an-average-rate-of-7-10-percent-while-the-economy-grows-at-only-2-3-percent

And here is my personal activity mostly related to questions on Economics.

http://www.quora.com/Muhammad-Imad-Quershi

How to Automate Dialing in Webex Conference

I know this is an Economics blog but I think this is something that many people would find useful. When dialing into webex, we go through a tedious process of entering conference id and access id which in many cases is same for your weekly meetings. It is even more frustrating when you have to dial into your own meeting number which you conduct several times in a week. So this is a small way to automate your calling which I learned from my boss recently and I thought of sharing this.

Assume following conference call settings for your own webex.

Dial in number: 1-888-123-4567

Host Access ID: 987654

Attendee ID: 543210

PIN: 1234

Now to automate dialing into this Webex and avoid manually entering these numbers each time, do this.

On your notepad or calendar on iPhone or Android, enter following (assuming above numbers) if this is your own conference (on iPhone today you cannot enter commas thats why you need an editor for this and copy paste. May be you can enter commas in Android phone keypad. In that case just do it directly):

18881234567,,987654#,,1234#

Copy and paste it on your phone keypad and create a contact. Dial in. You should be able to dial into conference automatically.

If you are an attendee into this conference, then process for you would be:

18881234567,,543210#,,#

Again, paste it on your keypad and then just create a contact and dial in.

If you are still wondering, those commas are required to add a pause.

Gold Prices

Gold market recently saw a "crash" last week. Not since 1980 had we witnessed a one day fall like this. But was this a surprise? I bought some gold coins between 2005 and 2007 between $598 to $750 from bulliondirect.com (I regretted buying it for $750 but I was new - it was a lesson). Then since the great recession when Fed started pumping money in to the market and investors still afraid to invest anywhere, prices in gold went up due to high demand. This high demand was due to high expectation of inflation due to fed's actions, aversion to hold cash and aversion to invest in stock or bond market (consider current yields in the bond market). So gold went up. But at the end of the day, it is just a commodity. Its price is determined by supply and demand. In 2011 I sold my gold around $1550 per coin.

The reason I sold my gold was because all signs pointed towards gold being over priced. It was clear that Feds actions and high risk equity market was driving prices up. But some day that was going to end. Nobody knows when that will happen. I don't either. If I had known then I would have preferred to keep my gold and sell them when it reached its peak over $2000. But there was one thing I knew for sure. That gold is over priced and it had to come down to its real price. What is that real price? I wish I know. But Fed is still pumping money - to the tune of $85B per month. Interest rates are still low. When that changes, QE3 ends and interest rates go up, investors will take out money from gold and buy securities that offer higher interest or perhaps invest in stocks assuming Feds assistance will accompany a better market (for a given risk you'll have better returns than now). This means investors will sell their gold, thereby increasing the supply of gold and reducing its price. A strong dollar will also mean that gold which is traded in dollars should be adjusted for new price of dollar. How much will that price be. I don't know. We'll sit and watch. But I am not touching gold until Feds fund rate is at a level where Fed says we don't plan to increase the rate anymore (I think its going to be around 3.5 to 4%).

Search cost and price taker market

A while back, I was having an argument with a friend over how Walmart sells products cheaper than its competitors. Someone had told him that the quality of Tide that you buy from Kroger is better than what you'd buy from Walmart. I tried to convince him unsuccessfully, that something like this is impossible since companies like Consumer Reports thrive on this kind of news. If this was true, then somebody would have tested the difference in quality and reported it long ago. Besides, a company size of Walmart cannot tolerate that one of its supplier would give it an inferior product, because it will literally bring down the whole business. Imagine if you find out that the Tide you are getting from Walmart is lower quality. Are you going to buy Tropicana from Walmart anymore? How about M&M's? Doritos? Gillete shaving foam? Over the counter medicine? At the end of the day, it's not only Tide that's cheaper at Walmart but pretty much everything. Although, I have seen lately that Meijers and Target are catching up (competition always catches up) and for most of the similar items you can get prices similar to what you would pay at Walmart.

That being said how is it that Walmart is able to get lower costs from its suppliers. If you are running a small grocery store in your neighborhood (aka mom and pop store) then your cost of Tide or other products sold at Walmart is probably close to Walmart's prices. A simple answer that everyone knows is that this happens because of huge buying power that comes from buying in bulk quantitites. When Walmart buys products from its suppliers, it reduces bulk of their shipping and handling  costs, thereby reducing the cost of product for Walmart. But what else happens? There is something called search cost which is the cost of finding a buyer. I'll try to explain here what search cost is and how it affects the price you pay at the counter.

Imagine you are a farmer who grows corn. Now you have a harvest season and you started harvesting corn. You have ten thousand bushels of corn to sell (in real world its a lot more). Also assume that there are no commodity markets. Now you started selling your corn right outside your farm. You have distributed flyers in your neighborhood and people you know and posted flyers around the city that you are selling corn at $5 a bushel. Some customer came and bought two bushels. Another bought five and another one and so on. You estimate that at this speed you will sell your corn in 4 months. During this four month you will accrue  storage cost and your money will be tied up in that corn on which you can start earning interest (assuming you invest your savings) if you can get that cash today. Let's assume that a buyer stops by at your farm one day and offers to buy all remaining 8000 bushels of corn. But he says he is not going to pay you $5. Instead he will offer $3 per bushel and starting next year he will buy all your harvest.So you don't have to spend your money searching for a buyer. This reduces your search cost significantly. It will get you your money early, some of which you can use to buy bonds and earn interest. Commodity markets play the role of this person. A farmer does not decide the price of corn. He just takes his corn to the market and he has to take whatever the price is offered at the market, or he can just take his corn back. These markets are called price taker markets. These markets reduce his search cost significantly, however the price he is offered is not the same anymore.

This is exactly what happens when P&G sells its Tide to Walmart. Walmart has reduced P&G's cost of selling Tide. It has reduced the cost associated with finding a buyer. Yes P&G still has to market the product and run ad's on TV. But it has to do that even when Kroger or other mom and pop stores are selling it. But Walmart has reduced the cost of distribuing the product. Through Walmart, P&G can reach millions of customers. In the absence of Walmart, P&G will have to spend a significant amount of money to be able to reach all these customers and that will be reflected in the price you pay at the counter. So why can't P&G sell Tide to Kroger at the same price as Walmart? Well, first of all Kroger does not reduce the search cost for P&G as Walmart. And we don't know if Kroger is getting the same deal as Walmart. May be it is getting the same deal as Walmart but it may have other overheads that are higher than Walmart which increases the cost for you when you buy products from Kroger. May be you get better service at Kroger than Walmart which is reflected in higher prices than Walmart.

Search cost is one of the main reasons why we are able to buy cheap products at Walmart. Internet has redcued our search cost. Imagine what you'd have to do if there was no craigslist, no product reviews, no ebay and no amazon and of course no Google. By reducing our search cost, Internet has reduced the over all cost of the products for us. We can compare prices and reviews for products and services by just typing few words on Google. Imagine what you'd have to do for similar information if there was no Internet.

I don't need to give more examples but search cost is significant and it has a huge affect on the prices we pay. If a particular retailer can figure out a way to reduce search cost then it doesn't mean that the product he is selling with same labels is inferior.

How Technology Affects Business

Someone recently asked me this question. While the question seems relatively easy to answer, I was amazed by the vastness of the things that I could think of. And then I realized that based on personal experiences, the answer can vary considerably. Here I will list the technologies that I could think of, have changed the way we do business, technologies that have fostered new companies and drove some businesses out of the market place. I will also discuss two of my favorite companies glassdoor and linkedin which are changing the dynamics of skilled labor market.

While it is always difficult to notice a change as it occurs gradually but an easier way to understand what has changed in our lives due to technology, just imagine how we did business ten years ago and how we do it today. Think about the percentage of online purchases you have done in last year and try to compare that with what you did back in 2002. Some great companies like Circuit city have gone bankrupt because they were not able to adapt to the changing market place. Best buy is in no better shape and I personally would not be surprised at all if Best Buy declares bankruptcy in next couple of years or even sooner. It is already closing several stores across US as part of restructuring its business. That being said, I think a failed business like Circuit City and Best buy has to do with more than just new technology. While Amazon definitely has grabbed a big chunk of Best buy customers, but there is more to the story than just online competition. Otherwise, how do you explain the continuous growth of Bed, Bath and Beyond? It has at least just as much competition as Best Buy. In my opinion the answer lies in customer service. I do not have any market surveys but in 2003 I decided I would never go back to Best Buy and I have not. Similarly sites like craigslist have faciliated a used goods market and reduced search costs to virtually zero, thereby eliminating some buyers who would have otherwise bought new products from brick and mortar stores. This not only has affected the retailers but also the manufacturers. Combine all this with review websites like Yelp and Google reviews who have significantly reduced information asymmetry, you have a consumer who is more informed and could make better decisions about the products or services he or she is in the market for. So, in case of Best Buy, what technology has done is that it has provided consumers an alternate reseller of the same products at not only a cheaper price but also good and reliable service. They not only pay lower prices for same products but also do not have to deal with an associate who is more interested in selling warranties and extra services that the buyer believes he does not want especially after reading reviews on websites like yelp. If it was only for technology and online competition that Best Buy was going down, then I would ask a simple question and that is "Explain Bed, Bath and Beyond to me?".

Now look at another aspect of how technology has affected the businesses. How we were getting our news ten or fifteen years ago and how do we get it today? This has literally drove some newspapers out of business. However, Wall St Journal while going through a difficult period has adjusted and its future still looks bright. Here we can give Wall St Journal the benefit of being a leading player in a niche market but I don't think excuses given by Chicago Tribune or similar companies have much weight. Tribune said that it needed to go into bankruptcy protection so it can adapt its marketing to the new technology. The question is, what took it so long? Why didn't they do it when they could have done it without going into bankruptcy protection. In the beginning of this paragraph I said, think about how we were getting our news ten or fifteen years ago and how we are getting it today. I didn't said think how we were getting our news last year because this change like all other changes has been gradual over a number of years. It is not an over night change. So, technology definitely drove newspapers out of business including some really big names but it was because of poor management and their failure to adjust when they could have rather than technology alone. Management of these news companies had an option to change and adapt to new technologies and they decided to do nothing.

Next I would like to talk about mobile computing. How smartphones have changed everything we do today. While Blackberry has been around for a longtime (it probably won't be for too long), love or hate, it was actually Apple that revolutnized the smartphone industry. Today we have two dominant players, Apple and Google, who have the biggest share of smartphone market. Thousands or probably millions of apps are downloaded everyday around the world. While developers have financially benefited from the smartphone revolution, smartphones, since still in growing phase are revolutionizing the way we do traditional business. Many people today deposit checks using their smartphones, they buy and sell shares and use their phones as GPS. There are several free apps which provide voice activated navigation including new social media GPS app called Waze. Going into the details of how waze works is out of the scope of this discussion but would you be surprised if Garmin or other GPS companies run into financial difficulties. What about paid apps like the one provided by your cellular service provider? Should your service provider make these apps free and make money in the same way as other apps are making? Well may be or may be not, because these big companies have higher cost and it may not worth it for them to get into advertising business using apps. But one thing is for sure, sooner than later, people will not be paying $10 monthly fee for their GPS app so they can either drop it altogether or try to market their service having a free mapping application. Verizon already does that. AT&T does not. Discussion about mobile technology would be incomplete if we don't talk about location based services. Today, many small businesses have grown because they show up on result when you are searching for certain type of business around you. Not only that they show up, their star ratings based on their reviews also shows up next to their names and if product or services are rated high by consumers then this further helps increase sales for the business. What this does is that it makes good businesses more profitable and bad businesses will eventually be driven out of business. Great thing for us consumers.

Another business affected due to new technology is TV and Video. Blockbuster, your neighborhood video store is history and Netflix, the company responsible to drive blockbuster into bankruptcy, itself is having a difficult time to grow its business. You can watch your favorite TV shows on hulu, while many people also spend a lot of time on youtube. You just have twenty four hours in a day. If you want to watch newly released movies, you can go to your nearest Walgreen's or a grocery store and get it from Redbox. Cable operators are another segment of business affected by this change but due to their monopoly and high barriers to entry into this business, they are still doing fine. However, I wouldn't be surprised if Comcast or some other cable provider is having problems in retaining customers due to internet and the rumored Apple TV.

If you work in technology and even if you don't, chances are you have heard the term cloud (computing). Many companies including Google, Amazon and Microsft are offering cloud services. It basically allows customers to let cloud providers host services including web services if they so desire. Cloud computing has enabled small businesses who cannot afford a technology infrastructure of their own to benefit from technology. For example, health care sector which has traditionally lagged in benefiting from technology can now use cloud services and improve its customer service and reduce cost by having online records, referrals, appointments, prescriptions and much more. And they can do all this without having any technology infrastruture and very few to no technical staff of their own. While still growing, it is well known that this is a very lucrative market which has tremendous potential for growth. In case you haven't already noticed, soon you'll start noticing changes in how your physicians and hospitals will be handling your prescriptions, appointments, referrals and other data inclduing billing. In case you don't know, Netflix runs on Amazon's EC2 cloud.

Finally I'll talk about my favorite topic and it is labor market. How is technology affecting labor market for skilled labor? We talked about how product reviews on websites like Yelp are affecting consumer's buying habits. Similarly company reviews on glassdoor are affecting labor market, though its affect may not be as visible today as it might be ten years from now. With company reviews on glassdoor, skilled labor has much more information about prospective employer. If companies have not already started noticing this, they'll soon realize how their employer brand is being affected by sites like glassdoor. We'll see exactly the same effects in labor market as what we are seeing in consumer market. Employers with good reviews and good reputation will be able to attract best talent and those with not so good reputation will get not so good talent. This in the long run will affect their products and services and ultimately their returns. Would you hire a consulting company if it has significantly higher number of unhappy employees? I can't speak for everyone but if I am submitting a resume for a position I am interested in, the first thing I do is look for its glassdoor reviews. And if a company is rated 2 star by its employees then I just tell myself that I can do better than this. Linkedin on the other hand has changed the way people search for jobs and recruiters search for talent. Connections on linkedin have facilitated networking enabling job market candidates to connect with recruiters who specialize in the area they are looking for a new job.

This is an amazing long list and no doubt quite incomplete. In conclusion I would only say that businesses that failed due to technology did so because of poor management. We are moving towards an economy where effecient and good businesses thrive and poorly managed businesses are driven out. Customer service has become more and more important and unless you have a monopoly and high barriers to entry for new competition, you want to make sure that your customers remain happy or word will get out much sooner than you think and it might be either too late or it may cost you a fortune to fix the issue and correct the image. Consumers are biggest winners of all this change and overall society has benefited from technological advances.