Free to Choose: A Personal Statement

I have been reading Free to Choose: A Personal Statement by Milton and Rose D. Friedman on and off last a couple weeks. To read this book, we need to know first that this book was published in 1980. The global environment was very different then. That said, much of the content I find convincing and I am inclined to agree with the authors. However, some of it I am more inclined to disagree, especially about social welfare. Friedman argues for a laissez-faire economic model without government intervention, such as tariffs, regulations, subsidies and so on. Plenty of examples from history are provided to support this thesis: Britain’s glorious economic growth for a century before WWI, east and west Germany, Hong Kong as a rising star in the 1980s, Japan from 1867 to 1897 vs India after WWII as a comparison. Freedom from governmental intervention is credited for the rapid growth in both economic and political freedom. The comparison of Japan vs Indian exemplifies this argument.

Japan (from 1867 to 1897) relied primarily on voluntary cooperation and free markets – on the model of the Britain of its time. India (1947 to 1980s) relied on central economic planning – on the model of the Britain of its time. The Meiji government did intervene in many ways and played a key role in the process of development. It sent many Japanese abroad for technical training. It imported foreign experts. It established pilot plants in many industries and gave numerous subsidies to others. But at no time did it try to control the total amount or direction of investment or the structure of output….India is following a very different policy. Its leaders regard capitalism as synonymous with imperialism, to be avoided at all costs. They embarked on a series of Russian-style five-year plans that outlines detailed programs of investment. Some areas of production are reserved to government; in others private firms are permitted to operate, but only in conformity with The Plan. Tariffs and quotas control imports, subsidies control exports. Self-sufficiency is the ideal. Needless to say, these measures produce shortages of foreign exchange. These are met by detailed and extensive foreign exchange control – a major source both of inefficiency and of special privilege. Wages and prices are controlled. A government permit is required to build a factory or to make any other investment….Reliance on the market in Japan released hidden and unsuspected resources of energy and ingenuity. It prevented vested interests from blocking change. It forced development to conform to the harsh test of efficiency. Reliance on government controls in India frustrates initiative or diverts it into wasteful channels.

I made an earlier decision not to write about China, but there is one interesting passage about China in this book worthy quoting:

We recently came across a fascinating example of how an economic system can affect the qualities of people. Chinese refugees who streamed into Hong Kong after communists gained power sparked its remarkable economic development and gained a deserved reputation for initiative, enterprise, thrift, and hard work. The recent liberalization of emigration from Red China has produced a new stream of immigrants – from the same racial stock, with the same fundamental cultural traditions, but raised and formed by thirty years of communist rule. We hear from several firms that hired some of these refugees that they are very different from the earlier Chinese entrants into Hong Kong. The new immigrants show little initiative and want to be told precisely what to do. They are indolent and uncooperative. No doubt a few years in Hong Kong’s free market will change all that.

Economic and social progress do not depend on the attributes or behavior of the masses. In every country a tiny minority sets the pace, determined the course of events. In the countries that have developed most rapidly and successfully, a minority of enterprising and risk-taking individuals have forged ahead, created opportunities for imitators to follow, have enabled the majority to increase their productivity.

In this book, Friedman argues that the story of the United States is the story of an economic miracle and a political miracle that was made possible by the translation into practice of two sets of ideas – both, by a curious coincidence, formulated in documents published in the same year, 1776.

One set is embodied in The Wealth of Nations by Adam Smith. Adam Smith’s key insight was that both parties to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties do benefit. No external force, no coercion, no violation of freedom is necessary to produce cooperation among individuals all of whom can benefit. That is why, as Adam Smith put it, an individual who “intends only his own gain” is “led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.”

 

The second set is from the Declaration of Independence drafted by Thomas Jefferson. “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights; that among these are Life, Liberty, and the pursuit of Happiness.

There are many fascinating pieces from this book. Here are a few examples to whet your appetite.

Writing about equality: A society that puts equality – in the sense of equality of outcome – ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests. On the other hand, a society that puts freedom first will, as a happy byproduct, end up with both greater freedom and greater equality. Though a byproduct of freedom, greater equality is not an accident. A free society releases the energies and abilities of people to pursue their own objectives. It prevents some people from arbitrarily suppressing others. It does not prevent some people from achieving positions of privilege, but so long as freedom is maintained, it prevents those positions of privilege from becoming institutionalised, they are subject to continued attack by other able, ambitious people. Freedom means diversity but also mobility. It preserves the opportunity for today’s disadvantaged to become tomorrow’s privileged and, in the process, enables almost everyone, from top to bottom, to enjoy a fuller and richer life.

Talking about unions: A successful union reduces the number of jobs available of the kind it controls. As a result, some people who would like to get such jobs at the union wage cannot do so. They are forced to look elsewhere. A greater supply of workers for other jobs drives down the wages paid for those jobs. Universal unionization would not alter the situation. It could mean higher wages for the persons who get jobs, along with more unemployment for others. More likely, it would mean strong unions and weak unions, with members of the strong unions getting higher wages, as they do now, at the expense of members of weak unions.

About conformity vs unanimity: The ballot box produces conformity without unanimity; the marketplace, unanimity without conformity. That is why it is desirable to use the ballot box, so far as possible, only for those decisions where conformity is essential.

On inflation: Five simple truths embody most of what we know about inflation: 1. Inflation is a monetary phenomenon arising from a more rapid increase in the quantity of money than in output (though, of course, the reasons for the increase in money may be various). 2. In today’s world government determines – or can determine – the quantity of money. 3. There is only one cure for inflation: a slower rate of increase in the quantity of money. 4. It takes time – measured in years, not months – for inflation to develop; it takes time for inflation to be cured. 5. Unpleasant side effects of the cure are unavoidable.

 

Morrie: in His Own Words

 

Many people know about Morrie Schwartz from the book Tuesdays with Morrie, written by his student Mitch Albom based on fourteen visits on Tuesdays. I was one of these people; I read Tuesdays with Morrie a few times over the decade. Tuesdays with Morrie is a small volume with a quiet power to clear the mind and clarify priorities for me.

This weekend, I read Morrie: in His Own Words by Morrie Schwartz. I visited Grover Beach in the winter of 2013. As part of the ritual of exploring a new area I searched for bookshops and found Nan’s Pre-owned Books. It was a delightful second hand bookshop with many volumes. There I came across Morrie: in His Own Words on the shelf among with a few others that the now faded receipt used as a bookmark informs me. This is the only title on the list that, shamefully, I have not read before. I should not criticize myself too harshly on this score though. With so many boxes of books, it is not easy to keep track of them. At least this book is being shelved after randomly opening a couple of boxes among many. The happiest faces I saw this year were the two movers’ when they heard me saying that they could leave the boxes of books in the garage in the absence of anywhere better to put them.

I am glad that I finally read it in September 2017 instead of the winter of 2013. Much personal experience in recent years has helped me to appreciate this book a lot more than I could have done a few years earlier. For example, I often wonder about what my father (severely disabled caused by traumatic brain injuries) feels and thinks, how my actions and words might impact him, and so on. In some way, Morrie’s words help me to picture what my father might have been going through internally without the capability of articulation. Like many, I am thankful to Morrie for writing this book despite suffering from his grave illness.

The book has two parts: understanding where you are now and getting to where you want to be. The first part talks about living with physical limitations, handling frustrations, grieving for your losses, reaching acceptance, and reviewing the past. In the second part, Morrie gives us advice on maintaining an active involvement in life, relating to others, being kind to yourself, dealing with your mind and emotions, developing a spiritual connection, and finally considering death. There is a lot wisdom in this small volume. You may think it is too gloomy a topic to read in a weekend day. I beg to differ on that. I believe through learning to deal with illness and to face death, we see the world in a much clearer way and live a much better life than it otherwise would be. I select a few passages from the book to share with you below and hope you find guidance from Morrie’s words.

When we have an injury to the body, we tend to think it’s an injury to the self. But it was very important for me to make clear to myself that my body is only part of who I am. We are much greater than the sum of our physical parts. The way we look at the world is fashioned by our values and our thoughts about good and evil, things that go into making us who we are. We have emotions, insights, and intuitions. My contention is that as long as you have other faculties – the emotional, psychological, intuitive faculties – you haven’t lost yourself or even diminished yourself. Don’t be ashamed when you’re physically limited or dysfunctional; don’t think that you’re any less because of your condition. In fact, I feel I am even more myself than I was before I got this illness because I have been able to transcend many of the psychological and emotional limitations I had before I developed ALS.

Grieve and mourn for yourself, not only or twice, but again and again. Grieving is a great catharsis and comfort and a way of keeping yourself composed….I see mourning as a way of paying respect to life.

Come to terms with the fact that you will never again be fully physically comfortable. Enjoy the times you are comfortable enough. Acceptance is not passive – you have to work at it by continually trying to face reality rather than thinking reality is something other than what it is.

Recognize the difference between what you want and need. Your need to feel connected to other people is as vital to human survival as food, water, and shelter.

If you are ill, you can experience more freedom to be who you really are and want to be because you now have nothing to lose.

Accept your doubts about your ability to achieve any change in your emotional state. But keep trying. You might be surprised.

Learn how to live, you’ll know how to die; learn how to die, and you’ll know how to live.

The best preparation for living fully and well is to be prepared to die at any time, because impending death inspires clarity of purpose, a homing in on what really matters to you.

Finally, the book ends with this short story that invites us to reflect:

There’s this little wave, a he-wave who’s bobbing up and down in the ocean off the shore, having a great time. All of a sudden, he realizes he’s going to crash into the shore. In this big wide ocean, he’s now moving toward the shore, and he’ll be annihilated. “My God, what’s going to happen to me?” he says, a sour and despairing look on this face. Along comes a female wave, bobbing up and down, having a great time. And the female wave says to the male wae, “Why are you so depressed?” The male says, “You don’t understand. You’re going to crash into that shore, and you’ll be nothing.” She says, “You don’t understand. You’re not a wave; you’re part of the ocean.”

Introduction to Information Retrieval

Introduction to Information Retrieval is my book of the week. It is co-authored by Christopher D. Manning, Prabhakar Raghavan and Hinrich Schütze. The authors generously make the e-version of the book freely available to the public. I benefited from this generosity and read the pdf version. It is very convenient to follow the links in pdf, although the lack of reverse-link in pdf makes it hard to navigate back to the source of the link.

This book is very comprehensive and probably the best textbook available if you wish to know about information retrieval. There are both fundamental and advanced topics covered. Moreover, each chapter includes a References and Further Reading section, providing more resources for readers who would like to dive further into specific topics. The other notable attribute of this book is its clarity in explaining the concepts without introducing unnecessarily complicated formula. The texts accompanying the algorithms express the logic clearly. If you are still unsure about how certain algorithm works after reading the text part, thinking through one of the several exercises typically included in each chapter helps a great deal.

The version online is from April, 2009. There are a great amount of recent advances in the information retrieval field that are not covered here. However, grasping the content in the book would no doubt help to better understand more recent works. There are more recent lecture notes based on this book available online that I have not explored yet, partially because I have one fairly recently published book, Information Retrieval: Implementing and Evaluating Search Engines, on my to-read list for the near future. Should you become positively obsessed with this topic, like me, you might appreciate that the authors also very helpfully offer a comprehensive list of information retrieval resources.

In the preface, the authors talk about the organisation of this book in depth. Here is my feeble attempt to show you what this book covers at a very high level. If you are interested in learning how search engines work or how to build one, Chapter 1 to 8 cover the basics, such as an inverted index, index construction, compression, vector space model, relevance score calculation, evaluation and so on. Chapter 9 on relevance feedback and query expansion is of great guidance for real-world projects, as I was handling such a challenge in my work while reading this book. In the authors’ words: it discusses methods by which retrieval can be enhanced through the use of techniques like relevance feedback and query expansion, which aim at increasing the likelihood of retrieving relevant documents. Chapters 9 to 18 cover more advanced topics, for example: probabilistic language model, text classification, clustering and latent semantic analysis. Chapters 19 to 21 dive into web search basics and more in depth on crawling, indexing and finally link analysis. Forgive me for my lack of diligence here, since there could be no better overview than the one written by the authors in the preface.

I enjoyed reading this book no less than the Cicero trilogy (Imperium, Conspirata and Dictator) and made many notes for future re-visits.

 

Venture Deals

My book this week is Venture Deals by Brad Feld and Jason Mendelson. The most valuable lessons from this book to me are demystifying the funding process, sharing the “secrets” about the venture capital industry in a plain and clear way, and providing many very concrete recommendations on what matters more and what does not deserve much energy dwelling on. The return on the investment of purchasing this book and reading it would be immense, if creating a startup is one’s plan.

Brad and Jason have decades of combined experience in the venture industry. I also infer from the writing that they have different strengths. This book is a great piece of collaboration between them, with the entrepreneur’s perspective contributed by Matt Blumberg. Matt’s perspectives are insightful and direct in conveying what the content covered in each section would mean to an entrepreneur or one to be. I appreciate that the authors share with us many real examples and great advice on handling numerous scenarios. It is impressively informative. During the last few days we experienced an extreme heat wave around Sand Hill, broadly the whole bay and peninsula area. It would have been much more miserable, if not for the pleasure of reading this book.

The book explains the language of the venture industry. This serves as a great reference book to novice entrepreneurs and to those who want to be. It is centered on the economy and on control. First, covering the process of raising fund, how to, who to target, and what to expect as a typical process. Second, dedicating a great amount of writing to the term sheet, perhaps the most critical component if seeking venture funding. Third, explaining the capitalisation table, the pros and cons of using convertible debt. It also has a chapter talking about the recent phenomenon of crowdfunding. The chapter on How Venture Capital Funds Work helps the entrepreneurs to get the perspective from the other side of the table and know how to cooperate or leverage on that knowledge. The chapter on Letters of Intent informatively explains the potential acquisition stage.

Many insights from this book are applicable not only when you try to raise fund for your business endeavor, but also in many other professional and personal scenarios, especially the chapter on negotiation tactics. This book shows that being a good entrepreneur requires a varied set of skills. Although one can aim to develop as much as one possibly can, having partners to work together as a team through the journey potentially would stand much more chance to succeed, barring the numerous cases where the team has severe frictions and falls apart.

Below I select a couple of instances of specific advice among the many from the book.

On negotiation:

There are only three things that matter when negotiating a financing: achieving a good and fair result, not killing your personal relationship getting there, and understanding the deal that you are striking….Pick a few things that really matter – the valuation, stock option pool, liquidation preferences, board and voting controls – and be done with it….When you are going to negotiate your financing, have a plan. Have key things that you want, understand which terms you are willing to concede, and know when you are willing to walk away. If you try to determine this during the negotiation, your emotions are likely to get the best of you and you’ll make mistakes. Always have a plan.

Having an open and collaborative approach with your VC in the context of an acquisition…Being clear with your investors about what is important to you and your team early in the negotiation can help set a tone where you and your investors are working together to reach the right deal structure, especially when the acquirer is trying to drive a wedge between you and those investors. A negotiation in a state of plenty is much easier than a negotiation in a state of scarcity.

On raising money the right way:

Don’t be a machine. Be Human. Be yourself, let us get to know you, and become inspired by you. As the average length of relationship between a VC and entrepreneur lasts longer than the average U.S. marriage, this is a long-term commitment.

The authors’ advice on patents is very pertinent to me, as I had worked on filing a bunch and perhaps overemphasized the value of patents.

When you are working on software, realize that patents are, at best, defensive weapons for others coming after you. Creating a successful software business is about having a great idea and executing well, not about patents, in our opinion.

The authors recommend “The Entrepreneur’s Guide to Business Law” by Constance Bagley and Craig Dauchy as the best book ever written on legal issues for entrepreneurs. I shall append it to my list of books to read for 2018.