Thursday, December 20, 2007

Why are they surprised?

This evening, I had a nice time with a few friends, watching Devdas with lotsa Indian food. The topic of blogs came up sometime and my friends seemed surprised that I find economic logic and meaning in everything. I mentioned to them that I could see economics in the movie and in Harry Potter. Especially the latter which has so much economics. Their surprise has set me wondering if I am the odd ball in a PhD program. How can someone who is doing their PhD in Economics not see economic logic in everything? It is so much a part of my being that I am passionate about economics. In addition, isn't that why people do a PhD, because they have an unquenchable thirst for knowledge in their subject of interest. We see that among other Social Scientists, especially Sociologists, Psychologists and Anthropologists. Why is it missing in Economics? Why are Econ grad students not passionately in love with economics? I eat, breathe and live economics, why don't they? Have I finally gone over the edge and become cukooo!! When I tell people that I have been studying economics for more than a decade now they are very surprised as well. I don't understand their surprise!! I do not see myself doing anything else but do more economics and pass on the love and passion for the subject to a few students every year. I think I would be intellectually dead if economics disappeared from my life. It is so much part of me. What is the lens through which they are seeing me and economics? We are looking at the same thing from different windows and in the immortal words of Frost.. "and that has made all the difference.."

Monday, December 03, 2007

The long and the short of it

Thank the heavens (or the people of Venezuela) Chavez's radical socialistic agenda has been voted out. Even after all the ills of Socialism have come to light it is saddening to see that people still demand socialistic policies. Of course, who doesn't like free money at the expense of a others! It is easy to concentrate only on the short term benefits and ignore lifetime costs. In countries with strong socialistic tendencies what people notice are only the low prices, they do not take account of the long queues, and shortages. The value of time increases when you have greater productive opportunities; however, when productive opportunities are limited there is only so much time that can be spent on work. There are not too many goods in socialist countries, and high end consumer goods are usually luxury goods. Thus people are willing to wait in line for hours to get the small quantity of highly subsidized food or whatever item it is that they are purchasing.

Whether individuals care about the long term or the short term is revealed by the implicit interest rates or relative prices in the economy. It is easy to understand behaviour once we identify that there are always implicit prices involved. Now you may ask, how can you put a price on emotions and such. Sure, I cannot give you a money value, but I can certainly say what kind of behaviour is more expensive to individuals.

Here's an example from my culture shocked self. Promiscuity, especially among young people in the West, used to bother me a lot. I could not fathom why young adults would indulge in such highly risky behaviour. My first reaction was to blame it on culture. However, there is a stronger economic argument to this. Promiscuity is higher because social approbation towards such behaviour is lower. In addition contraceptives have dramatically reduced the chance of pregnancy (which is a huge cost of promiscuity). Since the price of indulging in such behaviour has gone down, the demand for it has increased. Thus the relative price is skewed more in favour of the present than the future.

The question I do not have an answer to is after so many years of suffering under socialist rule, and seeing prosperity in rich countries, why do people still vote socialist? I can say ideological preference, but that is not a convincing answer. Socialism appeals cause it promises free stuff. Ok, that appeals to emotions. But what is the economic rationale? Is it because it is cheaper for them to vote socialist?

Friday, November 30, 2007

Lament loss of Traditions?

The economist and emotionalist in me sometimes head off against each other. One area where this happens very often is with traditions. This summer as I traveled into some very small villages in Tamil Nadu, I observed several practices that we used to follow, but don't anymore because we have become modern and live in cities. The economic explanation is that the practices that have the most demand will continue while those that have least demand will be shelved. This also comes out of Hayek. However, Hayek also lays heavy emphasis on tacit knowledge. In the Constitution of Liberty and Law Legislation and Liberty, he talks about practices that are based on tacit knowledge, and that even the articulation of some of these rules implies shifting emphasis on other aspects of the tradition. So, following something without knowing the meaning or the reason behind it is not actually wrong or bad.

This is fine as long as we do not talk about what practices live and which ones die out. It makes perfect economic sense that only the ones that are very relevant to the current structure of economic systems will continue and the ones that are not very relevant will fall into disuse. However, emotionally it is not very appealing, since we grow up with certain traditions and would like to hold on to them for ever. I think this is where economists disagree with other social scientists. Where as economists think in terms of relative prices and keep the emotional aspect at bay at least professionally (this is good since its more credible), other social scientists are all about emotions.

So should we lament the loss of traditions? As an economist no!! As an emotionalist sure!! Is that hypocrisy?

Wednesday, November 28, 2007

Cell Phone unbundling

Verizon has announced that it will unbundle its phone service. When this goes through customers can buy an unlocked cellphone and buy the service separately much like how it is in India and other parts of the world. This is great news for the markets and consumers. Makes more competition possible and I am pretty confident will bring prices down. I always believed that cell phone companies here charge a lot more for plans in part to cover the cost of all the free phones they give away. That is why customers are locked into a two year contract. If customers can choose to buy cell phones independent of service then they will have a wider choice in carriers and will be able to switch companies if they are dissatisfied with the service. The only problem I forsee is that Verizon works on CDMA technology while several other carriers use GSM. That would limit carrier switching to some extent. In any case, this is a great move towards more competition in the cell phone markets.

Sunday, November 18, 2007

I love the market and competition

When I first came to the US calling cards were really expensive. It cost almost 25 cents per minute, there was a 3 minute round off, my minutes were valid only for a month and there was a $1 user fee for every $5 card not including taxes. In addition it would take forever to connect to the toll free number and be able to call home, and the connection was completely unreliable. Reliance entered the market in Nov 2004, and this is what their plan cost. 13 cents per minute, no expiry of minutes, no user fee, just the federally mandated taxes (25 cents for every $5 which were removed in 2006), 1 minute round off and most important the connection was instantaneous and crystal clear. Fall 2006, Airtel, another company entered the market and offered 8 cent per minute calls, Reliance immediately retaliated by offering 7 cent per minute calls, and even lower for those who called within the Reliance network in India. Since then these two companies have been offering all kinds of deals for the holiday season (there are several holiday seasons in a year in India). So I got double the minutes when I first signed up with Airtel. Then they gave me extra minutes every time I recharged my calling card. Not to be outdone Reliance has been making great offers and easier access as well. They have created a club membership for high volume callers and offer special deals for them. They give away free minutes as well. They know that if I am unhappy I will switch companies, and reputation plays a big role here. I can effectively persuade every new student who comes into my radar to stay away from the company I don't like. After all, that is how I switched to Reliance and knew about Airtel. Even now, the reason its 7 cents instead of 2 cents per minute is because of telecom regulations in India. I have been enjoying this price war and gifts war. Guess who is winning?? Yours truly!! I love the market!!

The perception of Entrepreneurs

The choice of political and legal systems affects the way individuals perceive entrepreneurs. For example in Socialist countries economic activity is either by the government or through monopoly privileges granted by the government. Thus entrepreneurs in these countries do get rich without having to be tested in the market. This creates resentment among people in the market against the haves who seem to have stuff by depriving the have-nots. The truth is it is the government that is depriving them of opportunities to a better standard of living. However, the rhetoric is that of a benevolent government (wonder why that hasn't changed at all even after all these years of public choice), thus all the miseries of the economy are the fault of the entrepreneur.

Reliance is a big conglomerate in India. It is known to have snagged plum deals through dubious and illegal methods during the period of heavy industrial licensing in the 80s in India. In fact as a good entrepreneur all Dirubhai Ambani was doing was respond to incentives set by the prevailing policies. This is a great public choice story. He found a way to bribe and do favours for politicians in return for monopoly rights to produce several products. Since this was done at the expense of other entrepreneurs who were not entrepreneurial enough to snag the monopoly contracts, Ambani was hated by many people. Once liberalization kicked in, the Reliance group was in a great position to take advantage of new opportunities and diversify even further. Reliance is growing bigger, there is a family feud, the company has been split, but it is still creating jobs for a million people or more in their different organizations across India. People take their money and complain that they are depriving the poor of India. What they do not see is the number and variety of products that are available in the market due to them.

I am not endorsing the illegal practices of Reliance. However, as a good economist I can see that all they did was act on an available opportunity. The perception of entrepreneurs in a Socialist country is affected by the legacy of the government. Being entrepreneurial is coveted in a country like the US, while in India (at least until the software boom hit) the most coveted job is to work for the government. Even today, millions of people are willing to bribe government officials just to get that job with the government where there is no accountability, there is job security come what may, and they can earn money under the table with promising and motivated entrepreneurs.

Saturday, November 17, 2007

Are we a racist country?

I saw The Big Fight on NDTV last week on the topic Is India racist? Set me thinking about the whole idea. Some of the ideas expressed in the debate were terrible. One guy especially kept saying that we are racist because we have terms such as Mallu, Tam, Bong etc. I have never heard this argument before, neither has anyone called this racist. I call myself a Tam or Gult based on the crowd I am with. Most people I interact with do not think these are racial slurs. These are simply shortened names for people belonging to a certain region of the country. So instead of saying Malayalee we say Mallu and so on and so forth. Since when did identification with a region become racist. The Professor on the panel had an interesting point to make when the Sardari jokes (similar to Polish jokes in the US) issue was brought up. Everybody at one time or other in their life has made a Sardarji joke. There was a time in the 80s when there were ethnic tensions with the Sikh community that these jokes were offensive, but now they are acceptable again. Harijan as a word was acceptable in the last century, but you can no longer call people Harijan, you need to refer to them as Dalits. Thus whether something like this is a slur or not is a decision made by the people in general and not something that is definitive.

However, the basic question remains. Is India racist? We have had the caste system in operation for several centuries now (in all its modified twisted form today). Is the caste system a form of racism? I believe that we are a highly prejudiced nation. I am not sure that amounts to racism. The population in India can be divided into two major races, the Aryans and the Dravidians according to me. There is reverse discrimination against the upper castes these days and people belonging to different regions believe they are superior to the others. Discrimination can also stem out of prejudice and preference.

My take on this is that probably 1% of the population is really racist, most Indians are just prejudiced especially along caste and regional lines.

Sunday, November 11, 2007

Never make students angry!!

This past week has been a frenzy of activity. Last week General Musharraf declared a State of Emergency in Pakistan, suspended the Constitution and threw judges, lawyers and dissenters in jail. For a country that has become used to rule by the military, there has been a surprising revolution. Students have taken to the streets demanding restoration of the Constitution and Rule of Law. This is the last group any leader wants to go against. Most modern revolts have been Student organized and led. the young people are no group to anger in any country. If they decide to protest they can bring the administration down. The Pakistani people have gone through several corrupt leaders and even put up with the General in spite of his coup. Now, the general has gone over the edge and students have risen up in revolt. I am proud of my Pakistani friends across the border. They are fighting for a just cause, the restoration of the rule of law. Ali my Pakistani friend here has done nothing this past week but work hard towards organizing a peaceful protest against the Emergency Rule in Pakistan.

All it takes is one man to stop the tanks!

Saturday, November 03, 2007

Why do we trust the AICTE

The All India Council for Technical Education (AICTE) is the regulatory body for Technical Schools in the country. They set the standards and accredit insitutions based on those standards. As is to be expected out of an institution like that it is highly corrupt and hinders educational institutions rather than aiding them. Government schools have a terrible reputation in India. Even the poorest parent wants their children to go to a good "private school". There seems to be a paradox here. On the one hand they want to be in private schools because they are better and on the other hand they want to be in AICTE approved colleges. Why is this approval so important to people? It is true that government jobs become totally unavailable to those who have a degree from a private un-accredited college. However, the private sector is more than willing to take up the slack. TCS and other business houses have their own educational institutions and do not care about accredition. The market has indeed catered to the growing demand for certain kinds of educational institutions. When the tech boom hit, several thousand small computer training institutes sprang up almost overnight. In a similar way, when the MBA craze hit, we saw MBA schools in every street corner in big and medium cities. Quality of such institutes is clearly visible through their placement record and through a simple survey of students who go there. If people think a certain school is overpriced for the education they provide they would choose a different school. Why do we need a meddlesome regulator telling us which ones are the good schools and which ones the bad? In addition I am sure getting accredition is a long process with at least a dozen forms to fill out, a few different bureaucrats to please and several archaic practices to follow. As a simple cost benefit analysis, the costs are most definitely very high and so several institutes prefer to remain un-accredited. Its not that the public know this. Why is there this blind faith that an accredited institute is somehow better than an un-accredited school?

Friday, November 02, 2007

Why do we put up with this?

The number of onerous laws the US imposes on its trading parties is increasing every year in my opinion (eye ball estimates). Why are exporters from other countries putting up with such laws that restrict trade and also increase the landed price of the products they are exporting? I am sure there are many missed trades because the cost of trading with the US is too high for some exporters. They just find other markets. It is one thing for the market to impose restrictions through competitiveness, it is an entirely different game for governments to impose such restrictions just because they have certain quality standards. Lets do a thought experiment, and assume that there was no regulation and that this market was allowed to function freely. There would emerge some system of quality control on its own. The argument of activists is to prevent something bad from happening. This assumes that the law makers know better than markets and that they have complete knowledge. This completely assumes away the knowledge problem. Restrictive practices prevent more than just a certain kind of harm. They also prevent innovations in the market. The imposed restrictions may not be the most efficient form of quality control in the market. Back to the question in the title. Why do we put up with this? Well!! If there are trades despite such restrictive policies, it implies that the benefits from trade outweigh these costs. No one, including the US is forcing these traders to export to the US . The exporters are free to exit the market or not enter it if they believe that these laws impose terrible costs on them. Here I am making an assumption that there is relatively free exit options. If there is a high degree of uncertainty they will make shorter contracts that will give them the option to exit quickly if they start losing money.

Friday, October 26, 2007

Economics of a Foreign Education!!

Incentives and opportunity costs are the most basic things that are taught in intro econ courses. People respond to incentives and opportunity costs play an important role in individuals' choices. As a third year grad student, my incentive structure is pretty clear, either be productive, progress towards dissertation and write papers or lose funding for the fourth year. I have always felt that the opportunity costs facing international students is higher than that of local students. Not only are our funding choices fewer, we have the added disadvantage of lower access to local credit markets and the added burden of keeping the immigration authorities happy by remaining in status all the time. As foreign students we also have to adapt to the local school conditions pretty quickly while experiencing culture shock and being far away from the comfort of family and close friends and a known environment. Thus, if I were to model this, the number of variables that enter the equation for foreign students is much higher than that of local students. Given that, academic performance is the sole judgment criterion and none of these other variables enter into the equation and both international and local students are assessed solely based on academic merit. This has always seemed a little unfair to me. On the other hand, foreign students do make the conscious choice to study here far away from a comfortable environment. Thus we may be able to say that these have been factored into their preference function. Then again, there are so many uncertainties. Even I, a very progressive open minded and much-aware-of-American-culture-before-I-came-here kind of person have adjustment problems. Its a high cost to pay with uncertain returns. Are the economic costs of my economics education worth the economic and non economic benefits? Must be!! Otherwise, I would have quit long back and done something that was more worth my time!! Who said people do not make economic decisions or that they do not think in terms of economics at every juncture of their lives? But then again I am a nerdy economist in the making, who sees economics in everything, just like Neo could see through the Matrix!! :)

Monday, October 08, 2007

Translating Hayek into Indian languages

I have been reading a lot of Hayek lately for my Constitutional class and one thing that strikes me is that there is no translation of Hayek into any Indian language. That is really strange since Marx is read by at least two linguistic groups in their local language. I wish I could say I was proficient enough scientifically in any other language than English. Then I would gladly take on the job of translating Hayek and Buchanan and Tullock for Indian audiences. There are a lot of very literate people in India who read the dailies. All we need is a good local language translation and the rights to run a Road to Serfdom or Calculus of Consent series in one of the dailies. In less than one generation we can convert India from a Socialist country to a free market country. Need to go find that Charles Koch of India who would sponsor such an activity and a scholar who can do the translation.

Sunday, October 07, 2007

Diminishing marginal utility

Econ grad students including yours truly are forever complaining about the lack of time to do everything they want, especially all the readings that need to be done before class. This past week, I had no reason to complain about lack of time cause I had plenty of time to do all my readings and some. That however did not translate to me not complaining. My complaint this time, I had too much time. As the curious economist that I am, I know why I wasn't as successful with lots of time. The law of diminishing marginal utility. When the usual week (with classes and work) gives me about 40 hours of effective reading time, this past week I had more than double that, the result, I did not really enjoy all the free time. The economic explanation is that I had diminishing marginal utility in free time. Once I had enjoyed one full day of relaxation, I could not enjoy relaxation an more. In fact I was tired of relaxing and was itching to go back to my regular schedule of studying. Proves again that you can find economics in the most commonest everyday things.

Sunday, September 30, 2007

Is Hayek being misread?

Road to Serfdom was my introduction to Austrian Economics and Hayek. Since then I have been an ardent admirer of Hayek, both his style of writing and what he says. I do agree that he is not the most consistent author I have read, but I love reading Hayek and Mises. For my Constitutional class we are reading Buchanan now, and in his Reason of Rules with Brennan, he portrays Hayek in a way that bothers me (its just one sentence, but it still bothers me) Within the first 15 pages of the book, he says that Hayek and his followers have placed a lot of faith in the 'evolutionary' process and that there is no reason to believe that this would lead to an efficient outcome. It is true that Hayek places a lot of faith in the evolutionary system for rules; however, I am not sure that Hayek says this will be an efficient system. If I read Hayek correctly, my understanding is that he says such rules will be adopted that make it easier for individuals to engage in catallaxy. The evolutionary process is such that rules and traditions that are not functional will go out of use and only those that are resilient and apply to the requirements of the community will be followed. I have to emphasize here that my aim is not to make this sound like the argument of a legal positivist which is the exact opposite of Hayek's conception of rules. I am not sure Hayek talks about efficiency. Also when you talk in terms of evolution and spontaneous order, I am not sure we can even have a conception of efficiency. Evolution is the strive towards a better arrangement of events, right!! I do not know enough about the followers Buchanan and Brennan mention, but I am fairly confident that Hayek does not have notions of efficiency with the evolutionary process. Am I the one misreading Hayek?

Thursday, September 27, 2007

A very unstable State

One of the research projects I started working on this summer was a study of the nature of Kerala and its economy. What got me started was an article in EPW about how peacefully Communism has lead to the economic success of Kerala. I entirely disagreed with the author. Woven within his praise for the communist government were a lot of examples as to how pro market policies were helping the state, and how anti-market policies were having unintended consequences. A typical ECON 101 story. Since then I have been working on a serious paper and doing a lot of background research on Kerala. Turns out, the State has a very unstable past. For the first 10 years of independence it was under President's rule. In 1957, the first State Government, was formed. However, this and subsequent governments have been pretty unstable until the eighties. Maybe there's a reason here to the State's success. The politicians were too busy fighting for power that they let the economy be relatively free. Nice theory, can't say it will stand up empirically, but I am excited about it.

Thursday, September 06, 2007

Fellow GMU on Fox News

Mike Makowsky is in the news both on FOX and in the New York Times. His recent paper with Prof.Stratman on speeding tickets seems to be very popular with the news. Watch him on Fox here, and read the NYT article here.

Hattip Anthony Evans

Sunday, August 19, 2007


For a change here is an NGO that is not complaining about child labour and how it is bad for the children. Instead they have accepted that it is an inevitable fact of life here in India, and are doing something to truly help these children instead of forcibly enrolling them in school or picketing outside organizations that employ children. They are helping these street children save their hard earned money and by giving them loans for projects. Some of these children are apparently saving up for school. It is good to see small organizations bring about a positive change through their actions rather than through vociferous protests based on silly standards. Here is a feature on a Bank run by children, and here is the website of the NGO Butterflies.

Wednesday, August 01, 2007

Indian Economic History

The past few days I have spent a lot of time in the library reading books on India, especially the planning periods. The economic history of this country is fascinating and its a pity that it is still a much underdeveloped field. The number of well researched books and papers are few, and seem to have stopped in the seventies. I found a fascinating account of the Indian Shipping industry prior to independence in a book about Food Industries under the British rule in India. The last chapter has a wonderful discussion of the evolution of industries and how they fared under British rule in India. The Shipping industry in particular was pretty well developed with about 6 Indian Shippers. Under the British Command, a British Company forced these shippers out of business by lowering rates to very low levels, and then once the competition was eliminated, raised rates again 15 fold higher than the earlier levels. This chapter also has a chronology of the different industry and company acts that were enacted between 1757 and 1947. The chapter itself is well referenced and written in a reader friendly way. The other book that has a fascinating account of Indian industrial scene pre independence is Bhagwati and Desai's book on Indian Industrial Policy. I have read only the first three chapters in the book, but already I have a wealth of information and references to work on. This has opened a whole new avenue of opportunities in India centric research for me.

Friday, July 27, 2007

Special Economic Zones in India

This past two days I have been in Delhi at a conference promoted by academics and policy makers to talk about Special Economic Zones (SEZ) in India. The idea seems to be the brain child of someone who is really retarded. We have already failed with programs such as EPZ (Export Processing Zones) in India, and to think about adding another layer of bureaucracy to an already existing one is maddening to say the least. None the less I was part of a team that attended this conference. On Day 1 the only three clear speakers were two academics and a Chartered Accountant. The latter had a good presentation about the ground rules of the act. Looks like I have missed a lot while being away from India. One of the key issues that are in the media currently with the SEZ is that of Agricultural land being converted away from agricultural purposes. This is again such a bunch of nonsense. The expert from the Commerce Ministry at the very beginning of his presentation provided statistics that showed that of all the land that was going to be acquired for this scheme, approximately 1% would be agricultural. I do not understand what the brouhaha is about.

Let us for example assume that the idea of SEZs is great and that it is going to be an immense success for India. Now let us also assume that a lot of the land acquired is agricultural land. What is the problem with that? We have been a food surplus nation for several decades, and assuming the land would be more productive with industrial units, what is wrong with using such land for industrial purposes? Shouldn’t we be moving towards productivity and growth rather than the other way around? One of the reasons behind it I think is how the land tax structure works in India. If you own agricultural land then you do not pay tax on it or something like that. In addition you get a humongous amount of subsidies from fertilizers to electricity. So there is a strong incentive from land owners to hold out and protest anything that will take away their future income streams. However, I am not sure it is the land owning agricultural community that is much concerned. After all they will make a lot of money by selling this land to developers.

There is a huge anti-growth and anti-industrialization lobby which I think is promoting this idea under the guise of loss of agricultural land. What is sad is that the media has played up the idea so much that some intellectuals also believe this to be true. With all this brouhaha, a small story in the Times of India Delhi edition was almost missed (Hattip Parth). This is the story of a small village about 50 Kms South of Delhi. Apparently, developers have been buying up land here and obviously land prices have gone up to dizzying heights within a short period of time. The result, the villagers sold their land, made a ton of money, (which they are currently spending building garish three story houses, buying Mercedes cars and fashionable clothing) the developers got the land they need and new malls are coming up in this region to serve the villagers whose demand for consumption goods especially designer brand clothes, has suddenly shot up. No one seems to be complaining that agricultural land was being diverted away in this case. Agriculture had long ceased to be lucrative in this small village. Likewise there are several pockets of land which are simply inviable for agriculture and the land owners could use some good money.

Something similar happened with land acquisition for the National Highways Project. For a change the land owners were offered market prices or higher, and that quelled all dissent for the project. The righteous indignation land owners feel when their land is taken away from them is understandable. This is the result of offering prices that are totally uncompetitive and below the market value. Giver sellers the market price and why would they care. Now the market price would be based not only on the current economic scenario of the region but the expected future streams of income. If, as was being suggested by several people from the government, prices of land would fly through the roof once development begins after acquisition, and this is common knowledge which is why they demand just compensation, land prices will reflect that. Developers who do not want a hold out situation will have to make offers appropriately.

The power of vested interests was very obvious yesterday at the conference where the lot was that of real estate developers and government officials who apparently have huge rents to gain from this project. There were very few academics and other practitioners in the group. It was pretty depressing to me to hear speaker after speaker try to talk in the same platitudes and not say anything substantially important. They kept highlighting the success of China’s SEZ and that being the reason for the large size of the planned SEZs in India. Traditionally the EPZs have been really small units. This time they want to do it big. What is big in this project is just the rents and nothing else and that is stark. I believe each person who attended the conference paid up to Rs.50,000 (~$1300) to be there.

It was obvious that the law itself was flawed and a number of real concerns on the ground have not even been thought about by the Commerce ministry. Everyone is just caught up in the whole melee and excitement of these projects. One legal practitioner even spelt out two separate statements from the act and pointed out that they were in conflict with each other and asked the Commerce ministry guy if they had any answers. The latter clearly had no clue about this contradiction and evaded the question.

The only two speakers who made sense in the morning sessions were my Professors who in many clear terms stated that we did not really SEZs for the kind of development they were looking at. They mentioned that the kind of reforms required was clearly outside of the topic of SEZs and that was the need of the hour. Even with the idea of SEZs unless the macro economic problems of land reforms and property rights were sorted out and some of the draconian laws and regulations were removed even with the SEZs we would only face more problems than solutions. This however, was received not too well by the crowd of bureaucrats and rent-seekers.

The afternoon session started off interestingly enough with a simple description of the procedure of the legislation of SEZ and how an individual or developer could jump on the bandwagon. This was followed by something like a panel discussion with government officials, individuals who are running SEZs right now and my poor Professor who was completely ignored for the better half of the hour that he was on the dais. Again the questions from the audience were most depressing and related to things such as size and operational aspects rather than the actual viability of such a scheme.

One of the experts on stage kept insisting that none of the consultants they approached initially felt that such a project was viable and that they had to spend a humongous amount of money to fly to Washington DC to talk to a consultant to even agree to work out a model, and even then they had to pay half the money upfront to persuade him to even think about the project. Now, correct me if I am dense, but if highly trained professionals feel they cannot provide something to this scheme what makes career bureaucrats believe that their project is even remotely intelligent? They had used hard earned tax payers’ money to make these trips to DC and even pay this consultant upfront. What a waste. And this expert kept telling this story as if it was a great achievement. I couldn’t help wondering if we are just a country of morons and idiots.

On the whole it was a depressing day for me. I thought it would be an interesting day with lots of academic debates; and it turned out to be a complete sham in the end. There were about 300-400 participants. At $1300 a person, you do the math at the mammoth waste the whole day was. Not just in terms of money but also in terms of time. That was just day one. Thank heavens I did not plan to stay the second day.

Thursday, July 26, 2007

Education Vouchers: A Success Story in Delhi

Education Vouchers are a pet peeve with libertarians at GMU. I am not sure how successful they are in the US, but it is a reality in at least Delhi in India and I am proud of the team from CCS who has made education vouchers come true. This is a story of humble beginnings and huge motivation. Parth who is the idea behind this scheme has a PhD in Economics from Auburn University. He was interested in the Education sector and came back to India to start CCS and this amazing voucher scheme. So the idea began with small campaigns using volunteers. I talked to Parth about it and he mentioned that they had volunteers go out in Vans with loud speakers and talk about the scheme. They also handed out pamphlets, held skits and told jokes about the pathetic state of government run schools in some of the poorest neighborhoods where the children attended the local government school. They explained to them how vouchers worked and, volunteers went back to fill out application forms from people in these neighbourhoods. They anticipated about 400-500 applications and had a whopping response of approximately 120,000 applications. This was way above their expectations. The ingenuity of their scheme lay in how to got the support of local government officials. Since most people were not even aware of the scheme and its implications, they invited the ward inspectors (similar to block level bureaucrats) to a ceremony where they picked 6 children from each of the 82 wards in Delhi through a lottery. The response was overwhelming and they apparently also had people who were not eligible who had applied to be part of the voucher scheme. That is, families whose children were not in government schools had also made out applications for their children. Apparently there were a lot of disappointed people the day the lottery names were picked out by the ward inspectors. That is understandable. Today the first batch of children is going to shift out of government run schools to private schools thanks to CCS. The cost of the vouchers is Rs.3600 (~$40) per year, per student. The campaign has been so successful that Parth has teams working out of other cities in India doing something similar. He has also found a Middle East based research Organization that is funding a huge research project in educational vouchers in India. This is another feather in his cap, because obviously research is more expensive than the actual act of giving out vouchers. What we need right now is more sources of funds and more sponsors. Once citizens really notice what a huge difference vouchers make to the lives of their children I am sure there will be an even more overwhelming response. The success of this whole scheme shows that the power of ideas and tenacity go a long way in achieving results in India. People are ready for change as long as they are made aware of it and part of the scheme. I am proud of Parth and his team who stopped complaining about the pathetic state of education in India and went ahead and did something positive. It makes me even more motivated to come back to India, and do things here. There is tremendous untapped potential in this country, we just need to look for it and find ways to bring in the change. Educational Vouchers were totally unknown, and while the rest of the NGOs and other groups were talking in terms of educational reforms through education of women and blah blah Parth’s success is something we should pay attention to. We expect many more such inventive and innovative ideas from you and your team Parth. Great Job!!!

Sunday, July 22, 2007

The Economics and Public Choice of Harry Potter

Megan McArdle has this interesting point about opportunity costs in the Harry Potter series. The (un)fortunate habit with economists is that they are forever looking for economics in everything. I used to think it happens only to people like Pete and Fred who have been in economics forever, but then I was rudely awoken when I found myself unconsciously applying my economic knowledge to every little thing in my life, when I am shopping, during a recent midlife crisis and while reading Harry Potter. The first four Potter books were plain fun to me. I love fantasy and since JKR follows a Tolkien style narrative it was easy cozying up with a Potter book all night. All that changed with the Order of the Phoenix. Here the plot became very economic to me. It was all about bureaucratic interference and the public choice arguments surrounding it. Bottom line, when the government interferes in education it screws it up. It also clarifies that when there is a shortage of something a black market always springs up. Dumbledore's Army or the DA was a black market of sorts. There was a demand for learning and using magic spells at Hogwarts, and since there was shortage of the same due to regulation, an entrepreneur (Hermione Granger) came along and took advantage of the situation to start a club to learn magic secretly. The power of vested interests also comes out. Fudge's aim was to keep his post and so he mistakenly believed that Dumbledore was after the Ministry and refused to believe the truth about U-No-Hu.

U-No-Hu had a single purpose and since he was like a one man planning commission he planned everything to be in power and become immortal. His band of followers were terrified to bring in any new ideas both because they were afraid of his power and also because they believed that he had tested the limits of magic and knew everything. (the latter is how economies perceive of planning commissions, a bunch of highly intelligent and widely read individuals) However, if he had used non-coercive means to discover the knowledge in the market he would have discovered the secrets behind more powerful magic. The single minded pursuit of immortality blinded him to everything else. Any of us would have told him that he suffered from the knowledge problem. duh!! Sure he had all the information, but he did not know all the subtle stuff which makes up knowledge. He was like a super computer that processed all the data but missed the real stuff. Come to think of it, the whole series reeks of the knowledge problem. Needs more thought!! More on the knowledge problem later.

Entrepreneurial elements always find a way!!

One of the many things that hit me when I first landed in India was the number of unsolicited calls from all kinds of marketing groups selling me all manner of things. It is pretty irritating, especially when you are trying to doze in the middle of the day after a hearty meal, and just as you drift into dream land your phone rings and there is someone at the other end trying to sell you credit cards or insurance or what have you. Here is how some people are dealing with it. This is an excerpt from an article from the Times of India Ahmedabad city edition.

Pesky call trouble? Try this out

Radha Sharma | TNN

Ahmedabad: “This is a public request. If you are an agent selling insurance, loans or personal finance, you are please requested not to waste your money and my time. Thank you!”.
If you too are harassed by the tirade of tele-marketing agents calling you up at the wrong time, you might take a cue from this specially recorded caller tune by critical care specialist Dr Raj Rawal on his mobile phone.
Dr Rawal says the idea was born out of a desperate need to stem the nuisance of being pestered daily by agents selling things he did not want. To his glee, the idea has worked!
“Earlier I used to get 10 such calls a day, now only one of them dares to speak to me after hearing the caller tune,” says Dr Rawal.
High-strung professionals have devised their own novel ways of warding off tele-marketing companies. From ‘leave me alone’ caller tunes to witty dialogues, these harassed professionals seem all geared up with tailor-made answers to beat the tele-marketing nuisance.
Daxesh Mehta, a software engineer, takes refuge in dark humour. “Whenever I get a call from agents selling loans
for banks, I tell them I have currently lodged in the jail for defaulting on a huge housing loan,” chuckles Mehta...

How long will it be before an enterprising individual cashes in on this idea? Here is a huge market potential.

Friday, July 20, 2007

A much maligned lot

It was almost like a deja vu. About three years back, I was a much depressed soul around this time of the year. I was part of team that conducted interviews with a sample of small and medium entrepreneurs in a major city in India. The reason for my depression was how the lot was faring. Here was a bunch of young and middle aged, well educated and highly motivated people who wanted to be entrepreneurs and the common story that emerged from most of them was how difficult running a business was within the administrative setup in India. Almost all of them had complaints about bureaucrats in India and most of them had nothing but complaints. I was decidedly angry at the whole system and have been frustrated with the whole idea since then. That was a major turning point in my research career. Today I had the opportunity to be at the other side of the table. I had a two hour discussion with a couple of individuals (I'll call them Mr.A and Mr.B) well placed in the Civil Services in India. The story that came out was as depressing as the ones with the entrepreneurs. Here is a lot of honest individuals who are unable to break out of the vice of the system. They want to bring changes and are as unhappy with the system as I am. One interesting observation that came out of the whole conversation was that they are being unjustly lumped into one lot and branded as corrupt individuals and derided even though there are those that are honest and motivated and driven to do what they are there for. This group is also looking for solutions to end the rampant corruption in the system. There are clear examples of individuals who wanted to do something good and have hit against a concrete wall of vested interests. Apparently, lower cadres follow leadership and under honest and able leaders the system seems to have functioned; however, these individuals are transferred pretty often and once the good leadership moves out of the jurisdiction the lower rungs move back to their old ways. This makes me think that there is something to the system where it is individuals and not ideas that are important. Historically, movements that have been based around individuals tend to die out and those that are based on ideas continue and grow. Why is it so perverse in the case of corruption in Indian Civil Services that power of good ideas has not taken over?

The Economic argument is always that of incentives. In this case as one of them pointed out clearly, monetary incentives are useless because it is difficult to objectively measure the output of some of these cadres. In addition what they can make under the table cannot be competed against by the State. How do you bring in competition in this setup? Approbation is a beautiful tool that can be used effectively in this system. I have long noticed that in the US, local news stations play up 'heroic acts' by individuals. Since the individual is the point of measurement, any small good act by the local cop is played up by the media, and he/she is given a medal in an ostentatious ceremony by some local big shot (the Mayor etc..) Why hasn't the well developed Indian media, who are so easy to point out the misgivings in the government and its departments as willing to shower accolades on the local leader or bureaucrat who has sincerely done something good for the community? There is a clear short supply in this field and there are huge gains to be made by both media and the general public in this field. Adam Smith talks about the power of approbation in the Theory of Moral Sentiments.

The other suggestion that came out was the power of civil societies in retaining good bureaucrats. The public obviously likes someone who is an active leader and who does something tangible and visibly better for the lives of the community members. There is no dearth of societies in India; however, they also seem bureaucratic and there is something to be said about the political nature of even civil societies in India. It is true that bureaucracy begets vested interests and there will be principal agent problems. My colleague from GMU Josh Hill has an interesting argument about the Principal agent problem in the British bureaucracy during colonial times and how approbation works in this setup. This was mentioned by Mr.A a well today that British bureaucracy is tied in with Knighthood. A complete revamping of the system is required in India. However, the problem is circular, the change needs to be brought in by the very same people in the system and that needs at least a few individuals stepping into the fire and suffering third degree burns in the process. No self interested individual is likely to do that however well meaning. Again as Mr.B pointed out, there is something inherently wrong with the system where a person has to sacrifice a whole lot to do what is right.

Are there any practical, workable, implementable economic solutions other than the easy ones my anarchist friends are likely to give me(i.e., get rid of the whole system overnight)? I am strongly inclined to believe that there is a solution from sound economics. Every thing does boil down to self interest and incentives (monetary or otherwise)

Wednesday, July 18, 2007

Unemployment in India

Every time there is overproduction of a good we need to look at the underlying causes. One of the most repeated questions in India is that of the reasons for the high levels of unemployment and under employment in this country. Individuals holding a post graduate degree and working as clerks in offices and engineers driving cabs are legendary stories. These are not just stories but ground realities. The official unemployment count for the year 2005-2006 is 7% of the workforce. This is a huge number given that the population of India is about 1.1 billion. To alleviate this problem the government is constantly coming up with new schemes of employment for unemployed youth and as is common knowledge most of these schemes come to naught. It was understood as far back as the end of the third plan that projections of employment potential based on the plan targets were not reliable due to lack of knowledge about employment created by every new unit of investment and had to be abandoned. The more recent plan documents are vacuous and do not state any clear strategy to reduce unemployment in the country.

Although it is laudable that the government is thinking about the unemployed, they are way off base when it comes to having diagnosed the problem. The root of the problem of unemployment and under employment lies elsewhere in the education system. Here are two reasons

  1. Highly subsidized technical and higher education
  2. Emphasis on technical skills such as scientists and engineers since the first five year plan
Highly subsidized technical and higher education:

One of the most fundamental concepts taught in introductory economics courses is that of costs. Due to scarce resources individuals allocate their scarce resources based on a value scale. The most valuable use will be on top of the chart and the least valued will be all the way down. In the case of higher and technical education in India, both of these are highly subsidized. Thus the students (or the parents in most cases) do not bear the full cost of their technical education. If they had known the full cost of the education, its value in their scale may have been at a different point. Thus, this subsidy has lead to an over production of higher and technical education. Since there is no commensurate demand from the market, the overproduction leads to unemployment. In addition all the money for the subsidy comes from consumers in the form of taxes. Thus, in the absence of the subsidy (and the resultant taxes) some of them may have been able to afford higher education and others not. Thus spending even more of tax payers’ money on employment schemes does not attack the problem but just the outward manifestation of it or the symptom. It is true that even in medicine for the most severe diseases the symptom is first treated; however, when the treatment fails to work usually further diagnostic tests are conducted to ascertain the actual problem and once it is diagnosed the correct treatment is undertaken. In the case of government sponsored programs the symptoms have been treated for several decades now without a proper analysis of the underlying causes.

Read Who actually paid for my education?

Emphasis on technical skills such as Scientists and Engineers since the first five year plan

A newly independent India in the early 1950s wanted to industrialize fast and that was the aim of the first three five year plans. The emphasis was on building a heavy goods public sector that would absorb Scientists and Engineers. Thus was born the obsession with technical education and liberal arts education completely lost its appeal. Since private enterprises were few and far between a government job was a coveted position, and these jobs were in the technical sector. Naturally, individuals flocked towards the technical schools. In addition, these were also subsidized and so were affordable to the common man. However, in the 60s and 70s there was distinct shift in the nature of planning. But the masses failed to see this shift and continued towards technical education. This is a clear case of knowledge that was gained in one period having become institutionalized by the next period. The collective understanding of a generation was passed down to future generations, and the shift out of the sciences is yet to occur in India. However, with liberalization new avenues in Computer Science and Management have opened up and some of the population has drifted that way. Nevertheless, excessive demand still lies in the Sciences. In addition decades of neglect of the liberal arts has led to a completely deteriorated liberal arts education in the country. The latest fancy at least in the upcoming middle classes and elites is to get a basic engineering degree here and go abroad for higher education and better avenues. The subsidized fee structure, in addition to the lingering romanticism of a planning era long gone, have contributed to the increasing levels of unemployment among educated and well qualified individuals.

Wednesday, July 11, 2007

Planning in India

These past few days I have been reading a lot on National Planning in India. I have read a few books now and one of the common themes that seems to run across the board is that the early planners were not really for protection of industries or anything like that. They seem to have been oriented more towards letting markets take care of themselves except for a few major areas such as ordnance, railways, and the like. Slow growth was a conscious policy to aid rapid industrialization of the economy. Local administration was given the responsibility to submit and carry out plans. However, as is always and everywhere the system deteriorated soon due to political factors and special interest groups. The Planning Commission when it was formed was supposed to be non-political, but Nehru chaired it and made it his own fiefdom. In addition, there seems to be a lot of healthy criticism against planning and a broad minded approach towards the whole idea. However, sometime after the third plan all that seems to have changed towards centralization, and a more totalitarian regime. It is interesting to read older documents and books that are intellectually based on sound economics and the then prevailing mainstream economics which was Keynesian, neo-classical and very pro socialist than current texts which are ideologically biased left irrespective of the economics. There is much to read and learn about India and a lifetime will not be sufficient.

Tuesday, July 10, 2007

Save Power!!

Global Warming is the current hot topic. Here's one way to save power!! My initial thought that this was a joke, a sarcastic slap against the global warming fear mongers. Then I went and read up their 'About Us' section and realized that these guys are serious. All that aside, I love the idea and concept of it even though I am a little skeptical about how much power it would actually help save. In any case, this is a showcase of the power of ideas and free unhampered markets. If there is a need for something (however silly or outrageous), free markets find a solution. Here is what nOnoscience thinks about the idea.

Wednesday, July 04, 2007

Colonial Past

It is common knowledge that India was exploited by the British during its Colonial period. The story is really interesting and came out in the class on Indian Economy that I am sitting in right now. What seems extremely surprising to me is that there doesn't seem to be commonly circulated and discussed literature on this topic. Rough estimates show that if the amount of monetary exploitation through revenues and such were put in current terms it would amount to about $700 billion approximately in current value. I am slightly skeptical about this figure until I am shown hard facts about it. It is an interesting aspect of studies on India, and I am storing this away in some deep recess of my mind to be pulled out later when I have more time to think about working on it.

Tuesday, July 03, 2007

Entrepreneurial Discovery

Lacchu had an interesting point in this post about cyberspace. Although I do not agree with the idea that we need more government interference in cyberspace I am all for the idea of spontaneous development of new ideas and laws in cyberspace. For example the idea that email servers can have nomination services like bank accounts do is very appealing. In the case of the soldier Yahoo was right on two counts. Firstly, it is true that they delete accounts after 90 days of inactivity. I have had my personal accounts deleted the same way. Secondly, I am not sure I want my parents to read my emails in case I die suddenly. For the same reasons I am highly critical of letters of famous people published after their deaths. If they are published the publishers must secure permission while the persons were alive. I certainly do not want my letters published however (in)famous I become. They are my property and as a person who believes in protection of private property I am strongly against family and friends reading the dead person's emails and letters. That is why the idea of nomination appeals to me. I wonder why email server guys have not thought of this already! It would take just one other line in the sign up page!! The discovery has been made, but who is going to be alert to this opportunity and exploit it first? Yahoo!! Google!! anyone listening?

Monday, July 02, 2007

Indian Books

I just walked down the aisles of the library yesterday and today to find out what kinds of books they have. They have some really amazing international publications in addition to Indian ones. The Indian ones, especially the ones published by Oxford University Press are really cheap. You can get a good hardback for as little as $12. The lack of articles in popular journals about Indian economic reforms is more than adequately compensated by the number of books that have been written on the subject. The analysis runs mostly from the extreme left to somewhat left of centre. I have not found any central or even slightly right of centre arguments in the books I have perused till now. The biggest drawbacks of most of the literature however is that there are a lot of statements without any kind of substantiation. Arguments are made from legends and folklore and popular rhetoric which would hardly stand up to any serious academic scrutiny. There are no references in most of the books. It is disheartening, because there are some really interesting counter arguments to be made if any of their arguments are true, and to be able to do that I have to go find sources to authenticate both their statements so that I can prove that they are either right or wrong and move on with my analyses. It is somewhat frustrating, but then it has only been three days since I started work and hopefully by the end of summer I will at least have an interesting question, and a knowledge of where to look for the answer, if not the answers themselves.

Sunday, July 01, 2007

Bad Business!!

Economic and Political Weekly is one of the most popular weeklies for academic papers in India. It is an academic and policy oriented journal for the Social Sciences. In one of the recent issues the editorial reads ‘Crony Capitalism’ to the Fore. Intrigued I continued reading and was shocked by the whole editorial. The editor states that successful business houses in India are now venturing into the political arena and caring none for the ‘aam admi’ (common man). They are also being bolstered by the upward mobile and very socially conscious emerging middle class of the country. He talks about big business houses displacing smaller traders and small farmers of the economy and goes on to say that these individuals are now beginning to lobby towards more conducive environments for businesses. If he had simply stated the same all would be fine. What was shocking to me was that he lamented the fact that big businesses were growing in the country. Sure, it is true that there is a huge and growing gap between the haves and the have-nots in the country, but contrary to popular rhetoric the cause is not businessmen but regulation. The problem lies with improper administration of the reforms. That highly intelligent editors of such popular journals miss such simple economic concepts is shocking to me. To give the editor credit, he also pointed out vested interests of politicians in the current government and that is a valid criticism. But, how come he does not talk about the strong farmers’ lobbies from the northern states that have been keeping agricultural prices artificially high and do not want to let go of subsidies? What about the lobbies of out dated and loss making Fertilizer Companies that have substantial subsidies in tandem with the agricultural subsidies? His selective amnesia is apparent when he also fails to mention the monopoly privileges granted by the then ruling government which was the reason for industrial lobbies during the license raj which led to the concentration of production of certain goods within certain big industry names. It is disheartening to see the path of such editorials.

Friday, June 29, 2007

Will that be a large?

Concession stands at movie theatres are a great source of conversation among economists. While I am a strong believer in the consumer driven free market idea, I am still struggling to understand the simple idea behind higher prices of candy and soda in cinema halls. I can understand product differentiation, and bundling as an argument. I must be pretty dense if I do not get Landsburg's idea in The Armchair Economist. Here is an interesting article from Slate about the history of concession stands. It is interesting to note that there was a period when cinema hall owners were against the idea of food in the theatre. Of course! I always succumb when asked the question in the title. Do you?

Friday, June 22, 2007

Happy Birthday

Desi Libertarian is a Year Old. I am thrilled we lasted this long. It started as a stress buster during the difficult pre prelim days last summer, and became a more serious academic ideas blog when Non-Resident-Alien was born last October. Thank You all for your support. I do not have statistics on how many people visited, but I do know I have a loyal following among classmates at GMU and friends in India. Thanks guys! Hopefully, this will prove helpful as a sounding board for ideas as I continue serious work on my dissertation in the next few months.

Wednesday, June 13, 2007

Bharat Punarnirman Dal

The last month or so has been a time of several agitations and riots in India. I am sure this is pretty common here, but I am observing it first hand now that I am physically here. A couple of weeks back in Rajasthan (a north western state) two communities clashed and riots ensued. The Gujjar community were demanding that they be categorized as Scheduled Tribe (ST) and the Meenas who are a dominant 'backward' community in the state were protesting because they felt that the Gujjars would pose a direct competition to them. The competition here is in securing seats in educational institutions and government jobs where there is a quota for people belong to different 'lower' castes. First there is a 15% quota for SC and ST, on top of that there is a 50% quota for Other Backward Communities (OBC), in addition there are State specific quotas and the list goes on.

It is ridiculous to see such riots. It is also very sad because it is indeed these differences that politicians exploit to keep this country from progressing. For long we have been complaining about this but nothing seems to be happening. Now however, I am happy and proud to know that youngsters in India have started progressively taking positive steps towards political reforms rather than just sit and complain about it all the time. With the intellectual atmosphere at an all time low due to riots and agitations in every region of the country demanding more quotas and more reservations for 'backward communities', this is a welcome relief to me. At times it is despairing to see that the lower castes call themselves the minority, when they make up about 60% of the population, and more and more communities fight for minority status.

A group of young and well qualified youth have started a political party with good intentions towards reforming the political system from within. They call themselves the Bharat Punarnirman Dal, which roughly translates to a India Reconstruction Group. Here is their website. They do seem well qualified and they have a practical workable agenda. This is a group that needs to be closely watched cause they have great potential for success in their plans.

Sunday, May 27, 2007

The state of Indian Roads

This weekend my family and I travelled 610 Kms(380 miles) by bus saturday night and after spending the day in Shirdi came back by the same bus sunday night (enlarge the map and look for Hyderabad and Shirdi). The bus journey was 12 hours each way and terrible for my back. I used to take such trips pretty frequently and it never bothered me, maybe I have become too American, or am looking at things from a different perspective. It did make the plight of Indian roads pathetically clear to me. Except for the undeniable fact that cities are bursting at their seams, 60 Kms outside the cities everything is just barren land. People are as dirt poor as before, and the Gods are as dominant as ever. It was single lane traffic (both directions) most of the way. Sure, much of the route does not need more than one lane there isn't much traffic. However, these roads are in terrible need of repairs. They are potholed most of the way and my poor back felt every single one of them. There were several private toll roads and I was surprised that even these were in disrepair. Goes to show that there is much corruption even in the private sector. Accountability is the key issue, and people just seem to be happy with things the way they are. We did cross a small section that was part of the Golden Quadrangle project, even that stretch wasn't great, and these roads are new and this whole project consumes several billion dollars. These roads are the lifeline of the country and that is painfully obvious. Civilizations begins and ends at these roads. The National Highway routes were built in the 50s and 60s just about the time when the US Interstate system was being built. There seems to have been no planning for future traffic patterns. Now reclaiming lands along these routes that are sprawling with squatters is proving to be politically tricky. The highways need a complete revamping and the solution does not lie with the government. It is high time road routes are taken off the critical sector list so that private companies can come in and develop the sector.

Friday, May 25, 2007

Cost of Medical Diagnostics

A few months back I had an emergency room visit in Fairfax which set me back by a few thousand dollars. Since my insurance does not cover a lot I did not follow up my visit with further diagnosis. I wanted to wait to go to India to get it done because I was sure it would be cheaper there, and I was right (read about my experience here). Medical services do cost a lot less in India than in the US. I wonder what the reason is!! The machines are imported from abroad, so setup costs are the same I guess. There is certainly a labour component. But there were only two technicians in the procedure room. How much could that alone be? I guess there are a lot of regulatory hurdles in the US that add to the costs. Even so, there is some other component which is adding to costs in the US. With such huge price differences (MRI consultation $500, procedure $500 in the US, consultation $1, procedure $100 in India) and similar quality treatment no wonder medical tourism is becoming more and more popular. Even if the $2000 round trip ticket was added to expenses it would work out cheaper in countries like India. So, arbitrage would bring prices closer. But we do not observe that either which implies there is something missing from this picture. People do have the elephants and naked saints impression of India. They fail to realise how modern we are. That could be a reason why they do not want to travel here. Americans at least know that Indian doctors are pretty good, since several Indian born and educated doctors have made their mark in American hospitals. There is an information component to this lack of arbitrage. However, seems to me that there is an interesting economic phenomenon here that deserves some scrutiny.

Wednesday, May 23, 2007

Why Perestroika failed?

I did not read this book till two days back, but my final paper for my Austrian class echoes the ideas in this book. The biggest difference is, Pete quotes like crazy and I had zero references in my paper. Also, the book is about Russia and my paper was about India's economic reforms. The main idea in my paper was the failure of the reforms in India due to lack of credible commitment form the very unstable political sector inspite of the great potential. If I can as much as repeat a similar story as the book for my dissertation it would be amazing. A lot remains unsaid with transition economies yet and I hope to tap into this little explained field in economics. This summer is my feeler toward my final dissertation. I need to progress from the 'I think this' stage to 'I can prove this' stage. I have a daunting reading list of most of Hayek's works and a couple of Don Lavoie books in addition to my local literature survey. There are only 24 hours in a day, and hopefully I will be able to fit in all my reading and research assignments and intrrspace them with some fun with family and pals.

Contradictions in India

FM Chidambaram made at least two contradictory statements as usual in a public address. On the one hand he said that government policies were hampering innovations and then on the other hand he said that the corporate had to do better in motivating innovation and have to provide more employment to disabled people. I don't get the connection, but then again I could just be dense. How can businesses correct a government failure? Sure, there is political action, but then again when the incentive for every government in power is only to fill its pockets there is very little opportunity for businesses to do much.

Everytime I am here I am assailed by more and more regulations. This time I was stopped longer at the customs point and the officer tried to make me pay for electronic items I already own and plan to take back with me, for example my two year old refurbished laptop, and my three year old battered digital camera were all recorded. I had to show him my I-20, and Thank God I knew the laws on importation. If I had not mentioned that I knew what was allowed and what wasn't he would have made me pay duty on stuff I am allowed free into the country. These laws are deliberately written to fool common people. Besides, people have been used to such oppressive laws for such a long time that they do not even know that these laws have changed. In addition the officials themselves do not know these laws for the most part. It is a contradiction of sorts that people who spend so much money going abroad to study and work do not spend five minutes to read the laws on a website that would save them atleast 30% of the money value of the products as duties.

There is only one way to improve innovations, create incentives. We are a very smart population. After all even during the most oppressive days of licenses we found ways to be entrepreneurial, why wouldn't we be willing to do so now given the changed economic climate?

Wednesday, May 16, 2007

What I have learned from my Professors

Prof.Cowen told us his thirs law in class almost two years ago, "There is a literature on everything.." Right now I am looking for literature that could lead to a good dissertation. I have been working on this missing entrepreneur idea for a while now and it is hard to get it out of my system. The more I read the more literature I unearth, and I believe the paper has progressed significantly since the first draft more than 8 months ago. Now I am beginning to understand what Pete always says about a good paper project taking about a year or so from start to finish for him. I used to wonder why it took him so long. The more you read the more you discover how much you do not know. But reading is not enough. Like Prof.Wagner always says, "Reading and Thinking without writing is like day dreaming..". This summer hopefully I will not just day dream but do productive work.

The last time I visited family, one of my relatives who manages a big organisation mentioned something interesting. He said that recent academic stuff seems more relevant to business environment than stuff a decade ago. That set me thinking into the kind of books being published. This was also part of a question I had to answer for my Austrian II class. Most of the readings we had in that class were books that had Austrian style arguments for the most part, without calling the theories explicitly Austrian. Here is a success story of ideas. Who cares what the field is called. I have shied away from being branded hard-core Austrian. I believe in the ideas and not the idols. It has been the bane of many movements, that have lost steam after the founders passed away, that they faded away because they concentrated on their idols and not the ideas. So the books we have read this semester make me believe that there is a strong future for people like me, after all these authors are from MIT and such hardcore mainstream places.

Getting back to my point about entrepreneurs, my main contention is that business schools still study entrepreneurs not only because they try to teach entrepreneurship, but also because of their research strategy of using case studies. Analytical narratives and case studies in economics are becoming fashionable only now with the success of Professors like Willam Easterly. The winds have shifted in favor of people like us and I am glad to have had Prof.Cowen drum his third law into me.

Saturday, April 28, 2007


Last week as I walked around a corner at the Mercatus Centre, I almost ran into Prof.Tullock shuffling away toward his office. To avoid confusion, I stopped, said hello to him and waited for him to make the first move. He returned my hello and said "Standing at attention when you see me and wishing me is the correct thing to do when you see me". So I saluted him and said "Yes Sir". Are you still wondering why he gave me an A+ in his class?

Sunday, April 22, 2007

Please spare our children

The school board in India (NCERT) has a plan to remove the two main finishing school examinations in the country (Class X and Class XII). In addition they want to remove the pass fail system in all classes and replace it with grades so 'students have ample scope for improvement'. This is a bad move. Students will have no incentive to study, and this reeks very much of the US Public School ideas. US Public Schools have no retention (no student is failed in a class) and this has been a disaster in this country. Students graduate from high school without knowing even the basics of reading and math. The several misturns in educational policy is India are wrecking havoc in India's competitiveness, this will completely ruin it. The one strength India has always had is its well trained, educated and highly competitive students. Indian students are known as intelligent students across universities in the the US and are well respected across the world. This current move by NCERT will lead to failure on several grounds. This is but the beginning of doom. The biggest problem with all of this is that the results will not appear immediately. The consequences of these policies will be felt 10-15 years from now when this current set of grade schoolers will graduate from high school. Please spare our children and give them a chance at a decent life.

Sunday, April 15, 2007

Unintended Consequences

I am watching a PBS series on Loggerhead turtles and the narrator grandly stated "...our actions have unintended consequences.." Funny when they talk about global warming and such stuff this statement comes very easily to the minds of script writers, but when they talk about governance and policy it is rarely, if ever, mentioned. The assumption made seems to be that capitalist actions have unintended consequences that are bad for life on earth, but actions of those in public office do not have unintended consequences. The assumption that is glaring with its absence is that of omniscience of public officials. I appreciate the environmentalists for understanding the knowledge problem; however, there seems to be selective memory. How will some kind of a centralised plan to prevent global warming not have any unintended consequences? We see it all the time. Policies have unintended consequences. The Bush Luxury Tax, instead of taxing those that owned Yachts, stopped the rich from buying yachts which put marginal sailboat builders out of business. Isn't that an unintended consequence?
Environmentalists are also scare mongers. Every moment of every day some one is in the process of inventing something that makes life easier on earth. That is never a part of any of the series on the environment. If Methane gas bubbles to the surface of the seas due to a degree or two rise in sea water temperature, and if people in the scientific community are aware of this, we can be sure that someone somewhere is working to find a way to reduce the unfavourable effects. How come the community never talks about these new inventions that have made life easier to live? Will they be willing to live in conditions of the 18th century world? I doubt it!!
All of their predictions are based on scanty data from the last 50 years or so. Records of such things as sea temperature etc have been kept meticulously only for the last 50 years or so. The study of Earth itself, is a few thousand years old. What is the proof that such a rise in temperature is a natural phenomenon that occurs every other century or so? 50 data points are nothing in statistical analysis, they won't even cover the required degrees of freedom given the number of variables they try to predict. I am highly suspect of the data. Sure the environmentalists have good intentions, unfortunately, their actions and paranoia are causing several unintended consequences.

Friday, April 13, 2007

Entrepreneurship, Bollywood Edition

I was watching a bollywood movie and it suddenly hit me as to why there was so much vulgarity regularly in Bollywood movies and not so much in Hollywood. It is very rare for a Bollywood movie in the last 20 years or so to not have very suggestive sexual scenes. The people on the silver screen don't even kiss (that has changed considerably in the last 5 years or so). Believe it or not there is a simple economic explanation to it. The Film Censor Board of India obviously had strict rules about not showing "kissing scenes" in the early days, and film makers had to retain the sex in the movies and show it somehow without the movie being rated A (Adults only), which is expensive both in terms of low turnout generally and the social stigma associated with being caught watching an A rated movie, which would lower the turnout even further thus bringing in losses for the film maker.
Songs and dances were not disallowed, so it probably began with suggestive and sensual song and dance sequences in movies with some exposure. The world has become more and more tolerant of openly sexual behaviour since the 60s. The Indian Censor Board, I conjecture, retains the same laws and mores from time immemorial and is archaic by any definition. Since direct kissing is not allowed in movies other suggestive scenes have crept in to the extent of vulgarity in 99.9% of run-of-the-mill Indian movies. By contrast a Hollywood movie can suggest sex or passion with a kissing scene, so no vulgarity is required, unless the film maker intends vulgarity. With every generation, some aspect that shocked the previous generation becomes generally accepted and that is where the bar is set for the next round. So we notice a progressive degeneration of the portrayal of sexuality in Indian movies. It is not shocking to note that it is the Censor Board that is to blame for this. Neither is the film crazy public to blame nor the film maker. Women's groups that protest the portrayal of women as sexual objects in Indian movies should make note of this when they call directors foul names. The Entrepreneur always finds a way, especially in an industry as lucrative and competitive as Bollywood where there are huge profits to be made.

Wednesday, February 14, 2007

The Ant and the Grasshopper

This one is really funny! If you have read Rand, this sounds like a Rand rant. Hattip Lacchu

This is the state of India's Politics today....

The ant works hard in the withering heat all summer long building his
house and laying up supplies for the winter.

The grasshopper thinks the ant's a fool and laughs & dances & plays the
summer away.

Come winter, the ant is warm and well fed. The grasshopper has no food
or shelter so he dies out in the cold.

The ant works hard in the withering heat all summer long, building his
house and laying up supplies for the winter. The grasshopper thinks the
ant's a fool and laughs & dances & plays the summer away.

Come winter, the shivering grasshopper calls a press conference and
demands to know why the ant should be allowed to be warm and well fed
while others are cold and starving.NDTV, BBC, CNN show up to provide
pictures of the shivering grasshopper next to a video of the ant in his
comfortable home with a table filled with food.

The World is stunned by the sharp contrast.....

-How can this be that this poor grasshopper is allowed to suffer so?

-Arundhati Roy stages a demonstration in front of the ant's house.

-Medha Patkar goes on a fast along with other grasshoppers demanding
that grasshoppers be relocated to warmer climates during winter.

-Amnesty International and Koffi Annan criticize the Indian Government
for not upholding the fundamental rights of the grasshopper.

-The Internet is flooded with online petitions seeking support to the
grasshopper(many promising Heaven and

-Everlasting Peace for prompt support as against the wrath of God for

-Opposition MP's stage a walkout.Left parties call for "Bharat Bandh" in
West Bengal and Kerala demanding a Judicial Enquiry.

-CPM Kerala immediately passes a law preventing Ants from working hard
in the heat so as to bring about equality of poverty among ants and

-Lalu Prasad allocates one free coach to Grasshoppers on all Indian
Railway Trains, aptly named as the 'Grasshopper Rath'.

-Finally, the Judicial Committee drafts the Prevention of Terrorism
Against Grasshoppers Act [POTAGA]", with
effect from the beginning of the winter.

-Arjun Singh makes Special Reservation for Grass Hopper in educational
Insititutions & in Govt Services.

-The ant is fined for failing to comply with POTAGA and, having nothing
left to pay his retroactive taxes,
his home is confiscated by the Government and handed over to the
grasshopper in a ceremony covered by NDTV.

-Arundhati Roy calls it "a triumph of justice".

-Lalu calls it 'Socialistic Justice'.

-CPM calls it the 'revolutionary resurgence of the downtrodden'

-Koffi Annan invites the grasshopper to address the UN General Assembly.


The ant has since migrated to the US and set up a multi billion dollar
company in silicon valley.
While 100s of grasshoppers still die of starvation despite reservation
somewhere in India...