Sunday, December 14, 2008

Ban it to get rid of it

Governments around the world have a quick solution to major problems, ban it!! Is there a case of avian flu? Ban sale of the birds, better still, ban imports from the suspect country. Is there a terrorist organization in your country? Ban it! Is there a problem with drugs? Ban it! Here's something every teenager knows. If daddy says to not do something, I have to know why, so I will go ahead and do it, if nothing else just to be the rebel. Has banning any militant organization worked in India or Pakistan or anywhere else in the world for that matter? The Al Qaeda is a banned outfit, have they stopped their attacks. Here is the Pakistani Foreign Minister admitting, at least a month before the recent Mumbai attacks, that banned groups had resurfaced. 
The RSS, VHP, Bajrang Dal and such Hindu groups have been banned at several times since Independence in India. Has that stopped them from being active both socially and politically in India? No! If the RSS is banned, the individuals that make up the RSS are still around, all they need to do is regroup under a different name. Same thing with any Militant or Terrorist group. If they are banned, they either go underground and become professional in being hidden terror machines or stay on the surface under a different name. Just like the Jamat-ud-dawa is a front for the LeT. 
Prof.Boettke always gives a wonderful analogy about the primacy of institutions and people. It applies here as well. If something were to happen to Microsoft headquarters (such as earth quake etc) that destroys the building completely, does that mean MS will go bust? No! The people of MS will get together in a different building and continue doing what they do best. It is people who drive these organizations, not buildings or names. As long as you have the people the organizations remain albeit under a different name or building. 
Here's another real life example about how banning is not effective. The US war on drugs is at least two decades old if not longer. Has that stopped illegal drugs in this country? No! The war on drugs is an ongoing battle into which millions of dollars have been spent, but without as much as a dent in the machine. So does banning have any effect? The sad truth is no. We need to start accepting that terrorists are also intelligent beings, and banning them will not stop them from attacking innocent people.

Thursday, December 04, 2008

Mumbai Continued

Terrorists of the world, shake in your boots, the Indian interrogators will make you spill your beans even though the Intelligence Bureau is so incompetent as to not figure out in advance about planned attacks. Isn't it amazing that the lone captured terrorist (who has not been seen or or heard live by the media since he was captured live on Saturday) tells Indian authorities that he is from Pakistan and that he and others were trained by ex-Pakistani military men. Is it surprising just to me that the group leadership goes to such great lengths to maintain secrecy about the planned attacks, but lets the ground operatives (who are likely to be caught) know everything about their group including who the trainers are? Am I the only one to think that the questions asked and answers are exactly what the Indian politician and Hindu fundamentalist need to frame Pakistan. These highly trained professionals just walk around with GPS systems with details of the origin of their operation? They also walk around with Pakistani passports. C'mon Indian bureaucrats, the 80s movie style is old, Hollywood has moved on to newer technology with terrorists and interrogation techniques. You should move on to more believable stuff and provide hard evidence rather than your ideas and opinions to make me believe who the true culprits are besides yourself. 

Monday, December 01, 2008

Mumbai Blame game

The political and bureaucratic drama has started even before the dust has settled in Mumbai. Politicians will now make a big show of resignations. As if they really care. It is part of the image they want to create, similar to hollywood actresses who get pregnant when their image takes a beating because of their stupid antics. Before long, people start talking about their kid and what not and the arrest record is history. Likewise with Indian politicians, make a big resignation drama and everything else takes a back seat. Especially now, since elections are coming up, its going to be fun watching them play it out. Hey! People respond to incentives right!!
The other drama is the bureaucratic one between the different agencies (intelligence, law and order blah blah). They will each start pointing fingers at each other about how the other paid no heed to warnings. The ultimate blame will be on Pakistan, cause Pakistan based militants are an easy scape goat for anything that happens in India. After all the Indian officials do not have to provide any hard evidence. Just point a finger, condemn the attacks, and the militants start shaking in their boots right!! Politicians, and bureaucrats know (and rightly so) that once the Pakistan angle is splattered in the media, people will forget the incompetence of their own government agencies. It is easy to stir emotions at a time like this. People are angry, get them angry at the other guy who is our enemy, and voila just like that attention is shifted away from the fact that such a massive incident occurred due to sheer negligence.  Its easy to do that than to have the people angry at the government and its incompetence. The deep seated hatred that some fundamentalist groups have in both countries will be sufficient to destabilize both nations for a long time to come. 
I do not care if it was the LeT or RSS that carried out these attacks. I know from what my teachers taught me that ultimately it is a problem of bureaucratic inefficiency. Indian bureaucrats do not have any incentives to do their jobs. They do not get fired because of something as simple as Intelligence failure. They do not get charged for criminal negligence leading to the loss of 200 lives. Their tenure is secure. They maybe highly intelligent men and women, but there is nothing in the rules governing bureaucracy that holds them accountable. They can and are getting away with murder. 
Its easy to say that the Indian police were not willing to engage, but the root cause of the problem is that they are do not have the incentives to engage. Lets say they did engage and at the first hint of terrorist shooting, the Indian police started shooting back. I am sure the media would have condemned them then for it saying they should have assessed the situation before they started firing back. Even now Israeli officials are blaming the Indian operation at Nariman House. Damned if you do and damned if you do not. Its no wonder then that no one wants to take responsibility. They are all afraid of the reaction. After all, the beat cop , the guy lowest on the totem pole is the one that has the most to lose. When push comes to shove, the blame game will finally end with the beat cop, cause he is not high profile. Politicians have nothing to lose, bureaucrats have nothing to lose either. The final blame will be on the poor constable who decided to shoot back. He is the one who will lose his job and his pension. The media is not interested in him, so with no media attention the matter will be put to rest. Just like in this case
No I am not outraged. I just have no expectations. May be it is my fatalist attitude or just the fact that I trust economics more than Indian politicians and bureaucrats. This is a never ending cycle. As long as people put their faith in the benevolence of the politician and bureaucrat such incidents will keep happening. Indian citizens are not going to ask for less bureaucracy. In fact, they are already demanding more bureaucracy and the government is only very happy to open up a new agency and appoint officials with fancy titles who will vacation abroad on tax payers money and allow more such security lapses. Western nations are taking a keen interest in this when about 20 of their citizens have been killed. We have scores of people being killed (both in India and Pakistan) every day and our own governments care more about the foreigners than about our citizens. Shame on us for putting up with such imbeciles!! 

Friday, November 28, 2008

Mumbai Attacks

This is not the first time Mumbai has been attacked by terrorists. This is not even the first terror attack in India. Bombings, shootings, religious violence and such are common in India. In fact, last summer there were a series of blasts in Hyderabad, just a couple of hours before I boarded the flight back to the US. This summer there were blasts in Ahmedabad, close to where I was living. That being said, I do not remember any other time since the 1993 serial bombings that Mumbai has been under seige. I have been watching CNN and Fox news on and off, and I do not remember any other time that US News media have spent so much time reporting Indian bombs. To most of them terrorism is only Al-Qaeda and Bin Laden. I find it aggravating that everything has to be compared to Al-Qaeda. India has been attacked by several different groups that have been around long before Bin Laden became a household name in the US.  Here are two groups that are the usual suspects in India for any such attacks: Jaish-e-Mohammed and Lashkar-e-Toiba. I do not care who these guys are and if they are really to blame for half the stuff they are alleged to have committed. However, there is a pattern to such events in India. Here is the usual chain of events after any such attack in India:
  • Attack happens somewhere in the country (usually medium to big sized city)
  • Indian Media goes ballistic, reporting live and being ridiculous for the most part with speculations, accusations (not even allegations), a lot of gory images, and the same story repeated for 3-4 days on every single news channel. In fact they even use the same news feed on every channel. 
  • Prime Minister and other politicians go on live TV to say they will do all they can to bring justice to the victims and their families and hunt the terrorists down.
  • Either the Prime Minister or the Local Minister/Politician, offers a boatload of tax payer money as ex-gratia payments to the victims, the injured and their families. (In the current Mumbai case it is Rs.500,000 to those killed and Rs.50,000 to those injured)
  • PM usually blames Pakistan based groups (usually with no proof)
  • Pakistani officials deny it vehemently
  • A special task force is appointed to investigate
  • Two days later, something new happens and this is forgotten
  • Life goes on as usual for all until the next attack, when the sequence of events are replayed on TV sets across the nation.
Cruel as it sounds, we are used to such terrorism. I am surprised at how many Indians living in the US say that they feel very unsafe in India, and demand that the government do more to make them feel safe. Do they really believe that terrorist acts cannot happen in the US? Besides, what can the government really do? Can the government really watch out for every single person without infringing on basic rights of freedom? Its easy for me to sit here and speculate about the incompetence of the Indian government and officials. However, are any of the other Western, developed countries really better? They certainly seem to have a more organized set-up, but how can one compare events that are not comparable and say one group of responders are better than the other. I am certainly not defending the Indian task-force response to the attacks. I am not an expert. Besides, there's enough BS from people in the media already. Where the heck does Deepak Chopra get these ideas from? I do not see the Obama connection. Neither do I see this as a concentrated attack on Hindus. If anything, I see this as an attack on rich and affluent people. 
In my opinion, these attacks are a never ending cycle. Now that the Jewish community has been attacked, I am pretty sure the US is all riled up to bomb some places in Kashmir, or wherever they find that these groups are from, as part of the war on terror.   Here is my earlier thought about such attacks and my solution to it. 
Amidst all the drama in Mumbai, here is a story that would have otherwise hogged the headlines. My prayers are with all the victims, in India and elsewhere and their families and friends. 

Sunday, November 23, 2008

Happy Retirement Prof.Tullock

GMU Economics Department and the Law School organized a reception in honour of Prof.Tullock who retired earlier this semester. It was wonderful to see him again and talk to him. I was pleasantly surprised that he even remembered me from his class. He even told me that the only reason I got an A+ in his class was because he was a generous grader. Here are a few pictures from the evening (Courtesy Brian Hollar).

He was very easily persuaded to pose for a photograph 

We will all miss you Prof.Tullock, and I am glad I could be in your class. 

Thursday, November 20, 2008

Analytical narratives about India

Its not an easy task to write analytical narratives about India. For almost five years, I have been trying to write interesting papers about institutions, entrepreneurship and so many other aspects of economic life in India, and my efforts are constantly frustrated because the subject is so vast. It is just impossible to tell a simple story about India. Its a complicated mesh with several layers of stories each intertwined with the other in such a way that trying to untangle them is simply impossible. One cannot tell one story about India without referring to several others in the background that are driving the primary narrative. This frustrates academic writing, because for every economic story there is a reference to at least ten others in the background and you cannot tell just one story and not tell the others, so pretty soon the focus of the narrative is a tome rather than a laser beam. This is true even if one is writing for Indian audiences, because your perspective reflects on all the stories and not just the one you are writing about, so you need to re-explain phenomena that are popularly understood differently. 
All that being said, it is fun writing about India, especially because of those hundred other stories, and as I dig into history, I am constantly surprised with things I did not know about India. I could be happy at no other job than research on India. I guess that is why I am enjoying writing my dissertation. It is focussed on three small stories without cluttering the narrative with the background stories!! 

Tuesday, November 11, 2008

George J Stigler

Everytime I read an article by a great economist, I am reminded of my love for this discipline and am inspired to work harder and persist at what I am doing. Today, I had a lean phase where one of my dissertation chapters refused to progress. So, I decided to wiki famous economists and since I had been thinking about the economics of regulation, decided to learn more about George Stigler. Although I knew of his contributions to the Economics of  Regulation literature, I did not know he had written so much on the History of Economic thought. I have always admired Stigler, I now have a new found love for him as well. Well, one thing lead to another and I just finished reading his Nobel Lecture, "The Process and Progress of Economics". How can one read this lecture and not be inspired to keep working on new ideas!! Here is an excerpt from the conclusion (emphasis mine).
The fascination of scientific work does not lie in the craftsmanlike utilization of the tools of a science. It is admirable for the gymnast to put his splendidly disciplined body through intricate maneuvers, and it is no doubt equally admirable for the scientist to put his disciplined mind through a sequence of complex analytical or experimental maneuvers. The great fascination of scientific endeavor, however, is precisely in the speculative pursuit of new ideas that will widen the horizon of our understanding of the world. This endeavor is not that of a graceful intellectual gymnast: on the contrary, the scientist is stumbling about in a jungle of ideas or facts that seem to defy system or logic, and usually he fails to emerge with anything but scratches. The dangers of the search include the chance that a gifted rival will reach the goal, and the danger is not reduced by the fact that the rivalry is conducted under what for able and ambitious competitors are unusually chivalrous rules. Still, learning more about how this search for new knowledge proceeds is itself a worthy search for new knowledge, and we shall not abandon it.
I will remember to not be frustrated in the future when I stumble through ideas in a paper. 

Monday, September 15, 2008

Trade is mutually Beneficial

Several people speculate that beggars in India are not really that poor. Here is a funny side to an often repeated economic argument. If you do not want to hit the link, here is the post:
A friend parks his car near M. G. Road and is asked for Rs. 5 by the parking attendant on duty. The smallest note he has is a twenty and the attendant doesn’t have change. Meanwhile, there’s a beggar pestering him for alms on the side.

My friend, turns to the beggar and tells him he’ll trade him the twenty for a ten and a five, completes the deal with the more-than-bemused beggar, hands the attendant the five bucks, pockets the ten and walks away leaving everyone happy.

Change from a beggar—who would have thought of it!
Courtesy Arnold

Sunday, September 14, 2008

Price Gouging again!!

Hurricane Ike has brought back the Gas Price Gouging debate back in the media. This morning I woke up to MSNBC news about the aftermath of hurricane Ike. An on site reporter kept taking to the same people waiting at a Gas station. They were calling it a disaster and a mess. Sure it was! A hurricane just went by. I just cannot believe the number of people who think the government has to provide them gas and other supplies. Wouldn't a rational person stock up when they know there would be supply problems after a Hurricane. Of course, this sample does not include the many people who actually stocked up, so the media does have an availability and sample bias. Obviously, the people who line up outside the gas station or convenience store after a disaster would be the ones that did not think in advance, and this could be a small percent of the population. 
So the anchor in the news room brought in an expert economist (I forget his name and affiliation) to talk about gas prices. Apparently gas prices are up to $5 a gallon in some places. So she asked the expert if such price increases were expected, and he replied that not everything can be expected during and after a disaster and that there would always be some element of the unexpected that was not prepared for. She asked him about the price increases and he said that it was because there was less supply and so prices go up and that it was all demand and supply. She did not get it. She kept hounding him about how much of it was price gouging, and going on and on about what a mess and bad situation it was. The expert said that the refineries were not like a power switch that you could turn on and expect to run immediately, and that it took time to shut them down and turn them back on again. She still did not get the supply demand part of it and said "oh so its a delivery problem". 
I was impressed with the expert who kept it to facts and basic economics and saddened at how little people understand basic economics and are unwilling to listen to experts. We do not believe the diagnosis of a medical condition made by someone who is not trained in medicine. Why do we think economists know less economics than us?

Tuesday, August 26, 2008

State Run Vs Private Enterprise

This summer I was in India. I made my travel plans through and made it very clear while booking my tickets that I was Vegetarian and would like to be served Vegetarian meals on board. My flight out to India was United Airlines to Kuwait and Kuwait Airlines to Hyderabad and my flight back was Indian Airlines (or whatever they call it now) to Kuwait and United Airlines from Kuwait. My flight out was pretty uneventful. My return flight was very significant. It was a night flight to Kuwait from Hyderabad, through Indian Airlines or whatever it is called now, and I was tired and trying to sleep and was woken up repeatedly by the cabin attendant cause he wanted to serve me food. Not only was I woken up, I was asked if I wanted non-vegetarian food, despite my dietary request at the time of ticket booking, and I was served a meal with chicken in it. I had almost eaten a third of my meal before I noticed the pieces of chicken in it and was very upset. When I pointed it out to the cabin attendant, all they could do was apologize. I was really furious with them and asked the lady to leave me alone. I think the attendants do not understand English, cause in spite of my repeated requests to be left alone, she kept nagging me asking me if I wanted something else to eat. I am terribly disappointed with Indian Airlines (not that I had too high expectations form them to begin with). The next leg of my journey through United from Kuwait to Dulles was comfortable even though I had the window seat and it was a 14 hour non-stop flight. My meals were not only vegetarian, they came with a special sign that said it was specially prepared for me based on my requests at the time of flight booking. Also, I fell asleep before their first meal service and no one woke me up to serve me food. I just asked for my meal when I woke up. 
The contrasts are stark. Customer comfort seems to be at the low end of the totem pole with Indian Airlines. That is understandable. Who are they accountable to? It is no wonder that service is seriously lacking. It was also clear with their occupancy. The flight was pretty much empty. 

The end seems in sight

As I begin my fourth year of Grad School at GMU, I am finally beginning to see the light at the end of the long tunnel. First year was just a blur of classes and exams and prelims and what not. Second year was just a blast in comparison, thinking about a variety of topics and writing short 3 page (double spaced) papers almost every week for three classes and dabbling with several ideas for the dissertation which suddenly seemed like a blue whale with a million appendages. Third year was awesome fun once the dissertation idea took shape and the appendages were chipped away and the whale took shape and began to look more like a big fish than a blue whale. Beginning fourth year, a third of the blue whale has taken shape with the other two thirds coming along finely. Grad school has been a blast and I am glad I have lasted this long to see the end in sight. If all goes according to plan the big beautiful fish should be complete by Summer next year. I am looking forward to an exciting fourth year at Grad School.  

Monday, August 11, 2008

Social Capital in the way of efficiency?

Social Capital is big in India. The amount of social capital here is simply amazing to observe. It jumped out at me initially when my parents refused to go to a local big store (which is a new concept) to do their grocery shopping. They still stick to the grocer we have been going to for 12 years. They have a personal relationship with him and he has certainly helped us when we went through a rough phase. My parents show their gratitude by taking their business to him and him alone. In fact they are even unwilling to move to a different locality, because of the social capital (grocer, vegetable and fruit vendors, local handy men, pharmacists, family doctor, domestic help, and odd people who live around here who are helpful in times of need even if their work is not up to mark) they have built in this area. The feeling is mutual as well. The local flower vendor bikes 2 Kms out of his way to bring us fresh flowers everyday. 
It is nice to see Social capital in action; however, there is also inefficiency in this system that is not weeded out through competition. It is well and good in a small society with a handful of people to rely on the local handy man who does everything from electrical to plumbing works. It helps people out initially when the society is starting, but the society needs to move out of its small bounds. The local vendor may be efficient when the next closest vendor is a few miles away, but when competition develops in the market and there are other more efficient players in the market that can get the job done cheaper and better there is no economic reason to use the services of the regular vendor. There is nothing personal in this arrangement. Just as the vendor is in the market to make money, so is the buyer to buy the best product he can afford. Especially in situations where the willingness to pay is high there is little reason to continue to pay high for poor services when better services can be gained with the same amount of money. 
My observation in India is that people are unwilling to cut the umbilical cord and make efficient choices, thus rewarding inefficiency and penalizing efficiency in the market. Social capital is indeed in the way of building efficiency in the market. This would explain why essential market services, such as plumbing, house construction, quality of grocery store goods, and such still suffer from basic failures. The ideas of help the small guy are also big in India. The common argument is that these small guys are really poor and need a helping hand from people who are better off so that they can come up in life. I am all for the humanitarian aspect of it, but not at the cost of efficiency. Many of these people are inefficient because these are the professions they have been driven to out of poverty. However, by not fining them for bad quality work the incentives for him to grow and become efficient are taken away and thus we observe this cycle of inefficiency perpetuating.

Friday, August 08, 2008

Inefficient rain planning

India is famous for monsoons. Last month I was in Delhi and lamented the lack of city planning for rains. Here is an even more personal account of the inefficiency in the building markets in India. Four years back my parents contracted with a builder to build a house. This is in Hyderabad which is notorious for heavy downpours almost everyday between June and November. So you would imagine that the weather proofing of houses is pretty much a well developed technology. Wrong! After paying the builder close to $30,000 which is a lot of money for a middle class family in India (actually its several years' salary for my dad) we find that even the most basic weather proofing has not been done on this house. Its been raining since yesterday afternoon and water is actually seeping through the walls, and dripping and pouring into the house. I never imagined something like this would happen, especially to a willing-to-pay-for-quality middle income household in India. there is no legal recourse because there are no such guarantees. I know in the US builders give guarantees for roofs, walls etc, not here no siree!! The solution is to spend $2500 out of our pocket to fix it, and it cannot be fixed until the rains stop which means we have to live in a flooding house for another 4 months. What is appalling is that this seems to be common practice, and people are ok with it. In fact the owners of the apartments in this complex are willing to defend the builder cause they believe they would have been worse off in the absence of their ownership and living in this complex.
The builder's inefficiency is what is argued as market failure by people (and an excuse for government intervention in the building markets). I believe the failure is that of the government who for years have regulated the building industry to prevent efficient small and big players to enter the market by keeping prices of building materials artificially low and norms so silly that no entrepreneur in his right mind would venture into this. The only kind the building industry has attracted is the rent seeking type who have found ample opportunity for gains. There is no market failure. There is simply information asymmetry and we have been unable to find the guys with the right experience and knowledge. Since there is sufficient competition in the market, especially since demand for housing is increasing faster than supply of qualified builders there is bound to be such problems. Knowledge is the biggest problem in this market. There is an entrepreneurial opportunity here for a firm to simply engage in collecting knowledge about efficient builders and sell it to potential home owners for a fee, something like the CARFAX report. There are so much profits to be made in this market. But yeah! Until then we have to contend with a market that is inefficient due to knowledge problems and political intervention.

Sunday, August 03, 2008

What a joke!!!

This morning, I was looking for online resources for some of the data I am working on. I stumbled on a labour department portal which acts as a one point resource for other state labour department websites in India. For a second I thought a pop up advertisement had opened up, but it was the Government portal, multi coloured with flashing signs and photos. Here is the link. That is not the joke. The joke is this link here which is the FAQ page of the Kerala Labour department. Actually, even that can be considered ok. Here is a sample Q&A from the Trade Union section of the page

Q: fghgsaddd
A: ftsdadydsdds

Q: How many persons required for
making an application for Registration of a Trade Union
A: yyyyyyyyyyy
Go check it out if you do not believe me. Here is what made me roll on the floor laughing. Go to the drop down list in the Search menu in the above website, select RTE and hit search. Now, you know where to go if you forget your typing alphabets. This from a state supposed to have 100% literacy and who's next goal is to be 100% computer literate. Yippie Ki yay!

Thursday, July 31, 2008

Uncertainty in Life and Economics

Long term plans we make are all based on estimates and wild guesses and the assumption of ceteris paribus (i.e. holding other things constant). But things barely remain the same. There are so many unknowns and we adjust to them as we go along with life. The curve balls of life may throw us out of track, make us question our faith if we are religious, and lose faith in our own selves. But the bottom line is most people know (at least in the East) that there are a lot of unpredictable events in life and we need to accept them and move on. There is such wonderful economics in this. The underlying assumption is that of non-omniscience and adapting based on events.
Laura Rosslyn from Battlestar Galactica says it beautifully “We try to give simple explanations for complex events because it gives us a sense that we are in control when in reality we are not”. It sounds philosophical, but there is profound economics in that statement. Economic models try to simplify everything in an attempt to arrive at some sense of control over complex networks of events while reality is far removed and gives us very little control over events. For every controllable event, there are dozens that cannot be controlled, and several others that are not even observed. So believing that models are accurate predictors is a big fallacy. At best they could be modest indicators about the direction of any economic activity.
This reminds me of the ideas in Matrix Reloaded and Revolutions. Nothing is stand alone. Each person is connected to the other through a complex web and everything is a consequence of choices we make, and what is obvious to most of us is the immediate choice and nothing beyond that. Likewise even in economics what is obvious is only what is immediately observable and observed. There are several variables that are not even observed. So for example, with the US data, surveys collect data on mean commuting time in different cities. The data needs to be adjusted based on cities. Commuting time in Lincoln NE will be completely different from that of New York City. Trying to make a comparison between such raw data would be meaningless.
Going back to unpredictable events, once we accept that things may not always go according to plan, economic decisions would have alternative plans and arrangements or even bail-out arrangements. Once uncertainty is included in economic models things become much easier to plan for. It is surprising that people do not see the connection between planning for their own lives and that of the economy. People make contingency plans for school admission, personal financial planning and such. Why do they not think in terms of unpredictability of economic events and complexity of economic models. I think Laura Rosslyn hit the nail on the head with her statement (above) that making things simple gives people a sense of control which does not exist if they believe in the complexity of economic variables and models. However, the truth is that, how much ever we model we do not dictate the course of the economy, and even if we did have temporary measures there would be consequences for every action. Newton’s third law always bears out. At best we can build a storm shelter, but the storm does rage on outside with or without our knowledge.

Monday, July 28, 2008

Lack of Foresight

OK! So, Everyone knows about monsoons in India. In fact the term itself represents heavy rains. It has been over 60s years since Independence, and even now when it rains we have to wade and swim in water to go where we need to, and this even in big cities like New Delhi. Imagine the plight of smaller more remote places. I know governments fail in delivery, especially successive Indian governments have failed to deliver on the rain water drainage front for more than 60 years now. Two weeks back when I was in Delhi, whole areas were water logged and traffic came to a stand still. Today in Ahmedabad, even within campus I am annoyed that I have to wade through ankle deep water to get to anyplace. I am relatively well off by being on campus, can't even begin to imagine the plight of those that live off campus and have to drive or take public transport to work. Responses to problems are knee-jerk rather than calculated and strategic, and the solution to one problem leads to problems elsewhere.
Take the Delhi metro construction for example. The idea is good that they are planning a metro to ease congestion and meet the demands of the growing population. However, the metro sites and planners seem to have grossly overlooked the fact that already congested roads are squeezed even tighter when the construction of the metro line implies that one side of the road is completely closed to traffic, thereby channeling two sides of traffic on a single lane and choking the roads. In addition, they have not planned for the monsoon season. Digging up roads has made the thoroughfare loamy and when it rains the areas are practically impassable due to water logging. Here in Ahmedabad as well, just outside of campus, a huge section of the road completely collapsed. It had been under some construction project, aka dug up! There is a complete lack of foresight with everything. Cities were not planned for population increases and all of this due to some romantic notion that people would prefer to stay in villages and not migrate from the rustic settings. Grrrr!! When mega cities are thought of by corporates, the politicians are afraid they will lose their rents and the bureaucrats are afraid they will lose their power and thus rents and so they stall the projects stating all kinds of silly reasons. After all the politicians and bureaucrats will lose their rents if people become richer in India. They have to be kept poor and divided along class and caste lines for the former to have the upper hand.
Neither does the government do a good job, nor does it want it give the job to private guys who will do a good job. The saddest part of all of this is that in spite of being a democracy people can do nothing about it in India. People do show their displeasure with regimes during elections, but the choice is after all between the frying pan and the fire.

Sunday, July 27, 2008

Economic Growth Vs Bomb Blasts

Does greater economic growth imply fewer bomb blasts? I have been thinking about this ever since I started graduate school three years ago. As a Sociology major in undergrad I was taught theories that said that people were driven to a life of crime because they were poor and uneducated. So, they were forced to a life of crime beginning with petty theft to satiate hunger and pretty soon move on to bigger crimes. I have also heard this logic elsewhere about Islamic terrorists that fundamental groups target vulnerable young men and brainwash them into committing acts of terrorism and make them believe fanatical ideas. If we remove the poor economic conditions of these people through growth will there be crime no longer? So, if there is overall economic growth especially in these impoverished pockets where crime is rampant will that drive crime away? I do not see a major connection between education and terrorism at least. The marginal thief is maybe one who was forced by poverty into thieving, but recent acts of terrorism across the world have revealed that the perpetrators are well educated individuals who even have socially respectable lives. This also negates the poverty theory. 
I can understand the power of deep rooted convictions. I have been butting heads with several highly intelligent people with misguided ideas that communism is a success, so I can understand the role of persuasive but wrong ideas and ideology. However, I do think to some extent at least full stomachs can be less easily persuaded by ideas of suicide bombings than empty stomachs. It would be even better if the full stomach and other purchasing power comes in the form of reward for hard work. That way, one is not indebted to the provider. Maybe economic growth is the solution to the bomb blasts and other such violence in India and other developing countries. So! Full steam ahead in the war against terrorism, let markets rule!! As for such acts in already developed countries, I do not have an answer. Even the solution of markets I think is just a partial solution. I am not advocating an all out state sponsored war against terror or anything like that. I just believe that when individuals' lives are intertwined economically, and they are aware of the network connection, it would be in their self-interest to ensure that no harm comes to the trading partner. I know its a simplified model, but hey! its somewhat better than the model of perfect competition we read in micro. 

Friday, July 25, 2008

Markets in everything

If you believe your blog posts are being plagiarized here is a way to find out. Not only does Copyscape provide some free service, they also have a premium paid service based on your needs. Now! This is a wonderful way markets think of everything. I am pleased because, the last few days I have heard enough market bashing and how individual entrepreneurs do not act on opportunities unless the government bangs their heads together and forces them to work together to benefit everyone. I am very happy to see that entrepreneurs always find profit opportunities without the state breathing down their necks. Besides, how else can spurious discoveries be made? Ah! I love markets. 

Hattip:  Sudipta through Deesha

Thursday, July 24, 2008

Where are all those numbers?

The past couple of months I have been in India working on my dissertation. Part of my efforts have been towards finding good quality data and trying to reconcile numbers. What I keep stumbling upon is the 3% hindu rate of growth (real) which was the norm until the late 80s. My committe, at my presentation in April, was surprised that we call this a low growth rate and urged me to dig deeper. Have been at it since then and what I find is that source after source quotes the same numbers, and it just does not make sense to me. If I simply go by OLS (Optical Least Squares) it does not seem possible that suddenly in the 90s, hitherto absent entrepreneurship suddenly presented itself  to take the country to close to 9% real growth rate. The problem with many transitioning economies is that, as soon as they embrace free market ideas, they do not really do that well cause the required institutions are not present. This has not happened in India. Much as the popular press and politicians like to lament growing poverty in India, absolute poverty rates have actually gone down from close to 50% at Independence to about 26% now. I am not saying that's trivial. Indeed 26% of a billion plus people is a staggering number, but it needs to be noted that it is not half a billion but about a quarter which is a significant achievement for a developing country like India.
My dilemma right now is this. Firstly, if the 3% is an over-estimate and there are problems of measurement, how did the capacity to go upto 9% suddenly emerge in the last two decades or so? The best guess is that it was all underground and outside of the legal structure thanks to onerous policies and regulations. Some estimates say that the black economy in India is as big as the legitimate sector. I am inclined to believe those numbers although I do not know how these numbers can be validated or verified. One pointer would be the revenues from Voluntary Income Disclosure Scheme of 1997. Close to Rs.336.9732 billion was declared as previously unreported income and Rs.97.2902 billion was paid as taxes on the above income. That is quite significant, however it is not considered very significant compared to actual volumes of black money in the economy. If all of this is true then why was the poverty rate close to 50% and not closer to 25% or even lower? Were the poverty estimates also so wrong all along? 
On the other hand, if the 3% is an under-estimate, where was all the true prosperity these past few decades? Even if income estimates do not show it, people's lifestyles and consumption patterns would show it. Agreed there were several controls on all kinds of consumption goods, many of them were not even produced. If entrepreneurs made money what did they do with all the money? I guess a 94% peak marginal tax takes care of some and the rest goes underground into numbered untraceable accounts. I wonder how much gold hoarding existed, especially since people could not openly consume more. There were also gold import restrictions. Here is a real puzzle! How do we reconcile India's growth numbers from the past??

Thursday, July 10, 2008

Incentives as usual

I am staying on campus at this place that is essentially run by the Central Government. Although, the academics is mostly without government interference there is a huge bureaucracy here that reeks government management. Let me take the simplest case of the lady who is in-charge of housekeeping activities in my dorm. She is responsible for 5 floors of rooms (about 30 rooms) and bathrooms. Each room is about 8x10 and each floor has 2 lavatories and 2 shower stalls. This lady is supposed to sweep and mop every room and clean the bathrooms everyday. It takes about 5 minutes to sweep and mop a room, and she has a small register occupants are supposed to date and sign. I have been here about a month now and the bathrooms have been dirty all through. Although she is given cleaning supplies, she barely uses them and cursorily pours water all over the place to make it seem clean. The very first day, she walks into my room and even before she begins to clean, asks for a bribe shamelessly. This morning she asked me to give her clothes for her daughter. Complaints to the management are no use, because the worst is that she gets a scolding. There is no incentive for her to work. 
As a Central government employee she has job security, pension and other benefits, none of which are tied to her work. Whether she does her job or not, she cannot get fired and since she knows she has a job for life she does not really care and shirks on the job. Since Independence at least, a government job has been the most coveted one especially for these reasons. It is as good as unemployment insurance schemes where individuals are paid to remain jobless. In addition they have learned to seek bribes and ask for them openly without any shame. If I refuse to give a bribe to this lady, I am called cruel and lacking in humanitarian values, especially because she is poor and needs our help. C'mon already! She shows me a glossy picture album of her daughter's wedding and tells me there is a DVD as well if I want to see it. Lets even assume that she is in debt cause of the wedding expenses, why does that obligate me to pay her a bribe? I am more than willing to give her a cash gift if she does extraordinary on her job. She is not even doing her job much less do something over and above to make me reward her for her efforts. On the contrary she is inconveniencing me by not working, cause I am having to maintain my sense of cleanliness by cleaning the bathrooms for myself at least. 
Give them incentives to work please!! 

Monday, July 07, 2008

Why does a Coasian bargain not work here?

The last few days I have been staying at the dorms in the premier management school of the country. In addition to being an outsider in the very personal social structure of this campus, I have been facing problems due to simple externalities. A girl next door likes to play very loud music beginning midnight going on until 2am or 3am. In addition, this campus (like several campuses across India) comes alive only at night, i.e., group meetings and socializations happen mostly in the middle of the night, which is in itself surprising cause classes start at 845am at least for the first years. So, at the time when the rest of the world goes to sleep, these dorms are abuzz with activity. Actually abuzz with activity is an understatement as citizens of this closed community are prone to random loud group chants and blood curdling yells (I am not exaggerating) in the middle of the night. These are also externalities; however let me go back to my initial point about the loud music in the middle of the night. As individuals have single rooms and pay for them, I am guessing private property exists. No amount of requesting and complaining seems to mitigate the problem of loud music in the middle of the night. My very humble request was met with a rude “The music will be on for another couple of hours until I am up”, and the girl walked away. How do you approach anything like a Coasian bargain in this situation? What rewards can I offer in return for some quiet in the nights? Right now in sheer frustration I am forced to judge this person as being deficient in some basic manners and etiquette. There must be an economic solution to this situation besides legal enforcement (not that I have much to go in the way of legal recourse). I have been sleep deprived ever since I got here and do not think I can go any longer and be my usual productive self.

Friday, July 04, 2008

It takes various iterations....

.. to force alien concepts upon reluctant minds. I am understanding the real meaning of this statement that Pete makes all the time. The past few weeks in India, I have managed to increase my Blood Pressure every time I engage in any kind of conversation with anyone on any topic or issue that is even remotely connected to Economics. I have managed to get a sore throat, a head ache and a general sinking feeling. I am willing to argue my points of view with intelligent people who hold valid criticisms and questions about the efficacy of markets. In such instances all I need to do is point out that governments also suffer from the same problems and they accept my point and we have an enjoyable discussion, each holding out own position, while disagreeing with the other's. The problem is with those that are sure they and the government are always right. The problem is that academics (barring a few) are also very heavily left leaning and hence discussions are always about market failure. 

I cannot understand how people can support an anti-market stance even after they observe how much more richer we are since liberalization in the early 90s. For close to 50 years most people of the country were poor. Now there are fewer poor people, sure there are inequalities, those are observed in all transitioning countries. The only reason the poor of India seem very poor is because there are more richer people now, while in the past there were probably a handful rich ones. I do not deny that the ground realities are still such that there are millions of poor people in India. People seem to think that blocking private enterprise will make more money available to the poor. What they do not see is that private industry and competition have increased per capita income in spite of the population being over a billion and that several people have successfully transitioned out of poverty or lower class to at least middle class.  

Saturday, June 28, 2008

Entrepreneurs get it!!

Yesterday, I was part of an informal session with some very successful entrepreneurs who graduated from IIM-A, the premier business school in India. Among the panel were the guys who have made and (by the way, I always book my Indian trips with makemytrip) successful. My question to them was how they got around government regulation and procedures and if as a start up they needed to invest heavily in a person or a team that deals exclusively with government agencies. The answer from several entrepreneurs in the crowd was that they avoided dealing with the government as much as possible. Traditional manufacturing requires a lot of interaction with the government. There is not so much involvement in the services sector. If there was a requirement for long term presence in the market such as would require government agencies, then they would plan to invest in such capital. A young entrepreneur who graduated last year mentioned that when it comes to start ups it is better to handle all accounts yourself or give it to a partner who you trust. It does not help to delegate in this area. Seems like these successes are in-spite of the government and entrepreneurs find a way. 
The other idea that kept coming up was spontaneous order, and that entrepreneurship follows a spontaneous order system. Well! They did not exactly use this term, but they did say it evolves and goes in different directions. Spurious discoveries are also something that seem to be very common. All of this goes to say that the Kirznerian entrepreneur is very much relevant to today's discussion, and Hayek's ideas are very much alive with the entrepreneurial community, even if they do not know these names and the theories these academics expounded. 
I had a chance to talk to a couple of entrepreneurs who were seated next to me. These were seasoned guys and they got the incentives idea right. One of the gentlemen told me, "there is no such thing as an honest or a dishonest man. People react and respond to situations. If the rules are such that you will not get your work done without a bribe, people bribe, otherwise they won't". He knew economics and this was a guy who had never been to a B school or done any professional course. He understood the power and relevance of incentives. All of the entrepreneurs I talked to yesterday had sound economic principles and knew public choice, even if they had not heard of public choice or Buchanan or Tullock. They had the ideas right!!
Hats off to you guys! Indian Entrepreneurs Rock!!!

Thursday, June 12, 2008

Wake up and smell the Drains!!

In the three weeks or so that I have been in India I have been seeing one ridiculous news report after another and even more ridiculous responses from public officials and local groups. Take the example of this poor newsman. All he did was point out that the government had better things to do, such as concentrate on infrastructure development, than spend money on million dollar projects to erect a statue to a long dead 17th century King. The editor's house was ransacked by local activists who accused him of tarnishing the image of a hero. Whatever happened to press freedom, and where are all the reporters covering this infringement of individual freedoms guaranteed by the constitution? They are all busy fanning the flames of this case, which is equally ridiculous in how politicized it has become. 

Another self-styled group has filed a case against a South Indian actress, because she apparently showed disrespect to a Hindu Goddess. A couple of years back there was case filed against her because she openly talked about pre-marital sex and suggested contraceptive use to prevent AIDS and other diseases. The ridiculousness of the priorities of the citizens (both political and otherwise) is simply staggering. 

Even more ridiculous is the reaction of Mumbai government to this recent monsoon season advisory for US citizens in India. This notice has been used to bash the US some more by people who are even more ridiculous than politicians

While the country is gearing up for the monsoon season, overflowing drains and everything the US Embassy advisory states, politicians would want us to believe that they smell of roses and others are tarnishing their image. Isn't it time at least for the educated to take media and political reports with a pinch of salt if not a pillar!!

Tuesday, June 10, 2008

We are one of the top Econ programs

I am proud to be a student at GMU. I have always been proud of our Econ department, now more than ever. We are ranked above Texas A&M and UC-Irvine which is an amazing achievement. Overall we stand at #41 in the US and 3rd in Methodology and History of Economic Thought, the latter is my favourite hobby as a Grad student. The link to Don Boudreaux's e-mail is here. I have constantly defended the merits of a GMU Econ degree, and have been challenged to show proof that we are good. Here is the proof as others require it, in terms of a ranking. However, I must say that we have a very good placement, research and publishing record even without a ranking and even for us Austrians who are constantly asked to prove ourselves. I am proud to be a GMU Econ grad with Austrian leanings. 

RIP Sudha Shenoy

Our dear Sudha passed away last week. I just heard about it and it really saddens me. I had the wonderful opportunity to not only meet her and talk to her, but have dinner with her on two occasions where she regaled me and my friend with lovely stories about her experiences growing up in India with her father Dr.B.R.Shenoy and as a young student in UK. I had no clue she was sick. Sick or old, her mind was as sharp as any young student's. One of the funniest stories she told us was her experience at a Mont Pelerin Society meeting. One evening after the meeting the group decided to watch a play in the local theatre. In one scene, the actor on stage spouted some dialogue about the 'invisible hand working', and our group of scholars roared into applause and a standing ovation. The poor actor apparently had no clue what was brilliant about that part of the play, and would have been disappointed the next day when he did not receive the same reception to his rendition of the invisible hand. I learned from her about her father's battle with Indian Planners, and how his ideas and experiences shaped her own. She was a wonderful woman, who has taught me to me tenacious even in the face of criticism and non-acceptance from everyone around you. She remains a role model to me. The libertarian and Austrian movement will sorely miss you Sudha. 

Tuesday, April 29, 2008

Another little step

Yesterday I defended my dissertation proposal in front of my committee and they decided that it was good enough for me to move to the next stage of my Graduate Career. I have now almost advanced to candidacy. What it means is that my Committee has signed a form which needs to go through the appropriate channels to be approved. It will be official once it has several signatures from people across campus. Last year this time, I would not have imagined this. Things just fell into place this academic year. This achievement would not have been possible without the support of my committee who kept pushing me to work harder. It is the culmination of work that started as an amoeba of an idea last summer. The road ahead is still long but now at least the end is in sight and I am hopeful of successfully getting my PhD.

Tuesday, April 22, 2008

March your way into a Totalitarian State!!

What next! The Government telling me how many kids I can have and what kind of cars, clothes and food I should consume. There is a law requiring all Television signals to switch to Digital in February 2009. I am surprised there is no outrage against this law which is a direct infringement of individual and business choices to the kind of signal they want to transmit and receive. This morning I read another really alarming news item. Apparently car manufacturers will be required to conform to a minimum 31 miles per gallon fuel efficiency norm. Read the story here. This is because the Bush Administration is concerned about global warming and rising fuel prices. For a country that values individual freedom America is the land with an alarming number of such silly laws and regulation restricting individual choice. It is becoming a totalitarian economy where everything has to conform to the laws laid down by the government. Americans are giving up their hard earned freedom to the government and not even realizing it.

Thursday, February 07, 2008

World Growth

This is a great video presentation of World Economies Growth data. He has very good presentation skills and knows how to keep his audience engaged. However, I do not agree with some of his suggestions about making data free. There ain't no such thing as a free lunch!! Enjoy the presentation.

Wednesday, February 06, 2008

GMU style humour

No diet will remove all the fat from
your body because the brain is entirely
fat. Without a brain, you might look
good, but all you could do is run for
public office. --George Bernard Shaw

Monday, February 04, 2008

Choice of Economic Systems

I have been reading a lot of articles and books on communism and communist states these past few months. It is strange that in many instances where a higher quality of life is observed, people try to explain those variables as a result of communist government intervention, while they neglect to think about the causes for the low income levels in these regions. It is certainly laudable that these regions have high social indicators (if the official statistics are correct), but isn't it as important to find out why they are doing badly on economic indicators. Is it sufficient that people are more literate when they are dirt poor?

There is something missing in this equation, and I do want to know what. I am also extremely skeptical about aggregate numbers on well being. Aggregates hide a lot of regional differences. Means distort the differences between the highs and the lows. What is true is that all ships rise in a rising tide (Buchanan analogy), that is precisely why even the poor in America are better fed than the poor in India. Please do not tell me that the poor in India are happier. That is not true! Happiness is a relative term that has no measurement standard. Interpersonal measurement comparisons can just not be made objectively with happiness as a measure. It is easy to romanticize the notion of an agrarian economy. One crop failure in such areas is sufficient to induce famine like conditions and acute poverty. Besides, these people endure hard labour under harsher conditions to get that one 'earth grown' and 'self grown' meal.

If communism is indeed good and has lead to better health and literacy in these regions, why hasn't it reduced poverty or lead to higher incomes? Or is the ideal of communism to keep everyone equally poor but well read?

Saturday, February 02, 2008

One little step

I am finally ABD (All But Dissertation). I have taken all written exams possible, completed all course work, and at this juncture just need to write my dissertation which will take approximately eighteen months if I consistently apply the seat of my pants to the seat of my chair and write every single day. My committee is unofficially setup and I have been working closely with at least two of them the last six months to come up with a well written dissertation proposal. I am very proud of myself that I have been focused in my pursuits and have single mindedly applied myself to the pursuit of my dreams. I am proud that I do not have to hide behind excuses or have to explain my lack of progress to anyone. I will not say that I did not have my doubts around the same time last year. However, tenaciousness has shown results beyond my expectations and I believe even strongly now that hard work always produces results. I intend to plough on, to be torn apart at every Graduate Student Paper Workshop, so that I have a chance to take my papers to the highest level necessary for publication. I have learned that papers do not write themselves overnight. You need to work and rework them several times before they are even passable. But it is only practice that makes perfect and I am glad to say I am getting there through a tatonement process as a true Hayekian and Misesian. In the process I am getting better at editing my papers as well, and I am very happy that becoming ABD has coincided with my writing improvements.

Sunday, January 27, 2008

Will Keynesianism ever die?

There is a bad tendency in Politics for long disproven ideas to remain fermenting. Latest in that set is the Economic Stimulus package. Where is the money going to come from? Yours and my tax or by inflating the economy. The Economics Profession moved away from Keynesian theories in the 80s after the whole episode of Stagflation, but Keynesian ideas are still prevalent in government. Of course, it is a populist move to give people money back or just cheques. Its called redistribution. A modern day Robin Hood. Why does the government want to do it? Cause of ideas rooted in Keynesianism that consumption is the most important aspect of national income. how does it work? Through the multiplier of course silly!! That wonderful 1/(1-b) in the equation. Stimulate people to consume more and there will be more income as a consequence. After all these years, the simple law of unintended consequences seems to evade even Harvard educated politicians. Just because you anticipate certain results does not imply you will get the same results. I wonder if these ideas will ever die out or become unpopular?

Markets in Marriage

Westerners are slowly opening up to the idea of online dating and matchmaking by professionals. They should take a leaf out of Indian arranged marriages. For ages the marriage market has been a very efficient market working through grapevine and social and family connections. In India, one of the first innovations due to the internet was professional matrimonial websites, and we have had those working beautifully since the mid 90s. Especially these days since many young Indians are abroad while their parents are still in India. All you need to put up a profile on line and look for matches online. The guy and gal look at profiles, and talk to each other or even meet each other while they live and work or study in the country of their choice and the parents can meet and work out the details in India. Decentralized!! Its worked efficiently for so long. Another amazing proof that there are markets in everything and that they work very well without a central planner. huzzah for markets!!