Desi Libertarian

What Your Credit Card Won't Let You buy

2011-06-02T11:35:00.000-04:00

There is an article in the WSJ by the same title which talks about Am Ex and other credit card companies preventing people from using their cards to purchase medical marijuana. Here's a blurb

Companies say they're protecting themselves against legal risk, but critics say this kind of corporate policy is an inconvenience for merchants, infringes on consumers' rights and amounts to moral policy-setting. "You ought to be able to use a credit card for any legal purchase," says John M. Simpson from the non-profit Consumer Watchdog. "It seems to me that credit card companies are imposing their moral values on the world."

What I do not understand is Mr.Simpson's premise that its not ok for private companies to impose their moral values on the world. However individuals in governments constantly impose their moral codes on the public through legislation banning certain market transactions. How come that is ok? Why should a private company be coerced into a transaction it does not choose to participate in? In this case rightly so, because they are not sure about the legal ramifications of such transactions.

Law of Unintended Consequences

2010-09-10T06:58:00.000-04:00

This Fall I am teaching two Intro Macro classes. This would be the students' first Econ class, so I am covering basic Micro Principles as well. Last week we talked at length about Unintended Consequences and I think my students get the idea. Here is a piece from the WSJ that gives some more examples. I must say, I never thought about smoking rules and obesity as having some correlation. My classes will be reading Freakonomics next week and we will also see the movie in late October and have a discussion on it.

Outsourcing and Indian companies

2010-09-08T11:53:00.000-04:00

Today's main tech news in Indian news outlets is that Indian IT companies are fuming over Ohio state ban on using public funds on outsourcing. Apparently Indian IT companies are crying foul over this proposed idea. For over 50 years, and continuing on to today, Indian government money is not spent abroad is it? So, why is it wrong that US state government decided not to use its tax-payers money on services outside the country? What is good for the goose is bad for the gander eh! How come this policy is trade protection, and 50 years and continued harrassment of entrepreneurs trying to legitimately import into or export from India is not trade protection. In six years of living abroad, the Indian government has banned the exports of lentils and other items from India at least 6 times due to a domestic shortage. Is that not trade protection? Why should the US give any special status to India. Besides, this policy only bans public funds from being used for outsourcing. If a private entrepreneur wants to outsource with her own funds, the Ohio state does not ban it. I find such holier-than-thou attitudes in India ridiculous. Incidentally, a simple google search does not show any US news outlets running this story, so I am already pretty suspect of the source and content of these reports in India. A policy such as this ban as touted by the Indian news outlets, would be big news. Besides, I am in Ohio right now, and see nothing even in the local newspapers.

A Year Without Made in China by Sara Bongiorni

2010-08-06T11:03:00.000-04:00

The last few weeks, I have been researching books to use in my International Trade class this Fall. I wanted to assign my students one fun book to read in addition to the main text that we will be using in class. While browsing through the Trade isle in my local public library I came across this interesting title. Since I have seen A Day without a Mexican, I thought this might be on similar lines. It was large print and not very big, so I thought I would read it in a few hours and see it was suitable for my class. The first two chapters seemed like they were going to lead up to China bashing. I was not happy that the author did not like WalMart. However, she was at least taking a stance and boycotting it, which was refreshingly different from most WalMart bashers, who eventually end up shopping there anyway.

In any case, the book is written in a fun conversational way, and is a simple sociological experiment by one family to avoid purchasing things Made in China for a year. Gifts were an exception. In the process, they realise that a lot of the common everyday products that they purchased were Made in China. In many cases there were no substitutes available and when they were available they were either expensive or did not meet the expected standards or both. There were times in the book where the author talks about a complete meltdown and China dominating the world in the future. However, she wraps up the experiment somewhat objectively by noting that globalization is indeed here to stay and helped her get the products she wanted.

The narrative is clean and easy to read. Its easy to empathize with the author as you read along and that I think is powerful. If you haven't read it, I recommend it highly. I am using this book as additional reading in my class.

Conspiracy Theories and Logic of Collective Action

2010-05-28T13:02:00.000-04:00

Recently, I received an e-mail forward that claimed that 9/11 was a conspiracy hatched by the US government and its agencies. It urged me to follow a link that had irrevocable evidence to the fact. I prudently deleted the email, and did not follow the link. However, I think understanding economics and the power of incentives leads me to dismiss any such conspiracy theories. If we look at the number of scandals that have been breaking out in recent years, it is far fetched to believe that a large group of people can keep their mouth shut for long periods of time. Mancur Olson argued in the Logic of Collective Action that unless the number of individuals was small, or there was coercive force, a group of individuals cannot be persuaded to act in their collective interest. Assuming, a conspiracy as big as 9/11 would have involved hundreds of people, I do not think it would be possible to swear them all to an oath of secrecy. I do not think so many citizens would be willing to kill thousands of their own. Yes! There are individual murderers, but its beyond imagination that so many American citizens would want their own dead. Even with genocide and terrorism it is a targeted population outside the social group of the attacker, and we may say that some of the prejudices that individuals held are fuelled by a persuasive leader. However, 9/11 affected a diverse group of people of different nationalities (primarily US citizens), ethnicities, religions, and trades. Even if some of the people involved in the conspiracy had a general prejudice I doubt that hundreds or even dozens of people would have held similar beliefs. Logically, to me, it does not seem possible that 9/11 was a conspiracy hatched by someone in the US government against their own citizens. It was a terrorist attack hatched by some fanatics.

EPIC Recession

2010-05-27T18:14:00.000-04:00

"EPIC RECESSION: Prelude to Global Depression" is the name of the new book by Dr.Jack Rasmus. I had the opportunity to listen to his talk about the book yesterday. I have not had a chance to read the book yet, but here are some of my observations from the seminar presentation. Dr. Rasmus's conclusion is that similar to the recession in 1907 and the Great Depression, the current recession as well was driven by increases in the money sector without commensurate increases in the real sector. He has a good historical section where he discussed the shift in economic research from the causes of the Great Depression to the solutions to it. He highlighted that Keynes's earlier research was on the causes of the Great Depression. He also mentioned that Irving Fisher discussed at length the speculatory causes of the recession and subsequent depression. However, I was disappointed that there was no mention of F.A.Hayek, who had published Monetary Theory and the Trade Cycle in 1933. My understanding is that F.A.Hayek, and others who have expanded on the Austrian Business Cycle Theory have an existing explanation for these credit expansion lead recessions. In addition, I believe there was some kind of debate between Hayek and Keynes around that time. Hopefully, some of that stuff is in the book and did not make it to the presentation. His explanation was very reminiscent of the Austrian Business Cycle Theory, even though he did not use the title to identify it as such. I do not agree with his solutions of increased fiscal expenditure to move out of the current crisis. Especially, some of his recommendation on nationalising consumer credit markets and re-unionising private sector work force would only lead to long-term economic crisis in my opinion. His solutions aside, I think the credit expansion explanation of economic crises would be an interesting addition to existing literature. I am looking forward to reading the book.

Priorities: Opportunity Costs

2010-05-20T11:05:00.000-04:00

My friend recently found out (quite by accident) that the apartment complex he lived in has stopped their nightly Security Patrol of the grounds due to cost cutting measures. Their apartment is in a pretty safe neighbourhood but recently they had begun to notice strange men in the compound late in the evening and decided to complain to the management, and that is when they found out that the security patrol had been stopped. My friend was indignant that they were not informed about the security patrol. Moreover, he complained to me that the apartment management was simply fattening their profits by removing essential services. It made him angrier still that the apartment complex was spending money to dig up and rebuild a perfectly good pool side.

While I agree with him that the apartment management should have informed the residents about cancelling the Security Patrol, and I personally would prefer the Security Patrol over renovations to the pool, I am not sure his economic reasoning is entirely correct. The apartment management may be cash strapped and unable to pay a recurring amount every month to the Security Agency; however, they may still have funds to perform one time modifications to the pool area. Since the management does not guarantee any security, and the lease states that renters are responsible for their belongings, I am not sure they could be held liable. Besides, other residents may have shown a preference for a better pool area.

My friend, nevertheless acted exactly how consumers respond in a market: he put in his notice to vacate and is moving to a gated community. His priorities are security, and he responded to the situation aptly. For him, the opportunity cost of the extra rent he would pay (33% higher than earlier) in the gated community is less than that of not having a security patrol. This is another example of consumers in the market constantly take decisions based on their opportunity costs, only we call it priorities instead of opportunity costs.

Zone based growth

2010-05-17T09:58:00.000-04:00

My current research is on zone based growth in developing countries. This policy is extremely popular among politicians and bureaucrats, especially in India. The rhetoric uses examples from China to Taiwan to South Korea to show successful these policies can be. I am not so sure it can be as huge a success in India as the government departments want us to believe. Just as an extension, I looked at some studies on enterprise zone policies in the US. The results are mixed at best. I think, the enterprise zone policy can be compared to earlier zones in India. Both policies were meant to improve the conditions of regions with low growth and high unemployment. Some official reports on enterprise zones also state that their employment creation potential has been low. It just leads me to believe that it is not an easy task to firstly identify which regions have the potential to succeed and which do not, and secondly what kinds of businesses will flourish in these areas. More importantly, these policies cannot simply be transferred from one region to another. It would be good for the Central and State level politicians and bureaucrats in India to realise this quickly and just let growth happen zone or otherwise.

Lie to Me and Public Choice

2010-05-11T11:20:00.000-04:00

I have been watching the TV series Lie to Me (Season 1) recently and was pleasantly surprised to see that script writers seem to understand public choice. Most crime shows these days have elements to show the fight against terrorism, pedophiles being apprehended and such items where the government and its agents are the heros. Lie to Me is different. The investigating agency is a private company founded by one man who has studied facial expressions for decades and can solve crimes by telling if the person he is talking to is lying. The most interesting part to me is not how he solves the crimes, but who gets implicated in the end. In at least two episodes, they reveal corrupt bureaucrats and politicians who caused people to die.

The bureaucrat in the immigration office uses his power to grant Visa extensions to aliens and uses them in an illegal surrogacy racket. One of the characters talks about how long and expensive formal surrogacy procedures are which is why she chose the cheaper side-market. That I think is a wonderful explanation of how well-intended regulations go awry all the time. In another episode, the Mayor of the city anonymously bribes the city engineer to clear a site without inspecting for Methane under the building site which leads to an explosion killing some people. Her reasoning was that she needed the factory to be built to bring in jobs to the town where several people were unemployed. Here again we see a person in power, pushing her own agenda not only with the bribe to forgo inspection of the site, but through licensing and zoning laws. She admits that she used the latter two methods to force the company to hire more people than they needed.

I am skeptical about claims of lie detection using facial expressions, because I think there are too many personal variables that cannot be objectively measured; however, this series (at least as far as I have seen it) understands Economics and more importantly Public Choice better than other TV series I have seen. I already have a few ideas to use some of these clips in my classroom exercises when I teach Public Choice.

Blog Comments

2009-09-22T07:14:00.000-04:00

I have a policy not to respond to comments in the comments section. Its not because I do not care about the opinions of others (I do that is why I have comments), its just because sometimes it could lead to a lengthy debate on the comments section, which I would like to avoid. However, I do want to respond to your comments, and seems like my blog readership has gone past my known group of family and friends (which is really flattering). So, I request comment writers to leave a valid email address where I can reply to your comments, until I figure out a better way to do this. Thank You all for your interest in my blog.

Colonial History of India

2009-09-19T09:47:00.000-04:00

History in general and Economic History in particular fascinate me. I enjoy reading historical narratives, especially Indian Economic Historical narratives. However, every time I read these I also end up being frustrated at the contradictions, lack of triangulated evidence and statements that do not make economic sense. The most common story I read is that the British followed Laissez-faire policy and did nothing towards protecting against adverse trade in India, and that is why India is so poor. The second common story is that the British exploited India, forced raw material export from, and manufactured goods import into India. Here are some questions I have with these claims:

If the British followed laissez-faire policy and did nothing to protect trade, then it should have affected Britain also. To the contrary, if they had policies that ensured that british merchants who traded with India had subsidies and special privileges then that is not laissez-faire policy. That is domestic industry protection!!
Secondly, how can they force Indian merchants to sell abroad or export? After all if these traders were getting a better price domestically they would have sold it domestically right? Even if there were middle-men that bought cheap from domestic traders and arbitraged it higher to the export market, the domestic traders would not have traded at a price lower than what they would have received for it domestically right!! How is that forcing them or making them worse off? What am I missing in this line of thought?
Thirdly, the other side of the export argument which is the forced to import manufactured material from England and that forced local hand loom sector to die. Again, I would imagine industrial manufactured items have a higher value added that the textile manufactured by the local weaver with his hand loom. So, imported textile would be more expensive that the local textile. If the population was poor how could they afford it, except for the few elite who had the money to do so? Besides, how can someone force me to buy anything except at gun point? To the best of my knowledge the British did not do that. They may have imposed taxes on all kinds of things like salt and what not, but I do not think they made people buy textiles at gun point!!

These are the most important things that have jumped at me at my current reading. I think a lot of colonial history in India is marred with nationalist attitudes. It is inevitable that the economics and politics are entwined in such a way, because when personal freedoms were at stake, individuals were willing to over-look the economic in the fight for freedom. I would do the same as well. However, when we study economic history, I think it is important to at least make the concession that part of the logic used against manufactured goods from abroad a century ago in India was nationalistic and not purely economic. There is no denying that the Indian freedom struggle deserves its place in history. But, I do think that economic historians of India should be careful about parsing out the economic and the historical/political reasons, and be able to substantiate with evidence.

Who gets the PF?

2009-08-30T07:39:00.003-04:00

Provident Fund (PF) is a form of Social Security in India. Employers and employees each contribute 12.5% of the Gross Income into this kitty, so that when the employee retires she gets the accumulated savings from her lifetime income. Casual labor is highly prevalent in India, especially in the construction industry where a good percent of the laborers are migrants who move across cities and states based on the demand. Until about 10 years ago, only salaried employees (aka those that get a pay-check once a month) were required to be enroled in the PF program. However, a decade ago, a new law was instituted (in the name of protecting contract labor) that made it mandatory for employers to start PF for casual labor as well. This is a ridiculous policy, since these employees do not have any permanent address, they are mostly illiterate and do not have bank accounts (PF funds are deposited only in bank accounts by the government at the time of maturity). Neither the laborers nor the contractors were happy with this situation and the contractors challenged the law in the courts. After 10 years of fighting, they lost. The contractors' argument (a very valid one) is that there was no way for them to track down these individuals to give them their PF when they retire. They asked the government to put in place a system to give these funds out and promised to contribute to PF once the system was in place. The government's answer.. "It is not your problem how the PF is given away. Your problem ends with depositing the funds with the government".

Of course to us economists it is obvious that these are enormous rents. Here's another twist to the story. The laborers do not care for the PF, all they care about is their money. So they have made it very clear to the employers that if their income is Rs.100, that is what they should get, not a penny less. So, the employers are doling out the entire 25% of the PF into the government kitty, and employing fewer contract labor. In addition, they create bogus employee records with the names of their current employees' family members, open accounts in their name, wait a coupla years, terminate the employee and get the money back.

What a shame and what a waste of entrepreneurial talent!!

Nuggets of Economic Wisdom

2009-08-13T15:13:00.003-04:00

I am constantly amazed at the wonderful grasp of economics the common Indian citizen has. In another wonderful conversation with my flatmate's parents, his mother demonstrated a keen grasp of the importance of incentives. We were talking about the construction boom in India and uncle told us how difficult it was to get labor to meet the demand for construction in their city Nagpur. I wondered why there was no migrant labor from North Indian states! Labor migration is common in India, and its not surprising either cause most migrants are from some of the poorest districts of the country. So it was surprising that even migrant labor was scarce these days. That is when aunty dropped this wonderful piece of information and tied it all economically. She said that the unemployed in those regions were now being awarded unemployment compensation. Thus if they were going to get money and food just to sit at home why would they migrate in search of work. I was totally amazed. Here was someone who had not had a single course in economics, who had been a house-wife all her life and yet understood economics so well!! If only the policy makers had half her economic wisdom India would become an advanced country in no time.

Property Rights in India

2009-08-12T08:22:00.004-04:00

Last night my flatmate and I were discussing Indian Economics and Politics with his parents. He mentioned a property rights case his uncle is fighting in the courts that gives a clear indication of the nature of property rights in India. His uncle owns ancestral property in a North Indian State. The property includes a house and some land around it. Since the family has moved away to live in a different city, they used the house as an occassional vacation home. A little over a decade ago, the state government approached them to rent the property. They had no plans to rent the place and so they declined the over. A year after this episode, someone visiting the village noticed that the house that was supposed to be locked up was being lived in. The person living in the house was the State High Court judge. When asked to vacate the property, he refused saying the government had given him the property. The owners have been fighting a case against the government for 12 years now. It does not seem likely that they will get their property back.

The irony is that the justice system which is supposed to arbiter such cases is party to this property rights theft. For every single progressive step the country makes, it slides down several thanks to a judicial and legislative system that exists to loot the common man of his hard earned property. It is a miracle that progress occurs in India in spite of these blatant misuses of the law and non-protection of private property.

Please stop the pollution!!

2009-08-03T06:38:00.003-04:00

Some study has shown that 70% of Calcutta residents suffer from respiratory problems, so the government has decided to ban vehicles over 15 years old. How did they establish the connection? I do not know why I am surprised! Such knee-jerk reaction is common in India. Anyone who has been to Calcutta will know that it is a highly polluted city, not different from other cities in India. One needs to be in Calcutta during the rains to appreciate the full nature of pollution due to overflowing drains causing people to wade in ankle or knee deep filthy water to get to school and work. Will they ban the rains next cause it causes so much water logging and consequent pollution? On a similar note, will someone also tell the current US administration that Cash for Clunkers is a bad economic idea. Its a classic example of applying Keynesian logic and suffering from the Broken Window Fallacy.

Rains delayed, we seek permission to die!!

2009-06-29T08:10:00.004-04:00

Those who know India know how much normal life is affected by Monsoons in the country. We are used to listening to platitudes such as agriculture is the back-bone of the country even today (agriculture contributes to less than 30% of GDP), and how agriculture is dependent on Monsoons. Every year we hear about thousands of rain starved farmers committing suicide. Either these farmers are irrational or have some kind of hereditary mental illness. For over 60 years the government has failed to provide adequate irrigation facilities, and they still believe the government will do something for them? Something is seriously wrong with them. They should all take a class in Bayesian Updating and rational behaviour.

The latest is this bunch of farmers who have requested the President to give them permission to die. One guy says he is fed up of red tapism, yet he goes back to the same government to ask for permission to die? Hmm!! What makes him think that the same red tape will make his petition move any faster than building proper irrigation systems? More importantly, what can the President do? Pray to the rain gods?

I am a Victim of racism

2009-06-26T09:30:00.002-04:00

If I follow the logic of Mizoram Chief Minister, every time people ask me if I am Indian they are being racist. No! Seriously... Here's is his logic.

You can't be serious!!

2009-06-22T07:42:00.002-04:00

India's North-East has been a contentious place since Independence. The NE states constantly complain that they have been neglected by the central government and that is why they have turned to violent methods. Here is a news item, and the logic is just completely screwy. The village was ruled by the Communist party for 30 years and they did not have any development all those years. Duh!! Sure there was no development. Communists care only about redistribution, and you guys wanted these communists to rule you, why are you complaining now? You say

I also realized that under CPM rule, we had lost the right to speak up. It was time to take a stand and speak up.

Of course you lost your freedom of speech under the communist!!
Here is the one sensible thing in the whole article

And nobody will pay tax to the government anymore.

Yes. Please stop paying taxes, and build roads yourselves. You do not have to become Maoists and bomb useless government offices. They are not going to help you anyway, so why waste precious resources buying bombs when you can use that to buy mortar to build your roads!!

Credit Card Holder Bill of Rights

2009-05-22T08:22:00.003-04:00

The new administration is all set to bring in the new credit card policy. What they do not realize is that these rules will make people more indebted than before. Here is a simple analysis of a few key points:

1. No charges when card holders spend beyond credit limit.

Hmm. Lets think about this. The limit on my card is $2000, if I spend even a $1 more than that I have to pay $35 over the limit fee. So, I constantly have a running account in my head of how much I have spent on my card. If I feel like I am reaching the $1900 mark, I stop spending, because I do not want that $35 fee. If there was no fee, I would do nothing of that sort and keep using my credit card. Isn't that just common sense?

2. Card holders need to be given at least 45 day notice before fee and finance charge increases

The card companies already do that. They give you a 2 month notice before any changes to your card take effect. I have read the fine print in my card holder agreement.

3. No arbitrary interest increases and universal charges.

Hmm. My APR goes up if the card company perceives me as a bad credit risk. It is their way of protecting their money. Its just silly to ask the money lender to keep lending you money and not impose any penalties even though the chances of you defaulting on the loan are high. It is precisely this policy that leads to bankrupt government banks.

People who do not know how to handle their money will not be better off by the government holding their hand. This is akin to saying that teenagers are risk prone so we should keep them under lock and key. That is a ridiculous idea. In the same way, these rules will only change the incentives in the credit card market. Even good credit risk people will find it more difficult to get a credit card, because the companies have no way of assessing risk through user fee and charges and APRs. So, they do not know if the person who is defaulting is doing so because he is a bad risk or because he is just taking advantage of the no penalty situation.

Stop using Chinese please!!

2009-05-20T07:42:00.003-04:00

Chinese toys, pet food and now Chinese dry-walls are leading to health concerns. One day, just for a day, people in the US should not use anything that was made in China or had components made in China. I bet you the country would stand still.

Who has the right?

2009-05-20T07:17:00.004-04:00

A couple of years ago, I saw a new item on TV where the parents of a young boy suffering from cancer refused chemotherapy and wanted to follow a more holistic method of healing. The city Social Services reported them and the parents were charged with negligence and forced to put their kid through chemo. Here is a similar case. I am not sure if its the same case. Why do the parents not have the final say in this matter? Is five years of a painful life better than two without pain? Its difficult to answer such ethical questions. What concerns me is that, the courts instead of saying "we do not have a definite solution here and are conflicted", have chosen to force the parents and penalize them. How should the law handle such cases?

Criminal Prosecution of Psychics

2009-05-18T19:42:00.003-04:00

Last night I was watching 48 Hours on TV and the show was about scammers. One segment was devoted to this Psychic out in Florida who runs a legitimate Psychic business, but who is being criminally prosecuted by the City and State for swindling her customers of thousands of dollars. One lady actually gave her a million dollars and more to help improve her life condition, but now wants to criminally prosecute the Psychic for defrauding her. What I do not understand is how someone can give away a million dollars and then accuse the other person of cheating. C'mon if you believe that Psychics can actually change your life, you gave the money voluntarily. If you did not believe they could help change anything, and still gave the money then there is something else other than rationality that motivated your behaviour. I could not believe that the courts were taking the accusations seriously.

Some Random Guy!!

2009-05-15T08:04:00.002-04:00

I moved this past monday and my colleague Jared asked me how I found this apartment, and if I knew my landlord. I said I found the place on Craigslist, and that my landlord was some random guy who had advertised a place for rent. Jared was quite taken aback that I could trust my life and possessions to some random guy online. When I first moved from Nebraska to Virginia, I found my first landlord online. I had not met her, nor did I know anything about her. I saw her ad, replied to it, and her daughter (a law student back then) drew up the lease papers, made two copies, signed both and mailed them to me, I signed both as well, kept one for my records and sent the other with the first month rent as deposit ($450). I only knew the address in Fairfax, and drove up from NE in my truck. For all I knew, they could have been axe-murderers or just simply cheats with no real address. However, when I landed I was not surprised at all, and I lived in that house for two years and have fond memories (the only reason I had to leave was cause I was going away to India and also had the housing job with on-campus living).

Of course when I moved this time, I met my landlord and made an informed decision. Sure! There are horror stories out there with Craigslist. But, the number of success stories far outnumber the horror stories. There is no regulation of Craigslist. Its a purely spontaneous creation and market run system and the measure of success is such that a young woman can go ahead and trust some random guy online advertising a house for rent. Markets Rock!!

Demand = Supply

2009-05-15T07:46:00.004-04:00

I was amused to find the following product on Buy.com. A USB beverage warmer/cooler. What a neat idea!! I do not think I would personally buy it, but apparently someone has expressed a demand for such an item given that it is in the market now. I love the market system. It gives me an enormous variety of products for every whim and fancy. This past couple of weeks I have moved twice and noticed that I have a boatload of stuff. I compared my current moves to my moves back when I was studying/working in India and realised that I never had so many things when I was in India. In fact, when I was in India everytime I moved my stuff I would have 2 medium sized moving boxes filled with my books and stuff, and a one bag for my clothes and personal items. Now, I have a small truck load of stuff. The only reason I lament having so much stuff is cause its a pain moving. Otherwise, I am glad I them because it means at some point I had a demonstrated demand for this stuff and the market supplied it for me. Markets rock!!

Spontaneous Order on Roberts Road

2009-05-13T06:53:00.004-04:00

Parking at GMU campus is expensive and a nightmare. Thus several students park in the streets around GMU. One such is on Roberts Road between Braddock Road and Tapestry. Since I have started at Mason, I observed that parking on this road has always been parallel parking. Once in a while there would be one odd car that was parked in a hurry and in a small spot would be sideways instead of parallel. Last week something extraordinary happened. Two days in a row the same car parked sideways instead of parallel. Within a couple of days the whole structure of parking on Roberts changed to sideways parking instead of parallel. No one asked those people to park sideways. It just happened. How about that spontaneous order eh!!

Enforcing Laws

2009-05-11T06:18:00.003-04:00

A couple of months ago, I met with some of my grade school friends and was trying to look for pictures of our group from back then. It was difficult to find pictures, especially with me in them because our school was very conservative and boys and girls were not allowed to be in pictures together unless it was the whole class group. I remember on school retreats we were not allowed to bring our own cameras. One of the teachers brought her camera and took requested pictures at her discretion. She would refuse to take pictures of boys and girls together. However, this one time when I was in high school we went on a weekend retreat and some of the older kids brought their own cameras and took pictures they wanted to take. Although students were not allowed to bring their personal cameras, there was no way the teachers could enforce a ban on cameras. They could not check every single item of luggage students brought with them, neither could they track every single student's moves during the weekend. So in effect the ban on personal cameras was ineffective because of a lack of enforcement.

This is true about so many Indian laws that simply have no enforcement. Even when they are enforced its the enforcer's discretion rather than rule based. In short there is very little respect for the rule of law in India. So a bunch of hoodlums can go and beat up women in a public place and get away with it. The reason is not just bad laws, but also lack of incentives to enforce them.

Right To Information

2009-05-11T06:07:00.003-04:00

India has recently enacted the Right to Information Act, which gives citizens the rights to get information from government agencies on any manner of issues as long as they do not compromise National Security. Here is an instance of RTI being successful (Hattip Amit). However, I cannot stop and applaud yet. Did Tyagi really have documents to prove that he had purchased the cow at fair price from Dubey? What incentive do the cops have to resolve such cases justly rather than just to pacify the person who filed the RTI application and make him/her withdraw so that the department is not embarrassed. If you read the story, you will notice that in both cases the police asked the citizens to either not pursue the case any further or write a letter saying the issue had been resolved. This seems like polite blackmailing to me. Sure it has kept these two police departments on their toes and has spurred them to act. But, it is their job right!! After all, we have other legislative mechanisms towards accountability in government departments, and none of them has been successful, why would we expect the RTI to be any more a success 10 years from now than any of the others written in the constitution. How soon before entrepreneurial elements discover rent seeking opportunities within the RTI?

Star Trek

2009-05-10T08:40:00.002-04:00

Back in September 1966, Captain Pike of starship Enterprise understood the implications of trade to maintain good relations. I do not know how many of you have seen The Original Season, and the Pilot episode. He suggests to the aliens that they could trade and mutually benefit. Cue to 3:00 minutes in this video for that particular insight.

Also note the championing of freedom.

Donkey Vs Elephant

2009-04-22T08:25:00.003-04:00

That voting behaviour in India has nothing to do with policies is known to everyone. Voting is just another form of political signaling. My colleague Nakul is doing some interesting work on Voter behaviour in India, and is looking at the special case of Tamil Nadu which has had only two major parties and leaders the last 3 decades or so. However, irrespective of who is in power and what their election manifesto is, business is as usual in the state. Meanwhile, what gets politicians votes in India is what mode of transport they use to arrive at the court complex to file their nominations. Here is one politician on a donkey. Here's another on an Elephant. What can I say? India is a pretty vibrant country!! :D

Most Powerful in India

2009-04-20T06:46:00.003-04:00

Business week published a list of India's most powerful 50 people. I did a quick count and about 28% of them are Politicians or Bureaucrats. The rest are Entrepreneurs, businessmen and individuals. It heartens me to see several entrepreneurs in the list!! Here is the link.

Hattip Amit Varma

Grad school colleagues

2009-04-15T06:54:00.003-04:00

I am proud to be part of the GMU tradition of grad students. Several of my batch mates and colleagues have defended their dissertation recently and their record is truly amazing. Several of them have completed their Ph.D. in four years, and none later than five years. Not only have they successfully defended, they publish in peer-reviewed journals and they also have great jobs. All these students are sympathetic to Austrian Economics. That is why I think the labeling does not matter. What matters is whether you do good economics consistently. Here they are in some chronological order. I have listed only those that I have known personally. Several more defended who I do not know personally, so I have not listed them.

Dan D'amico

Adam Martin

Emily Schaeffer

Pedro Romero

Jenny Dirmeyer

Diana Wienert

Michael Thomas (defending soon)

Jeremy Horpedahl (defending soon)

Congratulations guys!! I am proud of you and very happy for you.

Slums of India

2009-04-05T08:20:00.002-04:00

Thanks to the Oscar winning movie, the slums of India have become a much discussed topic in socials these days. In big cities like Bombay, slums, though illegal encroachments have water supply, electricity and other public goods. The reason for this is that slum-dwellers are a big vote bank, and no power-seeking politician can hope to win an election by over-looking this group. The economists' solution may be simple!! Evict them, or the government should sell the land to the highest bidder. Well!! Neither is an easy solution, and both will lead to much violence. What if they just gave the slum-dwellers titles to the encroached land? That solution is rife with problems as well. It creates perverse incentives for more slums to emerge. Most slum-dwellers, unlike popular opinion, are hard-working people. They just do not have enough resources to pay exorbitant rents in these cities. The problem thus logically goes to city laws that are unable to protect lessor and lessee. Thus, lessor's ask for a security deposit equivalent to ten months rent, which is not a small sum for low income individuals. So, to stop slums from developing and growing, cities just need to change their laws. Any other solutions?

Hershey's Krackel

2009-03-27T06:53:00.005-04:00

Where can you buy a bag of Hershey's Krackel? Just that product and nothing else in the bag. Right now, you can buy a mixed bag of mini bars with some krackel, some Mr.goodbar and proportionately more regular milk chocolate mini bars. Why would Hershey's not sell krackel in independent bags, and even in assorted bags have just a few? Here are my economic explanations:

Krackel is probably not as popular as Hershey's regular milk chocolate, aka demand for Krackel is not high enough to warrant Hershey's to make an independent bag of just Krackel
Nestle Crunch is a close substitute and probably has the higher market share

I cannot think of other economic reasons. Do you have any?

ps: I emailed Hershey's marketing department and got this reply:

Thank you for contacting The Hershey Company. Your comments about KRACKEL chocolate bar are important.

We are sorry to disappoint you, but KRACKEL chocolate bar is currently not available. This product is not being produced for nationwide retail distribution at this time and we are unable to provide you with details as to when and where you might be able to obtain this product. We apologize for any inconvenience and assure you that your comments will be shared with our Marketing Department.

Rejecta Mathematica

2009-03-20T16:54:00.003-04:00

I do not know how I stumbled onto this page, but the idea is brilliant. It is an online open access journal for Math papers that have been rejected by other peer reviewed journals. They believe that even rejected papers add value to the academic community. They even offer franchise options to other sciences to start a Rejecta journal within their academic community. This idea is great at so many levels. On a pure academic level:

It helps authors vocalize their ideas even if they are rejected by regular peer-reviewed journals
Seminal works like Tullock's 1967 article which was rejected several times before being printed in the Western Economic Journal, would probably get noticed right away

As an economic idea, what a wonderful entrepreneurial idea!! Any graduate student knows getting into the academic cliques of publishing is not an easy task. It is a rigorous time consuming process. However, I wonder if such an idea can work in Economics. From a grad student or young professor perspective, this may not be such a great signaling device. Imagine lines on your cv that state even one publication in Rejecta Economica. It could be a bad signal to potential employers or those that decide tenure. They know that your ideas have been rejected by regular peer reviewed journals.

There may be flaws in the current publishing system (what system is perfect?!), but who would make the first move to start such a journal in the first place, and even if someone did who would be bold enough to send papers to them? My guess is the first mover problem would be solved by those that have little to lose from such exposure, such as tenured professors. There would be a self-selection bias here. In addition, so many academic economists have blogs that exist as a medium to voice incomplete ideas or those that have little chance of being published or have even been rejected. The idea is cool though!!

The Economics of Vegas

2009-03-10T10:37:00.003-04:00

One of the best things about being a GMU economist is that you look at the world differently. This past week, I have been at the Annual Public Choice Society meetings in Las Vegas and several things about the local economics have intrigued me. Here is a sample:

Why is the law against public intoxication non-existent here? People can buy drinks and walk around with them on the streets and will not be arrested. How have the Casino lobbies worked this out?
Is there collusion between the different Casinos to prevent entry into the Casino market? I personally do not believe there is, but a cab driver suggested it to me and I want to know the economics behind it.
The laws against solicitation are also different here. Why and how did the lobbies work that out?
How big are the profits and rents in the adult entertainment industry? There are several things to do in Vegas and how do Casinos keep their business from eroding due to competing entertainment activities?
Every Casino and Hotel has free some free show or the other which has cost a lot of money to establish and continues to cost money to run. For example the Bellagio Fountain, the moving statues at Caesar etc. Why do they have free shows, as in what is their benefit or incentive to spend millions of $$$ to build and operate these.

I am sure there is a literature on several of these questions. It would be interesting to research the answers to the seemingly obvious and simple observations in Vegas

Beware!! Prices are falling

2009-03-01T09:03:00.004-05:00

The Times has this front page news item. It is back to Keynesian Economics again, talking about deflation and unemployment. However here is something puzzling. The article mentions that prices will be 2% to 3% lower by September compared to a year before. Let me understand this right, the private sector is freezing and cutting salaries, and prices are falling at the same time and that is a cause of concern? Remember the basic budget equation I = PxX +PyY. I is falling, Px and Py are also falling and we are terribly concerned!! I don't get the logic. I understand that falling I is not that good, and my sympathies to those who have had to take a pay cut. But when your desk gets cluttered, you clear out the mess right!! You get rid of papers you do not need anymore and this is similar here. In basic positive economic terms, we are simply economizing. No reason to lament it. On a different note, I am glad to see the article report that the Public sector is doing nothing to cut salaries, and is in fact raising salaries. What does that tell us about efficiency and business savviness in the public sector?

Did markets perfectly clear?

2009-02-18T23:17:00.004-05:00

I had one of the weirdest experiences of my life in the US today. My new basement apartment got too cold for comfort and I called Ali to take me to Walmart so I could buy a small space heater. Should have taken us about 45 minutes. We went to Best Buy, Walmart, Target the local Rite Aid and none of them had a space heater. Finally we went to Home Depot and they had the last 2 models (both without auto shut off and thermostat settings). It was extremely disappointing to not find the usual variety especially in a place like Walmart. Reminded me of my micro class from four years ago where we discussed that if markets were to clear completely then the shelves would be empty. I guess that is what happened in all these places. The market for space heaters probably cleared completely and that is why my demand was not met.

Ali the constant contrarian argued that there would have been others like me who looked for a space heater and did not find it. That is a possibility as well. The sales guy in Target actually told me that they were getting ready for Spring supplies so they would not have space heaters again until next winter and that they had run out three weeks ago. Its still winter guys!! Some of us are still battling the cold in basements, and yes this morning it was below freezing and we had snow. Who is talking about Spring in mid February?

Back to the original question. Did the market for space heaters clear perfectly? My guess is it was expensive to hold inventory for the stray purchasers like me. But really does the market for space heaters die out in the last week of January in this region? I find that strange to believe. I agree we have had a few warm spells but that does not make the cold go away completely until at least end March. What is happening to the market for space heaters?

Family Planning Incentives

2009-02-15T21:26:00.007-05:00

A couple of weeks ago, I heard someone on the radio talk about how depressing it was with this economy. He has lost his job and he was the sole provider of his family of 7 children and wife. He was angry that he was laid off and wanted the government to take some action against his former employer for firing him. As it is he was finding it very difficult to make ends meet even before he lost his job. I understand his frustration. I also understand that it would be difficult to find another job in this economy. What I fail to understand is how 7 children figured in his future plans. Children are expensive. Don't get me wrong, I love children, but they are just expensive. Baby food, diapers and supplies average about $8000 per kid for a year, or $56,000 for all 7 kids. Lets say the second year is half the expense of the first year, and that is about $28,000 for all 7 kids. Lets say after that their needs are pretty minimal; however once they finish high school even a most basic college education would cost them about $25000 (average four year private school) a year. That's about $700,000 for seven children. Lets even assume that these kids go to a public school at about $6500 a year. That is about $182,000 for seven kids. No offence meant to the guy who lost his job, but what made him not think about all these expenses?

The median pre-tax adult male income in 2007 was about $50,000, and about $35000 for women. With seven kids I can reasonably assume that his wife is a homemaker. Lets say they pay no taxes, or that all their taxes are refunded. The monthly average income is about $4100, of which lets say they pay about $1600 towards their mortgage, about $1000 toward monthly food expenses (see here for estimates, I chose the thrifty plan and doubled the family size), and about $700 for Vehicle insurance, Gasoline expenses, electricity, and other utilities. This leaves about $800 every month to squirrel away towards retirement. This is a very conservative estimate and does not include other expenses on clothes etc. I still do not see how seven kids figure in this calculation. How do you ensure a quality life for them? With fewer children, you would have fewer basic expenses, which would mean you could live in a better neighbourhood and a better school district, have more quality time with each of them and maybe even have enough to pay for part of their college expenses. The wife would even have time to work and bring in more income to the family. The average salary lost due to a child for a woman is about $25,000 per year.

There is a simple question in intermediate micro texts: With rising incomes, individuals choose to have fewer children, does that mean children are inferior goods? The answer of course is no! They are normal goods but you choose to have better quality children. I still do not understand the logic of several children in the US. It makes some sense in rural India where more children means more hands in the family farm. Middle class urban Indian households have about 2 kids on an average. I refuse to believe that individuals are irrational either. There is some incentive to having more children in the US, and at this point I do not know what!!

Is there a meaning to the area under the IDC?

2009-02-05T10:55:00.003-05:00

I am teaching Intermediate Microeconomics this semester and yesterday in class we were talking about Indifference curves. While we wee discussing the different combinations of the two commodities along the same indifference curve, one of my students asked me if the area under the rectangle has any significance. To the best of my knowledge the area under the indifference curve which mathematically is the product of the quantities of the two commodities in utility space does not have a special significance. Do any of you know otherwise?

Positive Vs Normative

2009-02-01T11:20:00.003-05:00

I am teaching two classes this semester: Intermediate MicroEconomics and Economics of Developing Areas. We talked about the difference between Positive and Normative Economics in the first week of class. Of course, the question of the Economic Stimulus and the Bailout is not far away in Economics classes and it has been a challenge to keep my normative beliefs to myself and discuss only the factual in class. I am being careful in letting my students know when I make normative claims. I would say that I am very impressed with my class and how well they have understood the difference between Positive and Normative. However, right now some of the most common oppositions to the auto bailout is because they are private companies. While most people are convinced that bailing out the auto companies is not right, they are not as convinced when we talk about bailing out individuals through subsidies and import restrictions. I guess it is easier to hate the big industrialist while being emotionally attached to the small farmer. However, once students understand that the economic logic is the same they are able to make at least a cognitive distinction and understand that the clamour for subsidies is more for emotional than economic reasoning. I am proud of my students.

Ban it to get rid of it

2008-12-14T20:59:00.003-05:00

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.

Mumbai Continued

2008-12-04T00:51:00.005-05:00

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.

Mumbai Blame game

2008-12-01T10:54:00.003-05:00

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!!

Mumbai Attacks

2008-11-28T07:33:00.003-05:00

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.

Happy Retirement Prof.Tullock

2008-11-23T07:30:00.005-05:00

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.

Analytical narratives about India

2008-11-20T11:09:00.005-05:00

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!!

George J Stigler

2008-11-11T15:51:00.003-05:00

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.

Trade is mutually Beneficial

2008-09-15T09:25:00.002-04:00

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

Price Gouging again!!

2008-09-14T10:36:00.003-04:00

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?

State Run Vs Private Enterprise

2008-08-26T20:08:00.007-04:00

This summer I was in India. I made my travel plans through makemytrip.com 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

2008-08-26T19:30:00.003-04:00

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.

Social Capital in the way of efficiency?

2008-08-11T02:57:00.002-04:00

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.

Inefficient rain planning

2008-08-08T22:24:00.003-04:00

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.

What a joke!!!

2008-08-03T23:19:00.002-04:00

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!

Uncertainty in Life and Economics

2008-07-31T05:58:00.003-04:00

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.

Lack of Foresight

2008-07-28T00:52:00.002-04:00

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.

Economic Growth Vs Bomb Blasts

2008-07-27T08:21:00.003-04:00

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.

Markets in everything

2008-07-25T05:41:00.003-04:00

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

Where are all those numbers?

2008-07-24T03:09:00.004-04:00

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??

Incentives as usual

2008-07-10T23:21:00.004-04:00

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!!

Why does a Coasian bargain not work here?

2008-07-07T14:28:00.001-04:00

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.

It takes various iterations....

2008-07-04T07:16:00.003-04:00

.. 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.

Entrepreneurs get it!!

2008-06-28T23:17:00.003-04:00

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 naukri.com and makemytrip.com (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!!!

Wake up and smell the Drains!!

2008-06-12T10:49:00.004-04:00

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!!

We are one of the top Econ programs

2008-06-10T12:27:00.003-04:00

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

2008-06-10T02:14:00.004-04:00

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.

Another little step

2008-04-29T18:51:00.003-04:00

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.

March your way into a Totalitarian State!!

2008-04-22T21:34:00.004-04:00

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.

World Growth

2008-02-07T23:51:00.000-05:00

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.

GMU style humour

2008-02-06T09:35:00.000-05:00

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

Choice of Economic Systems

2008-02-04T22:39:00.001-05:00

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?

One little step

2008-02-02T10:07:00.000-05:00

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.

Will Keynesianism ever die?

2008-01-27T13:32:00.000-05:00

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

2008-01-27T12:34:00.000-05:00

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!!

Why are they surprised?

2007-12-20T00:41:00.001-05:00

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.."

The long and the short of it

2007-12-03T08:35:00.000-05:00

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?

Lament loss of Traditions?

2007-11-30T13:24:00.000-05:00

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?

Cell Phone unbundling

2007-11-28T08:52:00.000-05:00

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.

I love the market and competition

2007-11-18T11:10:00.000-05:00

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

2007-11-18T10:44:00.000-05:00

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.

Are we a racist country?

2007-11-17T10:41:00.000-05:00

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.

Never make students angry!!

2007-11-11T14:29:00.001-05:00

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!

Why do we trust the AICTE

2007-11-03T11:02:00.000-04:00

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?

Why do we put up with this?

2007-11-02T11:28:00.001-04:00

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.

Economics of a Foreign Education!!

2007-10-26T16:23:00.000-04:00

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!! :)

Translating Hayek into Indian languages

2007-10-08T22:59:00.000-04:00

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.

Diminishing marginal utility

2007-10-07T20:22:00.000-04:00

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.

Is Hayek being misread?

2007-09-30T17:57:00.000-04:00

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?

A very unstable State

2007-09-27T16:55:00.000-04:00

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.

Fellow GMU on Fox News

2007-09-06T18:02:00.001-04:00

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

Butterflies

2007-08-19T01:25:00.000-04:00

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.

Indian Economic History

2007-08-01T08:31:00.000-04:00

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.

Special Economic Zones in India

2007-07-27T03:45:00.000-04:00

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.

Education Vouchers: A Success Story in Delhi

2007-07-26T03:36:00.001-04:00

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!!!

The Economics and Public Choice of Harry Potter

2007-07-22T08:39:00.000-04:00

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!!

2007-07-22T02:08:00.001-04:00

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.

A much maligned lot

2007-07-20T10:28:00.000-04:00

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)

Unemployment in India

2007-07-18T02:15:00.000-04:00

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

Highly subsidized technical and higher education
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.

Planning in India

2007-07-11T13:21:00.001-04:00

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.

Save Power!!

2007-07-10T03:49:00.000-04:00

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.