The Art of the Adda: Is an EFE MeetUp A Good Idea?

You learn best when you debate, discuss and disagree.

That’s my shtick at the start, and throughout the entire semester of any course that I’m teaching. A prof yapping away while standing at the lectern, and students paying closer attention to the time than to the prof is the worst way to learn. Unfortunately, it is this that is far more prevalent than the d,d and d strategy, and more’s the pity.

Which is why that adda I spoke about yesterday was so much fun, at the Fat Labrador Cafe. I’m betraying the fact that I’m married to a Bengali when I speak of the art of the adda. While katta is a word that a Maharashtrian would prefer, I’ve always had an attraction for alliteration, so I hope you’ll allow me my little word-play.

But back to the adda: Anupam Manur from the Takshashila Institute in Bangalore was in town for a conference, and he and I regaled a small but extremely enthusiastic audience with our list of five under-rated/counter-intuitive ideas from the field of economics.

The point isn’t about which were his five and which were mine – at least, that’s not the point of this post. The point is that fun laid-back discussions about any topic is a wonderful way to learn, to network and to have fun. And when accesorized with coffee that is as good as the one that The Fat Labrador Cafe serves up, well, what more can one ask for?

It is December, so why not try out something fun? This is addressed to folks who are in Pune (to begin with). How many of you would be interested in meeting up for an adda on the 11th of December, at 6 pm? The topic I have in mind are three posts that I really enjoyed writing this year, about learning economics by watching movies, paintings and cricket.

No money in and no money out, to be clear – this is not a paid event, this is very much a group of people getting together for a relaxed conversation. If we meet at, say, The Fat Labrador Cafe, each one of us pays for our own beverages and food. The idea is to learn through debate, discussion and disagreement (the non-Twitter variety, just to be clear). Around ten to fifteen people would be ideal, I think, so if I hear back from enough people, I’ll be more than happy to coordiante and make this happen. Feel free to reach out via this form.

When:
11th December, 2022 at 6pm

Where:
The Fat Labrador Cafe.

What:
An adda about fun ways to learn and apply economics.

Do I need to know economics?
Gawd no. But an interest in movies OR cricket OR art will help. Even this ain’t mandatory!

What do I need to pay?
Nothing, except an investment of your time. And you need to pay for whatever you eat/drink at the cafe

Lebenskunst

I was part of a small but fascinating discussion at The Fat Labrador Cafe yesterday (about which more in tomorrow’s post). The idea was to speak about under-rated/counter-intuitive ideas in economics, and a session that was supposed to last for an hour ended up starting at a little after nine pm, and going on well past eleven pm!

One of the ideas that I thought would be under-rated and counter-intuitive was that cities are magical places. Not only, it turns out, was this not under-rated and counter-intuitive where the audience was concerned, but it was almost quotidian. Huh, but also yay!

I’ve said it before, and I’ll say it again: cities are awesome, fantastic and brilliant, and we need many more of ’em on our planet.


Lebenskunst, The Economist magazine tells us, is the art of living well. Wiktionary has an even better translation, calling it the art of life. But whatever the definition, The Economist’s ranking of the world’s most liveable cities places Vienna at the top.

https://www.economist.com/graphic-detail/2022/06/22/the-worlds-most-liveable-cities

It is, after all, an index, and that means that you can choose to argue endlessly about which metrics are included and which aren’t, what weights have been given and what should have been the weighting instead, about how liveability isn’t all that measurable and especially comparable, and on and on and on.

The index rates cities along thirty different factors, bucketed into five different categories: stability, health care, culture and environment, education and infrastructure. Note that the article we’re talking about is from June, but that doesn’t really matter for us today. The good news, for the most part, is that “global activity is only around one-sixth lower than before the virus emerged. This is reflected in the global average liveability score, which has bounced back to something approaching normality.”

Of course, parts of the world have done worse compared to the pre-pandemic era. Almost all Chinese cities are worse off, although that is not at all surprising. Re: India, the bad news is that not a single Indian city comes in the top ten, and the good news is that not a single Indian city comes in the bottom ten! A summary of the report is available to read here, once you share your email address with the EIU. No Indian city makes the list of the cities that moved up the most in the rankings, nor does any Indian city make the list of cities that dropped down the most.

The full report costs an insane amount of money, and there’s no way I am paying for it, but you might want to just take a look at a Wikipedia article, as I did, for more information. I wasn’t aware of Numbeo, and obvious concerns about quality of data aside, it is a very interesting project.

Take a look at India’s data, it is fascinating. Pune comes in at number 2, which fills me with pride, and also with worry about what is up with the rest of India’s cities. If we’re at number 2…

What Should One Be Paying Attention To?

Television, he writes, “serves us most ill when it co-opts serious modes of discourse — news, politics, science, education, commerce, religion — and turns them into entertainment packages. We would all be better off if television got worse, not better. ‘The A-Team’ and ‘Cheers’ are no threat to our public health. ‘60 Minutes,’ ‘Eyewitness News’ and ‘Sesame Street’ are.”

https://www.nytimes.com/2022/08/07/opinion/media-message-twitter-instagram.html

Do read the entire column, and I hope it is not behind a paywall for you, for it deserves to be widely read. But I’ve found myself thinking about that line: “We would all be better off if television got worse, not better”, and thinking about its broader applications and implications.

  1. How should I be thinking of Twitter and how much time I spend on it? (A lot, by the way, far too much. The only good thing, if at all, is that I spend almost all of this time reading what others have to say rather than saying anything myself. But – and this is a pertinent question, especially right now – would I be better off if Twitter got “worse”, or is it the other way around?)
  2. How should I be thinking of the amount of time I spend reading blogs? Books? Fiction books vs non-fiction books? Do books serve me most ill when they co-opt non-serious modes of discourse?
  3. Should I be watching the Rene Girard series on YouTube, or does that make my experience of both learning more about Girard and time spent on YouTube worse?
  4. “What am I optimizing for?” is a great question, and a very powerful one for analysis. When it comes to learning, is “What am I optimizing for when I consume content in different ways?” an even better question, or simply a subset of the first one?
  5. I’ve given up on watching news on television entirely, and have been patting myself on the back ever since. That, to me, is the only silver lining after having read this column.

Two Sides of the Same Model

Yesterday’s post and today’s post are really talking about the same thing (or the same model, to be a little bit pedantic), but it’s a little bit like that story about the blind men and the elephant.

Which model? This one:

The Solow–Swan model or exogenous growth model is an economic model of long-run economic growth. It attempts to explain long-run economic growth by looking at capital accumulation, labor or population growth, and increases in productivity largely driven by technological progress.

https://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model

Ask yourself a simple question: which countries in the world today are likely to see reasonably rapid growth over the course of the next three decades or so?

As a person whose job it is to teach people introductory economics, I’m not as interested in your answer as much as I am in your framework for coming up with your answer. No matter whether you say India, or China or Nigeria or Indonesia or any other nation of your choice – why do you choose the set of answers that you do? What is your model for doing so?

And whatever model you come up with, and whatever specification of the model you deem most appropriate, it should have the following ingredients:

  1. People. No country can grow if its labor-force isn’t growing. Duh.
  2. Capital. More machines, more output. Also duh.
  3. Technological progress. It’s not just people and machines, but it is how efficiently you use them, and the quality of your ideas about how to use them. Not so duh, and often underrated.
  4. Quality of education. A close cousin of the third point, if you think about it. Definitely not duh, and a pet passion (and peeve!) of mine.
  5. Quality of institutions. See this video for an explanation. The very opposite of duh, and massively underrated almost always.

So: my pick for a country that is to grow rapidly over the course of the next three decades would have to tick most, if not all of these boxes. And yesterday’s post was about understanding the point that where India is concerned, her rate of growth is somewhat likely to be constrained by her inability to dispense quality education efficiently and at scale, and by the quality of her institutions. We also need to ramp up our capital stock (our infrastructure). Or put another way, if we try to maximize growth without getting these things right, it’s going to create more problems for us down the road.


A warm welcome to Shruti Rajagopalan, who launched her Substack yesterday. Her first post, and indeed her general focus on her entire blog, is about paying more attention to India. Bad puns that are actually good is an underappreciated art form, so a high five is in order for the name of the blog too! (Update: Mihir Mahajan very kindly pointed out that this is actually a song. I obviously hadn’t heard it before, and in case you haven’t either, here you go. Thanks, Mihir!)

Her post is about a lot of things about why (and how) one should pay more attention to India. But the first two sections of her essay are what I want to focus upon here:

  1. “India’s population will peak in 2065. Compare this with China, where the population will peak next year.”
  2. “Smartphone penetration in India since 2010”

If Gulzar Natarajan yesterday spoke about capital, the quality of education and the quality of institutions (2,4 and 5 from my list above), think of Shruti’s post as a discussion about people and technological progress (1 and 3 from my list above). And a great way to learn about the Solow Model is to first learn about it, and then think about India in the context of the Solow model. Which, of course, is what these two posts are trying to do.

Take, in other words, the model out of the diagrams and the math, and apply it to the world around you. And a great place to begin is here, in India!


Shruti’s post is worth reading (and worth using as a teching tool) because it also speaks about labor mobility (or the lack of it), and capital mobility also. And soft power too, if you want even more! So do give it a read, and bookmark her blog, or add it to your RSS reader.

P.S. The very last section of her blogpost speaks about how to get started on learning more about India. I’d add at least two points to her list, the first because it is a passion of mine. If you want to learn more about any country, learn more about its food. Which ingredients are used at what time of the year, and why? What are the popular dishes in different parts of that country, and why? What do food taboos and food habits have to do with the culture, the sociology and the religions of that country? It’s a great way to learn more about different countries, and especially true for India. If you haven’t seen the light yet, and are therefore not as besotted with food as I am, consider music instead.

Or dance, if you like. Or textiles. But pick an entry point that you like, and read/see/travel optimizing for that entry point. But most of all, haffun – that’s the whole point, after all.

And for anybody who’s struggling with the Solow Model, trust you me, you can have fun while slogging through it all. This post is the proof!

Steady As She Goes

Gulzar Natarajan has a typically excellent post (part of a two-part series) on India’s economic growth trajectory. And they key point in the post is a counter-intuitive one.

India cannot, and should not, grow too rapidly.

In Can India Grow, we had argued that India does not possess the capital foundations to sustain high rates of growth for long periods. It does not have the physical infrastructure, human resources, financial capital, and institutional capabilities to grow in the 7-9% ranges without engendering serious distortions and overheating. The last such episode of high growth in the 2003-11 period required nearly a decade for companies to deleverage and for banks to overcome their bad assets. While some commentators have since come forth with similar views citing aggregate demand etc, I think we were the earliest to put forth a clear case for lowering expectations and targeting a 5-6% economic growth rate.

https://gulzar05.blogspot.com/2022/11/indian-economy-thoughts-on-growth.html

Our household owns two cars, a Tata Zest and Tata Nano, and the best analogy I can come up with for 2003-2011 is that it was like racing the Nano along the expressway to Bombay at a 110 kilometers per hour. It might (perhaps) have made it to Bombay at those speeds, but the little blue car would then have needed a long time at the mechanic before being road-worthy again. India, similarly, did grow rapidly in that period, but as Gulzar Natarajan puts it, it did not have the “physical infrastructure, human resources, financial capital, and institutional capabilities to grow in the 7-9% ranges without engendering serious distortions and overheating.”

Or put another way, if we want India to grow rapidy in the next two decades or so (and who wouldn’t?), it is very much a question of whether we’re driving a Nano or a Zest over the course of the next two decades. Or, god willing, an even better car. But a Nano will simply not cut it, and in terms of our infrastructure, human resources, financial capital and institutional capablities, we’re more like Tata’s cheapest car than we are like the Tata’s most expensive car.

But our country needs those upgradations if we want to achieve (and sustain) those aspirational growth rates. And here’s another counter-intuitive bit: even a 6% growth rate would be a challenge when we are talking about sustaining it over the course of twenty long years. That’s not the pessimist in me talking, that’s empirics:

A 6% baseline growth for the next three decades would be extraordinary. Underlining this point, as Ruchir Sharma has written, there are only six countries which have grown at 5% for four decades – Taiwan, Japan, South Korea, Singapore, Malaysia, and China. As the data shows, India has become the seventh. But just two have done it for five decades in a row – South Korea and Taiwan. Given that China looks certain to fall short, India could become just the third. It could go one better and strive to become the only country to grow at 5% for seven decades in a row. This would be exceptional at a time when developed countries will struggle to grow at even 2%.

https://gulzar05.blogspot.com/2022/11/indian-economy-thoughts-on-growth.html

But for that to happen – for us to embark on this journey, we would do well to first take the Nano to the garage, and bring out the Zest instead. We could do with a bigger engine, better suspension, better safety features – why, better everything:

We should simultaneously use the growth to build the capital foundations – increase domestic savings, deepen financial inclusion, develop robust financial intermediation systems, expand physical infrastructure, prioritise human capacity development, and develop and strengthen state capabilities.

https://gulzar05.blogspot.com/2022/11/indian-economy-thoughts-on-growth.html

All of which is easier said than done, as many a “growth star” state of the 20th century will tell you. This stuff is hard, unglamorous, politically risky, and with payoffs that manifest themselves only in the long run. But also, this stuff is unavoidable. Here’s one way to think about it as a student of economics: studying macroeconomics without a deep study of development economics is dangerous.

For as a nation to our north and east is hell bent on showing us in recent times, attemptig rapid growth without getting the basics right isn’t a good idea:

A too rapid growth will invariably drive up signatures of overheating – high inflation, property bubbles and land valuations, spike in wages, environmental damage, clogged infrastructure like traffic congestions and water scarcity etc.

https://gulzar05.blogspot.com/2022/11/indian-economy-thoughts-on-growth.html

Institutions matter. Education matters. Physical infrastructure matters. State capacity matters.

And attempting to engineer rapid growth without getting all (not some, all) of these right is a bad idea.

P.S. If you are a student of the Indian economy, the first chart in this blogpost is worth deep contemplation and reflection. What is your best guess for what comes next, and why is your guess whatever it is? That’s be an excellent essay to assign at the end of a macro semester that focuses on the Indian economy.

Barcelona’s Superblocks

And if you’re curious about how it all turned out, considering this video is six years old

We’ve Been Expecting You, Mr. Iger. Or Have We?

A Tale of Two Sports

Sport 1:

The Associate nations won four out of 11 matches against the Test-playing sides in this tournament. These are the most they have won in any edition of the men’s T20 World Cup. There were also a few close games in the seven they lost; two matches were decided within a margin of less than 20 runs, and the other two with less than ten balls to spare. This was clearly an improvement on the previous editions.
The 2021 T20 World Cup had 15 matches where the Associate nations were matched-up against Full Members, and they ended up winning just two games – both during the first round. Among the 13 games won by the Full Members, six were by a margin of 45-plus runs and another five games by seven or more wickets or 25-plus balls to spare.

https://www.espncricinfo.com/story/t20-world-cup-2022-stats-struggle-for-boundaries-a-tournament-of-upsets-and-englands-pace-highs-1344880

Sport 2:

Perhaps one of the most striking aspects of the World Cup has been the willingness of the so-called weaker teams to advance further up the pitch to win the ball in opposition territory.
A defining part of Saudi Arabia’s shock 2-1 win over Argentina was the remarkably high defensive line, which not only rattled the opposition but also caught them offside a total of 10 times – leading to three disallowed goals. Japan’s second-half turnaround against Germany was built around a similar high press. In one of the more under-the-radar results, Tunisia’s well-earned draw against Denmark came from the same risky approach.
Teams that chose to sit back and wait for counter-attacking opportunities alone – like Iran, Costa Rica, and Serbia – all faced big defeats.

https://indianexpress.com/article/sports/football/fifa-world-cup-learnings-from-the-first-round-of-matches-8288832/

  1. Small sample size, I know. But leave aside statistical rigor for the moment. Would it be right to assume that weaker teams are gradually getting better over time? Is this a hypothesis worth examining? Why has men’s tennis been telling us a very different story for the past two decades?
  2. The IE article talks about the specific tactics and strategies that have benefited the weaker teams in the football World Cup. What (if any) common strategies and tactics, have there been to the weaker teams that did well in the T20 World Cup?
  3. How might (and how should) the stronger teams adapt to these new strategies by the weaker teams when it comes to football? What about the stronger cricket teams?
  4. Playing the riskier strategy seems to be, counter-intuitively, the better (not necessarily safer!) thing to do, and you could argue that this is true for weaker nations in both sports. What does this say about the nature of both sports today? How much of this can be explained using game theory (what should be your rational strategy as the coach of a weaker team in a tournament such as this? What should be your rational strategy, given your best guess re: the previous question, as the coach of a stronger team in a tournament such as this?)
  5. Whatever our answers to these questions, how do they help us understand the world around us better today? Do they help us understand, say, geopolitical conflicts better? Corporate takeovers? If yes, how? If not, why not?

One of the random questions I recieved in class yesterday was about me asking five random questions to the students for a change instead. I had fun being on the other side for a change, and I’m going to enjoy pondering over these questions over the weekend.

Tell Yourself a Story

For years and years after 2008, I’ve regaled many a classroom with a story that began like this:

“Let’s say you’re all relatively poor folks in, say, Florida, and imagine that I’m your local bank.” The dramatis personae would then be expanded: another professor from that college would represent Wall Street banks, while the canteen owner would represent global investors. The academic coordinator would become the rating agencies. And so on and so forth.

But also, through this little tragedy whose charactes we were becoming familiar with, we would start to learn what these characters were up to in the years leading up to (and including) 2008. So along with the list of characters, we would also familiarize ourselves with what CDO’s were, and what swaps were, and what a tranche was, and what collateralization means – or more accurately, what some people thought it meant – and so on and so forth. And at the end of the class, we would have all been entertained, but we would also have learnt a high-level explanation of what led to the events of October 2008, and its aftermath.

It’s quite a story, and if you haven’t heard it before, I hope I get to tell it to you sometime.

But there’s two reasons I bring this up, and here’s the first. When you are learning something hard and intricate and difficult in economics (or other, related fields), try and entertain yourself by building a story around whatever it is that you’re learning. I taught myself Microeconomic Analysis (by Hal Varian) by building stories around each chapter. And if you’ve ever tried to read that book, you will know how difficult a task I had set for myself.

But in a way, that baptism by fire was entirely worth it, for while I have (thank god) forgotten much of that textbook, the truly worthwhile lesson was learning how to make anything more interesting. Turn the lesson into a story!

I have used this lesson to both understand and teach Europe’s sovereign debt crisis. I have used this lesson to teach people what optimum currency areas are all about. I explain to folks how the government might attempt to reduce the price of onions, and used that lesson to explain to people why controlling the price of the rupee vis-a-vis the dollar isn’t really possible. And so on and so forth – but all of these episodes have one underlying lesson: make the topic you’re studying more interesting by turning it into a story.

For the more abstruse parts of economic theory (some might be tempted to ask “as opposed to what?”), it is an invaluable skill.


And here’s the second:

Here’s my high-level explanation of the FTX crash.
Imagine that I own a house and I create a million coins representing the value of the house. I give half of the coins to my wife. I then sell one of my coins to my wife for $10. Now the house has a nominal value of $10 million dollars and my wife and I each have assets worth $5 million. Of course, no one is likely to buy my house for $10 million or lend me money based on my coin wealth but suppose I now get my friend Tyler to buy a coin for $15. Tyler says why would I want to buy your s!@# coin! To encourage Tyler to buy I give him a side-deal that is not very public. Say an extra 5% of our textbook royalties. Tyler buys the coin for $15. Now the coins have gone up in value by 50%. My wife and I each have $7.5 million. Other people may want to get in while they can—Tyler bought in! Are you in? I’m in!
Now if it’s not obvious, I am SBF in the analogy, and my wife is Alameda run by his sometimes girlfriend Caroline Ellison. Who is Tyler?—the seeming outsider who gets a kind of under-the-table deal to pump SBF’s coins? One possibility, is Sequoia a venture capitalist firm who invested in FTX, SBF’s house, while at the same time FTX invested in Sequoia. Weird right? Tyler in this example is also a bunch of firms that Alameda invested in but which were then required to keep their funds at FTX. Many other possibilities exist.

https://marginalrevolution.com/marginalrevolution/2022/11/the-ftx-debacle-eli5.html

I don’t understand the economics of the crypto world, at all. I’ve read my fair share of stuff about it, but I still don’t know how it works. I certainly don’t know enough to be able to explain it to others, and that’s the whole point, no? So the idea that I could explain a scam in the crypto world is a whole other challenge.

But that’s why this post was so enjoyable – because I got to learn what the scam was about. More, I got to learn about it using my own favorite method of learning: by reading a “story”. And stories with “ouch!” sentences are even better!

Ok, final analogy. Suppose to help me run my house I invite over a bunch of friends and we do a lot of drugs and hook up together and suppose that none of us really knows anything about accounting or financial controls.

https://marginalrevolution.com/marginalrevolution/2022/11/the-ftx-debacle-eli5.html

But the bottomline is this: learn the art of building up a story. There’s no better way to learn economics!

A Walk Down Abhimanashri Lane

Or Abhimanashree, whichever version you prefer.

But however you choose to spell it, join me, won’t you, as I saunter down this leafy little lane on a wintry Sunday morning?

Abhimanashri Lane is today a bit of a misnomer. But as a true-blue Puneri, I remember a time when it really and truly was a lane, and a very quiet one. Today, it forms the base of a very useful triangle, connecting Baner Road and Pashan Road, with the apex of the triangle being Pune University signal. Why this is a very useful triangle is a long story that will bring much angst to every Punekar reading this, so we will move on for the moment.

Accompanying us on this jaunt is my nine-year old daughter, whose ability to ask endless questions is matched only by her ability to ask questions about what we’re going to eat next. As a gourmand who pretends to teach economics for a living, I thoroughly approve of both of these qualities.

And so down Abhimanashri Lane we go, appreciating the quietness of the Sunday morning, pausing every now and then to meet a new canine friend, and breathing in the soft yet crisp wintry air that Pune still affords us in the absence of traffic.

Until we reach a nice little bakery on the left hand side, with a cute sitting-out area, and what looks from without to be a promising array of baked treats lying in wait inside. The daughter deploys the most beseeching look she can muster, but she needn’t have. I am chomping at the bit myself, so in we go to take a look. There’s croissants, there’s breads, there’s pastries and there’s coffee. Heaven, to be precise. Having suitably nourished ourselves, we resume our walk.


But then the economist in me starts to wonder.

We had gone there at around nine in the morning, and we were the only cutomers in the cafe. There was one delivery order that was picked up, but that apart, there was no one else who walked in. The food was very good without being truly outstanding, but that is not (at all) a knock against the place. In fact, if anything, I would have expected more customers.

So why, the economist in me wondered, was it empty?

  1. Abhimanashri is a truly lovely place to walk around in, but it is a low density neighborhood. Most people might wonder if I could have phrased that sentence better – wouldn’t it be the case that it is a lovely place to walk around in precisely because it is a low density neighborhood? Well, yes, but also no. Read on.
  2. It is not just a low density neighborhood, but it is also almost entirely residential. There’s a misal join towards the end of the lane, and a couple of shops and offices, and one upmarket salon. But it is safe to say that it is overwhemingly residential in terms of character.
  3. It is also a no-parking zone, for reasons that we refused to go into earlier, but now we must. Read this article to get a sense of why it is a no parking zone.
  4. So, low density neighborhood, not enough offices, plus a no parking zone along its entire length. Not enough folks in the vicinity, whether residents or otherwise, and the inability to park along its entire length. Nor, if memory serves me right, is there a bus-stop along the entire length of the lane.
  5. So walk-in customers are unlikely. Plus, the inconvenience of having to park a ways away and then walking down might disincentivize other customers.
  6. I’d much rather sit at home and order from there using Zomato or Swiggy or some such, rather than actually try and reach the place.
  7. And so while I thoroughly enjoyed my visit there and wouldn’t mind going there again, the inconvenience of it all makes it rather unlikely that I will.
  8. Which is why you should read up about mixed-use neighborhoods, and urban planning more generally. I have a couple of videos on the subject, or you might want to read more about it by searching on Google, or you might want to read this lovely thread on Twitter.
  9. But the next time you take a walk down one of your favorites streets in your favorite city, you might want to ask what makes that street your favorite, and what were the opportunity costs of that street being the way it is. Ask yourself in what ways that street could become better, and how your city might go about planning for it to be so. Get into the habit of doing this all the time, because why wouldn’t you want to think about how your city could be better.
  10. And then, suitably incentivized, learn more about urban planning, because it is a fascinating subject that every budding economist should know more about.
  11. Past EFE posts on urbanization, if you’re interested, are here.