Were The Farm Laws a “1991 Moment”?

As with everything that happens in the world today, so also with the farm laws: a lot of heat, and hardly any light. Reams have been written about how the farm laws were good (or bad), about their introduction being a much needed thing (or not), and their withdrawal being a disaster for take-your-pick-from-Modi-BJP-India (or not).

I have neither the desire nor the energy to get into any of these debates. Here’s my simple take as a student of economics: markets almost always work. Where they don’t work, identify the reasons why they don’t work, and either correct those causal factors, or have the government step in until (and only until) those factors are corrected.

Things get tricky when you begin to ask pesky questions along these lines:

  • How do you define markets not working? Bench-marked against what standard? Who decides?
  • How do you correct these causal factors? How do you judge that they have been corrected? Are you sure they won’t return? On what basis?
  • To what extent should government step in? How are you sure this will make things better in all markets at all points of time? Using what framework?

But that is precisely what makes the study of India’s political economy so very interesting! And this is true of agriculture as well, not just in India, but in other places too.


For the moment, let’s take as a given the fact that government had to be present in agricultural markets in India these past decades. That may or may not be true, but for the purposes of this blog post, let us assume that there was a confluence of factors in India’s agricultural markets that necessitated the active presence of the government as a participant, not just as a regulator.

Now, if markets almost always work, and if government was present in agriculture, then we have to figure out a way for government to eventually not be present in agriculture. (Note, again, that your opinion may be different from mine. But play along with me for the moment, please.)


Yamini Aiyar and Mekhala Krishnamurthy argue in an HT article that in the case of the three farm laws, what the government missed out on was the word “eventually”. They argue that it was the suddenness of the move that was problematic, not the move itself.

There’s a political angle to the sudden withdrawal, and the authors refer to it in their piece. There’s a regulatory angle to the sudden withdrawal, and that is also covered by the authors. But there also is an institutional (and therefore economic) angle to it, and that is what I would like to focus on:

Consider this. The protesting farmers from Punjab, Haryana and western Uttar Pradesh are locked into a system where State intervention, driven by the logic of Minimum Support Prices (MSP) and the Agricultural Produce Marketing Committee (APMC) mandis, dominates. The State is not a benign actor. It has created and sustained local elites with vested interests – traders, middlemen and moneylenders, each of whom extracts to control market power. This undermines competition and compromises farmer interests in different ways. But farmers have learnt to negotiate these relationships of extraction. And the state through MSP and mandis has served as insurance that gives them bargaining power. Any attempt to break this system will inevitably, as the protests amply demonstrate, unleash anxieties.
In this context, the move towards genuine competition will not be viable without the State demonstrating its willingness to protect farmers interests and gain their trust.

https://twitter.com/AiyarYamini/status/1464452741325996032/photo/1

What is the point? The point is that the current system isn’t perfect, and it isn’t sustainable. As the authors point out, the farming sector isn’t competitive.

In theory, that should mean, to a student of economics, that they are not efficient. That, in turn, means that we should expect that producers aren’t producing as much as they could have, and whatever they produce is being produced at a higher cost than would otherwise have been the case. We should expect that procurement, storage and distribution are also potentially riddled with inefficiencies. We should expect divergent quality of produce, and we should expect consumers to be paying higher prices, potentially for a lower variety of goods.

We should also anticipate a whole host of things due to the fact that the farming sector isn’t competitive: prices aren’t transparently determined, there isn’t free entry and exit, certain sellers are likely to get a better deal, transaction and search costs are high, and on and on and on. This is microeconomics 101 in practice.

(A quick note to students of economics: ask yourself if you’re able to relate what you’re learning in your microeconomics courses to the two paragraphs above. If you disagree with my assessment, ask yourself what is it that is causing you to disagree. Can you frame your disagreement in the context of microeconomic theory? Secondly, irrespective of whether you agree or not, can you think of what data points you might need to empirically verify or disprove my arguments? Where might these data points be available? What models (economic and econometric) can we use to settle this debate? Finally, why stop at agricultural markets – which other markets can you analyze this way?)

And for all of these reasons and more, reform is needed. It cannot possibly be anybody’s argument that the status quo in India’s agriculture must persist forever.


Which then, in turn, gives rise to two separate questions:

  1. If reforms are to be introduced, how?
  2. However they are to be introduced, how fast should we proceed with their implementation?

Again, the question isn’t one of the desirability of reforms, or their appropriateness. Rather, the question is about whether the reforms should be a top-down, one-size-fits-all initiative, or a more locally driven approach. And second, should reforms be introduced all at once, or slowly and gradually, one step at a time.

And I would like to argue that at least in this one regard, we should be looking at China. Not for the specifics of their reform and a CTRL-C CTRL-V hit job. But for their approach, beginning in the late 1970’s.


When I first proposed the household responsibility system (HRS), I was criticized as follows: Chairman Mao had been dead only a few years. Supporting the HRS, a system he opposed, meant forsaking his principles. This was the severe environment that reform faced at first. Our support of the HRS, of institutional innovation, and of transformation of the agents of the rural microeconomy would inevitably involve adjusting a number of interests. To avoid risk, it was necessary to carry out trials first. Also, the HRS could not move ahead on its own. It had do so in connection with other institutions and be realized in the course of reforming the institutional environment as a whole. But this institutional reform is not something that could be accomplished in one fell swoop. To carry out reform, a strategy of gradual advance was unavoidable.

http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/125214/filename/125215.pdf (Emphasis added)

That’s Du Runsheng, the author of a short publication called The Course of China’s Rural Reform. He did, um, some other things besides.

In the publication that I have excerpted from above, there are some points that I am going to summarize that I think help me make my point better:

  1. Resistance to the introduction of market based reforms was anticipated in China back then, and was in some sense inevitable. Three measures were conceived of to reduce this resistance:
    1. “First, the reform would not initially call for abandoning the people’s communes, but rather would implement a production responsibility system within them. This approach enabled many who would have opposed the change to accept it.”
    2. “Second, the responsibility system could take a number of forms, among which the populace could choose. One did not impose one’s own subjective preference on the populace but respected its choice.”
    3. “Third, the reform began in a limited region, where it received popular support, and then widened step by step.” (Emphasis added)
  2. “In 1980, after the central leadership was reorganized on a collective basis, the top central leaders, including Deng Xiaoping and Hu Yaobang, consistently supported allowing different areas to adopt different forms of the agricultural production responsibility system. It was then proposed to divide them into three types of areas: impoverished areas would carry out the HRS; advanced ones would adopt specialized contracts with wages linked to output; and intermediate regions could freely choose.”
  3. Or, as Ajay Shah and Vijay Kelkar put it in their book:
    “The heterogeneity of economic and social development, across the regions of India, generates heterogeneity in the public policy pathways desired by different groups of people. A policy position that is well liked in Uttar Pradesh may not be liked in Kerala, and vice versa. This creates conflict in a centralized public policy process.”
    Kelkar, Vijay; Shah, Ajay. In Service of the Republic . Penguin Random House India Private Limited. Kindle Edition.
  4. Finally, there’s a lot to pick at and think about here when we get down to the specifics. I’m not suggesting that China in the late 1970’s had the exact same problems that India does today. Nor am I suggesting that India do today exactly what China did back then. I am making three points:
    1. I agree with Yamini Aiyar and Mekhala Krishnamurthy when they say that one of the problems was the suddenness of the proposed reforms, both in terms of their scope, and in terms of their geographical spread. I also agree with them when they say that the introduction of the reforms ignored the ground realities of the both the sociology of agricultural markets, and their institutional complexity (note that I am paraphrasing here, these are not their words).
    2. But having read their article, one must ask: if not the pathway that we have now left behind us, what else? That is, for better or for worse, the three farm laws now stand withdrawn. Is the status quo desirable? Should we seek to perpetuate it, or change it for “the better”? (Inverted quotes because better means different things to different people.) My opinion is that we should seek to change it for the better, and maybe yours is the same.
    3. But that gives rise to the next question: how? And that is where Du Runsheng and his write-up is of limited help. Learning how other nations did it is a good place to start if you are a student of economics, India or public policy, and post-Mao China holds some valuable lessons for us.

Bibek Debroy on loopholes in the CPC

That’s the Civil Procedure Code.

The average person will not have heard of Dipali Biswas or Nirmalendu Mukherjee and may not be aware of the case decided by the Supreme Court on October 5, 2021. The case was decided by a division bench, consisting of Hemant Gupta and V Ramasubramanian and the judgment was authored by Justice V Ramasubramanian. Justice Ramasubramanian observed (not part of the judgment), “Not to be put off by repeated failures, the appellants herein, like the tireless Vikramaditya, who made repeated attempts to capture Betal, started the present round and hopefully the final round.” Other than smiling about a case that took 50 years to be resolved and making wisecracks about “tareekh pe tareekh”, shouldn’t we be concerned about rules and procedures (all in the name of natural justice) that permit a travesty of justice?

https://indianexpress.com/article/opinion/columns/civil-procedure-code-loopholes-justice-delay-7617291/

I know (alas) next to nothing about the law, but there were two excerpts in this article that I wanted to highlight as a student of statistics and economics. We’ll go with statistics first.

Whenever I start to teach a new course, I always tell my students that there are two kinds of errors I can make. I can either make sure that I complete the syllabus, irrespective of whether everybody has understood it or not. Or I can make sure that everybody has understood whatever I have taught, irrespective of whether the syllabus is completed or not. Speed versus thoroughness, if you will – and both cannot be optimized for at the same time. If you’re wondering, I prefer to err on the side of making sure everybody has understood, even if it comes at the cost of an incomplete syllabus.

This is, of course, closely related to formulating the null hypothesis and asking which type of error one would rather avoid. And the reason I bring it up, is because of this exceprt:

Innumerable judgments have quoted the maxim, “justice hurried is justice buried”. By the same token, justice tarried is also justice buried and inordinate delays mean the legal system doesn’t provide adequate deterrence to mala fide action. In my view, for most civil cases, the moment issues are framed, one can predict the outcome within a range, with a reasonable degree of certainty. (Obviously, I don’t mean constitutional cases before the Supreme Court.) With no disrespect to the legal system, I think AI (artificial intelligence) is capable of delivering judgments in such cases, freeing court time for non-trivial cases.

https://indianexpress.com/article/opinion/columns/civil-procedure-code-loopholes-justice-delay-7617291/

“Justice hurried is justice buried” and “Justice tarried is justice buried” are both problems, and optimizing for one means not optimizing for the other. What Bibek Debroy is saying here is that what we have ended up choosing to optimize for the former. We make sure that every case has the opportunity to be heard at great length, and with sufficient maneuvering room for both parties.

And that’s great, but the opportunity cost is the fact that sometimes judgments can take over fifty years (and counting!).

And what is Bibek Debroy’s solution? When he suggests that AI is capable of delivering judgments in such cases, he is not saying that the AI will give a perfect judgment every time. He is not even saying that one should use AI (I think the point is rhetorical, although of course I could be wrong). He is saying that the gains in efficiency are worth the occasional case being incorrectly judged. In other words, he is optimizing for justice tarried is also justice buried – he would rather avoid the error of taking up too much time for each case, and would (presumably) be fine paying the price of having the occasional case being misjudged.

It is up to you to agree or disagree with him, or with me when it comes to how I conduct classes. But all of us should be cognizant of the opportunity costs when we decide which error we’d rather avoid!


And economics second:

Litigants and lawyers (at least on one side of a civil case) have no incentive to finish a case fast (Does the judiciary have it?).

https://indianexpress.com/article/opinion/columns/civil-procedure-code-loopholes-justice-delay-7617291/

This is more of a question (or rumination) on my part – what are the incentives of the judiciary? I can imagine scenarios in which those “on one side of a civil case” can use both official rules and underhanded stratagems to delay the eventual judgment. And since there is no incentivization in terms of speedier resolutions, are we just left with a system that is geared towards moving along ponderously forever more?

And if so, how might this be changed for the better? This is, and I’m not joking, (more than) a trillion dollar question.


And finally, as a bonus, culture:

My friend Murali Neelakantan makes the point here that isn’t really about incentive design at all, that the problem is more rooted in how we, the people of India, use and abuse the provisions of the CPC.

That takes me into even deeper and ever more unfamiliar waters, so I shall think more about this before trying to write about it!

Soccernomics, Literally

The book is a great read, but the title of today’s blogpost relates to, well, this:

On The Inverted U Shaped Curve of Online Tribalism

An article in the Washington Post about vaccine hesitancy caught my eye recently, but for a weird tangential reason. The post is titled “How wellness influencers are fueling the anti-vaccine movement“, and it is about how “influencers” are impacting the vaccination drive in America.

Glance at Jessica Alix Hesser’s Instagram page and you may feel a little like you’ve just opened up a pamphlet for a meditation retreat. Amid photos of lagoons and a waterfall, Hesser (eyes closed, one hand touching the side of her face) is awash in rainbow-hued lens glare or soaking in a bath with flowers floating on top. Her website contains blog posts recommending natural cardamom floss and Gregorian chants.
Sprinkled throughout, however, are posts where Hesser urges her nearly 37,000 followers to question the safety of the coronavirus vaccines. “Would you sign your children up to be part of a pharmaceutical trial and take them into a lab to get shot up with some experimental drug created by a criminal company?” she asks in one June post. In another from April, she writes that “many of you have heard about the large number of poke-free women” experiencing changes in their menstrual cycles “after spending time with people who got the jab.” Medical experts say that’s impossible. Hesser did not respond to requests for comment.

https://www.washingtonpost.com/technology/2021/09/12/wellness-influencers-vaccine-misinformation/


But there are influencers and there are influencers, it would seem:

Still, it’s those with anywhere between 10,000 and 50,000 followers — sometimes known as “microinfluencers” — who are believed within the marketing industry to have an especially outsize impact on their followers. In a post last year for a blog owned by the Association of National Advertisers, Lesley Vos wrote that social media users “don’t trust celebs or experts with more than 100,000 followers anymore.” Micro-influencers, on the other hand — and their even more niche cousins, nanoinfluencers, with fewer than 10,000 followers — can seem less sold-out and more authentic, approachable or relatable.

https://www.washingtonpost.com/technology/2021/09/12/wellness-influencers-vaccine-misinformation/

So who are micro-influencers, and what is special about them?

Micro-influencers aren’t typical celebrities, experts, or public figures. They specialize in a particular vertical and share content about their interests only. Their audiences are hyper-engaged; so, if a brand works with a highly-relevant micro-influencer, it can extend the reach and user engagement significantly.
No surprise: consumers are more likely to buy from someone they know and trust. So if a micro-influencer whom they follow recommends something, they’ll trust this recommendation more than a direct ad from a brand. It’s where word-of-mouth marketing takes the stage.

https://www.ana.net/blogs/show/id/mm-blog-2020-02-micro-influencers-better-content

This, apparently, is different from the market dominated by influencers without prefixes:

The problem is that users don’t trust celebs or experts with more than 100,000 followers anymore. Only 4 percent trust what influencers say online: People understand they post about a brand because it paid them for this ad. Authenticity and relatability are more important than popularity now. So, if you still want to get the most out of your influencer marketing endeavors, make sure to focus on micro-influencers in 2020.

https://www.ana.net/blogs/show/id/mm-blog-2020-02-micro-influencers-better-content

Solve, as they say, for the equilibrium.

Hint: if we should be making sure to “focus on micro-influencers in 2020”, who should we be focusing on in 2021? 2022? 2023?

In plain English, here is what is happening: the incentive to monetize your following goes up with the number of followers you have. Alas, the folks who have reached “influencer” status have monetized their following a little bit too much, to the extent that there has been, it would seem, an erosion of trust.

That erosion is apparently across the board – for all influencers. Not just a particular influencer. And so the conclusion is that we should not trust influencers altogether, but rather trust micro- and nano-influencers. But then advertisers will want to, well, influence micro- and nano-influencers to influence their followers, and down the spiral we go.


I will note two things:

  1. There are a little less than four thousand people who follow this blog, and I can assure you that I have not been paid to hawk any good or service on these pages.
  2. I am not sure if I am a micro or a nano influencer, but if my urging you makes the *slightest* difference, please, go and get yourself vaccinated! 🙂

What is common to online calls from the UAE and football match broadcasts *in* England?

I traveled to the UAE for work a coupe of times in 2018 and 2019. One of the most surprising things during both trips was the realization that online calls were banned in that country. So for example, calling my family back home in India over Whatsapp was not possible. Duo wouldn’t work, and neither would any other app (save for one weird app that I had never heard of before or since – Botim, I think it was called).

The pandemic meant that Zoom, Google Meet and MS Teams now work just fine (duh), but Whatsapp and FaceTime are still a strict no-no.

Why, you ask?

While Microsoft Teams, Zoom and Skype for businesses now enable remote work and learning, WhatsApp and Facetime audio and video calls are still banned, the official said. This means residents have to use the paid services provided by telecom operators in the country.

https://www.khaleejtimes.com/news/whatsapp-calls-in-uae-talks-to-lift-ban-continue

The key sentence is obviously the last one. The regulation is an attempt to get more people to use conventional (have we reached a stage where we ought to wonder if regular phone calls are still “conventional”?) methods, presumably to help those telecom companies recover their investments. That last bit is a surmise on my part, but hey, what else could possibly explain this?


But its not just the UAE, of course. Here’s England:

CRISTIANO RONALDO makes his long-awaited return to Manchester United this Saturday, in a match against Newcastle. Tens of thousands of fans will chant “Viva Ronaldo” from the stands of Old Trafford, but the match will not be televised live in Britain. Instead, fans not lucky enough to be in the stadium will have to turn up the radio or find an illicit online stream from a foreign broadcaster. The rest of the world can watch the game live. Why are British fans not allowed to?
Blame the “blackout rule”. On Saturdays only two matches in the Premier League, English football’s top flight, are shown live, at 12.30pm and 5.30pm.
The measure is supposed to encourage football fans to get off their sofas and support their local teams.

https://www.economist.com/the-economist-explains/2021/09/10/why-cant-english-fans-watch-ronaldos-return-on-tv

I have been watching EPL matches for the past two decades, but have been happily unaware of this rule. I’ve had friends and family both visit and stay in the US, but this rule never came up for discussion. Or at least, I have no memory of speaking/reading about this. But the similarity between the two things we have spoken about is striking, is it not?


In my introductory econ classes, I often speak about STD/ISD booth owners and how they effectively lost their business to those devices that you now carry about in your pockets.

https://upload.wikimedia.org/wikipedia/commons/6/6c/STD_ISD_PCO_India.jpg

I’m yet to meet a student who thinks that there ought to exist regulations that ban us from using our cellphones so as to protect the employment of STD/ISD booth owners.

As a certain French economist might have said, plus ça change, plus c’est la même chose.

What is a market?

Oddly enough, this is a question that most (not all, but most) economic textbooks don’t answer. Even more oddly, neither do most (again, some, not all) online dictionaries of economics.

I’ll restrict myself to just a couple of sources here, but if you are an economics student, have fun looking up your favorite textbook and let me know if it contains a definition of a market.

The Economist has a website called “Economics A-Z terms”, and the page for all things economics beginning with the letter M doesn’t have a definition of the market. A search on springer.com for “market” yields a lot of results about features and aspects of markets, it doesn’t actually define the term itself. I know Pindyck and Rubinfield have a definition, on the other hand – and this is an excellent textbook, by the way, and there are some others besides. But long story short, it is a topic that seems to have remained curiously undefined. Especially curious considering the fact that we spend such a long time talking about aspects of markets!

The field of law, on the other hand, does define markets, and does so very thoroughly indeed.


But the reason I bring this up today is because of an excellent post by Tim Taylor over on his blog recently, the title of which is “Thomas Sowell: Why “The Market” is a “Misleading Figure of Speech”. The post is a rumination on Thomas Sowell’s take on, well, the market.

“The market” is another such misleading figure of speech. Both the friends and foes of economic decision-making processes refer to “the market” as if it were an institution parallel with, and alternative to, the government as an institution. The government is indeed an institution, but “the market” is nothing more than an option for each individual to choose among numerous existing institutions, or to fashion new arrangements suited to his own situation and tastes.

https://conversableeconomist.wpcomstaging.com/2021/09/03/thomas-sowell-why-the-market-is-a-misleading-figure-of-speech/

So as per Sowell’s take here, the market is what each individual fashions to suit her own needs at a particular point of time. If I’m hungry, for example, I’m in the market for a meal. Now, that could mean that I choose to use Zomato or Swiggy to order food online and have it delivered home. It could also mean I spending some time in my kitchen rustling up a meal for myself. Or it could be I going to a restaurant and having a meal. Or something else altogether, including something that literally doesn’t exist until I invent it!

The market is simply the freedom to choose among many existing or still-to-be-created possibilities. The need for housing can be met through “the market” in a thousand different ways chosen by each person–anything from living in a commune to buying a house, renting rooms, moving in with relatives, living in quarters provided by an employers, etc., etc. The need for food can be met by buying groceries, eating at a restaurant, growing a garden, or letting someone else provide meals in exchange for work, property, or sex. “The market” is no particular set of institutions.

https://conversableeconomist.wpcomstaging.com/2021/09/03/thomas-sowell-why-the-market-is-a-misleading-figure-of-speech/

It’s an interesting take, and as Tim Taylor himself says later on in the post, if the definition of a market is “nothing more than an option for each individual to choose among numerous existing institutions, or to fashion new arrangements suited to his own situation and tastes”, that applies equally to government institutions too.

This is a bit of a nuanced take, but I’d actually go a bit beyond and ask if Sowell’s definition can be taken to mean that government itself is nothing but one of those numerous existing institutions. And whichever society in a particular place came up with some form of government first – well, that society was simply fashioning a new arrangement suited to that society’s own situation and tastes. This gives me the mischievous ability to drive both capitalists and socialists up the wall, for can I not then say that the government is nothing but another form of a market?


But that gentle leg-pulling aside, there is an important distinction between government and markets, as Tim himself points out:

Perhaps instead of thinking about government vs. the market, it’s more useful to think about government as embodying the set of ground-rules under which markets then operate.

https://conversableeconomist.wpcomstaging.com/2021/09/03/thomas-sowell-why-the-market-is-a-misleading-figure-of-speech/

So even if both were to be institutions that serve our needs (and can indeed therefore be thought of as “markets”), some markets are more equal than others. Governments get to embody (and indeed enforce) the set of ground rules under which markets operate.


And not to get all meta on you, but as public choice economists would rush to tell you, there also happens to be a very real market whose sole reason for existence is to influence the market we call government into making rules that suit, well, some forms of markets more than the others.

Yes, that is a long sentence, but an important one!

Supermarkets Explained

Certificates and College Degrees

A past student of mine (and now a good friend) Alankar Pednekar shared a video with me recently.

Alankar mentions how at around the 10:15 mark in this video, an article is cited which speaks about how a certificate like this could potentially disrupt the college degree.

He had some questions about the video, and about the article. I answer them below (please note that I have lightly edited his questions for clarity. Any confusions that remain are down to me!):

  1. Logically speaking this sounds true, but is it really possible? Do you see this happening sometime soon, maybe?


    It’s already happening, of course. I wrote about it earlier, and you might also want to take a look at Lambda School, or STOA School. In different ways, the idea of college is being challenged. And if you ask me, it is high time it was challenged! Higher education has remained far too hide-bound for far too long, and technology, resistance to outdated ways of teaching and weirdly, the pandemic have made all of us aware of what is possible, if only we kept our minds open.

  2. Will there be any scenario where – there won’t be any “Middle Men”- The colleges – in the education sector (As Professor Tyler and Professor Alex debate about in one of their “Duels”), and companies would prefer to educate (or should I say ‘Train’?) to people who are willing to learn and hire them directly?


    Part of the answer lies in we not being clear about what we’re buying when we pay money to a college for higher education.
    For some folks (in many places, at least in India, these folks are the majority), higher education is about a job, and that is it. Of course, it is impolite to admit this in public, but this is the stark truth: higher education is about a job. Contrast the enthusiasm with which placement talks are planned and attended with regular classes in your own college if you are a student, for example.
    For other people, higher education is about higher education – that is, about learning for its own sake. Until colleges, students, parents and firms acknowledge that this difference exists, we will have the confused system that we live in right now. This really deserves book length treatment, but I’ll stop here for now.
    ..
    ..
  3. Assuming this happens in reality, will that be an end of colleges and universities, or they will get replaced by training centers (which we already see in today’s markets). Will there be any existence for pure joy of learning and immense pleasure of understanding things around us (even though they might not directly help us in anything)?
    ..
    ..
    Training centres exist today to train people to write exams to get into colleges. And colleges are viewed as a way to get jobs. So why not have training centres to get people jobs?
    That then leaves us free to have colleges be about “the pure joy of learning”, as both David Perell and Alankar point out. The trick, if you ask me, lies in unbundling college. You should be able to purchase courses rather than degrees.
    The trouble is that a blogpost is easy to write, and to change a system that we are all so used to is all but impossible to do.
    But I’ve said it before, and I’ll say it again. College as it exists today solves efficiently neither the problem of training people well for jobs in the real world, nor the problem of delivering quality education for its own sake. And the growing discontent is palpable.
    ..
    ..
    Palpable to me, at any rate.

It is difficult, this economic theorizing business

One of my favorite questions to ask in classes on introductory economics is this one:

“By a show of hands, how many of you have a BSNL sim-card?”

The answer is rarely more than five percent, if that, and my little stunt works every time. For obvious reasons, of course: even passionate defenders of the public sector often reveal their preference through action, if not always through their statements. Free markets work, the private provisioning of goods is demonstrably efficient and the price mechanism is a wonderful, wonderful thing.

Until, every now and then, when it is not.

April 2021 is one of those times.

And to make sure we could then produce those vaccines at scale, “X” brought up an idea that came from the Biomedical Advanced Research and Development Authority when Rick Bright was its director. The authority proposed subsidizing the construction of private manufacturing facilities as long as the government has the authority to take them over in times of pandemic.
If all of this sounds as if it’ll require a lot of government action, well, it will.

https://www.nytimes.com/2021/04/01/opinion/covid-vaccine.html

Pop quiz, particularly for those of you who follow economists online. Identify “X”.

“X” is, of course, that well known pro-government socialist, Alex Tabbarok.

Sarcasm alert: Prof. Tabbarok is as much of a pro-government socialist as Rahul Dravid is a goonda. But as with Rahul Dravid and goondagiri, so also with Alex Tabbarok:

“Ninety-nine years out of 100, I’m a libertarian,” Tabarrok said with a laugh. “But then there’s that one year out of 100.”

https://www.nytimes.com/2021/04/01/opinion/covid-vaccine.html

And it is that kind of a year, 2021 – for both Alex Tabbarok and Rahul Dravid. It is a year in which the role of the government is more important than perhaps ever before, given what is at stake: public health. Public health is, by definition, a public good:

And the role of the government in this case is to do all it can to ensure the provisioning of that public good – in this case, the vaccine.

Hold on to this thought, and we’ll come back to it.


Here’s a hypothetical scenario: a joint family is considering ordering in dinner this coming Saturday, and mutton biryani is the unanimous choice1.

The restaurant this family is considering ordering from will deliver a jumbo family pack (serves 8) for two thousand bucks. Single serves of the same dish are also available, at three hundred each. There are eight family members.

Should the family order a family pack, or single serves?

Here’s another (not so) hypothetical scenario: Until a couple of years ago, Holi celebrations in our housing society would always mean having the neighbourhood chaatwala set up shop in the lobby. Anybody and everybody who was here playing Holi was welcome to have as many plates of chaat as their hearts desired. No payment was involved, of course, because the payment was made in advance, in bulk.

Does this make sense, or would we be better off paying for each dish as we had ’em?

Hold on to this thought too, and we’ll come back to it.


Final thought experiment (I promise!): let’s say this chaatwala is the stuff of legend. Mindblowing panipuris, outstanding bhelpuri and tokri chaats that have the potential to rule the world. We would like to have this demi-god of chaat set up shop in our society, but so would ten other housing societies in our neighbourhood.

If you were this maestro of a chaatwala, which society would you choose to shower with your culinary blessings? The housing society with the cutest kids, or the kindest grandparents, or the prettiest flower-beds? Or the one with the most number of lived-in apartments – that is, the one that was likely to give you the most business?

And conversely, if you were part of the largest housing society in the area, and you and everybody else including the chaatwala knew this to be a fact, could you maybe get a bit of a discount on the deal? Would you, at the very least, want to try?


Can I cheat a little bit and include one final thought experiment? What if eating that chaat wasn’t just good for your palate? What if it also, somehow, conferred upon you the mystical, magical ability to not infect your neighbours with some disease – say, a virus?


Now let’s combine all of the above, and resort to econo-speak where the vaccines are concerned:

When faced with a largely inelastic supply curve for a good, fragmenting demand into separate constituents means you lose out on bargaining power. When the good in question is one with large positive externalities, procuring as much as possible as quickly as possible becomes a moral imperative. The best way to do that is to have the central government procure centrally, and that right away.

In fact, if it is a question of conferring those mystical, magical abilities upon as many citizens as quickly as possible, maybe the largest housing society the government should get that chaatwala to share the recipe with other chaatwalas in the market.

All housing societies should get as many plates of chaat as quickly as possible, but the negotiating should be left to just one extremely large entity. That negotiating should include potentially sharing the recipe for that delicious, life-saving chaat.

Or, to close the loop on the metaphors:

Every state should get as many vaccines as quickly as possible, but the negotiating should be left to the central government. That negotiation should include the possibility of sharing the patent for the vaccine (and more besides). And oh, remember that the truth lies somewhere in the middle. There is indeed a role for the private sector here: distribution and last mile delivery can and needs to be an all-hands-on-deck affair. Procurement? Not so much.

Is this a free-market solution? No.

Does a non-free-market solution stand a chance of being an optimum solution?

As Prof. Tabarrok points out, every hundred years or so, the answer is yes indeed.

Very much so.

  1. It’s a hypothetical scenario, so we’ll assume away Arrow’s Impossibility Theorem[]

Deepinder Goyal’s Tweet About Food Delivery in Mumbai

Just in case you’ve been living under a rock and aren’t sure who Deepinder Goyal is.

He sent this tweet out the other day:

… and I have questions. Lots of ’em.

  1. This wouldn’t have been possible twenty years ago: a businessman raising a question about a government decision on a public, online forum, and getting a response from the authorities on that forum. You might say newspapers and television channels, but they weren’t public forums – you could read and view, but you couldn’t do much else besides. Does that make the world today a better place – that it is very easy and cheap to raise questions and expect answers? More importantly, is the opportunity cost worth it?
    That is, anybody can raise questions and comment online.1 Still worth it?
    I say yes, but your mileage may vary.
  2. This would have been possible ten years ago. Deepinder Goyal could have tweeted out this question, but it is unlikely that the Mumbai Police would have responded. For one thing, they only joined Twitter in December 2015. For another, the pressure on them to respond wouldn’t have been quite as much ten years ago. Twitter (and other social networks) have become village squares. Is that a good thing or a bad thing?
  3. Deepinder Goyal is likelier to get a response than I am because he is way more popular. This isn’t a criticism of the Mumbai Police, to be clear. I’m just stating a thumb rule that I think makes sense: the more followers you have, the likelier it is that you will get a response. What are the incentives for the average Twitter user? What are the optimal strategies? What are the optimal strategies given everybody else’s optimal strategies? With what consequences?
  4. Likes, retweets and replies are effectively a currency we get to spend on Twitter (and other social networks likewise have their own currency).
    1. These are certainly a unit of account, because the value of a tweet at least partially lies in how viral it has become. (“Holy shit, this blew up over night! Check out my soundcloud!”)
    2. They are also a medium of exchange (you retweet my tweet, I’ll retweet yours – although the terms of trade are in some ways a function of the point above)
    3. They are a store of value too. Try complaining about stuff on Twitter (fridge not working, internet down, flight ticket reimbursement etc. etc.) if you want to understand how this works out in practice.
    4. How should we spend this currency that we have? How much of it do we have? How should we spend it, and what are we optimizing for? What should we be optimizing for? Why?
  5. If public authorities can be held to account on online forums, does that make them less accountable in offline forums? Does the substitution effect dominate the income effect? With what consequences?

  1. You only need to see the responses to this tweet to figure that out, for example.[]