Art Valuation and Football

Yes, I know because I buy them. [laughs] I used to be annoyed by this, and now I think it’s the most delightful thing in the world because there’s all this loose money sloshing around, and so-called contemporary art is like this sponge that just absorbs all of it. There’s none left. Some of the things I buy, I am the only bidder. I get it for the reserve price. No one else in the world wants it, or even knows that it’s being sold, so I am delighted about this. The answer to your question, which artists are undervalued? Essentially, all good artists. The very, very, very famous artists, artists famous enough for Saudis to have heard of them — Leonardo, I would say, is probably not undervalued. But except for the artists who are household names — every elementary school student knows their names — they’re all undervalued.

https://conversationswithtyler.com/episodes/paul-graham/

As with almost all episodes in Conversations with Tyler, this one too is worth listening to in its entirety. I’m only halfway through, but I particularly enjoyed the excerpt I’ve quoted above.

Lots of reasons for me to have liked it – I know next to nothing about art, I enjoy thinking about what is underrated (and therefore undervalued), and I enjoy understanding more about how different markets work.

But also, I like watching and reading about football.

There’s been some seriously big players who’ve made the move into the Saudi league in the past year or so, with the biggest name being Ronaldo, of course. And there’s been a lot of hand-wringing about it.

But you might want to think about the following points, as I have been:

  1. Have the valuations been unusually high for the players that made the move?
  2. Did the football clubs actually get a pretty good deal then?
  3. How should they go about using this money? The same way the Saudi league is snapping up players, or the way Paul Graham buys art?
  4. What is the framework that Paul Graham uses while buying thinking about art? Is the same framework applicable in other markets, and not just football?
  5. Which other markets have the same phenomenon playing out right now (akin to the Saudis buying out the “big” names?)
  6. How should you think about selling in such a market?
  7. How should one think about regulating such a market?
  8. Should one think about regulating such a market?
  9. What does equilibrium even mean in such a market?
  10. With regard to that last question, over what time horizon?

I plan to have a conversation about these questions with ChatGPT, and then with some friends. If you like football, economics or best of all both, it might be a fun way to spend a couple of hours!

An Update on India’s Ports

Mihir Sharma, in Restart, about a decade or so ago:

When the manufacturers’ trucks arrive at the port in Mumbai, it isn’t just that the warehouses there are too crowded, it is that there aren’t enough officials to oversee the docks’ smooth operations. Sometimes, it takes four or five days just to assign a truck a spot to unload—not because there aren’t any spots, but because the port authorities are busy doing other stuff. Other stuff that may be as important, mind you. The simple ‘reduce paperwork’ prescription hardly works here. Central coordination of where a truck sets down its load, and whether it’s close to the place where its container will be loaded on, is pretty essential. It isn’t a red-tape problem; it’s a capacity-constraint problem. Things are so bad that in 2013 India’s largest port was—Colombo. Yes, that’s right; that year, the Sri Lankan capital sent more Indian exports abroad than Mumbai did.

Sharma, Mihir. Restart: The Last Chance for the Indian Economy . Random House Publishers India Pvt. Ltd.. Kindle Edition. (Emphasis added)

Before we proceed, a slightly technical question. How did Mihir figure out which of the exports from Colombo’s ports were of Indian origin? I don’t know, and I would like to. If anybody can help, please do reach out, thank you.

Right, so ports in India – not the best. Which is why this made for encouraging reading:

The average turnaround time at major ports has fallen from 127 hours in 2010-11 to 53 hours as of 2021-22. It was nearly 200 hours in the early 1990s as seen in chart 1 (click image for interactive chart).

https://businessstandard.substack.com/p/ahoy-indias-ports-mean-business
Source: https://businessstandard.substack.com/p/ahoy-indias-ports-mean-business

The entire report is worth at least a quick glance, and is available here. I found this table to be particularly interesting:

Basic Port Statistics of India, 2021-22 (pp XXIII)

Turn arounds took 12 days in Calcutta’s case in 1990-91. JNPT is the most efficient today, but note that it also is one of our newest ports.

If you are looking for international comparisons, this table migh help:

https://unctad.org/system/files/official-document/rmt2022_en.pdf (pp 82)
  1. This is median time, not average, but I’m still curious about why the difference should be so large (0.93 days for India in this table versus 53 hours, so a little more than 2 days in the chart above). Probably a combination of median v average and the fact that the UNCTAD table is for container ships, while Basic Port Statistics is for all ships – but that’s a guess on my part. If anybody knows for sure, please do tell.
  2. We’re doing better than the UAE, Germany, Singapore and Hong Kong in terms of turnaround times [Median time in port (days)]. Whatay!
  3. Virtually all ports show a decline in efficiency – the annual change is an increase for almost all ports in this table. I’m guessing this the world stumbling back to normalcy post the pandemic.
  4. The number of arrivals in Chinese ports is roughly eight times that of India

Bottomline: there certainly seems to be good progress, but we have a long ways to go.

Po and Ice-Cream

More tales from the joy and delight that is teaching principles of economics.

I explained what Goodhart’s Law is in class the other day, and if you’re wondering what it is, here you go:

Vishesh emailed to ask a very good question (note that I have paraphrased the question to make it easier to understand, this is not verbatim):

Say you want to be more regular at your gym. In order to build this habit, you decide that you will treat yourself to an ice cream after you go to the gym.

At the outset, you want to go to the gym because you want the ice-cream, not because you want to go to the gym.

But eventually, you will start to want to go to the gym for its own sake, rather than for the reward of the ice-cream. The ice-cream won’t matter, managing to deadlift a 100 kilograms will matter more.

So is Goodhart’s Law not applicable here?

My answer to the question went something like this:

Well, if going to the gym has become important, you no longer need to measure it, and so yes, Goodhart’s law is no longer applicable. Note that it hasn’t failed – it is not applicable. Why is it no applicable? Because you aren’t measuring gym attendance, or targeting it. It “just happens”, now for its own sake.

That’s one way to explain it. This is the better way:

Not Even Sunlight is Free

Teaching the Principles of Economics course to the first semester students at the Gokhale Institute is my absolute favorite thing to do. Both of these things matter – teaching this specific course matters, because I get to help young people realize how awesome economics can be. But teaching at the Gokhale Institute also matters, because it is the place where I myself learn economics.

We just finished the first week of teaching this past week, and in the last class I just about got enough time to introduce to students the concept of opportunity costs.

There is no such thing as a free lunch.

Read that line carefully, and tattoo it onto your brain. That’s the easy bit – tattooing it onto your brain. Applying it ceaselessly, day in and day out, to everything that you do – that’s the really, really hard bit. I wish I could say I practice what I preach, but let’s quickly move on.

So one of the keys to thinking like an economist is always remembering that everything has a cost. This may be one reason economists have fewer friends than they otherwise would. Sometimes people are very happy holding on to the naïve view that something is free. We like the idea of a bargain. We don’t want to hear about the hidden or non-obvious costs. Thinking about foregone opportunities, the choices we didn’t make, can lead to regret. Choosing this college means you can’t go to that one. Marrying this person means not marrying that one. Choosing this desert (usually) means missing out on that one. Sometimes, people just want to eat their cake and have it, too, without being reminded that they missed out on a spectacular piece of pie.
All true. But if you want to get the most out of life, you have to take account of the opportunity cost, the foregone alternatives. Better to make good choices and learn how to live with them than make bad choices in blissful ignorance that lead to ruin.

https://www.econlib.org/library/Columns/y2007/Robertsopportunitycost.html

Again, there is no such thing as a free lunch.

Part of the reason teaching this is so much fun – besides it’s innate importance – is challenging students to come up with a “free lunch”. And I enjoy extending this challenge to my students: give me an example of a free lunch!

Here’s Raghav Agarwal:

In today’s session you said nothing in life is free and there is always an opportunity cost. That got me thinking about and identifying all the costs I incur in my daily life but there is one thing I failed to identify a cost to and that is sunlight. So the purpose of me writing this mail is to understand the price we pay for sunlight (if there is any) and that’s about it.

Whatay enjoyable question! Before you read my answer, try answering it yourself. Is not sunlight free? Once you’re done, read my take:

Whatay lovely question!
1. How do we use sunlight? If it is something as simple as sitting in the sun, and basking in it’s warmth, the opportunity cost is doing something else with that time (sitting in an air-conditioned room, for example)
2. If sunlight is used to generate electricity, there will be opportunity costs in terms of the capital (the machinery) used to generate this electricity. That machinery (and the raw material used to make it) could have been put to different use.
3. If sunlight is used to make plants grow, something else could have been done with that land (construct buildings, for example).So if you ask me, there’s opportunity costs at play here too!

So if you ask me, nope, not even sunlight is free.

I hope some of you disagree with my answer. I hope some of you have other contenders for “But this is free, surely?”. Let me know, and I and my students shall ponder over your responses!

Here are other posts on EFE with the tag “opportunity costs“.

Unifying India’s Healthcare Markets

When I teach introductory macro, I like to begin by telling my students that a good framework to keep in mind is these three questions:

  1. What does the world look like?
  2. Why does the world look the way it does?
  3. What can we do to make it better?

This is regardless of the class I’m teaching. If it is undergraduate students, we spend a lot of time on these questions, without getting as much into the intricacies as I would in, say, a Masters programme. But I find the framework to be a very powerful one, precisely because it is so simple.

Another advantage is that the framework can be used to analyze slices of the economy.

Health, for example. Only for the Indian economy, for example.

  1. What does the market for healthcare in India look like?
  2. Why does it look the way it does?
  3. What can we do to make it better?

About three years ago, I learnt that the answer to these questions wasn’t simple at all.

Think about the first of these questions. What do we mean when we say “the market”, for example? Is it the same market if you are a government employee as opposed to a private citizen? Is it the same market if you are a state government employee as opposed to a central government employee? Is it the same market if you are a rich private citizen as opposed to a poor private citizen?

What do we mean when we say “the same market”? Well, can all these categories access the same services, from the same service providers, at the same prices? If not, why not?

Of course, when you ask these questions, you are in Second Question territory. Why are these markets different? What was the reasoning behind making them different? Has that purpose been served, or not? If it has, can we unify these markets? If it has not, should we not be asking why not? Should we not be thinking about how to reform or unify these markets?

Of course, when you ask these questions, you are in Third Question territory. If you agree that the healthcare market in India isn’t perfect just yet, then you should be thinking about ways to make it better. But better might mean different things to different people! Some people might say hey, if only government got the hell out of this market, outcomes would be so much better. Other folks might say hey, if only government stayed in this market, but with the following tweaks, outcomes would be so much better.

Trouble is, both sides of the argument have a point. Some markets do, indeed, function better with minimum government. But that is only under certain conditions. And some markets do, indeed, function better with more government. But that too, is only under certain conditions.

The trick is in getting everybody to agree on what these conditions are, and to get everybody to agree about to what extent they’re applicable for a given economy at a given point of time. I doubt that we will ever get everybody to agree about everything for all countries for the foreseeable future. But then again, if we did, life would be pretty boring, and people like me would be out of a job.

By the way, I asked ChatGPT these questions. Here are its answers.

But for our country (India), and for the circumstances that India finds herself in today, Murali Neelakantan and I have answers to the first and the second questions. And we have a proposal for the third. These answers can be found in a paper that we’ve written, called Unifying India’s Healthcare Markets. Please go through the paper, and I hope you find stuff to disagree with. I also hope you’ll tell us why you disagree with it, and how we might go about resolving these disagreements.

Because you see, our hope is to not win an argument with you. It is to learn how to best answer the third question. Because what could possibly more important for India?

So please, read the paper, and let us know what you think – especially if you disagree with us.

Respectful disagreements are underrated!

As always, thank you for reading.

Why Linear Cities Won’t Work

Ten types of statistical averages

H/t Murali Neelakantan on Twitter

Demography and Democracy

Yesterday’s post was about fiscal policy in China, and how difficult it is to get it just right.

Which is true enough, but Paul Krugman points out how even if China gets that bit right (and it is a big if!), it still will eventually come up against a much more intractable problem: demographics.

There’s some truth to aspects of this story, but it misses the most important factor in Japan’s relative decline: demography. Thanks to low fertility and unwillingness to accept immigrants, Japan’s working-age population has been declining quite rapidly since the mid-1990s. The only way Japan could have avoided a relative decline in the size of its economy would have been to achieve much faster growth in output per worker than other major economies, which it didn’t.

https://www.nytimes.com/2023/07/25/opinion/japan-china-economy.html

Krugman gos on to point out an underappreciated point. Relative to the troubles that Japan has gone through, it actually has not done all that badly. Far from it, in fact – it is doing rather well, relative to expectations:

By the way, if you’re unfamiliar with FRED St Louis, this would be a fun assignment to get you going. Try and recreate this chart by yourself.

So what worked with Japan? Paul Krugman hypothesizes that this may be due to Japanese society being dynamic and culturally creative. I haven’t been to Japan so far, but I cannot wait to go. Next year, fingers crossed.

But the obvious question, of course is whether China in the near future can manage what Japan did over the last thirty years. Paul Krugman thinks not:

Yet if China is headed for an economic slowdown, the interesting question is whether it can replicate Japan’s social cohesion — its ability to manage slower growth without mass suffering or social instability. I am very definitely not a China expert, but is there any indication that China, especially under an erratic authoritarian regime, is capable of pulling this off? Note that China already has much higher youth unemployment than Japan ever did. So, no, China isn’t likely to be the next Japan, economically speaking. It’s probably going to be worse.

https://www.nytimes.com/2023/07/25/opinion/japan-china-economy.html

Yesterday’s post was about problems in the near term for China. Today’s post is about long term problems in the case of Japan, and how they’ve dealt with it. Both perspectives are important, and if you are a student of economics, both really and truly matter:

I often begin introductory classes in macroeconomics by saying that there’s two reasons you might want to take your child to a doctor. I should know, I have a five year old daughter.
The first reason is because the child has a cold say, or a fever. A temporary problem, that can hopefully be fixed in the “short run”. The other reason that you might want to take your child to a doctor is to figure out if your child is doing well on parameters such as height, weight etc. Any parent who has agonized over what percentile their child is on that accursed chart which shows “normal” height and weight knows what I’m talking about. These are “long run” parameters.
The economy is the same! We worry about short run problems, such as the deficit, or the annual budget, and well we should. But we should also be thinking long and hard about the long term growth prospects of our children economy.

https://atomic-temporary-112243906.wpcomstaging.com/2018/10/09/links-for-9th-october-2018-aka-the-nobel-special/

Note to readers: if you’re wondering why “democracy” in the title, ponder this phrase from Paul Krugman’s post: “especially under an erratic authoritarian regime”. Democracy may give you slow growth, but it is underrated, especially in today’s day and age.

Note to self: that five year old daughter will be ten years old next month! Where did time go?!

Nothing is so permanent as a temporary government program

The title of today’s blogpost is a line by Milton Friedman, of course.

This chart, from Andrew Batson’s blogpost, caught my eye:

https://andrewbatson.com/2023/08/08/stimulus-is-never-just-temporary/

Quite a few things to note over here:

  1. The difference between the three lines, which is in and of itself interesting
  2. The persistence of augmented net borrowing (including unofficial local government borrowing)
  3. China is, in a sense, still recovering from the fiscal excesses of 2008

Here’s Andrew on the third point:

China’s political system therefore does not have a good track record of being able to take away the punch bowl in good economic times in order to be able to share out more punch in the bad times. The dubious legacy of the 2008 stimulus means that China now needs fiscal consolidation to get long-term debt dynamics under control–at exactly the moment that it once again faces a shortage of aggregate demand.

https://andrewbatson.com/2023/08/08/stimulus-is-never-just-temporary/

The context, of course, is that China is struggling to recover from the pandemic. There’s lots of reasons this is happening:

There are several reasons to be gloomy about China’s economic prospects, from America’s export controls on advanced semiconductors and skittish foreign investors, to President Xi Jinping’s crackdown on big tech firms. But the main culprit for the recent weakness is property, which before the pandemic was a crucial source of growth across the economy. Activity slowed, first as the government sought to rein in heavily indebted developers, and then more recently as sales have stayed weak. Between January and May, for instance, real-estate investment fell by 7.2%, compared with the same period a year ago. The danger is that the property bust now becomes an enduring malaise.

https://www.economist.com/leaders/2023/06/22/chinas-economic-recovery-is-spluttering-the-prognosis-is-not-good

…but given what happened in 2008 (and since), a fiscal stimulus seems to be off the table where China is concerned.

Fiscal profligacy is not, in other words, a good idea. Don’t get me wrong: I am not saying fiscal expenditure is a bad idea. In fact, in a country like India, it is unavoidable, and for a variety of reasons. But the answers to the questions:

  1. How much to spend?
  2. Where to spend?
  3. When to spend?

…are always important in the context of fiscal policy.

Note that this is not a comment about India and her fiscal policy both during and after the pandemic. It is simply a reminder that fiscal policy is extremely difficult to get right in terms of when to start, what the magnitude should be, and when to stop.

For example:

When Japan’s asset-price bubble burst at the end of 1989, growth slowed dramatically. Firms and households, burdened by debt, paid off their liabilities rather than spending on goods and services. Together with a shrinking workforce, this meant that Japan’s gdp growth lagged behind the rest of the rich world.
Part of the problem was that policymakers were too slow to respond. It was not until 1999 that the Bank of Japan cut its benchmark rate to zero; the government directed stimulus towards investment, rather than consumption.
The bust turned into decades of stagnation. Unfortunately, China looks as if it may repeat the same mistake. The government remains fond of directing stimulus to investment, rather than towards handouts.

https://www.economist.com/leaders/2023/06/22/chinas-economic-recovery-is-spluttering-the-prognosis-is-not-good

To spend the right amount, to start at the right time, to end at the right time, and to make sure one spends it right where it’s needed – it’s easy for a blogger to say that this matters. It is easy to point out where a country has gone wrong with the benefit of hindsight. But to actually do it when it is needed the most, that’s a whole other challenge.

Some might say it is all but impossible, but if you are a serious student of the Indian economy, you’re going to have to admit it is unavoidable.

Macro is hard.

Two Typically Tylerian Takes

Allow me a quick pat-self-on-the-back for the alliteration before we proceed, will you?

Right, so how to think about too much (or too little) government in healthcare? Some of us might say one, and some of us might say the other.

How many of us will say “neither”?

I observe also that Obamacare passed, and American life expectancy fell. I do not blame Obamacare for that, but I do notice it. As a result, I have grown increasingly interested in “how can we boost biomedical scientific progress?” and increasingly less interested in “how can we reform health insurance coverage again?” All the more because we seem to be living in a biomedical progress of science golden age.

https://marginalrevolution.com/marginalrevolution/2023/07/the-amy-finkelstein-and-liran-einav-health-care-plan.html

Many of us can say “both”, and I very much do. But this specific way of saying “both” I find fascinating:

…imagine a health care policy that stated individuals have a true right to access any health care technology invented up through say…2004 or so. Individuals would be guaranteed “2004 value health care lives.” (In 2004 that certainly seemed pretty good.) But for subsequent health care developments, a free market will reign. Is not guaranteeing basic needs an essential part of the egalitarian argument? Surely not everything needs to be equalized? Anyway, no one believes in guaranteeing individuals protection against all the rare diseases out there, as that would cost too much. So a line will be drawn somewhere.

https://marginalrevolution.com/marginalrevolution/2023/03/a-view-that-hardly-anyone-embraces.html

Some points I would like to note here:

  1. Thinking out of the box is hard to do, and needs a lot of reading, and then a lot of thinking. I’m not very good at all three things, and practice is key.
  2. If an issue has remained intractable for a long time, and the debate seems to only get shriller without any resolution, perhaps it is time to consider a solution that lies outside of the framing of the debate.
  3. How do we know when this becomes applicable? See pt. 1
  4. Write every single day. Or train like an athlete, if you prefer.
  5. Read MR every single day. I’m quite serious about all of these, but this last one is the easiest to achieve.