Why Is Reading the News Online Such a Pain?

Livemint, Hindu Business Line, Business Standard, Times of India, The New York Times, The Hindu, The Washington Post, The Economist, Bloomberg Quint and Noah Smith’s Substack.

These are, as of now, my sources of news online that I pay for.

There are other newsletters that I subscribe to and pay for (The Browser is an excellent example), and I read stuff published in other newspapers too, but I’m restricting myself to only the current news sources that I pay for. I would like to subscribe to the Financial Times and to Stratechery too, but my budget line begins to cough firmly and insistently at this point, more’s the pity.

But here’s the thing: reading news online sucks.

Some are worse than others, and I’m very much looking at you, Business Standard. Their app is a joke, and the number of times one has to sign in while reading the paper on a browser isn’t funny. Some are, relatively speaking, better. The NYT website and app are both pretty good, as is the Economist. But still, it isn’t friction free, and there really should be a way to get the user experience to be better than it is right now.

And more than better, a more urgent word is uniform. Here’s a simple use case: let’s say I want to read articles on the current lockdown in Shanghai. I have to go to each website, and either run a search, or navigate to the appropriate section. But on each website, the search button will be located in a slightly different place, with a slightly different user experience. Each website while have their own navigation system. Each website will have different ways to filter search results.

Some will allow you to copy excerpts, some won’t. Some will allow clips and force an appendage at the end (“Read More At XYZ” – I’m looking at you, ToI). But by the time I finish visiting the third website to read about the topic I wanted to – current lockdowns in Shanghai – I’m pretty much done out of sheer exasperation.

It shouldn’t be this hard!

Workarounds kind of exist. For example, I can add the RSS feeds to Feedly, or any other feed reader of your choice. If you’re not familiar with Feedly, or RSS readers in general, here is an old post about it. But the reason I say kind of is because most (if not all) newspapers will not provide the full article in the RSS feed. You have to click through to read the full thing.

Not much use, is it?

Which, to be clear, is entirely understandable. User tracking, ads, and all the rest of it, I get it. But it does mean that Feedly isn’t a great way to keep track of all these articles in one place.

What I would really like is an app/service that aggregates all news sources in full in one place, and allows me to sign in to premium news sources via that app/service.

Does such a service exist? Or are there workflows that solve this problem?

Please, do let me know!

Decoding the MPC Announcement

Mandar asks a question:

This can be a short story, and a long story. Let’s make it a long one!

Here’s the very last paragraph from the third chapter of the RBI’s Annual Report of the year 2015-16:

III.39 Going forward, the focus of the Reserve Bank’s monetary policy stance during 2015-16 will be on fostering a gradual and durable disinflationary process towards the target of below 6 per cent by January 2016 in order to achieve the centrally projected rate of 4 per cent by the end of 2017-18. At the same time, the efficacy of the monetary policy transmission mechanism needs to improve since the pass-through of recent cuts in policy rate to the bank lending rate has been partial, reflecting constraints in transmission under the existing base rate system. Identifying the impediments in pass-through and implementing an alternative method, such as marginal cost based credit pricing or identifying an appropriate benchmark for the bank lending rate will be a priority for the Reserve Bank. In this regard, it is imperative to develop market based benchmarks by developing the term segment of the money market. Thus, liquidity support may have to be progressively provided through regular auctions of longer term repos with reduced dependence on overnight fixed-rate liquidity support. While doing so, it will also be important to dampen deviations of WACR and other money market rates such as CBLO rates from the repo rate in a narrow range. The Reserve Bank will continue to explore and augment its instruments of liquidity management, including standing deposit facility for absorption of surplus liquidity, as recommended by the Expert Committee.

https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1149 (emphasis added)

(Students should also look up, by the way, what WACR and CBLO are). But back to our story: in 2016, the RBI was “continuing to explore and augment its instruments of liquidity management” – including a facility that we’ve all read a bit about this past week, the standing deposit facility.

First, what is liquidity management?

The “liquidity management” of a central bank is defined as the framework, set of instruments and
especially the rules the central bank follows in steering the amount of bank reserves in order to control
their price (i.e. short term interest rates) consistently with its ultimate goals (e.g. price stability).

https://www.ecb.europa.eu/events/pdf/conferences/1b.pdf

In English: the central bank would like to try and control short term interest rates in the economy, in order to keep prices as stable as possible. The framework that allows them to do so is referred to as liquidity management.

So how does liquidity management work in practice, whether in India or abroad? In most cases, via the “repo” rate and the “reverse repo” rate. The first of these is the rate at which banks can borrow from the central bank, and the second of these is the rate at which the central bank can borrow from the banks. Here’s a good, basic, explainer.

So ok, we have a framework, and we now know how it works. Then why, Mandar asks, do we now have the SDF?

Which, of course, begs the question: what is the SDF?

At the last meeting, banks were offered a facility to park surplus liquidity through an auctioning system, which was in addition to reverse repo facility. The idea is to suck the surplus liquidity out of the system through the variable reverse repo rate. Now, RBI has regularized the same under the SDF window, which offers 3.75% interest rate for funds parked without any collateral backing. The SDF window will help banks earn a minimum return when they have surplus funds. The SDF rate of 3.75% would be the floor policy rate.

https://www.livemint.com/economy/decoding-rbi-s-latest-monetary-policy-decisions-11649613385417.html

If banks in our country have excess funds (and right now, they most certainly do) what can the banks do with them? One option is to use the reverse repo mechanism and park these funds with the central bank. Or you could use the auctioning system, as the excerpt above explains. But now, in addition to both of these, you can also make use of the SDF.

The reverse repo in our country is right now at 3.35%, while the SDF will give you 3.75%. If you are a bank with excess funds, the RBI says you can give me these excess funds and I’ll pay you a) an interest rate of 3.35% if you use the reverse repo route OR b) I’ll pay you 3.75% if you use the SDF.

The naïve response to this is to go with option b). The not so naïve response is to ask “Wait, what’s the catch?”

Well, the catch is that reverse repo’s come with collateralization. When the central bank accepts excess funds from you, what it does in practice is it “sells” you securities, and “buys” them back at a slightly higher rate when it gives the funds back. “Buying them back” is a repurchase, and hence the terms repo (bank to central bank) and reverse repo (central bank to bank). When securities are involved, we say the deal is collateralized.

SDF? No collateralization.

Why? Well, there’s so much of excess liquidity floating about that the central bank was running out of securities to offer as collateral.

But ain’t this a rather risky thing, parking excess funds without collateralization? Well, this is the RBI we’re talking about. If you don’t trust the central bank, then what else is there boss? So no, we don’t need to worry about the lack of collateralization is the current stance, and all are ok with this.

So the effective rate is now 3.75, not 3.35?

Um no, it’s actually 4.00%. Remember those reverse repo auctions? Those have been averaging around 4%. So (and if you think this is confusing, join the club), if you’re a bank and have excess funds, the central bank now gives you three choices:

  1. Good ol’ reverse repo, with collateralization, but 3.35%
  2. SDF, 3.75%, but no collateralization
  3. Reverse repo auctions, 4.00%, with the same collateralization as is applicable for the LAF. (This last point is on a “best as I can tell” basis. If anybody reading this knows better, please help me and the readers out!)

So, (phew!), in effect the floor is 3.75% 4.00%.

And that’s the answer to Mandar’s question: this is why the RBI has introduced an SDF when we already have the reverse repo rate.

On Noahlism

About the title of today’s blogpost: I couldn’t resist, I’m sorry. The post is about something Noah Smith calls the “The Two Paper Rule”, about which much more below – but the title is courtesy Paul Krugman. About which, also, more below.

Noah wrote this post a while ago, in May 2017. His original post is about a Very Simple Idea that hopefully solves a Very Real Problem. Here’s the Very Real Problem:

I don’t know why academic literatures are so often referred to as “vast” (the phrase goes back well over a century), but it seems like no matter what topic you talk about, someone is always popping up to inform you that there is a “vast literature” on the topic already. This often serves to shut down debate, because it amounts to a demand that before you talk about something, you need to go read voluminous amounts of what others have already written about it. Since vast literatures take many, many hours to read, this represents a significant demand of time and effort. If the vast literature comprises 40 papers, each of which takes an hour to read, that’s one week of full-time work equivalent that people are demanding as a cost of entry just to participate in a debate! So the question is: Is it worth it?

https://noahpinion.substack.com/p/the-two-paper-rule?s=r

Anybody who has suffered through a PhD knows the problem all too well. These days, anybody who has been asked to do a literature review for any paper knows the problem all too well. There is just too much to read.

And folks who want to make sure that uppity folks don’t get, well, too uppity always have a fail-safe defense at the ready: “Have you read all the relevant literature?”. There’s so much stuff that is being published about everything imaginable, that you’re never going to be able to get through even a fraction of it. Why, there’s even a law about it! And there’s a law about the law, which only goes to prove the point further, I suppose.

And here’s Noah’s Very Simple Idea to solve this Very Real Problem:

My solution to this problem is what I call the Two Paper Rule. If you want me to read the vast literature, cite me two papers that are exemplars and paragons of that literature. Foundational papers, key recent innovations – whatever you like (but no review papers or summaries). Just two. I will read them.
If these two papers are full of mistakes and bad reasoning, I will feel free to skip the rest of the vast literature. Because if that’s the best you can do, I’ve seen enough.
If these two papers contain little or no original work, and merely link to other papers, I will also feel free to skip the rest of the vast literature. Because you could have just referred me to the papers cited, instead of making me go through an extra layer, I will assume your vast literature is likely to be a mud moat.
And if you can’t cite two papers that serve as paragons or exemplars of the vast literature, it means that the knowledge contained in that vast literature must be very diffuse and sparse. Which means it has a high likelihood of being a mud moat.

https://noahpinion.substack.com/p/the-two-paper-rule?s=r

I love this idea, and for the following reasons. One, I have an immediate repartee whenever I’m attacked with the “But have you read the literature?” question. And it’s not just a repartee, but a genuine request that serves two purposes. The person asking the question had better be able to come up with at least two papers on the spot. There is otherwise not much point in they having asked the question! Second, assuming the person does come up with two papers I haven’t read, there’s more to read and more to learn.

But second, as a student, what a wonderful way to start building up a repository of papers about a series of subjects! Always ask your profs, no matter the subject, about the two papers worth reading about today’s topic, and keep a running list. (Hint: this is a great way to spend a summer!)

Third, and I’m personally very curious about the results in this case, what about asking young profs and old profs this very question about the same subject? If the answers differ, this is a field worth examining rather more deeply, for it obviously has evolved fairly rapidly. I did my PhD in business cycles, and trust me, the answers would never have been the same – by age, adherence to a particular school of macroeconomics thought, or even by nationality.

Paul Krugman loved the idea (Noah links to Krugman’s blog towards the end of Noah’s blog post, but the link seems to be down. The excerpt below is from Google’s cache):

What about trade? Autor/Dorn/Hanson on the China shock may not be the last word, but surely a revelatory approach. In a strange way, I’d put Subramanian and Kessler in the same category: realizing that this globalization is different from anything that came before is a big deal.
I guess that in a way I’m pushing back against Noah’s nihilism (noahlism?) even while endorsing his method. I think there has been a lot of good economics done, even if there are also vast literatures not worth your time.

Click here to access the link, too long to post in its entirety

… and you now know, of course, where the title of today’s post comes from! What I think Krugman is getting at when he refers to his pushing back against Noah’s idea is that perhaps just two papers is too restrictive. And if that be the case, Tyler Cowen agrees:

The difference between total value and marginal value may be relevant. You might conclude a field literature has low total value, but the marginal value of learning more about that area still could be quite high. That is in part because muddy fields and results don’t spread so readily, and so dipping into the muck can yield some revelations. That is another reason why I would not offer the “two paper standard” as practical advice.

https://marginalrevolution.com/marginalrevolution/2017/05/vast-empirical-literature.html

I have quoted only one of Tyler’s points (he’s got nine others), but in general, I don’t think we should be taking the two part of the two paper rule as being sacrosanct. In some cases you may need to read five, in some rarer cases ten. So long as the number is reasonable (and the standard will change), we can still live with the spirit of the two paper rule.

But if you are a student in college, the two paper rule is a good way to build up a repository of about fifty odd papers that you Really Should Have Read. Twenty five courses (roughly speaking), two papers each.

Well, get started! 🙂

Blockchains Are A Bad Idea

Via Krish Ashok, via Navin Kabra

AI Meets and Tries to Take Over New Yorker Cartoons

Decide for yourself if it succeeded. And if you think it didn’t, how long do you think it’ll be before it does?

Talk To Your Profs

Fridays around these parts are about me dispensing gyaan to students about careers, skillsets and what not. Today’s post is in similar vein, but about a topic that I honestly never thought I would have to write about. It’s about encouraging students to talk to professors more.

What little I personally know of economics I didn’t really learn in classrooms. I learnt about it by talking and arguing with friends (which still happens, thank god), by reading as many books as I could lay my grubby paws on, and through conversations with (some of) my professors. And I’m pleased as punch to report that the first and the third group now have some intersectionality.

Students are finally back on campus, thank god. Not all of them, unfortunately, but hopefully this semester will be the last semester where we have this weird halfway world. Now that students are back on campus though, there’s a bit of a disconnect.

Students who were on campus before the pandemic have a natural ease around them when conversing with me and other faculty members, or when it comes to dropping in to our offices for a chat over a cup of coffee. But with students who I and other faculty members have taught exclusively online, it’s painfully apparent to both parties that the ease is missing.

And today’s blogpost is based around this observation. To every student everywhere who is reading this, if there is a professor who you would like to engage in conversation, don’t wait! Please, go ahead and ask the professor if they could spare the time for a chat. Sure, they might ask you to drop by later if they’re busy, but most (if not all) professors will be only too happy to engage you in conversation.

And these offbeat, random conversations are the best way to learn, trust me. One-on-one conversations over a cup of coffee tend to be more relaxed, more in-depth and more reflective. Best of all, serendipitous projects have a way of falling in your lap while these conversations take place, and you’d be surprised at the kind of work that can come out of a simple conversation.

Books, movies, travel, good places to eat around college, politics, music – everything is fair game. Besides of course, whatever it is that you’re learning about these days, and let me be honest – the occasional dash of gossip. Even us economists are human under certain circumstances!

But if you ask me, it is this that defines the offline college experience. Classes, sure, but in person relaxed conversations is where the real magic happens. Both in college and later.

So if you are on campus, and haven’t yet mustered up the courage to knock on a prof’s door and ask if you could just come in to chat, give it a try.

I’ll keep the kettle handy.

About This Measurement Business

(C) GDP figures are “man-made” and therefore unreliable, Li said. When evaluating Liaoning’s economy, he focuses on three figures: 1) electricity consumption, which was up 10 percent in Liaoning last year; 2) volume of rail cargo, which is fairly accurate because fees are charged for each unit of weight; and 3) amount of loans disbursed, which also tends to be accurate given the interest fees charged. By looking at
these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are “for reference only,” he said smiling.

https://wikileaks.org/plusd/cables/07BEIJING1760_a.html

This is an excerpt from the Wikileaks archive, and people familiar with modern economic history will know it all too well. This is, of course, the famous Li Keqiang index. If you prefer, you can read the original Economist article about it, although for once, the trademark Economist pun in the headline falls short of their typically high quality.

GDP measurements have always been tricky, and reading about GDP – it’s evolution, the data collection, the computation and the hajjar problems that arise from there – should be mandatory for any student aspiring to learn economics. Here’s a post from six years ago about some sources, if you’re interested.

But back to that excerpt above. What Li Keqiang was saying was that GDP statistics in China would often give a misleading picture, and he preferred to reach his own conclusions on the basis of other economic data. His preferred metrics were the ones mentioned in the abstract above: electricity consumption, volume of rail cargo and loans disbursed. Think of it this way: he’s really asking three questions. Is stuff being produced? Is stuff being moved around? Is stuff being purchased?

But what about covid times? Do these measures stand up, or do we need new proxies for GDP?

The variant’s speed also means that China’s economic prospects are unusually hard to track. A lot can happen in the time between a data point’s release and its reference period. The most recent hard numbers on China’s economy refer to the two months of January and February. Those (surprisingly good) figures already look dated, even quaint. For much of that period, there was no war in Europe. And new covid-19 cases in mainland China averaged fewer than 200 per day, compared with the 13,267 infections reported on April 4th. Relying on these official economic figures is like using a rear-view mirror to steer through a chicane.
For a more timely take on China’s fast-deteriorating economy, some analysts are turning to less conventional indicators. For example, Baidu, a popular search engine and mapping tool, provides a daily mobility index, based on tracking the movement of smartphones. Over the seven days to April 3rd, this index was more than 48% below its level a year ago.

https://www.economist.com/finance-and-economics/omicron-is-dealing-a-big-blow-to-chinas-economy/21808576

But as the article goes on to say, this metric will tell you about movement across cities. But metro traffic gives you an idea of intra-city mobility, as do courier company express deliveries (and we did some very similar exercises in India during the lockdowns, of course. Here’s one example for Pune district.)

But the point isn’t just to come up with what else might be useful as GDP proxies. A follow-up question becomes equally important: do the GDP statistics make sense? As the Economist articles says, good numbers for metrics such as investment in fixed assets are hard to square with declines in steel output. The article contains many other such examples, and what you should take away as a student is your ability to develop a “smell” test for a given economy. Don’t take the reported numbers at face value, but “see” if they seem to be in line with other statistics about that economy.

I really like this article as an introduction to this topic because it also hints at how statisticians need to be especially careful about comparing data over time. Weekly declines might happen because of festivals, bad weather or a thousand other things, which may of course be going on along with pandemic induced lockdowns. Teasing out the effects of just one aspect isn’t an easy thing to do.

And finally, think about how you can apply this lesson in other domains! Should an interviewer look only at marks, or try and figure out other correlates. Or, as Mr. Keqiang puts it, are marks “for reference only”? What about quarterly earnings reports? Press releases? Smell tests matter, and the earlier you start developing them, the better you get at detecting, and calling bullshit.

And finally, the concluding paragraph from the article we’ve discussed today:


To help avoid some of the traps lurking in these unconventional indicators, Mr Lu and his team watch “a bunch of numbers, instead of just one”. In a recent report he highlighted 20 indicators, ranging from asphalt production to movie-ticket sales. “If seven or eight out of ten indicators are worsening, then we can be confident that GDP growth is getting worse,” he says. Right now, he thinks, the direction is clear. “Something must be going very wrong.”

https://www.economist.com/finance-and-economics/omicron-is-dealing-a-big-blow-to-chinas-economy/21808576

Indeed.

On Sri Lanka

Back in 2014, out of the blue, I got the chance to travel to Sri Lanka thrice in the space of two months for work. It was my first visit to the country, and I haven’t been back since. I spent time in Galle, Colombo and a place called Puttalam. As with most other people who have been to the country, I found it to be a beautiful place with fabulous food. Oh, the food. What food it was.

And the deep irony, of course, is that the current tragedy revolves so much around the same word: food. Only now, there simply isn’t enough of it.

But what happened, exactly? How did Sri Lanka get to where it is today?

The answer to that question must necessarily be another one: how far back do you wish to go? To borrow an analogy from another field, where should you begin if you want to explain the 2008 Great Financial Crisis? Should you begin with Bear Sterns going belly up in March 2008? Or should you begin with low interest rates in the early 2000’s? Maybe 9/11 and the lowering of interest rates immediately after? The S&L crisis of 1984? How about tulips in the 16th century?

In Sri Lanka’s case, thanks to the excellent Amol Agarwal, let’s begin with a book written by the son of the guy who founded Bata shoes:

At that time, the only oasis of peace in the area was Sri Lanka, or Ceylon as it was called before decolonization. When I first went there in the late 1940s, it was a Shangri- la full of smiling people, ambling elephants and king coconuts with delicious milk to quench one’s thirst. Almost in defiance of the horrors that were raging all around it, Ceylon was an island of tranquility and racial tolerance. Forty years later the Indian subcontinent, along with Singapore, Malaysia, Thailand and Indonesia all enjoy peace and varying degrees of prosperity, and our enterprises in these countries are among the strongest pillars of the Bata organization.

https://www.amazon.com/Bata-Shoemaker-World-Thomas-J/dp/0773724168

But then things started to go wrong in 1948, and who better than Samanth Subramanian to make a complicated history simple to understand? Read the entire book, but the introduction is a good way to come to grips with how things started tear apart at the seams:

It is curious to locate the proximate cause of a war in something as noble as a desire for education. When Sri Lanka broke free of British rule in 1948, the seats in its universities were occupied to disproportionately high levels by the minority Tamils, who through quirks of colonial history spoke better English and were better educated than the majority Sinhalese. The Tamils then went on, after university, to fill the civil service, the country’s most reliable provider of employment at the time. To the country’s Sinhalese who suddenly found themselves empowered with a vote, and therefore to the government, this state
of affairs appeared too lopsided and unfair to continue. When laws and quotas were enacted to protect the interests of the Sinhalese, the Tamils felt they were being discriminated against. The frictions between the two communities erupted repeatedly into ghastly riots; in the worst of them, the Black July riot in 1983, roughly 3,000 people were killed, many of them burned alive. Tamil houses and shops were looted and burned, and 150,000 Tamils were rendered homeless.
When a clutch of Tamil militant groups had begun to emerge in the 1970s, to agitate for a free Tamil state, they found only a trickle of willing recruits; after Black July, though, they were flooded by young
men and women wanting to fight, and none more so than the Tigers. Starting as a ragtag outfit carrying out the odd guerrilla attack, the Tigers grew into a fearsome terrorist organization. They ran arms and drugs, pulled in funds from a Tamil diaspora scattered across the planet, killed thousands of civilians, assassinated presidents and prime ministers, and perfected the art of the suicide bomber. They kept their own people, the Tamils, in line by intimidation and murder. In their full pomp, the Tigers controlled vast wedges of territory in the north and east of Sri Lanka, where flat, hot, sandy coasts meld gradually into jungle. Here they ran their own country in all but name, collecting taxes and policing the streets and adjudicating disputes. But the Sri Lankan state was always just outside the door, impatient to snatch back its land, working itself up into a state of angry nationalism.
Buddhism, the religion of most Sinhalese, developed a vocal right wing; its monks entered politics, pressed for a more merciless war, and dreamed of a purely Buddhist island.

Introduction, This Divided Island (Life, Death and The Sri Lankan War) by Samanth Subramanian

Even by my usual standards, this is a bit of a whopper, this extract, but I hope it nudges you into reading the entire book. (Actually, given that it is Samanth Subramanian we’re talking about, pick up anything written by him. It’s guaranteed value for money.)

The war ended, finally, in the year 2009, but it ended with a very high cost. The Wikipedia article serves as an introduction to the war, and Samanth’s book is a deep, thought-provoking reflection on the aftermath.

That’s a ridiculously brief background, and now let’s get down to the economy. The Sri Lankan economy, much like the Indian economy, is mostly a service based economy. Around sixty percent of their GDP comprises of services today, but that’s where the similarity with the Indian economy ends. A large chunk of this sixty percent, as you might imagine, is down to the tourism sector. And the pandemic has devastated this segment – not just in Sri Lanka, of course, but the effects are felt with much more severity in a nation that is so very dependent on it.

But it gets worse!

The economy is highly-dependent on imports for essential items such as food, and oil. The economy finances these imports mainly via agricultural exports (tea, rubber, and coconut), industrial products (textiles), and remittances from abroad. The revenues from exports, and remittances have not covered the cost of imports, and Sri Lanka has always been in a current account deficit (CAD). The average CAD in 2010-19 was around 1.2 percent of GDP.
The CAD has been met mainly by the government borrowing from abroad. As the government borrowing from abroad has been larger than the CAD, the balance has been pegged to the foreign exchange reserves. What can one make of an economy where the forex reserves consist of mainly borrowings from abroad!

https://www.moneycontrol.com/news/opinion/how-sri-lanka-reached-this-economic-precipice-8314151.html

So an economy that was, at best, precariously placed during the Covid-19 pandemic. And then, of course, going 100% organic.

Here’s a part of the conclusion from Seeing Like a State, by James C. Scott:

Take small steps: In an experimental approach to social change, presume that we cannot know the consequences of our interventions in advance. Given this postulate of ignorance, prefer wherever possible to take a small step, stand back, observe, and then plan the next small move. As the biologist J. B. S. Haldane metaphorically described the advantages of smallness: “You can drop a mouse down a thousand-yard mineshaft; and on arriving at the bottom, it gets a slight shock and walks away. A rat is killed, a man broken, a horse splashes.”

Seeing Like a State: How Certain Schemes to Improve The Human Condition Have Failed, by James C Scott

Or, if you prefer pithier statements, Deng Xiaoping’s famous dictum about crossing the river by feeling the stones comes to mind (although the quote isn’t originally by him). But Sri Lanka, of course, went straight to 100% organic farming, and well, if you’ve read even a single newspaper in the last two months or so, you know how that turned out.

The rest of the story is predictably depressing, and depressingly predictable. Rapidly depleting forex reserves, a drying up of foreign investment, stratospheric inflation, a weakened currency and all the rest of it.

And the knock-on effects of each of these on the ordinary person on the street are equally horrible. We’ve all heard about postponement of exams because of a lack of ink, long lines at petrol pumps, rising protests, people fleeing the country and so on.

And most tragic of all perhaps, is the ostrich-like approach of the government, which insists on coming up with ridiculous (there really is no other word) responses in terms of policy making. Long story short, this is a problem that is going to get much, much worse before it gets better.

I’ve tried to keep the story as simple as possible, but if you’re looking for a good in-depth read about this, here are some recommendations:

  1. Via Splainer.in (which you really should subscribe to!), an excellent in-depth macro analysis of the crisis, but in English (with jargon explained at the end, imagine!)
  2. The political fallout, which is rapidly evolving, and may well be out of date by the time you read this.
  3. Best of all, try and play around with the data if you happen to be a student of macroeconomics. What charts and tables would you create using this data, for example, and why? Best of all, pick an article such as the first one here, and try and see how many of these charts you can recreate in Excel. Trust me, ’tis the best way to learn.

Read Blogs Written by Gulzar Natarajan

Regular readers must be sick and tired of hearing me say this, I suppose, but please: read blog posts written by Gulzar Natarajan!

Especially so if you happen to be a student of economics. The art of taking a complex topic, asking simple questions about it, marrying them to the appropriate economic concepts that will help in the analysis, and reaching a cogent, well argued conclusion is a rare, rare skill. And Gulzar Natarajan possesses it in spades!

Consider the post titled The Demand Supply Gap in Medical Education.

The demand supply gap is stark. About 1.6 million students appeared for the National Eligibility cum Entrance Test (NEET) in 2021, of which only 88,120 make it to the 562 public and private medical colleges. That’s 19 applicants for every seat. Those numbers are now 89,875 and 596.
How do you analyse this market? What will be the impact on seat prices due to supply changes of medical seats? How will the supply side react to this situation of large numbers of Ukraine returned students? What will be the profile of supply side?

https://gulzar05.blogspot.com/2022/03/the-demand-supply-gap-in-medical.html

These are not hard questions to frame. In fact, I would argue that most of us will be able to frame these questions even without having studied economics formally. But that being said, framing them this simply and concisely takes years of practice.

He identifies four main problems that we need to deal with:

  1. The major constraint is the source of quality faculty
  2. Private supply of medical colleges is unlikely to make up the shortfall (he explains why in the post, and I tend to agree)
  3. As he puts it, “In an acutely supply deficient market, the limited marginal supply is likely to bid up the medical seat prices even more”. I would only add one word to this sentence, between the words marginal and supply: quality. It’s not so much about the supply going up as it is the degree to which high quality supply goes up.
  4. Ah, but alas, that brings us to an even more difficult question: quality as it truly exists, or quality as perceived by prospective students and by society? I studied in Fergusson College in Pune, so I have a moral right to ask this question. And that’s what he means by the phrase “lemon problem“. If you’re wondering why this is known as a lemon problem, take a look at this.

His preferred solution is having the government step in to augment the supply, using government district hospitals and some area hospitals. This, he says, is preferable to the public-private-partnership (PPP) model. I don’t dispute the assessment of the PPP model, and its shortcomings. But I’m curious about why he would say that government institutions are always going to assure a certain basic minimum assured quality. Is this necessarily true, even in a relative sense? And if so, why?

And the concluding paragraph is at once depressing and optimistic:

Finally, this is a teachable example on the reality that though many problems have no immediate solutions, we try to solve them. Part of it is about wanting to do something and also be seen doing something. This is a human reflex and a political economy compulsion. Bridging the demand-supply gap in medical education is one such problem. Given our context and constraints, it’s very unlikely that we can bridge this gap in the foreseeable future. Like with other similar problems like affordable housing, agricultural productivity, or traffic congestion, we can only create the conditions required for its mitigation and gradual easing.

https://gulzar05.blogspot.com/2022/03/the-demand-supply-gap-in-medical.html

Depressing because, as he says, it is unlikely to be solved any time soon. Optimistic because creating the conditions is easier said than done, but it is achievable.

What might these conditions be? How does one go about creating them? If you’re interested in the answers to these questions, you are, like it or not, now a student of economics and public policy.

P.S. And the answers themselves require many more blogposts, but please, feel free to search around on this blog for some of ’em! 🙂

Stephen Kotkin on Putin, Russia and the West

That title is partially borrowed from the subtitle of the New Yorker piece, and I’d strongly urge all of you to read it in its entirety.

I know next to nothing about geopolitics (which is one reason why I enjoyed reading the interview so much), and my notes that follow below aren’t so much about my take on the geopolitical aspects. Rather, they’re about reading this interview as a student of economics, and asking how much of what I know helps me understand the points being made. Simply put, what economic principles are helpful in understanding this interview? And as always, how can I apply these lessons and realizations while reading about geopolitics in general?

  1. “Was Iraq the way it was because of Saddam, or was Saddam the way he was because of Iraq? In other words, there’s the personality, which can’t be denied, but there are also structural factors that shape the personality. One of the arguments I made in my Stalin book was that being the dictator, being in charge of Russian power in the world in those circumstances and in that time period, made Stalin who he was and not the other way around.”
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    Is there causality, and which way does it run, is a question that seemingly occupies the minds of most economists today. But as you can see from this excerpt, the question matters in other contexts too. And in these other contexts, you don’t have access to “data” that you can use to run a model that “establishes” causality one way or the other. Think long and hard about causality, and across multiple contexts, and revel in the confusion that it causes in your mind. If thinking about causality does not confuse you, you aren’t thinking hard enough!
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  2. “Instead of getting the strong state that they want, to manage the gulf with the West and push and force Russia up to the highest level, they instead get a personalist regime. They get a dictatorship, which usually becomes a despotism. They’ve been in this bind for a while because they cannot relinquish that sense of exceptionalism, that aspiration to be the greatest power, but they cannot match that in reality. Eurasia is just much weaker than the Anglo-American model of power. Iran, Russia, and China, with very similar models, are all trying to catch the West, trying to manage the West and this differential in power.”
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    What are you optimizing for? Growth for it’s own sake, because it is fundamentally a good thing, or growth in order to achieve another end (whatever that end may be)? Does the answer matter in terms of how you’ll achieve said growth, and if so, with what consequences? Is there a stable way to grow, as opposed to potentially unstable ways? How should one, as an Indian, think about the answers to these questions?
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  3. “And so we think, but we don’t know, that he is not getting the full gamut of information. He’s getting what he wants to hear. In any case, he believes that he’s superior and smarter. This is the problem of despotism. It’s why despotism, or even just authoritarianism, is all-powerful and brittle at the same time. Despotism creates the circumstances of its own undermining. The information gets worse. The sycophants get greater in number. The corrective mechanisms become fewer. And the mistakes become much more consequential.”
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    Does information matter? We teach, in economics, that prices are a way of communicating information. Need prices always be thought of as being pecuniary in nature? And if not, how does the stymieing of information flows affect the entity being analyzed? How should one use this thought exercise to think about setting up organizations?
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  4. “But it turned out that “the television President,” Zelensky, who had a twenty-five-per-cent approval rating before the war—which was fully deserved, because he couldn’t govern—now it turns out that he has a ninety-one-per-cent approval rating. It turned out that he’s got cojones. He’s unbelievably brave. Moreover, having a TV-production company run a country is not a good idea in peacetime, but in wartime, when information war is one of your goals, it’s a fabulous thing to have in place.”
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    This reminds me of Churchill during the second world war, but I mention that only in passing. But there’s that question again: what are you optimizing for? I don’t know enough about Ukrainian politics to even try and guess what the Ukrainian population was optimizing for when they elected Zelensky into power, but the broader take-away for me is that human resources are multi-dimensional. If person x turns out to not be good at task y, it’s not necessarily the end of the road for person x in your organization. This seems like an obvious statement to make, but the longer you work in an organization, the more you realize that this seemingly obvious lesson is often ignored.
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  5. “The West is a series of institutions and values. The West is not a geographical place. Russia is European, but not Western. Japan is Western, but not European. “Western” means rule of law, democracy, private property, open markets, respect for the individual, diversity, pluralism of opinion, and all the other freedoms that we enjoy, which we sometimes take for granted.”
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    What are the opportunity costs of being the west? What are the opportunity costs of trying to be like the west? What are the opportunity costs of deciding to not be like the west? These are surprisingly deep questions!
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  6. “It’s a military-police dictatorship. Those are the people who are in power. In addition, it has a brilliant coterie of people who run macroeconomics. The central bank, the finance ministry, are all run on the highest professional level. That’s why Russia has this macroeconomic fortress, these foreign-currency reserves, the “rainy day” fund. It has reasonable inflation, a very balanced budget, very low state debt—twenty per cent of G.D.P., the lowest of any major economy. It had the best macroeconomic management.”
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    Amit Varma is fond of reminding his listeners that politics is downstream of culture. Well, economics is downstream of politics. Us economists, we tend to forget this. We should try not to, and that comes with (at least) two implications. Any economist who chooses to not study politics or culture is short-changing themselves. And any economist who makes recommendations while ignoring the cultural milieu and political context is always going to be sorely disappointed with the eventual outcome.
    Students who encounter econometrics for the first time are wont to forget the “econo” bit and focus on the “metrics” bit. If only I had a penny for the number of times I’ve been asked a variant of the following question: I have an econometric method I want to use – can you recommend a good dataset? Similarly, I think we are wont to forget the “social” bit in the phrase “social science”. We do so at our own peril.
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  7. When asked about China, Chinese growth over the last three decades, and the Chinese Communist Party taking credit for it, this was Professor Kotkin’s response: “Who did that? Did the Chinese regime do that? Or Chinese society? Let’s be careful not to allow the Chinese Communists to expropriate, as it were, the hard labor, the entrepreneurialism, the dynamism of millions and millions of people in that society.”
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    Sure, each of these are a factor – of that there is no doubt. But is it the case that the Chinese Communist Party had no role to play at all? And if it had some role to play, what was the extent? Is it replicable, this role, in other countries in other contexts? Is this a desirable role? Or do “better” alternatives exist? If so, what are they? Development economics is a very hard, and therefore a very fascinating subject.
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  8. “There’s never a social contract in an authoritarian regime, whereby the people say, O.K., we’ll take economic growth and a higher standard of living, and we’ll give up our freedom to you. There is no contract. The regime doesn’t provide the economic growth, and it doesn’t say, Oh, you know, we’re in violation of our promise. We promised economic growth in exchange for freedom, so we’re going to resign now because we didn’t fulfill the contract.”
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    Are there countries that have such a social contract? Read more about Singapore! (To be clear, I am not endorsing the Singaporean model, or any other model.) Here is a good book to get started.
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  9. “They [Russia] have stories to tell. And, as you know, stories are always more powerful than secret police. Yes, they have secret police and regular police, too, and, yes, they’re serious people and they’re terrible in what they’re doing to those who are protesting the war, putting them in solitary confinement. This is a serious regime, not to be taken lightly. But they have stories. Stories about Russian greatness, about the revival of Russian greatness, about enemies at home and enemies abroad who are trying to hold Russia down. And they might be Jews or George Soros or the I.M.F. and Nato.”
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    Stories matter, but beware of stories. Humanity is all about stories, including the idea of the existence of nations (think about it). Stories, when they work well, are all about uniting folks behind a story. Stories, when they don’t work well, are all about an idea being pushed too far. The truth lies somewhere in the middle, and figuring out exactly where is a Sisyphean task that humanity is perennially engaged with.
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  10. “The biggest and most important sanctions are always about technology transfer. It’s a matter of starving them of high tech. If, over time, through the Commerce Department, you deny them American-made software, equipment, and products, which affects just about every important technology in the world, and you have a target and an enforceable mechanism for doing that, you can hurt this regime and create a technology desert.”
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    Here’s the flipside of that question: why is it the case that the “West/America” has all this awesome technology and the rest of the world does not? Ask yourself this question: the next Elon Musk, wherever they may be in this world today – are they likely to migrate to Russia, or to America? Think through this question, and then think about cultural, political and economic aspects of a free society that is open to migration. Go back to pt. 5 and think about it once again.
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  11. “What are the dynamics there with the regime? You have to remember that these regimes practice something called “negative selection.” You’re going to promote people to be editors, and you’re going to hire writers, because they’re talented; you’re not afraid if they’re geniuses. But, in an authoritarian regime, that’s not what they do. They hire people who are a little bit, as they say in Russian, tupoi, not very bright. They hire them precisely because they won’t be too competent, too clever, to organize a coup against them. Putin surrounds himself with people who are maybe not the sharpest tools in the drawer on purpose.”
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    This excerpt helps us understand what Putin is optimizing for, to the extent that you agree with it. What are the opportunity costs of this optimization? Does this organizational set-up help the long term growth prospects of Russia? How should you think about the nature of organizational set-ups in other nations, in governments, firms and institutions? How should you think about building up your team, in your line of work? Read The Hard Thing About Hard Things, chapter 5 in particular.
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  12. When asked about Putin and the nuclear option, this was the response: “I think there’s no doubt that this is what he’s trying to do. The problem is, we can’t assume it’s a bluff. We can’t assume it’s a pose of being crazy, because he has the capability; he can push the button.”
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    It’s painfully hard, thinking through this!
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  13. “Steve, Sun Tzu, the Chinese theorist of war, wrote that you must always build your opponent a “golden bridge” so that he can find a way to retreat. Can the United States and nato help build a way for Russia to end this horrific and murderous invasion before it grows even worse?”
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    This is an important lesson, particularly for students. You’ll meet folks in a professional context who you do not like, do not enjoy working with, and have frequent quarrels with. You’ll meet folks who are at the opposite end of this spectrum, and most will lie in the middle of this spectrumThis is a guarantee, because that how statistics works.
    Your job is not to defeat the folks in the first set, but to work with them. The sooner you learn this lesson, the better your work and career will be.
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  14. When asked about the Biden administration: “They’ve done much better than we anticipated based upon what we saw in Afghanistan and the botched run-up on the deal to sell nuclear submarines to the Australians. They’ve learned from their mistakes. That’s the thing about the United States. We have corrective mechanisms. We can learn from our mistakes. We have a political system that punishes mistakes. We have strong institutions. We have a powerful society, a powerful and free media. Administrations that perform badly can learn and get better, which is not the case in Russia or in China. It’s an advantage that we can’t forget.”
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    Competition matters. Insulating oneself from competition is the surest path to slow but guaranteed institutional decay. Individuals, institutions and nations tend to not like this lesson, but it is an unavoidable truth.