Reflections on Whole Numbers and Half Truths

Single narratives have never been able to explain all of India.

S, Rukmini. Whole Numbers and Half Truths: What Data Can and Cannot Tell Us About Modern India (p. 220). Kindle Edition.

There is this line that is often quoted when big picture discussions about India take place, and it is only a matter of time before it comes up: whatever you say about India, the opposite is also true. The quote is attributed to Joan Robinson, and I can’t help but wonder if I will end up creating a paradox of sorts by agreeing wholeheartedly with it.

But I do agree with the spirit of the quote, which is why that one line extract from Rukmini S’s book, Whole Numbers and Half Truths, resonated so much with me. All countries are complex and complicated, but India takes the game to giddying heights.

Take a look at this map, a version of which is present in Rukmini’s book:

https://en.wikipedia.org/wiki/List_of_states_and_union_territories_of_India_by_fertility_rate

What is India’s TFR? First, for those uninitiated in the art and science of demography, what is TFR? It stands for Total Fertility Ratio, or as Hans Rosling used to put it, babies per woman. Well, it’s 2.0, which is good, because roughly speaking, two parents giving birth to two children will mean we’re at the replacement rate (note that this is a very basic way of thinking about it, but useful as a rough approximation).

But as any student of statistics ought to tell you, that’s only half the story (or half the truth). Uttar Pradesh, Bihar and Jharkhand are well above the so-called replacement rate, and that will have implications for labor mobility, taxation, political representation and so, so much more in the years to come.

Data then, is only half the story. How is the data collected? If it is a sampling exercise rather than a census, how was the sampling done? Has the sampling method changed over time? If so, are earlier data collection exercises comparable with current ones?

How should one think about the data that has been collected? What does it mean, and how much does context matter? For example:

‘That’s data about marriage, madam,’ he said—not about love. ‘I think if your data asked people if they have ever fallen in love with someone from another caste or religion, many will say yes. I see that all around me among my friends. But when it comes to getting married, most of us are not yet ready to leave our families. That’s why your data looks like that,’ he said. As for the rest? ‘There is a lot we will not admit to someone doing a survey. But things are changing. At least for some of us,’ he said.

S, Rukmini. Whole Numbers and Half Truths: What Data Can and Cannot Tell Us About Modern India (pp. 127-128). Kindle Edition.

Rukmini’s excellent book is, in one sense, a deep reflection on the data that we have, have had, and would like to have where India is concerned. It speaks about how data has been collected, which are the agencies and institutions involved, how these have changed (and been changed) over time, and with what consequences.

But it also is a reflection on a truism that many economists and statisticians underrate: data can only take you so far. As the subtitle of her book puts it, it is an analysis of what data can and cannot tell you about modern India.

And what data leaves out is often as fascinating as what it includes:

Yet, most people know little about the NCRB’s processes and methodology. For instance, the NCRB follows a system known as the ‘principal offence rule’. Instead of all the Indian Penal Code (IPC) sections involved in an alleged crime making it to the statistics, the NCRB only picks the ‘most heinous’ crime from each FIR for their statistics. I stumbled upon this then unknown fact in an off-the-record conversation with an NCRB statistician in the months after the deadly sexual assault of a physiotherapy student in Delhi in September 2012. In the course of that conversation, I learnt that the crime that shook the country would have only made it to the NCRB statistics as a murder, and not as a sexual assault, because murder carries the maximum penalty. This, I was told, was to prevent the crime statistics from being ‘artificially inflated’: ‘If the FIR is for theft, there will be a[n IPC] section for assault also, causing hurt also. If you include all the sections, people will think these are separate crimes and the numbers will seem too huge,’ he told me. After I reported this,2 the NCRB for the first time began to include the ‘principal offence rule’ in its disclaimer.3

S, Rukmini. Whole Numbers and Half Truths: What Data Can and Cannot Tell Us About Modern India (p. 13). Kindle Edition.

The paragraph that follows this one is equally instructive in this context, but the entire book is full of such Today-I-Learnt (TIL) moments. Even for those of us involved in academia, there is much to learn in terms of nuance and context by reading this book. If you are not in academia, but are interested in learning more about this country, recommending this book to you is even easier!

Rukmini’s books spans ten chapters on ten different (but obviously related) aspects of India. We get to learn how Indians tangle (or quite often choose not to!) with the cops and the courts, how we perceive the world around us, why Indians vote the way they do in the first three chapters. The next three are about how (and with whom) we live our lives, and how we earn and spend our money. The next trio is about how and where we work, how we grow and age and where Indians live. The final chapter is about India’s healthcare system.

Each chapter makes us familiar with the data associated with each of these topics, but each chapter is also a reflection on the fact that data can only take us so far. When you throw into the mix the fact that the data will always (and sometimes necessarily) be imperfect, we’re left with only one conclusion – analyze the data carefully, but always bear in mind that the reality will always be more complex. Data is, at the end of the day, an abstraction, and it will never be perfect.


One reason I liked the book so much is because of its brevity. Each of these chapters can and should be be a separate book, and condensing them into chapters can’t have been an easy task. But not only has she managed it, she has managed to do so in a way that is lucid, thought-provoking and informative. Two out of these three is a good achievement, to achieve all three and that across ten chapters is a rare ol’ achievement.

If I’m allowed to be greedy, I would have liked a chapter on the world of data that the RBI collects, and to its credit does share with us via its website. But it does so in a way that is best described as unintuitive. In fact, a book on how data sharing practices with the citizenry need to improve out of sight where government portals across all verticals and at all levels are concerned would be a great sequel (hint, hint!).


I’d strongly recommend this book to you, and I hope you enjoy reading it as much as I did.

We will be hosting Rukmini on the Gokhale Institute campus this coming Friday, the 29th of April. The event will be from 5.30 pm to 7.00 pm at the Kale Hall. She and I will speak about the book for about an hour, followed by a Q&A session with the audience.

If you are in Pune, please do try and make it!

In Praise of Last Among Equals

In 1997, I experienced a life changing event.

I had gone with my parents to their friends’ house for dinner, and rather than being bored to death (which is the usual experience for all kids of that particular age), I spent the most fascinating evening of my life until that point.

They had, you see, a Compaq desktop. I don’t remember now which specific model it was, and I don’t remember which website I visited, but that was the first time I heard the unforgettable crackle, hiss and pop associated with a dial-up connection. I was online, for the very first time in my life.

It was a life changing event for me because I discovered a world I didn’t know existed back then.


Contrast my experience with that of Sanjay Sahni’s, when he first went online:

And then he spotted it. In a corner, sandwiched between ‘Munger’ and ‘Nalanda’, was a familiar name: Muzaffarpur. His heart racing, he clicked on it. He then saw another unfamiliar set of names in English, but soon he found his block (Kurhani) and then, with another click, he navigated to his panchayat (Ratnauli). One final click more and, suddenly, he saw names, not of places, but of people. The first name he saw—etched clearly in his mind almost a decade later—was ‘Mahender Paswan’. As he went down the list, he saw more names, all familiar: ‘It was like I was sitting in Delhi, but also in my village.’

Sharan, M.R.. Last Among Equals: Power, Caste & Politics in Bihar’s Villages (pp. 27-28). Kindle Edition.

Me, I discovered a world I didn’t know existed back then. Sanjay? He discovered that his world was also online, and therein lies the tale narrated in M.R. Saran’s excellent, excellent book: Last Among Equals. I have dropped the “h” in his last name deliberately, and to find out why, you’ll have to read the book.

What is the book about?

It is about Bihar, as the title suggests, but it is not a dry academic tome that you might have to force yourself to read. It is, instead, a warm, rich history of real people with real problems. It is a narrative that is instructive, engaging and thought-provoking. It is, above all, a wonderful way to start to learn about one of India’s largest states. Largest not in terms of area, but in terms of population, and that’s a good point to keep in mind as you read the book.


The book is about many things, all at once. It is about NREGA, it is about the fascinating journey of one man in particular, Sanjay Sahni, but it is also about the lives of people in Bihar’s villages. And what makes the book work is the choice that M.R. Sharan makes in shaping the form that the book takes:

In writing it, I tried to follow a style that the economist Albert Hirschman endorsed in his brilliant 1970 essay ‘The Search for Paradigms as a Hindrance to Understanding’. Following Hirschman, I eschewed exciting, novel ‘insights’ for facts, and forwent theory for stories. This was partly because I am not sure I am the type of scholar capable of formulating a theory of anything, let alone the entire rural political economy of Bihar. In addition, I believe it would be a travesty to rein Bihar in. To straitjacket its trajectory—full of chaos and brilliant humanity—into neat, summarisable boxes would be doing disservice to it.

Sharan, M.R.. Last Among Equals: Power, Caste & Politics in Bihar’s Villages (p. 12). Kindle Edition.

There are, indeed, no boxes, no tables, no dry statistics, and although there is a mention of a Regression Discontinuity Design, it is a harmless threat that breezes past the reader without the slightest inconvenience. Why, Sharan actually explains what an RDD is using the English language, which is a rare feat for folks from my tribe.

But stories there are aplenty. There are stories involving Sanjay Sahni, as I have mentioned, and there are stories involving the people he works with, works for, and works against. The book is eminently readable for this reason, but I do not recommend it just because of this factor. Sharan achieves what I would have thought was impossible: he narrates each of these stories with an adroit mixture of dispassionate analysis and passionate involvement, all of it backed up by minute observations. The word “ethnography” doesn’t come up once in the entire book, but if you are a student wondering what the word means, this book is a very good introductory answer.

But not just people! He also writes from the point of view of the state, and we get a sense of the state’s empathy, apathy and rage, all in just the one book. Keep an eye out for narratives involving BPGRA, Circular 6278, and the tale of a guy called Jeetendra Kumar to learn more about each of these, in that order.


For having done the work that he has in the state, and for having written the book, M.R. Sharan leaves us with five key takeaways as regards challenging (and distributing) the power of the mukhiya. But I would argue that these five points matter for more than just challenging and distributing the power of the mukhiya alone. These five points form a good framework to think about power and its distribution more generally in India:

  1. Reservations
  2. Decentralisation
  3. Building transparency
  4. Social movements
  5. Voting and elections

You don’t need to agree with all, or even one of them. In fact, as students, I hope you approach the book wanting to disagree with some or all of these points. But I also hope that you finish reading the book, and then ask yourself if your view regarding any of these has changed, and whatever your answer, the why behind it.

It’s a short book, spanning nine chapters and 244 pages, and it shouldn’t take you much time to read it. But I hope you spend much more time reflecting on it. And I also hope you use the bibliography to add to your reading list, as I have.


I was chatting with a student of mine yesterday about the book, and he mentioned that the book exuded “the kind of research I want to do” vibe. My sincere hope is that many more students read this book, and are inspired along similar lines.

The world will be a better place for it.

Books about Macro

Praneet asked me this on the basis of yesterday’s post:

And so here we go:
  1. I and my batchmates spent hours reading Snowdown and Vane. Like any good book on macroeconomics, we were more confused for having read it, and I mean that as a compliment. (As an aside, I loved the bit in Amit Varma’s conversation with Karthik Muralidharan where they spoke about N Gregory Mankiw’s quip about being confused about economics. Don’t ask me what it was about, this is me trying to incentivize you to listen to the conversation!)
    But this really is an excellent book to read. It is mostly accessible, contains very very good explanatory diagram, and best of all, each chapter concludes with an interview with an economist who was most representative of that particular field of thought. If I remember correctly, the last question always used to be about whether Keynes would have won the Nobel prize had he been alive then. Fun book, and it would still be my top pick. (The listed prize on Amazon is barking mad, please note)
  2. I think I came across this paper via Marginal Revolution, but am not sure. It’s a pretty good paper to read as a macro student today, because it gives you a very good idea about what folks in the field have been up to in the last four decades or so. I personally think DSGE models are a little bit overrated, but you can’t ignore it if you want to build a career in academia as a macroeconomist. Most of all, though, as a student, you really want to understand the difference between description, pure theory, falsification, and model fitting papers. But on all accounts, if you want to read just one survey paper, this would be a good pick.
  3. Speaking of Marginal Revolution, this blogpost is a wonderful read, in the sense that it is full of wonderful reading references. By the way, I’ve been promising myself for well over a decade now that I will read more about Henry Thornton, but have never gotten around to actually doing so. As Professor Cowen says, please do read the second comment (the one by Kurt Schuler).
  4. Brad DeLong lists out books you should read on the Classical Economists over on FiveBooks.com, and that should serve you well. I have not read all of them, I should say. One book that I would add to the list (because the concept was so interesting) is Linda Yueh’s “The Great Economists: How Their Ideas Can Help Us Today”.
    Well, ok, another book: PJ O’Rourke On The Wealth of Nations. Easily the most fun book of the lot.
  5. Raffaele Rossi picks the five best macro textbooks here, and alas, DBF doesn’t make the cut. It was my first macro text, and I still remember working through IS-LM for the first time. I’m still working through it, because I still don’t understand it, but that is another story. Arnold Kling put up his own list, and I would personally prefer his list, especially Leamer’s book. And psst, Kling’s own book is very, very underrated.
  6. Now, India secific macro books: Joshi and Little’s book about post-91 reforms deserves mention, as does Macroeconomics of post-reform India. Joshi’s Long Road is also worth reading, as is The Turn of the Tortoise, by TN Ninan. TCA Srinvasa Raghavan had recommended an excellent collection of essays called Towards Development Economics, if you want to understand what India’s earliest modern (poor phrasing, I know) economists were up to. The festschrifts honoring Montek Singh Ahluwalia, and Manmohan Singh are also very good, as was Bibek Debroy’s book about getting India back on track. Bhagwati and Panagariya’s Tryst with Destiny also!
  7. Finally, a book I am really looking forward to reading is Alex Thomas’ book on macro. I’m a GIPE student, so heterodox is a good wonderful thing. But that is a whole different blogpost in its own right!
  8. Lists like these can never be comprehensive, and I’m sure there will be people reading this who will be chomping at the bit to add to this list. Please, have at it, and share. That’s the point of the internet, no?

On Signals and Noise

Have you ever walked out of a classroom as a student wondering what the hell went on there for the past hour? Or, if you are a working professional, have you ever walked out of a meeting wondering exactly the same thing?

No matter who you are, one of the two has happened to you at some point in your life. We’ve all had our share of monumentally useless meetings/classes. Somebody has droned on endlessly about something, and after an eternity of that droning, we’re still not sure what that person was on about. To the extent that we still don’t know what the precise point of the meeting/class was.

One of the great joys in my life as a person who tries to teach statistics to students comes when I say that if you have experienced this emotion, you know what statistics is about. Well, that’s a stretch, but allow me to explain where I’m coming from.


Image taken form here: https://en.wikipedia.org/wiki/Z-test

Don’t be scared by looking at that formula. We’ll get to it in a bit.


Take your mind back to the meeting/class. When you walked out of it, did you find yourself plaintively asking a fellow victim, “But what was the point?”

And if you are especially aggrieved, you might add that the fellow went on for an hour, but you’re still not sure what that was all about. What you’re really saying is that there was a lot of noise in that meeting/class, but not nearly enough signal.

You’re left unsure about the point of the whole thing, but you and your ringing ears can attest to the fact that a lot was said.


Or think about a phone call, or a Whatsapp call. If there is a lot of disturbance on the call, it is likely that the call won’t last for very long, and you may well be unclear about what the other person on the call was trying to say.

What you’re really saying is that there was a lot of noise on the call, but not nearly enough signal.


That is what the signal-to-noise ratio is all about. The clearer the signal, the better it is. The lower the noise, the better it is. And the ratio is simply both things put together.

A class that ends with you being very clear about what the professor said is a good class. A good class is “high” on the signal that the professor wanted to leave you with. And if it is a class in which the professor didn’t deviate from the topic, didn’t wander down side-alleys and didn’t spend too much time cracking unnecessary jokes, it is an even better class, because it was “low” on disturbance (or to use another word that means the same thing as disturbance: noise).


That, you see, is all that the formula up there is saying. How high is the signal (x less mu), relative to the noise (sigma, or s). The higher the signal, and the lower the noise, the clearer the message from the data you are working with.

And it has to be both! A clear signal with insane amounts of noise ain’t a good thing, and an unclear signal with next to no noise is also not a good thing.

And all of statistics can be thought of this way: what is the signal from the data that I am examining, relative to the noise that is there in this dataset. That is one way to understand the fact that the formula can look plenty scary, but this is all it is really saying.

Even this monster, for example:

https://www.statsdirect.co.uk/help/parametric_methods/utt.htm

Looks scary, but in English, it is asking the same question: how high is the signal, relative to the noise. It’s just that the formula for calculating the noise is exuberantly, ebulliently expansive. Leave all that to us, the folks who think this is fun. All you need to understand is the fact that this is what we’re asking:


What is the signal, relative to the noise?


And finally speaking of noise, that happens to be the title of Daniel Kahneman’s latest book. I have just downloaded it, and will get to it soon (hopefully). But before recommending to you that you should read it, I wanted to explain to you what the title meant.

And if you’re wondering why I would recommend something that I haven’t read yet, well, let me put it this way: it’s Daniel Kahneman.

High signal, no noise.

A Review of Stubborn Attachments

I’d written a post last week, the title of which was “Growth. Just, only, simply growth.

There’s two books that I’d recommend you read to get a fuller understanding of the importance of growth. One is a book about the need for growth in an Indian context. It is authored by Vijay Joshi, and the title is India’s Long Road: The Search for Prosperity.1

There are many reasons why India’s Long Road is an excellent read. The one that is directly relevant here is his succinct summary of why growth in India over the long run is such a challenge:

India should strive for rapid, inclusive, stable and sustainable growth within the parameters of a political democracy.

In the book, Joshi explains why he chooses these aspects as being worthy of his analysis, covers how well India has done along these parameters thus far and what needs to be done from here on in. But the reason I am beginning my review of Stubborn Attachments by speaking about Joshi’s book is because Joshi speaks about growth as being more than just an increase in GDP over the long run.

Rapid growth as measured by GDP, yes, but not at the cost of the environment – therefore sustainable. Rapid growth, yes, but also stable. Rapid growth, yes, but also inclusive. And growth, yes, but not by sacrificing democracy.

You might say that Vijay Joshi is stubbornly attached to growth, but with qualifications.


Here is one way to think about Tyler Cowen’s book, Stubborn Attachments. It is as if he takes Vijay Joshi’s statement above and distils it down to its barest minimum. And in his distillation, he leaves us with the following:

Growth at all costs, except at the cost of human rights and concern for the environment.

It’s not just his own philosophy, but as he puts it, it is his recommendation that this be your philosophy too:

No punches are pulled, this is my account of what I strongly believe you should believe too. My bottom lines, so to speak.

https://marginalrevolution.com/marginalrevolution/2018/08/preface-stubborn-attachments-book-especially-important.html

How does he arrive at his stubborn attachment to prioritizing growth above all else, subject to only two constraints?

Before we begin our journey in terms of answering this question, a couple of things to note.

He is trying to answer the question of what is best for “our civilization”. And as the book makes clear, that’s all of us – every single person on this planet is his implicit definition of “our civilization”.

Second, a useful way of reading the book is to think of this book as his answer to the Ultimate Big Picture Question: “But what is the point of all this?”

I think of his answer as a sort of Pascal’s wager: we don’t know yet if there is a point or not. But if and when we discover what the point is, it is better to be prepared to deal with that point, whatever that point may be. And better prepared is, in his view, more growth.

So how does he arrive at his stubborn attachment? He begins by laying out his philosophical starting points:

1. “Right” and “wrong” are very real concepts which should possess great force.
2. We should be skeptical about the powers of the individual human mind.
3. Human life is complex and offers many different goods, not just one value that trumps all others.

Cowen, Tyler. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (p. 19). Stripe Press. Kindle Edition.

I have not the slightest objection to any of these points – they’re all but axiomatic to me.

So far, so good.

Next, how to choose which thing to get stubbornly attached to, given the points above? To arrive at that decision, there are, in his view, six things to consider:

  1. Time: Take the very, very, very long view when making a choice. This is not about dessert after lunch today and the implications of that for my future self. This is about dessert after lunch today and the implications for my daughter near the end of her life. More! It is about the implications for my daughter’s grand-daughter – and her grand-daughter, and ad infinitum. Make decisions about which things to get stubbornly attached to with the longest possible view in mind.

    Why, you ask? Well, think of it this way: would you expect your parents to take decisions that will benefit you tomorrow? Will you take decisions that will positively impact your children’s lives? Apply the principle of induction, and well, how could you not take the long view? (That is my argument, to be clear, not Professor Cowen’s. But I don’t think he’d disagree.)
  2. Aggregation: What if I want to go out for a nice dinner, but my wife prefers a nice light salad at home instead? My preference over hers or vice versa? Tyler Cowen has an easy way to resolve this: pick the option that maximizes long term growth, not short run pleasure. Nice light salad at home it is then, unfortunately for me. (He has a nice explanation later on in the book for why this makes sense, on pg. 52 of the Kindle edition.)
  3. Rules: I was telling some close friends about how I was not in favor of piercing my daughter’s ears while she was a baby. My logic was that she should choose for herself when she is old enough to do so. One of my friends asked if the same rule was applicable when it came to vaccination. Now, obviously, no: my daughter has had all her vaccinations. So really, the rule is she should choose when she is old enough to, except when it comes to issues of her health. Which, of course, has been the rule all along – I just didn’t state it well enough. The point, though is this: you have to be consistent with the rules you set for yourself, and for the game. Calvinball is fun to read about, but it is a poor way to live life.
  4. Radical Uncertainty: How can we know anything for sure? What if we are wrong? What if our actions have enormously negative unintended consequences centuries down the line? It is interesting (instructive?) to me that this is the one point among the six where Tyler Cowen doesn’t definitively say what his opinion/conclusion is when he ontroduces these concepts for the first time. It is almost as he if he is conceding the point that you can’t ever know for sure. But even so – or perhaps therefore – he is stubbornly attached to the idea of growth. What else is there, eh?
  5. How Can we Believe in Rights?: Professor Cowen says that this is undecided territory in philosophy – I don’t know enough to argue either way. But he also says that “some key elements of ethical reasoning do support the notion of objectively valid human rights, and, indeed, of their nearly sacred character.”
    As I said, I don’t know enough to comment authoritatively, but in my worldview, rights are axiomatic. How can you not believe in rights? There’s not much of a civilization left if there are no human rights. No?
  6. Common Sense Morality: Here is his definition of common sense morality – “Common sense morality holds that we should work hard, take care of our families, and live virtuous but self-centered lives, while giving to charity as we are able and helping out others on a periodic basis.” I’m more than ok with that description, but reconciling this with the more extreme utilitarianism view has, it seems, proven to be problematic. But he comes down on the side of common sense morality, and I’m happy to go along.

All right, so three basic points, and six things to consider. To which he adds two “moves”.

First, whatever it is that our civilization has been able to achieve so far is because of the productive power of our economy. Had our economy not been productive enough, Beethoven may have ended up being a farm laborer. Adam Smith could write about the division of labor precisely because society had been making use of the concept for thousands of years. We are where we are today precisely because of the productive power of our economy. Why not do more of it, then?

The second move is really a restatement of the first of the six things to consider. When in doubt, take the long term view, and whatever your long term view, make it longer.2


From these ingredients then – the three basic points, the six things to consider and the two moves – he reaches the conclusion that growth is a moral imperative. He makes use of a concept called a Crusonia Plant3 to arrive at this conclusion.

Growth, however, measured not by wealth, but by “Wealth Plus”:

Wealth Plus: The total amount of value produced over a certain time period. This includes the traditional measures of economic value found in GDP statistics, but also includes measures of leisure time, household production, and environmental amenities, as summed up in a relevant measure of wealth.

Cowen, Tyler. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (p. 30). Stripe Press. Kindle Edition.

And that, of course, is why I began with Vijay Joshi’s book. As I said, a maximizing Wealth Plus is essentially Vijay Joshi’s statement distilled.

And to do this – to maximize Wealth Plus – there are three questions we need to continually ask ourselves:

What can we do to boost the rate of economic growth?

What can we do to make our civilization more stable?

How should we deal with environmental problems?

Cowen, Tyler. Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (pp. 32-33). Stripe Press. Kindle Edition.

Or, put another way, maximize growth subject to human rights not being violated, and subject to the environment not being ignored.

That is his stubborn attachment, and it is what he would like ours to be as well, all of us.

Please, do read the book to understand his defense of his view. The book is only 150 odd pages long, and written in an easy, conversational style.


I’ve been reading some of the reviews of the book in order to prepare for writing my own. Of the ones I have read, I am in complete agreement with the one that says that Tyler Cowen is basically saying let’s worship a community called humanity. And the one that I found most interesting was the one that put the argument in terms of optionality. I think that is another of way saying “Pascal’s Wager”.


Finally, what would my stubborn attachment be?

There are three reasons I have spent a large part of my review focusing on writing about Tyler Cowen’s assumptions, axioms and approach, rather than his conclusions.

  1. One of Ayn Rand’s unfortunate caricatures is fond of saying “Check your premises.” I have, for years, found that to be useful advice. And if you, like me, find yourself in agreement with Cowen’s premises, you should either reach exactly the same conclusion, or a closely related one (mine is closely related).
  2. Most of the reviews that I have read focus on the conclusions, or take issue with ways to implement the conclusions. See this review, for example. I found it enjoyable and instructive to think through Cowen’s premises, and they helped me make my own clearer. For the record, they are mostly the same, save for one, which leads me to my third point.
  3. Knowing is always and everywhere better than not knowing. I’d personally add this as a fourth axiom, in addition to the three he has listed out.

And so my own stubborn attachment: to know more, and to help other people know more. Ideas are the ultimate good. Not only can I share my ideas, I ought to share my ideas. You ought to share yours. Ideas should have sex! That, as Matt Ridley says, is what has built civilization – growth comes from “ideas meeting, and indeed mating.”

Wealth Plus, in other words, is an outcome of more people knowing more. What you really want to maximize is the spread of ideas. A civilization devoted to learning more, and helping everybody learn more, cannot help but accrue more Wealth Plus – it is an inevitable outcome. More, it is a guarantee of maximizing your chances of perpetuating this progress.

Or put another way, what provides nourishment to the Crusonia plant is the spread of knowledge, and without it, the plant may well wither.

And so my own personal stubborn attachment is to the accrual and spread of knowledge. Wealth Plus is a guaranteed, and welcome, consequence.

  1. The book started off as a collaboration between Vijay Joshi and TN Ninan. Things didn’t work out, for whatever reason, but that had a positive spillover for us readers, for now there’s two books to read. TN Ninan’s book is called The Turn of the Tortoise, and it is also worth a read.

    Joshi’s book is an excellent read in it’s own right, and it provides a pretty good summary of the Indian story since independence. That’s hardly surprising if you are a student of the Indian economy, for Vijay Joshi has authored two excellent books on this already, with his co-author IMD Little. One covers the Indian economy from 1964 until 1991, and the other discusses India’s economic reforms post 1991.[]

  2. Or that is how I understand it, at any rate[]
  3. read the first three paragraphs of this review for a short description[]

Krishna Subramanian’s List of Things to Read and Learn

Krishna Subramanian, Ajinkya Jadhav’s batchmate in SCMHRD, was kind enough to message me separately on LinkedIn, and send across his list of things students might benefit by reading, along with some tips and tricks that he found to be useful.

If you have finished college and are reading this, a request: please help out students who are currently in college, and are wondering how to add to their learning. I and other faculty members can help out with syllabi and all that, but you are folks with skin in the game. What helped you in your career, what helped you learn better, what did you wish you had done when you were in college?

I’m reachable on LinkedIn and on email. Please send along your recommendations, and I’ll share them here. Thank you!

On to Krishna Subramanian’s list – thanks a ton for sending these in, kind sir 🙂

 

My own top 5 books which all MBA Streams should read
1) Basic Economics by Thomas Sowel
2) Atlas Shrugged by Ayn Rand
3) Intelligent Investor by Benjamin Graham
4) Goal by Etiyahu Go
5) Life and work priciples by Ray Dalio.
6) Linchpin by Seth Godin (Bonus)

Books for Finance professionals, Other than above:
1) Manorama Yearbook
– If you are working in India, it would surprise you how little you know about India. Keeping this handy and going through once in a while is a massive boon.
2) Security Analysis By Graham & Dodd
3) Damodaran on Valuation
4) R programming for dummies. (most underrated skill any finance professional can have)
5) Warren Buffett and the interpretation of financial statements by Mary Buffett and David clark.

This should help.

I would recommend the following technology trends
to keep an eye on:
1) Blockchain ( Blockchain Revolution by Don and Alex Tapscott is a good read )
2) Artifical Intelligence ( course by Andew Ng on Coursera and Prediction machines by Agrawal gans and goldfarb)
3) Augmented Reality (best is youtube videos, because you really need to understand visually why this will change business)

Ajinkya captured the blogs and podcasts perfectly, so I figured I would add a list of don’t dos?

1) Do not read any book only once.
2) Accounting is a mechanical process but Finance is not. Do not be close minded on how things must be done. (once you come into the world, even accounting is not mechanical)
3) Do not forget your basics. NPV, IRR, Time value of Money, P&L, Balance sheet, Cash flow statements.. these things should be absolutely solid. Its remarkable how many people still fumble with these.
4) Do not ignore Taxes./hidden charges. We always do things ” tax exclusive” but remember, taxes/ hidden charges are a massive key to anything. Eg: Read about active and passive Mutual Funds.
5) Do not call Ashish as Sir. (This is correct, and important – Ashish)

Lastly I think Ajinkya captured it best, you are the average of the 5 people you hang out with. Even if you read none of the above, bring out ruthless choice in your company.

Thank you for all the learnings,
Krishna Subramanian

 

Notes on In Service of the Republic, by Vijay Kelkar and Ajay Shah

A book that I have recommended unhesitatingly to students who ask me about how to go about learning public policy is “In The Service of the Republic” by Vijay Kelkar and Ajay Shah.

In this Monday post, I plan to write my observations from having read the book.

The book is divided into six sections:

  1. Foundations
  2. Diagnosing the Indian Experience
  3. The Science
  4. The Art
  5. The Public Policy Process
  6. Applying These Ideas: Some Examples

Part V and VI are the meat of the book, and that’s a good thing! If you are a student reading this book, it will be really helpful to have many, many examples of what the actual applications of the theoretical parts are.

What follows below are my highlights from having read the book, divided into four sections, with some commentary below each excerpt. The book is, it goes without saying, much much richer – and you should definitely read it, especially if you are interested in the field of public policy!


The Big Introductory Idea

The first question in the field of public policy is: What objectives of public policy are appropriate?

And for whom? For the government, for the people in society, for the elected representatives or somebody else? These questions need to be asked (and answered), for that changes the answers to the question in quotation marks above!

While the state is often seen as benign or benevolent, almost like an uncle or a parent, we have to remember that at the heart of the state, there is violence. The state acquires a monopoly upon violence. States establish conditions where nobody is permitted to engage in violence, but the state is able to inflict violence.

If this definition of the state strikes you as unusual, you should read, at the very least, this Wikipedia article.

The big idea of liberal democracy is to limit state violence into a controlled, predictable and just form.

That’s the plan, at any rate.



 

 

 

On State Intervention and Market Failure

The free market tends to overproduce things which induce negative externalities and underproduce things that induce positive externalities.

The price mechanism matters!

Markets work, but nothing ever works perfectly. People can (and should!) always debate how perfectly markets work, but it is simply an unavoidable reality that they sometimes fail.

Now, when they fail, it is usually because of one of the following four reasons:

Market failures come in four kinds: Externalities, Asymmetric information, Market power and Public goods.

When such a market failure occurs, a state intervention may be necessary. Without one or more of these factors being present, it absolutely isn’t necessary. But even with their presence, we’re on thin ice when we recommend that the state intervene:

When faced with a proposed state intervention, our first question should be: What is the market failure that this seeks to address? When market failure is not present, we should be sceptical about state intervention.

The state can intervene in three ways:

In many fields, we see three pillars of intervention: production (e.g., government running schools), regulating (e.g., government regulating private schools) and financing (e.g., government paying kids to attend private schools).

But the state can also intervene when there isn’t a market failure:

Forcing companies to spend 2 per cent of their profit on ‘corporate social responsibility’ is a use of the coercive power of the state that is not connected with market failure. Companies are rational economic actors, and if there is a problem with non-compliance, monetary penalties would suffice. When the law threatens to put individuals in jail for violating the rule, this is an excessive use of force.

And, pleasingly enough as an economist, every now and then, externality problems can be solved by the market itself:

In Maharashtra, there are professional beekeepers now charging farmers anywhere from Rs 1000 to Rs 3000 for renting out boxes for a month. 2 This presence of a private market for pollination services shows that this contractual solution is a feasible one. Through these private contracts, we have solved the externality problem, without a requirement for state intervention.


———————————————————————————————————————

Management is Hard!

It’s hard for anybody, anywhere. It is much harder for government:

There is quite a management challenge in identifying the 0.1 billion poorest people, and accurately delivering Rs 100 to them every day.

It is made harder for the following reasons (each of which is discussed in detail in the book):

Public policy failures are born of: (1) The information constraint; (2) The knowledge constraint; (3) The resource constraint; (4) The administrative constraint; and (5) The voter rationality constraint.

And “democratic decision making” is often problematic (also see Garett Jones‘ book about this):

Direct democracy also suffers from majoritarianism, the idea that policy should be made based on the views of 51 per cent of the population. We must question the extent to which ‘the voice of the people’ is the oracle that must be followed. There is much more to liberal democracy than winning elections.

Incentives matter, and policies have unseen, unintended consequences. The entire book is about this, but the following was my favorite passage by far:

In 1902 in Hanoi, under French rule, there was a rat problem. A bounty was set—one cent per rat—which could be claimed by submitting a rat’s tail to the municipal office. But for each individual who caught a rat, it was optimal to amputate the tail of a rat, and set the rat free, so as to bolster the rat population and make it easier to catch rats in the future. In addition, on the outskirts of Hanoi, farms came up, dedicated to breeding rats. In 1906, there was an outbreak of bubonic plague that killed over 250 people.

Update: Aadisht sends in this, from Discworld:

Shortly before the Patrician came to power there was a terrible plague of rats. The city council countered it by offering twenty pence for every rat tail. This did, for a week or two, reduce the number of rats—and then people were suddenly queueing up with tails, the city treasury was being drained, and no one seemed to be doing much work. And there still seemed to be a lot of rats around. Lord Vetinari had listened carefully while the problem was explained, and had solved the thing with one memorable phrase which said a lot about him, about the folly of bounty offers, and about the natural instinct of Ankh-Morporkians in any situation involving money: “Tax the rat farms.”

The Tinbergen Rule is really and truly important, and not just in public policy:

Public choice theory predicts that public organizations will favour multiple objectives as this gives reduced accountability. Clarity of purpose is efficient for the principal and not the agent.


Thinking about how government functions:

The five pillars of checks and balances—data, intellectuals, media, legislature, judiciary—all work poorly upon state governments.

As it turns out, not only is management hard, but management at the state level is even harder.

Why is there such a dearth of research when it comes to public policy?

At present in India, there is no community which systematically looks for fully articulated solutions. Academic journals do not publish policy proposals, hence academic researchers are not keen to invent policy proposals.

Or to use the jargon of public policy, we are missing incentive compatibility.

As Isher Ahluwalia says, nothing gets done by writing it in a government committee report, but nothing ever got done without it being repeatedly written into multiple government committee reports.

Public policy proceeds along the margins, and then very slowly!

Don’t fix the pipes; fix the institutions that fix the pipes. Old saying in the field of drinking water

The public policy equivalent of give a man a fish versus teach a man to fish

 


All this apart, the authors of the book also outline the “full pipeline”  of the policy process:

Stage 1: Collect data

Stage 2: Descriptive and Causal Research

Stage 3: Inventing and Proposing New Policy Solutions

Stage 4: Competing Policy Proposals are debated

Stage 5: Internal Governmental Debates, and Choice

Stage 6: Translate Decisions into Legal Instruments

Stage 7: Construction of State Capacity, Enforcement

I would personally add a stage 8: Monitoring, Evaluation, Feedback Loops.

But that quibble apart, the book is quite an education for anybody who hopes to learn more about the art and the science of public policy. If you are such a person, this book is certainly for you.

 

 

 

 

 

 

 

Etc: Links for 29th Nov, 2019

  1. “When the British actor Jonathan Routh published the first edition of his Good Loo Guide (“Where to Go in London”) in 1965, he singled out the device for mention every time he found one. Only five toilets, out of more than a hundred, held hand dryers – of the pedal-operated kind that, in the 1965 movie Help!, inhale the jacket sleeves of Ringo Starr and Paul McCartney. Mostly, Routh encountered towels of cloth or paper, and quite often, he had to pay to use these products. (“Do loos ever advertise their attractions?” he wondered, while extolling the virtues of the splendid restrooms of Hyde Park in the 1968 update. “Has anyone ever seen an ad saying ‘Just arrived – new free electric hand-drier at the so-and-so loos.’”) Even in the third and final edition of the guide, released in 1987, I counted more instances of electric razors, armchairs and pre-pasted disposable toothbrushes than of hand dryers.”
    ..
    ..
    The excellent, excellent Samanth Subramanian in this lovely article about (of all things) paper towels and hand driers. Yes, really. What’s more, Samanth won the Financial/Economic story of the year award for this write-up. Read the book by clicking on his name here, also read Following Fish, and definitely read this article itself. Congratulations, Samanth!
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  2. “And which book takes the very top prize for best of the year? You can’t compare the Alter to the others, so I will opt for Eric Kaufmann’s Whiteshift and also Pekka Hämäläinen’s Lakota America, with Julia Lovell on Maoism and Alain Bertaud on cities as the runner-ups. But again a strong year all around.”
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    Tyler Cowen’s list of books he found worth his time in 2019. As he would say, self-recommending.
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  3. “So what’s a desperate founder to do? Smith impulsively flew to Las Vegas and played blackjack with the last of the company money .Amazingly, when he came back the next week, he had turned the remaining $5,000 into $27,000 – just enough for the company to stay in operation for another week.

    In the book “Changing How the World Does Business: FedEx’s Incredible Journey to Success – The Inside Story,” Roger Frock, a former senior vice president of operations at FedEx, describes the scene when he found out what Smith did. “I said, ‘You mean you took our last $5,000 – how could you do that? [Smith] shrugged his shoulders and said, ‘What difference does it make? Without the funds for the fuel companies, we couldn’t have flown anyway.'””
    ..
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    A lovely story about how Fedex came back from the dead.
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  4. “The money of the world’s mega-wealthy, though, is heading there in ever-larger volumes. In the past decade, hundreds of billions of dollars have poured out of traditional offshore jurisdictions such as Switzerland and Jersey, and into a small number of American states: Delaware, Nevada, Wyoming – and, above all, South Dakota. “To some, South Dakota is a ‘fly-over’ state,” the chief justice of the state’s supreme court said in a speech to the legislature in January. “While many people may find a way to ‘fly over’ South Dakota, somehow their dollars find a way to land here.””
    ..
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    Oh hey, Tiebout. Whassup.
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  5. “Behavioral finance is finance. That individual human beings can sometimes do silly things, for reasons to do with either nature or nurture, is not under dispute. That they may make these same mistakes in the aggregate is no longer heretical. That is the gift of those that have been “misbehaving” by attacking hallowed, efficient market doctrine. Economists now can consider potential irrationality versus a standard model of profit-maximizing utility without being disinvited to (those wild and crazy) economist parties. Economists can now suggest that cognitive biases can affect asset prices without threatening their tenure.”
    ..
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    The term may be overrated – the logic isn’t: in defense of behavioral finance.

RoW: Links for 23rd October, 2019

Five books that I have read about our neighboring countries that helped me understand them a little bit better. If you ‘re looking for books to read during the holidays, this list might help:

  1. From a while ago, and set many decades ago, but I loved reading The Glass Palace. Anything by Amitav Ghosh is worth your time, I’d say, but this helped me learn more about Myanmar.
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  2. Samanth Subramanian is a magnificent writer, and that is not hyperbole. In this book, This Divided Island, he brings us a raw, disturbing and depressing account of Sril Lanka today, and how it is divided, perhaps beyond repair, on grounds of ethnic and religious conflict. He doesn’t pull his punches, but more: he doesn’t take sides. If you are looking to understand Sri Lanka today, this is the book to read.
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  3. How did Bangladesh come to be Bangladesh? What was Pakistan’s role in it? What was India’s? What was – and this might come as a surprise to some – the USA’s? The Blood Telegram answers these questions, and more besides, in a always interesting read about the war of 1971.
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  4. And two recommendations about Pakistan. The first is a book by Stephen Cohen: The Idea of Pakistan. Is Pakistan an army with a country or the other way around? Why? Will this change in the future. What is (or what used to be) the political calculus of the United States of America when it came to Pakistan? This book answers these questions, and then some.
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  5. And finally, Pakistan: A Hard Country, by Anatol Leivin. A Ukraininan journalist who has spent some time in the country, and is equally horrified and fascinated by it. Somewhat sympathetic in its treatment, it still helped me understand the country a little bit better – without, of course and unfortunately, ever having been there.

EC101: Links for 19th September, 2019

  1. Are we all Japan now?
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  2. A review of the Jalan comittee report.
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  3. Eric Maskin writes an appreciation of Kenneth Arrow’s ouevre.
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  4. A New Yorker profile of Stephanie Kelton.
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  5. Bookmarked as want to read.