Links for 5th April, 2019

  1. “And almost invariably, I see the same colleague in our communal kitchen, who asks with delight, “Joe, what are you having for lunch today?” The types of bean and cheese rotate, as does the fruit—which depends on the season—but I do not inform my co-worker of these variations when I laugh off her very clever and funny question.”
    In an article about the comforts of routine and habit when it comes to food, I found this excerpt to be pleasingly meta. You know who should especially read this article? Statisticians – especially aspiring statisticians.
  2. “Take his celebrated work with David Card on the minimum wage. They looked at how relative hiring patterns changed when one state raised its minimum wage and one right on its border did not. Not much except the minimum wage differed between the two situations, so it was about as close to a controlled experiment as economists will ever get. Alan was a pioneer in the exploitation of such natural experiments. After Alan showed what kind of evidence can be marshaled to study a labor-market intervention, economists have raised their standard of what constitutes convincing evidence. What followed has been called a “credibility revolution” in empirical economics.”
    Unless you are a student of economics, it is unlikely that you will have heard of Alan Krueger. More’s the pity – for as the title of this article will tell you, his work likely has already affected you, no matter where in the world you are reading this.
  3. “The issue, Statistical Inference in the 21st Century: A World Beyond P<0.05, calls for an end to the practice of using a probability value (p-value) of less than 0.05 as strong evidence against a null hypothesis or a value greater than 0.05 as strong evidence favoring a null hypothesis. Instead, p-values should be reported as continuous quantities and described in language stating what the value means in the scientific context.”
    Statistics is harder, and more confusing than you think. Yet another example is this article – each of the quotes in the article make for thoughtful reading.
  4. “…Section 230 has proved an “awesome benefit” for the tech platforms. It has encouraged astonishing innovation and accelerated the growth of some of the richest companies on the planet. But it has also allowed billions of people to post anything they like online with almost no constraint. Some of that content is inspirational, much of it trivial, and a small sliver grotesque and harmful. Social networks do not discriminate.”
    The FT on whether Facebook and its ilk are publishers or postmen. The import of section 230 is quite staggering, and I’d like to read the book mentioned in the article for that reason.
  5. “We ran similar regressions controlling for industry and found that — even after controlling for industry — elite MBAs did not produce positive statistically significant alpha. Elite MBAs did perform relatively well as CEOs in healthcare and consumer staples, but relatively poorly in energy and materials businesses, though those results were not statistically significant. Our study is not the only one to come to this conclusion. A study by economists at the University of Hawaii asked similar questions and found that firm performance is not predicted by the educational background of the CEOs.”
    A regression based exercise (which of course comes with its own set of problems) on whether education (type and quality) and experience matters for CEO performance. Short answer: it doesn’t. I was tempted to excerpt the concluding paragraph, but I’ll leave it to the reader to discover.

Links for 15th February, 2019

  1. “This sounds boring, you might conclude. It sounds like work, and it sounds like life. Perhaps we should get used to it again, and use it to our benefit. Perhaps in an incessant, up-the-ante world, we could do with a little less excitement.”
    And also…
    “In a much-read story in The Times, “The Relentlessness of Modern Parenting,” Claire Cain Miller cited a recent study that found that regardless of class, income or race, parents believed that “children who were bored after school should be enrolled in extracurricular activities, and that parents who were busy should stop their task and draw with their children if asked.”
    An article written in praise of boredom, and I couldn’t agree more. Every now and then, it makes sense to get a little (or plenty) bored.
  2. “Back in November, Instacart changed how it paid its delivery workers, saying that it would provide them with an “earnings estimate, and a minimum $10 payment for their work. The controversy arose when it became clear that part of that $10 minimum payment was coming from tips that customers left for their Shoppers, allowing the company to pay less towards that minimum payment. Faced with lower weekly earnings, Shoppers complained, and the company said that it would keep tips separate from that minimum payment.Amazon and DoorDash have similar policies, and despite that outcry at Instacart, they have indicated that they’re sticking with them.”
    Not only a PR disaster, which it is. But also a great way to work through your understanding of elasticities of supply and demand.
  3. “More to the point, having big aircraft puts downward pressure on ticket prices. Carriers typically like to fill up at least four-fifths of their seats to maximize the revenue on each flight. The bigger the aircraft, the more discounting and promotions sales teams need to do to hit this target — one reason that the trend elsewhere in the industry has been away from the A380 and Boeing 747.”
    And if the second link above whetted your appetite about using concepts of elasticity in the world outside – then this article about large airplanes, availability of alternatives and changing partnerships will be quite useful.
  4. “The economy of favours that he describes in long, carefully researched chapters on the genesis of the Genco Pura Olive Oil company was familiar, too, because that was how much of New Delhi and north India’s business clans worked and still work, stepping in to dispense justice, protection, retribution where the government either failed or was absent.”
    There is always a rule of law in society – that may well be a definition of society. That law need not always come from government – where governments are weak, other institutions will step in to form, change and enforce the law. That’s the Godfather, and that’s why it is such a great read.
  5. “A welfare state makes sense if it means the state providing education and health care for all. Alternatively, handouts are affordable in a lower-middle income economy if you divert money from the less deserving, or if the promised benefits are not open-ended so that you don’t get a runaway bill. Without any of these, the old question begs an answer: Should you give a man fish, or teach him how to fish? Lurking hidden in the new bout of welfarism seems to be an admission that the state can’t deliver for the poor anything other than cash.”
    The earlier part of the article points out statistics that show how much India has grown over the past decade and a half. But competitive politics and botched policies mean that we’re once again in dole-out season. The more things change…

Thinking About Long Term Growth

We now know what GDP is, and why it is important to measure growth using GDP. We know what statistical adjustments are made over time so that growth is made truly comparable. We also know the difference between long term and short term growth.

Armed with the answers to all of these questions, we now ask the million dollar question:

What makes a nation grow over time?

That is, if we are to transform India into a developed nation by increasing her growth rate in a sustained, sustainable fashion, then what, specifically, needs to happen? Well, lots of things, is the easy answer. And a true answer, too.

Here’s a better question. What are the things without which this growth story absolutely can not happen?  What are the indispensable factors?

Answering this question takes us into the realm of growth, or development economics. Nomenclature aside, it is the area that lies at the heart of all economic policy-making. What we are looking for is the framework, the core, around which everything else can be built, added and embellished. Just as a truly great dish looks good and tastes better with more accompaniments, but can’t really work without the core ingredients – similarly, our growth story needs some core ingredients, around which we’ll add more stuff later.

And our core ingredients are labor, and capital. Turns out, India’s growth story cannot happen, without first possessing (and growing) capital and labor.

What is capital, and what is labor?

Capital is machinery. You’re almost certainly reading this post on an electronic device, and that device is your capital. The ladle with which a dosa-wala flips a dosa is capital. The pushcart that a chaiwala uses as his makeshift shop is capital. An assembly line in a Tesla factory is capital.

And the effort that I put in to type out this article is labor. The hands that use the ladle to flip the dosa is labor, as is the chaiwala himself and the worker on the factory floor of that Tesla factory. That is all labor.

And any production, anywhere in the world, of any good at all, can only be done with some combination of labor and capital. In order to produce something – anything – you need capital and labor.

The more you produce, the more you grow. The faster you produce, the faster you grow. And so in order to grow more, and grow fast, you need more capital, and you need more labor. So any story about the long term growth prospects of a nation need to start from capital, and labor.

Economists call these the factors of production, and without them, our story can’t start. But with them, we encounter another question: how do you get capital and labor to grow?