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

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

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

Why, you ask?

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

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

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


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

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

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

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


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

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

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

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

No seriously, Macro *IS* Hard

It’s one of my favorite phrases while writing on EFE. And it is a favorite for a reason: it is true.

And today’s post is about an excellent essay by David Glasner, author of the excellent blog Uneasy Money.

I usually excerpt bits and blobs of whichever essay I am recommending to you, and I will get to that part eventually, but today, I want to spend some time in explaining why it is that I find macro so hard.

One, modeling a firm is hard enough. Trying to model an entire economy entails massive abstraction, and so whatever conclusions you reach are likely to be little more than informed guesses.

Two, time. A simple word, but with massive implications. You can call it what you like, but the basic simple point is that any project that lasts for more than a day is taking a bet on what the future is going to look like. And the uncertainty that is necessarily associated with the future means that your estimates are guaranteed to be wrong. Mostly correct if you’re lucky, somewhat off the mark if it is business as usual, and hopelessly off target if you’re unlucky.

Consider this from The Economist:

The dearth of chips is a consequence of the pandemic, which boosted demand from makers of electronic devices for those stuck at home during lockdowns. Car firms also underestimated the rapid pace of recovery this year. Expecting weak sales, in 2020 they pared back orders. Although carmakers spent $40bn or so on chips in 2019, that accounted for only a tenth of global demand, which puts them low in the semiconductor pecking order. This makes orders hard to reinstate.

https://www.economist.com/business/semiconductors-pose-an-unwelcome-roadblock-for-carmakers/21803287

Three, in my mind, used to be kind of related to two. Time also meant that much like your assumptions would eventually be wrong, so also would the assumptions of your suppliers and customers be wrong. And those assumptions being wrong would mean that all plans would need constant modification on an ongoing basis. Which makes the study of macroeconomics hard, but also endlessly interesting.

But David Glasner’s post raised a point that is well worth thinking about:

When contesting the presumed necessity for macroeconomics to be microeconomically founded, I’ve often used Marshall’s partial-equilibrium method as a point of reference. Though derived from underlying preference functions that are independent of prices, the demand curves of partial-equilibrium analysis presume that all product prices, except the price of the product under analysis, are held constant. Similarly, the supply curves are derived from individual firm marginal-cost curves whose geometric position or algebraic description depends critically on the prices of raw materials and factors of production used in the production process. But neither the prices of alternative products to be purchased by consumers nor the prices of raw materials and factors of production are given independently of the general-equilibrium solution of the whole system.
Thus, partial-equilibrium analysis, to be analytically defensible, requires a ceteris-paribus proviso. But to be analytically tenable, that proviso must posit an initial position of general equilibrium. Unless the analysis starts from a state of general equilibrium, the assumption that all prices but one remain constant can’t be maintained, the constancy of disequilibrium prices being a nonsensical assumption. (Emphasis added)

https://uneasymoney.com/2021/08/04/general-equilibrium-partial-equilibrium-and-costs/

That’s…a convenient assumption, at the very least, even for an economist.

It gets worse (or if you enjoy thinking about this sort of thing, better):

Unless general equilibrium obtains, prices need not equal costs, as measured by the quantities and prices of inputs used by firms to produce any product. Partial equilibrium analysis is possible only if carried out in the context of general equilibrium. Cost cannot be an independent determinant of prices, because cost is itself determined simultaneously along with all other prices.

https://uneasymoney.com/2021/08/04/general-equilibrium-partial-equilibrium-and-costs/

Towards the end of the post, David Glasner helps us understand why comparative-statics are extremely limited tools.

Very briefly (please do read the entire post),

1. the fact that you must begin in a state of disequilibrium,

2. plus the fact that the movement towards some (potential) equilibrium will take time,

3. and finally, the lack of a guarantee that changes in this dynamic system will move us towards equilibrium…

… imply that one should use partial-equilibrium analysis only when fully aware of its limitations.

As David Glasner reminds us, none of this is new or path-breaking, but as students of economics, it is helpful to remind ourselves that, well, macro is hard.

Help Me Understand This, Somebody…

A fellow Puneri citizen sent out this tweet yesterday:

It was hard not to be snarky, and I didn’t even bother trying to resist:

But in my day job, I try to be an economist, and so I have questions. Just two of them, and they’re fairly simple ones. Here they are:

  1. He (or SII) was free to set the price, correct? Free market economics: let the seller decide the price, and let the buyer decide if she wants to buy at that price.


    So the price now stands reduced by a whopping 25%. Does that mean that it was set too high in the first place?


    That is, let us assume that SII is able to increase capacity expansion at a price of 300 per dose. Also assume that it can make a normal or “super” profit at this price – then was 400 not too high?


    If we assume that he was going to earn an extra 100 rupees per vaccine sold, and that he was going to sell say 200 million vaccines to the states, that’s 200 million into 100 rupees.1

    I don’t want to do the math, but were we ok with at least that much “extra” money going into the Poonawalla coffers until yesterday?

    If yes, why?


  2. Unless, of course, that was not the case, and capacity expansion will suffer at a price of 300. A raise in the minimum wage will mean switched-off air-conditioning, correct? Well, in that case, is it not our moral duty to ask him to take the price back up to 400? Because if the opportunity cost of his philanthropy is reduced capacity expansion, isn’t that worse?

(By the way, all this is taking the assumption that SII “needs” the proceeds from the sale of this one vaccine alone to fund capacity expansion. That may or may not be true. And this also assumes that this is the only vaccine that SII will be producing and selling, which is obviously not true. Even in this “best-case” scenario, my questions hold up – if we do a full reckoning, they become even more important!)

If it is the first point above, us economists must explain why we think it is ok for those 100 rupees (per dose) to go into SII’s coffers.

If it is the latter, there ought to be a stream of op-eds beseeching Mr. Poonawalla to roll back his offer, for that would be truly philanthropic.

Which will it be?

And I know I said only two questions, but forgive me my greed, and let me ask one more: what is the definition of “transparent pricing”?

  1. Where do I get that number 200 million from? Who knows? I assumed that for the 960 million people in total who become/continue to be eligible on the 1st of May, he gets to sell only 200 million doses to the states. And yes, I am assuming only a single dose for these 200 million. Since nobody knows what the quantities are actually going to be, this is as reasonable an assumption as any other. If anything, this is a very conservative estimate. No?[]

What is common between the AER and markets in Nashik?

Not a joke, that is a genuine question.

The AER, by the way, is the American Economic Review. Getting published in the AER for an economist is like a cricketer getting to a century in a Test at Lords. Although drawing this analogy does remind me of what Harsha Bhogle said about Sachin and the Lord’s honours board.1. Nashik, of course, is a city in Maharashtra.

So what’s the reason for the title of today’s blog post?

Exhibit A:

Exhibit B:

Amid rising Covid-19 cases in Maharashtra, the Nashik district administration has now issued new restrictions to limit people from visiting the markets unnecessarily. The people in Nashik will now have to pay ₹5 per person for an hour every time they visit any market in the city. news agency ANI reports.

https://www.livemint.com/news/india/new-covid-19-restrictions-in-nashik-now-pay-rs-5-for-hour-long-market-visit-11617154785051.html

In the boring but functional language of the economist, no free entry in these markets anymore.2.

What should we anticipate in terms of effects of such policies? Why? Are these policies good, or bad?

  1. Frivolous visits to both markets become rarer than before. In both cases, that was the intended outcome.
  2. In Nashik’s case, the price isn’t just 5 rupees, but also the time that you will have to spend waiting in line before you can cough up the fie rupees. Plus, the fine print says that if you end up spending more than one hour, you will have to pay 500 rupees as an additional fine.
  3. 1000 dollars is steep even by American standards. It is just completely out of reach for most of the rest of the planet. 5 rupees is nowhere close to being a back-breaking amount for most Indians. Does that make the AER price too high and the Nashik price too low? I think so, but that then begs the question of what the price should be in each case.
  4. You’ll “bunch together” a number of separate visits to the market. You won’t just pop down to the market to buy half a litre of milk in the morning and then pop back later in the day for some onions. You’ll combine the two trips. That is the intended outcome, so this is a good thing! But in the case of the AER entry fee, you’ll want to “get your money’s worth” – which means there is a chance that your paper will end up being longer than would otherwise have been the case. This is nobody’s idea of a good idea!
  5. Neighbours might get together and deputize one person to go get the shopping done. Again, that’s wonderful! Authors will get together too, that is, co-authorship will go up. Free <cough> rider <cough> problems?
  6. At the margin, sellers in Nashik’s markets are incentivized to figure out home delivery options. Again, wonderful! Since getting published in the AER is anything but a perfectly competitive market (just the one seller, by definition), AER has no such incentive. But the substitution effect will come into play, no? Other journals will see more papers being submitted. And if those journals raise prices, then fewer papers will be submitted all around. Personally, I don’t see this as such a big problem.3

(Here’s Tyler Cowen on other, related points about the AER pricing.)

As a student of economics, you should be able to see the similarity between both of these pricing calls, and also see the differences. That allows you to begin to think through whether these will, in fact, be good ideas or not, and why. I’m sure that there are many other points to think about in both cases.

If you are a student of microeconomics (and who isn’t, really), it might be worth your while to think about what I am missing in my analysis. Please, feel free to let me know!

  1. Sachin famously never managed to score a century at Lord’s, and therefore his name isn’t up on the Lord’s honours board. Harsha Bhogle apparently asked whose loss it was, Sachin’s, or Lord’s[]
  2. To be clear, the AER thing was an April Fool’s joke.[]
  3. To be clear, research may not go down. The attempt to publish that research will. And I’m ok with that![]

On X-Inefficiency

Yesterday, I wrote this in my summary of Bloom and co-authors’ paper on productivity in India:

Economists tend to not buy into this because they assume that profit maximization implies cost minimization
So in other words, if firms are not minimizing costs by adopting good management practices, it is because “wages are so low that repairing defects is cheap. Hence, their management practices are not bad, but the optimal response to low wages.”

https://econforeverybody.com/2021/02/23/notes-from-does-management-matter-evidence-from-india-by-bloom-et-al/

… which brought to mind of the topic of X-inefficiency, for the second time this year. The first was when Tyler Cowen wrote about it in January. Here’s Wikipedia:

X-inefficiency is the divergence of a firm’s observed behavior in practice, influenced by a lack of competitive pressure, from efficient behavior assumed or implied by economic theory. The concept of X-inefficiency was introduced by Harvey Leibenstein

https://en.wikipedia.org/wiki/X-inefficiency

X-inefficiency, in essence, is the idea that the economic theory idea about efficient firms in efficient markets is perhaps a little overblown. Here’s a quote from the paper itself:

The simple fact is that neither individuals nor firms work as hard, nor do they search for information as effectively, as they could. The importance of motivation and its association with degree of effort and search arises because the relation between inputs and outputs is not a determinate one. There are four reasons why given inputs cannot be transformed into predetermined outputs: (a) contracts for labor are incomplete, (b) not all factors of production are marketed, (c) the production function is not completely specified or known, and (d) interdependence and uncertainty lead competing firms to cooperate tacitly with each other in some respects, and to imitate each other with respect to technique, to some degree.

Leibenstein, Harvey. “Allocative Efficiency vs. ‘X-Efficiency.’” The American Economic Review, vol. 56, no. 3, 1966, pp. 392–415. JSTOR, http://www.jstor.org/stable/1823775

By the way, the entire paper is worth reading, because it contains multiple delightful nuggets. The Hawthorne effect, which I mentioned in yesterday’s blogpost makes an appearance, and it also helps one understand why microeconomic textbooks are a very poor way to learn about the real world. Consider this delightful quote, for example:

One idea that emerges from this study is that firms and economies do not operate on an outer-bound production possibility surface consistent with their resources. Rather they actually work on a production surface that is well within that outer bound.

Leibenstein, Harvey. “Allocative Efficiency vs. ‘X-Efficiency.’” The American Economic Review, vol. 56, no. 3, 1966, pp. 392–415. JSTOR, http://www.jstor.org/stable/1823775

OK, so people and firms are both not as efficient as econ textbooks make them out to be. This is not, to put it politely, headline material in the non-econ world. What might be potential solutions?

In situations where competitive pressure is light, many people will trade the disutility of greater effort, of search, and the control of other peoples’ activities for the utility of feeling less pressure and of better interpersonal relations. But in situations where competitive pressures are high, and hence the costs of such trades are also high, they will exchange less of the disutility
of effort for the utility of freedom from pressure, etc

ibid

In English, this means the following:

  • Government offices are unlikely to be as productive as private sector offices
  • Surround yourself with folks who are go-getter types
  • And this is my take: figure out for yourself a good boss/manager/mentor who will push you, but in a non-zero sum way

This last part is all but impossible, but oh-so-important.

In any case: x-inefficiencies. An underrated topic from micro!

Where else could this be applicable?

A great question to ask as a student of economics – well, really, a student of anything – is “where else is this applicable?”

Because learning the definition is one thing, understanding its application is another. Understanding the applications, its costs and its benefits, and being able to transfer the idea over on to other domains and sectors – well, that is something else altogether.

Consider MPN, for example. That’s mobile number portability. Something that we take for granted these days. Although Indian readers might be interested to know that we are one of only two countries to use the donor-led system, rather than the recipient led system.

Now, students of microeconomics will (should) know that this encourages competition, because substitutability goes up. I don’t need to be locked up with one service provider for my entire life, in fear of having to update my number among my contacts every time I change service providers. It also therefore ensures that operators will provide better service, because customers have the ability to “vote with their feet”.

So far, so obvious.

But as I said up top, the real challenge as a student is to ask yourself, where else can I use this idea?

Can, say, education be made more competitive? Can and should students be allowed to switch colleges midway through acquiring a degree? Or can we have unbundling of colleges where you can buy courses from a variety of different colleges to make your own degree of choice?

Sucheta Dalal asks the same question in an excellent article on Moneylife – but with the focus being on account portability in banks.

What is the most effective solution to poor service, mis-selling and harassment by banks which are entrusted with your hard-earned savings? Simple. Bank account portability; or the ability to vote with your feet and switch to a better bank. The idea of bank account portability, which will truly force banks to compete for their customers, has been on the cards since 2012, when the Reserve Bank of India (RBI) initiated the process of creating unique customer identification code (UCIC). Since then, almost every hurdle to implementation—technology issues, high costs, absence of unique codes, etc—having been substantially addressed; but account portability is nowhere on the cards.

https://www.moneylife.in/article/bank-account-portability-what-is-preventing-this-game-changing-move-for-customers/62915.html

The rest of the article speaks about why it is an excellent idea (duh!), how most of the groundwork has already been done (awesome!) and how the incumbents think it is a really bad idea (double duh!).

Incumbents will always – always! – find reasons for why “it just can’t be done”. But anything that makes a sector more competitive, and more responsive to its consumers, is by definition A Good Thing.

Or so we teach in micro, at any rate.

Notes on “Snap-Back and Gone-Forever Goods”

The actual title is a bit longer than that: “Snap-Back and Gone-Forever Goods: Understanding the COVID Recession’s Economic Winners and Losers“.

Tyler Cowen had shared this link on MR a couple of days ago, and I really liked this blog post for two reasons: one, a great framework that I can use in the coming semester for teaching Principles of Economics (more about the framework in a bit), and two, it speaks about higher education towards the end of the post.

Let’s get started:

  • “Due to the impending COVID pandemic, businesses, except for essential ones, simply had to shut down. People were essentially forced to stop buying things they actually wanted to buy.”
    ..
    ..
    It almost sounds trite put this way, but us economists are so used to thinking in terms of whether it is a “demand-side” problem or a “supply-side” problem that it makes sense to remember this: this one is neither! Folks are (more than) willing to supply, and folks are (more than) willing to buy – in most cases. We’ve imposed on ourselves, as a society, restrictions that prohibit such exchanges from taking place.
    ..
    ..
    There will be knock-on effects, some of which are already visible. And that will then take us into familiar territory (supply shock, demand shock etc). But a crisis due to a pandemic is fundamentally different!
    ..
    ..
  • First is the distinction between purchases of what I’ll call “Snap-Back” goods and services and those that are “Gone Forever.” In the Snap-Back category are things that we couldn’t buy during the heaviest COVID lock-down period, but these purchases were simply delayed.
    ..
    ..
    Simple frameworks are such lovely, beautiful things. I think all of us in India experienced “Snap-Back” goods – and to a lesser extent, services – with the winding down of the nationwide lockdown. The number of Amazon deliveries in my own household is proof enough for me. Of course, services such as the ones offered by The Urban Company, for example, is another story altogether – but still, the point remains. “Snap-Back” goods ought to be a thing, especially in 2020.
    ..
    ..
  • ““Gone Forever” goods and services, in contrast, are just like the term suggests: gone forever. Like me, you may have foregone several haircuts during shelter-in-place because you didn’t want to get (or give) coronavirus to your barber.”
    ..
    ..
    Anybody who knows me will know that haircuts isn’t the most appropriate example! But enough of splitting hairs, the point is well taken. There are certain goods and services (am I wrong in thinking that it will be mostly services) that will be “gone forever”.
    ..
    ..
    That being said, the nomenclature chosen here is slightly unfortunate. One might get the impression that the good or service in question will not be provided at all, except that is of course not true. It is just the case that business for the barber in question was bad during the lockdown. Fingers crossed, business will return to normal once things get back to normalcy – whenever that may be. And of course, if things open up without a vaccine/cure, business will be lower than would otherwise have been the case. But it still will not be “Gone Forever”.
    ..
    ..
  • “Economic booms and busts cause average incomes to rise and fall. As a result, businesses that sell a good or service that people purchase during good times and bad, like haircuts and toothpaste, are more insulated from recessions. Businesses that sell the Fountain Powerboat 32 Thunder Cat speedboat (see below, retail price $400,000), and other goods whose sales depend on people having a lot of money on their hands, fare poorly in a recession.”
    ..
    ..
    Tyler Cowen himself had made the point some months ago that certain business will probably not outlast this recession, and mentioned how that may not, on balance, be all that bad a thing. I’m paraphrasing, see the exact quote here. Would the world be worse off if we produced less Fountain Powerboat 32 Thunder Cat speedboats in the years to come?
    ..
    ..
    To be clear, I do not at all mean to suggest that Bruce Wydick will lament the potential passing of these speedboats. I am simply suggesting that some luxury goods not being produced may not be the worst thing ever (and yes, I am well aware of the macroeconomic implications).
    ..
    ..
Sourced from: http://www.acrosstwoworlds.net/?p=1176
  • This, above, is the simple framework I was referring to at the start of today’s blog post. 2×2 matrices are far too prevalent in management schools, and not prevalent enough in economic textbooks, and this was therefore very welcome indeed. But not just because of that! It really does help clarify my thinking.
    ..
    ..
    I need to note that Bruce Wydick has explained what income elasticity of demand is before showing this figure. I haven’t, but a simple Google search will help you learn what the income elasticity of demand is. Alternatively, click here to read about it, or watch this video.
    ..
    ..
  • First things first: it is interesting that all of the upper left quadrant is services, and not goods. In fact, I’m hard pressed to think of a single good that would fall in this bracket. Maybe seasonal fruits that you won’t get again until the same season comes back next year (mangoes being a classic example in India, of course). Can you think of any other goods that are “gone forever”?
    ..
    ..
  • And now onto higher education.
    ..
    ..
    “Enrollments in higher education are typically thought of as a normal good, and estimates of income elasticity are typically slightly inelastic (slightly greater than 1.0), meaning that for each 1 percent increase (decrease) in income, enrollments increase (decrease) by about 1 percent.”
    ..
    ..
    That’s from this link, which I got by reading the blogpost we’re taking notes for. Worth keeping in mind for what follows.
    ..
    ..
  • “What this means is that the data show college-bound kids keep going to college even in recessions.”
    ..
    ..
    That quote is in the context of the income elasticity of education. I have two points to raise in this context, though:
    • First, as Bruce Wydick himself explains earlier on in the blogpost, this year is an example of supply and demand being willing, but markets still not clearing. That is, this time is different. Under normal circumstances, sure – but enrollment may drop because of other factors than change in income.
    • Second, bundling! When you buy an education from a college, you’re buying the signal that you have learnt, you’re buying the learning itself and you’re buying the peer networks you develop because you attend college.
      The current pandemic means that you need depend on college for only the first of these three goods: learning itself, if it is to be online, can happen through multiple online providers, and peer networks in the physical sense is unlikely to happen at least through 2020.
    • Combine the inevitable drop in nationwide income with the fact that only one out of the three “goods” from a college being up for sale, and you reach the conclusion that enrollment will likely suffer this year.
  • The reduction will of course be different for different countries, and different once again for colleges within the same country. But at the margin, my model of the world tells me to expect either a lower number of applications, or a lower number of enrollments – or both.
  • But this article is worth a read and a bookmark for the framework alone!

Agriculture in England and India, Immigration, Water and Healthcare

Five articles I enjoyed reading this week – and hopefully you will as well

The change that is coming over farming can be summarised in simple economic terms. Intensive agriculture prioritises a bumper harvest – the annual dividend – while the new approach emphasises the preservation of the initial capital – the land itself. For a glimpse of how this new investment priority will affect British farming, it suffices to visit those progressives who have already, to varying degrees, made it their own.

The Guardian Long Read on agriculture (in England). Horizons (one out of choices, horizons, incentives and costs) remain underrated in economics classes, as this article points out. But there is much more to read here: recommended!

It developed an app-based platform that registers orders directly from buyers, analyses category-wise demand, fixes dynamic prices depending on daily demand, and transfers the orders to its network of 1,000+ farmers. Farmpal’s price comparison feature ensures that farmers can sell their produce at rates higher by 20 to 30 percent than what they would normally get in the mandis.
“This is one of our main promises to the farming community. We are able to offer them premium prices because technology eliminates at least four to seven middlemen from farm to fork,” the founder explains.

While on the topic of agriculture, this from Maharashtra, India: Farmpal.

Caplan’s case isn’t entirely about economics: he also makes a moral appeal. Consider the case of “Starving Marvin,” who needs food and is prepared to purchase it legally. On his way to the market, he is turned away by an armed guard. If Marvin subsequently dies of starvation, Caplan asks, is the guard guilty of murder? The philosopher Michael Huemer, who first introduced this hypothetical, in 2012, concluded that the answer was yes. He writes, “If a person is starving, and you refuse to give him food, then you allow him to starve, but if you take the extra step of coercively interfering with his obtaining food from someone else, then you do not merely allow him to starve; you starve him.” Caplan doesn’t go that far, but he does argue that the guard is wrong to prevent Marvin from feeding himself.

Read the paper, read the book, read this profile of Bryan Caplan, and his quixotic quest to get all of us to accept a world without borders.

Geologists and hydrologists, who worked on implementing the project, shared similar views and hailed Jalyukta Shivar. This was mainly due to the interventions undertaken in the existing water reserves, planned de-silting activities, among many others. However, experts agreed that the scheme was not appropriately implemented. Now with Jalyukta Shivar no longer in existence, focused efforts of the past five years, in most likelihood, will go down the drain unless a similar scheme is introduced. With rainfall variations getting more pronounced, in addition to depleting groundwater reserves, the state will need concrete interventions to tackle future water requirements, experts recommended.

As Tyler Cowen is fond of saying, solve for the equilibrium. On the politics of water conservation in Maharashtra.

America’s mediocre health outcomes can be explained by rapidly diminishing returns to spending and behavioral (lifestyle) risk factors, especially obesity, car accidents, homicide, and (most recently) drug overdose deaths. [Please read this post for the full explanation]

The diminishing returns are evident in cross-sectional analysis. Higher-income countries like Norway and Luxembourg spend twice as much as the likes of Spain and Italy and probably experience worse average outcomes.

Via the excellent Navin Kabra, a very, very long article on healthcare in America. Excellent if you are a student of America, healthcare or microeconomics. At the intersection of the three, it becomes mandatory reading. Pair up with Baumol’s Cost Disease (although the name is misleading, it is the most popular way to this phenomenon is referenced)

 

Applied Microeconomics

Every single class that I teach, I end with a little tradition: students must ask me five completely random questions. These questions must necessarily have nothing to do with whatever it is that I taught in that class, but that apart, they can be about absolutely anything under the sun.

There are many, many reasons for this little exercise: a fun way to wrap up class, helps students ask better questions, keeps me on my toes are just three of them. One of the questions that I was asked recently was about the whole Kunal Kamra/Arnab Goswami incident.

Here’s the quick summary of how I answered that question in class: I am not (and this is putting it mildly) a fan of Arnab Goswami, but I wish Kunal Kamra had not done what he did.

In what follows, I try to think like an economist in explaining the latter half of the summary above.

  1. Many more people have a heightened awareness of both Kunal Kamra and Arnab Goswami than before the incident took place, and to the extent that their professions benefit from more publicity, they gain in this one regard. (It is, of course, more complicated and nuanced than that, but this is a blog post.)
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  2. One reason I wish Kunal Kamra hadn’t done what he did is because the ensuing publicity of the video normalizes heckling somebody on a flight/in a public space. Yes, I have seen the video in which Tejaswi Yadav was heckled by the Republic employee, and of course I wish that hadn’t taken place either. My point remains the same in both cases: it has become more acceptable to heckle somebody in a public space, and that isn’t great for civilized discourse.
    In economist-y terms, the price one pays in terms of social disapprobation is lower for everybody. In plain English, it is now ok to do that, is the message that people are left with.
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  3. Both points above taken together imply there is a higher benefit (in terms of attention on social media) to be gained at a lower cost (lower social disapproval), which should lead the economist to predict that we should see more such incidents take place in public. The point remains true no matter who is doing it to whom in terms of the (for lack of a better phrase) ideological divide.
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  4. But then again, the fact that the supply of such incidents will rise effectively means a shifting out of the supply curve (with the quantity of such incidents on the horizontal axis and time spent being informed of these incidents on the vertical one). In English, the more such incidents are reported, the less time we will spend thinking about them.
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  5. That will either disincentivize people from being a part of such incidents, or normalize it entirely to the point of it becoming almost banal. As a cynic, my bet is on the latter.
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  6. Which, by my standards, is society becoming definitively worse off.
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  7. And by that standard, my normative prescription is that one should not engage in heckling somebody in a public space…
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  8. … and, in equilibrium, one should also make this the last article about this topic! This applies as much, of course, to the writer as it does to the reader.

 

Addendum: a friend to whom I had sent this post for feedback pointed out that in equilibrium with regard to point 5., people will have to be ever more attention seeking. My friend was horrified by that conclusion, and I agree on both counts.

 

 

 

EC101: Links for 13th June, 2019

  1. “A September 2018 article from Eater tells us that Miguel Gonzalez delivers directly to 120 New York restaurants. As an avocado supplier, he works with farms in Mexico’s Michoacán state. To maintain consistency and minimize bruising, he monitors truck temperatures and how the boxes are stacked during their 2600 (or so) mile journey.”
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    What happens when you raise the tariff on a commodity? Who do you think will (ultimately) pay? Econ texts give you the answer – this article provides an example.
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  2. “Across the United States, a similar cocktail seems to be keeping inflation at bay: Employers are reluctant to charge more, unsure how consumers will react, and they’ve found an untapped supply of workers. It’s partly great news. More Americans are getting jobs than policymakers once thought possible, and wages and prices aren’t spinning out of control the way history would predict.”
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    Think you know macroeconomics? Short answer: you never really do. The NYT provides an example of a conundrum that is keeping the Federal Reserve up at night: full employment, low inflation. A nice problem to have, right? You’d have thought so…
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  3. “Economists have written about topics that we would now classify under the headings of “microeocnomics” or “macroeconomics” for centuries. But the terms themselves are much more recent, emerging only in the early 1940s. For background, I turn to the entry on “Microeconomics” by Hal R. Varian published in The New Palgrave: A Dictionary of Economics, dating back to the first edition in 1987.”
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    On the etymology of micro and macroeconomics.
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  4. “Belloy’s misfortune stemmed from more than bad luck. He was the victim of unscrupulous traders known simply as operators, who might sell fake elevator receipts, or move prices in their favor by spreading false news. Or they might pull off an especially cunning manipulation known as a corner, in which they would buy future wheat while simultaneously buying all physical wheat.Later, when it came time for the operator to take delivery of his future wheat, the other trader had to first go buy some. But there was none. The operator owned it all. Thus trapped, or cornered, the victim had no choice but to pay whatever price the operator demanded. Cornering was the ruin of many a trader, like our Belloy, to whom the only apparent recourse was to find the nearest saloon and shoot himself in the head.”
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    Rarely are classes in financial economics so very entertaining. A lovely history (maybe apocryphal, who knows) about the early days of the CBOT in Chicago.
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  5. “There is no simple remedy for the curse of knowledge, but let me offer a suggestion. Keep a particular person in mind as you teach. That person should be someone you know well—a parent, a spouse, or a best friend (as long as that person is not an economist). Pretend you are explaining the material to them. Are they getting it, or are they lost? If you know this person well, you may be able to more easily empathize with their learning challenges. You might prevent
    yourself from going overboard.”
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    N. Gregory Mankiw comes up with a short six point guideline about how to teach economics better. It is worth going over this list, irrespective of whether you are learning economics or teaching it. Also, taken a look at Eli5?