In Memoriam: Robert Mundell

Robert Mundell passed away earlier this week. Most macroeconomics students will know of the Mundell-Fleming model, of course, while a lesser number may have heard of his work on optimum currency areas.

Here is a relatively old article about him from the New York Times:

”In the very short run, I’m a Keynesian,” he said. ”In the intermediate run, I’m a supply-sider, and in the long run I’m a monetarist.”

https://www.nytimes.com/1986/01/12/business/eccentric-economist-robert-a-mundell-supply-side-s-intellectual-guru.html

And here is a summary by The Economist on the impossible trilemma:

HILLEL THE ELDER, a first-century religious leader, was asked to summarise the Torah while standing on one leg. “That which is hateful to you, do not do to your fellow. That is the whole Torah; the rest is commentary,” he replied. Michael Klein, of Tufts University, has written that the insights of [[international macroeconomics]] (the study of trade, the balance-of-payments, exchange rates and so on) might be similarly distilled: “Governments face the policy trilemma; the rest is commentary.”

https://www.economist.com/schools-brief/2016/08/27/two-out-of-three-aint-bad)

Here is Paul Krugman, first rhapsodizing about the Optimum Currency Area1:

First up, Mundell, whose classic 1961 paper argued that a single currency was more likely to be workable if the regions sharing that currency were characterized by high mutual labor mobility. (He actually said factor mobility, but labor is almost surely the one that matters). How so?

https://krugman.blogs.nytimes.com/2012/06/24/revenge-of-the-optimum-currency-area/

.. and then rhapsodizing about Robert Mundell and his early theoretical work:

Those of us who work on international monetary theory have been wondering for a decade when Robert Mundell would get his richly deserved Nobel Memorial Prize in Economic Sciences. Mundell’s work is so central to that field, so “seminal”–an overused term that really applies here–that on many disputed issues his ideas are the basis for both sides of the debate. But a layperson might be confused about exactly what Mundell and his prize are really about.

https://slate.com/business/1999/10/o-canada.html

This is the NYT obituary:

In his 2006 interview, he said that winning the Nobel “was particularly pleasing to me as my work has been quite controversial and no doubt stepped on a lot of intellectual toes.”
He added: “Even more than that, when I say something, people listen. Maybe they shouldn’t, but they do.”

https://www.nytimes.com/2021/04/05/business/economy/robert-mundell-dead.html

And finally, the Washington Post’s obit:

Dr. Mundell gave one of the more unusual — and crowd-pleasing — acceptance speeches in the history of the Nobel Prize. He ended his remarks by singing a few bars of the hit Frank Sinatra song “My Way,” an allusion to the independent-minded approach that he brought to his life and work.

https://www.washingtonpost.com/local/obituaries/robert-mundell-dead/2021/04/06/36793d92-96d4-11eb-b28d-bfa7bb5cb2a5_story.html

RIP.

  1. This essay, along with the tables, used to be freely available on the NBER website. No longer, and I don’t know why. My apologies[]

End of the week reading list: 6th Nov, 2020

The NYT comes up with a lovely selection of Agatha Cristhie novels. Light Diwali vacation reading if you are new to her works, perhaps?
(Also, every time I am reminded of this book below, I feel this urge to apologize to that one friend I inadvertently revealed the ending to – so once again, I’m really sorry!)

That would be “The Murder of Roger Ackroyd,” the story of a wealthy man slain in his study less than a day after the woman he hoped to marry commits suicide. Although — as Hercule Poirot discovers — the dead man’s assorted friends, relatives and servants have reasons to wish him ill, “The Murder of Roger Ackroyd” will still leave you reeling. When you find out who the murderer is and begin leafing through the pages, looking for missed clues, you’ll realize just how completely Christie snookered you.

https://www.nytimes.com/2020/10/25/books/best-agatha-christie-books-murder-mystery.html

On the race to redesign sugar:

As public opinion turns against sugar, food companies have outdone one another in pledges to cut the quantities of it that appear in their products. Pepsi has promised that by 2025 at least two-thirds of its drinks will contain a hundred calories or fewer from added sweeteners. A consortium of candy companies, including Mars Wrigley, Ferrero, and Russell Stover, recently declared that by 2022 half of their single-serving products will contain at most two hundred calories per pack. Nestlé has resolved to use five per cent less added sugar by the end of this year—though, as of January, it still had more than twenty thousand tons of the stuff left to eliminate.

https://www.newyorker.com/magazine/2020/09/28/the-race-to-redesign-sugar

A short (and delightful) history of mashed potatoes:

During the Seven Years War of the mid-1700s, a French army pharmacist named Antoine-Augustin Parmentier was captured by Prussian soldiers. As a prisoner of war, he was forced to live on rations of potatoes. In mid-18th century France, this would practically qualify as cruel and unusual punishment: potatoes were thought of as feed for livestock, and they were believed to cause leprosy in humans. The fear was so widespread that the French passed a law against them in 1748.

https://www.mentalfloss.com/article/627023/mashed-potatoes-history

The excerpt below was an excerpt in the post I am linking to (if you see what I mean), but well worth your time, the entire blog post:

70% of us think that the average household income of the top 1% is more than ₹2.5L. In fact, a majority of us guess it is more than ₹5L. Similarly, a majority of the respondents assume that the average income of the top 10% of households is more than a ₹1L… We think of the top 1% as super-rich people. A majority of the respondents estimate that all of the top 1% have 4-wheelers. And 70+% feel that at least 90% of the top 1%-ers have 4-wheelers.

http://gulzar05.blogspot.com/2020/09/more-india-middle-class-facts.html

Robin Hanson wonders about taking rest:

While we seem to “need” breaks from work, many of our break activities often look a lot like “work”, in being productive and taking energy, concentration, and self-control. So what exactly is “restful” about such “rest”?

https://www.overcomingbias.com/2020/11/why-do-we-rest.html

Notes on “Does Palantir See Too Much?”

Just this past weekend, I finally got around to finally finishing The Lord of The Rings.

I know, I know. Spare me.

Worse, I finished the movies, not the book, and I do not have the faintest idea about when I’ll get around to reading it, but that is a story for another day. (Heh.)

Today’s notes, coincidentally, are about Palantir, but the new age one, not the panopticon from Tolkein’s universe. The new Palantir is a firm started by Peter Thiel, and is the subject of a rather long (and very nice) profile of the firm and it’s Chief Executive Officer, Alex Karp.

First, what is Palantir Technologies? Here’s Wikipedia – note that I have combined sentences across different paragraphs in this excerpt:

Palantir Technologies is a public American software company that specializes in big data analytics. Headquartered in Denver, Colorado, it was founded by Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen, and Alex Karp.

The company is known for three projects in particular: Palantir Gotham, Palantir Metropolis and Palantir Foundry. Palantir Gotham is used by counter-terrorism analysts at offices in the United States Intelligence Community (USIC) and United States Department of Defense…

…Palantir Metropolis is used by hedge funds, banks, and financial services firms…

…Palantir Foundry is used by corporate clients such as Morgan Stanley, Merck KGaA, Airbus, and Fiat Chrysler Automobiles NV

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

… and here’s the NYT amgazine story:

Its two primary software programs, Gotham and Foundry, gather and process vast quantities of data in order to identify connections, patterns and trends that might elude human analysts. The stated goal of all this “data integration” is to help organizations make better decisions, and many of Palantir’s customers consider its technology to be transformative.

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

But the story gets more interesting in the very next line in the article…

Karp claims a loftier ambition, however. “We built our company to support the West,” he says. To that end, Palantir says it does not do business in countries that it considers adversarial to the U.S. and its allies, namely China and Russia. In the company’s early days, Palantir employees, invoking Tolkien, described their mission as “saving the shire.”

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

There’s two questions at play here, really. First, what does Palantir Technologies do (that’s the first excerpt from the NYT story)? And second, why does it do what it does (and that’s the excerpt right above)?

Now, the reason I find this so interesting is that the instinctive argument that you might want to make against Palantir Technologies is “but privacy!”. And the second excerpt above is, in a sense, Palantir’s response.

Although Palantir claims it does not store or sell client data and has incorporated into its software what it insists are robust privacy controls, those who worry about the sanctity of personal information see Palantir as a particularly malignant avatar of the Big Data revolution. Karp himself doesn’t deny the risk. “Every technology is dangerous,” he says, “including ours.”

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

Technology is technology – what you do with it is what matters is a rather old argument, but that’s the argument that is being used here. There’s more though – if we don’t, somebody else will. Better the known devil, etc.

Once the data has been integrated, it can be presented in the form of tables, graphs, timelines, heat maps, artificial-intelligence models, histograms, spider diagrams and geospatial analysis. It is a digital panopticon, and having sat through several Palantir demos, I can report that the interface is impressive — the search results are strikingly elegant and easy to understand.

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

Elsewhere in the article, the author speaks about how the work isn’t glamorous, and is really just glorified plumbing. Well, maybe – but as anybody who has lived in a house will tell you, it is plenty important. Good plumbing is plumbing you don’t notice, but reap the benefits of – and that seems to be Palantir’s USP.

While Thiel provided most of the early money, the start-up secured an estimated $2 million from In-Q-Tel, a venture-capital firm that finances the development of technologies that can help the C.I.A.
Karp says the real value of the In-Q-Tel investment was that it gave Palantir access to the C.I.A. analysts who were its intended clients.

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

Did In-Q-Tel pay to help start Palantir, or did it hire consultants for 2 million dollars? Did Palantir agree to work for only 2 million dollars to get access to the CIA?

Bottom-line: the world is a non-zero sum game.

According to Thiel, their conversations generally took place late at night in the law-school dorm. “It sounds too self-aggrandizing, but I think we were both genuinely interested in ideas,” he says. “He was more the socialist, I was more the capitalist. He was always talking about Marxist theories of alienated labor and how this was true of all the people around us.”

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

This excerpt is from a section which is about Karp figuring out his education and career, and we learn about his Jewish, rebellious background as well. I found this clip interesting because from Peter Thiel’s viewpoint, succeeding in selling the idea behind Palantir to Karp is one of the biggest validations there could possibly be. If he bought into the story, well, there must be something to it. Second, what better way to maintain checks and balances than to have somebody like Karp running the show?

In fact, Thiel hiring Karp for this job becomes more and more interesting the more you learn about Karp. Thiel has a quote in the article about needing someone who was smart and scrappy, but left unsaid, perhaps, is someone who was very unlike Thiel. And not just unlike Thiel, also unlike the typical CEO. A person who worries about the alienation of labor, likes solitary pursuits, and dreams of being an intellectual in Europe isn’t the person you would have in mind as the typical CEO of a firm like Palantir. But that, it would seem, was the whole point. Well, that, and being a bachelor by choice wouldn’t hurt, given the traveling nature of the job.

(Although there is a section in the article in which Karp insists that he being who he is hasn’t helped him or Palantir.)

Karp and Thiel say they had two overarching ambitions for Palantir early on. The first was to make software that could help keep the country safe from terrorism. The second was to prove that there was a technological solution to the challenge of balancing public safety and civil liberties — a “Hegelian” aspiration, as Karp puts it.

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

Karp and Thiel make for a Hegelian pair themselves!

When I asked Thiel about the risk of abuse with Palantir, he answered by referring to the company’s literary roots. “The Palantir device in the Tolkien books was a very ambiguous device in some ways,” he said. “There were a lot of people who looked into it and saw more than they should see, and things went badly wrong when they did.” But that didn’t mean the Palantir itself was flawed



He continued: “The plot action was driven by the Palantir being used for good, not for evil. This reflected Tolkien’s cosmology that something that was made by the good elves would ultimately be used for good.”



A moment later, he added: “That’s roughly how I see it, that it is ultimately good and still very dangerous. In some ways, I think that was reflected in the choice of the name.”

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

I found this fascinating, and I also found it useful to think about this from the Wikipedia article about the original Palantir:

A major theme of palantír usage is that while the stones show real objects or events, they are an unreliable guide to action, and it is often unclear whether events are past or future: what is not shown may be more important than what is selectively presented. Further, users with sufficient power can choose what to show and what to conceal

https://en.wikipedia.org/wiki/Palant%C3%ADr

The technology is what it is – and as Karp himself points out, it is susceptible to misuse. More importantly, the technology in combination with the person(s) who are using it is, at least potentially, an even more dangerous tool.

Karp made clear that he was opposed to Trump’s immigration policies: “There are lots of reasons I don’t support the president; this is actually also one of them.” He told me that he was “personally very OK with changing the demographics of our country” but that a secure border was something that progressives should embrace. “I’ve been a progressive my whole life,” he said. “My family’s progressive, and we were never in favor of open borders.” He said borders “ensure that wages increase. It’s a progressive position.” When the left refuses to seriously address border security and immigration, he said, the right inevitably wins. To the extent that Palantir was helping to preserve public order, it was “empirically keeping the West more center-left.”

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

To understand a big data firm started by one the world’s most successful VC’s, one should end up reading about a German philosopher from the 18th century – for what could possibly more Hegelian than that excerpt?

And finally, the last sentence in the article:

“Palantir,” he said, “is the convergence of software and difficult positions.”

https://www.nytimes.com/interactive/2020/10/21/magazine/palantir-alex-karp.html

That, it would seem, is a reasonably good way to understand Pater Thiel’s investment philosophy!

Read the whole NYT article yourself (at least twice, if you ask me).

Five Articles/Posts for the 3rd of July, 2020

  1. “Accordingly, antifragile systems and organisms tend towards a common theme: bottoms-up decision-making, rather than top-down decision making. Antifragility requires real options, and real options are low-cost. Antifragility is only successful if you can actually detect, react, and grow in response to deviations from your present state in real time; the only way you can feasibly do this is for disorder detection and response to take place at a small enough resolution, and tight enough turnaround time. Top-down systems have a hard time with antifragility, because for them, all options are costly.”
    ..
    ..
    I’m late in posting this, having read this a while ago, but a useful essay by Alex Danco on how to think about anti-fragility, the term coined and popularized by Taleb. There are a lot of very useful ways to think about anti-fragility, but this essay explores immunity and how to think about our bodies immunity from the prism of anti-fragility. I found it especially useful to think about our bodies (which are at risk from the virus) and our governments (which are supposed to help us protect ourselves against the virus) and ask which is more anti-fragile, and why.
    ..
    ..
  2. Kevin Kelly (a man worth learning more about) recently posted “68 bits of unsolicited advice“. Each advice is worth reading – here’s one that is easy to understand, difficult to implement on a sustained basis. Ask me. I should know.
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    “Being enthusiastic is worth 25 IQ points.”
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  3. “Grades destroy curiosity. Too many kids learn for the sole purpose of raising their GPA because that’s what the system incentivizes. From an early age, I observed that my success in school depended more on my grades and less on how much I learned. In college, even though I wrote essays on my own and worked as an intern in New York City for companies like Skift, I was almost kicked out of my fraternity because my GPA was below 3.0. Likewise, my college counselors evaluated me on two metrics: grades and SAT scores. Neil deGrasse Tyson once said: “When students cheat on exams, it’s because our school system values grades more than students value learning.””
    ..
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    Read this essay by David Perell. Please. Read it.
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  4. This link came to me via Recommendo, which is a newsletter I have subscribed to about a month or so ago. Worth a ponder, it is about the art of critical thinking.
  5. Great visualizations, as always, from the NYT. This one is about the spread of the coronavirus in the USA.

Links about these changing times

  1. Agnes Callard on wanting to feel pain:
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    “We don’t consciously choose to feel pangs of guilt or waves of regret, in the way that we consciously choose what novel to read. Still, we can assimilate the two sorts of cases if we introduce a hypothetical: Imagine you are offered a pill that would make you immune to regretful or guilty thoughts. Would you choose take it? If your worry is that those thoughts are important for steering you away from future wrongdoing, let me assure you I’ve built that functionality into the pill: You won’t behave any worse for having taken it. You’ll just stop having negative feelings.”
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  2. Via MR, social distancing and examinations in South Korea. (I’m not a fan)
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  3. Scott Adams has been calling it correctly for a while. Read more Dilbert!
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  4. Again via MR, a lovely list.
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  5. What will change, culturally speaking? Telecommuting will be the default, and in the years to come, maybe you’ll have to ask the manager for permission to go to office.
    ..
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    “But the pandemic is forcing these investments in industries where telework is possible, with more people learning how to use remote technology. As a result, we may see a more permanent shift toward telecommuting. As the economist Susan Athey recently told the Washington Post, “People will change their habits, and some of these habits will stick. There’s a lot of things where people are just slowly shifting, and this will accelerate that.””

Non-medical, non-economics links about Covid-19

David Brooks in the NYT:

Viktor Frankl, writing from the madness of the Holocaust, reminded us that we don’t get to choose our difficulties, but we do have the freedom to select our responses. Meaning, he argued, comes from three things: the work we offer in times of crisis, the love we give and our ability to display courage in the face of suffering. The menace may be subhuman or superhuman, but we all have the option of asserting our own dignity, even to the end.

John Authers in Bloomberg:

For now, the approach being adopted across the West is Rawlsian. Politicians are working on the assumption that they have a duty to protect everyone as they themselves would wish to be protected, while people are also applying the golden rule as they decide that they should self-isolate for the sake of others. We are all Rawlsians now.

How long will we stay that way? All the other theories of justice have an appeal, and may test the resolve to follow the golden rule. But I suspect that Rawls and the golden rule will win out. That is partly because religion — even if it is in decline in the West — has hard-wired it into our consciousness. And as the epidemic grows worse and brings the disease within fewer degrees of separation for everyone, we may well find that the notion of loving thy neighbor as thyself becomes far more potent.

And on that note, this by me from a couple of days ago.

A cartoon from the New Yorker about social distancing and how to do it “right”.

Also from the New Yorker, Siddhartha Mukherjee, writing like only he can:

But three questions deserve particular attention, because their answers could change the way we isolate, treat, and manage patients. First, what can we learn about the “dose-response curve” for the initial infection—that is, can we quantify the increase in the risk of infection as people are exposed to higher doses of the virus? Second, is there a relationship between that initial “dose” of virus and the severity of the disease—that is, does more exposure result in graver illness? And, third, are there quantitative measures of how the virus behaves in infected patients (e.g., the peak of your body’s viral load, the patterns of its rise and fall) that predict the severity of their illness and how infectious they are to others? So far, in the early phases of the covid-19 pandemic, we have been measuring the spread of the virus across people. As the pace of the pandemic escalates, we also need to start measuring the virus within people.

And finally, Ben Thompson, probably the only writer alive who can build a story linking Compaq and the coronavirus.

 

Econ101: Policy Responses to a Pandemic

If you haven’t played it already, go ahead and give this game a try: The Fed Chairman Game. I have a lot of fun playing this game in class, especially with students who have been taught monetary policy. It usually turns out to be the case that they haven’t understood it quite as well as they think the have! (To be clear, that’s the fault of our educational system, not the students.)

But the reason I started with that is because the game always throws up a scenario that mimics a crisis, and asks you what you would do if you were the Chair of the Fed.

In this case, policymakers the world over are now staring at a very real crisis, and they need to be asking themselves: what should we do?


 

There are two broad answers, of course: monetary policy, and fiscal policy.

The Federal Reserve has cut interest rates to zero, and while it has other tools to stimulate the economy, a crisis like this requires fiscal as well as monetary responses. The legislation passed thus far has been important, but another round of fiscal policy will be required immediately to fully address this crisis.

A robust fiscal response can provide income support to households, ensure broad and continuous access to safety net programs, provide incentives for employers to avoid layoffs, provide loans to small businesses, give liquidity cushions to households and firms, and otherwise stimulate the economy.

That’s a write-up from Brookings. The specifics follow in that article, but the article makes the point that more of the lifting will need to  be done by fiscal, rather than monetary policy. And that is true for a variety of reasons,  which the article does not get into, but long story short – fiscal, more than monetary.

But, ok, fiscal policy of what kind? Should we give money to firms or to workers? Here’s Paul Krugman with his take…

And here’s Alex Tabarrok with his response:

So what’s the correct answer? Well, as we’ve learnt before, and will learn again, macro is hard! In an ideal world, all of the above, but as is manifestly clear, we are not in an ideal world. If we must choose between giving money to firms or to people, to whom should we give it? My opinion? People first, businesses second. This is, of course, a US centric discussion, what’s up with India?


 

Here’s, to begin with, a round-up from around the world – you can search within it for India’s response thus far.

Calls are getting louder for governments to support people and businesses until the new coronavirus is contained. The only questions are how much money to shovel into the economy, how to go about doing it, and whether it will be enough.

Already, officials from Paris to Washington DC are pulling out the playbook used in Asia for slowing the spread of Covid-19: they’re restricting travel and cracking down on public gatherings. While those measures have the potential to reduce deaths and infections, they will also damage business prospects for many companies and cause a synchronized worldwide disruption.

Here’s the FT from two weeks ago about the impending slow down:

Venu Srinivasan, whose company TVS is one of India’s largest makers of motorcycles and scooters, said the business had lost about 10 per cent of production in February owing to a lack of Chinese-made parts for the vehicles’ fuel injection system. He added that TVS has now managed to find a new supplier.

But Mr Srinivasan said he was bracing for India’s recovery to take longer than anticipated. “One would have expected a V-shaped recovery, but instead you have an L shaped recovery,” he said. “It’s been the long haul.”

R Jagannathan in the LiveMint suggests this:

This is how it could be designed. Any unemployed urban youth in the 20-30 age group could be promised 100 days of employment and/or skilling options paid for by the government at a fixed daily rate of ₹300 (or thereabouts, depending on city). At an outlay of ₹30,000 per person annually, the unemployed can be put to work in municipal conservancy services, healthcare support, traffic management, and other duties, with the money also being made available for any skill-acquiring activity chosen by the beneficiary (driver training for Ola-Uber, logistics operations, etc). All companies could be given an opportunity to use the provisions of the Apprentices Act to take on more trainees, with the apprenticeship period subsidized to the limit of ₹30,000 per person in 2020-21. If the pilot works, it could be rolled out as a regular annual scheme for jobs and skills. Skilling works best in an actual jobs environment.

 

He also mentions making the GST simpler, which the Business Standard agrees with:

Certainly, the rationalisation of GST will also affect government revenues. However, a simpler and more transparent system would allow greater collection and reduce evasion. The government will receive a windfall this year from lower crude oil prices. The moment to move on the structural reform agenda is now. The GST Council has done well to address the inverted duty structure in mobile phones. Further rationalisation will give confidence to the market that the government is serious about reforms. It was promised that GST would remain a work in progress, and that the GST Council would act often to improve it. So far, however, the changes have been marginal and haphazard. A more structured and rational approach, which outlines a quick path to a single rate, would pay dividends for the economy in the longer run. It would also be an effective way to manage the immediate effects of a supply shock such as is being caused by the pandemic.

Also from the Business Standard, a report on the government now considering (not happened yet) relaxing bad loan classification rules for sectors hit by the corona virus. That’s pretty soon going to be every sector!


 

Assorted Links about the topic – there’s more to read than usual, please note.

Here is Tyler Cowen on mitigating the economic impacts from the coronavirus crisis.

Here’s Bill Dupor, via MR, about the topic:

First, incentivize behavior to align with recognized public health objectives during the outbreak.

Second, avoid concentrating the individual financial burden of the outbreak or the policy response to the outbreak.

Third, implement these fiscal policies as quickly as possible, subject to some efficiency considerations.

Again, via MR, New Zealand’s macro response.

Arnold Kling is running a series on the macro response to the crisis.

Claudia Sahm proposes direct payment to individuals:

This chapter proposes a direct payment to individuals that would
automatically be paid out early in a recession and then continue annually
when the recession is severe. Research shows that stimulus payments that
were broadly disbursed on an ad hoc (or discretionary) basis in the 2001 and
2008–9 recessions raised consumer spending and helped counteract weak
demand. Making the payments automatic by tying their disbursement to
recent changes in the unemployment rate would ensure that the stimulus
reaches the economy as quickly as possible. A rapid, vigorous response to
the next recession in the form of direct payments to individuals would help
limit employment losses and the economic damage from the recession.

Here are the concrete proposals, the entire paper is worth a read:

Automatic lump-sum stimulus payments would be made to individuals
when the three-month average national unemployment rate rises by
at least 0.50 percentage points relative to its low in the previous 12
months.
• The total amount of stimulus payments in the first year is set to
0.7 percent of GDP.
• After the first year, any second (or subsequent) year payments would
depend on the path of the unemployment rate.

 

Macroeconomics IS HARD!

Economics in the times of COVID-19, there is already a book. I learnt about it from Tim Taylor’s blogpost. I have not read the book, but will soon.

The NYT, two weeks ago, on the scale of the problem facing policymakers.

 

Understanding Afghanistan A Little Bit Better

“Here is a game called buzkashi that is played only in Afghanistan and the central Asian steppe. It involves men on horseback competing to snatch a goat carcass off the ground and carry it to each of two designated posts while the other players, riding alongside at full gallop, fight to wrest the goat carcass away. The men play as individuals, each for his own glory. There are no teams. There is no set number of players. The distance between the posts is arbitrary. The field of play has no boundaries or chalk marks. No referee rides alongside to whistle plays dead and none is needed, for there are no fouls. The game is governed and regulated by its own traditions, by the social context and its customs, and by the implicit understandings among the players. If you need the protection of an official rule book, you shouldn’t be playing. Two hundred years ago, buzkashi offered an apt metaphor for Afghan society. The major theme of the country’s history since then has been a contention about whether and how to impose rules on the buzkashi of Afghan society.”

That is an excerpt from an excerpt – the book is called Games Without Rules, and the author, Tamim Ansary, has written a very readable book indeed about the last two centuries or so of Afghanistan’s history.

It has customs, and it has traditions, but it doesn’t have rules, and good luck trying to impose them. The British tried (thrice) as did the Russians and now the Americans, but Afghanistan has proven to be the better of all of them.

Let’s begin with the Russians: why did they invade?


 

One day in October 1979, an American diplomat named Archer K. Blood arrived at Afghanistan’s government headquarters, summoned by the new president, whose ousted predecessor had just been smothered to death with a pillow.

While the Kabul government was a client of the Soviet Union, the new president, Hafizullah Amin, had something else in mind. “I think he wants an improvement in U.S.-Afghan relations,” Mr. Blood wrote in a cable back to Washington. It was possible, he added, that Mr. Amin wanted “a long-range hedge against over-dependence on the Soviet Union.”

Pete Baker in the NYT speaks of recently made available archival history, which essentially reconfirms what seems to have been the popular view all along: the USSR could not afford to let Afghanistan slip away from the Communist world, no matter the cost. And as Prisoners of Geography makes clear, and the NYT article mentions, there was always the tantalizing dream of accessing the Indian Ocean.

By the way, somebody should dig deeper into Archer K. Blood, and maybe write a book about him. There’s one already, but that’s a story for another day.


Well, if the USSR invaded, the USA had to be around, and of course it was:

The supplying of billions of dollars in arms to the Afghan mujahideen militants was one of the CIA’s longest and most expensive covert operations. The CIA provided assistance to the fundamentalist insurgents through the Pakistani secret services, Inter-Services Intelligence (ISI), in a program called Operation Cyclone. At least 3 billion in U.S. dollars were funneled into the country to train and equip troops with weapons. Together with similar programs by Saudi Arabia, Britain’s MI6 and SAS, Egypt, Iran, and the People’s Republic of China, the arms included FIM-43 Redeye, shoulder-fired, antiaircraft weapons that they used against Soviet helicopters. Pakistan’s secret service, Inter-Services Intelligence (ISI), was used as an intermediary for most of these activities to disguise the sources of support for the resistance.

But if you are interested in the how, rather than the what – and if you are interested in public choice – then do read this review, and do watch the movie. Charlie Wilson’s War is a great, great yarn.

 


 

AP Photo, sourced from the Atlantic photo essay credited below.

Powerful photographs that hint at what the chaos of those nine years must have been like, from the Atlantic.

 


 

And finally, from the Guardian comes an article that seeks to give a different take on “ten myths” about Afghanistan, including the glorification of Charlie Wilson:

 

This myth of the 1980s was given new life by George Crile’s 2003 book Charlie Wilson’s War and the 2007 film of the same name, starring Tom Hanks as the loud-mouthed congressman from Texas. Both book and movie claim that Wilson turned the tide of the war by persuading Ronald Reagan to supply the mujahideen with shoulder-fired missiles that could shoot down helicopters. The Stingers certainly forced a shift in Soviet tactics. Helicopter crews switched their operations to night raids since the mujahideen had no night-vision equipment. Pilots made bombing runs at greater height, thereby diminishing the accuracy of the attacks, but the rate of Soviet and Afghan aircraft losses did not change significantly from what it was in the first six years of the war.

Afghanistan Today

After Poland and Germany, let’s pick an Asian country to understand better for the month of March. And given the recent deal that has been signed, about which more below, let’s begin with Afghanistan.

As always, begin with the basics. The gift that is Wikipedia, on Afghanistan:

“Afghanistan is a unitary presidential Islamic republic. The country has high levels of terrorism, poverty, child malnutrition, and corruption. It is a member of the United Nations, the Organisation of Islamic Cooperation, the Group of 77, the Economic Cooperation Organization, and the Non-Aligned Movement. Afghanistan’s economy is the world’s 96th largest, with a gross domestic product (GDP) of $72.9 billion by purchasing power parity; the country fares much worse in terms of per-capita GDP (PPP), ranking 169th out of 186 countries as of 2018.”

And from the same article…

The country has three rail links: one, a 75-kilometer (47 mi) line from Mazar-i-Sharif to the Uzbekistan border; a 10-kilometer (6.2 mi) long line from Toraghundi to the Turkmenistan border (where it continues as part of Turkmen Railways); and a short link from Aqina across the Turkmen border to Kerki, which is planned to be extended further across Afghanistan. These lines are used for freight only and there is no passenger service.

Now, as opposed to how I structured the essays on Poland and Germany, I intent to begin with the now and work my way backwards. This is primarily because of what Afghanistan is in the news for:

The joint declaration is a symbolic commitment to the Afghanistan government that the US is not abandoning it. The Taliban have got what they wanted: troops withdrawal, removal of sanctions, release of prisoners. This has also strengthened Pakistan, Taliban’s benefactor, and the Pakistan Army and the ISI’s influence appears to be on the rise. It has made it unambiguous that it wants an Islamic regime.

The Afghan government has been completely sidelined during the talks between the US and Taliban. The future for the people of Afghanistan is uncertain, and will depend on how Taliban honours its commitments and whether it goes back to the mediaeval practices of its 1996-2001 regime.

Doesn’t bode well for India, obviously, but doesn’t bode well for the United States of America either, says Pranay Kotasthane.

And the New York Times says a complete withdrawal of troops, even over the period currently specified, may not be a great idea. Ongoing support is, according to that newspaper, necessary:

More important than troops, potentially, is the willingness of the international community to continue to finance the Afghan government after a peace deal.

“The real key to whether Afghanistan avoids falling into an even longer civil war is the degree to which the United States and NATO are willing to fund and train the Afghan security forces over the long term,” Mr. Stavridis said. “When Vietnam collapsed and the helicopters were lifting off the roof of the U.S. Embassy, it was the result of funding being stopped.”

But it’s not just military funding! Afghanistan needs a lot of the world’s support in the years to come. Water, for example, will be a contentious issue in the years to come, and that’s putting it mildly.

Afghanistan doesn’t face a water shortage – it’s unable to get water to where it’s needed. The nation loses about two thirds of its water to Iran, Pakistan, Turkmenistan, and other neighbors because doesn’t harness its rivers. The government estimates that more than $2 billion is needed to rehabilitate the country’s most important irrigation systems.

And water, of course, is just one of many issues. Health, education, reforming agriculture, roads – it’s an endless list, and it will need all kinds of ongoing and sustained help.

So, amid all of this, what should India be doing?

Meanwhile, India’s interests in Afghanistan haven’t changed. India hopes to build up Afghanistan’s state capacity so that Pakistan’s desires of extending control can be thwarted. Given this core interest in a changed political situation, what’s needed in the long-term in the security domain is to build the strength of the Afghan National Defense and Security Forces (ANDSF). Without a strong ANDSF — which comprises the army, police, air force, and special security forces — peace and stability in Afghanistan will remain elusive. India’s aim should be to help the Islamic Republic of Afghanistan and ANDSF claim monopoly over the legitimate use of physical force.

But, the article presciently warns us of the same what/how problem we first encountered in studying the Indian budget:

In short, the budget might itself not be the biggest issue. The US has pumped nearly $3.6bn on average every year for the last 19 years solely on reconstruction of the ANDSF, a support that is likely to continue even if the US withdraws its soldiers. The bigger problems are insufficient processes to plan and execute budgets resulting in unused funds and lack of infrastructure leading to pay shortfalls.

Now, to unpack all of this, we need to study the following: the Soviet invasion and its aftermath, American involvement in the region, the rise of the Taliban, leading up to Operation Enduring Freedom, 2002. That’s next Wednesday!

1917, Value in Use and Value in Exchange

It is one of the first concepts to be taught in introductory economics – or it ought to be, at any rate. Value in use, and value in exchange, that is.

The concepts simply mean that any particular thing – “good”, as we economists call it – has potential value either because we use it, or because we are able to sell it. Water, the canonical example, has clear value in use, but as a general rule, not that much value in exchange. That’s debatable, but we’ll move on for now.

You can either consume a good, or sell a good to buy other goods. The first is value in use, and the latter is value in exchange.

Here is a short explainer.


 

One of the most powerful movies I saw this year was 1917. For those of you who haven’t seen it yet, it shows you a slice – and a rather uncomfortable one – of what life was like during the Great War, or WWI. Read the review I’ve linked to, but also please watch the movie.


 

What do the two things I’ve spoken about have to do with one another?

In the movie 1917, the two protagonists are talking about a medal that one of them received for bravery. The recipient speaks about how he sold it for a bottle of wine.

I can’t find a clip of this on YouTube at the moment, but here’s a description of the scene from Vulture.com:

“After they cross through the German trenches — a sequence that starts with the men staring at bags of shit and only gets more harrowing from there — Blake and Schofield arrive in the open countryside. It’s a view not often seen in World War I movies, which rarely venture beyond the trenches, and it provides an opportunity for the film to slow down and relax. The soldiers get into a debate about whether there’s any meaning to be found in the war. Blake, who, true to his name, is the romantic of the pair, has learned that Schofield traded his Somme medal for a bottle of wine, and berates him. “You should have taken it home,” Blake says. “You should have given it to your family. Men have died for that. If I’d got a medal I’d take it back home. Why didn’t you take it home?”

Schofield disagrees, with the bitterness of a war poet: “Look, it’s just a bit of bloody tin. It doesn’t make you special. It doesn’t make any difference to anyone.””

That excerpt is from an email I sent to Amit Varma. It was meant to be a pitch for a series that used to run on a website called ThinkPragati (no longer up and running as a magazine, alas). The series was called Housefull Economics, and it seems as if I ended up writing the last column to appear in that space.

But what can’t be written there can be written here! That clip, the one that is described in the excerpt above, is a great way to think about value-in-use and value-in-exchange. Of what use is a piece of metal to Schofield? In war torn France, no use at all – in use.

But in exchange? Why, it got him a bottle of wine!


 

There is another concept at play over here, that of signaling. Blake is clearly horrified at the idea that something as valuable as a medal could be exchanged for something as trivial (to him) as a bottle of wine. Blake is effectively saying that sure, there may not be much value-in-use of the medal right now, but it has tremendous value in terms of signaling.

About which we shall speak a lot more on the coming Thursday, for signaling is a very fascinating topic indeed. But in the meantime, please do read the rest of the columns from the Housefull Economics series – they’re a great way to learn about economics!