Tag: regulation

Not Quite As Simple As One Would Like It To Be

Simple economic analysis can take you a very long way.

Not only do I hold this statement to be true, but it is one of the cornerstones of this blog. The idea that at its heart, economics is about a few important principles, and that the judicious application of these principles can take you a very long way – this idea has motivated nearly all of my writing on this blog.

But as with everything else in life, so also with this alluring, tempting idea. Every now and then, simple economic analysis can only take you so far, and you must wheel out the heavy artillery to make further progress.

In yesterday’s video, we heard John Cochrane talk about how if there is a problem, look first for the regulation that caused it. And there is more than an inconvenient iota of truth in that assertion. But between too much regulation and too little regulation lies that slippery little point of the optimum amount of regulation. Nobody knows exactly where that point lies, and it moves once you get close to it, but it is very much there. Finding it is all but impossible. Keeping it in sight once you find it is impossible.

But it’s there all right.

Consider housing.

The conventional wisdom has been that if restrictive zoning regulations are removed, ease of getting building and other permissions simplified, and taxes on construction lowered, it will increase the stock of housing of all kinds including affordable housing. This, in turn, will lead to lowering of house prices – “richer renters trade up into new luxe units, starting a chain of move-ins and move-outs that lower prices for modest homes”. This can be called the “trickle-down” theory of housing affordability. Instead, I’m inclined to believe that a meaningful dent in the housing affordability issue in the medium-term has to involve an increased supply of large volumes of public (or heavily subsidised) housing.

https://gulzar05.blogspot.com/2023/05/some-thoughts-on-affordable-housing.html

You’ll meet economists who tell you that housing can only be solved by removing as much regulation as possible. You’ll meet other economists who tell you that public housing is the only solution to the problem. And you’ll get bloggers like me, who will tell you that the truth lies somewhere in the middle. But by referring to Gulzar Natarajan’s (GN) excellent blogpost, let me explain to you why I think so:

  1. People in India think like much of the rest of the world, and are inclined to view housing as both a place to stay, but also as an investment asset. These are GN’s words, not mine, taken more or less directly from his blogpost, but they are worth repeating here. Yes the demand for housing is more than the supply, in many cities the world over, but that demand itself rather complicated to think about.
  2. For example, some people buy a house to stay in it. Others buy a house in order to sell it at a high price later, without ever having stayed in it. A Knight-Frank report form 2019 tells us, for example, that 25% of all residential houses in Gurugram are vacant. That number is almost 22% for Pune, 15% for Mumbai and about 10% or so for Ahmedabad, Bengaluru and Delhi.
  3. Who is likely to be able to afford to buy a house as an investment?
  4. Which types of houses will have higher margins?
  5. So the supply of what type of houses will go up?
  6. The answers most likely to be correct for the three questions above are “More affluent folks | luxury housing as opposed to affordable housing | Luxury housing”.
  7. By the way, Noah Smith has an excellent post (referenced by GN in his blogpost) that goes against the case I’m building here. It is, hopefully, free to read, and the link is here. Here’s an excerpt: “…you could probably get them to admit that if we built 10 market-rate (“luxury”) apartments for every resident of Austin, most of them wouldn’t get filled, and landlords would be forced to slash prices, and regular folks would have cheap apartments to live in”
  8. That is, Noah is saying that an increase in supply will get prices down eventually. And with reference to the excerpt, it’s not just “them” – I will also agree that prices will come down eventually. How long will the “eventually” take is one good question to ask in response. That is, how long before the price of those unoccupied apartments will come down? Will the rate of reduction be the same for all cities in all countries? Will class distinctions matter, for example? What about religion, what about caste and what about availability and affordability of public transport?
  9. Or as GN puts it: “We need to step back here a little bit. The starting conditions of the cities under consideration matter. For example, how segmented is the housing market, how do the prices in the different segments compare, what’s the likely profit differential between higher-end and marginal housing, what’s the marginal demand for higher end housing, how does it compare with the supply, how do the starting prices for each housing segment compare with the annual incomes of different population groups etc. Differences in each can generate entirely different outcomes.”
  10. There are many points to make over here, related to pricing, regulations, urbanization, public transport, urban sociology, and much else besides. But for the purposes of this blog post, I’ll leave you with just this one thought: economic models need to be rooted in the lived reality of whichever specific region you are modeling for. Noah isn’t wrong in his post, and neither is GN. But the “correctness” of their argument is very much dependent on whether they’re talking about Bombay or Austin.
  11. Context matters, in other words, and a good first pass answer as an economist always is “Well, that depends.”

But Why 68?

Doing mental math has been a way to avoid boredom for years, in my case. I would dream up mental math games to stay awake in classes in school and college, and often play around with number pattterns in my head when I’m out driving or riding. It doesn’t make me the world’s best travel companion, I suppose, but on the flipside, I never get bored on long solo trips.

But even in extremely short trips, such as those between different floors of the same building, I can’t help but think about math. And I’ve always wondered why lifts (elevators, if you want to be all fancy) assume that the average body weight is 68 kilograms.

Try it, the next time you get into a lift anywhere in India. Take a look at the number of people the lift will mention as the upper limit in terms of capacity, and take a look at the maximum permissible weight. The second number divided by the first will always be 68.

Why?

This question has been asked (and answered) on Quora, but the answer isn’t very satisfactory. Nor is the link used within that answer very informative. It simply states, in the case of a tragic accident involving elevators that one should assume an average weight of 68 kg, and given this assumption, it goes on to state that the accident was because of excess weight.

But that, of course, still leaves our question unanswered – why should one assume that the average weight of a human being is 68 kg?

The internet is a wonderful thing, and its long tail is a sight to behold. A Google search took me to a website that seems to be – best as I can tell – for fans of elevators. Yes, really – and they had this interesting factoid:

In Europe Standard, every passengers are assigned to at least 75 kg by default[1]. However, the suggested people can carry by the elevators are related how many spaces can the elevator allocated. Which is the Available Car Area[2]. (sic)

https://elevation.fandom.com/wiki/Capacity

That first footnote takes you to a Facebook page (of all things), and even there you’ll need to use Google Translate to get at what the text (which is in Chinese) is saying. But that just turns out to be a Hong Kong manual of some sort that simply says the same thing again. And no matter whether it is 68 kgs or 75 kgs, there still seems to be no answer to the question: why?

Wikipedia has an entry on the issue, and here is a table from that entry:

RegionAdult population
(millions)		Average weightOverweight population /
total population		Source
Africa53560.7 kg (133.8 lb)28.9%[12]
Asia2,81557.7 kg (127.2 lb)24.2%[12]
Europe60670.8 kg (156.1 lb)55.6%[12]
Latin America and the Caribbean38667.9 kg (149.7 lb)57.9%[12]
North America26380.7 kg (177.9 lb)73.9%[12]
Oceania2474.1 kg (163.4 lb)63.3%[12]
World4,63062.0 kg (136.7 lb)34.7%[12]
https://en.wikipedia.org/wiki/Human_body_weight#Average_weight_around_the_world

Note that the data is from 2005. Lots of interesting data points to ponder over in that table, not the least of which is the ratio of the overweight population to total population column – North America is at an eye-popping 74%! But the average weight, for Asia, was only at 57.7 kgs. Does that mean that we can get more people in lifts in India? Let me perfectly clear: I am not for even a single second suggesting that we carry out crazy experiments like these ourselves. But as a statistician and an economist, I cannot help but ask if there is slack in the system.

Before we move on to the next table from Wikipedia, a slight digression based on [12] in the last column of that table. That footnote refers to a paper titled “The weight of nations: an estimation of adult human biomass“, and it is quite a read in its own right. This paragraph in particular caught my eye:

The average BMI in USA in 2005 was 28.7. If all countries had the same age-sex BMI distribution as the USA, total human biomass would increase by 58 million tonnes, a 20% increase in global biomass and the equivalent of 935 million people of world average body mass in 2005. This increase in biomass would increase energy requirements by 261 kcal/day/adult, which is equivalent to the energy requirement of 473 million adults. Biomass due to obesity would increase by 434%.

Walpole SC, Prieto-Merino D, Edwards P, Cleland J, Stevens G, Roberts I. The weight of nations: an estimation of adult human biomass. BMC Public Health. 2012 Jun 18;12:439. doi: 10.1186/1471-2458-12-439. PMID: 22709383; PMCID: PMC3408371.

Back to the next table in the Wikipedia entry, however. Here is where it gets even more fascinating. This table claims that the average weight of Indians is 65 kgs – but that’s for men. Women, on the other hand, are at 55 kgs. The table is too large to paste over here, but you can click here.

So where do they get that number from? The table links to an out-of-date webpage, but a little searching around on that page takes you here.

https://drive.google.com/file/d/1j3umH5zcJAGNR_WUFwl3-0rBiemYw8DR/view

But does this mean that the average weight of Indian men is 65kgs, and that of women is 55 kgs? Or does this mean (which is what I think) that the reference Indian adult man and woman have a fixed body weight of 65 and 55 kgs respectively?

The NFHS factsheet simply tells us the percentage of people in India who are adult and overweight (30% in urban areas for both sexes, and about 20% in rural areas, in case you were wondering) – but we still dont know the average weight of Indians!

My best guess is that the number doesn’t come so much from the average weight of Indians, but rather from the nice round nature of the number itself. Now, you might not think 68 kilograms to be a round number, but try converting it into pounds, and see if my little theory makes any sense.

If anybody knows anything about this, and is willing to help, it would be much appreciated. But more importantly, to any student of statistics reading this, you can bring the subject magically alive by just looking around you, and by asking questions of a stubborn nature – such as the one that I just tried to answer here!

Links for 22nd April, 2019

  1. “It all comes down to money, and in this case, MCAS was the way for both Boeing and its customers to keep the money flowing in the right direction. The necessity to insist that the 737 Max was no different in flying characteristics, no different in systems, from any other 737 was the key to the 737 Max’s fleet fungibility. That’s probably also the reason why the documentation about the MCAS system was kept on the down-low.Put in a change with too much visibility, particularly a change to the aircraft’s operating handbook or to pilot training, and someone—probably a pilot—would have piped up and said, “Hey. This doesn’t look like a 737 anymore.” And then the money would flow the wrong way.”
    ..
    ..
    The most readable account I have read about what went wrong with the 737 Max. I do not know if it is correct or not, in the sense that I do not have the ability to judge the technical “correctness” of the piece – but I did understand whatever was written. A sobering read about checks and balances gone wrong in many, many ways.
    ..
    ..
  2. “Hardly sounds plausible. But there it is: Donald Fagen and Walter Becker—two super-fans of the genres they creatively appropriated—made some incredible, snarling, cynical, viciously groovy easy listening music, and it has more than held up over the decades since they released their debut album Can’t Buy a Thrill in 1972. Despite decades of critical praise and hit after hit, they also remain a profoundly misunderstood band.”
    ..
    ..
    The article doesn’t actually deconstruct Steely Dan as much as they might have, but if you haven’t heard of the band, this is a good place to start to learn more about them, and then maybe listen to their music. But also a good way to learn about the benefits of non-conformity, and doing what you really like without worrying too much about the consequences – a powerful lesson!
    ..
    ..
  3. “The iPad was not in the basket. Ollie, it turns out, had got hold of it and gone to town on the passcode, trying one idea after another, with the fury and focus of Alan Turing trying to beat the Nazis. It’s not clear how many codes Ollie tried, but, by the time he gave up, the screen said “iPad is disabled, try again in 25,536,442 minutes.” That works out to about forty-eight years. I took a picture of it with my phone, wrote a tweet asking if anyone knew how to fix it, and went downstairs to dinner.”
    ..
    ..
    A short read from the New Yorker about, ostensibly, a toddler and an iPad, but also about empathy, technology, stuff going viral. Interesting because it is short, and we can all feel the pain.
    ..
    ..
  4. “News floods the investment landscape about something strange in the land of debt funds. It turns out that:a) Kotak Mutual Fund has an FMP maturing April 8, and they won’t be able to pay the full maturity amount. They will pay some now, and the remaining “later”.

    b) HDFC Mutual Fund also has an FMP maturing soon. They will postpone the maturity of the fund if you so choose, by one year. But if you don’t vote to postpone, you will get the maturity value but a lesser amount than the NAV tells you.

    Whoa, you think. How can I be paid lesser than NAV? Isn’t that the very concept of an NAV? Isn’t it supposed to reflect what I’m supposed to be paid when I exit?

    Of course it is. And that’s why the mutual funds have had to take it on the chin for pretending it is not. Or rather, for ensuring it is not. But before that, let’s understand what the drama is all about.”
    ..
    ..
    Deepak Shenoy warns us at the very outset that this is a long post, and he isn’t kidding. But that being said, it is a wonderful way of helping us understand what exactly went wrong with the FMP saga.
    ..
    ..

  5. “Anticipating this discomfiting development long ago, Parliament passed an amendment during the Emergency years in 1976, freezing all delimitation as per the 1971 census, up to the census of 2001. Also, even after the redrawing of constituency boundaries, the total number of MPs per state was kept frozen. In 2000, another amendment postponed the day of reckoning to 2026. Thus, only after 2026 will we consider changing the number of seats in Parliament. Till then, everything is frozen as per the 1971 census. Remember, in 1971, India’s population was 548 million, and by 2031, the first census after 2026, it may well be close to 1.4 billion. The great apprehension is that redrawing boundaries and distributing the existing 550 MPs might mean that the south will lose a lot of seats to the north. Even if more members are added to the Lok Sabha, that incremental gain will mostly go to the northern states.”
    ..
    ..
    This was written a year ago, but this is a problem that we should think more and more about in the years to come. Changing the shape of our Lok Sabha needs to happen by 2026. How is an extremely interesting question.

Links for 25th February, 2019

  1. “So it makes sense that, when Bibi and Poldi were on the outs, the Happs and their colleagues tried to patch things up. After all, this was a couple that—whether they knew it or not—had made it through the Great Depression, two World Wars, and the millennium. Surely one little spat wouldn’t do them in.”
    Love, as it turns out, doesn’t last forever – only about eight decades or so. Interesting for a variety of reasons besides the obvious one – the efforts that were taken at reconciliation on part of the staff I found equally instructive!
  2. “Coal use in China is very high and increasing. India has been canceling coal plants as solar becomes cheaper but coal is still by far the largest source of power in India. Thus, there is plenty of opportunity to buy out, high-cost coal mines in China and India.”
    Alex Tabarrok on why buying coal might well be a great way to, well, not use coal – or at least, help others not use it. And where else might this idea be usefully applied, hmmm? And does buying always mean by paying money?
  3. “The master key is part of a new global effort to make the whole domain name system secure and the internet safer: every time the keyholders meet, they are verifying that each entry in these online “phone books” is authentic. This prevents a proliferation of fake web addresses which could lead people to malicious sites, used to hack computers or steal credit card details.”
    The internet, which we not just take for granted but are positively addicted to, has a rather weird security system underpinning it – and having read the article twice, I can’t quite say I understand it. Which is worrying, really. This is via @insoupciant on Twitter.
  4. “In the meantime, slow productivity growth may be the last thing that’s holding back wage growth. Even as they try to make up for past rises in inequality, policy makers shouldn’t forget the importance of technology and economic efficiency. But regardless of what policy does, workers may finally be getting more of the raises they’ve been missing out on for more than a generation.”
    Noah Smith on wage stagnation in the USA – what changed, when it changed and why (the reasons are many). Worth reading for a good introduction to wage rates in the USA.
  5. “Los Angeles architect Tim Smith was sitting on a Hawaiian beach, reading through the latest building code, as one does, when he noticed that it classified wood treated with fire retardant as noncombustible. That made wood eligible, he realized, for a building category—originally known as “ordinary masonry construction” but long since amended to require only that outer walls be made entirely of noncombustible material—that allowed for five stories with sprinklers.His company, Togawa Smith Martin Inc., was working at the time with the City of Los Angeles on a 100-unit affordable-housing high-rise in Little Tokyo that they “could never get to pencil out.” By putting five wood stories over a one-story concrete podium and covering more of the one-acre lot than a high-rise could fill, Smith figured out how to get the 100 apartments at 60 percent to 70 percent of the cost. The building, Casa Heiwa, opened its doors in 1996, and the five-over-one had been invented.”
    A fascinating article in Bloomberg on how most modern construction in urban America is on the back of a loophole in the rules regarding construction in USA. An unintended consequence, if you will. The pitfalls of policy-making, rules, incentives and unbridled urbanization, all in piece. Well worth your time!