Links for 21st March, 2019

  1. “In a 2011 paper, trade-policy researchers Anwarul Hoda and Shravani Prakash analyzed the impact of “the proclivity of the U.S. administration to leverage the GSP program to achieve its economic and political objectives.” They found that with major developing-country trading partners “the reciprocity requirement has proved to be ineffectual.” In 1992, the U.S. stopped India’s preferential access for chemicals and pharmaceuticals in an effort to improve intellectual-property protection. New Delhi shrugged off the pain, and waited for a World Trade Organization agreement before amending its patent law, the researchers noted.”
    Andy Mukherjee doesn’t think the removal of the GSP support by the USA will have any meaningful impact on India’s exports to that country. He also cites an interesting paper (which I haven’t read yet), which seems to say essentially the same thing.
  2. “The opportunity is simple to describe but requires real effort to achieve: the community must enforce systems that build the external costs into the way that the industrialist does business. Faced with an incentive to decrease bycatch, waste or illness, the industrialist will do what industrialists always seek to do–make it work a little better, a little faster, a little more profitably.Industrialism can’t solve every problem, but it can go a very long way in solving the problems that it created in the first place.”
    Seth Godin (whose blog is a remarkable thing, by the way) gives his take on externalities, and makes the case that economists take a far too restrictive, anti-septic view of the problem. I’m putting words into his mouth, but that’s how I interpret it – and I’d agree. Certain problems can be identified best by economists, but perhaps the solutions lie outside the textbook. A useful article to read for starting discussions around externalities, the Coase theorem, Elinor Ostrom’s work, the role of culture in economics.
  3. “When it comes to the institutional framework, there are obviously massive differences between India and China. Any leader in India must contend with parliament, the courts and state governments. Also known as democracy. That limits how quickly stuff can get done. It can also save politicians from serious mistakes. China has competing interests and constituencies as well, but it’s not the same sport, let alone ballpark.”
    The article is about India’s less than stellar economic growth in the previous quarter, but that paragraph above was important to me. India is a functioning democracy, China anything but. That has it’s advantages, and its disadvantages – to both. A point worth remembering in many ways – one of which part of the focus of this article.
  4. “In the process, Netflix has discovered something startling: Despite a supposed surge in nationalism across the globe, many people like to watch movies and TV shows from other countries. “What we’re learning is that people have very diverse and eclectic tastes, and if you provide them with the world’s stories, they will be really adventurous, and they will find something unexpected,” Cindy Holland, Netflix’s vice president for original content, told me.”
    Farhad Majoo in the NYT about why Netflix is such a good thing. It’s a useful article to understand the impact Netflix is having the world over – but also a good article to learn about pricing, the implications of pricing, content discovery on Netflix.
  5. “For several years, India’s banks have been in the spotlight over their problematic lending to prominent industrialists. Now the mutual funds and non-bank lenders — who have taken increasingly important roles in the credit system amid the banks’ woes — are coming under similar scrutiny. That is good for the development of the Indian financial sector. But it is yet another headache for some hard-pressed members of the promoter class.”
    Simon Mundy in the FT on how the IBC has provided teeth to creditors in India – which is genuinely good news. But the transition is unlikely to be smooth, and there may well be some unexpected skeletons waiting to tumble out of the closet. A good read for finance, bankruptcy and non-bank lending in India.
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Why is economics important?

Or put another way, what is economics all about, and why should we be studying it?

I’ve been teaching economics for a number of years now, and the stock answer I get when I pose this question is generally a paraphrased version of the definition bequeathed us by Lionel Robbins. And that’s probably because some blessed cog in the Indian education system decided that that was the definition to go with in a textbook.

But no, scarce means and unlimited wants (or whichever remixed version of that song you have listened to) is not  the definition of economics.

Or shouldn’t be, at any rate.

Economics is about getting rich.

Most people recoil instinctively when they hear this, because we have a bit of a cultural stigma associated with getting rich. Rich in India is the big bad industrialist from Bollywood, or the cunning conniving politician, or the sly, evil hoarder.

Not always nowadays, thank god. The word rich also summons up images of start-ups these days, which is wonderful – but still, rich is not necessarily a “good” adjective.

And the reason  it isn’t a “good” adjective is because we view getting rich as a zero sum game. For every big bad industrialist, there is the poor struggling worker. For every cunning, conniving politician, there is the struggling-to-make-ends-meet-common-man. For every hoarder, there is the poor farmer. Which is what the phrase “zero sum game” means: for me to get rich, somebody somewhere must get (and stay) poor.

There existed a long time ago in England a man who would have shaken his head rather vigorously at the last sentence in the paragraph above. Trade, that man would have said, is anything but zero sum. I trade with you because I get rich. The magic is this: you trade with me because you get rich as well. Trade, slightly puzzlingly, leaves both of us better off.

Think about the last time you ordered a meal online. Maybe it was because you were in office and couldn’t cook a meal yourself right then, or maybe it was because you were at home but too tired to cook. In either case, it was too expensive in terms of time and/or money to cook a meal yourself. And so ordering a meal left you better off.

But did the restaurant suffer because you ordered that meal? Nope! It  too was better off because you ordered that meal. As, by the way, was Zomato or Swiggy that arranged for you to get that meal from that restaurant. And the guy from Delhivery who actually delivered the food. Nobody lost out on this trade. And nobody loses out on millions of these kinds of trades that take place every minute on every corner of the globe.

In fact, the more there are of these trades, the richer we are. And since both you and I are getting rich, both of us think its a good thing. And so allow me to amend that definition I put above by adding just one word to it:

Economics is about us getting rich.

And that’s a damn good thing.