Economics and astrology

David J Griffiths in his Millikan lecture 1997: Is there a text in this class? makes the following statement:

People who believe in UFOs and astrology are, on the whole, merely pathetic, but those who think you can run a modern society without taxes are downright dangerous.

The piece of Ashok Desai in Telegraph reminded me of this statement of Griffiths; Desai has some recommendations to the prime minister:

Growth of manufacturing output has been close to zero in recent months; industrial investment is also negligible. Till six months ago, this could be blamed on the UPA government. Industrialists did so, and funded the Bharatiya Janata Party generously. But the economic environment has hardly improved; if it continues to be bad for another six months, the industry-BJP honeymoon will also turn sour. The Prime Minister’s solution – asking foreign businesses to come to India – will not solve the problem.

If he wants a serious answer, Raghuram Rajan gave one in his Bharat Ram memorial lecture. It is well thought-out. Rajan is in the wrong job. He should be finance minister; Jaitley might do a better job in external affairs. And for commerce and industry, the Prime Minister simply does not have a minister in his party; it calls for abolition or a radical reconstruction – what we used to call reforms two decades ago.

…

Economists do have ideologies, but are generally not party creatures. No respectable economist has Hindu nationalist inclinations: the ideology is mistaken according to economics. So it was no wonder that Jaitley made the first budget in India’s history without a chief economic advisor. Now he has one – a very good one – who organized a conference of economists in the first week of December. It was a good idea, but for the fact that the distinguished economists who had been flown in from abroad had little idea of the problems facing India.

But the planning commission has been emptied, and remains a shell. The Prime Minister has got one big office building close to his office, with no people in it. In my column of September 3, I suggested that he should create a think tank that would connect India’s 139 best economists with policymakers through an equal number of research assistants. It did not strike me then, but it would not work, because Modi’s ministers are largely incapable of using economists or research assistants. Meanwhile, we have the most desperate economic situation in 60 years, and the present government has to live through it. It is important in these difficult times that it should have the best judgment and counsel available to it. The Prime Minister should revive his predecessor’s Economic Advisory Council, appoint any economists he likes to it, and consult it frequently; he cannot do without economics.

A good piece!

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Speculation and investments

A couple of interesting articles to think about.

Bill Kirkman has something to say about buying homes versus houses:

When you buy a house are you making an investment? In a sense, that is a pointless question, and most people would say that of course the answer is yes. …
The answer which I gave is entirely accurate, but in my opinion it is not the whole answer, nor indeed the more important part of the answer. The crucial part, surely, is: “We are buying a home.”
I do nevertheless believe that continuing to see houses as primarily investments rather than as primarily homes is fundamentally flawed.

Along similar lines, here is C P Chnadrashekhar speculating that the current slide in rupee may be due to speculative trading:

In sum, a series of changes that have occurred since financial liberalisation began have increased India’s exposure to the adverse effects of currency speculation. Given the nature of these changes there is little that the RBI and the government can do about such speculation, despite the claim that: “While introducing currency futures, the Reserve Bank and the Securities and Exchange Board of India (SEBI) had put in place various safeguard mechanisms to monitor positions, prices and volumes in real time so as to control excessive speculation.” In any case, there is nothing whatsoever the RBI and the SEBI can do to curb speculation in the NDF market that is outside its jurisdiction.

It is, therefore, possible that the sudden and sharp depreciation of the rupee is the result of the spillover onto domestic spot markets for the currency of speculation-driven price trends in derivative markets. In which case the slide is difficult to control and can continue with no clear prediction possible where the decline will take the currency in the days ahead.

As much as one can see the problems in these two cases, I think there is little that can be done in terms of practical, politically acceptable solutions!

On the economics Nobel

A good one!

Roth and Shapley have made a perfect match. The latter may well have been labelled an ivory tower economist. But Roth has shown that good theory can have important real world applications. The Nobel economics prize could not have gone to a better matched pair.

A different opinion: edition 2

Of course, this time it is Sitaram Yechury:

For this, the current high fiscal deficit must be contained and, hence, the hike in the prices of diesel and cap on liquefied petroleum gas (LPG) cylinders became essential. The subsidy on petroleum products, we are told, was “ Rs. 1,40,000 crore last year”. If the prices were not increased, then this would “have been over Rs. 2 lakh crore. Where would the money for this have come from? Money does not grow on trees”.

How has this subsidy figure been arrived at? This is much higher than the budget estimates. This seems to be calculated on the basis of the ‘under recovery’ of the oil companies. What is this? It is the difference between the retail price of petroleum products and its import price. It is, hence, notional in nature because import prices include duties, insurance, freight and other levies. These are not paid by the Indian companies since what we import is crude oil, which is processed in India to produce petrol, diesel, kerosene, etc. Instead of linking the price to the cost of imported crude plus domestic refining cost, the international price is taken as the benchmark. This is the gigantic fraud.

This fraud is reflected in the fact that all the oil companies are reporting handsome profits, not losses. Oil and Natural Gas Corporation (ONGC) Limited declared a net profit of Rs. 25,123 crore for the year 2011-12. For the following quarter ending June 30, 2012, it has reported a further growth of 48.4%. Indian Oil Corporation (IOC) has reported a net profit of Rs. 4,265.27 crore. Hindustan Petroleum Corporation Ltd (HPCL) reported a net profit of Rs. 911 crore. For the last quarter, January-March 2012, this further increased by 312%.  Bharat Petroleum has reported a net profit of Rs. 1,546.68 crore.

Further, parliamentary answers and proceedings show that from 2010 onwards, the central exchequer has been earning anything above Rs. 1,30,000 crore annually through taxes and duties on petroleum products. After accounting for all subsidies, the Centre was still left with a surplus of over Rs. 90,000 crore in 2010-11. Who is subsidising whom, Mr prime minister?

Interesting throughout. Take a look!

Gratification: delayed and instant

A nice piece on why netflix did not implement the algorithm which won the million dollar prize, towards the end of which I found this:

The viewing data obviously makes a huge difference, but I also find it interesting that there’s a clear distinction in the kinds of recommendations people that work if people are going to “watch now” vs. “watch in the future.” I think this is an issue that Netflix probably has faced on the DVD side for years: when people rent a movie that won’t arrive for a few days, they’re making a bet on what they want at some future point. And, people tend to have a more… optimistic viewpoint of their future selves. That is, they may be willing to rent, say, an “artsy” movie that won’t show up for a few days, feeling that they’ll be in the mood to watch it a few days (weeks?) in the future, knowing they’re not in the mood immediately. But when the choice is immediate, they deal with their present selves, and that choice can be quite different. It would be great if Netflix revealed a bit more about those differences, but it is already interesting to see that the shift from delayed gratification to instant gratification clearly makes a difference in the kinds of recommendations that work for people.

Link via MR.

Measuring inequality

Here is a nice description of how it is done:

The standard measure of inequality is the Gini coefficient. It is equal to one if all income goes to one person; if one woman owned everyone in an economy, fed them what she liked and made them work according to her will, if all income belonged to her and everyone else was her slave, the Gini coefficient in her monarchy would be one. If, on the other hand, everyone got exactly the same income, the Gini coefficient would be zero.

If people are ranged from the poorest to the richest, and if the cumulative proportion of the population is plotted against the cumulative proportion of income it commands, one gets a Lorenz curve. If everyone got the same income, the proportion of income and the proportion of population would be the same, and a graph of one against the other would be a 45-degree straight line. If all the income went to one person, the graph would hug the x-axis till it reached that last person, and then rise vertically. The ratio of the area between the Lorenz curve and the 45-degree line to the total area under the line is the Gini coefficient.

The Organization for Economic Cooperation and Development has recently been looking at trends in income inequality. The countries with least unequal incomes amongst those for which OECD got data (mostly for 2008) are the Czech Republic and Scandinavian countries — Norway, Sweden, Denmark and Finland — all with Gini coefficients of 0.25 or less. Czech Republic was communist; the Scandinavians have extremely progressive taxation, and their people are honest in paying taxes. The countries with most unequal income are Mexico, Turkey, the US and Israel, with Gini coefficients of 0.48, 0.42 and 0.38 and 0.38 respectively. Most OECD countries cluster in the range of 0.25 to 0.33.

Take a look (I find, by Googling, that Gini coefficient of India is about 0.325 at present and it is increasing).

Fostering innovation: some thoughts

The illusion of eliminating uncertainty from corporate decision-making is not merely a question of management style or personal preference. In the legal environment that has developed around publicly traded corporations, managers are strongly discouraged from shouldering any risks that they know about—or, in the opinion of some future jury, should have known about—even if they have a hunch that the gamble might pay off in the long run. There is no such thing as “long run” in industries driven by the next quarterly report. The possibility of some innovation making money is just that—a mere possibility that will not have time to materialize before the subpoenas from minority shareholder lawsuits begin to roll in.

Today’s belief in ineluctable certainty is the true innovation-killer of our age. In this environment, the best an audacious manager can do is to develop small improvements to existing systems—climbing the hill, as it were, toward a local maximum, trimming fat, eking out the occasional tiny innovation—like city planners painting bicycle lanes on the streets as a gesture toward solving our energy problems. Any strategy that involves crossing a valley—accepting short-term losses to reach a higher hill in the distance—will soon be brought to a halt by the demands of a system that celebrates short-term gains and tolerates stagnation, but condemns anything else as failure. In short, a world where big stuff can never get done.

Neil Stephenson, here; a nice one; hat tip to Cowen at MR. What Stephenson says is true not just for industry but for research too.

Indian Railways among world’s largest employers

IR is at the 8th position and is the only Indian entity. Very interesting data; link via MR.

Impact of blogs

At least in economics have been quantified (via MR):

There is a proliferation of economic blogs, with increasing numbers of economists attracting large numbers of readers, yet little is known about the impact of this new medium. Using a variety of experimental and non-experimental techniques, this study quantifies some of their effects. First, links from blogs cause a striking increase in the number of abstract views and downloads of economic papers. Second, blogging raises the profile of the blogger (and his or her institution)and boosts their reputation above economists with similar publication records. Finally, a blog can transform attitudes about some of the topics it covers.

Take a look!

An insider account of the destruction of a University

The post makes a very painful and poignant reading:

I spent most of my academic career doing what most of us do—teaching, writing, reading graduate applications and theses, having office hours, reading in my field, doing research. I didn’t pay much attention to the University and its administration. None of us have that luxury anymore. Budget cuts after budget cuts after budget cuts have left us all painfully aware of how the sausage is made, or not made.

Having served in administrative posts for most of the last five years, I have come to know the budget issues very well. We are now past the tipping point. We are on a rapid downhill slide that will have profound effects for our state, our families, our country, and our world.

In the space of less than a single lifetime, the University of California, Riverside went from being a small agricultural experiment station to being one of the top 100 universities in the world. An incredibly dense and elaborate web of specialists across all fields of scholarship, science, and the arts was developed, and it took enormous efforts by thousands of people over those years to make it happen. In less than the four years it used to take to graduate, it is being destroyed.

Read the entire post; it goes on to give the reasons behind the destruction and what can possibly be done about it:

Why is this happening? Political demagoguery and corruption. Thirty years ago UC received 9% of the state budget and prisons 3%. Now UC gets 3% and the prison-industrial complex gets 9%. The legislature is taking the money that should be used to educate the best of its citizens and using it enrich the people who make a profit from the imprisoning the poorest. The percentage of the cost of higher education provided by the state has been cut in half, cut in half again, and is on the verge of getting cut in half a third time. The people in the legislature understand the value of public higher education—the vast majority of them (in any given year over 80%) have degrees from our state system, and many of them have multiple degrees—all made possible by the legislators who preceded them, and who had more courage. They do not protect the University for a very simple reason: if they do, they will suffer a flow of conservative attacks and Tea Party racism, funded by the Koch brothers and their ilk, the standard price if one stands up for anything that is directly devoted to the commonweal.

In my darkest moments, I think the monied interests working against reasonable taxation are doing so because they consciously, actively seek to make sure we do not have an informed, educated citizenry, the better to extract our collective labor and wealth unimpeded. But such intentionality isn’t necessary. Simple, short-sighted, grab-it-now, bottom-line greed explains their destruction of our culture, without recourse to any dystopian conspiracies.

…

I hope you get angry. I hope you get active. Call and write your legislators, get out in the streets, take back your university, don’t let yourselves be the last people to have even this chance.

Do take a look!