My first novel, My Friend Sancho, is now on the stands across India. It is a contemporary love story set in Mumbai, and was longlisted for the Man Asian Literary Prize 2008. To learn more about the book, click here.
If Mr Obama truly seeks to rein in institutions that systematically reward bad behavior, he should scale back government and forget about intruding into the private sector. In private markets, Smith spends only Smith’s money. Smith profits or loses depending on the prudence of his choices. This tight connection between each person’s actions and the consequences that he or she bears provides remarkably effective carrots and sticks encouraging private persons to behave responsibly. In the so-called “public sector,” in contrast, Smith spends Jones’s money. Smith profits or loses depending on how effectively he uses Jones’s money to buy votes from Jackson, Johnson, Williams and other persons who are assured by Smith of their moral right to free-ride on Jones’s resources. Surely, there is no surer recipe than this for rewarding bad behavior.
There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government.
Oh, wait, it’s not Sitaram Yechury, it’s some random woman in Germany. I suppose I was misled by the amount of hot air in this recent Yechury piece. Consider, for example, this line:
If India needs to insulate itself relatively from this [subprime] crisis, then it must abandon all such measures of financial liberalisation that will inexorably tie India to the growing global uncertainties.
Let’s all just stay poor then, so there’s no danger of losing the money we haven’t had a chance to earn anyway. Such logic!
Update: As some readers have pointed out, I made a mistake by attributing Yechury’s article to Prakash Karat when I made the post a few hours ago. I know, same difference, but it was a silly mistake I shouldn’t have made. Corrected now.
A couple of months ago, I had praised Gautam Adhikari for setting out a classical liberal direction for the Times of India editorial pages. Well, Sauvik Chakraverti writes in to argue that my praise was undeserved, as demonstrated by a recent editorial in the newspaper that Sauvik calls “illiberal, intolerant and unsympathetic.” Sauvik has a piece on it that I recommend you read. An excerpt:
[T]he editorial is blind to reality. It asks the totally stupid question: “How is it that the drug trade in Goa is flourishing, that too, in full public view and under the nose of the state police who’s duties include cracking down on such activities?” The drug trade is flourishing all over the world, including New Delhi. I myself scored marijuana in London a stone’s throw from the headquarters of Scotland Yard. The duties of the Goa police also include ensuring road safety. Every Goan, local as well as tourist, would be safer if this duty was performed. The drug trade should be legalized – but this is probably ‘too liberal’ an idea for the editor.
I admire Sauvik immensely, and agree with his thoughts here, but I have a problem with the way he expresses them. Consider this sentence: “This illiberal, unsympathetic and ignorant editorial then descends to rank idiocy.” This may be true, but the harsh language alienates the neutral reader who might be coming across some of these ideas for the first time. A better approach would be to calmly lay the facts and the argument out, and to respect the reader enough to let him come to his own conclusion without shouting it at him. This is especially true when those ideas—legalizing the drug trade, for example—sound radical to a normal guy, which makes it important for the tone to be measured and reasonable.
I hope I’m not coming across as preachy here, for Sauvik is a much sharper thinker than I am. (He also won the Bastiat Prize a few years before I got lucky.) But I’m angry that such a fine mind, which can open so many doors for so many people, does not find a platform on the editorial pages of a single major newspaper in India, many of which are filled with mediocre writing. I’m quite sure that the tone of the writing, not the content, is responsible for that.
And while on drugs and Goa, I’d mentioned in a recent post that I was in favour of legalizing drugs as well, and will elaborate on that in a longer piece soon.
Update (March 21): Sauvik writes in to inform me that he does indeed have a regular column in the Sunday edition of the New Indian Express. My apologies. I shall watch that page regularly.
This time we want to talk about the shuttered mills that once provided a decent life for men and women of every race, and the homes for sale that once belonged to Americans from every religion, every region, every walk of life. This time we want to talk about the fact that the real problem is not that someone who doesn’t look like you might take your job; it’s that the corporation you work for will ship it overseas for nothing more than a profit.
More than a century after the company’s great forbear Jamshedji Tata scoured Ohio looking for steel expertise, India’s tech major Tata Consultancy Services (TCS) opened a 1000-seat delivery centre outside Cincinnati on Monday, marking a small but significant counter to overwrought reports about job flight from the United States.
To be honest, I quote the only part of the Obama speech that made no sense. The rest of it was flat-out brilliant. He spoke of race in America with a nuance and subtlety that is rare in political discourse, but his rhetoric against free trade and profit, which are the driving forces of human progress, was archaic and befuddling. He was making a speech for posterity, not just for the Democratic Party nomination, and his populist pandering, which lacked the nuance that set the rest of his speech apart, struck a discordant note.
That said, even if he really believes his economic spiel and wasn’t just pandering, even if many of his ideas are wrong, I admire this man immensely. He could have taken the safe way out and “denounced and rejected” Jeremiah Wright. But instead, as the Philadelphia Inquirer put it, he “condemned the sins but embraced the sinner.” That takes courage and conviction, so hats off for that.
Taxpayer money running into several hundred crores is being splurged annually on the upkeep of bungalows in Lutyens’ Delhi.
These bungalows, used by India’s political and bureaucratic leadership, are white elephants in terms of running costs, thanks to their elaborate colonial style construction, huge lawns and staggering security paraphernalia.
The residences of the Gandhi family — Sonia, Rahul and Priyanka — saw a spend of nearly Rs47 lakh collectively during these three years.
I don’t have an issue with senior functionaries in the government getting perks with their jobs, but why on earth should the taxes you and I pay go towards Priyanka Gandhi’s plumbing and electricity expenses? Truly, the Gandhis are a royal family. I suppose I should just be glad that we live in the 21st century, or they’d have me hanged, drawn and quartered for my audacity in questioning their entitlements.
For more on how our government loots us, check out my Taxes Archive.
During my recent visits to the Amazon pages of books by Chris Anderson and Neil Gaiman, I found that those pages now carry their latest blog posts. If Amazon does this across all its books, then it represents a great way for widely read authors to become widely read bloggers, as chances are that many readers interested in their books will end up discovering their blogs. This doesn’t guarantee success, of course, as they need to convert those first-time visitors into regular readers with compelling content, but the fact that they’re successful authors indicates that writing is their core competency anyway—the rest is adaptation to this new medium, and the desire to adopt it.
And yes, I know, Amazon doesn’t actually direct traffic to the author’s blog, but to their mirror of it. But, as in Gaiman’s case, it specifies that the content is syndicated from his journal, and links to it. And once you get hooked to it, the chances are that you’ll go to the original site, not to its Amazon mirror. Of course, Gaiman’s blog already has a significant readership and doesn’t need to be promoted on Amazon, but that isn’t true of most other writers.
So all I need to do to expand my blog readership beyond current levels is write a bestselling book. That can’t be too hard!
On a busy corner in São Paulo, Brazil, street vendors pitch the latest “tecnobrega” CDs, including one by a hot band called Banda Calypso. Like CDs from most street vendors, these did not come from a record label. But neither are they illicit. They came directly from the band. Calypso distributes masters of its CDs and CD liner art to street vendor networks in towns it plans to tour, with full agreement that the vendors will copy the CDs, sell them, and keep all the money. That’s OK, because selling discs isn’t Calypso’s main source of income. The band is really in the performance business — and business is good. Traveling from town to town this way, preceded by a wave of supercheap CDs, Calypso has filled its shows and paid for a private jet.
I am reminded here of Christian Lander: the author of Stuff White People Like has built up a phenomenal readership by offering up free blogposts, and this will surely help him become a best-selling author when (surely not ‘if’) his book on the subject is released. (I first blogged about that site on February 27, and it has notched up more than 4 million pageviews since then.)
This kind of cross-subsidizing has been common since the days of Gillette, as Anderson points out, but is only one of many ways to make money with free content—read his full article for more.
When Texas and Ohio vote in Tuesday’s Democratic primaries, they may bring Hillary Clinton’s campaign for the presidency to an end. If she loses either of those states, her bid is over barring the formalities. This is a position few expected her to be in. Not long ago, success in the primaries and victory in the general election were regarded as almost inevitable. What went wrong?
For the answer, one should turn (as always) to the teachings of Marx. “The secret of success in life is sincerity,” Groucho once famously observed. “If you can fake that, you’ve got it made.”
This truth about the human condition applies with particular force to politics. Mrs Clinton tries hard to fake sincerity – so hard it is painful to watch. Sometimes, in fact, I suspect that she really is sincere and only looks as though she is faking. Barack Obama, on the other hand, may actually be sincere – and if he is not, he fakes it so well it makes no difference. Elections are won and lost for many reasons, but if I had to point to just one in the present case, this would be it.
Exactly. As I wrote on Saturday, it all comes down to acting: Obama has chosen the right part to play, and is playing it well. Clinton, on the other hand, has muffed it up.
Having said that, in her latest campaign commercial, she plays a Republican quite convincingly. Watch:
And here’s Obama’s brilliant reply:
Some readers have got the impression from my recent posts on the American elections that I’m supporting Barack Obama. Not yet. I’d love him to get the Democratic nomination, but I have reservations about some of his positions—in particular, on NAFTA. Check out this excellent piece by Steve Chapman on why Obama and Clinton are wrong on NAFTA.
In a feature in the Sunday Times today, you refer to the IPL auctions as “human auctions”, and compare it to the slave trade. You invoke Uncle Tom’s Cabin, and speak of indentured labourers being sold in “a heartless transaction.” You miss something here.
Contrary to rhetoric, the cricketers were not on sale during the IPL auctions—their services were. The eight IPL franchises were effectively bidding for the services of the players as per contracts enabled by the BCCI that the players had willingly signed. This is quite unlike slavery—indeed, it is how you and me get by.
If you choose to leave the Times someday and look for a job, you will effectively put yourself on the market just as these cricketers did. You will evaluate prospective employers, and go to whoever makes you the most appealing offer. There may not be a formal auction setup for it, but it will effectively be just that: your services will be on offer, and different employers will bid for them.
So please, please, don’t compare this with the slave trade. Thank you.
Wherever there’s big money floating around, politicians emerge and start squealing. The recent auctions at the Indian Premier League have roused the ire of both the Left and the Right of Indian politics. On the right, the inimitable Balasaheb Thackeray has described the IPL auctions as the “gambling of industrialists”. On the Left, Gurudas Dasgupta is complaining that this will make “every youngster not a good sportsman but a man hungry for money.”
Sundry politicians and commentators are telling us that this obscene spending will corrupt the spirit of the game, that these players are selling their soul, and so on. They behave as if “commercialization”, a term used repeatedly by shocked observers, is The Great Indian Sin. I have a question:
What, precisely, is wrong with commercialisation?
If Thackeray and Dasgupta pondered the history of human affairs, they would note that human progress is possible only because of the profit motive. The only way to make a profit is to fulfill the desire of fellow humans, by manufacturing goods or providing services that they need. The search for profit fuels innovation and enterprise. It leads to new technologies and better service. People trade to their comparative advantage, they specialize, and this makes economies more productive, and raises everyone’s standard of living.
Without such “commercialisation”, we’d be stuck in the stone age.
If Thackeray really has a problem with industry - for that is what the industrialists he condemns are all about - then he should step wearing clothes. All the clothes he wears are produced for profit, by industrialists, who clothe him not because they care for him or want to defend Hindu culture, but because he pays them money. How vulgar!
If Dasgupta has a problem with people “hungry for money”, he should immediately go on a fast. The people he gets his groceries from provide it in exchange for money, as do the restaurants that serve him food. There is only one appropriate response to this shocking commercialisation and rampant consumerism: Stop eating.
One blogger bizarrely compared the cricketers up on auction to prostitutes. Firstly, in the absence of coercion, I don’t see what is wrong with prostitution, or why we should look down on prostitutes. Secondly, if selling a service makes one a prostitute, then I am unquestionably a lady of the night, and this is my short, black, leather skirt that you’re reading. We are all whores in our own ways - and there is nothing wrong with that.
Back to the cricket. Besides the mere fact that money is involved, many people are also complaining about the amount of money the cricketers are getting. Some say cricketers should not be so well paid when other sportspeople in this country are so poorly paid. Other say that it is an outrage that Ishant Sharma should get more than Chaminda Vaas, and Rohit Sharma more than Ricky Ponting.
Look, who determines these prices? In the long run, you and I do. The businessmen putting that cash on the table do so because they estimate that those are the returns they’ll get on their investment. Those returns will come from us: We’ll buy the merchandise, we’ll watch the matches - which determine the value of TV rights - and their appeal to us will determine the value of the endorsements that flood in.
What if the team owners are wrong, and overpay for some players? Well, then they’ll duly learn their lessons when their team’s performance doesn’t justify the investment, and their bottomline suffers. What if some players are underpaid? Well, if they perform beyond their renumeration, they’ll receive their rightful value when the transfer season begins.
Twenty20 is a new form of the game, and the IPL is a new venture. It will take some time for the market to start functioning smoothly, and getting the values right. Until then, there is no point begrudging these cricketers their earnings.
The argument that this money would be better spent on other sports is bogus. If you feel Indian football should get more attention than Indian cricket, then here’s what you should do about it: Go out there and watch some local football games. Put your money where your mouth is. If you contribute your eyeballs, advertisers will open their chequebooks. If other sports don’t have a following in India, it is not because people don’t put money into them - it is the other way around.
Back to the IPL. Despite the BCCI bungling up sp much of the process, I think the IPL, if it succeeds, will be revolutionary. The reason for that is that it introduces into cricket the best guarantee of quality and efficiency: Competition.
The market for cricket has so far been a monopsony: There has been only buyer for a cricketer’s services. An Indian cricketer who wants to play cricket at the highest level can only sell his services to the BCCI, and is dependent of its selectors picking him - an imperfect process open to politics and the whims and fancies of individuals. That will change if the IPL takes off. A young, talented cricketer will have a number of people he can sell his services to, from the Bangalore Royal Challengers to the Delhi Daredevils to the Chennai Super Kings. If he is good, they will compete for him, thus guaranteeing him his true market value.
The BCCI, when it comes to cricket in India, has essentially had a captive market. The IPL teams will have to compete. The competition will threaten their existence, and they will have all the right incentives to excel. They will eschew the local politics of selection. They will search for differentiators in terms of training and scouting new talent. Like some football clubs do in Europe, they might establish youth academies to find and hone new talent. They will do so not out of love or duty to the game, but with regard to their bottomline. Cricket will benefit, as its machinery will flow that much smoother.
For a cricket purist like me, there is a flip side to this: What will happen to Test cricket? If the IPL succeeds, Test cricket will surely suffer. Already, one hears rumours of the ICC schedule being subject to the demands of Lalit Modi and his men. Given the amount of investment, in terms of time, that Test cricket requires from its viewers, it is possible that Test cricket will slowly die out.
Hordes of commentators and politicians will then start squealing about how the demands of the market have killed Test cricket, and how the market is a cruel, malign force.
Personally, I believe that Test cricket will have enough of an audience to survive—even if it ends up being a niche audience. But if it doesn’t, here’s my question: Should people who don’t watch Test cricket be forced to subsidize it? Remember, commerce is all about giving you what you want. If Test cricket dies, the killer won’t be commercialisation, or the IPL, or the greed of businessmen - it will be us.
“Where in the world are truly free markets?” a friend asked me the other day. “The kind of economic freedom you libertarians dream of just doesn’t work. Freedom leads to chaos. All markets need to be regulated by the government, which alone can safeguard the interests of the people.”
“Have you been online recently,” I asked.
“Don’t change the subject,” he said.
“I’m not,” I replied.
A couple of years ago, the libertarian blogger Warren Meyer was asked why there were so many, well, libertarian bloggers. His reply, in a nutshell, was that the internet is a libertarian space. “Libertarianism resists organization,” he wrote. Libertarians tend to be “suspicious of top-down organization in and of itself. Blogging is therefore tailor made for us - many diverse bottom-up messages rather than one official top-down one.”
In many ways, the online world is like the beautifully functioning free market that governments have never allowed in meatspace (the ‘real’ world). To begin with, the government does not pose an entry barrier to individuals who wish to have a presence online. You want to start a blog? It’ll take you three clicks to set one up. You don’t need a license for it, and you won’t have inspectors coming over and scrutinising your methods of work.
The blogosphere is a meritocratic space. Each blog finds the audience it deserves. If you like economics, you’ll find tons of good economics blogs, often much better than anything you’ll see in the mainstream media, because they’re written by specialists, not generalists. You want gardening? Literature? Technology? You’ll find content in any niche you can think of.
There is a lot of junk on the internet, but readers navigate through it easily, and soon settle on a few sites they regularly visit. Information percolates so quickly that a good new blog doesn’t take much time to build a readership. You write something nice, people who like it link to you, their readers check you out, and so it grows. Marketing and hype are generally wasted, and everything is viral. If you provide compelling content, readers come. If you write rubbish, readers go. Competition is the best regulation.
The blogger Ravikiran Rao once speculated on what would happen if the government decided to protect users from “bad blogs”, and regulate blogging. If government babus started deciding what content was appropriate for audiences, good bloggers would be intimidated away, not bothering to enter a space where there were so many hassles. Established bloggers would lobby for regulation to protect them from pesky newcomers. The quality of blogging would go down, not up - and readers would be shortchanged.
Far-fetched? Well, it works that way in many fields - such as, as Rao pointed out in his post, “private schools and educational institutions.” Indeed, in India at least, it is pervasive.
If only our government understood the power of free markets. I wish our bureaucrats read “I, Pencil” by Leonard Read, one of my favourite essays. It is a first-person account by a pencil of its genealogy – and by the end of it, you realise that a mere pencil is such a thing of wonder that no government could have put it together. It takes legions of people, possibly across continents, doing disparate things without knowledge of one another to make sure that when you need a pencil, and go to the shop to pick it up, it’s there. It’s a miracle, almost beyond comprehension, and certainly beyond planning or oversight. It takes a free market, not a benevolent central planner - economists call this process spontaneous order.
The internet benefits from this freedom. Consider Wikipedia, for example. It once used to be laughed at - how can a few volunteers produce better content than experts? - but is now a classic example of what spontaneous order can achieve. It is much broader than the Encyclopedia Britannica, and often deeper as well. It has its own self-correcting mechanisms, and its rules of use have evolved from the bottom up, and not been enforced from the top down. It shows that the voluntary actions of people working towards their self-interest is a far more powerful force than the self-important and sanctimonious supervision of governments. Online, we’re all free.
Supporters of free markets stress on the importance of the rule of law - and the internet is not a lawless zone. The laws of the real world apply to what we do online - sometimes to worrisome effect, as jailed bloggers in countries like Afghanistan and Saudi Arabia have discovered. But on the whole, the internet is free of the kind of needless, suffocating government regulation and barriers to trade that bedevil the rest of the world. Long may it stay that way.
I know there will be voices bemoaning the breakdown of the family and suchlike, but to me, more divorces = less women trapped in bad marriages. An increasing divorce rate indicates that women are being empowered with more choices, and that is a great trend. I hope it grows.
... are hazardous to the taxpayer, reports IBNLive.com. A study has found that “the health costs of thin and healthy people in adulthood are more expensive than those of either fat people or smokers,” and “healthy people live longer and may develop long-term diseases in old age like Alzheimer’s which are very expensive to treat.”
The solution here is not to prevent people from living long and healthy lives. Instead, it is to question what our governments do with the money it coerces out of its citizens. Is it fair to take money from the obese to pay the medical costs of the relatively healthy, as is effectively the case here? Would it be fair the other way around? Is the government taxing us to provide certain basic services like law and order, or to redistribute it according to the interests of a few politicians in power?
I hope to live a long and healthy life— and even if I don’t, to be a burden on nobody. Is that unusual?
Twenty years ago, no one could have imagined that four of the 10 richest chief executives in the world could be Indian. But Forbes recently released a top-10 list showing how much India has changed. Lakshmi Mittal, the steel tycoon, was ranked second, followed by Mukesh Ambani (sixth), Anil Ambani (seventh) and Azim Premji (ninth); Warren Buffett came in first.
One can quibble with how the list was compiled, but there is no doubt that India has become a force in the world of business. The leading bidders for Jaguar and Land Rover are the Indian automobile companies Tata Motors on one hand, and Mahindra and Mahindra on the other. In 2006, Mr. Mittal brought the European steel behemoth, Arcelor, into his empire. Last year, the Tata Group took over Britain’s Corus, another large producer of steel.
Just as significant as the success of Indian businessmen abroad is a shift in the way they are viewed at home: The biggest names in Indian business are among the biggest heroes of India. The society pages of newspapers show them at parties, the gossip columns feature them, and young men and women name them as their icons, even as those youths prepare for their own MBA entrance exams.
It wasn’t always like this. In the early decades of our independence, businessmen were not looked upon highly. Jawaharlal Nehru, India’s first prime minister, famously once told the business tycoon J.R.D. Tata that “profit” was “a dirty word.” Indian films routinely portrayed businessmen as evil capitalists out to exploit the poor. Ironically for a country that was so poor, the pursuit of wealth was looked upon with suspicion.
Mr. Mittal had to leave India to build his empire. Dhirubhai Ambani, Mukesh and Anil’s father, built his business by manipulating the system in the finest traditions of cronyism. The businesses that did exist were protected from competition by the high entry barriers placed by the government, at the cost of consumers.
All this changed when India liberalized in 1991. As India opened up to the world, its entrepreneurs sprang into action. The middle class grew, the quality of life in cities improved, and tens of thousands of young men and women went abroad as the software industry boomed. Indians realized that free enterprise was providing them with the opportunities they had lacked in the socialist years.
Consider that earlier this year, Ratan Tata, the successor to J.R.D. Tata’s empire and the chief of Tata Motors, unveiled the Nano—a car expected to retail for approximately $2,500. Some complained about the increase in pollution that it might cause, and other worried that it would add to traffic congestion in big cities. But most of India applauded.
Mr. Tata’s ingenuity and vision will bring vehicle ownership within reach of millions of people who could otherwise have never dreamed of it, and it demonstrates what business does best—improve the lives of people, and help them fulfill their dreams, all in the quest of that “dirty word,” profit.
The heroes of the old India were film stars, cricket players and, perhaps, freedom fighters and politicians. The heroes of the new India include businessmen. In 2003, when MTV India held a poll among its predominantly young viewers to pick the Icon of the Year, Anil Ambani won. The people he beat included filmstar Shah Rukh Khan and cricket hero Sachin Tendulkar.
India’s successful businessmen, even as they enter lists such as the one compiled by Forbes, embody the hopes of their country more than their elected government possibly can. India is finally beginning to give them their due.
Many people find this video immensely cute—it’s been seen around 35 million times on YouTube. I can’t understand what the fuss is about, but here you go:
So there’s stimulus—pingggg—and a response from the baby. But getting a similar rise out of an economy is not so easy—especially with the kind of shortsighted stimulus packages going around. Russell Roberts explains why:
The standard stimulus package doesn’t change incentives. It’s a check from the government. The hope is that the receiver will spend it. But when you just send out checks from the government, whoever gets stimulated is likely to be offset by someone who gets unstimulated.
The money has to come from somewhere. If you raise taxes to fund the plan, the people who are taxed are poorer and they’ll spend less. If you borrow money to fund the plan, the people who buy the government bonds have less money to spend and that offsets the stimulus. It’s like taking a bucket of water from the deep end of a pool and dumping it into the shallow end. Funny thing—the water in the shallow end doesn’t get any deeper.
This paragraph illustrates beautifully how the music industry has changed:
In 2006 EMI, the world’s fourth-biggest recorded-music company, invited some teenagers into its headquarters in London to talk to its top managers about their listening habits. At the end of the session the EMI bosses thanked them for their comments and told them to help themselves to a big pile of CDs sitting on a table. But none of the teens took any of the CDs, even though they were free. “That was the moment we realised the game was completely up,” says a person who was there.
Indeed, I once had two really bad habits: of buying too many books, and buying too much music. Only the first remains. I haven’t bought a CD in three years. The times they have a-changed.
This review of The Logic of Life by Tim Harford has appeared in today’s edition of Lounge, the Saturday edition of Mint.
If Tim Harford was born 150 years ago, he would have provided strong competition to Arthur Conan Doyle. Sherlock Holmes, Doyle’s creation, unveiled the mysteries of human behaviour using nothing but cold logic and immaculate observation. Harford’s undercover economist does the same in his two books, The Undercover Economist (2005) and his new release, The Logic of Life. But there is one difference between the two: While we ordinary mortals can never hope to match Holmes’s skills, we can all aspire to be like Harford’s invisible alter ego.
Harford uses the tools of economics to crack some of the mysteries of life. Those tools are available to us as well, and are easy to use. Indeed, by the time you finish reading The Logic of Life, you might feel equipped to do a little sleuthing yourself.
The engine at the heart of The Logic of Life is rational choice theory. “If you do not understand the rational choices that underlie much of our behaviour,” Harford writes, “you cannot understand the world in which we live.” His basic premise: “Rational people respond to trade-offs and incentives.” Using this as a starting point, he then demonstrates how drug addicts, teenage muggers, suburban sprawl, inner-city decay and endless meetings at the office are all rational.
It is not Harford’s point that “people are always and everywhere rational”. They obviously aren’t. But, he writes, “[P]eople are rational nearly enough and often enough to make the assumption of rational choice a very useful one.” He elaborates: “In the hands of economists, ‘rational choice theory’ produces an x-ray image of human life. Like the x-ray, rational choice theory does not show everything. Nor is the picture necessarily very pretty. But it shows you something important, and something that you could not see before.”
This might appear to rest on a picture of us as “consciously calculating beings.” But rational behaviour doesn’t always arise out of a conscious process. Harford writes: “We often aren’t conscious of the calculations of costs and benefits that we make when we act rationally—just as, when someone throws a baseball for us to catch, we aren’t conscious of our brain solving differential equations to work out where it’s going to land.”
Another objection to this focus on rational behaviour might be that much of our behaviour is driven by our emotions. Harford writes: “[O]f course we feel passionately about sex, love, crime, and all sorts of other things… The whole purpose of acting rationally is to maximize our emotional pay-offs.”
Is there an issue that involves our emotions more than love, or the mates we choose? In my favourite chapter of the book, “Is divorce underrated?”, Harford demonstrates how economics can unveil the mysteries of love and mating.
“Lovers plan, strategise, negotiate and deal with the harsh realities of supply and demand,” Harford writes. He recaps how men and women are hard-wired differently by evolution, and how women are more attracted to high-earning men than the other way around (he presents data to back this up.) This explains why there are more women in most cities than men—men are more likely to respond to rising rents by moving out, while women have more reason to stay, because they are more likely to meet desirable mates. This also explains why “unskilled urban jobs [like waitressing and secretarial work] that could easily be done by either sex would tend to be done by women.”
“[I]n places where men are scarce,” Harford writes, “women respond by staying in school longer. In cities where men are particularly rich, women are particularly plentiful.” Harford writes about how the contraceptive pill has changed society by changing our incentives. Because the pill makes it “easier for men to get sex outside of marriage”, there are fewer marriages.
Women respond to this by studying harder: “four US women [graduate] from college for every three men.” Being able to delay having babies also enables women to make income gains because of “the economies of scale in education and work which reward those who spend a long time in college and then work long hours early in their careers.”
This also explains the “divorce revolution”. The family has always been a powerful unit, and a rational one, because of the economic forces of the division of labour, economies of scale and comparative advantage. But the contraceptive pill changed the equations within a marriage, as women became “more highly educated, career-minded and employer-friendly”. They were also aided by household technology, which vastly reduced the time that household chores took up. As the incentives changed, so did the need to be married, or to stay inside a bad marriage. All these trends, of course, were entirely rational—but this rationality was hardly a conscious process.
The Logic of Life is so compelling not just because of Harford’s sleuthing, but because he is such a powerful storyteller. Writers of popular thrillers would be proud of the narrative momentum he maintains in his chapter on game theory, “Las Vegas: The Edge of Reason”, which brings to life fascinating people like John Von Neumann, Chris ‘Jesus’ Ferguson and Thomas Schelling. But it is packed with insight as well—it explains how addiction can be a rational thing, how it involves warring parts of our brain, and how I can explain my coffee addiction to my partner—hopefully without altering her incentives too much.
It also uncovers minor mysteries along the way, such as why advertising for nicotine patches and gum seems to lead to an increase in teenagers taking up smoking: “The advertisements tell them that there are new ways to help them quit, so rationally it is less risky to start the habit.”
Throughout the book, Harford doesn’t merely speculate, but uses research and empirical data to reveal the rational thread running through our behaviour. The economics and the writing are first class, and The Logic of Life is both entertaining and enlightening. Picking it up, I assure you, is quite the rational course of action.
Congress leader Rahul Gandhi on Thursday said that even five paise of a rupee spent by the Centre is not reaching the intended beneficiaries, as he launched a fresh attack on the Mayawati government.
“I remember my father had once said that only 17 paise out of a rupee reach people. Now the situation is even worse,” Gandhi said while addressing a rally on the second day of his tour in the Bundelkhand region of Uttar Pradesh.
“The Centre could send money and develop schemes. But in the absence of a delivery system here (Bundelkhand), it has no meaning. I have seen that not even five paise out of a rupee reach here,” he claimed.
Gandhi, of course, is speaking in the context of Bundelkhand, trying to score cheap political points off Mayawati. But does he really imagine that public spending schemes work anywhere in the country? Should it not be obvious that the way our system is designed, the way its incentives are structured, inefficiency and corruption are not merely probable, but absolutely inevitable?
I hope Gandhi is honest enough with himself to ask some hard questions here. He may then realise that his drive to get the NREGS extended throughout the country was a mistake, based on nothing but good intent. I’d written about it at the time here, and Mint recently evaluated some new findings on how the scheme is (not) working.
Yet, despite all this evidence on how the NREGS is such a disaster, the scheme still has its defenders. On that subject, read Nitin Pai and Ravikiran Rao (1, 2).
Salaries to fictitious people, unqualified NGOs pulling strings, government officials getting cuts to award contracts, politician acting as middleman in bribery — the World Bank’s review of the second phase of the National Aids Control Programme is a sweeping indictment of the manner in which the programme was run.
Scroll to the second half of the piece and read the details—it demonstrates how remarkably sophisticated corruption in India is. Given how painstakingly we have built the systems that enable and nurture it, is that a surprise?
(Link via email from Kaushal Desai is response to this post.)
... could authorities rule that free shipping is bad for consumers. Amazon is being fined €1,000 for each day that they choose to offer free shipping to their customers, and that big, bad company is duly paying up. Heh.
[T]he evidence is piling up that neither government nor multilateral spending on education and infrastructure are key to development. To move out of poverty, countries instead need fast growth; and to get that they need to unleash the animal spirits of entrepreneurs.
The nearby table shows the 2008 rankings but doesn’t tell the whole story. The Index also reports that the freest 20% of the world’s economies have twice the per capita income of those in the second quintile and five times that of the least-free 20%. In other words, freedom and prosperity are highly correlated.
It really is no surprise why India is still a poor country, is it?
Local officials have found a way to create “limitless” corruption possibilities from a limited scope of work. The demand-driven nature of the programme (instead of the usual targeted approach) makes this possible. In the latter way of doing things, work ceases to be available once an asset, for example a road, has been created. In a work demand approach, the demand for work becomes a right that a villager can ask for.
As a result, a constant increase in the number of person days of labour demanded while the number of assets to be created is limited, is a sure recipe for corrupt practices. This is not to argue for a targeted approach (which in any case leads to corruption) but to seriously rethink such approaches to removing poverty.
Everybody who supports the NREGS supports it on the basis of intention and wishful thinking. The evidence for how it’s working out gives absolutely no basis for wanting to continue it. The way the incentives are aligned, the way our system works, it cannot possibly be anything other than a grand waste of taxpayers’ money—as I had predicted in my WSJ piece two years ago, “Good intentions, bad ideas.”
Mohit Satyanand writes in regarding my post about Ratan Tata’s interview:
Ratan Tata says he was inspired to develop the car when he saw a family of four lurching along on a scooter. Such moments of insight inspire relevant products, whether one ascribes them to compassion or to marketing genius.
Meanwhile the custodians of our ‘environment’ carp about how the Nano will ruin our lives. What they really mean is worsen the quality of their air without improving the quality or safety of their commute, which is already very comfortable, thank you very much. I confess that I am making an unvalidated assumption here, namely that when Mr Pachauri clocks up hundreds of thousands of frequent flier miles a year, he doesn’t take the local bus to the airport.
This syndrome is referred to as the lifeboat syndrome - once you are aboard, you’ll do everything possible to keep others off. And people like this head organisations that get the Peace Prize?
Last weekend, I went through the typical routine of watching a film and then doing a week’s worth of shopping. First I watched the beautiful Taare Zameen Par. Then I spent an hour inside the nearest hypermarket.
The amount of choice inside the hypermart was staggering. I counted more than 30 kinds of cheese, 60 kinds of biscuits, 50 types of papad, and quite as much variety across soaps, soft drinks, farsaan, cooking oil, pickles and so on. I needed shampoo, and I walked past two shelves of it before finding something for “normal hair.”
Some people complain that there is too much choice on offer, but I find the variety wonderful. It caters to individual taste. For example, there is shampoo available for people with “dry, rough, sensitized hair”, “dry or damaged hair”, and “weak, fragile, difficult to grow long hair”. To those of us who do not fall into these categories, these might seem excessive, but clearly they exist because they sell —and fulfil someone’s needs.
Isn’t it wonderful how the free market does this? Instead of shoving one or two types of each product down people’s throats, it effectively treats us as individuals. Entrepreneurs, seeking to find market niches to make a profit, end up empowering us as consumers. Without knowing anything about me, the market caters to my personal needs to a degree my grandparents would have found unbelievable.
Watching Taare Zameen Par, however, reminded me that in the area where it matters most, our children don’t have the same choices open to them.
Aamir Khan’s film is about a dyslexic boy let down by his school. His teachers do not recognize what makes him different and treat him as if he is stupid, shattering his self-esteem. Then Khan comes in as a sensitive teacher and turns things around.
This only happens in films, of course, and most kids in that situation would not be so lucky. They would be able to buy potato chips in the precise flavour they might desire—“classic salted”, “sour cream and onion” or 40 others—but would be denied of an education tailored to their needs.
This is not just something that applies to dyslexic kids. All children are unique. Some are better at languages than in math, some have short attentions spans, some have high learning curves, and so on and on. And yet, when it comes to education, they are treated as if their needs and abilities are identical.
This rigidity applies not just to schools but also to higher education. “Arts”, “science” and “commerce” are segregated streams, and a young man who wishes to study both physics and 19th century English literature would have a problem doing so.
You might argue that when it comes to education, it is logistically impossible to cater to individual needs. After all, schools and colleges have limited resources, and a teacher-student ratio can only go so far. Individual attention seems an impossible pipe dream.
I would argue, though, that our failure to imagine a way forward does not mean that none exists. All successful innovations work precisely because no one thought of them before, and they fulfil a need somewhere. If we give entrepreneurs the scope to innovate, they will find solutions. The problem with our education system is that the government has a stranglehold on it, and severely restricts private participation.
For example, it takes 14 licences from four authorities to open a private school in New Delhi, which could take years. There are all kinds of bizarre parameters schools have to fulfil to open a school—such as playgrounds of a specified size—and, most absurdly, they aren’t allowed to operate for a profit. They get around this by opening trusts and suchlike, which restrict their scope for further investment.
When will our government learn that the profit motive is a good thing? It spurs innovation and benefits fellow human beings, for that is the only way to make a profit.
Besides these entry barriers, there are other restrictions on what these schools must work towards. If they are not affiliated to a government-approved board with a government-approved syllabus, such as ICSE or CBSE, their students are going to find it hard to get into government-approved colleges down the line. Everything has to be government-approved, which stifles innovation.
I can barely imagine what products my hypermart would contain if all the industries that produced them were run by the government as education in India is. There would be fewer product categories, virtually no choice within those categories, and everything would be more expensive. Thanks to competition and relatively free markets, that is not the case.
When it comes to trivial things such as potato chips and garlic sev, we have been empowered with choice. When it comes to something as important as education, we have not. Isn’t that a disgrace?
It seems that the central government “has proposed to offer additional grants to nearly all the 12,000 madrassas, which get Government funds, to celebrate national festivals namely Independence Day and Republic Day.”
If politicians wish to bribe or pander, they are welcome to do with their own money. But why on earth should you or I have to pay for it? Immense disgust comes.