Dear Mr Varma,

Please stop. Your recent lack of activity had done you a lot of good. I was wondering if you really had found the good sense to not talk about stuff you don't know. But, you have risen to the occasion again.

The SEC has got it wrong time and again in this crisis. The failure of the regulator, however, is not adequate evidence for the failure of regulation, if you can make the distinction. Plus, this is finance. There is some math involved. There is some macro-economics involved. There are some accounting laws involved. Of all three things, I'm sure you have no effing clue. There are also many tenable conspiracy theories, but when one does not know the basic facts, indulging in conspiracy theories is the worst kind of arrogance that one can display.

Your interest and ideological grandstanding of policy prescriptions based on links and rhetoric (the Kashmir issue, and now this) with nearly zero knowledge of the underlying matter remind me more and more of the communists everyday. You share your predilection for ideology over issue and analysis with them. Which sort of confirms my longheld position that the world is round (yes, I translated from Hindi, I am a vernie) and the more extreme you get on either side of a divide, the closer you become to your ideological opposites in ways that you did not foresee. (You can call this Ritwik's theorem of the unintended consequences of ideology. )

The consistency with which you mange to sift out, read and link only the most half baked portions of non-representative analyses is amazing. So is your failure to perform even the most routine reserach on that which you wish to comment upon. There is Google, Bloomberg, the Yale law school online library (for Kashmir). You seem to be unaware of teh existence of these resources, and much worse, unwilling to fish them out.

I have to say - you were quite right when you said that when you try non-fiction, you end up repeating yourself. However,your diagnosis of things being cynically recurrent and non changig was not correct. Try this for an alternate hypethesis - you don't have much to say anymore. You have plateaued, stagnated. I wish you luck for the awards that you are competing in. I may even buy and read your novel, if I ever get the time. But for now, I have a sincere request. Please do stick to fiction. Invoking David Ricardo, Niranjan Rajadhyaksha and Ravikiran, that is your comparative advantage.

I must also thank you, though. For two thing. First, about three years ago, when I had just about discovered the world of blogs, you were thought provoking - infuriating at times, wonderfully insightful at others. I now realize that this was primarily because I was unexposed to the ideas that you hold, and some of them were very strong challenges to my world view. I don't know if it is result of my education in the last thre years or simply your stagnation, but you no longer have anything worthwhile to offer me as a reader. But let's give credit where it's due.

Second, I have been off the blogging scene for some 8 months now and I have a deadine to meet at 11 pm. Yet, your consistent piling up of rubbish has now broken my patience. I am back on my blog now, and I must thank you for that.

Thanks,
Ritwik

p.s I don't think I would be reading you much from now on. Ta-da. If you ever read this, you can use this as the perfect example of how the free-market system works. For a change, that will actually make sense.

I have to rush, but...

Ok, I was holding out of doing this for various reasons. But this needs to be done, and hence yours truly shall go ahead. Read this. Especially this bit,

I’m not dissing the armed forces—they keep our borders and engineers safe—but there are better reasons to feel proud of being an army man than the power you have over people’s lives.

The other profession marked out by such lust for power is politics. How staggeringly sad.

Oh dear god! Such farce is not even funny.

Of momblogs, children and externalities

Dear Mombloggers,

I don't read any of you. I know none of you read me either, but that's immaterial. It does surprise me that you would choose to share details of your life and your children with the world wide web, but I also know that I can't even begin to understand. We all write about what we like, so it's ok I guess.

I am, however, extremely surprised at the way you react to all the people who try to slag you on the blogosphere. It shows the great danger of being emotionally attached to what you write about. We all are, at some level. But when it's one's own children, it's a little too close for comfort. I am genuinely amazed at your willingness to read random people rant about children and be infuriated enough to even try to think of cyber-rebuttals. Feminists fisk stupid things all the time, but I see their point - it's an uphill battle when a large majority of the people don't even share some of your basic views on equality and don't realise that they are being bigoted. Libertarians fisk non-fisk-worthy commie arguments too, but I get their point as well - far too many people have notions of achieving great utopian equality without the slightest idea of how we're going to get there.

You, on the other hand, face no such uphill task. The world at large likes children. Since when did Nilu, Aadisht and Falstaff become representative viewpoint-holders on children? Their rants can be attributed to too much porn, too many graphic novels and too much poetry respectively. I don't agree with them, but I see the point in their rants (except for Nilu, in whose case having a point would defeat the entire point) - they are the ones who face an uphill task. Essentially, people with that extra bit of intelligence and a life that largely revolves around solitude and a computer develop slightly warped views of reality. You need not worry about them. You need to however, think about people like me.

You see, I too have a life that revolves largely around solitude and a computer. However, I am a country boy. I don't pontificate about the US presidential election - I frankly am more interested in the Bharat Ratna controversy. My intellectual rebellion developed much after my initial upbringing had grounded in me the virtues of appreciating the status quo and the constraints of decision makers. I am the one who you should be bothered about, for the majority of people with experiences similar to those three worthies turn out like me, and not like them. Country boys who hopefully understand economics but stop short of seeing Ronald Coase everywhere.

And you will be pleased to know - I don't dislike children. I don't necessarily like them either - but I know that they are going to happen in a few years and am absolutely ok with that. I think I'll like them once they are there, and I see the merits of the status quo. You will never hear me talk in appreciative terms about a growing population (oops, sorry, human capital base) and yet talking ill of children, because it appears terribly inconsistent to me. Don't be bothered yet, because people at large believe that it's not ok to be openly intolerant of children. Not yet.

So am I with you or against you? A bit of both. I sympathise with your predicament and yes kids are cute, but I wish that you'd display some more gravitas and sangfroid. Children rants are not to be replied to - it's a little like trying to beat children at their own game of not listening to reason. You fall into the trap by imitating them, only to realise that its not your core competence. And yes, some emotional distance from what one writes helps.

Thanks.


2) Which brings me to the question of negative externalities. Venu reminds me that to some people, children are akin to pets or smokers that impose negative externalities on other people. There are two questions here - one more fundamental than the other. We shall not even go into the 'pets' argument, for if you bring non-human life into the picture when we are trying to deal with human social systems, I am sorry to say that you've missed the point completely. However, the other aspect is worth examining.

There is obviously a negative externality when a smoker exhales fumes into a setting that involves non-smokers. There is also an obvious externality, though slightly intangible this time, when a child cries through what could have been a perfect rendition of a Mozart concerto. There is also an externality, intangible and not so obvious, to many devout Hindus when they so much as get news of an M F Hussain painting that shows a naked Sita on Hanuman's tail. Or to Muslims when they see their prophet depicted as a terrorist in a cartoon strip. You may want to brush the last two under the 'freedom of speech' carpet (and I would agree) but there's no denying the fact that there exists an externality - it is not for you to judge whether my mother should get angry at MFH or not, the fact that she does get genuinely disturbed is proof enough of the externality's existence. The question is, is the disturbance caused by the child's crying more similar to the MFH example, or more similar to the smoker example? The answer is quite obvious to me, but I would like to know your views on the issue.

Essentially, if you believe that a first principles based, non Coasian solution is the answer to the free speech issue, I fail to see why that should not be the case with children. However, even if you think a child is more analogous to a smoker than to MFH, there is another issue here. Am I the only one who sees the problem with trying to create an analogy between what is a choice, and what is a stage/fact of life that one does not really choose? Being of a particular age is far more like being a boy, a girl, a white or short than being a smoker. Coasian solutions for the gender and race issues as well, sirs?

Of course, private property rights are part of the solution - a theater owner would be well within his rights to ask the family of an unruly child to leave. Restaurants that an the entry of children could easily come up if it was a viable business model. But the point is not that - the point is, does there exist sufficient moral ground to ask for a Coasian solution at the society level?

Which brings me to the last, most confusing point. Is it correct for the government to have legislation that requires companies to have explicit no-discrimination policies? It is coercive, an infringement of absolute private property, and yet necessary if equity forms a reasonable chunk of the social welfare function. What are your views on this?

The value of human life

We're fresh from a small round of blog discussions about the value of human life and the policy implications of executing murderers and executing 'vermiscripters' (computer virus writers). Steven Landsburg here and Ravikiran here assert that people who claim that a value cannot be attached to human life are making "invalid" and "wrong" statements. The crux of their argument is that we make choices about our lives and our safety all the time. So if I drive a bike at a 100 kmph for half an hour today, and that increases the chances of my death by .01%, then the fact that I am making this tradeoff means that utility (.01 % increased safety of life) = utility (driving a bike at 100 kmph for half an hour). It is easy to see that the RHS of this equation can be replaced in money terms - for e.g if I am willing to pay 1000 Rs to drive a bike for half an hour at 100 kmph, then utility (1000 rs) = utility (driving....half an hour) and by substitution, utility (.01% increased safety of life) = utility (1000 Rs). So far so good - the argument is flawless until here. But truth is a little more nuanced after this.

The flawed leap in the argument comes when people extend utility (1000 rs) = utility (.01% increased safety) to , say, utility (100000 rs) = utility (1% increased saftey). There are two assumptions underlying this extrapolation, both wrong, one more wrong than the other. The first assumtion is that utility (100000 rs) = 100 * utility (1000 rs). The second, and more incorrect assumption, is that utility (1% increased safety) = 100 * utility (.01% increased safety). (Of course, mathematically it is possible to come at the same conclusion without either fo the two assumptions, using a third more integrated one. But the decomposition into its parts will help illustrate the folly in logic better, and hence I take this route).

Let's deal with the first assumption. In classical analysis, goods are supposed to have diminishing marginal utility. Money is the one good that is exempted from this consideration - an extra buck is always as good as any other extra buck. It makes some amount of intuitive sense, plus it is necessary to exempt money from the concept of diminishing marginal utility if one is to compare the utility (and hence prices) of other goods. However, in decision analysis under uncertainity, things change a bit.

Rational people are risk averse. If I was to offer you a game where you could win 150000 rupees with 50% chance and win 50000 Rs with 50% chance, you would typically not accept this gamble at a price of Rs 100,000. The expected value of this game is 100000 - it has an expected return of 0 and it is irrational to take it up. You are bearing some risk, and hence would want a non-zero return. (In fact you would want a return above the risk free rate of interest, but lets not get into that). Mathematically, if U(x) is the utility function of money, U(50000) + U(150000) < 2 * U(100000). What kind of a function would U be? Concave to the x axis. Consider the simple example of U(x) = sqrt (x). It is easy to check that the inequality holds (in fact, it reduces to the RMS-AM inequality, or equivalently, to the statement that variance is non zero). Now, it's easy to see that with U(x) = sqrt (X), U(100000) = 10 U(1000) < 1000 U(1000). This is, of course, a cooked-up example that makes the inequality very strong, but it is easy to see that for any concave function, U(kx) < k*U(x). Hence, U(100000) < 100 * U (1000).

(Through all that not-so-fancy math, all that we're saying is that a 100 times more money will not make you a 100 times more happy. Which is something we all intuitively know. But since we are trying to counter some 'rational' arguments, we will stick with the math. )

The second assumption, and this is where the extrapolation gets hit very badly, can be invalidated by a simple thought experiment at the extreme. You make me two promises - one in which you promise to save me from near certain death, and another in which you promise to provide me with an extra .01% of safety. What is the worth of your first promise vis-a-vis your second promise to me? Is it worth 10,000 times more? Far from it. It is worth a whole lot more. I want to consume, I want to ride bikes, I want to do various things, but most of all, I want to live. I'd give you my entire wealth (everything above subsistence) if you saved me from near certain death. In fact, if someone was willing to take a leveraged position on my life, I'd be willing to give you a huge chunk of my future wealth as well. Put mathematically, the marginal utility of extra safety of life is increasing. U(1% safety) > 100 * U(.01% safety).

(Actually, it will not increase monotonically, for reasons that should be obvious. But we shall sacrifice behavioural assertions and mathematical rigour for the purpose of relevant analysis)

Now, if we put the mathematical formulations of our two intuitive results together, what do we get? U(1% safety) > 100 * U(.01% safety) = 100 * U(1000) > U(100000). The extrapolation of the 'value of life' from a single decision has been hit on two counts. Essentially, extrapolations like this will end up severely understating the actual value that we place on our safety and our lives. And therefore, the time frame of the analysis and the absolute numbers becomes of critical importance. It is useless to compare one exceution of a murderer with one execution of a vermiscripter if over my lifetime, many more than one executions take place.

Hence, dear economists and other rational type people - if you are going to estimate the value of my life by extrapolating from the value I place on .01% of my safety, say it like that. Because the answer that you will get will be different from your answer if you were to extrapolate it from the value I place on 1% of my safety. If you directly ask me the value of my life, I will refuse to put a figure to it. Not because I'm being a moralist. But because I am then thinking about the value of my entire life. 1 or 0. Life or death. Not 10000 times .01% or 100 times 1%. And I can genuinely not answer that, except for saying that my life is rather priceless. Not because I am irrational. But because I am rational and hence risk-averse. Because the marginal utility of money is diminishing while the marginal utility of safety is increasing. Because the way you frame a question will lead to a different answer.

The time frame of policy and an approximation of the utility of safety/life are of critical importance beofre one starts asserting things about the value of life and the costs and benefits of deterrence. If you are only going to multiply two numbers, don't bother. I learnt multiplication and pretty much mastered it when I was 7 years old.

Height of idiocy, really

An economics professor argues that on the basis of economic logic and cost-benefit relationships alone, virus writers are more worthy of the capital punishment than murderers. Towards the end of the article, he accepts that some of the assumptions in his back-of-the-envelope calculations may be overly simplistic and incorrect, but defends himself saying this.

"But this essential point remains: Governments exist largely to supply protections that, for one reason or another, we can't purchase in the marketplace. Those governments perform best when they supply the protections we value most. We can measure their performance only if we are willing to calculate costs and benefits and to respect what our calculations tell us, even when it's counterintuitive. Any policymaker who won't do this kind of arithmetic is fundamentally unserious about policy."

There are multiple arguments for attaching and not attaching a cost to a human life. That is not what I am talking about here. I have only a couple of observations

1) Why is this man so happy about his ability to add and multiply numbers? Seriously,
everytime I read one of these ' lets do the math' rants I am left wondering about the sanity of the person in question. Dude, unless you're talking about partial differntial equations or probability distributions, you're not talking insight ok?

2) Witness this.

"Executing the murderer means giving you the safety. Executing the vermiscripter means giving you the cash. You'd rather have the cash than the safety. Ergo, executing the vermiscripter is better policy"

I would rather have lesser number of such coloumns than either safety or cash. Does it mean that executing the author is better policy?

A rambling monologue on worldviews

(Or, whatever little sense I have been able to make of the world around me. In no particular order.)

1) When one thinks, one attempts to clear the clutter - grey is a colour that no one is truly comfortable with. The only sensible thing Deepak Chopra has ever said is when he asserted that mythological tales are powerful becuase they have well defined concepts of good and bad. At all points of time in my ruminations I am trying to judge correctness, to ascertain credit and to appropriate blame. Those who claim to not judge are either not thinking at all, or just being polite.

When thought does clear the clutter, it does so with with a brilliant sweep. Things fall into place - one knows exactly why one believes what one believes. Thought is nothing but self articulation. Given that a general proficiency in the tools of communication is achieved, it is easy to be articulate when one in clear.

The problem is that very often one has to make peace with the greys. It is difficult to be undecided when one is not indifferent. It is difficult, also, to be truly indifferent. Sometimes, it is fatal to be undecided. Very often, the clutter is not cleared, nor is there the hope that it will be cleared in the recent future. It is a painful state to be in. The only comfort is that most often, the Cartesian view on one's own existence is reaffirmed.

The single greatest advantage of thought is clarity. The single greatest disadvantage of thought is lack of clarity.

2) Just as mathematics is at the base of all natural sciences, and philosophy is at the base of all humanities, psychology is at the base of all social sciences. A priori enunciations of economic truths are nothing but claims that one has figured out the human mind. Adam Smith, Karl Marx and Ludwig von Mises are authors who fall in this category. It is no surprise that Friedrich Hayek went on to link spintaneous order with the connectionist hypothesis of cognition.

The validity of each enunciation lies in empirical evidence, and empirical evidence is temporal and contextual. What is contextual can never, by definition, be universal. The infinitely long run is an absurd idealization - it is of almost no use.

3) 'Universal human rights and values' is technically, a self-defeating concept. History shows as much. Universe has to be defined across space and time, and no set of human values has ever been consistent across time - not even the right to life. (I am not talking about violations of rights, only about the belief that these rights should exist in the first place. Weak newborns in Sparta were deemed to not have the right to life at all.) Does this mean that an axiomatic specification of a world view is impossible? Not really. One only needs to have the modesty to not pronounce it universal. The axioms of choice are dynamic - a recognition of this is enough.

People, most notably Murray Rothbard, have tried to argue that the right of 'self-ownership' is the one necessary and sufficient human right. Everything else follows. There is, of course, the disclaimer that self-ownership has no meaning unless we respect the self-ownership of others. This is not entirely true. Self-ownership as a concept can exist independent of the equivalence of political rights. There is the more fundamental assertion here, that my political system, whatever it is, will not indulge in any a priori discrimination. This is the zeroth law implicit in almost all political debates of today, and it is also independent of self-ownership or any other such rights. The zeroth law has profound implications. Socio-political equivalence of all citizens is by itself not a very ancient idea. It seemed abhorrent to Locke and Paine that a charter may determine basic rights, and it is extremely seductive to indulge oneself in the concept of natural and universal rights. Yet, a question worth asking is - if these rights are indeed so universal and natural, why did we chance upon them so late? It is a little strange to accept a prophet of human rights.

I am enchanted by the enlightenment age views on liberalism. John Locke was a phenomenal man. But, he was not a prophet. He was a change-maker, one of many. 'Universal human rights' before him and 'universal human rights' after him are different sets, and this difference renders the term 'universal human right' an oxymoron.

4) 3 above forms the basis of one of the strongest arguments in the defence of the communismt end that I have ever heard. I believe that an ideal system will try to ensure, non-coercively, that station in life is contingent not on birth but on ability. Like many others, I am given to believe that the communist utopia is not really a utopia. Even if somebody could magically get communism to work, I would not want to live in a scoiety where everyone has the same outcome, irrespective of ability. It seems natural to me - I won't be surprised if it was proven that this feeling is hardwired into us by evolutionary mechanisms. I do, however, believe that society should try its best to provide everyone with the same opportunity, irrespective of anything. This belief could be a result of evolution. It could also be one of the many 'anti-evolutionary' tendencies that we have developed over time.

Either way, a 1000 years ago the sentiment that station of birth should not ideally be a large component of success in later life wasn't a very common one. It is now. Is it then unimaginable that a 1000 years from now the prevailing sentiment of 'universal human rights' and utopia will include the communist idea of equal outcomes, not just equal opportunities? I had no answer to this question posed by a dormmate after I had summarily destroyed the rest of his commie arguments. It was a useless argument, for it was not debatable and also irrelevant from the perspective of policy-making, but it was a strong argument and one that gains immense relevance the moment we start connecting free market mechanisms to the natural and social evolution of human civilization and positing them as universal truths.

Communism may just be an ideology that came much before its time. It may make sense to qualify 'self-evident economic truths' with adjectives that are temporal instead of 'universal'.

5) Property rights, indeed the very definition of property, are the crux of every major philosphical point of difference in conflicting worldviews. Unless one wishes to indulge in humpty-dumptyism with the meaning of property rights, the deontological position on property is far from settled. I have never heard a convincing argument about the moral philosophy underlying the default heratibility of property. Nor have I ever read any convincing arguments about any given property distribution being considered moral in a non-contextual, universal sense. For this and similar other reasons, property rights have to be separated from other rights that seem to be analogous. The right to life must exist independent of property rights, and the right to free speech can also be evaluated in a framework that need not necessarily build upon property rights.

Random information - I am getting extremely enchanted by behavioural finance these days. Riskless arbitrage does not exist, or so my hedge fund trader friend informs me 2 weeks into the job. The insurance fund market is apparently so inefficient that one can safely claim that market mechanisms don't even seem to work.

I'm also getting enthused by the New Keynesians, not the least because Greg Mankiw is one himself. He can be safely added to Raghuram Rajan and Hernando De Soto in the list of economists I want to read extensively.

As you must have observed already, I am too much of a lazy bum to put up the requisite links. Sorry, but deal with it.

While I Mug

Heard in macroeco class

"Everything reminds Milton of the money supply. Everything reminds me of sex but I try to keep it out of my papers."

- Robert Solow

Unfortunately, he is no Milton Friedman. Hence, this just seems like a case of 'Look ma! I am so clever. I can think of metaphors and all.'

So long, until I am done with mugging for the term.

The only thing I will ever write about communal violence

is that almost whichever way you look at it, it is quite pointless. Even if one was to evaluate it from a my-community-first 'strategic' perspective (and there are just so many things that are wrong with such an aproach - but let's stick to the logic within the layer), it would fall flat. For the simple reason that those that came at you were not the ones you will go for. And those you go for will not be the ones who will come back at you, in the given phase or later. You will satisfy only bloodlust, not vengeance. And your actions would become the tipping point for some of those that were yet undecided.

Besides, mob violence is one of the only two forms of violence that takes no courage.

From this week's finance and macroeco classes

1) Libertarians with knowledge of the financial markets, it's question time. I'm guessing you know what circular trading is. Explain a ban on circular trading from the first principles of coercion and/or fraud. And if you do not support the ban, explain how you propose to solve the inefficiency in the markets resultant from circular trading.

2) It is fashionable among a lot of theorists to assert that if you are philosophically on the wrong footing, no amount of mathematics will help you out. The example of P C Mahalanobis is given to substantiate this point. Now this assertion has typically been a little difficult to digest, expecially since I am given to romantically believe that mathematics is the only true philosophy. Turns out that in the case of India's five year plans and P C Mahalanobis, I may not have been very off the mark.

You see, the Indian government, pre-liberalization, was an almost entirely fiscal policy focussed administration. The guiding principle of our macroeconomic policy was apparently the IS/LM model. This is, in very general terms, a series of dynamic equilibriums of real national income with real interest rates. But, the interest rates were administered. We had neutered one of the two axes of the mathematical model that we used and yet we hoped to be correct. For decades, we were doing one of the mathematically stupidest things possible.

Resultant aphorism - faults of philosophy will manifest themselves as mathematical idiocies. One only needs to try harder.

Nilu's smartest move

was to get Avataram to write for his new blog. Why do I say this? Read on.

This piece gets rave reviews here and here. Now blogger no. 1 unabashedly loves everything that Mint publishes but I was a little surprised to see Aadisht recommending the "Bangalore is Coasian" line. I read the piece, and wasn't interested at all. I tried to figure out why - one obvious reason is that one could replace Bangalore by Gurgaon in the article and it would still remain the same in its substantive claim. Or one could replace Bangalore by Nagpur and have no answers to why Nagpur doesn't fit the claims. The article reduced Bangalore to a syntactic tool, devoid of any semantic significance. It doesn't answer the fundamental "Why Bangalore?".

But I was still searching for THE reason I disliked the piece. Avataram provides the answer, in a short piece that explains the title of my post. Of course, this is it. ALL cities are Coasian, dammit all forms of organization are Coasian. In the memorable words of Prof. Datta, even marriage is an institution that minimizes transaction costs. Thus, an argument along the lines of 'outsourcing is Coasian, Bangalore is all about outsourcing and hence Bangalore is Coasian" is so superficial that it does not even begin to scrape any surface whatsoever.

Avataram also has this sagely advice from Wittgenstein's Tractacus to offer - one which I'll try to follow more often - “Wovon man nicht sprechen Kann daruber muss mann schweigen” - “Whereof one cannot speak, thereof one must remain silent”.

I'm convinced. Recursive Hypocrisy is so much better off with Avataram. Nilu has indeed made the smartest move he would ever make.

Two aphorisms and an observation

Aphorism 1 : There are no infinite recursions, only incomplete base cases.

Aphorism 2: All economic activity tends to an equilibrium, yet the distance from the equilibrium is the primary economic incentive.

Observation : It is universally acknowledged that it is far easier to critique than to construct. Hence, one moves from the critique to the construction. Yet, one notices that the critique invites more attention than the construction. Now one could believe that this is in part due to the inherent unattractiveness of one's construction. But when one has read a bloody 180 page report, gone through the fine print of a diplomatic document, and spent considerable time and energy to develop the construction, a conceited view of reality makes a lot more sense. Hence, one assumes that the construction is so faultless that no one could possibly come up with a contrary viewpoint, and that people comment only when they have contrary viewpoints.

Of child labour, property and worldviews

Blogger no. 1 writes about child labour - please go read. I have a small point to make. One of the reasons why people feel compelled to rescue children despite knowing that many of them start working by their own volition or that of their parents, is this - many children indeed start working due to poverty, but many of them are forced to stay on due to coercion. Even if one does not support the ban on child labour, one has to think about the conditions in which these children work and what can be done to improve them.

Second, and this is slightly more fundamental - poverty forces many parents to make their children work but many of these children do not want to work themselves. If we begin with the moral position that children below a certain age should not be working, does the parent have the right to send the child to work? Where does legitimate parental control end and coercion begin? And if we believe that the child's wish should be honoured, is this a strong argument in support of a welfare state and a safety net? There will definitely be inefficiencies and corruption in any such government initiative. Should the options then be evaluated by a cost-benefit analysis? Or is one of the two options significantly more correct from a first principles, moral point of view?

Apropos this, will any libertarian (or anyone, for that matter) explain to me what is the "moral position" on the distribution of property in the first place. I ask because any discussion on economic freedoms ultimately boils down to philosophical differences on property rights - what existing distribution of property can be accepted as correct and moral? Is there any moral basis for the heritability of property? Does it make sense to talk about economic freedom from a moral standpoint at all?

My worldview is this - the objectives of my ideal society are maximization of utility, liberty and equality of oportunity, in that order. I am right of centre, economically and politically, and a social liberal. I do not mind sitting on the fence on a lot of issues - it is a lot more honourable than it is usually made out to be. I try to work on certain first principles (which are close to the libertarian ideal), but I realize that given the constraints of a non-ideal reality, this is not always the best stand to take. I am wary of extreme positions. I admire balance - one of the biggest learnings from my short life has been that on either extreme of any world-view divide, one ends up contradicting oneself. I am a libertarian-centrist, so to speak. A consequentialist, a utilitarian.

Interpreting the Truth: The Nuclear Deal

The nuclear deal with the US has disrupted public discourse multiple times in the recent past. It is amazing how our public discourse is typically filled with opinions flying left, right and centre – opinions that each one of us fits with our own world views – and the proverbial scratch on the surface reveals that not much exists beneath the surface at all. ‘Too much punditry, too little analysis’ is a description that characterizes the greater majority of our public debates, with even ‘informed’ analyses in reputed publications typically failing to connect all the dots.

There are broadly two axes along which the deal can be analysed - the first is energy economics and the second is strategy and foreign policy. I am convinced that the deal is favourable along both dimensions, but let’s look at the issues one by one.

First, the relevant facts – the duration of the deal is 40 years, and the proposed energy transfer in the period is about an installed capacity of 60,000 MW. Either party can terminate the deal with a notice period of 1 year in this interim 40 year period, and with a notice period of 6 months at the end of the deal. The objective of the deal is to “enable full civil nuclear cooperation with India covering aspects of the associated nuclear fuel cycle”. The resultant business is likely to be of the tune of $150 billion, of which the lion’s share is likely to go to American nuclear power companies.

So what are the implications for India’s energy scenario? To evaluate that, a look at our current position is necessary. We currently have an installed peak capacity of 160,000 MW, including captive generation sources. This implies a peak shortfall of 11.7% or about 21.2MW. (This is just the installed capacity, ignoring the severe T&D losses). The Integrated Energy Policy (IEP) report of the expert committee of Government of India, dated 9th August 2006, shows that even though the elasticity of per capita energy consumption per capita of GDP growth has been falling over the years and is less than 1 now (meaning that if x% is the annual increase in energy demand and y% is the annual increase in GDP, then x < y), the energy needs per capita are still likely to increase at a rate of 6%-7% p.a., averaged over the next 25 years. It estimates that in 2031-32, we will need an installed capacity of 800,000 MW. Where is this 800,000 MW going to come from? From “pursuing all possible fuel options”, in the words of the expert committee. The 800,000MW figure is inclusive of an estimated 63,000 MW of nuclear power, 150,000 MW of hydel power, and thermal power increase of 5.1% p.a. India’s uranium reserves are good enough for only about 10,000 MW, representing the limiting value for our PHWR reactors.

Opponents of the deal have continuously touted the figure of Rs. 11 crore / MW, the estimated costs of the nuclear power generated through imported fuel and reactors. This figure, they claim, is significantly higher than the Rs 7 crore / MW for power from indigenous nuclear sources, Rs 4 crore / MW for power from thermal sources, and the even lesser cost per Mw for hydel power. These figures are a little tricky. It is fair, for e.g., to ask why the relevant power figure for comparison was taken as 30,000 MW and not 53,000 MW (estimated requirement minus indigenous resources). Ventures with higher fixed costs (import of reactors, fuel etc.) become increasingly attractive for higher volumes. The long run marginal cost of producing 1 business unit (1 KWH) of energy through nuclear sources was estimated at about Rs 1.00 for nuclear energy and about Rs. 0.90 for thermal energy, (at 1984 prices) in a 1997 paper by Prof Y K Alagh. The comparison becomes favourable for nuclear power when the distance to which coal has to be transported exceeds a 1000 Km., due to the high transportation cost of coal.

According to the IEP report, Indian uranium is extracted from ore that has 0.1% useful content as opposed to the international standards of 12 -13%. This makes indigenous nuclear fuel 2-3 times costlier than imported fuel. With all these figures, it seems hard to accept the cost considerations that have been drawn for a capacity for 30,000 MW. The dissonance is futher magnified by the fact that the IEP report has suggested that India change its energy policy from “minimum initial cost purchase” to “minimum life cycle cost purchase”.

However, let us for a moment assume that comparison to be absolutely correct. Does that change things? Not really. The inherent assumption that we could use alternative sources to generate the 30,000 MW is itself flawed. The IEP report assumes 150,000 MW of hydel power, which is 100% of the known hydel power potential of India. It also assumes a constant growth of 5.1% p.a. for thermal power, which has been the current trend. India needs those 30,000 MW of nuclear power even after exploiting these alternative options to their reasonable maximum. The scenario that we are looking at, thus, is not one of high cost power vs. low cost power, but one of some power vs. no power. One is reminded of Homi Bhabha’s succinct remark that puts this situation in its proper perspective – “No power is costlier than no power”.

India’s mineable coal reserves are estimated to last another 45 years (at 5.1% growing usage p.a.) and known oil reserves are likely to last 23 years of production and 7 years of consumption. With increasing oil prices and depleting coal reserves all around the world, there seems to be no way except to go for nuclear power. The IEP report says that “Nuclear energy theoretically offers India the most potent means to long-term energy security”. It is true that energy security has to be achieved in the long term through indigenous sources, and that the indigenous thorium-based FBR program is theoretically the best way to achieve nuclear power security. However, to let go of the opportunity of imported uranium based power generation in the hope of an unmitigated success of the FBR program would be extremely damaging in the medium term, and implies continuing peak load power capacity shortfalls.

Next, we move on to the strategic and foreign policy implications. The opponents of the deal have raised four main considerations on this front, namely
1) The deal does not guarantee assured nuclear fuel supply, and only promises to “seek to amend domestic laws” to ensure the same.
2) The Hyde act is likely to prove a major bug-bear, and the necessity of “congruence” of Indian foreign policy with that of the US impinges upon our autonomy and will be interpreted as strictly as possible by the US.
3) In the event of a unilateral termination of the agreement by the US, we will be left with unusable nuclear reactors that will impose maintenance and safety costs for no benefits at all.
4) IAEA safeguards will continue in perpetuity even though the deal is terminable.

Let’s deal with the last consideration first, because the first three are closely inter-linked. What exactly are the IAEA safeguards that we have to adopt? Simply that any reprocessing performed on the nuclear fuel imported through this deal will be in a newly created reprocessing facility that will be open for IAEA inspection (typically, these inspections are inventory checks of weapons-grade nuclear materials). Any reprocessing done in this facility will be open for IAEA inspection. But do these safeguards extend to all reprocessing performed in India’s reactors? Not at all. It is perfectly possible for India to strike similar deals with other NSG nations and reprocess the fuel obtained through those deals at separate facilities with separate safeguards. Even if the US is likely to put pressure on most NSG nations to have similar safeguards, the option of Russia remains perfectly tenable.

The first three considerations all become relevant only in the event that the US goes ahead with a unilateral termination of the deal. Since large US business houses are going to have a stake in the profits generated by the deal, their pressure and lobbying is going to act as a deterrent to the possibility of this scenario. More significantly, the information and technology transfer is going to aid India on the path of creation of indigenous reactors that can process higher grade uranium that can be imported from non-US NSG countries. This acts as a genuine buffer to the shock of a unilateral termination.

Interestingly, this is what Article 5.6(b) of the deal reads like
(i) The US is willing to incorporate assurances regarding fuel supply …. which would be submitted to the US Congress
(ii) The US will join India in seeking to negotiate with the IAEA for India-specific fuel supply agreement.
(iii) The US will support an Indian effort to develop a strategic reserve of nuclear fuel to guard against any disruption of supply over the lifetime of India’s reactors
(iv) If despite these arrangement a disruption…occurs, the US and India would jointly convene a group of friendly supplier countries to include countries such as Russia, France and the UK to pursue such measures as would restore the fuel supply to India.

The language is ambiguous, but not by diplomatic standards. Please find me another instance where India has been able to negotiate a deal with a superior power with such major concessions. Is it at all possible for the US to guarantee fuel supply in contravention of its domestic laws? Can the UPA, for example, promise the US that the deal will definitely go through?

And what about the Hyde act? Without delving into legalese, the essence of the matter is that the act is definitely restrictive, but as explained by Dr. G Balachandran of the IDSA, four prominent exemptions have been granted to India. The first one was the exemption of the requirement of IAEA fullscope safeguards. The second was an exemption that made sure that India’s detonation of a nuclear device after the passage of the Atomic Energy Act (1978) of the US does not hinder the deal. The third waived the sanction on exports to India. The fourth exemption ensures that India’s unsafeguarded nuclear activities that are independent of the nuclear transfers as part of the deal cannot be invoked as a reason for termination. The Hyde act remains an issue of contention, but seems like one that has to be negotiated with, rather than something that can be made a reason to ditch the deal.

The arguments in favour of the deal are many, the detractions few. It would be a great loss to India if the left succeeds in its attempts to stall the deal.

I'm still alive

and kicking.

Just to stay in the game, a couple of mini-fisks, of bloggers whom I otherwise look up to.

1) Ravikiran, theorising about Indian democracy, says (among other things)

"
If we are honest with ourselves, we will have to admit that no one has a clue about which way the Indian voters vote, and once they have voted, the process of translating the votes to seats makes it pretty much impossible to draw a causal chain between the intention of the voter and the “Popular Will” as expressed via the seat position in the legislature.

If pollsters and pundits cannot call an election a month in advance, it is very likely that those in the government will be unable to take a guess as to which policies will win them the next election five years away. If democracy means that rulers govern according to the will of the people, then India’s democracy is broken.
"

Now this statement rests on the assumptions that
1) Politicians are not significantly more competent in knowing the popular mind than pollsters, and do not understand the votes to seats translation better than the average citizen.
2) Policy making and implementation in the government are a fucntion of five-year (or similar medium term) strategies of political parties, strategies optimized to give them votes.

Both are wholly unreasonable assumptions. Pollsters survey people, extrapolate data and make predictions on that basis. The sample sizes are typically so small as compared to the size of the elctorate that statistically the interval of confidence should prevent you from making any estimates. However, the TV demands a number. Hence, the pollster quotes a mean, neglecting the variance. Political parties have teams of workers working at multiple levels - they do not need to understand the scientific model or the mean or the variance for their data is far more representative and most parties know what is going to happen in the election, irrespective of what they may claim on TV. Plus, a Brahman+Dalit combine in the Up sweeping the legislature elctions there was pretty much predicted by everyone, wasn't it?

Anyone who has any close relative working in the steel frame will tell you why assumption no. 2 is false. On a daily basis, the work of the government is largely independent of the strategy of the party. The issues and stands that highlight the ideological(?) differences in the parties and become controversial are largely tactical in nature, and far lesser bearing on policy formulation and implementation.

2) Shruti Rajgopalan talks about how the market itself corrects market failures far better than governments, even in the case of public goods. The crux of the matter - people used to crowd in to listen to tour guides in Prague, even those people who hadn't really paid for their services. This is a nuisance because it is free-riding, and it can even cause legitimate tourists to miss the guide's detailing due to crowding. To solve the problem, tour guides now use small microphones and headphones are given to the touring group, thus preventing the free-riders from listening in.

Shruti believes that this is a wonderful example of a market corecting a market failure, and shows us the following dystopian situation as the government's possible solution

"How would the government deal with this problem? They would regulate the number of tourists each guide can have in a group. Furthermore they would regulate the distance each group must maintain and each individual must maintain from the groups. Then they would issue licenses to guides and have Tourist Inspectors for enforcing the regulations and ensuring the correct distance is maintained."

Oh dear god.

She calls the tourist guide's service a public good because it is "non-exclusive" and rival.

"It is difficult to exclude other tourists who are also at the monuments and the consumption may be rival as those who paid for the guide get crowded out"

Three points

1) Excuse my pedantism, but the term is non-excludable, and not non-exclusive(trust me, there's a significant difference)
2) A non-excludable, rival good is called a common property resource, not a public good.
3) The fact that a tour guide finds it difficult to physically exclude the non-paying tourists does NOT mean that his services are non-excludable. He is charging a fee for his services, and can easily deny his service to anyone. This by definition implies that his service is excludable. The problem, thus, is one of logistics (the fact that denying the service is physically difficult), and not economics and market failures(where denying the service is practically impossible, for example fishing in a sea).

The tour guide's service is in fact rival and excludable, a pure private good if there ever was one. It is a smart solution to a problem of business logistics, and not a romantic success of the market against its own shortcomings (atleast not in the free market vs government context that Shruti tries to provide her text).

I am now convinced of two things. One, ideological extremism, of any form whatsoever, is such an over-riding factor that it can totally impinge upon reason. Centrism is pretty much the only way out. Two, very few people have truly internalised what they learnt in their microeconomics course. People choose convenient bastardizations of a sound theory to criticise at will. I am reminded of Prof Deodhar's remark to us about trying to avoid the abuse of terms like moral hazard and adverse selection.

p.s : Some problem with blogger. Wll put up the links to their respective posts a little later.

Of Thought & Articulation

So the last post spoke about how the first great in a field is not its greatest exponent ever, and how many people frequently confuse the two. It's amusing to know the other things that people often confuse.

Yours truly is an eternal optimist. I am even optimistic about Indian politics, so I don't think I need to further explain my case. However, it appears that some of my classmates have no hesitation in calling me a pessimist. On deeper thought and exploration, it turns out that this is so because I am generally hard to please, especially with respect to the level of CP (class participation, usually semi-sensical things uttered by MBA students who are in peretual GD mode) in class. Ok people, let's clear this - cynical and critical are not synonyms.

Similarly, abstract and absurd are not the same. What is abstract need not be absurd. What is absurd need not be abstract. The proof of the first part is recursively contained in itself. For the proof of the second part, let's think of an absurdity that is definite - "The sun will rise in the west tomorrow" - for e.g.

Q.E.D and all that jazz.

Tarana-e-Watan, slight reprise

Reference to Context : this

Gaurav asserts that a lout, a thief who believes strongly in the idea of India and stands up for Vande Matram is a better Indian than an impeccable, polished, law-abiding citizen who doesn't care too much about the nation. In the dictator's world, a nation is nothing but an idea, and thus anyone who refuses to believe in the idea is actually detrimental to the national identity. The second half of his post is largely something that one agrees with. But this initial assertion has to be rebutted.

A nation is indeed an idea. But ideas have no independent existence - they are solely dependent on the people who hold them. The idea is glorious, nay, even credible only if the people who believe in it are taken care of. A nation is an idea, but it is not just an idea. One could speak of the common culture, food, geography, language, etc. but in a nation like India, these are so distinct and numerous that they are superficial and inadequate proxies. There is exactly one concrete marker of a nation, and that is its current constituents. India is a lot of things to a lot of people, but to me it is primarily the people who inhabit the nation today, and more pertinently, the people who identify themselves as Indians. The strength of their belief in the idea of India is of low consequence to me.

One could argue that the individual's safety is dependent upon the group's, as Gaurav does. Or one could argue that the group's safety is nothing but the safety of each one of it's individual members. This top-down vs bottom-up approach to individuals and groups can be discussed ad infinitum. I believe there is one critical aspect that such a discussion ignores. An individual and his/her freedom are well defined, and often, static entities. A group is only a template. A nation is a group, so is a gender, so is a religion, a caste, a state, an ethnicity, an instiution, and even a dorm within an insitution. An individual, as Amartya Sen beautifully explains in the first few pages of Idenity and Violence, is at the very least an intersection of these various groups. I am an Indian, a Hindu, a Bihari etc. Which one group's safety is most important for my safety? What is the correct level of granularity at which it becomes undesirable to express one's allegiance to a group virulently? Every group has contributed to my identity - which ones have the right to demand a compromise on my freedom? What is the priority order of these groups in their claims on my freedom?

One could also argue that status quo dictates that believing in a strong nation has near universal acceptance, and hence a nation has the first claim. That would be an argument hard to beat on the basis of current data. But to argue that it is this aspect of the status quo that needs to be perpetuated would take either a leap of faith, or a rational justification on some grounds. Would it be possible to evaluate essentially irrational choices on the basis of utilitarian grounds?

I am a liberal, and I am a nationalist. India has the first claim on my freedom. But there is no rational reason for this choice. I would be hard pressed to explain why it is not Hinduism, my religion, or Bihar, my native place, or Gujarat, my state of domicile, or the Kayasthas, my caste, or indeed, the entire male 'brotherhood' of the world. If one regards the ' I do not want to sing Vande Matram ' Indian as a threat to the idea of India, should one also regard the ' I do not want to sit for the Satyanarayan Pooja ' Hindu as a threat to the idea of Hindusim?

A nation is not just an idea, it is primarily the people who identify with the allegiance to the idea. The thief, when he commits a crime against an individual in the nation, an act that the nation does not permt him to commit, betrays the nation. No amount of symbolic respect to the nation's idea absolves him of this betrayal. To me as well, there is no dilemma. The man disrespectful of the Indian flag but respectful of her citizens is a far better Indian than the Vande Matram loving lout. One does not disrespect a nation only by disrespecting the flag. When one spits where one is not supposed to, one disrespects the nation too. Somebody else, a fellow country man, will have to come and clean it. It would be rather fraudulent then, to claim that one's respect for the national anthem makes up for the lack of respect for another Indian's dignity, and a lack of respect for the conditions required for the country's efficiency.

It amuses me that the dictator proudly proclaims to be a Hindutva Fascist. It would be interesting to know if he also subscribes to the following descriptions - Male Chauvinist, and Kayastha Supremacist. Reverse snobbery is the easiest game to play.


p.s - People who are wondering about the obvious Jimi Hendrix reference in the title of the post must know that I'm not exactly the man's greatest fan. I mean, sure, he was great, revolutionary blah blah. But to claim that he was the greatest guitarist ever! One might as well say that W G Grace was the greatest batsman ever. First great != greatest.

p.p.s - Which is not to say that he wasn't great either. If you are not a fan of his rendition of All Along The Watchtower, you haven't the foggiest idea about hard rock guitar.

p.p.p.s - With reference to the last line of the p.s, yes I am a computer engineer by training.

On Theism and Proofs

Someone needs a course in binary logic and proof theory.

It all sounds so wonderful. I do not believe that god does not exist. I just don't believe that god exists. I am all rational, but also do not have any burdens of proof. Act of faith vs rationality, and all that. Amazing, right?

Wrong. Let this be cleared once and for all. All scientific/logical theories are by definition only explanations/observations of the truth and not the truth themselves (the map is not the territory and all that jazz). Thus, the statement that "Gravity exists" is logically the same as "I believe that gravity exists". The reasons for your beliefs and your ability to justify them will qualify the strength of this belief. Hence, a rational person will have no qualms stating that "gravity exists" but will need to qualify his belief in god by saying that "I believe that god exists". "Belief" is a qualifier to the strength and justification of your theory - it doesn't change your assertion of the truth value of your theory. Knowledge is only a representation of the truth, not the truth itself.

Hence, I believe that god does not exist and I do not believe that god exists are logically one and the same. Any attempts to try to prove otherwise miss the important distinction between the truth and the representation. What is wrong with these modern day atheists? Don't they even have the balls to say "God is dead, and has always been" (or something like that)? Come on people, you have Richard Dawkins as your intellectual fountainhead. Show some bloody guts.

There are exactly three major logical positions to take w.r.t the existence of god. "I believe that god exists", "I don't know and the world will in all probability never know", and "I believe that god doesn't exist". (Actually there are four - one can always say "I don't bloody care".) There can be variants within these major positions, but to try and get out of committing yourself to one of them broadly is just intellectual dishonesty.

If all you want to talk about is the burden of proof, here's how you frame it - proofs are either constructive or by contradiction, but can never be by assumption. A positive assertion ("God exists") will typically need to have a constructive proof or a strong reductio ad absurdum. As long as you can thrash the positive proof, it will be considered a good enough negative proof. An example of this is the god of the gaps rebuttal given by atheists.

When it comes to God, or the final explanation, the absence of evidence is pretty much the evidence of absence, irrespective of what Carl Sagan says in the preface to A Brief History of Time. All we need to remember is that the evidence need not necessarily be a positive empirical observation. Counterfactual reasoning is often the only way of determining causuality.

WooooooooHoooooooooooooooooo!!

Of inductive logic, perceptions, and natural languages

He reads this and hates all men. Frivolous as it seems, I am tempted to ask, why not just Pakistani men?

The problem is, of course, central to all of inductive reasoning. How strong is the inductive link in your generalization? The solutions are very context-specific. And the interpretation of context is very experience-specific. One of the main irritants with life is that statistical inference is not readily obtainable. Hence, one's experience becomes one's truth. And we all have different versions of the truth - each one, a priori, as true as the others. Post-modernism suddenly seems attractive.

Given the sentence "Rand is popular in the girls' hostels", how do you interpret it? Does the speaker want to suggest that Rand is more popular than unpopular in the girls' hostels? Or does he want to say that Rand is more popular in the girls' hostels than in the boys' hostels.

Mathematically, let's define a threshold of popularity, say x% readership, and denote the reader base of Rand (expressed as a percentage) among hostelite girls as P(h-girls), among hostelite boys as P(h-boys), and among non-hostelite girls as P(nh-girls). What does the speaker want to say by "Rand is popular in the girls' hostels" ?

A) P(h-girls) > X : Rand is popular on an absolute scale, the dictator's interpretation)
B) P(h-girls) > P(h-boys) : Rand is more popular among hostelite girls than among among hostelite boys
C) P(h-girls) > P(nh-girls) : rand is more popular among hostelite girls than among non-hostelite girls.

The above question is not rhetoric - all readers are encouraged to answer A, B or C in the comments, along with reasons if they have any. The results, as we shall see in the next post, will probably have some insight for Statistical Natural Language Processing, which, incidentally, is roughly the field I worked on in my undergraduate final year project.

p.s. : Of course I was kidding about postmodernism. It's a pile of garbage, worth only our collective contempt and ridicule.

The value of a socio-economic argument

is exactly equal to the value of the way in which it has been presented. Ravikiran says here that " this kind of fisking, where you quote the article and try to rebut it point by point. The problem with doing this is that there is a high risk of missing the overall point the article is making " is "unfair".

Right. So can I now write an article that goes something like this -

1. Remove poverty : ( some illogical substantiation about how it can be removed)
2. Solve the Kasmir issue : (some more illogical substantiation about how it can be solved)
3. India has to win the cricket world cup (no substantiation, the passion will suffice)
4. World Peace ( no substantiation, a flying kiss should be enough)

and claim that my article was great and those who rebut my substantiation point by point are missing the 'overall point' and being patently unfair?

Socio-economic arguments are not independent of the people who make them and the way in which they have been made. They are unlike the laws of physics, which are true, quite literally, even in vacuum and do not need human observation to be true.

One day, psychology and the cognitive sciences may just provide THE definitive theory(ies) of human behaviour and interaction - a few theoretical attempts have already been made, most notably by Friedrich Hayek who proposed the connectionist hypothesis of cognitive science. Until then, we will just have to consider each theory case by case, assumption by assumption, and implication by implication. The worth of every argument, every article on the society and economics, then, is simply the way in which it has been substantiated, point by point, by the author. One does not have the liberty of saying 'you may be right in your rebuttal you're missing my overall point'. The overall point is nothing but the sum total of all the substantive points, and if each one of them has been attacked, the overall point has been attacked as well. Anyone who wishes to make only the overall point should go easy on the not-so-solid substantiation.

p.s : I find it quite amusing that the one who was criticized is a lot more appreciative of the point by point analysis than the zealous defender. May be he is just modest.