Friday, August 30, 2013

Monkeying With The Rupee

There's a story --- here's one of several YouTube videos on this delightful subject --- about how to catch a monkey. You use a jar or an empty coconut shell and fill it with peanuts. Monkey approaches, reaches into jar and clenches its greedy little paw around the peanuts. But it can't pull its full hand out, and what's more, it won't let the peanuts go. End of monkey.

How governments in developing countries have wished for similar success when it comes to foreign investment! How India, or Indonesia, or Brazil, or the many countries before them, have hoped that the hard currency could come monkeying in, and then stay, forever enraptured by the goodies that emerging markets have to offer! Alas, it's never worked that way --- or perhaps it temporarily has with foreign direct investment --- but certainly never with foreign portfolio investment. What flows in can flow out, and with high probability it will. You can, of course, impede its flow by imposing exit controls but the reputational loss will set you back a generation or more. Foreign capital flow is a two-edged sword, and as India is currently discovering, both edges are very sharp indeed.

The basic economics of this is pretty simple. Imagine a huge stock of hard-currency-denominated investible funds, forever sloshing around in search of the best returns. For a developing country, the urge to tap into these funds is immense. Ideally, that developing country would like those funds to appear as hard, irreversible investment (in true monkey fashion) that would soak up its surplus labor, producing goods that would (again ideally) be exported, so earning still more hard currency and incidentally facilitating the repatriation of profits. But that isn't the way the peanuts are shelled. The hole in the jar needs to be made a lot bigger. Foreign direct investment is often attracted by the enormous internal markets of an India or a Brazil, and the repatriation of that money is not for free, as it were. And much --- most? --- of the investment will refuse to appear in hard form: why not buy emerging market stocks, or for the not so choosy, emerging market funds, or for the still less choosy, emerging government bonds? Well, why not indeed? And so it was that India started on the Great Upward Path: money pouring into its coffers from abroad, accompanying tariff and quota liberalization then permitting easy purchase of foreign goods without a huge depreciation in the rupee, the outward drain being more than easily matched by the inward flow.

QE, by keeping interest rates very low in the United States and the rest of the "developed world," certainly helped here, as hot money scrambled to take advantage of relatively attractive portfolios in emerging markets.

But all of this stuff, apart from the hard investment, is reversible. And guess what: it's reversed, or it's starting to. The monkey's hand is coming out of the jar, peanuts included.

There is little point in asking what fundamentally has changed to cause this reversal. Not much, probably. Yes, QE is probably beginning to taper off, and the US stock market is currently at or near an all-time high. Time for the hot money to come home from its shenanigans in India, Indonesia, Brazil, Turkey and elsewhere. 

But even that isn't a necessary catalyst, because much of the short or medium-return to portfolio investments is prey to severe herding. Consider Scenario 1: money comes into an economy, stock prices climb, the currency stays strong, rates of return are high.  Consider Scenario 2: money flees, the stock market tanks, the currency nosedives, returns fall. Now listen to the one sentence that explains (almost) everything: both Scenarios 1 and 2 can coexist in the same economy with the same fundamentals. Expectations can drive enormous regime changes.

But then, what drives the transition from one regime to another? Often, though not always, the answer is that there is no answer. Or at the very least, there isn't an answer which in any way can predict this abrupt transition in any deterministic fashion. Markets almost always react long before the fundamentals necessitate those reactions. For instance, a developing-country government might have a large amount of debt denominated in hard currency. Perhaps the citizenry gets too used to the inflow of hard currency and ratchets up its lifestyle, so that the country runs a current account deficit. Or perhaps there is a war or an internal conflict, or a debate regarding economic policy. Perhaps a few Dr. Doom types issue a gloomy forecast. All of this is true (to varying degrees) of India. The country may be perfectly solvent nonetheless, but the specter of possible future insolvency can precipitate a crisis today as the slush money is sucked out.  Rome may not have been built in a day, but financial markets are: and what goes up can come down very fast indeed, without any necessary fundamental justification. That's what herding is all about. So I have news for you: in the short to medium run, there are many exchange rates between the rupee and the dollar that are self-fulfilling equilibria. If someone tells you that the true exchange rate is 40 rupees to the dollar, or 80 to the dollar,  I wouldn't believe it. Or I would believe it all, just as I believe the rate of close to 70 that it is today.

What does this sort of skittish world tell us about policy? Well, what it tells us is this: we --- domestic consumers, producers and yes, government too --- need to go easy on the upswings. We all get used to good times. The trick is not to act on them fully. We can't go crazy with imports (gold, oil, machinery, consumer goods), when the spot prices that determine those imports can change overnight, leaving us, perhaps suddenly and without warning, with a large negative flow. And the more reversible the investment is, the more we need to watch it. We need a buffer on this --- an action rule or a red line --- that is predicated explicitly on the ratio of direct to portfolio investment that's coming into the country. This is very delicate business, because if we do watch it, then the chances are that much higher that investors won't flee, leading to complaints about why we're watching it in the first place. Very delicate indeed, because, as I said,  the markets reverse long before the fundamentals fully justify that reversal.

It is interesting that the very same business interests which have completely disregarded the dangers I've discussed are now floundering around for a scapegoat. Let's see now: it must be the damn Government which is to blame. And we're off to the usual races: cut back government spending, and yes, social spending for those lazy masses must be the first to go. Never mind that the foreign-denominated debt of the Indian government is actually relatively small. Never mind that the government is under constant and unrelenting pressure to reduce taxes of all descriptions. Never mind the military expenditures that show that we are a Great and Powerful Nation. No: what we first need to do is make sure that the Food Security Bill is to blame! See here, or here for examples.

The Food Security Bill?

Briefly, the FSB offers a monthly entitlement of grain for approximately 2/3 of the Indian population (higher for rural, lower for urban). It provides for maternity benefits to pregnant and lactating mothers. It provides for additional benefits to children under the age of 14. The cost of is certainly not trivial, by some accounts to the north of 1 trillion rupees. Having trouble figuring that out, my American friends? Of course you would, but I'm afraid I can't tell you the answer in dollars as it's all moving around rather rapidly (which is why I'm writing this article in the first place).  Here, I'll help: Indian GDP in 2012-13 was around 100 trillion rupees, so it's about 1% of GDP. It's Not Small. Here's another take: as a fraction of the Indian budget (projected expenditure around 16.6 trillion rupees in FY2014), it's about 6%. So this is not just Not Small, it is Undoubtedly Large. (I can make it look even larger if you'd like me to cast about for a smaller number to divide by, but enough of the dirty polemics.)

The point, however, is this:  It's not a fresh 6%. The Indian government already has a public distribution system (PDS). It has already been procuring massive amounts of foodgrain not just because of the PDS, because of minimum price supports. In fact, last year we've procured a few tons more than is needed for the food security bill to run. We've been doing this stuff all along. The point merits repetition, folks: it is not a new 6%. 

But who's listening? Here's Forbes magazine on the subject: "[T]the ruling Congress Party barreled ahead with its Food Security Bill in Parliament despite the pervading gloom. The law provides for distributing cheap rice, wheat and other food essentials to the country’s poor but comes at a steep cost of over $20 billion."

The utter confusion over extra costs versus total costs has been compounded by wrong calculations such as this particularly egregious example, to be credited to Surjit Bhalla. Claim: the Bill will increase expenditures by a whopping 336%. A whopper indeed, but of a different kind. It isn't the first time that silly views have been faithfully backed up by elementary arithmetical errors. Luckily, this one was corrected in no uncertain terms by Ashok Kotwal, Milind Murugkar and Bharat Ramaswamy. They estimate the net additional cost of the Food Security Bill  to be an increase of approximately 18%: from R0.72 trillion to R0.85 trillion. A bit short of 336%, eh? It's an increase of well under 1% of the national budget. 

But so what? It didn't stop dear Moody's from issuing a threat or two. And in the multiple-equilibrium world of herds, it is entirely possible that misinformation can cause an entirely self-fulfilling run on the rupee. Traders taking the Bhalla piece seriously might well flee to safe havens elsewhere. Traders who didn't will still fear that other gullible souls might, and seek to front-run them; they too will fly. If this theory of higher-order beliefs were not so well-known to economists I might have called it the Bhalla-fly effect. (I am told this is a terrible pun that no one will get.) So hey, maybe our corporate bigwigs and their media cronies are right after all: the crashing rupee is to be blamed on the Food Security Bill! If it didn't exist, then Bhalla and assorted colleagues would not have been vilifying it, and we may well have remained in the happy equilibrium of Scenario 1 (above). 

The focus on the cost of the FSB masks its simple declaration of basic humanity. Not that the basic humanity itself would go unchallenged. Here is a sample:

"Why should we continue to feed our people at subsidized costs forever? Why should the country bear this cost ad infinitum?"

Oh well. There's no accounting for taste. But let's talk about the costs. Just to keep things in perspective.

The defense budget of the Government of India is double the projected expenditures of the Food Security Bill. For 2013-2014, a "modest increase" of 5.3% (following on somewhat less modest increases of  17.6% and 11.5% in the two preceding years) brings us to a sum of over 2 trillion rupees. 

There's more: the foreign exchange component of expenditure on defense is orders of magnitude higher than the corresponding component for food. While there has been talk of indigenization of weapons, India is a huge player in the international market for military equipment and spends around 70% of its current military budget on imports of arms and equipment. Compare this to the FSB, which will spend half the military budget, and all of it on domestic production and distribution. Of course, there are foreign-exchange implications (for instance, exports of cash crops would surely be higher if we let the poor starve). But I assure you that these implications do not come close to the 70% import-intensity of defense.

Ah, but Defense is a Holy Word.

What about oil, a good measure of the burgeoning needs of India's middle and upper classes? Let's see now: just the total cost of subsidizing fuel use last financial year was 1.6 trillion rupees, substantially higher than the estimated expenditure under FSB. (With the Syrian crisis the subsidy could shoot up even further.) As for oil imports, they are in the region of 7 to 8 trillion rupees per year, orders of magnitude higher than projected expenditure under FSB. 

All in cold, hard currency. Ah, but Oil is another Holy Word.

I will leave the plea for lower defense expenditure or a zero fuel subsidy to a separate occasion (though see E. Somanathan's comment below). That is not the point of these comparisons. The point is to put things in perspective.

What we have is a bill that purports to bring food security to the majority of India's population, and possibly the overwhelming majority of India's poor, plus the additional benefits to mothers and children, for about 6% of the Indian government budget. Not for 12%, as in defense, or 9%, as in the fuel subsidy. And certainly not for the same impact, rupee for rupee, on India's international deficit.

You know what? I'll take it. 
News update Monday September 02, 2013: The Rajya Sabha just passed the Food Security Bill. The article above is therefore thankfully dated, but still worth reading for the next time around. Because there will be a next time.

I'm grateful for comments from Dilip Abreu, economist and game theorist extraordinaire, with whom I've shared many discussions on the topic of Food Security. We believe that there's lots in the Food Security Bill to argue about. But its fundamental impact on the Indian rupee is not one of them.

Tuesday, August 27, 2013

Role Models and Sexual Violence

An earlier version of this article was first posted by me on Ideas For India, and I have updated the material here with permission.

It doesn't stop, and at the rate we're going, it never will.
The latest (but not the latest by the time you blink) is the horrific rape of a journalist in Mumbai. Here is a brilliant, passionate article on it, which ends thus:
"To the police, the legal system, the political establishment, the men who think women are fair game for rape and the people who foster rapists: what will you do to make sure we’re not violated again and again and again?"
That is, indeed, the heart of the matter. I don't care if the American rape statistics look worse (who knows how to adjust the numbers for reporting anyway?), or if drunk Frenchmen molest Indian women, or if there are lots of decent Indian men. None of this crap matters. 

Here is what does matter: one out of n Indian men is a potential molester, a potential rapist. Is 1/n small? Assuredly. I can't imagine it is more than 1/100. I can easily believe that the same ratio is true of, say, Norway. But this heartening tidbit, that 99/100 Indian men are decent folk, offers no respite at all. The reason is simple. If you are a woman and walk through the Delhi streets at any time of the day or night, you will encounter literally thousands of people. In particular, you will have run into tens, maybe hundreds of potential rapists. By the time you are done with your walk, you will have been stared at, pushed, leered at, groped, catcalled. And if you deviate just a bit from your walk and go anywhere that is isolated or semi-isolated, you are in real danger. I kid you not. 

Why is that? The reason is simple, and this is what makes India different. It is the absolutely toxic nature of Indian "culture": the unquestioned belief that women are just there to be taken. That they are asking for it. That they are either "modest," or failing that, "immodest" and so fair game. Lots of "decent" Indian men, who would never molest a woman, share the very same beliefs. This "culture" is weaker in Calcutta or Madras, and there are more aggressive checks and balances against it. (In Calcutta you can get killed for trying to molest a woman; I have seen it happen myself. But if the locals hand you over to the police, you're probably ok.) But the beliefs are still there: all through the social and economic spectrum, all through the country. Now add to it poverty: the fact that many young men have little to lose even if someone were to take action against them, and the horrific nature of sexual violence in India isn't that hard to comprehend.

All of this is well known. There are hundreds of articles on the subject. But we need to press on. We need to ask the same question, and ask it over a million times: "what will you do to make sure we’re not violated again and again and again?"

Well, answers have been forthcoming, along two broad lines. 
One is that women should do more to stay out of harm’s way. These have run the gamut from caution in attire to appropriate times for women to be outdoors, and other even more outlandish suggestions, such as taking the hand of a potential rapist and calling him a brother. (Though the dude making the suggestion seems to be immune to brotherly invocations himself.) Stupid? Yes. Summarily dismissible? Yes. There is no civilized society in which women must obey any restrictions, other than the norms of conduct that apply equally to men and women. No exceptions.
The second, dominant reaction is a call for more severe punishments, ranging from the esoteric such as chemical castration all the way to the death penalty. These are unacceptable, not necessarily because they are outrageous (to some, they may well be) but for other reasons. For instance, castration presumes that the dominant impetus for rape is sexual. It is not. It is the desire to exert power over a woman in the only way a rapist knows, through unbridled violence. It is even possible (though not necessary) to argue that castration might heighten those urges, not diminish them. The death penalty is inappropriate (quite apart from fundamental ethical reservations that many might have) because it would lead to the widespread murder of rape victims, the extra punishment from rape to murder now having dropped to zero and the marginal gain being obviously positive.
Quite apart from these specific objections, it is entirely unclear that we would like to live in a society where transgressions are not committed just because there are severe penalties for doing so. That is not the way to build a just civil society.
What has been noticeably missing from the outcry is the fact that rape is committed—often but not exclusively—by young males who, reprehensible though their outlook may be, have their own role models in society. Who are these role models? I highlight two sets: cricketers and film stars. (There may be others.) Every young man looks up to these demigods of India. It is time to press the demigods into service via a concerted series of television and radio commercials, preferably played over and over again during the live broadcast of cricket matches. The government must buy the ad time, or TV channels must donate it. The demigods must be encouraged to donate their time, but failing that, the government should pay for their services.
What must these ads say? They must speak in no uncertain terms. I call upon the many cool advertising specialists in our country to design them.
Certainly, they would categorically reject sexual violence, but they must go one step further to shame the person who indulges in such violence: a man who touches a woman without her consent is a kutta, a dog who is only worthy of the demigod’s contempt (and that of civilized society, but never mind civilized society, as her contempt matters not an iota to a rapist). And they must take yet a second step, to say that a woman may go anywhere, at any time, in whatever clothing suits her pleasure and with whomever she wishes, or with no one.
This is social engineering, the quickest way of affecting the distorted beliefs and sexual tastes of an unfortunately significant section of India’s male society. But it is social engineering that not a single human being can find fault with. Accordingly, it should be tried and it is only to be hoped that it will have an enormous effect. I propose, also, that we measure such an effect, for possible use not just with sexual violence but in a variety of other social contexts, though in several of these contexts the universal merit of such social engineering will be correctly debated and called into question. (Consider, for instance, a similar campaign to denounce someone that steals. While accepting that there are laws against theft, I would oppose a campaign that vilifies stealing in a poor, unequal society.) But there is no debate with rape.
Let me return to my proposal that we measure such an effect. There is, first, the conveyer of the message: a demigod (cricketer or film star), or a local leader, or an NGO, or a politician. There is, next, the media: television, radio, billboards, or even non-standard media such as text messages. There are times of day and night, and there are events (such as cricket matches). I propose that we deliberately randomize a variety of such approaches over different regions of India: one would presumably target urban metropolitan areas to start with. Economists and scientists have developed rigorous methods to evaluate the outcomes of such randomization. Such randomized experiments have been debated in economics on several counts, but perhaps most often for their inability to convey “external validity,” or knowledge of outcomes beyond the immediate field of the experiment. No such issue of external validity need concern us here: the field of India is large enough. On the other hand, randomization on such a scale would call upon all of the expertise (and then some more) of the researchers who have pioneered such experiments in the social sciences. Deep questions of internal validity would arise. Such questions must not deter them.

Two examples: one an advantage, the other a difficulty. First, the percentages in the country who are aware of (or follow) discussions such as the one we are having now is low. That is lamentable in general, but in this context it is useful. It means that we can try different strategies: the same words spoken by different people, different words spoken by the same people, in different parts of India. The idea is to start a process and at the same time, to see what works. It is not as perfect as a controlled experiment because we know that statistically similar conditions across the districts of India are just not to be had. But if the campaign is well-designed, we have the econometric wherewithal to extract information from it.
A difficulty: a media blitz of the sort I am proposing will not just affect the “true” incidence of rape, it may alter the reporting of rape in ways that we need to think about. For instance, encouraged and emboldened by the media attention, more courageous women may come forward to report acts of violence committed against them. This would be a wonderful outcome, but because we cannot factor out “true incidence” from “reporting rates”, the effect of the campaign on rape might look smaller than it truly is. It is also possible that the opposite occurs: the relatively high-report rapes (such as those perpetrated by a stranger) may be discouraged by the campaign, leaving the low-report rapes (those committed by family members or husbands) to continue, and giving the impression that the campaign is more effective than it really is. We need to think about such issues, and in particular (to judge the relative efficiency of different measures: e.g., demigod vs. minister), how such effects might vary over the different districts that experience these campaigns.
By the way, reports of rape are not the only measure we can construct. For instance, attitudinal surveys before and after the intervention, could also have much to tell us.
Measurement is important. I’ve simply asserted that my proposed policy will have a huge effect. It may have none. But how are we to know that? After all, no policy has zero cost. So there is no escape from scientific analysis of the impact of a policy, and while we are about it, we may as well consider the relative efficiencies of demigods and (say) local leaders, and not just policy versus no policy at all. We need to try something like this. The alternative doesn’t bear thinking about.

Saturday, August 24, 2013

What I'm Reading

These are quick comments on some of the books currently in my life. As you will see, my reading is a bit haphazard (I was going to say "eclectic," but who am I kidding). Not necessarily the "latest stuff," and almost surely no economics.

There is also the problem that I forget very easily what I've just read. I don't forget what's in the book if I am reminded of it; I just can't remember which books. And that, my dear technophobes, anti-digital elitists and assorted manuscript-wielding Luddites --- that is where electronic reading comes in. For most reading devices also leave an ant-trail of books you've read.  

As I write that I realize I'm being slightly hypocritical. As much as I love the real thing --- pages that you can touch, turn, scuff, and smell, I also love the enormous convenience of getting onto a plane with a hundred books and all of this year's New Yorkers. So it's not just the reading log, my friends. Not at all.

Anyway. Luddites will be Luddites, though I managed to converted one of them. Last month, my mother traveled with the kids and me from Kolkata to London. My mother was nervous about what she was going to put in her handbag. "Take the ipad, Ma." "No, I'm not taking that silly gadget, and I have no space anyway! Just enough for a  small Sarat Chandra novel and my sudoku puzzles." Then I downloaded a sudoku app for her ipad. The rest is history. (Suffice it to say that Sarat Chandra never made the plane, at least not in "analog version".)
Anyway, here are some books from this summer. The first one is from last year, actually, but for several reasons it's been on my mind.

Joseph Anton: A Memoir, by Salman Rushdie

I'm a huge fan of Midnight's Children (the book not the movie, I hasten to add) so I felt obliged to read Rushdie's account of the infamous fatwa. About halfway in, a passing remark caught my eye:

"There had been a huge earthquake near the city of Rasht and forty thousand people had died, and half a million more were homeless, but that did not change the subject. The fatwa stood."

I am not exactly sure what Salman Rushie meant by this observation. Perhaps he meant it as a filler, because the remark appears as part of a longer paragraph presumably designed to show how the days and months passed as he waited, imprisoned by Khomeini's verdict. (What else happened in that four-sentence paragraph? In the first sentence, Nadine Gordimer collects signatures by eminent writers for his release. In the second, he dines "at the Pinters'" with Carlos and Silvia Fuentes. In the third, he refers to a London Islamic cleric as a "garden gnome", not for the first but perhaps for the tenth and certainly not the last time, and follows it up in the same sentence by referring to all the clerics of Tehran as gnomes. And the last sentence I have quoted for you above.)

I had been reading the book, initially with great interest, then with growing dismay and finally reading memorable sentences out loud (once again with great interest, but of a different kind). But this paragraph brought something home to me, which later parts of the book continued to reinforce.

1. The obvious. Rushdie's megalomania knows no bounds. In fact, I've been getting secretly pleasurable megalomania rushes by simply picking up different parts of the book and reading them to myself and to the dininishing few who will listen. It is a dizzying feeling to see the world and everyone in it, the Gorbachevs and the Gordimers, the Havels and the Hurds, the Vaclavs and the Vonneguts, the Sontags and the Soyinkas, all revolve in unified orbit around Salman Rushdie. It is a mind-blowing experience and (as often happens when a place looks familiar but is yet not quite right), slightly nauseating. 

2. The not-so-obvious, at least not to Rushdie, and certainly not what he expected to teach us. That free speech is deeply problematic when (to use economists' language) the externalities are pervasive, when hundreds of lives (or even a few) are at stake. Does that prevent us from tackling the great issues of intolerance? Not at all. The heinous nature of fundamentalist Islam, or fundamentalist Hinduism or Christianity for that matter, can be unequivocally pointed out. But, I am sorry to say, not in the way in which he did it. 

The Secret Scripture, by Sebastian Barry

The year The Secret Scripture was shortlisted for the Booker, Aravind Adiga's The White Tiger won the prize. All power to Adiga for his angry tale of Gurgaon hell. (And in passing, I have no problem with the subaltern speaking in any language he pleases, unlike this review.) But it all pales next to Barry's book, for no other reason than the sheer lyricism of his language.

An old woman, living her last days in a mental asylum where she has been confined for many decades, writes the secret scripture of her youth: stories of her father, of Ireland, of girlhood and of love. A not-too-young psychiatrist evaluates her, then is drawn to her, and then depends on her in ways that he cannot fathom. The two scriptures run along, emotionally intertwined in the strange poetry of the writing. (Until Barry breaks the spell by throwing in a "surprise ending," an entirely unnecessary and credulity-straining attempt to wrap it all up. Wtf Sebastian? Your writing just doesn't need this stuff.)
Oh, what writing. I loved almost all of the book, but an early chapter --- surreal in more ways than one as it turns out --- stands out for me. A young girl stands at the base of a tower in a cemetery, where her father (who is the gravekeeper) prepares to replicate Galileo's famous experiment at the top. Something about that chapter made me want to hold my own daughter, and never let her go.

Hilary Mantel's Wolf Hall and Bring Up The Bodies

My tenuous grasp of the Tudors (and their diverse shenanigans) prevented me from reading Mantel's classic, but this summer I bit the bullet. I actually bit it in rather embarrassing fashion, first brushing up on Brit history via Wikipedia and then diving in with an ungainly, uneducated splash.

These books are the first two in a three-part trilogy that recounts the story of Thomas Cromwell, and his extraordinary rise to power as the right-hand man of Henry VIII (his subsequent fall from grace presumably to be the subject of Book 3). From a purely historical standpoint, Wolf Hall also chronicles the rise of Anne Boleyn, and Bring Up The Bodies her heart- (and head-) wrenching decline, with Cromwell a central player in both acts. All very exciting. But to me, Wolf Hall is remarkable for another reason. In a way that I cannot precisely describe or even fully understand, it gets at the great problem of how to write historical fiction in some credible fashion. Think of the seemingly insuperable problems --- the language, the setting, the innermost thoughts of well-known historical figures --- think of conveying these with a certain sense of "realness," and you will understand how hard the problem is. Mantel pulls this off by a device which both distances us and gets us close: a spare, minimalist writing style that creates the distance, along with quick slashes of feeling, memory, dialogue:  knife-stabs into a tapestry that covers history so that we can see glimpses through the gaps, with never an attempt --- doomed to failure --- to pull that tapestry entirely off.

What a book. 

Bring Up The Bodies is more mundane, I must sadly add. (Though it isn't hard to see why it is more popular.) Wolf Hall is an incredibly delicate balancing act and it is hard to avoid falling off. Add a bit more of linear narrative, a bit more dialogue, tarry a bit longer in the head of your principal man, and you will fall off. Yet it is absolutely extraordinary that she managed to climb up there in the first place.

Or maybe not so extraordinary. I've been a Mantel fan for years. For sheer writing beauty, try Beyond Black

Here is a list, very briefly annotated, of what else I've been reading of late:

A fascinating chronicle of Bengalis in the United States, starting in the 19th century.

HHhH, by Laurent Binet

An account of the takeover of Czechoslovakia by Hitler's National Socialists, and the assassination of Nazi Protector Reinhard Heydrich. Pretty gripping.

1Q84, by Haruki Murakami

I'm a fan of Murakami and I particularly loved The Wind-Up Bird Chronicle, but this book was pretty awful. By the way, did you know that at one point in 2012, Ladbroke's was offering 2:1 odds on Murakami winning the Nobel Prize for Literature? (Bob Dylan has 10:1, still pretty wild but infinitely more reasonable.)

Loved it, a lot of fun, though not as extraordinary as Logicomix.

From The Ruins Of Empire, by Pankaj Mishra

An interesting and informative book on the intellectuals of Asia. I am not a huge fan of the writing style, but that is a matter of taste. 

The Days of Abandonment, by Elena Ferrante

Difficult to read, a chronicle of a marital break-up. The writing is incredibly powerful. But who is Elena Ferrante? This won't tell you. If you read Italian or can use Google Translate, try this.

The Glass of Time, by Michael Cox.

Excellent sequel that I finished a month or two ago to a gripping book: The Meaning of Night.
And, as a last course:  I've just started, with great pleasure:

If you haven't met Vish Puri, Hall's Delhi-based detective, it's about time you did. You may want to start here

If you have an interesting book you've read recently and want to tell us about it, please comment.

P.S. None of the above links are monetized. (And for the grammar purists who are out to get me, take that!)

Friday, August 16, 2013

Cryptic Tales from the ISI

In 1985, after three years of teaching and research in the United States, Jackie and I decided to move back to India and try our hand at living there. Jackie (a.k.a. Devaki Bhaya), a plant molecular biologist, was the prime architect of this move. I had wonderful colleagues at Stanford, and I was more selfish about my research, so I wasn't as convinced. Nor was my then-employer. ("You can't do this to us...we haven't had the chance to deny you tenure yet!"). But I'm glad Jackie pushed us to move. From being one more boring economic theorist I was transformed into ... well, another boring economic theorist. No, I de-xaggerate: I did get far more interested in real issues, and understood that it's hard to do good economics. But that's another story.

I joined as an Associate Professor at the Indian Statistical Institute in New Delhi. The ISI, but not to be confused with its homologue in a neighboring country! At that time the ISI didn't offer an Economics degree though we did start a masters' program in economics later, which is still going strong. 

Our arrival was slightly bizarre. The ISI had apartments on campus, but there was a temporary shortage while new apartments were being built, so we were housed in three adjacent rooms in the Guest House that were transformed into a makeshift apartment by some rare, farsighted magic of interconnecting doors. (See photograph of guest house on the right; we lived right below the arrow.) We stayed there quite happily for some years. Other, similarly hired colleagues were likewise given apartments at the Guest House, the number of rooms depending on one's conjugal status.

Maybe the passage of some thirty years has favorably colored my look backwards, but it seems astonishing to me how comfortably we lived with so little. Our salary was around USD 200 per month. You will say, ah, but the prices were also lower by US standards, and indeed they were. But not for stuff that was priced on world markets: international travel, submission fees to journals, scotch, and even several domestic amenities such as television and cars. We could afford none of these (so we drank what you see to your right and left, and indeed, we drank it right and left). We enjoyed the occasional trip that was paid for international hosts (but only with a delay, so friends such as Rajiv Vohra were constantly lending me money, largely paid back I think). Because a paper submitted to the American Economic Review would cost close to a quarter of our monthly salary, we were shut out of publishing in some journals, and so tried Econometrica or the Review of Economic Studies instead. Naturally, these august outlets were not exactly tripping over their feet to publish us, so it was hard going. But it was liberating. Get thee to a nunnery, tenure!

The ISI had a staff of "technical typists" who would use the same electric typewriters as we still had at Stanford (just about beginning to be phased out, I suppose). This was just before TeX and the PC arrived. My typist was a venerable gentleman named Meher Lal. Meher Lal-ji was a jat farmer. He wore white: a dhoti and a kurta. He had grey hair and an enormous mustache. He did not look like a technical typist, or like any typist I had ever seen at Stanford or anywhere else. When I first saw him, my heart sank with stereotypical predictability. It bobbed back up again when Meher Lal-ji asked of my handwritten script: "arré Doctor, is this an epsilon or an 'element-of' symbol?" For those of you who don't work with mathematical symbols, this story will mean nothing, but for those of you who do, you will see that Meher Lal-ji was no ordinary man.

Both Meher Lal-ji and V. P. Sharma switched to TeX with great alacrity when it appeared. It took them very little time to make the switch. I don't think Yevtushenko's great love poem was dedicated to TeX, but hey, why not: 

When your face appeared
over my crumpled life
at first I understood only the poverty of what I had.

TeX was a revelation, a revolution, a reverberation through the Indian Statistical Institute, a reminder to this day of the poverty of commercial alternatives such as Microsoft Word. We clung to Knuth like drowning souls. A typesetting program of the greatest beauty, delivered free, optimized for the dot matrix printers of our crumbly Institute: we all felt we were publishing, and that joy of typesetting entered me and never left, culminating in the typesetting of my own book on coalition formation, from start to finish, many years later. Three of us --- Shubhashis Gangopadhyay, Rajeeva Karandikar and I --- were put in charge of the ISI computer lab. We bought computers for the lab, IBM ATs, followed by 386s, by running TeX on them and seeing how long it would take to typeset a 20-page paper. I can still see Rajeeva holding a stopwatch as we sat at a Wipro outlet.

The ISI also had another rare breed: translators. They translated largely from Russian to English: mathematical papers for an India in the Soviet orbit. I knew one of them, perhaps the Last of the Translators.  I actually used his services; if you don't believe me; check out reference #10 here. He was a character. He told me the story of Kolmogorov's visit to India many years ago, when he received an honorary degree at the Institute. Kolmogorov spoke, and then there was awed silence during the Q&A, upon which my translator proceeded to deliver a homily in Russian. He spoke for a good minute or two. He told me that he said: "Professor Andrei Nikolaevich Kolmogorov, it is because of the presence of individuals such as yourself that I owe my livelihood. Not just mine, but that of my wife and children, who, but for the grace of your genius, would never have had the opportunities..." and so on and so forth, a homage if ever there was one. At the end of which Kolmogorov reportedly said: "Excuse me, but my English isn't very good. Could you repeat please?"

We also had Belgian students in large numbers, all seeking to escape compulsory military service. Among them was the indomitable Jean Drèze, affectionately known in the Institute as nanga sahib for his proclivity to sleep on the ISI lawn with very little on. There were mathematicians, of course (largely of the applied variety), and statisticians, and economists, and there were also sociologists and anthropologists, and we had lots of visitors from all over the world.

One thing we started was an annual conference. With some alterations and improvements, it continues to this day. But in 1986 there was no money to invite anyone. We then realized that the National Science Foundation actually had an allocation of PL480 rupee funds, a stash of nonconvertible rupees which the US government accepted as a payment for wheat dumping and used to fund local consulates. But there were rupees left over, and the irrepressible Dan Newlon at the NSF had got hold of some of them. He handed them over to us, and so funded a set of wonderful annual conferences.

Of course there were frustrating moments as well as happy ones. But apart from the abysymally low pay (which reflected nothing more or less than the poverty of India), life was happy. We felt looked after. There was meritocracy in the system. Young faculty members were put in positions of power. We had some very smart colleagues. Looking back, I cannot complain.

I can tell you many stories about the Indian Statistical Institute, but I'll settle for one last one in this post. There used to be one special seminar every so often at which joint attendance for all the faculty was encouraged: from the anthropologists to the probabilists. One of these seminars was given in 1986 by a Frenchman named Jean-Marc Deshouillers, who had solved Waring's problem for fourth powers. 

You're kidding me. You want to know what Waring's problem for fourth powers is? Oh well, if you insist. It isn't the sort of problem you and I have on an everyday basis, such as having to decide what to cook tonight for the kids. More beautifully, more surreally:

Every positive integer is the sum of at most nineteen fourth powers.

We sat in the audience, quite entranced as Deshouillers told us how he did it. (Actually, this post will tell you that even in 1999, there were top mathematicians who were not aware that the fourth power problem, which had remained open for many years, had been solved. See also the next two messages in that thread.)

After he finished, it was question time. Our resident anthropologist raised his hand:

"What is the practical application of all this?"

I could sense that most of the audience, like me, wanted to dig a deep hole and disappear into the ground. This cool mathematician comes to the ISI, tells us about a great open problem in number theory, and he gets this? Practical application?

But Deshouilliers had been apprised of the great reputation of the Indian Statistical Institute, and took the question very seriously indeed. His excited reply came immediately: "Mais oui, yes, of course!! ... This ... this ideé connected with the application of ze Ardy-Little-Hamanujan's circle methode, and then.." and so on and so forth. By the end of this animated discourse our resident anthropologist was nodding his head in vigorous assent, and a near-disaster had been successfully averted.

Truly interdisciplinary, the Indian Statistical Institute!

Postscript for the true believer who wants to know how Waring got his bound of 19: Try and express 79 as the sum of fourth powers. And now believe that still larger numbers are easier to generate from fourth-power combinations (there are more combinations available). You will then have proved Waring's problem, barring what macroeconomists refer to as "technicalities."      

Thursday, August 15, 2013


As I explained at in a previous post, the Bhagwati-Sen skirmish is really about two views of economic development. I was wrong, of course. In my beloved India, where all is maya, it is really about Luke Skywalker and Darth Vader and the arrayed forces of Good and Evil they represent: in this case the Congress and the BJP. 

Respectively? I didn't say that. You can flip the order if you want. And as Parakeet Ghost shows in the following guest article, it probably doesn't matter, except for a kerfuffle here and there.  

India’s Reagan Revolution: A Primer

by Parakeet Ghost


Debraj posted last month about Star Wars --- the great debate between Amartya Sen and Jagdish Bhagwati on the future course of India’s economic policy. The Indian media is very excited about this. They see it as an intellectual prequel to next year’s national elections. In this post, I thought I’d fill you in on the political side of things.

The battle is between the two major national parties – the incumbent Congress and the opposition Bharatiya Janata Party (BJP). The Congress is tied by its umbilical cord to “Nehruvian socialism”, the vision of its first Prime Minister Jawaharlal Nehru who believed the state should manage the economy with a firm hand. The umbilical cord was supposedly cut in 1991 with economic liberalization, but skeptics doubt the Congress’s DNA has changed. On the other hand, the BJP is widely seen as being friendly towards markets and unfriendly towards monotheistic religions.

The presumptive prime ministerial candidates of Congress and the BJP are respectively Rahul Gandhi (the great-grandson of Jawaharlal Nehru) and Narendra Modi (the current chief minister of the state of Gujarat). With typical Indian fondness for acronyms and short cuts, they are often referred to as RaGa and NaMo. Strangely enough, these compressions do them more justice than their full names.

Raga is a musical form in Indian classical music. When maestros give their rendition of a raga, they will often sing two lines of lyrics for more than two hours. Our RaGa has only ever spoken two lines in his parliamentary career of nearly a decade. Opinion is divided as to whether his popularity will go up or down if he opened his mouth but there is admittedly more room above than below.

Namo is a short form for namaskar or pranam, the Indian way of paying respect to elders and gods. To wit: ya devi sarvabhuteshu... namo namaha! (O omnipresent goddess, I bow before thee). In his millions of lay followers, NaMo inspires nothing short of worship. Earlier this summer, the Times of India breathlessly reported how NaMo had retrieved 15,000 Gujaratis from the flood-ravaged Himalayas using minivans, while the Indian army struggled with a fleet of helicopters! His fans’ faith in NaMo’s Batman persona is matched only by his own – he controls the portfolios of Home, Ports, Industry, Energy, Irrigation, Mines and Minerals, Information and Broadcasting, Large Cats and Fashion (to mention a few). I sometimes wonder if his reported aversion to monotheism isn’t an exaggeration.

In 2002, shortly after NaMo became chief minister, there was a slight kerfuffle in his home state of Gujarat. This has dogged him ever since, inviting an ignominy that hapless Indian students face every day for quite different reasons – denial of a US visa. NaMo’s supporters claim that other than this mishap (the aforementioned kerfuffle, not the visa), his record in Gujarat is exemplary. Which is a little bit like trying to answer the question: “Other than that, Mrs. Lincoln, how was the play?” Nevertheless, in deference to NaMo’s uncharacteristic reticence on this particular issue, I will drop the matter.

You must be wondering: where does Reagan come into the picture? Patience, dear reader, patience! Read on and you will be rewarded.

India, you see, is a country that lives on the opposite psychological pole to America. In America, if you are hit by a meteorite, people will ask why you were too lazy to watch the sky. In India, if you refuse to get out of bed, there will be protests on the street demanding the government do something for bed-ridden people. The Indian psyche is more suited to (or shaped by) Nehruvian socialism than rugged individualism and ruthless capitalism. And if the hunger for handouts isn’t enough, regulation is still the rage.

In India, in order to sneeze, you need a license from the government. Applications have to be filled in triplicate at least six months in advance and you will probably also have to pay a bribe of five hundred rupees to the sneezing inspector to get a clearance (no pun intended). Things are a little better these days – you can apply online, though the servers frequently crash during the rainy season.

While the masses cling firmly to the ‘mammaries of the welfare state’ (though medical reports say the flow of milk is rather deficient), India has a small but visible band of pro-market pundits who shout from the rooftops to stop public breast-feeding. These folks inhabit academia, think-tanks and op-ed pages. You may find them at the Brookings Institution as often as the India International Center.

Following Indian politics and elections must be a traumatic experience for fellows with hard heads and soft hearts (well, don’t expect the softness of muslin silk – more like worsted wool I’d say). Imagine an American presidential race between Lenin (D) and Stalin (R), with Trotsky demanding more air time as the independent candidate, and William F. Buckley having to cover it all for Fox News. You may begin to understand their pain.

This is why any mention of NaMo gives this crowd the goosebumps. Ever since the dust-up in Ahmedabad (that must never be mentioned), NaMo has repositioned himself as a champion of free markets. He organizes a Woodstock for foreign investors, hands out project clearances at the speed of light and cradles India’s top businessmen in his arms for photo-ops. Gujarat’s GDP is growing at a thousand percent per hour. “Less government and more governance is now his slogan, and refreshing,” coos Shekhar Gupta, the editor of Indian Express.

In a scene dominated by the acolytes of Marx and Derrida, the Cinderellas of India’s intellectual community feel their hour has come. India 2014 is looking more and more like America, circa 1980. What seems imminent is not merely regime change but a transformation of the zeitgeist. The socialist cobwebs are going to be blown away and a spirit of muscular laissez-faire is about to grip the country. If Jagdish Bhagwati is poised to become India’s Milton Friedman, NaMo is our Reagan. Together they will usher in the Gujarat model as national paradigm, giving the boot to Amartya Sen’s tired, old Kerala model. That one involved massive social spending, women wearing the pants at home and too much coconut in every damn thing you cooked.

Namo namaha!


Now that you know the big picture, let me give you a little detail. In policy after policy, issue after issue, as RaGa’s party indulges in vulgar populism and reckless profligacy, NaMo takes a principled stand in favour of fiscal prudence and market discipline. 

Congress won the last election by passing an expensive public works legislation – the National Rural Employment Guarantee Act (NREGA). This time around, they’ve thrown another Hail Mary – the National Food Security Bill (NFSB), which is supposed to give practically free grains to two-thirds of the population. As you would expect, NaMo has written to the Prime Minister registering his strong protest.

But what is this he says? He is bitterly complaining about the bill’s stinginess: “The ordinance proposed to reduce the entitlement of below poverty line (BPL) families from 35 kg per family to only 25 kg”. The whimpering then rises to a crescendo: “People involved in labour-intensive activities required about 2,500 calories per day,” says NaMo, and you can almost hear him holding back his tears. Why is the bill giving them “barely 20% of one’s daily calorie requirements”? Why indeed? Am I reading this right? Is this what they call Conservatism 2.0 (aka Compassionate Conservatism)?

Ok, we’ll take another example. The Congress has been dragging its feet for a long time on the issue of allowing foreign direct investment (FDI) in India’s retail sector because some of its pesky coalition partners have been raising hell about it. Here is NaMo at a rally, thundering against the government’s pusillanimity. You can hear Reagan roaring for capital flows. 

Oh, wait! He’s upset about the impending death of the corner grocery store. He’s furious that cheap Chinese goods will be dumped on the Indian market, killing our small scale manufacturing units. Is this wail against Walmart a mislabeled Arundhati Roy clip? It looks like NaMo alright.

Fine! I’ll show you the real heart of the lion of Gujarat. For the longest time, the Congress has dealt with India’s sectarian movements and centrifugal forces by appeasement. The most egregious recent example is the Congress decision to carve a new state Telangana out of Andhra Pradesh. NaMo promptly sent an open letter to the people of the state, slamming the Congress for playing cynical, vote-bank politics. Let's tune in:

We stand by our commitment to statehood for Telangana.... Statehood for one region should not be viewed as coming at the expense of another region.”

Oh no! He is actually for Telangana! How dare the government do what NaMo approves of?

Look, let’s not miss the forest for the trees. We need a new morning in India. RaGa is useless because no one can make out if he is singing ahir bhairav or darbari kanadaThe time is ripe for an Indian Reagan. Is there a better candidate than NaMo? You tell me.