Someone sent me this picture

image

This is not a blog where I normally use unparliamentary language but there is no better way to describe the above picture (received as a WhatsApp forward) as anything other than saying “this is WTF on so many levels”!

First you be Indian buy Indian and use Natalie Portman in your advertisements?

Then, as a consumer I don’t care where my crackers are made. What I care for is about their quality and price.

And what’s with the ” I, pledge “? If you want to outrage at least get your grammar right! This is I, robot or I, pencil level.

And where did Christmas suddenly come from? Isn’t it two months away? What’s the use of pledging about it now?

I can go on but will stop here. And I must thank my takshashila colleagues for forwarding me this masterpiece.

General Franco, YOLO and societal norms

Us Indians are very patronising towards elderly people, especially women, who want to have a good time. When we see elderly (or sometimes even middle-aged) people at an amusement park or a bar, for example, the natural reaction is one of derision, wondering why that person is “out there having fun”. It is rather sad that we question the right of people to have a good time for themselves, but this is possibly borne out of the life stages as prescribed in some ancient Indian texts – which describe a stage of “vaanaprastha” when one enters middle age – where you leave your family and other worldly pleasures and retire to the forest.

Given this background, we Indians are conditioned to look with wonder at people beyond a certain age who are actually living it up. And when we come abroad we marvel at the “foreign uncles and aunties” who seem to be living very differently from the uncles and aunties at home. It is sad, but it is simply a function of the upbringing and conditioning. For example, you can see such biases in Indian popular media also. 

Anyway, I was having lunch at this bar in Barcelona last week, when I saw an elderly woman approach. She walked up to the menu board outside the bar with another elderly woman, and surveyed the menu. Presently she asked for a table for one and sat down, while the other lady moved on. Presently a beer appeared, and in due course it appeared she was having a three course meal. Alone.

Not too long later, an elderly man appeared. He was from an era where he had clipped on shades to his glasses (like Shah Rukh Khan in Baazigar). He didn’t bother with the menu and took his place at a table, for one. And proceeded to have his meal.

On Sunday we were at another bar close to home for coffee. The bar was reasonably full – there were about 20 other customers. And we seems to be the only people this side of 60. Some people had come alone, some in pairs and some in groups. They were all drinking beer, or coffee, or sangria, and were generally hanging out at the bar. This is life among the elderly in Barcelona, and perhaps in all of Spain.

It wasn’t always like this. General Francisco Franco ran a rather repressive dictatorship for most of his 40 years or so in charge. It was a right wing, and possibly hence, religious (Catholic) dictatorship, and Spanish society at the time was rather conservative. Sid Lowe, in his excellent book Fear and Loathing in La Liga writes:

This was a regime that had painted vests on to boxers’ naked torsos and dubbed Hollywood lovers into brothers and sisters. Sonia Weinberg recalls arriving in Madrid in 1954, a city of ‘great poverty’, with her husband – the Real Madrid player Héctor Rial – and being stopped on Gran Vía by a Civil Guard officer who took offence at her low-cut top. That was just one challenge; by the late 1960s there were thousands of them and by the 1970s it was irresistible. The Bishop of the Canary Islands declared the bikini a ‘symbol of the delinquency and degeneration of today’s women’ and much has been made of the image of Civil Guards patrolling beaches, ordering topless bathers from abroad to cover up.”

And then Franco died in 1976. And suddenly an entire nation which had stood repressed for 40 years was “able to breathe” and quickly broke the shackles. Going back to Lowe:

Repression was followed almost inevitably by excess and nowhere more so than in Madrid. Solo se vive una vez ran its unofficial motto – a slogan that eventually became song, one whose chorus is still belted out at discos with a collective defiance that’s almost evangelical. You only live once. Spain’s equivalent of the Swinging Sixties, an outpouring of creativity and imagination, arrived in Madrid in the 1980s. It was an explosion in music, in literature, in film, in art.

You might recognise “you only live once” as a youth anthem that is still popular and does the rounds. It has its origins in post-Franco Madrid, and was the slogan that led Spanish society to liberalise and modernise, to an extent that it is known to be among the more culturally liberal societies today.

Going back to the topic we started this post with, today’s 70 year olds were around 30 years old at the time of Franco’s death, and that being the time of YOLO, they are likely to have participated actively in the “excess” that followed. Thus, in the matter of a generation we see that Spain has moved from a society where women wearing low-cut tops being stopped by police to one where elderly people live life as it should be led, without much accordance to any social customs (or it can be argued that hanging out at bars is a social custom).

The question thus arises if the Spanish example is a one-off (thanks to the years of extreme repression under Franco), or if it can be replicable elsewhere. India, for example, has been undergoing a societal “evolution” for a few decades now, and each generation is more socially liberal than the generation a few years older. Yet, the movement so far has been rather glacial, and it is hard to imagine, especially looking at today’s youth, that there will be a dramatic change in society in the course of a generation.

Thus, we need to ask ourselves what it is that can lead to a revolution in terms of social norms, and what leads societies to change. Apart from Spain, though, some examples we have are in the other direction – nowadays photos float around on the internet showing a “liberal” society in Kabul or Tehran in the 1970s, and this is contrasted by the rather heavily conservative Islam that is practiced in those societies nowadays. The question arises, though, in terms of how representative those photos from the 1970s were – for it is hard to imagine that a people which is mostly socially liberal would tolerate a socially repressive regime, however oppressive, for too long.

Does it take a long period of repression for societal norms to change massively? Or can it happen “organically” without having a negative event as a trigger (change, though, will surely cause some disruption and conflict, for there will be people loathe to change). Does rapid urbanisation help? Or exposure to global media? One data point (you might think there are several data points since India is such a large and diverse country), however, is that in India we’ve had significant globalisation and economic liberalisation and urbanisation and exposure to media, yet the changes in societal norms have only been gradual.

Policy design and environmental variables

I’ve spent the last two days and a bit in Amsterdam, and as I move around the city I’m fascinated by how well so many things in the city are designed and implemented, and wondered what prevents us from implementing such design back home in India. I’m not talking only about design in terms of building architecture – which no doubt is beautiful in Amsterdam – but also in terms of infrastructure such as roads, public transport, pavements, railways, etc.

But then every time I think of translating some design, I start wondering whether it is conducive to the environment in India – in terms of our culture and climate and weather and population density.

The question then arises as to how much influence local environmental factors need to have on design, and the intuitive  answer is “probably a lot”. The next question that arises is as to how urban planning began as a profession, in terms of the basic design principles that came to define this profession. This is a relevant concept from the point of view that if environmental factors are a strong determinant of how a city is supposed to be architected and designed, can one really have a general set of principles on how a city needs to be developed, and if so, how this set of principles was originally arrived upon.

I’m thinking of a time a few hundred years ago when the first set of general principles of how to design a city came about. Did they really have enough data points in terms of what kind of cities worked and what didn’t when they came up with these principles? And once such principles had been arrived and agreed upon, how did they translate, especially when they had to be transplanted across continents and regions (as it had to happen with the coming of colonialism)?

Now that I have raised all these questions, I leave it to you, the readers, to try and answer them and fight it out in the comments section.

Second factor authentication

Ever since I wrote my Pragati piece on the two bad recent pieces of regulation by the Reserve Bank of India, and since I had a long conversation with Deepak Shenoy about them, and since (I believe) Raghuram Rajan replied to my Pragati piece in a subsequent speech, and since I got a mail from Citibank that starting next month I can’t use my internet password as a second factor authentication and must instead use a One Time Password, and since I realised I’m traveling abroad next month, and am not planning to use international roaming to be able to receive the One Time Password, I’ve been thinking of ways in which a bank or a credit card company can securely use a second factor of authentication without really inconveniencing the customer.

Essentially, a second factor of authentication is the provision of a piece of information that is not stored on the magnetic strip or pin of your credit/debit card. This ensures that the possession of your card alone will not allow a fraudster to defraud you, unless he is also in possession with the second factor of authentication. This makes is much less likely for  credit card fraud to happen (but not entirely foolproof – what if the same guy steals both your credit card and your phone? – but it is impossible to design systems to that degree of security).

The four digit PIN that you have to enter when you use an ATM is one such second factor authentication (remember the note the bank sends you along with your card telling you to not write down the PIN anywhere close to the card). Similarly, the four digit PIN you have to enter to authenticate a CHIP transaction on your credit card is a second factor. Earlier credit cards would require you to sign as a second factor, but that was done post payment processing, so that is not seen as a reliable second factor – and hence they are being phased out. In the United States, for example, your ZIP code (a piece of information not available on your card) is your second factor (in the rare case it is asked for – the US is among the last major countries to move to two factor credit card transactions).

Given that it could be just about any piece of information not available on your card that can be a second factor, it is puzzling that most banks and credit card providers insist on a One Time Password sent over SMS or email as being the second factor. It is as if they believe that telecom networks are far more secure than any other way to disseminate a second factor of authentication. A friend who was visiting from the US, for example, was unable to transact online in India since his Verizon package didn’t provide him SMS services – it has gone out of fashion there.

Earlier today I was reading this excellent piece on how the US’s move towards Chip and PIN cards (will take half a decade for the transition to be complete – interestingly India made this transition in less than a year) is going to lead to higher security for credit card transactions worldwide. Among other things, the piece mentions a “Visa Token Service” where a dynamic token will replace the static credit card number.

I have had a trading account with Kotak for a few years now, and they have provided me with a physical token. Upon pressing the only key on the token, a six figure number is displayed, which is my additional factor of authentication that I need to log on to the website and transact securities. The algorithm of my token is synced with my account (basically it’s to do with the seed of the random number generator that operates on my token), and thus I get authenticated.

My last employer had issued us Blackberrys for work email (this was in 2009, when they were in fashion). They had also issued us tokens that we could use to log on to the corporate network from home – in the rare case when we had to login from home. And since I got the token after I’d got my blackberry, the token simply sat as an app in my blackberry. Considering that this second factor authentication is just a six digit random number set to a certain seed, why can’t my second factor of authentication be tied to one such token that resides in the Citibank app on my phone (which is already authenticated), rather than being sent to me by SMS?

This is only one possible method in which the second factor could be authorised. For transactions on taxi services, for example, your credit card details can still be stored with the taxi service, but at the end of the service on your way out you simply enter a four digit passcode into the driver’s app (the passcode could be generated by your app, or your phone and the driver’s phone can do an NFC handshake).

As I had mentioned, the opportunities for a second factor authentication are endless, but for some reason banks seem to be hell-bent on using a SMS-based One Time Password. Could it be a conspiracy by the telecom companies to maintain at least some of their SMS revenues?

And I think we need a statement from the RBI Governor stating that banks are not obliged to use a SMS-based OTP as second factor authentication, and they can be creative with it!

Understanding the by-election results

Kindly note that this post falls under the category of “political gossip” and not under the category of “policy analysis” that this blog is mostly filled with

So the BJP has got trounced in the by elections that were counted yesterday. People have been quick to call this a referendum on Modi’s government and are asking him to change course (each commentator is calling for a change of course in a different direction – possibly with the vector sum of them being nothing). I got an email this morning asking for reasons of the BJP’s poor performance and this is what I wrote back:

So in that one vote that you have, you need to collectively express a range of emotions – like which party you want to form the government, who you want the prime minister to be, who will take best care of your community in your constituency, who is the best person to represent your constituency in the assembly, which local person you can  turn to in times of trouble, etc. (it’s a very long list). So your vote is essentially a weighted average of your emotions in all these aspects.
In the elections in May, thanks to the non-existence of a government for a very long time, the weights given to a stable and strong government at the centre and choice of prime minister shot up. Like crazy. And it was clear before the elections that there was only one party and one man who could offer this kind of a government.
Since the weight given to this factor in the minds of people was so high, it trumped everything else, and even the proverbial lamppost on a BJP ticket (especially in Uttar Pradesh) managed to get elected! And thus we got a party with full majority. And we got the desired man as PM. And we will most likely have a stable  government for the next five years.
A bypoll is different – especially when you have a small number of by polls they simply don’t affect who forms the government and who the prime minister should be. Thus, the weight given to those elements of the vector, which were extremely high in May,were set to zero. Thanks to that, people voted based on the other components – like caste, local dominance, community support and all that. In that respect I’m not surprised at all in terms of the result.
Also it’s not fair to compare the performance in these bye-elections to the party performance in the respective assembly segments in the lok sabha elections. What we should compare these bypolls to is to the parties that held these seats before they fell vacant. The media has once again succeeded in distorting the narrative to come to hopefully desired conclusions?

 

Charging for parking can solve a lot of problems

Bangalore city has this bizarre policy in that the city doesn’t charge for public parking (barring one or two roads). The ostensible reason was to cut the wings of the so-called “parking mafia”, which had taken over the concessions for operating parking lots through the city. However, not charging for parking means giving away parking for a non-monetary fee (first come first served, for example, or the cost incurred in driving around looking for a place to park). And there are a number of other problems that charging for parking can be solved that the current no parking fee dispensation doesn’t take care of.

  • The lack of parking charges anywhere in the city, including the central business district, means that it is impossible to profitably take your car (without a driver) to such areas. There are non-monetary costs that people pay for parking – cost of time, cost of fuel driving around, cost of paying touts to hold down a parking spot, etc. Now if only these costs can be monetized then it would be a valuable source of revenue to the impoverished city  council
  • Every weekday afternoon the middle of the city gets gridlocked thanks to the presence of four high-profile schools (Bishop Cotton Boys’, Bishop Cotton Girls’, Sacred Hearts and St. Joseph’s Boys) on the same stretch of road. The reason for gridlock is that people double and triple park on the four lane road (albeit with a driver in the car so it’s not strictly “parking”), and this leads to massive jams. Thanks to these schools it is impossible to move from the southern part of the city to the central business district in the afternoons. Now, if we could have dynamically priced parking on these roads, the cost of parking there for picking up kids might be deterrence enough for people to make alternate arrangements (such as school buses) for picking up the kids, and thus decongest the zone. The city has taken several other initiatives (titled “safe route to school”) but the gridlock continues.
  • Thanks to free street parking there is no incentive for people to provide for parking spaces. I live in what is classified by the city as a “mixed zone”. So there are a number of commercial establishments close to where I live. Few of them actually provide parking, leading to major parking chaos around where I live (especially if there is a function at any of the three convention centres located within 100m of my house). The presence of paid street parking can lead to more regulated parking (currently lack of regulation means parking is rather haphazard and blocks gates). It will also create an incentive for the commercial establishments to provision for their own parking spots
  • Establishments (mostly eateries, but some shops too) in the city have responded to the parking problem by providing valets – who will save you the time you would take to find a place to park. This is a rather inefficient solution. What if I have to visit four shops on the same street in an area where parking is difficult, for example?
  • Some buildings in the CBD which have excess parking space let you use their parking space for a fee that is not unreasonable. What we need is more such buildings opening up their parking spaces to public (the “park here only if you have business in my building” paradigm is nonsense). And for that they need to be assured of a reasonable fee. With the city undercutting them at a price of zero they have no real incentive to open up.
  • In the short run, until supply of parking the CBD increases, parking charges can be a good substitute for congestion charge to put a price on people driving into the city. While this will ease out once the supply of parking responds to the demand, in the short run it might work. Though it could be argued that the non-monetary costs of parking are already achieving this objective!

There are many more such reasons I’m sure you can think of. Yet, for close to ten years now the city of Bangalore has steadfastly refused to charge for parking spaces, which is extremely inefficient. Maybe we need MonkeyParking to enter Bangalore. That’s perhaps the only way the municipal authorities will recognize their folly and start monetizing their parking fees.

Ban bathrooms

My grandmother passed away last Sunday. While she was fairly old (late eighties) and her faculties were declining, the immediate cause of her death was a fall in the bathroom. She fell about a month back following which she underwent a hip replacement surgery (at her ripe age). While she responded well to the surgery (an X-ray taken a day before her death shows perfect fit), the fall and the surgery made her considerably weak which probably led to her demise.

Two months back, her sister passed away. While she too was old (not as old as my grandmother, though), her demise too was accelerated by a fall in the bathroom.

One of my grandmother’s brothers has been in hospital for five months now, slipping in and out of coma. He was admitted into hospital following a head injury which happened because, you guessed it right, he fell in the bathroom!

Deaths due to falls in the bathroom are becoming an epidemic now. It is not wise on our part to lose so many of our learned and wise elders due to this trifling presence in our homes. It is important that the government take strong steps to curb this malaise of deaths being caused due to falls in the bathroom.

I have a simple suggestion – ban bathrooms. Once bathrooms have been banned, there will be no place left for old people to fall and die. Banning of bathrooms might be the singular lever that can help push up India’s life expectancy. I expect that the government take steps in this direction quickly.

PS: Past studies have shown that Indians suffer from an acute case of irony deficiency

Using illegal markets as price discovery mechanism

One of the pet projects of my former MLA (former because I moved residence, not because he was voted out) is to set up a formal mechanism for regulating street vendors. He wants to introduce some kind of a medallion for street vendors so that they have legal sanction, and at the same time subject them to health and food safety checks. Considering this is a fairly common practice abroad, and even in some parts of India (like Goa), it is high time something like this is introduced.

Food cart in Miramar, Goa. Notice the bottom portion – it has a license number

The question, however, is how we will price these “medallions”. Price them too high and existing vendors will not want to get into the new regime, and will remain outside regulatory bounds. Price them too low and it can result in missed opportunities and rent seeking (the current situation, where the price is zero, can be seen as a degenerate case of too low a price).

One way to do this would be through an auction. However, one thing we need to preserve is continuity – current existing street vendors need to get a chance to enter the legal fold without too much disturbance from their current business. An auction might see them being priced out and then continue to operate in the illegal framework – which is not an optimal solution.

The solution lies in status quo, and in illegal markets. Given that street vendors currently operate without a license, they are essentially illegal. The way they manage to keep their carts and not get arrested is by paying off a set of public (and private) officials. Perhaps there is the cop who seeks his weekly rent (hafta). Perhaps a municipal officer seeks the same. Maybe a local thug, too.

If you think about this, the sum total of all these payments is essentially the “license fee” that the vendor pays in order to do his business currently. Can we take this as a proxy for the appropriate license fee in a particular location? Can we do an anonymised survey among street vendors (after having classified them into different “areas”) in order to determine the clearing price?

The basic idea is that illegal markets (like that of the “hafta” for being a street vendor) are markets, too, and their price discovery mechanism is as legitimate as those of more legitimate markets. Thus, the price discovered by these illegal markets are a great starting point for regulated pricing!

There is one thing to examine, though – if we price the license at the same “fee” that the vendors are currently paying different rent seekers, will the rent seekers still be able to seek rent? My hypothesis is “no”. The reason rent seekers seek rent is because in its absence there is a “surplus” that the vendors generate which they are willing to share with the rent seekers. If all the rents that are now being collected by illegal rent seekers are subsequently sought by the state, there is no room left for the illegal rent seekers to operate in!

The question is if this framework can be used for eliminating other forms of rent-seeking, too. The answer, sadly, is no. A large number of the rents that are currently being sought are for “public services” which are not supposed to have a fee. I had to get a document from a court recently, and had to pay rents at different points in the chain in order to get it on time. Using this framework, the way to eliminate this would be by increasing the official court fee, but what one must keep in mind is that court services are inelastic – the increase in fee by a few thousand rupees will not deter me from asking for an order. Thus, even if the court fees are increased, nothing prevents the current rent-seekers from continuing to operate.

In other more elastic markets, however, this approach will work, and better be tried.

Revisiting fundamentals of GDP growth

In light of the ongoing Takshashila-Hudson conference on Shaping India’s Growth Agenda, it is instructive to revisit some fundamentals of GDP and GDP growth.

  • Real GDP grows when there is more economic activity in the region in this time period compared to the last time period (the “real” aspect of GDP growth means that growth due to changes in price levels is stripped out)
  • We can have more economic activity in two ways – we can have more of existing economic activities, or when new economic activities get created
  • An example of the former (increase in economic activities) is if say the production and consumption of mangoes in India rises from 100 units last year to 110 units this year. This implies that there is an increase in the economic activity of production and consumption of mangoes
  • In terms of new economic activities, I will take the example of my own business of quantitative management consulting – I help companies use data and quantitative methods to improve their business. I’m providing a service which (say) didn’t exist previously. Thanks to my services, my clients can improve the quality of their business, and their gains from these improvements are more than my fees. Thus my services have resulted in more economic activity
  • Every time a policy is proposed that is supposed to “increase GDP”, ask yourself how it will actually result in an increase in GDP – whether it aids more economic activity in existing goods and services or if it supports the growth of new economic activities
  • Taxation results in increased clearing price and decreased clearing quantity (Econ 101).
    The effect of tax/transaction cost on clearing price and quantity

    Once can argue that a reduction in taxes can thus foster greater economic activity. However, it must be remembered that taxation is what funds the government. Hence it is not prudent to reduce taxes too much

  • Decrease in transaction cost (cost paid by buyer but that doesn’t go to seller) leads to increased quantity of economic activity (it works exactly the same way as the tax graph above). Decrease in transaction cost is usually Pareto optimal. Any measures that decrease transaction costs can help foster greater economic activity
  • Transaction costs can occur due to multiple ways. In commodity (including food) markets, they can be seen in terms of a high bid-ask spread. Transaction cost, however, is not necessarily monetary. If you need to travel for a transaction, that is transaction cost. If you have to stand in line to buy something, the time spent again is transaction cost. Time spent by goods waiting for customs or octroi clearance is transaction cost
  • Focusing on eliminating transaction costs is a sure fire way to spur economic growth. This is why measures such as the GST (which cuts waiting time of goods at inter-state borders, among other things) are important
  • It is also important to take measures that allow entrepreneurs to take risks and try and create new classes of goods and services which were hitherto not traded. Thus we need policies that reduce the cost (monetary and otherwise) of starting a business. This includes the time taken to set up a business. This also includes policies that allow an unsuccessful business to be wound up quickly so that the capital and labour hitherto employed can be more profitably employed elsewhere

I can go on (and I realize I’ve gone beyond fundamentals here), but I think this does enough to set the agenda for today’s discussions, so I’ll stop here. Just one last thing – a phrase that is likely to be bandied about a fair bit in today’s conference is “this measure can add X% to the GDP”. Whenever someone says that you need to ask the question of whether it is a one time increase in the GDP or if it can lead to a sustainable increase in GDP growth (that’s the “resident quant” bit for this blog post).