Category: politics

Women’s Reservation and Roving Bandits

There are two kinds of bandits – stationary and roving. Roving bandits (eg. Mahmud of Ghazni) attack an area, plunder it to the fullest and then abandon it and move on to another area to rape and pillage. They seldom attack the same area twice, at least not in quick succession, because of which they don’t really care about the medium-term consequences of their actions. Similarly you have shifting agriculture.

Stationary bandits, on the other hand are interested in plundering an area over a longer time period (eg. British in India). They too pillage, but given that they know that they will stick on for a reasonable amount of time, they make sure that they don’t kill the goose that lays the golden egg. And it is a possibility that they will feed the goose well, take steps to increase production of eggs and so on. In other words, they do contribute to general development of the area (though they tend to take away a large portion of the benefits), build institutions, etc. This is more like settled agriculture.

Now, it is clear that given a choice, it is in the interest of the region for it to be attacked by stationary bandits rather than by roving bandits. Yeah, the stationary bandits do stick on for longer and pain you for longer periods of time, but the damage inflicted by roving bandits is usually so severe that it will take a longer time to recover from this.

In democracies like the UK or India, what keeps the legislators honest is the possibility of re-election. It is the possibility of re-election which incentivizes the incumbent to do good for his constituents, rather than just plundering away the region’s funds (in whatever ways possible). In other words, legislators do try to act like stationary bandits, because of which some good does happen for the region.

Now, with the new women’s reservation law in the process of coming into force, what will happen is that once in three elections, constituencies will get reserved for women by rotation. The implications of this are severe. In two out of every three parliaments, the incumbent knows that there is zero chance of him/her retaining the seat in the following election (yeah, women can still continue to get elected from their constituencies when it becomes general by rotation but I’m sure parties won’t allow that). With the possibility of re-election being taken away, this will play havoc with the incentives.

There will be more incentve now for legislators to maximize their benefits in the one term they get rather than to try and put gaaji on the constituency and take benefits off it for the rest of their lifetime. This, I think will lead to overall poorer performance by legislators, irrespective of gender of the legislator and whether the constituency is reserved or not.

This is unfortunate.

Orange Juice and Petrol

So I was reading this article by Ajay Shah about administered pricing for petroleum. He does an excellent (though it gets a bit technical in terms of statistics) analysis about what could go wrong if the government were to free pricing of petroleum products. He mostly argues in favour of deregulation, and that is a view that I completely endorse.

One of the big fears about deregulation that he mentions is the fear that volatility in retail prices of petroleum products might increase, and he argues that this is a good thing and is much better than the government artificially hiding the prices and subjecting the junata to major price shocks once in a while. While I agree with him on this, I don’t think prices will change frequently in the first place.

While I was reading this article, I started thinking about the neighbourhood Sri Ganesh Fruit Juice (yeah there are a dozen of those in every neighbourhood in Bangalore) center. About how the guy keeps the price of orange juice constant throughout the year, despite the price and availability of oranges themselves fluctuating wildly across seasons. Yeah he might do minor adjustments such as changing the proportion of water but he can’t do too much of it since he needs to maintain quality.

The basic funda here is that customers want certainty. Every time they go to the shop for their fix of orange juice, they want certainty in the prices. Even if you are on an average cheaper, you will lose customers if your price is more volatile than your competitor’s. Of course there are occasions when you can’t help it and are forced to change your price – and on these occasions your competitors are also likely to do the same. But as far as possible, you try your best to decouple the price of orange juice from the price of orange which is pretty volatile.

Now I don’t know if the volatility in crude oil prices is more than the volatility in orange prices (it’s likely to be) but considering that oil companies are supposed to be more sophisticated than your neighbourhood juice shop guy, I would expect similar behaviour from them – of keeping retail prices of petroleum products as stable as they can. Of course they are likely to follow long-term trends but they are surely not going to pass on the short-time noise in prices to the customers.

So this fear of increase in volatility of retail prices is unfounded, assuming of course that the oil marketing companies are good businesspeople!

Uniform Civil Code

I intended to blog this on Sunday, which was the 17th anniversary of the Babri Masjid Demolition (I remember that because it was also my 27th birthday – yes, I’m really old now) . Due to certain other activities, I couldn’t find the time to blog then so doing it today. I also want to apologize to my readers for not being regular enough at blogging of late. I hope to be more regular henceforth, but there are other things which are taking up a lot of my time.

So the other day I was thinking of the concept of the Uniform Civil Code and how the lack of one such is causing “religious arbitrage” (the most famous example being Dharmendra converting to Islam so as to marry Hema Malini). I was thinking of the BJP which is trying to establish one such code, but all parties that have a significant number of Muslim voters being opposed to it since monogamy is against the tenets of Islam. So I was thinking about this issue from a completely libertarian perspective, and this is what I have.I think I best do it in bullet points.

  • Any pair of consenting adults can have sex with each other and the state has no business bothering with it. The only excuse for the state to get involved in this is if one of the “pair” accuses the adults of rape.
  • Children in the backseat can cause accidents and accidents in the backseat cause children. Despite condoms and i-pills, there is a good chance that a random pair of consenting adults might produce kids.
  • Any man or woman can have as many sexual partners (long or short term) as he wishes. The state has no business interfering in this.
  • A pair of sexual partners might choose to live together, and make babies together. Society might impose conditions on them that they be “married” but the state need not know. The state is not supposed to bother about the fact that this pair is living together, apart from recognizing the same postal address for both of them
  • A citizen might choose to live along with several of his/her sexual partners, assuming all of them consent to the arrangement. Again, the state has no business interfering.
  • So when should the state be concerned about this institution called marriage? I argue that the only reason the state should be bothered about “marriage” is because of property inheritance principles
  • From the point of view of property inheritance, multiple “married partners” can be messy stuff. It can lead to extremely complicated cases, especially when the graph involves cycles. Hence, I suggest that without loss of generality, for the sake of easy legal redressal, any person cannot have more than one legally wedded spouse
  • This, mind you, doesn’t stop people from having illegally wedded spouses. For example, it is well known that M Karunanidhi has 3 wives, but I’m sure that he’s legally wedded to only one of them. When he dies, his property will naturally go to only his legally wedded wife and his children with them. The rest will get nothing. Nada.
  • However, clever financial structuring can be used to overcome this discrepancy. For example, a man might offer to pay a woman extra pocket money so that she become his illegally wedded wife rather than his legally wedded wife. I think concepts of CDS (credit default swaps) pricing can be used here in order to figure how much more the illegally wedded spouse and resultant children should get as “illegality premium”.
  • Given this framework, people of no religion need to fear the loss of practice. If Muslim society allows a Muslim to have four wives, he can as well go ahead and marry four women, except that in the eyes of the state, only one of them will be legally wedded to him. The rest will need to negotiate appropriate premia on pocket money
  • This “maximum of one legally wedded spouse person” can be used to legalize gay/lesbian marriages also. All that it takes is for the law to not specificallly mention that the spouses should belong to different genders.
  • Not having a uniform civil code can give room for religious arbitrage which needs to be discouraged
  • Hence, having a uniform civil code makes eminent sense. It wont have much impact on most people’s lives. And it will simplify a lot of laws and just make implementation better.

Let me know your thoughts on this.

The impact of Rs. 2/kg rice

In the supplement of yesterday’s The New Indian Express (one of the six articles is here: http://epaper.expressbuzz.com/NE/NE/2009/07/12/ArticleHtmls/12_07_2009_412_002.shtml?Mode=1), it was argued about how the combination of NREGS and cheap rice (most states provide or promise to provide 25 kg of rice per month per poor family at Rs. 2 per kg) is destroying the rural economy.

One day of work under the NREGS gives a person Rs. 100. Half of that will go into buying rice for his family for the ENTIRE MONTH. Extending this argument, twelve days of work under the NREGS will feed his family for the whole year. Given that the staple is taken care of,, there is little incentive for the villager to work to earn more. And so there is a severe shortage of farm labourers, other rural workers, etc.

When the NREGS  came about, some people applauded it saying that it would ensure that minimum wage laws would now be met. Given that people were now assured of a certain sum (say Rs. 100 per day) for doing meaningless stuff like digging and filling holes, they would go to do other harder and more meaningful work only if they were paid more (and you need to take into account that “real work” takes more discipline, hard work, etc. than it takes to wrok for a welfare program – so the NREGS actually pushed up the minimum wage for farm labour to much higher than Rs. 100).

Now, with various states coming up with cheap rice schemes, the whole thing has gone topsy turvy. Given the subsidized rice, it is now possible for the worker to earn enough for his staple food by just doing a few days of work under the NREGS! The only need for him to work elsewhere, and possibly harder, is to pay for his “luxuries” (considering the price of subsidized rice, requirements and NREGS pay, it can be shown that 100 days of NREGS work can pay for all the essentials).

Given that the essentials are taken care of by the combination of NREGS and cheap rice, the only reason that the worker will need to do actual (i.e. non-NREGS) is to help him save, or for “luxuries”. Yes, some workers will have special needs for money at different points of time because of which they will take on the extra work, but if you aggregate the supply of work, you will realize that the ‘hurdle daily rate’ for the worker to accept “real work” becomes really high.

Since the worker doesn’t absolutely need the money, he can now become the price-setter in the job market rather than being a price-taker. So what this effectively does is to push the “minimum non-NREGS wage” really high indeed (I can’t intuitively put a number on it, but it could be as much as Rs. 200). My bet is that a lot of rural-economy-produced goods will turn out to be really expensive next year since a lot of producers might choose not to produce them given the high cost of labour.

Quite a few commentators have said that the NREGS is a noble scheme for empowering the poor, and given that most of the ‘work’ done is meaningless, it can be replaced by simple cash transfers. The problem is that if that is combined with yet another welfare measure such as cheap rice, it can create severe distortions in the market.

The moral of the story is that if you want to help the poor, please go ahead and do so. What you shouldn’t do is to help them twice over – that can result in severe market distortions like the one that the express article talks about. What is needed is greater coordination between the centre and the states in the welfare measures.

Why you should vote for the BJP

Ok before you bleeding-heart liberals scream at me pointing out the post-Godhra riots of 2002, or Kandahar, or the Shri Rama Sene, let me clarify that this is a purely economic argument. My argument is that if we want economic reforms to go ahead, we should vote for the BJP. I am not commenting on social aspects, or liberalism, or foreign policy, or defence, or uniform civil code. I must also mention that the only party whose manifesto I’ve read is that of the Samajwadi Party, but I have a decent idea of what the BJP and Congress manifestos look like. Both quite horrible, though they don’t come close to the SP’s.

The main argument here is that no government wants to reform to a situation of lesser government. It is a simple situation of letting go of what you have under your control, without any tangible benefits. After all, reforms have never really won too many votes (though I think if the Congress had campaigned properly, and unitedly, in 1996, they would’ve have spared us from being ruled by Deve Gowda). Yes, the bijli-sadak-paani argument is there, but that is more about infrastructure; not about economic reforms or liberalization.

So why do governments reform? Especially when they are doing so at the cost of their own power? It appears irrational, right? Fact is that control over a particular sector doesn’t benefit all arms of the government equally. There will be a few lobbies, and a few ministries, in a few areas that stand to benefit significantly more from government intervention in the sector,as compared to other parts of the government.

Next, the ruling party doesn’t necessarily control all parts of the government. Yes, they control most of the ministries, but there are several other government posts that may not be underr their control. Some may be under the control of allies. Certain bureaucrats who benefit heavily because of government intervention in the sector may even favour the opposition. I think it should be possible to document the “leanings” of various govenment departments in various states. And which of them will get liberalized when depends on which side is in power.

So the reason people reform (apart from when under severe crisis such as under PVN) is analogous to a sacrifice in chess. You give up something in the hope that in return, the opposition loses much more. So if you look at various reforms carried out by various governments (state and central; maybe even abroad; PVN stands out as an exception) you are likely to see this “chess sacrifice” pattern. Governments are more likely to reform, liberalize and maybe spin off departments that are under the control of parties in the opposition.

The next argument is that the Congress, having been in power for close to 50 years, is likely to be “in control” of a larger number of government departments than the BJP, which has been in power for about 6 years. This is the main reason, apart from left intervention of course, that the incumbent UPA government didn’t carry out too many reforms in the last five years, and even rolled back certain reforms carried out by the NDA (essential commodities act, petrol pricing, etc.). It is also critical that whatever reforms a government wants to carry out should be front-loaded – so as to give the reforms time to “settle down” and for people to adjust, before a new government comes in and perhaps rolls them back.

The BJP by itself is no good when it comes to reform – its ridiculous stance on FDI in retail being a case in point. Yes, they did quite a bit of reforms during their 6 years in power, but one can argue that a large number of them fit the “sacrifice” pattern. However, in general they stand to lose a lot less by reforming than does the Congress (exception is in retail as most traders and small merchants are pro-BJP). And hence, they are likely to carry out more reforms than a Congress-led government would.

You might argue that it might be better to vote for a third front party, since there is very little it has to lose in terms of reforming. However, the problem with most third front parties is that they are all active only in very few states, and thus may not stand to gain much by way of a national-level “sacrifice”. And coming back to a national-party led government, my argument is that you are more likely to see reform in ministries held by the chief ruling party, than those held by the allies.

So ladies and gentlemen, if the Congress comes back to power, they will consolidate power in the departments that they have “captured” over the last five years, and in the earlier years when they were in rule. this number is significantly greater than the number of departments that the BJP controls, and hence the Congress is likely to use the ongoing crisis as an excuse to bring in bigger government. The BJP, on the other hand, with less to lose, is likely to take a more pragmatic approach.

Vote for the BJP. Bring the NDA back to power. Let them re-start on the reforms that were made in 1991-2004. Five years down the line, the Congress can come back and liberalize retail.

Update

I usually have a practice of replying to all comments on my blog. However, you might have noticed that I haven’t replied to most comments on this post. As I had mentioned right up front, I am making an economic argument and have clearly mentioned that I’m not going to entertain any comments wrt social policy (and sadly, most comments have been in that direction). So fight it out among yourselves and don’t get me involved in the discussion. And a couple of days after I wrote this post, I was asked to help out with the Congress’s online campaign.

Madman theory redux?

Madman Theory refers to the policy employed by the US in the 1970s during Nixon’s reign. They convinced the Russians that Nixon was mad, and that he was liable to act irrationally if provoked. And this led to the US getttig an upper hand in the Cold War.

It seems like Pakistan is unwittingly doing the same nowadays. Given the general chaotic nature of the political “leadership” in that country, and also the fact that they have access to nuclear weapons, India dare not launch a full-scale offensive against Pakistan, irrespective of what the terrorists do.

So what this means is that Pakistani terrorists can come here and continue to have fun, and even if we know that they have been backed by Pakistan, we can’t do a thing because we are afraid that some madcap in Pakistan has control over the nuclear button and might end up nuking us.

And given that the democrats are in power in the US (irrespective of Biden’s pro-India leanings) you never know how relations between India and Pakistan shape out in the next few years.

If you have a bright idea as to how one can combat this Madman technique (I’m not sure if Pakistan is playing this deliberately), let me know. Actually, letting me know is of no use. I can’t do a thing. So do what you think is the best, but also let me know.

A few random thoughts on statistics and terrorism

In the world of statistics and operations, people usually talk of two kinds of error – omission and commission. For simplicity, they are referred to as “type 1” and “type 2” errors. I can never remember which is which, but after a little bit of googling, I can tell you that type 1 error is the error where a correct hypothesis is rejected, while type 2 is one where we fail to reject an incorrect hypothesis.

The most common example for this is one of a quality control department. Suppose you are in the business of checking the quality of widgets. There are two kinds of errors you can make – you can classify bad widgets as “good”, or you can classify a good widget as “bad”. Which of this is type 1 and type 2 depends upon how you frame the hypothesis. However, let’s not get into those details – they don’t matter. All that matters is that you understand the two ways you can err – which is not hard to understand at all.

Continue reading “A few random thoughts on statistics and terrorism”