This is the 22nd installment of Rhyme and Reason, my weekly set of limericks for the Sunday Times of India edit page.
ORANGE MAN
Misogynists of the world, unite.
Racists and bigots, you won the fight.
You’ve got your president.
Now begin your descent
Into hatred, your sacred birthright.
CURRENCY
On Tuesday, India underwent
Surgical strikes that were meant to dent
All unaccounted gains.
Still the question remains,
Who will account for the government?
This is the 32nd installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.
We live in an age of grand delusions, so it is appropriate to invoke the name of Muhammad bin Tughlaq. When Narendra Modi recently announced the demonetisation of 500 and 1000 rupee notes, I instantly thought of Tughlaq, as did many others, if Twitter memes were anything to go by. Tughlaq was a 14th century sultan of Delhi who overestimated the extent of his knowledge and power, and committed a number of legendary blunders, most famously shifting the capital of his kingdom from Delhi to Daulatabad. Modi’s recent edict also involves daulat, and, indeed, a shifting of capital.
To begin with, one must give credit where it is due. Modi is a brave man. Firstly, prime ministers, once in power, are tempted to not do anything which can carry unpredictable adverse consequences. Just play it safe and be a gradualist, one step at a time. A move like this, with all its unintended consequences, requires courage. Secondly, this specific move harms the small traders who operate in a cash economy and have been the BJPs backbone for decades. Modi has taken the risk of alienating them.
That said, courage does not always go hand in hand with wisdom, and this move is a mistake at multiple levels. It is also an illustration of a mistaken mindset on multiple levels. Here are four things I’d like you to consider.
One, think about the stated intent of the move: to eliminate black money and reduce corruption. While it is true that it will bring much existing black money into the white economy, it is merely a reboot. New 500 rupee notes will soon be introduced, as will 2000 rupee notes, and after a month or two of adjustment, life will go back to normal. Also, a vibrant black market has already sprung up offering to exchange old notes for new notes at a fee. Guess where the profits will go.
The larger point, though, is that most truly rich people don’t keep their wealth in the form of cash, but in the form of real estate, gold, deposits in foreign bank accounts and other benaami investments. They will be largely unhurt. This brings me to my next point.
Two, it is the poor who will be hurt the most by this. A large chunk of India’s economy, especially at the bottom of the ladder, is a cash economy. Small traders and businessmen deal in cash for convenience, and pay their workers that way. I pay my domestic help in cash, and her savings are entirely in 500 and 1000 rupee notes. Yes, she can go to a bank and convert them, but that requires an ID, and not all poor people have IDs. Also, there is the significant transaction cost of doing so, as well as the opportunity cost of the time spent. (In case you wonder what kind of poor people have plenty of cash but no ID, google your way to an excellent tweet storm by Twitter user @AmbaAzaad that outlines the kinds of poor folk who are likely to be hurt by these.)
Three, let’s go back to the larger issue of corruption and black money. What is the root cause of corruption? As Lord Acton famously said, power corrupts. The more power you give one set of individuals over another, the more corruption you will have. In my classical liberal worldview, the only legitimate function of the state is to protect the rights of its people. However, our government is orders of magnitude larger than it ought to be. The people who run the country, ostensibly and comically called public servants, are like rulers, and we, their subjects to be brutally exploited. To end corruption, you need to vastly reduce the power that government gives one set of people over another people.
And what is black money? When a government is a thousand times larger than it should be, a rent-seeking parasitic beast that sucks the lifeblood of the people without creating any value, it is natural to be disdainful. The so-called cash economy at the bottom of the pyramid is incredibly productive, for people can only create value for themselves by creating value for others. Unlike government. Of course, much of this cash isn’t even black money per se, and even when it is, it is surely better off being put to productive use than being sucked away as hafta by the one legal mafia that rules us, and their cronies.
I am not saying that we should not pay taxes: it is the duty of every citizen to do so. But consider that if the government took only the taxes it needed to serve us, instead of to rule and exploit us, this mindset of evasion would not exist. And here’s the irony: Modi knows this! One of his campaign slogans in 2014 was ‘Minimum Government, Maximum Governance’, and he unleashed much rhetoric, correctly so, about how Jawaharlal Nehru and Indira Gandhi’s statist policies had impoverished our country. And yet, under his prime ministership, the government has only grown, and we pay higher taxes than we did before. This is because, at its heart, his political philosophy is the same as Nehru’s and Indira’s, which brings me to my next point.
Four, Modi, like Nehru and Indira, is a top-down thinker who believes that an economy and a country can be run from above, as if the government is a proxy for god. This is, in the words of the great Austrian economist Friedrich Hayek, a fatal conceit. Hayek also wrote at length about the limits of knowledge, which should be a lesson in humility for all politicians. The unintended consequences of Modi’s edict involve many unknown unknowns, and I feel that he has not been respectful enough of the poor people potentially at the receiving end. Will they be respectful of him in 2019?
There is an excellent essay by Radhika Vaz on Scoop Whoop titled ‘Why The Campaign To Have Mothers’ Names On Cricketers’ Jerseys Is Vomit-Inducing For Feminists’, and I urge you to read it. I agree with almost all of it. There’s just one bit I have a small quibble with. This is when she writes:
I don’t want token gestures and tearjerkers. I want the real deal – I want women in cricket to be paid as much as the men, to be trained as well as them and to be treated like the champions they are.
This is a good time to ask the question: Where does the money in cricket come from? The BCCI is not a benevolent godlike entity having a supply of money that comes from heaven. Instead, their money comes from viewers like you or me, who spend our time watching the game. (That time carries an opportunity cost, needless to say.) That time is then turned into money by the BCCI, which has sold those telecast rights to a channel who then sell advertising space to brands that are paying for our attention. So there are conduits in the way, but how much money goes into the game is a direct function of how many people watch the game. The BCCI’s coffers are filled by us. Our time is their money.
Now, the brutal fact is that most of us choose to watch men’s cricket much more than women’s cricket. (We might make this choice for a variety of reasons, including sexist ones, but those are not germane here.) So most of the money that the BCCI has is because people watch men’s cricket, and it’s only fair that if I create value for the BCCI by watching the Indian men’s team, that money should go to the men’s team and not to the women’s team, who I chose not to watch. To take it from the men and give it to the women would, in fact, be condescending and patronising, and any feminist should be against such handouts. I’d imagine the appropriate feminist response to be, “We’ll earn our own way, thank you, we don’t want your bloody handouts.”
Interestingly, the BCCI does already subsidise other parts of the game somewhat for its longer-term health. While the international men’s team gets all the eyeballs (and thus draws all the money), the BCCI pumps a large part of that money into domestic cricket, in nurturing a feeder system for the game. It almost certainly spends more on women’s cricket than women’s cricket brings in, and I think that’s great for the ecosystem and no one should grudge them that. However, to say that it is the right of women cricketers to be paid as much as male cricketers is a step too far. They simply don’t create as much value in monetary terms, and any demand for equal monetary compensation is thus unfair.
The counterpoint to this would be tennis, which, if I am not mistaken, pays men and women equally despite men bringing in more eyeballs (and thus money). I don’t object to that, just as I don’t object to the BCCI’s policies. They can do what they want, and if we disagree, we can take our eyeballs elsewhere. Sadly, most people in India, including women, will continue to watch cricket; and when they do, men’s cricket far more frequently than women’s cricket. I’m assuming Vaz watches at least as much women’s cricket as men’s cricket, but most of us don’t, and its the choices we make that determine how they get paid.
This is a minor quibble, and it’s possible that I misinterpreted this part of Vaz’s fine piece, and she wan’t really blaming the BCCI for the disparity in pay. It is also a fact that women are usually discriminated against in the workplace, and that reflects in their pay, which is unequal everywhere. Still, I hear people make this complaint in the context of sport, where it really doesn’t hold water—thus this post.
PS. I started writing about cricket a decade-and-a-half ago, and this is probably the first post where I’ve mentioned the BCCI in a non-negative way. I’m buying myself a cookie for that.
This is a guest column published today in the Sunday Times of India edit page.
I am a hawk when it comes to India-Pakistan relations. We have been suffering from cross-border terrorism for decades, and need to take a hard line towards our enemies. Every day our soldiers risk their lives for the country, and we must honour their service. For this reason, it infuriates me when people within India commit acts against the national interest. Expelling Pakistani artists from Bollywood is one such anti-national act.
To win a war, we must know our enemy. Here, it is both correct and incorrect to say that Pakistan is that enemy. Like India, Pakistan is many things, and contains multitudes. For the sake of analysis, let’s break it down and look at three different Pakistans, and consider, as economists would, their interests and incentives. (One can drill down deeper and say that there are as many Pakistans as there are Pakistanis, but let’s keep it simple.)
One, there is the Pakistan military establishment, which nurtures various militant groups. The military will always be hostile to us, because the conflict with India is the source of its power and influence. Two, there is Pakistan’s political establishment. The only thing politicians care about is getting to power and staying there. In a democracy, politicians depend on the people for their power, but Pakistan is no more a true democracy than General Raheel Sharif is my aunt. The political class in Pakistan has always been at the mercy of the military establishment.
Finally, there is Pakistan’s civil society. Their interests are the interests of people everywhere, including in India. They want to be prosperous and happy, and to enjoy the good life. Conflict is not in their interest: war of any kind is a negative-sum game, and everyone is a loser. But Pakistan’s civil society is weak compared to the military. Their interests are opposed to each other, and Pakistan’s economy is in such a dire state because their military and political establishments have always kept their own interests ahead of that of the people.
The power of the military and civil society are inversely proportional to each other, because influence within a country is a zero-sum game. The stronger the military, the weaker civil society—and vice versa. Since the military establishment drives the conflict with India, it is in our interests to weaken them. One path to this, it follows, is by strengthening Pakistan’s civil society. How do we go about it?
One way is trade. For civil society to be strong, it helps to be prosperous. (This is one reason why military dictatorships are more likely in poor countries.) Trade is a win-win game, so by keeping trade lines open with Pakistan, we benefit ourselves, and empower Pakistan’s people. The greater their dependencies on trade, the fewer their incentives for conflict.
Another way of changing these incentives is by cultural exchange. There is much rhetoric and brainwashing, on both sides of the border, that demonizes the other side. But the more cultural exposure Indians and Pakistanis have to each other, the more we realise how much we have in common, and the less we get taken in by the rhetoric. If you nurture the constituency for peace in Pakistan, you reduce the constituency of hate. And as the people shift, so do the incentives of the politicians. Banning Pakistani actors from working in Bollywood, for whatever tokenistic reasons, raises the temperature and helps their military establishment. Why would you help the enemy?
None of this is new thinking in foreign policy circles. In terms of trade, India unilaterally gave Most Favoured Nation (MFN) status to Pakistan in 1996. And while I am usually critical of Narendra Modi, his handling of the post-Uri fallout has been pitch-perfect. In his speech at Kozhikode, he took a hard line when he spoke of avenging the deaths of our soldiers, but also chose to pointedly address the people of Pakistan directly. “Ask your leaders,” he said, “both our countries got freedom together, so why does India export software and your country export terrorists?” He added, “That day is not far off when the people of Pakistan will get in the fray to fight against their leaders.”
This is clever on Modi’s part, but chest-thumping pseudo-nationalists, including many in his own party, do not understand these nuances. This is something that happens often with Modi. He talks the high road, but his minions walk the low road. (He often talked the low road as well while campaigning, but let that be for now.) I’ve often wondered why he allows this. Is he trying to be all things to all people? Is it some good-cop-bad-cop strategy? Whatever be his strategy on Pakistan, this too is a matter he must resolve.
A slightly shorter version of this was published as the 30th installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.
In theory, a devout politician is a good thing. A politician who believes in God seems to accept the existence of an entity more powerful than himself, and that should be a reassuring thought to Indian voters. We have plenty of devout politicians here, and while the ones in the ruling party are most vocal about it, opposition politicians aren’t far behind. Take Delhi chief minister Arvind Kejriwal, for example.
When he was sworn in as chief minister at the Ramlila Maidan, Kejriwal repeatedly thanked God for his newfound status. “I thank the Supreme Father, Ishwar, Allah, Waheguru,” he breathlessly proclaimed, trying to cover all bases. And in case the concerned gods missed it, he later said, “This victory is not because of us. It is a miracle, and I thank Bhagwan, Ishwar and Allah.” (At this point, I can imagine Bhagwan turning to Allah and saying, “Dude, any idea what he’s talking about? I thought I was Ishwar!” And Allah replies, “Dunno, man. I’m just a party worker.”)
Kejriwal’s stated piety isn’t restricted to the major religions. He recently came out in support of the Jain monk Tarun Sagar after the musician Vishal Dadlani made fun of him. Kejriwal tweeted: “Tarun Sagar ji Maharaj is a very revered saint, not just for Jains but everyone. Those showing disrespect is unfortunate and should stop.” (The last sentence is stunningly convoluted, and we all know what Orwell said about clarity in speech correlating with clarity in thinking.)
Now, Kejriwal was reportedly an atheist before he came to politics, and it is natural to suspect that this new-found piety is part of the populism he’s embraced. But let that pass. In this column I will argue that there is one religion that he truly, deeply, madly does believe in, and it is the most dangerous religion of all. It is the religion of government.
Contrary to popular belief, the majority religion in India is not Hinduism but the religion of government. We have been brought up believing that if there is any problem in this world, government can solve it. If there is a social ill, ban it. If prices are too high, pass a law demanding that they be kept low. If there aren’t enough jobs out there, create jobs by legislation so that people can earn an honest living. And so on.
I call this, with apologies to Richard Dawkins, the God Delusion of Government. Devotees of this particular religion believe, like devotees of any other, that reality is subject to the whims and fancies of their God. To change the state of the world, God needs to merely decree it, or government needs to pass a law, and boom, reality changes. Water turns to amrut, copper to gold.
This kind of God delusion isn’t restricted to India. A recent example of a country ruined by it is Venezuela, which has been ravaged by the socialist policies of Hugo Chavez. Venezuela was lucky to be oil-rich, but unlucky to have Chavez as a leader, who tried social engineering on a vast scale. One of his pet schemes: price controls on all essential commodities. (If something should be cheaper, let’s make a law mandating it.) This led, as econ 101 would predict, to shortages, so much so that Venezuela’s queues became legendary. The current government, perturbed that these queues were embarrassing the country, hit upon an innovative solution. It banned queues.
I’m not kidding. They really banned queues, and when I read that news, I thought of Kejriwal, because that’s exactly what he would do.
Kejriwal thrives on finding the simplest possible solution to every problem through the Godlike intervention of government. He has no grasp on reality, though, and no understanding of how such interventions typically play out. Most tellingly, like Chavez and other socialists, he simply doesn’t understand how the price system works.
Left to themselves, prices are determined by supply and demand. If the demand for a product or service outstrips supply, the price goes up. This rising price acts as a signal to potential suppliers, and they are incentivised to fill the gap. Similarly, if demand goes down, the price goes down, and suppliers start moving their efforts to where they would be more valued. We can only make a living by fulfilling the needs of others, and the price system gives us the information and the incentives to do this most efficiently. But for this, it has to be left to itself. If these signals are distorted, the system falls apart.
Now, Uber’s surge pricing is a fantastic mechanism to speed up the process of price discovery. But Kejriwal decided that people were being fleeced by high prices, and decided to ban surge pricing. The ban didn’t last long, because there was an immediate shortage of cabs, just as econ 101 would predict.
What happens when you put a price cap on something is that it becomes first-come-first-serve, and after the first lucky bunch get it, it doesn’t matter how urgent your need is, it’s not available at all. More crucially, the rising price that would act as both information and incentive now no longer does so, and other suppliers don’t rush to fit the shortfall.
While that experiment didn’t last long, Kejriwal moved from price ceiling to price floor. He announced an increase in the minimum wage in Delhi, to Rs 14k a month. Now, this sounds most compassionate, but is a government diktat enough? If it was, why not, say, make the minimum wage in Delhi Rs 10 lakhs a month? Wouldn’t Delhi instantly become the richest city in the world?
The answer is obvious. Such a law would merely put everyone whose work was worth less than 10 lakhs out of a job, and most businesses would shut down. Similarly, if the minimum wage set is Rs 14k, it effectively renders everyone whose labour is worth less than that unemployable by decree. Businesses are forced to discriminate against anyone they’d pay 13k a month or less, and it is the poorest of the poor who would bear the brunt of this. The law would hurt those it purported to help. (Being the country of jugaad, all workers below the minimum wage level will simply be shifted to the informal sector, and government inspectors will get a higher hafta than before. But it is no defence of a bad law to say that peeps will find a way to work around it.)
For anyone who isn’t economically illiterate, these effects are predictable. A price cap (or ceiling) inflates demand relative to supply, and a shortage in supply is inevitable. A price floor inevitably decreases demand and leads to excess supply—or, in this case, more unemployment.
The laws of economics, such as that of prices, and supply and demand, are as immutable as those of physics. So why are such interventions so popular then? A key reason is that the laws of physics can be tested and proved in controlled environments, but you can’t do that with the laws of economics. Data is noisy, other variables abound, and all sides can point to ‘evidence’ with spurious correlations. So those who believe in such simplistic interventions continue with them, because it makes them feel (and seem) compassionate.
Kejriwal has a record of taking the high moral ground with self-righteous positions, and strikes a chord with common people by identifying many problems correctly. But his suggested solutions usually make the problems worse, as in the case of his anti-corruption crusade, or the different price controls he has championed. A good question to ask here is, Does he actually believe that such interventions work, or does he not give a damn about that, only wanting to take a position that gets him most votes from the economically illiterate masses? In other words, is he a devout fool or a devout scoundrel? Hanlon’s Razor states, “Never attribute to malice that which can be adequately explained by stupidity.” In Kejriwal’s case, I’m not so sure. But he’s devout all right, so God help us.
* * *
For more on minimum wages in general, I find this explanation by Milton Friedman to be particularly lucid. Categories Economics ▪ Essays and Op-Eds ▪ Freedom ▪ India ▪ Lighthouse ▪ Politics
Before this IPL started, a friend of mine, who shall go unnamed, called me up.
Friend: Amit, you have such understanding of cricket, do you have any gyaan about this IPL? I want to place a few bets.
Me: Um, don’t do cricket betting, bro, you’re bound to lose in the long run. But if you absolutely have to, because the dopamine craving is unbearable, and you really hate your money, then do one thing: make a bet, at the toss of every game, on the side batting second. Ignore everything else.
F: What are you saying? Team composition, past records, pitch, weather, my gut feel—ignore all that?
M: Yes. Ignore it all. And don’t even watch the game, your blood pressure is a problem, isn’t it? Just place that one bet and forget about it.
*
Four days later, I Whatsapp him.
M: Bro, how’s it going? Have you noticed that the team batting second won three out of the four games so far? 🙂
F: Amit, it’s all fucked up, man. The matches are fixed. Just see yesterday, bro, X was at 40 paisa when I bet, and suddenly the game turned around and I lost so much. Such an unlikely turnaround! It has to be a fix!
M: Um, unlikely things are actually inevitable. Why didn’t you just bet on the side batting second like I told you to?
F: Arre, yaar, that is so simplistic. I have been betting on cricket for 20 years. Main apni analysis karta hoon, bhai!
M: Oh.
F: But these bloody games are fixed!
M: Well, just keep in mind what I told you.
*
I call him after eight games.
M: Champ, this IPL is crazy, isn’t it? Seven out of eight matches so far won by the side batting second. When are you throwing a party?
F: Arre, forget party, I will have to sell one of my flats soon. I bet heavily on X yesterday, and Y won! It was fixed!
M: Er, not likely bro, very hard to fix entire games. Only spot-fixing is realistic, and even that…
F: No no no, it was fixed! See, X had a sure win! And the bookies gave odds of 84 paise. Why would they give such great odds? To lure the money in! And then Y wins! Fixed!
M: Are you saying the bookies fixed it?
F: No bro, the game has evolved beyond that. Bookies and punters don’t fix matches anymore. The BCCI fixed it!
M: Bro, that’s a wild conspiracy theory. Firstly, it’s almost impossible to fix actual results. Secondly, the BCCI makes a lot of money anyway, and their incentives are aligned towards keeping the game clean. I think you’re just rationalising…
F: Arre, stop this rational talk. Nothing good can come out of it.
M: Well, I did tell you about the team batting second…
*
And now, two weeks later, I speak to him again.
M: Dude, it’s 13 out of 14 wins now for the side batting second. What did I tell you at the start of the tournament?
F: Arre, forget all that, you won’t believe how hard I’m getting banged. My ass should be renamed National Highway 420. I’m telling you, it’s all fixed. I should never have bet a single paisa!
M: Er, well, look, I did tell you…
F: I hate cricket. I’m going to Bangkok for some decleansing. I need to get some detoxing done.
M: Er, actually all this detox talk is pseudo-science, dude, you see…
F: Amit, shut up! You know nothing!
*
So there it is. My friend will never wake up and see the light, but the weird thing is that many pundits and cricket managements aren’t doing that either. It is a fact that 13 out of 14 games have been won by the side batting second. Not just that, they have been won easily, in an average of 17.2 overs and with an average 6.6 wickets an hand. Why is this happening?
I have speculated on this in an earlier post, but forget all speculation, there is one obvious conclusion to be drawn: teams batting first are consistently underestimating the par score.
In my column before the IPL, ‘What Cricket Can Learn From Economics’, I had pointed out that many sides do not understand the economic concept of opportunity cost. Basically, they need to be more aggressive in order to utilise the 20 overs optimally, and attack the bowling from the get go. (Read the piece for the full argument.) Now, some teams get this, and do actually frontload, but many don’t. And they often adjust sub-optimally when wickets fall.
For example, consider this: A team begins their innings aggressively, but then drops wickets. They drift to 44 for 3 after eight overs, with the bowlers bowling exceptionally well. Here’s what happens: if they’re batting first, they’ll reset the par score in their heads, and aim for something conservative like 165 at 10 an over. If they’re batting second, they’ll aim for whatever the target is, even if it’s 190. They don’t have a choice.
Now, it is my belief that many teams underestimate the ‘expected value’ of aggression. The risk-to-reward ratio for aggressive batting is vastly different in T20s as compared to ODIs because the relationship between the two kinds of resources available to a team (players and time) has changed. And because they underestimate the payoffs, teams are not aggressive enough while batting first. While batting second, though, they often don’t have a choice but to be appropriately aggressive.
This is not the only factor in play, of course—the strength of a side’s bowling attack matters, as do local conditions on any given day. But all of those are largely toss-agnostic. This mindset is not.
Despite my explanation, this streak is an outlier, and I don’t see it continuing: I will be very surprised if 13 of the next 14 games are won by the side batting second. However, I do see this trend continuing. Sides batting second should win more than sides batting first. And when sides batting first do win, it will be because they frontloaded, as RCB did in game 4, and Gujarat Lions try in every game.
Please don’t put your money on it, though. Anyone who bets on cricket is a long-term loser. I’m serious.
As readers of this blog would know, I’ve long argued in favour of Uber’s surge pricing as an excellent mechanism for matching supply and demand. In a column from last year, I warned against the perils of banning surge pricing:
The most efficient way of allocating resources is to let things find their own equilibrium, their own prices. Price controls are foolish and never work. And the demand for them is based on a sort of a fantasy. Fixing the price of a product at a base price below what the market would pay does not mean that everyone gets it at this price—it just means that a lucky few get it and the others don’t. The fundamental truth about the universe is this: everything is scarce. You can’t wish this scarcity away by agitating or legislating against it.
Now, these fundamental laws of economics apply to everything, not just to Uber. And so Mukul Kesavan, in a column for NDTV, makes the pertinent point:
[S]etting aside Kejriwal’s motives and rationality, the larger question is this: should Uber or Ola be allowed to vary their per kilometre rate at will when yellow cabs and auto-rickshaws are stuck with fixed rates? If, as Uber’s defenders never tire of saying, the app’s algorithms represent the invisible hand of the market, frictionlessly matching supply and demand, why should the individual auto-driver be punished and maligned for asking for more than the metered price?
Shoaib Daniyal makes the same point on Twitter:
Good to gripe about Uber restriction—but why did no one notice the massive cab and auto fare regulation in place for a century?
— Shoaib Daniyal (@ShoaibDaniyal) April 20, 2016
Both Mukul and Shoaib are right, though it seems to me that they might both be indulging in whataboutery and creating a straw man at the same time. No one who defends Uber’s surge pricing could possibly support the way the government regulates taxis and autorickshaws. And some of us have written about it in the past—I found this 11-year-old post by me ranting about the licensing of cycle rickshaws in Delhi, citing Parth Shah and Naveen Mandava’s excellent book, ‘Law, Liberty and Livelihood.’ Rather than search for more old posts, though, let me sum up my position here.
In a nutshell, here is how the market for taxis and autos works in Indian cities. The government gives out a limited number of licenses for taxis and autos. This quota does not increase in response to demand. Thus, as demand goes up in relation to supply, you would expect either prices to rise or the supply to rise. The supply is artificially constrained. And the government imposes price controls, so the prices can’t rise either. In other words, if the auto and taxi drivers stick to government-mandated prices, you should expect scarcities. Or you should expect an informal system to develop, where drivers don’t charge the meter rate and instead negotiate with their clients. Both of these are true, to varying degrees, and each of our own cities has developed our informal cultures in terms of dealing with this.
So when an auto guy demands Rs. 400 for a journey that the government mandates should cost Rs. 80, what is the appropriate response? I know some people who will argue that the auto driver, in exchange for his license to drive an auto, has signed a contract with the government that includes those price controls, so he should abide by them. This is a short-sighted argument. I would argue that both the licensing and those price controls are wrong. And I sympathise with the auto driver’s lament that ‘Hey, I’m not allowed to charge a surge price, why should Uber have that privilege?’ How can that not be a valid complaint?
The best way to create a level playing field, though, is to remove those restrictions from all parties, not to impose them on everyone.
Part of the reason Uber and Ola have thrived in India is that they benefited from a need that was created partly by the controls imposed by the government on taxi and auto drivers. The solution is to remove those controls. But removing government controls on the taxi-and-auto industry is higher hanging fruit because of the interest groups involved, and it’s easier to target Uber and Ola, which is what the governments of Delhi and Karnataka are doing. Who suffers in all this? The consumers do. We’re the fish at the table.
The bottomline: Kesavan is right that if we support surge pricing by Uber, we cannot in the same breath curse the local auto-driver for charging ‘extra’. That doesn’t compute.
This is the 26th installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.
Is there anything that cricket can learn from economics? Over the decade-and-a-half that I have written on both these subjects, I’ve come to believe that understanding and applying the principles of economics can enrich the way we live our lives. It follows, then, that all economic concepts can also be applied to cricket.
This is especially relevant at the time of writing these words, when the Twenty20 World Cup has just come to an end. I was delighted that West Indies deservedly won the cup; and saddened that a number of teams, including India, made basic errors because they did not understand one fundamental economic concept: Opportunity Cost.
The term ‘opportunity cost’ was coined by the 19th century economist Friedrich von Wieser, and its simplest definition is: ‘the loss of other alternatives when one alternative is chosen.’ The online site Investopedia defines it as “the cost of an alternative that must be forgone in order to pursue a certain action.” Let me illustrate that with an example.
Say you step out of your office one muggy evening, and have Rs. 300 in your pocket. You feel like drinking a refreshing frappe at a nearby café; and you also feel like taking an AC cab home instead of your normal bus-train routine. The thing is, you only have enough money for one of them. So you go for immediate gratification and get that frappe. The opportunity cost of the frappe is the cab ride home.
Every banal decision in our lives involves opportunity cost. Do I watch TV or read a book? Do I go out with friends or spend time with family? When I choose to spend an evening watching Batman vs Superman, the cost of that decision is not just the price of the ticket and the popcorn, but all the things I could have done with that time.
Understanding opportunity cost is important because it helps us navigate the one fundamental truth about this world: scarcity. Everything is scarce: there is never enough money; or enough time; or enough energy. We have to negotiate scarce resources, which is why all our decisions carry costs. And as the economist James Buchanan said, the concept of opportunity costs “expresses the basic relationship between scarcity and choice.”
Cricket is no exception to these laws of nature. Within a cricket match, there are two kinds of scarcity that a captain or coach must contend with. One is a scarcity of time. The match can only last either five days or 50 overs per side or 20 overs per side. The second is a scarcity of resources. A team can only have eleven players.
Strategy in cricket boils down to negotiating between these two constraints of time and resources. For example, if a team needs 250 runs to win a Test match with two full days in hand, and are 18 for 2 against fired-up new-ball bowlers, they should be more worried about running out of batting resources than about running out of time. That would be a good time for careful consolidation. In contrast, in an ODI, if a team needs 15 to win in one over with eight wickets in hand, they are running out of time but not batting resources. This is a time to hit out and run for everything, and not to preserve wickets.
Every decision carries an opportunity cost. When a batsman shoulders arms to a ball outside off stump, that decision carries the opportunity cost of the runs that might have been scored off it. When he tries to drive it and instead edges it to slip, his action bears the opportunity cost of the runs he might have scored later had he not played that shot. These are opposite actions, and to evaluate which is appropriate in any situation, you need to consider the relative scarcities of time and resources.
Now, here’s where it applies to T20 cricket. Each side gets 20 overs to bat instead of the 50 they would in an ODI; but they still have 11 players! The balance between resources and time has shifted – but many teams haven’t adjusted to this. They apply the ODI innings-building template to T20s: hit out in the powerplay, taking care to consolidate if early wickets fall, then build the innings till the slog overs, then have a slog. This is wrong. It is a waste of resources – and it also allows the bowling side to allocate bowling resources optimally, with specialist death bowlers bowling at the end. What would they do if every over was a slog over?
The teams should adjust to this new dynamic by ‘frontloading’ – a concept I first wrote about in this context a couple of years ago. They should go for their strokes right from the start. If catastrophe comes and four wickets fall in the space of 10 balls, they can dial it back and look to bat all 20 overs so as not to waste the resource of time – but otherwise, they are wasting the batting resources available to them.
The optimal approach in a T20 game is to treat your first three overs as if they’re the last three. On average you will make as many as you would in the last three. Sometimes you will click and the momentum continues. Sometimes wickets will fall, and you can adjust accordingly, and still not make less than you would have with the traditional strategy.
Teams are wisening up to this, and both the finalists of this T20 World Cup frontloaded through the tournament – but India did not, to my dismay. In their semi-final, India made 192 for 2 and the wicket column alone tells you what was wrong with their approach. By losing only two wickets, consider the strokeplaying resources India left unused: Raina, Pandey, Pandya, Jadeja, even Ashwin at 9. Our middle overs were consumed by Ajinkya Rahane making 40 off 35, which was a criminal waste. Consider the opportunity cost: had Rahane been out while on 20 off 18, do you really think that this army of hitters would not have made way more than the 20 off 17 he eventually added?
This is not Rahane’s fault per se: he is a fantastic Test player, but he doesn’t have a fourth gear and this is the best he can do. It’s the fault of the selectors and the decision makers within the team who ignored this key lesson of T20 cricket. (To be fair to MS Dhoni, though, CSK usually frontloaded in the IPL under him.) It is also the fault of those pundits who will praise an innings of 50 off 40 without considering the opportunity cost, and the unused resources in the pavilion.
Teams will learn, though, and T20 cricket will continue to flourish. This is the future of the sport. Indeed, Test cricket might die out altogether, for reasons that can also be explained by economics. As the number of options to spend our time keep increasing, so does the opportunity cost of watching Test cricket. What is five days worth to you?
* * *
Also read:
The lesson from this IPL: Front-load your innings (2014)
Never Mind the Bullocks, Here’s the Lamborghini (2015)
The New Face of Cricket (2015)
So I wrote some limericks for Twitter, and I suppose they’re fun enough to share here:
1
Once there was a beautiful cow
Whose tastes were kinda highbrow
And then one day
Bharat Mata ki jai
She became a dog and said ‘bow-wow.’
2
Once there was a man of God
Who was ever so suitably awed
by a) the divine
And b) the bovine
When he saw a holy cow, he’d applaud.
3
Once there was a wife-beater
Who was a cad, a scoundrel, a cheater
He mastered the arc
of the venomous snark
Now he’s a famous Tweeter.
4
Once there was a central banker
Who seemed solid as an anchor
He lowered interest rates
opened the floodgates
To inflation. What a wanker!
5
Once there was a central minister
Who developed a desh bhakti blister
On his big fat palm
& the only balm
was some grease. How sinister!
*
(Previous posts on cows: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31 , 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117.)
What is the one thing that all governments in the world, without exception, are great at doing? I have you scratching your head there, don’t I? ‘Amit thinks there’s something governments are actually good at doing? Is this April Fools Day?’
Here’s my answer: they’re all good at redistributing wealth from the poor to the rich.
I have written before about how all interventions in the free market amount to a transfer of wealth from “the relatively poor masses to a specific relatively rich interest group.” The BJP government just provided us a great illustration of that with some new regulations on e-commerce businesses in India. On the face of it, there’s good news, because they’ve finally ‘allowed’ 100% FDI in online retail. But then there’s this:
It also notified new rules which could potentially end the discount wars, much to the disappointment of consumers. This is because the rules now prohibit marketplaces from offering discounts and capping total sales originating from a group company or one vendor at 25%.
This affects many of the existing players adversely. Big Basket, for example, might have to shut down entirely, says FutureGroup CEO Kishore Biyani. Flipkart and Amazon will also face restructuring problems. But forget these companies, and dig a little deeper to see who really suffers here.
We do. Whatever costs these companies face are passed on to consumers. A decrease in competition also affects the value for money that we get. This is axiomatic. Because of these regulations, we will get less bang for our buck. We are, effectively, losing wealth. Where is this wealth going? For this, think about who benefits.
The BJP has long considered small-and-medium-sized traders to be an integral part of its votebank. They were getting adversely affected by online retail, as consumers obviously gravitated towards whoever gave them more value. Traders are an important interest group for the BJP not only because they represent a votebank, but also because they contribute to the campaign coffers of the BJP. And money buys power for what? To make more money.
These regulations benefit these brick-and-mortar retailers and traders, as they will lose less business than they otherwise would because online retailers will be able to offer less value than they otherwise would.
In other words, this is a redistribution of wealth from poor consumers at large to a specific relatively-rich interest group. (Indeed, given the quid-pro-quos involved, you could argue that the party in power is itself the final beneficiary of this transfer of wealth.)
Another data point on how this government is helping this particular interest group: Gujarat has just passed a bill imposing new taxes on all “goods purchased through e-commerce portals.” You know who this hurts, right? You know who this helps?
Governments always carry out such interventions using noble rhetoric of ‘leveling the playing field’ and helping those poor [insert rich interest group here]s. But the beneficiaries here are not owed a living by anyone, and are not entitled to any money apart from what consumers willingly give them in a free market. The money that the consumers would save because of unhindered online retail, after all, would have gone back into the economy in some form. (For more on this, I refer you to the great Frédéric Bastiat’s famous essay, ‘What is Seen and What is Not Seen.’)
* * *
Here’s my three-fold path to evaluating government policy:
1. Ignore the rhetoric.
2. See who it helps.
3. See who it hurts.
It’s the same story, always, every time. It’s the poor who suffer.
* * *
Also read: ‘The Great Redistribution’, my earlier column on this subject, where I use an example where the protagonist and antagonist interest-groups in question are the reverse of the ones in this post, but it’s still the poor who suffer.
