Economics

The Right to Cheap Multiplex Tickets

IBN reports that the Karnataka government “is mulling a limit or maximum cap of Rs 120 to be charged on movie tickets in multiplexes.” This is intended to make movies more affordable for regular moviegoers, thus increasing viewership and helping the film industry as well. These are laudable objectives. Who could argue with making movies more affordable for the poor?

In fact, I would argue that the Karnataka government has not gone far enough. Why restrict this benevolence to movies?

I hereby propose that the prices of cars be capped at Rs 80,000. This will help the poor.

Also, the prices of meals at restaurants should be capped at Rs 30. This will help the poor.

While we’re at it, airline tickets should be capped at Rs 300. Why should only the privileged rich be allowed to fly?

Please don’t tell me you object to any of these wonderful ideas. There is no argument against these that don’t also apply to multiplex tickets. Don’t you agree?

(Link via Madhu Menon.)

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On a serious note, here’s a piece by me on price controls: The Price is Right.

How Much is Pawan Negi Worth?

Pradeep Magazine is unhappy that Pawan Negi got more than a million dollars at the recent IPL auction. He writes:

Ever since a new cricket format and a new business model – the IPL – in the name of sport has been created in India, this accepted rationale of how sport functions is being challenged each passing year. Among the many questions being debated is the relationship of talent with the wages earned and the impact it will have on the very foundations of cricket in the country.

That is where Pawan Negi and most of his tribe become relevant to this debate. Here is a young talent, not sure of his place in the India team, a surprise selection for the T20 World Cup, who has all of a sudden been catapulted ahead of his much superior seniors and showered with riches — and even he can’t understand why.

Magazine implies that Negi has gotten more money than he is worth—and I don’t have an opinion on that. However, consider the larger philosophical question of who should determine Negi’s value as a player? Should it be the mandarins at the BCCI, or the selectors? Should it be knowledgable journalists who have covered the game for years like Magazine himself? Should it be the owners of IPL franchises, an assorted mix of businessmen and filmstars who may not know much about cricket?

The clue to the answer is to ask yourself who has the best incentives to put in the work to determine Negi’s value. Who is actually putting his money where his mouth is? If Magazine makes a judgment about a player that is wrong, it doesn’t matter, journalists get things wrong all the time. There is not much of a reputational downside. If the Indian selectors get it wrong, ditto, they move on and pick someone else the next time, and only a whole bunch of ludicrous selections can affect their position. If the IPL bosses get it wrong, on the other hand, they lose money. Hard, cold cash. For this reason, the incentives are highest for IPL bosses to put in much work in scouting and analytics, and by all accounts they do exactly that. So insofar as there can be said to be a ‘correct’ price for Negi, the IPL auctions are the closest mechanism available right now of arriving at that. (And of course, econ 101, prices are determined by supply and demand, and you need a market for that.)

Of course, the IPL auctions are not a free market. All players would probably get paid much more if spending caps did not exist. Also, Negi would probably have gotten much less if he was first up in an auction where no team had retained or picked a player yet, and he did get lucky that he came up for auction when there was a scarcity of available players like him, teams had holes to fill, and the demand for what he could supply went up. That’s just luck, and it’s fine. If he doesn’t perform, he won’t get paid this much next time.

An aside: Magazine also says in his piece:

In this bizarre game, where players are bought and sold in an auction, is there any cricketing logic that governs these decisions?

This is a common, and badly phrased, complaint: of cricketers being bought and sold like cattle. But that is not what is happening. Their services, as represented by contracts they have willingly signed, are being bought and sold. It is principally the same thing that happens when you check out different employers to see where you want to work, except that the mechanism is different. Cricketers are not being degraded here, but honoured and valued in a much better way than men in board rooms with nothing at stake could manage.

Rising Divorce Rates are a Feature, Not a Bug

The Times of India has an intriguing headline up today: ‘Marriages last the longest in north India, Maharashtra; least in NE.’

At first glance, you might think that is good news for North India. It is not. In my view, it shows how socially backward the North still is.

A few years ago, I’d written a column called We Should Celebrate Rising Divorce Rates In it, I’d expressed the opinion that divorce rates were “the single best statistical indicator we have of the empowerment of women.” If I may quote myself:

Rising divorce rates tell us one thing for sure: that more and more women are finding the means, and the independence, to walk out of bad marriages and live life on their own terms. If we judge ourselves as a society on the state of our women – and surely that must be a parameter – then this is good news.

So the ToI report seems to indicate that women are more empowered in the North-East than and North India. I’d love to see if data backs this up. What statistical indicators can stand as a proxy for women’s welfare? Do they show a geographical correlation with divorce rates? These are good questions to ask, though I don’t think ToI will do a follow-up report on this anytime soon.

Tolstoy’s Chicken and the Expanding Circle

This is the 24th installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.

I’m a devout carnivore, but a decade-and-a-half ago, I turned vegetarian for a year. My reasons were moral, and best illustrated by a story about the Russian novelist Leo Tolstoy. In his later years Tolstoy was a vegetarian, and one day he invited his aunt home for dinner. She said she’d come but insisted, ‘I must have chicken!’ Tolstoy paused at this condition, but then agreed to provide the bird. The lady duly came home, gup-shup happened, and then when they moved to the dining table, she found a live chicken on her chair, and a carving knife alongside.

‘We knew you wanted chicken,’ Tolstoy said, ‘but none of us would kill it.’

The story, as I know it, ends there—but I can’t imagine Tolstoy’s aunt ate Tolstoy’s chicken. She must have been rather exasperated, and Tolstoy was indeed a bit of a spiritual crackpot towards the end of his life. But the story of the chicken resonates with me. It demonstrates our denial when it comes to food. In our mind, there is a screen between the meat that we eat and the animals that are killed for that meat. We taste the flavour and enjoy the texture, but we behave as if the butchery never happened. We pretend that the chicken on the plate and the chicken on the chair are different creatures. But of course they are not. Tolstoy’s flapping, squawking chicken is Varma’s Chicken a la Kiev—and so, many years ago, I gave up meat.

Even if I later explained my subsequent regression by talking about recurring headaches and how my body was too used to meat to give it up, deep down I know that’s just a rationalisation. I didn’t have the strength of character to carry through on my resolve. I dreamed of luscious, succulent kababs, and ignored the screaming of the lambs.

The guilt and dissonance I still occasionally feel may soon be moot, though. Some fine scientists, much to be praised for their noble endeavours to better humankind, have recently found a way to grow meat in the labaratory, without a sentient creature being involved. Within a couple of decades, I predict, you will be able to eat a medium-rare steak that is, in every way, the same as any you would get today, except for the fact that no animal will be harmed in its making. The organ it will come from would have been manufactured a la carte, and would never have been part of a living creature. Tolstoy’s aunt’s grilled chicken leg would have nothing to do with Tolstoy’s actual chicken.

On that note, at the turn of this new year, let me tell you about a concept propounded by a gentleman named WEH Lecky way back in the 19th century: The Expanding Circle. Lecky posited that there is a circle of beings who qualify for our moral consideration as equals, and that this circle has tended to expand through human history. In prehistoric times, we might have regarded just our family or our tribe as being part of that circle, and everyone else would have been ‘the other’. Other tribes, then other nations, other races, and so on. But through time, that circle expanded. It began to include other communities and races, and eventually included all of humanity itself. It is this expanding circle that led to the end of slavery, to women being allowed to vote, to the great immigrant nations across the world, like the US of A. And this circle is still expanding.

The philosopher Peter Singer, in fact, argues that one day animals will be within this circle. He believes that one day we will be as aghast at meat-eating as we are today when we look back at slavery or women not being allowed to vote and so on. For a person in the 23rd century, looking back at the 21st, it will seem as astonishing that we once killed animals for food as it does to us that the great apostle of liberty, Thomas Jefferson, once kept slaves.

At this point, it is worth considering why the expanding circle expands. To my mind, and I say this with sadness, the reasons are instrumental. The circle expands because incentives change. The two main factors driving this are Trade and Technology.

Economics teaches us that every human being can provide value to this world (comparative advantage) and that voluntary trade always leaves both parties better off, leading to a positive-sum game. If ‘The Other’ is working hard to improve our lives, and it is in our interest to improve theirs, for that is how we profit, then the circle is bound to expand to include them. Immigration is great not just because of moral reasons, but because it helps societies and economies flourish. The larger our circles are, in whatever sense, the better we do.

Technology also plays its part. Until recently, half of humanity – the female half – was deeply constrained because that’s just how the comparative advantage game played itself out. Housework and raising large families took so much time that it made economic sense for family units to specialise, and for women to stay at home and for men to go out and be bread-earners. This got codified in social norms, and thus women got forced into subsidiary roles. That changed in the 20th century. Firstly, household technology freed up huge chunks of women’s time. Secondly, birth control gave them, well, more control over their bodies. There is much to be said for good intentions, but women’s empowerment really happened because of technology, and so hurray for technology.

And hurray for technology one more time, because if our circle expands to include animals, it will do so not because of the benevolence of meat eaters around the world, but because growing meat may no longer require the killing of animals. And here, consider the consequences of all animal products being manufactured without animals being involved. The incentives around rearing farm animals will change entirely. And so one day, cows and pigs and chickens and goats may go extinct not because we ate them, but because we stopped. The irony is delicious.

Looking Beyond Left and Right

This is the 23rd installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.

One of the things that most exasperates me about Indian political discourse these days is that we often speak in terms of ‘left-wing’ and ‘right-wing’. This is wrong for two reasons. Firstly, this is not how politicians themselves actually speak (unless they’re humouring the English-speaking media). Voters in India vote for a myriad of reasons, mostly local, and they don’t frame issues in terms of left or right. Therefore, neither do politicians when they speak to their constituencies, or when they strategise among each other. There is, thus, a disconnect between politics and political discourse. Many political commentators, unable or unwilling to engage with the complexities of the political economy, insist on imposing simplistic narratives.

But this would not matter if a left-right prism was useful in evaluating the desirability of policies, or provided a compass to gauge the moral or instrumental value of the actions of politicians. But it does not, which brings me to my second reason, which is not a local one. Across the world, framing issues in terms of left or right misses the central principle at stake in any modern society: that of individual rights, and of freedom. I view the world through a classical liberal (or libertarian, if you will) prism, and my liberalism boils down to a respect for individual freedom. On moral grounds alone, if we come from first principles, we should respect individual freedom above all else. From a consequentialist perspective, also, we should defend freedom, for economic freedom leads to material prosperity, and personal freedoms, such as freedom of speech, enrich our culture.

As a true liberal, I see no difference between economic and social freedoms. As I am fond of saying, once we accept that two consenting adults may do whatever they want with each other provided they infringe the rights of no one else, it should not matter whether they are fucking in a bedroom or trading in a marketplace. Interfering with either is wrong. And here’s the thing: parties on both the left and right sides of the political spectrum support infringements on individual freedom all the time.

Parties on the right tend to want to impose their cultural values on others, and are suspicious of those they view as ‘outsiders’. They don’t care much for free speech or other personal freedoms. Parties on the left tend to oppose economic freedom. They do so stating noble reasons, but all infringements of economic freedom amount to a redistribution of wealth from poor consumers to a rich interest group, so they’re either hypocrites or delusional. They also tend to favour big government, which means more taxation, and therefore more coercion.

If you believe, as I do, that coercion is wrong, then it won’t make a difference whether you look left or right, you’ll see coercion everywhere. A classical liberal opposes both Donald Trump and Bernie Sanders, both Prakash Karat and Mohan Bhagwat. (I would give credit to those guys for at least stating their positions clearly, though. Politicians down the ostensible middle, slaves to special interests as they mostly are, tend to be equally coercive and far more hypocritical.) Looking at the political marketplace, you will find that the options available to you aren’t all that different from each other. And why should they be? Even when they cater to different segments of the population, they’re still reacting to the same inevitably corrupting incentives at work in the political economy.

Here’s the funny thing about India in particular. We have conveniently classified the BJP as a right-wing party and the Congress as a left-wing party—but they’re both practically the same party. In terms of economics, both are left-wing, and oppose economic freedom. It might surprise you to hear me say this about the BJP, but forget their campaign rhetoric and consider their actual policies: Modi I is basically UPA III. Modi has the same top-down way of looking at the economy as any Congress leader before him, and he’s trigger-happy when it comes to imposing new taxes and cesses.

Equally, on social issues, the Congress was as right-wing as the BJP allegedly is. They have a stellar record when it comes to banning books, and it was a Congress government that effectively banned The Satanic Verses. Censorship flourished under their watch, as did attempts at social engineering, which weren’t restricted to the Emergency: odious policies on sterilisation still exist, decades after the emergency was called off. Even in terms of attacking other communities, the Congress set the standards: more people died in the 1984 riots than in the 2002 riots. My friend, the political commentator Nitin Pai, once coined a term that describes this jostling between the parties perfectly: ‘Competitive Intolerance’. This is quite the kind of competition that makes the poor ol’ free-marketer in me cringe!

To sum it up, India’s political parties tend to be left-wing on economics and right-wing on social issues. In other words, they oppose freedom in every sphere. I would be no more disheartened by this than India’s freedom fighters were in the first half on the last century, when they gazed up at the monolithic British empire. They gritted their teeth, and hurled themselves into the battle for our political freedom. Likewise, we must keep fighting till we win these other freedoms, and emerge as a free country at last. Not a left country, or a right country, but a free country.

Uber and Governance

Anant Rangaswami tweets:

I love Uber, as much for what it is as what it represents. But here’s the thing: Uber functions because its marketplace is competitive. When it comes to most of the services the government provides, though, the government has a monopoly. The greatest incentive for any organisation to function well comes from competition, and the need to excel in order to survive. In areas that the government has a monopoly, I predict, it will fail—as indeed ours has for 68 years. You cannot change the level of service until you change the incentives.

Uber Regulation

Abhinav Singh has a good post up about how the Government of Maharashtra is proposing to regulate Uber. As you’d expect, there are vested interests behind this: the existing taxi industry, which feels threatened by the new operators, as indeed they should, because the new operators are proving more value to consumers. So they go to the government.

As I’d written here, all interventions in the free market amount to a redistribution of wealth from the poor to the rich. Any regulations here will end up as exactly that. The value that consumers would have gained from the unhindered operation of Uber and Ola will be redistributed away to the older taxi operators. You really don’t need to ask what’s in this for the government, do you?

If this makes you angry, do go sign Uber’s petition. I’m usually skeptical of online petitions and candlelight vigils and so on, but this is a petition directly from one of the affected parties, and there is a non-zero probability that it will make a difference.

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An earlier piece on Uber: The Price is Right.

The Fatal Conceit of the Indian Politician

A shorter version of this was published as the 22nd installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.

‘I’m not conceited. Conceit is a fault and I have no faults.’ Imagine this quote on an internet meme, alongside a picture of Narendra Modi, looking dapper in that famous pinstripe suit, or maybe a trademark Modi kurta. It would surely get thousands of shares on social media, many from bhakts impressed by the prime minister’s modesty. Don’t rush to share it, though: as one tends to do on the internet, I just misattributed. Those words were not uttered by Modi, or even Oscar Wilde or GB Shaw. The man who said them is former Van Halen singer Dave Lee Roth, with his back against a record machine. But Modi could have said them, could he not?

Please don’t think I am picking on Narendrabhai alone. All politicians are vain. Indeed, one could argue that in politics, vanity is a feature and not a bug. Politicians come to power by selling specific narratives about their excellence; and they can sell it most effectively if they believe it themselves. Success in many fields often begins, comically and ironically, with self-delusion. But politicians have consequences, and there’s nothing comic about that.

One reason that India is still a poor country is the ‘fatal conceit’ of our founding fathers. Jawaharlal Nehru, and his minions and successors, believed that economies were best planned from the top down. An economy is a complex thing, the poor and ignorant masses of India surely could not be trusted to perform this task by themselves, and needed to be directed by wise and benevolent planners. Those who have studied economics or paid attention to history know that this was foolish and wrong.

Economies, like languages, are products of “human action but not human design,” in the words of Adam Ferguson. They function brilliantly on their own, with millions of individuals pursuing their self-interest, and thus increasing the value in the lives of others, for that is the only path to profit. Planning is not only not required, it is an impediment. A central planner can never get a grasp on the huge amount of dispersed knowledge in an economy, and any intervention is bound to lead to a loss in efficiency. This hurts the poor the most: as I illustrated in a previous column, every intervention in a free market amounts to a distribution of wealth from the poor to the rich.

Nehru suffered from a disease that Friedrich Hayek called the Fatal Conceit. His coining of that term was inspired by the following passage in Adam Smith’s The Theory of Moral Sentiments: “The man of system […] is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.”

People are not chess pieces, of course, and Nehru and his successors ravaged the economy with their well-intentioned interventions. I won’t recite the litany, but here’s the thing: 68 years after we became independent, 24 after the Soviet Union collapsed, we are still enslaved by a failed philosophy. And we’re still suffering because of the fatal conceit of flawed individuals.

It amuses me sometimes that Modi is considered a right-wing politician. He actually embodies the worst of both left and right. Like his party, and the ecosystem of religious nutjobs that sustains it, he is right-wing on social issues; and left on economic ones. Basically, he is against individual freedom in every domain possible, and thus the exact opposite of me. If you put Modi and me in a test tube, the resultant explosion could blow the earth off its orbit, or at least result in a good rap album. But that is a digression, and it is possible that you have your mouth open because I called him an economic leftist. Well, if a man is to be known by his actions and not his public image, what else can we call him?

I know many economic liberals, bald because of six decades of tearing their hair out, who thought Modi would be a free-market messiah. My ass. Tell me this: exactly what reforms has he carried out that increase our economic freedom? When Modi took over, India was ranked 140 out of 189 countries in the World Bank’s Ease of Doing Business Index: it has since slipped to 142. He has not reformed the labour laws that, for decades, have prevented us from being a manufacturing superpower. The license and inspector raj remains what it was under his predecessors. A litany of what he has not changed would be the same as a litany of what was wrong with our country before he took over.

I have friends in high places who tell me that the system doesn’t allow him to act. But the truth is that Modi suffers from the same fatal conceit that Nehru displayed. He believes the economy needs a top-down manager. He would rather reform a public sector unit than sell it off. When he talks of ‘minimum government and maximum governance,’ as that catchy slogan went, he is speaking of making government more efficient and not at eliminating it entirely from areas where it has no business existing.

His conceit isn’t limited to his economic thinking, though. Look at how the man struts! He may not walk the walk in the sense of governance, but he certainly does in a catwalk sense. Once he was denied a US Visa; now he travels the world meeting the high and mighty. I wonder if he realises, though, that these global leaders give him importance because of the position he occupies, and not the man he is. I suspect he has actually drunk his Kool Aid, and believes the Modi Wave narrative of the last elections. He may be headed for a fall if so.

Look at the numbers from the 2014 general elections again. Our first-past-the-post system made it seem like a wipeout, as the BJP got 6.4 times the seats that Congress did. But they got just 1.6 the vote share of the Congress. It was 31% to 19%, and a 4% swing away from them next time could easily result in a hung parliament. They delivered outlier performances in states like UP, MP and Gujarat, which seem statistically impossible to repeat. And the following things are certain: Since the election, they have not won more supporters than they have lost; the turnout of their supporters is bound to be less the next time around; other parties, clear about what they are up against, will make smarter coalitions to consolidate the non-BJP vote; anti-incumbency will be a factor now that some of the Modi sheen is gone.

Modi behaves like the prime ministership was his destiny and he will win again easily in 2019. But if he doesn’t get his act together, reforming the economy and constraining the lunatic fringe in his party, he could be in for a surprise. India could choose another delusional politician over him, and 2014-2019 could be remembered as The Selfie Years.

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Also read: ‘Lessons From 1975.’