Econ Mom and some Potter Magic!

There’s double trouble at home.

Lil One’s going to be writing his final exams this week and the next. That’s big trouble. Oh, no, no. Not for him. He is having his usual good time. It’s big trouble for me, you see. And as if this isn’t enough, there’s this addition to the trouble…

Lil One is reading Harry Potter. Aaaarrrrgh! For the third time. The first two were not “proper readings, Mom. I wasn’t mature enough to understand it properly then!” is what he told me, to my great amusement. Further, he’s apparently decided to set a world record by reading all the Potter books inside two weeks, ummm, the same two which coincide with his exams. Help!

Quite a scene we have at home, these days. I sit patiently reading about the many wonders of the rectilinear propogation of light and tissue culture, whilst Lil One giggles at Peeves pelting chalk at Harry, calling him names such as “Potty”. While I despair the splitting of the Maratha empire between Shahu and Rajaram, Lil One is deep inside the Pensieve looking up the Prophecy connecting Harry to Voldemort. I wage the war against complex geometric problems while Lil One goes looking for Hallows. God! I never thought there’ll be a time when I start….disliking Harry Potter so much!

Yesterday, when I asked Lil One to get some water half way through our dinner, he held his spoon in the direction of the bottle and yelled “Accio Bottle!” When I threateningly made big eyes at him, he accused me of using the Imperius curse on wee kids to get my bidding done. Whenever he sees me approaching him with a textbook in hand, he yells “Dementor Attack!” and shoots the Expecto Patronum at me, with Hubby looking on with frank approval and complete admiration in his eyes. And when I asked him, for the fifth time, to sit down with me to plan how he is going to complete reading 8 Geography chapters in 2 days, he actually muttered “Langlock!”

Following are some of the sweet nothings he has shot at me over the past few days. GRRRRR!

  • I am the most boring mom in the world.
  • Correction. I now have the distinction of being the most boring person in the world.
  • That Ron lost half his eyebrow in his apparition test is infinitely more interesting than the fact that the Marathas lost more than half of their kingdom at Panipat.
  • The Marathas should have taken Katappa to Panipat with them.
  • Geography is studied by girls. Boys do only Maths. In that, only Algebra. In that, only linear equations.
  • Linear equations are the new cool. Everything else is “Muggle”.
  • Lucky me! I am going to be cast in the movie made by Lil One on Harry Potter. So far, I have completely qualified to be Bellatrix, Kreacher and Nagini. If I learn to be dreamy mad and not my usual aggressive mad, I can even audition for the role of…hold your breath…Prof. Trelawny!
  • Tenses are designed to make kids tense. “I have had it!” is present perfect and is presently perfectly designed for Mommy dearest.
  • I belong to the past tense just because I happen to know that Munshi Premchand wrote “Godaan”
  • Auto spell-check wands are required to solve the Hindi and Marathi papers
  • Any woman who enjoys Hindi poetry cannot be in her right mind. She deserves to be immediately visiting the St. Mungo’s Centre, where they apparently treat witches and economists.
  • Engineers are wizard. Economists are obviously Muggle.

“Nope!” said Econ Mom suddenly. “That last one is not okay.” How can economists be..Muggle?

Isn’t it us, who alone know the deepest secrets of magic of the societal reform. We, who are almost Goblin-like in that we imbibe all of that which strengthens us. We’ve taken principles of Maths to create models out of the most non-modelable phenomena ranging from shopping behaviour and drug trafficking to corporate incentive structures. We’ve woven principles of sociology to create HDI. We use political contraints to understand how economic equilibria may turn out to be sub-optimal in a social welfare sense. And we’re the only ones who’ve been able to make robust, significant, least error use of that crystal ball of statistics, called as forecasting. It is us, who create those models and sell them at crazy prices to a world zapped with knowing the future; and yet, we have the simplicity and enough humour to call our art, a bunch of econome-tricks.

The Elder wand of good policy intervention can certainly weave magic into comatose markets; but sometimes you do need that invisibility cloak, or well, at least invisible hands to drive animal spirits. That economic reform has been the resurrection stone for economies ranging from Brazil to China and Zimbabwe to Germany is a principle undisputed across the globe.

Make no mistake however, by going overboard in the hallowed presence of this amazing science. For every hallow that the subject has produced, there are those horcruxes; scams, currency crises, bankruptcies born out of the misuse of economics that split societies time and again, towards nothingness..

And on a lighter note, hell, we even have a Ministry of Magic! Yeah, its known as the Ministry of Finance to the more innocent. And it often has the cheek to try things out “for the greater good”; it is blinded, in Dumbledore’s words, by the love of the office it holds. But worry not, because it is precisely in order to check this, that we economists have created yet another institution, the Hog-Reserve Bank of India, headed by none other than Albus Rajan.

So all in all, Lil One, nope, your last argument is not acceptable. One day, when you are older, you may realize the power of this wonderful subject. And maybe you’ll come to love and respect it the way I do. And maybe, we’ll be able to bond on this, the way we do on Potter, and Tintin, and late night coffee, and crazy jokes and music. Till then Lil One, let us step into the night and pursue that flighty temptress, adventure.

Hemline Economics

Dear Reader,

When Rabri Devi made that errr…awkward observation about the length of the RSS trousers, most took it to be a political gimmick. But did you know that she did this because she wants to be RBI Governor?

The real connections in hemlines and GDP cycles appeared in my column “Tweakonomics” in the Hindu Business Line today. You can read it at http://www.thehindubusinessline.com/opinion/hemline-economics/article8377758.ece, else read it here directly. Enjoy!

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Trousers today, growth tomorrow?

The market crash of 1928 created a slump hitherto unseen and as the GDP of the US went into the Great Depression, women, who could no longer afford silk stockings, chose longer skirts to cover themselves.

It’s a debate that has been around for long. Are the cyclicality in GDP and fashion really interrelated? Economists sniggered, feminists roared, designers shrugged and the debate raged on. As the global economy bettered after WWII, hemlines continued to rise and the mini-skirts as we know them today, made their entry into the fashion world in the 1960s, coinciding neatly with one of the most expansive phases of the globe.

Come 1970s and skirts lengthened to reflect the oil shocks and stagflation. The lost decade of the 1980s is also best remembered for the “maxi” wave with full length skirts, whilst the housing boom in 2005-06 saw hemlines rise madly. Full length “peasant” skirts made a comeback in 2011, only after the economy failed to recover after the great financial crisis, prompting the CNBC to carry a feature titled “Hemlines are plunging, is economy next?”

The “vital statistics” on this one came as late as 2010, when Marjolein van Baardwijk and Philip Hans Franses from the Econometrics Institute, Erasmus School of Economics, decided to “figure” out the truth using data based research. They actually went on to collect monthly data on the hemline from 1921 to 2009 and then contrasted it with the monthly GDP cycle as indicated in the data by the National Bureau of Economic Research (NBER).

The “long and short” of the debate, they conclude, is that hemlines are led by the GDP by around three years globally. Thus, a low growth rate today could prompt longer skirt lengths in 2019.

“That is exactly what our leader was saying!” reacted the spokesperson of the RJD. “And they accused her of being a woman of the 19th century! But this is a truly forward looking leader with terrific economic insights.” The economy is not doing well at all under the NDA Government. The decision of the RSS to shift to full length trousers is an acknowledgement of the state of the economy.

The GDP is plunging today, the trouser length will plunge tomorrow! The RJD has also gone on to say that Rabri Devi may well be on her way to becoming the next finance minister of Bihar and if things go right, will eventually head to Mint Street to become the RBI governor. “It’s really rather easy,” said the spokesperson. “All you have to do is watch the hemline. When hemlines fall, the interest rates have to fall pro-cyclically.”

The RBI reacted sharply by stating that any decisions to slash or increase rates are only taken after rigorously analysing multilateral causalities in economic fundamentals within a general equilibrium framework. When the RJD did not understand, a special statement was issued in the vein of popular economics. “Relationships in hemlines and GDP are fictitious. Any resemblance to correlations, past or present, is purely coincidental.”

A case for Evenomics

Dear Reader,

Hi! Happy women’s day! Here’s a piece I wrote under my column Tweakonomics in the Hindu Business Line as a women’s day special! You can see it at http://www.thehindubusinessline.com/opinion/columns/a-case-for-evenomics/article8324270.ece; else read it here directly…Enjoy!

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On women, economics and sexism

Look at the centre-piece of economic theory. The entire science hinges on the assumption that economic agents are rational. Households, firms, governments and bureaucrats all act in a rational fashion so as to maximise utilities, profits, revenues, rents or social outcomes. Really now. Can anyone smell sexism here?

Mister Ricardo

This is not to imply that rationality is a male domain and that women are irrational. But the very definition of rationality in that other things being equal, rational people think at the margin and always respond to monetary incentives, is so construed as to be necessarily a male domain.

Think of Ricardian equivalence. This theorem says a tax break given to a household today does not really prompt it to consume more immediately; that is, households look at their consumption inter-temporally i.e. across time. So households believe that any reduction in taxes today will be compensated by governments increasing taxes later and, hence, a tax cut may not really promote consumption, in a manner that was assumed by Keynes.

Did Ricardo never indulge in that fun thing called as impulsive shopping? Had he just thought of consulting Mrs Ricardo about her inter-temporal choices, he would undoubtedly, have been given a totally different angle to look at things, saving him a lot of criticism in the future.

Another centre piece of neo-classical economics that has been blasted by feminists is Gary Becker’s paper on “A treatise of a family.” Becker, using rational neo-classical norms goes on to prove that the utility of the family would stand maximised when each partner performed the task in which he or she “specialised”. Through socialisation, he claims, women have developed a comparative advantage in home production, and hence, a happy couple is one in which the woman stays at home. This inherently means that an egalitarian couple could not really maximise their well-being, a conclusion that derives from a premise based on male rationality.

Male models

A last example. Rating agencies failed to predict the sub-prime crisis. Obviously, react feminists acidly, given that the current set of models used by them look at things in a finite orderly, male fashion. So, the probability that things can go wrong becomes a function of fundamentals, bank regulations, housing prices, derivatives prices, etc. There is no place in this model to assume quirky agents, the behaviour of which may lead to super-quirky outcomes. Of course, all of the comments offered above come to a grinding halt when one thinks of Joe Stiglitz, who got famous for predicting the sub-prime bang on.

There is, however, a stream of thought emerging that such episodes could be prevented in the future by just making sure that we don’t simply man our policy posts, but rather wo-man them. Get that gender equality done, not just for woman empowerment, but for the empowerment that the intuition gets to the framework.

Because, maybe economic events cannot be classified just using formulae. Maybe the notions of rationality are gender-specific. Because, maybe markets are from Mars, but value is from Venus

Alice in Budget-land

Dear Reader,

After all the serious discussions on the budget, I thought a little madness wouldn’t be out of line! Here’s something I tried under my column Tweakonomics at the Hindu Business Line. It was just too much fun putting this up, especially since I am a BIG fan of Lewis Caroll! You can read the piece here, or at http://www.thehindubusinessline.com/opinion/columns/alice-in-budgetland/article8305394.ece. Here’s to more madness!

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It’s time for a little madness!

And so it happened that Alice, who was dozing off, heard a patter of feet running excitedly past her. But what truly woke her up was the voice of the Rabbit saying, “Oh, I’m really late. Times Thencovered the Economic Survey. And Times Nowwill cover the Union Budget. Had to went, have to go!”

Alice was now fully awake and started to rush into the rabbit hole after Mr Rabbit, when she suddenly stopped outside the hole. Because there were two. The one on the left said “right.” And the one on the right, was, well, right! Left with nothing but right, she chose the right. Falling through the rabbit hole, she crash-landed into the office of the Chief Economic Advisor, who was eating, well, bread and JAM.

“Can I have some JAM too?” she ventured. The gentleman looked up. “In which bank do you have an account?” asked the CEA quite kindly.

“Bank? You misunderstood me. Sir, I am hungry. I just need a bit of Aadhaar.”

“Don’t we all!” beamed the CEA. “And then, you can just use the mobile to get the goodies, right from fertilisers to sugar to food!”

Oh my gosh! Alice thought, who ever said that the Indian economy was not yet developed. They send goodies through mobiles! Just then, Mr Rabbit came running into the office saying, “This is a true Chakravyuha! Only entry, no exits!”

The CEA looked piercingly through his spectacles. “We are going to change that Mr Rabbit! Companies and government policies will all have exit clauses. That is the only way to go ahead.”

“Strange!” thought Alice. “When there was no exit, there was no entry. The moment you announce exit, you prompt more entry! Oh, this world of economics gets curioser and curioser!”

“Sir, can you show me the road to the FM’s office?” asked Mr Rabbit importantly. “Ah, these rails and roads worth ₹2.8 lakh crore take you there. Oh, don’t mind all the repair work, my dear. It’s just the PMGSY. Don’t worry about the water either. Our water table’s not too deep. Not yet, anyway. Good luck with the FM! Mind you are fiscally prudent when you meet him!” advised the Advisor.

Alice turned the golden key 3.5 per cent to enter the FM’s office. She was uncertain, but it looked like the Sherwood forest. “And I am Robinhood,” said the FM, with quite a flourish.

“My dear men, let us take from the rich a Sir-charge to give unto the poor, who do not have dwellings. Give LPG to the maidens who cough every morn on the chulha. But we don’t hold people at the tip of our cross-bows, our offer is to voluntarily come and declare your wrongdoing and thou shallst be pardoned.”

“Ummm, of course, after you pay 30 per cent plus surcharge at 7.5 per cent plus penalty 7.5 per cent,” said Mr Adhia, looking anything but Hasmukh.

“45 per cent?” said Alice. “You seem to be quite thicketty with Picketty. When you grumble all the time about having no headroom, why do you wear two caps, Mr Robinhood?”

“Because the Mad Hatter gave them to me. The first cap has gone bad, you see. And the re-cap is worth ₹25,000 crore. And even with that, we are not covered. Market’s really weak. Now stop talking with me. I am going to court.”

“Of course, you are a lawyer!”

“Wrong again! I am off to the tennis court, my dear.”

“And with whom will you play?”

“With the RBI Governor, of course! I have just put the ball firmly in his court!”

A balanced budget which meets expectations

Dear Reader,

Hi! This is my immediate reaction to the budget, as told to Sakaal Times. You may want to see the interview at http://epaper.sakaaltimes.com/SakaalTimes/1Mar2016/Normal/page5.htm

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How do we rate a budget?  We have to ask ourselves the question: What is the main objective of fiscal policy? Fiscal policy has to create growth as a first priority; it also should create conditions for macroeconomic stability in the medium term and as well as help in redistribution of income and resources. How does the budget perform on all the three priorities? As it happens, it performs fairly well.

The budget has put in big ticket expenditures into the rural areas. Two years of bad monsoons have created a huge slack in rural demand; with the agricultural growth rate at only 1.1%, demand for everything from FMCG to tractors and two-wheelers slowed down massively. By increasing the outlay on roads under PMGSY, supporting irrigation as well as MNREGA, the budget seeks to dovetail demand creation with supply, which is a good move.

But perhaps the biggest positive of the budget comes from anchoring the fiscal deficit at 3.5% of GDP. This, combined with the soft oil prices, now truly gives room for monetary easing, which could be a precursor for an investment pick up. Further, the budget creates only 2.5% revenue deficit, which is an indicator of better quality of spending, with lesser spending happening on the revenue account.

The tax-subsidy balances have been admittedly Robinhood-esque, with some market players going so far as to call them socialistic. Call it the Piketty effect or whatever, but with tax rebates being offered to those who do not own a home and exemptions for companies that are smaller, the budget does try its hand at correcting the inequality quotient rather well.

Rs.25000 crores is not enough for bank recapitalization; sharper reductions should have come through on corporate income tax, but after giving off Rs. 2.25 lakh crores to roads and rails, I guess there is not enough left for any other journey. All in all, a good budget.