Econ Mom, a Goa vacation and the Tiebout model

Disclaimer 1: Econ Mom is an economist and hence has basic inherent rights to drool on and on about issues that may not be fun/ relevant/ interesting/ exciting/ amazing according to you.

Disclaimer 2: Unless you read all the serious boring stuff on public finance in the beginning of the blog, you anyways won’t understand what Econ Mom is thinking at the end of it.

Disclaimer 3: Yeah, sure! There’s wickedness coming your way, but you are going to have to plough through the basics for that. Lazy readers are advised not to read on.

Disclaimer 4: Econ Mom reserves rights to appear when she feels like in the blog. In the present one, she chooses to appear only in the end. What the hell, it’s MY blog! So here goes..

I have been reading up on fiscal federalism these days. It’s a part of my research interest.

Centre-State fiscal relations mainly span the collection of taxes and sharing of the same. While control over taxes is defined constitutionally under the “Union list” and the “State list”, the sharing of the same has been mostly formula-driven, again constitutionally. The Constitution has provisions for creation of the “Finance Commission”, which can then really decide how the Centre shares its taxes with states.

And then, there is also the Planning Commission, which willy-nilly, has played a part in Centre-State relationships. Well, even the Planning Commission has used some kind of a formula (the Gadgil-Mukherjee formula or some version of it) for tax sharing with states; however, not all tax shares are governed by formulae. Increasingly, in a reforms driven India, there is evidence that states received tax shares based not only on their economic fundamentals as encompassed in the “formulae”, but based on their political goodwill. Thus, states going to elections have received more tax shares, states that are politically more “aligned” with the Centre seem to have received higher tax shares.

Thus, a lot of modern empirical literature is into proving the existence of a political economy factor in determining Centre-State relationships. In my readings on the subject, I kind of went into the subject in a reverse timeline. I stumbled on a really interesting paper by Stuti Khemani (World Bank 2003) in which she spoke about how “political alignment” with the Centre has been a central idea in a 2001 paper on Swedish municipal councils. So I got reading that, which put me on an Avinash Dixit paper written in the 1980s on a game theoretic approach between two levels of Government. And well, since by now I already was neck deep into the subject, I decided to go backwards the whole way to the Big Bang, which happened in 1954.

The Big Bang of Public Finance, so to say, was created by Brahma, Vishnu and Mahesh. They just have different names in our field, and are called Paul Samuelson, Richard Musgrave and Charles Tiebout. And then there are plenty of other deities such as W. E. Oates and James Buchanan, who lent their mental Vajras and other weapons to sharpen the arguments.

The entire discussion started with Paul (Brahma) Samuelson defining public goods; his argument was that since the consumption of public goods (such as a street light) is necessarily, well, public, no one will be willing to pay for the same and hence, the market by itself will underprovide for the provision of public goods. In other words, capitalism may be wonderful. But free markets do not provide optimally for public goods.

Vishnu aka Richard Musgrave took the discussion further and classified public goods to be “non-excludable” as well as “non-rival”.

Hmmm. Nice. But it is Maheshji’s job to provide the necessary churning to the world created by Brahma and Vishnu, right? So here goes.

Enters Charles Tiebout, with a radically different viewpoint from the one provided by Musgrave. Says, are public goods always “non-rival”? Nnnnaah! Not really! Especially, if we are looking at “local” public goods such as a public park. Sure, you can’t exclude anyone. So it definitely is non-excludable. But it’s not always “non-rival”. If there is too much crowding into the park, then there exists rivalry in consumption of the good.

So, this is what Tiebout says. He firstly puts forth an idea that we need to look at public good provision from the perspective of a “local Government”. He likens local Governments (like Municipalities) to suppliers of different baskets of public goods at different prices (taxes). If a household does not like either the basket of goods that is being provided or the price at which it is being provided, then it can “vote with its feet” i.e. it may well choose to migrate away from that locality to another wherein the supply of public goods and its price matches its utility. This solves the problem of preference revelation effectively, as people’s preferences and their utilities get revealed through their decision to migrate. It is exit, rather than voice, that helps to reveal consumer preference.

Local Governments can closely observe the utility profiles of the public and hence, would be able to tax the people more accurately. They also are able to gauge the optimal quantity of public goods that need to be provided in an area. Thus, provision of public goods ought to be done by local Governments, who can then also tax the public for the provision.

Thus, according to Tiebout, there does exist a solution to the problem posed by Paul Samuelson. Provision of public goods need not be always sub-optimal; you just need local governments to take care of the thingy! Let local governments compete and voila! Optimal public goods is what the public will get.

What an interesting theory! He is suggesting that there is effectively, a political solution to this rather economic failure of the market mechanism. Politics to solve economic problems! What a wonderful thought! Though extremely impracticable, as Econ Mommy realized on her vacation to Goa. Yup, Goa it was, this year.

Goa. Blue skies, endless lines of coconut palms, backwaters, mangroves and the sea! Simply marvellous! We felt our spirits turn distinctly salty (just joking, guys!) as we drove down to the sea from Pune. The drive down the quaint little villages was just the balm I needed for my tired body and soul.

“We three are just like the three friends from Dil Chahta Hain,” suddenly announced Lil One with a grin at us. “We’re driving to Goa and we are really cool! At least….I am!” he said uncertainly, looking at the not-so-cool parents. Sigh!

“So who is Aamir Khan?” I asked no one in particular and grinned to see all three hands raised in the car.

Lil One felt he was the truly wicked one and hence qualified to be Aamir Khan. I was Saif Ali Khan, since I was always getting teased by the other two and Dad, he said loyally, was the thinker. Akshay Khanna. Hmmm…

Hubby, on the other, said that it was far too much fun pulling Lil One’s leg and hence Lil One was Saif and he himself, the leg puller, was Aamir. “Mommy’s Akshay Khanna,” he said with a grin, “because she is the sentimental types. Cries on seeing that foul movie. Whatisit called..”

“Kabhi Khushi Kabhi Gam,” supplied Lil One helpfully and suddenly extremely high energy. “And Hum Saath Saath Hain..And Dad, do you know, she was crying watching Kuch Kuch Hota Hain yesterday!”

“Oh, shut up,” I said. It’s their favourite topic these days. Tell me, is it so bad to cry on seeing a movie? Yeah, I mean, even I agree that those movies are complete nonsense, but God alone knows why, Karan Johar makes me want to wail real real loudly, the bugger. I have given this a lot of thought as to how this happens to me and this is my analysis. I think my defences are already lowered by the complete lack of any brain usage for around 50 minutes and then, when I see all these idiotic melodramatic situations, it causes me to cry.

Sorry! I come back to Goa. “Who runs a humor column? I do! That means I qualify to be Aamir Khan!” I said bossily causing Lil One and Hubby to make rude faces at me. “And in any case, only I can sing Tanhai…it’s way beyond your skillsets, got it, boys?” The boys looked sulky about it. Hubby looked positively alarmed at him being chosen to be Saif Ali Khan because he can do the “flap flap” dance, and Lil One happily hummed “Kaisi hain hain, ruta kii jisme”.

We stopped in a picturesque village lane for a small picnic. And sauntered out of the car after our meal, just looking at the pretty little houses with slanting rooftops. Every house has a small yard in the front, mostly hosting coconut palms, with the familiar pepper creepers running up them. How pretty! Hubby said with a real longing in his voice, “Manasi, I wish we could settle here. I could stay here forever!” He had said the same in Kerala. “Goa or Cochin?” I asked with a grin. “Well, both!”

It is such a tempting thought. If you think of what a life you can have in Goa versus the one you have in Pune, Goa takes the cake and eats it too, royally. Look at the basic infrastructure. The roads are so beautiful. I mean, if you can have those smooth kind of roads when you are simply swamped with monsoons, I wonder why Pune has to have road-shadow, even when we lie in the rain-shadow zone. That brings me to the second point.

Rains. Water. OMG. To see all that water and greenery in Goa, just across the border from Maharashtra, was such a slap in the face. I have recently been on the roads in drought prone zones in Maharashtra and we all know about the monsoon issues that Marathwada and Vidarbha are facing. And in Goa, there is simply no water problem at all.

Plus, its cheap. Oh no, not the hotel stay. But petrol at Rs. 59. Aaaargh! And the basic fruits and vegetables. Its so cheap! There were hawkers on both sides of the roads into Goa, hawking mangoes, coconuts, jackfruits, karmals, karvandas, bimlis, bananas. It was really too much for my poor vegetarian soul to see all these fruits being hawked so cheap. I took it personally and gorged so much on the fruits in Goa in the last one week that I think I have single-handedly caused the fruit prices to go up. That last wrinkle on Dr. Rajan’s already lined forehead (no, not that big one, that one was created by Subramaniam Swamy), yeah, that little one there, that’s the one I created with the inflation index going up one tiny little notch, all thanks to my gluttony.

There aren’t too many things I agree with Hubby on, but this one was really really tempting. Wah, to settle down here! But what about our careers. And Lil One’s schooling. And our friends. And family.

Households are not really that mobile, after all. Even if Municipal Corporations are service providers offering baskets of services, households don’t really move around freely. Their personal choices come first and hence, even with the most tardy of service offerings, people stick around with the Pune Municipal Corporation (PMC).

Thus, even with decentralization and creation of municipal corporations and gram panchayats competing with each other, we may not really find optimum provision of public goods taking place. And what that means is that people will keep flocking to the Tier 1 and Tier 2 cities, causing their municipal corporations to really crash under that huge migratory burden. Consequently, public goods provision will be bad.

But the so long as the losses on the public life are more than made up by gains on the personal front, people will be okay grumbling about it and life will go on, in a most un-Tieboutish manner. The Tiebout model goes wrong, because it makes the most impractical of assumptions, such as assuming perfectly mobile households.

Oh, why is it that the most interesting ideas are the ones that are mostly impractical?

Epilogue:

I came out from the waters and walked to Hubby, who was lounging in the sand, enjoying himself. He was singing. How romantic! I thought. May be he’s singing, “Sagar jaisi aakhon waali…”

Hmmm. He looked into my (sagar jaisi) eyes and sang, “Ye kahaan aa gaye hum, yoo hi saath saath chalte!”

Aaaargh! Why is it that the most interesting ideas are the ones that are mostly impractical?

Econ Mom, Hubby and some woman empowerment

“Which dress should I wear for the party tonight?” I gazed anxiously at Hubby as he thought about this critical issue for about 3 seconds before replying, “White.” “Are you sure?” I asked, and he replied smoothly, “Of course! It really suits you. The other red one is too loud, I think.”

“Thank you!” I squealed with relief, immediately deciding to wear the red one. I really like red and now I definitely know it’s the perfect choice. “Don’t know what I’d do without you, sweetheart,” I told him for good measure. “You’re the best!”

Hubby rolled his eyes at me later that evening, “Ummm…did you even hear what I had to say about the white dress?”

“Of course,” I answered, surprised. “It’s just that …whenever I decide on something, you always give me a completely counter opinion. Like I totally had decided to wear the red dress.  I was dying to hear your opinion that the white one is better. These days I take an opinion from you just to confirm I am on the right track.”

“Women!” said Hubby under his breath and Lil One giggled.

And then with a sly look at me, continued, “How nice it would be to have a wife who agreed with me! Who doted on me, and listened to every word I said.”  I gave him a look of pure, unadulterated contempt as he moved into his favourite thought zone, dreaming about scores of women simply falling over themselves to do his bidding.

Hmmm. Women conforming to what the husband says. Econ Mom has been meeting a lot of the types these days and believe me, it’s a grim reality to see that happen.

At the Gokhale Institute of Politics and Economics, we’ve been constructing case studies on women in rural politics and I’ve been meeting with women representatives in Zilla Parishads, Panchayat Samitis and Gram Panchayats for the past 3 months now. It is important for the uninitiated reader to note that the 73^rd Constitutional Amendment was passed in 1992 and it is this amendment that gave constitutional status to the Panchayat Raj Institutions. The amendment also provides for “no less than a third” representation to women, implying thereby that at least 33% of any Panchayat Raj body has to have women representatives.

The Maharashtra Zilla Parishads and Panchayat Samitis Act was accordingly amended in 1994. It is extremely interesting to note that this Act provides for not 33%, but 50% reservation for women in the Panchayat Raj systems! Interesting, because the Maharashtra Vidhan Sabha has not yet managed to pass even 33% reservation for women at state level. But at the Panchayat level, where we are culturally unsure of finding empowered women to run affairs of the state, we’ve mandated 50% reservation for women. Can you believe it?

Well, so certain constituencies get reserved for women, leading to women contesting elections only against other women, leading to “ghettoization” of women in politics, says Madhu Purnima Kishwar. And she is right there. Let us face the reality. Rural politics is completely dominated by males. And when the seat gets reserved for women, they get their wives to contest the same. So, the wives contest, one of them wins and comes to power. Now, when you meet such a woman who is in power not because it was an aspirational thing for her, but just because her husband asked her to contest elections, the interview you take can go horrendously wrong. A couple of the interviews I took were in the seriously, badly, extremely wrong category. As Shifu would have said, “There is now a level zero.”

You go to Marathwada in 42 degrees temperature. It has taken you 8 hours from Aurangabad to get to this really remote taluka panchayat. And you are really looking forward to seeing how women representatives work in these far flung areas.

But,O.M.G.

For starters, the husband insists on being present for the interview. You are meeting the lady in her “chamber” i.e. Samiti office and you kind of wonder why he is there in the first place. You politely say that I want to talk to the lady, so he goes out for about 12 seconds, during which she gives you a strained smile, clasping and unclasping her hands, and making you generally feel like those vamp Sasu-Maas in Hindi TV serials with the big bindis and earrings and curled lips, who make all those poor bahus cower in fear in front of them. And just as you are feeling tempted to peep into a mirror to check that a bindi hasn’t suddenly popped on three quarters of your forehead, the man is back! Just to check if you need tea! And then he casually seats himself plumb spang next to the lady’s chair and starts answering all your questions with aplomb.

Me:“Ummm, so how did you get into politics?”

She:“My husband felt that…”

Him: “The seat was reserved for women. And she is educated upto the 12^th standard! Compare that to Nana Shinde’s wife, who is 4^th pass. If she could win elections last time, why can my wife not do it?”

(Excuse me, WHAT are you talking about? Is education correlated with winning elections? If so, that’s a career high waiting for me there.)

Me: “Yes, right, right…so how do you come to know about the different development schemes?”

She: “My husband…”, she says, trailing off, and he picks it up.

Him (in his element): “Development schemes? Oh, we come to know of them in the newspapers. Sometimes, these BDOs tell us. Sometimes our other Sarpanch friends.”

Me (quite desperate by now): “And what are the main training areas that will help you do this job better?”

Woman member (panicking): “My husband says..”

Him (condescendingly): “Oh, they really need training in understanding budgets. Don’t know what a work order is. Don’t know how to spend on different schemes. Training is a must.”

Me (by now totally strained with the effort of trying to catch her eye and make her talk): “Will you want to continue in politics after this term is over? Do you have aspirations for a political career?”

Woman member: “Uh, my husband feels..”

Her husband:  “Whom did you say you are doing this work for? Oh, the State Election Commission? Of course! She will contest the next election as well!” He says all this genially, as she gags on her tea.

Me (in a false encouraging tone): “Tell me about your role model”

She: “My husband!”

He: “Well, you know…”

Me: AAAAARGH!

And that’s that. After meeting around 12 of the  Super Pativrata Naris, I was kind of ready to yell in frustration. I’d had it and I was ready to put a strongly worded comment on women empowerment in rural politics in Maharashtra, or rather the COMPLETE, TOTAL, EXTREME lack of the damn thing, when I went to Paithan, and ran into Pushpatai Kedare.

And that shut me up. For a long time. Here’s a really remarkable story of what the 73^rd amendment is all about.

Pushpa tai comes from an extremely humble background. She has studied upto the 8^th standard, after which she was married off to this poor farmer. They had 4 kids and no money. She was forced to take up a job in a nearby bottling plant, where she cleaned toilets, swept the premises, ran errands and did whatever it took to earn money. There was one overwhelming idea in her mind, that had she been educated, they would have been better off.

So, after coming home after a gruelling day, she made sure the kids had been to school, sent them for extra lessons, pushed them into studying more at home. The neighbours saw her determination and saw an undaunted leader in her. During the next Gram Panchayat elections, some of them told her, “Why don’t you contest? We’ll make sure you win. What you are doing for your family, you can do for the village.”

Pushpatai paused in her story to look at me in my eye. “I had nothing to lose. If I won, I would at least get respect. I would be recognized in the village. The school master would look after my kids well.” So, the lady contested the election and won it! And in the next 5 years, she made sure that the higher authorities got hell if they did not sanction development schemes to the village. She got the water pipes mended, distributed agricultural implements to the needy, got houses constructed under the Indira Awas Yojana.

Come next elections and she was approached by the MNS, who gave her a ticket and the financial muscle for propaganda. She won this time too, by an overwhelming margin.

5 years down, again on an MNS ticket, she contested for Panchayat Samiti, again, she claims without spending a single rupee from her purse. Of the 11 members at the Paithan Panchayat Samiti, 8 seats were won by Shiv Sena and 3 by MNS. One person from MNS deflected to Shiv Sena. So when the Samiti decided to elect a Chairman, there was no chance of her getting the coveted Chairmanship. But, fortune favors the brave, she said. In 2012, the seat got reserved for an OBC woman candidate. Only she met the criteria, and here she was, in the Chairman’s position, continuously warding off opposition to any of her decisions from 9 SS members.

She is a tough nut. Unafraid, undaunted, used to playing it rough against rough opposition. “My role model? APJ Abdul Kalam,” she says at once. “He too was from a poor background, but he followed his passion for science.”

“Where will you go from here, Pushpatai? Do you wish to contest the ZP elections next?”

“Madam, I would love to contest ZP. But I can’t. I simply don’t have the money to do that. But I’ll tell you this. I am extremely bold and talented. As talented as a Pankaja Munde, or a Sonia Gandhi. But I know I can’t get there…”

“And what do you feel about the Sarpanch-pati phenomenon? Males dominating their wives and not letting them be?”

“Madam, its a question of personal equations. Now this gentleman who just left from here is a homeopathy doctor. His wife is the Sarpanch of his village. I have never even seen her. You’d expect that at least a doctor would let his wife develop and take her own decisions. But no. This Sarpanch-pati phenomenon really gets on my nerves. Sometimes I feel my husband is much better. He is only 12^th pass and never interferes here. In fact, I made him contest the Panchayat elections last year and thanks to my goodwill, he won there!” It wasn’t said with pride or with a misplaced sense of power. It was just put so matter of factly. No glorification, only facts.

Kudos, Pushpatai, I thought appreciatively. We need more of you around.

 I was broken from my reverie as music blared from the TV suddenly.

“Aaja re aaja chanda ke har khwahish poori hogi!” Heavily made up Pati-vratas by the thousands, all apparently starving, and yet incredibly smiling and singing in super high pitches, suddenly burst onto the screen to break their karva-chauth fast.

“Your type of women,” I laughed as Hubby looked taken aback.

“Nonsense,” he said briskly. “The first sign of a thinking, live person is a view point. I mean, nothing wrong in a Karva chauth thing if you really go by the sense in it, but these buggers have converted it into a national past-time for proving love. Now look at you,” he said, warming to his favourite topic. “You are completely weird. Totally strange. I never have quite understood where you get your crazy ideas from. It drives me up the wall all the time. But much better than having to live with an echo system, who is just following my thoughts. I quite like Economists,” he ended up glinting at me, more wickedly than romantically, I thought.

Kudos, Economist-pati, I thought appreciatively. We need more of you around.

Bit by bit!

Dear Reader,

Hi! Do you know who the Bitcoin inventor Satoshi Nakamoto is? Well, I do!

This really wicked idea of mine was carried under “Tweakonomics,” my humor column at the Hindu Business Line. You can read it at http://www.thehindubusinessline.com/opinion/columns/bit-by-bit/article8591086.ece; else read it here directly.

And if you guess what I guess, drop in a line 🙂 Enjoy!

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The mystery man behind the bitcoin

May 12, 2016:

It’s got a rather Hindi film touch to it: Year 2008. A man believing in free trade is upset by crisis and loss of freedom everywhere. He wants to buy stock in Turkey, sell bonds in Brazil and seek underwriters in the US. But hey Bhagwan! These kambakht Central Bankers don’t think of the world as one place and force him to exchange one currency into another and yet another, often with losses. Main kya karoo, Bhagwan?

Thunder, lightning and music! And, Bhagwan, so to say, appears in his dreams to give him a “bit” of an advice. Have your own currency, beta! A currency so designed that it cannot be controlled by the jalim Central Bankers. A currency that will sustain on its own. A currency so designed that every transaction using the currency will have to be validated by other users of the peer-to-peer (P2P) system. Anyone who takes pains to validate it gets an award- the currency itself!

And thus was born the bitcoin. He was so proud of the entire system. He had already transferred some bitcoins to other wallets and these wallet holders had started the verification process. Hurrah! Once the verification was successfully done, the system would automatically generate new bitcoins as rewards. Sure it takes some time to mine bitcoins, but Bhagwan ke ghar mein der hain, andher nahi!

The new users would be awfully kicked about it and the system would go on. But hold on! We can’t afford a mega generation of bitcoins, else they’d lose keemat just like those mundane dollars! So he put automatic stabilisers to control the fault lines, so that the network itself halves the number of coins that can be mined every four years. If 2008 was “once upon a time” in the history of cryptocurrency, then 2040 will be “and they lived happily ever after”, when the total number of bitcoins will hit 21 million, their maximum number possible. Bye-bye, Central Banking problems!

Those initial 1 million bitcoins lay with him, untouched. Bitcoin’s value rose as it became more acceptable. But in the meanwhile, the ubiquitous Duniyawale, those eternal sleuths, were in search of his true identity, hidden cleverly behind his pet pseudonym, Satoshi Nakamoto. Oh, the things they wrote!

Some said he was British, given that his earlier email exchanges carried British-ized “bloody hard” type of exclamations. Twits, he thought in a wry British-contemptuous fashion, kicking a row about nothing. After all, didn’t an entire generation of Indians grow up gobbling up Enid Blytons and Wodehouses by the dozens?

And then someone managed to trace him back to the US. He laughed to see Donald Trump, the eternal opportunist, trying to convince Americans that he is the true Nakamoto. “My IQ is one of the highest and you all know it! Please don’t feel so stupid or insecure, it’s not your fault!” His media agency balked at such amazing gaffs and asked him to come out with more credible and less tech-savvy quotes, which is when he played his card on Hillary’s woman card.

And then the Nakamoto witch hunt went all the way back to Australia, where Craig Steven Wright claimed to be Nakamoto, offering cryptographic proofs that he was the true brain behind those blockchains. Since in the good old days of 2008, he was the only miner, Mr Nakamoto has to hold the private mathematical keys to the original mined blocks.

Little do they know, he thought. Let them play. Let them talk. Because I am I, and I do what I do.