Hauled from the archives, here is a bit on the distinction between information and knowledge. This is important because I think we are in an age of superfluous information (followup to that here.) Making distinctions aids comprehension and consequently the ability to efficiently effect change. I like to distinguish between economic growth and development because economic development is the goal and in many cases economic growth is the instrument for development.

Not having the gift of foresight, one rarely knows how far one will stray having embarked on an ill-advised direction. So it is with me and my simple assessment of Sri Sri Ravi Shankar many years ago. I began with concluding that SSRS is very skilled in marketing a good and ancient Indian technique generally known as yoga. Many others from India have done so and I approve of all of them because I approve of good ideas being shared. Some made huge fortunes (self-styled “Bhagwan” Rajneesh AKA Osho, for …

Advertisement as Signaling
Advertising is the communication of a signal (information) with the express purpose of gaining advantage over one’s rivals in a competitive environment. That’s my definition of advertising in the broadest terms. In those terms, advertising is not limited just to the world that is human made. All sorts of life forms over evolutionary time scales have been in the business of advertising. In the natural world, advertising serves a very useful function, the end result of which is the astonishing appearance of beauty and diversity. A beautiful human …

Here is the story. I have an object X that I wish to assign (gift or give away) to one of three: A, B, or C. How do I determine whom to give it to if I am concerned about allocative efficiency? Assume that A, B, and C have different preferences and abilities to pay.
To put a nice twist to the story, what if I am also concerned about equity? That is, although I have only one object X, I don’t want to be unfair to the other two who …

One day an economist looked up and saw a little girl being attacked by a vicious dog, just down the street. He rushed over and saved the girl by strangling the dog.
A reporter interviews him and says, “Sir, this is a wonderful thing you have done. Did you say you are an economist?”
“Yes, I am,” says the economist.
“Very good, sir,” says the reporter, “this will be our lead story tomorrow, and the headline will be ‘Radical libertarian economist saves little girl from vicious dog.‘ ”
“Well, I’m not that radical,” says …

My favorite village idiot joke goes – please stop me if you have heard this one – this way. Once upon a time, in a particular village, when offered a choice between a dime and a nickel, the village idiot would invariably grin and pick up the nickel and everyone would have a hearty laugh at the stupidity of the village idiot.
One day, a kind-hearted guy says to the village idiot, “You know, although a nickel is larger than a dime, it is only worth half a dime. You …

Burundi comes before Canada lexicographically but Canada leads in all measures of human welfare one could care to compare the two on. I am endlessly fascinated by the contrast between different parts of the world. How on earth did humans end up occupying such widely separated ends of the spectrum of economic development?

Or What Economists Do
What the heck do economists do is a question that does not baffle many people because they “know” what economists do. I know it did not baffle me. I was not taught economics in high school, and had an entirely forgettable few lectures ostensibly on economics sometime during my undergraduate in engineering. Given this ignorance, I had a vague notion that economics had something to do with money. I think I conflated economists with finance people and accountants. But I was not baffled because I was too …

A friend recently asked me for some advice on how to improve his understanding of economics. I asked my favorite advisor CJ to take a shot at it. Here is what he wrote, for the record:
Each of us has a unique learning style, of course. Here is mine.
Learning economics better requires reading. But here is the rub: one could read disjointed stuff on the web all day long and still not understand what it is all about. In fact, reading too much on the subject which is more in the …

The Rural Employment Guarantee Scheme (REGS) has the word guarantee in it and whatever else it may or may not guarantee, it certainly guarantees greater overall poverty than would be the case without the REGS.
In brief, REGS does not increase the aggregate production of the economy, nor does it increase productive capacity; it merely redistributes incomes by giving money to those in the rural areas. The first order effect of this diversion of resources is that other projects which have the potential to increase production and increase productive capacity do …

It is common knowledge that the Indian economy which was securely imprisoned since independence in 1947 has undergone a radical transformation and has seen a departure from its dismal 3 percent “Nehru Growth” to a more respectable 6 percent and more since the 1980s. There is little room for debate on that fact. What observers appear to disagree on is what were the factors that led to the transition from the “Nehru Growth” to the present.
Very broadly speaking, here is a thumb-rule I use to figure out what factors …

Never underestimate the power of incentives, is what my economics guru used to say all the time. Economics is at its most generalized form the study of incentives. Positive analysis involves digging below the surface to uncover the incentives of the concerned economic agents (people) with the aim of explaining why things are they way they are. It is not just out of intellectual curiosity that one wishes to figure out why things are way they are. It is only the first step to the ultimate goal of obtaining a …

The phrase that comes to mind when I consider the move from movabletype to wordpress for this blog is disruptive change, that phrase so beloved of those worthies who write those content-free fat management books. I think the change is nice but it has disrupted all kinds of things. Links internal to the blog are no longer functioning and one gets the highly informative 404 error message. So I have had to spend hours manually fixing broken links and categorizing posts. While doing that I re-read bits I had …

“Magarpatta City” lies in the south-east outskirts of the city of Pune in Maharashtra, my home state. Searching for place to live in led me to Magarpatta City yesterday. Since moving out of my Mumbai apartment in mid-February, I have been a homeless person leading a rootless life living out of a suitcase. February saw me in New Delhi, Nagpur (my home town), and Bangalore; March was spent in New York City, Long Island NY, Boston MA, and Newark DE; April I was in Berkeley CA, Saratoga CA, Seattle WA, …

Economic change is a process, and in this book I shall describe the nature of that process. In contrast to Darwinian evolutionary theory, the key to human evolutionary change is the intentionality of the players. The selection mechanisms in Darwinian evolutionary theory are not informed by beliefs about the eventual consequences. In contrast, human evolution is guided by the perceptions of the players; choices — decisions — are made in the light of those perceptions with the intent of producing outcomes downstream that will reduce uncertainty of the organizations — …

The principle that exposure to economics should convey is that of the spontaneous coordination which the market achieves. — James M. Buchanan
The last time I was out having lunch with my economics guru, I pondered the question that is foremost in the minds of most Indians. “What,” I asked the great guru, “explains the shoddy quality of goods and services that one finds in India generally?”
“That I can tell you in one word: competition.”
“How so?” I said. “Isn’t competition supposed to ensure lowest prices, and highest quality instead?”
“Certainly. But you …

Suhit Anantula reports that globally an astonishing US$4 billion has been pledged for tsunami relief till date. That is an incredible amount. Assuming that about 4 million people are directly affected (certainly an upper bound), $4 billion implies a lower bound of $1000 per person. My guess is that the aggregate promised aid exceeds the aggregate annual income of the affected population. The actual aid delivered will probably be much lower than the pledged amount, if one were to extrapolate from the past performance.
Some have advocated the creation of a …

Folk wisdom captures very succinctly the idea that life is about tradeoffs in the saying that one cannot eat one’s cake and have it as well. If you eat the cake, it is gone and you no longer have it. Economists call it opportunity cost . The opportunity cost of eating the cake is not having it; conversely, the opportunity cost of having the cake is that of not eating it.
Remarkable results follow from exploring the idea of opportunity costs. The whole theory of comparative …

Thus have I heard, that once when the The Blessed One, the Tathagata, was resting in Rajagriha during the season of rains, he carefully pondered the economic truths. Among those assembled were Shariputra, the son of a noble family, and Avalokiteshwara, the Bodhisattva Mahasattva, the Buddha of Infinite Compassion, and lots of monks too numerous to name here.
Shariputra asked The Blessed One, “What is the chief lesson that one can learn from a careful study of economics?”

The converse concept of bounded rationality, it seems to me, must be unbounded stupidity. So is the statement that humans exhibit bounded rationality merely an euphemism for the fact that humans are prone to unbounded stupidity?
A moment’s reflection should convince us that the world around us is definitely complex and we cannot really fathom what the consequences of our actions will be. The best we can do is to try to learn from our previous bouts of “bounded rational” actions and try to avoid being unboundedly stupid.
Here is …