Lokpal bill and media

Watching the media coverage of the Lokpal bill standoff is interesting. I notice that all the media outlets have their own version of a smart reporter (Barkha Dutt being the unchallenged leader)who then goes on to interview a host of politicians and journalists and or a bunch of aam aadmis who let lose with their personal experiences of corruption. Its a race to the bottom in terms of a critical discussion of corruption. If the country really wants to tackle corruption it cannot be by simply creating yet more laws and not enforcing them? Surely not by adding yet another layer of bureuacracy which can be corrupted? I don't have the answers but I don't believe the Lok pal is the only or even the best way to tackle corruption. How can we know without any evidence? What we need is an academic expert who knows how corruption was tackled successfully or where it failed and why. We need science and facts. The BBC at least does find experts to talk of things and not just politicians. You need skills and training so let the journalists do their job and rely on academics for the evidence of what works.

On Friendships

Of all the "ships" in the world, this is one that is the most under-rated...
Of course I know that most mature adults understand that friendship networks are really really important to their sense of well being, still it seems to me that we make do with whats available easily than actively searching for the friends who make us happy. Unlike relationships where everyone kind of knows that they are looking for "The One", its not the case with friends. Extroverts think anyone can be potentially a friend, introverts think no one can. But what if friendships are like relationships, maybe not requiring the same kind of exclusivity, but requiring time, commitment and effort both in searching for the right friends and then making sure they stay. Personally I find that some friends consistently make me better when I have contact while with others I am left wondering what was missing, why was it so ambiguous etc.
There are the unrequited friendships when one person wants to befriend another but its only one way, there are the expedient friendships, the fly by nights, the ones with benefits and so on...its quite a sociological mine! Economists have researched friendship networks to see (e.g. see Currarini, Jackson and Pin, 2009), they have impacts on health, e.g. drug use among teenagers, and other socio economic outcomes. But I wonder whether my friendships are driven by economics...I prefer not to think so...

The United Shops of America

Visiting the USA this year and I feel it should really be re-named...Having been exposed by now to the relentless advertising on cable TV for a few months now, UK TV seems like an ad-less haven! Cannot get through one episode of "How I met your mother" without at least 15 ads in between...its not just the frequency but also the composition thats fascinating: there are the usual ones for cars, breakfast cereals, OTC drugs, movies but on top of that its the advertisements for prescription drugs and lawyers that take my breath away! You would never know that such diseases existed until they told you that you may well be suffering from them....depression, different types of cancer, diabetes, gout, arthritis etc and son after the ad there is the mandatory fast forward recital of the various side effects. Then there are the lawyer ads: "do you or anyone you know suffer from the symptoms of asbestos poisoning? Do yu or anyone you know work in an area that might give you asbestos poisoning? You are entitled to blah blah, Call us now!"
Luckily I am of the ADD persuasion when it comes to ads...they pass by me without my brain registering anything. Some people I know on the other hand just soak up all this information so they can "talk to their doctor" about it...

Next suggestive justification for the re-naming: Thanksgiving, Xmas holidays are less about "holidays" and more about getting consumers out in the shops. So shops are closed on thanksgiving, but open with a vengeance with huge sales starting at 3-4am in many stores...people then start lining up for the goodies the night before in the bitter cold. Maybe its exciting, maybe it generates that extra bit of revenue...Im trying to think WHY. This BTW is called "Black Friday"...seems like the term originated in Philadelphia in 1966 and was used to denote the heavy traffic congestion due to sales the day after thanksgiving..it has now spread wider. Black Friday is apparently the busiest shopping day of the year! So presumably, thats why the shops open so early...creating traffic jams and road (and parking) rage in the early hours! There I was, naively thinking that maybe this was a way to give poor people a chance to get to the sales - surely the rich will not give up their precious time standing in line...Lets not forget "Cyber Monday" which are the online sales the monday after thanksgiving..

This is a country where apparently people STILL aren't buying enough, thats having a recession? Looks a bit tough to believe when you see the parking wars outside the big shops on Black friday...

Beating yourself at your own game

How many of you have seen this beautiful VW advertisement?
http://www.guardian.co.uk/media/video/2008/dec/22/advertising-volkswagen
It took me a while to realize that its really quite insightful...most of the time we spend
criticizing ourselves and kicking ourselves...in fact I do it so much that many days I end up exhausted with the effort of trying to find excuses for my behaviour and just give up and escape to some passive activity where I cant "fail" (by my own standards).
Here is what "Psychology Today" tells us:
"We can observe this voice at work in various areas of our lives; it tells us not to get too close in our relationships or go too far in our careers. These thoughts can be cruel and berating: Who do you think you are? You'll never succeed. You're not like everyone else. No one will ever care about you. These thoughts can also be deceptively calm and soothing: You're just fine on your own. The only person you can rely on is yourself. You should reward yourself with one more piece of cake. Just have one last drink; it will make you feel better."
Clearly the way we cope with our critical inner voice is really important for interactions and success in the world. I find for example that when this voice is very strong you can see it reflected in the choices people make. People who give in to their own criticisms will tend to choose "friends" who confirm these criticisms. They will tend to underperform in work, confirming what their inner voice keeps on telling them. They will deliberately limit their effort so they can avoid the hurtful feelings of the voice which tells them they have no ability anyway...and so on. In fact a new branch of economics aims to tackle the question of how "identity" influences important decisions.
"Identity Economics bridges a critical gap in the social sciences. It brings identity and norms to economics. People's notions of what is proper, and what is forbidden, and for whom, are fundamental to how hard they work, and how they learn, spend, and save. Thus people's identity--their conception of who they are, and of who they choose to be--may be the most important factor affecting their economic lives. And the limits placed by society on people's identity can also be crucial determinants of their economic well-being."(Kranton and Akerlof's book "Identity Economics")

If identity has to do with a notion of who we are - what is our "correct" level in the workplace and in choice of partners - it would explain why people overwhelmingly do not marry across social class or race in some countries, why ability and effort are highly correlated with high levels of confidence or even "over confidence". Differentiated wages convey a signal to workers of what the employer really thinks about them may destroy morale quite effectively among the less confident workers. When their perception of themselves changes, their performance on the job adjusts to those changes...

Social Capital

The term "social capital" was popularized by a sociologist called Robert Putnam. He has written extensively about community life, and how it can lead to higher levels of good outcomes like health, education etc. The problem with social capital (and I'm lifting extensively from J.Sobel's nice article summarizing the recent work on it), is that it is too vague. No-one knows what exactly it refers to, and whether and how it can be built. So I wanted to provide my laundry list of what I believe should be the essential ingredients of social capital:
1. It should refer to "informal" ways of transacting, e.g. relational contracts vs legal contracts.
2. It should be decentralized
3. It should be continuous with respect to individuals (i.e. a single individual cannot shift it by a large amount)
4. It should be "local".
5. It can come as endowment (e.g. you may inherit your parents networks), or may be built by investing in networking.
6. Success in building social capital should depend on a combination of ability, endowment and investment.
7. Governments can facilitate the building of social capital by subsidizing community centres, local newspapers, etc but ultimately
whether it succeeds depends on the alternative ways available to accomplish various transactions.
8. Friendship or social networks are highly related to the main activity of an individual, e.g for students it is their classmates, for adults it is often work related. Usually building these is a low cost activity done for direct consumption benefits but may lead to other types of benefits..
9. Within the narrow space an individual occupies both at home and school/work, I think physical distance matters: neighbours at home and at work matter a lot more than non-neighbours: so investment costs increase in distance - both social and physical.
10. Social capital is associated with an aggregative unit, e.g. a country, a region, a workplace. Even though built by individuals, only the aggregate version is social capital.
11. It can potentially be bad as well: a close knit community is often more tradition bound being based on sanctions for un-cooperative behaviour.
12. An important function of social capital is to facilitate information flows and prevent opportunistic behavior through punishments.

Economists already look at the effects of "salient" social capital for a particular issue: they may not call it that, but peer effects in health and education are an example, other examples are how political affiliations are affected by affiliations of close relatives and friends and workplace..

At the end can we say which region/workplace/country is high in social capital? Scandinavian countries maybe? But immigration may change that...possible things that are important: level of development, levels of inequality (tax system), geography- openness to inward migration, communication systems. Can we say Bhutan is high in social capital?

Ego and other animals

This is an article about the Ego. Having read a lot and observed myself closely, I now feel ready to comment on this topic which I believe a lot of people should be interested in, if they are not already…
Well, my interest started as a result of a crisis year where I had a number of interpersonal interactions which were, to say the least, negative. A number of negative experiences led me to look for peace and a solution to these problems.
Solutions were slow to emerge: it seemed that no matter how I said something, it was always the wrong thing.

I’m still not sure it’s a “solution”…but anyway. I visited a friend who introduced me to books by Eckhart Tolle. There is nothing special about him, except that he writes and talks well…but I think I understood because of my need to understand. So, what he says basically is to detach yourself from your ego. What is an ego? Well, I understood it best with examples: ego is what you identify with, it is your story. It is your past, your future. Not your present.
Ego is what separates you from everyone else, it is what makes you superior or inferior to anyone else. It is what prevents you from enjoying the present, and primarily it is that which causes superficial un-winnable conflicts with others. It prevents you from being your authentic self. Even writing this blog, is a way for my ego to feel superior in my understanding…!

So now, how does one get rid of the ego? Apparently the first step is simply to recognise when it is used. I acknowledge that my ego is making me write this blog…that this is not “me”. I am being “present” in that I am aware of the ego.
So, who am I? I am the presence that is aware of the ego.
Actually, when you are ready for this understanding I find that it works. Its practical and simple and it totally works!

Other interesting insights from Tolle’s books: when there is a situation you can control, you should either enjoy it, and if you cannot enjoy it, accept it. If you cannot accept it, then stop doing it. And then he talks of the “pain body” which all of us are born with. Some people have a more active pain body than others. The pain body is an organism that lives inside you and is built up of all the past hurts thar civilization has imposed on itself and it consists of your own past emotional pain. Whenever you are repeating a pattern that you are comfortable with, the pain body gets excited, and active….basically it wakes up and feeds on new pain, and can completely take over your personality. You become a slave to it and start reacting in ways that reinforce the pain…how do you escape? Again, first step is to be aware that this is the pain body, to be able to laugh at it and understand whats happening…to react in an authentic way. To observe the pain in a detached way and understand where it comes from and to then give yourself the permission to feel the pain without reacting..
The beauty of his books is that the advice sounds very abstract but the advice is really very practical…

How to win votes on the cheap: Lessons from Indian Elections

In a recent conversation with an Indian politician, I asked how they chose to spend their tax money between different groups of voters. He replied that it was prioritized: there would be the largest emphasis on “swing” voters, then on loyal (partisan) voters who vote for the party regardless and finally on voters who were partisan for other parties! In my research we reach a surprisingly similar result based on data on grants from the central government to 14 state governments in India during the period 1975 to 1997. The most important instrument in the control of incumbent parties is the allocation of the budget. When the central government allocates grants to state governments, we find that the alignment of the incumbent party at the state with the incumbent party at the center together with how “swing” a state is predicted to be in a particular state election affects how much is allocated: a state that is aligned and swing receives 16% higher transfers than a state which is unaligned and not swing.

Grants are used by state governments to finance public goods – e.g. road building, electrification of villages, telephone connectivity, water or sanitation facilities in poor neighbourhoods, employment guarantee schemes etc. These projects build goodwill for the party that’s credited with providing the grants. If a state government is aligned with the central incumbent then both levels of government benefit: voters will reward the party at the state level election or the central election. But if the state incumbent party is not aligned, then the credit is shared between two different parties: it is this that causes central governments to limit the grants to unaligned states. Swing states are those where the voters are undecided between parties. A small increase in goodwill can lead to large gains in votes. Of course the benefit only goes to the incumbent party at the center if the state is an aligned one. It turns out that parties allocate expenditures to maximize their chances of getting re-elected and this effect holds both for central as well as state level elections.

In our data, the Congress Party dominated central elections for most of the period under study. The Indian states which turn out to be electorally very important at the state level elections are Bihar, Kerala and Uttar Pradesh. Both Bihar and Uttar Pradesh had multi party contests during the period 1975 to 1997, where a small swing in favour of one party lead to a large change in election results. In Kerala, there were two main alliances: one led by the Congress party and one led by the Communist Party of India. Our measure of alignment is Bihar is high (0.7, where the maximum is 1) relative to other states, hence Bihar ends up being a favoured state.

To illustrate our results even better: compare the two states of West Bengal and Rajasthan: West Bengal has a low alignment with the central government during the period of study (it was dominated by the Communist party during this period) and was not a swing state during this period, Rajasthan on the other hand was aligned and swing. Rajasthan got an average per capita grant of Rs 115 (the highest) in 1980-81 prices while West Bengal got Rs 39 on average. Rajasthan also happens to be marginally higher ranked than West Bengal on per capita income. This shows the problems with letting politics decide the allocation of grants: governments look less at how deserving or needy a particular state is and more at how important the state is for re-election.

So, what can be done? It is generally agreed that grants decided by the Finance Commission are less manipulable for political gains, as they are governed by formulae based on the needs of state governments. A simple policy prescription from our study is to reduce the discretionary elements in grants and base them on economic considerations based on formulae.

India has a parliamentary democracy with a first past the post voting system. Parties are interested in winning the largest number of state elections, as winning in state elections is closely linked to winning in central elections. Our conclusions hold for such countries, but similar studies have been carried out in European countries and Latin American countries (e.g. Sole-Olle and Sorribas for the case of Spanish municipalities, Armesto for Argentina, Leigh for Australia etc) suggesting that while the precise way in which politics affects this decision may vary, the idea that politicians choose budgets not so much to benefit citizens but to increase their own chances of re-election is a robust one.