We’re back

And just in time for April Fool’s Day. I wonder what the newspapers around the world will unleash on the unsuspecting on April 1st. The greatest April fool’s joke is undoubtedly the Swiss spaghetti harvest of 1957. The BBC explained that the harvest was particularly bountiful not only because of the mild weather but also “the virtual disappearance of the spaghetti weevil.”

Here’s the full text of the TV broadcast: Continue reading “We’re back”

An economics moment

This is a personal post. Not exactly what I had for breakfast type of post but close.

I clearly remember the moment when a light went off in my head. Brian Wright was teaching and we were talking about EV and CV. Equivalent variation and compensating variation, and the related concepts of “willingness to pay” and “willingness to accept.” As I had come to economics rather late in life, I had had the opportunity to figure out some of the basic concepts in my head. But I did not have the vocabulary to fully express the ideas. So when I got the vocabulary, it was an “aha” moment.

I remember Brian posing the question: so PG&E (the local gas and electricity utility company) is going to string up high-tension cables above your backyard. You know that that increases health risks. In economics terms, negative externalities accompany this action. That raises two questions.

  • How much are you willing to pay to stop PG&E from doing so?
  • And how much are you willing to accept to allow PG&E to do so?

Note that in the former case, the assumption is that PG&E have the right to string high-tension cables over your backyard and you wish to stop them; in the latter case, you have the right and can disallow PG&E from stringing wires across your backyard. It’s a matter of who owns the rights.

The willingness to pay is bounded by how deep your pockets are but the willingness to accept is open-ended. If PG&E owns the rights,then most likely you are out of luck because you will not be able to pay them enough to deter them from going ahead. If you own the rights, then you can make a pretty neat pile of cash by holding out.

Ronald Coase showed that regardless of who owns the property rights, if there are no transaction costs, then bargaining among the parties is sufficient for the discovery of the economically efficient amount of pollution.

Sometimes I wonder. I wonder if we would continue to have the kind of problems such as Nandigram if basic economics principles were better appreciated by a large percentage of the population. I think a lot of coercion and violence could be avoided. But perhaps I place too much faith in rationality.

Education Spending

This is a follow up to the post on Indian spending on education abroad.

The actual spending may not be $13 billion annually but the argument does not change even if the figure was much lower. What matters is that it is indicative of a problem and we should be concerned about it. It should be noted that this spending is an outflow of resources. That in itself is not a bad thing, however. We need to ask if this is a net outflow in the education sector. That is, what is difference between the inflow and outflow.
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India Spends $13,000,000,000 on Education Abroad

That’s what a report in the Hindustan Times claims: US $13 billion each year. Figures such as these are unbelievable but I suppose someone must have done the numbers. In any case, I had estimated that number to be around $10 billion a few years ago.

Let’s pause for a moment and figure. $13 billion every year. Or in the last 10 years, about $100 billion. Imagine what you could buy for that money. How about 100 colleges with first class infrastructure with housing, classrooms, labs? Each year India could have an additional capacity for 10,000 college students and in 10 years you could have 100,000 additional capacity. Imagine the multiplier effect of that spending — in construction, in salaries to teaching and non-teaching staff. Imagine the boost to the industry from creating human capital. The imagination boggles at the sheer waste.

Imagine how much infrastructure you could build for $100 billion.

One of the principal lessons one learns as one studies economic development is that success or failure depends largely on the set of economic policies that govern the economy. India, for instance, is poor and economically a failure because its economic policies are extremely brain-dead. Of course one can explain why these brain-dead economic policies exist. We will not visit that now. Here I would only mention that the policy on education is the most brain-dead and that educational policy is largely to blame for why India is poor today, and if the policy is not changed, then it will certainly doom India in the future.
Continue reading “India Spends $13,000,000,000 on Education Abroad”

Arthur C Clark: The Final Odyssey

Sir Arthur C Clarke 1917–2008 departed the planet yesterday for his rendezvous with Rama in geosynchronous orbit.

Like millions of others of my generation, I grew up reading science fiction. I liked Arthur C Clarke the best. Based on his story “The Sentinel,” the movie “2001: A Space Odyssey,” is one of my all-time favorite movies. He collaborated with Stanley Kubrick on the book and the film. I suppose I will have to watch it again soon in his memory.

Whenever I am astounded by technology, I am reminded of Clarke’s Law: “Any sufficiently advanced technology is indistinguishable from magic.”
Continue reading “Arthur C Clark: The Final Odyssey”