Category: Economics

The “$10 Laptop” and Radical Ignorance

The radical ignorance displayed by those who claimed that the government had created a laptop costing Rs 500 (~US $10) is jaw-dropping spectacular. How on earth can one for even one moment entertain the idea that any entity — least of all the government and a bunch of students — could produce something for an order of magnitude less cost than currently possible is unfathomable.

As the photoshopped image in my first post on this matter previously states, “I see stupid people . . . they don’t even know that they are dumb.” And now we note the furious back-peddling. I had noted in the followup post that the claim is that it was a typo. It seems that India’s Minister of State for Higher Education D Purandeswari’s claim that a $10 laptop was a reality was based on a simple typo, a dropped “0”. (H/t: Sudipta)
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Michael Heller: The Gridlock Economy

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The book, The Gridlock Economy, gets added to the growing pile of stuff to read.

Every so often an idea comes along that transforms our understanding of how the world works. Michael Heller has discovered a market dynamic that no one knew existed. Usually, private ownership creates wealth, but too much ownership has the opposite effect—it creates gridlock. When too many people own pieces of one thing, whether a physical or intellectual resource, cooperation breaks down, wealth disappears, and everybody loses. Heller’s paradox is at the center of The Gridlock Economy. Today’s leading edge of innovation—in high tech, biomedicine, music, film, real estate—requires the assembly of separately owned resources. But gridlock is blocking economic growth all along the wealth creation frontier.

And here’s Heller speaking at Google:
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ICT, Choice and Democracy 2.0

Upstream and Downstream Choices

It is fairly well understood that information and communications technologies (ICT) tools expand choice. We all have access to a very large set of information and have the freedom to choose what we want to read, watch, listen to, etc., etc. ICT expands our “downstream” choice. What is not as well understood is that it expands our “upstream” choice also. It is a two-way medium, unlike say broadcast and print media which only allows us downstream choice: using ICT we send back information indicating our choice and thus guiding what comes downstream.

In other words, ICT expands the menu of options we have and also gives us the ability to change that menu. Options that are not exercised fall off the menu and this leads to more efficient outcomes since resources are not wasted on things that people don’t value. All this is trivially true and one can be guilty of stating the obvious except for the fact that we have yet to make full use of the power of upstream choice that ICT affords in scores of areas which would make economic and political freedom more meaningful.
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Incentives and Policies

Capturing Externalities

It’s an economics truism that generally people respond to incentives. If you truly and deeply understand that, you know a fundamental truth about the world.
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On Competition and Ideas

The Dance of Creative Destruction

At the shining bright core of our galaxy of ideas lie a bunch of super-massive ideas that are tightly bound to each other. The core’s gravitational attraction holds the galaxy together, draws in stuff and transmutes them into higher elements.

Exploring the metaphor a bit further is interesting. At the center of galaxies dwell huge black holes which destroy both matter and time. And like the great god Shiva — the Mahadeva as Nataraja, the king of dancers, dancing the Tandava, the cosmic dance of creative destruction — the galaxy core produces novelty and thus advances the evolution of the entire galaxy. Black holes, just like Shiva, destroy time. Curiously, the Sanskrit word for time is the same for black: “kala”. The universe evolves because ceaseless change is imposed upon it through the dance of creative destruction.

Evolution. It is hard to escape the gravitational pull of the idea of evolution. The idea goes back into antiquity. But it was only recently (in terms of historical time) in the mid-1800s that Charles Darwin (1809 – 1882) pondered the biological variant of evolution and figured out the mechanism. It was natural selection. That is one of the superstar ideas that populate the core of our ideas galaxy. Everything that is known about biological evolution can be explained through natural selection.
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The Transantiago Story

This story comes from the other end of the world but has lessons for any part of the world. It is “a parable about the combustible combination of optimism and ignorance.” Go read “Planning Order, Causing Chaos: Transantiago” by Michael Munger in the Library of Economics and Liberty.

Below the fold I have quoted the last part of the essay. If you wish to skip the article, do read the last bit.
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Abolish the Haj Subsidy

A few days ago the Supreme Court of India admitted a petition challenging the subsidy for haj. (Link). The Rs 280 crore (~ US$ 60 million) a year subsidy for Muslims to visit Saudi Arabia, the petitioners claim, is not just unconstitutional but discriminatory.
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Of Freedom, Markets, and the Future of India

Markets Work, Incentives Matter

The two broadest generalizations one arrives at from a study of economics are that markets work and that incentives matter. People respond to incentives because that is at the core of what it means to be rational. To the extent that humans are rational, their behavior is predictably in the direction that existing incentives point to. Trade between humans is rational because both parties in any voluntary trade benefit. The abstract mechanism which enables trade is called the market. Markets work in the sense that they maximize the gains from trade among an arbitrary number of entities. There are other methods of enforcing trade among people, such as the command and control mechanism often employed by communist governments. But they are at a distinct disadvantage relative to the market because the latter is based on the premise that rational actors respond to incentives.
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The Fabulous $10 Indian Government Laptop

“Everything reminds Milton of the money supply. Well, everything reminds me of sex, but I keep it out of the paper,” wrote Nobel prize-winning economist Robert Solow in 1966 about Milton Friedman, another Nobel laureate economist, the father of monetarism. 🙂

Everything reminds me of India’s failed education system — and by extension — the stupidity of the government policymakers, bureaucrats and politicians included. Unlike Bob Solow, however, I cannot keep it out of my posts.
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Food prices

“When you start getting wealth, you start demanding better nutrition and better food, and so demand is high, and that causes the price to go up.” That’s what George W Bush said in a press conference on May 2nd. The NY Times reports:

In response to the president’s remarks, a ranking official in the commerce ministry, Jairam Ramesh, told the Press Trust of India, “George Bush has never been known for his knowledge of economics,” and the remarks proved again how “comprehensively wrong” he is.

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