Sir, won’t you buy this bridge and the Employment Guarantee Act?

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 where one starts wondering what is it that I am going on about. I was coming to that.

It all began when recently my friend Dr Malpani emailed me about the Employment Guarantee Act, the details of which you can find here.

There seems to have been some sort of convention (details) where they adopted a resolution outlining the “non-negotiable” features of an acceptable EGA. These include–

a permanent and universal work guarantee, extension to the whole of India within three years, payment of minimum wages in all circumstances, central government funding, safeguards for the interests of women, decentralised implementation, and full transparency at all levels, among other features.

More about this later. But now, let’s go to Niger, the second largest country in Africa. Extremely poor and definitely overcrowded. Soil erosion, desertification, frequent famines, flash floods, lack of water — the usual laundry list of mini-disasters. So what did they do? They decided to dig trenches and wells to stop the flash floods and thus prevent further soil erosion which was causing desertification. Then they realized that it was actually leading to more desertification, instead of less. They had to cut back on their policy of digging wells for farmers to water their cattle.

A Niger government official explains:

Wells attract animals. Animals eat the vegetation. Because the wells attract so many animals, the vegetation never gets a chance to grow back. Which is the beginning of desertification, the very process that the wells were designed to prevent.

[Source: Peter Biddlecombe, “I came, I saw, I lost my luggage” pg 210.]

Considered in isolation, having wells for increased vegetation is a good thing if you want to prevent soil erosion. The problem occurs when there are other confounding factors such as too many animals. If the system has multiple distortions, trying to address one of those distortions without regard to the others, could lead to unintended undesirable outcomes and make the system worse off than before.

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Here is another one from a different part of the world. A world with cars and computers, and roads and highways. And often heavy traffic congestion. It would be clear to the meanest intelligence that to ease traffic congestion, you have to build new roads and highways and widen existing ones. Except that sometimes doing so only worsens the congestion. Totally counterintuitive.

Why building new roads does not ease traffic congestion:

There is no shortage of hard data. A recent University of California at Berkeley study covering thirty California counties between 1973 and 1990 found that, for every 10 percent increase in roadway capacity, traffic increased 9 percent within four years’ time…This phenomenon, which is now well known to those members of the transportation industry who wish to acknowledge it, has come to be called induced traffic…

The mechanism at work behind induced traffic is elegantly explained by an aphorism gaining popularity among traffic engineers: “Trying to cure traffic congestion by adding more capacity is like trying to cure obesity by loosening your belt.”

Here the confounding factor is that there is supressed demand for more road transportation and as the supply of the road network expands, the demand is expressed to the point where the roads are once again as congested as before and therefore the private cost of using the road once again exceeds the benefit and people stop using the road.

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One more case in point. This time from the development literature. Urban unemployment is a common feature in underdeveloped economies. Both in the organized (or formal) sector and in the informal sector, urban unemployment leads to a whole host of symptoms such as gigantic slums, urban crime, etc.

Once again, the no-brainer solution is simple: increase employment opportunity in urban areas so that the unemployment rate goes down and thus cure the associated problems. Unfortunately, it is not that simple. By stimulating job creation in the urban sector, one can make the unemployment levels actually increase. How does that come about?

The confounding factor is that there is a vast pool of labor in the rural sector and the average wages in the rural (agricultural, mainly) sector is lower than the wages in the urban (modern) sector. This leads to rural-urban migration. By raising the probability of finding employment in the urban sector through policies that create more urban jobs, it accelerates rural-urban migration and perversely raises urban unemployment. (For details, see the Todaro model.)

The Todaro model has strong policy implications regarding development strategies. For example, efforts to reduce urban unemployment by stimulating job creation in the urban modern sector are likely to be stymied eventually, in that they will raise the likelihood of finding a good job and hence induce a greater flow of rural migrants. Todaro has argued far and wide that the best strategy to reduce urban problems in developing nations is to seriously promote rural development (economic opportunities plus amenities like health care and education).

Which brings us back to the Employment Guarantee Act.

It is a no-brainer that the EGA will make the poor better off all across the length and breadth of India. It will raise hundreds of millions out of poverty. India will finally become a wonderful developed economy. Oh why didn’t we think of this before?

If you believe that, I have a red-colored bridge across the Golden Gate which I would dearly like to sell to you for a throw-away price of only $10,000. Send me a check and I will Fedex you the title to the bridge. It is a very nice bridge. The view is totally incredible. People come from all over the world and take tons of pictures. You will not regret your purchase. Money back guarantee if you are not fully satisfied with your purchase. To the first 100 people who send in their checks, I will throw in the Bay Bridge as a free bonus in the whole deal.

Here, I will go out on a limb and predict that if ever this EGA is implemented, it will actually increase the level of poverty and the number of poor in India. It will drag those at the margins of poverty deeper into poverty. The only guaranteed effect will be an absolute increase in the amount of corruption and some politicians will make obscene amounts of money.

As they say on TV, stay tuned. Details at 11.

[See “The National Rural Employment Guarantee Scheme” and “The Importance of Producing Stuff“.]

Of Sly Mendacious Vindictive Idiots and Ignorant Gullible Myopic Retards

I did not bother to vote in the US Presidential elections this time even though I did receive my absentee ballot. I am registered in California which is guaranteed to not go to Bush. My anti-Bush vote would not matter, therefore. And I am not sufficiently interested in the local issues to cast a vote either way. So I decided that it is not worth the bother of mailing in my vote.
Continue reading “Of Sly Mendacious Vindictive Idiots and Ignorant Gullible Myopic Retards”

Oh To Be in Kolkata For Puja

The city formerly known in English as Calcutta (now known in all languages as “Kolkata” which is its Bengali name) is an unfortunate city. Its misfortune derives from two major sources primarily. Two of the world’s most destructive ideologies — Islam and communism — have brought a city full of promise to its knees and today it is best known around the world as the “City of Joy” and the “Black hole of India.” It breaks the heart of any culturally sensitive person — not just someone like me whose ancestors claimed Bengal as their home — to behold the depths that Kolkata has been dragged to first by Islam and then by communism.
Continue reading “Oh To Be in Kolkata For Puja”

The Unbearable Silliness of Loving One’s Enemy

Anant in a recent comment on this blog concluded with the seemingly wise statement “to revenge is pleasure, to forgive divine.” I say seemingly wise because it does not withstand any level of scrutiny. Forgiving an enemy may or may not be a very wise principle if you are dealing with an individual. Being magnanimous towards someone who in a momentary lapse of reason has harmed you could be a good strategy if the person realizes his folly and is genuinely sorry about his aberrant behavior. But it could be counterproductive if a priori a person knows that forgiveness will be forthcoming irrespective of how badly he behaves. In such cases, pious hopes that forgiving someone is divine only leads to less than desirable social outcomes.
Continue reading “The Unbearable Silliness of Loving One’s Enemy”

India’s Development and the Terrorist State of Pakistan

Economic development is a complex matter which touches every aspect of a society, public as well as private, domestic as well as foreign. One cannot seek to understand (and subsequently act to change) the existing order by narrowly focusing on a just a few aspects of development. It is in that spirit of eclectic investigation that I recently wrote on the true weapons of mass destruction. Understanding conflict and how to minimize conflict is as important to development as the use of IT tools and other such mundane matters.
Continue reading “India’s Development and the Terrorist State of Pakistan”

You might be a third world country if …

Today’s edition of The Free Press Journal carries on its front page an interesting item, “Carry out attacks in India or perish: ISI to Dawood”.

Dawood Ibrahim has the distinction of being labeled by the US as a “Specially Designated Global Terrorist (SDGT)”. The ISI is the Pakistani intelligence agency which some argue is the primier agency involved in global terrorism. ISI was the midwife involved in the birth of the Taleban, is involved in Al Qaida, nuclear proliferation, attacks in various places in India — particularly the north east states of India such as Assam (via the Islamic Republic of Bangladesh). The ISI has been implicated in scores of terrorist attacks all over India including Mumbai.
Continue reading “You might be a third world country if …”

The Military-Industrial Complex

Over fourty-three years ago in January 1961, US President Dwight D. Eisenhower in his farewell address warned of the dangers of the “military-industrial complex”. In view of the upcoming US presidential elections and the global conflict that the US is engaged in, I think it is appropriate to carefully consider what he had to say. Continue reading “The Military-Industrial Complex”

The True Weapons of Mass Destruction

A report by Josey Joseph in the Oct 14th Times of India warmed the cockles of my heart. The story is about the supply of military equipment from the US to Pakistan. Quote:

… On the pipeline are more than $1.5 billion worth of military supplies over five years. Plus, numerous futuristic deals.
Continue reading “The True Weapons of Mass Destruction”

Whom the Gods wish to Destroy they first make mad

Ever wondered why exactly India is an astoundingly poor overpopulated illiterate starving nation of a billion people? I do. It need not be one specific reason of course. It could be a combination of several factors. For instance, it could be due to divine decree: the gods said that India should be pathetically poor. Can’t argue with that if the gods indeed decreed it. Or it could be that aliens from Mars conspired to make India what it is. Or it could be that foreign powers and their evil agents make India poor. My favorite theory which explains why India is poor is this: plain old ignorance and stupidity.

When the degree of ignorance and stupidity exceeds a certain threshold, it slides into madness. And as Euripides warned long ago, whom the gods wish to destroy, they first make mad. Whether or not Indian leaders have gone mad is a question that I leave for you to decide. The future of India pivots on that point. My conclusion is that madness has taken a firm hold on the leadership of India and the consequences are foretold.

Tim Worstall took the trouble of pointing me to yet another sign that the future of India is in peril. Read and weep for the beloved country.

You might be a third world country if …

To me, one of the hazards of delayed flights is that I tend to read whatever I find lying around. A few days ago I found myself reading a discarded newspaper at an airport. I should not have but morbid curiosity won. A news item proudly reported that the president of India, Mr APJ Abdul Kalam, recommended that children take an oath and forswear corruption.

There you have it. As you are well aware, children indulge in corruption like nobody’s business in India. Scams perpetrated by the scores hit the newspapers with sickening regularity. One day you hear that a bunch of children have accepted kickbacks to the tune of hundreds of millions of dollars in military equipment purchase. Next day you read about a couple of children who were involved in siphoning a few hundred million dollars’ worth of public monies meant for ‘fodder’. Then you read that some children were caught running a fake stamp-paper racket and the loss to the public purse was of the order of a few billion dollars.

I tell you, the corruption that children are responsible for is a crying shame. It is a matter of great urgency that they stop it immediately and the best way to do so is to force them to take an oath that they will cease and desist from ever indulging in corruption. I am very relieved that this terrible problem has been addressed at last.

Which brings me to conclude that if you figure lecturing innocent children solves the problem of institutionalized corruption by the bureaucracy and practically every politician of every party, then you might be a third world country.