Friday, January 6, 2017

Where's the Dirt?

From an email conversation on demonetization with a reporter from the Calcutta Telegraph (Devadeep Purohit) December 28. His story ran January 1 here.

There are divergent views on when the impact of demonetization would be over. Are you looking at any timeline? 

Well, there are some obvious timelines:

Short-run: December 30. I predict that there will be no last-minute extensions for deposits, simply because an embarrassingly large fraction of the estimated Rs 16 tr outstanding appears to have come back, well over Rs 14 tr (and I am sure the number will be far higher as we get the updated figures). 

[Backdrop: The rupee is about 68 to the dollar, and Indian GDP is around Rs 130 tr.] 

It's embarrassing because I am sure the government did not want so much of the outstanding money to obediently come back! Either the share of black wealth held in cash is small, or people have been very efficient in using money mules of various kinds to launder their black money (presumably at a price, but not one that the government will pocket). The truth is probably in between.

Medium-run: the fiscal year ending 2017, where there are some more opportunities to bring in money; for instance, anyone can deposit via Pradhan Mantri Garib Kalyan Yojana and pay a 50% penalty tax (plus another 25% blocked off as a forced loan to GOI); supposedly no questions asked. Though I doubt that after this, people will ever believe that this government can honor commitments about no questions being asked. I'd be interested in seeing the numbers they can generate here, as the high conversions mentioned above suggest that most of the money has already come back.

So will there be no access at all to the black dividend? Apparently, there is a sizable amount of around Rs 7 tr which has been deposited by "large agents" (depositing Rs 200K or more per person). Maybe there is something there, but it is too soon to tell. Each case will have to be followed up. All I can say is that the Income Tax Office will have to do some serious work for a change, investigating these cases.

Longer-run: Up to now what we have seen is effectively a huge GOI-instigated withdrawal of currency, which the Indian public appears to have participated in with great efficiency, though also with great hardship and cost. It is unclear that anything substantial has been achieved in terms of accessing the black dividend, at least in the here and now, while there have been huge costs imposed on the poor, about which much has been written. But what about the longer-run? This takes me to your next question:

The Prime Minister has emphatically spoken about today’s pain for tomorrow’s gains while justifying demonetization. Do you think that demonetization can have positive spin-offs for the economy?

Possibly. If there are any gains to be had, it will come through the fear of using cash for large transactions, or rather the unwillingness to accept cash for large transactions, in the anticipation that the Government might pull off such a stunt again. For this we have to take something important into account. Everyone criticizing the demonetization is correct in stating that the percentage of black wealth held in cash is low (almost surely way less than 10%). But that is not true of individuals who are gearing up for a large transaction, such as buying real estate. There are important points at which the cash ratio shoots up. If there is a real distrust of cash then these spikes (which facilitate large transactions) will be discouraged, and that could be a positive for bringing more transactions under the legal umbrella.

But I also hasten to add that this potential gain comes at a corresponding cost. Everyone has already spoken about the short-run cost on the poor. But there is a long-run "trust cost": if he can dismantle the currency, what is he going to dismantle next? What new de-mons do I have to look out for when making a long-term investment in India? The fears that have been planted in the hearts of those seeking to make illegal transactions have also their reflection in legitimate fears among people and organizations who are seeking to carry out legal transactions.  It isn't just a question of today's pain versus tomorrow's gain.

And of course, on top of that, this naive comparison of pains and gains is problematic. Prime Minister Modi is not supposed to be passing judgment over a utilitarian calculation of costs and benefits, especially when the costs have been borne overwhelmingly by the poor.

A lot of estimates about the possible fall out of demonetisation on the GDP are doing the rounds. But some experts think that given the quality of data availability in our country, it is difficult to come up with such estimates and they even apprehend that the data might fail to capture the true impact. Your thoughts on this debate.

It's really not so much a question of data as of imperfect economic theory. We know the amounts circulating under R500 and R1000 notes pre-demonetization. We will have accurate figures of how much will come back by the end of the year, and we know that the replacement procedure has stumbled badly and can quantify that. With these three figures in hands we can calculate the net monetary shrinkage in 2016, and we can apply a simple quantity theory of money to make predictions for short-run GDP shrinkage. (Here's a serious, careful example.But we don't know how the informal sector will adapt, or has adapted, to the whole thing; how much that sector has gone "informally cashless" and has managed to facilitate transactions anyway. 

Believing as I do in the inexhaustible creativity of the Indian financial mind, I would not be surprised if there were some pretty clever adjustments to enable business as usual under a commonly perceived crisis. That would cushion the drop. So I am partly doubtful of back-of-the-envelope predictions, not because the macro data is bad but because we simply don't know how people can adapt. (That said, it's better to have these around as simple benchmarks than have nothing at all.)

Sunday, October 9, 2016

The Pale Blue Dot

On February 14, 1990, Voyager 1 turned around from a distance close to 4 billion miles away (which is 40 times as far as the Sun from Earth), and took a last look at us. You see Earth below, next to the red arrow, as a mere pixel suspended in the sunbeam scatter of the photograph.

From NASA: "This narrow-angle color image of the Earth, dubbed 'Pale Blue Dot', is a part of the first ever 'portrait' of the solar system taken by Voyager 1. The spacecraft acquired a total of 60 frames for a mosaic of the solar system from a distance of more than 4 billion miles from Earth and about 32 degrees above the ecliptic. From Voyager's great distance Earth is a mere point of light, less than the size of a picture element even in the narrow-angle camera. Earth was a crescent only 0.12 pixel in size. Coincidentally, Earth lies right in the center of one of the scattered light rays resulting from taking the image so close to the sun. This blown-up image of the Earth was taken through three color filters -- violet, blue and green -- and recombined to produce the color image. The background features in the image are artifacts resulting from the magnification."

Carl Sagan was instrumental in having this last photograph taken. This is from Carl Sagan's public lecture at Cornell, October 13, 1994:

"We succeeded in taking that picture [from deep space], and, if you look at it, you see a dot. That's here. That's home. That's us. On it, everyone you ever heard of, every human being who ever lived, lived out their lives. The aggregate of all our joys and sufferings, thousands of confident religions, ideologies and economic doctrines, every hunter and forager, every hero and coward, every creator and destroyer of civilizations, every king and peasant, every young couple in love, every hopeful child, every mother and father, every inventor and explorer, every teacher of morals, every corrupt politician, every superstar, every supreme leader, every saint and sinner in the history of our species, lived there on a mote of dust, suspended in a sunbeam. The earth is a very small stage in a vast cosmic arena. Think of the rivers of blood spilled by all those generals and emperors so that in glory and in triumph they could become the momentary masters of a fraction of a dot. Think of the endless cruelties visited by the inhabitants of one corner of the dot on scarcely distinguishable inhabitants of some other corner of the dot. How frequent their misunderstandings, how eager they are to kill one another, how fervent their hatreds. Our posturings, our imagined self-importance, the delusion that we have some privileged position in the universe, are challenged by this point of pale light. Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity -- in all this vastness -- there is no hint that help will come from elsewhere to save us from ourselves. It is up to us. It's been said that astronomy is a humbling, and I might add, a character-building experience. To my mind, there is perhaps no better demonstration of the folly of human conceits than this distant image of our tiny world. To me, it underscores our responsibility to deal more kindly and compassionately with one another and to preserve and cherish that pale blue dot, the only home we've ever known."

Friday, August 26, 2016

Certified Random: How To Co-Author If You Must

by Debraj Ray ® Arthur Robson

(For the full Monty, click here)

Many years ago, when Debraj worked at Boston University and his good friend Arthur visited there, we spent one of our many enjoyable lunches together railing against the indignities of alphabetical order, which is the dominant name-ordering convention for publications in economics. A quick perusal of our last names will explain why we railed. To add insult to injury, Debraj had just been enthusiastically recommended a “wonderful paper” by Banerjee et al, on which he was a co-author.

Alphabetical order is, in many ways, a good arrangement. Our colleagues from other disciplines express wonderment that such a self-centered subspecies — the academic economist — actually uses this civilized convention. Around 85% of two-author papers are written in alphabetical order. Compare this to the cutthroat nature of much of the sciences, in which there is often a tussle for first authorship, while other not-so-subtle signals such as lab leadership are sent through ancillary ordering conventions. It can be argued that the civility of alphabetical order lends itself to more joint work, as the possible rancor in settling on a name order at publication time is thereby avoided.

And yet, there are features of alphabetical order that create significant and unwarranted advantages for names earlier that appear earlier in the alphabet:

1. Psychologically, names that appear first are more likely to be given extra credit given that society as a whole appears to be attuned to merit-based rankings. This is certainly in line with research on marketing: products presented earlier exhibit higher probabilities of selection, as this aptly ordered article by Carney and Banaji (2012) observes. Even stocks with earlier names in the alphabet are more likely to be traded; see another aptly ordered paper by Jacobs and Hillert (2016), or the more staidly ordered contribution by Itzkowitz, Itzkowitz and Rothbort (2016).

2. Earlier names appear bunched together on a bibliographical or reference list, lending additional perceptual weight to how often they are cited. They also appear earlier on the reference list. Haque and Ginsparg (2009) --- yet another aptly ordered paper! --- note that article positioning in the ArXiv repository is correlated with citations of that article. Feenberg, Ganguli, Gaule, and Gruber (2015) demonstrate that the same bias exists in the downloading and citation of NBER “New This Week” Working Papers, which led to a change in NBER Policy.

3. There is at least one major journal in economics (the Review of Economic Studies) which publishes articles in alphabetical order (using the last name of the first author). Because many other journals use the convention that the lead article is to be regarded as special, and because many do not know that the Review of Economic Studies follows this policy — did you? — this confers an advantage on earlier names.

4. There is, of course, the et al convention, which, while strictly speaking is not a corollary of alphabetical order, is widely used in citations and especially on slides in seminars, completely swamping the identity of later authors. Even if et al were to be banned in journal publications (which it currently is not), it cannot be banned from slides. In addition, it is widespread practice in verbal presentations to mention the name of the first author and then add “and coauthors”: an understandable but nevertheless damaging shortcut.

Is there any evidence that these considerations matter at all, or is this the resentful fantasy of two disgruntled economists with surnames far down the alphabet? There is, actually, quite a bit of evidence. In a paper published in the Journal of Economic Perspectives, Einav and Yariv (2006) write:

“We present evidence that a variety of proxies for success in the U.S. economics labor market (tenure at highly ranked schools, fellowship in the Econometric Society, and to a lesser extent, Nobel Prize and Clark Medal winnings) are correlated with surname initials, favoring economists with surname initials earlier in the alphabet. These patterns persist even when controlling for country of origin, ethnicity, and religion.”

There are several other papers that are in line with the Einav-Yariv empirical findings; see, for instance, the appropriately hedged Chambers, Boath and Chambers (2001), or the impeccably ordered van Praag and van Praag (2008). This last article finds “significant effects of the alphabetic rank of an economist’s last name on scientific production, given that an author has already a certain visibility in academia ...Being an A author and thereby often the first author is beneficial for someone’s reputation and academic performance.” A recent survey by Weber (2016) summarizes the literature thus: “there is convincing evidence that alphabetical discrimination exists.”

It is possible to argue that alphabetical order is an efficient arrangement: earlier names are better off. So why care? Economists who eschew interpersonal comparisons of utility (and especially those with earlier surnames), are likely to oppose any change in alphabetical order, arguing that existing alternatives would lead to nasty fights, grumpy co-authors, and ultimately a disintegration of the happy system of joint research that we all admire.

There are at least four responses to this point of view. First, one might argue that the game in question isn’t zero-sum. After all, people put in effort into doing research. Equal division of the credits from that research might be better for each author than unequal division, as efforts adjust to the more equitable distribution of credits. 

Second, the fear of being relegated to second or third author, or even to the dreaded et al dungeon, might discourage authors from writing papers with those more fortunately placed in the alphabet.  Again, this is an efficiency loss.

Third, when ordering is alphabetical but relative contributions are not consistent with that ordering, there will be feelings of unfairness, guilt, disappointment, or outrage. Indeed, the fact that alphabetical order is occasionally reversed is circumstantial evidence that such feelings do exist. 

Finally, the recognition accorded to earlier authors appears to cumulate over time, which of course generates persistent inefficiencies, not to mention snowballing unfairness. Van Praag and Van Praag (2008) focus on this aspect of mistreatment, and conclude that “Professor A, who has been a first author more often than Professor Z, will have published more articles and experienced a faster productivity rate over the course of her career as a result of reputation and visibility.” Quite frankly, and apart from any efficiency consideration, we see no reason to continue to support such a system. 

Yet, as Vladimir Ilyich so sagaciously observed, what is to be done?

Of course, the randomization of name order comes to mind. But it is important to note that --- with the exception of a few fair-minded souls who have used it --- private randomization will not break the grip of alphabetical order.

Suppose, for instance, that Archimedes and Boethius, working together, (never mind that they were born some 750 years apart) gallantly agree to break the convention by randomizing their joint authorship. Will they agree to the randomization? There are clear difficulties. Given an “alphabetical society,” a change in name order is a clear signal that the newly christened first author has contributed the bulk of the work. Thus, for instance, “Boethius and Archimedes” would be a statement that Boethius has done most of the research for that paper, whereas “Archimedes and Boethius” would indicate very little, any such signal being swallowed in most part by the naming convention. Therefore Archimedes gains nothing over alphabetical order when his name comes first, while Boethius gains a lot when his does. Boethius will agree to the ex-ante randomization, but Archimedes will not. That is one reason it is hard to “invade” an alphabetical society with a mutant scheme.

In a new working paper, we address this question. In brief: institutions can help. Here is a simple variant of the randomization scheme — a mutant — which will set it apart from pure randomization. Our new scheme involves flipping a coin to determine first authorship. Subsequently any such randomized name order be presented with the symbol ® between the randomized names. We ask, moreover, that any citation of such a paper respect the use of this symbol; e.g., Ray ® Robson (2016) is the appropriate reference for our paper. 

We propose, in addition, that an august body such as the American Economic Association make an announcement to this effect. We only ask that they acknowledge that this alternative is available. There is, of course, no question of imposing it. 

In fact, our paper provides a very good reason why there is no question of imposing it. Briefly, we show that random order (with the protection of ®) will successfully "invade" alphabetical order. If this option is available, we show that both authors will have an incentive to use it --- initially in a relatively small but subsequently ever-widening set of circumstances. Not only does random order (protected by ®)) invade alphabetical order,  there is no such possibility of reverting to the old status quo once in the new equilibrium. Random order maintains both the civility of alphabetical order and offers equal treatment to all concerned. 

The beauty of the mechanism ® is that it does not demand any more of the agents than does the present economics convention, despite being fairer and more efficient. In summary, random order maintains all the ethical niceties of alphabetical order, but in addition: (a) it distributes the psychological and perceptual weight given to first authorship evenly over the alphabet, (b) it allows either author to signal credit when contributions are extremely unequal, (c) it will be willingly adopted even in an environment where alphabetical order is dominant, (d) it is robust to deviations, (e) it dominates alphabetical order on the grounds of ex-ante efficiency, and (f) barring the addition of a simple symbol, it is no more complex than the old system, and brings perfect symmetry to joint authorship. 

Endnotes, and a Request

Anecdotes to advance our cause were provided by Noah Williams and Stanley Zin; unsurprisingly, perhaps, given the ill-fated location of their surnames. Zin describes his unalloyed delight at the prospect of breaking the curse of the perennial last-listed author by writing with Irina Zviadadze of Stockholm. Zviadadze is the fourth to last listed Member of the Econometric Society, though our commiserations must go out to Yanos Zylberberg of Bristol who is listed dead last. It is no doubt a coincidence that he is the sole author on 3 of the 4 working papers listed for him on RePEc. Zin also relates how Noah Williams recently lost a first-name tie-breaker to remain in his customary last position. While on the subject of ties, we salute the contribution of Goodman, Goodman, Goodman, and Goodman (2014), a listing that is distinctly robust to all naming conventions. They note, for example, that a reference to Goodman et al (2014) disparages the contribution of no author. Noah Williams, in turn, refers us to the lexicographically blessed Georges Aad, of Marseille, who has appeared as the lead author on 458 scientific papers, on which alphabetic order was adhered to, including one with 5,153 co-authors. “Basically, this guy has won the academic lottery,” said Vincent Larivire, a professor of information science at the University of Montreal (quoted in the Wall Street Journal, August 10, 2015). The not-quite-so-blessed Leaat Yariv, together with Lirat Einav, wrote the paper that most motivated us (Einav and Yariv 2006). Leeat suggested to us that an alternative or supplementary remedy would be to randomize citations, a suggestion that we discuss towards the end of the paper.

And the request: send comments to and, and if nothing else, send us a one-word email: yes, if you like the idea; no, if you don’t.

Saturday, July 2, 2016

The Universal Basic Share

Universal basic income, or UBI for those acronymically minded, is in the news these days, along with other brilliant post-modern inventions such as Brexit or Trump. Unlike these other luminaries, though, UBI is a genuinely cool idea: give everyone a basic amount to spend, and let them do what they will with it. They could write poetry, compose sonatas, or study number theory. They could work for more income if they wanted. Or they could relax and do absolutely nothing.

UBI is the offspring of a beautiful dream: the liberation of the human being from the drudgery of everyday labor. But it is also the product of a scary thought: the trend of ever-advancing automation, now accelerated many-fold by new deep learning algorithms.

You see the connection, of course. If a bunch of creepy robots are going to pass the Turing test at the call center, or drive up shinily when you hail an Über, or stack boxes even as they are energetically prevented from doing so, or even dance while doing the dishes, you'd better find something better to do with your labor time.

So UBI is a nice gesture; it sends you on your way with a little stash of income that you can do with as you please. But of course, a little stash multiplied by the population ends up -- not surprisingly -- in a big stash. Try giving everyone in the United States $10,000 each annually, and you will see that the required payout comes to a cool 3 trillion per year, which is in excess of three-quarters the annual federal budget. Yikes!

Nevertheless, the idea has found serious purchase in Europe: the Swiss even voted in June on UBI of around $2500 per month per adult. It didn't pass --- in fact it was turned down by a large margin -- but a serious warning shot had been fired. Finland and the Netherlands are planning to trial UBI by following a group of lucky recipients around and seeing what they do with their monthly payments. (Though somehow the thought of being stalked by a group of randomistas asking how I am spending my UBI is weird; I know what I'd tell them.)

You would think that the UBI is a good idea for rich countries. But there is also a prima facie case for trying it in a country like India, which one way or the other has been making very large transfers for decades.  Just the public distribution scheme for foodgrain represents a subsidy of around 1.4% of GDP, but if you add to this the subsidies on fertilizer, transportation, water, electricity and other goods, we are up to well over 4% of GDP. Then there are the so-called "revenues foregone" through various exemptions, chiefly via relief on excise and customs duty, that will take you into the region of another 6% of GDP. We're now up to 10% and counting, and we're counting because these are just in the domain of the Central Government; there are more subsidies at the State level, and there are other implicit subsidies via sub-market pricing of public sector goods. (See also Santosh Dash's comment below.)  I'm not counting large sources of social expenditure, such as education and health, nor the national rural employment guarantee scheme,  which provides every rural household the right to 100 days of work at a basic wage. Here's an illuminating note on central Indian subsidies put together by Siddharth Hari, a doctoral candidate at NYU.

These subsidies are often greatly lamented, largely on the right, by individuals who blame them for all sorts of bad outcomes. One favorite lament is that there are big leakages due to corruption. Another is that subsidies are often mis-targeted (over and above the corruption) to the non-poor. And the libertarian spirit typically completes this tri-headed litany: why should the Government tell us what to eat, or how many health checkups to have? And what is it doing in the food distribution or transportation business, or in any business for that matter? Why not just hand out plain unvarnished -- and presumably untarnished -- cash instead to everyone, and be done with it?

I want to refrain from engaging in that debate here, but the bottom line is this: talk of a universal cash transfer that replaces a system of multifarious, nefarious transfers has long been in the Indian air.  So it comes as no particular surprise to learn that careful, long-standing observers of the Indian economy have promptly added two and two to ask: can we cobble together a basic, unconditional, universal income for all of India's citizens?

You might justifiably and indignantly ask: unconditional and universal? Why should the rich also be treated to free income? Answer: try targeting, and the leaky bucket will emerge again, spilling copiously. But isn't a universal transfer the logical equivalent of a bucket with basically no bottom at all? Perhaps, but then we'd spend all our time issuing and examining BPL cards, and given the massive corruption and incompetence in the bureaucracy, you may as give everyone the money and save us the headache. Well, ok, but I don't feel like providing Ambani with an assured UBI. Oh, we can get around a lot of that by requiring that the claimant must show up in person bearing an identity card to claim her income. Ambani won't show up in person. A lot of the rich won't show up. But who's to say that the bureaucrat won't claim that they did show up? And so on and so forth. Or you could attack all of this from another direction: won't the poor squander their cash cavorting and drinking, as the poor apparently do? Then the usual arguments about paternalism can start up. There is no end to this.

In this post, I am going to tentatively accept the idea of universality and non-paternalism, and look at the other elephants in the room (alas, there's a veritable herd of them):

1. The promise of an UBI can be inflated away. Who's going to make sure this thing is properly indexed to rising prices, and what if it's not? An unsympathetic Government can erode all the promises --- all the subsidies and the transfers that were so clumsily but irrevocably made in kind --- and make them vanish into thin air in a matter of years. (With inflation at 5%, a nominal commitment in fixed rupees with halve -- in real value -- in 14 years.)

2. The commitment looks really huge (sorry, I seem to have inadvertently quoted Trump).   In 2014, the Rangarajan Committee submitted its report proposing a monthly poverty line of Rs. 972 and Rs. 1407 (urban). With rural population shares taken into account, that's a bit north of Rs. 13,000 ($200) per year per person. A pittance? Yes. But multiply by India's population of 1.25 billion and you're at around 12% of India's GDP ($2.09 trillion in 2015).  If you want to cut that back to Rs 10,000 per year (or around $150), you're at 9% of GDP. So there you have it, ladies and gentlemen: 9-12% of GDP to bring every man, woman and child up to speed, or at least walking pace.

Is this do-able? It all depends on whether those huge subsidies to the non-poor can be removed. Pranab Bardhan writes:

"[T]he Indian government doles out significantly more than [10% of GDP] in implicit or explicit subsidies to better-off sections of the population, not to mention tax exemptions to the corporate sector. By discontinuing some or all of these subsidies – which, of course, do not include expenditures in areas like health, education, nutrition, rural and urban development programs, and environmental protection – the government could secure the funds to offer everyone, rich and poor, a reasonable basic income."

There's some more optimism expressed by Abhijit Banerjee and by Guy Standing, but the political economy of subsidy removal does look menacing, to say the least. Central government expenditure as a share of GDP has been declining since 2010; this year it will be a bit more than 13%. That matches the demands that UBI would make, which isn't comforting at all. Nor is it comforting that no one pays taxes in India. In a more pessimistic piece, Maitreesh Ghatak concludes that:

"A universal cash transfer scheme is therefore not feasible without raising additional taxes. Not just that, given that only 1 per cent of Indians actually pay income tax, while a mere 2.3 per cent file tax returns, the fiscal instruments to claw back the transfer from the rich do not exist."

It does seem like we're on a dramatic edge here, and a lot must hand on whether existing subsidies can be credibly removed.

3. For my last elephant, let's go back for a moment to this whole automation business. Some years ago, I observed in this post  (a tad gloomily) that:

"to avoid the ever widening capital-labor inequality as we lurch towards an automated world, all its inhabitants must ultimately own shares of physical capital. Whether this can successfully happen or not is an open question. I am pessimistic, but the deepest of all long-run policy implications lies in pondering this question."

I've italicized the phrase I want to emphasize here: if we're truly headed towards automation, it is not enough to pay out UBI and let a small group of residual claimants eagerly divvy up the remaining surplus. Even with indexation to inflation, the UBI is a fixed commitment. What happens, then, as profits continue to rise in business? Is no share to be passed on to the population? Will class warfare be reduced to annual debates about how to adjust the UBI?

In the rest of this article, I'm going to propose a simple amendment of UBI that holds out serious hope for dealing with all of these issues and more. I'm going to call it the universal basic share, or UBS. Simply put, the UBS is a commitment that is expressed, not as a sum of money, but as a share. Specifically, I propose that we commit a fixed fraction of our GDP to the provision of a universal income for all.

Consider six merits of this proposal, not necessarily in order of importance:

A. It is country-neutral. It can be introduced into every country, rich or poor. It scales up or down with country-level income.

B. We can start small.  In the Indian example, the numbers do not have to be at Rs. 10,000 to begin with. But over time, they will get there. In this sense, the proposal takes (some) care of the debate that we "cannot afford it."

C. The UBI commits a government to pay out a fixed sum, come hell or high water. In contrast, UBS insulates against shocks to the fiscal system that are correlated with GDP shocks.  (Given the amounts involved, one might imagine even rich governments being risk-averse.) But the upside to the general public will be enormous.

D. The UBS does not need to be indexed at all. It's fixed as a share of nominal GDP,  and that will automatically take care of any indexing that's needed.

[Update 1: A UBI can be indexed in India using the dearness allowance, which is a cost-of-living adjustment based on the cost-of-living index and paid out to public-sector employees and pensioners. Maybe, though in countries where inflation statistics are dodgy I'd be wary of this. I'd be wary of formula manipulations in India as well, once a truly enormous commitment such as UBI is on the table. In any case, I am after more than mere indexation; see point F below.]

E. The UBS will create an incentive for a majority to demand a better tax collection and auditing system. And the government, too, would be incentivized to close off its tax loopholes. For India, this is a first-order issue.

F. The UBS allows everyone to share in the prosperity of a country.  To me, this aspect of equity-sharing is --- in the longer run --- the most important feature of the UBS. It is our protection against unbounded inequality as we move into an increasingly automated universe.

To implement a UBS, the most important thing is to get the share right. Giving everyone Rs. 10,000 per year takes us to about 9% of GDP. But it's not enough to leave it there; we need a sense of what this looks like as a fraction of government expenditure. This is an extremely tricky business. Let me illustrate with India, which --- given its existing slew of explicit and implicit subsidies --- is possibly one of the most difficult examples out there. (Fair warning:  I have the back of an envelope out as I speak, so the numbers below would need to be refined.) 

The central government's expenditure share as a percentage of GDP is a bit shy of 14% in 2014-2015. But central and state expenditure combined is double that: around 27% in 2014-2015 (here for the gory details). For revenue foregone and other implicit subsidies, which we would need to take back, add on another 6-10%. That gets us to about 35%. So to access 9% of GDP as UBS, we would need to contribute 25% of government expenditure, inclusive of all subsidies, to the cause.

[Update 2: an alternative is to commit UBS directly as a share of government expenditure, which is the form in which I originally suggested it. The linking of basic income to overall prosperity then is less direct. Moreover, as Pranab Bardhan, Karna Basu and Siddharth Hari have pointed out to me,  the government could suffer from possible disincentives in raising expenditure, fearing that part of the increase would be "taxed off" by the UBS. Though in view of the deficit, such fears might be a blessing in disguise. On the other hand, the government would gain better insurance: if there is a sudden fiscal crisis, even one that's independent of a GDP shock, its commitment to UBS would adjust accordingly.]

Can we really usher in the right to a UBS? I have no clue whether we have the political will to pull something like this off. But remember: it's a share that's being committed. At Indian rates of growth and with an improving fiscal system, we can get the resulting numbers to double in 10-12 years, and double again a decade after that. So if we want to start smaller, we can entertain that thought.

Some postscripts on the UBS:

(i) If you want to institute a share, do it when you start the program. Once a number is fixed, no one wants to move towards a share as it looks risky. With a share to begin with --- where there was nothing before --- matters can be very different.

(ii)  For each year, the payout assessment will need to be done. This can be done using the previous year's GDP (or expenditure, in case the variant is tried) and dividing by population estimates. Uncollected payouts --- and hopefully there will be a lot of those --- can go into an insurance endowment or otherwise used.

(iii) [Update 3.] After I wrote this, Rajiv Sethi pointed me to Robert Shiller's proposal to issue trills, which is a government-issued security that would pay a share -- in trilllionths, hence "trill" --- of GDP. Yes! A UBS is certainly viewable as a variant of a gigantic, collectively held trill --- a plain bill, then, perhaps? Look here for a related proposal by Rajiv to hold individual bank accounts at the Fed. In keeping with the adage that there's nothing new under the sun, Ugo Colombino pointed out the connection to the citizen's dividend, which is a form of UBS based on natural resources; Alaska implements a form of this as the Alaska Permanent Fund. In the words of Thomas Paine, "men did not make the earth." Rahul Basu told me about the efforts --- inspired by Alaska's fund--- to secure a permanent fund in Goa. Read here about such a movement, and read here about the Supreme Court directive to create a Goa Iron Ore Permanent Fund.

Hey Switzerland, want to try again?

Thanks: Pranab Bardhan, Karna Basu, Rahul Basu, Ugo Colombino, Parikshit Ghosh, Siddharth Hari, Aditya Kuvalekar, and  Rajiv Sethi.

Friday, July 31, 2015

Aickman's Hospice

I am a big fan of creepy stories. No, I’m not into Stephen King or Dean Koontz or their choleric forerunners: Lovecraft and (alas often) Poe among them. I will take M.R. James though, even though he sits uneasily on the fence between baroque excess and darker understatement. But how not to love “Oh Whistle and I’ll Come to You, My Lad”? I’ll take Stoker too (yes, yes, Dracula, but read The Squaw). Among my all-time favorites, however, are the more nuanced but nevertheless not unusual suspects; say Ambrose Bierce’s "The Boarded Window," W.W. Jacobs’s "The Monkey’s Paw," H.H. Munro’s "Shredni Vashtar," or that great eerie masterpiece by Henry James, The Turn of the Screw. I’ll also take The Little Stranger, a chilling novel by Sarah Waters.

So it was with interest that I recently picked up a reissue of Robert Aickman’s oddly described “strange stories,” this one a collection called Cold Hand in Mine. I liked the description “strange stories.” I loved the title of the collection. I was intrigued by Neil Gaiman’s blurb on the cover: “Reading Robert Aickman is like watching a magician work, and very often I'm not even sure what the trick was. All I know is that he did it beautifully.” And to top it all off, I was coming to Calcutta, which along with London is one of the two best places in the world for reading “strange stories.” After all, it was in Calcutta that I was introduced to the bhuter golpo or ghost story — and both British colonial and “indigenous” versions (especially the kind located in railway stations or run-down mansions just outside Calcutta) still give me a most delicious case of the creeps.

Aickman was an interesting guy. He was a founder of the Inland Waterways Association, which oversaw the rejuvenation of the inland canal system in England. You can read more about him here. I had heard of him because he had edited the first eight volumes of the Fontana Book of Great Ghost StoriesHis stories have been largely out of print, and now they have been reissued.

So there I was, reading Aickman, and I was hooked. Delightfully creepy and yes, decidedly strange. I was so happy that I logged into my Amazon account and bought a Kindle version of The Wine-Dark Sea, another collection of his stories. Aickman clearly had fun writing these, I thought, as I most happily careened from one strange story to another. I put up a Facebook link to Cold Hand in Mine, and continued to read. All the stories are perfectly readable, most are truly downright weird, and some of the weird ones are really excellent.

Then I ran into "The Hospice."


This was a different experience altogether.

I read it at 1 am a couple of nights ago. Last night I woke up at 3 in the morning and read it again. Then I pretended to go back to sleep, but whom was I kidding?

Here’s how I felt reading Hospice. Imagine crouching on the floor in a corner before an unchained Doberman. You can hear it growl, but you cannot see it; you are blindfolded. You are forced to caress its silken flanks as you wait and flinch, flinch and wait. (My irate dog-lover friends, you can substitute the furry weight of a tarantula placed in your open palm, its legs sliding through your fingers.)  If some equivalent of these images does not come to you as you read Hospice, I will eat the only hat I have.

Not that there are any tarantulas or Dobermans to be seen in Hospice. It’s just that a man named Maybury happens to be lost, driving home from his office somewhere in the West Midlands. Something feral bites him in the leg as he gets out to ineptly look for directions in the growing dusk. He gets back in, drives on, sees a sign for the Hospice, with its promise of “good food and some accommodation.” So far —- except possibly for that bite — it could the start of a million horror stories. But the dread here comes a-creeping, (always) namelessly and (for a while) quite soundlessly, but above all strangely.

The Waiting Room,  1959, by George Tooker, Smithsonian American Art Museum
In fact, the two closest connections I feel to Hospice have nothing directly to do with the horror genre. The first is almost a methodological connection to surrealist painting, perhaps one of those day-night canvases that so unnerve you, by Magritte. Or perhaps it’s something waiting to happen behind one of the distant arches in a Di Chirico painting. It reminds me most of all of The Waiting Room, by George Tooker. There is a backward loop here again to the short story: Tooker's work features on the cover of Alberto Manguel’s wonderful edited collection, Black Water.

My second connection is to one of my great favorite modern novels, Kazuo Ishiguro’s The Unconsoled. This book was largely panned when it first appeared, but this, in my opinion, is his greatest work. The entire book is an endless, labyrinthine, slightly nauseating dream. Hospice could be a terrifying chapter in Ishiguro’s book. (It would be, unquestionably, its most terrifying chapter.)

Ah, but what befalls our protagonist, the somewhat irritable and slightly apprehensive Maybury? Nothing really, to begin with. He enters the hospice, and settles down for dinner. There appears to be great interest in feeding the guests very well. The main course is an “enormous pile” of turkey, “steaming slightly, and also seeping slightly with a colourless, oily fluid.” ("Ew!" says my niece Rohini.) He does observe, quite inadvertently, that the other guests appeared to be “one and all eating as if their lives depended on it.” And then, of course, Maybury must stay the night. It will be a strange night.

The horror short story genre notwithstanding, The Hospice perhaps best brings to mind the great British horror film Dead of Night. Like Hospice, Dead of Night invokes the growing nightmare of being shut up in a weird house with odd people. But the resemblance ends there. The sheer subliminal horror of Hospice shares neither the ornate excesses of Dead of Night nor the slick recursion of its ending. (That magnificently self-referential ending, as it so happens, inspired a theory of the universe). Along with its protagonist, the story will let you off, disheveled, scared and out of breath, on an eerily familiar street under a grey sky, wondering just how you got there and with the feeling of half-awake relief that a nightmare has just ended. Or has it.

Robert Aickman, "The Hospice," in Cold Hand in Minereissued 2014.

Saturday, March 7, 2015

Calcutta Time

It's 4.30 in the morning in Calcutta, and I can't sleep.

I can't sleep for a good reason, which is that my few days here are invariably tinged with some jetlag, accentuated by the need to get work done in New York when the Americans are up and about. But this strange late-night early-morning transition has always been part of my life in Calcutta. As a college student, such transitional experiences --- followed by bunking the morning classes --- were an invariable part of my routine. Often it was nerdy: I still associate Lagrangean multipliers with a faint whiff of candle or kerosene. Sometimes friends stayed over, so I associate those nights with the tail-end of intense conversations. Sometimes there was a book. (Recently I found my battered screenplay --- with photos! --- of La Dolce Vita and understood why Anita Ekberg is also associated with humid Calcutta nights.) But it was always half-magical, and if you've done the same (or perhaps even if you haven't), you will understand what I mean.

Now, almost 40 years later, does it feel the same? Not really. For one thing, I can't light a cigarette automatically at 4 am. Or I can, but shouldn't. I can't walk out into the little balcony I was lucky to have, in an isolated part of the house, to smell the night. I don't have any beautiful Scandinavian women, or screenplays with them inside. I do have email and Google and that irritating Facebook, and I'm not a Luddite. But something's missing; no, not missing: mixed-up.

At these times, if I have nothing else to do, I think about what Calcutta means to me now. I'm usually here on work, and to see Ma. I see friends. We go drinking in The Other Room or Olipub. If it's winter, I go to Presidency or Jadavpur or the ISI and participate in a conference or two. I wander around bookstores where you can still get a particular mix of Wodehouse, Christie, Robbins, MacLean or Blyton that you will find nowhere in the world. (I don't read any of this stuff anymore, but I did and it's all part of that same vanishing feeling.) I like to eat chicken-anda rolls at the Triangular Park, and I like to see my cousins and assorted mashis and pishis. And most of all, I love being at home and listening to sounds coming from the kitchen, to a medley of familiar voices that come and go, and the eternal roar of the cricket commentary in another room. Or if it's night, listening to the occasional truck rumble by (God, this building actually shakes) and something rustling in the leaves outside in a faintly sinister way.

It's 5 am. I'm making editorial decisions at the American Economic Review. I'm sending an email about student admissions at NYU. I'm writing a letter for someone's tenure decision. I posted something on Facebook. I'm preparing a talk. I text the kids. I'm staring at the screen of this laptop. Yet part of me is suspended way, way back in time. There's my sepia Chaplin poster staring at me, there's the little metal ashtray with a million crooked cigarette butts in it. There's A4 sheets with my scrawly class notes and --- wonder of wonders! --- carbon paper. There's a setting moon, the banana tree, the musty smells and muffled sounds, and the faintest glow of early dawn.  And it's all braided together by the koel starting up, as she always does at this time of year. 

Sunday, August 10, 2014

It's The Population, Stupid

Here's something that Maitreesh Ghatak (at the LSE) and I wrote together:

The Times of India recently reported, not without a certain self-congratulatory air, that: "The latest wealth index by New World Wealth that looks at multimillionaires — an individual with net assets of at least $10 million — has ranked India eighth in the global rich list, below countries such as the US, China, Germany and the UK but above Singapore and Canada."

This has certainly sent Indian cyberspace into a little tizzy. A common celebratory headline: "India has more multimillionaires than Australia, Russia and France!” And given that the largest number of the world’s poor also live in India, a common admonitory reaction is: "See? Told you so! India is just a corrupt society."

This isn't the first time we've been gobsmacked by the sort of numbers India can generate. Recently, farmer suicides did the rounds, with the already large numbers (around 300,000 since 1995) helped along by the Indian numbering system: read here for why some participants in a recent BBC debate had it wrong by a factor of 10 . All quite understandable: India is so large that nobody has a real sense of the numbers anyway. Which is why the following handy little motto should always be clutched close to heart and brain:

When confronted by a Large Indian Statistic, consider dividing by the population.

We learn from the same source (New World Wealth) that the world has 495,000 multimillionaires, and India has 14,800 of them. Divide: India has just 3% of the world's multimillionaires. It has, however, 17% of the world's people. Suddenly India is looking like it does not have its “fair share” of multimillionaires.

Now, of course, India is a poorer country. The real question is whether India has more than its expected share of multimillionaires once we take into account this fact. To do this in a lot of detail will take some real work, but we’re in a back-of-the-envelope mood for this post. So, whipping out a handy envelope on World Bank letterhead, we carry out some quick calculations.

In 2012 Indian per-capita income was USD 1,550, and world per-capita income around USD 10,235, suggesting that the ratio of Indian per-capita income to the world average is a measly 0.15. Meanwhile, the multimillionaire ratio (India’s share relative to its population) is 3/17 = 0.17. These two ratios are very close, which suggests that neither self-congratulation nor admonition is quite called for at this stage. But we will need to dig deeper.

Let’s think about millionaires for a moment: those with assets of USD 1m or more. According to WealthInsight (see this link), India had 251,000 millionaires in 2012, around 0.02% of the population. The corresponding number for the United States is 5,231,000, around 1.64%. Thus, using the United States as a benchmark, India’s millionaire share in the population relative to the US is 1.22% (the ratio of 0.02 to 1.64). At the same time, India’s per capita income is 3% of that of the US. So: does India have too few millionaires relative to the United States, after making the income correction? Not really: if two countries have the same level of relative inequality but different mean incomes, a halving of mean income predicts a change in the population incidence of (multi)millionaires by a factor that typically comes down by more than half, the exact prediction depending on the distribution of wealth. This is (in part) because “millionaire” or “multimillionaire” is a threshold concept: a fixed monetary figure (USD1m for the former, USD10m for the latter) has to be crossed. One good way to explore the predicted change is to employ a Pareto distribution of wealth, along with the population-weighted average Gini coefficient for wealth distributions (which is a bit over 0.65, and calculated from this link). Then a halving of per-capita income is expected to lower the (multi)millionaire share of the population by a factor of approximately 2.38. If we really go out on that limb and plummet from the heights of US per-capita income (USD 50,660) to that of India (USD 1,550), we would expect the both the millionaire share and the multimillionaire share in India to be approximately 1.28% that of the United States.

Since the actual millionaire share in India relative to the United States is 1.22%, which is remarkably close to the prediction, India does not appear to be out of line, as far as millionaires are concerned (and after we have corrected for economic differences). But the case of multimillionaires tells a rather different story. In India the multimillionaire share is 0.001% of the population, while in the United States it is 0.058%. Taking ratios, we see that the multimillionaire share in the population in India is 2.06% of the corresponding share in the United States. This number is surely high relative to the prediction of 1.28%.

This parallels findings by Piketty and his colleagues. India does not stand out in terms of income going to the top 1%, but it does in terms of income going to the top 0.1%.  While there is noise in all these data, we would tentatively conclude that India, controlling for economic differences, has “more multimillionaires than it should.” While this may generate applause in some circles, we would therefore side with the admonitory warning bell sounded by Raghuram Rajan.

Relative Income
Relative Share
Relative M-Share
Relative MM-Share
Hong Kong

Notes and Sources: Relative Income is country per-capita income relative to US per-capita income (from the World Bank Databank). M-Share is millionaire divided by population, in percent, and MM-Share is multimillionaire divided by population, in percent (from Times of India, New World Wealth, WealthInsight, and United Nations). Predicted Relative Share uses Relative Income and a Pareto distribution, along with the population-weighted average of within-country wealth Ginis (approx. 0.67) to generate predicted relative share of millionaires and multimillionaires in each country relative to the United States, in percent.  Relative M-Share and Relative MM-Share are the actual relative shares generated from columns 3 and 4, by expressing those numbers relative to the US numbers, in percent.

Remembering that the United States is itself a country with very high inequality, this is additional cause for concern.  For instance, China comes in below its predicted value for both millionaires and multimillionaires, and countries such as Japan and Germany come in far below the predictions for multimillionaires, as does the world as a whole. Countries with a significantly higher share than their predicted values are Hong Kong, Singapore and Switzerland; see Table.

Take away points? India is poorer than the world average and so naturally has a greater percentage of poor people and a lower percentage of rich people. Yet using the absolute numbers, India has more of almost everything, which is misleading. Indeed, correcting for income differences, India has the “expected share” of millionaires relative to the United States. However, looking at the super-rich, namely, the multi-millionaires, India does have more than its expected share: something not too savory is cooking on the very end of the right tail.

Lesson: for India, always do the percentages, whether for multimillionaires or for farmer suicides. We might then learn something.

Endnote: A previous version of this post contained a cautionary endnote explaining that our rudimentary analysis could be complicated by a proper accounting of threshold effects. Following up on this, we subsequently extended the analysis.