An unreasonable assumption

In reviewing two important books that are making the case for incorporating moral considerations into economics turning it from ‘dismal science’ into ‘distinguished science’, Ricardo Hausmann writes,

But with a few reasonable assumptions, such as the idea that more is better than less, you can make many predictions about how people will behave.

The more I think about it, the more I feel that it is not a reasonable assumption at all because if, at any given point in time, more is preferred to less (or, what you have – because what you have can always be less than what you imagine you should have), it is both socially, economically and morally hugely problematic because the answer to that desire is unbounded.


Admission bias in Ivy League

More than two weeks ago, this article appeared in the Wall Street Journal accusing Ivy League institutions in the US as practising discrimination – leaving out Asian students – and casting the attempt by Princeton University attempts to block the government’s release of document that could ‘show discrimination’ in a negative light.  Well, I am not persuaded.

Any Club has the right to decide on whom it would admit as its members. All those who are not admitted can claim discrimination. Any subjective decision can be termed arbitrary. There is a fine line.

If Ivy League Schools decided that they would try to lower the percentage of Asian students in their campuses, that is their prerogative.

An educationist whom I know very well and who does not live in the U.S. wrote me this:

Admissions decisions are inherently subjective when raw data between candidates is broadly equal.  Global admissions data patterns are naturally subject to external economic, social, political and legal considerations.  None of that is defined or definable because those sands are shifting continually.

Total transparency is not possible or even desirable in admissions.  Every decision can be questioned on some grounds or other, but schools need some autonomy to make decisions, within the bounds of reason, ethics and the law of the land.  Wise students learn soon enough that their Destiny cannot be mapped.


Well, this emphasis on foisting diversity (hard to beat that for an oxymoron) is a manifestation of the virulent and toxic and often ridiculous political correctness that is sweeping through American campuses, reminiscent of the 1960s and 1970s – or is it far worse now?

Read this interview by Jonathan Haidt with Wall Street Journal to figure out what he thinks is driving it.

It is up to you to read this story before or after you read the interview – a free speech area in Los Angeles! Bizarre.

Good weekend reads

Sri Lanka Port Loans contributed to the debt trap. But, why did India deny the offer of Trinconmalee port?

Chinese students threaten free speech abroad – Defenders of the global order that Trump is seeking to ‘destroy’?!

The town of Vijayawada immortalises its civil servants and one of them is my co-author and good friend Gulzar Natarajan. Good practice.

Bombay Jayashri makes her debut as a columnist. She might have written one-off articles before, I guess. A very good and nice start.

A lovely article and a very good reminder – on Leo Tolstoy’s ‘The death of Ivan Ilyich’.

If all theories that do not explain reality are thrown out of economics, what would be left?

Neel Kashkari makes the case for deregulation and higher capital requirements on big banks. Good stuff.

A great article on the exploitation in American Universities. Hypocrisy is one successful and enduring example of globalisation. May be, behind a firewall.

Economists would do well to put this up on their walls. A good exercise in spiritual evolution.

Paul Collier’s essay in the ‘Times Literary Supplement’ on saving capitalism may not have a original title but has many quotable and thoughtful lines. Made me buy three of the books reviewed or discussed. Was directed by Emanuel Derman’s quote from one of the paragraphs in the essay in a tweet.

Economics education

Good friend Niranjan sent me this piece from Quartz on the importance of economics education. Overall, the piece was somewhat self-contradicting and not rigorously argued.

Here are two sentences from the piece:
“Economics education, at all levels, aims to offer an overview of different models and how to apply them.”
“An economics education aims to provide framework to better understand how the world works. “
First, the two sentences are contradictory. If the idea is to provide different models, then it must provide more than one framework to understand the world.
Second, the criticism against economics education was that it did not teach different models and different schools of economics to students. It became too homogenous – only the market mattered and that market efficiency was absolute.
Third, there is a difference between models and theories. Economic models or economic theories (if they can be called that) are points of departure to understand the world and why it operates differently from the predictions and inferences of the theory. They do not describe the world.
Most economics teachers did not and do not emphasise that point to their students. These theories are presented as universal and cast-iron truths.



A tweet that tickled

Very cool to see Professor @rodrikdani discuss why “it depends” is the best answer in economics [Link].

The above tweet that I chanced upon in the Twitter handle of Prof. Dani Rodrik brought a smile to my lips, to my face because this is what I have been telling all my students in the courses I teach. That this is the safest first response to any question in economics. Of course, they have to then proceed to display their substantive knowledge by listing the things on which their answer depends. But, it should buy them time and, more importantly, it is true.

Glad to see the book, ‘Economics Rules’ by Prof. Rodrik is being released.

From the master

Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.

It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time.

The object of a model is to segregate the semi-permanent or relatively constant factors from those which are transitory or fluctuating so as to develop a logical way of thinking about the latter, and of understanding the time sequences to which they give rise in particular cases. [Link]

Economics is essentially a moral science and not a natural science. That is to say, it employs introspection and judgements of value. [Link]

I also want to emphasise strongly the point about economics being a moral science. I mentioned before that it deals with introspection and with values.

I might have added that it deals with motives, expectations, psychological uncertainties. One has to be constantly on guard against treating the material as constant and homogeneous in the same way that the material of the other sciences, in spite of its complexity, is constant and homogeneous.

It is as though the fall of the apple to the ground depended on the apple’s motives, on whether it is worth while falling to the ground, and whether the ground wanted the apple to fall, and on mistaken calculations on the part of the apple as to how far it was from the centre of the earth. [Link]

A trade-off

There is always the trade‑off between incentives and some form of insurance. If you eliminate every insurance, you have all incentives, then incentives are great but people are not particularly happy. You need to find the right trade‑off.

Those were remarks made by Luigi Zingales, from the transcript of the interview of Luigi Zingales by Tyler Cowen. Makes you rethink. It is fashionable for economist and public policymakers to talk of incentives all the time. There is a trade-off. People respond not just to incentives but also to insurance.