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If you are a runner, a rite of passage on a visit to Tokyo is to do a loop or two around the Imperial Palace. This is your Disneyland.

I was in Japan back in early June, and this was on my to do list. The palace’s perimeter is a nicely marked running route, complete with distance markers (done in classic Japanese aesthetic of gorgeous stone blocks), and if you haven’t packed running gear, an Asics store nearby is happy to lend some to you at a cost. Now, we have not turned into a running blog all of a sudden; I mention this because it was quite a fun thing to do, and at the same time it cast my mind to an oft-cited economic tidbit about Japan: during the peak of the economic bubble (c. 1989) in Japan, the notional value of the land the Imperial Palace stands on - basically the circuit that I had completed in some 30 minutes worth of gentle-paced running - was more than the real estate value of the entire state of California. The wild frenzy of speculation that had caused the baburu (as it is known in Japan) then collapsed, leading to economic stagnation that lasted nearly three decades, and the economy is only now slowly getting back to growth.

So how did land prices (which increased over fifty times on average between 1956 - 1986) get so, er, outlandish even as consumer prices barely increased in the country? I kept thinking about it as I ran past the palace moat and settled on two reasons - the oldest force that drives economics decision making (scarcity), and something fundamental about our human nature as revealed by one of my all time favourite short stories - Tolstoy’s ‘How Much Land Does A Man Need?’

Land, specifically, development land (the stuff you can build large scale housing or industrial projects on), is scarce in Japan, a mountainous country owing to its volcanic origins. As the economy rapidly grew post the Second World War, with a healthy push from the government, citizens were encouraged to save, and those savings went into developing productive capacity (investments) through the route of credit via the banking system. But the marginal utility (or returns) of growth in productive capacity, in the form of that extra factory, or another new infrastructure project, eventually hit a limit. All the while, both corporations and banks (and even households) kept betting that land prices would keep going up because it is the one scarce resource, to quote Lex Luthor ‘they are not making more of’. Much like the protagonist in Tolstoy’s story, they kept hoarding more land until they realised the greed had fed a bubble that spectacularly popped. In Tolstoy’s tale - Spolier alert! - the peasant who, goaded by Satan in disguise, kept hoarding land, dies, rendering his hoard pointless. In Japan, the crash in real estate prices unraveled the credit market and the stock market, the effects of which then spilled over into the ‘real’ economy leading to a prolonged recession and unemployment, accompanied by deflation.

Frieza, the villain in Dragon Ball Z, who keeps taking over planets and selling them, was probably created by Akira Toriyama as a critique of the real estate speculators and “house flippers” of the 1980s whose speculation fuelled the boom and laid the groundwork for the inevitable bust. Frieza’s debut year? 1989.

Speculation is a strange economic beast - it has its uses, but unchecked, it can grow into a monster.

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Well, I watched The Odyssey, and I had a whale of a time. (I even wrote here about it.) Incidentally, watching it on the big screen, spectacularly reimagined as it is by Christopher Nolan, piqued my interest about diving deeper into more of these Homeric epics. As a result I have been listening to Stephen Fry’s great audiobooks about Greek mythology (where was this stuff during our schooldays?) and it looks like I am not the only one. The Odyssey’s release has sparked a demand shift - apparently Emily Wilson’s fantastic and accessible translation has seen demand jump 9 fold. This is not a new phenomena, and I actually found a nice little paper exploring that effect.

CURATED CORNER: WHAT WE ARE WATCHING AND READING

Among the more enjoyable economics books I have read lately is Somaya Keynes (yes, she is related to John Maynard Keynes) and Chad Bown’s How To Win A Trade War. It packs in a nice ratio of great jokes and groan inducing puns, but most importantly presents ideas that are vital to understanding our current world - why so many countries are locking heads over trade. The best part of it is that it is fun to read, and the second best part is that it allows you to think for yourself, rather than serving up conclusive and confident statements about an issue that is fundamentally complex and uncertain.

And on the plane ride to Japan I caught the South Korean movie ‘Big Deal’ based on the true story of a Soju company that was driven to bankruptcy by the Asian Crisis in 1997 and the young investment banker who sought to rescue it. It is a great window into the South Korean economy, not from a technical point of view, but in terms of illuminating how we figure out what matters to us in life. As I had logged on Letterboxd, this is a film that has no right to be this sober about its moral dilemmas given how much Soju drinking it features.

That is it for this edition. Until next time, I hope you have a Goku in your life who is keeping Freiza at bay!

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Economics is often simplified down to a study of the best way to utilise scarce resources, and you’d be hard pressed to find something scarcer or more valuable than self-control. In his book ‘Thinking Fast & Slow’ Nobel Prize winner Daniel Kahneman points out that “self-control requires attention and effort”. He then goes on to talk about a series of experiments by psychologist Ray Baumeister where they show that “an effort of will or self-control is tiring: if you have had to force yourself to do something, you are less willing or less able to exert self-control when the next challenge comes around.” That explains why at the end of a tiring day you find it easier to rationalize to yourself that skipping gym would be ok for today or when you are particularly smitten by a new outfit, you dip in to the savings and buy it before it goes off the shelves. Your instant gratification side wins, because your will power side lowers its defences, for reasons both psychological and physiological.

All of us wish we had more self-control, whether it is you, me, Odysseus2 , or Lionel Messi. We have had times when we needed to implement some form of self discipline for a personal goal (maybe going to the gym, or spending less, or reducing screen time, or stop procrastinating about a project) only to find, as quoted in the Bible, that “the spirit is willing, but the flesh is weak.” (Mathew 26:41) The first part of that verse goes “watch and pray, that ye not enter into temptation”. But how do we incentivize and motivate ourselves to avoid temptations that could be bad for us or making us unproductive? And how do we get better at self-control?

Perhaps, like his men lost in a storm, we look to Odysseus for answers?

A more formal model of our problem with self control was presented by economists Richard Thaler (who later won a Nobel for his contribution to developing the field of behavioural economics) and H M Shefrin in their paper titled “Economic Theory Of Self Control” published in the Journal Of Political Economy. They modeled human behavior as a ‘conflict of interest’ within oneself where we have two selves3 – the rational planner (the Homo Economicus or rational man of economics) and a short term oriented and selfish “doer who is subject to impulses” (that is the side of us that is usually seeking instant gratification) – which are constantly tussling with each other. How do you resolve that tussle? In The Odyssey, Homer introduced us to the device that can make it happen – a commitment device.

A commitment device is literally not a device, it is a technique to prevent you from acting against your better (rational) judgement. Another name for commitment devices is ‘Ulysses Pacts’ - named, of course, after what Odysseus did when he was sailing past the Sirenusian Islands. These islands were notorious as the home of Sirens whose songs seduced sailors into jumping into the waters in trying to reach them and more often than not, the seamen4 died in the process. Odysseus wanted to avoid that fate but he also wanted to hear the famed Siren call. Thus he made his crew do two things – plug their ears with wax (so that they couldn’t hear the songs) and tie him to the ship’s mast so that he could hear them but couldn’t move. He told his crew that under no circumstances should he be untied even if he as their captain pled for it or ordered them.

It worked. And in the process he had demonstrated that although hard, it is possible to commit yourself to a rational course of action, provided you had the set up to make you follow through with it. In his case it was the ropes and the pact he made the crew stick to (to not release him). Thus, in a sense, commitment devices were born. And the secret to making a commitment device was probably best articulated by Salman Khan in the film Ready, when he said - “Ek Baar Jo Maine Commitment Kar Di, Toh Main Apne Aap Ki Bhi Nahi Sunta”5

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What connects IndiGo airlines and toilet paper?

No, this is not the setup to a joke, although you are welcome to make one of your own and share it with us. We are starting this newsletter with the mention of the airline (that, in the short time between when we sent out the first issue of this newsletter, to now, has gone from a dominant firm in an oligopolistic market to a virtual monopoly), because its epic operational meltdown in early December that caused thousands of flight cancellations leaving millions of passengers stranded became global news, and a national issue.

Passengers were left distraught and disgruntled, the frontline staff (especially ground staff at check-in counters) were left facing unchecked wrath of some of those passengers, and the leadership and the regulator (in India’s case the Directorate General of Civil Aviation, DGCA) scrambled for explanations as to how this happened. The airline, through its CEO, said the disruption was caused by “misjudgement and planning gaps”, which was effectively an euphemism for saying that they had been so ruthless in their quest for cutting costs that they did not bother planning for what would happen when new rules (Flight Duty Time Limitations or FTDL) relating to a pilot’s operating hours came into effect on November 1, 2025. As a piece in Bloomberg put it, “The resource-efficient instincts baked into IndiGo’s DNA had led to a severe under-estimation of redundancies needed to accommodate the new pilot rest rules, despite carriers having had nearly two years to prepare since the guidance was first announced in January 2024.”

Every producer wishes to use the most efficient combination of factors for production, and IndiGo’s “tightly-run operations are built on a rapid turnaround of flights and a strategy of sweating every asset — man or machine — to the limit”. However while it might make economic sense at one level, if systems to too finely tuned, then the slightest disruptions can send shockwaves across the whole set up, because there is no slack built in. Imagine having your day planned to the minute with appointments and things you need to do that requires you crisscrossing the city and rely on public transport. If there is even the slightest delay, maybe the train ran 3 minutes late, or you got stuck in the elevator for a couple of minutes on your way out of the dentist’s, it might end up jeopardising the rest of your day. We saw this during the pandemic, when global supply chains which are built for ‘just-in-time’ (i.e. basically manufacturing on demand, rather than manufacturing ahead of time and stock up on inventory) for reasons of efficiency were shattered by the disruption, causing shortage of essential items such as protective equipment, grocery items, and even toilet paper. Slack means having extra inventory (in case of a product), or extra capacity (in case of a service, like, say, an airline) which forms a Plan B in case of a disruption. The Japanese, who invented the just in time or lean manufacturing system actually called for such backups to be part of the plan. But whether it was toilet paper manufacturers or IndiGo, both seemed to have ignored that part in their obsession over shaving off as much cost as possible through efficiency.

The lack of slack, and the pain it causes when a disruption strikes, is what connects IndiGo and toilet paper. And it raises a rather existential question - is chasing efficiency to that extreme worth it? At one level, economics would tell you that slack is bad because it represents an opportunity cost in the form of idle resources, but as IndiGo found out in its week from hell in December, there is incalculable reputational cost that could result from the lack of it.

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As I write this, it has been almost 8 weeks since the Indian women’s team lifted their first ever cricket world cup. Following the win, the BCCI, the game’s administrator in India announced that they would be taking measures to develop the women’s game further, and this week, a big announcement came in the form of an increase (of about 150%, from Rs. 20,000 to Rs. 50,000 per day) in the match fees at the domestic level for women cricketers.

It may not sound like a big deal, but consider the economics of the knock on effect this might have - it could make the winner-take-all market that most professional sports are (where there are many aspirants but only a few succeed and also get a disproportionately high share of the payoff) better and fairer by expanding opportunities at its base, and reducing opportunity costs for the participant. As Ananya Upendran, a former cricketer and now Program Lead at GoSports foundation, put it on Twitter, one of the things this move does is allow players to have “more means, opportunity (and possibly time) to invest in their development”. In other words, they would have been cut more slack. Check out the rest of her thread or her podcast with Indian Express (hosted by my good friend Vinayakk) for a great primer on the economics of women’s cricket.

CURATED CORNER: WHAT WE ARE WATCHING AND READING

The 1929 US stock market crash that precipitated the Great Depression is the stuff of econ lore. But how did it actually happen, and what did that time feel like? Tareque is currently reading ‘1929’ by Andrew Ross Sorkin (no relation to Aaron Sorkin, but he’s written for TV too, including co-creating one of our favourite shows - Billions) which is a largely jargon free, people-first, and very readable account of the crash.

And if you are feeling like kinda sorta diving into the rabbit hole that is the Great Depression, you can also check out the majestic ‘The Great Crash, 1929’ by John Kenneth Galbraith (his prose is the best we have ever read of any econ writer), or if you are more of a visual learner, why not give the BBC documentary about it a shot?

That is it for this edition. Until next time, I hope you don’t have to deal with neither a cancelled flight nor a crashing stock market. Happy New Year 2026!

Come 2026, maybe we should, if we have that privilege, be looking at working in a bit of slack in our routines. Because even the harshest of workouts still need to allow for some breathing room.

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Professional sport has always been a winner take all market (or prone to superstar economics, as it is often termed), where dreams of playing and excelling at the highest level attracts millions of aspirants - Yashasvi was one of those who packed his bags and arrived in Mumbai as a 10-year-old and plonked himself next to Azad Maidan (that famous nursery where every Mumbaikar and many from all over the country could be found honing their craft if they harbour dreams of playing at the highest level), doing odd jobs (including selling pani puri) to just about make ends meet. Meanwhile, batting with him at the other end, and celebrating with gusto as they ran the single that brought up Jaiswal’s double hundred, is Safaraz Khan, who’s also had his taste of what winner take all markets are like.

Sarfaraz who finally broke through to the Indian test team after years of consistency in the domestic circuit is coached by his dad who has been a first class cricketer himself, and someone who has mentored numerous aspirants who came to Mumbai with the same dreams as Jaiswal. The younger Khan needed a bit of luck for his breakthrough - Shreyas Iyer and KL Rahul’s injuries giving him the opening to be drafted into the matchday XI.

But in winner take all markets, for every Sarfaraz and Jaiswal, there are many who do not make it to the top. And in a poorly designed market, it can extract a heavy price. Back when Jaiswal decided to fight it out staying out of a tent near Azad Maidan, his parents back home naturally asked him to come back. His mom recounted that Jaiswal responded with ‘Main maidaan mein hi rahunga toh sab kuch aasan hoga, subah uthte hi mere saamne cricket hota hai [If I stay at the ground, everything will be easy… as soon as I wake up, I see cricket in front of me’].’ and made a vow that he will return only when he becomes a proper player. What his statement reflected is the concept of economies of agglomeration - the economic benefits that come in the form of lower costs, easier knowledge transfer, and most critically for sport - better matching of jobs to vacancies. This is also what you see in Kota for test prep, or why many Bollywood superstars origin stories consist of them coming to and ‘struggling’ in Mumbai. Jaiswal got his break when he was spotted by Jwala Singh (who himself had tried to make it as a cricketer in a similar arc of struggle years ago) who then became his coach and mentor, eventually seeing his young ward make it big when he was picked in the IPL.

Surviving in a winner take all market is not easy, unless the playing field itself expands. The IPL, or even the expansion and improvement in domestic cricket and its pay structures, is a good example of that, because it has created the possibility of a steady career that pays back the opportunity costs of what goes into the making of a cricketer. The top echelon in these markets will always be narrow, and you cannot eliminate superstar economics, but even as anecdotal evidence, Jaiswal’s story is a reminder that growth (and innovation) have a role. We have seen such stories with Chetan Sakaria or T Natarajan. The latter broke through by working his way through the ranks from tennis ball leagues to the first division leagues to first class and the TNPL and the IPL. While winner take all markets do have rewards highly concentrated at the top, the biggest counterweight to it can be wider opportunities and a chance for mobility and Natarajan’s is a case in point, as is Jaiswal’s.

The Indian Constitution enshrines the idea of a nation where every citizen has equal opportunity or a level playing field. And a growing appetite for cricket has created a larger requirement of a professional player pool, so even if they do not make it many aspirants have something to fall back on, or something to pivot to. The founder and President of TransStadia University (full disclosure: I teach a course there), Olympian Adille Sumariwalla once explained to me his vision of setting the institution up by saying that he wanted to provide the opportunity for aspiring athletes to educate themselves and transition smoothly into a second and third career (something he was able to do because he had been fortunate enough to finish his studies).

Movies like 12th Fail (which, in turn, is based on a true story) can offer inspiration, but having inspiration and having a playbook are two different things. That is not to say that hard work does not reward you, but to understand why it is critical to keep the effort in context. “Money doesn't matter to me at all. It was just important that I got a chance to play in the IPL. Money is a by-product of your success. If you do well in any field, you will get some reward, but to get good reward, you need to keep working hard and follow the right processes”, the young Jaiswal had said after being picked up in the 2020 IPL Auction.

The economics of being Yashasvi Jaiswal is knowing how and why windows in winner take all markets are narrow, and not forgetting to enjoy the process of making a leap of faith through that window. It was all epitomised in the beautiful and wholesome picture (see above) where Safaraz is celebrating Yashasvi’s double ton as if it were his own. The brutal economics of winners take all markets will not disappear, but the important thing to keep in mind is that the best economies are those where paths to upward mobility are many, and there is an entire community that has your back - whether you succeed or, are still trying to.

Yashasvi bhava!

Welcome to another edition of ruining-valentines-day-with-econ.

There are two main forces that have pushed the rose to the forefront - the first one is something we have discussed before about being an econ force that moves the needle in matters of pop culture: bandwagon demand, and the second - which applies to everything from smartphones to microchips to Barbie dolls - the familiar economics of how explosive economic growth forced modern supply chains to go global.

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Lady Mary (Wortley Montagu, not Crawley, the one from Downton Abbey) was a pioneer in many things, including introducing smallpox inoculation to England, but to our story, her contribution is a series of letters she wrote when in Constantinople about the Turkish flower "language" selam - "the Turkish tradition as a way of assigning meaning to objects in order to send secret love letters". There she claimed that the rose symbolised love, and over the next couple of centuries, through a series of translations and other writings, the idea took hold in England. It did not matter that her original understanding was not entirely correct - the secret 'language' was about rhyming words with the object to decipher the meaning, and the object itself had no symbolism attached. The tradition grew and with the first wave of globalisation in the 20th Century, it went global. Traditions - whether it is buying a Christmas tree, or a turkey at Thanksgiving - tend to be driven by bandwagon demand effect1, everyone wants to do it because everyone else is doing it. The feedback loop meant demand exploded as Valentine's Day, driven by global corporations, became big business. Today, more roses (by some estimates, 250 - 300 million) are sold worldwide on Feb 14, than all other days of the year combined. This brings us to our second point.

Back in the day giving flowers on Valentines Day was already a thing, but most people made do with locally grown flowers. However as the day became even more popular, despite the best efforts of your (un)friendly neighbourhood fringe activist group, florists realised the local supply would not be able to scale up. But with the key markets, like the US, and Europe, in the depths of winter (well, because northern hemisphere), the flowers would have to be grown far away and transported. And anyone who has ever had to even travel across town with a bouquet knows, it is hard to transport flowers. The rose won out because of that reason.

The flower would have to be grown in the southern hemisphere and would have to survive thousands of miles of travel in boxes. Let's just say, the rose refused to wilt, or as Planet Money's Robert Smith put it: "Roses were the perfect choice (because they were) pretty much indestructible." The globalised world that moved to mass production thanks to the economics of consumerism operates on optimised supply chains that can produce things where they are cheapest (and/or conditions are ideal; basically an extension of David Ricardo's theory of comparative advantage) and then send them where they need to be sold. In the rose and Valentines Day's case, it was growing roses in Colombian greenhouses and transporting them to Miami.

Much like how Pablo Escobar optimised the global supply chain for cocaine, only legal, and with no hit Netflix series about them. It could have been other flowers too, but the unit economics worked best with the rose. In other words, just like economics made cocaine the party drug of choice, and fueled addiction, we do not get to choose the rose on Valentines Day because we are upholding some long held tradition, it is just that the market has optimised the production for it.

So, in case you are reading this on 14th February (anyway, the heck are you doing reading econ articles on the evening of Valentines Day?) and there is bouquet of roses you have either given or received, you can thank Lady Mary, David Ricardo, and the weird world of economics.

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Last week was Bangalore Comic Con. I have been a regular at the Con since it started in Bangalore in 2012, and because I had missed it last year, I was super eager and excited to go there on all three days (it had been a two-day thing between 2016 and 2019, as well as 2022), to see all the artists, exhibitors, and of course the creators and the cosplayers. Its magic had always been its community - something I have written about before. But with two years missed due to a pandemic, and relentless commercialisation, the Convention seems to have embraced late stage capitalism vibes, diminishing the effectiveness for independent creators and artists to be able to use the platform.

It was most at display this year - there was no independent artists alley (where small time artists, akin to early stage startups, would get subsidised space to display their stuff), and with smaller exhibitors priced out from renting booths (the prices have gone up more than 3X since 2017), it was mostly big sellers. This is a big loss, and I do not say this in a nostalgia tinted ‘back-in-my-day’ sense. I completely get the commercial considerations, but they do not have to come at the cost of what such conventions can really spark - inspiration, creativity, and connections. I have been on that journey when I attended these events over the last 10 years, meeting creators, being able to talk to them about their work, interacting with cosplayers, finding out about new fandoms, new stories, new communities, all of these things make us richer, and as a result, more positively productive. Once again, this is not idle Insta worthy philosophical mumbo jumbo.

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In 1973, sociologist Mark Granovetter published probably the most well known paper in organisational theory circles - ‘The Strength of Weak Ties’. In it, he argued that when it comes to social connections, while strong ties (like that of immediate family or best friends) are important and provide emotional support as well as a network of potential opportunities, what drive growth, novel information (important for innovation), and multiplies opportunities, whether it is for jobs or for any other collaboration are the ‘weak ties’ (casual acquaintances). The Comic Con is particularly suited to establishing these, whether when strangers come and get a photo with a cosplayer, or when you introduce your friend to a creator you know. They even did some empirical research and found that the theory holds up. Even Apple considered these weak ties interactions when designing its new office with Jonny Ive the then Apple Chief Design Officer saying the circular design was so that it is “a building where so many people can connect and collaborate and walk and talk”, something even Steve Jobs was very keen on. Unfortunately this edition of the Con seemed to be particularly tough for these kind of interactions, with crowd marshals constantly breaking impromptu gatherings and discussions (or even picture taking sessions) in the name of keeping pathways clear, even when there was barely a crowd in at the event.

The economics of ideas says you ideally keep entry barriers low to attract more people and allow interactions to multiply ideas (“spillover effects”) but with ticket prices having gone up by 300-400% in the last 6 years, a lot of the audience - who is an active creator of what the Comic Con is - is also priced out. Ironically it hurts the very industry that has skin in this game - where does the next great artist, animator, comic creator get their first spark or inspiration? I would rather see activity corners for children to sketch, draw, and have fun interacting with their favourite characters than another t-shirt stall. Maybe something for the Con to think about for next time.

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With all the talk going on about OpenAI, the company behind Chat GPT, and the ouster and eventual return of Sam Altman as its CEO, the drama of which rivals the original Star Wars trilogy in terms of one person threatening the balance of the very Universe, it may be a good time to reflect on another ouster and (much later) return of a prodigal son - that of Steve Jobs at Apple. It is a well known tale, but maybe now is a good time for a refresher! As Matt Weinberger wrote in Business Insider in 2020:

“In 1996, knowing he had to do something dramatic, Apple's CEO at the time Gil Amelio negotiated a deal to buy NeXT, the computer company owned by an exiled Jobs, in hopes that he would bring some much-needed direction to the company.

Instead, Jobs manipulated the board into getting Amelio fired and decided that if Apple were to be saved, he would be the one to do it - even if it meant getting help from the company's rivals at Microsoft.”

A great primer of what followed - SPOILER ALERT: the economics of consumer electronics completely changed! - can be read here.

That is it for this edition; The Econ Stack will return soon. Of course, you can keep up with us on Twitter and Instagram or look up our blog.

We sign off with these words from Michael in The Good Place:

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I recently discovered the song ‘Lehnga’ by Jass Manak. It is safe to say that I loved it! Besides being an impossibly catchy song (as evidenced by the 1.6 BILLION views it has on YouTube), I found the lyrics rather fascinating, not least because Jass seems to be singing lines that are ostensibly written from a female POV. It is an interesting framing and challenge to gender norms, but more fascinating is what the song seems to want to convey at its core. It somehow ends up giving us valuable insights into conspicuous consumption, our marginal propensity to consume, the hedonic treadmill, and the true meaning of happiness.

Let me explain why I thought so.

The song opens with the lines:

which roughly translate to - I have spent a whole year with the same pair of heels, take me to the shopping mall sometime, the friends with me are all going to the salon, take me also out to get my hair highlighted. It clearly is someone’s significant other complaining to their lover that their consumption has not been what it used to be. Interestingly, both items mentioned here are not exactly necessities, and the functional part of their demand is not the key reason for their utility. These are what Thorsten Veblen in his 1899 treatise “The Theory of the Leisure Class: An Economic Study of Institutions” called items of ‘Conspicuous Consumption’ (later named Veblen goods after the economist), consumed not just for their own utility but also for some sort of social cachet, something modern economists and social commentators have dubbed the “keeping up with the Jonses” effect. Now, that by itself, may sound like a vain refrain, but before you can dismiss the song as a cliched set of stereotypes, the next line kicks in and opens up a whole new perspective:

“All my outfits are old now, what do I adorn myself for you in, why don’t you get me an expensive new outfit, tell me what are you going to do with so much of this money anyway?” The conversation now seems to shift to the marginal propensity to consume (MPC), a concept that John Maynard Keynes talked about in his seminal “The General Theory of Employment, Interest and Money”. He posited that as income increases, the consumption increases but not by as much as the increase in income. That seems to be the lament of the significant other in Jass’s words here too, because clearly they are from a well-off household (in terms of income) and the grudge seems to be that the primary earner seems to be ‘hoarding’ all that extra income (“what will you do with all that money”). And the very next line then exposes the double standards of the primary income earner, throwing the accusatory:

“When it comes to you spending on your friends, there always seems to be plenty, but when I ask, the refrain is that your wallet’s empty”.

Consumption increases with income for two reasons - there is lifestyle inflation, that is seeking better goods and services in the same category (for example, buying a more expensive shampoo, or wearing a fancier shirt), which is partially driven by the keeping up with the Joneses instinct, and just being able to do more things to derive (extra) utility from (say, taking a holiday just to go bungee jumping). Economists generally assume that the consumer is trying to maximise their utility, and material goods are one way to do that. There is a fancier name for all of this - the hedonic treadmill. The idea is that with increase in income, an increase in consumption may improve material well being, but levels of happiness remains the same. In other words, wealth cannot always buy happiness, or more marginal happiness, at any rate.

And that is where I think “Lehnga” hits its high point with the next line that truly lays bare the crux of the problem the lover is pleading their significant other to address

The request here to “take me to a movie, and sit with me, so that you can tell me what you are going through, and so can I” puts the request for the “mehanga lehenga” in a whole new light. The demand for extra material well being is actually a cry for true happiness - the little things that make life worthwhile, for example, just a simple act of companionship and sharing a heart to heart conversation. That is perhaps the reason why even a Harvard study found that beyond a point, money cannot really buy any form of happiness. In another paper “If Money Doesn’t Make You Happy Then You Probably Aren’t Spending It Right” Elizabeth Dunn (University of British Columbia), Daniel Gilbert and Timothy Wilson (Harvard University) had pointed out that, “the relationship between money and happiness is surprisingly weak, which may stem in part from the way people spend it”.

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The upshot from all of this, and listening to Lehnga about 200 times, is that, trying to generate more income, and using that to consume more itself is not bad per se, but there needs to be balance in the tradeoff between leisure (when the consumption, especially the non-subsistence part of it can be done) and work (which generates the income for consumption). Neither extreme (spending too much, or an MPC of 1, nor spending too little, an MPC close to zero) is desirable, or practical no matter where one is on the income scale. As the significant other berates their lover at the end of the song for ostensibly having an MPC of zero:

“You are too frugal, an outright miser, and your personality is gruff too, why don’t you smile and laugh sometime” ending with the refrain:

Keynes in 1930 in his essay ‘Economic Possibilities for our Grandchildren’ had famously predicted that “people would experience great difficulty filling their days once productivity increases eliminated the necessity to spend more than a token amount of time working.” Sadly, that economic future seems to have not arrived for a majority of us, as everyone seems to be working ever longer and stressful hours, no matter the industry.

And that is the tension that seems to reflect itself under the surface of those lyrics in Lehnga. Perhaps that is why, another Punjabi singer, Maninder Buttar, sang:

(Spare some time to love as well, work will keep happening).

That’s it for this issue of The Econ Stack! Until next time please take care of yourselves, balance your MPC to the ideal level, and let us know if you find any econ wisdom hidden in your favourite Punjabi banger.

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I was in Chennai last weekend, and for the sake of full cultural immersion, decided that I should watch the latest Rajinikanth film - Jailer - in Tamil, without subtitles, in a single screen theater in the city once called Madras1. I know almost zero Tamil and yet I had a blast, primarily because I fed off the reactions, energy, and vibe of the crowd that hooted at every Rajini entry, laughed at the jokes, and clapped at the punchlines.

Every Independence Day, discussions almost inevitably skew towards something on the lines of what “freedom” means to you, or some banal question like that. There are many interesting answers to that question, as there are many fascinating perspectives of the idea of freedom. But a default one that has been quite embedded in our minds (thanks in no small measure to American movies) is that freedom is almost wholly an individual thing. This 15th August, though, I would say that freedom in these times is a collective thing. And one kind of collective in particular - the community.

Community is often defined in geographical terms, the dictionary literally says “a group of people living in the same place” but it also goes on to define community as the “condition of sharing… certain attitudes and interests”. That way, the Rajini fans I found myself among at Sangam theater on a Saturday afternoon were my community in that moment. That way, my pilates class is my community on my non-Chennai-non-Rajini-sir-movie-watching-Saturdays, a group of people I know through a common interest. So are the BTS ARMY, who left handmade gifts for anyone buying the BTS biography at the bookstore, even though I do not even know who they are. As Raghuram Rajan writes in his book “The Third Pillar” (spoiler alert: The government and the market are pillars one and two, community is the third), communities “offer their members a sense of identity, a sense of place and belonging that will survive the trails and tribulations of modern life.”

Freedom is not always being individually free to make the choices you wish to make without fear, hesitation, or obstacles, but also knowing that there are these safe places that you can fall back on, which makes you truly free. As Rajan says a little later in the para I quoted from above, the community “monitors economic transactions as well as non economic ‘favours’ within the community, and it sees that everyone delivers their promised part fairly, if not immediately then over time… it [aggregates] the capabilities of all its members and brings them to bear to enhance collective well-being.”

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Anyone who has followed some of the good work a lot of Rajini fan clubs do is seeing that in action. It happens in my pilates class too. It is partially an economic transaction - I pay for the class - but we often discuss interests outside of the class, connect both formally and informally on a host of things from helping someone with a job or a doctor referral, or banding together to go show support to a friend’s musical show in aid of a charity home. Sometimes just their mere presence, even in virtual form like a group chat - like my cricket podcast group is, or on a social media site, like many of bestest people I know through my common interest in sport on Twitter/X are, is enough reassurance that you are not alone, and that you are indeed, free to be you.

Incidentally, the first woman to win the Economics Nobel Prize, Elinor Ostrom, won it because of her work that demonstrated how small communities make us better off collectively2. She studied “how people in small, local communities manage shared natural resources, such as pastures, fishing waters, and forests” and went on to show “that when natural resources are jointly used by their users, in time, rules are established for how these are to be cared for and used in a way that is both economically and ecologically sustainable”. In other words, there is more room to be independent when we make dependence our strength and harness it through a positive, inclusive sense of community.

The way any great community you become a part of immediately makes you feel empowered is the power of true and positive community that is a hidden economic force that is more resilient and dare I say, more efficient, than the market. And therein lies the rub about what freedom truly is. So, today, let’s put the dependence back into Independence Day and do our bit to nurture every little community we are part of. Jai Hind!

I have been in Bhubaneswar for the past week, taking in the action of the Hockey World Cup - the second consecutive one to be held in Odisha (the 2018 edition was held exclusively in the capital city, 2023 saw Rourkela and its sparkling new stadium added to the list). Hockey, where India once held what in econ parlance one might term an ‘absolute advantage1’, has undergone quite a shift over the last six decades since the introduction of artificial turf at the Rome Olympics saw India’s stick wizardry and dribbling dominance wane and European powers rise.

But it has also made the economics of the sport complicated. Shorn of facilities that require substantial investment, Asian powerhouses have regressed. Pakistan, who actually won the inaugural men’s World Cup, a tournament conceived by a Pakistani Air Marshal, Nur Khan, are perhaps the most stark example among them (their men’s team are currently ranked 16th in the World). India’s last big success was the men’s World Cup trophy in 1975, and since then the game has been eclipsed by cricket, commercially and canonically. This has made it difficult for the global game to sustain itself with barely 30 million2 people playing the sport recreationally. The number is crucial because recreational players often form the base of the pyramid for the talent supply lines at the professional level as well as a large part of the viewers. All of these things have, in a twisted way, brought the centre of the game back to India, and more specifically a talent rich niche in India - Odisha.

Sport survives on bandwagon demand, and that the locals in Odisha have in plenty. Everyone from the cab driver to the hotel bell hop, to the local rasgulla vendor, is chatting hockey, and all of them are willing to go to the stadium and attend the games, even when India is not in action. In fact the tickets priced at an average of Rs. 400 (US$ 5) are well within reach as well, but that brings me to the peculiar problem of empty stands in stadiums despite games being “sold out”.

…and the Micro

The knockout stages of the 2023 World Cup have been incredibly dramatic producing some thrilling hockey games, but a majority of them have seen barely 50% of the stands full at the Kalinga Stadium. The paradox of the fact that you could not get a ticket for those games on the ticketing website, but seats were empty, can be explained by a basic misunderstanding of the concept of demand (by the government, no less) and the econ concept of “search costs”.

Markets ideally do a fine job of matching buyers to sellers, but interventions or ‘frictions’ can ruin that flow. In the World Cup’s case, the state government has bought up a lot of the tickets, and while they have been assigned to ministers, bureaucrats, and their coteries, a lot of them probably simply have no desire or willingness to come for a hockey game. Meanwhile, those hockey fans, from the dahibara seller to the IT engineer, who have the three demand elements - desire, willingness, and ability to pay (since the price is reasonable, particularly for a state where the average income is much lower than the rest of the country), are being shut out of the market. Even if they were to look for it, there are no reliable reselling platforms or mechanisms to assign tickets someone doesn’t wish to use, to someone else. And a lot of enthusiasts from tribal areas or smaller towns and districts in the state may have missed out simply because they are not tech literate and tickets were available mostly online. Both of these things are frictions that increase the ‘search cost’ in the market making it inefficient and leaving people worse off.

That’s probably something for the administration to chew on when the next big hockey event comes to Odisha, which, given the kind of infrastructural and financial support the state has provided, it most certainly will.

From the sidelines…

One of the more amusing aspects I found while soaking in the superb atmosphere the whole city of Bhubaneswar has put up for the tournament (it looks like the whole city is hosting a function and everyone is invited - the spirit is amazing!) is seeing hotels where the teams are put up advertise the fact with pride. My good friend Vipul who’s also here for the tournament (and is a way bigger sports and hockey fan than I am) remarked how the final - Germany v Belgium - will be the hospitality derby between Sandy’s Tower (where the Belgian team are staying, a fact we know thanks to, well, Sandy’s Tower) and Trident (where the German team are).

Incidentally, the hotels are indulging in what economists might call ‘signalling’. Information asymmetry (the seller knowing more than the buyer) might make it difficult to figure out if the used treadmill you are about to buy or the hotel you are about to book is actually any good. But such signals can make the decision easier. I mean, the defending world champions are staying there? Surely the hotel must be pretty decent. And that is why today Trident - which is decked up in German flag colours like it is the heyday of the Weimar Republic - might be rooting for Germany to go and win it all!

And finally, I spent my off day from hockey catching Shah Rukh Khan’s latest blockbuster Pathaan. Even the movie hall had hockey World Cup paraphernalia! SRK and hockey conjure up images of Chak De India, the movie that revived popular interest in hockey and actually shifted demand. In 2007, following the release of the film (and the Indian team’s success in the Asia Cup - the men won the title) demand for hockey equipment in India spiked 25-30%. It remains to be seen what will happen to equipment demand, given that India were knocked out early in this World Cup, and Pathaan features exactly zero hockey sticks.

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When the going gets tough, the tough seek inspiration in sporting success

2022 was a tough year economically for the world. From inflation, to threats of recession, to the combination of the two igniting cost of living crises, many economies had it bad. Not least of those were Sri Lanka and Argentina. There’s a reason I mention these two - these are also two countries whose men’s cricket and football teams respectively delivered them magical sporting success. Sri Lanka won the Asia Cup against all odds with an inexperienced team after losing their opening game. Argentina also lost their opener at the football world cup but then inspired by Lionel Messi went on to break a 36-year streak of being trophy-less at the world stage. Both wins did not solve the fundamental economic problems the economies face - basically, they need more foreign exchange, and their key sources have dried up pr hit snags - but they gave the people happiness, and hope. These may seem trivial but could prove to be rallying cries for reform and change.

The more important point is that for people of the victorious nation, sporting success is a non-rival good. On New Years Eve I was at a friend’s house, and another friend of his (and a great friend of Econormist!) asked his mother if she could use the mirror. I jokingly told her that a mirror is what economists call a “non rival” good - something where consumption by one person of the good does not diminish it for others. So is celebrating sporting success. One extra person deriving happiness from Argentina’s amazing win against France does not take away from those already celebrating it. That’s how the United States got behind the inspiring story of the race horse Seabiscuit (an underdog that became a champion race horse in the late 1930s) becoming, as Wikipedia terms it “a symbol of hope” for many during the Great Depression. The world needs more non rival goods because out of both necessity (natural) but also deliberate choice and design (artificial), scarcity has left the world a discontented place.

The start of a year is a good time to remind ourselves of what Rafael Nadal said during the last Australia Open - “at the end of the day, life is about happiness.”

It is also something I heard economist and author Shrayana Bhattacharya exhort when talking about her book ‘Desperately Seeking Shah Rukh’ - “What is the point of life? It is not to contribute to the GDP but to build meaningful relationships.” These may sound like cliches, but the common theme among them is that ultimately truly valuable things are non rival or as close to that as possible, whether it be a public library everyone can access, or clean air and drinking water, or something a community can celebrate as whole.

It will serve us well this year to look for opportunities of where we can help make our world a little more non rivalrous. Because as someone once said, the problem with the rat race is that at the end of it, you are still a rat.

CURATED CORNER: What are we reading and watching

We at Econormist have consumed a lot of media last year but here are three remarkable ones that stood out:

READ: Shrayana Bhattacharya’s Desperately Seeking Shah Rukh is an economics book unlike any other. It takes a research scholar’s approach and rigour but applies the fascinating lens of the female fandom of one of Indian cinema’s global superstars - Shah Rukh Khan - to explore questions of gender equality, and other key econ issues in India, specifically faced by women.

WATCH: We have spoken about winner take all markets before, and their economics and the consequent toll they take can be brutal. There are often hidden costs to pay to be a superstar in such markets to whom a disproportionate amount of the economic value accrues.

‘Qala’ on Netflix (fair warning, not a breezy watch) starring the lovely Tripti Dimri, about the price an aspiring singer pays for her success is a beautiful and haunting exploration of winner take all economics and why fame is the ultimate “Rival” good.

From that crisis of 2001, you can draw a long, winding line to the night of December 18, 2022 in Lusail Stadium in Doha where Lionel Messi delivered what was long ordained as his destiny - a World Cup for Argentina. The consequence Messi’s soujourn to FC Barcelona, and his eventual enrolment at the Spanish club’s hallowed La Masia academy was that he honed himself into perhaps the most magical footballer the world has ever seen, capable of superhuman feats on the pitch that even other greats would not dare contemplate. The hero’s journey was born, in part, of an economic crisis, and its latest epic triumph comes as the country battles another.

Argentina is no stranger to economic crisis, and most of them follow the same pattern - the government’s inability to rein in its spending leading to excessive borrowing (especially in foreign currency) precipitating a currency crisis that leads to soaring inflation. No one can satisfactorily explain why that happens over and over again, much like there are no satisfactory explanations as to why, despite having some of the most talented footballers on the planet, the country had last won a World Cup in 1986. The sentiment is superbly captured in Nobel Laureate Simon Kuznets’ famous quip - “There are four kinds of economies, developed, underdeveloped, Japan, and Argentina.”

So, will winning the World Cup in such dramatic and emotional fashion in 2022 make a difference? Research suggests it might. According to a paper by economist Marco Mello, the World Cup winner often sees higher exports because of greater international visibility after the title win, and the eventual effect could be as high as a 0.25% extra growth in the country’s GDP. For a country that holds the world record for the most number of years of negative GDP growth1, even 0.25% extra growth could mean a huge difference. But those are the technicals. The lasting impact could be that of confidence. Argentines have always been emotional, more so when it comes to football. An Argentine comedian on Twitter implored “Argentina’s witches, do your thing!”, when the World Cup final penalty shootout began. Their economic troubles also have emotional roots.

Back before the Great Depression and the Second World War, Argentina was a thriving economy with a huge export market of livestock (it was mainly beef they sold to the rich in Europe and the United States, but they exported goats too ;)) and other agricultural products. But the Depression destroyed the meat export market, and the economy collapsed, until a certain Juan Peron (VERY much related to Eva Peron of Don’t Cry For Me Argentina2 fame) took over. Argentina pivoted from a relatively free market economy to one that was heavily nationalised and propped up by government spending on welfare. Then, in 1976, the democratic government - then led by Isabel Peron, Juan’s third wife who had taken over after his death - was ousted by a military regime, that brutally ruled until 1983, even hosting the World Cup under controversial circumstances where the home nation won their first title in a final marred by terrible refereeing and gamesmanship.

Throughout all this, there was one sure shot sign of economic weakness that persisted - high inflation. The rate of inflation is effectively an indicator of how confident people are in the strength of a currency and the institutions in an economy that hold it up. For reasons that are too complicated to get into here, Argentines have always ended up with very little faith in their currency, their central bank and their government. Without a stable currency and a trustworthy banking system to guide resource allocation, a modern economy can’t grow. Economic hardships, uncertain inflation that could wipe your life’s savings out in a week, or bank collapses became a fact of life - something one had to learn to live with. As Jonathan Wilson writes in his magesterial history of Argentine football “Angels With Dirty Faces”, “The result of a lack of trust is a spiral of short-termism”. In other words, it’s hard to be hopeful of the future, or even contemplate it.

Amidst the gloom and doom, football was the great escape, the here and now, and the big release. And failure after failure on the world stage only dented the confidence further. It seemed like an unbreakable shackle of economic and sporting misery. Back in 1989, when things became so bad that inflation touched 3000%, the country did try to reform its ways, with the government led by Carlos Menem going ahead and tying the value of the Peso to the Dollar. The 1990s were rather stable and hope was rekindled for a brighter future. But then the country spiralled again, and the 2001 recession in the United States meant Argentina was back in the throes of a crisis, the very same that drove Lionel Messi to Barcelona.

Inflation, even as millions celebrate the World Cup win in the streets of Buenos Aires and elsewhere in the country, remains at around 80%, unemployment at almost 25%. But this win, delivered by Messi, as much as it was delivered for him by his teammates may yet leave an economic legacy for his country, by the sheer hope and optimism it might ignite. Argentines have always believed their inability to capture the Jules Rimet trophy again since Diego Maradona held it aloft in Mexico was the result of a curse, a hex placed on them. And this world cup, the faithful fans kept chanting “Anulo Mufa!” that translates to something like “I counter-curse your curse” or”I annul your curse”. The anti-jinxing of the jinx seems to have worked. And it is possible, it might spur a level of goodwill that might translate into reforms and action from the government, and economic growth thanks to people and businesses feeling more optimistic about the future.

After all, one of the closing lines in the anthem - “Muchahos” (the no. 1 song in Argentina on Spotify during the tournament) - sung by Argentine fans at this world cup goes “Muchachos, ahora nos volvimos a ilusionar.”

“Guys, we are hopeful again.”

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In this issue, we talk about the f-word that can be both cathartic and blasphemous: freedom.

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Freedom’s just another word for nothing left to choose…

This issue is going out on the 15th of August 2022, a date when India marks the 75th anniversary of independence. It is an occasion to celebrate but also with a milestone as significant as the diamond jubilee of the founding of a modern, diverse and vibrant nation, it is also an occasion to reflect. The dominant theme that seems to have taken over our ordinary lives lately is one that led to birth of economics as a discipline - scarcity. There’s inflation, which is a sign of scarcity of commodities in question - whether it be fuel, foodstuff or footwear. We are also amidst a scarcity of jobs, or more specifically, work, which is fuelling unemployment. Everything appears in short supply, even funding sources for the government, which is leading them to go a bit bonkers on taxation.

But, in a modern world, and an evolved economic system, where free markets, along with some benevolent government intervention to create social safety nets, were supposed to eliminate scarcity in most areas, how did we get back to the start? To answer that, we have to kind of get back to the start.

Back in the 17th Century, philosopher Thomas Hobbes (or good ol’ Tommy H, as Andy Zaltzman might call him), lamented about life being “solitary, poor, nasty, brutish and short” for the majority in the absence of a central organising force. He was merely philosophising on what he had seen around him in the Middle Ages - low life expectancy, terrible quality of life for anyone who wasn’t an aristocrat, and no real safety net if someone fell on economically hard times. Over the next three centuries all sorts, from Adam Smith to Thomas Malthus to David Ricardo to Karl Marx to John Keynes to Fredrick Hayek to Amartya Sen to Milton Friedman, pondered over how to change that reality.

By understanding, and often clearly demonstrating how specialisation (doing what you are best at), exchange (trade), and an organisation of resource utilisation using price as a signal (that indicates if something is getting scarcer or more abundant) can eliminate scarcity in most cases, they set the philosophical foundation for how we organise our modern lives - interconnected strangers working with an implicit trust of each other leading to a world where a majority don’t have to worry where their next meal would come from, or sleep peacefully at night knowing if they were to get sick tomorrow, affordable help would be close at hand. But the world lately might appear to be regressing to the one Hobbes described in Leviathan - ‘poor, nasty, brutish’ - whether you observe the acute crises in Sri Lanka, Venezuela, or Zimbabwe, or are uneasy at the ones bubbling beneath economies like Pakistan, Argentina, and even an advanced economy like the UK, where over the last month or so I have seen far too many ‘Cost of Living Crisis’ headlines. All of these have the same theme - a raft of scarcity is hurting the ordinary citizens, leaving their countries with impossible choices and forcing them to resort of desperate measures.

In fact, in my opinion, the surest sign that we are far from an ideal society is the presence of scarcity, pretty much in any form. Even the artificial scarcity that drives much of the fashion industry, is perhaps a reflection of a deeper rot. Ten years ago, behavioural economist Sendhil Mullainathan and psychologist Eldar Shafir wrote a book - Scarcity: Why Having Too Little Means So Much - where they explained that acute scarcity can literally rewire your brain, and affect how you make decisions. And it’s a vicious cycle, if you already are struggling because of a scarce resource - income, time, healthcare, whatever - it begets more scarcity because it extracts a terrible price in terms of the fact that you have less to devote to anything else - is it going to be all two square meals today, or a skipped meal and the insulin shot? It is a choice I would not even want my worst enemy to ever have to make.

And yet, millions have to do exactly that on a daily basis.

We whine, from positions of immense privilege even when the slightest form of scarcity hits us - imagine having to wait 5-10 extra minutes for your bus or train when you are heading to work. But we rarely empathise with those who have to deal with more extreme versions of that everyday - imagine having only one bus you can catch for work, and missing it one of the days. We will not achieve true freedom, until everyone is free from scarcity, or at the very least, not being held hostage by it for every consequential decision of theirs.

And that metric - not just the GDP or inflation numbers - is where our quest for a truly free society, one where we can celebrate independence in its most wholesome form, begins. By just nudging ourselves to notice who suffers from scarcity in what form and where, and what can we do, however little, to alleviate it. Because, ironically, we have an abundance of means to do it, but a scarcity (by design) of will.

Happy Independence Day, and if you are fortunate enough to be able to read and ruminate on this, I hope you ponder and pay it forward.

And you can keep up with us on Twitter and Instagram or look up our blog.

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We took quite the unscheduled hiatus (14 months!), but you know - *gestures in the general direction of everything* - there has been a lot going on. Although, paradoxically, that means there is even more things to make sense of and we know you rely on us, you friendly neighbourhood economists to do it. Thus, we are back (although, to borrow a line from LL Cool J, don’t call it a comeback!) and promise to deliver econ sense to your inbox every month.

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Crises On Multiple Earths

It’s been a depressing time if you follow the economic news - there’s rampant inflation around the world (with food items recording some of the biggest spikes and causing the biggest worries), and at least three large peacetime economies are facing acute economic crises. You already know about the Russian war in Ukraine, which is poised to wreck the Ukrainian economy and their own (because of increasing sanctions). War is always hell, but the economic consequences of war can reverberate well into the future in nasty ways. In short, war destroys productive capabilities both in the present (through physical damage to infrastructure) and in the future (through the damage to psyche and morale). For now, Ukraine alone is looking at its economy contracting to half (!) its original size by the end of 2022.

Meanwhile, there is a looming economic crisis among political turmoil in Pakistan, where the Imran Khan-led government lost a vote of no-confidence in the National Assembly after a lot of a drama and shenanigans. The downfall has many reasons, but the key one is economic, with the PTI government headed by the former World Cup winning all-rounder not being able to find a lasting solution to the country’s foreign exchange woes sparking fears that there’s only enough forex reserves to cover 8 weeks of imports for a country dependent on other countries for key items (including fuel). A much worse scenario is playing out in Sri Lanka where the balance of payments crisis (essentially the fact that they have a lot less forex coming into the country than is going out) threatens to push the tiny island nation into literal darkness and widespread hunger. The political corruption has exacerbated the situation, just like how things played out for Venezuela a few years ago (and is still an ongoing crisis).

Why should you waste your worry on any of these? Because our modern interdependent economies are surprisingly fragile, and what we take for granted as stable order can easily devolve into chaos if we are not careful. When that happens, even Superman might fall short. It’s a slippery slope that needs attention, in the form of us being able hold the policymakers accountable, which is precisely what has been the common missing element in Pakistan, Sri Lanka and Venezuela.

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Connecting the dots

If you want to get a sense of the interdependence of the global economy - something that both makes production more efficient but also ironically more vulnerable to disruptions which include pandemics, wars and crises, and now we are facing the trifecta - this Financial Times interactive article about how a bicycle is assembled is a great (and enjoyable) exercise.

CURATED CORNER: WHAT WE ARE WATCHING AND READING

Tareque recently discovered that YouTube has the full PBS documentary series based on The Prize - the magisterial book by Daniel Yergin on how the global petroleum industry came into being and how it became intertwined with geopolitics that now drive our world. It’s an immensely timely read/watch given how the Russian war on Ukraine (and not to forget rising fuel prices right here in India!) has opened up debates about energy dependency and petroleum politics. It’s a fascinating journey that explains a lot about our modern hydrocarbon addled economy.

That’s it for this issue of The Econ Stack! Until next time please take care of yourselves and do spare a thought (and if possible, any form of help) for those distressed by crises around the world. We will return with a new issue on May 11, 2022, but in the meantime look out for small snackable econ stuff (we are calling them Econofries 🙄) delivered straight to your inbox.

And you can keep up with us on Twitter and Instagram or look up our blog.

You might know it now, maybe because you know they have won 25 of the 361 gold medals that have been awarded at the Olympics since 1984, or maybe because you read up about them outclass the Indian pair in the mixed event quarterfinals at Tokyo, or maybe because you saw them in the women’s team event shooting just 4 arrows below 9 on their way to the gold. They have won every gold medal in this event since its inception at the Seoul 1988 Games, the tied longest streak in all sports at the Olympics. That’s unreal consistency and excellence.

Korea’s journey to being the dominant force in world archery is no accident. In fact, it mirrors the journey of South Korea’s modern economic miracle of claiming its place among the world’s richest countries in two short decades. Both achievements have the origins in the strategically clever utilization of a not-so-secret sauce. Something that the world has known since Adam Smith’s times - specialization unlocks productivity.

They have applied it to everything from making cars and phones to K-Pop.

Special(isation) Sauce

To understand how that works, let’s talk about Im Dong-hyun.

A former World Number 1, Dong-hyun’s achievements are beyond reproach. He has two Olympic golds, another five at the World Championships, and one at the World Cup to boot. The thing is he is close to being “legally blind”. Im has 20/200 vision in his left eye and 20/100 in his right eye. In simpler terms, he would need to be 10 times closer to something to see it as clearly as someone with normal (20/20) vision would. But when shooting an arrow, he is the same distance away as everyone else - 70 meters, or as the Olympics official video compares it, the wingspan of two planes. Im doesn’t use contacts or wear glasses when he competes. So, how does he manage in a sport legendarily synonymous with good eyesight? He told the BBC in 2012 that he simply aims at the yellow blob that he sees (the centre of the target which has the 9s and 10s scoring places), and incessant practice with countless arrows shot to perfect the technique2 and the process takes care of the rest. That’s how he set a World Record at London 2012, for a 72 arrow round scoring 699 out of a possible 700. It is classic specialisation in action. Doing something over and over again until you get so good at it that factors that may have seemed vital are now deemed superfluous.

It’s both intuitive and counter-intuitive.

The Korean Miracle

Specialisation built the modern world economy. There is a fair amount of consensus that growth over the last couple of centuries took off as the gains from specialisation and trade began to be realized. Western European economies were first, and then post the Second World War, it was seen in Asia, first in Japan, and then in the ‘Tiger’ economies in the continent, a group which among others, featured - you guessed it! - South Korea. Korea had a turbulent period following WWII as the Japanese occupation retreated, but a North Korean invasion almost overran them. The rebuilding began after Syngman Rhee, appointed in 1953 as President, was overthrown in the wake of student protests against rampant corruption in 1960. A military coup followed and Maj. Gen. Park Chung-hee was elected president in 1963. Under his regime, the country aped the Japanese model of setting Korea on the growth path:

“select industries to grow, foster them with access to credit and other benefits, select good firms on the basis of their export performance, and allow these winners to expand further (globally and) into other sectors, while closing down the losers.” 3

How does that connect back to archery? In Korea, archery is a de facto national sport. It’s an obsession that stems from history - the bow was a key long-range weapon to ward off Japanese invasions until around the 15th Century - and translates into archery being part of the daily routine in primary schools. It’s a convenient place to start identifying early talent, and developing a deep pool of talent that produces the assembly line of elite athletes who outclass their competitors on every world stage, not least the quadrennial Olympic Games.

The Arrow Corridor

South Korea landed its first Olympics Archery gold in 1984. But what is impressive is how they have kept producing winners, which is the key indication that the success blueprint hasn’t left anything to chance. Just like chaebol companies like Samsung and Hyundai were given support by the government to turn them into flagship of immense innovation and success that drive the Korean economy, archery receives the same push via government funding and support for the sport. Back then, it was not just about funding and catching archers young at primary school and selecting the best, it was also about the untiring quest for perfection.

An investment in innovation has been at the bedrock of South Korea’s modern development with policies incentivising it for companies. The stats bear it out - the country’s research intensity (measured as the amount spent annually on R&D as a fraction of the GDP) is higher than the likes of US, China, Germany and traditional rivals Japan. In the last 25 years, it’s gone up almost 2X, to 4.3% of GDP. Around the same time (actually between 1981 to 1997) the archery team themselves were increasing their research intensity (the amount of time and money they were spending on R&D) to study the techniques of their archers “to make our archers' technique as efficient as possible” as Kisik Lee who was the head coach then put it. Lee’s influence was comparable to what Arsene Wenger did to Arsenal and by extension, to English football, when he became the first foreign manager in the Premier League.

Specialisation is great, but to build a sustainable advantage, you need to stay ahead of the curve. As Lee said to the BBC back in 2012,  “it is important that training techniques keep changing all the time and you approach the sport in a different way".

To keep the economy sailing through boom and bust, governments often build welfare safety nets such as unemployment insurance, public healthcare systems and other public goods. In Korean archery, the private sector stepped up to repay the favours it was made by the government in the 1960s and 1970s. Only about a third of the funding for the Korean Archery Association comes from government funds (through the Olympic committee). The rest comes from the Hyundais and the Samsungs who hire identified promising archers out of university and employ them with wages and lifetime pensions just to compete for them. Indian readers might remember a moment in MS Dhoni’s biopic, where gets picked by a mining company to play cricket for their team even though he has no other specific skillset to offer for the job at the company. Take that and make it institutional and an on-going affair and you get the Korean archers’ safety net.

This is how they have a bench strength so deep; Korea, by some estimates has 8-10X the number of elite archers a typically competitive country like say the US or France would have. Even if they are not picked for international competitions, they don’t have to abandon their specialised discipline because of the opportunity cost. The system’s robustness ensures it continues decade upon decade to add up to the awe inspiring results that they pull off.

Matters of the Mind

The last piece of the puzzle is the human psyche. Often, national efforts to grow the economy, or excel at a given sport have met their match in the human frailties of those who need to make it happen. But even there, the minutest detail is not spared by the Koreans in their training. In levels of preparation that can only be described as Daniel Ocean-esque, (or Aankhen, if you prefer), the Tokyo squad practiced in an arena that was custom made to be a replica of the Tokyo venue, complete with simulated crowd noise and loudspeaker announcements in English and Japanese. They even practiced at a live baseball game before Rio 2016, to fine tune their mental poise under poise. They practiced for a year in an exact replica of the Beijing’s 5000-seater stadium that hosted the event in 2008. This is the last, and most important innovation in the hyper-specialisation that has become the bedrock of their success. As Seo Geo Won, former coach of the women’s team told WSJ in 2011, “We develop ways of conquering fear.”

The package, as it turns out, is well nigh unbeatable.

However, like all economies and sporting teams, there is competition emerging as others adapt the best practices that Korea has been following. But their headstart is likely to ensure that their dominance endures for a while longer.

And in that time, it will always be awe-inspiring to watch a Korean archer let an arrow fly.

This is the final edition for the year (2020) and we are here after a festive hiatus that stretched into two months for various reasons. In 2021, the newsletter will keep coming to you but to ensure quality content that is worth the opportunity cost of your attention, it will switch to a monthly (instead of fortnightly) schedule.

OUR STUFF

A Different Beat

It’s almost New Years Eve (you may also be reading this AFTER it’s 2021 already, but just imagine for a moment). And 2020, perhaps needless to say, has been a tough year in different ways on everyone.

So let’s rewind our clocks three and a half decades back, and put ourselves in the place of Rick Allen on Dec 31, 1984, speeding down a motorway in Sheffield. You meet with an unfortunate accident that takes your left arm. You happen to be the drummer in one of the world’s hottest rock bands at that time – Def Leppard. Doctors tell you that you will never play the drums again. Your one key skill, one that, after the spirit of Adam Smith and David Ricardo, you had honed tirelessly to become specialised in, is effectively gone.

What do you do?

You rebuild. One tiny step at a time. Your supportive band mates decide against any live performances (at a potentially huge opportunity cost), and your producer offers words of encouragement and support for you to recover. You find Pete Harley, a tinkerer who makes you a special electric drum kit that has multiple pedals to control the parts you would otherwise need your left hand and a second drumstick for. Almost two years later, you join the band on stage for a massive live show, and in the upcoming years remain an integral part of the band as you produce more memorable music that rocks millions.

2020 has been that kind of a disruption on the micro and macro level, but if we are to take inspiration from Rick Allen’s story, it’s that economies and people within those economies can rebuild, but aside of just material and money resources they need supportive communities (including administrations) and the possibility to innovate, improvise and adapt.

Def Leppard could easily have moved on to another drummer, but the secret sauce of camaraderie and brotherhood is what truly and gloriously binds the best together and sets us on the path for growth. May we remember that as we gear up for 2021.

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THEIR STUFF

This is your brain as an economy.

It’s easy to fall into the trap of assuming your brain is mainly there to help you think, just like an economic system is there to help an economy grow by any means necessary. But, as this fantastic article from Lisa Feldman Barrett in the New York Times points out, “your brain’s most important job isn’t thinking; it’s running the systems of your body to keep you alive and well.” It’s an important perspective to keep in mind when you draw your plans up for the new year and beyond. The magical power of our brain working in the background to keep us alive has come to the forefront of discussions in this existential threat of a timeline, and acknowledging it is likely to make us appreciate our decision-making in other areas better. As the piece says:

“Your brain runs your body using something like a budget. A financial budget tracks money as it’s earned and spent. The budget for your body tracks resources like water, salt and glucose as you gain and lose them. Each action that spends resources, such as standing up, running, and learning, is like a withdrawal from your account. Actions that replenish your resources, such as eating and sleeping, are like deposits.

The scientific name for body budgeting is allostasis. It means automatically predicting and preparing to meet the body’s needs before they arise. Consider what happens when you’re thirsty and drink a glass of water. The water takes about 20 minutes to reach your bloodstream, but you feel less thirsty within mere seconds. What relieves your thirst so quickly? Your brain does. It has learned from past experience that water is a deposit to your body budget that will hydrate you, so your brain quenches your thirst long before the water has any direct effect on your blood.”

That applies to economies just as much. Which is why mere announcements, like say a central bank saying it will lower interest rates, or a projection saying economic prospects are likely to improve, can have an immediate positive effect on the economy, although the actual mechanism of transmission sets in after a ‘lag’.

CURATED CORNER: WHAT WE ARE WATCHING AND READING

Tareque recommends Caroline Criado Perez’s “Invisible Women: Exposing Data Bias In A World Designed for Men” which is an eye opening account of how missing data – whether by accident or by design – has vastly undermined women and their contribution to the society and the economy. Sample this little gem – in most workplaces, emergency day care is not an allowable work expense an employee can claim. The reason, suggests Perez, is “expense codes are based on the assumption that the employee has a wife at home taking care of the kids…[T]his work doesn’t need paying for because it’s women’s work, and women don’t get paid for it.” The book will reframe this and many other perspectives and hopefully help you take a fresh look at the world.

Meanwhile, Jayanth recommends listening to our latest podcast episode

where we dissect the economics of one of our favourite films of the year – Soorarai Potturu, loosely based on Capt G R Gopinath and his quest to start Air Deccan, the low cost Indian airline that revolutionised flying in India.

That’s it for this issue of The Econ Stack! Until next time please remember that the idea that “money isn’t everything” is not a cliché. It’s a new lens on why econ matters to us and our lives. We will return with a full issue on January 31, 2021, but in the meantime look out for small snackable econ stuff (we are calling them Econofries 🙄) delivered straight to your inbox in the meantime. And you can keep up with us on Twitter and Instagram or look up our blog.

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Last Auction Heroes

The last fortnight has seen two important econ developments. One of them was the awarding of the Economics Nobel Prize to Robert Wilson and Paul Milgrom for “for improvements to auction theory and inventions of new auction formats”. For those unfamiliar with that might mean, the TL;DR of this year’s Nobel is that many things around us are sold in circumstances that can be called an auction. It’s how the market fundamentally works, by matching demand and supply based on implicit bids (like when a football star’s agent is negotiating a transfer fee with two different clubs, or someone is haggling over a bargain at a souvenir seller in Istanbul) or explicit bids (like the auctions you see at Sotheby’s or for the IPL, or tenders).

Auctions are called price discovery mechanisms because typically the value of a thing is said to be whatever someone is willing to pay for it. When value is hard to specifically determine (that is not everyone agrees on what the value is), like in the case of a rare painting, a cricketer or a coal mine, they become a great way to discover the right price. But, as you, dear perceptive readers already know, economic actors are not always as rational as assumed in theories and those participating in auctions are no exception. So, often, they end up suffering either from ‘Winner’s Curse’ that is bidding irrationally high, or end up bidding too low, thus undervaluing the asset. Prof. Milgrom and Wilson’s work has revolved around solving these problems and designing auctions in such a manner that the best outcome results.

If you want a slightly deeper dive, you can listen to our full podcast episode dedicated to talking about the work and impact of this year’s Nobel winners.

THEIR STUFF

Hoop Coffee Hustle

The second important development was that the NBA finals got over (the LA Lakers beat the Miami Heat 4-2 and LeBron James got his fourth Championship) and with the bubble in Orlando (within which the players played out the season after it was paused by the Covid outbreak) finally shutting down, a great econ experiment from Heat small forward Jimmy Butler also closed down.

When NBA players arrived in Florida, they were required to strictly stay within the bubble. But the coffee shops near their practice facility and the one on campus both closed down for the same reason many businesses struggled during the pandemic – not enough customers. Butler, a coffee connoisseur who had arrived with his own brewing equipment and beans, decided not just to make coffee for himself but also start selling it out of his hotel room. He called it ‘Big Face Coffee’ and had curious pricing – no matter what size drink you bought it cost you the same: $20.  

But a lot of players bought his coffee and paid those exorbitant prices. Clearly, aside of finding ways to score points in the paint on a basketball court, Butler had understood the concept of price elasticity well. Like Pradeep Chintagunta, an economist from the University of Chicago Booth School of Business pointed out, “The value that this coffee provides to his audience is probably pretty high. He’s leveraging the fact that the value is very high… this is target audience and this is what they are willing to pay, so why not?’

In econ terms, the highly paid NBA superstars are price inelastic (more willing to pay higher prices) because of the purchasing power they have. Jimmy clearly knows his stuff because he explicitly explained his reasoning for the pricing to ESPN journalist Rachel Nichols telling her, “You can't get coffee nowhere here. So I might bump it up to $30 a cup. Just depends. People here can afford it."

Of course, the real fun econ plot twist was that in response to expensive Big Face Coffee, the Heat’s assistant athletic trainer Brandon Gilliam, opened Little Face Coffee, because he felt that people like the poor video coordinator of the team can’t afford those prices, but needs good coffee to keep him going. He started offering $5 a cup coffee for what you could call the ‘price elastic’ customers. Much as the finals series was dramatic, nothing matches the econ drama of competition, and it looks like Big Face and Little Face coffee enjoyed their little tussle, and the hustle. (Hey, it rhymes!)

You can read a bit more about it here and here.

CURATED CORNER: WHAT WE ARE WATCHING AND READING

Both Tareque and Jayanth were utterly consumed by Scam 1992: The Harshad Mehta Story, the new web series on Sony LIV that tells the story of the 1992 Stock Market Scam (hmm…we wonder who’s told that story in serialised form before?).

It has a languid pace and is spread over 10 episodes, but that gives it a chance to dive into detail and it doesn’t disappoint by giving quite a remarkably accurate picture of the events back then and those that led up to it as well those that followed. What makes it riveting viewing is not just that it’s well researched and written, but the entire cast is superb and the production values ring very authentic. Give it a shot if you are curious to know more about India’s biggest stock market scam.

That’s it for this issue of The Econ Stack! Like The Econ Stack? Why not share with your friend and let them know.

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And until next time, if you are participating in an auction try and be as rational as you can, and as far as practicable stay away from overpriced coffee and financial scams. We will return with a full issue on November 1, but in the meantime look out for small snackable econ stuff (we are calling them Econofries 🙄) delivered straight to your inbox in the meantime.

And of course, you can keep up with us on Twitter and Instagram or look up our blog.

In this issue, we examine an important commodity - information.

OUR STUFF

It’s not what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so, goes a line that’s often attributed to Mark Twain (including in An Inconvenient Truth), and in economics, the commodity of information creates both advantages and disadvantages for buyers and sellers alike, meddling with the utopian ways of the perfect market where nothing is hidden from anyone.

Hidden information creates what Nobel winner George Akerlof termed ‘information asymmetry’ a situation where, as the Nobel Prize website puts it, “actors on one side of the market have much better information than those on the other”. Most markets where information is crucial (like the stock market, for example) feature a complex and drawn out dance between participants to figure out who knows what, and if they are hiding something. It’s one long game of Amongst Us where participants are often trying to figure out who the impostor is. Is the borrower telling the bank everything about themselves? Banks evidently are willing to go full CIA on Will Smith in Enemy of The State to find out.

Speaking of using information to your advantage, traders with insider information in stock markets also do the same. Most of the times, it’s quite hard to outfox those with malintent but this week, a good friend of ours, pointed out this fascinating concept - the Nightingale Floor. According to legend, these floors built in Japanese castles, were made so that they made a noise (not just dry floor board creaking noise, but a specific kind of noise) when someone walked on them, making them impossible to sneak around in and acting as a security device. Whether that was their intended purpose may be debatable, but using hidden information as traps to catch culprits is a common device. Early dictionary, encylopaedia and map-makers, who worked hard to put valuable information together often found their works being copied and sold under other names who obviously had not created the map, or put the words or information together at one place themselves. To catch out forgers, they’d deliberately place a fictitious word, entry or place that they knew was fake, but the copycat who had no expertise did not and ended up including it in their edition, thus planting the smoking gun of their piracy themselves.

If you are looking for a more recent instance, Google ended up with egg on its face, when it denied that it was stealing song lyrics from the lyrics website Genius (an excellent app as well, btw) and showing them unauthorised in its search result ‘information boxes’. Google repeatedly said the lyrics they show are not copied from Genius, until Genius presented the following evidence, as per an article in Rolling Stone:

Starting in 2016, Genius positioned both “straight” and “curly” apostrophes in their lyrics which, when converted into dots and dashes like Morse code, spelled out the words “Red Handed.” Genius added that, using these apostrophes, they found over 100 instances of Google using Genius’ own lyrics in the Google search results.

Hey, Google, what’s the title of that famous Shaggy song? Anyway, Genius eventually lost the lawsuit for claims of damages against Google, but you have to admit, their use of hidden information was pretty, well, genius. There was also this instance in 2015 when a bride suspected the groom was not as educated as his family was claiming he was, and asked him a simple arithmetic question (‘How much is 15+6?’) which he messed up (he answered ‘17’). She and her family called the wedding off immediately.

Whenever you are dealing with another party in anything, ‘how much do they know and what are they not disclosing’ is always a useful question to ask.

THEIR STUFF

The Washington Post carried a sobering long read on their front page a week back about how much the coronavirus which exacerbated an already bad economic slowdown has impacted job prospects for the educated workforce in India, in addition to the devastating effect it has already had on sectors such as construction that employ a lot of migrant labour.

One of the subjects of the piece, a man who was laid off from his engineering job and is now digging ditches for a living, might as well be serving a grim reminder when he says “Hunger trumps any aspiration.” The twin setbacks of an already stagnating economy and a devastating pandemic have set the promise of India’s economic potential back quite a bit and while the government hides behind the dog ate my data excuse, as a citizen, it’s imperative we recognise these blind spots as we figure out ways in which we can contribute to resetting the Indian economy.

CURATED CORNER

Jayanth recommends this piece from MarketWatch about how the NYC subway’s pension fund lost a lot of money through making some rookie investing mistakes and to add icing on the cake, it has a great movie reference!

Are you in the mood to watch something epic about economic history, and how economic ideologies have shaped our world? Tareque recommends the outstanding documentary - The Commanding Heights - which is an adaptation of the book by Daniel Yergin and Joseph Stanislaw. It’s available on YouTube and totally worth six hours of your time.

That’s it for this issue of The Econ Stack! Until next time, keep in mind what Tsun Tzu once said:

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

We will return with a (Nobel Prize special!) full issue on October 15, but in the meantime look out for small snackable econ stuff (we are calling them Econofries 🙄) delivered straight to your inbox.

And of course, you can keep up with us on Twitter and Instagram or look up our blog.

In this issue, we are focusing on Time Magazine’s Person of the Year 2006 i.e. You.  

(Spoiler alert: You don’t control the Information Age. It controls you.)

OUR STUFF

You are not just the product, you are the slave labour too

The last fortnight has not been a great one for sanity, in particular, if you are someone who even casually consumes any TV news, or tunes into current events discourse on social media. The hyperbole and ham-handed tactics that you see all around is not by accident but by design. Whether it is cable news or the internet, the formative years of the medium crystalized a business model where everyone got used to everything being subsidised by advertising. That by itself was neither a bad thing nor something unprecedented. After all, TV dramas were termed soap operas because detergent brands were their major sponsors in the 1950s and 1960s and they kept their audiences hooked by being excessively melodramatic.

In the 1990s, that model came to both TV cable news and the internet. But thanks to unintended consequences, we are now at a point where the ads basically subsidise the worst parts of the internet, and we, the users, have unwittingly become the slave labour who works for those corporations. Whether it be ranting about the TV news or reacting to (or sharing) inflammatory and divisive content on social media, we are providing these platforms what is called ‘free cultural labour’. Our created content helps a Facebook (or any other company, who uses similar methods) to map us better and serve us ‘microtargeted’ advertising based on the traits gauged by their algorithms from our activity. This reliance on advertising to subsidise the cost of the internet was termed the ‘original sin’ in a sharp and insightful piece on The Atlantic (from 2014). It quotes Maciej Ceglowski, an influential programmer and a writer, as saying that advertising (which now has morphed into ‘programmatic advertising’ – the stuff that harnesses your private data to make your profile more valuable to the advertiser) became “the entire economic foundation of our industry”.

As Ceglowski puts it, surveillance is the default business model now. But all this for what? Evidently, even in the attention economy, your personal attention isn’t worth much. According to a calculation, Facebook makes approximately $2.5 every quarter per user in revenue (in a market like India). Users on Facebook spend an average of 50-odd hours on the platform per quarter (if we take about a 30 min daily average). In other words, every hour of your attention is worth about five cents. A DIME. You as an individual are not even that valuable to them. But as a horde, it serves these firms to have everyone riled up and activated. When TV news channels which share their names with the title of a Plato discourse do outrageous stuff, they know precisely what they are doing.

After all, as Stephen Dubner and Steve Levitt had summarised in Freakonomics – People respond to incentives. Perhaps it is time to start working towards taking that incentive away.   

THEIR STUFF

Continuing our theme of hidden forces that drive the modern internet economy, you may want to consider for a moment whether your app, much like your Uber driver, might be manipulating you into giving it a 5-star rating. When you get one of those random ‘enjoying using [app name]? leave a rating’ prompts, it might not be random at all as Patrick McGee writes in an article in Financial Times:

“The prompt, seemingly random, can be orchestrated to hit your glowing screen only at times when you are most likely to leave a five star review… Apple has for a decade clamped down on “ratings farms” and “download bots” that companies use to fraudulently garner five-star scores and manipulate App Store rankings…The more sophisticated techniques stay within the rules but draw on behavioural psychology to understand your mood, emotions and behaviour — they are not hacking the system; they are hacking your brain.”

Why are they doing this? Because even half an extra star could be the difference between being a superstar app (thanks to the bandwagon effect) or being a dud.

You can find McGee’s excellent piece here.

CURATED CORNER

You have probably already seen it (because it is trending at #2 in India on Netflix) but nonetheless, Tareque recommends the Netflix documentary The Social Dilemma, which exposes the inner thinking behind why social media companies designed their products to be as addictive as they are, and just like we spoke earlier in this newsletter, that feeds into the machine of automated algorithms that farms users for profits. It is essentially Terminator meets The Matrix. And we don’t even get to have any cool battle scenes.  

Jayanth recommends two posts from the world of finance about investments in and from technology companies and what it’s doing to the world of stocks at large. The first one is a take on why investing in the big American tech companies may not be as lazy as it looks, and the second one talks about weird way in which Masayoshi Son, the Warren Buffet of Japan, has morphed into a “Robinhood trader”.

And you can pick up tickets for our next installment (on Sept. 24 @ 6PM IST) of the Virtual Fireside Econ chat - EconoMIX - where we host one of India’s top personal finance columnists, Monika Halan, as she talks about charting your financial journey. Tickets (all proceeds will go to rehabilitation efforts for victims of trafficking) are available here.

YOUR STUFF

Meanwhile, if you have been a participant in one of our Instagram quizzes you may have come across our question about how the Loch Ness monster (‘Nessie) generates almost $53 million for the Scottish economy. We got some first hand anecdotal evidence of it from a friend of ours last week when she told us that her boyfriend’s parents drove all around Scotland, didn’t go anywhere near Loch Ness, but as a keepsake got her a tea towel with a cute cartoon of Nessie on it. Nessie may or may not be real, but sure is a marketing monster.

That’s it for this issue of The Econ Stack! Until next time, maybe keep clearing the browser cookies at the very least. We will return with a full issue on October 1, but in the meantime look out for small snackable econ stuff (we are calling them Econofries 🙄) delivered straight to your inbox in the meantime.

And of course, you can keep up with us on Twitter and Instagram or look up our blog.

OUR STUFF

Rocking Band Width

Yes, the bad news rages on, including the ever raging pandemic and the bad news about the economy, which as per the latest CSO estimates contracted by almost 25% in the last quarter (Apr-Jun) compared to the same quarter in 2019. Reliable econ data is hard to collect in the best of times; last quarter it was trickier. So, the estimates might actually be under-reporting the problem.

But our job here is not to fixate just on the bad news but provide some hope and inspiration. One such instance was when earlier in August, broadband internet finally came to the Andamans with an undersea optic fiber cable network established between Chennai and the islands. Reasonably fast internet at cheap data prices has been the driving force behind some of the Indian economy’s most publicized success stories - whether it be about increasing e-commerce adoption, or some of the homegrown unicorns, particularly in the ed-tech sector (Byju’s, UnAcademy) seeing phenomenal growth.

But there were regions left behind in this race, and you don’t need to read academic papers on economics to figure out that the pace of improvement of infrastructure can make a difference to fortunes of the participants in an economy. One of those regions is the Andamans, a place which Tareque visited in 2007, and the lasting memory of it was one word - “mainland”. The guy at the airport asked him the question “Are you from the mainland?” And that brought the realisation that this is a place that is physically disconnected from the rest of the country. So, why is broadband internet a big deal for anyone in the Andamans and how could it make a difference to someone’s personal fortune? Speaking to the newspaper ‘Mint’ the ex-Lt. Governor of the Union Territory Lt. Gen. AK Singh put it this way:

“It is a defining moment, a game-changer in multiple fields—education, health, governance, e-initiatives. The feeling of isolation which prevailed among the people will reduce; business opportunities will enhance. The islands are well placed for establishing call centres & BPO industry. The people are multilingual and there are no labour issues. In anticipation of the undersea cable, we had started foreign language classes to prepare our people. The possibilities are immense.”

Aside of the broader aspects set out very well in this story from Mint last week, consider the story of a good friend of Tareque’s who is from there.

She studied in Chennai and went back home to Port Blair to work. Mobile phones were barely on 2G around the time when the mainland was abuzz with the impending launch of Jio and faster data had online services salivating at the prospects of all the customers they might gain. She decided to get a broadband connection (provided only by BSNL on the island) and even then, her family had to pull a few strings (like pre-liberalisation India days) to get a fixed line.

The real kicker comes after that. With data allowance per month capped at very small amounts, and prices set fairly high (again, with a monopoly, BSNL, clearly exercised its pricing power) they ended up paying a bill upwards of Rs. 10000 in the first month (yup, 4 zeroes, you read it right!) and an average of Rs. 5000 for almost five years, until proper (and affordable) broadband finally arrived just weeks ago. By her personal estimates, if they had cheaper internet, she could have saved close to Rs. 200,000 over the last five years reduction of bills alone. That is a lot of money, and as any economist will tell you, a pretty high opportunity cost as well. That is money that could have found its way to other sectors of the local economy but did not.

So, the high price (which essentially was a function of scarcity) combined with opportunity costs, were acting as a millstone. Yes, the illustration is anecdotal, but you can expand the idea to the general level of an economy and you’d see why she messaged to tell Tareque that this was “a dream come true for the islanders”. So, while it is natural that all of us might be concerned right now at the dismal economic news coming our way, maybe this little bright spot gives us hope that growth, to paraphrase Malcolm (Jeff Goldblum) from Jurassic Park, finds a way.

THEIR STUFF

From way Downtown!

It is playoff season in the NBA, and while the season has been disrupted by the pandemic and more recently by teams striking over social justice and support for the Black Lives Matter movement, whatever action has been taking place on court has been following a pattern that has become familiar to basketball watchers over the last few seasons. All players on all teams are shooting many more three-point shots. In a game where there are finite resources in the form of time limits (both of the game and of the shot clock - teams have to take a shot within a specified time otherwise they lose possession), teams try to win by most efficiently utilising those scarce resources to produce the most output, that is points.

Now, until 1979, in the NBA, a basket from anywhere was worth two points. Then, to make the game exciting the NBA introduced the three-point line from beyond which baskets were worth 50% more points - 3 instead of 2! In classic “people respond to incentives” fashion in economics, teams started taking more 3-point shots (about 3% of all shots taken in the 1980 season were 3s, 35% were 3-point attempts in 2019). They started hiring players who had superior abilities in shooting a three. You may have heard of one Steph Curry.

It’s a great example of how growth can happen through specialisation and/or innovation. But there are downsides as well, as this wonderful 10-minute podcast (from where we extracted this idea) narrates.

Listen to the podcast

CURATED CORNER

Jayanth recommends this great article from Tim Harford (one of our favourite authors) which talks about the power of self-fulfilling prophecies and their importance, not just in economics but society in general. From institutional racism to people taking Covid-19 lightly, the trend can have damaging effects that we need to be aware about.

Tareque recommends this event we have coming up! We started the Econormist Virtual Fireside Chat - EconoMIX - in July and our first session with Saurabh Mukherjea received a huge response and raised more than Rs. 14000 for Cyclone Amphan relief efforts. We are back with the second edition on FRIDAY, SEP 4th @ 6PM. It features Raunak Onkar (co-fund manager and head of research at PPFAS Mutual Fund) and he will be chatting with Jayanth about the fascinating “Subscription Economy” we live in and how that links to our own financial fortunes. This time we are donating all ticket proceeds to relief efforts for the Assam floods.

Buy A Ticket And Support

That is it for this edition; The Econ Stack will return on September 15, 2020. But look out for small snackable econ stuff (we are calling them Econofries 🙄) delivered straight to your inbox in the meantime. And of course, you can keep up with us on Twitter and Instagram or look up our blog.

OUR STUFF

Freedom. Fairness. Equality

In economics, the effort to define freedom has been at the heart of the discipline for the last couple of centuries. Most often, the shorthand used is to classify capitalist systems as freer, and command and control systems as less. The Commanding Heights, a documentary series from PBS based on Daniel Yergin and Joseph Stanislaw’s magisterial book of the same name, posits the history of economics over the last century as such. The likes of Fredrick Hayek and Milton Friedman stand firmly on the side of allowing people more “freedom” in decision making, the likes of Mao Tse Tung (or Mao Zedong, if you will) would rather have those decisions made for them.

However, often lost in this Manichean dichotomy, is the nuance that underlies the question - what is the ultimate goal of freedom? This Independence Day, it’s a good question to reflect on and consider. While the values and ideals of individualism and free will has underpinned a lot of economic thinking, we should not forget that, to quote Seinfeld’s George Costanza, “you know, we’re living in a society!”

And that is where the question of fairness comes in, one that philosopher John Rawls considered. Rawls set out two principles (and I am simplifying a bit here) that should lead to a fairer and more just society – firstly, everyone should have certain liberties but the whole scheme should be compatible with liberties for all and secondly, there should be fair equality of opportunity and any inequality can be tolerated so long as “these will be to everyone's advantage, and specifically to the advantage of those who will be worst off”. It is a powerful framework to frame societal questions in - for example, what should environmental protection legislation look like?

Recently, UCB professor Edward Miguel published results of a study he and Harvard’s Michael Kremer (the co-recipient of the Econ Nobel with Abhijit Banerjee and Esther Duflo in 2019) carried out over two decades. They, to use Prof Miguel’s words:

“evaluated a large-scale public health program that provided an additional 2-3 years of medical treatment for intestinal worm infections to tens of thousands of Kenyan primary school children”

The study began in 1998 and tracked how the students did in later life and two decades on they found “the same individuals (now adults) have higher household earnings, spend more on consumption goods, and are more likely to live in urban areas”. The tiniest of bumps they received when they were young rippled across their life to create lasting and impactful change to where they ended up. As Miguel puts it – “the observed gains imply that deworming medication has an enormous social rate of return. This research is a timely reminder that public investments in proven health solutions can have immense payoffs.”

In other words, social goods can indeed make society fairer and a little better off. No one chooses to be born with worms, but that condition, just like one’s race, religion, gender or sexuality is, as Rawls would say, “morally arbitrary” and should not entitle anyone to less (or more) of the benefits of social cooperation just because of that condition. Freedom, paradoxically, is spending quite a bit of time thinking about others than yourself. And that’s something to ponder on – both on an individual and policy making level – as we celebrate our 74th Independence Day.

THEIR STUFF

Americ-uh…

If there is one long read you spend your time on this week, let it be this one from Wade Davis in Rolling Stone. It is a devastating critique of the decline of America and its ‘exceptionalism’, and it is framed to be incendiary. You might not agree with all the points Davis makes but it is sure to make you sit up and take notice. Here’s an extract that captures the essence of his argument:

“More than any other country, the United States in the post-war era lionized the individual at the expense of community and family. It was the sociological equivalent of splitting the atom. What was gained in terms of mobility and personal freedom came at the expense of common purpose.”

I mean, a country where a shortage of change (specifically quarters or 25c coins) is threatening the survival of its laundromats probably has to ask a few harsh questions of itself.

CURATED CORNER

Jayanth recommends this top notch piece from The Economist talking about a skill that everyone needs, but is very hard to cultivate – judgement.

If you are looking for something absolutely bonkers to watch this weekend (or later), Tareque recommends the outrageous Operation Odessa (available on Netflix) a documentary that chronicles a story involving mobsters, drugs, the Cold War, and spies – basically the entire career of Martin Scorsese meets the entire career of Quentin Tarantino meets the entire career of Oliver Stone.

And, as some of you may already know, we have a fun new narrative podcast - Book Of Sins - about financial scams and the economics behind them.

Listen on Anchor

The first season, where we are looking back at the 1992 securities scam in India and the role of a certain Harshad Mehta, is on-going and you can catch it on Spotify, Saavn, Pocket Casts, Apple Podcasts or any podcatcher of your choice!

That is it for this edition; The Econ Stack will return on August 30, 2020. But look out for small snackable econ stuff (we are calling them Econofries 🙄) delivered straight to your inbox in the meantime. And of course, you can keep up with us on Twitter and Instagram or look up our blog.

We sign off with these words from Joe Strummer and The Clash - Go easy, step lightly… stay free!