Dharmonomics: Dharma And Economics

DHARMONOMICS: DHARMA AND ECONOMICS

Last month Daron Acemoglu, Simon Johnson and James Robinson won the Nobel Economics Prize for showing how institutions produce economic growth. In particular, they have shown the importance of 3 institutions:

1. Law and order 

2. Enforcement of contacts

3. Protection of property rights 

In ancient Indian philosophy, the concept of Dharma (order/morality) had 3 main components:

1. Satya (truth)

2. Asteya (not stealing)

3. Ahimsa (non-violence)

We can see that the 3 components of Dharma are similar to the 3 institutions that produce economic growth . . .

'Phulwanti' Movie Review

'PHULWANTI' MOVIE REVIEW

Based on the famous novel (of the same name) by the great Marathi writer Babasaheb Purandare, 'Phulwanti' is a beautiful meditation on the relationship between knowledge and the scholar (and art and the artist) - and also the real meaning of love. The script, direction, acting, set design, costume design, music and choreography are all top-notch. The movie has English sub-titles.

[An economist's irrelevant aside:

A civilisation that can produce a great work of art like Babasaheb Purandare's 'Phulwanti' is indeed a great civilisation. Where we have fallen short is in building efficient systems - like economic system, administration system, etc . . .]

Why Government Must Be Small

WHY GOVERNMENT MUST BE SMALL

What should be the size of the government? Should it be big or small? Liberals want a big government that provides a lot of generous welfare schemes to as many people as possible. Conservatives want a small government that only performs its core functions of maintaining law & order and providing public goods (because a big government has to be funded by high taxes - and taxes reduce the social surplus). And centrists/realists say that the government must be neither big nor small - but of the optimum size: ie, the size that maximises the long-term growth rate.

These ideological preferences aside, there is one argument in favour of a small government. And we are seeing it in today's Indian politics. The Congress Party is promising the expensive and wasteful Old Pension Scheme (OPS) in every state election - and government workers are voting for it. In theory, democracy is the rule of the majority - and must work for the good of the majority. But as the economist Mancur Olson showed in his 1965 classic 'The Logic Of Collective Action' (for which he shockingly did not get the Nobel Prize) small groups can hijack a democracy. And the voting behaviour of government workers in India is a perfect example of this phenomenon.

Thus if the government becomes big, then government workers will become a big and powerful lobby - and will vote for wasteful government programs like the Old Pension Scheme (OPS). So this is a good reason for keeping the government small . . .

Working Hours, Stress And Salary In India

WORKING HOURS, STRESS AND SALARY IN INDIA

(The Dichotomy Of The Indian Economy)

Anna Sebastian Perayil, a 26-year-old chartered accountant at Ernst & Young, sadly died in July due to overwork and stress. Many people are asking: "Why didn't she quit?". Well, this question applies not just to her but to almost all middle-class Indians in metropolitan cities - who are doing high-stress jobs. According to a survey conducted by the Confederation of Indian Industry (CII) 60% of Indian workers suffer from high stress - the world average is 20%. So the question arises: Why don't all these people quit their jobs and do jobs that are less stressful?

Graph 1 shows an ideal economy:

1. There is a linear relationship between working hours/stress and salary (blue line). As working hours/stress increases, salary also increases - but linearly.

2. Most of the jobs pay a salary that can support a middle-class lifestyle (red line) for a family.

Graph 2 shows today's Indian economy:

1. The relationship between working hours/stress and salary is not just non-linear but exponential. The salary increases only at a high level/value of working hours/stress. 

2. To live a middle-class life in a metropolitan city (ie, house + car + etc) you need that high salary.

In the ideal economy (Graph 1) people can choose the combination of working hours/stress and salary that they are comfortable with - and still live a middle-class life. That is - they can give up some salary in return for lower/lesser working hours/stress. The choice can also be dynamic: People can do high-stress/high-salary jobs when they are young - and switch to medium-stress/medium-salary jobs when they are middle-aged. But in today's Indian economy (Graph 2) there is no choice. If you want to live a middle-class life, you *have to* do a high-stress/high-salary job. You are forced to choose between two extremes: low-stress but low-salary jobs versus high-salary but high-stress jobs - there is nothing in between.

Real development means building the economy shown in Graph 1 - so that there are no more tragedies like Anna's . . .

Why Socialism Is Illogical And Unnatural

WHY SOCIALISM IS ILLOGICAL AND UNNATURAL

(The Logical Mistakes Behind The Conception Of Socialism)

Around 1800, the Industrial Revolution started in Britain. It consisted of two major changes:

1. The 3 factors of production are land, labour and capital. During the Agricultural Age, the most important factor of production was land. With the Industrial Revolution, capital (ie, machines/factories) replaced land as the most important factor of production.

2. During the Agricultural Age, capital consisted of small/simple tools like the plough. And these tools were owned by the workers. Example: Farmers owned their ploughs. With the Industrial Revolution, big/expensive machines/factories became the new capital. And these were owned not by workers but by rich merchants - ie, a separate group of people: the 'capitalists'.

Thus the new economic system was dominated by both capital and capitalists. Hence it was called 'capitalism'.

During the Industrial Revolution, the condition of the factory workers was bad. Wages were low, the work was hard/long and working/living conditions were bad. So some social thinkers of 1800s Europe (mainly France and Britain) said that these problems were due to the private ownership of capital. Hence the solution was the opposite of this - ie, the social ownership of capital. That is - they proposed an alternate economic system: 'socialism'.

The socialists made two mistakes. First mistake: These social thinkers were all city people. So they saw only the problems of the factory workers - who were also in the cities. But who were these factory workers? They were farm workers in villages who had moved to the cities and become factory workers. The condition of the factory workers was bad. But the condition of farm workers was even worse. That is why they had left their farms/villages and moved to the cities/factories. But since the socialists were city people, they did not see the poverty of the farm workers in the villages. This was a cognitive bias - ie, the selection bias.

Second mistake: The socialists jumped to the conclusion that the bad effect of capitalism (ie, the bad condition of factory workers) was due to the most visible/glaring feature of capitalism: the ownership of capital by capitalists, or the 'private' ownership of capital. They did this without any logical (let alone scientific) cause-effect analysis. [The truth was that the bad condition of factory workers was just the first stage of capitalism. Over time, capitalism would reform itself and the condition of factory workers would improve. And this is exactly what happened in Europe in the 1800s. Thus capitalism is a self-correcting economic system] So here the socialists committed a logical fallacy - ie, the causal fallacy.

Thus socialism was the product of a cognitive bias (selection bias) and a logical fallacy (causal fallacy). And Karl Marx took this one step further - he turned 'social ownership of capital' into 'government ownership of capital' . . .

Donald Trump Vs Kamala Harris Debate Highlights

Highlights from the just-finished debate between Donald Trump and Kamala Harris:

Issue: Economy and cost of living

Kamala: "I will give tax cuts to middle class families and small businesses"

Trump attacked Biden and Kamala for increasing inflation.

Question to Trump: "Your proposed import tariffs will increase prices"

Trump: "No, they will not. And Biden has not removed the tariffs that I had put earlier"

Kamala did not say anything about Biden not removing Trump's tariffs - and instead attacked Trump's policies.

Issue: Abortion

Trump: "States must decide this matter"

Kamala: "Trump is responsible for the Supreme Court striking down the Roe Vs Wade verdict (the right to abortion)". Kamala attacked Trump aggressively with emotional examples - because this is an important issue for women (who are 50% of the voters).

Question to Kamala: "Illegal immigration reached an all-time high under the Biden government - and you were in charge of border security. Why did you act only in the last 6 months?"

Kamala did not answer the question - and instead attacked Trump's policies.

Trump counter-attacked Biden and Kamala.

Question to Trump: "You plan to deport all illegal immigrants. How will you do it?"

Trump did not answer the question - and instead attacked Biden and Kamala.

Kamala counter-attacked Trump.

Question to Kamala: "You have flip-flopped on a lot of issues - like banning fracking"

Kamala: "I will not ban fracking". She did not say anything about her other flip-flops.

Trump attacked Kamala.

Question to Trump: "Do you have any regrets about the January 6 riots by your supporters?"

Trump did not answer the question - and instead attacked the Democrats.

Kamala attacked Trump.

Question to Trump: "Do you accept that you lost the last election?"

Trump: "No, I do not accept"

Question to Kamala: "Do you think Trump will suppress the vote this time?"

Kamala did not answer the question - and instead attacked Trump.

Issue: Israel-Gaza war

Kamala: "I want a two-state solution that gives Israel security and Palestine freedom". A balanced answer.

Trump: "Kamala hates both Israel and Arabs" (!)

Question to Trump: "Do you want Ukraine to win its war against Russia?"

Trump: "I just want the war to end"

Kamala attacked Russia and Trump.

Question to Kamala: "Do you accept responsibility for our retreat from Afghanistan?"

Kamala defended the retreat - and attacked Trump for creating the problem by negotiating with the Taliban.

Trump defended himself - and counter-attacked Biden and Kamala.

Question to Trump: "Why do you talk about Kamala's race?"

Trump: "I don't care about her race"

Kamala attacked Trump as a racist.

Question to Trump: "What is your alternate plan to the Democrats' health insurance program (Obamacare)?"

Trump did not give any specifics - and just attacked Obamacare.

Question to Kamala: "You have flip-flopped on health insurance policy"

Kamala attacked Trump and defended Obamacare.

Question: "What will you do to tackle climate change?"

Kamala: "I will revive America's manufacturing". A very strange answer to give.

Trump attacked Kamala.

Closing statements:

Kamala: "We have very different philosophies - I look forward and he looks backward"

Trump: "Why didn't she do anything for 4 years as Vice President?". He attacked Biden and Kamala. 

Summary:

# Trump was his usual self - with his personal attacks and sweeping statements. But his simple language appeals to most ordinary Americans.

# Kamala is a good debater - and was well-prepared with data-points and specific policies. But she was weak in defending her and Biden's track record.

# The moderators conducted the debate well and were fact-checking both the candidates - especially Trump.

'Capitalism': The Natural Economic System

Karl Marx told two big lies:

1. He called the natural economic system (which is free and efficient) as 'capitalism' - to make it look unnatural.
2. He proposed a government-controlled economic system (which is unnatural and inefficient) called 'socialism' - and said it is better than 'capitalism'.

Today the whole world's economic debate/discussion is about Marx's second lie - ie, which economic system is better: 'capitalism' or 'socialism'? Half the people say 'capitalism' is better, and half the people say 'socialism' is better.

But there is zero debate/discussion in the world about Marx's first lie. Very few people realise that the so-called 'capitalism' is nothing but the natural economic system. Funnily, this includes even the people who support it (because it is efficient).

Karl Marx thus succeeded beyond his wildest dreams. In fact, his ghost is laughing even today . . .

PS: Capitalism is the natural economic system. So capitalism the system came first - and capitalism the word/idea came later. Socialism is the unnatural economic system. So socialism the word/idea came first - and socialism the system came later . . .