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Wisdom versus Cleverness

Cleverness or wisdom?

As most of the world gets enveloped by cleverness, true wisdom is rarely found. The gratification of hearing two wise people speak can be enormous. This gratification is not as profound as that when listening to two clever people speak. What is the difference between the two? Cleverness is more concerned with mental trickery, a certain degree of overcoming conflictual thoughts, memory, agility, swiftness, multitasking, multidimensional thinking, expressions, communication, networking. Wisdom is knowledge that cleverness is temporary. It is one level deeper. It is knowing that life is transient and that the mind can be tricked. What is clever today may not be clever tomorrow but wisdom is timeless. It can sometimes be wise to be foolish and foolish to be clever. Wisdom can come to those who are not educated. It can be passed through generations by story telling, poetry and nature. Cleverness usually associates itself with those who want to become rich and famous. Invariably those who are highly educated. Wisdom cannot bring harm. Cleverness cannot bring personal harm. Wisdom is what remains when we pour experience through a sieve, but you do not have to live that experience to be wise.

Cleverness can lead to wars among nations. It can create conveniences and comforts. Wisdom is about self-control and sacrifice. Cleverness says “carpe diem” - seize the day. Wisdom says what can you give up today. It is bringing gratification by delaying it. People can have different degrees of cleverness and wisdom within them. A Nobel-prize winning physicist can be clever but unwise if he develops the nuclear bomb. On the other hand, an old unknown man who tends to his garden, watches squirrels fight and the bee settle on a rose bud may not be clever but he is wise. Most people grow from being clever and unwise to being wise and not clever. Why is this so? Some feel that they were wiser when they were young, when habits had not bought spontaneity and arrested creativity. Wisdom does not come through habit but through creative experience. It can come while walking in a park freshly sprinkled with dew, while writing thoughts in a diary, while singing in the shower. Cleverness comes through reading books and talking to clever people.

Wisdom can sometimes be misconstrued with cowardice. However, a wise person will prefer to show that he is a coward in order to make the clever person feel brave. Wisdom will seldom fight with cleverness even if the latter taunts him to do so. Wisdom will rather let cleverness be, for it understands the true nature of self. Cleverness feeds the mind and can become obsessed with it. Wisdom nourishes the soul and does not hold on to the nourishment. It lets it pass through to others who may wish to receive it. It is free knowledge.

Often, we can have a choice – to make friends who are clever or those who are wise? It is clever to choose clever friends and cleverness usually grows in both till they cease to be friends. Wise friends cannot be chosen for they only come naturally and with serendipity. These friends may not make you any wiser, but at least they shield you from the clever ones. The sharing of ideas and experiences with the wise can lead to new interpretations and flexibility of concepts. The clever are usually fixed about right and wrong, good and bad, great and small, less and more. They are more concerned with finding ways to achieve efficiency. They are more task and outcome-oriented. Finding the shortest path from point A to point B. The wise looks for a path less travelled in order to achieve happiness.

Life on the other side

I enter the slum in searing heat. The paths are dusty and flies greet us in hordes. Children in ragged clothes are trying to fill up water in plastic containers from public taps. I pass a brightly coloured temple where beautifully adorned statues of gods greet us. Nearby, a makeshift bell hangs from a tree to induce fortune. A sweaty salesman beckons us to his cart of traditional Indian ice-cream, Kulfi. Glances of old women are fixed on me as I start entering the residential area. Most houses are made out of unpainted bricks, have one room and a fan, no curtains or a refrigerator. The roofs range from cloth to tin. A teenage girl is sweeping the floor of her house and the dust is falling in the passage. Dogs look for leftovers in the narrow passage between the houses that I am following. There is a cross-road and I see hundreds of such houses spread across the expanse where over fifty thousand people live. I cross an open sewer that runs across the length of the slum. A man tries to manoeuvre his rusty bicycle through the garbage dumps and the chickens. They are looking for their grain of life. Buffaloes are taking a dip in a pool of stagnant water.

Mosquitoes buzz past as we enter the Anganwadi. The government-day care centre houses forty children between the ages of 3 and 6 in a 2 metre by 3 metre room with alphabet charts on pink walls but no lighting. A child is crying and some are simply sitting. There is no fan. Clothes of children are dirt-stained. The helper asks them to greet me. They chant out “Good morning, Sir!” I wave back. They are eagerly waiting for their mid-day meal that is preciously stored in a steel container. Today, it’s porridge. The severely undernourished children are supposed to get two helpings in their tiffins. Some children gather around in groups to get photographed. I click their pictures and show it to them. For many, this is the first time they see themselves on a digital camera. The Anganwadi worker asks a boy to recite a poem. The poem is about different round objects around us – from the celestial to the humble egg. The others applaud. I ask a few students to get weighed on the scale. A little more than half are malnourished. Most are unable to read their own weight. The workers usually maintain attendance registers and medical records but fail to teach. There is no official syllabus and exams do not take place. Mothers have been called for their interviews in a room nearby. They are sitting on the carpet with their heads covered waiting for their turn to be quizzed about nutrition, diet and their family. Most are forthcoming. Their husbands earn around £40 per month, almost all of which usually goes in buying food. They are normally vegetarians who survive on milk and pulses but rarely get to eat fruit, salad or mithai (traditional Indian sweets that are rich in calories). Leap-frogging has a new meaning. Most dwellers own mobile phones but do not have flush toilets. Meanwhile, the olfactory nerve has become used to the pervading stench from the sewer.

A mother I interview does not know what is good for her girl if she gets diarrhoea or loses muscle mass. She also does not ask me after the interview. Uneducated mothers carry an additional burden with them – that of lack of curiosity and confidence. They are forced to trust and not question. Reason, logic and debate are the pillars of education that provide the fruits of freedom and self-esteem. Is there a way to encourage child-like curiosity in mothers? Mothers are handed a recipe book that contains easy-to-make nutritional and economical recipes as well as a list of nutritious foods and their benefits. They are encouraged to increase green, leafy vegetables in their diet. A vegetable seller happens to cycle his cart near us. He should give me a share of his profits.

Why did the Congress win?

India witnessed elections in May and a win for the ruling party, United Progressive Alliance (UPA). Congress is the main party in the alliance and Sonia Gandhi is the Chairperson of the Congress.
The victory of UPA has been given many shades of reason by journalists. The biggest two reasons that have been given are the emergence of Rahul Gandhi as a reckoning force, especially in Uttar Pradesh, and the performance of the Manmohan Singh government. However, I believe that more than these two, there are other complementary issues that need to be analysed when looking at the overall picture.
First, the voter turnout was much higher than in the last election. Empirically, trust and turnout are positively correlated in US elections. This could imply that there was higher trust in the political system among the citizens and especially the educated voters. Trust was higher because of little reported corruption during the last five years. Because of the way the government handled the situation post-Mumbai terror. Because of the long-term thinking and political will that was demonstrated by the nuclear deal. And because, psychologically, one starts to trust people (even if they are born in Italy) who are not power-hungry.
Second, the timing of the election was suited to ride over relatively high growth during times of financial turbulence and unprecedented economic insecurity. It was obvious to the voters that a reputed economist at the helm would be their best bet against the insecurity. It also helped that inflation had been timed to reach a record low. This ability to manage the timing of elections, often called the incumbent advantage, seems to have worked for the Congress. In the last elections, the BJP had advanced the date of the elections to get this to work in their favour. Knowing that worse was to come, BJP thought it could use this incumbent advantage. However, the voters being rational, also understood that worse was to come. It is for this reason that political parties should not try and advance the date of elections, as it can lead rational voters to smell something fishy.
Third, the structure of the political parties was favourable. The right alliances (in West Bengal, Maharashtra and Kashmir) helped Congress. The Left parties were seen to have played no positive role at the national and local levels. There was infighting in the BJP, and the leaders lacked the messianic appeal of the trio of Gandhis. Moreover, Varun Gandhi’s speeches seemed to have worked in favour of the Congress too.
Fourth, most people wanted a stable government at the centre. This meant that even if they were ideologically closer to the BJP, they preferred to vote for the Congress as it had the maximum chance of emerging as the single largest party. The formation of the Third and Fourth fronts made the incentive to vote for Congress even greater as the media projected a hung parliament. In short, strategic voting in favour of the Congress may have resulted due to pre-election polls by TV channels. No wonder then, that they are usually wrong in their forecast as they do not consider the change in voting patterns resulting from their prediction.
James Madison, one of the architects of the US Constitution, had stated:
“The aim of every political constitution, is or ought to be, first to obtain for rulers men who possess the most wisdom to discern, and most virtue to pursue, the common good of society, and in the next place, to take the most effectual precautions for keeping them virtuous whilst they continue to hold their public trust.”
Even if by chance, India’s constitution has succeeded in accomplishing the first goal. For the second, there is an incentive for getting re-elected, but given our history of political corruption, it may not be enough.

Is Aid Good for Growth?

Live 8 was a series of benefit concerts in 2005 organized by Bono and Bob Geldof that made the right music for getting aid to Africa. Jeffrey Sachs, a prominent economist at Columbia University, has argued that the developed countries should give more aid to the poorer countries. Leaders of African countries are asking for more. After African colonies gained independence, most got a lot of aid from their ex-colonizers. Yet, after close to $600 billion of assistance, most of Africa is at the same income level as it was in 1970. Why has it lagged behind other developing countries? Why has aid not helped Africa grow as fast as other countries?
One way to check whether aid had an effect on growth is to run instrumented regressions. Instrumented regressions allow us to get a better picture after controlling for the effect that growth would have on the likelihood of getting aid and other factors that may be affecting growth and are correlated with aid. If we run such a regression, we find that aid seems to have no effect on growth. Even more startling is the result that this ineffectiveness remains even if the government follows good policies such as low inflation, more trade and low fiscal deficits.
After 1990, UK declared that it would only give aid to countries who make their political systems more open, tighten constraints on the executive and have regular (and fair) elections. Even after repressive dictatorships turned into repressive pseudo-democracies, conditional aid increased but growth remained elusive.
William Easterly, an economist at New York University, believes that aid should not be given to the governments directly because there is no accountability. Most of this money ends up in the pockets of politicians and developed countries are led to believe that they are uplifting poverty. He says that aid should only be given to countries conditional on them giving the money to an independent institution that supervises and reports how it is being used. Moreover, aid should be project-specific so that we can assess the exact quantitative effect of aid. This may not result in growth (in the short term at least) but would result in human capital development. For example, in Mexico aid was transferred to an independent health research institution that gave cash grants to mothers in return for them sending their kids to school, bringing them for health check ups and giving them nutritional supplements. Comparing attendance and health results showed significant gains. A similar programme was carried out for deworming in Kenya and that too showed an increase in class attendance though not an increase in the marks obtained.
Thus, aid should only be given where its effects can be evaluated against a control group. If it is found to be effective, it could be implemented at a larger scale.
Another view on aid (that is still very much in the minority) is that simple giving aid to the governments might actually be bad for growth. This may be because it may generate incentives for coup attempts and civil wars as there is a bigger pie at stake. A prolonged civil war results in poverty, which means more aid, and this trap between conflict, poverty and aid might just be the reason why we see these three recurring states in Africa.

Paradise Paradox

The Kashmir Valley, surrounded by the majestic deep blue mountains seems like a peaceful, soothing place that you would go for meditation or get away from it all. However, the reality couldn’t be more different. There have been three days of bandh – or no work. All shops are closed, employees have a reason to be absent, schools are empty with the school children creating chaos on streets by throwing stones on cars. Outwardly, everything seems peaceful but deep inside, people feel desperate for change.
We visit the famous Kashmir University and it probably has the best location on the planet. There are separate blocks for each department – sociology, statistics, physics, biotechnology, kashmiri studies, etc. We walk in the lush green gardens surrounding them and in the backdrop are snow-clad mountains and the Dal lake. But, something seems missing. There are no people. Hardly anyone has turned up because of the bandh. No work. The Economics department is locked.
We leave the University and go to the Directorate of Industries. There, only one person has come and he expresses helplessness at the situation where no one has turned up at the office and he knows nothing about any studies that have been undertaken by the Directorate. He apologizes profusely because he cannot offer us water or tea as no peon has turned up. I write down my list of wanted studies and give this sheet to him knowing that it would end up in the bin when we leave.
The Deputy Director of Agriculture keeps accompanying me to the Directorates. He knows so many people that every five minutes the car stops to wish all his friends salaam walaikum. The links that people share (or social capital) is normally considered to be good for increasing growth. Ironically, here social capital seems counterproductive.
It is said that the devil resides in an idle mind’s workshop. I wonder if its true in Kashmir’s case. Our next stop is the Directorate of Agriculture. There we are greeted by the Director who has a large cabin with large curtains embroidered with floral patterns and a sign on his desk reads ‘Please be brief’. The Director, however, is garrulous. He explains why militancy happened and how people started planting apples that had higher returns than normal crops such as rice and maize. The villages that had high incomes from apples (Sopor and Chhupaya) also had a lot of militancy. But people had stopped building housing and there was little long term fixed investment. The political situation was bad – in 1987 – apparently the elections were rigged, that resulted in several locals escaping to POK for training and when they returned – all hell broke lose.
Then we go into the Deputy director’s office and a crowd of 8 people sits down and start chit-chatting in Kashmiri talking about inane things and sipping tea. I keep making notes on their (lack of) working habits and ask to leave for lunch. On the way back, we see children throwing stones at cars passing by. We are lucky to escape. The driver tells me that each kid is paid Rs. 50 to throw stones.
The next day, we go to the Directorate of Economics and Statistics – here 3 people have turned up out of a 100. We are led into the surveys section – where there are dusty files in dusty cabinets waiting to become dust themselves. There is only one person (Abdul Rashid) here who looks suspiciously at me. He asks questions to assess if I really need data. He talks like he is guarding a treasure and only he knows the password. ‘You will not get this data anywhere else but here’ he explains. ‘But you must come day after tomorrow when there are more people here’. On telling him that I will be leaving that day, he says he cannot help me. But I am persistent. Eventually, he tells me that he is doing a big favour by giving me some books that I need to return tomorrow. On their return, if he is in office tomorrow, I will be given the rest. His offer is conditional. He asks me if I can write a letter on an LSE letterhead to issue the books, takes my card, says he is really trusting me and I must return these books tomorrow. I take my treasure (that looks like it has been dug from underground) and run into the car. I take photos of about 200 pages that I can use later. The following day, I return the books and he is not there. However, I go to the Director General and tell him to help me and he asks the Librarian to give me the rest of the books. The Library is dark and empty with the Librarian chatting with a couple of other employees. I ask for the books and he says that I cannot take them from the library. I plead with him but to no avail. So I photograph about 600 pages in the next 6 hours in the dingy library while the librarian engages in mindless banter with the other employees who are wearing a kurta.
On my way back, I wonder if the attitude of the officials and the state of Kashmir are somehow linked. The culture of laziness pervading the lives of locals, the feeling of being oppressed by those in power, the lack of opportunity and the sense of being treated as second-class citizens in their own homeland all seem to be inter-related.

Poverty trap in real life

On 19th June, 2009, we visited a village near Chandigarh, Jhujhar Nagar. It is stuck in a poverty trap with low levels of literacy, hygiene, nutrition, incomes and knowledge. There is a collective action problem in solving the issues of the village. The village panchayat is famous for its infighting and funds are not used where they are meant to be. A young boy, Gautam and the Sarpanch expressed what they felt was wrong with the village.


• 75% of the young people in the village are addicted to drugs. These are basically Rs. 2 capsules that are available at the local medical stores and the unemployed youth have no other means of recreation it seems. They have no jobs, are uneducated, and after drugs, their chances of getting a job are reduced even further.
• There is only 1 government school in the village that is for elementary education.
• Pools of filth line the village. There is no proper sewage facility. Pigs are kept for being sold when they grow as meat to sustain their livelihoods.
• Diseases, especially of the skin, eye and the stomach abound. Polio drops also needed.
• Thefts are widespread (bicycles, taps, etc.)
• Alcoholism and consumption of bhang is common
• No will to make the village better
• Have got used to leading an idle life where standards of living are very low
• There are about 3500 families and the population is about 5000
• The Sarpanch is Iqbal Singh, a property dealer
• About 40% of the families live below the poverty line
• Ration cards are not made available for most residents by the state government – so they have to pay high prices for flour and bread and oil
• There is no bank branch in the village
• Sikligarh, a part of this village that has Sikh families who used to make weapons for the Sikh gurus are also living in inhuman conditions.
• They do repair work, ironsmiths
• There is no hospital or dispensary in the village.
• Most people work as labour or sell vegetables or phenyl, etc.
• Water is not very clean and there is a huge power shortage
Priorities:

- Sanitation (Removal of stagnant water)
- Distribution of mosquito nets to control malaria
- Drug de-addiction camps
- Dispensary
- Extra tuition for kids
- Vocational education courses for young adults (these would be needed for a task force and the vocational education courses can act as an incentive to make them work for other areas of the village)

Marcus Aurelius was an economist

Here's a quote from Meditations by Marcus Aurelius: First get at the nature and quality of the original cause, separate it from the material to which it has given shape, and study it; then determine the possible duration of the effects.

Nature

Nature has a calming effect on the soul. Now scientific research shows that it also has a positive effect on the brain.

Anne Frank’s insight - The best remedy for those who are afraid, lonely or unhappy is to go outside, somewhere where they can be quiet, alone with the heavens, nature and God. Because only then does one feel that all is as it should be and that God wishes to see people happy, amidst the simple beauty of nature.

The best place to live for achieving innovation with happiness is in a city but next to a green patch with a diverse variety of trees. The reason is that there are no negative reactions in the brain as there are when one walks on a busy city street. There are no material choices to make, no dull and dreary people lost in dead habit, no noise, no hurry, no artificial sounds, no cemented structures, no polluted air.
Thoreau regarded Nature as his God.
John Muir’s observation - Climb the mountains and get their good tidings.
Nature's peace will flow into you as sunshine flows into trees.
The winds will blow their own freshness into you...
while cares will drop off like autumn leaves.

Psychology of happiness

Although economists (barring Richard Layard) have not really started believing in happiness research, there is a lot to learn from psychological randomized experiments that have taken place of late.

Often it’s said that artificial happiness is not of the same quality as natural happiness. I listened to a lecture by Dan Gilbert who says that synthetic happiness is the same as natural happiness. Long term happiness is not a function of events that we perceive would make us happy, like elections or winning lotteries or passing exams. Our minds seem to have automatic stabilizers that kick in whenever we encounter failures or are unable to achieve our goals. This usually takes place in the shape of altering the world view – “It happened for the good” or “This was destined to happen” or “We should learn to accept this”. These statements are examples of psychological immune systems that make us feel less miserable than what we might think would happen after a huge loss.

Another talk on the psychology of happiness that is worth listening to is by Martin Seligman. He finds that there are three channels of achieving happiness – leading the pleasant life, the good life and the meaningful life. The first one deals with the sensory pleasures. The second one with social engagement, relationships with family and friends and how much satisfaction you get from work (Karma-yoga in Sanskrit). The third one is about having a goal bigger than oneself. The meaningful life and the good life seem to be the significant contributors to long-term happiness with sensory happiness only the icing on the cake. But it seems that in ancient Hindu scriptures avoiding sensory pleasures was one of the goals to reach long-term sustained happiness or enlightenment. This would be the next frontier for happiness research. How much are the goals of the first life conflicting with those of the second and more importantly the third life.

Ten quotes for the new year

Here are ten of the most interesting quotes I found this year:
1. Dies slowly he who does not travel, does not read, does not listen to music, who does not find grace in himself. (Pablo Neruda, ‘Dies Slowly’)
2. I searched for the crooked, met not a single one; When I searched myself, I found the crooked one. (Kabir)
3. When man has pride in is heart, he wanders around like one possessed.
When he is like dust under the feet of others, he then knows that God is in every heart.
The reward of humility is knowledge of the gentle path
It is the gift the True Guru gave me. (Arjan Dev)
4. Land of our Birth, we pledge to thee
Our love and toil in the years to be;
When we are grown and take our place
As men and women with our race. (Rudyard Kipling, Land of Our Birth’)
5. The trouble with the rat race is that even if you win;
You’re still a rat. (Lily Tomlin)
6. The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt. (Bertrand Russell)
7. Life would be infinitely happier if we could only be born at the age of eighty and gradually approach eighteen. (Mark Twain)
8. How happy is he born and taught,
That serveth not another’s will;
Whose armour is his honest thought,
And simple truth his utmost skill! (Henry Wotton, ‘The Character of a Happy Life’)
9. The world is too much with us; late and soon,
Getting and spending we lay waste our powers:
Little we see in Nature that is ours;
We have given our hearts away, a sordid boon! (William Wordsworth)
10. Self-love is a balloon filled with wind,
From which tempests emerged when pricked. (Voltaire)

The Big G-School Puzzles:

1. Why do poor students in government schools undertake extra tuitions costing 12 times more than the government school fees?
• Bad teaching: Teaching in government schools is only to the level required for answering questions in the exam, and not catered to applying concepts.
• Peer pressure: Children see other students doing better than them (who take tuitions) and make the causal inference that tuitions = better marks.
• Parental conscience: “If Sharma ji’s son is taking tuitions, we should also send our son. We can compromise on our living expenses but not our son’s education. Even though we are not educated, we cannot deprive our son of a good education.” [Note: the gender preference in the above statement is intentional.]
• Tuition teachers work harder: As they are paid on an hour basis, they have a greater incentive to put in more effort. The market is competitive as there are a large number of teachers who can provide tuitions.
• Job prospect theory: If a child goes for tuitions, he will get better marks, which will get him to a good college, which will get him a good job.

2. Why do government colleges have a better environment than government schools?
• Motivated students: As there is a cutoff for entry even in government colleges, above average students self-select themselves into government colleges.
• Better teachers: The teachers are paid more and thus better skilled teachers are chosen for college teaching.
• Higher fees: Colleges are not as subsidized as primary schools, so there is a greater incentive to provide better quality because it is charging the students.
• Age: As children mature, they become more subdued (and have a better understanding of complex concepts).
• The good trap: If students understand better, teachers are more effective and this increases the students’ level of understanding leading to a self-reinforcing mechanism.


3. Why do we have “bad teaching” in government schools?
• Self-selection: Bad (under-skilled, under-motivated and over-weight) teachers self-select themselves into positions that require less effort per hour and there is less chance of them getting fired.
• No explicit goals: There are no set goals and often teaching is only to cater to the exams rather than making students better at applying concepts or exploring creative answers.
• Tuition disadvantage: Teachers know that students are going to take tuitions, so why bother? This in turn, leads to more tuition.
• No feedback: Students hardly ever give feedback. They are often shy or instead, they fear retribution if the feedback is not kept anonymous. They are required to uphold teachers as gods and listen to every word without ever questioning them. This leads to moral-hazard (hidden action) for teachers.
• No top-down sticks: The principals of the schools do not care about the quality of teaching as they too have no incentive to monitor classes. There are no explicit goals (except in some cases, marks obtained) which can be addressed to by the teachers by awarding marks copiously.

4. Why do religious schools tend to do “better” than government schools?
• Discipline: Religious schools enforce discipline in code of conduct which regulates the students and makes them fulfill their daily commitments.
• Intrinsic motivation: These schools are often run by people who do not have a monetary goal in mind, but are driven by their passion to instill a value-based education in students (the value being correlated with the religion they represent).
• Self-selection: These students are often brought up in a religious environment at home too. Religious environments at home are arguably correlated with less deviance, less domestic violence, more discipline and less junk food and less idiot box watching (which reinforces their faith).
• Similar preferences: Peers are more often than not of the same religion and the same sex. This leads to a greater social capital and trust and more productivity or greater retribution if one is deviant.
• External support: These schools get a great deal of funding from religious organizations that have a stake in the system and are driven by their zeal to instill their values in the youth.

5. Why do students in government schools lack fluency in English or knowledge about current affairs?
• Teachers’ ability: The government school teachers are on average worse in spoken English and general knowledge.
• Family income: As I observed in our interviews with children who had applied for scholarship, family income is a strong predictor of English fluency of the child. On the other hand, parents may have lower earning potential because they are not good at English. This also leads to a “Bad English trap”.
• Exposure to people who speak better: Low exposure to English-speaking students, teachers, and parents’ social network lowers the bar and makes children end up like those whom they have coffee with (in this case mid-day meals).
• No exam: There are no exams on verbal ability and current affairs in government schools and so no immediate incentive for students.
• Infrastructure and technology utilization: Libraries have locked shelves. Librarians are bored individuals who only care about books not being stolen. The perceived marginal benefit from reading an Enid Blyton or a J.K. Rowling is cipher. There is hardly any hands-on experience to prepare students for the ever innovating tech-world (internet, email, google, video chat, Powerpoints, Windows, etc.).

Interlinkages

What is the relation between economic growth, health and education?

Economic growth is positively correlated to lower levels of infant mortality and higher literacy rates. However, there is no one way causation. Basic health can lead to more class participation and thus augment skills and productivity and reduce poverty. For instance, Kremer and Miguel (2003) look at the effects of deworming on class participation in Kenya. Deworming was found to increase school attendance significantly but there was no effect on class performance. Being a cheap policy intervention, deworming is one of the best tools available to increase attendance of children in areas with low hygiene. On the other hand, educated individuals are more likely to be in better health and can thus, work more effectively and earn higher wages. So providing education through Sarvshiksha Abhiyan will not only lead to greater literacy but also increase their life expectancy and quality of life. Infant mortality and child malnutrition would also be lower in households where children attend school. Similarly, economic growth should lead to greater investment in schools and hospitals, more qualified teachers and doctors, and technology-aided learning and surgeries. Thus, economic growth is a means to achieving better education and health. A flaw in policy design is that most projects do not have universal coverage and are generally targeted to appeasing the politically influential groups rather than the disadvantaged groups. Inadequate implementation of the programs due to a culture of corruption, absence of enforcement mechanisms, and more generally, the lack of accountability all contribute to low literacy and high infant mortality.

For sponsoring a child's education for a year, you can go to educateindia.net

Why do we like stereotyping?

Liberty has dawned upon many societies but there are always restrictions. Free thinking abstains from such stereotypes. Free thinking is when you do not judge people before you meet them. Even after meeting people a hundred times, it is difficult to judge them – they may have certain dominant traits that they may show you – but how these can be generalized into a universal law of personal hatred and biases is surprising. Can I explain this using survival of the fittest? Or is it historical factors that our fathers have witnessed that have placed biases in the minds of the people? How does it matter if I call my God Allah and the other Christ? Try to take out differences so that our religion may look bigger better and more sophisticated than other religion or our colour looks better. My Hindi teacher once said that Indians were special because they were the only race whose colour was the colour of the soil. What soil is he talking about? The soil on the beach is white…there is black soil too and yellow soil….And even if it is so, how does that make one special? If there were green people would they become special because they were the colour of grass and trees? Self justification and persistence of these biases lies underneath the so-called rational thinking of so-called free thinkers. Why can’t people let people be? Why do we need to impose our forefathers thoughts on rational minds? When shall we become enlightened?

Summary of a talk

On 7th October, 2008, Stephen Connolly, an investment adviser at Credit Suisse, came to give a talk on the Financial Crisis in Netherhall House. He listed loss of trust among banks, lack of an effective regulatory authority and reckless risk-taking behaviour of investment banks as some of the reasons why the crisis has occurred. Giving a short history of how banks had passed loans to others packaging debt securities that were very risky, also called sub-prime loans. These risky securities were not worth the price and when the people defaulted on these loans, banks stopped trusting each other. This led to a string of failures from Bear Sterns to BNP Paribas to Lehman to HBOS. He was of the opinion that there should be a major pumping of money by the government to solve the liquidity problem, and even $700 billion may not be enough to keep the banking system going. With simplicity and candor, he described how the liquidity problem has led to a fall in the supply of loans and businesses have to delay their investment decisions if they cannot borrow, and this in turn will cause job losses. Stephen also spoke about the opportunities that exist in the market as the prices of fundamentally strong banks were artificially low. He expressed skepticism about the future but would not underestimate the ability of the banking sector to bounce back. There was however, little mention of how the underlying problem of reckless risk-taking could be averted, once the crisis is over.

Happiness index

Why this article is misleading?

The happiness index is very subjective and even then, India is 62nd on the list. Bhutan, Nepal, Sri Lanka and Bangladesh all are higher than India. Of course much has been written on happiness but three clear problems with this measure are that it is non-comparable across individuals (let alone countries) - as happiness as a concept may be different for different people and secondly, even for an individual, happiness can be different at different times of the year. Third, the Hawthorne effect (how people respond in front of a surveyor) is different for people from different countries.

Anatomy of a genius

Anatomy of a genius (after reading about some geniuses)

Passionate
Eccentric
Obsession with work
Work in spells
Stick to basics
Original
Expressive
Simple models
Cater to the public and academia
Emotionally not balanced
Ideas from other disciplines
Write a lot
Read a lot
Have an action plan, though they normally don't stick to it
Keep working till they do not find a solution
Trust intuition

What does your gut say?

I happened to listen to the podcast of the Gerd Gigerenzer (henceforth GG) talk at LSE on 20th October, 2008. He spoke about Gut Feelings: better shortcuts to decision-making.

I have often wondered about why when taking exams our first intuition is always correct. Often, when we change our answer, it turns out to be wrong. Intuition is a set of quick thoughts that arise from the subconscious mind to affect our actions. How do people take decisions? Are they rational as economists like to think? Or do they take short-cuts based on rules of thumb? GG spoke about heuristics: the ability of man to ignore certain information that is not useful for getting the required result. An example is that of a baseball or cricket fielder who is about to catch a ball. He says that only three things matter for catching the ball when it is already in the air. First, keeping one’s eyes on the ball, second, running and third, keeping the angle between himself and the ball constant. All other information, such as where the ball was hit, how it was hit, etc… is not required by the brain to catch the ball. This is where heuristics kick in and help us focus on only the relevant part of the information. How does an airport customs officer find out if the person is a drug courier or not? A drug courier is a person who comes into a city with a bag full of money and goes back with a bag full of drugs. A woman was caught with $200,000 worth of money in a black suitcase by an officer. On later asking the officer how he found out that it was her, he said he only had a gut feeling. He was looking for people who were looking for him!

We apply these rational rules of thumb from finding a wife to raising one’s children. He gives the example of Henry Markowitz who won the Nobel Prize for his study on modeling the financial returns to investing. When he had to invest in the financial market he did not use his own model but instead relied on intuition. He invested equally in the stocks he was interested in instead of calibrating it according to his model that cam up with the highest mean to variance ratios. What GG is interested in is to find out if doing this equal investment in N stocks actually gives higher returns on average than using a fitted model based on mean variance ratios. He finds that if N=50, then it would need data for the past 500 years to make a prediction that would outperform the equal investment thumb rule.

In animals, finding mates is a heuristic decision and he claims it is so even in humans. No one (barring an occasional economist) calculates the highest expected utility by finding probabilities through matching functions and reoptimize using Bayesian rules. There are many misconceptions about heuristics. For instance, they are merely second-best results – optimization is better. Second, it fails to consider the structural environment. A comparison is made of cognition and environment to a pair of scissors ala psychologists and sociologists. But heuristics do take into account both cognition and the environment. It may be rational, then, to rely on first intuition – but only where a person is an expert in the field. Time to decide should be very short according to empirical evidence. However, for amateurs it does not seem to matter. An implication is that if you have experts meeting, keep the time short.

Mechanisms to understand intuition seem to be at an early stage of psychology. How is the brain able to fit past information and predict. Or does it? What separates hindsight and foresight? Fast and frugal heuristic is often the vital difference, but the exact mechanisms will need a little more thought.

The Silver Tint

“.. Success is failure turned inside out,
The silver tint of the clouds of doubt…
So stick to the fight when you're hardest hit,
It's when things seem worse,
That you must not quit.” – Anon

The attacks in Mumbai have stunned and saddened us. I cannot even begin to contemplate the value of the lives lost, measure the grief of the family and the sense of insecurity to the nation. Yet, I also think that there is a fast emerging silver lining to the dark clouds of gloom that threatened us two weeks ago. The quiet nationalistic spirit has been rekindled as a response to the attacks. You can see it in the human chains holding candles. In people celebrating the victory of the NSG commandos. In the nation bereaving its brave soldiers. In the political consensus (or perhaps, less of blind opposition). In the common household, where families are grateful for another day together. In the restraint against innocent minorities. In crowds thronging to watch cricket when India was all but out of the game. In that one thump-in-the-air of Sachin when he hit the winning runs. However, all these are mere glimpses of the truth and one can never be too certain of the intensity of the patriotism experienced by a nation. But it has been observed since historical times, that the feeling of patriotism is at its greatest when a country is at war. Does patriotism have its advantages? At the risk of annoying the spirit of Tagore, patriotism is what makes a country win wars. It makes NRI’s come back home to contribute to the development of the country. It creates a state that has its foundations in altruism. It makes people of the country come together to face a challenge just like wild animals want to stay together when they are threatened. And, this patriotism is unlike the one that Tagore dreamt that would spillover into violence. It is open to the winds of the world. In fact, the winds of the world want to flow through it.

India is in conflict with the terrorists without the war-like costs involved. Yes, costs are incurred. In the present case, the loss of close to two hundred precious lives. In modernizing the police and installing CCTV’s. In setting up the NIA. Yet, these are drops compared to the oceanic costs of war. The benefits of war are that it leads to a possibility of victory. Yes, this may be the only option available if all diplomatic channels are exhausted. The international community has come out in full support of India (which it would not have done had India declared war). Co-operation between Indian and American intelligence agencies has grown to levels never seen before and India is being offered anti-terrorist training by UK.

The terrorists are indeed rational in how they attack. Their aim is to destabilize the nation. But their understanding suffers from not taking into account the renewal force. These patriotic renewals are not unique to India. Recent studies by Chris Blattman and Edward Miguel have noticed that Uganda, Sierra Leone and Angola are standing fast on their feet after civil wars crushed them. It may take a long time to come back to the original development path, yet the adjusting forces seem to be within us. Civil wars are the most conservative examples of this surge in pride (proxied by political participation). Inter-country conflicts generate an even greater patriotism and the time needed to overcome destruction may be far less. The force that built Vietnam after it was savaged by war with America. The resilience of the Japanese when Hiroshima and Nagasaki were bombed. The silver tint is shining already but if the terrorists realize this, they would lose their jobs of ‘calling’ or calling for jobs.

Understanding the economics of corruption

In the 1980’s, the prevailing view was that corruption can be good for growth.

Huntington said, “In terms of economic growth, the only thing worse than a society with a rigid, over-centralized, dishonest bureaucracy is one with a rigid, over-centralized, honest bureaucracy.”

In other words, it acted as the lubricant between the rusty wheels of bureaucracy.

But, now, several studies later, the consensus is that corruption is actually bad for growth. Many people compare taking bribes to taxes. However, it is worse than taxes, because taxes distort incentives but corruption goes one step further. It distorts incentives but the outcome is uncertain too. The only incentive to provide a good after taking a bribe for it is, if there is reputation cost involved. It may be better for growth if bribes were fixed and the outcomes certain. Then, corruption would simply be an additional tax.

Corruption is the misuse of public office for private gain. During Suharto’s regime in Indonesia, there was rumored to be widespread corruption and nepotism. Nevertheless, Indonesia recorded high growth during his tenure. This may have been because bribes were reportedly fixed at a constant proportion and the outcomes were generally certain. Suharto’s son, meanwhile, was running the biggest media conglomerate in the country. Of course, Suharto said that it was due to his son’s hard work and talent that he had reached where he had. Edward Miguel, a bright young economist, decided to investigate. What was the effect of being Suharto’s son on the firm’s value? He looked at the firm’s stock market price before and after Suharto fell ill (which happened on a number of occasions and was taken to mean that he may not be president with a greater probability) and compared the fall in the price of the son’s firm with a control portfolio of similar looking firms. What he found astonished him. There was a huge impact on the son’s firm but the control portfolio suffered only a blip. The difference-in-difference between the two stock prices before and after, would then give us a measure of the value of political connection or nepotism.

There are two types of corruption: with theft and without it. With theft, the government official just pockets all the money and provides say a driver’s license. Without theft, he gives the government the official price paid by the consumer, but takes an additional fee which he hides. In corruption with theft, corruption can propagate as price charged is usually lower than the official price. Interest of buyers and sellers are aligned, making corruption more persistent. An accounting system that limits theft may reduce corruption.

Banerjee argues that corruption is caused by bureaucrats wanting to make money and governments making laws to prevent them from doing so. Economists have models that try to model corruption as a way to get a product with a certain probability of getting caught. It is the marginal benefit and marginal cost (which depends on law enforcement) of doing so that determines the equilibrium level of corruption.

Sociological evidence suggests that corruption may also be a cultural phenomenon. In order to test if the sociological explanation holds water, Raymond Fisman and Edward Miguel had a look at the data for New York Parking tickets. Due to diplomatic immunity, foreign diplomats were not required to pay their fines until recently (until when the paper was published!). This meant that effectively the fear of punishment was zero for diplomats of all countries. So the only explanation of systematic patterns of unpaid parking tickets could be due to the cultural explanation. They found that countries that were more likely to be perceived corrupt (there are many indices that measure this including a World Bank index and a Transparency International index), were also more likely to have unethical diplomats.

Apart from trying to change the culture of corruption, there are two ways of reducing it. First, a bottom-up approach in which the locals are given the authority to supervise on projects. Second, the top-down approach, where the authority sends central representatives for monitoring. In a randomized experiment by Ben Olken in Indonesia that focused on road infrastructure, the top-down approach was found to be more effective in reducing over-reporting of use of funds. The grass-root level channel was subject to elite capture as has been found elsewhere in studies on aid and decentralization.

Therefore, it is very difficult to root out corruption. In a lighter vein, leaders of China, Russia and India went to meet God to know, ‘when the corruption will end in their country?' When the Chinese leader asked this question to God he replied, 'it will take 20 years.' The Chinese leader's eyes became moist as he felt sorry corruption will not stop. Then came the turn of Russian leader and God told him that it will take 50 years to end corruption. So the Russian leader started crying because it would not be possible to end corruption in his term. Now it was the turn of the Indian leader. Naturally, everyone understood that there will be longer period for him. So the Chinese and Russian leaders expected the Indian leader to cry but instead God himself started crying. When asked, 'Why are you crying?' God replied, ‘Corruption in India will not end in the term of Indian leader, but it will not end within my tenure also!’

References:

• Economic Gangsters: Corruption, Violence, and the Poverty of Nations (2008) by Fisman, Raymond and Miguel, Edward; Princeton University Press.
• Monitoring Corruption: Evidence from a Field. Experiment in Indonesia (2007) by Olken, Benjamin; NBER Working Paper.
• A Theory of Misgovernance (1997) by Banerjee, Abhijeet; Quarterly Journal of Economics.
• Corruption (1993) by Vishny, Robert and Schleifer, Andrei, Quarterly Journal of Economics.