Can Microfinance "Cure" Poverty?

Microfinance is the probably most important innovation for ending poverty currently being misunderstood. Considered by many as a panacea to eradicate poverty, Microfinance has been implemented in over 100 countries to varying degrees of success.

Microfinance is increasingly seen as a powerful tool to provide a wide range of high quality financial services such as credit, savings, insurance and fund transfers to the poor and near-poor households of the world. It’s proponents believe that it creates entrepreneurs among the poor, helps micro industries grow and provides income generation to poor households. While there are some visible evidences of the above, Microfinance cannot be singularly based on its innate ability to end poverty. 

Poverty brings with it a whole lot of issues ranging from health, education, nutrition etc. It’s a vicious cycle where one gets trapped into. While Microfinance is one effort that allows the poor to escape the poverty trap, it would be a stretch to view Microfinance as an economic tool that has the intrinsic potential to alleviate poverty. 

While financial inclusion is a significant positive step towards breaking the poverty trap, it has its own caveats. The poor have little to no assets or credit history and hence are subject to high interest rates. Numerous Microfinance firms have witnessed high rates of default. In fact, according to a UN study, only 10% of the global Microfinance organisations are self-sufficient.

The more pertinent problem however is the absence of tools among the poor to benefit from financial inclusion. Lack of financial literacy, vocational skills and a variety of social factors prevent the poor or near poor households to leverage availability of capital. Capital borrowed by the poor from these organisations has often pushed individuals into crushing debt, a problem compounded by high interest rates. 

A holistic approach towards alleviating poverty should aim at leveraging financial inclusion of the poor households to provide solutions to the other factors affecting poverty. One of the key reasons why Grameen Bank has been a Microfinance success story in the poverty stricken country of Bangladesh is because they have successfully packaged financial services with financial literacy and social development. The Bank predominantly lends to females with the aim to improve the social standing of women. It also incorporates a set of values embodied by the Sixteen Decisions which the borrowers recite and vow to follow them. As a result borrowers have been encouraged to adopt positive social habits such as sending children to school. These virtuous social values leverage the reach of financial inclusion to enable the poor fight poverty.

Viewing Microfinance as financial tool to eradicate poverty is an myopic view of a complex issue. However, it certainly is a powerful medium to financially include the poor, cultivate positive social habits and provide financial and vocational training to equip them with the tools to fight the poverty trap. 

The Age of Sachin

In a nation of over 1.2 Billion people, millions of gods and tens of religions, one thing can be undoubtedly stated as a fact: Sachin is India's god. For the past 24 years, he has been the ultimate role model with his performances on field and his demeanor off it.

I'm sure a you'll read a ton of posts on Sachin and his impact on your lives. This post is not about that. You'll find another ton of posts on how Sachin made you laugh, cry and smile. Again this post is not about that. This post is a mere attempt to explain that even though India has suffered tectonic shifts in these past 24 years, there has been one constant. No, it's not change, its Sachin Ramesh Tendulkar.

During his career, we as a nation have changed. From owning Maruti 800s to driving Jaguar, watching Doordarshan to laughing at Comedy Central, eating khichdi to gorging at McDonald's, wearing Vimal to flaunting Nike and Adidas, calling from PCOs to brandishing iPhones, watching Rishi Kapoor movies to flocking at Ranbir Kapoor films, dreaming of Olympic medals to finally winning a Gold, economy nearly collapse in 1991 to become the next big growth story and hundreds of other ways through which our lives have changed. We have started flying regularly, became part of  the IT boom, had huge amounts of FDI pour into India along with multitude of brands we had only seen previously in SRK-Johar movies, witnessed the fall and rise of Amitabh Bachchan. We as a nation have exploded in population, changed our tastes and preferences, grown as a soft power and scaled new heights and throughout this whole time, the one constant was seeing Sachin at number 4 in the test line-up for the Indian Cricket team.

If today BCCI is the richest sports body in the world, it has to thank Sachin. If today we are graced with cricketers like Dhoni and Kohli, we have to thank Sachin for inspiring them. If we could afford to under-appreciate the genius of Laxman and Dravid, we have to thank the sheer brilliance of this genius. If UP ka Bhaiyyas like yours truly not afraid to live in Mumbai, its because Sachin told Thackerays that he belongs to India and so does Mumbai. In fact, the only reason we can claim cricket to be our religion, its because we had Sachin to be god.

Throughout these indelible changes Sachin remained the same. Genius at cricket, aggressive in competition, dedicated to his sport and excellent in conduct, he is the ultimate role-model for the emerging India who is not afraid of punch its weight at the world. Before Sachin arrived on stage and played on after a bloody nose from Waqar Younis, thwacking bowlers all over the park, Indians were a bunch of whinies scoring 36 runs not out after opening in a 60 over match. It would be no exaggeration to say that Sachin's performances against the best, be his century at Perth or his twin century at Sharjah, Sachin taught us that we are no way inferior to the world and to this, we owe him a debt we can never repay.

I might be going on a hyperbole here but I truly believe that these past 24 years can only be defined as the Age of Sachin. When historians talk about history, they speak of the age of Ashok, the age of Akbar et al. Let them speak of the Age of Sachin. Mythology is often described as the time of Rama, time of Achilles and the time of Krishna. Let this time be extolled by bards as the time of Sachin.

It is no surprise that a bunch of my favorite memories are associated with Sachin. My first cricket matches were those twin centuries in Sharjah through the dust storm. The one time I bunked coaching classes was to see Sachin score a century against Australia. My first college festival started to the chants of Sachin when he scored 175 in a losing cause. My first day long hangout on a beach shack was graced by Sachin scoring 200 runs in Gwaliar. Of course this list cannot include the innumerable days when I would escape from this sometimes deadful world and appreciate the sheer beauty of Sachin's trademark straight drives.

Harsha Bhogle perhaps put it best when he said, Sachin, you were a great habit. Like with all addictive habits, when one is forced to stop, one suffers withdrawal symptoms. Even with Dhoni, Kohli and the next generation of cricketers to alleviate the pain, I shudder to think what India will have to go through after Sachin retires on November 18th.

The Greatest Hero Of Them All

Disclaimer: The following post is based on personal experience and likes/dislikes. So expect it to be heavily biased and if I ignore many protagonists worthy of recognition and did not mention them, it might be merely because I have not encountered them. Read the whole piece with a pinch, nay, buckets full of salt.

A huge fan of fiction, I have encountered numerous protagonists in my literary learning. Most of them qualify to be great heroes on their own right. That got me thinking, which would be the greatest hero of them all?

The old bard Shakespeare in his play 'The Twelfth Night' wrote, "Some people are born great; Some achieve greatness; And some people have greatness thrust upon them." I cannot agree more to this definition of greatness. Using it as the barometer to define greatness I mentally scanned through my list of favorite heroes and finally decided on my personal top 3 viz- Batman, Aragorn and Harry Potter.

Karna, Sherlock Holmes, General Maximus Decimus Meridius, Rama, Hector were some names I thought of, but decided to go with the fore-mentioned three.

On Achieving Greatness: Batman achieves greatness by overcoming his fear of darkness and being the savior of Gotham City. He constantly battles numerous types of different criminals preying on his fears, but he regularly defeats them, inspite of his vow not to kill anyone.

Aragorn leads the free folk of Middle Earth to freedom from the evil clutches of Sauron and becomes the first king of the re-united kingdom of Arnor of the north and Gondor of the south after over 2000 years. Even though he is a mortal, he is even considered worthy of marrying an Elf, an Elven Princess for that matter.

Harry Potter destroys The Dark Lord and establishes peace in the magical society. He does this while facing his inner demons and huge backlash from the very people he intended to save from the evil lord. he is even bestowed with Godric Griffindor's sword for god's sake!! 

In short: All of the three have achieved greatness. That is why they are your heroes, figures you would look up to for inspiration.

On Being Born Great: Now if we talk of Batman, was he born great? He was surely born into a rich family, a family which dominated Gotham and sought it's well being. But was born great? I doubt that. As a terrified kid he forced his parents to leave the theatre and witness them getting mugged and shit while he did nothing. Well, it would be unreasonable to expect more from him, but the fore-mentioned actions don't warrant of a man born great.

Aragorn is the only direct descendant of the Numenor, the last great men of the west having half elven blood. A prophecy destines him to be great. Taught by Elrond the great elf of Rivendell himself, he was indeed born great.

Harry Potter was born a direct descendant of Godric Griffindor (founder of the house Griffindor which personifies heroism), born to great magicians James and Lily and with Sirius as godfather there is no doubt that he was born great. (J.K. Rowling intentionally plays down this aspect). Also, the prophecy by prof. Trelawney made sure he was indeed born great.

In short: Harry Potter and Aragorn were born great.

On Greatness Thrust Upon Then: Batman 'merely' achieves greatness. He does not undergo any experience where one could say he has greatness thrusted upon him.

Aragorn also does not have greatness thrusted on him. Had he been the one to carry the burden of the one ring and go on the quest to destroy it in the cracks on Mt. Doom, he would have qualified for the critieria, but that role passes to Frodo.

Unlike the above two, Harry Potter has greatness thrusted upon him the moment Voldemort unintentionally makes him a horocrux and dies when he intended to kill him. That moment made Harry Potter the 1 year old kid, savior of the wizarding community. His special connection with Voldemort ensured that even though he may not be born great, or achieve greatness, he will have greatness forever thrusted upon him for that single act by Voldemort. The prophecy of Trelawney could have been applied to either Neville or Harry, but on choosing Harry to be the chosen one, the one to destroy him, he directly thrusts greatness on Harry.

In short: Harry Potter is the only one of the three heroes in question to have greatness thrusted upon him.

That is why Harry Potter was, is and will be my favorite hero of all time.

PS: Another hero I would love to add is Karna. Son of Surya Deva himself, he was born great. He achieves greatness when in spite of being self-taught, he turns out to as skilled as Arjuna. Greatness is thrusted upon him by a cruel twist of fate when on being abandoned by his mother Kunti, he joins forces with the opposition camp of his brothers and chooses to be loyal to the Kauravs in spite of knowing the truth about his lineage.

Gandhiji, we respect you.

MK Gandhi played an instrumental role in helping India gain independence. He led the nationwide protests against Britain and employed the ideology of 'Satyagraha' and was revered to such an extent that he was named 'Mahatma'. How exactly did Gandhi develop his concept of 'Satyagraha'?

A barrister by profession, Gandhi was sent by the Diwan of Porbandar to complete some legal proceedings in South Africa. On his way to the destination, he took a train, only to be thrown out at Pietermaritzburg. Behind schedule, as last resort, he climbed onto the Wagons transporting the British public and hung on the back railing, since non-whites were not allowed to sit in the wagons. The British were peeved seeing brown hanging from their wagon and tried to poke and hurt him in an attempt to make him fall. Inspite of all the pressure and the numerous taunts, Gandhi stuck to the railing and didn't fall down.

Soon, the British got tired of the 'game' and let Gandhi travel. Hanging by the wagon on one hand, Gandhi had an epiphany. He realized that if one is convinced about his stand and sticks to it, no matter what may come, he will succeed. He also realized that it is easier to stand your ground if you are fighting for the truth. In short, if you know in your heart that you are true, you can stand your ground, protest in a non-violent method and achieve your goals.

Gandhi experimented with this theory in South Africa and achieved great success. He used his fine-tuned version of 'Satyagraha' in India to help one-sixth of the humanity gain independence and make its voice heard.

Gandhiji, we respect you.

Corruption & Butterfly Effect

Touted to root out all corruption from the current political system, LokPal Bill has finally been tabled in the parliament. One must laud the efforts of Anna Hazare and his team who fought for the bill and took the fight against corruption to the corrupt politicians.

LokPal Bill proposes numerous Lokayuktas which identify various corruption cases and aim to pronounce verdict within 2 years. These Lokayuktas will be independent of any body just like the Election Commission (EC). However, one wonders how many cases can these Lokayuktas handle each year, and will they be enough, given the extent of corruption right from the level of peon to the PMO. Also, one cant be sure of impartiality on part of the Lokayuktas. Another question which arises is,"Who will watch the watchdogs?".

Warren Buffet states that greed is essential human behavior. Government makes laws and rules to preempt acts of greed. People bend rules and supersede law out of pure greed. Law does slow down greediness, but doesn't eradicate it. LokPal Bill will only slow down the process of corruption, it wont eradicate it.

This is where the Butterfly Effect comes in the picture. This effect states that a flap of a butterfly has far-reaching effects. For example, in 1980's and 90's, crime rate in US was rapidly rising. Infact America was predicted to implode by 2010. None of that happened. Crime rate has dramatically declined since late 1990's. How did this happen? The law enforcements did not work. The answer lies in the Abortion Bill. Most of the delinquents and thugs comprised illegitimate or unwanted offsprings. Ever since abortion was legalized,such babies have drastically reduced, and crime rate followed suit.

The million dollar question is, what is the 'butterfly' for our corrupt system? This question has been answered by India's Chief Economic Advisor, Kaushik Basu. He asserts that bribing should be legalized. Currently under the Indian Penal Code, both the briber and the bribe receiver are treated as accomplices of crime. If Basu's suggestion is implemented, the briber no longer is termed criminal, however accepting bribe remains crime. If bribing is legalized, the people who bribe to 'grease the process' would be willing to testify against the corrupt. However, bribing to get illegal work done would still remain a crime under this suggestion.

I personally believe Basu's approach is the path Indian Government should adopted. It is not flashy like LokPal, and may not be understood by the masses, Infact it will not show instant results, but will surely lead to terminal decline of corruption. Illegal betting, prostitution, drugs all have same solutions, legalize them and bring them in the arbit of law.

If I could sell my soul...

Jimmy Page, arguably the greatest guitarist ever, had exceptional guitar skills and was a pioneer of many musical and recording techniques. Not only was he technically proficient, he could pour emotions into his riffs, lending that X-Factor. His legend grew in stature to such an extent that rumor spread that Page had sold his soul to the Devil in exchange for musical talent.

I got one chance to sell my soul to the Devil, I would gladly grab it with both hands, without any qualms. But before actually 'selling', I would split my soul into various horocruxes. (I guess when you can sell your soul, you could also split it), and trade my horocruxes for special wishes.

I would ideally split my soul 3 times, leaving horocruxes with half, quarter and one-eighths of my soul. Here's what I would how I would trade them:-

1. Half of my soul to be a connoisseur of literature, music, food and art.

2. Quarter to become the perfect pianist.

3. One-eights to gain courage, courage to ask out the girl I like.

4. The remaining soul i.e. one-eights of original remaining in my body would be elated to pursue a successful career as food connoisseur, play the piano for fun and enjoy all this with the girl I love.

PS: The post may present me as a disturbed person, but then again, this is just extreme form of imagination. PLEASE, do not judge me from this post, I am NOT demented.

Price, Cost and Value

Price, cost and value are related terms and are often used interchangeably by people. Technically, these terms have slight but significant difference in their meanings and application. All these terms are related to products and at which rate people buy and sell.

Most often, people confuse between price and cost. Cost and price of a particular unit is different. Price is the rate at which the store is selling its products. For example, a pencil may be priced at Rs.10 . Cost is the expense the store had to incur for that product (in our case a pencil). It includes the rate at which the store bought it, plus the operating and miscellaneous costs per product. A store operates only when its price is greater than cost. The moment cost increase beyond price, for every unit sold, the store incurs a loss, and its better if the store shuts down. The situation where cost equals to price is termed as Shut Down Point.

Value is the rate pegged by the buyer on a product. For example, a retailer sells a pencil at Rs. 10. However you may peg a rate of Rs.15 on that product. That means that the buyer will be willing to buy that pencil, even if its price rises. Only when the price rises above Rs.15 will the buyer rethink buying the pencil.

Paintings, diamonds, memorabilia and other products are often sold in auctions. Auctions use the concept of value. People bid on the products at the value they peg. The person who values the item most would have bid the highest and wins the auction. However, value of concept is a crude method to explain auctions. More often than not the people who value the item most do not have sufficient money to place a bid, that is by default they value their money more than the item being auctioned.

PS: I recently wrote cost and price as two separate concepts while writing an answer in my Technical Report Writing course. The teachers correcting my answer sheet deducted marks, because according to her price and cost are the same. Even after arguing she refused to accept the truth. This post is a retort to that.

Blogosphere

I have been surfing the net in the past few days searching for some good blogs, which not only augments knowledge but also helps develop keen understanding of our world.

Some of the blogs which particularly impressed me were :-

1. http://blogs.hbr.org/

My all-time favorite. Love the authors. Love the issues. Best way to kill time.

2. http://laylasclassicrock.blogspot.com/

A fansite by a true classic rock fan. The links mentioned are awesome.

3. http://theoatmeal.com/

Whenever I need a laugh, the site is one click away.

4. http://www.caughtoffside.com/

For all the football news.

5. http://climateprogress.org/

Our future is determined by the climate and this site keeps me updated.

6. http://www.freakonomics.com/blog/

All those intriguing economic riddles are solved here.

7. http://economix.blogs.nytimes.com/

To be in touch with the latest in economic trends.

8. http://delong.typepad.com/

To gain a deep academic knowledge in economics.

9. http://zenhabits.net/

All those reasons to live.

10. http://www.mymarijuanagarden.com/blog/

An essential pothead blog.

11. http://www.wellpitched.com/

This blog based on Pakistan cricket gives an idea about the mysterious hot-cold nature of their cricket.

12. http://blogs.hindustantimes.com/

I have been following this blog since 3 years and its a delight to read the deep insightful posts. Vir Sanghvi, Sanjoy Narayan and Pramit Pal Chaudhari stand out.

13. http://blog.investopedia.com/

Essential for any Stock Exchange enthusiast.

14. http://www.rakeshjhunjhunwala.in/

He is not the real Stock Exchange guru, but the posts are satirical and damn funny.

15. http://news.cnet.com/tech-blogs/

To be in touch with tech.

16. http://stumblingandmumbling.typepad.com/

For all the freakish theories, which might actually be true.

17. http://sethgodin.typepad.com/

Seth Godin is _/\_.

18. http://commoditytrader.com/

Keep in touch with the latest developments in commodity prices and the forces determining them.

There are tons of more awesome blogs. These are some which I have been devouring in the last few days. Hope you enjoy them.

India and UNSC

India has been trying to gain worldwide support in a bid for a permanent seat in the UNSC. It cites the recent economic boom, growing international influence, being world's largest democracy and a widespread diaspora as the key reasons why India should get a seat. UK, US, France and Russia have all agreed to India's demand at different levels. Only China remains a roadblock towards our journey to play a decisive role in International Affairs.

The important question is, are we ready to play a decisive role? Ministry for External Affairs (MEA) may say yes, but their actions speak otherwise. India is currently a temporary member of the UNSC, believed to be an audition for a permanent role. Far from being impressive, India has failed miserably in the audition. It has failed to seize initiatives and play a critical role. In fact, India has shied away from key issues fearing to rub certain sections the wrong way.

Recently there was a resolution passed in UNSC regarding the Libyan crisis. India abstained from voting, fearing backlash from certain sectors. A nation, shaping into a major power cannot afford to be so gutless. It needs to step up, make a strong stand and make its opinion heard.

Under the UPA, Indian leadership led by the puppetry skills of the Gandhi family has regularly failed to take strong stances, may it be diplomacy, corruption or even Pakistan. Inviting Geelani to Mohali for the match was probably the biggest political blunder beating other blunders like Sheik-e-Sharm, Headley case etc.

India's case weakens if you look at the whole picture. Indian borders are regularly infiltrated. It is afflicted with insurgency in large parts. It is at continuous odds with its neighbors, infact the whole subcontinent is a ticking nuclear time-bomb. Societal, Regional and Communal issues still exist. India in no circumstance represents a nation capable for handling the post of permanent member of UNSC.

To justify its inclusion in the UNSC permanently, India first needs to set its own house in order and enhance credentials. Then it needs to develop a strong foreign policy, stick to it and play hard ball. India, in no circumstance can afford to be the elephant in the room.

Beatles Hamburg Years

Everybody loves Beatles. Their simple love songs helped them achieve immense success and became a cultural phenomenon. Whats the secret behind their immense success?

Well, the key to their success is simple, hardwork. Im sure your elders must have told you to work hard innumerable times. We never really believed right? Now there is a reason to find truth in that statement.

Well, there is a theory which states that when you practice for more than 10,000 hours the same thing again and again, you achieve excellence in it. Beatles managed to jam together for more than 10,000 hours before they really set the music charts on fire. Before they hit big, managed to land gigs in Hamburg and performed live an estimated 1,200 times. Doing some number-crunching, they managed to notch up 9,600 hours of gig time in Hamburg itself. (Assuming eight hours of jamming per day). They surely must have managed 400 hours of additional jam time. It was the period they spent in Hamburg refining their skills that Beatles became great. Not only did they gain stamina, understood their instruments and fellow band members, they became well-versed with various genres and most importantly, learned discipline.

With the above example Im trying to put forth two points. Firstly, sheer hardwork can make you great. But then again, are we willing to take that much pain? Smartwork is always a more attractive option. I cannot practice one thing for 10,000 hours for sure.

Secondly and more importantly Beatles were not born great. They achieved greatness through sheer hardwork and loads of luck and coincidences. Their discography is primarily bubblegum. It was sheer hardwork which enabled them to intersperse their discography with a few great songs. Most importantly, if Beatles had not gone to Hamburg, we would have never heard Hey Jude.

Japan Crisis

First a devastating earthquake, then a killer tsunami, and from what I hear a volcano is erupting in Japan. Rumors of a possible nuclear disaster are circulating. Murphy's Law at its very best. Japan has been dealt great injustice. Japanese are perhaps the most warm and kind people of all and certainly did not deserve this sad fate.

This tragedy reminds me of one single event that shook the very foundations of humanity. The nuclear bombing of Hiroshima and Nagasaki in 1945. Japan was crippled by the twin blow causing severe damage, not just physical but psychological too. However there was a silver lining.

With single minded determination and exceptional tenacity, Japan recorded extraordinary growth to become the second largest economy of the world by 1978, overtaking Soviet Union. This rise from ashes, phoenix-esque act is termed as the Japanese post-war economic miracle.

However the golden days soon got over. Even though Japanese are the most sincere and hardworking people, Japan faced numerous problems like contracting economy, extended deflation, ageing population and political instability. China overtook it to become the second largest economy of the world. Japanese exports were taking a hit in the new economic order where it could not compete with cheap substitutes. Japan as a nation was past its peak, it was declining.

The recent tragedy may have two outcomes. The more likely being that the catastrophe will kill off any hopes of a Japanese resurgence. The other possibility is that this tragedy may spur Japan to prove us all wrong. A time to be a phoenix, rising from the ashes, stronger than ever.

Every dark cloud has a silver lining. Perhaps the recent events will cue towards a second economic miracle, a miracle the world desperately needs.

Top Ten Playlist

If I was asked to name my Top10 playlist, the following would be it. Its a tough choice, 10 being too small a number to include most of the songs I love. The following list comprises of songs which I have loved listening over the years.

1. Forever Young -> Bob Dylan

Written with lyrics which border on poetry, this simple love song truly touches ones heart. No wonder Dylan won a Pulitzer for his exceptional songwriting.

2. Achilles Last Stand -> Led Zeppelin

This 10 minute proto-metal classic is perhaps the most underrated song of Led Zeppelin.

3. Man in the Mirror -> Michael Jackson

"Im starting with the Man in the Mirror, Im asking him to change his ways". These epic lines inspiring the world to make a change a make this world a better place to live for us and our future generations. With messages like these, MJ is my personal hero.

4. I Have Nothing -> Whitney Houston

I loved the movie The Bodyguard and its soundtrack. Whitney Houston has an deep enriching voice and the ease with which she hits the high notes is amazing.

5. Wonderful Tonight -> Eric Clapton

This classic love song by Clapton was the first song I learnt on guitar. The live performance at Wembley is Epic.

6. What Can I Do? -> The Corrs

Corrs are more known for their violin themes, but this song touches your heart with simple melody and lyrics.

7. Still Got the Blues -> Gary Moore

Blues is my favourite genre and this song epitomizes Blues. The extended version with a wonderful solo at the end is a treat to listen.

8. Hey Jude -> The Beatles

Everyone loves Beatles. Though Im not a huge fan of Beatles, this song was one of the first I ever heard in my childhood and has lifted my spirits whenever I was feeling down.

9. Hotel California -> The Eagles

This classic with the incredible solo and the mysterious lyrics is simply fantastic. Check out the live version in Hell Freezes Over.

10. Dogs ->Pink Floyd

Animals is perhaps the greatest album by Pink Floyd. This 17 minute epic is a treat to hear. Only when I read Animal Farm and 1984 by George Orwell did I grasp the true significance of the lyrics. Pink Floyd were perhaps the best songwriters of the 20th century.

Behavioral Economics

Economics was developed in the late 18^th century as a scientific subject seeking to fill our gaps in our understanding of human behaviour. It deals with production and consumption of products to satisfy human wants. Economics seeks to explain how humans behave by quantifying utility and satisfaction. The father of economics Adam Smith in his path-breaking book “Wealth of Nations” in 1776 put forth two assumptions on which whole of our present-day economic research is based. Firstly, he argued that people seek economic incentives and these incentives keep the market running smoothly. Secondly, he also pitched that a human being would ideally take all decisions rationally and empirically, where he would not ignore opportunity costs, i.e. the benefit he could have gained by opting for some other choice. Today, we realize that these assumptions are false.

Let me start with a thought experiment. The college decides to give a grant to you and your friend. Now, the college has left the prerogative with your friend to split the money in any ratio he/she decides. The grant gives you an option. If you approve of the split, your friend and you will get money according to the decided ratio. However, if you reject the split, no one gets the grant. This grant is a one-off chance. Obviously, your friend has an upper hand in the whole ‘game’ and may offer you as lopsided ratios as 80:20 or maybe even 90:10, against your favour. If the first assumption of Adam Smith is applied, you would be happy with whatever economic gain you get from the grant afterall, “something is better than nothing”. However in practice, I doubt you would agree for such a blasphemous offer. This is where economics fails.

Another thought experiment. Suppose you have Rs. 200 in your wallet and a ticket to theatre which also costs Rs. 200. Now in scenario 1, you lost your money worth Rs.200. You would definitely be unhappy but still go to the theatre. Scenario 2, you lost your ticket for the theatre and need to spend Rs. 200 to buy a new one. Experiments have proven that people are less willing to buy the ticket and attend theatre in the second scenario, than the first case. Why is this so? The opportunity cost that is money lost is same, i.e. the money lost by the person is same in both the scenarios. Economics has no answer for this?

Economist blame humans for all these ‘errors’, claiming they are not rational enough. Perhaps we are not rational and Economics needs to take this fact into account. Infact very few of the acts involve rational thinking. If man though rationally, I can guarantee that Apple would not have sold a single iPhone or iPad.

The basic questions still haunt us. We are nowhere near understanding human response to economic incentives. There are enormous gaps in our understanding of human behaviour towards materialistic assets. Unless we cannot answer these questions, we cannot understand how humans live and hope to gain an insight into the very working of our human psyche.

There is some development on this front. Behavioral Economics is a new branch seeking to grasp an understanding of humans behave when subjected to economic incentive in different circumstances. It is an exceedingly exciting field, where the prerequisites are orthodox economics, psychology and loads of common sense. This is one field where I would love to research on.

Inclusive Growth Story

A few days back, I was chatting with my friend, when the term 'Inclusive Growth' cropped up. Championed by the ruling UPA government and it is the central theme for the Eleventh Five Year Plan for 2007-2012. Growth is inclusive when all demographic segments benefit equally from the economic growth of the nation. It aims to reduce material inequality amongst the citizens. The idea is quite alluring and promises votes from the poor, no wonder UPA supports it.

I strongly disagree with the government thinking. I believe, Inclusive Growth is the new age Communism. Glossy on paper and highly impractical, it is populist scheme to secure votes of the poor majority. This approach infact, is detrimental to the economic progress of the country. In attempting to distribute the benefits of growth to each and everyone, the policymakers fail to provide incentives for performance. The bright end up pulling the weight of the laggards rather than fuel a booming economy.

A person might be poor due to two reasons. Either he may not have access to opportunities to grow, or he may not have the will power to avail opportunities within his grasp. More often than not its the second case. Eg, in Dharavi, the slum-dwellers were provided with flats hoping to eliminate the slum. What did the slum-dwellers do? Rent out the flats and continued staying at Dharavi.

The government should stop trying to distribute income equally, rather it should provide equal opportunities to all, from basic amenities to education. Those who are willing to break their back, will fully utilize them and will get appropriate rewards. The country needs to stop doling out money to people just because they are poor. A significant shift in thinking is required. People have to stop depending on government. Quotas, reservations, and free food/money schemes need to be stopped. People should seek to forge their own path, being independent, having free access to all resources. For this paradigm to occur the UPA should stop feeding fish to the poor. It should rather teach them fishing, feeding them for life.

One might argue that the backward caste/tribes have been ostracized for ages and are now stuck in a rut, deprived of all opportunities. Quotas will help them emerge from that rut. Well, how many students who enter IIT through quota are really poor? They more often than not sons or daughters (mostly sons) of rich parents having access to all amenities, just happen to be classed as backward. The people who are truly needy rarely get access to these opportunities.

However, this approach is not bereft of challenges. Its not easy to provide opportunities to everyone, specially in a 1.3 billion population. Time is also a constraint. The government needs to be quick and decisive, generating opportunities for all. Talent and hardwork should determine access to opportunity. Its not easy to generate opportunities for 1.3 billion. Maybe, its time for India to shed some baggage, after all only the talented and fittest survive.

US and the Egypt-Libyan crisis

The recent international news broadcasts have been dominated by reports about unrest in Egypt and Libya, where the common people are fed-up with the autocratic rulers and are demanding change. The existing rulers have been universally condemned in the strongest terms possible, with possible economic sanctions to be imposed by the UN, However, it is the reaction of the US which is most interesting.

While the Egypt crisis was unfolding, US refused to be drawn towards the issue. Only when the protests became serious, it sought the following stance of, "An orderly transition, which must be meaningful, peaceful and must begin now". Only when a revolution was imminent, US began to actively involve itself in the crisis. US may want the voices of the people of Egypt to be heard, but its greater worry was the Suez Canal. This canal, the bloodline of US economy, is essential for US to survive. Many of its imports, specially crude oil require access to Suez Canal. Us also needs unrestricted access to canal in case of a military emergency. US was exceedingly worried that the rebels may take over the Suez Canal, and shut it down. That would have spelled doom for US. With no oil and have of the imports stuck in the Red Sea, US was a goner. It was vital that the transition of power in Egypt be peaceful, so that Uncle Sam does not feel the economic pinches of import shortages.

One crisis averted, other crops up. Libya is one issue, which might potentially hasten US's tumble from the top of the economic charts. Libya is a key crude oil producer and any unrest in the country would harm the country's oil production. As supply falls, prices are bound to rise. If the prices of oil stay inflated for a significant duration, it could possibly derail US's progress back to economic health. Still reeling from Recession, high prices pushed by spiked oil rates would reduce the purchasing power of the economy and discourage investments, which the country desperately needs to turn the corner.

It is exceedingly crucial for US to control this situation, minimize damage and restore faith in the oil market to keep inflation low. Should Uncle Sam fail in this task, he might as well give up his tag of "Economic SuperGiant".

Transcending Boundaries

Yesterday night, travelling from Doha to Goa, waiting for my boarding call, that I decided to kill some time at the Qatar Duty Free Shop, that a very interesting incident happened. The previous night, Chelsea won a crucial hard-fought match against Manchester United and in that euphoria, I was wearing the blue Chelsea jersey. While randomly browsing through the store, a tall dark salesman comes up to me and exclaims, " Did you see Lampard Penalty?". My initial reaction was of shock and amazement, wondering what the hell just happened. But I overcame my shock and ended up chatting with him for over 10 minutes about the Chelsea-ManU match. The guy, a Chelsea Fan, was from Kenya. Football, in this incident was the key in bringing two totally different people together.

It reminded me of another incident. Last year, my grandfather was seriously ill with some heart issues. We had admitted him in Escorts, in a ward shared by an Algerian patient. At that time, the FIFA World Cup was going on in which Algeria was participating. We saw the Algeria-England match with our neighbours, and the match proved to be a wonderful way to bond with someone new, specially someone with whom under normal circumstances would have never talked with.

These incidents have led me to believe that given how popular football across the globe, it is one single entity which can transcend all boundaries and united the world as one. However, there is just one Divide. Gender. Football has failed to capture the imagination of women.

One wonders how easy life for man could be if football breaches this 'final frontier'. All dates would head to the Football Stadia. Men would no longer have to fight with their girlfriends for remote. Football hooliganism might even be considered as essential to masculinity. Just imagine how easy it be to pick-up girls. To start a conversation, talk about football. If conversation becomes awkward, start talking about football again. Also, women would stop spending on high-priced fashion. They would rather buy Jerseys and merchandise related to the club/country they support. If this frontier is indeed conquered, the most important consequence will be that it will make women mind and inner workings comprehensible. Man will finally understand what a girl wants.

Awaiting for this future, where there are no frontiers. Eagerly.

PS: There is certainly hope. From what I learnt, a number of girls saw the Chelsea-ManU match at my college. This is certainly bodes well for the future, atleast for my college.

My Reading Wishlist

These are some titles of books i wish to read in the near future. I have not got the time to read them, being pre-occupied in other activities.

1. Hammer of the Gods: The Led Zeppelin Saga -> Stephen Davis

Any Led Zeppelin fan would love to know about their beloved rock idol a bit better.

2. Atlas Shrugged -> Ayn Rand

After reading 'The Fountainhead", I was in complete awe of Ayn Rand, perhaps the most influential thinker of past century. Reading more of her works would help me understand her ideology of "Objectivism" better.

3. The Legend of Sigurd and Gudrun -> J.R.R. Tolkein

Latest in the Middle-Earth legendarium, its a poem composed by J.R.R. Tolkein himself. A must for any LotR (Lord of the Rings) fan, like me.

4. The Toyota Way -> Jeffery K Liker

For anybody looking to join management in the future, this book is an essential.

5. The Buffetology -> Mary Graham & David Clark

I am in complete awe of this 'Oracle of Omaha' and would love gain some insight in his philosophily which guided him to unprecedented success.

6. Untitled Fourth book in Inheritance Cycle -> Christopher Paolini

A huge fan of Christopher Paolini and his works, I have been waiting for his book to publish since ages, and it doesn't look it will be published for the near future.

7. One Hundred Years in Solitude -> Gabriel Garcia Marqueez

Labeled as once in a lifetime novel, this fable narrates the magical happenings in the fictional town of Macondo somewhere in South America.

8. Vampire Chronicles -> Anne Rice

Its not the crap Vampire romance novel. A classic fantasy, i have been intending to read this exceptional series of books since ages.

9. Millennium Series -> Steig Larsson

Whenever I travel abroad, I see this book in some foreigners hand. Made into a film, this series is perhaps the most intriguing trilogy of recent times.

Black Swan

NO. This post is not about the Oscar Winning movie. Infact this post has nothing to do with show-business. Rather, this blog is about philosophy and economic thought.

For millenia, from swans had always been observed in white. these countless sightings convinced the thinkers in the traditional world that swans can be found only in white. There was not even a seed of doubt that swans could be of any other color. Come year 1790. Swans in black color were found on the coast of Australia. It was a shock to the traditional world, as the preceding circumstances gave no hint that swans could be black. This incident has far reaching consequences, if one uses it as a metaphor to understand present day events.

Another example. Suppose, hypothetically, you have a dog in your house. Say an Alsatian. You feed him everyday 2 pm without fail. You have been following this routine for the past 6 weeks. During these last 6 weeks, the Alsatian starts taking the daily food for granted. the longer you continue this routine, the stronger his conviction grows in his belief.

One day, due to some urgent work, suppose you have to leave house at 1 pm and fail to provide food for the Alsatian at the normal eating time of 2 pm. Alsatian's life goes for a toss. A belief reinforced by over six weeks of empirical evidence is proven false. It does not know what and why this happened to him.

Infact, a theory cannot be proved right sufficiently even with thousands of emperical evidences. However, it takes just one counter-evidence to prove it wrong. In short, '99% true is false'.

Another example. Suppose, hypothetically, today is September 9, 2001. There has never been an attack over US skies. Infact, imagining such a dire consequence would have been considered folly. There is no preceding evidence that an air-strike can occur in Manhattan, and there is no preceding evidence that a US plane can be hijacked. There are no indicators to predict a calamity like 9/11 might happen, let alone as early as day after tomorrow. Still, it happened.

In his book, "The Black Swan", Nassim Nicholas Taleb argues that we humans cannot understand most of the stuff which is happening around us. Our indicators may predict the periods of lull, but are rendered useless during dramatic events he terms as 'Black Swans'. These dramatic events define our lives, and these cannot be predicted. We should stop trying to "Normalize" everthing and try to fit in new emperical data with existing laws and norms.

Taleb believes that its very easy to comment on hindsight, but tougher to predict the future. This is because humans by instinct find it easy to fit in data with existing patterns and satisfies our expectations, rather than think out of the box and accept signs that predict the unlikely to happen. Journal records maintained just before the World War I, give no hint whatsoever that a war was impeding. Even contemporary political commentators predicted a period of peace. Sadly, their opinion was proved false. However, present day historians find it very easy to prove that the war was apparent. This very observation that its easy to comment on past happenings, but near impossible to predict 'black swans' which may occur randomly, proves Taleb's theory.

The author in his book also discusses where the application of black swan theory. He claims, the world can be divided into 'Mediocristan' and 'Extremistan'. 'Black swans' are significantly more likely in occur in extremistan than mediocristan. Now how to we differentiate them. lets see an example. Suppose in a hypothetic queue of 100 people, we are taking the mean of height and their wealth. If we introduce the tallest man on earth, there would not be an observable change in mean height. However, if we introduce Bill Gates to the queue, we will see an significant change in mean income. It is conditions where individuals do not impact the mean, that they are termed as Mediocristan. Where individual observations can change the whole circumstances, those areas are termed as Extremistan.

Wall Street, Books, Music etc, all these come under the umbrella 'Extremistan' and are subject to "Black Swans". Many of the books which become popular, music which becomes phenomenon are subject to randomness, luck and coincidence rather than merit. Wall Street simply cannot be predicted and its better to take advantage of the inherent randomness.

The author shouts a rallying cry, asking people to ignore the 'experts' and stop trying to predict future(at which we suck). Just like science accepted Heisenburg principle some 80 years ago, we need to accept uncertainty as an inherent part of our life and take advantage of it.

Question is how to take advantage of this randomness. Well, during the recent recession, Wall Street collapsed and thousands of millions of dollars were wiped out in months. It was in this circumstance, Nassim Nicholas Taleb made a fortune. Yes, u read right, a fortune. He followed his principle of 'black swan', believing that wall street had to crash, a crash no one could predict. Betting against the market again and again over a long duration, initially he lost money, but when the crash happened, he raked in a fortune, that too a massive one. If one follows the principles of 'black swan' and take advantage of randomness, one can not only be rich, but understand human life in a much deeper manner. In a nutshell, we should give more credit to luck.

The most overrated Band to walk on Earth.

In my school days, one band considered cool universally was Nirvana. Students swore by their songs and believed the three-piece to be the greatest of the lot. Their favourite song was "Smells like a Teen Spirit" and used to quote Kurt Cobain's last words,"Its better to burn out than fade way". Intrigued by my peers, I set about listening to their discography and honestly, found them ordinary if not pathetic. I am still trying to understood how Nirvana is "Great".

Listening to their music convinced me they are the most "over-rated band to walk on earth". Analyzing the band on the following parameters (which i mentioned earlier in my Led Zeppelin post), I will justify my stand on Nirvana.

Talent. Nirvana was a three-piece who played simple guitar strums and basses accompanied by simple drum beats. Kurt Cobain could not even play the basic chords properly when playing live. Dave Grohl the drummer, didn't know how to tune his drums. Krist Novoselic used to often completely drop out of performances. A band, who didn't have enough skills to perform live, worthy of being respected?

2. Originality. Nirvana's sound was certainly not original or extraordinary. People say "They popularized Grunge". The keyword is 'Popularized'. They did not play any role in shaping the genre. Nor did they leave their mark on it. Everything Nirvana did, it had being done by others, and arguably better. If you don't believe me, check out Pearl Jam, Rasputina, Residents. How Nirvana became a cultural phenomenon, its more about luck and coincidence than originality. (To learn more about how crucial role luck plays in being successful, read "Outliers" by Malcolm Gladwell or "Black Swan" by Nassim Nicholas Taleb)

3.Creativity. All of Nirvanas's songs were based on simple chord progressions and the lyrics more often than not did not make sense. Wailing voice, basic basslines and simple drumming reinforce the fact that Nirvana didn't care to understand their instruments, leave alone experiment with them.

4.Passion. Did the band care to atleast try to improve? No. Infact, Kurt Cobain used words like "bored" and "faking it" when describing his live performances. When a band is not interested in performing for their fans, can they termed passionate?? A Resounding NO!

5.Standing the test of time. Nirvana will always be heard by people in their teens as an outlet for teenage angst and when they grow up, they outgrow Nirvana. This teenage segment will consider Nirvana "great" and keep up the hype. Additionally, it is the stupid tabloids and magazines like 'Rolling Stone' who praise, worship and revere such Bands and keep their "legacy" alive. Interestingly, such magazines start worshiping bands, only after they have developed a substantial following ( This fact deserves an blog entry).

6. Changing the face of music. Where is grunge today? Its absent. How many bands follow the footsteps of Nirvana? None. Did they change the music industry? Certainly not. Nirvana's work had little or no production values. One can actually hear numerous mistakes in their recordings. Today, production values have increased tremendously. Nirvana made wailing your sorrows and being a cry-babe in fashion. Infact the best thing that could have happened to music was the death of Cobain.

People debate whether Nirvana was truly a phenomenon or was a passing fad which attained cult-status due to the "untimely death of Kurt Cobain". Well, the question was answered by the man himself. He knew he was going to 'fade away', and decided to 'burn out'.

Associate Cricket

These are dark days for cricket, specially for the Associate Nations. With the ICC deciding to cull all Associate members other than Zimbabwe from the next World Cup scheduled for 2015 and reduce the number of participating nations to 10, the Associate Nations have lost the one big stage they had to perform and learn. The fact that the Associates in general are proving themselves to be push-overs in the current ICC World Cup 2011 vindicates ICC's stand.

However, this development in the long spells doom for Cricket. The sport cannot rely on solely the Sub-Continent to finance the game and a few top playing nations to keep it competitive. The looming threat of IPL and T20 cricket make the very existence of ODI cricket uncertain. In this grave circumstances, the ICC and the influential BCCI have a huge responsibility to make cricket a sustainable sport in the long run by promoting Cricket beyond the traditional borders.

It is in this extreme scenario, IPL, known as the Great Indian Tamasha can play a critical role in popularizing Cricket in the Associate Nations. IPL would love to expand its fan-base beyond the existing countries to generate more revenue and accomplish its dream to rival EPL. For this, IPL needs to take drastic steps.

The best way to earn fans is to provide opportunity for their local boys to play. Obliging the IPL teams to maintain atleast 3 players from Associate Nations in their roster, would provide atleast 30 players from all parts of the world an opportunity to train on world-class equipment with the best in the business. Also, keeping a quota of minimum one associate player required to turn out for an IPL match would pique the curiosity of the Associate Nations who would be interested to see their sportsmen perform on such a big stage. This act would also increase awareness about the potential Associate Cricket has. Also, the quality players emerging from Associate Nations would increase the competitiveness of the playing standards of IPL.

The above mentioned steps would boost the image of cricket beyond the traditional cricketing nations. This, in the long run will bring Cash Inflows to Associates, they desperately need to develop world-class infrastructure. With significant improvements in infrastructure as well as increased exposure to top-level cricket, we can surely hope the Associate Nations to raise their bar and improve playing standards and make Cricket a more competitive and a sustainable sport. For example, Usain Bolt, worlds fastest man was inclined to join cricket, but the poor infrastructure in place was a big reason why he joined Athletics and cricket lost a potential superstar.

And what does the IPL gain from this? Increased competitiveness, larger fan-base achieved by these measure are a prerequisite to rival top leagues like La Liga and EPL.

This is just a humble opinion, but I sincerely believe my stand holds merit and hope someone acts on it.