# The Pirate Game

The Pirate Game is an extension of the Ultimatum Game. While the Ultimatum Game involves 2 players and a few gold coins, the Pirate Game involves 5 pirates and 100 gold coins making offers to one another. Describing the problem and explaining the solution will take up too many words, but unless you understand the problem and the solution, the rest of this post will not make sense, so I must ask you to read the Wikipedia article before proceeding to the next paragraph. The Wikipedia article has the solution as well, but try to figure it out yourself first. It’s more fun that way. Most importantly, understand the assumptions (The wiki entry calls them “factors”) involved, because that’s the focus of this post.
We are now in the second paragraph of this post and I will assume that you have heeded the warning in the previous para. So, without further ado, here is the assumption I want to relax: “the pirates do not trust each other, and will neither make nor honor any promises between pirates.”
To understand why this assumption is important, let’s revisit the solution at the  point where we are down to three pirates, C, D and E. The canonical solution says that C cannot offer any deal to D that leaves C alive, because D knows that he can get 100 coins plus a dead C, which is a better deal for him than 100 coins and a live C. And C knows that if he dies, E is going to get nothing under D’s regime, so C can get away with offering one coin to E.
But… this solution seems unsatisfactory. D and E are left with nil and one coin respectively. If D could credibly promise to offer more than 0 to E, they could conspire to refuse C’s offer and divide the 100 coins between themselves. The exact proportion could be anything as long as E got more than one. Of course, as soon as C gets wind of the deal, he will try to save his neck by offering a better deal to either D or E. He may also try to offer a deal to both D and E to ensure that neither initiates a conspiracy with the other.
In the strict version of the game, these deals are precluded by the rule that the pirates do not trust the other pirates to keep any promises they make. The relaxation of this rule turns the problem into one with an indeterminate solution. If the lack-of-trust assumption is in place, the three player pirate game results in a definite solution, with C getting 99 coins, D getting none and E getting one. Relax the assumption, and while we cannot definitively solve the problem, we can safely say that D and E will get a better deal than they would get under the strict version. Now, note that if you’re down to two players, there is no difference between the strict version and the one with the assumption relaxed, as there is no longer anyone to make deals with. E will be badly off in the two player version, i.e. he is in a better position when he has an intermediary to play off against the one who has custody of the gold coins than he is in when he has to negotiate directly.
In other words, the three player game is a pretty good model of reality, where E is the proletariat, C is the bourgeoisie government and D is the communist movement wanting to overthrow C. It explains why the threat of a revolution worked to the benefit of the proles in some cases, while in others the threat was managed by buying off the revolutionaries. It also explains why an actual revolution invariably ends up as a bad deal for the masses.
But if we know that achieving a revolution to overthrow C is bad for E, it’s a safe bet that C also knows this, so why would the prospect of D and E colluding ever be a credible threat to C? To show credibility, E may need to demonstrate a willingness to irrationally go against his interest. If C is afraid that E and D will kill him even if it’s against E’s interests, it’s cold comfort for him to know that E will be worse off as  a result. One way for C to have this fear is if another E in another game has overthrown his C. The C in our game will be afraid that something similar may happen in his own game. We may note that something very similar happened in Western democracies vis-a-vis communism. Another way is to set up the game so that the overthrow of C doesn’t turn it into a two-player game. For example, if D turns into C and vice versa, the next iteration is also a three player game. This is of course what happens in a multi-party democracy.
I am sure we can find many other real life situations where the three-player Pirate Game is a good model. What about the four-player game? I haven’t thought through it in detail, but here is one situation where it may be a useful model:
• E: people
• C: state government
• D: opposition party in state government
• B: central government
I’ll let others do the analysis required, but I have ab strong hunch that as you add more pirates to the game, the possibility that E gets a good deal reduces significantly

# Thoughts on the GST

Much reporting on the GST is about how tax rates have changed after the rollout. You may have read that a good or service was taxed at, say15% earlier, but will be at 18% now. I suspect that these reports are comparing on the basis of sales tax and VAT in the case of goods and service tax in the case of services. Such reporting displays a lack of understanding of the fact that GST replaces many other taxes, as also of the value added nature of the tax.

Suppose that you run a shop. You have been buying a widget that incurred excise at 10%. The cost to the manufacturer, ex tax, was Rs50. With tax, you bought it for 55 rupees. Your value addition and profit came to Rs45; with a 15% sales tax on Rs 100, the widget retailed for Rs115. The tax incidence on the widget was 20/95, or 21%.

Now, the GST at 18% has been introduced, replacing all other taxes. In a perfect world that adjusts to the GST immediately, you would receive an invoice for the widget from your supplier showing a price of Rs50 and the GST of Rs9 as separate line items. This GST would not figure in your pricing decisions because you would claim it as input tax credit. Your value addition and profit would still be 45 rupees, so your widget would be priced at Rs95 pre-tax. With a GST of 18%, your widget would be priced at Rs112.1. In other words, in our perfect world, it is perfectly possible that replacing sales tax of 15% with a GST of 18% results in a reduction in price.

The real world differs from the perfect world in several crucial ways.

First, the widget in question is imaginary and I have made up the tax rates. I have only a dim understanding of what taxes used to apply at what stage, and I have no idea what the tax rates were on different products. The government has claimed that the tax rates were aimed at achieving revenue neutrality. If they are right and if they have done a perfect job of being revenue neutral on every product and service, retail prices should not change at all. Of course, it is unrealistic to expect that kind of perfection. It will take significant analysis to figure out how good or bad a job they have done on this count, and whether they have erred on the side of higher or lower revenues. But the point to note is that revenue neutrality can only be achieved if the GST is higher than or equal to the current sales or service tax.

Second, the example assumes that the shop will instantly respond to a fall in input prices with a reduction in price. In reality, it’s just as likely to keep its listed price the same and slap the 18% on top of it, and try to pocket the profits as long as market forces let it.

Third, even if the shop does want to adjust prices in response to the GST, it is unlikely to have full visibility into prices along the entire supply chain. The example of the widget was a deliberately simplified one. The more realistic scenario is a complex supply chain with multiple stages involved in the conversion of raw materials to finished goods. Each participant in the supply chain faced a certain set of taxes earlier and is faced with GST and input tax credits now. Getting all the costs worked out and the prices renegotiated is going to take time.

Fourth, one of the avowed aims of the GST rollout is increased tax compliance. While that is a good thing, if it succeeds in achieving this goal, it means that taxes that weren’t being paid earlier are now being paid. If that happens, it means an increase in prices.

In other words, any claim you read about how the GST is going to increase or reduce prices should be taken with a pinch of salt. Unless there is evidence that those who are making the claim have done rigorous studies taking into consideration the above factors, they are probably just pulling numbers out of their ass.

A partial exception to this principle of scepticism can probably be made for services. Unlike goods, there is no supply chain to deal with, so it’s more likely that replacing a 15% service tax with GST at 18% results in a straightforward increase in price. Of course, a hairdresser’s shop does deal with raw material like shampoos and hair dyes, while for a financial services firm, the tax credit on office stationery and on ISP payments will probably not compensate for the higher GST rate.

The point of all this is that calculating the impact of the GST on prices even in the short to medium run is difficult. In the long run, the GST is supposed to bring about a whole bunch of structural changes in the economy, like speedier transport of goods, economies of scale in warehousing, more rational decision-making on the question of where to locate factories, etc. All of these should contribute to economic growth and should also have a positive impact on inflation. Calculating that impact is a different story.

# In Defence of the GDP

The GDP as a measure has well-known limitations – in fact, I learnt about these limitations in the same chapter of the introductory Economics textbook that taught me how the GDP is calculated. The most glaring among these limitations is that voluntary and unpaid labour is not taken into account in its calculations. This tends to devalue women’s work. A woman cooking for her family in her own kitchen does not add to the GDP, but if the family hires a cook, the payment to the cook does. Likewise, as Alan Greenspan pointed out, a natural breeze does not show up in the GDP, but air conditioning does. Other things being equal, a society naturally endowed with pleasant weather is better off than one that has to keep the A.C. on all the time, no matter what the GDP says.

There are other criticisms that I am sympathetic to from the moral point of view. Purchase of cigarettes adds to the GDP, but a cigarette reduces the well-being of a smoker. The GDP has no way of knowing that. As far as it is concerned, a rupee spent on a cigarette or a prostitute’s services is as good as a rupee spent on buying healthy snacks for the children. This shortcoming has led some to argue that we must junk the GDP as a measure. Apparently, one of them is Lorenzo Fioramonti, who has written The World After GDP. I haven’t read the book, but I learnt of it by reading this broadly unsympathetic review in the FT (The FT article is subscription-only, so you should probably not bother clicking that link, and you should continue to read this blog post)

Now, as a non-smoker who abhors cigarette smoke, I am willing to lend a sympathetic ear to any method of GDP calculation that would lead to us not counting cigarette purchases while measuring the GDP. But is it really fair to say that the GDP is a top-down measure which takes society in the direction that it would not prefer to if it didn’t have GDP growth as a target? The argument that it is is not convincing.

First off, the GDP isn’t top down. It is a bottom up measure. In a market economy, a nation’s GDP is what it is because of the individual purchasing decisions of individual citizens. In fact, it is precisely because it is a bottom up measure that it ends up measuring things that some of us find abhorrent.

My friend is a smoker who smokes two cigarettes a day. Were you to ask him if his smoking makes him happy, his answer would be an empathetic no.  He claims to have cut down his smoking from his earlier quota of three a day and periodically claims that he is planning to quit altogether, but rather dubiously explains that quitting all at once is not recommended. He used to carry two cigarettes with him to work every day, but he’s stopped that. Now he walks down to the cigarette shack to buy his fix. The shack is 500 metres away from the office block, and his hope is that the prospect of doing the 1km trek twice a day will, at some point,  discourage him from going. It hasn’t so far. He takes his two breaks right after lunch and at around 4pm each day.

Peak temperatures these days in Hyderabad hit 42 degrees Celsius; I get dehydrated just looking out of the window. My friend pays for the cigarettes, not only in money, but also in sweat, quite literally. He is also quite willing to spend an hour of his time each day. Only the money he spends shows up in the GDP. Going by what he spends on it, the value added by those cigarettes to the national economy is actually much more.

Wait a minute! Didn’t we start from the premise that my friend’s smoking should be excluded from the GDP,  because when you ask him, he says that he does not like smoking and wants to quit? The problem is, if I tell the GDP: “Exclude my friend’s smoking when you get calculated. He says he doesn’t actually like smoking”, GDP will answer: “Look, first of all, it is very common for people to say one thing and do the other. That is why economists have a term called ‘Revealed Preference’. Words are cheap. People can say what they want, but the best way to find out if they get value from something is to check if they are willing to give away something they worked hard for, for it.

“Second of all, it’s not just a question of your friend. There are millions of smokers in this world, and it would be impractical to hand out a questionnaire with every cigarette that asks the smoker ‘Are you smoking this cigarette because you get utility out of it or are you just hopelessly addicted and trying to quit?’ And if you want me exclude smoking from my calculation because of a few people’s opinion that smoking does not add value to the smoker, well, that is not what I’d call a bottom-up way to measure me.”

OK, so the argument that the GDP is a top-down measure is unconvincing. What about the argument that the GDP as a top-down target leads us in the wrong direction? Well, that is even less convincing. When you get to work each morning, do you do it because you want to do your patriotic duty to your country by increasing its GDP or do you do it to earn money to buy the things you and your family want?  Or perhaps you are highly competitive and you enjoy the sense of achievement, you like winning the rat race, or you just enjoy having a lot of money. People have different motivations for doing things that contribute to the GDP, but “I want to increase the nation’s GDP” is rarely one of them.

The same goes for companies and businesses. They often do boast of how much they contribute to the nation’s economy, but surely primary motivation of those who run businesses is the growth of their business’s bottomline. This motivation would be unaffected if the government’s statisticians stopped reporting the GDP.

Does the GDP as a target take government policies in the wrong direction? Politicians want to get reelected, and the policies they pursue are the ones that will help them with that goal. While they may think of the GDP or the economy as a useful shorthand for the things that voters want, they must surely be aware that what the voters want is not the GDP in the abstract, but tangible things like jobs, roads, education for their children. These things tend to be correlated with the GDP, but voters will not stop wanting the tangible things they want just because the government stops reporting the GDP. In fact we know that governments do implement policies like protectionism even when they reduce the GDP. They do it because they care more for tangible things like saving jobs than the GDP in the abstract.

Given all this, I am just not convinced that giving up on, or even modifying the calculation of the GDP is worth the bother. If you are concerned about the untrammeled pursuit of material wealth, the problem is human nature. We aren’t doing it because the GDP tells us to, and we won’t stop if the GDP tells us to stop.

Arya Stark has had one of the strangest story arcs in Game of Thrones. She spends most of Season 6 getting beaten up, ostensibly in an attempt to become “No One”, but at the last moment, she declares that she is in fact Arya Stark of Winterfell. This has left many fans nonplussed. What was the point of the whole storyline? Why did she go through all that only to run away from her goal?

To those confused souls, this post shall offer enlightenment by explaining Arya’s actions through the prism of two great Indic philosophies, Advaita and Dvaita. It should be clear that the many-faced God is the Paramatma, or the Supreme Soul, who, in Advaitic terms, is the ultimate reality. A follower of the many-faced God aspires to be a faceless “No One”, who considers himself an instrument of the Supreme Soul.

You can see why this would be an attractive philosophy for someone like Arya. She has suffered a lot as Arya, and letting go of her identity probably seemed to be a liberating prospect. But of course, it is not just a question of peace of mind. She was also training as an assassin. Letting go of your self-doubt and considering yourself as an instrument of a being who is directing you for a higher purpose has a positive impact on your personal effectivenes – certainly if your calling is to be an assassin, but almost as certainly in any other profession.

In the event, it turns out that Arya doesn’t succeed in achieving No Oneness. It is possible that it wasn’t her intention in the first place. She hid away Needle when she was expected to give away her personal possessions. This could be an indication of insincerity, or it could be a confession of weakness. We will never know.

Instead, she affirms that she is Arya Stark rather than No One. Was all her training wasted then? Of course not. She has gone on the path of Dvaita, which posits that the human soul exists independent of the Supreme Soul. The girl has not achieved namelessness. The instead, achieved the ability to play the part of Arya Stark. She can still be a highly effective assassin because Arya Stark, the human soul, has achieved the same detachment from the bonds of Maya that one expects from the Supreme Soul.

# It could get worse after Trump

I believe that Donald Trump is not an aberration, but that he is the continuation of the same tend that gave us Barack Obama, Bernie Sanders, the Tea Party movement, the Occupy movements, Brexit, and a whole bunch of other people or movements.

It is a well-established now that the communication and coordination tools associated with the Internet – social media, email, blogs and independent media etc. have made activism, self-organizing and building political movements easier. When it is cheaper to make something, there will be a greater supply of that thing, it should not be a surprise that we see so many of these movements.

When we see a lot of passion and fervour among followers of a movement, we tend to believe that there must be an underlying fundamental reason behind that passion and fervour. I think that this belief is a mistake. Any organized movement where followers spend most of their time with one another, feeding on each other’s grievances and sense of injustice can generate in its followers the same self-righteousness, an inability to see other points of view and an unwillingness to compromise.

The American political system is more vulnerable to these internet-enabled movements because it is unusually bottom-up. Party leaderships have very little control over politicians’ careers, which are instead made or unmade by popular voting, either in the general elections or at the primaries.

American politics over-promises, but under-delivers change. Obama is a much better and saner man than Trump, but the fact is that the rise of both to power was fueled by movements whose followers fervently believed, against all evidence, that the American system was broken so badly that a complete overhaul (in Obama’s case) or complete destruction (in Trump’s case) is worth risking in order to make it better[1]I am not questioning the idea that some changes are necessary. I am flabbergasted that the richest nation in the world is risking annihilation to solve the problem of some people being richer than … Continue reading.

Trump’s contribution to worsening the trend is norm breakdown. Norms are what cause people to stop saying ?? ???? ????? ??????   and start saying ???? ??? ???? ????? [2]For some reason the Hindi font isn’t showing up. The first phrase is “Hum Paanch Hamaare Pachchees” and the second is “Sabka Saath Sabka Vikas”. Trump has gotten away with saying and doing outrageous things, and this means that he has also reduced, for future presidential candidates, the cost of saying and doing outrageous things. Again, when cost reduces, supply increases, and the US’s supply of crazy leaders with outrageous policies will increase.

I’ve made the argument that US version of the two-party system with two big-tent political parties and open primaries gives them everything, good and bad, that a multi-party democracy would. But the system has an important structural constraint, which is that ultimately two candidates face off against each other. This used to mean that craziness got airtime during the primaries, but moderation won out in the general elections. With so many movements that can’t stand one another, the structural constraint that pushes candidates towards moderation will prove inadequate.

And what stops the US from turning into a de jure multi-party democracy? Just the fact that it’s a stable equilibrium. The Republican Party won’t split as long as the Democrats stay united, and vice versa. But this equilibrium won’t hold if there is a three-way split where the third party is formed by slicing off chunks from both parties. Or a four-way split where the two parties split simultaneously.

The multi-party system could be a phase. But even a phase lasts multiple election cycles. During this phase, the US will have presidents who are electoral accidents, disliked by most of the voters. India has gone through this phase – it lasted over 30 years for us. The defining feature of the age will be presidents that prefer radical policies, but lack the legitimacy and political capital to implement them.

Americans are worried about Fascism under Trump, and yes, Trump has the instincts of a Fascist. But the democratic institutions of the US are strong enough to prevent Fascism from taking hold; that is not what they need to worry about.

India’s experience should prove instructive in this regard. We complain that the Supreme Court has taken over so much of policy-making. This process started with judgments like the basic structure doctrine and Maneka Gandhi vs. Union of India[3]I wrote much of this post before Trump had his first run-in with the judiciary with his Executive Order on immigration, and events are already proving me right. There is a parallel here with Maneka … Continue reading that were responses to the authoritarianism of the India. It gathered pace and became a full-blown problem during a period of weak governments of dubious legitimacy. We recently had this controversy over the propriety of a decision to bypass seniority when appointing the Chief of Army Staff. Principles like these stem from the idea that the government cannot be trusted with any discretion at all, lest it be misused. They were solidified at a time of weak minority governments that lacked legitimacy.

The US is likely to be in for such a stint at a time when it can least afford it. Checks and balances are great at preventing bad things from happening. They aren’t very good at ensuring that the right things happen. The best way to understand this is to imagine that the government is your employee, and the institutions imposing checks and balances are his manager.

If the manager consistently finds that she and her subordinate don’t see eye to eye, or if she finds that the subordinate is too incompetent and won’t follow broad directions, the only solution is for them to part ways. But what if, for some reason, she is stuck with the subordinate? She may try to make the best of a bad situation by micromanaging, by giving increasingly detailed instructions and by having too-frequent reviews. As any manager who has tried them should know, these don’t work.

There is no easy or good way out of this situation. Yes, Trump needs to be impeached. But impeach him too soon and it will seem like a coup – a legitimately elected president, still reasonably popular with his base, taken out by the establishment. Leave it too late and his actions are normalized – if you didn’t impeach a president for clear evidence of ties with a foreign country, what will you impeach him for? The longer you wait, the more damage the institutions of the US will suffer, if you impeach too early, you are left with President Pence, a weak president with little legitimacy. Of course, impeaching Trump does nothing about the structural issues that made him possible.

The only way out of this is if the USA somehow finds a moderate, unifying, likeable and decisive person as president. It may yet happen, but if it happens, it will be a stroke of good luck rather than the system correcting itself.

Notes

 ↑ 1 I am not questioning the idea that some changes are necessary. I am flabbergasted that the richest nation in the world is risking annihilation to solve the problem of some people being richer than others ↑ 2 For some reason the Hindi font isn’t showing up. The first phrase is “Hum Paanch Hamaare Pachchees” and the second is “Sabka Saath Sabka Vikas” ↑ 3 I wrote much of this post before Trump had his first run-in with the judiciary with his Executive Order on immigration, and events are already proving me right. There is a parallel here with Maneka Gandhi vs. Union of India. In that case, Maneka Gandhi was denied a passport by the Janata Party government for clearly political reasons. The case reached the Supreme Court, and the Court ruled in Gandhi’s favour. In doing so, it expanded the definition of the right to life to such an extent that it could then be used for almost any intrusion by the courts into the realm of policy-making on the grounds that they were securing the right to life and livelihood. Earlier the job of the courts was to prevent bad things from happening (i.e. preventing the government from taking away your life without due process). Now, it is to ensure that the “right” things happen (making sure that the government does things that guarantee your life and livelihood). The dispute in the courts over Trump’s immigration order runs a similar risk of the courts getting into policy-making to prevent him from screwing up.

# Sort by Weight

Here is an interesting puzzle that was published in The Guardian on Monday. The challenges is to find which of the four machines will sort objects into increasing order of weight. The way the machines work is that the four objects start at the  top and fall through the slides. When they meet at one of those scales at a junction, the lighter object is sent to the left.

The problem is not very difficult to solve. It was originally set for German middle-schoolers. It can certainly be solved using trial and error. I want to explain how solved it in order to make a point about how human intuition works.

I first saw the problem in the morning on my phone. I was busy with getting my son ready for school and so couldn’t spend time staring at the four machines trying to figure out the pathways. This constraint proved to be key to solving the problem quickly. Because I was unable to look at the machines and also was unable to let go of the problem, I decided to think of how I would design a machine if I were doing it de novo.

The thought occurred to me that I could model this as a tournament between four players. I could have a semi-final, followed by a final and a third place playoff. Would that work? Close, but not quite.

You have four players A, B, C and D. A defeats B and C defeats D in the semis. A and C meet in the final while B and D in the third place playoff. Say that A defeats C while B defeats D. We can be sure that A is at the first place while D is at the last, but we aren’t sure of the relative standing of B vs. C. So you’d need a second place playoff between the loser of the final and the winner of the third place playoff (which means that the third place playoff only decides the fourth place, not third place). This arrangement will get all the players arranged in order of weight.

Armed with this knowledge, I sneaked back to my phone and looked at the four machines once again. Aha! Machine #4 implements the exact design I had thought up, so it must be a right answer.

Great, but can we be sure that the other three are incorrectly designed? I took another look, and sure enough, another pattern jumped out. Machine #2 is really the tournament without the second place playoff,  and we know that it has a weakness, so it’s out.

Now, look at Machine #3. It looks very messy, but it is possible to disentangle the wires a bit. You see that there is a playoff between #1 and #4, but other than that it is really Machine #2! It is a tournament with a semifinal, a final and a third place playoff, with an added twist that before the semifinals, two random players have had a playoff and the lighter of the two goes to the left. Does this do anything to do away with Machine #2’s weakness? Not really.

That leaves Machine #1. I couldn’t compare or contrast this one with the other three. Figuring this one out turned out to be a matter of staring at it a bit. It occurred to me that in that machine, the heavier of #3 and#4 would always end up in the third or fourth position. Likewise, the lighter of #1 and #2 would always take the first or second position. That couldn’t be right, and it wasn’t.

So there, the problem is solved. No need for any trial and error. Of course, this approach wouldn’t have occurred to me if I hadn’t had to step away from the problem. And no, it doesn’t mean that stepping away from the problem is the way to obtain insight. It just means that human intuition is weird.

# Third Parties in the United States

The two-party system is well-entrenched in the United States, and the blame usually falls on the First Past the Post (FPP) system.

It is true that FPP discourages third parties. Suppose that you have an election in one constituency, and three candidates A, B and C are competing to be first past the post. Now suppose that A and B are likely to finish at first and second place respectively. If you are a supporter of candidate C while B is your second choice, voting for C will in fact help A. Once you realize this, you, as a voter will shift your vote to B. When enough voters do the same, C will realize that he or she has no chance, and drop out of the race. Over a long enough period, the lesson will be learnt, and the constituency will be left with only two parties.

Does this explain why the US has only two parties? Not really. What is true for one constituency does not necessarily hold when scaled up. You could have only two viable parties in a constituency, but they don’t have to be the same two parties across the nation.

In a parliamentary democracy, for example, third parties have an incentive to exist, because they can punch above their weight in coalition governments. It is claimed that the presidential system in the US favours a two party system because it makes the whole country a single constituency. But that does not make sense. The US also had a fairly strong Congress that takes its law-making duties seriously. Why aren’t there multiple parties representing differing interests in the Congress?

Also, the US is geographically large, moderately diverse and a strongly federal country. Why aren’t there regional parties as we have in India? “Presidential Elections” is not a good answer. The parties could easily line up behind two major candidates at election time. The continued persistence of the two party system in the US requires an explanation.

I believe the explanation is that political parties in the US are unlike parties anywhere else in the world. They are big-tent parties. They are much more bottom-up than parties elsewhere. Their leaderships, such as they are, have very little leeway to steer their parties in their preferred direction.

Third parties form when a faction or an ideological grouping feels too constricted within the confines of an existing party. Because the two major parties are big tents, that is but a dim possibility in the USA. In other countries, if you disagree with the party leadership, you often have no option but to split and form another party. In the US, the party leadership has very little control over your career. Your career is decided by your performance at the primaries.

In India, regional parties are a way to handle the diversity of the country. They also provide popular local leaders the freedom of manoeuvre they wouldn’t have if they were part of a larger national party. But in the US, all politicians are free agents anyway. There is no need for a local politician to form a regional party to be independent of the national leadership.

Given this, how would a third party improve the politics of the USA? Aspiring third parties like the Libertarian Party and the Green Party complain that the two mainstream parties do not give space to minority viewpoints. Really? What stops someone from forming a libertarian wing of the Republican Party or a green wing of the Democratic Party? If those ideas have enough appeal to win elections, they should have enough supporters who would be willing to register as members of those parties and vote for libertarians or greens in primaries.

Actually I suspect that the third parties’ real complaint is that if they tried to work within the two major parties, they would have to compromise on their core principles. That is a valid complaint. The politicians and policies that emerge from within the two major parties are the result of compromises forged among the major wings of those parties.

But how would it be any different if, instead of a two party system, you had multiple parties, each with a core set of principles of its own? Those parties would still have to join together in a coalition to come to power, and in a coalition, they would have to compromise on some of their principles. We have seen the weird results that coalitions throw up in India.

I could be wrong here, but third parties in the US seem to show up exclusively for the presidential election. They put up candidates, they complain a lot about how there is no space for alternative voices and then they disappear for 4 years. This seems to me to be no way to build an alternative. If they really need to build a party, there’s a lot of organizational work that would be needed. I would expect them to focus on winning lower level elections first and then work their way upwards. They are either not doing this, which means that they are not serious; or they are trying to do this and failing, which supports my point that there is really no need for them.

And if for some reason, they think that a presidential candidate that doesn’t fit clearly into one of the two major groups coming out of the blue and getting elected just like that is the right way to change the political system, the recent election of Donald Trump has proven that that too is possible within the two party system. (I mean that the election is possible, not the change.)

Overall, I do not understand the case for a multi-party system in the US. There is nothing that such a system can bring to the table, either good or bad, that the two-party system with American characteristics does not already provide. It is precisely those specifically American characteristics that have stopped third parties from emerging, not the generic stuff like the FPP system or the presidential form of government.

# Shyam Narayan Chouksey – the Movie

Back in 2002, Mr Chouksey was watching Kabhi Khushi Kabhi Gham at a theatre. The movie has a couple of scenes involving the protagonist’s son learning to sing and then singing the National Anthem. Mr Chouksey, a simple, but patriotic man, knew what one must do when one hears the Anthem. He stood up to pay his respect. Unfortunately, his actions blocked the view of others in the theatre, who, lacking a similar conception of patriotism, remained seated. They objected to his standing up while he objected to their continued sitting. The dispute did not find a resolution then, but it instilled in Mr Chouksey a determination to teach his nation the right way to pay respect to its Anthem.

Mr Chouksey took his campaign against the disrespect to the National Anthem to other movie theatres and then to the High Court of Madhya Pradesh, where a bench comprising of Justices Dipak Misra and A Shrivastava sided with Mr Chouksey, and ordered deletion of the scene containing the National Anthem from Kabhi Khushi Kabhi Gham.

Unfortunately, a year later, Mr Chouksey suffered a setback. In 2004, a bench of the Supreme Court ruled that standing up for the National Anthem is not mandatory, especially if the playing of the National Anthem were to occur during the movie, as part of the story. Expecting moviegoers to stand at attention in the middle of the movie would cause disorder and confusion, rather than add to the dignity of the Anthem, the Court ruled.

Undeterred, Mr Chouksey began a long battle to get the Supreme Court to determine the proper way of paying respect to the National Anthem. Finally, on 30 November 2016, a bench of the Supreme Court comprising of Justices Dipak Misra (now a judge of the Supreme Court) and Amitava Roy ruled for him. The proper way to pay respect to the National Anthem, they found, is to play it at the end of every movie with the doors shut so that moviegoers cannot escape. While the Anthem is being played, the National Flag should be displayed and everyone should stand up to pay respect. It is unlawful to play the Anthem in any setting that involves commercial expropriation or entertainment, and the full version of the Anthem must be played.

Mr Chouksey’s 14-year long struggle has finally borne fruit. Indians now have clear guidelines regarding how to pay appropriate respect to the National Anthem. More of us need to know his inspiring story of struggle against the apathy and scorn of his fellow citizens. A movie needs to be made about his life, and I suggest that Karan Johar should make it, to atone for Kabhi Khushi Kabhi Gham.

Once the biopic is made, Mr Chouksey will move the Supreme Court to pray that Mr Johar be held in contempt, because the movie will have to depict examples of what Mr Chouksey was fighting against – fragments of the National Anthem, people disrespecting and mocking the Anthem, showing of which is illegal under the current Supreme Court regime. Plus, the movie will be a commercial venture and make an attempt, whether successful or otherwise, to entertain the public. By banning a biopic made in his honour, Shyam Narayan Chouksey can perform the greatest service possible for his motherland.

# Capital Cities

10 years back, I wrote a blog post wondering why the capitals of many states of the US are not their largest cities. After writing that post, it occurred to me that the question ought to be reversed. Why should any state situate its headquarters in its largest city?

Usually, cities are capital cities for historical reasons. The historical reason is usually conquest. States were formed when powerful states conquered the less powerful ones. A powerful state was powerful because it ruled a land that was endowed with natural advantages like fertile land and plenty of water that enabled it to grow enough food to sustain an army. These natural advantages are also conducive to the growth of large cities that housed the capitals of these powerful states.

A king who shifted his capital away from the most powerful city in the kingdom would realise pretty soon that his new capital couldn’t support an army strong enough to control the kingdom, and the ambitious governor of the former capital is raising an army to overthrow him and declare himself the king.

Modern states do not face these constraints. They haven’t, since the advent of the telegraph and rail. Advances in transport and communication mean that a) control of the army is not dependent on proximity to it, b) the army doesn’t have to be close to the capital to protect it and c) the capital can be supplied with food and other necessities from far-flung areas.

All of these mean that there is no longer a need for the capital to be in a city that is a hub of commerce and industry. The capital can just be a company town, the “company” in question being the government.

If my reasoning is correct, then it makes complete sense that many states of the US have their capitals in places no one has heard of. These were some of the first political entities formed after the industrial revolution. The industrial revolution made it possible for them to establish capitals in remote locations. Note that it did not make it happen. It just made it possible. You could still choose to site your capital in the largest city, or you could choose not to.

These days, the causality is likely to be reversed. Rather than economic advantage causing a city to win the capital contest, it’s more likely that being the capital gives the city an economic advantage. If a city gets to punch above its economic weight by virtue of being a capital, it is indicative of the lack of economic freedom in that country. But we can broaden the idea and say that the greater the boost a city gets by virtue of being a capital, the poorer the overall quality of governance in that country.

I mean, we can agree that the government provides some public goods that enable economic growth. A libertarian would say that those necessary public goods are rule of law, policing, justice and good roads; a statist may believe that in a more active role for the government. But both of us can agree that if a government’s ability to provide the public goods it needs to provide ends at the borders of the capital, there is something seriously lacking in state capacity.

The best example of this is probably Hyderabad. During the Telangana agitation, I, as an outsider, provided a neutral shoulder at my office for both sides in the conflict to weep on. Both sides in the conflict actually agreed on the facts. While the Telanganaites complained that the Andhraites came to Hyderabad and dominated it, the Andhraites claimed that they were the ones who developed Hyderabad and therefore it was only fair that they were dominant in the city and unfair that they were now being pushed out. I learnt quite quickly that it wasn’t a good idea to argue with either side, but I couldn’t help asking the Andhraites the question: During all the years you controlled the politics of the state, why did you guys think that it was a good idea to develop the capital city hundreds of miles away rather than the cities in your region?

I never got a good answer to that question except a wistful “We made a mistake”

# Black Money and Chaos

The chaos created by demonetization is not because of a failure in implementation. It could not have been avoided by calibrating ATMs on time. It is a function of how much of India’s black money is held in cash.
To understand this, consider a thought experiment. Suppose that there was no cash black money in India, and yet the government, for some vague reason, announced demonetization. Would there have been a similar level of chaos?
Or consider another thought experiment. Suppose that the government announced demonetization, but also announced that the 500 and 1000 rupee notes could be exchanged at the bank without limit, no questions asked. Would a similar panic have spread through the economy?
My answer to both questions is no, and it would stay no even if you told me that in both thought experiments, the government was as unprepared with the task of ATM calibration as in the real world. That is because in both those situations, shops would continue to take the demonetized notes even though it would be illegal to take them.
In the real world, shops are refusing to take those notes, not because it would be against the law (we aren’t a very law-abiding society), but because of the difficulty of converting them to legal tender. This difficulty is because of the existence and quantum of cash black money (thought experiment 1) and the difficulty of laundering it (thought experiment 2).
Because of these two factors, the demonetized notes are trading at a discount. Because of this discount, there is a huge impact on the economy. Remember that the black economy is also a part of the economy, and a hit on the black economy is necessarily an attack on the economy, and the people affected aren’t necessarily, or even primarily the holders of black money.
Another way to say the same thing is to note that the discount on the demonetized notes affects everyone, not just those who hold unaccounted money. It affects daily wage labourers, it affects the supply chain for food, everything.
My initial reaction to demonetization was that it was a mildly positive move, but ultimately more of a PR stunt rather than one that would have a large impact one way or the other. That is because my thinking ran on the lines of ” Who keeps their black money in cash?” I thought was that people mostly maintained only their working capital in cash, and as a great believer in the efficacy of markets, I thought that money laundering channels would quickly take care of the black money that was in cash. The net result would be a PR victory for Modi, a one-time shock to the cash economy and a net cash transfer to the poor, as it would be the poor whose Jan dhan accounts would be used to launder all the black money.
From the chaos that is occurring, it appears that I was wrong about how much black money is stored in cash. Of course, I don’t have a baseline level of how much chaos was expected to compare the current level with. But the point is that if you believed that a lot of black money is stored in cash (as against circulated as working capital and laundered before storage) you should have expected a much higher level of chaos.
A full model of how much chaos to expect from the demonetization would consider:
1. How much black money is in cash
2. Efficiency of the laundering channels that will develop (The more efficient the channel, the quicker the economy will recover)
3. How much of the remonetized cash will be sucked back into storing black money
4. How’s quickly the Banking system can be remonetized with the new notes.
It looks like Modi has a similar mental model of demonetization. The government has flipped and flopped multiple times, but it has been consistent in one thing, which is that it had imposed ever tighter restrictions on changing money over the counter.
This makes no sense if you believe that the folks changing old 500 notes are the unbanked poor, but makes complete sense if you believe that it’s a channel to launder demonetized notes into remonetized ones AND if you believe that those notes will go back to black money storage. The problem though is that anything that hurts black money storage (#3) will also hurt the circulation of black money (#2) and this puts pressure on #4 even more.
I don’t know if this experiment will succeed. As I write this, it is the end of November and the ATMs around me are empty. If people are unable to withdraw money when they get their salaries in the first week of December, I expect hell to break loose.
But what this experiment has taught us is not, as one article put it, how much India runs on cash, but how much of India’s unaccounted money is stored in cash.

# The Decline of the Congress is Irreversible

It is my belief that the Indian National Congress is in a state of long term decline. It has been in that state since at least 1984. I do realize that when one speaks of trends that last 32 years, one runs the risk of making pointless predictions like the one that says that in the long run, we are all dead. In this post, I will explain why it isn’t meaningless in this case, and why my claim is probably true.
In the First Past the Post (FPP) system, the party in the first or second place is weaker than it looks, while the party in the third place is stronger than it looks. That is because the First and second place parties are like Vali in the Ramayana, who had the boon that in hand to hand combat, he would gain half the strength of his opponent. Because the two parties are alternatives to each other, voters who are disappointed with one party will choose the other regardless of whether they like the other party all that much in the first place. Ambitious politicians will tend to choose to join the first and second parties as long as ideology doesn’t matter  to them. A party in the third place may get fewer votes than the number of actual supporters because many of them vote for the first or second place parties so as not to waste their votes.
Another way of putting this is that as long as you are in the first or second place, you have time and the force of inertia on your side. You can exist in a state of structural weakness for many election cycles till something forces you into the third place. The third place is disastrous for a party on its way down, while it is great for a party on its way up. Many voters supported the party on the rise, but didn’t vote for it because they didn’t realize it had a chance. They will now decide to vote for it the next time.
This next time though is 5 years away, and the party has this time to keep up and build further momentum. Or lose it. The party on the rise doesn’t have the force of inertia on its side.
The above discussion partially explains both the longevity of the Congress and its slow decline over so many decades. It is difficult to dislodge someone from the first or second position whatever their structural weaknesses. Also, 32 years seems long, but it isn’t all that long when time is measured in election cycles.
What I have started above is a law that is true of all FPP systems. In India, the additional wrinkle is that it is a federal country where  politics happens at the state level. It is well known that even parliamentary elections in India are determined by state level politics. This fact leads to two contradictory points.
First, the process of decline I have outlined above has to happen state by state. It has to lose its first-or-second party status and get relegated to third party status in sufficient number of states for the Congress to truly go into oblivion.
Secondly, no, not really. The raison d’être of the Congress is that it is a national party. It cannot survive for long as an aggregation of its state units, no matter how structurally strong the state units are.
Is there a role for a national party in a country where all politics happens at the state level? If the answer to this question is no, it’s not just the Congress, but also the BJP that’s in trouble. A strong state leader always has incentive to leave along with his or her state party, as the evidence of the NCP, TMC and YSR Congress can attest.
If the answer is to be yes, the national unit of the party has to bring something to the table, and that something must relate to the electoral fortunes of the state unit. The state party doesn’t need help when it is in a strong first or second place, but it does need nurturing when it is in the third place and rising, or rescuing when it is in the second or third place and failing.
Let me list some ways in which the national unit of a party can justify its existence and how the Congress measures up.
1. National popularity of its leadership
The days when the popularity of national leaders was the only thing that mattered are long gone. These days, a popular leader can make a difference at the margins. The Congress hasn’t had popular national leaders since the days of Indira Gandhi. The BJP has done better – it has had Vajpayee and Modi so far.
2. Ideology
The Congress used to have an ideology; it doesn’t have one anymore. The BJP does. The he party’s ideology gives it an organizational identity and unity that makes it difficult for individual state leaders to stake out on their own. It also sustains the state units during those long periods when they are in the wilderness, either struggling to build it up or struggling to recover from a setback. It is true that this ideology also limits the party’s reach, but there is no denying that it gives the party a certain organizational coherence.
3. Career path and bench strength
The national party can provide a career path for ambitious state level politicians. If it does, that would be one good reason for state leaders to stay with the party. Neither the Congress nor the BJP is great at this. We must remember that Modi’s ascent to the leadership of the BJP was the exception rather than the rule. But the Congress is hopeless on this count. The supreme leadership of the party is reserved for the Family, no popular leader is allowed to join the national leadership and even state level popularity makes the Family uncomfortable.
The bench strength argument is kind of the opposite of the career path one. When the party isn’t doing well in a state, the national party could provide a bench where competent state leaders can be parked while waiting for good times to return, or plan for an assault back on the state. The BJP is reasonably good at this; the Congress is very bad.
4. National organization
When the state unit is in trouble, revolting or needs some kind of help, the national leadership needs the ability to marshal resources to intervene. It needs an organization with reporting lines independent of the state units. To have credibility, these organizations need to be inclusive enough that the state units don’t treat them as outsiders.
As an analogy, consider the Indian Civil Service or the Army. These organizations report directly to the Union Government. It would be disastrous for the army to comprise of units reporting to state governments. It would be equally disastrous if the army recruited only from a particular region of India. For example, if there is some disturbance in Tamil Nadu and the state government is unable to keep the peace, the people of Tamil Nadu may be thankful for the presence of the Indian Army, they may also prefer that in that instance, depending on the nature of the disturbance, the soldiers who come in are not natives of the state, but there nature of the reception will be very different if the Army is, in general, considered to be an outside force that has come in to impose the will of the rulers in Delhi and clueless about local conditions.
The BJP has such a central organization. The Congress hasn’t had that experience since 1969. When the national leadership of the INC intervenes in a state, it’s usually treated as a bunch of out of touch jokers.
5. Law of averages
We’ve seen four reasons why a national party may justify its existence, and none of them applies to the Congress. To explain the continued existence of the party, we must fall back on the argument by inertia, or the simple fact of presence. The Congress is present in a larger number of states than the BJP is. We have already seen the strength that comes from being the first or second party regardless of your organizational strength. The national leadership of the Congress has exploited this very well. It has in fact prevented the state leaderships from getting too strong, because then they will be at risk of leaving. But as long as they are present, they contribute Lok Sabha seats, which is what the National leadership wants.
Take concrete examples. Perhaps Gujarat, Rajasthan, MP, etc. are permanently lost to the Congress in the sense that they will never form state governments there. (I don’t necessarily agree with that assumption, but let’s go with it for argument’s sake.) Does the national leadership care? Why should it? As long as they are the second parties in those states, the difference in terms of Lok Sabha seats is small. Add to this all those other states where the Congress is present but the BJP isn’t, and you soon realize that the INC has a 50seat- advantage over the BJP on average. These 50 seats aren’t enough to get the Congress a majority, but in most elections, they are enough to form a government with the help of other parties most times.
6. Coalition building ability
It is commonly claimed that the BJP’s ideology makes it less able to attract coalition partners than the Congress’. There is little evidence for that. The real reasons are the law of averages and the weakness of the Congress. I explained in point #5 why the law of averages gives the Congress an advantage in the number of seats. Potential coalition partners know this, so they naturally gravitate towards the party that will give them a better shot at power. The Congress then uses the partnership at the Centre to insinuate itself into coalitions at the state level, where, by virtue of being the junior partner of a regional party, it saves itself from the fate of a third party on its way down. Its coalition partners support the Congress because they know that it will never be a threat to them in their states.
I have used the present tense to write about points 5 and 6, but there are indications that the Congress may have lost those two advantages. The advantage of presence is durable, but once it is lost, the Congress doesn’t have the ability to get it back. Coalition building ability is dependent on the Law of averages working in the Congress’ favour, and if coalitions don’t work out, the Congress will be wiped out from states where it is in third place.
Political commentary after 2014 has used the electoral map of India to make the point about the Congress’ impending demise. But a party doesn’t die because it has lost an election, or even because it has lost a lot of elections. The tipping point for the Congress might have been when it lost undivided Andhra. It didn’t just lose elections in the two states, but destroyed itself so thoroughly that it effectively no longer exists there. Undivided Andhra has 42 Lok Sabha seats. As long as the Congress was present, its advantage over the BJP was 21-0. Now it’s gone down to zero.
It may soon go negative. The Shah-Modi team has been on a relentless quest to expand the BJP footprint and knock out the Congress from one state after another. Some of these attacks may succeed while the Congress may be able to fend off some of them, but I think that it is safe to say that there will be no counter attack. The best the Congress can hope for is that they survive these assaults long enough till age catches up with Modi or Shah, or the BJP governments become unpopular, our the party develops internal dissension, giving the Congress respite from these assaults. There will be no revival of the Congress the way the BJP was revived.
The Congress has faced many electoral defeats in recent times. After every defeat, op ed columnists have repeated their calls for the party to revive itself by looking outside the Family for leadership.
These calls lack coherence. Leaders don’t show up just like that. The way to find out if they deserve leadership is to have a contest for leadership. The Congress no longer has the capacity to survive a fight for leadership. If there is a leadership challenge, the party will splinter or split down the middle.
No leader can do a hostile takeover of the party. A friendly takeover is only slightly more conceivable. We can conceive of a situation where the Family continues to hold de jure leadership while quietly letting a more competent leader take over the party. This though would require the Family to go against every instinct they have displayed on the past three decades. I don’t see that happening.
Most importantly, leaders usually don’t have “reviving the party” add their primary mission in life. Their goal is usually something on the lines of “Become Prime Minister of India”. For Modi, reviving the BJP was the path of least resistance to reach his goal. For an ambitious Congress leader who wants to be Prime Minister,  attempting to revive the party is a futile distraction from his goal. It is likely to take less effort to just walk out and form your own party. This fact alone is enough to ensure that there is no chance of the Congress ever getting a revival.

# The Precision of Exams

Back when I was at IIT Bombay, I often heard the refrain that the JEE was much tougher than the SAT, and this fact was offered as evidence of the high standard of the IITs and their students.

I do not want to discuss the standards of IITs here, but I do want to argue against “toughness” of exams as a measure of how good they are. An exam is a measuring instrument. A measuring instrument should be graded against how well it measures what it is expected to measure, and whether it delivers the precision that is required of it. It is obviously a bad idea to use a weighing pan to measure the width of a road, but it is also a bad idea to use vernier callipers for the purpose, or expect the width of a road to be accurate to the tenth of a millimetre.

Exams too should be evaluated against similar criteria. I can think of three types of exams, each type with a distinct purpose for conducting them, and I am sure there are more that I have not thought of. I’ll name them types 1, 2 and 3.

Type 1, exemplified by the JEE or CAT, are exams whose purpose is to select the very best of those who apply, and figure out fine gradations among them. The JEE assigns ranks to around 2% of those who take it. It has to reliably distinguish between the person who obtained the 10th rank and the 100th rank. It achieves this purpose by being an extremely tough exam. But the price it pays for being a difficult exam is that almost everyone below the top 2% scores close to zero, and the exam therefore fails to distinguish someone who performed at the 95th percentile from one who performed at the 85th.

That is where Type 2 exams come in. The SAT and GRE exams are of this type. Our board exams should belong here too, but I’ll have more to say about them later. The objective of these exams is to grade along a curve the entire population that takes them. Type 2 exams cannot be as tough as Type 1 exams are. They must have a mixture of questions of varying levels of difficulty. They can reliably distinguish between the 90th and the 60th percentile, but shouldn’t be used to decipher fine distinctions between the test-takers at percentile 99.2 and 99.5. The margin of error is too large to make such distinctions.

When elite American colleges use the SAT or the GRE in their admission decisions, they do not use the exam score as the only criterion. They use the score as a cut-off and then make the final decision based on other parameters, or use it as one criterion among many. That is the correct thing to do. The scores simply do not provide enough precision to be used on their own.
I often hear about proposals to expand the scope of exams like the JEE to turn them into exams for entrance into more engineering colleges than just the IITs. When you do that, you are imbuing more Type 2-ness to what was formerly a Type 1 exam. That is not a problem if you do it consciously and carefully. You also need to be aware that when you do that, the JEE will be less able to satisfy Type 1 requirements. It will not be possible to make fine-grained distinctions between top people using JEE results. I am concerned that our policymakers are too casual about these things and do not consider these things when making decisions.

Type 3 exams are the easiest of the three. They are like the assessments I have to pass to prove that I have paid attention to the mandatory web based trainings I have to take every year at my workplace. I work for an American bank. As part of a compliance requirement, all employees undergo trainings related to Know-Your-Customer (KYC) and Anti-money Laundering (AML). The tests I have to take at the end are easy. The passing score is 80%. The objective of the tests is to validate that everyone at the bank has the baseline knowledge of the contents of the courses. It is not to select the best among them. Getting 100% of the answers right won’t get you an automatic job offer from the compliance department. The objective isn’t even to grade everyone on a curve. Everyone eventually scores between 80 and 100 percent in the test, and there’s really no material difference between the capabilities of someone who scored 80 and somebody who scored 100.

I hope I’ve made the case for why the toughness of an exam isn’t a good measure of its quality and why we should take into consideration what the exam measures to determine how well it does it. How do our board exams measure up?

Board exams should be Type 2 exams. Their purpose is to grade everyone who takes them on a curve. A student who has achieved what we consider the lowest acceptable level of competence in the subject must get passing marks. The best students should get the highest marks. Between the highest and the passing scores, there should be a wide spread of scores that enable us to reliably distinguish test takers’ performances from one another.

Unfortunately, that is not how things are. Our board exams are too easy. I would estimate that the minimally competent student should easily score 75% in them. The boards set the bar too low because most schools have abysmal standards of education. If our board exams were calibrated to a reasonable level of difficulty, failure rates would be too high, triggering a political backlash. Once in a while, we see reports in newspapers that a particular CBSE exam had too many questions that were “out of syllabus”. I suspect that most of the time, “out of syllabus” just means that it didn’t conform to the pattern that students expected it to follow.

Why do these exams follow “patterns”? Apart from the political reason already referred to, there’s the expense of calibration. There aren’t enough qualified teachers to correct these papers. Preparing a key that will enforce consistency in marking is tougher for tough papers. It is far easier to have a limited set of questions with model answers provided, so that examiners can correct via pattern recognition.

The upshot of all this is that these exams, that should be type 2, are closer to type 3. Anyone with a baseline level of knowledge should score very high, and there is really not much difference between someone who scored 85% and someone who scored 95%.
In the hype that is created around these exam results and the impact that they have on the students’ prospects, they are type 1. Ranks are assigned over tenths of percentage points, and admissions to courses in premier educational institutions are won or lost over them.

So how do you “crack” an exam with predictable questions, and one that is corrected using pattern recognition? You mug up the model answers. You go to coaching classes whose goal is not to supplement the knowledge you’ve gained at school, but to replace what schools are supposed to teach you with a database of questions and answers in your mind.
I’ve seen people defending rote learning as one of the valid forms of gaining knowledge. The point though is that while there may very well be a case for learning some facts or multiplication tables or formulas by rote, learning model questions and answers by rote is not something anyone can reasonably defend.

These exams aren’t the primary cause for what’s wrong with our educational system, but fixing them is the point at which you should start, because if you fix the exams, the incentive to mug up things will reduce, and things will start changing down the line.