Megan McArdle writes about the importance of accounting.  Recently, I  was surprised to learn that knowledge of basic accounting was in fact not as widespread as I thought. Specifically, I had no idea that one could specialize in economics without being taught even the basics of accounting.

I think that double entry bookkeeping is a lot like the decimal system (or, more accurately, the place-value numbering system).  Because everyone uses the decimal method, one would find it difficult to imagine any complex mathematics being done without it. But it is in fact possible – an incredible amount of geometry and algebra was done before the introduction of the decimal method.  The decimal method just made many things a lot easier.  DE bookkeeping is like that.

Countries with more poor people have more people who are poor. Here is the research. (via nanopolitan)

This is an awesome skewering.

There is a large building facing a road. It is by the side of only one road, i.e. it is not at a corner, or between parallel roads. This building has two gates numbered 1 and 2.  You reach Gate no. 1 first when you are driving on the side of the road nearer to the building. (Which means that in India, where we drive on the left, Gate no. 1 will fall to your right when looking out from the building. In a country that drives on the right, Gate no. 1 will fall to your left.)

Now you decide to make one of these gates the entrance and and the other the exit. Which will you choose to be which and why?  I ask this because though intuitively it seems that I’d choose Gate no. 1 as the entrance, it is always the other way round. This means that you have to travel longer to both enter and leave. Any explanation for this arrangement? I have thought of one, but I am not sure of it. Of course, if you are an expert in the field, there is probably a simple explanation, so shoot away.

There is bipartisan support for the view that the 1L car will be a disaster for our roads, traffic, oil bills and our carbon use, and the salvation for India lies in public transport.

I disagree. I think that there is an ideal end-state where most Indians live in reasonably dense cities, commute to work using efficient metros and use their cars only rarely. If that end-state could every be achieved, it would be stable from then on. 

But I don’t think that there is any path to reach that end-state that is economically, politically and socially feasible. Any attempt by a non-Omniscient, non-Omnipotent government to reach that goal will lead us through a lot more misery than we will ever be willing to take.

I will explain this in one or two posts, probably cross-posted at the Indian Economy blog.

Tom Friedman has found a new buzzword.

Mint  has published a post on the Dakshina Kannada model I made on the Indian Economy blog as an article in today’s edition.  I rewrote the post almost completely to make it an article. Did I make it better or worse?

Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed. Money is so noble a medium that is does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot. 

Happy Diwali!

Because the courts have clamped down on the collection agencies’ annoying habit of beating up defaulters, banks have cut down on lending to lower-middle class people.

Long ago, in the pre-internet era, I had read a masterful indictment of Fenimore Cooper’s writing by Mark Twain. It was  titled “Fenimore Cooper’s Literary Offenses”.  I am often reminded of that essay because one of the defects Twain identifies in Cooper is quite a common one:

Cooper’s word-sense was singularly dull. When a person has a poor ear for music he will flat and sharp right along without knowing it. He keeps near the tune, but is not the tune. When a person has a poor ear for words, the result is a literary flatting and sharping; you perceive what he is intending to say, but you also perceive that he does not say it. This is Cooper. He was not a word-musician. His ear was satisfied with the approximate words.

I was once again reminded of it today. I don’t want to pick up a fight, so I will not explain why, but I tracked down the essay; and I find that it is even better than I remember it to be. Here is the link.  

Ritwik responds to  my previous post. He says that my argument rests on two incorrect assumptions. His first point happens to be the same one Chetan made in the comments – i.e. politicians have a much greater incentive to discern the popular will than pollsters, so how can I extrapolate from the pundits’ inability to call election results to the claim that politicians are similarly unable? This is a valid question. I have replied to this point when I replied to Chetan, but I will expand.

His second “assumption” leaves me puzzled. He says that most policies are made by bureaucrats in any case, so the fact that they are not guided by popular will is moot. But I was referring to a “normative” statement. I was referring to the belief that in a democracy, policies should be guided by popular will. I must say that i myself am not an absolute democrat, and no two people will agree on what powers the government should have in the first place, how many of those should be delegated to political decision-making, how many to civil servants and how many should be the province of the constitution, enforced by the judiciary. My point is that to the extent that you envision some role for democratic decision-making, the failure of popular will to get transmitted to the top is a bad thing.

Now let me come back to the first point. Yes, the opinion polls have problems with their sample sizes,  statistical models, etc. But my belief is that those problems reflect real world problems that even politicians face when they make their estimates.

Yes, the sample sizes are too small. But the appropriate sample size is a function of the variance of the population.  In a homogeonous population, you don’t need that large a sample. The real problem is that the voting decisions are too heterogenous, too dependent on local caste configurations and have too little to do with actual policies of the government they are voting for. In such a situation,  the feedback that top level leaders get from the party workers is useless because it cannot be used to make governance decisions.

I had planned to make this post when the elections, which seemed inevitable at that time, were declared.  Unfortunately, it turns out that we will not have the elections after all. But I might as well make it.

Every time an election is held in our country, opinion polls try to predict the result. Virtually every time, they get their call wrong – even the exit polls. This fact will invariably be presented by our pundits with a sense of wonder that is usually reserved for divine miracles.  The people of India, it will be said, have kept their cards close to their chest, and though illiterate and uneducated, have managed to fool all the pollsters to give their verdict.

Once the election concludes, the Popular Will, which could not be discerned by the hundreds of surveyors who went around the country questionnaire in hand, is instantly understood by the pundits even when they are half-way around the world and columnists for the New York Times.  Two weeks before the elections, the best scientific models are unable to answer the simple factual question of which way the results will sway. But a day after the results are known, everyone knows, without any need for evidence, what went on in the minds of the people as they were voting.

That is how the common wisdom that the general elections of 2004 were a popular vote against the reforms came about. That is also how everyone knows that Chandrababu Naidu was voted out because he neglected the villages at the cost of Hyderabad. (Why did he win once then? No one knows.)

If we are honest with ourselves, we will have to admit that no one has a clue about which way the Indian voters vote, and once they have voted, the process of translating the votes to seats makes it pretty much impossible to draw a causal chain between the intention of the voter and the “Popular Will” as expressed via the seat position in the legislature.  

If pollsters and pundits cannot call an election a month in advance, it is very likely that those in the government will be unable to take a guess as to which policies will win them the next election five years away. If democracy means that rulers govern according to the will of the people, then India’s democracy is broken.