One of my favourite quotes from “Yes Minister” goes:
An aggressive question is like fast bowling. Unless it is deadly accurate, one can use its pace against itself.
It is a favourite quote because the Blogosphere reminds me of it quite often. The latest to remind me of it is Ritwik Priya’s “fisking” in two parts [1,2 (via)] of Niranjan Rajadhyaksha’s rather innocuous article in Mint about how schools should allow children to specialize. Ritwik accuses him of, among other things, misusing Ricardo’s theory of comparative advantage.
Now, if you plan to accuse a trained economist of misusing basic economic concepts, your own concepts better be deadly accurate, or they’ll be hit for a four at third man. But this is what Ritwik says:
Ricardo’s theory is one of the most insightful in the entire field of classical and neoclassical microeconomics but it makes certain assumptions, namely
1) There is free trade of goods (explicit)
2) There is no trade of labour or capital, i.e factor inputs (explicit)
3) The demand for the traded products is reasonably similar (implicit, because what is actually being measured is the opportunity cost)Here, the ‘good’ that his daughter will specialise in is a certain level of competence in a field or a subject. It is thus safe to assume that the free trade assumption holds true. However, the second and the third assumptions are not true. The factor inputs in this case are aptitude and capital (the investment into the education to gain these skills) and on the individual level, capital can easily be traded. The situation will hence move towards absolute advantage. The product that her daughter, or anybody for that matter, will get in return for their skills is money. Money has a high demand almost universally. The same is not true for the product traded in return – i.e skills.
Can you count how many things are wrong in this?
First, let’s take point 2, i.e. the “assumption” that there is no trade of labour or capital.
Take two neighbours – Hyderabad and Secunderabad. They have different kinds of labour and capital. Assuming that they cannot trade labour and capital between them (an intentionally absurd assumption) then Hyderabad and Secunderabad will have different products in which they will have a comparative advantage, and they will trade those products between themselves.
But what will happen if labour and capital are completely mobile? Then labour will move where it will get higher salaries. Capital will move where it will get better return on investment. As a result of this movement, salaries and interest rates in both the cities will equalise and neither city will have a comparative advantage over the other. As a result, it no longer makes sense to specialize or trade.
In reality, such a thing never occurs – we will leave the why not as an exercise for the reader and proceed.
What will be the equivalent of Hyderabad and Secunderabad trading labour and capital when you are talking of trade between people? Can I trade my aptitude for mathematics in return for your skills in music? Can I become 60% of a farmer, 25% of an industrial worker, 10% of a technologist and 5% of a politician? What possibly could Ritwik have meant by what he said?
The next point is so strange that I had to read it many times to convince myself that I was not misunderstanding some profound point. Is Ritwik really ignorant of the role of money? If I make a tractor and sell it to a farmer in return for money and I use that money to buy food from the farmer, what is actually being traded is the product of my skill in tractor-making in return for the product of the farmer’s skill in agriculture. Of course, real-world transactions are more complex than this, but trade in goods does not cease to be a trade in goods when money is involved. Ritwik has a good case for a refund from whoever taught him economics.
Ravi,
There’s no case for a refund, because if I’ve made a mistake, the fault is entirely mine. However, just to clarify :-
1) When the assumption of immobility of factor inputs is removed from the theory of comparative advantage, the result is that Portugal should produce both cloth and wine and England should just provide the factor inputs. So, what I am talking about is not the 60% mathematical skill absurdity that you have presented, but rather a situation like this –
you are a briliant economist and a brilliant logician. I am your inferior in both fields. However, you are a better logician than an economist and I am a better economist than a logician. By Ricardian theory, you should have secialized in logic and I should have specialized in economics. However, now that the second assumption is no longer true, it just makes sense for me to specialize in capital, i.e pay you money and for you to work as a logician and economist both. Extending this example to the analogy presented by Mint’s trained economist, in school you should have trained rigorously in both logic and economics and I should have trained rigorously in procuring money. Am I still making a mistake by claiming that the violation of the second assumption weakens the theory?
2) As for the demand for money vis-a-vis the demand for skills, I was talking about opportunity cost, which is what Ricardian theory measures anyway. Rajadhyaksha implied that since you have better skills in logic, you have a comparative advantage in logic while since my economics is better than my logic, economics is my comparatively advantaged field. This is true only if the market demands for logic and economics are reasonably similar. If the market demand is heavily skewed in favour of economics, it makes more sense for you specialize in economics (inspite of your natural skills in logic) because your opportunity cost of being a logician will be higher. The opportunity cost of money however, is the same for both a logician and an economist. I go on to explain this in my post later, in bold letters no less. Did you miss that?
I know that many people I criticize have far better *credentials* than I do. However, I have seen ideology supplant logic far too often to refrain from trying to bowl really fast. Thanks for the comparison btw – I am a huge fan of fast bowling, for all its intrinsic dangers.
Far be from me (a twice born) to intervene between Ravi (a thrice born) and Ritwik (a 2.5 born) but I didn’t understand either of you, so if I may state your positions in my words
First Ritwik,
1. The main premise of Niranjan Rajadhyaksha to me seems to be that his daughter is good at a particular subject, he attributes this to inherent aptitude.
Also implicit is the assumption that money is “not” a factor, i.e. if someone wants to study he has the money to do so.
Let’s call the performance in subject as product, and inherent aptitude as factor of production.
2. Now as far as I can see, in this case factor (i.e. aptitude) is non-transferable from one person to another hence the assumption (of non transferability) still holds.
Now Ravi.
You say it is innocuous.Yes it is innocuous, like a train wreck.
1. The theory depends on opportunity cost, and Niranjan Rajadhyaksha has not taken that into account (As Ritwik pointed out ).
2. This is a “basic concept” (as you pointed out) and he being a “trained economist” (again as you pointed out) should have taken that into account.
In fact the overall impression to me is that he was being very shoddy in applying economic concepts because he wanted to be a show off. In short a “Thinking it through” article.
3. The article relied substantially on anecdotes which are demonstrably untrue. Unless something has changed you were not really a big fan of anecdotes.
4. His has not really covered other aspects including most importantly pedagogical, and where he has it is ridiculous to say the least, I mean 3R !!
5. As a columnist to a well established newspaper , he has impact. Whatever he writes should recognize the responsibility that comes with the territory. He has been intellectually lazy. Victory of bad form over good content.
6 . Lastly you have failed to address or rebut significant part of Ritwik’s post.
Gaurav,
Actually, throughout my post I have spoken only about the transferability of capital (and not aptitude) on the individual level. In the example of logician and economist that I give above – Ravi and I jointly have a total demand for logic and economics (maybe for our internal consumption, maybe for the external world – doesn’t matter). The capital required to produce this logic and economics maybe books, a computer with statistical software, internet connection, and some coffee to keep Ravi awake (because he would need to be awake to work two jobs in the day). Because of the mobility of capital between me and him, the situation where I arrange all this for him (either directly or by paying him) and he works the two jobs becomes most economically efficient. However, if such transferbaility of capital was not possible, I would have specialized in economics and he would have specialized in logic and we would have arranged our own capitals – this would have been the most efficient solution.
Specialization in education occurs. The only thing is that it occurs at a later stage in the 10th, 12th standards and further. There the student chooses which part of education he wants to continue with.
What Mr Ritwik is arguing is that this specialization should occur at a school level. This also actually happens in western countries to some extent with electives. It may not be such a bad idea. However the presentation could have been better.
Thanks guys. It will take me another day to get around to answering this.
Ritwik, I now see that your grasp on Ricardo is sound, but surely, the same cannot be said about your common sense?
Yes, indeed, what you are saying is true. Let us model this problem: I have the potential to be an economist as well as a logician and so do you. I can produce 100 econs per month and 500 logs per month, while you can produce only 80 econs per month and 350 logs per month. So according to comparative advantage economics, I should specialize in logic, while you should specialize in economics.
But we are in a competitive market for capital. Because I have an absolute advantage in both economics and logic, it makes more sense for a bank to give me a loan to produce econs and logs than to you. So that is what will happen, and you will be jobless and you will starve to death.
In fact, in society, there is role for just one person of each skill. There can be only one economist, only one farmer, only one cricketer only one factory worker. That one person can expand his output indefinitely in response to infusion of capital. That is what the model says and that is what must have happened – something that can be verified by casually looking around you, correct?
Unfortunately, it turns out that you forgot another even more basic law in economics, which is the law of diminishing marginal returns. I cannot expand my output beyond a certain point because I will start hitting some other limits, such as my time, my attention span, my body’s energy etc. This is true of individuals and it is true of countries too, which is why the laws of comparative advantage remain true for both, even when the strict assumptions made by Ricardo are never valid.
You accused Rajadhyaksha of spouting theory without actually understanding its implications. I can only hope now that your sense of irony is good.
Gaurav, as a matter of fact, when I started the post, I had planned to make two points –
One was about not bowling loose balls if you are going to bowl fast ones.
The other was about the unfairness of this kind of fisking, where you quote the article and try to rebut it point by point. The problem with doing this is that there is a high risk of missing the overall point the article is making. I decided to drop this point for obvious reasons – I myself was selectively quoting from Ritwik’s post and I didn’t want to bowl any loose balls myself. (I did selectively quote, but I did not do so unfairly. Ritwik’s attempts at Ricardian economics were a disaster regardless of the correctness or otherwise of the rest of his points. But I did not want to get into a discussion on multiple fronts on this.)
Ravi,
Last comment.
1) We are in the competitive market for salaries (which btw, is what I meant when I said that skill is being traded for money). He who pays me the salary will also, by and large, arrange for my capital (to produce econs and logs). The fact that you’re smarter means that you do the work faster and hence, in effect, you have more units of labour to devote than I do – more units of labour while the marginal returns are still higher than the marginal costs. I will not starve to death – you will be asked to work more, and the remaining work will be performed by me. Something like this will happen- the company requires 100 logs and 50 econs, you can produce 120 logs if you were to invest all your time in logs and 60 econs if all your time was invested in econs (while the marginal returns are still high, I repeat). So, it makes sense to get the 100 logs and 10 econs from you (since in the time that you would do 20 logs, you can do 10 econs) and get the remaining 40 econs from me.
I can perhaps specialize in economics, but to be optimizing your salary, you should have specialized in both, else you’re just losing out. In reality, such scenarios do happen oftentimes, because the products that a skilled professional has to offer need not be as differentiated as economics vs logic or farming vs industrial work (think of an overstreched project manager with less competent subordinates). If one specialises too soon (in school as opposed to in college, where most people specialize anyway), one loses out on the absolute advantage of greater ability that one may have.
2) More pertinently, comparative advantage as understood by ‘aptitude’ in a subject is not the same thing as economic comparative advantage, which is based on market demand (generalising Ricardo from 2 goods and 2 countries to m goods and n producers). If the society has very low demand for logic and very high demand for economics, it makes economic sense for you to specialize in economics despite your aptitude for logic. The implication of this, in the current Indian scenario, is that most schools should concentrate on math and science and english only – everything else be damned.
I am tempted to say something clever about common sense and ironies but I will desist. All I’ll say is – do read what I wrote with a little more attention before arriving at estimates of may capabilities. I viewed Rajadhyaksha’s article from almost every angle possible before launching into the attack – it may not be so easy to dismiss my aggression, even if you’re Ravikiran.
Ravi,
I am still not sure the fisking was a disaster. Again to recap the article.
Observation: His daughter has aptitude for something over something else.
Conclusion : His daughter should be allowed to pursue what she is good at.
Support for conclusion: Theory of comparative advantage.
Only thing is theory rests on assumption that the opportunity costs of both products are similar (or perhaps it is better to say utility ?)
This is not at all clear in the case of education.
To repeat the example Ritwik gave, if his daughter was good at knitting compared to maths and science, it would still be better to teach her maths and science.
Now you think the fisking misses the “overall” point. It depends what do you think overall point is. If you think the overall point is to encourage children in what they are good at, then yes it does have some merit.
But for me that is not the point, instead it is “Encourage children in what they are good at, because it makes economic sense”. No for me it doesn’t make sense.
In fact I have a broader objection to the article,the same as your about fisking. The article in fact reduces the overall discussion on education to just some esoteric economic theories.
There is larger issue involved,what is the purpose of education ? Is it just to treat child as a factor of production? Or are there other important objectives to be considered ? Perhaps all-around development, to ensure she is well informed, and confidently integrated into social structure, also that she is capable of taking decision both for her own good, as well as for those of her fellow citizens. Pedagogy is a crucial matter for society. It is the kind of education we have that results in proliferation of Jagadgurus.
I assume “walk away” clause has been invoked 🙂
Nope. Will be back. Dayjob issues.