Learning a New Culture...

A great article in The Atlantic that I stumbled upon thanks to Yohan John.  Learning a new language is one thing, but learning a new culture, that's something else.  I am presently reading a book by Tracy Kibber, "The Strength in What Remains"... (which I highly recommend) and I can appreciate the connection between the protagonist in Kibber's book and the author of this article.

Have a read.

Boo Boo Banking

I'm finding it rather hard to reconcile the dichotomy of free market banking system (and the greedy beast it has mutated into) and the requirement of a strong, regulated financial institution for development (and the bailouts they entail).  Allow me to elucidate.

It is imperative for an economy to have a strong banking system to allow the flow of capital between people who wish to seek a return on their earnings and people who require it to pursue business ideas.  The banking system is supposed to take the money from folks who do not require it at the moment and feed it into ideas. Traditionally the banking system invested in ideas with real world implications - i.e. businesses that were actually adding value to the economy.  Manufacturing cars, designing a new dress, or even researching the benefits of monkey poo.  All of this created real growth in the system, the bank made money and the people who invested in the banks received interest and viola, we had progress.  Simple enough?

Of course, there are caveats to this strategy.  How do we determine what is a good idea?  Can we know for sure that an investment will create positive returns in the long run?  The element of risk has always cast a shadow on the will to commit other people's money to a business idea.  

Government banking institutions, which are required to be solid, risk-less, and "blue chip", are averse to investing in ideas that are "edgy" or "untested" leaving a lot of interesting ideas unfunded and unrealized.  This gap is bridged by venture capitalists [1].  Good VCs very quickly realized that in a growing ADD market, 9 out of 10 ideas were prone to fail, but it was that 1 golden goose that was enough to cover all past misgivings.  Consider Sequoia and Google.  That is not to say that VCs will go to bed with anybody, but they truly embrace the golden maxim of investments - "no risk, no return".  

This system works great in an economy with low levels of information asymmetry, minimal bureaucracy, and the belief that good ideas are going to be funded.  Without this belief, perhaps a lot of great ideas die in our minds because we do not think that pursuing them will lead anywhere.  With this holy trinity, we can create a system where ordinary citizens can "dream".  We can give life to ideas, and move the economy in a forward direction, and create a new benchmark in development.  This, in modern parlance, we call "innovation".

Now consider a country like India or any other developing nation for instance.  We have such a primitive banking system, that we require to have collateral for student loans!  A risk averse banking system in an economy where there is no other alternative to raise funding, is a serious detriment to development.  Indian banks primarily target asset loans which assure the bank of a fixed return on the investment and SMEs and ideas are ignored as being too "risky".  Hence, even though people harp about India's massive human capital growth in the last decade, we, as a nation, have contributed minimally to global innovation.  A statement reiterated by Israeli Consulate General in Bangalore, Menahem Kanafi.

Much as we've come to belittle corporations and the world of finance as evil, they are definitely a necessary evil when we consider their impact on the real economy [2].  So the question we now need to ask is, do we leave the banking sector to its own devices and hope that the public awareness increases, or should governments regulate the market.  An age old question free market economists and Keynesians have been arguing for the last century.  Consider a return to these two videos I had posted in 2011.  I shall leave the argument about the inefficiency of central banking for another day.
Keynes vs. Hayek Round 1
Keynes vs. Hayek Round 2

However, modern financial systems have become an unmanageable beast.  Most of us are already aware of the massive implications of corporate greed in the 1998 Financial Crisis so let us take a more subtle example.  Let us use education.  

The above graph (CollegeBoard) shows that increase in college tuition fee has far exceeded inflation rates in the US.  Considering most colleges, at least, the state universities are non-profit institutions, what could be the reason behind this sharp increase in tuition fees?

There are several theories floating in the academic circles, including, a potential "higher education bubble", or a decrease in government appropriation into the education system, mismanagement of endowments, and lack of consumer protection.  Personally, I posit that the federal students loans program has played a large role in not only raising college tuition, but also herding our top engineering and science students into the corporate and banking sector.

Since the federal government started providing low interest student loans to make education more affordable, this increased the market for higher education, allowing universities and colleges to hike up their tuition fees by recognizing that now more students had access to money to afford these higher fees.  Unfortunately, this system led to students graduating college with massive amounts of debt, and instead of pursuing vocations they were really interested in, were forced into majoring in subjects that would provide the maximum employment opportunity upon graduation.  This phenomenon caused a large increase in students pursuing subjects like economics and finance, and of course, the ubiquitous MBA.

Why does an MBA cost so much when one can learn pretty much all the material through Khan Academy and a library card (read Good Will Hunting) in six months.  Well, first, it provides you with a stamp of legitimacy - we live in a paradigm of label-able education.  Although in my opinion, knowledge and literacy almost has nothing to do with being educated.  I have found many "MBAs" pretentious and arrogant [3].  Even worse is the increasing trend of engineers pursuing MBAs to take up corporate management positions, ridding the world of clever engineers and replacing them with greed infused suits.  Second, this "need" to do an MBA has made the demand for the degree sky rocket allowing schools to charge fees which in any other profession would be called highway robbery...

So, the banking system, through their loans, allows colleges to increase their tuition, encumbering students with massive loans so they end up taking jobs with the said banks after they graduate... an unusually unhealthy system.  Can we break down this system?  Should the US federal government stop giving out low interest loans?  Should education be completely free market?  Doesn't that skew the level playing field then?  Should governments cap tuition fees like in the UK, or make colleges free like in Europe?  Whoa, that sounds like socialism...  I don't have the answers, but it's something to think about.

Addendum: 24 September 2014
Here is John Oliver's ("Last Week Tonight with John Oliver") brilliant and hilarious take on the Student Debt Crisis, from an angle I had never considered before.  Consider meself suitably humbled.


[1] Understand that Investment Banks do not actually invest in ideas... they invest in existing businesses for vast commissions.  While IBs may also be adding to the real economy, they do not necessarily push for innovation.  An IBs primary goals are M&A, financing solutions, corporate consulting and risk management, and investment solutions.  This is vastly different from VCs.  Similarly, merchant, corporate and commercial banks do also invest into new businesses but deal with vast capital and not particularly with new ideas.

[2] Let us, for the sake of argument, ignore the manner in which banks create fictitious wealth through complex financial instruments that serve no purpose but to sponsor bonus checks.

[3] I remember a person once tried to get me to buy into an Amway type pyramid scheme, and when I painstakingly pointed out all the inherent fallacies in his arguments, he asked me with a sneer, "Do you have an MBA?"  "No", I had replied.  "Well I do, and I'm telling you this works."  Case closed.

The Problem With Patriotism

I recently read Ramchandra Guha's article in HT, entitled, "Excessive love of one’s state is less harmful than that of one’s country", which talks about regional pride in literature and culture.  This debate was sparked by Guha's comparison of Kannada polymath Shivarama Karanth with Bengali literary god, Rabindranath Tagore.  I am not interested in this argument.  Personally, I believe, Bengali intellectualism and literary elitism is in decline and like the British, we are living off by selling the family silver (so to speak).  

No, what I am more interested in is exploring the idea of patriotism.  Being blindly loyal to some arbitrary division of land or world view, is an idea so abstract that I can't really fathom the need or requirement for it.  To me, patriotism, for country, religion, or an idea, if anything, is detrimental to the fabric of tolerant societies and a marker for regression.  In Tagore's poem, Where the Mind is Without Fear, he writes, and I paraphrase, "...let me awake in a world that is not broken up by narrow domestic walls" - a sentiment that resonates with me.

When I was backpacking through Europe several years ago, the political pub talk revolved around the wisdom of including the ten new countries to the European Union.  What was most striking about these conversations, and we see in the political set up of Europe today, is the rise of right wing sentiments in Western Europe.  In the recent EU elections, the anti-EU parties enjoyed a significant bump as outlined by this Telegraph article in May.

In my limited opinion, this "right-wing swing" is essentially a form of xenophobia in disguise.  The EU, I always felt, was the natural direction of humanity's future, a step towards global political and social unification, but it seems our basic need for a "us and them" framework is too overwhelming.  Give us aliens to fight and we're going to come together, otherwise we're going to find our own aliens... in the case of Europe, that's everyone who isn't, well, Western European.

Part of this "us and them" mentality is buried under the guise of patriotism.  "Self-interest" and "self-preservation" is tantamount to patriotism, and it is this kind of backward thinking that negates the momentum towards a politically and socially cohesive world.

In the context of India and Pakistan, patriotism rears its head when we're playing a cricket match or we're at war, and somehow brings out the worst in our generalizations about each other.  I've met many Pakistanis in my life and I've enjoyed their company very much.  Of course, that in itself is a generalization, and probably holds true for the 1 percent liberally educated urban youth I have interacted with.  My point is that we have no right to use the label of patriotism for actions and words that dehumanize people in a country, idea, or religion that is not ours.  Patriotism, like the practice of religion should be private and personal.  Rather than slap on some face paint when there is a cricket match, if we were really patriotic, we would treat our fellow citizens with respect, and not urinate by the side of the road or treat the country like shit.

I am aware of the argument that the need for barriers is seeded in animal instinct.  Chimpanzees, wolves and other animals that live in some form of social structure, display tendencies of divisiveness; acting in the interest of the pack or herd against other packs or herds.  However, considering we have put a human on the moon, is it really a legitimate argument to claim animal instinct as the basis for the most divisive notion we have in society?  Can we not say that, we, as a species, are better than wolves? [1]

All patriotism has really done is reinforce the imaginary boundaries that separate groups of people, who in all likelihood, under other circumstances could get along.  I'm not trying to demean the idea of patriotism, just the way we practice it today [2].

[1] The same applies to religion.
[2] I have nothing against wolves per se.

"Regression analysis is more art than science" [1]

Steven Levitt and Stephen Dubner showed us in Freakonomics how the world of correlation and regression can show curious links between seemingly unrelated subject matter - culminating in a thesis relating legalization of abortion and crime rates in the United States.

Here is another view - Correlation can yield absolutely absurd results...

My favorite is "Divorce Rates in Maine" against "Consumption of Margarine in the US"

As Twain said, "There are lies, and then there are statistics"...

[1] Steven Levitt

IBDP International Development Lecture Slides

Where's My Global Development?

Article published by University of Virginia's Darden School of Business.

The Emerging Markets Development Club recently released some statistics on global equality and income...

The findings are, well, less than impressive... equitable distribution of wealth, where art thou?

Read the whole article.

Perhaps we should all be more like this chap.