India! I dare you to be rich

Category: Economics

Per capita GDP increase over time (when controlled for quality) is around 36 times in 100 years

GDP serves an excellent purpose, and its annual growth is a useful indicator of improved wellbeing and prosperity.

However, comparing GDP cross-sectionally across countries is hard. The exchange rate applies only to the traded sector, so comparisons using this value are fraught. So the purchasing power parity (PPP) methodology corrects for this difficulty. I generally prefer PPP calculations to exchange rate-based comparisons of GDP.

There is another major difficulty, however. While technology can be assumed to be similar over two years, it is actually changing quite rapidly. Comparing GDP growth across time (time-series) within the same country is fraught, even if we control for inflation using the consumer price index (using CPI is fraught, as well).

The issue of quality becomes quite serious when we compare the market value of output across more than 2-3 years.

Let me illustrate.

My father purchased his first car (a Fiat) in 1970. The interior of the car was tolerably comparable to the interior of modern cars. However, its engine (of 1.1 litre, I think) and mechanics was very poor. The car broke down frequently.

35 years later I purchased a Toyota Avalon (3.5 litres engine). This car has never broken down for the past ten years. I perform the usual servicing (around once in 15-18 months) but it is sturdy like a rock. To get such a car in 1970, my father would have had to pay a lot more (even assuming that such quality was available in the market).

The same applies to telephones/mobile phones, washing machines, computers: things that have significantly improved in quality as a result of technological change. 

Question: How can one compare quality changes over time in an meaningful way?

if a buyer in 1970 had a choice between a 1970 Fiat and a 2005 Toyota Avalon, what would such a buyer have paid for the Avalon? An alternative way is: How much would someone in 2005 pay for a 1970 Fiat? This is far more practical.

I paid $19,000 for my 1.5 year old Toyota Avalon. I would not have paid more than $500 for the 1970 Fiat. Its value in 2005 would be little more than scrap metal, even as a brand new car.

If one controls for engine size, etc. one could reasonably conclude that quality had increased by at least 20 times, possibly in the range of 50 times, over 35 years.

Using such market-based approaches, we could compare high value goods across time, thereby attributing a quality factor into the GDP calculations. 

Note that there has been very little change in teh quality of a number of things: food, bricks, houses. So the overall quality inflator for GDP would be much lower than 20, possibly in the range of 3.

But even that (3) is HUGE. In merely 30 years, the true TIME-CONTROLLED MARKET VALUE of what I own has increased by 3 times, just because of an improvement in technology.

Over 100 years, per capita income, as measured by GDP, generally increases by around 6 times. But if my calculation of quality is approximately correct (note that quality is accelerating rapidly), that adds a quality inflator of around 6 times over 100 years (3 x 2 x 1).

This leads to a net improvement in REAL prosperity of around 36 times over 100 years.

This is merely the sketch of a possible methodology to assign a market-based measure to quality improvements over time. I'm sure others have explored this topic in much greater detail. Do let me know about any such work you know about.

(I realise that the simplistic methodology I've outlined above is full of holes, but something on these lines would perhaps be needed to value quality changes).


A few days after I posted this, I came across this: We are better off than GDP suggests



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Milton Friedman’s video lessons on economics and public policy – for those concerned about the welfare of humanity

I've read Friedman sporadically but nothing beats listening to him directly. I'm delighted at the good number of video snippets from Friedman's talks that are sprouting on the internet. This post (a placeholder) is an attempt compile a few of them.

Negative Income Tax

Minimum Wages

Equal pay laws

Anti-dumping laws

Role of government in a free society

Free trade

Regulatory tradeoffs, free choice, cost benefit and risk

More on the dangers of unthinking regulation that doesn't take into account all consequences

Freedom of speech

Classical liberalism and role of the government

Why economic equality leads to coercion and neither freedom nor equality

How prohibitions on "immoral behaviour" make these things more profitable

Market failure, sure, but don't jump to government solutions, for there is government failure


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There is no way any “leftist” can be feminist. Feminism is necessarily a (classical) liberal idea.

I've been asked a question by email:

Feminism in US has been talking about "equality" all the time for the past 50 years. Is this equality different in some ways from the equality we talk about in socialism ? Because what they are saying is "average income of groupA should be equal to average income of groupB". Otherwise it is injustice.   One Indian feminist wrote something about it here –   Opinion ?


I'm not an expert on feminism. I've only tangentially read the work of its leaders. To me the main struggle is for women's equal status (unlike socialism, which is a demand for economic equality). Btw, a demand for equal pay for equal work is quite different from equal pay for unequal work (socialism). 

I've briefly reviewed the history of women's emancipation here: Classical liberals like JS Mill played a significant role in this emancipation. Every single classical liberal has and will fight for the rights and liberty of ALL humans, including men, women, trans-sexuals, children, everyone.

Without knowing much about it, I'd hazard a view that feminism is a byproduct of classical liberalism. It never exist in pre-capitalist societies nor (I think) in any communist (i.e. foundationally socialist) society, such as USSR/ Mao's China. As women started receiving high quality education in the West (based on the efforts of classical liberals) they started questioning the status-quo. 

The author of the article you cite has framed the issue under 'left-wing – right-wing' categories. In my view, the issue is best framed under the 'free-unfree' dichotomy. The classical liberal is not a conservative ('right wing'), so I dislike being counted as part of the 'right-wing' .   

One can't be "left-wing" and "feminist" since that implies that one can be free in one thing (right to equality of status) but not in another (right to work/ trade). I published my exchange with that half-baked leftist 'feminist' Kavita Krishnan here: She is hopelessly inconsistent, incapable of thinking deeply about what she says. And she won't care to debate when her views are shown up as confused/ illogical. 

I believe all humans must be treated equally under the law and should be free to bargain and achieve their goals in the market. The law can't discriminate in any way (including through 'affirmative action') in favour or against of any particular group (including women).   Second part: Why does the market not pay 100 per cent of men's wages to women in all cases? That's a research project I don't have time for, but it requires solid controls, to isolate the truth.

This idea has no theoretical foundations (hence such claims are questionable). The idea that there are highly talented but underpaid women in the West is fundamentally untenable. If that was the case, anybody (including any woman entrepreneur – and there are plenty of them) could head-hunt them at higher rates, achieving massive profits for themselves.

Imagine if a woman's marginal product is $100 per hour but she is paid $83. Not only could she start off her own business to fully capture her product, but someone else (including a woman entrepreneur) could pay her $86 and keep the profit. That's a lot of value to arbitrage. $17 per hour sitting untapped. Of course, someone else would then re-grab this talented but (still) underpaid woman and pay her $90, say, … and so on till she was paid her marginal product.

That's what happens in a free market. It is hard – indeed ridiculous – to suggest that people aren't paid their marginal product in a free competitive market. It is therefore hard (if not impossible) to argue for the existence of systematic bias against women in free societies, particularly modern Western societies.    There are a LOT of stupid and shoddy studies that exist in the field of social science and I'd be loathe to 'believe' them. Logically it is impossible to argue that there is a systematic bias against women in a free market. 


Chanced upon this video by Milton Friedman who makes the same point I do – but far more clearly, and shows why equal pay laws HARM women.


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BJP’s hooligans are becoming intolerable. Time to throw them out. Prahlad Gunjal must GO.

BJP's gang of thugs is getting worse with every passing day.

I won't go into a litany of proven charges against them. These are just too many to mention. Corruption, black money, murder, violence are all part of their repertoire.

But the idea that an MLA can speak in this manner to a civil servant is beyond obnoxious. This man Gunjal represents the culture in which goondaism and thuggery are rapidly replacing any semblance of civilisation that India might have once represented.

The man has not had the shame to resign. The BJP also has no shame.

The people of India had a very bad party: Congress. Now they have a worse party: BJP.

Unless they get their act together and come behind a party committed to the rule of law, they can expect to live the life of rats. 

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Questions about Singapore’s national/ public wealth fund Temasek

A few months ago I made some notes regarding Singapore's authoritarian economic liberalism. This model has attracted a lot of attention recently (including in The Fourth Revolution: The Global Race to Reinvent the State by John Micklethwait  and Adrian Wooldridge).

A recent article in Foreign Affairs touted the Tamasek model. The authors of the article are publishing a book on this topic, soon: The Public Wealth of Nations.

However, more interesting than the article were some of the comments, which set off a bit of a search for the truth about Temasek.

Let me highlight key sections of the main article, first.

On average, governments are mismanaging their public assets. Many economists see these inefficiencies as arguments in favor of privatization. But privatization comes with its own risks: crony capitalism, corruption, and dysfunctional regulation. Luckily, there is a third way: governments can assign the task of professionally managing their assets to National Wealth Funds.

National Wealth Funds are the perfect compromise: they keep public assets under government ownership while simultaneously preventing undue government interference. The state appoints the auditors and the board responsible for the portfolio, and decides which assets should be sold when sufficiently developed, but it cannot influence how the fund itself is managed. This strict separation guarantees that politics will not get in the way of good asset management. When governments control public commercial assets, opportunities for better management are ignored or fall prey to political meddling, clientelism, and corruption.

National Wealth Funds also enable governments to consolidate their commercial assets, which allows professional managers to create an integrated inventory and business plan for the assets as a whole. The world’s leading National Wealth Fund, Singapore’s Temasek, established in 1974, boasts an average annual return of 17 percent, a track record that would be impressive even in the private sector.

Now for the comments which interested me quite a bit.


If you are going to hold up Temasek as a model you must mention that the CEO for the last 12 years has been the Prime Ministers wife. She gives no interviews and has never written the letter in their annual report. Hardly a model of accountability. Further the 17% annual IRR since 1974 is largely due to their historical practice to government transfer of assets at very low valuations which Temasek then takes public and public market value. If transferred at market value the returns would be much lower as they have been since 2002. While the disclosures are selective and self serving at least there are some.


Absolutely right. Temasek never gives meaningful IRR figures. Despite its glossy annual reports, it is effectively impossible for any outsider to assess how it is performing from year to year. What you can do is look at the many large investments it has made over the last 10 years that have gone badly wrong. If you look at its record in banking alone, it has lost billions on Barclays, BoA and is now suffering the headlong fall in StanChart's share price. This poor record is replicated in other sectors. There is no accountability and, of all the experienced candidates who could have been appointed to run it, the most qualified was, by an extraordinary co-incidence, the Prime Minister's wife. Having stepped down once for presiding over a disastrous series of investments, she was reinstated and remains in office. Lucky Singapore. This is a very superficial article which appears to show no understanding of the subject.


Question is whether the IRR figures are audited.

The Temasek financial disclosure is completely irrelevant because they only show the Temasek Group accounts which purposefully muddle up the Temasek Holdings accounts with those of all their portfolio companies thus rendering the entire set of accounts useless. And how about those footnotes? Not.

They use the concept of beating their cost of capital or Wealth Added as their primary metric for performance. However for the last 12 years in total that number is negative so they have destroyed capital while they have increased head court dramatically. This is in spite of taking dubious actions to lower their cost of capital by adjusting down their Market Risk Premium which no be else does. They now are so embarrassed by their performance they hardly even mention WA and bury it in the back pages excluding it from the Chairmans letter and all the full page ads they take out.

Also they tout the principal of no WA, no bonus yet the people there are still getting paid a bomb and the Temasek parking lot is full of very expensive, shiny new cars. Where is the oversight.

I've explored further and this is what I find:

Why sovereign funds are a bad idea: Should India Set up a Sovereign Wealth Fund? It’s a Bad Idea

Some mess-ups by Temasek.

Research paper: A Brief Research Note on Temasek Holdings and Singapore: Mr. Madoff Goes to Singapore.

The summary of this paper is provided here. In brief, the idea that Tamasek has achieved 17 per cent return over 35 years is refuted vigorously. 

Temasek controversies.


Singapore is a secretive place. One cannot rely on public reports of the way its national fund is managed. There is need for significant caution while considering this model/option. It has significant benefits but these seem to come at a high cost.

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In support of Judith Sloan’s critique of the Commonwealth Treasury’s policy mettle

When I came to Australia in late 2000, I received an interview call from the Commonwealth Treasury (CT). They were about to send me the air ticket for an interview in Canberra. But by then my son had been given a scholarship by Melbourne Grammar School (supposedly one of the best private schools in Melbourne), so I decided to stick to Melbourne and declined the interview offer. I was to join, soon after, the Victorian Government's largest regulator, and later, the Victorian Treasury. In retrospect, this was a good decision.

I've had occasion to interact with the CT on a few matters. I won't go into details since doing so will breach the public service code of conduct. But from my vantage point as close observer of numerous economic debates and based on published papers and policies of the CT, I am able to write in support Judith Sloan's critique of the CT

Let me detail Judith's concerns.

1) The CT does not focus on the prosperity of all Australians

To understand this point, we fist need to understand Amartya Sen's deplorable confusions. The disastrous Human Development Index adopted by the even more confused UNDP was his "contribution". Mixing up social and economic variables using subjective weights can never be justified. This is mumbo-jumbo; pure nonsense. The Victorian Treasury's vision is uni-dimensional: a prosperous future for all Victorians. Period. Per capita real GSP is the key measure in such an approach. People can buy wellbeing IF they have money. The government's job is to enable and support the ability of the people to earn money.

But from Judith's analysis, it appears that the CT uses a mushy way of thinking (perhaps in the Sen tradition?):

It is quite difficult to pinpoint the exact start of the decline. My feeling is that the adoption of the mushy, confusing and unhelpful wellbeing framework in the late 1990s marked the beginning of the Treasury's loss of prestige. "The wellbeing of the Australian people" remains one of the core elements of Treasury's strategic framework. Where, once upon a time, Treasury essentially focused on maximising per capita gross domestic product, there are now five elements of wellbeing, some contradicting each other. These elements are: opportunities, distribution, sustainability, the level and allocation of risk, and the complexity of choices. [Sanjeev: What do these terms mean!! ] The real problem with using five ill-defined criteria to judge policy is that without some explicit weighting of the five factors, virtually any decision can be justified. [Sanjeev: No, Judith, these non-economic terms are pure nonsense, in the same category as the meaningless term 'social justice'. Multiplying nonsense with 'weights' can never create sense.] Sure, a policy will reduce per capita incomes, but just look at the improvements to sustainability. It is heaven on earth for the Greens.

As economics professor Jonathan Pincus notes, "any decision made by Treasury can be justified by (the wellbeing framework) unless it can be shown to worsen wellbeing in all five dimensions". The framework relies on the subjective (and political) value judgments of Treasury officials to weight the five dimensions of wellbeing. Of itself, this politicises decision-making within Treasury. [Source: Treasury's fall from grace started with wellbeing, Judith Sloan, 13 November 2012, The Australian]

This serious muddle-headedness apparently started in around the mid-1990s (HDI was created in the early 1990s and soon became a joke among real economists). It is possible that had I joined the CT in 2000 I'd have been a misfit and left it, long ago. 

2) The CT recruits Keynesians and lefties:

This is news for me: a shocking disclosure from Judith, today:

The Treasury has leaned left for some time. Potential graduate recruits, for example, have been asked for their views on the pricing of carbon dioxide emissions and the value of stimulus spending to deal with economic downturns. The “correct” answers have been pretty obvious. This bias and the perceived politicisation of the Treasury, more generally, have to be eliminated." [Source: John Fraser will face challenges to restore Treasury’s reputation, Judith Sloan, 15 November 2014, The Australian].

If what Judith is saying about Treasury recruits is true, this is a sure way to ruin any prospect of objective, sensible economic policy advice

3) The CT's approach prevents it from looking objectively at data

Then there is this third critique – that the CT uses subjective, rosy glasses while looking at data:

Another example of Treasury's loss of status and respect is reflected by comparing the first edition of the Intergenerational Report released in 2003 and the one released in 2010. Originally commissioned by Peter Costello when he was treasurer to highlight the fiscal implications of the ageing of society, the first edition was a solid piece of work. The 2010 edition, which was brought forward by Wayne Swan, is a complete embarrassment.

It is an overly long, verbose document that spends most of its time praising the government for its current policy stance, even though the focus of the report is 40 years out. It even includes a ridiculous chapter on climate change and the environment, a topic that quite rightly was not included in the previous editions. What the reports also demonstrate is that Treasury is completely incapable of forecasting basic variables such as labour force participation, even a few years out. (This point could be applied more generally to the credibility of Treasury's modelling.)

If you read the first report, you would conclude that we will all be "rooned". The second one (2007) was a bit more upbeat about our prospects, but the last gave the impression that, because of the outstanding and far-sighted policies of this government, everything will be fine. [Source: Treasury's fall from grace started with wellbeing, Judith Sloan, 13 November 2012, The Australian]


I have been frequently disappointed with the macro-economic (and even micro-economic) policies advocated/ supported by the CT. Judith points out a few examples:

  • The CT's approach to taxation of ­employee share ­options
  • The CT's design/ advocacy of the mining tax
  • The CT's approach to changes to the fringe benefits tax
  • The CT's modelling of the impact of pricing carbon
  • The CT's "contrived modelling of the impact of the government’s stimulus spending spree in response to the global ­financial crisis that, according to Treasury, “saved” 200,000 jobs. The Treasury also tried to argue that the countries that had boosted government spending the most were least affected by the GFC. It turned out that the Treasury had cherry-picked the countries for inclusion in its analysis. When a comprehensive list of countries was included, the relationship fell away."

In my view, the CT's advice has badly damaged Australia's prospects in the coming decades. The Rudd 'stimulus' was a disaster. Any attempt to justify it should rank in the category of NONSENSE/ quackery of the sort that Keynes spouted, e.g.

"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. [Keynes, “General” Theory (and other crap)]

[Indeed, combining Keynes and Sen would be the surest way to destroy any society’s future prospects, almost as certainly as using Marx’s ideas] 

Stephen Anthony wrote last year about the shortage of brain power in the CT [Source: Treasury needs more brainpower and less of the touchy-feely, Stephen Anthony, AFR, 29 April 2013]. I don't think this is a brain power issue. Brain power (IQ) is of no use without the right way to think. That's why high IQ people throughout mankind's history (till around 1700) achieved nothing, while ordinary people with the right thinking since 1700 have achieved wonders.

The CT's problems seem to stem from a fundamental failure to understand economics.  Let me I quote (genuine Nobel Prize winner) Ronald Coase and hope that the CT will pay heed to one of the greatest economists of all time:

Economics thus becomes a convenient instrument the state uses to manage the economy, rather than a tool the public turns to for enlightenment about how the economy operates.  [SourceRonald Coase, Saving Economics from Economists, Harvard Business Review, December 2012]

My advice to the CT, for whatever it is worth, is this:

1) Try to understand the process of the price system and how this process balances the self-interest and local information (including budget constraints) of all people on this planet, simultaneously. 

2) Try to understand, therefore, how your interventions will invariably distort the price system and reward rent-seekers and frauds at the expense (very often) of hard-working savers and workers. 

3) Finally, try to understand that governments necessarily play the game of politics, marginal seats and lobby groups. Their game, while essential to a liberal democracy, also imposes costs and damages society in many ways. Democracy is not costless. But we are not in this game. Our job is to limit the damage caused by government interventions, not exacerbate it.

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