Why I Fear Doctors and Wealth Managers


A few years back I had classic symptoms of diabetes and I went to see a doctor. The doctor recommended sixteen blood tests and he was insistent that I carry out the tests at a laboratory of his choice.

At the same time, he gave me two medicines without telling me what exactly they were. When I went to buy them, I figured out that they were anti-depressants. I found it difficult to figure out as to why he had recommended these medicines. I tried to remember the questions he had asked and my answers to them.

One question that he had asked was whether I had any anxiety. I had said yes. I was in the middle of writing a big book and had trouble sleeping on some nights.

I never got around to having the medicines or getting the bloody tests done, and decided to go to another doctor, who started with four blood tests not sixteen and no medicines.

What this doctor and many other doctors make use of is something the economists refer to as asymmetry of information. It essentially refers to a situation in any economic transaction where one party has more information than the other. As Guy Sorman writes in An Optimist’s Diary “Economic actors don’t all have the same information at their disposal.”

So, when we go to a doctor, the doctor clearly has more information or at least is believed to have more information than we have about the human body. Doctors use this asymmetry of information to try and make more money by ordering a battery of tests which are not required. At times, it can mean a longer stay in the hospital than is necessary. Patients typically don’t question this because the belief is that ultimately the doctor knows better.

As K Sujatha Rao, a former bureaucrat who has worked extensively in the health area, writes in Do We Care? — India’s Health System: “Asymmetrical information endows providers with power and authority over the patients who have incomplete information about what ails them. Providers then take advantage of such moments of vulnerability by ordering a battery of tests, unnecessary surgeries, or prescribing high-cost medicines.”

What allows the doctors and the infrastructure backing them to do as they please, is the fact that there are no regulations going around. As Rao writes: “There are no regulations, accountability, and transparency regarding the functioning of private hospitals and diagnostic centres per se, though they provide a major share of care. Apart from illiteracy and absence of grievance redressal systems, information campaigns on unhealthy habits of behaviour have been severely comprised for want of funding and attention.”

Better regulation and grievance redressal mechanism can provide some help to prospective patients who are currently sitting ducks for medical professionals to aim at.
A similar information asymmetry also plagues savers looking to save their money in banks in the form of fixed deposits. Chances are you might walk into the bank wanting to save your money in the form of a fixed deposit but end up with an investment in some type of insurance policy, because the wealth manager at the bank convinced you.

The products are very different. Insurance policies lack liquidity, which fixed deposits have. Insurance policies cannot guarantee returns, which fixed deposits do. But insurance policies provide huge commissions to those selling them. And this is why wealth managers are so aggressive in wanting to sell them. Over the years, regulation on misseling has improved and that has been of some help.

In fact, in many cases, I have come to the conclusion, even the bank staff does not know what they are selling. But the solution here is straightforward. The right way of investing can be learnt by reading up and understanding the basics of different financial products on offer. This way the asymmetry of information can be brought down or completely removed, when it comes to financial products.

But the same cannot be done when it comes to doctors and our understanding of the human body.

The column originally appeared on August 23, 2017, in the Bangalore Mirror.

Who Will Break the Google Monopoly?


I first discovered the internet nearly two decades back. It was an era when the internet speed was slow and the charges were extremely high. One could end up paying as much as Rs 120 per hour at an internet café. In fact, the first few times I logged on to the web, I wondered what was the fuss all about.

It is worth remembering here that I am talking about an era when even the humble sms was yet to make an appearance and the mobile phone rates were extremely expensive, with one having to pay for both incoming as well as outgoing calls. It was also an era when people largely surfed the internet from internet cafes. Of course, all that has now moved to the smart phone and home WiFi connections.

After a few sessions at internet cafés, I was told that there are websites known as search engines which allow you to search for stuff on the internet. One such website was called Ask Jeeves and there were others like Lycos and Alta Vista. While, all this sounded interesting, rarely did these websites throw up what one was searching for.

As Tim Harford writes in Fifty Things That Made the Modern Economy: “In 1998… if you typed ‘cars’ into Lycos—then a leading search engine—you’d get a results page filled with porn websites. Why? Owners of porn websites inserted many mentions of popular search terms like ‘cars’, perhaps in tiny text, or in white on white background. The Lycos algorithm saw many mentions of ‘cars’, and concluded that the page would be interesting to someone searching for ‘cars’.” It was easy to game the system. This is something that I personally experienced when I first started to use the internet regularly in 1999.

And then came Larry Page and Sergey Brin with Google. Their original idea was not come up with a search engine at all. In fact, they were trying to do something different. They were trying to build a system in order to measure how much credibility a research paper had. In academia, a research paper published in an academic journal is said to have credibility, if it is cited by other research papers. It has even more credibility if it is cited by research papers which are themselves cited many times by other research papers.

This led to the basic idea behind the Google search engine. As Harford writes: “Page and Brin realised that when you looked at a page on the nascent World Wide Web, you had no way of knowing which other pages linked to it. Web links are analogous to academic citations. If they could find a way to analyse all the links on the web, they could rank the credibility of each page in any given subject.”

And this idea essentially led to Google throwing up relevant search results unlike other search engines. The irony is that Page and Brin were not really sure of the potential of what they had built. As Duncan J Watts writes in Everything is Obvious – Once You Know the Answer, “In the late 1990s the founders of Google, Sergey Brin and Larry Page, tried to sell their company for $1.6 million.” The story goes that the buyer thought that Brin and Page were asking for too high a price and decided not to go ahead with the deal.

Thankfully, they didn’t. And now they are in a position where they have a natural monopoly. Why? As Harford writes: “Among the best ways to improve the usefulness of search results is to analyse which links were ultimately clicked by people who previously performed the same search, as well as what the user has searched for before. Google has far more of that than anyone else. That suggests it may continue to shape our access to knowledge for generations to come.”

The column originally appeared on August 16, 2017 in the Bangalore Mirror.

On Selfie-Love

dhinkchak pooja

The latest internet sensation is a young woman who goes by the name of Dhinkchak Pooja. And her claim to a fame is a totally tuneless song called selfie maine le li yaar (My friend, I have taken a selfie).

For those who still don’t know what a selfie is, it is a self-photograph taken with a digital camera. To go a step ahead, once the selfie has been taken, it is posted on the social media.

A good selfie song would have talked about the current obsession to click selfies and post it on the social media. But sadly Dhinchak Pooja’s song doesn’t.

What explains this selfie obsession? In order to answer this question, we will have to look at some history.

As Seth Stephens-Davidowitz writes in Everybody Lies—What the Internet Can Tell Us About Who We Really Are: “When photographs were first invented, people thought of them as paintings. There was nothing else to compare them to. Thus, subjects in photos copied subjects in paintings. And since people sitting for portraits couldn’t hold a smile for the many hours the painting took, they adopted a serious look. Subjects in photos adopted the same look.”

And this created a problem for the film and camera company Kodak. People were not clicking enough pictures. In order to correct this, Kodak devised a strategy. As Davidowitz writes: “Kodak’s advertising began associating photos with happiness. The goal was to get people in the habit of taking a picture whenever they wanted to show to others what a good time they were having. All those smiling yearbook photos are a result of that successful campaign (as are most of the photos you see on Facebook and Instagram today).”

Over a period of time, the camera and the photo films, were replaced by digital photography. The irony is that Kodak developed the first digital camera, but did not cash in on it. As Mark Johnson writes in Seizing the White Space:In 1975, Kodak engineer, Steve Sasson invented the first camera, which captured low-resolution black-and-white images and transferred them to a TV. Perhaps fatally, he dubbed it “filmless photography” when he demonstrated the device for various leaders at the company.”

Sasson was told “that’s cute – but don’t tell anyone about it.” The reason for this was very straightforward. Kodak at that point of time was the largest producer of photo film in the world. And there was no way it was letting filmless photography destroy that market.

But nobody can stop an idea whose time has come. Digital photograph went from strength to strength despite Kodak. And the funny thing is that the association between photographs and the idea of having a good time continued, and only grew stronger. In fact, digital photography along with social media has made it even more easy for people to show that they are having a good time.

Digital photography has now moved on to smart phones and costs nothing after the fixed cost of buying the phone has been made.  Earlier one could only click a certain number of pictures with a photo film. After that a new film had to be bought and that cost money. These pictures had to be then developed in a lab and that cost money as well. Hence, people couldn’t go totally overboard while clicking pictures.

The digital pictures in particular selfies can be posted on to the social media to tell the world what a good time the person taking the selfies is having, which is why so many selfies are taken in the first place.

The camera companies which are the new photo film companies understand this association of photography with happiness and showing off, and that explains to a large extent why so many camera ads are now built around the idea of taking pictures in general and selfies in particular.

So, the more things change, the more they remain the same.

And we thought phones were something we used to talk to one another.

The column originally appeared in the Bangalore Mirror on August 9, 2017.

Economic Lessons from a Computer Printer


A few years back when I quit business journalism to write fulltime, one of the first things I did was to buy a computer printer. This was primarily to help my reading habit, given that I can’t read long documents on a computer. Also, it helped me to print and send out invoices conveniently, instead of having to visit a shop every time I needed to send out an invoice.

Like any good Indian, I bought the cheapest branded printer that was available. It cost just Rs 3,000. It was only when I started printing stuff did I realise how expensive the printer really was. While, the printer cost just Rs 3,000, every time I bought a cartridge, it cost Rs 800-900. And cartridges kept running out at a very fast pace. At best, I could print around 130-150 pages with a single cartridge. It was only then I realised that the printer was just something the company sold, so that they could get the consumers to buy cartridges, which is where the actual money was made.

As Even Davis writes in Post Truth—Why We Have Reached Peak Bullshit and What We Can Do About it: “By keeping a headline price low, the hope is that we assume that the overall price is low… We judge the cost of a product on the headline price, so the headline price will be kept low… There are the up-front prices versus the ongoing charges. Teaser mortgage rates that become expensive later, cheap printers with expensive cartridges and cheap razors with expensive blades are all examples of the same thing.”

In fact, in some cases the consequences can be dire. One of the reasons behind the current financial crisis was the bursting of the home price bubble in the United States and other parts of the Western world. A major reason behind the bubble was the fact that the EMIs that needed to be paid on home loans had crashed dramatically because of teaser rate mortgages (or home loans as we call them in India). In a teaser rate home loan, the interest rate is much lower in the initial years, after which it goes up dramatically.

This led to a lot of people who shouldn’t have gotten a home loan in the first place getting one. The trouble was that once the high EMIs kicked in (remember it was a teaser loan with low EMIs initially) the borrowers simply did not have the money to keep repaying the loan. So, first the teaser loans led to the home prices going up. Once the EMI defaults started, it led to a price crash, which was one of the reasons which fuelled the financial crisis.

What is the bigger lesson here? As Davis writes: “We tend to make important judgements on the basis of a few key indicators, and so by manoeuvring those indicators our perception can be controlled.” Like anyone buying a printer for the first time looks just at the price (and possibly the brand). He or she doesn’t bother about the cost of running the printer over the longer term. Companies manufacturing the printer manipulate the situation by selling printers for low prices. This basically leads to people buying the printer.

Such manoeuvring also happens in other areas. As Davis writes: “We think that good magazines have good covers, so when we observe a good cover we infer that the magazine underneath will be worth buying. As long as editors understand this rule of thumb, then you can expect inordinate effort to go into the design of the cover, even to the possible detriment of the rest of the magazine.”

Anyone who has read Indian magazines over the last two decades would know that while magazine covers have improved dramatically, the same cannot be said about the articles being published.

The moral of the story is “that as long as we come to a judgement based on only a selection of the available evidence, canny communicators will have a disproportionate impact on our thinking by being selective in the evidence they put forward.”
As the old adage goes, what you see is what you get.

(The column was originally published in the Bangalore Mirror on July 26, 2017).

Who Does Low Inflation “Really” Benefit?


Every month the ministry of statistics and programme implementation declares the inflation based on the consumer price index. Inflation is essentially the rate of price rise. The inflation for the month of June 2017, came in at 1.5 per cent.

This basically meant that prices in June 2017 overall were higher by 1.5 per cent in comparison to June 2016. This is the lowest inflation that the country has seen over the period of last five years.

Hence, not surprisingly, the government moved very quickly to claim credit. Arvind Subramanian, the chief economic adviser to the ministry of finance, said: “This low, heartening number is consistent with our analysis for some time now.”

This is one of those statements that makes economics the subject that it is, where equally convincing arguments can be made from the two ends of the spectrum.

Allow me to explain.

Low inflation is heartening because the rate of price rise has come down. It needs to be understood here that low inflation does not mean lower prices. It just means that the rate of price rise has come down than in comparison to the past and that is a good thing. Or so the chief economic adviser would like us to believe.

The question is why has the rate of inflation come down? The consumer price index that is used to calculate inflation is made up of a large number of goods and services. The government tracks the prices of these goods and services across the country, in order to arrive at the inflation number.

Food and beverages constitute around 45.9 per cent of the index. Food and beverage prices fell by 1.2 per cent in June 2017 in comparison to June 2016. In fact, prices of some of the constituents like pulses and vegetables have fallen at a much faster rate than the overall rate.

The price of vegetables fell by 16.5 per cent and that of pulses fell by 21.9 per cent. Vegetables and pulses together constitute a little over 8.4 per cent of the index.

So, what does this mean? It means that the overall rate of inflation is down because food prices have actually come down. Lower food prices essentially mean that the farmers growing food, have sold what they grew at a price lower than they had in the past. Also, these lower prices do not always reach the end consumers, with middlemen taking in a bulk of the benefit.

There have been many stories in the media portraying the plight of these farmers who have had to sell their produce at lower than their cost price and face losses and get even more indebted. In fact, it is not surprising that over the last few months, there has been so much demand for loans to farmers to be waived off, all across the country.

The larger point is that if inflation has become very low then someone is not being paid as much as he was in the past. And this can be due to various reasons. In this case that someone happen to be farmers. Farmers form around half the working population. If they face losses then they are less likely to spend as much money as they had in the past. This will impact rural growth and in the process, the overall economic growth.

Hence, when Subramanian finds low inflation heartening, he ignores this line of thought totally. As Evan Davis writes in Post Truth—Why We Have Reached Peak Bullshit and What We Can Do About It: “There are certainly such things as facts, and no one should persuade you otherwise. But aside from quite banal facts (‘the sun is shining’) we always have to use judgement in deciding what is a fact and what to believe: we have to apply a judgement as to the weight of evidence in its support relative to the weight of interpretation put on it.”

The column originally appeared in the Bangalore Mirror on July 19, 2017.

Who Will Survive the Coming Jobs Crisis?

In last week’s column I wrote about robots, automation, technology and algorithms, taking over human jobs. One reader wrote in asking by when is this likely to happen. I wish I knew. There are no straightforward answers here.

Many new organisations formed over the last few years, barely have any people working for them. Nevertheless, they are worth a bomb. Social media is an excellent example. As Edward Luce writes in The End of Western Liberalism: “In 2006, Google bought YouTube for $1.65 billion. It had sixty-five employees, so the price amounted to $25 million per employee. In 2012 Facebook bought Instagram, which had thirteen employees, for $1 billion. That came to $77 million per employee. In 2014, it bought WhatsApp, with fifty-five employees, for $19 billion, at a staggering $345 million per employee.”

Of course, these companies did not destroy jobs. They did not create them in the first place. But there is a lot of technology being created out there which is helping companies in not recruiting as many people as they did in the past and firing the existing employees as well. As Luce writes: “Facebook’s data servers are now managed by Cyborg, a software programme. It requires one human technician for every twenty thousand computers.”
The point being that jobs which require people to sit in front of computers and manipulate data to manage a system or to present them in an understandable form, are going to go, sooner rather than later. For example, as is well known robots can now driver cars.

The other big question is when will companies start firing employees because they no longer need them, with robots, automation or algorithms, taking over human jobs. This is a tricky question.

As Paul De Grauwe writes in The Limits of the Market: “There are psychological sources of resistance: people who work with old technologies will not always switch to new ones because the change means part of their knowledge has become worthless.”

Over and above this there are economic sources of resistance. As De Grauwe puts it: “Old machines and tools have to be disposed of early, factories have to be closed own and employees sacked. This leads to serious opposition and delays to the introduction of new technologies.”

In the Indian case, it is very difficult for companies to sack employees en masse. It is more than likely for the local politicians and the media will get involved, and the company will end-up getting a lot of bad press. Given this, it is highly unlikely that the information technology companies which have thousands of people working for them, will end up firing employees en masse.

What they will do instead is that they will not hire the number of people that they have been doing in the past. In fact, this phenomenon has already been at play over the last few years, with the salaries at the entry level in information technology companies, remaining more or less flat. Chances are you can make more money owning and driving an Uber or an Ola taxi, than being a new trainee engineer at an information technology company.

It is also visible in a huge number of engineering seats in colleges not being filled up across several states.

When companies follow this strategy of not recruiting, it is a tad easier for them in comparison to firing people whose skillsets they don’t need anymore. That simply gives them a lot of bad press.

It is not just those working in information technology companies whose jobs will be under threat. As Luce writes: “Some types of medical surgeon and architect will be as vulnerable to remote intelligence as plant engineers or call-centre operators.”

And who is likely to survive this onslaught? As Luce puts it: “Ironically, some of the lowest-paid jobs – in barbershops and nail salons – will be among the safest. No matter how dexterous your virtual service provider, it is hard to imagine how she could cut your hair.”

Now that is something worth thinking about.

The column originally appeared in Bangalore Mirror on July 12, 2017.

The Rise of the Robots


Euphemisms and corporates go together.

Vishal Sikka, the bossman at Infosys, in a recent letter to the stakeholders said: “Automation itself released about 11,000 FTE [Fulltime Employee] worth of effort through the year, a clear demonstration of how software is going to play a crucial role in our business model.”

Sikka did not specify what he meant by the phrase “released about 11,000 FTE [Fulltime Employee] worth of effort through the year”. Nevertheless, the broader point is that automation or the rise of the robots, will destroy many human jobs in the years to come.

This is not the first time that the rise of the robots or automation or mechanisation has been seen as a threat to human jobs. Similar concerns were also raised at the start of the industrial revolution in the Western world, a couple of centuries back.

The industrial revolution destroyed jobs, but it created many more new jobs, which finally led to economic growth and economic progress, the world had never seen before. What has changed this time around? If at all, it has.

Human beings essentially have two kinds of abilities: a) physical ability b) cognitive abilities i.e., the ability to think, understand, reason, analyse, remember, etc. As Yuval Noah Harari writes in Homo Deus—A Brief History of Tomorrow: As long as machines competed with us merely in physical abilities, you could always find cognitive tasks that humans do better. So machines took over purely manual jobs, while humans focussed on jobs requiring at least some cognitive skills. Yet what will happen once algorithms [another name for robots] outperform us in remembering, analysing and recognising patterns?

The trouble is that the rise of the robots hits at the heart of the model that has created economic growth world over, for the last two centuries. Companies employed individuals, and paid them a salary. The individuals then spent this salary to meet their needs. One man’s spending was someone else’s income. This benefitted other individuals and companies and so the cycle worked.

Henry Ford, the automobile pioneer understood this and paid his workers very well. As Edward Luce writes in The Retreat of Western Liberalism: “Henry Ford… raised the wage he paid to factory employees to $5 a day, a sum that in the 1920s would afford a comfortable middle-class lifestyle.”

By the time the 1950s came around, Ford started to invest in automation and at this point of time a very interesting incident took place. The auto union leader Walter Reuther was being given a tour of a new factory which had robots. And he was asked: “How will you get union dues from them?”

To which, Reuther replied: “How will you get them to buy your cars?” The point being that only when businessmen paid their employees did they go out and spend that money. This spending benefitted the businessmen they worked for, as well as other businessmen. Many employees of Ford, went out and bought Ford cars because they were well paid.

Once companies start employing more and mor robots instead of human beings, this model of economic growth and progress will go for a complete toss. As Luce writes: “The new economy requires consumers with spending power – just as the old one did. Yet much, like the farmer who eats his seed corn, Big Data is gobbling up its source of future revenue.”

The rise of the robots or Big Data or increased automation and mechanisation, will take away human jobs. As Luce writes: “Whether you listen to utopians or dystopians, all agree the share of jobs at risk of elimination is rising. McKinsey says almost half of existing jobs are vulnerable to robots.”

If robots take over, then humans don’t earn. If they don’t earn, how will they spend money. And if they don’t have money to spend, the question is, how will the companies run by robots, make money.

This is a question that nobody seems to have an answer for.

The column originally appeared in the Bangalore Mirror on July 5, 2017.