The Flawed and Tormented Genius

At the onset, I must specify that the ideas of the flawed and the tormented genius can, and often are, exclusive and distinct ideas, except for our fascination for them. The genius who gets his success as a return for his hard work is barely appreciated. However, the genius who is able to perform well despite putting in lesser effort is the one whom society looks up to. What makes the flawed genius so appealing to our sensibilities?

Firstly, there is a sense of enigma around the flawed genius - how does he/she do it? Second, there is the appeal of something forbidden, and the flawed genius often does things that are forbidden by society. Thirdly, we want to be like the flawed genius because people appreciate the flawed genius, and hence in this sense it is a self-fulfilling prophesy.

Is it fair to those who've worked their way to the top that at the top they feel like an empty clap, because all applause rings for the flawed genius? Well, not really. The problem essentially is that there are the pretenders - those who're not really the flawed and tormented genius, but pretend to be so because of the adulation it brings. How does one differentiate between the real one and the pretenders? There is almost certainly no way - some people are good actors, and some are able to program themselves to behave like this flawed genius. Hence, to the world outside these people seem like the flawed genius.

I think the flawed genius thrives in a pool of mediocrity. For those who've tasted success, and for whom the lure of success is not great, the appeal of the flawed genius is non-existent. It is only for those who're a part of the masses, and for whom success holds a lot of value, that the flawed genius is an appealing concept.

Applied Economics - the story of the Phillip's Curve

The accusation most often leveled against economics as a subject is that it is ex-post in nature, i.e. it explains things after they occur, and hence are of no practical and applied consequence to the world around us. For example, they say that while economists have in hindsight explained what caused the recession of 2008, they failed to prevent it. Hence, what is the point of economics as a subject?

This is something that many economists and economics students too agree to. However, while reading my second year macroeconomics textbook, I came across the Philip's curve. The Philip's curve, in its original form, was an empirical relationship between inflation and unemployment, which concluded that if a Government wants to reduce unemployment (which results in higher growth), then it has to live with a certain bit of inflation.

The 'discovery' of the Phillip's curve, first in the U.K by Phillips and then in the US by Solou, was used extensively by macroeconomists and eventually policy makers in the 1960s. This trade-off that was observed by the Phillip's curve was exploited by policy-makers to ensure that the 1960s were a period of unprecedented growth in the developed world (coupled with the apparent success of Keynesian economics, this was the golden period of Keynesian economics). Hence, to those who say that economics is an ex-post science, an entire decade of growth was sustained on the basis of what economists observed. Rather, not only observed empirically, but argued theoretically.

However, in the 1970s, the theory behind the Phillip's curve began to falter (basically, that people began to expect inflation). However, this break-down was also predicted by a group of economists led by the monetarist Milton Friedman. Hence, even here economics was an ex-ante science, rather than an ex-post science.

Hence, for all those who say that economics is a useless science with no practical applications, it is a fitting rejoinder that one entire decade of high growth (of the sort unseen in modern history) was because a bunch of economists thought of a trade-off and showed it empirically. Truly, the power of economics.

Lessons from Economic History : Cutting Expenditure

Early 1990s: India, faced with a much-publicised balance of payment (BOP) crisis, had to turn to the IMF for help. The Washington-consensus, at that time, was to trim fiscal deficit (in layman terms, the Government's expenditure minus the Government's revenue) and go in for more balanced budgets. Thus, India was obligated to trim it's fiscal deficit.

Now, Government expenditure has two components - capital expenditure and current expenditure. I'm forgetting the exact difference between the two, but it goes somewhat like this - current expenditure includes things like salaries, subsidies etc. (which provide no long-term benefit) whereas capital expenditure would be on things like infrastructure projects etc (which provide benefit over a longer time span).

What India did at that time to reduce fiscal deficit was to cut capital expenditure. Almost two decades later, we see the results. The constraint to India's growth story today is the infrastructure shortfall, something that might not have happened had there been no reduction in capital expenditure.

Reducing this lesson to an individual level, a college student too is faced with two kinds of expenditure - current expenditure (movies, food etc), and capital expenditure (clothing, books, stationery etc). Unfortunately, what often tends to happen is that faced with a budget constraint, the average student tends to cut down both expenditures in an almost equivalent proportion. However, as the story above shows, capital expenditure should not be cut down that easily.

Again, that is contingent on certain conditions. Primary among them (and again drawing from India's economic history) is the utilisation of capital. Often, to utilise capital expenditure (eg books) effectively, you need to have a consistent current expenditure (eg. food). Hence, there is a certain 'optimal balance' between capital and current expenditure, and I suppose it will take everybody not less than three years to find that out.