Mumbai...Lives on

Kudos to the security forces, National Security Guard (NSG) commandos, Marine commandos, Army personnel, Maharashtra/Mumbai Police and particularly its Anti-terrorists squad (ATS), State Reserve Police, Railway Police Force (RPF) and Home Guard among others. The Taj staffers, fire services personnel (without bullet proof jackets), the medical professional, the railway and BEST bus service providers, the media and many others also contributed. I salute all of them.

The siege started on Wednesday night and went on till Saturday afternoon (26-29 November 2008). Nearly 200 dead (including 20 security forces) and more than 300 injured. The attack has been meticulously planned and designed, the terrorists well trained and familiar with the place. It is very hard to believe that there were only ten of them. There is a very high possibility that more people must have been involved in providing logistic support even during the operation. The question that disturbs is who are they and where are they?

There are obviously some lessons. The worst of them have been the politicians. At least this is one time where they should have come together. Is this the state of the largest democracy? Are we expecting a bit too much from them? It is a sorry state of affairs that not a single party has a semblance of intra-party democracy. And, on important issues, voting in the parliament is not based on one's reasoned understanding but by the whip issued by the party that one represents - this is the state of freedom enjoyed by a people's representative.

The Police did a great job. Arriving on the multiple scenes immediately. Nevertheless, it is a fact that they are ill-equipped and cannot handle such situations. Loosing three senior personnel in a single encounter is a pity. In future, if possible, they should avoid travelling in the same vehicle and take escort. The government should seriously think of revising the pay scales, provide decent housing and other amenities to the police as well as other public service providers.

The media's role, I reiterate, has been of help, but there is a strong case of restraint to be followed in future. The real time telecast (by most) revealed some vital aspects of preparation but it does leave one thinking of whether this was a mere absence of foresight or by design.

Some of the news channels have given lists of the deceased/injured, but they may consider identifying the security/police personnel. Some of them have also come up with video homages which includes all the twenty personnel who lost their lives. Despite this, I am sorry to state that the coverage was hierarchical. The junior personnel who died in the operation have not been given adequate space. This is sad. Get out of this hierarchy at least during their death. All these bravehearts live on. Mumbai, and its spirit, also lives on.

Economics needs a scientific revolution: a comment

The essay Economics needs a scientific revolution by Jean-Philippe Bouchaud has been published in 30 October 2008 issue of Nature 455, 1181, is stimulating and an interesting read. It points out the inability of mainstream economics or financial engineering to either predict or avert a crisis.

This outcome is a result of the huge divide between normative (theory) and positive (empirical) economics. In the process, as Bouchaud indicates, assumption have taken the form of axioms: rational economic agents maximize profits, each agent's pursuit of profit is also best for society and markets are efficient that through prices reflect all known information. At best, these results are about some ideal situations, which do not exist in real life. Striving for a particular ideal situation is one thing, but considering that the features of this ideal system are a part of the real life situation is another. It takes us to a belief system.

Adhering to a belief system can make updating of knowledge difficult. For instance, Tycho Brahe, who despite being credited for his accurate and comprehensive astronomical and planetary observations, could not entirely got out of the Geocentric model that the Earth is at the centre of the universe. It was his assistant, Johannes Kepler, who used the observations and came out with his three laws of planetary motion that conclusively showed that the Copernican system, Sun is at the centre, is correct.

There are no two opinions that a scientific inquiry requires a questioning mind. If required, questioning the very premises by cross checking with empirical observations. The reign of empiricism is in a Bayesian world. A minimum requirement for this is that your prior cannot be certain - you cannot begin with a belief system. The reason is that if your prior is either zero or unity, then whatever be your observation, your posterior will be equal to your prior (see my working paper Understanding Fundamentalist Belief Through Bayesian Updating. All empirical observations become irrelevant.

True, the models used by contemporary mainstream economics fail to explain how small perturbations can have 'wild' impacts. It is not true that fringe attempts by econo-physicists (including Bouchaud himself) and behavioural economists are not being taken seriously. Paul Ormerod's Butterfly Economics that followed the East Asian Crisis is a best seller (aside - most Economists may not know of this). Daniel Kanheman, a behavioural economist, received the Nobel in 2002. There have been some hiccups, but then many prominent economists have done work on asymmetric information, uncertainty and missing market that cannot be brushed aside.

Having largely agreed with Bouchaud, I point out some differences. First, inability to predict and avert a crisis cannot be a basis to gauge a discipline's success or failure. Just as the space shuttle Columbia's disaster on 1 February 2003 cannot be construed to be a measure of judging Aeronautics and Space research, the current financial crisis cannot be a measure of judging Economics. Crisis or disaster by nature is rare and not predictable. Like the violation of some safety regulations in the Columbia disaster the current global financial crisis, to put it simply, is an outcome of greed by some players who manipulated the markets for their advantages. Modelling apart, an economic system should have effective regulation to safeguard us against possible disasters.

Second, understanding the market with more appropriate tools and techniques of modelling is necessary, but it is more important to acknowledge that market is a tool, albeit, an important one. It is a means, but not an end in itself. This is the approach of the larger human development paradigm, which is people-centric.

Third, which in a way is related to the previous point, is that the dominance of utilitarianism, and hence, of markets in economics, was first successfully challenged by a prominent moral philosopher of the 20th century, John Rawls. He argued against the monoconcentration of utilitarianism and its associated formulaic reductionism in favour of plural concerns. On his concerns of justice his focus was on the least advantaged while assigning priorities to equal liberties and equal opportunities (that is, against arbitrary privileges). This is made possible by invoking the original position, that is, by putting decision makers under a veil of ignorance - they do not know which group they belong to. This in essence does away with vested interests. Thus, the silent scientific revolution, which goes beyond Economics, is already under way.