Wednesday 13th December 2017

    How a Harvard economist can help explain the appeal of the note ban amongst the poor in India!

    The idea that the poor and the not-so-rich could come to resent the fortunes of the well-off in an unequal and socially stratified society was first articulated by the influential economist Albert Hirschman in a 1973 research paper. Hirschman, who taught, among other places, at Harvard University named this the "tunnel effect". The tunnel effect referred to a parable about multi-lane traffic that the authors used to describe inequality's impact. New York University development economist Debraj Ray presented a modified parable to explain this effect in a 2010 research paper. "You're in a multi-lane tunnel, all lanes in the same direction, and you're caught in a serious traffic jam," wrote Ray. "After a while, the cars in the neighbouring lane begin to move. Do you feel better or worse? At first, movement in the other lane may seem like a good sign: you hope that your turn to move will come soon, and indeed that might happen. You might contemplate an orderly move into the moving lane, looking for suitable gaps in the traffic. However, if the other lane keeps whizzing by, with no gaps to enter and with no change on your lane, your reactions may well become quite negative. Unevenness without corresponding redistribution can be tolerated or even welcomed if it raises expectations everywhere, but it will be tolerated for only so long. Thus, uneven growth will set forces in motion to restore a greater degree of balance, even (in some cases) actions that may thwart the growth process itself." Is this what's happening in India? And does this explain the note-ban benefit the BJP is enjoying right now? More here