All greed starts with an innocent idea: that you are right, deserve to be right, or are owed something for your efforts. It’s a reasonable feeling.
But economies have three superpowers: competition, adaptation, and social comparison.
Competition means life is hard. Business is hard. Investing is hard. Not everyone gets a prize, even if they think they’re right and deserving.
Adaptation means even those who get prizes get used to them quickly. So the bar of adequate rewards move perpetually higher.
Comparison means every prize is measured only relative to those earned by other people who appear to be trying as hard as you.
And economies crave productivity. Getting more for doing less. It’s a universal and relentless force.
The feeling that you deserve a prize, even when success is hard, content is fleeting, and rewards are measured relative to others, combined with an economy that constantly wants more prizes for doing less, is the early seed of greed. It fuels both the push for more (great) and the lack of satisfaction when you get more (potentially dangerous).
Once people get a taste of reward – especially an above-average one – delusion can creep in. Sometimes it’s luck misidentified as skill. Or an inflated sense of the value you produce. Or overconfidence in your ability to find another reward.
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Most textbooks portray humans as self-interested people making rational economic decisions, but people often are far from rational in making investment decisions.
Behavioral economics provides insight into why humans make sub-optimal decisions, studying the impact of psychological, cognitive and emotional factors on economic and investment decisions. Two winners of the Nobel Prize in economics, Richard Thaler and Daniel Kahneman, have been recognized for their pioneering work in behavioral economics.
In awarding the Nobel to Thaler in 2017, the Royal Swedish Academy of Sciences stated, “His contributions have built a bridge between the economic and psychological analyses of individual decision-making.” Thaler’s work was instrumental in pension reform, illustrating how subtle changes in framing can lead to dramatically different consumer choices. Thaler’s research contributed to policy changes including automatic enrollment of employees in 401(k) plans and the use of target date funds as the default option for new 401(k) enrollees instead of money market funds.
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New Delhi: Finance Minister Arun Jaitley delivered the current government’s fifth and last full financial budget (Budget 2018 for the fiscal year 2018-19) amid subdued economic growth, challenging fiscal situation and farm distress.
While a budget covers a plethora of items and heads, the mix can leave a lot of people confused. This budget is rendered all the more important as there are elections coming up in eight states this year and the Lok Sabha election next year, all of which put tough demands on the Finance Minister.
India is the world’s fastest-growing economy, said the Finance Minister as he announced the Budget. He lauded the govt’s moves to contain black money and encourage tax formalisation. Batting for GST, he said it ensured tax simplicity, demonetisation paved the way for a digital economy.
“When the Narendra Modi government took over, India was considered to be one of the fragile five economies of the world. Our government reversed the trend,” Jaitley said.
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The decision by consulting major Capgemini to replace nearly 40% of its work done by its resource management group with IBM’s cognitive computing system, Watson, is a clear indication that it is not just repetitive or mechanical jobs that are at risk. Artificial intelligence (AI) is capable of taking on those tasks that require analytical skills. The tasks from education and skill development just got tougher.
By 2025, 70% of India’s population is projected to be of working age. A chunk of India’s present knowledge economy would have been chomped down by AI. As the knowledge economy evolves, India’s ability to continue playing a big role in that depends on swiftly raising the quality of education.
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The original post is written by Rajat Sharma from our Mastermind, Sanasecurities and can be found here.
Goods and Service Tax (“GST”) is a comprehensive tax on manufacture, sale and consumption of goods and services, that will absorb most of the indirect taxes levied by Central and State Government. Currently the GST is adopted in over 150 countries. If passed, GST Bill would be THE biggest tax reform by the Indian government since inception of the Indian constitution.
How Will GST Work?
- In India, GST would work on dual model which will include – C-GST collected by Central Government + S-GST collected by State Government on intra-state sales. GST reform would also feature an Integrated GST (IGST) collected by Central government on inter-state sales, which is to-be divided between Central and States Government in a manner decided by the Parliament on recommendations by GST Council.
- By doing away with several Central and State Taxes, GST would diminish the cascading effect of tax (or double taxation, whereby the same product is taxed at the stage of manufacturing as excise, then as VAT/ sales tax on sale and so on.), which is prevalent in the current tax framework. Being a consumption-destination-based tax, GST would be levied and collected at each stage of sale or purchase of goods or services based on the existing input tax credit method. Current tax structure works on production-origin-based system i.e. goods and services are taxed differently on each stage of production.
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The original article appears on BloombergView and is available here. The author is Mark Buchanan.
Humans have a terrible track record of predicting financial crises in time to fend them off. Some computer scientists think that algorithms might help.
Given the right information, some crises can be foreseen. In “The Big Short,” Michael Lewis told the story of the scattered few who saw the imbalance growing in the mortgage market and profited as a result. Over decades, academic research has shown that many banking crises come with early warning signals, such as rapidly increasing debt and leverage. Yet economists and policy makers routinely miss such danger signs, in part because the financial world is so complex.
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