Archive for the ‘Economist’ Category

Unrecognised benefits of grade inflation..

August 18, 2014

Easier grades overtime have become an issue across most parts of the world. In India for instance, Delhi Univ increasingly sees admissions happening at 99%-100% and so is the case with other elite IIT/IIMs & other places. There is no margin for error. Schools/colleges are under pressure to not just pass students but give higher and higher grades. Earlier we had few guys at the top now there are many. There was a time when First division in India (above 60%) was considered an achievement, now it is seen akin to failing.

Raphael Boleslavsky and Christopher Cotton in a voxeu piece, argue that there are some unintended consequences of this development — colleges are being foreced to improve education:

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Why Do Macroeconomists Disagree?

August 14, 2014

I thought the post should have been much broader as why do economists disagree? The disagreement is across micro too.

Mark Thoma argues that macro has actually become an ideology war:

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Why Swiss should also export their limited and decentralized governance model..

August 14, 2014

Richard Rahn of Cato Institute says Switzerland is one country that often works. He often recommends countries to follow the Swiss model.

More importantly without much publicity and hype (really important for India):

Switzerland is not perfect, but as countries go, it is hard to find one that is much better. The more people know about Switzerland, the higher regard they tend to have for it. By almost any measure of human accomplishment, and particularly in creating a most successful country governance model, the Swiss are clearly No. 1 in the world. Switzerland is a small, landlocked nation without much in the way of natural resources. It has managed to stay out of wars for two centuries and developed a long-term multilingual and multireligious democracy without strife. There is a rule of law with competent and unbiased judges and strong protections for private property.

Among the countries of the world, Switzerland ranks No. 1 in “life satisfaction” (Organization for Economic Co-operation and Development’s Better Life Index); No. 1 in “global competitiveness” (World Economic Forum’s Global Competitiveness Index); No. 2 in “labor -force participation rate” (OECD Labor Force Statistics); No. 3 in “happiness” (United Nations World Happiness Report); No. 4 in “economic freedom” (Fraser Institute and Cato Institute Economic Freedom of the World Report); No. 7 in “per-capita income” on a purchasing-power parity basis (International Monetary Fund World Economic Outlook); No. 2 in “overall prosperity” (Legatum Institute’s Prosperity Index); and No. 1 in “life expectancy at birth” (OECD Better Life Index).

Switzerland also ranks higher than average among the OECD countries (the 35 most-developed economies in the world) in levels of education and student test scores, and has lower levels of air and water pollution. Civil liberties are strongly protected, including freedom of speech, religion, press, assembly and even the right to own guns. It does not get much better than this.

The Swiss have also avoided creating the “cult of personality” around their elected leadership. The elected rulers of Switzerland are not well known by their own countrymen and are almost invisible to the rest of the world. History is replete with leaders who had too much power and visibility. Perhaps the reason the Swiss have made fewer economic and foreign-policy mistakes than other countries is, in part, because they do not have very powerful leaders who can push through bad policies.

Though there is negative press over its secretive banking but that is a case of grapes gone sour:

The world is an envious place (envy being one of the seven deadly sins), and hence, there is much Swiss-bashing by the jealous and the ignorant. Having been an adviser to senior officials in several different governments over the past few decades, I often encouraged them to look at Switzerland as a model that works. The Swiss model is particularly relevant for countries with rival religious and ethnic groups, but, alas, too few other countries have adopted it. Back in July 2003, when there was considerable debate about what kind of governance structure Iraq should have, I wrote an article published in The Washington Times that argued for the Swiss model.

Hmm..No model is perfect and there shall be some limitations. As long as there is development for people, it is fine. I am not too sure about Swiss model but has always been fascinating.

There are a few countries which have developed without the noise and expectations. You often wonder as if economic development is some kind of favor doled by authorities. The kind of noise certain section of society generates over economic development actually goes on to spoil and derail the whole effort.

Why good economic reforms could actually be bad news for ruling party…

August 12, 2014

There is large literature on political economy of reforms. Whether the ruling party wins on economics reforms? What kind of reforms? Should it highlight the reforms/growth or remain quiet? How should the reforms be sequenced? etc etc.

This paper is an addition to the literature giving contrary ideas. It is written by Sweder Van Wijnbergen of Universiteit van Amsterdam and Tim Willems of University of Oxford. They show why some reforms that begin well, lose public support. They say such reforms are like sampling without replacement..once out of the sampling bag they cannot go back into the bag. Overtime, people lose confidence and as a result lose out:

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The unintended consequences of public policy..

August 12, 2014

Thomas Hall of Miami University in Ohio has written what looks like a book to read — Aftermath: The Unintended Consequences of Public Policies. I was hearing a talk by Dr. Arvind Mayaram,Finance Secretary who said the troubles start whenever a policy becomes a public policy. And what he meant was as this book says — no matter how hard you try,there are always some problems with most public policy. It has these unintended causes which are not part of the original plan to stump the authorities.

In this article, there are a few such examples from the book:

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Madhya Pradesh, Bihar and Rajasthan are trying to shed the BIMARU tag…

August 11, 2014

Ganesh Kawadia and Sheena Sara Philips of Devi Ahilya University show how these 3 states are trying to shed the infamous BIMARU tag attached to them. UP is missing and is not a surprise as it tries every bit to remain tagged by that name. Not sure of the progress in the state of UP.

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Global Economy’s Groundhog Day..

August 8, 2014

Ashoka Mody takes a stab at current economic thinking and asking why IMF keeps getting its economic forecasts wrong.

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What explains the wage premium in silicon valley?

August 8, 2014

Jonathan Rothwell of Brookings has a nice post on the topic.

He puts up US map and looks at earnings of Software professionals across regions. He sees there is a wage premium in Silicon Valley compared to other places. Why this is so? It seems the region requires some typical software skills which lead to the premium:

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Can US really inflate away its debt?

August 8, 2014

The need for a one handed economist remains as important. I mean how does one make any policy given evidence is  so shaky? Laurence Ball just argued (along with many others) that higher inflation will help the troubled economies. Apart from stimulating economies for higher inflation, it will also lead to lower debts.

Ricardo Reis disagrees and says US does not really have this choice. It has to either generate higher growth or fiscal surpluses. There is no other way:

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Did Bernanke create the Ukraine crisis?

August 8, 2014

Things keep getting crazier. Central banks which were kind of unknown entities till even 25 years ago, are being embroiled in all kinds of things.

Benn Steil of CFR who wrote a book which is like events post Great Depression (or Lords of Finance part II). There is this interview where he says in a way Bernanke created the Ukraine crisis:

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How Political booms lead to financial instability…(any lessons for India??)

August 7, 2014

This is a pretty timely paper given the state of Indian politics and economics. It is by this trio of econs – Helios Herrera, Guillermo Ordoñez and Christoph Trebesch.

The kind of hype and expectations our financial markets have generated from the new govt is immense. Govt too is responsible making giving signals that things are going to be change as they are sworn in power. They are getting some reality check but our markets don’t care. One ought to be worried given how precarious the world economy is in. The earlier 9% times were when global economy was doing really well itself.  But currently it is at a precarious situation.Anyways, who cares.

So the paper look at this thing called political boom and how it eventually leads to financial crisis. It is even a better predictor than several sophisticated early warning indicators:

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Why researchers need to climb down from their ivy towers and see the real world…

August 7, 2014

One doesn’t know when academicians and researchers became ivy league types. One way to look at ivy league is to differentiate a select set of universities/colleges from others. But then it has also moved into another direction where Professors/researchers ( I mean economics ones) are completely cut-off from the real world. The end result has been chasing research which matters little and little as days pass by. Even teaching has been highly inspirational as one sees a very different world from what is taught. What better way to explain this than the famous Occupy Harvard where students walked out of Prof Mankiw’s class.

So it is kind of odd to read articles like this. HBSWK reviews research of Prof Nava Ashraf of HBS. She apparently descends from the Ivy League and involves people for whom the researchis being done.

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How OMT reduced spreads without a single Euro spent..

August 6, 2014

Draghi has empirical evidence. He has been saying how OMT has been useful in reducing spreads of effected economies. But like lawyers econs say where is the evidence? I mean it is much like a murder committed by an obvious person, but we just want an empirical paper saying it all.

WSJ Blog pointed to this ECB paper which says OMT reduced spreads in Italy and Spain by 200 bps. And what better proof of power of central banks and their communications than this. Not a euro spent and look at the effect:

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ECB’s dilemma over communications..

August 6, 2014

An interesting speech from ECB chief Mario Draghi on central bank communications and challenges for ECB.

First why do central banks communicate so much these days? Just to keep giving cheap dope to financial markets:

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Basics of Ponzi schemes…Are stock options kind of Ponzi games too?

August 5, 2014

Kaushik Basu has this really food for thought paper on Ponzi schemes. He is really good with such kind of topics thinking really out of the box.

Ponzis are among the most ubiquitous and least understood phenomena of economic life. They acquired a certain salience with the global financial crisis of 2008 and the crash of Bernie Madoff’s celebrated Ponzi scheme. This paper explains the structure of Ponzi schemes and goes on to argue that what makes this such a troubling phenomenon is its ability to be camouflaged amidst legitimate practices. It is shown, for instance, that the common practice of giving stock options to employees could be a potential Ponzi that allows corporations to flourish for a while by borrowing from its own future. The paper goes on to discuss the need for intelligent regulation to incise harmful Ponzis (not all Ponzis are harmful) while taking care not to damage other legitimate activities that surround them

Superb stuff..

Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics…

August 5, 2014

Journal of Economic Perspectives’s new edition  has some articles on entrepreneurship.

A team of four econs have written this paper bringing beh econ perspectives to entrepreneurship. They say returns from entrepreneurship are not high. But variance is high. Why do we still have people trying their luck at opening their businesses?

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India’s Union Budget largely reflects thinking based on New Keynesian school…

August 4, 2014

Rohit, Prof at JNU has this interesting discussion paper in recent EPW edition.

He points to 2014-15 Budget document- Macroeconomic Framework Statement- and says it is hugely inspired from New Keynesian school(he calls it a misnomer as there is nothing like it). However, I would the ideas are not limited to 2014-15 Budget. They have been part of our economics thinking for a while. Apart from this, the paper gives a short history of evolution of macro thought.

First the budget:

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Impact of economic slowdown on new businesses…

August 1, 2014

Fed Reserve econs François Gourio, Todd Messer and Michael Siemer write a short paper on the topic. They say recent recession has impacted formation of new businesses negatively.

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Hollywood and the State: A Longtime Partnership…

August 1, 2014

An interesting article by Salmaan A Khan on Mises Institute Blog connecting Hollywood to State subsidies.

He says state has always been very cosy to Hollywood and using latter as another channel to propagate former’s agenda:

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Chief economists are the new marketing executives..

August 1, 2014

WaPo’s Lydia DePillis has this nice column (HT: MR blog). I was once part of this game (never as a chief econ though), so understand it a little better.

The article says firms are lining up to recruit econs from campuses. Earlier it was just banks and fin firms. But now there are all kinds. Moreover the role is not a typical econ one. It is more like a PR/marketing kind:

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