High Speed Rail in India…Issues and challenges

July 14, 2014

Anjali Goyal, adviser at Planning Commission has written this timely paper on the topic (thanks to EPW for keeping things going here).

She lays out a whole framework to understand HSR policy in India. Apparently govt. has been working on the idea for a while and Kerala was the first to introduce the project. The paper was also written just before the rly budget:

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Cricket’s corridor of uncertainty and monetary policymaking…case of interesting similarities..

July 14, 2014

A fascinating speech by Andy Haldance of BoE.

He connects cricket with monetary policymaking. The predicament facing today’s policymakers is similar to the batsman in cricket who face balls in corridor of uncertainty:

It is wonderful to be back in Scarborough. I say back because many of my earliest and fondest childhood memories were of summer holidays spent here. Being a cricket fan, the Scarborough Festival – the cricketing jamboree held at the end of August each year since 1876 – has always held a place in my imagination. Alas I have never been, but am hoping one day to break my duck.

I want to discuss the economy and the role of monetary policy in supporting it. And with apologies to the non-cricketers in the audience, to do so I will borrow a cricketing metaphor – the “corridor of uncertainty”. The corridor of uncertainty is every bowler’s dream and every batter’s nightmare. It refers to a ball which pitches in such a position – the corridor – that the batter does not know whether to be playing off the back foot or the front foot.

This, I will argue, is similar to the dilemma facing monetary policymakers on the Bank’s Monetary Policy Committee (MPC) today. Should monetary policy hold back until key sources of uncertainty about the economy have been resolved? Or instead push forward to prevent leaving it too late?

He reviews the econ situation across globe and UK. For both an econ and cricket follower one can easily connect the two.

He says depending on how the batter/policymaker reacts, one dubs him/her a dove or hawk:

Faced with these uncertainties, what would be a prudent course for monetary policy in the period ahead? The first thing to say is that there is consensus across the MPC on three key elements of our monetary strategy: that any rate rise need not be immediate, that when rate rises come they are intended to be gradual and that interest rates in the medium-term are likely to be somewhat lower than their historical average.

This message appears to have largely been understood by financial markets. Despite the upwards revision to growth, financial markets’ best guess of how rapidly the first percentage point of tightening will take place is essentially unchanged over the past year – around 20 basis points per quarter. So too is their best guess of where interest rates may settle in the medium run – around 2-3%. Views may in time differ across the MPC on the preferred lift-off date for interest rates, as you would expect at a difficult-to-predict turning point in the cycle. These will reflect individual members’ different reading of the runes, not their individual preferences. That is a real benefit of the MPC’s committee-based structure, with individual member accountability.

It is not difficult to see why this choice over timing is a difficult one. The policymaker in this situation faces the self-same dilemma as the batsmen facing a ball pitching in the corridor of uncertainty. In that situation, the coaching manual no longer offers a clear guide. Two strategies are equally justifiable.

The first is to stay on the back foot and play late. This has the advantage of giving the batsmen more time to get a read on the trajectory of the ball as it swings and darts around. It avoids the risk of lurching forward and then needing hurriedly to reverse course if the first movement is misjudged. This is the way, Joe Root, the Yorkshire and England batsmen, plays his cricket. If he were on the MPC, he’d be called a dove.

But this strategy is not riskless. Playing late relies on having an uncannily good eye and strong nerve. It runs the risk of having to react fast and furiously to avoid missing the ball entirely. An earlier front foot movement would avoid that risk, allowing a more gradual movement forward. This is the way Ian Bell, the Warwickshire and England batsman, plays his cricket. If he were on the MPC, he’d be called a hawk.

What about owls? Night watchmen?

Which is better? Hawk or Dove?

So which is the better strategy? Benjamin Disraeli told us there are lies, damned lies and statistics. Here my analogy between cricket and the economy breaks down. Economic statistics, as we know, do sometimes lie. Cricket statistics, typically, do not. They tell us that Joe Root averages 43 in test matches to Ian Bell’s 45. In other words, it is a close run thing with the odds at present slightly favouring the front foot. But a good run of scores from either player could easily tilt the balance. That, in a nutshell, is where the MPC finds itself today

A superb analogy.

Though, Haldane misses the other side of the cricket pitch – the bowlers. In this case the bowlers are financial markets/players. They keep putting the batters into difficulty with their persistent attack on the batters. In the swinging UK conditions, they pose even more difficulty to the batters.

And then all this happens cyclically. During tough times, the central bankers become the batters and are made to face tough batting conditions. And when the times turn good, the markets become the batters and thrash the bowlers all around…

 

How history can contribute to better economic education..

July 14, 2014

Coen Teulings of Cambridge joins the discussion on improving economics education. And takes the position most have been taking– teach more history.

He goes a bit further and says there is a need for a broad brush of history:

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Do super rich think they no longer need govt?

July 11, 2014

Seeing how conveniently India’s uber class has shifted its preference for the new govt., one will obviously reject the question.  Infact, they need more and more support from the govt. to keep expectations high so that their wealth/paper wealth can keep multiplying. It is pretty paradoxical.

Dani Rodrik in this piece raises the same argument from a global perspective:

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If the Budget 2014-15 figures are near similar to Interim Budget 2014-15, why so much hype?

July 11, 2014

As the website was not opening properly yesterday, I did not really check the numbers. The morning papers and other articles of full of praise for the budget and the reformist govt. Yes, some are disappointed that the budget was not as bold and did not announce big bang reforms, but most are still sanguine.

Yes, there have been announcements of many kinds but  one has to see how they get implemented. So, the best thing is to see the budget numbers. And here is where things have been done cleverly by most analysts.

Interestingly, most analysis compares 2013-14 (Revised estimates; RE) with 2014-15 of recent budget. It missed the interim numbers as budget format one just has 4 columns: 2012-13 Actual, 2013-14 BE, 2013-14 RE  and 2014-15 BE

So as one compares the recent numbers with 2013-14, one sees growth across categories indicating change/reform etc. But if you put the interim budget numbers, there is hardly any difference.

So here you go with the interim numbers:

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Why building even more IITs/IIMs is just such a bad idea..

July 10, 2014

Though the proposal was in air, better to write on it when it actually ends up being announced/implemented.

In his budget speech, FM Arun Jaitley (nice to have a completely different name as it was just PC for many years) said:

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Karanataka government’s road tax mess…

July 10, 2014

Usually, the scene in most Indian cities is like this. Say you drive down from one state to another state for tourism/visit etc. It is quite common that some police person will stop you seeing your car number plate from another state. The person will charge you for some offense which you have not committed. You plead and then are left after paying some money.

In Bangalore, things have reached crazy level. Next time anyone is driving from another state, your entire car could be confiscated if you are caught by the traffic police! One has to prove that you are just visiting the city by showing toll receipts, petrol bills etc showing you have just entered the state. Couple of incidents have already happened where touring people have had to prove their case against all odds.

So the deal is this.

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Changing default setting in India’s economic policy …a leaf from beh eco..

July 10, 2014

The big B day is over. Enormous noise and brouhaha going on. The blog will see whether it will write something on the budget laters.

Meanwhile, was trying to scan the economic survey -2013-14 presented yesterday. Chapter 2 which has become kinda famous for being different, this time it speaks on issues and priorities. It has the usual set of words which will please the market sentiment.

Came across these interesting lines in the middle:

Default setting for government intervention in the economy needs to change from ‘prohibited unless permitted’ to ‘permitted
unless prohibited.

Nice to see the words picked from behavioral eco literature. So far, the default for most eco activity in India is “Well, it must be banned till it is allowed”..this was fine in command and control economy. This default needs to change in the market economy to” Well, it is allowed till not banned”.

Simple play of words but changes the entire approach. That is what nudges strategy is all about…:-)

India’s National Pension System : Review till now and way ahead..

July 9, 2014

Renuka Sane and Susan Thomas of IGIDR have done a nice review of India’s National Pension System.

They say despite the progress, there are still several issues that need to be addressed:

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Explaining Success at the World Cup: Money or Governance?

July 9, 2014

I am more shocked by the Brazil defeat than Brazilians themselves. But then one has to move on.

Daniel Kaufman of Brookings has this post on what determines success at world cup? His analysis shows it is basic governance which matters:

Analyzing the statistical evidence provides some surprising insights. It turns out that in looking at what differentiates success from failure in advancing to the second stage (round of 16) of this year’s World Cup, money does not seem to make a difference. Neither the monetary value of a team, nor the salary of the team’s manager (nor whether the manager is a national or foreigner) matter statistically. Controlling for other factors, the size of a country’s population or economy does not make much of a difference either. In addition, whether the country is resource-rich or not has no impact on the performance of the national team whatsoever.

Some of these statistical results would not shock those who watched the modestly valued Costa Rica advance by sending wealthy Italy home, or those who witnessed highly paid powerhouses such as England, Spain and Portugal also exit the World Cup early.

Interestingly, the “luck of the draw” regarding the caliber of the rivals each country faced in their first stage groupings of the World Cup, does not matter statistically at all either.

So what does?

If none of these commonly mentioned factors make a difference in explaining World Cup success, then what does matter? Our statistical analysis points to two relevant determinants.

First, the quality of democratic governance of the country is significant. Whether the country exhibits high levels of voice and democratic accountability—namely protecting civil society space, media freedoms, and civil and political liberties—matters significantly, controlling for other factors. If, among its World Cup peers, a country rated in the top third in the voice and accountability indicator of the Worldwide Governance Indicators (WGI), it had a 70 percent chance of advancing to the round of 16, while if it ranked in the bottom third it only had a 30 percent probability of advancing.

Second, we find that home field advantage and the extent of the fan base at the World Cup (number of fans traveling to the Cup to cheer for their national team) also matters, explaining part of the success of teams from North, Central and South America in advancing to the second stage (see Figure 1)

Hmm..

He has this interesting idea on penalty shootouts:

Beyond national governance and civic space, there are luck factors that make a difference.  An injury like the Brazilian star Neymar’s (now out of the World Cup) may end up mattering for Brazil’s fate, and, conversely, for Argentina, so might one more of those inspired plays by Leo Messi. Another misstep by a referee can also make the difference.

Luck may determine who wins the Cup in other ways, unrelated to the “luck of the draw” in the first rounds’ group assignments (which we found doesn’t make a difference). Instead, what may still matter is the “luck of the coin toss” in penalty shootouts forced by tied games. Apaper by Apesteguia and Palacios-Huerta in the American Economic Review that draws on almost 3,000 penalty kicks over roughly 40 years of major international soccer and points to psychological factors, finds that the team that kicks the first penalty has a 60 percent probability of winning the penalty shootout! No wonder their paper also finds that the team that wins the coin toss always opts to kick first. 

And no wonder that, so far during the current World Cup, the chance of the team kicking first during a penalty shootout winning is 66.6 percent. Costa Rica and Brazil—kicking first—won their respective shootouts against Greece and Chile in the round of eight, while the Netherlands won their shootout against Costa Rica in this weekend’s quarterfinals in spite of shooting second (but countered that by opting to substitute their starting goalkeeper with a penalty specialist, who blocked two shots!).

Soccer pundits tend to decry the penalty shootout, claiming that it is tantamount to a lottery. In fact, the above suggests that it is akin to loaded dice instead, where the lottery is actually in the coin toss, which then loads the deck in favor of the team that wins the coin toss.

But there is a fix, also drawn from the paper authors: If the penalty shootout is kept, at least FIFA authorities could organize it like the ordering of the respective serves in tennis tiebreakers. The fair penalty shootout option would be run like this instead: The first penalty is taken by the toss coin winner, then the next two penalties by the other team, then the next two by the coin toss winner, and so on, until 10 penalty kicks are completed. If they are tied at that point, they keep taking two penalties per team, alternating which team kicks first.

Should be tried rightaway. The authors say goalline technology was also adopted from tennis line technology. So this could be adopted as well.

It is much like the development story we keep hearing..governance matters whatever you do:

In addition, this work supports the implied message from successful soccer nations to FIFA: Democratic governance matters and so does the fan base of a country. But the odds of FIFA listening to this message are rather slim, because it would mean that the perennial top leadership in this autocratically run organization would have to exit, for starters, allowing for a semblance of democratic transition.

More broadly, we are reminded that just as we have learned that sending billions of dollars in foreign aid, or being rich in natural resources, doesn’t guarantee socio-economic development for a country and benefits to the people, neither oil riches nor money alone can “buy” national soccer success either. What makes the difference is good governance.

Nice bit..

But one has to still end the post saying…Oh Brasilia how did it become this bad? :-(

How US and Germany improved their financial system post 1907 panic..

July 9, 2014

Harold James again. Yesterday there was this insightful article on BW system. And today on 1907 panic in US and WW-I. In both the pieces there are common threads.

In the BW article he said the monetary order was framed under a lot of pressure and countries just wanted to finish it. So, the crisis led to certain responses. In this piece too, he says the 1907 panic led to US and Germany building their system to war off UK hegemony. But this then played a large role in build up to WW-I. So in BW the crisis led to peace and in 1907 panic led to further crisis in form of war. Crisis is really crucial point.

And then in both these events we have parallels for today:

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What enabled Bretton Woods in 1944 and what prevents Bretton Woods II?

July 8, 2014

Terrific piece by Harold James and Domenico Lombardi.

They shows how BW was originally going to shape like UN with five permanent and major members. However, because of global political and security issues, countries just managed to have a more participative and global system. The negotiations were led by US and UK who were in a hurry as domestic issues were as pressing.

However, this time around the global economy is centered around US and China. Can we have BW-II now? Well, as per authors crisis situation does not seem to be as bad as it was in 1944.  Despite the several issues, the world is “simply not dangerous enough”.

There is also a very interesting book review of 2 recent books on history of BW. Amazing econ history..

Comparing financial crisis in GIPS with previous financial crisis across the world

July 8, 2014

The crisis literature keeps churning out new papers with different perspective. You think there is nothing more to learn but somehow there is.

Selin Sayek and Fatma Taskin (of Bilkent Univ) use an interesting technique to compare European crisis with crisis in other countries in the past. They find Greece being closer to Indonesia and Portugal to Malaysia. As crisis differ, policy responses should as well:

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How about a monetary policy without interest rates?

July 8, 2014

Eric Monnet of Banque de France in voxeu has this interesting post (detailed paper here) on monetary history.

He cites evidence from France when monetary policy did not use interest rates. It actually used certain quantity controls to dampen output and inflation. This has implications for macropru policy which also is expected to used quant controls:

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Struggle over class and space in an Indian city…

July 7, 2014

An interesting piece in recent EPW edition.

It is written by Shankar Gopalakrishnan and Trepan Singh Chauhan of the Uttarakhand Nav Nirman Mazdoor Sangh. The authors explore the discrimination faced by daily wage workers in city of Dehradun. In the process, they also explain this important informal labor market institution of “mazdoor chowks”  across Indian cities:

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Does Federalism hinder liberty?

July 4, 2014

Ilya Somin of Cato has this paper on the topic.

He looks at the debate from various angles:

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A Comparison of Programming Languages in Economics..

July 4, 2014

Keynes once famously said of the desired qualities for a top economist:

The master-economist must possess a rare combination of gifts …. He must be mathematician, historian, statesman, philosopher — in some degree. He must understand symbols and speak in words. He must contemplate the particular, in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must be entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood, as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.”

We did not have computers then otherwise he would have added computer programmer to the list as well! Moreover, his quote anyways talks about things like abstract, flight of thought etc..which programmers do have. Atleast those thinking about lionking economic issues and computer programming need to surely have.

So, there is this interesting paper which compares how various programming languages fare in trying to address a common problem:

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Importance of understanding the principles of regulation by the regulated…case from India

July 3, 2014

An interesting speech by G. Padmanabhan of RBI. The speech is on corporate governance, the recent companies act etc.

In the middle of the speech he discusses regulation and narrates this interesting case:

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Inflation Is “Not” always and everywhere a monetary phenomenon..

July 3, 2014

Do see the not in the phrase.

Antonella Tutino and Carlos E.J.M. Zarazaga of Dallas Fed undo the famous Friedman quote in this short note. They say both the recent US experience and German experience in 1920s refute the Friedman quote somewhat. In US case, despite surge in money supply, there is no inflation. And in Germany, inflation was much higher than money supply:

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How a spam newsletter caused a bank run in Bulgaria and nearly resulted in a deep crisis..

July 3, 2014

Silvia Merler of Bruegel has this fascinating story on events in Bulgaria.

Apparently a spam newsletter led to a bank run and nearly collapsed the entire system:

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