A historical perspective on Planning Commission…(why keep ignoring Prof. BR Shenoy and others?)

September 15, 2014

EPW’s recent edition (Sep 13) has three articles on the proposed dismantling of Plan Com. I think we just don’t get it that Plan Com really unruffled the former Guj CM who has become the PM. His distaste for economists perhaps must have begun then only considering he has not taken the bait of several econs who pushed to be his adviser.

Anyways,there is still hope amidst few (many actually) that all the agency needs is a revamp and all else shall be fine. And a new name like National Development and Reforms Commission (NDRC) picked of the Chinese counterpart. We can only get as innovative as that. Quoting Shakespeare, “A rose by any other name would smell as sweet.” It does not really matter.

Here are the three pieces:

The one by Prof Nachane deserves a read given it takes this historical perspective on the whole thing.

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Believing the macro data…A case of Aus employment data

September 12, 2014

James Glynn at WSJ Blog points to this interesting issue from Aus.

Analysts/people are questioning the unemp data released by stats agency. The agency shows employment  growth higher than what people see.

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Building an economic indicator using social network…

September 12, 2014

Piet Daas and Marco Puts of Netherlands Stats Bureau have this interesting paper as part of ECB series (HT: WSJ Blog).

They propose an econ sentiment indicator which tracks social network messages. It is a technical paper and not easy to read:

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A new textbook to understand Austrian economics.

September 12, 2014

It is written by Randall G. Holcombe who has written this — Advanced Introduction to the Austrian School of Economics. And it is not free as this one.

The interview of Prof Holocombe is here:

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Is the ECB going to do/doing QE?

September 12, 2014
Prof. Charles Wyplosz, European monetary affairs expert  analyses the recent moves by ECB President Super Mario. 
He says it is not really going to be QE as we understand it today:

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The Economy– a free and non-mainstream economics textbook from INET..

September 12, 2014

I am not sure how many have noted this already. Soros funded INET has been working on this project ever since inception of the think-tank.

The book is out and titled as “The Economy”. It is available online for free. The contents are different and interesting. PDFs are being released with a lag but one can read the whole book online via inkling software (register to figure). The book is different from the existing ones.

Hopefully it provides competition for Mankiw et al kinds of textbooks. They support free markets in everything. Wonder if they will promote and support this book well.  Of course the book will only pick up if it is superior in content and people value it more than the existing. But whether the consumers will be given a choice or not will be interesting to see.

How more beer consumption is expected to lower mortality in Russia..

September 12, 2014

Well, that is just a  cheesy and feel good title. As much of economics is around relative prices etc., this post is relative too.

So beer here is with respect to vodka. Lorenz Kueng and Evgeny Yakovlev in this fab post point how consumption in beer has increased in Russia since its break-up. As people mostly consumed Vodka earlier this led to many deaths. With rise in beer, the mortality due to alcohol is expected to decline:

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What do Indian PM and Indian cricket captain have in common?

September 11, 2014

Superb question from Gyanendra Keshri and equally superb answer — Both have the most important jobs in India. :-)

It is often said that the two most important jobs in India, respectively, are that of two champions: the prime minister and the captain of the national cricket team (number one and two position depends on the individual and perception). Politics and cricket dominate the average Indians psyche. Wherever you go, be it an elite socialite gathering or people sitting at a roadside dhaba or traveling in train or bus, the most common topic of discussion is either politics or cricket.

Then he goes onto compare the two jobs. He points to one lesson but misses an equally important one:

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How Wall Street is missing Chavez?

September 11, 2014

An interesting piece by Sebastian Boyd on Chavez and Wall Street. As the new President is not as authoritative and has been unable to keep the economy from sliding, Wall Street returns from Venezuela has declined:

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Life without Plan Com..Should new entity be called National Development Policy Commission?

September 11, 2014

I am loving the debates on Plan Com. How difficult it is  for India’s experts to let Plan Com go is obvious. Most are just listing same functions for Plan Com, giving another name and so on.  It is like life without Plan Com is really difficult to imagine.

Two recent articles on this. One by Shankar Acharya and other by Mihir Shah former PC member from 2009-14

First article by SA. Please no. This was my reaction reading Shankar Acharya’s piece on the to be dismantled Plan Com. I mean how will this be any different from the existing Plan Com?

After listing the new body’s functions which are not any different, he names it as NDMC:

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How the committee that saved the world ended up nearly destroying it..

September 11, 2014

Adam White has this stirring piece in City Journal. article is a review of Geithner’s recent book.

This is a piece which all the policymakers in economics and finance shot current should read. The central message is never take yourself too seriously. Don’t let current successes turn into hubris as you never know when it will all come crashing down. One major reason why we saw such spectacular failures in economic policy-making in West apart from dubious economics was enormous amount of arrogance and belief that I know all. When the luck runs out it all becomes too ugly.

There should be far more humility than we see in financial elites across the world. All of them come from very similar backgrounds and education profiles. Much of the differences they try and show are just a hogwash. Most of the time, they try and take credit for much of that is happening across their economies and the world. We are seeing plenty of this in India too.

The committee of Rubin, Greenspan and Geithner (add Summers too) was seen as the thing in 1990s:

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The decline of honeybees and its impact on agriculture..

September 10, 2014

Nice post by Julian Lee of WB. That too on a topic which we hardly discuss and think about.

He says how decline of honeybee population is leading to decline in agri prospects:

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Can toll roads be made user-friendly?…Undoing Several myths too..

September 10, 2014

I think even a child knows that it is not about building a new thing which matters. It is about sustaining it too. But in most of our policymaking this basic aspect is just plain lacking.

We are in this huge mania to create new cities, roads, airports, IIT/IIM etc. but there is just no emphasis on maintaining the quality of the current crop. The first is seen as a major reform but the second is the boring usual stuff. But most countries develop by doing the usual boring stuff really well.

Vinayak Chatterjee writes on how road maintenance is as crucial as developing them. I mean this is so obvious but somehow isn;;t the case here. The roads even tolled ones are hardly maintained. They remain useful for a couple of months/year and then are again back to square one. The passangers are irked as they hardly get a reasonable drive for the money they pay.

In the article he also discusses six myths on tolled roads.

In the end:

There is clearly a growing need for a new generation of specialised outsourced “asset management partnerships” to manage the operative life-cycle of an asset properly and most importantly, deliver value to the customer. Myths will not do.

Well, not sure whether we need another partnership to get things going. This will just make things more bureaucratic with multiple parties. The partnership responsible for building roads and collecting tolls should manage the assets too..

The mirage of “world class research”.. why India is so much behind?

September 10, 2014

India is often seen as a supply side story i.e. we need to resolve our several supply bottle knocks to meet the huge demand. Once supply is sorted, growth rates are a given.

There is one area where it is not supply but demand side which needs a relook – research in universities. Prof. Dinesh Mohan in this superb article points to several issues clogging our research. He says mirage of world class research. I would say leave world class let us even come to cattle class category (for lack of a better metaphor).  We are even unable to educate properly leave research..

Prof Mohan starts with Indian President’s parrot like words:

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Pune tries to become a smart city..

September 9, 2014

In this BS article, it is reported that Pune Municipal Corporation has tied up with BASF for its organic waste management.

(PMC) has joined hands with the leading global chemical company to promote smart management of through the use of certified compostable and biodegradable organic waste bags. At a seminar held on September 6, 2014, in Pune, entitled ‘Challenges and solutions for solid waste management’, participants in an interactive dialogue session with municipal employees discussed the complexities of efficient waste management, and potential solutions for Pune.
Dr Raman Ramachandran, Head South Asia & Chairman BASF Companies in India said, “According to a report by the Central Pollution Control Board, waste going to landfill in India contains around 50% organic matter by mass, which then does not biodegrade aerobically and produces methane, a many times more potent than carbon dioxide.”
He added, “Instead, when source-segregated, the organic waste can be treated in an industrial composting facility, and turned into high quality compost for agricultural use. Certified compostable bags made with BASF’s offer a more sustainable alternative for organic waste management, thereby contributing to a reduction in greenhouse gas emissions, extending the lifetime of landfills, and helping to decrease the disposal costs for residual waste.”
Certified compostable bags enable the hygienic collection of organic waste: they prevent liquid leaking from organic waste and keep out unpleasant odours. Additionally, as the bags are certified compostable, they can be processed immediately upon arrival at composting sites, to be quickly converted into high quality compost. This nutrient-rich compost in turn helps improve the soil quality, treat loss of arable land and reduce greenhouse gas emissions.

Interesting stuff. Hope the experiment succeeds and can be implemented in other cities. The kind of PPP partnership which makes far less noise but is really important and useful.

We often do not realise that smart city management is simply about figuring the basics using some new technology. Technologies come and go. What should remain is the integrity and commitment to manage the city and deliver the basics.

If urbanisation is associated with prosperity, why are today’s urbanising countries poor?

September 9, 2014

Edward Glaesar has this superb piece on this paradox. Usually, we think of urbanisation as somethign that leads to prospertiy. As countries have developed, so has urbanisation leading to higher incomes etc in today’s developed economies.

However, in case of developing economies story is different. Urbanisation has risen but so has chaos and filth. It is not the urbanisation story we saw in the history of today’s developed economies:

Over the last half-century, a once overwhelmingly rural world has become ever more urban. In 1960, the urbanization rate in the majority of poor countries was less than 10 percent. Just 3 percent of Botswana’s population lived in cities, for example, while Kenya was 7 percent urban and Bangladesh (then East Pakistan) was 5 percent urban. Even China had only 16 percent of its people then residing in cities. Nowadays, China is more than 50 percent urban and Botswana more than 60 percent. In those two countries, industrialization and increasing prosperity have accompanied the population shift to cities. China’s real per-capita incomes have risen 25-fold since the early 1960s, and Botswana is more than 17 times wealthier. This has been urbanization’s usual historical pattern. In 1961, a 1 percent increase in urbanization was associated with per-capita earnings growth of 3 percent. And the trend is even stronger today: in 2011, a 1 percent rise in urbanization was associated with a 5 percent boost in earnings.

Yet while urbanization continues to correlate with prosperity, recent years have seen the striking rise of a new phenomenon: urbanizing countries that remain poor. Urbanization has increased from 5 percent to 28 percent in Bangladesh and from 7 percent to 24 percent in Kenya, for example, but prosperity has stood still. The urbanization of these poor nations doesn’t take the form of midsize urban centers, like those that sprouted along most of America’s major nineteenth-century waterways, but typically of a single megacity. The Nairobi agglomeration has a population of 3 million; Dhaka has 15 million inhabitants. The Democratic Republic of the Congo is the ultimate example of this new form of impoverished urbanization. Its capital, Kinshasa, has 8.4 million people, while per-capita income in the country is about $250. Haiti is also an extreme case, with an urbanization rate of over 50 percent and a per-capita income under $1,000. Karachi has 13.5 million inhabitants; the per-capita income in Pakistan is about $1,200.

These impoverished big cities are mostly located in poorly governed countries, lacking stable institutions and strong property rights, which helps explain why economic growth hasn’t taken off in them. But if these vast urban agglomerations aren’t providing much economic opportunity, why are rural people still moving to them? And how can such cities, with extremely limited resources, deal with the perpetual demons of density, including contagions, crime, and housing? Can a megacity of almost 9 million people in a country where incomes average $250 a year be anything but a hell on earth? Cholera rages in Port-au-Prince and Kinshasa; hundreds are killed each year by the commuter trains of Mumbai. The awful downsides of urban poverty might seem to support limits on urban growth or a more aggressive focus on rural development. But cities are the present and future of the developing world. The great challenge of our century will be to make them livable.

He points to lessons from NY:

Why has poor-country urbanization become so common when it was once rare? In the broadest sense, it is because the longtime connection between agricultural productivity and urban growth has been broken. From medieval times and for centuries afterward, famine-causing disasters didn’t send peasants flocking to the nearest town or city—that path led only to starvation. Staying close to the land offered the best chance of survival. Cities grew only when they could tap vast agricultural surpluses and, crucially, had the means to get that food delivered reliably from their hinterlands.

New York is a good example. Back in 1875, as it crossed the threshold of 1 million inhabitants, the city could easily feed itself with the products of fertile western farmland. Thanks to technological improvements like Cyrus McCormick’s mechanical reaper, the farms had begun to produce a lot more food than farmers needed to feed themselves. New transportation infrastructure—the Erie Canal and the Intercontinental Railroad—made it possible to move all that food swiftly to the city. And Gotham’s entrepreneurial success in finding markets for its relatively sophisticated products, like printed books and refined sugar, gave it the wealth to buy and transport the food, which, in turn, enriched America’s breadbasket. In earlier cities with more than 1 million people, like ancient Rome, military might and bureaucratic competence played the role that entrepreneurship did in New York. Unlike the Iowa farmers shipping wheat to Manhattan for profit, Egypt wasn’t willingly emptying its granaries to feed Rome. But the empire’s sword made sure that the food arrived all the same, efficiently moved over great distances by the Roman legions.

He points to further examples on how NY handled water, crime etc issues.

Though one is not really sure whether lessons can strictly be learnt and applied. It is not as simple as it looks. Even cities in developed world were a huge mess and it took them a while to sort the issues. Each country, city has to go through the troubled path and then find a solution. Two advantages which most most of today’s developed world had was either huge land area or low population or both. This made it easier to transform cities. In the developing world most countries don;t have similar  luxuries making it all the more difficult.

This does not mean it can’t be done. Just that the path is much tougher..

Indians know that the monsoon is the real finance minister of India. …

September 8, 2014

Nice phrase used by Sunita Narain in this piece — Indians know that the monsoon is the real finance minister of India.

The article focuses on how we are just mismanaging our monsoon/rainfall system:

Every year, like clockwork, India is caught between the spectre of months of crippling water shortages and and months of devastating floods. In 2014, there has been no respite from this annual cycle. But something new and strange is indeed afoot. Each year, the are growing in intensity. Each year, the rain events get more variable and more extreme. Each year, economic damages increase – and once again, development gains are lost in one season of flood or bad drought.

now say conclusively that there is a difference between weather and its natural variability and climate change, a pattern brought about by human emissions that is heating up the atmosphere faster than normal. Scientists who study the monsoons tell us that they are beginning to make that distinction between “normal” monsoons and what is now showing up in terms of abnormal extreme rain events. This, remember, when the monsoons are an extremely capricious and confounding natural event, hard to predict and even harder to pin down. But, even then, scientists can find the change.

All this is further complicated by the fact that multiple factors affect the weather and another set of multiple factors affects its severity and impact. In other words, the causes of devastation following extreme events – like droughts or floods – are often complicated, and involve mismanagement of resources and poor planning.

For instance, we know floods of the sort that are currently ravaging parts of are caused by unusually high rainfall. But it is also clear we have destroyed drainage in floodplains through mismanagement. We build embankments believing we can control the river, only to find the protection broken. Worse, we build habitations on the floodplains.

Similarly, urban India is mindless about drainage: Storm water drains are either clogged, full of garbage and sewage, or just do not exist. Our lakes and ponds have been eaten away by real estate, since land is what the city values, not water. In all this, what happens when extreme rainfall events happen? The city drowns.

High time to get  our priorities right:

The way ahead is to respect the vulnerability of the region. It cannot be anybody’s contention that the Himalayan region must not see development. The question to consider is how it should develop: By building roads and hydropower projects, or through local economies based on tourism, which do not work against nature. It is also a fact that the changing monsoon pattern will require us to optimise the use of every drop and not allow rain to become devastating floods. Only then will the Himalayan tragedy not be repeated.

Indians know that the monsoon is the real finance minister of India. Clearly the opportunity is to make sure that every drop of this rain is harvested and used in the prolonged dry season. But this rain will arrive in more ferocious events – which also means that the engineering to capture it across the country must be better. We must plan for drainage so that when rain comes it can be channelised and optimised. Holding and channelising rain must become the nation’s mission. It is our only way to the future.

This means that every water body, every channel and every catchment of rain has to be safeguarded. These are the temples of modern India. Built to worship rain.

There was a time when rains were enjoyed. Now it is just filth and stress all around. How to go from x place to y place in rain, how to prevent filth coming to one’s house (those on ground floor), preventing waterborne diseases during rains etc. The list just seems to be growing each year..

Each monsoon, the key newspapers should print articles on how things are managed during this rain in this city. There clearly has to be more awareness on the issue..

Should central bank print the currency notes by itself or outsource it?

September 8, 2014

I had written blogpost on this outsourcing of currency function earlier. But am unable to locate it.

Nevertheless, Bank of England issued this press release informing that BoE has outsourced its currency function to a private firm. BOE has been outsourcing its currency printing function since 2003. This got me thinking of the earlier post.

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Why big bang reforms turn out to be whimper in action?…case of savings account interest rate in India

September 8, 2014

Sammer Kochar of Inclusion writes about this so called big bang reform in Indian banking. This was the case when RBI deregulated the savings account rate. So if you keep money in saving account of a bank, bank paid you  a fixed 4% as specified by RBI. In 2011, RBI said each bank can set its own deposit rate depending on each bank’s cost of/return on funds etc. This was seen as a major step towards deregulation of Indian banking and interest rates. RBI had been deregulating a lot of things over the years and this was a major step in the exercise.

But what is the impact? Only three banks offer rates different from 4%. Rest including many private and foreign banks continue to peg the savings rate at 4%:

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Namonia reaches Texas and Dallas Fed…

September 8, 2014

Wow this is some publicity and hype.

How many times do we see central bankers of praise politicians and that too of of other nations? In this case it is actually a Regional Fed chair – Richard Fischer of Dallas Fed praising the not so new Indian PM. I just casually read Fischer praising Indian PM on some website. I thought it must have been just some comment. But no it is a speech titled Texas Jagannath (With Reference to Indian Prime Minister Modi, a Hindu Goddess and Wodehouse’s Big Money) .

The speech is given at US – India Chamber of Commerce:

I am so honored to have been invited to join Ambassador (S.) Jaishankar this evening to celebrate the U.S.–India Chamber of Commerce and its many distinguished awardees.

Mr. Ambassador, I am delighted you are here in Texas tonight. I am going to give you a few statistics in a moment that I think will make readily apparent the reason for this large audience and why so many Indian entrepreneurs and professionals come to Texas. Then I am going to give you a snapshot of where the U.S. economy is at present and what we are grappling with at the Fed. But first, with your indulgence, I want to briefly speak of the relationship between our two great countries, India and the United States.

The logic of an enhanced strategic relationship between my country and yours is crystal clear, beginning with a harsh geopolitical reality: You live in a tough neighborhood and need us; we, in turn, need all the friends we can muster in your geographic sphere. It seems very timely that we overcome the history that has separated us and begin working more closely together.

During the Cold War, it was the view of many in the United States that India was too closely allied with the Soviet Union. American businesses that looked at India found it afflicted with the legacy of the worst of British bureaucratic administration. (The old joke was that you could never get morning tee times at any Indian golf course because the bureaucrats had locked them up at least until noon).

From an Indian perspective, America seemed too hegemonic. Attempts by U.S. companies to invest and do business in your homeland revived memories of the East India Company.

We viewed each other through the lens of the time and against a background of our own histories, with suspicion.

But the (Berlin) Wall came down, the economy has been globalized and cyberized, and new threats to security have arisen, many of them from nonstate actors or forces who operate from within failed states to inflict damage elsewhere. This is a time for like-minded people to unite and work together.

We are like-minded in that we are democracies. But tonight we celebrate something even more fundamental. My reading of India is that, like in the U.S., your country men and women are more pragmatic and business-oriented than they are ideological or inherently bureaucratic.

The recent election of Prime Minister (Narendra) Modi offers the promise of making this abundantly clear. He was, after all, the chief minister for over a decade of the Gujarat, the most probusiness state in India. And almost every U.S. business leader I know has heard of Ratan Tata’s experience when he looked to Gujarat for an alternative to the frustration of his attempt to build a new car factory in West Bengal. As I understand it, Mr. Tata went to see Minister Modi, had a handshake deal in 30 minutes, and in 14 months the new factory was up and running. That almost makes Texas look like California by comparison!

So Mr. Ambassador, we are all watching for this first prime minister born since Independence to work his probusiness, nonbureaucratic, can-do spirit upon the whole of India. It is in America’s interest for India to thrive. We wish Prime Minister Modi, the government you represent with such distinction, and the Indian nation the very best of luck.

That is some marketing. One would expect such a speech from Texas Governor not Dallas Fed President.

How Yellen has become like a Hindu Goddess:

As you can see from this graphic, unemployment has declined to 6.2 percent, and the dynamics of the labor market are improving. At the Federal Open Market Committee, where we set monetary policy for the nation, we have been working to better understand these employment dynamics. This is no easy task. Bill Gross, one of our country’s preeminent bond managers, made a rather pungent comment about our efforts. He noted that President Harry Truman “wanted a one-armed economist, not the usual sort that analyzes every problem with ‘on the one hand, this, and on the other, that.’” Gross claimed that Fed Chair (Janet) Yellen, in her speech given recently at the Fed’s Jackson Hole, Wyo., conference, introduced so many qualifications about the status of the labor market that “instead of the proverbial two-handed economist, she more resembled a Hindu goddess with a half-dozen or more appendages.”[2]

Whether you analyze the labor markets with one arm or two, or six or 19, the issue is how quickly we are approaching capacity utilization, so as to gauge price pressures. After all, a central bank is first and foremost charged with maintaining the purchasing power of its country’s currency. Like most central banks around the world, we view a 2 percent inflation rate as a decent intermediate-term target. Of late, the various inflation indexes have been beating around this mark. Just this last Friday, the personal consumption expenditure (PCE) index for July was released, and it clocked in at a 1 percent annualized rate, a pace less than the run rate of April through June.

Does this mean we are experiencing an inflation rate that is less than acceptable? I wonder. At the Dallas Fed, we calculate a trimmed mean inflation rate for personal consumption expenditures to get what we think is the best sense of the underlying inflation rate for the normal consumer. This means we trim out the most volatile price movements in the consumer basket to achieve the best sense we can of underlying price stability. In the July statistics, we saw some of the fastest rates of increases in a while for the largest, least-volatile components of core services, such as rent and purchased meals.[3] So the jury is out as to whether we have seen a reversal in the recent upward ascent of prices toward our 2 percent target.

Interesting comparisons..

However, Hindu Goddesses with multiple hands are seen destroying some evil. In this case the evil is really unemployment and weak economy. Can Fed chair really do anything about destroying the evil?


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