Douglass North, Shipping Productivity and Institutions: 50 years of his landmark paper…

July 20, 2018

We have been celebrating 50 years of Friedman’s landmark paper on monetary policy (1968).

In 1968, Douglass North also wrote a landmark paper looking at how shipping productivity had improved from 1600-1855. Interestingly, he shows that the productivity rose not because of technology but due to organisational developments.

Vincer Geloso reviews the North paper and how it influenced the subsequent thinking:

Douglass North is known largely for his work on institutions (1981; 1990; 1991; 2005; North and Thomas 1973; North, Wallis and Weingast 2009). This legitimate emphasis on this segment of his work overshadows his earlier contributions regarding the empirical measurement of the past. Yet, when awarding him the Nobel Prize in economics in 1993 (jointly with Robert Fogel), the Nobel committee justified itself by pointing to his “explanatory model for American economic growth before 1860” and his research on “productivity in ocean shipping”. Throughout his early career, North dedicated numerous articles and books to the topic of measuring economies in the past. Over time, these articles have been supplanted with richer empirical works, but it is necessary to realize how important these earlier works, especially the 1968 article on shipping productivity, were to shaping North’s later research agenda on institutions.

Nice bit..


25 years of private sector mutual funds in India…

July 20, 2018

The Indian Mutual Fund industry was opened to private sector in 1993. 2018 marks the 25th anniversary.

ET has interesting articles:

There is another piece by Arati Krishnan in Business Line on the hits and misses.

When a jewelery company questions practices and ethics in banking sector…

July 20, 2018

The popular history of banking in the west, suggests that banks actually evolved from goldsmiths. In the earlier years, these Goldsmiths kept reserves of merchants. The former gradually started loaning out part of these deposits leading to gradual development of banking as we know/understand today. The earlier currencies were either gold or backed by gold making this relationship even more complex and intricate than we can imagine.

Infact, even in India, where banking traditions precede those in the west by several centuries, we see the same historically. The gold/jewellery business have deep linkages with banking. The earlier bankers in India were mainly from the precious metals sector. Gradually, the banking became more professional and based on joint stock and these linkages diminished. But then Nirav Modi saga has led to a different type of problem. Earlier people ran away after borrowing from these jeweler bankers. Now we are seeing the opposite.

Thus, it was interesting when a jewelry company recently released an ad which mocked the practices and questioned the ethics in banking sector.

The banking union was obviously not impressed and demanded an apology:

A new TV commercial by Kalyan Jewellers highlighting its “trustworthiness” by Bollywood’s leading superstar and his daughter has got bank employees up in arms for showing them in a “derogatory” manner, and has now made the company tender an unconditional apology and promise to add a disclaimer.

The All India Bank Officers’ Confederation (AIBOC), the largest association of bank officers, has objected to the Hindi version of the new TV advertisement by Kalyan Jewellers starring its brand ambassador Amitabh Bachchan and his daughter Shweta Bachchan Nanda.

“We express our strong resentment against the management of Kalyan Jewellers and Amitabh Bachchan who have manifested a negative and false image of banks in the advertisement for their personal aggrandisement,” said the 3.2 lakh member strong AIBOC.

Seeking an unconditional apology from Kalyan Jewellers and withdrawal of the advertisement, the union had warned that it would otherwise take action, including dharnas and litigation.

“Due to various reasons, banks have already got a bad name. The advertisement has further hurt the sentiments. Customer service is our first priority,” said Soumya Datta, General Secretary, AIBOC, adding that public sector banks have been working for nation-building through schemes such as Jan Dhan Yojana, Mudra loans and Aadhaar enrolment. The union has also complained to the Advertising Standards Council of India.

In a communication to the bank union, Kalyan Jewellers has now promised that a disclaimer will be added within three working days before the advertisement stating: “Characters and situations depicted are fictional. The brand does not intend to disrespect or malign any person or community.” But the union is not happy with the disclaimer. “A letter has been issued by Kalyan Jewellers. But unless they stop airing the ad, it is not acceptable to us,” Datta told BusinessLine.

This is even more ironical as trust has eroded in both banking and jewelry sector..Perhaps some bank should react and show jewelry sector in similar light

The dark side (read political symbolism) of Croatia’s soccer ‘soft power’

July 20, 2018

Croatia and its football have captured imaginations like nothing else. Even after the match on Sunday, Croatia was right up as one of the top 10 trends on Twitter even till yesterday.

Venky Vembu in this article points to this interesting aspect of Croatia football. We were all amazed by the Croatian President’s conduct on and off the football field. Vembu says well there is no choice for the President as national football team is sacrosanct in the country:

In Croatia, sport is a highly politicised form of national expression, as researcher Dario Brentin at the UCL School of Slavonic and East European Studies notes in a 2015 research paper ‘Ready for the homeland? Ritual, remembrance and political extremism in Croatian football’. Croatia’s first President Franjo Tudjman famously said: “After war, sport is the first thing you can distinguish nations by.” Croats consider any critique of the national football team as an attack on the entire nation because, Brentin notes, the national team is a “sacred institution of nationness.”

……At football stadiums, Croat fans frequently channel far-right sentiments that date back to the fascist Ustase movement, which was active in the years leading up to the Second World War. They have been fined for chants of ‘Za dom spremi’, the Ustase salute. And the team has been penalised in the European championship after a swastika was painted on a football field.

….Catherine Baker, a scholar on nationalism and ethnic conflict, notes in Prospect magazine, Grabar-Kitarovic’s World Cup appearances are “fully on-brand as part of a celebrity political persona that is based on entering conventionally masculine spaces of nationhood and embodying leadership.”

…..Croat soccer stars played their hearts out, but it’s impossible to separate the sport from the nationalist, far-right sentiments it is used to channel by politicians, even glamorous ones like Grabar-Kitarovic.


How a central bank (Bank of England) caused one of history’s biggest cons…

July 19, 2018

This is history in circles and not sure whether it connects that well.

However, the story of a Scotsman named Gregor MacGregor who goes to Central America and then cons investors back in London is interesting. How con artists have flourished globally and historically over the years:

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Belgium’s central bank to hack local financial institutions to prepare them against cyber attacks

July 18, 2018

How to catch a criminal prevent criminal activity? Think like criminals!

Central Bank of Belgium will hack banks to figure the preparedness of Belgian banks:

The National Bank of Belgium has announced it will test the ability of local financial institutions to withstand hacking attempts by performing tests that simulate cyber attacks by using the tactics, techniques and procedures employed by real hackers.

In May of this year, the European Central Bank greenlit a legal framework for this type of controlled cyber hacking aimed at testing the resilience of financial institutions. 

“We are seeing that the risks associated with cyber attacks continue to increase. Millions of dollars were for instance stolen when the Central Bank of Bangladesh was attacked two years ago,” National Bank of Belgium president Tim Hermans told the Trends financial weekly.

He added that the Belgian central bank’s hacking attempts would primarily focus on market infrastructures such as Swift and Euroclear, which are used to process most bank payments. “If something were to happen with them, this would be catastrophical,” he said.

The tests against cyber attacks will cost €150,000 per test, a cost that will be carried by the financial institutions themselves.

Looks like a really costly test…

Turkey’s Islamists and their economics

July 18, 2018

Gökhan Bacık, Prof of political science at Palacky university has a piece:

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Behavioural Government: Using behavioural science to improve how governments make decisions

July 18, 2018

UK’s Behavioral Insights Team has a new publication:

Governments are increasingly using behavioural insights to design, enhance and reassess their policies and services. Applying these insights means governments adopt a more realistic view of human behaviour than they have done in the past – and may achieve better outcomes as a result.

However, elected and unelected government officials are themselves influenced by the same heuristics and biases that they try to address in others. This report explores how this happens – and how these biases can be addressed or mitigated. To do this, we focus on three core activities of policymaking: noticing, deliberating and executing.

Just read a few pages and like most behavioral research, one is surprised with all these biases and illusions..

The world’s 10 best performing metropolitan economies

July 18, 2018

Max Bouchet and Joseph Parilla list the top 10 metro economies. Five are from China!

The blockchain trilemma

July 18, 2018

Econs are using different ideas/frameworks to figure this beast of blockchain/cryptos.

Markus Brunnermeier and Joseph Abadi in this piece use the trilemma concept to understnad blockchains:

Can democracy vote itself out of existence?

July 17, 2018

Manjeet Ramgotra of University of London points to this ongoing dilemma: Why are voters electing leaders who are autocratic?

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Cutting hours of work to fight recessions: evidence from France

July 17, 2018

Pierre Cahuc, Francis Kramarz and Sandra Nevoux provide evidence that cutting hours of work helped firms during the 2008 crisis in France.

Short-time work, also called short-time compensation, is a public programme intended to preserve jobs at firms or establishments experiencing temporarily low revenues, by providing wage support to the employees the firm wishes to keep with reduced work hours. The 2008–2009 Great Recession gave OECD countries the opportunity to expand on such short-time work programmes – whereas the OECD average take-up rate was less than 0.2% in the fourth quarter of 2007, just before the Recession, it increased six-fold, to 1.3%, in the fourth quarter of 2009 (Hijzen and Venn 2011, Hizjen and Martin 2013). However, despite short-time work increasing in popularity, even in recent academic work, very little is known about its causal impact on employment.   

Our recent paper helps to fill this gap by taking advantage of the massive expansion of the French short-time work programme during the Great Recession (Cahunc et al. 2018). From the end of 2008, the Ministry of Labour not only expanded the policy’s budget, but also wrote circulars and directives, in order to promote the use of short-time work as rapidly as possible. As a result, the share of employees on short-time work increased from 0.3%, in 2007 just before the Great Recession, to 4% in 2009, the year of programme expansion. Subsidies per non-worked hour and subsidies per employee were respectively multiplied by 1.4 and by 2.5 between these two dates. The cost of the policy trebled, multiplied by a factor of 20. By precisely analysing the programme, both in its principles and in its practical implementation, we show the extent to which, and explain why, short-time work works – both from a theoretical and an empirical perspective. 

Even in general times, one wonders why should one work more hours than required? This is particularly true in most Indian offices where most work late just to impress bosses who also have this habit of staying late to show they have been working hard. I mean if one can’t finish work in 8 hours it is unlikely he/she will finish it in few extra hours.

In most types of labour, even this 8 hour work schedule is too long. One could cut this and let people do something more valuable than mere sitting in office.

Reading Popular Histories of Economics

July 17, 2018

Interesting paper by Prof Tiago Mata of UCL’s Department of Science and Technology Studies.

He says the academia should give popular histories their due:

Discussions of historiography often exclude books published for a mass public. As a result, we have developed a skewed appreciation of who writes the history of economics, how it is written and who reads it. In this essay I argue that learned and popular histories should be read as equals and that we ought to study both as objects in culture, forever mobile and tampered. My argument’s deep implication is that our outlook and imagination have been unjustifiably constrained. By studying online reviews of histories of political economy I contend that histories have the potential to entertain, to elicit powerful emotions and to aid readers in the labours of understanding their social world.

Success of French football team masks underlying tensions over race and class

July 16, 2018

Joseph Downing of Aix-Marseille Université provides a reality check on French football team which boasts that its success is based on inclusiveness:

In the 20 years since Zidane lifted the World Cup, little has changed in the estate outside of Marseille where he grew up. Like other estates in France that house significant numbers of those of foreign ethnic origin, La Castellane continues to be gripped by violence and the all-too lucrative drugs trade, which periodic raids do little to disrupt.

The achievements of 1998 and 2018 demonstrate that players such as Zidane and Mbappé from ethnic minority backgrounds can rise to the top of French society. Some players transcend football, taking up bigger political causes, such as the French 1998-world cup winning defender Lillian Thuram who has worked against discrimination in France. He even turned down a position in the government of Nicolas Sarkozy because of differences with the president over his stance on social issues and because Sarkozy called the rioters of 2005 “scum” when he was interior minister.

Yet while the current team is riding high on a wave of the resurrection of “black-blanc-beur” success, French football, like French society, remains marred by complex forms of racial discrimination.

There was a similar article on English football as well..


The UK’s productivity problem: hub no spokes

July 16, 2018

Andy Haldane yet again. How he has made a habit of giving such amazing speeches which are so detailed and yet so simple. One could add  the phrase Haldanesque for any such future central banker speeches.

In his recent speech (40 pages), Andy talks about how UK has a productivity problem (there were talks of giving Bank of England a productivity target). Its productivity has stagnated over the years, The break-up statistics show that the largest firms continue to do well but it is mainly the smaller ones which have not withstood the test of times. Thus we see a kind of inequality in productivity distribution as well, where haves thrive and have nots barely survive. He further argues that real problem is that ideas seem to spread slowly across the economy. Thus there is hub but no spoke:

The UK faces perhaps no greater challenge, economically and socially, than its productivity challenge. Meeting that challenge would deliver benefits to workers in improved wages and skills and to companies in greater efficiency and profitability. It would also contribute to closing inequalities of income, wealth and
opportunity which have rightly and increasingly pre-occupied policymakers over recent years.

The UK has a rich, in some respects world-leading, endowment of innovation and talent. This is, however, unevenly spread. Developing an institutional infrastructure, which draws on the UK’s comparative advantage in innovation but which spreads its benefits more widely, would support the long tail of UK companies and the people who work for them. It would help close the pay and productivity gaps between the best and the  rest, the present and the past, the in-crowd and the out. It would put the rhyme back into R&D. The returns to doing so are difficult to quantify precisely. As a thought-experiment, imagine the bottom three quartiles of the UK productivity distribution saw their productivity gap with the quartile above closed. That would boost UK levels of productivity by around 13%.

This would close a large part of the productivity shortfall relative to its pre-crisis trend. And it would make inroads into closing the productivity gap with the
US and Germany. In today’s prices, it would boost the level of UK GDP by around £270 billion. In closing those gaps, a useful intermediate objective would be to create in the UK a leading-edge diffusion infrastructure, to rival and complement its leading-edge innovation infrastructure. This boost our world (and, with luck, our World Cup) rankings. Inclusive innovation could serve as a conduit to inclusive growth. The UK’s innovation hub would get the spokes it needs to reach every sector, every region, every worker. It would be an industrial strategy for everyone.

The speech was given in end of June, so obviously no World Cup is coming home..:-)

Overall, another Haldanesque speech…

A slow-cooked battle over ‘Malabar’ biryani

July 16, 2018

Another fascinating story of how two companies are battling to use the word Malabar to differentiate their Biryanis:

Now, if there’s one perennial, unresolvable, fun and quintessentially Indian debate that comes close to which variety of mango is best, it is about which kind of biryani is tastiest. The people of Malabar have no doubt that their version is the most delectable. So much so that a couple of competing brands have battled in the courts over owner- ship of the word.

The flames were first lit in the Calcutta HC in 2012, when Parakh Vanijya Private Limited alleged that Baroma Agro Products’ use of the mark Malabar Gold for its ‘special biryani rice’ amounted to an infringement. Parakh claimed it was using the word Malabar since 2001, and Baroma’s biryani rice label was identical and deceptively similar to its own mark.

The Calcutta HC found some similarity between the two labels, and restrained Baroma from using the mark for the time being. A Division Bench also agreed.

Baroma kept the fire burning, moving the Calcutta High Court to vacate the 2012 order, alleging that Parakh was relying on ‘fabricated documents’ and that the company could not claim exclusive right over the word Malabar. In 2016, the HC sought to douse the coals and balance the interests of both parties, considering their substantial turnovers; it allowed Baroma to use the label Malabar with an increase in type size of not more than 25% of the rest of the words or letters on the pack.

Now, it was Parakh’s turn to strike back: the company moved the Supreme Court. On July 12, a bench of Justices Ranjan Gogoi and R. Banumathi noted that Amalgamated Bean Coffee Trading Company manufactured Malabar Monsoon, and Tropical Retreats used Malabar Coast for its range of coffee, tea, cocoa, sugar and other products, and that the rules of registration itself were against any company claiming exclusivity over the term Malabar.

Justice Banumathi, who wrote the judgment for the Bench, concluded, “Since there is a disclaimer to the exclusive use of the word ‘Malabar’, the appellant has no right over the exclusive use of the word.’

Judgement copy is here.

Amazing how these battles keep brewing (or boiling in this case of rice) from time to time…

Review of Indian statistical system

July 16, 2018

This is an important paper by R.B. Barman Chairman of National Statistical Commission.

In economics, we pay far more attention on which statistics to use compared to how the data/statistics are collected over the years. This should be part of the course as then it gives students a perspective on both strengths and limitations of whichever economics data they are using. It is appalling to note most students are completely clueless on how and where to get data on key economic variables.

Mr Barman advocates usage of digital technology to strengthen the stats system:

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On research in development economics: Interview of Dileep Mookherjee

July 13, 2018

Nice interview. Apart from discussing his work, Prof Mukherjee has advice for PhD students:

Q: The last question: can you give some advice for the Ph.D. candidates?

DMWell, be open-minded. That is the first important thing. Do not be wedded to any particular methodology. Look for a problem, a really important problem. Gauge that not just by what the professor thinks, or what your fellow students think, but also by talking to people in regular life. Second, it should not have received a lot of research attention already. You should study something new, or pursue a new angle to a classic problem. So there are two criteria: (1) it should be important. It should matter for people’ lives and for development. (2) It should not be studied already by many people. You should not want to do the 51st paper on some topic.

You should do something new and original instead. Those are the most important things in finding problems. Then go acquire whatever tool that is going to be the most useful. Do not be fixated upfront with either structural or reduced-form approaches. Go and see what data is available. Talk to people on the ground and then get a sense of what the right model is. Always look for scientific understanding first. You have to understand what is happening before you evaluate or suggest some new policies. That is what I would recommend.

How many PhD programs support doing something new?

Should Cryptocurrencies Be Regulated like Securities?

July 13, 2018

Diego Zuluga makes a case for regulating cryptocurrencies as securities:

  • The rise of ICOs has raised the question of whether cryptocurrencies are securities.
  • Regulating cryptocurrencies as securities would affect who can buy, hold, deal in, and keep custody of cryptocurrencies, and require varying disclosures.
  • Regulatory uncertainty is chilling innovation and increasing volatility in cryptocurrency markets.
  • Regulators should provide clarity on how cryptocurrencies fit within existing laws by adopting a framework that makes a distinction between functional cryptocurrencies, such as bitcoin, which are not securities, and promises of cryptocurrencies, which may in some cases be securities.
  • Securities regulations should only apply to promises of cryptocurrencies that are marketed as investments and tradable on secondary markets before they are functional: those that meet the Howey test legal precedent for determining a security.

So obviously cryptos then are not to be seen as currencies for making payments but to be seen as securities which are like assets. But how do we define a security?

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Time to untie the ECB’s hands and revisit its longstanding price-stability objective

July 13, 2018

Stefan Gerlach (Chief Economist at EFG Bank in Zurich and Former Deputy Governor of the Central Bank of Ireland) looks at this evergreen issue of what a central bank should do.

He says ECB should revisit its price stability objective:

As a practical matter, the ECB’s price-stability objective, originally designed to protect the eurozone from Italian-style inflation, has ended up protecting it from German-inspired deflation. But just because the ECB’s mandate has forced it to do the right thing on occasion does not mean that we will be so lucky in the future.

The global financial crisis required advanced economies’ central banks to contend with circumstances that those who crafted their mandates scarcely could have imagined. The fact that things often do not work out as expected is precisely why central banks’ objectives should be written to give policymakers flexibility – or poetic license to bend the rules – when extreme events occur. Otherwise, policymakers will be less effective than they otherwise could be.

Because the ECB’s price-stability mandate is legally codified by the Treaty on the Functioning of the European Union, it cannot be altered without a treaty amendment. But the phrase “below, but close to, 2%” is the ECB’s own, and thus can be changed with the stroke of a pen.

As such, the ECB should consider two alterations. First, it should get rid of the ambiguity inherent in the words “close to,” by setting a point target to provide clarity to the public – and to ECB Governing Council members – about what its monetary policy aims to achieve. Whether that target is 1.8% or 2%, or whether it is surrounded by a range, is less important.

Second, the ECB must clarify how financial stability and business conditions factor into its policy decisions. Many have argued that lengthening the policy horizon by precisely defining “the medium term” would give policymakers room to pursue other objectives temporarily. After all, because financial crises and deep recessions are deflationary, they, too, jeopardize price stability.

With the ECB finally exiting the last crisis, now is a good time to reflect on what lessons it has (or should have) learned. The ECB must not delay in positioning itself for the next downturn.


These discussions and views on central bank objectives never end, do they?

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