Economics and the human instinct for storytelling

May 29, 2017

Robert Shiller has a nice essay on the topic:

I’m starting now, with my more recent work, to think that we have to look at the humanities as well. There is something difficult to formalize about human beings, but something that we nonetheless have to understand, and I think one way to do that is with an approach that I’m calling “narrative economics”: taking economics and adding the study of the narratives that people transmit. 

The human species, everywhere you go, is engaged in conversation. We are wired for it: the human brain is built around narratives. We call ourselves Homo sapiens, but that may be something of a misnomer—sapiens means wise. The evolutionary biologist Stephen Jay Gould said we should be called Homo narrator. Your mind is really built for narratives, and especially narratives about other humans. That is why advertisers tend to focus not on a product itself, but rather on somebody doing some human action related to the product.

Narratives are contagious: they spread from one person to another. Some narratives disappear quickly; others can last a long time. I think of a narrative as a gem, something that you heard somewhere, and you think, I’ll remember that next time I’m in a conversation. I’ll use that. I’ll say it. I’ll try to present it right because I want it to have the effect that it had on me. That is a narrative. Narrative can, in the parlance of the internet, go viral. 


Why does money depend on trust?

May 29, 2017

Nice primer from Bank of England. Trust is all there is to money..

Norges Bank develops a video on new banknotes..

May 29, 2017

Interesting video from Norway Central Bank celebrating its new 200 kroner banknote which has its favorite fish- cod – on the note.


There is some explanation here:

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Here is Copernicus doing monetary economics!

May 29, 2017

Brilliant JP Koning has a superb tweet:

There is more here..

Well, there was a bank named ‘Sarkari Dukan’ (Government shop in English) in State of Udaipur!

May 29, 2017

I was reading this book by Dr Harish Sharma (delighted to see a link on the net) which was actually his PhD thesis The thesis looks at evolution of banking focusing on Rajasthan State. It has many interesting aspects of Indian banking, which we sadly neither know nothing about nor we care.

He starts the book by quoting from this interesting text by William Robertson.

it is a cruel mortification, in searching for what is instructive in the history of past times, to find that the exploits of conquerors who have desolated the earth, and the freaks of tyrants who have rendered nations unhappy, are recorded with minute and often disgusting accuracy, while the discovery of useful arts and the progress of the most beneficial branches of commerce, are passed over in silence, and suffered to sink into oblivion.

He says this applies so well to India’s origins and progress of banking. Well not just banking but all aspects of business and commerce. We just have let everything sink into oblivion. He is talking about a much earlier period on which resources are  really difficult to figure. We have let history slip of periods on which there is atleast some “written information”.

There are some attempts to undo this damage by the Penguin series. But unless all this is taught and debated in colleges, we can hardly make much progress.

Coming back to the book. It has amazing insights into progress of banking in state of Rajasthan. It was obviously many kingdoms back then and how they financed their operations and soon. The region was also home to Marwaris and Jains who obviously had a knack for maths which was used brilliantly in financing and industry later on. We know about Marwaris not as much about Jains.

He mentions how after 1857 revolt, the state of frequent wars in the region declined. This was a time for making some economic progress and the local some of the local kingdoms did realise this. Finance was seen as a major impediment in this progress as there was uneven development in the region. This led ruling princes to establish banks/financial institutions to aid agriculture and foster industry. Of course, none had any experience in banking which showed in eventual outcomes as very few could survive.

State of Udaipur was the first to establish a bank in the region in 1842, before the 1857 revolt. It set up a bank called Udaipur state bank which was more popularly called as ‘Sarkari Dukan’ (means Government shop in English)!

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Why print media remains relevant in India?

May 26, 2017

Shashi Tharoor has a piece. He says print media has died in mist countries, but growing in India.

Why so?

The robustness of India’s print-newspaper industry cannot be attributed to lack of growth in Internet access: in the last decade, the share of the population with Internet access rose from less than 10% to some 30%. So what does explain India’s thriving newspaper market?

One basic factor is India’s rising literacy rate, which has climbed to 79%, owing largely to improvement in the “cow belt” of the northern states – the Hindi-speaking heartland. In the 1960s, when Hindi speakers were overwhelmingly less literate than those who read in English, Malayalam, and Bengali, Hindi newspapers had low circulations. Today, they are on top: for the second decade in a row, Hindi newspapers experienced the fastest growth, with average circulation soaring at a compounded annual growth rate of 8.78% since 2006.

Economic development has also helped India’s newspaper industry. Many newly affluent Indians get their national and international news from television. But events close to home are best covered in the local dailies. And, indeed, newspapers remain the best way to reach this segment of Indian society.

To be sure, most leading news outlets in India have been developing their digital offerings. They have created mobile apps to download the news from their sites, and they increasingly treat their readers to short takes of digestible news briefs tailored to the small screens of hand-held devices.

But, for many serious readers, such options are no substitute for the look and feel of a printed newspaper article. Printed newspapers offer the added advantage of reliability, in a country where Internet access cannot be guaranteed all the time, owing to still-patchy electricity supplies, which cause frequent blackouts even in the capital. News junkies still need a tangible paper that can be read in the sunlight without a fully charged battery.

Given all of this, it may not be quite so surprising that advertisers in India have remained loyal to the appeal of newspaper ink over the flickering cursor. In sharp contrast with the Western experience, advertising remains the Indian newspaper industry’s main source of revenue.

Of course, this trend may not last forever. But, for now, India’s newspapers are in no danger of becoming financially unviable. While growth in digital advertising expenditure is surging, at an annual rate of nearly 30%, it still comprises just 8% of India’s total ad spending. Meanwhile, TV and print advertising revenue are also growing, at 8% and 4.5%, respectively.


Meet the newest banking indicator in town: The Divergence Ratio

May 26, 2017

Ira Dugal of Bloomberg Quint introduces us to this new indicator :-):

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Don’t Be “a jibbering idiot”: Economic Principles and the Properly Trained Economist

May 26, 2017

A must read short paper by Prof Peter Boettke of George Mason Univ.  It is actually a speech given at 42nd Annual Meetings of The Association for Private Enterprise, Hawaii.

He calls to bring back history into economics (how many such calls will be made to a profession and yet be ignored):

Economics, properly understood, makes sense out the complex web of historical relations that constitute reality, namely by utilizing economic theory. Economics without price theory is not economic theory, and measurement without theory isn’t empirically meaningful. However, graduate students are being increasingly trained in sophisticated procedures of optimization and statistical testing, remaining largely ignorant of economic theory as a tool to understanding economic history. This address is a renewed call for my fellow economists to continue to instill in their teaching the beauty of economic theory, as well as the empirical importance of economic history. In short, economic teaching and training must instill an understanding of economic forces at work, and properly done, instills the principles that constitute a golden key that unlocks the deepest mysteries in the human experience. Without learning the governing dynamics of human action and the mechanisms that produce the social cooperation under the division of labor, modern civilization will be left undefended against the fallacious claims that market processes are exploitative, monopolistic, and unfair. 

It has some important lessons and comments from late Prof Buchanan as well.

Boettke says given all the noise about economics training, it is basically about 8 basic principles:

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Is profit still a bad word in Indian polity?

May 26, 2017

JRD Tata once remarked how Indian Government during the 1950s did not like the profit word. It seems not much has changed despite many years of reforms.

Praveen Chakrabarty of IDFC institute points how post announcement of GST rates, Indian government is again warning against anti-profiteering. One reacted similarly to the G0vernment comments and wanted to blog. Thanks to Praveen who does a great job:

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How Paul Romer has been sidelined in World Bank due to war over words and usage of ‘and’…

May 26, 2017

Interesting piece on politics of economic research and grammar usage  in World Bank.

The World Bank’s chief economist has been stripped of his management duties after researchers rebelled against his efforts to make them communicate more clearly, including curbs on the written use of “and.”

Paul Romer is relinquishing oversight of the Development Economics Group, the research hub of the Washington-based development lender, according to an internal staff announcement seen by Bloomberg. Kristalina Georgieva, the chief executive for the bank’s biggest fund, will take over management of the unit July 1.

Romer will remain chief economist, providing management with “timely thought leadership on trends directly affecting our client countries, including the ‘future of work,’” World Bank President Jim Yong Kim said in the note to staff dated May 9.

Romer said he met resistance from staff when he tried to refine the way they communicate. “I was in the position of being the bearer of bad news,” he said in an interview. “It’s possible that I was focusing too much on the precision of the communications and not enough on the feelings my messages would invoke.”

It’s unusual for the World Bank’s chief economist, a role once occupied by heavyweights such as Stanley Fischer and Lawrence Summers, not to run the Development Economics Group, known as DEC, which publishes original research, develops the bank’s forecasts and oversees its data. The move raises questions about how much freedom the bank’s economists will have to do outside-the-box research on policies to help the world’s poorest.


How the Archives of India are actually destroying History

May 25, 2017

This is a very depressing piece. For someone who has been closely associated with Archives business in India, state of Archives here is just plain pathetic. The kind of importance the higher authorities give to the state of these places speaks volumes.

The piece is on National Archives but applies to most other Archives in India:

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Mainstreaming behavioral economics…

May 25, 2017

Profs. Beryl Chang and Fabrizio Ghisellin say we need to simplify behavioral economics:

At the moment, behavioural economics suffers from confusing definitions, unanswered questions and conceptual gaps that need to be filled. It is reminiscent of a person who needs a diet both for a detox and a weight loss.

We need a ‘vertical’ streamlining process that will:

  • Clarify core issues: What is the ‘correct’ definition of rationality? When an alleged bias, such as loss aversion, is found to be part of human nature as designed by evolutionary processes, can it still be considered a ‘distortion’?
  • Fill existing conceptual gaps: behavioural economics deals abundantly with biases, but how are expectations formed? Are expectations ‘rational’?
  • And most importantly, generate a tractable reduced form for behavioural economics models. Today we have hundreds of different behavioural factors. They should eventually be translated into a smaller set of primitive factors.

In order to establish behavioural economics’ status, we hardly need the ‘discovery’ of yet another behavioural bias. At this stage, we need parsimony and an effort to synthesise what already exists into a general mainstream model as an alternative to conventional models.

They cite an example from Mullainathan and Thaler:

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The curious case of NPA underreporting in India: Role of auditors…

May 25, 2017

As I have argued before, the recent NPA mess is just inexplicable given wide-scale inspection powers the regulator has on banks. But there are more players in the game whose role has to be explored.

One of them is auditors whose role in reporting any such issue has been found wanting for so many years now. It is not any different this time as well.

Hemindra Hazari of Wire reports:

Recently, Axis Bank and Yes Bank jolted the Indian banking community while releasing their annual results. Both banks disclosed a staggeringly large divergence between the banks’ audited accounts and the Reserve Bank of India’s (RBI)  findings regarding bad loans on the books of these banks for the year ended March 31, 2016.

Against this background, the role of the auditor needs a closer look.

Surprisingly, in FY’2016, both Axis Bank and Yes Bank were audited by the same person, one Viren H. Mehta (membership number 048749). Mehta is a partner at Batliboi and Co., which in turn is a member firm of Ernst & Young. Some would call it strange for the same auditor to audit competing banks in the same year. What is even more unusual is that the accounts certified of both the banks by the same, individual statutory auditor have been found misleading by the statutory regulator. 


It is all such a complex game of multiple stakeholders:

The new private sector banks, unlike government banks, regularly seek additional  global financial capital and prefer, for international credibility, to be audited by the ‘Big Four Audit Firms’: Deloitte, Pricewaterhouse Coopers (PWC), Ernst  and Young and KPMG. However as PWC was the auditor of scam-tainted Satyam Computers and the erstwhile Global Trust Bank, the RBI had for a period of time effectively blacklisted the firm from auditing Indian banks. Therefore, only the remaining three can audit, via rotation, the new private sector banks. The preference for the remaining ‘Big Three’ is ostensibly to provide greater international credibility to the accounts of the new private sector banks.

For an Ernst and Young member auditor to simultaneously certify not one but two of such divergent banks is quite peculiar. Despite the RBI divergence being known by December 31, 2016, the Axis Bank senior management reaffirmed their faith and permitted the same auditor to continue to audit FY’2017 accounts as well.

When this writer reached out to Axis Bank with a questionnaire, the bank replied that it had made “true, fair and full provisions on said dates in accordance with the RBI guidelines in force”.

“However, the RBI being entitled to call its charges to take such further steps as may be necessary, called Indian banks to make new disclosures as per RBI circular dated 18th April, 2017. The ‘divergence’ that you aver is the outcome of RBI’s annual assessment of all banks. For a better understanding of the matter, and to draw meaningful conclusions, may we advise you to please observe similar disclosures of rest of the banking system,” Axis Bank said in a statement.

The “similar disclosures” in other banks in the private sector, so far reveals only Yes Bank has surpassed Axis Bank in the percentage divergence in NPAs and both banks have been audited by the same auditor. The regulators – RBI, Securities and Exchange Board of India, Company Law Board and the ICAI – need to evaluate the conduct and quality of the audits of Axis Bank and Yes Bank in FY2016 by Batliboi and Co. in order to restore public confidence.

Authoring an article on December 23, 2012 , Viren H. Mehta had argued for the disclosure of risk-related measures as a means to improve corporate governance in banks and as an “obligation to stakeholders.” More than four years later, a similar disclosure by the RBI on NPA divergence has cast him in the spotlight.


Church of England fund becomes top world performer

May 25, 2017

Always fascinating to see connections between religion and finance.

Came across this bit of news:

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Prof. Tyler Cowen interviews Prof. Raj Chetty…

May 25, 2017

Prof Cowen does such a good job of bringing all kinds of aspects in his interviews.

His reecnt one with Raj Chetty does not disappoint:

……If we look at your papers, they’re about topics people have already thought about. The data work is completely state of the art, but I don’t think it would be said you’re doing something other people can’t do, and yet several times a year, you come out with papers of great import that make a big splash, and the results seem to hold up. So what in fact is your competitive advantage? [laughs]

CHETTY: That’s a tough question. Part of what we try to do is exactly as you said: take old questions. I think some of the most important questions in economics and social science have not yet been fully answered, and the recent availability of big data of various types allows us, for the first time, to tackle those classic questions. What our research group tries to do is bring those two things together.

COWEN: But those both sound replicable, right? What’s the non-replicable asset?

CHETTY: What hopefully our contribution and scale is, is showing how you can take those large datasets and not get lost in them, and bring out the key lessons that are relevant for thinking about these classic questions.

It’s very easy — students often have this reaction, that all I need to do is get access to this big dataset, and then I’m going to be all set for my thesis. And what you end up finding is that that is often not the case. It’s very easy to write a paper that is not that good, even with cutting-edge data and modern techniques. So one of the things that I try to do — and the easiest way to see this is if you internally, within our research group, see the iterations of the papers we’ve been working on — where we start out is often very far away from the papers that people see as the finished product. We work hard to try to write a paper that ex post seems extremely simple: “Oh, it’s obvious that that’s the set of calculations you should have done.”

The dangers that lurk beneath India’s IT layoffs

May 24, 2017

Prof Maitreesh Ghatak just nails it:

You can spin a web of statistics and say all izz well when people are hurting. You can use catchy phrases like ‘the digital economy’ and ‘Make in India’ to raise aspirations of global domination, or blame it all on past government policy. The problem, though, is that you can only do it for so long without actually delivering on job creation.
The Sensex can hit the skies, our growth figures can beat China’s, and it may keep those whose fortunes are tied to either our protected corporate sector or the bloated public sector happy and willing to wait for achche din.
However, these are not meaningful indicators of economic development unless accompanied by the creation of jobs, and rising wages and salaries enabling ordinary citizens to enjoy a better quality of life. Being laid off or struggling to find jobs while being told of wonderful times to come or that unemployment is a choice tends to make people very upset.
And even though they command a small fraction of wealth or income in our highly unequal economy, they have strength in numbers. They can vote. And at some point, may be a few years down the line, they may well choose to make some politicians and their economic advisers voluntarily unemployed.

102 years of Statistical Tables Related to Banks in India..oldest running annual database/publication in India?

May 24, 2017

I have mentioned this publication/database few times in previous posts and even said will write a post on this in future.

It is fascinating to note that Statistical Tables Related to Banks in India, an annual publication released by RBI is running into 102nd year! I would guess this would make it the oldest running publication/database of India.

The first volume was released in 1915 and was published by Department of Statistics by order of Governor General in Council. The publication was printed by Superintendent Government Printing in Calcutta.

The need to have a publication assessing banking conditions was needed due to multiple banking failures in early 20th century. The British Government finally decided to collect and publish data following large banking failures in Punjab in 2015. Between Nov-13 and Dec-14, around 57 banks had failed with 22 of them from Punjab.

Thus, we see the Government collecting data on failed banks right at the beginning. Infact that is the focus as introductory memorandum suggests:

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At proposed ‘Sholay’ park in Ramnagara, the fight is between movie memories and vulnerable vultures..

May 23, 2017

Superb piece from Archana Nathan of Scroll. One was excited to read earlier of an upcoming Sholay Park in Ramnagara, a town about 50 kms from Bangalore. This place was the iconic Ramgarh where the iconic Hindi movie Sholay was shot and made history.

However, the Park has run into difficulties with environment authorities:

Off the highway between Bengaluru and Mysuru, a patch of land surrounded by hills comes alive when Ramesh Sippy’s Sholay is mentioned. The 1975 blockbuster was shot there and curious tourists, especially from outside Karnataka, continue to visit the area to search for markers of the vendetta drama. There are none, but there soon might be. Early this year, the state government’s tourism department proposed a Sholay inspired theme park at Ramanagara, which is depicted as Ramgarh in the movie.

The theme park will include virtual reality recreations of key moments from the movie, adventure games and a crafts hub over a 120-acre stretch. The location seems perfect: packed with giant yet scaleable boulders and hills, Ramanagara is an ideal pit stop between the cities. But the proposal has been opposed by the state Forest Department, which has pointed out that it is illegal to construct a tourist hub in a reserved forest area. The parts of Sholay that fans remember – Gabbar Singh’s lair, Thakur Baldev Singh’s house, and the sequence in which Gabbar chops off Thakur’s hands – are part of the Ramadevara Betta vulture sanctuary at Ramanagara.

A case which makes for the eternal debate on growth vs environment..

Impacts of an online English learning programme among Japanese high school students

May 23, 2017

Interesting paper by Yuki Higuchi, Miyuki Sasaki, Makiko Nakamuro.

They evaluate whether Japanese students can learn English using online programmes. They show students do make progress but also procrastinate learning:

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Reserve Bank of India will be utilising Army’s services…

May 23, 2017

An interesting update on how central bank uses armed forces to guard itself:

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