Calling a spade a spade: Pakistan is a rentier state…

September 22, 2017

One is enjoying the frank columns in Pakistan newspaper – Dawn – which is quite surprising given the might of the State in the country. I had just blogged about a Pakistan economist questioning the constant government cribbing and calling people tax thieves.

Here comes another piece from  Aasim Sajjad Akhtar who teaches at Quaid-i-Azam University, Islamabad. He says Pakistan is just a rentier state which always gives its resources to the highest bidder:

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When a central bank carries orders from political authorities due to fear: Case of Gambia

September 22, 2017

All kinds of things are happening at central banks world wide. One just pointed earlier how head of central bank of Ukraine got death threats from people and was forced to resign.

Now, we learn how the former head of Central bank of Gambia executed orders from former President out of fear:

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Amazon looks for a new headquarters whereas Google plans to build a new city…

September 22, 2017

There is lot of speculation ever since Amazon announced it wants to set a second headquarter. This has led to lots of speculation on which cities fit the bill. Summary of probable locations with pluses and minuses here.

Meanwhile, Google wants to build a new city to experiment and innovate:

Amazon is looking for a city for its new headquarters. Boring! Google is looking to build a city. The FT reports:

Google’s parent company was working on a sweeping plan to build a city from the ground up, the executive in charge of its urban innovation business said on Tuesday, in an attempt to prove that a technologically-enabled urban environment can improve quality of life and reduce cities’ impact on the environment.

…“We actually want to build a new city, it is a district of the city, but one that is of sufficient size and scale that it can be a laboratory for innovation on an integrated basis,” said Dan Doctoroff, head of Sidewalk Labs, at a talk to the San Francisco Bay Area Planning and Urban Research Association.

Sidewalk was “quite far along” in its search for a city with which to partner to build a testing ground for new approaches to transport, infrastructure and possibly even governance and social policy, he said.

 

How these big corporations are going to shape and reshape economic geography is there to see. Not that it is anything new really. We have an example of Tatas shaping Jamshedpur..

The rise of robots in the German labour market

September 22, 2017

Wolfgang Dauth, Sebastian Findeisen, Jens Südekum and Nicole Woessner analyse the impact:

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Why does Tea/Coffee disappear but donuts/snacks don’t in meetings?

September 22, 2017

Prof Anthony Gill (Political Science at the University of Washington) has an interesting post, Though, the idea is picked from faculty meeting but I guess it applies to most other meetings where we have tragedy of commons at work.

He wonders why people at meetings don’t finish donuts but coffee is mostly finished:

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Launch of the Central Bank of Ireland’s archives

September 21, 2017

Philip Lane chief of Ireland Central Bank launches the central bank archives in this speech:

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Is it fair for Governments to call people tax thieves? An analysis from Pakistan..

September 21, 2017

In many ways India is different from Pakistan and in many ways we are just similar. In India we are often told that how Indians don’t pay taxes. Same is the case in Pakistan too. Just that both countries don’t realise how much we are taxed from other sources. There is nothing here that is not taxed.

Shahid Mehmood an economist on Pakistan side of things:

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What provides explanations for the rise of populist parties across the globe? Case from Germany…

September 21, 2017

Davide Cantoni, Felix Hagemeister and Mark Westcott have a piece. 

As expected, most political comparisons in Germany lead us to Nazis:

 

Demand for dimples in India: From Deepika to Kate Middleton ones…

September 21, 2017

I was surprised to read this news in Times of India yday.

It wrote about how the youth are going for surgeries to get dimples like Kate Middleton:

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How the term Anglo-Saxon became French’s alter-ego and most feared enemy…

September 20, 2017

Emile Chabal (chancellor’s fellow in history at Univ of Edinburgh) has a piece on the Anglo Saxon identity and the French relationship with the term:

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Promoting Hong Kong as a hub for Corporate Treasury: Issues and Solutions

September 20, 2017

A nice speech from Normal TL Chan, CEO of the Hong Kong Monetary Authority.

He points how HKMA found out that taxation prevented Corporates to set up Treasuries in HK. Then they urged the govt to rectify the same:

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The truth about the Indian economy…

September 19, 2017

The GoldStandard blog by Anantha Nageshwaran has 4 posts on truth/state of Indian economy. In the process, he links to several articles/pieces on Indian economy (which is also the trademark of his blog).

Phew!

What is also interesting to note is how quickly the narrative changes. All this while, we were saying things are stable in Indian economy and so on. Demon is a blip. GST is a blip etc etc.

Now, one is reading quite a few pieces on the need to pass fiscal stimulus to shore Indian economy! For instance see this, this and this. Once the government bites the fiscal bullet and things go haywire (as they usually do with most governments), the same articles will start criticising the Government! Some will say eased too much, some will say too soon and some will suggest that instead of easing this component, that component should have eased..

So much so for all the macro analysis which keeps going in circles….

Bundesbank at 60: each country gets the inflation it deserves…

September 19, 2017

I just wrote y’day about how much Bundesbank matters to ECB policy and yet no German central banker is primed for the top job at ECB.

Least did I realise that year 2017 happens to be 60th anniversary of Bundesbank. Jens Weidmann, the chief of the central bank pays tribute and shares some fascinating history:

The Bundesbank first saw the light of the world on 4 July 1957, the day on which Germany’s Bundestag adopted the Bundesbank Act – alongside the Antitrust Act. Writing at the time, the Frankfurter Allgemeine Zeitung newspaper remarked that this day had witnessed “the adoption of two crucially important pieces of basic legislation for our entire economic system”.

When the Bundesbank Act came into force on 1 August 1957, the Bank deutscher Länder, the Land Central Banks and the Berlin Central Bank were merged to form a single institution, the Deutsche Bundesbank.

This new institution took over the headquarters of the Bank deutscher Länder in Frankfurt am Main. I wonder if you are aware that it almost ended up being based in Hamburg. Back then, the British forces were pushing for the Bank deutscher Länder to make Hamburg its home. But as it turned out, the Americans got their way, and the institution was established in their preferred location of Frankfurt, inside the US occupation zone.

That marked a major turning point for Frankfurt. The city evolved into Germany’s financial centre and later also succeeded in attracting the European Central Bank. But I don’t think Hamburg lost out in any way – Hamburg is an appealing, vibrant and economically successful location as it is.

He says though location of Frankfurt has little to do with Bundesbank’s success:

One thing I am quite certain about is that the choice of location did not influence the Bundesbank’s success, which I think can be put down to three key factors:

  • Its narrow mandate to preserve price stability,
  • Its independence, which allows it to pursue this objective even against political influence, if need be, and
  • An appreciation of the need for stability throughout much of the German population, which gave the Bundesbank the popular backing it needed to pursue its monetary policy objectives.

Ladies and gentlemen, the fundamental problem facing monetary policymakers is that they are caught in a conflict of objectives. In the short run, staving off inflation can sap economic momentum and drag on employment. On the other hand, the central bank can temporarily dampen unemployment if it tolerates a higher rate of inflation. This phenomenon is what economists call the Phillips curve relationship. It is a concept which crops up in a famous remark uttered by Helmut Schmidt in the early 1970s, when he once said that “I would rather have 5% inflation than 5% unemployment”.

An inverse relationship exists between inflation and joblessness because an unexpected increase in inflation pushes down real wages, lowers the price of labour, and thus tends to lead to a drop in unemployment.

But that only happens in the short run. Because employees will push for the higher rate of inflation to be offset, thus moving real wages and unemployment back to where they were before. There is a shift in the Phillips curve.

And if the unions, fearing a further increase in the rate of inflation, push through even higher wage increases, unemployment will rise as a result.

Let me use an everyday situation to shed more light on how this principle works. Imagine a person who is habitually late for work. Now, their partner might be able to outsmart them once by moving the hands of the kitchen clock forward by five minutes. But in the long run, that person will get used to the new time, so the clock will have to be put forward even more to prevent that person from leaving the house late in future.

That’s exactly how it is with monetary policy. If you fire up the printing presses to fend off unemployment, you will end up mired in high inflation and high unemployment.

He brings some episodes from German history which affirmed this fight for price stability:

Bearing that in mind, it was undoubtedly crucial that the Bundesbank, just like its predecessor, the Bank deutscher Länder, had independence from political control. Because German post-war history also bears witness to a number of situations in which the Bank was forced to head off political demands to loosen monetary policy.

One such situation that springs to mind is the famous “Gürzenich speech” which Konrad Adenauer delivered shortly before the Bundesbank was established. At that time, the Bank deutscher Länder had switched to a tight monetary policy stance because there was a risk that the brisk external demand might cause Germany’s economy to overheat. Konrad Adenauer, speaking in 1956 at Cologne’s Gürzenich Hall, warned that the tight policy would be “disastrous … for the man on the street”. A year later, the SPIEGEL magazine looked back at these events and wrote: “What is more, the credit constraints later turned out to be absolutely correct; they came just in time to prevent the boom from morphing into an inflationary economic gallop.”

Another situation I can think of occurred in the year 1979, when the government drummed up sentiment against an increase in the discount and Lombard rates. Manfred Lahnstein, State Secretary in the Federal Ministry of Finance, presented his critique before the Central Bank Council and then went public with his misgivings. He expressed concerns that the policy rate hikes might endanger the economic upswing. As it turned out, the German economy expanded at a real rate of 4½% in 1979, even though policy rates were increased. The Bundesbank, then, did well to prevent the global inflationary tendencies from spilling over into Germany more strongly than they did.

Because the Bundesbank held its ground in both these cases and refused to be knocked off course, the Die Welt newspaper once dubbed it in retrospect the “bulwark on the Main”.

That was praise indeed for the Bundesbank, of course. For it had resisted the political pressure not because it was indifferent to the macroeconomic prospects, but it firmly believed, even back then, that monetary stability is the best contribution a central bank can make in the long run towards high levels of employment and sustained economic growth.

He also adds that what is also central to this is people’s appreciation of merits of stable currency.

But I am convinced that the Bundesbank only prevailed in its skirmishes with politicians because it could count on the general public’s appreciation of the merits of a stable currency. This brings me to the third of the key factors in the Bank’s success which I mentioned earlier on. A policy strictly geared to stability only stands a chance of success if the general public is sufficiently aware of the merits of stability. That’s because, in the long run, it is not right for democratic states to have a monetary policy which runs counter to public opinion.

On this topic, Otmar Issing once said that each country gets the inflation it deserves.

This is mainly due to German hyperinflation of 1920s continue to remain etched in people’s memories…

He then goes on to discuss current crisis and ECB’s role so far…

Superb throughout.

 

How a rare murder case is changing a nation’s attitudes towards law and order: Case of Iceland

September 19, 2017

Fiona Weber-Steinhaus has a moving piece on how a rare  murder in Iceland is changing so many attitudes in the country.

Iceland mourned Brjansdottir’s loss. Many people used the slogan “I am Birna” while posting on social media about her death. Around 10,000 people marched in a vigil in her honour—a staggering number, given that Iceland’s population is less than 350,000. Both the country’s president and prime minister went to her funeral, which was held in Reykjavik’s main church. In the service, which I attended, a group of Brjansdottir’s friends carried her white coffin. A cameraman of the public broadcaster RUV cried while filming them.

The case of Brjansdottir’s killing has convulsed Iceland so intensely, in part, because of how rare such events are in the country. According to national police statistics, on average, 1.8 murders were committed annually in Iceland between 2000 and 2014—with some years, such as 2008, having none recorded at all. The nation is also one of the least martial in the world, with no standing army, and police officers who largely patrol unarmed. In response to Brjansdottir’s case, however, a wave of anxiety has swept Iceland, starting a public debate about, and perhaps even changing, the small country’s attitudes towards public safety.

One of the first issues up for debate was that of the safety of young women. In general, in Iceland, it is not considered dangerous for women to walk home alone in the early hours. It is even common for them to hitch rides with strangers via Skutlarar, an open Facebook group through which people offer rides in their cars to strangers travelling in the same direction as them. After Brjansdottir’s body was found, some women started a female-only Skutlarar group. When I visited Reykjavik in early February, many women told me that they would refrain from using the conventional Skutlarar in the future.

I met Gudrun Kristinsdottir, a 27-year-old engineering student, in the cafeteria of Reykjavik University. “This case is such a reality check,” she said. “We always thought, nothing happens here.” She now carries pepper spray in her handbag and said she would avoid walking home alone.

Seventeen-year-old Birta Mjöll works as a waitress in an upmarket restaurant. “My mother wants me to call her as soon as I sit in the car after work,” she told me, while polishing cutlery during her shift. “Everyone in Iceland knows the Geirfinnur case,” she added, referring to the mysterious disappearances of two men in Iceland, in 1974. “And now everyone knows Birna’s case.”

The second aspect of public debate focussed on the issue of CCTV surveillance. The footage of Brjansdottir had been too blurry to identify the car, and some argued that this indicated the need for a technical upgrade. In the January press conference, a journalist had asked Chief Superintendent Ásgeirsson: “Isn’t it clear that this security system downtown and here on Laugarvegur would have come to better use if it were in order? Don’t we need a better system?” Ásgeirsson affirmed the journalist’s point: “I can say that I would have liked clearer footage to work with.”

 

Primer on Islamic Banking

September 19, 2017

Superb primer by Arshadur Rahman of Bank of England. It explains the basics of Islamic Banking and does a great job.

Also interesting to know BoE planning to introduce a Shari’ah compliant facility. This will faciliate UK Islamic banks hold central bank assets:

  • ​Islamic banking is a relatively young but growing sector of the broader financial services industry. Numerous banks around the world offer Islamic, or Shari’ah compliant, financial products.
  • Some central banks offer Shari’ah compliant liquidity facilities to Islamic banks, affording them similar flexibility to other firms in managing their liquidity. Such facilities avoid the payment or receipt of interest, which is otherwise the most common basis for operating a liquidity facility.
  • The Bank is establishing a Shari’ah compliant facility, specifically a deposit facility to allow UK Islamic banks to hold central bank assets as part of their liquid assets buffer. This article explores the various ways in which this can be done, along with the model the Bank has chosen to adopt.

How religions have shaped all these banking and financing cultures and institutions..

Italy, France say ‘we don’t want Jens Weidmann to become ECB president’…

September 18, 2017

In many ways ECB is an ironical central bank.

The central bank is based in Germany and was designed as a replica of Bundesbank. Why? Because no other central bank had a reputation as the formidable German entity. So, if the European countries wanted to give up their mon policy to ECB, they said it better be like Bundesbank. Otherwise again we have a non-credible central bank creating all sorts of problems. Apart from the design, even the location was chosen as German as one always worried over political influence elsewhere. So much so both the central banks are located in Frankfurt within a 4 km distance.

Now, here comes the twist. Given strong German resemblance, one would impagine it is best to let German head the central bank. But no German has headed the central bank until today. Yes, one German has always been on the board but that is just about it. Earlier the German was a chief economist (Otmar Issing, Jurgen Stark). But even that is not the case today as Sabine Lautenschläger, who is a law person is on the board. Infact Axel Weber head of Bundesbank came close to being ECB chief but resigned from Bundesbank amidst lots of controversy.

So, the chief of ECB was first a Dutch, then a French and currently an Italian. They have kept Germany out as the fear remains that with a German not even little political maneuvering will be  possible. With the non-German as a head, one can expect some sympathies in case of a slowdown.

This was tested during the current crisis. Both Weber and Stark did not favor any monetary stimulus by ECB and had runs with the ECB leadership leading to resignations. Post Stark, it became easy for Draghi to take control and convince others for monetary stimulus. However, Bundesbank under the new chief Weidmann continued to oppose the policies.

As Draghi’s term is ending in 2019, the speculations have started early. The Italians and French are again opposed to having Weidmann as President:

In its new edition, Germany’s Der Spiegel magazine reported Friday that Italy and France would object to installing Bundesbank chief Jens Weidmann as head of the European Central Bank after the end of Mario Draghi’s term in 2019.

It said government representatives from both nations had told German Finance Minister Wolfgang Schäuble that they had nothing against a German at the helm of the ECB, “but it must not be Jens Weidmann.”

The report elaborated that southern eurozone nations feared current pragmatic and flexible crisis management measures such as the ECB’s huge bond-buying program as carried out under Draghi would no longer be possible under Weidmann.

While Schäuble said in May he would not take part in any debate about Draghi’s successor, numerous media reports had highlighted his and German Chancellor Angela Merkel’s likely push for Weidmann to become the fourth guardian of the euro currency, after a representative from the Netherlands, France and Italy.

But there may be a whole bunch of contenders for the job of ECB president, among them Bank of France Governor Francois Villeroy de Galhau.

It cannot be taken for granted, though, that the fight for the post will include Jens Weidmann at all. A spokesman for the Bundesbank on Friday quoted him as saying he enjoyed his current job and would certainly stand ready for another term beginning May 2019, should he be asked to do so.

Weidmann has headed the German central bank since 2011.

Even if it is premature speculation, the European leaders will try hard to keep a German central banker heading the Board.

So much so for the ironies…

Does caste discrimination lead to lower rural lending?

September 18, 2017

Interesting paper by  Sunil Mitra Kumar  (King’s College London) and Ragupathy Venkatachalam  of University of London.

They say caste discrimination does not play as big a role in bank lending (based on their data set):

In recent research, we examine the role of caste in rural bank lending (Kumar and Venkatachalam 2016). We are especially interested in examining whether banks discriminate on the basis of caste, and in understanding potential mechanisms behind any caste-based patterns in access to loans. Through these questions, we indirectly address a larger question concerning the effectiveness of affirmative action policies in the financial sector. In a departure from the literature on this issue, we study both the decision to apply for a bank loan, as well as whether that application is subsequently approved by the bank. In brief, we find that access to bank loans is stratified by caste, but that the major proportion of these differences is due to differences in loan application rates. However, we do find evidence of some discrimination against borrowers belonging to Scheduled Tribes (ST) when it comes to loan approvals.

……

Our finding that there is little discrimination – and none against SCs – is quite positive, even though the 5-7% lower approval rates for STs likely due to taste-based discrimination are a cause for some concern. But our finding that loan application rates differ significantly across caste groups in a way that mirrors their disadvantage is less positive. While we cannot say for sure, it suggests that historical disadvantage and possibly discrimination are still at play in shaping people’s expectations. It is possible that farmers who do not apply to banks find their credit from informal sources, but this is not encouraging either because such sources offer credit at very high rates. That said, a further set of results in the paper confirm that small farmers – those who own less than five acres of land and whom the RBI encourages lending to – have smaller inter-caste differences in application rates. This too is a positive finding because it suggests that this encouragement has trickled down to the level of expectations too, and has muted caste-based differences in application rates as a result. Caste and credit is not such a woeful tale per se, but more remains to be done. 

These studies can hardly be generalized. An experiment in a different setting could show the opposite results..

Dominant sect in economics today: There are none so blind as those who will not see.

September 18, 2017

Prof Steven Keen hits out at mainsteam economists for choosing to ignore obvious evidence:

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How Netherlands has become an agricultural giant by showing what the future of farming could look like.

September 18, 2017

Interesting piece and stunning pictures in Nat Geo’s Sep edition:

In a potato field near the Netherlands’ border with Belgium, Dutch farmer Jacob van den Borne is seated in the cabin of an immense harvester before an instrument panel worthy of the starship Enterprise.

From his perch 10 feet above the ground, he’s monitoring two drones—a driverless tractor roaming the fields and a quadcopter in the air—that provide detailed readings on soil chemistry, water content, nutrients, and growth, measuring the progress of every plant down to the individual potato. Van den Borne’s production numbers testify to the power of this “precision farming,” as it’s known. The global average yield of potatoes per acre is about nine tons. Van den Borne’s fields reliably produce more than 20.

That copious output is made all the more remarkable by the other side of the balance sheet: inputs. Almost two decades ago, the Dutch made a national commitment to sustainable agriculture under the rallying cry “Twice as much food using half as many resources.” Since 2000, van den Borne and many of his fellow farmers have reduced dependence on water for key crops by as much as 90 percent. They’ve almost completely eliminated the use of chemical pesticides on plants in greenhouses, and since 2009 Dutch poultry and livestock producers have cut their use of antibiotics by as much as 60 percent.

 

The seven sins of economists..

September 18, 2017

Pramit Bhattacharya on the 10th anniversary of sub-prime crisis points to 7 sins of economists:

 

  • Sin 1: Alice in Wonderland assumptions
  • Sin 2: Abuse of modelling
  • Sin 3: Intellectual capture
  • Sin 4: The science obsession
  • Sin 5: Perpetuating the myth of ‘the textbook’ and Econ 101
  • Sin 6: Ignoring society
  • Sin 7: Ignoring history

Given the number of omissions and assumptions, one wonders what does the subject include?


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