Archive for April 29th, 2011

Puzzles of Poverty and its estimation

April 29, 2011

An amazing article by Abhijeet Banerjee and Esther Duflo. They look at many myths (atleast in their eyes) and facts in area of poverty and estimation. It is lot more complex than people make it out to be.

They explain many concepts as well along the line. Must weekend read…

Government should report “pension-adjusted” budget/fiscal balance

April 29, 2011

IMF economists in a new research argue for the same. The idea is that governments should show fiscal numbers adjusting for pensions. This could lead to two things. First, governments having higher pension bills will be under pressure to reform. Two, it incentivises those govts which undertake pension reforms and asking the countries in first category to follow.

This is all the more important as we have so many countries which such dire pension liability concerns.

 Benedict Clements discusses the paper in IMF Blog.

The first problem is that good fiscal policy hasn’t always ruled the day, to put it mildly. Today, pension reform is a priority for the advanced economies as current trends are unsustainable—see Commandment V—and for many emerging and low-income economies that need “to improve coverage of health and pension systems in a fiscally sound manner.”

The second problem is that traditional deficit and debt indicators focus on the health of public finances today, but fail to capture the future impact of pension promises. This means that pension reforms, which often strengthen the fiscal position down the road, might not necessarily improve—and sometimes worsen—traditional fiscal indicators today. The risk is that assessments of pension reforms based on traditional deficit and debt indicators could create incentives to delay or even reverse reforms.

The paper says:

This underscores the need for a fiscal indicator that gives governments credit for pension reforms that improve long-term fiscal health, but also correctly points out when they are moving in the wrong direction.

In a recent Staff Discussion Note, we propose a new indicator—the “pension-adjusted” budget balance—that takes into account the long-term nature of pensions. It focuses on the fiscal sustainability of pensions and provides a level playing field for evaluating a country’s pension policies. The new indicator achieves this by recalculating the traditional budget balance to take into account the intertemporal pension balance (that is, future pension imbalances), rather than the current pension balance.

In other words, and simplifying a little, this means taking account of the difference between the current value of future pension contributions and the current value of all future benefits, from today to a certain date in the future, say 50 years. And not just the difference between pension contributions and benefits today.

Policy lessons:

This indicator can help measure when changes in pension policies are improving or worsening long-term fiscal health. One advantage is that it eliminates incentives to adopt or dismantle particular systems to improve current-period indicators. Of course, overall balances remain key for evaluating the risks surrounding short-term financing needs.

We draw three main implications for fiscal policy design:

  • We should take account of the future impact of pension reforms, or other public programs such as health care, when we analyze fiscal sustainability.
  • To do that, we should look at the sum of future pension balances, the intertemporal pension balance.
  • The “pension-adjusted” budget balance should be viewed as a complement, rather than a substitute, for traditional fiscal indicators.

Profile of Keynes – Why search for a new Keynes?

April 29, 2011

Soros Institute for New Economic Thinking held a massive conference lately to discuss the economic thinking agenda ahead. And what better place than Bretton Woods which hosted a similar meeting in 1945 leading to much of the ideas we have now. The conference has so many economists, papers, ideas etc. Some economists have even criticised that Soros has assembled economists which believe in his ideas and are trying to force them on to the world.

Surfing through these ppts and papers, I came across this superb piece on Keynes by John Cassidy of New Yorker. It was written in 1998 after the SE Asian crisis and we were discussing same things as we were discussing then as well. The SE Asian crisis became an international economic crash and many economies came under stress. There were calls then to create a new bretton woods system and reform the international monetary system. People were looking for a new Keynes to set in the agenda.

Cassidy goes back to what Keynes had proposed way back in 1945 which was not implemented as US opposed it. He says do not look for a new Keynes and instead read and implement what he suggested then.

He then reviews the meetings at Bretton Woods in 1945 and how Keynes and White laid the path for future economic systems. Keynes even then wanted some system to check current account surplus economies but was not agreed by US as they were the surplus economies. Keynes agreed as US was key to the BW agenda and would be required to invest in war-torn economies. Thes there were his proposal to create an international currency Bancor issued by a Global Central Bank (International Clearing Union) which was vetoed by US as i would have to contribute maximum towards the bank and replace US Dollar as world currency.

Superb article.  Discusses Keynes life and how he became an economist as well.

Amazing how similar arguments are made now and nothing was done to reform IMS in 1998. And now we are going through similar set of arguments.  

Superb essay. It is a pity we associate Keyesianism only with givernment spending and intervention. He had many more contributions which should do monetarists proud as well. And then we must r’ber his sugegstion for govt. spending was to get out of great depression. He was not really talking about government spending in normal times which was extended by Keynesians later. But then that is how history is. You cannot really correct it.

How Estee Lauder built its beauty products company

April 29, 2011

K@W  has a nice interview of William Lauder, executive chairman of Estee Lauder – beauty and cosmetics company.

He discusses the benefits and challenges of working in a family-owned business, the company’s global growth aspirations and why, in the words of his grandmother, they key to success for Estée Lauder is “getting women to put their hands together.

Some international marketing lessons – Know the local language and context properly:


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