Archive for December 12th, 2011

Most economic booms tend to be disinflationary in nature..

December 12, 2011

A superb article from Ruchir Sharma of Morgan Stanley on the topic. Easily a must read.

He says high inflation actually indicates declining times ahead. It is never the case that high inflation is because of high growth as we are made to believe in India:


Linking immigrant language barriers and housing prices

December 12, 2011

Andreas Fischer of Dallas Fed writes this interesting paper.

It seems housing prices rise more in case we have immigrants which do not speak the common language:


Paul Romer’s charter cities project – some efforts by Honduras beginning to show

December 12, 2011

In Mar-11, I had posted how Honduras has become the first country to allow Paul Romer’s experiment of charter cities.

There is some more work since then. Honduras has created RED which are special development regions where these cities can come up. In Jul-11, Congress passed a constitutional statute that defines the governance structure for the RED.

In February of 2011, the Honduran Congress passed a constitutional amendment that gives the government the power to create Special Development Regions (“las Regiones Especiales de Desarrollo” or RED in spanish). In July of 2011, the Congress passed a constitutional statute that defines the governance structure for the RED. 

Though part of sovereign Honduran territory, a RED has its own administrative systems and laws. Initially, governance in the RED will be directed by a governor who is accountable to a nine person Transparency Commission. The constitutional statute that legally defines a RED can only be modified with a two-thirds majority vote in Congress and approval by referendum from the people living in the RED.

A RED can only be established if the Honduran Congress votes to approve its boundary. Though there are many possible sites for a RED in Honduras, the Congress has not yet voted to approve the boundary for a particular site.

The first site has been identified as per this economist article (HT: Tyler Cowen). It is Trujillo in north of Honduras next to Caribbean Sea:

TRUJILLO is a sleepy backwater, but one with a lot of history. The beautiful bay surrounded by lagoons and mountains on the northern coast of Honduras was where Christopher Columbus set foot on the American continent during his fourth voyage in 1502. But in a few decades, it might be known for something entirely different: being the Hong Kong of the West. Scores of skyscrapers and millions of people could one day surround the natural harbour. The new city could dominate Honduras, today one of the poorest and most crime-ridden countries in Central America, becoming a magnet for most of the region’s migrants.

The prospect may sound fantastic, but this is the goal of an ambitious development project that Honduras is about to embark upon. In a nutshell, the Honduran government wants to create what amounts to internal start-ups—quasi-independent city-states that begin with a clean slate and are then overseen by outside experts. They will have their own government, write their own laws, manage their own currency and, eventually, hold their own elections.

The article points to challenges and issues for the first charter city. A must read.

Meanwhile they have appointed members of Transparency Commission which will oversee the operations of this project:

Last July, the Honduran National Congress passed a constitutional statute that defines the governance structure for la Región Especial de Desarrollo (RED), or the Special Development Region, in Honduras. The statute calls for the creation of a Transparency Commission, a body that will help to ensure that the process governing the development of the RED remains open, honest, and free of corruption.

On December 6, President Porfirio Lobo appointed the initial members of the Transparency Commission:

  1. George Akerlof – Professor of Economics at the University of California at Berkeley, Senior Resident Scholar at the International Monetary Fund, and Nobel Prize Winner
  2. Harry Strachan – Former President of INCAE Business School, Director Emeritus at Bain & Co., and Managing Partner at Mesoamerica Partners and Foundation in Cost Rica
  3. Ong Boon Hwee – Former Chief Operating Officer of Singapore Power and Former Brigadier General in the Singapore Armed Forces
  4. Nancy Birdsall – President and Co-Founder of the Center for Global Development , former Senior Associate at the Carnegie Endowment for International Peace, and former Executive Vice President at the Inter-American Development Bank
  5. Paul Romer (Commission Chair) – Professor of Economics at the New York University Stern School of Business

It is a nine member commission and first job is to identify the right people to fill the committee positions. How about Ed Glaesar on the board?

Easily one of the largest experiments in growth and development economics. People are already criticising it for bringing back colonial times, so will be watching the developments closely looking for any opportunity to speak against the project..

How journalists spot a recession?

December 12, 2011

Shekhar Gupta of Indian Express explains:


Some financial engineering proposals to uplift Eurozone

December 12, 2011

As Europe struggles to provide some comprehensive solution to ease its crisis (actually there is nothing like a solution for Europe), some economists keep trying.

Here  is Thomas Philippon and Christian Hellwig suggesting the need to launch Eurobills not Eurobonds. They say Eurobonds which don’t really solve the moral hazard problem as once again Germans will pay for Greece’s adventures. Eurobills are bonds less than 1 year and help resolve liquidity crisis when they occur. The governments should give up issuing short term bills and will incentivise them to issue more longer term debt.


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