Archive for March, 2012

Who should get the fruit? Gandhiji’s talisman vs. Rawlsian fairness

March 21, 2012

A superb paper by Srijit Mishra of IGIDR.

The question of hunger, more often than not, is not due to non‐availability of food; it rather is a question of how to make the available food accessible to all (1). Again, provisioning of food for the hungry is not just to ensure that people eat. It also matters to look into issues of how much and what food people eat ‐ an adequate, balanced and nutritious diet matters. Concerns with regard to the recent global food crisis brought into focus spiralling prices and some reduction in availability (2‐3), but there also one cannot keep it independent from the concerns of accessibility and nutritional adequacy (4‐5). Bringing together these divergent issues is a challenge for economic thinking, public policy and ethics.

It is in this context that the current write‐up proposes to raise issues on food security of vulnerable sections of the population, crisis in Indian agriculture, inadequate storage and rotting of foodgrains procured by the public agencies, national food  security bill, updating up of the poverty line for 2004‐05 by the Planning Commission based on a new method, and some concomitant ethical issues. The latter will be an issue cutting across other themes, but which needs some independent discussion to motivate and we do that by posing the following question.

He poses this superb q: Who should get the fruit?


Creating Jobs Programs: Worker subsidy vs employer hiring credits

March 21, 2012

David Neumark of University of California, Irvine writes this superb paper on the topic (a longer version here). Best part of the paper is it takes you to the simple micro-eco graphs once did in college.

First rising and now sticky US unemployment has been  the central point of the crisis. Now there have been many policies to boost employment levels. This paper looks at the direct policies to boost employment.

There are two direct ways to boost employment:


Why states fail? …case of recent UP elections …

March 21, 2012

Acemoglu/Robinson book (AR) – Why National Fail–  is out in the markets now (what superb publicity for the book)  and they keep blogging about some superb case studies on the topic from Uzbekistan to US to Syria.

The state of Uttar Pradesh (UP) is an excellent case to ponder based on the book. The central theme of AR is that what matters is the political institutions. They could be either  extractive and rent-seeking or inclusive. It is much easier to have former set of pol instis which not surprisingly  are quite common in the world.  What is difficult and important for development in building inclusive pol instis and sustaining them.

In this matter, UP politics is an interesting application of AR ideas.  The state recently witnessed much hyped and discussed elections. So much so William J. Antholis, Brookings MD discussed the elections in this nice piece. And then there has been a lot of media attention on the topic.

Some basics first (for those who don’t know):


How and why the various awakening conflicts differed in the Middle East?

March 20, 2012

Another superb post by Acemoglu/Johnson duo.

They point to conflicts in five countries and club them in three groups.


The Logic and Fairness of Greece’s Program

March 20, 2012

Those who thought there is no logic and fairness, here is Oliver Blanchard trying to make a case for the same.

IMF recently gave an umpteenth fund/bailout to Greece.

Blanchard says the only way out was debt restructuring:

Some countries have been able to work down heavy public debt burdens. Those that were successful did it through sustained high growth. But in Greece’s case, it had become clear that high growth—let alone sustained high growth—was not going to come soon enough. Debt had to be restructured.

The process was long and messy. After all, bargaining between creditors and debtors is rarely a love affair. In the process, foreign creditors were often vilified in Greece as bad guys—rich banks, who could and should be willing to take a hit. But in the end, banks belong to people, many of them saving for retirement, who saw the value of their bank shares go down in value.

All said, the PSI (private sector involvement) dealthe largest ever negotiated write-down of public debt—has reduced the debt burden of every man, woman, and child in Greece by close to €10,000 on average, a sizable contribution on the part of foreign savers.

Well, as if others were saying something else. Right since this crisis broke put and people saw Greece and Europe numbers, restructuring was seen as the only way out. It was opposed by ECB (and Germans) as the banks will have to face losses but they just delayed the inevitable.

He says now the ball is in Greece court (really!!):

Greece now has to do its part―with sustained political commitment to implement the difficult but necessary set of fiscal, financial, and structural reforms that have been agreed as part of the program supported by Greece’s partners in the eurozone and the IMF. It is a huge challenge, no doubt. But it is also an opportunity–to take advantage of the economic space opened up by private and official creditors. Will Greece seize it?

To provide credibility Greece needs to lower its fiscal deficit further, lower its current account deficit and improve competitiveness:

First, it has to bring down its fiscal deficit further. Otherwise, this will simply negate the progress which was just made on the debt. The fiscal effort which has been accomplished already is truly impressive, with the primary deficit coming down from 10 percent to less than 3 percent. The reduction and the rescheduling of debt will help cut interest payments, but this will not be enough in itself to fix the hole in the public finances.

Equally, or perhaps more importantly, Greece has to reduce its current account deficit. For two separate reasons. First, no country can run a large current account deficit and borrow from the rest of the world forever. Second, as fiscal austerity cuts into domestic demand, the only way to return to growth is to rely more on foreign demand to reduce the current account deficit.

There are two ways to become more competitive: become much more productive, or reduce wages and nonwage costs. The first way is much more appealing. But there is no magic wand. While many sectors in Greece show a large productivity gap, the reforms needed involve changes in regulation and behavior, none of them easy to achieve. The program designed with the Greek government tries hard to identify where and how progress can be made. The list is long, but implementation is hard, results uncertain and, in any case, will not come tomorrow. This leaves decreases in relative wages, at least until higher productivity can kick in. 

He argues wage cuts have to be negotiated etc.

In Greece, wages have increased faster than productivity growth for years, compounding the problem. Unit labor costs―which is a key measure of competitiveness―increased by over 35 percent during 2000-10, compared to just under 20 percent in the euro area. This has to be undone.

The best way forward would have been a negotiation between social partners to reduce wages and prices, and avoid a long and painful process of adjustment. This did not happen. The program tries to accelerate the process, while protecting the most vulnerable. The harsh reality is that the adjustment has to take place one way or the other; otherwise competitiveness will not improve, demand will not increase, the current account deficit will continue, and unemployment will remain very high. The faster it does take place, the less pain there will be.

He says the alternatives of Greece exiting Euro was not really there..

The bottom line: will the program work?

 Greece will have to climb a mountain at least as high as the one it has just climbed and success will hinge crucially on the government’s sustained and strong implementation. In all programs, unexpected events will happen, and the program will no doubt have to be readjusted along the way. As Christine Lagarde has said, “the risks remain exceptionally high.”

All this is true. But it is also true that the program deals squarely with the two most fundamental issues facing Greece―not only high debt but also low competitiveness. And it is fair, both in asking for shared sacrifices, not only within Greece, but also between Greece and its creditors.   

Who would believe these lines after seeing so many policy guffaws with respect to Greece and its endless bailouts…

Is Blanchard following this..

Understanding the statistics and economic research functions in RBI…

March 20, 2012

RBI ED Deepak  Mohanty covers the topic in this speech.  The speech is given at Annual Statistics Conference 2012 of RBI.

First stats is a public good:


How Ukraine is learning the (wrong) lessons from Greece?

March 19, 2012

A nice post on how Ukraine is learning lessons from Greece default/debt restructuring.  (HT: MR Blog)


Ben Bernanke – A villain or a hero?

March 19, 2012

Though, most must have read this. In case not her is a nice profile of Ben Bernanke and his recent policies. It is by Roger Lowenstein who really does a good job of such type of stuff.

It is full of nice stories and anecdotes.

Nothing much to write or say here.

Just that only time and suture research will tell whether he was a villain or hero. But no matter what, he did prevent the second depression from happening. In this prevention business, his policies are questionable as to whether they led to rise in moral hazard, whether they will be hyper-inflationary or whether he could have done more to prevent the recession (like higher inflation targets etc.) Future research will look at many of the issues and make this liquidity trap literature richer with some more real world examples barring Japan.

Towards a common financial language

March 19, 2012

A fascinating speech/paper by the trio Robleh Ali, Andrew Haldane and Paul Nahai-Williamson of Bank of England. Another classic from Andy Haldane.

In this paper the authors look at his issue of various languages in finance. Just like lingo affects other walks of  life, so it does in economics and more so in finance now:


Signalling and multiple equilibrium in financial markets

March 16, 2012

Mohamed A. El-Erian and Michael Spence write this nice piece.


Is money really a central bank liability?

March 16, 2012

It is really interesting to read stuff which question the basics.

 of Worthwhile Canadian blog writes a terrific post questioning basics of monetary economics. He says is money issued by central banks really a liability of latter?


India’s good growth is a miracle…

March 15, 2012

A superb interview of Martin Feldstein in case you missed it.

After asssessing the global and Chinese economy, he is asked on India:

What about policy-making in India? There has been criticism about policy paralysis. 


Mario Draghi’s quiet revolution

March 15, 2012

A nice profile of ECB president – Mario Draghi.

Apparently, in Dec-11 meeting he seemed to have gone against Jurgen Stark who wanted a pause, but Draghi chose to cut rates,. It was the first time Stark was snubbed like this which was also his last policy meeting:


How political dynasties lead to rise in inequality

March 15, 2012

As the economic season is discussing inequality, we get more and more interesting stuff on the same.

Ronald U Mendoza of Asian Institute of Management write this very interesting piece on how dynasties in democracies lead to higher inequality.


SNB’s governing board transactions being audited

March 15, 2012

After the fiasco with SNB President Hildebrand, Swiss Govt reacted rather sternly.

It asked KPMG in Jan-12 to review the financial transactions of all the members of SNB Governing Board from 2009-11.

KPMG just released its report recently. It finds all the members are clean:


How a central banker learnt lessons of finance while still a child…

March 15, 2012

A fascinating speech from Fed Governor Raskin on her childhood experience and finance lessons. It tells you a lot about how one can learn simple economics obsertving things at home:


How BRIC economies differ in their development financing philosophy?

March 14, 2012

A nice paper from Nkunde Mwase and Yongzheng Yang of IMF. I had just pointed to a paper on how Indian economy spillover to South Asia. This one is more about India’s development financing (along with three BRIC economies) to low-income regions mainly its neighbours in South Asia.

The authors say BRIC economies differ from OECD economies’ Development Assistance Committee framework in 3 ways:


Economists “are like highly trained athletes who never run a race”…

March 14, 2012

Amazing words on economists by Paul Samuelson.

I picked these words from this article by Assar Lindbeck on European Economics (which in turn was picked up from this post on State of Phd Program in Europe). Lindbeck wrote this piece in 2001 but still seems so true.

In a very brief note he says how European economics and research departments nearly disappeared in 1930s and 1940s thanks to evil political forces. He reflects how he saw top European brains teaching in US univs:


Why Phd Programs educate idiot savants?

March 13, 2012

First what does idiot savant mean?

Idiot savants are a group of humans that are incapable of learning, writing or reading, yet they have unlimited access to specific, accurate knowledge in the fields of mathematics, music, and other precise areas. 


European Phd programs in 1990s converted themselves into US style Phd Programs. This led to both +ves and -ves. So much so people called it post-autistic economics!!

One major -ve was seen that students were not really interested in policy and relevant work in economics. They are more interested in just learning the tools  in the phd program. Hence the term idiot savants where though people have so much opportunity to learn but stick to the status quo.

Asser Lindbeck had once said grad programs dont train enough two legged econs who master both techniques and have a flair for real world problems.

In this paper Jesper Roine of Stockholm School of Economics evaluates the students at Phd Program at SSE.


How framing questions leads to different answers on benefits of trade….

March 13, 2012

We usually swear by free trade and rubbish whoever argues against free trade…After all, one of the first lessons of economics is  comparative advantage (on which trade is based) and how the whole country/society benefits from trading.

Dani Rodrik on his blog points Lant Pritchett and Larry Summers teach a course on globalisation at Harvard. The duo invited Rodrik to speak to the class and warned him that most of the students are pro-globalization.


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