Archive for May, 2013

What does economic history mean and the discipline of economic historian connote?

May 31, 2013

A brilliant interview of a brilliant econ historian – Barry Eichengreen .

He is asked this very important q on what econ history means and what do econ historians do?

This probably brings us back full circle. We started with the uses and misuses of economic history and we’ve been talking about economic history throughout the conversation. I think it might be helpful to hear your perspective on what economic history and economic historians are. Why not just an economist who works in history or a historian who works on topics of economics? What does the term “economic history” mean, and what does the professional discipline of economic historian connote to you?

Eichengreen: As the name suggests, one is neither fish nor fowl; neither economist nor historian. This makes the economic historian a trespasser in other people’s disciplines, to invoke the phrase coined by the late Albert Hirschman. Historians reason by induction while economists are deductive. Economists reason from theory while historians reason from a mass of facts. Economic historians do both. Economists are in the business of simplifying; their strategic instrument is the simplifying assumption. The role of the economic historian is to say “Not so fast, there’s context here. Your model leaves out important aspects of the problem, not only economic but social, political, and institutional aspects – creating the danger of providing a misleading guide to policy.”

Hmm…I actually don’t understand why econ historians are not given their due. They have such interesting things to share. Later on this..

Is the crisis another missed opportunity to reemphasize the importance of history?

Sniderman: Do you think that, in training PhD economists, there’s a missed opportunity to stress the value and usefulness of economic history? Over the years, economics has become increasingly quantitative and math-focused. From the nature of the discussion we’ve had, it is clear that you don’t approach economic history as sort of a side interest of “Let’s study the history of things,” but rather a disciplined way of integrating economic theory into the context of historical episodes. Is that way of thinking about economic history appreciated as much as it could be?

Eichengreen: I should emphasize that the opportunity is not entirely missed. Some top PhD programs require an economic history course of their PhD students, the University of California, Berkeley, being one. The best way of demonstrating the value of economic history to an economist, I would argue, is by doing economic history. So when we teach economic history to PhD students in economics in Berkeley, we don’t spend much time talking about the value of history. Instead, we teach articles and address problems, and leave it to the students, as it were, to figure how this style of work might be applied to this own research. For every self-identifying economic historian we produce, we have several PhD students who have a historical chapter, or a historical essay, or a historical aspect to their dissertations. That’s a measure of success.

Well Sir, it is mostly missed. How many depts have opened upto history. Look am not saying we don’t need to do quant side of things and let us replace it with econ history . My contention is there is equal need for history as well. We need researchers in both disciplines. And who said history does not do quant. If one does get reasonable data there is nothing better than using quant tools to figure histiry. It helps you know more and test the history and ascertain whether history known so far was a myth or a fact.

Further, the allegation that econ history only looks at past. The interview nicely begins with this remark by the interviewer Mark Sniderman of Cleveland Fed:

To some, the term “economic historian” conjures up images of an academic whose only interests lie deep in the past; an armchair scholar who holds forth on days long ago but has no insights about the present. Barry Eichengreen provides a useful corrective to that stereotype. For, as much as Eichengreen has studied episodes in economic history, he seems more attuned to connecting the past to the present. At the same time, he is mindful that “lessons” have a way of taking on lives of their own. What’s taken as given among economic historians today may be wholly rejected in the future.

Well I ahve never really understood this allegation. Do people who work in so called present/future have anything useful to say on economic events. For instance, how many could figure the current crisis? Most did not even know how to respond to the crisis. It was the work of econ hostorians which prevented a second depression. One can suely argue whether any better steps could be taken but knowhow of history clearly played an important part. Yes there is confusion over which side of history should one look at to resolve current events. But that means more research in history and not less.

As Prof says in the first q we need to draw the right lessons:

Sniderman: It’s an honor to talk with you. You’re here at this conference to discuss the uses and misuses of economic history. Can you give us an example of how people inaccurately apply lessons from the past to the recent financial crisis?

Eichengreen: The honor is mine.

Whenever I say “lessons,” please understand the word to be surrounded by quotation marks. My point is that “lessons” when drawn mechanically have considerable capacity to mislead. For example, one “lesson” from the literature on the Great Depression was how disruptive serious banking crises can be. That, in a nutshell, is why the Fed and its fellow regulators paid such close attention to the banking system in the run-up to the recent crisis. But that “lesson” of history was, in part, what allowed them to overlook what was happening in the shadow banking system, as our system of lightly regulated near-banks is known.

What did they miss it? One answer is that there was effectively no shadow banking system to speak of in the 1930s. We learned to pay close attention to what was going on in the banking system, narrowly defined. That bias may have been part of what led policymakers to miss what was going on in other parts of the financial system.

Another example, this one from Europe, is the “lesson” that there is necessarily such a thing as expansionary fiscal consolidation. Europeans, when arguing that such a thing exists, look to the experience of the Netherlands and Ireland in the 1980s, when those countries cut their budget deficits without experiencing extended recessions. Both countries were able to consolidate but continue to grow, leading contemporary observers to argue that the same should be true in Europe today. But reasoning from that historical case to today misleads because the circumstances at both the country and global level were very different. Ireland and the Netherlands were small. They were consolidating in a period when the world economy was growing. These facts allowed them to substitute external demand for domestic demand. In addition, unlike European countries today they had their own monetary policies, allowing them step down the exchange rate, enhancing the competitiveness of their exports at one fell swoop, and avoid extended recessions. But it does not follow from their experience that the same is necessarily possible today. Everyone in Europe is consolidating simultaneously. Most nations lack their own independent exchange rate and monetary policies. And the world economy is not growing robustly.

A third “lesson” of history capable equally of informing and misinforming policy would be the belief in Germany that hyperinflation is always and everywhere just around the corner. Whenever the European Central Bank does something unconventional, like its program of Outright Monetary Transactions, there are warnings in German press that this is about to unleash the hounds of inflation. This presumption reflects from the “lesson” of history, taught in German schools, that there is no such thing as a little inflation. It reflects the searing impact of the hyperinflation of the 1920s, in other words. From a distance, it’s interesting and more than a little peculiar that those textbooks fail to mention the high unemployment rate in the 1930s and how that also had highly damaging political and social consequences.

The larger question is whether it is productive to think in terms of “history lessons.” Economic theory has no lessons; instead, it simply offers a way of systematically structuring how we think about the world. The same is true of history.

Superb read. I so hope to see econ depts opening up to history and students applying as well..

How Bangalore uses speed-breakers instead of traffic lights..

May 31, 2013

Well, Mostly economics is trying to adjust to a new city – Bangalore – after living in Mumbai for a long time. The blogger had heard quite a bit about this garden/air-conditioned city and the weather is clearly a pleasant surprise.  The city does not stand to its garden city tag but is nice to see an Indian city which has some greenery left. For how long one does not know..

I was pretty curious observing Bangalore roads. A city which is expanding everyday as techies across the country come in, has really poor roads. As metro takes ages to build, people have to rely on roads. On roads, people use both private and public transport. Needless to say, private remains the preferred choice as buses are not reliable. That explains the traffic snarls on the roads and apart from its IT prowess B’lore has become infamous for its traffic issues.

I also noted that Bangalore does not have traffic signals at really important places. Interestingly, there are many speed breakers instead of traffic signals. (call them car breakers as they are really tall lumps which could break  the floor of the car). Come across a critical junction and most likely you see a lumpy car breaker and no traffic signal. Why should this be?

The roads are also cut across many places and that always halts traffic further as cars keep crissing and crossing. It is quite a challenge and one is never sure who will suddenly cross the lane from the other side. The right approach obviously is to minimise this and let people go further and take a U turn instead. But nit in Bangalore.

Mumbai is famous for its potholes but national media has been really kind to Bangalore. The holes here are actually blackholes as one is never sure whether his/her car would come back once it goes into any of the holes. The manholes on the roads are also open randomly and act as a car breaker as well.  Well, one understands the population pressure and how Bangalore was not ready to withstand the sudden surge. But why should roads be so poor

The focus of media and politicos remains on Mumbai and Delhi but not much attention is paid to Bangalore. It is a city which has been one of the main contributors in shifting India’s image from a sloppy elephant/country of snake charmers  to a IT/software powerhouse, clearly deserves a better deal.

Such poor roads is clearly such a spirit dampener. It gives a reality check to all those foreigners visiting Bangalore that India may have progressed on its software but hardware remains as bad as ever. Without proper hardware, software cannot continue the dream run forever as IT pros tell you. Talent does not wish to waste time navigating roads but work on improving products and services.

I mean it is not just roads but the complete lack of urban planning and one sees garbage all around. The city like many is crumbling not because of migrants but poor governance.

Urbanisation in India these days mean building tall elegant looking residential buildings (all costing Rs1 crore plus), fancy commercial complexes and shopping malls. One sees plenty of this in Bangalore too which is such a serious pity. No one realises that you need roads to reach these places..

The roads are also crowded with water tankers which rush to provide water all across Bangalore (though they drop half the water on their way). This is extremely worrisome as I am told city receive its fair share of rain. What is really going on?

Prof. Harini Nagendra wins the first Lin Ostrom Award

May 30, 2013

Prof. Harini Nagendra of Ashoka Trust for Research in Ecology and the Environement (called ATREE, based in Bangalore) wins the first Lin Ostrom award.  There were eight other winners (both individuals and organisations) for their work on commons and ecology. The award is supported by several institutions.

‘Lin Ostrom award is in the memory of the great professor who I so wish had lived much longer. She died really early post her award and there was so much more to know of her works.

It is a super delight to see an Indian working in India getting recognition for such prestigious awards. Though it was the first Lin Ostrom award but is a very good recognition nevertheless. At the same time it is a pity that hardly anyone has really covered this barring TOI’s Bangalore edition. Hope there is wider coverage of her Prof Harini’s work in times to come. Citizen Matters website has a decent profile which also tells me how Lin was connected to Bangalore’s ecology and commons.

Here is Harini’s article on how Bangaloreans are not fighting to protect the Green city. This can be applied to most cities. The youth is hardly interested in preserving the environment compared to the older generations. Moreover, any fight for environment is seen as anti-economics and is discarded by most.

Indian schooling system doing a daylight robbery under a noble guise

May 29, 2013

Blogging has been weak as the blogger has been struggling with loads of personal work. Apologies to all the visitors. I am hardly getting anytime to read and follow economics.

Here is a post which comes out of plain frustration. Loads is pointed about India’s so called demographic dividend ignoring the most important ingredient required in the dividend- quality of education. Surveys keep highlighting the problems but fall on deaf ears.  I would like to step even one step lower and focus on school admissions and ongoing looting/robbing being done by schools in broad day light. And no one really cares barring some parents protesting against some school every year. What is  needed instead is a nation wide protest against the private schooling system which keep harassing parents.

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Was India’s 2003-08 growth phase a fundamental driven boom or debt-led cyclical boom?

May 24, 2013

As India’s growth story has bitten the dust, experts have started looking at other reasons. Some question India’s growth story  and others call it a temporary slowdown. A bigger question is whether 2003-08 growth story was indeed true or too good to be true. I have always questioned the story no matter what experts say. My idea is simply that it coincided with a  global boom where most countries grew at a faster rate. So if India’s story is indeed true it has to look for some different period and prove its potential post-crisis. Experts point to all kinds of macros which are in India’s favor but fail to look at India’s falling institutions which will always challenge the sustainability of growth. Anyways it will be an interesting thing to watch out in future on who wins?

This paper by R. Nagaraj of IGIDR in EPW shows why India’s growth was much like other countries -debt-driven fulled by capital inflows:

From 2003, the Indian economy enjoyed a boom in growth for five years. The economy grew at a rate close to 9% per year, until it was punctured by the financial crisis of 2008. What explains that boom? Did the sustained liberal reforms finally pay off? Or was it a debt-led, cyclical boom, coinciding with an exceptional phase in the world economy? This paper contends that it was the latter case, driven by private corporate investments, financed by rising domestic savings, and topped by unprecedented inflows of foreign capital- leaving behind heightened corporate leverage, and frothy asset markets. As the global economy faces a semi-slump and precarious macroeconomic balance, how to reverse the current slowdown is at the crux of the discourse on India’s policy paralysis. With the corporate sector mired in over-leverage, perhaps the most credible policy options now available are to step up public infrastructure to boost investment demand, and expand bank credit on easy terms to the informal sector and agriculture – which were throttled during the boom years – so as to ease supply constraints.

Very interesting paper against the grain. It debunks quite a few myths on 2003-08 growth phase along the way..

Urbanization in the United States, 1800-2000

May 24, 2013

A brilliant paper on the subject which also tells you so much about how US developed apart from its main focus on urbanisation. It is by Leah Platt BoustanDevin BuntenOwen Hearey (all three at UCLA).

This handbook chapter seeks to document the economic forces that led the US to become an urban nation over its two hundred year history. We show that the urban wage premium in the US was remarkably stable over the past two centuries, ranging between 15 and 40 percent, while the rent premium was more variable. The urban wage premium rose through the mid-nineteenth century as new manufacturing technologies enhanced urban productivity; then fell from 1880 to 1940 (especially through 1915) as investments in public health infrastructure improved the urban quality of life; and finally rose sharply after 1980, coinciding with the skill- (and apparently also urban-) biased technological change of the computer revolution. The second half of the chapter focuses instead on the location of workers and firms within metropolitan areas. Over the twentieth century, both households and employment have relocated from the central city to the suburban ring. The two forces emphasized in the monocentric city model, rising incomes and falling commuting costs, can explain much of this pattern, while urban crime and racial diversity also played a role.

It has this very nice description of why cities grow:

Cities will grow if either workers are attracted to the area by a new consumer amenity or firms are attracted to the area by a new producer amenity. First, consider a new producer amenity such as a new port for international shipping in city i. Firms move to city i to take advantage of this local productivity boost. Firms in city i are now willing to pay higher wages because each worker generates more output, thereby inducing workers from elsewhere to move to city i. As firms and workers move to the area, competition over the fixed land resource drives up rents, offsetting the increase in wages and equalizing worker utility across locations. Despite the productivity advantage in city i, the need to pay higher rents and higher wages together ensure zero profits for firms. Therefore, we can infer that cities whose growth is due to the arrival of a new productive amenity will offer higher wages and charge higher rents.

Next, consider a new consumption amenity like the development of a new theater district. This consumption amenity will attract workers to the area and thereby drive up rents. Firms facing higher rents will lower their demand for land, thereby reducing both workers’ marginal products and their wages. The combination of higher rents and lower wages counterbalance the higher consumer amenity level, equalizing worker utility across cities. Therefore, we can conclude that cities whose growth is due to a new consumption amenity will offer lower wages and charge higher rents. Note that, in both cases, the model predicts that urban growth is accompanied by higher rents; what distinguishes between producer- or consumer-led growth is aaathe correlation between urban growth and wages.

Hmmm..Is this true in most cities?

What does the urbanisation in US show?

The first era, extending through the mid-nineteenth century, was characterized by fairly flat wage growth within urban and rural areas but significant (if fitful) growth in the urban wage premium. Between 1820 and 1880, wages in each sector grew by only a third while the urban wage premium nearly doubled from 21 to 41 percent. Coinciding with a dramatic increase in the urban population (as shown in Figure 1), these trends suggest that cities were becoming more productive centers of economic activity as they increasingly came to serve as hubs of transit, trade and manufacturing activity.

The second episode, from the late nineteenth century to the mid-twentieth century, featured steadily rising wages coupled with a declining urban wage premium. From 1880 to 1940, wages in each sector more than tripled while the wage premium fell modestly from 41 percent to 36 percent. Because workers continued to move to the cities during this period, the slumping wage premium suggests an increase in urban consumption amenities like public health.

The third episode, spanning the mid-to-late twentieth century, was characterized by rapidly rising wages and rents together with continued declines in the urban wage and rent premia. Over the period 1940 to 1980, wages more than doubled in each sector while the wage premium fell substantially, from 36 percent to 23 percent. At the same time, rents increased by about half while the urban rent premium declined substantially, from 81 percent to 46 percent. Moreover, throughout this period, the urbanization rate continued to increase. According to the Roback model, these patterns suggest that cities were experiencing a decline in productive amenities relative to non-metropolitan areas – perhaps due to the construction of interstate highways and the rise of trucking, which minimized the need to be near fixed transportation nodes in central cities (e.g. train depots or ports). These trends also suggest that the growth in the urbanization rate in the mid-twentieth century was likely driven by an increase in urban housing supply. That is, the substantial amount of homebuilding in the suburban ring in the decades after World War II reduced urban rents, thereby leading to an increase in urban residence despite the loss of relative urban productivity.

The fourth episode, from the late twentieth century to the present, is characterized by a sustained increase in both urban wage and rental premia for the first time in a century. From 1980 to 2010, the urban wage premium grew from 23 to 35 percent. Likewise, the rent premium jumped from 46 to 71 percent. At the same time, the urbanization rate grew modestly. In light of the Roback model’s predictions, these trends imply that urban areas enjoyed a boost in productivity– coinciding with the diffusion of the personal computer and later the Internet.

Superb…

India is on the path of urbanisation as well. Most of it is unplanned and random but will nevertheless happen. This study could be used as a way to figure India’s story as well..

Putting the ‘System’ in the International Monetary System

May 23, 2013

A super paper by super econ historians – Michael D. Bordo and Angela Redish.

They track how this so called international monetary system became a system involving very complex ideas and coordination:

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Why IPL keeps failing people (Just like Why nations fail?)

May 23, 2013

It is amazing how IPL bandwagon keeps rolling despite new crisis every year. IPL itself leads to many interesting economic lessons (like auctions, game theory, portfolio management etc. I have written few pieces on both – previous crisis in IPL and applying economic lessons to IPL (and vice-versa).

However time has come now to set things really right. The recent spot fixing crisis is just a microcosm of things happening in IPL. Overall, it once again shows the importance of getting the institutional framework right. Without proper institutional checks and balances, IPL is likely to continue to disappoint people.

Drawing from the book Why nations fail, one can ask why does IPL remain in crisis/controversy? The reason in both cases is same – politics..

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How China Became Capitalist..

May 21, 2013

A nice essay by 100 plus Ronald Coase (and Ning Wang) . It is based on his book by the same name.

No one foresaw that the “socialist modernization” that the post-Mao Chinese government launched would in 30 years turn into what scholars today have called China’s great economic transformation. How the actions of Chinese peasants, workers, scholars, and policymakers coalesce into this unintended consequence is the story we tried to capture. Today, we don’t need to present any statistical data to convince you the rise of the Chinese economy, even though China still faces enormous challenges ahead. Many Chinese are still poor, far fewer Chinese have access to clean water than to cell phones, and they still face many hurdles in protecting their rights and exercising their freedom. Nonetheless, China has been transformed from the inside out over the past 35 years. This transformation is the story of our time. The struggle of China, in other words, is the struggle of the world.

Against conventional wisdom, we take the end of 1976 as the start of post-Mao reform and argue that China basically became a market economy by the end of the 90s before it joined the World Trade Organization in 2001. In the new millennium, the Chinese economy has kept its growth momentum and become more integrated with the global economy. As an account of how China became capitalist, our book focuses mainly on the first two decades of reform. Within this time frame, our account is split into two parts by a dividing event, the 1989 Student Movement.

The first part of the story is a tale of two reforms. One was designed by Beijing; its goal was to revitalize the state sector and save socialism. The other resulted from grassroots initiatives. 

Super stuff..

Moving to more of historical analysis post Rogoff-Reinhart disaster…

May 21, 2013

Reinhart-Rogoff controversy continues to rage and shock econs. However, most pieces debate the research findings and very few give a solution for econ research.

Barry Eichengreen says the need of the hour is not more stats and sophistication, but descriptive historical analysis :

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Did the Metro help reduce air pollution in Delhi?

May 20, 2013

Deepti Goel of DSE (a dear friend) and Sonam Gupta of Univ of Florida have been doing research on this very important topic.

They share the findings in Mint’s column:

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The Uses of Biography and the History of Economics

May 20, 2013

A nice paper on history of economic thought by Susan Howson of Univ of Toronto.  The paper mainly covers her approach towards writing bio of Lionel Robbins. However, in the process it shares insights on how biographies help understand history of economics better:

I was asked to speak at this year’s [2012] HETSA meetings because my biography of Lionel Robbins was published late last year. I shall indeed talk about some of my experiences in researching and writing this biography. Since the theme of the conference is the future of the history of economics, I shall also try to illustrate just how useful archival sources can be for historians of economics – not just in writing an economist’s biography but in the study of the history of economics more generally. In the last decade there have become available the personal and professional papers of many other important 20th century economists. These should provide a rich resource for historians of economics interested in the development of economics in the twentieth century for many years to come.

Decent read…

Honeybee Economics – Implications for Ecology Policy

May 20, 2013

What a brilliant paper by Vesa Kanniainen of University of Helsinki, Tuula Lehtonen  of Finnish Beekeepers’ Association and Ilkka Mellin  of Aalto University.

It tells you about so many things about economics using honeybees and their activity at the centre. It tells you about economic systems, leadership, externalities (positive ones), work ethics and what not:

For thousands of years, humans have known the value of honeybees in agriculture. Their pollination services are crucial for the mankind, the Global ecosystem and food production. The recently documented decline of the honeybee colonies in the world is alarming and may threaten the whole living nature. To develop a proper policy intervention, the economic analysis can be employed to develop Honeybee Economics. Such an endeavour reveals striking efficiencies of honeybee societies in terms of division of labor, the pleasure of work, career development, information sharing, and extreme altruism. A communist society, however, comes at a cost. Strict policing in management of the genetic interest conflicts is unavoidable in terms of workers’ dictatorship with a rather limited power allocated to the Monarch.

In our paper, the economy of honeybees is analyzed in terms of an implicit labor contract with a farmer. It is a two-output economy: the honeybees not only produce honey but are engaged in Pareto-efficient exchange with flowering plants including procurer and provision of pollination services. This benefits the whole nature. Markets for pollination services exist only in limited areas, for example in the Western United States. The missing market makes the pollination an externality. In their principal-agent relationship with the farmer, the working effort of honeybees appears a virtue in the spirit of the Calvinist Ethics. The industry is subject of substantial risks. The risk aversion creates a wedge between the expected market price and the production cost. The risks are reflected in volatility in the pollination services reducing the consumers’ welfare. Data on honey production, a complement to the pollution services, is used to examine the magnitude of risks and the potential cycles. Both the externality, the industry risks and the risk aversion speak for taxing consumers and subsidizing producers as the solution for the optimal tax problem.

Though the paper is on technical side. However, students could be given this paper in the class to work simultaneously on econ and math lessons. The paper moves interestingly from one aspect of honeybee econmics to other ….I would love to be part of such a class and sort some math..

 

Why Do So Few Women Work in New York (And So Many in Minneapolis)?

May 17, 2013

Nice paper from  Dan A. Black, Natalia Kolesnikova and Lowell J. Taylor.

The results are pretty intuitive. They say cities which have larger commuting time have fewer working women:

This paper documents a little-noticed feature of U.S. labor markets|very large variation in the labor supply of married women across cities. We focus on cross-city differences in commuting times as a potential explanation for this variation. We start with a model in which commuting times introduce non-convexities into the budget set. Empirical evidence is consistent with the model’s predictions: Labor force participation rates of married women are negatively correlated with the metropolitan area commuting time. Also, metropolitan areas with larger increases in average commuting time in 1980-2000 had slower growth in the labor force participation of married women.

The results show large effects:

For women, the effects of commute times are quite large. From Table 5 we see that a 1-minute increase in an MSA’s commute time is associated with an approximately 0.3 per- centage point decline in the labor force participation of women with a high school education.   Table 4 indicates that the difference in commute times, from the shortest-commute MSA to the longest-commute MSA, is 33 minutes. Taking our estimates at face value, this variation might be expected to lead to a 10 percentage point difference in participation across cities. Commute time di®erences across MSAs thus plausibly \explain” a fair amount of the cross-MSA variation in participation observed in Table 1.

It might be reasonable to ask, indeed, if our estimates are \too big.” One might reason that a 30-minute increase in commute time presents an opportunity cost of only $10 daily for a woman who earns $20/hour. Could such a modest factor plausibly have such a large impact on behavior? In thinking about that issue it is important to recognize that the cost to a typical mother of living in a high-commute MSA extends far beyond the increased time she spends commuting if she works. As we noted above, in congested cities there will be additional time required for travel to the grocery store, piano lessons, or little league baseball. If she chooses to commute a long distance to work, a mother will likely be farther from her children’s school, which can make life difficult when she needs to be available for a parent-teacher conference or a class play. Our estimates are not picking up the pure effect of the commute time of the participation decision, but the total impact of congestion on the participation decision.

Policy implications:

One implication of our work concerns the century-long increase in the female labor force participation|the increase in married women’s participation from only about 7 percent in 1900 to current rates (near 70 percent). There are doubtless many factors contributing to this trend, many of which have received careful examination in the literature. Little attention has been given, though, to the possibility that part of this trend is due to the reduction in commuting costs, owing to improvements in transportation technology|the expansion of modern public transportation, the introduction and continued improvement in automotive technology, improvements in roads, and so on|and changes in residential patterns.

Our findings about the wide cross-city variation in the labor force participation of married women also introduce a new dimension to the current discussion about trends in the female labor supply. In particular, these ¯ndings complicate discussions about women having reached a \natural rate” of labor force participation. The issue is how close to 1 we can expect this participation rate to be. Goldin (2006), Juhn and Potter (2006), and others show that labor force participation rates depend on a combination of demographic factors such as age, presence of children, education, and race. The \natural rate” of participation is expected to be different for di®erent groups. Our research suggests that the maximum achievable rate of labor force participation for each group would also vary across cities (and also across countries) because of di®erences in commuting time.

Of course, commuting times in local communities also depend on population density, the resources devoted to transportation, and local planning (e.g., zoning laws that may sometimes serve to isolate residential communities from job locations). Thus, from a public policy perspective, it may be that targeted actions that reduce commuting times would thereby increase labor force participation by women. Yet another open policy issue concerns the importance of variation in labor supply across cities for tax and welfare policy. It would be interesting to analyze how differences in the time cost of commuting affect labor supply responses to changes in such policies. 

Interesting paper..

Why Japanese recent Monetary Policy is a regime shift…

May 17, 2013

A brilliant speech from Great Depression expert Christina Romer (HT: Mankiw’s Blog).

She says BoJ’s recent speech is a regime shift something like what US did in 1930s:

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Politics of Nitish Kumar asking to declare Bihar a Special State…

May 17, 2013

I think it was NR Narayanamurthy of Infosys who famously remarked: India is the only country where people take privelege in calling themselves backwards. Unfortunately, this is true not just for people but also other more macro related areas.

This blog is a huge fan of whatever Nitish Kumar has managed to do for Bihar. It has been a huge change of perception since he arrived and there are no words to justify the praise.However, his agenda of using the political card to get Bihar a Special/Backward State status is what is unnerving really. Why would he goto the extent of saying that he will support any alliance who gives Bihar a special status. Instead of trying to move Bihar away from the special/backward category, he wants Bihar to get that status. Why?

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How do econs vote? A study of voting in German Council of Economic Experts

May 16, 2013

A nice paper from a political economy perspective.

German Council of Economic Experts is a special body for econ advice. I think it should be much like our EAC, which I think is more political than economic.

We usually look at voting patterns in central banks’ MPC. However, this CEA kind of thing also helps understand some interesting patterns:

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Why reforms fail: Political-economy forces and agriculture in Africa

May 16, 2013

M. Ataman Aksoy of WBank has written this paper on the topic looking at reforms in Africa’s agricultural markets. He says the issue is not announcing reforms but sustaining them. What sustains reforms? Politics ofcourse.

He summarises the findings in voxeu:

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How the Case for Austerity Has Crumbled..

May 16, 2013

Paul Krugman keeps hitting no matter what..

His latest piece in NYRB is on his favorite subject and also reviews three books in process. The three books are:

Those who follow his blog know what is to follow. One may and may not agree to what he says, but the simplified way he writes is really something all econs should follow. Prof. Krugman should also take writing lessons and blog on it apart from Keynesian economics..

 

Why choose WPI for inflation indexed bonds?

May 15, 2013

Finally, after many years of deliberation Govt/RBI have decided to launch inflation indexed bonds (IIBs). It was announced in the budget 2013-14 but has been under consultation for a very long time. The launch is based on this technical paper. I will try and release a simplified version if possible.

The choice of index for inflation remains WPI despite having a new CPI. What is the purpose of new CPI then? Yes it does not have a time-series as old as WPI but we are not really talking about using CPI from a historic perspective. If the bond is issued today we are going to use CPI series from hereon.

The technical paper says:

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