Archive for January 31st, 2014

How Ragnar Frisch introduced planning in Norway..

January 31, 2014

An intriguing historical narrative of this story is given in the recent edition of EJW.

It is written by  and :


US rural electrification in the 1930s..

January 31, 2014

Carl Kitchens (of University of Mississippi) explains how rural electrficiation in 1930s helped US economy:

It is a result which would be really surprising if it did not happen:

Economists have found that large-scale infrastructure investments tend to increase economic growth and reduce poverty. However, there has been relatively little research on the effects of smaller, more targeted investment projects. This column discusses recent research on the effects of the US Rural Electrification Administration, which provided subsidised loans for connecting farms to the electric grid. Counties that received electricity through the REA witnessed smaller declines in agricultural productivity, smaller declines in land values, and more retail activity than similar counties that did not.

Subsidised loans? Did I read that correctly?

While large-scale projects have demonstrated benefits, often at a large expense, the literature has neglected smaller, more targeted, less expensive projects. In new research (Kitchens and Fishback 2013), we focus on electrification projects that directly connect rural consumers to the electric grid. In 1935, the Rural Electrification Administration (REA) was created in the US. In a five-year period, the REA provided $3.6 billion in subsidised loans to newly established cooperatively owned utilities. With these funds, rural utilities doubled the number of farms receiving electric service, and constructed more rural distribution line than private companies had constructed in the previous 50 years.

Using a sample of approximately 1,400 rural counties in the US from 1930 to 1940, we estimate the relationship between changes in access to electricity via the REA and agricultural outcomes such as crop values, livestock values, farm size, and land values. We are interested in how counties that received access to electricity from the REA changed relative to similar counties that did not receive REA electricity.

Our empirical findings suggest that access to electricity improved outcomes in agricultural counties. While agriculture was in decline everywhere at the peak of the Great Depression, counties that received electricity through the REA witnessed smaller declines in agricultural productivity, smaller declines in land values, and more retail activity relative to counties that did not obtain electricity from the REA.


In case Scotland and UK agree to form a monetary union..

January 31, 2014

On Sep-18-2014 Scots are going to vote on their independence from UK. In case they do, what choice the country has on its economic framework? Should it continue the monetary union? If it does, what else will authorities have to do? Well, because  of  the EZ crisis, we know much of what needs to be done..

Some basics first. UK comprises Great Britain, Scotland.  Northern Ireland and Wales. It has an interesting monetary framework. Though B0E is responsible for currency in the area, some private banks manage the currency it as well. Wikipedia as always does a good job of explaining the concept.

Mike Carney of BoE in this nice speech explains the economics if UK and Scotland agree to remain in a mon union:

The Scottish government has stated that in the event of independence it would seek to retain sterling as part of a formal currency union. All aspects of any such arrangement would be a matter for the Scottish and UK Parliaments. If such deliberations ever were to happen, they would need to consider carefully what the economics of currency unions suggest are the necessary foundations for a durable union, particularly given the clear risks if these foundations are not in place.

Those risks have been demonstrated clearly in the euro area over recent years, with sovereign debt crises, financial fragmentation and large divergences in economic performance. The euro area is now beginning to rectify its institutional shortcomings, but further, very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources. In short, a durable, successful currency union requires some ceding of national sovereignty.

It is likely that similar institutional arrangements would be necessary to support a monetary union between an
independent Scotland and the rest of the UK.  I suspect you have reached your limits of endurance of the dismal science, so you’ll be relieved to know that economics can take us no further. Decisions that cede sovereignty and limit autonomy are rightly choices for elected governments and involve considerations beyond mere economics. For those considerations, others are better placed to comment.

He covers some interesting stats on how the union looks like compared to other unions..

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