Should we have minimum prices for alcohol?

Joan Costa-i-Font of LSE thinks having a minimum price for alcohol (albeit at higher levels) will help lower alcohol consumption. 

This is surprising given most of the time such bans fail. Companies/people always have ways to work around the ban.

Retail onion prices soar to double of wholesale rates…what else was govt expecting?

Ever since BJP lost elections in the past due to rise in onion prices, onion prices remain a sensitive topic. I mean atleast some price leads to govt attention towards spiraling inflation.

So, once again there are fears over onion prices. Due to really low rain, prices have started rising. And how does govt, respond? Usual stuff, check hoarding. It took some measures recently asking stats govts to check hoarding etc. And guess what? Prices have continued to rise. Is anyone surprised really except for the government?

Actually the expectations of a price surge has already set in. People know rains have been really poor and given our track record even in bounty rains, there is every chance prices will rise. Just this weekend at a dinner conversation, people were saying time to hoard onions as prices expected to shoot if it does not rain in next 2 weeks! So why just blame the agri hoarder when normal people reacting similarly.

So all these bans state the obvious and reactions should be well-known. The prices will soon reach as per expectations. I mean this is bread and butter common-sense thinking and does not even need a study of economics.

A much better strategy is to ensure enough supplies hit the markets regularly. Why will a trader hoard when supplies are good enough? I mean veg prices declined significantly in Jan-2014 when huge supplies hit the markets. One saw a vegetable seller in all nooks and corner so much was the supply. Now as supply has dried up, prices have followed in the opposite direction.

Given the govt’s abysmal track-record on handling food inflation, people have clearly become smarter. They are reacting accordingly. No surprises here really.

 

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Improving education via fixing basic classroom processes..lessons from Bihar

Amarjeet Sinha, former Principal Secretary of Department of Education in Bihar has a nice article on improving education standards in Bihar.

He says much is about fixing the basics:

Fixing the classroom process is no rocket science. It needs removal of governance and infrastructure deficits, thrust on teacher development, greater community interface with schools, and most important of all, strengthening of teacher development institutions that link with schools in promoting excellence

Nice bit. Hope much of the changes are made across most schools (if not all). If the processes are right, results will follow as well.

When will autos/taxis use meters and behave properly in our cities/towns?

Perhaps never.

Came across this post by a lady living in Bangalore (HT: Nitin Pai). Yet another case of a commuter being harassed by auto-rickshaw driver in Bangalore. It is amazing to read such cases over and over again across cities in India. I mean it is not even shocking anymore. And to see it happen in cities like Bangalore is such a joke on India urbanising, growing and shining. One can just imagine the plight in smaller cities (perhaps they may be better given lack of demand).

Why can’t the auto/taxi drivers use meters to drop/pick commuters in cities? Why should a person haggle over the fares each and every day? Why should anyone overpay crazily to reach from one place to the other? Is it so difficult to ask these people to follow basic rules and procedures?

Behavioral economics and macroeconomic models…a review

John C. Driscol of Fed and Steinar Holden of University of Oslo write this paper.

It gives a good account of the progress made so far in introducing beh eco in macro models and challenges as well:

Over the past 20 years, macroeconomists have incorporated more and more results from behavioral economics into their models. We argue that doing so has helped fixed deficiencies with standard approaches to modeling the economy—for example, the counterfactual absence of inertia in the standard New Keynesian model of economic fluctuations. We survey efforts to use behavioral economics to improve some of the underpinnings of the New Keynesian model—specifically, consumption, the formation of expectations and determination of wages and employment that underlie aggregate supply, and the possibility of multiple equilibria and asset price bubbles. We also discuss more broadly the advantages and disadvantages of using behavioral economics features in macroeconomic models.

Nice way to start figuring the developments..

Book review/recommend : The ToI story (Times of India)

Just finished this pretty interesting book by Sangita Menon Malhan, a former journalist who worked in several newspapers including ToI.

The book gives a decent historical narrative of how Times of India (Toi) and the several other papers from Benett and Coleman stable came up. It is quite a story indeed.

The book mainly deals with Samir Jain whose very different (and eclectic) vision led to what ToI is today. Some may say ToI has destroyed journalism but for Samir it was just another business. His opening statement as he was introduced to TOI senior team was “Newspapers are vehicles for carrying advertisements and news is what we print to fill in the gaps between the ads.”!! The book is full of such one liners from Samir Jain and how he just stormed and changed the rules of journalism game.

Infact after reading the book one should not really be surprised by Ambanis taking over the Network-18 group. Businesses have always owned media houses just to shake legs and network with politicians. It has always been seen used as a vehicle by industrialists. Though, most let journalists be independent but mere ownership adds to certain prestige in the society and high-corridors. As a result of this independence, we usually do not know/care who owns these several media publications. They are mostly owned by big corporate houses who keep themselves away from the limelight. ToI itself was owned by Dalmia-Jain group (later Jain group), a prominent business house. As the business moved to Jain family post split from Dalmias, it became former’s main business as other ventures failed.

Though, one would have liked a deeper look both at history and explanation of logistics of newspaper selling. Nevertheless, the author has a different purpose focusing on Samir Jain. But still in the process we get insights on several aspects of business of media, strategies, marketing etc etc. A book which should be made part of teaching in India’s business schools which are just full of business cases from abroad..

Moving on to behavioral indifference curves…

Prof. John Komlos of Ludwig-Maximilians University has this interesting paper.

He says it is high time we move onto behavioral indifference curves (which have kinks) from the usual indiff curves (which are smooth downward sloping):

When Fasces Aren’t Fascist: The strange history of America’s federal buildings

Superb article by Prof. Eugene Kontorovich of Northwestern University School of Law.

Didn’t know that many buildings in Washington were inspired by fasces which then became a symbol for fascism in Italy..

Revolving door between finance executives and financial regulation..who benefits and how?

A really interesting paper given the times we are in. Despite the huge criticism of finance sector, both its employees and regulators continue to remain coveted jobs.

The authors build it as inflow vs outflow kind of problem:

Three Decades of Human Development across Indian States: Inclusive Growth or Perpetual Disparity?

Three econs look at the question in this NIPFP working paper.

They see a positive relationship between growth and human development policies across states. Though, one sees a higher coefficient in case of rural areas. And the low income countries remain struck in the trap of low growth and low human development:

What happens when divorce laws switch from mutual consent to a unilateral regime?

Interesting paper by Raquel Fernández and Joyce Cheng Wong.

One is always looking for certain natural experiments to check the impact. Change in policy regime is like a natural experiment. So, in this paper authors look at the impact when divorce regime changed in US. Earlier, regime was mutual consent which meant approval for both partners was need. Then it changed to unilateral where just one party had to agree. What was the socio-economic impact of such changes?

History of bankruptcy in early modern europe

EH.net keeps one abreast of some really interesting books on econ history. Its book review section is really top stuff.

In the latest book review, it points to this book which looks at history of bankruptcy in early modern Europe. It is reviewed  by Bradley A. Hansen of University of Mary Washington.

I mean why study of bankruptcy is important? Well, it gives us tremendous insights:

Reform of the Anglo-Saxon economics curriculum

Robert Skidelsky joins the debate over reforming economics pedagogy. This is followed by interesting comments from Brad Delong. With so many joining the chorus for change, not sure when it will change? And this is not just about the anglo-saxon world. It is also about other parts of the world where what is taught in the west is blindly copied. Atleast in the west, some people understand the limitations of current economics teaching, in the other places this is not even understood. There is just competition on most places to keep pace with the west..

Skileddesky says economics teaching should be more pluralistic:

Does Europe face the prospect of a lost decade?

Christian Noyer of Banque De France asks this q in a recent speech.

He says lost decade could happen in Europe for two reasons (though adds it is not limited to Europe alone):

Harvard money managers exit after years of subpar returns

It is always interesting to read such stuff.

The Univs which teach and preach the virtues of finance to the world struggle when it comes to performing in their own backyards. Just a few months ago there was news on how U of Chicago has messes up its finances. And now Harvard’s money managers have been dismissed for showing sub-par returns:

After years of subpar results at Harvard Management Co., three high-level managers have exited the $32.7 billion endowment and the university is searching for new leadership.

Apoorva K. Koticha, 48, among the highest-paid traders at Harvard Management in 2011, has left, according to two people familiar with the matter. News of his departure comes a week after Jane Mendillo, chief executive officer of the university’s investment company since July 2008, said she will resign at the end of the year. Mark McKenna, 43, a money manager at the endowment, moved to BlackRock Inc. (BLK) this month to start an event-driven hedge fund. Since April 2013, Harvard Management has also parted ways with two heads of its private-equity unit.

“When the team posts mediocre records too many years in a row, the coach goes,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “And, not far behind her, the assistant coaches.”

One does not know in finance which way the tide will turn..

World Cup Football: 770 Billion Minutes of Attention (Economics)

Thales Teixeria of Harvard has some interesting facts/trivia on the football world cup and how it is all about attention economics.

He says FIFA world cup is the 7th largest business in the world on annual basis:

My experiments with truth in the Indian capital markets ….Speech by C. B. Bhave

This is truly an amazing and inspirational speech by former SEBI chief – Mr. Chandru Bhave. And what a title based on Mahatma Gandhi’s autobiography. It is a no holds barred speech and completely on front foot Sehwag style. Or in this FIFA season Robben style.

I had the pleasure to hear the speech at IIMB in one of the classes and was floored.He comes across as a pretty reticent and low-key person but was amazing all the way in the speech. The speech had a bit of everything- finance, inspiration, policy development and challenges, building capital markets in India, handing special interests etc. All this along with some humor as well. At that time his name was not taken in the MCX case but in this one, he speaks his mind on the allegation as well.  I was wondering how to put this speech up. Great thanks to Ajay Shah Blog for putting this up though given at a different venue.

I am not discussing the speech as every word is great. But how about this for ending the speech?

Raising female economic participation in India..

Piritta Sorsa of OECD Economics Department compares the women participation in workforce in India and BRIC members. It is the lowest in India.

She says by getting more women into workforce will boost GDP by a few points:

Female labour market participation in India is lower than in other emerging markets. This column discusses the dynamics and causes of this issue. Many women have dropped out of the labour market in the recent years, or work in low-paying jobs without social benefits and with large wage differentials. Raising female labour force participation could boost economic growth up to 2.4% with a package of pro-growth and pro-women policies.

There is a need to work on the entire ecosystem to get more women enrolled into workforce. It will not just happen by opening/reserving more jobs for women.

Albert Hirschman’s hiding hand and behavioral economics

An interesting article by Prof. Cass Sunstein.

This article is a preface to the Hirschman’s  classic on development (haven’t read though):

Why standard macro models fail during crises?

I mean just because we think this time is different and pile on expectations. We fail to appreciate that there could be events which could just scuttle the whole thing. No model can incorporate the entire gamut of uncertainty and uncertain events.

David F. Hendry and Grayham E. Mizon say these basic ideas in a more technical way:

Many central banks rely on dynamic stochastic general equilibrium models – known as DSGEs to cognoscenti. This column – which is more technical than most Vox columns – argues that the models’ mathematical basis fails when crises shift the underlying distributions of shocks. Specifically, the linchpin ‘law of iterated expectations’ fails, so economic analyses involving conditional expectations and inter-temporal derivations also fail. Like a fire station that automatically burns down whenever a big fire starts, DSGEs become unreliable when they are most needed.

Call them whatever- DSGE. ABCD, XYZ etc…There are limitations on what they can achieve and all such models should clearly specify what they cannot do or can fail potentially. In many ways this fascination for models etc is this fascination for making economics a science and having physics envy. When the main agent here is individual who can react really unpredictably, we can never be sure the way these models will work. But despite all this, we just believe so much in these models.

This does not mean we should ignore economic modelling. Not at all. Just that we should know their limitations which could be serious at times..