Archive for October, 2014

How Germany started its hyperinflation and ended the same..

October 31, 2014

Two interesting articles on the topic.One by Marcia Christoff-Kurapovna and other by Thorsten Polleit.bit..

 

Book Review — The Gifts of Athena: Historical Origins of the Knowledge Economy

October 31, 2014

What a book by Prof Joel Mokyr of Northwestern Univ. It is a pity that this book is highly recommended for reading even to economics students.

This book says industrial revolution basically happened as there was certain knowledge creation which allowed the revolution to happen. The book is around this process of knowledge creation. How small things added up over a period of time which led to the so called revolution. These small things were added to a super set called Omega (Ω) and how they were applied becomes lambda (λ). The entire book explains how this Omega expanded overtime and then with easier access became part of lambda. Easier access to these technologies made a huge change from the previous episodes where the activity started but could not become a revolution. There was far more investment and application towards sharing and making the knowledge of Omega and Lambda to others.

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Economics of Wikipedia: The value of open content production

October 31, 2014

Aleksi Aaltonen and Stephan Seiler have an interesting piece.

What drives Wikipedia?

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Brazil is Belindia – Belgium + India

October 31, 2014

Andres Velasco reflects on the recent Brazil elections. I mean how quickly things turn around. Just three years back, people were praising the outgoing President Lula who had left a strong economy. And now we are discussing how Brazil will fight its recession.

Anyways, Prof. Velasco points to this interesting story. Brazil was named as Belindia by one of its econs 40 years ago:

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Promoting diversity in economic thinking and profession..

October 31, 2014

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IMF floors its SDR rates at near zero..

October 30, 2014

A one week old news..not sure how many saw it.

IMF charges an interest rate for lending against SDR. These rates are calculated on a weekly basis. These interest rates are in turn calculated by the prevailing interest rates in developed economies, With rates even touching negative, there was a threat to SDR rates as well. So IMF has set the floor rate at 0.05%:

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Lies, Damned Lies, and College Rankings..

October 30, 2014

Steve Cohen writes in City Journal over the non-sense around college rankings. The article is for US but applies to most oarts of the world where all these college rankings provide a lot of stress to students who are unable to get into top colleges. Moreover, colleges start to game the system by trying their best to remain top of rankings.

The purpose of education is to become a more informed and a humbler soul. But now college degrees are just meant to show-off and signal one’s supremacy over the others..

How a region once decimated by smallpox and measles became a coffee exporting hub?

October 30, 2014

 

Casey Lurtz, a Business Historian at Harvard Business School discusses her fascinating research on the topic.

She discusses a place in Mexico called Soconusco which was a place of diseases in 1800s and then emerged as a coffee exporting hub at the turn of twentieth century..

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Every producer is a monopolist in a way..

October 29, 2014

The micro textbooks are written around firms and consumers. But with most writers of these books i.e. econs never having done any business themselves, these books are just too unreal. The examples of producers/markets are just randomly picked up without much clarity on how firms actually work.

Frank Shostak of Mises Institute points to one such fallacy of perfect competition and monopolies. He actually criticises the 2014 prize winner Jean Tirole’s work on monopolies..

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Could the ‘Taylor Rule’ Have Prevented the Housing Bubble?

October 29, 2014

What was merely an academic exercise has become an applied tool for central banks. Just see whether your policy is in line with the T-rule and all shall be well.

Mateusz Machaj discusses the limitations of the rule and why we should avoid the hype around it.

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Most RomComs are basically about money..

October 28, 2014

An interesting article (HT: INET).

It looks at how RomComs have evolved over the years and behind all the mush there is money. As they say it is all about money honey..

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Heineken’s CEO on leading a 150-year-old company..

October 28, 2014

Didn’t realise Heineken is a 15o yr old company.

Here is a nice interview of its CEO Jean-François van Boxmeer who discusses balancing traditions along with growth.

UK monetary policy and Cricket…Switching gears from frontfoot to backfoot..

October 28, 2014

Andy Haldane reviews economic conditions in UK and change of mon pol stance. Using analogy from cricket, he had earlier said that in the batting (economic) corridor of uncertainty it is better to be on frontfoot:

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How fair and effective are the fixed income, foreign exchange and commodities markets?

October 28, 2014

The International Finance Centres are now discussing questions like these which were bread and butter (or mickey mouse) before the crisis. Even asking such qs was a crime and laughed upon.

UK Govt and BoE had floated a study group in Jun-14 and they have released a interim report of sorts now:

The Fair and Effective Markets Review (FEMR) has today published a consultation document on what needs to be done to reinforce confidence in the fairness and effectiveness of the Fixed Income, Currency and Commodities (FICC) markets.

The Review was established by the Chancellor in June 2014, to conduct a comprehensive and forward looking assessment of the way wholesale financial markets operate, to help to restore trust in those markets in the wake of a number of recent high profile abuses, and to influence the international debate on trading practices.

The Chancellor, George Osborne, said:“The integrity of the City matters to the economy of Britain. Markets here set the interest rates for people’s mortgages, the exchange rates for our exports and holidays, and the commodity prices for the goods we buy.

I am determined to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them. I want to make sure it is done in a way that preserves the UK’s position as the global financial centre for many of these markets, with all the jobs and investment that brings.

The consultation that the Fair and Effective Markets Review has launched today is comprehensive, balanced and rigorous, and asks all the right questions. I look forward to the Review’s final recommendations in June next year.”

Wholesale fixed income, currency and commodity markets ultimately make it possible to do business across almost every sector of the global economy. They help determine the borrowing costs of households, companies and governments, set countries’ exchange rates, influence the cost of food and raw materials, and enable companies to manage financial risks associated with investment, production and trade.

However, in recent years there have been a number of high-profile abuses in these markets. These have included the attempted manipulation of benchmarks, alleged misuse of confidential information, misleading clients about the nature of assets sold to them, and collusion.

Interesting times..Despite all this, hype over finance and financial development continue..

Sovereign debt default can be postponed not prevented..

October 27, 2014

Carmen Reinhart and Christoph Trebesch (not Rogoff!) have this article in voxeu. They analyse the previous major crisis and how countries paid off their debts or defaulted on the same. The cost of default is not as high as it is made out to be:

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How central banks end crisis (and create the next ones?)

October 27, 2014

It is all about operating in secrecy. Central banks end crisis by making sure no one knows what you are doing and who are the partners (Banks and FIs) in crime.And general public is made to feel that as if there is some magic going on.

Gary Gorton and Guillermo L. Ordoñez in this paper explain the importance of secrecy in ending crisis:

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WTO headed World Bank/IMF way?

October 24, 2014

WTO has become a defunct institution with hardly anyone really caring for it. There was a time when WTO meeting generated enormous hype. Now IMF/WB meetings have just taken over completely. Even after the decline WTO stood for its one member one vote system. This is something which other so called world institutions should have adopted as well. But then most of the time we end up copying wrong ideas.

Emily Jones of University of Oxford writes that WTO wishes to change its one vote system:

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Rejecting both sides of macroeconomics — demand side and supply side view

October 24, 2014

Jeff Sachs rejects both sides of macro calling for a more sustainable and inclusive macro theory:

I am a macroeconomist, but I dissent from the profession’s two leading camps in the United States: the neo-Keynesians, who focus on boosting aggregate demand, and the supply-siders, who focus on cutting taxes. Both schools have tried and failed to overcome the high-income economies’ persistently weak performance in recent years. It is time for a new strategy, one based on sustainable, investment-led growth.

The core challenge of macroeconomics is to allocate society’s resources to their best use. Workers who choose to work should find jobs; factories should deploy their capital efficiently; and the part of income that is saved rather than consumed should be invested to improve future wellbeing.

It is on this third challenge that both neo-Keynesians and supply-siders have dropped the ball. Most high-income countries – the US, most of Europe, and Japan – are failing to invest adequately or wisely toward future best uses. There are two ways to invest – domestically or internationally – and the world is falling short on both. 

Domestic investment comes in various forms, including business investment in machinery and buildings; household investment in homes; and government investment in people (education, skills), knowledge (research and development), and infrastructure (transport, power, water, and climate resilience).

The neo-Keynesian approach is to try to boost domestic investment of any sort. Indeed, according to this view, spending is spending. Thus, neo-Keynesians have tried to spur more housing investment through rock-bottom interest rates, more auto purchases through securitized consumer loans, and more “shovel-ready” infrastructure projects through short-term stimulus programs. When investment spending does not budge, they recommend that we turn “excess” saving into another consumption binge.

Supply-siders, by contrast, want to promote private (certainly not public!) investment through more tax cuts and further deregulation. They have tried that on several occasions in the US, most recently during the George W. Bush administration. Unfortunately, the result of this deregulation was a short-lived housing bubble, not a sustained boom in productive private investment.

New strategy:

Though policy alternates between supply-side and neo-Keynesian enthusiasm, the one persistent reality is a significant decline of investment as a share of national income in most high-income countries in recent years. According to IMF data, gross investment spending in these countries has declined from 24.9% of GDP in 1990 to just 20% in 2013.

In the US, investment spending declined from 23.6% of GDP in 1990 to 19.3% in 2013, and fell even more markedly in net terms (gross investment excluding capital depreciation). In the European Union, the decline was from 24% of GDP in 1990 to 18.1% in 2013.

Neither neo-Keynesians nor supply-siders focus on the true remedies for this persistent drop in investment spending. Our societies urgently need more investment, particularly to convert heavily polluting, energy-intensive, and high-carbon production into sustainable economies based on the efficient use of natural resources and a shift to low-carbon energy sources. Such investments require complementary steps by the public and private sectors.

The necessary investments include large-scale deployment of solar and wind power; broader adoption of electric transport, both public (buses and trains) and private (cars); energy-efficient buildings; and power grids to carry renewable energy across large distances (say, from the North Sea and North Africa to continental Europe, and from California’s Mojave Desert to US population centers).

But just when our societies should be making such investments, the public sectors in the US and Europe are on a veritable “investment strike.” Governments are cutting back public investment in the name of budget balance, and private investors cannot invest robustly and securely in alternative energy when publicly regulated power grids, liability rules, pricing formulas, and national energy policies are uncertain and heavily disputed.

Nothing different really. For a long time economics is interested in issues which matter to no one except their publishing business:

These considerations are reasonably clear to anyone concerned with the urgent need to harmonize economic growth and environmental sustainability. Our generation’s most pressing challenge is to convert the world’s dirty and carbon-based energy systems and infrastructure into clean, smart, and efficient systems for the twenty-first century. Investing in a sustainable economy would dramatically boost our wellbeing and use our “excess” savings for just the right purposes.

Yet this will not happen automatically. We need long-term public-investment strategies, environmental planning, technology roadmaps, public-private partnerships for new, sustainable technologies, and greater global cooperation. These tools will create the new macroeconomics on which our health and prosperity now depend.

These are not even issues in most econ departments across the world who are just busy solving max/min problems..

Nationalising state elections: Old wine in new bottle..

October 24, 2014

MK Venu has this interesting article saying how the recent wins over state election are part of an old plot mastered by Congress Govt.

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Happy Diwali to ME visitors (is it really happy??)..

October 23, 2014

Wishing all the Mostly Economics viewers a very happy Diwali.

This blog does not wish to talk about economics today but is helpless. Once again, prices of most basic things that matter during Diwali are up, up and away. It is highly frustrating to see how the story just repeats each year with people taking advantages of all kinds of shortages.Hopefully, people have a peaceful Diwali amidst the crazy price rise for most things that matter in Diwali.

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