Archive for December, 2014

Economists aren’t as nonpartisan as we think

December 11, 2014

Zubin Jelveh, Bruce Kogut and Suresh Naidu have a blogpost on the topic. The post summarises this paper by the trio

They start with this basic paradox. Most economists proclaim to be independent thinkers but gain legitimacy and hype from some government appointed post:

According to purists, the field of economics is supposed to be free of political ideology. Economics views itself as a science1 and the prevailing consensus, best articulated by Nobel-winner and Chicago-school doyen George Stigler, is that “the dominant influence” in economics “is the set of internal values and pressures of the discipline” which help keep it nonpartisan.

And yet most well-known economists achieve their star status in the political sphere. The econowonks reading this could name the politics of economists Paul Krugman and Greg Mankiw without much hesitation. And a little Googling would uncover the ideological leanings of Martin Feldstein, John Cochrane, Christina Romer or Jonathan Gruber. Even Thomas Malthus and David Ricardo had disagreements over free trade that were mirrored in the House of Commons.

The authors go onto show how top econs political biases shape their research as well:

Still, economists’ beliefs are separate from what makes them successful academics: their research prowess. We can easily discount the political opinions economists express in op-eds. But they’re also publishing research in peer-reviewed journals. Are findings on tax rates, minimum wages or government spending also influenced by ideology?

This is not just navel-gazing, as economics research informs public policy.2 A recent Congressional Budget Office analysis of the minimum wage describeshow results from academia influenced the CBO’s projections. If those findings were at least partially influenced by political beliefs, then the CBO’s assessments may be unwittingly biased.

So we set out to test the idea of nonpartisan economics on a large scale. In arecent paper, we researched whether economists’ political leanings were associated with their professional work.3 The answer: yes.

Our main proxy for research was the text that appeared in academic papers. To identify political leanings, we had to figure out a way to measure the ideology of any economist — not just people like Krugman and Mankiw. Luckily, there’s a growing body of research on how to detect people’s ideology (ormood or personality type) from the way they write.

Nice bit..In a way paraphrasing Keynes who said politicians are influenced by some defunct economist. In this case, economists themselves are influenced by some funct or defunct political thinking. At the end of the day, politics is supreme and central to most things in economics…

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The rise and fall of debate in economics..

December 11, 2014

Food for thought post by Joe Francis, an Argentina economy specialist (a country whose economics must be keeping him both busy and amused).

He says how econs do not discuss any more:

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Bank business models and how they change with times..

December 10, 2014

Rungporn Roengpitya, Nikola Tarashev and Kostas Tsatsaronis look at business models of large number of banks.

They say retail funded banks perform better as of now But this has changed post-crisis:

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How the Banking Union has transformed banks’ IT requirements..

December 10, 2014

This is an unusual speech but seeing how banking is shaping up could be the most usual thing to talk about. In things like banking union, one would usually see things like banks’ capital requirements, quality of assets and so on.

Dr Joachim Nagel, of the Bundesbank talks on IT requirements of banks post the banking union:

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Monetary Policy Transmission in India: Pre and Post LAF period

December 9, 2014

A nice research by Nandini Sengupta of KC College Mumbai.

She looks at the impact of monetary policy on things like credit markets, asset markets, interest rate and so (this is standard monetary policy transmission). More importantly, the paper divides the research into two periods- pre LAF (before 2000) and post LAF (post 2000) and sees whether the transmission has changed in the transition. The findings are:

It is found that the bank lending channel remains an important means of transmission of monetary policy in India, but it has weakened in the post-LAF period. The interest rate and asset price channels have become stronger and the exchange rate channel, although weak, shows a mild improvement in the post-LAF period.

Bank lending channel has weakened as now firms have much wider choices to raise capital. Banks are not the only option..

Suburban rail 20 times cheaper than Metro..

December 9, 2014

Well, one did not really need a study to prove this. But anyways, we have some research and that too from a reliable source IISC. There was an interesting paper on the same topic in EPW as well.

The study shows suburban train is way cheaper than metros:

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Improving the security and cost-effectiveness of banknotes…

December 8, 2014

Management of currency notes is  one of the least focused tasks of monetary management. The origin of central banks largely came from this activity. There were many banks which issued their own notes convertible into some commodity (mainly gold). Some of these banks over-issued these notes, leading to problems of liability management. The governments then decided to have one bank issue notes which eventually came to be known as central bank. Then gradually, these banks were given additional tasks. Earlier, the banks had both deposits and currency as liabilities. But with central banks coming in picture, the currency became liabilityty of the central bank and deposits of banks.

Mr François Groepe of the South African Reserve Bank has comments  on this currency management business:

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Will Hong Kong become irrelevant as Mainland China opens up?

December 8, 2014

Nice speech by Mr, Norman Chan of HKMA.

He says there is no reason why HK should decline as mainland China opens up. Both have their own strengths. He shows through statistics how things between the two regions have only improved overtime.

By leveraging on each other’s strengths bot can gain:

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Japan faces stagflation risks??

December 8, 2014

This is a weird prediction by Morgan Stanley econs even if they attach very low probability to the event.

The idea is Japan could have inflation moving in positive zone closer to its target of 2% but growth likely to remain stagnant. This could be a case of low stagflation:

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Bihar story: Resurrection of the state..

December 8, 2014

Nice to see Chief Minister of Bihar Jitan Manjhi’s piece on the topic. I had earlier pointed to this nice interview of Bihar’s secretary Anjani Singh on the state’s resurgence.

Both the pieces are very similar:

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Why pessimism over population growth has not been right all these years?

December 5, 2014

Tim Sablik of Richmond Fed reviews literature on population economics.

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Online-Offline wars everywhere..retail, taxis and now to Indian President’s book

December 5, 2014

ToI had this story yesterday. Indian President Pranabda’s much awaited book —  The Dramatic Decade: The Indira Gandhi Years– is expected to be released on Dec-11. One would imagine the release to happen across stores across the country.

But it seems it will be inititally be available only on amazon.in for 21 days:

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Taxis for Rs 25 for 2 km..

December 5, 2014

I had pointed how taxi players are planning to buy Tata Nano and reduce taxi fares further.

This has happened and taxiforsure.com now offers Rs 25 per 2 km. Autos are going to face the heat further. ..

This is a fab case study. How mix of technology and aggressive pricing are helping taxi companies to offer fares lower than autos. Till date we believed autos are the cheapest mode of transport, not any more.

World Bank tries to go the behavior way for development..

December 4, 2014

The change is happening gradually.

World Bank’s annual World Development Report 2015 (WDR) is based on behavioral insights..

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The real question is not whether interest rates are high or low but are they correct..

December 4, 2014

 of Mises Institute says interest rates are like prices. Just like prices, we should be more concerned with right or wrong interest rates:

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Why Spice Jet is facing problems?

December 4, 2014

Well there is an old joke. How to become a millionaire? By being a billionaire and then opening an airline..:-)

Anjuli Bhargava tries to make sense of the recent problems faced by Spice Jet. She looks at management related issues but in reality it is this airline sector. Somehow, it does not succeed. There are just a handful of players who have remained sane in the business.

Entry of a new airline generates enormous hype whether it is low cost or high end one. But in a few years time, things usually crash. And as most airliners have some other businesses as well (how else can one raise so much money unless you are a state), it impacts other businesses as well. The King of good times very quickly turns into king of all bad news..

 

How stock markets keep making a mockery of pessimist analysts..

December 4, 2014

One of the central lessons of econ-finance literature is when economy is not doing well, stock markets shall follow. The markets follow economic developments . Based on this, analysts have been predicting poor economic growth and stagnated stock markets for a while now. And what happens? Well economies remain poor but stock markets have a different story and they keep rising.

Jim O Neil of Brics fame has this piece on how emerging markets made a mockery of the pessimist analysts once again. They have risen much more than eveb what the optimists had to predict. And why just EMEs, this applies to advanced economies as well.

The books need to written again. The markets can rise irrespective of what the economic fundamentals have to say…

Indian retailers unite to stand up to e-commerce onslaught…

December 4, 2014

Just a few years ago, the same retailers gave us lessons on economics saying how competition is crucial for retail.

Now, with e-commerce retailers giving these retailers a run for money, what do they do? Allow competition? You kidding me. They oppose it and even better unite in opposition:

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What is free banking all about?

December 3, 2014

There has been some hot and stirring debate on free banking in the blogosphere.

Ueasymoney blog sums up the debate and provides links on who said what on the topic. For those interested in history of money and banking, studying free banking is a must as this is how it all started. Adam Smith wrote on free banking in his wealth of nations tome. Also read this website where leading free bajmking scholars are writing some really fab and interesting stuff.

There are two schools of free banking — Currency school led by Hume and Banking school led by Smith:

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(Brief) history of American economics..from words to models

December 3, 2014

Ross B. Emmett of Michigan State University has this interesting paper on history of American economics. In the process he points how US econs changed their way of explanation from words to models.

Economics today is a model building and testing science. But scientific economics was not always understood in terms of models. Economics first emerged as a separate field of scientific study in post-bellum America. The laissez-faire orientation of early American moral philosophy gave way to social reforms informed by the historical/institutional examination of the sources of rapid change in the American economy.

Early professionalization occurred within the context of the debate laissez-faire theorists and Progressives, leaving early twentieth century American economics a conflicted pluralism, with a nascent neoclassical theory tradition competing with institutionalism and the slow emergence of Keynesianism. The shift to model building occurred behind the scenes of the debates between vestiges of institutionalism, the Keynesian synthesis, and the Chicago School. By the end of the twentieth century, all economists, regardless of policy orientation, were modelers.

There are interesting examples at the end of how this transition to modelling happened. The examples are based on Coase theorem, labor economics and education economics.

And of course as Americans dominate much of everything including economics, this changed the economic thinking across the world. Models have become the centrepiece for everything in economics…


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