Archive for May 18th, 2015

How GDP metrics distort our view of the economy

May 18, 2015

Battle lines have been drawn between CSO and the rest ever since India’s new GDP data has been released. But come to think of it, why obsess over this one metric despite serious limitations of the metric.

Chris Casey has a piece on the same:

GDP purports to measure economic activity while largely divorcing itself from the quality, profitability, depth, breadth, improvement, advancement, and rationalization of goods and services provided.

For example, even if a ship — built at great expense — cruised without passengers, fished without success, or ferried without cargo; it nevertheless contributed to GDP. Profitable for investors or stranded in the sand; it added to GDP. Plying the seas or rusting into an orange honeycomb shell; the nation’s GDP grew.1

Stated alternatively, GDP fails to accurately assess the value of goods and services provided or estimate a society’s standard of living. It is a ruler with irregular hash marks and a clock with erratic ticks.

As proof, observe this absurdity: in 1990, Soviet GDP equaled half of US GDP, according to the 1991 CIA Factbook. No one visiting the Soviet Union in 1990 would believe their economy came close to 50 percent of the quality and quantity of the goods and services produced in America. GDP-defined production may have been strong, but laying roads to nowhere, smelting unusable steel, and baking barely edible breads stretches the definition of “production.” And this describes the goods which were actually produced. There is no accounting for the opportunity cost of forfeited essential goods and services.

How can this be? Why does GDP poorly reflect economic size and vitality? The blame largely resides with three fallacious concepts embedded within GDP “measurements”:

(1) intermediate goods (e.g., steel) must be eliminated to avoid “double counting”;
(2) government expenditures consist of viable economic activities; and
(3) imports should be netted against exports

Nice stuff and important reminder..

Explaining how economists explain…

May 18, 2015

Nice article on state of economics.

This time it is on how economists explain their ideas. Actually they don’t really explain.

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The $179 Million Picasso That Explains Global Inequality

May 18, 2015

Neil Irwin if NYT connects the dots:

We don’t yet know who agreed to pay $179.4 million for a Picasso in an auction Monday night — or where the money came from, or what motivated that person or persons to spend more than anyone has before for a single piece of art at auction.

But this much we do know: The astronomical rise in prices for the most-sought-after works of art over the last generation is in large part the story of rising global inequality. At its core, this is the simplest of economic math. The supply of Picasso paintings or Giacometti sculptures (one of which sold for $141 million in the same auction this week) is fixed. But the number of people with the will and the resources to buy top-end art is rising, thanks to the distribution of extreme wealth.

Nice bit..

Ushering payment revolutions in India by creating more competit..

May 18, 2015

This blog had earlier pointed how NCPI, a public sector organisation is shaping payments revolution in India.  The blog had also added that one should also be thinking whether private players would have done a better job.

Think it this way. Payments is like a utility and microeconomics tells you that natural monopoly does a better job in such cases. It is only after a certain scale as been reached can one break the monopoly and open it up to private players. This we have seen in electricity, telecom etc and experiences differ from country to country.

This article argues that we could be better off if NCPI gives way to more private competition:

The Indian economy is predominantly cash-driven with only 5 per cent of the country’s Personal Consumption Expenditure done electronically. This shows that there is a huge unexplored market for payment companies. It will require all players across the payments value chain to create much greater innovation in payment services. In other words, greater competition and collaboration will be beneficial for all segments like consumer, financial institutions, merchants as well as the government by creating innovative solutions that meet the needs of different segments of the society.

However, the current scenario does not provide conducive environment for innovation, given that over 90 per cent of the markets electronic flows (this includes ATM volumes, POS volumes and E-commerce) are controlled by one network National Payments Corporation of India (NPCI). If we create an open environment and allow technology and service companies to participate, it would make much greater payment service proliferation possible in the country with greater innovation.

The US is a classic example of how innovation and technology breakthroughs happen in an open competitive environment and how different business models emerge in a short period of time. By providing open environment and open system, you create a vibrant entrepreneurship class, to drive innovation. Once we create an open system for all technologies to compete, we will be able to create a much more vibrant economy.

Comparison with US is futile. People moved to cards and internet payments much earlier. So there was a scale for private players to come and play. We need comparisons with relevant countries.

The article goes on to point how Aadhar payment system should be opened up and examples drawn from Mastercard etc kind of companies.

Payments is an area of economics (if I can call it that) which is deemed as highly boring. Due to technology, the space has become highly spiced..

 

How gully cricket is pushing back against football and urbanisation

May 18, 2015

Superb article by Subhash Jayaraman in Cricket Monthly. It takes most of us to those amazing childhood times where we played gully cricket and invented our own rules to play the game.

Growing cult of football in India and shrinking space due to urbanisation, one would imagine gully cricket is being threatened. Not at all. Jayaraman goes across quite a few places and discovers gully cricket continues to thrive in India:

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Band, baaja, ghodi – Sanskritisation in marriages…

May 18, 2015

Late Prof MN Srinivas developed this famous idea of Sanskritization. It simply means as castes/people move up the social ladder they basically start to emulate the habits/customs of upper class. The idea is to resemble the upper caste and give up the customs of the lower ladder. It means things do not change much at the top of the ladder.

This is an interesting article on the same related to marriages:

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