Archive for May 28th, 2015

Changing the rules of game for US economy..

May 28, 2015

What should be Hillary Clinton’s economic agenda? Should she be on right of the centre (like her husband) or lean towards the left (as developed world is increasingly moving to)?

This report by Prof Stiglitz et al suggests rules for American economy have to be rewritten. Over the last few decades, post policymakers have followed market ideology but that has only led to wealth piling at the top. All that talk of market being the best mechanism to distribute resources has not worked. Markets may be more efficient than govt but poor at equity allocation.

This article by Dylan Matthews sums up the report:


Another country which has successfully Dollarised – Ecuador..

May 28, 2015

Yesterday Prof Hanke wrote about Panama dollarising, today he writes about Ecuador doing the same.

He starts with continued woes of Venezuela, and then gets to Ecuador:

Facing this inflationary theft, Venezuelan’s have voted with their wallets. Indeed, they have unofficially begun to dollarize the economy. But, the only way to establish the rule of law in the monetary sphere is to officially dollarize the economy by officially dumping the hapless bolivar and replacing it with the U.S. dollar.

Ecuador, where I served as the chief advisor to the Minister of Finance, when that country dollarized, offers some lessons that merit Caracas’ attention.

Ecuador represented a prime example of a country that was incapable of imposing the rule of law and safeguarding the value of its currency, the sucre. The Banco Central del Ecuador was established in 1927, with a sucre-U.S. dollar exchange rate of 5. Until the 1980s, the central bank periodically devalued the sucre against the dollar, violating the rule of law. In 1982, the central bank began to exercise its devaluation option with abandon. From 1982 until 2000, the sucre was devalued against the dollar each year. The sucre traded at 6,825 per dollar at the end of 1998, and by the end of 1999 the sucre-dollar rate was 20,243. During the first week of January 2000, the sucre rate soared to 28,000 per dollar.

In the case of Ecuador, the inability of the government to abide by the rule of law was, in part, a consequence of traditions and moral beliefs. Ecuadorian politics have traditionally been dominated by elites (interest groups) that are uninhibited in their predatory and parochial demands on the State. With the lack of virtually any moral inhibitions, special interest legislation was the order of the day. For example, during the rout of the sucre in 1999, laws were passed that allowed bankers to make loans to themselves. In addition, state guarantees for bank deposits were introduced. These proved to be a deadly cocktail, one that allowed for massive looting of the banking system’s deposit base. This, as well as the collapsing sucre, enraged most Ecuadorians.

With the rule of law (and the sucre) in shambles, President Mahuad announced on January 9, 2000 that Ecuador would abandon the sucre and officially dollarize the economy. The positive confidence shock was immediate. On January 11—even before a dollarization law had been enacted—the central bank lowered the rediscount rate from 200% a year to 20%. But, this newfound ray of hope was threatening to some, and during a 24-hour period (January 21–22), a coup d’état ensued. While the Mahuad government was toppled, the coup was a bungled affair and the former Vice President Gustavo Noboa assumed the Presidency. He honored Mahuad’s dollarization pledge. On February 29, the Congress passed the so-called Ley Trolebus, which contained dollarization provisions. It became law on March 13, and after a transition period in which the dollar replaced the sucre, Ecuador became the world’s most populous dollarized country on September 13.

With much the same enthusiasm as Ecuador’s coup plotters and the rigidity of a dogmatic cleric, the critics of dollarization condemned it as something akin to voodoo economics. Well, the critics have been predictably proven wrong.

The misery index is an objective measure of just how well dollarization has worked. The index is equal to the sum of the inflation rate (end of year), bank’s lending interest rates and unemployment rate, minus the actual percentage change in GDP per capita. Simply put, a high index means higher misery.

In Ecuador, prior to the implementation of dollarization in 2000, the country sustained a misery index of over 120. The public suffered greatly from inflation, but after dollarization was implemented, high inflation was stifled and misery drastically fell. The accompanying chart shows the direct link between dollarization and the immediate and sustained decrease in misery. From 2003 through 2014, the misery index in Ecuador has been remarkably constant at around 20 — one of the lowest in Latin America.

Interesting cases on monetary systems around the world..

From MDGs to Post 2015 SDGs..

May 28, 2015

Trust all these UN type organisations to keep coming out with one buzzword after the other. I mean buzzwords are fine if some work actually gets done. But this is usually not the case.

Anyways as tenure of MDGs is going to be over in 2015, UN is coming out with a new development buzz – Post 2015 Sustainable Development Goals (SDGs). The question is what should these goals be?

Bjorn Ljomborg of Copenhagen Business School, who has been associated with such projects writes on SDGs.

Over the next 15 years, the international community will spend $2.5 trillion on development, with national budgets contributing countless trillions more. In September, the world’s 193 governments will meet at the United Nations in New York to agree on a set of global targets that will direct these resources. With so much at stake, it is vital that we make the smartest choices.

Because it is only natural for politicians to promise to do everything, the UN is currently poised to consider an impossibly inclusive 169 targets. The proposed targets range from the ambitious (“end the epidemics of AIDS, tuberculosis, and malaria”) to the peripheral (“promote sustainable tourism”) to the impossible (“by 2030 achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities”).

But promising everything to everyone provides no direction. In truth, having 169 priorities is like having none at all.

That is why my think tank, the Copenhagen Consensus, asked 82 of the world’s top economists, 44 sector experts, and UN organizations and NGOs to evaluate which targets would do the most good for every dollar, euro, or peso spent. A team of eminent economists, including several Nobel laureates, then prioritized these targets in value-for-money terms.

It turns out that not all targets are equal. Some generate amazing economic, social, and environmental benefits per dollar spent. Many others generate only slightly more than a dollar per dollar spent. Some even generate a net loss, doing less than a dollar of good per dollar spent.

If the world were to spend money equally across all 169 UN targets, it would do about $7 of social good for each dollar spent. That is respectable, but we could do much better.

The panel of eminent economists has produced a much shorter list of just 19 targets that will do the most good for the world. Every dollar spent on these targets will likely produce $32 of social good – more than four times more effective than spending on all 169. Being smart about development spending could be better than quadrupling the global aid budget. The short list covers a lot of ground; what connects the targets is the amount of good they will do for people, the planet, and prosperity.


 This list of smart targets will not solve all of the world’s problems; no realistic list, however ambitious, can. But the 19 targets identified by the Copenhagen Consensus can help the world’s governments to concentrate on key priorities. These targets will do more than four times as much good per dollar spent as spending across all 169 targets would do. Governments should stop promising everything to everyone and start focusing on delivering the most possible.

MDG had 8 goals with 21 targets. And now we have 19 targets. I don’t think this is a really short target list. Just that these 19 targets are under three Ps – People, Planet and Prosperity. Who said only Business Schools believed in Ps, Ss and so on?

Eric Hanushek and Ludger Woessmann suggest just one taregt – basic human skills:

Paradise in Peril – Case of Maldives

May 28, 2015

Knew there was trouble in the islands, but did not know it had gone this far.

With Amal Clooney, the human-rights lawyer who recently married the actor George Clooney, acting as your advocate, you would think that your case would grab headlines. And yet Mohamed Nasheed – the Maldives’ first democratically elected president, who was just sentenced to 13 years imprisonment for unnamed “terrorist offenses” by the military-backed government that overthrew him in 2012 – seems to have fallen off the world’s radar.
This is bad news for the Maldives, where the fate of a fledgling democratic regime is inextricably tied to that of Nasheed. And, with radical Islam gaining traction on the archipelago, it does not bode well for the rest of the world, either.

Nasheed’s predecessor, Maumoon Gayoom, who won the presidency in a 1978 parliamentary vote, adopted an authoritarian style, and subjected the country to three decades of misrule. While Gayoom oversaw the archipelago’s transformation into a popular holiday destination, it was he and his associates – not ordinary citizens – who benefited from the tourist industry’s success.

Nasheed’s victory in a free and fair popular vote in 2008 offered the promise of a brighter future for the conservative Muslim country. The new president – intelligent, eloquent, and enthusiastic about what his Maldivian Democratic Party (MDP) could deliver for the Maldives – introduced a more secular tone to political rhetoric, while working to impress upon the world the threat to his low-lying island country posed by global warming.

Toward the end of his first term, Nasheed initiated a comprehensive reform of the judicial system – an effort that did not go down well with the judiciary, which was dominated by Gayoom’s appointees. The arrest in January 2012 of the chief judge of the supreme court, Abdulla Mohamed, on charges of corruption and malpractice was the straw that broke the camel’s back. Military and police forces supported opposition-led street protests, and Nasheed was forced to resign the following month, succeeded by his then-deputy, Mohammed Hassan.

When new elections were held in 2013, politically motivated charges were brought against Nasheed to prevent his participation. Ultimately, Nasheed did contest the election, which was marred by irregularities, including the annulment of the original first round, in which he won the most votes – 20% more than his nearest rival. And yet Nasheed accepted the result: a victory for Gayoom’s half-brother, Abdulla Yameen.

Having refused to leave the country or retire from politics, Nasheed is now besieged by his rivals, who are seeking to deny him any chance to mount a political challenge. A new law banning prisoners from membership in political parties, coupled with his imprisonment, has cost Nasheed his position as President of the MDP.

Another example of celebrating political successes a bit too early. One has to wait till the political cycle gets over.

Canadian student’s declining Math scores..

May 28, 2015

Came across this interesting report from CD Howe Institute based in Canada.

The authors raise concerns on the declining math scores in Canada. They suggest the way out is to change teaching habits that promote cramming instead of understanding. Just so similar to India:

Canadian educators should abandon curricula and instruction premised upon the assumptions of discovery-based learning, according to a new C.D. Howe Institute report, which examines mounting evidence that this approach seriously hampers math learning by students. In “What to Do about Canada’s Declining Math Scores,” author Anna Stokke urges provinces to act quickly to improve the way mathematics is taught.

 Between 2003 and 2012, on exams administered to 65 jurisdictions by the Organisation for Economic Co-operation and Development, all but two Canadian provinces showed statistically significant declines in math scores. Another international assessment, the Trends in International Mathematics and Science Study, also shows some troubling trends in Alberta, Quebec and Ontario.

 The author recommends encouraging teachers to follow an 80/20 rule favouring direct instructional techniques over discovery-based instructional techniques as studies consistently show that direct instruction is more effective.

 “Unfortunately the popularity of discovery-based instruction, which encourages inquiry learning typically through minimal teacher guidance and instruction through open-ended problems and projects, is squeezing out direct instruction methods, where students are directly taught concepts and given explicit explanations, followed by plenty of student practice,” states Stokke. “Proponents of either type of instruction generally agree that there are merits to using a balance of both approaches, but the specific balance is in dispute.”

 Stokke also recommends that math curricula be rewritten to stress important topics – like fraction arithmetic – at earlier grades and that future K-8 math teachers be required to complete a minimum of two math content courses while in university, and to pass a math licensure exam before they can obtain certification to teach mathematics.

 Stokke concludes: “The importance of mathematics in a knowledge- and technology-based economy, and the decline in Canadian students’ mathematics scores on international tests in recent years suggest that provincial governments should make the improvement of math curricula and instruction a priority.”

Why our learning has moved to such a cramming world?

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