Jeremy Corbyn’s necessary agenda…

Mariana Mazzucato, Professor at University of Sussex and also one of the advisers of Jeremy Corbyn has a piece talking about the phenomenon and the agenda.

Seven economists (including Joseph Stiglitz, Thomas Piketty, and me) have agreed to become economic advisers to Jeremy Corbyn, the new leader of the British Labour Party. I hope we will have a shared goal to help Labour shape an economic policy that is investment-led, inclusive, and sustainable. We will bring different ideas to the table, but these are my thoughts on the kind of progressive agenda the United Kingdom – and the rest of the world – now needs.
wealth creation is a collective process and that market outcomes are the product of how these various “wealth creators” interact.

We must drop the false dichotomy of governments versus markets and begin to think more clearly about the market outcomes we want. There is plenty to learn from public investments that were mission-oriented, instead of focused on “facilitating” or “incentivizing” business. Policy should actively shape and create markets, not just fix them when they go wrong.

Indeed, policies traditionally considered “business friendly,” such as tax credits and lower tax rates, can be bad for business in the long run if they limit governments’ future ability to invest in areas that increase innovation-led growth. Likewise, it is time to move on from the debate over austerity to a new conversation about how to build smart, mutually beneficial public-private partnerships to fuel decades of growth.

For starters, we must invest in education, human capital, technology, and research. Massive technological and organizational advances have raised productivity in many sectors. Many (if not most) of these breakthroughs have their origins in publicly funded research. Ensuring future advances will require direct policy interventions and investments in innovation across the entire innovation chain: basic research, applied research, and early-stage company financing.

Moreover, we need more patient, long-term finance. Most existing finance is too speculative and too focused on short-term outcomes. Exit-driven venture capital might be appropriate for gadgets; but technological revolutions have historically required patient, committed public financing. In some countries, like Germany and China, public banks take on this role. In others, the job is done by strategic public agencies.

This also means de-financializing the real economy, which has been overly focused on short-term concerns, so that profits are reinvested into production and research and development, rather than hoarded or spent on share buybacks. Over the last decade, Fortune 500 companies in areas like information technology, pharmaceuticals, and energy have spent more than $3 trillion buying back shares in order to boost stock prices, stock options, and executive pay. Meanwhile, in the United States and Europe alone, companies have hoarded nearly $4 trillion. Companies should be rewarded for reinvesting their profits in production, innovation, and human-capital formation.

Nothing new. Pretty standard stuff. Just that things have become so crazy in economics over the years, that going back to basics is itself a phenomenon.

It will be interesting to see how far Corbyn and his views will go..

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Fed’s ZIRP policy and Banks’ Net Interest Margins

Why is it that banks want Fed to increase rates? Some say, that higher rates will lead to higher net interest margin for the banks.

But Noah Smith says there is hardly any linkage between the two.

Different kinds of democracies..

Dani Rodrik and Sharun Mukand have this insightful piece on political economy of democracies:

How much does a Sandwich cost if you made all the ingredients yourself?

An example of amazing benefits of trade. A person did try to grow all the ingredients required in a sandwich and do the entire thing by himself. It cost him $1500 and 6 month of hardwork:

Similarities between Volkswagen crisis and Global Financial/Banking crisis..

Nice piece by Prof Harold James comparing the two crises:

Georgetown University’s course on Hinduism- a strange mix of learning mediums

Good friend and senior Anantha Nageswaran points an interesting course on learning about Hinduism:

THEO-051 Hinduism Today

Spring for 2015-2016

Faculty: Glucklich, Ariel

This class explores the contours of Hinduism as it is practiced in India today. We shall range over a broad range of topics from everyday practices to temple worship and the main calendrical holidays. Utilizing film (“Bandit Queen,” “Devi,” “Lagaan,” “Fire”), literature (A Fine Balance, The Death of Vishnu, The Guide, Samskara) and biography (Gandhi’s Autobiography, Ramana Maharshi ) the class will also look at broader themes such as Gandhi’s legacy, human rights (caste, gender, Hindu-Muslim relations), nationalism, sadhus (holy men) and gurus (teachers). The class is both a sympathetic celebration of a profound and complex tradition and a critical examination of a changing tradition during the turbulent 20th century and the uncertain decades ahead.

Well, Hinduism courses are getting popular in West and Profs are looking at interesting ways to make a point.

Whereas in its country of origin, we hardly have such courses. Even if there are, one mught not get enough takers given its limited job appeal.

B R Shenoy — What Should be the Objective of Planning? (1961)

A piece on History of Indian economic thought and by a forgotten stalwart – Prof. BR Shenoy.

What is interesting is how these ideas are so relevant today. Prof Shenoy says rise in GDP does not mean economic development:

The Prime Minister initiated the Third Plan debate in the Lok Sabha last month, spoke with pride of the “exciting pilgrimage” of the nation, along the path of statist planning, towards the twin objectives of economic progress and social justice. He cited statistics to show that the achievements of ten years of planning were already remarkable. Indian national income had gone up during the period by 42 per cent. This indicated that the first two Plans had taken the economy out of “its old stagnant ruts”. Though population had gone up by 77 million, per capita national income had risen from Rs. 284 to Rs. 330.

A generation ago, the average expectation of life of the Indian people was 24 years. It “rose to 42 years during the Second Plan period and now it was 47.5”. This “remarkable increase” represented many factors- better health, better food and better living conditions. Specific sectors of production had recorded great strides forward, output in agriculture going up by 41 per cent, in industries by 94 per cent and in power by 148 per cent. The number of students attending schools and colleges had risen by 29 million to 46 million and the number of engineering colleges from 134 to 380.

Though impressive at first sight, this is a rather misleading bunch of statistics. The per capita national income figures given by the Prime Minister vary from the statistics issued by the Central Statistical Organisation, New Delhi. According to the latter, per capita income rose during the past decade from Rs. 248 to Rs. 284. The minor case of a bad slip in the data of per capita income apart, the objection to unprocessed national income figures being cited in the prevailing Indian context as evidence of economic development is a fundamental one.

A distinction must be made between the expansion in the physical volume of the national product and the increase in the living standards of the people. The test of economic development is in the latter. The measure of it, therefore, is the consumer goods content, not the aggregate volume, of the national product. An expansion of the national product is meaningless if it does not provide “the masses of the Indian people” with “a good life”, the avowed objective of planning as stated in Chapter I of the Third Plan, reported to have been written by the Prime Minister.

For a correct measure of economic development of the opportunities for “good life” open to the masses of the people-the increase of 42 per cent in the Indian national product must be modified for the excessive output of capital goods and intermediate products, which can neither fill empty stomachs nor cover naked shoulders, and of luxury and semi-luxury goods, which do not enter into mass consumption. It must be modified, too, by two other deflators, the piling up of idle production capacities and the additions to inventories.

While both activities inflate the volume of the national product, they detract from the current well-being of the community. Idle production capacities are estimated at an order of 40-50 per cent in 40 industries and 35 per cent in the major and minor irrigation works. The additions to inventories are unascertainable for the economy as a whole. But it is a commonly observed phenomenon and is inevitable under inflation and controls.

It is sometimes argued that the creation of capital goods is part of the “accepted strategy” of economic growth, that in the gestation period of such growth a slower rate of increase in consumer goods is natural and that once the installed machinery goes into production, abundant consumer goods will become available. This is a treacherous fallacy. The problems before under-developed economies are poverty and unemployment.

To overcome them, the available resources of production must be utilised, firstly, to obtain the highest output and, secondly, to provide employment to the largest members at current wage rates.

A study of investment and production in 31 countries has shown that economic development does not result from a piling up of investments in the public sector; that when statist intervention in economic activity impedes the full use of human capital, economic development gets impeded, too, and that high rates of economic growth generally go hand-in-hand with policies of economic liberalism. Freedom is the life-breath of progress.

Hmm..

What is also interesting is that likes of Prof Shenoy though believing in freer markets did not reject the idea of human development. Moreover, most people who talk of free markets today say just let growth happen and that will take care of development. All he wished was a bigger role of business and markets for achieving overall economic development and not just growth,

This is how one has to understand economic thinking as well. How people were thinking and debating about these ideas. But all our economic discourse has been reduced to equations and building faulty economic projections.

Bangalore struggles to fill potholes – An interesting (and tragic) case of technology vs labor..

Bangalore’e eternal struggle with potholes, garbage, water and power continue and keep getting worse.

This post is on this interesting story on potholes and how the administration is just clueless on what to do. In 2013, amidst huge fanfare govt. had imported Python– a pothole filling machine. Another machine was imported from Canada called Jetpacker. Even then the local corporators did not like the machines and lobbied to let it fail. They make a lot of money from continuous creating and filling of potholes. Then the Python was accused of eating some jobs, a crucial votebank for the local politicos.

So, as there have been recent deaths due to potholes, again the administration is found wanting and clueless on how to fill the job. To rub the salt in public’s wounds, a minister made a 25 km ride to find no potholes in the stretch!

And again the battles over technology and man have come in. There are accusations of Python disappearing (though has appeared in some other form) from the roads and Jetpacker never really started. The local politicos seem to be saying Python was not the right solution and not fit for Bangalore. Other experts point to the deeper problems of road maintenance in the city.

It is so ironical to see this game of technology vs man being played out in India’s tech city. All at the cost of a mango man.

I mean given the opposition, we could just keep the Pythons and Jetpackers away for time being. People could fill the potholes as they did earlier as well. But what is needed is a more permanent job. Not a shoddy job which ensures potholes becomes deeper in the next rain. Leave rain, in a few days itself the filling just gives up creating a deeper crater. The amount of corruption and greed which has creeped into the system is just unbelievable.

What a time for India’s PM to go and woo the IT czars of US. By saying India is open for business actually is India is open for a deep dive in the potholes..

Regulatory governance problems in the legislative function at RBI and SEBI

Arpita Pattanaik and Anjali Sharma have a thoughtful post on the topic.

They point how the two regulators do not care much for public consultations:

Why Indonesian Rupiah remains always in trouble?

Blame it on politics.

Prof Steve Hanke has a piece on the currency and why it remains in trouble:

Why Italy could not build a coffee chain like Starbucks (despite being much better at making Coffee) ?

An interesting conversation between Profs. Luigi Zingales and Tyler Cowen on series of issues.

Zingales wonders why Italy could not build a chain of coffee shops despite being great at making coffee:

Why the Fed buried monetarism?

Anatole Kaletsjy of Gavekal Dragonomics has an interesting piece on recent Fed decision to keep rates unchanged.

He says Fed does not believe in monetarism anymore. It has gone back to the earlier idea of trade-off between inflation and unemployment. It realises that monetary policy has a much deeper impact on unemployment than shown by earlier research:

Three Truths for Finance..(and three lies of Harvard)

Mark Carney of BoE has a speech on the topic.

He starts with three lies related to Harvard Univ:

How Do We Get Rid of the Fed? The great money debate is finally happening

Applies to central banking in general.

Jeffrey Tucker Director of Foundation of economics education has a piece on the topic. He points to how this time elite central bankers met with protesters at the (ill now) famed Jackson Hole Conference. There is also a parallel opposition conference running critically looking at monetary policy:

A brief profile of Javed Miandad..

Rajdeep Sardesai has a piece on Javed Miandad. He obviously starts with the match and the moment which causes so much anger amidst Indian cricket fans.

No matter how much we Indians like to hate him, nothing can take away from the cricketer he was particularly playing against India. Till he was around, no match could be considered as won. And what running between the wickets. You would not even realise when he has moved to 30s and 40s as most runs were made via running between the wickets.

Nostalgic stuff.

 

Comparing demand for Gorkhaland with that of Telangana – We should call them demerger not seperation..

A brilliant piece by Prof. Bivek Tamang and Prof. Sangmu Thendup of Sikkim University, Gangtok. One knows so little about India political system that it is shameful really. Thanks to the focus of most history textbooks on North and Central India. Even South India is being covered but North East remains virtually ignored.

In this piece, authors write about the demand for a seperate Gorkhaland and how it is similar to Telangana movement. They also say instead of calling it seperation it should be called as demerger. Both Telangana and Gorkhaland were merged with Andhra Pradesh and West Bengal in the initial organisation of states. And now they are just being demerged. Seperation invokes anger, violence etc whereas demerger is just a much more normal process:

The Darjeeling Hills and surrounding areas were merged with West Bengal in 1947. This article argues that the formation of Telangana opens the door for accepting the century-old demand of the Indian Gorkhas for a separate homeland. It also argues against the use of the term separatism to describe the demand of the Indian Gorkhas and instead suggest the terms “merger” and “demerger.” Darjeeling, whose merger with West Bengal was, at best, a post-independence administrative exigency, could now be demerged, much like Telangana from Andhra Pradesh.

The authors start with history of how Darjeeling first emerged as a Gorkhaland and then merged into West Bengal. It should be demerged now:

After India became independent, Darjeeling, which was never a part of Bengal, was absorbed into West Bengal only in 1954 under Schedule V of The Absorbed Areas (Laws) Act 1954 (Act No 20 of 1954). The district lost all special privileges, and all statutes, except the Bengal Tenancy Act in certain areas, applied to it (Banerjee et al 1980: 95).

With its hundred year-old movement for separate homeland, Darjeeling has many similarities with Telangana. The Gorkhaland movement may not actually be a movement for separation; it would be apt to see it as a case of merger and demerger. Ideally, Darjeeling should have gone back to Sikkim in 1947, which was a separate country then. The Absorbed Areas (Laws) Act 1954 proves that the merger of Darjeeling with Bengal was only for administrative purpose and convenience.

The first petition for a separate homeland was submitted in 1907 by the leaders of the hill people led by Sonam Wangel Ladenla, the first hillman to retire as assistant superintendent of the Darjeeling police. The petition demanded a separate administrative set up for the district of Darjeeling (Lama 2008: 199). Thereafter, there have been numerous petitions, memorandums and demands including two major movements, one in the 1980s and the other from 2007 onwards, demanding a separate state within the Indian union for the Indian Gorkhas of the Darjeeling hills and the surrounding areas.

The dynamics of India’s political scenario has led the discourse of the statehood demand to revolve largely around linguistic differences, but it has also encapsulated economic and developmental differences. However, with the formation of Telangana, a discourse patterned on “merger and demerger” has emerged.

Separatism may be defined as an instance of political disintegration, wherein political actors in one or more sub-systems withdraw their loyalties, expectations and political activities from a jurisdictional centre and focus them on a centre of their own (Hass 1968: 16). Linguistic separatism, cultural separatism, regionalist separatism based on economic and political grievances, aboriginal separatism and separatism based on the notion of sons of soil have been recognised as different forms of separatism (Wood 1981).

The first era of separatism or reorganisation of territory in India began in 1956. Such separatism had a linguistic basis. Needless to say the era opened up a plethora of demands for statehood in India. The second era of reorganisation was initiated during the 1970s with creation of north-eastern states from the division of Assam after the formation of Nagaland in 1963 and Meghalaya in 1972. The third phase, in 2000, was marked by Uttaranchal, Jharkhand and Chhattisgarh being carved out of Uttar Pradesh, Bihar and Madhya Pradesh, respectively (Chadda 2002: 44–61). The fourth phase may have just begun to unfold with the creation of Telangana and could be followed by the creation of newer states in the country.

Ironically, reorganisation of the political boundary of a state or creation of a separate state within the Indian union itself and an extremist exercise to separate from the Indian union are all labelled as separatism in existing political literature and discourse (Horowitz 1981: 65–95). Some modern theorists view separatism as detrimental to national integration and as conflicting with the process of nation building (Datta 1988: 517–36; Nag 1993: 1521–32).

Separatism invariably brings back the “collective memory”⁵ of struggle, trauma, separation amongst kin, violence, death, genocide, resource sharing struggles, hurt ethnic ethos and other similar memories precisely to those who have witnessed and experienced the terrible side of separatism. Thus, reorganisation of Indian states is often viewed as separation and disintegration of India (Chadda 2002: 44–61).

The concept of demerger customarily reflects the history of merger and association. But unlike corporate merger (and acquisition), political merger invariably brings the need and relevance of history and administrative rights. Prime Minister Jawaharlal Nehru once said, “where merger is not desirable, let divorce take place.” This statement has been quoted a number of times in the context of Hyderabad and Telangana (The Hindu Centre for Politics & Public Policy 2013). But in the context of Gorkhaland it may be pertinent to say “where merger has not pleased, let demerger take place.” In order to relate the use of the terms merger and demerger for the creation of Gorkhaland (or any name), it would be fitting to compare it with the case of Telangana and its merger and demerger from Andhra Pradesh.

Hmm..something really worth thinking about.

As demands for seperate states is growing, we could look at this concept of political demerger than the more painful concept of seperatism..

 

Why manholes become potholes on Bangalore roads?

The stark contrast of India shining in pink papers and India clueless in white papers is just growing every day. We don’t have solutions for our potholed roads, piling garbage, errant electricity, declining water and so on. But enormous noise is created in pink papers how India is like a million roses in today’s world economy. Ironically most such comments forget that even roses have thorns and millions ones at that! Roses seem to be for some really selective people and thorns for rest of the mango people.

Bangalore’s roads are again in news as another person died due to bad roads. Even more interestingly, the police actually arrested the victim’s husband for rash driving. Just amazing.

There is something really terrible about roads in India’s first smart city. I mean one just does not understand why roads are so bad here. The manholes on the roads are either like potholes or like those bumpers. Why can’t the administration level the roads? So while driving you actually feel like playing one of those video games where you avoid hindrances on the roads. A video game gives you some pleasure but a real game is outright frustrating.

 

Andhra Pradesh’s Master Plan for Its New Capital – A speculative city?

C Ramachandraiah of Centre for Economic and Social Studies, Hyderabad has a piece on this topic.

He says much of the vision of the new capital city is based on speculation and disconnection from reality:

Curriculum Reform & Rethinking Economics..

Prof Marc Lavoie of University of Ottawa has written a book on curriculum reform in economics – Post Keynesian Economics; New Foundations. He talks about the need to rethink economics and what his book has to offer:

Mainstream economic theory has been increasingly questioned following the Global Financial Crisis of 2008. The disconnect between reality and theory manifested itself most clearly when the Queen of the United Kingdom pointedly asked why no economist saw this coming. In truth, there were a handful who did get it right, but they were generally ignored in favour of Ivy League educated neo-classical economists, whose assumptions proved incapable of integrating the financial and real sides of the economy.

This is a problem which extends all the way to the classroom, which is why Marc Lavoie, a professor of economics at the University of Ottawa, wrote a new economic textbook as a coherent substitute to conventional textbooks. The book, “Post Keynesian Economics; New Foundations”, outlines alternative macro and microeconomic foundations, the upshot being a book that acknowledges that we live in a world of fundamental uncertainty, where the role of finance goes well beyond the simplistic reserve banking models that populate most undergraduate studies.

In this interview, Lavoie discusses the methodological foundations of heterodox economics, and offers a very different model of money and credit, firms and pricing, consumer theory, effective demand and employment and growth theories. As Lavoie himself argues, economists essentially had 3 reactions to the recent financial crisis. The first group has been to say that existing mainstream theory is fine, but that it needs to be slightly tweaked and improved so as to take into account elements that were previously left aside and which explain why the crisis could not be predicted. The second group, the so-called “freshwater economists” argue that the crisis was caused by misguided regulations, bad government interventions, ill-advised decisions by central banks, public profligacy and unsound fiscal policy. The third camp (to which Lavoie belongs and which forms the basis of the books prevailing theme) is to claim that recent institutions, regulations, and economic policies have been based on erroneous economic theories, and that these need to be eliminated, starting with the way we teach economics – hence the rationale for the new textbook.

Should be an interesting read. Though, I think we already know what is wrong. Much has been written about it already. We now need action on this front..

Digging deeper into Indian economic history/history of economic thought..

Well, this blog keeps saying this over and over again. Knowing history and history of economic thought is perhaps the most important thing in economics. It is a pity that both the subjects are not even taught in most places. Despite all the talk about redrawing economics curriculum to make it more historical and philosophical, it has hardly made much impact.

TCA Srinivasa Raghavan who in his columns keeps bringing  aspects from Indian history of thought, has another such piece. This time he talks about how West’s recent attention on regulation and how regulation has been central to Indian thinking: