Archive for December, 2015

Why Indian economic service has become a sort of a subordinate service?

December 31, 2015

TCA Srinivasa Raghavan has a piece on the coveted service for aspiring economists wanting to serve the country.


Mostly Economics Annual Report -2015 and new year wishes to all vistors…

December 31, 2015

Another year passed by and WordPress has been again kind to release annual report of ME blog for 2015.

The number of visits were sliding each year and really happy to note that the tide has been reversed this time.

  • 2012 – 340,000 visits
  • 2013 – 240,000 visits
  • 2014 – 210,000 visits
  • 2015 – 310,000 visits

Thanks to all the visitors/guests for coming to the blog and reversing this trend. Hope you keep visiting next year as well.

Wishing all a great 2016! vs khan market — interesting battle of copyrights..

December 30, 2015

Interesting bit of news this morning. Salman Khan, the Indian actor recently announced setting an online portal called This has angered Delhi’s iconic Khan market:


How Shi Yongxin built the Shaolin Temple into a global business. Now, karma’s catching up…

December 30, 2015

Another of those fancy business stories which were too good to be true. Just that this one is a different business – business of religion.

History of US debt limits..

December 30, 2015

An insightful interview of Prof Thomas Sargent. He recently discussed his new paper on US debt limits at one of the IMF lectures.

In the interview, he further distils the lessons:


How computerisation was pushed in Indian banking?

December 30, 2015

Well, obviously there is a lot of excitement these days around technology in Indian banking space. However, how did this process actually start?

Here is a nice article which looks at this history of introducing computers in banking. It was a process that started around 1982, contrarian to most who would think it started post 1991. Actually, much of changes in Indian economy started around 1980s (s0me say 1970s around Emergency) and 1991 is just that time when all these things came together and became more reinforced.

Coming back to the article:


Let’s downgrade comparative advantage from our list of key concepts in economics..

December 29, 2015

Prof. Michael Munger of Duke Univ says so in this article.

He says the real deal is division of labour. The old idea of comparative adv had a notion of fixedness to it. But comparative advantage is a dynamic concept and keeps changing:


Should Fed start its own Fedcoin?

December 29, 2015

St. Louis Fed Vice President David Andolfatto makes a case for Fed starting its own bitcoin variant  called Fedcoin.

He says the bitcoin idea is exciting as it helps make payments much faster. The disadv is its volatility:


Swiss to now vote for 100% reserve banking

December 28, 2015

Marc Thornton of Mises alerts me to this new Swiss referendum.

Post rejection of gold backed currency referendum, they are now looking at 100% reserve banking. What does this mean? Well, under this banks maintain all their demand deposits as reserves. As of now, they just maintain a fraction of deposits as reserves and lend the rest. This 100% rule shall limit banks role in creation of money which has increased significantly over the years. This restriction though does not usually apply to time deposits which are not payable on demand. Not sure what the details are of the proposed referendum.

So what is the new Swiss deal?


Decline of West Indian cricket: A case of too much government intervention?

December 28, 2015

The West Indian cricket in many ways is like Japanese economy. Both peaked in mid-1980s and have just struggled ever since. Just that Japan has somehow maintained its stagnation levels but West Incies cricket keep finding new ways to decline further. One is waiting for a recovery which has become a perennial issue.

Tony Cosier has a piece on decline of WI cricket. He says that it was the govt which led to decline of the WI cricket and is also not allowing to recover (how often we hear and see that in economics too):

It is known that each of the three committees to review the board’s governance over the past eight years advised urgent change. The reports of the committees headed by former Jamaica prime minister PJ Patterson and St Kitts and Nevis Queen’s Counsel Charles Wilkin called for the reduction in the number of directors and the introduction of independents. The Barriteau report, the most recent, was presented in early November. It went further with its demand for the WICB’s dissolution and its eventual replacement by a significantly restructured board.

The WICB’s resistance was as predictable as Nanthan’s charge that the report was by “some CARICOM governments and their academic functionaries”, as he put it is his press interview. He accused governments of not supporting cricket in schools, ignoring the fact that the greats of West Indies cricket, from Headley to Sobers to Lara, needed no government funding to make them the players they became. The development of their vast talent came mainly through grounding at clubs. Since the 1960s, this has been augmented by the several state-appointed sports councils that provide coaches for schools.

Instead, Nanthan sought to place the WICB’s shortcomings at the feet of governments. In other words, the fall from glory to irrelevance was theirs, not the WICB’s.

He claimed it cost the WICB US$1 million to train a player from Under-15 to international level. If so, the question must be asked why so few have reached that standard over the past two decades while there has been a stream out of other countries, most recently Joe Root of England, Steve Smith of Australia, Virat Kohli of India and Kane Williamson of New Zealand.

Compare this to Aus and NZ openness to changing things:

The WICB’s approach is in direct contrast to the openness of Cricket Australia and New Zealand Cricket when confronted by comparable proposals for changes to their constitutions and their structures.

Australia, perennially a powerhouse of the international game, commissioned two independent assessors four years ago to review its board’s governance. It put the advice of the Crawford-Carter report into use, replacing state delegates with independent directors, who did not necessarily have strong cricket connections. It was a radical change, now generally regarded as a success.

Two years later New Zealand’s provincial associations unanimously approved a change to theirboard’s constitution, reducing its number of directors to eight, all independent. Since then, they have shot up from among the also-rans in the ICC rankings to mid-table. They are now a genuinely competitive force.

The difference is that Cricket Australia and New Zealand Cricket didn’t need governments to prompt them into action. They recognised the deficiencies of an outdated system and took action to change it. In spite of all the evidence, the WICB remains satisfied with the way it governs the game in a region of ten separate, independent governments, united only by a game that brought international recognition for excellence to the mini-states of the cricket Caribbean.

All this reads so similar to economics discussions..We see many simple economics ideas not moving as people are trying to protect their turfs and are hesitant to change..

Economics of egg business..

December 28, 2015

Interesting story on this new egg business in Madurai.  First, they are allowing hens to roam around free and then are mixing traditional knowledge which is helping raise healthier hens and eggs.


As Macrinomics kicks in Argentina, what to expect?

December 23, 2015

Mohamed El Erian speaks about the so called Macrinomics on the way in Argentina.

I keep wondering economists obsession with the word – big bang and that too likes of Erian. I mean they make economic policy look as big and important as big bang which is just such a bad comparison. A case of giving undue importance to an event. Moreover, most of so called big bang economics either backfire or die a whimper.

Anyways, Erian says it will be interesting to see how these changes move on:


Was the crisis caused by too much govt intervention in financial markets, or by too little?

December 23, 2015

The answer to this question is really important as the answer in turn has shaped the political outcomes in the respective countries.

Howard Davies says the answer to the q are of 3 types:

I may not be the only finance professor who, when setting essay topics for his or her students, has resorted to a question along the following lines: “In your view, was the global financial crisis caused primarily by too much government intervention in financial markets, or by too little?” When confronted with this either/or question, my most recent class split three ways.

Roughly a third, mesmerized by the meretricious appeal of the Efficient Market Hypothesis, argued that governments were the original sinners. Their ill-conceived interventions – notably the US-backed mortgage underwriters Fannie Mae and Freddie Mac, as well as the Community Reinvestment Act – distorted market incentives. Some even embraced the argument of the US libertarian Ron Paul, blaming the very existence of the Federal Reserve as a lender of last resort.

Another third, at the opposite end of the political spectrum, saw former Fed Chairman Alan Greenspan as the villain. It was Greenspan’s notorious reluctance to intervene in financial markets, even when leverage was growing dramatically and asset prices seemed to have lost touch with reality, that created the problem. More broadly, Western governments, with their light-touch approach to regulation, allowed markets to career out of control in the early years of this century.

The remaining third tried to have it both ways, arguing that governments intervened too much in some areas, and too little in others. Avoiding the question as put is not a sound test-taking strategy; but the students may have been onto something.

Knowing govts and such choices, the answer is usually the middle choice or the third one here:

Now that the crisis is seven years behind us, how have governments and voters in Europe and North America answered this important question? Have they shown, by their actions, that they think financial markets need tighter controls or that, on the contrary, the state should repudiate bailouts and leave financial firms to face the full consequences of their own mistakes?

From their rhetoric and regulatory policies, it would appear that most governments have ended up in the third, fence-sitting camp. Yes, they have implemented a plethora of detailed controls, scrutinizing banks’ books with unprecedented intensity and insisting on approving cash distributions, the appointment of key directors, and even job descriptions for board members.

But they have ruled out any future government or central-bank support for ailing financial institutions. Banks must now produce “living wills” showing how they can be wound down without the authorities’ support. The government will wash its hands of them if they run into trouble: the era of “too big to fail” is over.

Perhaps this two-track approach was inevitable, though it would be good to know the desired end-point. Is it a system in which market discipline again dominates, or will regulators sit on the shoulders of management for the foreseeable future?

What about the political outcomes? The research show post such crises, it is the rightists which come to power:

But what have voters concluded? In the first wave of post-crisis elections, the message was clear in one sense, and clouded in another. Whichever government was in power when the crisis hit, whether left or right, was booted out and replaced by a government of the opposite political persuasion.

That was not universally true – see Germany’s Angela Merkel – but it certainly was true in the United States, the United Kingdom, France, and elsewhere. France moved from right to left, and the UK went from left to right. But voters’ verdict on their governments was more or less identical: things went wrong on your watch, so out you go.

But now we can see a more consistent trend developing. Three German economists, Manuel Funke, Moritz Schularik, and Christoph Trebesch, have just produced a fascinating assessment based on more than 800 elections in Western countries over the last 150 years, the results of which they mapped against 100 financial crises. Their headline conclusion is stark: “politics takes a hard right turn following financial crises. On average, far-right votes increase by about a third in the five years following systemic banking distress.”

The Great Depression of the 1930s, which followed the Wall Street crash of 1929, is the most obvious and worrying example that comes to mind, but the trend can be observed even in the Scandinavian countries, following banking crises there in the early 1990s. So seeking to explain, say, the rise of the National Front in France in terms of President François Hollande’s personal and political unpopularity is not sensible. There are greater forces at work than his exotic private life and inability to connect with voters.

The second major conclusion that Funke, Schularik, and Trebesch draw is that governing becomes harder after financial crises, for two reasons. The rise of the far right lies alongside a political landscape that is typically fragmented, with more parties, and a lower share of the vote going to the governing party, whether of the left or the right. So decisive legislative action becomes more challenging.

At the same time, a surge of extra-parliamentary mobilization occurs: more and longer strikes and more and larger demonstrations. Control of the streets by government is not as secure. The average number of anti-government demonstrations triples, the frequency of violent riots doubles, and general strikes increase by at least a third. Greece has boosted those numbers recently.

The only comforting conclusion that the three economists reach is that these effects gradually peter out. The data tell us that after five years, the worst is over. That does not seem to be the way things are moving now in Europe, if we look at France’s recent election scare, not to mention Finland and Poland, where right-wing populists have now come to power. Maybe the answer is that the clock starts ticking on the five years when the crisis is fully over, which is not yet true in Europe.

So politics seems set to remain a difficult trade for some time. And the bankers and financiers who are widely blamed for the crisis will remain in the sin bin for a while yet, until voters’ expectations of economic and financial stability are more consistently satisfied.

Nice bit..

Three Mistakes Free Marketers Often Make

December 22, 2015

Sandy Ikeda Professor of economics at SUNY writes on the three mistakes.

  • Mistake #1: “The free market doesn’t need regulation.”
  • Mistake #2: “Markets will regulate themselves.”
  • Mistake #3: “Buyers and sellers compete with each other.”

These are really old philosophical issues around economics. Well, we need regulation but most of the  time regulation too gets it wrong. There aren’t any easy answers to all this..

How economic uncertainty promotes reforms..

December 21, 2015

Well uncertainty has its virtues as well. Most politicians are seen to usher changes when times are tough and highly uncertain. This actually has become pretty much the wisdom in India. You have to wait for things to become really bad before changes start to happen. And most of the times, the changes are really simple but are pushed as big bang, that one ends up tearing his/her hair.

Alessandra Bonfiglioli and Gino Gancia have a piece on the topic:

Economics and Fun..

December 21, 2015

Pramit Bhattacharya of Mint has a piece saying who says economists can’t have fun.  He cites several papers where the idea has been to be whacky.


Big Boss and Game Theory..

December 21, 2015

Hansika Kapoor and Anirudh Tagat of Monk Prayogshala (do check this interesting place) have this interesting piece. Given the social dynamics in the Bog Boss is a great place to use game theory and other human behaviour tactics. We should be having such articles every year with a new Bog Boss season giving you ideas on what each player is thinking and broad strategies used by him/her.


Economists inconsistency on expectations over Fed decisions..

December 21, 2015

A nice post on how the big guys just changed their views over Fed policy despite lack of any evidence.

The hawkish swing is dramatic. In April 40% of respondents thought the Fed should wait for core inflation to rise. In December, even though core inflation had not risen at all, only 19% didn’t think the Fed should raise immediately. What’s going on?

Much of macro does not make sense. One just goes with the times..

Relationship between economic inequality and democratic changes is far more complex than research shows..

December 21, 2015

Alexander Krauss writes on the topic:

The existing literature is laden with contradictory hypotheses and findings that suggest this potential relationship can be positive or negative, stronger or weaker, differentiated or non-existent and can vary across and within countries and time periods. However, fundamental methodological and empirical limitations of analysis do not allow us to make such claims robustly, to some extent because the process of democratisation and changes in levels of equality are highly nuanced, idiosyncratic and heterogeneous and thus difficult to capture econometrically. Some of the most prominent authors in this literature claim that high levels of inequality decrease the likelihood of democratisation, and they also talk about “causal effects” and “the impact of democracy” on outcomes. Such conclusions presuppose a number of very demanding assumptions and requisite premises that cannot be rigorously met.

In fact, thousands of academic papers analyse the potential relationship between political variables like democracy and economic variables like inequality by gathering their data, selecting their methods and then going forward with their analysis, interpreting their findings and potentially informing policy, with many other steps along the way that involve making important implicit methodological assumptions. My recent paper1 instead goes backwards to analyse whether the data and methods that are applied by the leading authors in this literature are able to produce the robust results that they claim. It emphasises that how we as researchers generate our correlational (or ‘causal’) claims cannot be viewed independently from how we make everyday, typically unreflective decisions, such as what we decide to analyse, how we construct our variables, how we collect and use our data, which methods we choose to apply, how we interpret our statistical results, and so forth.

Many a times just a narrative account which sums up all the arguments for and against is more useful than the several empirical jazzes which goes around. But you can no more publish anything narrative, so the game continues..

How rising veggie prices leads to innovations in home cooking..

December 18, 2015

We either treat people as too dumb or too smart in economics. A better representation is people being somewhere in the middle. Smart in some aspects and dumb in others (like financial planning). People are usually smart in reacting to prices especially those of daily consumption. If prices go up and there are alternatives, people tend to choose the latter.  We see this especially in food items.

So Jug Suraiya has this interesting piece on on how rising veg prices has led to his rethinking on wasting veggies:

The rising prices of vegetables – after onions, it’s now the turn of tomatoes to go through the roof – have a silver lining: it incentivises us to invent, or re-invent, new recipes.

This happened in our kitchen the other day when in the course of the making of a cauliflower sabzi i noticed that the stalks of the gobhi were being thrown away by the household help. Instead of chucking them in the garbage, why don’t we chop them up and stir fry them? i asked.

So we did. And the stir-fried stalks tasted great. But while i was patting myself on the back for having invented a new recipe, i discovered – thanks to Bunny’s Gurgaon Foodies group – that it wasn’t new at all. In fact it was an old, traditional recipe and even had an official name given to it. It’s called danthal, which not only tastes great but is also very wholesome, the stalks being by far the most nutritious part of the cauliflower.

Similarly, the leaves of the mooli, the white radish, which are generally discarded can be turned into a palatable and healthy dish, which also helps you cut down on food costs.

Coming as she did from the lean-ribbed aridity of Kutch which fostered frugality, my mother always ensured that there was never any wastage in the kitchen. After shelling peas, she wouldn’t throw away the pods but turn them into a palatable dish. She’d do the same with potato peels.

In the mango season, after the fruit had been eaten the large seed inside -called the gotlo in Kutchi – would be put into the smouldering embers of the coal-fired choola and baked. Cracked open after baking, the gotlo revealed an edible kernel. Years later when i first ate them in the chill of a London winter the taste of roast chestnuts bought from a streetside vendor would bring back memories of the hidden delicacy that lay buried within the heart of the mango.

In such decisions, you bring the government/planner and you know the results..