Archive for March, 2016

Against public policy and why nobody should be making policies for your life…

March 22, 2016

Jeff Deist has a post on why we should be skeptical of public policy.

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The importance of water management..

March 22, 2016

On International Water day, Romit Sen & Kamal Vatta have this piece on water management. Much of the issues are well known but have to be emphasized.

Growth and development in India will be governed by the way water is used and managed. On World Water Day, the columnists analyse how a proper framework can ensure the safety and sustainability of this resource

 Nice bit..

How to rob a central bank? Case of Bangladesh…

March 21, 2016

I did read this news last week but forgot to blog about it. Bloomberg edit team uses the case as a warning to all central bankers who can know more ignore cyber threats at their end. So far hackers were limited to banks but now have moved to central banks as well. Willie Sulton, the bank robber was once asked  why he robbed a bank? TO which his answer was “that is where the money is”. Likewise, why just stop at a bank. Get to the creator of money which is the central bank.

What was this Bangladesh story? Few people managed to hack their system and get funds transferred to remote accounts elsewhere.  It is just an amazing case of heist in digital space. As this blog keeps mentioning, banking is increasingly becoming a sub-sector of information technology. A bank is no more just about loans and deposits but equally about encryption and softwares. Soon, latter will take over former in terms of importance given how systems are getting integrated. This blog will not be surprised if we go onto see technology people heading and managing a bank.

 

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Managing the politics of water and getting really serious about it…

March 21, 2016

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The damage done by getting education in Indian schools

March 21, 2016

Nazreen Fazal has a post which I am sure is the story of most people who studied in Indian schools. After intense toil and labour in our schools, we realise most of education is actually not of any use.

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Photography at the Bank of England…

March 18, 2016

This is a good and rare time to be a history buff. Most central banks are digging deeper and deeper into its history as present is so messed up.

So there was an exhibition at the Bank of England Museum which sheds light on different aspects of the organisation’s history through photographs.

There is an article by Bryony Leventhall and Anna Spend on the exhibition. And here is a series of pictures from the event.

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Lies, damn lies, and European growth statistics

March 18, 2016

Yanis Varoufakis, a former finance minister of Greece writes on how the recent stats showing growth in Europe are all wrong.

What he shows is how people are getting even elementary macro wrong. There is confusion between nominal and real growth. In times of inflation, one looks at real growth but in times of deflation, one should look at nominal growth:

“Greece has at last returned to economic growth.” That was the official European Union storyline at the end of 2014. Alas, Greek voters, unimpressed by this rejoicing, ousted the incumbent government and, in January 2015, voted for a new administration in which I served as finance minister.

Last week, similarly celebratory reports emanated from Brussels heralding the “return to growth” in Cyprus, and contrasting this piece of “good” news to Greece’s “return to recession.” The message from the troika of European bailout lenders – the European Commission, the European Central Bank, and the International Monetary Fund – is loud and clear: “Do as we say, like Cyprus has done, and you will recover. Resist our policies, by electing people like Varoufakis, and you will suffer the consequences of further recession.”

This is a powerful story. Except that it is built on a disingenuous lie. Greece was not recovering in 2014, and Cyprus’s national income has not recovered yet. The EU’s claims to the contrary are based on an inappropriate focus on “real” national income, a metric bound to mislead during periods of falling prices.

If asked whether you are better off today compared to a year ago, you would answer in the affirmative if your money income (that is, its dollar, pound, euro, or yen value) rose during the previous 12 months. In the inflationary times of yore, you might have also accompanied your response with the (reasonable) complaint that increases in the cost of living eroded your increased money income.

To account for this gap between your money income and your capacity to buy things with it, economists focused on your purchasing power by adjusting your money income for average prices.

A country’s aggregate income is measured in a similar way. Economists begin by summing up everyone’s money incomes to derive nominal Gross Domestic Product – or, for the sake of simplicity, the country’s total money income (N). Then they adjust N for changes in average prices (P) by dividing N by P. This ratio is the country’s “real” income (R = N/P).

During inflationary times, the purpose of calculating the figure for real national income, R, was that it stopped us from becoming overexcited by reports that money income had increased substantially. For example, at a time when average prices were rising by, say, 8%, a 9% increase in money income translated into a mere 1% real growth rate in our capacity to buy stuff.

So, clearly, in inflationary times, the number for real national income, R, was the one to look at before rejoicing that the economy was growing. Only when R rose strongly did we have good cause to believe that economic activity was rising. But in periods of deflation (when prices are falling), like those encountered in Greece and in Cyprus today, R can be deeply misleading.

Well, anything can happen during these times..

Behind the mysteries of the Federal Reserve

March 18, 2016

The kind of attention Federal Reserve gets worldwide one would imagine that this is one institution which must be having broad approval from US people and polity. Ironically, it is actually just the opposite.

Unlike most parts of the world where discussion on central banks is just about their rate moves, in US one finds equal number of discussions on origins and relevance of Fed. This has gained steam after the crisis and lots of stuff is being written looking at historical basis of Fed.

One such recent book is by Prof Peter Conti-Brown, a professor of legal studies and business ethics at Wharton. Here is his interview where he makes several food for thought points:

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Federal Reserve’s Statistical Releases: a Publications History

March 17, 2016

This paper by Sian L. Seldin  is quite a surprising one.

One would imagine it would explain how various Fed’s stats publications have changed overtime. This it does but keeps explanation to a minimum. All it does is list the various publications overtime. In the end there are appendices which stitch the story together.

The Board of Governors of the Federal Reserve System has published extensive statistical information on the U.S. economy and banking industry since 1914. This information has been published in various formats, usually referred to as “statistical releases.” Titles and release numbers of the publications have changed frequently. Federal Reserve Board Statistical Releases: a Publications History describes these changes; it is a convenient tool that lightens the burden of tracing the titles and release numbers by providing history in a single location.

A paper with no references whatsoever..

A brief history of human time..

March 17, 2016

Olivier Gergaud, Morgane Laouénan and Étienne Wasmer are doing some exciting research on human history.

Here is a note of their initial findings:

 Digging more and more into history..

Six principles for the use and interpretation of p values…

March 17, 2016

Warning upfront: This post could be slightly technical.

There are lies, damned lies and there is statistics is a commonly used phrase to deplore the world of statistics. However, the problem becomes more acute when statistical tools are misused and misinterpreted by even experts.

One such tool is p-values which is used to show significance of your results. Say one is testing whether a new experiment is more useful or not. So you set a null hypothesis saying the new experiment does not matter. Alternative hypothesis is new experiment matters. Then you set a threshold of 5%. If the p values comes lower than 5% we shout eureka and say results are significant and new experiment matters. If p value more than 5% shoulders drop and one starts to look for data issues, addition of one more variable and so on.

Right? Wrong.

American Statistical Association has seen abuse of p-value in research after research. People frame policies based on p-values only to see then go mostly wrong. Then the blame comes on damned statistics. However, problem is more of misinterpreting p-values.

Frustrated by this, ASA has released 6 principles of p-values:

After reading too many papers that either are not reproducible or contain statistical errors (or both), the American Statistical Association (ASA) has been roused to action. Today the group released six principles for the use and interpretation of p values. P-values are used to search for differences between groups or treatments, to evaluate relationships between variables of interest, and for many other purposes.  But the ASA says they are widely misused. Here are the six principles from the ASA statement

  1. P-values can indicate how incompatible the data are with a specified statistical model.
  2. P-values do not measure the probability that the studied hypothesis is true, or the probability that the data were produced by random chance alone.
  3. Scientific conclusions and business or policy decisions should not be based only on whether a p-value passes a specific threshold.
  4. Proper inference requires full reporting and transparency.
  5. A p-value, or statistical significance, does not measure the size of an effect or the importance of a result.
  6. By itself, a p-value does not provide a good measure of evidence regarding a model or hypothesis.

Hmm.

There is a nice interview of Ron Wasserstein, ASA’s executive director as well where he explains some of these points. This one is really important:

Retraction Watch: Some of the principles seem straightforward, but I was curious about #2 – I often hear people describe the purpose of a p value as a way to estimate the probability the data were produced by random chance alone. Why is that a false belief?

Ron Wasserstein: Let’s think about what that statement would mean for a simplistic example. Suppose a new treatment for a serious disease is alleged to work better than the current treatment. We test the claim by matching 5 pairs of similarly ill patients and randomly assigning one to the current and one to the new treatment in each pair. The null hypothesis is that the new treatment and the old each have a 50-50 chance of producing the better outcome for any pair. If that’s true, the probability the new treatment will win for all five pairs is (½)5 = 1/32, or about 0.03. If the data show that the new treatment does produce a better outcome for all 5 pairs, the p-value is 0.03. It represents the probability of that result, under the assumption that the new and old treatments are equally likely to win. It is not the probability the new treatment and the old treatment are equally likely to win.

This is perhaps subtle, but it is not quibbling.  It is a most basic logical fallacy to conclude something is true that you had to assume to be true in order to reach that conclusion.  If you fall for that fallacy, then you will conclude there is only a 3% chance that the treatments are equally likely to produce the better outcome, and assign a 97% chance that the new treatment is better. You will have committed, as Vizzini says in “The Princess Bride,” a classic (and serious) blunder.

Actually the problem is the way stats is taught. It is taught in a highly mechanical way with assumptions either ignored or barely touched upon.

What has to be instead done is too go into the philosophy and roots of this testing and ensure students understand the limitations. This has become even more acute as it has become so easy to get data, run regressions and get p-values. It wasn’t this easy earlier so the stats profession could sit pretty as misinterpretations would be far and few.

But not anymore.

We need more textbooks now telling you how to think through these stats matters in plain English. More than how to get p-values, the stress should be on understanding its limitations..

The tough story of Suresh Raina’s rise in Cricket world..

March 16, 2016

Earlier Indian cricket team mostly comprised of people from top cities (mainly Mumbai). Yes there was struggle but there were atleast some opportunities for them to play in big cities and be counted.

In recent times, one is seeing cricketers emerge from all kinds of places. There have been some poignant stories of such cricketers  – Ravindra Jadeja, Munaf Patel, Ajinkya Rahane (from Mumbai though but lot of struggle) etc.

Here is another one on Suresh Raina. A stirring tale of how he managed to survive all those attacks in UP and rise to play cricket for India..

A Maritn Crowe moment for NZ cricket..

March 16, 2016

The inaugaral match of World T20 2016 between India and NZ started with paying a tribute to the former NZ captain who passed away recently.

And there could not have been a better way to pay tribute to the New Zealand great Martin Crowe. For those who remember the 1992 WC, the first match was between NZ and Australia. Australia was a brimming favorite to win the tournament and lost the first match to its neighbour. In that match, Crowe the captain opened the bowling with Dipak Patel which was such an innovation back then.

In a sublime rhyming of history, NZ sprang the same surprises on India. It chose three spinners and left out all its premier fast bowlers. The three spinners were also relatively unknown faces like Dipak Patel.

This one is even better. Beating India on a spinning Indian track is like crazy. Moreover, it is spin which has actually been the weakness of NZ for a long time. India has struggled against spin in test matches recently but to see this in T20 was a surprise.

Good stuff from NZ. The spunk remains after McCullum’s retirement. Crowe would be really proud to see this..

Rise and fall of Mallya empire..

March 16, 2016

Nice summary here.

It is such a typical story of spectacular rise and fall seen in so many businesses. Usually you see such decline across generations when gains made by first generation are squandered by subsequent ones living lavishly. That it happened in one generation is a testimony of how lavish the whole thing was.

Not very long ago, the protagonist was both darling of corporate world and the media. Now all things have turned just the opposite.

Infact, this is a very interesting question of business history.  Why certain business which start as family affairs last generations whereas others just fritter away after showing some promise (in this case just one generation perhaps). I think somewhere down the line it is this family code written somewhere of not taking things for granted and live as simple as possible. Stay away from all kinds of publicity and flash.

Every business has ups and downs. In a down cycle it is much easier for the non flashy businesses to survive as one is away from limelight and can restructure.

In case of Mallya this option is not just available. A friend commented that there must be so many who owe more than Mallya to the banks but no one really talks about them. The one in the media becomes an easy scapegoat as people have seen riches being spent just too easily.

The last thing one needs is a brilliant leader – let markets/democracy take over..

March 16, 2016

Two articles – one from US context and another from Indian context. Both say one should not really hope/wish for a strong/brilliant leader. What we should instead hope is allowing the system to work. In US article, system is the market and in Indian case, it is its democracy.

India’s case:

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Why IITs were influenced by MIT model?

March 15, 2016

It is amazing to see what all inquiries people make. Prof Ross Bassett of North Carolina State University has studied  every Indian graduating  from the Massachusetts Institute of Technology between its founding and 2000—charts their ascent to the pinnacle of high-tech professions. The book is here.

In his recent interview he notices an MIT touch in most Indian things:

When American engineer turned-historian Ross Bassett visits India, he sees connections to the renowned Massachusetts Institute of Technology (MIT)everywhere -buildings like Kanchenjunga and Jehangir Art Gallery in Mumbai, in companies like TCS and Datamatics, and even in everyday brands like Bisleri. All of these were created with the involvement of MIT alumni.

Bassett, an associate professor of history at North Carolina State University, has spent the past 13 years looking at some of the 850 Indians who studied engineering -including 305 doctorates -at MIT over a century. Bassett traces their stories in his new book, The Technological Indian.

His study throws up some nuggets: the first Indian went to MIT as far back as 1882; most Indians who went before Independence were from Mumbai, Pune and Gujarat; and a number of industrial families as well as government officials sent their sons to MIT in the mid-20th century in a break from humanities focused Oxbridge. Bassett spoke to Vaishnavi Chandrashek the influence of American technical education

What is more interesting is to ask why IITs were influenced by MIT? In terms of politics and education we followed British model and in economics we had copied things from Russia. Why US for IITs then?

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Why students are attracted to Socialism and give capitalism an F?

March 15, 2016

This is so true across campuses. As students most get attracted to the ideals of socialism and breathe by it. However, post college and getting into a job/business, we move towards capitalism and breathe by it. Though few friends say they have moved from Capitalism to Socialism seeing the ruthless corporate world.

BK Marcus reflects on this phenomenon of students giving capitalism an F:

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An economics lab where theories go to die

March 15, 2016

The lab is Japan and Noah Smith has an article on it. There is a suggestion to launch fourth arrow-  raise wages.

The main thing you have to understand about macroeconomic theory — both of the type used by academics and the type employed by private-sector forecasters — is that it doesn’t really work. Events are constantly taking macro people by surprise, counterexamples to pet theories are a dime a dozen, and the rare theory that can be tested against available data is usually rejected outright. In macroeconomics, your choice of model is usually between “awful” and “very slightly less awful.”

Most macroeconomic theories can be easily tested: all we have to do is take a look at Japan. Japan has a number of unusual traits that make it a very good proving ground for macro models, including a shrinking population, inefficient labor markets, an economy out of sync with the rest of the world and a government willing to engage in dramatic economic experiments. Once we start examining theories used to explain the U.S. economy, and apply them to Japan, we find that these theories usually fail. 

He points to 4 econ ideas which have failed:

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Fatal flaw in private banking systems..

March 14, 2016

Prof TT Rammohan has an article on the topic.

As Indian media and experts blame all ills on India’s public sector banks , the western world has an opposite take on the matter. There is a joke someone was telling me on this. First you take a loan from a public sector bank to go to a foreign university. Then you come back as an expert questioning the entire essence of the same public sector banks.

The author reviews Mr Adiar Turner’s recent book which points to issues in private banking system:

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Six mistakes of TinyOwl, the blue-eyed start-up child,,

March 14, 2016

How familiar is this story of Tinyowl to the several startups in dotcom phase at the start of the 21st century.

The author lists six mistakes the firm made. The blog would say it was just one- refusal to learn from history and think “This time is different”.

All these technologies linked to food markets eventually disappoint whereas age old dabba system just runs fine. One obvious reason is lack hype in latter where thousands of dabbawallas provide food across corners of Mumbai with minimal capital and  fuss. Whereas with most of these food technology firms, it is about just hype – of the idea, of its promoters and their fancy background , the VC partners names and so on.

Media is to be blamed as well which can never figure this history bit. They take you up in no time and bring you down in no time as well..


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