Archive for June 6th, 2016

The political economy of deposit insurance and why did deposit insurance pick up?

June 6, 2016

Nice piece by Charles Calomiris and Matthew Jaremski.

Many of us might no know that India was the second country after US to introduce deposit insurance. US introduced it in 1934 and India in 1961. In both countries, central banks primarily came up to look at the banking crises. Paradoxically, bank failures only grew post central banks coming up int eh two countries. It actually boiled down to introducing this deposit insurance scheme which stabilised the system and prevented bank runs.

One can always argue over costs and benefits of deposit insurance. But the kind of drama we have over central banks role in financial stability, much credit goes to these deposit insurance schemes as well. Though, this insurance bit has obviously interfered with market mechanisms. Earlier depositors had atleast some incentives to try and figure good banks from bad ones. There was some process for that weeding to happen. Now there is no such incentive as you know govt will give back your deposits via this deposit insurance scheme. It is also true that banks do not promise to pay back all your deposits in case of a crash. The insured amount is only RS 1 lakh and anything more you will lose that money. But as this  has barely happened, so depositors given their savings fully confident that 100% money will come back. All banks have become too big to fail no matter how small they are in the scheme of  things.

Coming to the topic. The authors say it is really surprising that the world took so long to introduce this facility after US introduced it in 1934. What triggered the rise? Politics of course:

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How Nigerians are winning international scrabble contests?

June 6, 2016

Perhaps one of the best things I have read in a while. Like most children have great memories playing the word game scrabble.

Had no clue about this Nigeria factor in Scrabble. It is just like why Jamaicans produce such good shirt distance runners and Kenyans long distance ones.

More interestingly, the idea in Scrabble has been to make those big words with a q on it. The Nigerians play with shorter words and try preserve key letters like vowels for usage later. It is a bit of both scrabble and chess..

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Applying behavioural economics to public policy (Is Indian polity listening?)

June 6, 2016

The post is on Canadian public policy but I guess it applies to most countries. There is an interesting video on nudging people to use stairs instead of elevators. Though the nudge is slightly noisy. Do see it.

There are numerous ways in which nudges can work:

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Don’t minimise water crisis amidst talks of good monsoon and history of water management in India..

June 6, 2016

It is interesting how anything small related to macro is stretched beyond imagination in media. Whereas something as central as water for livelihood is just brushed aside. Water was a worry for sometime and as good monsoon news came in, the water worries have gone. What is mostly a temporary issue remains permanently etched in our discussions whereas a permanent issue at best remains temporary.

Indira Rajaraman in this excellent piece  speaks about how water crisis is much much deeper than we imagone. It is not just about slipping water levels but also around this whole organisation of water management. Govt is all over the place in water management:

In addition to drought relief, states have received substantially higher statutory fund flows from the Centre starting in 2014-15, under the provisions of the Fourteenth Finance Commission, which gives them autonomy in respect of the uses to which they put those funds. Putting the two together, states were in a better fiscal position than ever before to meet the pre-monsoon crisis. Did fiscal sufficiency translate into relief on the ground? If it had, we would not have seen those horrific pictures of little girls hauling water in plastic cans across wide expanses of cracked earth. The Supreme Court, in response to public interest litigation filed by Swaraj Abhiyan, admonished both the Centre and states for their inadequate response to the widespread evidence of acute distress.

The point of course is that giving states fiscal autonomy is not sufficient to ensure that states will be nimble in transferring fund usage from one budget head to another. In our system of accounting, although budgetary marksmanship is pathetic, there are nevertheless internal rigidities in the ability of government at any level to redirect funding to a sudden crisis of any kind. Expenditure switching is feared for the scope it gives for corruption. And we do have several instances of exactly such occurrences, such as for example with the 2010 Commonwealth Games, when funds meant for Scheduled Castes were diverted to the Games.

What we needed was provision for an upward information flow from ground-level panchayats and municipalities on the water situation, and for expenditure switching to be predicated at the state level on objective parameters based on the information travelling up to them. Provision for this kind of information flow simply does not exist. We hear that optical fibres will soon connect local government to states, but surely disaster information can be conveyed by telephone. Local government simply has not been integrated into the system of governance in India, and is subject to the same sclerotic provision for fund flows. We have not worked out responsive governance in India because of our fear that flexibility will open the window to abuse of power.

So we continue to look at local government in terms of how much funding they get from above, but we do not look at whether they are wired into an information network which can make the state government more responsive to local disasters, such as the drying up of wells and water bodies.

For a change, someone draws experiences from India’s history. How did we manage these water issues in the past? We did well till British destroyed our system:

We need to go back further in time to examine how rural communities in India managed water supplies through the year in such a way as to survive the difficult pre-monsoon months. We owe a deep debt of gratitude to the Centre for Science and Environment (CSE), which has painstakingly built up a database on traditional water systems in India, publicly available on their website. These fall into three broad categories. The first type was for sourcing and storage of drinking water. The second was for harvesting rainwater on farmland with no supplementary sources of irrigation. The third, for harvesting of excess floodwater from full rivers during the monsoon, simultaneously addressed flood prevention along with preservation of the excess, the analogue of the phenomenon of consumption smoothing by which people cope with irregular income.

…..

“The early British rule saw disastrous experiments with the land tenure system in quest for larger land revenues. The enormous expropriation of village resources by the state led to the disintegration of the traditional society, its economy and polity. Allocations for maintenance of eris could no longer be supported by the village communities, and these extraordinary water harvesting systems began to decline.”

It is nearly seven decades since the British departed. Time now to reverse that decline. Our survival depends upon it.

No our survival only depends on useless debates around useless macroeconomic issues. The fastest grwoing economy’s water resources are depleting much faster….


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