The World Bank has bigger problems than bad writing…

Paul Romer recently raised a storm over wanting World Bank econs to wrote better but got sidelined. I mean how can you teach “the econs” from “The Bank”? Romer should have known better.

Noah Smith says problems are deeper than writing:

A picture is beginning to emerge of global financial institutions that are too hidebound and conservative. Faced with changes in both the global economy and economists’ understanding of recessions, both the World Bank and the IMF have too often resisted change rather than embrace it. It’s worth wondering if the root of the problem comes from the culture of economics.

Economists are, in general, an insular and hierarchical bunch. They are used to having the quality and value of their work judged only by other economists. The outside world is expected to pay economists’ salaries and listen to their advice, but not to question the value of what they do. But when this ivory-tower approach is applied to real-world organizations, the result can be unacceptable institutional inertia.

Perhaps it was this insular culture, rather than just bad writing, that Romer had really intended to shake up. If so, the deck was stacked against him from the start. Making economists open up and engage with the wider world — and make themselves vulnerable to criticism by intelligent outsiders — may be a task too great even for a famous and brilliant individual like Romer.

Nice bit…

 

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The Norwegian economy, sea and banknotes

Norway has released new banknotes – 100 kroner and 200 kroner. I had earlier pointed to this superb video on its banknotes.

The new notes are inspired from sea as the Norwegian economy gets much from the seas:

The motifs on all of the new banknote series denominations show the importance of the sea for the prosperity and welfare of the people of Norway. The primary motif on the front side of the 100-krone banknote is a Viking ship, while on the 200-krone note, a cod is portrayed facing left. On the back sides, abstract representations of a cargo ship (100-krone note) and a fishing boat (200-krone note) can be seen on the horizon.

The banknotes were designed by Norges Bank’s banknote designers Arild Yttri and Morten Johansen. The designs on the front sides of the banknotes are based on the proposal from Metric Design and Terje Tønnessen. The proposals for the back of the notes were submitted by Snøhetta Design. The primary motifs were drawn by the artist Sverre Morken. The Atlantic puffin watermark motif is based on a photo taken by photographer Tom Schandy.

The new 100-krone and 200-krone banknotes were printed by Oberthur Fiduciare in France.

There is a speech by the central bank chief who links Norway economy to the sea:

This is a day I have been looking forward to for a long time – it’s not every day a new banknote series is put into circulation. The last time was in 1994. And being able to hold the launch here in the Lofoten islands is an added bonus. The sea and the Lofoten islands are inextricably linked – the sea is a defining feature of the landscape and a key source of food, employment and recreation.

Norway’s coastline is embraced by the sea from the northernmost point to the southernmost tip. The sea has shaped our history and our economy, and from today onwards, it will also feature on Norwegian banknotes. Norges Bank has been governed by our elected representatives since 1816 under a clear mandate: to safeguard the monetary system and the value of our money. Norges Bank’s banknotes and coins are the community’s money, and our trust in the value of our banknotes is closely linked to our trust in each other. With this in mind, it was important to design banknotes that would tell a story about us as a community of people. As the sea is a key dimension in that story, it was chosen as the theme of the new banknote series.

Fascinating stuff..

Exorbitant privilege and the Triffin dilemma through forex swaps

The French said US has exorbitant privilege due to hegemony of US Dollar. Triffiin dilemma suggested that though US Dollar is a reserve currency, it implies that US will have to keep running trade deficits to keep supply of US dollar going to other countries. Thus the dilemma between looking at short term objectives and also playing a global role. Thus, both privilege and dilemma are connected in their own ways.

In this paper, Takeshi Kimura and Teppei Nagano say both these are present in forex swaps market as well:

While non-US entities pay dollar funding premiums in the FX swap market, the US earns profits on FX-hedged investments in non-US sovereign securities. This column argues that this new form of the ‘exorbitant privilege’ presents a modern version of the ‘Triffin dilemma’. If the distributional effect of US privilege becomes large enough to induce non-US entities to take excessive risk, the stability of the global financial system will come under threat. 

Hmm.. never really thought about it..

The power of US Dollar extends much beyond the reserve currency role..

A week without internet leaves Saharanpur residents in the dark…

Earlier one associated such articles with lack of electricity. Now darkness can also be associated with lack of internet facilities.

As Saharanpur suffers from violence, internet connectivity has been snapped. This has left citizens in dark:

Following several incidents of caste-related violence in the district, the Saharanpur administrationhad suspended internet facilities indefinitely from May 24. Legitimate and law-abiding users, including students, have been having a tough time ever since. CBSE and ICSE results were declared on Sunday and Monday, and Saharanpur students, including those who wanted to share the good news with their friends and relatives, found themselves cut off. Others who have been trying to seek information or updates about jobs and studies have been similarly isolated, they said.

After district magistrate Pramod Kumar Pandey took over following the suspension of his predecessor NK Singh, internet connectivity in Saharanpur has been limited to only broadband connections.

Law student Praful Bandhu told TOI, “The internet ban has affected almost everyone. Only broadband services have been permitted, but this is used by only a few private citizens. The rest of us rely mainly on mobile internet services. I have to send some important documents related to my dissertation to my professor but couldn’t, because the services at a local cyber cafe were very slow. One of my friends is facing problems at work because he has not been able to send his emails for days now.”

No electricity means plastic money is just plastic:

Mohit Goel, an e-commerce businessmen, said, “Credit and debit cards have turned into just plastic, since swipe machines are useless without internet. People like me who deal in digital marketing and e-commerce have been sitting idle for the past eight days. We have no clue how long this situation will last.”

These are exactly the risks people warn of not moving over digital world completely. In cases of such exigencies, the whole thing goes upside down. How we sapiens keep thinking we have created this new world only to fall under its own trap..

An early attack on independence of RBI’s monetary policy committee…(Does it matter?)

If there is one topic on economics where one can continue writing it is central bank independence. It is amazing how the term was barely discussed till mid 1980s, has risen so sharply in economic discussions.

Recently, RBI set up a Monetary Policy Committee which was expected to finally resolve the debate forever. Earlier, the onus was on central bank chief who could be pressurized by the government especially towards cutting rates. But the government can of course not pressurize the whole committee. Thus, RBI monetary policy is independent forever.

Right? Not really.

Mint editorial says attacks have begun on MPC independence:

Was Greek crisis a Sovereign Debt crisis or Balance of Payments crisis? (Parallels with India’s 1991 crisis…)

Greece crisis will be studied for a long time to come.

In a recent note, Paul-Adrien Hyppolite (of École normale supérieure) says the crisis was a BoP one and not a sovereign debt one.

Economic ideas you should forget

This is the title of a new book by Prof Bruno Frey (who has the title of Permanent Visting Professor??) and David Iselin.

They explain some basic ideas here:

It is high time to forget some economic ideas that hinder progress in the field. Some examples include the assumption that GDP is the best way to measure economic progress, or the belief that economic growth will eventually improve the welfare of the population as a whole. This column discusses some of these ideas and argues that economics is a progressive science that is enriched by the ‘creative destruction’ of ideas. 

….

In a recently published book (Frey and Iselin 2017), we make an effort to provide such information. We collect no fewer than 71 contributions from academic scholars all over the world. Some are prominent economists –  such as Daron Acemoglu, Alan S. Blinder, Richard Easterlin, David Hendry, John Kay, Margaret Levi, Andrew J. Oswald, Eric Posner, Jeffrey Sachs and Hans-Werner Sinn – and others are lesser known young scholars. The collection also includes contributions from academics outside economics, including from sociologists, psychologists and ethnologists. Younger scholars and ‘outsiders’ may be particularly well-endowed to see ‘dead wood’ in economics which is no longer useful for today’s world. We aim to reveal the diversity of opinions and evaluations, to stimulate the discussion and to push forward knowledge. We see economics as a progressive science that does not lose its force when parts of its theory are empirically rejected. On the contrary, to discard unhelpful and misleading ideas shows that a discipline is vigorous as suggested by Joseph Schumpeter’s idea of ‘creative destruction’.

Hmm.

The book webpage says even doing away with Says law, Coase theorem and so on:

By discussing problematic theoretical assumptions and drawing on the latest empirical research, the authors question specific hypotheses and reject major economic ideas from the “Coase Theorem” to “Say’s Law” and “Bayesianism.” Many of these ideas remain prominent among politicians, economists and the general public. Yet, in the light of the financial crisis, they have lost both their relevance and supporting empirical evidence.

Sigh..

How much did Plato know about behavioural economics and cognitive biases?

Pretty much everything. Nick Romeo in this essay explains how behavioral patterns and human biases have intrigued thinkers for a while. Just that they did not call it behavioral economics:

Economics and the human instinct for storytelling

Robert Shiller has a nice essay on the topic:

I’m starting now, with my more recent work, to think that we have to look at the humanities as well. There is something difficult to formalize about human beings, but something that we nonetheless have to understand, and I think one way to do that is with an approach that I’m calling “narrative economics”: taking economics and adding the study of the narratives that people transmit. 

The human species, everywhere you go, is engaged in conversation. We are wired for it: the human brain is built around narratives. We call ourselves Homo sapiens, but that may be something of a misnomer—sapiens means wise. The evolutionary biologist Stephen Jay Gould said we should be called Homo narrator. Your mind is really built for narratives, and especially narratives about other humans. That is why advertisers tend to focus not on a product itself, but rather on somebody doing some human action related to the product.

Narratives are contagious: they spread from one person to another. Some narratives disappear quickly; others can last a long time. I think of a narrative as a gem, something that you heard somewhere, and you think, I’ll remember that next time I’m in a conversation. I’ll use that. I’ll say it. I’ll try to present it right because I want it to have the effect that it had on me. That is a narrative. Narrative can, in the parlance of the internet, go viral. 

Hmm…

Why does money depend on trust?

Nice primer from Bank of England. Trust is all there is to money..

Norges Bank develops a video on new banknotes..

Interesting video from Norway Central Bank celebrating its new 200 kroner banknote which has its favorite fish- cod – on the note.

There is some explanation here:

Here is Copernicus doing monetary economics!

Brilliant JP Koning has a superb tweet:

There is more here..

Well, there was a bank named ‘Sarkari Dukan’ (Government shop in English) in State of Udaipur!

I was reading this book by Dr Harish Sharma (delighted to see a link on the net) which was actually his PhD thesis The thesis looks at evolution of banking focusing on Rajasthan State. It has many interesting aspects of Indian banking, which we sadly neither know nothing about nor we care.

He starts the book by quoting from this interesting text by William Robertson.

it is a cruel mortification, in searching for what is instructive in the history of past times, to find that the exploits of conquerors who have desolated the earth, and the freaks of tyrants who have rendered nations unhappy, are recorded with minute and often disgusting accuracy, while the discovery of useful arts and the progress of the most beneficial branches of commerce, are passed over in silence, and suffered to sink into oblivion.

He says this applies so well to India’s origins and progress of banking. Well not just banking but all aspects of business and commerce. We just have let everything sink into oblivion. He is talking about a much earlier period on which resources are  really difficult to figure. We have let history slip of periods on which there is atleast some “written information”.

There are some attempts to undo this damage by the Penguin series. But unless all this is taught and debated in colleges, we can hardly make much progress.

Coming back to the book. It has amazing insights into progress of banking in state of Rajasthan. It was obviously many kingdoms back then and how they financed their operations and soon. The region was also home to Marwaris and Jains who obviously had a knack for maths which was used brilliantly in financing and industry later on. We know about Marwaris not as much about Jains.

He mentions how after 1857 revolt, the state of frequent wars in the region declined. This was a time for making some economic progress and the local some of the local kingdoms did realise this. Finance was seen as a major impediment in this progress as there was uneven development in the region. This led ruling princes to establish banks/financial institutions to aid agriculture and foster industry. Of course, none had any experience in banking which showed in eventual outcomes as very few could survive.

State of Udaipur was the first to establish a bank in the region in 1842, before the 1857 revolt. It set up a bank called Udaipur state bank which was more popularly called as ‘Sarkari Dukan’ (means Government shop in English)!

Why print media remains relevant in India?

Shashi Tharoor has a piece. He says print media has died in mist countries, but growing in India.

Why so?

The robustness of India’s print-newspaper industry cannot be attributed to lack of growth in Internet access: in the last decade, the share of the population with Internet access rose from less than 10% to some 30%. So what does explain India’s thriving newspaper market?

One basic factor is India’s rising literacy rate, which has climbed to 79%, owing largely to improvement in the “cow belt” of the northern states – the Hindi-speaking heartland. In the 1960s, when Hindi speakers were overwhelmingly less literate than those who read in English, Malayalam, and Bengali, Hindi newspapers had low circulations. Today, they are on top: for the second decade in a row, Hindi newspapers experienced the fastest growth, with average circulation soaring at a compounded annual growth rate of 8.78% since 2006.

Economic development has also helped India’s newspaper industry. Many newly affluent Indians get their national and international news from television. But events close to home are best covered in the local dailies. And, indeed, newspapers remain the best way to reach this segment of Indian society.

To be sure, most leading news outlets in India have been developing their digital offerings. They have created mobile apps to download the news from their sites, and they increasingly treat their readers to short takes of digestible news briefs tailored to the small screens of hand-held devices.

But, for many serious readers, such options are no substitute for the look and feel of a printed newspaper article. Printed newspapers offer the added advantage of reliability, in a country where Internet access cannot be guaranteed all the time, owing to still-patchy electricity supplies, which cause frequent blackouts even in the capital. News junkies still need a tangible paper that can be read in the sunlight without a fully charged battery.

Given all of this, it may not be quite so surprising that advertisers in India have remained loyal to the appeal of newspaper ink over the flickering cursor. In sharp contrast with the Western experience, advertising remains the Indian newspaper industry’s main source of revenue.

Of course, this trend may not last forever. But, for now, India’s newspapers are in no danger of becoming financially unviable. While growth in digital advertising expenditure is surging, at an annual rate of nearly 30%, it still comprises just 8% of India’s total ad spending. Meanwhile, TV and print advertising revenue are also growing, at 8% and 4.5%, respectively.

Hmmm..

Meet the newest banking indicator in town: The Divergence Ratio

Ira Dugal of Bloomberg Quint introduces us to this new indicator :-):

Don’t Be “a jibbering idiot”: Economic Principles and the Properly Trained Economist

A must read short paper by Prof Peter Boettke of George Mason Univ.  It is actually a speech given at 42nd Annual Meetings of The Association for Private Enterprise, Hawaii.

He calls to bring back history into economics (how many such calls will be made to a profession and yet be ignored):

Economics, properly understood, makes sense out the complex web of historical relations that constitute reality, namely by utilizing economic theory. Economics without price theory is not economic theory, and measurement without theory isn’t empirically meaningful. However, graduate students are being increasingly trained in sophisticated procedures of optimization and statistical testing, remaining largely ignorant of economic theory as a tool to understanding economic history. This address is a renewed call for my fellow economists to continue to instill in their teaching the beauty of economic theory, as well as the empirical importance of economic history. In short, economic teaching and training must instill an understanding of economic forces at work, and properly done, instills the principles that constitute a golden key that unlocks the deepest mysteries in the human experience. Without learning the governing dynamics of human action and the mechanisms that produce the social cooperation under the division of labor, modern civilization will be left undefended against the fallacious claims that market processes are exploitative, monopolistic, and unfair. 

It has some important lessons and comments from late Prof Buchanan as well.

Boettke says given all the noise about economics training, it is basically about 8 basic principles:

Is profit still a bad word in Indian polity?

JRD Tata once remarked how Indian Government during the 1950s did not like the profit word. It seems not much has changed despite many years of reforms.

Praveen Chakrabarty of IDFC institute points how post announcement of GST rates, Indian government is again warning against anti-profiteering. One reacted similarly to the G0vernment comments and wanted to blog. Thanks to Praveen who does a great job:

How Paul Romer has been sidelined in World Bank due to war over words and usage of ‘and’…

Interesting piece on politics of economic research and grammar usage  in World Bank.

The World Bank’s chief economist has been stripped of his management duties after researchers rebelled against his efforts to make them communicate more clearly, including curbs on the written use of “and.”

Paul Romer is relinquishing oversight of the Development Economics Group, the research hub of the Washington-based development lender, according to an internal staff announcement seen by Bloomberg. Kristalina Georgieva, the chief executive for the bank’s biggest fund, will take over management of the unit July 1.

Romer will remain chief economist, providing management with “timely thought leadership on trends directly affecting our client countries, including the ‘future of work,’” World Bank President Jim Yong Kim said in the note to staff dated May 9.

Romer said he met resistance from staff when he tried to refine the way they communicate. “I was in the position of being the bearer of bad news,” he said in an interview. “It’s possible that I was focusing too much on the precision of the communications and not enough on the feelings my messages would invoke.”

It’s unusual for the World Bank’s chief economist, a role once occupied by heavyweights such as Stanley Fischer and Lawrence Summers, not to run the Development Economics Group, known as DEC, which publishes original research, develops the bank’s forecasts and oversees its data. The move raises questions about how much freedom the bank’s economists will have to do outside-the-box research on policies to help the world’s poorest.

Hmm..

How the Archives of India are actually destroying History

This is a very depressing piece. For someone who has been closely associated with Archives business in India, state of Archives here is just plain pathetic. The kind of importance the higher authorities give to the state of these places speaks volumes.

The piece is on National Archives but applies to most other Archives in India:

Mainstreaming behavioral economics…

Profs. Beryl Chang and Fabrizio Ghisellin say we need to simplify behavioral economics:

At the moment, behavioural economics suffers from confusing definitions, unanswered questions and conceptual gaps that need to be filled. It is reminiscent of a person who needs a diet both for a detox and a weight loss.

We need a ‘vertical’ streamlining process that will:

• Clarify core issues: What is the ‘correct’ definition of rationality? When an alleged bias, such as loss aversion, is found to be part of human nature as designed by evolutionary processes, can it still be considered a ‘distortion’?
• Fill existing conceptual gaps: behavioural economics deals abundantly with biases, but how are expectations formed? Are expectations ‘rational’?
• And most importantly, generate a tractable reduced form for behavioural economics models. Today we have hundreds of different behavioural factors. They should eventually be translated into a smaller set of primitive factors.

In order to establish behavioural economics’ status, we hardly need the ‘discovery’ of yet another behavioural bias. At this stage, we need parsimony and an effort to synthesise what already exists into a general mainstream model as an alternative to conventional models.

They cite an example from Mullainathan and Thaler: