Archive for June, 2017

A technological history of the White House

June 30, 2017

Fascinating article (HT: MR blog).

It discusses how different technologies (yes flushing  toilets was a technology then) were introduced in White House. Sample this:

When electricity was installed in the White House in 1891, then-President Benjamin Harrison was so afraid of being shocked that he refused to touch the circular switches controlling the current in each room. Gas lighting was still used in conjunction with electric for some time.

By the late 1940s, the White House was standing only “by force of habit,” the WHHA says. The whole structure creaked and popped under the weight of 140 years’ worth of additions. Wiring, plumbing and ventilation ducts from various eras wound chaotically through the crumbling building. In a 1946 letter to his wife, Truman wrote: “The damned place is haunted, sure as shootin’. … You and Margie had better come back and protect me before some of these ghosts carry me off.”

The interior of the White House during the Truman renovation. (Abbie Rowe/National Park Service)

In 1949, Truman and the first family moved across the street to Blair House, and then everything but the exterior walls of the White House was completely demolished. A frenetic, three-year reconstruction ensued — this time, with modern electric wiring, phone lines and central heating and air conditioning built in. The basement floors were dug, and steel girders put in to support the structure.

Truman moved back in on March 27, 1952, ushering in one more modern convention: television.


How Effective is Economic Theory?

June 30, 2017

A nice essay by Arnold Kling.

What is effective theory?

Instead of “science,” we might want to think about economics in terms of “effective theory.” As explained by Harvard physicist Lisa Randall,

Effective theory is a valuable concept when we ask how scientific theories advance, and what we mean when we say something is right or wrong. Newton’s laws work extremely well. They are sufficient to devise the path by which we can send a satellite to the far reaches of the Solar System and to construct a bridge that won’t collapse. Yet we know quantum mechanics and relativity are the deeper underlying theories. Newton’s laws are approximations that work at relatively low speeds and for large macroscopic objects. What’s more is that an effective theory tells us precisely its limitations — the conditions and values of parameters for which the theory breaks down. The laws of the effective theory succeed until we reach its limitations when these assumptions are no longer true or our measurements or requirements become increasingly precise.

Whereas the term “science” often is used to connote absolute truth in an almost religious sense, effective theory is provisional. When we are certain that in a particular context a theory will work, then and only then is the theory effective.

Effective theory consists of verifiable knowledge. To be verifiable, a finding must be arrived at by methods that are generally viewed as robust. Any researcher who tries to replicate a finding using appropriate methods should be able to confirm it. The strongest confirmation of the effectiveness of a theory comes from prediction and control. Lisa Randall’s example of sending a spacecraft to the far reaches of the solar system illustrates such confirmation.

In the end:

In the end, can we really have effective theory in economics? If by effective theory we mean theory that is verifiable and reliable for prediction and control, the answer is likely no. Instead, economics deals in speculative interpretations and must continue to do so.

This reality is far from new. But economists are still grappling with its implications. They seem to resist one implication in particular: that the claim of economists to scientific expertise is no longer tenable.

Professional economists are increasingly aware of the mental-cultural factors that affect economic behavior. As a result, they are willing to broaden their methods beyond the strict reliance on mathematical derivations and multiple regression that prevailed 40 years ago. But if economics has become less of a monoculture with respect to methods, it is now more uniform in its support for Federal Reserve technocratic efforts and for economic activism in general. In 1980, the critics of Keynesian economic policies enjoyed respect in the leading economics departments and journals. This is much less true today.

Young economists who employ pluralistic methods to study problems are admired rather than marginalized, as they were in 1980. But economists who question the wisdom of interventionist economic policies seem headed toward the fringes of the profession.

In this respect, the barriers to effective theory in economics are different and perhaps more worrisome than was the case in 1980. The contemporary state of economic theory reflects a broader crisis in the social sciences and a deepening cleavage between the college campus and the rest of society.


Being an economics rebel like Prof. Deirdre McCloskey…

June 29, 2017

Superb interview of Prof McCloskey who has challenged most aspects of current economic teaching and research.


Could Industrial Revolution have happened in Mysore and Gujarat?

June 29, 2017

This looks like a fabulous book by Kaveh Yazdani of University of the Witwatersrand: India, Modernity and the Great Divergence Mysore and Gujarat (17th to 19th C.).  Industrial Revolution studies are mainly Eurocentric and this book looks at two regions from India – Gujarat and Mysore. These were two relatively advanced regions in India and so could they have their own industrial revolution as well?

Yazdani has a blogpost on the Economic Sociology blog:


Thinking about speculation, markets, securities and laws…

June 29, 2017

Fascinating post by Elaine which talks about multiple things forcing one to think.

First she points how the Metro train in Boston decided to increase price of its ticket/token. The hike was effective next month. This led to hoarding of the older tickets to sell them for a cool profit later. Unfortunately, she was not the only ne thinking on those lines. This led to many buying the old tokens to sell later. However, as there was no market for the same the profit remained just a dream:

In 2003, I had the best business idea ever. The MBTA had recently announced an upcoming increase in the price of Boston transit tokens, from a dollar to $1.25. The change would not be effective until the following January, which meant that any T tokens acquired before then would be guaranteed a 25% return. I had just over a month to hoard as many tokens as possible.

I wasn’t the only one with this strategy; many of my classmates did the same. But after a month-long buying spree, it became clear that realizing those profits would be a pain in the ass.

We could never use all those tokens ourselves, and there was no secondary market because all our friends had made the same brilliant investment. If only T tokens were tradeable on the blockchain!

She then wonders why we don’t fund projects using similar tokens. The answer is the tokens could be used as security to finance something else. After all these tokenshave been issued against some value. This is how financial instruments like shares and bonds work as well. But then as law permits only few things as securities, these tokens remain unused:

Why don’t we finance all our infrastructure projects with token sales? Is Trump still looking for ways to pay for that wall? Issue a Wall Token and put it on the blockchain! Each Wall Token confers the right to one border crossing.

But it turns out such Tokens might constitute a security.

Here’s a 1977 paper about property developers who finance their facilities by selling usage licenses before construction. Two fun examples:

In the case of Holloway v. Thompson , a landowner raised money for a cemetery by selling certificates entitling the holder to a future burial spot. After the cemetery was constructed, an elderly couple sued the developer because they were unable to resell their unused spots. They had purchased 31 spaces, hoping to flip ‘em for a quick profit. The court determined that the burial rights were  unregistered securities , and buyers were refunded.

In Forman v. Community Services, Inc, a property developer sold “shares” of a low-income housing project, which could be exchanged for a three-year lease on a future apartment. After construction, the lease agreements were less valuable than expected, and the shareholders sued. The Supreme Court determined that the housing shares, despite being explicitly sold as “shares”, were not securities. The case was dismissed. It helped that the defendant was a non-profit housing co-op trying to do a civic good.

There are many more cases, and every shade of grey in between. In the 1970s, a spate of country clubs raised money through initial membership offerings, at which point the SEC directed its staff to stop issuing no-action letters in this area and advised that past letters should not be relied upon: “The Commission is concerned that inferences may be drawn from the issuance of no-action letters in this rapidly-evolving area.”

Simple post but worth many ideas.

Is a Small Finance Bank, Small bank or small finance lending bank?

June 28, 2017

Words are so important.

I was reading this panel discussion in Mint South India Banking Conclave:

Even though you are a small finance bank, you are subjected to higher capital requirements. Are you fine with the regulations?

Ghosh: Small finance banks (SFBs) are specialized institutions, we have the objective of financial inclusion. We have already got a set of norms which we have to comply with like 75% priority sector lending, etc. As we progress as a bank, there are a different set of challenges which we are going to face. It is very important to have a constant dialogue with the regulator. As an example, we all are going to become members of the state-level bankers committee—it assigns various targets for regular commercial banks. Our portfolio is already 100% priority sector loans (PSLs); to that extent things have to be modified. Loans on our book should automatically be classified as PSLs.

Is there any other example in your mind, Vasudevan?

Vasudevan: SFBs are small… Many people believe that the word small is a reflection of the word bank and not the word finance. Many people call us Equitas Small Bank. It is reflected in the guidelines you see, Rs100 crore capital we need and commercial banks need Rs500 crore….

We have (to meet) 75% PSL, it is very onerous. For people like us, there is no problem. Second part is 50% of portfolio is less than Rs25 lakh, these are the two defining characteristics of an SFB. We have no problems with it.

The question is should I aspire to be a small bank or be a big bank? Suppose you have capital of more than Rs500 crore, can you be given the flexibility of a universal bank? We all have invested heavily in technology. We are also filing periodical returns, the only difference is that we are in Basel II (banking norms, less onerous than Basel III).

The two things are obviously not the same. A small bank can give big finance and a big bank can give small finance. Thus, SFB is likely both – a small bank which has been licenced to provide small finance..

Play of words but really important for conceptual clarity..

Is data the new oil or is data the new soil? Case of Bhutan Hazelnuts..

June 28, 2017

Superb article on how different institutions and companies are ushering the data driven world. Bruno Sánchez-Andrade Nuño, Data Scientist at World Bank tells you data is being collected from Bhutan’s hazelnut farms:


50 years of ATM and a BBC quiz on the cash machine…

June 28, 2017

Charles Skinner points to country-wise ATMs (Brazil having highest) and an interesting BBC quiz on ATMs:

Sample these qs:


The league of global T20 brands

June 28, 2017

One just read how IPL brand has become ten times more valuable in just 10 years. It has not just risen in brand value but shaped so many global T-20 leagues across the cricketing world.

Firdose Moosa in this superb piece tells you about future of cricket which is unravelling at a quick pace. Just like Football, the future of cricket is more like the club cricket:


Joblessness: The great Global crisis of the twenty-first century

June 28, 2017

Edward Galesar of Harvard University writes a long essay covering history, society, politics and economics. The kind of essay which was basically how economists wrote and tried communicating with the public. This art is mostly lost now as much of economic thinking has become garbled amidst equations and race for publishing.

He takes you through a tour on how the jobless problem in America started. He focuses on America joblessness is a global problem:


When Bombay overtook Calcutta: A history of India’s financial geography

June 27, 2017

How could I have missed this one.

My article on Bombay vs Calcutta appeared on Mint’s Sunday edition. It was partly based on my two previous posts – one and two). Though the Mint edition is far more colorful and is crisper.

Thanks a lot to Mint Sunday team for taking this forward in their paper…

Why are some immigrant groups more successful than others?

June 27, 2017

Prof Edward Glaesar’s new paper says the differences are largely due to number of immigrants and population of home country:


Monetary policy provides no answer for a chronic deficiency of aggregate demand: Yet another lesson from Japan…

June 27, 2017

From Stephen Roach:


The tree of knowledge is not an apple or an oak but a banyan..

June 27, 2017

Superb essay by Jonardan Ganeri who is a philosopher and won the Infosys Prize in the Humanities in 2015.

He says European societies view knowledge as a core-periphery system which has a strong trunk and then branches. What is instead needed is a Banyan system where there are multiple roots which sustain the strong core:


The Parsi community launches a massive project to grow Babul trees

June 27, 2017

Had no idea about this. Parsis in their fire temples use wood from babul trees as the wood lasts longer. The prices of the babul wood has zoomed in recent years leading to some action from the community entrepreneurs:

There are about 100 Zoroastrian agiaries (fire temples) all over India — 40 of them in Mumbai — in which the holy fire never stops burning. Parsi Zoroastrians make offerings of fragrant sandalwood to keep the flame alive, but the bulk of the fuel comes from basic wood (kathi) from the Bawal tree (Acacia arabica, also known as the Babul), which is slow-burning and perfect for a sustained flame.

That slow-burning quality, however, makes Bawal wood attractive to others — for instance, bakeries which use wood-fired ovens — says Noshirwan Mistry, an agriculture expert. Consequently, prices have risen nearly five-fold over the last decade.

Concerned about the increasing cost, and the possibility of supply falling short or even running out, some religious Parsis have been working on ways to solve the problem.

 An anjuman (a Parsi community organisation) in Vyara, Gujarat, began planting Bawals on community land. Now, a Mumbai-based group has come forward to make the movement bigger. Burjor Antia, an advocate and a former trustee of the Bombay Parsi Panchayat, Mr. Mistry and a few others have formed a public charitable trust, Amardad Kathi Trust, for a drive across States.

Once the project takes off, the trust plans to expand to other States where the community owns land.

It takes 10-12 years for a desi Bawal to mature into a usable tree.

 Hmm..Always nice to know about these basic facts.


Inflation targeting in democratic India…

June 27, 2017

As one was reading this piece by Anantha Nageshwaran, came across this interview by Dr YV Reddy. Both in their own way suggest a need to rethink the new regime of MPC driven inflation targeting in India.

Anantha is more severe with his criticism of both the framework and the media’s recent take on RBI-FinMin rift:


50 years of ATM: Will cash be history?

June 27, 2017

In this speech by Bank of England chief cashier, she highlights how on 27 June 2017 we are celebrating 50th birthday of ATM.

In another piece, Bhaskar Chakravorti of Tufts University pays tribute to the ATM which is seen as the most important financial innovation by likes of Paul Volcker.  He is also part of this country studies on cash usage which look like a good read.In the process, he asks and answers the big question facing all of us: will cash die? Not so fast:


Are farm loan waivers really so bad? The elite RBI view vs an alternate view..

June 26, 2017

The farm loan waivers have been criticized severely by one and all.

He says people understand that farmers are under distress but hit out at loan waivers. The view is elite and best summed by RBI:

Oddly enough, the media and other commentators recognise the reality of farmers’ distress, but take serious exception to farm loan waivers as a means of addressing the problem. The position taken by India’s elite is best summed up in the words of the Governor of the Reserve Bank of India (RBI):
“I think it (farm loan waiver) undermines an honest credit culture, it impacts credit discipline, it blunts incentives for future borrowers to repay, in other words, waivers engender moral hazard. It also entails at the end of the day transfer from tax payers to borrowers. If on account of this, overall Government borrowing goes up, yields on Government bonds also are impacted. Thereafter it can also lead to the crowding out of private borrowers as higher government borrowing can lead to an increase in cost of borrowing for others. I think we need to create a consensus such that loan waiver promises are eschewed, otherwise sub-sovereign fiscal challenges in this context could eventually affect the national balance sheet.” (Press Conference, 6 April 2017).
These are ominous words. Different aspects of this view have been picked up by different interlocutors to create a new and frightening urban legend. What is worrisome is that no one seems to have deemed it fit to critically examine the validity of these claims in the very specific context in which the loan waivers are being considered. Perhaps it is time to do so.  
The first point that needs to be made, and made forcefully, is that this is not the first time that farm loan waivers are being given. Therefore, it is possible to subject its effects to empirical validation. The second is that even if all such effects are valid, they need to be evaluated against the counterfactual – namely, what is the likely outcome if these waivers are not granted? Third, surely somebody should ask whether these repeated instances of farm loan waivers are a symptom of mindless political populism or do they point to a more fundamental problem in the design of farm loans in India?

Pronab Sen provides an altenate view to the ongoing criticism. He says this time the distress and call for loan waivers is mainly due to demonetisation, an action which was mainly enforced by Govt and RBI:

There is a certain ‘holier than thou’ flavour to the words of the RBI Governor which finds echo in the Finance Minister’s flat refusal to assist the states with the loan waivers. This is cynical at best, since there is now a consensus that the present crisis is largely the outcome of demonetisation, in which both the Minister and the Governor were complicit. It almost equals in arrogance the famous American dictum: “it may be our currency, but it’s your problem”10
At the heart of this problem are Constitutional provisions whereby the health of the banks is the Centre’s concern while the health of the farmers is that of the states. This division of responsibility is asymmetric in that if states protect the interest of farmers, they also protect the banks; while the Centre can protect the banks without concern for the farmers. As a result, the ball is always in the states’ court, and the Centre can simply stand back and watch if it so desires.
This state of affairs is not conducive to the health of the country as a whole. The Centre and states need to work together to evolve a farm loan model which protects both the farmers and the banks without bringing politics into it. This is the essence of ‘cooperative federalism’ that this government sets such store by. Until such time, farm loan waivers need to be viewed less ideologically and with more compassion. 
The alternate view point is always important. The political economy of India’s agriculture remains as precarious as ever..

South Africa’s Public Proctor wants the central bank to have wider goals..

June 26, 2017

South African economy is slipping and in May 2017 the central bank head was quizzed by academicians of the region.  The role of Government and central bank is being seen with deep suspicion.

Thus, it was quite something to read the Public Proctor getting into act and asking the central bank to have wider goals:


India to make a law for…its base in Antarctica!

June 23, 2017

The Sapiens (wise ones) continue to expand their ambit of living.

Juts came across this news which says India will be making law for its station in Antarctica:


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