Archive for July 12th, 2017

Learning economics from Amol Palekar..

July 12, 2017

Well one Amol is still trying to figure economics, but the other Amol despite not being concerned with the subject has useful lessons. Such is the irony of economics as well. Those who study it get lost in the subject and have nothing much to say, those who don’t study make statements about economics pretty freely in their conversations.

So here goes the brilliant Amit Varma again who points to housing economics lessons from Amol Palekar’s songs. Earlier he pointed globalisation lessons from Raj Kapoor’s Mera Joota Hai Japani song.

He picks two songs this time:

Ek akela is shahar mein/ Raat mein aur dopahar mein/ Aab-o-daana dhoondta hai/ Aashiana dhoondta hai. – Amol Palekar in Gharoanda.

One person, alone in the city/ At night and in the afternoon/ Looking for food/ looking for shelter. In the film Gharaonda, Amol Palekar plays a young man who has come to Bombay (as it was then), and is worried about food and shelter. I can identify with this, as I too was a young man in Bombay once with identical worries. Indeed, most young people migrating to big cities would empathise with Palekar.

Most of us get by when it comes to aab-o-daana, but aashiana can be a different matter. Housing in Mumbai (as it is now) is incredibly expensive, and most middle-class people cannot dream of buying a house. There are two important things I would like you to note here.

One, prices are a matter of supply and demand, and if there is relative scarcity of housing, prices will seem high. That’s just how it is.

Two, the supply of housing is artificially kept low by government regulation. If not for the government, real estate in our cities would cost a fraction of what it now does. If you cannot afford to buy a home where you live, then repeat after me: This is the government’s fault.

There are a number of terrible regulations that lead to this effect. I want to focus on two in this piece.

The culprits are well known: Floor Space Index and Rent Control.

In the end, he picks the second song:

Let’s shift to a pleasant subject now: from real estate to love. As Gharoanda progresses, Amol Palekar finds romance with Zarina Wahab, and the two then sing a version of the song that he sings earlier alone.

Do Diwaane shahar mein/ Raat mein aur dopahar mein/ Aab-o-daana dhoondte hai/ Ek aashiana dhoondte hai.

Two lovers in a city/ At night and in the afternoon/ Looking for food/ looking for shelter.

The two young people have the same problems that the one young person did earlier – but as you can guess, they are considerably happier at the time of singing this song. Thank goodness the government does not regulate Love like it regulates Land.

(Spoiler alert: The artificial scarcity of Land eventually destroys their Love as well. Sigh.)

🙂

But there is much more to Mumbai real estate which is not present in most Indian cities. Things like FSI etc will help lower the pressure but not much.  Some apartments where allowed FSI is much higher, the difference between top floor and ground floor apartments could be several lakhs. And for most even the ground floor is unaffordable, so the story ends there.

One can always argue how much more expensive NY would be if FSI were like Mumbai. But even with such high FSI, the one big issue with NYC remains – high cost of apartments. It is perhaps something in these financial centres where property remains unbelievably costly and is such a privilege.

Even the whole property broker market in Bombay is unlike any other. People are migrating to other cities as well, but it is only in Mumbai where you see the clout of the broker. The broker is as big and even bigger than apartment owners. It keeps making your life miserable every 11 months!

Perhaps the song which fits the real estate market in Mumbai is from another movie which showcased crime in the city. The movie was D Company and the song was ” Ganda hai par dhanda hai yeh…”.

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South Africa needs a sensible debate about its Central Bank. Here’s a start..

July 12, 2017

Prof Vishnu Padayachee of University of the Witwatersrand and Bradley Bordiss PhD candidate at the same University argue for a more sensible debate on their central bank – SARB. Just recently, the Public Proctor asked the central bank to have a broader role leading to a lot of noise.

They say there are 2 mon pol camps:

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20th anniversary of Start of Asian Crisis: Is China making the same mistakes?

July 12, 2017

Prof Barry Eichengreen points to several things South East Asian Countries have done since the 1997 crisis.

For starters, the crisis countries have ratcheted down their investment rates and growth expectations to sustainable levels. Asian governments still emphasize growth, but not at any cost.

Second, Southeast Asian countries now have more flexible exchange rates. None is perfectly flexible, to be sure, but the region’s governments have at least abandoned the rigid dollar pegs that were the source of such vulnerability in 1997.

Third, countries like Thailand that were running large external deficits, heightening their dependence on foreign finance, are now running surpluses. Running surpluses has helped them accumulate foreign-exchange reserves, which serve as a form of insurance.

Fourth, Asian countries are now working together to ring-fence the region. In 2000, in the wake of the crisis, they created the Chiang Mai Initiative, a regional network of financial credits and swaps. And now they have the Asian Infrastructure Investment Bank to regionalize the provision of development finance as well.

Ironically, the more things change the more they remain the same. In 1997, China was not a risk. This time it is as it seems to be following the same model followed by SE Asian countries 20 years ago:

(more…)


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