Archive for October 9th, 2017

I will spend it irrationally!

October 9, 2017

Talk about wit and Richard Thaler definitely has it. He as is widely known by now is the recipient of the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2017. He was asked that how would he spend the Prize money and he nicely said” I will spend it irrationally!” This article on how he came about doing behavioral work is interesting.

It is not a prize gives as per Alfred Nobel wishes as is still presumed by many. Infact the prize came as a result of the tiff between the central bank and the government over policy decisions.

This blog was initially excited by these prizes but not anymore. One has realised the follies of the Economics Prize and is not at all in the league of the other Prizes in Sciences. Infact it has made the entire subject suffer from even more hubris and arrogance.

But to see the 2017 Prize being given to Richard Thaler does bring a smile. After all, he is one of the few who has questioned this edifice of economics built so strongly on neoclassical economics. This blog has for long been a fan of behavioral economics as it provides an alternate way of thinking. It is something which one sees more often around us with people being so predictably irrational. The rationality model as is often taught and on which much of economics is built, is hardly there to see.

Likes of Thaler have been advocating Nudging units which will try and tilt policy to a more favored outcome. The idea is people are anyways being nudged into making choices so why not nudge them into the right choice? Some countries have set up their units as well (like in UK) and doing fair bit of research on these matters.

But then taken to an extreme this could be behavioral economics undoing as well. As the question is who decides what is the right choice? We are back to full circle debate between government fiat and private choices. The debate between libertarians and libertarian paternalism is far from settled.

The beauty of behavioral economics was pointing to this unpredictable human being and its irrational ways. At some level we have to accept it and let people learn from mistakes. Too much tinkering with this behavior could lead to all kinds of unintended consequences and put us under similar predicament as in a neoclassical framework.

As behavioral economics continues to become popular and more so post this prize, it has to guard itself against this very popularity.

Having said all this, will behavioral approach become part of economics curriculum? The Prizes in 2002 and 2013 for behavioral work have not been able to change the curriculum. It remains to be seen whether 2017 will make some impact. We surely need plurality in economic thinking and introducing behavioral economics should have already been done. It beats you why it remains an elective in most colleges. One obvious problem is there are not many professors around who can teach the subject.

Now this becomes a chicken and egg problem. How do we teach when we do not have enough professors? We need some rational solution towards this irrational problem…:-)

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Political economy of Central bank appointments: A case from Riksbank (Sweden)…

October 9, 2017

The constitution of Central Banks never ceases to amaze me. It is really interesting how these central banks are organised and governed. And as expected, this is the least studied aspect of central banking which is as important (if not more important) as monetary policy. One is seeing how politicians and political economy factors  are shaping central bank appointments, firings and so on across the world. Needless to say these appointments and pressure around them is behind most monetary policy decisions as well.

For instance, one just read about the reappointment of Stefan Ingves as chief of the central bank, He has already served two 6 year terms (12 years in total) and has got another 5 year term. As per law, the term should be for 6 years and the lawmakers should have given him one. But given he is in his mid 60s they gave him just a 4 year term.

However, what was more interesting was the candidates in fray. There was Karolina Ekholm who earlier served as Deputy Governor from 2009-14 and then left midway to join as Secretary of the political party: Social Democrats. In 2104 elections, The Social Democrats formed an alliance to form the government.

Now Riskbank has this Board which is called General Council and it is appointed by the government after every elections. Most of them are politicians:

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Is the Marathi vs Gujarati narrative relevant to the bullet train project?

October 9, 2017

Interesting piece by Abhiram Ghadyalpatil in Mint:

In opposing the Mumbai-Ahmedabad bullet train project, Maharashtra’s nativist parties Shiv Sena and Maharashtra Navnirman Sena (MNS) have sought to play on the age-old Mumbai-Gujarat fault line. But does the fault line still exist? And does the issue of Marathi identity have the political resonance it did more than five decades back?

One of Shiv Sena’s emotional rallying points since its founding in 1966 has been the invocation of the Marathi identity for political mobilization. Shiv Sena founder Balasaheb Thackeray’s father Keshav Thackeray, popularly known as Prabodhankar Thackeray, was a leader of the movement to claim Mumbai (then Bombay) as the capital of Maharashtra in the late 50s after a violent agitation in which 105 people died. The Sena and its offshoot MNS have politically kept alive the memory of these “martyrs”. The rival Thackeray cousins—Uddhav and Raj— have been questioning the bullet train project ever since it was announced in February 2016 by then railway minister Suresh Prabhu. After the 29 September stampede at Elphinstone station which killed 23 commuters, they have sharpened their attack and linked it to the Marathi vs Gujarati narrative. An important fact both seem to be exploiting is that the Bharatiya Janata Party (BJP) is controlled by two Gujaratis—Prime Minister Narendra Modi and BJP president Amit Shah.

More details in the piece with some experts saying fault-line may not be as big but still matters and others diasgreeing with the idea.

India’s political economy remains ever interesting. How these deep historic cleavages are used by politicians as in instrument for political gains…

Zimbabwe’s several currencies: Dollars, Bollars and Zollars…

October 9, 2017

The ever alert JP Koning points to this Reuters article.

Zimbabwe has three types of currencies running as of now. There is Dollar (normal paper note), Zollar (Dollars stored in bank accounts) and Bollars (Bond notes  backed by a reserve). None seem to be working!:

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A serious crisis of decency, decorum, discipline and dignity from India’s public space

October 9, 2017

Anantha Nageshwaran wrote this piece in 2012 titled: ‘A Purposeless Nation’.

In 2017 he revisits it again.  He says:

I felt sad writing it and I feel sad now recollecting it.

In the 2012 piece he said:

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