Teaching the Real Adam Smith lessons: He was hardly the poster boy for free-market economics..

Paul Sagar chips in on the burning question on Adam Smith: Did Adam Smith really preach free market economics as we understand the term:

If you’ve heard of one economist, it’s likely to be Adam Smith. He’s the best-known of all economists, and is typically hailed as the founding father of the dismal science itself.

Furthermore, he’s usually portrayed as not only an early champion of economic theory, but of the superiority of markets over government planning. In other words, Smith is now known both as the founder of economics, and as an ideologue for the political Right.

Yet, despite being widely believed, both these claims are at best misleading, and at worst outright false.

Further:

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Brisbane airport announces it will now accept bitcoin

All kinds of things are happening in bitcoin space. We are seeing lots of bans/cautions by government authorities and approval by some others.

Now, Brisbane Airport has said it will accept bitcoin:

Tokyo professor helps to digitalise diaries of ‘pioneer of Coimbatore history’….

Interesting bit of news.

‘Kovai Kizhar’ C M Ramachandran was a man who wore many hats. He was a writer, educationist, institution builder, teacher and a social worker. These aspects of him have been studied to an extent, but his another facet is still largely unknown. He was a diarist too.

Kizhar, who was born in 1888, had documented his daily life in the early 20th century in around 30 volumes of handwritten journals. These volumes, which are kept in the library of Thavathiru Santhalinga Adigalar Arts, Science and Tamil College, Perur, are now being digitised, thanks to Tsukasa Mizushima, professor of the department of the orient history, University of Tokyo.

Mizushima has been working on the socio-economic history of India from 18th century onwards to today. He has now taken up a project to study the historical changes in three cities in Tamil Nadu – Chennai, Kanchipuram and Coimbatore – in the last two centuries.

When almost a month ago, Mizushima had been searching for historical records of Coimbatore, Y Subbarayalu, an associated researcher at the French Institute of Pondicherry informed him about Kovai Kizhar’s writings.

“I suggested that he take a look at the diaries of Kovai Kizhar,” said Subbarayalu. “Not many had written diaries in the last century, so we thought we might find something useful in them,” added Subburayalu, who said he has known Mizushima for the past 30 years. Mizushima visited the college’s library on January 9 and arranged for the diaries to be scanned and digitised. Subbarayalu said they expect to complete the work in two months.

Thanks Mizushima..

Pakistan just becoming a nation of traders…

Umair Jawed in Dawn writes on how Pakistan is slipping into premature deindustrialisation and becoming a country of traders:

The private and public benefits of a new tram line in Florence

Nice Paper by Bank of Italy researchers:

Urban agglomerations, displaying the highest levels of productivity and growth, pose severe congestion problems. This issue can be mitigated by the construction of transport facilities enabling a higher centre-suburbs permeability. The returns from these infrastructures are, however, the subject of debate, especially in cities that have major artistic and urbanistic constraints. The purpose of this paper is to estimate the private and public benefits of a new tram line recently built in Florence. We apply the synthetic control method to metropolitan micro-zones in order to estimate the impact of the tram line on house prices in the suburbs located close to the stops. We also estimate a hedonic pricing model on individual bids downloaded from a popular real estate agency. The results, which are consistent for the two approaches, demonstrate that houses located close to the new tram network have registered a price increase of €200 to €300 per square meter, 7-10 per cent of the total value. The study also confirms the presence of public benefits related to the facility, in terms of accident reduction and improved air quality.

Bank of Canada is not just central bank for 2018 but for all ages…

Centralbanking.com which has become the goto website for anything on central banks, released its award list for 2018. It is more like a please all list with several awards. One could have had fewer categories.

The central bank of the year is Bank of Canada. The award citation pays a good tribute to the central bank:

The cloning of India’s Public Sector Banks

Prof. Krishnamurthy Subramanian of Indian School of Business writes on how India’s PSBs are so similar to each other:

The speed of British ships improved during the early Industrial Revolution…

Fascinating research by Morgan Kelly and Cormac Ó Gráda.

The research says two things. One, the steamships did increase their speeds overtime against the conventional view. Two, the impact of industrial revolution was not limited to cotton, iron, cotton etc. It was more broad based and extended to printing, machine tools, water power and shipping as well:

When Central bank MPC cannot vote due to shortage of members: Case of Nigeria..

Came across this news over the long weekend which was really surprising. It said Central Bank of Nigeria was unable to hold a MPC meeting as there were not enough members as per the quorum.

Here is the press release of the Central Bank. The MPC constitutes of 12 members!

How Chinese are gradually gaining presence in Pakistan financial system…

I had just pointed how Pakistan has allowed Yuan for denominating foreign exchange transactions.

This speech by Pakistan Central Bank chief given in Nov-2017 shows how Chinese are gradually gaining presence in Pakistan financial system. The speech was on occasion of Bank of China opening its Pakistan operations:

Visiting the Bhutto Mausoleum: striking resemblance to Taj Mahal..

Interesting and damning piece by F.S. Aijazuddin. He points to the dead Bhuttos buried in a shining white mausoleum in Garhi Khuda Bakhsh. 

Evolution of Monetary and Exchange Rate Policy in Sri Lanka and the Way Forward

Nice speech by  Dr P Nandalal Weerasinghe, Senior Deputy Governor of the Central Bank of Sri Lanka. It discusses the history and evolution of monetary policy in Sri Lanka. Their central bank came up in 1950, 15 years after RBI:

How French are pushing to make Paris an international financial centre at cost of London…

Interesting speech by Mr François Villeroy de Galhau, Governor of the Bank of France.

The title of the speech is: New Year wishes to the Paris financial centre. This clearly signals how the central bank is pushing to making Paris a Financial centre post Brexit and relocation of EBA to Paris.

He highlights four wishes for the New year. The third is with respect to shaping Paris as a financial centre:

My third wish is for financing. Often, the Governor of the Banque de France encourages banks to lend more; this is not the case at present! Bank lending in France is very buoyant. Bank lending to households and firms is growing at almost 6% per year. This is good news, but we must avoid excesses. There are thus several efforts to be made in 2018 to ensure the smooth financing of our economy:

• Remain vigilant to ensure financial stability, first and foremost. At last December’s meeting of the Haut Conseil de Stabilité Financière (HCSF – High Council for Financial Stability), we decided to take a macroprudential measure to limit the sharp rise in the debt of certain large companies, including bond debt. It will apply as of 1 July after approval by the European authorities. If credit cycle risks persist – i.e. growth that is significantly higher than that justified by economic fundamentals – we stand ready to act further at any time in 2018, including if necessary by implementing a countercyclical capital buffer.
• Promoting the attractiveness of the Paris financial centre in the context of Brexit, second: irrespective of the possible transition, the City will most likely lose its EU passporting rights. The Paris financial centre must continue to develop, notably in the area of the clearing of financial instruments, and promote its numerous qualities, enhanced by the arrival of the EBA, in order to become the main euro area centre for market activities. This is our collective challenge, over and above announcements of welcoming registered head offices.
• Lastly, better channelling our savings. Overall, the French economy has no lack of financing, thanks also to the soundness of its financial institutions. Our challenge concerns more the nature of this financing: developing equity financing more than debt financing. Flat tax is a welcome step towards a greater tax neutrality between the different forms of investment. I have already stated this, insurers must create new tailored products, in the area of life insurance, which are less liquid but allow savers to benefit from the higher returns offered by equities in the long term, with a form of capital protection. The PACTE law on growing and transforming companies, presented by the Minister of the Economy, could provide an opportunity. Banks are also considering offering a new long-term savings product: I understand this point of view, provided that the aim isn’t to create a new tax loophole; we have had enough of this great French speciality.

He clearly mentions that one has to look beyond announcement of registered head-0ffices to things more concrete that shape financial centres. It will be really interesting to track whether and how Paris becomes a respected centre in arena of global financial services.

Should Swiss issue sovereign money, digital money?

Trust Swiss to keep coming up with some or the other referendums.

Thomas Jordan, chief of Swiss National Bank in a recent speech mentions this ongoing discussion in Switzerland on SNB issuing sovereign money. We thought all money circulated by governments/central bank is sovereign but some Swiss think otherwise:

When bank deregulation is dangerous if not done properly…

The usual narrative is that when you deregulate banking, crisis follows as banks take on more risks, lend/invest foolishly and so on.

Prof George Selgin says deregulation is dangerous not for the above reason but if not implemented properly:

When handwriting mattered in central banking jobs than economic modelling!

Fascinating tweet from Bank of England Museum.

It points to archival record of handwriting test for job at the central bank in 1906. During those days clerks were tested for handwriting skills! Also note people kept drawing accounts with the central bank:

How blockchain is strengthening tuna traceability to combat illegal fishing?

Candice Visser and Quentin Hanich of University of Wollongong have a piece:

Soiled Rs 2,000 and new Rs 500 notes cannot be exchanged as rules have not been revised…

There is so much to monetary economics than just interest rate cuts. Infact, central bank’s currency management which touches lives of almost all people, is so important to understand. There are multiple laws which have been framed to make this function requiring understanding of monetary laws of the country.

For instance, this news points how people cannot exchange soiled notes of Rs 2000 and new Rs 500 denominations. Why? As the rules have not been updated since demonetisation:

Every Indian currency note prominently bears a promissary message from the Reserve Bank of India Governor, which states: “I promise to pay the bearer the sum of (the respective currency denomination value).”

The spirit of that promise extends to the exchange of soiled notes as well. The Reserve Bank of India Act, 1934 (2 of 1934) stipulates that the exchange of soiled notes is a “duty that the banking system as a whole owes to the public.”

But in what is being seen as a violation of that promissory clause, the RBI is not honouring its promise of the exchange of soiled notes of ₹2,000 and ₹500 denomination even 14 months after they were introduced in November 2016 in the wake of the demonetisation initiative.

The RBI has not framed the Note Refund Rules (NRR) for the new currency notes till date under the Reserve Bank of India (Note Refund) Rules, 2009, which were updated in July 2016, months prior to the demonetisation in November 2016.

There is a seperate rulebook called  “Reserve Bank of India (Note Refund) Rules, 2009” which lays the rules for soiled/torn note exchange. It says:

A. Provisions in the Reserve Bank of India Act, 1934:

Section 28: Notwithstanding anything contained in any enactment or rule of law to the contrary, no person shall of right be entitled to recover from the Central Government or the Bank, the value of any lost, stolen, mutilated or imperfect currency note, provided that the Bank may, with the previous sanction of the Central Government, prescribe the circumstances in and the conditions and limitations subject to which the value of such currency notes or bank notes may be refunded as of grace and the rules made under this proviso shall be laid on the table of Parliament.

Section 58(1): The Central Board may, with the previous sanction of the Central Government, by notification in the Official Gazette, make regulations consistent with this Act to provide for all matters for which provision is necessary or convenient for the purpose of giving effect to the provisions of this Act.

Section 58 (2): In particular and without prejudice to the generality of the foregoing provisions, such regulations may provide for all or any of the following matters, viz.-

(a) ……….
(b) ……….
(c) ……….
……………..
(q) the circumstances in which, and the conditions and limitations subject to which the value of any lost, stolen, mutilated or imperfect currency note of the Government of India or bank note may be refunded.

B. Note Refund Rules

In exercise of the powers conferred by the proviso to section 28, read with clause (q) of the sub-section (1) and (2) of section 58, of the Reserve Bank of India Act, 1934 (2 of 1934) and in supersession of the Reserve Bank of India (Notes Refund) Rules, 1975, except as respect things done or omitted to be done before such supersession, the Central Board with the previous sanction of the Central Government, hereby makes the following rules for specifying the circumstances in, and the conditions and limitations subject to which, the value of lost, stolen, mutilated or imperfect note may be refunded as a matter of grace…..

It has definitions of different types of spoiled notes:

(f) ‘;imperfect note’; means any note, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated note;

(g) ‘;mutilated note’; means a note of which a portion is missing or which is composed of more than two pieces;

(k) ‘;soiled note:’; means a note which, has become dirty due to usage and also includes a two piece note pasted together wherein both the pieces presented belong to the same note, and form the entire note.

Then there is discussion on what notes can be exchanged and under what conditions. For instance, imperfect notes will be paid in full. Mutiated notes, the conditions are different for notes in denomination of Rs 1 to Rs 20 and Rs 50 to Rs 1000. It  is actually ironic that the old Rs 500 and Rs 1000 notes have demonetised but we still have rules for their exchange. Read the Rules for more details.

So much to learn and figure..

 

 

The Evolution of the Election Commission of India: Political Context and Institutional Design

Nice paper by Ms. Rashmi Sharma, former IAS officer. We hardly know much about the institution which has played the central role in keeping democracy work in the country:

This paper traces the evolution of the Election Commission of India through five phases since its formation. Its effectiveness is studied across four parameters—inclusiveness, rule of law, efficiency, and accountability of the election process. Within the changing sociopolitical and legal context, the institutional characteristics of the ECI (role, powers, independence, structure, and functioning) have allowed it to ensure free and fair elections with varying success. Variations in the ECI’s success during the five phases offer clues as to how it can address more complex problems, and the direction to take in structuring and supporting other apex oversight institutions.

 

Rethinking undergraduate economics education…

Profs Rahul De and Alex Thomas write in EPW on the topic.

They say that the focus on changing economics education (if at all) is on post-graduate levels. But the foundations are laid at undergraduate levels and that needs some attention too:

Worldwide, a concerted and systematic criticism of the way economics is taught began after the onslaught of the 2007 global financial crisis. In India, postgraduate economics education has received more attention than its undergraduate counterpart. After identifying some structural constraints of undergraduate education in India, a set of curricular and pedagogic recommendations to improve undergraduate economics education is explored.

An undergraduate program needs wider skills:

Undergraduate economics degrees have been oriented towards giving students skills to enter the job market and preparing them to undertake a postgraduate degree in the discipline. Therefore, the foundational economics courses in an undergraduate degree deal with microeconomics, macroeconomics, and quantitative economics. Most of the content in these courses falls within the neoclassical (or more accurately, marginalist) tradition in economics.

We believe that economics curriculum should become pluralist by including the teaching of schools of thought which fall outside the neoclassical cannon (Thomas 2016). Such a curriculum will enable students to engage more deeply with the fundamental questions and debates posed in the discipline and will demonstrate to the student that no single theory can fully explain a socio-economic phenomenon.

In most economics curricula, important concepts such as capitalism, development, and economic growth are taught without sufficiently incorporating the historical forces such as colonialism, wars, authoritarian rule, and crises that influence them. The contents of the foundational microeconomics and macroeconomics courses often ignore the historical processes and structural tendencies which shape the economy. Thus, there is an urgent need to reintroduce economic history in the economics curriculum in order to explain how colonialism, technological change, capitalism, and shifting sociopolitical dynamics created the modern economy.

Importantly, economics is mostly taught as a body of knowledge that has progressed linearly and without internal conflicts. There is an urgent need to include a course on the history of economic thought that will enable students to understand the major debates and developments that the discipline has gone through and the different trajectories that came out of it. This has the pedagogic value of inculcating a deep understanding about the discipline, the political contexts in which it evolved, and a nuanced appreciation of the inherent gaps and biases in the discipline.

The ability to understand and analyse data is a basic requirement for an economist. The process involves collecting, programming, visualising and analysing data. Currently, many undergraduate programmes treat data analysis as a separate course much like mathematical economics. To enable students to attain data proficiency, data analysis needs to be incorporated within their economic courses. For example, a course on the Indian economy can have a component on analysing trends in sectoral growth and consumption data over time, or a development course can be used to collect data from a local community.

We need better textbooks:

Foundational courses in economics are often taught through textbooks written by foreign authors (the notable ones being Mankiw, Varian, and Dornbusch and Fischer). Our students find the examples, case studies, and data used difficult to relate with and therefore it negatively affects their learning. There is an urgent need for “Indian” textbooks with examples and data from India. Moreover, relevant concepts such as informal labour and dual economy should be taught because they help us make sense of our surroundings. A structured engagement with the real economy through fieldwork assignments in their courses will prove beneficial. For example, when studying market competition, a teacher can send students to observe the dynamics of local vegetable markets and the teacher can discuss pricing strategies between Ola and Uber when teaching them oligopolistic competition.

We have textbooks written by Indian authors but they are hardly recommended. Both Professors and students have ivy-league

More focus on writing and less on math. It is amazing how all courses in economics come with the question: How good you are at math? So much so, that all that is needed is math skills and nothing else matters:

Writing plays an important role in the work of a professional economist—in both academia and the industry. Therefore, it is important to inculcate good writing habits in students through curricular means. Writing should be instituted as one of the learning objectives in all the economics courses. Students should be trained to write well—have a good structure and be able to make a convincing argument. It may be a useful exercise to get the students to read different kinds of economics writing and to identify their respective strengths and weaknesses. This will help students improve their writing skills.

Writing should also be made an integral part of the assessment structure. Assessments should be structured such that students have to explain graphs, diagrams, derivations, and calculations. Economics assessment should not be restricted to objective questions, because articulation, argumentation, and explanation are important skills required by an economist; these can be tested only by asking them to write essay-length answers.

Economics students need to be prepared to handle the quantitative component of the discipline. However, students in India come from diverse schooling systems and preparedness in mathematics. Some institutions tend to prescribe a minimum required marks in Class 12 mathematics for entering economics programmes; the logic for this is that good mathematical abilities imply good economics ability. Nothing could be farther from the truth. Keynes famously wrote about how Max Planck, the famous physicist, found it difficult to study economics. However, reducing the ability to do economics to mathematical ability can result in the exclusion of students with other academic strengths from economics programmes. The student’s interest in economic affairs and the ability to analyse the contemporary economy is perhaps a better indicator of their interest and ability. More importantly, economic programmes have institutional mechanisms to support students with a weak quantitative ability; this can be achieved through tutorial or remedial classes and/or by offering courses in basic mathematics and statistics.

Economics talks much about reform. It needs to reform itself first:

In summary, there is a strong mandate to rethink undergraduate economics education in India. Priority should be given to: understanding the learning transition students undergo from school to college, the provision of institutional support for students from diverse learning backgrounds, the organisation of workshops and forums to improve teachers capacity, and the creation of textbooks and resources (in both English and regional languages) to meet the contemporary needs of Indian students.

Colleges must have a say in curricular decisions. These decisions can neither be arbitrary nor casual; they must be founded on a transparent set of educational aims. We hope that the issues we presented in this article motivate similar conversations in the coming months and years. Such issues are critical and urgent because of the increasing inability of economics to understand and explain contemporary Indian realities.

One is hearing Azim Premji University (the authors are from this university) has taken steps and designed  their curriculum at undergrad level differently from others. Time will tell its impact on students and their learning.