Archive for March 14th, 2019

James Watt: The 18th-Century Scotsman Who Became a Hero of Human Progress

March 14, 2019

Brilliant article by Alex Hammond on James Watt.

This one takes the key:

Watt’s first profitable dual-cylinder steam engine entered the market on March 8, 1776, a day before Adam Smith’s Wealth of Nations was first published. Little did the two Scotsmen know that they were about to change the world forever.

Hammond runs a series of people who have made an extraordinary contribution to the wellbeing of humanity. Watt is 13th in the series:

Today marks the 13th installment in a series of articles by titled Heroes of Progress. This bi-weekly column provides a short introduction to heroes who have made an extraordinary contribution to the wellbeing of humanity. You can find the 12th part of this series here.

Our 13th Hero of Progress is James Watt, the 18th-century Scottish engineer and inventor who enhanced the design of the steam engine. Watt’s steam engine made energy supply more efficient and reliable than ever before. It was fundamental to kick-starting the Industrial Revolution.


11 March 1935: First official Canada banknotes were issued

March 14, 2019

Nice bit on monetary history of Canada.


Time to look at kidney markets in India?

March 14, 2019

The frequency with which kidney (or organ) scams have been emerging in India is alarming. It started with the infamous Gurgaon scam in 2008 wherein a Gurgaon-based doctor was caught in a kidney transplant racket. During that time, a loophole in Transplant of Human Organs Act (1994) led to the scam. The Act only allowed “near relatives” (parents, children, brother, sister and spouse) to donate organs and prohibiting commercial transactions. However, a donor could donate his organs before his death to any person (i.e., not his relative) “by reason of affection or attachment towards the recipient or for any other special reasons.” This legalese can lead to all kinds of interpretations and possible scams.

I had written about the issue in the newly printed Mint newspaper in 2008. It was also special as it was my debut piece for any newspaper.

I had highlighted the work of Prof Alvin Roth in the article. In his work, Prof Roth highlights how we do not think of markets and economics when it comes to repugnance goods such as human organs, horse meat and so on. The laws against buying or selling kidneys reflect a reasonably widespread repugnance, making it difficult for arguments that focus only on the gains from trade to help in changing these laws. Apart from repugnance there are also issues of morality as highlighted by Prof Michael Sendel of Harvard University.

Roth advocates not just the need to get over repugnance but also designing commercial markets for kidney donation. As it was difficult to move towards a commercial market right away, he suggested a swap exchange and chains in case of mismatch between several pairs via algorithms. This eased the congestion in the demand and supply for kidneys. The Indian government also allowed for two-pair exchange as shown above, perhaps inspired by Roth.

Since then, Prof Roth has become the recipient of the Nobel Prize in economics in 2012 (jointly with Prof Lloyd Shapley) “for the theory of stable allocations and the practice of market design”.

We have also made changes in the Organs Act with two amendments in 2011 and 2014.

In 2011, “near relative” was expanded to include grandparents and grandchildren. The bill permitted a pair of donor and recipient who are near relatives but whose organs do not medically match for transplantation to swap organs with another pair of such persons. It was decided to maintain a national registry of donors.

In 2014, a transplant was allowed even if the two parties were not ‘near relatives’ with a condition. There will be an Authorisation Committee which shall evaluate and confirm absence of commercial transaction between the recipient and the donor. Technology was brought in with display of donors and recipients to be displayed on the notice board within 24 hours of grant of permission or rejection of transplant. Every transplant centre should have a website inter-linked with other centres for sharing information.

However, none of these measures have been enough. The scams keep emerging fairly frequently. The recent scam which broke out in Kanpur shows not just deep inter-state linkages but even foreign ones with people tricked on both sides of demand and supply. Even more worrisome is that masterminds of 2016 scam are believed to be behind this scam as well, while being on a bail!

Perhaps, it is time to revisit ideas of Prof Roth.

Interestingly, Iran is the only country which allows for such a market. Prof Farshad Fatemi of Sharif University of Technology explains functioning of Iran’s kidney market ( The political troubles in 1980s along with economic sanctions led to lack of funds. There was scarcity in dialysis equipment which encouraged nephrologists to perform kidney transplants. The huge demand and supply mismatch forced the authorities to establish a regulated market for living unrelated donations. Under this, the donor receives a monetary compensation from the recipient and enjoys additional monetary and non-monetary bonuses from the government. Fatemi even points to lessons from behavioural economics to improve donations. We could nudge countries to shift from an opt-in system to an opt-out system. Spain follows an opt-out system and has highest rates of cadaveric donations in Europe.

Recent research by Julio Elias, Nicola Lacetera and Mario Macis shows that people are willing to trade-off deep dislike for higher efficiency. The topic has gained a lot of traction recently as the Institute of New Thinking has a series of videos with top thinkers discussing the several issues:

So, should we have a market for kidneys in India? Some observers might point that we are already moving towards a market. We have moved from only ‘near relatives’ to ‘non-relatives’ provided there is a ‘visible hand of the committee’ which confirms there is no commerce involved between the two parties.  Even the idea of displaying the decision within 24 hours is nothing but an attempt to move towards transparency.

The next step could be a move to a more ‘invisible hand’ approach where more markets than committees can decide the transplant.

But for this, we first need to think about the repugnance and morality which come with the very idea of this market and is an equally important topic.  A market driven approach could also lead to inequality as only those with higher incomes will be recipients and those in sheer poverty will be the most likely donors.

Challenges of plenty actually.


How Singapore manages its forex reserves?

March 14, 2019

Ravi Menon, head of Monetary Authority of Singapore in this nice speech:

Singapore has official foreign reserves (OFR) of almost US$300 billion. 

  • In absolute terms, this is the eleventh highest stock of OFR in the world. 
  • As a percentage of GDP and on a per capita basis, it is the third highest in the world.
  • Singapore’s OFR sit on the balance sheet of the Monetary Authority of Singapore (MAS), the central bank and integrated financial regulator.

Besides the OFR, there are two other pots of national reserves in Singapore:

  • The Government of Singapore Investment Corporation (GIC), a fund management company, manages on behalf of the Singapore Government a diverse portfolio of foreign assets – well in excess of US$100 billion.
  • Temasek Holdings, an investment company wholly owned by the Singapore Government, holds equity stakes in a variety of domestic and foreign corporates, amounting to more than US$200 billion.

This morning, let me try to answer three questions:

  • What role do the reserves play?
  • How are the reserves accumulated and managed?
  • How are the OFR managed?


Historically, GDP Growth has been Higher than the Interest Rate

March 14, 2019

Olivier Blanchard points to this chart from his new paper:

Historically, GDP Growth has been Higher than the Interest Rate
In his presidential address entitled “Public Debt and Low Interest Rates” at the annual American Economic Association, Olivier Blanchard said that public debt was not as inherently undesirable as many analysts say. In the current era of low interest rates, when GDP growth rates are higher than the interest rate on safe assets, limited deficits and debt may allow governments to expand investment and improve social welfare without producing an undue fiscal burden. This chart shows that for the United States, nominal GDP growth at a rate higher than the interest rate on risk-free assets has been the norm.


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