WMA declines to Rs 24184 cr

WMA for week ended 24 Jan 2020 declined from Rs 87735 cr to Rs 24184 cr.

The WMA is now within the limit of Rs 35,000 cr set for H2 2019-20.

The impact of the first professional police forces on crime

Anna Bindler and Randi Hjalmarsson research the impact of London Metropolitan Police on crime:

What do we know about the effectiveness of police in reducing crime almost 200 years later? Studying this relationship is difficult due to its simultaneous nature: policing affects crime and crime affects policing. To overcome identification problems, the contemporaneous literature often studies (mostly temporary) expansions to the size of an existing police force. Crime reductions were found in London (Draca et al. 2011) and Buenos Aires (Di Tella and Schargrosky 2004) following increased police deployment after terror attacks in both cities. Other studies have focused on spatial instead of temporal variation, originating from geographic boundaries, to evaluate the permanent effects of private policing (MacDonald et al. 2016, Heaton et al. 2016). Chalfin and McCrary (2017) find a general “consensus that increases in police manpower reduce crime”.

In our recent research (Bindler and Hjalmarsson 2019), we take this literature one step further to study the very beginnings of the relationship between police and crime. Did the introduction of professional and institutionalised police forces, first the London Metropolitan Police and later the county police forces in England and Wales, reduce crime? In contrast to the existing literature, studying the early days of policing allows us to evaluate the effect of the first (permanent) officers rather than the last (temporary) officers.

…It finds that when police forces were sufficiently large and well-regulated, they had a crime-reducing effect that, while not immediate, did persist over time.

 

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The money museum at Bank of Italy

Bank of Italy’s money museum was opened on the central bank’s 100th anniversary in 1993.

The museum has released a fascinating brochure on what is there in various rooms.

The oldest coin in the Museum, part of the Greco-Roman collection, is a silver stater issued in the name of Croesus, the last king of Lydia (561-546 B.C.), who created a bimetallic monetary system of gold and silver coins related by fixed value ratios, called croeseids.

Spreading rapidly throughout the ancient Greek world, metal coinage of real value quickly came to dominate international trade: the Athenian “owl”, the Aeginan “tortoise”, and the Corinthian “pegasus.

The central bankers who call themselves owls have a history backing them!

Podcast: The Rich History of Banking in India

After the first attempt at podcasts, trying to do a few more. Here is another one with Pavan Srinath who does weekly podcasts with Pragati.

In this podcast, we chat and discuss the sweeping history of banking in India from the indigenous banking to bank nationalisation in 1969 and 1980. We will continue the conversation post 1980 in the next episode.

 

Did education play a role in England’s industrial revolution?

Joel Mokyr, Assaf Sarid and Karine van der Beek in this superb econ history piece looks at relationship between human capital and industrial revolution.

So far the idea is that school system did not play a role in industrial revolution. Mokyr et al present an alternative evidence:

The consensus among economic historians has been that Britain’s leadership during the Industrial Revolution owed little to the school system. But recent work on human capital suggests that we should rethink this consensus on the role of human capital. This column shows how millwrights – highly skilled carpenters who specialised in constructing and repairing watermills – had a persistent effect on the mechanisation of textile- and iron-making and on the economic expansion that was taking place on the eve of the Industrial Revolution.

 

Inequality 101: INET lectures by Arjun Jayadev and Branco Milanovic

Profs. Arjun Jayadev and Branco Milanovic collaborate and we have interesting sets of lectures on inequality.

In this five-part lecture series from the Institute for New Economic Thinking, economists Arjun Jayadev (Azim Premji Univeristy) and Branko Milanovic (CUNY Graduate Center) break down what inequality is, how we measure it, why it exists, and how to address it.

In a seperate article, Arjun also shares his experiences as an economist and what the discipline has to offer for both faculties and students…

Vijay Kelkar Convocation Address at BHU: Three development paradigms of Indian economy

Vijay Kelkar gave the convocation address at BHU on 23 Dec 2019. The lecture is up on the NIPFP website:

Today I want to share with you my reflections on our country’s journey towards what our first Prime Minister Pandit Jawaharlal Nehru so eloquently expressed in his mid-night speech on 15th August 1947 as our “Tryst with Destiny.” To my mind, this “Tryst with Destiny” meant wiping out the curse of poverty from our land and make our nation a prosperous and liberal Republic and thus contribute handsomely our due share to the wellbeing of every nation and to the advancement of global peace.

He points to three development paradigms:

It is hard to even comprehend the India of 100 years ago, where our leaders like Gandhiji, and Nehru got going on building the freedom movement. It was an India of incredible backwardness. To give you one illustration of how things were, here is an astonishing fact: literacy in India in 1920 was 8%. Today we’re at about 75%. We know how bad it is, that 25% of India is illiterate. But can you even imagine an India where 92% is illiterate? That was the starting point, where our founding fathers had the nerve to challenge the British, and also ambitions to envisioning what a free India would look like. They wanted India to
aspire to be a great and prosperous Democratic Republic. The founding fathers of our republic drew their inspiration from our syncretic civilizational heritage as well as from the French Revolution, American Resolution and the Revolutionary Magna Carta and most importantly from the robust good sense of the people of India.

The Second Paradigm was developed by thinkers from the mid 1960s onwards. Critical elements of this were built by the Ph.D. Thesis of Manmohan Singh and many other thinkers such as Arun Shourie, Abid Hussain, Jagdish Bhagwati and T. N. Srinivasan. These thinkers were acutely aware of India rapidly falling behind other dynamic economies of East Asia. These countries achieved great success in exploring export opportunities. For accelerating growth and removal of poverty, our reformers argued in favour of trade liberalization, scaling back the license-permit-raid raj, a flexible exchange rate, and a greater role for the private sector and linking actively with the global economy. These ideas were put into practice, slowly, from 1977 onwards, with Morarji Desai as PM
and changed course in Indian economic policy, gradually and carefully. Trend growth rose from 1979 onwards.

Third paradigm needs to be discussed:

In India today, we are veering towards “the administrative state”, which essentially means the rule by officials who possess arbitrary power, and who creep into legislative and judicial functions. We need to push back against this. Laws must be drafted through negotiation in the legislature, and not by the joint secretary. We need a much better functioning judiciary. And the arbitrary power of officials needs to be replaced by a rule of law system with elaborate checks and balances, which give protections to private persons.

These are the key ideas that need to go into the Third Paradigm that our thinkers need now to construct. These are the requirements of India at our present state of development, where a middle income economy has emerged, where weaknesses of the state have created fear in the minds of private persons who have retreated into low investment and consequently to deceleration of productivity growth and national income. Addressing these problems will put us on the path of growth over next few decades and thus will become an advanced and high income economy.

The essential features of the First and the Second Paradigms are principles, and a conceptual framework. Once the framework is understood, there is the practical process of looking at the short term situation and taking practical actions. In similar fashion, the third wave or policy paradigm is about ideas and principles. The First Paradigm was developed through a process of debate from 1920 to 1947. The Second Paradigm was developed through a process of debate from 1964 to 1977 and then all the way to 1991. In similar fashion, we must embark on a long journey of ideas, to debate the elements of the Third Paradigm, and flesh it out from high ideas into a practical program of action. This is our task in India today.

Nice way to summarise Indian economy in a mere 6 pages!

NSE RH Patil Memorial Lecture 2019: Robert Engle, and the web of geopolitical and systemic risks

Prof Robert Engle gave the RH Patil Memorial Lecture 2019 organised by NSE on 26 Nov 2019. In 2018 it was Robert Merton which I reviewed in moneycontrol.

I have reviewed Prof Engle’s lecture as well in my recent moneycontrol column. Prof Engle spoke on measures for estimating geopolitical and systemic risks. Interesting stuff and the way he goes on to explain the complex ideas makes it even more interesting. Engle also thinks about solving real world problems and this makes him different from most other acad economics:

Academicians in economics are often attacked for not really focusing on the current economic problems. Engle clearly does not belong to the list and it’s interesting to see him address and answer questions from an audience which mainly comprised market participants.

Engle is an academic who thinks about new problems of financial markets. In a way, this lecture was a perfect tribute to Patil who also thought about similar problems affecting India’s financial markets, though he did it as a practitioner with an academic mind.

 

British aviation: Government versus industry after WWI

Matthew Powell, of Royal Air Force College in this piece analyses British aviation industry post WWI:

The British aircraft industry ended WWI in a healthy position, but the relatively small market meant the industry was still organised on cottage lines, with skilled artisans assembling airframes and engines one at a time by hand in small workshops. This column, part of the Vox debate on the economics of WWII, describes the unsuccessful attempts of government and aircraft firms to expand the industry in the 1920s, and how they helped guide rearmament when it began in earnest in 1936.

Threatening central bank independence one tweet at a time

Francesco Bianchi, Thilo Kind and Howard Kung in this voxeu piece:

President Trump has frequently attacked the Federal Reserve, but if the markets believe that the Fed is immune to political pressure, these tweets should not affect expectations about future monetary policy. This column argues that this is not the case. Tick-by-tick fed funds futures data around the time of Trump tweets criticising the conduct of monetary policy suggest that market participants do not believe the Fed is fully independent.

In another paper, Antoine Camous and Dmitry Matveev of Bank of Canada:

We illustrate how market data can be informative about the interactions between monetary and fiscal policy. Federal funds futures are private contracts that reflect investor’s expectations about monetary policy decisions. By relating price movements of these contracts with President Trump’s tweets on monetary policy, we explore how markets have perceived presidential attempts to influence monetary policy decisions. Overall, our results indicate markets expected the Federal Reserve to adjust monetary policy in the direction suggested by President Trump.

Twitter has emerged as such a threat for central banks…

It’s a wonderful life: A short history of building and loan associations

We all remember the movie It’s a Wonderful Life which is often used to explain Bank run. In the movie Bailey Brothers Building and Loan is a building and loan association.

David A. Price and John R. Walter document hstory of these loan associations in this Nice research (came in Jan-2019):

Prior to the advent of modern home mortgage markets in the United States, markets in which mortgage-backed securities and government-sponsored enterprises now play significant roles, prospective homebuyers had to rely on other mechanisms of home finance. For about a century, cooperative organizations known as building and loan associations, a concept imported from Britain, served millions of American savers and homebuyers.

Free Market or Socialism: Have Economists Really Anything to Say?

Andrea Attar and Thomas Mariotti of INET in this piece:

A central tenet of partisans of a free-market system is that it uniquely provides economic agents with the incentives that secure an optimal economic outcome. “I believe in markets,” “People respond to incentives” are among the mantras they repeat tirelessly. Sometimes they take a darker twist, as in the former EU budget commissioner Gunther Oettinger’s ominous “Markets will teach them.”

A recent, authoritative example of this view is the October 2018 report on the “Opportunity Cost of Socialism” published by the White House Council of Economic advisors. Just before recalling Margaret Thatcher’s definition of freedom, it states: “In assessing the effects of socialist policies, it is important to recognize that they provide little material incentive for production and innovation.”

But the die-hard advocates of free markets do not exclusively belong to politics or policy environments. They seem to have the solid guarantee of academic respectability. A prominent case is Gregory Mankiw’s Principles of Economics (1998), possibly now the most widely adopted and influential textbook in economics; a quick glance at the book’s introduction teaches one the ten “principles” of the economic discipline that define the relationship between incentive-driven individual decisions and the aggregate welfare generated by trade in competitive markets.

The present essay is an attempt at instilling some doubt about this view, while retaining the basic premises of its holders. We shall proceed in a mostly historiographical way, retracing some basic tenets of the otherwise complex theoretical elaborations of the notions of market efficiency and incentives. The picture that will eventually emerge turns out to be more nuanced, if not bleak.

Hmm..

Improving European economy: Draghi’s three Ps of mon policy, Summers’s three Ts of fiscal policy and Buti’s three Fs for structural reforms

Marco Buti of European Commission in this voxeu piece:

The current slowdown and lacklustre medium-term growth prospects also indicate that the fiscal, monetary and structural policy mix needs to be changed. As Mario Draghi stated in his speech in Sintra (2019), monetary policy needs to remain patient, persistent and prudent. Fiscal policy needs to fulfil the three Ts as identified first by Larry Summers (2008): timely to be effective, targeted by focusing on high multipliers expenditure and – possibly – temporary. While the jury is still out on the desirable fiscal trajectory in presence of ultra-low interest rates, there is little doubt that a long-lasting boost of public investment should be undertaken. One such example would be quality-investment to ease the environmental transition. Complementing Draghi’s three Ps for monetary policy and the three Ts from Summers, I propose three Fs for structural reforms: they should be feasible to be effective in the short term instead of aiming for unrealistic goals; forward-looking, for instance regarding environmental issues; and fair, by incorporating distributional concerns and moving away from the perception of reforms as ‘blood and tears’.

Joining the letters, they spell TFP, a fitting acronym to capture today’s economic and policy predicament in Europe.

Phew! This is all encompassing. Add these adjectives to Prof Sashi’s flowchart of reforms and you have a good template of putting every macro policy/reform under the sun..

Norway appoints a Monetary Policy and Financial Stability Committee

I have been arguing why RBI needs to have a different forum to discuss matters pertaining to fin stability. Currently, all discussions with media and public are mooted via MPC meeting which mainly looks at price stability. Central banks such as those of England and US have built seperate forums to discuss matters on finance.

Central Bank of Norway did not have  MPC as of now. Now they have gone ahead and established a Monetary Policy and Financial Stability Committee:

The Monetary Policy and Financial Stability Committee is appointed by the King in Council. The Committee consists of the Governor, the two Deputy Governors and two external members.

The new Central Bank Act entered into force on 1 January 2020. An updated description of the committee is in preparation.

The Committee is responsible for Norges Bank’s role as the executive and advisory monetary policy authority and is responsible for the use of policy instruments to attain the monetary policy objectives. The Committee shall contribute to the promotion of financial stability by providing advice and using the policy instruments at its disposal.

So they call it specifically as Monetary Policy and Financial Stability Committee (MPFSC). Even RBNZ started a MPC and gave it a specific function of financial stability.

The MPFSC recently took its first decision:

In Monetary Policy Report 4/19, which was published on 19 December 2019, the assessment was that the policy rate would most likely remain at 1.50 percent in the coming period. With an unchanged policy rate, there were prospects that inflation would remain close to the inflation target, and that capacity utilisation would decline towards a normal level.

The Committee’s assessment is that new information largely confirms the picture of the economic developments presented in the December Report. The risk of a sharp downturn in the global economy appears to have receded somewhat since autumn, but uncertainties surrounding global developments persist. Underlying inflation is close to the inflation target. Capacity utilisation in the Norwegian economy appears to be somewhat above a normal level, but new information supports the view that the economy is probably near a cyclical peak. The Committee’s assessment is that interest rate prospects for the coming period are little changed since the December Report.

“The Committee’s current assessment of the outlook and the balance of risks suggests that the policy rate will most likely remain at the present level in the coming period”, says Governor Øystein Olsen.

Will have to wait for more details on the MPFSC. Variants are emerging due to challenges posed by financial stability…

The next development challenge: go indigenous and not copy Western institutions….

Arvind Submramanian and Josh Felman in this Proj Synd piece:

What is clear is that solutions to the new growth and development challenges in emerging markets will have to be indigenous, rather than coming from Western institutions. Building and maintaining among national policymakers the sort of open, self-confident intellectual capacity that Gandhi espoused could well be the next development challenge.

Really? Given both worked at IMF where you pushed western institution ideology over indigenous ideas, it is quite something.

WMA borrowing increases to Rr 87735 cr..

In Yesterday’s WSS, The central government’s borrowing under WMA increased from Rs 60605 cr (10 Dec 2020) to Rs 87735 cr (17 Dec 2020).

This makes it three weeks in a row in the month of January where Central Government has resorted to using WMA window. The WMA limit for the period Oct 2019 to Mar 2020 was set at Rs 35,000 cr. On 3 Jan 2020, WMA borrowing was Rs 130171 cr and then declined to 60605 cr before rising again to Rs 877735 cr.

All this confirms further that there is high distress in government finances…

 

What explains rise of Jair Bolsonaro: Voting for Masculine stereotype?

Laura Barros and Manuel Santos Silva i(Univ of Gottingen) in this voxeu research:

Brazil plunged into economic crisis between 2014 and 2018, the year when far-right populist Jair Bolsonaro won the presidential election. This column, part of the Vox debate on populism, argues that Bolsonaro’s surprising victory is partially explained by the way the economic crisis interacted with prevailing gender norms. In regions where men experience larger employment losses, there is an increase in the share of votes for Bolsonaro. In contrast, in regions where women experience larger losses, his vote share is relatively lower. This may be explained by men feeling more compelled to vote for a figure that embodies masculine stereotypes as a way of compensating for a decline in economic and social status.

Phew!

Central bankers in climate change policy teams: Good or bad?

My new piece in Moneycontrol.

This one reflects on the recent appointment of Mark Carney as adviser to Prime Minster on Climate change.

Tomb Economics

Alex Tabarrok in this blogpost wonders why Mughals built so many tombs:

The Mughals of Northern India are famous for their tombs, Humayun’s tomb in Delhi, Jahangir’s Tomb in Lahore and, of course, the Taj Mahal. Why so many tombs? Culture surely has something to do with it, although conservative Muslims tend to frown on tombs and ancestor worship as interference with the communication between man and God. Incentives are another reason.

Under the Mansabdari system which governed the nobility, the Mughal Emperor didn’t give perpetual grants of land. On death, all land that had been granted to the noble reverted back to the Emperor, effectively a 100% estate tax. In other words, land titling for the Mughal nobility was not hereditary. Since land could not be handed down to the next generation, there was very little incentive for the Mughal nobility to build palaces or the kind of ancestral homes that are common in Europe.

The one exception to the rule, however, was for tombs. Tombs would not revert back to the Emperor. Hence the many Mughal tombs.

Interesting. Have no idea on this. Do people have other ideas?

 

Robert C. Merton and the Science of Finance

Zvi Bodie, Professor Emeritus, Boston University pays tribute to Prof Merton’s work:

In my view, no individual has contributed more to the beneficial relationship between finance theory and practice than Robert C. Merton. Today, he still teaches at MIT and often lectures around the world. Not only has “The Mertonian Revolution in Finance” helped shape modern finance, it has also provided
us with insights, theories, and models for our collective future. The title of one of Merton’s recent lectures to an audience in China describes his central theme: “Solving Global Challenges Using Finance Science.”To that I say, amen! 

My earlier piece on Prof Merton’s new project on designing financial solutions for retirement..