Archive for July 26th, 2021

30 years of India’s economics reforms: Mercatus Centre starts ‘The 1991 Project’

July 26, 2021

Mercatus Centre at George Mason University has started ‘The 1991 Project‘, on the 30 years of India’s reforms:

On July 24, 1991, amid economic crisis and political turmoil, a budget speech changed the course of Indian history.

After decades of socialist planning, India’s finance minister Manmohan Singh announced the country would embrace markets. It was a change that would lift a quarter of a billion people out of poverty in the decades that followed, and leave no part of Indians’ lives untouched.

Yet three-fifths of all Indians have been born since 1991. Having not experienced the crisis, nor the socialist regime that preceded it, they are unfamiliar with the dramatic impact of the 1991 liberalization and the lessons it holds for India’s future. On its 30th anniversary, we seek to revive the ideas and policies that can continue to foster economic growth in India.

Shruti Rajagopalan in the lead essay gives her perspective on the importance of reforms. In the end, she describes ‘The1991Project’:

The 1991 Project is an effort to kickstart a discourse on economic growth-centered reforms in India by focusing on economic ideas. In the coming months, our team will publish essays, data visualizations, oral histories, podcasts, and policy papers demystifying the Indian economy.

The project hopes to raise and answer many questions. Why does economic growth matter? How did socialist planning impoverish India? If socialism was so bad, why did India adopt it as an economic model? How did India switch from a command-and-control to a market economy? What is the political economy of institutional persistence and change? How can India achieve high rates of economic growth once again?

We, the contributors to the 1991 project, will discuss the Indian economy and life under socialism and after liberalization. We will cover the salient economic ideas over the past century and their impact on Indian policy. We will tell the stories of the madmen, and academic scribblers, and intellectuals, and technocrats who reformed India. We will discuss the way forward for India to strengthen institutions that can support a market economy. And most importantly, we will discuss policies that can enable economic growth.


Myths and Landmarks in US Business and Economic History

July 26, 2021

Eco historian Richard Vague has written a new book titled The Illustrated Business History of the United States.

Vague discusses the book in this INET podcast with Rob Johnson.  There is a transcript of the podcast as well.  He says one big myth in US business history is that companies grew in a free market/laissez faire manner:


Macroprudential Limits on Mortgage Products: The Australian Experience

July 26, 2021

Nicholas Garvin, Alex Kearney and Corrine Rosé in this RBA paper evaluate impact of macroprudential policy on Australian banks:

The Australian Prudential Regulation Authority implemented 2 credit limits between 2014 and 2018. Unlike similar policies in other countries, these imposed limits on particular mortgage products – first investor mortgages, then interest-only (IO) mortgages. With prudential bank-level panel data, we empirically identify banks’ credit supply and interest rate responses and test for other effects of these policies.

The policies quickly reduced growth in the targeted type of credit while total mortgage growth remained steady. Banks met the limits by raising interest rates on targeted mortgage products and this lifted their income temporarily. The largest banks substituted into non-targeted mortgage products while smaller banks did not. Practical implementation difficulties slowed effects of the (first) investor policy, and led to some disproportionate bank responses, but had largely been overcome by the time the (second) IO policy was implemented.

Fintech and the digital transformation of financial services: implications for market structure and public policy

July 26, 2021

Erik Feyen, Jon Frost, Leonardo Gambacorta, Harish Natarajan and Matthew Saal in this BIS paper:

The digital transformation of financial services gives rise to a set of important policy issues regarding competition, regulatory perimeters and ensuring a level playing field. Potential outcomes regarding competition, concentration and market composition include a “barbell” outcome composed of a few large providers and many niche players. Authorities must coordinate across financial regulation, competition, and industry regulatory bodies to manage trade-offs between stability and integrity, competition and efficiency, and consumer protection and privacy.

Need to move from a country’s balance sheet to the One-Earth Balance Sheet

July 26, 2021

Andrew Sheng in this INET article writes on how we need to move away from thinking around national issues to earth issues:

Each sovereign country behaves today as if its monetary, fiscal or consumption policies operate in a silo, impacting its own citizens only. Since there is no global government or central bank, no one compiles a global monetary and fiscal accounting to see if what individual nations do is consistent with the Sustainable Development Goals for the planet as a whole. Citizens are not given a complete picture of what alternative policies are available that could help the planet as a whole.

But if we consider Earth as a living being, we can easily amend the current accounting measurement frameworks to take into consideration human interactions with nature. For example, suppose we create an extra “nature” sector for national and international economic accounting systems. We could keep records of how much it has “transacted” in terms of carbon emissions and capture, usage of natural resources, pollution and more.

There is much work to do to standardize concepts, frameworks and disclosure requirements. But the building blocks for the compilation of the One-Earth Balance Sheet, with the input of natural and social scientists and communities are broadly available and can be accelerated to create a common narrative on dealing with climate change and inclusivity.

Having a One-Earth perspective would allow more pluralistic debate over the costs and benefits of applying unilateral policies, such as carbon tariffs that shift the costs to exporting countries. If there is a shortage of funds to finance carbon-reducing investments, could these be funded by a globally agreed Tobin-tax on financial trading, which could cut short-term speculation for better resource allocation?

A One-Earth Balance Sheet would be able to identify where our largest imbalances are. Many are already obvious, such as social, income and wealth. But others, such as consumption behavior relating to pollution, carbon emissions and choke points (vulnerable links) in global networks and supply chains, have not yet been mapped adequately.


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