Archive for the ‘Blogs to Read’ Category

Video Clips of Economists Explaining for Intro Econ Classes

October 17, 2019

Superb Timothy Taylor on his super blog links to these intro econ videos:

I know a number of economics faculty who have been incorporating video clips into their classes. Sometimes it’s part of a lecture presentation. Sometimes it’s for students to watch before class. For intro students in particular, it can be a useful practice because it gives them a sense that they are being introduced to a universe of economists, not just to one professor and a textbook. The faculty member can also react to the video clip, and in this way offer students some encouragement to react and to comment as well–in a way that students might not feel comfortable reacting if they need to confront their own professor.

Amanda Bayer and Judy Chevalier have been compiling a list of video clips that may be useful for the standard intro econ class. It’s available at the Diversifying Economic Quality (“Div.E.Q”) website.  Most are in the range of 3-6 minutes, although a few are longer or shorter. The economists are often talking about their own research, but in a way that the evidence can easily be incorporated into an intro presentation.

For a few examples grabbed from lectures on micro topics. Kathryn Graddy talks about her work studying the Fulton Fish Market in New York City, and how even in a highly competitive and open environment, buyers sometimes pay different prices. (Graddy also wrote an article on this topic in the Spring 2006 issue of the Journal of Economic Perspectives.)

Petra Moser discusses her work showing that “copyright protection for 19th century Italian operas led to more and better operas being written, but the evidence also suggests that intellectual property rights may do more harm than good if they are too broad or too long-term.”

Heidi Williams describes new data and empirical methodogies to study and advance technological change in health care markets.

Kerwin Kofi Charles looks at his empirical research on how the extent to which prejudice leads to discrimination in the labor market and  how it may affect wages of black workers. 1

Cecilia Rouse talks about her research on how change in to blind procedures for the musicians auditioning for symphony orchestras led to more women being selected.

In short, the presenters in the video clips are top-quality economists describing their own research, in ways that spark interest among students. In addition, economics has an ongoing issue with attracting women and minorities. This list is heavily tilted toward presentations by economists from those groups, and there’s some evidence that when intro students see economists who look more like them, they may feel more comfortable expressing interest in economics moving forward. 

Should look them up..
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Estimating global poverty in R and Stata

October 1, 2019

World Bank has put up the poverty data which can be easily plugged into R and Stata.

WB’s data blog reports:

The World Bank’s global poverty measures published through the PovcalNet website can now be accessed directly from within R and Stata. The R package povcalnetR and the Stata command povcalnet offer the same functionality as the website, namely the estimation of poverty at any poverty line for individual countries, groups of countries, or entire regions. Accessing PovcalNet directly from within R and Stata is a major improvement to the usability of the tool; for example PovcalNet results can be directly merged with any other R/Stata dataset. In this blog, we show how the commands can be downloaded and illustrate their use with an example. We will illustrate the use of the commands with a series of blog posts over the next few weeks. A more detailed description with more examples can be found in the github pages (R and Stata), as well as Castaneda et al. (2019) for the Stata command. We encourage users to send us comments and suggestions, and to report any bugs in the github issues pages (R and Stata).

PovcalNet reports the World Bank’s official global, regional and country-level poverty estimates, as well as a range of inequality statistics. It is managed jointly by the Data and Research Groups within the World Bank’s Development Economics Division, and draws heavily upon a strong collaboration with the Poverty and Equity Global Practice, which is responsible for gathering and harmonizing the underlying household survey data. The website is based on a web API, which was documented in more detail as part of the September 2018 PovcalNet update (see Zhao, 2018). This means that every query to the PovcalNet website (e.g. estimate the poverty headcount ratio at $2 per day in Bangladesh in 2016) generates a URL that returns the results in a machine-readable format. The R and Stata packages query the PovcalNet API and read the results directly into R/Stata.

The R package povcalnetR can be installed from github with

install.packages(c(“devtools”, “httr”))

devtools::install_github(“worldbank/povcalnetR”)

and will soon be available in CRAN.

The Stata povcalnet command can be installed from SSC by typing:

ssc install povcalnet

The development version, which includes the latest updates and features, can be downloaded from github by using the github Stata command (developed by E. F. Haghish):

net install github, from (“https://haghish.github.io/github/”)

github install worldbank / povcalnet

It is important to understand that PovcalNet reports estimates for two types of years: the survey year, which is the year for which the welfare variable was collected, and the reference year, which is the year for which global poverty estimates are produced. The reference year estimates make additional assumptions to align household surveys, that may be conducted at infrequent intervals, to a common year for which poverty can be estimated for as many countries around the world as possible. Currently, the available reference years are 1981, 1984, 1987, 1990, 1993, 1996, 1999, 2002, 2005, 2008, 2010, 2011, 2012, 2013 and 2015. Inequality estimates are only available for the survey-years.

The next line of code queries the global and regional estimates of extreme poverty at the international poverty line of $1.9 per day for all the reference years:

R: df <- povcalnetR::povcalnet_wb()

Stata: povcalnet wb, clear

With a few additional lines of code (R and Stata), the changing geographic distribution of extreme poverty can be easily graphed. In 2015, Sub-Saharan Africa accounted for more than half of the global poor, and together with South Asia for more than 85 percent. It is clear that the reduction in global poverty was driven by rapid progress in East Asia. In recent years, the number of poor has also fallen steadily in South Asia. This stands in sharp contrast with Sub-Saharan Africa, where the total number of poor people has actually been increasing over time. As discussed in this report, this shift in the geography of global poverty from high-growth (East Asia and recently South Asia) to low-growth (Sub-Saharan Africa) regions also implies a likely slowdown in the future reduction of global poverty (see this blog for projections beyond 2015 to 2030).

 

A fifty-year history of Facebook’s Libra

September 25, 2019

JP Koning in this superb blogpost (as  always) points idea of Libra is hardly new. There have been several attempts in the past both private and public to create a similar currency unit:

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Draghi Says ECB should examine new ideas like MMT.. (Draghi shown as devil in German newspapers!)

September 24, 2019

Mario Draghi, President of ECB appeared before Committee on Economic and Monetary Affairs of the European Parliament to discuss economic developments and ECB policy.

In one of the questions, he said ECB should be open to new ideas like MMT. He said MMT and helicopter money are more to do with distribution and this is something which becomes a fiscal task.

MMT supporters would be surprised and tell Draghi: “Told ya!”.

Bill Mitchell in this post reflects on the recent ECB monetary policy decision on 12 Sep 2019:

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When banks use economic nationalism to drive up customers: Case from NZ

September 23, 2019

With Nationalism being the flavour of the day, how can economic nationalism remain behind? Infact both have coexisted for as long as one can imagine.

Recently Kiwibank, a NZ based bank issued an ad hitting out at competitors.

Kiwibank 1

Michael Reddell, who writes a terrific blog on NZ economy disapproves the tactic:

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When people worried over surveillance powers of e-money way back in 1975..

September 10, 2019

Came across this interesting publication : Computers and People written way back in 1975 (HT: JP Koning blog).  In the publication, several people have written on computers and applications in 1975.

Paul Armer, Center for Advanced Study in the Behavioral Sciences at Stanford Univ writes on Computer Technology and Surveillance.

His take on Electronic Fund transfer (ETFs) is quite interesting and should be read by one and all. ETFs were just beginning to take shape back then.

Let me now turn to a new topic. Several times I have” referred to situations where the technology under discussion was developed for reasons other
than surveillance, but it happens that it is useful for surveillance purposes. As a prime example of this I want to talk about electronic funds transfer
systems. I can’t give you a detailed definition of an electronic funds transfer system (usually referred to as EFTS) because the system hasn’t been built.
Its final form will be an outcome of intensive com- petition, and also of government regulation. But the general form is reasonably clear. Terminals
will exist in stores, hotels, restaurants, etc. (where they are referred to as point-of-sale terminals), and in financial institutions, including un- attended terminals miles from the nearest office of the institution. In short, terminals will be at any location apt to have a large number of non-trivial financial transactions.

To give you an idea of how powerful a surveillance system an EFTS would be, consider the following. In 1971 a group of experts in computers, communication,
and surveillance was assembled and given the following task: Suppose you are advisors to the head of the KGB, the Soviet Secret Police. Further, suppose
that you are given the assignment of designing a system for the surveillance of all citizens and visitors within the boundaries of the USSR. Further,
the system is not to be too obtrusive or obvious.

Not only would it handle all the financial accounting and provide· the statistics crucial to a centrally planned economy; it was the best surveillance system we could imagine within the constraint that it not be obtrusive. That exercise was almost four years ago, and it was only a two-day effort. I am sure we could add some bells and whistles to increase its effectiveness somewhat.

But the fact remains that this group decided that if you wanted to build an unobtrusive system for surveillance, you couldn’t do much better than an EFTS.

Naturally, the EFTS proponents believe that laws could be written to prevent abuse of the system. I am less sanguine. I’m not concerned about the
bankers invading my privacy or using the system for surveillance purposes; but I am afraid that EFTS system operators may be unable to resist pressures
from government to let the EFTS be used for surveillance. There are in existence today computer systems which could be used in exactly this way, although
the number of financial transactions involved is comparatively small. What I haVe in mind here are the credit authorization systems of National BankAmericard, Master Charge, American Express, and various check authorization systems. All can have individual accounts flagged. If an individual tries to make a purchase, or tries to cash a check, the system is interrogated. If the account has a special flag the police (or whoever) can be notified where that individual is at that very instant.

Check authorization systems are especially subject to such abuse because they depend on the police for information about bad check passers and for information on forgers for their computer data bases. I have no doubt that such systems have already been so abused. 

He quotes Orwell’s 1984:

Why should we be so concerned about surveillance? I don’t think I can put it any better than Henry Goldberg did in a recent ” 1984 is really a state of mind. If
you are always tied to the consequences of your past activity, you will probably adopt a ‘don’t stick your neck out’ attitude. This would create a pressure towards conformity, which would, in turn, lead to a society in which creativity would be an early victim and the democratic ideal of a citizenry with
control over its own destiny would not flourish for long.

In a recent speech Professor Philip B. Kurland pointed out that we will not celebrate the 200th anniversary of the U.S. Constitution until 1987,
and that before we can do so, we must successfully get past 1984. He further said that if he were in charge of some Bicentennial celebration, he would
require all participants to read Orwell’s “1984” to show what the new nation was created to avoid. I would extend the advice to those concerned about
electronic funds transfer systems. And to “1984” I would add the recently published “The War Against the Jews – 1933 to 1945″ and Tom Houston’s memo on domestic intelligence, which was issued to all American intelligence agencies in President Nixon’s name on July 23, 1970. The book “1984” shows what might happen; the latter two documents detail actual events.

It is amazing how people foresaw all these things when these ideas were just coming up. Yet, very little attention is paid to issues of privacy and surveillance when it comes to digital payments….

Reserve Bank of India’s flip-flops on floating rate benchmarks

September 6, 2019

Superb post from Prof JR Varma of IIMA.

He points how RBI in 2001 had asked banks to use external benchmarks before going to internal benchmarks in 2010. In 2019, we are back to external:

These flip-flops reflect the failure of the central bank on two dimensions:

    • The failure to create a vibrant term money market with liquid benchmark rates creates dissatisfaction with external benchmarks. In 2009, the RBI Working Group justified the shift to internal benchmarks as follows:

Banks are finding it difficult to use external benchmarks for pricing their loan products, as the available external market benchmarks (MIBOR, G-Sec) are mainly driven by liquidity conditions in the market, and do not reflect the cost of funds of the banks. … Besides, the yields on some of the instruments may not suggest any representative pricing yardsticks given that they have limited volumes compared to the overall size of the financial market.

    • The failure to create a sufficiently competitive banking system means that internal benchmarks do not work well because in the absence of strong market discipline, banks do not use fair and transparent pricing of floating rate loans. The RBI Study Group that recommended the shift back to external benchmarks described the problem as follows:

First, the experiences with the PLR, the BPLR, the base rate and the MCLR systems suggest that interest rate setting based on an internal benchmark is not transparent as banks find ways to work around. Second, the interest rate setting based on an internal benchmark such as MCLR is not in sync with the practices followed in the modern banking system.

In the next few years, India needs to work on creating both a better banking system and better financial markets. One of the pre-requisites for this is that regulators should step back from excessive micro-management. For example, the RBI Master Directions require the interest rate under external benchmark to be reset at least once in three months while elementary finance theory tells us that if the floating rate benchmark is a 6-Months Treasury Bill yield, it should reset only once in six months. Either banks will refrain from using the six month benchmark (eroding liquidity in that benchmark) or they will end up with a highly exotic and hard to value floating rate loan resetting every three months to a six month rate. Neither is a good outcome.

Hmm..

Estimating Jane Austen’s income: insights from the Bank of England archives

August 2, 2019

Central Bank archives are not just about figuring the organisation but several other things.

John Avery Jones, a retired Visiting Professor at the LSE in this post estimates Jane Austin’s income from the Bank of England Archives:

Based on these assumptions, and taking into account such details as that she did not keep anything back for tax on the first receipt which was presumably funded by Henry’s bank, and assuming that she spent the income from the Navy Fives, the income from Mansfield Park would be £310. This is precisely Henry Austen’s figure; perhaps he was not exaggerating on this occasion. On that basis the total tax she paid (before its abolition in 1816) would be about £56. Alternatively if she commenced her profession at the later time the income would be £337, which is almost identical to Professor Fergus’s figure. (On the different assumption that she carried on a trade, which would necessarily have been set up at the time of the receipts from Pride and Prejudice and Sense and Sensibility, the tax would be lower and so would reduce the estimate of earnings from Mansfield Park to £297.)

Her total income from writing in her lifetime was a mixture of taxable receipts and receipts after the abolition of income tax in 1816. These amount, on my estimate, to around £631 before tax (while tax was in force), or £575 after tax, which would be equivalent to just over £45,000 at today’s prices.

Hmm…

From Market to Exchange: Early regulation and social organisation on the Johannesburg Stock Exchange, 1887-1892

July 30, 2019

Mariusz Lukasiewicz (Lecturer in African History at the Institute of African Studies, University of Leipzig) writes a fab post:

This investigation provides new insights on the early local, regional and global development of Africa’s oldest existing stock exchange. Founded in November 1887, the Johannesburg Stock Exchange (JSE) was not an isolated stock exchange in the South African Republic (ZAR), but an increasingly global financial institution attracting members and capital from beyond southern Africa’s expanding colonial frontier. Confronted by an uncertain political environment, the JSE’s first five years of operation tested the institution’s ability to balance the needs of regulation and promoting access to its international capital market.
Although the basic structure of the JSE’s corporate organisation resembled the LSE in many ways and principles, the early JSE pioneers did not intend to replicate London’s stock exchange system in an understandably very different financial climate. Unlike in London, where the powers of the proprietors were already separated from the powers of the subscribers in the early 1830s, the development of the JSE was guided by the rivalry for influence over governance between the General Committee and the JSE’s landlords, the Johannesburg Estate Company. The division between ownership and operation, facilitated the emergence of the JSE’s regulatory sub-committees, investigating disputes and controversies over the rights and obligations of members. Woollan’s JECC was the owner, operator and regulator of the JSE until the formal takeover by Barney Barnato’s Johannesburg Estate Company in April 1889, unleashing a new era of ownership and regulation. Despite having its own General Committee, the JSE was fully dependent on the fixed assets and capital of the Estate Company, leaving it exposed to the regulatory dictatorship of Barney Barnato. Far more interested in membership fees and rent income from offices inside the JSE building, Barnato’s dominance came in direct conflict with the General Committee’s vision of growing the market for JSE-listed securities.
With different stakeholders advocating competing visions of institutional development, the first five years of the JSE’s existence tested the financial institution’s ability to balance the needs of regulation and promoting access to Africa’s largest capital market. Although a number of stock exchanges were already in operation on the African continent in the final quarter of the 19th century, the JSE emerged as a financial industry leader in what soon became the largest and wealthiest city in southern Africa. For all the eagerness and enthusiasm displayed by many Johannesburg-based speculators in expanding the volume and value of securities on the Official List, the development of the Exchange was constrained by the power struggle between the JSE’s General Committee and the Estate Company. By analyzing the JSE’s early rules and social organization, this study contributes to the better understanding of early stock exchange operation and organization in colonial South Africa.
Hmm..

Bank of England and Financial Times schools blogging competition…

May 10, 2019

BoE and FT organised a blogging competition (it was second edition).

They have put up the winners essays on the Bank Underground Blog:

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Intelligent Economist’s 100 economics blogs of 2019

May 9, 2019

Intelligent Economist released the rankings for 2019.

Welcome to the 4th Annual Top Economics Blogs list. For the 2019 edition, we’ve added many newcomers, as well as favorites which continue to provide quality insight year after year. Like lists in previous years (201820172016), the new 2019 list features a broad range of quality blogs in practically every economic discipline. Whether you are interested in general economics or prefer more specific topics such as finance, healthcare economics, or environmental economics; there is something here for you.  You will also find blogs which focus on microeconomics, macroeconomics, and the economics of specific geographical regions.

Whether you are a student, economics professional, or just someone with a general interest in how economic issues affect the world around you, you’re certain to find the perfect blog for your specific needs.

Candidates for this year’s list were chosen based on the quality of their posts, not on their specific school of thought, political belief system, or mainstream popularity. High-quality blogs with a lower number of subscribers were given the same treatment as those with large followings. In addition, every effort has been made to create a well-balanced list, with many different economic disciplines and beliefs represented. So here are the top 100 economics blogs of 2019, listed in no particular order.

Humbled to feature again in 2019 (in regional economics category). Thanks to all the visitors and supporters.

It is really nice to see blogs written by women economists in the list.

Understanding the development of contemporary economics through major controversies

April 24, 2019

Really nice post by Beatrice Cherrier, who Undercover Historian:

This Spring I taught a history of recent economics course to undergraduate students majoring in mathematics and economics. The syllabus is here. I have reproduced the reading list with some links to papers and twitter summaries of my lectures below. Here are also a few comments on what I wanted to do with this type of course, what worked and what did not. Comments and suggestions to improve the course and set up new debates are much welcomed.

Though the course is tailored to a specific audience, I believe how the general narrative is conveyed through re-enacting landmark controversies in the history of economics can  appeal to many types of students. My goal was to highlight several characteristics of economics as a discipline:

(1) a contested science: economics is often perceived as contested from the inside (economists constantly arguing with each other)  as well as from the outside ( medias, politicians and civil society criticizing economics for being insular, neoliberal, cut from reality, useless, etc). Presenting how economists themselves have debated the foundations of their current practices (writing mathematical models using simplified behavioral hypotheses and confronting them with data) seemed a more fruitful window than the endless stream of post-crisis attacks and defense op-eds.

(2) a set of practices: students are introduced to what economists do through textbooks. By definition, a textbook presents a linear set of models which, in retrospect, seem obvious, crystal-clear, and deemed to win the battle of ideas. Teaching the history of economics through debates enable them to recover the messiness, the failures, the dissent, the disagreements, the trials and errors and the confusion that are essential characteristics of scientific endeavors.

(3) permanence and change, progress and choices: textbooks also nurture a sense that, because economics is a science, economists’ practices are no social endeavors, not influenced by historical contexts, and that “progress” will eventually help replace shaky practices with better ones (see for instance the current shared hope that better data, more powerful computers and advances in empirical techniques will eventually take ideology out of economics). Interestingly, studying decades-old debate raises awareness both to permanence and change in economics: on the one hand, the rise of mathematical and empirical economics are embedded in specific places, communities and contexts (a World war then a Cold war), policy debates, etc. To me, economic practices are born out of the interaction of contexts and technical affordances and constraints (available data and mathematical tools, for instance.  At the same time, it seems that fundamental questions on induction vs deduction, the use of mathematics, realism and objectivity resurface every 20 years or so, that many debates of the 1950s are being re-enacted in the 2010s, sometimes verbatim. My hope is that comparing 1950s and 2010s debates would help each student decide for her/himself how much permanence and how much change, how much of their future practice will be about harnessing progress and how much about making epistemological choices that no amount of scientific progress will wash away.

Wow. Hope Beatrice puts up her course lectures on Youtube! I mean likes of Richard Thaler tweeted can they attend this?!

Arthur Burns and how things fell apart in the 1970s

April 2, 2019

David Glasner in his Uneasymoney blog revisits Fed Chair Arthus Burns’s policies:

I discussed the horrible legacy of Nixon’s wage-and-price freeze and the subsequent controls in one of my first posts on this blog, so I needn’t repeat myself here about the damage done by controls; the point I do want to emphasize is, Karl Smith to the contrary notwithstanding, how incoherent Burns’s thinking was in assuming that a monetary policy leading aggregate spending to rise by a rate exceeding 11% for four consecutive quarters wasn’t seriously inflationary.

If monetary policy is such that nominal GDP is growing at an 11% rate, while real GDP grows at a 4% rate, the difference between those two numbers will necessarily manifest itself in 7% inflation. If wage-and-price controls suppress inflation, the suppressed inflation will be manifested in shortages and other economic dislocations, reducing the growth of real GDP and causing an unwanted accumulation of cash balances, which is what eventually happened under wage-and-price controls in late 1973 and 1974. Once an economy is operating at full capacity, as it surely was by the end of 1973, there could have been no basis for thinking that real GDP could increase at substantially more than a 4% rate, which is why real GDP growth diminished quarter by quarter in 1973 from 7.6% in Q1 to 6.3% in Q2 to 4.8% in Q3 and 4% in Q4.

Thus, in 1973, even without an oil shock in late 1973 used by Burns as an excuse with which to deflect the blame for rising inflation from himself to uncontrollable external forces, Burns’s monetary policy was inexorably on track to raise inflation to 7%. Bad as the situation was before the oil shock, Burns chose to make the situation worse by tightening monetary policy, just as oil prices were quadrupling, It was the worst possible time to tighten policy, because the negative supply shock associated with the rise in oil and other energy prices would likely have led the economy into a recession even if monetary policy had not been tightened.

I am planning to write another couple of posts on what happened in the 1970s, actually going back to the late sixties and forward to the early eighties. The next post will be about Ralph Hawtrey’s last book Incomes and Money in which he discussed the logic of incomes policies that Arthur Burns would have done well to have studied and could have provided him with a better approach to monetary policy than his incoherent embrace of an incomes policy divorced from any notion of the connection between monetary policy and aggregate spending and nominal income. So stay tuned, but it may take a couple of weeks before the next installment.

Hmm..Looking forward to more such posts..

Reflections of an economics textbook author: Greg Mankiw

March 18, 2019

Nice essay by Prof Greg Mankiw. He recently stepped down as the instructor of Harvard’s EC10 course (introductory economics). This is a huge moment in economic teaching as people believe this would give an opportunity for other textbooks such as Core economics to get their dues.

In the essay, Mankiw takes one through what led him to write a book on economics. Also how should one write write a book and the changes brought to the books world by digital technologies:

In this essay I reflect on textbook writing after three decades participating in the activity. I address the following questions: What perspective should textbooks take? What is the best approach to teaching microeconomics? What is the best approach to teaching macroeconomics? How does the content of the introductory course evolve? How much material should textbooks include? Are textbooks too expensive? How is digital technology changing the market for
textbooks? Who should become a textbook author?

Some more from Prof Tim Taylor on Mankiw’s essay and his own experiences..

Friedman and Schwartz, Eichengreen and Temin, Hawtrey and Cassel on Great Depression

January 24, 2019

Fascinating post by David Glasner on how works of Hawtrey and Cassel on great depression have largely been ignored.

Glasner should clearly blog a lot more than he does. One of its kind blog…

Does better mathematics lead to making more money in financial markets? (remembering Fischer Black as well)..

December 7, 2018

Prof JR Varma of IIMA in this new post reflects on whether better math skills lead to making more money in the markets. The experience is mixed.

The purpose of this blog post is to ask a different question: how common is it for traders make money simply by better knowledge of the mathematics than other participants. My sense is that this is relatively rare; traders usually make money by having a better understanding of the facts.

….

Using unpublished mathematical results to make money often has the effect of destroying the underlying market. Nasdaq (which owned IDCH) delisted the swap futures contract within months of DRW unwinding its profitable trade. Similarly, Fischer Black effectively destroyed the Value Line index contract through his activities. Markets work best when the underlying mathematical knowledge is widely shared. It is very unlikely that the option markets would have grown to their current size and complexity if the option pricing formulas had remained the secret preserve of Ed Thorp. Mathematics is at its best when it is the market that wins and not individual traders.

Prof Varma also looks at whether Black’s math skills helped him win.

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The Calculus of Consent: Why do we vote?

December 3, 2018

Nice post by Raisa Sheriff and Lekha Chakraborty of NIPFP.

Does democracy determine public expenditure decisions? With Nobel laureate Hurwicz’s revelation that it is impossible to have simultaneously a balanced budget, Pareto optimality (“you are better off without making anyone worse off”) and an incentive compatibility between Government and the citizens, we turn to pose a question, what exactly determine public expenditure decisions?1
Can a median voter reflect her preference for public expenditure priorities in her voting decisions? Antony Downs in his historic work (Downs, 1957), explained a moment of “democratic collapse” if the “costs of voting” (C) are higher than the voter’s faith in the probability of her vote changing the outcome (P) and the benefits she derives out of her winning (B). William Riker (1968) later balanced Down’s equation by incorporating a new variable “D” which captures the “civic duty” or “rights of citizen to vote” and pre-empted that magnificent embarrassment of C>P*B.  A test of this theory prior to the elections would be an interesting evidence-based research.  
With the Lok Sabha elections and several state elections lined up in India, we look at the question ‘why do people vote?’ When we posed this to a group of teenagers, they retorted – ‘well, shouldn’t the question be why don’t people vote?’ They were looking forward to exercising their right to vote for the first time and using their agency seemed significant at a very personal level. 
In a democracy, elections offer to provide every citizen an opportunity to choose a representative. Creating, correcting and maintaining a democracy is important for every member in varying degrees, and is in essence a public good. We would like to have a fully functional democracy, but the costs at the individual level are high, and each of us would prefer if the others did it for us. 
Voting, if thought along this line, is comparable to vaccination.2 The costs aren’t limited to taking the time out to vote, finding your polling booth or standing in the winding queues all morning, but also acquiring information about the candidates, their campaign promises, and most importantly, deciding on the merits of different policies based on what is good for you and your fellow constituents. This is a cognitively demanding task and a formidable challenge for most of us.  
Hmm..

Reflections on Bank of Engalnd’s 300 year history…

November 14, 2018

Another superb guest post on Bank of England’s Underground blog. This one is by David Kynaston who wrote Till Time’s Last Sand: A History of the Bank of England 1694-2013.

He points to key lessons from the 300 year history of the bank:

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How did organisations adapt to change in the 18th and 19th century: Case of Bank of England

November 13, 2018

Bank of England recently held an economic history workshop at the St Clere Estate, home of former governor Montagu Norman.

The Bank of England blog – named as Bankunderground – has been reaching out to econ history scholars to wrote guest posts on the blog. This is fabulous as blog is a great medium to disseminate research ideas. There was an earlier guest post by Prof Barry Eichengreen on lessons from Montagu Norman.

There is another superb post from Anne Murphy, Dean of Humanities and a professor at the University of Hertfordshire. She writes on how Bank of England archives can help us learn about organisational changes at Bank of England itself:

Industrialisation was not the only driver of change during the eighteenth century. Recent historiography has revealed more about the financial and organisational revolutions that helped to shape the British state and the country’s economic development. The Bank of England was at the forefront of these revolutions and a pioneer of new modes of business organisation. A business that started out in a small rented space with only seventeen clerks in 1694 was, by 1815, employing nearly 1,000 workers and occupying most of the Threadneedle Street block. Yet it has been sadly neglected as a case study. What might we find in the Bank’s archives to understand how business adapted to rapid and radical change during the eighteenth and nineteenth centuries?

Our first insight actually comes from the extent of that archive. One response to changing organisational priorities was to accumulate information. The need to maintain comprehensive and accurate records meant that the Bank kept nearly everything. So vast was the undertaking that by the 1770s it had to invest in a four-storey fire-proof library. And many of the records preserved there have survived. Look further into the archive and it is possible to gain insights into how a new business model evolves, how a workforce adapts and how an institution conveys trust in a rapidly changing environment.

How the central bank dealt with several challenges such as record keeping, fire, human capital, building bills market and so on…

This one on bank creating trust:

…..the Bank’s directors were keen to signal their connection to the state. Britannia was particularly prominent throughout, stamped on the Bank’s notes, ledgers and letterheads and as a statue over the entrance to the Pay Hall. With her shield and spear signalling defence of the nation and close associations with trade, industry and profit Britannia offered a clear statement of the Bank’s aims and the conflation of those aims with the goals of the state. But this message was an uncomfortable fit with the Bank’s willingness to house a market that was often criticized for its supposed attempts to undermine the nation’s stability and for taking advantage of the exigencies of war.

Britania stamp. Source: Bank of England Archive.

The contradiction was dealt with by the creation of both physical and business separation between the work of managing the public credit and the business of trading the government’s debt. It was not wholly successful, as the transfer clerks’ business sidelines demonstrate. We might ask, therefore, to what extent the Bank could be trusted to serve its two masters: the state, which expected the cost-effective and reliable management of its debt, and the public who lent to the state and expected the Bank to safeguard their investment.

This question is of great importance to historians who seek to understand why the public was willing to lend, throughout the long eighteenth century, to a state so often at war. It has been answered by many scholars with reference to the institutional changes brought about by the Glorious Revolution of 1688.

The role of the Bank in this process was key and the location of the market within its walls did not serve to undermine, but rather to enhance what has been referred to as a ‘credible commitment’ to honour the state’s financial promises. It made the market easy to locate and accessible. It allowed the visitor to the Bank to observe all the processes of providing public credit. Indeed, the Bank was undeniably a space in which public credit was put on display and the financial integrity of the state was demonstrated. From its grand architecture to the open-plan arrangement of the offices to the Rotunda where the brokers and jobbers gathered, visitors were invited to witness public credit at work.

Arguably then, despite all the potential disadvantages of locating the market within the Bank, some wider and more important purposes were realized: those of exposing the functioning of the market in the state’s debt to scrutiny and demonstrating the credibility of public credit. ‘Credible commitment’, therefore, did not just reside in state institutions that might have seemed rather nebulous in the eyes of most public creditors. By the mid-eighteenth century ‘credible commitment’ could be found and observed at the Bank of England. There, credibility lay in the provision of liquidity and a one-stop-shop in which all business relating to the public debt could indeed be done quickly and easily.

Really good stuff..

In the battle between RBI and government, it is high time we look at RBI as an organisation and not just its policies. That will tell us many things we are missing in the debate. After all, RBI is one of the few central banks which has been speaking about lack of independence for a long time. No other central bank complains that much. So is there an organisational design in RBI which has gaps which allows governments to always question the central bank? If yes, how should it be fixed?

Happy Diwali wishes to all!

November 7, 2018

Wishing all the visitors of Mostly Economics Blog a very happy and prosperous Diwali.

Keep visiting the blog and encouraging the blogger to write…


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