Archive for the ‘Blogs to Read’ Category

Where does Modinomics fit amidst various econ schools?

May 19, 2015

Brilliant post by Prof Mahesh Kulkarni.

He looks at various policies started by the new govt and tries to fit them into the economics schools:

What is Modinomics? Classical, neo-classical, monetarist, supply sider, demand sider, Austrian? An analysis based on different economic theories.

The 2014 verdict was understandably an endorsement of both the Hindu political right and the economic right as much as rejection of rampant crony socialism under the UPA. Expectedly, there was anticipation that Prime Minister Modi would summarily put in place the reform measures to stimulate the mired economic growth. Barring perhaps P.V. Narasimha Rao (circumstance-motivated) and A.B. Vajpayee (in part ideologically driven), no other Indian Prime Minister has been identified with the economic right as much as Modi.

Intriguingly, the bequest of past governments is defined by the scale of State involvement in the economy rather than the measure of State withdrawal. Implied in the verdict of 2014 was an increasing space for supply siders in the policy machinery. However, economic gestures originating from the government in the last 12 months perplex and mystify both friends and critics alike. Incontestably, the direction of reforms is unambiguous, yet the relatively leisurely tempo seems annoying. What is unanswered is this question: Can “Modinomics” be slotted in any particular economic school of thought?

There is a nice table which lists policies against the school of thought. As expected, it is really difficult to sum them as one majors school:

Any attempt to situate Modinomics reveals it to be in differing shades of grey. To paraphrase the late Singapore supremo Lee Kuan Yew, economic policies cannot be a prisoner to theory. Pragmatism aligns economic policy to favourable political outcomes. Past experiences do not assure electorally favourable outcomes in many instances, be it 1996 or 2004. It would therefore be pointless in trying to pigeonhole Modinomics into a single stream of economic thought.

Our table is an attempt to locate the economic policy measures under different ideological schools.

Narendra Modi has started a process of shifting Indian political economic thought towards the right. Nonetheless, there may not be a Thatcher’s Hayek moment in the House of Commons or Nehruvian declaration on socialism in the Avadi session of the Congress in 1955. In a long arduous journey, it would be unfair to expect early outcomes. What is likely, however, is that the journey might culminate perhaps at a near-distant horizon, and an Indian Prime Minister might generate sufficient political consensus to remove “socialist” from the preamble of Indian constitution. That moment would finally disenthrall India from the Nehru-Gandhi brand of crony socialism.

Superb stuff. Much better than all the noisy articles on completion of one year..

A whacky and fun filled blog on Indian economy

April 30, 2015

It is rare to get good blogs on Indian economy. And then to stumble on a good one which is humorous and whacky is like icing on the cake.

This blog called Manasiecon is one such blog. It is run by Prof. Manasi based at Pune.

Read this for intro:

…..I have a truly wacky, weird and fun family (including my husband, a consultant on company law and a rather inquisitive and sweet and troublesome 11-year old son) and an assortment of strange and wonderful friends, associates and students around me, the interaction with whom too culminates into “random thoughts” and mad articles. While these are not really economics oriented, they do take off on my innate sense of economics, which really pops up unexpectedly, in the strangest of circumstances.

So welcome to my blog….if you are the serious types, you really need to only read blogs/posts categorized as “Articles on Economics”. Don’t even attempt getting into my random thoughts.

For all others, enjoy!


Sample this for some of the posts:

Really interesting stuff..


Should monetary policy take into account risks to financial stability?

April 15, 2015

Blogger Bernanke does not think so. He says financial regulation is the best way to manage financial stability, even if it is limited in scope.


What’s the relationship between the economics blogosphere and academic economics?

March 31, 2015

A discussion on on the topic.

Alex Tabbrok of MR blog sums it up really well:


Bernanke joins the econ blogging world..

March 31, 2015

Bernanke joins the quorum of econ bloggers, was bound to be a splashy event.

The blog is here. The introductory post says:

When I was at the Federal Reserve, I occasionally observed that monetary policy is 98 percent talk and only two percent action. The ability to shape market expectations of future policy through public statements is one of the most powerful tools the Fed has. The downside for policymakers, of course, is that the cost of sending the wrong message can be high. Presumably, that’s why my predecessor Alan Greenspan once told a Senate committee that, as a central banker, he had “learned to mumble with great incoherence.”

On January 31, 2014, I left the chairmanship of the Fed in the capable hands of Janet Yellen. Now that I’m a civilian again, I can once more comment on economic and financial issues without my words being put under the microscope by Fed watchers. I look forward to doing that—periodically, when the spirit moves me—in this blog. I hope to educate, and I hope to learn something as well. Needless to say, my opinions are my own and do not necessarily reflect the views of my former colleagues at the Fed.

Civilian again is an important lesson for Indian policymakers. They either remain policymakers forever or join some university in US remaining in the news circuit. Most keep coming back into some commission/report.

Anyways, the second post is on low interest rates:

Why are interest rates so low? Will they remain low? What are the implications for the economy of low interest rates?

If you asked the person in the street, “Why are interest rates so low?”, he or she would likely answer that the Fed is keeping them low. That’s true only in a very narrow sense. The Fed does, of course, set the benchmark nominal short-term interest rate. The Fed’s policies are also the primary determinant of inflation and inflation expectations over the longer term, and inflation trends affect interest rates, as the figure above shows. But what matters most for the economy is the real, or inflation-adjusted, interest rate (the market, or nominal, interest rate minus the inflation rate). The real interest rate is most relevant for capital investment decisions, for example. The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited. Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth—not by the Fed.

To understand why this is so, it helps to introduce the concept of the equilibrium real interest rate (sometimes called the Wicksellian interest rate, after the late-nineteenth- and early twentieth-century Swedish economist Knut Wicksell). The equilibrium interest rate is the real interest rate consistent with full employment of labor and capital resources, perhaps after some period of adjustment. Many factors affect the equilibrium rate, which can and does change over time. In a rapidly growing, dynamic economy, we would expect the equilibrium interest rate to be high, all else equal, reflecting the high prospective return on capital investments. In a slowly growing or recessionary economy, the equilibrium real rate is likely to be low, since investment opportunities are limited and relatively unprofitable. Government spending and taxation policies also affect the equilibrium real rate: Large deficits will tend to increase the equilibrium real rate (again, all else equal), because government borrowing diverts savings away from private investment.

If the Fed wants to see full employment of capital and labor resources (which, of course, it does), then its task amounts to using its influence over market interest rates to push those rates toward levels consistent with the equilibrium rate, or—more realistically—its best estimate of the equilibrium rate, which is not directly observable. If the Fed were to try to keep market rates persistently too high, relative to the equilibrium rate, the economy would slow (perhaps falling into recession), because capital investments (and other long-lived purchases, like consumer durables) are unattractive when the cost of borrowing set by the Fed exceeds the potential return on those investments. Similarly, if the Fed were to push market rates too low, below the levels consistent with the equilibrium rate, the economy would eventually overheat, leading to inflation—also an unsustainable and undesirable situation. The bottom line is that the state of the economy, not the Fed, ultimately determines the real rate of return attainable by savers and investors. The Fed influences market rates but not in an unconstrained way; if it seeks a healthy economy, then it must try to push market rates toward levels consistent with the underlying equilibrium rate.

Lot of mumbo jumbo here. If markets determine so called real rates why does Fed intervene?

A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates “artificially low.” Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by “the markets.” The Fed’s actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere. So where should that be? The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate. There is absolutely nothing artificial about that! Of course, it’s legitimate to argue about where the equilibrium rate actually is at a given time, a debate that Fed policymakers engage in at their every meeting. But that doesn’t seem to be the source of the criticism.

The state of the economy, not the Fed, is the ultimate determinant of the sustainable level of real returns. This helps explain why real interest rates are low throughout the industrialized world, not just in the United States. What features of the economic landscape are the ultimate sources of today’s low real rates? I’ll tackle that in later posts.

Being a historian, he would obviously know that things did work without Fed/central banks around. With central bank not even knowing what the rates are and just guessing their way, most of the time things only go wrong.

Interesting posts to follow. ..

Recent history of finance policy committees in India and why most meet dead ends..

February 13, 2015

As I was reflecting on this post on regarding crony committeeism in Indian finance policy, came across this post by Ajay Shah.

It nicely lists the several policy committees in India from 1998 onwards. He says lot of these committees had interesting ideas to begin with but met dead ends later:


How about having a necktie mommemorating end of Fed stimulus

January 9, 2015

Superb post and some innovation by asset management firm Van Eck:

Janet Yellen was off the Christmas list at Van Eck Global this year.

The asset manager Van Eck helped the Federal Reserve chairwoman to her caricature debut on the their central bank-themed holiday ties—riding a white dove, no less. This year, the $30 billion firm cast off in a rather more literal direction.

This year’s ties (and matching tote bags) show a boat called the “QE III” sailing into the sunset. The boat appears to be empty, though there are queasy waves ahead.

As we reported last year, Van Eck’s ties have earned somewhat of a cult following. Prior iterations have featured “Helicopter Ben Bernanke” and a “Super Mario” version ofMario Draghi, the president of the European Central Bank. This one, of course, is referring to the end to the third round of the Fed’s stimulus measures, called quantitative easing. The massive bond buying program ended earlier this year.

Memorable holiday gifts are a way to get noticed in the financial world, and the Van Eck ties–va neckties, if you will–aren’t the only game in town. Among the competitors:Berkshire Hathaway Inc. Chairman Warren Buffett sends out a goofy picture with a box of chocolates from Berkshire-owned See’s Candies. And the effort that Kingsford Capital Management, a small Northern California-based hedge fund, puts into its oddball gifts earned it a front-page story in the Wall Street Journal in 2013.

Van Eck sends out thousands of its custom-made ties to its clients every holiday season. As always, the ties are made by Vineyard Vines, a preppy favorite in the Northeastern financial world.

Click on the post to see the previous design and the current one as well..

The rise and fall of debate in economics..

December 11, 2014

Food for thought post by Joe Francis, an Argentina economy specialist (a country whose economics must be keeping him both busy and amused).

He says how econs do not discuss any more:


What is free banking all about?

December 3, 2014

There has been some hot and stirring debate on free banking in the blogosphere.

Ueasymoney blog sums up the debate and provides links on who said what on the topic. For those interested in history of money and banking, studying free banking is a must as this is how it all started. Adam Smith wrote on free banking in his wealth of nations tome. Also read this website where leading free bajmking scholars are writing some really fab and interesting stuff.

There are two schools of free banking — Currency school led by Hume and Banking school led by Smith:


How a monster was born 100 years ago — Federal Reserve..

December 1, 2014

David Howden of Mises has this hard hitting post on Federal Reserve. Fed opened for business 100 years ago and Howden reflects on the history.

He says there are two schools on Fed- one that supports Fed and other against it (as always):


25th anniversary of fall of Berlin Wall: How have countries that broke from USSR faring?

November 5, 2014

A superb post by Branko Milanovic, an inequality expert who worked at World Bank (his blog on inequality is really good and promising).

He looks at how these countries are faring and data shows nothing much has happened. The hyped convergence to west has been an illusion for most. Only in case of Poland has some kind of development and convergence happened:


What has led to financialisation of developed economies?

October 13, 2014

Òscar Jordà, Alan Taylor and Moritz Schularick look at this question in this paper. They summarise the findings in voxeu.

Understanding the causes and consequences of the rise of finance is a first order concern for macroeconomists and policymakers. The increasing size and leverage of the financial sector has been interpreted as an indicator of excessive risk taking1and has been linked to the increase in income inequality in advanced economies,2 as well as to the growing political influence of the financial industry (Johnson and Kwak 2010). Yet surprisingly little is known about the driving forces behind these trends.

In our recent research we turn to economic history. We build on our earlier work that first demonstrated the dramatic growth of the balance sheets of financial intermediaries in the second half of the 20th century and how periods of rapid credit growth were often followed by systemic financial crises and severe recessions (Schularick and Taylor 2012, Jordà, Schularick, and Taylor 2013).


They say that main reason has been shift of bank credit towards mortgage lending or for home buying. Banks over the years have become like a housing fund:


How New Zealand CPI index will include pets as an item from now on….

October 9, 2014

WSJ Blog has this interesting post on addtions and deletions in NZ CPI basket. I mean this is far more more interesting than the CPI inflation levels which are we so obsessed with.

So what are NZers consuming more/less?:


How China’s central bank works?

September 26, 2014

WSJ Blog explains:

Unlike the U.S. Federal Reserve and other western central banks, the People’s Bank of China isn’t independent of the government. It reports to the State Council, the Chinese government’s top decision-making body and as a result, the PBOC has no real control over China’s monetary policy.

But on inflation front, China has had low inflation for a while. So even if the central bank is not so called independent,  it has managed to keep govt at bay:


Is Economics a Science? Dogmatic Economics Vs. Reflective Economics..

September 25, 2014

Fixing the economists Blog has this interesting post on the topic.

This is one of the most important philosophical questions regarding economics- is it a science? Econs surely believe and have tried to model  their ideas as Science like with laws and theories etc. This is met with criticism as these laws are not universally applicable and are inconsistent.

But then what is science at the first place? There is huge disagreement on the same. The blog defines science and then sees whether economics fits as a science:


What explains the wage premium in silicon valley?

August 8, 2014

Jonathan Rothwell of Brookings has a nice post on the topic.

He puts up US map and looks at earnings of Software professionals across regions. He sees there is a wage premium in Silicon Valley compared to other places. Why this is so? It seems the region requires some typical software skills which lead to the premium:


Road Safety – Choice Architecture in Sweden..

May 15, 2014

This blog had earlier pointed to this fascinating story on how Sweden managed to lower its road accidents and deaths.

Gulzar adds to the discussion from a behavioral perspective. He is mostly alert to the various nudges being implemented around the world:


How Indo-Pak ended up hosting the 1987 World Cup Cricket?

April 30, 2014

As I write this post, there is a real proud feeling.

First, this is the 5000th post of Mostly Economics. This is a huge personal milestone as had no clue that would end up writing so much! Thanks to WordPress and the visitors who have encouraged  this blog all this while. Huge pat to the blog..

Second, there could be no better way to write this 5000th post than talk about this wonderful book – The Story of the Reliance Cup by Mr. NKP Salve. The blogger has always been a huge fan of cricket and would love to write and think more on the sport. The events of the last few years has led to huge discontentment with the state of affairs. The blogger never cared to figure the man reason behind NKP Salve tournament and this autobiography gives you great insights about many things. As the authorities keep piling shame on Indian cricket, perhaps they should read this book to understand the challenges faced by authorities then to bring this whole cricketmania to India. Given how things stand today, even the guys who brought this whole game to Indian shores would be reflecting on whether they did any wrong?


Is Sweden headed the Japan way?

April 23, 2014

Things are getting more and more complex. Countries which had recovered post-crisis are slipping. Sweden is the latest entrant to the list. The last reading was at -0.6% fueling debates over deflation in Sweden.

  • Krugman always on red alert to these developments started the debate – one and two .
  • Lars Svensson, former Riksbank MPC member and deflation expert added fuel to the fire. He blames the Riksbank rightaway:


Philosophy declining in universities but Philosophers top thinkers ranking…a paradox

April 10, 2014

Peter Singer Professor of Bioethics at Princeton University has this interesting article in Proj Synd.

He says that the intake in humanities has slipped sharply in recent years:



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