Archive for the ‘Discussion’ Category

Lessons from Central Bank of Barbados fiasco: Central Bank chief is a goalkeeper?

February 28, 2017

Finally after much deliberations and total chaos, Dr DeLisle Worrell the governor of Central Bank of Barbados got fired. One of the Deputy Gvernors has been named as the new Governor.

Dr Worrell got fired just a day after the Court intervened that he could keep his position:


What Explains the Popular Support for Demonetisation?

February 28, 2017

Despite quite a few (hopefully unbaised) economists/experts (if they matter today) saying that demonetisation is a bad policy, the public support for the same has been amazing. After all politicians unlike experts have a scorecard in form of elections and initial results suggest no damage to the ruling party.

Prof Rita Khera of IIT Delhi tries to unravel this puzzle:


The power and secrets of gold, central banking and what not: A case from Deutsche Bundesbank…

February 27, 2017

This is an interesting post by Norbert Häring which questions/exposes the secret world of central banking across the world. Just like the politicians who show they oppose each other, central banks too express their displeasure at monetary policy of other central banks. But in the evening just like warring politicians the central bankers too chill out with each other. It is a secretive murky world given how together they control the fortunes of so many.

Häring writes how recent Bundesbank announcement of shipping their own gold from NY Fed is being spinned nicely. The German bank portrays it like a victory but in reality it also calms the nerves of their American counterpart:


A paper tiger called Banks Board Bureau..

February 27, 2017

This is a scathing piece by Tamal Bandopadhyay on Banks Board Bureau (BBB). For someone who has been reading banking history, it is not surprising to see government first creating hype by creating bodies like BBB which will “clean Indian banking forever” to be reduced to another of the several bodies. One problem in recent years how much hype media creates over anything connected to banking without either seeing basics or waiting for sometime to get details.

Over to Tamal for busting another such hype over BBB:


A digital archive for Rashtrapati Bhavan….

February 27, 2017

Superb initiative underway  as reported by The Hindu. The Archive will be housed at – – which is quite a knowledge seeking place already.

The architectural history and the heritage of Rashtrapati Bhavan, the 340-room official residence of the President of India, has been documented in a series of books, which will soon be available in an online series.

Concise web-based modules are set to bring to life the architectural and cultural grandeur of the iconic building, designed and constructed by legendary British architect Edwin Lutyens.

A multi-volume documentation project of the Rashtrapati Bhavan was commissioned three years ago by the President’s Secretariat in collaboration with the Indira Gandhi National Centre for the Arts (IGNCA).

Sahapedia, an open online resource on the arts, cultures and heritage of India, which began the project in 2014, compiled 11 volumes of well-researched books written by top experts in various fields.

“Along with the books, we have produced a series of web modules and will be shortly uploading all of them on our website. These will be valuable for both researchers and laypersons to gain a better understanding of the history and heritage of the building,” Yashaswini Chandra, Project Manager, Sahapedia said.

Having archives is such a crucial aspect of building and updating history of any institution. Very nice to see these volumes being stored digitially for a wider access..



Vera Smith’s five reasons for central banks : Are They Any Good?

February 23, 2017

I doubt how many of today’s monetary scholars have read Vera Smith’s dissertation- The Rationale for a Central Bank? What must have been a must read some years ago is hardly part of any course these days. The thesis was written under Hayek’s supervision and looked at reasons behind formation of various central banks.  We take central banking for granted without looking at various ways in which they come in different countries.

Karl-Friedrich Israel has a piece in Mises Institute which looks at five reasons given by Smith for having a central bank. Smith gave these reasons during GOld Standard days. After many years, do the reasons remain valid?


Bond traders betting on Euro break up..

February 22, 2017

Joe of Bloomberg points to this interesting article. The article shows how investors anticipating some exits from Euro are buying short term German bonds. Though, the risks are not as large as seen in 2010 period.

However, the sources of concerns are different. He adds that this time the risks are from political troubles and Draghi’s 3 magic words “whatever it takes” will not help:

Once again, traders are placing bets on a breakup of the euro area. Investors are piling into short-dated German government bonds, which would presumably be the safest of safe havens if calamity were to strike.

But is the euro really at risk of a breakup? You’d think, perhaps, that if the currency survived 2010-2012 then it can survive pretty much anything. And obviously at this point (at least going by peripheral spreads) investors aren’t anywhere near as concerned as they were back then.

But one thing to consider is that the problems faced back then by Europe were essentially about monetary architecture. Governments lacked a fiscal union and a central-bank backstop, exposing them to the whims of bond vigilantes. Mario Draghi solved the problem in 2012 with his “whatever it takes” speech.

This time, the stresses building in Europe are perceived as more political. Anti-euro factions are on the rise while mainstream center-right and center-left parties are seeing their support melt away. As risk transfers from the monetary realm to a political one, these problems won’t go away with three simple words from a central banker.


Yes, the planet got destroyed. But we created a lot of value for shareholders…

February 21, 2017

The title of the post comes from this depressing cartoon.

There is a related article by Yves Smith who writes the popular blog nakedcapitalism.

Why do so many corporate boards treat the shareholder value theory as gospel? Aside from the power of ideology and constant repetition in the business press, Pearlstein, drawing on the research of Cornell law professor Lynn Stout, describes how a key decision has been widely misapplied:

Let’s start with the history. The earliest corporations, in fact, were generally chartered not for private but for public purposes, such as building canals or transit systems. Well into the 1960s, corporations were broadly viewed as owing something in return to the community that provided them with special legal protections and the economic ecosystem in which they could grow and thrive.

Legally, no statutes require that companies be run to maximize profits or share prices. In most states, corporations can be formed for any lawful purpose. Lynn Stout, a Cornell law professor, has been looking for years for a corporate charter that even mentions maximizing profits or share price. So far, she hasn’t found one. Companies that put shareholders at the top of their hierarchy do so by choice, Stout writes, not by law…

For many years, much of the jurisprudence coming out of the Delaware courts—where most big corporations have their legal home—was based around the “business judgment” rule, which held that corporate directors have wide discretion in determining a firm’s goals and strategies, even if their decisions reduce profits or share prices. But in 1986, the Delaware Court of Chancery ruled that directors of the cosmetics company Revlon had to put the interests of shareholders first and accept the highest price offered for the company. As Lynn Stout has written, and the Delaware courts subsequently confirmed, the decision was a narrowly drawn exception to the business–judgment rule that only applies once a company has decided to put itself up for sale. But it has been widely—and mistakenly—used ever since as a legal rationale for the primacy of shareholder interests and the legitimacy of share-price maximization.

Greed over everything else..

The price India paid as a part of British empire…

February 21, 2017

Dr Shashi Tharoor who hit headlines with his speech pointing to evils of British empire has another piece.

He says Indians have not held a grudge against the empire which is a puzzle.

Given India’s longstanding attitudes about colonialism, I did not expect such a reception. But perhaps I should have. After all, the British seized one of the richest countries in the world – accounting for 27% of global GDP in 1700 – and, over 200 years of colonial rule, reduced it to one of the world’s poorest.

Britain destroyed India through looting, expropriation, and outright theft – all conducted in a spirit of deep racism and amoral cynicism. The British justified their actions, carried out by brute force, with staggering hypocrisy and cant.

The American historian Will Durant called Britain’s colonial subjugation of India “the greatest crime in all history.” Whether or not one agrees, one thing is clear: imperialism was not, as some disingenuous British apologists have claimed, an altruistic enterprise.

Britain has been suffering from a kind of historical amnesia about colonialism. As Moni Mohsin, a Pakistani writer, recently pointed out, British colonialism is conspicuously absent from the United Kingdom’s school curricula. Mohsin’s own two children, despite attending the best schools in London, never had a single lesson on colonial history.

Londoners marvel at their magnificent city, knowing little of the rapacity and plunder that paid for it. Many British are genuinely unaware of the atrocities their ancestors committed, and some live in the blissful illusion that the British Empire was some sort of civilizing mission to uplift the ignorant natives.

This opens the way for the manipulation of historical narratives. Television soap operas, with their gauzy romanticization of the “Raj,” provide a rose-tinted picture of the colonial era. Several British historians have written hugely successful books extolling the supposed virtues of empire.

In the last decade or two, in particular, popular histories of the British Empire, written by the likes of Niall Ferguson and Lawrence James, have described it in glowing terms. Such accounts fail to acknowledge the atrocities, exploitation, plunder, and racism that underpinned the imperial enterprise.

All of this explains – but does not excuse – Britons’ ignorance. The present cannot be understood in terms of simple historical analogies, but the lessons of history must not be ignored. If you don’t know where you’ve come from, how will you appreciate where you’re going?

This goes not just for the British, but also for my fellow Indians, who have shown an extraordinary capacity to forgive and forget. But, while we should forgive, we should not forget. In that sense, the powerful response to my 2015 speech at the Oxford Union is encouraging.

Well, am not sure about this. May be in elite circles things have been forgotten as nothing much changed for them. However, for an average Indian this bit of colonialism is pretty deep rooted and anger filled. The British schools may not be teaching about colonialism but most of us learn about it mostly from a negative angle. The huge response to Dr Tharoor’s speech proves this deep rooted anguish against colonialism.  Though, there is little doubt  that Raj has been painted pleasantly quite often than needed.

But then laws of karma are catching up?

The modern relationship between Britain and India – two sovereign and equal countries – is clearly very different from the colonial relationship of the past. When my book hit bookstores in Delhi, British Prime Minister Theresa May was just days away from a visit to seek Indian investment. As I’ve often argued, you don’t need to seek revenge upon history. History is its own revenge.

Is India’s tax base low?

February 21, 2017

Praveen Chakravarty of IDFC Institute adds to the debate with interesting data to ponder about.

His basic point is the threshold for exempting income tax is much higher than other countries. The ratio of per capita GDP to income tax exemption threshold is five times higher than world average.

Why is it then a big surprise that a mere 3 percent of Indians file income tax returns?

On the ratio of per capita GDP to income tax exemption threshold, India is a complete outlier in the world. The average ratio across 20 developed and developing countries is 0.5, i.e. the income tax exemption threshold in a country is only half its per capita GDP. For example, the average person in China earns 50,000 yuan but anyone earning more than 18,000 yuan will fall under the tax bracket. Similarly, the ratio of income tax exemption threshold to per capita GDP in Brazil is 0.8. It is 0.2 in the United States and 0.9 in Mexico. India’s ratio is 5 times greater than the world average. As the chart below shows, only Bangladesh has a greater ratio than India.

So, when the Economic Survey suggests that India has among the fewest taxpayers per 100 voters, it is equally important to consider this fact that India has one of the highest exemption thresholds for paying income tax.

So it is not fully fair to say India does not pay taxes. Lower the exemption limit and you have more people part of the tax fold.

In the Union Budget of 2017-18 presented by the Finance Minister recently, the income tax rate for the first income tax slab was lowered from 10 percent to 5 percent. So, India not only has a high income tax exemption threshold but also a very low rate for the first income tax slab.
Again, India stands out in this aspect compared to the rest of the countries in the world. The chart below plots the ratio of income tax exemption threshold to per capita GDP on the X axis and the rate of income tax for the first slab on the Y axis. As evident in the chart, India is a complete outlier yet again, even more of an outlier than Bangladesh, whose income tax rate for the first slab is higher.

Data source: Praveen Chakravarty
Data source: Praveen Chakravarty

In the last two decades, the income tax exemption threshold has increased six-fold from Rs 40,000 to Rs 2.5 lakh. In contrast, the average annual nominal incomes of Indians have multiplied only three-fold in this period.

It is thus premature to conclude automatically that India’s inordinately low tax base is entirely a function of massive tax evasion by Indians. While lowering the income tax rates, had the Finance Minister also lowered the income tax exemption threshold to say Rs 1.5 lakh, 1.1 crore more Indians would have automatically qualified to pay income tax. This would have brought India more in-line with the rest of the world in terms of exemption threshold to per capita GDP ratio.


One needs to dice and slice data to get more ideas..

Actually for a very long time we have been obsessed with taxes and who is paying them. We have not looked at expenditure side at all barring when it comes to subsidies. How efficient has Indian Government’s spending been all these years? One would hypothesise that the record has been a really poor one so far (would like to be proved wrong here).

The Indian government over the years has also nicely spinned the story saying more taxes will enable State to deliver more and help India develop. Well the intention is welcome, but the history of development via taxes more so income tax needs to be understood from a historical perspective.


Where should Tata Sons chief look for advice? In Tata’s Archives..

February 20, 2017

It is not always one sees an article asking a new CEO to look into his own company’s archives!

So thank you Priyanka Sangani of ET for suggesting (HT: HITCH) the new head of Tata Sons to look into Group’s archives for advice:


When the IMF evaluates the IMF….

February 20, 2017

Prof Charles Wyplosz has a piece on the recent IMF Evaluation Office report on the Greece rescue:

The IMF must be commended for imposing self-evaluation reports upon itself. They sometimes come on top of reports by the IMF’s Independent Evaluation Office (for the report on Greece, see Wyplosz and Sgherri 2016). It is about speaking truth to yourself, which can be delicate because the programme’s actors, most of whom are active in the building, have skin in the game.

These reports can fulfil an extremely important role if they identify mistakes that should not be repeated in the future. Does it happen? A previous self-evaluation took place after the first Greek programme. Many of its observations are the same as those of the second report, which is disheartening. The Fund argues that, because the first report was published after the start of the second programme, its conclusions could not be taken on board. It calls for a faster production of the self-evaluation reports. Would that be enough? Scepticism is warranted when we observe that a number of the mistakes reported in this report were already mentioned after the East Asian crisis.

With all its limitations, the fact that self-evaluation occurs and that the report is made public deserves to be commended. The procedure should be a model for the two other Troika institutions, the European Commission and the ECB. Most regrettably, self-evaluation is not part of their institutional culture. They seem to follow the prescription attributed to Napoleon: “In politics never retreat, never retract, never admit a mistake”. 


These lessons are hardly new. Similar issues were seen in previous IMF rescue plans as well. But IMF continues with its usual hubris.

The irony of all this is that role of IMF comes to eminence only during crises, But each time it makes same types of mistakes and remains relevant..

Wasted urban infrastructure: The city of Detroit

February 17, 2017

City/urban economics is always more interesting to read. Even if the papers are highly technical, atleast there is something real to learn and ponder.

This interesting bit of research looks at the issue of why in Detroit people do not live near the business centre of yore?

How personal computers were advertised in the 1990s

February 17, 2017

Superb series of pictures by Ilya Pestov showing advertisement for computers. Today’s generation would barely believe these ads:

oday, hard drives are boring. You can buy a terabyte hard drive for $50. But back in the day, people would get excited when they saw ads announcing even 10 megabyte hard drives.

To prove it, I’ve unearthed some retro computer ads that give you a first-hand look into how computers were advertised before the modern age of smartphones, ultrabooks, and smart watches.

You’ll never be able to look at your gadgets the same way again.



Want to understand the economy? Don’t study economics!

February 17, 2017

Peter Radford has a hard hitting piece and one has little choice but to agree on most points.

One of the most nervous moments one faces as an economist is when one is crowded by families/friends asking you for suggestions to improve their well-being. After all, this is an impression economists have created over the years that “they are the ones”. The bombard of media has also strengthened the impression when so many economists come before the box to tell us about state of economy/investments and so on. We are seen as these magicians. So it is but natural for people to ask you to improve their well-being.

However, here is irony of it all.  It is one thing to talk on TV about things and completely another when family/friends ask for suggestions. One realises how inadequate economics training has been all these years. If one has any suggestion, it either comes out from work experience (say in financial markets) or plain observing/reading about  things outside of economics (following newspaper for local news). The disconnect between modern economics training and reality is so wide (and continues to widen) that it is perhaps one of the biggest Houdini acts that public continues to believe in power of economics.  The crisis has dented the image for sure but given lack of alternatives economists continue to dominate.

Radford sums this dilemma. Don’t study economics to understand economy:


Battles in history and history-writing…

February 17, 2017

An important cautious piece in Mint. As the current government looks to rewrite Indian history it should be careful. It is fine to think about rescuing Indian history from the Marxian paradigm but one should not fall into another trap:

Winston Churchill once famously quipped that “history will be kind to me, for I intend to write it”. Implicit in his statement was the certitude that those with the privilege of writing history have the first shot at distorting it. And it is often said that the privilege of writing history ends up with the victors. So, who won the 1576 battle of Haldighati between Pratap Singh (better known as Maharana Pratap), ruler of a rump kingdom of Mewar, and the forces of Akbar, the Mughal emperor? The question has gained relevance since three ministers in the Bharatiya Janata Party (BJP) government of Rajasthan have backed a proposal to rewrite the history books for university courses. The ministers contend that the textbooks must be changed to reflect that Singh defeated Akbar and not the other way round, as is more widely understood. Not to be left behind, Haryana’s education minister too is keen on making the same changes in his state.


Clearly, some rewriting is required. Equally clearly—for history is a core component of identity for communities and nations alike—rewriting will be a contentious project. BJP leaders replacing the wrongs of Marxist historians with their own would be exactly the wrong way to go about it. Attempts like the one in Rajasthan will discredit the project beyond rescue.


Vijaywada: A city that remembers and honours its bureaucrats…

February 16, 2017

This is an interesting pointer from Anantha Nageshwaran.

Vijaywada in Andhra Pradesh is a unique place which names its landmarks in bureaucrats which tried to develop the city:


How did the heart symbol become mainstream despite being so anatomically incorrect?

February 16, 2017

Zachary Crockett has a terrific piece tracing history of the heart symbol. I mean there is fascinating history even behind things like a symbol.

The heart is a rather unsightly organ. A twisted, bulbous mass of ventricles, veins, and muscle, it inspires neither romance nor lust. Yet in a grossly simplified form, it has become the reigning metaphor of our love.

We’re talking, of course, about the anatomically incorrect heart () — a symbol at once cherished by teenage texters and detested by crusaders of medical accuracy.

The symbol is ubiquitous in our modern world. It dangles from necklaces, earrings, and bracelets. It shows its face in an endless sea of Valentine’s Day cards. It’s emblazoned on t-shirts, graffitied on walls, and is offered, in an endless array of colors, across all mediums of technology.

How did this weird-looking, medically-inaccurate symbol become the go-to representation of the human heart — and moreover, an expression of our love and desire?

More specifically, how did this:

…become this?:

 Read the article for more details..

Zimbabwe’s new currency Bollars meeting same fate as Zimbabwe Dollars…

February 15, 2017

Interesting piece calling Mugabe as King of Funny Money.

The central bank recently introduced a new currency called bond notes which were called as Bollars. But old habits die hard:


Did I read this right? Bill in Lok Sabha seeks cap on number of guests in weddings!!

February 15, 2017

Hope there is more to this.  Now the Government proposes a new bill to put cap on number of guests in weddings:

A Bill in the Lok Sabha seeks to put a limit on the number of guests to be invited and dishes to be served in weddings to check “show of wealth” and wants those spending above Rs5 lakh to contribute towards marriages of poor girls.

If a family spends above Rs5 lakh on a wedding, it has to contribute 10% of the amount on marriages of girls from poor families, according to the Bill introduced by Congress MP Ranjeet Ranjan, wife of MP Pappu Yadav.

The Marriages (Compulsory Registration and Prevention of Wasteful Expenditure) Bill, 2016, may be taken up as a private member’s Bill in the upcoming Lok Sabha session. The purpose of this Bill is to prohibit extravagant and wasteful expenditure on marriages and to enforce simpler solemnisation, Ranjeet told PTI.


It says that after this proposed legislation comes into force, all marriages shall be registered within 60 days of the solemnisation. The government may fix the limit of guests and relatives and number of dishes to be served to the guests and relatives for solemnisation of marriage or for the reception held thereafter as it may deem necessary or expedient to prevent the wastage of food items, it adds.

Everything should be registered be it business or marriages..

Increasing awareness towards less expenditure and wastage is fine but a bill to cap/limit is outright crazy. Trust government to keep coming with such ideas..