Archive for the ‘Economics – macro, micro etc’ Category

Joblessness: The great Global crisis of the twenty-first century

June 28, 2017

Edward Galesar of Harvard University writes a long essay covering history, society, politics and economics. The kind of essay which was basically how economists wrote and tried communicating with the public. This art is mostly lost now as much of economic thinking has become garbled amidst equations and race for publishing.

He takes you through a tour on how the jobless problem in America started. He focuses on America joblessness is a global problem:


Why are some immigrant groups more successful than others?

June 27, 2017

Prof Edward Glaesar’s new paper says the differences are largely due to number of immigrants and population of home country:


Monetary policy provides no answer for a chronic deficiency of aggregate demand: Yet another lesson from Japan…

June 27, 2017

From Stephen Roach:


The tree of knowledge is not an apple or an oak but a banyan..

June 27, 2017

Superb essay by Jonardan Ganeri who is a philosopher and won the Infosys Prize in the Humanities in 2015.

He says European societies view knowledge as a core-periphery system which has a strong trunk and then branches. What is instead needed is a Banyan system where there are multiple roots which sustain the strong core:


Common Economics proofs techniques: Unlearning Economics edition…

June 20, 2017

Unlearning Economics lists several proof (or proofing ) techniques by economists. Another ouch moment for economics students:


Have international financial centres lost their mojo?

June 20, 2017

Not one it. They have only become stronger as this post from IMF suggests. Infact, earlier these centres were home to financial corporations.Now even real sector firms are crowding in:


Leontief on the dismal state of economics

June 20, 2017

How economists including eminent ones have argued about dismal state of economics for a while now but have been ignored.

RWER blog points to this interesting lecture from Wassily Leontief .It is part of his Presidential address delivered at the eighty-third meeting of The American Economic Association in 1970 (full lecture here):

Much of current academic teaching and research has been criticized for its lack of relevance, that is, of immediate practical impact … I submit that the consistently indifferent performance in practical applications is in fact a symptom of a fundamental imbalance in the present state of our discipline. The weak and all too slowly growing empirical foundation clearly cannot support the proliferating superstructure of pure, or should I say, speculative economic theory …

Uncritical enthusiasm for mathematical formulation tends often to conceal the ephemeral substantive content of the argument behind the formidable front of algebraic signs … In the presentation of a new model, attention nowadays is usually centered on a step-by-step derivation of its formal properties. But if the author — or at least the referee who recommended the manuscript for publication — is technically competent, such mathematical manipulations, however long and intricate, can even without further checking be accepted as correct. Nevertheless, they are usually spelled out at great length. By the time it comes to interpretation of the substantive conclusions, the assumptions on which the model has been based are easily forgotten. But it is precisely the empirical validity of these assumptions on which the usefulness of the entire exercise depends.

What is really needed, in most cases, is a very difficult and seldom very neat assessment and verification of these assumptions in terms of observed facts. Here mathematics cannot help and because of this, the interest and enthusiasm of the model builder suddenly begins to flag: “If you do not like my set of assumptions, give me another and I will gladly make you another model; have your pick.” …

But shouldn’t this harsh judgment be suspended in the face of the impressive volume of econometric work? The answer is decidedly no. This work can be in general characterized as an attempt to compensate for the glaring weakness of the data base available to us by the widest possible use of more and more sophisticated statistical techniques. Alongside the mounting pile of elaborate theoretical models we see a fast-growing stock of equally intricate statistical tools. These are intended to stretch to the limit the meager supply of facts … Like the economic models they are supposed to implement, the validity of these statistical tools depends itself on the acceptance of certain convenient assumptions pertaining to stochastic properties of the phenomena which the particular models are intended to explain; assumptions that can be seldom verified.

Criticism still remains valid and will remain ignored as well..

What is wrong with our system of global trade and finance: Dani Rodrik version

June 19, 2017

Interesting interview of Dani Rodrik who had warned about this hyper globalisation mania and its repercussions long back.

On free trade agreements he says:

If the trade agreements were about free trade, they would be one sentence long. They are thousands of pages, because they consist of a new set of regulations. And the question then becomes what are these regulations for, whose interests are they advancing.

No country has a completely free trade policy. There is always some management of trade. We don’t let goods come in that don’t satisfy our health and safety standards, that go beyond our regulatory standards, so we always have these controls. It’s never about free trade vs. protection. It’s always about where we should and shouldn’t regulate.

And the same is true about capital markets, and financial globalization. I think we have too easily internalized the norm that financial capital should be free to move without any restriction. There is no justification in economic theory for the idea that free capital mobility is optimal. These are things we know we need to approach pragmatically. There are real decisions that need to be made.

🙂 This is not new for those familiar with Prof. Rodrik’s works. Just that this free trade bit is as straight as it gets.

On Trump:

Like most everything with Trump, I think there is a significant element of truth in the causes that he picks up. He is addressing some real grievances. But then the manner in which he addresses them is completely bonkers. So in the case of Germany, I do think Germany is the world’s greatest mercantilist power right now. It used to be China. China’s surplus has gone down in recent years, but Germany’s trade surplus is almost 9 percent of GDP. And they are essentially exporting deflation and unemployment to the rest of the world.

I think the damage, though, is done to the rest of Europe and not the United States. In addition, it is not a trade problem. It is a macro-economic problem. The solution is to get German consumers to spend more and save less and the German state to spend more and to increase German wages. It is not the trade policies of the US or any other country that is going to be able to address this issue. It is similar to the way Trump has picked up grievances about how trade agreements have operated in the United States. These agreements have created loses, and grievances that have not been addressed, and I think there is a lot of truth to those kind of things, but I don’t think he has any realistic way of dealing with those things.


The entire interview is worth a read. Lots of interesting stuff to think and ponder upon. He says how Europe opened up much earlier to trade and built the insurance mechanisms to safeguard those who were to be hit by trade. Thus, populism in Europe is not much about protection against imports but about immigration. In US trade was followed without any social welfare leading to cries against trade..

All this requires deep understanding of politics and society something which current economics totally fails you to teach..

Old economics is based on false ‘laws of physics’ – new economics can save us

June 15, 2017

KAte Raworth has written this new bookDoughnut Economics: Seven Ways to Think Like a 21st-Century Economist.

In this piece she says what is wrong with current economics (Physics envy) and suggestions to improve the subject.


Where does World Health Organisation get its economic advice?

June 15, 2017

From nobody and hence it needs a chief economist urgently.

Amanda Glassman has a post on how WHO messes up on basic health economics. She also links to this more detailed letter by health economics expert citing many mistakes made by WHO.


Why do economists who advocate a monetary policy oppose the gold standard?

June 14, 2017

Prof. Larry White wonders about the question.

He says the reason is economists (macro ones) see central banks as their main recruiters. The central banking jobs also come with quite a few privileges and reputation. Moreover, economists see themselves as social engineers whose designed policies/rules can benefit society. In a way it double standards of sorts as same economists talk about markets as well.


What do we mean by inflation? General Price rise or rise in money supply?

June 13, 2017

From an ignored term, inflation stands for anything inflated these days.

However, for macro people inflation is critical. There is always this thing you keep reading about how monetary policy should lower inflation (though in developed countries the demand is for raising inflation).

The original inflation implied rise in money supply. But today when we say inflation, we actually mean the rise in price level. This rise in price level is actually an outcome of the rise in money supply. We need to distinguish these ideas clearly as we teach.

Frank Shotsak explains:

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation.


This increase in the money supply — not changes in prices —  is what sets in motion the misallocation of resources. Moreover, the beneficiaries of the newly created money (i.e., money out of “thin air”) are always the first recipients of money, and so they can divert a greater portion of wealth to themselves. Obviously, those who either do not receive any of the newly created money, or get it last, will find that what is left for them is a diminished portion of the pool of real wealth.

Additionally, real incomes fall not because of general rises in prices as such, but because of increases in the money supply, which gives rise to non-productive consumption. In other words, inflation (i.e. increases in money supply) undermines the production of real wealth, which over time lowers individuals’ living standards. 

General increases in prices, which follow increases in money supply, is an indication — as it were — that the erosion of peoples’ purchasing power has taken place.

In this case, it is not the symptoms of a disease, but the disease itself, that causes the physical damage. Similarly, it is not a general rise in prices but an increase in the money supply (i.e. inflation) that inflicts the physical damage on wealth generators.

Someone in the comments section says: In my ECON classes I use the terms “monetary inflation” and “price inflation” and point out that the first causes the second.


How these basic ideas get lost overtime…

The Argentine-American lemon war of 2001-2017

June 13, 2017

Didn’t know about this at all.

Apparently, US has banned import of Lemons from Argentina since 2001. It was partly successful lobbying from California citrus and partly fear of pests:


Bhutan Implements IMF’s Enhanced General Data Dissemination System

June 13, 2017

Why Bhutan why? It is one country which has rejected the so called modern economic system.

A mission of the International Monetary Fund’s Statistics Department visited Thimphu during April 5 – April 11, 2017, to assist Bhutan with the implementation of the Enhanced General Data Dissemination System (e‑GDDS), which was endorsed by the IMF’s Executive Board in May 2015. The mission helped develop the National Summary Data Page (NSDP), utilizing the Statistical Data and Metadata Exchange (SDMX). This makes Bhutan one of the first countries in the Asia and Pacific Region to implement the recommendations of the e-GDDS.

The NSDP is posted on the National Statistics Bureau’s website. A link to Bhutan’s NSDP is available on the IMF’s Dissemination Standards Bulletin Board (DSBB) at

Publication of essential macroeconomic data through the new NSDP will provide national policy makers, domestic and international stakeholders, including investors and rating agencies–with easy access to information that the IMF’s Executive Board has identified as critical for monitoring economic conditions and policies. Making this information easily accessible will allow all users to have simultaneous access to timely data and will bring greater data transparency.

The authorities are very pleased that Bhutan has achieved this important milestone in its quest for dissemination of quality statistics following international data standards.

This blog is not as happy..

Summing up macro models..

June 13, 2017

Noah Smith has a presentation on macro models. Broadly, he says there are 3 types of models: for academia, for central banks and for financial industry.

I’d like to close the chapter of my life that involves complaining about macroeconomics. I’ve been out of that world long enough that it’s becoming a distant memory. And much more qualified critics are on the job. Furthermore, macroeconomists I talk to – especially young macroeconomists – mostly seem to have heard and internalized all of the critiques. That doesn’t mean I want to stop following developments in the macro field, but that my days as a certified “macro-basher” have come to an end.

So when the Norwegian Finance Ministry, Norges Bank and Statistics Norway asked me to give a talk about “What Has Happened in Macroeconomics (and what still needs to be done)”, I viewed it as an opportunity to sum up. Here are the slides from that talk.

Hmm.. Quote good.  Hope he writes a paper on this for more details.


Book Review: A Little History of Economics

June 12, 2017

Prof Donald Frey of Wake Forest University reviews a book by Niall Kishtainy titled as A Little History of Economics. Looks like an interesting buy…

Although I think this book might have been improved, I still give it high marks. After all, the author of a short book is forced to make choices that not everyone will favor. And Kishtainy’s choices could be defended.  The purpose is to give a brief, historical perspective to readers who are laypersons in the subject of economics. Kishtainy has written a book that should hold the interest of his audience and leave them the better for having read it. Hopefully, this book will encourage some to read at greater depth.

Anything brief and yet comprehensive is the order of the day..

Ibn Khaldun: The amazing Arab scholar who beat Adam Smith by half a millennium

June 12, 2017

Fascinating article by Daniel Olah who is with Hungary’s Ministry for National Economy, Forecasting and Modelling Unit.

He says we have ignored contribution of Ibn Khaldun’s contribution to economics. His ideas preceded those of Adam Smith by nearly half a millennium. Thus, Neoclassical economists have created a false narrative of the history of economics:


Bulk of economics lessons in one chart…

June 9, 2017

Good Friend Kumar Anand sends me his piece (coauthored with Amit Varma).

This chart just sums up much that is to economics:

One can just explain so much via this chart..

How an African history scholar’s work led to groundbreaking lawsuit against the British government

June 8, 2017

A great article for those who believe history is just for history sake.

It tells the story of Prof Caroline M. Elkins of HBS whose doctoral work on colonial-era African history just opened a pandora box.


When an Australian economist’s piece on monetary transmission is discussed in Parliament..

June 7, 2017

It does not happen too often when Parliamentarians discuss an economist’s piece, even if the hearing is on economic matters.

So it is interesting when Prof. Abbas Valadkhani of Swinburne University of Technology writes this piece in Oct 2016 on how banks delay rate cuts following rate cut by central bank. He shows via research that these delayed rate cuts help these banks make money: