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

Making globalisation more inclusive: Really?

October 17, 2017

Earlier we were told how globalisation will be this inclusive force which will help one and all. As evidence against this is growing, there is worry that globalisation itself will be thrown off the track. Thus there is discussion on how to make globalisation inclusive.

Sergei Guriev, Danny Leipziger and Jonathan D. Ostry have a piece:

 When some people highlighted these earlier, they were shut off. Now we are again having the suggestions people gave earlier…
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Neymar Case: The value of top footballers, bubbles, and pitfalls of the free market

October 13, 2017

Eran Yashiv of Tel Aviv Univ has a piece:

The €222 million transfer of Neymar to PSG calls into question whether football superstars are a good investment. Using the financial details of the transfer, this column argues that, at the price paid, Neymar has a negative net present value. While there are other explanations for PSG’s willingness to pay, in purely economic terms his contract seems a bad investment. Policymakers might use this type of calculation to justify intervening in the transfer market through regulation and taxation.

 Hmm..

Zimbabwe’s several currencies: Dollars, Bollars and Zollars…

October 9, 2017

The ever alert JP Koning points to this Reuters article.

Zimbabwe has three types of currencies running as of now. There is Dollar (normal paper note), Zollar (Dollars stored in bank accounts) and Bollars (Bond notes  backed by a reserve). None seem to be working!:

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Merchants and the Origins of Capitalism

October 6, 2017

Fascinating paper by Sophus A. Reinert and Robert Fredona. They point how the history of capitalism is defined by a sedentary merchants who managed businesses from their homes:

N.S.B. Gras, the father of Business History in the United States, argued that the era of mercantile capitalism was defined by the figure of the “sedentary merchant,” who managed his business from home, using correspondence and intermediaries, in contrast to the earlier “traveling merchant,” who accompanied his own goods to trade fairs. Taking this concept as its point of departure, this essay focuses on the predominantly Italian merchants who controlled the long‐distance East‐West trade of the Mediterranean during the Middle Ages and Renaissance.  

Until the opening of the Atlantic trade, the Mediterranean was Europe’s most important commercial zone and its trade enriched European civilization and its merchants developed the most important premodern mercantile innovations, from maritime insurance contracts and partnership agreements to the bill of exchange and double‐entry bookkeeping.

Emerging from literate and numerate cultures, these merchants left behind an abundance of records that allows us to understand how their companies, especially the largest of them, were organized and managed. These techniques can also be put in the context of premodern attitudes toward commerce and the era’s commercial‐political relations. The Commercial Revolution anticipated the Industrial Revolution by over half a millennium and laid the groundwork for today’s world of global business.  

Hmm…

Missed Opportunities: The Economic History of Latin America

October 6, 2017

There is a new book on Latin America by Beatriz Armendáriz and Felipe Larraín.

IMF interviews Prof Larrain. What sums up the missed opportunities in the region?

Latin America has vast natural resources and a talented population. Why has the region remained so poor compared with its northern neighbors?

Our book highlights five theories of why Latin America has lagged behind, some of which date back to the region’s colonial origins.

The first is geography. Over 70 percent of Latin America is in the tropics, which makes everything more difficult. The region is more exposed to disease—malaria, yellow fever, dengue, cholera, and others—and it is far from key markets.

Second, Latin America was exposed to civil law tradition after independence, as opposed to common law. A common law system—where judges have a more active role—is more conducive to economic growth and development.

Third is large-scale agricultural plantations in Latin America. In the North, there was more mixed farming centered on grains and livestock, and smaller units, which led to more democratic political institutions, a more robust protection of property rights, and a larger middle class.

Fourth, the region’s institutional legacy is a part of the story too, where institutional arrangements in the South are weaker as opposed to the North.

And finally, ethno-linguistic and cultural fragmentation in Latin America, which goes back to the colonial periods, have also held back the region, although the influence of this factor is much less important than in Africa, for example.

Hmm… How these factors continue to impact the region..

 

Housefull Economics: Trapped in Scarcity

October 4, 2017

Here is my contribution to the highly entertaining Housefull Economics column in Pragati Magazine.

In the spirit of the column, I use the Rajkumar Rao starrer Trapped to explain the concept of scarcity. Hence the title of the post: Trapped in Scarcity.

I thank the editor Amit Varma for his useful inputs and edit help..

Lessons from the Old Masters on Assessing Equity and Efficiency: A Primer for Fiscal Policymakers

October 4, 2017

IMF Working paper by Vitor Gaspar,  Paolo Mauro and Tigran Poghosyan:

How can a society’s well-being be measured to include not only average incomes but also their distribution? How can the effects of policies be assessed by considering both equity and efficiency? This primer outlines the seminal contributions of influential economists of the past, including Arthur Okun, who developed a simple method to elicit people’s preferences regarding redistribution, and Anthony Atkinson, who showed how equity and efficiency can be measured simultaneously and summarized in a single, intuitive index expressed in monetary units (such as dollars). These methods are applied to recent data to gauge how countries fare when both mean incomes and their distribution are considered together, and to a hypothetical tax-and-transfer scheme assessed through a general equilibrium model for household-level data.

Should read this carefully..

Islam and Economic Performance: Historical and Contemporary Links

October 3, 2017

Timur Kuran of Duke Univ has a research paper  (HT: MR blog):

This essay critically evaluates the analytic literature concerned with causal connections between Islam and economic performance. It focuses on works since 1997, when this literature was last surveyed. Among the findings are the following: Ramadan fasting by pregnant women harms prenatal development; Islamic charities mainly benefit the middle class; Islam affects educational outcomes less through Islamic schooling than through structural factors that handicap learning as a whole; Islamic finance hardly affects Muslim financial behavior; and low generalized trust depresses Muslim trade. The last feature reflects the Muslim world’s delay in transitioning from personal to impersonal exchange. The delay resulted from the persistent simplicity of the private enterprises formed under Islamic law.

Weak property rights reinforced the private sector’s stagnation by driving capital out of commerce and into rigid waqfs. Waqfs limited economic development through their inflexibility and democratization by restraining the development of civil society. Parts of the Muslim world conquered by Arab armies are especially undemocratic, which suggests that early Islamic institutions, including slave-based armies, were particularly critical to the persistence of authoritarian patterns of governance. States have contributed themselves to the persistence of authoritarianism by treating Islam as an instrument of governance. As the world started to industrialize, non-Muslim subjects of Muslim-governed states pulled ahead of their Muslim neighbors by exercising the choice of law they enjoyed under Islamic law in favor of a Western legal system.

Hmm.. A very long paper (95 pages)..

Bitcoin vs Dollars: Which One is a Fraud? Which One is a Ponzi Scheme?

September 29, 2017

Mistalk blog reflects on Jamie Dimon calling Bitcoin a fraud:

Dimon’s statement on Bitcoin represents the irony of the year. Euros, dollars, etc. are precisely fabricated out of thin air.

That was not always the case for dollars. They were once exchangeable for gold. But euros right from the start were a complete fabrication.

The Eurozone problems we see today are a direct result of the fraudulent nature of Target2 guarantees on top of the fraudulent nature of the euro itself.

🙂 Even if thin air is not fully right, all these currencies are just based on government order. One can increase and decrease the currency at govt will and create mega monetary theories to justiify whatever they do: inflation target, Taylor rules and so on.

He says things like modern finance are a bigger fraud:

In an article that I wish I had written myself, Viktor Shvets, head of Macquarie’s AsiaPac equity strategy, accurately explains “Modern Finance”, Not Bitcoin, Is The Real Fraud.

If one describes Bitcoin as a fraud, how would one describe a ‘financial cloud’ that is at least 4x-5x larger than the underlying economies? It is unlikely that US$400 trillion+ of financial instruments circulating around the world would ever be repaid and most are now backed by assets that are already either worthless or are diminishing in value. How does one describe rates and the yield curve that are either directly determined by Central Banks (BoJ or PBoC) or heavily influenced by them (Fed or ECB)?

While we maintain that despite the presence of US$7.5 trillion of excess reserves (amongst G4+Swiss central banks), global deflationary pressures are so strong that break-out of inflationary pressures is unlikely. However, if public sectors continue to insist on suppressing business/capital market cycles, then some form of full credit market nationalization and/or currency debasement becomes inevitable.

Even fractional reserve lending:

If someone had a Yap Island stone and wanted to lend out three of them, that would not be possible. Nor can one have $100,000 worth of gold or Bitcoin and legally lend out $1,000,000 of it.

If someone tried to do so they would be convicted of fraud. Yet, via fractional reserve lending, banks can lend out money they do not have, and few think anything of it.

There are two distinct problems with fractional reserve lending as it exists today.

  1. Duration Mismatches
  2. Money Creation Out of Thin Air

CDs provide an easy to understand example duration mismatches. A person buying a 5-year CD gives up the right to use his money for 5-years in return for an agreed upon interest rate. Bank can and do lend out such money for 20 years.

Historically, borrowing short and lending long caused numerous bank runs and financial crises. Note that there are no reserves on savings accounts. Banks can lend that money out while guaranteeing you availability. If everyone tried to get their money at once, the system would implode. We have seen numerous examples in Europe recently.

It is a pity that much of this so called modern finance tools have become so ingrained in our textbooks and thinking, that we hardly question them. Infact these are the most admired jobs and calling anything which challenges the status quo is called as fraud. But then those whose houses are made of glass should not throw stones at others..

 

Given the technology at hand, why don’t the equity markets move to a T+0 settlement cycle?

September 28, 2017

This blog pointed earlier to how US is moving to a T+2 settlement in equity markets whereas India had it more than a decade ago.

JP Koning asks why don’t we move to a T+0 settlement cycle given we have the technology now? He says there is a reason why these systems are slower. The idea is to settle and net transactions at the end of the day rather than immediate to avoid repitition:

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We need to talk about how female economists are treated

September 28, 2017

Caroline Freund a senior fellow at the Peterson Institute for International Economics has a damning post on state of affairs in economics.

Economists have this habit of talking of talking about diversity, inclusion etc. But fail to look within:

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Why study Economic History?

September 28, 2017

Anton Howes. Prof of Economic History at King’s College has a piece based on his first lecture:

What is Economic History? It is about asking some of the biggest and most interesting questions imaginable. Why are we, today, so rich compared to our ancestors? Why are some countries so rich and others so poor? Why were a handful of European countries able to conquer much of the rest of the globe? Those are just a few of the questions we will explore this year, together.

You see, Economics is not just about money, or exchange, or the distribution of resources. It is about human action, and interaction. It is a science of society. And History — the record of human experience — provides us with the raw data. It is the source of all of the models, all of the theories of how society works. And it is their test. History is the evidence — it is the rock upon which an economic theory survives, or is broken.

But humans are complicated: we are diverse and unpredictable. The challenge for a social science is thus far greater than that for the physical, natural sciences. We will thus be asking big questions, but we will not always find answers. This is something I hope you will get used to at university, where we hope to push at the boundaries of human knowledge, not just to learn what is already known.

I have also tried to make the scope of this course as broad as possible — I have tried to be ambitious! We will not only be looking at the West, and we will not only be looking at the recent past. The course will take us as far back as the Neolithic — to over ten thousand years BC — all the way to the present. And the breadth of subjects will be vast: from looking at the causes of the Great Depression in the 1930s, to investigating the institutions that sustained long-distance trade in medieval North Africa. We will look at sweeping theories of Economic History covering entire continents; and we will look at studies of very specific instances that still shed valuable light on the biggest and broadest of questions.

At the same time, we will use economic principles to understand history. This will not be history as you know it — one king or queen after another, one politician after the next. Instead, we will explore the fundamental forces that give rise to empires, and destroy nations; the institutions that give rise to trade, and the fundamental sources of human prosperity.

I can’t wait to get started.

🙂

Here is the course outline.

Was an economic theory behind the Vietnam war?

September 25, 2017

Keynes had famously quoted:

“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”

Just that influence is beyond economics and extends to even warfare…

Prof. Peter Hilsenrath of University of the Pacific has piece on how W.W. Rostow’s economic idea was key to US taking on Vietnam:

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The coevolution of kinship systems, cooperation, and culture

September 25, 2017

Prof Benjamin Enke of Harvard Univ analyses the relationship between kinship, cooperation and culture. This issue is perhaps the holy grail of all social studies.

He says that societies with tighter kinship cooperate more within but poorly outside:

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Amazon looks for a new headquarters whereas Google plans to build a new city…

September 22, 2017

There is lot of speculation ever since Amazon announced it wants to set a second headquarter. This has led to lots of speculation on which cities fit the bill. Summary of probable locations with pluses and minuses here.

Meanwhile, Google wants to build a new city to experiment and innovate:

Amazon is looking for a city for its new headquarters. Boring! Google is looking to build a city. The FT reports:

Google’s parent company was working on a sweeping plan to build a city from the ground up, the executive in charge of its urban innovation business said on Tuesday, in an attempt to prove that a technologically-enabled urban environment can improve quality of life and reduce cities’ impact on the environment.

…“We actually want to build a new city, it is a district of the city, but one that is of sufficient size and scale that it can be a laboratory for innovation on an integrated basis,” said Dan Doctoroff, head of Sidewalk Labs, at a talk to the San Francisco Bay Area Planning and Urban Research Association.

Sidewalk was “quite far along” in its search for a city with which to partner to build a testing ground for new approaches to transport, infrastructure and possibly even governance and social policy, he said.

 

How these big corporations are going to shape and reshape economic geography is there to see. Not that it is anything new really. We have an example of Tatas shaping Jamshedpur..

The rise of robots in the German labour market

September 22, 2017

Wolfgang Dauth, Sebastian Findeisen, Jens Südekum and Nicole Woessner analyse the impact:

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Why does Tea/Coffee disappear but donuts/snacks don’t in meetings?

September 22, 2017

Prof Anthony Gill (Political Science at the University of Washington) has an interesting post, Though, the idea is picked from faculty meeting but I guess it applies to most other meetings where we have tragedy of commons at work.

He wonders why people at meetings don’t finish donuts but coffee is mostly finished:

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Is it fair for Governments to call people tax thieves? An analysis from Pakistan..

September 21, 2017

In many ways India is different from Pakistan and in many ways we are just similar. In India we are often told that how Indians don’t pay taxes. Same is the case in Pakistan too. Just that both countries don’t realise how much we are taxed from other sources. There is nothing here that is not taxed.

Shahid Mehmood an economist on Pakistan side of things:

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What provides explanations for the rise of populist parties across the globe? Case from Germany…

September 21, 2017

Davide Cantoni, Felix Hagemeister and Mark Westcott have a piece. 

As expected, most political comparisons in Germany lead us to Nazis:

 

Promoting Hong Kong as a hub for Corporate Treasury: Issues and Solutions

September 20, 2017

A nice speech from Normal TL Chan, CEO of the Hong Kong Monetary Authority.

He points how HKMA found out that taxation prevented Corporates to set up Treasuries in HK. Then they urged the govt to rectify the same:

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