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

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.

Hmm..

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.

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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.

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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.

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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.

Hmm..

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:

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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 http://dsbb.imf.org.

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:

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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.

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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:

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Why Italian bonds remain riskier compared to Japanese despite latter having higher government debt?

June 6, 2017

The praise or blame as expected is on central bank doors.

Prof. Athanasios Orphanides who is also former head of Bank of Cyprus blames ECB for Italy’s woes:

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Arizona’s government has adopted new pro-Gold reforms

June 2, 2017

This blog had pointed how some US States are planning to allow gold/silver as currencies.

Now Arizona has acted to removing taxes on Gold and Silver:

Last week in Arizona, Governor Ducey signed into law HB 2014, which removes state-level taxation of gold and silver coins, and moves the state further toward treating gold and silver as simply another form of legal tender. By removing taxation, the legislation facilitates the more widespread purchasing and selling of gold and silver both an a hedge against inflation and as a medium of exchange. 

In March, Ron Paul testified at the Arizona legislature in favor of the bill, and noted he considers the legislation as part of an effort to create more room for “competing currencies” against the dollar. 

The HB 2014 easily passed through floor votes of both the House and Senate, although it remained unclear whether or not the bill would be signed into law. Governor Doug Ducey had previously vetoed similar legislation, likely motivated by tax revenue concerns. 

interesting set of developments in US despite all the noise…

The three kinds of economist jokes…:-)

June 2, 2017

Michael Munger has a great post on economist humor. He is apparently writing a paper to on the topic and asks to send jokes.

Mark Twain said, in Pudd’nhead Wilson’s New Calendar, that “Man is the only animal that blushes. Or needs to.” Our propensity to tell, or enjoy, jokes seems to parallel this need to recognize that we don’t always live up to our inflated sense of our own importance.

Problems of inflation are often studied by economists. Having myself been catechized in that church, I am still a bit sensitive to the particular branch of humor called “economist jokes.” You’ve probably heard them, often along the lines of “Economists were invented to make the weatherman feel better about his predictions.”

Why do economist jokes exist?I’ve been working, with my Duke colleague Geoffrey Brennan, on a paper on “economist jokes.” We are trying both to catalog and to explain the phenomenon of economist jokes. (If you know any good ones, please do send them along!)

In this essay, I will summarize the reasons we have come up with to explain why economist jokes exist, and to give an example of each of the three “types” of economist jokes that we have identified.

One could object that our theory is too abstract, or that our jokes are not funny, but c’mon, we’re economists!

Meanwhile, he says there are three kinds of economist jokes: funny, insightful and mockery. There is thin line of difference between the three categories. For instance insightful:

A joke may contain no unexpected alteration in point of view at all, but simply be intended to encapsulate or aphorize some feature of the economics profession. Whether this is “funny” to the listener may depend on whether that insight is recognizably true.

Here it’s worth noting that the truth may sometimes be exaggerated, which may make it even more true as a general description. Of course, the things that are “true” of economists are never true of all, and may not even be true of most real economists. But the exaggeration of a quality that all economists recognize can be the basis of amusement.

One of my favorite “insightful” jokes might also contain elements of mockery (although I must admit almost no one finds it very funny). The joke goes like this:

Three friends  –  a priest, a psychiatrist, and an economist  –  decide to play a round of golf. They get behind a *very* slow two-some, who, despite a caddy, are taking all day to line up their shots and four-putting every green, and so on. By the eighth hole, the three men are complaining loudly about the slow play ahead. The priest says, “Holy Mary, I pray that they should take some lessons before they play again. Standing around this much is a sin against God!” The psychiatrist says, “I swear there are people that like to play golf slowly, as a passive-aggressive reaction to their hatred of their mothers.” The economist says, “I really didn’t expect to spend this much time playing a round of golf. This is costing me a fortune.”

By the ninth hole, they have had it with slow play, so they tee off while the group in front is still on the fairway. Shouting “FOUR!” they all three hit, scattering the other golfers willy-nilly. Almost immediately, the course marshal comes up on his cart and admonishes the impatient threesome. “Those two guys are blind! They are firefighters who lost their eyesight saving people in a fire. Show a little respect!”

The priest is mortified; he says, “Here I am a man of the cloth and I’ve been swearing at the slow play of two blind men.” The psychiatrist is likewise also mortified; he says, “Here I am a man trained to help others with their problems and I’ve been acting like someone with a neurotic compulsion.” The economist stares at the ground for a moment, and then tells the marshal: “Listen, this is a terrible situation, and I feel awful that I didn’t see this before. Tell those good men that next time they should play at night.”

The point being that the priest and the psychiatrist are mostly concerned about their own socially embarrassing action, but the economist is concerned about the social optimum. It would be a Pareto-improvement, at least weakly, for the blind men to play at night. They would be no worse off, and the costs of the slow play would be eliminated since only blind people would be willing to play at night. Economists are concerned about the efficient allocation of resources, and much less about the distributive consequences of that allocation.

Does that mean that economists are “bad people?” You can hear the joke that way (and many people do consider this joke to be mockery in the negative sense). I don’t think, however, that it is necessarily a bad thing to think in terms of efficiency.

Regardless, there really is an insight to be had about the way that economists think.

Hmm.. 🙂

Then there are jokes which mix all three called portmanteau jokes.

Do send the jokes to Mr. Munger and please mark e a copy as well.

 

Economics textbooks continue to ignore entrepreneurship….

June 1, 2017

Interesting paper by Dan Johansson and Arvid Malm.

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The World Bank has bigger problems than bad writing…

May 31, 2017

Paul Romer recently raised a storm over wanting World Bank econs to wrote better but got sidelined. I mean how can you teach “the econs” from “The Bank”? Romer should have known better.

Noah Smith says problems are deeper than writing:

A picture is beginning to emerge of global financial institutions that are too hidebound and conservative. Faced with changes in both the global economy and economists’ understanding of recessions, both the World Bank and the IMF have too often resisted change rather than embrace it. It’s worth wondering if the root of the problem comes from the culture of economics.

Economists are, in general, an insular and hierarchical bunch. They are used to having the quality and value of their work judged only by other economists. The outside world is expected to pay economists’ salaries and listen to their advice, but not to question the value of what they do. But when this ivory-tower approach is applied to real-world organizations, the result can be unacceptable institutional inertia.

Perhaps it was this insular culture, rather than just bad writing, that Romer had really intended to shake up. If so, the deck was stacked against him from the start. Making economists open up and engage with the wider world — and make themselves vulnerable to criticism by intelligent outsiders — may be a task too great even for a famous and brilliant individual like Romer.

Nice bit…

 

Exorbitant privilege and the Triffin dilemma through forex swaps

May 31, 2017

The French said US has exorbitant privilege due to hegemony of US Dollar. Triffiin dilemma suggested that though US Dollar is a reserve currency, it implies that US will have to keep running trade deficits to keep supply of US dollar going to other countries. Thus the dilemma between looking at short term objectives and also playing a global role. Thus, both privilege and dilemma are connected in their own ways.

In this paper, Takeshi Kimura and Teppei Nagano say both these are present in forex swaps market as well:

Hmm.. never really thought about it..
The power of US Dollar extends much beyond the reserve currency role..

Was Greek crisis a Sovereign Debt crisis or Balance of Payments crisis? (Parallels with India’s 1991 crisis…)

May 30, 2017

Greece crisis will be studied for a long time to come.

In a recent note, Paul-Adrien Hyppolite (of École normale supérieure) says the crisis was a BoP one and not a sovereign debt one. (more…)