Archive for the ‘Economist’ Category

Ten Takeaways from the ‘Rethinking Macro Policy. Progress or Confusion?’

May 26, 2015

Oliver Blanchard sums up the progress which is mostly confusion:

On 15-16 April 2015, the IMF organised the third conference on ‘Rethinking Macro Policy’. In this column, IMF’s Chief Economist Olivier Blanchard presents his personal takeaways from the conference. Though progress in macro policy is undeniable, confusion is unavoidable given the complex issues that remain to be settled.

:-)

What is amazing to note is that people whose theories broadly failed during the crisis continue to reform the thinking post-crisis as well.  The so called neo-liberal thinkers continue to dominate whatever there is to economic thinking. Which other field allows this kind of progress?

RIP Prof Nash

May 25, 2015

Prof John Nash passed away in a tragic accident along with his wife.

No amount of words can do justice to his contribution to field of economics (above all game theory). Rest in Peace Prof.

Importance of neighborhoods in children’s life outcomes

May 12, 2015

Nice post by Gulzar Natarajan.

He points to studies which show the importance of neighborhoods in shaping children:

An excellent example of data journalism in the Times that highlight the works of Raj Chetty, Lawrence Katz and Nathaniel Hendren on how neighborhoods – schools, community, neighbors, local amenities, economic opportunities, and social norms – influence life outcomes. Briefly their two studies from the US show that not only do neighborhoods attract those who succeed (or fail), they also nurture success (or failure).

The first study tracked the life outcomes of the children in 4600 families in five large US cities in 1994-98 who won the Moving to Opportunity housing experiment (families living in public housing could enter a lottery in which the winners were offered a voucher to mover to better neighborhoods) lottery. The authors used the natural random selection experiment to track the outcomes of the move on younger and older children (the earlier studies clubbed both and found negligible effects). They also compared outcomes of those who won Section 8 subsidized housing vouchers which did not require moving to better parts of the city. 

….The second study uses earnings records to effectively track the careers and neighborhoods of 5 million people over 17 years. It reinforces the MTO experiment. The earlier a family moved to a good neighborhood, the better thee children’s long-run outcomes. The effects are symmetric, too, with each extra year in a worse neighborhood leading to worse long-run outcomes. Most important, they find that ech extra year of childhood exposure yields roughly the same change in longer-run outcomes, but that beyond age 23, further exposure has no effect. That is, what matters is not just the quality of your neighborhood, but also the number of childhood years that you are exposed to it. 

Importance of good company matters in all aspects of life..

Remembering Hayek on his 116th birthday..

May 11, 2015

One need not really remember likes of Hayek whose views either continue to haunt or be celebrated by econs/policymakers.

Nevertheless, Ryan Mcmaken pays a tribute to the Austrian scholar on his 116th birthday (8th May 2015):

Today is the 116th anniversary of Hayek’s birthday. Peter Klein summarizes his contributions in under 4 minutes here. Also, it’s 20% off all Hayek books and memorabilia in the Mises store. 

Many remember Hayek for his non-economic writings, but the core of Hayek’s economics contributions has been related to business cycles, prices, and the use of knowledge in the marketplace. Many of his key economics writings are included in our volume Prices and Production and Other Works, edited by Joseph Salerno. 

The Hayek-Keynes debate continues to be relevant today, of course, since Keynesianism remains broadly popular, even among people who have never heard of Keynes. Back when I taught introductory political economy, I found the short film “Fear the Boom and Bust,” which features a musical debate between Hayek and Keynes, to be a great little introduction to Austrian Business Cycle Theory for someone who knows nothing of the Keyes-Hayek debate.

There is a rap song at the end as well :-)

Why budget and experts should not obsess over fiscal deficit target…

May 11, 2015

Sashi Sivramkrishna of NMIMS (Bengaluru) has written a much needed piece. Slightly late as Budget hype is over but nevertheless.

It says Budget should be about governance and other issues. Fiscal Deficit is an outcome dependent on many factors and is not really in control of the govt. All this obsession only leads to fiscal gimmikry as finance minister only tries to meet the target and ignores the rest.

Nations, unlike households, do not face budget constraints. Fiscal defi cit targets therefore cannot be the objective of macroeconomic policy. Instead, budget discussions must focus on governance, supply-side bottlenecks and on policies to raise aggregate demand.

….It is time that the Indian government recognises the immense policy space available to it as a sovereign nation and does not succumb to unnecessary constraints imposed on it by rating agencies and media hype. So why are myths about the need to balance budgets propagated by the economics community? One possible answer is what Samuelson once mentioned to Mark Blaug:

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one  of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and ineffi ciency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in away that the long-run civilised life requires (qtd in Wray 2010).

This obsession over fiscal and inflation targets has all become so stupid really. It seems nothing else matters. Just like the west, we have moved macroeconomics to just these two numbers and two institutions (fin min and central bank) which has made us miss many a things.

Rothbard and Market Economics in China

May 5, 2015

Nice interview of Jing Jin, a Chinese economist on whether Asutrian economics is followed in China  — https://mises.org/library/rothbard-and-market-economics-china.

It seems Hayek and Austrian school is quite well known in China:

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A new buzzword – frontier economies?

April 30, 2015

I was reading this recent post on capital flows from IMF in frontier economies. I assumed frontier economies to be another name for emerging economies. But no, it is a different class as explained here:

There is a group of fast-growing low-income countries that are attracting international investor interest—frontier economies. Understanding who they are, how they are different, and how they have moved themselves to the frontier matters for the global economy because they combine huge potential with big risks. 

Get to know them  

The first thing to note is that some of these countries already have moved to the lower-middle income group. While a working definition of frontier economies is subject to further discussion, broadly speaking, these countries have been deepening their financial markets, such as Bangladesh, Kenya, Nigeria, Mozambique, and Vietnam.

Some also have been able to tap the international capital markets, such as Bolivia, Ghana, Honduras, Mongolia, Nigeria, Senegal, Tanzania, Vietnam, and Zambia. Their markets are, however, not as deep and liquid as those of the emerging markets, but compared to the latter, they offer higher returns and the benefits of a diversified portfolio.

Really? Another buzzword called frontier economies. IMF is another champion in all these naming gaming and creating buzzwords.

Further:

Many frontier countries are growing at a fast pace, in most cases helped by sustained efforts to achieve macroeconomic stability, and by building business-friendly institutions ( Chart 1). These economies have also made significant efforts to lower inflation through prudent fiscal and monetary policy ( Chart 2).

Most of these countries have made progress in strengthening their policy making apparatus, reducing excessive red tape and lowering trade restrictions. Reforms to change their economic structure have helped them unlock their potential, including  greater weight on the services sector, such as in Tanzania and Kenya.

In many countries, alleviation of their debt burden over the past decade has freed up money for investments in physical and human capital. Several countries received debt relief under the Highly Indebted Poor Country Initiative, but others reduced their debt outside this initiative, such as Kenya, Mongolia, Nigeria, and Vietnam.

These countries have deepened their financial markets at a fast pace—they offer more domestic financial services and products than their peers. Some have attracted international investor interest in their domestic bonds market and several have issued sovereign bonds in the international capital markets ( Chart 3).

Access to international capital markets means these countries can attract financing to address gaps in infrastructure, such as roads and railways, which could provide further impetus to growth. But as described below, market access also poses new financial risks that countries need to carefully manage.

Influences from outside their borders

Low interest rates combined with advanced economies shedding debt have pushed investors to search for higher returns on their investments, which has expanded their interest to invest in frontier economies.

The quest for resources by emerging economies has contributed to improved terms of trade and a surge in both domestic and foreign investment in resource-rich countries, such as Bolivia, Ghana, Nigeria, and Mongolia.

Domestic public investment has increased as the low debt burden, favorable external borrowing rates, and high commodity prices have increased access to private financing sources outside their borders. 

Just another group of countries which have shown some recent promise.  And all these are countries which soon are called lost ones as well..

Commodity prices: Over a hundred years of booms and busts

April 29, 2015

Nice article by Andrew Powell of Inter-American Development Bank.

He looks at this commodity price cycle from a really long historic perspective:

Narrative roots of public policy

April 28, 2015

Ricardo Hausmann has a great piece. Behind any policy the re is some narrative which shapes the policy intent. What is behind the narrative? Ideology and history:

According to President Barack Obama’s narrative, the United States has always been about a steady march toward freedom and equality, from the War of Independence to the abolition of slavery and the empowerment of women, minorities, and other previously marginalized groups, such as gays and those with handicaps. To the extent that this narrative is inaccurate, it is aspirational.

It is the role of politics to create, sustain, and reshape this shared sense of self, of us (and hence of them). It is an illusion, but a socially created illusion. It is how Bavarians and Venetians in the 1860s, for example, became convinced that they were and had always been Germans or Italians. Likewise, only a new narrative – a new Geist – can persuade the British today that they are really Europeans.

Liberals, as the political scientist Drew Westen has explained, often refrain from the narrative of shared identity, perhaps owing to awareness that great crimes are often committed in its name. Hitler redefined the German Volk as the collective victim of an internal enemy that was tainting its blood – a type of narrative that, whether framed in terms of race, religion, or class, underlies genocide wherever it occurs.

But it was also a national “person” that Abraham Lincoln invoked in his Gettysburg Address. In just 272 words, Lincoln synthesized America as an ideal based on the proposition that all men are created equal. In this narrative, the Civil War was fought to ensure “that government of the people, by the people, for the people, shall not perish from the earth.”

As the philosopher Alasdair MacIntyre argued in After Virtue, narratives frame individuals’ moral choices. Likewise, narratives frame the choices that governments make. After his brush with Communists in Spain, George Orwell captured the essence of the narrative’s importance in his novel 1984: “Who controls the past controls the future; who controls the present, controls the past.

Superb. This is what sums policies most of the time- what is the narrative?

Paul Krugman’s Love Affair with France..

April 27, 2015

An article disputing Krugman’s assertion that austerity loving UK grew slowly that stimulus loving France.

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Rethinking macroeconomic policy…

April 23, 2015

Oliver Blanchard sums up the views on macro policy at recently held IMF/WB meetings.

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Why Indian mutual fund industry neglects North East India?

April 15, 2015

Chandan Kishore Kant of BS has a story.

The story is similar to limited banking in NE:

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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.

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A number of different institutional arrangements of monetary system..a discussion

April 13, 2015

Lucas M. Engelhardt has a nice discussion on this.

None of our textbooks discuss any of this and we are made to believe that current form of central banking is the best form. 

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Thomas Piketty visits Japan..

April 7, 2015

Nice piece by Yuriko Koike Japan’s former defense minister and national security adviser.

She says unlike US and others, inequality is much lower in Japan:

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Mudra Bank – new regime, old philosophy..

April 6, 2015

Debashis Basu reflects on the decision to create a new bank  – MUDRA bank.  He wonders the obsession to create new financial instis in each new govt:

For some strange reason, every new government wants to launch a new bank, or a major financial institution and multiple financial products. Previous governments have been responsible for superfluous organisations like IDFC with headquarters in Chennai, the Bharatiya Mahila Bank in 2013, the Rajiv Gandhi Equity Scheme, etc.

The Narendra Modi government, following the same path, may well outdo previous governments, because Mr Modi, like Indira Gandhi, believes the government alone can “fix” the many problems India has. In just 10 months, the government has launched Jan Dhan Yojana with a lot of fanfare and a financial product called the Sukanya Samriddhi Scheme in January this year. On April 8, probably with as much fanfare and full-page ads in newspapers, the government will announce the launch of the Micro Units Development and Refinance Agency (Mudra) Bank.

Is there a need for Mudra Bank? Well, arguments can always be cooked up to support a direct government intervention to solve any one of our many chronic problems. One such problem is inequitable availability of finance. Too much of capital goes to large companies and too little to small businessmen. This is unfortunate because study after study has proved that not only are smaller borrowers more honest in repaying debt, but collectively they have a huge economic impact.

Mudra Bank will be another such attempt:

Mudra Bank will be a Rs 20,000-crore institution, which would “primarily be responsible for refinancing all micro-finance institutions which are in the business of lending to micro and small business entities”. It will be supported by an additional Rs 3,000 crore from the Budget to create a credit guarantee corpus to guaranteeing loans being provided to the micro enterprises. It would partner with state-/regional-level coordinators to provide finance to the “last-mile financier” of small and micro business enterprises. Not to forget that it will “primarily be responsible for laying down policy guidelines for micro/small enterprise financing business; registration, regulation and accreditation/rating of MFI entities; laying down responsible financing practices to ward off indebtedness and ensure proper client protection principles and methods of recovery”.

It would also be “responsible for the development of a standardised set of covenants governing last-mile lending to micro/small enterprises; promoting right technology solutions for the last mile; formulating and running a credit guarantee scheme and creating a good architecture of last-mile credit delivery to micro businesses under the scheme of Pradhan Mantri Mudra Yojana.”

Phew! So Mudra Bank will be a lender, consultant, regulator, think tank and an agent of social change, all rolled in one. Unfortunately, if this is what Mudra Bank is supposed to be, it will suffer from a congenital defect at birth: too many conflicting objectives – something that beset Unit Trust of India earlier and still affects government-controlled banks and insurance companies. This is how all public sector units used to be conceived. Clearly, the babus who have drawn up the Mudra Bank seem to belong to the 1970s, too, not just the idea.

There have been so many in the past:

But wait a minute. What can Mudra Bank do that can’t be done now with some tweaking of the existing system? I dug around a bit and discovered, to my horror, that successive governments have focused on microlending for decades. As a result, the has already inherited a massive bureaucracy and welfare system meant for small businessmen. This includes:

  • Small Industries Development Bank of India
  • National Small Industries Corporation
  • National Bank for Agriculture and Rural Development
  • Credit Guarantee Scheme
  • Priority sector lending by all banks
  • Regional rural banks
  • Bharatiya Mahila Bank
  • National Scheduled Castes Finance and Development Corporation
  • National Scheduled Tribes Finance and Development Corporation
  • National Backward Classes Finance and Development Corporation
  • 18 State Financial Corporations
  • 25 State Industrial Development Corporations
  • Microfinance programmes
  • Assistance to Entrepreneurship Development Institutes
  • National Innovation Foundation
  • A Rs 10,000-crore fund announced in the 2014 Budget for promoting entreprneurship.

Mudra Bank will be backed by a Rs 3,000-crore credit guarantee scheme. But a credit guarantee scheme is already functioning for the past decade. Till August 31, 2014, cumulatively 1,599,128 proposals from micro and small enterprises have been approved for guarantee cover for aggregate credit of Rs 79,647.15 crore.

There are at least three ministries now involved in helping small business in some way or the other: finance; micro, small and medium enterprises; and a new ministry of skill development and entrepreneurship; apart from ministries like tribal affairs and social justice running their own sectarian schemes for tribals and scheduled castes, respectively. I may have missed a few more organisations and the many departmental schemes that try to put money extorted from taxpayers, into the pockets of chosen people.

This array of government companies, schemes and initiatives overseen by a vast bureaucracy, based on some warped but failed notion of government-delivered equity, was not enough for Mr Modi. He had to set up a new bank, another new bureaucracy, borrowing ideas of the 1970s, even as there is no accountability for taxpayers’ money already wasted on numerous initiatives to “support” small businesses of various kinds. And this from a regime that had promised minimum government. What a shame!

We have anyways made too much out of the change. All that is happening is packaging old wine in new bottle. Both central bank and government’s obsession with creating new banking organisations shows neglect/ignorance of India’s financial history. We moved form a highly differentiated banking structure to a consolidated one only to move back to differentiated one..

Just new names are being added to the old (shall we say rejected) ideas..

A tongue-in-cheek look at economics and society…

April 6, 2015

EPW has a new column which will occasionally look at such interesting pieces. It is written by Toothcomber which is the pseudonym of an officially retired economist musically disinclined to rationality. :-)

‘Toothcomber’ is intellectually descended from ‘Beachcomber,’ which was pen name of the English columnist J B Morton who presided over the Daily Express’ ‘By the Way’ column from 1924 to 1975. The present column has been stimulated partly by the kindly thought that an economics magazine deserves a regular dose of solid economics in it, and partly by the realisation that even if one were to deliberately set about doing a J B Morton on Economics, it might prove hard to come up with anything that could quite parallel some of the stuff that professionals in the field have been systematically dishing out—as mimicked in various minuscule pieces which Morton wrote on the subject, with titles such as ‘The Money Market,’ ‘Financial Note’, etc. ‘Economics: The View from Above’ is an irregular offering whose presiding spirit will be the philosopher Harry Frankfurt’s book On Bullshit. If any part of anything written here is found to make any sense to any reader who is not an advanced economic theorist, the author promises to go back to the drawing board and think deeply. He now has the time, as he has retired, or has at least been put out to pasture.

The first piece is on why onion prices are rising and second connecting economics to music:

This Note is intended to be of help to the millions of ordinary unlearned people who are wondering, in a battered sort of way, about the reasons for the sustained rise in the price of onions which we are now witnessing. A first step towards uncovering causation resides in considering the specifics of a closed, compact, convex, continuum economy in an epsilon environment characterised by almost-perfect autarky. A fuller picture is yielded by opening up the economy to world trade at border-prices, in which exchange at the margin is mediated by myopic discount rates. A good part of the burden of explanation would have to be borne by the operation of incomplete Arrow–Debreu contingent markets in an economy subjected to monetary sterilisation in the presence of debt-capitalisation; a steep and unprecedented increase in the repo rate; a failure to ensure anything more than partial convertibility on the capital account; insider trading on outward bills of lading; and quasi-transitive rationality on the part of agents experiencing animal spirits inspired by methylated spirits..

Hopefully you get the hang..

On April Fools’ Day, Planet Money Tries Out Economics Jokes..

April 3, 2015

:-) Nothing better than to celebrate April Fool’s day cracking economics jokes. As that is what econs have been doing for a while- fooling people.

The link is here. Just three jokes:

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Are equities overvalued?

April 2, 2015

Well, they have been for a while now. With economies in a perennial doom, the so called leading indicator of equities has a different story.

Prof. Michael Spence has a piece on the same:

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The coming emerging-market debt squeeze

April 1, 2015

Andres Velasco warns about upcoming  debt squeeze in EMEs.

Consider the following scenario, one that has played out time and again in emerging-market countries. Local banks and firms go on a borrowing binge and pile up dollar-denominated debt – debt that pundits consider perfectly sustainable, as long as the local currency is strong. Suddenly, something (an increase in United States interest rates, a drop in commodity prices, a domestic political conflict) causes the local currency to drop in value against the dollar. The debt burden, measured in domestic currency, is now much higher. Some borrowers miss interest payments; others are unable to roll over principal. Financial mayhem ensues.

This is how the Latin American debt crisis of the 1980s, the Mexican Tequila crisis of 1994, the Asian debt crisis of 1997, and the Russian crisis of 1998 unfolded. It was also how the financial crisis of 2008-2009 transmitted itself to emerging markets. Every time, borrowers and lenders claimed to have learned their lesson.

Not only could it happen again today; it could happen on a much larger scale than in the past. Taking advantage of ultra-low interest rates in advanced countries, emerging-market banks and firms have been borrowing like never before. A recent paper by the Bank of International Settlements shows that since the global financial crisis, outstanding dollar credit to non-bank borrowers outside the US has risen by half, from $6 trillion to $9 trillion.

The bulk of that debt is in Asia, with China alone accounting for approximately $1 trillion. Other big dollar borrowers include Brazil (over $300 billion) and India ($125 billion). Countries such as Malaysia, South Africa, and Turkey, plus Latin America’s more financially open economies, also have rising foreign-currency debts.

This time is never different really ..


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