Superb pointer from Utopia Blog:
Superb pointer from Utopia Blog:
Superb article by Prof George Selgin.
He comes from the free banking school which advocates banks issuing their own currency and managing their affairs with no central banks in picture. In such a case, one would imagine him advocating local currencies. But it is not the case as local currency does not help much if it does not enable trading beyond the local area:
Though the shortcomings of local currency are serious ones, they are far from being inherent shortcomings of all substitutes for official (national) currencies. On the contrary: far from being inherent, the shortcomings of local currencies are ones which have been purposely built into those currencies by persons seeking to make them serve an end quite at odds with that of making it as easy as possible for people to exploit potential gains from exchange.
There is, in fact, nothing to prevent other kinds of unofficial currency from commanding a national market. The key to having them do so is that, like modern bank deposits, they must be fully compatible with the existing monetary standard, and readily useful throughout the national economy, if not beyond it.
Historically, private banknotes have possessed these qualities wherever legal restrictions haven’t prevented banks from establishing branch networks or taking other measures to make their notes current beyond the banks’ headquarters; and it is conceivable that other forms of private currency, including privately-issued token coins, could also take the place of government-supplied alternatives, if only the government would let them.
So, while I applaud the effort of local currency proponents to break the Federal Reserve’s currency monopoly, I regret that they’ve chosen to sabotage this merit-worthy mission by linking it to the much less worthy one of keeping people from trading with “outsiders.”
As the ever-sensible Bastiat once observed, “The worst fate that can befall a good cause is not to be skillfully attacked, but to be ineptly defended.”
The Bastiat quote is quite apt to for the ongoing currency situation in Indian economy as well..
Interesting interview of Abhishek Lodha of Lodha Group which is building a greenfield city outside Mumbai – Palava
He says smart city is not just about technology:
McKinsey: What is a “smart city”?
Abhishek Lodha: A smart city is not just about technology. This misinterpretation has often led cities to make investments that are doomed to fail. Cities can be governed using technology but have to be designed with vision. I like to say that to make a place good to live, you need “CCTV” to work—citizens, community, technology, and vision. Probably because technology is more tangible than “community” or “vision,” people tend to grab it when they define a smart city.
When we started building Palava, we began with the classical definition. We used the notion of 5-10-15, which means everything you require daily should be within 5 minutes of walking, what you need every three to four days should be within a 10-minute walk, and things you use within a week to a month should be within a 15- to 20-minute walk.
When you start designing an entire city with this in mind, there are multiple benefits. Given our population, India can never build enough roads to solve our traffic problems. What we can do is design cities so you don’t need so many cars. It is also much healthier for people to walk more.
Interesting insights throughout the talk.
Wow. There is so much to learn and figure about monetary economics other than just inflation rates.
The Moneyness blog which has been a great source of education post 8 Nov 2016 has another post to think about. This one is on size of currency note. The blog says that India reducing size of the new Rs 500 and Rs 2000 note is in line with what practices elsewhere. He also points to this wonderful note which discusses various aspects of note design:
Though politics is important but one wants to keep it away given how polarised economics discussions have become nowadays. Given the huge event one is just interested in learning about alternate monetary arrangements taking shape in different societies/regions across India. These are the kind of developments which are kept distant from any monetary economics textbook, but are so important to understanding evolution of money.
This article by GS Radhakrishna tells you about how people are going back to barter system in a few places due to no cash:
In the days following the demonetisation of high-value banknotes on November 9, the Adivasis and rural poor of Andhra Pradesh and Telangana have fallen back on bartering to tide over the cash crunch. They exchange their goats, chicken, pigs, calves, buffalo, honey, tamarind, forest millets, jackfruit and gum for essential goods.
The immediate aftermath of the cash withdrawal caused a quandary for poor people in the border districts of Srikakulam, Vizianagaram and Visakhapatnam in Andhra Pradesh and Bhadrachalam, Khammam, Warangal, Adilabad, Bhoopalapalli, Kothagudem and Karimnagar in Telangana. Their employers continued to pay them in old notes, which the markets refused to accept, and new currency notes were not easy to come by.
Farmers and contractors said they had good sreason to pay wages in demonetised Rs 500 notes. “We did not get smaller notes ourselves and had only old notes,” said G Mallikarjuna Reddy, a landlord in Chintur in East Godavari district of Andhra Pradesh.
In this situation, help came from the Annalu, or elder brothers, as members of the Communist Party of India (Maoists) are known in these parts. The Annalu put pressure on traders to adopt the barter system, and used muscle power wherever they met with resistance.
This became explicit on November 22, a fortnight after demonetisation, when a poster on the wall of a residential school in Bayyaram, in Kothagudem district of Telangana, asked traders and farmers to accept forest produce from the people in exchange for essential goods. It was signed by Sagar, the spokesman for the North Telangana Special Committee of the Communist Party of India (Maoists).
The switch to a barter system was not limited to just the two southern states. In Chhattisgarh, for instance, petrol pumps on the highway from Bastar to Jabalpur are accepting payments in kind for fuel. Sahadev Ikshu, a farmer, said he had used tamarind to pay for petrol for his scooter. Other communities in the state are reportedly using honey, tamarind, Mahua liquor and forest fodder as currency.
All this is fascinating to read.
In some regions we are seeing digital payments rising in lieu of cash and in others we see reemergence of barter systems..
It is rare these times to read such an interview albeit of a former head of a bank.
There was a time when even banking heads appointed by the government had the courage to speak/criticise government and RBI decisions. You read banking histories of whichever bank and you come across quite a few of such stories of individuals standing up and expressing themselves even when appointed by government.
Now we have come to a time when even the heads of Private bank just agree whatever policy is made on banking. They all sing in similar tunes. See any budget or any monetary policy in last few years and you see most heads of private banks say the same thing. The same thing usually is: It is a good budget/policy and in line with our expectations. And this is not seen just in this government but even previous governments as well.
They don’t realise by singing in a chorus they create more damage than good. By agreeing to whatever policies they may prevent immediate attention but create a long term damage.
Take the recent currency withdrawal case.
As India moves towards GST which is seen as a decline of Federalism, in Australia talks are on removing Federalism altogether. This means the States in the country to be abolished and there will be just one central government.
Former prime minister Bob Hawke’s recent call for the state governments to be abolished is worthy of support.
Labor has historically been in favour of centralisation, while the Coalition has supported federalism. So, Hawke’s position is not surprising. But leaving aside party politics, there are good reasons why Australia should consider this change to its Constitution.
The reason Australia has a federal Constitution is a negative one. It was due to fear from the colonies of domination by each other or by the new national government.
Taken at its best, the adoption of federalism in preference to a unitary system was the necessary price of creating Australia as a nation. At its worst, it was a base compromise pandering to colonial jealousies, which now saddles Australia with an unnecessarily complex and expensive form of government.
Unlike in countries such as Nigeria, where federalism serves the purpose of providing for ethnic autonomy, Australian federalism solves no problem and confers no benefit.
The supposed major benefit of federalism is that it provides protection against tyranny by diffusing power. But federalism does not affect what governments can do to individuals, only which government may do them. Distributions of power are not as effective a protection of liberty as are restraints on power. Federalism cannot provide an effective limit to what the state and Commonwealth parliaments can in combination do to the individual. Only a Bill of Rights can do that.
So, Australia is left with nine governments and 15 legislative chambers for a population of 24 million. The costs of this are staggering. In 2002, the annual costs of federalism to the economy was estimated at A$40 billion – a figure that would be much higher today.
Making such a change would mean that, as in New Zealand and the UK, Australia would have a single (national) parliament with comprehensive lawmaking power. That parliament could delegate lawmaking authority to regions and/or local governments, in the same way as state parliaments currently delegate power to local authorities.
However, there would be no more disputes over which lawmaking power the national parliament had, and no doubt that national law overrode regional and local law. The legal system would be much simpler, and compliance costs to business and individuals radically reduced.
Australia would also have one department of education, one department of agriculture, one department of the environment and so on, instead of multiple agencies currently.
Disputes over shares of Commonwealth revenue allocated to the states is a constant feature of federal-state relations. All that would be a thing of the past. Expenditure could be determined according to the needs of people, irrespective of where they lived and without reference to artificial state boundaries.
The current focus on “reforming” the federation avoids the real issue: why have federalism at all? If we were writing a constitution from new, would we really recreate the current nine-government system? If the answer to that is “no”, there is a good reason to change it.
Interesting. Was not aware of this debate at all..
This is a part of economics/finance which is least studied but is important. Who controls financial purses (the male or female) in a household and why? Most of the time why is related to the cultural practices.
Prof Supriya Singh (Sociology in RMIT University) shares her recent research with a colleague on the topic. She looks at two cultures in Australia – Anglo Celtic and Indians:
Elaine’s Idle Mind blog has an interesting piece on history of currency in New England/Massachusetts.
The post says as money is nothing but an instrument of persuasion, what better than having guns to persuade :-). It further points how we actually had musket balls a currency!: Read the rest of this entry »
This blog has earlier posted on how most of economics advisory (should have added journalism as well) has become polarised and politicised. It is all about which political party one is siding with. Any article boils down to are you with the opposition or the ruling party?
One just came across this ET article which says critics of RBI losing autonomy have an axe to grind:
Zac O’Yeah (a part-time travel writer and part-time detective novelist based in Bengaluru) has a superb piece in the Hindu Business Line. A kind of piece which tells you so much about economics and history than several books on the subject.
He travels through villages of Kerala to figure history of St Thomas travels:
I jump off the bus in the coastal Kerala town of Kodungallur. As far as I can make out I’m the only tourist here, which is a relief considering how Kerala tends to be overrun with backpackers and rich foreigners in search of ayurvedic rejuvenation. But I am soon to learn that thousands of years ago Kodungallur was as infested with foreigners as any beach resort is today.
Walking past the typical small-town businesses — laminators and pharmacies, a biriyani joint called City Restaurant, an Internet café offering ‘100% Job Oriented Computer Courses’, the Sitara Beauty Collection that sells gift items, the Cranganore Muziris Bakery, and showrooms for Sansui and Sony home entertainment products — I sense an overall vibe of comfort. A neat little town.
It’s a little hard to believe, but this humble municipality was once a royal capital of the mighty Chera kings, who were very welcoming to people from the West. Even though the Chera dynasty lent their name to the modern State, Kerala, there are no remains of their palace except a jungly compound known as Cheraman Parambu to the east of town. A rickshaw driver offers to take me there and the place is so tucked away that he has to stop and ask for directions time and again.
I’ve read archaeological descriptions of the spacious palaces for emperors, mansions for their ministers, shrines for their gods, and halls and theatres. Now, nothing is left. I take a walk and poke around a bit when I hear children scream at me. They make strange, swaying gestures with their hands. As I listen carefully, I make out what they’re shouting:
‘King Cobra! Watch out! King Cobra!’
Scrambling off and stage-diving into the waiting rickshaw, I consider the astonishing fact (once I’ve caught my breath, that is) that there is still a ‘king’ living in the compound.
Having paid my respects to the kings of yore, I move on to explore other sights: a mosque, a temple and a church. These turn out to be pretty modern structures, but their traditions go way back. For example, the small Cheraman Juma Masjid is said to have been founded during the prophet’s lifetime, making it one of the few mosques in the world with such an ancient pedigree. It is believed to have been converted from an abandoned Buddhist monastery gifted by a Chera king to Arab traders, possibly in return for helping make his port so prosperous. Therefore, the Cheraman mosque was named to honour the king. By 629 AD, when the original mosque was inaugurated, this had been a vital harbour for hundreds of years.
A longish piece but worth it.
Kerala and its amazing history barely finds any mention in textbooks on either economic or political history. But this is how it should start especially in economics. There is so much to learn and figure from this piece of land which was just so productive so long ago…
Today is truly a RBI Board day on this blog.
Thanks to Prof Jayant Varma’s post, one went back to SEBI Board. While looking at whether RBI Board can disclose more information of its meetings. one need go very far. SEBI provides a template to show this can indeed happen and even shows the way forward.
Interestingly, SEBI’s Board has been following different practices compared to the RBI Board.
One report which was supposed to overhaul India’s financial sector was – Financial Sector Legislative Reforms Commission. One does not know the status of the report as there is lots of confusion around its status.
Though, parts of the report have gained traction and policy attention like those on setting an inflation target and constituting an MPC.
Given the attention on the Central Board of Central Bank, one was curious what does FSLRC say on the Board?
Part II of the report (page 16) looks at RBI Board. It said the Board should not have more than 12 members which is less than current prescription of 21 members:
The storm is clearly brewing now.
It has taken a while for followers of India’s macroeconomy to realise the importance of RBI Board. While they were busy singing praises for how the newly constituted MPC will change India’s central banking forever, finally it was the oldest RBI Board which took (or asked to take) one of the most important decisions in India’s monetary history. We should have asked for disclosure of RBI Board minutes (where all action is) than just MPC minutes (which are a drag anyways).
Ila Patnaik adds to the brew:
An interesting comment by Dr Manmohan Singh. More so they coming at launch of a book on history of economic ideas by Vinay Bharat Ram:
Economics should be studied not to find settled answers to unsettled questions but to warn on how not to be deceived by clever economists, former Prime Minister Manmohan Singh said quoting economist Joan Robinson. “When we study economics, what is the purpose of the study of the economics? It is not to find settled answers to unsettled questions but to warn us how not to be deceived by clever economists,” Singh said at launch of the book ‘Evolution of Economic Ideas – Smith to Sen and beyond’ by DCM Limited’s Chairman Vinay Bharat Ram.
“When we study economics, our impulse is not the philosopher’s impulse, knowledge for the sake of knowledge, but for the healing that knowledge may have to bring. It is for the heart to suggest our problems, it is for the intellect to solve them. The only purpose of intellect is to be a servant of social sympathies. That gives you one idea of what economics is all about,” Singh said.
This is superb bit of quoting by Dr Singh from history of economic thought.
As students of economics, these ideas/statements should be really well known to us. But it is a pity (or a shame?) that as none of this is taught, we get to read about them so randomly and then ponder/wonder over the words of wisdom….
Prof. Guido Alfani of Bocconi university says:
Some interesting links on the topic (HT:Economist’s View Blog)
Then there is another article by Prof Paola Subacchi of University of Bologna. She hits the nail on its head:
Where do we go from here? While we should appreciate Haldane’s candid admission, apologizing for past mistakes is not enough. Economists, especially those involved in policy debates, need to be held explicitly accountable for their professional behavior. Toward that end, they should bind themselves with a voluntary code of conduct.
Above all, this code should recognize that economics is too complex to be reduced to sound bites and rushed conclusions. Economists should pay closer attention to when and where they offer their views, and to the possible implications of doing so. And they should always disclose their interests, so that proprietary analysis is not mistaken for an independent perspective.
Moreover, economic debates would benefit from more voices. Economics is a vast discipline that comprises researchers and practitioners whose work spans macro and micro perspectives and theoretical and applied approaches. Like any other intellectual discipline, it produces excellent, good, and mediocre output.
But the bulk of this research does not filter into policymaking and decision-making circles, such as finance ministries, central banks, or international institutions. At the commanding heights, economic-policy debates remain dominated by a relatively small group of white men from American universities and think tanks, nearly all of them well-versed devotees of mainstream economics.
The views held by this coterie are disproportionately represented in the mass media, through commentaries and interviews. But fishing for ideas in such a small and shallow pond leads to a circular and complacent debate, and it may encourage lesser-known economists to tailor their research to fit in.
The public deserves – and needs – a marketplace of ideas in which mainstream and heterodox views are afforded equal attention and balanced discussion. To be sure, this will take courage, imagination, and dynamism – particularly on the part of journalists. But a fairer, more pluralistic discussion of economic ideas may be just what economists need as well.
Amen to that.
I mean the whole thing is such a close circuit (or a circus?) that all this crisis talk reads like a joke. As the author says the coterie of world economic policy comes from selected certain schools (read Ivy leagures in North East USA). The majority of coterie first rejects a mega event coming (amidst some opposition), then they decide the crisis is on applauding the minority dissenters and then they together look for the solutions! It is that simple. They are least impacted by any crisis as they are always deciding the big world game.
Unless we see more broad basing of economics and look at economists minus the usual tags we are not going anywhere. It will just keep going in circles. It is funny how a local economics person is never seen as an expert despite spending so much time in the region and sector. Whereas anyone from the coterie is seen as an expert on all the issues across the world.
Tamal Bandyopadhyay brings notes from a diary of a bank branch manager in Mumbai:
This 33-year old banker works for a private bank in Mumbai and heads a relatively new and small branch. For privacy, I am neither naming the banker, nor his bank. Every character and incident mentioned in this diary is true.
Back from a four-day holiday in the first week of January at Matheran, a hill resort in Maharashtra, with his three-year old daughter and wife, this man looks back at those 50 days as something surreal.
Edited extracts from his diary: