Free Read on Behavioral Public Economics

Policy and Choice -Public Finance through the Lens of Behavioral Economics
William J. Congdon, Jeffrey R. Kling and Sendhil Mullainathan, Brookings Institution Press

Rodrik Talk at the World Bank- 'a liberal mugged by globalization'

Development Economics Lecture Series: Prof. Dani Rodrik from World Bank on Vimeo.

A few years ago we were in El Salvador, an economy which has done a tremendous amount in terms of liberalizing its economy, privatizing, stabilizing. Nothing essentially wrong that you can point to in terms of the contractual legal environment. It wasn't the government that was just hell-bent on taxing everything. Quite the opposite. And nothing except for garments had taken off; and garments had taken off because of some special trade privilege in the U.S. market, but nothing except for that. You ask people: If I give you $25 million, what would you invest in in the Salvadorian economy, and they would think about it a little bit and then they would say: Well, can I put it in Miami? Do I have to invest in El Salvador? That's the kind of economy where, when you don't see any Schumpeterian rents--we forget. When we think about Schumpeterian rents, we think it's just about rich countries. Rich countries: Schumpeterian rents are important for innovators, because they get a new product and they need to ensure they have at least some profits from investing in those high risk activities. But in developing countries too there are unique Schumpeterian rents for investors willing to go into new areas, new industries. Capital likes to get a return. Exactly. And when it's risky and when there are huge spillovers to the rest of the economy, the private return is going to be way below what the social return is, so you are not going to get the right kind of transformation. In that kind of a setting it's not government failure that's blocking transformation. It's just a bunch of market failures associated with low levels of income. And there you do want the government to come in and actually do some stimulating

-from the podcast interview on Econ Talk


Structural Change, growth and jobs


Freedom and the Global Economy

Assorted on Well Being Measures

Measures of well-being

Measures of Australia's Progress, 2010

The State of USA
Gauging the Well Being of Happiness Measures.

Why can't we get rid of the census?

The main ways of producing population statistics internationally include census type of approaches (short-form, rolling census), surveys and use of administrative sources. The Beyond 2011 Programme will investigate all these approaches and does not rule any out at this early stage...

Some data that might work is: the Council tax register, the Electoral roll, a register of patients using the NHS, Child benefit, pupils registered in schools and pension claimants data.

-Census 2011: can we do without it?

Seven Wisdoms on the Sri Lankan Economy

Koshy Mathai, the highly-respected and much-sought-after IMF Resident Rep in Sri Lanka left the audience with seven points of his wisdom to ponder if Sri Lanka is to sustain its current euphoric growth experience...

The IMF and its staff have a remarkable skill in using a specially articulated polite language when it comes to addressing a host country’s general public. This is understandable because the IMF is a guest in a host country and should not overtly or covertly rouse popular sentiments or add to the fears of people by speaking the wrong language and be an embarrassment to its host...

Risk factors need urgent attention
Koshy did not say it explicitly, but he implied that the achievements so far are not adequate for sustaining the growth momentum in the medium to long run. He coated it nicely saying that there are “risk factors” facing the economy and they need be addressed urgently and permanently.
In my view, his implication was that the longer Sri Lanka would delay action, the worse would be the results it will have to reap. It is like a cancer patient refusing stubbornly to take medication in time and one fine day finding the cancer invading his vital systems.
To overcome these risk factors and place the economy in a sustainable growth path, he suggested a course of action that embodied the seven points of his wisdom...

One should not forget that the IMF benchmarks are too liberal and were revised upward when it found that it was the only way to save the stand-by arrangement.
Its budget deficit at seven per cent and debt level at 80 per cent, both of GDP, are unsustainable. Therefore, in the long run, there is no alternative but to discipline the budget, as now identified by Koshy too...

In this context, according to Koshy, the Government’s recognition of the need for developing five hubs in Sri Lanka is an important step taken toward the modernisation of the country’s economy.
While all hubs will help Sri Lanka to expand its services sector and sell services to the rest of the world, the knowledge hub will develop Sri Lanka’s human capital base. The early signing of CEPA with India will help Sri Lanka to develop its knowledge base by establishing higher academic institutions in the style of reputed Indian institutes of Technology with Indian partnership.

-Want to uplift the economy? Follow the 7 wisdoms of Koshy Mathai

Quote of the Day- IMF on Sri Lanka program

Did they meet the targets;

So we think that the target was met, but we can't confirm that, and that is why the government has formally asked the Board to not consider that criterion in deciding on this review. It's essentially like a technicality.

Visualization of the Day

A Graphical Overview of the 2012 Republican Field

Evolution of Household Durables in Egypt

Poverty is widespread in Egypt, affecting 40 percent of the population, and there are deep pockets of poverty. The 40 percent overall poverty rate in 2005 represents 28 million people, of which 13.6 million (19.6 of population) are in absolute poverty, and even more, 14.5 million (21.0 percent), are near-poor. Furthermore, 2.6 million of the poor (3.8 percent of population) are extremely poor (see Table 1, panels A and B). Many people are also concentrated around the poverty line, meaning that a miniscule decline in monthly consumption of just LE 4 will make additional 2.3 percent of the population poor. By the same token, concentration of the poor around the poverty line means that even a small income boost can move more than 2 percent of the population out of poverty

via Egypt Poverty Assessment Update- World Bank

Egypt - Binding Constraints to Growth

The foregoing review of the literature and relevant facts on constraints to growth in Egypt suggests a short list of prime suspects that may deserve deeper investigation(Figure 10). Access to financing, notably, does not appear to be the main recent or current obstacle to growth; real interest rates would be much higher and the external current account under greater pressure if indeed businesses were strongly competing for funding of an abundance of profitable investment ideas. At the same time, there is a question of whether the limited available data really tell the full story: business complaints about lack of access to financing may reflect some nonprice rationing of credit, especially through the state banks, and access to finance for small enterprises and farmers may constitute a binding growth constraint for that sector. The latter would reflect the inefficiency of the financial system in allocating savings to domestic investments rather than lack of domestic or foreign savings, but also capacity constraints on borrowers. The ongoing reform of the financial sector (which by late 2006 had shifted more than half of the banking sector to private ownership, along with governance reform at the remaining state banks and more generally a modernization and liberalization of financial institutions) thus tackles a constraint that would probably become binding soon. But ongoing growth and rising investments may also move the economy, in the near future, to a point where low national savings (reflecting high public dissavings) constitute a critical constraint, unless access to foreign savings (notably higher FDI dedicated to greenfield investments rather than one-off privatizations) could be durably expanded.

32. There is considerable evidence, including surveys and comparative rankings, as well as Egypt’s difficulty in moving toward new higher value-added products, pointing to appropriability of returns as a critical constraint. Private returns are reduced through the high cost imposed by complex regulations and inefficient government services, but perhaps also through the high cost of experimenting and exploring new production ideas. Recent bold reforms have focused on this area, particularly in the tax system and trade regulations, and the concomitant pick-up in growth is consistent with the view that these reforms have been addressing critical constraints. By contrast, a dearth of complementary factors does not appear among the prime suspects of having held up growth—though, again, there is little doubt that over the longer run, and as sophistication in the economy increases, Egypt will need to bolster its human capital if it wants to continue growing.

33. The authorities have started to tackle the high fiscal deficit with a view to halving it to around 4 percent of GDP by 2010, and thus bringing public debt onto a declining trajectory. As indicated above, implementing this plan would help forestall potential debt overhang effects, contribute to greater efficiency of financial intermediation, and help raise national savings—all potential, if not actual, constraints on growth.

34. Overall, the Egyptian reforms launched in 2004 appear remarkably apt at focusing on the most critical constraints and thus maximizing the growth effect out of a limited set of reforms. Since removing the most critical constraint is likely to give both the fastest and the biggest “bang for the buck,” the strategy might also have been the politically most feasible approach, maximizing the return on political capital which, for any government, is always limited. Further reforms aimed at easing the cost of regulations will likely continue to have high payoffs. Increasingly, however, reforms with different political economy characteristics, such as revamping education or reigning in the fiscal deficit, will become the critical challenge. Since these steps take more time (for design, political consensus building, implementation, and pay-off) the authorities are well advised to use the tailwinds generated by the recent reforms to start tackling these more distant constraints. This would reduce the risk that the recent growth episode will become another tale of a growth spurt that fizzled out because some deeper constraints were not addressed.

35. As the various reforms unleash entrepreneurial spirit and investment in Egypt, more attention may also have to be paid to potential pitfalls highlighted by the “Theory of Second Best.” For example, with energy highly subsidized, and energy prices in Egypt among the lowest in the world, lifting financing constraints or raising private returns on investment may trigger higher investment in energy-intensive activities that may not optimize social returns. As highlighted at the beginning, there may be no escaping the fact that, while a few simple bold measures can work wonders for a while, sustaining growth will require reforms along many dimensions and paying attention to the complex interaction among them

-Egypt--Searching for Binding Constraints on Growth

The Great Stagnation in Brief

From The Economist blog;

Mr Cowen's book can be very briefly (too briefly) summarised as follows. The rich world faces two problems. The first is that a decline in innovation has reduced the growth rate of output and median incomes, making it hard for rich countries to meat obligations accepted when expectations were higher. The second is that a lot of recent innovation is occuring in places like the internet, where new products are cheap or free and create very few jobs.

This is Tyler Cowen himself summarising the major theme of the book;

Beyond the income slowdown, there is a further worry: an increasing share of the economy consists of education and health care. That trend is not necessarily bad, but in these two areas, results are often hard to measure. If health care costs rise 6 percent in a year, for example, that counts as higher G.D.P., but how much is our health actually improving? It’s an open question. America spends more on health care than other countries, but those expenditures don’t seem to produce uniformly superior results. And while there have certainly been gains in medical treatment, we may be overvaluing them. In education, we are spending more each year, but test scores have stagnated for decades, graduation rates are down and America’s worst schools are disasters.

There is an even broader problem. When it comes to measuring national income, we’re generally valuing expenditures at cost, rather than tracking productivity in terms of results. In other words, our statistics may be deceiving us — by accepting, say, our health care and educational expenditures at face value. This theme has been emphasized by the PayPal co-founder Peter Thiel in his public talks and by the economist Michael Mandel in his writings...

Science should be encouraged with subsidies for basic research, as well as private charity, educational reform, a business culture geared toward commercializing inventions, and greater public appreciation for the scientific endeavor. A lighter legal and regulatory hand could ease the path of future innovations.

Middle East Fact of the Day- A message to Dictators and Politicians

Changes in citizens’ perceived well-being merit close attention as they provide clear messages to government which may not be obvious using traditional measures of progress.

Wellbeing in Egypt and Tunisia decreased significantly over the past few years, even as GDP increased. In Egypt, where demonstrations have prompted President Hosni Mubarak to give up power after elections this fall, the percentage of people "thriving" fell by 18 percentage points since 2005. In Tunisia, where mass protests toppled the country's government last month, the percentage of people Gallup classifies as thriving fell 10 points since 2008

Related:
Understanding How Gallup Uses the Cantril Scale

The Cantril Self-Anchoring Scale, developed by pioneering social researcher Dr. Hadley Cantril, consists of the following:
Please imagine a ladder with steps numbered from zero at the bottom to 10 at the top.
The top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you.
On which step of the ladder would you say you personally feel you stand at this time? (ladder-present)
On which step do you think you will stand about five years from now? (ladder-future)

Economic History Chart of the Day- Roman Empire

via Brad Delong

Related:
Edict of Diocletian /, Robert Allen,

Assorted Monetary Policy Games

Cartoon about Price Stability

Become the ruler of Finanzity! Finanzity is a web-based fast-action game specially designed to help make learning some economic concepts easier

The Great Stagnation on Kindle

Yes, I agree with Kevin Drum;

The problem with this is that the Kindle sucks at rendering tables and charts. The screen cap on the right, for example, shows a chart from Tyler's book. As Kindle charts go, it's actually not too bad. But what's on the X-axis? It appears to start with 1455, and obviously the numbers go up. I get the idea. But the actual details are completely lost. Later in the book there's another table so badly rendered that I can't make it out at all.

In the case of "The Great Stagnation," this isn't too big a deal. I know what the chart above is getting at, and the table at the end is one I've seen before. But other nonfiction books don't fare so well. Gregory Clark's Farewell to Alms, for example, relies heavily on lots and lots of fairly complex charts and tables, and they're rendered so badly (unreadable graphs, table columns that don't line up, etc.) and placed so haphazardly that they made the book almost impossible to absorb properly. To this day, I'm not sure if my disagreements with his thesis are real, or mere artifacts of the fact that the e-version of the book was really hard to follow. In any case, that was the book that made me give up on the Kindle entirely for nonfiction. Until now.

Though the Kindle sucks in many ways, it is still a great way to get books for someone in a poor developing country.

Book Forum- The Great Stagnation

Tyler Cowen's The Great Stagnation;

I’m also persuaded by the median income numbers because they are supported by related measurements of other magnitudes. For example, another way to study economic growth is to look not at median income but at national income, gdp, or gross domestic product, the total production of goods and services. Charles I. Jones, an economist at Stanford University, has “disassembled” American economic growth into component parts, such as increases in capital investment, increases in work hours, increases in research and development, and other factors. Looking at 1950–1993, he found that 80 percent of the growth from that period came from the application of previously discovered ideas, combined with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future. In other words, we’ve been riding off the past. Even more worryingly, he finds that now that we are done exhausting this accumulated stock of benefits, we are discovering new ideas at a speed that will drive a future growth rate of less than one-third of a percent (that’s a rough estimate, not an exact one, but it is consistent with the basic message here). It could be worse yet if the idea-generating countries continue to lose population, as we are seeing in Western Europe and Japan.

We will be discussing about the book for the next few weeks.

Crazy Book Pricing- Decline to Fall: The Making of British Macro-economic Policy

Decline to Fall: The Making of British Macro-economic Policy and the 1976 IMF Crisis-Douglas Wass

Kindle edition costs USD 80
Hardcover on Amazon- USD 125

Related:
A review of the book from F&D;

In the subsequent discussions between U.K. and IMF officials, the main issues were fiscal adjustment and the exchange rate. Particularly on fiscal adjustment, according to Wass, it became clear in the technical discussions that "there could be no meeting of minds on the logic," because the British officials viewed the IMF's financial programming approach as inapplicable to their economy. The officials were skeptical about the basis for targets for monetary growth, and about the assumed links between the fiscal balance and domestic credit expansion in an economy with an advanced financial system. However, the IMF had more of a meeting of minds with Chancellor Denis Healey, who agreed that monetary expansion on existing fiscal policies was likely to fuel inflation, although he disputed the scale of the adjustment that the IMF sought. Differences were eventually narrowed, partly by the IMF's agreeing to the authorities' commitment to fiscal measures to be taken only if growth in the second year of the program exceeded a certain rate.

Trinidad and Tobago- Dual Economy Growth Diagnostic

In the case of a dual, natural resource abundant economy such as Trinidad & Tobago’s, an aggregate view is not enough to understand the growth opportunities and binding constraints: we need to stress the growth opportunities of each sector and their interactions, since the
constraints may be different for non-energy and energy activities.

A major concern for Trinidad & Tobago is the diversification of economic activity, and preparing for the time when oil and gas reserves are depleted. The binding constraints to growth in the non-energy sector in Trinidad & Tobago are outlined in the following growth diagnostic tree. The rest of this work will attempt to identify which of these potential constraints to growth are binding.

-Trinidad & Tobago: Economic Growth in a Dual Economy

Belize Economic Outlook

IMF reviews Belize economy;

Key recommendations. Staff recommended a gradual increase in the primary surplus to 4½ percent of GDP, mainly through wage and pension reforms, to place the public debt on a firm downward path and reduce external financing needs. It also recommended continued actions to strengthen the financial system and welcomed improvements in the monetary policy framework. The authorities broadly agreed with the recommendations, particularly tostrengthen the banking system. They planned to seek consensus on needed fiscal reforms, but noted that, in the near term, social conditions strictly constrained the scope for fiscal consolidation.

The authorities seek to reinvigorate growth prospects and reduce the poverty
rate to 35 percent by 2013. The development plan for 2010–13 focuses on job creation and identifies sources of growth in tourism, agro-industry, and fishing. It rests on five pillars: developing small enterprises; strengthening export trade capacity; enhancing human development; addressing social dislocations and reducing crime; and managing environmental and natural disaster risk. The plan seeks to strengthen competitiveness by addressing infrastructure bottlenecks, high costs of financing, and red tape. It contains investment and social plans that will be assessed and integrated into the multiyear budget and presented to donors later this year.

LEHD vs LED?

Longitudinal Employer-Household Dynamics (LEHD) is an innovative program within the U.S. Census Bureau. We use modern statistical and computing techniques to combine federal and state administrative data on employers and employees with core Census Bureau censuses and surveys while protecting the confidentiality of people and firms that provide the data.

Local Employment Dynamics (LED) is a voluntary partnership between state labor market information agencies and the U.S. Census Bureau to develop new information about local labor market conditions at low cost, with no added respondent burden, and with the same confidentiality protections afforded census and survey data.

See also the following post from David Warsch;

Now meet Julia Lane.

Lane, 54, director of the Science of Science and Innovation Policy Program of the National Science Foundation, spearheaded the creation of the Longitudinal Employment-Household Dynamics (LEHD) program of the US Census Bureau, an enormous innovative data base – a “frame” of jobs over time — that permits the real world of the US economy to be interrogated by the models of unemployment dynamics for which Peter Diamond, Dale Mortensen and Christopher Pissarides shared the Nobel Prize in economics last week.

Instead of a Mention in Dispatches from Stockholm, what Lane got was the Vladimir Chavrid Memorial Award.

Don’t feel sorry for her, though. For one thing, she’s very much alive. For another, the ebullient New Zealander much more nearly resembles another Julia, Julia Child, than the somewhat dour Rosalind Franklin. And of course there’s that Chavrid Award.

Because I knew her to be immersed in the practical details of unemployment dynamics, Lane was the first person I called after the Nobel prizes were announced last October. We hadn’t talked for long before I began to realize that her story was as interesting as the winners’.

It began in 1994, when Lane read an article by Simon Burgess, of the University of Bristol, “The Flow of Unemployment in Britain.” I had been working on looking at the flow of workers through firms and I knew that even firms that had no change in employment across quarters both hired and fired workers simultaneously. But in his model firms had a desired level of employment, and only hired until they reached it and after that they didn’t do anything more. So I called him up and I said, you don’t know me from a bar of soap but that model is just dead wrong. What my data show is that even when firms don’t change their employment levels there’s this huge churn through the work force. Even firms that are laying workers off are still hiring.”

Economists vs Politicians

economists,politicians,physicists,statisticians

Advice to a Young Statistician

He had grown up with numbers. “My dad
was a truck driver and salesman and a good
amateur athlete. He kept score for the baseball
leagues and the bowling teams, stuff like that,
and because of that I grew up with numbers
around me. He liked doing math – not puzzles,
just numbers.

“And so I grew up always thinking I was
going to be a mathematician or something like
that. I’d get books out of the library – Maths
for the Million, that kind of thing.” He got a
scholarship to Caltech. “I got a real break there.
That was the first year they offered the scholarship,
and but for that I couldn’t have gone.” It
was evidently a remarkable family: all four of
the Efron siblings became academics. “My dad
gave us this pretty clear picture that we weren’t
suited for heavy work.”..

Bayesian methods are fine, but if you get too far into Bayesian
methods you quit thinking about inference because it all becomes automatic

Statisticians work at two basic levels. They can develop statistical methods, like linear models, or they can prove things about inference properties. The first is the one that makes you wildly popular with
people who use statistics for their work; I like to work at the second level.

In some ways I think that scientists have misled themselves into thinking that if you collect enormous amounts of data you are bound
to get the right answer. You are not bound to get the right answer unless you are enormously smart. You can narrow down your questions; but enormous sets of data often consist of enormous numbers of small sets of data, none
of which by themselves are enough to solve the thing you are interested in, and they fit together in some complicated way.

-Interview with Brad Efron (Stanford statistics professor)

Tourism Fact of the Day

Powered by Tableau

According to the UN’s World Tourism Organisation, just 25 million people travelled abroad for holidays in 1950. Today, the figure is more than 800 million, representing an annual growth rate of about 6.5%.

Random Charts

Chart of the Day- The Revolution in Kenya

Kenya Economic Update

India and Kenya- IT sector comparision

There is a broad agreement that several key factors determine competitiveness in IT/BPO:(i)availability of employable skills(including IT skills), (ii) competitive costs,(iii)quality of infrastructure relevant to the IT/BPO industry,and(iv)and overall environment that is conducive to business. Of all these factors, countries can substantially increase their international competetive advantage if they execute smart strategies to increase their skills offering for the industry.

Given these developments, the lack of skills is now the most important binding constraint to the growth of the IT/BPO sector in Kenya. The country currently produces around 30,000 university graduates and about 250,000 graduates from high school annually. However, very few of these graduates, whether at school or university level, are immediately suitable for employment in the IT/BPO industry. According to the recent McKinsey Report (2008), the talent pool for the BPO sector in Kenya currently is very limited. Only about 5,000 graduates are suitable for employment in the industry. The report has projected the skills required for BPO sector to be 70 percent for voice and data operators, 5 percent for managers, 10 percent for engineers and 15 percent for technicians

Source: World Bank, Kenya Economic Update

Related:
Location Readiness Index