Assorted on India

India’s growth in the 2000s: Four facts

  The rupee: Frequently asked questions

Talk is cheap

Conclusion: there is precious little fundamental reason for the rupee to depreciate as it has done in 2011, and even less reason for it to depreciate at the speed of a Ferrari. If there are no fundamental reasons, what gives? Sentiment and expectations. The Centre has done everything possible to sour expectations and sentiment with regard to India. This has hurt. If this were not enough, the RBI messed up, by talking too much and stating that the rupee was a free floating currency. The market tested that ridiculous assertion. The market won. The RBI had to backtrack. Central bankers should be seen more, heard less. The rupee slide was aided and abetted by mismanagement of the interest rate and exchange rate policy. There is ample reason to believe that RBI is not independent, and that a considerable portion of mismanagement might actually be attributable to the Centre. Whatever the real cause, India is the loser.

The Price of Civilization

Like many Americans, I looked to Barack Obama as the hope for a breakthrough. Change was on the way, or so we hoped; yet there has been far more continuity than change. Obama has continued down the well-trodden path of open-ended war in Afghanistan, massive military budgets, kowtowing to lobbyists, stingy foreign aid, unaffordable tax cuts, unprecedented budget deficits, and a disquieting unwillingness to address the deeper causes of America’s problems. The administration is packed with individuals passing through the revolving door that connects Wall Street and the White House.

-Sachs, Jeffrey D. (2011-10-04). The Price of Civilization: Reawakening American Virtue and Prosperity (Kindle Locations 62-66). Random House. Kindle Edition.

Book Recommendation

10½ Things No Commencement Speaker Has Ever Said

The Harris School of Public Policy

Ph.D. students are required to pass four qualifying examinations offered by the Harris School: methods (statistics and econometrics), microeconomic theory, political economy, and a field exam in a substantive field of public policy studies chosen by the student and the student's advisor. These examinations will ordinarily be taken following two years of coursework. In exceptional cases, a student may propose an alternative to either the methods or the theory examination.

The Harris School's doctoral program (PhD)program - how's it rated among the public policy programs?

Why IMF did nothing when Russia defaulted

We hear relatively little about the struggles between “area” departments, which tend to be relatively sympathetic to the countries they oversee, and “functional” departments such as those responsible for monetary and fiscal policies, which tend to be more critical. Certain departments within the IMF are notorious for being more or less open to new ideas; one functional department during the period in question was informally referred to, less than fondly, as the thought police. Again, this is something about which one would wish to learn more.­...

The book turns next to the Mexican, Russian, and Asian crises. Although these episodes have been extensively analyzed, Boughton offers a few revelations. We are told, for example, how the IMF first learned of the peso’s impending devaluation not from the Mexican government but through an offhand remark by a high-ranking U.S. official. We learn that the reason the IMF did not do more to discourage Russia from defaulting was because of a telephonic miscommunication between Camdessus, on summer vacation in Bayonne, France, and the Fund’s man in Moscow, John Odling-Smee.­

At points the drama is compelling. One cannot help but be impressed by the number of emergency phone calls at 2:00 a.m., and by how frantically IMF officials shuttled to Moscow and Jakarta to keep the world economy from falling off a cliff.­

Boughton describes just how close the world came in 1995, in 1997, and again in 1998 to a “Lehman Brothers moment.” In retrospect it is clear that, already in the 1990s, something was dreadfully wrong with a global financial system that was so vulnerable to collapse. One wonders why the IMF did not do more at the time to rectify the problem.­

See the full review of the book by Eichengreen.

Thinking Fast and Slow

In the highly anticipated Thinking, Fast and Slow, Kahneman takes us on a groundbreaking tour of the mind and explains the two systems that drive the way we think. System 1 is fast, intuitive, and emotional; System 2 is slower, more deliberative, and more logical. Kahneman exposes the extraordinary capabilities—and also the faults and biases—of fast thinking, and reveals the pervasive influence of intuitive impressions on our thoughts and behavior. The impact of loss aversion and overconfidence on corporate strategies, the difficulties of predicting what will make us happy in the future, the challenges of properly framing risks at work and at home, the profound effect of cognitive biases on everything from playing the stock market to planning the next vacation—each of these can be understood only by knowing how the two systems work together to shape our judgments and decisions.

Meet the Economist- Columbia Professor Naidu

It was in Seattle that he first decided to go into economics. "You realized, 'There're not very many economists coming out of our political movement,' and so I thought I could be one of those," he explained.

He studied at the University of Massachusetts at Amherst and then at Berkeley before arriving at Columbia, focusing on political economy, economics history and labor economics. His first research paper, which he wrote with Michael Reich and Arin Dube, showed that an increase in the minimum wage did not, as many economists assumed, necessarily lead to an rise in unemployment.

He grew up in Newfoundland, where, he says, dinner occasionally meant moose curry. His parents came from, in his words, "small villages in the middle of nowhere, India." He said his visits to those places made a lasting impression on him.

"You're a 6-year-old and you see your counterpart, who's another 6-year-old, having blond hair from malnutrition," he said. "That will stay with you."

A few days ago, Naidu reflected on his experiences in the anti-globalization movement that emerged from Seattle in 1999. "It was exciting and exhilarating -- and it felt like we were winning," he said. "I think for like two years we were winning -- and I think we did win. Now, as a professional economist, I look back on that and think, ‘Wow, that was a great thing we did -- changing the terms of the debate on free trade and exposing the politics that were underlying what was supposed to be win-win for everybody and in fact might not have been."

"Even now that I'm teaching economics," he continued, "so many of the people that I hang out with, that I associate with, are people that I hung out with in that period."

"And that is what I think will happen with the Occupieds," he said. "Even if the movement goes away, the social networks that have formed will hang around. People will be friends, even if they're no longer camping together in the camps, and when strangers meet in whatever venues, they'll be like, ‘You were there,’ and there will be an immediate rapport. In the long run that will have a big political impact."

Chile's Economic and Social Challenges

Panelists included:
- Guillermo Calvo, Professor of Economics, SIPA,
- John Dinges, Professor of Journalism, CJS
- Nelson Fraiman, Director, Program on Entrepreneurship & Competitiveness in Latin America
- Nara Milanich, Professor of History, Barnard College
- Miguel Urquiola, Associate Professor of Economics, SIPA

Book Recommendation on Health Care Reform

A Sneak Peek At ‘Health Reform: The Comic Book;

I think Mitt Romney is the hero of this story. But I want to make clear that the way he’s portrayed in this book has nothing to do with his presidential campaign. Mitt Romney is the single person most responsible for health care reform in this country: Without his leadership we don’t get reform in Massachusetts, and without Massachusetts reform we don’t get national reform.

Cool Summarizer Tool

wikisummarizer

Debt Dynamics

Winner of the Coolest Statistical Agency on web

The revamped ONS website is just great- congratulations. Checkout their You-Tube Channel and the interactive charts

Latest Employment Data from ONS

Movies about the Financial Crisis

 

There are three ways to make a living in this business. Be first, be smarter, or cheat.

India - Pakistan Relations Assorted

Pakistani Foreign Minister Hina Rabbani on Indo-Pak relations

Pakistan, India, MFN: What are the implications? ;

In the intuition of economists, there is a gravity model in the affairs of men. Proximity and low transactions costs are incredibly important. The natural opportunity for India to grow international integration on all dimensions (goods, services, people, ideas, capital) lies in our immediate neighbourhood. India's connections into the region are shockingly below those seen for all other large countries. Doing better on connections with Pakistan would be a nice step forward.

For Discussion: Would the gravity model work when India is just too big for its neighbors unlike ASEAN?

Related:

The Gravity Model

Trade Frictions and Welfare in the Gravity Model

Gravity models are mathematical models based on an analogy with Newton s gravitational law and used to account for aggregate human behaviors related to spatial interaction such as migration and traffic flows. In regards to trade, the gravity model states that the volume of trade can be estimated as an increasing function of the national incomes of trading partners, and a decreasing function of the distance between them. Although the model’s ability to predict trade flows has been popular for several decades, it is often criticized for its lack of theoretical foundations. On August 6, 2002, Edward Balistreri presented his collaborative work with fellow International Trade Commission (ITC) economist, Russell Hillberry on an evaluation of the gravity model and its ability to replace traditional methods of welfare and policy analysis

Book Recommendation

'In Capitalist Revolutionary, Backhouse and Bateman cut through the misinformation, the caricature, and maybe even the web memes, to give us an actually useful understanding of Keynes as a philosopher offering a moral critique of our capitalist system.

According to Backhouse and Bateman, Keynes was essentially a man who wanted to create a revolution in how we thought about economic problems'

Peter Boettke highly recommends the book- 'the most informative and best read on Keynes that I have read recently'

The Economics of Good and Evil

Economics of Good and Evil-The Quest for Economic Meaning from Gilgamesh to Wall StreetTomas Sedlacek

There’s a song that says that rules and laws are created by lawyers and poets. Poets (in the wider meaning of the term) give rules meaning and spirit; lawyers give them form and letter. Similarly, we may say that a great economist can be either an outstanding mathematician or an excellent philosopher. It appears to me that we have given lawyers and mathematicians too large a role at the expense of poets and philosophers. We have exchanged too much wisdom for exactness, too much humanity for mathematization.

-Sedlacek, Tomas; Havel, Vaclav; Havel, Václav (2011-06-03). Economics of Good and Evil : The Quest for Economic Meaning from Gilgamesh to Wall Street (Kindle Locations 5420-5422). Oxford University Press, USA. Kindle Edition.

Think the quality of writing needs much improvement. 

Bangladesh Economy Blogs

Bangladesh Economic News
Centre for Policy Dialogue
Bangladesh Budget Watch

Photo Source: The Economist

Elizabeth Warren talk

The previous fall, Geithner huddled with top aides to develop what one called an “Elizabeth Warren strategy,” a plan to engage with the firebrand reformer that would render her politically inert. He never worked out a viable strategy—a way to meet with Warren without drawing undesirable comparisons—and so, like the president, he didn’t.

-Suskind, Ron (2011-09-20). Confidence Men: Wall Street, Washington, and the Education of a President (pp. 4-5). Harper. Kindle Edition. Related: Consumer Finance Protection Bureau

Tourism Spending

Real spending on travel and tourism increased at an annual rate of 2.6 percent in the second quarter of 2011 after increasing 2.8 percent (revised) in the first quarter. Growth in travel and tourism outpaced growth in real gross domestic product (GDP), which increased 1.0 percent in the second quarter after increasing 0.4 percent in the first quarter. The growth in real spending on tourism primarily reflected increases in total transportation and in recreation and entertainment.

Overall growth in prices for travel and tourism goods and services remained high, increasing 7.3 percent in the second quarter of 2011 following an 8.5 percent (revised) increase in the first quarter. The growth in prices for travel and tourism goods and services reflected increases in prices for traveler accommodations and for gasoline.

Definitions: 
Tourism spending. Tourism spending comprises all goods and services purchased by tourists (defined as people who travel for any reason). In the following tables, tourism spending is referred to as direct tourism output.

Indirect tourism-related spending. Indirect tourism-related spending comprises all output used as inputs in the process of producing direct tourism output (e.g., toiletries for hotel guests and the plastic used to produce souvenir key chains).

Total tourism-related spending. Total tourism-related spending is the sum of direct tourism spending and indirect tourism-related spending.

Direct tourism employment. Direct tourism employment comprises all jobs where the workers are engaged in the production of direct tourism output (such as hotel staff, airline pilots, and souvenir sellers).

Indirect tourism-related employment. Indirect tourism-related employment comprises all jobs where the workers are engaged in the production of indirect tourism-related output (e.g., employees of companies that produce toiletries for hotel guests and the plastic used to produce souvenir key chains).

Total tourism-related employment. Total tourism-related employment is the sum of direct tourism employment and indirect tourism-related employment.

Data Watch

Since the recession ended, businesses had increased their real spending on equipment and software by a strong 26%, while they have added almost nothing to their payrolls....

You can’t fault companies for investing in new machinery rather than hiring new workers. As two news reports detail, labor costs are rising, a function of both private and public pressures.

First, employers face a jump in health insurance costs. The Kaiser Family Foundation reported a 9% average increase in the premiums paid by employers this year. The average yearly cost to cover a family hit a record $15,073, up sharply from $13,770 in 2010.

Related:
Annual Capital Expenditures Survey 

Krugman's History of Macro

So, here’s the history of macro in brief.

1. In the beginning was Keynesian economics, which was ad hoc in the sense that on some important issues it relied on observed stylized facts rather than trying to deduce everything from first principles. Notably, it just assumed that nominal wages are sticky, because they evidently are.

2. In the 1960s a number of economists started trying to provide “microfoundations”, deriving wage and price stickiness from some kind of maximizing behavior. This early work had a big payoff: the Friedman/Phelps prediction that sustained inflation would get “built in”, and that the historical tradeoff between inflation and unemployment would vanish.

.....

7. The Lesser Depression arrives. It’s clearly not a technological shock; clearly, also, nobody is confused about whether we’re in a slump, as the old Lucas model required.

In fact, it looks a lot like what Keynes described, and old-Keynesian models work very well, thank you, both at explaining it and in making predictions about such things as interest rates and the effects of fiscal austerity. But the descendants of the Lucas project know that Keynes was wrong — it’s what their teachers and their teachers’ teachers have been saying all these years. They cannot accept anything resembling a Keynesian explanation without devaluing everything they’ve done with their intellectual lives.

Related: Stephen Williamson debates Krugman.

Discuss- are escalators decreasing?

Arnold Kling always gives us good brain food on economics;

There are multiple escalators in the economy. At any one point in time, some people are on up escalators, and some people are on down escalators. From 1970 to 2000, I think that cohort data would tell you that many more families rode escalators up than rode them down. From 2000 to today, my guess is that the proportion riding up escalators has not been as high.

Confidence Men

Brad de Long reviews Confidence Men;

Since the spring of 2009 I have became more and more alarmed by the economic policy choices made by the Obama administration. A new administration needs to (1) forecast what is most likely to happen, and (2) design and implement policies that will deal with what is likely to happen, The Obama administration did that. I think that some of its initial policies were wrong, but given the press of events I would give the administration moderately high marks for the policies it designed and implemented up through, say, April 2009.

Thereafter, however, things to me seemed to gradually fall apart. An administration has a third task it needs to carry out: (3) think hard about the risks--what if the administration has misjudged the situation? what if more things go wrong?--figure out what it needs to do to buy insurance against those risks, and do those things as well.
It needs to ask itself:

• What if we are wrong in our estimation of the situation--what might the world then look like three years from now? 

• What if more things go wrong in the next year or two--what might the world then look like three years from now?
• In those possible scenarios, what will we wish then that we had done today to prepare the way for dealing with the situation?
  
  ....

Why Obama chose the policies he did, why Geithner and Orszag and company were so optimistic in 2009, why the Reconciliation process was not teed up for emergency expansionary fiscal policy action if it turned out to be necessary, why Fannie and Freddie were not teed up for emergency mortgage action if it turned out to be necessary, why the administration turned so decisively away from unemployment and toward long-term deficit reduction in early 2010, why Summers and Romer did not wipe the floor with Geithner and Orszag in the long twilight bureaucratic struggle when NEC collegiality broke down, and why Bernanke forgot about the employment and output part of the Federal Reserve's dual mandate - these are all questions that I would dearly love to know the answers to.

Two and a half years ago I would have given long odds that Ron Suskind's book would provide me with a lot of the answers to these questions.

It does not.

Christine Lagarde's 4 Rs

A recent speech of IMF's Lagarde;

But before talking about solutions, we need to be clear about the problems. I would isolate three distinct, albeit related, issues—balance sheet pressures sapping growth, instability in the core of the global economic system, and social tensions.... I want to propose today four key policy dimensions needed to secure recovery and economic stability—repair, rebalance, reform, rebuild, the “4 R’s”.

First, repair. Before anything else, we must relieve some of the balance sheet pressures that risk smothering the recovery—on sovereigns, on households, on banks.

On sovereigns, advanced countries need credible medium-term plans to stabilize and lower public debt ratios. This must come first. But consolidating too quickly can hurt the recovery and worsen job prospects. So the challenge is to navigate between the twin perils of losing credibility and undermining growth. There is a way to do this. Credible measures that deliver and anchor savings in the medium term will help create space for accommodating growth today—by allowing a slower pace of consolidation.

Of course, the precise path is different for each country. Some have no choice but to cut deficits today, especially if they are under market pressure. Others should stick to their adjustment plans, but be ready to change course if growth falters further. Others still are probably pushing too hard today, and could slow down a bit.

One more point—it’s not just the what of the adjustment, it’s the how. In the short run, policymakers must focus on measures with the biggest bang-for-the-buck, that create jobs and kick-start growth, and that take distributional considerations into account. The how of adjustment is also important in the medium term, where fiscal plans should seek to support growth. I’m thinking of issues like tax reform, including by broadening bases. Equally, entitlement reforms will be essential in establishing long-term debt sustainability in virtually all advanced economies.

Policymakers must also deal with household and bank balance sheets.

In light of the jobs crisis in the United States, I welcome President Obama’s recent proposals to address growth and employment. At the same time, it remains critical for policymakers to clarify in parallel their medium term plans to put public debt on a sustainable path. In tandem with this crucial employment agenda, it is important to relieve overburdened households through actions like more aggressive principal reduction programs, or helping homeowners take advantage of low interest rates.

In Europe, the sovereigns must address firmly their financing problems through credible fiscal consolidation. In addition, to support growth, via private sector lending, all banks must have sufficient capital buffers.

The second “R” is reform. If repair was about getting the economy moving today, reform is about laying the foundations for a more stable economic future tomorrow.

A priority here is financial sector reform. On the plus side, we have broad agreement on higher quality capital and liquidity standards with appropriate phase-in arrangements. But substantial gaps remain in areas like supervision, cross-border resolution, too-important-to-fail, and shadow banking systems. We need international cooperation across all dimensions to avoid regulatory arbitrage. The fact that so many of these issues are still unresolved three years after Lehman should be of concern to us all.

We also need to develop and fine-tune macro-prudential tools to guard against financial risks. I’m thinking here of policies like having banks hold more capital when times are good or implementing maximum loan-to-value ratios to guard against housing price bubbles.

Under the reform banner, I would also include the social dimension. Employment must be central. It not only sustains demand, but supports human dignity. In the words of Dostoevsky, “deprived of meaningful work, men and women lose their reason for existence”. This is especially important among the young, who risk losing the race even before the starting gun has sounded. We should also seek growth that is inclusive, benefiting the whole of society.

The third “R” is rebalance. This has two meanings. First, it means shifting back demand from the public to the private sector, when the private sector is strong enough to carry the load. This hasn’t happened yet.

The second rebalancing involves a global demand switch from external deficit to external surplus counties. The idea here is straightforward—with lower spending and higher savings in the advanced economies, key emerging markets must take up the slack and start providing the demand needed to power the global recovery. But any rebalancing so far is largely due to lower growth. In some countries, rebalancing is being held back by policies that keep domestic demand growth too slow and currency appreciation too modest. Some other emerging markets are dealing with dangers from capital inflows that are too rapid.

This lack of sufficient rebalancing hurts everyone. In our inter-connected world, any thought of decoupling is a mirage. If the advanced economies succumb to recession, the emerging markets will not escape. Nobody will. Rebalancing is in the global interest, but it is also in the national interest.

Woodrow Wilson would have appreciated that, I'm sure.

My fourth—and final—“R” is rebuild. Here I am thinking mainly of the low-income countries that need to rebuild their economic policy buffers—including fiscal positions—that served them so well during the crisis, to protect themselves against future storms. This will also help provide the space for growth-enhancing public investment and social safety nets—for example, allowing countries to deploy well-targeted subsidies to protect the poor from commodity price swings with minimal damage to fiscal sustainability.