It seems Nobel Prize winners are fed up of their medals. After Prof James Watson’s decision to auction the medal, another one is up for grabs.
This one is of Prof Simon Kuznets (HT: Greg Mankiw blog)who won the Bank Prize in memory of Alfred Nobel. And it is Kuznets son who has decided to auction it:
Dani Rodrik has an interesting post on the topic. Prof Rodrik has always been a supporter for industrialisation using all kinds of policies.
In this one he shows how deindustrialisation has become a trend across the world:
Good story of the company and the enterprising Sunil Mittal.
I did read in this Maruti history book how he was rejected for its dealership. At that time he was dejected but then better things were lined for him:
Mr Seppo Honkapohja of Bank of Finland has a nice speech on the history bit.
It is the 4th oldest central bank in the World:
India’s crazy economics news reporting keeps getting crazier. WPI data released yesterday showed a negative number leading papers to say deflation in India. This is really poor reporting by all means.
This is at best called as disinflation which means rate of rise in prices has declined or become negative for some time. It could be due to base effect or sudden decline in certain component like oil prices. Deflation is an extreme form where both economic activity and prices are declining. There is nothing of this sort happening. Ask a common an and he/she would still be worried over inflation. And then with recent GDP number release, we can even take out the slowdown word from the debates.
There should be caution using certain economic terms. And this is really basic stuff. I can’t even blame media who may not have studied economics formally. Have seen certain reports written by economic analysts who have used the “d” word for this trend..
This is as good as it gets. A really useful audio interview of Mark Thornton on the school which remains ignored in economic teaching.
Right at the beginning Dr. Thornton points how the school teachings were missed in all his economic courses. Then there is a great discussion on how Fischer remains relevant to policymakers but not Mises. He calls central banks as legal counterfeiters of currency which is an interesting oxymoron of sorts.
In this informative interview, Mark Thornton details how Carl Menger started the Austrian school of economics, and the possible Greek and Roman philosophical roots the school observes. Dr. Thornton and host Frank Conway also discuss the important limitations to Austrian economic thinking, how von Mises’ papers got in the hands of Nazi Germany and then the Soviets, and the different economic perspectives and predictions of Ludwig von Mises and Irving Fischer.
For an Indian, Bata was synonymous with shoes. In most cities and towns where basic facilities were unavailable (and continue to do so). having a Bata store was ajust such an amazing thing. A company which most assumed was an Indian one (and continue to do so; it originated in Czechoslovakia and then moved to Canada post WW-II), the impact on Indian society (and other developing countries) is just invaluable.
So it was amazing to stumble on this book in library (free Google books link) on the business history of the company. It takes some book to keep a cricket fan away from the hyped Indo-Pak World cup cricket clash yesterday.
It is written by Thomas J Bata whose father set up the company in Kiln in Czechoslovakia. He succeeded his father from 1930s onwards (father dying in an accident) to 1980s in what were really trying and exciting times for businesses.
Nice interview of Ashis Nandy. Pretty straight forward and front foot batting.
He reflects on recent AAP victory and future for BJP:
As I was reflecting on this post on regarding crony committeeism in Indian finance policy, came across this post by Ajay Shah.
It nicely lists the several policy committees in India from 1998 onwards. He says lot of these committees had interesting ideas to begin with but met dead ends later:
Barry Eichengreen and Beatrice Weder Di Mauro write on the topic.
They say bottom line is the last thing central banks should be worried about. Unlike traditional banks, CBs can remain functional with losses:
Around the world, central banks’ balance sheets are becoming an increasingly serious concern – most notably for monetary policymakers themselves. When the Swiss National Bank (SNB) abandoned its exchange-rate peg last month, causing the franc to soar by a nosebleed-inducing 20%, it seemed to be acting out of fear that it would suffer balance-sheet losses if it kept purchasing euros and other foreign currencies.
Similarly, critics of the decision to embark on quantitative easing in the eurozone worry that the European Central Bank is dangerously exposed to losses on the southern eurozone members’ government bonds. This prompted the ECB Council to leave 80% of those bond purchases on the balance sheets of national central banks, where they will be the responsibility of national governments.
In the United States, meanwhile, the “Audit the Fed” movement is back. Motivated by growth in the Federal Reserve’s assets and liabilities, Republicans are introducing bills in both chambers of Congress to require the Fed to reveal more information about its monetary and financial operations.
But should central banks really worry so much about balance-sheet profits and losses? The answer, to put it bluntly, is no.
To be sure, central bankers, like other bankers, do not like losses. But central banks are not like other banks. They are not profit-oriented businesses. Rather, they are agencies for pursuing the public good. Their first responsibility is hitting their inflation target. Their second responsibility is to help close the output gap. Their third responsibility is to ensure financial stability. Balance-sheet considerations rank, at best, a distant fourth on the list of worthy monetary-policy goals.
Equally important, central banks have limited tools with which to pursue these objectives. It follows that a consideration that ranks only fourth in terms of priorities should not be allowed to dictate policy.
Not sure whether previous examples will work this time. Earlier CBs could work with losses as no one really cared who they were. Now CBs are all over the place and anyone reporting or expected to report losses is going to face huge political ramifications. CBs after fighting for so called independence for many years have just lost it. By trying to be a replacement to Finance Ministry, they have exposed themselves to all kinds of pressures. It will actually be interesting to see how markets react to any major CB reporting losses.
The bottom line is not really in terms of balance sheet. It simply is CBs have become way too big and powerful for anyone’s comfort. Efforts should be made to make them as anonymous as they once were..
As WC 2015 is about to start, it is interesting to read this kind of research.
The authors look at ODIs from 1971 onwards and say yes batters do slowdown approaching personal milestones:
Professor Lionel Page and PhD researcher Romain Gauriot, from QUT Business School, examined the behaviour of batsmen reaching landmark scores in One Day International (ODI) matches. The research, to be published in the American Economic Review, found players were likely to bat more conservatively as they approached a half-century or century to maximise their chances of reaching it.
“We found clear evidence that the behaviour of batsmen is affected by their personal rewards in the game,” said Professor Page, who collected data on more than 3,500 ODI matches between 1971 and 2014. “We found players react to individual-specific incentives in ways which can be detrimental to the team as a whole. For example, if a batsman is close to making 50 or 100, he will play more conservatively and hence score at a slower rate.
“This increases his chances of reaching the landmark score, but at the cost of the team’s winning chances. That is because in ODIs batsmen should adopt a relatively high strike rate, taking the risk of losing their wicket to score more quickly.” Contrary to the belief batsmen reach the “nervous nineties” – the idea they are more likely to be dismissed as they approach a century – the QUT researchers found adopting a conservative style at that stage reduced their chances of dismissal.
“We observed that while batsmen are conservative on their way to a milestone, they switch to a more aggressive strategy straight after reaching it, possibly to catch up with lost time,” Professor Page said. “Our data showed a batsmen’s strike rate jumped more than 40 per cent after reaching a century compared to the period leading up to it. “This leads to a sharp increase in the rate of dismissals.”
This is seen a lot of times. AS they complete their landmark score (usually a century), the tendency is to hit out and get out. It will be interesting to see those who have patience and continue to bat, does it become a winning cause?
But in test matches, this strategy works sometimes:
Analysing more than 2,000 Test matches from 1880-2014, Professor Page found captains are far more likely to declare an innings when a batsman has reached a landmark rather than when he is just below one. “One of the most interesting finding from this study shows that team captains also react to individual-specific incentives by accommodating them,” he said.
“Our evidence suggests that team captains are willing to trade a cost to the team in favour of a substantial reward to a particular player – for example eating up valuable time and delaying a declaration so a batsman can reach his individual milestone.”
But Professor Page said a captain waiting for one of his players to reach a personal milestone could be worth the risk. “For the captain it’s about trying to balance the individuals’ incentives with the team’s collective goal,” he said. “The captain hopes the risk in allowing a player to reach a strictly personal goal is repaid by a higher level of overall performance by not only that player, but other players in the team who appreciate the captain’s gesture.”
Hmm..
What about bowlers? DO we see the strive harder while nearning milestones like 5 wickets and so on? That would benefit the team whether in ODI or Tests..
HBSWK discusses a paper on the topic.
It is based on French politicians who have used fancy finance to make political inroads:
Talk of the recent financial crisis often falls into a simplistic narrative of villainous banks, marketing toxic financial products to innocent customers who did not understand their risks. Among the storied victims are municipal governments that took out loans with initially low interest rates, only to see the rates skyrocket when the crisis hit. Many mayors cried foul, insisting that they had been hoodwinked.
But were the local politicians really unwitting fools? “There is no doubt the transactions were very risky, as interest rates on these loans frequently exceeded 20 percent,” says Boris Vallée, an assistant professor in the Finance unit at Harvard Business School. “The question is, Did local politicians get fooled into engaging in risky transactions, or did they take the risks knowingly, opting for the short-term benefits in spite of the risks?”
Vallée recently tackled that question in the paper The Political Economy of Financial Innovation: Evidence from Local Governments, cowritten with Christophe Pérignon, a finance professor at HEC Paris. The study offers empirical evidence that politicians routinely used high-risk loans on purpose, for political gain, in spite of the risks. Furthermore, the strategy worked: Toxic loans helped incumbent mayors get reelected.
The researchers focused their study on France, having gained access to two valuable data sets: The first contained the entire debt portfolio for most of the 300 largest French local governments as of December 31, 2007; and the second contained the loan-level data for all the outstanding structured transactions of Dexia, the leading bank in the market as of December 31, 2009. (Shortly thereafter, Dexia fell apart in the European debt crisis.) The data showed that so-called structured loans accounted for 20.1 percent of the 52 billion euros in total debt for the municipal sample.
Similar to subprime mortgages, structured loans usually carry a few years of guaranteed low interest, which allows local governments to reduce the cost of their debt quickly and obviously. But after the honeymoon period, these loans end up carrying highly variable interest rates resulting from exotic exposures. For example, the City of Saint-Etienne saw the interest rates on one of its major loans rise from 4 percent to 24 percent in 2010, due to the depreciation of the pound sterling. In total, losses on toxic loans doubled the city’s debt levels.
The politicians reaped rewards till gains were made. Post-crisis they blamed it on banks for misselling:
Vallée and Pérignon analyzed how the politicians used the loans—whether they had invested the money in equipment or services for the city, or used the cash to lower taxes for their constituents, or both. It turned out that for the most part, they had used the short-term savings from the loans to lower taxes. “This action is consistent with politicians seeking reelection by catering to taxpayers’ preference for low taxes, which represents a likely channel for the previous result on the effects on reelection,” the researchers write.
The strategy apparently worked. Controlling for potential selection effects, the researchers found that using structured loans led to an increase in the likelihood that a politician was reelected.
“These financial innovative products appear, therefore, to have aligned banks’ incentives, as the transactions were highly profitable, with local politicians [who] had an interest in getting reelected,” Vallée says. “However, this happened at a large cost to the taxpayer, as the positive effects of the loans were short-lived, and interest on toxic loans ballooned when the crisis hit.”
In the wake of the financial crisis, many local politicians filed suits against their banks, claiming that they had not comprehended the risky nature of the loans they undertook.
“Local politicians have been vocal ex post both in the media and in [the] French Congress,” the researchers write. “For instance, in his testimony before the French Congress’s committee on toxic loans, the deputy mayor of the City of Saint-Etienne, who originally decided to take on some toxic loans, stated that ‘[he] was not able to read the information [he] received because [he was] not a financial expert.’ “
Vallée, who holds a doctorate in finance from HEC Paris, is currently working on a study of byzantine banking behavior toward individual investors. But in the case of structured loans, he argues that a borrower need not be a financial expert to realize the stakes. “They are not that complex, and after spending 10 minutes on it, someone with a college education will be able to understand the risks,” he says.
As this blog keeps saying..one should be weary of anything in high and sophisticated finance. Whes it bites back, it bites hard..
Interesting article on the Scandinavian way of life.
It is written by this American author Nathan Heller who compares these two styles:
Ankita Aggarwal, Jean Dreze, and Aashish Gupta have a piece in EPW.
Upper castes dominate most activity in Allahabad:
This article examines the social composition of public institutions in Allahabad, and specifically, the share of different castes and communities in positions of power and influence – the Press Club, the university faculty, the Bar Association, the police, and the commanding positions in trade unions, non-governmental organisations, media houses, among other public institutions. These turn out to be heavily dominated by a small group of upper castes – Brahmins and Kayasthas in particular. Disadvantaged castes, for their part, are largely relegated to subordinate or menial positions. The findings raise troubling questions about the resilience of caste hierarchies. Aside from better enforcement of reservation norms, there is an urgent need for more voluntary attention to diversity in public life, of the sort that has significantly reduced ethnic or gender imbalances in other countries.
India’s huge problem..
India is not just about crony capitalism. Another form is crony committeeism. Under this form of cronyism, there are a handful of people who sit on committees that form/shape economic policy. This is especially true for high profile committees to look at the financial sector.
It is like a revolving door of sorts where handful of people keep moving from one committee in one room to another committee sitting in the other room. Needless to say, most of these come from a highly elite background (read educated in west) who might actually be learning about the sector sitting on the committee itself. The old school/college network is highly important here as you choose and pick based on the network. It is also a great way to extend your career post retirement into eternity.
This cronyism like all other forms of cronyism is problematic and shows its results laters. There is very little dissent and the committee usually carries the opinion of the executive who set up the committee. After all the selection was for this purpose only.
Nice article by Nauro F. Campos and Fabrizio Coricelli on UK-EU history.
It tracks the history behind the two regions and why UK eventually joined EU in 1973:
Gulzar points to this interesting article on unintended consequences, something which econs love to ignore.
So what is the story here?
As they say in Hindi “chadte suraj ko sab salaam karte hain” (all salute the rising sun) and then look for reasons for the success. Similar idea applies to the declining star.
Who better to know this then Arvind Kejriwal who rose very quickly to decline at the same pace as well. And now he is back with even a stronger force.What a sweep of the broom.
Even more interesting is experts citing the same factors for his recent success which they said led to his failure in 2014:
https://www.intelligenteconomist.com/economics-blogs/
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