I am not kidding; this perhaps is the most powerful conversation starter, pretty much capable of spawning new cultures, or catalysing capitalism, liberalism or what have you. Social capital, fascinating as it is and equally controversial, has grabbed my attention and given me a world view I can not afford to discard. Culture, norms and networks are fascinating, more so for the revolutions they may bring. Or, have brought about in history. One deep dive in history and we know what this truly means.
This brings me to the book I have read in the past week and been thinking about. Shachar Pinsker’s ‘A Rich Brew’ puts the spotlight on Jewishness yet again, more as a matter of culture than religion, and how arch-filled cafés in Berlin might have spurred on an irresistible fusion that could transform societies. Cafes of the yore, often a world lost to the present day world we inhabit, were places where writers and intellectuals raised a cup of coffee from Warsaw to New York and grew hungry for democracy! Such a hugely entertaining and well researched book, an empirical study really, of an abstract political theory associated with German sociologist and philosopher Jürgen Habermas, which postulated that the coffeehouses and salons of the 17th and 18th centuries helped lay the foundation for the ‘’liberal Enlightenment’’. In other words, evolution of clan society into cosmopolitan society via the coffee cups! Democracy wasn’t the child of street revolutions but fine chatter in the coffee houses! Social spaces created outside the periphery of state control construct a thriving civil society beyond apparent imagination, as historical evidence suggests. Café life in European cities in the 19th century and afterwards facilitated a free exchange with strangers and clansmen alike which set the basis for social habits among Jews of self-expression that eventually led to a hunger for democracy. Wonderful book, can not recommend enough.
Interesting new paper from Dr Ashwini Despande of Ashoka University on gender gaps in school education in India, which underlines the persisting gaps in the quality of education offered to girls as compared to boys. The paper notes that “the gender gap in private schooling increased slightly over the period, with the largest increase in families with unwanted girls. The expenditure gap between girls and boys was driven by families with unwanted girls” during 1995-2018.
These gaps can have large implications for economic growth in a country where numerous studies have highlighted the culture of son preference stunting the rights of the girl child to education and work opportunities. Even as the total fertility rate (TFR) has rapidly declined in India during 2001-2011 and some change has been recorded in the culture of son preference, there is a decline in the already low female LFPRs indicating the low priority accorded to women’s place in the labour force. As the paper notes, “growth, development, and structural shifts in India have not acted as natural antidotes to gender discrimination. Sex selection and educational investments in children appear to be part of family strategies to achieve upward mobility”.
Hereis an interesting paper on what the academic job market looks like for new PhD economists in 2021. The findings reveal that while the supply of PhD economists is likely to be stable, the share of employers with at least one position open is likely to go down with a drop in demand.
This month, thousands of readers have read my posts on Emamnuel Farhi, which is why I think, along with me, they would also like to join this online memorial service for the economist who would have turned 42 on September 8th. For those who missed my posts, you could read them below:
Everyone this week has been raving about this interview and it’s not for no reason. Harvard economist Stephen Marglin talks about his India connection in this interview with Maya Adereth, Shani Cohen and Jack Gross on Phenomenal World. Interesting conversation, richly framed. Don’t miss it.
Floods in Mumbai are an annual affair. I know this may hurt some people but the day I visited Mumbai for the first time, it was raining cats and dogs, and exactly 21 days later, a major flooding of the financial capital took place. Financial Times reported this last year – the headline points to a historic high – and we are back again with those headlines this week. Mumbai is under water and things are worse than previous years, reports scream.
Environment researchers point to the extreme precipitation events that have been occurring with great frequency in India, led by a combination of rising temperatures and changes in the monsoon. Add to these poor civic planning, unfettered growth in population in the cities, and resultant environmental degradation. Every year, millions across India are displaced from their homes due to floods and Mumbai is no exception. Copious rains even bring the buildings and landfills down on people in the city.
But, contradictions abound. We are aware of the risks of climate‐induced flooding and yet, development plans continue to ignore these risks. Mumbai, one of India’s largest coastal cities, is the hub of both planned and unplanned developments and the adaptive resilience frameworks that prepare cities for climate induced calamities are in short supply here too, which continue to endanger lives.
Here are the economic effects of the floods that are likely to occur based on past experience:
Poor families will become poorer
They already have low incomes and housing in low-lying and flood-prone areas. During the 2005 floods in Mumbai, families living below the poverty line in Mumbai faced damage costs amounting to 1,480 percent of their average monthly incomes.
Direct and indirect impacts on low-income households
Housing structures, households assets, vehicles and work tools on which their livelihood depends may be damaged. They may own little but when compared with their earnings, even their low damage costs will be higher than economically well-off families, endangering their critical asset base. They will also face the indirect impacts of floods, such as shortages of food, water, and fuel, and disruption of services. Workdays and even jobs will be lost.
Social protection will be partial
In Mumbai, during the 2005 floods, the government offered some households a fixed amount to assist with food and clothing. However, this was less than 10% of the total losses suffered by the households. Many migrant households were excluded from this. Many used their savings or borrowed from informal sources to rebuild their lives. This pushed them into indebtedness and poverty.
Insurance coverage will be negligible or none
More than 90% of the affected families during the 2005 Mumbai floods had no insurance of any kind.
Small businesses will incur losses and lose customer confidence
Physical structures of the business units will be destroyed leading to losses of finished products, inventory, and raw materials. Businesses would also have to cover the expenses of cleaning premises, restarting operations, or shifting production elsewhere. During the 2005 floods, businesses took longer to recover and lost customer confidence.
Compensation and insurance will not help rebuild
Profit-making ventures will likely find themselves using their own resources to cope up with the damages. Post the Mumbai floods in 2005, a few SMEs that had opted for flood insurance received less than the claimed amount after months of delay.
Business recovery will take time
After the Mumbai floods, business recovery time averaged 3–4 days, with maximum recovery time stretching to 1–2 weeks. Several SMEs remained without power, water, and other basic services for 10–15 days. Many businesses could not repay loans. Loss of credit and clients aggravated financial distress, and some businesses closed operations.
A look at the table below outlines the extent of the damage costs faced by retail businesses in Mumbai in the aftermath of the 2005 floods:
Ruth Alice Allen, born in Texas in 1889, could be justly called a role model for women economists, if nothing more, and with a burst in feminist scholarship in recent years, it is only befitting that Allen’s work is rediscovered now.
At a time when it was difficult for women to secure academic positions, Allen earned professorship at the University of Texas Department of Economics, one of the USA’s leading centres of institutionalism. Through her career defining work, she paved the way for women economists who followed in her footsteps. She taught a course titled ‘The Economic Status of Women’, which was one of the earliest courses in the US that examined the economic position of women.
But her interest in the subject can be traced back to her dissertation in 1933 on the labour of women in the production of cotton, which was later published as a monograph. In the work, Allen combined socioeconomic approaches to the institutionalist tradition of labour studies as pioneered by John R Commons and investigated the implications of women’s labour in the production of cotton for its price in the market and the living standards of families involved in cotton farming.
Allen’s findings established the role of tradition in leading women to take up unpaid labour, which depressed the wages of paid farm workers and led to overproduction of cotton, which in turn kept the price of cotton artificially low. The work also touches upon the effects of economic change on the lives of the women. This work put Allen in parallel to Margaret Reid and Charlotte Gilman Perkins in placing women’s production at the centre of economic analysis.
‘East Texas Lumber Workers’ (1961) is yet another pioneering work of Allen focusing on the economic conditions of the Texan lumber country, in which Allen viewed people’s physical, social and economic environments as the most important influence on their behaviour. Besides these, Allen worked on a range of collections and monographs on the labour history of Texas, historical account of a famous rail strike that rocked the region in 1886, and other labour issues in Texas, leaving behind a rich historical record that researchers can benefit from even today.
Allen spent six years of her retirement at Huston-Tillotson College, a predominantly black school in Texas, and retired in 1968. In 1979, she died at the age of 90.
BA in 1921 and her MA in 1923 – University of Texas at Austin PhD – University of Chicago Professor – University of Texas until retirement in 1959 Post retirement teaching position – Huston-Tillotson College
I didn’t know Emmanuel Farhi except as someone invested in economics and the scholarship of economists. But his death has left me with several pressing thoughts. In an earlier post on this blog written immediately after his death, I had laid out the condolences and conspiracy theories around his death. Today, I am writing more to reflect on his death and why it’s sparked such sorrow and curiosity.
Emmanuel Farhi was just too young to die. To make it harder on people who were familiar with his work, he was brilliant. It is the coming together of both that makes his death so tragic.When you are barely 40 something, you are at once old enough to be respected for your ideas and young enough for the world to expect more from you. You are somewhere between accomplishment and greatness, shining bright enough for the world to almost picture you with your pioneering contributions in the future. At such a young age, his contributions carried a unique diversity of thought and depth of scholarship – from fiscal policy, public finance, exchange rates, to international macro and monetary systems, productivity and international trade. He transformed the theory of taxation, macroeconomics, and international finance.
He challenged the notion of the “liquidity trap”, made famous by Keynes during the Great Depression. Keynes had said monetary policy would be ineffective in spurring investment during deep recessions. Farhi said that in the modern context, especially after the crisis of 2008-09, we have a “safety trap”. The world is facing a shortage of safe assets such as US Treasury bonds. And yields cannot go any lower, since zero is an effective lower bound. How do you deal with this? With the unorthodox monetary policy of creating new “safe assets”; i.e. central banks buying AAA-rated corporate bonds. The European Central Bank is already doing so. The second example is of the impossible trinity in macroeconomics, which says you cannot simultaneously control interest and exchange rates if your capital account is open. Farhi’s insight was that partial capital controls are a solution for open economies fighting an onslaught of inflows and battling volatility in exchange rates—a practical guide to countries like India. A third example is Farhi’s boldness in taking on an old debate called the “Cambridge capital controversy”. This was a critique by Joan Robinson of Robert Solow, Paul Samuelson (both Nobel winners) and others that you can’t describe an entire economy’s aggregate production function in terms of “capital stock”; buildings and machinery cannot be aggregated into one number. This debate fizzled out in the 1960s, but Farhi’s work has reopened it, examining it rigorously from the very foundations.
In the bright world of academia where brilliance is never in short supply, Farhi also symbolized the pinnacle of attainments one could achieve in his field – he was tenured at Harvard within five years of defending his PhD at MIT and his admirers called him a future Nobel winner. Being young and bright is a promise to not just people who want you to succeed, but to the field you contribute to. Bring all these together and you have the picture of a success story. Yet, Farhi was humble and generous and open to collaborations more than anyone of his intellectual stature would admit to. He published a significant number of his papers as a co-author.
Success, recognition and superlative achievement may not always translate into joy or happiness or attainment of whatever it is that holds one together, though. With strictly limited coverage of Farhi’s death, we don’t know what it is that he wanted or what it was that he could no longer bear. Perhaps, at such a young age, we are still figuring out life stuff, even though academically or professionally, it may be possible to excel and lead.
Dr John Turner and Dr Will Quinn of Queen’s University Belfast have written a brilliant new book titled ‘Boom and Bust‘, which is a fascinating account of the ten bubbles in history occurring in the 19th century Australia to modern China.
Each episode is set in the context of a framework described in the first chapter, the Bubble Triangle. These are the three necessary conditions for a bubble to take off: good marketability of the assets involved; abundant money & credit; and large numbers of speculators. With these in place, they argue there are two potential sparks: technology (radio in the 1920s, bicycle innovations in the 1890s) or politics (often, governments seeking to engineer higher asset prices to meet a policy goal, such as encouraging home ownership (the early to mid 2000s) or reducing government debt (John Law in France in the 1760s).
Why We’re Polarized, the new book by the super awesome Ezra Klein, is an essential read on how a polarized media polarizes us.
Prof. Emmanuel Farhi was too young to die. Just as SSR was too young to die too. Farhi was 41; SSR was 34. In both events, we lost bright stars. This post is on Farhi’s passing away which has shocked people who knew, loved and admired him.
Moving tributes poured in from people who knew Dr Farhi when he passed away on July 23rd, 2020. Just 41, Dr Farhi was a brilliant economist and as some of his colleagues described him, a future “Nobel winner”. Robert C. Waggoner Professor of Economics in the Economics Department at Harvard University, Farhi was a member of the Commission Economique de la Nation, the National Bureau for Economic Research, and the Center for Economic Policy Research.
The Econ Focus once profiled him thus:
A young Emmanuel Farhi knew that his father, who passed away when Emmanuel was 10 years old, was an economist. But the boy never fully knew during his father’s lifetime just what an economist was. Three decades later, Farhi is one of the pre-eminent macroeconomists of his generation in both the United States and his native France. It was a roundabout journey: At age 16, he won first prize in the French national physics competition. Two years afterward, on the threshold of entering university, he attained the highest score in the nation on the entry exam for France’s elite engineering school, the École Polytechnique. But he turned it down for another coveted institution, the École Normale Supérieure in Paris, often called ENS. (Today, ENS is also the alma mater of numerous other notable French economists, including the University of California, Berkeley’s Emmanuel Saez, MIT’s Esther Duflo, Farhi’s Harvard colleague and frequent co-author Xavier Gabaix, and Thomas Piketty, author of the 2014 bestseller Capital in the Twenty-First Century.) At ENS, he planned at first to be a mathematician, but became drawn to economics instead. In his spare time, he read MIT professor Paul Samuelson’s classic economics text. “I think what drew me in particular was the ability to model economic phenomena,” he says. “And I thought that was a powerful way of deeply understanding these forces and how they were shaping the world.”
Here is the best piece I read on him – I downloaded the English translation and there was no way to link to the translated version so please download to read:
There was an eerie silence around the cause of his death until this professor at INSEAD tweeted, hinting at mental illness in academia:
While none of the op-eds on his brilliant career as an economist mentioned “suicide” as the cause of death, a debate on Twitter erupted urging the need for openness and compassionate discussion on the subject. Another blog said he “died by his own hand” adding it to the list of four academics in the US who committed suicide over the past year.
David Warsh reports: “Emmanuel Farhi, 41, of Harvard University, died last week, apparently by his own hand. It was the fourth such death of a prominent economist in a year, following those of Martin Weitzman, also of Harvard; Alan Krueger, of Princeton University; and William Sandholm, of the University of Wisconsin at Madison.” Suicide is always, or at least often, something of a mystery, but if I had some reporters to assign, I’d send one to go investigate these four deaths and come back with a story about something—academic economics, mental health, something. It is of interest beyond academia. The Centers for Disease Control and Prevention reported in April 2020 that in the U.S., “From 1999 through 2018, the suicide rate increased 35%, from 10.5 per 100,000 to 14.2. The rate increased on average approximately 1% per year from 1999 to 2006 and by 2% per year from 2006 through 2018.” Also, that “Suicide is a major contributor to premature mortality as it ranks as the second leading cause of death for ages 10–34 and the fourth leading cause for ages 35–54.”
Here is a range of theories around his death. Whatever that it was that led to his death, the speculation must stop. What needs to be grieved is the definitive loss that his going away brings to the field of Economics. May he rest in peace.
I leave you with this video of him speaking on The Microeconomic Foundations of Aggregate Production Functions (and my heart just breaks watching this:
I am going to blog about 100 women economists and economic historians. I start with Edith Abbott.
Edith Abbott: From Economics to Social Work (1876-1957)
Edith Abbott, labour economist and economic historian, was the second woman to earn an Economics PhD from the University of Chicago in 1905. Interested in labour statistics and employment trends, Abbott published her first article ‘Wage statistics in the twelfth census’, in 1904 in the Journal of Political Economy. The article critiqued the statistical methods used in a report by Davis Dewey on the wage and employment trends of the 1900 census. Her next article, ‘Wages of unskilled labor in the United States, 1850–1900’, was the first statistical study of the wages of unskilled labour in the USA, often termed the ‘first step toward a complete history of wages’.
Abbott went on to write a large portion of the history of US wages and employment centering on women, all of which culminated in her seminal book, ‘Women in Industry’ in 1910. She wrote many books before and after but her work – ‘Women’s wages in Chicago: some notes on available data’ – led to several contributions that are relevant even today. In her documentation of the work lives of 17th and 18th century American women, she showed that the rate of labour market participation of working class women had remained substantially unchanged over the last century. Her research showed that the movement of women’s work out of the home into the factories was a significant result of the Industrial Revolution owing to the development of specialized machines and the economies of scale and subsequent division of labour, and not the advent of women’s employment.
In 1906, Abbott studied at the London School of Economics and Political Science and secured a teaching job at Wellesley College. However, that didn’t satisfy Abbott, who later took up teaching statistics at Chicago School of Civics and Philanthropy while also teaching part-time at the University of Chicago. Over the years, Abbott led many research projects and published several books and scores of articles in both scholarly and popular journals on her ongoing research into a variety of social problems and her opinions on social welfare laws.
Abbott also developed a reputation as an educator. In 1920, University of Chicago renamed the school the University of Chicago Graduate School of Social Service Administration, making it the first graduate school of social work in the US affiliated with a major research university. Abbott went on to become its dean in 1924 and over the years, drafted a curriculum that secured social work’s place as a new field within the social sciences with its focus on social statistics and on the historical, legal, economic and political underpinnings of social problems and public welfare efforts. To this effect, she also authored ‘Social Welfare and Professional Education’ in 1931. She also co-founded ‘Social Service Review’ published by the University of Chicago Press.
Abbott was one among the very small group of super cerebral American women who graduated out of US colleges and universities in its early years of opening to women. Committed to social causes, she started off as a labour economist and economic historian, and eventually pursued an academic career in social work.
PhD in Economics from University of Chicago Professor and Dean of the University of Chicago Graduate School of Social Service Administration Long-time editor of the Social Service Review Co-founder of Social Service Review published by the University of Chicago Press
The Real Jail Problem (1915) Crime and the War (1915) Recent statistics relating to crime in Chicago (Journal of the American Institute of Criminal Law and Criminology, 1922) Are women a force for good government? (National Municipal Review, 1915) Statistics in Chicago suffrage (New Republic, 1915) The Administration of the Aid-to-Mothers Law in Illinois (1921) Poor people in Chicago (New Republic, 1932) Public Assistance (1941)
Here is the latest on fiscal measures (courtesy: IMF) deployed by different countries:
This stimulus collectively amounts $11 trillion worldwide. Yet, the state of global public debt is worrying too.
Authors Vitor Gaspar and Gita Gopinath write:
In the face of a sharp decline in global output, a massive fiscal response has been necessary to increase health capacity, replace lost household income and prevent large-scale bankruptcies. But the policy response has also contributed to global public debt reaching its highest level in recorded history, at over 100 percent of global GDP, in excess of post-World War II peaks.
Let me tell you simple things. Covid 19 quarantine is helping me get this straight and simple: I like capital and those who aid capitalism. So this bothers me when capitalism is blamed for the mess we are in. This world is complex and I am someone who believes the right set of institutions hold the key to progress, human development, economic growth, sustainable development .. you name it.
Singling out capitalism for every evil or challenge we face is just missing the big picture. In the words of Joseph Schumpeter:
“Capitalism stands its trial before judges who have the sentence of death in their pockets.”
Many intellectuals fail to understand the nature of capitalism as an economic order that emerges and grows spontaneously. Unlike socialism, capitalism isn’t a school of thought imposed on reality, free-market capitalism largely evolves spontaneously, growing from the bottom up rather than decreed from above. Capitalism has grown historically, in much the same way as languages have developed over time as the result of spontaneous and uncontrolled processes. Esperanto, invented in 1887 as a planned language, has now been around for over 130 years without gaining anything like the global acceptance its inventors were hoping for. Socialism shares some of the characteristics of a planned language in that it is a system devised by intellectuals. Once we’ve grasped this essential difference between capitalism, as a spontaneously evolving order, and socialism, as a theoretical construct, the reasons why many intellectuals have a greater affinity for socialism (in whatever form) suddenly become obvious.
For something as natural as capitalism (it has thrived even in the most capital scarce regions throughout history), making it the villain of the piece requires a certain degree of immortality. After all, all capitalists may not be changing the world or developing products that could usher in social change, but then, not all capitalists are devils either.
Yet, in the context of our new Covid 19 world, all of this changes. The pandemic has forced us to confront many questions that have been building up for a while – mostly, how did we reach here? How can we fix this broken world with heightened economic, social and racial inequalities? The challenges take many forms and permeate every sphere sustained by capitalism. The latest criticism of venture capital by Tim O’Reilly, for one.
These challenges couldn’t simply be attributed to capitalism alone. We are living in an age of great technological transformation accentuated by policies that widen income and wealth inequalities. The last and perhaps the most baffling frontiers of inequality – lack of access to opportunity and regional inequality – have subsequently been breached.
In this scenario, being a capitalist almost sounds like white supremacy, or Brahmanical supremacy, depending on where you live. History proves how swiftly racism or discrimination or inequality in all its forms have swiftly been linked to capitalism.
Will capitalism survive then? My steadfast view is: yes, it will. I can say, like I often say, that history proves it would. But I would rather list these 5 👇 to indicate what lies ahead of us:
More creative destruction as J Schumpeter would have said
The world we live in is getting scarier as disturbing events unfold. Floyd’s gruesome killing has sparked fierce reactions globally and we are now left tracing its roots to the long-standing racial prejudices that have existed alongside decades of material prosperity. We know this could be traced to British colonialism in the Americas and the Caribbean and its role in setting up systems of apartheid in the Africas that continue even today, not just in the US but also UK and other parts of the world. This could be traced to the unequal societies and economic cultures that centuries of unbridled capitalism have created. This could be pinned on the collective failure of the governments to act in the interest of black and ethnic minorities and to work on dismantling the racial, class and caste biases that often creep into policing and administration of justice. There are a whole lot more other explanations, each one more searing than the other, which make one thing undoubtedly clear: George Floyd’s murder cannot be dismissed as a standalone American problem because it is not. In many ways, we have collectively felt the need to call out the multiple inequalities embedded in our societies, from caste prejudice and religious bigotry in the East further accentuated by the pandemic to racism and ethnic violence in the West.
All the rioting, police violence and protests over violation of civil rights have led us to a very dangerous place – democracies may fall, the continuing chaos could facilitate a consolidation of right-wing extremism, and whip up social unrest globally. The economic fragility is threatening to pull societies apart, and institutions and existing health infrastructure are already under strain. Some of the biggest democracies in the world have been dealing with political and social unrest for a while now, and Covid-19 has only worsened the crises. The global economy is heading into a recession; 195 million jobs are expected to be lost worldwide; domestic violence and child abuse are on the rise; alcoholism and depression have found new reasons to thrive; and US-China relations are almost on the brink of war threatening to unsettle the prevailing world order. This could very well be the beginning of the making of revolutions that could shift economic and social cultures globally.
To make matters worse, there are depressing precedents for health crises to become an excuse for curtailing civil liberties. Often, contagion has been used by authoritarian regimes to justify the control of people and suppression of human rights, as is the case with many countries today, and to dump science and facts in favour of dominant politics of the day. Around the world, governments have worked to put strict lockdown measures in place during the Covid-19 pandemic, and in some instances, this has come about within a day’s notice. Racial bias in policing is already at the centre of the ongoing protests in the US, with research already disputing the charge. All of these will worsen inequality; in the words of economist Arthur Okun, underlining this feels like watching the grass grow.
For long, we have been told and I have truly believed, getting everyone to become rich is just a matter of sincere efforts. Yet, time and again, especially after Thomas Piketty’s seminal work on inequality, we have realised that this is not necessarily true. From US President Barack Obama to Alan Krueger, Chairman of the Council of Economic Advisors in 2012, world leaders for quite some time have known that high income inequality is increasingly synonymous with the least equality of opportunity, and great wealth accumulation with least competition. Yet, economists have been divided in the decades since, often questioning the data and other assumptions made in the research on inequality. As a consequence, inequality hadn’t been treated as a severe economic and social challenge until Piketty and Saz made it fashionable. In the Global South where inequality has been spiralling out of control, this has had debilitating effects on poverty, hunger and unemployment with the exception of China. Covid-19 has once again brought inequality to the fore. In countries like India where politics always dominates the economics, inequality has the chance to be at the forefront of policymaking for the threat it poses to democracy.
As countries plunge into uncertainties of all hues, let us step back a little to think about the pandemics in history and how they affected global inequality.
Lockdown has led to wonderful season of webinars and if you love Macroeconomics and Economic History, here are the webinars I recommend:
The Graduate Institute Geneva has been conducting this fabulous series for those who are interested in Microeconomics, and just this week, we had Prof James Robinson presenting his studies on the economic effects of the English enclosures. You can catch the live feed on YouTube here.
Another webinar I want to recommend is this Graduate Seminar Series by the Institute for New Economic Thinking.
Let me know if you are listening to others and would want me to add to this list.
I am a big sucker for economists explaining things, and an over sharer of all such knowledge made public.
After Arjun Jayadev and Franko Milanovic’s free online video lecture series on Inequality, here is another one worth your time (link above) – TheUnderstanding Money Mechanicsseries – by Robert P. Murphy.
This is all going to be part of a book, an abridged version of each chapter releasing here over a period of time. Do check out the post on Mises.
Yeah so, even as Budget 2020 is waiting to be ripped apart mostly for what it’s projections for the year ahead are, I am worried how little we care about the past when it comes to the budget.
Hey, what exactly is budget anyway? Just a simple record of what the government earned and spent in the previous financial year and what the government intends to in the next financial year. But you would realise how much drama this whole operation entails, and how many hours you will spend just listening to the finance minister read out from the budget document. And you will also realise how much we talk about what’s going to happen in the next financial year, and not what really happened in the past year.
Now, like a budding economic historian, that worries me. We fuss so little over the past and so much more about the future. Right, we should all worry about the future but shouldn’t past be a matter of debate too? Wouldn’t the governments spends and earns tell us where exactly the economy stands, better than some vague assumptions about future? Don’t ask me how the projections have gone grown weirder over the last few months, but projections and assumptions are like notional money, while the past is the penny in your hand – the only concrete fact in your hand – take it or leave it, but you won’t be richer without the past.
Now, the Budget my dear – I will suggest you read today’s edition of this fabulous and my favourite always newsletter on all news and analysis from India – Nutgraf – to ponder over everything that’s wrong with the obsession with the Budget, for perspective. I can’t find the link to share, I subscribe to it via email, but a newsletter must have sharing link, IMHO.
But even the past can be questionable in India, as the Economic Survey released yesterday is anything to go by. Refer to this Twitter thread where economist Vivek Kaul explains this rather succinctly –
Dr YV Reddy, the former RBI Governor, when he was RBI Governor used to say, "everywhere around the world, the future is uncertain; in India, even the past is uncertain."
The revision of GDP data today proved just that… Read on.
This may become possible if Nobel winners Duflo and Banerjee’s efforts are successful.
The Massachusetts Institute of Technology is trying the idea in the field of poverty alleviation, hoping that the approach will allow it to enrol students from around the world who have the ability and motivation to succeed but lack the traditional credentials for entry.
Duflo-Banerjee have many detractors, though.
Ms Gopalan, a doctoral student and teaching fellow in anthropology at Harvard University, acknowledged overall scepticism given her belief that the Duflo-Banerjee methods involve “treating the lives of the poorest as a giant open-air lab” while avoiding meaningful challenges to the wealthy.
She also noted that the course’s tuition fees and its requirement for an internship in a city where the annual cost of rent is about $30,000 seemed to present difficult hurdles for students from low-income backgrounds.
Tyler Cowen is already questioning if a university system is doing enough, anyway.
In your young adventurous years, by contrast, the only jobs you can get are those that don’t reward (or allow) adventure. The result of all this is a less audacious America. Start with the Ivy Leaguers. I have no rancor against lawyers, financiers or management consultants, but the pursuit of these careers seems like a misallocation of human creativity.
Economics professors Arjun Jayadev and Branko Milanovic have collaborated on a video lecture series on Inequality – the five vidoes, free to watch, clearly and succinctly explain what Inequality is all about, why you should care and other fundamentals you have been wondering about for long. It’s cut-the-clutter stuff that you shouldn’t miss.
For a budding economic historian, reading Dietmar Rothermund’s work on India can be an illuminating experience, given that apart from the works of Indian scholars on Indian economic history, Rothermund’s books provide a refreshing view of history. But what can be really special about this veteran historian is his extremely warm demeanour even to those decades junior to him in age and experience.
The first time I ever wrote to him, Dr Rothermund replied within a day, with generous praise for my ideas and thoughts. I didn’t expect this, given that my experience with academics in India has always been mixed. Some of them can really be unwelcoming of young scholars, with their tardy and brief responses, and this is where Rothermund stands out and makes it a humbling experience for someone like me.
Yesterday, Dr Rothermund turned 87 years old and continues writing. This year, two of his books have been released, and he has been kind enough to send a copy my way for the review. It will take a while, I guess, because the copy will come from Germany, but do look out for my review (reviewing these would be my privilege) when you can in a couple of weeks, hopefully.
A very happy birthday, sir. It’s wonderful to know you and read your work.
Start the new year by worrying less about things you can’t control and doing something about what you can. Inequality, for example.
It’s a loaded term, alright, but let’s think like economists and see where exactly in our daily lives could we make a difference to mitigate inequality.
So here are my top 5 suggestions:
Pay your taxes honestly – While the government struggles with progressive taxation, you go ahead and do your bit. Pay your taxes honestly- no bungling rent receipts, or forged investment certificates anymore. Pay your taxes online and hey, when you eliminate corruption in private life, it goes a long way in eliminating corruption in public life.
Work on gender budgeting for the household: this is a much bandied about term but the govt still doesn’t get it right. This doesn’t mean you should be like that too. If you truly believe in gender equality, start paying your maids for their life saving work on par with your drivers. Allocate resources equally between genders for consumption, education, health and future savings. Always remember, gender inequality begins in households, and it’s well within you to tackle that.
Save for future big time – While you are young, who cares about ageing, right? Wrong! Demographic change is a reality and it will catch up with you sooner than later. Remember Japan? In India, social security net for its ageing population has shrunk. Add to this the effects of adjustment and without savings, you are in for a very cold and debilitating old age. Start saving big and do this till the time you are working. This is your safety net and your instrument to tackle inequality that may arise out of a combination of factors including economic shocks, ageing and changing labour market demographics, slowing growth and poor pension spending by govt.
Brighten your child’s prospects at intergenerational equality by security a child fund – If you have a child, this has to come right on top of your priorities. Start taking out a decent amount of your income for a child fund that grows as your child grows, to give you enough in the long run. Remember, a child’s education 10 years down the line would need a minimum of a crore INR, conventionally speaking. If you are aiming Ivy League, you wouldn’t want to just hedge your bets on scholarships. Work out a fund that pays out 5 crores. An equal amount for marriage ceremonies, contingencies, and helping the child settle down as he starts out in this big, bad world. We have seen how that works, so better safe than sorry.
Delay gratification, cut down on unnecessary spends, learn to grow your money – More savings that outflow means more money, simple. Yet, not so simple. When the value of money and your purchasing power has been deciding with inflation, you don’t need to just guard against excessive spending; you also need to grow what you have. But money doesn’t grow on trees! Start to get to know how to spot great shares you could buy, how SIPs work, how much of mutual funds is good for you, and how traditional more conventional ways of growing your money can still help you. Check out Monica Halan’s super advice on all do these in her book ‘Let’s Talk Money’. I have been holding off a review of the book for sometime; will do this soon. Keep watching this space.
So that’s it. Don’t wait for the govt or the capitalists to figure out inequality for you. You could do your bit. Why wait.