A query on a column by Ajit Ranade

Shashank Patil, enthusiastic asker (it is my blog, and I say that it is a word) of questions, sends in this article, and asks the following questions:

  1. What are the possible difficulties with this?
  2. How does this weigh in with any other choice?

This promises to be a fairly long post, and for the sake of knowing where we are at any point of time, I am going to divide it into three major sections:

  1. The need for the stimulus
  2. Show me the money!
  3. What is the best choice out of all the options available?

The need for the stimulus

There’s four things that go into adding up our GDP: consumption, investment, government expenditure, and net exports (net simply means we deduct the rupee value of all of our imports from the rupee value of all of our exports, over one accounting year). But be careful, calculating GDP is surprisingly complicated!

During these times, good luck getting C, I and NX to be anything remotely related to good news, and so we’re almost certain to not have great GDP growth, or even growth at all. Unless el sarkar steps in. So when we ask for a fiscal stimulus, we’re basically saying the other components of GDP are near comatose, so government spending will have to take up the slack.

Maybe the government can build out way better health infrastructure than we have at present, like Andy Mukherjee says. Maybe we can provide clean drinking water, along with a whole list of excellent suggestions made by Shankkar Aiyyar. Direct money transfers to the poor is another idea. But for all of this to happen, we need to start at the basics: where is the money?

The government didn’t have enough money before the pandemic hit (that’s what a fiscal deficit means), and the problem is way worse now: much more money needs to be spent, and not enough money is coming in by way of tax revenue.

Ergo, all of the columns about how to raise the money that will need to be spent.

Show me the money!

There’s three ideas that I have liked so far:

  • Deepak Shenoy talks about a realignment of the liabilities side of the balance sheet of the RBI unlocking about INR 400,000 crores (thinking about numbers as big as this is an invitation to a migraine, but this is 4 trillion, unless I am mistaken. Please let me know if I am!). Let’s call this the DS method.
  • Andy Mukherjee talks about the government selling stakes in PSE’s (that’s Public Sector Enterprises). The details matter in this case: the sale will be to an SPV (Special Purpose Vehicle), which will finance the purchase by issuing bonds. When markets recover, sell the stake, and redeem the bonds. Method AM.
  • And finally, Ajit Ranade offers a pani puri instead of a puchka. That is to say, the same idea as Andy Mukherjee, but with a twist. Instead of the government stakes in PSU’s (undertaking, instead of enterprises) being sold to an SPV, he suggests selling it to the RBI as a repo transaction. That is, sarkar sells to RBI and gets money, but also gets to buy back the shares at the same amount plus an annualized interest rate of around 3%. That’s where the name repo comes from: short for repurchase. And yes, method AR.

What is the best choice?

So maybe this is just me getting old, and therefore more conservative, but I’d rank Deepak Shenoy’s suggestion third. There are two main reasons, although there are others. First, the RBI already gave out some cash last year (and Deepak Shenoy himself has a most excellent article about it. Link 3 in this post, and the others are worth reading too, especially number 5.  Bookmark CapitalMind.in if you haven’t already!). Second, maybe it makes sense to keep some of our powder dry, for who knows what other horrors wait for us in the future? If, god forbid, two years down the line we need more help, it would be better to use the DS method then – because good luck trying to convince folks of the value of PSU stakes after more two years of this.

Let me be clear: I am not saying that this will continue for two years. I’m saying we should be prepared.

Now, in a straight fight between AM and AR, well, which self-respecting Maharashtrian will pick puchkas over pani-puri? I’d plump for Ajit Ranade’s method, and for the following reasons:

  1. A repo transaction is likely to withstand market volatility better than being dependent on an SPV, especially one that may be exposed to currency risk.
  2. This sounds way more operationally feasible than the AM method. Launching an SPV might be possible right now, and you may even get a decent response because god knows markets will be looking to park funds right now – but like I said, I’m getting old, and would prefer a more conservative route.

And so Shashank, the answer to your question is that Ajit Ranade seems to be onto a pretty good idea, in my opinion. Which is not to say that the others aren’t, of course – but hey, if I didn’t force myself to choose, and write about my choice, how else to fill out a lockdown afternoon?

But on a more serious note, the “how” doesn’t  really matter as much as the when. And the correct answer to that question is “yesterday”.

 

 

 

Five articles I found informative

Andy Mukherjee on debt funds, Franklin Templeton and the regulatory mess that is about to get a whole lot worse:

Back then, Franklin Templeton’s unit holders probably had no idea their fund manager was sitting on practically the entire stock of zero-coupon debentures issued by Yes Capital Ltd., one of Kapoor family’s private investment vehicles. That was long before Yes, a major deposit-taking institution, became a basket case that was eventually rescued by a consortium led by government-controlled State Bank of India. The five funds that were involved in lending to Kapoor are among the six that have been suspended, suggesting that nothing really changed between then and now

Kurzarbeit. My word for the day. (I really should learn German)

He said Germany’s “Kurzarbeit,” or “short-time work,” program during the current pandemic has similarly set an example as to how deal with this economic crisis.

Under Germany’s system workers are sent home or see their hours slashed but are paid around two-thirds of their salary by the state.

China, India: follow the money!

Since 2014, an influx of Chinese capital in India has transformed the structure of India’s trade and investment relations with China. Until that year, the net Chinese investment in India was US$1.6 billion, according to official figures. Most of the investment was in the infrastructure space, involving major Chinese players in this sector, predominantly state-owned enterprises (SOEs). In the next three years, total investment increased five-fold to at least US$8 billion, according to data from the Ministry of Commerce (MOFCOM) in Beijing, with a noticeable shift from state-driven to market-driven investment from the Chinese private sector.

Bill Gates simplifies the development of the vaccine for all of us:

Safety and efficacy are the two most important goals for every vaccine. Safety is exactly what it sounds like: is the vaccine safe to give to people? Some minor side effects (like a mild fever or injection site pain) can be acceptable, but you don’t want to inoculate people with something that makes them sick.

Efficacy measures how well the vaccine protects you from getting sick. Although you’d ideally want a vaccine to have 100 percent efficacy, many don’t. For example, this year’s flu vaccine is around 45 percent effective.

TLTRO’s explained (this is a great read!)

A capital starved NBFC world will see churn, but sometimes the lack of capital itself will cause a company to fold, even if it has good credit. The RBI action for TLTRO may be good to create some liquidity for some NBFCs, but the system itself is weak and it may eventually need the RBI itself to step up and take some of the risk. A simple rule can be: We’ll fund you Rs. 100 as debt if you can raise Rs. 50 as additional equity capital from the market. But for now, we have TLTROs.

 

Notes from an excellent blogpost by V Ananta Nageswaran

I mean, the simplest thing to do would be to go read the post in its entirety. The notes that follow are my way of reinforcing the key messages for myself, but perhaps they will help you as well.

This piece has five messages. One is that the best way to attract businesses is not to repel them explicitly. Second, it makes the case for a bold but transparent fiscal support. Third, it offers suggestions on how that money could be spent and four, it reminds experts that doomsday scenarios for India are not pre-ordained. Finally, it is important that the government channels the Covid crisis to usher in a decade of better growth than the previous one.

With regard to the first point, about not repelling businesses:

  • The blog post emphasizes the need to facilitate clear instructions for businesses. The key message is that clear communication is always important, but it is literally a life-saver in these times. If you need to issue a clarification, you failed. It is that simple.
  • A related point in this regard comes from an excellent newsletter that is equally worth reading in its own right. Facilitating business also means not throwing out the baby with the bathwater:
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    “Now let’s look at why this is a policyWTF. India’s economy is facing a severe demand + supply shock. Of particular concern is the unavailability of domestic capital for long-term projects such as infrastructure (one of the reasons for this is covered in the India Policy Watch section below). Without long-term investment, India cannot achieve sustained economic growth. And without sustained economic growth, India’s geopolitical options get majorly constrained. An economically strong India becomes an ideal counterweight to China for the US and also an ideal market for excess Chinese capital. In contrast, a weak economy will eventually be forced to throw its economy open to the highest bidder at any point of time (ask Pakistan). Given this key national interest, making it difficult for Chinese investments to find their way into India is extremely counterproductive.”
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    To be clear, this is not the point Ananta Nageswaran was making, but the point that Pranay and A.N. make stems from the root principle that in these times, we need to facilitate business, not hamper it. It can be hampered by a variety of things: unclear communication, blanket bans, or something else.

Now, on to the second point:

However, for a country with a young demographic and a potential for economic growth to exceed the cost of capital in the medium to long-term, the cost of excessive caution and prudence would be higher than the cost of excess action now. This would be so in the medium to long-term even if the short–term costs of excessive fiscal activism appear higher. One such fear is the fear of credit-rating downgrade. That reputational risk must be accepted and ignored, if it materializes. Rakesh Mohan, the former Deputy Governor of the Reserve Bank of India, had the right attitude towards them. In an interview for CNBC TV-18, he is reported to have observed that the credit rating agencies should have been the first ones to be put on the lockdown globally. He is right.

There is a time to worry about rating agencies, rising rates of borrowing, crowding out and profligacy. This, however, is not that time. We can err on the side of doing too little, or too much. There will be errors, we just need to choose which. I agree with A.N. – more is infinitely more preferable.

Suggestions on how money can be spent, which is the third point:

  • Asset sales, by Andy Mukherjee (link gotten from within A.N.’s post)
  • Building out health infrastructure, by the same author (and the same source for the link as above too)
  • Shankkar Aiyyar has an article on BQ that finds mention in A.N’s post, and also has this excellent, excellent analogy:
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    “Epidemiology tells us vulnerability to Covid-19 rises with pre-existing conditions. This is true for economies too. India’s economy, frail from co-morbidity, tripped from slowdown to lockdown.”
  • And Vikram Chandra on Twitter has some suggestions:
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    Note that the list isn’t (and can’t be) exhaustive. But these are all extremely good suggestions!

Fourth, we need to keep reminding ourselves that it’s not all doom and gloom, health-wise and economy-wise, or as A.N. puts its, “experts are poor at predicting”. (Ahem)

And fifth, the bottomline from his blog-post, which I quote in its entirety:

“Finally, that persuades me to throw the ball to the government to play. In times of crises, society looks for guidance and leadership from the rulers. This is time-tested. Therefore, the onus is on the government to demonstrate clarity in thought and purpose in action. India began the last decade badly and ended it with more questions than answers. An encore will be a tragedy. India should do whatever it takes to avoid it.”

 

 

India: Links for 6th January, 2020

It’s the first Monday of the year, and therefore the five articles today will be about the year gone by, the decade gone by, the year to come and – you guessed it – the decade to come. All, of course, focused on India.

 

  1. “Hope springs eternal in the human breast, which perhaps explains why some outrageously hopeful investors took India’s markets to greater heights in 2019, despite economic indicators getting progressively worse. The Nifty 500 index rose 7.7% last year, a marked improvement over 2018, when the index had fallen 3.4%.”
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    Economics professors, such as yours truly, are wont to clear their throats and look away when asked by students about the disconnect between macroeconomic indicators and stock market indices. Mobis Philipose in the Livemint to the rescue.
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  2. “Coming out of the current crisis is priority. But without trying to pick winners, India should also be getting its financial industry ready for the opportunities the 2020s may have in store.”
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    A nice blend of the past, the present, and how to be ready (from a financial markets viewpoint) of what is hopefully to come in the future, by Andy Mukherjee.
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  3. I’m not a fan of lists such as these. Specifically, in this case, the last three or four entries simply exist to take the list to 20. It is striking however, to see the obvious contradictions in the list itself. 20 things expected to happen in 2020, for what it’s worth.
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  4. “But consumption growth in 2019-20 has collapsed. In the first six months of this year, consumption growth has been just 7% (in nominal terms, without adjusting for inflation). It is the first time since 2004-05 that consumption growth has been in single digits.”
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    Vivek Kaul in the Deccan Herald, for the pessimists…
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  5. “In the 2019 Independence Day speech made by Prime Minister Narendra Modi, a key announcement was investment of Rs. 100 lakh crore in infrastructure over the next five years.This was also one of the promises made in the Bharatiya Janata Party (BJP) manifesto for the Lok Sabha elections held in April and May 2019.
    Following the announcement by the PM, a task force was constituted within the Finance Ministry to create a roadmap for this investment.
    Officials from the Departments of Economic Affairs and Expenditure in the Finance Ministry and NITI Aayog were part of this task force.
    The report of this body was presented on 31 December 2019 by Finance Minister Nirmala Sitharaman.”
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    While Aashish Chandorkar with how the NIP might play out, for the optimists.

India: Links for 25th November, 2019

  1. A difficult article to excerpt, so go ahead and read it in its entirety: Andy Mukherjee on India’s telecom woes.
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  2. “The NFMW should be determined based on macroeconomic considerations, namely (1) whether the NFMW would increase aggregate demand for mass market consumption. (2) Whether there are supply bottlenecks in responding to such aggregate demand and, if so, calibrate the NFMW to not cause inflationary pressures by driving up demand that would not elicit a domestic supply response- mass market textiles is a good example. (3) The impact of the minimum wage on the factor distribution of income i.e. wage and profit shares should be a key consideration not from the point of view of equity, but from that of macroeconomic stability and growth optimisation. (4) Subnational minimum wages could be set above the floor as desired with other considerations in mind.”
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    Rathin Roy in an excellent article on the need for minimum wages in India.
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  3. Vivek Kaul is less than impressed with the real estate bailout package.
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    “According to real estate research firm Liases Foras, the number of unsold homes in the country is more than 1.3 million. The number of unsold homes in India has risen dramatically primarily because of high prices. Builders have cited higher development costs as a reason for their inability to reduce prices of properties. The bailout package of ₹25,000 crore will lead to a further increase in the supply of homes, but without adequate price cuts these homes are not going to get sold. Hence, the problem will only deepen.”
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  4. “So he mounted his horse and galloped over to a nearby hill. “From the top of the hill there was a magnificent view embracing old Delhi and all the principal monuments situated outside the town, with the river Jumna winding its way like a silver streak…”The hill, near the village of Raisina, would become the epicentre of the new capital. By October 1912 the government initiated the legal process to acquire land. The first plots, required for the construction of what would be called Rashtrapati Bhavan, amounted to 4,000 acres.”
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    Sidin Vadukut in a lovely article on how modern Delhi came to be, well, Delhi.
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  5. “The scorers refused to continue after the covering over their heads went up in flames. Fire brigades were called and a riot squad formed a line between the dressing rooms and the pitch.”
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    The Guardian on riots in a Test match in Bombay during the 1960’s.

EC101: Links for 31st October, 2019

  1. “To make this easier to navigate, I’ve grouped the publications by one measure of influence, academic citations per year since publication. The categories are not indications of the quality of the research, just its academic influence to date. Within categories, I’ve ordered studies chronologically.”
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    A useful set of links: 100 of Michael Kremer’s most popular papers.
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  2. “Moreover, the key target of economic policy, Gross Domestic Product (GDP), doesn’t provide much help. So with a view to ‘remastering’ macroeconomics, in a new ING report, produced with the help of John Calverley, Carlo Cocuzzo and I investigate how GDP could be remixed. We pay particular attention to the impact of the rapid digitalisation of the economy that has been gathering momentum over the past 25 years. Pursuing the music analogy, our focus is on a digital remix of GDP.”
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    I’m not a big fan of the concept of GDP in the first place, but that being said, this article helps us understand how the digital economy might perhaps be underrated in national income.
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  3. “Nigeria, like other countries in sub-Saharan Africa, is facing a demographic boom. By 2050, its working-age population will have increased 125 percent. At current GDP growth rates, the local labor market will be unable to absorb all the new entrants. One way for Nigeria to reduce this pressure, and make the most of remittance and skills transfers, is to promote new legal labor migration pathways with countries of destination across the globe.”
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    A useful overview of the Nigerian labor market and how it might be made more effective Applies in part to India as well, I’d argue.
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  4. “Trouble is, the rescue is entirely fictional. The only reason it’s even being attempted is to delay — as long as possible — the collapse of this large shadow lender. Such an event, as S&P Global said in a rare show of plainspeak by a credit appraiser, could be powerful enough to deliver a “solvency shock” to India’s troubled banks. Neither the lenders, nor the Indian government, wants to contemplate this grim prospect. Hence, the make-believe restructuring.”
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    Andy Mukherjee explains the mess that is Dewan Housing. Not only is this not going to end well, I’d argue that there are a lot many more skeletons about to tumble out of the closet.
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  5. “The march of technology means oil’s days are numbered. And for the good of the planet, that transition has to happen as fast as possible. But it doesn’t mean the people who gave their lives to getting energy out of the ground should have to suffer.”
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    Noah Smith on the second order effects of the slowdown in demand for oil.

EC101: Links for 29th August, 2019

  1. A simple explainer from the ToI about what RBI’s surplus funds are.
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  2. “Central bank balance sheets can be difficult to grasp and are the subject of much debate. This note makes the case that gross capital is large on RBI’s balance sheet (and further additions to the capital by way of retained earnings do not look necessary) but given the large government debt on the RBI’s books, it is difficult to justify any one-time standalone transfer to the government now.”
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    Ananth Narayan, writing about a year ago (close enough) on the advisability of handing over the funds to the GoI. A nuanced argument, and worth reading.
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  3. “So what you do is:      On the liability side, you reduce the provisions by a certain amount
    On the asset side, you cancel out some government bonds. What the government owes the RBI (as interest and principal) goes away into thin air.

    This gives the government the ability to issue more bonds (since it just saved a truckload on interest costs) and thus use that additional money to do different things.”
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    Deepak Shenoy on the same topic, again from a while back.
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  4. “The balance in the CF is about ₹2.32-lakh crore, which is around 6.4 per cent of the RBI’s total assets.This is reportedly much higher than the 2 per cent average that other BRICS nations (Brazil, Russia, China and South Africa) hold, according to a Bank of America Merrill Lynch report.”
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    The Hindu Business Line on how high the contingency funds are as a percentage of the balance sheet, and how high that number is in comparison to other economies.
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  5. “But there’s a danger, exemplified by Venezuela in the 1980s and 1990s. The central bank, pushed into insolvency by its support of the Latin American government’s industrial policy, leaned too heavily on the power of cheap money-printing to earn profits and repair its balance sheet, and lost control of inflation. Thinning out the Indian central bank’s capital cushion could introduce a similar vulnerability”
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    Andy Mukherjee plays devil’s advocate.

India: Links for 22nd July, 2019

Now that the dust has settled, and it isn’t “news” anymore, let’s take a look at the budget.

  1. Rather than reading the budget, a much better use of your time would be to read the economic survey. Still, if you insist, here’s the budget at a glance.
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  2. “Nirmala Sitharaman, India’s first full-time female finance minister, presented the first Budget of Modi government 2.0 yesterday. Unlike, other finance ministers before her, Sitharaman in her speech talked about everything but the Budget—which basically refers to the government’s expenditures on various things during this financial year, and where the earnings to finance those expenditures are likely to come from. But just because she did not discuss the numbers, doesn’t mean we shouldn’t either.”
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    Vivek Kaul explains, in a very readable article in NewsLaundry, what this particular budget is about.
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  3. Another useful article by the same author, that explains some (non)peculiarities in this year’s budget.
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  4. “Desperation is creeping into India’s economic policy-making. Having lost the fiscal plot, bureaucrats are trying to marshal resources by squeezing taxpayers, foreign investors, firms planning buybacks and even the central bank. Such overreach never ends well.”
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    Andy Mukherjee is less than impressed with this year’s budget.
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  5. “The third respect in which it differed from all previous Budgets — and not just Jaitley’s — was that macroeconomics was simply missing from her speech. As I said, the primary function of a Budget is to control government expenditure and limit it to what the representatives of the people approve. But as governments grew in size, both their Budget balance and their tax and expenditure policies had serious effects on the national economy. Parliaments are supposed to watch and control these effects. . This function was entirely forgotten by Sitharaman. She did not err. Simply, it is her experience that Parliament does not care.”
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    Ashok Desai is exasperated with the budget, plain and simple.

India: Links for 24th June, 2019

  1. “Was the earlier system, based largely on ASI (Annual Survey of Industries) for manufacturing (registered and unregistered), perfect? No, it wasn’t. Is the MCA-based system perfect? No, it isn’t. Despite problems with MCA, is the MCA-based system superior to the ASI-based one? The consensus (I didn’t use the word unanimity) among experts seems to be that it is.”
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    Bibek Debroy’s article discusses Arvind Subramanian’s paper. That excerpt above is probably the best way of thinking about it – and as I’ve said before and will say again: if thinking about GDP measurement doesn’t give you a headache, you aren’t doing it right. By the way, two of the twitter threads this past Saturday were about the same issue: worth reading, in my opinion.
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  2. “In manufacturing, the increase in informalisation is due to two reasons, according to a 2018 study by the Indian Council for Research on International Economic Relations: first, because of dispersal of production from larger to smaller units; and second, because of the creation of an informal workforce subject to fewer regulations, the fact that employing contract (or informal) workers reduces the bargaining power of the regular or formal worker, suppressing wages overall.”
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    Indiaspend reviews the state of employment in the country, and finds that there is far too much informalization – but also that this is increasing  over time. In this regard, the best book, by far, to read is Bhagwati and Panagariya’s “Tryst with Destiny”.
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  3. “Indian macro policy has been operating under an implicit 2-4-6-8 framework, which are the targets for the sustainable current account deficit, the desired level of retail inflation, the consolidated fiscal deficit target embedded in law and the aspirational rate of economic growth. There is a need to take a fresh look at this macro policy playbook for two reasons. First, the individual targets have been decided at different points of time by different parts of the economic policy ecosystem rather than emerging from a common analytical project. Two, there are reasons to doubt its internal coherence given that India has rarely been able to meet all four targets simultaneously over the past decade.”
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    The always excellent Niranjan Rajadhakshya comes up with a useful framework to keep a tab on India’s macro levers: 2-4-6-8 is a very useful mnemonic. The rest of the paper speaks about whether this framework makes sense!
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  4. “This crisis has systemic written all over it because the market can no longer distinguish financiers that are illiquid from those that are insolvent.”
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    I’m calling it: there’s a major crash just waiting to happen in the Indian equity (not just equity) markets, no matter what is done. Speaking of what is to be done, the five suggestions here make a lot of sense. Andy Mukherjee doing what he does best.
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  5. “India’s firm size distribution is excessively small, even compared to other developing countries. Also, complementarily, the number of really large firms are also excessively small. We have a “small is bad” problem. What is driving the small-ness? Is labour regulations responsible for discouraging businesses from “placing too many workers under one roof”? Is there anything else driving or contributing significantly to this trend?”
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    Bhagwati and Panagariya once again. Also, urbanization matters! Artificial dispersion of industries or people (same thing) tends to not work. Gulzar Natarajan on what needs to be done to increase productivity in India.

Links for 29th March, 2019

  1. “”Because it’s so difficult for people with edge-to-edge bites to produce sounds like f and v, the study’s authors figured they would be unlikely to say them by accident, or to incorporate them into their languages. They checked to see whether they could find this pattern playing out in the real world by comparing the sound systems of languages across the world with the subsistence style of the people who speak those languages. About half of the world’s languages use labiodental sounds, but on average, languages spoken by hunter-gatherer societies turned out to use fewer than one-third the number of labiodental sounds as their agricultural counterparts.”
    An area I know nothing about, but I found this fascinating. How agriculture might have influenced speech, and how therefore we got around to using “F” and “V” sounds in language. It begs the question: how might current society be impacting the evolution of language?
  2. “Something interesting emerges from those figures. As the atmosphere is full of small eddies, so humanity experiences many small deadly quarrels, which result in a few fatalities. But now and again come huge storms, which kill millions. These are just the sort of outbreaks, like the world war Richardson had seen for himself, that people think of as surprising. Yet when Richardson plotted the frequency of wars against the number of deaths caused by each one, he found a constant and predictable relationship. On his graphs, the violence obeyed a “power law”—a constant relationship between the size and frequency of measurements. In his turbulence work, Richardson had found that such a power law governed the relationship between the rate of diffusion of objects in a turbulent stream and their distance from one another. Now he had found evidence of an underlying law in the supposedly unpredictable realm of politics.”
    Well worth the price of admission – the article begins somewhat slowly, but picks up pace and complexity, taking us on a journey through war, weather forecasting, religious background, and much else besides. People who don’t like math, especially, should really read this post.
  3. “Foreign investors believe they can navigate around India’s governance fault lines. Still, South Korea’s chaebol discount could also become a millstone for India if the grip of a handful of private interests on state institutions and economic opportunities tightens. The new boxwallahs will be much harder to shake off than the old cronies.”
    The always excellent Andy Mukherjee on the urgently needed corporate reforms in India. Well worth a read for its own sake, of course, but more importantly, a great read to help you understand what you should read more of when it comes to India’s business history.
  4. “There are undergraduate courses, and then there are great undergraduate courses. Today we have the 49 item course bibliography for Thomas C. Schelling’s “Conflict, Coalition and Strategy” along with its ten-page final examination”
    This is, I’m still gobsmacked to think about it, an undergraduate  course. We at the Gokhale Institute are starting an undergraduate course this year – it’ll be interesting to see if any of these references could be included in that course. I found this fascinating, especially because of the wide variety of subjects from which the list has been drawn up. A lot of bookmarks to be added via this link!
  5. “For, in both Ricardo and Marx, a conflict of interest is visible between social classes. In order to promote the ‘idea’ of a just and harmonius system, the theories (especially the labour theory of value) of Ricardo and Marx were criticised as being limited, and an alternative was proposed. This new theory completely did away with social classes. Individuals were chosen as the primary unit of analysis. Social classes, actually was modified into ‘factors of production’. A very interesting and important methodological shift, with powerful political implications! All the factors of production were assigned equal importance, and it was also shown how both labour and capital recieved incomes according to their contribution to the production process. That is, a capitalist system, with free mobility of labour and capital and with clear property rights (contracts), is essentially a just and stable system.”
    Why should one study economics? Most, if not all, colleges today leave students with the answer to this question being completely backward. We learn, and teach, theories of economics and then ask students to apply them to the world outside. Arguably, even the latter doesn’t happen nearly often enough. But this post helps you understand where theories come from in the first place! They came up in response to the world that was around those theorists – at that time, and at that place. This time, and this place is different – and we, as students of economics, would do well to remember that. Excellent article, and about an economist who isn’t studied enough.