EC101: Links for 27th June, 2019

  1. “Total Expense Ratio aka TER means cost incurred by a fund house to run a fund. It includes management fee, legal fees, registrar fee, custodian fee, distributor fee etc. The major part of the TER consists of management fee followed by distributor fee. The TER is calculated daily and will be deducted by AMCs on the same day, which means your NAV includes the impact of fees on your fund.”
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    A good article to help you understand how mutual funds make money, what the new SEBI regulations mean for retail investors, and how dependent the mutual funds are (as of now) on the distributor.
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  2. “…Say’s Law provides a theory whereby disequilibrium in one market, causing the amount actually supplied to fall short of what had been planned to be supplied, reduces demand in other markets, initiating a cumulative process of shrinking demand and supply. This cumulative process of contracting supply is analogous to the Keynesian multiplier whereby a reduction in demand initiates a cumulative process of declining demand. Finally, it is shown that in a temporary-equilibrium context, Walras’s Law (and a fortiori Say’ Law) may be violated.”
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    Econ nerds only – and perhaps the even stranger beasts called macro-econ nerds only. David Glasner gives us a view of Say’s Law that may actually be (gasp) Keynesian in nature.
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  3. “Why incentives? Economics is based on the premise that incentives matter. Incentives can help by increasing or decreasing the motivation to take up a certain activity, by changing the cost or benefit of the activity. If someone were to pay John enough for each time he hit his steps goal, he would likely begin walking, perhaps even enthusiastically. After all, health consequences are in the distant future, but cold, hard cash can be given in the present. ”
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    That is from this link – you’ll actually have to download and read the PDF. This excerpt is useful to me because it essentially says that behavioral economics is, well, economics.
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  4. “This view goes something like this – there are no priors (in fact, you discredit experience as being biased – after all you guys have been doing development for decades and we still have poverty and misery in abundance) >> and therefore conventions, latent wisdom, and experience counts for little >> therefore there are no theories >> so we need evidence on everything >> how better to create evidence than look for data >> so let’s do experiments (RCTs) or mine administrative data and understand reality and design evidence-based policies.”
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    Gulzar Natarajan is less than pleased with Raj Chetty’s new course at Harvard (the first item from 23rd May, 2019’s posting), and I am very inclined to agree with his views. Empiricism is slightly overrated today.
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  5. “The Baumol effect predicts that more spending will be accompanied by no increase in quality.
    The Baumol effect predicts that the increase in the relative price of the low productivity sector will be fastest when the economy is booming. i.e. the cost “disease” will be at its worst when the economy is most healthy!
    The Baumol effect cleanly resolves the mystery of higher prices accompanied by higher quantity demanded.”
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    Alex Tabarrok over on Marginal Revolution is on a spree with the Baumol Effect, and having followed his series, I’d say with good reason. It upends several things in microeconomics that we might have taken for granted.

Links for 9th April, 2019

  1. “What is not useful is the sense that measuring GDP is the problem, and measuring gross national happiness is the solution. Few societies have ever really focused on either. We should all be happy about that.”
    Tim Harford reminds us that the truth lies somewhere in the middle. In this case, the article is worth reading for understanding how GDP can’t really be measured, and how that may not be a bad thing. In addition, please read the article to understand that Bhutan probably isn’t all that “happy” a country in the first place!
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  2. “Given the pressure on all unions to negotiate higher-than-average wage increases, using monetary policy to reduce inflation would inevitably aggregate spending to fall short of the level needed to secure full employment, but without substantially moderating the rate of increase in wages and prices. As long as the unions were driven to negotiate increasing rates of wage increase for their members, increasing rates of wage inflation could be accommodated only by ever-increasing growth rates in the economy or by progressive declines in the profit share of business. But without accelerating real economic growth or a declining profit share, union demands for accelerating wage increases could be accommodated only by accelerating inflation and corresponding increases in total spending.”
    Monetary nerds only, it should go without saying! David Glasner runs a blog called Uneasy Money, which is well worth reading, but only if you want to find yourself steeped in all things monetary. This post takes a slightly critical view of Arthur Burns tenure as Fed Chairman.
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  3. “Amazon’s economists game out real estate decisions, set the lowest prices that will deliver a profit, precisely determine what customers care about and whether advertisements are working — all using machine-learning algorithms that automate decision making on a massive scale. It’s the kind of asset that smaller companies can’t always pay for, allowing Amazon to pull further and further away from the competition.”
    Amazon has, in case you didn’t know, probably the world’s largest collection of PhD’s in economics. This article helps you understand what it is that they do once they’re in Amazon. A helpful read if you are considering building a career in economics.
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  4. “The White House explains why it’s predicting such big growth: the TCJA will cause a surge in business investment by “substantially raising the target capital stock and attracting increased net capital inflows.” And this rise in the capital stock will cause a surge in productivity. Except that there’s no sign of a surge in business investment: the report cherry-picks a few numbers, but overall orders for capital goods, probably the best real-time indicator, are showing nothing much (that 2015-6 slump, by the way, was about fracking, which fell off for a while when world oil prices plunged)”
    Paul Krugman is less than impressed with the 2019 Economic Report of the President, and provides data to show why he is less than impressed. The chart that follows the excerpt is worth looking at too.
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  5. “There’s one biosignature that Seager, Guyon, and just about everyone else agree would be as near a slam dunk for life as scientific caution allows. We already have a planet to prove it. On Earth, plants and certain bacteria produce oxygen as a by-product of photosynthesis. Oxygen is a flagrantly promiscuous molecule—it’ll react and bond with just about everything on a planet’s surface. So if we can find evidence of it accumulating in an atmosphere, it will raise some eyebrows. Even more telling would be a biosignature composed of oxygen and other compounds related to life on Earth. Most convincing of all would be to find oxygen along with methane, because those two gases from living organisms destroy each other. Finding them both would mean there must be constant replenishment.”
    That’s just one of many, many excerpt-able pieces from a very long, but also very rewarding article about the search for ET. Take your time with this one – about an hour or so, and pay particular attention to the infographics.