Links for 28th February, 2019

  1. “India holds the dubious distinction of having the worst non-performing loan ratio among the world’s major economies, having surpassed Italy. The Reserve Bank of India said in December that the ratio for banks fell for the first time since 2015, though it’s still “high for comfort.” A $190 billion pile of soured and stressed debt has cast the future of some lenders in doubt and curbed investments.”
    There actually isn’t that much more to read at the link, but the chart is instructive. Also bear in mind that it is quite unlikely that the data is accurate – this is not a criticism of the IMF, but rather of the banking system itself in both Italy and India.
  2. ““Let there be no misconceptions about who protects [JeM]. Pakistan is small potatoes . . . True global power shielding Jaish is China. As death toll rises today, let nobody forget how China has consistently blocked action against Jaish,” tweeted Shiv Aroor, a television reporter specialising in military and strategic affairs.”
    China’s blocking of India’s move to have Masood Azhar declared a terrorist has been an issue that hasn’t recieved as much attention, both within and outside India, as it should have. But the reason reading this article makes sense is because it’s a good way to think about how China’s bargaining position as regards this issue is slightly weaker now, given it’s trade wars with the USA.
  3. “All it takes is a half-hour at this intersection in Lagos, the sprawling metropolis in Nigeria, to begin fearing this city. White oil tankers crawl along both on and beneath an overpass on the multilane Apapa Road, making their way out of the Niger River delta. Zipping around them are black-and-yellow rickshaws and minibuses, with sweaty passengers clinging to the doors. Every few meters, a truck hits the brakes with an ear-splitting shriek, the clouds of exhaust mixing with the diesel fumes of the generators. The foul air hangs like a thick blanket over the corrugated metal slums to the right and left of the street. Just 30 minutes at this intersection is enough to make you want to flee this city — a megalopolis that is growing faster than almost any other place on earth.”
    Who can predict the future? Short answer: don’t bother trying. One thing that makes economics so endlessly interesting is reading conflicting views – if you recall the article on The Empty Planet the other day, this one is in direct contradiction – at least in terms of the theme, if not the data itself. Der Spiegel reviews three different countries and the challenges they are facing, and will face, on account of population growth.
  4. “Nobody is expecting the prince to do anything about Pakistan and India being on the brink of a war yet again. Like all little princes he does not have to pick sides or make a choice. When he visits India this week, he is expected to sign more investment deals. The Pakistani government calls his visit historic, and Indian officials call it historic. But only people with no sense of history call every passing chariot a historic event. The prince is playing with Pakistan and India because he is being temporarily snubbed by the boys and girls of the West, the ones he really wanted to play with.”
    Mohammed Hanif is dismissive of the storm in the teacup that is Prince Mohammed’s visit to India and Pakistan. Sometimes, having that perspective helps contextualize the visit, and it’s inevitability. Think from a game theoretic perspective: what choices did Saudi Arabia, Pakistan, India (and China have)?
  5. “If these behaviors add up to consciousness, it means one of two things: Either consciousness evolved twice, at least, across the long course of evolutionary history, or it evolved sometime before birds and mammals went on their separate evolutionary journeys. Both scenarios would give us reason to believe that nature can knit molecules into waking minds more easily than previously guessed. This would mean that all across the planet, animals large and small are constantly generating vivid experiences that bear some relationship to our own.”
    The Atlantic explores a veterinary hospital in Delhi, Jainism, birds (crows in particular), fish, consciousness and a temple in Gujarat – all in one glorious article. Worth it in particular for the theme of consciousness – but much else besides as well!
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Links for 27th February, 2019

  1. “The time for masking such equity-type investments as loans has passed. Real estate in India is facing a glut, with $110 billion worth of unsold homes across the top eight markets, including Mumbai. That’s almost four years of sales, according to property analytics firm Liases Foras. Back in 2009, when apartment inventory was equal to about one year of sales, only 25 percent of construction funding came from shadow financiers. Banks controlled 75 percent.The tables have now turned: Housing-finance firms and other nonbank lenders, more adventurous than conventional banks, account for 55 percent of advances to builders. Lenders pocketing 2 percent to 3 percent of the loan value as upfront fees in exchange for not collecting on the principal for years has allowed a buildup of poor-quality debt. Moratoriums have delayed builder bankruptcies, and prevented timely detection of the problem.”
    This is a problem just waiting to become a full blown crisis in India – not the real estate sector per se, but the financing of the real estate sector in India. Read this article to find out how and why it has become as big a problem as it has.
  2. “Like all great work, it was the foundation for other huge contributions – work by other great economists such as Oliver Hart, Bengt Holmstrom, Paul Milgrom and many others can easily be traced to this paper. The paper’s starting point – that coordination within firms is not accomplished ‘by fiat’ (Demsetz famously remarks “This is delusion”), and that one should instead examine how incentive structures within firms create efficiencies relative to other forms of organisation – became the starting point for nearly the entire field of the economics of organisation ever since.”
    I have linked to this piece earlier, I think in January. But since I am currently teaching a course in Industrial Organization at Gokhale Institute, I found myself reading this piece all over again. Demsetz really was a giant in this field – and his analysis of why firms exist, and how they coordinate and incentivize activity within the firm is truly illuminating.
  3. “So, the UN forecasting model inputs three things: fertility rates, migration rates, and death rates. It doesn’t take into account the expansion of education for females or the speed of urbanization (which are in some ways linked). The UN says they’re already baked into the numbers. But when I went and interviewed [the demographer] Wolfgang Lutz in Vienna, which was one of the first things we did, he walked me through his projections, and I walked out of the room gobsmacked. All he was doing was adding one new variable to the forecast: the level of improvement in female education. And he comes up with a much lower number for global population in 2100, somewhere between 8 billion and 9 billion.”
    Population “crises” are over-rated in any case (people are a resource!) – but even the forecasts for how many people there will be on the planet in the next thirty to eighty years are likely to be wrong. The world is changing right in front of our eyes. The problem of the (near) future isn’t one of too many people – it’s one of too few.
  4. “Instead, the signatories objected to the election of a student union president of Tibetan descent, who “was found to hold the political belief that Tibet should be free”.”
    Based on what you have read above, which country are we talking about? Not only might the answer surprise you, but it will also help you think about geopolitics, international finance and the benefits of diversification.
  5. “Most developed countries of today addressed many of their basic plumbing challenges largely through public production. China is clearly an example of the latter. It appears to have perfected the use of industrial policy to co-ordinate private enterprise even into some of the most difficult areas for private engagement. This is the case of industrial policy to both address a critical plumbing issue as well as catalysing a market. And this is what makes its achievement exceptional.”
    Law, innovation, state led industrial policy and judicial pendency, all in one lovely article by Gulzar Natarajan. Gokhale Institute recently released a report on judicial pendency in India – China has an interesting way of tackling this problem.

Links for 5th February, 2019

  1. “If there is one number that can make the edifice of budgetary arithmetic collapse and impair the growth prospects, it is the movement of crude oil prices. If for nothing else, but simply reduce the vulnerability of the fisc, this should be done. For, it is the “resource deficit” of the country which is the single biggest threat to sustained growth of 9%”
    How might a new age budget look like? Haseeb Drabu takes a look at the ways – five of them. You’ll be reading this by the time the budget has come out, of course, but it still makes sense to read this in order to think about how the budget needs to be structured.
  2. “The 0.9 per cent year-on-year (YoY) growth in the adjusted net profit of 385 companies, which have released their results for the third quarter (Q3) of the current financial year so far, does not inspire much confidence. If financials and energy companies are removed from the sample, net profit has grown 6.4 per cent in Q3 — the worst performance in five quarters.”
    I’d recommend that you read this article to either get a sense of how to judge the macroeconomic environment (partially!) on the basis of stock market performance, or even better, if you are new to finance, read this with an Investopedia tab open alongside.
  3. “Passenger vehicle sales in China fell for the first time last year since the early 1990s due to a cut to government tax breaks and wider economic sluggishness. Hyundai, which was once the third-largest automaker in China together with Kia, is now sorting out overcapacity as its sales in China have not picked up much since being hit by the anti-Korean consumer backlash in 2017.”
    The FT provides additional information on the slowdown in China – and the link on the anti-Korean backlash is also worth reading.
  4. “From the start of 2012 to the end of 2016, China produced nearly three times as much cement as the US did in the entire 20th century.Much of that investment has gone to waste. A recent study by China’s Southwestern University of Finance and Economics estimates that more than one in five Chinese homes in urban areas, or about 65m apartments, are empty. And if demography is destiny, China’s prospects are bleak. Between 1980 and 2012, China added about 380m people to its working-age population. But that number has been shrinking for the past five years and is expected to fall by a third, or about 220m people, in the next three decades.”
    More grist to the China recession mill, from the FT. The numbers are truly breathtaking – especially that quote about cement!
  5. “China’s fertility rate has officially fallen to 1.6 children per woman, but even that number is disputed. Yi Fuxian, a professor at the University of Wisconsin-Madison, has written that China’s government has obscured the actual fertility rate to disguise the disastrous ramifications of the “one child” policy. According to his calculations, the fertility rate averaged 1.18 between 2010 and 2018.”
    The NYT picks up from where the FT left off, and tells us about the impending population crisis in China – that there may soon be too few  people in China, not too many.