Links for 24th April, 2019

  1. “Really? When is the last time you ran a search with DuckDuckGo? Too often, he seems to be stretching the evidence. He argues that, given the social aspects of the workplace, “companies are actually responsible for some of our most important relationships.” But that’s a function of work — not of corporate life. People at nonprofits make friends, too. Cowen asserts in defense of Amazon, “My options as a book consumer never have been better.” He includes as evidence of a competitive book market the option (which he doesn’t condone) of “illegal downloads of free PDFs.” Jeff Bezos must rue such defenders. (Bezos founded Amazon and owns The Washington Post.)”
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    Roger Lowenstein reviews Tyler Cowen’s latest book. I myself have not read it yet, but the review was interesting to me, in particular this excerpt about illegal PDF’s and how they encourage competition.
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  2. “Alwyn’s related analysis of published studies is even more striking. He shows that, in a sample of 1359 IV regressions in 31 papers published in the journals of the American Economic Association,
    “… statistically significant IV results generally depend upon only one or two observations or clusters, excluded instruments often appear to be irrelevant, there is little statistical evidence that OLS is actually substantively biased, and IV confidence intervals almost always include OLS point estimates.” ”
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    Econometric nerds/students only (consider yourself warned) – but IV isn’t as great as it is made out to be. Occam’s razor is massively ignored in econometrics.
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  3. “The Fiscal Affairs Department and the Institute for Capacity Development of the IMF are pleased to announce that the online course on Public Financial Management (PFM) will relaunch on May 1, 2019 and remain open year-round. In its two previous offerings, this free online course has been taken by more than 2,200 participants in 194 countries, with very high satisfaction rates. Taught by more than 15 experts of the Fiscal Affairs Department, the course is open for government officials, staff of bilateral and multilateral development agencies, civil society organizations, parliamentarians, academics and the general public. The course has been updated in 2019 to reflect the revisions brought to IMF’s PFM standards and tools and adopted in the last twelve months – namely the Public Investment Management Assessment (PIMA) framework and the Natural Resource Management pillar of the Fiscal Transparency Code (FTC).”
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    You might, as a student of economics or policy making, want to consider taking this course.
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  4. “So why, then, does the government tax, under the MMT view? Two big reasons: One, taxation gets people in the country to use the government-issued currency. Because they have to pay income taxes in dollars, Americans have a reason to earn dollars, spend dollars, and otherwise use dollars as opposed to, say, bitcoins or euros. Second, taxes are one tool governments can use to control inflation. They take money out of the economy, which keeps people from bidding up prices.And why does the government issue bonds? According to MMT, government-issued bonds aren’t strictly necessary. The US government could, instead of issuing $1 in Treasury bonds for every $1 in deficit spending, just create the money directly without issuing bonds.”
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    Yet another explainer of MMT – it’s counterintuitive (at least to me), and I’m still not sure it makes sense and will work – but I understand it better than I did before upon reading this article.
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  5. “This is an issue for economics too: the construction of the deflators used to turn nominal pound or dollar GDP into ‘real’ GDP, on which so much policy hangs, relies on a theory of constant, known preferences which determine the utility of consumption, and yet modern economic growth is all about creating wants for new goods and services for which preferences have to be created. So at a time of rapid innovation it is not at all clear what the deflators and ‘real’ GDP measures are measuring.”
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    Diane Coyle reviews a book that helps us understand Amartya Sen’s work better. I found this excerpt above quite interesting.
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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.

Links for 21st March, 2019

  1. “In a 2011 paper, trade-policy researchers Anwarul Hoda and Shravani Prakash analyzed the impact of “the proclivity of the U.S. administration to leverage the GSP program to achieve its economic and political objectives.” They found that with major developing-country trading partners “the reciprocity requirement has proved to be ineffectual.” In 1992, the U.S. stopped India’s preferential access for chemicals and pharmaceuticals in an effort to improve intellectual-property protection. New Delhi shrugged off the pain, and waited for a World Trade Organization agreement before amending its patent law, the researchers noted.”
    Andy Mukherjee doesn’t think the removal of the GSP support by the USA will have any meaningful impact on India’s exports to that country. He also cites an interesting paper (which I haven’t read yet), which seems to say essentially the same thing.
  2. “The opportunity is simple to describe but requires real effort to achieve: the community must enforce systems that build the external costs into the way that the industrialist does business. Faced with an incentive to decrease bycatch, waste or illness, the industrialist will do what industrialists always seek to do–make it work a little better, a little faster, a little more profitably.Industrialism can’t solve every problem, but it can go a very long way in solving the problems that it created in the first place.”
    Seth Godin (whose blog is a remarkable thing, by the way) gives his take on externalities, and makes the case that economists take a far too restrictive, anti-septic view of the problem. I’m putting words into his mouth, but that’s how I interpret it – and I’d agree. Certain problems can be identified best by economists, but perhaps the solutions lie outside the textbook. A useful article to read for starting discussions around externalities, the Coase theorem, Elinor Ostrom’s work, the role of culture in economics.
  3. “When it comes to the institutional framework, there are obviously massive differences between India and China. Any leader in India must contend with parliament, the courts and state governments. Also known as democracy. That limits how quickly stuff can get done. It can also save politicians from serious mistakes. China has competing interests and constituencies as well, but it’s not the same sport, let alone ballpark.”
    The article is about India’s less than stellar economic growth in the previous quarter, but that paragraph above was important to me. India is a functioning democracy, China anything but. That has it’s advantages, and its disadvantages – to both. A point worth remembering in many ways – one of which part of the focus of this article.
  4. “In the process, Netflix has discovered something startling: Despite a supposed surge in nationalism across the globe, many people like to watch movies and TV shows from other countries. “What we’re learning is that people have very diverse and eclectic tastes, and if you provide them with the world’s stories, they will be really adventurous, and they will find something unexpected,” Cindy Holland, Netflix’s vice president for original content, told me.”
    Farhad Majoo in the NYT about why Netflix is such a good thing. It’s a useful article to understand the impact Netflix is having the world over – but also a good article to learn about pricing, the implications of pricing, content discovery on Netflix.
  5. “For several years, India’s banks have been in the spotlight over their problematic lending to prominent industrialists. Now the mutual funds and non-bank lenders — who have taken increasingly important roles in the credit system amid the banks’ woes — are coming under similar scrutiny. That is good for the development of the Indian financial sector. But it is yet another headache for some hard-pressed members of the promoter class.”
    Simon Mundy in the FT on how the IBC has provided teeth to creditors in India – which is genuinely good news. But the transition is unlikely to be smooth, and there may well be some unexpected skeletons waiting to tumble out of the closet. A good read for finance, bankruptcy and non-bank lending in India.

Links for 14th March, 2019

  1. “It is an example of the paradox of India’s state capacity that it can execute well-defined tasks like elections, census, disaster relief etc with unparalleled proficiency and do the simplest things like running mid-day meal kitchens in the most appalling manner.”
    The always excellent Gulzar Natarajan on the paradox that is Indian bureaucracy. Given the remarkable efficiency with which we run our elections – and read the article to find out just how efficient it really is – why not other stuff in India? I do not have a clue. Will headline converge to core, or will core converge to headline?
  2. “While a Chinese depreciation would be a negative to shock to the world, China’s apparent willingness to use fiscal tools to restart its economy should be helpful to the world, at least directionally.*”
    The asterisk is at least as important as the excerpt, because the nature of the fiscal stimulus will matter more than the extent of it in the long run – but an update on what is fast becoming a mini-series – the state of China’s economy.
  3. “A key problem is that there are no interpretations of these concepts that are at once simple, intuitive, correct, and foolproof. Instead, correct use and interpretation of these statistics requires an attention to detail which seems to tax the patience of working scientists. This high cognitive demand has led to an epidemic of shortcut definitions and interpretations that are simply wrong, sometimes disastrously so – and yet these misinterpretations dominate much of the scientific literature.”
    I don’t know if I’ve fully understood p-values, and I don’t know if I do a good job of teaching them – to the extent that I understand them myself. And occasionally reading, and re-reading this blog post is therefore a useful thing to do. Assuming it is correct in the first place!
  4. “…boosting an intermediate range of labor-intensive, low-skilled economic activities. Tourism and non-traditional agriculture are the prime examples of such labor-absorbing sectors. Public employment (in construction and service delivery), long scorned by development experts, is another area that may require attention. But government efforts can go much further.”
    Buried in this article are a whole range of papers waiting to be written – but that’s for academicians to salivate over. The article is a wonderful summary of what good jobs are, why they are difficult to come by today, and what can be done to make sure that they do come by.
  5. “I suppose it’s worth trying to measure economic growth, but don’t take the findings too seriously.”
    Words to live by, and I mean that. Trying to measure economic growth is, ultimately, an un-solvable problem. Conversely, any estimate that we have is always going to be off the mark. Think through the implications (and the implications of the implications!)

Understanding the Importance of GDP Growth

What is GDP all about? Why is it so very important, and why do economists spend so much time in tracking it? As we discussed in an earlier post, the GDP growth rate is one way of understanding how much more we produced in a given period compared to the last one.

So more is always good, right?

Well… not quite.

It’s a question I struggle to answer in the context of GDP growth, because yes, growth is good, but with qualifiers. It’s a little bit like saying that speed is good where a car is concerned, but too much of it can be quite disastrous.

And in a book that I have started reading recently, I came across a way of thinking about GDP growth in India that I quite liked:

In this book, I define the objective of India’s economic development as rapid, inclusive, stable and sustainable growth of national income, within a political framework of liberal democracy

(emphasis in original)

The book in question is “India’s Long Road” by Vijay Joshi, with the subtitle being “The Search for Prosperity”. Vijay Joshi has done all kinds of awesome sauce things over a long and distinguished career, and a 500 word limit will not begin to do justice to his many accomplishments. Suffice it to say that reading this book is well worth your time if you are interested in India’s growth story.

But to go back to the quote above: the author is saying, as is everybody else, that growth is important, indeed crucial, from an Indian context. That’s the rapid part. However, we also need to make sure that the growth is inclusive. Which means it’s not just important to bake a larger cake, but it is also important to make sure that every gets a slice (and preferably, as equal a slice as possible). There are many ways to accomplish this, and we don’t always do a perfect job in this regard but here’s the most important bit: we have to bake a larger cake first! Distributing a very small cake equally isn’t the point.

Stable implies growth that happens in steady fashion, not haphazardly, not in fits and starts. Put another way, steady growth over a decade is better than rapid growth for the first five years and no growth for the other five. Listen closely, and you can hear the sound of every RBI governor alive nodding his head ever so vigorously.

Sustainable would mean environmentally friendly. That’s a separate book in and of itself, but what we want is a rapidly growing country that has breathable air, drinkable water and arable land 100 years from now. Some might say that’s a contradiction in terms, but we won’t wake that particular beast just yet.

And the last bit? …within the framework of liberal democracy is treated as being almost axiomatic by Vijay Joshi, and in my opinion, rightly so. Sure, we grow slower as a consequence of our choice of a liberal democracy, but if that’s the price for political freedom, it is certainly worth it.

But I’d much rather that we work towards achieving rapid, stable, sustainable and inclusive economic growth within the framework of a liberal democracy, than achieving rapid GDP growth.

It’s a longer definition, but a better target.

 

10 links to awesome sauce sources about GDP

  1. For a truly fun, positively mind boggling application of GDP, try the Gapminder website. It is a LOT of fun, and a truly useful way to make sense of the world around you.
  2. The Marginal Revolution University is the place to go to for engaging videos on hajjar topics in economics. Over time, they’ve built up a truly useful repository, and you really should check it out. We’ll be giving multiple links over time, but to begin with, try this video about GDP.
  3. Need data on GDP for various countries but not sure about where to get it? The World Bank World Development Indicators are your friend in need. Click here to visit the page for GDP in particular, and if you are a data nerd, you’ll have a lot of fun.
  4. Another source would be the IMF database, or the World Economic Outlook database.
  5. If you want in depth data about Indian GDP in particular, you should visit the RBI database on the Indian economy. It won’t win any awards for user-friendly design, but it gets the job done.
  6. If reading really isn’t your thing, you might want to listen to an interview of Diane Coyle, by Russ Roberts on his podcast, EconTalk. Simply download the mp3 file, and listen at your leisure.
  7. If you really want to learn about GDP and India, there are two must read PDF’s. The bad news is, there is no TL;DR and they’re really long, and not exactly entertaining. Still, if you want to think through all of the issues that are involved in counting out India’s GDP, then reading the Sources and Methods and Changes in Methodology and Data Sources in the New Series of National Accounts are must reads. Not page turners, you understand, but must reads.
  8. If you haven’t had your fill of thrillers based on GDP, take a look at the guidelines set up for countries who want to report their national accounts.
  9. If reading long boring documents, published by the Indian government or otherwise, is not your thing, then you might want to read a book written by  Diane Coyle. It’s called  “GDP: A Brief but Affectionate History” and it really is worth your while.
  10. If you’ve stuck around till now (we hereby declare you an honorary nerd) you deserve to be rewarded. The Angus Maddison database, ladies and gentlemen, if ye olde GDP be your thing.

 

Deciphering India’s GDP

What is India’s GDP and why should I care?

As we discussed in our previous post, the reason you should care about India’s GDP is because it is a good way to get a quick, one-number estimate about how “well” India is doing. This post is about answering the first part of the question posed above: what is India’s GDP?

First things first: that’s an incorrect question. What people really mean when they ask that question is: what is India’s GDP growth rate. That last phrase is often missing, which is what can (and often does) cause confusion.

GDP is what you, I and literally millions of Indians produced in one time period. GDP growth rate is how much more did we produce this year, relative to last year. When we say that the Indian economy grew at 7.5% last year, we mean we produced 7.5% more of goods and services this year when compared to last year.

Why is that a good thing? Well, producing more stuff usually means selling more stuff. Selling more stuff means more of us earned more this year compared to last year – and since when was that a bad thing, huh?

Also, producing more stuff implies requiring more people to produce said stuff, which means (probably) more people were employed this year compared to last year. And that’s also a good thing, right?

So: a higher number for our GDP growth rate means richer Indians, and more jobs all round. That’s why economists, policy makers and the media watch the GDP number so closely – its because this number tells us whether India is getting richer over time, and gives us a rough idea about whether more Indians are with jobs this year compared to the previous year.

Where should you go to check out India’s GDP growth rate? Well, there are many sources out there, but the safest is go to the source: the Ministry of Statistics and Programme Implementation. (Fun challenge: spend the next five minutes coming up with a name that bores you more than this one did)

On the home page, under a column titled “Latest News”, look for a banner heading that runs along the lines of “Provisional Estimates of Annual/Quarterly Estimates of GDP”. Clicking on that link opens up a PDF, in which the growth rates of GDP will be given. 2016-06-20 (1).png

Be careful! You should look for the GDP growth rates in constant prices, not current ones. In a later post, we’ll explain what the difference between the two is, but for now, do note that its constant prices that matter, not current.

As you can see in the table to the right, we grew at about 7.6% for the period 1st April to 31st March 2016.

And that’s a (very!) quick introduction to GDP. We’ve hopefully managed to convince you of the need to know a country’s GDP growth rate, and where to find it in India’s case. In posts to come, we’ll talk much more about GDP. For now, we’ll do a follow-up post on our Facebook page about links relevant to this topic that you might want to check out. Let us know what you think by dropping us a note in the comments below!