- “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!
- “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.
- “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.
- “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.
- “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.
- “…granted, most supply has moved to Facebook and other social networks; it is no longer possible to build a viable web business with display ads. At the same time, the web is still as open as can be, which means there is room for new business models like subscriptions, a model that has only gotten started and is already producing far better content than the old mass market media model every (sic) did”
The always excellent Stratechery blog on Spotify moving into the podcasting business. Read this to understand how pricing works in the world of the internet, and how an ad-based business is going to be difficult to sustain.
- “Goodhart’s law states that once a social or economic measure is turned into a target for policy, it will lose any information content that had qualified it to play such a role in the first place.”
A current favorite of mine as an example: students must attend at least 75% of all classes in a semester assumes that a student will auto-magically learn once in class – for that is the reason behind the 75% attendance requirement. Do read, though. I’m sure you can think of a million different applications.
- “The constitution ensured that the Senate could protect the people against themselves, and simultaneously ensured that the Framers armored the Senate against the people. Should America be too Democratic, and grant too much power to the House, Madison worried that government would have a propensity “to yield to the impulse of sudden and violent passions, and to be seduced by factitious leaders into intemperate and pernicious resolutions.””
As an Indian, I enjoyed reading this as a reminder of the thinking behind the Rajya Sabha and the Lok Sabha. And which is why I’d recommend you read it too!
- “What these results suggest is the headline inflation – expected to be in the 3% handle in the near future – will eventually start converging, over a 12-month period, towards core inflation which is currently running above 5%. If this were to come to pass, space for any monetary policy easing cycle – notwithstanding a one-off cute in February or April this year – would virtually evaporate.”
Expect there to be an intense discussion about the differences between headline (overall) and core (overall minus fuel and food) inflation. This article is a decent analysis of the link between the two in the past, and today.
- “Consider Ms. Nishimasa’s daily routine. The preschool her two youngest children attend requires the family to keep daily journals recording their temperatures and what they eat twice a day, along with descriptions of their moods, sleeping hours and playtime. On top of that, her 8-year-old son’s elementary school and after-school tutoring class require that a parent personally signs off on every homework assignment.”
A fascinating read from the NYT, to help us better understand the culture that is Japan.
This made my day. Via MR:
What is India’s current inflation rate?
Well, which India are you talking about? Are you talking about people like you and I, consumers? Or are you talking about big fat factories and how their costs are going up? Which kind of consumers? Those who live in the cities, or those who live in the villages? So complicated is our country, it turns out, that we don’t report just one inflation number. But the two that we tend to report and focus upon the most are the ones that I’ll be discussing here.
First: WPI, or the Wholesale Price Index. On the page that’ll open if you click on that link, click open the link for the WPI Press Release, and in the PDF, look out for the “annual rate of inflation”. At the time this post was written, inflation was at 0.79% for the month of May. In English, what that means is prices of commodities that are typically used in production were 0.79% more in May 2016 than they were in May 2015.
What about us consumers? Well in this case India reports the Consumer Price Index. On this website, on the left hand side, choose Annual Inflation Rates (Base: 2012, Current Series).
At the time of writing this post, information up to the month of May, 2016 was available. If you mirror on the website everything as shown above, you should get the lastest values for CPI in India.
So inflation in India for the month of May was at 5.76%. That is, prices for goods that consumers tend to purchase were 5.76% more in May 2016 than they were in May 2015. Urban consumers, as you can see, were slightly better off compared to rural consumers, in the sense that inflation was higher in the rural areas.
The idea was to show you where to go if you want to find out for yourself about how inflation in India is reported. We’d encourage you to play around with both of these websites, and try and make sense of the data, and get more familiar with it.
As we discussed in the previous post, though, always keep in mind that measuring inflation is a very complicated, and therefore very approximate task. Some things were way more expensive in May 2016 compared to May 2015 (think tomatoes) while some were actually a little cheaper (last year’s cellphones, for example). The reported number is an average.
And that’s inflation where India is concerned.
How would you calculate how the cost of living has gone up for people who live in your family? Well, one way could be for you to keep an eye on everything that your household consumes, and track how the prices of all of those things change over time.
So, that would include food, clothing, fuel, electricity, medicines, medicines, household consumables, eating out, movies, electronic goods, cable bills, internet bills, toys… and you could go on and on and on.
Of course, each of those are categories. Within vegetables you’d have to measure the price of cabbages, potatoes, tomatoes, chilis, coriander, spinach, bhindi, and on and and on. Long story short, you’d have to measure a lot of things.
Oh but hey, if you’re measuring your cost of living as one number, it won’t do to just measure how the price of things have changed. For example, if the price of one lemon was 2 rupees in July, but is 4 rupees in August, that doesn’t mean your cost of living has doubled, now does it? Because lemons are a very small part of your family’s total monthly expenses. So it’s not just measuring price changes, but it also involves figuring out the size of the impact of these price changes on your total expenditure.
Now, assuming you could do that, try expanding your analysis to your family and your neighbour’s family. The grandfather in your neighbour’s house may be taking a medicine that none of you do, while there may also be a baby in that family and so you have to think about diapers and baby food and what not. In essence, double the work.
Now, assuming you could do that, try doing it for everybody in your neighbourhood. Remember, your neighbourhood will involve people such as a watchman, whose consumption basket is likely to be wildly different from yours. It’ll involve people with varied economic background, varied tastes and varied consumption patterns – and therefore many, many more goods need to analyzed minutely on a month-on-month basis. Now, assuming you could do that…
Here’s the point. Whatever inflation number is being reported right now is an educated guess, and nothing more. That’s not a criticism of the people who are involved in putting that number out there – I doubt a better job can be done. It simply is a statement of fact. So complicated is our world, and so many, many hajjar things are being produced in it every day, that using one number to track how prices in the economy are changing just doesn’t make sense.
But when we say we measure inflation in India (or any country) for that matter, that is what we essentially do: we say that prices have (on average) changed by x% over a particular time period. In the next post, we’ll find out where inflation is reported, and what to make of it.