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.

Links for 5th June, 2019

  1. “But I think Guo is here engaging in a strategy that is common for those who want to nudge the Chinese system in a more market-oriented direction: they tend to describe things are being more competitive and market-driven than they actually are, so that marginal change in that direction seems unremarkable and logical. If you pound the table and call China’s state-owned enterprises a core interest of the nation, it becomes quite difficult to change them. If you say, China is mostly a market economy already, then gradually reducing the role of SOEs over time seems pretty unthreatening.”
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    Andrew Batson’s blog is entirely worth following (and for a variety of reasons!). In fact, the second link today will also be from his blog. But for the moment, let’s focus on how China might respond to America’s push against China’s State Owned Enterprises (SOE’s).
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  2. “Local governments discovered they could borrow basically without limit to fund infrastructure projects, and despite many predictions of doom, those debts have not yet collapsed. The lesson China has learned is that debt is free and that Western criticisms of excessive infrastructure investment are nonsense, so there is never any downside to borrowing to build more infrastructure. China’s infrastructure-building complex, facing diminishing returns domestically, is now applying that lesson to the whole world.”
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    Andrew Batson has a rather more optimistic take on the Belt and Road Initiative. Not as bad, as he mentions, as Brahma Chellaney makes it out to be. On the other hand, I still do think that Batson is far too optimistic about it – as usual, the truth lies somewhere in the middle!
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  3. “The strategy we have in mind would comprise three mutually reinforcing components: an increase in the skill level and productivity of existing jobs, by providing extension services to improve management or cooperative programs to advance technology; an increase in the number of good jobs by supporting the expansion of existing, local firms or attracting investment by outsiders; and active labor-market policies or workforce-development programs to help workers, especially from at-risk groups, master the skills required to obtain good jobs.”
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    Dani Rodrik writes about how to create “good jobs”, and lots of them. I don’t think what he suggests will likely work, especially in a country like India, for a variety of reasons – but the biggest is that the kind of top-down, bureaucratic approach he suggests simply hasn’t worked in the past.
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  4. “The overall trend was an incredible intensification of output. Splitters, one of the most skilled positions, provide a good example. The economist John Commons wrote that in 1884, “five splitters in a certain gang would get out 800 cattle in 10 hours, or 16 per hour for each man, the wages being 45 cents. In 1894 the speed had been increased so that four splitters got out 1,200 in 10 hours, or 30 per hour for each man – an increase of nearly 100% in 10 years.” Even as the pace increased, the process of de-skilling ensured that wages were constantly moving downward, forcing employees to work harder for less money.”
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    An extremely readable extract from a book called The Red Meat Republic, this article in the Guardian speaks to how America’s beef industry came to be what it is. A great read for students of Industrial Organization, labor economics, development, pricing, transport economics – and more besides.
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  5. “China has an industrial policy whose goal is to be competitive in these [branded goods] and other areas. Tariffs will limit profits for these companies and prevent Chinese products from achieving full economies of scale. So this preemptive tariff strike will hurt the Chinese economy in the future, even if it doesn’t yet show up in the numbers.”
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    Tyler Cowen often forces himself to write the viewpoint on the other side – or at least, that’s how I interpret this article. I’m sharing it partly because it is worth reading (that’s a given, right?), but more so because that trait is worth emulating: force yourself to argue from the other side’s viewpoint. Whether in writing, or just as a thought exercise.

Links for 28th May, 2019

  1. “On March 18, 2013, at the Motera B ground, a scraggy-haired stick figure bowls his last two overs, landing (or trying to land) yorker after yorker. Looking on is former India coach John Wright, then head coach of Mumbai Indians. The batsmen are Mumbai openers Aditya Tare and Shoaib Shaikh. The No. 3, Abhishek Nayar, remembers: “Two pure batsmen at the crease, two overs of unbelievable yorkers. We couldn’t get him off the square.” Tare returns to the dressing room and says that the strange bowler was “a lot sharper than you thought”. One ball hits a batsman’s footmark, shoots up over wicketkeeper-captain Parthiv Patel’s head and zips over the boundary line. In the gallery, Wright sits up. Woah. The lad has wheels. “With some players you see something different and you go… there’s something there. It was the same that day. Real wheels.” He watches two overs, talks to Parthiv, makes a phone call to HQ, and Bumrah is invited to sign up for the IPL’s richest franchise.”
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    Sharda Ugra in The Cricket Monthly on Jasprit Bumrah – but as Niranjan Rajadhakshya recently pointed out, really on development. Also, I was completely wrong about the IPL – it has, without a shadow of a doubt, been a boon for cricket in general, and Indian cricket in particular. Mea culpa!
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  2. “The overall messages that emerge from our analysis are as follows. First, we find evidence that NPEs can be beneficial in improving allocation of technologies to end users (benign middleman), but also use the patent system to threaten litigation on downstream firms (stick-up artist). Second, the existence of NPEs in the market for ideas could discourage downstream innovators and encourage upstream innovators.Third, we show that the overall impact of NPEs on innovation is far from immediate, and depends on many forces in the market. A key question for understanding the impact of NPEs on innovation is what fraction of patent-infringing firms are innovators. On the academic side, researchers can further explore the role of non-innovators versus innovators in patent infringement. On the policy side, our work suggests that “patent trolls” need to also be understood in their multiple roles, instead of putting them into the single box of benign or malevolent.”
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    The importance of opportunity cost, the role of patents, and how difficult it can be to understand how markets and market participants work, in one slightly complex article. Worth a read, for sure.
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  3. “The scale of the potential changes seems hard to imagine. But look back through history, and humanity’s relations with the living world have seen three great transformations: the exploitation of fossil fuels, the globalisation of the world’s ecosystems after the European conquest of the Americas, and the domestication of crops and animals at the dawn of agriculture. All brought prosperity and progress, but with damaging side-effects. Synthetic biology promises similar transformation. To harness the promise and minimise the peril, it pays to learn the lessons of the past.”
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    The Econommist examines, lucidly as always, the impact that synthetic biology might have on our future.
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  4. “The Heckman Curve describes the rate of return to public investments in human capital for the disadvantaged as rapidly diminishing with age. Investments early in the life course are characterised as providing significantly higher rates of return compared to investments targeted at young people and adults. This paper uses the Washington State Institute for Public Policy dataset of program benefit cost ratios to assess if there is a Heckman Curve relationship between program rates of return and recipient age. The data does not support the claim that social policy programs targeted early in the life course have the largest returns, or that the benefits of adult programs are less than the cost of intervention.”
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    On whether the Heckman Curve makes sense or not, from an empirial viewpoint. Again, for reasons of opportunity cost and the perils of policy planning.
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  5. “Many regard the falloff in the creation of high-wage jobs as the inevitable result of advances in artificial intelligence and robotics. It isn’t. Technology can be used either to displace labor or to enhance worker productivity. The choice is ours. But to ensure that such decisions benefit workers, governments need to coax the private sector away from its singular focus on automation.”
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    Darren Acemoglu helps us understand the importance of complements and substitutes, and how policy making, in spite of its many perils, remains important.

Links for 5th April, 2019

  1. “And almost invariably, I see the same colleague in our communal kitchen, who asks with delight, “Joe, what are you having for lunch today?” The types of bean and cheese rotate, as does the fruit—which depends on the season—but I do not inform my co-worker of these variations when I laugh off her very clever and funny question.”
    In an article about the comforts of routine and habit when it comes to food, I found this excerpt to be pleasingly meta. You know who should especially read this article? Statisticians – especially aspiring statisticians.
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  2. “Take his celebrated work with David Card on the minimum wage. They looked at how relative hiring patterns changed when one state raised its minimum wage and one right on its border did not. Not much except the minimum wage differed between the two situations, so it was about as close to a controlled experiment as economists will ever get. Alan was a pioneer in the exploitation of such natural experiments. After Alan showed what kind of evidence can be marshaled to study a labor-market intervention, economists have raised their standard of what constitutes convincing evidence. What followed has been called a “credibility revolution” in empirical economics.”
    Unless you are a student of economics, it is unlikely that you will have heard of Alan Krueger. More’s the pity – for as the title of this article will tell you, his work likely has already affected you, no matter where in the world you are reading this.
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  3. “The issue, Statistical Inference in the 21st Century: A World Beyond P<0.05, calls for an end to the practice of using a probability value (p-value) of less than 0.05 as strong evidence against a null hypothesis or a value greater than 0.05 as strong evidence favoring a null hypothesis. Instead, p-values should be reported as continuous quantities and described in language stating what the value means in the scientific context.”
    Statistics is harder, and more confusing than you think. Yet another example is this article – each of the quotes in the article make for thoughtful reading.
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  4. “…Section 230 has proved an “awesome benefit” for the tech platforms. It has encouraged astonishing innovation and accelerated the growth of some of the richest companies on the planet. But it has also allowed billions of people to post anything they like online with almost no constraint. Some of that content is inspirational, much of it trivial, and a small sliver grotesque and harmful. Social networks do not discriminate.”
    The FT on whether Facebook and its ilk are publishers or postmen. The import of section 230 is quite staggering, and I’d like to read the book mentioned in the article for that reason.
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  5. “We ran similar regressions controlling for industry and found that — even after controlling for industry — elite MBAs did not produce positive statistically significant alpha. Elite MBAs did perform relatively well as CEOs in healthcare and consumer staples, but relatively poorly in energy and materials businesses, though those results were not statistically significant. Our study is not the only one to come to this conclusion. A study by economists at the University of Hawaii asked similar questions and found that firm performance is not predicted by the educational background of the CEOs.”
    A regression based exercise (which of course comes with its own set of problems) on whether education (type and quality) and experience matters for CEO performance. Short answer: it doesn’t. I was tempted to excerpt the concluding paragraph, but I’ll leave it to the reader to discover.

Links for 15th February, 2019

  1. “This sounds boring, you might conclude. It sounds like work, and it sounds like life. Perhaps we should get used to it again, and use it to our benefit. Perhaps in an incessant, up-the-ante world, we could do with a little less excitement.”
    And also…
    “In a much-read story in The Times, “The Relentlessness of Modern Parenting,” Claire Cain Miller cited a recent study that found that regardless of class, income or race, parents believed that “children who were bored after school should be enrolled in extracurricular activities, and that parents who were busy should stop their task and draw with their children if asked.”
    An article written in praise of boredom, and I couldn’t agree more. Every now and then, it makes sense to get a little (or plenty) bored.
  2. “Back in November, Instacart changed how it paid its delivery workers, saying that it would provide them with an “earnings estimate, and a minimum $10 payment for their work. The controversy arose when it became clear that part of that $10 minimum payment was coming from tips that customers left for their Shoppers, allowing the company to pay less towards that minimum payment. Faced with lower weekly earnings, Shoppers complained, and the company said that it would keep tips separate from that minimum payment.Amazon and DoorDash have similar policies, and despite that outcry at Instacart, they have indicated that they’re sticking with them.”
    Not only a PR disaster, which it is. But also a great way to work through your understanding of elasticities of supply and demand.
  3. “More to the point, having big aircraft puts downward pressure on ticket prices. Carriers typically like to fill up at least four-fifths of their seats to maximize the revenue on each flight. The bigger the aircraft, the more discounting and promotions sales teams need to do to hit this target — one reason that the trend elsewhere in the industry has been away from the A380 and Boeing 747.”
    And if the second link above whetted your appetite about using concepts of elasticity in the world outside – then this article about large airplanes, availability of alternatives and changing partnerships will be quite useful.
  4. “The economy of favours that he describes in long, carefully researched chapters on the genesis of the Genco Pura Olive Oil company was familiar, too, because that was how much of New Delhi and north India’s business clans worked and still work, stepping in to dispense justice, protection, retribution where the government either failed or was absent.”
    There is always a rule of law in society – that may well be a definition of society. That law need not always come from government – where governments are weak, other institutions will step in to form, change and enforce the law. That’s the Godfather, and that’s why it is such a great read.
  5. “A welfare state makes sense if it means the state providing education and health care for all. Alternatively, handouts are affordable in a lower-middle income economy if you divert money from the less deserving, or if the promised benefits are not open-ended so that you don’t get a runaway bill. Without any of these, the old question begs an answer: Should you give a man fish, or teach him how to fish? Lurking hidden in the new bout of welfarism seems to be an admission that the state can’t deliver for the poor anything other than cash.”
    The earlier part of the article points out statistics that show how much India has grown over the past decade and a half. But competitive politics and botched policies mean that we’re once again in dole-out season. The more things change…

Thinking About Long Term Growth

We now know what GDP is, and why it is important to measure growth using GDP. We know what statistical adjustments are made over time so that growth is made truly comparable. We also know the difference between long term and short term growth.

Armed with the answers to all of these questions, we now ask the million dollar question:

What makes a nation grow over time?

That is, if we are to transform India into a developed nation by increasing her growth rate in a sustained, sustainable fashion, then what, specifically, needs to happen? Well, lots of things, is the easy answer. And a true answer, too.

Here’s a better question. What are the things without which this growth story absolutely can not happen?  What are the indispensable factors?

Answering this question takes us into the realm of growth, or development economics. Nomenclature aside, it is the area that lies at the heart of all economic policy-making. What we are looking for is the framework, the core, around which everything else can be built, added and embellished. Just as a truly great dish looks good and tastes better with more accompaniments, but can’t really work without the core ingredients – similarly, our growth story needs some core ingredients, around which we’ll add more stuff later.

And our core ingredients are labor, and capital. Turns out, India’s growth story cannot happen, without first possessing (and growing) capital and labor.

What is capital, and what is labor?

Capital is machinery. You’re almost certainly reading this post on an electronic device, and that device is your capital. The ladle with which a dosa-wala flips a dosa is capital. The pushcart that a chaiwala uses as his makeshift shop is capital. An assembly line in a Tesla factory is capital.

And the effort that I put in to type out this article is labor. The hands that use the ladle to flip the dosa is labor, as is the chaiwala himself and the worker on the factory floor of that Tesla factory. That is all labor.

And any production, anywhere in the world, of any good at all, can only be done with some combination of labor and capital. In order to produce something – anything – you need capital and labor.

The more you produce, the more you grow. The faster you produce, the faster you grow. And so in order to grow more, and grow fast, you need more capital, and you need more labor. So any story about the long term growth prospects of a nation need to start from capital, and labor.

Economists call these the factors of production, and without them, our story can’t start. But with them, we encounter another question: how do you get capital and labor to grow?