Human evolution produced gossip. Cultural anthropology sees gossip as an informal way of enforcing group norms. It is effective in small groups. But gossip is not the search for truth. It is a search for approval by attacking the perceived flaws of others.http://www.arnoldkling.com/blog/gossip-at-scale/
Arnold Kling writes an excellent essay about gossip and (as he puts it), the ISS. That, to be clear, stands for Internet, Smart Phones and Social Media. Excellent essay, well worth your time.
Low level of CRAR not only hampers bank health but also restricts smooth transmission of monetary policy. Injection of capital by the Government of India in public sector banks is likely to increase the credit flow to the real sector and help in smoother transmission of monetary policy.https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RBIWPS12.PDF
How much of this paper is signaling/laying the groundwork, and how much of it is a genuine addition to what we already know about monetary policy? The link comes via Amol Agarwal
This is exactly why I am so pleased to see how narrowly focused the Justice Department’s lawsuit is: instead of trying to argue that Google should not make search results better, the Justice Department is arguing that Google, given its inherent advantages as a monopoly, should have to win on the merits of its product, not the inevitably larger size of its revenue share agreements. In other words, Google can enjoy the natural fruits of being an Aggregator, it just can’t use artificial means — in this case contracts — to extend that inherent advantage.https://stratechery.com/2020/united-states-v-google
The concluding paragraph from this blog post by Ben Thompson is even better, and I was tempted to go with it, but this works too! Please read the whole thing – excellent writing, as always.
If you’re looking to get an iPad right now and can afford it, the new $599 iPad Air is the best tablet for most people. Apple has taken the design from the more expensive iPad Pro and brought it down to a more reasonable price point. It’s $100 more than it was last year, but in return this year’s iPad Air has a bigger, better screen and a faster (and very intriguing) processor.https://www.theverge.com/21525780/apple-ipad-air-2020-review
Dieter Bohn’s review of the iPad Air (2020). If I could, I would!
Miniature paintings are among the most beautiful, most technically-advanced and most sophisticated art forms in Indian culture. Though compact (about the same size as a small book), they typically tackle profound themes such as love, power and faith. Using technologies like machine learning, augmented reality and high-definition robotic cameras, Google Arts & Culture has partnered with the National Museum in New Delhi to showcase these special works of art in a magical new way.https://blog.google/around-the-globe/google-asia/india-miniature-masterpieces
This is a must have app on your phone. I mean, it was always a must-have app on your phone, this latest collection only makes the argument stronger!
A reader sends in this question:
“What do governments actually mean when they say that we’re going to announce a 1 trillion dollar economic stimulus package? Does it mean that they’re going to spend that much money? Or they’re just going to give it to the industries? (if so what does that entail?)”
Keep the following in mind:
- I’m going to assume that the person who asked the question hasn’t learnt macroeconomics in a formal setting just yet, and will therefore answer the question accordingly
- I will describe a macroeconomic model using words, and keep it fairly simple
- I will use examples from earlier crises
- Let’s get started!
- Think of the Indian economy as a patient, and think of monetary and fiscal policies as medicines that are going to be administered by doctors. The RBI governor is a doctor to this patient, as is the Finance Minister.
- Any move pertaining to regulation of banks (allowing banks to ask for EMI’s later, reduction of interest rates, forbearance of loans) is medicine administered by the RBI.
- Any move pertaining to reduction of taxes, introduction of subsidies, amnesty schemes for taxes due in the past, spending on specific projects (construction of roads bridges etc), changes to government employees salaries/pensions, payouts to firms or individuals (literally giving them money) is medicine administered by the finance minister.
- Under normal circumstances, one doctor is plenty enough. In fact, macroeconomists often end up saying that if fiscal policy is going to provide the medicine, monetary policy should stand ready to counteract any excesses.
There is a dilemma as to whether these two policies are complementary, or act as substitutes to each other for achieving macroeconomic goals. Policy makers are viewed as interacting as strategic substitutes when one policy maker’s expansionary (contractionary) policies are countered by another policy maker’s contractionary (expansionary) policies. For example: if the fiscal authority raises taxes or cuts spending, then the monetary authority reacts to it by lowering the policy rates and vice versa. If they behave as strategic complements, then an expansionary (contractionary) policy of one authority is met by expansionary (contractionary) policies of the other.
- But when the patient is as ill as is the case now (and is going to get sicker in the days to come!), well then monetary and fiscal policy are not substitutes: both need to be at play at the same time.
- For example, in the 2008 recession, American policymakers resorted to both monetary and fiscal policy measures (all countries did, to be clear. I’m just using the American example because its data is easier to find and present)
- The monetary policymakers announced, among other things, TARP. By the way, astute readers might want to point out that this seems to have been run by the Treasury Department, not the Federal Reserve. True, not arguing with that. It’s complicated! Also, watch this movie.
- And, among other things, the American government also announced ARRA. The original website is no longer up, but you can see this, or read this.
Now, all that being said, we’re going to take a look at fiscal policy alone from here on in. It is not that monetary policy isn’t important (oh dear lord, it is!) but the question is more focused on fiscal policies.
To understand the answer to this question, let’s go back to an earlier post of mine, and quote from it:
Let’s break this tweet by Paul Krugman down.
- The government has decided that it will give away money. Ergo, fiscal policy.
- To whom should it give the money? It can give the money to firms, or to households.
- If it gives the money to households (in India for example, this would have been through Direct Benefits Transfer), might that help people more?
- Or should it give the money to firms instead?
- Payroll taxes, which is what is being spoken about in the tweet, is tax paid on behalf of employees to the government, by firms. Here’s Wikipedia:
Payroll taxes are taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff. Payroll taxes generally fall into two categories: deductions from an employee’s wages, and taxes paid by the employer based on the employee’s wages. The first kind are taxes that employers are required to withhold from employees’ wages, also known as withholding tax, pay-as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG) and often covering advance payment of income tax, social security contributions, and various insurances (e.g., unemployment and disability). The second kind is a tax that is paid from the employer’s own funds and that is directly related to employing a worker. These can consist of fixed charges or be proportionally linked to an employee’s pay. The charges paid by the employer usually cover the employer’s funding of the social security system, Medicare, and other insurance programs. It is sometimes claimed that the economic burden of the payroll tax falls almost entirely on the worker, regardless of whether the tax is remitted by the employer or the employee, as the employers’ share of payroll taxes is passed on to employees in the form of lower wages that would otherwise be paid.
- So when there is a payroll tax holiday, firms no longer have to pay these taxes. So who is benefiting here? Firms or the employees of firms? To the extent that the firm no longer has to pay these taxes, it has more money with itself. It can either keep this money and use it for other things, or it can pass on this money to the employees. What will actually happen is tricky to predict, and trickier still to measure!
- For example, imagine the Indian government says to the Gokhale Institute of Politics and Economics (GIPE) that the Tax Deducted at Source (TDS) from the professors salaries need no longer be given over to the government. (To people who know their macro, I know it is not the same thing. Treat this as an illustrative example)
- If GIPE was due to pay me a 100 rupees every month, it would deduct 10 (that’s the TDS) and pass it on to the government. That need be done no longer.
- But the government doesn’t say that this money should be given to the professors instead – GIPE can do with it whatever it wishes.
- Will (should) GIPE pass on this money to the professors? Or use this to pay other people employed by GIPE? Or just keep it with GIPE (who knows when the college will reopen, hoarding cash may be a good idea). Or… anything else you can think of, really!
- So “giving” to industries really can mean a variety of things. And it really depends on what industry chooses to do with this money. You could apply conditionalities and say you will only get the money if:
- It’s passed on to employees
- You qualify because your firm falls in an important sector (employs a lot of people, is important from a social viewpoint, is critical to combat the virus etc)
- Anything else you can think of
- Or the government could spend the money itself! Build roads, bridges, dams, employ thousands more teachers, temporary employees – but all of this is assuming we can control the spread of the virus, of course. Without that, all of this is difficult, if not impossible to achieve.
So the correct answer to the question that the reader asks is: all of the above. At this point in time, a good fiscal policy move will be to spend, and give tax benefits to firms and households. This is roll out the big guns territory, no half measures will do.
A useful exercise to do: go through the fiscal stimulus announced by our government, and try and pinpoint which parts are directly in the hands of the people, which in the hands of the firms, and which is spending by government on building out infrastructure etc. Here’s one article to help you along.
Homework Part Deux:
Are we Rawlsian?
Homework Part Trois:
Are we Rawlsian enough?
Dr. Parchure is the officiating director at the Gokhale Institute of Politics and Economics, where I work. He was also my guide during my PhD saga (there is no other word for it), and has forgotten more macroeconomics than I will ever learn.
Tomorrow, at some point of time, I and Dr. Parchure will be sitting down – at our respective homes, of course – for a chat about what India can do when it comes to macroeconomic policy after the worst of the corona virus lock-down is over.
First things first: health comes first, and that’s a non-negotiable. There’s no version of this story in which we can discuss trade-offs about “getting things back to normal” so that “the economy isn’t destroyed”.
As Russ Roberts puts it:
So we’ll be talking tomorrow about an as yet unspecified date in the future, where India might not be as mobile and social as she was before, but not as locked-down as she is right now. But when that day comes, what should macroeconomic policy look like?
Here are two articles that I will be basing this discussion on:
- Ira Dugal’s take on India’s monetary policy.
- Ananth Narayan’s take on India’s fiscal policy.
Please read both, and don’t worry if you don’t get some details. Just power through both write-ups regardless.
Here are some aspects that I will definitely be asking questions about tomorrow:
- The advisability of giving a monetary and fiscal stimulus: everybody seems to be taking it as a given (myself included). But is there a case to be made for limiting it, if at all?
- That out of the way, should both fiscal and monetary policy be wheeled out simultaneously? Either ways, why?
- What are the major tools in the monetary policy toolbox? Which of them will give the most bang for the buck? Which should we be holding back for later, and why? What mistakes should we be guarding against?
- Ditto for fiscal policy.
- What would Keynes have advised? I have this book in mind when I ask this question.
- What episodes, in 20th century macroeconomic history, have parallels we can learn from? If there are none, are current macroeconomic models good enough to handle such scenario? If not, how might they be updated?
- If you, Dr. Parchure, were in charge of things – interpret that as you being given carte blanche to handle India’s economy, no questions asked – what would you do? What are the political realities that in reality will stop some of these solutions from being implemented?
I’ll be sharing this blog post with Dr. Parchure, but in the meantime, if you have any questions that I have missed, please let me know in the comments, or email me.
The conversation will be up on YouTube tomorrow at some point of time.
Stay home, stay safe!