The meta-epistemology of the rate hike

Soon after I started blogging, Tyler Cowen joked, “You’re not really a blogger.” His point: Unlike most of the competition, I wasn’t reacting to the latest news or whatever’s hot. My goal as a blogger has always been to write think-pieces that stand the test of time.

https://www.econlib.org/a-fond-farewell-to-econlog/

I don’t know about standing the test of time where posts on EFE are concerned, but my approach to blogging is very similar: I prefer to not write about events immediately after they’ve occurred. This for a variety of reasons, not least of which is the fact that I’m lazy, and reading a lot of stuff at very short notice is something I would rather not do.

Another reason is that the very best pieces on any event usually take time to bubble up in my feed, and waiting therefore makes sense.

By the way, if you aren’t yet subscribed to Bryan Caplan’s new blog, please do!


But that being said, let’s talk about yesterday’s rate hike.

One of the pieces that I enjoyed writing last year was on the concept of meta-epistemology, after reading a post about it by Zeynep Tufekci.

I’m going to post a screenshot rather than an extract, because the formatting of the post helps:

https://econforeverybody.com/2021/02/05/zeynep-tufekci-on-metaepistomology/

Honest question: does this apply to the Reserve Bank of India as well?

Is it the case that the cost of downplaying inflation as a major problem now exceed the benefits of doing so? Have the incentives flipped for the RBI? If so, on what basis? Is there a sense, based on preliminary data, that inflation is a problem that can no longer be ignored?

And if so, how should we be interpreting not just the fact that rates have been raised, but the manner and the timing of the raise? In other words, are there two messages being sent out by the RBI: the message itself, and the implicit message encoded in the timing of the message?

And have (or will) the markets internalize this message, and if yes, what is to follow?


Learning about inflation, monetary policy, and the efficient market hypothesis via textbooks is less than half of the story. Take your view/model of how the world works to the world itself, and update your model as the years roll by.

Fun, exhilarating and occasionally nerve-wracking.

But it is the best way to learn.

The Vajpayee Moment in Telecom, IO and Porter’s Five Forces

Vijay Kelkar and Niranjan Rajadhakshya had on op-ed out in Livemint recently on the mess in the telecom sector, and their suggestions for (at least partially) resolving it:

It has been about a year since the Supreme Court instructed telecom companies to share not just their core telecom revenues with the government, but also to take into account promotional offers to consumers, income from the sale of assets, bad debts that were written off, and dealer commissions. The apex court has allowed the affected telecom companies to make a small upfront payment and then pay their excess AGR dues to the government in ten annual instalments, from fiscal year 2021-22 to 2030-31, in an attempt to ease their immediate burden, which has raised concerns about the financial stability of Bharti Airtel and Vodafone Idea. Analysts estimate that the extra annual payments by all telecom firms could be around ₹22,000 crore a year.

https://www.livemint.com/opinion/online-views/a-new-vajpayee-moment-for-the-troubled-indian-telecom-sector-11631123688457.html

Their suggestions for the resolution of this problem involve the issuance of zero-coupon bonds by the telecom companies, along with an option for the government to acquire a 10% equity stake. As always, please read the whole thing.


Now, this may work, this may not work. The more I try to read about this issue, the more pessimistic I get about a workable solution. But we’re not going to get into the issue of finding a “workable” solution today. We’re going to learn about how to think about this issue.

That is, what model/framework should we be using to assess a situation such as this? Kelkar and Rajadhakshya obviously have a model in mind, and they hint at it in this excerpt:

There are three broad policy concerns that need to be addressed in the context of the telecom sector: consumer welfare, competition and financial stability. Possible tariff hikes to generate extra revenues to meet AGR commitments will hurt consumer access. The inability to charge consumers more could mean that the three-player telecom market becomes a duopoly, through either a firm’s failure or acquisition. The banks that have lent to domestic telecom companies are also worried about their exposure in case AGR dues overwhelm the operating cash flows of these companies.

https://www.livemint.com/opinion/online-views/a-new-vajpayee-moment-for-the-troubled-indian-telecom-sector-11631123688457.html

So a solution is necessary, they say, because we need to have a stable telecom market that doesn’t hurt

a) the consumers,

b) the current players in this sector and

c) the financial sector that has exposure in terms of loans to the telecom sector

To this list I would add the following:

d) make sure the government doesn’t get a raw deal (and raw is a tricky, contentious and vague word to use here, but we’ll go with it for now)

e) make sure new entrants aren’t deterred from entering this space (if and when that will happen)

f) suppliers to the telecom sector shouldn’t be negatively impacted

In other words, any solution to the problem must be as fair as possible to all involved parties, shouldn’t change the status quo far too much in any direction, shouldn’t hinder the entry of new competition, and should give as fair a deal as possible to consumers.


Take a look at this diagram:

https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis#/media/File:Elements_of_Industry_Structure.svg (Credit: Denis Fadeev)

Students who are familiar with marketing theory are going to roll their eyes at this, but for the blissfully uninitiated, this is the famous Five Forces Analysis.

Porter’s Five Forces Framework is a method for analysing competition of a business. It draws from industrial organization (IO) economics to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack thereof) of an industry in terms of its profitability.

https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis

Michael Porter’s Five Forces Framework can be traced back to the structure-conduct-performance paradigm, so in a sense, it really is an industrial organization framework:

In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perfectly competitive model, complications such as transaction costs, limited information, and barriers to entry of new firms that may be associated with imperfect competition. It analyzes determinants of firm and market organization and behavior on a continuum between competition and monopoly, including from government actions.

https://en.wikipedia.org/wiki/Industrial_organization

The point is that if you are a student trying to think through this (or any other problem of a similar nature), you should have a model/framework in mind. “If I am going to recommend policy X”, you should be thinking to yourself, “how will that impact Jio? Airtel? Vi? How will that impact government revenues? What signals will I be sending to potential market entrants? Will consumers be better off, and if so, are we saying that they will be better off in the short run, or on a more sustainable basis?”

Now sure, the diagram doesn’t include government, but the Wikipedia article on the Five Forces does speak about it later, as does the excerpt above from the Wikipedia article on Industrial Organization. More importantly, this framework gives one the impression that we’re dealing with a static problem, with no considerations given for time.

I would urge you to think about time, always, as a student of economics. Whether it be the circular flow of income diagram, or the five forces diagram, remember that your actions will have repercussions on the industry in question not just today, but for some time to come.


So whether you’re the one coming up with a solution, or you’re the one evaluating somebody else’s solution, you should always be evaluating these solutions with some framework in your mind. And tweaking the Five Forces model to suit your requirements is a good place to start!

On The History of Public Health in India

The responses will keep you busy for days, if not weeks. This tweet, and the responses to it, are an excellent argument for why Twitter is such a valuable resource for all of us.

Vaccinations: Quantity and Pricing

I and Murali Neelakantan have a piece out today in Scroll about the economics of the vaccination programme that is due to start in May ’21. Feedback most welcome – in particular, points we may have missed. Please, I’d love to hear your thoughts.

But it isn’t enough to talk about how current policy isn’t the best way of going about it. You also need to be thinking about what is the best (or at the very least, the least bad) way of going about it.

So, well, ok, let’s assume for the moment that the states will cough up the amount, one way or the other. But which way (or the other)?

Here are some ideas:

His back of the envelope calculations peg the tab for West Bengal at Rs. 8000 crores (do read the thread for his assumptions). As he says, that’s 2.6% of the state’s budgeted expenditure, and given the large positive externalities spillovers, subsidization wouldn’t be a bad idea.1

You could do similar exercises for each state – but for the moment, let’s just assume that it’s around 2.5% of each state’s budgeted expenditure.2.

What might that do to state finances?

The covid-19 pandemic disrupted the finances of India’s states in the ongoing fiscal year. Expense needs grew and public debt swelled, while revenues shrank. While most states could return to pre-pandemic output levels next year, their fiscal indicators are likely to remain strained for much longer, projections by the 15th Finance Commission (15-FC) show.
States’ combined fiscal deficit is likely to have risen to 4.5% of their total gross state domestic product (GSDP) in 2020-21, from 2.5% in 2018-19, the panel said. The commission’s fiscal roadmap puts the figure at 3% by 2025-26. Debts by that year could still be 32.5% of the total GSDP, against 27.3% in FY20, the estimates show.

https://www.livemint.com/news/world/states-may-not-return-to-pre-covid-debt-levels-by-fy26-finance-comm-roadmap-11612765562078.html

The kicker? That article is from the 8th of February, 2021. Things have, um, changed since then. The “while most states could return to pre-pandemic output levels next year” bit, in particular, now looks a bit iffy.


Next, Arvind Chari ran the numbers, and he comes up with a number of INR 50,000 crores for free universal vaccination:

He also advocates direct monetizing of state government vaccination programs via the RBI:

Niranjan Rajadhakshya refers us to an article in which Maitreesh Ghatak and Tarun Jain recommend the issuance of public health bonds (not that this is from 2020):

Issuing bonds for 30 years’ duration matches the decades-long returns from investments in healthcare, and is about the time taken for a young child who benefits from health investments to become an active taxpaying adult. Very short-duration bonds mean that the repayment schedule will not match the boosts in tax revenue.

https://m.economictimes.com/news/economy/policy/view-state-governments-can-be-better-armed-financially-to-fight-covid-19-by-issuing-public-health-bonds/amp_articleshow/76202188.cms?__twitter_impression=true

And they thankfully answer the obvious question in the very next paragraph:

Arguably, GoI could raise the same money at lower cost and then transfer to states. But, recently, GoI held up disbursing states’ share of GST collections at precisely the point that states needed those funds the most. Market borrowing limits by states have been raised subject to administrative conditions, and GoI could possibly impose conditions for health funds as well. Finally, borrowing directly allows each state government to prioritise its unique healthcare expenditure needs.

https://m.economictimes.com/news/economy/policy/view-state-governments-can-be-better-armed-financially-to-fight-covid-19-by-issuing-public-health-bonds/amp_articleshow/76202188.cms?__twitter_impression=true

Note that the last sentence in the second excerpt doesn’t apply in today’s context.


What else could be done? I’ll try and update this post with articles as I read them – feel free to keep sharing them we go along.

  1. Truer, if anything, at the central level, but let’s not go there right now[]
  2. By the way, any GIPE student reading this: I have a fun project just waiting to be launched[]

Economic Policy Responses: What are India’s options?

V. Anantha Nageswaran and Gulzar Natarajan write in the Swarajyamag about what India’s policy responses can be. They advise erring on the side of too much, rather than too little:

…the nature of the crisis threatens to create economic, social and health distress among the low-income and poor households. This can have potentially adverse consequences for social and economic stability for many years to come.

Therefore, Indian policymakers have not much to lose by tearing up the conventional playbook. The risk-reward ratio is in favour of being bold rather than timid.

Even if they are not as effective or, worse, even if they backfire, history will not judge them harshly for trying harder and unconventionally to support the economy now.

Please go through the entire article carefully, it is worth your time.

Niranjan Rajadhakshya informs us about the history of quantity planning in India.

Just consider some of the key questions that are being asked right now. How many ventilators are available? Are there ample food stocks? Can more hospital beds be made available? How many masks be produced in the next few weeks? Can the production of testing kits be ramped up? It’s all about quantities, quantities, quantities.

P Sainath has some suggestions (they come towards the end of this article)

The very first thing that needs doing: preparing for emergency distribution of our close to 60 million tons of ‘surplus’ foodgrain stocks. And reaching out at once to the millions of migrant workers and other poor devastated by this crisis. Declare all presently shut community spaces (schools, colleges, community halls and buildings) to be shelters for stranded migrants and the homeless.

Shankkar Aiyar in The New Indian Express on the triage of relief, rescue and recovery.

And finally, Gautam Chikermane with 10 different suggestions, of which I find the last one to be currently dramatically under-rated:

Embed entrepreneurs and managers in crisis management. The corporate sector is not just about money or physical infrastructure. It is equally about infusing efficiency in projects, operations, crises management, innovation and entrepreneurship – that’s how they are trained, that’s what they do, that’s who they are. While hard money will flow easily, this expertise must not be held back by turf or administrative frictions. Patriotism doesn’t have a net worth and is not restricted to one sector (the government) alone. A start can be made by setting up a task force of technology entrepreneurs and big businesses that can support government initiatives with knowledge and insights.

The Evolution of Right to Property in India

Ever heard of the Stevenson Restriction Scheme?

My congratulations if you have, because even the most devoted aficionado of obscure trivia would be hard pressed to know of the plan to restrict output in Malaysian rubber plantations in the year 1922. The reason was because of a steep fall in demand for rubber, after the end of the First World War, and rubber plantation owners in Malaysia wanted to control output to ensure better prices.

Bad economics, sure, but as one might expect if one had a cynical bent of mind, the demand got passed, and output restrictions came into play. If you were a small plantation owner (and this was for that time in Malaysia a guarantee that you were not British), you could produce no more than 320 pounds per acre per year.

Where did this number come from? Well, large British owned plantations produced 400 pounds per acre per year, so if you made the seemingly reasonable assumption that smaller outfits would work with lower efficiency, say 80% of the British levels, you ended up with the 320 figure.

Except things didn’t go according to plan.


Incentives matter.

That’s one of the cornerstones of our lessons in economics here, and repeating it, ad infinitum, is one of my jobs.

One of the many reasons we say that incentives matter is because you are likely to do a much better job when you stand to gain more, or lose more, because of the quality of the job you do. If the money you get is directly linked to how well received your product/service is in the market, you are likely to do a better job.

Want a real life example of what I mean? Ask the next twenty people you meet if they have a BSNL/MTNL sim-card.

As Nicholas Nassim Taleb says, having skin in the game really, really matters.


Joe Studwell, in his book How Asia Works, tells us the story of the Stevenson Restriction Scheme, which is where I read about it first.

When the restrictions were announced, instead of being happy about perhaps getting higher prices as a consequence of restricted supply, there was near rebellion in British ruled Malaysia. Upon investigating the matter, an embarrassed government found out that Malay rubber plantation owners, in spite of working on far smaller farms with much lesser equipment, produced up to thrice as much as British plantation owners.

How? Well, they had skin in the game.

It was their plantation.

They had property rights.


Google tells us that the etymology of the word property comes from Latin, via Old French, and it means “one’s own”.

And if we, as students of economics are going to say that trade matters – and hell yes, it does – then we need to have something to trade, which means we need to own that which we sell, and which is why for economics to exist, property rights need to exist.

Except they don’t. Well, that’s wrong: they do, but they’re not fundamental, and it’s complicated.


Fundamental rights are those rights which are essential for intellectual, moral and spiritual development of individuals.

That’s the very first sentence from the Wikipedia article on Fundamental Rights in India.

There are, the article goes on to say, six fundamental rights:

  1. The Right to Equality
  2. The Right to Freedom
  3. The Right Against Exploitation
  4. The Right to Freedom of Religion
  5. Cultural and Educational Rights
  6. Right to Constitutional Remedies

Property rights, as it turns out, isn’t a fundamental right. It was, at one point of time, a fundamental right as per the Indian Constitution, but not as of today. As I said, its complicated.


LSE-trained socialist professor KT Shah sent a detailed note demanding abolition of all property rights, and provided no protection from takings. Shah wrote: “The Union of India shall be free and entitled to acquire any private property held by any private individual or corporation as may be authorized or permitted under the law.” At the other end of the spectrum was the liberal lawyer KM Munshi, a strong advocate of constitutional protection of property rights and limited government. Munshi suggested a Madisonian takings clause inspired by the American Bill of Rights, which placed significant restrictions on the ability of the government to take property. Somewhere in the middle were members like Ambedkar and Ayyar, who attempted to find a balance between individual rights guaranteed by the constitution against a passion of the government to pursue socialist welfare policies.

That excerpt is from the third essay in an eight part series written by Shruti Rajagopalan for Think Pragati, and all essays are worth repeated readings. Each of them deal with the evolution of property rights in India.

We had to choose, back then, if we wanted to have, or not have, the concept of property rights. If we had to have the concept of property rights, to what extent? Was it a fundamental right, or not? If it wasn’t to be a fundamental right, but was to be a right nonetheless, how should it be framed? The third essay in the series lays bare all of the debates that went into the making of Article 31 of the Constitution. Articles 12 to 35 make up part III of the Constitution. It is this section that speaks of our Fundamental Rights as Indian citizens, and so, in 1947, it was the case that the Right to Property was in fact a Fundamental Right.


But then came the First Amendment, which in effect changed our Fundamental Rights. Especially relevant to us, the following:

The Parliament of India noted that validity of agrarian reform measures passed by the State Legislatures had, in spite of the provisions of clauses (4) and (6) of article 31, formed the subject-matter of dilatory litigation, as a result of which the implementation of these important measures, affecting large numbers of people, had been held up. Accordingly, a new article 31A was introduced with retrospective effect to uphold such measures. Further, another new article 31B was introduced to validate 13 enactments relating to zamindari abolition.

If the Right to Property was fundamental, then you couldn’t take away the titles to land from those who owned them. How then to abolish zamindari and institutionalize meaningful land reform? And abolishing zamindari was seen as (and in my opinion largely was) a desirable thing.

By the way, without meaningful and reform, things simply don’t take off for a country is one of the fundamental lessons of How Asia Works:

Developing countries are not just little ships blown about on the developmental ocean by the winds of rich states. In agriculture they have a greater capacity to chart their own course than in any other sector of the economy because land policy is entirely a domestic affair. In this respect, land policy is the acid test of the government of a poor country. It measures the extent to which leaders are in touch with the bulk of their population – farmers – and the extent to which they are willing to shake up society to produce positive developmental outcomes. In short, land policy tells you how much the leaders know and care about their populations. On both counts, north-east Asian leaders scored far better than south-east Asian ones, and this goes a long way to explaining why their countries are richer.

These weren’t easy decisions to make. But, all that being said, there was some political maneuvering involved too:

The episode of the Provisional Parliament enacting the First Amendment deserves detailed analysis that has been overlooked by historians and legal scholars. First, it shows that there was a severe failure in terms of post-constitutional credible commitment. The Provisional Parliament was a little too eager to amend the takings provision and dilute the protection to the right to property. Political exigencies trumped constitutional principles. While this is expected to some extent by all legislatures, it is a shame that the provisional parliament, which was essentially the same individuals as constituent assembly in a different role, made this hasty move. It also goes to show that incentives matter. The members of the provisional parliament now faced different incentives in the post-constitutional world, where they had to contest elections. Populism must necessarily trump principle.

So, for reasons outlined above, the right to property was now Fundamental – except it really wasn’t, not quite.


Have you ever been on a diet, and resolved to not cheat, but ended up cheating just a little bit? And then thought to yourself, well, now that I’ve cheated, may as well cheat a little more – and found yourself an hour later with a recently emptied tub of ice-cream? Or savings that you resolved never to touch, except in case of emergencies, and then took out a little bit… you can see where I am going with this.

Well, so also with the Right to Property.

The First Amendment led, as Shruti Rajagopalan’s series informs us in painstaking but entertaining detail, away from the sacrosanct nature of Fundamental Rights. Then followed further modifications to laws pertaining to the right to property. If I understand the subject correctly, of particular concern were the twenty-fifth and the forty-fourth amendment.

Which brings us, ultimately, to Article 300A, which has replaced Article 31.


The most important thing to note about Article 300A? It is not a Fundamental Right. And it has created problems: cronyism and ineffectual land reform being just two of them.

Can India go back to having the Right to Property as a Fundamental Right? More than the legal hurdles, of which there would seem to be plenty, the biggest barrier is likely to be a lack of political appetite for such a reform.

The revival of the right to property has attracted relatively little attention in political and legal circles. Political rhetoric over property is much more muted than in earlier periods, partly because none of the leading parties have called for the redistribution of land or the nationalisation of key industries in recent years. Indeed, there has been some commentary calling for reversal of the Forty-Fourth Amendment, even though the right to property as it stood immediately before the Amendment was weaker than the right that has been constructed from Article 300A (and Article 14). The Amendment has even been the subject of public interest litigation: in Sanjiv Kumar Agarwal v. Union of India, the Supreme Court dismissed a petition for a declaration the Amendment’s repeal of the right to property was contrary to the basic structure. This was noted in the press, along with the Court’s recent declarations that property is a human right.

But assuming we can, should we? Niranjan Rajadhakshya says yes, and I wholeheartedly agree:

It is the poor who have the biggest reason to cheer a reinstated fundamental right to property. There are two reasons for this. First, the poor have neither the legal resources nor the political heft to fight laws or administrative orders that allow governments take over their land. Second, the poor do not have enough opportunities to make a living in formal jobs in case they are forcibly separated from their property. It is important to reiterate that the most resonant battles for property rights over the past decade have been fought by the poor rather than the rich. The showdown in Singur a few years ago is a useful case in point.

It is, to my mind, quite simple: economics means trade. Trade necessarily means ownership. And ownership necessarily means property rights. To the extent that one thinks trade is indispensable, property rights need to be fundamental.

And in India, they aren’t.

India: Links for 9th September, 2019

  1. Mild disagreement with the conclusions of this piece, but that notwithstanding, a useful piece to read. This is on the slowdown in the Indian economy
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  2. “Those who access public services can be roughly divided into three segments—those who can pay to get, those who vote to get, and then there is the middle class.”
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    Shankkar Aiyar is a fine, fine writer. Here’s further proof.
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  3. “There is no real right time for disinvestment—only the right reason. Yes, mergers are good, but what about erosion of value—the market value of HDFC Bank is more than all PSBs put together.”
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    And even further proof
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  4. Niranjan Rajadhakshya on the linkages between GST reform, DTC reform, and how they feed into and out of each other.
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  5. On Bouncing Boards.

India: Links for 24th June, 2019

  1. “Was the earlier system, based largely on ASI (Annual Survey of Industries) for manufacturing (registered and unregistered), perfect? No, it wasn’t. Is the MCA-based system perfect? No, it isn’t. Despite problems with MCA, is the MCA-based system superior to the ASI-based one? The consensus (I didn’t use the word unanimity) among experts seems to be that it is.”
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    Bibek Debroy’s article discusses Arvind Subramanian’s paper. That excerpt above is probably the best way of thinking about it – and as I’ve said before and will say again: if thinking about GDP measurement doesn’t give you a headache, you aren’t doing it right. By the way, two of the twitter threads this past Saturday were about the same issue: worth reading, in my opinion.
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  2. “In manufacturing, the increase in informalisation is due to two reasons, according to a 2018 study by the Indian Council for Research on International Economic Relations: first, because of dispersal of production from larger to smaller units; and second, because of the creation of an informal workforce subject to fewer regulations, the fact that employing contract (or informal) workers reduces the bargaining power of the regular or formal worker, suppressing wages overall.”
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    Indiaspend reviews the state of employment in the country, and finds that there is far too much informalization – but also that this is increasing  over time. In this regard, the best book, by far, to read is Bhagwati and Panagariya’s “Tryst with Destiny”.
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  3. “Indian macro policy has been operating under an implicit 2-4-6-8 framework, which are the targets for the sustainable current account deficit, the desired level of retail inflation, the consolidated fiscal deficit target embedded in law and the aspirational rate of economic growth. There is a need to take a fresh look at this macro policy playbook for two reasons. First, the individual targets have been decided at different points of time by different parts of the economic policy ecosystem rather than emerging from a common analytical project. Two, there are reasons to doubt its internal coherence given that India has rarely been able to meet all four targets simultaneously over the past decade.”
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    The always excellent Niranjan Rajadhakshya comes up with a useful framework to keep a tab on India’s macro levers: 2-4-6-8 is a very useful mnemonic. The rest of the paper speaks about whether this framework makes sense!
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  4. “This crisis has systemic written all over it because the market can no longer distinguish financiers that are illiquid from those that are insolvent.”
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    I’m calling it: there’s a major crash just waiting to happen in the Indian equity (not just equity) markets, no matter what is done. Speaking of what is to be done, the five suggestions here make a lot of sense. Andy Mukherjee doing what he does best.
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  5. “India’s firm size distribution is excessively small, even compared to other developing countries. Also, complementarily, the number of really large firms are also excessively small. We have a “small is bad” problem. What is driving the small-ness? Is labour regulations responsible for discouraging businesses from “placing too many workers under one roof”? Is there anything else driving or contributing significantly to this trend?”
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    Bhagwati and Panagariya once again. Also, urbanization matters! Artificial dispersion of industries or people (same thing) tends to not work. Gulzar Natarajan on what needs to be done to increase productivity in India.

Links for 6th May, 2019

  1. “Not long ago, the Liverpool away coach uniform was technical mountain climbing apparel, which had its roots in drug dealers in cold northwest England figuring they didn’t need to freeze to death slinging weed in a park. That meant a lot of North Face gear, which became fashionable. One leader at an LFC firm bought so much high-end gear that when he got a stadium ban several years ago, he actually started climbing mountains around the country, unsure of what else to do with all the stuff he’d bought.”
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    A nice long read on Liverpool: the city and the club. Also a fascinating peek into a place in England that isn’t necessarily English.
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  2. “In my view, reform of government economic administration must take priority. As things stand, it is a prerequisite for the success of any other reform. A weak state cannot deliver anything other than grandiloquent statements of intention. This must change. Without a capable State, there can be no transformation.”
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    Rathin Roy explains in the Business Standard why India hasn’t fulfilled its potential so far, and what needs to be done to change the status quo.
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  3. “How much, in all, does Popovich spend annually on food and wine? That’s hard to say. But he reportedly earns $11 million a year, the highest salary in the league for a head coach. Considering the offerings from his private wine label and that he holds thousands of bottles in his cellar, plots out dozens of high-end dinners per year at some of the country’s most high-end restaurants, drops $20,000 on wine alone at some dinners, and routinely leaves exorbitant tips — well, it’s not a stretch to suggest that Popovich might ultimately drop a seven-figure annual investment on food and wine. “He’s spent more on wine and dinners than my whole [NBA] salary,” former NBA coach Don Nelson says. But in San Antonio — where Popovich has won more with his team than any NBA coach has with a single team in history — the investment, apparently, has been worth it.”
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    Is good dining the means to an end? Read this fascinating article to find out one man’s answer.
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  4. “Gorbachev pushes back at the notion that the Soviet Union’s end was somehow a triumph for the other side. “Americans thought they’d won the Cold War, and this went to their heads,” he says. “What victory? It was our joint victory. We all won.” Well, maybe not entirely — Vladimir V. Putin, pointedly absent from most of the film, is glimpsed in footage of Raisa Gorbachev’s funeral — but you come away from the movie agreeing with Herzog’s assessment, and yearning for Gorbachev’s brand of diplomacy.”
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    A short article about Gorbachev – a documentary about the man. He’s 88 this year, but the article is interesting throughout. And the excerpt is a great way to think about whether you have really understood the concept of a zero-sum-game.
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  5. “The Northern states are densely populated. But this density has clearly not provided the economies of scale to promote rapid economic growth. One problem is that the dense population in the Gangetic plains is not clustered in large cities. Prateek Raj of the Indian Institute of Management in Bengaluru has written about the metropolis vacuum in the Hindi speaking states of Uttar Pradesh, Bihar, Jharkhand, Madhya Pradesh and Chhattisgarh, which together have 500 million residents (bit.ly/2UOS2Kv). “The glaring absence of a major metropolitan center in the region has forced young people to migrate away from the small towns and move to other cities in the West and the South,” he argues.”
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    A lovely read from Niranjan Rajadhakshya about what ails Northern India and how one might tackle the issue. The lack of urbanization is a very real problem in Northern India, among others.

Links for 3rd May, 2019

  1. “So in the end what we get for policy to decide is whether the Indian aviation business should comprise large, medium or small oligopolies. If resolved sensibly it yields a solution to the problem of cross-subsidisation: the larger the number of firms, the greater will be the need for intra-firm cross-subsidisation as firms focus on a variant of the Ramsey Rule which says that network firms must maximise revenue instead of profits.This is best achieved via a public monopoly which far from reducing output, raising prices and making excessive profits as monopolies are expected to, can do the opposite just as Air India and Indian Railways do. In short, if we want to avoid a return to public sector transport monopolies, we must decide on the size of the oligopolies in the sector.”
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    A very short article, but an immensely interesting one, talking about airlines, India, monopoly, oligopolies, and regulation and policy in India.
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  2. “All that said, zero is still the best price. I think it’s appropriate for foundations or other funding sources to support a multiplicity of free textbook options. (I’m not looking at you, Bill Gates.) INET has done this with its CORE project, but no one else. I don’t think funding is the whole story, however. Economics needs to regard pedagogy as one of its central missions. This is not only a matter of having more panels about it at the national meetings; there needs to be more disciplinary reward for putting one’s time and energy into the development of strategies and materials for the classroom. This means promotion, prizes and esteem, and it would require a substantial cultural shift. Where to begin? I suspect we have a vicious circle that could well become virtuous. Today we have a bleak landscape of minimal innovation in pedagogy and little institutional recognition for those who do this work. In a world well-populated with innovative experiments in teaching and learning, it would be natural to reward the most successful or even just provocative projects. So again the next step seems to belong to the funders.”
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    A fairly interesting take on textbooks (econ textbooks, to be clear), what they cover, what they should cover, and what the price should be. Meta, but out of necessity.
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  3. “We find that the probability of seeing an outcome within 180 days from the date of admission is less than 5%. However, it picks up once the 180 day deadline is passed. Within 270 days, the chances of case closure are between 10 to 30% depending on the bench and case characteristics (e.g., creditor type). We observe high closure rate just past the 270 day period. Within 360 days of admission, the probability of seeing an outcome is significantly higher (30 to 70%). Quicker outcomes (liquidation or resolution) are observed for resolution proceedings triggered by the debtors themselves. Similarly, proceedings triggered before some benches result in resolutions speedier than those before some others.”
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    On the impact of the IBC on dealing with bankruptcies in India. Visit the link to find a link to a fairly good data-set pertaining to the issue being discussed.
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  4. “So buying shares of an IPO could be rational or irrational depending on your time horizon…and how lucky you are with what happens on the first day of trading.”
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    An interesting analysis on IPO’s and why they tend to be oversubscribed. Fairly well known, I’d say, if you’re a student of finance – but interesting nonetheless.
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  5. “The estimated cost of NYAY is substantial – Rs. 3.6 trillion a year. It would be broadly six times what has been allocated to MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) in the interim budget presented in February 2019. It is also nearly 13% of total central government expenditure for the fiscal year 2020. It is hard to see how such a large incremental spending programme can be funded through cuts in other expenditure items alone, including non-merit subsidies. That will be a very difficult political economy call, given that non-merit subsidies mostly benefit vocal interest groups. There thus has to be either fiscal expansion or an increase in tax collections. The latter could – but need not – entail higher tax rates. India could be at an inflection point at which its tax-GDP (gross domestic product) ratio begins to grow rapidly, but that is a guess rather than a hard fact. In short, there is ample reason to worry about the fiscal burden of NYAY. ”
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    Niranjan Rajadhakshya on the economic feasibility of NYAY. Students of public finance especially should read this to get a sense of how to judge questions such as the ones put forth in the interview.