A look into economics and things related to it, with a bit of seriousness, with a bit of fun.

Monday, July 17, 2006

The Argumentative Indian: Amartya Sen

The heading can sometimes be misleading. This is one of the few times it is, for we are not talking about the book this man wrote, but about the man himself. And what words can describe him better than these? The only things go against ths heading are that he believes that every Indian is argumentative and he is probably a world citizen.

As he argues in the book that is eponymous with the title of this article, calling him a world citizen does not prelude him from his identity as a Shantiniketan alumnus, a Bengali, an Indian, or to look at it a bit differently, as an economist, philosopher or social commentator.

In all his works, starting from his Cambridge thesis titled ‘Choice of Techniques’ in 1960 till the recent ‘Identity and Violence,’ he shows the power of powerful arguments. He is a scholar of wide interests in an era in which most economists have become highly specialized.

His work on social choice theory, for which he won the Nobel Prize, tries to analyze the aggregation problem arising from the fact that society consists of different individuals. He tries to find how we can talk cogently about what is good or bad for the society. The solution provided by him is useful in analyzing issues of underdevelopment such as famines and poverty.

Unfortunately, given his focus on welfare economics, he has often been misconstrued as an opponent of globalization. On the contrary, he has always been supportive of the liberalization process in India and showered praise on Manmohan Singh when he started the liberalization process in the early nineties.

What he opposes is the sole reliance on markets as a mechanism for development. He has gone on record to criticize the World Bank ‘as the institution that is responsible for a lot of evil in this world’ because of its excessive reliance on market mechanism, and has also criticized Manmohan Singh on his reforms for the same reason.

As a person, he is gifted with a great sense of humour and wit. To a phone operator in the US, he tried spelling his surname, without success. Finally he said “S for somebody, E for everybody, and N for Nobody.”

For a more detailed view, see Amartya Sen: A life Re-examined by Suman Ghosh

Saturday, July 15, 2006

10 Reasons Why You Must Study Economics

1. Economists are armed and dangerous: "Watch out for our invisible hands."

2. Economists can supply it on demand.

3. You can talk about money without every having to make any.

4. Mick Jagger and Arnold Schwarzenegger both studied economics and look how they turned out.

5. When you get drunk, you can tell everyone that you are just researching the law of diminishing marginal utility

6. You can always irritate people you don’t like by babbling over your knowledge of economics.

7. Girls think that economists are cool. (Yeah, switch over to our sides and you’ll know why).

8. Although ethics teaches that virtue is its own reward, in economics we get taught that reward is its own virtue.

9. If you rearrange the letters in "ECONOMICS", you get "COMIC NOSE".

10. When you are in the unemployment line, at least you will know why you are there.
The Reality of our Forex Reserves

In case you happened to read our post on The Myth of New India, you would know what we feel about India’s ever increasing foreign reserves. And in case you didn’t read it, don’t lose heart, for you will know what we feel about them while reading this article. (And as such, consider yourself lucky that you will have to go through only one of our articles.) So we start on our endeavor to enlighten you. (Or if you would like to put it differently, we start on our endeavor to frustrate the hell out of you.)

While delivering a speech in India, Lawrence Summers, former US treasury secretary and the outgoing president of Harvard University highlighted that some of the poorest countries in the world have accumulated huge forex reserves, which are far above the level required for financial stability.

Summers said that taking the Guidotti-Greenspan rule, according to which, foreign exchange reserves should equal one years short term debt, India’s reserves should be $107.7 Billion instead of the current $160 billion.

These reserves fetch a very low return. If this excess wealth were to be invested in more profitable sources, summers estimated that India would be able to get extra returns anything between 1-1.5 percent of GDP. To put that in perspective, It amounts more than what the Indian Public sector spends on agriculture every year.

Eight central banks-Japan, China, Hong Kong, Taiwan, India, South Korea, Singapore and Russia-hold two thirds of the world’s excess reserves. Only one of them is AAA (the top rating that Standard & Poor gives) and all of them are creditors of the US. Not a very good sign if you think about it.

So in effect, we are losing out 1-1.5 per cent GDP growth, thanks to the policies of the highly acclaimed economists at the Reserve Bank of India. These people are considered the most intelligent in India. Now I regret to imagine that if these people are the best, than what is the level of intelligence in the rest of India. But les hope that some logic will prevail, and these intelligent men of ours will realize that excess of anything is not good.
Inflation: Here are a few solutions

According to the RBI, inflation is at 4.6%, which is not at all alarming. But statistics in India hide more than what they reveal. Just check Inflation: Is WPI fallible? Ask any housewife and she will be too glad to tell you her story of the rising prices. The prices of pulses can alter the pulse rate of any household, and prices of vegetables and fruits have skyrocketed. And of course, how can we forget the fuel price hike. If nothing else, the hike has added fuel to the rage of the public against the government. But this, you may already know. We are here to suggest some solutions that are practical and can be successfully implemented.

Solution 1
The inflation in fruits, vegetables and pulses is artificial, or to put in a easier language, has been created by hoarding by the traders. Now it is very difficult to check something like hoarding and black marketing. A better solution would be to eliminate the middlemen and traders. So farmers will be able to sell directly to the end consumers. This is not an easy task. The govt. will have to take an initiative to make this possible.

Solution 2
We all know the pathetic shape our agriculture is in. One monsoon fails and we are back at square one. Only about one third of our agricultural land is under irrigation. Our land reforms have still not been completed (you can ask that when were they started). China, with only 60% agricultural land compared to ours, produces thrice the amount of our production. Till the time we bring our agricultural productivity up, inflation will continue to be a problem.

Solution 3
There is little we can do to restrict the increase in prices of petroleum products. But what we can do is stop being dependent on them. The only solution to this is to make use of renewable sources of technology. And in the short term, use of public transport, car pooling and fuel efficient technologies should be used.

Solution 4
The RBI is still busy with tinkering with its various interest rates and trying to control this monster through monetary policy. What are respected economists don’t realize is that tinkering with rates will only wipe out the boom that is there in some sectors of the economy. This inflation has not been caused by rising purchasing power. What the RBI is simply trying to remove the symptoms while the problem is still at large.

These are only a few solutions we could think of. By no means is this list exhaustive (after all, there have to be more than just 4 solutions.) If you have any other solution, do tell us. There is a link below that says comments and you can leave them here. (We know u know this, but just to remind).

Thursday, July 13, 2006

Soccernomics: ABN AMRO predicted Italy’s Win

Way back in March 2006, economists of the ABN AMRO bank had predicted Italy’s win in the football world cup. Sounds Weird? Are you thinking how can an economist predict the outcome of the world cup? Here’s the answer.

What they said was that among all the nations who were playing the world cup, the economy that most needed a boost was that of Italy. As u see, the German economy has already had a huge boost while hosing the world cup. The best thing that could have happened to Germany would have been that it would have reached the finals. To their economy, it would not make any difference if they had won or lost. (Of course, to the German fans, it would make the world of a difference, this being the world cup.)

They also said that the country that would be winning the world cup would be adding an extra 0.7 growth to their GDP growth. So if you want your economy to grow, you know what to do. Now let’s come to how this would be possible. The answer is simple. For the winner of world cup, the consumer confidence of its people rise, and so would the sale of alcohol. (The social and health costs of alcohol seem to be irrelevant to them!). They say that this would push economic growth, and the government will able to push through economic reforms.

It seems that many of these economists at the ABN AMRO Bank are also soccer fans, and as you might have already guessed, they would do anything to bring the game under their study. They have already created a new branch of economics, and that too with a fancy name. And now that Italy has won the world cup, they would be rejoicing. (That Germany didn’t reach the finals is another matter.)

Today they have predicted that Italy should win, perhaps there may come a day when economists would be able to predict who will win. The only thing is that all soccer fans already do this, and many of them would have been correct also. (And I thik you have correctly predicted the nationality of these soccer fans.)