Attention Economy


Wednesday, September 30, 2015

A Complicated Issue – Ethics of Redistribution

Economists V. V. Chari and Christopher Phelan examine the ethics of redistribution
Executive Summary
Analysts of optimal policy often advocate for redistributive policies within developed economies using a behind-the-veil-of-ignorance criterion. Such analyses almost invariably ignore the effects of these policies on the well-being of people in poor countries. We argue that this approach is fundamentally misguided because it violates the criterion itself.

Related:
The Future of Worldwide Income Distribution

Eco-modernism
http://vivekjayakumar.blogspot.com/2015/04/controversies-surrounding-sustainable.html

Healthcare Economics

Low Cost, High Quality Healthcare – An Amazing Story

Profits versus Innovation - Economics of Pharmaceutical Industry

Related:
http://vivekjayakumar.blogspot.com/2015/09/us-healthcare-system-and-high-cost-of_22.html

Jack Ma’s Simple Economic Lesson

E-commerce giant Alibaba’s Chief Jack Ma on US vs. China:
“Despite a much-discussed domestic slowdown, China has a quality that America doesn't, which could take its economy through tough times, the tech leader said.
"People say 'Well you know the economy's bad, so China consumption will be low.' No, totally different," Ma said. "You Americans love to spend tomorrow's money, and other people's money maybe. ... We Chinese love to save money.””

US analysts and economists should learn to pay attention to basics – debt-fueled consumption sprees are not the best way to generate long-term growth.

The Grade Inflation Epidemic at American Universities

Grade Inflation – The New Normal at US Universities
“Students aren’t getting smarter," said Stuart Rojstaczer, a writer and former science professor who calls himself the country’s “grade inflation czar.” “They aren’t studying more. When they graduate they are less literate. There’s no indication that the increase of grades nationwide is related to any increase in performance or achievement”. …
“If you give everybody an A, either people are not going to take it seriously or those who do take it seriously might get the wrong impression,” Healy said. “When students receive grades, they’re receiving feedback on how well they did in their courses, if they put in an equal amount of effort [in] each one. And [if] they receive higher grades in some subjects, they logically come to the conclusion that they are good at certain things. It wouldn’t normally occur to them that they happened to receive a grade that was out of line”. …
Meanwhile, student evaluations could incentivize instructors to give their pupils higher grades than they deserve in an effort to “buy” higher evaluation scores, the study says.”

The above noted article mentions the following 2013 study published in Applied Economics:
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As Ivy Leagues (and most other universities) keep inflating grades, one of the most important functions of tertiary educational institutions – that of signaling the true quality of college graduates – is falling by the wayside:
According to the above post:
“Companies are wising up to inflated GPAs. The Council for Aid to Education, a nonprofit, is rolling out a standardized test for college seniors that aims to show prospective employers whether a student is equipped for professional life.”

A very entertaining and funny piece by Nathaniel Stein
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A SIMPLE FIX
A straightforward approach to reducing grade inflation: report average class GPA each term next to individual grades on official transcripts. If you get an A- in a course where the average grade is a C (class GPA around 2.00), then it is a more impressive accomplishment than getting an A- in a course where the average grade itself is A- (class GPA around 3.50).

This is analogous to paying attention to percentile scores (paying more attention to scores in the 95th percentile or higher, for instance) on GREs and GMATs.

A Good Business Case Study – Suzlon’s Extraordinary Journey

Suzlon, which was once a mighty global player in the wind energy space, has had a turbulent few years:
“Its turnaround is a story of how lenders can work with their borrowers to help a company get back on its feet while ensuring they recover their dues; a story of how a well-meaning white knight with deep pockets can change the tide of fortune; and, most importantly, of how a promoter can redeem himself by setting his ego aside, putting the company’s interests before his own, and selling assets that may have been the crown jewels of his business.”

Top Destinations for FDI – 2015

India takes the top spot followed by China and the US:

Related:
http://www.livemint.com/Politics/J1LDY9lK1uQCuEKFQngtTK/India-top-foreign-investment-destination-in-2015-FT-report.html

China's GDP Data - Latest Analysis

Interesting new research from the Federal Reserve Bank of San Francisco:
Fernald, John, Eric Hsu, Mark M. Spiegel. 2015. “Is China Fudging its Figures? Evidence from Trading Partner Data.” Federal Reserve Bank of San Francisco Working Paper 2015-12. http://www.frbsf.org/economic-research/publications/working-papers/wp2015-12.pdf
Abstract: How reliable are China’s GDP and other data? We address this question by using trading-partner exports to China as an independent measure of its economic activity from 2000-2014. We find that the information content of Chinese GDP improves markedly after 2008. We also consider a number of plausible, non-GDP indicators of economic activity that have been identified as alternative Chinese output measures. We find that activity factors based on the first principal component of sets of indicators are substantially more informative than GDP alone. The index that best matches activity in-sample uses four indicators: electricity, rail freight, an index of raw materials supply, and retail sales. Adding GDP to this group only modestly improves in-sample performance. Moreover, out of sample, a single activity factor without GDP proves the most reliable measure of economic activity.

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Related:
A long and rather technical piece from FT:

Economic Development in Asia: Urbanization and Financial Development

A fascinating new World Bank Report: Leveraging Urbanization in South Asia: Managing Spatial Transformation for Prosperity and Livability

Banking in Asia
McKinsey Quarterly - A tale of three Asias
http://www.mckinsey.com/insights/financial_services/a_tale_of_three_asias

Tuesday, September 29, 2015

Future of Digitization

Cisco's John Chambers on the future of digitization:
http://video.cnbc.com/gallery/?video=3000426965

Computational Limits

A fascinating piece: A New Map Traces the Limits of Computation

Quantum Computing – The Next Big Thing?
http://phys.org/news/2015-09-quantum-immense-possibilities.html

Technology, Economics and the Future

An interesting piece -The Measured Working Man - by Tyler Cowen

MIT economist Heidi Williams wins the MacArthur Fellowship Award


Sunday, September 27, 2015

The US Higher Education System – Private vs. Public

A fascinating piece from The Atlantic:

The Atlantic piece touches upon many of the challenges facing the American higher education system. One way to frame the issues discussed in the above noted article is to consider a simple yet fundamentally important question – Is college education a public good? Are there positive externalities associated with college education? Does the overall societal benefit exceed the sum of individual benefits associated with tertiary education? If so, it might make sense to consider public funding for higher education.

Remembering Satyajit Ray

A great tribute to legendary filmmaker Satyajit Ray

One interesting anecdote from the piece –
“Satyajit studied science in college for the first two years—“barely surviving the onslaught of sines and cosines and the rude facts of physics and chemistry” (My Years With Apu, published posthumously in 1994). In his third year, following the advice of his father’s friend P.C. Mahalanobis (yes, he of the Five-Year Plans), he shifted to economics. He hated that too and could only manage a second-class honours.”

US 2015 GDP – An Update

The Roller Coaster Ride Continues –
“Stephen Stanley, chief U.S. economist at Amherst Pierpont Securities, said he expects slower inventory accumulation to shave off one percentage point from the third-quarter growth rate, leaving it slightly above 2%. Many other economists project growth in the same territory.
“Just because of the inventory situation this year, it may be that the second quarter is strong and maybe the fourth quarter is OK but the third quarter is a little on the softer side. But I think we’re going to end up at the same place,” said Mr. Stanley, who expects a 2.4% growth rate for the year, roughly the same as 2014.”
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A Simple Solution – Ignore quarter-on-quarter changes - shown in dark red (instead, focus on change from same period a year ago - shown in black):

India and Silicon Valley

The hottest tech growth market in the world:

Indian PM Modi’s speech to Silicon Valley Techies:

Google CEO’s comments:

Saturday, September 26, 2015

End of Moore’s Law?

An interesting piece in the NYT states:
“In recent years, however, the acceleration predicted by Moore’s Law has slipped. Chip speeds stopped increasing almost a decade ago, the time between new generations is stretching out, and the cost of individual transistors has plateaued.
Technologists now believe that new generations of chips will come more slowly, perhaps every two and a half to three years. And by the middle of the next decade, they fear, there could be a reckoning, when the laws of physics dictate that transistors, by then composed of just a handful of molecules, will not function reliably. Then Moore’s Law will come to an end, unless a new technological breakthrough occurs.”

Friday, September 25, 2015

Unpleasant Consequences of Industrial Farming

Historian Yuval Noah Harari Critiques Industrial Farming
http://www.theguardian.com/books/2015/sep/25/industrial-farming-one-worst-crimes-history-ethical-question

Business Plan Competition and Entrepreneurship in Nigeria

An interesting new World Bank study –
Mckenzie, David J. 2015. Identifying and spurring high-growth entrepreneurship: experimental evidence from a business plan competition. Policy Research working paper; no. WPS 7391; Impact Evaluation series. Washington, D.C.: World Bank Group. 
ABSTRACT
Almost all firms in developing countries have fewer than 10 workers, with the modal firm consisting of just the owner. Are there potential high-growth entrepreneurs with the ability to grow their firms beyond this size? And, if so, can public policy help alleviate the constraints that prevent these entrepreneurs from doing so? A large-scale national business plan competition in Nigeria is used to help provide evidence on these two questions. The competition was launched with much fanfare, and attracted almost 24,000 entrants. Random assignment was used to select some of the winners from a pool of semi-finalists, with US$36 million in randomly allocated grant funding providing each winner with an average of almost US$50,000. Surveys tracking applicants over three years show that winning the business plan competition leads to greater firm entry, higher survival of existing businesses, higher profits and sales, and higher employment, including increases of over 20 percentage points in the likelihood of a firm having 10 or more workers. These effects appear to occur largely through the grants enabling firms to purchase more capital and hire more labor.

Indian Voters Reward Politicians Who Are Better Economic Stewards – Finally!!

Fascinating new research paper:
Does Good Economics Make for Good Politics? Evidence from Indian States by Milan Vaishnav (Carnegie Endowment for International Peace) and Reedy Swanson (University of Virginia School of Law)
Abstract: The proposition that voters reward incumbent governments that perform well economically is considered received wisdom in many democracies. We examine this hypothesis in India, a developing democracy where scholars have found limited evidence of economic voting. Using a unique state-level panel dataset covering the years 1980– 2012, we find that there is no relationship between growth and electoral performance in the aggregate. However, since 2000, there do appear to be increasing electoral returns to governments that deliver higher rates of economic growth. The positive returns to growth are much larger than those to improved law and order, while inflation has no clear impact. The results suggest a significant shift in Indian voter behavior.

Can Extreme Poverty Be Eradicated by 2030?

A great piece of reporting from NPR:

Related: Hans Rosling on the Global Decline in Extreme Poverty

Thursday, September 24, 2015

Arctic Gold Rush

The race to lay claim to a rapidly melting Arctic is on:
http://www.cnbc.com/2015/09/24/a-melting-arctic-the-world-is-skating-on-thin-ice.html

Demographics and Economic Growth

Morgan Stanley’s Ruchir Sharma has an interesting op-ed in today’s WSJ. Sharma observes:
“For much of the post-World War II era the world’s population grew at an average annual rate of almost 2%. But growth started to plummet in 1990 and is now running at about 1%—the lowest level in the postwar era—according to U.N. data.
This collapse is seriously undermining potential economic growth—roughly calculated as the rate of growth in the working-age population added to the rate of growth in productivity, or output per worker—and goes a long way toward explaining the sluggish recovery from the crisis of 2008.”

Tuesday, September 22, 2015

US Healthcare System and the High Cost of Pharmaceutical Drug Prices

US Pharmaceutical Industry – Where is the Competition?

Related:
Overpriced cholesterol drugs

An excellent survey article on patents:
Boldrin, Michele, and David K. Levine. 2013. "The Case against Patents." Journal of Economic Perspectives, 27(1): 3-22.; Open Access: https://research.stlouisfed.org/wp/2012/2012-035.pdf
Abstract
The case against patents can be summarized briefly: there is no empirical evidence that they serve to increase innovation and productivity, unless productivity is identified with the number of patents awarded—which, as evidence shows, has no correlation with measured productivity. Both theory and evidence suggest that while patents can have a partial equilibrium effect of improving incentives to invent, the general equilibrium effect on innovation can be negative. A properly designed patent system might serve to increase innovation at a certain time and place. Unfortunately, the political economy of government-operated patent systems indicates that such systems are susceptible to pressures that cause the ill effects of patents to grow over time. Our preferred policy solution is to abolish patents entirely and to find other legislative instruments, less open to lobbying and rent seeking, to foster innovation when there is clear evidence that laissez-faire undersupplies it. However, if that policy change seems too large to swallow, we discuss in the conclusion a set of partial reforms that could be implemented.

Merkel and the Migration Crisis

Der Spiegel's insightful piece on the German Chancellor's central role in the migration crisis:
http://www.spiegel.de/international/germany/refugee-policy-of-chancellor-merkel-divides-europe-a-1053603.html

The Pope on Global Capitalism

Exponents and Logarithms - Explained

A useful resource for students:
Natural Exponent –

US Renters - Challenges Ahead

An interesting Harvard study:
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/projecting_trends_in_severely_cost-burdened_renters_final.pdf

Sunday, September 20, 2015

Post-Crisis US Economic Recovery: A Recovery Only for Some

A fascinating chart highlights the fact that only the top 20% of Americans have registered improvements in their income levels since the current recovery began:
http://www.bloomberg.com/news/articles/2015-09-16/the-richest-americans-are-winning-the-economy-recovery

Related:
James Surowiecki, writing in the New York Review of Books, notes:
“The fundamental truth about American economic growth today is that while the work is done by many, the real rewards largely go to the few. The numbers are, at this point, woefully familiar: the top one percent of earners take home more than 20 percent of the income, and their share has more than doubled in the last thirty-five years.”

Saturday, September 19, 2015

FRBSF President Williams on China

John Williams, President of the San Francisco Federal Reserve, recently observed:
“China has garnered almost as much editorial ink in the past month as U.S. presidential candidates—which may or may not be a complimentary comparison. I don’t want to sound pejorative by calling some of the commentary “hand-wringing”—though to be fair, some of it has been downright apocalyptic—but I don’t see the situation as dire. I’ve said publicly over the past few months that after going to China, and after talking to academics and officials there, I came away a lot less concerned than when I arrived. And I have to say that recent events have not changed my thinking to any serious extent.”


Related:
http://vivekjayakumar.blogspot.com/2015/09/chinas-economy-nuanced-view.html

Stuttgart versus Silicon Valley

Stuttgart versus Silicon Valley – The Battle for the Future of the Automobile
An interesting tussle –

Thursday, September 17, 2015

China's Economy - A Nuanced View

A Nuanced View on China’s GDP Data and Underlying Economic Trends

Related –

Economic Development – A Tale of Two Mexicos

An interesting piece on economic development in Mexico:
http://www.economist.com/news/briefing/21664939-despite-decades-reform-most-mexicans-are-still-long-way-wealth-and-modernity-cars

Related:
Crisis in the Educational System of Mexico

Fed Economic Projections - Sept 2015


It is worth noting that Fed forecasts have not turned out to be particularly accurate in recent years

Analysis of Fed decision to postpone rate hike:
http://www.bloomberg.com/news/articles/2015-09-17/yellen-s-decision-to-delay-fed-liftoff-points-to-global-risks

End of the Cheap Money Era?

Will the Fed signal the end of an era characterized by cheap money?
http://www.dw.com/en/cheap-money-end-of-an-era/a-18716527

U of Chicago financial economist John Cochrane argue for a delay in monetary normalization:
http://www.wsj.com/articles/the-fed-neednt-rush-to-normalize-1442441737

Wednesday, September 16, 2015

American Economy – A Not So Great Recovery

Neil Irwin of the NYT notes -
“The median American household in 2014 had a lower income, in inflation-adjusted terms, than it did in 2013. The $53,657 the household in the middle of the income distribution earned last year was down 1.5 percent from the year before, though the census said that shift was not statistically significant.
But even if that drop is a statistical blip and you assume that middle-class incomes were really flat, flat isn’t anything to celebrate in the current environment. The 2014 real median income number is 6.5 percent below its 2007, pre-crisis level. It is 7.2 percent below the number in 1999.”

Tuesday, September 15, 2015

Decision Time for the Fed

Will the Fed Raise Rates in Sept?

Fed’s Monetary Toolkit in the Post-QE Era

Reforming China’s SOE

A major task ahead for Chinese policymakers – Reform state owned enterprises:

Zimbabwe’s Land Redistribution Scheme – Unintended Consequences

Sunday, September 13, 2015

Shiller on Market Valuations

ETFs - Wildly Popular and Potential Dangerous

Fundamental defects become apparent in a wildly popular financial product as market gyrations increase:
“At issue is one of Wall Street’s most popular products ever. Investors have poured hundreds of billions of dollars into ETFs over the past decade, drawn by low fees and the prospect of being able to buy or sell a mutual-fund-like product whenever they want like a stock. But trading records and conversations with investors show ETFs couldn’t keep that promise when the Dow Jones Industrial Average dropped more than 1,000 points in the first minutes of trading on Aug. 24.”

Related:
The growing popularity of ETFs may be affecting financial market stability in the US:
http://www.wsj.com/articles/stock-market-tumult-exposes-flaws-in-modern-markets-1440547138

Inequality and Economic Performance in Advanced Economies

Interesting findings from a recent OECD study (as reported in WSJ):
““In recent decades, as much as 40% of the population at the lower end of the distribution has benefited little from economic growth in many countries,” the OECD said. “In some cases, low earners have even seen their incomes fall in real terms. When such a large group in the population gains so little from economic growth, the social fabric frays and trust in institutions is weakened. …
The OECD said the rise in inequality in the decades running up to the 2008 financial crisis has continued in its wake. While in the 1980s the top 10% of earners had incomes that were seven times as large as those of the bottom 10%, that ratio had risen to 9.6 across the OECD’s 34 members by 2013. In The U.S., that ratio rose from 15.1 in 2007 to 18.8 in 2014, a level of inequality only surpassed by Mexico.”

Singapore - An Island of Stability

Singaporeans Choose to Maintain Status Quo
“In the five decades since the PAP took over what was a backwater trading port, Singapore’s GDP has grown nearly 40-fold and its 5.5 million people have become richer, per capita, than Americans. Much of the development was overseen by Mr. Lee’s father and Singapore’s first post-independence prime minister, Lee Kuan Yew, who died in March.”

College Grad Earnings – Data Reveals Significant Variations

An interesting piece –
A potential solution:
Differential pricing – liberal arts degrees should cost a lot less than technical degrees

Related piece from Vox:
The article notes:
“Nobody expects every college to make graduates rich. Almost always, the colleges with the highest earning graduates focus on specific fields, such as medicine or engineering. The gender wage gap means that colleges enrolling more women nearly always end up looking worse than colleges with a lot of men. And colleges whose students go into less lucrative work, including teaching and public service, worry that judging colleges based solely on their graduates' median income will overlook their other benefits to society.
But it's not unreasonable to expect students who pursued additional education after high school to earn more than students who did not. Aside from beauty schools, there are more than 400 colleges where, 10 years after they first enrolled, most students still weren't earning $25,000 per year. Most are two-year colleges, many of them for-profit.”

Saturday, September 12, 2015

Tech Stars

The young guns behind Confluent

Tesla’s Secret Formula

Startups Shaking up the International Remittance Market
http://forbesindia.com/article/ckgsb/online-money-transfers-and-the-skype-of-money/40999/1

Root Causes of the Migration Crisis

Walter Russell Mead on the Causes of the Migration Crisis
Mead notes:
“One hundred years after the fall of the Ottoman Empire and 50 years after the French left Algeria, the Middle East has failed to build economies that allow ordinary people to live with dignity, has failed to build modern political institutions and has failed to carve out the place of honor and respect in world affairs that its peoples seek….
But it is worth noting that the Arab world has tried a succession of ideologies and forms of government, and that none of them has worked. The liberal nationalism of the early 20th century failed, and so did the socialist nationalism of Egypt’s Gamal Abdel Nasser and his contemporaries. Authoritarianism failed the Arabs too: Compare what Lee Kwan Yew created in resource-free Singapore with the legacy of the Assads in Syria or of Saddam Hussein in Iraq.”

Related:
East Asia vs. Middle East – Different Economic Development Models
http://www.washingtonpost.com/blogs/monkey-cage/wp/2015/08/11/a-tale-of-two-economic-trajectories/
The Middle East - Past and Present
http://www.bbc.com/news/world-middle-east-25299553

Friday, September 11, 2015

Economic Development – History, Geography, Institutions and Path Dependence

First, a reality check on the role of institutions in economic development -
Cambridge University economist Ha-Joon Chang’s elegant piece (THE REAL LESSON FOR DEVELOPING COUNTRIES FROM THE HISTORY OF THE DEVELOPED WORLD: 'FREEDOM TO CHOOSE') should be a must read for anyone interested in history or economic development
Chang notes –
“Contrary to what is assumed by today's orthodoxy, most of the institutions that are regarded as pre-requisites for economic development emerged after, and not before, a significant degree of economic development in the now-developed countries. 
… in 1913, the US was at a level of economic development similar to that of Mexico today, but its level of institutional sophistication was well behind that which we see in Mexico now. Women were still formally disenfranchised and blacks and other ethnic minorities were de facto disenfranchised in many parts of the country. It had been just over a decade since a federal bankruptcy law was legislated (1898) and it had been barely two decades since the country recognised foreigners' copyrights (1891). A (highly incomplete) central banking system and income tax had literally only just come into being (1913), and the establishment of a meaningful competition law (the Clayton Act) had to wait another year (1914). Also, there was no federal regulation on securities trading or on child labour, with what little state-level legislation that existed in these areas being of low quality and very poorly enforced.”

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A Reading List
Paths of Institutional Development: A View from Economic History by Karla Hoff
Institutions, Factor Endowments, and Paths of Development in the New World by Kenneth L. Sokoloff and Stanley L. Engerman
Why is Africa Poor? by Acemoglu and Robinson
Institutions Matter, but Not for Everything by Jeffrey Sachs
Government, Geography, and Growth: The True Drivers of Economic Development by Jeffrey Sachs
Which Came First–Democracy or Growth? by Rubén Hernández-Murillo and Christopher J. Martinek
https://www.stlouisfed.org/publications/regional-economist/april-2008/which-came-firstdemocracy-or-growth
Institutions Matter? By Adam Przeworski
The Last Instance: Are Institutions the Primary Cause of Economic Development? By Adam Przeworski
Geography vs. Institutions Revisisted: Were Fortunes Reversed? By Adam Przeworski
http://politics.as.nyu.edu/docs/IO/2800/reversal.pdf
Evaluating Recipes for Development Success by Avinash Dixit
Do Institutions Cause Growth? By Glaeser, Edward L, Rafael LaPorta, Florencio López-de-Silanes, and Andrei Shleifer. 2004.
Institutions and Economic Development: Theory, Policy and History by Ha-Joon Chang
http://journals.cambridge.org/abstract_S1744137410000378
Institutions versus Policies: A Tale of Two Islands by Peter Blair Henry and Conrad Miller
Why Has the Grass Been Greener on One Side of Hispaniola? A Comparative Growth Analysis of the Dominican Republic and Haiti by LAURA JARAMILLO and CEMILE SANCAK
http://www.palgrave-journals.com/imfsp/journal/v56/n2/pdf/imfsp200840a.pdf