Attention Economy


Saturday, October 31, 2015

Rajan on the Significance of Intellectual Freedom

Reserve Bank of India Chief Raghuram Rajan (former University of Chicago economist) offered a brilliant defense of intellectual freedom and curiosity in a recent speech:
“So what does an educational institution or a nation need to do to keep the idea factory open? The first essential is to foster competition in the market place for ideas. This means encouraging challenge to all authority and tradition, even while acknowledging that the only way of dismissing any view is through empirical tests. What this rules out is anyone imposing a particular view or ideology because of their power. Instead, all ideas should be scrutinized critically, no matter whether they originate domestically or abroad, whether they have matured over thousands of years or a few minutes, whether they come from an untutored student or a world-famous professor….
Protection, not of specific ideas and traditions, but the right to question and challenge, the right to behave differently so long as it does not hurt others seriously. In this protection lies societal self-interest, for it is by encouraging the challenge of innovative rebels that society develops, that it gets the ideas that propel Solow’s total factor productivity growth….
Actions that physically harm anyone, or show verbal contempt for a particular group so that they damage the group’s participation in the marketplace for ideas, should certainly not be allowed. For example, sexual harassment, whether physical or verbal, has no place in society. At the same time, groups should not be looking for slights any and everywhere, so that too much is seen as offensive; the theory of confirmation bias in psychology suggests that once one starts looking for insults, one can find them everywhere, even in the most innocuous statements. Indeed, if what you do offends me but does not harm me otherwise, there should be a very high bar for prohibiting your act. After all, any ban, and certainly any vigilante acts to enforce it, may offend you as much, or more, than the offense to me. Excessive political correctness stifles progress as much as excessive license and disrespect.”

Technology Spending and Productivity

An interesting piece –
“Large companies often spend a good deal of money on cultivating their technology, but a new study suggests nearly 70 percent of what they spend may be misallocated.
In a study, Genpact Research Institute recently found that, of nearly $600 billion spent on digital projects, almost $400 billion of it was invested in projects that fall short of expectations and returns on investment (ROI). In fact, much of what companies invest in technology sustains existing, or "legacy" systems, rather than new technology, the report found.”

China - Population and Demographic Trends

China’s Demographics

A major policy turnaround for the world’s most populous country


Dealing with the skewed sex-ratio
http://sinosphere.blogs.nytimes.com/2015/10/26/china-polyandry-gender-ratio-bachelors

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How big of a Threat is Slowing Population Growth Rates in Major Economies?
Adair Turner (member of UK Financial Policy Committee) makes an important point that if often ignored in media –
“But those who warn that huge economic problems lie ahead for aging rich countries are focused on the wrong issue. Population aging in advanced economies is the manageable consequence of positive developments. By contrast, rapid population growth in many poorer countries still poses a severe threat to human welfare.”

Friday, October 30, 2015

The Controversial 'Carried Interest' Tax Loophole



Related:
Compensation of Hedge Fund Managers -
A very interesting piece from The Washington Post addresses the following question - Do the Top 25 hedge fund managers earn more than all the kindergarden teachers in America?:

Wednesday, October 28, 2015

Fed Set for December Rate Liftoff?

Fed OCT 28 Statement
Information received since the Federal Open Market Committee met in September suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft. The pace of job gains slowed and the unemployment rate held steady. Nonetheless, labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved slightly lower; survey-based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring global economic and financial developments. Inflation is anticipated to remain near its recent low level in the near term but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
http://www.federalreserve.gov/newsevents/press/monetary/20151028a.htm

Emerging Market Developments

India-Africa Summit
Can India compete with China for business ties in Africa?

The Bursting of the Law School Bubble

Even admission standards for law schools are now declining –

There is growing concern regarding excess supply of law school graduates. Consequently, grad schools are competing for fewer and fewer applicants. They may even be resorting to unethical practices.
Are law schools inflating their job placement numbers?
http://www.bloomberg.com/news/articles/2015-08-03/are-law-schools-skewing-job-placement-numbers-

World’s Youngest Country Faces Disaster

BBC’s Yalda Hakim on the catastrophe facing South Sudan:
http://www.bbc.com/news/world-africa-34649914

Monday, October 26, 2015

Reliability of US GDP Data

The Economist on the reliability of US macro data –

Why Science Matters

Climate Change – Middle East may become uninhabitable by the end of the 21st century

Modern Diet and Cancer Risk – According to WHO, Processed Meat Is A Cancer Hazard

Modern Life and Weight Loss
The Atlantic piece notes –
“A study published recently in the journal Obesity Research & Clinical Practice found that it’s harder for adults today to maintain the same weight as those 20 to 30 years ago did, even at the same levels of food intake and exercise. …
“Our study results suggest that if you are 25, you’d have to eat even less and exercise more than those older, to prevent gaining weight,” Jennifer Kuk, a professor of kinesiology and health science at Toronto’s York University, said in a statement. “However, it also indicates there may be other specific changes contributing to the rise in obesity beyond just diet and exercise.” Just what those other changes might be, though, are still a matter of hypothesis. In an interview, Kuk proffered three different factors that might be making harder for adults today to stay thin. First, people are exposed to more chemicals that might be weight-gain inducing. Pesticides, flame retardants, and the substances in food packaging might all be altering our hormonal processes and tweaking the way our bodies put on and maintain weight. Second, the use of prescription drugs has risen dramatically since the ‘70s and ‘80s. Prozac, the first blockbuster SSRI, came out in 1988. Antidepressants are now one of the most commonly prescribed drugs in the U.S., and many of them have been linked to weight gain.”

Friday, October 23, 2015

The Process of Innovation and Tech Progress

Matt Ridley’s thought provoking WSJ Saturday Essay: The Myth of Basic Science
“Patents and copyright laws grant too much credit and reward to individuals and imply that technology evolves by jerks. Recall that the original rationale for granting patents was not to reward inventors with monopoly profits but to encourage them to share their inventions. A certain amount of intellectual property law is plainly necessary to achieve this. But it has gone too far. Most patents are now as much about defending monopoly and deterring rivals as about sharing ideas. And that discourages innovation.
The economist Edwin Mansfield of the University of Pennsylvania studied the development of 48 chemical, pharmaceutical, electronic and machine goods in New England in the 1970s. He found that, on average, it cost 65% as much money and 70% as much time to copy products as to invent them. And this was among specialists with technical expertise. So even with full freedom to copy, firms would still want to break new ground. Commercial companies do basic research because they know it enables them to acquire the tacit knowledge that assists further innovation.

Asians in America – A Complicated Story

The Two Asian Americas BY KARAN MAHAJAN

The Economist – The model minority is losing patience
http://www.economist.com/news/briefing/21669595-asian-americans-are-united-states-most-successful-minority-they-are-complaining-ever

Federal Reserve and the Art of Obfuscation

Adam Davidson notes in his NYTIMES piece –
“If the Fed added up all the ways a rate increase helped people in the short term and subtracted all the ways it hurt them, they would never raise rates. While there are winners and losers, on balance a Fed rate increase means the economy will slow down, which on average is worse for everybody. The entire point of a central bank like the Federal Reserve is to empower one group of people to do something as unpopular as slow the economy down. That’s because, from time to time, an economy grows so fast that it leads to a bubble, inflation or both. The Fed’s job is to predict when this is going to happen and stop it before it does by slowing the economy just as people feel the most excited. When the Fed eventually does raise rates, it will be covered with near hysteria. It will be on the front page of every paper, on every cable-news show. And most Americans won’t understand what any of it means. Their confusion won’t be helped by the media’s — and their own — instinct to understand the process through single significant moments. But trying to understand the Fed that way is like trying to make sense of a long marriage, with its small daily compromises, joys and miseries, by watching one big fight or one romantic dinner.”

Wednesday, October 21, 2015

Global Oil Industry - Nasty Price Wars

Some oil-producing nations will face severe pain in the near future:

OPEC/Saudi Arabia vs. the US
http://www.bloomberg.com/news/articles/2015-10-20/after-year-of-pain-opec-close-to-halting-u-s-oil-in-its-tracks

A Highly Influential Young Economist – Raj Chetty

An interesting profile of Stanford economist Raj Chetty and his work on inequality:
“That makes Mr. Chetty one of the few people affecting both sides in the presidential debate. He brings to the task formidable credentials: Harvard PhD at age 23; university tenure at 27; and a MacArthur “genius grant” at 33, the same age he won the John Bates Clark medal for best American economist under the age of 40. He says he was drawn to mobility as a subject, in part, because of what he saw as the vast differences in opportunity between the U.S. and his native India, which he left at age nine.
“He’s the closest thing I have ever seen to a real live Mr. Spock, half Vulcan, half human,” said Harvard economist Lawrence Katz, a former Clinton administration economist, who has known Mr. Chetty since he was a Harvard undergraduate. “He knows where to look to find the right data and what to do to answer the most important questions with it. But unlike many technical economists, he’s concerned with real people and the disadvantaged.””

Tuesday, October 20, 2015

Herfindahl-Hirschman Index and Rising Industrial Concentration

A fascinating WSJ piece notes:
““There’s definitely a global race to become the biggest and survive,” said Mr. Phillips, professor of finance and business economics at USC. Mr. Phillips says mergers tend to result in greater corporate profits—generally bad news for consumers because the benefit of the merger isn’t being passed along—as well as an increased number of product offerings, which is generally good for consumers because it reflects innovation.”

InMobi and Mobile Advertising

An interesting piece on the world's third largest mobile advertising firm:
http://www.bbc.com/news/business-34539191

Related:
India’s E-Billionaires
http://forbesindia.com/article/india-rich-list-2015/bansals-epitomise-the-rise-of-indias-ebillionaires/41349/0

Monday, October 19, 2015

Panama Canal Deepening and East Coast Ports

Are US Consumers Irrational?

From the NYTIMES:
“When gas prices fall, Americans reliably do two things that don’t make much sense. They spend more of the windfall on gasoline than they would if the money came from somewhere else. And they don’t just buy more gasoline. They switch from regular gas to high-octane.”

Sunday, October 18, 2015

An Unsettled (and Dangerous) World

Massive inflow of refugees strains Germany
http://www.spiegel.de/international/germany/germany-shows-signs-of-strain-from-mass-of-refugees-a-1058237.html

Unintended consequences of the Arab Spring movement –

China and the US battle for naval supremacy
Related: India, Japan and the US undertake joint naval exercises
http://www.wsj.com/articles/military-drills-in-indian-ocean-signal-deepening-ties-1445191451

Venezuela - Nobody Wants Bolivars

Venezuela’s absurd exchange rate system
http://www.nytimes.com/2015/10/19/world/americas/few-in-venezuela-want-bolivars-but-no-one-can-spare-a-dime.html

Technology, Cognition and Learning Ability

Stanford Researcher Clifford Nass on the Cognitive Impact of Multi-Tasking

Weekend Readings – 10/18/15

A great piece from the Washington Post –
“Former Stanford dean explains why helicopter parenting is ruining a generation of children”
The article notes –
“Julie Lythcott-Haims noticed a disturbing trend during her decade as a dean of freshmen at Stanford University. Incoming students were brilliant and accomplished and virtually flawless, on paper. But with each year, more of them seemed incapable of taking care of themselves.
At the same time, parents were becoming more and more involved in their children’s lives. They talked to their children multiple times a day and swooped in to personally intervene anytime something difficult happened. From her position at one of the world’s most prestigious schools, Lythcott-Haims came to believe that mothers and fathers in affluent communities have been hobbling their children by trying so hard to make sure they succeed, and by working so diligently to protect them from disappointment and failure and hardship.”

Challenging Environment for Young Graduates in America’s Deep South

WSJ Saturday Essay – The Politics of Distrust
http://www.wsj.com/articles/the-politics-of-distrust-1445015969
“This dim view of the present situation doesn’t improve when compared with previous generations. In 1964, the American National Election Study found an impressive 77% of Americans trusting government to do the right thing most of the time or even all of the time. That number fell as a result of Vietnam, Watergate and the economic stagflation of the 1970s. The economic boom of the 1980s and 1990s restored public faith to some degree, and as of 2002, 55% of Americans generally trusted government. But lately, that number has been in free fall, with just 22% trusting government in 2012.”

Saturday, October 17, 2015

Africa – An Agricultural Revolution Ahead?

The African Breadbasket - An interesting piece by Paul Kagame (President of the Republic of Rwanda) and K.Y. Amoako (founder of the African Center for Economic Transformation)
http://www.project-syndicate.org/commentary/improving-african-agriculture-food-security-by-paul-kagame-and-k-y--amoako-2015-10

Related:
Poverty in a Rising Africa (World Bank Report)
http://documents.worldbank.org/curated/en/2015/10/25158121/poverty-rising-africa-overview

Friday, October 16, 2015

Do Counter-Cyclical Policies Work?

A new study: The Financial Crisis: Lessons for the Next One By Alan S. Blinder and Mark Zandi
Key Findings:
“The massive and multifaceted policy responses to the financial crisis and Great Recession — ranging from traditional fiscal stimulus to tools that policymakers invented on the fly — dramatically reduced the severity and length of the meltdown that began in 2008; its effects on jobs, unemployment, and budget deficits; and its lasting impact on today’s economy.”

True Size of China's Economy

China's economy may actually be even bigger than previously reported:
http://www.bloomberg.com/news/articles/2015-10-15/china-s-economy-may-be-even-bigger-than-you-think

Tuesday, October 13, 2015

Serial Asset Bubbles and the World Economy

FT’s Martin Wolf - Solid growth is harder than blowing bubbles
http://www.ft.com/cms/s/0/9bba6228-70d1-11e5-9b9e-690fdae72044.html

Ernst and Young’s Bold Experiment

The UK branch of Ernst and Young has dropped the requirement that applicants possess a college degree –
https://www.timeshighereducation.com/news/ernst-and-young-drops-degree-classification-threshold-graduate-recruitment
“One of the UK’s biggest graduate recruiters is to remove degree classification from the entry criteria for its hiring programmes, having found “no evidence” that success at university was correlated with achievement in professional qualifications.
Accountancy firm Ernst and Young, known as EY, will no longer require students to have a 2:1 degree and the equivalent of three B grades at A level to be considered for its graduate programmes.”

Ernst and Young's recruitment policy change actually makes sense. Pervasive grade inflation and an explosion of majors lacking rigor has negatively affected the undergraduate system in both the UK and the US. Historically, a fundamental function of the university system was to provide good and honest signals regarding the abilities of degree recipients. Over the past decade or so, universities have failed to perform a decent job of evaluating students.

Research on Signaling and Grade Inflation
INTERNATIONAL ECONOMIC REVIEW [Vol. 48, No. 3, August 2007]
A SIGNALING THEORY OF GRADE INFLATION BY WILLIAM CHAN, LI HAO, AND WING SUEN
Abstract
When employers cannot tell whether a school truly has many good students or just gives easy grades, a school has incentives to inflate grades to help its mediocre students, despite concerns about preserving the value of good grades for its good students. We construct a signaling model where grades are inflated in equilibrium. The inability to commit to an honest grading policy reduces the efficiency of job assignment and hurts a school. Grade inflation by one school makes it easier for another school to do likewise, thus providing a channel to make grade exaggeration contagious.

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Related:
What do Leading Companies Look for in Potential Employees?
Some interesting insights from Google’s chief recruiter:
“For every job, though, the No. 1 thing we look for is general cognitive ability, and it’s not I.Q. It’s learning ability. It’s the ability to process on the fly. It’s the ability to pull together disparate bits of information.”  

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.”

Sunday, October 11, 2015

Weekend Readings - 10/11/15

A World Without Borders
George Mason University economist Alex Tabarrok argues for the elimination of national borders
Tabarrok argues –
“To paraphrase Rousseau, man is born free, yet everywhere he is caged. Barbed-wire, concrete walls, and gun-toting guards confine people to the nation-state of their birth. But why? The argument for open borders is both economic and moral. All people should be free to move about the earth, uncaged by the arbitrary lines known as borders.”

I completely agree with Tabarrok’s sentiments. However, given the reemergence of nationalism, Tabarrok’s proposal sounds utterly unrealistic.


Christopher Columbus – An Appraisal of His Achievements


What Ails Afghanistan? Short-Answer: Pakistan and its Duplicitous Military
https://www.washingtonpost.com/opinions/the-key-to-solving-the-puzzle-of-afghanistan/2015/10/08/1ebfa63a-6df1-11e5-aa5b-f78a98956699_story.html

Norwegian Economy Falls Flat

Oil dependent Norway faces serious economic challenges –
The Economist notes –
“The oil bust is exposing two weaknesses in the Norwegian model. One is bureaucratisation, born of Norway’s enthusiastic embrace of state capitalism. The government owns about 40% of the stockmarket, with large stakes in Telenor, a big telecoms operator; Norsk Hydro, an aluminium producer; Yara, a fertiliser-maker; and DNB, a bank, as well as Statoil. That leads to a monochromatic corporate culture. The Norwegians like to boast that they lead the world in corporate diversity because firms are legally obliged to reserve 40% of board seats for women. But sexual balance does not make up for cultural uniformity: many of the country’s most senior businesspeople studied together at the Norwegian School of Economics, and still live in each other’s pockets.”

Saturday, October 10, 2015

Reality Stranger Than Fiction – The Extraordinary Life Story of Tu Youyou

Fascinating story of Tu Youyou (who was awarded a share of the 2015 Nobel Prize for medicine or physiology):
Related:
The Economist on the battle to eradicate malaria:

Globalization and Economic Illiteracy

A wildly overrated travel writer (Paul Theroux) wades in to a debate on the economics of globalization and shows the world the extent of his ignorance:
http://www.vox.com/2015/10/7/9469001/paul-theroux-poverty
http://nymag.com/daily/intelligencer/2015/10/free-trade-didnt-turn-america-into-zimbabwe.html

Given that Paul Theroux has proven himself to be a moron, here are a few travel writers whose works are actually worth reading:
  • Pico Iyer (Recommended titles: Sun After Dark: Flights Into the Foreign; Falling Off the Map: Some Lonely Places of The World; The Global Soul: Jet Lag, Shopping Malls, and the Search for Home)
  • Geoff Dyer (Jeff in Venice, Death in Varanasi - actually a fiction book)
  • Mark Twain (A Tramp Abroad; Following the Equator)


Economics of the Smartphone Market

Does monopolistic competition prevail in the handset market?
http://www.bloomberg.com/news/articles/2015-10-08/it-s-apple-s-world-so-why-do-other-smartphone-makers-even-bother-

Turkey - Troubled Times Ahead

Der Spiegel’s excellent piece on Recep Tayyip Erdogan’s tumultuous reign and its impact on present day Turkey:

Dr. Shetty - The Henry Ford of the Health Sector



Related:
http://vivekjayakumar.blogspot.com/2015/09/healthcare-economics.html

Light Rail and Urban Development

American Democracy – Role of Wealth

The increasingly dysfunctional US political system appears to be dominated by big money donors:
“Just 158 families, along with companies they own or control, contributed $176 million in the first phase of the campaign, according to a New York Times investigation. Not since before Watergate have so few people and businesses provided so much early money in a campaign, most of it through channels legalized by the Supreme Court’s Citizens United decision five years ago.”

Friday, October 9, 2015

Global University Rankings 2015-2016

US News and World Report – Global University Rankings

Top Research University Rankings - 2015

The Times Higher Education World University Rankings 2015-2016
https://www.timeshighereducation.com/news/world-university-rankings-2015-2016-results-announced

The Middle East Mess - Historical Perspective

US foreign policy and the Middle East

Roger Cohen’s brilliant assessment of Middle Eastern affairs –

An illuminating piece from NYU historian Greg Grandin on the Kissinger-era American foreign policy blunders:
Grandin concludes:
“For all of the celebration of him as a “grand strategist,” as someone who constantly advises presidents to think of the future, to base their actions today on where they want the country to be in five or 10 years’ time, Kissinger was absolutely blind to the fundamental feebleness and inevitable collapse of the Soviet Union. None of it was necessary; none of the lives Kissinger sacrificed in Cambodia, Laos, Angola, Mozambique, Chile, Argentina, Uruguay, East Timor, and Bangladesh made one bit of difference in the outcome of the Cold War.
Similarly, each of Kissinger’s Middle East initiatives has been disastrous in the long run. Just think about them from the vantage point of 2015: banking on despots, inflating the Shah, providing massive amounts of aid to security forces that tortured and terrorized democrats, pumping up the U.S. defense industry with recycled petrodollars and so spurring a Middle East arms race financed by high gas prices, emboldening Pakistan’s intelligence service, nurturing Islamic fundamentalism, playing Iran and the Kurds off against Iraq, and then Iraq and Iran off against the Kurds …”

International Affairs – Book Recommendations
http://vivekjayakumar.blogspot.com/2015/09/international-affairshistory-reading.html

Nobel Prize in Economics - Candidates and Past Winners

An interesting list maintained by Thomson Reuters:
http://sciencewatch.com/nobel/hall-citation-laureates

Thursday, October 8, 2015

A Satirical Take on the American Tertiary Education System

A very funny WSJ op-ed by Prof. Scherrer (Professor of physics and astronomy at Vanderbilt University):
Prof Scherrer on the college application essay requirement –
“In my experience, most teenagers, especially teenage boys, have all the self-awareness of a turtle. And not one of those big Galapagos tortoises. More like a box turtle you find in the middle of the road with its head pulled inside its shell. And they’re supposed to write about their inner selves? Or to answer the profound questions that have troubled humanity for the past three millennia? Sure, why not—with a little help from the college counselor, parents, the Internet. It takes a village to write a college essay, so I think the college should admit the entire village.”