- Barbara Crossette on the country that is the biggest pain in Asia.
- India is mired in a difficult process of learning how to achieve a well functioning liberal democracy. Writing in the Wall Street Journal, Amol Sharma and Jessica E. Vascellaro look at the problems with freedom of speech in India. And, writing in the Financial Times, John Elliott on India's silliness in giving out visas.
- New years day reading: the trio of C. Raja Mohan, Pratap Bhanu Mehta, Bibek Debroy in the Indian Express;
Sunil Jain in Business Standard;
Swaminathan S. Anklesaria Aiyar in the Economic Times. - Jayanth Varma in Financial Express on India's exposure to capital flows.
- P. Vaidyanathan Iyer in the Indian Express on what to do with the Planning Commission.
- Dhiraj Nayyar in Indian Express on central bankers.
- On railway reforms: Dhiraj Nayyar in the Financial Express and Sarabjit Arjan Singh in the Indian Express.
- Ashok Desai in the Telegraph on India's place in the Indian ocean, and William H. Avery in Financial Express on what India should be doing in the next decade.
- Sharon LaFraniere in the New York Times, on Chinese scientists returning to China.
- Ravi Kanbur and Eswar Prasad on the monetary policy framework for emerging economies.
- Richard Martin in Wired magazine on thorium-fired nuclear plants. Also see the Energy from Thorium blog.
- Tarun Ramadorai in Financial Express on Dubai.
- John Lee on the generational change in China's leadership and on India.
- Martin Feldstein suggests you should not be investing in gold.
- Mark DeWeaver on the strange place called China, and Carol Mann on the strange place called Afghanistan.
- On the independence of American universities. Also see here. Could the International University of the People be useful for a few million people in India?
- Robert Shiller in the New York Times on the usefulness of local currency, GDP-linked securities issued by governments.
- DARPA is a model for how to put public money into research. In the New York Times, William Saletan reviews a new book on DARPA by Michael Belfiore.
- The rules of the game in hijacking have changed.
Friday, 8 January 2010
I wrote a column in Financial Express today: How leftist is India?. This draws on the data shown in this previous blog post. I just noticed a piece in The Economist which dwells on related themes which is well worth reading.
Many people wrote me email about this piece. An important criticism of this evidence is that individuals parse questions differently across countries. In India, it's easy to construct questions such as: The government must setup more PSUs so as to give jobs to the people where it will seem that there is overwhelming support for a more socialist position. The main advantage of the Pew data is that they are doing it, across time, and across countries. More fine-grained measurement of political attitudes would surely be nice to have. But we don't yet have such household survey databases in India. The CMIE Consumer Pyramids is good data - but on politics they ask really only one question, that of the most favoured political party.
Many people wrote me email about this piece. An important criticism of this evidence is that individuals parse questions differently across countries. In India, it's easy to construct questions such as: The government must setup more PSUs so as to give jobs to the people where it will seem that there is overwhelming support for a more socialist position. The main advantage of the Pew data is that they are doing it, across time, and across countries. More fine-grained measurement of political attitudes would surely be nice to have. But we don't yet have such household survey databases in India. The CMIE Consumer Pyramids is good data - but on politics they ask really only one question, that of the most favoured political party.
Thursday, 7 January 2010
As the months are going by, we're slowly building a better picture of what went wrong and why. If you want to only spend two hours on figuring out the financial crisis, then listen to this interview with Charles Calomiris, and read this interview with Raghuram Rajan.
Tuesday, 5 January 2010
In recent years, an empirical literature has begun to prise apart the management process of universities, seeking to identify the features which cater to excellence. In a previous blog post I summarised five useful ingredients that enable successful universities, from a working paper by Philippe Aghion, Mathias Dewatripont, Caroline M. Hoxby, Andreu Mas-Colell and Andre Sapir:
Today, on voxEU, I read an article by Amanda Goodall which identifies a sixth beneficial feature:
- No government approval required for budget; budget-making happens at the university and university alone.
- Reduced government role in the core funding of the university.
- High inequality of wages: two academics of the same seniority and rank should get different wages.
- Full flexibility in recruitment of students.
- A big role for competitive processes for gaining funding for research.
Today, on voxEU, I read an article by Amanda Goodall which identifies a sixth beneficial feature:
6. It helps if the university president has strong scientific accomplishments.
Saturday, 2 January 2010
Many people believe that the exchange rate regime (i.e. the monetary policy regime) of each country is its own sovereign choice.
In the Great Depression, we saw the harmful effects of the exchange rate mercantalism that is feasible with fiat money. This was a key motivation for Keynes and others in their design of the post-war order. The IMF was supposed to be a multilateral body that would help bring pressure on countries to move towards good sense through `ruthless truth-telling'. This didn't work out too well. The IMF got itself into a box where it would not say anything about exchange rate regimes. To some extent, by standing ready to help countries that got into a currency crisis, it has helped perpetuate exchange rate pegging.
For the present discussion, I want to emphasise the distinction between small countries who can pretty much do as they like as opposed to systemically important countries where actions have a significant impact upon the world economy at large. In this approach, the four interesting questions are:
On the first question, some people believe that exchange rate mercantalism is good for the country. You don't find much of this amongst professional economists.. As Merton Miller said: If devaluations could make a country rich, Argentina would be the richest country in the world. For a careful rebuttal of this loose thinking, done by one of the world's top economists, see these discussant comments by Michael Woodford about a paper with this view by Dani Rodrik. As Andrew Rose said in a discussant comments at the Neemrana conference about a similar paper by Surjit Bhalla: This is either a home run or it's totally wrong.
I feel that exporting is great for growth, but only when this exporting involves genuinely facing the market test of the global market. If a country exports based on subsidies of some sort - which I term `fake exports' - then the gains in productivity and capability do not come about (link, link). My sense is that in China also, intellectuals no longer buy the `distort everything for exports' idea. Also see Lorenzo Bini Smaghi on this.
As with every other export-subsidy or protectionist scheme, this has more takers amongst non-economists than amongst economists. It's slow hard work, banging these down over and over.
On the second question, see Paul Krugman: link, link.
On the third question, I have a comment on `global imbalances'. Some people see big numbers for current account surpluses/deficits as being intrinsically flawed. I look upon them as being the success of globalisation, as a repudiation of the Feldstein/Horioka problem. It is in an autarkic world that you see Feldstein/Horioka problems, where capital flows are not large. If we are to get beyond the Lucas paradox, and get back to the massive `development' capital flows of the First Globalisation, it's going to require large sustained BOP surpluses in some countries and deficits in others.
As an example, the best deal for ageing OECD is to buy securities in young countries like India today, thus spurring their growth today. Over the next 50 years, these securities would yield a flow of widgets back and thus support consumption of their elderly.
Hence, I would say the question is: How can the world be made safe for large BOP surpluses/deficits? This is a more interesting and important problem, instead of saying to ourselves: How can the world eliminate large BOP surpluses/deficits.
In the Great Depression, we saw the harmful effects of the exchange rate mercantalism that is feasible with fiat money. This was a key motivation for Keynes and others in their design of the post-war order. The IMF was supposed to be a multilateral body that would help bring pressure on countries to move towards good sense through `ruthless truth-telling'. This didn't work out too well. The IMF got itself into a box where it would not say anything about exchange rate regimes. To some extent, by standing ready to help countries that got into a currency crisis, it has helped perpetuate exchange rate pegging.
For the present discussion, I want to emphasise the distinction between small countries who can pretty much do as they like as opposed to systemically important countries where actions have a significant impact upon the world economy at large. In this approach, the four interesting questions are:
- In the selfish maximisation of one country at a time, what is the optimal choice of monetary policy regime / exchange rate regime?
- What the mechanisms and empirical magnitudes through which the exchange rate regime choice of one country imposes externalities on others? I.e. what is the consequence of the Nash equilibrium?
- What is an ideal solution for the world, which combines optimality for the local economy with good system outcomes?
- What international institutional arrangements can help push the system towards the right solution?
On the first question, some people believe that exchange rate mercantalism is good for the country. You don't find much of this amongst professional economists.. As Merton Miller said: If devaluations could make a country rich, Argentina would be the richest country in the world. For a careful rebuttal of this loose thinking, done by one of the world's top economists, see these discussant comments by Michael Woodford about a paper with this view by Dani Rodrik. As Andrew Rose said in a discussant comments at the Neemrana conference about a similar paper by Surjit Bhalla: This is either a home run or it's totally wrong.
I feel that exporting is great for growth, but only when this exporting involves genuinely facing the market test of the global market. If a country exports based on subsidies of some sort - which I term `fake exports' - then the gains in productivity and capability do not come about (link, link). My sense is that in China also, intellectuals no longer buy the `distort everything for exports' idea. Also see Lorenzo Bini Smaghi on this.
As with every other export-subsidy or protectionist scheme, this has more takers amongst non-economists than amongst economists. It's slow hard work, banging these down over and over.
On the second question, see Paul Krugman: link, link.
On the third question, I have a comment on `global imbalances'. Some people see big numbers for current account surpluses/deficits as being intrinsically flawed. I look upon them as being the success of globalisation, as a repudiation of the Feldstein/Horioka problem. It is in an autarkic world that you see Feldstein/Horioka problems, where capital flows are not large. If we are to get beyond the Lucas paradox, and get back to the massive `development' capital flows of the First Globalisation, it's going to require large sustained BOP surpluses in some countries and deficits in others.
As an example, the best deal for ageing OECD is to buy securities in young countries like India today, thus spurring their growth today. Over the next 50 years, these securities would yield a flow of widgets back and thus support consumption of their elderly.
Hence, I would say the question is: How can the world be made safe for large BOP surpluses/deficits? This is a more interesting and important problem, instead of saying to ourselves: How can the world eliminate large BOP surpluses/deficits.
Friday, 1 January 2010
On 5 October 2007, I had written a blog post Does urban India favour liberal economics?, where I had used survey data released by the Pew Institute, which measures attitudes of roughly 45,000 people worldwide with roughly 2,000 in India. Their sampling mechanism has an urban bias.
Today, I saw current information, and cross-country comparisons, on their website.
The wording of the question was: Please tell me whether you completely agree, mostly agree, mostly disagree or completely disagree with the following statements: Most people are better off in a free market economy, even though some people are rich and some are poor. `Agree' combines "completely agree" and "mostly agree" responses. `Disagree' combines "mostly disagree" and "completely disagree."
The results, showing the proportion of those polled who `Agree':
In 2002, India was halfway in the list with 62% support. In 2009, India is at the top of the list, with 81% support.
The wording of the question was: What do you think about the growing trade and business ties between (survey country) and other countries - do you think it is a very good thing, somewhat good, somewhat bad or a very bad thing for our country?. `Good Thing' combines "very good thing" and "somewhat good thing" responses. `Bad Thing' combines "somewhat bad thing" and "very bad thing."
The results:
Here also, India is now at the top of the list in terms of support for plugging into globalisation.
I think there are three factors at work.
First, everyone in India instinctively knows that when we tried our hand at socialism, GDP growth crashed, and vice versa:
The worst of India's years -- 2.94% average GDP growth with a fast growing population -- were in the peak of Indira Gandhi's socialism of the 1970s. As India stepped away from that, things got better. This process began with the Janata Party in 1977, was carried forward by following governments, and yielded results from the early 1980s onwards.
These changes were big enough and rapid enough that they are as persuasive as a natural experiment. Comparing socialist India vs. unsocialist India is almost as persuasive as comparing East Germany vs. West Germany. So the ordinary citizen, who does not know the GDP data, knows in his bones that getting away from a big State made sense.
The second factor is that a random sample of India has a lot of young people in it, who are less influenced by our socialist baggage. When you look at the political leadership, bureaucracy, academics or media, the views of old people have a lot more importance in shaping positions and the external perception. Old people in India seem to have more socialism, autarky, and unconfidence. Opinion polls show an unfiltered picture of India as it is.
Here is some data, from the CMIE household survey database, about the age distribution of Left supporters:
The CMIE data, with a tiny share of the population which supports the Left, is consistent with data from election vote shares and the Pew data. All three information sources thus increase our confidence in the basic message.
In your mind's eye, you need to think that India is a young population, with a lot of people below 30, and declining cohort sizes beyond. So the early years in the graph are disproportionately important.
In the overall population, Left support stands at 5.36%. India's future is young and urban -- but these two regions are where the Left support is the weakest.
However, another hypothesis can be cited: Maybe it is the experiences of young people which convert some of them from being un-Left when young to being Left supporters in middle age. Maybe political attitudes are not stable through time; maybe the young of today will turn left when they reach their late 30s and early 40s. In coming years, as the data of this survey builds up, we'll be able to evaluate this hypothesis.
The third dimension is about the welfare state. India does not have a welfare state and is unlikely to build one.
Voters do not seem to want a large welfare state. Political scientists say that a homogeneous population is more likely to support population-wide welfare programs: Each voter intuitively feels that the benefits of the program go to people-like-him. In countries with heterogeneity along the lines of ethnicity, class, religion, etc., voters are less inclined to favour population-wide welfare programs, because the picture in their mind of a recipient of welfare is not a person-like-them.
The intellectuals are not pushing a welfare state. In Western Europe, in the 1930-1960 period, the best intellectuals pushed the welfare state as an antidote to the brutality of the communist or Nazi ideologies. That sort of problem has not been an issue in India, where support for communism seems to be ebbing away.
The implementation capability is weak. When politicians have tried to setup large systems -- SSA or NRHM or NREG come to mind -- the limited administrative capacity has come in the way.
The bottom line is that India has a small expenditure/GDP ratio, and there is no welfare state that is under stress. Elsewhere in the world, there is a conflict between retaining the welfare state vs. plugging into globalisation. The gains from international economic integration are weighed against the perpetuation of the welfare state. In India, that conflict of interest is absent: people only see the gains from globalisation.
Today, I saw current information, and cross-country comparisons, on their website.
Support for the free market
The wording of the question was: Please tell me whether you completely agree, mostly agree, mostly disagree or completely disagree with the following statements: Most people are better off in a free market economy, even though some people are rich and some are poor. `Agree' combines "completely agree" and "mostly agree" responses. `Disagree' combines "mostly disagree" and "completely disagree."
The results, showing the proportion of those polled who `Agree':
In 2002, India was halfway in the list with 62% support. In 2009, India is at the top of the list, with 81% support.
Support for international economic integration
The wording of the question was: What do you think about the growing trade and business ties between (survey country) and other countries - do you think it is a very good thing, somewhat good, somewhat bad or a very bad thing for our country?. `Good Thing' combines "very good thing" and "somewhat good thing" responses. `Bad Thing' combines "somewhat bad thing" and "very bad thing."
The results:
Here also, India is now at the top of the list in terms of support for plugging into globalisation.
Why is this happening?
I think there are three factors at work.
First, everyone in India instinctively knows that when we tried our hand at socialism, GDP growth crashed, and vice versa:
| 1950s | 3.59 |
| 1960s | 3.96 |
| 1970s | 2.94 |
| 1980s | 5.58 |
| 1990s | 5.68 |
| 2000s | 7.22 |
The worst of India's years -- 2.94% average GDP growth with a fast growing population -- were in the peak of Indira Gandhi's socialism of the 1970s. As India stepped away from that, things got better. This process began with the Janata Party in 1977, was carried forward by following governments, and yielded results from the early 1980s onwards.
These changes were big enough and rapid enough that they are as persuasive as a natural experiment. Comparing socialist India vs. unsocialist India is almost as persuasive as comparing East Germany vs. West Germany. So the ordinary citizen, who does not know the GDP data, knows in his bones that getting away from a big State made sense.
The second factor is that a random sample of India has a lot of young people in it, who are less influenced by our socialist baggage. When you look at the political leadership, bureaucracy, academics or media, the views of old people have a lot more importance in shaping positions and the external perception. Old people in India seem to have more socialism, autarky, and unconfidence. Opinion polls show an unfiltered picture of India as it is.
Here is some data, from the CMIE household survey database, about the age distribution of Left supporters:
The CMIE data, with a tiny share of the population which supports the Left, is consistent with data from election vote shares and the Pew data. All three information sources thus increase our confidence in the basic message.
In your mind's eye, you need to think that India is a young population, with a lot of people below 30, and declining cohort sizes beyond. So the early years in the graph are disproportionately important.
In the overall population, Left support stands at 5.36%. India's future is young and urban -- but these two regions are where the Left support is the weakest.
However, another hypothesis can be cited: Maybe it is the experiences of young people which convert some of them from being un-Left when young to being Left supporters in middle age. Maybe political attitudes are not stable through time; maybe the young of today will turn left when they reach their late 30s and early 40s. In coming years, as the data of this survey builds up, we'll be able to evaluate this hypothesis.
The third dimension is about the welfare state. India does not have a welfare state and is unlikely to build one.
Voters do not seem to want a large welfare state. Political scientists say that a homogeneous population is more likely to support population-wide welfare programs: Each voter intuitively feels that the benefits of the program go to people-like-him. In countries with heterogeneity along the lines of ethnicity, class, religion, etc., voters are less inclined to favour population-wide welfare programs, because the picture in their mind of a recipient of welfare is not a person-like-them.
The intellectuals are not pushing a welfare state. In Western Europe, in the 1930-1960 period, the best intellectuals pushed the welfare state as an antidote to the brutality of the communist or Nazi ideologies. That sort of problem has not been an issue in India, where support for communism seems to be ebbing away.
The implementation capability is weak. When politicians have tried to setup large systems -- SSA or NRHM or NREG come to mind -- the limited administrative capacity has come in the way.
The bottom line is that India has a small expenditure/GDP ratio, and there is no welfare state that is under stress. Elsewhere in the world, there is a conflict between retaining the welfare state vs. plugging into globalisation. The gains from international economic integration are weighed against the perpetuation of the welfare state. In India, that conflict of interest is absent: people only see the gains from globalisation.
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