There are many, many things going wrong in Indian economic policy. The rupee was the wrong place to pick a battle. The cost-benefit ratio does not make sense. The damage caused by waging war on the rupee dwarfs the near-zero impact that was obtained. It is better to let the market choose the exchange rate, […]
Ben Bernanke’s statement Everyone interested in the world economy should watch Bernanke’s recent speech and the press conference: (Switch to full screen, it works well). Here is the base URL which collects together all the materials about the Fed’s announcement. The `exit strategy principles’ are in the June 21-22, 2011 meeting. The announcement reinforces the sense that the US […]
The argument in favour of home ownership Many people believe that more home ownership is a good thing. It is felt that people who own homes have a greater incentive to get involved in local politics as they have a stake in higher house prices. In contrast, people who rent lack this commitment device. Indeed, […]
This blog post is joint work with Mana Shah.
What is economic freedom?
An index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are able to engage in voluntary transactions. James Gwartney and Robert Lawson have proposed a definition where individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others.
Measuring economic freedom across countries and time
Raghavendra Kamath has an article in the Business Standard today on experiments by Indian retailers at running stores for 24 hours a day.
I have often wondered about the costs and benefits of the 24-hour stores that one sees in the US. Two things come to mind. First, the response of demand to extended hours will only show up with a lag, when people reconfigure their lives to exploit the consistent availability of stores at all times of the day or night. This won’t happen immediately.
Exchange-traded derivatives originally only did commodity underlyings. The world’s first financial underlying was : currencies. On 16 May 1972, the Chicago Mercantile Exchange started trading in currency futures. To any finance person, nothing is simpler than a currency futures, but unfortunately in India a mixture of ignorance, ideology and turf considerations has hindered progress.
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.
Marginal Revolution pointed me to a paper by Edward Miguel, Sebastian Saiegh, and Shanker Satyanath (of UCB, UCSD, NYU) titled Civil war exposure and violence. Their key result is: Football players from countries which have experienced civil wars are more violent on the field (after controlling for a host of things). This supports the idea that exposure to violence coarsens human sensibilities.
Writing in Indian Express, Pratap Bhanu Mehta looks back at Indira Gandhi. He offers five lessons for today’s Congress: Leaders are more effective when they work through institutions rather than attempting to subvert them. Sound economic policies are not a matter of simply projecting good intentions; they require a concerted understanding of the causal conditions […]
Shilpy Sinha and Swapnil Mayekar have a story in Business Standard offering some optimism about the corporate bond market. They point out that in the six months from April to September 2009, corporate bond turnover was Rs.1.6 trillion, when compared with Rs.0.5 trillion in the same period of the previous year. SEBI has decided to […]