How economics went from theory to data

One

of the most striking things about attending the annual meeting of the American Economic Association after a long absence is that economics is now really all about the data. Daniel S. Hamermesh of the University of Texas documented this shift in a 2013 article in the Journal of Economic Literature. In 1963, 1973 and 1983, the majority of the articles published in the American Economic Review, Journal of Political Economy and Quarterly Review of Economics, three of the field’s most influential journals, were works of theory—with theory’s dominance peaking in 1980. By 2011, theory’s share was down to 27.9%.

One cause seems pretty clear. The biggest shift towards empirical work occurred between 1983 and 1993, and it was between 1983 and 1993 that personal computers became commonplace. That made crunching data much easier for economics professors; the subsequent rise of the Internet and digitization of much that was once analog in the economy opened up a huge new array of data for them to crunch.

In Hamermesh’s taxonomy, borrowed data means “ready-made … government-provided … macroeconomic time series or … large household surveys”, while own data means that the authors of the article created the data set—even if the source was government records, as it was with Thomas Piketty and Emanuel Saez’s famous work on top incomes. The continued rise in empirical research since 1993 has been entirely in this latter category. Economics has also seen the advent of experimental work, most of it taking place in campus “labs” where students and other subjects participate in market-related games and exercises.

Disillusionment with theory has also been an issue. From the late 1930s through the 1970s, economics was full of excitement about grand mathematical models that seemed to explain everything about the world. Then some things happened that the grand models—particularly the macroeconomic ones— didn’t explain very well, while a new generation of theorists took things in increasingly narrow and convoluted directions. The goal was often to make the theories more realistic, but the result, as Hamermesh puts it, was that: “Economic theory may have become so abstruse that editors of the leading general journals, recognizing that very few of their readers could comprehend the theory, have cut back on publishing work of this type.”

Piketty, who was a promising young theorist at the Massachusetts Institute of Technology in the early 1990s, wrote in the introduction to Capital in the 21st Century that he decided to move back to France in part because economists are less respected there and thus must “set aside their contempt for other disciplines and their absurd claim to greater scientific legitimacy, despite the fact that they know almost nothing about anything”. Then he went looking for some data to crunch.

Still, the data can’t tell us everything. Economics in the US had an earlier empirical heyday in the 1920s and 1930s, led by Wesley Clair Mitchell, a Columbia University economist and co-founder of the National Bureau of Economic Research. It was the NBER that pioneered the systematic collection of macroeconomic data in the US, and Mitchell believed that if he could only gather enough data, the secrets of the economy—and in particular the business cycle—would organically reveal themselves.

They didn’t, and Mitchell was mostly flummoxed by the Great Depression. In a famous takedown of a 1946 book on business cycles by Mitchell and his successor as head of NBER, Arthur F. Burns (who went on to be a markedly unsuccessful Federal Reserve chairman in the 1970s), physicist-turned-economic-theorist Tjalling Koopmans complained that: “The movements of economic variables are studied as if they were the eruptions of a mysterious volcano whose boiling caldron [sic] can never be penetrated.”

Today’s economic empiricists aren’t nearly that theory-shy. I heard lots of potential explanations this week for the trends and correlations found in the data. But they were usually offered in tentative tones. Thanks to the empirical boom, economists know more than ever before. But they seem to be learning that they are still awfully far from knowing everything.

Source: http://epaper.livemint.com/epaper/viewer.aspx

NDA has failed on reforms, says Amartya Sen

However, the NDA government had done more than the UPA government in removing ineffective subsidies. There was more to be done.'

Nobel laureate Amartya Sen has said that the NDA government had been slow to move on key reforms and even failed to deliver on the reforms it had promised, thus hampering the successful functioning of a market economy.

Professor Sen said the reforms were essential for continued fast growth and development. However, Professor Sen told The Hindu in an interview that the NDA government had done more than the UPA government in removing ineffective subsidies. There was more to be done, he added.

Professor Sen also argued that, at a time when around half of India doesn’t have access to schools, focusing on the controversial Free Basics programme by Facebook is a mistake. Excerpts:

Where do you think the discipline of economics is headed? Do you see it going in a direction you approve of?

I think there are many changes taking place and a number of them one must approve of. There are a number of changes linking theory with empirical observations, that’s a positive thing. There is much greater interest in not seeing analytical mathematical economics as a separate discipline from normal non-mathematical reasoning because we have to put them together. I am in favour of all of them. There is always an amount of what I would describe as hi-tech circus, where you do trapeze jumping, in any subject and that is true of economics also.

But I think the important thing to recognise is that there are many lessons from traditional economics which have not been sufficIently well absorbed in policy making, for example, in India. And I will put my focus on that because there are lesson that traditional mainstream economic reasoning offers which we have not made good use of, and even though we need the subject itself to evolve -- that is certainly needed -- but even without that there are many understandings that are very important for thinking about the future of an economy which are not getting the kind of attention they ought to get.

What would the lessons be for India?

The three big lessons that economics offers have not been fully appreciated. One is the lesson that you need a successful market economy for continued fast growth and development. That is being absorbed but even now I have to say that the Modi government has been too slow with the reforms and has not carried out the reforms they promised they will.

Secondly, while the market economy does well for industries and agriculture, by and large, with a few exceptions, it does not do well for education and healthcare. There you need the government to come in in a big way, a point that was made by Adam Smith in 1776. And that has been neglected and not much has happened on that. The UPA government was an under-performer and the Modi government is even more of a disaster.

The third point is the issue of asymmetric information: the fact that quite often the buyers don’t know what the seller is selling. This is a very important part in the understanding of any market economy, and which is why the idea that you could privatise healthcare at a basic level without first providing public health is something that has not been possible in any country in the world and it will not be possible in India.

India is the only country which is trying to get universally educated and universal healthcare through the private sector. Japan, US, Europe, China, Vietnam, Cuba, Hong Kong, Singapore, whether they are politically right or politically left, they all saw the importance of the state in making education and healthcare widely spread and universal.

So you don’t think that this excessive reliance on empiricism is getting in the way of theoretical economics?

You can make a fetish of empiricism and you can make a fetish of pure theory. But I think the main thing is to recognise that economics is ultimately an empirical subject and the theory is about the empirical reality in the world, which is about how the world functions but also about how the world ought to function, what are the demands of good policy. And these you might think are not matters of discussion but they are because we have certain views on them, we have certain ways of judging whether an economy is doing well or not and we could on the basis of reasoning arrive at some agreement as to whether the economy is doing well or not doing well, if you are open to reasoning.

I think those things require both empirical data and scrutiny as well as a very close examination of the information we have on one side as well as understanding and critical acceptability of the theories that allow us to interpret the data and also take a view on what could in fact be done for making the shape of the economy better.

Do you still think that the Keynesian approach to economics is still relevant today?

Well, it’s relevant to many countries in the world, if by Keynesian you mean general theory. I think the insights of Keynesian economics were badly neglected in Europe and also somewhat neglected in the Republican-dominated Congress, but not ignored by the Federal Reserve system.

But Europe neglected it very much indeed by just going in for balancing budgets at a time when it just made no sense. People forget that when they get into a situation that the ratio of public debt to national income rose as far high as 70 per cent under Gordon Brown, but they forget it was 220 per cent when the National Health Service was started. So I think they are making a shibboleth out of a kind of concocted number. A ratio of A to B is a mistake and that is one of the lessons Keynes taught us.

Now, we (India) may have made many mistakes, but neither the UPA government nor the present policies under Raghuram Rajan could be accused of ignoring these facts. I think the insights have been fairly well absorbed in India.

We’re nearing on two years of the Modi government. At the end of the first year you had said that Modi’s idea of development was more on the corporate and institutional side than on individual development…

I’m not sure I quite said that. I thought that the idea that development is only a matter of successful planning of financial investment rather than building up the capability of human beings through education, healthcare and social security, I was grumbling about that. Now, that wasn’t only at the end of the first year, it was also at the beginning of the first year. That was their policy and it still is. Education and healthcare were badly neglected by the previous UPA government and it is even more badly neglected by the Modi government now.

So that feeling has been reinforced now?

Yes, reinforced in that I see no reason to revise that judgement.

Schemes like Skill India, Jan Dhan Yojana and the various insurance schemes which are linked to making the lives of the individuals better, how would you rate those?

The basic thing that ails the Indian people is lack of education, lack of healthcare and lack of social security. And no matter how extraordinarily innovative-sounding, and I say innovative-sounding rather than innovative, these new schemes may be, of this kind of insurance or that kind of insurance, it is not going to take away from the fact that with an unhealthy, uneducated labour force, it is very difficult to generate income from them and very difficult for solidly-shared development growth at a high level to continue.

The government has carried out Direct Benefits Transfers in LPG subsidies and in MGNREGA wages. Do you think that is a system that works and should it be extended to the rest of the PDS?

Well, the LPG subsidy removal is something I have been recommending again and again in my last book, that you should remove all LPG subsidies. They haven’t done that yet. They ought to do all of it. There is still subsidised electricity, where parts of India don’t even have a power connection, but those who have it get it at a subsidised price, which I don’t think is a very good idea. These have to be changed.

But the Modi government under Jaitley has done more in removing these subsidies than the UPA government did.

MGNREGA is a much more complicated story and they were very critical of it before but they seem to have embraced it now.

But the direct transfer of subsidies to bank accounts, is that sustainable and workable?

Well, it has some positive things and some negative things. For example, if there is a gender bias. If you send the subsidy to the family, then the people more likely to benefit are the boys rather than the girls. And if you did it with a more on-kind transfer, that’s unlikely to happen.

So there are positive and negative elements in it. I can see why it is attractive and I also see what the limitations of that are.

What do you think about the government’s Odd-Even rule?

(laughs) My thoughts are not great on that.

And what do you think about Facebook’s Free Basics?

You know, in a country where half the population doesn’t have a school to go to, to concentrate on the internet is a bit of a mistake.

Keywords: Amartya Sen, NDA government, Narendra Modi, subsidies, economic reforms, LPG subsidy removal, Free Basics

Source: The Hindu, 8-01-2015

Build Your Own World

DEVENDRA UPPAL





Sacred scriptures say , “Kritam lokam purushoabhijayte“ -Man himself builds his own world. Man has been called `kratumaya purusha' because he acts according to his resolves that are born out of his ideas, thoughts and desires. The consequence of his actions gives direction to his life and determines his future.Human life should be `yajnamaya', that is, full of non-violent actions like karmas done for welfare of society and also for one's divine progress. Sacrificial actions include noble deeds, rendering service to all selflessly and observing purity of action, speech and thought for achieving realisation.
Sublime thoughts are said to be the panacea of all ills present in the world. A scriptural verse says, “Sansar deergh rogasya, suvichar maha-aushdhi'.Virtuous company , quality and secular education, ideal guidance by parents and positive thoughts help one to cultivate a sacred character and inner grace. This is the very basis of a successful and purposeful life.
In spiritual parlance, the greed, attachment, sins, jealousy and crime -known as vikarmas -have been called `kudiar', or dirt, denoting tamoguna and auspicious actions have been defined as `sachiar', or truth, depicting satoguna and sukarmas. Actions under sachiar are those such as charity , welfare of others and personal progress as a seeker. The devotee prays, “Aum kudiar prasuva, sachiar aasuva“ -O God, I pray to thee, sins may go away from me and virtuous living may come my way!

Time To Reboot, But First Get Recharged

Nayaswami Devarshi





Nearly everyone has discovered the need to reboot their computer to get rid of problems that are causing the operating system to malfunction. Similarly , it can be very helpful to do the same with our spiritual, mental and physical operating system. A spiritual reboot especially can help us to restart our lives in the most positive way .What are the main problems we are trying to remove, and how do we remove them? The most persistent are bad habits that have crept into our lives.The beginning of the New Year is a significant transition point and an opportunity to install new good habits and qualities into life.
The power of habit can be people's worst enemy or their best friend. Bad habits tend to creep up on people, taking advantage of their busyness, and lack of conscious awareness, and life focus.
Swami Kriyananda wrote as follows: “Psychologically , what happens in any struggle between high aspirations in oneself and one's worldly tendencies is that habit sides with worldliness. Our need is to replace our bad habits with good ones. Good habits, however, yield to a higher power, which is what gives us our true strength. Good habits, to become strongly established, require the use of awareness, energy , and will power. The lack of dedication and focus is the reason that many people make well-meaning New Year's resolutions that often last only one or two days!“ He added that once they become strong, however, these good habits become as easy and natural as brushing one's teeth every day. This is where resolutions, done with focus and attention, can help us. Here are a few suggestions to help New Year's resolutions become wellestablished friends that can help us for the rest of our lives: Keep them simple and focus on positive habits, rather than “I won't do this, I won't do that ...“
Instead of trying to eliminate the habit of eating too much sugar, for example, replace it with the habit of eating healthier foods.
Choose just a few important habits to focus on, rather than a long list.
Focus on at least one spiri tual good habit. I've found that the daily habit of meditation and prayer is the most helpful of all, because it really does reboot the operating system of our brain. Scientific studies of the effect of meditation on the brain show that just 12 minutes of meditation every day , for eight weeks, makes measurable physical changes in the brain that affect one's overall feeling of well-being and happiness.
When the inevitable stumble comes, don't admit failure. Instead, simply tell yourself, “I haven't yet succeeded,“ pick yourself up, and go forward again with your resolution.
Paramhansa Yogananda would ask us to remember that no matter what our trials have been, or how discouraged we are, if we make a continued effort to be better and to succeed, we will find that, being made in the image of God, we are endowed with unlimited power, much stronger than our worst trials, no matter what they may be. So let us make up our minds that we will win, focussing all our concentration on the ceaseless efforts to succeed in the New Year, and we will surely be victorious.
Remember that our past difficulties did not come to crush us but to strengthen our determination to use our limitless divine powers to succeed. God wants us to overcome the difficult tests of life and come back to His home of wisdom.

The promise of Dalit capitalism

Political empowerment must be paired with fair economic representation

The representatives of Dalit capitalism believe that capital is the best way to
break caste

Prime Minister Narendra Modi made two significant observations in the course of his speech to the new generation of Dalit entrepreneurs last week. First, he cited B.R. Ambedkar to argue that a community that has little access to land should see rapid industrialization as its best bet for advancement. Second, he said it is more difficult to escape the shadow of social discrimination than it is to break the shackles of economic backwardness.

Successive census reports on enterprises outside agriculture show that Dalits own far fewer businesses than we should expect from their share of the total Indian population. The representatives of Dalit capitalism want to correct this imbalance because they believe that capital is the best way to break caste in the modern economy. Some of this style of thinking can be traced back to a conference of Dalit intellectuals held in Bhopal in 2002, which argued that the retreat of the state in the era of globalization means that dependence on reservations will bring diminishing returns.

A lot has by now been written on the success stories. This newspaper was one of the first to shed light on the emergence of Dalit capitalism, in a series of stories written in 2010, of how they overcame social discrimination to build enterprises. These examples of successful entrepreneurs from the Dalit community are welcome in themselves. They could also become role models for the next generation. But it is also true that Dalit entrepreneurs face immense hurdles to progress. Dealing with these hurdles will not be easy.

One of the main problems is the lack of access to existing business networks. India is one of the many countries where weak contract enforcement mean that entrepreneurs depend on trust-based community networks to transact business. There is no shortage of examples of specific businesses being dominated by members of one community. It is very difficult for a Dalit entrepreneur to break into these networks, a challenge that is perhaps even more difficult than getting bank loans.

In a 2011 paper on how caste matters in entrepreneurship, Lakshmi Iyer, Tarun Khanna and Ashutosh Varshney argued that the growth of enterprises depends strongly on network effects to find the right workers as well as to forge links with suppliers and customers. And World Bank chief economist Kaushik Basu has tried to show in a new paper that discrimination exists because it acts as a coordination device.

These are the hard facts that are often drowned out in the general din about the rise of Dalit capitalism. Network effects are persistent—be it in the digital world or in society. The big question is how to break them. One possibility is through voluntary action by large companies that have expansive supply chains. The Tata group has been at the forefront of such experiments. Large government departments have also tried to bring Dalit enterprises into their networks. How such initiatives can be expanded while maintaining commercial goals remains to be seen.

The past few decades have seen the political empowerment of Dalits. But all sorts of data show that the community has still not got its rightful place in the economic landscape. What a new generation of Dalits intellectuals has been arguing is that the market rather than the state is the best antidote to social inequality.

The road ahead is a long one. The black capitalism project in the US has led to many success stories but it is doubtful that it has dismantled the deeper structure of racial discrimination. South Africa has also made uneven progress in having an economic structure that is in tune with its political goal to become a rainbow nation.

These should be seen as reality checks in the welcome attempt to build Dalit capitalism.

Do you think Dalit entrepreneurs can break into business networks based on caste? Tell us at views@livemint.com

source: http://epaper.livemint.com/epaper/viewer.aspx

Is the Internet a public good?

As an enabler of development, its primary value is for providing access to other basic goods and services

The growth of the Internet in the 1990s led to the fear of a new kind of social inequity in the form of the digital divide. A contrary view was that the new technology had the potential to overcome previously existing divides, provided government support was available in order to overcome the challenges of ICT (information and communications technology) in under-served areas. A view not examined enough is the relevance of the Internet in the context of the need to balance the allocation of scarce public money among different urgent priorities.

The European Union Universal Service Directive of 2002 suggested that a necessary condition for a service to be included within the ambit of universal service is that, in the light of social, economic and technological developments, the ability to use the service has become critical for social inclusion—that is, it is a consumption norm.

Some governments have tried to operationalize the notion by setting a trigger mechanism in the form of a minimum number of users of a service that would need to be crossed before provision of subsidies for its universalization is considered. While the number of Internet users in India has multiplied, the number of active users is still too low for the Internet to be considered a “consumption norm” that a government is obligated to provide.

Government funds can also be deployed to correct market failures and realize positive externalities. Since the 1980s, sophisticated statistical techniques have been used to establish cause-effect relationships between the adoption of new technologies—the mobile phone, the Internet and broadband—and gross domestic product (GDP) growth. In India, for example, such studies show that a 10% increase in Internet penetration can increase the GDP by 1.6% in the presence of a minimum penetration level of 25%. These studies have become the basis for calls for the use of public money for Internet access and broadband expansion.

However, there are three major conceptual issues with such policy conclusions. First, these studies do not claim that the new technologies will yield positive spillovers prior to the threshold level of penetration being reached. Many under-served areas lie far below the threshold. Second, these studies do not establish that the bang per buck of the new technology is greater than that for other basic inputs such as education, roads or health. Third, these econometric studies are typically carried out with either a country or a province within a country as the unit of analysis. Given the immense size and heterogeneity of the unit, the claims do not automatically extend to the sub-unit level—for example, to rural areas within a province.

Indeed, there are reasons to believe that the externalities may not accrue in many rural areas at their present level of development. Unlike roads, the provision of digital connectivity is not sufficient to ensure empowerment or even equitable inclusion of the target population. The reaping of benefits requires the ability and willingness to use the new technology on the part of the intended beneficiaries, relevant content and applications, and affordability. Mere access without a host of complementary inputs is unlikely to lead to positive spillovers.

As per the “enabler of development” rationale, the Internet has value not in and of itself but rather as a medium that gives access to other basic goods and services. Indeed, ICT for development projects cover many domains including healthcare, education, online government services and the provision of commodity price information to small producers.

Two implications emerge from this. First, the level of provision of the basic goods and services facilitated via ICT should adhere to some consumption norm. In the case of the provision of health services, for example, the government needs to aim for a level that at the minimum achieves the targets of the Millennium Development Goals. Second, since the provision of basic services using ICT is dependent on the availability of other complementary inputs, the decision on the level of a particular ICT service that is to be provided cannot be made without reference to the presence of other complementary inputs. Continuing with the healthcare example, the ICT network should develop in rough alignment with the complementary institutions, processes and skills needed to provide remote medical services.

The provision of connectivity can to some extent substitute for the other inputs. However, the substitutability peters out beyond a point and then the provision of advanced connectivity amounts to wastage of social resources.

There is also the view that the provision of connectivity will trigger the provision of complementary inputs and the development of ability to use (“build it and they will come”). However, the experience of several government schemes in India shows that there are limits to this rationale for advance build-out of connectivity.

The conclusions from this exploration are that “universal access” to the Internet need not be interpreted as “uniform access” and the build-out of networks should be aligned to the absorptive capacity of a region. The deliberations on the national optic fibre network and “free basics” could benefit from such a nuanced approach.

Source: http://epaper.livemint.com/epaper/viewer.aspx

EDI - POST GRADUATE DIPLOMA IN MANAGEMENT – DEVELOPMENT STUDIES (PGDM-DS)

Admission Announcement 2016-18 Batch

Institute: Entrepreneurship Development Institute of India (EDI), Ahmedabad (Gujarat) INDIA.

The PGDM-DS Programme: Post Graduate Diploma in Management – Development Studies is designed as a broad and multi-disciplinary programme to equip students with knowledge, analytical and conceptual skills of social and economic development. It prepares students with ability to provide entrepreneurial solutions to social problems, livelihoods for rural and urban poor, corporate social responsibility initiatives and creating social enterprises. 

Dates & Deadlines: Entrepreneurial Aptitude Test (EAT) and Personal Interview (PI)

	March Cycle	May Cycle
Last Date for Submitting Application Form	20th March,2016	08th May,2016
Download Admit Card	24th March,2016	12th May,2016
EAT and PI	29th - 31st March,2016	18th - 20th May,2016

	Test Date	For more details Visit:-
MAT	7th Feb & 13th Feb 2016 May 2016 (date will be announced later)	www.aima.in
ATMA	14th Feb 2016 22nd May 2016 24th July 2016	www.atmaaims.com
CMAT	17th Jan 2016	www.aicte-cmat.in/College/Index_New.aspx

Source: Programme Brochure and EDI Website (05.01.2016)