#86: caving in

Some people are born great, some become great, and some have greatness thrust upon them. I joined the ranks of the last, thanks to a doting aunt who broke down my resistance to owning an iPod. Technically I maintain that I stayed true to my resolve: I did not line the pockets of Steve Jobs. It was a gift.

It's all downhill from here; a downward spiral that creates a perpetual revenue stream out my meager earnings. First I'll need more memory on my computer to store the songs. Then I'll need to buy more songs to keep it from going stale. And then I'll start chasing a bigger iPod to store the new songs. The consumerist cycle has just begun. I better get used to this new diet.

#84: people power

The French TGV can chase records for the fastest train. We Indians will chart our own opposite course – literally moving iron-chariots with "people power". Not surprising though, it follows Ricardian trade theory – each country specialising and milking their comparative advantage, and using the relatively abundant resource to do so. And the notion of abundance takes a whole new perspective when describing India's teeming billions!

#75: europe stealing thunder

TGV, France set the world speed record for trains on wheels. At that speed, a trip from DC to NYC would take 35 minutes, not the 3.5 hours it takes for Acela! The Airbus A380 earned favourable reviews on its trial trips to the rest of the world (more on that some other day).

For the first time since WWI, market capitalisation in European stock markets exceeded that of their US couterparts. Even counterfeiters now prefer the Euro to the greenback US$.

Other than David Beckham's mega-million-dollar retirement plan, most "firsts" are being clocked east of "The Pond". Is Uncle Sam losing his edge?

#74: oscars gone green

An Inconvenient Truth made quite a splash at the Oscars this year. So did Gore and DiCaprio by proudly proclaiming that the show had gone green. Pardon my cynicism but that sounded like another "I invented the internet" claim. I found some clarity through Charles Krauthammer's usual ranting column.

It appears that the Academy neutralised the "carbon footprint" of the gala by buying carbon credits (aka paying a "carbon broker," who promised, after taking his cut, to reduce equivalent carbon emissions somewhere on the planet). And that would typically be a coal-fired power-plant somewhere half-way across the globe.

This appears to be a cost efficient solution, since coal-fired plants in China and India have the greatest potential to reduce carbon emissions. The marginal dollars ought to chase the highest marginal gains. Call it outsourcing or economic mumbo-jumbo, if you want.

But in turn, it creates a moral-hazard problem from an incentive mismatch. What dissuades an operator in China and India from starting up another sooty plant, in anticipation of the day another ex-Veep will trade a few more dollars for more carbon credits? The more he pollutes today the more he can earn from his credits tomorrow. And that beats the whole purpose, doesn't it? Any suggestions?

#72: lured by the price

I have always had trouble citing illustrations of the rare upward sloping demand curve. I'll never have the funds it takes to indulge in prestige goods that consumers aspire because of the price tag and nothing else. But now I can name two.

I came across a pair of jeans lebelled "R&R" and sporting an obscene price tag. It was just a pair of jeans, nothing remarkable, and slightly tattered if you ask me. But it was designed by an obscure Victoria Posh Beckham. The tag added "R&R means edgy progressive design with an emphasis on modern silhouettes .... designs for sexy confident men and women who live the lifestyle and really understand the look". Clearly I don't.

College education in US is the other illustration. The NY Times reported that some institutions raised their fee without changes to their curriculum or facilities. And the schools had more applicants knocking at their doors (many more than can be explained by trend factors). Potential students assumed the higher tuition as a signal that "they must be doing something right" and did not want to be left behind. Higher education is getting edgy too!

#58: nowhere left to hide

Sir Nicholas Stern, the ex-World Bank Chief Economist, presented his report on global warming to the top bosses of the British Government. How enlightened and in contrast to the initiatives (or the lack thereof) on the other side of the Atlantic: this was an honest effort to come to a true understanding about global warming. It chose a person untainted by lobbies and unfazed by the circus of claims and counter-claims of vested interests. Sir Nicholas is a hard-nosed economist; he's neither a bleeding-heart environmentalist, nor a corporate stooge. You couldn't seek any more credibility.

I have only read the highlights of his 600 page report. From all accounts, it is a thorough analysis – something we as students of Public Policy would be proud to produce. It is incisive, thoughtful, meticulous in details, and yet focussed on the overall picture. It lists out the possible future scenarios, and the impact of interventions, if any. It's a complete exercise, not some half-baked patch-up bureaucratic con-job.

So what did it conclude? That we are in grave danger. And that "staying the course" (paraphrasing a prominent head of state) is not really an option – not even in the short run.

Among the dire projections:

• 200 million people are at risk of being driven from their homes by flood or drought by 2050.
• 60 million Africans could be exposed to malaria in a world 2°C warmer.
• 4 billion people could suffer from water shortages if temperatures rise by 2°C.
• If nothing is done about global warming the world economy would shrink by up to 20%, that's US$ 2 trillion a year.
• Developing countries would, of course, be hardest hit with poverty increasing, disease spreading, trade worsening and hundreds of millions of people dying.
• Spending just 1% of GDP per year (US$ 90 billion annually) in an international effort could stabilise carbon emissions and reverse the alarming trend.

These results are significant for two reasons. First, it gives a concrete measure of the cost of "staying the course". Second, it calls the bluff on the argument that the costs of adjustment exceed the potential benefits. No. 2 trillion > 90 billion. And that's not even accounting for intangibles.

Sir Nicholas has done the math. It is up to the bosses (one in particular) to sit up and show some spine in taking on big businesses. Ironically, big businesses have begun voluntary adjustments – that is, excluding oil, gas, and auto industries.

#53: coffee, cocaine, currency

Who says Colombians and North Koreans don't love the US Administration? They adore US Presidents (the ones on the greenbacks), so much so that they "generate" their own. It's the same in so many parts of the world .... from the street corners in Kabul to Buenos Aires. 60% of dollar bills in circulation are outside US!

My friend Erin recently emailed .... "I'm in Beirut and my econ mind is racing. I wish I had time to do some research on the inflation and the extensive use of the US$ here. Things are so expensive! Change from meals or goods come back in US$".

But all is not hunky-dory. Currency forgers in Colombia have switched to faking Euros. If that's not an indictment of the current administration's economic policy, I don't know what is. The market is speaking loud and clear; the bosses at the Treasury are just not listening.

#49: a deserving recognition

This year the Nobel Peace Prize was awarded to Prof. Muhammad Yunus – the father and architect of informal microfinancing in Bangladesh through the Grameen Banks*. It's a richly deserved recognition for a number of reasons.

This could have been the Nobel Prize in Economics. It is development economics in practice – beyond the ivory towers of academia, beyond the hallowed portals of ivy league universities, and beyond the ceteris paribus of textbook models. This actually works. And it affects the lives of people who really matter, and not just those who spend a lifetime in the corridors of central banks in pin-striped suits. It has been a catalyst to the marginalised, the homeless, the disadvantaged, and the penniless to start a "life" they all deserve.

But as the Nobel Peace Prize it's a symbolic reminder that poverty, turmoil, and unrest form a vicious cycle. It takes ingenious initiatives to break out of this trap and remain out of it. "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime." The Grameen Bank has done just that. Congratulations.

* Grameen is "rural" in Bangla.

#47: viva free markets!

Thank goodness for the invisible hand of free markets. Else we'd be so lost! Whoever coined the phrase "market failure" did not foresee this .... I leave the suspense to the link.

#46: dr. phil of globalisation

Just when I thought Thomas Friedman had nothing meaningful to add on his pet topic, his op-ed today in the NY Times surprised me. I did learn something new .... that Indians have outsourced outsourcing. An amusing and interesting read (I did not say profound) .... worth the 120 seconds it'll take you.

Recently my school invited me to be a tour-guide for incoming students. The city being toured was not Delhi, or Mumbai, or Kolkata .... but Washington DC. Outsourcing!

#44: third world rising

The recent issue of The Economist reflects on the growth of the developing countries – it's implications for these countries, for the developed countries, and the world economic order that is being challenged everyday. See the linked article titled "The New Titans".

This report coincides with the World Bank-IMF Annual Meetings in Singapore. It is a timely reminder that all is not hunky-dory in the scheme of international trade, commerce, and economics. The institutions and norms are anachronistic; they reflect the world of 1940s in 2006. These systems have served us well for most of the last 60 years. But their relevance now is being hampered by their own structure.

In case you wonder "why should we care", it's because the globalised economy is growing faster – at rates unprecedented, outstripping even the industrial revolution, and affecting more people than ever before. Plus most of it is happening beyond the borders of the traditional power-houses. If these inequities and imbalances are not addressed now through a gradual adjustment process, the pains of unexpected upheavals and breakdowns in future may be catastrophic. We've all heard the word "contagion".
It is tough to make changes. The ones with power will resist any erosion. And those seeking greater prominence will always seek more. In the words of Bill Clinton, "It's a tough sell" on either side. But turning a blind eye and pushing it under the rug is not really an option. The article gives a fair evaluation of what's at stake.

#35: an unlikely source

Who gets your vote for bringing development: the World Bank or Wal-Mart? A year ago I was asked, "How could this evil corporate empire contribute to development"?

Michael Short evaluates Wal-Mart's impact on Chinese industrial workers – particularly on those who have seen their wages more than double. He states that such "successes" more than match the outcome of foreign aid or local finance, despite all the ills of corporate practices. Else why would anyone in China line up to work for Wal-Mart if there was something better knocking at the door. It is a compelling argument.

I abhor child-labour and their exploitation in any form and anywhere – from sowing fields to diamond mines. But the alternative for them may be markedly worse. When I see boys and girls who should be in school rather than engaged in odd jobs that earn them a pittance, I think of their desperation and the failure of the society. But I also consider the possibility that someone in that family might have a better chance because of their sacrifices. At least while they are working, they are not resorting to crime or other worse forms of exploitation, they aren't joining the swelling ranks of the unemployed. And they may not have to rummage through garbage for their next meal.

The solution may not be in banning Wal-Marts but in social change and civic engagement that creates norms, provides safety nets, and mitigates the gap between the haves and have-nots. That's a tall order.

#27: geeky economists

I have company, and a rather esteemed one at that. Greg Mankiw, Brad DeLong, Gary Becker, and I share two common interests. One is economics, and the other is that we all blog! Who could have thought of that from a bunch of wind-bags?

The Economist has an article in its recent issue aptly titled: "The invisible hand on the keyboard: Why do economists spend valuable time blogging?"

That's one cheeky way of joining their elite group. There is but a trivial (and annoying) difference. The others in the list are all world renowned academics, have already one Nobel Laureate among them, sell millions of copies of textbooks, and have meaningful musings about the world of economics that push the envelope of our understanding.

I am working towards getting there; it just might take me a lifetime.

#18: doha dumped

Another WTO Ministerial Meeting ended in a failure. Now begins the usual finger-pointing .... between US, EU, and the group of developing countries (led by Brazil and India) on who was the central culprit. But for now, and a long foreseeable future, the deal is as dead as it could be.

The Doha Development Agenda was amibitious, but it was overdue. Leaders preach that we are in this all together, and that the world's poorest have to be moved from the margins into the mainstream – if lasting peace and prosperity across the world is to be realised. But when it needs real action, old habits trump the politically-correct noises.

Trade negotiations are stalled by the misperception of a zero-sum game. It is the leaders' responsibility to educate the public (they do so very well when it serves their purposes of re-election). But the effort it takes to reach the tipping point of public opinion, and the political price it induces in the interim – is daunting to the most fearless of public officials. So we go through this recurrent charade of ministerial meetings. No one on any side has any conviction in their own bargaining position or that of the others. Should failures be surprising then?

I have heard two competing arguments. One that big changes occur in incremental steps. Even a faulty deal would be better than the "perfect solution". The other claims that a "no deal" is better than a faulty one. Frankly I find the latter a lame excuse. I doubt if there is an ideal solution out there just lurking for a eureka moment. These solutions don't "just happen". People, policies, markets, and economies adapt and respond to changing incentives and developments; they learn from experience and mistakes. Unless we begin somewhere how will we know what works and what does not?

We have lived the last 90 years in a relatively fragmented world. Disparities, volatility, tensions – they have all grown. The safety-first-and-last mindset will only exacerbate it. We do so at the peril of having more dissatisfied and disillutioned joining the margins of the society every day. And we know where their swelling ranks lead to ....