Arvind Subramanian is pessimistic about Indian growth prospects

“The Indian state is increasingly unable to provide a range of basic services: health, education, physical security, rule of law, water and sanitation. The writ of the Indian state, for example, covers only about 80% of India, with the tribal belt essentially contested by Maoist insurgents. The private sector can substitute for some of these deficiencies but never completely. – In the long run, growth is determined by effective state capacity: that is India’s weakness compared with China.”

Here is more, in the form of a debate.  Hat tip goes to Tom Murphy.

What I’ve been reading

Roderick Floud, An Economic History of the English Garden.  Every page of this book does indeed have economics.  It just does not have interesting economics.  Which may mean that gardens are not so interesting from an economic point of view.  Which in turn would make this a good book.  But not an interesting book.

Ajantha Subramanian, The Caste of Merit: Engineering Education in India.  A critique of casteism and growing inequality, this book also doubles as a fascinating history of IIT.  Best read in Straussian fashion as a sympathetic story of origins.

Dana Thomas, Fashionopolis: The Price of Fast Fashion & The Future of Clothes.  Some parts of this book have bad economics and extreme mood affiliation, but in general it has more actual information than other books on the same topic and at times the author makes decent external cost arguments against the current system of clothes production.  So a qualified recommendation, at least I am glad I read it, even though some parts are obviously too sloppy.

Razeen Sally, Return to Sri Lanka: Travels in a Paradoxical Island.  People do not think enough about Sri Lanka, including in the social sciences!  It is a richer and nicer country than what most people are expecting, and it is good for studying both conflict and ethnic tensions.  This memoir — information rich rather than just blather — is one good place to get you started.

David Goldblatt, The Age of Football: The Global Game in the Twenty-First Century.  Football meaning soccer of course, this book covers how soccer interacts with politics in many particular countries, including Africa, and just how much the game has grown in global markets.  Mostly informative, good if you wish to read a book about this topic (I don’t).

Conversations with Zizek.  Maybe the best introduction to why Žižek is a richer thinker than his critics allege?  The book serves up insights on a consistent basis, and there is a minimum of jargon.  Marcus Pound had a good blurb: “Audacious and vertiginous, this book is everything one expects from him, a heady mix of psychoanalysis, politics, theology, philosophy, and cultural studies that will leave the reader both exhausted and exhilarated.”

Interstate trade is relatively high in India

The first-ever estimates for interstate trade flows indicate a trade to GDP ratio of about 54 per cent, a number that is comparable to other large jurisdictions and that contradicts the caricature of India as a barrier-riddled economy; the ratio of India’s internal and international trade also compares favourably with others.  De facto, at least, India seems well-integrated internally.  A more technical analysis confirms this: trade costs reduce trade by roughly the same extent in India as in other countries.

When it comes to internal trade, the big negative outlier is in fact Indonesia.

That is all from the new and interesting Of Counsel: The Challenges of the Modi-Jaitley Economy, by the excellent Arvind Subramanian.

Convergence, Big Time

In his influential 1997 paper, Divergence, Big Time, Lant Pritchett estimated:

…that from 1870 to 1990 the ratio of per capita incomes between the richest and the poorest countries increased by roughly a factor of five and that the difference in income between the richest country and all others has increased by an order of magnitude.

Pritchett was correct but Patel, Sandeful and Subramanian show that just where Pritchett’s study ended, convergence began!

While unconditional convergence was singularly absent in the past, there has been unconditional convergence, beginning (weakly) around 1990 and emphatically for the last two decades.

The figure above plots the coefficient (“beta”) from the plain vanilla unconditional convergence regression (relating average growth of real per capita GDP over the long run to its initial level). A statistically significant negative beta denotes convergence and divergence otherwise. Since we know from Johnson et al. (2013) that growth rates vary widely across datasets, we plot the annual betas for three such sets: the Penn World Tables (PWT), the World Development Indicators, and the Maddison Project (Bolt et al. 2014).[1] While the point estimates vary across datasets, the consistent pattern across them all is a statistically significant negative beta since around 1995 (unconditional convergence) and its lack prior to that (see also Roy, Kessler and Subramanian, 2016).

Our basic point doesn’t require regressions. Looking at the 43 countries the World Bank classified as “low income” in 1990, 65 percent have grown faster than the high-income average since 1990. The same is true for 82 percent of the 62 middle-income countries circa 1990.

Neo-liberalism has been incredibly successful, essentially delivering on all of its promises of economic growth, declines in poverty, and peace. Yet, the ideas behind what Andrei Shleifer called The Age of Milton Friedman are now under attack and in retreat.

Saturday assorted links

Wednesday assorted links

The culture and polity that is Singapore, strategic sand reserve edition

Lim had told me that Singapore holds a strategic sand reserve, for emergencies.  It lies somewhere near the area called Bedok, I said.  I spotted it one day as I rode past in a taxi.  The site was strewn with No Trespassing signs, installed by the Housing and Development Board, a government agency.  Fenced off from the public, the giant trapezoidal dunes shone bone-white in the sun and caramel in the shade, as the sand waited to be summoned.

That is from an excellent piece by Samanth Subramanian (NYT), about Singapore, land, and preparing for climate change.  The Singaporean constitution also devotes several pages to outlining how the government will manage its investments.

The Pathology of Domestic Aid

Arvind Subramanian, Chief Economic Adviser to the Government of India, and co-authors have a nice summary of the effect of internal domestic aid on governance (the longer version is a chapter in the excellent Indian Economic Survey.) The bottom line is this:

The evidence suggests that all the pathologies associated with foreign aid appear to manifest in the context of intra-country transfers too

In particular, using one measure of aid to states, Redistributive Resource Transfers or RRT the authors find:

rrtHigher RRT seem to be associated with:

  1. Lower per capita consumption
  2. Lower gross state domestic product (GSDP) growth
  3. Lower fiscal effort (defined as the share of own tax revenue in GSDP)
  4. Smaller share of manufacturing in GSDP, and
  5. Weaker governance.

Causality likely goes both ways of course but using an instrumental variable of distance to New Delhi (which correlates with transfers) the authors find suggestive evidence, as shown in the figure, that transfers are a cause of weaker governance.

It’s interesting to read an official government report which discusses instrumental variables!

India Fact of the Day

In India, for example, the number of taxpayers in relation to voters in the economy has been about 4-4.5% for a long time.

That is from an in-depth discussion about the Indian economy between Karthik Muralidharan and Arvind Subramanian (Chief Economic Adviser, Government of India). The reference is to income tax, of course. It’s a great discussion and the best place to begin if you want to understand the Indian economy today.

What’s the best sentence ever formed?

That was the topic of a recent Quora forum (by the way may I officially announce that Quora seems to have succeeded?  Would it be so bad to spend less time with your Google Reader and more time browsing Quora?), and here was the top pick:

“I do not know where family doctors acquired illegibly perplexing handwriting; nevertheless, extraordinary pharmaceutical intellectuality, counterbalancing indecipherability, transcendentalizes intercommunications’ incomprehensibleness.”

(Dmitri Borgmann, Language on Vacation: An Olio of Orthographical Oddities. Scribner, 1965)

This is a ‘rhopalic’ sentence: A sentence or a line of poetry in which each word contains one letter or one syllable more than the previous word.

File under “Very good sentences’!  If I understand the Quora system correctly, that was from Ramnath Ragunathan.

Nishit Jain has the runner-up:

Buffalo buffalo Buffalo buffalo buffalo buffalo Buffalo buffalo.

No, really. There’s a whole Wikipedia page on it – Buffalo buffalo Buffalo buffalo buffalo buffalo Buffalo buffalo

The sentence’s intended meaning becomes clearer when it’s understood that it uses the city of Buffalo, New York and the somewhat-uncommon verb “to buffalo” (meaning “to bully or intimidate”), and when the punctuation and grammar is expanded so that the sentence reads as follows: “Buffalo buffalo that Buffalo buffalo buffalo, buffalo Buffalo buffalo.” The meaning becomes even clearer when synonyms are used: “Buffalo-origin bison that other Buffalo bison intimidate, themselves bully Buffalo bison.”

The entire thread is worth reading, and in your spare time you can ponder why most of the best answers come from individuals with names from the subcontinent.  Here is the contribution of Veekas Shrivastava, listed as an elementary school chess player (retired):

A little grammar puzzle:

“that that is is that that is not is not that is it is it not”

Correctly punctuated: “That that is, is. That that is not, is not. That is it, is it not?”

Here is from Sugavanesh Balasubramanian:

“However, this valorous visitation of a by-gone vexation, stands vivified and has vowed to vanquish these venal and virulent vermin vanguarding vice and vouchsafing the violently vicious and voracious violation of volition.”

So there.

Assorted links

Assorted links

The Iceland dust-up

There has been enough coverage that I won’t summarize the entire debate, suffice to say that Krugman offered a picture like this:

Some writers from the CFR (I am not completely sure how to attribute authorship), offered this picture, along with some analysis and links (and further pictures).  The key point is that the second picture considers a longer time horizon, and all of a sudden the relative performance of the different countries has changed:

They argue that in this light, looking over the longer time horizon, the Icelandic story appears mediocre rather than impressive relative to some of the other small countries.  A few points:

1. Arvind Subramanian argues we should look at per capita growth and also PPP vs. market exchange rates, read here.

2. Arvind’s point aside, that the pictures give different impressions is more important than either picture taken alone.

3. The second picture brings value-added to the debate, and it suggests stories which the first picture taken alone does not.  I’ll come back to that.

4. The debates have mixed together a few different questions, such as “how well have the countries done?,” “how well have the countries’ policies done?,” and “should we be looking at both pictures?”  Since the answer to the first two is obviously agnostic — too soon to tell — I will focus on the last of these questions and the answer is yes, we definitely should be looking at both pictures.

Krugman’s response, once you get past the inappropriate insults, doesn’t serve up much.  He has arguments against the view “Don’t look at the first picture” but no good arguments against “Look at both pictures very carefully and integrate.”

Ryan Avent offers a more polite response here.  He focuses on convergence (maybe we should have expected the Baltics to have outperformed Iceland, so a tie means Krugman wins), but this estimate suggests the fixed exchange rate did not really cost the Baltics much in the way of convergence points.  In any case I fear the goalposts are being shifted and what we know about convergence and its speed is iffy anyway; for instance anyone worried about bad monetary policy, and opposing 1980s style RBC theories, should be a convergence pessimist for the short run.

Most importantly, there is still no argument against looking at both pictures in a serious way.

So what additional thoughts come to mind looking at the second picture, which you might not get so much from the first picture alone?  Here are two:

a. Some countries simply may be more volatile than others, and this may or may not have to do with their policy responses.  I’ll note Cowen’s Second Law, namely that there is a literature on this and the people who work in that literature consider this to be a plausible proposition (which does not mean it is here the operative explanation, however).

b. The size of an initial run-up, possibly bubbly at that, is correlated with the size of the later collapse and also the difficulty of recovering from that later large collapse.

There is a literature on that too, start here, it is not an absurd proposition by any means.

By the way, did I mention a 2009 IMF Staff Report which concluded that Latvian “output exceeded potential by 9 percent in 2007.”?  That supports the relevance of b) and possibly a) as well, and it discriminates against Krugman’s story of the peak being a point reattainable through policy management.

I take Krugman to be suggesting something like c): all the relevant information for understanding performance is contained in post-bust policy, so we needn’t look at earlier years and in fact doing so may mislead us.

Yet this attempts to pre-settle the dispute by putting all of the explanatory burden on post-crash policy.  In general commentators often overattribute results to policies and in any case we should not build in this bias a priori.

Are you a fan of Dani Rodrik’s “every country is different” hypothesis?  If so, you probably should think that both graphs are important.  Country characteristics don’t morph away overnight, so earlier data points should matter for understanding current policy results.

If we look carefully at both pictures, I say we still don’t know what is going on, but we do have a richer sense of the possibilities.

From now on these two pictures should be shown and considered together.

Assorted links

1. Relative Irish bond yields, read the comments also, more on Ireland, and more on Greek banks.

2. Is China’s dominance a sure thing? (pdf, and where does that seven percent growth assumption come from anyway?)

3. Is oil constraining economic growth?  And Richard Posner as pessimist.

4. Han Solo markets in everything (“The Empire will compensate you if he melts”)

5. Where did Einstein’s equation come from?

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