Recent comments by PROCYON MUKHERJEE

• What Use Are Economists?

  When the purpose of belief is to further the cause of advancement in the academia and if that could be done by selective use of data with a mix of bias, we have the current milieu of Economists mired in controversy.
  
  Bartley’s immortal book, “The Retreat to Commitment” holds some glaring examples as to the nature of the question of dilemma of ultimate commitment. The biggest impediment to any free thinking is the ‘belief’ embedded in the mind itself, before any hypothesis is even formed through observation or data gathering. On the contrary some of these beliefs tend to influence the very hypothesis and the gathering of instances or data that would later prove the hypothesis itself.

• The Japanese Experiment

  The Japanese problem cannot be replicated with the problem in U.S., where wealth effects on consumption has not been studied as is the case with U.S.
  
  In the seminal NBER Working paper, WEALTH EFFECTS REVISITED:1975-2012 by Karl E. Case, John M. Quigley & Robert J. Shiller, we have seen a startling conclusion, “The housing wealth elasticity in a falling market is estimated to be about 0.10 and in a rising market about 0.032. the effect of increases in housing market wealth upon consumption is positive and significant; the effect of decreases in housing market wealth upon consumption is negative and is also significantly larger. The statistical models also report a relationship between increases in stock market wealth and increases in consumption, and a larger relationship between decreases in stock market wealth and decreases in consumption. Changes in
  housing values continue to exert a larger and more important impact upon household consumption than do changes in stock market values.”
  
  This is actually an endorsement of Prospect Theory by Kahnemann and Tversky, where they had shown that home sellers behave differently in reaction to declines in home prices, than in reaction to increases and the same is also true in the case of equities.
  
  QE3, while it has helped to inflate financial assets, may not be having the same wealth effects on consumption as before as consumers may be cautious, stemming from their earlier experience on ‘asset bubbles’, to still anchor on a lower wealth elasticity in rising market than 0.032, which means for every rise in $1 wealth the consumption would alter by less than 3.2 cents.
  
  This is precisely the reason that $85 Billion of monetary stimulus per month is translating to less than 200,000 of new job additions per month ($500,000 of marginal cost per job) in U.S.
  
  This issue is less predominant in Japan, both in terms of unemployment as a problem and also the anchoring effect.

• Controlling China’s Currency

  An excellent article with a lot of information and if we are discussing financial deepening then China has surpassed all the developed world quite surprisingly, but all for good reasons. Financial depth, approximated by private credit to GDP, has a strong statistical link to long-term economic growth; it is also closely linked to poverty reduction. China’s size of the economy is growing at close to $900 Billion in PPP terms every year compared to $350 Billion for U.S. This needs a growth in M2, which would be quite disproportionate as China does not enjoy the market based nature of financial markets as in U.S.

• A Fateful Mistake

  A very caustic comment: "Researchers are tempted by persuasive results that can attract the interest of policymakers, who are tempted by a selective reading of the evidence that can provide them with ammunition in domestic and international debate."
  
  R&R's 90% threshold acted like an 'availability heuristic' regardless of conditions of economies across the globe in form of generalizations. How can U.S. economy be at all compared with European conditions, where no country can keep printing money and do any amount of monetary release?
  

• Why India Slowed

  Institutional intransigence, coupled with the polity's lack of concern to arrive at solutions that must bury the moral divide when it comes to the vital elements of country's progress, gets the better of priorities in the public arena.
  
  The permits needed to make a proposal move from the Environment and Forest Department through an environment clearance and consent to establish and operate is a five to eight year affair if a forest is remotely involved and the conditions that are put after a clearance is given are sometimes so difficult to implement that it feels like it is better not to expand any operation.The fundamental problem then starts through land acquisition as for any growth whether it is Coal mining or infrastructure development, the incremental piece of land is just not available as the norms for making it available at a price is non-existent. Even if an industry gets a piece of land, it is not certain whether it could be put to any use as the people around that land (may not be remotely connected) would have to be appeased and till their demands are met the land cannot be even demarcated. The machinery around government land acquisition (the levers start to act from government councils at the State levels to the district levels) have perverse incentives that delay the process through upper-division and lower division clerks and any file would need to touch anything between twelve to twenty touch points, before it gets to the district level where the Collector, Sub-Collector, Additional District Magistrate, Land acquisition officer, revenue inspector, Tausildar and the Land demarcation officer are waiting to act till it progresses for registration.
  
  The rehabilitation package even after the government machinery has stepped in would never be enough and there is hardly any way one can ensure that the 'final' word on this is ever made. The process goes on and on...
  
  Big projects in India take more than a decade to move, if one is found to be shorter from concept to final output, it is due to sheer luck (not preparation meeting opportunity, but simply accident).