Weekend Reading Links

1. The investment revival cycle for the Indian economy may be years, not quarters, away.

2. Gentrification is a massive problem in cities across the world, especially in developing economies, where housing is already unaffordable to all but those at the very top of the income ladder. NYT supports Mayor Bill de Blasio's affordable housing plan in New York which aims to build or preserve 200,000 affordable apartments. It is part of a proposal to rezone 15 large areas across the city so as to allow developers to put up taller buildings in return for mandatory affordable housing mandates. Cities in countries like India have to necessarily build in and ensure compliance with similar mandates in urban renewal projects.

3. The release of Robert Gordon's book has coincided with a surge in literature that appears to validate the hypothesis of a productivity slowdown. Opponents of the view argue that the measured annual labor productivity growth of 1.3% since 2005, compared to 2.8% in preceding 10 years, is due to mismeasurement of the consumer surplus due to social media and advances in information and communications technology. Chad Syverson refutes this argument,

I conduct four disparate analyses, each of which offers empirical challenges to this “mismeasurement hypothesis.” First, the productivity slowdown has occurred in dozens of countries, and its size is unrelated to measures of the countries’ consumption or production intensities of information and communication technologies (ICTs, the type of goods most often cited as sources of mismeasurement). Second, estimates from the existing research literature of the surplus created by internet-linked digital technologies fall far short of the $2.7 trillion or more of “missing output” resulting from the productivity growth slowdown. The largest—by some distance—is less than one-third of the purportedly mismeasured GDP. Third, if measurement problems were to account for even a modest share of this missing output, the properly measured output and productivity growth rates of industries that produce and service ICTs would have to have been multiples of their measured growth in the data. Fourth, while measured gross domestic income has been on average higher than measured gross domestic product since 2004—perhaps indicating workers are being paid to make products that are given away for free or at highly discounted prices—this trend actually began before the productivity slowdown and moreover reflects unusually high capital income rather than labor income (i.e., profits are unusually high). In combination, these complementary facets of evidence suggest that the reasonable prima facie case for the mismeasurement hypothesis faces real hurdles when confronted with the data.

4. Guess, which is the most protectionist country in the world, in terms of implementation of discriminatory trade measures in the 2008-15 period.

5. Greg Ip has a nice article that makes out the cases that higher capital ratios and greater certainty in the resolution process (through 'living wills') have considerably reduced the TBTF risks and the need to break up large banks.

6. China is exploring the resolution of bad assets on its bank balance sheets through various strategies. Something India should keep a close eye on.

7. Martin Wolf points to a presentation by Andrew Haldane on the effect of technology in the financial services sector. In particular, despite introduction of advanced technologies, the unit cost of financial inermediation has remained more or less stationary.

Globally banks still generate 40% of their revenues, or $1.7 trillion, from making payments. This is likely to be disrupted by the emergence of 'block-chain' technologies involving distributed ledgers which allow for real-time settlements. This, coupled with peer-to-peer services rasies existential questions for traditional banking services.

8. Block-chain technology, which is a sort of peer-to-peer system of running a currency, "is presented as a piece of innovation on a par with the introduction of limited liability for corporations, or private property rights, or the internet itself". Its ledger/database is distributed and can be downloaded, and are protected by clever cryptography.

9. Container shipping capacity which has doubled since 2000 may have reached "peak capacity". The current largest ship, the Mediterranean Shipping Company's Oscar class introduced in 2015 is 395 m long, 59 m wide, and carries 19,224 TEUs of containers. 

It is now felt that any gains in shipping from capacity expansion would be offset by the prohibitive costs of port logistics - handling, dredging, and congestion arising from handling such large loads of multiple ships simultaneously.