Weekend reading links

1. Interesting paper (HT: Marginal Revolution) on the origins, research focus, and destinations of the most sought after junior economists (or 'stars', as reflected in the numbers of job flouts received) by US universities. The results,

We construct a data set of job flyouts for junior economists between 2013 and 2018 to investigate three aspects of the market for “stars.” First, what is the background of students who become stars? Second, what type of research does the top of the market demand? Third, where do these students take jobs? Among other results, we show that stars are more likely to be international and male than PhDs overall, that theoretical and semi-theoretical approaches remain dominant, that American programs both produce the most stars and hire even more, that almost none are hired by the private sector, and that there is a strong shift toward having pre-PhD full-time academic research jobs.

Interesting that Indians don't figure closer to the top of origin countries. Surprising that Germany is second, Argentina, Chile and Iran figure very high.

Interesting also that history and political economy are among the least preferred areas of research.

2. Harley Davidson appears set to pull the plug and exit India. The brand sold less than 2500 bikes in India last year. Someone should do a story on how the foreign luxury brands are doing in India. It would be a good proxy for the size of the Indian upper income class. 

3. Ruchir Sharma writes about the growing importance of multimedia gaming industry, which is a $160 bn market and is bigger than books, music, and movies. This is an interesting snippet,

The Chinese tech giant Tencent, for instance, holds a stake in the companies behind seven of the 10 top-grossing games since 2008, including Epic.

4. As the RBI initiates its latest Covid induced bank loan restructuring program, Tamal Bandopadhyay has a good summary of all such efforts since 2001. The summary of the latest plan, involving a Committee of five headed by Mr KV Kamath,

Those accounts, which had been in default for not more than 30 days as on March 1, 2020, can be restructured if the borrowers are unable to service them because of their businesses being affected by the Covid-19 pandemic. The loans can be restructured, among others, by funding interest, converting part of debt into equity and giving the borrowers more time to pay up. The banks must disclose such recast and set aside 10 per cent of the exposure to make provision for the restructured loans. In June 2019, the RBI had framed norms for loan restructuring, making it mandatory for banks to treat restructured, stressed loans as sub-standard unless there was a change in ownership of the borrowing company. Now, the banks can treat the restructured loans for Covid-19-affected companies as a standard asset even if there is no change in ownership.

He suggests that the guidelines evolved by the Committee may have to be dynamic, evolving over time in response to emergent economic situation.

5. Harish Damodaran makes all the right points about the problems facing the Indian economy. The need of the hour is demand creation, on both the household and business sides.  

6. Ashok Gulati makes very good suggestions about the implementation of the newly announced Rs 1 lakh Crore Agriculture Infrastructure Fund (AIF). The details of the Fund, 

This fund will be used to build post-harvest storage and processing facilities, largely anchored at the Farmer Producer Organisations (FPOs), but can also be availed by individual entrepreneurs. The fund will also be used to provide loans, at concessional rates, to FPOs and other entrepreneurs through primary agriculture credit societies (PACs). NABARD will steer this initiative in association with the Ministry of Agriculture and Farmers Welfare. The implication of this for the Central government budget is not going to be more than Rs 5,000 crore over four years in terms of interest subvention subsidy.

This complements the direction to NABARD to create 10,000 FPOs. He makes this point about enablers to make the storage construction viable for FPOs and its use so for farmers,

But small farmers cannot hold stocks for long as they have urgent cash needs to meet family expenditures. Therefore, the value of the storage facilities at the FPO level could be enhanced by a negotiable warehouse receipt system: FPOs can give an advance to farmers, say 75-80 per cent of the value of their produce at the current market price. But FPOs will need large working capital to give advances to farmers against their produce as collateral. Unless NABARD ensures that FPOs get their working capital at interest rates of 4 to 7 per cent — like farmers get for crop loans — the mere creation of storage facilities will not be enough to benefit farmers. Currently, most FPOs get a large chunk of their loans for working capital from microfinance institutions at rates ranging from 18-22 per cent per annum. At such rates, stocking is not economically viable unless the off-season prices are substantially higher than the prices at harvest time.

Finally, he offers three suggestions to catalyse market in agriculture futures so as to link the storage with the markets and minimise the risks faced by FPOs sitting on large storage volumes, effectively securitising them,

First, as NABARD forms 10,000 FPOs and creates basic storage facilities through the AIF, it should devise a compulsory module that trains FPOs to use the negotiable warehouse receipt system and navigate the realm of agri-futures to hedge their market risks. Second, government agencies dabbling in commodity markets — the Food Corporation of India (FCI), National Agricultural Cooperative Marketing Federation of India (NAFED), State Trading Corporation (STC) — should increase their participation in agri-futures. That is how China deepened its agri-futures markets. Third, the banks that give loans to FPOs and traders should also participate in commodity futures as “re-insurers” of sorts for the healthy growth of agri-markets. Finally, government policy has to be more stable and market friendly. In the past, it has been too restrictive and unpredictable. A rise in agri-prices would often result in the banning of agri-futures. Most Indian policymakers look at agri-future markets as dens of speculators.

7. Shuli Ren points to the secret to investing in Chinese stocks - look for those which enjoy state support, in particular ones which are being promoted as part of Xi Jinping's Made in China 2025 and other technology initiatives.

8. The weak recovery of formal sector salaried, mostly urban, jobs appears to be a matter of concern for the Indian economy.

Non-salaried forms of employment have increased from 317.6 million in 2019-20 to 325.6 million in July 2020. This implies a growth of nearly 8 million jobs or an increase of 2.5 per cent in informal employment. However, salaried jobs have declined by 18.9 million by the same comparison. Or, declined by a whopping 22 per cent during the lockdown.

This is a good summary of the Q1 2020-21 economic indicators by AK Bhattacharya.

9. Impact of Covid on inequality in the US,

86 percent of the US jobs that are vulnerable to pay cuts, lost hours, and layoffs are held by workers earning less than $40,000 a year. People of color and less-educated workers disproportionately work in those occupations. In contrast, only 1 percent of jobs paying more than $70,000 and 13 percent of those paying between $40,000 and $70,000 a year are vulnerable to layoffs, furloughs, and reduced hours. Additionally, 40 percent of the revenues of Black-owned businesses are generated in the five most vulnerable sectors, compared with 25 percent of the revenues of all US businesses.

10. Mariaflavia Harari has a very good paper which uses spatial and demographic data from 350 Indian cities over the 1950-2010 period to empirically establish certain well known arguments in urban development,

Bad shape is associated with shorter total length of roads and motorways. A one standard deviation in normalized shape (approximately 360 additional meters) is associated with a 6 percent shorter road network... I consider the clustering of firms within cities and show that disconnected cities do not have more dispersed employment... poor shapes are associated with longer commutes by car and shorter commutes on foot... I show that cities with less compact shapes have overall fewer slum dwellers, both in absolute terms and relative to total population... A one standard deviation increase in FARs (0.6) is associated with an absolute reduction in the shape index of roughly 1 kilometer for each percent increase in projected population. In other words, higher FARs may slow down the deterioration in city shape that fast city growth entails: if growing and topographically constrained cities are allowed to grow vertically, they will not expand horizontally as much and will plausibly remain more compact.

This is perhaps the first detailed and rigorous empirical study on these trends in Indian cities. All the data have been available for a long time. Makes one wonder why no Indian researchers have not explored and published on this.

11. A richly educative interview of Amartya Sen by Angus Deaton and Tim Besley. The interview is a brilliant exposition of the origins and struggles of welfare economics over the last half-century or so. Sen is clearly a brilliant mind, a master who learnt from the masters. The sheer range of engagement - economics, politics, philosophy, and history - is remarkable for a rime when the economics profession elevates purely instrumental field experiments and data analytics to the top of its knowledge hierarchy. Apart from the French economists, hardly any of the major names of this generation have any deep cross-disciplinary understanding of the pursuit of "the business of everyday life". 

12. France is known for the elitism of its higher education institutions and access to the highest levels of government. 

France’s grandes écoles, prestigious public universities... are at the heart of the tensions between the country’s universalist meritocratic ideals and the schools’ creation of a self-perpetuating, predominantly white elite that excludes many students from the provinces and France’s banlieues, suburbs with high concentrations of immigrant communities. France’s grandes écoles are far more powerful than the Ivy League, or even Britain’s Oxford and Cambridge. They were founded as free, publicly funded postgraduate schools designed to train the functionaries who would run France, and for years they have had a solid monopoly on all French systems of power, educating presidents, lawmakers, and the heads of major state institutions and corporations... In theory, access to the grandes écoles is based on an entrance exam for which anyone can apply. In practice, the test is so difficult that most aspiring students spend several years studying for it in special preparatory schools, many of which are private and costly by French standards. As a result, the majority of students who gain entrance come from a handful of the country’s best high schools and preparatory programs. Even the gatekeepers have gatekeepers. The entrance exams themselves are not simply written affairs or multiple-choice tests, but involve oral exams in which a faculty jury asks prospective students to speak with fluency on a range of topics—more like the bar exam than the SAT.

13. Much has been written about the fee gouging in private equity and hedge fund industries. Here comes a new paper which finds that investors collected just 36% of the returns on their invested capital.

We study the long-run outcomes associated with hedge funds' compensation structure. Over a 22-year period, the aggregate effective incentive fee rate is 2.5 times the average contractual rate (i.e., around 50% instead of 20%). Overall, investors collected 36 cents for every dollar earned on their invested capital (over a risk-free hurdle rate and before adjusting for any risk). In the cross-section of funds, there is a substantial disconnect between lifetime performance and incentive fees earned. These poor outcomes stem from the asymmetry of the performance contract, investors' return-chasing behavior, and underwater fund closures.

14. More on the reverse flow of Malayali migrants from Gulf back to home from Nidheesh MK.

15. Finally, Ananth sends me an illuminating set of graphics from EPI that highlight the problems that US pension plans and pensioners will face in the years ahead.

For most age-groups, median retirement savings account balances were lower in 2016 than at the beginning of the millennium.

Almost nine in 10 families in the top income fifth had savings in retirement accounts in 2016, compared with about one in eight families in the bottom income fifth.

The summary,

The trends exhibited in these figures paint a picture of increasingly inadequate retirement savings for successive generations of Americans—and large disparities by income, race, ethnicity, education, and marital status... Decades after the number of active participants in 401(k)-style plans edged out those in traditional pensions, 401(k)s are not delivering substantial income in retirement, and that income is not equally shared. The shift from pensions to account-type savings plans has been a disaster for lower-income, black, Hispanic, non-college-educated, and single workers, who together add up to a majority of the American population... The evidence presented in this chartbook—that the retirement system does not work for most workers—underscores the importance of preserving and expanding Social Security, defending defined benefit pensions for workers who have them, and seeking new solutions for those who do not.

This is one more example of how orthodoxies in economics (shift to market-based pensions for everyone at the cost of social security) have had very bad consequences (here, the consequences will be felt in the years ahead).