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February 4, 2011

Pareto

EAC analyses National Food Security Bill
Twenty-two percent of India’s population is undernourished. The National Family Health Survey (2005-06) shows that 40 percent of children under the age of three are underweight, 33 percent of women in the age group of 15-49 years have a body mass index below normal, and 79 percent of children in the age group of 6-35 months are anaemic.
To address these deficiencies, the National Advisory Council (NAC) has proposed a National Food Security Bill (NFSB). If passed, it will become a legal responsibility on part of the government to provide subsidised foodgrains for at least 75 percent of the country’s population—90 percent in rural areas and 50 percent in urban segments. The NFSB will be implemented in two phases ending in 2014.
The NAC had asked the Prime Minister’s Economic Advisory Council (EAC) to review the proposed NFSB. The EAC found that, the NFSB underestimates the demand for foodgrains and provided two alternative scenarios that show additional demand. I noted that foodgrain production is going to fall short of the expected demand, and if the monsoons were deficient, the situation could become worse. Third, that the cost of the subsidy has been underestimated.
The EAC has proposed an alternative solution, which will cause the demand and supply situation to improve, but continue to present the need for subsidies. While the scheme is based on noble intentions, the possibility and degree of success is questionable.

Transport economics
B SUDHAKARA REDDY and P BALACHANDRA of IGIDR show the choices of transportation in 23 Indian cities with populations over a million each in their paper, “Dynamics of Urban Mobility: A Comparative analysis of megacities of India”.
Although the paper focuses primarily on motorised mobility, it helps to understand the relationship between vehicle population, pollution, mobility (private and public) and urbanisation:
In Mega cities, energy usage is the lowest in Mumbai and Kolkata because of their efficient public transport systems. Chennai has improved its public transport system. Delhi has highest number of vehicles and also consumes most energy, but this should decline in the future because of the Delhi Metro.

Smaller cities like Ludhiana and Surat have even higher energy consumption than Delhi, due to the lack of public transportation and increase in personal vehicles.

There is a dangerous trend towards increased use of personal transport in all cities, which has led to higher energy requirements and carbon emissions in the country as a whole.

The authors suggest three options to prevent this rise in private transport—first, develop and promote the use of public transport and non-motorised vehicles like cycles. Second, increase taxes on personal vehicles; and third, impose a tax on cars entering the city during peak hours, as in London.

Population ageing
KIYOHIKO NISHIMURA of the Bank of Japan questions the pace of economic recovery in the coming years in “This Time May Truly Be Different: Balance Sheet Adjustment under Population Ageing” (2011). He points out that the Japanese crisis in the 1990s and the developed economies’ crisis in 2007 occurred at a time when their population was ageing. Japan’s ratio of senior citizens peaked around 1990 and the bubble burst in 1991. The United States’ ratio peaked between 2005 and 2010 and the crisis started in 2007. Euro-zone troubled countries show a similar pattern. All these economies also had high leverage before the crisis.
The above data implies that recovery from the crisis will be slow and prolonged. With a younger population one can expect continued spending and investing, which in turn will lead to recovery. But with an ageing population, saving is accorded top priority. Furthermore, in previous recessions, economic activity did not decline, and recovery was faster. But in Japan, crisis recovery was slow and painful—and similar signs are now being seen in the United States as well.
This mix of demographics with economics leads to three issues: decline in mobility, loss of human capital and financial intermediation. Together these three factors lead to a decline in growth prospects, due to which the government gets trapped in a vicious debt spiral. Nishimura wraps up by saying that most crises show they were not different from previous ones. This one, however, could be different as it requires acute balance sheet adjustments when population is ageing.

Textbook economics
JANE LOPUS and LYNN PARINGER have an interesting paper titled “The Principles of Economics Textbooks”, which analyses the market for economics textbooks. The previous research on the subject varies from an understanding of the impact of textbooks on economics learning, to criticism in the way these books are written and sold in the markets. For instance, Joseph Stiglitz in his 1988 paper said the textbook market was characterised by monopolistic competition with limited degree of innovation. He added that most books were clones of Samuelson’s, leading to standardization and stagnation.
The authors point to a variety of textbooks being written today. Some are general and others are specific on certain issues with differing levels of difficulty. The authors use electronic and print editions creatively. There are four main four main publishers of economics textbooks—Cengage Learning, Pearson Education, McGraw-Hill Irwin, and Worth—down from more than 10 publishers who were active 20 years ago. McGraw Hill, Pearson, and Cengage are the top three in terms of sales respectively. The authors then discuss key features of two textbooks—Mankiw and McConell et al. In their conclusion, the authors state that they expect to see an increase in demand for e-books in the coming years.

Amol Agrawal blogs at Mostly Economics


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