Curry Powder

I have always had a tough time explaining to people outside India that there is nothing called as 'the Indian Curry Powder'.

This link gives an apt description of why so!

Walmart in India-Some more thoughts

I need to qualify my conclusions in the earlier post. There is a possibility that Walmart may not be just another supermarket, where India's new rich shop,but will also be a recourse of cheap shopping for the lower income groups who currently shop at the smaller grocery stores.

Why do I change my stance? The answer lies in the shopping behavior of an average middle class family in India. The reason they shop in the small grocery stores (kirana dukan as called in Maharashtra) is not only because it is cheap but also because most of these stores provide a credit line to their customers. You shop for a month and clear your dues at the end of the month. At least that's how the kirana stores do business in most of the parts of my home state.

So it seems if Walmart is able to provide customers a credit line in some form or other, then it could potentially win over the customers who shop at kirana stores. There is still one problem though. Because of proximity to the customers and a personal relationship, it is easier for the kirana store to verify and monitor the credit standing of their customers. Therefore, a kirana store is able to provide credit to a customer who otherwise may find himself without any access to formal credit markets because of his income level. Walmart will have to rely on formal credit markets and still find a way to compete with the kirana stores in offering credit.

Thus, the key issue is whether Walmart will be ready to assume the credit risk to entice the common Indian consumer and change the retail market in India as it did in North America or be happy with a large market share in a still niche market. This indeed will be one of the key determinants of its success in India apart from the supply chain issues.



PS: So now you know why the supermarket on Sinhagad road in Pune closed down. It did not study its customers well. They were not only price sensitive but also credit constrained. Hence, reduction in price or other bundling strategies only worked to a certain extent. The business still remained with the kirana stores.

The Red Book!

History provides ample evidence that red books are important and this one certainly fits the bill. It is one of its kind and in some sense a handbook of a revolution. Yes guys, I am indeed talking about Ljunqvist & Sargent's (L-S) excursions in recursion!

However, its still a graduate text and hence by definition a badly written text. This fact has always puzzled me. We have fabulous books at the undergraduate level and I agree that they talk a lot. But sometimes stories are important and in subjects like economics, even more so. So what happens when the same author writes a graduate text? Does he not have the right incentives to write an equally accessible text? Or the only thing advanced about the advanced subject matter is the terseness and technique? Probably its the mix of the two factors.

The market is not that big for a graduate text and hence the returns only justify a minimal effort. However, if you read L-S you will find that some chapters are extremely well written. For example the initial chapter on Search theory as well as the one on Asset pricing read very well than other chapters. Coincidently, these chapters come somewhat straight away from Sargent's earlier book on Dynamic Macroeconomic Theory!

Apart form frequent changes in notation, there are some other glaring examples of poor instructional design. For example, the material in the chapter on economic growth has no relation with the problems at the end of the chapter. What do you think is the reason? They come from completely different sets of authors! So if you are hoping to get some idea about how to solve the problems by reading the chapter, forget it. You might be better off reading the solutions directly.

Well, no point in complaining too much. We don't have much choice when it comes to a PhD level Macro text based on microfoundations. Hence, even when we know that almost all monopolies suck, we have to patiently wait for a miracle in terms of a better competitor!

Steve Williamson's Macroeconomics

I have to admit that this indeed is a fabulous undergraduate macro text. As claimed it does reflect the current practice of macroeconomics or at least the most influential one. However, the following is worthwhile to note:

1. The most common example given by almost all advocates of RBC theory of business cycles of a shock to total productivity, the oil price shock of 1970, is also present in this book. While it is true that with an exception of one, all the recessions in US have been preceded by a sharp rise in energy prices, this should work as a change in relative price of an input and hence a movement along the production function and not as a shift in it. However, even if we accept that the increase in energy prices does work as a productivity shock we cannot ignore the fact that most of the empirical studies place the contribution of energy prices to business cycles between 8 t 18 %, which is not a very significant, let alone a major one! ( Stadler 1994). This is not withstanding the fact that for technology shocks themselves to contribute to cycles, they should contribute at laest 78% to the shocks according to Aiyagari (1994).
2. I still have difficult time understanding why various authors motivate the study of endogenous growth by mentioning the failure of Solow model's prediction about convergence of growth rates across countries, but failing to mention that Robert Solow himself never intended his model to be used in that way, Easterly (2001, pp.55). Solow wrote his model on the backdrop of what is called as capital fundamentalism, a belief which postulates economic growth as a function of availability of machines per worker. He intended to show that this belief is wrong and hence capital accumulation does not cause growth in Solow model but some exogenous factor called technology does. The insight comes from the simple yet powerful logic of diminishing returns to a factor. When applied to cross country comparison of growth rates, economists extended the logic of the Solow model by assuming that, at least in principle, all countries have access to the same technology. Then, the only reason that countries, for example the tropics, did not catch up with the developed countries was lack of capital. But again the problem with this conclusion is that capital is not a very sizable factor in production. Therefore, if one wants to explain the differences in growth rates on the basis of availability of capital, then the conclusions are obviously absurd. As per the calculations of Lucas mentioned in Easterly (2001), each US worker for e.g. will have to have 900 times more machines than each Indian worker in order to explain the differences in their standard of living and thats clearly not the case.
   

All said and done, this book does a good job in presenting macro in a much clean and consistent way and avoids giving the feeling to the reader which, I got as an undergrad, that macro is a series of disconnected models with no relation to the micro behavior.


References:

Aiyagari R S (1994), On the Contribution of Technology Shocks to Business Cycles, Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 18, No.1, pp.22-34.

Easterly William (2001), The Elusive Quest for Growth, The MIT Press.

Stadler George W (1994), Real Business Cycles, Journal of Economic Literature, Vol. XXXII, pp. 1750-1783.

Williamson Stephen D (2007), Macroeconomics, Third Edition, Pearson.

S. Rao Aiyagari

This guy did some exciting work in incomplete markets among host of other issues. Unfortunately, he died very early. This is a write up by Neil Wallace on him which appeared in the Federal Reserve Bank of Minneapolis Review. It also lists most of the work done by Rao. You can also find his work here.

Walmart in India

Last time I checked Walmart is still going good on its India plans! So the question becomes imprtant. Will Walmart kill all the small retailers as it did in the North America? If you ask me I dont think so. People thought the same thing when retail chains like Sam's or Food Bazaar cropped up all over India. They said now thats the end of small retailers, at least in urban India. But it turns out thats not the case.
For example, Sam's Food or the ealrier Food World opened on a road populated by middle and lower middle income groups in Pune. Its venture lasted about an year and then it had to vaccate the premises. On some other road with better income households, all the old retailers are still in business along with Sam's food.
One might argue that Walmart's model is different than the exisiting supermarket chains. Its about lower price every day and squeezing costs. However, was it not the case even with McDonalds? Did all the Vada-pav and other small time food vendors go out of the market? Definitely not.
Infact what happened was more interesting. McDonalds, which essentially caters to middle and lower income households in North America, is a fun place to be in for families, kids to collegians in India. When it opened shop in Pune, people dressed up and stood in a line to get a bite of Indianised burgers and other food stuff!
So if Walmart opens shop in India who will go there? Ofcourse people who currently shop in Supermarkets and no small retailer will go out of business.
I agree this is arguement by analogy and hence may or may not hold. However, it seems to be the most likely thing to happen, unless Walmarts revolutionizes the the whole supplty chain. For example if it decides to directly contract with farmers for vegetables and supplying food grains it might be able to lower the prices. But to the extent that families do not care about a few pebbles in the bag of rice from the retailer below the apartment building, Walmart still faces a huge challenge. The prices of Walmart will have to be sufficiently lower to lure the customers who do not value mild variations in quality or are price sensitive.
And then there is this whole issue of how people shop in different societies. Buying behavior in North America is completely different than in India. Will this have any bearing on Walmart's business prospects?
Well some more thoughts on this later! In the meanwhile if you think of some thing feel free to comment.

Swastika!

It was a touching and yet a clichéd moment on the latest Gray's Anatomy. A patient refused to be examined by a lady doctor and when a male doctor offers to help, again says no. So it turns out that the patient being a perfect racist refuses to be examined both by the initial female and male doctors because they were black! Finally he has to put up with the black lady doctor and while performing the surgery she makes an incision running across the 'swastika' that the guy has tattooed on his abdomen. Now thats what I am talking about. Ain't it a fabulous token gesture?

Jokes apart and though I would love to see such parochial attitudes marginalized, it is surprising to see how one man can completely twist the meaning and significance of a symbol!

'Swastika' is an Indian symbol (I am told that most of the ancient societies had some version of this symbol) and represents well being and auspiciousness in every day Hindu life. Many houses will have it placed on the threshold of their house in some from or the other. So as much as I hate what Hitler and folks did to the Jews, I hate to see the symbol of auspiciousness mutilated to represent utter disgust and hate.

What is actually more disturbing is that the pairing of Swastika with hatred in peoples mind in this part of the world is so strong, that it almost never seems to occur to anyone that believing in such association may hurt some other societies at the same time. Every time you associate Swastika with hatred you disregard the existence of a belief of almost a billion people in country called India!

So whats the solution? People need to be educated and the concerned activists and the press should refrain from stereotyping things. If you find this difficult and implausible at least call it by its German name dammit!