Author: Beyond Assumptions

Adam Smith was born in 1723 in Kirkcaldy, a seaport near Edinburgh in Scotland. Like many early economists, he wasn’t taught economics, instead he studied physics and mathematics at Glasgow University from 1737 to 1740.

Until 1746, Smith studied at Balliol College, Oxford University but didn’t enjoy his time at the university. In his words, “In the University of Oxford, the greater part of public professors have, for these years, given up altogether even the pretence of teaching.”

Afterwards, Smith returned to Scotland and gave a series of public lectures at Edinburgh University in 1748. It was there that he became friends with David Hume and his views on the ‘invisible hand’ started to form, which he later developed in ’The Wealth of Nations’.  Later, in 1759, ‘The Theory of Moral Sentiments’ was published, leading him to become a well known figure in the European Enlightenment.

In 1764, Smith was tempted to leave academia for a lucrative stint as private tutor to the third Duke of Baccleuch, who was the stepson of Charles Townshend, a politician. He accompanied the young duke for a two-year tour abroad, and spent 1764-66 in Paris, Toulouse and Geneva.

Despite his revolutionary work, Smith was very critical of his slow pace of writing. In 1785, he voiced his uncertainty regarding the task of finishing ‘Imitative Arts’. He had showcased his major work as a trilogy: Moral Sentiments, The wealth of Nations and a third book on Law and Jurisprudence, which was never written. Surprisingly, Smith insisted that his manuscripts should be burned after his death.  And on 17^th July 1790, Adam Smith left the world.

-Jyotsana Thareja

Abhijit Vinayak Banerjee, an Indian-born American Economist, found his way into the news headlines last year for being awarded with the Nobel Prize in Economics. 

He shared the 2019 Nobel Memorial Prize in Economic Sciences with Esther Duflo and Michael Kremer for helping to develop an innovative experimental approach to alleviating global poverty.

He is currently the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology. In 2003, he co-founded the Abdul Latif Jameel Poverty Action Lab with Esther Duflo and Sendhil Mullainathan, and he remains one of the Lab’s Directors. He is a past president of the Bureau for Research and Economic Analysis of Development, a Research Associate of the NBER (National bureau of Economic Research), a CEPR (Center for Economic and Policy Research) research fellow, an International Research Fellow of the Kiel Institute, a fellow of the American Academy of Arts and Sciences and the Econometric Society. 

He has been a Guggenheim Fellow, an Alfred P. Sloan Fellow and a winner of the Infosys Prize.

His work primarily focuses on development economics. Alongside his wife, Esther Duflo, he has discussed field experiments as an important methodology to discover causal relationships in economics. 

Abhijit Banerjee has also authored a large number of articles and four books, including Poor Economics, which won the Goldman Sachs Business Book of the Year, and Good Economics for Hard Times, both co-authored with Esther Duflo. He is the editor of three more books and has directed two documentary films. He has served on the U.N. Secretary-General’s High-level Panel of Eminent Persons on the Post-2015 Development Agenda. 

His work has led to successful public policy recommendations and transformed the field of development economics, where his approach and methods have become standard.

-Laisha Gambhir

John Maynard Keynes was a 20th century British economist, founder of Keynesian economics, who strongly advocated the need for government intervention in the capitalist economy, as a way to curb unemployment and resulting recession.

Keynes’s masterpiece titled “The General Theory of Employment, Interest and Money” gave the solution to the prolonged recession of 1930s known as Great Depression and propagated that government should intervene, in order to boost the market economy. The apostate that invisible hand would take the economy out of recession on its own was prevalent at that time and there was no need for any government action. Keynes, in contrast, argued that recession or depression was due to demand falling short of the productive capacity of the economy, and the remedy was to stimulate demand by some external factor. Real problem of unemployment lies in lack of demand, which was not taken into consideration by classical economists but it became the linchpin of Keynesians economic theory. Keynes’ emphasis was on how aggregate demand could be influenced by government spending and taxation in the economy in order to break the cycle of recession, restore growth and reduce unemployment. Keynes contended, then, that the appropriate fiscal policy, by running a budget deficit during periods of high unemployment, can counter recession.

The other key element of Keynesian economics was the phenomenon whereby a given changein government spending, causes a larger change in gross domestic product, which came to be known as the’ Multiplier effect’. Thus, increased government spending, on the other hand, would not only boost demand directly but would also set off a chain reaction of increased demand from workers and suppliers whose incomes would have been increased by the government’s expenditure.

Keynesian fiscal policy, the management of government spending and taxation with the objective of promoting maximum employment, production, and purchasing power, became the centerpiece of macroeconomics both in academic research and in the public debate over national policy. Thus Keynes revolutionized the way in which capitalist economies use to work and frame their macroeconomic policies.

Sources-

Click to access Chap11.pdf

John Maynard Keynes

-Kimpreet Kaur Walia

Robert Cox Merton is an American economist who won the 1997 Nobel Memorial Prize in Economic Sciences. Merton, along with Fisher Black and Myron Scholes is known for his pioneering contributions to continuous-time finance, especially the first continuous-time option pricing model, the Black–Scholes–Merton model.

Merton was born to father Robert K. Merton who was a member of the American Philosophical Society, the American Academy of Arts and Sciences and is also considered a founding father of modern sociology and a major contributor to criminology. He was born in 1944, New York City and grew up in Westchester County, New York. He has a Masters in Science from the California Institute of Technology, and a doctorate in economics from Massachusetts Institute of Technology (MIT), where he studied under the guidance of Paul Anthony Samuelson, the first American to win the Nobel Memorial Prize in Economic Sciences in 1970.

Merton’s research focuses on finance theory including lifecycle finance, optimal intertemporal portfolio selection, capital asset pricing, pricing of options, risky corporate debt, loan guarantees, and other complex derivative securities. In 1994, he along with Scholes and John W. Meriwether as key people founded LTCM (Long Term Capital Management), a hedge fund management firm but it collapsed in 1998 and lost $4.6 billion in less than four months following the 1997 Asian financial crisis and 1998 Russian financial crisis. His model still remains prevalent and influential. The BSM model is regarded as one of the best ways of determining the fair price of options. The model requires 5 variable inputs and also assumes that stock prices follow a log-normal distribution because asset prices cannot be negative. It is widely used today by investment bankers and hedge funds as the basis for hedging strategies.

-Shrey

Every economics major student is very much familiar with the infamous game theory. Do you know someone who won a Nobel Prize in Economics for his fundamental contribution to the field of game theory? The best part- the guy was a highly functioning mathematician with no major formal education in the field of economics. He was, what you call a sick psycho, suffering from schizophrenia, and was even admitted to mental hospital 9 times.

He is none other than the famous Princeton professor- John Nash. He resumed teaching after being hospitalized for a very long period of time and eventually made peace with his incurable disease. 

John Nash is the only person to be awarded both the Nobel Memorial Prize in Economic Sciences and the Abel Prize. His theories are widely used in economics

What’s interesting is that he got his doctorate under Albert B.Tucker, a Professor under whom Lloyd Stowell Shapley, another Nobel prize winning economist completed his doctorate.

Nash is the embodiment of the fact that one can overcome any obstacle in life. His struggles with his illness and his recovery became the basis for Sylvia Nasar’s biography, A Beautiful Mind, which was later adapted into a film of the same name.

Born                      June 13, 1928

                                 Bluefield, West Virginia, U.S.

Died                    May 23, 2015 (aged 86)

                                Monroe Townshi, Middlesex

                                County, New Jersey, U.S.

Education          • Carnegie Institute of 

                                  Technology B.S and M.S.

                                •  Princeton University Ph.D.

Known for          • Nash equilibrium

                                • Nash embedding theorem

                                • Nash functions

                                • Nash–Moser theorem

                                • Hilbert’s nineteenth problem

Awards               • John von Neumann Theory 

                                 Prize (1978)

                               • Nobel Memorial Prize in 

                                 Economic Sciences (1994)

                               • Member of the National 

                                 Academy of Sciences (1996)

                               • Abel Prize (2015)

Scientific career

Fields                    • Mathematics

                              • Economics

Institutions             • Massachusetts Institute of 

                                 Technology

                              •  Princeton University

Thesis                      Non-Cooperative Games

Doctoral advisor       Albert W. Tucker

-Yadu

An internet shutdown can be defined as an “intentional disruption of internet or electronic communications, rendering them inaccessible or effectively unusable, for a specific population or within a location, often to exert control over the flow of information.” They include blocks of social media platforms, and are also referred to as “blackouts,” or “kill switches”.

In ordering shutdowns, government authorities employ a range of tactics to support specific goals in a particular context like bandwidth throttling to slow internet access, or it may block specific apps and services, such as social media or messaging services. In 2018, only 77 out of 200 incidents of shutdowns were acknowledged by the government or entities that ordered the shutdowns. Also, many governments shut down the internet as a response to violence related to the spread of misinformation and disinformation. Governments continue using shutdowns in response to critical events like Elections, protests and to prevent cheating during examinations in school among many.

Countries like ours, which have laws that facilitate and legalize shutdowns, tend to order more shutdowns. India’s current regulations, allow temporary internet shutdowns for “public emergency” or “public safety.”

Most recently, with internet blackouts lasting for 4,196 hours in 2019, India has lost over $1.3 billion in economic terms. Since 2011, these disruptions cost the Indian economy approximately $3.04 billion in total. This includes approximately $2.37 billion from mobile internet loss and $678.4 from fixed- line internet shutdown. Besides the business aspect, these blackouts are a clear violation of Human Rights, considering this; the United Nations Human Rights Council passed a resolution on 1st July 2016, condemning network disruptions and measures reported by states to curb online access and/or dissemination of information. This resolution affirmed that rights in the online sphere, especially the right to freedom of expression require the same standard of protection as in the offline world. In response to the more frequent shutdowns in recent times, the #KeepItOn campaign unites and organizes the global effort to end internet shutdowns. The coalition is growing rapidly, and so far 191 organizations from 68 countries around the world, ranging from research centers to rights and advocacy groups, detection networks, foundations, and media organizations have joined the movement.

-Shrey

YES Bank was placed under moratorium till 3rd April this year as per the instructions by Reserve Bank of India and is also planned for restructuring because of remarkable fall in its stock price as well as huge number of Non- Profit Assets. Residence of its founder and CEO, Rana Kapoor was also raided as he is accused of money laundering and intentional involvement in DHFL fraud. It was also found that the bank was miscommunicating RBI regarding the number of NPA’s. The actual number was extremely high which was kept in disguise by bank authorities. The other official reasons of bank collapse include poor governance, false assurance, outflow of liquidity as well as no diverse structures for providing loans.

RBI placed a withdrawal cap of Rs 50,000 per account holder. RBI justifies this limit by saying that this limit will prevent huge withdrawals from the bank and give the bank essential time and liquidity to manage its unstable position. The Union Finance Minister too, assured the depositors that their money is safe with the bank. In reality, such withdrawal limitations have adverse impact on market confidence due to many reasons.

The first and the most obvious reason is that people get scared of the fact that only this limited portion of their hard- earned money will be given to them by the authorities. This leads to long queues outside ATM’s and people flooding their bank branches to withdraw Rs. 50,000. On the other hand, a statement wherein people are told that they can withdraw any amount of money at any time from their bank accounts gives them positive assurance regarding safety of their money. Therefore not everyone will stand in queues to withdraw their money out of their banks. Banks will get enough time to manage its crisis using depositors’ cash but such withdrawal caps afflict market confidence severely. This does not only lead to higher amount of withdrawals but also results in ever-increasing fall in share prices of Bank’s stocks.

Thus instead of placing these limitations on withdrawals, RBI and Ministry should emphasize on inculcating a sense of assurance and salvation among the depositors and account holders.

Sources:

• https://m.businesstoday.in/lite/story/yes-bank-collapse-rana-kapoor-faces-money-laundering-

charges-ed-raids-residence/1/397758.html

• https://insideiim.com/yes-bank-crisis-explained-important-current-affairs-topic

-Mansift Kaur

Recession is considered the period in which there’s a significant decline in economic activity as consumers and businesses spend less money. All economies undergo regular patterns of expansion and contraction. The economy may expand steadily for 6-10 years and enter recession for 6 months to 2 years. However, economists cannot determine a recession until they get data over an extended period of a minimum of 6 months. If we closely observe the economy of the United States, we can get an approximation that recession occurs every 10 years.

It is estimated that there have been 47 recessions in the United States. The average duration of the 11 recessions between 1945 and 2001 is 10 months, compared to 18 months for recessions between 1919 and 1945, and 22 months for recessions from 1854 to 1919. Because of the great changes in the economy over the centuries, it is difficult to compare the severity of modern recessions to early recessions.

There are various reasons for every recession. Some economists and journalists define a recession as negative growth in two consecutive quarters in which the gross domestic product (GDP) decreases. An overall decrease in the value of goods and services indicates that demand has decreased in most markets. If this is the case, it’s a good bet that companies have laid people off, so unemployment is up. Usually, the stock market is also in bad shape when the overall value is decreasing. In general, the GDP is a pretty good indicator of the overall state of an economy. However, the GDP alone is not a good measure for determining recession. In the US economy, the research of recession is handled by the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER). (They give more weight to personal income, the national employment rate, sales in manufacturing and trade, and industrial production). One more indicator maybe when interest on short-term term debt is higher than interest on long-term debt popularly known as the inverted yield curve. The yield curve is one of the most important indicators of the economic situation of the US.

Observing the patterns and trends in recession one can estimate a downfall in an economy but it is difficult to control a recession when it starts. The Financial Crisis of 2008, also known as the Great Recession was estimated in the very beginning however, it occurred due to real-estate collapse despite the efforts of the Federal Reserve and Treasury Department to prevent it. Similarly, many economies in the world face recessions in their patterns and these recessions vary in shapes and sizes.

These patterns explain the recessions as the natural part of the economic process and reduce uncertainty, fear, and risk to some extent. If these trends are followed carefully it can increase the economical balance and reduce the excess from the markets. It also changes the attitude of people and helps in the development of the nation.

SOURCES:

https://money.howstuffworks.com/recession8.htm

https://www.thebalance.com/the-history-of-recessions-in-the-united-states-

3306011

https://www.forbes.com/sites/teresaghilarducci/2018/04/30/when-is-the-next-

recession/

-Sampriti

The trade war between the two world’s largest economies, US and China, brought about unexpected and unintended consequences. The two economies have so far been considered as the most important pillars of global economy with China being world’s largest exporter and United Stated being world’s largest importer. Surprisingly this highly detrimental issue for both the nations becomes the accidental progenitor of economic boom in Canada and Mexico.

Mexico with close proximity to United States and tariff- free access to US markets makes it one of the most fortunate countries by being able to export many massively consumed items in a great volume. Insignificant cultural gap is also a major reason to make it United States’ largest trading partner. Since infrastructural connectivity between United States and Mexico is highly appreciable, manufacturing firms are induced to invest in Mexico. The companies coming to Mexico get full advantage of duty- free exports to United States and competitive wage prices at Mexico. These companies bring in funds to the country leading to higher foreign direct investment in Mexico.

The unsolicited boom of Canada is because of increase in exports to both United States and China since tariffs are kicked in. Canadian industrial equipment is replacing Chinese ones in the United States. Lobster exports to China from United States have fallen significantly giving a boost to Canadian lobster fishing industry. Soy Canada Industry Group too, claimed of increase in its shipping of soybeans to China. Reports clearly listed Vietnam, Chile, Malaysia, Argentina and Switzerland as the countries which are highly benefitted from the trade war.

Though this trade war proved to be a ‘perfect storm’ for United States and China, it became a serendipitous outcome for many other countries.

https://amp.scmp.com/economy/china-economy/article/3045603/trade-war-deal-how-

donald-trumps-hopes-signing-ceremony-xi

https://www.google.com/amp/s/amp.cnn.com/cnn/2020/01/18/business/us-china-pork-

trade/index.html

-Mansift Kaur

In today’s world where great economic inferences have already been drawn, one might question the very base of simple economic theories. Sometimes, something as simple as Adam Smith’s theory of government intervention can be perplexing. At that time, a good book which effectively questions and tests these theories in depth can come handy.

In this book, Linda Yueh has tried to explain the key thoughts of history’s greatest economists, which otherwise can be quite intimidating. Being a renowned economist herself, she critically examines various theories and interestingly puts forward her conclusions, presented in a very tasteful manner. The key ideas of economists like Adam Smith, Karl Marx and Alfred Marshall are elaborated in a manner to give in depth insights into their respective theories. 

To summarise this book, it can be simply stated that it is a collection of ideas of twelve topics concerning different yet significant economists who played a key role in one way or the other in making economics such a subject which fascinates everyone.

-Jyotsana Thareja