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    Change in India

    May 3 • Developing Economies, Financial Markets • 258 Views

    Hey Everyone

    My name is Ilya Sabnani. I am currently a sophomore at Princeton majoring in Economics with certificates in Environmental Studies and South Asia Studies. I’m guest blogging about social and economic change in India. This past fall, I had the opportunity to spend 3 months in Hyderabad working for a microfinance institution, BASIX. I ended up doing research on improving the livelihoods of handloom weavers living in a rural area not far from the city. During my time abroad, I was exposed to both the cosmopolitan and developing aspects of Indian culture. From this, I’m going to provide an outsider’s view on change happening in India. I hope my experiences abroad can help you understand the problems facing many people around the world. Hope you like what I have to say and will post a comment or question.

    Is India’s Change Really Happening?

    Apparently, it is. As soon as I stepped out of Rajeev Gandhi Airport in Hyderabad, I thought I was at a country club. The lawns were perfectly manicured, the cars were neatly lined up in a large parking lot, and more importantly, there was NO SMOG. I could breathe! The last time I was in India in 2003, I was grasping for whatever oxygen was left in the air because there was so much pollution. With plenty of autorickshaws and cars that still run on diesel, urbanized areas of India are prone to heavy pollution. As i soon discovered, driving around Hyderabad ended up becoming one pf the most time consuming activities during my stay. The more I saw the city, the more I realized how much change had seemingly occurred. Practically everyone had a cell phone and there were wireless internet cafes that made technology accessible to those who could afford it.

    However, the deeper I thought about it, the more I realized how difficult life is for people who are at the bottom of the social and economic pyramid. In India, urban life can be especially taxing for the poor. For some, their main livelihood is begging at traffic intersections. For others, it’s working at hotels as dishwashers and sending money back to their families in villages nearby. At the end of the day, these people are struggling to make ends meet and are trapped in a cycle of the rich getting richer and the poor getting poorer.

    Delhi is hosting the Commonwealth Games in November. Even though this is a huge honor, the city is faced with what to do about the slums in the city. Instead of creating temporary housing, they are covering up the slums with bamboo walls. This temporary solution proves how governments simply don’t know what to do with the massive influx of people living in slums. How do you think this problem should be best addressed in the long run? Are more social services for Indian citizens necessary for substantial change to occur?

    This is a part of a series on Change in India. More to come.

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    How Are We Doing?

    May 2 • Developing Economies, Macroeconomic Measurement • 300 Views

    Hearing that U.S. real GDP growth for the first quarter was 3.2%, I wondered how well we were doing.

    We can look at past recessions to assess 3.2%. Looking back to the early 1980s, some economists say they were hoping for better. Like a “V”, when a recession is pretty steep, usually, so too is the recovery. For 2nd quarter 1983, after the 1980 and 1982 “double dip”, we jumped to 9.7% real GDP growth. By contrast 2010 projections are for 3.1%.

    We can also look at other countries. According to a recent IMF report, compared to developing nations and the emerging economies, our 3.1% projected recovery is “tepid”. China’s projected growth rate for 2010 is 10%; India’s is 8.8%; Brazil’s is 5.5%. However, when we look at the EU, we are doing okay. Their projected real growth rate is 1.0%.

    Finally, we can consider unemployment rates. Projections for 2010 are: U.S.: 9.4%; Germany: 8.6%; Greece: 12%; Spain: 19.4%; Japan: 5.1%.

    The Economic Life

    GDP is a measure of the money value of new goods and services produced in a country during one year. The unemployment rate is the number of unemployed in a labor force divided by the size of the entire labor force.

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    Conspicuous (Coffee) Consumption

    May 1 • Businesses, Developing Economies, Economic Thinkers • 557 Views

    How can you show your friends that you have ascended to your country’s middle class? Starbucks.

    A recent BusinessWeek article on the world’s most caffeinated countries cited a connection between an emerging middle class and coffee consumption. With the demand for instant coffee increasing in Turkey, Belarus, and Ukraine, analysts see Starbucks growing there also. Correspondingly, Brazil, Russia, India, and China (BRIC countries), have accelerated their espresso machine orders.

    The list of the most caffeinated countries is topped by Finland (608.2 liters per capita), Norway, and Denmark. The U.S. is #16 with per capita consumption of 105.9 liters annually. Coffee researchers say that the U.S. is relatively low on the list because we put so much milk in our coffee. 

    The Economic Life

    In The Theory of the Leisure Class (1889), economist Thorstein Veblen introduced us to “conspicuous consumption”. Referring to society’s more affluent, he said that buying behavior relates more to displaying power and prestige than need. Perhaps having read Veblen, Starbucks founder and CEO, Howard Schultz, perceives the potential for expansion in China as a “major opportunity” for new growth.

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    Khakis and Lettuce

    Apr 30 • Businesses, Demand, Supply, and Markets • 254 Views

    Do you remember when we only had Levi’s? Until the late 1970s when Jordache arrived in department stores, buying jeans was not about style. After that, designer jeans became a fashion statement as did their higher prices.  

    I wonder whether yesterday’s WSJ article on $520 khaki pants for men described a similar phenomenon. The pricier pants represent a trend toward more detail, softer fabrics, and enzyme washes. According to the WSJ, most khakis had looked too much alike, even when sold by different retailers. How to stimulate sales? Create some “designer cachet”. 

    As an economist, we would say that khakis makers are creating product differentiation…sort of like lettuce.

    In a supermarket, lettuces can look alike. But, if you put them in packages, and prewash them, call them organic or provide a gourmet image, you might be able to generate some buyer recognition. And maybe, if the consumer really likes the lettuce (or wants designer cachet), he or she will buy that brand every time.

    The Economic Life

    Imagine a line representing different competitive market structures. The far left side of the line is labeled perfect competition while the far right side is monopoly. Very similar products such as unpackaged lettuce tend to be sold in markets that are on the left side of the scale. Their producers have little power over price because their goods look just like someone else’s. When individual lettuce growers gave their produce more individuality, they moved to the right on the market structure line. They also got more price making capability–just like Khakis. 

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    From Mill to Obama

    Apr 29 • Economic Thinkers, Government, Thinking Economically • 261 Views

    Yesterday, President Obama briefly said that some salaries on Wall Street were more than anyone should earn. 

    Approximately 160 years ago, John Stuart Mill responded by saying that he wanted to encourage work. Consequently, instead of limiting salaries through a progressive income tax, he supported a moderate proportional tax and high inheritance taxes. “To tax the larger incomes at a higher percentage than the smaller, is to lay a tax on industry and economy; to impose a penalty on people for having worked harder and saved more than their neighbors.” (1848, Principles of Political Economy)

    Believing that all too often government distorts incentives, Adam Smith points out that people personally have less to give and spend when taxed. Government, Smith believed, was more likely to poison virtue than spawn it.

    Not waiting for government, Ben & Jerry’s capped the salary of its highest paid executives at seven times the lowest pay. In 1994, though, they eliminated the cap when they could not find a new CEO who would accept it.

    The Economic Life

    Through a Teaching Company series on the history of economic thought, Professor Timothy Taylor discusses the life and ideas of Adam Smith and John Stuart Mill. They provide an ideal foundation to build from or tear down when contemplating salary caps and income distribution.    


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