Why study economics?

It is a science that helps us understand how we are all connected in a mutually-reliant ecosystem

e.g. one person's supply is another person's demand ...
economics gives us insights into how we can design this ecosystem so we help each other become better off, or how we can screw things up in a mutually destructive manner

At its finest, economics is about making the sum bigger than its parts
perhaps contrary to some people's perception, some of the deepest insights of economics are about how selfish and individualistic behavior can be destructive for the broader society - precisely because we are all connected

young minds should consider studying the subject
economics helps us think beyond the self, toward our collective humanity. I love it.

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More from @AtifRMian

20 Aug
One of the hardest questions is what makes societies change?

"functioning" societies take care of each other, develop trust, tend to work for the common good - and as a result become richer

"mis-functioning" societies seem to do everything in reverse - and as result remain poor
Both types of societies are stable, meaning they can go on like that for long periods of time

The obvious question is how can one change a mis-functioning society into a functioning one? How does change happen at the system level?

Obviously, no single answer here
But by construction, change will be hard - very hard.

Because the reason mis-functioning societies mis-function is that there are groups that are collectively in control, and they benefit from the mis-function

So change requires annoying these dudes, and they don't like that
Read 4 tweets
15 Aug
One broad misconception about growth or development is that growth *requires* capital

That is not accurate: to first approximation, growth *creates* capital

some explanation ...
The most important ingredient, or requirement, for growth is productivity.

If productivity rises, firms and individual create a larger surplus that they can then deploy as capital, or investment, for even greater output.

This is the bottom line to keep in mind
Now, you might ask, but doesn't one need capital for boosting productivity?

Not really

Almost always, the constraints societies face have to do with organization, management, trust, rule of law, experimentation, institutions, innovation etc.
Read 7 tweets
5 Aug
Big-data driven economic analysis has made remarkable progress over the last 10/12 years

This has huge potential IF policy makers were to harness its power effectively

I was in the middle of trying to understand the economic repercussions of the 2008 recession ...
but stuff you can do today with data is incredibly more powerful, and many young scholars are leading the effort

e.g. we can, in almost real time ...

figure out which groups and areas have been more impacted

track consumer spending at a very detailed and granular level
quickly estimate response to fiscal policies like stimulus payments versus unemployment benefits, credit policies like PPP and mainstream lending

estimate behavioral responses to outbreak of disease etc
Read 6 tweets
28 Jul
This is the new not-normal normal

A majority of global 60T$ bonds yield near-zero to negative rate

@FT article says "investors blame the Federal Reserve". on.ft.com/39z1lHv

But that is wrong

Zero long-term rate reflects structural imbalances in the global economy ...
these imbalances have been rising over the past decades and reached a tipping point in 2008

The problem only got worse since then and hence the downward pressure on long-term rate continued

The Fed cannot raise long-term, or "natural rate", as it is sometimes called
The structural problem has to be solved elsewhere, e.g. rising inequality and high concentration of wealth

This would require serious re-tooling of the economy

The Fed cannot help much here
Read 4 tweets
25 Jul
It has long been said about many developing countries that they have a "low saving rate problem"

But this is not a helpful diagnosis and in fact can give a very misleading interpretation

Growing up, I heard people say this about Pakistan as well. But it's wrong ...
The basic point is that Saving=Investment is an accounting identity that we impose

So if rate of investment is low, obviously "saving" will be low as well - *by construction*

The more interesting is the horse vs. cart question: Is saving constrained by investment decision?
i.e. is "saving rate" being kept low because the economy is unable to make investment happen?

The answer most-often is YES in the context of countries like Pakistan

e.g. consider agriculture, often a dominant sector in such countries
Read 8 tweets
23 Jul
What is saving?

The number we "save" in our bank account out of the pay-check is just that - a number in a computer

Our hope when we save is that the number means something. But that cannot be taken for granted
The most important rule in economics (and life) is that things must balance, else we have a problem

The same is true of saving, and whether "saving" is really saving

Think of the economy as a flow of stuff we produce, say 100 apples and oranges (A`nOs) in a period
The A`nOs represent the "real" economy, this is what really matters. We may assign some $ value to it, like 1$ for an apple.

But that's just some number in a computer - who cares!

What really matters are the A`nOs .... this is what economists call the "real economy"
Read 16 tweets

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