Corruption in India

The department has more news to share. Nabamita Dutta's research was recently cited in the Wall Street Journal online. She was also interviewed by the BBC!

There have been a few attempts recently by economists to quantify the link between corruption and the informal economy. As my example illustrates, the direction of causality can run in either direction. In other words, the existence of corruption could drive people into the informal sector, but likewise the existence of an informal sector can itself give rise to corruption. Is it possible to disentangle these effects?

The most promising recent attempt is a study by economists Nabamita Dutta, Saibal Kar and Sanjukta Roy. They combine data on corruption from Transparency International with official Government of India data on employment in the informal sector, which in turn is culled from 2004/05 National Sample Survey and the 2001 Census.

The statistical results in the study confirm the intuition that, other things equal, more corruption leads to a larger informal sector. They also perform statistical tests to rule out what economists call “reverse causality” – the possibility that it’s a larger informal sector that’s causing more corruption.

Brewers Baseball

The Brewers disappointed me again, just as they did in 1982, only this time I didn’t cry. And according to our esteemed sports economist colleague Mike Haupert, they were lucky to do what they did. Check out Mike’s article in the Washington Post.

As an economist, I am interested in efficiency. The best manager is the one who produces the most with the talent he is given. After all, how hard can it be to manage the deep-pocket Yankees, who can purchase the best players each year to satisfy their manager’s every desire? What a dream for a manager. Need a cleanup hitter? Enter Mark Teixeira. A mound ace? Enter C.C. Sabathia. Each earns upward of $20 million per year. Quality does not come cheap, but cost is no object when your average ticket sells for $98 and your television revenue rivals the GDP of some nations.

Managing the Yankees is easy. Just buy the best players and put them in the lineup. But what if you have to manage the Brewers? What if you don’t get to spend a fortune to pluck the best talent from the rest of the league, but you have to manage on a budget? After all, the owner of a team is looking for a return on his investment, so producing on a budget is not a crazy concept.

If efficiency—getting the best output from your available inputs—matters, which it should, then Ron Roenicke is your man. He was the best manager in baseball in 2011 because he was the most efficient. The manager can only work with the players he is provided, but it is his job to make the most of the situation. Let’s consider the job the Brewers’ skipper did this year.

First of all, the Brewers won 96 games, capturing the central division crown and securing home field advantage in the first round of the playoffs. It’s hard to ask for more than that. Consider that Roenicke, in his first year at the helm, accomplished this with a lineup that was largely unchanged from the same team that won only 77 games the previous year. That accomplishment alone merits serious consideration for Roenicke.

Seminar: Larry Neal

Economics Department Seminar: Larry Neal, Professor Emeritus, Univ of Illinois, will be here on Friday October 21, 2011 to present "I am not master of events: the speculations of John Law and Lord Londonderry during the Mississippi and South Sea bubbles." The seminar will be in room 122 Wimberly Hall at 3:30.

Role for Fiscal Policy and the Economic Outlook

Today Ben Bernanke testified on the rather dismal economic outlook before the Joint Economic Committee of U.S. Congress.

http://federalreserve.gov/newsevents/testimony/bernanke20111004a.htm

That might not be news, but in it, I thought Bernanke very clearly described how Fiscal policy should be implemented both in the short run and long run:

"To be sure, fiscal policymakers face a complex situation. I would submit that, in setting tax and spending policies for now and the future, policymakers should consider at least four key objectives. One crucial objective is to achieve long-run fiscal sustainability. The federal budget is clearly not on a sustainable path at present. The Joint Select Committee on Deficit Reduction, formed as part of the Budget Control Act, is charged with achieving $1.5 trillion in additional deficit reduction over the next 10 years on top of the spending caps enacted this summer. Accomplishing that goal would be a substantial step; however, more will be needed to achieve fiscal sustainability.

"A second important objective is to avoid fiscal actions that could impede the ongoing economic recovery. These first two objectives are certainly not incompatible, as putting in place a credible plan for reducing future deficits over the longer term does not preclude attending to the implications of fiscal choices for the recovery in the near term. Third, fiscal policy should aim to promote long-term growth and economic opportunity. As a nation, we need to think carefully about how federal spending priorities and the design of the tax code affect the productivity and vitality of our economy in the longer term. Fourth, there is evident need to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy. In sum, the nation faces difficult and fundamental fiscal choices, which cannot be safely or responsibly postponed."