Unpleasant Economics

A nice review (A pleasant read)  by Asjadul Kibria in today's the Daily Star on a recent book 'Unpleasant Economics' written by Professor M. A. Taslim. The review articulately explains the apposite issues of the book, which is  primarily written for the policymakers and non-economists (as the author of the book says) to know accurate explanation of the Bangladesh economic issues.

Economist VS Economic Journalist!

The released inflation data on August 2010 produced an interesting debate among economics practitioners of Bangladesh. The August 2010 data shows that rural food inflation suddenly jumped up to 9.95% from 8.58% in July, while urban food inflation eased down to 8.95% from 9.01% in July. Historically (and as we expect), rural food inflation has been lower than urban food inflation because of the availability of food items in rural areas.

While attempting to give proper explanation to the aforesaid problem, some economists in the Daily Star (Rural poor take big hit from inflation) reasoned the differences in the consumption basket (very easy mathematical explanation) for such divergence between rural and urban inflation.

For your information, food weights in CPI calculation are 60.48% in rural area and 44.53% in urban area. In that, rice weights (boiled coarse weights) in CPI calculation are 23.79% (13.57%) in rural area and 11.28% (5.99%) in urban area.

A counter-argument (also plausible and more economic explanation of the problem) has given by an economic Journalist, Mr. Shamsul Huq Zahid from the Financial Express (when inflation turns discriminatory). He not only gave counter-argument, but also criticized the argument given by some economists. In summary, he rather blamed the absence of government intervention in rural food markets in the period of Ramadan (August 2010), while the government heavily intervene urban food prices through the Open Market Sale (OMS) operation in major cities and geared up its market monitory activities in urban areas.

The latter explanation is more informative!  

The X Factor of Economics: People

An interesting article by David Segal from the New York Times about why do economists often disagree. Thanks to Professor G. Mankiw for sharing the article in his blog!

Probably the following paragraph from the article can explain the reason most wisely.

But economics will forever have to contend with the biggest X factor of all: people. As Mr. Solow notes, you feed people poison, and they die. But feed them a subsidy and there is no telling what will happen. Some will use it wisely, others perversely and some a mix of both.

Japan-IMF Scholarship Program Opens

Government officials who like to have a higher degree in Economics from Japan may consider to apply for Japan-IMF Scholarship, which is open until 10 December, 2010. Here is the related link:

http://www.imf.org/external/oap/partguide.htm

Truth about recent Macroeconomic models?

Some very harsh, but probably true facts on Macro from Laurence Meyer and Paul Krugman:

http://krugman.blogs.nytimes.com/2010/10/09/macroeconomic-madness/

Food Price Watch

As the supporting document of my previous post, this link from the World Bank provides a clear indication of possible global food price hike shortly and the resulting implication for poverty..

http://siteresources.worldbank.org/INTPOVERTY/Resources/335642-1210859591030/Food_Price_Watch_September2010.pdf  

Possible government intervention in food markets

News from FAO gives a warning towards a possible commodity supply and price shock at the global market. Though FAO declines the idea of another episode of global food crisis like the one in 2008, however it puts a concern about the possible food insecurity in some countries, especially a large number from African region.

Bangladesh is not out of danger too! In fact, for the last couple of months, main food (staple) prices has been soaring alarmingly at the domestic markets coinciding with global markets, overshooting the previous records. For example, according to the Trading Corporation of Bangladesh (TCB), during the last one year, rice prices rose by 44%, flour prices by 52%,  soyabean oil prices by 18% and palm oil prices  by 35%.

There is clear information that food stocks of the government are not satisfactory, even not up to the level of the previous year. In particular, the government has roughly half of the food stock that it had last year! Country experts are blaming government’s lack effort to reach its initial target. Though now the government is trying to import from neighboring countries to increase its food stocks, the speed of efforts is slow.

The suggestions are straightforward. The government needs to stock enough food until Aman and winter commodities come in the market. This will play a dual purpose. One, if there is any crisis in food prices, the government can supply those stocks in the open market to the poor for cooling down the market price. Second, if there is any natural (or artificial) food crisis, the government can supply foods from its stocks. 

J. P. Morgan in Bangladesh

J. P. Morgan opens a new Bangladesh Representative Office. Welcome to Bangladesh and wish you all the best! For detail news, visit the link below:

http://www.jpmorgan.com/cm/cs?pagename=JPM_redesign/JPM_Content_C/Generic_Detail_Page_Template&cid=1285894064899&c=JPM_Content_C

Stock market bubble!

Last night, one of my friends (he has graduated from Pharmacy Dept., Dhaka University) argued that most of the stock prices of the Dhaka Stock Exchange are undervalued (as he observed) based on the existing P/E ratio! So there is enough scope to increase the price of the existing shares!

The stock market authority has set the P/E ratio - 40 for providing loans against stocks by the merchant banks (previously it was like 100). This gives  a misleading impression to investors that there is still scope for price increase of those stocks that have the P/E ratio less than 40. So they are wrongly and desperately investing in those stocks.

It is the information for all that the P/E ratio of a stock doesn't reflect the strength of that stock. Rather, it is set by the stock market authority in an effort to control the price hiking of the stocks. In other words, setting a specific P/E ratio for loans is one way to control price bubble that the current stock market is experiencing.

The strength of a company's share depends on the strength of the financial position of that company. One has to look after the financial history of a company properly before purchasing that company's share. Price hike of the stock prices should be also coincided with the overall macroeconomic stability of the country. I must say that for the last couple of years, there was nothing happened in the Bangladesh macroeconomy for which the prices of stocks can increase the way it is increasing right now in the stock markets of Bangladesh.