William Phillips - engineer and economist extraordinaire

Very few scientists/academicians will have as interesting a background as William Phillips. He is the Phillips of the famous or infamous Phillips curve, which illustrates an inverse relation between the rate of unemployment and the rate of inflation. While the Phillips curve may be considered too simplistic, it was a popular macroeconomic tool, possibly because of the work of Samuelson and Solow. In any case, it is Phillips who is the focus of this blog post, not the curve. The best source to learn about William Phillips is a talk by Tim Harford (The Undercover Economist) at the Cato Institute. If you want further details, read on.

Alan Bollard of the Reserve Bank of New Zealand has written beautifully on the life and works of William Phillips. This is an article from the journal "Economica." I hope you have free access to this article. If not, I have a few excerpts from the article here:

Bill Phillips was born in 1914 into a pioneering, hard-working and unusually innovative farming family in Te Rehunga (Arvind: Here is where Te Rehunga is on a map) in the Hawke's Bay region of New Zealand. His father had won a block of land in a ballot at the turn of the century, which by hard labour he converted from rough bush to a productive dairy farm.

Phillips' father was particularly important to him. ...he was an unusual inventor: he built the farmhouse and outbuildings himself. He followed this with a water wheel which was used to generate electricity from a stream. The Phillips farm was the first in the district to have mechanical milking machines.

School was a long bike, train and walking trip away. Despite arriving home late each day, the young Bill Phillips was expected to help with milking and other farm work. Bill soon showed his own technical precocity: building a book rack onto his bike so he could read while cycling, and later rebuilding a neighbour's broken-down truck so that he could (illegally) drive to school

But in 1929, world depression hit the remote hamlet of Te Rehunga. Dairy prices fell by a third....any dreams of a university education were abandoned....But rural New Zealand was not enough. Phillips wanted to sample the world....Here he spent a couple of years travelling the outback, hitching rides on freight trains and working in mining camps. Money came from a range of jobs: picking bananas, working on building sites, mining gold, running a cinema, and even crocodile hunting....He enrolled in a correspondence course in electrical engineering and remembers learning his first differential equations under a harsh Australian sun at an outback mining camp. Arvind: How cool is that!

Bill Phillips then went gallivanting all across the China, Russia, and Eastern Europe and eventually ended up in England just a little before the breakout of WWII. Then, he enlisted with the RAF and was promptly transported back to the far east to protect Singapore from the Japanese. He was captured by the Japanese and, as even a POW, showed uncommon character. Dr. Bollard writes:

He helped to organize language classes teaching Mandarin and Russian. He secretly built electrical immersion heaters to help the troops make cups of tea. He was involved in a dangerous mission to steal parts, and build several clandestine radios.

After the war, he returned to London on a scholarship to pursue a degree in sociology, possibly because he wanted to rationalize WWII. However, he was disenchanted with sociology and got interested in economics because he noticed many similarities between what he had done in electrical engineering and what he was noticing in his economics lectures. Thus began his interest in economics which would lead him to develop hydraulic machines that mimic macroeconomics (sometimes called Hydraulic Keynesianism).

I will write a some more about William Phillips in a few days. In the mean time, you should listen to the first part of Tim Harford's talk at Cato to get a lively account of William Phillips' life, including his economics contributions. He (Harford) is a story-teller par excellence. He does justice to Phillips' colorful life like no written account can.

A little of digging reveals that Dr. Alan Bollard is quite actively involved in a topic I often blog about - free trade. He is the chairperson of APEC (Asia Pacific Economic Cooperation), which is quite actively involved with the TPP partnership. He was a governor of the Reserve Bank of New Zealand (Fed Chairperson's equivalent). In any case, Dr. Bollard is not just an economist. By night, he is also a novelist. In fact, the main character in his novel (The Rough Mechanical: The Man Who Could) is based on William Phillips. I wonder whether Bernanke has also written any potboilers during his tenure!

An addendum to the post: On searching, I came across another good paper giving greater insights into his life. As usual, I hope you have access to this article. I will just quote the last two paragraphs because this seems to be exactly the opinion I have of this man after reading just a little. Remarkable human being.

Until 1994 economists knew only that Phillips had been a POW in Java. Because of Robert Leeson’s alertness and persistence we now know something of Phillips’ activities in captivity.....

The more one learns about Phillips the more astonishing he seems. Barr (2000, p. 112) captured the essence of the man when he wrote that Bill Phillips was, ‘adventurous, tenacious, insatiably curious, shy, and with a lovely sense of humour. He is one of those rare people memories of whom always bring a warm smile to those who knew him’.

Reasonably priced food in Upper West Side, NYC.

Many journalists now-a-days are experimenting with living a week with the constraints of SNAP, at least the financial constraints. I saw one such report in WSJ, and another in Slate. The one in Slate, by Sarah Gray, was partly about buying/making/eating food within the budgetary constraints of SNAP, and partly about public policy.

Public policy aside, Ms. Gray's choice of foods for the week long experiment are poor. Says Sarah:

My final menu: a baked pasta dish with whole wheat rigatoni ($1.59), lean turkey sausage ($4.99), two cans diced tomatoes ($1.89 per can) and mozzarella cheese ($4.59); a stir fry with chicken ($6.10), brown rice ($2.59), Green Giant vegetable medley ($2.99) and a red bell pepper ($1.55).
And breakfast: Key Food instant oats ($1.99) and Tropicana OJ ($2.99), a splurge item that I purchased because it was on sale for about half off. I also purchased eight Yoplait Light yogurts as part of a “buy 4 get 4 free” promotion ($0.99 each), baby carrots ($2.00), organic chicken broth on sale ($2.99) for cooking, and a small bag of ground coffee ($1.99 on sale).

No wonder she was quite frustrated pretty soon. She used up her $40+ to purchase foods quite unwisely, as she herself realized. Says Sarah a little later in the article:

I realized I should have bought things like bananas (a purchase that I put back when I went far over my limit). They’re nutrient rich and keep you full. Canned soup should also have been a purchase — you can make it quickly, it keeps you full longer, and certain soups can be used in other recipes. 

I, fortunately, do not have the $41 per week constraint but I do try to minimize $$ spent on (reasonably high quality) fruits and vegetables.

I love eating, cooking, and shopping for food too. I live in the Upper West Side and used to shop at Fairway, which is not too far from where I live. When my parents visited us for a few months, I realized how costly it was to shop at Fairway. There are some really good quality stuff that you get there but it is a total rip off when it comes to dollars and cents. My father would go around all the grocery shops in the neighborhood (and not in the neighborhood) and compare the costs. So, Fairway went out of the window pretty soon.

So, where should you shop if you wanted pretty reasonable prices? Big caveat - I know only about vegetarian foods. West Side Market is a good choice for most fruits and vegetables. Especially during summers, this is the place to go for peaches, plums, nectarines, and any other such fruits you can think of. Most commonly used vegetables like carrots, potatoes, peppers, eggplants, leafy greens, green beans, etc are pretty reasonably priced. Large potato bags are usually pretty cheap. Since I don't buy them often, I am not sure of their prices. Usually, it is less than 75 cents per pound. Carrots also cost around 69 cents per pound. Reasonably priced peppers cost around 99 cents a pound.
The cheese collection at West Side Market is one of the best, rivaled only by Trader Joes, where I have started to buy from once again. In any case, the cheeses are pretty reasonably priced too.

What West Side Market is not cost effective for is any other food item. Dairy - no way. Run far away from this place. A gallon of milk costs $ 4.50 or $ 5. A standard container of yogurt (I think 2 pounds) is always higher than $ 3. Most other non-dairy items are pretty costly too. For that, I like the Met and C-Town, which are not too far from the Amsterdam/125th street intersection. In both places, you get some pretty good steals. For instance, I found a 32 pound tub of PollyO ricotta cheese on sale for $ 4 a few weeks ago! That is pretty cheap, especially for one who loves ricotta cheese. Usually around weekends, C-Town has tomatoes sold at 99 cents per pound. Sometimes, you get luckier and it is priced at 79 cents per pound! Bananas at 49 cents per pound is a total steal. In Trade Joes, they price bananas differently. Any price around 20 cents per banana is pretty reasonable.

Dairy at C-Town and/or Met is also very reasonable. Especially yogurt. Unlike Sarah from salon.com, one should never buy the small containers. Always go for the larger one. At least in these two grocery stores, you get 2 pound yogurt containers at $ 2.50 (sometimes $ 2). That is the lowest priced yogurt I've seen in the North East!

The nice thing with Met and C-Town is that you get vegetables that you do not necessarily at other American supermarkets. For instance, you get plantains ($ 1.29 for a bag of 4 or 5), batatas, etc. Finally, my opinion of canned foods: avoid them. They are usually pretty costly per unit weight. I know it is convenient to use canned food sometimes but the costs mount pretty soon.

All in all, I think there is pretty good access to reasonably priced raw ingredients that can fit well into even a SNAP-ish constraint. Don't get me wrong. The SNAP constraint is not only on $$ but also on time, stress, and other intangibles thankfully I am not subject to. Still, if you love to cook, and can spare a bit of time to shop for what you cook, you can make some things a little better.

With so much, I dont think you will find it necessary to look for food anywhere else. Except, you'd miss out on a lot of good and reasonably priced food. More on that later. Happy food hunting and cooking.

Why congress should not grant fast track authority

No, I'm not going to give my perspective. Rather, keeping in line with many of the other blog posts, I will rehash arguments from 1991 or 1992, from the heat of the NAFTA debate. Once again, I draw on words uttered by Craig Merrilees, from a testimony to the House Agriculture Committee (chaired by Rep. Kiki de la Garza, D-Texas). It was a fiery testimony, as evidenced by the very testy exchange with Rep. Thomas Coleman (R-Missouri). Mr. Merrilees outlined the following 6 points as to why Fast-track authority should not be granted to the executive branch:

1. It is anti-democratic. Congress should not sit on the sidelines while the executive branch makes the deals.
2. Scope for secret back-room deals. Lobbyists can influence policy more than what they can do in a more transparent process.
3. Fast-track is not necessary to get a complex agreement. The doom and gloom scenario painted by the administration, if Fast-track is not passed, is scare tactics.
4. Bush (Papa) and Salinas (then President of Mexico) make argument that things will fail without fast-track. Salinas needs the US market, with or without fast-track. You can replace Salinas with any other country engaged in TPP now, though I am not so sure that they need the US now like Mexico needed the US in the 90s.
5. Fast-track gutted GATT discussions because of extremist positions of Carla Hills and government on agriculture, maybe because of the influence of agribusiness.
6. Fast-track makes it impossible for Congress to vote up or down provisions of the trade deal that they find objectionable. The yes or no vote psychologically tilts everyone towards voting yes.

Finally, Mr. Merrilees makes a good and sarcastic comment: Finally, Richard Nixon argued for fast-track because he believed that we needed a stronger executive branch. If that is what you believe, you have a different version of history than I have. Touche!

I think many of the reasons hold true now too. Giving congress the responsibility of coming up with a trade deal on their own seems crazy, especially given the levels of cooperation we've seen over the last few years. I think, though, that on the issue of trade, there might be much better cooperation than on more politically charged issues. 

Plotting Pundits - the image says it all.

The pretty inspirational Ms. Tanden(s)

I dont know how you react to leaders of think tanks and other policy makers talking about issues of poverty, when you have a feeling, which might be based in reality or on the ever-reliable gut, that the person might not have had a brush with poverty at any stage of his or her life. Actually, I know that feeling is wrong for many of the commentators and even politicians - many, surely, have had pretty tough childhoods. Still, it is easy to see why the "elitist" label can easily stick to them.

Though I have always been impressed by Neera Tanden when I've heard her talk, there is always that nagging question at the back of my head: does she know what she is talking about when she talks about minimum wage and poverty and so on. At the same time, I dont think that you need to have been on minimum wage yourself to appreciate the problems faced by those on minimum wage. If that were the criterion we placed on policy makers, we'd have a tough time making policy at all.

Coming back to Neera Tanden. Her childhood story is pretty inspirational. She recounted her childhood roots at an Atlantic Live event on women and poverty. Her parents migrated to America most likely in the 1960s. They lived in the town of Bedford, Massachusetts. I think her father worked (place of work unknown) and her mother was a homemaker then. After a few years after Neera was born, their parents got divorced and her father left them for good. Given a choice between returning to India, and facing the stigma of being a divorced woman, and living in the US and going on welfare, she chose the latter. She went on a succession of jobs (travel agent, etc), and with the aid of government support, earned enough to even purchase a house in the same neighborhood. Given where Neera is now, she must've, obviously, done an awesome job. In any case, Neera Tanden gives a much better account of her story here. Please read through it and you will understand her position on issues much better.

Clearly, it is not just Neera Tanden's story that is inspirational. Her mother's is far more.

Currency Manipulation

When you read literature on free trade, you are bound to come upon the topic of currency manipulation. Like with many other topics in economics, you have fairly respectable economists with different views on the topic. There are ardent free marketers who believe that the price is always right, i.e, the exchange rate of a currency is exactly what it should be, irrespective of the trade surplus or deficit of that country. Among the people mentioned in the links listed below, Don Boudreaux and Russ Roberts are good examples of those who think this way. In this podcast on EconTalk, Russ Roberts raises, what seems to me, a good point: How do you decide that a currency is over or undervalued? It seems equivalent to the question of whether a stock is over or under priced.

Then, there are people with a greater interest in labor issues, especially in the manufacturing industry. It is in these industries that workers have felt most strongly the whiplash of globalization. Job losses in better-paid, skilled manufacturing jobs in the US are well-documented. The source for these job losses is tougher to identify. It must be a combination of globalization, technology, free trade, and...currency manipulation. Depending on your perspective, you tend to apportion different percentages to these factors. There was a  coalition, known as the China Currency Coalition, which was active during the Bush years (2005) and blamed the currency manipulation for a big portion of the trade deficit. I'm not sure what it says about the issue that the coalition seems to be defunct now. (There were some good points made by Peter Morici, Professor of Business at University of Maryland, about how the trade deficit and China's policies were supporting the housing bubble in US. Remember, this is a press conference from 2005). Especially with China, there is the whole issue of geo-politics and a clash-of-ideas - their version of capitalism vs ours. Peter Morici fears that by not branding China a currency manipulator, and allowing them to dictate trade on their terms, they are exporting their version of capitalism to many parts of the world.

Anyway, here is a list of articles that I found interesting. Big disclaimer: I did not read all of them in entirety. My goal is to get a reasonable understanding of this topic, not to do FX trading tomorrow!

1. Brian Palmer explains currency manipulation: If Currency Manipulation Is So Great for Exports, Why Don’t We Do It? 
2. Fred Bergsten in Financial Times: Our chance to slash the high costs of currency manipulation 
3. Don Boudreaux and Russ Roberts at EconTalk: China, Currency Manipulation, and Trade Deficits (audio)
4. Simon Johnson at Economix blog: Preventing Currency Manipulation 
5. Jerry Jasinowski at HuffPost: The Debilitating Currency War 
6. Gilbert Kaplan at HuffPost: The Anti-Manufacturing Forces in Washington 
7. Scott Paul at HuffPost: While Treasury Sleeps, Congress Stirs on China's Currency  
8. China Currency Coalition press conference: Chinese Currency Control 
9. Alan Tonelson at AmericanEconomicAlert.org: The Case for Coddling Currency Manipulation Collapses & Why Obama Must Deal with Currency Manipulation in his Trans-Pacific Partnership

On most topics in economics, in which my expertise hovers imperceptibly above zero, I find it difficult to figure out what is reasonable and closer to truth. You cannot take ardent free marketers at their word if they try to preach their belief that currency manipulation is of no consequence, or that it is in fact good for us (non manipulators). On the other hand, when people with an interest in labor issues bring up this issue, it almost takes on shades of protectionism. So, it helps when economists from think-tanks that usually trumpet the virtues of free trade actually highlight this issue as a problem. In this case, I am referring in particular to Fred Bergsten and Joseph Gagnon from Peterson Institute for International Economics, which by no means can be accused of having anything but free trade  running through their veins. Essentially, they highlight in a report that currency manipulation has been a problem and continues to be one, though not as bad as a few years ago. However, Joe Gagnon cautions that it could become worse in the future, if no steps are taken to stem it. Finally, a few excerpts from Joseph Gagnon and Fred Bergsten's lengthy report on

By finally redressing the imbalance between deficit and surplus countries and forging effective linkages between monetary and trade policy, after almost 70 years of failure to do so, they could lead to the most fundamental changes in the international monetary system since the widespread adoption of flexible exchange rates in the 1970s.

Fortunately, such prioritization is justified by the very high costs of the status quo and the very high payoff from effective promulgation of the proposed strategy.

In particular, is it ready to take the risk that the manipulating countries that hold large dollar reserves, especially China but several of the other target countries as well, would respond by selling dollars, i.e., can the United States afford to take on its banker(s)?

Is it ready to acknowledge more broadly that the reserve currency role of the dollar is no longer an unmitigated blessing, and perhaps has even become a net cost for the United States?

The budget deficit will obviously have to be trimmed substantially over the coming years, hopefully at a pace that will avoid throwing the economy into one or more recessions. The new Dodd-Frank regulations on financial institutions will need to be enforced aggressively and comprehensively.

The United States must also accept that, even if it is successful in attracting a number of allies to its cause, it will be the inevitable and essential leader of the effort. Hence it could jeopardize some of its other economic policy goals, and indeed broader foreign policy goals, vis-à-vis several key global players. For example, the United States will continue to seek help from China on other key economic issues, such as trade negotiations and climate change, as well as central foreign policy issues such as North Korea and Iran.....(Such) have led to US hesitation in recent years to confront China over the currency issue and especially to label it a manipulator.

The point here is simply that the United States (and its allies) should not be reluctant to push for substantial currency realignments that would produce an implied further depreciation of the dollar. From the standpoint of the global role of the currency, it would in fact be far superior to do so by insisting on an end to currency manipulation that produced artificially undervalued currencies, and thus an artificially overvalued dollar, than by overtly pushing the dollar down through explicit actions by the United States itself.

By the way, China is not the only currency manipulator. There are many others but they don't appear as major threats because they are not as big in size. According to Bergsten and Gagnon, China, Denmark, Hong Kong, Korea, Malaysia, Singapore, Switzerland, and Taiwan are the eight most egregious manipulators. Some others would add Japan to the list too. Many would also say that Japan and Korea manipulate their currencies in response to China.

Anyway, good luck in trying to make more sense of it. My basic questions still remain unanswered: (1) If currency manipulation were eliminated, how would it alter the trade deficit? (2) How will the unemployment situation in the US, and other countries, be affected by elimination of currency manipulation, (3) What will the effect on China and other currency manipulator nations be? Actually, I am so illiterate on this topic, I dont even know how to formulate my questions!

One scary aspect of free trade - there are others too

When you have free trade, some of the worst features of a country get exported. It is not always that only good things get exported. I am not talking of Hollywood trash or Miley Cyrus and things like that. Those get exported without any free trade deals. In the first senate hearing (in 2014) on granting trade promotion authority to the Obama administration, Sen. Orrin Hatch (R - Utah) brought up the issue of health care. Apparently the world health care market is approximately $6 trillion and can blossom to $8.5 trillion soon. Now, imagine if America actually succeeds in exporting its super costly, mostly painful, model of health care all over the world. Should we not be content with having discontent only among ourselves?

More seriously, I'm not sure how well US healthcare companies are really positioned for the global market. I should gather data/articles on this to substantiate my thesis that products from US healthcare companies are too costly for most developing nations. I've heard that some Japanese (maybe South Korean too) and European companies are better suited for this. Cheaper technology is the key. Anyway, my knowledge of medical devices industry is next to zero - so, what I say is worth as much.