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Ethiopia central bank announces 15% devaluation of Birr: The cost of devaluing the Birr may outweigh its benefit October 12, 2017

Posted by OromianEconomist in Currency Devaluation, Economics, Ethiopia the least competitive in the Global Competitiveness Index, Free development vs authoritarian model, Uncategorized.
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Odaa Oromoooromianeconomist

Birr devalued by 15 percent. Current Dollar to Birr exchange rate as of 12 October 2017


Africa News: Ethiopia central bank announces 15% devaluation of Birr


 

Economic Analysis: The cost of devaluing the Ethiopia’s Birr may outweigh its benefit

By Dr Mohammed Abbajebel Tahiro


The link between currency devaluation and domestic inflation


Ethiopia has been devaluing the Birr, in part because of pressures from the International Monetary Fund (IMF). Cheaper domestic currency, Vis a Vis major international currencies, makes exports more attractive to foreigners if a decent segment of the economy is based on manufacturing or, if the manufacturing sector is expanding and looking for international markets. Devaluing domestic currency makes exports more attractive to foreigners, which in turn spurs economic growth. The flip side of that is, cheaper domestic currency makes imports more expensive. Ethiopia imports medicine, fuel, food, and almost all productive capital, vehicles, and many more consumer goods. Cheaper currency means it takes more Birr to buy one foreign currency. Ethiopian importers will naturally raise their prices (inflation) to cover additional costs incurred because of a weaker Birr. The cost of devaluing the Ethiopian Birr may outweigh its benefit as the Ethiopian economy is still largely agricultural. The demand for agricultural products and minerals on the world market is largely stable and Ethiopia does not need to cheapen its currency to sell more to foreigners. The reason Africa can’t get a foothold in manufacturing is Chinese dumping of cheaply manufactured goods, not inability to access world markets for Africa’s manufactured goods. African infant manufacturing industry simply can’t compete with predatory practices of foreign manufacturers.
Ethiopia could simply let the exchange rate float. A floating exchange rate means the price of the Birr vis a vis major international currencies is determined by the relative supply and demand of the currencies. Consider the U.S. Dollar and the Birr are just goods like any other; say salt, just as in a free market the price of salt is determined by the supply and demand of salt, the exchange rate (price of Birr in Dollar) will be determined by the relative supply and demand of the two currencies. The United States follows floating exchange rate. In Ethiopia, the exchange rate is fixed by the National Bank. Fixed exchange rate always creates arbitrage opportunities as it seldom reflects the will of the international currency markets. The latest devaluation of the Birr ( 1USD = 27.07 Birr) will undoubtedly create more domestic price inflation as Ethiopian importers will raise prices on their imported goods. With the increase in the wage rate trailing far behind increase in prices, workers are getting a wage cut in real terms. Rising general level of prices means rising input prices. When input prices rise, manufacturers cut back on output, which means even more unemployment.
Inflation, two fundamental factors
When the Ethiopian parliament opened on Monday, President Mulatu Teshome made bold claims about the state of the Ethiopian economy. I will address the merits/demerits of that claim at a later date. Today, I will talk a little bit about the fundamental causes of domestic currency devaluation (inflation). There are two fundamental causes of currency depreciation:
1. The productive capacity of an economy.
2. The size of the money supply.
When an employee creates more value through increased productivity, his/her salary should increase proportionately. If the money supply in a country is fixed while productivity is increasing, each unit of currency will store greater value. On the other hand, if the increase in the money supply is proportionate to the increase in productivity, the amount of purchasing power (value) stored in each unit of currency remains unchanged. But, if you have a runaway money supply, that is, if the money supply grows faster than the growth in productivity, the value stored in each unit of currency decreases, and we call that inflation. When there’s more money in the economy than the productive capacity of the economy, the general level of prices increases and we call that demand-pull inflation. When prices of productive inputs rise, producers increase prices on finished products in order to recoup higher payments for input and, that can also lead to inflation; inflation created through an increase in input prices is called cost-push inflation. This source of inflation is less likely in Ethiopia as the manufacturing sector contributes less than 40% of the Ethiopian GDP.
The American Federal Reserve Bank’s counterpart in Ethiopia is the National Bank of Ethiopia. The National Bank is supposed to oversee the monetary policy of the country, including managing the money supply. The National Bank is supposed to be independent of undue political influence from the executive branch of the government. In Ethiopia today, appointments to key positions in the National Bank are based more on loyalty to the regime than professional aptitude. With that in mind, it’s easy to see how monetary policy could be mismanaged.


Ethiopia’s Attempt to Ease Dollar Shortage with Devaluation

By Barii Ayano


 

This is just to offer basic explanation of the issue without technical jargons. Exchange rate is the price of one country’s currency in terms of another country’s currency. For instance, the price of Birr in terms of U.S. dollar or vice versa. Exchange rates affect large flows of international trade (imports and exports). Foreign exchange facilitates flows of international investment, including foreign direct investments (FDI. Countries follow various exchange rate regimes: fixed exchange rate, pegged exchange rate, floating exchange rate, and managed floating exchange rate. The exchange rate regime of Ethiopia is characterized as managed floating exchange rate regime, which partly depends on supply and demand but with some government intervention in the exchange rate market, to concurrently adjust both exchange rates and foreign exchange reserves, monitored by the World Bank and the International Monetary Fund.

What is Devaluation?

Devaluation is mainly government intervention in the exchange rate market of the country to determine the price of Birr in terms of dollar-some kind of government price setting. Simplified, devaluation makes Birr cheaper relative to the dollar, and hence you will need more Birr to get a dollar, compared to the current rate of exchange. In short, you need more Birr to buy a unit of dollar, and the people who can afford to buy dollar declines.

The recent announcement states that Ethiopia devalued its currency (Birr) by 15% per cent, which means you will need 15% more Birr to buy a dollar since Birr has become cheaper by 15%.

Why Do Countries Devalue their Currencies?

There are several reasons behind the need to devalue currencies. Some do it to promote exports and restrain imports. The simplified assumption is this. If the local currency becomes cheaper due to devaluation, foreigners can buy the local export products more cheaply and hence exports will increase. On the other hand, cheaper local currency can serve as an import restraint since foreign products become more expensive in local currency and importers need more Birr to buy foreign products, and hence increase the cost of living.

When it comes to the developing economies like Ethiopia, with limited export promotion power, the devaluation policy measure is mainly related to exchange rate stability due to imbalance between supply and demand of hard currencies. As repeatedly explained by the government officials, including the PM & the President, there is severe shortage of hard currencies in Ethiopia caused by limited hard currency earning power of Ethiopia’s exports whereas imports have grown folds more than exports. Ethiopia gets dollar from exports and needs dollar for the imports. The gap between the dollar earning and dollar spending capacity leads to part of the current account deficit called trade deficit (export values greater than import values). The gap has been expanding every year-even more so in recent years.

If you buy something (imports) you have to pay for it via exports, foreign aid in hard currency, remittances, etc. The growing gap between exports and imports is not sustainable. It’s important to note that foreign exchange rate crisis is one of the major sources of economic crises that ravaged the economies of a number of countries. Google exchange rate crisis to read more about it.

Therefore, the devaluation of Birr, which has been urged by the World Bank for years, is the policy measure undertaken by the regime to relieve a crippling dollar shortage and meager foreign exchange reserve of Ethiopia. The World Bank, EU, IMF, etc. cover the foreign exchange gap of Ethiopia so that the economy does not collapse due to the shortage of foreign exchange. Without international support and the Diasporas remittance, Ethiopia can easily become hard currency illiquid country that cannot pay for its imports or pay for its debts in hard currency.

Although the shortage of hard currency is a common phenomenon of poor countries with limited exports, the widening gap between Ethiopia’s earning and spending in hard currency is evidently not sustainable. It can kill economic growth. At worst, it can lead to economic crisis due to currency (exchange rate) crisis since there is vivid evidence of liquidity gap in hard currency in Ethiopia owing to its weak foreign exchange earning capacity. Illicit outflow of hard currency is another key problem aggravating the pain.

Simply put, devaluation is not a success story as some want us to believe. It’s a desperate policy measure undertaken to ease the pain of severe shortage of hard currency and its adverse impacts.

I will highlight the effects of devaluation on consumers, business, foreign exchange shortage, etc. in my next note.

BBC Afaan Oromoo: Qaala’iinsa gatii baroota dhufanii

 

A brief analysis of Birr devaluation

 https://twitter.com/DABI_Solutions/status/918403739945504768
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The Nobel Prize In Economics Goes To American Richard Thaler For Work In Behavioral Economics October 11, 2017

Posted by OromianEconomist in Economics, Uncategorized.
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In this photo provided by the University of Chicago, Richard Thaler poses for a photo with his books at his home in Chicago after winning the Nobel prize in economics, on Monday.

Anne Ryan/AP

Updated at 7:20 a.m. ET

The 2017 Nobel Prize in Economic Sciences has been awarded to Richard Thaler of the University of Chicago for his pioneering work in behavioral economics.

The announcement from the Royal Swedish Academy of Sciences in Stockholm said the 72-year-old Thaler “has incorporated psychologically realistic assumptions into analyses of economic decision-making. By exploring the consequences of limited rationality, social preferences, and lack of self-control, he has shown how these human traits systematically affect individual decisions as well as market outcomes,” the committee said in a statement.

The relatively new field of behavioral economics studies the effects of psychological, social, cognitive and emotional factors on economic decision-making.

“Human behavior is very complex. So, if we want to construct useful models of economic behavior, we have to make simplifications. One such simplification which has been very important in economics is the assumption that humans behave in a fully rational way and make economic decisions in a way as to maximize their own well-being,” Per Strömberg, chairman of the prize committee, said.

Over time, Strömberg said, researchers have gathered more evidence from psychology on how humans deviate from rational economic decisions. “Richard Thaler is a pioneer when it comes to incorporating such insights from psychology into economic analysis,” he said.

“Thanks to his contributions and discoveries, this new field [of behavioral economics] has gone from being sort of a fringe and somewhat controversial part of economics to being a mainstream area of contemporary economic research,” the chairman of the prize committee said.

Speaking from his home in the United States to a news conference at the Royal Academy, Thaler said he felt the most important impact of his work was “the recognition that economic agents are human.”

Thaler is the author of the books Nudge and Misbehaving: The Making of Behavioral Economics.

Among Thaler’s contributions to the field are his “theory of mental accounting, explaining how people simplify financial decision-making by creating separate accounts in their minds, focusing on the narrow impact of each individual decision rather than its overall effect,” the Academy said.

One area singled out by the committee is Thaler’s work on retirement savings. He was an early proponent of employers automatically enrolling their workers in 401(k) programs. He also developed a “Save More Tomorrow” retirement plan that encourages people to put future salary increases toward retirement.

Kenny Malone of NPR’s Planet Money says Thaler is “a bit of a rock star” in the field of economics.

“In terms of real-world implications, once you start to understand the ways that we are weird, irrational beings, you can structure policies to move people toward the ends that you would want,” Malone tells Morning Edition.

Thaler made a cameo in the movie The Big Short, where he explained the “hot-hand fallacy” about the belief that someone who has experienced success in something involving random chance has a greater chance of further success going forward.

Asked whether he thought that applied to President Trump, Thaler responded with a chuckle, “I think he would do well to watch that movie.”

When the same Swedish journalist asked what Thaler would do with the 9-million kronor ($1.1 million) monetary portion of the Nobel award, the economist: “I will say that I will try to spend it as irrationally as possible.”


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Trading Economics: Ethiopia Inflation Rate 2006-2017: The highest inflation rate since October of 2015 as food prices went up 13.3 percent September 4, 2017

Posted by OromianEconomist in Economics, Ethiopia the least competitive in the Global Competitiveness Index, Uncategorized.
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Odaa Oromoooromianeconomist

the-grim-reality-behind-ethiopia-rise-hype1

Ethiopia: Inflation Rate  2006-2017: Data, Chart, Calendar, Forecast


Consumer prices in Ethiopia increased 10.4 percent year-on-year in August of 2017, following a 9.4 percent increase in July. It is the highest inflation rate since October of 2015 as food prices went up 13.3 percent, above 12.5 percent in July and non-food inflation rose to 7.1 percent from 5.9 percent in July. Inflation Rate in Ethiopia averaged 16.37 percent from 2006 until 2017, reaching an all time high of 64.20 percent in July of 2008 and a record low of -4.10 percent in September of 2009.

 

Ethiopia Inflation Rate
Calendar GMT Actual Previous Consensus TEForecast
2017-07-04 02:55 PM Inflation Rate YoY 8.8% 8.7% 8.9%
2017-08-03 02:30 PM Inflation Rate YoY 9.4% 8.8% 9%
2017-09-04 02:00 PM Inflation Rate YoY 10.4% 9.4% 8.6%
2017-10-10 11:00 AM Inflation Rate YoY 10.4% 7.7%
2017-11-03 11:00 AM Inflation Rate YoY 7.8%
2017-12-05 11:00 AM Inflation Rate YoY 7.9%
Ethiopia Prices Last Previous Highest Lowest Unit
Inflation Rate 10.40 9.40 64.20 -4.10 percent [+]
Food Inflation 13.30 12.50 16.20 2.81 percent [+]
CPI Transportation 116.00 115.00 116.00 97.60 Index Points [+]
Consumer Price Index Cpi 169.20 167.60 169.20 100.00 Index points [+]

Ethiopia Inflation Rate Notes

In Ethiopia, the inflation rate measures a broad rise or fall in prices that consumers pay for a standard basket of goods. This page provides the latest reported value for – Ethiopia Inflation Rate – plus previous releases, historical high and low, short-term forecast and long-term prediction, economic calendar, survey consensus and news. Ethiopia Inflation Rate – actual data, historical chart and calendar of releases – was last updated on September of 2017.
Actual Previous Highest Lowest Dates Unit Frequency
10.40 9.40 64.20 -4.10 2006 – 2017 percent Monthly
Inflation Rate by Country
 

Last
Australia 1.90 Jun/17
Brazil 2.71 Jul/17
Canada 1.20 Jul/17
China 1.40 Jul/17
Euro Area 1.50 Aug/17
France 0.90 Aug/17
Germany 1.80 Aug/17
India 2.36 Jul/17
Indonesia 3.82 Aug/17
Italy 1.20 Aug/17
Japan 0.40 Jul/17
Mexico 6.44 Jul/17
Netherlands 1.30 Jul/17
Russia 3.90 Jul/17 
South Korea 2.60 Aug/17
Spain 1.60 Aug/17
Switzerland 0.30 Jul/17
Turkey 9.79 Jul/17
United Kingdom 2.60 Jul/17
United States 1.70 Jul/17

Time Series Data and Machine Learning August 15, 2017

Posted by OromianEconomist in 10 best Youtube videos, 25 killer Websites that make you cleverer, Data Science, Econometrics, Economics, Uncategorized.
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Anomaly Detection of Time Series Data Using Machine Learning & Deep Learning


Introduction to Time Series Data

By Jagreet, XenonStack,  June 23, 2017


Time Series is defined as a set of observations taken at a particular period of time. For example, having a set of login details at regular interval of time of each user can be categorized as a time series. On the other hand, when the data is collected at once or irregularly, it is not taken as a time series data.

Time series data can be classified into two types –

  • Stock Series – It is a measure of attributes at a particular point in time and taken as a stock takes.

  • Flow Series – It is a measure of activity at a specific interval of time. It contains effects related to the calendar.

Time series is a sequence that is taken successively at the equally pace of time. It appears naturally in many application areas such as economics, science, environment, medicine, etc. There are many practical real life problems where data might be correlated with each other and are observed sequentially at the equal period of time. This is because, if the repeatedly observe the data at a regular interval of time, it is obvious that data would be correlated with each other.

With the use of time series, it becomes possible to imagine what will happen in the future as future event depends upon the current situation. It is useful to divide the time series into historical and validation period. The model is built to make predictions on the basis of historical data and then this model is applied to the validation set of observations. With this process, the idea is developed how the model will perform in forecasting.

Time Series is also known as the stochastic process as it represents the vector of stochastic variables observed at regular interval of time.

Components of Time Series Data

 

In order to analyze the time series data, there is a need to understand the underlying pattern of data ordered at a particular time. This pattern is composed of different components which collectively yield the set of observations of time series.

The Components of time series data are given below –

  • Trend

  • Cyclical

  • Seasonal

  • Irregular

Components of Time Series Data

Trend – It is a long pattern present in the time series. It produces irregular effects and can be positive, negative, linear or nonlinear. It represents the variations of low frequency and the high and medium frequency of data is filtered out from the time series.

If the time series does not contain any increasing or decreasing pattern, then time series is taken as stationary in the mean.

There are two types of the trend –

  1. Deterministic – In this case, the effects of the shocks present in the time series are eliminated i.e. revert to the trend in long run.

  2. Stochastic – It is the process in which the effects of shocks are never eliminated as they have permanently changed the level of the time series.

The stochastic process having a stationarity around the deterministic process is known as trend stationary process.

Cyclic – The pattern exhibit up and down movements around a specified trend is known as cyclic pattern. It is a kind of oscillations present in the time series. The duration of cyclic pattern depends upon the industries and business problems to be analysed. This is because the oscillations are dependable upon the business cycle.

They are larger variations that are repeated in a systematic way over time. The period of time is not fixed and usually composed of at least 2 months in duration. The cyclic pattern is represented by a well-shaped curve and shows contraction and expansion of data.

Seasonal – It is a pattern that reflects regular fluctuations. These short-term movements occur due to the seasonal factors and custom factors of people. In this case, the data faces regular and predictable changes that occurred at regular intervals of calendar. It always consist of fixed and known period.

The main sources of seasonality are given below –

  • Climate

  • Institutions

  • Social habits and practices

  • Calendar

How is the seasonal component estimated?

If the deterministic analysis is performed, then the seasonality will remain same for similar interval of time. Therefore, it can easily be modelled by dummy variables. On the other hand, this concept is not fulfilled by stochastic analysis. So, dummy variables are not appropriate because the seasonal component changes throughout the time series.

Different models to create a seasonal component in time series are given below –

  • Additive Model – It is the model in which the seasonal component is added with the trend component.

  • Multiplicative Model – In this model seasonal component is multiplied with the intercept if trend component is not present in the time series. But, if time series have trend component, sum of intercept and trend is multiplied with the seasonal component.

Irregular – It is an unpredictable component of time series. This component cannot be explained by any other component of time series because these variational fluctuations are known as random component. When the trend cycle and seasonal component is removed, it becomes residual time series. These are short term fluctuations that are not systematic in nature and have unclear patterns.

Difference between Time Series Data and Cross-Section Data

 

Time Series Data is composed of collection of data of one specific variable at particular interval of time. On the other hand, Cross-Section Data is consist of collection of data on multiple variables from different sources at a particular interval of time.

Collection of company’s stock market data at regular interval of year is an example of time series data. But when the collection of company’s sales revenue, sales volume is collected for the past 3 months then it is taken as an example of cross-section data.

Time series data is mainly used for obtaining results over an extended period of time but, cross-section data focuses on the information received from surveys at a particular time.

What is Time Series Analysis?

 

Performing analysis of time series data is known as Time Series Analysis. Analysis is performed in order to understand the structure and functions produced by the time series. By understanding the mechanism of time series data a mathematical model could easily be developed so that further predictions, monitoring and control can be performed.

Two approaches are used for analyzing time series data are –

  • In the time domain

  • In the frequency domain

Time series analysis is mainly used for –

  • Decomposing the time series

  • Identifying and modeling the time-based dependencies

  • Forecasting

  • Identifying and model the system variation

Need of Time Series Analysis

 

In order to model successfully, the time series is important in machine learning and deep learning. Time series analysis is used to understand the internal structure and functions that are used for producing the observations. Time Series analysis is used for –

  • Descriptive – In this case, patterns are identified in correlated data. In other words, the variations in trends and seasonality in the time series are identified.

  • Explanation – In this understanding and modeling of data is performed.

  • Forecasting – Here, the prediction from previous observations is performed for short term trends.

  • Invention Analysis – In this case, effect performed by any event in time series data is analyzed.

  • Quality Control – When the specific size deviates it provides an alert.

Applications of Time Series Analysis

 

Applications of Time Series Analysis

 

Time Series Database and its types

Time series database is a software which is used for handling the time series data. Highly complex data such higher transactional data is not feasible for the relational database management system. Many relational systems does not work properly for time series data. Therefore, time series databases are optimised for the time series data. Various time series databases are given below –

  • CrateDB

  • Graphite

  • InfluxDB

  • Informix TimeSeries

  • Kx kdb+

  • Riak-TS

  • RRDtool

  • OpenTSDB

Types of Time Series Database

What is Anomaly?

 

Anomaly is defined as something that deviates from the normal behaviour or what is expected. For more clarity let’s take an example of bank transaction. Suppose you have a saving bank account and you mostly withdraw Rs 10,000 but, one day Rs 6,00,000 amount is withdrawn from your account. This is unusual activity for bank as mostly, Rs 10,000 is deducted from the account. This transaction is an anomaly for bank employees.

The anomaly is a kind of contradictory observation in the data. It gives the proof that certain model or assumption does not fit into the problem statement.

Different Types of Anomalies

 

Different types of anomalies are given below –

  • Point Anomalies – If the specific value within the dataset is anomalous with respect to the complete data then it is known as Point Anomalies. The above mentioned example of bank transaction is an example of point anomalies.

  • Contextual Anomalies – If the occurrence of data is anomalous for specific circumstances, then it is known as Contextual Anomalies. For example, the anomaly occurs at a specific interval of period.

  • Collective Anomalies – If the collection of occurrence of data is anomalous with respect to the rest of dataset then it is known as Collective Anomalies. For example, breaking the trend observed in ECG.

Models of Time Series Data

 

ARIMA Model – ARIMA stands for Autoregressive Integrated Moving Average. Auto Regressive (AR) refers as lags of the differenced series, Moving Average (MA) is lags of errors and I represents the number of difference used to make the time series stationary.

Assumptions followed while implementing ARIMA Model are as under –

  • Time series data should posses stationary property: this means that the data should be independent of time. Time series consist of cyclic behaviour and white noise is also taken as a stationary.

  • ARIMA model is used for a single variable. The process is meant for regression with the past values.

In order to remove non-stationarity from the time series data the steps given below are followed –

  • Find the difference between the consecutive observations.

  • For stabilizing the variance log or square root of the time series data is computed.

  • If the time series consists of the trend, then the residual from the fitted curve is modulated.

ARIMA model is used for predicting the future values by taking the linear combination of past values and past errors. The ARIMA models are used for modeling time series having random walk processes and characteristics such as trend, seasonal and nonseasonal time series.

Holt-Winters – It is a model which is used for forecasting the short term period. It is usually applied to achieve exponential smoothing using additive and multiplicative models along with increasing or decreasing trends and seasonality. Smoothing is measured by beta and gamma parameters in the holt’s method.

  • When the beta parameter is set to FALSE, the function performs exponential smoothing.

  • The gamma parameter is used for the seasonal component. If the gamma parameter is set to FALSE, a non-seasonal model is fitted.

How to find Anomaly in Time Series Data

 

AnomalyDetection R package –

It is a robust open source package used to find anomalies in the presence of seasonality and trend. This package is build on Generalised E-Test and uses Seasonal Hybrid ESD (S-H-ESD) algorithm. S-H-ESD is used to find both local and global anomalies. This package is also used to detect anomalies present in a vector of numerical variables. Is also provides better visualization such that the user can specify the direction of anomalies.

Principal Component Analysis –

It is a statistical technique used to reduce higher dimensional data into lower dimensional data without any loss of information. Therefore, this technique can be used for developing the model of anomaly detection. This technique is useful at that time of situation when sufficient samples are difficult to obtain. So, PCA is used in which model is trained using available features to obtain a normal class and then distance metrics is used to determine the anomalies.

Chisq Square distribution –

It is a kind of statistical distribution that constitutes 0 as minimum value and no bound for the maximum value. Chisq square test is implemented for detecting outliers from univariate variables. It detects both lowest and highest values due to the presence of outliers on both side of the data.

What are Breakouts in Time Series Data?

 

Breakout are significant changes observed in the time series data. It consist of two characteristics that are given below –

  • Mean shift – It is defined as a sudden change in time series. For example the usage of CPU is increased from 35% to 70%. This is taken as a mean shift. It is added when the time series move from one steady state to another state.

  • Ramp Up – It is defined as a sudden increase in the value of the metric from one steady state to another. It is a slow process as compared with the mean shift. It is a slow transition process from one stable state to another.

In Time series often more than one breakouts are observed.

How to detect Breakouts in Time Series Data?

 

In order to detect breakouts in time series Twitter has introduced a package known as BreakoutDetection package. It is an open source package for detecting breakouts at a fast speed. This package uses E-Divisive with Medians (EDM) algorithm to detect the divergence within the mean. It can also be used to detect the change in distribution within the time series.

Need of Machine Learning and Deep Learning in Time Series Data

 

Machine learning techniques are more effective as compared with the statistical techniques. This is because machine learning have two important features such as feature engineering and prediction. The feature engineering aspect is used to address the trend and seasonality issues of time series data. The issues of fitting the model to time series data can also be resolved by it.

Deep Learning is used to combine the feature extraction of time series with the non-linear autoregressive model for higher level prediction. It is used to extract the useful information from the features automatically without using any human effort or complex statistical techniques.

Anomaly Detection using Machine Learning

 

There are two most effective techniques of machine learning such as supervised and unsupervised learning.

Firstly, supervised learning is performed for training data points so that they can be classified into anomalous and non-anomalous data points. But, for supervised learning, there should be labeled anomalous data points.

Another approach for detecting anomaly is unsupervised learning. One can apply unsupervised learning to train CART so that prediction of next data points in the series could be made. To implement this, confidence interval or prediction error is made. Therefore, to detect anomalous data points Generalised ESD-Test is implemented to check which data points are present within or outside the confidence interval

The most common supervised learning algorithms are supervised neural networks, support vector machine learning, k-nearest neighbors, Bayesian networks and Decision trees.

In the case of k-nearest neighbors, the approximate distance between the data points is calculated and then the assignment of unlabeled data points is made according to the class of k-nearest neighbor.

On the other hand, Bayesian networks can encode the probabilistic relationships between the variables. This algorithm is mostly used with the combination of statistical techniques.

The most common unsupervised algorithms are self-organizing maps (SOM), K-means, C-means, expectation-maximization meta-algorithm (EM), adaptive resonance theory (ART), and one-class support vector machine.

Anomaly Detection Using Machine Learning

Anomaly Detection using Deep Learning

 

Recurrent neural network is one of the deep learning algorithm for detecting anomalous data points within the time series. It consist of input layer, hidden layer and output layer. The nodes within hidden layer are responsible for handling internal state and memory. They both will be updated as the new input is fed into the network. The internal state of RNN is used to process the sequence of inputs. The important feature of memory is that it can automatically learns the time-dependent features.

The process followed by RNN is described below –

First the series of data is fed into the RNN model. After that, model will train the series of data to compute the normal behaviour. After computing, whenever the new input is fed into the trained network, it will be able to classify the input as normal and expected, or anomalous.

Training of normal data is performed because the quantity of abnormal data is less as compared with the normal data and provides an alert whenever any abnormal activity is observed in the future.

Anomaly Detection using Deep Learning

Time Series Data Visualization

 

Data Visualization is an important and quickest way for picturizing the time series data and forecasting. The different types of graphs are given below:

  • Line Plots.

  • Histograms and Density Plots.

  • Box and Whisker Plots.

  • Heat Maps.

  • Lag Plots or Scatter Plots.

  • Autocorrelation Plots.

The above techniques are used for plotting univariate time series data but they can also be used for multivariate time series when more than one observation is dependent upon time.

They are used for the representation of time series data to identify trends, cycles, and seasonality from time series and observe how they can influence the choice of model.

Summary

 

Time Series is defined as sequence of data points. The components of time series are responsible for the understanding of patterns of data. In time series, anomalous data points can also be there.

Therefore, there is a need to detect them. Various statistical techniques are mentioned in blog that are used but machine learning and deep learning are essential.

In machine learning, supervised learning and unsupervised learning is used for detecting anomalous data. On the other hand, in deep learning recurrent neural network is used.


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QZ: Creativity will be the source of our next industrial revolution, not machines May 20, 2017

Posted by OromianEconomist in Economics.
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Quartz: COMPETITIVE ADVANTAGE: Creativity will be the source of our next industrial revolution, not machines


Growth in the first industrial revolution was driven by engineering, the second through electricity and production lines, and the third by technology and information. The modern economies that will undergo a fourth industrial revolution will not be those that worship machines, but those that support human creativity. When we understand how people think and work best, we will be compelled to put our workers’ well-being first in the name of both health and economic productivity.

For centuries, human health has been systematically traded for economic growth. The word labor originated in medieval Europe during a decline in slavery and widespread adoption of money, and symbolizes the monetization of human skill: “productive work, especially physical toil done for wages.” Its modern definition, and how we perceive productivity, came about through the process of industrialization.

The first, second, and third industrial revolutions

In the mid-17th century, the nature of work changed when rural, agrarian societies shifted to become urban and industrial. Economic growth meant going underground for energy and into factories for manufacturing. The detrimental effects to workers’ health in these industries are well documented: In the name of financial gain, miners and factory workers were subject to hazardous conditions that often resulted in illnesses, physical pain, and early death.

The first industrial revolution presented economic opportunities fraught with dangerous labor. The tradeoff of well-being for economic benefit was clear: Employers knowingly ran businesses that paid workers not just for their time, but also for their health.

 Employers knowingly ran businesses that paid workers not just for their time, but also for their health. Over time, machines took over from humans in dictating the pace of production, and working hours soared. Rising demand outpaced supply, meaning that businesses could maximize profits by manufacturing around the clock. An extensive study by the International Labour Organization (ILO) into working hours explains how the concept of “working time” in early industrialization was based on the perception that hours spent outside work were regarded as “lost time.”

Through these developments, the perceived dichotomy of work and life emerged: Work is the time dedicated to economic gain, while life is the time spent on our mental and physical needs. Four hundred years later, our contemporary culture of “living for the weekend” is a reflection of how this form of exchange became an accepted aspect of our existence.

The fourth industrial revolution

Western countries now firmly in throes of the third industrial revolution successfully shifted from manual to skilled labor. Yet the mentality that time spent outside work is “lost” hasn’t changed. The ILO study points out that even a recorded decrease in working hours is shaky because of the institutionalization of overtime and out-of-office work, such as mindlessly replying to emails on your phone.

One example of how businesses and organizations are trying to create a more effective workforce is not actually based in work, but in the office spaces in which it is conducted. The new wave of “fun” workplaces that are now standard in high-tech companies is a continuation of finding solutions to the wrong problem; the aim of such designs is often to encourage longer work hours and company loyalty. Facebook went as far as offering workers $10,000 to live closer to the office.

However, the link between an employee spending more time in the office and being more productive with their time is rather tenuous. Workers might clock more hours and stay longer at a company if the surroundings are comfortable, but the assumption that this makes them better at what they do is unfounded.

Another design-based example is open-plan offices. In the push to lower overheads—and under the false assumption that it would encourage better working practices—private rooms were traded for non-divided workspaces. This resulted in environments that increase stress, particularly due to noise. Stress has become the dominant cost to human health at work. A 2016 report found that stress accounted for 37% of all work-related ill-health cases in the UK and 45% of all working days lost due to ill health.

Studies carried out as early as the 1970s have shown that stress can be beneficial for performing simple or familiar tasks, but detrimental to ones requiring complex, flexible thinking. The prefrontal cortex is an area of the brain associated with executive function, which contributes to decision making, predictions, and many of our highest cognitive processes related to learning and imagination. Increased levels of catecholamine released during stress harms the performance of the prefrontal cortex, including persistent loss of these functions from chronic stress. Naming just one aspect of how working conditions affect us cognitively, there are many more that stem from our environmental and social context.

As robots increasingly take on manual labor, we will need to foster what differentiates human from machine (at least for now): creativity. Evidence that psychological and physical well-being is paramount to creative thinking will turn the historic exchange of human health for economic growth on its head. As Klaus Schwab, founder of the World Economic Forum writes, “I am convinced of one thing—that in the future, talent, more than capital, will represent the critical factor of production.”


Understanding Neoliberalism: A Marxist Analysis May 13, 2017

Posted by OromianEconomist in Consumersim, Development & Change, Development Studies, Economics, Free development vs authoritarian model, Globalization, Growth and Inequqlity, Neoliberalism.
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Neoliberalism, Harvey writes, is “a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms…within an institutional framework [of] strong private property rights, free markets, and free trade” [8]. He goes on to write that neoliberalism “seeks to bring all human action into the domain of the market” [9]. In short, neoliberalism offers a set of market-based solutions to social ills. It supposes that problems experienced collectively can be conquered by individuals. An important aspect of this an antipathy to state intervention. The state, in the neoliberal understanding, only gets in the way of individual entrepreneurs who want to alleviate problems. Hence, deregulation is a prime aspect of neoliberal practice. To quote Steger and Roy in Neoliberalism: A Very Short Introduction, “the state is to refrain from interfering with the economic activities of self-interested citizens” [10]. Neoliberalism presents a profound hatred of collective action in favor of individual motivation. This does not mean, however, that the state under neoliberalism is impotent, ineffectual, or meaningless. On the contrary. Although the regulatory and public service components of the state will be stripped bare under neoliberalism (we will examine this in more detail later), the military and police-the repressive state apparatus-will be inflated to new heights. Harvey writes that the state must “secure private property rights and…guarantee, by force if need by, the proper functioning of markets. Furthermore, if markets do not exist [in water, healthcare, and education, for example] then they must be created, by state action if necessary” [11]. Neoliberalism, then, is not against the state. It is against the state when it interferes with market mechanisms, but is perfectly happy to lean on the state when the neoliberal order is resisted or challenged. Under neoliberalism, the state must protect the interests of the aforementioned entrepreneurial individuals (the capitalists). It will not hesitate to use violence to do this.

It should be noted that this process of violent state intervention has been common, literally, since the very beginning of capitalism. An important part of the development of capitalism in England, for instance, was the land enclosure.  rich landowners used their control of state processes to appropriate public land for their private benefit. This created a landless working class that provided the labor required in the new industries developing in the north of England. EP Thompson writes, “in agriculture the years between 1760 and 1820 are the years of wholesale enclosure in which, in village after village, common rights are lost” [12]. He goes on to say,  “Enclosure (when all the sophistications are allowed for) was a plain enough case of class robbery” [13].

Click here to read more at  Write To Rebel: Understanding Neoliberalism: A Marxist Analysis

Economy for the common good: Redesigning economics based on ecology May 7, 2017

Posted by OromianEconomist in Economics, Environment.
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What would an ‘economy for the common good’, an ‘economics of happiness’ and a ‘sacred economics’ look like in our community and how do we co-create them?


As human beings, we are in our very nature compassionate and collaborative, but our current monetary and economic systems are based on the narrative of separation that creates and encourages competition. For too long, we have told a story about nature ‘red in tooth and claw’ and excused the worst of human behaviour as natural. Scarcity is primarily a mindset and lack of collaboration not a biophysical reality! Competition creates scarcity, which in turn is used to justify competitive behaviour (a vicious circle).

The natural limits of bioproductivity and healthy ecosystems functions don’t create scarcity as such. Collaboration can turn these natural planetary limits into enabling constraints to create abundance for all within healthy ecosystems and a healthy biosphere. Collaboration creates shared abundance, which in turn invites more collaboration (a virtuous circle). We choose which world we want to bring forth together! – Dr. Daniel Christian Wahl

Click here to read the full article at Redesigning economics based on ecology

WEF: Five measures of growth that are better than GDP April 20, 2017

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Good jobs.  Wellbeing.  Environment. Fairness.   Health.


It is, of course, entirely possible for an economy to go faster and faster without getting closer to meeting these goals – indeed, while heading in the opposite direction.

World Economic Forum: Five measures of growth that are better than GDP


GDP is like a speedometer: it tells you whether your economy is going faster or slower. As in cars, a speedometer is useful but doesn’t tell you everything you want to know. For example, it won’t tell you whether you are overheating, or about to run out of fuel.
 Above all, the speedometer doesn’t tell you whether or not you’re going in the right direction. If you suggest to a car driver that you might be on the wrong road, and the response is “then we must go faster”, you might think that’s pretty stupid. Yet this is what happens whenever complaints about the state of the economy elicit a commitment to boost growth.

So what is the right direction for a modern economy? That’s a relatively easy question to answer: when you ask people, they say much the same things. A good economy meets everyone’s basic needs. It means people are healthy and happy with life. It avoids storing up potential sources of long-term trouble, such as extreme inequality and environmental collapse.

It is, of course, entirely possible for an economy to go faster and faster without getting closer to meeting these goals – indeed, while heading in the opposite direction.

Now the trickier part. What would be the economic equivalent of a compass? We need to measure the direction of economic travel in a way that’s comparable to how GDP measures its speed – easy to communicate, and amenable to being influenced by policy decisions.

The New Economics Foundation (NEF), where I was the Executive Director until December 2015, proposed five indicators in an October 2015 report. Imagine them arrayed like dials on a dashboard that you can glance at for an overall picture, as well as study in more detail if you want. Why five? It’s hard to capture everything that matters in one metric, and psychological research demonstrates that people struggle to hold more than five things in their heads at once.

1. Good jobs. Employment statistics tell us what proportion of people have jobs. They don’t tell us what proportion of those with jobs are paid too little to afford a decent standard of living, or worry about whether they’ll still have work next month.

According to UK government figures, 94% of people were in work in 2014 – up nearly two percentage points in four years. However, the NEF calculated that only 61% were in secure jobs paying a living wage – down a similar amount in the same period.

2. Wellbeing. A growing economy is not an end in itself – it’s a means to improving people’s lives. Few would disagree that the ultimate aim of public policy is wellbeing; we care about GDP because we assume it means more wellbeing. So why not also measure wellbeing directly?

The validity of research into measuring wellbeing, by asking people about their life satisfaction, is now widely accepted. Such measures capture a range of things that people care about and that policies can influence – from income and health to housing and social connections.

Some governments do measure life satisfaction, including the UK (it increased from 7.4 to 7.6, on a scale of 0-10, in the four years to 2014). However, it remains at the margins of policymaking.

3. Environment. The NEF propose a national indicator of lifestyle-related carbon emissions, relative to an allocation calculated from global targets for avoiding dangerous levels of climate change.

In four years, the UK’s position deteriorated from using 91% of its allocation to 98%. As climate is a global problem, this indicator is effectively a measure of responsible global citizenship.

4) Fairness. Research increasingly shows that high income inequality has negative social consequences, while casting doubt on the idea that it incentivises hard work.

Comparing the average incomes of the top and bottom 10%, inequality in the UK has been worsening by an average of 0.8% a year for the last four years.

5) Health. The NEF proposes “avoidable deaths” as a simple, easily-understandable measure that captures the quality of health interventions – not only treatment, but also prevention.

Here, the UK shows a positive trend, but with plenty of room for further improvement – the latest figures suggest 23% of deaths need not have happened.

Image: New Economics Foundation (NEF)

The NEF designed these measures with the United Kingdom in mind, working with the UK’s Office of National Statistics. But they are, in principle, just as meaningful for other countries.

The shortcomings of GDP, as a measure of what we want from an economy, are not a new discovery. The NEF and others have been making the case for years. But while various proposals for alternatives have engaged the interest of policymakers and technocrats, they have not yet taken hold among politicians.

That’s understandable: any politician who suggests new ways to judge their performance is also creating new ways to fail, and many policies that will pay long-term dividends on these indicators will also impose short-term costs.

More broadly, there remains a reluctance to move away from viewing economics as a hard, mathematical science, and accept the need to incorporate more of a social science mindset. In effect, we need another value shift in economics, comparable to those that shaped the last century – Kenyesianism and neoliberalism.

However, while the problems with the current economic system are increasingly widely appreciated, we still lack a compelling, coherent, simple alternative narrative. I hope these indicators can help that narrative to develop.


Click here to read more at wef

World Atlas: Countries With The Lowest Income In The World April 16, 2017

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Countries With  Very Low per Capita GNIs: Malwai, Burundi, Central African Republic, Liberia, the Democratic Republic of Congo, Niger, Gambia, Madagascar, Guinea, Guinea-Bissau, and Ethiopia are all struggling with extreme poverty. Within them, GNI per capita rates vary from 250 to 550 international dollars. This often becomes even more concerning when considering that income disparities often leave the general population in an even poorer state the already bad numbers would suggest. Collectively, these countries need strong economic reforms to begin to fight poverty and increase the welfare of their citizens and secure stronger standings on the global economic scene.

Countries With The Lowest Income In The World

These following countries have the smallest Gross National Income (GNI) per capita worldwide.


The Gross National Income, or GNI, represents the sum of a nation’s Gross Domestic Product (GDP) plus any other net income received from overseas. Therefore, the gross national income measures both the domestic income of a country and the income it receives from abroad.The GNI per capita measures the average income earned by a person in a given country and is calculated by simply dividing the total GNI of the country by the total size of the population. Generally, GNI per capita is used to compare the state of wealth of a population and the standard of living in a country with those of other nations. GNI per capita is expressed in international dollars, and is based on Purchasing Power Parity (PPP), how far the money will go in buying commonly purchased goods in relation to that money’s ability to do the same elsewhere on the planet. When determining a country’s development status, GNI becomes an important economic factor. Taking into account all the considerations listed above, it becomes quite easy to understand why the countries with the smallest GNIs per capita tend to be developing countries which struggle with poor Infrastructure in terms of social welfare and economic development alike.

Malawi’s Economic Issues

According to World Bank data, the country with the smallest GNI per capita is Malawi, with 250 international dollars of income per person. Although the country enjoys a democratic and stable government, the economy continues to operate within a poor fiscal environment, characterized by the country’s high debt levels. The social environment is characterized by a proliferation of inequality and poverty, with over a half of the population being considered as poor, and one-quarter of it living in extreme poverty. The low agricultural productivity is one of the main obstacles in reducing the poverty, further worsened by increasing erratic weather patterns.

Post-Conflict Poverty in Burundi

Burundi, with a GNI of 270 international dollars, is the country with the second smallest GNI per capita. Even if the country is in the process of transitioning from a post-conflict economy to a stable, peacetime economy, poverty remains at troublingly high levels. The country is focusing on developing its basic social services, modernizing the public finance sector, and upgrading institutions and infrastructure across the board. Though it possesses a modernized industrial establishment, it above all relies on the agricultural sector, energy production, and mining for the majority of its revenues. The growing economy will increasingly offer more employment opportunities, and hopefully improvements in the standard of living will be quick to follow.

Underdeveloped Resources in the Central African Republic

The Central African Republic has the third-smallest GNI per capita value (330 international dollars). While it’s true that the country has recently been devastated by a political crisis, the Central African Republic was among the countries with the highest poverty rates well before the recent tumultuous events. The country possesses abundant natural resources but, unfortunately, they are generally very underdeveloped. Subsistence agriculture represents almost one-third of the gross domestic product. Exports of diamonds and wood, while relatively significant domestically, have clearly not been enough to raise the economy to the level of a major global power.

Liberia’s Epidemic

Liberia’s economy was gravely affected by the Ebola crisis that swept Africa for much of the new millennium. Indeed, the outbreak essentially reversed many of the important gains the country has made in the fights against political and economic insecurity and poverty. The quarantines implemented due to the Ebola epidemic affected the production and exports of rubber as workers were restricted in their daily travels, and contamination from African goods became a global concern. The weak business environment constrains the growth of manufacturing industries, and most of the important sectors suffered production disruptions due to the epidemic. The economy of Liberia definitely needs effective implementation of an economic recovery plan

Other Countries With Low per Capita GNIs

Besides these countries, the Democratic Republic of Congo, Niger, Gambia, Madagascar, Guinea, Guinea-Bissau, and Ethiopia are all struggling with extreme poverty as well. Within them, GNI per capita rates vary from 380 to 550 international dollars. This often becomes even more concerning when considering that income disparities often leave the general population in an even poorer state the already bad numbers would suggest. Collectively, these countries need strong economic reforms to begin to fight poverty and increase the welfare of their citizens and secure stronger standings on the global economic scene.

Gross National Income (GNI) per Capita

Rank Country GNI Per Capita (USD)
1 Malawi $250
2 Burundi $270
3 Central African Republic $320
4 Liberia $370
5 Congo, Dem. Rep. $380
6 Niger $410
7 Madagascar $440
8 Guinea $470
9 Ethiopia $550
10 Guinea-Bissau $550
11 Togo $570
12 Mozambique $600
13 Mali $650
14 Uganda $670
15 Afghanistan $680
16 Burkina Faso $700
17 Rwanda $700
18 Sierra Leone $700
19 Nepal $730
20 Comoros $790
21 Haiti $820
22 Zimbabwe $840
23 Benin $890
24 Tanzania $920
25 South Sudan $970

The Indian Economist: Behavioural Economics, Psychology and Free Trade August 17, 2016

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Odaa OromooOromianEconomist

 

The transaction “utility” (economists’ term for satisfaction) compares the price one thinks is justified (the “reference price”) to the actual price they have to pay. If reference price is less than or equal to the actual price, humans get satisfied.

For free-trade skeptics, buying a relatively varied and less expensive basket of commodities is an alluring development. However, the transaction utility (satisfaction) is severely negative. This is because they are not willing to pay the price of substantial layoffs and unemployment at home (incidents that they perceive chiefly stem from globalisation) in order to get the goods for cheap.

Whether they are right or wrong is another matter, but the heavy moral cost they face because of perceived guilty conscience is too high. This results in a dissatisfaction with the current state of free trade and borderless transactions. In short, they suffer from a negative overall utility.

read more at:-

http://theindianeconomist.com/behaviour-economics-psychology-free-trade/

Tyranny of Experts, illustrated August 17, 2016

Posted by OromianEconomist in Development & Change, Economics, Economics: Development Theory and Policy applications, Ethiopia's Colonizing Structure and the Development Problems of People of Oromia, Free development vs authoritarian model, Uncategorized.
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Odaa OromooOromianEconomist

An Africanist Perspective

More on this here, here, and here.

H/T Khadija Mohamud.

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RUSH FOR THE EXITS: WHY IS ETHIOPIA’S CAPITAL FLIGHT ACCELERATING? May 11, 2016

Posted by OromianEconomist in Africa, Corruption, Corruption in Africa, Economics, Illicit financial outflows from Ethiopia.
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Odaa Oromoo

Addis Standard

The TPLF Corruption network

 

According to estimates reported by the World Bank, the amount of official development assistant (ODA) Ethiopia received in 2010 was $4 billion but total amount of IFFs during that year was $5.6 billion.

This means in 2010 alone Ethiopia’s IFFs exceeded the ODA it received that year by $1.6 billion.  In other words, Ethiopia’s IFFs amounted to diverting the entire aid money of 2010 to foreign banks and then still transfer abroad an additional sum of money. During the entire period (2004 to 2013) the total amount of money that Ethiopia lost due to IFF was $26 billion. This amounts to stealing nearly $300 per citizen.  Alternatively, the size of stolen money was about 11 times the total the amount of emergency aid being sought from donors in the current year to buy cereals from abroad and feed the drought victims.


 

RUSH FOR THE EXITS: WHY IS ETHIOPIA’S CAPITAL FLIGHT ACCELERATING?

 

By J. Bonsa (PhD), Special to Addis Standard,  9 May 2016

A substantial sum of money has been illegally flowing out of Ethiopia during the last decade. What is even more worrying is not just that the levels of out flows are high but also the sizes of illicit capital outflows have been rising at alarming rates. This rather unique pattern has attracted the attention of the general public as well as those of bilateral and multilateral donor agencies.

I will also attempt to put some flesh on the bones of facts presented in the GFI database. I will do so by shedding some light on the political economy context of the illicit capital outflow (IFFs) from Ethiopia.

Stolen money trails

The natural starting point is to get a sense of magnitude on the levels and trends.  The GFI data is summarized and plotted in Fig. 1.  For the time being we focus on the total flows, that is the heights of each bar denoting sizes of annual illicit money outflows.  The sum of the blue and red colors gives total amount of money illegally moved aboard from Ethiopia during that year.  This ranged from USD $0.4 billion in 2004 to USD $5.6 billion in 2010.

 

The average annual outflow was $2.6 billion during 2004 and 2013. This is a sizeable sum of money by any standard.  For instance, according to estimates reported by the World Bank, the amount of official development assistant (ODA) Ethiopia received in 2010 was $4 billion but total amount of IFFs during that year was $5.6 billion.

This means in 2010 alone Ethiopia’s IFFs exceeded the ODA it received that year by $1.6 billion.  In other words, Ethiopia’s IFFs amounted to diverting the entire aid money of 2010 to foreign banks and then still transfer abroad an additional sum of money.

During the entire period (2004 to 2013) the total amount of money that Ethiopia lost due to IFF was $26 billion. This amounts to stealing nearly $300 per citizen.  Alternatively, the size of stolen money was about 11 times the total the amount of emergency aid being sought from donors in the current year to buy cereals from abroad and feed the drought victims.

Potential culprits

One may wonder – who are the culprits responsible for Ethiopia’seconomic fraud at such massive scale?  The GFI categorizes possible perpetrators into three groups: (a) financial institutions; (b) complicit business counterparts, mainly importers and exporters; and (c) government officials.

In the Ethiopian case, it is reasonable to exclude financial institutions because there is no foreign bank operating in Ethiopia, and the domestic private banks are extremely tightly controlled.  Ethiopia’s most influential banks, the Commercial Bank of Ethiopia (CBE) and the National Bank of Ethiopia (NBE), are owned and run by the government.   Therefore, in the context of Ethiopia it is safe to include (a) under (c).

That is to say Ethiopia’s IFF can only be undertaken by importers, exporters or government officials.  One would hasten to add that there is a huge extent of overlaps between government officials and big businesses in Ethiopia, since big businesses are highly interconnected with the government and/or they are directly or indirectly owned and run by government officials.

Money diversion channels

Now we can shift our attention back to fig. 1 and consider the breakdowns of the IFFs, the individual component denoted by the blue and red sections in each bar. The GFI applies a methodological framework that accounts for two types of illegal movements of money from one country to another.

The first one is export or import trade misinvoicing. This is measured by using a methodology called Gross Excluding Reversals (GER).  This simply mirrors exports by one country with imports of another country and vice versa.  For instance, items of imports recorded by Ethiopia should agree with records of exporters to Ethiopia in all aspects – value, quantity and quality.

The second one is various leakages in the balance of payments, measured by using the “hot money narrow” (HMN) approach.The latter one is often referred to as “net errors and omissions” in the balance of payment jargon. For instance, if a donor agency or country recorded $1 million grants to Ethiopia but this does not appear in the records by the authorities in Ethiopia, then the GFI records this as a leakage from Ethiopia’s balance of payment.

It is clear from Fig. 1 that the bulk of illicit money transfer from Ethiopia has taken place using trade misinvoicing, denoted by the blue component of the bar. In 2004, trade misinvoicing constituted only 14% of the total IFFs.  In 2013, however, this proportion has grown to 100%, the entire IFFs began to be accounted for more and more by trade misinvoicing. For the entire period under discussion, $19.7 billion (or 76% of the total IFFs) was conducted through trade misinvoicing.  The year 2010 is an exception – diversion of “hot money” dominated in that year; it constituted 55% of the total IFFs.

False invoices

Trade misinvoicing can take place in one of the following four ways: over invoicing exports, under invoicing exports, over invoicing imports and under invoicing imports. In Ethiopia’s case, the GFI report indicated import over-invoicing is by far the most important method of transferring money abroad. During the period under analysis, about $19.7 billion was transferred abroad through import over-invoicing.

It is critical to understand how import misinvoicing hurts the Ethiopian economy.  This is important in the context of huge public construction projects with substantially large components of imports of machinery and other equipment. For instance, an acquisition of a set of machinery whose real value is $1 million is recorded with inflated invoice of $1.5 million.

The importer allocates project budget at the inflated import value, pays the real value to the supplier and then siphons-off  the difference (in this case $0.5 million) and deposits it in a foreign bank account. The real damage to the economy happens in terms of inflated capital expenditure.  Perhaps the opportunity large capital projects provide for corrupt officials could be the ulterior motive for the uncontrollable urge to attach such a high priority to large capital projects in economic development strategies.

However, it should be noted that public capital projects are often financed through commercial loans that should be paid back with cumulative interests in years to come. The economic return to capital project would partly depend on the cost consideration at project implementation stage.

The GFI also finds some export trade misinvoicing in Ethiopia’s foreign trade, over-invoicing by $6.5 billion as well as $3 million under-invoicing. In trade based money laundering, the most common types of misinvoicing are import over-invoicing and export under-invoicing. As noted above, the case of import invoicing has no complications – so much over invoicing has taken place and it explains the bulk of trade based money laundering in Ethiopia.  However, the case of export over-invoicing is uncommon.

Export over-invoicing do happen although they are rare, e.g. China’s trade with Hong-Kong.  Export over-invoicing is required when there is a need to plough back money from abroad and report it as inflated foreign direct investment. This is likely the case with Ethiopia where the authorities have been desperate to report higher foreign investments particularly in the first half of the period under analysis.

 

Ethiopia’s capital flights dwarfs rest of developing countries

 

It would prove useful to know how bad Ethiopia’s IFFs is relative to other countries.  Fig. 2 below compares Ethiopia with its neighbors, the rest of Sub-Saharan Africa (SSA) as well as the average of developing countries (DCs). The comparison was done by expressing total illicit money outflowas percentage of GDP.  The years are grouped into three intervals. For reasons discussed further below, it would prove useful to contrast pre- and post-2005. Accordingly, I have isolated 2004 and then divided the remaining years into two equal intervals.

This revealed astonishing patterns of illicit money outflow from Ethiopia which starkly contrasted with those for other countries.  First, throughout the years Ethiopia’s records considerably exceeded those for its two immediate neighbors, Kenya and Tanzania. Second, a comparison of 2004 across the countries shows that Ethiopia’s illicit money outflow was way below the Uganda, SSA, and the DCs averages.

Third, the situation changed dramatically from 2005 onwards.  Ethiopia outstripped Uganda, and then closed the gap with the SSA average. Fourth, Ethiopia’s average annual money outflows between 2010 and 2013 reached 11% of the country’s GDP, considerably exceeding the corresponding figures for the other countries – SSA (5%), DCs (4%), Uganda and Tanzania (2%) and Kenya (0.013%).  Fifth, it is important to note that illicit money transfers abroad constituted smaller and smaller percentages of GDP for most countries over the years, implying substantial improvements in transparency in their economic management. The situation in Ethiopia sharply contrasts with this reality – illicit money outflow becoming a larger and larger percentage of Ethiopia’s GDP.  This indicates transparency in Ethiopia’s economic management has gone from bad to worse over the years.

 

It should be noted that the SSA average is largely driven by money being squandered by oil and other mineral resources exporting countries such as Nigeria and Angola. It is telling to note that Ethiopia, a country not known for exporting substantial mineral resources, is now characterized by illicit money outflow to GDP ratio exceeding that of an average SSA country.

Blind spots in accounting for remittance flows

The analysis in the preceding sections relied entirely on the Global Financial Integrity (GFI) report.  GFI methodology is strictly confined to official records as starting points and then mirrors records at different places and times. Systemic discrepancies between records are then registered as illicit transactions.

Clearly, then the GFI methodology does not account for illicit money flows that take place through financial transactions in informal or black markets. Remittance flows are riddled with black markets in hard currencies. The situation is even worse in the context of Ethiopia, where official hard currency flows are tightly controlled, and hence creating conditions for prevalence of underground currency transactions.

To the extent that remittances are channeled through formal banking or foreign exchange offices, then the transactions get into the balance of payment records.  Leakages from the flow are accounted for through the GFI approach called “hot money” discussed earlier.

However, there are strong evidences indicating that the bulk of remittance transfers to Ethiopia actually happen through informal channels, mainly because of better rates and lower costs.

The informal channels may take one of two forms.  First, it is common for  Ethiopians living abroad to take hard currencies with them every time they visit home and then directly exchange it to birr in local black markets at better rates by avoiding transfer fees. It also happens that they send hard currencies via travellers they trust so that they give it to their relatives, who in turn get it converted in local black markets. The World Bank estimated that 14% of Ethiopians to whom money was transferred from abroad in 2010 got it through travelers. Since the World Bank has not made a reference to money converted at local black markets, it means the total amount of hard currencies entering Ethiopia by informal channels is much higher than the 14% who regularly receive remittances.

Additionally, there is a more sophisticated black market which operates pretty much like the way foreign money transfer services operate, except that these are operated informally by individuals living abroad. As any Ethiopian living abroad can tell, every big city countries with hard currencies has  a few black market operators who offer exchanges of foreign currencies to birr with additional incentives,at least two or three birr on top of the going rate that money transfer agencies offer.

I selected a couple of major cities and gathered background information for this piece. The margins offered vary across time and space but the current margin on above Western Union conversion rates were at least one birr per unit of USD equivalents of local currencies in London, Dubai, and Kuwait, excluding foreign exchange office fees charged per transaction. This means Ethiopians living abroad have good enough incentive to look for black market operators rather than sending money through formal channels.

The role of the black market is simply to collect and bulk the hard currencies.  Where exactly the collected money goes is anybody’s guess.  One may hope that importers who face constraints in foreign exchange rationing may smuggle out the hard currency they collected and/or importers may assign agents in foreign countries to collect and bulk hard currencies for them.

In both cases importers may spend the money they bulked on purchasing goods and services that will eventually enter Ethiopia. This is an optimistic scenario since the country may eventually benefit from availability of goods and services in the domestic market, except that the transactions were done informally and the government might have lost some tax revenues.

The upshot of this discussion, however, is that the hard currencies collected from local black markets may get smuggled out and get deposited in foreign bank accounts. Similarly, black market operators residing abroad may also be primarily motivated by a pressing need to convert birr into a hard currency and safely deposit it in a foreign bank account.

It should be noted that the GFI methodology misses out such blind spots in remittance flow accounting, which means Ethiopia’s capital flights discussed in the preceding sections is highly likely to underestimate the size of illicit capital flights from Ethiopia. If so much has been done to move money illegally abroad by abusing formal channels, then it is realistic to assume that the informal channels are even more susceptible to abuses by the same group of actors who seem to be in a rush to the exits.

Why the rush?

 At this juncture it is appropriate to pool together different lines of discussions in the preceding paragraphs. The most crucial point here is the timing of dramatic changes in Ethiopia’s capital flight. It is clear from the facts presented in this piece that 2005 was a watershed moment in Ethiopia’s capital flight history in recent years.

For those who closely follow Ethiopia’s political and economic affairs, the fact that dramatic things began to happen soon after 2005 does not come as a surprise.  The general election of that year and the upheavals that followed had seriously shaken self-confidence among the elites who held political and economic power. The possibility of losing power and economic advantages that accrues from it began to be felt starting from that year, when the ruling EPRDF snatched power under murky conditions from the hand of the opposition who claimed they actually won the general election.

This argument is substantiated by the following logical reasoning established in our discussions earlier. In the Ethiopian context there are no foreign banks, and domestic banks are very tightly controlled by the government. Also, there is a great deal of overlaps between interests of big businesses and those of government officials.

In that case, corrupt government officials and their affiliated businesses are the likely culprits for capital flights from Ethiopia at such epic proportions. The fact that rampant corruption has crippled the current government is openly debated in local media and among the elite at official forums. The evidence provided in this piece only corroborates the ongoing public debate.


ED’s Note: J. Bonsa is an economist by training. He can be reached at dinade0612@gmail.com.

Rush for the exits: Why is Ethiopia’s capital flight accelerating?

Economics: Traditional & Behavioural: System Thinking 1 &2 April 12, 2016

Posted by OromianEconomist in 10 best Youtube videos, 25 killer Websites that make you cleverer, Economics.
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Odaa OromooTraditional  and  Behavioural Economics, System Thnking 1 and 2

 

Traditional economics views humans as robotic machines who make calculated decisions based on logic. In contrast, behavioural economics views humans as irrational and emotional beings who are influenced by biases and experience when making decisions. This infographic takes a closer look at just what behavioural economics is and how it can be used.

Read more at:- https://www.b2binternational.com/publications/what-is-behavioural-economics/

 

Related:-

10 key economic concepts

10 key economic concepts

THE ANIMAL SPIRITS February 28, 2016

Posted by OromianEconomist in Economics, Uncategorized.
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Odaa Oromoo

INTRODUCTION

 

The resources are scarce in comparison to our never ending wants andEconomics is concerned with the ‘rational’ management of these resources that have alternate uses to maximise the gains at both micro-macro level.

There are several economic models that have been developed that have distinct characteristics and unique features. Adam Smith’s Capitalist model, the one where the market forces of demand and supply move freely to determine the Equilibrium level represents an ideal system of want origin and its satisfaction in the perfect sense. Any extension of demand will shift the Equilibrium price upwards and this in turn, will motivate the ‘rational’ producers to supply more to the market at the increased price to maximise their profits. This will eventually stabilise the price and eventually Equilibrium will be restored in the market. How simple is that! This model seems stable and logical in every sense, doesn’t it?

Source: THE ANIMAL SPIRITS

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Making the rich richer doesn’t necessarily make the rest of us richer September 24, 2015

Posted by OromianEconomist in Economics.
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???????????Trickle down economics

The Political Economy of Development

ha-joon-changHere is an insightful video interview with Cambridge economist Ha-Joon Chang, exploring three ideas from his very readable book ’23 Things They Don’t Tell You About Capitalism’.

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Time: Are markets irrationally exuberant? Nobel Prize winning economist Robert Shiller believes they are. September 14, 2015

Posted by OromianEconomist in 10 best Youtube videos, 25 killer Websites that make you cleverer, Economics.
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???????????Trickle down economics

Shiller, a behavioral economist, closely tracks investors’ feelings about the market. He believes that emotions can hold the key to market movements. When I saw Shiller late last week for an interview about his new book on the economics of deception (“Phishing for Phools,” written with Fed Chair Janet Yellen’s husband George Akerlof), he told me more investors are worried that the market is over-valued than at any time since the peak of the dotcom bubble in 2000.

“Interest rates have been at zero” for a long time, says Shiller. “The economy has been viewed as sluggish, and yet [corporate] earnings have been growing and prices have been growing at a rapid pace.” That kind of “irrational exuberance,” says Shiller, is exactly what bubbles are made of.

So, why haven’t we seen a major sell-off, one more lasting than the dip we saw a few weeks back, after which the markets quickly rebounded? Because, says Shiller, investors are caught between two dueling narratives about the market.

First, there’s the “New Normal,” story, which is that we’re in a period of low interest rates that will last a long time, and that’s what’s kept markets up. This creates a sense of unease that our recovery isn’t real, but has somehow been genetically modified by central bankers.

“The aggressive monetary policy, which developed as kind of a new approach to managing [the economy] and was largely international, brought us these very low interest rates,” says Shiller. What’s more, “long rates are low, which represents some kind of public attitude that this [new normal] is going to go on for a long time.” As I have written many times, long periods of easy money always create bubbles. Meanwhile, says Shiller, “there’s another not so commonly-raised factor in connection with understanding the market: concern about inequality, which is rising, and also related to that a concern about information technology replacing jobs.”

Both of those things add to the sense that there is bad news lurking underneath those seemingly strong corporate earnings data of the last several years. That makes investors jittery.

But there’s another narrative. America is still the prettiest house on the ugly block that is the global economy. Where else can people park their money, if not in U.S. blue chips? Shiller adds that the growing sense that bad news may be looming can also “encourage people to accept high prices for houses and the stock market because they need to have something for the future.” Rising markets are supported by investors and consumers whoneed them to rise, because it makes them feel richer. “And they’re not going to say, “Oh, this price is too high, I’m going to consume this,” says Shiller. Rather, they accept the higher and higher asset prices – until they don’t anymore. That’s when the bubble bursts.

Those two dueling narratives may be one reason that markets have been volatile of late. People who hold equities have earned a lot of money — the stock market has gone way up. You could conclude, says Shiller, “I’ve got so much money, let’s go on a cruise! Let’s have a lark.” That sentiment drives consumer spending at the higher level. “But maybe you don’t because you’re worried. You have the sense that [things could change] — or maybe you’re worried about your children,” says Shiller. “In 20 or 30 years, I don’t know what they’re going to be doing. I’m just worried. Or maybe they’ll be doing horribly. So let’s keep that stock.” That in turn buoys markets. It’s a somewhat bipolar cycle that fits with the level of volatility we’ve seen all this year, which is much higher than last.

So what happens now? At some point, the market will receive some important new signal. It could be a rate hike from the Fed this week. Or it could be another raft of bad news from China. At that point, we’ll likely see another sell-off. The question then is whether it becomes a stampede. There’s no metric that will answer that question for sure. Emotions, as much as data, hold the key to what the markets will do. No wonder Shiller won the Nobel for saying as much.

How Emotions Are Affecting the Stock Market

Ethiopia: The chronic shortage economy: What is the price and utility of a kilo of Sugar in Finfinnee (Addis Ababa) in terms of never ending queue? August 27, 2015

Posted by OromianEconomist in Economics, Famine in Ethiopia.
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Economic performance and size of government

In the midst of fastest growth hype and official statistical lies,  Ethiopia has been plagued by high rocketed prices for basic goods,  intensive and chronic shortages in all sectors of  economy. This is the situation of  TPLF ( fascist government and monopoly)  controlled economy experiencing declining production (supply deficit)  relative to  citizens demand for basic necessities. In dealing  with bureaucratic corruption that tinkers with distribution,  citizens are experiencing  long queue (disutility) in cities  for basic goods  for which  very limited  supply is  available. They may be approved or disapproved to get access to the purchase  by TPLF local cadres decisions. It has been reported that Ethiopia’s rural areas are in catastrophic famine. Widespread shortages, spiraling inflation and famine  are fueling humanitarian crisis.

This is the Ethiopian capital Addis Ababa (Finfinne) where the population of the early morning standing in long lines under the blazing sun (Sunday August 2015) for the purchase of sugar, oil and other basic goods

This is the Ethiopian capital Addis Ababa (Finfinne) where the population of the early morning standing in long lines under the blazing sun (Sunday August 2015) for the purchase of sugar and oil. Cars, children, women, old and adult, all are in never ending line. Source: http://www.ayyaantuu.net/addis-ababa-this-is-eleven-percent-yearly-growth-in-ethiopia-endless-lines-for-sugar/

Reinventing the current growth model: The need to rework the current economic system to serve all of humanity rather than an elite few August 4, 2015

Posted by OromianEconomist in Economics, Economics: Development Theory and Policy applications, Growth and Inequqlity.
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???????????Trickle down economicsA shocking investigative journey into the way the resource trade wreaks havoc on Africa, ‘The Looting Machine’ explores the dark underbelly of the global economy.

 

 

Although the grievances voiced differed from country to country and from region to region, the belief that the incumbent economic and political system was characterised by inequity and injustice was common to all.

If we are to avoid large-scale societal upheavals in this ultra-connected world, government, business and civil society must come together to rework the current economic system to serve all of humanity rather than just an elite few.

– Fergus Simpson, The Guardian

 

 

Widening inequality gap proof of outdated growth model

We need to rework the current economic system to serve all of humanity rather than an elite few, writes Xyntéo’s Fergus Simpson

 

January saw leading figures from business, government and civil society gather at the World Economic Forum in Davos. A broad spectrum of subjects were debated, including the prospect of a legally binding climate change agreement in Paris this December, Ebola and the nefarious advance of the Islamic State in Mesopotamia. I was particularly encouraged to see one topic keep cropping up – the crisis of burgeoning disparities in wealth.

In a report released in the runup to Davos, Oxfam predicted that within two years the richest 1% of people will have accumulated more wealth than the remaining 99%. The same study found that the wealth of the richest 80 billionaires has continued to increase since 2010, while the wealth of the poorest half has decreased over the same time period. The gap between the haves and the have-nots is growing.

History has taught us that there are moments when people rise up to make a point and say that enough is enough and times must change.

On 25 January 2011, the world witnessed one such moment – pro-democracy protesters occupied Tahrir square in Egypt’s capital, Cairo, demanding self-determination, equality of opportunity and freedom from the shackles of tyranny and oppression. Some 17 long days of demonstrations and civil disobedience followed, bringing the moribund autocracy of longtime Egyptian president Hosni Mubarak to an end.

This event formed part of a much broader social movement that swept across North Africa and the Middle East, toppling sclerotic regimes and corrupt dictators. Before long people in Spain, Greece, the UK and US took to the streets as well. Although the grievances voiced differed from country to country and from region to region, the belief that the incumbent economic and political system was characterised by inequity and injustice was common to all.

And it isn’t just the poor who have been affected – the middle classes have also borne the burden of mushrooming inequalities. Companies have tended to become more productive since the 1970s, but the incomes of middle class workers have remained largely static. Returns from higher productivity have tended to go to owners and investors, not to the workers.

In many ways, inequality has become the defining issue of our time. The popular uprisings that shook the Arab world at the start of this decade were just symptoms of this most elemental of societal ills.

Fortunately, there is no reason to suppose this state of affairs is inevitable.

A promising step forward was announced at Davos, when Ajay Banga, CEO of GLTE partner MasterCard, and Donald Kaberuka, president of the African Development Bank, revealed that they intend to collaborate to foster inclusive growth in Africa.

The MasterCard Labs for Financial Inclusion, funded by an $11m (£7.24m) grant from the Bill and Melinda Gates Foundation, aims to enable more people to access banking services – generating greater equality of opportunity across the world, in developed and developing countries alike. The initiative will soon begin operations in Nairobi, Kenya, and aims to reach over 100 million people globally.

Technological advancements can support the implementation of projects designed to promote inclusive growth, such as the MasterCard Labs for Financial Inclusion. Digital innovations in payment systems and social media, for example, have enabled people to access markets, ideas and information to an extent that is unprecedented in human history.

Indeed, it has been said that the Egyptian revolution started when Whael Ghonim, a marketing executive at Google, saw the bloodied remains of Khaled Mohamed Said – a young man bludgeoned to death by the Egyptian police – pictured on Facebook. Incensed by the injustice that confronted him, Whael created the Facebook page “Kullena Khaled Said” – “We Are All Khaled Said”. Three months later 250,000 people had joined the page. Just one year later the Mubarak regime was no more.

If we are to avoid large-scale societal upheavals in this ultra-connected world, government, business and civil society must come together to rework the current economic system to serve all of humanity rather than just an elite few.

At Xyntéo, we are convinced that the current growth model has become out of date – incapable of meeting the demographic, climate and resource demands of today. Together with our partners, we believe that global business, with its clout, resources and energy, is uniquely placed to overcome this challenge. To us this means reinventing the current growth model so it brings prosperity to much larger numbers of people.

Fergus Simpson is project coordinator at Xyntéo

Read more at source:-

http://www.theguardian.com/sustainable-business/xynteo-partner-zone/2015/feb/04/widening-inequality-gap-proof-of-outdated-growth-model

IMF denounces “trickle-down” economics July 12, 2015

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???????????Trickle down economics

 

Huffington Post

The International Monetary Fund Should Challenge the One Per Cent

,  Award-Winning Journalist

 

 

Two remarkable developments during the past 10 days that could have a significant impact in many countries are worth a lot more attention in Canada and the United States.

First, a major research document published by five top economists at theInternational Monetary Fund (IMF)admitted that the strong pro-capitalist policies at the centre of its activities in developing countries for the past 30 years do not work.

One of the IMF’s main roles in recent years has been to bail out countries during financial crises. In return for loans, some 60 mostly poor countries have been forced to follow strict rules, such as privatizing government resources, deregulating controls to open markets to foreign investment, and restricting what they can spend in areas such as education and health care.

Now the paper, Causes and Consequences of Income Inequality: A Global Perspective, says there needs to be a shift and that greater income equality in both developing and developed countries should become a priority.

Dutch told to act on emissions

The other significant but unrelated development which received scant attention, concerns a ground-breaking decision from judges in the Netherlands. They ordered the Netherlands government to slash greenhouse gas emissions by at least a remarkable 25 per cent by 2020.

The ruling came after almost 900 Dutch citizens, headed by the group Urgenda, took their government to court in April in a class action lawsuit to force a reduction of greenhouse gas emissions to tackle climate change. Netherlands has been lagging behind other European countries in tackling climate change.

Significantly, the challenge was based not on environmental law, but on human rights principles. Urgenda asked the courts to “declare that global warming of more than two degrees Celsius will lead to a violation of human rights worldwide.”

The court said, “The state should not hide behind the argument that the solution to the global climate problem does not depend solely on Dutch efforts … Any reduction of emissions contributes to the prevention of dangerous climate change and as a developed country the Netherlands should take the lead in this.”

“A courageous judge. This is fantastic,” said Sharona Ceha, a member of the climate change group Urgenda. “This is for my children and grandchildren.”

The international community is attempting to set limit global warming to 2 degrees Celsius over pre-industrial levels. Countries are to publish their own undertakings to reduce greenhouse gas emissions ahead of a hoped-for global deal to be agreed in Paris in December.

While the Dutch government can appeal the ruling to a higher court, lawsuits against governments and companies in Europe have increasingly been seen as a way to press for action against climate change.

The Amsterdam-based group said the case was the first in Europe in which citizens attempted to hold the state responsible for its potentially devastating inaction and the first in the world in which human rights are used as a legal basis to protect citizens against climate change.

The landmark case could very well set an important precedent for public interest groups in other countries. Cases are already being brought forward in Belgium, Norway and the Philippines.

Perhaps this is a course Canadian environmental groups should consider. Diane Saxe thinks so. As the Toronto-based environmental lawyer told the CBC’s The Current, “The more I read the Dutch court decision, the more I’m getting excited about it, because the arguments made by the three judges could be made in Canada…I think it eventually will happen.”

IMF denounces “trickle-down” economics

In the other story, the IMF report contradicted its long-held position of following hard-nosed capitalist guidelines. It said that the dreaded concept of “trickle-down” economics — which it forced on developing countries and which is practiced by the Harper government — should be abandoned.

“To tackle inequality, financial inclusion is imperative in emerging and developing countries, while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive,” concludes the report. Wages and living standards for the bottom 20 per cent should be raised, worker protections improved, and environmental standards implemented.

The practices and policies of the IMF have been controversial for many years.

The rich and powerful countries that control the IMF have used the body’s loans program to force their preferred economic policies on poor countries, even though rich countries themselves did not employ the same strict measures on themselves when they were developing.

The report’s critical analysis also applies to neo-liberal economic policies practiced by most Western governments, including the United States, Canada and several European countries.

The document was enthusiastically received by IMF critics, who have accused the world body of hindering, not helping, development in several poor countries over the years.

“Fighting inequality is not just an issue of fairness but an economic necessity,” saidNicholas Mombrial of Oxfam International in response to the report. “And that’s not Oxfam speaking, but the International Monetary Fund.”

“By releasing this report, the IMF has shown that ‘trickle-down’ economics is dead; you cannot rely on the spoils of the extremely wealthy to benefit the rest of us. Governments must urgently refocus their policies to close the gap between the richest and the rest if economies and societies are to grow,” said Mombrial.

Austerity increases poverty

Critics strongly object to austerity measures that have been forced upon most of the 60 countries where the IMF has been providing loans.

“Such belt-tightening measures increase poverty, reduce countries’ ability to develop strong domestic economies and allow multinational corporations to exploit workers and the environment,” argues Global Exchange, an international human rights organization.

Global Exchange charges that the IMF contributes to poverty instead of alleviating it: “Nearly 80 percent of all malnourished children in the developing world live in countries where farmers have been forced to shift from food production for local consumption to the production of export crops destined for wealthy countries.”

It’s very likely that the IMF will change some of its policies concerning developing countries. However, change may be slow. The IMF is a huge and complex organization where the wheels grind slowly. Secondly, the Western countries that control the organization tend to be strongly influenced by powerful and wealthy people who benefit from “trickle down” economics.

When the IMF finally makes significant policy changes, and if countries were to follow its lead in their own economic planning, many countries could experience a significant change in income distribution. Perhaps it will result in the one per cent no longer owning 48 per cent of the world’s wealth.

Nick Fillmore is a Canadian freelance journalist and blogger who specializes in environmental, finance, and developing country issues. He is a founder of the Canadian Association of Journalists. This article first appeared on The Tyee.

http://www.huffingtonpost.ca/nick-fillmore/imf-income-inequality_b_7730928.html

Statistics: The Sexiest Job of the Decade July 7, 2015

Posted by OromianEconomist in 10 best Youtube videos, 25 killer Websites that make you cleverer, Economics, Uncategorized.
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Discovering Python & R

Anyone who’s got a formal education in economics knows who Hal Varian is. He’s most popularly known for his book Intermediate Economics. He’s also the Chief Economist at Google. He is known to have famously stated more or less, that statisticians and data analysts would be the sexiest jobs of the next decade.

That has come true, to a great extent, and we’ll be seeing more.

Great places to learn more about data science and statistical learning:
1] Statistical Learning (Stanford)
2] The Analytics Edge (MIT)

In a paper called ‘Big Data: New Tricks for Econometrics‘, Varian goes on to say that:

In fact, my standard advice to graduate students these days is “go to the computer science department and take a class in machine learning.” There have been very fruitful collaborations between computer scientists and statisticians in the last decade or so, and I…

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Ethiopia among the 10 poorest performers in the World Economic Forum Report for Human Capital May 18, 2015

Posted by OromianEconomist in Africa, Developed country, Development & Change, Economics, Ethiopia the least competitive in the Global Competitiveness Index.
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???????????Ethiopia is the one of the lowest in social Progress 2015

Ethiopia Ranks 115 out of 124 countries in Human Capital Index 2015 Rank

Ethiopia  ranks at 115 out of 124 countries in the ‘Human Capital Index’ because of its poor performance on educational outcomes, says the Human Capital Report 2015 issued by the World Economic Forum (WEF).

The index is dominated by European countries with two countries from the Asia and Pacific region and one from the North America region also making it into the top 10.

Finland topped the ranking of the Human Capital Index in 2015, scoring 86% of its human capital, followed by Norway, Switzerland, Canada and Japan.

Sweden, Denmark, the Netherlands, New Zealand and Belgium also seized the places in the top 10 list. Ethiopia scored 50.25 out of 100.

The leaders of the index are high-income economies that have placed importance on high educational attainment and a correspondingly large share of high-skilled employment.

The World Economic Forum (WEF) released the Human Capital Report 2015 in Geneva, Switzerland on Thursday 14 May 2015.

The WEF prepared the report in collaboration with Mercer, an American global human resource and related financial services consulting firm.

The report elaborates the status of different countries across the world on the Human Capital Index and provides key inputs for policy makers to augment capacities of human capital in 124 countries it has surveyed.

In the index, WEF highlighted Ethiopia’s scarcity of skilled employees, poor ability to nurture talent through educating, training and employing its people.

“Talent, not capital, will be the key factor linking innovation, competitiveness and growth in the 21st century,” said WEF Executive Chairman Klaus Schwab releasing the report at a news conference in Cologny, near Geneva, Switzerland.

In sub-Saharan Africa, Mauritius (72) holds the highest position in the region. While another six countries rank between 80 and 100, another 17 countries from Africa rank below 100 in the index. South Africa is in 92nd place and Kenya at 101. The region’s most populous country, Nigeria (120) is among the bottom three in the region, while the second most populous country, Ethiopia, is in 115th place. With the exception of the top-ranked country, the region is characterized by chronically low investment in education and learning.

Human Capital Index 2015 regional Ranks

Except Yemen (40.7) all the 10 poorest performers are African Countries: Ethiopia (50.25),  Burkina Faso (49.22),  Ivory Coast ( 49.02),  Mali (48.51), Guinea (48.25),  Nigeria (48.43),  Burundi (46.76),  Mauritania (42.29) and  Chad (41.1).

The countries are ranked on the basis of 46 indicators that track “how well countries are developing and deploying their human capital focusing on education, skills and employment”.

 The index takes a life-course approach to human capital, evaluating the levels of education, skills and employment available to people in five distinct age groups, starting from under 15 years to over 65 years. The aim is to assess the outcome of past and present investments in human capital and offer insight into what a country’s talent base will look like in the future.

http://reports.weforum.org/human-capital-report-2015/press-releases/

Poverty and Underdevelopment in Low Income Countries May 2, 2015

Posted by OromianEconomist in Africa, Economics, Economics: Development Theory and Policy applications, The extents and dimensions of poverty in Ethiopia.
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OEthiopia poverty reductionEthiopia

Poverty can be an outcome of inefficient use of common resources and a result of exclusive mechanisms. Weak policy environment, inadequate infrastructures, weak access to technology and credits can cause poverty. Poverty can also result from the use of mechanisms by some groups in a society or community to exclude others from participating in democratic and economic development process (Ajakaiye and Adeyeye, 2002). This is defined by Hazell and Haddad ( 2001) as social deprivation…From the different reasons mentioned above in relation to poverty in developing countries, it is clear that strategies to alleviate poverty and help poor people must aim at improving the productivity and the living conditions of smallholder farmers and landless agriculture workers who constitute the majority of poor people. Furthermore, agriculture is seen as central to rural development. It is the major economic driver, the hub of rural activities, and permanent estate (IRG, 2002). The improvement in agriculture productivity is based on agricultural research and improved technologies. In many developing counties government must play an important role in this domain. However poor people may benefit from agriculture productivity only if favorable macroeconomic and trade policies good infrastructure and access to credit, land, and markets is in place.

As far as land is concerned, government in many developing countries must undertake land reform program not only for a better distribution of land but also to create mechanism capable to define and enforce property right. Land reform can promote smallholder entry into the market, reduce inequalities in land distribution, increase efficiency and thus boost output.

africagrowthdiscourse

poverty1

The ubiquitous problem of poverty continues to confound development practitioners, politicians and researchers alike. In spite of countless efforts to eliminate poverty over the past decade, 2.5 billion people live on less than $2 a day and 880 million people still live on less than $1. Most of these depend on agriculture for their livelihoods (World Development Report, 2008). While some progress has been made in some countries, the ambitious goal of halving poverty by the year 2015 appears like it will not be achieved. The objective of this paper is to characterize the problem of poverty and attempt to proffer possible insights on pathways that may jettison the rural poor out of misery into prosperous economic agents with a brighter hope for the future.

An Anatomy of Poverty

Poverty is a multifaceted concept. It affects many aspects of the human conditions, including physical, moral and psychological. povertyAccording to Sen…

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Consumerism = Corruption? March 10, 2015

Posted by OromianEconomist in Economics, Uncategorized.
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‘So yes, the media manipulates people into buying things they think they need to become someone they think they should be, but that is not the only way consumerism exists. We are just as easily manipulated by other people and by what is “normal” for our class – or our perceived class – in society. And of course, we always have a choice. The magazine or TV advertisement doesn’t force you off the couch and to the bank to extend your credit card limit, and drag you mercilessly to the nearest mall to purchase that iPhone you need to live . . . so next time your credit card maxes out, don’t be too quick to blame the media and advertising. It’s just as likely something (or someone) closer to home has planted and nourished that seed of consumerism inside you. And even that doesn’t have the final say, you do – so stop blaming the media and the rest of the world, and learn to budget, folks!’

this is claire

Consumerism can be defined as the creation of material needs in order to swipe mediamoney off the unsuspecting consumer. It blurs the line between a need and a want, and companies all around the globe use it, via the media (TV, radio, print media etc.), to manipulate us into thinking we need their products. We will be happier, smarter, more beautiful, more popular . . . you get the picture. But do you want to know the really sad part? It nearly always works. That’s the common perception, anyway.

But is it that simple?

Consumerism is a current anxiety trend regarding contemporary media practices. And rightfully so – media practices promoting consumerism do have detrimental effects on society. Think of all the photo-shopped models in magazines. This is done to convince a person they will be of equal beauty or social status if they purchase the product the model is advertising, without the advertisement actually saying so (because…

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“Resistence is futile”: Central generation of electrical power is dead, and faster than anyone thinks February 9, 2015

Posted by OromianEconomist in Africa, Biofuels, Economics, Solar energy, Uncategorized.
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Osolar energy

 

‘The industrial age of energy and transportation will be over by 2030. Maybe before. Exponentially improving technologies such as solar, electric vehicles, and autonomous (self-driving) cars will disrupt and sweep away the energy and transportation industries as we know it. The same Silicon Valley ecosystem that created bit-based technologies that have disrupted atom-based industries is now creating bit- and electron-based technologies that will disrupt atom-based energy industries.

Clean Disruption projections (based on technology cost curves, business model innovation as well as product innovation) show that by 2030:
– All new energy will be provided by solar and wind.
– All new mass-market vehicles will be electric.
– All of these vehicles will be autonomous (self-driving).
– The new car market will shrink by 80%.
– Gasoline will be obsolete. Nuclear is already obsolete.
– Up to 80% of highways will be redundant.
– Up to 80% of parking spaces will be redundant.
– The concept of individual car ownership will be obsolete.
– The Car Insurance industry will be disrupted.

The Stone Age did not end because we ran out of rocks. It ended because a disruptive technology ushered in the Bronze Age. The era of centralized, command-and-control, extraction-resource-based energy sources (oil, gas, coal and nuclear) will not end because we run out of petroleum, natural gas, coal, or uranium. It will end because these energy sources, the business models they employ, and the products that sustain them will be disrupted by superior technologies, product architectures, and business models. ‘ 

http://www.makeitsolar.com/solar-energy-information/01-solar-history.htm

Hypergeometric

If you hold shares in fossil fuel industries, whether coal, oil, or natural gas, or traditional car manufacturers,

And, if Lancaster, CA, is any indication of a trend, a “McMansion” will lose its value because it is powered by (a) fossil fuels, and (b) drawing on centralized power generation which will become increasingly expensive as utility companies’ customer base shrinks. And that assumes that the local municipality doesn’t orphan homes lacking solar power which, if adopted, will drive these homes value down faster.

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Nash equilibrium – Game Theory February 3, 2015

Posted by OromianEconomist in Economics, Nash equilibrium, Uncategorized.
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ONash Equilibrium

 

‘A Brief Introduction to NON-COOPERATIVE GAME THEORY – Like most really powerful ideas, the basic notion of Nash equilibrium is very simple, even obvious. Its mathematical extensions and implications are not, however. The idea of this natural “sticking point” is that no single player can benefit from unilaterally changing his or her move — a non-cooperative best-response equilibrium. Competitive Markets come to rest at Nash equilibrium, and the special structure of competitive markets makes them efficient. (As we will see in another game.) But it is important to recognize that MOST Nash-Equilibria are NOT efficient. What do we mean by not efficient? It’s just the idea of getting the “whole pie” — that if we’re really using the whole pie, then no one can get any more unless someone else takes less. That’s the economist’s basic idea of allocative efficiency. A famous game is called “Chicken,” named after a famous adolescent hot-rod ceremony from the United States of the 1950s. Say that Boeing and Airbus are both considering entering the jumbo jet market, but that because of increasing returns to scale and relatively low demand, there is only enough room for one of them. The game matrix (called the “normal form” of a game) could look like this. (This example is taken from an article by Paul R. Krugman, “Is Free Trade Passe?” in the Journal of Economic Perspectives, Fall 1987.)’

Modern AfroIndio Times

Game theorists use the Nash equilibrium concept to analyze the outcome of the strategic interaction of several decision makers. In other words, it provides a way of predicting what will happen if several people or several institutions are making decisions at the same time, and if the outcome depends on the decisions of the others. The simple insight underlying John Nash’s idea is that one cannot predict the result of the choices of multiple decision makers if one analyzes those decisions in isolation. Instead, one must ask what each player would do, taking into account the decision-making of the others.Nash equilibrium has been used to analyze hostile situations like war and arms races[2] (see prisoner’s dilemma), and also how conflict may be mitigated by repeated interaction (see tit-for-tat). It has also been used to study to what extent people with different preferences can cooperate (see battle of the sexes), and…

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Africa: How moving beyond GDP may help fight poverty February 2, 2015

Posted by OromianEconomist in Africa Rising, Economics, Poverty, The extents and dimensions of poverty in Ethiopia, Youth Unemployment.
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???????????Growth and Resource Deplation

 

‘GDP is a highly inappropriate measure to gauge progress in Africa and moving beyond GDP will open up creative opportunities to fight poverty and achieve sustainable wellbeing. GDP does not capture informal economies, the contribution of subsistence farming, non-commercial agriculture and other localized forms of production and consumption. Through the introduction of new progress indicators that focus on human wellbeing, health and education, decent work and natural welfare, African countries may be encouraged to promote a different development paradigm . A networked economy, founded on localized forms of self-production and consumption would empower the millions of people that are at the moment left out of the apparent African economic miracle.’

‘Moreover, as an aggregate figure (or as an average, in the case of GDP per capita) it hides unequal distribution of income.  Against this backdrop, it becomes clear that there are important structural reasons why one should be suspicious of the ‘Africa rising’ mantra. Most fastgrowing African economies are heavily dependent on exports of commodities. This means that when commodity prices drop at the global level, African economies languish. More dangerously, it means that the ‘growth’ we have seen in the past few years is largely the result of a statistical mirage. Most natural resources in Africa are not renewable: once they are taken out of the ground, they do not grow back. GDP does not measure the ‘loss’ of selling out the most precious resources African countries possess. What would the picture look like if such losses were deducted from GDP? The World Bank in 2013 adjusted net savings statistics, which subtracts natural resources depletion and environmental damage from national income, gives us the following: African countries have been reducing their wealth at the tune of 1.2% a year. Rather than growing, our continent’s economies have been shrinking.’

https://sustainabledevelopment.un.org/content/documents/5938How%20moving%20beyond%20GDP%20may%20help%20fight%20poverty%20in%20Africa.pdf

 

 

GSDR 2015 Brief How moving beyond GDP may help fight poverty in Africa

 

By Lorenzo Fioramonti*, University of Pretoria

 

The gross domestic product (GDP) is the world’s most powerful statistical measure. Its underlying economic principles have contributed to splitting the planet into two worlds: the ‘developed’ and the ‘developing’ countries and/or the North and the South. Paradoxically, the GDP mantra was imposed on poorer nations in spite of its creators’ conclusion that its approach should not be applied to countries largely dependent on informal economic structures, as these are not considered by income accounts, which are threatened by policies designed to increase GDP (Fioramonti 2013). The economist Simon Kuznets, one of the architects of the GDP system, is also known for having demonstrated how income inequality rises in times of fast GDP growth. His famous ‘curve’ shows how relative poverty is exacerbated, especially in under-industrialized countries, leading to a concentration of resources and income in the hands of a few. This brief makes the argument that GDP is a highly inappropriate measure to gauge progress, especially in the so-called developing world. It will therefore focus on Africa to show how moving beyond GDP may open up creative opportunities to fight poverty and achieve sustainable wellbeing. How the GDP measure is misleading Africa In May 2013, even the billionaire turned philanthropist Bill Gates, who is a fervent supporter of metric-driven approaches to development, publicly contested the validity of GDP: “I have long believed that GDP understates growth even in rich countries, where its measurement is quite sophisticated, because it is very difficult to compare the value of baskets of goods across different time periods,” but this problem is “particularly acute in Sub-Saharan Africa, owing to weak national statistics offices and historical biases that muddy crucial measurements” (Gates 2013). GDP does not capture informal economies, the contribution of subsistence farming, non-commercial agriculture and other localized forms of production and consumption (Jerven 2013). According to estimates published by the IMF in 2002, informal economies accounted for up to 44% of economic output in developing nations, 30% in transition economies, and 16% in the OECD countries (Schneider and Enste 2002), which fall outside the GDP net. Moreover, as an aggregate figure (or as an average, in the case of GDP per capita) it hides unequal distribution of income.  Against this backdrop, it becomes clear that there are important structural reasons why one should be suspicious of the ‘Africa rising’ mantra. Most fastgrowing African economies are heavily dependent on exports of commodities. This means that when commodity prices drop at the global level, African economies languish. More dangerously, it means that the ‘growth’ we have seen in the past few years is largely the result of a statistical mirage. Most natural resources in Africa are not renewable: once they are taken out of the ground, they do not grow back. GDP does not measure the ‘loss’ of selling out the most precious resources African countries possess. What would the picture look like if such losses were deducted from GDP? The World Bank in 2013 adjusted net savings statistics, which subtracts natural resources depletion and environmental damage from national income, gives us the following: African countries have been reducing their wealth at the tune of 1.2% a year. Rather than growing, our continent’s economies have been shrinking. Sierra Leone has experienced net losses of about 20% of its entire GDP, Angola of 40%, Chad of 50% and the DRC of over 57%. The Bank confirms that “in poorer countries, natural capital is more important than produced capital,” thus suggesting that properly managing natural resources should become a fundamental component of development strategies, “particularly since the poorest households in those countries are usually the most dependent on these resources” (World Bank 2006: p. XVI). The real costs of GDP growth in Africa are the elephant in the room of the world’s economic debates. The current GDP paradigm sacrifices nature, which must be commoditized to become productive. It also neglects important components of the real economy, such as the informal sector, because they are not part of the formal market system. Policies that are designed to support GDP growth thus replace the informal (e.g. street vendors, subsistence farming, flea markets, family businesses, household production) with the formal (e.g. shopping malls, commercial farming, large infrastructure). While some can take advantage of this concentration of wealth, many are left behind. The OECD has confirmed the intimate link between rising inequality and GDP growth across the world (OECD 2011). This is further amplified in those countries where the informal economy provides a fundamental safety net to many poor households, as is the case throughout Africa. Why going ‘beyond’ GDP may create new opportunities The GDP model of growth privileges the formal at the expense of the informal, the big at the expense of the small. While complacent politicians, economists and the media celebrate Africa’s GDP ‘miracle’, there is another part of the continent rising. Disillusioned with the limited gains of market society, many Africans are raising their collective voices, whether through service delivery protests (as is the case in South Africa) or through permanent mobilizations (as we have seen in North Africa). This could very well be the beginning of a new era, in which more and more citizens repudiate an economic model that is losing traction also in the West, to explore new forms of human progress. Going beyond GDP in Africa may open a myriad of possibilities to redefine progress in the continent. Through the introduction of new indicators that focus on human wellbeing, health and education, decent work (rather than superficial counting of ‘employment’) and natural welfare, African countries may be encouraged to promote a different development paradigm. Various elements of Africa’s local cultures, from the widely heralded (and often abused) concept of Ubuntu to traditional experiences with cooperative schemes of production and consumption as well as communitydriven governance, may provide a fertile ground for localized and decentralized forms of development, in which enhancing human capabilities will overtake nominal income as the key objective of economic progress. Moreover, the abundance of solar energy should make it possible for entire communities to become energy independent through small-scale offthe-grid solutions, thus reinforcing a transition to a citizens-driven development model, rather than an economic paradigm based on exploitation of nature and mass consumption. A networked economy, founded on localized forms of self-production and consumption, in which the distinction between producers and consumers becomes increasingly fuzzier (this is a concept encapsulated in the idea of ‘prosumers’) would challenge the GDP conceptualizations of production and asset boundary, thus resulting in lower rates of nominal growth. Yet, it3 would empower the millions of people that are at the moment left out of the apparent African economic miracle. It would for instance allow for alternative forms of governance of natural resources, in which local communities would need to identify the best ways to interact with their ecosystems in a sustainable fashion, rather than resorting to the structural exploitation we have seen throughout the continent in times of state-led or market-driven accelerated growth. It would mean respecting the commons for what they are, rather than subjecting them to marketization and commodification as dictated by the GDP mantra.

 

* Lorenzo Fioramonti is the director of the Centre for the Study of Governance Innovation at the University of Pretoria, South Africa (www.governanceinnovation.org). He is one of the leading voices in the ‘Beyond GDP’ debate and the author of the bestselling books Gross Domestic Problem: The Politics Behind the World’s Most Powerful Number (2013) and How Numbers Rules the World: The Use and Abuse of Statistics in Global Politics (2014), both published by Zed Books. The views and opinions expressed are the authors’ and do not represent those of the Secretariat of the United Nations. Online publication or dissemination does not imply endorsement by the United Nations.

Read more at:

https://sustainabledevelopment.un.org/content/documents/5938How%20moving%20beyond%20GDP%20may%20help%20fight%20poverty%20in%20Africa.pdf

 

Econ Ch 4-5 February 2, 2015

Posted by OromianEconomist in Economics, Uncategorized.
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O

 

 

 

‘Money flows clockwise and goods flow counterclockwise.’

Pepperdine Summary Notes

Money flows clockwise and goods flow counterclockwise.

Equilibrium is the point at which the demand and supply curve meet. If the market price is above this, there is a surplus. If it is below there is a shortage. Eventually the shortage and surplus will decrease and go back to equilibrium.

Untitled

When there is a shortage, consumers bid the price up to comet for goods until the price goes back to equilibrium.

An increase of demand causes a shortage until equilibrium is reached at a higher price and quantity.

1

When there is a decrease in demand, there is a surplus. The excess goods decrease the price until a new equilibrium is reached.

2

A shift in supply and and demand causes a change in the quantity and price. One is always the indeterminate.

3

Price ceiling:

4A price ceiling sets the maximum price that can be charged for a good, like rent control…

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THE SOCIALIST DICTATOR MODEL OF CENTRAL BANKS January 24, 2015

Posted by OromianEconomist in Central Bank, Economics, Uncategorized.
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“The conventional public’s view of Central Banks is that a man walks into a bank and deposits money. Another man walks in and borrows it and the interaction of savings and borrowing with regard to risk and security form the rate of interest. IS-LM goes a bit further to explain this.

The reality – The Socialist Dictator Model. The Socialist Dictator is the Governor of the Central Bank. The Committee are the other board members. Together they ‘plan’ the interest rate for the entire country or continent i.e. ‘forward guidance’. Instruments; The Base Rate is short term market manipulation, Quantitative Easing is long term market manipulation. The Committee have the objectives of low, stable inflation and ‘financial stability’.”

SMEB the Wizard

  1. Setting interest rates;

The conventional public’s view of Central Banks is that a man walks into a bank and deposits money. Another man walks in and borrows it and the interaction of savings and borrowing with regard to risk and security form the rate of interest. IS-LM goes a bit further to explain this.

The reality – The Socialist Dictator Model. The Socialist Dictator is the Governor of the Central Bank. The Committee are the other board members. Together they ‘plan’ the interest rate for the entire country or continent i.e. ‘forward guidance’. Instruments; The Base Rate is short term market manipulation, Quantitative Easing is long term market manipulation. The Committee have the objectives of low, stable inflation and ‘financial stability’.

  1. Assuming position x1;

Capture

The government can increase aggregate demand (the total amount of demand in the economy i.e. AD = C + I + G + (X – M))…

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The increased concentration of wealth: 80 rich people now have as much as 50% of the rest of humanity combined January 19, 2015

Posted by OromianEconomist in Economics.
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OsuperRich

http://www.theguardian.com/business/2015/jan/19/global-wealth-oxfam-inequality-davos-economic-summit-switzerland

WIDENING GAP:80 rich people now have as much as 50% of the rest of humanity combined

http://qz.com/329099/80-rich-people-now-have-as-much-as-50-of-the-rest-of-humanity-combined/

Billionaires are getting richer, according to a new study from Oxfam. Gather together the wealth of the world’s richest people, and you now only need 80 of them before there’s enough in the pot to equal everything owned by the poorest 50% of the rest of the world combined. Back in 2010, you’d have needed 388 of the world’s richest to balance those scales.

The richest of the top 1%, the top billionaires on Forbes’ rich list, have seen their wealth accumulate faster over the last five years than even the rest of the super-rich, Oxfam said. In 2010, the richest 80 people in the world had a net wealth of $1.3 trillion. By last year, that was up to 1.9 trillion, an increase of $600 billion.

Together with the rest of the 1%, that group owned 48% of global wealth in 2014. That’s more uneven than in 2010, when they owned a little over 44%.

However, according to Oxfam’s data, we’ve been here before. Back in 2000, the 1% owned a higher percentage of global wealth than they do today. For a few years, the trend seemed to show that number falling, as the world’s poorest clawed some of it back. But in the past five years, that’s reversed.

Part of the problem, as identified by Oxfam, is that the rate of increase for the rich has speeded up, and it’s now so much higher than that for everyone else that it’s increasing the gap.

The 1% has entered parlance, but who’s included? And do they constitute a problem or an asset?

Who are these people? 

With a world population of 7.2 billion, there are around 72 million people in the top 1%—not all of whom are billionaires. In 2014, there were 1,645 people listed by Forbes as being billionaires, with Bill Gates back at the top after a year off. Of these, 90% are male, and 30% are American. And there’s evidence they’ve been running the show for a long, long time.

Is rising inequality inevitable?

Oxfam says not. In a campaign, the charity focuses on changes that could be made to the way global society is organized, including the eradication of extreme poverty and economic empowerment of women.

Why does it matter?

Economists like Dan Altman and Thomas Piketty argue that wealth inequality hampers growth and will only get worse in the future. Somehave argued that it could be a good thing. And many have blamed it for misery, hopelessness and, ultimately, violence.

http://qz.com/329099/80-rich-people-now-have-as-much-as-50-of-the-rest-of-humanity-combined/

http://amzn.to/1KU6O9N

Introduction to Microeconomics: Understanding Market Economy January 17, 2015

Posted by OromianEconomist in Economics, Uncategorized.
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O

 

“Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy.”

Daddy Duck Innovation Lab

Economics Basics: Supply and Demand

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy.

Market Economy is a system largely determined by  free enterprise. It is a system in which decision regarding investment, production and distribution are based on supply and demand, and prices of goods and services are determined in a free market and free price system. Markets determines the allocation of resources and economic resources are privately owned.

Market is made up of people, consumers and entrepreneurs, attempting to buy and sell on the best term possible. Through the grouping process of give and take, they move from relative ignorance about others’ wants and needs to a reasonably accurate understanding of how much can be bought and sold at what price. The market function as an ongoing information and exchange system.

A free market is…

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Introduction to Economics January 17, 2015

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???????????

https://www.khanacademy.org/economics-finance-domain/macroeconomics/gdp-topic/econ-intro-in-macro-tutorial/v/introduction-to-economics?v=8JYP_wU1JTU

https://www.khanacademy.org/economics-finance-domain/macroeconomics/aggregate-supply-demand-topic/monetary-fiscal-policy/v/monetary-and-fiscal-policy?v=ntxMOKXHlfo

Economics: Role and Method of Econ (1.1-1.5) January 16, 2015

Posted by OromianEconomist in Economics, Uncategorized.
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???????????

‘Economics is the study of choices we make among our many wants and desires given our limited resources. With unlimited resources we wouldn’t have to worry about scarcity.
Resources are inputs that we use to produce goods and services. These include Capital, Entrepreneurship, Land and Labor (CELL). Capital is the goods we make to produce other goods. Entrepreneurship are machines that are used to make products. Land is our natural resources and Labor is the human effort put into making products. Scarcity is defined as products that are desirable but limited. These cause us to change our decision and and give up opportunities that we value, this is known as the Economic Problem.’

Pepperdine Summary Notes

1.1

Economics is the study of choices we make among our many wants and desires given our limited resources. With unlimited resources we wouldn’t have to worry about scarcity.

Resources are inputs that we use to produce goods and services. These include Capital, Entrepreneurship,  Land and Labor (CELL). Capital is the goods we make to produce other goods. Entrepreneurship are machines that are used to make products. Land is our natural resources and Labor is the human effort put into making products.

Scarcity is defined as products that are desirable but limited. These cause us to change our decision and and give up opportunities that we value, this is known as the Economic Problem. Every person, worker and firms all face the Economic Problem. Consumers have to decide what to buy, save and how much of their money to invest. Workers have to decide where to work, what to do…

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2015 Global Economic Prospects January 15, 2015

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???????????World Bank Group

The global economy is still struggling to gain momentum as many high-income countries continue to grapple with the legacies of the global financial crisis and emerging economies are less dynamic than in the past. After rising marginally in 2014, to 2.6 percent, world GDP will grow by an estimated 3.0 percent in 2015 and 3.3 percent in 2016, supported by gradual recovery in high-income countries, low oil prices, and receding domestic headwinds in developing countries. Developing economies are expected to see an increase in growth from 4.4 percent in 2014 to 4.8 percent and 5.3 percent in 2015 and 2016, respectively. Lower oil prices will lead to sizeable real income shifts to oil-importing countries from oil-exporting ones. Risks to the global outlook remain tilted downwards. Weak global trade growth is anticipated to persist during the forecast period, potentially for longer than currently expected should the Euro Area or Japan experience a prolonged period of stagnation or deflation. Financial conditions could become volatile as high-income economies tighten monetary policy on diverging timelines. Rapid reassessment of risk could also be triggered by a spike in geopolitical tensions, bouts of volatility in commodity markets, or financial stress in major emerging market economies. Worryingly, the weak recovery in many high-income economies and slowdowns in several large emerging markets may be a symptom of deeper structural weaknesses.
Developing countries face significant policy challenges in an environment of weak global growth and considerable uncertainty. Fiscal buffers need to be rebuilt to ensure the effectiveness of fiscal policy in the future. Central banks need to balance policies to support growth against measures to stabilize inflation and currencies or to bolster financial stability. Progress on implementing structural reforms must be continued to boost long-term growth. The fragile global outlook makes the implementation of growth enhancing policies and structural reforms even more urgent to improve the odds of achieving the World Bank Group’s goal of ending extreme poverty by 2030.
The current juncture presents a window of opportunity for reform. The sharp decline in oil prices means that policymakers could implement subsidy and tax reforms to help rebuild fiscal space or finance better targeted pro-poor policies while removing distortions that hinder activity. The challenge now is for policymakers to seize this opportunity.
Kaushik Basu, Chief Economist and Senior Vice President
The World Bank

Read more at https://openknowledge.worldbank.org/handle/10986/20758

http://amzn.to/1KU6O9N

What is a developed country? January 12, 2015

Posted by OromianEconomist in Developed country, Economics.
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???????????

“A developed country is one, where all its people are literate, have respect for their fellow beings around them, have job security, medical insurance, a well planned and organized retirement for elderly, an organized system of operating private business, an organized system of security, both for individual, family, business and as well as society, and most importantly, a vision to develop with science.”

Oil, Commodities, And The Dollar Trade January 8, 2015

Posted by OromianEconomist in Economics, Oil, The sate of world Economy, Uncategorized.
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???????????

 

 

‘The world’s debt situation has become a gigantic Ponzi scheme that makes all others look like children trying to sell candy to a baby. So what is the world situation on oil supply? There is currently an excess of supply and a reduction in usage. China is no longer using oil at a burn rate that makes the Americans look like Sunday drivers. But that is not all that is happening. Commodity prices are falling greatly due to lack of demand. China is no longer building factories and cities that will never be used. Their demand for electrical production has been reduced through lack of industrial activity and gigantic construction projects. In the past ten years the play was in commodity speculation and boy did the speculators speculate, steal, even. Not that demand has collapsed the prices for raw commodities has collapsed with it. Australia is hurting and will suffer some severe economic reverses. Already mines are closing and layoffs appearing. Their housing bubble is bursting as it their job markets. And they are the only ones. Many developing countries are starting to see their trade with China decline. Right now China has become the middle man in the world markets. Where it once produced products using its own labor forces and factories, it has out sourced the unfinished parts to the various undeveloped countries where labor is still cheaper. But here in America we have seen a downturn in demand of goods coming from China.’

williambean2014

There is an old saying about markets: “The market can remain irrational longer than you have money.”  And the fact is, there is very little rationality to the market whether it be stocks, bonds, commodities, or Forex.  These past two years have seen great difficulty for the rational investor to make money by reason of sane investments, only the trend followers are able to pursue profit that appears to be more the making of lucky circumstances than anything else.  Indeed, investing these days is more akin to betting against the house.  And no wonder since the quantitative easing by the Federal Reserve and the issuance of an extreme amount of debt over the several past decades has made investment an exercise in statistical probabilities rather than an analysis of price to earnings, return on investment, and the other measures commonly used in the evaluation of stocks.  The chase after ever…

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Decolonizing Development:The Political and Cultural Locations of Nationalism and National Self-determination (The Case of Oromia) January 4, 2015

Posted by OromianEconomist in Africa, Colonizing Structure, Development, Dictatorship, Economics, Gadaa System, Humanity and Social Civilization, Ideas, Knowledge and the Colonizing Structure., Language and Development, Oromia, Oromia Quarterly, Oromo, Oromo Identity, Oromo Nation, Oromo Social System, Oromo the Largest Nation of Africa. Human Rights violations and Genocide against the Oromo people in Ethiopia, Self determination, Sirna Gadaa, The Oromo Democratic system, The Oromo Governance System, Theory of Development, Tyranny, Uncategorized, Wisdom.
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 Decolonising Development:The Political and Cultural Locations of   Nationalism and National Self-determination (the Case of Oromia)

Several scholars have argued that national self-determination is a claim for cultural independence and that nationalism in general is based on the right to cultural autonomy, right to a culture. In the Oromo context, national self-determination is about the representation of collective identity and dignity. It is the demand of the Oromo people to govern themselves. Practically, this can be interpreted as let us be governed by people who are like us, people of our nationality or people who accept and respect our value system. For the last hundred years and so, the Oromo nation has suffered from Abyssinian expansionism, social, ecological and economic destruction and continuous and intensive cultural and physical genocide. The Abyssinians and Oromians connections have been the coloniser (refers to the former) and the colonised (refers to the latter) relationships. Contrary to the Ethiopianist discourse, they have not developed a common unifying identity, social and political system. While the Abyssinians feel a sense of glory of their kings, warlords and dictators, the Oromians feel victimisation to these rulers, so they have not emerged a common ancestry, culture and collective memory, which can result in common ‘Ethiopian’ identity. From the perspective of Oromo social construction, the present Ethiopian domination over Oromia is a continuation of what pervious generations of Oromo nation had experienced. Thus, the Oromo people, sees the present political arrangement as illegitimate because it is a rule by the people who have engaged in destroying them. So, they claim not only cultural but also political independence. Oromo nationalism is also very democratic. It follows the UN principles of self-determination for the citizens of Oromia, claiming independence from the tyranny of Ethiopian Empire. The latter has been constructed based on Amhara-Tigre nationalism. The Oromo nationalism also offers democratic solutions to the ethnic minorities in the Ethiopian Empire. Scholars of Oromo studies claim that there is fundamental behavioural, linguistic, ethnic and cultural differences between the Abyssinians (northern) and their subjects (Southern). The Oromo, Sidama, Afar and the Ogaden (Ogaden Somalians) nations, beyond their common Cushitic progeny, they have common experiences of victimisation and illegitimately absorbed by Abyssinian southward expansion. Their collective memory of past experiences and present victimisation are making common identity. This identity is a key to understand politics there and to work together for self-determination, to recover their lost humanity.

For the early version of this article, see Temesgen M. Erena, The Political and Cultural Locations National Self – Determination,  Oromia Quarterly, Vol. II, No.2, March 1999; Temesgen, M. Erena, Oromia: The Nation and the Politics of National Self – Determination, Oromia Quarterly, Vol. I, No.2, December 1997, ISSN 1460-1346.

Man knows himself only insofar as he knows the world, and becomes aware of the world only in himself, and of himself only in it. Every new object, well observed, opens a new organ in ourselves.

-Goethe, Maximen und Reflexionen, VI Build therefore your own world. -Ralph Waldo Emerson, Nature

Introduction

The passions of national freedom and national interest are probably the strongest in the whole political spectrum that characterises the present world. Kellas (1998) holds that it is stronger than the passions aroused by religion, class, individual or group interest. This passion is not all futile, either. In Gellener’s (1983) understanding, nationalism has been considered as essential to the establishment of a modern industrial society. According to Smith (1991), it is ‘the sole vision and rationale of political solidarity.’ For Kellas (1998), it provides legitimacy to the state, and inspires its citizens to feel an emotional attachment towards it. It can be a source of creativity in the arts, and enterprise in the economy. Its power to mobilise political engagement is unrivalled, particularly in the vital activity of nation building. It is intimately linked with the operation of popular democracy. Indeed, the global pattern is a mosaic of political drives, economic interests, linguistic pride, cultural imperatives, psychological needs and nations seeking identity. These factors are manifesting as a powerful staying power in a modern Africa, either. As European colonialism and socialism melted away, the perpetual existence of the backlash against ‘neo-colonial’ colony colonialism and the reviving of national selfdom become more and more significant in social and political dynamics of contemporary multi-ethno-nation African societies. The African experience is motivated by the same aspirations as that of elsewhere. At its root is a need for freedom, dignity, for the right of people of distinct social communities to function freely and independently. In this regard, Oromia represents the case of rejuvenating claim for national freedom and the struggle against more than a century old Abyssinian Empire colonialism in Africa. Oromia is a homeland for an Oromo nation, a group of people with a common culture and value system (seera fi aadaa), language ( Afaan Oromo), political institutions (Gadaa), and historical memories and experiences. Oromia is the single largest, homogeneous and endogenous nation in Africa with a population of 40 to 45 million. Both in terms of territorial and population size, more than two-third’s today’s sovereign states that are making members of UN (United Nations) are smaller than Oromia. The Cushite (see Demie, 1998) Oromo people have inhibited their homeland, Oromia, since pre-history and in antiquity were the agents of humanity’s documented Cushitic civilisation in terms of science, technology, art, political and moral philosophy. The links between the Oromo and the ancient civilisations of Babylon, Cush and Egypt has been discussed in Asfaw Beyene (1992) and John Sorenson (1998) scholarly works. Utilising prodigious evidence from history, philosophy, archaeology and linguistics, Diop (1974 and 1991) confirms that the Cushite Egyptian civilisation was emerged from the Cushite civilisations of North East Africa, particularly, the present day Western Sudan and upper Nile Oromia (also known as Cush or Punt). Indeed, except the name of places, saints and prophets, many of the Old Testament and the Holy Koran moral texts are copies of the Oromo moral codes. The formers are written documents while the latter are orally transmitted. Since the late 1880s the Oromo people have disowned their sovereignty. They disowned their autonomous institutions of governance, culture, education, creativity, business, commerce, etc. Thus, they have been claiming for national self-determination, national-self government and the right to their own state and resist the Abyssinian Empire saver (supremacist’s) nationalism. The Oromians are not only against the quality of Ethiopian Empire governance but also against the philosophy on which it is based: domination, dehumanisation, inequality, double standard, hypocrisy, deceit, exclusion, chauvinism, war institution, rent-seeking, extractive state, conservatism, feudalism, Aste fundamentalism (Aste Tewodros, Aste Yohannis, Aste Menelik, Aste Haile Sellasie), etc. The political goal of national self-determination (national self-government) is asserted in the outlook and attitudes of the Oromo political and social organisations. Of course, the Oromo nationalism, which supports the interests and identity of the Oromo people, is a more subtle, complex and widespread phenomenon than common understanding and observation. It is within this context that we are going to discuss the Oromos’ politics of national self-determination and the search for the national homeland, the demand for reinventing a state of their own in the following sections.

Defining Nation, Nationalism and Self- determination

To define nation and nationalism is as Benjamin Akzin (1964, pp. 7-10) discussed five decades ago, to enter into a terminological jungle in which one easily gets lost. Different scholarly disciplines have their own more or less established and more or less peculiar ways of dealing with nation and nationalism. Ideally, our definition of nation and nationalism should be induced of elements of nationalist ideology. Getting at such a definition has confirmed phenomenally strenuous. Hugh Seton-Watson, an authority in this domain, has deduced that ‘no scientific definition’ of a nation can be concocted. All that we can find to say is that a nation exists when significant number of people in a community consider themselves to form a nation, or behave as if they formed one (Seton-Watson, 1982, p.5).Van den Berghe (1981) defines a nation as a politically conscious ethnic group. Several attempts have been made at making a cardinalist definition of the term, pointing out one or more key cultural variables as defining variables. Among those tried are language, religion, common history/descent, ethnicity/race, statehood and common territory (homeland). For a group of people to be termed a nation, its members typically have to share several of these characteristics, although historically, one criterion may have been predominant (for example, language in Germany, or culture and history in France). In the case of Oromo, common language (Afaan Oromo), common territory (Biyya Oromo, dangaa Oromiyaa or Oromia), common historical experiences (victimisation to Ethiopian Empire rules or Abyssinocracy) are particularly very significant. Stalin made his undertaking in 1913. His definition includes four criteria: the members of a nation live under the same economic conditions, on the same territory, speak the same language, and have similar culture and national character (Seton-Watson, 1982, p.14). Neither Ernest Gellner nor Eric Hobsbawn, two influencials, gave definite definitions of the nation in their major achievements. Indeed, they are very hostile towards what they define as nationalism. ‘…For ever single nationalism which has so far raised its ugly head…’ (Gellner, 1983, p.45), this is a Gellner’s conception and sees the world as naturally divided into nations, each with its own individuality. This implies an acceptance of the nationalist self-perception. There are also other conceptualisations. A social anthropologist, Thomas Hylland Eriksen (1992, p. 220) says ‘a nation is an ethnic group whose leaders have either achieved, or aspire to achieve, a state where its cultural group is hegemonic’, Anthony H. Birch (1989, p.6) considers that a nation is best defined as ‘a society which either governs itself today, or has done so in the past, or has a credible claim to do so in the not-too- distant future. Kellas (1998) defines the nation as a group of people who feel themselves to be a community bound together by ties of history, culture and common ancestry. Nations have ‘objective’ characteristics, which may include a territory, a language, a religion, or common descent, and ‘subjective’ characteristics, essentially a people’s awareness of its nationality and affection for it. In the last resort it is ‘the supreme loyalty’ for people who are prepared to die for their nation. The definition of ‘nation’ which we will make use of in the following is one suggested by Anthony D. Smith (1983,pp. 27-109, 1991, p. 14; 1995); a definition mastering well the ‘sounding board’ dimension. Smith here defines a nation as ‘a named human population sharing a historic territory, common myths and historical memories, a mass, public culture, a common economy and common legal rights and duties for all members. A recent definition of Smith holds nationalism, one manifestation of national-self-determination, as ‘an ideological movement for attaining and maintaining autonomy, unity and identity on behalf of a population deemed by some of its members to constitute an actual or potential ‘nation’ (Smith, 1991, p. 73; 1995). For Smith nationalism has a deep ethnic roots and rejuvenates itself in response to global and domestic impulses. While the phenomenon of globalisation and technocratic culture are there, nationalism is an eternal nature and nourishes and propels itself on technocratic innovations. In this context, national self-determination may be defined as many part aspirations of a nation: To be free to freely determine one’s own national identity, culture, including language, education, religion, and form of government, to be free of rule by another ‘nation’, that is to overcome social and political systems of domination and exclusion in which nations other than one’s own wield predominant power. To be free to select its own form of government; and those governed within it have the right of unflagging consent.

Culture and the Politics of Self-determination

Nation, nationalism and national self-determination are commanding attentions. One of the perennial issues within nationalism is whether national self-determination can stand alone, or whether it requires a ‘qualifier’ from within cultural or political ideas or both to clarify its precise cultural and political location. Several scholars have argued that national self-determination is a claim for cultural independence and that nationalism in general is based on the right to cultural independence and that nationalism is based on the right to a culture. Nielson, for example, peers a nation as groups of people whom ‘perceive themselves as having a distinct culture and traditions’, and Tamir presents that a nation is a community in which individuals develop their culture, and they therefore regard their place within a nation as membership in a cultural group. Indeed, she argues that ‘the right to national-self determination stakes a cultural rather than a political claim, namely, it is the right to preserve the existence of a nation as a distinct cultural entity.’ Will the people who demand national self-determination be satisfied with such an arrangement? Tamir gives credence to that the idea of basing the right to self-determination on the right to a culture is the one that has best conformity with a liberal internationalist viewpoint. That is thinkable, but international liberalism is incompetent on this particular matter. A nationalism, which is based on culture and cultural distinctions, was not very long a go. It is a concept that characteristic the thesis of right wing, or romantic theorists such as Herder. Indeed, Herder’s nationalism was not political, and it distrusted a state as something external, mechanical, not emerging spontaneously from the life of the people. Nevertheless, in the Oromo context the claim for national self-determination is a political rather than a cultural one. If we look at the distinction between the two, it would seem that the claim for national self-determination involves more than a demand to be tolerated while the cultural question is. For example, the Catalan’s and Quebecois’ culture and identity have been tolerated and respected to some extent, and yet many of them thought that this did not reflect a situation of self-determination. Indeed, meeting their claim would involve legislation and redefinition of institutions within the state, and perhaps even a new state. In the Oromo case the demand is actually the claim to have control over their lives. This does not mean over every individual’s private life, but over the public aspect of one’s existence, i.e. the system of mutual relationships, which reflect and sustain one’s membership of a certain collective. Here the self is conceptualised within the context of community, but one that has to be real, actual, and functioning and performing. Otherwise these communal ties are too abstract, which makes it impossible for the self to be defined by them. The statement of Cohen has to be recalled: ‘A person does not only need to develop and enjoy his powers. He needs to know who he is, and how his identity connects him with particular others. He must… find something outside himself which he did not create… He must be able to identify himself with some part of objective social reality’ (Cohen, 1988). Moreover, self-realisation, however, cannot be merely a mental situation; thus this community cannot be only cultural. It must be a political situation at least so that, in order for the Oromo people to realise themselves, they must not be dependent on the goodwill of a second party. They then must be certain that their self-realisation in all spheres of life will not be prevented by the Abyssinian government, the TPLF, the Orthodox Church, and so forth. They should therefore be politically active and watch such institutions carefully. In addition, they must participate in politics in order to decide collectively upon public matters, which influence their self-realisation. So the Oromos claim for national-self determination is about the realisation of their potential status, ability and collective character, which may be achieved only through participation in autonomous political institutions. But for more than a century Oromos have been denied access to these institutions, either officially or in practice. In other words, if  Oromos as a nation achieve self-determination they will better able to participate, better represented, better able to deliberate, gain much more control over their life than formerly and more autonomous. The Oromos demand for national self-determination thus, aims at establishing those institutions, which are needed for the realisation of the self-determination. When an Oromo demands national self-determination, he/she is not asserting that he/she would like to control his/her private life, e.g. his/her job, his/her shopping activities, his/her love affairs. Many Oromos do not control these aspects of their lives and yet nevertheless demand national self-determination. But the same principle also applies to cultural life. The Oromos may be allowed more-or-less to use their language, have their own newspapers and theatre, and the freedom of worship, etc. which are making cultural freedom. Actually, these rights are hardly exist at present. But when they claim national self-determination they are not only referring to these aspects of life, as political community: they want to be able to form and choose among and vote for the Oromo political parties, to observe the Oromo constitutional laws, to pay taxes to an Oromo authority, and to have a history (and indeed, myth) of independent Oromo state, from which their identity and self-determination can derive. Thus, the Oromo’s Declaration for Independence will emphasise parliamentary participation and the need to form a constitution, rather than cultural activities. In general the Oromos demand for national self-determination entails that the individuals in this nation should be citizens, engaged in politics as members of a community committed to the realisation of certain (their own) common goods, rather than participating as individuals who seek their self-interests, as it is implied by the right- to- culture school of thought and Liberal Internationalists. Perhaps for this reason Margalit and Halbertal revise the right-to- culture argument, arguing that the right is to a certain culture rather than to culture. A certain culture, then, becomes a common good. And yet, this is not enough, because they still regard the common good in cultural rather than political terms: ‘shared values and symbols… are meant to serve as the focus for citizens’ identification with the state, as well as the sources of their willingness to defend it even at the risk of their lives (Margalit and Halbertal, 1994). Why, then, do theories adhere to the culture discourse? Of course, for most of the Western theorists, the term national self-determination is affiliated to the strive to become part of humanity, to regain the human condition of autonomy; it is adjoined to the struggle to be part of the free world, of the more progressive forces; it is seen as decolonisation, as civilisation, as an attempt made to become part of the world of liberty, rights, and justice. But, it is seen as part of centrifugal forces, from the centre to the global, universalism or what Lane (1974) calls as ‘total situation’ or citizenship based on individual freedom and social justice. These theorists, therefore, universalise the notion of national self-determination: they make it part of liberalism. The liberals’ universal approach tends to be uniformist. This makes a society rootless and a citizen far removed from those who control his/her destiny. On the other hand, the notion as it is put forward and used by the Oromos that the demand for national self-determination is also centripetal, from the global and the greater units to the smaller ones. These groups demand the disengagement from the ‘other’, the global, the colonist, even from other humanity, by asserting that ‘we are not merely the essential equal and part of humanity, but rather we are also different and distinct: we have our own political identity, which we want to preserve, sustain, and establish institutionally, like the Scottish vision in multi-nation state Europe. This is the language of liberation from colonisation. It is also the language of particularisation within the universal or the global, and it seems that the uniformist approach is not sensitive enough to the real Oromos problems. Thus, the Oromos quest for self-determination involves the ultimate goal of particularism (its own unique space), reinventing the Oromia State, owning the national homeland. Of course, in a heterogeneous society of the Ethiopian Empire, though uniformity may simplify system of control, social justice will not be attained in one vast monolithic block of oppressed by colonial legislation, bureaucrats and its armies. An important work of Professor Asafa Jalata, an authority in the study of Oromo nationalism kindly quoted as’ The Oromo question involves both colonialism and ethno nationalism. Ethiopian colonialism has been imposed by global capitalism on the Oromo nation. Ethiopians, both Amharas and Tigrayans, through establishing settler colonialism in Oromia, have systematically killed millions of Oromo and expropriated their lands and other resources from the last decades of the nineteenth century until today. Ethiopian colonialists already destroyed the people called Agaw by taking their lands, systematically killing them, and assimilating the survivors. They attempt to do the same thing to the Oromo by destroying the Oromo national movement, confiscating Oromo lands, and forcing the remaining Oromo into ‘settlement villages’ or (reservations). Many times, some Oromo organisations attempted to democratize Ethiopia so that the Oromo would achieve equal citizenship rights and maintain their ethno cultural identity. Determined to maintain their colonial domination and to destroy the Oromo cultural personality through ethnocide or assimilation, Ethiopian colonialists destroyed or suppressed those Oromo political forces that attempted to transform Ethiopia into a multinational democratic society. Therefore, most Oromos are convinced that their rights and freedom cannot be obtained and respected without creating their own state, or state that they can create as equal partners with other ethno national groups interested in forming a multinational democratic society to promote ethno cultural diversity and human freedom. Hence, Oromo nationalism is an ideology of the subjugated Oromo who seek human rights, freedom, justice, and democracy’ (Jalata, 1997). In fact social justice can be attained when and only when the oppressed majority able to rule its homeland. The Oromos work for national self-determination is the great humanist and historical task in terms of Freire (1993) argument ‘To liberate themselves and their oppressors as well. The oppressors, who oppress, exploit, and rape by virtue of their power, cannot find in this power the strength to liberate either the oppressed or themselves. Only power that springs from the weakness of the oppressed will be sufficiently strong to free both. Any ‘attempt to soften the power of the oppressor in difference to the weakness of the oppressed almost always manifest itself in the form of false generosity; indeed, the attempt never goes beyond this.’ In this context, for Oromos in order to have the continued opportunity to express their ‘generosity,’ the Habasha colonist must perpetuate injustice, too. Tyranny is the permanent fount of this ‘generosity,’ that sustains at the price of death, dehumanisation, despair and poverty. ‘True generosity consists precisely in fighting to destroy the causes which nourish false charity.’ (Freire, 1993). For further discussions on Oromo nationalism, universalism, globalism, Ethiopianist discourses and Oromo Nationalism, see Sorenson (1998) and Sisai Ibssa (1998).

Concluding Thoughts

Man as a social animal always seeks his own territory and belongings to a social group in which his identity and sense of community is observed and respected. In the defence of the cause for social justice and social ecology, these are basic tenets to backlash against the danger of the rhetoric of universalism, polyarchy and false perspectives of social uniformity, which appear to appreciate the social problems from a single privileged point. Georg Hegel, The Phenomenology of Mind ( New York, 1967 edition), in his famous philosophical discussion of the relationship between ‘lordship and bondage’ maintained that a single consciousness could know itself only through another, even in a condition of totally unequal power relationship. According to this philosophical model, the lord (the oppressor) is lord only through the relationship with a bondservant (the oppressed, the one whose humanity is stolen). In the relationship, however, the other is annulled. The self of the mastery, the lord, derives from the conquest and negation of the servant, the bond. Only recognition of the selfhood of the other permits for its annulations. Thus, lordship covertly recognises the separate identity of the dominated. They are normally equal selves locked into unequal hierarchy. Metaphorically, Hegel’s dialectics of lordship and bondage is very important to understand the Ethiopian domination over Oromia. However, in the Ethiopianist discourse, the essential equality of the selves has been escaped totally. Rather, the persisting hierarchy has taken for granted. According to Sorenson (1998), Ethiopianist scholars like Clapham, Sven Rubenson and Levine because of their attachment to one version of the Ethiopian past and present make them either or unwilling to engage with the full complexity of the problem. From this point of view, to accept the unchanging polarity of Ethiopia and Oromia in the lordship-bondage relationship is to succumb to a structure of Ethiopian aggression and colonialism. The Oromians demand for national self-determination is, however, the civilised step out of the polarity upon which the coercive hierarchy relies, it is the collective political demand, as its main purpose is to achieve the good of the social whole, humanisation, the essential liberation of the Oromo national identity, dignity and the reinvention of Oromia as a sovereign state. The Abyssinian occupation of Oromia, the existence of the Abyssinian Rule, war-lordism and their armies in Oromia and the making of Finfinnee their garrison station, the centre of their crowds is not only an act of conquest, aggression and colonialism but also, from Oromo perspective, such elements are symbols of bondage and slavery that negate the Oromo selfhood as equal essential. For the last over hundred years, the Oromo nation has disowned selfhood, its own state or administration, and lived as a bondage of Abyssinia. The Abyssinian administration which has undermined the Oromo national traditions, exploited it economically, and maintained order through mechanical and repressive means- such a nation actually must seek national self-determination to foster within its politics, to bring dignity, justice, freedom and democracy and to survival as essential equal, as a nation and as part of humanity and its civilisation. It is necessary for Oromians to build the world of their own, a world which make them capable to sustain as a group of human people. They must able to liberate themselves and the violent, the oppressor too. In this context, the Oromo issue is a test case to the deceptive ‘democracy world-wide’ which is being advocated in the USA foreign policy and manipulated by the neo-nafxanyas (see Ibssa, 1998). It is a challenge to contemporary theories of democracy and polyarchy (Robinson, 1997) and actors of post cold war Ethiopian politics who simply take for granted that the boundaries and powers of political community in the ‘Horn’ have already been settled. Thanks to the dedicated works of human rights activists, particularly the OSG (the Oromia Support Group) and its UK based publication, Sagalee Haaraa, we have been well informed on plights of human population and their environment in the entire region. We are interested to recommend this publication to all actors of the region. In this context, we are confident to say that Ethiopian democracy rhetoric or federalism sham politics is nothing more than a fig leaf, covering up the continuation of an extraction of the ‘politics of the belly’, in terms of Bayart (1993) from ‘prudish eye of the West.’ Its democratic rhetoric is a new type of rent seeking (extracting economic rent). By making believe, it enables the collection of international aid that includes diplomatic, military and humanitarian. It enables the seizure of the resources of the modern economy for the benefit of the Tigrayan elites. The situation is not in democracy’s favour, rather it is a situation that the Tyranny is retaining control over the security forces, economic rents and the support of the West. Such manipulation is not new for Africa. Menilik, Haile sellassie, Mengistu, Mobutu, Biya, Senghor and Diouf did the same thing either in Ethiopia or elsewhere in the continent at one time or another. The Quote from Bayart’s (1993) African analyis comes to our mind ‘…The support of western powers and multilateral institutions of Bretton Woods and the Vatcan, who despite having waved the flag of democratic conditionality and respect for human rights, have not dared to pursue such sentiments to their logical conclusion and have continued to think in terms of ‘Mobutu or Chaos’ where Gorbachev given up saying ‘Ceaucescu or chaos’…’. Indeed, very recently, we have read the deceptive descriptions to neo-Mobutu, neo-Mengistu, etc.: democratic, new generation, confident and pragmatic, etc. Sadly, everything changes so that everything stays the same. Nevertheless, the oppressed Oromos are not passive objects, either. They have not allowed themselves to be ‘captured’, as in the past they have demonstrated their historical ability to resist dehumanisation, despair and poverty, and predictably will continue to resist until the justice will come to them. An everyday Oromo coins the following: ‘Victory to the Oromo people! Oromia shall be free!’ We feel moral and social responsibility to support the just cause of fellow humanity.

Listen to Oromo Voice Radio (OVR) Broadcast Afaan Oromo interviews with Dr. Almayayyoo Birru on topic of Self-determination:

http://ayyaantuu.com/horn-of-africa-news/oromia/oromo-freedom-from-what-and-for-what-part-1/

http://gadaa.com/oduu/4613/2010/06/27/on-the-question-of-nationalities-in-ethiopia/

 

‘External self-determination, in particular, seems to carry dual meaning. On the one hand it is taken to mean full independent statehood, while on the other hand it is taken to mean external recognition by other states within the
international community.’

http://bemis.org.uk/docs/redefining-self-determination.pdf

 

‘Every individual/group possesses a moral right to secede. The burden of proof rests with the opponents of secession.’ 

This article is mainly credited to Oromia Quarterly 1997 & 1999.

Copyright © Oromianeconomist 2015 and Oromia Quarterly 1997-2015. All rights reserved. Disclaimer.

Short term effect on the average consumer as oil prices drop. (Theoretical approach) December 28, 2014

Posted by OromianEconomist in Economics, Uncategorized.
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Most economists agree that Oil is considered to be a normal good, by normal we mean that as your income goes up you would buy more of that good, that is a basic definition. As oil prices fall you would expect that oil consumption would increase, however in the short-run that is not the case. Oil in fact is inelastic in the short run, inelastic means that its consumption is not sensitive to price. Companies still need to operate at the same rate to satisfy their operations and people still need to drive to get to work. It takes time for markets to adjust and people to change their way of living. The long run is a different topic by itself and is out of the scope of this post. You are not going to buy a 8 cylinder pick up after you hear oil fell this month are you?

We can then agree that oil consumption would not change in the short run. Now we can check the graph that I have made to illustrate a theoretical approach of what consumers are going through at this point of time.

The Irrational Observer

Most economists agree that Oil is considered to be a normal good, by normal we mean that as your income goes up you would buy more of that good, that is a basic definition. As  oil prices fall you would expect that oil consumption would increase, however in the short-run that is not the case. Oil in fact is inelastic in the short run, inelastic means that its consumption is not sensitive to price. Companies still need to operate at the same rate to satisfy their operations and people still need to drive to get to work. It takes time for markets to adjust and people to change their way of living. The long run is a different topic by itself and is out of the scope of this post. You are not going to buy a 8 cylinder pick up after you hear oil fell this month are you?

We can…

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AU Summit Approves Creation of African Monetary Fund. #Africa December 25, 2014

Posted by OromianEconomist in Africa, Africa and debt, Africa Rising, African Monetary Fund, African Studies Association, Corruption in Africa, Economics, Economics: Development Theory and Policy applications.
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OPremium Times (Abuja)

Africa: AU Summit Approves Creation of African Monetary Fund

By Premium Times

@ http://allafrica.com/stories/201406302281.html

The AU Commissioner for Economic Affairs, Anthony Maruping, told journalists in Malabo on Monday that the Fund would work to correct balances of payment positions across Africa.

He said such positions were mainly caused by low export of commodities and high import volumes which exerted negative burden on currency stability.

The AMF would be established to basically help to tackle macro-economic matters in Africa, he added.

The commissioner said, “It is not true that there has been an economic leadership gap in Africa. We are creating an African institution because the UN Economic Commission for Africa is a global body.”

Mr. Maruping said the Fund was expected to create proper lending system in Africa to correct imbalance in payments within the continent and ensure exchange rate stability.

“It will also work toward African currency convertibility, ensuring that currencies across Africa can be exchangeable. The Fund will promote monetary cooperation on the continent and speed up economic development. To achieve these objectives, the Fund will design formulas to lower the debt burden and other debt management policies in Africa and facilitate development of the African financial markets,” he said.

The AU official said the Fund would have an authorised share capital denomination of $100 (N16,285) per share with a callable share capital of 50 per cent of the authorised share capital, which is $11.32 (N1,845).

The paid up share capital would be at least 50 per cent of the callable share capital $5.66 billion (N922 billion) denominated in $100, he added.

He said South Africa was expected to get the highest allocation of the 500,000 shares, with an 8.05 per share, translating into nearly $1billion (N163 billion), followed by Nigeria at 7.94 per cent, translating into $899 million (N16 billion) in capital contributions.

Egypt, Africa’s third largest economy, was expected to subscribe for 6.12 per cent of the shares, contributing $693 million (N112 billion), followed by Algeria, to be allocated 4.59 per cent of the shares at $520 million (N84 billion).

Each country was expected to pay for its subscription at once or in four instalments of 25 per cent of the amount and payment period would last between the initial four years and eight years.

The first payment is expected 60 days after the AMF treaty enters force.

The countries are also allowed to issue bonds in U.S. dollars which are non-interest earning.

The Fund would invest in international financial markets and expected to maintain a sound credit rating.

The AMF will be based in Yaounde, Cameroon.

(PANA/NAN)

See also The Creation of the African Monetary Fund @ http://openanthropology.org/libya/AUamf.pdf

http://openanthropology.org/libya/AUamf.pdf

The Science of Productivity December 21, 2014

Posted by OromianEconomist in 10 best Youtube videos, 25 killer Websites that make you cleverer, Economics, Opportunity Cost, The Mathematics of Cities, Theory of Development.
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How to get more done—and in less time

http://qz.com/315903/how-to-get-more-done-and-in-less-time/

In today’s busy world, we’ve become a people obsessed with productivity and “work hacks.”

Getting more done in less time allows us to get ahead, and even gives us more availability to do the things we love outside of work.

The problem we run into is that it is easy to get motivated, but hard to stay disciplined.

Most of us look at productivity in the wrong way: task management tools are shiny at first and then go unused. Being chained to your desk is as unhealthy as it is unproductive.

Achievement isn’t about doing everything, it’s about doing the right things–productivity means saying no.

Focus and consistency are the bread-and-butter of being truly productive. Right now, we’ll take a look at the science behind how the brain works in the synthesis state, and what changes you can make for the better.

 The first thing to acknowledge in the pursuit of getting more done is the mountain of evidence that suggests willpower alone will not be enough to stay productive.

According to research by Janet Polivy, our brain fears big projects and often fails to commit to long-term goals because we’re susceptible to “abandoning ship” at the first sign of distress.

Think of the last time you went on a failed diet.

You stocked your fridge with the healthiest foods and planned to exercise every day… until the first day you slipped up. After that, it was back to your old ways.

To make matters worse, research by Kenneth McGraw was able to show that the biggest “wall” to success was often just getting started. Additional research in this area suggests that we’re prone to procrastinating on large projects because we visualize the worst parts; the perfect way to delay getting started.

According to researcher John Bargh, your brain will attempt to “simulate” real productive work by avoiding big projects and focusing on small, mindless tasks to fill your time.

“Big project due tomorrow? Better reorganize my movie collection!”

Perhaps worst of all, numerous studies on the concept of “ego-depletion” have provided some evidence that suggests our willpower is a limited resource that can be used up in it’s entirety. The more you fight it, the more gas you burn. An empty tank leads to empty motivation.

With all of that stacked against us, what can we possibly do to be more productive?

In order to figure this out, one of our best bets is to observe the habits of consistently productive people.

The habits of productive people

If I were to ask to describe the practice regiments of world-class musicians, you’d probably envision a shut-in artist who plays all day long and then tucks in their instrument at night.

Amazingly though, research by Anders Ericsson that examined the practice sessions of elite violinists clearly showed that the best performers were not spending more time on the violin, but rather were being more productive during their practice sessions.

Better yet, the most elite players were getting more sleep on average than everyone else.

How is that possible?

Subsequent research by Anders reveals the answer: the best players were engaging in more “deliberate practice.” You’ve heard the term, but beyond the hype, what is it all about?

It’s nothing more than spending time on the hardest tasks, and being better at managing your energy levels.

Think of it this way: If you were trying to get better at basketball, you’d be much better off practicing specific drills for two hours rather than “shooting hoops” all day long.

Since deliberate practice requires you to spend more brainpower than busy work, how can you implement it without draining your willpower?

The first answer isn’t very sexy, but it’s necessary: the best way to overcome your fear of spending a lot of energy on a big project is to simply get started.

The Zeigarnik Effect (mentioned above) is a construct that psychologists have observed in numerous studies on “suspense.” One such study gave participants brain-buster puzzles to complete, but not enough time to complete them. The surprising thing was, even when participants were asked to stop, over 90% of them went on to complete the puzzles anyway.

According to the lead researcher:

“It seems to be human nature to finish what we start and, if it is not finished, we experience dissonance.”

It’s the same thing that happens when we become engaged in a story in a book, movie or TV show: we want to see how it ends.

You can use this knowledge to your advantage by just getting started on that next big project; in the most basic sense, don’t focus your motivation on doing Activity X. Instead, focus on making Activity X easier to do.

Start the night before. Is your to-do list already written up? Is your place of work ready for you to get started? Break down barriers of friction before relying on willpower.

On working like an expert

A multitude of research has shown us that discipline is best maintained through habits, not through willpower.

According to Tony Schwartz, CEO of The Energy Project, most people hold their productivity back by not rigidly scheduling work and rest breaks throughout the day.

Since most of us are worried about willpower, we don’t push ourselves to maximum output: instead of “giving our all” for brief sessions, we distribute our effort throughout the day, leading us back to busywork to fill our time.

What should we do instead?

Schwartz often cites a research study conducted by the Federal Aviation Administration that revealed how short breaks between longer working sessions resulted in a 16% improvement in awareness and focus.

Research from Peretz Lavie on ultradian rhythms matches up with these findings: longer productive sessions (of 90 minutes) followed by short breaks (of no more than 15-20 minutes) sync more closely with our natural energy cycles and allow us to maintain a better focus and higher energy level throughout the day.

ultradian rhythm

Both of these studies on energy management match up with the practice schedules of the violinists: the most common regimen for the cream of the crop players was a 90-minute block of intense practice followed by a 15-minute break.

The moral of the story is that it’s hard to be productive while trying to maintain high energy levels through your entire day.

It’s much easier to work intensely when you know that a break is just around the corner, not at the end of the day. Instead of trying to conserve energy for hours, break big projects down into smaller chunks and plan a recovery period right after.

For projects done on your own time, try scheduling blocks of 90-minute work sessions with a planned cool down time of 15 minutes directly afterwards. When you know a break is on the horizon, you won’t try to “pace yourself” with your work, and will be more inclined to dive into the difficult stuff.

While great for tackling the toughest parts of large projects, this technique doesn’t really address many problems related to discipline, an important part of staying productive for more than just a day or two.

The art of staying disciplined

One segment of the population known for struggling with discipline are those who are addicted to hard drugs.

Given their disposition for being unable to commit to many things, you might be surprised to find that during an experiment testing the ability of drug addicts to write & submit a 5 paragraph essay on time, those who wrote down when and where they would complete the essay were far more likely to turn it in.

These findings have some interesting correlation with those related to discipline in other people: in a study examining the ability of average people to stick with a strict dieting plan, researchers found that those participants who rigorously monitored what they were eating were able to maintain far higher levels of self-control when it came to maintaining their diet.

Last but not least, Dan Ariely and colleagues conducted a study involving college students and found that students who imposed strict deadlines on themselves for assignments performed far better (and more consistently) than those who didn’t.

These findings were especially interesting because Ariely noted that students who gave themselves too generous of a deadline often suffered from the same problems as students who set zero deadlines: when you allot yourself too much time to complete a task, you can end up creating a “mountain out of a molehill.”

Since we now know that tracking our progress is a key component of productivity, how can we implement this practice into our daily routine?

One method is to use an accountability chart to track what work you’ve completed during your 90-minute productive sessions, similar to how the dieters tracked their food consumption.

To easily implement one, simply create two-columns on a piece of paper, Google Docs spreadsheet, or even a whiteboard.

  • Column 1 will list the time-span of one of your productivity sessions.
  • Column 2 will list what tasks you’ve accomplished in that limited time-span.

accountability chart

Don’t include any columns for your 15-minute breaks, as those times are for your own sake and means to replenish your willpower.

This works well for 2 specific reasons:

Dr. Kentaro Fujita argues that tracking your progress in this way is helpful because you’ll be exposed to the work you’ve actually accomplished, and not the (inaccurate) assumption of work you might construe in your head.

Forcing yourself to write down the fact that you spent 2 hours on YouTube isn’t about shaming, it’s about awareness; you’ll be less likely to do it again.

Progress tracking is also a known strategy for stopping yourself from engaging in robotic behavior (also known as busywork), a habit that researcher John Bargh describes as the #1 enemy of goal striving.

Productivity and multitasking

With a work schedule, an energy management strategy, and a task-tracking system in place, the last challenge we have to face is that of multitasking.

According to a 1999 study, we have a tendency to view multitasking as effective, even when it isn’t.

However, researcher Zhen Wang was able to show that on average, multitaskers are actually less likely to be productive, yet they feel more “emotionally satisfied” with their work—creating an illusion of productivity.

Worse yet, Stanford researcher Clifford Nass examined the work patterns of multitaskers and analyzed their ability to:

  1. Filter information
  2. Switch between tasks
  3. Maintain a high working memory

He found that they were terrible at all three.

According to Nass:

“We were absolutely shocked. We all lost our bets. It turns out multitaskers are terrible at every aspect of multitasking.”

When working on the computer, the best thing you can do is turn on Airplane Mode; no need for temptation when you can’t even access the web. If you’re unable, help yourself with tools like StayFocusd to block distracting sites.

The next best strategy is to create an evening planning ritual where you select a few priority tasks to accomplish the next day.

The reason this method works far better than planning your daily tasks in the morning? Research from the Kellogg School has shown that we miscalculate the amount of focus we’ll be able to maintain in the future. We strongly believe that we’ll be able to quickly plan our day the next morning, but when tomorrow rolls we stumble off track.

You can create an evening planning ritual with a simple pen & paper or use an online tool like TeuxDeux each night. List only priority tasks (the “big 5”) for the day.

TeuxDeux

Instead of listing “Work on research project” as a daily goal, try something like “Finish introduction” or “Find additional sources” as a task you can actually complete.

The instant replay

Let’s play that all back real quick:

Willpower alone is not enough: Your productivity shouldn’t be reliant on your sheer force of will alone. Mental toughness will go a long way, but in order to stay disciplined you’re better off relying on systems.

Give yourself the ability to go “all-in”: Working harder on the stuff that matters is going to drain you mentally & physically. Don’t be afraid of giving yourself multiple breaks throughout the day. It’s better to “chunk” productivity sessions into 90 minute periods (in order to keep yourself sharp and to alleviate the stress of pacing your energy throughout the entire day.

If it’s not worth measuring, it’s not worth doing: Tracking has been proven to be the best way to stay diligent about your progress. Create an accountability chart to list what productive things you’ve gotten done throughout the day. You’ll see how much you’re really accomplishing.

Multitasking is your enemy: Treat it as such. Block out unwanted distractions and as Ron Swanson would say, “Never half-ass two things, whole-ass one thing.” Plan your day the night before so you won’t get consumed with the wonderful distractions of the internet when you start your day.

Read  from its source @ http://qz.com/315903/how-to-get-more-done-and-in-less-time/

Human decision making and development policy: “Mind, Society, and Behavior” as explored in World Development Report 2015 December 9, 2014

Posted by OromianEconomist in Development & Change, Economics, World Bank, World Development Report 2015.
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For the purpose of  development policy, the report explores  three principles of human decision making: thinking automatically, thinking socially, and thinking with mental models.

World Development Report 2015 explores “Mind, Society, and Behavior”

http://www.worldbank.org/en/news/feature/2014/12/02/world-development-report-2015-explores-mind-society-and-behavior

  • The WDR 2015 holds new insights on how people make decisions; it provides a framework to help development practitioners and governments apply these insights to development policy.
  • Research in the WDR suggests that poverty constitutes a cognitive tax that makes it hard for poor people to think deliberatively, especially in times of hardship or stress.
  • When used with existing policy approaches, new tools ranging from simple, low-cost changes such as better framing of messages and changing the timing of aid, can significantly improve outcomes.
 Real people are rarely as coherent, forward-looking, strategic or selfish as typically assumed in standard economic models—they sometimes do not pursue their own interests, and can be unexpectedly generous. Such dynamics should be factored more carefully into development policies, a point made in the World Development Report 2015: Mind, Society, and Behavior.
The newly launched report argues that development policies based on new insights into how people actually think and make decisions will help governments and civil society more readily tackle such challenges as increasing productivity, breaking the cycle of poverty from one generation to the next, and acting on climate change. Drawing from a wealth of research that suggests ways of diagnosing and solving the psychological and social constraints to development, the WDR identifies new policy tools that complement standard economic instruments. For instance, an experiment in Colombia modified a cash transfer program by automatically saving a part of the funds on behalf of beneficiaries, and then disbursing them as lump a sum at the time when decisions about school enrollment for the next year were being made. This tweak in timing resulted in increased enrollments for the following year. “Marketers and politicians have long understood the role of psychology and social preferences in driving individual choice,” said Kaushik Basu, Senior Vice President and Chief Economist of the World Bank, “This Report distills new and growing scientific evidence on this broader understanding of human behavior so that it can be used to promote development. Standard economic policies are effective only after the right cognitive propensities and social norms are in place. As such, this WDR can play a major role in enhancing the power of economic policymaking, including standard fiscal and monetary policies. My only worry is that it will be read more diligently by private marketers selling wares and politicians running for office than by people designing development interventions.” To inspire a fresh look at how development work is done, the Report outlines three principles of human decision making: thinking automatically, thinking socially, and thinking with mental models. Much of human thinking is automatic and depends on whatever comes to mind most effortlessly. People are deeply social and are influenced by social networks and norms. Finally, most people do not invent new concepts; rather they use mental models drawn from their societies and shared histories to interpret their experiences. Because the factors affecting decisions are local and contextual, it is hard to predict in advance which aspects of program design and implementation will drive the choices people will make. Interventions therefore need to take account of the insights found in the report and be designed through a ‘learning by doing’ approach. The Report applies the three principles to multiple areas, including early childhood development, productivity, household finance, health and health care, and climate change.
Open Quotes
This Report distills new and growing scientific evidence on this broader understanding of human behavior so that it can be used to promote development. Standard economic policies are effective only after the right cognitive propensities and social norms are in place. Close Quotes
Kaushik Basu Senior Vice President and Chief Economist, World Bank

When it comes to assisting poor people, a key message from WDR 2015 is that poverty is more than a deprivation in material resources. It is also a “cognitive tax.” Take the case of sugar cane farmers in India, who were asked to participate in a series of cognitive tests before and after receiving their harvest income.  Their performance was the equivalent of 10 IQ points higher after the harvest, when resources were less scarce. Policy can be designed to reduce some of the impact of poverty on the ability to make choices and plan for the future. Policy makers should try to move crucial decisions out of periods when cognitive resources are scarce. This may mean shifting school enrollment decisions to periods when poor farmers’ seasonal income is higher. There may also be ways of simplifying typically complex decisions such as applying to a higher education program. These ideas apply to any initiative in which good decision making is a challenge. Poverty in childhood, which is often accompanied by high stress and neglect from parents, can impair cognitive development, according to the report, so public programs that provide early childhood stimulation are critical. A 20-year study in Jamaica found that a program aimed at altering the way mothers interacted with their infants led to an increase in earnings by 25 percent once those children became adults, as compared to others who did not participate in the program. All major developing regions are featured in the Report, including the following examples:

  • In Malawi, a small performance incentive to encourage farmers to work with their peers increased the take-up of productivity-enhancing agricultural technologies (Ben Yishay and Mobarak 2014).  This intervention used social networks to amplify the effects of information programs.  
  • In the Philippines where encouraging saving was a challenge, one effective fix was to create products that allow individuals to commit to certain savings goals and not allow them to easily renege. When savings accounts were offered in the country without the option of withdrawal for six months, nearly 30 percent of those offered the accounts accepted them (Ashraf, Karlan, and Yin 2006). After one year, individuals who had been offered and had used the accounts increased savings by 82 percent more than a control group.
  • In Asia, a new approach, focused on establishing new norms that holds promise is Community-Led Total Sanitation (CLTS). In CLTS, leaders work with community members to make maps of dwellings and the locations where individuals defecate in the open. The facilitator uses a repertoire of exercises to help people recognize the implications of what they have seen for the spread of infections and to develop new norms to protect against the damaging effects of open defecation. A set of these programs in Indian villages lowered open defecation by 11 percent from very high levels. (Patil and others 2014).

According to the Report, because the decisions of development professionals often can have large effects on other people’s lives, it is vital that development actors and organizations put mechanisms in place to check and correct for their own biases and blind spots. Ultimately, behavior change matters for all actors in the development process. http://www.worldbank.org/en/news/feature/2014/12/02/world-development-report-2015-explores-mind-society-and-behavior http://www.worldbank.org/content/dam/Worldbank/Publications/WDR/WDR%202015/WDR-2015-Full-Report.pdf