Here's a mystifying NPR report on a community in upstate New York where women are pressured to not drive, apparently on religious grounds. Some questions: Why do religious people so often feel the need to impose their preferences on others? And why do they feel the need to segregate themselves into communities in which public morality can be imposed? Why are they so unwilling to consider religion to be a private matter? Why is it that the more punctiliously religious some people are, the more likely they are to be doing things that seem totally incomprehensible to me?

The Libertarian Utopia of Hazaribagh

This is an informative -- and transfixing, frankly -- report on the environmental impact of the tanning industry in the Hazaribagh area of Dhaka, Bangladesh, by Tania Rashid, a talented young Bangladeshi-American reporter for Vice News. Libertarian utopians in the West who decry environmental regulations -- and regulations in general -- should take note.

A Report on Rape in Bangladesh

The occurrence of rapes and gang-rapes in India have received a great deal of global attention. But if this report by Tania Rashid of Vice News is to be believed, the situation in neighboring Bangladesh may not be a whole lot better: "A recent UN report revealed that one in eight men in rural Bangladesh admit to having committed rape." (This Vice News report is revealing on multiple levels and bears repeated viewing. I was stunned by how astonishingly riverine and verdantly green Bangladesh looks in the video. Also priceless was the utter contempt Rashid expresses as she leaves a meeting with the head of a mosque.)

What Charlize Theron's Good Fortune Tells Us About Wages

I don't know whether the higher remuneration that Charlize Theron was able to obtain using information revealed by the Sony hack corrects an unfair outcome or makes a fair outcome unfair. But it does show how wages depend on bargaining power and the availability of information -- two factors that are generally ignored in undergraduate courses that discuss wages. (In the utopia described in those courses, the contribution of each worker is easily measured and known to all. And each worker gets paid what they contribute. I teach that material, but -- in my defense -- I do feel guilty about it afterwords.)

Today's Reading

• Robert H. Frank, the Cornell economist, asks: Which economic metaphor best describes our future: the winner-take-all economy or the long-tail economy?
• The number of Indian farmers who have committed suicide since 1995 under the pressures of loans they cannot repay is approaching 300,000. They are borrowing money from loan sharks because (a) government subsidies are being cut, (b) competition from imports is surging, and (c) agriculture now requires large investments in costly genetically-modified seeds. The lenders charge interest rates as high as 24 percent. Even suicide brings no relief: the loan falls on the widows and the children. Unlike in rich countries, there is no bankruptcy protection, and no bans on usurious interest rates: rural India is now a haven for pitiless pure capitalism! And government officials are shockingly unsympathetic, blaming the suicide victims for spending too much money on -- wait for it! -- their children's education. Here is one family's story.
• Gregory Clarke, an economist at UC Davis, presents a fascinating summary of his new book on how impervious social mobility is to social engineering.
• This editorial in today's New York Times effectively demolishes the idea that the Obama stimulus (formally, the American Recovery and Reinvestment Act, enacted five years ago) was a waste of money.
• This is a fine summary of recent research that poverty leads to irrational choices, and not just the other way around. I have been following this literature every since the publication of "Scarcity: Why Having Too Little Means So Much" by Sendhil Mullainathan and Eldar Shafir, and I discussed the book with my students last semester. Although the study on Indian sugarcane farmers was known to me, I was unaware of the Great Smoky Mountains study described in this piece.
• Here's another blog post on the same theme.

The Origins of Bangladesh's Garments Industry

Please listen to this terrific radio report on the origins of Bangladesh's internationally pre-eminent garments industry.

Two thoughts: First, I have often wondered why the neighboring Indian state of West Bengal -- where I grew up -- never managed to spark its own industrial revival -- in garments or something else -- despite its obvious similarities with Bangladesh (which, incidentally, is where my parents were born, at a time the region was still part of British India). The report shows the role that plain old chance plays in things as momentous as the development of an entire national industry.

Second, the report also shows that a private profit-seeking company may unwittingly generate huge wealth that it does not get to enjoy, but others do. Daewoo, the South Korean conglomerate, trained a contingent of Bangladeshis to produce textiles, hoping to profit from its Bangladeshi venture; Richard Nixon had put a limit on textile exports from Korea to the US. But Daewoo did not get the profits it hoped for. Instead, the Bangladeshis trained by Daewoo ended up spawning a huge industry that all of Bangladesh is now benefiting from.

One final point: This report -- by Zoe Chace and Caitlin Kenny of the Planet Money team of National Public Radio -- also shows how good American radio journalism can be.

The Paradox of Inflexibility

In my previous blog post, I mentioned a forthcoming paper by a co-author and I. It is a simple paper that shows how one can explain to undergraduates the macroeconomic behavior of an economy that is stuck in a so-called 'liquidity trap.' At the liquidity trap, interest rates are at the 'zero lower bound;' interest rates have been reduced as far as they can be reduced and cannot be reduced any further.

At the zero lower bound, a whole raft of paradoxical results -- with names like "paradox of thrift," "paradox of flexibility," and "paradox of toil" -- appear. A new NBER working paper by David Cook and Michael B. Devereux ("The Optimal Currency Area in a Liquidity Trap," NBER Working Paper No. 19588, http://www.nber.org/papers/w19588) derives yet another paradoxical result.

Cook and Devereux argue that -- contrary to the received wisdom that a monetary union (such as the European Monetary Union) makes its member economies more vulnerable to economic shocks -- in a liquidity trap a monetary union may makes its member economies less vulnerable!

Countries that form a monetary union agree to give up their national currencies and adopt a common currency. And, as Greece, Portugal, and Ireland have discovered the hard way, not having a national currency can drastically reduce a country's ability to fight its way out of a recession.

Normally, when a country finds itself in a recession, its central bank prints a lot of money and spends it on financial assets (bonds, typically). Buying a bond from somebody and paying him cash for it is really just the same as lending him money: you pay him money now and he promises to pay you money later. Consequently, the new money printed (and spent) by the central bank essentially turns into a gusher of loans. Borrowing becomes cheap and interest rates fall. Lower interest rates lead to increased spending by households and businesses. The rise in spending leads to an economic recovery. Everybody breathes a sigh of relief.

Unfortunately, a country without its own currency would not be able to take any of the recession-fighting measures just mentioned. If the members of a monetary union are similar enough that their business cycles are perfectly aligned, then when one member is in a recession all other members would also be in a recession. In such a case, tons and tons of the common currency could be printed and used in the usual way to pull all member economies out of the recession. But when the member economies of a monetary union are vulnerable to "asymmetric shocks," a member economy that falls into a recession does so alone. And it would have no independent monetary policy to help it escape the recession. This is why, monetary unions have been frowned upon by economists, except for countries that belong to an "optimal currency area" where their economies are always in sync and economic shocks are symmetric.

Cook and Devereux argue that the above argument against monetary unions is turned upside down when interest rates reach zero and, therefore, cannot be reduced any further.

First, when interest rates reach zero and cannot be reduced any further, the lack of a national currency is no handicap; after all, monetary policy would be ineffective even in a country that does have its own currency.

Second, a country with its own currency might see the exchange value of its currency rise and thereby cripple its economy by reducing its exports and raising its imports. A country that is in a monetary union and, therefore, has no currency of its would not face such a danger.

Consider a country that has its own currency, and happens to be at the zero lower bound. Now, suppose there is a fall in demand that brings about a deeper recession. Falling demand would lead to falling inflation. With the nominal interest rate stuck at zero, falling inflation would cause the real (or, inflation-adjusted) interest rates to rise. The rising real interest rates would attract foreign lenders. All this borrowing from foreigners would -- by the balance of payments identity -- lead to a yawning trade deficit. To see this in another way, note that when foreigners, eager to earn the rising real interest rate in a country, buy the local currency in order to lend to the local residents, the country's currency would rise in value. A more expensive currency would reduce exports and increase imports.

Obviously, if a country that is already in trouble from falling demand now faces falling exports and rising imports, it would only be digging a deeper grave for itself.

Cook and Devereux explain that a country that is a member of a monetary union would not have to face the above predicament. Not having a currency of its own, it runs no danger of its currency appreciating in value and thereby crippling foreigners' demand for its products.

Cook and Devereux make an argument that is persuasive, surprising, and simple.