When is size of financial sector disruptive for growth?

 Jean Louis Arcand, Enrico Berkes and Ugo Panizza have written this paper on the topic (voxeu always comes to the rescue).

Their finding is pretty simple (analysis is not!). When private sector credit = around 110% of GDP, financial sector starts to hinder growth prospects. Credit at 110% of GDP is like a threshold level. Lower than that and finance leads to growth, higher than it hinders growth. They look at credit from both bank and non bank sources.

How Chicago School changed the business education?

Marion Fourcade and Rakesh Khurana of HBS have this superb paper. They evaulate how business education has changed over the years. How economics and in particular financial economics became mainstream teaching:

No transformation looks more consequential for the history of American higher education than the extraordinary rise of business schools and business degrees in the twentieth century. Marion Fourcade (UC Berkeley) and Rakesh Khurana (HBS) analyze the changing place of economics in American business education as reflected in the teaching of three elite business schools over the course of the twentieth century: the Wharton School (1900-1930), the Carnegie Tech Graduate School of Industrial Administration (post World War II), and the Graduate School of Business at the University of Chicago (1960s-present).

Key findings:

• We use the Wharton School as an illustration of the earliest trends and dilemmas (c. 1900-1930), when business schools found themselves caught between their business connections and their striving for moral legitimacy in higher education. We show how several of the school’s leaders were closely involved in progressive reforms and presided over the development of the empirical social sciences to address questions of labor regulation and control within manufacturing industries.
• Next, we look at the creation of the Carnegie Tech Graduate School of Industrial Administration after World War II. This episode illustrates the increasingly successful claims of social scientists, backed by philanthropic foundations, on business education and the growing appeal of “scientific” approaches to decision making and management. We also show that these transformations were homologically related to changes in the prevailing mode of governance in the American economy: business schools became essential sites for the development of tools and methods (e.g., input-output approaches, linear programming, forecasting) for the management of the new large, diversified conglomerates.
• Finally, we argue that the rise of the Graduate School of Business at the University of Chicago from the 1960s onwards marks the decisive ascendancy of economics, and particularly financial economics, in business education over the other behavioral disciplines, as well as the decisive ascendancy of business schools as producers of economic knowledge.
• By following teacher-student networks, we also document the key role of business schools in diffusing “Chicago-style” economic approaches-offering support for anti-regulatory approaches and popularizing narrowly financial understandings of the firm (Fligstein 1990, 2002)-that sociologists have described as characteristic of the modern neo-liberal regime.

They add though economists were presnet in all three phases, their numbers grow in each stage. Now B-schools are seen as important as econ departments for econ phds.

Theories from each period provided a new language, and new categories of understanding and action, that not only became naturalized in the teachings of American business schools but also came to sustain and even instigate profound alterations in the nature of American corporations and markets-at least until the next series of tools, concepts, and business recipes came along.

Superb read.

Superb paper.

Economics, conventional wisdom and public policy

Is the title of this speech by Adair Turner at BW Conference hosted by Soros Institute.

Overall, the message is same which Turner has been saying since the crisis. Infact much before Soros started this institute, Turner has been talking about new thinking. He reviews the thinking till this crisis and how policymakers bought the ideology. I am not discussing this as have in many previous posts.

What abt the new thinking? Turner says despite the dominant paradigm of free markets, some economists did raise concerns. It is just that they were not dominant. So why new thinking?