What is the purpose of philosophy?

April 9, 2014

Big Think links to this video of Slavoj Žižek. Žižek has been called “the most dangerous philosopher in the West” for his analysis of the worldwide ecological crisis, the biogenetic revolution, and apocalyptic economic imbalances. I have never read or heard of Zizek and have hardly read philosophy so have absolutely nothing to say. But he seems to be quite a thinker. Blame it on the obsession to just look at economics.

In the video, he says the purpose of philosophy is to ask the right questions. Read the comments as well. 

Knowledge of philosophy is deeply important. The subject is hardly taught. Even from an economics perspective. Recently Mankiw argued that econ thinking and policy advice basically comes from philosophy.

Do you want to know a dirty little secret of economists who give policy advice? When we do so, we are often speaking not just as economic scientists, but also as political philosophers. Our recommendations are based not only on our understanding of how the world works, but also on our judgments about what makes a good society.

The necessity of political philosophy arises because most policies are good for some people and bad for others. For example, an increase in the minimum wage, as proposed by President Obama, may raise incomes for some low-wage workers, but it will cause some businesses to make smaller profits, some customers to pay more and some workers to lose their jobs.

Similarly, the Affordable Care Act has provided greater opportunity for some people to get health insurance, but it also caused cancellations for others who were previously happy with their insurance. Evaluating the overall effect of these policies requires balancing competing interests.

The founders of economics were all philosophers and thought deeply about the subject. This has all been reduced to just equations and math. People doing PhD hardly study philosophy which is such a loss. The doctorate is in philosophy and subject matter comes later.

Anyways, what can one do? Just try and figure using alternative resources such as this video..

Monetary policy post crisis…More art than science?

April 9, 2014

IMF econs released this interesting staff note ahead of its WEO release and G-20 meetings. In its blog IMF econs summed the paper as saying monetary policy as an art is alive and kicking.

The paper looks at this whole debate on monetary policy post crisis. There are hosts of agendas and this paper is a nice review. The paper seeks and provides answers to following questions:

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Should we allow religion in economics?

April 9, 2014

Prof. Robert Nelson of Univ of Maryland has advocated bringing religion into econ policy analysis.

In a recent piece at Cato’ Institute’s Regulation magazine, he argues for the case.

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Draghi’s stint as ECB chief …from saviour to crisis maker…

April 7, 2014

Mean reversion is not just a statistical process.  It follows the people who talk about it the most – economists and economic policymakers. All whose fates have risen beyond comprehension have seen their graph decline beyond comprehension. Right from Chicago School to Greenspan all have faced the music.

The latest to the club is Mario Draghi. He came in and said the golden words “whatever it takes” to save Euro in 2012. It worked like magic and soon the media was all gaga over Draghi. How he managed to arrive at a consensus to push OMT (which is being opposed now in German court in 2014) and all that made headlines Europe was never really used to. Stock of Draghi rose just like the Euro.

And now in 2014, things seem to be falling apart. The mean reversion seems to eb catching up. His recent reluctance to do anything to prevent deflation in EZ is being criticised.

Desmond Lachman of AEI says Prof Draghi has forgotten three macro lessons:

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Does following neo-liberal economic policy lead to rise of political fascism?

April 7, 2014

Prof. Prabhat Pattnaik of JNU has this hard hitting article/paper on the topic. I  typical JNU style he criticises this promotion of neo-liberal economics as the only agenda of the political parties in India.

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Break up of CPI into CPI and CPI (M)..historical perspective

April 4, 2014

Year of elections and promises. Also time of mergers and divorces of political parties. How about looking at a bit of history of pone such divorce?

EPW has this commentary picked from its archives of Apr-1964, the year when CPI broke into CPI and CPI (M)..

Arthur Koestler was wrong: the ultimate battle will not be between the communists and the ex-communists. From the way things are going it now seems that in that final of all confrontations, the backdrop will be severely intra-mural — it will in fact be the communists who will be fighting the other communists; and there could be no nastier battle.

From all angles it is a sorry spectacle. Developments over the last few days indicate that the split in the Communist Party of India is almost inevitable. Holding press conferences to run down one’s comrades, accusations and counter-accusations, prompt repudiation of pronouncements made by some leaders by other ones, add up to a sickening array of distasteful events. Clearly, whether or not the formal split comes at next week’s meeting of the National Council, CPI has already ceased to function as an organised political entry. And yet this is the party which till the other day was known for its iron cohesion and rigorous internal discipline.

There is no question that the break-up of the CPI would grievously affect the growth of the Indian polity, and is to be regretted on that score alone. 

Has  the narrative changed? Not at all..One could easily replace CPI with AAP:

The PSP has all but withered away, while Dr Lohia’s Socialists are too often given to aberration to be seriously considered as a category of the Left. With the Swatantra Party and the Jan Sangh crying hoopla on the Right, the balance of political forces in the country all of a sudden seems dangerously tilted in one direction. Given the reality that even within the Congress the conservative elements far outweigh those with overt socialist convictions, one can hardly dispute the need for a strong and stable party of the Left. A political democracy, after all, can survive and progress via the dialectics of balancing tensions. If the CPI cannot be cured of its schadenfreude no recognizable force will remain on the Left to challenge the propositions of the Right. Such an imbalance, for all one knows, might lead to a chain of unwholesome consequences. Neither the Jan Sangh nor the Swatantra Party can be fitted into a theme of progress: the Sangh’s political doctrines are quasi-fascist, while the Swatantra Party’s economic pronouncements are altogether innocent of the twentieth century context. The country’s economic future as well as political integrity would be seriously compromised if the only challenges the Congress is exposed to were represented by these two parties.

Those who do not recall the history…why the split?

 one faction being desperately anxious to follow the leadership of the Communist Party of the Soviet Union in analysing issues of international relations and in assessing the internal role of the Congress Government, while the opposing faction is equally determined to reject these ‘lines’ and to adopt, on these questions, points of view very similar to those propounded by the Communist Parties of China and Indonesia. It would seem that both the factions are fearful of losing international connections, and in a way the current worsening of intra-Party relations reflects the fact that, externally, in their squabble the Soviet and Chinese Parties are fast reaching the point of no return. One need not, and, on the basis of past record, should not, question the patriotism of Indian communists; but one can certainly castigate them for their inferiority complex, and can also deride them for the poor quality of their native wisdom.

By scuttling the party Communists of both hues are losing a lot. They will be splintering their organization; the goodwill they have accumulated over the years among the peasants and the workers, as also among the intellectuals and the middle class would be lost; and general frustration with the Left which the split would generate would do neither the warring factions nor the nation as a whole any good. It can also be hardly doubted that, for the next few years, a major part of their organizational skill and energy would be spent on efforts to whittle each other down, and only the residual would be available to propagate the ideology and the programme.

Nice stuff..

Are central banks the only game in town..a dive into their history..

April 4, 2014

nice paper on history and current practices in central banking. The link actually takes you to this paper by Athanasios Orphanides (of Bank of Cyprus) which is followed by comments from Charlie Bean (of BoE) and Niall Fergusson (Harvard). The title of this post is picked from Ferguson’s comments.

  • Orphanides speaks about the current state of affairs in central banking and finds them to be overburdened. He thinks they are doing too many things and should stick to just price stability. All else should be done away with.
  • Charlie Bean suggests that we can no more ignore financial stability as a role for c-banks. It has become a highly critical role. He invokes history saying this was the original role of central banks.
  • Fergusson takes you through this history of central banking. How central banking developed in BoE which eventually got transmitted to other countries as well.

The first two issues have nearly been beaten to death without any solution. I was more interested in what Fergusson had to say:

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How sociologists view economic development?

April 3, 2014

I have always wanted to read subjects like sociology etc. Gives you a much broader perspective.

Came across this superb paper by Prof. Frank Dobbin. This is an introduction to a book on econ sociology and is a great way to think about the issues involved. Pure socio might be heavy to begin with, so try figuring econ socio (there is economics in everything):

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Why India and Pakistan grew differently….

April 3, 2014

Profs Atif Mian and Amir Sufi have started this really nice blog called houseofdebt…They have been posting some useful stuff on many a topics and is a nice simple read.

In a recent post they discuss the historical paths of India and Pakistan. Much like econs compare North Korea/South Korea, China/taiwan etc..we have a case for India vs Pakistan too. After all both were quite similar in terms of institutions etc.

The authors compare on the basis of exports:

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Is the advance world in a secular stagnation mode – a review..

April 3, 2014

Last year, Larry Summers stirred a hornet’s nest (as he usually does) by saying much of the advanced world looks to be trapped in stagnation mode. All kinds of people jumped into the debate arguing whether there was stagnation? If yes, then what could address it? demand side policies or supply side ones..

Otaviano Canuto, Raj Nallari, and Breda Griffith of World Bank review the debate and sum up the various views:

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How geo-political history strikes baaaackk..

April 3, 2014

A brilliant piece by Shlomo Ben-Ami, a former Israeli foreign minister on the recent Crimea-Russia politics.

He says when Cold war ended ans USSR disintegrated, we all thought western style of politics and economics is going to be the standard. Actually, it was just an intermission where the geo-polity fight was given a break. Now it is back and that too with a bang:

When the Cold War ended and the Soviet Union collapsed, the victors were beyond complacent, for they were certain that their triumph had been inevitable all along. Many in the West assumed that liberal capitalism’s victory over totalitarian socialism would necessarily bring an end to wars and sanguinary revolutions. Today, two powerful leaders – Russian President Vladimir Putin and Chinese President Xi Jinping – are demonstrating just how farfetched this view was.

The predominant Western view was exemplified in Francis Fukuyama’s 1992 book The End of History and the Last Man, which presumed that Western liberal democracy was the endpoint of humanity’s sociocultural evolution. In other words, Christian eschatology was transformed into a secular historical postulate.

Putin all this years was making plans:

The fact is that Putin’s actions are not just about Crimea, or even about Ukraine. Just as Hitler was driven by the desire to reverse the humiliating terms of the Treaty of Versailles, which ended WWI, Putin is focused on reversing the Soviet Union’s dismemberment, which he has called “the greatest geopolitical tragedy of the twentieth century.”

Putin is thus challenging one of America’s greatest foreign-policy achievements: the end of the division of Europe and the establishment of free countries that could be drawn into the Western sphere of influence. And, unlike US President Barack Obama in Syria and Iran, Putin respects his own red lines: the former Soviet republics are not for the West to grab, and NATO will not be allowed to expand eastward.

Moreover, Putin has made ethnic nationalism a defining element of his foreign policy, using Crimea’s Russian-speaking majority to justify his adventure there. Likewise, ethnic nationalism drove Hitler’s assault on the European order: the Sudetenland was mostly German, and the Austrian Anschluss was aimed at merging the two vital parts of the German nation.

It was just an intermission of 25 years:

Europeans truly believed that the Great Game between Russia and the West was settled in 1991. Putin’s message is that the last quarter-century was merely an intermission.

Superb stuff…Just like the authors explain in commanding heights…figuring this international politics is one of the most interesting thing to study…

What is fair trade and fair value? Myths and Reality..

April 1, 2014

DeLisle Worrell, Governor of the Central Bank of Barbados has this interesting speech. As his previous speeches this one also looks at myths around economics (one and two).

This time he targets fair trade and fair value concepts:

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Monetary policy decision-making and accountability structures: some cross-country comparisons

April 1, 2014

Tim Aldridge and Amy Wood of RBNZ have this short note on governance structures across central banks.

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Swiss National Bank’s investment policy – A preview..

April 1, 2014

There was some recent news over Swiss National Bank selling its shares in unethical companies. I was kinda amused to read this as one does not see central banks investing in equities. But it seems SNB has this whole investment policy which allows equity investments.

Fritz Zurbrügg, Member of the Governing Board of SNB has this interesting speech over its investment policy:

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Mirror, mirror on the wall, which is the most dynamic state of them all?

March 31, 2014

An interesting and comprehensive piece in Ideasforindia.com by Maitreesh Ghatak  of London School of Economics and Sanchari Roy  of University of Warwick.

They look at this burning issue of which State has performed better than others. And whether we can ascribe this to so called political leaders. It is comprehensive as it compares States across many indicators and not just chosen ones. So it compares the states across growth, HDI, poverty and inequality measures.

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The price of political uncertainty…

March 31, 2014

Bryan Kelly, Lubos Pastor and Pietro Veronesi have this interesting piece in voxeu.

The authors develop a measure of political uncertainty and see its impact on fin markets:

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RBI’s first bi-monthly policy on April Fool’s Day…

March 31, 2014

What a perfect day to begin RBI’s nth change – shift from quarterly monetary policy to bi-monthly policy. It is tomorrow on 1st April, a day popularly known as  April Fool’s Day.

A day when children are out trying to trick/fool others and then saying some rhyme of sorts. These rhymes differ from places to places. In Hindi heartland, making a fool is replaced by making someone ‘ullu’ (owl). Based on the owl stories which floated around in last policy, it is an apt day. Most central banks anyways make people fools/ullus  and the day marks a perfect beginning for the next year.

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Did Hyman Minsky find the secret behind financial crashes?

March 28, 2014

I think it has been a major mistake of the profession to ignore writings of Minsky and his key ideas. Why the profession has ignored it is obvious as he said things which are just not going to be accepted by the mainstream profession.

BBC has this article on five lessons from Minsky:

 

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Which countries actually suffer from deflation in Eurozone…

March 28, 2014

There is a huge press and expert coverage on rising possibility of deflation in Eurozone and what ECB should do/not do..But then as we know EZ is a union of many countries. So which countries are really suffering from deflation in EZ?

Eilert Husabø of Norges Bank in this short note suggests it is only Greece which is suffering:

Euro area inflation has fallen to a low level, which has given rise to concerns about deflation. We have constructed an indicator designed to capture whether a country is in deflation. The indicator shows that the euro area as a whole and most individual countries are now farther away from deflation than during the financial crisis, with the exception of periphery countries where the indicator is approaching or exceeds the levels prevailing during the financial crisis. Greece is the only country experiencing deflation.

Again Greece seems to be the only culprit.

Crazy stuff and just the opposite of what others seem to be saying that most EZ is under deflation..The problems of managing the EZ and one sizing monetary policy continues..

Bernanke in theory and practice…were the two aligned?

March 28, 2014

Alexander Gill of North Carolina State University has this paper evaluating Bernanke in theory and practice. I don’t think we have had a policymaker whose research interests matched so close to the policy world. He studied Great depression and chaired Fed when there was a near depression 2.0.

Prof Gill says largely the two things match:

Ben Bernanke researched monetary policy for over 25 years prior to becoming a policymaker, and his two-term career as Chairman of the Federal Reserve featured a severe recession coupled with a financial crisis, a chief subject of Bernanke’s research. His reaction to economic events is noteworthy in its originality and breadth, but its intellectual underpinnings are, with a few exceptions discussed in the paper, not without written precedent. This paper will summarize and connect Bernanke’s research and policymaking and show that the two are closely aligned.

The author reviews the research of Prof Bernanke and then looks at how he use his research into policy. At the end he says:

A lifelong fascination with the role of banking in the economy led Bernanke to dedicate himself to ensuring that the mistakes of past monetary policy makers not be repeated. His consistency and dedication on these matters lend credence to the claim that he is genuine in his professed understanding of economics, history, and policymaking and in his desire to improve lives. In the introduction to his book Essays on the Great Depression, Bernanke claims that there is a consensus among macroeconomics that free markets are best for achieving economic growth but that central intervention is sometimes necessary to avoid some unwanted consequences of unbridled capitalism, like recessions. But we can take full advantage of the capitalist system’s bene cial properties under an interventionist regime that allows us to avoid some of the costs of recessions as long as the \will to do so” exists ([Bernanke, 2000b], p. 151). He could not have known it then, but the will to do so will critically depend on the perceived success of his own policies over the course of the Great Recession.

This is just a drop in the research ocean we will see on Bernanke and his Fed term in future…


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