Archive for January 11th, 2008

After Possner and Lacker, Bernanke raises inflation concerns

January 11, 2008

It is surely going to be interesting times for Fed policymakers in 2008. After Possner and Lacker, Bernanke also revisits rising inflation possibilities in his latest speech:

Even as the outlook for real activity has weakened, there have been some important developments on the inflation front. Most notably, the same increase in oil prices that may be a negative influence on growth is also lifting overall consumer prices and probably putting some upward pressure on core inflation measures as well. Last year, food prices also increased exceptionally rapidly by recent standards, further boosting overall consumer price inflation. Thus far, inflation expectations appear to have remained reasonably well anchored, and pressures on resource utilization have diminished a bit. However, any tendency of inflation expectations to become unmoored or for the Fed’s inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank’s policy flexibility to counter shortfalls in growth in the future. Accordingly, in the months ahead we will be closely monitoring the inflation situation, particularly as regards inflation expectations.

Keep posted.

Similarities between cricket and subprime crisis

January 11, 2008

International Cricket Council’s decision to remove Steve Bucknor from the third test match at Perth has got a lot of criticism from the cricket experts and media. (All the developments after the Sydney Test Match are here; my view of the match is here).

The West Indies cricket board has raised objections over the move (as Bucknor is from WI) and so have number of players who call it a ‘bad precendent’. Their take is it has  set a bad example and teams might be using this example to remove umpires who have given wrong decisions in their future matches.

This situation got me thinking and I can see quite a bit of similarity between the recent financial crisis and “Sydney” crisis.

Even in the recent crisis Fed was in a dilemma; if it didn’t cut the rates it would have invited huge criticism from various sections on account of slowing down of economy and if it cut rates it would invite the same from moral hazard brigade.

Similarly, if ICC did not take a decision it would have invited criticism from supporters of Indian team and when it took the decision it drew flak on the move.

ICC took the decision on 2 broad counts: one to pacify the situation as India had threatened the boycott of the tour and two, India contributes most to cricket’s revenues. Obviously, second reason is not the one which ICC can state formally but it is a well-known fact.

Now as long as it is the first reason it is fine, but it is the second reason it is more worrisome. The purists would say that a team cannot be larger than the game and hence Indian team’s request should not have been adhered to.  Hence, it is a moral hazard in financial parlance.

I think the authorities have to share the blame for not acting fast enough. Like in the financial markets the authorities waited till all hell broke loose, similar is the case with cricket.

  • India has always been uncomfortable with Steve Bucknor and he has given some horrendous decisions against India. ICC could have ensured that he is not umpiring in India’s matches. Prevention is better than cure.
  • More than anything ICC has been ignoring the Aussie behavior for quite long. Bad behavior is bad by calling it “Aussie way of playing” you can’t pass it as good. This aussie stuff has been picked up by most teams and now any series is more popular for the behavior than cricket.  ICC should have taken some tough decisions earlier on. I was actually expecting a  far more worse thing than what happened at Sydney test like a full fledged brawl between the players etc. I hope we see some developments on this
  • Umpiring standards are getting really bad as we move on. This is surprising given the increasing use and presence of technology. It is quite funny when you have an umpire say “not out” and TV screen at the stadium showing he was “out”. And there are many inconsistencies in their decisions. Sometimes, the third umpire is referred sometimes not. Sometimes the umpire gives out but the batsman is sent back on TV replay showing he wasn’t out and sometimes there is no action. Hightime for judicious mix of technology and humans. We can’t be inconsistent when stakes are so high. (Likewise the Central Banks should think beyond price stability otherwise each time we would see similar episodes)

In the end is it a case of Moral Hazard? I think yes. Like, financial markets never learn and keep coming out with fancy products (in the name of financial innovation) and end up asking for Fed’s help. Similarly, cricket teams might ask ICC to intervene in case things don’t go their way in certain matches.

But then moral hazard can be limited by doing things when things are going fine. ICC has got one opportunity to clean the game and I hope it does something fast. Otherwise, just like we see financial crisis get bigger, we will see worse cricket behavior ahead. 

It is thrilling to see when somethings which appear so distinct are so similar. I also posted about the similarity between financial markets research and cricket here and here.

Update: Hariharan Narayanswamy has an interesting article on the same. However, I think in this case the person did not have the bat and was trying to be a bully. It was hight time that he was taught a lesson.

Assorted Links

January 11, 2008

1. WSJ Blog pointsto the recent Bernanke speech. After the speech he says how difficult it is to predict recessions. It also pointsto Bernanke defending Fed independence

 

2. WSJ Blog points to a discussion whether GDP is the best indicator to look at recession.

 

3. New Economist revisits recession

 

4. Mankiw also points to a new survey on recession probability.

 

5. EPSA blog on impact of climate change on poor.

 

6. Econbrowser’s post on recession prospects is terrific. Highly recommended.


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