Archive for June 20th, 2013

Reflections on Finance and the Good Society

June 20, 2013

A nice short paper by Prof. Robert Shiller. Though would prefer to title this differently -Reflections on Good Finance and the Society.

After the financial crisis that began in 2007 many have expressed renewed doubts about the basic goodness of the financial sectors, doubts related to deeply-held moral principles and traditions of larger society. We need to reconcile these doubts with financial practice. We must acknowledge the important principle of reciprocity. We must understand that there are natural human tendencies towards aggression and hoarding, which no financial institutions and codes of ethics can completely eliminate. We must appreciate the important role of professional organizations in moderating these tendencies. When these principles are made part of financial education we can expect better public acceptance of the important role that finance plays in our society.



Who got LBW in IPL?

June 20, 2013

Another piece from  Shashi Tharoor and I cannot stop but commenting. It is good when he writes pieces like this where he draws on his experience from UN days.It is completely another case when he defends things for the sake of defending them just because he is an Indian politician from the ruling party. Sad to see how politics is so damaging.

So this piece is on guess what? IPL. The same IPL which made him lose his Cabinet position. He points how the media attention has shifted from corruption to IPL:


What is European Integration Really About? A Political Guide for Economists..

June 20, 2013

As I keep saying. the more you read about Europe the lesser your know-how becomes. The ongoing research on EZ crisis just keeps getting better making you want more and more.

Though, this is easily one of the best papers I have read on the EZ crisis. It is by Prof. Enrico Spolaore of Tufts University. As the title suggests, it is a political guide for EZ crisis and an amazing one at that. Most people now agree that EZ crisis is not because of economic reasons but political ones. In political analysis we are told how EZ leaders agreed to form a union to avoid wars and destructive econ policies in Europe. But the approach leads to many questions like what was the basis for agreeing foe certain economic integration and not others. 

This paper helps understand the broad political ideas on which the economic integration of Europe was based.

Europe’s monetary union is part of a broader process of integration that started in the aftermath of World War II. In this “political guide for economists” we look at the creation of the euro within the bigger picture of European integration. How and why were European institutions established? What are the goals and determinants of European Integration? What is European integration really about? We address these questions from a political-economy perspective, building on ideas and results from the economic literature on the formation of states and political unions. Specifically, we look at the motivations, assumptions, and limitations of the European strategy, initiated by Jean Monnet and his collaborators, of partially integrating policy functions in a few areas, with the expectation that more integration will follow in other areas, in a sort of chain reaction towards an “ever-closer union.” The euro with its current problems is a child of that strategy and its limits.

It discusses these two concepts – intergovernmentalist and functional perspective – to discussing formation of EZ:

Intergovernmentalists believe that national governments are in charge, and that supranational institutions are tools of the national states, which use them to pursue their own goals. Moravcsik (1993, 1998), an influential proponent of this theory, believes that national governments have built European institutions in order to pursue the economic interests of their domestic constituencies. In this spirit, Moravcsik (2012) views the euro as an economic gamble, mostly reflecting the interests of powerful national producers. This interpretation fits within a broader literature emphasizing the link from domestic economic interests to national attitudes and policies towards European integration (for example, Frieden 1998, 2002). The political-economy approach to regional integration based on domestic economic interests is familiar to the economics profession, and therefore I will not say more here. I will focus instead on the alternative theory of functionalism, which is much less known among economists, even though it has played a significant role in the ideology and practice of European integration and the creation of the euro.

Functionalists believe that European integration is not primarily driven by national governments and their voters, but mostly pushed by elites and interest groups that transcend national boundaries. They stress the role of supranational entrepreneurs and civil servants like Jean Monnet in the 1950s and Jacques Delors in the 1980s and 1990s. The theory is called “functionalism” because it is about the dynamic effects of transferring specific “functions” to supranational institutions – for example, regulation of coal and steel production to the European Coal and Steel Community or monetary policy to the European Central Bank. Although this integration starts in economic areas, integration in one area may well lead to further integration in many other areas, not only economic but also political (Haas 1958, 1964; Pierson 1996; Sandholtz and Stone Sweet 1998). In sum, while intergovernmentalists believe that European integration is rooted in the pursuit of national economic interests, functionalists believe that it is about economic integration as a path towards political integration.

The author goes on to say how it was mainly fuctuionalist perspective on which EZ was built. But obviously the logic was flawed that the integration could only deepen going ahead..

Read on. Superbly written..

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