Brendan Brown of Mises Institute has a nice piece.
He calls the recent meeting a missed opportunity to grill Fed chair and hold the central bank of the mega mess:
Ajay Shah has a piece on this.
Easier said than done but he has some nice ways to think about public policy. The three steps are:
In the end he says:
Decades of Indian socialism have starved us of capabilities in economics. Everyone interested in the field of public policy should limber up with these three steps: (a) What’s the market failure? (b) What’s the minimal intervention that precisely addresses the root cause of the market failure? (c) How do we construct mechanisms through which government agencies in the real world will deliver the desired outcome, even though their first instinct is to favour laziness and corruption?
This is hard work. The outcomes of this process of thinking resist classification into prefabricated belief systems. I sometimes meet people who say “As I’m a Keynesian, I propose policy X”. That’s a great economy of thought; by reading a few books by Keynes, you have figured out the world. It’s better to start from first principles, and analyse each problem on its merits, and engage with the gritty reality out there in figuring things out.
Well same thing could be said for this: “As I’m a Friedmanite/Hayekian, I propose policy X“. But this is going to be really appreciated as it is the in thing. The real thing is to avoid any such ideology which is difficult. Some defunct economist/political thinker is always influencing your ideas.
More important is to be humble about what you are trying to achieve and should be surprised if certain public policy experiment succeeds. And be weary of unintended consequences..
One big lesson from the recent crisis should have been to ignore whatever econs and their inspired central banks have been telling us for some years now. Their role should have been marginalised. But the dependence on them and their wisdom has only risen.
We were told by celebrated econs that how central banks could have avoided great depression only if they eased their policy for an extended period of time. This became a wisdom of sorts and accepted at a wide scale. We could have only known the utility if this wisdom if there was another such crisis and had to wait for nearly eighty years for such an event to occur. And as the event struck, the ideas were implemented in frenzy. This was to ensure if Lords of Finance part II is written, it has just the opposite results. Alas we now know the limitations of this frenziness. It is all over the place.
In this spirit, it is interesting to read this speech by Kirsten Forbes of BoE. She invokes the lessons from King of Midas and how central banks behaved like one:
When the legendary King Midas initially received the power to turn everything he touched into gold, he deemed it highly successful; the benefits of being able to create immense wealth with simply the touch of his finger far outweighed any costs. During the financial crisis, many central banks used less glamorous tools to create base money – sharp reductions in interest rates and quantitative easing. These measures played a critically important role in helping economies stabilize and recover.
King Midas soon realized, however, that this power of wealth creation came with unexpected side effects – from making his food inedible to turning his daughter into a lifeless statue. As these costs accumulated, King Midas eventually wished to give up his “golden touch” and return to normality. Similarly, is the current UK policy of near-zero interest rates beginning to generate substantial costs? Is there a point where any costs accumulate such that they outweigh the benefits? Could near-zero interest rates become less “golden”?
And then we have a similar kind of story. What were cited as the benefits of low rates have become limitations as well.
But the Ms. Forbes story is incomplete. It is actually the case that central bankers behave like King Midas most of the time. They wash their hands but then quickly forget the lessons and become the king again. Whether rates are low or high, they try and behave like King Midas. The whole idea is to show that there is some magic to their actions and things will indeed turn into gold. They have a huge audience in the name of market players and media which keeps wishing for the magic. The monetary policies have become a huge magic show of kinds in the process.
In reality central banks are like those tailors which designed clothes for the king with economy being the king. Only to realise the king had no clothes really. If the illusion works, they are called as magicians and all kinds of awards are honored. As reality sicks in, the yesteryear heroes are discarded and new ones created. The game of illusion goes on.
As academicians, they keep warning us over the monetary illusion but there is a huge demand for being an illusionist. The aura and power of being the king is too tempting for anyone to ignore.
So the game shall continue…
Bank of England is fighting many a battle and is trying hard to keep itself in the game. UK economy’s dependence on financial sector is like putting all eggs in one basket. As most eggs are wither broke or cracked, BoE and Govt are trying to play a rescue act.
It just issued these guidelines which will punish top bankers if they are found messing around:
The Prudential Regulation Authority (PRA) has today set out how it will hold senior managers in banks, building societies and designated investment firms to account if they do not take reasonable steps to prevent or stop breaches of regulatory requirements in their areas of responsibility.
In June 2013, the Parliamentary Commission for Banking Standards (PCBS) published its report “Changing Banking for Good” setting out recommendations for legislative and other action to improve professional standards and culture in the UK banking industry. This was followed by legislation in the Banking Reform Act 2013.
The Banking Reform Act introduced new powers which allow the PRA and Financial Conduct Authority (FCA) to impose regulatory sanctions on individual senior managers when a bank breaches a regulatory requirement if the senior manager responsible for the area where the breach occurred cannot demonstrate that they took reasonable steps to avoid or stop it.
The PRA has today published guidance for banks clarifying how it will exercise this new power; including examples of the kind of actions which may constitute reasonable preventive steps and how firms and individuals may evidence them.
The Banking Reform Act also creates a separate offence which could result in individual senior managers being held criminally liable for reckless decisions leading to the failure of a bank. This new criminal offence will, however, be subject to the usual standard of proof in criminal cases (‘beyond reasonable doubt’).
Before the crisis, such things done by central banks and that too in UK were just such a taboo. I mean how could you ask bankers to behave? Markets shall take care..
In another initiative, it has launched a fancy program – One Bank research. So was it a multiple bank agenda earlier?:
The Bank of England today launched its new One Bank Research Agenda – an ambitious and wide-ranging framework to transform the way research is done at the Bank.
The Agenda aims to improve the coordination and openness of our research across all policy areas, to ensure the Bank makes the best use of our data, and to cultivate an extensive research community that spans the Bank and beyond.
After in-depth consultation with researchers across the Bank and the wider academic community, the Bank has developed five core themes to guide its research: Policy frameworks and interactions; Evaluating regulation, resolution and market structures; Policy operationalisation and implementation; New data, methodologies and approaches; and Response to fundamental change.
They are sharing a lot of historical data under this and should be good for researchers.
the Bank published a supporting discussion paper as well as a high level summary of the five research themes, and released a number of new Bank datasets for use by external researchers.
Finally, to catalyse interest in the One Bank Research Agenda, the Governor today announced two new competitions sponsored by the Bank – a data visualisation competition using the newly released Bank datasets, and a One Bank research paper competition.
The Governor summarised today’s launch of the One Bank Research Agenda, saying: “Economies are complex, dynamic and constantly evolving systems that are underpinned by social interactions and behavioural change, shaped by fundamental forces like technology and globalisation and supported – or at times disrupted – by finance.
Policymakers need research to help understand these phenomena and to craft our responses to them. And research can make some of its most effective contributions by speaking to the priorities of policy.
Research can help us to discover insights and build them into our policymaking processes.
By focussing on a clear set of research priorities, by opening up our datasets, and by creating tighter links between policymakers and researchers, both within the Bank and across the broader research community, we can advance our mission – promoting the good of the people of the United Kingdom.”
Becoming more and more multiple indicator targeting central bank. The new research themes are also on similar lines.
In all the macro and monetary noise, certain econ research still remains interested and connected to humans. So, it was really interesting to read this research by a group of economists on dishonesty and its transmission across generations:
Finance is hot again. Despite the west having serious troubles over regulating their finance sector, the eastern world remains excited.
Indian FinMin recently released a paper on Finance SEZs where the special zone will have complete freedom in finance. Just like in trade, SEZs are allowed near complete freedom same thing can be applied to Finance SEZs as well. This is of course keeping GIFT city in mind, Indian PM’s pet project when he was the CM of Gujarat.
Interestingly, China has already done something on those lines (how come they are always ahead when we make most of the noise and hype??). Prof. John Whalley has a piece on this:
ICC has been around for years now but has hardly managed to expand cricket to other countries. So much so, the sport remains pretty much in the commonwealth country club.
This is even more in case of cricket World Cup. Barring Afghanistan, Netherlands and UAE, all countries which have played the world cup are just commonwealth countries. I was looking at the list of countries which have played the WC so far and one can see that the game has hardly gone any far. The same set of teams which played in 1975 remain relevant today as well. Countries which have been added since 1975 like South Africa, Sri Lanka and Bangladesh were also commonwealth countries. SouthA frica would have entered earlier if not banned under the apartheid regime:
|1||West Indies||West Indies||India||Australia||Pakistan||Sri Lanka|
|3||East Africa||Australia||Australia||West Indies||Australia||Pakistan|
|4||India||India||Sri Lanka||Sri Lanka||West Indies||England|
|5||Pakistan||Sri Lanka||New Zealand||New Zealand||Sri Lanka||New Zealand|
|6||Sri Lanka||Canada||Zimbabwe||Zimbabwe||Zimbabwe||South Africa|
|8||New Zealand||New Zealand||Pakistan||Pakistan||New Zealand||Zimbabwe|
|2||Pakistan||India||Sri Lanka||Sri Lanka||Sri Lanka|
|5||Sri Lanka||South Africa||Netherlands||West Indies||West Indies|
|6||Bangladesh||Netherlands||Canada||South Africa||South Africa|
|11||New Zealand||New Zealand||West Indies||Bangladesh||New Zealand|
|12||South Africa||Zimbabwe||Bangladesh||Ireland||United Arab Emirates|
|14||Kenya||South Africa||New Zealand||Afghanistan|
If India had somehow failed to compete in cricket, this game could easily have been lost in oblivion. It is India’s large numbers and craze for the game which keeps it alive. Ever since Indian won the WC in 1983, the country has only gone crazier for the game. This also explains how careful the authorities are to keep India always in the game. All the recent ads are around Indian cricket team.
But then to call it a World cup is just no right. And then decline in certain teams like West Indies, Zimbabwe and Pakistan with Bangladesh never really picking up, the game keeps getting narrower in terms of participation. Certain teams like Kenya showed promise to be lost out. Afghanistan has emerged as a new exciting team and ICC should do its best to keep the country interested for a long time.
I am a cricket fan and hate to say this, the game has to really expand before calling it a world cup..
As audit the Fed movement picks up heat, we need to again go back to historical reasons for setting up the central bank. Those who agree with the idea argue Fed has become way too powerful and has created enormous damage with its mon pol. So if we cant end the fed let us audit it. Those who are against the move, say just leave the Fed.
The Austrian school a long critic of central banking and Fed, are surely enjoying this. Long ignored by economists, their arguments are coming to fore pretty naturally given the errors central banks have made across the world.
World Bank points to this: