Archive for April 7th, 2015

Thomas Piketty visits Japan..

April 7, 2015

Nice piece by Yuriko Koike Japan’s former defense minister and national security adviser.

She says unlike US and others, inequality is much lower in Japan:

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Have long-term inflation expectations declined in US?

April 7, 2015

Nice paper by Fernanda Nechio of FRBSF.

The reading on inflation may have declined, but inflation exp remain anchored at 2%:

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BJP at 35…From a swadesi party to a global party

April 7, 2015

A nice BS edit. Didn’t realise BJP has completed 35 years in 2015. The article dwells on how the Party has evolved in the last 35 years or so.

I think the biggest shift has been how the party has moved from being a swadesi party to a party accepting global economic thinking. It will be interesting whether it will remain the case or it will go back to the swadesi thinking. The current party has too much of a stamp of current PM who being close to big business has shaped his policies based on latter’s thinking. So whether the core thinking has changed as well or not will have to be seen in future.  This shift in thinking even if temporarily is something of huge interest to political economy historians.

Rest of the political ideology etc remains more or less the same.

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India’s economic theory fashion cycles..

April 7, 2015

Ajit Balakrishnan hits the nail on its head. Much of decline in economic ideas are not mainly because of some failed theory or something. It is because we make a huge hue and cry over some reform/new policy coming and changing the game. Most ideas are just repackaged old ideas.

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The continuous media speculation over rifts between Indian finance ministry & central bank..

April 7, 2015

It is amusing to say the least how media continues to cook stories over rifts between Indian finance ministry and central bank. One day there is a rift and just the next day the rifts are bridged.

First and foremost, central bank independence is a very strong and wrong term. At best, one can talk about central bank autonomy like any other public sector organisation. The broad objectives are set by the government and central bank tries to work towards them. In terms of autonomy, the idea is that the govt does not interfere in day to day activity of the central bank and lets it function. When we say independence, the idea is the central bank is completely independent to do what it wishes to do which is just wrong. How can an organisation be completely independent when it is funded completely by the govt.? Moreover, all the senior appointments are made  by the govt just to provide credibility and in India’s case most are required to work at finance ministry before the central bank (and rejoin FinMin after the central bank stint to get to IMF/World Bank etc). So where is the case for independence as we mean by the term really?

Second, the word became fashionable after western economists who have tried to minimise the role of government and fiscal policy in whatever possible way. So we have lots of papers on the fancy word forgetting the basic structure of the central bank which has govt written all over it. The ignorance of central bank history has also played a major role. There is a feeling that this bank has suddenly sprung up and govt is trying to intervene in it. They forget that all central banks have been created by govt to give them control over currency and finance issues. It is nothing but a govt body. Monetary policy is much like subset of govt./fiscal policy in many ways. Those who forgot these lessons have learnt it the hard way in the recent crisis. So all this talk just creates media noise and nothing else. It is like a Principal-Agent relationship where there can be some disagreements between the two which is natural and healthy.

It is ironic (as Austrian school proponents suggest), that those who talk about independence wanting to limit govt.’s role in economy, should actually argue for a limited central bank (if at all). By taking Austrian economics out of books, we hardly discuss this aspect. We have highly overdone the control central banks have over macro variables even inflation. At best, central banks can regulated the banking system as they have a monopoly over currency/money matters.

Anyways, this continuous media focus reminds me of a joke. It is like this. There is a man who is once asked by another ” Sir are you a Chinese”? The man who is an Indian responds amusingly as no.  The question becomes a continuous one as the second man keeps asking the same question over and over again. The first man keep replying no with rising irritation. The questioning does not stop and the first man commits suicide in frustration. The second man follows him in heaven and asks again. The first man says “Yes I am Chinese. Now what”? The second man quips ” Well, you don’t look like one”..

In similar vein, media keeps cooking stories over differences between the two. Is there a rift? Both the govt and central bank say no. As the question becomes repetitive, the exasperated officials say yeah there is..now what? To this the media says does not look like and game goes on..

Autonomy is fine and every management need it but independence is a highly overdone term. It makes us think of central banks as some holy cow which they are not. They are actually a central planner which continue to determine prices (interest rates) of sector they regulate. No other regulator does it anymore. But thanks to the dominance of monetary policy thinking , no one even questions why should a central bank be setting interest rates for an economy? Why can’t banks change interest rates as per their financials?


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