Archive for May 11th, 2015

Remembering Hayek on his 116th birthday..

May 11, 2015

One need not really remember likes of Hayek whose views either continue to haunt or be celebrated by econs/policymakers.

Nevertheless, Ryan Mcmaken pays a tribute to the Austrian scholar on his 116th birthday (8th May 2015):

Today is the 116th anniversary of Hayek’s birthday. Peter Klein summarizes his contributions in under 4 minutes here. Also, it’s 20% off all Hayek books and memorabilia in the Mises store. 

Many remember Hayek for his non-economic writings, but the core of Hayek’s economics contributions has been related to business cycles, prices, and the use of knowledge in the marketplace. Many of his key economics writings are included in our volume Prices and Production and Other Works, edited by Joseph Salerno. 

The Hayek-Keynes debate continues to be relevant today, of course, since Keynesianism remains broadly popular, even among people who have never heard of Keynes. Back when I taught introductory political economy, I found the short film “Fear the Boom and Bust,” which features a musical debate between Hayek and Keynes, to be a great little introduction to Austrian Business Cycle Theory for someone who knows nothing of the Keyes-Hayek debate.

There is a rap song at the end as well 🙂

Why budget and experts should not obsess over fiscal deficit target…

May 11, 2015

Sashi Sivramkrishna of NMIMS (Bengaluru) has written a much needed piece. Slightly late as Budget hype is over but nevertheless.

It says Budget should be about governance and other issues. Fiscal Deficit is an outcome dependent on many factors and is not really in control of the govt. All this obsession only leads to fiscal gimmikry as finance minister only tries to meet the target and ignores the rest.

Nations, unlike households, do not face budget constraints. Fiscal defi cit targets therefore cannot be the objective of macroeconomic policy. Instead, budget discussions must focus on governance, supply-side bottlenecks and on policies to raise aggregate demand.

….It is time that the Indian government recognises the immense policy space available to it as a sovereign nation and does not succumb to unnecessary constraints imposed on it by rating agencies and media hype. So why are myths about the need to balance budgets propagated by the economics community? One possible answer is what Samuelson once mentioned to Mark Blaug:

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one  of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and ineffi ciency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in away that the long-run civilised life requires (qtd in Wray 2010).

This obsession over fiscal and inflation targets has all become so stupid really. It seems nothing else matters. Just like the west, we have moved macroeconomics to just these two numbers and two institutions (fin min and central bank) which has made us miss many a things.

How a Professor of finance had a change of heart post 2008 crisis..

May 11, 2015

It is interesting to read such articles/talks on finance. Earlier it was assumed anything to do with finance was deemed good for society. Just keep bringing more and more of it. Post-2008, things have changed and has shocked many a people.

Prof Anat Admati of Stanford reflects on this change in finance and her own thinking:

I am a Finance academic. Before the financial crisis, I did research on financial markets and contracts, most recently on corporate governance. I taught finance to future managers and entrepreneurs. Before immersing in the technical details of valuing stocks, bonds, derivatives and companies, I always told my students that the financial system is really useful for society because it helps move money across time, allocate risks, and fund productive investments.

My life changed starting end of 2008. Fortunately for me, I didn’t lose my job or my house. I still do research in finance, currently on the forces that shape corporate funding decisions and how they can lead to excessive use of debt and great inefficiencies. But I am no longer in the silo I occupied and I talk to many more people both in other academic fields and outside academia. I teach a course entitled, like this conference, Finance and Society, which draws from multiple fields, including finance, economics, accounting, law, and political science. Even psychology, philosophy and sociology can bring insights.

What changed my life was seeing bad research and false or misleading claims, including from academics, affecting policy. Innocent people, powerless and often ignorant of the issues, are harmed by bad policies.

I assumed that at least academics and policymakers would welcome engagement so we can get the policy right, but I was wrong. People don’t want to engage when what you say challenges their viewpoint or actions. They may ignore and evade. I’ve witnessed not only blind spots, but what Margaret Heffernan writes about, willful blindness.

I had to step out of my silo and question my assumptions to understand better what is going on. I urge you to do the same. You can’t understand Finance and Society from any one silo.

Governance problems, when someone has control over decisions while others are impacted but don’t have enough control, are everywhere. If people can benefit at the expense of others, without facing any negative consequences, they often do just that. If people find it convenient to say false or misleading things (which they might even believe to be true) without being challenged, they often do that. If people can stay silent even if they know harm is done, they often do that, especially when staying silent pays and speaking up is personally inconvenient or worse.

Hmm..

Apart from this even the aura around finance should have declined but it has only grown. Finance professors continue to hog limelights and get fancy awards/positions based on their research (with much of it irrelevant) done before the crisis.


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