Archive for May 27th, 2015

Tale of 2 one rupee coins…

May 27, 2015

Came across this interesting joke. It pointed to these two one rupee coins. The first one is of earlier times (it existed even in the 1970s):

The recent one is (came out in late 2000s):

The joke is: Earlier one rupee coin showed grains as one could buy something valuable with one rupee. Now you only get a thenga (nothing) hence the thumbs up sign…:-)

 

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Monetary Policy and the Onset of the Great Depression: The Myth of Benjamin Strong as Decisive Leader

May 27, 2015

This is the title of a recent book by Mark Toma and is reviewed here.

I mean Great Depression research still remains so relevant. More importantly, scholars are undoing whatever we have learnt about the depression. One such common lesson is role that Ben Strong of NY Fed could have played in resolving the depression if he was alive. After all it was Milton Friedman who made this idea popular.

Not anymore as it has been discussed in this book. AS the reviewer points out:

Mark Toma’s short, but dense Monetary Policy and the Onset of the Great Depression: The Myth of Benjamin Strong as a Decisive Leader provides a revisionist history of the Benjamin Strong leadership years at the Fed leading up the Great Depression. Despite the title, the book focuses entirely on this period and doesn’t delve into the actual causes of the Great Depression. Rather than provide a casual explanation of the Great Depression per se, Toma’s project is to convince monetarist and Austrian economists that both of their accepted histories of the Great Depression are empirically unfounded. Thus, Toma argues that mismanaged monetary policy — tightening per the monetarist narrative or loosening per the Austrian narrative — can be ruled out as a causal factor of the Great Depression.

In questioning the Strong decisive leader theory — the theory that Benjamin Strong played a decisive role in the monetary policies of the 1920’s as the President of the influential New York Federal Reserve Bank and that his untimely death ultimately led to the wrong-headed policies that brought on the Great Depression — Toma does not stand alone. Temin (1989, 35), Wheelock (1992), and Brunner and Meltzer (1968) all question the strong leader hypothesis. However, Toma discredits each of their theories and forges a completely new explanation for why Strong’s leadership was not a decisive factor. Toma makes the case that the Fed operated as a self-regulating, decentralized system. According to Toma, this system operated effectively as intended, so the credit for Friedman and Schwartz’s (1963, Ch. 6) description of the 1921-1929 Fed era as the “high tide” of the Fed system should go to the founders of the Fed, not Benjamin Strong.

Overall, the book would have benefitted from a more thorough engagement with the modern literature. Instead of addressing modern developments and more nuanced and refined arguments in the monetarist and Austrian tradition, Toma sets up the book against the narratives of Rothbard (1975) and Friedman and Schwartz (1963).

Hmmm.. Have not read the book so no comments.

All I can say is we have this tendency to glorify certain individual and try and make him/her accountable for all goods/bads especially in an institutional setting. Reality is a lot different and one has to see a broader political picture.  What matters more is how political systems have designed certain institutions and the structure therein. This is a much more important story and plays out for a longer period of time. Person based stories last only till the luck lasts..

It is also important to note how certain narratives remain despite them being proven wrong/right by subsequent scholars..

Most central banks do one thing well: they produce monetary mischief..

May 27, 2015

Says Prof Steve Hanke in this post. More so in case of emerging economies.

So what is the solution? Well, give the mon pol function  to a more responsible country. One option is dollarise. Panama is a good example:

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Indra Dev and monsoon forecasting: What is the dummy variable?

May 27, 2015

A super fun filled column by Manasi Phadke (of the crazy blog – Manasiecon.

Its starts with this scene where Lord Indra is being reported on rains in India:

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War over mathiness in economics..

May 27, 2015

It is not always you see likes of Prof. Paul Romer criticise economists and that too likes of Lucas and Prescott. The criticism is for their over the top mathisation of economics.

Noah Smith, Justin Fox and Mark Buchanan chip in.

Buchanan says:

Once upon a time economists made their arguments in long, discursive, often contradictory books about pin factories andnewspaper beauty contests. Verbally oriented people like me tend to extol those days, but to most modern economists they were the dark ages.

In the 1940s Paul Samuelson of the Massachusetts Institute of Technology brought enlightenment, in the form of elegant mathematical treatments of the major concepts in economics. Most of these ideas were inherently mathematical anyway, he argued in the introduction to his “Foundations of Economic Analysis,” first published in 1947, which meant that trying to express them in narrative form involved “mental gymnastics of a peculiarly depraved type.”

Samuelson’s approach gave the discipline a, well, discipline that it had previously lacked, and enabled economics to make great leaps in coherence and rigor. It also made the field incomprehensible to laypeople, but that turned out to be more a feature than a bug. Economists were seen as possessing unique scientific knowledge, and came to play increasingly prominent roles in public life in the U.S. and elsewhere. Samuelson’s economics-professor nephew even became Treasury secretary.

There are some obvious limits to this approach. In his entertaining and enlightening new book, “Misbehaving,” University of Chicago behavioral economist Richard Thaler documents case after case of “theory-induced blindness” in which economists ignored interesting and important real-world phenomena because they didn’t accord with the dominant mathematical models. Since the financial crisis, the conviction that macroeconomics in particular has reached a sort of theoretical dead-end has gained ground even among mainstream economists.

That’s not what Paul Romer is arguing, though. In a provocative paper presented in January at the annual meeting of the American Economic Association and just published in the American Economic Review, plus a series of combative blog posts, the New York University professor and famed economic theorist complains that some of his fellow economists have been resorting to what he calls “mathiness.” This is a variant of comedian Stephen Colbert’s “truthiness,” and means that they are using mathematical models not to elucidate or investigate but basically just to assert. Samuelson and others of his generation believed that mathematical reasoning would clarify economists’ arguments.

Well, nothing is new except for the fact that it is Romer who in an elegant AER paper (has a bit of math) questions the math methods adopted by stalwarts to showcase their supremacy over others. What is worse is that Romer actually points to mistakes in one of their papers which ends up being published in an top econ journal.

The problem is not limited to extensive and intensive use of math. It is just ensuring other areas like history and politics do not matter anymore. Most economics courses around the world are designed as suggested by these priests and are taught unchallenged by their several direct and indirect students across the world. So it is the same neoclassical school which is not even relevant in developed world is taught in schools across Asia and Africa.

I mean how preposterous can things get in economics teaching. We in other countries are part of the blame as we have just accepted whatever is being taught in these schools and taken it to be Bible.

Anyways, this is how things shall remain in economics . When the entire purpose of humankind has shifted from basic humanity to pursuing wealth at all costs nothing much can be done. This is then added to the strong belief that it is economics and economists which can help the society in that pursuit, things only become crazier and are expected to remain..


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