Archive for the ‘Discussion’ Category

The Green Swan: Central banking and financial stability in the age of climate change

January 21, 2020

Kudos to BIS for bringing a report with such an innovative title. Taleb made his point about financial risks via his boo titled Black Swan and BIS is doing the same highlighting climate risks with the title Green swan!

The report is written by 4 scholars – Patrick Bolton, Morgan Després, Luiz Awazu Pereira da Silva, Frédéric Samama and Romain Svartzman:

Climate change poses new challenges to central banks, regulators and supervisors. This book reviews ways of addressing these new risks within central banks’ financial stability mandate. However, integrating climate-related risk analysis into financial stability monitoring is particularly challenging because of the radical uncertainty associated with a physical, social and economic phenomenon that is constantly changing and involves complex dynamics and chain reactions. Traditional backward-looking risk assessments and existing climate-economic models cannot anticipate accurately enough the form that climate-related risks will take. These include what we call “green swan” risks: potentially extremely financially disruptive events that could be behind the next systemic financial crisis.

Central banks have a role to play in avoiding such an outcome, including by seeking to improve their understanding of climate-related risks through the development of forward-looking scenario-based analysis. But central banks alone cannot mitigate climate change. This complex collective action problem requires coordinating actions among many players including governments, the private sector, civil society and the international community. Central banks can therefore have an additional role to play in helping coordinate the measures to fight climate change. Those include climate mitigation policies such as carbon pricing, the integration of sustainability into financial practices and accounting frameworks, the search for appropriate policy mixes, and the development of new financial mechanisms at the international level. All these actions will be complex to coordinate and could have significant redistributive consequences that should be adequately handled, yet they are essential to preserve long-term financial (and price) stability in the age of climate change.

Looks like a really comprehensive assessment of things..

Trying a hand at podcasting

January 20, 2020

My first attempt at podcasting with a dear friend Vivek Narayan who is a Doctor based in US.

Never realised that the medium could be so much fun. Thanks Vivek for all the editing!

More to follow.


Cambodia is criminalizing democracy by suppressing opposition

January 17, 2020

Is America Going Fascist?

January 16, 2020

WHo would have thought this question would be asked and needs to be answered.

Daron Acemoglu in this piece warns against this typecasting as it polarises the society further:


When Climate Activism and Nationalism Collide

January 15, 2020

Kemal Dervis sums up one of the key battles of 2020s decade:

There is an overwhelming consensus among scientists that this decade will be the last window for humanity to change the current global trajectory of carbon dioxide emissions so that the world can get close to zero net emissions by around 2050, and thus avoid potentially catastrophic climate risks. But although the massive technological and economic changes required to achieve this goal are well understood, their political implications are rarely discussed.

While climate activists have built an impressive international movement, broadening their political support and crossing borders, the nationalist narrative has been gaining ground in domestic politics around the world. Its central message – that the world consists of nation-states in relentless competition with one another – stands in sharp contrast to the climate movement’s “one planet” emphasis on human solidarity. And these two trends are on a collision course.


In fact, this clash may become a defining feature of politics, with the nationalist right facing a coalition of climate-oriented voters comprising not only today’s Greens, but also those from the social-democratic center-left and the traditional center-right. Moreover, other issues will be connected to this fault line, not least the need for domestic compensation of those groups that temporarily lose out as a result of ambitious climate mitigation efforts.

If the dominant divide of the 2020s is between the nationalist narrative and green internationalism, then the climate debate may import global issues into national politics like never before. The outcome, of course, remains to be seen.

Why every company needs a Chief Fun Officer?

January 15, 2020

of Warwick Business School in this piece argues why fun is important in workplaces and you need a officer to promote fun:


JNU violence: Indian university’s radical history has long scared country’s rulers

January 14, 2020

Shalini Sharma of Keele University in this piece tracks JNU’s history. She points how JNU’s policy has been to give admissions to those with deprived background:


How is Twitter disrupting academia?

January 9, 2020

Tyler Cowen on MR blog:

Kris on Twitter asks that question.  I have a few hypotheses, none confirmed by any hard data, other than my “lyin’ eyes”:

1. Twitter exists as a kind of parallel truth/falsehood mechanism, and it is encroaching on traditional academic processes, for better or worse.

2. Hypotheses blaming people or institutions for failures and misdeeds will be more popular on Twitter than in academia, but over time they are spreading in academia too, in part because of their popularity on Twitter.  Blame makes for a more popular tweet.

3. Often the number of Twitter followers resembles a Power law, and thus Twitter raises the influence of very well known contributors.  Twitter also raises the influence of the relatively busy, compared to say the 2009 world where blogs held more of that influence.  Writing blog posts required more time than does issuing tweets.

4. I believe Twitter raises the relative influence of women.  For one thing, women can coordinate with each other on Twitter more easily than they can in academic life across different universities.

5. Twitter can damage the career prospects of some of the more impulsive tweeting white males.

6. On Twitter is is easier to judge people by their (supposed) intentions than in academia, so many more people will be accused of acting and writing in bad faith.

7. On Twitter more people do in fact act in bad faith.

8. Hardly anyone looks better on Twitter, so that contributes to the polarization of many professions, especially economics and those professions linked to political issues.  Top economists don’t seem so glamorous any more, not even in their areas of specialization.

9. Academic fields related to current events will rise in status and attention, and those topics will garner the Power law retweets.  Right now that means political science most of all but of course this will vary over time.

10. Twitter lowers the power of institutions more broadly, as institutions typically are bad at Twitter.

What else?


Why Sweden ended its negative interest rate experiments

January 8, 2020

Sweden ended its negative rate policy recently. Bernanke recently spoke on how consequences of negative interest rates have not been that bad.

Daniel Lacalle gives an Austrian school perspective:

Negative rates are a huge transfer of wealth from savers and real wages to the government and the indebted. A tax on caution. They are the destruction of the perception of risk that always benefits the most reckless. The bailout of the inefficient.

Central banks ignore the effects of demography, technology, and competition on inflation and the growth of consumption, credit, and investment, and with the wrong policies they generate new bubbles that become more dangerous than the previous ones. The next bubble will again increase the fiscal imbalances of the countries. When central banks present themselves as the agents that will reverse the effect of technology and demographics, they will be creating a greater risk and bubble.

Sweden launched its failed negative rate plan almost five years ago and has now reversed it due to the financial risks that are created. The most interesting thing is that it reversed the policy of negative rates precisely because of the risk of an economic slowdown, because the evidence shows that investment and consumption decisions do not increase with financial repression.

In Sweden, with negative rates, the real estate price index has increased 50 percent (from 160 points to 240), the average residential index has risen 27 percent, nonreplicable assets have risen between 30 and 70 percent (infrastructure, etc.), and the stock market has risen more than 20 percent. In that period, household consumption and investment (gross capital formation) have increased very little and real wages have remained stagnant.

Monetary policy has gone from being a support for structural reforms to an excuse to avoid them. Now, governments are delighted to read that “fiscal measures” must be implemented. And when a government hears “fiscal measures,” it translates it into “spending.” And when the eurozone governments start spending, the result is always the same: more debt and higher taxes.

In the eurozone, the economic aberration of negative rates continues despite the evidence of the collateral risks they generate. Meanwhile, you and I are blamed for not spending and borrowing more. What can go wrong?


Year 2019: Was Karl Marx right?

December 27, 2019

Andrés Velasco and Luis Felipe Céspedes in this Proj Synd piece:

In Santiago, Chile, a massive graffito by the exit ramp of a brand-new, privately-built urban freeway reads: “Marx was right!” Indeed, capitalist development begets its own contradictions, as the scribbling itself attests.

Recent months have been the spring – and winter – of Chile’s discontent: peaceful marches and protests, but also plenty of looting and violence. Just as in Hong Kong and Iran, Colombia and Costa Rica, Ecuador and Peru, Iraq and Lebanon, Sudan and Zimbabwe. And, despite these countries’ diversity, and that of the local incidents that triggered the unrest, pundits and media have settled into a comfortable narrative: “2019 was a year of global unrest, spurred by anger at rising inequality – and 2020 is likely to be worse” the commentary website The Conversation confidently asserts. The Guardian adds: “Not all the protests are driven by economic complaints, but widening gulfs between the haves and have-nots are radicalising many young people in particular.” Even the staid Financial Times concurs: “Inequality in ‘stable’ Chile ignites the fires of unrest.”


Bottom line: successful emerging economies should adopt aggressive anti-monopoly policies if they wish to remain successful. Many, including Mexico and Chile, have. But here’s the rub: the new, more stringent standards will reveal unending collusion scandals, which will fill the headlines and ignite public anger long before more competition produces the innovation and higher incomes to placate that anger. The price of success in fighting monopoly may be more, not fewer, street demonstrations.

Now, Marx and Engels did not just claim that capitalist development engenders its own contradictions. They also concluded that those contradictions could be overcome only through the “forcible overthrow of all existing social conditions.” The current wave of protesters has not overthrown much yet (except for Bolivia’s president, who was found to have stolen an election). It is up to governments to carry out – and soon – the reforms that can prove Marx and Engels wrong.

Revival of Marxism?

Mormons and Money: A messy history of church finances and establishing an anti-bank

December 27, 2019

This piece discusses the case of how Mormons in Ohio set up a bank. As they did not get permission, they called it anti-bank:

From my vantage point as a historian of Mormonism, this news marks a new twist on an old story. For nearly two centuries, the church has conducted its finances in ways that defy the expectations Americans have for religious organizations.

Consider what happened in the summer of 1837, when the fledgling church teetered on the brink of collapse.

At the time, Joseph Smith and many church members lived in Kirtland, a small town in northeastern Ohio. The Smith family had moved there in the early 1830s, seeking a safer gathering place for church members in the face of persecution in New York state.

Smith and his followers began building a temple in Kirtland. The Saints dedicated their temple in 1836, but the project left Smith and others deep in debt. Like many communities in antebellum America, Mormon Kirtland was land-rich and cash-poor. A lack of hard currency hampered commerce. 

Smith and his associates decided to start their own bank to solve their financial woes. The circulation of bank notes, they thought, would boost Kirtland’s economic prospects and make it easier for church leaders to satisfy their creditors.

The idea of Mormon leaders printing their own money wasn’t as crazy as it sounds in 2019. The United States still lacked a uniform currency. A host of institutions of varying integrity – chartered banks, unchartered banks, other businesses and even counterfeiting rings – issued notes whose acceptance depended on the confidence of citizens who might accept or refuse them. 

Mormon leaders bought engraving plates for printing bank notes and asked the Ohio state legislature to charter their bank. The Mormon proposal went nowhere in the legislature.

At this point, church leaders took a more fateful and dubious step.

They had collected money from investors and had already begun printing notes of the “Kirtland Safety Society Bank.” Instead of shutting down the operation when the charter failed to come through, they doubled down. Worried about the legal risk of running an unchartered bank, church leaders altered the notes to read “anti-Banking-Co.”

The anti-bank not surprisingly failed:


Caste barriers still play a big role in India’s economic choices

December 18, 2019

Nice piece as always by Niranjan.

The lively office book club will later this month discuss a searing essay by B.R. Ambedkar. That gave me a welcome reason to once again read Annihilation Of Caste, which was published after a scheduled speech by Ambedkar in Lahore was cancelled by the organizers of a conference on social reforms because, in Ambedkar’s own words, “the views expressed in the speech would be unbearable to the conference”. The essay brims with insights, which is the default status for almost everything Ambedkar wrote. Each reading of Annihilation Of Caste leaves the reader with something new to think about.

One part of the essay that never fails to resonate with me is this: “[The] Caste System is not merely division of labour. It is also a division of labourers. Civilized society undoubtedly needs division of labour. But in no civilized society is division of labour accompanied by this unnatural division of labourers into watertight compartments. Caste System is not merely a division of labourers which is quite different from division of labour—it is a hierarchy in which the divisions of labourers are graded one above the other. In no other country is the division of labour accompanied by this gradation of labourers.”

Cut to our times. A young scholar from Columbia University, where Ambedkar also studied economics, shows through a field experiment in rural Odisha how caste identity makes workers avoid certain tasks even if that means substantial economic costs to them. Suanna Oh looked at behaviour for two sets of tasks—“identity tasks” that are associated with specific castes, and “paired control tasks” that do not have any traditional caste associations. Workers were generally unlikely to take up work offers involving tasks that were not traditionally associated with their own caste identities. They were not keen on working in joint tasks with members of other castes, especially if the latter were lower than them in the caste hierarchy.

How much potential income are workers willing to forgo to avoid caste-inconsistent tasks? A supplementary experiment run by Oh shows that nearly half the surveyed workers in rural Odisha chose to stay away from caste-inconsistent tasks despite being offered 10 times their daily wage. Such behaviour falls squarely within the Ambedkarite insight that the caste system is not just a division of labour, but also a division of labourers.

Changing Dimensions of Political Conflict and the Rise of Populism

December 17, 2019

Interesting lecture by Professor Guido Tabellini of Bocconi Univ. 

He says traditional political conflict of left vs right is waning. New dimensions of conflict are over immigration, nationalism and civil rights. There is also dissatisfaction with representative democracy.

Sweden develops an e-krona in a test environment

December 17, 2019

From Sweden’s central bank:

The Riksbank has implemented a public procurement of a technology supplier to the e-krona pilot project and intends to sign an agreement with consulting company Accenture. The primary objective of the e-krona pilot project is to broaden the bank’s understanding of the technological possibilities for the e-krona.

The assignment entails producing a solution as to how an e-krona could function in a test environment. During the first year of the e-krona pilot project, a technical platform will be developed with a user interface that enables, for instance, payment with the e-krona from a mobile phone, a card and a watch. The platform will also contain simulations of payment service providers, retail outlets and other parts of the Swedish payment system.

The assignment will run to 31 December 2020, with a possibility for extension so that the total maximum period of agreement will be seven years. If the Riksbank chooses to extend the e-krona pilot project, the e-krona will be further developed with increased functions and further tests. The Riksbank has not yet taken a decision to issue an e-krona.

The public procurement resulted in eleven requests to participate, from which the Riksbank selected three suppliers who were invited to present tenders. The winning supplier offers the best balance of price and quality. The Riksbank intends to sign an agreement before the end of the year.

Financial Stability should be Central Banking’s prime objective

December 16, 2019

Willem Buiter in this piece:

It has become fashionable to worry whether central banks still have the tools with which to pursue price stability, full employment, and other objectives. But policymakers should not lose sight of the fact that a central bank’s primary job is to maintain financial stability as a lender and market maker of last resort.

He spoke about this in the much charged Jackson Hole conference in 2008 as well

How to revive the WTO?

December 16, 2019

WTO’s importance in global affairs has dwindled really sharply. In a way, the decline of WTO is an outcome of rising economic nationalism and protectionism. But it is in times like these we need WTO which should be cautioning the world against the current developments. But for this, WTO itself has to be protected!

Shang Jin Wei and Xinding Wu point how US is blocking appointments at WTO:

The World Trade Organization’s appellate body is under threat not from China, but from the United States, which is blocking the appointment of new judges to the panel. Reviving the WTO will require changes to the organization’s rules – but killing its dispute-settlement system is not the solution.

Until recently, no one would have thought that the US, a key architect of the rules governing the WTO, would choose to kill the organization’s appellate body. But that is what appears to be happening now. Since 2017, as the body’s current judges have completed their four-year terms, the US has systematically rejected any proposed successor nominated by other countries, apparently with the aim of rendering the system inoperative until other countries agree to alter the rules to America’s liking.

Any WTO dispute-settlement panel is required to have at least three judges. So, with two of the appellate body’s three remaining judges having completed their terms on December 10, the organization’s “highest court” is now functionally dead.

Since the WTO was established in 1995, global GDP has grown by about 250% on a cumulative basis, while global trade has increased by about 270%. A professional disinterested process for adjudicating trade disputes between countries has been key to this success. Because larger countries always have greater bargaining power than smaller ones in bilateral or regional trade negotiations, this process has helped to level the playing field in favor of the WTO’s vast majority of small- and medium-size members.

Resuscitating the WTO will require changing its rules. Perhaps appellate body judges should be appointed by a majority or supermajority vote, so that no single country can block a nominee. In addition, the body could be expanded to 15 judges, in line with growth in trade volumes, and appointees’ terms could be lengthened. Or the terms of the last three judges could be extended temporarily.

But none of these measures will be enough. The US, China, and other countries also have an interest in modernizing WTO rules regarding state-owned firms, government procurement, anti-dumping cases, and digital trade. Whatever reforms these countries wish to see, killing the organization’s dispute-settlement system is not the solution.

How Trolls Overran the Public Square

December 10, 2019

Prof Brad De Long in Proj Syndicate column:

Since the invention of writing, human innovation has transformed how we formulate new ideas, organize our societies, and communicate with one another. But in an age of rapid-fire social media and nonstop algorithm-generated outrage, technology is no longer helping to expand or enrich the public sphere.

We should have seen this coming. A generation ago, when the “net” was limited to universities and research institutes, there was an annual “September” phenomenon. Each year, new arrivals to the institution would be given an email account and/or user profile, whereupon they would rapidly find their online communities. They would begin to talk, and someone, inevitably, would get annoyed. For the next month, whatever informational or discursive use the net might have had would be sidelined by continuous vitriolic exchanges.

Then things would calm down. People would remember to put on their asbestos underwear before logging on; they learned not to take the newbies so seriously. Trolls would find themselves banned from the forums they loved to disrupt. And, in any case, most who experimented with the troll lifestyle realized that it has little to recommend it. For the next 11 months, the net would serve its purpose, significantly extending each user’s cultural, conversational, and intellectual range, and adding to the collective stock of human intelligence.

But as the Internet began to spread to each household and then to each smartphone, fears about the danger of an “eternal September” have been confirmed. There is more money to be made by stoking outrage than by providing sound information and encouraging the social-learning process that once taught net newbies to calm down. And yet, today’s Internet does offer valuable information, so much so that few of us could imagine doing without it. To access that information, we have tacitly agreed to allow the architects at Facebook, Twitter, Google (especially YouTube), and elsewhere to shape the public sphere with their outrage- and clickbait-generating algorithms.

Meanwhile, others have found that there is a great deal of money and power to be gained by shaping public opinion online. If you want to get your views out there, it is easier to piggyback on the outrage machine than to develop a comprehensive rational argument – especially when those views are self-serving and deleterious to the public good.

For her part, Newitz ends her recent commentary on a hopeful note. “Public life has been irrevocably changed by social media; now it’s time for something else,” she writes. “We need to stop handing off responsibility for maintaining public space to corporations and algorithms – and give it back to human beings. We may need to slow down, but we’ve created democracies out of chaos before. We can do it again.”

Such hope may be necessary for journalists these days. Unfortunately, a rational evaluation of our situation suggests that it is unjustified. The eternal September of our discontent has arrived.

How most of humanity’s new big things of future eventually turn into disasters…

RIP Paul Volcker: Till there is macroeconomics, you will be remembered

December 10, 2019

My obituary to Paul Volcker. Rest in Peace Sir.

Volcker not just entered macroeconomics hall of fame but made a permanent place for himself. Former Fed chair Ben Bernanke paid tributes to Friedman on his 90th birthday saying: “I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

On Volcker’s death, taking a cue from Bernanke’s words, all the central bankers in the world — past and present — can give a joint statement: “We would like to say to Paul, regarding cause of inflation, you’re right, we did it. We’re very sorry. But thanks to you, we will try our best not to do it again.”

From GDP 1.0 to GDP 2.0: Distribution to be as important as production

December 9, 2019

Kemal Dervis in this piece:

Building on work by the economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, the Center for Equitable Growth has proposed “GDP 2.0,” a metric that would complement existing aggregate GDP reports by disaggregating the income growth of different cross sections of the population (such as income quintiles). Providing this kind of distributional picture regularly would require increased coordination among government departments, as well as some conventions on, for example, how to use tax data to complement the usual national accounts. But conventions are also needed for existing national income accounting.

Provided that distributional data are routinely available, one could compute a growth rate based on the weighted average across each decile of the income distribution, with equal weighting for population, as in the example above. Individuals would still be weighed by their incomes within each group (which is why it would be preferable to use deciles rather than quintiles), but the final product would be much closer than current methods to the “democratic” ideal.

One of the main advantages of GDP growth is that it is expressed with a single number, whereas other performance indicators either are presented within dashboards comprising multiple metrics or aggregated in essentially arbitrary ways. The implicit use of income shares as aggregation weights is perfectly appropriate for macroeconomic analysis and is not arbitrary. The problem arises when GDP becomes a proxy for progress. What we can measure easily and communicate elegantly inevitably determines what we will focus on as a matter of policy. As the Stiglitz-Sen-Fitoussi report put it, “What we measure affects what we do.”

Publishing a democratic metric like the growth rate of GDP 2.0 is no pipedream. A GDP growth rate using equal weights for each decile of the population would also produce a single number to complement the usual growth rate. True, it still would not capture the substantial differences within the top decile in many countries where the top 1% have been gaining disproportionately compared to everyone else. And we still would need other metrics to measure performance in dimensions other than income. But as a single figure published alongside GDP growth, it could go a long way toward changing the dominant conversation about economic performance.

Popular Presidents versus the Press: Why they love Press but not journalism?

December 9, 2019

Interesting Proj Synd piece by Andrés Cañizález, a Venezuelan journalist.

Populist leaders love the mass media, which enable them to spread their own ideas. But they hate journalism, which asks challenging questions and aims to hold them accountable. That is precisely why we must defend it.


Venezuela is thus an object lesson in why attacks on media by Trump, Bolsonaro, and AMLO must be taken seriously. All media, both targeted and favored, should fight back, including by seeking injunctions in national and international courts. Journalists and others, such as academic associations, can pursue local-level initiatives aimed at defending the rights and freedoms of citizens and media.

NGOs can also help, not only by unequivocally expressing their opposition, but also by collecting and publicizing data on media freedom. Civil society should contribute its own full-throated defense of media, with citizens engaging in joint initiatives with media and their defenders.

An enemy of the free press is an enemy of democracy. We can’t say they didn’t warn us.

This explains much of the dilemma one had so far. These leaders become popular using the press/media and then go onto dislike it. Why? The answer is leaders like the press who spread their cult but not journalists who ask tough qs and hold them accountable..

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