Archive for the ‘Discussion’ Category

Teaching mathematics as a history of ideas and thought…

October 16, 2018

Mordechai Levy-Eichel writes this wonderful and much needed article in Aeon. He appeals to make maths more human and teach it as evolution of ideas and thoughts:

Perhaps the most impassioned remonstration against our bifurcated view of mathematics is the pamphlet A Mathematician’s Lament (2009) by the American private-school teacher Paul Lockhart. Written in 2002 and circulated for years among mathematicians and educators, Lockhart’s essay ruthlessly criticised the simplistic nature of most mandatory mathematics education. Mathematics, Lockhart wrote, is almost always taught in a way to obscure the actual insights and reasoning, the grandeur and insight, the excitement and frustration, that drive mathematicians. ‘At no time are students let in on the secret that mathematics, like any literature, is created by human beings for their own amusement,’ Lockhart writes, attempting to humanise the subject.

Continuing with his literature analogy, Lockhart emphasises that: ‘A piece of mathematics is like a poem, and we can ask if it satisfies our aesthetic criteria: is this argument sound? Does it make sense? Is it simple and elegant? Does it get me closer to the heart of the matter?’ And like most pieces of art, truly appreciating it is not a rote exercise: ‘works of mathematics are subject to critical appraisal; that one can have and develop mathematical taste’. By teaching mathematics as a series of techniques, the appeal and nature of mathematics is masked: ‘Of course there’s no criticism going on in school – there’s no art being done to criticise!’ The notable English mathematician G H Hardy also compared mathematics to poetry in his own work A Mathematician’s Apology (1940): ‘A mathematician, like a painter or a poet, is a maker of patterns. If his patterns are more permanent than theirs, it is because they are made with ideas.’

🙂 These words ” mathematics, like any literature, is created by human beings for their own amusement” just takes the cake.

In the end:

The history of ideas can, should and, historically, has often been precisely about the limitations of politics and the rewards of other ideas; it need not primarily be the study of thinkers who, more often than not, never even directly held power. The ideas that most deeply shape us, and our societies, are just as often not part of the history of political thought, but come from many other areas. This is not an argument for a neo-Platonic worshipful examination of ideas, or for a move away from considerations of politics. It is rather a call to recognise the ways in which humans actually encounter ideas, and the unique vitality of mathematical ideas in the world.

I wish all subjects were taught in this manner. There is a mad rush to make all subjects scientific and mathematical in approach not realising both were created by humans for amusement!

Modern Monetary Theory: Why a Hot New Idea in Economics is Actually a Bad Idea

October 15, 2018

New article by Scott Sumner and Patrick Horan.

In recent years, a radical and unorthodox school of thought called “Modern Monetary Theory” (MMT) has become popular with some progressive economists, as well as with policymakers and activists on the political left.  One of MMT’s most prominent advocates is Stephanie Kelton, a professor at Stony Brook University who advised Senator Bernie Sanders during his 2016 presidential run. The theory has received enough traction that the popular Planet Money podcast recently ran an episode on the topic.

A central idea of MMT is that a government that issues its own fiat currency can pay its bills in that same currency.  These governments need not worry about budget deficits when contemplating additional spending. Thus because the US government has a monopoly on money creation, our federal government does not need to raise all its revenue through tax or bond finance. A government with its own currency cannot go bankrupt because it can always issue more currency to cover any budget deficit. Kelton and other MMT advocates argue that this why the US government can afford expensive programs such as a jobs guarantee and universal healthcare.

While MMTers do not see government debt per se as a problem, they do concede that were the government to spend beyond the capacity of the economy there would be a risk of higher inflation. MMTers argue that if high inflation were to become a danger, the government can increase taxation to remove excess currency from the economy. In the Planet Money podcast, however, Kelton indicated that she is not currently worried about inflation. When asked if putting even more money into the economy might lead to higher inflation, she noted that inflation has been quite low in recent years:

“Well, where is it? We’ve been doing it. We just did it with a $1.5 trillion tax cut. We did it with the $300 billion in additional spending. We’ve done it and done it and done it. Where is the inflation problem? I don’t see it in the UK. I don’t see it in Japan. I don’t see it in the US.”

Kelton is right that inflation has been low in the US and other developed countries, but she and other MMTers are wrong in assuming that fiscal policy determines inflation in those economies.  Since 1990, inflation in the US and many other developed countries has averaged two percent.  This was accomplished through very specific decisions taken by monetary authorities, indeed fiscal policymakers wouldn’t even know how to begin the difficult process of inflation targeting.


Sorry Mystics, Central Banks cannot finance Government spending: Lessons from Yemen

October 15, 2018

John Tamny on Yemen experiences:

Before Yemen’s civil war began in 2015, its currency (the rial) was worth 1/215th of a dollar. According to a report in the Washington Post last week, the rial has plummeted to 1/800th of a dollar, thus “sending food and fuel prices soaring.”

The tragedy underway in Yemen exists as yet another reminder that the Federal Reserve’s definition of inflation is completely upside down. While economists at the Fed believe that economic growth causes inflation, unstable countries in other parts of the world continue to reject the U.S. central bank’s simple-mindedness.

Indeed, it can’t be stressed enough that the biggest driver of rising prices is paradoxically a lack of economic growth. Growth is always and everywhere an effect of investment, and a falling currency repels the very investment necessary for the increased productivity that results in falling prices. In short, true inflation burns its victims twice: through rising prices in the near-term as the cost of goods reflects a shrunken currency, and through slower growth over time as the investment necessary for progress migrates away from the country that is irresponsibly pursuing devaluation.

The tragedy taking place in Yemen also offers a useful lesson about the well-oversold capabilities of central banks. Even certain members of the Austrian School claim that their very existence enables wasteful government spending as far as the eye can see. 


Though various economic schools relentlessly try to revive Santa Claus through their mysticism about governments, central banks and printing presses, the reality is that wealth and economic growth are always produced in the private sector. Government spending and printing presses are a consequence of the latter, and never a driver.

Hmm… These battles will continue forever perhaps…


Iraq’s new and improved banknotes and old India connection…

October 15, 2018

Nice piece on the new banknotes in Iraq, which will have the Governor’s signature and representation of Assyrian community.

As part of the redesign, the new 2018 A.D. and 1440 Hijri-dated banknotes will now feature the title of “Governor of the central bank” underneath his signature, which the central bank has pointed out is compatible with the trend being followed in other countries. The current specifications, in terms of dimensions, remain the same — as well as the current colours — which represent the current series. The 50,000 and 5000-dinar banknotes have not currently undergone an update at present.

However, it is the newly revised 1000-dinar note that seems to be getting the most significant makeover and attention. The previous design of the symbol of the Ikhlas Surah from the Quran in the centre of the current design has been removed and in its place is what appears to be an Assyrian star. The Assyrian people are a predominately Christian minority group concentrated around Northern Iraq. Many of them were displaced or forced to flee abroad during the recent conflict that was initiated by rebel forces seeking a separate caliphate known as the Islamic State of Iraq and Syria.

In recognition of the status of the Marshlands, which have been added to the list of endangered and protected regions in 2016, the new 1000-dinar note will also feature the words: “Enlisting the marshes and heritage of Southern Iraq on world heritage list,” which is placed around the Assyrian star motif.

During the regime of Saddam Hussein, Iraq’s marshes were almost completely drained in order to flush out rebel groups. These insurgents were in opposition to his rule, and, as a result, the rich natural habitat and the culture of the marshland’s inhabitants were almost lost. Since the downfall of the Hussein regime, both international and localised efforts have sought to bring the people back to their homelands and revive the culture back to life.

While reading up on Iraqi Dinar, Wikipedia mentions how Indian Rupee was the legal tender in Iraq from WW I to 1931:

The dinar was introduced into circulation in 1932, by replacing the Indian rupee, which had been the official currency since the British occupation of the country in World War I, at a rate of 1 dinar = 11 rupees. The dinar was pegged at par with the British pound until 1959 when, without changing its value, the peg was switched to the United States dollar at the rate of 1 dinar = 2.8 dollars. By not following the devaluations of the US currency in 1971 and 1973, the dinar rose to a value of US$3.3778, before a 5 percent devaluation reduced the value of the dinar to US$3.2169, a rate which remained until the Gulf War, although in late 1989, the black market rate was reported at five to six times higher than the official rate.[1]

After the Gulf War in 1991, due to UN sanctions, the previously used Swiss printing method was no longer available so new, inferior quality, notes were produced. The previously produced notes became known as the Swiss dinar and continued to circulate in the Kurdish region of Iraq. Due to sanctions placed on Iraq by the United States and the international community along with excessive government printing, the new dinar notes devalued quickly. By late 1995, US$1 was valued at 3,000 dinars at the black market.

Following the deposition of Saddam Hussein in the 2003 invasion of Iraq, the Iraqi Governing Council and the Office for Reconstruction and Humanitarian Assistance began printing more Saddam dinar notes as a stopgap measure to maintain the money supply until new currency could be introduced.

Between 15 October 2003, and 15 January 2004, the Coalition Provisional Authority issued new Iraqi dinar coins and notes, with the notes printed by the British security printing firm De La Rue using modern anti-forgery techniques to “create a single unified currency that is used throughout all of Iraq and will also make money more convenient to use in people’s everyday lives”. Multiple trillions of Dinar were then shipped to Iraq and secured in the CBI for distribution to the masses in exchange for the ‘Saddam dinar’.[2] Old banknotes were exchanged for new at a one-to-one rate, except for the Swiss dinars, which were exchanged at a rate of 150 new dinars for one Swiss dinar. At this point, the UN, IMF, WB and US combined to limit the value of the dinar to less than 1/10 of a cent to prevent looting and counterfeiting. The US Treasury was commissioned to print multiple billions of US currency, specific to Iraq so as to easily identified as different from that used elsewhere in the world. This new currency was then wrapped and stacked on pallets and shipped in dozens of USAF transports to Iraq. There it was transferred covertly to the CBI, where it was stored in very secure vaults.[citation needed]

Also see the images of Dinar Series in the Wikipedia post. How much history one can figure profiling and figuring these banknotes…

100 years of the Czech koruna..

October 15, 2018

As I keep saying the year 2018 is just so much about anniversaries.

Jiří Rusnok, Governor of the Czech National Bank (their central bank) in this speech talks about the 100 year journey:

It is an honour and a pleasure for me to welcome you to today’s conference on the currency, taxes and other institutes of financial law. The 100th anniversary of the foundation of the independent Czechoslovakia is a good opportunity to look back and identify the main features of our national economic history. As you know, we have been through four periods since 1918 – the period of political and economic emancipation from Austria-Hungary, the wartime economy, the era of central-planning-based totalitarian communism, and finally almost three decades of democracy and a market economy. So, more than enough has happened in our country over the last 100 years.

Although these periods could not have been more different, two common features have appeared in various guises. I would characterise them on the one hand as economic moderation, prudence and discipline, and on the other as a struggle for economic independence and a willingness and ability to bear the consequences. Let me give some examples of both.

Czechoslovakia’s founding fathers Tomáš Garrigue Masaryk, Karel Kramář and Alois Rašín were well aware that nurturing a sound financial environment was crucial to the prosperity of the young nation. The Czech Lands had been a key industrial and economic part of the former Austria-Hungary and hence had a relatively well-developed banking sector. An awareness of the close links between government finances, the banking sector, firms and households shaped the economic policy of the First Czechoslovak Republic.

Karel Engliš worked systematically to balance the budget and deserves most of the credit for sorting out public finances in the early 1920s. In 1927 he submitted three tax laws that substantially lowered corporate taxation and supported the creation of capital. At the same time, though, he tied the tax reform, which led to lower revenues, to cuts in government expenditure and a streamlining of the civil service. So, Rašín and Engliš established a trinity of traditions in our country: a stable currency, sound government finances and non-inflationary economic policy. These traditions became a theoretical, practical and moral legacy for subsequent generations of economic policymakers.

It is unusual these days to look back to the communist period for economic inspiration. The socialist system was inefficient and cumbersome and discouraged initiative and innovation. Central planning by definition made the system less adaptable to change and created an economy of shortage. Despite this, the Czechoslovak version of socialism tried to eliminate the most glaring imbalances and preserve basic macroeconomic equilibrium. Fortunately, our central planners didn’t cause any major imbalances in the consumer market in the 1980s, so the savings surplus wasn’t as large as in other communist countries. Not that I want to defend the past economic regime in any way, of course, but let’s not forget that it had elements which can be traced back at least implicitly to the pre-war period.

Not very often you see central bankers having a soft corner for socialist past.

There are 3 lessons from the past which have mattered for post-1989 economy:

  • …..the liberalisation of prices and foreign trade in 1991 was accompanied by effective stabilisation measures.
  •  is an ability to cope with the consequences of the struggle for economic independence.
  • All this tells us that the Czech nation is reasonably good at running its own macroeconomic, monetary and financial affairs.


To sum up, the past 100 years have not been a series of random economic events. Despite all the discontinuities, there has been some continuity. In the same way that we inherit various physical and personality traits from our forebears, economists learn their craft from those that came before them and pave the way for those that come after. I am sure this conference will bear me out on that.

Nice bit…

Low inflation and low unemployment rate in US economy: Too good to be true?

October 11, 2018

Interesting speech by Jerome Powell of Federal Reserve.

He discusses how recent data has put US economy in an envious position. But then is it too good to be true?

Today I will focus on the Federal Reserve’s ongoing efforts to promote maximum employment and stable prices. I am pleased to say that, by these measures, the economy looks very good. The unemployment rate stands at 3.9 percent, near a 20-year low. Inflation is currently running near the Federal Open Market Committee’s (FOMC) objective of 2 percent. While these two top-line statistics do not always present an accurate picture of overall economic conditions, a wide range of data on jobs and prices supports a positive view. In addition, many forecasters are predicting that these favorable conditions are likely to continue. For example, the medians of the most recent projections from FOMC participants and the Survey of Professional Forecasters, as well as the most recent Congressional Budget Office (CBO) forecast, all have the unemployment rate remaining below 4 percent through the end of 2020, with inflation staying very near 2 percent over the same period.

From the standpoint of our dual mandate, this is a remarkably positive outlook. Indeed, I was asked at last week’s press conference whether these forecasts are too good to be true–a reasonable question! Since 1950, the U.S. economy has experienced periods of low, stable inflation and periods of very low unemployment, but never both for such an extended time as is seen in these forecasts. Standard economic thinking has long offered an explanation for this: If unemployment were to remain this low for this long, employers would be pushing up wages as they compete for scarce workers, and rising labor costs would feed into more‑rapid price inflation faced by consumers.

This dynamic between unemployment and inflation is known as a Phillips curve relationship, and at times it can pose a fundamental tension between the two sides of the Fed’s mandate to promote maximum employment and price stability. Recent low inflation and unemployment have some analysts asking, “Is the Phillips curve dead?”Others argue that the Phillips curve still lurks in the background and could reemerge at any time to exact revenge for low unemployment in the form of high inflation.

My comments today have two main objectives. The first is to explain how changes in the Phillips curve help account for the somewhat surprising but broadly shared current forecasts of continued very low unemployment with inflation near 2 percent. At the risk of spoiling the surprise, I do not see it as likely that the Phillips curve is dead, or that it will soon exact revenge. What is more likely, in my view, is that many factors, including better conduct of monetary policy over the past few decades, have greatly reduced, but not eliminated, the effects that tight labor markets have on inflation. However, no one fully understands the nature of these changes or the role they play in the current context. Common sense suggests we should beware when forecasts predict events seldom before observed in the economy.

The speech also serves as a very useful way to explain linkages between inflation and unemployment in a macro class…

Using Cartoon and Blogs: Communication lessons for Reserve Bank of India

October 11, 2018

My new piece in Mint newspaper.

There is a lot of scope for improvement in RBI’s communications policy. Quite a few central banks are moving beyond merely communicating with financial markets to communicating with public as well. This article looks at how these central banks are using different approaches to reach to public.

Comments welcome.

Universal Economics: Title of a new textbook which tries to explain economics in a way that anyone can understand

October 10, 2018

Came across this new textbook titled Universal Economics By Armen A. Alchian and William R. Allen and Edited by Jerry L. Jordan:


In praise of India’s women economists

October 10, 2018

Niranjan in his recent piece lists some of the prominent women economists of India and discusses their work.

In any general economic discussion, it is rare to find mention of Indian economists and even rarer to find mention of  works by women economists. This is a good starting put to think and work on the women economists in India….

The voice of Hobsbawm: How his Marxist ideas ended up on the bookshelves of Indian civil servants and Brazilian housewives?

October 9, 2018

Brilliant piece by Prof. Emile Chabal of University of Edinburgh.  It tracks how Eric Hobsbawm’s ideas transcended beyond Britain, both to east and west of the island nation.

Of the many 20th-century Marxist figures whose ideas travelled the world, Eric Hobsbawm is perhaps an unexpected choice. While many know of his writings, he is not usually considered to be a Marxist ‘thinker’. He did not, at first glance, contribute much to Marxist theory during his seven productive decades from the early 1940s to the late 2000s. As a life-long communist, few would dispute his Marxist credentials, but there is precious little in the way of explicit invocation of Marxist concepts in most of his texts from the early 1960s onwards. Indeed, young people who first encountered him through his history of the 20th century, Age of Extremes (1994), could be forgiven for not knowing that he was a Marxist at all.

However, when it came to global influence, there were few Marxists who could match him. By the time Hobsbawm died in 2012, he was probably the best-known English-language historian, and quite possibly one of the most famous historians in any language. His books were read in a remarkable range of countries by an equally remarkable range of people. Crucially, this included all kinds of non-Marxists – from students to curious members of the literate public – who would never have dreamed of voting for a communist or socialist party, much less engage with the writings of other Marxists, such as Louis Althusser or Antonio Gramsci. All of which makes Hobsbawm the ideal case study of how Marxist ideas travelled across the world at specific historical moments.

My focus here is on two countries with rich and highly developed Marxist cultures: India and Brazil. The story of how Hobsbawm’s work arrived in these countries and interacted with emerging political trends, debates and arguments is only a minor footnote to the broader history of Marxist thought in these places. But it offers a fascinating insight into how the writings of a bright, slightly nerdy, British academic could end up gracing the shelves of Indian civil servants and Brazilian housewives.

At the end:

Even if the influence of Hobsbawm’s writing has begun to wane in India and Brazil, there can be no regrets. By all accounts, he has had the kind of impact of which most nonfiction authors can only dream. Nevertheless, it is important to remember that he was able to reach such a wide audience only in a very specific context. In the period from the early 1960s to the late ’80s, Marxists in noncommunist countries were increasingly able to participate in a transnational discussion over the past and future of capitalism, and the most promising agents of revolutionary change. Hobsbawm played a starring role in these discussions – and, occasionally, set the agenda.

This success was not all about ideas. The cards were also stacked in Hobsbawm’s favour. His ability to contribute to global debates was a direct result of the disproportionate influence of a small group of postwar British and French Marxists, and the prestige accorded to European thought in Latin America and postcolonial South Asia. This ideological configuration – which began to come apart from the 1980s as non-Western intellectuals struggled to decentre Marxist thought – greatly facilitated his infiltration into local debates.

It helped, too, that Hobsbawm knew how to take advantage of the politics of the publishing industry. It was the availability of affordable Penguin editions of Hobsbawm’s texts in India, and the proliferation of decent translations in Brazil, that guaranteed his outsize success. Yes, the content of those books mattered, and Hobsbawm rode several waves of interest in Marxist ideas in the 1960s and ’70s in India, and the ’80s and ’90s in Brazil. But there were many others writing about the same subjects and intervening in the same debates. The difference was that their work was not so easily accessible. It was, in the end, the dog-eared paperbacks and the discoloured illegal photocopies that made Hobsbawm’s name. Paradoxically, his most vital contributions to the global Marxist imagination were a result of his astute mastery of the capitalist book market.

🙂 Such are the ironies of life…

Must read..

Confessions of an equity analyst

October 8, 2018

Vikas Vardhan of Valueresearch in this piece gives investment advice why confessions:

  • Confession: The investible universe is very small as compared to the total listed stocks
  • Confession: There are dozens of investment rationales but the most compelling ideas are built on just a few.
  • Confession: We are no expert at running businesses. Analysts are often given the status of ‘demigods’. In reality, they are simply numbers experts. Managements, on the other hand, take years to master their businesses. An analyst covering multiple sectors and companies can never know the business the way an entrepreneur does.
  • Confession: We like it when markets behave irrationally as that creates opportunities.
  • Confession: We do not know where the market is headed in the short term.


How elite universities shape upward mobility into top jobs and top incomes

October 8, 2018
Seth Zimmerman of University of Chicago Booth School of Business in this research shows why elitism matters in education:
Graduates of top universities hold a large share of leadership positions in big firms. At the same time, elite universities are aiming to expand access to middle- and low-income students. Yet, it is unclear whether the benefits of attending top universities accrue to students from poor backgrounds. This column examines new evidence from Chile and finds that admission to highly selective, business-focused degree programmes has very large effects on the rates at which male students from wealthy backgrounds attain top jobs and incomes, but little or no effect for female students and non-wealthy male students.

Why do men from wealthy backgrounds gain so much more than other students from attending top business-focused programmes? One possibility is that women and low-socioeconomic status men also benefit from top programmes, but start from too low a rung to reach the top of the income ladder. This does not seem to be the case: on average, admission does not raise income for these groups at all, while gains for high-SES men are large. A second possibility is that women and low-SES men are less interested in careers in business. But these students go on to work in similar sectors to high-SES men. A third possibility is that high-SES men are better prepared to succeed academically. But students from the best public schools in Chile—where college entrance exam scores are similar to those in best private schools—do not benefit from admission, and graduation rates for women are higher than those for men, even though labour market effects are smaller. 

A comparison with medical degree programmes is informative. Medical degrees are similar to elite business degree programmes in that they admit only top-scoring students and in that earnings for those students are very high on average. They differ in that medical students are very unlikely to lead large companies or have incomes in the top 0.1% of the income distribution. As first shown in Hastings et al. (2013), admission to selective medical programmes leads to large earnings gains for low-SES students. In particular, admission to top medical programmes closes gaps by SES and gender in rates of attainment of incomes on average and near, but not at, the top of the distribution—the top 10%, for example, but not the top 0.1%. This holds even though patterns of achievement by group are similar to those in business programmes. That elite education expands gaps by gender and SES appears to be a feature of business careers, not of academic content nor the Chilean economy as a whole. The returns to elite education for women and lower-SES men are not zero on all career paths, but are zero on the paths most likely to lead high-SES men to the very top of the income distribution. 

One way that business careers may stand out from careers in other fields is in the importance of peer networks. Research on managerial behaviour at big firms shows that social ties between top executives play a role in determining firm behaviour (Fracassi and Tate 2012, Shue 2013, Fracassi 2016). If high-SES male students are better able to form valuable peer ties while at school, this could explain why they gain from admission while other students do not. Studies of friendship formation among college students (Marmaros and Sacerdote 2006, Mayer and Puller 2008) show that ties are more likely to form between demographically similar students. Relationships with high-SES men may be especially valuable from the perspective of professional advancement, and may be most accessible for students already in that group.  

The peer ties channel does appear to be important: high-SES men who gain admission to top business programmes become more likely to lead the same firms as other high-SES men who are their school peers, but not with non-peers or with peers from other backgrounds. Several studies have shown that peer ties affect early-career job-finding (Marmaros and Sacerdote 2002, Arcidiacono and Nicholson 2005). They also seem to affect who makes it to top jobs over the long run. 


In case you thought Netherlands is a friendlier place for women to work…

October 5, 2018

This is surprising to read as one imagines better work facilities for women in countries like Netherlands:


Some Central bankers continue to believe that first banks receive deposits and then create loans…

October 5, 2018

Reflecting on the recent speech by official of RBA where he criticised the long held view of banking: that banks receive deposits and then create loans.

Came across this recent speech by Salvatore Rossi, Dep Governor  of Bank of Italy:

As President Pellicanò has already said, this is an important day. We are celebrating the fiftieth anniversary of Credit Day, an annual occasion for taking
stock together of the world of credit and the role it plays in Italy. Italy has changed greatly over the last half century, at least in some respects. In 1968 Italy was emerging from the economic miracle that had turned it into a modern country and was heading for stormy years of social and political turbulence.

Today, it is still one of the leading advanced economies, though it is threatened by decline. Fifty years ago the credit system was almost entirely public and now it is almost all private.

Yet banks continue to do essentially what they have always done: they collect deposits from a vast array of savers and use these resources to make loans to a smaller group, consisting mainly of firms. Italy’s banks find themselves at a crossroads today, as loans may no longer be their fundamental prerogative.



Asia’s Strongmen and Their Weak Economies

October 4, 2018

Jayati Ghosh of JNU in this piece argues that our belief that authoritarian leaders deliver better economic performance is flawed:

all of Asia’s strongmen share a key characteristic: they secure public support by preying on economic ignorance. In particular, they trade on the popular belief that leaders who concentrate political power are freer to guide economic growth. For the most part, people accept this claim, expecting that financial gain and “development” will be their reward.

Curiously, markets have also accepted this flawed reasoning. Global investors tend to overlook human rights, and to prefer stability and autocratic resolve to the unpredictability of democracy. Equity and currency markets regularly punish countries for even a hint of political upheaval, whereas rulers with more power and fewer checks and balances are assumed to be more capable of ensuring meaningful “reforms.”

And yet, with the possible exception of Xi, the perception that strong autocratic rulers deliver better economic results is wrong. The truth is that Asia’s strongmen are presiding over increasingly vulnerable states and even more fragile economies.


What explains weak economic performances by Asia’s strongmen? Maybe untrammeled political power enables large-scale economic mistakes. Furthermore, while most autocrats show strength to their own public, they become meek in the face of global capital. Even when rulers rant against policies that will hurt their populist agendas – like high interest rates – they typically succumb to pressure from financial markets.

This is because the policies they have pursued have integrated their economies so completely into global trade and finance, on unequal terms. Despite their nationalist rhetoric, when the economic winds blow against them, it can be hard to change direction. The exception is China, where heterodox policies and significant state intervention have made the economy far less vulnerable to external shocks. But while Xi has thus far managed to deal with an increasingly complex and hostile external economic environment, many serious internal concerns could easily erupt into bigger problems.

Whatever the reason for Asia’s profusion of strongmen, people and markets have gotten it wrong for too long. Strongman rulers are bad for democracy, and they are really bad for the economy.

 Well, the decline is a lot due to hubris as well…

Adam Smith and his Russian admirers of the 18th century

October 4, 2018

How ideas transcend borders and in unlikeliest of places.

This is a fascinating paper written in 1937 by a Russian Michael P. Alekseev. It is reprinted in Econ Journal Watch.

Alekseev writes on how Adam Smith’s thoughts and ideas were so well admired in Russia in the late 18th- early 19th century. There is even a Pushkin connection!:

Reproduced here is an essay by Michael P. (Mikhail Pavlovich) Alekseev. In the 1760s two students from Russia, Semyon Efimovich Desnitsky (1740–1789) and Ivan Andreevich Tretyakov (1735–1776), attended Glasgow University, learned directly from Adam Smith, John Millar, and others, returned to Russia, and commenced a tradition of Smithian thought in Russia. Alekseev tells of other Russian Smithians including N. S. Mordinov (1754–1845), Ekaterina Romanovna Dashkova (1744–1810), Alexander Romanovich Vorontsov (1741–1805), Semyon Romanovich Vorontsov (1744–1832), Christian von Schlözer (1774–1831), Heinrich Friedrich von Storch (1766–1835), M. A. Balugiansky (1769–1847), Nikolay Turgenev (1789–1871), and the great author Alexander Pushkin (1799–1837). Alekseev writes: “After the war of 1812 Adam Smith became extremely popular among the liberal youth of Russia who were organizing secret circles. In endowing the hero of his novel Eugene Onegin with a taste for economic problems and by making him read Adam Smith, Pushkin merely reproduced the actual feature of the time, the writer himself having had the same taste.”

Hmm. That is a long list of admirers.

What is even more interesting is how there were these two Russian students who had studied under Smith. They made notes in early 1770s which clearly shows that Smith was teaching what was to become The Wealth of Nations. 🙂


How economics became a (neoclassical) cult…

October 3, 2018

Prof Steve Keen of Kingston University London as always, is in full flow in this video.

He talks about neoclassical school being a cult (without them realising it), Minsky, need for accounting, balancing yin and yang forces in economics and so on. Good watch even if you don’t agree.

The role of money in wartime

October 3, 2018

This is a fabulous conference organised by Central Bank of Albania (detailed program here). The central bank opened a museum recently and has been organising conferences/events to spread awareness about the monetary history and current policies of the central bank. RBI should take a leaf from all such events and do something for our own history.

Elisabeta Gjoni, the deputy governor in her conference speech quotes Socrates:


Modern Monetary Theory: How I came to MMT and what I include in MMT

October 2, 2018

This is a follow up of earlier post on rise of MMT.

L Randall Wray the key proponent of the theory gives this insightful speech on his struggles with MMT and push it all this way. He rejects the rockstar status but also all the nonsense he receives rejecting MMT:

I was asked to give a short presentation at the MMT conference. What follows is the text version of my remarks, some of which I had to skip over in the interests of time. Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT.

I’d also like to quickly respond to some comments that were made at the very last session of the conference—having to do with “approachability” of the “original” creators of MMT. Like Bill Mitchell, I am uncomfortable with any discussion of “rockstars” or “heroes”. I find this quite embarrassing. As Bill said, we’re just doing our job. We are happy (or, more accurately pleasantly surprised) that so many people have found our work interesting and useful. I’m happy (even if uncomfortable) to sign books and to answer questions at such events. I don’t mind emailed questions, however please understand that I receive hundreds of emails every day, and the vast majority of the questions I get have been answered hundreds, thousands, even tens of thousands of times by the developers of MMT. A quick reading of my Primer or search of NEP (and Bill’s blog and Warren’s blogs) will reveal answers to most questions. So please do some homework first.

I receive a lot of “questions” that are really just a thinly disguised pretense to argue with MMT—I don’t have much patience with those. Almost every day I also receive a 2000+ word email laying out the writer’s original thesis on how the economy works and asking me to defend MMT against that alternative vision. I am not going to engage in a debate via email. If you have an alternative, gather together a small group and work for 25 years to produce scholarly articles, popular blogs, and media attention—as we have done for MMT—and then I’ll pay attention. That said, here you go:


I am excluding his story on struggles which one should read on the website. It is so important to figure the narrative and one should not miss it.

At the end he discusses 10 key points of what to include in MMT:

Let me finish with 10 bullet points of what I include in MMT:

1. What is money: An IOU denominated in a socially sanctioned money of account. In almost all known cases, it is the authority—the state—that chooses the money of account. This comes from Knapp, Innes, Keynes, Geoff Ingham, and Minsky.

2. Taxes or other obligations (fees, fines, tribute, tithes) drive the currency. The ability to impose such obligations is an important aspect of sovereignty; today states alone monopolize this power. This comes from Knapp, Innes, Minsky, and Mosler.

3. Anyone can issue money; the problem is to get it accepted. Anyone can write an IOU denominated in the recognized money of account; but acceptance can be hard to get unless you have the state backing you up. This is Minsky.

4. The word “redemption” is used in two ways—accepting your own IOUs in payment and promising to convert your IOUs to something else (such as gold, foreign currency, or the state’s IOUs).

The first is fundamental and true of all IOUs. All our gold bugs mistakenly focus on the second meaning—which does not apply to the currencies issued by most modern nations, and indeed does not apply to most of the currencies issued throughout history. This comes from Innes and Knapp, and is reinforced by Hudson’s and Grubb’s work, as well as by  Margaret Atwood’s great book: Payback: Debt and the shadow side of wealth.

5. Sovereign debt is different. There is no chance of involuntary default so long as the state only promises to accept its currency in payment. It could voluntarily repudiate its debt, but this is rare and has not been done by any modern sovereign nation.

6. Functional Finance: finance should be “functional” (to achieve the public purpose), not “sound” (to achieve some arbitrary “balance” between spending and revenues). Most importantly, monetary and fiscal policy should be formulated to achieve full employment with price stability. This is credited to Abba Lerner, who was introduced into MMT by Mat Forstater.

In its original formulation it is too simplistic, summarized as two principles: increase government spending (or reduce taxes) and increase the money supply if there is unemployment (do the reverse if there is inflation). The first of these is fiscal policy and the second is monetary policy. A steering wheel metaphor is often invoked, using policy to keep the economy on course. A modern economy is far too complex to steer as if you were driving a car. If unemployment exists it is not enough to say that you can just reduce the interest rate, raise government spending, or reduce taxes. The first might even increase unemployment. The second two could cause unacceptable inflation, increase inequality, or induce financial instability long before they solved the unemployment problem. I agree that government can always afford to spend more. But the spending has to be carefully targeted to achieve the desired result. I’d credit all my Institutionalist influences for that, including Minsky.

7. For that reason, the JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability. This comes from Minsky’s earliest work on the ELR, from Bill Mitchell’s work on bufferstocks and Warren Mosler’s work on monopoly price setting.

8. And also for that reason, we need Minsky’s analysis of financial instability. Here I don’t really mean the financial instability hypothesis. I mean his whole body of work and especially the research line that began with his dissertation written under Schumpeter up through his work on Money Manager Capitalism at the Levy Institute before he died.

9. The government’s debt is our financial asset. This follows from the sectoral balances approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to tell students: go home and do the balances sheets because what you are saying is nonsense. Fortunately, I had learned T-accounts from John Ranlett in Sacramento (who also taught Stephanie Kelton from his own, great, money and banking textbook—it is all there, including the impact of budget deficits on bank reserves). Godley taught us about stock-flow consistency and he insisted that all mainstream macroeconomics is incoherent.

10. Rejection of the typical view of the central bank as independent and potent. Monetary policy is weak and its impact is at best uncertain—it might even be mistaking the brake pedal for the gas pedal. The central bank is the government’s bank so can never be independent. Its main independence is limited to setting the overnight rate target, and it is probably a mistake to let it do even that. Permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. I credit Keynes, Minsky, Hudson, Mosler, Eric Tymoigne, and Scott Fullwiler for much of the work on this.

Lots of important points. These just turn most of the current macroeconomics upside down..

Culture matters in saving behaviour

October 1, 2018

Joan Costa-i-Font, Paola Giuliano and Berkay Ozcan in this research show culture matters for savings:

Previous research (Carroll et al. 1994) could not find evidence of a cultural saving motive. They used data from the Canadian Surveys of Family Expenditures to study the saving behaviour of first-generation immigrants in Canada, and test whether saving rates varied systematically by place of origin. But the sample was small, the authors knew only broad geographical regions rather than country of origin, and did not control for wealth.  

In our recent work (Costa-Font et al. 2018) we have re-examined the cultural saving motive by looking at the saving behaviour of three generations of immigrants in the UK. The UK is one of the largest immigrant-receiving countries, with immigrants from many countries of origin. 

This strategy mitigates (though it does not totally eliminate) problems of selection and disruption due to immigration. We could control for wealth, and had access to detailed information on both actual and self-reported savings. We use a measure of saving rate over GDP, calculated from 1990 until 2010, as a proxy for culture. We attribute the association found in our data between the behaviour of immigrants and the saving rate in the country of origin to differences in cultural beliefs across immigrant groups. 

Although migrants leave the economic and institutional conditions that determined their saving behaviour behind, they bring their cultural beliefs with them. If savings/GDP at the aggregate level in the home country explains the variation in saving outcomes in the host country, even after controlling for their individual economic attributes, only the cultural component of this variable can be responsible for this correlation. 

This is because immigrants from different countries now have the same economic and institutional environment in the UK. We can attribute the correlation of saving behaviour for different generations with saving outcomes in the country of origin to intergenerational cultural transmission. 

Suddenly, culture has become one of the most fancied words to explain/figure everything in finance. One wonders though why and how culture is ruled out at the first place? Culture is central to most economic behavior and much more in financial behavior….

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