Archive for the ‘Economist’ Category

India’s Demonetisation: Seigniorage and Cantillon Effects

November 30, 2016

Larry White and Shruti Rajagopalan have a superb piece highlighting the Cantillon effects of demonetisation.

The Cantillon effects are named after 18th Century economist Richard Cantillon. But then who reads history or cares for it. Under this, monetary policy transfers the purchasing power from those having old notes to those who get the new notes. This will lead to disproportionate rise in prices among different goods in an economy:

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Saving the world from econocracy…

November 28, 2016

Three students Joe Earle, Cahal Moran and Zach Ward-Perkins have written this book – The Econocracy. They say we need to save the world from too much of economic advice and frameworks.

Mark Buchanan of Bloomberg endorses the book:

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India’s 2016 Demonetisation: Quoting John Stuart Mill and lessons from Milton Friedman….

November 25, 2016

Milton Friedman’s one of the most famous and widely read papers is – The Role of Monetray Policy , American Economic Review, March 1967. Each time you read it, you learn something new.

In the paper, he quotes John Stuart Mill (page 12):

My own studies of monetary history have made me extremely sympathetic to the oft-quoted, much reviled, and as widely misunderstood, comment by John Stuart Mill.

“There cannot . .. ,” he wrote, “be intrinsically a more insignificant thing, in the economy of society, than money; except in the character of a contrivance for sparing time and labour. It is a machine for doing quickly and commodiously, what would be done, though less quickly and commodiously, without it: and like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order” [7, p. 488].

True, money is only a machine, but it is an extraordinarily efficient machine. Without it, we could not have begun to attain the astounding growth in output and level of living we have experienced in the past two centuries-any more than we could have done so without those other marvelous machines that dot our countryside and enable us, for the most part, simply to do more efficiently what could be done without them at much greater cost in labor.

But money has one feature that these other machines do not share. Because it is so pervasive, when it gets out of order, it throws a monkey wrench into the operation of all the other machines. The Great Contraction is the most dramatic example but not the only one. Every other major contraction in this country has been either produced by monetary disorder or greatly exacerbated by monetary disorder. Every major inflation has been produced by monetary expansion-mostly to meet the overriding demands of war which have forced the creation of money to supplement explicit taxation.

The first and most important lesson that history teaches about what monetary policy can do-and it is a lesson of the most profound importance-is that monetary policy can prevent money itself from being a major source of economic disturbance……

The words are just so profound. They sum up monetary history and experiments across world and across time in very few words.

There is a reason why history of India’s demonetisation tells us the reluctance of Indian central bank of going ahead with the move. There is a reason very few central banks and countries have gone ahead with the move at the first place.

Infact, why go far in monetary history. Just see today’s world economy. Its major source of instability is the monetary policy conducted by central banks which has made money a major source of economic disturbance.

The anti-cash movement rising across world and its unrealised wide implications..

November 25, 2016

Joseph Salerno of Mises Institute has been warning us against the rising anti cash movement across the world.

In an earlier talk Salerno tells us how these are just attempts by the State to ensure you are always under their radar.

Governments, at least modern western governments, have always hated cash transactions. Cash is private, and cash is hard to tax. So politicians trump up phony reasons like drug trafficking and money laundering to win support for bad laws like the Bank Secrecy Act of 1970, which makes even small cash transactions potentially reportable to the Feds.

Today cash is under attack like never before. Ultra low interest rates are the norm for commercial bank accounts. In Europe, as the ECB ventures into negative nominal interest rates, certain banks threaten to charge customers for depositing cash. Meanwhile, certain European bonds now pay negative yields, effectively turning them into insurance products rather than financial assets. And some economists now call for the outright abolition of cash, which shows just how far some will go in their crazed belief that economic prosperity can be commanded by forcing us to spend rather than save.

The War on Cash is real, and it will intensify. Here to explain is Dr. Joe Salerno, who spoke on the subject at our recent Mises Circle event in Stamford, Connecticut.

In this piece, Ryan McMaken sums up the talk:

As Joseph Salerno has observed, the elimination of physical cash makes it easier for the state to keep track of private persons, and it assists central banks in efforts to punish saving and expand the money supply by implementing negative interest rate schemes. 

A third advantage of the elimination of physical cash would be to more easily control people and potential dissidents through the freezing of their bank accounts.

Joseph Salerno further points that post-India, there is a similar movement in Australia as well:

The global war on cash is remarkably well coordinated. Less than a week after the Indian government announced it was withdrawing its two highest denomination currency notes (equivalent to about $15.00 and $7.50, respectively) from circulation, the Anti-Cash Axis, which comprises a witch’s brew of national governments, establishment media outlets, international bureaucracies and, especially, gigantic multinational banks, has launched a concerted attack on Australia. Two days ago, Citibank announced that it was going cashless at some of its Australian bank branches.

Yesterday, Swiss giant UBS called for the elimination of the Australian $100 and $50 bills because it would be “good for the economy and good for the banks.” The Australian government in cahoots with the media prepared the way for these brazenly self-serving antics by two of the largest banks to have failed and been bailed our during the financial crisis. Back in February a leading Sydney newspaper published a series of articles, some authored by officials from Australia’s Treasury Department, suggesting that abolishing cash would “save billions” and that  “a cashless society is the next step for the Australian dollar.” 

I have a better proposal for our brothers and sisters Down Under: don’t acquiesce in the elimination of your cash; eliminate the banks by immediately reclaiming all your cash that is “on deposit” at these institutions that cannot exist without government guarantees and bailouts.  

What is interesting to see across are huge double standards across the globe. We are hardly seeing a natural evolution towards e-payments.

There is this supposed crony capitalism where these large banks/payment providers are using Governments to push people towards their products. Then these very large corporate/financial players along with these e-payment providers build a story that how these things are about development of markets and making them efficient!

Part of the blame is on economics education as well. Earlier history of money was known to most students. Now we hardly discuss about historic evolution of money and State’s deep interest and manipulation in the matters of money. The way we have moved from commodity money to fiat money and all fiat money declared as legal tender with very little State accountability is a fascinating tale untold. And now this jump towards plastic money which gives State powers to monitor you as well. What better?

It is shocking that earlier most economists would have raised questions on this State involvement in monetary matters. Now most are backing it!

The Rebel Economist Who Blew Up Macroeconomics..Paul Romer

November 23, 2016

A nice profile of Paul Romer and his recent mission to blow up macroeconomics:

Paul Romer says he really hadn’t planned to trash macroeconomics as a math-obsessed pseudoscience. Or infuriate countless colleagues. It just sort of happened.

His intention actually had been to write a paper that would celebrate advances in the understanding of what drives economic growth. But when he sat down to write it in the months before taking over as the World Bank’s chief economist, Romer quickly found his heart wasn’t in it. The world economy wasn’t growing much anyway; and the math that many colleagues were using to model it seemed unrealistic. He watched a documentary about the Church of Scientology, and was struck by how groupthink can operate.

So, Romer said in an interview at the Bank’s Washington headquarters, “I just thought, OK, I’m going to say what I think. I don’t know if I’m the right person, but no one else is going to say it. So I said it.”

The upshot was “The Trouble With Macroeconomics,” a scathing critique that landed among Romer’s peers like a grenade. In a time of febrile politics, with anti-establishment revolts breaking out everywhere, faith in economists was already ebbing: They got blamed for failing to see the Great Recession coming and, later, to suggest effective remedies. Then, along came one of the leading practitioners of his generation, to say that the skeptics were onto something.

Economists are partly responsible for US President-elect Trump’s victory

November 22, 2016

Dani Rodrik who has been warning on the uneven outcomes of trade liberalisation for a while just blasts economists in this piece. Years of hubris and imperialism is finally getting to the den of American economics. First the global financial crisis and now the recent US elections.

He says we always think those who speak for trade are angels and those against are these barbarians at the gate:

Are economists partly responsible for Donald Trump’s shocking victory in the US presidential election? Even if they may not have stopped Trump, economists would have had a greater impact on the public debate had they stuck closer to their discipline’s teaching, instead of siding with globalization’s cheerleaders.

As my book Has Globalization Gone Too Far? went to press nearly two decades ago, I approached a well-known economist to ask him if he would provide an endorsement for the back cover. I claimed in the book that, in the absence of a more concerted government response, too much globalization would deepen societal cleavages, exacerbate distributional problems, and undermine domestic social bargains – arguments that have become conventional wisdom since.

The economist demurred. He said he didn’t really disagree with any of the analysis, but worried that my book would provide “ammunition for the barbarians.” Protectionists would latch on to the book’s arguments about the downsides of globalization to provide cover for their narrow, selfish agenda.

It’s a reaction I still get from my fellow economists. One of them will hesitantly raise his hand following a talk and ask: Don’t you worry that your arguments will be abused and serve the demagogues and populists you are decrying?

There is always a risk that our arguments will be hijacked in the public debate by those with whom we disagree. But I have never understood why many economists believe this implies we should skew our argument about trade in one particular direction. The implicit premise seems to be that there are barbarians on only one side of the trade debate. Apparently, those who complain about World Trade Organization rules or trade agreements are awful protectionists, while those who support them are always on the side of the angels.

In truth, many trade enthusiasts are no less motivated by their own narrow, selfish agendas. The pharmaceutical firms pursuing tougher patent rules, the banks pushing for unfettered access to foreign markets, or the multinationals seeking special arbitration tribunals have no greater regard for the public interest than the protectionists do. So when economists shade their arguments, they effectively favor one set of barbarians over another.

Well, the problem with economics is removal of history and political thought. Trade supporters often quote Adam Smith to support their ideas but forget how Smith was mindful of politics around the ideas.

The seeds of elitism were sown long ago and now is the time to reap the fruits…

What’s next in history of economics? A wish list

October 17, 2016

Beatrice Cherrier an upcoming economic hisotrian has a wishlist:

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How we lost economics and how to reclaim it?

October 14, 2016

There have been several pieces written on State of economics and more keep coming.

This one by Jeff Deist of Mises Institute does a good job of putting the debate in order. He says we teach and understand economics based on all wrong ideas:

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Mises vs Hayek – Who was more clear in thought?

September 13, 2016

Hans-Hermann Hoppe votes for Mises.

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I could go on and on, citing Hayek’s muddled and contradictory definitions of freedom and coercion, but that shall suffice to make my point. I am simply asking: what socialist and what green could have any difficulties with all this? Following Hayek, they can all proudly call themselves liberals.

In distinct contrast, how refreshingly clear — and very different — is Mises! For him, the definition of liberalism can be condensed into a single term: private property. The state, for Mises, is legalized force, and its only function is to defend life and property by beating antisocial elements into submission. As for the rest, government is “the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisonment. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.”

Most of us, can hardly differentiate between the two as history of economic thought has never been taught. Mises would not even be known to most as he was not given the prize. Hayek is far far popular that Mises.

It is not about which school you come from. It is knowing what each school and within each school the key actors have to say. This helps understanding where the key ideas are coming from and where they matter and where they do not.

All this reading (of whichever school) is really fascinating. The kind of debates and arguments help one get so many perspectives.  It is a pity that  most economics students of today have no idea about any of these issues.

Why economics should be concerned with disappearance of teaching of economic history and history of thought?

September 8, 2016

It is all so ironical really. Post-2008, there has been a rise in interest in economic history and economic thought.

This is because of two reasons. One, people are beginning to understand that much of economics today is a result of series of events in the past. So, to understand today or forecast future, you need alteast some understanding of past matters. Two, as economics profession has lost a lot of credibility, it is increasingly looking at past for some credibility, This is especially the case for central bankers who are increasingly trying to justify their decisions bringing some connections with the past.

Ideally, the rise in interest should be based on first but even second is fine as atleast there is some discussion on these issues.

So what is the irony bit? Well, economic historians are not getting their due. Worse is that few remaining departments which encourage historical work are struggling to remain open.

David Warsh of economicprincipals.com laments the issues:

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Economists should stop defending Milton Friedman’s pseudo-science

August 31, 2016

Another hard hitting article questioning Milton Friedman and his blind followers. Noah Smith just questioned relevance of Friedman’s permanent income hypothesis

This one is on one of Friedman’s core ideas – assumptions don’t matter as long as predictions are in line with the model/theory:

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The higher you go in economics, the more the common sense rains out of you…

August 31, 2016

This is a hard hitting post on the economics profession by Bill Bronner. He has written a book recently called Hormegeddon: How Too Much of a Good Thing Leads to Disaster.

The post is based on his book.

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Monetary policy in a low r-star world

August 19, 2016

This short paper by John Williams of San Francisco Fed is doing rounds.

Williams says much of the developed world is stuck in a low r star or the neutral rate:

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Why do economists fail? (EPW 1949 edition)

August 16, 2016

EPW has a piece from its archives (06 Aug, 1949) which remains relevant till date. Though, things have moved in terms of availability of data (lack of which leads to failure) etc but still we need a lot more as shocks keep coming from all kinds of sources.

 

Why voters aren’t listening to economists? Slow end to economic imperialism..

August 3, 2016

Life is a circle unlike a linear graph which we are taught especially in economics. The economic imperialism is slowly ending as people are increasingly rejecting the advice of economic experts. And all this rejection is not coming in Asian economies but in their own homes. Now they can no more say these other countries just don’t understand principles of economics.

Jeffry Snider (of Alhambra Partners, Florida based fund!)has a great piece on the topic. He lashes out at a recent piece by Greg Mankiw:

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Economists giving pp on Milton Friedman’s biggest idea – Permanent Income Hypothesis

July 27, 2016

Today is perhaps a Friedman day on Mostly Economics.

Noah Smith the usually good economist turned columnist has a piece. He says how more and more empirical evidence is coming against Friedman’s biggest idea – Permanent Income Hypothesis:

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Did Milton Friedman influence the Thatcher policy of 1980s?

July 27, 2016

It is fashionable in the financial media to project certain economists as superheroes. How certain economist came and changed the country/world is a common theme. In this story creation, lots of myths are hyped and facts ignored. Much of economic changes in any country are a combination of many factors and persons. It is hardly about a few people here and there.

Even given this limitation, it is for certain believed that and Hayek and Friedman played a central role in Thatcher and Reagan regimes in early 1980s. It would be a huge shock if anyone disagreed with this now well accepted fact.

Prof James Forder of University of Oxford does just that. He says there is hardly any evidence of Friedman playing any big role in Thatcher era.

Using a range of sources, it is argued that, contrary to common belief, Milton Friedman had no special influence on British policy in the 1970s and 1980s. The opposing impression appears to be derived in part from the work of Friedman’s admirers, but principally from the allegations of Margaret Thatcher’s opponents who believed they could taint her with his name.

Extracting from the PDF is difficult so can’t discuss the paper. Prof Forder digs through plenty of sources to question this well accepted fact as a piece of fiction. Infact he points to a similar paper which questioned influence of Friedman in Israel economic policy in 1977 as well.

Interesting bit..

 

Continuous hype over upcoming fears is fostering crises (why having less economists talk will help here..)

July 25, 2016

Thomas Fricke says there is this continuous sense of fear and insecurity blown by media and experts.

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Our disastrous monetary system: A new must-read book

July 25, 2016

I was just reading this interview of Nathan Bond, a budding entrepreneur. He wonders why Austrian School is not even mentioned in economics textbooks:

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The dangers of external economic advice

July 14, 2016

Given the debate on economic advisory in India (and elsewhere), one obviously wonders how global should economic advice be? Here too much of discussion is biased as Global or International advice essentially means advice coming from US based think-tanks and universities.  Globalisation should also mean that the US (and rest of the west) be open to hearing  views from other countries, but that of course is a joke. The rest of the world is hardly good enough to advice the best in the world. But how is it that those based in rest of the world are not even seen worthy of advising their own economies? Is it possible that experts based in US ivy league think-tanks and universities will know about most economies in the world?

The usual discourse in media is how external economic advice helped save some of the countries from an impending economic disaster.  One thing which is missing in such discussions is how the external advice has brought ruin as well.

Peter Bauer in this tribute to Prof B.R. Shenoy points how Indian govt’s second five year plan was equally supported by the distinguished external experts. He warns against relying too much such expertise:

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