One of my Profs always says Blame the Swedes for all the mess in economics. First, having created the prize for economics from thin air and then each year giving it to scholars from select Universities, they have just ignored contributions of so many others. Moreover, it has fostered hubris and enormous amount of belief that the subject is indeed a science. The Prize afterall is in Economics Sciences..
Archive for the ‘Economist’ Category
For the first time in nearly a decade, the Federal Reserve is considering raising its target interest rate, which would end a long period of near-zero rates. Like the cessation of large-scale asset purchases in October 2014, that action will be an important milestone in the unwinding of extraordinary monetary policies, adopted during my tenure as Fed chairman, to help the economy recover from a historic financial crisis. As such, it’s a good time to evaluate the results of those measures, and to consider where policy makers should go from here.
To begin, it’s essential to be clear on what monetary policy can and cannot achieve. Fed critics sometimes argue that you can’t “print your way to prosperity,” and I agree, at least on one level. The Fed has little or no control over long-term economic fundamentals—the skills of the workforce, the energy and vision of entrepreneurs, and the pace at which new technologies are developed and adapted for commercial use.
What the Fed can do is two things: First, by mitigating recessions, monetary policy can try to ensure that the economy makes full use of its resources, especially the workforce. High unemployment is a tragedy for the jobless, but it is also costly for taxpayers, investors and anyone interested in the health of the economy. Second, by keeping inflation low and stable, the Fed can help the market-based system function better and make it easier for people to plan for the future. Considering the economic risks posed by deflation, as well as the probability that interest rates will approach zero when inflation is very low, the Fed sets an inflation target of 2%, similar to that of most other central banks around the world.
How has monetary policy scored on these two criteria? Reasonable people can disagree on whether the economy is at full employment. The 5.1% headline unemployment rate would suggest that the labor market is close to normal. Other indicators—the relatively low labor-force participation rate, the apparent lack of wage pressures, for example—indicate that there is some distance left to go.
Not many will agree though..
Praveen Patil comments on the recent Jairam Ramesh book on 1991 crisis and changes thereon.
He wonders why people do not give any credit to then PM Narasimha Rao. The entire credit has been taken by then FM Dr. Manmohan Singh. All this is sop ridiculous as without the PM’s confidence, Finance Minister could have hardly done anything. Even the choice of a FM is made by the Prime Minister and as we know Dr Manmohan Singh was an unlikely choice:
How history was morphed to glorify Manmohan Singh as the sole architect of 1991 reforms while painting P.V. Narasimha Rao as a reluctant, indecisive and often communal Brahman.
Jairam Ramesh’s ‘To the brink and Back – India’s 1991 story’ is one such example of this intellectual snobbery
Q: Given the minority character of your government, do you feel confident as Prime Minister?
A: Yes, I do feel confident now. Although the responsibility is very heavy, the Congress party can discharge this very effectively. And the kind of response which the government has got from the people during the last three weeks has provided us greater confidence.
Q: Is it due to this that you have resorted to strong economic measures like steep depreciation of the rupee?
A: We mean business now. The country could not wait any longer. These decisions should have been taken long ago.
This is the snapshot of P.V. Narasimha Rao’s interview given to Prabhu Chawla of the Indian Express on 8th July 1991. The then Prime Minister of India, in this interview, comes across as an extremely confident leader who was aware of his historic duty to liberalize Indian economy, especially when he emphatically states, “We mean business now”!
Jairam Ramesh quotes this and another equally unequivocal interview given to K.K. Katyal of The Hindu a day before that, on 7th July 1991, in his book “To the brink and back – India’s 1991 Story.”
Yet, despite these publicly available proofs of Mr. Rao’s total belief in the reforms agenda, Jairam Ramesh presents a subtly contrarian picture when he writes that, “He (Rao) remained emphatic, although I very well knew, as did the Finance Minister, how deeply uncomfortable he was with the move (to devalue rupee), and had, in fact, tried hard to stop the July 3, devaluation”.
Essentially what Ramesh is telling us is simple – do not believe all the interviews, all the publically available records which forcefully state P.V. Narasimha Rao’s total faith in the reforms, but believe my own fantasies that he was a reluctant reformer.
This has been the intellectual snobbery of the last two and a half decades that India has lived with, wherein history has been subtly morphed to somehow glorify Manmohan Singh as the sole architect of 1991 reforms while trying to paint P.V. Narasimha Rao as this reluctant, indecisive and often communal Brahman.
Prime Minister Rao is that conjecture of India’s economic history whom everybody wants to forget by anointing a more pliable individual as the emperor of reforms. But alas, the decade of decay between 2004 and 2014 has put an emphatic full stop to any such effort and Jairam Ramesh’s latest attempt also fails to add any gloss to Manmohan Singh’s checkered CV.
Both Congress and Dr MMS are paying a huge price for this omission. They just could not carry forward the spirit raised by Narasimha Rao and ended up committing harakiri on several issues. This vacant space was ironically captured by BJP, the party which caused PVN huge heart burn during his tenure due to Ayodhya related issues. Even more ironically, BJP was once a party which believed in Swadesi and now stands for foreign participation in Indian economy.
Though, I have a different take on all this reform business.
In India it is all about who was behind reforms with hardly any effort to institutionalise the process. What we and our media wants is this one person who can take on the system and create huge noise in the process. The end result is all these ideas are just hinged on this one/few person/persons. Things are rosy till that person can push things and factors favor it. As tides turn, we are again lost.
The media and markets had created huge hype around Dr. MMS getting second tenure without the left in 2009. The equity markets had to be closed due to upper circuit. There was a feeling that father of 1991 is going to create another round of magic in 2009.
What unravelled eventually was just unimaginable. The father of 1991 became the father of 2012-13 crisis as well. We can blame the Gandhi family for destroying all this expectations but we still need to question why the chaos could not be prevented? He had all the team and all the economists around him. There was an Economic Advisory Council, Planning Commission chief, Honorary Personal Economic Adviser, CEA in Finance Ministry and what not. I mean you just name it and it was there.
One important factor is lack of team work and institutionalising the process. I mean whichever countries have developed, they hardly care about who was behind the transformation. What is more important is the transformation process and belief in its continuity.
So even this article should not just look to credit PVN but the entire team behind the process. There are many unsung people who must have contributed immensely in the 1991 proposals. But we hardly know about them.
These are lessons for current administration as well which are busy creating this entire hype around select individuals. The efforts should be made to make India a better place not glorify/blemish certain careers/CVs..
Well atleast Germans have a school of economic thought (called Ordoliberalism) and moreover there are scholars who believe and defend the same.
Michael Burda of Humboldt University Berlin has a piece speaking about three myths regarding the school:
Many analysts believe that German economists hold a very different view of macroeconomics. This column presents a personal view why this belief is wrong. The fact that Europe still consists of sovereign nations and that most Europeans still want to keep it that way informs much of what happens inside German economists’ heads
Myth 1: Economists in Germany fundamentally reject Keynesian ideas
Myth 2: German economists feed at the trough of ‘ordoliberalism’ and worship at the altar of supply-side policies.
Myth 3: Economists in Germany obsess over moral hazard and austerity
All three myths are kind of interconnected.
Prof Marc Lavoie of University of Ottawa has written a book on curriculum reform in economics – Post Keynesian Economics; New Foundations. He talks about the need to rethink economics and what his book has to offer:
Mainstream economic theory has been increasingly questioned following the Global Financial Crisis of 2008. The disconnect between reality and theory manifested itself most clearly when the Queen of the United Kingdom pointedly asked why no economist saw this coming. In truth, there were a handful who did get it right, but they were generally ignored in favour of Ivy League educated neo-classical economists, whose assumptions proved incapable of integrating the financial and real sides of the economy.
This is a problem which extends all the way to the classroom, which is why Marc Lavoie, a professor of economics at the University of Ottawa, wrote a new economic textbook as a coherent substitute to conventional textbooks. The book, “Post Keynesian Economics; New Foundations”, outlines alternative macro and microeconomic foundations, the upshot being a book that acknowledges that we live in a world of fundamental uncertainty, where the role of finance goes well beyond the simplistic reserve banking models that populate most undergraduate studies.
In this interview, Lavoie discusses the methodological foundations of heterodox economics, and offers a very different model of money and credit, firms and pricing, consumer theory, effective demand and employment and growth theories. As Lavoie himself argues, economists essentially had 3 reactions to the recent financial crisis. The first group has been to say that existing mainstream theory is fine, but that it needs to be slightly tweaked and improved so as to take into account elements that were previously left aside and which explain why the crisis could not be predicted. The second group, the so-called “freshwater economists” argue that the crisis was caused by misguided regulations, bad government interventions, ill-advised decisions by central banks, public profligacy and unsound fiscal policy. The third camp (to which Lavoie belongs and which forms the basis of the books prevailing theme) is to claim that recent institutions, regulations, and economic policies have been based on erroneous economic theories, and that these need to be eliminated, starting with the way we teach economics – hence the rationale for the new textbook.
Should be an interesting read. Though, I think we already know what is wrong. Much has been written about it already. We now need action on this front..
George Selgin has a food for (economic) thought piece on Prof. Friedman.
Free markets people esp those in Austrian school camp usually crticise and side from the Chicago School on issues of mon economics. Whereas the A school believes in free banking without a central bank, the stance of ‘C’ school is not as clear. Friedman always favored the central bank using his money supply rule preferably by a computer. So, he was more in favor of central banks which was surprising given his free market thinking on everything else.
Prof. Selgin does not think so. He says Friedman did move towards free banking overtime as well:
This is because bubbles and their bursting exposes all the hyped expectations and notions set by economists. Actually bubble is not really a proper word. It is just a reversal of economic cycle and is a pretty normal phenomenon. Just that econs think that their ideas and policies can conquer these cycles only to be humbled.
Noah Smith has a piece on the bubble trouble. He says much of the negation of bubble idea came from rational expectations revolution which has been humbled in the 2008 crisis.
Much of the blame for EZ crisis has fallen on Europe and ECB policymakers. IMF which is usually a key party to such crisis has been ignored.
Nor surprisingly, IMF has retained its record of worsening crisis in EZ case as well. Ngaire Woods of University of Oxford has a piece on the topic. IMF actually ignored six lessons this time:
One would imagine someone like Hayek would favor free banking (banking system without a central bank running their own currencies) right from the very beginning. But no. This transition/change of views happened fairly late: