resilience, not stability
Noah Smith and David Andolfatto think that Abenomics conclusively proves that quantitative easing boosts inflation. But Abenomics has nothing to do with quantitative easing and everything to do with qualitative easing. Every week, the Bank of Japan (BoJ) purchases Topix and Nikkei 225 ETFs till it hits an annual limit of around 1 trillion yen (see table below for last month’s purchases). It also…
Shorter Version A strategy to maximise bonuses and avoid personal culpability: Don’t commit the fraud yourself. Minimise information received about the actions of your employees. Control employees through automated, algorithmic systems based on plausible metrics like Value at Risk. Pay high bonuses to employees linked to “stretch” revenue/profit targets. Fire employees when targets are not met.…
The post-2008 economic recovery has been a recovery of the capitalists. Growth in employment and real wages has been sluggish whereas profits have rebounded well past pre-recession highs. However, the decline of the share of labour in GDP is not a localised post-crisis phenomenon. It is a global phenomenon that started at least three decades ago. The Great Moderation has been a period of stable…
Why do banks exist? The conventional wisdom goes like this - depositors prefer to hold liquid risk-free assets and borrowers prefer to borrow for the long-term to invest in risky projects. Banks sit in the middle of this process and perform a sort of alchemy. By performing this alchemy, banks leave themselves open to the risk of bank runs - if all the depositors seek to withdraw their money at the…
Five years on, what can we learn from the collapse of Lehman Brothers? The conventional opinion is that we should have saved Lehman Brothers just like we saved the rest of the financial sector in the immediate aftermath of the Lehman collapse. But some critics assert that the decision to save Bear Stearns convinced everybody that Lehman would be saved when push came to shove. When this expectation…
There are many schools of macroeconomic thought. Most people agree that some form of stimulus is needed during a recession but what should this stimulus look like? Is monetary stimulus sufficient or do we need fiscal stimulus as well? What should this monetary stimulus look like? Do we need quantitative easing? Or is effective monetary stimulus largely about conditional forward guidance as Michael…
As Tyler Cowen argues, there are many similarities between Hayek’s and Minsky’s views on business cycles. Fundamentally, they both describe the “fundamental impossibility in maintaining orderly credit relations over time”. Minsky saw Keynes’ theory as an ‘investment theory of the business cycle’ and his contribution as being a ‘financial theory of investment’. This financial theory was based on…
Martin Feldstein tries to answer the question: “Why has the Federal Reserve’s printing of so much money not caused higher inflation?” and comes up with a seemingly obvious answer - because the Fed pays interest on excess reserves. Like many others, Feldstein sees the payment of interest on excess reserves (IOER) as a “fundamental” change in Fed policy. The reality however is that the payment of…
As Reihan Salam argues, economic innovation is not just about basic research and technological breakthroughs. As Amar Bhide has said, “the willingness and ability of lower-level players to create new know-how and products is at least as important to an economy as the scientific and technological breakthroughs on which they rest”. History in fact provides us with at least two prominent examples…
Doug Engelbart’s work was driven by his vision of “augmenting the human intellect”: By “augmenting human intellect” we mean increasing the capability of a man to approach a complex problem situation, to gain comprehension to suit his particular needs, and to derive solutions to problems. Alan Kay summarised the most common argument as to why Engelbart’s vision never came to fruition1: Engelbart,…