G-20 Leaders gathering in London on 02 April represent 85% of the world's economy. At this meeting:
· The G-20 nations want to reach agreement on more co-ordinated action to revive the world economy, both through more interest rate cuts and more spending by governments to bring economies out of recession;
· Most of the G-20 countries will push for an action plan to prevent a future crisis by strengthening the international regulation of banks and other financial institutions;
· The Group also hopes to agree on a blueprint for future reform, including changes to the international organisations charged with regulating the world economy, such as the International Monetary Fund (IMF), to give a greater clout to poorer countries.
USA is on board with interest rate cuts and more spending by governments, but it is not articulating its views very clearly on reform of international financial architecture. And, on regulation of financial institutions, the US, if anything, is reluctant to appear to be strong proponent of stricter regulatory measures. US’s view on this issue has been at best muffled and confusing.
A report from the G20 working group on regulation has been reportedly leaked to the financial website breakingviews.com. Key recommendations include the strengthening of capital requirements, greater transparency, and more International Monetary Fund (IMF) oversight of systemic risks. It is said that the recommendations closely follow proposed reform of the UK's regulation.
This is where the problem is: A country which has itself made a mess of its economic management is trying to propose changes. The country is question is America’s lackey – Britain. Britain’s banks are in pathetic condition, the top ones needed the government to dole them out of trouble. Britain’s housing mortgage almost mimicked the disastrous American model.
Despite all this the wily schmuck British are trying to pre-empt other countries by drafting some document and throwing it out there. The Brits, whose international stature these days depends on the crumbs thrown their way by their patrons in Washington, generally try to propose something that pleases their American masters.
In case of the current economic mess the countries that have the legitimate credentials to offer changes regarding economic world order, regulation of financial systems are essentially two – Canada and India. The reasons are almost obvious to anybody who is non-partisan, unprejudiced and has some idea of international financial system.
Among the G-7 countries Canada’s banking system is the least affected by current economic turmoil. The financial regulatory framework in Canada seems to have acquitted itself fairly well. The Bank of Canada is presiding over the overall Canadian financial institutions in a reasonably competent manner – its Governor Mike Carney taking necessary steps to provide CPR to the Canadian economy. He also seems to be clued to the stimulus measures being rolled out by the Harper government.
Among developing economies, India has the best credentials, from various standpoints, to offer a suitable blueprint on regulatory framework as well as new economic world order. First, India has the 5th highest GDP (based on PPP) in the world (after US, China, Japan & Germany). India’s central bank has been implementing and managing necessary regulatory framework for the financial institutions in India in a very successful and effective manner for years.
When Asia Pacific countries reeled under currency meltdown in the 90’s, India remained unscathed simply because India’s central bank already had in place effective tools and regulatory structure to prevent any such disaster. India’s economy is predicated on one of the most sensible models – an economy which is around 60% based on internal consumption and rest on export. The Indian economic honchos have displayed a far greater sense of foresight and understanding than their peers in US, Germany, Britain, Japan and other G-20 countries.
USA has no moral or ethical standing to pontificate about new economic world order (including IMF, World Bank) and/or regulatory framework for financial institutions. The current economic global crisis has been engendered by diabolical mutilation of ethical dealings unleashed by the shameless greedy SOB’s of American financial institutions.
These shameless rogues of the US financial system seem incorrigible – they have the audacity to thumb their noses to present administration. The American public and the President et al were dealt with a resounding slap when the AIG executives pocketed bonuses in the excess of $200 Million – and horror of horrors, this amount coming out of government alms! Who knows what stratagems the other US banks and financial institutions are planning to bilk away huge bonus packets for themselves?
Of the other G-7 nations, Germany also seems to be floundering. Therefore, it is also not in the best position to lead any initiative for the required change. China doesn’t make a good candidate for being a leader of change because China’s regulatory framework is not backed by the checks and balances that a democratic country like India has. Brazil is still learning the ropes, and so are the other developing countries of the G-20 club.
In recent G-20 conclaves USA has been urging focus mainly on stimulus, and kind of downplaying need for expeditious action on changes in economic world order and regulation. It is a sad commentary of American intellectual level. A country which boasts of a string of Nobel Laureates in Economics is right now struggling to stay afloat and get back on track!
American budget deficits are turning cavernous by the week; Treasury Secretary Geithner is under pressure. He received implicit support though from his President in March but it will not be easy for him to grapple and subdue the gargantuan economic mess that engulfs the US. Moreover, the highly partisan skulduggery at the Capitol Hill tends to significantly weaken any policy initiative emanating from the White House.
So, in summary the G-20 meeting in April will be best served if Canada and India are given more leeway and opportunity to shape the economic framework of the future. If the US is allowed by the G-18 to ride roughshod over the sensible policy directions, and if their lackeys – the bootlicking schmuck Brits – get a freehand in drafting the policy directions, then God bless the world!
It is time the 18 countries of the G-20 club told the US and its poodle (Britain) to move over to the sidelines and let the more knowledgeable practitioners to fashion the economic future of the world. However, the US and Britain may offer meaningful suggestions, if they can. But if they resorted to dog-in-the-manger policy it will do no good to the current crisis, and it is the US which stands to lose maximum if the world economy goes in a deeper hole rather than come out it. President Obama and Gordon Brown would do well to lend their ears more rather than their tongues!
Sunday, March 22, 2009
Saturday, March 14, 2009
PRESIDENT OBAMA’S AFGHANISTAN POLICY AND THE FLY IN THE OINTMENT - ISI
In his first primetime press conference on 09 Feb when US President Obama didn’t mention the word ‘Taliban’ while responding to a question on his administration’s Afghanistan policy, it was clear something was cooking. The omission of the word ‘Taliban’ came as a bit of a surprise because till this presser whenever President Obama spoke about threats to US from Afghan-Pakistan area, he always mentioned Al-Qaeda and Taliban in the same breath.
Be that as it may, it is now clear that US does not wish to look at Taliban through one coloured lens – US wishes to distinguish between ‘good’ Taliban and ‘bad’ Taliban. Ostensibly, the motivation for this thinking comes from supposed success in Iraq where some Sunni elements hostile towards US apparently switched sides and started working with the coalition forces in fighting insurgency.
Clearly, US is trying to devise a strategy for Afghanistan which will prevent it from getting bogged down in that area in Vietnam-like manner. Hopefully, lessons learned from Vietnam are apparently being applied to make sure that US doesn’t have to leave Afghan theatre with a bloody nose, mutilated prestige and negative gain on the ledger.
Extending the logic of success in Iraq to Afghanistan is conceptually tenable. But what about translating that in to reality? Are the scenarios identical? What are the additional challenges? Surely, US strategists must have carried out necessary SWOT and other analyses – one hopes they did so! Incidentally, one had hoped that US had done necessary home work about post-Saddam scenario in Iraq also but sadly that proved to be so hopelessly untrue!
Anyway, it seems that US thinks that Taliban being a Sunni outfit will be amenable more or less in the same way as the Iraqi Sunni elements turned out to be. As well, the American policy makers are hoping that there will be support from Pakistan in making the new policy initiative successful. It seems that Afghan President Hamid Karzai is also in favour of this vector of new US Afghan policy.
But here is the fly in the ointment – Pakistan – and this could be potentially serious. Why? Because, Pakistan (through ISI) was a co-sponsor of Taliban when Soviets had occupied Afghanistan. But after the Soviets withdrew from that region, Pakistan (through ISI) continued to keep Taliban alive because it served them in more than one way.
By keeping Taliban alive and active, Pakistan’s dangerously shrewd and mean SOB's in politics and in ISI could continue to have foothold in Afghanistan, devilishly prise out American aid, keep fingering India, and last but not the least hold on to their positions of power.
Just to provide brief historical context, Pakistan’s former dictators Zial-ul-Haq and Pervez Musharraf were America’s darlings because they were so good in licking the boots of their American masters and also convincing them that US interests in the region are safe with them (Zia or Musharraf). Taliban was a good pawn in this political chess game Pakistan played for last so many years vis-à-vis US.
Washington probably understood how the mean schmuck Pakistanis (including ISI) were pulling wool over US eyes but the Americans chose to ignore (if they didn’t understand the Pakistani game, then God bless them!). Anyway, after 9/11 things changed, albeit very slowly, in Washington. During his second term President Bush started realising there was more benefit in cooperating with India (e.g. civil nuclear cooperation).
In order to win India’s confidence US started to acknowledge, more in private though, the dangers posed by ISI's support to Taliban and Al-Qaeda. Slowly, US started to acknowledge in public also the areas where Musharraf had to do more with regard to Pakistan's support to Taliban and Islamic insurgents than his usual theatricals.
But the 26/11 Mumbai attack completely changed everything. This attack reinforced the fact that Pakistan was indeed the epicentre of Islamic terrorism, and was playing double game with US with regard to Taliban and even Al-Qaeda. The reported killing of American intelligence operatives, and the Jews in the Mumbai attack forced the Americans to take serious note of Pakistan’s dubious role in the whole game.
Consequently, the Americans are infuriated, rightly so, and they want to get down to the bottom of the sinister plot. So are the Israelis, and given their unfettered clout in Washington they are kicking their American counterparts to punish the perpetrators. Both US and Israelis know the diabolical role of ISI in all this.
US probably is aware that Pakistan hates President Karzai and Pakistan will do everything possible to destabilise him. Taliban is one of the instruments Pakistan uses to play its dirty game against Karzai and anybody and everybody who support Karzai – including the American troops and ISAF. Pakistan plays this sinister game through ISI. No wonder American troops and ISAF are finding their task in containing Taliban getting difficult by the day.
Ultimately, Americans are now realising that it is about time they wielded the hobnailed boot with Pakistan and some how brought a stop to ISI’s support to Taliban. US knows (so does Canada and other constituents of ISAF) that unless ISI is disciplined and Pakistan stops providing safe haven to Taliban and Al-Qaeda elements in FAR and NWFP, chances of gaining any upper hand against the Taliban insurgency in Afghanistan is next to impossible.
US Admiral Michael Mullen, chairman of the US Joint Chiefs of Staff, eventually couldn’t be more candid about ISI. In an interview with PBS broadcast recently he said that (Pakistan Army Chief and de-facto boss of ISI) Kayani "certainly is aware of the concerns that I have with respect to his intelligence agency, ISI".
"They (ISI) have been very attached to many of these extremist organizations," Mullen said warning that "in the long run, they have got to completely cut ties with those in order to really move in the right direction". Kayani, he said, had appointed in Lt Gen Ahmad Shuja Pasha, "one of his best guys", as the new director of ISI. "I'm encouraged with his views and I'm encouraged with how he sees the problem." But "it's going to take some time to get at it inside ISI".
So, in summary, the new US Afghan policy of engaging with ‘good’ Taliban may not bear any fruit whatsoever unless and until the chief actor of the dangerous Islamic insurgency game – Pakistan and ISI – is properly corralled and contained. US should learn from history (their strategists have a bad habit of not reading history) that elements in modern day Pakistan and the Afghan-Pak border areas could be contained only through sledge hammer policy (refer to early 20th century Sikh ruler Maharaja Ranjit Singh and his general Hari Singh Nalwa’s tactics in the region).
One hopes President Obama and his advisors will learn from history and move forward carefully with force (and some carrots) without getting fooled by Pakistani chicanery. Only if they can do so, they will be able to minimise losses to American troops and ISAF and at the same time achieve their objective of containing Islamic insurgency threat to USA and other western countries. And while doing so for God’s sake US should not get blindsided and/or misguided by agenda-driven advice from the wily British. USA has for so long been deceived and misguided by British advice on South Asian matters. It is time US used its own brain while developing strategies for the Afghan-Pakistan theatre.
Be that as it may, it is now clear that US does not wish to look at Taliban through one coloured lens – US wishes to distinguish between ‘good’ Taliban and ‘bad’ Taliban. Ostensibly, the motivation for this thinking comes from supposed success in Iraq where some Sunni elements hostile towards US apparently switched sides and started working with the coalition forces in fighting insurgency.
Clearly, US is trying to devise a strategy for Afghanistan which will prevent it from getting bogged down in that area in Vietnam-like manner. Hopefully, lessons learned from Vietnam are apparently being applied to make sure that US doesn’t have to leave Afghan theatre with a bloody nose, mutilated prestige and negative gain on the ledger.
Extending the logic of success in Iraq to Afghanistan is conceptually tenable. But what about translating that in to reality? Are the scenarios identical? What are the additional challenges? Surely, US strategists must have carried out necessary SWOT and other analyses – one hopes they did so! Incidentally, one had hoped that US had done necessary home work about post-Saddam scenario in Iraq also but sadly that proved to be so hopelessly untrue!
Anyway, it seems that US thinks that Taliban being a Sunni outfit will be amenable more or less in the same way as the Iraqi Sunni elements turned out to be. As well, the American policy makers are hoping that there will be support from Pakistan in making the new policy initiative successful. It seems that Afghan President Hamid Karzai is also in favour of this vector of new US Afghan policy.
But here is the fly in the ointment – Pakistan – and this could be potentially serious. Why? Because, Pakistan (through ISI) was a co-sponsor of Taliban when Soviets had occupied Afghanistan. But after the Soviets withdrew from that region, Pakistan (through ISI) continued to keep Taliban alive because it served them in more than one way.
By keeping Taliban alive and active, Pakistan’s dangerously shrewd and mean SOB's in politics and in ISI could continue to have foothold in Afghanistan, devilishly prise out American aid, keep fingering India, and last but not the least hold on to their positions of power.
Just to provide brief historical context, Pakistan’s former dictators Zial-ul-Haq and Pervez Musharraf were America’s darlings because they were so good in licking the boots of their American masters and also convincing them that US interests in the region are safe with them (Zia or Musharraf). Taliban was a good pawn in this political chess game Pakistan played for last so many years vis-à-vis US.
Washington probably understood how the mean schmuck Pakistanis (including ISI) were pulling wool over US eyes but the Americans chose to ignore (if they didn’t understand the Pakistani game, then God bless them!). Anyway, after 9/11 things changed, albeit very slowly, in Washington. During his second term President Bush started realising there was more benefit in cooperating with India (e.g. civil nuclear cooperation).
In order to win India’s confidence US started to acknowledge, more in private though, the dangers posed by ISI's support to Taliban and Al-Qaeda. Slowly, US started to acknowledge in public also the areas where Musharraf had to do more with regard to Pakistan's support to Taliban and Islamic insurgents than his usual theatricals.
But the 26/11 Mumbai attack completely changed everything. This attack reinforced the fact that Pakistan was indeed the epicentre of Islamic terrorism, and was playing double game with US with regard to Taliban and even Al-Qaeda. The reported killing of American intelligence operatives, and the Jews in the Mumbai attack forced the Americans to take serious note of Pakistan’s dubious role in the whole game.
Consequently, the Americans are infuriated, rightly so, and they want to get down to the bottom of the sinister plot. So are the Israelis, and given their unfettered clout in Washington they are kicking their American counterparts to punish the perpetrators. Both US and Israelis know the diabolical role of ISI in all this.
US probably is aware that Pakistan hates President Karzai and Pakistan will do everything possible to destabilise him. Taliban is one of the instruments Pakistan uses to play its dirty game against Karzai and anybody and everybody who support Karzai – including the American troops and ISAF. Pakistan plays this sinister game through ISI. No wonder American troops and ISAF are finding their task in containing Taliban getting difficult by the day.
Ultimately, Americans are now realising that it is about time they wielded the hobnailed boot with Pakistan and some how brought a stop to ISI’s support to Taliban. US knows (so does Canada and other constituents of ISAF) that unless ISI is disciplined and Pakistan stops providing safe haven to Taliban and Al-Qaeda elements in FAR and NWFP, chances of gaining any upper hand against the Taliban insurgency in Afghanistan is next to impossible.
US Admiral Michael Mullen, chairman of the US Joint Chiefs of Staff, eventually couldn’t be more candid about ISI. In an interview with PBS broadcast recently he said that (Pakistan Army Chief and de-facto boss of ISI) Kayani "certainly is aware of the concerns that I have with respect to his intelligence agency, ISI".
"They (ISI) have been very attached to many of these extremist organizations," Mullen said warning that "in the long run, they have got to completely cut ties with those in order to really move in the right direction". Kayani, he said, had appointed in Lt Gen Ahmad Shuja Pasha, "one of his best guys", as the new director of ISI. "I'm encouraged with his views and I'm encouraged with how he sees the problem." But "it's going to take some time to get at it inside ISI".
So, in summary, the new US Afghan policy of engaging with ‘good’ Taliban may not bear any fruit whatsoever unless and until the chief actor of the dangerous Islamic insurgency game – Pakistan and ISI – is properly corralled and contained. US should learn from history (their strategists have a bad habit of not reading history) that elements in modern day Pakistan and the Afghan-Pak border areas could be contained only through sledge hammer policy (refer to early 20th century Sikh ruler Maharaja Ranjit Singh and his general Hari Singh Nalwa’s tactics in the region).
One hopes President Obama and his advisors will learn from history and move forward carefully with force (and some carrots) without getting fooled by Pakistani chicanery. Only if they can do so, they will be able to minimise losses to American troops and ISAF and at the same time achieve their objective of containing Islamic insurgency threat to USA and other western countries. And while doing so for God’s sake US should not get blindsided and/or misguided by agenda-driven advice from the wily British. USA has for so long been deceived and misguided by British advice on South Asian matters. It is time US used its own brain while developing strategies for the Afghan-Pakistan theatre.
Sunday, March 1, 2009
DOES AMERICAN FREE MARKET CONCEPT MEAN PROFIT BY HOOK OR CROOK, AND NO RESPONSIBILITY TOWARDS THE WORK FORCE?
Through this blog I want to raise a conceptual discussion amongst economists of all stripes as to how the markets should run or be made to run. Why can this world not have an economic model which is more inclusive of the frailties of human nature? The motive for this conceptual discussion came from reading Berkshire Hathaway Inc’s annual report of 2008, and an article on Bloomberg.
Warrant Buffet is one of the richest persons on this planet, and his perspective on money matters has always been very insightful. His narrative in Berkshire’s annual report is always a treat for its readers – its report for 2008 was no exception. But then, what has Oracle of Omaha’s document got to do with the heading of this blog? Plead read on, you will see the connection.
Let me quote Buffet from page 11 of the report which deals with home mortgages: “At that time (Y2008?, italics added), much of the industry employed sales practices that were atrocious. Writing about the period somewhat later, I described it as involving 'borrowers who shouldn’t have borrowed being financed by lenders who shouldn’t have lent'”.
He further states on same page: “To begin with, the need for meaningful down payments was frequently ignored. Sometimes fakery was involved……..The resulting mortgages were usually packaged (“securitized”) and sold by Wall Street firms to unsuspecting investors. This chain of folly had to end badly, and it did.”
Wait! What the hell was going on in the United States – lenders happily making out loans that borrowers couldn’t repay out of their incomes?! And, Wall Street selling mortgages to unsuspecting investors?! Is this what free market is supposed to be – that any organisation can do anything to rack up huge profits, at least in the short-term, and the top executives can fill their pockets with millions of ill-gotten bonuses?
Is free market concept supposed to have no oversight on the diabolical and self-serving CEOs who may be going berserk in the market tearing down ethics and honesty to shreds? Is this what economist Milton Friedman’s concept of free markets was or is? Is Friedman feeling happy in his grave watching what unbridled greed of human nature has done to the world?
Did it never occur to the ‘great’ Friedman that free market concept should also bequeath on the top executives (of organisations which deal with tonnes of money) some kind of responsibility towards the millions of people working in hundreds of thousands of organisations which could directly or indirectly get potentially exposed to risks and losses due to the shenanigans of the people who run the said (financial) organisations?!!
Today millions and millions of people have lost jobs because of an imploding market around the globe caused by the shameless, villainous ‘confidence tricksters’ of United States (and some of their ilk in Europe) who funnelled hundreds of billions of dollars in a housing bubble. Do these immoral wicked rotten executives of the mortgage lending companies and the various banks realise the pain, the tears and the suffering of the millions – the shattered dreams, disrupted future, lost opportunities of those hapless people?
Why did the policy makers in US in different periods of 1900s not pay heed to the sane concept of another top economist – James Tobin? It seems Tobin’s experience of the depression as a teenager in the 1930s gave him a lifelong loathing of unemployment.
The Bloomberg article, referred to above, writes: “As a young professor I did a paper where I analyzed the optimal unemployment rate,” said Joseph Stiglitz, a professor at Columbia University in New York, who knew Tobin at Yale. “Tobin went livid over the idea. To him the optimal unemployment rate was zero.”
The article mentions at another place: “Like Keynes, Tobin was an advocate for the role of government in maintaining full employment, said James Galbraith, an economist at the University of Texas in Austin. The current economic and financial crisis has validated that philosophy, said Galbraith, a former Tobin student and the son of the late John Kenneth Galbraith, who was a friend of Tobin.”
“It’s clear that the position that the federal government has a responsibility for the level of employment, for the economy, has prevailed,” Galbraith said. “The position that the Fed can walk away from the level of employment has completely collapsed….”
My question is: why couldn’t Friedman’s and Tobin’s ideas be married and a governing economic model more inclusive of the frailties of human nature be developed and implemented – in US and other economies? Has the current economic crisis not demonstrated that any economic model ignoring the role of frailties of human nature is incomplete and flawed, if I may?
The issue is not whether Friedman is great or Tobin is greater. The issue is there got to be a economic model that is practical in nature, and not one which is predicated on idealistic premises – idealistic premises, like, humans will always act responsibly, humans will never succumb to greed, self-aggrandisement etc.
Tobin (Nobel Prize winner in 1981) in an essay written for the Nobel committee mentioned, “The miserable failures of capitalist economies in the Great Depression were root causes of worldwide social and political disasters.” Economics “offered the hope, as it still does, that improved understanding could better the lot of mankind.”
Tobin’s friend and colleague William Brainard says, “He (Tobin) believed financial markets could serve a valuable service in diversifying risk and moving capital in efficient ways.” “But he was not someone who believed the market always got it right and that private incentives were always aligned with the public good.”
Almost a clairvoyant, Tobin seems to be now in hindsight. But what he said and believed in appears to be more prescriptive and applicable for the ways we humans behave. We must keep in mind that this world is still not made up of people like Mr. Spock of Star Trek who was paragon of logical mind.
After this massive economic bloodletting can we now decide to mend our thinking and redefine the way the markets ought to run so that people don't lose jobs again at such a massive scale? Or, will we again relapse in complacency once we are out of this horrible downturn?
Mistakes teach us to learn from it so that we don’t repeat them. Ideology of any political party or of an individual should not be allowed to cloud the objectivity of human thinking. The greater good of the society is supreme and should be so. Let the political leaders of the present realise this and lay the foundation for the future.
Warrant Buffet is one of the richest persons on this planet, and his perspective on money matters has always been very insightful. His narrative in Berkshire’s annual report is always a treat for its readers – its report for 2008 was no exception. But then, what has Oracle of Omaha’s document got to do with the heading of this blog? Plead read on, you will see the connection.
Let me quote Buffet from page 11 of the report which deals with home mortgages: “At that time (Y2008?, italics added), much of the industry employed sales practices that were atrocious. Writing about the period somewhat later, I described it as involving 'borrowers who shouldn’t have borrowed being financed by lenders who shouldn’t have lent'”.
He further states on same page: “To begin with, the need for meaningful down payments was frequently ignored. Sometimes fakery was involved……..The resulting mortgages were usually packaged (“securitized”) and sold by Wall Street firms to unsuspecting investors. This chain of folly had to end badly, and it did.”
Wait! What the hell was going on in the United States – lenders happily making out loans that borrowers couldn’t repay out of their incomes?! And, Wall Street selling mortgages to unsuspecting investors?! Is this what free market is supposed to be – that any organisation can do anything to rack up huge profits, at least in the short-term, and the top executives can fill their pockets with millions of ill-gotten bonuses?
Is free market concept supposed to have no oversight on the diabolical and self-serving CEOs who may be going berserk in the market tearing down ethics and honesty to shreds? Is this what economist Milton Friedman’s concept of free markets was or is? Is Friedman feeling happy in his grave watching what unbridled greed of human nature has done to the world?
Did it never occur to the ‘great’ Friedman that free market concept should also bequeath on the top executives (of organisations which deal with tonnes of money) some kind of responsibility towards the millions of people working in hundreds of thousands of organisations which could directly or indirectly get potentially exposed to risks and losses due to the shenanigans of the people who run the said (financial) organisations?!!
Today millions and millions of people have lost jobs because of an imploding market around the globe caused by the shameless, villainous ‘confidence tricksters’ of United States (and some of their ilk in Europe) who funnelled hundreds of billions of dollars in a housing bubble. Do these immoral wicked rotten executives of the mortgage lending companies and the various banks realise the pain, the tears and the suffering of the millions – the shattered dreams, disrupted future, lost opportunities of those hapless people?
Why did the policy makers in US in different periods of 1900s not pay heed to the sane concept of another top economist – James Tobin? It seems Tobin’s experience of the depression as a teenager in the 1930s gave him a lifelong loathing of unemployment.
The Bloomberg article, referred to above, writes: “As a young professor I did a paper where I analyzed the optimal unemployment rate,” said Joseph Stiglitz, a professor at Columbia University in New York, who knew Tobin at Yale. “Tobin went livid over the idea. To him the optimal unemployment rate was zero.”
The article mentions at another place: “Like Keynes, Tobin was an advocate for the role of government in maintaining full employment, said James Galbraith, an economist at the University of Texas in Austin. The current economic and financial crisis has validated that philosophy, said Galbraith, a former Tobin student and the son of the late John Kenneth Galbraith, who was a friend of Tobin.”
“It’s clear that the position that the federal government has a responsibility for the level of employment, for the economy, has prevailed,” Galbraith said. “The position that the Fed can walk away from the level of employment has completely collapsed….”
My question is: why couldn’t Friedman’s and Tobin’s ideas be married and a governing economic model more inclusive of the frailties of human nature be developed and implemented – in US and other economies? Has the current economic crisis not demonstrated that any economic model ignoring the role of frailties of human nature is incomplete and flawed, if I may?
The issue is not whether Friedman is great or Tobin is greater. The issue is there got to be a economic model that is practical in nature, and not one which is predicated on idealistic premises – idealistic premises, like, humans will always act responsibly, humans will never succumb to greed, self-aggrandisement etc.
Tobin (Nobel Prize winner in 1981) in an essay written for the Nobel committee mentioned, “The miserable failures of capitalist economies in the Great Depression were root causes of worldwide social and political disasters.” Economics “offered the hope, as it still does, that improved understanding could better the lot of mankind.”
Tobin’s friend and colleague William Brainard says, “He (Tobin) believed financial markets could serve a valuable service in diversifying risk and moving capital in efficient ways.” “But he was not someone who believed the market always got it right and that private incentives were always aligned with the public good.”
Almost a clairvoyant, Tobin seems to be now in hindsight. But what he said and believed in appears to be more prescriptive and applicable for the ways we humans behave. We must keep in mind that this world is still not made up of people like Mr. Spock of Star Trek who was paragon of logical mind.
After this massive economic bloodletting can we now decide to mend our thinking and redefine the way the markets ought to run so that people don't lose jobs again at such a massive scale? Or, will we again relapse in complacency once we are out of this horrible downturn?
Mistakes teach us to learn from it so that we don’t repeat them. Ideology of any political party or of an individual should not be allowed to cloud the objectivity of human thinking. The greater good of the society is supreme and should be so. Let the political leaders of the present realise this and lay the foundation for the future.
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