ECB's prelude to exit

ECB today announced that signaled that there is an exit in the horizon. Why can't the Fed do the same. The answer is liquidity. Fed has its money locked in assets that are toxic and troubled assets of Bear, AIG, and MBS. When can Fed get rid of those? Don't know.

India buying 200 tons of gold - what I remember from 1991

Earlier this month India bought 200 tons of gold from IMF. Read here. It was in 1991 that after a severe financial crisis, India had to sell gold, devalue the currency, and open up the markets for foreign investors to a larger extent. I was then on the verge of completing high school and the popular press - not to mention the communist party characterized the event as a "India pawning and selling out to western world." Fast forward 18 years, we view India very differently from that. Whether the present had to happen since the force of nature was aligned in India's favor, we don't know. But to a large extent, opening up the economy has helped. I wish the old communists who try to pull back any constructive idea with their half baked theory of Marx and Lenin finally wake up. Turning things around like buying the gold takes time. But it happens. Free markets, competition, and openness of opportunity brings a better life compared to protectionism of the mediocre.

Steven Pinkler on Gladwell...

Steven Pinker's review of Gladwell's work (more specifically his latest book "What the dog saw") is definitely worth reading. His points are right on the money. I am a big admirer of Gladwell's writing and have enjoyed almost every bit of it. However, it has to be taken for what its worth. Which is - an entertaining read. As Pinkler points out, in many cases Gladwell gets the science or statistics plain wrong. One of the areas I was looking for Pinkler to point out was the area of intuition and decision making, as well as, the role of practice in the making of a genius. For the real substance, I believe Herb Simon needs some credit from Gladwell -- for what Gladwell says sounds very much what Herb Simon figured out over years of research of people especially chess players. I have to admit that reading Herb Simon is not close to as entertaining as Gladwell. In fact, I credit Prof Shraeger who during my days in Chicago Booth introduced me to Simon's work and its relevance to decision making. But again, we have to caution ourselves. Just as reading a good science reporter does not mean that the reporter is as knowledgeable as the nobel prize winning scientist -- nor does a popular writer like Gladwell expected to teach us "Igon" value problems. Goes back to an old Einstein adage - make things simple but not simpler. That's why specialists are required. Advanced studies are required. And popular reading is not always the best source for intellectual enrichment. In all fairness, Gladwell's review is well balanced. And Gladwell will be a writer I will seek out -- it is always worth reading the stuff he writes.

Losing the Bear Sterns Fraud Case

Disappointing. NYT op-ed criticses how poorly the prosecution handled the case. I agree with what a juror said - that - you cannot blame the crisis on two people. Well, sounds like the old adage - if you kill one person, you are a murderer - if you kill several hundreds you are a conqueror.

Is the stimulus creating jobs?

This is an interesting website. I am not sure if we can say yet - whether the stimulus is creating as many jobs that it was supposed to create.

Real barrier facing new development of power plants

Last week I found this article in the WSJ quite interesting. The NIMBY mindset that has impaired building large conventional power plants in US and in many parts of UK has crossed over to the renewables. Yes - we are talking about "green energy" and saving the environment. But not in my backyard. This is a real problem and a barrier to building anything new to address the energy needs. How do we get by this barrier?

Back in the days, when coal and nuclear were built, the big challenges were closing a set of contracts with a bunch of agencies and then arranging financing for the project. With time, the paper work and permit processes increased in volume and slowly projects were not realized because the contracts and commercials did not work out. Structural limitations throttled and abated many technically and economically viable projects. It is at this point where we find so many academic pundits and the "realists" diverge. The realists say structural barriers in contracting throws the economics out of the window while the academicians seem to be still under the belief that the economics work.

In the recent past we have entered a different era --one where NIMBY mindsets, environmentalists, and other special interest groups have been remarkably successful in stopping projects from happening. In most cases, more than the substance of the arguments - the protests are caused by narrowminded local interests providing a fertile ground for local politicians to grab a low hanging fruit to make their political careers.

This is nothing new in the way politicians behave. What is troublesome is that development gets stalled. Over and over again. Narrow selfish interests of a group of individuals overrides national interests. But what bothers me is in recent times the success in getting local interest trump national and general societal interest is quite high. This leads to -- how do we deal with this?

The NIMBY mindset is quite natural but also hard to understand. On one side we are a country of responsible people who send our kids to the war for a national interest. How is it that we can not tolerate a visual change in the middle of nowhere. Is this a mindset created out of perception or are we are ready to do some sacrifices and not something else. Either way, expecting something like green electricity will take some sacrifices just like anything else that came from someone else's blood and sweat -- whether it is the Brooklyn bridge or interstate system -- all of which we take so much for granted. We need to revive that mindset. Question is how. I will keep pondering on that.

VC survey

Here

Extraterrestrial lights as a sign for development

It was interesting to view Paul Romer using lights on earth viewed from space as an indicator for development of that area (country if you will). Even The Economist has an article on measuring growth using these light. Well, it is another way of using electricity as an indicator of development. How valid is this? I'll keep thinking about it.

Efficient Market Hypothesis Now

There has been a series of articles, discussions, and debates on the validity of the efficient market hypothesis in light of the financial crisis. The following pieces are quite interesting.

Link1 and Link2

Problem with the current climate change bill

Prof. Mankiw's article in NYT underscores the fundamental shortcoming of the climate change bill. It gives permits for free which undermines policy being able to creating enough incentives to control negative externalities like dumping CO2 in the atmosphere.

Q&A with Austan Goolsbee

Here

Thaler has a new column

Prof. Richard Thaler has a new column in New York Times.  Here is the first one.

Independence Day

This amazing feat was a part of Belarus' Independence day celebration on July 3.   

Cricket and America

Just a tangential post on a game I am a big fan of.  Nice to see this post from an American viewpoint.  Enjoy!

Link from CFR on economic crisis

Here

Jobs report - Obama's plan working or not working?

Prof Mankiw's post is scary.  One can give the benefit of doubt to the policy makers saying the baseline was overly optimistic (as Mankiw suggests).  But either way -- looks like things are worse than what the government presumed.  If that's the case, where are we headed? Japanese style recession as Krugman suggests.  (In short, Japanese style recession is when there is a slowdown in economy including slow bust of housing prices.  Even if production increases a bit but not enough to keep unemployment from increasing or the machines from staying idle)

Thinking about systemic risks

After spending few years in engineering safety systems for nuclear power plants and the transmission grid - I can say I have a deep sense of appreciation for complex systems.  To me, they are as close as to the proverbial butterfly that flaps its wings in the Amazon causing a storm in Japan.  One of the key design criteria in the nuclear power plant is that it has to be able to shutdown safely if an adverse event occurs.  Thinking for banks, I believe the same can apply.  In case of a major macroeconomic (or other) shock, the bank has to design ways to safely "shutdown" and wind-up without causing a cascading set of reactions resulting in a financial "meltdown" or "blackout".  Anil Kashyap in his FT piece talks something in those lines.  

Debt as a palliative?

In this piece, Ben Funnell asserts that debt has been used to assuage the pain that was caused to the lower income groups as their incomes decreased and while they witnessed the higher income groups becoming richer.  This thought is in line with what Rajan spoke in Chicago Booth's convocation address.  BTW, just free wheeling -- Is it the same reason why student activism has vanished from colleges?  Is it because even before students graduate they are sunk in student loans.  Are student loans a good thing then?  Or, there is a better way for public policy to stimulate higher education but not take away the freedom to stand up against poor governance and be passionate for a cause and take the role of activist to bring in change.

Economics and Pirates

While strolling in World Bank's info shop, I picked up The Invisible Hook.  Boston Globe has got a good review mentioning Austrian economists - Hayek and Ludwig von Misses.  Looking forward to reading this over the next few days.

Not a lack of Regulation but a lack of imagination

Regulation is as good as to what extent people can imagine within the context that particular regulation.  In his op-ed, Samuelson drives this point.  This is important and in a way it lends itself to the belief that there has to be a shift in culture from reckless risk taking to a more responsible one -- treating OPM (other people's money) as if it were your own.  Such a culture should reward self-reporting of potential risks and give incentives who bring forth systemic interconnects that can bring down the house.  To build such a culture may well require a radical event. Imagination like anything else will not have in a vacuum.  Carrots and sticks are necessary to drive this.  And that's not what I see is happening.  I keep my fingers crossed.