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Right Interventions

Derailing in progress...

While researching for an article I'm working on about the global imbalances (yes, I'm writing on this topic again), I chanced upon John B Taylor's Getting Off Track, which is a really short read for someone who wants to know more about the government intervention aspect of the financial crisis in United States. John does pretty data-oriented research and no doubt emphasize on the importance of empirics when it comes to studying the macroeconomy.

Too often in Economics, we seem to be too quick to classify stances at debates into a 'more government' or 'less government' issue as if the government always has only one course of action. As John pointed out in his book, the US government may have worsen the financial crisis and prolonged as a result of their erroneous diagnosis of the crisis as one of liquidity rather than counter-party risks. The fact is that the government has several course of actions when they are required to 'do something' and this thing they eventually decide to do may not always be effective or good. The question (at that time at least) was whether the contracting liquidity experienced at that time is a symptom or in itself the source of the problem. Of course, with the benefit of hindsight, John confidently concludes that he has been right pretty early on that counter-party risk was the root of the problem.

Now, we turn back to the general question of government intervention. While we always ask ourselves if we should always trust the government to do the right thing, I think the more important point is that we all should be helping to the government arrive at the right course of action. It calls for a greater academic participation in governance and social policies. This, I believe, is something particularly important that Singapore should learn. I pointed out earlier that we need to make better use of data, and academic tools at our disposal. If you peer into the work of John through his book, you'd realise that is exactly the sort of thing our academia should be doing for the government. And this, will also require that the government be more open-minded to external ideas and tap on expertise beyond their numbers. That's what I mean by pluralism in ideas for governance of a country.