Policy Technicalities
By Kevin
Regulate?
When I first learnt about policy instruments for managing economic problems, I find it confusing that so many different schemes are discovered to achieve efficiency in the market. It seems strange to me that one could tax, subsidize, regulate, take over production (nationalize) in order to manage market failure or market dominance. The problem with policy choices is that we once again fall into the Perfect Choice Fallacy sometimes.
Unfortunately, the urge and will to get things right is much stronger in this case because lives and welfare of many people will be implicated. I once spoke to this civil servant who worked with a certain Ministry of Health, doing policy proposing related work. He studied Economics in Princeton and as an economist, he was not only influencing the economic lives of consumers in the economy; he was, in effect, deciding who gets to pay more/less to save their own lives. If we believe there is definitely a perfect/best choice out of the all the available options, we should try our best to work it out.
There exists trade-offs within policies and when you achieve a particular objective, it can be at the expense of another or it can create a problem that ought to be addressed using another policy. This creates endless chains of problems. It appears that each of those policies, taxation, regulation has these sort of trade-offs, taxing different stakeholders in the whole affair creates different outcomes that may not necessarily be very desirable. Something has to be done anyways; we try our best to create a more desirable society, or at least we think so, but we are absolutely clueless how exactly we can do that.
Been Out
By Kevin
Gone for a while
For some time I seem to be missing from ERPZ, though probably as much as Martin or Scherzo, or Yuan Jun for that matter. Work has been really busy and life in general after the 15 academic years of the past introduces new challenges. But it remains important to be optimistic about the future and things to come, while appreciating all that you're currently blessed with.
As one mature, you learn that things should be shared rather than fought over, and you have to wonder if you're really hurting others or yourself when you get into fights. One should appreciate the fact that collaboration and combining strengths can produce far more returns in long run than doing too much fighting though competition may sometimes bring greater benefits to everyone in aggregate. Cost and benefits of things have long been hard to balance and somewhat confusing to us. Maybe that is why, we need to be conscious.
Sometimes, it's important that we ponder about life, through current affairs.
Monetary Policy
By Kevin
As I mentioned about the difficulties of governing Economies and Greenspan's disclosure on his workings on a paper in defence of his policies, The Economist recently wrote in their column about Greenspan's recent defence of himself. Those interested might want to access his paper here.
Managing Money
In general, The Economist adopts a rather sarcastic tone when discussing Alan Greenspan's role in the build up to the Subprime Mortgage Crisis in 2007. They are arguing that central bankers are around to ensure macroeconomic stability and therefore are expected to 'play safe' and manage the economy. That is, if reducing short-term interests rates could rein in the housing boom, that should have been applied. Even if Greenspan couldn't have identified the bubble, and that the house prices are not related to the interest rates that central bankers could influence, the leverage growth in securitised markets might be worth managing:
By looking only at the effect of monetary policy on house prices, Messrs Bernanke and Greenspan also take too narrow a view of the potential effect of low policy rates. Several economists have argued convincingly, for instance, that low policy rates fuelled broader leverage growth in securitised markets.
Of course, having just read Dot.con and Lord of Finance, I do realise that central bankers' attempts at interfering with specific market booms have often been ineffective or with rather disastrous results and thus choose to focus only on economic fundamentals like price inflation. Greenspan does have a point when he suggests that the central bankers are unable to deal with a global force that are changing the conditions of the economy. Very often, these efforts may create further imbalances that merely postpones a crisis.
Like I say, no one claims monetary policy is easy to conduct - it's too often more of an art than a science.