Notes from Fault Lines talk
Went to a talk today by Raghuram Rajan, "Fault Lines: How Hidden Fractures Still Threaten the World Economy." I quit taking notes before the end, but I think I got the most interesting stuff. Most of this won't be new to you if you've been following the commentary on the crisis.
My favorite part was at the beginning: I'd always thought of rising income inequality as a bad thing, but I hadn't thought about how, in the absence of a credible plan for reducing it, it leads to bad policymaking.
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Fault line 1 - Rising inequality - tough to address underlying problem of high school and college graduation rates - so politicians try to up consumption, in this case home ownership. [But rising inequality has at least as much to do with the transfer of manufacturing overseas]
Fault line 2 - under-spending exporters - japan / china model - it worked! Rapid growth. But weak domestic sector - cartels that work well for manufacturing export not so good for domestic consumption growth. So: savings surplus that has to be absorbed elsewhere.
These exports are our imports. This causes us to run large deficits [really?] which have put us over a cliff financially.
Fault line 3 - jobless growth in the US and an inadequate safety net. Tremendous pressure on Washington to get jobs back. So Fed gives public assurance of easy money to encourage job creation. Globally we are the stimulator of first resort. Leads to excess. This is bad policy.
Putting it together - policy wanted to extend home ownership. Wall of money looking for a home. Financial sector responds with mortgage-backed securities.
"More generally, are bankers evil?" - no but we have an arm's length system in which actors don't see the consequences of their actions. Profit is the only metric of success; it's assumed social value is being created. That's fine, but if price signals are out of whack things can go badly wrong. So this wall of price-insensitive money comes in and ...
My favorite part was at the beginning: I'd always thought of rising income inequality as a bad thing, but I hadn't thought about how, in the absence of a credible plan for reducing it, it leads to bad policymaking.
***
Fault line 1 - Rising inequality - tough to address underlying problem of high school and college graduation rates - so politicians try to up consumption, in this case home ownership. [But rising inequality has at least as much to do with the transfer of manufacturing overseas]
Fault line 2 - under-spending exporters - japan / china model - it worked! Rapid growth. But weak domestic sector - cartels that work well for manufacturing export not so good for domestic consumption growth. So: savings surplus that has to be absorbed elsewhere.
These exports are our imports. This causes us to run large deficits [really?] which have put us over a cliff financially.
Fault line 3 - jobless growth in the US and an inadequate safety net. Tremendous pressure on Washington to get jobs back. So Fed gives public assurance of easy money to encourage job creation. Globally we are the stimulator of first resort. Leads to excess. This is bad policy.
Putting it together - policy wanted to extend home ownership. Wall of money looking for a home. Financial sector responds with mortgage-backed securities.
"More generally, are bankers evil?" - no but we have an arm's length system in which actors don't see the consequences of their actions. Profit is the only metric of success; it's assumed social value is being created. That's fine, but if price signals are out of whack things can go badly wrong. So this wall of price-insensitive money comes in and ...
World poverty is falling faster than expected
"From 1970 to 2006, poverty fell by 86% in South Asia, 73% in Latin America, 39% in the Middle East, and 20% in Africa." And: because world inequality fell, welfare measured for the world as a whole grew even faster than world GDP did, and more than doubled over the period 1970-2006.
Meanwhile, in the real world
- Judge strikes down part of the Patriot Act. The feds now have to go to a judge before requesting records from ISPs. Time to renew my ACLU membership.
- There are a lot of entities that look like banks but aren't regulated like banks. This seems important. Think "a run on the
banksstructured investment vehicles".
Ha! it has a tag cloud.
Compelling corrective on the potential of microfinance
Lots of financial info ... friend uses the 100-day as rough measure of volatility.
(Not that I'm going to use this. I am absolutely not going to start day-trading and spend all day checking stock quotes and trading "hot tips" with friends.)
(Not that I'm going to use this. I am absolutely not going to start day-trading and spend all day checking stock quotes and trading "hot tips" with friends.)
"Various intelligent and readable weblogs by economists"
"It is a country that seems to have achieved a sweet spot, combining the vigor of American capitalism with the humanity of European welfare, yet suffering the drawbacks of neither. And it manages this while keeping a consistent budget surplus. That country, rolling into its 16th year of uninterrupted growth, is Australia."
Shortage of skilled workers, you say? Hmmm...
Shortage of skilled workers, you say? Hmmm...
The Wealth of Networks: How Social Production Transforms Markets and Freedom
Just published, sounds v. good. Buy at Amazon or download CC-licensed PDFs. Also see the associated wiki maintained by the author.
Just published, sounds v. good. Buy at Amazon or download CC-licensed PDFs. Also see the associated wiki maintained by the author.
The Global Baby Bust
Philip Longman argues that declining birthrates will be socially and economically ruinous.
Philip Longman argues that declining birthrates will be socially and economically ruinous.
Nationmaster
Tons of statistics in a bunch of categories, with different visualization options. Very interesting feature that shows you which variables are correlated with the variable you're looking at. Shame you can't look at things over time.
Tons of statistics in a bunch of categories, with different visualization options. Very interesting feature that shows you which variables are correlated with the variable you're looking at. Shame you can't look at things over time.
