3 Letters from Economists

Fiscal sustainability is no doubt the next looming concern, not least for those advanced economies that have stretched their budgets in dealing with the 2007 financial crisis.

On the Valentines day, Besley, Goodhart, Pissarides, Vickers, Muellbauer, Rogoff , Sargent and others, cosigned a letter stating:

In order to minimise this risk and support a sustainable recovery, the next [British] government should set out a detailed plan to reduce the structural budget deficit more quickly than set out in the 2009 pre-budget report.

The exact timing of measures should be sensitive to developments in the economy, particularly the fragility of the recovery. However, in order to be credible, the government’s goal should be to eliminate the structural current budget deficit over the course of a parliament, and there is a compelling case, all else being equal, for the first measures beginning to take effect in the 2010-11 fiscal year.

Then on Feb 18th, followed 2 more letters.

Layard, Allsopp, Blinder, Hendry, Solow and Vines argued:

We disagree.

First, while unemployment is still high, it would be dangerous to reduce the government’s contribution to aggregate demand beyond the cuts already planned for 2010-11 (which amount to 1 per cent of gross domestic product). History is littered with examples of premature withdrawal of the government stimulus, from the US in 1937 to Japan in 1997. With people’s livelihoods at stake, a responsible government should avoid reckless actions.

Second, Britain’s level of government debt is not out of control. The net debt relative to GDP is lower than the Group of Seven average, and on present government plans it will peak at 78 per cent of annual GDP in 2014-15, and then fall. Moreover British debt has a longer maturity than most other countries, and current interest rates on government debt at 4 per cent are also low by recent standards.

Third, since the crisis began, private households and businesses have had to increase their saving in order to reduce their debts. It is this saving that finances the government deficit. If the government did not take up the slack, there would be a deeper recession.

Of course there needs to be a clear plan for reducing the government deficit. But the existing one for next year appears sensible. What is needed then is much more detail for the following years, and a radical plan for the medium term. That is what the debate should be about.

The last letter signed by Skidelsky, Marcus Miller, Blanchflower, De Grauwe, DeLong, Freeman, Hammond, Kirman, Manning, Richard Smith, Stiglitz and others also disagreed with Tim Besley and co.:

We believe they are wrong.

What they fail to point out is that the current deficit reflects the deepest and longest global recession since the war, with extraordinary public sector fiscal and financial support needed to prevent the UK economy falling off a cliff.

There is no disagreement that fiscal consolidation will be necessary to put UK public finances back on a sustainable basis. But the timing of the measures should depend on the strength of the recovery. The Treasury has committed itself to more than halving the budget deficit by 2013-14, with most of the consolidation taking place when recovery is firmly established. In urging a faster pace of deficit reduction to reassure the financial markets, the signatories of the Sunday Times letter implicitly accept as binding the views of the same financial markets whose mistakes precipitated the crisis in the first place!

They seek to frighten us with the present level of the deficit but mention neither the automatic reduction that will be achieved as and when growth is resumed nor the effects of growth on investor confidence. How do the letter’s signatories imagine foreign creditors will react if implementing fierce spending cuts tips the economy back into recession? To ask – as they do – for independent appraisal of fiscal policy forecasts is sensible. But for the good of the British people – and for fiscal sustainability – the first priority must be to restore robust economic growth. The wealth of the nation lies in what its citizens can produce.

Lord Keynes certainly won't be disappointed by sons of the land.

Myths vs Reality

FT has just posted this piece, 'Ten myths of Indian economy' by Shankar Acharya, a very prominent economist in India. Quite a lot of these apply equally well to Thailand. Reasonable thoughts on economics is surprisingly something of a rarity in policy circle...we should have more people like him over here.

Economic policy in India, and perhaps in other countries, is constrained by powerful prevailing myths and prejudices. Sometimes these myths simply reflect lazy thinking or an apparent immunity to facts. Sometimes they are shored up by strong vested interests. Sometimes all three. Whatever the reason it is hard to dispute the potency of myths in economic policy making. Here are my 10 favourites, some old, some new.
1. Higher minimum support prices for food grains are good for farmers. Not so. Yes, they are good for a powerful minority of farmers who have sizable marketable surpluses and ready access to government procurement programmes. But the majority of Indian farmers (especially poorer marginal farmers) are hurt by higher food prices for the simple reason that they are net buyers of food grains. And when you add in tens of millions of landless labour, it is quite clear that inexorably higher MSPs for wheat and rice are often quite damaging for rural households.

2. The move to a Goods and Services Tax will reduce the burden of taxation. I hope not! Or the already enormous fiscal deficit will soar higher. The more thoughtful government pronouncements do speak of a reform which is revenue-neutral or even revenue-enhancing. But there are many who tout the illusory prospect of a lower tax burden. The underlying logic of this reform is not tax relief but rather relief from distorted economic incentives and avoidable hassles and uncertainties, which are embedded in the current system of multiple indirect taxes.

3. There is no role for monetary policy when inflation is driven by supply shortfalls. Not quite. The truth is that the extent and duration of an inflationary bout triggered by a supply shock (such as a drought) does depend on the degree of accommodation offered by monetary policy. If liquidity is excessive, the inflationary consequences will be greater; if liquidity is tighter, price increases will be less. Of course, the act of tightening monetary policy can reduce output expansion. Hence the short term trade-off between inflation and growth is a live issue even when the initial shock is from the supply side. And then there is the problem of expectations: if monetary policy stands pat in the face of supply-induced inflation, then inflationary expectations can fuel the fire.

4. Our labour laws protect labour. Quite the opposite. Present laws over-protect a tiny minority (about 5 per cent of India’s 450m plus labour force, not counting government employees) at the expense of the vast majority of workers. By making it extremely difficult to retrench workers in the organised sector our existing laws massively discourage the employment of new workers in organized enterprises. In effect, these laws are very anti-employment and lead to huge under utilisation and “casualisation”of our most abundant resource, low-skill labour.

5. The exchange rate only matters to exporters. This is a common misperception, even among trained economists. Actually, the exchange rate is the single most important price in the economy, which powerfully influences the relative profitability of all tradable goods and services versus non-tradables (like haircuts in Delhi or restaurant meals in Mumbai). Thus, an appreciation of the rupee (versus foreign currencies) not only makes exports less profitable but also hurts an even greater range of import substitutes, that is goods and services produced for our home market in competition with imports from abroad.

6. Reducing fiscal deficits hurts growth. In the present “fiscally stimulated” environment there is much anxiety that a reduction in the current record high fiscal deficits (over 10 per cent of gross domestic product) will hurt growth. The massive deficits of 2008/9 and 2009/10 were perhaps justifiable in the face of contractionary effects of the global crisis. But these deficits are neither sustainable nor desirable. Actually, the Indian economy has grown fastest during periods when deficits were being reduced (1992-1997 and 2003-2008) and slower when deficits were expanding (1997-2002). This is because less government borrowing usually facilitates more productive private investment.

7. Subsidies on food, fuel and electricity help mainly the poor. Not so. The food subsidy mainly helps better off farmers and consumers in only four or five states where the public distribution system has effective coverage. The great majority of India’s poor do not have effective access to subsidized food grains. Many studies have shown that the huge subsidies on petrol, diesel, LPG cylinders and kerosene mainly accrue to better-off urban households (all those fuel-guzzling cars and SUVs). The large state government subsidies on electricity for agriculture have helped to thoroughly undermine the development of a viable electricity distribution network and kept our villages in darkness. In contrast, note how the rapid spread of mobile telephony did not need subsidies.

8. Foreign capital inflows are always good for our economy. Twenty years ago most Indians believed the opposite, that all private foreign capital inflows were bad and somehow designed to impoverish us. In the last two decades the conventional “wisdom” has swung to the opposite extreme. In fact, as both the Asian crisis of 1997-8 and the Global Financial Crisis of 2008-9 has amply demonstrated, foreign capital inflows into a developing country can be a mixed blessing. Specifically, for India, the capital inflow surge of 2005-8 posed serious problems of an overly appreciated exchange rate, excess domestic liquidity and an asset price boom. The more thoughtful of our policy-makers, including then Reserve Bank governor Reddy, grasped the need for capital account management in such situations.

9. Private provision of infrastructure can effectively substitute for government. Private public partnerships are the ruling mantra of the day. Since government has failed badly in providing adequate power, roads, ports, water, sanitation and so forth, we must turn to PPPs for our deliverance. Or so runs the new myth. Of course, there is a big and useful part that the private sector can play in building up our infrastructure. But the experience from all over the world suggests that the government must continue to play the major role in this area. In particular, PPPs cannot substitute for effective governance in infrastructure provision. Indeed, there is a growing body of experience which suggests that the governance requirements of PPPs are pretty high, if we are not to fall prey to the rip-offs of crony capitalism.

10. The trader (or middle man) is at the root of many of our economic problems. This is one of our really hoary and hairy myths. Whenever the rate of inflation rises, governments blame rapacious traders and deploy regulations to control their stocking and other activities. The truth is traders are essential to the efficient functioning of an economy. Commerce is the lifeblood of economic activity. Of course, individual traders exploit whatever monopoly power circumstances grant them to maximize their profits. But the problem does not lie with traders. It rests with the circumstances and policies which nurture national or local monopolies and oligopolies. The best antidote to monopolistic exploitation is competition. And that is best nurtured through better connectivity (transport and communication) and reduction of regulations and levies which fragment markets and raise barriers to competition, whether from abroad or at home.

"The Way of the General"

by Zhuge Liang

Types of Generals

There are nine types of generals.

Those who guide with virtue, who treat all equally with courtesy, who know when the troops are cold and hungry, and who notice when they are weary and pained, are called humanistic generals.

Those who do not try to avoid any task, who are not influenced by profit, who would die with honor before living in disgrace, are called dutiful generals.

Those who are not arrogant because of their high status, who do not make much of their victories, who are wise but can humble themselves, who are strong but can be tolerant, are called courteous generals.

Those whose extraordinary shifts are unfathomable, whose movements and responses are multifaceted, who turn disaster into fortune and seize victory from the jaws of danger, are called clever generals.

Those who give rich rewards for going ahead and have strict penalties for retreating, whose rewards are given right away and whose penalties are the same for all ranks, even the highest, are called trustworthy generals.

Those who go on foot or on a warhorse, with the mettle to take on a hundred men, who are skilled in the use of close-range weapons, swords, and spears are called infantry generals.

Those who face the dizzying heights and cross the dangerous defiles, who can shoot at a gallop as if in flight, who are in the vanguard when advancing and in the rear guard when withdrawing, are called cavalry generals.

Those who mettle makes the armies tremble and whose determination makes light of powerful enemies, who are hesitant to engage in petty fights while courageous in the midst of major battles, are called fierce generals.

Those who consider themselves lacking when they see the wise, who go along with good advice like following a current, who are magnanimous yet able to be firm, who are uncomplicated yet have many strategies, are called great generals.

Capacities of Commanders

The capacities of commanders are not the same; some are greater, some are lesser.

One who spies out treachery and disaster, who wins the allegiance of others, is the leader of ten men.

One who rises early in the morning and retires late at night, and whose words are discreet yet perceptive, is the leader of a hundred men.

One who is direct yet circumspect, who is brave and can fight, is the leader of a thousand men.

One of martial bearing and fierceness of heart, who knows the hardships of others and spares people from hunger and cold, is the leader of ten thousand men.

One who associates with the wise and promotes the able, who is careful of how he spends each day, who is sincere, trustworthy, and magnanimous, and who is guarded in times of order as well as times of disturbance, is the leader of a hundred thousand men.

One whose humanitarian care extends to all under his command, whose trustworthiness and justice win the allegiance of neighboring nations, who understands the signs of the sky above, the patterns of the earth below, and the affairs of humanity in between, and who regards all people as his family, is a world-class leader, one who cannot be opposed.

At the End of the World

An American scientist announces that the world will end...what do you think would be the effects on people between the announcement and the moment of cataclysm? What would you do in this last hour? ***

These were the questions printed in the French newspaper L'Intransigeant in 1922 where they invited replies from celebrities of the day. Answers from readers ranged from last act of religious worship to predictions of social mayhem.

Marcel Proust, author of the monumental In Search of Lost Time, had this to say...

I think that life would suddenly seem wonderful to us if we were threatened to die as you say. Just think of how many projects, travels, love affairs, studies our life hides from us, made invisible by our laziness which, certain of a future, delays them incessantly.

But let all this threaten to become impossible for ever, how beautiful it would become again! Ah! if only the cataclysm doesn't happen this time, we won't miss visiting the new galleries of the Lourve, throwing ourselves at the feet of Miss X., making a trip to India.

The cataclysm doesn't happen, we don't do any of it, because we find ourselves back in the heart of normal life, where negligence deadens desire. And yet we shouldn't have needed the cataclysm to love life today. It would have been enough to think that we are humans, and that death may come this evening.

Indeed, it should have been enough. Why are we all acting like myopic ants, labouring and hoarding away as if there'll be time to savour life after death? Feel free to take that as either a rhetorical question or a genuine logical problem...the former if you are miserable (like Proust always was), and the latter if you are an economist.

If nothing else, this would make a good dinner conversation.


*** The newspaper article and Proust's quote are drawn from 'How Proust Can Change Your Life' by Alain De Botton, Picador, 7.99 pounds (though available at the Strands, NY, for about that figure but in dollars)

ลับแล, แก่งคอย

...หนึ่งนั้นให้เป็นพี่ชายของความหลับ
อีกหนึ่งนั้นจงเป็นน้องชายของคำลวง...

ข่าวประกาศรางวัล S.E.A. Write จาก Thaipost

นายอุทิศ เหมะมูล หนุ่มจิตรกร ชาวสระบุรี คว้ารางวัลซีไรต์ปี 2552 ประเภทนวนิยายเรื่อง "ลับแล,แก่งคอย" นับว่าเป็นครั้งแรกที่คณะกรรมการตัดสินมีมติเป็น เอกฉันท์ ชี้เป็นนวนิยายที่เสนอมิติอันซับซ้อนของตัวตนมนุษย์ ใช้กลวิธีเล่าเรื่องได้แยบยล ภาษาสวยและทรงพลัง แสดงจินตนาการผู้เขียนสุดลึกซึ้ง

ม.ร.ว.สุขุมพันธุ์อ่านคำประกาศของคณะกรรมการตัดสินว่า นวนิยายเรื่อง ลับแล,แก่งคอย ของนายอุทิศ เหมะมูล เสนอมิติที่ซับซ้อนของตัวตนมนุษย์ที่แยกไม่ออกจากรากเหง้า ชาติพันธุ์ ชุมชน ความเชื่อ และเรื่องเล่า โดยผู้เขียนเล่าเรื่องชีวิตมนุษย์ที่ต้องเผชิญความคาดหวัง ซึ่งไม่อาจต้านทานได้และพยายามดิ้นรนหาทางออก ซึ่งผู้เขียนใช้กลวิธีการเล่าเรื่องอันแยบยล สร้างตัวละครที่มีเลือดเนื้อและอารมณ์ราวกับมีตัวตนจริง สร้างฉากและบรรยากาศได้อย่างมีชีวิตชีวา และใช้ภาษาเรียบง่ายแต่ทรงพลัง แสดงจินตภาพกระจ่างและงดงาม

ส่วนหนึ่งจากคำวิจารณ์ของคุณสกุล บุณยทัต (อ่านบทวิจารณ์ฉบับเต็ม)

ในความทรงจำของชีวิต เราต่างมีบาดแผลทางจิตวิญญาณเกาะติดกันอยู่อย่างติดตรึงและลึกเร้น บางขณะมันมักจะลงโทษเราจนป่วยไข้...และหลายๆขณะมันมักจะผลักดันให้เราต้องตก อยู่ในอาการหม่นมืดคลุมเครือหลับๆตื่นๆ เป็นจริตแห่งมายาคติที่ตามติด...คอยหลอกหลอนหัวใจอันบริสุทธิ์ของเราให้ต้อง ตกอยู่กับความน่าสะพรึงกลัวในสิ่งที่บ่มเพาะวิถีแห่งตัวตนอันแตกซ่าน และไร้เกาะป้องกันในการควบคุมบริบทแห่งการมีชีวิตอยู่ให้ดำรงอยู่ได้อย่าง ถาวรและสงบนิ่ง ซึ่งยิ่งยาวนานสิ่งอันเป็นปรากฏการณ์แห่งความเหลื่อมซ้อนในท่าทีเบื้องต้นก็ จะค่อยๆกลับกลายเป็นความลับแห่งจิต และค่อยๆสะสมจนกลายสภาพเป็นความเหินห่างแห่งการรอคอยที่ไกลออกไปจากความดี งามของชีวิต...มากยิ่งขึ้นทุกที..

สาระแห่งเรื่องราวเบื้องต้นคือปฐมบทแห่งสำนึกคิดของการหยั่งรู้อันเป็น ผลลัพธ์แห่งผัสสะในการเล่าเรื่อง..ผ่านนวนิยายที่ทั้งปลอกเปลือกและเฉือน คว้านเข้าไปในเนื้อในของวิถีแห่งจิตวิญญาณที่สับสนและสั่นสะท้านอันเนื่องมา แต่ความจริงอันบาดลึกจากประสบการณ์ที่ถูกกระทำย่ำยีซึ่งสั่งสมอยู่ในจุดแตก ดับแห่งมุมมืดภายใต้หัวใจและตัวตนของความลวงหลอก

ลับแล , แก่งคอย โดย อุทิศ เหมะมูล นักเขียนหนุ่มผู้สร้างสรรค์เนื้องานด้วยลีลาอันแยบยลแห่งจิตรศิลป์และจินต ศิลป์สื่อสะท้อนถึงอุบัติการณ์แห่งการถูกจองจำอย่างโหดร้ายภายใต้การบีบกด จากสัญชาตญาณที่ถูกทุบทำลายอย่างไร้หวัง...ด้วยภาพแสดงที่พลิกกลับไปมาทาง กลไกของการรับรู้และเข้าใจ

บทสัมภาษณ์อุทิศ เหมะมูล (ถ้ายังไม่ได้อ่าน ไม่แนะนำให้ดูนะครับ มี spoiler ตอนท้าย)

Amor Fati

From wikipedia ...

Amor fati is a Latin phrase that loosely translates to "love of fate" or "love of one's fate". It is used to describe an attitude in which one sees everything that happens in one's life, including suffering and loss, as good. That is, one feels that everything that happens is destiny's way of reaching its ultimate purpose, and so should be considered good. Moreover, it is characterized by an acceptance of the events that occur in one's life. It is almost identical to the Jewish concept of Gam Zu Letovah (this too is for the best).

The phrase is used repeatedly in Nietzsche's writings and is representative of the general outlook on life he articulates in section 276 of The Gay Science, which reads,

I want to learn more and more to see as beautiful what is necessary in things; then I shall be one of those who make things beautiful. Amor fati: let that be my love henceforth! I do not want to wage war against what is ugly. I do not want to accuse; I do not even want to accuse those who accuse. Looking away shall be my only negation. And all in all and on the whole: some day I wish to be only a Yes-sayer.

Quote from "Why I Am So Clever" in Ecce Homo, section 10^[1]:

My formula for greatness in a human being is amor fati: that one wants nothing to be different, not forward, not backward, not in all eternity. Not merely bear what is necessary, still less conceal it—all idealism is mendaciousness in the face of what is necessary—but love it.

What defines an under-developed country?

Answer: Its policy maker?

Deputy Finance Minister Suchart Thada-Thamrongvech signals on Thursday that the government wants the Bank of Thailand to "step back" on its monetary policy.

"So far, the monetary policy of the BOT governor (Tarisa Watanagase) has been in the opposite way of the government's policy. The government wants to stimulate the economy, but the BOT has done the opposite thing," Suchart told a seminar earlier today.

He said he would meet BOT Deputy Governor Atchana Waiquamdee later today and would talke about the monetary policy issue with her.

I am not expecting a top-notch economic genius (who may yet to be born in Thailand) here, but surely we could at least afford someone who have either:

• Done economics 101, and understand that fiscal policy does not involve interfering with monetary policy, or
  
• Heard of time inconsistency and the central bank independence debate, or
• Read world history, and remember what inevitably happens when inflation is allowed to get out of hand because money supply is dictated by political will
  

So more education, and we should be sorted? Here comes the real depressing bit...this guy's qualification:

• B.A. (Hons), (Economics), Thammasat University
• M.Sc. (Economics), The London School of
  Economics and Political Science, U.K.
• Ph.D. (Economics), McMaster University, Canada

Maybe it's my fault, and I should go back to brush up my economic education. Not on monetary economics, but on incentives and political economy.

Quote of the Week

Questioned whether the EU leaders discussed foreign exchange intervention, Jean-Claude Juncker said

"Would we have done so, I wouldn't answer the question, but we have not done so. Would we have done so, I would have denied that we did"