One feature of each period of turbulence is that we get an upsurge of out of the box thinking. While it is always good to think out of the box, these innovative ideas must also make sense. If I were a teacher of economics, I would use these in class as demos of how not to do economics:
- Coordinated intervention by emerging markets. Andy Mukherjee nails this one.
- Devesh Kapur and Arvind Subramanian want an import tariff -- that they term a `third best measure' -- to do things that exchange rate depreciation does better.
- Veerappa Moily says we should close down petrol pumps at night so as to reduce consumption of petrol.
- Swaminathan S. Anklesaria Aiyar thinks there is a second Asian Financial Crisis in store. But Asia has substantially moved away from exchange rate rigidity. He says depreciation is recessionary. No, depreciations are expansionary. He implies that depreciation is a problem in India today as corporations have large unhedged foreign currency borrowing. The existing evidence does not support this.
- Jamal Mecklai on temple gold. It is satire.
my understanding is depreciation can be both expansionary(non-tradables) and recessionary (due to trade deficit) in case of india given the CAD it would be more recessionary isn't it ?
ReplyDeletehttp://www.frbsf.org/economic-research/publications/economic-letter/1999/october/depreciations-and-recessions/
It's like treating the symptom, not the disease
ReplyDeleteI'm bothered by something to the extent that I'm going to comment on it everywhere, where relevant!
ReplyDeleteIt was amusing to see in the news: "The Union cabinet has approved an accord with the United Arab Emirates (UAE) to nearly quadruple airline seats between the two countries over three years."
What the... ? Does no one find it ridiculous that the govt decides how many seats are going to be available between two countries? Does it do this for every country? I was making fun of Chidambaram's trips abroad last year as his attempt to find new, foreign bakras to invest in India, since no one in India is investing. It seems this is one example where they found a willing bakra, although UAE likely isn't naive.
But, this raises all sorts of questions. What is the likelihood that UAE did not bribe someone in govt for this? Surely close to zero?
I don't understand why the govt sits and approves individual deals. It is a recipe for corruption. Why don't they set policy and then stand back and let the markets work? Of course we know why, but how is it going to change?
The hope has been that with the exposure of the scandals of the last few years, governance will change for the better. This example shows that there is no chance of that? Will the media attack this way of governance. Likely not, in which case, who will?