This post explores the consequences of deeply negative interest rates set by the ECB, as proposed by professor Miles Kimball. It’s a shorter version of my previous post, plus an estimation of the economic stimulus of the proposal. Continue reading “Negative rates: a massive transfer from savers to bank shareholders and governments with little impact on economic growth. (Post in response to Miles Kimball)”
Should the European Central Bank (ECB) have an independent evaluation office (IEO)? Benjamin Braun recently asked this question on Twitter.
— Benjamin Braun (@BJMbraun) June 27, 2017
My first reaction was: probably not, because the ECB already evaluates its past performance. However, after more thought, I have changed my mind. This post examines some recent failures of central banks; how an IEO could improve monetary policy going forward1; and what it would take for the IEO to be an effective department rather than a paper tiger. Continue reading “Should central banks have an Independent Evaluation Office?”
Professor Christopher Balding has published a blog post with his views on the link between the China’s banking system and its currency: Can China Address Bank Problems without Having Currency Problems?
He believes that “it is much more likely that if there are systemic banking issues that currency problems will also arise.”
It is laudable that Prof. Balding summarizes his arguments. By being explicit about the assumptions, readers don’t just have to trust his opinion. Instead they can follow the logic and evaluate the strong and weaker points themselves.
The goal of this post is to counter some of the points listed by Balding to support his conclusion. Continue reading “Problems with Christopher Balding’s analysis of Chinese banks and currency”
Or to be more precise, debate about the financial institutional framework edition.
How should banks be regulated? Ten years ago, this question would have only interested a few specialists. Discussions about bank supervision and the role of the central bank were way too boring for the general public1. Besides, bankers surely knew what they were doing?
The global financial crisis and its aftermath changed this complacent attitude. The existing rules did not prevent the worse financial crisis since the 1930s. Governments had to bail out banks at a moment’s notice. Politicians took drastic decisions during the panic of September 2008. While those actions were taken with little democratic oversight, national leaders2 were the only agents willing and able to stop the collapse.
The crisis spurred a thorough update of bank regulation. Both in the United States and in Europe, legislation was passed to make banks safer. Avoiding a repetition of ad-hoc bailouts became a priority. The U.S. got its Dodd-Frank Act. The European Union (EU) set up the European Banking Authority (EBA) and worked towards a banking union3. America and Europe implemented capital and liquidity standards based on the Basel III recommendations. Continue reading “What I like about America, finance edition”
The internet offers an endless stream of analyses and opinions. On this blog, I sometimes comment on articles written by people who have a large audience. My disagreement with better known commentators is regularly confused for arrogance. “What do you know, dude? You are a blogger, the other guy is a professor.” Such statements show how easily people refer to authority1 instead of critically evaluating the arguments.
When I point out dubious logic, that does not mean the authors have nothing interesting to say. Quite the contrary, I often agree with them on many points. But pinpointing disagreements and calling assumptions into question can be very insightful. So when I critique for example Paul Krugman or Geert Noels, I’m not saying “neglect these fools”. I hope that readers will take into account my point of view, and confront it with that of others. I am no contrarian for the sake of being a contrarian.
This ideal dynamic is illustrated by historians David Wootton and Joel Mokyr. Mokyr’s book A Culture of Growth: The Origins of the Modern Economy explains why Western Europe was the first region in the world to make sustained technological and economic progress. In his review, Wootton summarizes the thesis put forth in the book. Then, he argues that the story is incomplete. In the comments below the review, both gentlemen defend their points of view.
That is one of the advantages of the internet. Well-informed contributors can quickly challenge opinions. I have learned a lot over the years from (often anonymous) online commentators. It is a shame many media have closed down the comment sections. Blocking feedback does not add to their credibility.
I would advise scientific journals to enable comments as well. Papers go through peer-review before they are published, but the reader cannot see these discussions. Commenting on a scientific article via a new publication takes a lot of time. Getting out new results and contradictory information faster would accelerate learning in all disciplines. Blogs can also expose disinformation.
If you don’t agree with me, you can always let me know in the comments!
Update 17/05/2017: Chris Said has a nice blog post on different levels of understanding. He calls the dialectic process of reaching the next level ‘Learning by flip-flopping‘. Open discussions as I advocate above are the means to transcend your previous, more basic knowledge.
There is a Dutch proverb that says “een ezel stoot zich geen twee keer aan dezelfde steen”. Its literal translation is “a donkey doesn’t bump against the same stone twice”, but is usually translated as “once bitten, twice shy” or “a fox is not caught twice in the same snare”.
The proverb means that people don’t (or shouldn’t) make the same mistake twice. Even a dumb animal like the donkey is smarter than that.
Apparently, the political pundits are dumber than donkeys when it comes to Trump. For over a year, they have underestimated his chances. Here is a list of Trump predictions, in which the ‘You are now here’ marker has continuously moved down:
Not having learned from their embarrassing experience, the pundits cannot help but continue their failed predictions. Continue reading “Trump predictions. Let me get some popcorn.”
The electoral victory of Donald Trump has dumbfounded the pundits. Nobel Prize winner and political commentator Paul Krugman was very confident prior to the election that Hillary Clinton would win.
When the election results came in, he was shocked. Krugman admitted that he didn’t know the United States as well as he thought he did.
I truly thought I knew my country better than it turns out I did. I have warned that we could become a failed state, but didn't realize 1/
— Paul Krugman (@paulkrugman) November 9, 2016
This was not surprising. Krugman is the prototype of a sheltered elite living in a bubble. How many Trump voters do you think he personally knows? Probably none. Rather, he inhabits an echo chamber full of likeminded people. Just to give some examples, I’m talking about people like Noah Smith, Brad DeLong, Paul De Grauwe and Simon Wren-Lewis.
All have academic backgrounds, cushy jobs, and liberal technocratic preferences. They all read papers like the New York Times. They all are given a forum in the quality press. The all “know” Trump is an incompetent idiot. They all “know” that “facts have a well-known liberal bias”.
In spite of their titles and influence, they were dead wrong about Trump. Continue reading “Don’t be an idiot like Paul Krugman”