Thought for the day
”The greatest deception men suffer is from their own
opinions."
-
Leonardo da Vinci (Italian, 1452-1519)
Word for the day
Refractory (adj)
Stubbornly disobedient; unmanageable.
(Source:
Dictionary.com)
Teaser for the day
What does various by-poll results suggest:
(a) Modi
magic is waning.
(b) Amit
Shah's political strategy of polarization on religious line has totally failed.
(c) The
era of BJP vs. Rest has firmly arrived.
(d) Cong
has a real chance in Haryana and Maharashtra.
(e) BJP
needs to change its post May'14 media strategy.
(f) All of the above.
Case against "Make in India"
In past few months leaders from both ruling NDA and opposition
UPA have spoken about making India a manufacturing hub. PM's Independence Day
"Make in India" exhort has also evoked significant interest in
business circles. Investors are obviously enthused by the prospects of
beginning of a new investment cycle that would potentially kick start a
virtuous cycle in the economy.
As I have stated in past few days, in my view this may not be
good economics. It may rather be foundation for yet another bubble. As I highlighted
on Monday, though a bubble in itself may not be a bad idea, it invariably
leaves financial investors devastated. It therefore calls for abundant
precaution to be exercised by my fellow investors.
Before I start arguing my case against "Make in India"
program at this stage of Indian economic progress, I would like to reproduce an
interesting discourse from Unlearning Economics, I find relevant to the
current circumstances. I had in fact presented it earlier this year also.
"First, something which is expected to do a certain job -
whether it's an economic system or the economists who study it - is expected to
do this job all the time. If your stock broker promises to make money but loses
it after an asset bubble bursts, you won't be comforted by the fact that they
were making money before the bubble burst. And if an economic system, or set of
policies, promise to deliver stability, employment and growth, then the fact
that it fails to do so every 7 years means that it is not achieving its stated
objectives. In other words, the "invisible hand" cannot be acquitted
of the charge of failing to do its job by arguing it only fails to do its job
every so often.
Second, the argument implies there was no causal link between
the boom and the bust, so the stable period can be understood as separate from
the unstable period. Yet if the boom and the bust are caused by the same
process, then understanding one entails understanding the other. In this case,
the same webs of credit which fuelled the boom created enormous problems once
the bubble burst and people found their incomes scarce relative to their
accumulated debts. Models which failed to spot this process in its first phase
inevitably missed (and misdiagnosed) the second phase.
A lot of the major macroeconomic frameworks (such as Infinite
Horizons or Overlapping Generations models) have two main possibilities: a
steady-state equilibrium path, or complete breakdown. In other words, either
things are going well or they aren't - and if they aren't, it's usually because
of an easily identifiable mechanism, one which constitutes a "notably rare
exception" to the underlying mechanics of the model. Such a mentality
implies problems, including recessions, are not of major analytical interest,
or are at least easily diagnosed and remedied by a well-targeted policy.
Subsequently, those versed in economic theory may have trouble envisaging a
more complex process, whereby a seemingly tranquil period can contain the seeds
of its own demise. This causes a mental separation of the boom and the bust
periods, resulting in a failure to deal with either.”
...to continue
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