Economics to Blame?

Today's Business Standard has an article by Pranab Bardhan 'Economics to blame?'

He ends it well,

Our courses and research seminars are often steeped in a kind of technique fetishism, and marked by a deplorable oversight of history and systemic issues. The latter, for example, made many economists in their zeal for financial deregulation in the US oblivious of the corrupt influence of the financial oligarchy (described in vivid terms by Simon Johnson, the former chief economist of the IMF, in a widely noted article, ‘The Quiet Coup’, The Atlantic, May 2009). One can detect similar systemic obliviousness among the over-enthusiastic liberalisers in India of the corrupt grip of the industrial oligarchy in the political life of the country.

The complicity of the academia is reinforced by the fact that the beginning courses in major graduate schools of Economics in the US often succeed in weeding out students with lively minds still curious about general structural problems of an economy in the larger context of history and society, and mainly allow those who have the stamina and the manic perseverance to follow the current technical fads in their narrow groove. The premium is on cleverness, not on balanced judgment or wisdom. We can serve our profession (and the policy world) better if we don’t take our findings and formulae too seriously or lose sight of the big picture, which historians and sociologists grapple with in a less precise, but often more insightful, fashion.

Peak Oil and Risk

Got a mail yesterday from Suyodh about an article in NYT debunking the Peak Oil theory. As a risk analyst looking at Economy, Ecology and Energy, his comments below are enlightening to get a perspective on how humans perceive risk.

There are these two young fish swimming along and they happen to meet an older fish swimming the other way, who nods at them and says, "Morning, boys. How's the water?"

And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, "What the hell is water?"

...

The most obvious, ubiquitous, important realities are often the ones that are hardest to see and talk about. - David Foster Wallace

For the young fish if it is water, for us humans today, it is energy that we are largely blind about, and in effect, take for granted. Every organism's existence is about energy exchanges. We surely know what energy is, but as a species, do we give it the amount of thought that it deserves?

Simplistically:

Energy flows into -----> ORGANISM ---------> Tissue build-up; Work and Waste flows out (+energy diffusion in conversion process)

That said, 'Peak Oil Is Heresy' advocates will not find a much better qualified spokesperson than Michael Lynch, the writer of the below NYTimes article.

What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so. --Mark Twain

Check out: www.theflatearthsociety.org/forum

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Suyodh has not commented on the article as – Peak Oil is a Waste of Energy :)

The article itself by Matthew Lynch, former director for Asian energy and security at the Center for International Studies at the Massachusetts Institute of Technology and energy consultant, is worrying to say the least – apart from misleading arguments, the final policy conclusions contradict his stand:

This is not to say that we shouldn’t keep looking for other cost-effective, low-pollution energy sources — why not broaden our options? But we can’t let the false threat of disappearing oil lead the government to throw money away on harebrained renewable energy schemes or impose unnecessary and expensive conservation measures on a public already struggling through tough economic times.

As always, in contentious articles, readers’ comments are the most enlightening, and thankfully the more than 100 comments left on NYT all contest Lynch’s arguments.

Meanwhile a debate goes on at the Economist Free Exchange

Models, realism and the Malaysian ringgit

Today's Mint has a nice article by Anantha Nageswaran on currency models and realism. One excerpt:

...the cause of disagreement between the International Monetary Fund (IMF) and Malaysia as the former conducted its Article IV consultation with the latter this year. IMF said the Malaysian ringgit was undervalued and needed to appreciate while Malaysian authorities demurred on the timing and perhaps on the magnitude of the suggested undervaluation itself.

There has to be certain sympathy for the Malaysian point of view. In Asia, it is hard to see many countries allowing their currencies to strengthen against the US dollar unless China sends a strong signal that it is about to let market forces dictate the value of the renminbi against the US dollar. That is not on the horizon and is unlikely to materialize any time soon.

Failed, Failing and Fragile States

How to restart growth in failed, failing and fragile states? How do we alleviate poverty in a sustained manner?What has been going wrong in development policies in recent years, compared to successful strategies in the past?

Reinert and Kattel's paper , part of the Tallinn University of Technology's Working Papers in Technology Governance and Economic Dynamics, documents the historical record across the world : Korea in 1950 was poorer than Somalia - what changed the growth trajectory for the two?

They argue that the root causes of poverty lie in a certain type of economic structure that fails to produce the virtuous circles of economic growth that need increasing returns and sufficient diversity and diffusion of economic activities in order to become self-sustainable

Six main differences distinguish today’s approach to economic development – as represented by the Washington Institutions – from previous theories of development process (Renaissance to Marshall Plan). Today’s theories fail:

1. To approach economic development from a multidisciplinary stand point, as was done in the German tradition of Staatswissenschaft;

2. To study and tailor-make policy-recommendations to the specific context in which a nation finds itself (insisting that ‘one size fits all’);

3. To observe and classify qualitative differences between economic activities (e.g. increasing or diminishing returns, perfect or imperfect competition, etc.);

4. To investigate differences between the productive structures of nations;

5. To conceive of development as a dynamic synergetic phenomenon propelled by self-reinforcing mechanisms (e.g. Collier’s static development ‘traps’ compared to the dynamic virtuous and vicious circles of classical development economics);

6. To understand the role of the state in economic growth from any standpoint other than ‘market failure’.