The Great Debate UK
from The Great Debate:
The limits of the scientific method in economics and the world
By Roger Martin
The opinions expressed are his own.
This is part one of this essay. Read part two here.
As the economy teeters and the capital markets gyrate, I can’t get out of my mind the evening of May 19, 2009. We were near the stock market nadir and fears were cresting that we were heading straight into the next Great Depression. I was invited to a dinner along with half a dozen tables of guests to hear a very prominent macroeconomist opine on the state of the economy and the path to recovery.
The economist held forth with a detailed, analytical account of what had caused the economic meltdown in the second half of 2008 and the path that he predicted recovery would take. I was struck by how scientific he was, spewing myriad statistics, employing technical terms by the boatload, and praising his econometric model. It was ‘very sophisticated’. Given the nods and encouraged looks in the room, it seemed as though he had provided great comfort to the guests; they could go to bed confident that thanks to his science, they could trust that this man knew where we were headed.
I wasn’t quite so confident. Being the curious sort, before coming to dinner I had checked his forecast from a year earlier, mere months before the crash. His spring 2008 forecast for the second half of 2008 was for modest positive economic growth for America. This was not unusual; no credible economist predicted anything less rosy for the back half of 2008, although many now claim that they did. I don’t blame or ridicule him for being cautiously optimistic mere months before the worst economic downturn in 80 years. Economic forecasting is fraught with peril.
For me, the striking thing about the evening was that nothing changed about his models after they were shown to be hopelessly wide of the mark. He just loaded up the equations, dumped in the latest numbers and started crunching away. I asked him whether he had altered his models in the wake of his dreadful forecast of 2008; stunningly, he hadn’t thought of the question.
from Business Traveller:
Will the London Olympics kill tourism?
This week I have been looking ahead to next year’s Olympics from a travel perspective.
The European Tour Operators Association (ETOA), which routinely terrifies Olympic host cities with head-turning shock figures, brought out a survey last week suggesting leading inbound operators are seeing an average 90 percent downturn in bookings during the London 2012 Games.
From an Arab spring to a new English winter of discontent?
By Mark Kobayashi-Hillary. The author is the chief executive of technology research group, IT Decisions, based in São Paulo, Brazil. The opinions expressed are his own.
Labour leader Ed Miliband used a column in last weekend’s Observer newspaper to suggest that it is time for politicians to listen to the protestors at the Occupy London protest camp next to St Paul’s Cathedral.
Put the euro zone out of its misery
By Laurence Copeland. The author is a professor of finance at Cardiff University Business School. The opinions expressed are his own.
Let me make a wild guess – just a hunch, a vague feeling, the kind you get when you hear a football club chairman say “the manager has my full support”. My forecast is that the IMF monitors currently poring over the Italian government’s books will uncover a black hole somewhere, probably one big enough to swallow the euro zone, and the discovery will leave them as shocked as Captain Renault when he found there was gambling going on at Rick’s Bar in Casablanca.
from The Great Debate:
The Keynes-Hayek showdown
By Nicholas Wapshott
The views expressed are his own.
Eighty years ago an anguished debate between two economists began in Britain -- and came to shape the politics of the world after World War Two. The differences between John Maynard Keynes and his nemesis Friedrich Hayek sharply described alternative approaches to addressing the ebb and flow of the business cycle, with Keynes arguing that to put the jobless back to work governments could and should intervene in the market and Hayek insisting that such actions were based on an inadequate understanding of how economics really worked and would only delay the day of reckoning.
That snarky disagreement was so vicious and ill-mannered that one old-school economics professor described it as “the method of the duello” being “conducted in the manner of Kilkenny cats.” On Tuesday, in the Asia Society on Park Avenue, New York, two teams of economists, one representing Keynes, the other Hayek, will slug it out before an audience of 250 and bring the debate to America. Seventy years ago, Keynes’s ideas were eagerly embraced by young American economists who began implementing the Cambridge economist’s ideas first in Franklin Roosevelt’s administration, then in every government until Jimmy Carter, when Hayek’s disciple Milton Friedman introduced monetarism as a guiding principle.
from Hugo Dixon:
Chaotic catharsis
Chaos, drama and crisis are all Greek words. So is catharsis. Europe is perched between chaos and catharsis, as the political dramas in Athens and Rome reach crisis point. One path leads to destruction; the other rebirth. Though there are signs of hope, a few more missteps will lead down into the chasm.
The dramas in the two cradles of European civilization are similar and, in bizarre ways, linked. Last week's decision by George Papandreou to call a referendum on whether the Greeks were in favor of the country's latest bailout program set off a chain reaction that is bringing down not only his government but probably that of Silvio Berlusconi too.
from Ian Bremmer:
The secret to China’s boom: state capitalism
By Ian Bremmer
The views expressed are his own.
One of the biggest changes we’ve seen in the world since the 2008 financial crisis can be summed up in one sentence: Security is no longer the primary driver of geopolitical developments; economics is. Think about this in terms of the United States and its shifting place as the superpower of the world. Since World War II, the U.S.’s highly developed Department of Defense has ensured the security of the country and indeed, much of the free world. The private sector was, well, the private sector. In a free market economy, companies manage their own affairs, perhaps with government regulation, but not with government direction. More than sixty years on, perhaps that’s why our military is the most technologically advanced in the world while our domestic economy fails to create enough jobs and opportunities for the U.S. population.
Contrast the U.S. and its free market economy with China’s system. For years now, that country has experienced double digit growth. Many observers would say that China’s embrace of capitalism since 1978, and especially since joining the World Trade Organization in 2001, has been responsible for its boom. They would be mostly wrong. In fact, a new study prepared for the U.S. government says it’s not capitalism that’s powering China, but state capitalism -- China’s massive, centrally directed industrial policy, where the government positions huge amounts of capital and labor in economic sectors it intends to nurture. The study, prepared by consultants Capital Trade for the U.S.-China Economic and Security Review Commission, reads in part:
from The Great Debate:
The physics of an economic crisis
By Emanuel Derman
The views expressed are his own.
The great financial crisis has been marked by the failure of models both qualitative and quantitative. During the past two decades the United States has suffered the decline of manufacturing; the ballooning of the financial sector; that sector’s capture of the regulatory system; ceaseless stimulus whenever the economy has wavered; taxpayer-funded bailouts of large capitalist corporations; crony capitalism; private profits and public losses; the redemption of the rich and powerful by the poor and weak; companies that shorted stock for a living being legally protected from the shorting of their own stock; compromised yet unpunished ratings agencies; government policies that tried to cure insolvency by branding it as illiquidity; and, on the quantitative side, the widespread use of obviously poor quantitative security valuation models for the purpose of marketing.
People and models and theories have been behaving badly, and there has been a frantic attempt to prevent loss, to restore the status quo ante at all cost.
from The Great Debate:
Strategies to save the only planet we have
By Peter Loescher
The views expressed are his own.
This week the seven billionth citizen of the world was born, causing all of us to ponder the future. Does this rapid population growth pose a threat to our planet? Is this development a risk or is it also an opportunity?
One thing is clear: time is running out. When the wall between the east and west fell there were a little over five billion people on the earth. At the turn of the millennium there were already over six billion. By the middle of the 21st century we must reckon with over nine billion. We are already using the earth’s resources faster than they can regenerate. If this development continues unchecked, the requirement for raw materials – whether biomass, fossil fuels or ores – could more than double by 2050, and the same applies to energy consumption and greenhouse gas emissions. We would then actually need more than two earths, but we only have one.
Capitalism and democracy under threat from euro zone crisis
By Laurence Copeland. The author is a professor of finance at Cardiff University Business School. The opinions expressed are his own.
It takes quite a lot to make me feel sorry for politicians, especially the European variety, but I must say that Nicholas Sarkozy and particularly Angela Merkel have a right to be livid at the news that the Greek government now proposes to hold a referendum on whether they will agree to be given another gigantic dollop of aid. Having only reached agreement (of a very vague kind) at last week’s summit in the early hours of the morning, you can imagine how the French and German leaders must have felt when they discovered that their marathon negotiating sessions may all have been in vain. It seems the Greeks are now too wary of foreigners bearing gifts to accept their largesse without weeks or months of prior deliberation and debate.
