The 2013 Nobel Prize for economics celebrates that financial markets work, but cautions how little we know. One theme unifies the work of all three winners: Eugene Fama, Robert Shiller and Lars Hansen -- risk. (A disclosure: until August I worked at Dimensional Fund Advisors, where Fama is a director and consultant.) Risk is unpredictable, but can be very profitable. That sounds simple enough, but it has profound implications -- not only for the lords of high finance, but households, too. Risk teaches humility, to overconfident investors and also policymakers. That humility was notably absent at the IMF/World Bank meetings last week. Policymakers should take special note of the prize this year; it reveals how little we really understand about financial markets.
The Great Debate UK
The Law of Diminishing Returns states that a continuing push towards a given goal tends to decline in effectiveness after a certain amount of effort has been expended. If this weren't the case, Usain Bolt would be able to run the mile in less than 2-1/2 minutes.
from The Great Debate:
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.
from Ian Bremmer:
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.
Come back Mr Fukuyama, all is forgiven.
In his 1992 book "The End of History and the Last Man", American political scientist Francis Fukuyama famously argued that all states were moving inexorably towards liberal democracy. His thesis that democracy is the pinnacle of political evolution has since been challenged by the violent eruption of radical Islam as well as the economic success of authoritarian countries such as China and Russia.
It seems barely a week goes by without another shock report about the ever-widening gap between those at the top of the earnings distribution and the rest of us. The facts are by now well-established. Throughout the Western world, but most noticeably in Britain and America, the earnings of the top one or two percent are accelerating into the stratosphere, leaving the middle class a long way behind, and the working class completely out of sight. How can one explain this global phenomenon?
from Felix Salmon:
Thank you, internet: Henry Farrell and his commenters have all the snark so desperately required in response to Alan Greenspan's ludicrous op-ed in the FT. And they're not alone: as Alex Eichler notes, "everyone is laughing at Alan Greenspan today". Greenspan could hardly have made himself look like more of an idiot if he'd tried, not only because the "notably rare exceptions" construction is so inherently snarkworthy, but also because it's so boneheadedly stupid. Anything which normally makes money is a good idea if you ignore the times that it doesn't work.
Joschka Fischer was never one to mince words when he was Germany's foreign minister in the late '90s and early noughts. So it is not overly surprising that he has painted a picture in a new post of a world with only two powers -- the United States and China -- and an ineffective and divided Europe on the sidelines.