More on macro controls
From Eric Crampton:
Because he personally has lost faith in modern portfolio theory, he wants to force all of us to invest locally. Yeah, things have been rough for the last few years. But the proposal here seems pretty worrying.
It is a great post – adding to the things I said here, so definitely give the whole thing a read.
When the environment changes, for some reason people want “control” – they want to feel like they can change what is going on for the better. Although this is a noble goal, without trying to understand the underlying rationale and trade-offs associated with any choices, we are more than likely going to hurt people.
Fundamentally, I am willing to go out on the limb and say that, in this case, Bernard has no implicit model of the economy to base his policy prescriptions on – and so such prescriptions are both internally inconsistent and dangerous. If he provides us with a model, and an actual description of why, I would gladly discuss it – but from the last few weeks of reading through his writing on the issue (I decided to pay more attention following the initial article – especially given that I was receiving a lot of pressure from others to respond) I have not yet ascertained what it is.
Markets fail, institutions fail, governments fail – let’s try to understand why before we arbitrarily play with them. This is why economists struggle to understand why people fly off the rail like this, we see the point of our discipline as one of understanding and description – predictions are just an outcome from this process not the main goal (see lots of discussion on this issue).
Update: Surprisingly related posts on Economist’s View and Marginal Revolution (*, and response).
On Economist’s View, the claim is made that “protectionism is instinct, as we struggle with non zero sum games”. I have heard this before – and this explains why economics, and the actual functioning of the macroeconomy often seems “counter-intuitive”. Introversion is essential for doing economics – but we have to be willing to question our intuition if it just doesn’t hold!
This is relevant, as I get the impression that many calls for macro-controls are on the basis of this instinct.
On Marginal Revolution there is a link to an article on the adjustment in the yuan. Brad Delong’s reply also offers relevant points. Overall, this illustrates that the true “concern” regarding currencies has existed for a while – and stems from currencies being fixed NOT from the fact that many monetary authorities are simultaneously devaluing now. These issues need to be separated.