LOOKING BACK AT MACROECONOMICS 101
A Ringside view of the Global Financial Crisis from Asia in Real Time
Alok Sheel
Academic Foundation
424 pages; Rs 1,295
Critics such as Olivier Blanchard, former chief economist at the International Monetary Fund, have argued for an indepth interrogation of the models that have come to define the profession as well as the underlying assumptions they make about the economy and the behaviour of agents.
Many have argued that models used routinely by macroeconomists should be expanded to deal with events where a small shock, which in this case would be decrease in housing prices, could have a large effect on the economy. Mr Blanchard, among others, has also called for expanding the dynamic stochastic general equilibrium models used by monetary authorities to better recognise the role of the financial system.
Others such as Meghnad Desai, economist at the London School of Economics, have traced the origin of ideas that have become the bedrock of the mainstream macroeconomics discourse. Mr Desai proposes an alternate framework that relies on a blend - Schumpeter/Kondratieff's theory of long cycles, Wicksell-Hayek's theory of short cycles, coupled with Karl Marx's ideas of the cycle of changing shares of labour and capital driven by demography and technology.
The latest endeavour to look at the theories that have come to define the discipline is Looking Back at Macroeconomics 101. The author, Alok Sheel, an officer in the Indian Administrative Service (IAS) with over 30 years of public service and policy experience, attempts to look at the "anomalies in applying received wisdom or theories to the real world".
But the book is anything but new. It is a collection of the author's articles in leading Indian financial dailies over the years. The overarching theme of the book is to look at the financial crisis of 2008 and explore the policy debates that have shaped global discourse since then. The articles have been neatly slotted into eight themes that cover issues such as the savings glut, the dollar's hegemony, the financial crisis, the policy response of the G20 - issues that have received a lot of academic interest.
But the problem with the practice of clubbing published articles into a book is that there is no underlying theme. Newspaper articles, which are constrained by a word limit, don't offer space to expound an alternate view in detail. Books, by contrast, afford writers the luxury of unlimited space to introspect in much greater detail. As such, a collection of articles is bound to be disappointing. This approach has become emblematic of academics wanting to add a book to their name without taking the trouble of carrying out original, insightful research.
To be fair, the author does acknowledge these shortcomings in the preface. He falls back on the usual explanations to defend this approach - that few people actually end up reading a book so a compilation is the simplest way of engaging the inattentive reader.
More attentive readers, however, will feel the lack of a theoretical framework underpinning the author's views. Unlike say Mr Desai's Hubris, Mr Sheel does not interrogate the underlying assumptions that form the basis of modern macroeconomic thinking. Nor does he offer an alternate world view. Exploring the policy response to the crisis is undoubtedly a tall order. But given the ambitious title, one had hoped for more.
Chapters with an Indian orientation such as "How about a Taylor rule for India?" go nowhere. One was hoping for greater insight into the functioning of monetary policy in India - the supply side constraints under which monetary policy has to operate, the debate over measuring potential GDP, the shift to the inflation targeting regime. But rather than examining these issues Mr Sheel chooses to dwell more on monetary policy in developed economies.
Given that Mr Sheel was an interlocutor in the G20 deliberations during the global financial crisis, one looked forward to his insights on the deliberations during the tumultuous time. Instead, the author chooses to dwell largely on the G-20's response to the crisis by documenting the policy initiatives undertaken by various governments. There is almost no exposition of the behind-the-scene negotiations. Admittedly, such revelations may be difficult for a bureaucrat while in harness, which raises hope for another book focused on this very critical period in recent global economic history when Mr Sheel retires.
A PhD in history, Mr Sheel does, however, provide a succinct historical backdrop against which some of the discourses are set in chapters like "For freedom and markets", "A brief history of inflation" and "Once old certainties collapse". These chapters would be invaluable for the uninitiated because of the writer's clear, explanatory style.
A Ringside view of the Global Financial Crisis from Asia in Real Time
Alok Sheel
Academic Foundation
424 pages; Rs 1,295
More From This Section
The failure of macroeconomists to predict the global financial crisis of 2008 has led to widespread disillusionment with the discipline of macroeconomics. Many influential voices within the profession have called for deep introspection.
Critics such as Olivier Blanchard, former chief economist at the International Monetary Fund, have argued for an indepth interrogation of the models that have come to define the profession as well as the underlying assumptions they make about the economy and the behaviour of agents.
Many have argued that models used routinely by macroeconomists should be expanded to deal with events where a small shock, which in this case would be decrease in housing prices, could have a large effect on the economy. Mr Blanchard, among others, has also called for expanding the dynamic stochastic general equilibrium models used by monetary authorities to better recognise the role of the financial system.
Others such as Meghnad Desai, economist at the London School of Economics, have traced the origin of ideas that have become the bedrock of the mainstream macroeconomics discourse. Mr Desai proposes an alternate framework that relies on a blend - Schumpeter/Kondratieff's theory of long cycles, Wicksell-Hayek's theory of short cycles, coupled with Karl Marx's ideas of the cycle of changing shares of labour and capital driven by demography and technology.
The latest endeavour to look at the theories that have come to define the discipline is Looking Back at Macroeconomics 101. The author, Alok Sheel, an officer in the Indian Administrative Service (IAS) with over 30 years of public service and policy experience, attempts to look at the "anomalies in applying received wisdom or theories to the real world".
But the book is anything but new. It is a collection of the author's articles in leading Indian financial dailies over the years. The overarching theme of the book is to look at the financial crisis of 2008 and explore the policy debates that have shaped global discourse since then. The articles have been neatly slotted into eight themes that cover issues such as the savings glut, the dollar's hegemony, the financial crisis, the policy response of the G20 - issues that have received a lot of academic interest.
But the problem with the practice of clubbing published articles into a book is that there is no underlying theme. Newspaper articles, which are constrained by a word limit, don't offer space to expound an alternate view in detail. Books, by contrast, afford writers the luxury of unlimited space to introspect in much greater detail. As such, a collection of articles is bound to be disappointing. This approach has become emblematic of academics wanting to add a book to their name without taking the trouble of carrying out original, insightful research.
To be fair, the author does acknowledge these shortcomings in the preface. He falls back on the usual explanations to defend this approach - that few people actually end up reading a book so a compilation is the simplest way of engaging the inattentive reader.
More attentive readers, however, will feel the lack of a theoretical framework underpinning the author's views. Unlike say Mr Desai's Hubris, Mr Sheel does not interrogate the underlying assumptions that form the basis of modern macroeconomic thinking. Nor does he offer an alternate world view. Exploring the policy response to the crisis is undoubtedly a tall order. But given the ambitious title, one had hoped for more.
Chapters with an Indian orientation such as "How about a Taylor rule for India?" go nowhere. One was hoping for greater insight into the functioning of monetary policy in India - the supply side constraints under which monetary policy has to operate, the debate over measuring potential GDP, the shift to the inflation targeting regime. But rather than examining these issues Mr Sheel chooses to dwell more on monetary policy in developed economies.
Given that Mr Sheel was an interlocutor in the G20 deliberations during the global financial crisis, one looked forward to his insights on the deliberations during the tumultuous time. Instead, the author chooses to dwell largely on the G-20's response to the crisis by documenting the policy initiatives undertaken by various governments. There is almost no exposition of the behind-the-scene negotiations. Admittedly, such revelations may be difficult for a bureaucrat while in harness, which raises hope for another book focused on this very critical period in recent global economic history when Mr Sheel retires.
A PhD in history, Mr Sheel does, however, provide a succinct historical backdrop against which some of the discourses are set in chapters like "For freedom and markets", "A brief history of inflation" and "Once old certainties collapse". These chapters would be invaluable for the uninitiated because of the writer's clear, explanatory style.