Special Lecture on the Financial Sector, Macro Economy and Macroeconomics

Click here to REGISTER | INVITE

Meeting ID: 823 6158 8903 | Passcode: 20250327

Abstract:If one looks at the operations of the financial (or asset) sector in history, one is struck by the number of major crises that have originated in it. Just to pick the more spectacular ones: the South Sea Bubble, the Great Depression, the bubble economy of Japan, the East Asian Crisis, the dot com bubble in the USA and the Global Financial Crisis of 2007-09. Since finance or credit is the lifeblood of business, any disturbance there unleashes destructive forces that cause severe damage to production and employment (recessions) in the real sectors. And many of these devastating crises have come at the end of extended periods of upswing and optimism in the stock market-the roaring twenties and roaring nineties. Finance has become synonymous with volatility, fragility and weapons of mass economic destruction.

Carefully designed regulations, most seriously undertaken after the Great Depression, did much to tame the wild forces of finance. But financial deregulation that started in the 1980s in the USA and spread rapidly to Europe, Japan and other countries as part of sweeping free market reforms has undone over a very short period the accumulated gains of decades. The emerging market economies (EME) were forced to deregulate as part of the SAP. Not surprisingly, financial crises have resurfaced with terrifying frequency. Thanks to prudent macro management, India has remained relatively immune to the periodic bouts of wanton destruction.

This lecture will focus on:

Unique features that make the asset market special and dissimilar from the markets for commodities and non-financial services,
The harm that under-regulated finance has done,
The role of economists in unshackling the beast, and
The inability of standard textbook macroeconomics to provide adequate tools for understanding modern economies dominated by unstable asset markets ( both domestic and global). Keynesian economics, which boldly disobeyed the principles of orthodoxy, did succeed in taming the business cycle; nothing comparable has emerged after GFC. An interesting theoretical innovation will be discussed in this context.