The idea that ‘the market’ must be the organizing principle for collective decision-making should be abandoned.
By Diane Coyle – Despite ever-improving conditions for millions of people around the world—documented by entities like the University of Oxford’s Our World in Data and highlighted by scholars like Steven Pinker—popular discontent is on the rise in many places.
The reason is simple: whereas the first trend is being driven by low- and middle-income countries, the second is concentrated in high-income countries.
Throughout the developed world, conditions for many workers are deteriorating, with no recovery in sight. Income inequality is near historic highs, wealth inequality is even higher and economic insecurity is widespread.
As the United Kingdom tears itself apart politically and constitutionally over Brexit, many of its citizens struggle with low-quality jobs, inadequate housing and poverty so severe that they rely on food banks.
France’s yellow-vest protests have been hijacked by violent extremists, but they reflect real grievances about the growing challenge of maintaining living standards.
In the United States, the Economic Report of the President touts the supposed elimination of poverty, but life expectancy does not decline in a prosperous country.
In short, the post-World War II social contract in many of today’s developed economies is breaking down. And even more uncertainty and insecurity are on the way, as new technologies such as artificial intelligence and robotics take root.
Given the depth of the transformation ahead, however, it is not just the policies themselves that must change, but the very framework on which they are based. This means abandoning the idea—which has shaped public policy for more than a generation—that the ‘market’ must be the organizing principle for collective decision-making. more>
Posted in Book review, Business, Economic development, Economy, Education, History, Leadership, Media, Net, Science, Technology
Tagged Business improvement, Capital, Credit, Government, Internet, Leadership, Markets, Organizing Principle
Machine learning can help money managers time markets, build portfolios, and manage risk
By Michael Maiello – It’s been two decades since IBM’s Deep Blue beat chess champion Garry Kasparov, and computers have become even smarter. Machines can now understand text, recognize voices, classify images, and beat humans in Go, a board game more complicated than chess, and perhaps the most complicated in existence.
And research suggests today’s computers can also predict asset returns with an unprecedented accuracy.
Yale University’s Bryan T. Kelly, Chicago Booth’s Dacheng Xiu, and Booth PhD candidate Shihao Gu investigated 30,000 individual stocks that traded between 1957 and 2016, examining hundreds of possibly predictive signals using several techniques of machine learning, a form of artificial intelligence. They conclude that ML had significant advantages over conventional analysis in this challenging task.
ML uses statistical techniques to give computers abilities that mimic and sometimes exceed human learning. The idea is that computers will be able to build on solutions to previous problems to eventually tackle issues they weren’t explicitly programmed to take on.
“At the broadest level, we find that machine learning offers an improved description of asset price behavior relative to traditional methods,” the researchers write, suggesting that ML could become the engine of effective portfolio management, able to predict asset-price movements better than human managers. more>
Posted in Business, Economy, Education, How to, Net, Technology
Tagged Business improvement, Capital, Chicago Booth, Internet, Machine learning, Skills
Funding an ecological transition in Europe via ‘green money’ bonds would be economically justifiable.
By Paul De Grauwe – To what extent can the money created by the central bank be used to finance investments in the environment?
This is a question often asked today. The green activists respond with enthusiasm that the central bank—and, in particular, the European Central Bank (ECB)—should stimulate the financing of environmental investments through the printing of money.
The ECB has created €2,600 billion of new money since 2015 in the context of its quantitative easing (QE) program. All that money has gone to financial institutions which have done very little with it. Why can’t the ECB inject the money into environmental investments instead of pouring it into the financial sector?
Most traditional economists react with horror.
Who is right? It is good to recall the basics of money creation by the ECB (or any modern central bank). Money is created when that institution buys financial assets in the market. The suppliers of these assets are financial institutions. These then obtain a deposit in euro at the ECB, in exchange for relinquishing these financial assets. That is the moment when money is created. This money (deposits) can then be used as their reserve base by the financial institutions to extend loans to companies and households.
There is no limit to the amount of financial assets the ECB can buy.
In principle, it could purchase all existing financial assets (all bonds and shares, for example), but that would increase the money supply in such a way that inflation would increase dramatically. In other words, the value of the money issued by the ECB would fall sharply. To avoid this, the bank has set a limit: it promises not to let inflation rise above 2 per cent. That imposes a constraint on the amount of money which the ECB can create. So far, it has been successful in remaining within the 2 per cent inflation target. more>
Posted in Banking, Business, Economic development, Economy, Education, History, How to
Tagged Business improvement, Capital, Credit, Fiat money, Monetary policy