Update:This letter appears in condensed form in the November 20, 2007 Mint.
Drawing inspiration from Don Boudreaux, I sent this letter today to Mint.
To
The Editor,
Mint
November 1, 2007Freising, Germany
In the column “Cafe Economics – Games hedge funds play, Niranjan Rajadhyaksha extends his support to the view that finds hedge funds in sinister light and central banks in benevolent light. He uses the HKMA example to endorse the Reserve Bank of India’s ostensibly heroic “ears to the ground” posturing while erecting capital controls and fuelling inflation by defending an exchange rate peg.
Far from being an exemplar of laissez-faire macroeconomics, the HKMA precipitated the speculative attacks in the 1990s as a result of its deviation from orthodoxy. An orthodox currency board never has to act defensively, just as nobody “defends” the rupee exchange rate between different states of India. A unified monetary zone does not elicit speculated attacks from within, sudden and coordinated or otherwise. By the way, the interest rate meddling and stock market prop up were bugs, not features.
A good a civil engineer does not prefer seismic sensors to strong foundations. A good electrician seeks out the short circuit before he rushes to replace the fuse. A good parent teaches his child that sand-castles are inherently risky, not that waves are evil. Economists should likewise prefer sound institutions to circuit breakers.
Sincerely
Sumeet Kulkarni
Filed under: Fatal Conceit, Indian Media, Inflation, RBI | Leave a Comment
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