India! I dare you to be rich

Category Archive: Economics

A tiny sliver of humanity contributes more than 50 per cent to our progress and wealth. #3

The human capital literature in economics does not have refined studies that distinguish top talent from ordinary talent. The paper I cited here was the first I had come across but it was not an empirical analysis.

Now, the Economist has written about a paper that proves this hypothesis empirically, that top talent matters most.

"It is the skills held by top engineers and entrepreneurs that enables a society to innovate and foster the type of rapid technological progress that characterised the industrial revolution".

(Word version of the Economist article and PDF of the paper). 

All the more reason for India to focus on “upper-tail knowledge” – or ultra-talent.


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A tiny sliver of humanity contributes more than 50 per cent to our progress and wealth. #2

I haven’t found many papers that explore the inequality of human contributions, about how a very small proportion of humanity contributes disproportionately to human progress and wealth.

This makes is crucial to nurture, develop and attract the world's top talent (both academics and students).

The previous paper I provided demonstrates the disproportionate value of top talent in the following ways:

a) Marginal product: The distribution of income and wealth is highly skewed. If we assume that income represents the marginal product in a competitive economy, this strongly indicates differences in productivity across each cohort, largely (based on other studies) based on human capital and innate capacity,

b) Publications: Journal publications by scientists follow a similar skewed distribution, particularly in terms of impact.

One can add Tyler Cowen's book, Average is Over, to the mix.

No society can be a leader in tomorrow's world without having a "pointy end" of super-bright scientists and technologists.

This does not mean that others don't need to be well-educated, but that a special strategy is needed to support the very top end of each cohort.

I believe the best mechanisms for this include total privatisation of higher education, along with special arrangements (preferably through private initiatives) to increase the quality of education in the physical sciences.

I don't agree that IQ is a proper measure of the quality of human capital. It is true that "the average income difference between a person with an IQ score in the normal range (100) and someone in the top 2 percent of society (130) is currently between $6,000 and $18,500 a year" [Source].

However, I'm talking about a combination of IQ, knowledge and passion that determines the very top contributors in society. These people are serious outliers, out by six sigmas or more, but not on IQ alone. 

I'm on the lookout for solid research on this topic, so would appreciate inputs.


The inequality of human contribution

Who contributes most?

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A tiny sliver of humanity contributes more than 50 per cent to our progress and wealth. #1

First this paper in HTML. Download in PDF. I discussed this in BFN. I think this has many more implications that need to be understood.

A soft mathematical model for brain drain

Gangan Prathap

It is a widely held belief, even among senior people in the government, that India is a country with vast human resources and that even if about 10% goes abroad after higher qualifications, it would not make a dent in the country’s total productive potential. Implied in this argument is the assumption that if 10% of the human resources goes abroad, it would take away only 10% of the intellectual energy in the population. Is there any scientific basis for this? If a scientific, or a mathematical model were to be sought for this, how should this be done? In this article, based on some well-known power-law models used in complex systems like ecology, economics, scien­tometrics and seismology, one can argue through a soft mathematical model that a small per cent of the cream at the top can take away a disproportionately large amount of intellectual resources

Some preliminaries

THE origins of this essay go back nearly thirty years to September 1974. The occasion was the convocation func­tion where I was to receive my first degree in engineer­ing. The Chief Guest was the Prime Minister of India, Indira Gandhi. The Chairman of the Board of Governors of IIT Madras, in his speech, assured her that only 25% of the graduates of that institute left for greener pastures abroad; what has come to be known as the brain drain. Again, it was implied that 75% of the output in numbers was available to address and solve the problems of our country.

This seemingly simple formula that if 25% of the num­bers leaves, it takes away only 25% of the intellectual potential (energy?) in the age cohort, is a deceptive one. There was no scientific basis for it, which could be expressed as a simple mathematical model so that one could assert quantitative relationships describing the dis­tribution of intellectual potential in a population. Person­ally, as a student of the graduating class of 1974, it was clear to me that this was obviously wrong. The 25% of my batch that migrated in 1974 were arguably the best of that batch, the crème de la crème, as it were, of the crème de la crème that was the pool from which they were selected through a punishing process. It was also obvious to me that they took away with them more than 25% of the talent in the batch, but how much more than that was not something that could be easily factored out of a simple formula.

Before a formula could be found, it was necessary to assemble the basic underlying principles, so that a pheno­menological model can be proposed. I shall elucidate on this search for first principles below, as these principles were not gathered in one place, nor did they appeal to me at one point of realization in time. What seems apparent is that there are patterns in the ecology of intellectual energy. It has been well known for quite some time now that power-law distributions are useful descriptors for a variety of complex natural, social and economic systems1. It is tempting to apply this to the problem of brain drain. There are models from economics (the Pareto law), bio­logy (the Eltonian pyramid), scientometrics (the Zipf and Lotka laws) and seismology (the power laws that describe the distribution of seismic events and the energies relea­sed) which can be combined to give a soft mathematical model for the ecology of intellectual activity. (A hard mathematical model is typically like one using the laws of Newton to predict the trajectory of a rocket launch vehicle, or the use of Navier–Stokes equations to predict the lift on an aircraft wing).

It has taken nearly thirty years for this search to come to a point where a written account of it could be satis­fyingly made. Yet, many doubts remain and much more refinement of the arguments is called for.

The rank-ordering statistics

Almost immediately after the 1974 convocation, I came across something the historian Will Durant had written. He said that one of the greatest lies ever invented was that all men are born equal. Equal before the law, perhaps. Equally deserving of opportunity for personal growth and realization, perhaps. But definitely not born equal from the point of view of pelf or privilege; let alone from the point of view of ability. Thus, one could find an Einstein or an Edison, who is the equal of a hundred thousand or a million men and women, as far as his potential to trans­form the world through his ideas was concerned. How does one draw up this distribution of ability in a cohort?

Or with much more difficulty, the distribution in a large community, like that of a whole subcontinent?

The question is, how frequently is intellectual ability or energy of extremely high order distributed among the general population? The factor that determines this is a complex and dynamic interaction of biology, sociology, economics and psychology, in a large distributed system, an ecology of intellectual energies. Thus, the systemic behaviour and its patterns must have evolved from bil­lions of individual interactions over millions of years. We are hopeful that patterns do exist and can be sensed. What we are looking for is definitely not a Gaussian or normal distribution. Rank-order statistics2 based on power-law distributions are obviously required, as we are concerned with establishing how frequently large events (an Einstein or an Edison) which are assumed to be rare, appear among the small events (the man in the street) which are common. While the statistics of cumulative distributions is well suited to describe the small events which are fre­quent, rank-ordering statistics seems to be the only way to describe the infrequent large events.

One area of sociology which has been systematically studied from this point of view is that called scientomet­rics, where an attempt is made to measure scientific acti­vity. But, before that, there are some interesting lessons to be learnt from economics.

Lessons from econometrics

The Italian engineer-turned-economist and political socio­logist, Vilfredo Pareto, realized that wealth is not evenly distributed3. Some of the people have most of the money. In fact, a fairly consistent minority, about 20% of people, controlled the large majority, about 80%, of a society’s wealth. If we examine this distribution with an even finer microscope, we would find that of the top 20% which owns 80% of the wealth, the 80–20 formula still applies reasonably consistently, so that the following pyramid can be set up as shown in Table 1. Thus, less than 1% or so of the population may account for 50% or so of the wealth.

Table 1.          The Pareto principle and the pyramid of wealth distribution

80–20 rule       :

20% has 80%

0.800 has 0.200

80–20 rule on this 20% :

0.2 X 0.2 = 0.04 has

0.160 has 0.160


0.8 X 0.8 = 0.64


80–20 rule on this 4%       :

0.2 X 0.04 = 0.008 has

0.008 has 0.512


0.8 X 0.64 = 0.512


so that




Pyramid of numbers    Pyramid of wealth







That the same distribution is true for many other areas has been frequently noticed and is now termed the Pareto principle. In fact, Juran has extended this idea to an argu­ment that 80% of all effects is produced by only 20% of the possible causes. One could project from this that 80% of all major intellectual and social revolutions originates from about 20% of the protagonists, and that even in this, maybe a small fraction (less than 1%) accounts for most of the major developments.

Lessons from scientometrics


An area of intellectual activity that is most easily amena­ble to quantification is the production of research output as measured by publications in the open literature. The ecology of this enterprise, where a large number of scien­tists work, about half of them publish, but only a few account for the highly cited work, is complex. It is by no means clear that iron-clad laws have emerged, but the semblance of power-law distributions is easily noticed. Norbert Wiener (I am a mathematician, Science, 1964) is said to have argued that 95% of the original work is made by less than 5% of all scientists. Here, we see something like Pareto’s law at work. Two laws that are well known in this field go by the names of Zipf4 and Lotka5.

Zipf’s is the law of rank frequency, which postulates that rank r occurs with a frequency which is inversely related to r. Note that a large number of variables are hidden in the system, but the rank-to-frequency relation­ship is captured in a simple way. Thus, if an author of the first rank has a 100 papers, an author of the second rank may have 50 (= 100/2) or 25 (= 100/22) papers, depending on the power of the inverse relationship. In this simple relationship that Zipf postulated, some kind of ‘principle of least effort’ was operating.

More useful in our context is Lotka’s law of scientific productivity, whereby the number of authors making n contributions is about 1/n2 of those making 1. In grossly simplified terms, this means that if we find a 1000 authors with 1 paper each, about 10 authors may have 10 papers each, and several thousands may participate in the intel­lectual process associated with scientific discovery but never get to publish. However, the law is not accurate at extreme tails, and it is perfectly possible that we may find an author with a 1000 papers and another with a 100 or more papers. This is not unlike the Pareto law expressed for economics, where 1 person may have 10 billion dol­lars, another 10 may have a billion dollars each, and bil­lions may live below the poverty line. Recently, press reports indicated that the three richest families in the world have as much wealth as that of the total population of the poorest 46 countries of the world! Later, I will argue that in seismology, earthquakes are distributed in a similar pyramidal fashion, and that they release energy in a similar inverted pyramidal way.

What if human ability and genius are not distributed in a Gaussian fashion, but in the highly skewed manner that we see in other complex systems, like those examined above? This leads to the frightening conclusion that a small fraction of the population can take with it a dispro­portionate amount of the singular genius in a population. If this group is creamed-off in the emigration process, the loss to the donor nation is huge, even if the numbers con­cerned are small.

Elton’s pyramid for ecological systems

In complex ecosystems, e.g. as found in most food chains, the number of individuals decreases at each stage, with huge numbers of tiny individuals at the base and a few large individuals at the top6. A simple example often given is that displayed by millions of plankton, a moderate num­ber of large fish, and a few eagles. Animals high on the food chain are both larger and rarer than animals lower down, as in the predator–prey relationship, where the predator must be larger than the prey. This is referred to as the ‘pyramid of numbers’ or Eltonian pyramid. This model has an order of magnitude of 10. The Eltonian pyramid thus portrays the relationships among the trophic levels of such ecosystems and can be based on numerical abun­dance, biomass or energy. A complex interplay between energetic principles, parameters and processes gives rise to the Eltonian pyramid. We shall see below that a soft model will capture this pyramidal structure.

The seismic analogy

Another excellent example of the presence of power-law distributions in the natural sciences is the frequency–

magnitude distribution of earthquakes. On the Richter scale, magnitude is a quantitative measure of the size of an earthquake. Earthquakes of higher magnitudes are rarer than those of lower magnitudes. Table 2 shows the average annual number of the global occurrence of earthquakes. Note a pyramidal sequence in these numbers. However, the energy released scales up according to a 103/2 law; i.e. an increase in magnitude by 1 indicates about 31.6 times higher energy released. The pyramid of energies is now inverted. We see that only 0.1% of the major earthquakes (here chosen as M > 4), accounts for more than half of the energy released and that about 2% of these accounts for more than 90% of all energy released.

The pyramid for intellectual energy

We start by recognizing that the intellectual energy in a cultural system is built up in a complex way from nature (biology of the genotype and phenotype) and nurture (the sociology and psychology of the information process and the meme) and the dynamics of the socio-economic system and its interactions. There are obviously too many varia­bles for any meaningful hard mathematical model or for­mula to be obtained. However, we can take comfort from the foregoing examples that the ecology of the intellec­tual process will throw up outstanding scientists and in­ventors in the same pyramidal and power-law fashions shown above. If we assume, in one simple model that the numbers scale by factors of ten (say, the Einsteins and the Edisons are ten times rarer than a Nobel Prize winner, etc.) and that intellectual energies scale the way energy is released in an earthquake, we get Table 3.

One per cent of the population (1 + 10 + 100 + 1000) takes away almost 99% of the supremely original intel­lectual energy of the population. One can play around

Table 2.

The pyramid of numbers and energies of earthquakes


Annual average number

Energy per event

Total energy

> 8


3.16 X 1010

3.16 X 1010



1 X 109

1.80 X 1010



3.16 X 107

0.38 X 1010



1 X 106

0.08 X 1010



3.16 X 104

0.02 X 1010



1 X 103




3.16 X 101









5.44 X 1010


Pyramid of      Cumulative      Cumulative numbers   Pyramid of energy      Cumulative energy

numbers           numbers           as percentage   as percentage   as percentage

















Table 3. A pyramid of intellectual energies



Total energy































Table 4. A pyramid of intellectual energies



Total energy































with these terms. For example, if the energies also scale as factors of ten, then 1% of the population takes away two-thirds of the energy in that population, as shown in Table 4. In fact, we find that Pareto’s distribution is more charitable, where the top 1% accounts for roughly 50% of the intellectual wealth.

The economics of brain drain

The Indian diaspora has dispersed over two centuries. Since the mid-19th century, the migrations were mainly of semi- or unskilled labour to South Africa, Mauritius, the West Indies, Fiji, Sri Lanka, Malaysia and Singapore, Myanmar, East Africa and more recently, to the Gulf countries. However, since Independence, several million people have been economic emigrants to North America and other Western countries like Australia, Canada, etc. These are highly trained people. More recently, since the IIT system was put in place, a significant number has left for greener pastures abroad. Even more recently, with India being recognized as a cheap source of English-speaking IT talent, an equally significant number of highly trained youngsters (high-technology specialists, as they are some­times called) goes abroad. Even the recent trend where multinationals set-up Centres of Excellence in India, employing our most highly qualified youngsters, at sala­ries which are several times the prevailing compensations in the government or public sector, is not without worry. A Nature news feature (19 October 2000) had indicated that our ‘most valuable scientific assets [are] being used as cheap labour to address the problems of multinational companies, rather than the issues facing India’s develop­ing economy’. These may be only a minuscule fraction (less than 1%, i.e. about 250,000 each year of an age co­hort of about 25 million). Yet, I have argued that these are invariably the brightest and the best of those trained in through the system, and would carry away with them not 1% of the intrinsic genius in the population, but maybe 50% or thereabouts of the singular ability in that population.

We recall once again that it is known through empiri­cal evidence collected over several centuries that both natural phenomena and complex social and economic systems are governed by power-law size distributions. The largest events dominate these processes. Thus, we have seen from seismology that a few large earthquakes account for most of the energy released throughout the year by millions of seismic events, and therefore for most of the changes that take place at plate boundaries.

In a similar fashion, one can argue that human progress is dominated by the appearance of a few individuals of rare, exceptional abilities. If the brain drain is predicated on a filtration process that ensures that the highest trained individuals find it profitable to leave to donee nations (in recent years, almost invariably the United States), the loss to the productivity potential of donor nations would be huge. The gain to the donee nations is also incalcula­ble. The brain drain is something that cannot be ignored or wished away.

1.Mandelbrot, B., The Fractal Geometry of Nature, Freeman, New York, 1983.

2.David, H., Order Statistics, John Wiley, New York, 1981.

3.Pareto, V., Cours d’Economie Politique, Droz, Geneva, 1896.

4.Zipf, G., Human Behaviour and the Principle of Least Effort, Addison-Wesley, Cambridge, Massachusetts, 1949.

5.Lotka, A. J., The frequency distribution of scientific productivity. J. Washington Acad. Sci., 1926, 16, 317–323.

6.Elton, C. S., Animal Ecology, Sidgwick and Jackson, London, 1927.

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What advantage do Bitcoins possess that cannot be secured through the purchase of gold?

A reader asked this question today (the  title of this blog post).

My response:

Once risks to its survival are perceived to have reduced (i.e. regulators have failed to stop it) then it will behave like any other risky asset with limited circulation (e.g. like a Picasso painting). Total number of bitcoins are limited by design, and can only be 'mined' (through grunt force of computers) at incrementally higher and higher cost. This further imposes a limit on the total number that can be put into circulation.

Unlike a central bank that can increase money supply, or gold – more of which can be found in the future – Bitcoin supply is fixed for ever.

In the long run, therefore – assuming regulators can't shut it down one day – Bitcoin will perform better than gold as a store of value. The more the people who buy Bitcoins, the greater its value becomes. There is an in-built virtuous cycle in Bitcoin design.

People may prefer to park their dollars in Bitcoins instead of in banks, since Bitcoins should, on average, grow in value over time.

However, Bitcoins are not free of risk – at least for another couple of years. But once risk is further reduced, there is only an up-side.

There is also an advantage to Bitcoin in comparison to gold or a painting by Picasso: that one doesn't have to hold Bitcoin physically. These can be parked in any Bitcoin exchange at very low transaction cost.

Similar properties apply to all alternative cryptocurrencies. However, since Bitcoin is driven by "belief", people have voted with their money for Bitcoin and are abandoning other cryptocurrencies. This doesn't mean that the risk of the "herd" moving to another currency doesn't exist – which will reduce the value of Bitcoin. However, like Facebok has now comprehensively taken over the social media space and eliminated all other rivals – due to "herd" preference, so also Bitcoin seems to have become the cryptocurrency of choice of the "herd".


Further, here is an example of ongoing regulatory risk:

It is possible, though, that such international regulations can provide a large boost to the value of these currencies.

My sense, though, is that these currencies can't be regulated in any meaningful way.

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My experiment with Bitcoin and musings on its future: From negative to neutral, even a little bit positive.

Despite my objections to Bitcoin and my negative views about it (see this and this), I think Singapore is right to undertake due diligence to understand it properly.

Singapore keeps pushing ahead while the West stagnates: there is a culture of deep innovation in its public sector (which is essentially private). Singapore does not ignore new technologies. It tries to understand them and take advantage where possible.

Following this lead from Singapore, I've also put a tiny bit of money into bitcoin and one other alternative currency, so I can understand what is going on. I also managed to read up quite extensively about these alternative currencies. This is money well spent to get a better understanding of cryptocurrencies.

My concerns are largely regulatory, and many of these concerns still remain. But I find that regulators have had a very long time and done NOTHING about Bitcoin. Therefore, this has now grown too big to deal with. It is a REAL thing, that needs to be given real consideration.

I've purchased these cryptocurrencies through a Hong Kong based exchange. There was very diligent validation of identity by the exchange. That should help lower money laundering risk. I had transferred AUD through my bank, so this is a fully recorded transaction.

BUT I understand that customers of the exchange can plunk in their bitcoins directly into the exchange (i.e.not through banks). These bitcoins, being totally anonymous, could have been purchased/ mined in any number of ways unrelated to the regulatory system – including through drug/corrupt money.

My question is: how can any regulator even possibly deal with this issue? Maybe that's why they are sitting on the sidelines, confused about what they can do.

The exchange can be regulated and can check ID, but how can anyone identify "black-money" bitcoins? All bitcoins look the same, like drops of water in the ocean.

I can report the following:

1) There is THICK trading – very active trading of bitcoins in the Hong Kong based exchange. Spreads are very small, as a result. Trading is instantaneous. 

2) There is very THIN trading in alternative currencies: only a few of them are convertible into dollars, only very small amounts are traded, with very wide spreads. 

3) Most alternative currencies that are traded (very few are) have been declining in value over the past many months.

4) Bitcoin volatility has dramatically reduced over the past few months.

5) Bitcoin market capitalisation is around $8 billion compared with the nearest competitor, Litecoin, at $200 million. 

6) Hundreds of thousands of businesses accept Bitcoin, compared with almost none for most others.

This indicates:

- Just like Facebook displaced Myspace and Okrut comprehensively and totally, so also the "eyeball" factor, the thick trading factor, and the assurance that the black money and corrupt industry of the world will always act as a "base" for the bitcoin market, have meant that alternative currencies are being wiped out, even as Bitcoin is now becoming more of a "store of value" and more likely to be used/traded across the world. Alternative currencies are fighting a losing battle. This is not about the First Mover advantage, but about the acceptance and hence liquidity and credibility of the market.

- There is not much to distinguish between various crypto-currencies, some minor technical matters notwithstanding. As commodities, it is now merely a matter of consumer preference (thickness of markets) that will dictate which one "wins".

- Regulators have had plenty of time to resolve the money-laundering and black-money issues that plague Bitcoin, but they simply CAN'T. They've thrown up their hands. Therefore, bitcoins are likely to flourish regardless of what regulators do.

- Bitcoin has started behaving more like an asset (an appreciating store of value) than currency. I don't have a digital wallet yet and don't see the need to create one. That will require me to hold bitcoins at my own risk and I could lose them if I lost my digital wallet. Much better to store them in a digital exchange, like an asset.

- As bitcoin is increasingly seen by more people as an asset that increases in value, demand for bitcoins could increse, leading to a self-fulfilling explosion in value. THE MORE THE PEOPLE THAT BUY BITCOIN, THE MORE THAT WILL BUY IT, AND THE MORE ITS VALUE WILL INCREASE.

- Bitcoin is increasingly likely to become part of people's diversified portfolios.

- The moment any two or three governments "validate" bitcoin (through regulatory means), its "desirability" will radically increase, thereby causing a RUSH TO BUY, which will dramatically increase its value, and therefore desirability.

- Regulators are likely to realise that they best way to regulate Bitcoin is to work out agreements with Bitcoin exchanges to share data of their citizens. E.g. the Hong Kong exchange could provide data to Australia about my purchase – and particularly when I sell Bitcoin. Regulators will increasingly seek to enforce money laundering and other laws at the point when Bitcoins are converted into dollars, being largely unable to control conversion from dollars into Bitcoin.

- Bitcoin – once it has reached 'critical mass' – is unlikely to lead to a 'run on the bank' – i.e. panic sale, which is a relatively common problem with paper money.

- People are more likely to want to be paid salaries in Bitcoin once it has become established as an alternative currency-asset (it has both properties).

If regulators aren't able to "ping" Bitcoin rather quickly now (they've already taken too long), then I expect Bitcoin to become a very disruptive technology. Its impacts could be very far reaching and completely unprecedented. Vast economies could come into existence that never convert Bitcoin into dollars, and trades occur through internet/electronic means, totally invisible to regulators. E.g. if people in the peer-to-peer (e.g. TaskRabbit/ Uber) economy prefer to be paid in Bitcoin and more businesses accept Bitcoin as payment, which means many transactions will become invisible to the economy.

[I doubt, though, that regulators will allow large assets, e.g. homes or cars, to be ever purchased through Bitcoin. Payments to employees in the visible economy could also be restricted to "official" currencies - but to date, regualators seem to have not done anything concrete to stop the runaway train that is Bitcoin. Furture regulation could prevent the purchase and sale of property in Bitcoin - or at least requiring full disclosure of exchange value in local currency on the date of transaction. - one way is to use an anti-avoidance clause that allows stamp duty to be charged on a higher value if there is a low consideration paid.] 

This could mean the rapid decline of taxes and the growth of economies (and even legal systems) entirely invisible to the government.

Do I recommend BitCoin now? No, I still recommend great caution, just in case a big regulator somewhere manages to find a way to shut it down. But the risk of any regulatory closure of Bitcoin is fast diminishing. At best, it is likely to be regulated and therefore "regularised" (hence made more popular: once that happens, Bitcoin will shoot up in value to astronomical levels).

Bitcoin is potentially the reverse of a Ponzi game, as it relies on (a) limited issue of coins and (b) complete absence of regulatory disruption. Therefore, once enough people "believe" in it, it only has an upside, not downside.



Deciphering the cryptic world of bitcoin, July 13, 2014

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Had Greenspan followed Friedman US could have been saved from (now inevitable) decline

Subheading: Central banks should have constrained independence and follow the Friedman-Taylor-Henderson-McKibbin rule

Milton Friedman outlined the concept of monetary rule many decades ago. This rule ensures that just that much money is made available to an economy that is consistent with a modest level of inflation.

To ensure inflation targeting, central banks were required to be 'independent' enough to make such the appropriate decisions in a timely manner. 

In practice, though, central banks have tended to behave like fiefdoms, with consequent interference of their personal preferences into the rate setting process. Greenspan is a classic case with his publicly declared preference for supporting the ability of Americans to buy houses. In that process he not only forgot his own initial work as an economist (he was a close associate of Ayn Rand) but forgot the BASIC economic law – of unintended consequences. 

Most times what we SEEK to achieve through simplistic economic policy yields the PRECISE OPPOSITE in practice. This has been proven conclusively, again and again.

Hence the critical importance of following a rule AT ALL TIMES.


I do not want central banks. That these institutions create more trouble than it is worth has become conclusively clear over the last century. Therefore there needs ot be a transitional process to dissolve central banks – but in a systematic manner (bank regulatory functions will still be needed).

But if there must be a central bank it MUST follow a rule. CONSTRAINED independence is the key.

Had central banks followed Friedman, they'd have not created the disasters they have done across the world over the past many years.

Australia was very fortunate in having Warwick McKibbin on the Reserve Bank of Australia from 2001-2011, the period during which RBA performed in a sterling manner and prevented the rout of Australia.

Australia did not do as well as it could have done because the fiscal policy (due to Keynesians at the helm) became extremely loose. But because of McKibben, Australian banks and institutions are today one of the strongest in the Western world.

This recent talk by John Taylor must be made MANDATORY for all students of economics. And the writings of McKibben, one of the best economists in Australia.

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