All entries for December 2008

December 25, 2008

Another one frim Martin Wolf

The best newspaper economy writer I know....for those who like economy remember, every wednesday on the FT

Keynes offers us the best way to think about the financial crisis

By Martin Wolf

Published: December 23 2008 18:06 | Last updated: December 23 2008 18:06

We are all Keynesians now. When Barack Obama takes office he will propose a gigantic fiscal stimulus package. Such packages are being offered by many other governments. Even Germany is being dragged, kicking and screaming, into this race.

The ghost of John Maynard Keynes, the father of macroeconomics, has returned to haunt us. With it has come that of his most interesting disciple, Hyman Minsky. We all now know of the “Minsky moment” – the point at which a financial mania turns into panic.

Like all prophets, Keynes offered ambiguous lessons to his followers. Few still believe in the fiscal fine-tuning that his disciples propounded in the decades after the second world war. But nobody believes in the monetary targeting proposed by his celebrated intellectual adversary, Milton Friedman, either. Now, 62 years after Keynes’ death, in another era of financial crisis and threatened economic slump, it is easier for us to understand what remains relevant in his teaching.

I see three broad lessons.

The first, which was taken forward by Minsky, is that we should not take the pretensions of financiers seriously. “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.” Not for him, then, was the notion of “efficient markets”.

The second lesson is that the economy cannot be analysed in the same way as an individual business. For an individual company, it makes sense to cut costs. If the world tries to do so, it will merely shrink demand. An individual may not spend all his income. But the world must do so.

The third and most important lesson is that one should not treat the economy as a morality tale. In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist. The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required. Socialists argued that socialism needed to replace failed capitalism, outright. These views were grounded in alternative secular religions: the former in the view that individual self-seeking behaviour guaranteed a stable economic order; the latter in the idea that the identical motivation could lead only to exploitation, instability and crisis.

Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge. He wished to preserve as much liberty as possible, while recognising that the minimum state was unacceptable to a democratic society with an urbanised economy. He wished to preserve a market economy, without believing that laisser faire makes everything for the best in the best of all possible worlds.

This same moralistic debate is with us, once again. Contemporary “liquidationists” insist that a collapse would lead to rebirth of a purified economy. Their leftwing opponents argue that the era of markets is over. And even I wish to see the punishment of financial alchemists who claimed that ever more debt turns economic lead into gold.

Yet Keynes would have insisted that such approaches are foolish. Markets are neither infallible nor dispensable. They are indeed the underpinnings of a productive economy and individual freedom. But they can also go seriously awry and so must be managed with care. The election of Mr Obama surely reflects a desire for just such pragmatism. Neither Ron Paul, the libertarian, nor Ralph Nader, on the left, got anywhere. So the task for this new administration is to lead the US and the world towards a pragmatic resolution of the global economic crisis we all now confront.

The urgent task is to return the world economy to health.

The shorter-term challenge is to sustain aggregate demand, as Keynes would have recommended. Also important will be direct central-bank finance of borrowers. It is evident that much of the load will fall on the US, largely because the Europeans, Japanese and even the Chinese are too inert, too complacent, or too weak. Given the correction of household spending under way in the deficit countries, this period of high government spending is, alas, likely to last for years. At the same time, a big effort must be made to purge the balance sheets of households and the financial system. A debt-for-equity swap is surely going to be necessary.

The longer-term challenge is to force a rebalancing of global demand. Deficit countries cannot be expected to spend their way into bankruptcy, while surplus countries condemn as profligacy the spending from which their exporters benefit so much. In the necessary attempt to reconstruct the global economic order, on which the new administration must focus, this will be a central issue. It is one Keynes himself had in mind when he put forward his ideas for the postwar monetary system at the Bretton Woods conference in 1944.

No less pragmatic must be the attempt to construct a new system of global financial regulation and an approach to monetary policy that curbs credit booms and asset bubbles. As Minsky made clear, no permanent answer exists. But recognition of the systemic frailty of a complex financial system would be a good start.

As was the case in the 1930s, we also have a choice: it is to deal with these challenges co-operatively and pragmatically or let ideological blinkers and selfishness obstruct us. The objective is also clear: to preserve an open and at least reasonably stable world economy that offers opportunity to as much of humanity as possible. We have done a disturbingly poor job of this in recent years. We must do better. We can do so, provided we approach the task in a spirit of humility and pragmatism, shorn of ideological blinkers

As Oscar Wilde might have said, in economics, the truth is rarely pure and never simple. That is, for me, the biggest lesson of this crisis. It is also the one Keynes himself still teaches.

December 22, 2008

About Leaders

About leaders. Thinking about some people I know that are really great leaders. Just real people I deal with, colleagues, friends, bosses. Trying not to confound managers with leader, people I liked with leaders. Using as a criteria people that somehow seemed to inspire other people. If being very strict when using the criteria, can`t find many. But all that I thought have one common characteristic. They all seem to have a brave way of taking their ideas forward. They all have personality, they are not afraid of thinking differently and assuming it. They have independent thinking.

All people that came to my mind are people that are not afraid of expressing different opinios from the majority when that is relevant. They are not stubborn or want to be different just for the sake of it, they are able to listen and to change their minds if convinced that they might be wrong, but they don`t do so just for the sake of doing or for being afraid of not belonging to the majority and being accepted.  They also don`t stick by their ideas out or proudness, but because they have put some thought on it and they have a set of values in place, therefore their ideas are usually backed up by a lot of effort and reflective thinking. I think that is the best criteria I`ve found so far to qualify someone as a leader.

If you want to be a leader, you first have to be able to lead yourself, to think independently and that (as pretty much everything else in life) does not come for free, it comes with effort, hard work. 

More thoughts on economy

Thinking a lot about economy lately. Interesting, I was a good economy student and did quite well In my Finance MBA. But I choose not to follow that  specific path in my career and I`m glad with the path I choose (that actually fell in my lap and I grabbed it!). However perhaps due to this credit crunch thing I`ve been thinking quite a lot about finance and macro economy. I guess that is because I`m seeing several things that for an economy student were legendary, were economical history kind of stuff unfolding right in front of my eyes. Funny. Who would guess people would turn back to Keynes. And Friedman has just died, he must be rolling inside his coffin with all this government spending , all this Keynesian policies on the work.

And gold! People are still buying gold to protect themselves! Why? Why for God`s sake? Gold has so little industrial-practical use nowadays that I see no sense in having it as value keepers in stressing times. The only real market they have know is for jewelry therefore the value of it is relying basically on human vanity! (ok, I now some sound systems rely on gold for quality of sound and probably there are other uses I`m not aware of, but not enough to justify all this relevance). I don`t see much difference in stoking gold and stoking any relatively reliable currency (dollar, euros, pounds…) and gold comes with the additional question of size, weight, transportation. Why do people still rely on gold?

I was thinking about that and trying to remember all the theories (economy as a science  was built on top of that discussion. Later we realised that putting value to things was just an easier way to compare things and therefore make choices. That`s why I like to define economy as a science of making choices assuming everything is scarce) around the value of things from uni years. There are quite a few, relating it to the amount of work, to the relative utility of the thing, considering offer and demand (on the short term) etc etc. Nothing fits into gold. It`s hard to get. Sure it is, but so are several other minerals. It`s relatively scarce, but several things a re relatively scarce. Offer and demand are surely controlled, like in any other market and that certainly contributes, but again it comes to use. Oil is controlled, but has a lot of use to it. The same with iron, soya, cotton, and all other commodities. But not gold. People have been fascinated and crazy about gold for centuries. And they still are. I can`t help thinking about those movies that show the earth after some catastrophic event and were water is rare (Mad Max being the biggest example) and people are crazy for it. In that situation would gold mind? In the future (I hope not) we might be protecting tankers filled with water, but will we be paying for it in gold? Don`t think (and actually I don`t think, unless something really catastrophic happens) that you should be stoking water in your houses. Surely the value of potable clean water will rise but if, let`s say, water is as valuable  as oil there will be Shell`s, Exxon`s, and so forth interested in cleaning water or making sea water potable for relatively affordable prices. So for an individual is just as useful stocking water as it is stocking gasoline now (sure enough one can go by without gasoline but not without water, but I think I made my point economically-wise).

Thoughts on a train

Long time no writing. Shame on me. Currently on train from Leamington to London. Missing the sun, going for it. I don`t know if the fact that I was born in a hot, sea-side, touristic sunny city has anything to do with it, but I miss the sun more than anything else. I have lived in 5 different cities of 3 different countries in my life. I always thought that the thing I`d really miss was the sea (my home town is a peninsula, therefore it is almost impossible not to be close to the sea), but the thing I really miss is the sun. When I lived in New Zealand we had a quite hard winter (well a Norwegian would perhaps say that it was quite mild, but I`m no Norwegian am I?) but I can not remember missing the sun that much. Perhaps we had more sun, perhaps I was sunnier, perhaps the fantastic family I lived with (and that I`m very glad to say I love as much as my own – biological -  family and I was able to show that this year. Miss them a lot, would not be here without them!) gave me that extra sun light I needed. Ironically enough today, as I`m leaving England for a few days in the sun, the sun is shining beautifully. And when it shines it is a beautiful view. I like the English landscape, the little hills, the green fields…I must say that I think the houses could be a bit more creative (and I think the British are very creative people), not being so similar. But I still like the landscape (especially when is sunny!).

December 07, 2008

Leadership challenge

Last Friday we had the leadership challenge in the morning. I was very happy the Ally offered herself to lead us, that was a very nice evolution and demonstration of courage.

We did very well ending with a very high punctuation. However a small thing happened, few people noticed but our team noticed, and it was a learning experience.

When there were only1 or 2 minutes left I realised that we had to input our results in the computer. There was another team using the computer so I got quite anxious. Half of our work was finished, we had one route defined but not the other. Ally and Luis were working on it.

With about 30 seconds left I set in the computer and input my numbers. Them Paul said we had only 10 seconds. I shouted to my team and told them to bring whatever they had. Better something them nothing. They brought me their route, but in a paper, not in the template. They gave the numbers, I typd them. I guess that by that time the 10 seconds were gone. I still had to input 2 other information, if they had gone through Kyle and how many points they had. None of those information was clear and I was to make a decision in seconds. I remember perfectly what came to my mind. For the points I know we had at least 500, probably more, but I could not be sure. Since we had 700  in the other route I decided to input 1200 and be honest, no try to put more them I thought we had (even though we probably had more). Second I also decided no tu put the lighthouse, for the same reason. Being honest, if I was not sure, best assume that we did not. Of course being honest was a driver, but there was another driver that was the fact that we could have some trouble if we had any kind of testing, if we had to prove and we could not prove it (and I did not know if we could!). So I take the safe route.

Ally got quite angry with me, because she thought we were trowing points away. I understand her, but reflecting on it, if I had to make the same decision again pressured by time and not having all needed information I`d have done the same. I think I took the right decision given the conditions. My only mistake on that specific situation is that I could have made an exta effort to explain it after. But things soon got clear and this was not needed.

But that`s a good example of how hard it is to make a decision under pressure, no time, not having full information and representing a group. In the specific situation I`m glad I made the right one and I think that what helped me do it was the fact that I have built in me a set of criteria, ready to be used when facing a decision . That`s good, but has got to be treated with care because can also became a barrier to taking different an new decisions.

Good sense, organizations and people

Submitted my CBE PMA. Good feeling, glad I did and glad I worked on it. It is a good feeling to deliver something that took a lot of honest effort.

I few things that came to my mind while working on it.

My father is a very religious person, very catholic. But he has a very nice approach to it, he understands faith is an individual questions and that each on of us must deal with it in a personal way. So we all (me, my 2 brothers and my sister) had the option to go or not this way (and so far, none of us did). But there is something he always says. It does not matter if you follow or not an organised religion as long as you love each other the same way you love yourself. It`s a beautiful thing. But sometimes not so easy to apply. Once I had a doubt about how to apply it on a specific situation, I came to him and discussed the matter. I remember he saying he could not decide for me, he could not say what to do, but that I should not forget the rule of love and I should use common sense when using it.

This common sense thing became part of me. Years later I was in the university learning economy, and after a time I realized that except by the jargons and very specific thing economy, like pretty much any other science, is a matter of common sense. I had the opportunity to teach it and always said that to my students, when in doubt, common sense.

Now, finnaly CBE. When giving a closer look at change management, organisational culture, continuous improvement and above all EFQM we find out it is all above common sense. It`s something special to say that when changing something you should put all the involved people to participate? It`s something new to understand that when going in a specific direction all the processes involved on it should be aligned in that direction? But that`s all in the material we found. Human beings are funny, we know what we should do when we stop and think, we know what is common sense, we know that what is called "common sense" is called that way because lots of people in lots of situations have taken that direction and decision so that it became a COMMON decision and logic, a tested and proved choice. But we still behave wrongly quite frequently and need studies, frameworks, models, theories to do it. Human, very human.

One last think. Common sense is good, but is not all. Sometimes we have to try something different, to break common sense, to go further, to innovate. The problem is knowing when and how. That`s why we have geniuses with major successes, and dumb people with major failures. The difference between brilliantly going beyond common sense and sadly falling by not respecting it, is success.

December 04, 2008

Some changes on mission and vision

Follow-up to My mission and vision from Francisco's blog

Reflecting on what we discussed today and in some learnings that I`m taking from my readings for the CBE PMA, I`ll make two changes on the mission (none in the vision):

Include one mission:

- Being an active member of the society I`m living on, doing my part to help it improve through volunteer work, political participation or any other mean that I uderstand possible and necessary

Change from:

"Make my best to help my colleagues to achieve their objectives. Always share knowledge."


Always have a cooperative approach and not a competitive one with my colleagues. Always share knowledge

It`s going to be improved.

December 03, 2008

My mission and vision

3 different discussions came together in my mind today. First the whole mission/vision definition thing. It`s hard to create missions and visions that are effective, realistic and at the same time are not just "comon sense". We had quite a few discussions about that the last few days/weeks therefore is quite clear in my mind.

Second, the other day I was discussing BSC with Smiley and Luis on the computer lab and I talked a litlle about the bit of experience I had with BSC in my life. I can`t remember how but I ended up talking about some plans I have for my future.

The next day, I was talking with Mariana about the project choice, and we were thinking about were we want to be in 5 tears, how hard is to define it.

Well, I put all of this together and thought. I`ll create a Mission and a Vision for myself, and perhaps as an exercise I`ll build a BSC later with it, to "deploy"it. Actually I`ve already done it in my mind, but not formalized.

Keep in my mind that this is just a draft (and for personal reasons I`ll say it in a way that makes sense only to me) that can and will be improved.


-To achieve the same professional level of X (a person that I have enormous admiration) in 8 years time while being able of building a healthy and happy family.


-Do that by using only my skills and efforts, never using any kind of "shortcut" or  non-ethical alternative

-Working hard but striving to keep the best possible enviroment around me.

-Always allow time for family, friends and for healthy activities such as sports, trips and entertainment

-Make my best to help my colleagues to achieve their objectives. Always share knowledge.

-Build a family and share equally the responsibility with my future wife.


December 01, 2008

Changed my mind – Leadership

Few posts ago I wrote that I did not agree with having "situation"in the definition of leadership. A few people (Kang is the one I remember now, sorry about the ones I forgot ) disagreed. I reflected on it. I agree with them now. I think it makes sense to consider the situation thing. And is more a rational  decision them an empiric one. It`s quite simple. If I believe that everyone can lead (and like it or not will have to do it someday, even if is just they`re lives they are going to lead), and I believe it, I must accept that not everyone leads every time. Therefore, some people lead in some situations, but not in others. And those who are usually seen as leaders are usually those who lead or visible or urgent situations (Churchill on WW2) or that like to take front and lead every time they can.  

Therefore I believe, after reflecting, that evryone can lead if the situation is right. 



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