Wednesday, September 24, 2008

Unsafe at Any Speed by Chandra

There was a book Unsafe at Any Speed by Ralph Nader from which Thomas Sowell substantially analysed in his one book (Applied Economics Thinking Beyond State One) chapter on Risky Business.

The fundamental of risk is quite clear from this book. Here is an Indian economist describes about risks.

Stepping out on the road involves the risk of being run over by a BMW or Blueline. Shopping in a market involves the risk of being torn apart by a bomb. One takes risks because the gains are more than commensurate and the existence of risks is no argument for risk aversion and playing safe. There is risk in voting in a new Government too. You never know what it will do. Similarly, globalisation brings risks, both because the economy can no longer be insulated and is susceptible to external shocks and because policy-making loses degrees of freedom.

One loses a little bit of one’s independence, so to speak, a bit like getting married. Why should that be an argument against marrying, stepping onto the road or going shopping? However, the US meltdown is likely to be interpreted as an argument against globalisation and opening up. Let’s impose controls on capital flows. The US has an enviable financial architecture. If information gaps, corporate mis-governance and regulatory failure can occur in such a developed country, how can we afford to liberalise financial sectors in a developing country? There is worse. Witness government bail-outs of Wall Street firms: clear proof that one can’t depend on markets. State intervention is necessary. Unwarranted comparisons are being drawn, not just with 1987, but with the Great Depression years. Those years led to Keynes, government intervention and the New Deal, a far cry from the down-sized government of the ’80s”.

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