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The wrong way forward

Mar 05 2014 07:22
*Edward Ingram
LAST week I visited the Fin24 offices in Cape Town and I took the opportunity while there to visit some of the top people in economics and banking.

The bankers were very clear and highly enthused in their understanding, but I only mentioned economics at the end.

The economist was another matter altogether.

It was an experience that I may never forget. It highlighted how difficult it is for economists to grapple with the idea that they should NOT continue to think in real terms and purchasing power when we should be looking at how wealth gets moved around by the financial services industry.

The difficulty arises when we get to the idea of preserving saved income (wealth, or NAE) as opposed to preserving purchasing power.

It was not that the economist disagreed with what I was saying, because we did not manage to get that far into the subject.

It was uphill all the way. He was very interested, but just looking at his face I could see that he was exhausted by the end of our session.

Unlearning is difficult

It is a reminder of the days when I was young and my father was very keen that anything I learned should be right first time. As he explained, if you learn it wrong, then before you can learn it right you first have to unlearn what you have learned.

And that can be very difficult.

In the case of economists, this was far from my first experience of this kind of thing. I told my new acquaintance that most of my followers have become followers because they have been reading what I have written for weeks and maybe months. In a few cases, for many years.

Many of them have asked questions or have read the questions posed by others in discussion forums and have learned from that.

The problem is that I look at things through the lens of a financial adviser who wants the sector to be safe to use, and my work is based upon the researches into how that might be achieved. Plus I am knowledgeable about systems control engineering and how that might be applied to economics.

It is not that I do not read what economists say and write. It is just that when they do speak or write, I usually think that they are way off target as a result of my own researches.

In the case of one academic from Cambridge University and for whom I have the utmost respect, I answered a long series of questions based upon academic papers over a period of months, each question relating to some academic theory or paper from the past as taught at universities.

The result now is that a paper on ‘The Ingram Paradigm’ is being written by this person with the purpose of finding a place for the proposals in the past literature upon which economists are brought up. The idea is to compare the new with the old.

I keep getting drafts of this embryo paper and I also learn a great deal about how economists think and have thought in the process. Each time, it seems to me, I very quickly find a flaw in the arguments that are being put forward in these (often famous) old papers, some of which have earned Nobel prizes for their authors.

The importance of asking questions

Am I being pretentious? Not on the evidence so far. Every time so far my criticism of those papers has been upheld by this academic. I have to say that it is a great pleasure to work with such a person.

In contrast when you send a paper to the International Monetary Fund, the World Bank or some central bank or treasury department, that is usually the last you hear about it. There is puzzlement and rejection at the far end.

And above all, there is silence.

A multi-sided process is needed

It has to be pointed out that learning these new ideas and seeing how they displace much of the past literature in economics is a two way process or, if you really want to have the proposals implemented, a multi-sided process.

LETTER TO THE BANK OF ENGLAND

I have this letter drafted for the Bank of England, who are currently engaged in a study of some of my new ideas. This is what it says:

(PS Don’t tell me that Zimbabwean financial people are backward – they are the ones that seem to see more clearly than the rest. And I am told that an amazing number of them hold key posts in the City of London. One was once the deputy governor of the Bank of England.

This particular group avoided the subprime fiasco by taking the right policy decision and they coped with the hyper-inflation. How many others could say that?)

Edward Ingram

I have known Mr Ingram for over ten years now. We first met when he came to see me when I was the Executive Secretary to the Association of Building Societies in Zimbabwe. At that time there was much discussion on Mortgage Securitisation and some concern amongst members that by adopting this concept we would be putting our Societies at financial risk in the future. This discussion had resulted in a reluctance to go down the securitisation route and at the same time brought our mortgage finance business under review with consideration of alternative forms of mortgage financing.

Mr Ingram had spent much time and thought on alternative forms of mortgage finance and it seemed that his suggestions deserved serious review and a group was formed to look into his proposals and to add practical substance to his concepts. Unfortunately at this time the Zimbabwean currency devaluation crisis began in earnest and the next few years were spent in keeping our heads above water. However Mr Ingram persevered and widened his thinking into other related monetary and financial concepts. Upon my retirement we kept in contact and he suggested that I continue to comment and help with his ideas. In the last few years and in particular since the global 2008 financial crisis the original thoughts have been widened to cover a study of the reasons why and how to avoid a reoccurrence in the future of a similar situation. Mr Ingram’s ideas have now become quite wide spread with input and suggestions coming from many and sometimes influential sources. Without going into detail I think we would all agree that the world and many national economies are still in a delicate situation and plausible suggestions to improve economic /financial stability are worth pursuing.

It would be my recommendation that in the short term an influential group be formed to look into Mr Ingram’s suggestions and urgently adopt them if thought appropriate. (My emphasis).

M Harrison

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