Valedictory Address Finance, Economic Growth and

Transcript:Valedictory Address Finance, Economic Growth and:
Valedictory Address Finance, Economic Growth and Environment Shyam Sunder, Yale University Global Finance Conclave 2021 O. P. Jindal Global University November 12-14, 2021 An Overview Finance has helped create modern civilization and standard of living Finance, unless carefully managed, also presents serious risks to the civilization it has helped develop Money, an artifact of our imagination, is also the life blood of economy Computer technology presents us with money in its pure symbolic form which requires no substance or real resources Uncontrolled power in private hands to created money is dangerous Extraordinary power of pure symbolic money must be carefully managed Otherwise, it could easily destroy the environments and society itself We need to think carefully and systematically about finance, economic growth, and environment. Essence of Finance Uniquely human activity: exchange between two (or more) parties One leg of exchange occurs after the other (pay you tomorrow) Time lag between the delivery by two sides creates need for trust or credit: will the second party be able and willing to deliver tomorrow? Doubts about the ability (uncertainty) Doubts about the willingness (moral hazard) History of civilization consists of finding ways of overcoming such doubts Huge economic gains from finance shared Important elements: money, credit, exchange, insurance, payments, agency, partnerships and corporations, taxation, commercial codes, and regulation Sublimation of Forms of Money Things and commodities Precious metals Coins Paper currency Account books Electronic records Like all symbols (e.g., languages), money is also a social norm, an expectation Money and Civilization Relatively few exchanges would be possible without money Coincidence of mutual wants (barter) Convenience, storage, broad acceptability Trade and commerce grew as money became more convenient Advantages from exchanges sufficient to overcome the risk of loss from non-performance Usefulness of money comes with its fictional character: unlimited quantities of money can be created in little time If not handled with care, money can also destroy civilization like a house of cards (U.S. came close in 2008) Broken promises tends to destroy trust in the system, and maintenance of trust is essential to have everyone continue to believe in the fiction of money A Better and Safer System of Money Central bank Monopoly on creation of money Direct electronic money accounts for individuals and businesses Lends money to commercial banks Thin commercial banks Borrow money from central banks 100% reserves (no creation of money by commercial banks) Evaluate loan applications and make