Economist Debates: Financial innovation

There's an exciting online debate hosted by the Economist. It's about financial innovation: "Does financial innovation boost economic growth?"

I voted yes, of course. I expressed the following view:

"Financial innovations decreases transactions costs so that the financial sector becomes more efficient in transferring funds from those who have funds but do not have productive use of it to those who do not have funds but have productive use of it. Therefore, financial innovation leads to economic productivity and growth.

The problem comes in when individuals or groups take advantage of financial innovation to seek personal gain without regard to the negative effects--adverse selection and moral hazard problems. And this is the sad thing because this is the nature of the market. That is why regulations are crucial in making sure that financial innovations are run the way they are supposed to run.

Do not blame financial innovation. Blame people who take advantage of financial innovation for personal gain. Blame lack of regulation if these people do succeed in taking advantage of financial innovation and causing financial crisis left and right."

By the way, it's not just true for the U.S. or any developed nation. Financial innovation is widely beneficial in some developing countries as well. Check out the recent publication by the Asian Development Bank.

So what do you think? Share your views, join the Economist debate.

One argument against patents--or those who take advantage of it

Here's one case where patents can delay innovation more than they can innovate it. It all boils down to people becoming greedy and want to make profit out of it rather than help induce techonological advancement. Exactly what the article says: unless they can produce the actual goods, better not give them the patents. It does give the impression that they're buying patents non-existing but very big potential technology with the purpose of selling them later at a higher price to those who actually discovered means of creating the technology. Much like old problems of the financial sector--some asymmetric information is brewing: do they really have the technology or not? Additional government regulation, anyone?

Chris Blattman

I apologize for not posting lately. I've been busy with work and study at the same time. But here's something new. I added a link in the Oikonosphere nav to Chris Blattman's blog. I consider Prof. Blattman of Yale University one of the top development economists out there. His blog is not that bad either. So check out his site.