What is new at the World Bank?

by on January 28, 2018 at 12:10 pm in Current Affairs, Economics, Political Science | Permalink

Trained as an anthropologist and medical doctor, Mr. Kim now says that the world of high finance is “some of the coolest stuff I have ever looked at.”

And:

Mr. Kim is, by nature, a cheery person, but there was no mistaking the edge to his voice when he started talking about the World Bank economists whose pay is tied to how many loans they churn out. In his view, the bank needs to reward staff, Wall Street-style, for devising innovative financial solutions.

“One of the most difficult things to do in a large bureaucracy is to change incentives,” Mr. Kim told the financiers. “And if you have a large bureaucracy full of economists it is especially hard, because it turns out that economists really hate it when you change the incentives.”

That is from Landon Thomas Jr. at the NYT, there is much more in the story.  And in case you hadn’t heard, Paul Romer is no longer working there.

1 Norman Anderson January 28, 2018 at 12:40 pm

If ever there was a case for Thomas Jefferson’s sovereignty of the living the World Bank is it… To James Madison, where he famously calculated that institutions should expire after 19 years: “The question Whether one generation of men has a right to bind another, seems never to have been started either on this or our side of the water. Yet it is a question of such consequences as not only to merit decision, but place also, among the fundamental principles of every government.”

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2 rayward January 28, 2018 at 1:21 pm

Jefferson’s idea of “generational sovereignty” (Jefferson defined a generation as 19 years), which included debt forgiveness as well as the elimination of contractual obligations, never got anywhere thanks to Madison, who, while appreciating his friend’s intellect, understood that sometimes his ideas were, shall we say, too clever and should never see the light of day lest some of his critics spread rumors that the great man had gone round the bend. And after Jefferson’s behavior in France, submitting his ideas for France’s new constitution to the revolutionaries even as they were wearing out the guillotine on the street, leaving many with the impression that Jefferson had lost touch with reality, his critics didn’t need any more evidence, evidence like generational sovereignty. Those who have visited Monticello know the important role Madison played in both Jefferson’s public and private life: Madison and his wife had their own room at Monticello.

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3 rayward January 28, 2018 at 1:15 pm

Romer isn’t the only one questioning the integrity of the economic profession. The temptation to sell one’s soul is especially great for economists given their place in making policy. The bidders for the soul of today’s economists have very deep pockets. Lawyers (I’m one) are trained to be advocates, and it’s understood that is their role. But economists? What credibility do they have if their role is that of an advocate?

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4 dearieme January 28, 2018 at 6:23 pm

Local lore: never let your house to students or teachers of Economics, Business Studies, or Law.

Our experience: all has been OK with engineers, vets, and archaeologists.

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5 dearieme January 28, 2018 at 6:24 pm

Did I really type “Business Studies”? What should it be: Management Science?

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6 Pshrnk January 28, 2018 at 1:29 pm

“But economists? What credibility do they have if their role is that of an advocate?”

About the same credibility as police who behave as if exempt from the law.

Came across this example of how there is no effort made to enforce peace and public safety laws with this officer involved.

https://www.youtube.com/watch?v=YSldpG_nSro&feature=youtu.be

https://www.youtube.com/watch?v=58_K4SA4wH4&t=2s

https://www.youtube.com/watch?v=sqZSewoekL8

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7 Per Kurowski January 28, 2018 at 2:06 pm

With risk-weighted capital requirements regulators sure changed the incentives for banks, allowing these to earn higher risk adjusted returns when financing the “safer” present than the “riskier” future… and I heard no economist there complain ☹

https://teawithft.blogspot.com/2018/01/the-worst-problem-with-dangerously.html

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8 carlospln January 28, 2018 at 3:49 pm

1) “In his view, the bank needs to reward staff, Wall Street-style, for devising innovative financial solutions”. Synthetic Collateralised Debt Obligations, anyone?

2) Since so much of the v worst poverty on Earth has been eliminated, & almost all rivers which could be, have been dammed, why does the world need the World Bank? To promote ‘gender equality’? [look it up]

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9 Mulp January 28, 2018 at 8:03 pm

Bankers seem to have convinced the Trump administration that a rule requiring loans be made only if the borrower has the means to repay the loan as is required is contrary to the interests of lenders. In regard to payday lending, specifically, but also in general.

But I’m sure Trump is personally frustrated that US lenders would not loan him money, forcing him to go to Russians to get loans…. it’s really a hassle to repay loans if you are like Trump.

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10 carlospln January 28, 2018 at 10:49 pm

He went to Deutsche.

You really think the Russians would lend him $?

Heh heh

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11 Anonymous January 29, 2018 at 12:08 am

Why would such a rule be necessary?

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12 Crikey January 28, 2018 at 4:46 pm

The basic business of banks is very boring but very important so I think staff should be punished for devising innovative financial solutions. Of course, by “innovative financial solutions” Mr Kim may be referring to not stacking the financial jenga blocks so high.

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13 Mulp January 28, 2018 at 8:06 pm

Innovative banking seems to be getting repaid 500% on small loans to working poor, and only getting 50% repaid on really big loans to very rich people.

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14 Anonymous January 29, 2018 at 12:09 am

That’s what you would expect, isn’t it? Making loans has fixed costs, you have to make a higher % on a smaller loan.

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15 dearieme January 28, 2018 at 6:27 pm

Bagehot said that banking was a watchful, but not a laborious trade. Them wuz the days.

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16 BC January 29, 2018 at 12:35 am

“World Bank economists whose pay is tied to how many loans they churn out”

One solution to our zoning and occupational licensing problems might be for the regulatory agencies to employ case officers that are compensated based on how many permits and licenses they issue. Then, at least one person knowledgeable about the relevant regulations would be incented to help the applicants get their applications approved. Immigration officers should also be compensated based on how many visas they issue.

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17 Daws January 29, 2018 at 4:45 pm

These cats don’t even try to make their precious librl order look good. Disarming their left-wing bandits, Colombia couldn’t even get a subway line or two put in after steadfast neoliberalism

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