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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

A Brief Journey to the Guptaverse



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As regular readers know, I’m a fan of Arpit Gupta’s blogging. Rather than concoct an elaborate excuse to link to his latest work, I will just highlight a few of his latest posts:

(1) On education reform, Arpit encourages us to think about education reform through the lens of efficiency in time. We want to get students to the frontier of knowledge faster so that we can have a better shot at expanding the frontier of knowledge. But how?

We can try more tracking-based systems, so children have more time to focus on learning in a particular direction. We can extend the hours that children spent learning, perhaps by using video games. Alternatively, we should be actively pruning the set of things taught in school as various forms of knowledge become less useful. Geometry and trigonometry seem to be widely taught, yet this is due largely to the importance of those tools to practical engineering applications in the 19th century, as well as reflecting the legacy of a particular mathematical tradition dating back to Euclid and beyond. Seems to me they ought be pruned to make way for mathematical tools of greater practical importance today, like statistics or street fighting math. In general, we should focus away from empirical facts (which are growing like kudzu) towards general reasoning; and in particular innovations that allow for rapid growth in the rate of general reasoning skills.

(2) Arpit also offered a case for regulating global capital flows more tightly:

Playing financial regulation in an economy getting drowned in cash is like playing whack-a-mole. Even if somehow you prevent asset booms in any one particular area of the economy; the systemic impacts of capital flows ensure that some part of the economy will blow up. Banks will find ways to assume leverage and risk, regardless of what your regulations were before the boom. The political pressures of restraining this debt-fueled boom in consumption and investment are impossible to manage.Really the only solution here is to return to some sort of Bretton Woods style world of tightly restrained capital flows. This is virtually impossible to re-generate, but the Fed doesn’t need any sort of international agreement to make international capital flow/currency regulation a major priority. 

I’m not sure what to think about this, particularly since there are risks associated with unilateral action on the part of the Fed. 

(3) And even more ambitiously, Arpit offers a strong critique of deposit insurance and maturity mismatching more broadly:

[T]his debate remains very relevant in thinking through the Shadow Banking crisis. One school of thought, best represented by Gary Gorton, feels that the problem there is similar to the issue in normal banking, and the solution lies in making repos — the equivalent of deposits for Shadow Banks — effectively riskless. Rather, the perspective above would point out the flaws in maturity mismatching generally, and would push against the institutional aspects of banking that make it more fragile by hiding risks and promoting moral hazard — for instance, skewed salaries, the end of the partnership structure, and the bankruptcy treatment of derivatives.

Provocative and pretty convincing. I highly recommend bookmarking Calculated Exuberance.



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