democracy in action

why we don't need power located in one hand because it will be invariably abused by someone. Even very intelligent, great , purer than thou soul once given power will be enamored by the possibility of using power for his/her own agenda.

the other thing is the risk of relying on a single person, its all about diversifying risk by taking opinion from a group and finally deciding on what to do .. one can always say that it finally leads to horse-trade, bullying, cheating to do things your way . but we are comparing this to a system where one person takes decision .. expected value of taking a right decision over a long time will be higher in democracy . no hard number proof , but this is sociology, so will be difficult to do so..

In democracy , one intend to come up with institutions which can cancel each other powers. so judiciary is a check on executive and one will hence want judiciary to be independent of executive . but making them too independent will concentrate power in their hands which will be also an undesirable state.

I see judiciary are in a position where they can take unpleasant decision which will be good for long term where the political class fails a lot..

Fama in his interview said that regulation fails because it is driven by political affiliations which are not efficient rather than prices which are efficient because of its ability to gather information from all places. Politicians are driven by short term greed/political favor and hence will enter in bubbles of under and over regulation. As we have seen that prices can also be irrational , so there are limits to both .

Prices are the most democratic institution from a point of view . They get inputs from all and finally decide on one ..

Interesting bit on inflation

http://krugman.blogs.nytimes.com/2010/02/26/core-logic/

Beating up the speculators

Gary Becker on usefulness of speculation

"Applied to the financial crisis, if when housing prices were rising so rapidly, more speculators had been shorting the housing market, or shorted mortgage-backed securities whose value depended on what happened in the housing market, their actions would have reduced the sharp increase in housing prices, and reduced the subsequent steep fall in these prices. Therefore, it was the absence of sufficient short speculators when commodity and asset prices were rising sharply that helped widen the run up and eventual collapse in these prices.

No amount of writing by economists will eliminate the hostility to individuals who make lots of money when times are bad."

Interesting bit as part of news about Euro Debacle

"Yet even as it predicted the trouble, Germany failed to anticipate that the countries running a trade surplus would inevitably need to finance the southern states’ shortfalls. The five most heavily indebted euro members owe German banks an estimated 700 billion euros (nearly $900 billion), and these German surpluses, once regarded abroad as a symbol of great strength, have emerged as a dangerous source of vulnerability. Most sickeningly for the Germans, the indebted nations are likely to say that their debts need to be reduced or restructured in the name of European solidarity."

China shall be looking at how Germany has to fund his neighbors to save European union future , china would be in similar danger sometime if they keep on running trade surpluses and US decides to default.