Martin Wolf: The world's hunger for public goods Public goods are the building blocks of civilisation. Ironically, the better we have become at supplying private goods and so the richer we are, the more complex the public goods we need, writes the FT columnist. Robert Zoellick: A blueprint for Germany to save the eurozone For almost 60 years, Germans have maintained that it is their responsibility to participate in a modern Europe. Today, Germany's responsibility is to lead in saving that Europe, writes the president of the World Bank. "Efficient markets hypothesis" inefficient For more than four decades, financial markets and the regulations that govern them were underpinned by what is known as the efficient markets hypothesis. All that changed after the financial crisis, writes the FT's Norma Cohen. First expounded by the economist Eugene Fama in 1970, the theory holds that investors respond rationally to publicly available information. It also assumes that market prices for assets incorporate all the publicly known information about a security and that when prices are too high given expected returns, rational investors sell. For regulators, then, the challenge was to ensure that all investors have the same information. Editorial: Europe's avoidable growing pains The fears that Christine Lagarde, the managing director of the International Monetary Fund, would be a eurozone stooge were unfounded: Ms Lagarde has been a vocal teller of inconvenient truths to Europe's disorganised monetary union. In a speech in Berlin on Monday, she impressed on her hosts what measures are required to avoid a "1930s moment." Berlin quickly signalled that it may consider a larger eurozone rescue fund. It would be good if it did - and heeded Ms Lagarde's other veiled criticisms as well. Lex on Remuneration: waging war on pay More power to shareholders! The UK government's watered-down plans to tackle executive pay rightly seek to strengthen shareholders" hand in steering company policy with a binding - and not just advisory - vote on remuneration. But pay that is out of kilter with performance is a matter for shareholders and other stakeholders, not for politicians exploiting the public opprobrium they have fuelled. The trouble is that shareholders are remarkably silent on pay. This week's blockage of Cairn Energy's plans to award its chairman an extra £2.5m share incentive was a rare example of shareholder activism. Chinese soothsayer sees economic storms ahead On the first day of every lunar new year, scores of minor government officials, businessmen and ordinary peasant farmers congregate at a small Buddhist temple in the hills outside the eastern Chinese city of Suzhou. As the Chinese world bid farewell to the year of the rabbit and entered the year of the black water dragon on Monday, I went to ask this oracle what he thought was in store for the global economy and for China in the coming months, writes the FT's Jamil Anderlini. John Kay: When capitalism and corporate self-interest collide Adam Smith understood the difference between policies that favoured free trade and policies that favoured established business, writes the FT columnist. Markets Insight: Gavyn Davies - Equities can outstrip bonds in a liquidity trap Until recently, Keynes" notion of a liquidity trap was of great interest to macroeconomists, but was viewed by investors as a rare aberration which, outside Japan, could be safely ignored, writes Davies, co-founder of Fulcrum Asset Management. In the aftermath of the 2008 credit crunch, all that has changed. Many developed economies seem to be falling into a liquidity trap, and may stay there for several years. What does this imply about asset returns? The term "liquidity trap" means slightly different things to different economists. To Keynes himself, it implied that bond yields had fallen to a lower limit, at which the risk of future capital loss outweighed the prospective return from the coupon. Consequently, cash dominated bonds as an investment vehicle, and interest rates could be reduced no further. To Paul Krugman, the re-inventor of the liquidity trap in the 1990s, it means that short rates have fallen to zero, with inflation expectations so low that the real rate of interest is too high to permit the full utilisation of resources. This entry was posted by Lisa Pollack on Wednesday, January 25th, 2012 at 7:55 and is filed under Uncategorised.