F Financial Sector Induced Systemic Instability of Economy

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Financial Sector Induced Systemic Instability of Economy

While I believe in usefulness of capital markets, it is clear that they are double edge sword and that banks "in a long run" tend to behave like sociopathic individuals. Mr. Capone may have something to say about danger of banks :-).That means that  growth of financial sector represents a direct threat to the stability of the society. Positive feedback loops creates one financial crisis after another with the increasing magnitude leading up to a collapse of financial system like happened in 1927 and 2008.

News Casino Capitalism Recommended Links  Stability is destabilizing: The idea of Minsky moment Corruption of Regulators Quiet coup
Neoliberalism as a New Form of Corporatism Principal-agent problem Numbers racket Criminal negligence in financial regulation Corruption of FED Invisible Hand Hypothesis
The “Too Big To Fail” Problem In Goldman Sachs we trust Citi - The bank that couldn’t shoot straight JPMorgan AIG collapse Lehman
Free Markets Newspeak as Opium for regulators Derivatives Lobby Corrupts Congress Lobbying and the Financial Crisis Control Fraud
(crisis of corporate governance)
Stock Market with buybacks as a Ponzi scheme Derivatives
Small government smoke screen Financial Bonuses as Money Laundering Corporatist Corruption: Systemic Fraud under Clinton-Bush-Obama Regime Corporatism   Financial obesity
Webliography of heterodox economists HFT Aleynikov vs. Goldman Sachs Casino Capitalism Dictionary Financial Humor Etc
  "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

The Cost of Capitalism: Understanding Market Mayhem and Stabilizing our Economic Future, by Robert Barbera

The flaw with Capitalism is that it creates its own positive feedback loop, snowballing to the point where the accumulation of wealth and power hurts people — eventually even those at the top of the food chain. ”

Uncle Billy Cunctator
In comment to Economic Donkeys

 
  Banks are a clear case of market failure and their employees at the senior level have basically become the biggest bank robbers of all time. As for basing pay on current revenues and not profits over extended periods of time, then that is a clear case of market failure !  
  The banksters have been able to sell the “talent” myth to justify their outsized pay because they are the only ones able to deliver the type of GDP growth the U.S. economy needs in the short term, even if that kills the U.S. economy in the long term. You’ll be gone, I’ll be gone.  
  Unfortunately, many countries go broke pursuing war, if not financially, then morally (are the two different? – this post suggests otherwise).

I occurs to me that the U.S. is also in that flock; interventions justified by grand cause built on fallacy, the alpha and omega of failure. Is the financial apparatchik (or Nomenklatura, a term I like which, as many from the Soviet era, succinctly describes aspects of our situation today) fated also to the trash heap, despite the best efforts of the Man of the hour, Ben Bernanke?

 

Introduction

While I believe in usefulness of capital markets, it is clear that they are double edge sword and that banks "in a long run" tend to behave like sociopathic individuals. Mr. Capone may have something to say about danger of banks :-).That means that growth of financial sector represents a direct threat to the stability of the society (Keynesianism and the Great Recession )

Without adult supervision, as it were, a financial sector that was already inherently unstable went wild. When the subprime assets were found to be toxic since they were based on mortgages on which borrowers had defaulted, highly indebted or leveraged banks that had bought these now valueless securities had little equity to repay their creditors or depositors who now came after them. This quickly led to their bankruptcy, as in the case of Lehman Brothers, or to their being bailed out by government, as was the case with most of the biggest banks. The finance sector froze up, resulting in a recession—a big one—in the real economy.

Neoliberal revolution, or, as Simon Johnson called it after "quite coup" (Atlantic), brought political power to the financial oligarchy deposed after the New Deal. Deregulation naturally followed, with especially big role played by corrupt Clinton administration.  Positive feedback loops creates one financial crisis after another with the increasing magnitude. "Saving and loans" crisis followed by dot-com crisis of  2000, which in turn followed by the collapse of financial system in 2008, which looks somewhat similar to what happened in 1927.  No prominent financial honcho, who was instrumental in creating "subprime crisis" was jailed.  Most remained filthy rich.

Unless the society puts severe limits on their actions like was done during New Deal,  financial firms successfully subvert the regulation mechanisms and take the society hostage.  But periodic purges with relocation of the most active promoters of "freedom for banks" (aka free market fundamentalism) under the smoke screen of "free market" promotion does not solve the problem of positive feedback loops that banks create by mere existence. That's difficult to do while neoliberal ideology and related neoclassical economy dominates the society thinking (via brainwashing), with universities playing especially negative role -- most of economics departments are captured by neoliberals who censor any heretics. So year after year brainwashing students enter the society without understanding real dangers that neoliberalism brought for them.  Including lack of meaningful employment opportunities.

Of course, most of high level officers of leading finance institutions which caused the crisis of 2008-2009 as a psychological type are as close to  gangsters as one can get. But there is something in their actions that does not depend on individual traits (although many of them definitely can be classified as psychopaths), and is more related to their social position.  This situation is somewhat similar to Bolsheviks coup d'état of 1917 which resulted in capturing Russia by this ideological sect.  And in this sense quite coupe of 1980 is also irreversible in the same sense as Bolsheviks revolution was irreversible:  the "occupation" of the country by a fanatical sect lasts until the population rejects the ideology with its (now apparent) utopian claims.

Bolshevism which lasted 75 years, spend in such zombie state the last two decades (if we assume 1991 as the year of death of Bolshevism, its ideology was dead much earlier -- the grave flaws in it were visible from late 60th, if not after the WWII).  But only  when their ideology was destroyed both by inability to raise the standard of living of the population and by the growing neoliberal ideology as an alternative (and a new, more powerful then Marxism high-demand cult) Bolsheviks started to lose the grip on their power in the country. As a result Bolsheviks lost the power only in 1991, or more correctly switched camps and privatized the country. If not inaptness of their last General Secretary, they probably could last more. In any case after the ideology collapsed, the USSR disintegrated (or more correctly turn by national elites, each of which wanted their peace of the pie).

The sad truth is that the mere growth of financial sector creates additional positive feedback loops and increases structural instability within both the financial sector itself and the society at large. Dynamic systems with strong positive feedback loops not compensated by negative feedback loops are unstable. As a result banks and other financial institution periodically generate a deep, devastating crisis. This is the meaning of famous Hyman Minsky phrase "stability is destabilizing".

In other words, financial apparatchiks (or Financial Nomenklatura, a term from the Soviet era, which succinctly describes aspects of our situation today) drive the country off the cliff because they do not have any countervailing forces, by the strength of their political influence and unsaturable greed. Although the following analogy in weaker then analogy with dynamic systems with positive feedback loops, outsized financial sector can be viewed in  biological terms as cancer.

Cancer, known medically as a malignant neoplasm, is a broad group of diseases involving unregulated cell growth. In cancer, cells divide and grow uncontrollably, forming malignant tumors, and invading nearby parts of the body. The cancer may also spread to more distant parts of the body through the lymphatic system or bloodstream. Not all tumors are cancerous; benign tumors do not invade neighboring tissues and do not spread throughout the body. There are over 200 different known cancers that affect humans.[1]

Like certain types of cancer they depend of weakening "tumor suppressor genes"  (via "Quiet coup" mechanism of acquiring dominant political power) which allow then to engage in uncontrolled growth, destroying healthy cells (and first of all local manufacturing).   

The other suspicion is the unchecked financialization always goes too far and the last N percent of financial activity absorbs much more resources (especially intellectual resources) and creates more potential instability than its additional efficiency-benefits (often zero or negative) can justify. It is hard to imagine that a Hedge Fund Operator of the Year does anything that is even remotely socially useful to justify his enormous (and lightly taxed) compensation. It is pure wealth redistribution up based on political domination of financial oligarchy.  Significant vulnerabilities  within the shadow banking system and derivatives are plain vanilla socially destructive. Yet they persist due to inevitable political power grab by financial oligarchy  (Quiet coup).

Again, I would like to stress that this problem of the oversized financial sector which produces one devastating crisis after another   is closely related to the problem of a positive feedback loops. And the society in which banks are given free hand inevitably degrades into "socialism for banks"  or "casino capitalism" -- a type of neoliberalism with huge inequality and huge criminality of top banking officers.  

Whether we can do without private banks is unclear, but there is sound evidence that unlike growth of manufacturing, private financial sector growth is dangerous for the society health and perverts society goals.  Like cult groups the financial world does a terrific job of "shunning" the principled individuals and suppressing dissent (by capturing and cultivating neoliberal stooges in all major university departments and press),  so self-destructing tendencies after they arise can't be stopped within the framework of neoliberalism. In a way financial firm is like sociopath inevitable produces its  trail of victims (and sociopaths might be useful in battles exactly due to the qualities such as ability to remain cool in dangerous situation, that make them dangerous in the normal course of events).

This tendency of society with unregulated or lightly regulated financial sector toward self-destruction was first formulated as "Minsky instability hypothesis" -- and outstanding intellectual achievement of American economic Hyman Minsky (September 23, 1919 – October 24, 1996). Who BTW was pretty much underappreciated (if not suppressed) during his lifetime because his views were different from  orthodox (and false) neoclassic economic theory which dominates US universities, Like flat Earth theory was enforce by Catholic church before, it is fiercely enforced by an army of well paid neoliberal economics, those Jesuits of modern era. Who prosecute heretics who question flat Earth theory even more efficiently then their medieval counterparts; the only difference is that they do not burn the literally, only figuratively ;-)

Minsky financial instability hypothesis

Former Washington University in St. Louis economics professor Hyman P. Minsky had predicted the Great Recession decades before it happened.  Hyman Minsky was a real student of the Great Depression, while Bernanke who widely is viewed as a scholar who studied the Great Depression, in reality was a charlatan, who just tried to explain the Great Depression from the positions of neo-classical economy. That's a big difference.

Minsky instability hypothesis ("stability is destabilizing" under capitalism) that emerged from his analysis of the Great Depression was based on intellectual heritage of three great thinkers in economics (my presentation is partially based on an outstanding lecture by Steve Keen Lecture 6 on Minsky, Financial Instability, the Great Depression & the Global Financial Crisis). We can talk about three source of influence, there authors writing of which touched the same subject from similar positions and were the base of Hyman Minsky great advance in understanding of mechanics of development of financial crisis under capitalism and the critical role of financial system in it (neoclassical economics ignores the existence of financial system in its analysis): 

  1. Karl Marx influence
  2. Irving Fisher influence
  3. Joseph Schumpeter influence

Karl Marx influence

Minsky didn't follow the conventional version of Marxism  . And it was dangerous for him to do so due to McCarthysm. Even mentioning of Marx might lead to strakism fromthe academy those years.  McCarthy and his followers in academy did not understand the difference between Marx great analysis of capitalism and his utopian vision of the future. Impliedly this witch hunt helped to establish hegemony of neoclassical economy in economic departments in the USA.

While Minsky did not cited Marx in his writings and did use Marx's Labor Theory of Value his thinking was definitely influenced by Marx’s critique of  finance. We now know that he read and admired the Capital. And that not accidental due to the fact that his parents were Mensheviks -- a suppressed after Bolshevik revolution more moderate wing of Russian Social Democratic Party that rejected the idea of launching the socialist revolution in Russia --  in their opinion Russia needed first to became a capitalist country and get rid of remnants of feudalism. They escaped from Soviet Russia when Mensheviks started to be prosecuted by Bolsheviks.

And probably the main influence on Minsky was not Marx's discussion  of finance in Volume I of Capital with a "commodity" model of money, but critical remarks scattered in   Volumes II & III (which were not edited by Marx by compiled posthumously by Engels), where he was really critical of big banks as well as Marx's earlier works (Grundrisse, Theories of Surplus Value) where Marx was scathing about finance:

"A high rate of interest can also indicate, as it did in 1857, that the country is undermined by the roving cavaliers of credit who can afford to pay a high interest because they pay it out of other people's pocket* (whereby, however, they help to determine the rate of interest  for all) and meanwhile they live in grand style on anticipated profits. 

Irving Fisher influence

The second source on which Minsky based his insights was Irving Fisher. Irving Fisher’s reputation destroyed by wrong predictions on stock market prices. In aftermath, developed theory to explain the crash and published it in his book  "The Debt Deflation Theory of Great Depressions". His main points are:

According to Fisher two key disequilibrium forces that push economic into the next economic crisis are debt and subsequent deflation

Joseph Schumpeter influence

Joseph Schumpeter was Joseph Schumpeter has more positive view of capitalism than the other two. He authored the theory of creative destruction as a path by which capitalism achieves higher and higher productivity. He capitalism as necessarily unstable, but for him this was a positive feature -- instability of capitalism the source of its creativity. His view of capitalism was highly dynamic and somewhat resembles the view of Marx (who also thought that capitalism destroys all previous order and create a new one):

Unlike Marx, who thought that the periodic crisis of overproduction  is the source of instability (as well as  gradual absolute impoverishment of workers), Minsky assumed that the key source of that instability of capitalist system is connected with the cycles of business borrowing and fractional bank lending, when "good times" lead to excessive borrowing leading to high leverage and overproduction and thus to eventual debt crisis (The Alternative To Neoliberalism ):

Minsky on capitalism:

The idea of Minsky moment is related to the fact that the fractional reserve banking periodically causes credit collapse when the leveraged credit expansion goes into reverse. And mainstream economists do not want to talk about the fact that increasing confidence breeds increased leverage. So financial stability breeds instability and subsequent financial crisis. All actions to guarantee a market rise, ultimately guarantee it's destruction because greed will always take advantage of a "sure thing" and push it beyond reasonable boundaries.  In other words, marker players are no rational and assume that it would be foolish not to maximize leverage in a market which is going up. So the fractional reserve banking mechanisms ultimately and ironically lead to over lending and guarantee the subsequent crisis and the market's destruction. Stability breed instability.

That means that fractional reserve banking based economic system with private players (aka capitalism) is inherently unstable. And first of all because  fractional reserve banking is debt based. In order to have growth it must create debt. Eventually the pyramid of debt crushes and crisis hit. When the credit expansion fuels asset price bubbles, the dangers for the financial sector and the real economy are substantial because this way the credit boom bubble is inflated which eventually burst. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.

Blissex said...

«When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial.»

So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

«In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms.»

If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.

Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.

Not very hands-off at all.

Steve Keen is probably the most well know researcher who tried to creates model of capitalist economy based on Minsky work (  http://www.debtdeflation.com/blogs/manifesto/ )

John Kay in his January 5 2010 FT column very aptly explained the systemic instability of financial sector hypothesis: 

The credit crunch of 2007-08 was the third phase of a larger and longer financial crisis. The first phase was the emerging market defaults of the 1990s. The second was the new economy boom and bust at the turn of the century. The third was the collapse of markets for structured debt products, which had grown so rapidly in the five years up to 2007.

The manifestation of the problem in each phase was different – first emerging markets, then stock markets, then debt. But the mechanics were essentially the same. Financial institutions identified a genuine economic change – the assimilation of some poor countries into the global economy, the opportunities offered to business by new information technology, and the development of opportunities to manage risk and maturity mismatch more effectively through markets. Competition to sell products led to wild exaggeration of the pace and scope of these trends. The resulting herd enthusiasm led to mispricing – particularly in asset markets, which yielded large, and largely illusory, profits, of which a substantial fraction was paid to employees.

Eventually, at the end of each phase, reality impinged. The activities that once seemed so profitable – funding the financial systems of emerging economies, promoting start-up internet businesses, trading in structured debt products – turned out, in fact, to have been a source of losses. Lenders had to make write-offs, most of the new economy stocks proved valueless and many structured products became unmarketable. Governments, and particularly the US government, reacted on each occasion by pumping money into the financial system in the hope of staving off wider collapse, with some degree of success. At the end of each phase, regulators and financial institutions declared that lessons had been learnt. While measures were implemented which, if they had been introduced five years earlier, might have prevented the most recent crisis from taking the particular form it did, these responses addressed the particular problem that had just occurred, rather than the underlying generic problems of skewed incentives and dysfunctional institutional structures.

The public support of markets provided on each occasion the fuel needed to stoke the next crisis. Each boom and bust is larger than the last. Since the alleviating action is also larger, the pattern is one of cycles of increasing amplitude.

I do not know what the epicenter of the next crisis will be, except that it is unlikely to involve structured debt products. I do know that unless human nature changes or there is fundamental change in the structure of the financial services industry – equally improbable – there will be another manifestation once again based on naive extrapolation and collective magical thinking. The recent crisis taxed to the full – the word tax is used deliberately – the resources of world governments and their citizens. Even if there is will to respond to the next crisis, the capacity to do so may not be there.

The citizens of that most placid of countries, Iceland, now backed by their president, have found a characteristically polite and restrained way of disputing an obligation to stump up large sums of cash to pay for the arrogance and greed of other people. They are right. We should listen to them before the same message is conveyed in much more violent form, in another place and at another time. But it seems unlikely that we will.

We made a mistake in the closing decades of the 20th century. We removed restrictions that had imposed functional separation on financial institutions. This led to businesses riddled with conflicts of interest and culture, controlled by warring groups of their own senior employees. The scale of resources such businesses commanded enabled them to wield influence to create a – for them – virtuous circle of growing economic and political power. That mistake will not be easily remedied, and that is why I view the new decade with great apprehension. In the name of free markets, we created a monster that threatens to destroy the very free markets we extol.

While Hyman Minsky was the first clearly formulate the financial instability hypothesis, Keynes also understood this dynamic pretty well. He postulated that a world with a large financial sector and an excessive emphasis on the production of investment products creates instability both in terms of output and prices. In other words it automatically tends to generate credit and asset bubbles.  The key driver is the fact that financial professionals generally risk other people’s money and due to this fact have asymmetrical incentives:

This asymmetry is not a new observation of this systemic problem. Andrew Jackson noted it in much more polemic way long ago:

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

This asymmetrical incentives ensure that the financial system is structurally biased toward taking on more risk than what should be taken. In other words it naturally tend to slide to the casino model, the with omnipresent reckless gambling as the primary and the most profitable mode of operation while an opportunities last.  The only way to counter this is to throw sand into the wheels of financial mechanism:  enforce strict regulations, limit money supplies and periodically jail too enthusiastic bankers. The latter is as important or even more important as the other two because bankers tend to abuse "limited liability" status like no other sector.

Asset inflation over the past 10 years and the subsequent catastrophe incurred is a way classic behavior of dynamic system with strong positive feedback loop.  Such behavior does not depends of personalities of bankers or policymakers, but is an immanent property of this class of dynamic systems. And the main driving force here was deregulation. So its important that new regulation has safety feature which make removal of it more complicated and requiring bigger majority like is the case with constitutional issues.

Another fact was the fact that due to perverted incentives, accounting in the banks was fraudulent from the very beginning and it was fraudulent on purpose.  Essentially accounting in banks automatically become as bad as law enforcement permits. This is a classic case of control fraud and from prevention standpoint is make sense to establish huge penalties for auditors, which might hurt healthy institutions but help to ensure that the most fraudulent institution lose these bank charter before affecting the whole system.  With the anti-regulatory zeal of Bush II administration the level of auditing became too superficial, almost non-existent. I remember perverted dances with Sarbanes–Oxley when it was clear from the very beginning that the real goal is not to strengthen accounting but to earn fees and to create as much profitable red tape as possible, in perfect Soviet bureaucracy style.

Deregulation also increases systemic risk by influencing the real goals of financial organizations. At some point of deregulation process the goal of higher remuneration for the top brass becomes self-sustainable trend  and replaces all other goals of the financial organization. This is the essence of  Martin Taylor’s, the former chief executive of Barclays,  article FT.com - Innumerate bankers were ripe for a reckoning in the Financial Times (Dec 15, 2009), which is worth reading in its entirety:

City people have always been paid well relative to others, but megabonuses are quite new. From my own experience, in the mid-1990s no more than four or five employees of Barclays’ then investment bank were paid more than £1m, and no one got near £2m. Around the turn of the millennium across the market things began to take off, and accelerated rapidly – after a pause in 2001-03 – so that exceptionally high remuneration, not just individually, but in total, was paid out between 2004 and 2007.

Observers of financial services saw unbelievable prosperity and apparently immense value added. Yet two years later the whole industry was bankrupt. A simple reason underlies this: any industry that pays out in cash colossal accounting profits that are largely imaginary will go bust quickly. Not only has the industry – and by extension societies that depend on it – been spending money that is no longer there, it has been giving away money that it only imagined it had in the first place. Worse, it seems to want to do it all again.

What were the sources of this imaginary wealth?

In the last two of these the bank was not receiving any income, merely “booking revenues”. How could they pay this non-existent wealth out in cash to their employees? Because they had no measure of cash flow to tell them they were idiots, and because everyone else was doing it. Paying out 50 per cent of revenues to staff had become the rule, even when the “revenues” did not actually consist of money.

In the next phase instability is amplified by the way governments and central banks respond to crises caused by credit bubble: the state has powerful means to end a recession, but the policies it uses give rise to the next phase of instability, the next bubble…. When money is virtually free – or, at least, at 0.5 per cent – traders feel stupid if they don’t leverage up to the hilt. Thus previous bubble and crash become a dress rehearsal for the next.

Resulting self-sustaining "boom-bust" cycle is very close how electronic systems with positive feedback loop behave and   cannot be explained by neo-classical macroeconomic models. Like with electronic devices the financial institution in this mode are unable to provide the services that are needed.

As Minsky noted long ago (sited from Stephen Mihm  Why capitalism fails Boston Globe):

Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

...our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky’s vision might have been dark, but he was not a fatalist; he believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. But with a growing number of economists eager to declare the recession over, and the crisis itself apparently behind us, these policies may prove as discomforting as the theories that prompted them in the first place. Indeed, as economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

And he understood the roots of the current credit bubble much better that neoclassical economists like Bernanke: 
As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what [Minsky] called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further.

As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Minsky’s financial instability hypothesis suggests that when optimism is high and ample funds are available for investment, investors tend to migrate from the safe hedge end of the Minsky spectrum to the risky speculative and Ponzi end. Indeed, in the current crisis, investors tried to raise returns by increasing leverage and switching to financing via short-term—sometimes overnight— borrowing (Too late to learn?):

In the church of Friedman, inflation was the ol' devil tempting the good folk; the 1980s seemed to prove that, let loose, it would cause untold havoc on the populace. But, as Barbera notes:

The last five major global cyclical events were the early 1990s recession - largely occasioned by the US Savings & Loan crisis, the collapse of Japan Inc after the stock market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust cycle at the turn of the millennium, and the unprecedented rise and then collapse for US residential real estate in 2007-2008. All five episodes delivered recessions, either global or regional. In no case was there a significant prior acceleration of wages and general prices. In each case, an investment boom and an associated asset market ran to improbable heights and then collapsed. From 1945 to 1985, there was no recession caused by the instability of investment prompted by financial speculation - and since 1985 there has been no recession that has not been caused by these factors.
Thus, meet the devil in Minsky's paradise - "an investment boom and an associated asset market [that] ran to improbable heights and then collapsed".

According the Barbera, "Minsky's financial instability hypothesis depends critically on what amounts to a sociological insight. People change their minds about taking risks. They don't make a one-time rational judgment about debt use and stock market exposure and stick to it. Instead, they change their minds over time. And history is quite clear about how they change their minds. The longer the good times endure, the more people begin to see wisdom in risky strategies."

Current economy state can be called following Paul McCulley a "stable disequilibrium" very similar to a state  a sand pile.  All this pile of  stocks, debt instruments, derivatives, credit default swaps and God know corresponds to a  pile of sand that is on the verse of losing stability. Each financial player works hard to maximize their own personal outcome but the "invisible hand" effect in adding sand to the pile that is increasing systemic instability. According to Minsky, the longer such situation continues the more likely and violent an "avalanche".

The late Hunt Taylor wrote, in 2006:

"Let us start with what we know. First, these markets look nothing like anything I've ever encountered before. Their stunning complexity, the staggering number of tradable instruments and their interconnectedness, the light-speed at which information moves, the degree to which the movement of one instrument triggers nonlinear reactions along chains of related derivatives, and the requisite level of mathematics necessary to price them speak to the reality that we are now sailing in uncharted waters.

"... I've had 30-plus years of learning experiences in markets, all of which tell me that technology and telecommunications will not do away with human greed and ignorance. I think we will drive the car faster and faster until something bad happens. And I think it will come, like a comet, from that part of the night sky where we least expect it."

This is a gold age for bankers as Simon Johnson wrote in New Republic (The Next Financial Crisis ):

Banking was once a dangerous profession. In Britain, for instance, bankers faced “unlimited liability”--that is, if you ran a bank, and the bank couldn’t repay depositors or other creditors, those people had the right to confiscate all your personal assets and income until you repaid. It wasn’t until the second half of the nineteenth century that Britain established limited liability for bank owners. From that point on, British bankers no longer assumed much financial risk themselves.

In the United States, there was great experimentation with banking during the 1800s, but those involved in the enterprise typically made a substantial commitment of their own capital. For example, there was a well-established tradition of “double liability,” in which stockholders were responsible for twice the original value of their shares in a bank. This encouraged stockholders to carefully monitor bank executives and employees. And, in turn, it placed a lot of pressure on those who managed banks. If they fared poorly, they typically faced personal and professional ruin. The idea that a bank executive would retain wealth and social status in the event of a self-induced calamity would have struck everyone--including bank executives themselves--as ludicrous.

Enter, in the early part of the twentieth century, the Federal Reserve. The Fed was founded in 1913, but discussion about whether to create a central bank had swirled for years. “No one can carefully study the experience of the other great commercial nations,” argued Republican Senator Nelson Aldrich in an influential 1909 speech, “without being convinced that disastrous results of recurring financial crises have been successfully prevented by a proper organization of capital and by the adoption of wise methods of banking and of currency”--in other words, a central bank. In November 1910, Aldrich and a small group of top financiers met on an isolated island off the coast of Georgia. There, they hammered out a draft plan to create a strong central bank that would be owned by banks themselves.

What these bankers essentially wanted was a bailout mechanism for the aftermath of speculative crashes -- something more durable than J.P. Morgan, who saved the day in the Panic of 1907 but couldn’t be counted on to live forever. While they sought informal government backing and substantial government financial support for their new venture, the bankers also wanted it to remain free of government interference, oversight, or control.

Another destabilizing fact is so called myth of invisible hand which is closely related to the myth about market self-regulation. The misunderstood argument of Adam Smith [1776], the founder of modern economics, that free markets led to efficient outcomes, “as if by an invisible hand” has played a central role in these debates: it suggested that we could, by and large, rely on markets without government intervention. About "invisible hand" deification, see The Invisible Hand, Trumped by Darwin - NYTimes.com.

The concept of Minsky moment

The moment in the financial system when the quantity of debt turns into quality and produces yet another financial crisis is called Minsky moment. In other words the “Minsky moment” is the time when an unsustainable financial boom turns into uncontrollable collapse of financial markets (aka financial crash). The existence of Minsky moments is one of the most important counterargument against financial market self-regulation.  It also expose free market fundamentalists such as "former Maestro" Greenspan as charlatans. Greenspan actually implicitly admitted that he is and that it was he, who was the "machinist"  who helped to bring the USA economic train off the rails in 2008 via deregulation  and dismantling the New Deal installed safeguards. 

Here how it is explained by Stephen Mihm in Boston Globe in 2009 in the after math of 2008 financial crisis:

“Minsky” was shorthand for Hyman Minsky, an American macroeconomist who died over a decade ago.  He predicted almost exactly the kind of meltdown that recently hammered the global economy. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Minsky believed it was possible to craft policies that could blunt the collateral damage caused by financial crises. As economists re-embrace Minsky’s prophetic insights, it is far from clear that they’re ready to reckon with the full implications of what he saw.

Minsky theory was not well received due to powerful orthodoxy, born in the years after World War II, known as the neoclassical synthesis. The older belief in a self-regulating, self-stabilizing free market had selectively absorbed a few insights from John Maynard Keynes, the great economist of the 1930s who wrote extensively of the ways that capitalism might fail to maintain full employment. Most economists still believed that free-market capitalism was a fundamentally stable basis for an economy, though thanks to Keynes, some now acknowledged that government might under certain circumstances play a role in keeping the economy - and employment - on an even keel.

Economists like Paul Samuelson became the public face of the new establishment; he and others at a handful of top universities became deeply influential in Washington. In theory, Minsky could have been an academic star in this new establishment: Like Samuelson, he earned his doctorate in economics at Harvard University, where he studied with legendary Austrian economist Joseph Schumpeter, as well as future Nobel laureate Wassily Leontief.

But Minsky was cut from different cloth than many of the other big names. The descendent of immigrants from Minsk, in modern-day Belarus, Minsky was a red-diaper baby, the son of Menshevik socialists. While most economists spent the 1950s and 1960s toiling over mathematical models, Minsky pursued research on poverty, hardly the hottest subfield of economics. With long, wild, white hair, Minsky was closer to the counterculture than to mainstream economics. He was, recalls the economist L. Randall Wray, a former student, a “character.”

So while his colleagues from graduate school went on to win Nobel prizes and rise to the top of academia, Minsky languished. He drifted from Brown to Berkeley and eventually to Washington University. Indeed, many economists weren’t even aware of his work. One assessment of Minsky published in 1997 simply noted that his “work has not had a major influence in the macroeconomic discussions of the last thirty years.”

Yet he was busy. In addition to poverty, Minsky began to delve into the field of finance, which despite its seeming importance had no place in the theories formulated by Samuelson and others. He also began to ask a simple, if disturbing question: “Can ‘it’ happen again?” - where “it” was, like Harry Potter’s nemesis Voldemort, the thing that could not be named: the Great Depression.

In his writings, Minsky looked to his intellectual hero, Keynes, arguably the greatest economist of the 20th century. But where most economists drew a single, simplistic lesson from Keynes - that government could step in and micromanage the economy, smooth out the business cycle, and keep things on an even keel - Minsky had no interest in what he and a handful of other dissident economists came to call “bastard Keynesianism.”

Instead, Minsky drew his own, far darker, lessons from Keynes’s landmark writings, which dealt not only with the problem of unemployment, but with money and banking. Although Keynes had never stated this explicitly, Minsky argued that Keynes’s collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff.

This insight bore the stamp of his advisor Joseph Schumpeter, the noted Austrian economist now famous for documenting capitalism’s ceaseless process of “creative destruction.” But Minsky spent more time thinking about destruction than creation. In doing so, he formulated an intriguing theory: not only was capitalism prone to collapse, he argued, it was precisely its periods of economic stability that would set the stage for monumental crises.

Minsky called his idea the “Financial Instability Hypothesis.” In the wake of a depression, he noted, financial institutions are extraordinarily conservative, as are businesses. With the borrowers and the lenders who fuel the economy all steering clear of high-risk deals, things go smoothly: loans are almost always paid on time, businesses generally succeed, and everyone does well. That success, however, inevitably encourages borrowers and lenders to take on more risk in the reasonable hope of making more money. As Minsky observed, “Success breeds a disregard of the possibility of failure.”

As people forget that failure is a possibility, a “euphoric economy” eventually develops, fueled by the rise of far riskier borrowers - what he called speculative borrowers, those whose income would cover interest payments but not the principal; and those he called “Ponzi borrowers,” those whose income could cover neither, and could only pay their bills by borrowing still further. As these latter categories grew, the overall economy would shift from a conservative but profitable environment to a much more freewheeling system dominated by players whose survival depended not on sound business plans, but on borrowed money and freely available credit.

Once that kind of economy had developed, any panic could wreck the market. The failure of a single firm, for example, or the revelation of a staggering fraud could trigger fear and a sudden, economy-wide attempt to shed debt. This watershed moment - what was later dubbed the “Minsky moment” - would create an environment deeply inhospitable to all borrowers. The speculators and Ponzi borrowers would collapse first, as they lost access to the credit they needed to survive. Even the more stable players might find themselves unable to pay their debt without selling off assets; their forced sales would send asset prices spiraling downward, and inevitably, the entire rickety financial edifice would start to collapse. Businesses would falter, and the crisis would spill over to the “real” economy that depended on the now-collapsing financial system.

From the 1960s onward, Minsky elaborated on this hypothesis. At the time he believed that this shift was already underway: postwar stability, financial innovation, and the receding memory of the Great Depression were gradually setting the stage for a crisis of epic proportions. Most of what he had to say fell on deaf ears. The 1960s were an era of solid growth, and although the economic stagnation of the 1970s was a blow to mainstream neo-Keynesian economics, it did not send policymakers scurrying to Minsky. Instead, a new free market fundamentalism took root: government was the problem, not the solution.

Moreover, the new dogma coincided with a remarkable era of stability. The period from the late 1980s onward has been dubbed the “Great Moderation,” a time of shallow recessions and great resilience among most major industrial economies. Things had never been more stable. The likelihood that “it” could happen again now seemed laughable.

Yet throughout this period, the financial system - not the economy, but finance as an industry - was growing by leaps and bounds. Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers’ and companies’ growing dependence on debt, and the growing use of leverage within the financial system.

By the end of the 20th century, the financial system that Minsky had warned about had materialized, complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning of risk. When storied financial firms started to fall, sending shockwaves through the “real” economy, his predictions started to look a lot like a road map.

“This wasn’t a Minsky moment,” explains Randall Wray. “It was a Minsky half-century.”

Minsky is now all the rage. A year ago, an influential Financial Times columnist confided to readers that rereading Minsky’s 1986 “masterpiece” - “Stabilizing an Unstable Economy” - “helped clear my mind on this crisis.” Others joined the chorus. Earlier this year, two economic heavyweights - Paul Krugman and Brad DeLong - both tipped their hats to him in public forums. Indeed, the Nobel Prize-winning Krugman titled one of the Robbins lectures at the London School of Economics “The Night They Re-read Minsky.”

Today most economists, it’s safe to say, are probably reading Minsky for the first time, trying to fit his unconventional insights into the theoretical scaffolding of their profession. If Minsky were alive today, he would no doubt applaud this belated acknowledgment, even if it has come at a terrible cost. As he once wryly observed, “There is nothing wrong with macroeconomics that another depression [won’t] cure.”

But does Minsky’s work offer us any practical help? If capitalism is inherently self-destructive and unstable - never mind that it produces inequality and unemployment, as Keynes had observed - now what?

After spending his life warning of the perils of the complacency that comes with stability - and having it fall on deaf ears - Minsky was understandably pessimistic about the ability to short-circuit the tragic cycle of boom and bust. But he did believe that much could be done to ameliorate the damage.

To prevent the Minsky moment from becoming a national calamity, part of his solution (which was shared with other economists) was to have the Federal Reserve - what he liked to call the “Big Bank” - step into the breach and act as a lender of last resort to firms under siege. By throwing lines of liquidity to foundering firms, the Federal Reserve could break the cycle and stabilize the financial system. It failed to do so during the Great Depression, when it stood by and let a banking crisis spiral out of control. This time, under the leadership of Ben Bernanke - like Minsky, a scholar of the Depression - it took a very different approach, becoming a lender of last resort to everything from hedge funds to investment banks to money market funds.

Minsky’s other solution, however, was considerably more radical and less palatable politically. The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of “priming the pump” by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.

Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

While economists may be acknowledging some of Minsky’s points on financial instability, it’s safe to say that even liberal policymakers are still a long way from thinking about such an expanded role for the American government. If nothing else, an expensive full-employment program would veer far too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics are apt to misunderstand Minsky. “He saw these ideas as perfectly consistent with capitalism,” says Wray. “They would make capitalism better.”

But not perfect. Indeed, if there’s anything to be drawn from Minsky’s collected work, it’s that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession’s quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into a catchy phrase and carried on banners.”

It’s a sentiment that may limit the extent to which Minsky becomes part of any new orthodoxy. But that’s probably how he would have preferred it, believes liberal economist James Galbraith. “I think he would resist being domesticated,” says Galbraith. “He spent his career in professional isolation.”

Stephen Mihm is a history professor at the University of Georgia and author of “A Nation of Counterfeiters” (Harvard, 2007). © Copyright 2009 Globe Newspaper Company.

 

Some important albeit random (and overlapping) points about instability of financial system

The first thing to understand is that attempt to weaken positive feedback looks via regulation, approach that can be called  “regulation as a Swiss knife” does not work without law enforcement and criminal liability for bankers, as there is an obvious problem of corruption of regulators. In this sense the mechanism of purges might be the only one that realistically can work.

In other words it’s unclear who and how can prevents the capture of regulators as financial sector by definition has means to undermine any such efforts. One way this influence work is via lobbing for appointment of pro-financial sector people in key positions. If such "finance-sector-selected" Fed chairman does not like part of Fed mandate related to regulation it can simply ignore it as long as he is sure that he will be reappointed. That happened with Greenspan.  After such process started it became irreversible and only after a significant, dramatic shock to the system any meaningful changes can be instituted and as soon as the lessons are forgotten work on undermining them resumes.

In essence, the Fed is a political organization and Fed Chairman is as close to a real vice-president of the USA as one can get.  As such Fed Chairman serves the elite which rules that country, whether you call them financial oligarchy or some other name. Actually Fed Chairman is the most powerful unelected official in the USA. If you compare this position to the role of the Chairman of the Politburo  in the USSR you’ll might find some interesting similarities.

In other words it is impossible to prevent appointment of another Greenspan by another Reagan without changes in political power balance.  And the transition to banana republic that follows such appointment is irreversible even if the next administration water boards former Fed Chairman to help him to write his memoirs.  That means that you need to far-reaching reform of political system to be able to regulate financial industry and you need to understand that the measures adopted need vigilant protection as soon as the current crisis is a distant history.

Additional reading

Several other source of financial instability were pointed out by others:

There are some outstanding lectures and presentation on YouTube on this topic. Among them:

See an expended list at Webliography of heterodox economists

Dr. Nikolai Bezroukov


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[Jun 22, 2017] Playing Games with Drugs at the Wall Street Journal

Jun 22, 2017 | economistsview.typepad.com

anne , June 21, 2017 at 05:02 AM

http://cepr.net/blogs/beat-the-press/playing-games-with-drugs-at-the-wall-street-journal

June 20, 2017

Playing Games with Drugs at the Wall Street Journal

A column * in the Wall Street Journal by Dana P. Goldman and Darius N. Lakdawalla presents a case for high drug prices by making an analogy to the salaries of major league baseball players. They ask what would happen if the average pay of major league players was cut from $4 million to $2 million. They hypothesize that the current crew of major leaguers would continue to play, but that young people might instead opt for different careers, leaving us with a less talented group of baseball players. Their analogy to the drug market is that we would see fewer drugs developed, and therefore we would end up worse off as a result of paying less for drugs.

This analogy is useful because it is a great way to demonstrate some serious wrong-headed thinking. It also leads those of us who had the privilege of seeing players like Bob Gibson, Sandy Koufax, Henry Aaron, and Willie Mays in their primes to wonder if there somehow would have been better players 50 years ago if the pay back then was at current levels.

But the issue is not just how much we should for developing drugs, but how we should pay. Suppose that we paid fire fighters at the point where they came to the fire. They would assess the situation and make an offer to put out the fire and save the lives of those who are endangered. We could haggle if we want. Sometimes we might get the price down a bit and in some occasions a competing crew of firefighters may show up and offer some competition. Most of us would probably pay whatever the firefighters asked to rescue our family members.

This could lead to a situation where firefighters are very highly paid, since at least the ones who came to rich neighborhoods could count on payouts in the millions or even tens of millions of dollars. Suppose someone suggested that we were paying too much for firefighters' services and argued that there we could drastically reduce what we pay for a service we all recognize as tremendously important. Well, Goldman and Lakdawalla would undoubtedly respond with a Wall Street Journal column telling us that fewer people will want to be firefighters.

But this is really beside the point. Just about everyone agrees that it does not make sense to be determining firefighters' pay when they show up at the fire. We pay them a fixed salary. While they sit around waiting most of the time, occasionally they provide an incredibly valuable service saving valuable properties from destruction or even more importantly saving lives.

No one thinks that firefighters get ripped off because they don't walk away millions of dollars when they save an endangered family. They get paid their salary (which we can argue whether too high or too low) for work that we recognize as dangerous, but which will occasionally result in enormous benefits to society.

In the case of developing drugs, we are now largely in the situation of paying the firefighters when they show up at the burning house. As a result of historical accident, we rely on a relic of the medieval guild system, government granted patent monopolies, to finance most research into developing new drugs. These monopolies allow drug companies to charge prices that are several thousand percent ** above the free market price.

This leads to all the corruption and distortion that one would expect from a trade tariff of 1000 or even 10,000 percent. These markups lead drug companies to expend vast resources marketing their drugs. They also frequently misrepresent the safety and effectiveness of their drugs to maximize sales. They make payoffs to doctors, politicians, and academics to enlist them in their sales efforts. And, they use the legal system to harass potential competitors, often filing frivolous suits to dissuade generic competitors.

This system also leads to a large amount of wasted research spending. This is in part because competitors will try to innovate around a patent to share in the patent rents. In a world of patent monopolies it is generally desirable to have competing drugs, however if the first drug was selling at its free market price, it is unlikely that it would make sense to spend large amounts researching the development of a second, third, and fourth drug for a condition for which an effective treatment already exists, rather than researching drugs for conditions for which no effective treatment exists.

Patent monopolies also encourage secrecy in research, as drug companies disclose as little information as possible so that they prevent competitors from benefiting from their research. This also slows the research process.

The obvious alternative would upfront funding, just like firefighters are paid a fixed salary for their work. Under this system a condition of the funding would be that all the research findings are posted on the web as quickly as practical to maximize the ability of the scientific community to benefit. We already do this to some extent with the $32 billion a year that goes to the National Institutes of Health, although this amount would likely have to be doubled or even tripled to make up for the research currently supported by government granted patent monopolies. (I outline a system for this in my book "Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer" *** - it's free.)

Anyhow, it would be good if we could be having a debate about how we finance drug research rather than just telling silly stories about baseball players salaries. Bernie Sanders, Elizabeth Warren, Al Franken, Sherrod Brown and thirteen other senators have already introduced a bill that would have the government pick up the tab on some clinical trials and then putting the rights to successful drugs in the public domain so they can be sold at generic prices. The bill also has a patent buyout fund that would accomplish the same goal.

It is absurd that we charge people hundreds of thousands of dollars for life-saving drugs that cost a few hundred dollars to produce. Too bad the Wall Street Journal has so little creativity that it cannot even imagine an alternative to a grossly antiquated institution when it comes to financing prescription drug development.

* https://www.wsj.com/articles/take-me-out-to-the-pill-game-1497913367

** http://www.thebodypro.com/content/78658/1000-fold-mark-up-for-drug-prices-in-high-income-c.html

*** https://deanbaker.net/images/stories/documents/Rigged.pdf

-- Dean Baker

[Jun 22, 2017] These are dark times for neoliberal free marketeers.

Jun 22, 2017 | economistsview.typepad.com

Christopher H., June 21, 2017 at 06:56 AM

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2017/06/free-markets-need-equality.html

June 21, 2017

FREE MARKETS NEED EQUALITY
by Chris Dillow

These are dark times for free marketeers. Voters are only lukewarm about the virtues of capitalism; the Grenfell disaster is widely regarded as showing the case for greater regulation; and, as Sam Bowman says, even the Tories "have totally failed to make a broad-brush case for free markets."

I share some of their disquiet. Flawed as they are, markets have virtues as selection and information-aggregation mechanisms.

What, then, can be done to strengthen the case for markets?

There's one thing that's crucial – equality of power. For free markets to have public acceptance, the worst-off must have bargaining power. Without this, "free" markets merely become a device for exploitation.

Imagine, for example, that we had overfull employment and/or high out-of-work benefits. Workers would then be able to reject low wages and bad working conditions. Market forces would then deliver higher wages and good, safer, conditions simply because employers that didn't offer these wouldn't have any workers. Equally – though it's harder to imagine – if we had an abundance of housing, landlords who offered shoddy or dangerous accommodation would either have to refurbish their property to acceptable standards or suffer a lack of tenants.

We wouldn't, therefore need "red tape." The market would raise working and living standards.

We don't need thought experiments to see this. We have empirical evidence too.

Philippe Aghion and colleagues have shown that there's a negative correlation across countries between unions density and minimum wage laws. Countries with strong unions have less stringent minimum wage laws – because greater bargaining power reduces the need for such laws. Remember that the UK adopted minimum wages in the 1990s, when unions had been emasculated. In the 60s and 70s, when unions were strong, the market raised wages.

Also, there is a negative correlation across developed countries between inequality (as measured, imperfectly, by Gini coefficients) and business freedom. Egalitarian Denmark and Sweden, for example, score better on the Heritage Foundation's index of freedom than the unequal US. There's a simple reason for this. Working people want what they regard as a fair deal. If they can't get it through bargaining in free markets, they'll seek it through politics and regulation.

The inference here is, for me, obvious. If you are serious about wanting free markets you must put in place the conditions which are necessary for them – namely, greater bargaining power for tenants, customers and workers. This requires not just strong anti-monopoly policies but also policies such as a high citizens income, full employment and mass housebuilding.

In short, free markets require egalitarian policies. Free marketeers who don't support these are not the friends of freedom at all, but are merely shills for exploiters.

Christopher H. -> Christopher H.... , June 21, 2017 at 07:02 AM
"Egalitarian Denmark and Sweden, for example, score better on the Heritage Foundation's index of freedom than the unequal US. There's a simple reason for this. Working people want what they regard as a fair deal. If they can't get it through bargaining in free markets, they'll seek it through politics and regulation."

Hillary Clinton famously said "we're not Denmark" to distinguish herself from the "unserious" Bernie Sanders in the primary debates.

She was trying to appeal to meritocratic Democrats and Republicans. As Josh Marshall wrote of yesterday's special election:

"The district is relatively diverse for a GOP district and educated and affluent. In other words, it's made up of just the kind of Republicans who proved most resistant to Trump."

Hillary was trying to appeal to the affluent and indoctrinated and educated meritocrats. The "non-deploreables."

And she lost. Corbyn running on an anti-austerity platform and a manifesto that pointed more in the direction of Denmark pulled off a biggest swing in votes since 1945.

Of course the center left, PGL and Krugman were silent about Corbyn's great showing and complained about people who wanted to discuss it. But it's okay to discuss the disappointing outcome in yesterday's special election.

RGC -> Christopher H.... , June 21, 2017 at 07:18 AM
Free markets need "a comprehensive socialization of investment":

"In some other respects the foregoing theory is moderately conservative in its implications. For whilst it indicates the vital importance of establishing certain central controls in matters which are now left in the main to individual initiative, there are wide fields of activity which are unaffected. The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community. It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary. Moreover, the necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society"

-J M Keynes

https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch24.htm

Paine -> RGC... , June 21, 2017 at 06:09 PM
Caution
The path to Keynesian futures turned out to have a long back traverse
From 1973 to 2008 and beyond

As yet we have not moved forward
but at least the power
driving the back traverse is over
We can recommence the advance toward greater socialization of net investment

[Jun 22, 2017] Americans have a blind spot on the actions of the USA. That's natural. But that blindness produces pretty idiotic comments even from commenters that are able to discuss intelligently other topics

Jun 21, 2017 | economistsview.typepad.com

DrDick -> Paine ... , June 21, 2017 at 08:33 AM

Also historically moronic, since China had become increasingly isolationist from the 16th century on. This is not to say that China has not been deliberately annoying their neighbors lately, especially in the South China Sea, however. Clearly China has been extending its influence, mostly economically, around the world, especially in Africa, for a couple of decades now, but I do not see this as any different from what we do in the same regions. It is certainly not nearly as troubling as what Russia has been doing under Putin.
libezkova said in reply to DrDick... , June 21, 2017 at 09:09 PM
Compare your viewpoint with Forbes:

https://www.forbes.com/sites/kenrapoza/2017/06/16/in-final-oliver-stone-interview-putin-predicts-when-russia-us-crisis-ends/


In Final Oliver Stone Interview, Putin Predicts When Russia-US Crisis Ends

Jun 20, 2017 | www.forbes.com

But with Trump in the White House, the Trump-Putin conspiracy theory is one reality TV show the news media can't shake. Stone's love for foreign policy intrigue at least makes him a Putin kindred spirit here. America's age old fear of the Russians, has made Putin public enemy number one and Stone his sounding board. For some unhappy campers, like John McCain, Putin has " no moral equivalent " in the United States. He's a dictator , a war criminal and tyrant .

"You've gone through four U.S. presidents: Clinton, Bush, Obama and now Trump. What changes?" Stone asks him.

"Almost nothing. Your bureaucracy is very strong and it is that bureaucracy that rules the world," he says. Then, solemnly, "There is change...when they bring us to the cemetery to bury us."

In the last installment of the Putin interviews, the Russian leader admitted to liking Trump. "We still like him because he wants to restore relations. Relations between the two countries are going to develop," he said. It's a sentence very few in congress would say, and almost no big name politicians outside of Trump would imagine saying on television. On Russia, you scold. There is no fig leaf.

In a recent sanctions bill in the senate, only Republicans Rand Paul and Mike Lee voted against it, making for a 97-2 landslide in favor of extra-territorial sanctions against Russian companies, namely oil and gas.

Stone asked him why did he bother hacking the Democratic National Committee's emails if he believed nothing would change on the foreign policy front.

STONE: Our political leadership and NATO all believe you hacked the election.

PUTIN: We didn't hack the election at all. It would be hard to imagine any country, even Russia, being capable of seriously influencing the U.S. election. Someone hacked the DNC, but I don't think it influenced the election. What came through was not a lie.

They were not trying to fool anybody. People who want to manipulate public opinion will blame Russia. But Trump had his finger on the pulse of the Midwest voter and knew how to pull at their hearts. Those who have been defeated shouldn't be shifting blame to someone else....We are not waiting for any revolutionary changes.

Just then, editors cut to a video of Trump talking about Putin.

TRUMP: I hope I get along with Putin. I hope I do. But there is a good chance that I won't.

PUTIN: It almost feels like hatred of a certain ethnic group, like antisemitism. They are always blaming Russians, like antisemites are always blaming the Jews.

The editors then flashed to footage of John McCain on the floor of the Senate ranting and raving about Putin. Then Joseph Biden in the Ukrainian parliament, ranting about Russia. Putin tells Stone all of this is unfortunate. He thinks their view is"old world." He reminds Stone that Russia and the U.S. were allies in World War I and World War II. It was Winston Churchill that started the Cold War from London, despite having respect for Russia's strongman leader at the time, the real dictator, Joseph Stalin.

libezkova -> libezkova... , June 21, 2017 at 09:13 PM
The point is the Americans have a blind spot on the actions of the USA.

That's natural. But that produced pretty idiotic comments in this blog even from commenters that are able to discuss intelligently other topics.

[Jun 21, 2017] People are thinking of locating solar panels to provide shade to irrigation canals or to bike lanes. Car roofs are a good spot too. There are so many two-fers out there - why are we missing all these opportunities?

Jun 21, 2017 | economistsview.typepad.com

pgl, June 21, 2017 at 01:36 AM

Re: Fisticuffs Over the Route to a Clean-Energy Future - NYTimes

"It is critically important to bring this debate into the open. For too long, climate advocacy and policy has been inflected by a hope that the energy transformation before us can be achieved cheaply and virtuously - in harmony with nature. But the transformation is likely to be costly. And though sun, wind and water are likely to account for a much larger share of the nation's energy supply, less palatable technologies are also likely to play a part."

Eduardo Porter on the debate as to whether 100% of our energy needs can be met by renewables. OK - it may involve certain costs increasing this from a mere 10% to something closer to 100% even if we do not entirely get to 100%. But not trying would be very costly.

reason, June 21, 2017 at 02:17 AM
One thing that certainly annoys me about this, is that to me the incentives must be wrong.

I see the German railway building solar banks on perfectly good land (which could for instance grow trees), and the railways rolling past large numbers of houses with south-facing roofs and no solar panels.

I see electric cars being built without solar panels on the roof, parked in the sun. I sort of wonder - something is wrong here, why?

I read in the scientific American that people are thinking of locating solar panels to provide shade to irrigation canals. Or we could use solar panels to provide weather protection to bike lanes (shade + rain + snow protection). There are so many two-fers out there - why are we missing all these opportunities?

reason -> reason ... , June 21, 2017 at 02:26 AM
Think of another possibility (a sliding solar on the roof of an electric car - so it could provide windscreen shade when parked and have extra collecting area as well).

Ok, ok it is summer and 34 degrees C here today, so solar energy is everywhere.

libezkova -> reason ... , June 21, 2017 at 08:26 PM
One thing that certainly annoys me about this, is that to me the incentives must be wrong.

I see the german railway building solar banks on perfectly good land (which could for instance grow trees), and the railways rolling past large numbers of houses with south-facing roofs and no solar panels.

I see electric cars being built without solar panels on the roof, parked in the sun. I sort of wonder - something is wrong here, why?

I read in the scientific American that people are thinking of locating solar panels to provide shade to irrigation canals. Or we could use solar panels to provide weather protection to bike lanes (shade + rain + snow protection). There are so many two-fers out there - why are we missing all these opportunities?

That's a great comment !!!

Thank you so much.

[Jun 21, 2017] We Are Inches From A New World War, And Clintonists Are To Blame

Jun 21, 2017 | economistsview.typepad.com

RGC Reply , June 21, 2017 at 06:52 AM

We Are Inches From A New World War, And Clintonists Are To Blame

Published June 20, 2017 by Caitlin Johnstone

"This is your fault, Clinton Democrats. You created this, and if our species is plunged into a new world war or extinction via nuclear holocaust, it will be your fault. You knuckle-dragging, vagina hat-wearing McCarthyite morons made this happen."

https://counterpropa.com/inches-new-world-war-clintonists-blame/

RGC - , June 21, 2017 at 07:46 AM
Five takeaways from Iran's missile strike in Syria

Tehran's strike was targeted at Islamic State but it also puts US bases in the region on notice and exposes the flimsiness of the Trump Administration's Middle East policy
........................
From all accounts, the missiles hit their target with devastating precision. Simply put, Iran has notified the US that its 45,000 troops deployed in bases in Iraq (5,165), Kuwait (15,000), Bahrain (7,000), Qatar (10,000), the UAE (5,000) and Oman (200) are highly vulnerable.

http://www.atimes.com/article/five-takeaways-irans-missile-strike-syria/

RGC, June 21, 2017 at 07:58 AM
Unlike the US military, Iran appears to put effectiveness ahead of private profit.
Paine, June 21, 2017 at 03:51 PM
No. Iran is hardly foolish

Hell truck bombs aimed at marine barracks aren't any longer on Iran's to do list . Even thru their junior partners Hezbollah
Assad might want them to clobber a syrian Kurd stronghold. But not even that gets the green light by the mad mullahs of Teheran

Paine, June 21, 2017 at 03:54 PM
Uncle is the clear aggressor against Iran. Just as he is against Venezuela. The Shia Arabs are a strategic target for uncles containment horse play. Iran is their steadfast ally
ilsm, June 21, 2017 at 04:29 PM
The Wahhabi coalition funded, armed and equipped by Uncle Sam killed 300 women and children last month in its quest to use ISIS as an excuse to give Syria and upper Iraq to al Qaeda.

It also shot down a Syria jet trying to push US' jihadis who are making Turley mad back toward ISIS to fight them rather than occuoy Syria.

Paine, June 21, 2017 at 05:57 PM
The Saud family are up there with the Walton's. And they outnumber the Walton's ten thousand to 4. There will be an awful reckoning....some day
ilsm - , June 21, 2017 at 06:43 PM
US presidents since Nixon have not committed one (1.0) of the US' 2.5 planned wars to the welfare of the Saudi family's palaces.
RGC - , June 21, 2017 at 08:12 AM
The Growing U.S.-Iran Proxy Fight in Syria. The scramble for Islamic State territory is raising the risks of escalation

https://www.theatlantic.com/international/archive/2017/06/iran-syria-trump-saudi-arabia-escalation-isis/530844/

ilsm - , June 21, 2017 at 04:34 PM
While we are talking about the Wahhabi invasions of Syria:

https://en.wikipedia.org/wiki/Daraa_offensive_(February%E2%80%93June_2017)

The Syrian government is pushing against the Israeli supported branch of al Qaeda in the Daraa governate. Israelis interest is the Golan which it grabbed in 1973.

While in al Tanf, Syria in the middle of no where related to fighting ISIS US F-15E shot down an armed drone allegedly attacking the US run training center for future jihadis who will go after the US and Europe like bin Laden. All the conditions for US tied down supporting evil like 1964..........

Paine - , June 21, 2017 at 03:46 PM
I like johnstone. She wrote a lot on Serbia v croatia. And then Bosnia Kosovo. The national elements of deliquescent Yugoslavia. That former hot spot of humanist outrage. But keep your pants on girl

Nothing anywhere now threatens catastrophic collisions between great powers. Uncles just too strong

ilsm, June 21, 2017 at 04:37 PM
The legacy of Sarajevo and the East German armor US facilitated to Croatia is the US maintains an oversized "NATO" mechanized brigade plus extras in Camp Bonesteel......

Keeping dissected Kosovo county free unlike Iraq......

ilsm, June 21, 2017 at 04:40 PM
"Uncles just too strong"

not really, it is less. risky to do Vietnams..... Syria has the potential to make Vietnam type counter insurgency experiments look new again. Until US runs out of lenders!

too strong......puleeeze

Paine , June 21, 2017 at 06:00 PM
Of course. Vietnams are always possible. In fact they keep great powers busy. Bleeding each other by proxy
ilsm , June 21, 2017 at 06:38 PM
Iraq, Afghanistan, Syria, Yemen, Djibouti, Sudan are all Vietnams sans draftees and no hippy music. What is Neil Young and Joani Mitchell up to?
libezkova - , June 21, 2017 at 07:53 PM
There is probably a silver lining in the alliance of neocons and liberal interventionists (which actually are the same as DemoRats -- Clinton's wing of Democratic party) attempt to impeach Trump on faked charges.

It might delay the war. Looks like Trump is hell bent to crush Iran.

Which is a theocratic state, but still not as bad as KAS and some other US allies in the region.

[Jun 21, 2017] Unions in Decline Some International Comparisons

Jun 21, 2017 | economistsview.typepad.com
libezkova , June 21, 2017 at 11:55 AM
" This pattern suggests that existence of unions, one way or another, may be less important for economic outcomes than the way in which those unions function. "

This is a typical neoliberal Newspeak. Pretty Orwellian.
In reality atomization of workforce and decimation of unions is the explicit goal of neoliberal state.

Neoliberalism war on organized labor started with Reagan.

Neoliberalism is based on unconditional domination of labor by capital ("socialism for rich, feudalism for labor").

American scholar and cultural critic Henry Giroux alleges neoliberalism holds that market forces should organize every facet of society, including economic and social life, and promotes a social Darwinist ethic which elevates self-interest over social needs.

That means maintaining the unemployment level of sufficiently high level and political suppression of workers rights to organize.

A new class of workers, facing acute socio-economic insecurity, emerged under neoliberalism. It is called 'precariat'.

Neoliberal policies led to the situation in the US economy in which 30% of workers earn low wages (less than two-thirds the median wage for full-time workers), and 35% of the labor force is underemployed; only 40% of the working-age population in the U.S. is adequately employed.

The Center for Economic Policy Research's (CEPR) Dean Baker (2006) argued that the driving force behind rising inequality in the US has been a series of deliberate, neoliberal policy choices including anti-inflationary bias, anti-unionism, and profiteering in the health industry.

Amazon, Uber and several other companies have shown that neoliberal model can be as brutal as plantation slavery.

Central to the notion of the skills agenda as pursued by neoliberal governments is the concept of "human capital."

Which involves atomization of workers, each of which became a "good" sold at the "labor market". Neoliberalism discard the concept of human solidarity. It also eliminated government support of organized labor, and decimated unions.

Under neoliberalism the government has to actively intervene to clear the way for the free "labor market." Talk about government-sponsored redistribution of wealth under neoliberalism -- from Greenspan to Bernanke, from Rubin to Paulson, the government has been a veritable Robin Hood in reverse.

[Jun 21, 2017] The CIAs principal house organ, the New York Times, published a lead editorial Sunday on the investigation into alleged Russian meddling in the 2016 US presidential election that is an incendiary and lying exercise in disinformation aimed at whipping up support for war with Russia.

Jun 21, 2017 | economistsview.typepad.com

RGC

, June 21, 2017 at 06:44 AM
The New York Times steps up its anti-Russia campaign
21/06/2017

The CIA's principal house organ, the New York Times, published a lead editorial Sunday on the investigation into alleged Russian meddling in the 2016 US presidential election that is an incendiary and lying exercise in disinformation aimed at whipping up support for war with Russia.
....................

Not a single one of the reports in the Times or Post is the product of a genuine investigation by journalists. Instead, the main reporting on the "Russian hacking" affair consists of taking dictation from unidentified intelligence officials. In not a single case did these officials offer evidence to substantiate their claims, invariably made in the form of ambiguous phrases like "we assess," "we believe," "we assess with high confidence," etc. Such claims are worth no more than previous assertions that Iraq possessed weapons of mass destruction-a lie used to justify a war that has killed more than one million people.

http://www.defenddemocracy.press/the-new-york-times-steps-up-its-anti-russia-campaign/

RGC -> RGC... , June 21, 2017 at 06:47 AM
Bernie Sanders and Rand Paul Buck Party Consensus on Russia and Iran Sanctions


Investigative journalist Max Blumenthal explains that these sanctions punish Russia and Iran and unnecessarily intensifies the conflict between the US and these countries

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=19337

sanjait -> RGC... , June 21, 2017 at 10:55 AM
Dead wrong about Bernie:

http://www.independent.co.uk/news/world/americas/us-politics/bernie-sanders-donald-trump-russia-blackmail-links-vladimir-putin-nice-things-democratic-senator-a7647546.html

Nice try though!

RGC -> sanjait... , June 21, 2017 at 11:26 AM
Thursday, June 15, 2017

WASHINGTON, June 15 – Sen. Bernie Sanders (I-Vt.) issued the following statement Thursday after he voted against a bill that would impose new sanctions on Iran and Russia:

"I am strongly supportive of the sanctions on Russia included in this bill. It is unacceptable for Russia to interfere in our elections here in the United States, or anywhere around the world. There must be consequences for such actions. I also have deep concerns about the policies and activities of the Iranian government, especially their support for the brutal Assad regime in Syria. I have voted for sanctions on Iran in the past, and I believe sanctions were an important tool for bringing Iran to the negotiating table. But I believe that these new sanctions could endanger the very important nuclear agreement that was signed between the United States, its partners and Iran in 2015. That is not a risk worth taking, particularly at a time of heightened tension between Iran and Saudi Arabia and its allies. I think the United States must play a more even-handed role in the Middle East, and find ways to address not only Iran's activities, but also Saudi Arabia's decades-long support for radical extremism."

https://www.sanders.senate.gov/newsroom/press-releases/sanders-statement-on-iran-and-russia-sanctions

anne -> RGC... , June 21, 2017 at 07:25 AM
https://www.nytimes.com/2017/06/17/opinion/mr-trumps-dangerous-indifference-to-russia.html

June 17, 2017

Mr. Trump's Dangerous Indifference to Russia

anne -> anne... , June 21, 2017 at 01:21 PM
https://www.nytimes.com/2017/06/17/opinion/mr-trumps-dangerous-indifference-to-russia.html

June 17, 2017

Mr. Trump's Dangerous Indifference to Russia

A rival foreign power launched an aggressive cyberattack on the United States, interfering with the 2016 presidential election and leaving every indication that it's coming back for more - but President Trump doesn't seem to care.

The unprecedented nature of Russia's attack is getting lost in the swirling chaos of recent weeks, but it shouldn't be. American intelligence agencies have concluded that Russia took direct aim at the integrity of American democracy, and yet after almost five months in office, the commander in chief appears unconcerned with that threat to our national security. The only aspect of the Russia story that attracts his attention is the threat it poses to the perceived legitimacy of his electoral win.

If not for the continuing investigation into possible collusion between the Trump campaign and the Russians - and whether Mr. Trump himself has obstructed that investigation - the president's indifference would be front-page news.

So let's take a moment to recall the sheer scope and audacity of the Russian efforts.

Under direct orders from President Vladimir Putin, hackers connected to Russian military intelligence broke into the email accounts of...

ilsm -> anne... , June 21, 2017 at 04:22 PM
Not to worry Trump is doing all Obama did and more to sell Syria to al Qaeda.

Too busy keeping the Wahhabis happy to want to mess with Russia over a few millions Balts' desires.

The US is not offering the last drop of US soldiers' blood to the Balts it is already committed to the Wahhabis.

anne -> anne... , June 21, 2017 at 01:24 PM
https://www.nytimes.com/2017/06/17/opinion/mr-trumps-dangerous-indifference-to-russia.html

Under direct orders from President Vladimir Putin, hackers connected to Russian military intelligence broke into the email accounts of...

[ Interesting passage. ]

Paine -> RGC... , June 21, 2017 at 08:45 AM
Why critique this campaign against Russia
As if the kremlin may to have interfered and even collaborated with trump operatives to do it

Anything less would be dereliction of duty by a great powers leadership

Point out the motivation

Which is indeed a new forward policy on Russian containment by the deep state
As we now call the corporate planted cultivated and coddled security apparatus
With its various media cut thrus cut outs and compadres

Yes the NYT and the WP

Both are working with the deep state
Once called the invisible government
Much as they have in he past

Why I like he color revolution analogy

These media titans are working with the DS
Because they want to topple trump like they wanted to topple Nixon
And to a lesser extent wobble Reagan

Paine -> Paine ... , June 21, 2017 at 08:47 AM
Typo hazard

Russia is obviously tampering as much as optimal

Nothing new

Hence my suggesting putin is jut acting like all great powers must act to be great powers

ilsm -> Paine ... , June 21, 2017 at 04:23 PM
It would have been appeasement for Putin to stand by and let the Hillary neocon take over America and offer the last drop of US soldiers' blood to the Balts.

Ignoring Clinton was like letting Hitler have Prague!

Paine -> ilsm... , June 21, 2017 at 04:37 PM

Indeed
anne -> Paine ... , June 21, 2017 at 09:08 AM
Important, incisive perspective or argument, but a direction seldom taken. A Cold War sort of atmosphere makes us wary of using any such argument, and we have been forming a Cold War environment for several years now. This atmosphere by the way involves the way in which China is generally regarded, and I believe colors economic analysis even among academics.

[Jun 19, 2017] Republicans are embarrassing Democrats by showing them how legislation gets passed with a bare majority, when Democrats failed with a filibuster proof majority

Jun 19, 2017 | economistsview.typepad.com

JohnH, June 19, 2017 at 06:48 AM

Republicans are embarrassing Democrats by showing them how legislation gets passed with a bare majority...when Democrats could barely get anything done with a filibuster proof majority!

Moral of the story? Democrats under Obama didn't really want to get much done. Rather, they preferred to do nothing and blame Republicans instead. Worse, now that Republicans want to destroy what precious little Democrats managed to accomplish, Democrats are just standing around, frozen like deer in the headlights, clueless as to how to use their 48 votes.

How pathetic can Democrats get?

libezkova, June 19, 2017 at 06:40 PM
"Republicans are embarrassing Democrats by showing them how legislation gets passed with a bare majority...when Democrats could barely get anything done with a filibuster proof majority!"

Not only that.

Neoliberal stooges like Krugman now shed crocodile tears after pushing Sanders under the bus.

They essentially gave us Trump and now have an audacity to complain. What a miserable hypocritical twerp this Nobel laureate is!

Where is the DemoRats "Resistance" now? Are they fighting against the war in Syria on behave of Israel and Gulf states? Protesting sanctions against Cuba? Complaining about the record arms sale with Saudi Arabia (with its possible 9/11 links ?)

No, they are all on MSNBC or CNN dragging out a stupid investigation all the while pushing Russia to war. And congratulating themselves with the latest Russian sanctions designed to block supplies of Russian gas to Western Europe...

I want to repeat this again: Neoliberal Democrats created Trump and brought him to the victory in the recent Presidential elections.

[Jun 18, 2017] Economic bungee jumping without cord: Comment on Simon Wren-Lewis on 'Raising the inflation target'

Notable quotes:
"... The argument for a higher inflation target is NOT straightforward, once you understand two things. First interest theory is axiomatically false.#1 Because of this monetary policy never had sound scientific foundations. Second the same holds for fiscal policy.#2 ..."
"... The argument AGAINST higher inflation is that it REDUCES employment. Given the overall situation, the ONLY sensible policy is to increase the average wage rate, such that the rate of change of the wage rate is greater than the rate of change of productivity, because this increases employment. This is a SYSTEMIC necessity and has NOTHING to do with social policy. Employment is co-determined by the relationship between average wage rate, price and productivity. This relationship should automatically produce full employment but does not. ..."
Jun 18, 2017 | economistsview.typepad.com

Egmont Kakarot-Handtke, June 17, 2017 at 08:31 AM

Economic bungee jumping without cord: Comment on Simon Wren-Lewis on 'Raising the inflation target'

You say: "The argument for a higher inflation target is straightforward, once you understand two things. First the most effective and reliable monetary policy instrument is to influence the real interest rate in the economy, which is the nominal interest rate less expected inflation. Second nominal short term interest rates have a floor near zero (the Zero Lower Bound, or ZLB)."

The argument for a higher inflation target is NOT straightforward, once you understand two things. First interest theory is axiomatically false.#1 Because of this monetary policy never had sound scientific foundations. Second the same holds for fiscal policy.#2

Let us assume for a moment that, for whatever reasons, neither monetary nor fiscal policy is applicable. So, given investment expenditures of the business sector and the expenditure ratio of the household sector, the only alternative left is to directly influence the macroeconomic price mechanism.#3

The argument AGAINST higher inflation is that it REDUCES employment. Given the overall situation, the ONLY sensible policy is to increase the average wage rate, such that the rate of change of the wage rate is greater than the rate of change of productivity, because this increases employment. This is a SYSTEMIC necessity and has NOTHING to do with social policy. Employment is co-determined by the relationship between average wage rate, price and productivity. This relationship should automatically produce full employment but does not.

Standard employment theory is false.#4 The proposal to get the economy going by increasing price inflation is the direct result of the complete lack of understanding how the market economy works.

Egmont Kakarot-Handtke

#1 See 'The Emergence of Profit and Interest in the Monetary Circuit'
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1973952

#2 See 'Austerity and the utter scientific ignorance of economists'
http://axecorg.blogspot.de/2015/12/austerity-and-utter-scientific.html

#3 For more details see 'Think deeper'
http://axecorg.blogspot.de/2017/06/think-deeper.html

#4 For details of the bigger picture see cross-references Employment
http://axecorg.blogspot.de/2015/08/employmentphillips-curve-cross.html

[Jun 18, 2017] Economist's View Links for 06-17-17

Jun 18, 2017 | economistsview.typepad.com
anne , June 17, 2017 at 12:01 PM
http://www.newyorker.com/magazine/2017/06/19/are-china-and-the-united-states-headed-for-war

June 19, 2017

Are China and the United States Headed for War?
Professors, pundits, and journalists weigh in on a heated topic.
By Ian Buruma

Overheated topics invariably produce ill-considered books. Some people will remember the time, in the late nineteen-eighties, when Japan was about to buy up America and conquer the world. Many a tidy sum was made on that premise. These days, the possibility of war with China is stirring emotions and keeping publishers busy. A glance at a few new books suggests what scholars and journalists are thinking about the prospect of an Asian conflagration; the quality of their reflections is, to say the least, variable.

The worst of the bunch, Graham Allison's "Destined for War," may also be the most influential, given that its thesis rests on a catchphrase Allison has popularized, "Thucydides's Trap." Even China's President, Xi Jinping, is fond of quoting it. "On the current trajectory," Allison contends, "war between the U.S. and China in the decades ahead is not just possible, but much more likely than currently recognized." The reason, he says, can be traced to the problem described in the fifth century B.C.E. in Thucydides' account of the Peloponnesian War. Sparta, as the established power, felt threatened by the rising might of Athens. In such conditions, Allison writes, "not just extraordinary, unexpected events, but even ordinary flashpoints of foreign affairs, can trigger large-scale conflict."

Allison sees Thucydides' Trap in the wars between a rising England and the established Dutch Republic in the seventeenth century, a rising Germany versus Britain in the early twentieth century, and a rising Japan versus the United States in the nineteen-forties. Some historical tensions between rising powers and ruling ones were resolved without a catastrophic war (the Soviet challenge to U.S. dominance), but many, Allison warns, were not. And there's no disputing China's steep military and economic rise in recent decades. Its annual military budget has, for most of the past decade, increased by double digits, and the People's Liberation Army, even in its newly streamlined form, has nearly a million more active service members than the United States has. As recently as 2004, China's economy was less than half that of the United States. Today, in terms of purchasing-power parity, China has left the United States behind. Allison is so excited by China's swift growth that his prose often sounds like a mixture of a Thomas Friedman column and a Maoist propaganda magazine like China Reconstructs. Rome wasn't built in a day? Well, he writes, someone "clearly forgot to tell the Chinese. By 2005, the country was building the square-foot equivalent of today's Rome every two weeks."

Allison underrates the many problems that could slow things down quite soon...

Paine - , June 17, 2017 at 01:58 PM
This thesis assumes its conclusion

However we all can act to diffuse this arms race hype

ilsm - , June 17, 2017 at 02:57 PM
Thucydides trap* is foggy bottom 'soft porn'!

Besides in 30 years the "power balance" between China and US will not favor the sea power.

*even less foundation in logic than applying the 'prisoner dilemma' to the war room in "Fail Safe".

Paine - , June 18, 2017 at 09:06 AM
This is great game higgly piggly

Nothing more

The MIC has trump punctured with the sap can

Budgets for sharp toys will rise
With or without
Alt news on People's China

Paine - , June 18, 2017 at 09:09 AM
The congress is supine at the feet of the MIC

Only a POTUS can hope to restrain the MIC
With the minimal help of a less then stalwart house progressive caucus

And a few dove lobby groups

With Trump we have MIC goon in chief

anne , June 17, 2017 at 12:01 PM
https://www.nytimes.com/2017/06/15/books/review/everything-under-the-heavens-howard-french-destined-for-war-graham-allison.html

June 16, 2017

America's Collision Course With China
By JUDITH SHAPIRO

EVERYTHING UNDER THE HEAVENS
How the Past Helps Shape China's Push for Global Power
By Howard W. French

DESTINED FOR WAR
Can America and China Escape Thucydides's Trap?
By Graham Allison

The Chinese superpower has arrived. Could America's failure to grasp this reality pull the United States and China into war? Here are two books that warn of that serious possibility. Howard W. French's "Everything Under the Heavens: How the Past Helps Shape China's Push for Global Power" does so through a deep historical and cultural study of the meaning of China's rise from the point of view of the Chinese themselves. Graham Allison's "Destined for War: Can American and China Escape Thucydides's Trap?" makes his arguments through historical case studies that illuminate the pressure toward military confrontation when a rising power challenges a dominant one. Both books urge us to be ready for a radically different world order, one in which China presides over Asia, even as Chinese politicians tell a public story about "peaceful rise." The books argue persuasively that adjusting to this global power shift will require great skill on both sides if conflagration is to be avoided.

French says in his exhaustively researched and fascinating account of geopolitics, China style, that the Chinese era is upon us. But, he asks, "How will the coming China-driven world look?" To what extent will China support the international order that emerged when it was suffering humiliation at the hands of foreign powers? What are the drivers and motivations for the new ways China projects its power? How best should its neighbors and its rival North American superpower respond?

French, a former reporter for The Washington Post and The New York Times, argues that China's historical and cultural legacy governs its conduct of international relations, a legacy that sits uncomfortably with the Western notions of equality and noninterference among states. China's relations with its neighbors in Japan and Southeast Asia were for millenniums governed by the concept of tian xia, which held that everything "under the heavens" belonged to the empire. A superior civilization demanded deference and tribute from vassal neighbors and did not hesitate to use military force. China's testy relationship with Vietnam became fraught whenever a Vietnamese leader dared to demand equal footing with a Chinese emperor; the Japanese claim to divine origins was unacceptable....

anne - , June 17, 2017 at 12:05 PM
American and British writing about China now, strikes me as writing about a country that is invented rather than the country I would like to think I know. I find the writing distressing, nonetheless there are the articles from the New Yorker and New York Times.
Paine - , June 17, 2017 at 02:07 PM
The book purporting to see the world thru chineses history conditioned eyes is
Patently ridiculous nastiness

One might ask who today
is actively trying to contain the other
Who today is trying to maintain its mandate as global hegemon

But really the problem is the clash of roving corporate sociopaths RCSs

Let us control ours and urge the Chinese to control theirs even as we know
Both states are drastically influenced by these RCSs

[Jun 18, 2017] Amazon is monopolist which just became bigger

Jun 18, 2017 | economistsview.typepad.com

Fred C. Dobbs , June 17, 2017 at 01:59 AM

(Is this anything?)

The Amazon-Walmart Showdown That Explains the Modern
Economy https://nyti.ms/2sxhIkx via @UpshotNYT
NYT - Neil Irwin - June 16

With Amazon buying the high-end grocery chain Whole Foods, something retail analysts have known for years is now apparent to everyone: The online retailer is on a collision course with Walmart to try to be the predominant seller of pretty much everything you buy.

Each one is trying to become more like the other - Walmart by investing heavily in its technology, Amazon by opening physical bookstores and now buying physical supermarkets. But this is more than a battle between two business titans. Their rivalry sheds light on the shifting economics of nearly every major industry, replete with winner-take-all effects and huge advantages that accrue to the biggest and best-run organizations, to the detriment of upstarts and second-fiddle players.

That in turn has been a boon for consumers but also has more worrying implications for jobs, wages and inequality.

To understand this epic shift, you can look not just to the grocery business, but also to my closet, and to another retail acquisition announced Friday morning. ...

Walmart to Buy Bonobos, Men's Wear Company, for $310 Million https://nyti.ms/2tuGhf9

paine - , June 17, 2017 at 08:10 AM
When you lose confidence in your
existing biz you buy bizes
Fred C. Dobbs - , June 17, 2017 at 10:19 AM
It turns out Neil Irwin has
a thing for fine dress shirts.
pgl - , June 17, 2017 at 10:41 AM
WTF? Amazon has not lost confidence in creating a monopsony for buying and selling stuff. It just expanded their empire to groceries.
Paine - , June 17, 2017 at 12:35 PM
Cornering as many markets as possible
is a fools mission

The problem
corporations get to keep their cash flow

Review the nonsense oil companies got into when rolling in cash
Thanks to OPEC

pgl - , June 17, 2017 at 02:38 PM
WTF? You clearly never looked at Amazon's income statement.
JohnH - , June 17, 2017 at 04:28 PM
Amazon's business model is to become the dominant intermediary between producers and consumers.

Whole Foods positions it to ideally serve this role in every local market in America...one stop shopping, whether you're buying from China or from the local Chinatown.

When a company like Amazon is capturing market share, profits don't matter, as its stock price shows.

And Bezos ownerships of the Washington Post gives him a powerful bully pulpit against anyone with thoughts about anti-trust...that and his deep pockets.

cm - , June 17, 2017 at 12:38 PM
I wouldn't call it confidence. Any line or mode of business can be grown only to a certain size. At some point S-curve effects and scale complexity lead to diminishing returns, even if the business is managed as well as it can be. Also in some cases there may simply not be enough demand for the one or few things the company does.

Then companies have to branch out into other ways of business, typically outside their current activities. Sometimes there is synergy, sometimes not, and it's just about buying market and revenue with the imagination one can manage it better to a higher rate of profit.

Paine - , June 17, 2017 at 01:31 PM
Or

They can turn into passive cash cows

cm - , June 17, 2017 at 04:40 PM
Yes, though usually there is a growth mandate imposed by management or "investors".
Paine - , June 18, 2017 at 07:11 AM
Now we are in the heart of darkness

Growth mandates
Where growth is earnings
Or revenues or market shares or

And indeed too often
management v stock holders mandates overt or tacit obtain

Gibbon1 - , June 17, 2017 at 10:19 PM
Comment over brunch: Must be getting late in the cycle. Amazon shrewdly using it's internet valuation to buy tangible things.
Paine - , June 18, 2017 at 07:11 AM
True

[Jun 18, 2017] Even raising wages can be the way to squeeze workforce

Notable quotes:
"... The Fed should initiate a campaign: 'Patriotism is paying your workers more." ..."
Jun 18, 2017 | economistsview.typepad.com

JohnH - , June 17, 2017 at 11:27 AM

The Fed should initiate a campaign: 'Patriotism is paying your workers more." It worked for Henry Ford. And it would work to restore robust economic growth.

Strangely, most economists want to REDUCE workers' purchasing power, which makes sense for individual firms but is bad for the economy as a whole.

pgl - , June 17, 2017 at 11:54 AM
Henry Ford - progressive? Seriously? He did this in order to get workers to put in more effort. In other words - good for the bottom line. Something call efficiency wages. We would provide you with a reading list but we know you would not actually read any of it. You never do.
Christopher H. - , June 17, 2017 at 12:40 PM
If the Fed wanted tighter labor markets where workers had more bargaining power, they wouldn't have started tightening monetary policy in 2013.

No need to start a PR campaign aimed at employers.

Funny how it was only a George W. Bush guy, Neel Kashkari, who dissented on raising rates.

djb - , June 18, 2017 at 06:16 AM
dean baker once pointed out that fiscal policy is problematic if it is just going to be reversed by monetary policy

monetary policy focuses on not having unemployment levels get lower than nairu,

and thus no matter what the fiscal interventions, we can never get unemployment below a certain level

believing that nairu is some "natural phenomenon" that is where the universe will always tend to

puts monetary policy, otherwise theoretically sound, in the way of achieving true full employment
not helping achieve it

so you don't just need fiscal, you need policies that work on the actual value of nairu and the amount of inflation that occurs when unemployment is low than nairu

apparently this guy William vickery has a lot of ideas on how to accomplish that

Paine - , June 18, 2017 at 07:19 AM
Lerners map

Market anti inflation policy

This is he answer to market power of firms
Old man Galbraith wanted the state
to administer the prices of the oligoplistic corporate core of the economy

MAP is the mechanism to impose

Paine - , June 18, 2017 at 08:54 AM
A report by David colander abba Lerners partner on map

https://www.jec.senate.gov/reports/97th%20Congress/Incentive%20Anti-Inflation%20Plan%20(1034).pdf

anne - , June 18, 2017 at 09:10 AM
https://www.jec.senate.gov/reports/97th%20Congress/Incentive%20Anti-Inflation%20Plan%20(1034).pdf

APRIL 28, 1981.

INCENTIVE ANTI-INFLATION PLANS
By David Colander

I. INTRODUCTION

How can something as simple as inflation be so difficult to solve? If inflation were simply a matter of "too much money chasing too few goods," then one would expect that the government could control the money supply and consequently control the inflation. The government has failed to act in this way and unless one subscribes to a sadistic theory of government, its failure suggests that there are non-monetary or "real` causes embedded in our political and economic institutions.

This study provides some insight into the nature of those real causes, and develops a strategy to combat inflation. Part of that strategy includes monetary restraint; however. to be politically acceptable, monetary restraint must be made more efficient. Some method must be developed to translate quickly a decrease in the growth of the money supply into a decrease in the price level, not into a decrease in employment and output.

The method suggested by this report is an incentive based incomes policy or incentive anti-inflation plan. These policies minimize government intervention in the market economy while channeling restrictive monetary policy into anti-inflation incentives rather than into anti-production incentives. They provide the necessary supply side incentives to stop inflation.

Incentive anti-inflation plans take various forms. Many of the arguments for and against such policies have incorrectly interpreted the methodology and goals of these policies. Specifically, these policies are not designed to solve inflation by themselves, but instead must function as complements to, rather than substitutes for, the appropriate monetary and fiscal policy. These proposals are not meant to replace the market with government regulation; they recognize the market's advantages and use market incentives to check inflation programs as strong as, and no stronger than, the pressures for inflation.

To function properly, incentive anti-inflation plans must be supported by an effective legal structure, an enforcement mechanism and a general public acceptance that the plans are fair. These are difficult requirements but all markets need these foundations. There is a fundamental difference between the government's role in establishing a legal framework and its role in directly regulating market decisions. Anti-inflation incentive plans require only the former....

djb - , June 18, 2017 at 11:52 AM
"If inflation were simply a matter of "too much money chasing too few goods," then one would expect that the government could control the money supply and consequently control the inflation"

first off, they should NOT be looking at it as money supply paying for the goods

they should be looking at it as income paying for the goods

money times velocity of money

cm - , June 17, 2017 at 12:45 PM
Ford paid workers more to be able to squeeze more assembly line output from them with limited risk of turnover, as leaving for another job would mean a pay cut. He also had ideas about intervening in their home lives.

[Jun 18, 2017] What we see is a set of steps taken directly from Gene Sharp textbook on the subject.

Jun 18, 2017 | economistsview.typepad.com
libezkova - June 18, 2017 at 04:24 PM "I like your use of color revolution analogy; it enrages liberal interventionists"

Thank you !

But is not an analogy. What we see is a set of steps taken directly from Gene Sharp textbook on the subject.

I'm not saying the Russians didn't try to tamper with the election, by discrediting already discredited neoliberal establishment (Although, as any patriotic American, I strongly doubt they can tamper as well as we can.)

But the set of steps we observed was the plot to appoint a Special Prosecutor, who later is expected to sink Trump. After the Special Prosecutor was appointed Russia changes does not matter, and more "elastic" charge of "obstruction of justice" can be used instead.

Also note the heavy participation of two heads of intelligence agencies (Clapper and Brennan) and State Department officials in the plot.

[Jun 18, 2017] Turning to Occupied Syria.

Jun 18, 2017 | economistsview.typepad.com

ilsm , June 17, 2017 at 02:51 AM

Turning to Occupied Syria.

http://timesofindia.indiatimes.com/world/middle-east/saudi-qatar-crisis-puts-syria-rebels-in-tricky-position/articleshow/59188782.cms

The outsider Sunni insurgency looks like Yemen 1963 as the Saudi terror sponsors are backed into the corner.

The Wahhabis, and Trump pursuing Obama's plot, in Riyadh are supporting radical Sunnis not blushing at their al Qaeda links.

Opposing the Wahhabis are Russia an ally to a loose confederation of legitimate government, moderated radicals, and minorities whom would be cut off by the Sunnis, as playing Nasser/Egypt in Yemen.

Doha's sin against Wahhab is criticizing the Sunni demolition of Arab Spring and Egypt's military dictatorship.

While as in 1964 the Wahhabis are on the same pole as Israel.

ilsm - , June 17, 2017 at 03:06 PM
Given 37 years of US blundering in the Persian Gulf and Indian Ocean region, China don't need to worry if the dominant power [and its pentagon trough filler] were to decide to get violent.

I read a lot of "Thucydides Trap" type fiction emanating from novelists purporting to "analyze" aspects of US foreign policy issues.

Fiction many deliberate obfuscations and cherry picked evidence.

I now read such tracts to sharpen my skill at observing and naming types of logical fallacy.

Case studies, the world is not in the image of the HBS universe.

ilsm - , June 17, 2017 at 06:54 PM
There are problems in the world, and they suggest Einstein's observation:

to the effect: "you cannot solve problems with the mind that created them".

The hegemon is misguided on many levels: errant goals, strategies (cannot be good if goals wrong), and expensive tactics which goatherd can defeat. Worse the allies kept.

[Jun 17, 2017] Jeremy Corbyns leadership offered an end to austerity, a commitment to the public good, the faith that generosity is more powerful than greed

Notable quotes:
"... According to what I saw, the only high profile economists to support Corbyn were Stiglitz, Piketty, and Dillow. These rest of the librul commentariat shunned Corbyn, apparently hoping that his progressive campaign would just disappear. ..."
"... Tutition used to be free in the UK. Then they decided that those lazy students needed to have some skin in the game and suddenly tuition was 1000 pounds. Then a few years later it was 9000 pounds and all the college grads there now have US-level student debt. ..."
"... A big reason Corbyn's a commie is because he wants to abolish tuition to bring the UK back to its communist past of 1997 and give young people the same deal all the people in charge had. ..."
Jun 09, 2017 | economistsview.typepad.com
JohnH - June 09, 2017 at 12:19 PM

Maria Margaronis writing in The Nation: "Labour's Near-Triumph Brings a New Morning to British Politics...

Jeremy Corbyn's leadership offered an end to austerity, a commitment to the public good, the faith that generosity is more powerful than greed."
https://www.thenation.com/article/labours-near-triumph-brings-a-new-morning-to-british-politics/

Someone finally brought the dreaded dragon of austerity and neoliberalism to its knees. Conservatives are holding onto power by a thread. Tony B.liar has been repudiated. Time for joy!

Or is it? Instead of exulting, austerity-hating libruls here are reacting with sullen silence. At the New York Times, it is not morning, but time for mourning. They still seem still barely able to include the word 'Corbyn' in the 'fit to print' category.

pgl, who never had a nice thing to say about Corbyn, claimed yesterday that he favored him...but only after the exist polls showed the inevitability of his success.

According to what I saw, the only high profile economists to support Corbyn were Stiglitz, Piketty, and Dillow. These rest of the librul commentariat shunned Corbyn, apparently hoping that his progressive campaign would just disappear.

As for Krugman, Jeffrey Sachs noted two years ago: "It is truly odd to read Paul Krugman rail, time and again, against the British government. His latest screed begins with the claim that "Britain's economic performance since the financial crisis struck has been startlingly bad." He excoriates Prime Minister David Cameron's government for its "poor economic record," and wonders how he and his cabinet can possibly pose "as the guardians of prosperity."

Hmm. In recent months, Krugman has repeatedly praised the US economic recovery under President Barack Obama, while attacking the United Kingdom's record. But when we compare the two economies side by side, their trajectories are broadly similar, with the UK outperforming the United States on certain indicators." Opposition to austerity seemed to have a distinctly partisan character.

https://www.project-syndicate.org/commentary/krugman-us-uk-recovery-contradiction-by-jeffrey-d-sachs-2015-04?barrier=accessreg

All this changed after Corbyn became Labour leader. Krugman's attacks on Conservatives suddenly stopped. Austerity seemed to have lost its toxicity. Krugman had absolutely no comment on this UK election, refusing to talk at all about the anti-austerity candidate. It is probably just as well, since support from a compromised librul commentariat could only have damaged Corbyn's credibility.

As Robert Kuttner said 20 years ago, "Krugman is the conservatives ideal liberal." It appears that he has a lot of company...libruls who claim to oppose austerity but can't muster the courage to support an anti-austerity candidate.

Christopher H., June 09, 2017 at 01:35 PM
Oh look, Atrios blogged something. I guess he didn't get the memo from PGL and the establishment Democrats.

http://www.eschatonblog.com/2017/06/the-kids-are-alright.html

FRIDAY, JUNE 09, 2017

The Kids Are Alright

No actual figures, but presumably there was big yute turnout in the UK Everyone will now claim that a non-commie Labour leader like that nice Ed Miliband would OF COURSE have done as well as Joseph Stalin Lenin Marx Corbyn, and in fact BETTER, but that's bullshit.

That nice Ed Miliband couldn't do in 2015, and I'm not sure who the "unnamed generic normal Labour candidate" would otherwise be. Theresa May's incompetent evil helped, but Corbyn staved off what was supposed to have been a Labour extinction election and while there will still likely be a Tory-led government, it will be pretty fragile. A coalition with a bunch of bigoted religious nutters from Northern Ireland who aren't on board with May's Brexit plans.

Labour went after The Kids Today and got them to the polls. Wasn't enough to win, but the polling outfit predicting a likely hung parliament was considered to be "insane" even just a few days ago.

Tutition used to be free in the UK. Then they decided that those lazy students needed to have some skin in the game and suddenly tuition was 1000 pounds. Then a few years later it was 9000 pounds and all the college grads there now have US-level student debt.

A big reason Corbyn's a commie is because he wants to abolish tuition to bring the UK back to its communist past of 1997 and give young people the same deal all the people in charge had.

In 2015, Miliband said he'd cut them. To just SIX THOUSAND POUNDS. Maybe if he'd gone all the way...

by Atrios at 08:30

[Jun 15, 2017] Was Comeys second thought announcement after Hillary email investigation a naked political gambit?

Notable quotes:
"... And what about his very strange announcement about Wiener computer containing Hillary classified emails? ..."
Jun 11, 2017 | economistsview.typepad.com

Libezkova, June 11, 2017 at 06:07 PM

"When you have a former head of the FBI, a deeply respected person"

That's funny. Can you spell 9/11. He served as President George W. Bush's deputy attorney general (D.A.G.), in the aftermath of 9/11. So he is the the one who got Saudi officials off the hook.

Former Democratic Sen. Bob Graham, who in 2002 chaired the congressional Joint Inquiry into 9/11, maintains the FBI is covering up a Saudi support cell in Sarasota for the hijackers. He says the al-Hijjis' "urgent" pre-9/11 exit suggests "someone may have tipped them off" about the coming attacks.

Graham has been working with a 14-member group in Congress to urge President Obama to declassify 28 pages of the final report of his inquiry which were originally redacted, wholesale, by President George W. Bush.

"The 28 pages primarily relate to who financed 9/11, and they point a very strong finger at Saudi Arabia as being the principal financier," he said, adding, "I am speaking of the kingdom," or government, of Saudi Arabia, not just wealthy individual Saudi donors.

Sources who have read the censored Saudi section say it cites CIA and FBI case files that directly implicate officials of the Saudi Embassy in Washington and its consulate in Los Angeles in the attacks - which, if true, would make 9/11 not just an act of terrorism, but an act of war by a foreign government.

– From the New York Post article: How the FBI is Whitewashing the Saudi Connection to 9/11

Was Comey's "second thought" announcement after Hillary email investigation a naked political gambit?

And what about his very strange announcement about Wiener computer containing Hillary classified emails?

http://www.cnn.com/2017/05/03/politics/james-comey-hearing-huma-abedin-forwarding-classified-information/index.html

[Jun 15, 2017] Neocons are after Trump, managed to appoint special procecutor by subterfuge and Trump now losing...

Jun 15, 2017 | economistsview.typepad.com

Fred C. Dobbs, June 14, 2017 at 08:17 PM

Special-counsel probe is examining whether Trump obstructed justice
https://www.wsj.com/articles/mueller-probe-examining-whether-donald-trump-obstructed-justice-1497490897

WSJ - Del Quentin Wilber, Shane Harris and Paul Sonne - June 14, 2017

WASHINGTON-President Donald Trump's firing of former FBI Director James Comey is now a subject of the federal probe being headed by special counsel Robert Mueller, which has expanded to include whether the president obstructed justice, a person familiar with the matter said.

Mr. Mueller is examining whether the president fired Mr. Comey as part of a broader effort to alter the direction of the Federal Bureau of Investigation's probe into Russia's alleged meddling in the 2016 presidential election and whether associates of Mr. Trump colluded with Moscow, the person said.

Mark Corallo, a spokesman for Mr. Trump's personal lawyer, Marc Kasowitz, denounced the revelation in a statement. "The FBI leak of information regarding the president is outrageous, inexcusable and illegal," Mr. Corallo said.

Peter Carr, a spokesman for Mr. Mueller, declined to comment. The special counsel's pursuit of an obstruction of justice probe was first reported Wednesday by the Washington Post. Mr. Mueller's team is planning to interview Director of National Intelligence Dan Coats and National Security Agency Director Mike Rogers as part of its examination of whether Mr. Trump sought to obstruct justice, the person said. The special counsel also plans to interview Rick Ledgett, who recently retired as the deputy director of the NSA, the person added.

While Mr. Ledgett was still in office, he wrote a memo documenting a phone call that Mr. Rogers had with Mr. Trump, according to people familiar with the matter. During the call, the president questioned the veracity of the intelligence community's judgment that Russia had interfered with the election and tried to persuade Mr. Rogers to say there was no evidence of collusion between his campaign and Russian officials, they said. Russia has denied any government effort to meddle in the U.S. election. Mr. Ledgett declined to comment, and officials at the NSA didn't respond to a request for comment. An aide to Mr. Coats declined to comment.

Mr. Coats and Mr. Rogers told a Senate panel June 7 that they didn't feel pressured by Mr. Trump to intervene with Mr. Comey or push back against allegations of possible collusion between Mr. Trump's campaign and Russia. But the top national security officials declined to say what, if anything, Mr. Trump requested they do in relation to the Russia probe.

"If the special prosecutor called upon me to meet with him to ask his questions, I said I would be willing to do that," Mr. Coats said June 7. Mr. Rogers said he would also be willing to meet with the special counsel's team.

Mr. Comey told a Senate panel on June 8 that Mr. Trump expressed "hope" in a one-on-one Oval Office meeting that the FBI would drop its investigation into former national security adviser Michael Flynn, who resigned under pressure for making false statements about his conversations with a Russian diplomat. Mr. Trump has denied making that request.

Mr. Comey said during the testimony that it was up to Mr. Mueller to decide whether the president's actions amounted to obstruction of justice. The former FBI director also said he had furnished the special counsel with memos he wrote documenting his interactions with the president on the matter.

At a June 13 hearing at a House of Representatives panel, Deputy Attorney General Rod Rosenstein declined to say who asked him to write a memo justifying Mr. Comey's firing. The White House initially cited that memo as the reason for the termination, and Mr. Trump later said in an NBC interview that he also was influenced by the Russia investigation. Mr. Rosenstein said he wasn't at liberty to discuss the matter.

"The reason for that is that if it is within the scope of Director Mueller's investigation, and I've been a prosecutor for 27 years, we don't want people talking publicly about the subjects of ongoing investigations," Mr. Rosenstein said.

libezkova - , June 14, 2017 at 09:00 PM
Fred,

"Mr. Comey said during the testimony that it was up to Mr. Mueller to decide whether the president's actions amounted to obstruction of justice."

Comey probably lied. This was probably the plan hatched from the very beginning of this color revolution by Comey and other members of anti-trump conspiracy such as Brennan: to raise Russiagate or anything else to the level which allow to appoint special prosecutor and to sink Trump using this mechanism, because digging by itself produces the necessary result.

Obstruction of justice is the easiest path to remove Trump, a no-brainer so to speak, the charge which can be used to remove any any past and future US president with guaranteed result. The other, more Trump-specific, is of financial deals within the Trump empire. Especially his son-in-law deals. In this sense Trump is now hostage like Clinton previously was. He can fight for survival, by unleashing some war, like Clinton did with Yugoslavia.

Which probably is OK for neocons because war for them is the first, the second and the third solution to any problem. But as a result the US standing in the globe probably will be further damaged.

BTW, in your zeal to republish this neocon propaganda, do you understand that Hillary was a head of one of those 17 intelligence agencies in the past?

The State Department's Bureau of Intelligence and Research (INR) has ties to the Office of Strategic Services from World War II, but was transferred to State after the war. INR now reports directly to the Secretary of State, harnessing intelligence from all sources and offering independent analysis of global events and real-time insight.

Headquarters : Washington, D.C.

Mission : This agency serves as the Secretary of State's primary advisor on intelligence matters, and gives support to other policymakers, ambassadors, and embassy staff.

Budget : $49 million in 2007, according to documents obtained by FAS.

This all drama makes no sense for me. Trump folded. He proved to be not a fighter. The attempt to bring members of his family close to White house is a huge liability for him now in view of possible digging of the past of his son in law by the special Prosecutor. Who is recruiting the most rabid Hillary hacks for the job ;-).

But the key question is what DemoRats will gain with the current vice president elevated to the new level?

Other then a blowback from the remaining part of Trump supporters. Pat Buchanan was talking about civil war recently, which is probably exaggeration, but the probably direction of reaction is probably right:

http://www.cnsnews.com/commentary/patrick-j-buchanan/are-we-nearing-civil-war

Not that I trust him with such a prediction, but still this is a danger.

EMichael - , June 14, 2017 at 09:26 PM
troll/bot
libezkova - , June 15, 2017 at 05:29 PM
You are a typical retired "frustrated underachiever". Nothing new here and your replies fits the pattern perfectly well.

You probably should not comment things that you have no formal training. I do believe that you are unable to define such terms as "neocon", "Bolshevism", "Trotskyism" and "jingoism" without looking into the dictionary. Judging from your comments this is above your IQ. Of cause, such twerps as you are always lucking in Internet forums, so you are just accepted here as the necessary evil. But you do no belong here. No way. Neither in economic or political discussions.

You can add nothing to the discussion. Actually your political position is the position of a typical neocons and as such is as close to betrayal of American Republic as one can get. If the American people had their way, all our "Neocon overlords" would be in federal prison or Guantanamo Bay, and all their assets seized to pay down the heinous 20 trillion debt their lies and wars have created. Because interests of neocons are not interests of the 300 million of US population. That's why people elected Trump with all his warts.

It is sleazy idiots like you who get us into the current mess. And please tell your daughters that you betrayed them as well -- you endanger them and their children, if they have any. Of course for retired idiots like you nuclear holocaust does not matter. But it does matter for other people. Is it so difficult to understand?

im1dc - , June 15, 2017 at 05:14 AM
Trump/Putin Spin.
JF - , June 15, 2017 at 07:50 AM
Agree, add JohnH and you see a disinformation team. One goal is to undermine the credibility of this blog, so skipping over their entries is what I recommend, unless you want to learn fifth column techniques. Quess that is interesting, but it is trolldpm!
JohnH - , June 15, 2017 at 08:05 AM
The choir of losers continues to sing: 'Putin and Trump colluded' ...just like the right wing sang that Bill Clinton was guilty of all sorts of heinous crimes. And what did they finally get on Bill? Monica.
Christopher H. - , June 15, 2017 at 09:43 AM
They're just lone cranks. If you think they're a disinformation team, you're paranoid. There are a lot of crazy people out there. If you don't understand that fact you need to get out more.

EMichael and PGL love to scold the cranks as much as possible b/c it makes their establishment line sound reasonable. I agree with you. I just ignore them. At least they're keeping busy instead of harassing people offline.

Christopher H. - , June 15, 2017 at 09:54 AM
BTW, now I think Trump is probably going down. He floats idea of firing Mueller. Mueller tells press they're investigating Trump. Meanwhile the Republicans are passing Trumpcare. Trump is moving to replace Yellen. So Mueller will have this list of things Trump and his campaign did. Will Republicans vote to remove Trump? Will it depend upon how the public reacts?
RC AKA Darryl, Ron - , June 15, 2017 at 09:57 AM
Perhaps they are just attempting to hasten the descent of the Democratic Party establishment consensus towards its inevitable rock bottom, the condition at which all addicts must finally arrive before they are forced to admit that they are the authors of their own failure and the only ones capable of their own rescue.
Christopher H. - , June 15, 2017 at 10:53 AM
To my eyes the Democratic Party establishment consensus doesn't really need much in the way of help. It's pushing on an open door.

Their candidate for Virginia's governor voted for George W. Bush twice?

Their candidate for New Jersey governor is a Goldman Sachs guy?

Way to read the room.

RC AKA Darryl, Ron - , June 15, 2017 at 12:59 PM
Exactly! I am in total agreement with you. We are both meaning the same thing, just framing it differently.
libezkova - , June 15, 2017 at 05:30 PM
My God, way too many neocons here.

[Jun 15, 2017] Just 35 percent of the fleet – mostly large bulkers, tankers and container ships – is responsible for 80 percent of shipping's fuel consumption

Jun 14, 2017 | economistsview.typepad.com

im1dc, June 14, 2017 at 03:54 PM

The Reducing Ocean Shipping CO2 Paradox

Hey, maybe they should go back to sails...

http://maritime-executive.com/article/big-ships-account-for-most-of-shippings-co2

"Big Ships Account for 80 Percent of Shipping's CO2"

By Paul Benecki...2017-06-13...20:16:44

"At Nor-Shipping 2017, researchers with DNV GL released a study that points to the difficulty of reducing the industry's CO2 output below current levels. The problem is structural: big cargo vessels emit 80 percent of shipping's greenhouse gases, but they're also the industry's most efficient ships, and squeezing out additional improvements may be a challenge.

Just 35 percent of the fleet – mostly large bulkers, tankers and container ships – is responsible for 80 percent of shipping's fuel consumption, according to Christos Chryssakis, DNV GL's group leader for greener shipping. Unfortunately, these are already the fleet's most efficient vessels per ton-mile. "This is a paradox, but if we want to reduce our greenhouse gas emissions, we actually have to improve the best performers," Chryssakis says."...

libezkova - , June 14, 2017 at 05:58 PM
That's a valid observation.

Similar situation with trucking, but in the USA around one half of gas consumption goes into private cars. So by improving efficiency of private fleet by 100% you can cut total consumption only by 25%. All this talk about electrical cars like Tesla Model 3 right now is mostly cheap talk. They by-and-large belong to the luxury segment.

[Jun 14, 2017] Stock bubble? Shiller PE Ratio is around 30 while annual mean is less then 17

Jun 14, 2017 | economistsview.typepad.com

anne June 14, 2017 at 03:07 PM

June 14, 2017

Valuation

The Shiller 10-year price-earnings ratio * is currently 29.86, so the inverse or the earnings rate is 3.35%. The dividend yield is 1.90%. So an expected yearly return over the coming 10 years would be 3.35 + 1.90 or 5.25% provided the price-earnings ratio stays the same and before investment costs.

Against the 5.25% yearly expected return on stock over the coming 10 years, the current 10-year Treasury bond yield is 2.13%.

The risk premium for stocks is 5.25 - 2.13 or 3.12%.

* http://www.econ.yale.edu/~shiller/data.htm

anne, June 14, 2017 at 03:08 PM
http://www.multpl.com/shiller-pe/

Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2017

(Standard and Poors Composite Stock Index)

June 14, 2017 - PE Ratio ( 29.86)

Annual Mean ( 16.76)
Annual Median ( 16.12)

-- Robert Shiller

anne - , June 14, 2017 at 03:08 PM
http://www.multpl.com/s-p-500-dividend-yield/

Dividend Yield, 1881-2017

(Standard and Poors Composite Stock Index)

June 14, 2017 - Div Yield ( 1.90)

Annual Mean ( 4.38)
Annual Median ( 4.32)

-- Robert Shiller

libezkova -> anne... June 14, 2017 at 03:35 PM

Low oil prices might have been the factor here.

[Jun 14, 2017] Brad Delong is peddling his insane neoliberal nonsense again.

Jun 14, 2017 | economistsview.typepad.com

Paine , June 14, 2017 at 08:26 AM

Btw

Brad has a fine little logic ox calculation
This is his best side
The deflection point in his zero lower bound graph
That shows a fed helpless as the real rate climbs as the deflation rate climbs ...
and his little set of equations that generate
A run away deflation
Using a Harmless looking Taylor rule
with too low...for his logic toy system...
(2%) A target inflation rate

If

The neutral rate of the system is dwelling down around one percent

Paine - , June 14, 2017 at 08:29 AM
Brad has his uses for sure

Recall the similar logical toy system he built and manipulated for his mentor Larry Summers

That showed
The benefits of public investment in a period of private doldrums

Paine - , June 14, 2017 at 08:32 AM
Delong, J. Bradford, and Lawrence H. Summers. 2012. "Fiscal Policy in a Depressed Economy." Brookings Papers on Economic Activity 44 (1)


Very much a fun little gadget

Paine - , June 14, 2017 at 08:36 AM
Abstract

In a depressed economy, with short-term nominal interest rates
at their zero lower bound, ample cyclical unemployment, and excess capacity,
increased government purchases would be neither offset by the monetary
authority raising interest rates nor neutralized by supply-side bottlenecks.
Then even a small amount of hysteresis-even a small shadow cast on future
potential output by the cyclical downturn-means, by simple arithmetic, that
expansionary fiscal policy is likely to be self-financing. Even if it is not, it is
highly likely to pass the sensible benefit-cost test of raising the present value
of future potential output. Thus, at the zero bound, where the central bank
cannot or will not but in any event does not perform its full role in stabilization
policy, fiscal policy has the stabilization policy mission that others have
convincingly argued it lacks in normal times. Whereas many economists
have assumed that the path of potential output is invariant to even a deep
and prolonged downturn, the available evidence raises a strong fear that
hysteresis is indeed a factor. Although nothing in our analysis calls into question
the importance of sustainable fiscal policies, it strongly suggests the need
for caution regarding the pace of fiscal consolidation.

Yes yes my fellow home makers
If macro conditions are right ...
even a small Amount of hysteresis can turn the project into a self financing gig

anne - , June 14, 2017 at 11:36 AM
https://www.brookings.edu/bpea-articles/fiscal-policy-in-a-depressed-economy/

March, 2012

Fiscal Policy in a Depressed Economy
By J. Bradford DeLong and Lawrence H. Summers

Abstract

In a depressed economy, with short-term nominal interest rates at their zero lower bound, ample cyclical unemployment, and excess capacity, increased government purchases would be neither offset by the monetary authority raising interest rates nor neutralized by supply-side bottlenecks. Then even a small amount of hysteresis-even a small shadow cast on future potential output by the cyclical downturn-means, by simple arithmetic, that expansionary fiscal policy is likely to be self-financing. Even if it is not, it is highly likely to pass the sensible benefit-cost test of raising the present value of future potential output. Thus, at the zero bound, where the central bank cannot or will not but in any event does not perform its full role in stabilization policy, fiscal policy has the stabilization policy mission that others have convincingly argued it lacks in normal times. Whereas many economists have assumed that the path of potential output is invariant to even a deep and prolonged downturn, the available evidence raises a strong fear that hysteresis is indeed a factor. Although nothing in our analysis calls into question the importance of sustainable fiscal policies, it strongly suggests the need for caution regarding the pace of fiscal consolidation.

anne - , June 14, 2017 at 11:46 AM
Thus, at the zero bound, where the central bank cannot or will not but in any event does not perform its full role in stabilization policy, fiscal policy has the stabilization policy mission that others have convincingly argued it lacks in normal times....

-- DeLong and Summers

[ I find such a rationale for fiscal policy to foster growth only convincing in a limited and possible even politically self-defeating way, and would argue the rationale importantly undervalues fiscal policy as a growth driver. The paper is clear and important though as a beginning rationale for fiscal policy use. ]

anne - , June 14, 2017 at 11:52 AM
Correcting:

I find such a rationale for fiscal policy to foster growth only convincing in a limited and possibly even politically self-defeating way, and would argue the rationale importantly undervalues fiscal policy as a growth driver. The paper is clear and important though as a beginning rationale for fiscal policy use.

Tom aka Rusty - , June 14, 2017 at 09:20 AM
Brad is peddling his insane nonsense again.

http://www.bradford-delong.com/2017/06/no-it-is-really-not-harder-to-make-the-case-for-free-trade-these-days.html#more

Both members of a family must be injured by trade for there to be an injury - stupid.

Poorly paid service workers are ok because they can buy cheap Chinese merchandise (like that makes up for poor benefits and no retirement).

His neoliberal freak flag is showing some wear - and even Krugman knows better.

[Jun 14, 2017] Krugman as a less then necessary additional singer in the shrill liberal chorus

Jun 14, 2017 | economistsview.typepad.com

anne , June 13, 2017 at 12:18 PM

https://krugman.blogs.nytimes.com/2017/06/12/macroeconomics-the-simple-and-the-fancy/

June 12, 2017

Macroeconomics: The Simple and the Fancy
By Paul Krugman

Noah Smith has a nice summation * of his critique of macroeconomics, which mainly comes down, as I read it, as an appeal for researchers to stay close to the ground. That's definitely good advice for young researchers.

But what about economists trying to provide useful advice, directly or indirectly, to policy makers, who need to make decisions based on educated guesses about the whole system? Smith says, "go slow, allow central bankers to use judgment and simple models in the meantime." That would be better than a lot of what academic macroeconomists do in practice, which is to castigate central bankers and other policymakers for not using elaborate models that don't work. But is there really no role for smart academics to help out in this process? And if so, what does this say about the utility of what the profession does?

The thing is, those simple models have done pretty darn well since 2008 - and central bankers who used them, like Ben Bernanke, did a lot better than central bankers like Jean-Claude Trichet who based their judgements on something else. So surely at least part of the training of macroeconomists should prepare them to be helpful in applying simple models, maybe even in making those simple models better.

Reading Smith, I found myself remembering an old line ** from Robert Solow in defense of "fancy" economic theorizing:

"In economics I like a man to have mastered the fancy theory before I trust him with simple theory because high-powered economics seems to be such an excellent school for the skillful use of low-powered economics."

OK, can anyone make that case about modern macroeconomics? With a straight face? In practice, it has often seemed that expertise in high-powered macroeconomics - mainly meaning dynamic stochastic general equilibrium - positively incapacitates its possessors from the use of low-powered macroeconomics, largely IS-LM and its derivatives.

I don't want to make a crude functional argument here: research that advances knowledge doesn't have to provide an immediate practical payoff. But the experience since 2008 has strongly suggested that the research program that dominated macro for the previous generation actually impaired the ability of economists to provide useful advice in the moment. Mastering the fancy stuff made economists useless at the simple stuff.

A more modest program would, in part, help diminish this harm. But it would also be really helpful if macroeconomists relearned the idea that simple aggregate models can, in fact, be useful.

* http://noahpinionblog.blogspot.fr/2017/06/summing-up-my-thoughts-on-macroeconomics.html

** https://books.google.com/books?id=7ABgM8-ExXsC&pg=PA44&lpg=PA44&dq=solow+simple+fancy+economics+trust&source=bl&ots=XflZaM5HLV&sig=vsqDgLLShG5gBda-NBTxyjmclI0&hl=en&sa=X&ved=0ahUKEwjSxZ6ShLnUAhVMNT4KHW9VBIUQ6AEIOjAE#v=onepage&q=solow%20simple%20fancy%20economics%20trust&f=false

Christopher H. - , June 13, 2017 at 12:20 PM
I don't understand why you feel the need to put a link from today's link list into a comment, without any comment from you.
Paine - , June 13, 2017 at 02:05 PM
Often we can't activate the articles because we don't have a NYT sub
Or have used up our free monthly quota

Besides this blog post on macro
Is a gem !

Worth a thousand copies

Christopher H. - , June 13, 2017 at 02:58 PM
fair enough.
$mart $$$$ Behind The Curve - , June 14, 2017 at 04:37 AM
https://www.leg.state.nv.us/Session/79th2017/Bills/AB/AB374_EN.pdf
anne - , June 13, 2017 at 12:50 PM
https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium

Dynamic stochastic general equilibrium modeling is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth, business cycles, and the effects of monetary and fiscal policy, on the basis of macroeconomic models derived from microeconomic principles.

Paine - , June 13, 2017 at 02:11 PM
Too general

some variants include different assumptions
But common assumptions include

No banks
No nominal prices
Micro founding with a single representative agent
An infinite time horizon
A fixed inter temporal fiscal budget
Continuous market clearance
No private debt

On and on one must go

anne - , June 13, 2017 at 04:15 PM
DGSE:

Too general

some variants include different assumptions
But common assumptions include

No banks
No nominal prices
Micro founding with a single representative agent
An infinite time horizon
A fixed inter temporal fiscal budget
Continuous market clearance
No private debt

[ Perfect. ]

anne - , June 13, 2017 at 12:51 PM
http://en.wikipedia.org/wiki/IS%E2%80%93LM_model

The IS–LM model, or Hicks–Hansen model, is a macroeconomic tool that demonstrates the relationship between interest rates and real output, in the goods and services market and the money market (also known as the assets market). The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves is the "general equilibrium" where there is simultaneous equilibrium in both markets. Two equivalent interpretations are possible: first, the IS–LM model explains changes in national income when the price level is fixed in the short-run; second, the IS–LM model shows why the aggregate demand curve shifts. Hence, this tool is sometimes used not only to analyse the fluctuations of the economy but also to find appropriate stabilisation policies.

The model was developed by John Hicks in 1937, and later extended by Alvin Hansen, as a mathematical representation of Keynesian macroeconomic theory. Between the 1940s and mid-1970s, it was the leading framework of macroeconomic analysis. While it has been largely absent from macroeconomic research ever since, it is still the backbone of many introductory macroeconomics textbooks.

anne - , June 13, 2017 at 02:00 PM
http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/

October 9, 2011

IS-LMentary
By Paul Krugman

A number of readers, both at this blog and other places, have been asking for an explanation of what IS-LM is all about. Fair enough – this blogosphere conversation has been an exchange among insiders, and probably a bit baffling to normal human beings (which is why I have been labeling my posts "wonkish").

[IS-LM stands for investment-savings, liquidity-money -- which will make a lot of sense if you keep reading.]

So, the first thing you need to know is that there are multiple correct ways of explaining IS-LM. That's because it's a model of several interacting markets, and you can enter from multiple directions, any one of which is a valid starting point.

My favorite of these approaches is to think of IS-LM as a way to reconcile two seemingly incompatible views about what determines interest rates. One view says that the interest rate is determined by the supply of and demand for savings – the "loanable funds" approach. The other says that the interest rate is determined by the tradeoff between bonds, which pay interest, and money, which doesn't, but which you can use for transactions and therefore has special value due to its liquidity – the "liquidity preference" approach. (Yes, some money-like things pay interest, but normally not as much as less liquid assets.)

How can both views be true? Because we are at minimum talking about *two* variables, not one – GDP as well as the interest rate. And the adjustment of GDP is what makes both loanable funds and liquidity preference hold at the same time....

Paine - , June 13, 2017 at 02:04 PM
Yes yes yes

U admonished my humble self
For blasting krugman as a less then necessary additional singer in the shrill liberal chorus

But here is where he belongs

This is a giant strike at the last generation
Of the on going macro theorist academic clique

Mr and ms university
Tear down that model


That is the new classical model and it's pitiful off spring new Keynesianism

anne - , June 13, 2017 at 02:10 PM
Agreed completely.
Julio - , June 14, 2017 at 07:21 AM
my humble self

[links?]

EMichael - Julio ... , June 14, 2017 at 07:27 AM
hehehehehe
Julio - , June 14, 2017 at 09:24 AM
Yes, this is PK at his best, clear and understandable, and with his professional standing backing up his explanations. Being a layman, I have learned a lot about economics, and its use to analyze proposed legislation, from his columns and blogs.

[Jun 14, 2017] Economist's View Links for 06-09-17

Jun 14, 2017 | economistsview.typepad.com
anne - , June 12, 2017 at 03:01 PM
http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/

October 9, 2011

IS-LMentary
By Paul Krugman

A number of readers, both at this blog and other places, have been asking for an explanation of what IS-LM is all about. Fair enough – this blogosphere conversation has been an exchange among insiders, and probably a bit baffling to normal human beings (which is why I have been labeling my posts "wonkish").

[IS-LM stands for investment-savings, liquidity-money -- which will make a lot of sense if you keep reading.]

So, the first thing you need to know is that there are multiple correct ways of explaining IS-LM. That's because it's a model of several interacting markets, and you can enter from multiple directions, any one of which is a valid starting point.

My favorite of these approaches is to think of IS-LM as a way to reconcile two seemingly incompatible views about what determines interest rates. One view says that the interest rate is determined by the supply of and demand for savings – the "loanable funds" approach. The other says that the interest rate is determined by the tradeoff between bonds, which pay interest, and money, which doesn't, but which you can use for transactions and therefore has special value due to its liquidity – the "liquidity preference" approach. (Yes, some money-like things pay interest, but normally not as much as less liquid assets.)

How can both views be true? Because we are at minimum talking about *two* variables, not one – GDP as well as the interest rate. And the adjustment of GDP is what makes both loanable funds and liquidity preference hold at the same time.

Start with the loanable funds side. Suppose that desired savings and desired investment spending are currently equal, and that something causes the interest rate to fall. Must it rise back to its original level? Not necessarily. An excess of desired investment over desired savings can lead to economic expansion, which drives up income. And since some of the rise in income will be saved – and assuming that investment demand doesn't rise by as much – a sufficiently large rise in GDP can restore equality between desired savings and desired investment at the new interest rate.

That means that loanable funds doesn't determine the interest rate per se; it determines a set of possible combinations of the interest rate and GDP, with lower rates corresponding to higher GDP. And that's the IS curve.

Meanwhile, people deciding how to allocate their wealth are making tradeoffs between money and bonds. There's a downward-sloping demand for money – the higher the interest rate, the more people will skimp on liquidity in favor of higher returns. Suppose temporarily that the Federal Reserve holds the money supply fixed; in that case the interest rate must be such as to match that demand to the quantity of money. And the Fed can move the interest rate by changing the money supply: increase the supply of money and the interest rate must fall to induce people to hold a larger quantity.

Here too, however, GDP must be taken into account: a higher level of GDP will mean more transactions, and hence higher demand for money, other things equal. So higher GDP will mean that the interest rate needed to match supply and demand for money must rise. This means that like loanable funds, liquidity preference doesn't determine the interest rate per se; it defines a set of possible combinations of the interest rate and GDP – the LM curve.

And that's IS-LM:

[Graph]

The point where the curves cross determines both GDP and the interest rate, and at that point both loanable funds and liquidity preference are valid.

What use is this framework? First of all, it helps you avoid fallacies like the notion that because savings must equal investment, government spending cannot lead to a rise in total spending – which right away puts us above the level of argument that famous Chicago professors somehow find convincing. And it also gets you past confusions like the notion that government deficits, by driving up interest rates, can actually cause the economy to contract.

Most spectacularly, IS-LM turns out to be very useful for thinking about extreme conditions like the present, in which private demand has fallen so far that the economy remains depressed even at a zero interest rate. In that case the picture looks like this:

[Graph]

Why is the LM curve flat at zero? Because if the interest rate fell below zero, people would just hold cash instead of bonds. At the margin, then, money is just being held as a store of value, and changes in the money supply have no effect. This is, of course, the liquidity trap.

And IS-LM makes some predictions about what happens in the liquidity trap. Budget deficits shift IS to the right; in the liquidity trap that has no effect on the interest rate. Increases in the money supply do nothing at all.

That's why in early 2009, when the Wall Street Journal, the Austrians, and the other usual suspects were screaming about soaring rates and runaway inflation, those who understood IS-LM were predicting that interest rates would stay low and that even a tripling of the monetary base would not be inflationary. Events since then have, as I see it, been a huge vindication for the IS-LM types – despite some headline inflation driven by commodity prices – and a huge failure for the soaring-rates-and-inflation crowd.

Yes, IS-LM simplifies things a lot, and can't be taken as the final word. But it has done what good economic models are supposed to do: make sense of what we see, and make highly useful predictions about what would happen in unusual circumstances. Economists who understand IS-LM have done vastly better in tracking our current crisis than people who don't.

anne - , June 12, 2017 at 03:02 PM
https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium

Dynamic stochastic general equilibrium modeling is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth, business cycles, and the effects of monetary and fiscal policy, on the basis of macroeconomic models derived from microeconomic principles.

Paine - , June 13, 2017 at 01:50 PM
This on academic macro since the seventies
Is the Paul krugman I respect

His hysterics about the trump menace ?

Not so useful

Paul leave that rote tub thumping to hacks

Paine - , June 13, 2017 at 01:50 PM
"expertise in high-powered macroeconomics - mainly meaning dynamic stochastic general equilibrium - positively incapacitates its possessors from the use of low-powered macroeconomics, largely IS-LM and its derivatives."

Amen

[Jun 14, 2017] A 21st-Century Marxism: The Revolutionary Possibilities of the "New Economy"

Jun 14, 2017 | economistsview.typepad.com

RGC , June 13, 2017 at 08:42 AM

June 13, 2017

A 21st-Century Marxism: The Revolutionary Possibilities of the "New Economy"

by Chris Wright

" Marx was mainly an analyst of capitalism, not a prophet or planner of socialism or communism. He did, however, predict socialist revolution, even arguing that it was inevitable and would inevitably take the form of a "dictatorship of the proletariat."

This dictatorship, supposedly, would implement total economic and social reconstruction even in the face of massive opposition from the capitalist class, in effect drawing up blueprints to plan out a "new society" that would, somehow, on the basis of sheer political will, overcome the authoritarian and exploitative legacies of capitalism.

Through necessarily coercive means, the government would somehow plan and establish economic democracy, in the long run creating the conditions for a "withering away of the state." How such a withering away would actually happen was left a mystery; and none of Marx's followers ever succeeded in clearing the matter up."

https://www.counterpunch.org/2017/06/13/a-21st-century-marxism-the-revolutionary-possibilities-of-the-new-economy/

[Jun 14, 2017] The disproportionate power of intelligence agencies demonstrated in Russiagate

Jun 12, 2017 | economistsview.typepad.com

libezkova , June 10, 2017 at 10:15 AM

JohnH,

"By shunning candidates like Bernie and Corbyn, the American librul commentariat has been exposed for what it is--corrupted by wealthy, powerful interests."

And what do you expect? DemoRats are just different marketing of Republican Party platform, not a different product.

The problem is the neoliberals control MSM and control the government, including FBI and all intelligence agencies. So it is an uphill battle.

And taking into account how swiftly intelligence agencies dismantled "Occupy Wall Street" movement by branding them as "domestic terrorists" I am not optimistic. Any viable opposition will be like a bug under microscope.

Please note that the working hypothesis about the recent elections is that "change we can believe in" Obama (who has had remarkably good relations with the CIA, unlike several other presidents) spied on Trump and bugged Trump Tower using British intelligence agencies capabilities to avoid detection after the elections. Later some of this material was leaked to damage Trump and Obama have spent several months outside the USA just in case.

https://www.commondreams.org/news/2012/12/23/fbi-investigated-occupy-movement-domestic-terrorists-criminals

libezkova - , June 10, 2017 at 10:33 AM
Neoliberalism is a flavor of corporatism (corporate socialism) and George Orwell remark applies to it, especially in regard to the disproportionate power of intelligence agencies demonstrated in Russiagate:

"By bringing the whole of life under the control of the State, Socialism necessarily gives power to an inner ring of bureaucrats, who in almost every case will be men who want power for its own sake and will stick at nothing in order to retain it."

That also means that the USA on world arena is a reactionary force which represents a genuine threat to democracy in any smaller or less powerful country, as it interferes in domestic politics to pursue its hegemonic aspirations.

In this sense the rise of economic power of China, which might provide some counterbalance to the USA and independent foreign policy of Russia under Putin, who refuses to act as the USA vassal (which Russia was under Yeltsin), are positive developments.

That's why the USA neocons and their stooges in MSM hate Russia so much. To hate China the same way would less politically incorrect as this is as close to racism as we can get :-).

But Russians are OK. Very convenient scapegoats.

[Jun 13, 2017] Can anyone make the case doe neoclassical macroeconomics? With a straight face?

Notable quotes:
"... the experience since 2008 has strongly suggested that the research program that dominated macro for the previous generation actually impaired the ability of economists to provide useful advice in the moment. Mastering the fancy stuff made economists useless at the simple stuff. ..."
Jun 13, 2017 | economistsview.typepad.com

anne, June 12, 2017 at 03:23 PM

https://krugman.blogs.nytimes.com/2017/06/12/macroeconomics-the-simple-and-the-fancy/

June 12, 2017

Macroeconomics: The Simple and the Fancy
By Paul Krugman

Noah Smith has a nice summation * of his critique of macroeconomics, which mainly comes down, as I read it, as an appeal for researchers to stay close to the ground. That's definitely good advice for young researchers.

But what about economists trying to provide useful advice, directly or indirectly, to policy makers, who need to make decisions based on educated guesses about the whole system? Smith says, "go slow, allow central bankers to use judgment and simple models in the meantime." That would be better than a lot of what academic macroeconomists do in practice, which is to castigate central bankers and other policymakers for not using elaborate models that don't work. But is there really no role for smart academics to help out in this process? And if so, what does this say about the utility of what the profession does?

The thing is, those simple models have done pretty darn well since 2008 - and central bankers who used them, like Bernanke, did a lot better than central bankers like Trichet who based their judgements on something else. So surely at least part of the training of macroeconomists should prepare them to be helpful in applying simple models, maybe even in making those simple models better.

Reading Smith, I found myself remembering an old line ** from Robert Solow in defense of "fancy" economic theorizing:

"In economics I like a man to have mastered the fancy theory before I trust him with simple theory because high-powered economics seems to be such an excellent school for the skillful use of low-powered economics."

OK, can anyone make that case about modern macroeconomics? With a straight face? In practice, it has often seemed that expertise in high-powered macroeconomics - mainly meaning dynamic stochastic general equilibrium - positively incapacitates its possessors from the use of low-powered macroeconomics, largely IS-LM and its derivatives.

I don't want to make a crude functional argument here: research that advances knowledge doesn't have to provide an immediate practical payoff. But the experience since 2008 has strongly suggested that the research program that dominated macro for the previous generation actually impaired the ability of economists to provide useful advice in the moment. Mastering the fancy stuff made economists useless at the simple stuff.

A more modest program would, in part, help diminish this harm. But it would also be really helpful if macroeconomists relearned the idea that simple aggregate models can, in fact, be useful.

* http://noahpinionblog.blogspot.fr/2017/06/summing-up-my-thoughts-on-macroeconomics.html

** https://books.google.com/books?id=7ABgM8-ExXsC&pg=PA44&lpg=PA44&dq=solow+simple+fancy+economics+trust&source=bl&ots=XflZaM5HLV&sig=vsqDgLLShG5gBda-NBTxyjmclI0&hl=en&sa=X&ved=0ahUKEwjSxZ6ShLnUAhVMNT4KHW9VBIUQ6AEIOjAE#v=onepage&q=solow%20simple%20fancy%20economics%20trust&f=false

anne, June 12, 2017 at 03:24 PM
https://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium

Dynamic stochastic general equilibrium modeling is a branch of applied general equilibrium theory that is influential in contemporary macroeconomics. The DSGE methodology attempts to explain aggregate economic phenomena, such as economic growth, business cycles, and the effects of monetary and fiscal policy, on the basis of macroeconomic models derived from microeconomic principles.

libezkova -> anne... , June 12, 2017 at 09:39 PM
Dynamic stochastic general equilibrium is a pseudoscience.

The problem with most neoclassical economics is that they are very bad mathematicians :-)

See, for example an interesting discussion at:

Why Neoclassical Economists Didnt See the Great Recession Coming by Prof Steve Keen

Uploaded on Jul 12, 2011

Mainstream "Neoclassical" Economists famously did not see the Great Recession coming, and when you look at their theories, it's no wonder. Their favourite model prior to the crisis goes by the name of "Dynamic Stochastic General Equilibrium", or DSGE. These models imagined that the entire economy could be modeled as a single individual. Yet neoclassical researchers proved decades ago that even a single market can't be modeled that way. I explain this proof while outlining the fundamental truth that "Neoclassical Economists Don't Understand Neoclassical Economics".

https://www.youtube.com/watch?v=1L6-loOZYLc

anne, June 12, 2017 at 03:25 PM
https://en.wikipedia.org/wiki/IS%E2%80%93LM_model

The IS–LM model, or Hicks–Hansen model, is a macroeconomic tool that shows the relationship between interest rates and real output, in the goods and services market and the money market (also known as the assets market). The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves is the "general equilibrium" where there is simultaneous equilibrium in both markets. Two equivalent interpretations are possible: first, the IS–LM model explains changes in national income when the price level is fixed in the short-run; second, the IS–LM model shows why the aggregate demand curve shifts. Hence, this tool is sometimes used not only to analyse the fluctuations of the economy but also to find appropriate stabilisation policies.

[Jun 13, 2017] Three Takeaways From Bernie Sanders Speech At The Peoples Summit

Jun 13, 2017 | economistsview.typepad.com

RGC June 13, 2017 at 08:31 AM

Three Takeaways From Bernie Sanders' Speech At The People's Summit

"He may not be the leader of the free world, but to the 4,000 activists gathered at The People's Summit in Chicago, Sen. Bernie Sanders reigns supreme.

The former presidential candidate and senator from Vermont headlined the progressive activist conference Saturday night, drawing whoops, hollers, and standing ovations from the crowd that fought alongside him on the road to the White House. Sanders' new calling: turning the 'resistance' movement into action in the face of a president he's called a "fraud."

Sanders took aim at President Trump, the Democratic Party, and the outsized role of corporations in American politics, hitting the major themes from his campaign stump speech and introducing some new ones.

https://www.bustle.com/p/three-takeaways-from-bernie-sanders-speech-at-the-peoples-summit-63549

[Jun 13, 2017] Neocons want Trump's removal. And it was them who instigated Russiagate using Gene Sharp recipes of color revolution. Classic, textbook attempt to de-legitimize elections.

Jun 13, 2017 | economistsview.typepad.com
Fred C. Dobbs , June 12, 2017 at 05:17 PM
Friend says Trump is considering 'terminating' Mueller -
http://abcnews.go.com/Politics/wireStory/friend-trump-terminating-mueller-47996251 via @ABC

A friend of the president says Donald Trump is considering "terminating" special counsel Robert Mueller.

Newsmax CEO Chris Ruddy tells Judy Woodruff of "PBS NewsHour": "I think he's considering perhaps terminating the special counsel. I think he's weighing that option."

The White House did not immediately respond to questions about Ruddy's claims.

Under current Justice Department regulations, such a firing would have to be done by Attorney General Jeff Sessions' deputy, Rod Rosenstein, not the president- though those regulations could theoretically be set aside. ...

---

Top Intel Dem warns Trump: 'Don't waste our time' trying to
remove Mueller http://thehill.com/homenews/house/337517-top-intel-dem-to-trump-dont-waste-our-time-considering-firing-mueller

The top Democrat on the House Intelligence Committee, Rep. Adam Schiff (D-Calif.) fired back at reports that President Trump is considering firing FBI special counsel Robert Mueller with a simple message to the president: "Don't waste our time." ...

Adam Schiff ✔ @RepAdamSchiff

If President fired Bob Mueller, Congress would immediately re-establish independent counsel and appoint Bob Mueller. Don't waste our time.

7:23 PM - 12 Jun 2017

Christopher H. - , June 12, 2017 at 05:34 PM
Trump is cray cray. He is definitely guilty of something big involving Russia. Maybe the Republicans will in fact move to impeach him and we'll get President Pence.
libezkova - , June 12, 2017 at 08:17 PM
IMHO only neocons want Trump's removal. And it was them who instigated Russiagate using Gene Sharp recipes of color revolution. Classic, textbook attempt to de-legitimize elections.

But neocon's Russiagate "color revolution" is very dangerous for the USA move. Which suggests that they lost their minds (which is very true about McCain and Hillary, to name a few).

Please note that in 2014 the USA population was already extremely anti-Russia biased: 64% of BBC poll respondents viewed Russia negatively(not that I trust BBC in this area ;-). But now the percentage might either approach this estimate or be even higher.

This is a recipe for war between those two countries.

BTW neoconservatism is neoliberal interpretation of Trotskyism, which advocates "Permanent War".

Like neofascism it glories militarism (in the form of New American Militarism as described by Professor Bacevich), emphasizes confrontation, and regime change in countries hostile to the interests of global corporation and which are a barrier of spread of neoliberalism and extension of global, US dominated neoliberal empire.

It is extremely jingoistic creed.

[Jun 13, 2017] Looks like clinton mafia went va bank in Russiagate

www.nakedcapitalism.com

im1dc , June 12, 2017 at 07:11 PM

Jun 13, 2017 | economistsview.typepad.com
If the above happened Trump would have his defenders in his Party. They will be voted out of office for their perfidy by voters and be forgotten if history is a guide.
libezkova , June 12, 2017 at 10:22 PM
I wonder if it has ever occurred to the Democrat party brass that once the great Russian/Trump treason snipe-hunt comes up empty they may face consequences.

Looks like Clinton mafia is playing va bank.

May be because Clinton's desperate need to maintain their profile because they badly need the money to sustain their "shadow party" infrastructure.

And because "the Clinton clan" (people who financially depend on the Clintons) is so numerous (Podestas, Teneo, all those consultants), that they form their own ecosystem.

But if Russiagate proved to be false those who supported they all can be tried by Trump administration for sedition.

Trump refused to pursue "emailgate" (which was a blunder), but now I think he will not allow Hillary to get off the hook.

https://en.wikipedia.org/wiki/Sedition

Sedition is overt conduct, such as speech and organization, that tends toward insurrection against the established order. Sedition often includes subversion of a constitution and incitement of discontention (or resistance) to lawful authority.

Sedition may include any commotion, though not aimed at direct and open violence against the laws. Seditious words in writing are seditious libel. A seditionist is one who engages in or promotes the interests of sedition.

im1dc, June 13, 2017 at 06:59 AM
"I wonder if it has ever occurred to the Democrat party brass that once the great Russian/Trump treason snipe-hunt comes up empty they may face consequences."

What are you talking about? The Russia/Trump connection has been made just not to the level of treason or Impeachment, yet, and it may not rise to that level.

However, the Trump directed WH cover-up of Russian Election involvement has risen to the level of Obstruction of Justice and only time will tell if the Republicans in Congress will Impeach Trump and the Senate Convict. Geez, pay attention, get your facts ordered and don't make leaps of nonsense about DEMs doing their jobs as the Loyal Opposition since the GOP Leadership refuses to do its job to protect the nation, its people, and the US Constitution.

libezkova , June 13, 2017 at 09:04 PM
Don't be so naïve. Russiagate is a color revolution. If it fails, those who tried to launch this color revolution should be tried for sedition.

http://fpif.org/russias-not-the-country-benefitting-most-from-trump/

Forget RussiaGate for the moment. Forget James Comey's upcoming testimony before the Senate intelligence committee. Forget all the conspiratorial speculation that Donald Trump is the plaything of Russian President Vladimir Putin.

In strictly foreign policy terms, Trump's election is not really working out so well for the Kremlin. The sanctions against Russia are still in place, and Congress wants to make them even more punitive. Nikki Haley is lambasting Putin and his policies from her perch at the United Nations. Various investigations into the compromising ties of the Trump team represent a significant speed bump in the administration's efforts to restart relations with Russia.

The Chinese are another matter.

[Jun 12, 2017] GDP> was never meant to be a measure of how well-off society has become.

Notable quotes:
"... "Here is my two cents: these three researchers may have just put the nail in the coffin of using production-side measures of the free economy-and that is not really all that bad. GDP is a measure of total production. It was ever meant to be a measure of how well-off society has become. ..."
Jun 12, 2017 | economistsview.typepad.com

Christopher H. , June 12, 2017 at 03:10 PM

Interesting post at Digitopoly by Shane Greenstein

"Here is my two cents: these three researchers may have just put the nail in the coffin of using production-side measures of the free economy-and that is not really all that bad. GDP is a measure of total production. It was ever meant to be a measure of how well-off society has become.

More to the point, maybe it is time to focus on the demand-side measures of free goods. In other words, you get a lot more for your Internet subscription, but nothing in GDP reflects that. For example, the price index for Internet services should reflect qualitative improvement in user experiences, and needs to improve."

libezkova said in reply to Christopher H.... , June 12, 2017 at 07:44 PM
While introduction of the concept of GDP and systematic its measurement (with all its warts, especially in calculation of "real GDP") was a great achievement, absolutization of GDP under neoliberalism and, especially, false equivalence between GDP growth and growth of the standard of living of population are dangerous neoliberal myths.

We should fight neoliberal cult of GDP.

Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his first report to the US Congress in 1934, in a section titled "Uses and Abuses of National Income Measurements":

The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

In 1962, Kuznets stated:

Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.

[Jun 12, 2017] Monopoly power can increase nairu, while suppressing unions can decrease nairu

Jun 12, 2017 | economistsview.typepad.com

djb , June 10, 2017 at 01:42 AM

Fed Needs a Better Inflation Target - Narayana Kocherlakota

yes for a given amount of monopoly power, which the fed does not really control,

the most the fed can do is work on the real interest rates

but if we have less monopoly power that would reduce the part of nairu that is also known as involuntary unemployment, and help real wages, without having so much inflation

in other words closer we get to full a perfectly componetitive market, the less change of accelerating inflation because in a perfectly competitive market , firms are price takers not price makers

in a perfectly competitive market, the unions couldn't drive inflation, without monopoly power there is no accelerating inflation period

the fed cant control that only the legislature and judiciary can control the ext of monopoly power

the point is the can only target inflation and real interest rates

but there are other factors that can get us to full employment, ie eliminate involuntary employment, that affect inflation wages and employment in different ways and different directions

and those factors other than inflation and interest rates that affect involuntary unemployment seem to be ignored when we are having these discussion

pgl - , June 10, 2017 at 01:49 AM
Good point. Thanks for remembering this is an economist blog.
djb - , June 10, 2017 at 07:34 AM
NAIRU is painted as some dyed in the wool equilibrium point that the universe will always tend

you know the "natural level" of unemployment

you know where 'NATURE" wants to go

fact is it is no such thing

monopoly power can increase nairu

suppressing unions can decrease nairu,

both hurt workers

djb - , June 10, 2017 at 07:37 AM
a stronger safety can increase nairu and help wages

[Jun 12, 2017] In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion

Notable quotes:
"... What supply-demand-equilibrium economists never understood is that the price mechanism DESTABILIZES the economy. The sequence is as follows: price up - rhoF down - employment down - wage rate down - rhoF down - employment down - and so on. In other words, the market economy is inherently unstable. ..."
Jun 12, 2017 | economistsview.typepad.com

Egmont Kakarot-Handtke

, June 10, 2017 at 08:13 AM
Think deeper
Comment on Bradford DeLong on 'RETHINK 2%'

"In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion." (Stigum)

The fact of the matter is that economists do NOT have the true theory. More precisely, economists do not know how the price- and profit mechanism works. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit wrong.

Because of this economic policy guidance never had sound scientific foundations. This holds also for the RETHINK 2% letter to the Federal Reserve Board of Governors#1 which in turn is based on Josh Bivens's article.#2

Note for a start that Josh Bivens does not mention profit ― the pivotal variable of economics ― once. From this follows that his underlying profit theory is false. And from this in turn follows that his whole argument is false. ALL models that do not explicitly define macroeconomic profit are false.

The elementary version of the correct objective, systemic, behavior-free, macrofounded employment equation is shown on Wikimedia.#3 This equation says ― among other things ― that an increase of the factor cost ratio rhoF=W/PR leads to higher employment. The ratio rhoF embodies the price mechanism.

In order to focus on the crucial point imagine the FED has the means to directly influence the price P and increases it by 2%, all other variables unchanged. The correct macroeconomic employment equation tells us that employment falls. Bad move.

Next try. The FED sets the change of price to zero and instead increases the wage rate W by 2 %. The correct macroeconomic employment equation tells us that employment rises. Good move.

What supply-demand-equilibrium economists never understood is that the price mechanism DESTABILIZES the economy. The sequence is as follows: price up - rhoF down - employment down - wage rate down - rhoF down - employment down - and so on. In other words, the market economy is inherently unstable.

#4 Standard employment theory is false. The proposal to get the economy going by increasing price inflation is the direct result of the complete lack of understanding how the market economy works.

Egmont Kakarot-Handtke

#1 Letter to the Federal Reserve Board of Governors
http://www.bradford-delong.com/2017/06/rethink-2.html

#2 Josh Bivens 'Is 2 percent too low?'
http://www.epi.org/publication/is-2-percent-too-low/

#3 Wikimedia
https://commons.wikimedia.org/wiki/File:AXEC62.png
For details see 'Keynes' Employment Function and the Gratuitous Phillips Curve Disaster'
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2130421

#4 See also 'How Wicksell and the rest got inflation/deflation wrong'
http://axecorg.blogspot.de/2016/05/how-wicksell-and-rest-got.html

[Jun 12, 2017] Trump's Blunders Fuel Mideast Conflicts

Jun 12, 2017 | economistsview.typepad.com
anne , June 10, 2017 at 03:57 PM
https://consortiumnews.com/2017/06/09/trumps-blunders-fuel-mideast-conflicts/

June 9, 2017

Trump's Blunders Fuel Mideast Conflicts
President Trump's simplistic siding with Saudi Arabia and Israel – and his callous reaction to a terror attack on Iran – are fueling new tensions in the Middle East, including the Qatar crisis.
By Alastair Crooke

Have "MbS" and "MbZ" overreached themselves? It is still early in the Saudi-led blockade of Qatar, but yes, it seems so. And in so doing, the hubris of Mohammad bin Salman (MbS), the Saudi defense minister and the powerful son of Saudi King Salman, and Mohammed bin Zayed (MbZ), the crown prince of Abu Dhabi and supreme commander of the UAE Armed Forces, will change the region's geopolitical architecture.

President's Trump's (flawed) base strategic premises (and narratives) that Iran is the ultimate source of all instability in the region, and that the smacking down of Qatar, a major patron of Palestinian Hamas, per se, was a good thing, and should be applauded, bear direct responsibility for the direction in which regional geopolitics will now flow.

President Trump returned from his first overseas trip convinced that he had unified the United States' historic Arab allies, and dealt a strong blow against terrorism. He did neither. He has been badly informed.

The fissure between Qatar and Saudi Arabia is an old, storied affair, which harks back to longstanding al-Saud angst at the original British decision to empower the al-Thani family in their Qatar foothold in an otherwise all-Saudi fiefdom. But if we lay aside, for a moment, the airing of the long list of Saudi and UAE contemporary complaints against Qatar, which for most part, simply serve as justification for recent action, we should return to the two principles that fundamentally shape the al-Saud mindset and strategy – and which lie at the heart of this current spat with Qatar.

The Reactionary Saudis ....

[ What appears to be a reasonable explanation of the dispute between Saudi Arabia and Qatar that President Trump has encouraged and applauded. ]

ilsm - , June 11, 2017 at 09:58 AM
US policy toward Iran has no strategic perspective outside what is dictated by the House of Saud. That is it has no moral foundation.

Iran is a source of instability only in areas where Shiite majorities have no self determination and are suppressed by Wahhabi interests.

Iran is not the source of instability in Yemen, where the Saudi intrigued with the old colonizers since the 50's to blunt Pan Arabism only recently abandoned the 'Imamate'.

Arabian peninsula instability has to do with self determination and/or a different preference in Imam. The kind of instability Jefferson would have supported.

The Houston Riyadh axis has no moral claim to protection by the US republic.

While Qatar is a short flight from Iran, with near sea lanes as well.

[Jun 12, 2017] This two and a half percent of GDP spent on defense is a deceptive metric, because the last part of GRP is FIRE sector. The USA spend around 20 percent of budget on defence

Jun 12, 2017 | economistsview.typepad.com

ilsm - , June 10, 2017 at 04:32 AM

Russia spends less on war than Saudi royals, see what the royals do in Yemen, what they lose in Iraq and Syria, etc.

What is to worry about with Russia, six other top spender plus Russia add up to the slop in the pentagon trough?

And Russian drones only operate in Syria where they are allied!

US is doing in middle east what Nasser tried only for the Wahhabis!

Fred C. Dobbs - , June 10, 2017 at 05:12 AM
Russia: #3 by budget $,
#2 by GDP percentage

SIPRI Military Expenditure Database
2017 Fact Sheet (for 2016) [Wikipedia]

1 US $611.2B annually 3.3% of GDP
2 China $215.7B 1.9%
3 Russia $69.2B 5.3%
4 Saudi Arabia $63.7B 10%
5 India $55.9B 2.5%
6 France $55.7B 2.3%
7 UK $48.3B 1.9%
8 Japan $46.1B 1%
9 Germany $41.1B 1.2%
10 South Korea $36.8B 2.7%

Fred C. Dobbs - , June 10, 2017 at 05:15 AM
Fun fact: US budget amount
is just a bit less than the
total of the next 9 countries.
ilsm - , June 10, 2017 at 05:52 AM
Budget, US figure does not include OCO* which is separate budget.

*spent on things like training al Qaeda in Syria then defending US grab in Syria, body bags in Syria air refueling and naval support for bombing Yemen, etc.

Libezkova - , June 11, 2017 at 09:25 PM
This 2.5% calculated vs GDP which includes oversized FIRE sector. As such it is somewhat deceptive. Along the lines: look how little we spend on defense.

The reality is different.

For 2015 total budget was 3.97 trillion. Military budget was 637 billions. That's 16%. And part of military budget is hidden (Department Of Energy, three letter agencies, etc.)

So we can assume that 2 out of each ten dollars goes to defense. That's a serious hit and that might help to explain crumbling infrastructure in the USA. Might be a symptom of British-style overextension of the empire.

https://en.wikipedia.org/wiki/Military_budget_of_the_United_States

[Jun 11, 2017] Estimates vary, but some believe 90% of all gold mined in 5000 years is still held by humans as property.

Jun 11, 2017 | economistsview.typepad.com

djb , June 09, 2017 at 02:09 PM

"Bitcoin and the conditions for a takeover of fiat money - longandvariable"

conditions are:

"hell freezing over"

DrDick - , June 09, 2017 at 04:27 PM
Pretty much. Bitcoin really is the quintessential "fiat money" (a redundancy, since all money is fiat currency, even gold and silver).
cm - , June 09, 2017 at 10:07 PM
I would say precious metals are subject to tighter physical constraints (first of all, availability) than most of what have been considered "fiat" currencies.

E.g. emergency "fiat" coin has been produced from cheaper metals, e.g. iron, aluminum, or brass. Forgery-resistant paper currency is not cheap, but probably still cheaper than precious metals.

All that is beside the point - today's currencies are only virtual accounting entries (though with a not so cheap supervision and auditing infrastructure attached to enforce scarcity, or rather limit issuance to approved parties).

mulp - , June 10, 2017 at 03:00 PM
Money is proxy for labor.

Gold and silver prices are determined by labor costs of production.

Cartels act to limit global supply to push prices above labor costs, but even the Cartels have trouble resisting selling into the market when the price far exceeds labor cost of the marginal unit of production.

In today's political economy, the barrier to entry is rule of law which requires paying workers to produce without causing harm to others. The lowest cost new gold production is all criminal, involving theft of gold from land the miners have no property rights, done by causing harm and death to bystanders, with protection of the criminal operations coming from criminals who capture most of the profit from the workers.

Estimates vary, but some believe 90% of all gold mined in 5000 years is still held by humans as property. If a method of extracting gold from sea water at a labor cost of $300 an ounce, the "destruction of wealth" would be many trillions of dollars.

All that's needed is a method of processing sea water that could be built for $300 per ounce of lifetime asset life. A $300 million in labor cost processing ship that kept working for 30 years producing over that 30 years a million ounces of gold would quickly drive the price of gold to $350-400. If it doesn't, a thousand ships would be quickly built that would add a billion ounces to the global supply in 30 years representing 1/6th global supply after 5000 years.

Unless gold suddenly gained new uses, say dresses that every upper middle class women had to have, and that cost more than $300 an ounce to return to industrial gold, such production would force the price of gold to or below labor cost.

However, a dollar coin plated one atom thick in 3 cents of gold will always have a value of a dollar's worth of labor. The number of minutes of labor or the skills required for each second of labor can change, but as long as the dollar buys labor, it will have a dollar of value.

If robots do all the work, then a dollar becomes meaningless. A theoretical economy of robots doing all the work means a car can be priced at a dollar or a gigadollars, but the customers must be given that dollar or that gigadollars, or the robots will produce absolutely nothing. Robots producing a million cars a month which no one has the money to buy means the cars cost zero. To simply produce cars that are never sold means the marginal cost is zero.

cm - , June 11, 2017 at 10:26 AM
Money is a rationing mechanism to control the use and distribution of scarce economic resources. Labor (of various specializations) is a scarce resource, or the scarcest resource commanding the highest price, only if other resources are more plentiful.

There are many cases where labor, even specialized labor, is not the critical bottleneck, and is not the majority part of the price. E.g. in the case of patents where the owner can charge what the market will bear due to intellectual property enforcement. Or any other part of actual or figurative "toll collection" with ownership or control of critical economic means or infrastructure. That's pure rent extraction.

Some things cost a lot *not* because of the labor involved - a lot of labor (not spent on producing the actual good) can be involved because the obtainable price can pay for it.

DrDick - , June 11, 2017 at 11:57 AM
The value of precious metals or gems is also entirely arbitrary. They only have value because someone says they do, as they have little utilitarian value.
cm - , June 09, 2017 at 10:14 PM
The initial allure of bitcoin has been "anonymity", until people figured out that all transactions are publicly recorded with a certain amount of metadata. This can be partially defeated by "mixing services", i.e. systematic laundering. There have also been alleged frauds (complete with arrests) that got a lot of press in the scene, where bitcoin "safekeeping services" (I don't quite want to say "banks") "lost" currency or in any case couldn't return deposits to depositors. No deposit insurance, not much in the way of contract enforcement, etc.

Then there were stories about computer viruses and malware targeted at stealing account credentials or "wallet files".

DrDick - , June 11, 2017 at 12:00 PM
FWIW, I regard bitcoin as a colossal folly intended to appeal to crazed libertarian idiots, goldbug nutters, and criminals and has little utility or real value. Investing in bubble gum cards makes more sense.
DrDick - , June 11, 2017 at 12:01 PM
It is also the ultimate pyramid scheme.

[Jun 11, 2017] A new factor in US politics: the downward spiral of distrust between citizens and elites, in which citizens treat "corrupt" and "establishment" as interchangeable terms.

Jun 11, 2017 | economistsview.typepad.com

Christopher H. June 09, 2017 at 02:01 PM

No, this isn't the Onion.

https://www.vox.com/policy-and-politics/2017/6/9/15768314/public-participation-cant-save-american-democracy

What if "more public participation" can't save American democracy?

It's time to make peace with reality and develop a new plan.

Updated by Lee Drutman Jun 9, 2017, 12:00pm ED