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Stability is destabilizing: The idea of Minsky moment

News Financial Sector Induced Systemic Instability of Economy Recommended Links  Steve Keen Randall Wray Michael Hudson
Casino Capitalism 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 buybacks as a Ponzy scheme Derivatives
Quiet coup Financial Bonuses as Money Laundering Corporatist Corruption: Systemic Fraud under Clinton-Bush-Obama Regime Corporatism Neoliberalism as a New Form of Corporatism Financial obesity
Anatomy of stock market bubble HFT Corruption of Regulators Financial crash of 2008 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?

 

Minsky moment is the synonym of financial crisis -- the moment when excessive leverage that was inevitably created by the financial system during the boom phase of the cycle, starts collapsing and financial system enter the state of deep crisis with many banks becoming insolvent to the level of leverage they accumulated.  Government bailout of financial institutions under neoliberalism follows (because as Senator Durbin noted banks own the place -- the Congress) and then overhand of excessive debt depress the economy that enters the stage of prolonged stagnation. 

The view developed in this volume identifies both real and financial causes for the Great Recession, including the real income stagnation suffered by households across most of the income distribution on one hand, and deregulation and institutional change in the financial sector on the other.

The interplay of these factors led to massive debt accumulation, particularly by U.S. households seeking to supplement stagnant incomes in their pursuit of increasing consumption aspirations. Household borrowing was spurred on by a financial sector rendered ever freer of inter- and postwar financial regulations. These regulations came to be seen as unnecessary fetters on an inherently self-regulating “free market,” an idealized notion in which financiers and policy makers placed increasing trust and confidence.

Ultimately, the self-reinforcing developments in the real and financial sectors proved deadly.

Minsky should be the most admired economist in the second half of the 21st. Century. His views are now partially accepted even by neoclassical economists with their stahostic  equilibrium of supply and demand nonsense. This is mainly dues because they have no other choice. But Minsky was more then astute researcher of business cycle and the Great Depression. Perhaps his writings on eradicating poverty will earn the respect that it may deserve with time as well.

In any case he was one of the first researchers who understood (after Keynes) that financialization is inherent in capitalism and is the key to its instability:

Capitalism is essentially a financial system, and the peculiar behavioral attributes of a capitalist economy center around the impact of finance upon system behavior.” Minsky (1967)

Fifty years ago, Minsky, following Marx, viewed instability as the central flaw of the financial system under capitalism, as its inherent flaw. But unlike Marx, who thought that the periodic crisis of overproduction  is the source of instability (as well as  impoverishment of workers), Minsky assumed that the key source of that instability in the cycles of business borrowing and fractional bank lending, when "good times" lead to excessive borrowing and overproduction (The Alternative To Neoliberalism )

Minsky on capitalism:

He called his model the "Financial Instability Hypothesis". According to Steve Keen, Minsky model boils down to three   statements:

  1. The employment rate will rise if economic growth exceeds the sum of population growth and growth in labor productivity;
  2. The wages share of output will rise if money wage demands exceed the sum of inflation and growth in labor productivity; and
  3. The private debt to GDP ratio will rise if the rate of growth of private debt exceeds the sum of inflation plus the rate of economic growth.

He considered the immanent rising of private debt to GDP ratio an immanent feature of capitalism that lead to financial crisis. While the ultimate feature of neoliberlaism is redistribution of wealth up (rising of inequality) it can continue only while private debt can compensate that sliding share of labor wages in GDP.

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

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 understands this.  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.

The economist Hyman Minsky was the first clearly formulate the financial instability hypothesis although I think Keynes understood the 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 Peter Boone 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. One of the most important counterargument against financial market self-regulation is existence of so called  “Minsky moments”:

“Minsky” was shorthand for Hyman Minsky, an Amercan 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.

Misnky theory was not well recived 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.

 

Attempts to reinvent Minsky will never stop

Here is one such paper   Leveraged Bubbles (Sep 01, 2015)

The conclusion to "Leveraged bubbles," by Òscar Jordà, Moritz Schularick, and Alan Taylor:

... In this column, we turned to economic history for the first comprehensive assessment of the economic risks of asset price bubbles. We provide evidence about which types of bubbles matter and how their economic costs differ. Our historical analysis shows that not all bubbles are created equal. When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.
In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms. This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles. The findings presented here can inform ongoing efforts to devise better macro-financial theory and real-world applications at a time when policymakers are still searching for new approaches in the aftermath of the Great Recession.
Posted by Mark Thoma on Tuesday, September 1, 2015 at 09:25 AM in Economics, Financial System | Permalink  Comments (8)

Double Capitulation said...

"bursting of credit boom bubbles is significant and long lasting.

In the past decades, central banks typically have taken"
~~Òscar Jordà, Moritz Schularick, and Alan Taylor:~

Did Kurt Vonnegut once quip

"Each fed governor likes to live on the edge, further out on a limb where she can see more then hope against hope that limb will not break until she leaves office." ?

Imprecisely, yet left us with a memorable hint of both his genius and fed governor's stupidity.
 

djb said...

of course if wages kept up with productivity, there would not have been as much of a bubble because people could have paid more, and borrowed less

but I doubt BIS was worried about that particular issue

Peter K. -> djb...

"This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles."

Likewise I don't the believe the BIS is big on tighter regulation of the banks. As Krugman and others have pointed out, the BIS is always for raising rates but switches rationals. Sometimes it's about inflation, sometimes bubbles.
 

mulp -> djb...

We need a Fed that sets as policy buying long term debt that funds new infrastructure projects that are required by Federal regulation to pay prevailing aka higher wages.

If in 2010, the Fed had bought $3 trillion in bonds for such projects as building the NE HSR, for all the cities fixing their century old water and sewer systems, California's HSR, bonds for replacement bridges with tunnels as option, rerouting rail to eliminate grade crossings to speed for freight and truck traffic, then the Fed could have done what Republicans have done up until the Republicans decided to punish all the We the People for electing Obama.

Any debt issued that does not build new capital assets requiring American labor, ie, debt paying labor costs, is totally worthless to the economy.

Other than for some existing constant wealth redistribution purposes - during 2008-2011 savers were protected against having their wealth taken from them and given to the borrowers who had long ago spent it.

Arne said...

Is there some data on the extent to which asset price rises are credit fueled or not. My memory (which does not qualify as a data source) says that the housing bubble was much more so than the dot-com bubble.

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.

mulp -> Blissex...

Are you questioning creating wealth by price inflation of decaying asset which are churned in pump and dump?

Do you believe selling and reselling the same fixed quantity of assets creates jobs through the wealth effect of workers spending money they don't have to buy things on credit they can't pay back to keep up with the rich?

Wealth. Creating wealth. Wealth effect. Capital gains. Money in your pocket.

Signs of free lunch economic smoke and mirrors.

Wealth is created by paid labor or hard labor by the owner of the created wealth. But paying labor costs as a virtue is not something an economist is allowed to say in the post Reagan victory world.


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[Mar 24, 2017] Are Empirical Economists Idiot Savants?

Notable quotes:
"... Only the people who understand both the data and its limitations, and not get lost in the illusion of precision ..."
"... Shiller describes many modern economists and market observers as idiot-savants; truth be told, when using that phrase he is only half right. ..."
www.ritholtz.com

By Barry Ritholtz - November 21st, 2010, 8:31AM

The Economist asks: "Fifty years after the dawn of empirical financial economics, is anyone the wiser?"

My short answer: "Only the people who understand both the data and its limitations, and not get lost in the illusion of precision."

Markets are driven by myriad factors, most of which are readily quantifiable. But the small number of inputs that do not lend themselves to easy modeling is how certain empiricists get themselves into trouble. They believe their models accurately account for the real world, when they do not.

One would imagine that the parade of Black Swan events that keep upending their models would convince these economists otherwise, but you would be surprised at how foolishly stubborn these folks are.

The EMH proponents, the VAR analysts, the "stocks for the long run" folks - the grim reality of their performance has not dissuaded them from their beliefs. This has Yale Professor Robert Shiller concerned:

"[Shiller] worries that academic departments are "creating idiot savants, who get a sense of authority from work that contains lots of data". To have seen the financial crisis coming, he argues, it would have been better to "go back to old-fashioned readings of history, studying institutions and laws. We should have talked to grandpa."

Shiller puts his finger on the right pressure point. The factors ignored by the quants were the underlying changes in laws and regulations. That allowed banks to run wild, something the pure quants were not prepared to detect and act upon. The radical deregulation of the past 3 decades was the equivalent of dark matter, undetectable by Newtonian physics - or quant trading funds.

Shiller describes many modern economists and market observers as idiot-savants; truth be told, when using that phrase he is only half right.

Here is the Economist:

IT ALL began with a phone call, from a banker at Merrill Lynch who wanted to know how investors in shares had performed relative to investors in other assets. I don't know, but if you gave me $50,000 I could find out, replied Jim Lorie, a dean at the University of Chicago's business school, in so many words. The banker, Louis Engel, soon agreed to stump up the cash, and more. The result, in 1960, was the launch of the university's Centre for Research in Security Prices. Half a century later CRSP (pronounced "crisp") data are everywhere. They provide the foundation of at least one-third of all empirical research in finance over the past 40 years, according to a presentation at a symposium held this month. They probably influenced much of the rest. Whether that is an entirely good thing has become a matter of debate among economists since the financial crisis.

It is an interesting article worth perusing . . .

Source:
Data birth
Economist Nov 18th 2010
http://www.economist.com/node/17519706?story_id=17519706

34 Responses to "Are Empirical Economists Idiot Savants?"

KentWillard: November 21st, 2010 at 8:51 am

My personal experience has been that most 'quants' in Finance don't have economics degrees. Often a PhD in Physics. Sometimes in Math, sometimes in Finance. Many aren't from the US, or even the West. They don't have an understanding, or often interest in markets. They can sure run a lot of simulations quickly though.

machinehead : November 21st, 2010 at 8:53 am

'Shiller puts his finger on the right pressure point. The factors ignored by the quants were the underlying changes in laws and regulations.'

To these factors, I would add the cyclical analysis described in a Big Picture post about Felix Zulauf a couple of days ago. Quantitative models do a pretty good job of identifying 'late expansion phase' syndrome: bubbly equity markets, loose credit standards, tightening capacity, persistent inflation (properly measured).

But every time, economists as a group say that the Federal Reserve will achieve a soft landing, and recession will be averted. Many of them are saying this now about China, currently manifesting 'late expansion phase' syndrome with a vengeance.

Why are economists so poor at reading the business cycle? I'd contend that most of them are conflicted. Their paychecks come from corporate entities who don't want to hear recession forecasts. Federal Reserve economists certainly aren't going to bite the FOMC's guiding hand. Academic economists should be freer, you'd think, but some have corporate research funding. Robert Schiller at Yale was one of the few (with Irrational Exuberance, January 2000) to get a cyclical peak right.

Behavioral economics says that economists, like every other cohort, will be victims of groupthink at inflection points, always zigging when they should zag. This is the tragedy of the Federal Reserve's interest rate central planners. Never will they succeed at day-trading this vast economy into prosperity. They've spectacularly failed at even the much narrower task of enriching their client banking cartel at the expense of everyone else.

Here's hoping that B.S. 'Benny Bubbles' Bernanke will be history's last Fed chairman.

ToNYC: November 21st, 2010 at 9:02 am

Granpa knew that Moral Authority took care of business and was worth more to effect continuity or change than any manipulation of currency or credit. JP Morgan knew that Lending was all about Character and told Congress that other factors were secondary. Quants know how to manipulate data and the value of nothing.

Opir: November 21st, 2010 at 9:27 am

If we accept, for the sake of argument, that economics is really 90% mass psychology, 10% math, then isn't a large part of the issue that many of its professional practitioners have tried to understand problems though a lens where those percentages are reversed? There is perhaps kind of bias that causes many of these people to only see the world using neat models, and discount that what economics is really about trying to understand (once you get beyond the simple cases where said models and standard ideas about incentives work):

what people do and want to do; how many of them do it; and for how long, modified by:

1) geopolitical events 2) the zeitgeist 3) culture (and subculture)

People may go into the field with a love of numbers and an interest in money; what we may really need, however, are people who care about understanding human behavior as it pertains to resources and power within and between societies. A "sociology for money", as it were.

Go Dog Go: November 21st, 2010 at 9:27 am

Shiller describes many modern economists and market observers as idiot-savants; truth be told, when using that phrase he is only half right.

I just got that. Very funny

Mark E Hoffer: November 21st, 2010 at 9:42 am

funny, the Argument, ~"over-reliance on imperfect Models/questionable Data", is, no doubt, True..

though, substitute "AGW/"Climate Change" for "Econometrics/Financial Engineering" and . ~~

differently, Economists, of course, should be snorting more *Exhaust Fumes, and less Laser Toner..

billkeep: November 21st, 2010 at 9:42 am

There are empiricists and then there are empiricists. A quick look at Reinhart and Rogoff's book "This Time Is Different," shows the incestual limitation of quant jocks (whether trained in econ or physics or math - it's all the same because they use the same tired data) and the power that can come from fresh data, fresh thinking, and an absence of self-interest in the outcome (see Folbre's piece on the ethics of economists in the NYT Economix column).

Bill W: November 21st, 2010 at 9:47 am

Despite our great triumphs of science and advances in understanding, we still don't know jack about the universe. I believe in the constant advance of knowledge, but I also believe in being realistic.

We need to be prudent when we apply our theories about the world to the real world. The results can be disappointing.

What's much worse than a fool? A fool with ambition.

How the Common Man Sees It Says:

November 21st, 2010 at 10:08 am The fact is, if you pay people to look the other way, they usually do.

mhdoc: November 21st, 2010 at 10:14 am

Many years ago I was a biology graduate student when we got our first computer terminal and I discovered the joys of stepwise regression. I spent hours searching out the last 5% of the variance. Then I went on my first field trip of the season to check on the rainfall collectors I had randomly scattered through the forest. We measured the dissolved elements in the water we collected; parts per million potassium, etc.

One of the collectors had gotten plugged, filled with water, and a thirsty chipmunk had fallen in and drowned. In addition, the water was covered with pollen. Suddenly the value of stepwise regression for explaining what was going on took a serious hit. I guess my black swan looked like a chipmunk :)

Bill W: November 21st, 2010 at 10:26 am

billkeep, I like what you said about fresh thinking and and absence of self-interest. How often do "data driven," "open-minded," scientists become high priests of their own theories. They will put down traditional religious beliefs, without realizing the dogma of their own thinking. There will always be religion of some sort in this world, whether the practitioners realize it or not.

I think the quants are probably missing a healthy dose of the applied knowledge of experienced investors. You don't have to be able to mathematically formulate why something works to understand that it does. How do you separate the quack theories from the real ones? If I knew that I'd be considerably wealthier.

farmera1: November 21st, 2010 at 10:34 am

Misuse of statistics by economist/quants is a root cause of our recent meltdown.

Seeing the world and economics as a normal/Gaussian/bell curve world (it isn't in most cases) will lead you to a path of unforeseen and destructive events. You end up making all kinds of risk assessments and predictions that are built upon "facts/Gaussian models/bell curve" that just don't reflect the real world. Some big unpredicted event will get you.

For example thinking (and building an investment house of cards) just because models show you that the real estate market never goes down (nation wide) that it will never happen is a fool's approach, but it built huge bonuses (say a cool $100,000,000/yr for several) for the executives so in that sense it was successful. It also made the Ownership Society possible. It allowed this country to live way beyond its means for years so most benefited. Cut taxes and start wars, no problem, we got this baby humming. Since we were able to predict and control risk so well who needs regulations. Leverage, no problem, we have it under control (aka being fully hedged). RIGHT.

By the way the social sciences do the same thing, in using things like ANV, standard deviations, risk, relative error (?)etc. This misuse is just as big in its' own way as the quants/economists' errors.

Petey Wheatstraw: November 21st, 2010 at 11:12 am

"Markets are driven by myriad factors, most of which are readily quantifiable." _______________

The least quantifiable of which is direct intervention in, and manipulation by, central bankers. The markets are rigged. Quantify THAT, bitch.

(sorry for the last sentence, not aimed at anyone.)

~~~

BR: $600 Billion dollars over 6-9 months.

Mark E Hoffer: November 21st, 2010 at 11:35 am

though, speaking of 'Empiricists', these cats http://www.gapminder.org/ offer some interesting analytics, esp. here http://www.gapminder.org/labs/

as per, YMMV, YOMP ..

louis: November 21st, 2010 at 11:38 am

There are a myriad of factors that set a point spread.

Sechel: November 21st, 2010 at 11:55 am

There's an old joke about the drunk economists looking for his keys by the light post even though they were lost elsewhere, when asked he responded, "because this is where the light is

The market seems intent on assuming the market operates under the efficient market hypothesis, price distribution is normal and that participants always act rationally. Nothing could be further from the truth. Mandelbrot discussed how observations of Cotton price movements disproved this. We know there is information asymmetry in the marketplace.

The market knows what models to use, it just chooses not to. It's beyond fat tails, it requires extreme value theory, knowing that risk scales at the extremes and that bad news comes in threes(dependence).

So why use the failed tools, the answer is simple. If the market gives up on OAS, Black-Scholes and the like, it has to accept being in the dark more than it's used to.

Sechel: November 21st, 2010 at 12:02 pm

Barry, the mortgage market learned that VAR does not work, that OAS is a terrible tool. Many have turned to scenario analysis, but a great deal many like the simplicity of the old failed tools.

daf48: November 21st, 2010 at 12:12 pm

"most of which are readily quantifiable" Really? I'd be careful if that was my point of view. Economic reality is compiled by using data points from thousands of governments, corporate think tanks, independent agencies, etc'. But little work has been done to look at the system as a whole. Or better yet. is there a global economic system?

Uchicagoman: November 21st, 2010 at 12:18 pm

http://en.wikipedia.org/wiki/Dimensional_Fund_Advisors

Uchicagoman: November 21st, 2010 at 12:22 pm

$190 billion under management.

RW: November 21st, 2010 at 12:28 pm

IMO your "short answer" is spot on BR: The illusion of precision is a major problem not only because the data are limited or much more granular than suspected - e.g., the fact that price can be recorded down to the penny does not mean that is where the significant digit is - but also because increased precision cannot significantly improve predictability of system behavior if nonlinear factors are present.*

*this was a key insight of the meteorologist Edward Lorenz, one of the first 'chaos' theoreticians (1963), that and the sensitivity of even the best model simulations to minute changes in initial conditions (butterfly effect).

Uchicagoman: November 21st, 2010 at 12:38 pm

Here's an old (physics?) saying:

"You can either dazzle me with data, or butter me with bullshit."

b_thunder: November 21st, 2010 at 3:16 pm

"[Shiller] worries that academic departments are "creating idiot savants, who get a sense of authority from work that contains lots of data".

I wonder who Shiller had in mind? How about that guy who used to go over massive amounts of data while in his bathtub? Remember the Maestro? And another one who says we're under threat of deflation (according to statisticians) and who doesn't see that other than houses and flat-screen TVs, prices for everything else are rising in the real world. The one who thinks that because cost of gasoline and food are not in his data tables and charts, they do not matter. The one who thinks that in times of 17% U6 un/under-employment and massive outsourcing wages will rise and people will get hired if prices go up.

I also wonder what Barry's buddy "Invictus" thinks about all this. He seems to trust the charts and data more than the real world sentiment.

Sechel: November 21st, 2010 at 4:01 pm

Who can believe anything they say. With one breadth they tell us quantitative easing is meant to spur bank lending, then they pay banks on their reserves encouraging them not to lend those same reserves out. As far as the Fed goes, no credibility.

Julia Chestnut: November 21st, 2010 at 4:02 pm

You know, BR, the best economics class I had during my graduate studies was econometrics. The thing that was so good about it (and so incredibly annoying at the time) was that the prof made us work the matrix algebra from the ground up in building regression analyses. We were going to be using computers to regress the data - but he was adamant that unless you understood the math, and knew exactly what the math was doing with the data we input, you would have no idea what the limitations of the analysis were. He also insisted that we understand the limitations of the data – how it was collected, what it meant. I've used that course at least weekly since I graduated embarrassingly long ago (unlike "finance," where I at least learned that derivatives are for hedging, not investing).

I'd say that either a true statistician or an applied mathematician for a quant is the way to go. I meet loads of economists who couldn't figure their way out of a paper bag. Know what's worse, though? The number of MDs with less than a clue about the math underlying normative numbers in lab tests. I'm less likely to get killed by a quant.

TerryC: November 21st, 2010 at 4:07 pm

"Only the people who understand both the data and its limitations, and not get lost in the illusion of precision."

Barry, I think you mean accuracy.

billkeep: November 21st, 2010 at 4:08 pm

Bill W

Actually if you knew that you wouldn't be wealthy. You would only be wealthy if you knew it first and with enough time to act in your own interests. There is a unreconcilable difference of purpose between public and private interests when it comes to understanding markets. As Sechel says We know there is information assymetry in the marketplace. In fact, we bet on it. The problem we seem to now have is that a few analysts who do understand the psychology of investors or not "public" analysts. As a result, the public analysts lag behind because they have been trained too narrowly in terms of the data and lack the understanding of investor behavior. That is the way it appears to me anyway.

constantnormal: November 21st, 2010 at 5:35 pm

As in most things, the quality of the question says more than the completeness of the answer.

Andy T: November 21st, 2010 at 6:35 pm

Opir@9.27 AM

Amen to that my friend.

What many people lose sight of is the fact that we humans tend to move in "excesses." First there is excessive greed which causes asset bubbles, then comes the excessive fear after the bubble bursts.

This has been going on for several hundred years, regardless of regulatory structure.

And, you know what?

That's OK. It is it what it is

Attempts to "modify" human behavior or attempts to disrupt the natural flow of things will have it's own unintended consequences.

ezrasfund: November 21st, 2010 at 7:21 pm

So right. You can build a giant edifice of precise calculations. But so often that edifice is build on a foundation of vague assumptions such as "housing prices won't go down."

RodgerMitchell: November 21st, 2010 at 7:26 pm

All the mathematical formulas in the world are trumped by the simple fact that the U.S. is monetarily sovereign.

1. It does not need to borrow

2. It can pay for any deficits of any size, without raising taxes

3. It never should engage in "austerity."

4. It cannot be forced into bankruptcy, nor can any of its agencies (i.e. Social Security, Medicare et al) be forced into bankruptcy. .

Spending by the U.S. neither is constrained by taxes and borrowing, nor is it even related to taxes and borrowing. Either can be done or eliminated without affecting the other. That is, taxing does not affect spending, and spending does not affect taxing. They, in fact, are two, unrelated operations. . The sole constraint on federal spending is inflation. We are nowhere near inflation, and it easily can be prevented and cured with interest rate control. . Those who do not understand monetary sovereignty do not understand economics. .

Rodger Malcolm Mitchell

Mark E Hoffer: November 21st, 2010 at 7:35 pm

RMM,

aren't you overlooking http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Federal+Reserve+Act+of+1913 ?

and, because of such, it, actually, "does need to borrow", contra to your first assertion..(?)

soloduff: November 21st, 2010 at 9:50 pm

The author exhibits an elementary conceptual confusion. Financial economics (of the EMH/Modern Portfolio fame) is not "empirical" economics. Rather, it is based upon analogy with 19th century statistical mechanics; hence its fetish of the bell curve ("normal distribution"), which fails as a benchmark in every crisis. B. Mandlebrot and E. Derman have written extensively on this genre of economics; which differs from mainstream ("neoclassical" a la Samuelson et al.) only inasmuch as neoclassical economics takes its metaphor from an even more antiquated department of 19th century physics, namely, "rational mechanics"–remember your Econ 101 text's proud mention of the "production function" (Cobb-Douglas) and the Lagrangian multiplier? About 15 years ago Philip Mirowski wrote an expose of the neoclassical analogy–"More Heat Than Light"–demonstrating conclusively that the luminaries of economics understood neither the physics that they borrowed nor the economics that they data-fitted to their analogy. (Ditto with financial economics in the critiques provided by Mandlebrot and Derman.) –Oh, well, should we expect scholarly accuracy from a mere financial reporter when the scholars themselves serve up such wanton slop? In a word: All idiots, no savants.

CitizenWhy: November 21st, 2010 at 10:32 pm

Empirical economists are idiot savants only in regard to economics. In other things they are probably OK.

[Mar 23, 2017] Cambell law: The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to

Mar 23, 2017 | economistsview.typepad.com
reason : , March 22, 2017 at 07:25 AM
The most valuable part of Chris Dillow's piece is the link to Campbell's law.

https://en.wikipedia.org/wiki/Campbell%27s_law

I have often referenced this without being aware of it.

My version is that any proxy measure will become less relevant over time as it drifts away from the intended target (the more so if it is used to guide policy).

anne -> reason ... , March 22, 2017 at 07:36 AM
https://en.wikipedia.org/wiki/Campbell%27s_law

Campbell's law is an adage developed by Donald T. Campbell, an example of the cobra effect:

"The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor."

Campbell's law was published in 1976 by Campbell, a social psychologist, an experimental social science researcher and the author of many works on research methodology: "When a measure becomes a target, it ceases to be a good measure."

JF -> anne... , March 22, 2017 at 07:50 AM
Chris G probably liked this too. I had Campbell's stuff next to my bed for a long long time.
anne -> JF... , March 22, 2017 at 08:18 AM
I had Donald Campbell's stuff next to my bed for a long long time.

[ Do suggest a reading for us. ]

JF -> anne... , March 22, 2017 at 10:31 AM
"Experimental and Quasi-Experimental Designs for Research" - copyright 1963, my version was the tenth printing in 1973
anne -> JF... , March 22, 2017 at 08:23 AM
http://www.nytimes.com/1996/05/12/us/donald-t-campbell-master-of-many-disciplines-dies-at-79.html

Donald T. Campbell, Master of Many Disciplines
By ROBERT MCG. THOMAS JR.

Donald T. Campbell, a nimble-minded social scientist who left his mark on half a dozen disciplines and helped revolutionize the fundamental principles of scientific inquiry common to them all, died on Monday in a hospital near his home in Bethlehem, Pa....

Dr. Campbell, who did his major work at Northwestern University, was by training and his Berkeley doctorate a social psychologist, but it was a tribute to his bewildering range as a master methodologist that when he took up his last academic post, at Lehigh University, in 1982 university officials threw up their hands and simply designated him "university professor," with faculty listings in the departments of psychology, sociology and anthropology and the department of education.

They could easily have thrown in biology, the philosophy of science and market research. For a generation, virtually no respectable researcher this side of the chemistry lab has designed or carried out a reputable scientific study without a thorough grounding in what Dr. Campbell called quasi-experimentation, the highly sophisticated statistics-based approach he invented to replicate the effects of the truly randomized scientific studies that are all but impossible in the slippery and unruly world of human interactions....

JF -> anne... , March 22, 2017 at 10:34 AM
Should have added influence in political science and public administration to itemize the influence this should have on public policy making.
im1dc -> reason ... , March 22, 2017 at 08:59 AM
It is a valid and reliable adage from a Social Psychologist who Economists should take seriously. His adage explains why Economists are so often wrong, i.e., they fail to take into account the nature and thus behavior of people as individuals, groups, and as both sentient and thinking beings who can and do change behavior routinely sometimes for rational reasons but just as often just to do and be different.

That's impossible to predict with statistical models although with statistical models scientists can capture WHEN a change is occurring, even where and sometimes why and how but only after the change has occurred, which makes Prediction most difficult.

libezkova -> im1dc... , March 22, 2017 at 02:08 PM
Add to this what Marxists used to call "class interest" of financial oligarchy and we get closer to understanding why neo-classical economics is so bad.

[Mar 23, 2017] http://michael-hudson.com/2017/01/the-land-belongs-to-god/

Mar 23, 2017 | michael-hudson.com
Reply Tuesday, March 21, 2017 at 02:32 PM

[Mar 09, 2017] DrDick

Mar 09, 2017 | profile.typepad.com
said... The ProMarket piece is interesting, but really misses the point. "Regulation" in itself is not what matters, but rather what kinds of regulations and how they work. Some regulations, favored by the industries themselves (like taxi licensing in most metropolitan areas) tend to act to reduce competition and enhance company profits. Others, like the background checks mentioned in the article, serve to protect the public interest. Reply Thursday, March 09, 2017 at 07:42 AM Youarecorrect said in reply to DrDick ... You are correct to point out that a catchall phrase like regulation disguises many intentions. But there is a tension between motivations of regulation. A regulation that is supposed to increase reliability (e.g. vetting of entrants), can be essentially a rent seeking tool in disguise. That's the point of the ProMarket article. Reply Thursday, March 09, 2017 at 11:27 AM DrDick said in reply to Youarecorrect... This is really a question of looking at who is proposing or favoring the regulation and how it is structured and thus whose interests are being protected. If it is coming from established businesses, it is about rent seeking. Reply Thursday, March 09, 2017 at 01:53 PM

[Feb 20, 2017] Problems of asymmetry in regulation: People who especially benefit from a particular regulation will be inclined to lobby or bribe government officials for it

Feb 20, 2017 | economistsview.typepad.com

Richard H. Serlin : February 18, 2017 at 07:51 PM

"Mr. Friedman underscored problems of asymmetry in regulation: People who especially benefit from a particular regulation will be inclined to lobby or bribe government officials for it. On the other hand, members of the general public, who might suffer from such regulations, will not be attentive to the many rules that affect them, each in a small way." -- Shiller article

This is the same Milton Friedman who assumed people had perfect information and expertise on everything in the market. They were all electrical engineers who knew the exact schematics of every toaster and refrigerator to know if it would burn down their house, but they had no idea what any government regulations or policies were -- Hey, it's ok, and so scientific, to just assume anything you want about human beings, as long as there's lots of math and internal consistency and microfoundations -- And, of course, it makes libertarianism look better.

[Feb 18, 2017] John Kenneth Galbraith, like John Maynard Keynes, was a giant among midgets both figuratively and literally.

Notable quotes:
"... John Kenneth Galbraith laid out the problem of companies with too much market/political power back in the 1950s and 60s. I never read Galbraith in an economics course, only on my own. Economists were not interested...not enough mathematics and marginal this equals marginal that. ..."
Feb 18, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron... , February 16, 2017 at 07:35 AM
John Kenneth Galbraith laid out the problem of companies with too much market/political power back in the 1950s and 60s. I never read Galbraith in an economics course, only on my own. Economists were not interested...not enough mathematics and marginal this equals marginal that.

Nothing like overlooking the elephant is the room...something that economists are better at doing than trying to do their jobs.

RC AKA Darryl, Ron -> JohnH... , February 16, 2017 at 08:27 AM
Totally. John Kenneth Galbraith, like John Maynard Keynes, was a giant among midgets both figuratively and literally.

[Feb 15, 2017] Contrary to What Robert Samuelson Says We Did Bail Out the Bankers and Did Not Prevent a Second Great Depression

Notable quotes:
"... As far as the folks with uninsured loans that would have lost, well, many of these people were hedge-fund types and other financial institutions. They would have paid a price for not being very competent. The bailout ensured that they would not be left to suffer the consequences of their actions. ..."
"... As far as the top executives of the banks, while some were shown the door, many of these people continue to earn paychecks in the millions or tens of millions as the financial sector remains hugely bloated. We had an opportunity to downsize the financial sector in one fell swoop, eliminating this enormous albatross which sucks money out of the economy and hands it to the very rich. ..."
"... The narrow securities and commodities trading sector is now close to 2.5 percent of GDP ($470 billion a year). In the seventies, it was around 0.5 percent of GDP. Does anyone believe that capital is being allocated more effectively today than forty years ago or that our savings are safer? ..."
Feb 15, 2017 | economistsview.typepad.com

RGC : February 15, 2017 at 10:04 AM

Contrary to What Robert Samuelson Says We Did Bail Out the Bankers and Did Not Prevent a Second Great Depression

Dean Baker
13 February 2017

Robert Samuelson is unhappy that people continue to believe something that is true - that we bailed out the bankers - and happy that people still believe something that is not true - that we prevented a second Great Depression. In his column Samuelson complains:

"The real Dodd-Frank scandal is that this misinterpretation of events, widely embraced by both parties, has been allowed to stand. In many bailouts, banks' shareholders suffered huge losses or were wiped out; similarly, top managers lost their jobs. The point was not to protect them but to prevent a collapse of the financial system."

Okay, let's imagine the counterfactual. We decide to take the free market seriously and let it work its magic on Citigroup, Bank of America, Goldman Sachs and the rest of the high rollers. These huge banks all go into bankruptcy with the commercial banking parts of the operations taken over by the FDIC. All insured deposits are fully protected, with the FDIC and Fed having the option to raise the limits to protect smaller savers.

The shareholders of these banks are out of luck. They have zero. Samuelson is right that share prices were depressed during the crisis, but that is different than going to zero. Furthermore, operating with the protection of Treasury Secretary Timothy Geithner's promise of "no more Lehmans," the share prices soon bounced back.

As far as the folks with uninsured loans that would have lost, well, many of these people were hedge-fund types and other financial institutions. They would have paid a price for not being very competent. The bailout ensured that they would not be left to suffer the consequences of their actions.

As far as the top executives of the banks, while some were shown the door, many of these people continue to earn paychecks in the millions or tens of millions as the financial sector remains hugely bloated. We had an opportunity to downsize the financial sector in one fell swoop, eliminating this enormous albatross which sucks money out of the economy and hands it to the very rich.

The narrow securities and commodities trading sector is now close to 2.5 percent of GDP ($470 billion a year). In the seventies, it was around 0.5 percent of GDP. Does anyone believe that capital is being allocated more effectively today than forty years ago or that our savings are safer?

The additional money spent operating this sector is a huge waste from an economic standpoint, which also plays a large role in the upward redistribution of the last four decades.

In terms of preventing a second Great Depression, this is a nice children's story that the elite like to tell. (And, they get very mad and call people names if they don't agree - we are supposed to take name-calling by the elites very seriously.) We know how to get out of a depression, we learned that lesson in the last one. It's called "spending money."

The claim that we would have suffered a decade of double-digit unemployment if we had not bailed out the banks is premised on a political claim, not an economic one, that we would never have spent the money needed to boost the economy out of a prolonged slump. This claim is not only that any initial stimulus would have been shot down, but even after two, three, or five years of double-digit unemployment the president and congress would not have agreed to a serious stimulus.

This is a pretty strong claim since even tax cuts would serve to provide stimulus, albeit less than spending. (Anyone ever meet a Republican that didn't like tax cuts?) Remember, the first stimulus occurred with George W. Bush in the White House and a 4.7 percent unemployment rate. Those making the claim that in the counterfactual the politicians in Washington never would have done anything to boost the economy has a really low opinion of these folks intelligence and/or honesty. That would be a good topic for a column, if someone really believed it.

http://cepr.net/blogs/beat-the-press/contrary-to-what-robert-samuelson-says-we-did-bail-out-the-bankers-and-did-not-prevent-a-second-great-depression

[Feb 15, 2017] Lysenkoism in the US economics: Mainstream economists who get paid well for their services are not that diverse

Notable quotes:
"... Yes economists are diverse as a group, but the opinions of the majority of that group might be described as having moved to the right since 1970. ..."
Feb 15, 2017 | economistsview.typepad.com
sanjait -> Jerry Brown... , February 15, 2017 at 10:38 AM
Economists are enormously diverse as a group. Any piece that explicitly or implicitly describes them as being homogeneous is being reductionist at best.

But Noah makes good points. Though it's probably worth emphasizing that if there exists a problem of communication between professionals and the public, there is probably mutual blame to be assigned. Economists should talk better to the general public, but as citizens we don't serve ourselves well when we expect the world to cater to our lack of knowledge and interest in complex but important issues.

DrDick -> sanjait... , February 15, 2017 at 10:51 AM
I have to disagree. It is the professionals who need to do a better job of educating the public. It is ridiculous to assume that the general public has the time or resources to discover this for themselves.
Peter K. -> sanjait... , February 15, 2017 at 11:19 AM
"Economists are enormously diverse as a group.

Mainstream economists who get paid well for their services are not that diverse. For one thing, most are white males.

That was Hillary's one good idea about the Fed. One.

Peter K. -> sanjait... , February 15, 2017 at 11:20 AM
"there is probably mutual blame to be assigned."

What a masochist.

Stockholm syndrome.

Jerry Brown -> sanjait... , February 15, 2017 at 11:31 AM
Yes economists are diverse as a group, but the opinions of the majority of that group might be described as having moved to the right since 1970. And often certain types of economists are described as fringe and there is a reluctance to discuss their ideas. That is somewhat understandable because any one economist has only so much time, but it seems to go deeper than that very often. Trade has been one of those areas, and I am happy to see many economists doing some re-evaluation of the free trade mantra, among other things. I would include Paul Krugman in that group.

As far as being a knowledge lacking citizen- well we all are. Ain't no economist got it all completely figured out as far as I know. That's how I read Noah Smith's article, as a call to re-examine some previously sacred ideas with maybe a goal of keeping in mind their effects on different segments of society. And economists or anyone else who wants to impact public policy in a democracy certainly should expect to cater somewhat to those who are less knowledgeable about their theories.

[Feb 13, 2017] John Kenneth Galbraith on Monetary Policy:

Notable quotes:
"... The perverse unusefullness of monetary policy and the frustrations and danger from relying on it. This is perhaps the clearest lesson of the recent past. The management of money is no longer a policy but an occupation. Though it rewards those so occupied, its record of achievement in this century has been patently disastrous. ..."
"... It worsened both the boom and the depression after World War 1. It facilitated the great bull market of the 1920s. It failed as an instrument for expanding the economy during the Great depression. When it was relegated to a minor role during World War 11 and the good years thereafter, economic performance was, by common consent, much better. Its revival as a major instrument of economic management in the late '60s and early '70s served to combine massive inflation with serious recession. ..."
"... And it operated with discriminatory and punishing effect against, not surprisingly, those industries that depend on borrowed money, of which housing is the leading case. To argue that it was a success may well be beyond even the considerable skills of its defenders. Only the enemies of capitalism will hope that, in the future, this small, perverse and unpredictable lever will be a major instrument in economic management. ..."
Feb 13, 2017 | economistsview.typepad.com
RGC : February 13, 2017 at 06:13 AM , 2017 at 06:13 AM
John Kenneth Galbraith on Monetary Policy:

"If the near future is an extension of the near and more distant past, there are six imperatives that will shape or control monetary policy and the larger economic policy of which it is now a lesser part. these are:

(1) The perverse unusefullness of monetary policy and the frustrations and danger from relying on it. This is perhaps the clearest lesson of the recent past. The management of money is no longer a policy but an occupation. Though it rewards those so occupied, its record of achievement in this century has been patently disastrous.

It worsened both the boom and the depression after World War 1. It facilitated the great bull market of the 1920s. It failed as an instrument for expanding the economy during the Great depression. When it was relegated to a minor role during World War 11 and the good years thereafter, economic performance was, by common consent, much better. Its revival as a major instrument of economic management in the late '60s and early '70s served to combine massive inflation with serious recession.

And it operated with discriminatory and punishing effect against, not surprisingly, those industries that depend on borrowed money, of which housing is the leading case. To argue that it was a success may well be beyond even the considerable skills of its defenders. Only the enemies of capitalism will hope that, in the future, this small, perverse and unpredictable lever will be a major instrument in economic management.

The central bank remains important for useful tasks - the clearing of checks, the replacement of worn and dirty banknotes, as a loan source of last resort. These tasks it performs well. With other public agencies in the United States, it also supervises the subordinate commercial banks. This is a job which it can do well and needs to do better. In recent years the regulatory agencies, including the Federal reserve, have relaxed somewhat their vigilence. At the same time numerous of the banks have been involved in another of the age-old spasms of optimism and feckless expansion. The result could be a new round of failures. It is to such matters that the Federal Reserve needs to give its attention.

These tasks apart, the reputation of central bankers will be the greater, the less responsibility they assume. Perhaps they can lean against the wind - resist a little and increase rates when the demand for loans is persistently great, reverse themselves when the reverse situation holds.

But, in the main, control must be - as it was in the United States during the war years and the good years following - over the forces which cause firms and persons to seek loans and not over whether they are given or not given the loans.

-From "Money: Whence it came, Where it went" 1975 - pgs 305,6.

anne -> RGC... , February 13, 2017 at 08:19 AM
https://www.amazon.com/Money-Whence-Came-Where-Went/dp/0735100705

1975

Money: Whence it came, Where it went
By John Kenneth Galbraith

RC AKA Darryl, Ron said in reply to RGC... , -1
Excellent! THANKS!

[Feb 13, 2017] Under Maestro Greenspan Fed as an institution became this sense not so dissimilar to such post WWII financial institutions as IMF and World Bank (which became the key instruments for implementing Washington consensus ). It became a very effective enforcer of the neoliberalization of the country.

Feb 13, 2017 | economistsview.typepad.com
llisa2u2, February 13, 2017 at 10:34 AM
Just finished reading a great little book, THE ECONOMIC PINCH, by C.A.Lindbergh, SR. Here's a link to it: https://archive.org/stream/nkooan_yahoo_Lind/Lind#page/n1/mode/2up

Yes, the writing style is a bit dated, but it gives the bottom-line in really clear, well-written English.

It's a GREAT little book, should be required reading with proof by some book report written by each economist, before their being allowed any public discussion about the FEDERAL RESERVE.

It's probably more relevant today for all U.S. citizens than it was back in the early 1900's.

Sanjait, February 13, 2017 at 11:10 AM
The Great Moderation era Fed has some good aspects but has fundamentally failed to understand how its obsession with keeping inflation from ever even thinking abut going up has suppressed wages and caused labor hysteresis.

I think they assume that all those problems just equilibriate away across the cycle but the reality is not that.

So definitely it could and should be better.

But .. that doesn't make every proposal to change it a good one, or even a coherent one. Nor does it justify the attitude that we should just blow everything up and hope something better happens. Those bad arguments are what got us Trump, and at no point should reasonable people pander to such bad arguments, or confuse the fact that bad arguments are widely held with the notion that they aren't bad.

libezkova : February 13, 2017 at 03:07 PM , 2017 at 03:07 PM
Fed independence was always a convenient fiction. This is an independence limited to implementing neoliberal policies.

http://www.levyinstitute.org/pubs/wp_625.pdf

Which was done under "Maestro" Greenspan. This Ann Rand follower and staunch believer in unrestrained "free market" (which means the law of jungles) subverted the institution and pressured the Presidents who deviated from the "Party line" (and one time Bill Clinton tried). This is the extent he was a Maestro. Later, after 2008, Maestro turned into cornered rat, but this is quite another story.

Under Maestro Greenspan Fed as an institution became not so dissimilar to such post WWII financial institutions as IMF and World Bank (which became the key instruments for implementing "Washington consensus"). It became a very effective enforcer of the neoliberalization of the country.

http://www.mit.edu/~thistle/v13/2/imf.html

[Feb 12, 2017] Trump is now assigned to be as designated scapegoat for all blunders of three previous neoliberal administrations by three Deep State wholly-owned subsidiaries: Bloomberg, NYT and Wapo

Notable quotes:
"... Bloomberg, like WaPo and NYT, is "a wholly-owned subsidiary of the Deep State" ..."
"... Thank God they stopped their Putin-did-it nonsense. Now they have found something new along the lines Trump-did-it. Both those attempts to control the narrative are false and dishonest. ..."
"... I understand that Trump is now assigned to be as designated scapegoat for all blunders of three previous neoliberal administrations. ..."
Feb 12, 2017 | economistsview.typepad.com

im1dc : February 12, 2017 at 07:44 PM

The Tax stuff is maybe, this is happening now

https://www.bloomberg.com/news/articles/2017-02-12/america-s-biggest-creditors-dump-treasuries-in-warning-to-trump

"America's Biggest Creditors Dump Treasuries in Warning to Trump"

by Brian Chappatta...February 12, 2017...5:00 PM EST

> Japanese investors cull U.S. government debt by most since '13

> Currency-hedged returns were worst on record last quarter

"In the age of Trump, America's biggest foreign creditors are suddenly having second thoughts about financing the U.S. government.

In Japan, the largest holder of Treasuries, investors culled their stakes in December by the most in almost four years, the Ministry of Finance's most recent figures show. What's striking is the selling has persisted at a time when going abroad has rarely been so attractive. And it's not just the Japanese. Across the world, foreigners are pulling back from U.S. debt like never before.

From Tokyo to Beijing and London, the consensus is clear: few overseas investors want to step into the $13.9 trillion U.S. Treasury market right now. Whether it's the prospect of bigger deficits and more inflation under President Donald Trump or higher interest rates from the Federal Reserve, the world's safest debt market seems less of a sure thing -- particularly after the upswing in yields since November. And then there is Trump's penchant for saber rattling, which has made staying home that much easier.

"It may be more difficult than usual for Japanese to invest in Treasuries and the dollar this year because of political uncertainty," said Kenta Inoue, chief strategist for overseas bond investments at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. "Treasury yields may rise rapidly again in the near future, which will continue to discourage them from buying aggressively."

Nobody is saying that foreigners will abandon Treasuries altogether. After all, they still hold $5.94 trillion, or roughly 43 percent of the U.S. government debt market. (Though that's down from 56 percent in 2008.) A significant drawdown can harm major holders like Japan and China as much as it does the U.S.

And, of course, homegrown demand has of late been able to absorb the pickup in overseas selling..."

libezkova -> im1dc...
im1dc,

Here is the link https://www.bloomberg.com/amp/news/articles/2017-02-12/america-s-biggest-creditors-dump-treasuries-in-warning-to-trump )

Bloomberg, like WaPo and NYT, is "a wholly-owned subsidiary of the Deep State"

Thank God they stopped their Putin-did-it nonsense. Now they have found something new along the lines Trump-did-it. Both those attempts to control the narrative are false and dishonest.

I understand that Trump is now assigned to be as designated scapegoat for all blunders of three previous neoliberal administrations.

But can you please ask yourself two very simple questions:

  1. Who and how accumulated that much debt?
  2. Who did run the wars of neoliberal empire expansion to the tune of five trillion dollars?

Was it Trump?

I would greatly appreciated if you can answer them in the reply to this post. Or, even better, make some pause in posting neoliberal propaganda.

[Feb 12, 2017] Half of US finance is parasitic

Approximately nine percent of U.S. GDP is finance of that probably three to five percent is useful for allocating capital and the rest is preying on asymmetric information
Notable quotes:
"... asymmetric information, and the recent illuminating example of Wells Fargo's excellence in pushing products that customers did not want nor need. ..."
"... Approximately 9 percent of U.S. GDP is finance. Some economists argue that probably 3-5 percent is useful for allocating capital, storing value, smoothing consumptions, and creating competition, and the rest is preying on asymmetric information ..."
"... When vendor expects deflation he dumps inventory, but when he expects inflation he holds on to inventory as he waits for higher profit margins to arrive. He holds onto merchandise by simply raising prices. But why do economists advertise the reverse mechanism? Why does the status quo have a need for distorting truth? ..."
"... Inflation is offered to the proles as a substitute for tax relief to the impoverished. Do you see how it works? ..."
Feb 12, 2017 | economistsview.typepad.com

Choco Bell -> Ed Brown... February 12, 2017 at 07:50 AM , 2017 at 07:50 AM

asymmetric information, and the recent illuminating example of Wells Fargo's excellence in pushing products that customers did not want nor need.

BY: Some financial "innovation" is faddish. It does not create value.

GR: Approximately 9 percent of U.S. GDP is finance. Some economists argue that probably 3-5 percent is useful for allocating capital, storing value, smoothing consumptions, and creating competition, and the rest is preying on asymmetric information
"
~~Guy Roinik~

Do you see how this asymmetric information plays out?

It is the retail vendor who keeps better information than the retail customer. It is the vendor's expectations of disinflation vs inflation rather than the customer's expectations that control the change in M2V. Got it?

When vendor expects deflation he dumps inventory, but when he expects inflation he holds on to inventory as he waits for higher profit margins to arrive. He holds onto merchandise by simply raising prices. But why do economists advertise the reverse mechanism? Why does the status quo have a need for distorting truth?

Inflation is offered to the proles as a substitute for tax relief to the impoverished. Do you see how it works?

" Tax relief for the wealthy will give you delicious inflation. Now jump for it! " ~~The Yea Sayers~

Jump, Fools, Jump

[Feb 12, 2017] Austerity The History of a Dangerous Idea

See also Mark Blyth--"Liberalisms' great trick has been to naturalize very difficult political contests."
Feb 12, 2017 | www.amazon.com

Selected as a Financial Times Best Book of 2013

Governments today in both Europe and the United States have succeeded in casting government spending as reckless wastefulness that has made the economy worse. In contrast, they have advanced a policy of draconian budget cuts--austerity--to solve the financial crisis. We are told that we have all lived beyond our means and now need to tighten our belts. This view conveniently forgets where all that debt came from. Not from an orgy of government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the broken banking system. Through these actions private debt was rechristened as government debt while those responsible for generating it walked away scot free, placing the blame on the state, and the burden on the taxpayer.

That burden now takes the form of a global turn to austerity, the policy of reducing domestic wages and prices to restore competitiveness and balance the budget. The problem, according to political economist Mark Blyth, is that austerity is a very dangerous idea. First of all, it doesn't work. As the past four years and countless historical examples from the last 100 years show, while it makes sense for any one state to try and cut its way to growth, it simply cannot work when all states try it simultaneously: all we do is shrink the economy. In the worst case, austerity policies worsened the Great Depression and created the conditions for seizures of power by the forces responsible for the Second World War: the Nazis and the Japanese military establishment. As Blyth amply demonstrates, the arguments for austerity are tenuous and the evidence thin. Rather than expanding growth and opportunity, the repeated revival of this dead economic idea has almost always led to low growth along with increases in wealth and income inequality. Austerity demolishes the conventional wisdom, marshaling an army of facts to demand that we austerity for what it is, and what it costs us.

Metallurgist TOP 1000 REVIEWER on April 20, 2013 Format: Hardcover Vine Customer Review of Free Product ( What's this? )

An interesting Keynesian view of the current EU austerity programs

" I found this to be a very interesting and thought provoking book. The author makes his viewpoint very clear with the book's subtitle "The History of a Dangerous Idea". The essence of the author's argument is that austerity is unfair because it makes workers pay for the mistakes of banks, and even more importantly, dangerous because it does not lead to prosperity, but only to decreased economic growth and increased unemployment. This thesis is backed up by an analysis of the banking crisis of 2008, how it spread from the US to the EU, why the single currency Euro has made the problem worse for the EU and why using austerity to solve the problems will not work. It also discusses the history of the idea of austerity, both in terms of the economic theory that promotes it and the economic history that does not. Conservatives, who find Keynesian economics to be not only wrong, but also the road to economic ruin, will likely be turned off by the book's subtitle and many of the arguments that Professor Blyth utilizes. However, there is a lot of data in this book that they should look at, if only to criticize it. I found this book very enlightening and while I do not agree with all of Professor Blyth's ideas (particularly those of the last chapter), I learned a lot, so for me it was 5-stars.

What is in the book?
The book is divided into 7 chapters, which cover the following:

Chapter 1 - A Primer on Austerity. This is a short chapter that summarizes the main thesis of the book (mentioned above), and sets the stage for the more detailed discussions in subsequent chapters.

Chapter 2 - America: To Big to Fail? This is an excellent chapter that summarizes the origins and unfolding of the 2008-banking crisis in the US. This is a very complicated story, which Professor Blyth tells in a clear manner. The story revolves around repurchase agreements (Repos), mortgage backed securities (MBS), collateralized debt obligations (CDO), credit default swaps (CDS), and how all these interacted in a climate of deregulation to produce the crisis. Professor Blyth does a good job of explaining these terms and how the interaction worked.

Chapter 3 - Europe: Too Big to Bail? This is another very illuminating chapter. It shows how Europe, which first believed it was not going to be affected by the US banking crisis, became a major casualty of it and their own internal banking problems. All these factors were compounded by the single currency Euro, which has removed devaluation as a solution to the crisis, instead fostering the idea that governmental austerity was the only way to correct a problem produced by the private banking sector.

Chapter 4 - Intellectual History of a Dangerous Idea 1692-1942. This chapter goes back to the writings of John Locke, David Hume and Adam Smith to see how the idea of austerity developed. It also covers the idea in the early 20th century and the development of anti-austerity Keynesian economic theory. It is a nice primer on classical economic ideas.

Chapter 5 - Intellectual History of a Dangerous Idea 1942-2012. This chapter carries the story of the idea of austerity into the present time. It shows how the idea of austerity, discredited by the Great Depression and the success of the Keynesian solution (although conservatives would argue these successes were illusory and set the stage for future economic problems), has been resurrected by economists writing in the latter part of the 20th century and early 21st.

Chapter 6. Austerity's Natural History 1914-2012. Blyth presents a lot of data that shows that, contrary to the theories presented in the previous chapter, austerity has not worked in practice. Much of the chapter is spent it refuting the writings of several economists that say that the recent historical data does support the idea. Blyth contends that in general it does not and if is does in a few cases it either does not when all the data is considered, or worked only marginally under a very limited set of conditions.

Chapter 7 - The End of Banking, New Tales and a Taxing Time Ahead. This is a very short eleven-page chapter, but perhaps the most controversial on in the book. Blyth, initially a supporter of bank bailouts as absolutely necessary to prevent a complete collapse of the banking system and with it the whole capitalist economic system and with it democratic society as a whole, now questions whether in might not have been better to let the banks fail. He cites the case of Iceland where the banks were allowed to fail and society has recovered. This was done by making the bank's creditors bear the cost of failure, instead of all of Iceland's citizens. He notes that most of this loss was borne by foreign creditors of a very small country, whose banking system was an immense part of the country's economy, but was small compared to the economies of the US or the EU. Unfortunately, he fails to say how a banking collapse in the US or EU could be handled when the systems are huge compared to Iceland's and where the creditors are largely internal. He does not explain how the failure of these huge banking systems, with their internal creditors, would not result in the scenario he originally envisioned. I found this analysis to be poor and not in keeping with the thoroughness of the rest of the book. Blyth also floats the idea of huge tax increases, either through a one-time tax on assets or a very large increase in higher bracket tax rates. Conservatives, and many not quite so conservative, will likely blanch at these ideas. There is no discussion of the political difficulties of doing this or very much development of the idea, which is contained in only the last four pages of the book.

David Lindsay on September 25, 2016 Format: Paperback Verified Purchase
Brilliant Overview

" Mark Blyth is a professor at Brown University and he explains why austerity doesn't work. He points out that whenever austerity has been tried in the past it has usually proven to be disastrous. What its supporters often seem to forget is that one person's spending is another's income and demand in the economy would collapse if everyone stopped spending. The book is a sobering read because Blyth is not optimistic about the future. However, the book is well written and is often funny.

Blyth shows that the case for austerity does not add up. The US did not pursue austerity during the recession and its economy has been growing. US GDP is 10% higher than it was in 2007. The EU has pursued austerity with vigor, but GDP in the euro zone is still lower than it was in 2007. Blyth shows that countries that cut the most have had lower rates of growth. Blyth claims that all the countries that cut public spending in response to the financial crises had significantly more debt in 2012 than when they started. For example, Ireland's debt to GDP ratio more than quadrupled, from 24.8% in 2007 to 106.4% in 2012. The other problem is that austerity increased unemployment. Throughout southern Europe, unemployment has been at levels not seen since the Great Depression. It is still over 20% in Spain and Greece. As a result of cutting public expenditure Greece's GDP dropped by 30% in four years. There is no evidence that austerity improves growth.

Blyth spends a lot of time trashing the pro-austerity thinking that took place in Europe. Germany is driving economic policy for the euro zone and they have never believed in Keynesian economics. Keynes advised that austerity was a bad idea during a recession. German politicians seem to believe that all nations could have trade surpluses if only they tried hard enough, despite the fact that it is impossible for all countries to have a surplus. Only one European country can be Germany. The Germans have often advocated the sort of solutions that failed in the 1930s. They argue that budget deficits and government debt have to be kept under strict control. The Maastricht Treaty, which established the EU, required that national debt should not exceed 60% of GDP and the deficit should not exceed 3.0%. Entry to the euro also requires a budget deficit of 3.0%.

Blyth points out that when you have a deficit, you can either raise taxes or cut spending to fill the gap. The British government of David Cameron favored the latter in 2010. The British deficit had reached 10% in 2010. However, UK government debt went up, not down, despite the cuts, from 52.3% of GDP in 2009 to 90.7% in 2013. The same pattern was repeated throughout the euro zone. Cutting public expenditure shrank the underlying economy.

The German argument is that running large deficits increases the risk of high inflation. Blyth points out that the Germans have selective amnesia about their past. It was the Wall Street Crash in 1929 not hyper-inflation in 1924 that led to Hitler. Before the crash, 1.25 million people were unemployed in Germany. Hitler was an accidental Keynesian and by 1937 German unemployment had fallen from six million to one million. Unfortunately, much of his spending involved preparing for war. Blyth argues that Germany's continuing insistence on austerity is the biggest threat to the euro zone.

According to Blyth, the current version of the austerity argument was created by a group of Italian economists, originating from Bocconi University, in Milan. He explains why their arguments are deeply flawed. Blyth argues that, apart from Greece, public sector debt in the euro zone countries was not out of control before the financial crises. Blyth rubbishes the theory of "expansionary austerity," that cutting spending will lead to higher economic growth. The "austerians" believed that large spending cuts would be followed by expansion rather than contraction. The reason, they suggested, was that decisive fiscal austerity created confidence in the private sector. Keynesians agreed that insufficient private spending was the cause of the problem, but only governments could stimulate demand on the scale needed. Austerity failed to stimulate demand in Europe. Blyth also argues that everybody cannot cut their way to growth at the same time. The IMF once went along with austerity but it has recently concluded that austerity has had major adverse economic effects.

Blyth is worried that inequality could become a serious problem in the US. The 400 richest Americans own more assets than the poorest 150 million. He argues that both major parties have written off the bottom 30% of society. He claims that the American working class has not had a pay rise since 1979, and globalization has failed them. He believes this explains the anger behind the Trump phenomenon. Blyth points out that rich Americans and the country's biggest companies are reluctant to pay tax, so government borrowing has had to go up. Blyth claims that he pays more tax than GE.

Blyth is critical of Republicans who advocated austerity. Republicans in the US also favored balancing the budget and cutting taxes. Keynesians, like Paul Krugman, argued that this is what Herbert Hoover tried to do in the early 1930s and the result was a 25% unemployment rate. Obama inherited an 11.4% budget deficit in 2009. The Republicans wanted to cut government expenditure but Blyth argues the reason the US has recovered faster than Europe is because it cut less. He makes it clear that it is poorer people who usually rely on government services to make ends meet that are the hardest hit when public expenditure is cut. He believes that the rich and corporate America need to start paying more tax. He also argues that the US government should probably have let its banks go bankrupt – as the Icelandic government did – rather than bail them out.

Blyth reminds us that 2008 was a private sector crisis. The debts of the banks landed on the balance sheet of the public sector through bank bailouts and quantitative easing. In other words, taxpayers bailed out the bankers. He calls this the "greatest bait-and-switch in modern history." The EU is imposing austerity on southern Europe and dismantling the welfare state in Greece in order to protect German banks that made stupid decisions.

Blyth in recent interviews has argued that the EU may have a sinister agenda and it really wants to drag wages in Western Europe down to East European levels so that it can better compete with China. I assumed this must be an exaggeration but it might not be. The Guardian mapped labor costs across the euro zone from 1999 to 2013. What they found is that German workers have barely seen wages rise for that 14-year stretch, despite Germany having massive trade surpluses. We could be in for real trouble.

Fang on September 27, 2016 Format: Paperback Verified Purchase
The Richness of Austerity

" Mark Blyth tries to convey a simple message: austerity simply does not work. Defining austerity as "voluntary deflation in which the economy adjusts through the reduction of wages, prices and public spending to restore competitiveness .best achieved by cutting the state's budget, debts and deficits" (p.2), Blyth argued that austerity's fallacies lies in the impossibility of having everybody to be thrift at the same time and the cyclical nature of debt (pp.7 and 12).

Blyth also suggests that austerity efforts unevenly hurt the lower strata of societies (p.8), and conflates debt and financialization problems in private sector (primarily referring to bank and financial institutions) into state (sovereign) issues (p.6 and p.23). In the first three chapters, Blyth strives to demonstrate that the financial and economic turmoil since 2008 is largely a crisis of financialization, lack of regulation, slow growth and imbalance between monetary policy and final creditor of printing press (in the case of Europe), not that of austerity (save the marginal case of Greece). Blyth argues that it is a mentality of treating these crises as endogenous and private actors as "rational" that underlay the bad policy choices in America and Europe (pp.91-93).

In chapters 4 through 6, Blyth provides an intellectual and practical history of austerity. It is suggested that a spirit of thrift and aversion towards state and state spending runs through the vein of economic liberalism, ranging from classical liberalism to neoclassical economics and to the Austrian school. In more contemporary era, it is public choice theory, neoliberalism and Milton Friedman's monetarism that carries this tradition forward to construct a pro-market and private-sector-favoring package that turns public spending into a corporate calculation of costs and benefits. Blyth goes on to illustrate the history of austerity in practice, arguing that it is usually the Keynesian expansionary policies that couple austerity that reinvigorated economy amid crises; austerity, carried out on its own, constitutes massive redistribution consequences.

Blyth obviously attempts to engage as wide an audience as possible in the public intellectual realm. As much as he is successful in his empirical chapters, Blyth appears to fight a deflationary economic policy with his own inflationary writing strategy. From chapters 4 to 5, he constantly conflates the moral teaching of thrift and financial prudence from Adam Smith to avoidance of debt, the Ordoliberalism's quest for order and proper state function to aversion of democratic politics, the methodological insights of public choice to a general fear of bureaucracy and government, and so on. These inflations, while sometimes credited, are bound to subject to scrutiny and questions.

Moreover, by glossing over the details of this rich intellectual history, Blyth dodges some key questions that his empirical chapters also fail to articulate: what is the distinction between private and public debt, and personal thrift and public austerity, when we talk about austerity, and how significant is it? How does this distinction play out in more classical economic philosophy?

And amid crisis, who should be considered the "ultimate creditor" or "final guarantor" of debt (and money)? There questions certainly exceeds the scope and intention of Blyth's book, but they should be instrumental in deepening our understanding of austerity.

[Feb 12, 2017] It would be an understatement to say that Dems adopted the neoliberal ideology of their opposition

Notable quotes:
"... We're hoping for judges' consciences, and loyalty to country over party, and common sense, to save us. ..."
"... "administration that is unconstrained by conscience and logic", we have had that continuously since 1980. ..."
"... You get worked up over a travel ban but not Obama's US bombing wedding parties. Or taking out 14 non combatants and losing n MV 22 to get a few smart phones. ..."
"... Do you have stock in both refugee referral companies and Lockheed? ..."
"... poor pk has grabbed the alt right's the concession over cognitive bias, false analogy and cherry picked faux facts. ..."
"... Does anyone take this guy seriously anymore? This is Chicken Little, Sky-Is-Falling nonsense from a PhD Nobelist? Certainly the guy has lost his marbles, and someone needs to put him in a padded room. At least be kind, and retire him. ..."
"... Electoral college exists until "they" gut/get rid of states rule on amendments in the US constitution. ..."
"... Why republicans should be focused on voter suppression, if Democrats are working relentlessly to move blue collar workers and lower middle class voters to far right ? ..."
"... 'dollar democracy' is deeper than that. ..."
"... Wrong. Progressive neoliberals helped give us Trump. Nobody forced Hillary to give speeches to Goldman Sachs or to give Bush a blank check for war. ..."
"... Blaming the few who didn't vote Hillary. What about the many who stayed home? You're an example of learned helplessness. Like the wife who won't leave her abusive husband. ..."
"... If Trump got 37% of votes of people with postgraduate degree that's tell you something about Democratic Party. That only can means that Democratic Party smells so badly that most people can not stand it, not matter what is the alternative. As in "you should burn in hell". ..."
"... It's kind of reversal of voting for "lesser evil" on which Bill Clinton counted when he betrayed the working class and lower middle class. Worked OK for a while but then it stopped working as he essentially pushed people into embraces of far right. ..."
"... I doubt that Trump is a political cycle outlier. He is a sign of the crisis of neoliberal political system, which pushes authoritarian figures as "Hail Mary Pass", when Hillarius politicans are proved to be un-electable. ..."
"... And despite his "bastard liberalism" he is the symbol of rejection of liberalism, especially outsourcing/offshoring and neoliberal globalization. Or more correctly his voters are. ..."
"... "America as we know it will soon be gone." Don't you think that much of it is already gone? We did not see ourselves as a nation of cowards years ago, but that's what we now appear to be. ..."
"... "We did not see ourselves as a nation of cowards years ago, but that's what we now appear to be." USAnians have been cowards for generations. The transition from corporatist dyarchy to one-party authoritarianism is and was inevitable. ..."
"... It seems we live in a system where two parties fight to a draw and then volatility in the system acts as a coin toss and we get new leadership. The people line up approximately half and half for the two. ..."
"... Where do you see a draw? The republicans control the house, the senate, the executive branch, the majority of state legislatures, the majority of state governorships, and will soon control the supreme court. ..."
"... The Republicans have embraced the idea that this is a battle, and that their 50% need to win and keep their heels on the neck of the other 50%. The Democrats seem more conflicted about this fight, partly because some of them have bought the neoliberal ideology of their opposition. ..."
"... "some of them have bought the neoliberal ideology of their opposition." i like the understatement. ..."
Feb 12, 2017 | economistsview.typepad.com
yuan -> DeDude... , February 10, 2017 at 09:49 AM
"The real question is how much support he has a year from now when most of his voters realize that the majority of what he directly or implicitly promised them, turns out to be a lie."


I'm sure that people in Kansas were telling themselves this 7 years ago.

DeDude -> yuan... , February 10, 2017 at 12:52 PM
Yep - and they were right. The democrats lost the next midterm election. The midterm blowback is that of both an energized opposition and of a lot of disappointed followers.
ilsm -> DeDude... , February 10, 2017 at 04:04 PM
If the libruls think Obama's multinational collateral damage from senseless bombing by drone and expensive aircraft is not worth protesting, then rallies and faux moral indignation against a travel ban are incongruous to reason.
sanjait -> Estate Agent - Emily ... , February 10, 2017 at 10:31 AM
"It's not quite that bad."

We can only hope.

But we have an administration that is unconstrained by conscience and logic and a GOP majority in both houses of Congress that shows scant willingness to stand against the administration on anything.

The only remaining check between now and 2018 is the fear Congresspersons might have of losing their seats, and the judiciary.

The former is very weak though, because rapid Trump supporters make up the majority of the GOP voting base, so GOP congressmen are going to stay in line to avoid primary challenges. Their party is almost completely captured by the wingnut wing.

Also, few at-risk GOP Senators are even up for re-election in 2018.

The latter is our only real hope, and even that is tenuous. Judges can be fickle and peculiar, but most GOP judges were selected for their partisan loyalty. Most will go along with almost anything the GOP wants, and as time passes, Trump is going to add more judges, and he will be damn sure to pick ones that go along with anything he wants.

We're hoping for judges' consciences, and loyalty to country over party, and common sense, to save us. But when the GOP picks judges they select against those traits.

ilsm -> sanjait... , February 10, 2017 at 04:08 PM
"administration that is unconstrained by conscience and logic", we have had that continuously since 1980.

You get worked up over a travel ban but not Obama's US bombing wedding parties. Or taking out 14 non combatants and losing n MV 22 to get a few smart phones.

Do you have stock in both refugee referral companies and Lockheed?

ilsm : , February 10, 2017 at 04:09 AM
poor pk has grabbed the alt right's the concession over cognitive bias, false analogy and cherry picked faux facts.
Benedict@large -> ilsm... , February 10, 2017 at 05:04 AM
Does anyone take this guy seriously anymore? This is Chicken Little, Sky-Is-Falling nonsense from a PhD Nobelist? Certainly the guy has lost his marbles, and someone needs to put him in a padded room. At least be kind, and retire him.
RC AKA Darryl, Ron -> Benedict@large... , February 10, 2017 at 05:30 AM
You certainly cannot expect Krugman to criticize the constitutional political system of dollar democracy that gave us a choice between Trump and Hillary through first past the post elections and party caucuses any more than you can expect him to criticize lifetime congressional seats and a SCOTUS unanswerable to the people.

I believe even Krugman will criticize gerrymandering, which is a safe target since it is implemented at the state rather than federal level.

pgl -> RC AKA Darryl, Ron... , February 10, 2017 at 05:59 AM
DeLong is - at least when it comes to the Electoral College. This system is sort of telling the folks in California that they really do not matter.
ilsm -> pgl... , February 10, 2017 at 06:10 AM
Electoral college exists until "they" gut/get rid of states rule on amendments in the US constitution.

Democracy is one thing within toen lesser in states........ the rest is republic the 'burgs' not wanting to be run from Morningside Hts.

RC AKA Darryl, Ron said in reply to pgl... , February 10, 2017 at 06:12 AM
The electoral college although problematic is not the best place to start. Campaign finance, gerrymandering, legislative term limits, and an alternative to first past the post voting are all state to state neutral, allowing a large and powerful electoral consensus to form without undue obstacles except for elite authority itself.

These are all assessable solidarity issues. The fear of reversal for Roe V. Wade makes petition and referendum to overturn SCOTUS decisions more difficult first time around, but not impossible since Citizens United. Liberals on the fence only need consider the polling numbers comparing those two SCOTUS decisions to see that petition and referendum to overturn SCOTUS would not threaten Roe V. Wade, but rather end the threat to Roe V. Wade. OTOH, the electoral college is a state by state issue and small states are not going to give it up. New York and California will need to subdivide into a bunch of small states to ever change that.

The constitutional ratification procedure can be hijacked by a solidarity electoral movement only so long as the solidarity is large and cohesive.

yuan -> RC AKA Darryl, Ron... , February 10, 2017 at 08:39 AM
And, IMO, you are not seeing the forest for the trees. The republican party is laser focused on voter suppression. And they will not waste a crisis or supreme court judge slot.

http://www.chicagotribune.com/news/nationworld/politics/ct-north-carolina-voter-id-law-20160902-story.html

"A review of these documents shows that North Carolina GOP leaders launched a meticulous and coordinated effort to deter black voters, who overwhelmingly vote for Democrats."

When the Supreme court becomes un-deadlocked Jim Crow will destroy opposition to Trumpism.

RC AKA Darryl, Ron -> yuan... , February 10, 2017 at 09:27 AM
You are certainly correct in their intent and if the South less Virginia, which was purple enough to go for Hillary in 2016, were the entire country then you would be correct in the impending reality.

The reality is uncertain though because many of the Trump voters were racists and misogynists, but then many of the Trump voters were just reacting to an opportunity to strike back at the corporatist hegemony in control of the political establishment. The corporatist controlled dollar democracy has dominated the conversation about the advantages of trade regardless of trade deficits for over thirty years now. A rebellion is long overdue. The US Constitution provides sufficient political tools to the electorate to stage a revolution using electoral means, but not by just choosing between establishment political parties without providing an electoral agenda of its own along with solidarity in imposing bipartisan anti-incumbency sanctions for failure to perform.

yuan -> RC AKA Darryl, Ron... , February 10, 2017 at 09:42 AM
"The US Constitution provides sufficient political tools to the electorate to stage a revolution using electoral means"

And I see a mostly corrupt legal system that has already proven willing to overturn the will of the people.

sanjait -> RC AKA Darryl, Ron... , February 10, 2017 at 10:39 AM
Great. While Trump tries to tear down democracy, the supposed representatives of "the people" will keep talking about shit like how much they hate NAFTA.
ilsm -> sanjait... , February 10, 2017 at 04:16 PM
I won't type much here:

https://www.youtube.com/watch?v=Sk3sURDS4IA

The opening rif is cool.

Monster, Steppenwolf

I need to play this once a week!

libezkova said in reply to yuan... , February 10, 2017 at 07:57 PM
"And, IMO, you are not seeing the forest for the trees. The republican party is laser focused on voter suppression."

With all due respect, I do not believe that.

Why republicans should be focused on voter suppression, if Democrats are working relentlessly to move blue collar workers and lower middle class voters to far right ?

ilsm -> RC AKA Darryl, Ron... , February 10, 2017 at 04:13 PM
'dollar democracy' is deeper than that.

it is 99% the system

but you got to do the right system

or the left one

trouble is like tamany

cannot see the system to fix

ken melvin : , February 10, 2017 at 05:22 AM
Paul Krugman didn't give us Trump, the progressives who can't stand dems, demonized Hillary, either didn't vote or voted for Trump gave us Trump. Idee fixe and big picture are not the same.
Peter K. -> ken melvin... , February 10, 2017 at 05:38 AM
Wrong. Progressive neoliberals helped give us Trump. Nobody forced Hillary to give speeches to Goldman Sachs or to give Bush a blank check for war.

"We're re-learning today what we should have learned in the 30s ... economic stagnation breeds reaction and intolerance"

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2017/02/lets-not-debate-immigration.html

Blaming the few who didn't vote Hillary. What about the many who stayed home? You're an example of learned helplessness. Like the wife who won't leave her abusive husband.

yuan -> Peter K.... , February 10, 2017 at 08:56 AM
"Wrong. Progressive neoliberals helped give us Trump. Nobody forced Hillary to give speeches to Goldman Sachs or to give Bush a blank check for war."

How many Goldman Sachs banksters does Trump have in his administration? I lost count.

The best predictor of a Trump vote was a tendency towards sexism and racism. And Trump voters were generally well-off middle class whites, not the underclass who either stayed home or predominantly voted for Clinton.

Peter K. -> yuan... , February 10, 2017 at 09:09 AM
"The best predictor of a Trump vote was a tendency towards sexism and racism. And Trump voters were generally well-off middle class whites, not the underclass who either stayed home or predominantly voted for Clinton."

Trump won the uneducated vote. Many of those people ain't middle class.

"How many Goldman Sachs banksters does Trump have in his administration? I lost count."

Yeah they own both parties. Democrats need to be for the people, not corporations. You are pretty naive for being leftwing. Probably you just get off on being argumentative.

yuan -> Peter K.... , February 10, 2017 at 09:38 AM
"Trump won the uneducated vote. Many of those people ain't middle class." I see you are pimping Trump's faux-populist mythology again. Clinton won the majority of votes of those earning less the $50,000 and Trump won the majority of votes for those who earn more than $50,000.

http://www.cnn.com/election/results/exit-polls

Peter K. -> yuan... , February 10, 2017 at 11:55 AM

high school or less [18 percent of total]

Clinton 46 %
Trump 51 %

some college [32% of total]

Clinton 43%
Trump 51%

college graduate [32%]
Clinton 49%
Trump 44%

postgraduate [18%]
Clinton 58%
Trump 37%

yuan -> Peter K.... , February 10, 2017 at 05:49 PM
has it ever occurred to you that older white voters can be middle/upper class without having a college degree?

it's ironic that many of these same people oppose unions, social insurance (e.g. pensions), and free education (GI bill) despite having benefited from these socialist programs.
FYIGM

libezkova said in reply to Peter K.... , February 10, 2017 at 08:05 PM
If Trump got 37% of votes of people with postgraduate degree that's tell you something about Democratic Party. That only can means that Democratic Party smells so badly that most people can not stand it, not matter what is the alternative. As in "you should burn in hell".

It's kind of reversal of voting for "lesser evil" on which Bill Clinton counted when he betrayed the working class and lower middle class. Worked OK for a while but then it stopped working as he essentially pushed people into embraces of far right.

RC AKA Darryl, Ron said in reply to pgl... , February 10, 2017 at 06:16 AM
My wife says Liz Warren will run in 2020 and win. I am hoping that it will be someone off radar now that gets elected as the youngest POTUS in history. We need a sea change with full millennial backing.
Jay -> RC AKA Darryl, Ron... , February 10, 2017 at 06:32 AM
You're wife's prediction for next president will keep DeVos.

"A taxpayer-funded voucher that paid the entire cost of educating a child (not just a partial subsidy) would open a range of opportunities to all children. . . . Fully funded vouchers would relieve parents from the terrible choice of leaving their kids in lousy schools or bankrupting themselves to escape those schools.

the public-versus-private competition misses the central point. The problem is not vouchers; the problem is parental choice. Under current voucher schemes, children who do not use the vouchers are still assigned to public schools based on their zip codes. This means that in the overwhelming majority of cases, a bureaucrat picks the child's school, not a parent. The only way for parents to exercise any choice is to buy a different home-which is exactly how the bidding wars started.

Under a public school voucher program, parents, not bureaucrats, would have the power to pick schools for their children-and to choose which schools would get their children's vouchers."

Remember which side of the debate is pro-choice and which side of the debate is pro teacher's union.

RC AKA Darryl, Ron said in reply to Jay... , February 10, 2017 at 09:38 AM
I am not for either side. My wife's mother was a teacher as was her older sister. I am not sure what she thinks of the teacher's union.

The pedagogical system is so oriented to a system of establishment indoctrination that the average private school is just as bad as the average public school and even the worst public schools are no worse than the worst private schools. Only the best private schools stand out along with a few of the charter schools as better than their public school counterparts and even then not by a great margin. The problem is the pedagogical approach itself. It is also a matter of who taught the teachers? We have developed a system that aspires to mold us all into obedient followers and it works very well. It is also self-replicating.

ilsm -> RC AKA Darryl, Ron... , February 10, 2017 at 04:26 PM
Putting up "competition" against public education which as evolved since the Northwest Ordinance is a crusade for the tea party.

But they would trip WW III, war to keep Russia from breaking up the Frankensteins of East Europe!

The system is: who makes money.

yuan -> Jay... , February 10, 2017 at 10:02 AM
"Remember which side of the debate is pro-choice and which side of the debate is pro teacher's union."

Who needs labor and civil rights when we have capitalist billionaires who will give us "school choice vouchers", "right to work laws", and "deregulation"!

sanjait -> RC AKA Darryl, Ron... , February 10, 2017 at 10:47 AM
Complaining about the electoral college being screwed up is like complaining that human nature is screwed up.

It's true, but almost pointless, because it won't change in the foreseeable future.

libezkova said in reply to RC AKA Darryl, Ron... , February 10, 2017 at 08:11 PM
I doubt that Trump is a political cycle outlier. He is a sign of the crisis of neoliberal political system, which pushes authoritarian figures as "Hail Mary Pass", when Hillarius politicans are proved to be un-electable.

And despite his "bastard liberalism" he is the symbol of rejection of liberalism, especially outsourcing/offshoring and neoliberal globalization. Or more correctly his voters are.

Peter K. -> The People's Pawn... , February 10, 2017 at 06:19 AM
Trump said the Iraq war was a disaster. He bragged about being against the war before it started. He used the Iraq war against Jeb Bush and Hillary as an example of the corrupt elite's incompetence.

This infuriates thoughtless partisans like Krugman to no end.

The appellate court ruled against Trump's Muslim band even more strongly than the lower court judge.

sanjait -> Peter K.... , February 10, 2017 at 10:55 AM
"Trump said the Iraq war was a disaster. He bragged about being against the war before it started."

That is a very sneaky way of talking around the fact that Trump never said anywhere on record before the war that he was against it.

wally : , February 10, 2017 at 06:20 AM
"America as we know it will soon be gone." Don't you think that much of it is already gone? We did not see ourselves as a nation of cowards years ago, but that's what we now appear to be.
yuan -> wally... , February 10, 2017 at 09:13 AM
"We did not see ourselves as a nation of cowards years ago, but that's what we now appear to be." USAnians have been cowards for generations. The transition from corporatist dyarchy to one-party authoritarianism is and was inevitable.
ilsm -> wally... , February 10, 2017 at 04:36 PM
poor pk's [whatever it is] America is not my [or a lot of peoples'] America. America like freedom is a perspective thing!
point : , February 10, 2017 at 06:41 AM
It seems we live in a system where two parties fight to a draw and then volatility in the system acts as a coin toss and we get new leadership. The people line up approximately half and half for the two.

I'm having a hard time understanding why if half support the new leadership established by the operations of the system, that we should worry this a threat to the system itself.

For if that's what we think, it seems we have far bigger problems than simple disagreement to worry about. It seems those among us who think that way should be planning as revolutionaries to change this doomed system that except for luck has not yet careened over the edge into whatever.

yuan -> point... , February 10, 2017 at 09:33 AM
Where do you see a draw? The republicans control the house, the senate, the executive branch, the majority of state legislatures, the majority of state governorships, and will soon control the supreme court.
Julio -> point... , February 10, 2017 at 10:41 AM
The Republicans have embraced the idea that this is a battle, and that their 50% need to win and keep their heels on the neck of the other 50%. The Democrats seem more conflicted about this fight, partly because some of them have bought the neoliberal ideology of their opposition.
yuan -> Julio ... , February 10, 2017 at 12:23 P
"some of them have bought the neoliberal ideology of their opposition." i like the understatement.

[Feb 12, 2017] T he british welfare state, the war on poverty/great society policy era, and the scandinavian social model are not replacements for capitalism. They are forms of capitalism

Feb 12, 2017 | economistsview.typepad.com
yuan -> Jim Harrison ... , February 10, 2017 at 12:34 PM
"Does anybody around here have anything useful to suggest"
both demonstration and general strikes are powerful ways to express popular outrage. one is planned on for the 17th (too soon) and another more organized one is being planned for march.

http://f17strike.com/

"but you have no more of an idea of a global replacement for capitalism"


so the british welfare state, the war on poverty/great society policy era, and the scandinavian social model are unpossible pipe dreams because...

Jim Harrison -> yuan... , February 10, 2017 at 01:46 PM
"the british welfare state, the war on poverty/great society policy era, and the scandinavian social model are" not replacements for capitalism. They are forms of capitalism. And the sorts of policies that go with these versions of conventional social democracy are...pretty much the platform articles that Clinton ran on. Which is the serious reason the American right despised Hillary. They, at least, didn't have any trouble telling the candidates apart.

There are two problems with storming the Winter Palace. First, you won't have a decisive majority of Americans behind you. Second, you have no idea what you'd do if somehow did seize the Winter Palace. You could conceivably solve the first problem by going balls out demagogue a la Hugo Chavez; but, like Chavez, you'd have to dispense with democracy to keep power because you have no solution to the second problem. For my money, a decent social democracy-universal healthy care, more progressive taxes, a higher minimum wage, more affordable college education, etc.- is plenty hard enough to secure.

yuan -> Jim Harrison ... , February 10, 2017 at 04:50 PM
"They are forms of capitalism."

Before the long-decline began in the 70s, a large fraction of the UK's economic activity was chartered, regulated, and/or managed for the people. That's not capitalism, by definition. (Socialism was a market/trade-based system at its inception. The tendencies with alternative economic models came later.)

Some history:
https://en.wikipedia.org/wiki/Clause_IV

And Corbyn has returned labor to its socialist roots: http://www.independent.co.uk/news/uk/politics/jeremy-corbyn-to-bring-back-clause-four-contender-pledges-to-bury-new-labour-with-commitment-to-10446982.html


"And the sorts of policies that go with these versions of conventional social democracy are...pretty much the platform articles that Clinton ran on."


I guess I missed Clinton advocating for the nationalization of health care, education, energy production, and transportation.

And the "welfare state" has little to do with "social democracy" (whatever that recent nonsense phrase means), all of them were developed by socialist movements.

[Feb 12, 2017] Classicals vs Neoclassicals views on Tax and Rent

Feb 12, 2017 | economistsview.typepad.com
RGC : Reply Sunday, February 12, 2017 at 08:08 AM , February 12, 2017 at 08:08 AM
Classicals or Neoclassicals - who you got?

...................
Classicals vs Neoclassicals: Tax and Rent

Posted on 8 January 2011

At the university I attended, a few of the academics were strongly influenced by Classical Political Economy, especially that of Smith and Ricardo. Prior to my student days, one of them had published a paper in the Cambridge Journal of Economics entitled "On the origins of the term 'neoclassical'" (no free link available), which is quite well known in heterodox circles. In it, he argued that the 'classical' in the term 'neoclassical' is a misnomer and that neoclassical and classical economics actually have little in common, despite attempts by neoclassicals to claim Smith, in particular, as their forefather.

The classical-influenced economists at my university happened to belong to the Sraffian School. This school attempts to synthesize Classical value and distribution with Keynesian output and employment determination, and is also known for its key role and victory in the Cambridge Capital Controversy. The school is named after Piero Sraffa, whose interpretation of Classical Political Economy, particularly Ricardo's work, has been highly influential.

Sraffians are not the only modern-day economists influenced by Smith and Ricardo. Another prominent example is Michael Hudson. In a recent interview (h/t to Tom Hickey), Hudson discusses one big difference between the Classical economists and the neoclassicals: their analysis of taxation as applied to economic rent.

Hudson touches on a number of noteworthy points during the interview. He draws attention to a historical correspondence that would probably surprise many, between high top tax rates and strong economic growth, and observes that the top rates were high in the period prior to WWII. Importantly, the focus of taxation in Classical Political Economy, which Hudson argues influenced US government policy in the late 1800s and much of the first half of the 1900s, was on confiscating economic rents. These rents include income that derives from ownership of assets that appreciate in value merely because of the growth in national income and/or improved public infrastructure, and not due to any participation in the production process (they arise especially in the real estate and financial sectors).

It is not mentioned in the interview, but profit, of course, is also income that derives from the mere ownership of assets – the means of production. However, the classical economists were engaged in a class war with rentiers, not capitalists. It was Marx who drew this reasoning out to its logical conclusion, and this probably goes a long way to explaining why neoclassical theory, rather than being a continuation of classical economics (as was often claimed once it was established), was an escape into a different conceptualization of a capitalist economy that sought to reframe the distribution of income as the result of marginal contributions (an attempt that failed and was the chief target and theoretical casualty of the Cambridge Capital Controversy). Even so, there does remain a significant distinction between profit, which relates to assets employed in the production process, and economic rents. For this reason, Marx also distinguished between these two categories of income and spent a great deal of space in volume 3 of Capital analyzing the various forms of surplus value, including different types of rent.

Hudson goes on to stress that the taxation imposed in the late 1800s and first half of the 1900s was highly progressive. Initially only the top 1 percent of income earners were required to submit tax returns. The purpose of this was to keep taxes on wages and profit low to promote price competitiveness against lower wage countries. This can be contrasted with neo-liberal policies of today which seem to be designed almost with the opposite intent: to tax wage and profit income (and also consumption) but provide loopholes or tax breaks for the recipients of economic rents.

Above all, Hudson distinguishes between what the classical economists meant by the term "free market" and what that term has come to mean in the neo-liberal period. Hudson emphasizes that, for the classical economists, "free market" meant a market unencumbered by rent-based claims on income that would draw economic activity away from income production and toward speculation. The aim of the classical economists was to incentivize production. This is a very different notion than the neo-liberal one of labor-market "deregulation" (meaning regulation in favor of employers over employees), which is really just code for union smashing and an attack on real wages, or the neo-liberal deregulation of financial markets, which is a euphemism for enabling financial parasitism.

Hudson makes another observation in passing. The observation is not central to his argument in the interview, but is relevant to current debates over deficits and public debt, and consistent with MMT. He notes that immediately prior to the commencement of the only extended period of high capitalist growth (WWII until the late 1960s), the US population was not in debt, and in fact had pent up savings from the war that it was waiting to spend.

By little or no debt, Hudson clarifies that he means little or no private debt. There was, of course, a large public debt – larger as a percentage of GDP than the current US government "debt". This public debt did not matter, in spite of the familiar opposition to deficits and public debt, the echoes of which can be heard today, simply because the budget deficit shrinks endogenously once private-sector activity and income growth resume. This is precisely what happened in the immediate postwar period.

Today, with the US government the monopoly issuer of its own flexible exchange-rate fiat currency, public "debt" is – or rather should be – even less of an issue. Unlike in the immediate postwar period, the government is not subject to the constraints of Bretton Woods or a similar commodity-backed money system. It is free to utilize its fiscal capacity to the extent necessary to restore full employment.

Government "debt" is nothing other than the accumulated net financial wealth of the non-government. Once the non-government is ready to spend, income growth will deliver stronger revenues, reducing the deficit. But the private sector needs to have its debt under control before it will resume spending at levels sufficient to sustain strong economic growth.

In addition to the absence of significant private debt at the end of WWII, there were other factors that contributed to the strong growth of the immediate postwar period, including Keynesian demand-management policies, a progressive tax system, and significant financial regulation. All these beneficial features of the economy were gradually undermined, and then exposed to outright attack from the 1970s onwards.

Hudson discusses how, over time, much of the progressivity in the tax system was removed, paving the way for the construction of the inequitable and anti-productive monster of today. Keynesian demand-management policies were also largely eschewed throughout the neo-liberal era on the basis of an opportunistic misinterpretation of the stagflation of the 1970s. All this took place alongside deregulation of the financial sector and an aggressive dismantling of worker employment protections.

The result of this neo-liberal policy mix was an increasing financialization and "rentification" of the economy, widening income inequality, and an adherence to fiscal austerity that directly corresponded, as a matter of accounting, to an unsustainable build up in the only US debt that matters – private debt – and culminated in the Global Financial Crisis and Great Recession.

If the aim is to restore sustainable growth under capitalism (which is not my preferred social system, but presumably the one commanding the allegience of policymakers), the insights obtained from the classical economists in conjunction with the lessons of the postwar period would seem to suggest some combination of the following policy responses: tighter regulations of speculative activities; a more steeply progressive tax system targeted at the confiscation of economic rents and the incentivization of production and consumption; stronger worker protections; and the abandonment of the faulty construct of a 'government budget constraint' and a return to deficit expenditure sufficient to underpin non-government net saving and full employment.

But the actual policy response has instead been to manipulate financial markets to engineer a massive transfer of wealth to the rentiers and exacerbate income and wealth inequality; to continue with the approach of taxing wage and profit income along with consumption rather than economic rents; and possibly even to revert foolishly to austerity while the private sector remains deeply indebted.

http://heteconomist.com/classical-vs-neoclassical-economics-tax-and-rent/

RGC -> RGC... , February 12, 2017 at 08:55 AM
If you favor the neoclassicals, you also favor Paul Samuelson and the neo/new Keynesians- and today's mainstream economists.

[Feb 12, 2017] Neoliberal economists themselves were largely responsible for the unpleasant political consequences typified by Trump and Brexit due to their efforts to promote globalization as stooges of financial oligarchy, who pays them

Feb 12, 2017 | economistsview.typepad.com
Floxo : February 11, 2017 at 01:11 PM

, 2017 at 01:11 PM
I originally tried to post this comment on Mainly Macro. It is in reply to some critical comments I received when I posted a comment suggesting economists themselves were largely responsible for the unpleasant political consequences typified by Trump and Brexit. I argued there has been a failure to properly communicate the serious distributional implications of trade and globalization. This has led people to become disillusioned with stagnant living standards and growing inequality. For some reason, my reply was disallowed, making it appear as though I had no answer to my critics. As my reply addresses issues of concern here I am hoping it will be published .

Thankyou for your replies to my comment.

Stéphane, I did not say trade gain arises from price convergence; neither do trade gains arise from differences in opportunity costs (I think that is what you meant). Trade gain can arise from several sources, these include relative differences in productive efficiency (Ricardian comparative advantage), differences in relative factor abundance (HO theory), from tradeable goods where production exhibits increasing returns to scale and from monopolistic competition (Krugman).

When trade gain is exhausted it is possible to derive further gains from factor mobility. For example, shifting capital from a capital abundant region to a capital poor region will typically result in further gains. An example of this process is off-shoring, where a firm shifts production to another country where wages are lower and rent (the return on capital invested) is higher.

So why are potential gains from globalization a problem? The challenge is the sheer size of the population industrializing from a very low capital base. Economically big regions with abundant labour and scarce capital mean low wages and high rents extending into the long term. For a developed economy, adopting a policy of free trade without capital controls with these regions will have two significant consequences:

1. There is a trade induced shift to more capital intensive production driven by the factor advantage of having a relative abundance of capital. This lowers the domestic labour share of GDP.

2. Capital abundance implies a capital drain as domestic saving is increasingly used to finance foreign investment in productive capacity, driven by the higher foreign return. This correspondingly lowers domestic investment which also slows growth. Labour now has less capital applied to it, reducing labour productivity and also wages.

What are called "magnification effects" virtually guarantee wage earners are big losers in these scenarios, whereas, capital owners are big winners; hence the rise in inequality.

The theoretical support for this view is very robust. I became interested in the debate when such effects showed up strongly in the numerical trade models I develop. Economists, generally, have not supported this basic theoretical perspective, preferring a grab bag of miscellaneous empirically based models. Rapid technological change, too little technological change, skills biased technological change, union demise, banks unwilling to lend, demographics, austerity, labour hoarding, financialization, shift in consumer preference to services and on and on. Personally, I prefer basic economic theory and regard all of these thought bubbles as garbage.

In answer to Anonymous, it is true; many economists assert automation is the principle cause of our economic woes. This is theoretically baseless. I cannot describe a model of how technological improvement is supposed to give rise to the above effects, because no such model exists. Improved technology means we get more goods and services from the same resources of capital and labour, boosting growth and wages and rents.


anne -> Floxo... , February 11, 2017 at 01:23 PM
Where is the precise reference? Mainlymacro must however be separate as "mainly" and Macro" in posting the link.
Floxo -> anne... , February 11, 2017 at 05:09 PM
Thankyou Anne, here is the reference you requested.

https://mainlymacro.blogspot.com.au/2017/01/why-voting-for-article-50-may-ruin-mps.html


anne -> Floxo... , February 12, 2017 at 04:59 AM
https://mainlymacro.blogspot.com.au/2017/01/why-voting-for-article-50-may-ruin-mps.html

January 29, 2017

Why voting for Article 50 * may ruin an MP's career

The last time I did something like this was to urge Labour party members to vote for Smith rather than Corbyn, knowing full well that Corbyn was almost certain to win. Being proved right on that occasion is no consolation, because I would rather have been wrong. This is even more futile, but now as then I feel a decision is about to be made that is both disastrous and irreversible. I also want to say something about the longer term interests of MPs that I have not seen said elsewhere.

There are so many principled reasons for MPs to vote against triggering Article 50. Let me summarise what I see as the main ones here, but this is far from comprehensive....

* https://en.wikipedia.org/wiki/Article_50_of_the_Treaty_on_European_Union

Article 50 of the Treaty on European Union is a part of European Union law that sets out the process by which member states may withdraw from the European Union.

-- Simon Wren-Lewis

anne -> anne... , February 12, 2017 at 05:01 AM
Correcting:

Mainlymacro can now be linked to directly. There is no need to separate "mainly" and "macro" in posting a link.

anne -> Floxo... , -1
Interesting response to an interesting argument. I am grateful for this post.
libezkova -> anne... , February 12, 2017 at 10:34 AM
I do not share your enthusiasm.

A couple of points

1. Neoliberal economists are stooges of financial oligarchy (much like Soviet economists were stooges of Communist Party) and if they do not promote Washington consensus on trade and globalization they would be ostracized and replaced by other no less talented puppets. They all are replaceable and they understand that perfectly well and behave accordingly. Being puppets they have no degrees of freedom to express the discontent with neoliberalism.

2. The author himself is still in completely under the spell of neoclassical economic framework. that's why his critique is so superficial. As in "There is a trade induced shift to more capital intensive production driven by the factor advantage of having a relative abundance of capital. This lowers the domestic labour share of GDP. " What a "neoliberal speak." Reminds me 1984 Newspeak. That was a political decision to shift capital to developing countries in order to destroy union power and decimate "trade unionism" as political force opposing to neoliberalism. As simple as that.

[Feb 12, 2017] The neoliberal framework in antitrust is based on pecifically its pegging competition to "consumer welfare," defined as short-term price effects and as such s unequipped to capture the architecture of market power in the modern economy

Feb 12, 2017 | economistsview.typepad.com
anne : February 11, 2017 at 11:43 AM

, 2017 at 11:43 AM
http://www.yalelawjournal.org/article/amazons-antitrust-paradox

January, 2017

Amazon's Antitrust Paradox
By Lina M. Khan

Abstract

Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it. Elements of the firm's structure and conduct pose anticompetitive concerns-yet it has escaped antitrust scrutiny.

This Note argues that the current framework in antitrust-specifically its pegging competition to "consumer welfare," defined as short-term price effects-is unequipped to capture the architecture of market power in the modern economy. We cannot cognize the potential harms to competition posed by Amazon's dominance if we measure competition primarily through price and output. Specifically, current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive. These concerns are heightened in the context of online platforms for two reasons. First, the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational-even as existing doctrine treats it as irrational and therefore implausible. Second, because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control the essential infrastructure on which their rivals depend. This dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors.

This Note maps out facets of Amazon's dominance. Doing so enables us to make sense of its business strategy, illuminates anticompetitive aspects of Amazon's structure and conduct, and underscores deficiencies in current doctrine. The Note closes by considering two potential regimes for addressing Amazon's power: restoring traditional antitrust and competition policy principles or applying common carrier obligations and duties.

[Feb 12, 2017] Dean Baker on fakeness of neoliberal concept of labour market and NYT presstitutes which promote it

Feb 12, 2017 | economistsview.typepad.com
anne : February 11, 2017 at 06:45 AM , 2017 at 06:45 AM
http://cepr.net/blogs/beat-the-press/justin-wolfers-is-mistaken-restrictions-on-firing-don-t-have-to-reduce-employment

February 10, 2017

Justin Wolfers Is Mistaken, Restrictions on Firing Don't Have to Reduce Employment

Donald Trump has used his podium on several occasions to harangue companies about moving jobs overseas. This is probably not an effective way to conduct economic policy, but Justin Wolfers misled * New York Times readers in claiming:

"Research shows that efforts to boost employment by making it difficult or costly to fire workers have backfired. The prospect of a costly and lengthy legal battle for laid-off employees makes it less appealing to hire new workers. The result has been that higher firing costs have led to to weaker productivity, sclerotic labor markets and higher unemployment."

Actually, more recent research results, ** including more recent work *** from the Organisation for Economic Co-operation and Development (the source to which he links), show that there is no necessary link between restrictions on firing and unemployment. While excessive restrictions on firing can undoubtedly hurt employment and growth, there is no reason to assume that moderate amounts of severance pay, or other disincentives to dismiss workers, will discourage investment and hiring.

A requirement to give longer term workers severance pay when dismissed does change the incentives facing an employer. In this situation they have more incentive to retrain workers to ensure that they are as productive as possible. They may also opt to invest more in existing facilities rather than move overseas in order to avoid severance pay.

* https://www.nytimes.com/2017/02/09/upshot/trumps-defense-of-ivanka-reflects-approach-that-could-hurt-the-economy.html

** http://cepr.net/documents/publications/cepa200404.pdf

*** http://www.oecd.org/els/emp/38569387.pdf

-- Dean Baker

cm -> anne... , February 11, 2017 at 11:55 AM
The primary reason preventing hiring is lack of demand or sales prospects for additional product/services the company produces. A company that can pressure its existing workers to work more, without much risk of resistance or departure, will usually do that. Of course that works only up to a point due to negative impact on work quality etc. When there is convincing additional demand promising sufficient margin, they *will* hire. I have yet to see a company that will forgo profitable business to restrict its size (exception - small founder-owned/controlled businesses where the owner doesn't want the business to grow to the point where they can no longer themselves manage it, and have to accept outside "meddling" in business decisions, i.e. it's no longer their business; also known as "lifestyle business").

In the latter case the reason may also be that outside funding is needed to acquire new capacity (e.g. buy or build a new location), with the risk and imposition of external control that brings. But none of those are problems hiring workers.

cm -> anne... , February 11, 2017 at 12:01 PM
One thing that employers will frequently do, if they can, is bring in contingent workers on time-limited contracts that are extended one period at the time, for any position where this is possible (low cost to bring somebody up to speed, no dependency on and risk of loos of institutional memory).

State or national labor departments will often at some point react to "abuse" (e.g. perma-temps) by imposing limits on contract extensions. Then the next gambit is herding temp workers through staffing agencies, and telling them to change employer every so often to avoid the extension limit. And they will do it because they have no better options.

And that's where it always ends up - too few better options for workers.

anne -> cm... , February 11, 2017 at 12:12 PM
Really nicely explained.
cm -> anne... , February 11, 2017 at 12:32 PM
Thanks. Of course what would be convenient for employers is to be able to just let go of people who they have to hire as "perm" and retain for a while because of high costs of acquiring in-house experience and institutional knowledge effects. But every product/technology becomes obsolete eventually, the related experience diminishes in value, or at least the volume of demand for it, and after a number of years/decades, well, the workers are also exactly that many years older.

[Feb 11, 2017] As a result of 36 years of brainwashing large swathes of US society accept without questioning the core tenets of neoliberalism much like Soviet population accepted the key postulates of Bolshevism

Obama was not a progressive he was a Neo liberal puppet who just spoke the language of progressives at the same time selling out the public
Notable quotes:
"... Still as a result of 36 years of brainwashing large swathes of US society accept without questioning the core tenets of neoliberalism much like Soviet population accepted the key postulates of Bolshevism. They believe that "the market" trumps all other forms of organization of activities of the society, that everything works better that way, that markets are virtuous. As a result, they believe in the false notion that the government is always and ever getting in the way of markets and therefore needs to be made as small and weak as possible. ..."
"... Ideological Power derives from the human need to find ultimate meaning in life, to share norms and values, and to participate in aesthetic and ritual practices with others. ..."
"... The main tenets of neoliberalism are still very powerfully embedded in people minds. But ideology is dead and that spells troubles the same way as death of Bolshevism spelled troubles for the USSR. ..."
Feb 11, 2017 | economistsview.typepad.com

libezkova -> Trump February 11, 2017 at 05:04 AM

What has happened to "hope and change" is very straightforward: it buried Democratic Party with its lies and militarism and there is no way back.

That's why Trump. Obama said all the right things and did the opposite. He has gutted the country and obliterated the middle class while continuing fighting wars of neoliberal expansion and conquest.

Dismissing Trump and Trump's voters as "deplorables" gives Democrats like Krugman an excuse to avoid any self examination about how the neoliberal policies they advocated failed the majority of population of the country and have alienated electorate.

The last two democrat presidents destroyed as much of the New Deal as their Republican counterparts and couldn't wait to gut the remnants such as SS. That's undeniable.

As a result the key tenets of neoliberal ideology are now as dead as the key postulates of Bolshevism were in 1945. The rule of financial oligarchy disguised as "Liberal democracy", globalization and free trade, free markets as a substitute for government, deregulation, de-industrialization, letting market forces determine the characteristics of employment, etc.

Does anybody here believes this sh*t? I doubt it. Even those who advocate it, have doubts.

Still as a result of 36 years of brainwashing large swathes of US society accept without questioning the core tenets of neoliberalism much like Soviet population accepted the key postulates of Bolshevism. They believe that "the market" trumps all other forms of organization of activities of the society, that everything works better that way, that markets are virtuous. As a result, they believe in the false notion that the government is always and ever getting in the way of markets and therefore needs to be made as small and weak as possible.

If you read Michael Mann's, The Sources of Social Power you will notice that he places Ideological Power first in his four component model of social power: ideological, economic, military, and political.

Each of them create different but complementary sources of power within a given society:

The main tenets of neoliberalism are still very powerfully embedded in people minds. But ideology is dead and that spells troubles the same way as death of Bolshevism spelled troubles for the USSR.

See also series of Mark Blyth interviews such as

[Feb 10, 2017] Neoliberal globalization makes it difficult to sustain the postwar social bargain of labor peace in exchange for steadily improving worker pay and benefits

Notable quotes:
"... And I am not sure that it was neoliberal globalization as the only factor in rasining the standards of living in case of China. They have also industrialization process going on, give or take. Chinese maquiladoras were allowed under strict conditions of transferring technology. That's what distinguishes China from India or Mexico, where neoliberal administrations were much less protective of interest of their nations and allowed Western monopolies more freedom. ..."
"... On the basis of careful empirical work, Rodrik concluded that "globalization makes it difficult to sustain the postwar social bargain" of labor peace in exchange for "steadily improving worker pay and benefits." ..."
"... It's not globalization, it's "neoliberal globalization" and neoliberalism in general which killed the New Deal capitalism. As soon as the US elite realized the cookies are not enough for everybody they start withdrawing them from the table. Stagnation and the subsequent collapse of the USSR also played an important role, allowing neoliberal propagandists to claim the victory. ..."
Feb 10, 2017 | economistsview.typepad.com
Gibbon1 : February 10, 2017 at 01:47 AM
""seem unimpressed by the fact that globalization has lifted hundreds of millions of desperately poor people in China and India into the global middle class. ""

Ergo enabling the savaging of working class people in the US was worth it.

libezkova -> Gibbon1... , February 10, 2017 at 02:08 AM
And I am not sure that it was neoliberal globalization as the only factor in rasining the standards of living in case of China. They have also industrialization process going on, give or take. Chinese maquiladoras were allowed under strict conditions of transferring technology. That's what distinguishes China from India or Mexico, where neoliberal administrations were much less protective of interest of their nations and allowed Western monopolies more freedom.

After all the Communist Party is still a ruling Party of China. With a neoliberal twist yes, but they still adhere to the ideas of Marx.

pgl : , February 10, 2017 at 01:47 AM
Kuttner really captures the contributions of Dani Rodrik. If I had to pick one sentence to capture this review - it would be this:

On the basis of careful empirical work, Rodrik concluded that "globalization makes it difficult to sustain the postwar social bargain" of labor peace in exchange for "steadily improving worker pay and benefits."

libezkova -> pgl... , -1
It's not globalization, it's "neoliberal globalization" and neoliberalism in general which killed the New Deal capitalism. As soon as the US elite realized the cookies are not enough for everybody they start withdrawing them from the table. Stagnation and the subsequent collapse of the USSR also played an important role, allowing neoliberal propagandists to claim the victory.

[Feb 09, 2017] How lies work

Feb 09, 2017 | stumblingandmumbling.typepad.com

Nick Cohen makes a good point : it is not congenital liars that should worry us, but congenital believers – those who fall for the lies of charlatans. We know that many do so: almost half of voters believed the lie that leaving the EU would allow us to spend an extra £350m a week on the NHS.

This poses the question: why do people fall for lies? Here, we can learn from behavioural economics and research (pdf) into criminal fraud. I reckon there are several factors that liars exploit in politics.

One is wishful thinking. People want to believe there's a simple solution to NHS underfunding (leave the EU!) or to low wages (cut immigration!) just as they want to believe they can get rich quick or make money by taking no risk: Ponzi schemers like Bernie Madoff play upon that last one. The wish is often the father to the belief.

Relatedly, perhaps, there are lottery-type preferences. People like long-odds bets and pay too much for them: this is why they back longshots (pdf) too much and pay over the odds for speculative shares . To such people, the fact that an offer seems too good to be true is therefore, paradoxically, tempting. A study of fraud by the OFT found :

Some people viewed responding to a scam as taking a long-odds gamble: they recognised that there was something wrong with the offer, but the size of the possible prize or reward (relative to the initial outlay) induced them to give it a try on the off-chance that it might be genuine.

There's a particular type that is especially likely to take a long-odds bet: the desperate. Lonely people are vulnerable to the romance scam; gamblers who have lost take big bets to get even; losing teams try "hail Mary" tactics. In like fashion, people who feel like they have lost out in the era of globalization were tempted to vote for Trump and Brexit.

There's another mechanism here: people are likely to turn to con-men if the alternatives have failed. Werner Troesken shows (pdf) how snake-oil sellers exploited this. They invested a lot in advertising and in product differentiation and so when other products failed they could claim that theirs would work when the others hadn't. I suspect that fund managers use a similar trick: the failure of many to beat the market leads investors simply to trust others rather than tracker funds. The fact that previous policies had failed working people thus encouraged them to try something different – be it Brexit or Trump.

Yet another trick here is the affinity fraud. We tend to trust people like ourselves, or who at least who look like ourselves. Farage's endless posturing as a "man of the people" – fag and pint in hand, not caring about "political correctness" – laid the basis for people to trust him, just as Bernie Madoff joined all the right clubs to encourage wealthy (often Jewish) folk to trust him. By contrast, the claims from the Treasury and various think-tanks that Brexit would make us poorer came from metropolitan elites who were so different from poorer working class people that they weren't trusted. And in fact the very talk of "liberal elites" carried the subtext: "don't trust them: they're not like you".

All of these tendencies have been reinforced by another – the fact that, as David Leiser and Zeev Kril have shown , people are bad at making connections in economics. The idea that Brexit would hurt us rested upon tricky connections: between the terms of Brexit and trade rules; from trade rules to actual trade; and from trade to productivity. By contrast, the idea that leaving the EU would save us money was simple and easy to believe.

Now, I don't say all this merely to be a Remoaner; complaining about liars is like a fish complaining that the water is wet. Instead, I want to point out that it is not sufficient to blame the BBC for not calling out Brexiters' lies. Yes, the BBC disgraced itself during the plebiscite campaign. But we must also understand how voters fall for such mendacity. As Akerlof and Shiller write:

Voters are phishable in two major ways. First, they are not fully informed; they are information phools. Second, voters are also psychological phools; for example, because they respond to appeals such as lawnmower ads [a candidate seen mowing his own lawn is regarded as a man of the people] ( Phishing for Phools , p 75)

All this raises a challenge for liberals. Many used to believe the truth would win out over lies in the marketplace for ideas. This is no longer true, if it ever were. Instead, the questions now are: what can we do about this? And what should we do? The two questions might well have different answers. But we can make a start by understanding how lies are sometimes believed. Keith | February 07, 2017 at 04:47 PM

The marketplace of ideas assumes that the consumers are able and willing to inform themselves and be rational rather than emotional. Clearly this is not true of a lot of voters when confronted by a manipulative press and Tories like Jim with their right wing agenda slyly hidden for the time being.

Equally as in other areas such as health care shopping around is impossible to do as the consumers lack expert knowledge. Allowing the profit motive to apply to many areas is sure to be a disaster for human welfare as the profit incentive stops the experts using their knowledge for good. Finance is a classic example of the uninformed being repeatedly duped into unsound investments decade after decade. Benjamin Graham describes how in his first job selling Bonds to grannies he came to realise that he was being asked to steal the life savings of pensioners via commissions designed to get a sale of junk paper. Which is why he moved elsewhere to a more ethical line of work. But I am sure leaving the biggest most integrated market in the world where lots of foreigners have helpfully learned our language will surely increase our prosperity....Nigel says so.

Matthew Moore | February 07, 2017 at 05:37 PM
There will always be gullible people (/ people constrained by high opportunity cost of information search, as I prefer to think of them)

And there will always be liars looking to take advantage of them. Like 99% of politicians ever.

It's very Marxist to wonder how we might change this basic fact of humanity, when the real solution is clear. Don't set up powerful central institutions that rely on coercion: it attracts liars, rewards them, and makes new liars out of honest people.

Dipper | February 07, 2017 at 07:47 PM
Oh, we Leavers are being lectured again by our Remainer betters on our stupidity.

If the statements of the amount we pay to the EU were lies, how come we owe them €50 billion?

how come no-one ever asks why we have to implement the four freedoms when Germany gets a free pass on the Free market in Services?

the government announced house building plans today, and no-one asks whether a cause of high house prices and a housing shortage is too much immigration?

It's not the lies, it's the questions never asked that stand out.

Dipper | February 07, 2017 at 08:09 PM
@ Keith - "Tories like Jim"

I don't read Jim as a Tory. I read him as someone who was a Labour supporter but now just stares in amazement at a group of people who have become EU Federalist fanatics spouting delusional slogans who can never answer a straight question and refuse to acknowledge the obvious problems of democratic accountability.

How on earth did that happen? How did apparently intelligent people completely lose their critical faculties and join a quasi-religious cult that chants empty slogans and denounces anyone who questions them?

But I'm sure Jim can speak for himself.

Ralph Musgrave | February 07, 2017 at 09:45 PM
Chris missed out the fact that people tend to give others the benefit of the doubt. I.e. if X tells a monster lie, peoples' immediate reaction is: "X is is a bastard". But then on second thoughts they feel ashamed at accusing someone else of being a bastard, and assume it's they themselves that must be wrong.

Sotto Voce | February 07, 2017 at 10:45 PM
There is a bit of a danger here of another comment thread being derailed with Brexit mud-slinging. Chris's post isn't really about the pros and cons of Brexit, it just offers a vivid example of the phenomenon under discussion.

The point Chris makes in the last paragraph is more general and profound. If any and all data/information/evidence/argument is interpreted in partisan fashion and subject to massive confirmation bias so that debates increasingly polarise - or if different sides in debates proffer their own favoured but incompatible versions of the truth - then meaningful dialogue, deliberation and compromise become near impossible. All we get is intolerance, mistrust and greater partisanship. Clearly these are not entirely new issues, but it seems undeniable that there has been a qualitative shift in 'quality' of public debate.

We appear to be witnessing the US political system at great risk of imploding, as enlightenment values are abandoned and key tenets of liberal democratic practice are wilfully rejected. This is the route to chaos.

The questions Chris poses are, to my mind at least, the right ones. The very nature of the problem means that the old/favoured remedies are unlikely to be effective. But what can replace them? Is a violent conflagration the only way of shocking the system out of hyper-partisanship and the rejection of the foundational belief that we live in a shared reality (i.e. for people to 'come to their senses')? Or can we back out of this particular cul-de-sac peacefully? You've got to hope so. But, if so, how?

e | February 07, 2017 at 10:57 PM
Our upper echelon, i.e. our long-standing middle of the road Labour MPs and commentators, have long been successful in fighting off calls for left leaning policy/talk of how things work (because who knows where this will end) under a guise of fighting off racism/ a closed shop mentality; the routes of least resistance 50s – 00s which should alert us to the ability of the English working class to embrace immigration and avoid base philosophies. But it seems not. Seems to me our shared interest beyond race creed colour and gender continues to be deliberately and systematically no-platformed. What I fail to understand, given the rise of UKIP, is why this is not glaringly obvious; because if you're one of the majority who live life as best you might with as much consideration and tolerance as you can muster where does credence go when an ordinary workers tendency to sound 'populist' is marked up to racism no matter known history...

aragon | February 07, 2017 at 11:53 PM
Not again!
Phishing for Phools. The Political Brain...

http://www.nytimes.com/2007/08/26/books/review/Brooks-t.html

"Serious thinkers set to work, and produced a long shelf of books answering this question. Their answers tended to rely on similar themes. First, Democrats lose because they are too intelligent. Their arguments are too complicated for American voters. Second, Democrats lose because they are too tolerant. They refuse to cater to racism and hatred. Finally, Democrats lose because they are not good at the dark art of politics. Republicans, though they are knuckle-dragging simpletons when it comes to policy, are devilishly clever when it comes to electioneering. They have brilliant political consultants like Lee Atwater and Karl Rove, who frame issues so fiendishly, they can fool the American people into voting against their own best interests."

And immigration is about economics. This is Sweden an immigration superpower.

http://www.express.co.uk/news/world/755997/Sweden-Malmo-military-intervention-no-go-zone-crime-surge

"Swedish police last year issued a report where it detailed incidents from more than 55 areas which it branded as "no-go zones" as it detailed brutal attacks on police, sexual assaults, children carrying weapons and general turmoil sweeping across the country."

http://www.independent.co.uk/news/world/europe/most-europeans-want-muslim-ban-immigration-control-middle-east-countries-syria-iran-iraq-poll-a7567301.html

"A ban was supported by 71 per cent of people in Poland, 65 per cent in Austria, 53 per cent in Germany and 51 per cent in Italy.
In the UK, 47 per cent supported a ban.
In no country did more than 32 per cent disagree with a ban."

aragon | February 08, 2017 at 12:29 AM
Phishing for Phools

"It thereby explains a paradox: why, at a time when we are better off than ever before in history, all too many of us are leading lives of quiet desperation."

http://nfs.sparknotes.com/macbeth/page_162.html

"Pour the sweet milk of concord into hell,
Uproar the universal peace, confound
All unity on earth."

Human Nature has not changed.

Guano | February 08, 2017 at 12:42 AM
The truth is complicated.

The truth is challenging.

Tony Holmes | February 08, 2017 at 09:13 AM
Chris, a bit off the point, but if everyone followed your advice and put money in tracker funds and active funds disappeared, what would happen to the stock market ? Instinct tells me it would become extremely volatile, but instinct is a bad guide...

gastro george | February 08, 2017 at 09:35 AM
FFS aragon, that "report" from Sweden is from the Express quoting directly a Swedish fascist.

reason | February 08, 2017 at 11:29 AM
Isn't the key point here prospect theory (I've just finished reading Kahneman). People with no good options gamble.

reason | February 08, 2017 at 11:30 AM
P.S. The no good options bit is a very good reason for opposing first past the post and the limited options consequence.

aragon | February 08, 2017 at 11:47 AM
gasto george

It is not an extreme story, I don't speak Swedish or have any contact with Sweden. I only read the main stream media which includes the Daily Express.

As you would expect most of the media does not report on Sweden, unless it has a British angle.
e.g. Birmingham Boy killed by a hand grenade.
(I don't know how you can spin Hand Grenade)

The report originates with the Swedish Police the situation in Malmo is serious and individual police officers like Peter Springare's Facebook post.

Here is a report from the thelocal.se
http://www.thelocal.se/20170127/malmo-police-chief-help-us

"After a wave of violence in Sweden's third city, police boss Stefan Sintéus has appealed to residents in Malmö: "Help us. Help us to tackle the problems. Cooperate with us.""

Dipper | February 08, 2017 at 12:03 PM
@ gastro george

This isn't the first time facists have made inflammatory comments about muslims. Nick Griffin did this and was prosecuted for inciting racial hatred in 2006. The summary of what he said is some way down this article.

http://www.independent.co.uk/news/uk/crime/tougher-race-laws-likely-after-bnp-pair-cleared-423820.html

Eleven years later we have this http://www.bbc.co.uk/news/uk-england-south-yorkshire-38845332

And that, in a nutshell, is the problem with banning "fake news". You have to be really open, transparent and clear and be absolutely sure you are right, otherwise you end up making heroes of facists and stoking the notion that its all a plot to hide the truth from the people. And that is a really bad outcome.

MPs wrestling with their consciences, loud debates, arguments about the truth ... this is the sound of a properly functioning parliamentary democracy and long may that noise continue.

Guano | February 08, 2017 at 02:06 PM
The first two words of the article: Nick Cohen.

Nick Cohen does make some good points but he himself has a complicated relationship with the truth in some areas. When he isn't talking about congenital liars and congenital believers, he continues to get into a rage about people who opposed the invasion of Iraq. As far as I can see, the invasion of Iraq has been the disaster that some of us feared (because regime change involves putting in place a new regime change, which is very difficult and for which the USA and UK do not have the skills). And, as far as I can see, some of the assumptions made by Nick Cohen in 2002 and 2003 in supporting the invasion (such as the ability of the Iraqi National Congress to create a new regime) were very dubious and their weakness of these assumptions is why the invasion was a failure and has had created an array of other problems.

In his campaign to avoid a post-truth future, Nick Cohen claims that people like him "are on their own" and he explicitly rejects working with the kind of people who opposed the invasion of Iraq. That's a pity, really, because many people appear to have started their opposition to the invasion because the information provided and the logic used appeared to be dodgy. The period from August 2002 to March 2003 prefigured the Trump/Brexit era for post-truth information and arguments. Nick Cohen would be on stronger ground if he admitted that the invasion of Iraq has not necessarily worked to anyone's advantage.

I guess that what is going on in Nick Cohen's mind (and I can only guess) is that he has built up a negative image of the type of person who opposed the invasion of Iraq and he has difficulty getting past that image and come to terms with what those people were saying and what has actually happened in Iraq. Thus in between writing articles about the need for truth, Nick Cohen writes expressions of outrage about opponents of the invasion of Iraq as if they had been found to be wrong.

It seems to be a very extreme example of seeing the messenger and not the message, which is one of the issues with failing to recognise lies.

gastro george | February 08, 2017 at 02:24 PM
@aragon

OK, well I've worked most of my life with Swedes and Norwegians, and have regularly visited Malmo three or four times a year recently, although the last was a bit over a year ago.

So, yes, immigration is an issue, and the Sweden Democrats (fascists) have been rising in the polls. Malmo itself has some problems in the suburbs.

But there are no no-go areas. Armed violence has more traditionally been associated with biker-gang turf-related drug wars - otherwise with the far right (see Breivik in Norway) and then, as your last link discusses, lone serial killers.

Reading anything the Sweden Democrats have to say is the equivalent of believing Wilders in the Netherlands - they are loons.

Barbara Konstant | February 08, 2017 at 05:36 PM
Despairing as it seems, our humanity has not reached the necessary level of awareness needed to function peacefully in our world.

[Feb 07, 2017] Short-Run Effects of Lower Productivity Growth A Twist on the Secular Stagnation Hypothesis

Notable quotes:
"... There are two major forces behind secular stagnation: ..."
"... 1. Neoliberalism which undermines the purchasing power of lower 80% of population due to redistribution of wealth up. Like in the "classic Marxism" theory of the absolute impoverishment of the working class under capitalism. ..."
"... 2. End of cheap oil, which undermines both productivity growth and, simultaneously, neoliberal globalization, which was the source of (fake) productivity growth in GDP statistics (which by itself is very suspect). ..."
Feb 07, 2017 | economistsview.typepad.com

Short-Run Effects of Lower Productivity Growth : A Twist on the Secular Stagnation Hypothesis: Despite interest rates being very close to zero, US GDP growth has been anemic in the last four years largely due to lower optimism about the future, more specifically to downward revisions in growth forecasts, rather than legacies of the past. Put simply, demand is temporarily weak because people are adjusting to a less bright future.

anne -> anne... , February 06, 2017 at 04:30 PM
Having read the paper again, the work still reads as parody. I find no coherence.
libezkova -> anne... , February 06, 2017 at 06:44 PM
Anne,
> Having read the paper again, the work still reads as parody. I find no coherence.

I agree. Looks like

There are two major forces behind secular stagnation:

1. Neoliberalism which undermines the purchasing power of lower 80% of population due to redistribution of wealth up. Like in the "classic Marxism" theory of the absolute impoverishment of the working class under capitalism.

2. End of cheap oil, which undermines both productivity growth and, simultaneously, neoliberal globalization, which was the source of (fake) productivity growth in GDP statistics (which by itself is very suspect).

[Feb 06, 2017] The problem with predatory behaviour of TBTF financial institutions is probably deeper then personality of Blankfein.

Feb 06, 2017 | economistsview.typepad.com
pgl : February 04, 2017 at 03:41 PM , 2017 at 03:41 PM
Not that Wikipedia gets everything right but here is a snippet of what it says about the Goldman Sachs CEO:

'Blankfein testified before Congress in April 2010 at a hearing of the Senate Permanent Subcommittee on Investigations. He said that Goldman Sachs had no moral or legal obligation to inform its clients it was betting against the products which they were buying from Goldman Sachs because it was not acting in a fiduciary role. The company was sued on April 16, 2010, by the SEC for the fraudulent selling of a synthetic CDO tied to subprime mortgages. With Blankfein at the helm, Goldman has also been criticized "by lawmakers and pundits for issues from its pay practices to its role in helping Greece mask the size of its debts". In April 2011, a Permanent Subcommittee on Investigations report accused Goldman Sachs of misleading clients about complex mortgage-related investments in 2007, and Senator Carl Levin alleged that Blankfein misled Congress, though no perjury charges have been brought against Blankfein. In August of the same year, Goldman confirmed that Blankfein had hired high-profile defense lawyer Reid Weingarten'

Weingarten helped in the defense of the Worldcom thieves. Why would anyone do business with a company led by such an ethically challenged CEO?

libezkova -> pgl... , February 04, 2017 at 07:12 PM
The problem here is probably deeper then personality of Blankfein.

There is such thing as system instability of economy caused by outsized financial sector and here GS fits the bill. Promotion of psychopathic personalities with no brakes and outsize taste for risk is just an icing on the cake.

> Why would anyone do business with a company led by such an ethically challenged CEO?

Why you are assuming the other TBTF are somehow better then GS?

[Feb 04, 2017] In a System with Dominance, There is Built-In Resistance to Change

Notable quotes:
"... This is really good stuff. And I think it gets to the central core of what is wrong with traditional macroeconomic models: bargaining power. ..."
"... Technology is not driving consolidation. It only enables it, by enabling larger economies of scale. Without IT, managing operations in a large and complex company would require much higher personnel overhead just to handle all the data, information, coordination, conveying orders, etc. This overhead is not a linear function of size. ..."
Feb 03, 2017 | economistsview.typepad.com
ProMarket's Guy Rolnik interviews Bernie Yeung: "In a System with Dominance, There is Built-In Resistance to Change": ProMarket Interviews Bernie Yeung, Part 2 :

Last week, we published the first part of an extensive three-part interview with Bernard (Bernie) Yeung, Dean of National University of Singapore's business school. This is the second part. The third and final part will be published next week. In the first part of our interview with Bernard Yeung, we talked about his seminal papers on power concentration, on which he collaborated mainly with Randall Morck. The discussion there focused on dominant players and their ability to shape their own markets, the capital market, and even the economy. In this installment, we talk about how free trade may have backfired, how wealth and power are connected, how big corporations can control and distort the market for ideas, and why governments may actually prefer markets that are controlled by dominant players rather than by many competitors. ...

... GR: Can you elaborate on what you call economic conditioning, mainly the part in which you say it may not be vicious?
BY: Let's imagine I got rich and now own and control a bank. I'm saying to myself that I know what's right and what's wrong. I cannot allow new people to set up new banks and compete with me in an unruly manner. That will create chaos. They will cause people to lose their jobs. I help to set up barriers to entry in the financial sector. I myself lend money to my rich friends and they will create many jobs. I think I'm right-and I am righteous.
I overlook the positive effects that competition will generate for the economy. I overlook the contributions of new ideas and innovations which leads to strong future growth and good future jobs. I focus on my lending to the established, which preserves current jobs and creates interest earnings for me. I am not [attuned] to the counterfactuals. I'm conditioned to believe that all I've done is good for my bank, for the financial sector, and for the country. That's economic conditioning. I'm not being sinful. I'm not being vicious. I only see what's good for me, and I believe that's good for the whole society.
GR: This was the case for the Robber Barons in the U.S. more then a century ago.
BY: Oh yes, and I believe it's very much how Donald Trump is thinking.
GR: Do you think they genuinely believe that the country should be run by the incumbent oligarchs?
BY: If it ain't broken don't fix it, right? 'Look at all the good things I have done. If I'm so rich and keep so many people employed, I cannot be so bad. I will never see people who cannot get into the market because of my behavior. I never see them. Indeed, I am always thinking that, in helping my established friends and using business judgment that brings me profits, I help society, create jobs and wealth, and my donations help society further. I see myself and my friends as pillars of our country.' ...
... In a system with dominance, and I've already put that in paper, I think there is built-in resistance to change. Rich people don't like change and competition. And they themselves don't invest too much in innovations that displace their own business; that is, no creative self-destruction.
I believe that a vibrant and robust capital market that gives people with good ideas a chance is very important. The problem is failed capital markets, lack of transparency and alternatives and dominant players in control who don't encourage entrepreneurship. ...
... GR: Is there empirical data that shows that, when we take out economic concentration, we get better growth, better distribution of income, and a better quality of life?
BY: Yes. Once, Randall, his student, and I looked at a current list of top firms, compared it to a similar list of 20 years earlier, and asked ourselves how many survived. We showed that high stability is correlated with lower growth, lower productivity, and poorer Gini. ...

New Deal democrat , February 03, 2017 at 02:11 PM

This is really good stuff. And I think it gets to the central core of what is wrong with traditional macroeconomic models: bargaining power.

Traditional models assume a supply curve and a demand curve, but do not ask *why* particular players might have a particullar supply or demand curve. If there is market power, and sooner or later just via random chance the number of players in any given area will shrink down to a small numbe rthat have bargaining power, the ultimate rule is, "Thims that has, gits."

"thims that has, gits" is why libertarianism -- and neoclassical economic theory -- are ultimately nonsense.

kthomas -> New Deal democrat... , February 03, 2017 at 03:04 PM
It's interesting. More sociology than economics. There is some wisdom in this.
sanjait -> kthomas... , February 03, 2017 at 04:29 PM
It's especially important for labor markets.

An individual worker typically has undiversified skills, constraints on liquidity, constraints on mobility, limited information on local market wages, few options of potential employers and a short time horizon to consider.

Labor markets behave in very unideal fashion and generally disadvantage the worker in negotiations with employers. Employers, these days, can set up offices anywhere, outsource, hire from large numbers of candidates, and they usually know what they can get away with paying. They can also survive without a position filled for an extended time, while employees can only go limited time without a job.

kthomas -> sanjait... , February 03, 2017 at 04:47 PM
Thank you. What I find especially odd is that our normal cast of bloggers have yet to yield any thoughts. This one begs opinion.
Half Mast Tailgate Streamlining : , February 03, 2017 at 04:20 PM
think of each corporation as encapsulated by a circle! Each circle encapsulates the corporate directors, the company's workers, customers, suppliers, creditors, part time consultants, institutional share holders, private shareholders and foreign share holders. Such overlapping circles constitute a Venn-diagram which provides a view of innumerable distinct classes of folks.

... ... ...

kthomas -> Half Mast Tailgate Streamlining... , February 03, 2017 at 04:53 PM
Was the author's post about Corp structures? This is more high-level, but you are free to continue beating your straw man.
Justin Cidertrades -> sanjait... , February 03, 2017 at 08:06 PM
https://en.wikipedia.org/wiki/Porter's_five_forces_analysis#/media/File:Elements_of_Industry_Structure.svg

For anyone interested in tinkering with this :

As I understand it, scalable vector graphics is a file that can be easily modified using programs like inkscape.

cm -> sanjait... , February 04, 2017 at 12:35 PM
Technology is not driving consolidation. It only enables it, by enabling larger economies of scale. Without IT, managing operations in a large and complex company would require much higher personnel overhead just to handle all the data, information, coordination, conveying orders, etc. This overhead is not a linear function of size.

Fundamentally with IT this overhead doesn't go away, but the maximal size at which a company still remains manageable increases.

There is one "driving" aspect of technology - as having technology becomes mandatory, the technology overhead costs for smaller businesses tend to be larger, again because of economies of scale and differentials in variable cost being low compared to fixed cost, i.e. having an IT installation that has twice the capacity doesn't cost nearly twice as much (because it doesn't need twice the equipment and staff).

cm -> sanjait... , February 04, 2017 at 12:39 PM
Actually you did mention the latter aspect. But in the case you cite it is not only about the equipment and operating cost of technology, but (by law or de facto) high fixed costs to manage all kinds of processes and bureaucracy. Again, the technology is only there to enable or execute the processes and the complexity.

[Feb 01, 2017] Is Global Equality the Enemy of National Equality?

Feb 01, 2017 | economistsview.typepad.com
Dani Rodrik:

Is Global Equality the Enemy of National Equality? : The question in the title is perhaps the most important question we confront, and will continue to confront in the years ahead. I discuss my take in this paper .
Many economists tend to be global-egalitarians and believe borders have little significance in evaluations of justice and equity. From this perspective, policies must focus on enhancing income opportunities for the global poor. Political systems, however, are organized around nation states, and create a bias towards domestic-egalitarianism.
How significant is the tension between these two perspectives? Consider the China "trade shock." Expanding trade with China has aggravated inequality in the United States, while ameliorating global inequality. This is the consequence of the fact that the bulk of global inequality is accounted for by income differences across countries rather than within countries.
But the China shock is receding and other low-income countries are unlikely to replicate China's export-oriented industrialization experience. So perhaps the tension is going away?
Not so fast. The tension is even greater somewhere else: Relaxing restrictions on cross-border labor mobility would have an even stronger positive effect on global inequality, at the cost of adverse effects at the lower end of labor markets in rich economies. On the other hand, international labor mobility has some advantages compared to further liberalizing international trade in goods.
I discuss these issues and more here .


Mr. Bill : , January 22, 2017 at 12:39 PM

Well said, Dani.

Adam Smith never sited poverty, environmental intransigents, and malliable governments as a desireable " comparative advantage". Quite the opposite.

TrumpisaJew : , January 22, 2017 at 12:43 PM
The export model was a credit bubble illusion. It just wasn't sustainable, it was a lie. Now China has massive capital flight.
anne : , January 22, 2017 at 01:56 PM
http://rodrik.typepad.com/Is%20Global%20Equality%20the%20Enemy%20of%20National%20Equality.pdf

January, 2017

Is Global Equality the Enemy of National Equality?
By Dani Rodrik

Abstract

The bulk of global inequality is accounted for by income differences across countries rather than within countries. Expanding trade with China has aggravated inequality in some advanced economies, while ameliorating global inequality. But the "China shock" is receding and other low-income countries are unlikely to replicate China's export-oriented industrialization experience. Relaxing restrictions on cross-border labor mobility might have an even stronger positive effect on global inequality. However it also raises a similar tension. While there would likely be adverse effects on low-skill workers in the advanced economies, international labor mobility has some advantages compared to further liberalizing international trade in goods. I argue that none of the contending perspectives -- national-egalitarian, cosmopolitan, utilitarian -- provides on its own an adequate frame for evaluating the consequences.

[ An excellent and necessary paper for which I am grateful. Now for another reading. ]

Mr. Bill -> anne... , January 22, 2017 at 03:56 PM
What is excellent about it ? Please explain.
anne -> Mr. Bill... , January 22, 2017 at 04:09 PM
http://rodrik.typepad.com/Is%20Global%20Equality%20the%20Enemy%20of%20National%20Equality.pdf

January, 2017

Is Global Equality the Enemy of National Equality?
By Dani Rodrik

Whether one thinks the last quarter century has been good or bad for equity depends critically on whether one takes a national or global perspective. Within nations, inequality has typically risen in rich and poor nations alike. (Latin American countries, where we observe the highest levels of inequality in the world, were the only ones that significantly bucked the trend.) When commentators talk about inequality, this is usually what they have in mind. But there is another way of looking at inequality, which is to disregard national borders and focus on the distribution of income across all households in the world. Analyzed in this way global inequality actually fell sharply over the same period, thanks in large part to the very rapid growth of China and India, the world's two largest developing economies. In fact, this transformation has been so momentous that the contours of the global distribution of income have changed drastically. The two humps in the distribution – reflecting the all-too recent reality of a world divided into two clear segments, one small and rich, the other large and poor – have disappeared, with an emergent global "middle class" filling out the valley between the two humps (Figure 1).

The bulk of global income equality today is accounted for by income gaps between countries, rather than within them. This explains why economic growth in countries like China and India has a significant positive effect on global equality, even when inequality rises domestically in those countries, as it has done substantially in China's case.

To drive home the importance of between-country gaps, I sometimes ask my audience the following question: would you rather be rich in a poor country, or poor in a rich country? I tell them to assume they care only about their own income and purchasing power....

anne -> Mr. Bill... , January 22, 2017 at 04:22 PM
Among the excellent aspects, the question is raised as to what development means for relatively poor countries in which growth even when significant for a time shuts out much of a population; what has to be sacrificed by the fortunate for growth to be inclusive and as such sustainable; after all among the poorer countries growth has been decidedly subject to disruption for decades now; supposing trade is to be limited as a driver of growth, what then?

Add then to these questions in reading.

Think -> anne... , January 22, 2017 at 05:21 PM
Thank you, Anne. You seem to adhere to a reality that says that the US is an illegitimate society.
Think -> Think... , January 22, 2017 at 05:32 PM
Personally, I love the USA. Especially being able to shoot my mouth off.

Hell. i don't know if its right or wrong.

JohnH -> anne... , January 22, 2017 at 06:32 PM
Eight billionaires have as much wealth as half the world's population.
http://events.tbo.com/news/world/these-8-billionaires-are-as-rich-as-half-the-worlds-population-oxfam-says/2309727

I would have to conclude that the bulk of global inequality is accounted for by income differences between the 0.1% and the bottom 95%.

Ashok Hegde -> JohnH... , January 24, 2017 at 07:59 PM
Ridiculous.

If people with no wealth continue to procreate at high rates, of course inequality will only grow. The real issue here is population growth. The poor are replicating at high rates, and the wealthy do not. This accounts for the growth of so much of this 'natural' inequality.

DrDick : , January 22, 2017 at 04:31 PM
There is a major problem with Rodrik's piece. Between country inequality has been declining steadily since the 1990s, while within country inequality has been increasing since the 1980s. As I keep saying, the only real beneficiaries of globalization have been the wealthy of the world.

http://www.un.org/en/development/desa/policy/wess/wess_bg_papers/bp_wess2013_svieira1.pdf

https://www.postkeynesian.net/downloads/working-papers/PKWP1303.pdf

https://unu.edu/media-relations/releases/global-income-inequality-unu-wider-press-release.html#info

Think -> DrDick... , January 22, 2017 at 04:40 PM
Well, I agree with you, singing to the choir. My Dad raised seven on the union wage. How can I convince the folks of this simple fact ?
anne -> Think... , January 22, 2017 at 06:06 PM
My Dad raised seven on the union wage. How can I convince the folks of this simple fact?

[ By carefully explaining how this came to pass, the history of family told in context of the times is important. ]

Think -> anne... , January 23, 2017 at 01:23 AM
Well, my dear, the truth is so simple that it eludes us. If American families have enough money, they will succeed.

My Dad was part of the cohort from WW2. They came back and were not about to succumb to those who did so little.I remember, during a strike, him going out with a bat to put an end to the company running scabs. They beat the hell out of them.

Some things are worth fighting for.

DrDick -> Think... , January 23, 2017 at 07:25 AM
Bull. We are of the same generation and the 1950s was a period of almost unprecedented prosperity and upward mobility. Several factors drove this. First was the GI Bill, with free college and low cost home loans for vets. Second was the emergence or expansion of several industries which created a high demand for skilled labor and technical professionals (electronics, aerospace, petrochemicals, etc.). Third was massive government infrastructure investment, like the interstate highway system. Finally, strong unions fighting for the interests of the workers. Violence and bigotry help no one and the Tangerine Turd in the White House will do nothing good for working people.
Kaleberg : , January 22, 2017 at 05:00 PM
The problem is that every nation that has ever developed in terms of productive capacity and increased living standards on this here earth of ours has done so by erecting some type of barrier. There really is no other way, at least not one that has been demonstrated to work. The barriers may take different forms and be more or less penetrable, but they remain. Before the turbine and diesel engines, transportation could be considered a barrier, but it is not much of a barrier today.

One of the big problems we have nowadays is trying to solve problems that are basically too big to be solved, let alone solved simplistically. The nation state, for all its myriad faults, was a driving force for development and our current level of wealth. It was a powerful counter to the multi-nationalism of the feudal era which had an international upper class that was favored over the actually productive urban and trading classes. Encouraging multi-national corporations and coddling world-wide elites by trying to provide them the benefits of development without its political costs has been a formula for disaster.

realpc : , January 22, 2017 at 06:39 PM
Nationalism is natural. You either have nations or you have one big all-powerful world government.

Caring about your own nation first is common sense. Incredible that Trump even has to say it. But in this crazy political environment, it has to be said.

If you don't put yourself first, you will stop existing. If you don't put your nation first, it will stop existing.

All software developers understand modular design. Nature is designed modularly, and human society is part of nature.

We have nations because we are part of nature.

Sure you can love the whole world if you want. But if you care more about the rest of the world than your own nation, you are nuts. And yes, it is normal to be nuts these days.

DrDick -> realpc... , January 23, 2017 at 07:27 AM
"Nationalism is natural"

Proving once again that you are an idiot who knows nothing. Nationalism is an artificial construct which only emerges in the late 18th-early 19th centuries, and does not spread widely until the late 19th-early 20th centuries.

river -> DrDick... , January 23, 2017 at 12:34 PM
I don't know the history between you two, and realpc may in fact be an idiot, but what he said above hardly proves that he is an idiot.

"nationalism is an artificial construct?" What does that even mean? I presume it means something like what is talked about here: http://ostrovletania.blogspot.com/2010/01/are-nations-artificial-or-natural.html

http://www.nebraskastudies.org/0500/frameset_reset.html?http://www.nebraskastudies.org/0500/stories/0503_0106.html

So here is some quick google information about native american tribes who fought over limited resources. I wonder if that was an artificial construct as well? Or if one tribe fought other tribes to help their own families out. I wonder if a starving neanderthal would share the meat off of a recent kill with a neanderthal not part of his tribe? Would that be an artificial construct? Surely Germany came into existence in the late 18th and early 19th centuries, but before that, the groups that became Germany were just as nationalistic as they were after they became Germany . . . they just defined their nation in more limited terms.

DrDick -> river... , January 23, 2017 at 01:02 PM
*sigh*
People pay me good money to teach them about this stuff, but I do not think either of you could pass the entrance exam. Read Benedict Anderson, "Imagined Communities", or the works of E. J. Hobsbawm and T. O. Ranger on nationalism to start with. The truth is that mobile foragers(what all humans were until about 20,000 years ago) are not really very territorial. See the work of Brian Ferguson on the anthropology of warfare.

https://books.google.com/books?id=CDAWBQAAQBAJ&pg=PA152&lpg=PA152&dq=hunter+gatherers+not+very+territorial&source=bl&ots=uqmsMIK3Jb&sig=HlrZ1Wr6nPGzsGId__be2XfR9Z4&hl=en&sa=X&ved=0ahUKEwj_j625k9nRAhUY0mMKHU0cDggQ6AEIGjAA#v=onepage&q=hunter%20gatherers%20not%20very%20territorial&f=false

river -> DrDick... , January 23, 2017 at 01:41 PM
Sorry, I am just a stupid engineer, and make sure that the building that you live and work in will stand up in an earthquake, yet, I am probably too stupid to ever know what you know. But that said, I didn't know that I am stupid, so I will probably ask a question that will make a genius like yourself roll their eyes in disgust that I was ever awarded a degree from an american university . . . but I don't have time to read four different authors on the subject of a simple blog post, so I am going to ask it anyways . . . you said that nationalism is an artificial construct that only came around about 200 years ago, and I came back with some ideas about, if that were the case, then why did different indian tribes battle over scarce resources (and also simply assumed that ancient humans behaved very similar to native american tribes). You rebutted that by insulting my intelligence, pointing me to four obscure academic authors (if I was as cool and as smart as Good Will Hunting, I am sure I would have read and remembered all the authors that you are pointing me to already, but alas, I am not), and then said that up until 20,000 years ago, there was surprisingly little conflict among people. So, what is it, was nationalism something that came about 20,000 years ago, or was it something that came about 200 years ago. And did indian tribes wage wars against each other? If they did, is that a form of nationalism, or is it different? If it is different, explain how.

IF you are not smart enough to be able to answer these simple questions that support what you have asserted, then I would suggest that you don't go on message boards and insult the intelligence of others!

anne : , January 22, 2017 at 08:09 PM
http://econospeak.blogspot.com/2017/01/auerbachs-tax-and-clone-wars.html

January 22, 2017

Auerbach's Tax and the Clone Wars

Menzie Chinn * introduces a new asset to economist blogging. Joel Trachtman ** provides an excellent discussion of whether the Destination-Based Cash Flow Tax violates WTO rules concluding that it does. He adds:

"If enacted, the plan would likely lead to lengthy litigation at the World Trade Organization. A (likely) ruling that the tax is an income tax, and is applied in a discriminatory manner, would mean that exempting exports would be considered an illegal subsidy and taxes on imports an illegal tariff. This could lead to trade sanctions against the U.S. and open the door to counter sanctions and the start of a trade war."

President Trump strikes me as someone who could care less about WTO rules. And starting a trade war fits his grand design of governance. As Yoda noted:

"Begun the clone war has"

President Trump is Lord Palpatine.

* http://econbrowser.com/archives/2017/01/econofact-bringing-facts-and-data-to-policy-debates

** http://econofact.org/house-gop-tax-plan-aims-to-boost-competitiveness-might-also-violate-trade-law

-- PGL

anne -> anne... , January 22, 2017 at 08:10 PM
Nicely done.
Tom aka Rusty : , January 23, 2017 at 07:09 AM
Rodrik seems to spend less time with math models and more time engaging with reality.

Perhaps a model for other economists?

Robert C Shelburne : , January 23, 2017 at 09:10 AM
Another good article by Rodrik but a weakness of his analysis is that welfare is assumed to be based upon real income and not relative income with ones "group". Most analyses of welfare find that relative income is quite important. Obviously if one assumes that one's reference group is the world, then the problem goes away; but empirically this is not the case. Assuming that welfare is strongly affected by relative income with a group which is smaller than the world, then global equality is no longer welfare maximizing. Those interested in these issues might be interested in Robert Shelburne, A Utilitarian Analysis of Trade Liberalization, available as a UN working paper.
river : , January 23, 2017 at 11:05 AM
Much like how the biggest environmentalist is the one who already has her house built, the economists safely in their ivory tower and comfortable with their tenured positions in academia were more than happy to volunteer the American working class to give up some of their wealth so that people living in extreme property in the developing world could have slightly better positions. I am glad to see that this is what you guys argued for with all of your "free trade" agreements that you pushed for over the last several decades. Sadly, this is exactly what led us to Trump as president.
reason -> river... , January 24, 2017 at 01:48 AM
Their models told them precisely that some people would suffer and others gain, but also that with appropriate redistribution everybody could gain. But appropriate redistribution was never forthcoming. Time for a national dividend.
river -> reason ... , January 24, 2017 at 01:20 PM
Appropriate redistribution will NEVER be forthcoming. It is so easily demonized, and people don't want redistributed income. They want jobs!

This is why the Democrats lost. And frankly, this is the whole point of democracy.

[Feb 01, 2017] The economists safely in their ivory tower and comfortable with their tenured positions in academia were more than happy to volunteer the American working class to give up some of their wealth so that people living in extreme property in the developing world could have slightly better positions

Notable quotes:
"... I am glad to see that this is what you guys argued for with all of your "free trade" agreements that you pushed for over the last several decades. Sadly, this is exactly what led us to Trump as president. ..."
"... Their models told them precisely that some people would suffer and others gain, but also that with appropriate redistribution everybody could gain. But appropriate redistribution was never forthcoming. Time for a national dividend. ..."
"... Appropriate redistribution will NEVER be forthcoming. It is so easily demonized, and people don't want redistributed income. They want jobs! ..."
Feb 01, 2017 | economistsview.typepad.com
river : January 23, 2017 at 11:05 AM
Much like how the biggest environmentalist is the one who already has her house built, the economists safely in their ivory tower and comfortable with their tenured positions in academia were more than happy to volunteer the American working class to give up some of their wealth so that people living in extreme property in the developing world could have slightly better positions.

I am glad to see that this is what you guys argued for with all of your "free trade" agreements that you pushed for over the last several decades. Sadly, this is exactly what led us to Trump as president.

reason -> river... , January 24, 2017 at 01:48 AM
Their models told them precisely that some people would suffer and others gain, but also that with appropriate redistribution everybody could gain. But appropriate redistribution was never forthcoming. Time for a national dividend.
river -> reason ... , January 24, 2017 at 01:20 PM
Appropriate redistribution will NEVER be forthcoming. It is so easily demonized, and people don't want redistributed income. They want jobs!

This is why the Democrats lost. And frankly, this is the whole point of democracy.

[Feb 01, 2017] There has not been free trade or free market for a long long time if ever.

Feb 01, 2017 | economistsview.typepad.com
Tom aka Rusty : January 30, 2017 at 12:02 PM , 2017 at 12:02 PM
There has not been "free trade" for a long long time if ever.

There is "negotiated trade" with rules set by governments.

Yuuuuge difference.

Peter K. -> Tom aka Rusty... , January 30, 2017 at 12:29 PM
Exactly. And the rules have been set by U.S. multinational corporate negotiators. Just look at TPP.

There is also dollar policy which is again set by corporate interests.

Paul Samuelson also praised Australia's Tariffs & US became ultra rich under Lincoln's protectionism : , -1
In case anyone cared, Samuelson also argued cogently for Australia's high tariff regime in a famous 1981 article.

In case economists want to bother learning history (why would they?) - you can also consider the funny example of Abraham Lincoln who "took away property rights" and raised tariffs sky high.

Did the US become a poor third world country because it took away plantation owners' property rights and jacked up tariffs? Hmm. Reason to pause and reflect economists?

[Feb 01, 2017] Disingenuous talk about loss on manliness from neoliberals who destroyed the US jobs in seeking redistribution of profits up

Feb 01, 2017 | economistsview.typepad.com
Fred C. Dobbs : January 29, 2017 at 06:13 AM , 2017 at 06:13 AM
The end of manly labor
http://www.bostonglobe.com/ideas/2017/01/29/the-end-manly-labor/WjzhrUhDCFnWGN1NcR0clL/story.html?event=event25
via @BostonGlobe - Rob Walker - January 29, 2017

It may be simplistic, or even wrongheaded, but the working-class man has become a political obsession. President Trump won this voting bloc with promises of resurrecting the "good jobs" of America's industrial heyday, ostensibly by toughening trade rules and jawboning individual companies. Democrats agree on the need to appeal to working-class men, but the party's strategy for doing so hasn't changed much since Nov. 8: Mostly we hear about addressing income inequality by raising the minimum wage, improving family leave, and making college more affordable.

But it's not clear that those issues resonate with the archetypal Rust Belt factory worker displaced by globalism, technology, or both. For starters, there's no grand-gesture proposal - no modern heir to the job-creating Works Progress Administration, let's say - to capture the imagination. The minimum wage doesn't mean much to this group, and family leave is more of a "new working class" issue, says Lance Compa, who teaches US labor law and international labor rights at Cornell University. After all, we're talking about a theoretical voter who once earned up to $30 an hour and could support a family without advanced skills or education beyond high school - and basically wants that life back.

And maybe there's another factor lurking in the background: This guy - you pictured a guy, right? - frames his concerns more bluntly. "Manly dignity is a big deal for most men," argued Joan C. Williams, founding director of the Center for WorkLife Law at the University of California, Hastings College of the Law, in a November essay for Harvard Business Review. "So is breadwinner status: Many still measure masculinity by the size of a paycheck. White working-class men's wages hit the skids in the 1970s and took another body blow during the Great Recession. . . . For many blue-collar men, all they're asking for is basic human dignity (male varietal)."

Let's acknowledge the obvious: The collision between 21st-century economic realities and the male ego makes an odd topic for think tank symposiums or congressional hearings. To consider "manly dignity" in the context of economic policy is no excuse to bring back a "when men were men" vision of Manhood 1.0 - much less to embrace the alt-right tweeters raining hatred upon women.

But just because an issue is awkward for scholars and politicians to address doesn't mean it isn't shaping our economy and our politics. "Look," Williams wrote, "I wish manliness worked differently."

Ultimately, men who are truly stuck in the past are going to find out that sloganeering and braggadocio won't revive it. Economist Betsey Stevenson has a point when she argues that "Manly Men Need to Do More Girly Jobs," as the title of her recent Bloomberg View column put it.

Still, as a straightforward matter of both policy and rhetoric, courting any group involves understanding, not belittling, its core concerns and addressing them in ways that make sense specifically to members of that group. Boosting an industrial policy that speaks to this class of men on its own terms "has just not been on the radar of the Democratic Party or progressives in general," Williams said in an interview.

After all, the wave of post-election attention notwithstanding, blue-collar men have been or felt under assault for decades. Writing in The Baffler, author Susan Faludi recently revisited some of her reporting for her 1999 book, "Stiffed: The Betrayal of the American Man." Her subjects, bitter about lost jobs, declining status, shifting gender values, and untrustworthy elite power structures, seem remarkably familiar.

It's not quite right to suggest that no one before Trump paid attention to these men. One popular and pragmatic-sounding solution is retraining: taking workers from sectors that economic change has destroyed and equipping them with the skills to participate in those it is creating. The problem is that men often don't seem to want those newer jobs. "These are working-class people," Ohio congressman Tim Ryan told NPR not long after the election, when he was challenging Nancy Pelosi for the Democratic House leadership role. "They don't want to get retrained, you know, to run a computer. They want to run a backhoe. They want to build things."

Moreover, newer job categories often involve work that has been dominated by women. Janette Dill, an assistant professor of sociology at the University of Akron, has researched lower-level jobs in the health care industry - a fast-growing category, according to government statistics - such as medical and nursing assistants. Very few men pursue such work. "There's some stigma around doing these kind of feminized job tasks," Dill says, such as helping a patient get out of bed or use the bathroom. While it's often physically demanding, it's "seen as women's work," she adds.

At the same time, Dill has seen some evidence of an uptick in younger male workers embracing health care positions with "more of a technical dimension." A gig as a surgical technician, respiratory therapist, or occupational therapist can pay $40,000. The proliferation of jobs like these may not sound as exciting as lightning-bolt gestures toward new car plants. But these new health care jobs generally require a two-year degree, not a four-year baccalaureate, and they "seem more masculine," as Dill carefully puts it.

Meanwhile, manufacturing itself isn't a lost cause, even if its golden age is unlikely to return, argues Timothy Bartik, a senior economist at the Upjohn Institute for Employment Research in Kalamazoo, Mich. Bartik advocates several ideas that could appeal to the working-man crowd: a more demand-driven approach to retraining; manufacturing extension services designed to help existing smaller manufacturers grow; and economic "empowerment zones" - a Bill Clinton-era policy that provided block grants to regions that devised plans to deploy them according to strategic local needs. These involve federal help but, importantly, play out at regional levels.

This could be more effective than doling out company-specific tax breaks or deploying the blunt instrument of tariffs on the one hand and a more macro-oriented, top-down approach on the other. Empowerment zones are an unlikely successor to the Works Progress Administration - the Depression-era federal agency that put unemployed men to work on public building projects - but could be positioned as a WPA-like expression of tangible government action.

Bartik notes the importance of "rhetorical emphasis" - selling these ideas as specifically beneficial to communities built on old-school working-class economics. Hillary Clinton did propose policies (including some that overlap with these ideas) to help US manufacturing, but for whatever reason, he says, "that didn't seem to get much attention."

What's missing is a more sweeping vision that gives alienated men - and others - a sense that the economy has a use for the kind of work they want to do.

Williams, of UC Hastings, says this is where progressives have been misguided and failed to think big and advocate a comprehensive industrial and educational policy. She points to the Markle Foundation's Rework America initiative, which calls for better matching of skills and training with real job demand. Germany's approach, involving apprenticeship programs and educational structures that also produce middle-skill workers that industry actually needs, offers an example. The point is to think beyond a one-size-fits-all advocacy of the four-year college degree - a "delusory" solution, as Williams puts it, that leaves some workers cold. "The kind of work that college grads do doesn't appeal to them," she says. "That's not their skill set."

Clearly this shift would take time, but Compa, the Cornell labor scholar, adds a couple of practical suggestions that could speak directly and immediately to displaced manufacturing workers. One is an effort to reinvigorate workers' compensation laws, which have withered in many states. Another is to improve COBRA policies, which allow laid-off workers to hang onto health benefits, by extending their duration and forcing companies to pay for them. "I don't want to stereotype," he says, "but men want to feel that they're providing for their family, and one way to provide for your family is to make sure they have health insurance." (Bartik further suggests considering ways of bridging later-career manufacturing layoff victims to retirement if retraining isn't a realistic possibility.)

Finally, Compa thinks we should embrace another facet of America's industrial peak: unions. Building bonds among working-class people as they take their own interests into their own hands, unions can still help provide the sense of dignity that some feel is lost. "The idea that we're going to stand together against this powerful force on the other side," he says, "I think that gives a sense of meaning and purpose."

That basic idea speaks to lost manliness, but also transcends it. Compa mentions that he was surprised to learn how little the sorts of low-level health care workers that Dill studies earn - maybe $12 an hour. "I understand they didn't go to college," he says. "But their work is so important, and requires the same skill and care and attention that a machinist job requires. They should get those kind of wages." Since the market's not making that happen, maybe organizing could.

Dill herself points out that these low wages are symptomatic of a direct link between the "stigma" of feminized labor that those manly men avoid and its direct economic consequences: "The kind of work that women do is often not as valued, by society." So more broadly, maybe this suggests that policy could speak to "the working man" in a way that's also heard by the broader and more diverse working class.

For all her frustration with the way she feels Democrats have ignored or misunderstood seekers of "dignity (male varietal)," Williams thinks so, too. "I don't think this is a zero-sum game," she says. Aggressively advocating for ways to create more and better middle-skill jobs will benefit workers of any race or gender.

But doing that will require progressive policy thinkers to dream bigger and push harder - to man up, you might say.


jonny bakho -> Fred C. Dobbs... , January 29, 2017 at 09:02 AM
Not helpful
Our media relentlessly markets "culture" to males
Sports culture, car culture, gun culture &c are supported by Big$
It is difficult to change the culture when Ad$$ are creating headwinds.
It is all a BigLie, but very appealing
Cultural change is slow, one funeral at a time
libezkova -> Fred C. Dobbs... , January 29, 2017 at 02:56 PM
This talk about "manliness" is disingenuous.

Loss of work is a loss of social status in any industrial society.

And often involves real hardships, such as loss of home, breakup of family, etc.

libezkova -> libezkova... , January 29, 2017 at 02:59 PM
Neoliberals seek to redistribute profits up and for this noble goal all means are good. Including decimation of lower 80% of their compatriots. Who cares. They are all cosmopolitans now.

[Feb 01, 2017] A corollary of neoliberalism with it s hyper-economism was the corruption of the elites who engaged in enrichment by all means

Notable quotes:
"... In economics, liberalism espoused "neo-liberalism" which was the replacement economic ideology for social-democracy. It championed, especially under the Clinton-Blair duo, financial liberalization, much smaller welfare state, and so-called "meritocracy" which essentially meant the ability of the rich to place their kids into the best schools out of which 90% would graduate and thus "meritocratically" claim later in life huge wage premiums. Free trade agreement privileged, as Dean Baker has written, the interests of the rich in advanced economies through protection of patents and intellectual property rights and with scant or no attention to labor rights. In the international arena, through the World Bank and the IMF, Clintonite neo-liberalism was associated with Washington consensus policies. They are in many respects reasonable policies, but were applied dogmatically and mindlessly especially with respect to privatization and often with the principal objective of ensuring that the debts be collected regardless of the social effects on the population. Greece is the best known example of such policies because it sits in the middle of Europe and the results of "debt collections" are easiest to see. But the same principles were applied across the world. ..."
"... Underpinning such policies was an ideology that saw economic success as the only dimension (in addition to the acceptance of certain liberal tropes which I will mention below) in which worth of an individual is expressed or measured. ..."
"... Corruption. A corollary of this hyper-economicism in ordinary life was the corruption of the elites who espoused the same yardstick of success as everybody else: enrichment by all means. Avner Offer documents this shift in his analysis of where social-democracy went astray with "New Labour" and "New Democrats". The corruption of the political class, not only in the West but in the entire world, had a deeply corrosive and demoralizing effect on the electorates everywhere. Being politician became increasingly seen as a way to acquire personal riches, a career like any other, divorced from any real desire either to do "public service" or to try to promote own values and provide leadership. "Electoralism", that is doing anything to be elected, was liberalism's political credo. In that it presaged the populists. ..."
Feb 01, 2017 | economistsview.typepad.com
Peter K. : January 30, 2017 at 12:37 PM , 2017 at 12:37 PM
Branko Milanovic had the best link in today's links. Of course PGL passed it over as unworthy of comment. kthomas called him a Russian.

Is there a rise in hate crime against Russian businesses and people with Eastern European sounding names? Wouldn't be surprised.

http://glineq.blogspot.com/2017/01/is-liberalism-to-blame.html

Sunday, January 29, 2017

Is liberalism to blame? by Branko Milanovic

By "liberalism" I mean what is considered under this term in the US. By "to blame" I mean "for the rise of Trump and similar nationalist-populists".

What are the arguments for seeing liberal triumphalism which began with the collapse of Communism in the 1990s as having produced the backlash we are witnessing today? I think they can be divided into three parts: economics, personal integrity, and ideology.

In economics, liberalism espoused "neo-liberalism" which was the replacement economic ideology for social-democracy. It championed, especially under the Clinton-Blair duo, financial liberalization, much smaller welfare state, and so-called "meritocracy" which essentially meant the ability of the rich to place their kids into the best schools out of which 90% would graduate and thus "meritocratically" claim later in life huge wage premiums. Free trade agreement privileged, as Dean Baker has written, the interests of the rich in advanced economies through protection of patents and intellectual property rights and with scant or no attention to labor rights. In the international arena, through the World Bank and the IMF, Clintonite neo-liberalism was associated with Washington consensus policies. They are in many respects reasonable policies, but were applied dogmatically and mindlessly especially with respect to privatization and often with the principal objective of ensuring that the debts be collected regardless of the social effects on the population. Greece is the best known example of such policies because it sits in the middle of Europe and the results of "debt collections" are easiest to see. But the same principles were applied across the world.

Underpinning such policies was an ideology that saw economic success as the only dimension (in addition to the acceptance of certain liberal tropes which I will mention below) in which worth of an individual is expressed or measured. That ideology found broad acceptance across the world, fanned by globalization and by what that ideology has pleasing to the human psyche which craves acquisition of more. It was thus consistent with human nature and probably helped increase world output several-fold and reduce world poverty. But it might have been pushed too hard to the exclusion of other human characteristics and helped create especially among those who were economically less successful resentment and estrangement from the values promoted by liberals.

Corruption. A corollary of this hyper-economicism in ordinary life was the corruption of the elites who espoused the same yardstick of success as everybody else: enrichment by all means. Avner Offer documents this shift in his analysis of where social-democracy went astray with "New Labour" and "New Democrats". The corruption of the political class, not only in the West but in the entire world, had a deeply corrosive and demoralizing effect on the electorates everywhere. Being politician became increasingly seen as a way to acquire personal riches, a career like any other, divorced from any real desire either to do "public service" or to try to promote own values and provide leadership. "Electoralism", that is doing anything to be elected, was liberalism's political credo. In that it presaged the populists.

It is, I think, important to see the link between the economic ideology of "commercialism" which informed economic policies since the early 1980s in the West and China, and since the 1990s in the formerly Communist countries, and systemic and all-pervasive corruption of the elites. Since being successful meant amassing most money, politicians could not operate in a different dimension (for example in "ideals") nor could they get elected without being corrupt because campaigns could not be fought without money. It is an illusion that the political space may operate according to different rules from the rest of society.

Pensée unique. Liberalism introduced a dogmatic set of principles, "the only politically correct way of thinking" characterized by identity politics and "horizontal equality" (no differences, on average, in wages between men and women, different races or religions) which left actual inequality go unchecked. A tacit hierarchy was introduced, where the acceptance of these watered-down principles of equality combined with economic success, was the requirement to be "non-deplorable". Others, those who did not do well economically or did not adhere to all the tenets of the mainstream thinking, were not only failures but morally inferior.

The high priests of liberalism, ruling the media, loved to hold, at the same time, logically contradictory beliefs which somehow were both "good". Thus they created terminological or behavioral contortions that were either direct attacks on common sense or examples of hypocrisy as "supporting the troops" while being "against the war" or giving enormous donations to private schools (in order to get their names emblazoned in classrooms) while "supporting public education". They were not embarrassed by contradictions, nor accepted trade-offs: you could support soldiers killing civilians "because soldiers protect us" and be against the war and killing of civilians at the same time; you could send kids to private schools and be in favor of public education; you could fret about climate change, berate others who do not, and emit more CO2 than 99% of the mankind. It was ideologically an extremely comfortable position. It required very little mental effort to accept five or six essential tenets (you could just read a couple of writers who repeated ad nauseum the same ideas in the main liberal publications), and it allowed you to do wherever you liked while claiming that every such action was ethically unimpeachable. Everybody was a paragon of virtue and indulged all their preferences.

Others who failed to appreciate the advantages of such a position were ignored until their dissatisfaction exploded. No one among liberals seemed to think it odd (much less to do something about it) that the best educated country in the world with one of the highest world per capita GDPs, could have a third of the population who believed in creationism or in aliens running our lives. It really did not matter to the elite so long as these people existed in the Netherworld.

Those who trusted in Fukuyama, and to whom the 1990s seemed like a triumph that would keep them at the pinnacle of human evolution forever, see today's events as a catastrophe not only because they could indeed lead to a catastrophe but because their carefully nurtured ersatz ideology and place in society have collapsed.

I am writing this in Vienna, in Prater, overlooking a giant Ferris Wheel which inevitably makes one think of Harry Lime. One can see liberalism as having set the Ferris Wheel in motion, with each car moving at first slowly and then faster and faster. The ride brought immense joy at first, but eventually, it seems, somebody turned on the switch to super-fast, locked the control room, and most of us are now in these cars that no one controls and no one can stop, running at break-neck speed, and wondering how and when the crash will come.

Peter K. -> Peter K.... , January 30, 2017 at 12:38 PM
"A corollary of this hyper-economicism in ordinary life was the corruption of the elites who espoused the same yardstick of success as everybody else: enrichment by all means. Avner Offer documents this shift in his analysis of where social-democracy went astray with "New Labour" and "New Democrats". The corruption of the political class, not only in the West but in the entire world, had a deeply corrosive and demoralizing effect on the electorates everywhere. Being politician became increasingly seen as a way to acquire personal riches, a career like any other, divorced from any real desire either to do "public service" or to try to promote own values and provide leadership. "Electoralism", that is doing anything to be elected, was liberalism's political credo. In that it presaged the populists."

Think of Hillary's speeches to Goldman Sachs, etc, and Obama's failure to throw bankers in jail.

[Feb 01, 2017] Are the neoliberals all riled up because the immigrant ban might reduce terror shootings in US

Notable quotes:
"... I happen to think the heartlessness of this Order was a feature, not a bug, in order to garner maximum attention. I just read Mish's comment section, and Trump's base is cheering. ..."
"... silent on ethnic racism and the rest of US so much more guilty ..... on drone assassination and militarist nation building gone awry, tilting with nuclear war to keep NATO less recondite, etc, etc....... ..."
"... Before the Nazi had the power to go after the Jews they had effect the party's police state, before which ordinary Germans [and whatever police there were after the depression shuttered everything] permitted the party to do organized violence on their opponents: the social democrats, socialists, bolshevists, et al. ..."
"... The ban on returning residents is utterly against the law. ..."
Feb 01, 2017 | economistsview.typepad.com

pgl : , January 29, 2017 at 01:45 AM
Bill McBride on Trump's Muslim ban:

'Mr. Trump's executive order is un-American, not Christian, and hopefully unconstitutional. This is a shameful act and no good person can remain silent.'

Thanks for saying this Bill. JFK International had a demonstration against this ban that featured the detention of a brave Iraqi who helped US troops. This ban is also incredibly stupid.

Jerry Brown -> pgl... , January 29, 2017 at 02:10 AM
I add my thanks to yours. Very important post from Bill McBride.
pgl -> Jerry Brown... , January 29, 2017 at 03:04 AM
A temporary victory from the courts:

http://thehill.com/blogs/blog-briefing-room/news/316714-federal-judge-blocks-trump-immigration-ban-nationwide

New Deal democrat -> pgl... , January 29, 2017 at 05:24 AM
Agreed in full.

I happen to think the heartlessness of this Order was a feature, not a bug, in order to garner maximum attention. I just read Mish's comment section, and Trump's base is cheering.

But on a longer term scale, heartlessness towards Muslim immigrants and DREAMers is going to turn persuadables against Trump. That and the next recession.

EMichael -> New Deal democrat... , January 29, 2017 at 05:29 AM
We'll differ on this one part, people that voted for Trump are not persuadables. They have always voted the same way in every single election they have voted in.

Amazes me that even now people keep thinking that Trump voters are anything but loyal GOP voters. And I think the best argument against this (besides common sense) is the reaction of Rep leaders to this obviously illegal action.

They're silent.

They cannot afford to speak out against this racist policy, as their own voters are for this racist policy.

ilsm -> EMichael... , January 29, 2017 at 05:45 AM
silent on ethnic racism and the rest of US so much more guilty ..... on drone assassination and militarist nation building gone awry, tilting with nuclear war to keep NATO less recondite, etc, etc.......

Are the libruls all riled up because the immigrant ban might reduce terror shootings in US to reduce screaming for techno-murder?

New Deal democrat -> EMichael... , January 29, 2017 at 06:11 AM
There were a fair amount of voters who "came home" to the GOP before the election, even though they found Trump himself distasteful. At least some of those nouveau-Reagan democrats also voted for him because of his economic agenda. They believed that his racism was all for show.
New Deal democrat -> EMichael... , January 29, 2017 at 06:57 AM
A further historical analogy ....

Once upon a time, for academic reasons I read the same book that Trump was rumored to have by his bedside in NYC: the english translation of the full text of Adolf Hitler's speeches. Hitler's argument for getting ordinary Germans to go along with his extreme anti-Semitic agenda was masterful. It went in essence like this: "I know that there are a very few good Jews, and you may know a few of them. But the vast majority of Jews, who you don't know, are evil. But in order to get to the mass of bad apples, we might have to inflict some hardship on a few good people." By getting people to overlook their own experience with Jews they knew, he prevailed.

In contrast - for example - gay rights triumphed when enough people knew gays in their ordinary lives, and realized that they were no different from anybody else. So they were unable to see any valid reason to discriminate against them.

This ban is much more like the second situation than the first. It is inflicting a lot of pain on a lot of good people, in order to get to (allegedly) a few bad apples, and people can see that. It is not going to be popular.

anon -> New Deal democrat... , January 29, 2017 at 08:24 AM
" for academic reasons I read the same book that Trump was rumored to have by his bedside in NYC"

unsubstantiated nonsense. other wise known as fake news

New Deal democrat -> anon... , January 29, 2017 at 08:36 AM
Unsubstantiated = It may or may not be nonsense, since we don't know if it is true or not. Hence, as I said, "rumor."

Have a nice day.

ilsm -> New Deal democrat... , January 29, 2017 at 01:24 PM
Before the Nazi had the power to go after the Jews they had effect the party's police state, before which ordinary Germans [and whatever police there were after the depression shuttered everything] permitted the party to do organized violence on their opponents: the social democrats, socialists, bolshevists, et al.

It was way too late when the pogrom started.

Peter K. -> EMichael... , January 29, 2017 at 08:05 AM

"We'll differ on this one part, people that voted for Trump are not persuadables. They have always voted the same way in every single election they have voted in."

Reminds me of the obstinate, closed-mindedness which Trump voters direct at immigrants and Muslims.

BenIsNotYoda -> Peter K.... , January 29, 2017 at 08:26 AM
The ban on returning residents is utterly against the law.

However, I agree on PeterK. The closed mindedness of neoliberals to their own follies has brought this state of affairs upon us. Wake up.

Peter K. -> BenIsNotYoda... , January 29, 2017 at 08:34 AM
Neoliberals have not delivered a growing, healthy economy despite Krugman's claims that everything is great, crime is down, etc.

Obama's record for 8 years is an average of 1.7 percent growth. NGDP is even worse which is why I support an NGDP target for the Fed. It would show how poorly they have done.

This after decades of corporate trade deals and a shrinking middle class.

People are angry. They want scapegoats. Trump provided them with scapegoats and the uneducated white working class took the bait.

Gibbon1 -> Peter K.... , January 29, 2017 at 11:48 AM
Peter K shows an understanding of politics.
ilsm -> pgl... , January 29, 2017 at 05:33 AM
I agree!

but..... there are a lot more for all parties in starting with funding and training jihadis to do Assad like US did Qaddafi and Libya......

Bill pastes:

"Republicans in Congress who remain quiet or tacitly supportive of the ban should recognize that history will remember them as cowards."

http://www.calculatedriskblog.com/2017/01/these-are-not-normal-times.html#cGvlOOcKIMa08xzJ.99

Most of the 95% rest of the world see the US like the NYT says history see GOP congress.

point -> pgl... , January 29, 2017 at 05:36 AM
I appreciate Bill's judgement that Trump's acts are odious, but "un-American, not Christian, and hopefully unconstitutional" seems to be going too far.

It only takes a quick tour of historical US acts on immigration to find plenty of precedent.

1870-1943, Chinese.
1882, lunatics.
1907, Japanese
1921, everybody.
1923, Indians.
1932, everybody, especially Mexicans.

This according to the useful article:
https://en.wikipedia.org/wiki/History_of_laws_concerning_immigration_and_naturalization_in_the_United_States


New Deal democrat -> point... , January 29, 2017 at 06:04 AM
Small historical anecdote.

Mme. Chiang Kai Shek (recently deceased at age 106 on Long Island) has much to answer for before the bar of history, but she had one shining moment.

Supposedly at one point during WW2 both she and Winston Churchill were living at the White House (must have made for interesting dinner conversation). Anyway, during that time she gave a speech to Congress. In that speech she pointed out that Japanese militarist propaganda, that America's myth of liberty and equality before the law was hypocritical, had one inconvenient feature: given the Chinese and Japanese Exclusion Acts, it was true.

This speech was so shaming that Congress changed the law to allow Asian immigation - in a trickle at first, but thereafter a river.

kthomas -> New Deal democrat... , January 29, 2017 at 06:23 AM
Thank you for sharing.
ilsm -> New Deal democrat... , January 29, 2017 at 06:48 AM
Mme Chiang was Christian, spent part of youth in Georgia.

Japanese militarist propaganda used 'Asian co-prosperity' propaganda to point out imperialism..... too!

Java was Dutch, etc.

New Deal democrat -> ilsm... , January 29, 2017 at 07:15 AM
Yes, and her teenage voyage to San Francisco ended with her being treated exactly like the people being detained at airports this weekend. It made a lifelong impression on her.
ilsm -> New Deal democrat... , January 29, 2017 at 01:27 PM
She married Chiang to give him a link to the west....

Aside I am no fan of Chiang and Mme C.

BenIsNotYoda -> point... , January 29, 2017 at 08:27 AM
whenever bans were by democrat presidents, people here will never criticize.
Tom aka Rusty -> pgl... , January 29, 2017 at 05:51 AM
Given at least 16 years of intentional presidential failure to fully enforce immigration laws, this seems pretty small change.

But enough to make lefty heads explode.

Have a nice day.

PS: Did the State Department intentionally avoid Christian Arabs for refugee status? Not certain.

EMichael -> Tom aka Rusty... , January 29, 2017 at 05:57 AM
Wow.

Five feet over your head.

kthomas -> EMichael... , January 29, 2017 at 06:23 AM
What head? Brain by accident.
ilsm -> EMichael... , January 29, 2017 at 06:49 AM
ad hom when you ate wrog the best tool.
kt too!
Observer -> Tom aka Rusty... , January 29, 2017 at 06:49 AM
Yes, its pretty unremarkable. And you are correct the that Christian Arab refugees from Syria have been accepted at 5% of the rate their population would suggest:

"But the numbers tell a different story: The United States has accepted 10,801 Syrian refugees, of whom 56 are Christian. Not 56 percent; 56 total, out of 10,801. That is to say, one-half of 1 percent.

The BBC says that 10 percent of all Syrians are Christian, which would mean 2.2 million Christians. It is quite obvious, and President Barack Obama and Secretary John Kerry have acknowledged it, that Middle Eastern Christians are an especially persecuted group."


Here's a quite detailed discussion of the background around the EO and its implementation ... including the 2015 law limiting visas from those countries, and the reference for the above quote. It also contrasts the headlines in much of the press. As they say, read the whole thing.

"There is a postponement of entry from 7 countries (Iraq, Syria, Iran, Libya, Somalia, Sudan and Yemen) previously identified by the Obama administration as posing extraordinary risks.

That they are 7 majority Muslim countries does not mean there is a Muslim ban, as most of the countries with the largest Muslim populations are not on the list (e.g., Egypt, Indonesia, Malaysia, India, Pakistan, Bangladesh, Turkey, Nigeria and more).

Thus, the overwhelming majority of the Muslim world is not affected.

Moreover, the "ban" is only for four months while procedures are reviewed, with the exception of Syria for which there is no time limit.

There is a logic to the 7 countries. Six are failed states known to have large ISIS activity, and one, Iran, is a sworn enemy of the U.S. and worldwide sponsor of terrorism.

And, the 7 countries on the list were not even so-designated by Trump. Rather, they were selected last year by the Obama administration as posing special risks for visa entry ..."

I believe they don't mention that IIRC we were bombing 5 of the 7 counties on the list last month.

http://legalinsurrection.com/2017/01/most-claims-about-trumps-visa-executive-order-are-false-or-misleading/

BenIsNotYoda -> Tom aka Rusty... , January 29, 2017 at 08:31 AM
The current system relies on referrals from the United Nations High Commissioner for Refugees. Syria's population in 2011 was 90 percent Muslim and 10 percent Christian, CNS said. Less than 3% admitted as refugees are Christian. But not the state dept's doing.
Peter K. -> Tom aka Rusty... , January 29, 2017 at 09:48 AM
why was Obama called "Deporter in chief?"

Too bad your empathy for those in the Rust Belt doesn't extend to honest, innocent immigrants trying to make a better life for their families.

DrDick -> pgl... , January 29, 2017 at 07:37 AM
Yep! But we need to get used to it, because this is just the beginning.
pgl : , January 29, 2017 at 01:52 AM
I've seen some farmers of late complaining about Trump's protectionism hurting their business. Yes they are smart enough to realize that the dollar appreciation will reduce their exports. Too bad these rural Americans were not smart enough on election day not to vote Trump in as President.
kthomas -> pgl... , January 29, 2017 at 04:04 AM
Stupid is as stupid does. Stupid is the new Smart.
ken melvin -> kthomas... , January 29, 2017 at 04:42 AM
The man knows only what he's seen on cable TV most of which he doesn't understand. Knows nothing about: economics, trade, foreign affairs, government, law, ... He epitomizes the know nothings of the world, and, the fact that he doesn't know doesn't bother him in the least. A narcissists-grandiose type with neither regard nor interest for the probable consequences.
ken melvin -> ken melvin... , January 29, 2017 at 04:45 AM
I think it's wrong to even hope Trump turns out well. I think the country needs act to save democracy, to save itself from traveling down the road of despots and tyrants, from the likes of Trump who can be manipulated by the likes of Bannon.
ilsm -> ken melvin... , January 29, 2017 at 05:36 AM
We need a Dr. King, America's Gandhi!
RC AKA Darryl, Ron -> ilsm... , January 29, 2017 at 07:57 AM
We have needed one ever since the last one we had was murdered.
im1dc -> kthomas... , January 29, 2017 at 07:37 AM
'Stupid is as stupid does. Stupid is the new Smart."

LOL, loved that.

It will make a great Bumper Sticker coupled with the GOP logo of its Red, White, and Blue elephant

BenIsNotYoda -> kthomas... , January 29, 2017 at 08:33 AM
stupid is one who ignores that Obama presidency growth averaged 1.7% and failed to lift millions while wall street prospered and corporate market power increased both in goods and labor markets.
kthomas -> BenIsNotYoda... , January 29, 2017 at 09:25 AM
He's not President anymore. Now go f yourself, Vlad.


BenIsNotYoda -> kthomas... , January 29, 2017 at 09:38 AM
awwww. did I hurt your fragile sensibility?
ilsm -> pgl... , January 29, 2017 at 05:35 AM
I will dig out that best seller about Jackson and review the chapter on Nullification in Charleston,. SC........

[Jan 30, 2017] It is not just a matter of the author being able to afford Word and the equipment and other software to use it productively. There are larger issues like how do you prepare your graphs and images? We need to talk about particular publishing ecosystem

Jan 30, 2017 | economistsview.typepad.com
cm -> Chris G ... Reply Sunday, January 29, 2017 at 12:21 AM

, January 29, 2017 at 12:21 AM
The comparison comes 20 years late. In the 90's, MS Word was unsuitable for academic and scientific writing, period. Even for short documents like a conference or term paper. It was geared entirely to corporate users. In addition it was riddled with bugs and layout "quirks".

In reality, you also have to fiddle with Latex, and in the 90's embedding images was big PITA.

What I did not see in the comparison is price. I suppose one would need to compare legally-owned copies of one product vs. the other.

It is not just a matter of the author being able to afford Word and the equipment and other software to use it productively. E.g. how do you prepare your graphs and images? Also business partners accepting or returning the documents will have to buy into the "ecosystem".

Academia is a highly collaborative venture, and one has to consider overall cost and productivity.

Today there is PDF as a pretty established (readonly) document format, back in the day the standard in academia was Postscript.

Chris G -> cm... , January 29, 2017 at 06:35 AM

>In the 90's, MS Word was unsuitable for academic and scientific writing, period... It is not just a matter of the author being able to afford Word and the equipment and other software to use it productively. E.g. how do you prepare your graphs and images?

I used Word when writing my thesis in '94-95 - each chapter a separate doc, figures inserted by creating artwork separately and then using a high-end copy machine to integrate text and figures. It was an ugly process.

> Also business partners accepting or returning the documents will have to buy into the "ecosystem".

That's what led my employer to switch from WordPerfect to MS Word and from Lotus 1-2-3 to Excel in the late '90s. Our customer, the US Govt, imposed a requirement that all reports and supplementary material, e.g., presentations and spreadsheets, be submitted in MS Office formats.

> What I did not see in the comparison is price. I suppose one would need to compare legally-owned copies of one product vs. the other.

Figure the business owns legal copies. Purchase price is one consideration, another is the cost to maintain the software and keep staff trained in how to use it.

The inertia - the tendency to stick with what you've got - can be huge when taking the latter factors into account. In an academic research group not only is there a mentality that you want to use the best available tool for the job but there's constant turnover, which supports rapid adaptation and evolution. Inertia is low. In contrast, turnover in (non-startup) business environments is comparatively slow.

Those businesses make cost-benefit assessments of adopting new software. The tendency is to stick with what you've got until it's absolutely positively unsustainable to do so.

[Jan 30, 2017] Academia standardized, and contributed to, the most promising free and working alternative. That's how TeX became standard de-facto for scientific publications

Jan 30, 2017 | economistsview.typepad.com
cm -> Observer... , January 29, 2017 at 01:07 AM
Every product is made for a market/audience. When TeX/LaTeX were created, the itch to be scratched was technical and scientific publications with content and formatting requirements that most commercial tools targeted at corporate users were simply unsuitable for, regardless of price level. Aside from affordability by organizations and individuals largely in the non-commercial sector.

So academia standardized, and contributed to, the most promising "free" and "working" alternative.

If you don't have an appreciation for that, it's probably because you never had the need. Like with everything else. Most people are not interested in arcane medical implements and materials, or even mundane home furnishings, until they need them.

Fred C. Dobbs -> supersaurus... , January 28, 2017 at 11:05 PM
When the first paper volume of Donald Knuth's The Art of Computer Programming was published in 1968, it was typeset using hot metal typesetting set by a Monotype Corporation typecaster. This method, dating back to the 19th century, produced a "good classic style" appreciated by Knuth. When the second edition of the second volume was published, in 1976, the whole book had to be typeset again because the Monotype technology had been largely replaced by phototypesetting, and the original fonts were no longer available. When Knuth received the galley proofs of the new book on 30 March 1977, he found them awful. Around that time, Knuth saw for the first time the output of a high-quality digital typesetting system, and became interested in digital typography. The disappointing galley proofs gave him the final motivation to solve the problem at hand once and for all by designing his own typesetting system. On 13 May 1977, he wrote a memo to himself describing the basic features of TeX. ...

The first version of TeX was written in the SAIL programming language to run on a PDP-10 under Stanford's WAITS operating system. For later versions of TeX, Knuth invented the concept of literate programming, a way of producing compilable source code and cross-linked documentation typeset in TeX from the same original file. The language used is called WEB and produces programs in DEC PDP-10 Pascal. ...(Wikipedia)

(And so, Tex begat LaTex.
Much as UNIX begat Linux, etc.)

[Jan 29, 2017] There are no referees in the world of alternative facts. Might makes right.

Notable quotes:
"... The last time I subsidized the NYT a Clinton was president. ..."
Jan 29, 2017 | economistsview.typepad.com
anne : January 28, 2017 at 05:12 AM , 2017 at 05:12 AM
http://krugman.blogs.nytimes.com/2017/01/27/border-tax-two-step-wonkish/

January 27, 2017

Border Tax Two-Step (Wonkish) By Paul Krugman

Trump tantrums aside, you may be finding the whole border tax adjustment discussion confusing. If so, you're not alone; I've worked in this area my whole life, I co-wrote a widely cited paper * (with Martin Feldstein) on why a Value Added Tax isn't an export subsidy, and I have still had a hard time wrapping my mind around the Destination-Based Cash Flow Tax border adjustment that sort-of-kind-of constituted the basis for the Mexico incident.

But I have what I think may be a (relatively) easy way to think about it, which starts with the competitive effects of a VAT, then analyzes the DBCFT as a change from a VAT.

So, first things first: a VAT does not give a nation any kind of competitive advantage, period.

Think about two firms, one domestic and one foreign, selling into two markets, domestic and foreign. Ask how the VAT affects competition in each market.

In the domestic market, imports pay the border adjustment; but domestic firms pay the VAT, so the playing field is still level.

In the foreign market, domestic firms don't pay the VAT, but neither do foreign firms. Again, the playing field is still level.

So a VAT is just a sales tax, with no competitive impact.

But a DBCFT isn't quite the same as a VAT.

With a VAT, a firm pays tax on the value of its sales, minus the cost of intermediate inputs – the goods it buys from other companies. With a DBCFT, firms similarly get to deduct the cost of intermediate inputs. But they also get to deduct the cost of factors of production, mostly labor but also land.

So one way to think of a DBCFT is as a VAT combined with a subsidy for employment of domestic factors of production. The VAT part has no competitive effect, but the subsidy part would lead to expanded domestic production if wages and exchange rates didn't change.

But of course wages and/or the exchange rate would, in fact, change. If the US went to a DBCFT, we should expect the dollar to rise by enough to wipe out any competitive advantage. After the currency adjustment, the trade effect should once again be nil. But there might be a lot of short-to-medium term financial consequences from a stronger dollar.

I think this is right, and I hope it clarifies matters. Oh, and no, none of this helps pay for the wall.

* http://www.nber.org/chapters/c7211.pdf

ilsm -> anne... , January 28, 2017 at 05:19 AM
ad hominem, then I appeal to my authority let my shark out and think like me....poor pk

dubious equivalence

appeal to cognitive biases.

I suggest a referee!

Peter K. -> ilsm... , January 28, 2017 at 05:36 AM
There are no referees in the world of alternative facts. Might makes right.
ilsm -> Peter K.... , January 28, 2017 at 09:55 AM
The last time I subsidized the NYT a Clinton was president.
Peter K. -> ilsm... , January 28, 2017 at 10:17 AM
I stopped when Krugman and the NYT became so rude and unfair about Bernie Sanders and his supporters.

Finally an authentic left alternative appears on the scene and they lose their minds.

ilsm -> Peter K.... , January 28, 2017 at 01:01 PM
DNC = RNC!

The odd man is Trump!

Peter K. -> anne... , January 28, 2017 at 05:35 AM
" If the US went to a DBCFT, we should expect the dollar to rise by enough to wipe out any competitive advantage. After the currency adjustment, the trade effect should once again be nil. "

This is the big lie the progressive neoliberals like Krugman and PGL are pushing. Why? To combat Trump's economic nationalism.

Trump told his advisers the tax is too complicates so it probably won't see the light of day.

He'll do the 20 percent import tax on Mexico to pay for the wall. Then he'll do something with China.

[Jan 28, 2017] Putin said for over two centuries Russia has supported the United States, was its ally during the two world wars, and now sees the United States as a major partner in fighting international terrorism.

Notable quotes:
"... "Both sides demonstrated a mood for active, joint work on stabilizing and developing Russian-American cooperation," the Kremlin said in a statement, saying Putin and Trump had agreed to work on finding a possible time and place for a meeting. ..."
"... The Kremlin said the US President asked his Russian counterpart "to wish the Russian people happiness and prosperity" on his behalf, adding Americans "have warm feelings towards Russia and its citizens." Putin said the feeling was "mutual," stressing that historically, the Russians and the Americans were close allies on more than one occasion. ..."
"... Putin said "for over two centuries Russia has supported the United States, was its ally during the two world wars, and now sees the United States as a major partner in fighting international terrorism." ..."
"... Moscow, for its part, has repeatedly suggested fostering closer cooperation between the Russian and US Air Forces in Syria, but blamed the previous Obama administration for failing to adequately respond to its entreaties. Relations between the two countries have been marred in recent years over various issues, including divisions on the Syrian crisis and allegations of Russian meddling into the US elections in November of 2016. US sanctions against Russia - imposed over the crisis in Ukraine - was one of the issues expected to be on the agenda of the Trump-Putin exchange. However, the issue was not mentioned in the Kremlin's statement summarizing the conversation. ..."
"... Russia has been cautious about the prospects for a potential "reset" with the US under the new administration. Russian Foreign Minister Lavrov said the country has no "naive expectations" and is under no "illusions." ..."
Jan 28, 2017 | economistsview.typepad.com
Fred C. Dobbs January 28, 2017 at 01:06 PM

Putin, Trump, in 'Positive' Call, Say Want to Cooperate in Syria: Kremlin https://nyti.ms/2jIzuKa
NYT - REUTERS - January 28, 2017

MOSCOW - Russian President Vladimir Putin and U.S. President Donald Trump said in a "positive" phone call on Saturday they favored their two countries cooperating in Syria to defeat Islamic State, the Kremlin said in a statement.

In an eagerly awaited phone call, the first since Trump's inauguration, the two men stressed the importance of restoring economic ties between the two countries and of stabilizing relations, the Kremlin said.

U.S.-Russia relations had hit a post-Cold War low under Barack Obama and Trump has made clear he wants a rapprochement with Moscow if he can get along with Putin.

"Both sides demonstrated a mood for active, joint work on stabilizing and developing Russian-American cooperation," the Kremlin said in a statement, saying Putin and Trump had agreed to work on finding a possible time and place for a meeting.

There was no mention in the statement that the possibility of Trump easing sanctions on Moscow imposed over the Ukraine conflict had been mentioned, a subject widely expected to be raised.

The Kremlin said Trump and Putin had agreed to establish "partner-like cooperation" when it came to global issues such as Ukraine, Iran's nuclear program, tensions on the Korean peninsula and the Israeli-Arab conflict.

Trump's stance on Russia has been under intense scrutiny from critics who say he was elected with help from Russian intelligence, an allegation he denies. His detractors have also accused him of being too eager to make an ally of Putin.

For Putin, an easing of Western sanctions would be a major coup ahead of next year's presidential election as it would help the economy recover.

libezkova -> Fred C. Dobbs... , January 28, 2017 at 03:58 PM

Compare the coverage with

https://www.rt.com/news/375416-putin-trump-telephone-call/

== quote ==

In their first phone conversation that lasted nearly an hour, Russian President Vladimir Putin and the new US President Donald Trump have outlined their intent to cooperate on issues ranging from defeating Islamic State to mending bilateral economic ties.

"Both sides expressed their readiness to make active joint efforts to stabilize and develop Russia-US cooperation on a constructive, equitable and mutually beneficial basis," as well as "build up partner cooperation" on a wide range of international issues, according to a Kremlin statement following their discussion.

The White House said that the "positive" conversation was "a significant start to improving the relationship between the United States and Russia that is in need of repair."

"Both President Trump and President Putin are hopeful that after today's call the two sides can move quickly to tackle terrorism and other important issues of mutual concern," the White House statement added.

After speaking with Chancellor Merkel for 45 minutes @POTUS is now onto his 3rd of 5 head of government calls, speaking w Russian Pres Putin pic.twitter.com/RPAWIgcO2C
- Sean Spicer (@PressSec) January 28, 2017Q

"The Presidents have spoken in favor of establishing a real coordination between the US and Russian actions in order to defeat ISIS and other terrorist organizations in Syria," the Kremlin statement said.

The two leaders also discussed the Israeli-Palestinian conflict as well as Iran's nuclear program. "Major aspects of the Ukrainian crisis have been also touched upon," the Kremlin announced.

The leaders of Russia and the US have noted a need to restore economic ties "to stimulate" further development of the relationship between the nations. Putin and Trump also agreed to initiate a process to "work out possible dates and venue of their personal meeting."

Telephone conversation with US President Donald Trump https://t.co/mjp9Tta1sE
- President of Russia (@KremlinRussia_E) 28 января 2017 г.Q
During the conversation the Presidents also expressed their desire to "maintain regular personal contacts," the Kremlin statement said.

The Kremlin said the US President asked his Russian counterpart "to wish the Russian people happiness and prosperity" on his behalf, adding Americans "have warm feelings towards Russia and its citizens." Putin said the feeling was "mutual," stressing that historically, the Russians and the Americans were close allies on more than one occasion.

Putin said "for over two centuries Russia has supported the United States, was its ally during the two world wars, and now sees the United States as a major partner in fighting international terrorism."

U.S. President Donald Trump © Mark MakelaTrump hopes to get along with Russia, 'knock the hell out of ISIS together'

On Friday, speaking at a joint briefing with British Prime Minister Theresa May, Trump said he hoped he would have a "fantastic relationship" with Russia's president, but understands that might not happen. Trump has said previously that he would welcome Moscow's involvement in a joint effort to battle Islamic State (IS, formerly ISIS/ISIL).

"I don't know Putin, but if we can get along with Russia that's a great thing. It's good for Russia; it's good for us; we go out together and knock the hell out of ISIS, because that's a real sickness," he said in an interview with Fox News.

Moscow, for its part, has repeatedly suggested fostering closer cooperation between the Russian and US Air Forces in Syria, but blamed the previous Obama administration for failing to adequately respond to its entreaties. Relations between the two countries have been marred in recent years over various issues, including divisions on the Syrian crisis and allegations of Russian meddling into the US elections in November of 2016. US sanctions against Russia - imposed over the crisis in Ukraine - was one of the issues expected to be on the agenda of the Trump-Putin exchange. However, the issue was not mentioned in the Kremlin's statement summarizing the conversation.

Citing an unnamed source in the White House, a researcher at the Atlantic Council analytical center, Fabrice Pothier, wrote in a Twitter post on Thursday that the Trump administration "has an executive order ready" to lift the restrictions on Moscow, but Trump said on Friday that it is "very early to be talking about that."

U.S. House of Representatives in Washington © Gary Cameron Top Dem to propose bill to hamstring Trump in relaxing sanctions on Russia with GOP wingmen

However, earlier in January, Trump said that he would consider lifting restrictions if Moscow cooperates with Washington on certain issues, such as nuclear arms reduction.

"They have sanctions on Russia - let's see if we can make some good deals with Russia. For one thing, I think nuclear weapons should be way down and reduced very substantially, that's part of it," Trump was quoted as saying by the Times.

Trump also said in one of his Tweets that "having a good relationship with Russia is a good thing, not a bad thing," warning only "fools" would think otherwise. However, several US Senators proposed a bill last week that would make it impossible for the US President to lift restrictions without congressional approval.

Russia has been cautious about the prospects for a potential "reset" with the US under the new administration. Russian Foreign Minister Lavrov said the country has no "naive expectations" and is under no "illusions."

[Jan 28, 2017] Classic GOPsters try to hide trickle down economics under a layer of Doublespeak

Notable quotes:
"... Yes the interesting difference between Trump and classic GOPsters is that they always have been careful with the language they use. They will say something that (to the average american) sounds like a promise of one thing but in reality doesn't actually promise that thing. ..."
"... So classic GOPsters try to hide "trickle down economics" under a layer of Doublespeak... ..."
Jan 28, 2017 | economistsview.typepad.com
DeDude -> Fred C. Dobbs... , January 28, 2017 at 07:08 AM
Yes the interesting difference between Trump and classic GOPsters is that they always have been careful with the language they use. They will say something that (to the average american) sounds like a promise of one thing but in reality doesn't actually promise that thing. When they fail to deliver, they can defend themselves as having not lied (or failed on their promises). Trump is a condo salesman, he will say whatever it takes to get the contract signed, the fact that he lied is no big deal because by the time the marks find out, he has gotten all their money.
Peter K. -> DeDude... , January 28, 2017 at 09:59 AM
Well if Trump is just a plain ole Republican then the Republicans have nothing to worry about.

Republicans have been about trickle down economics. No government involvement. In fact deregulation. Tax cuts for the rich period.

Trump is talking about the government involved. In currency policy. In infrastructure. In his rhetoric. We'll see what happens when the tire hits the road.

libezkova -> DeDude... , January 28, 2017 at 01:25 PM
"Yes the interesting difference between Trump and classic GOPsters is that they always have been careful with the language they use."

An interesting observation. Thank you !

So classic GOPsters try to hide "trickle down economics" under a layer of Doublespeak...

[Jan 26, 2017] Clinton's bad economics - which is neoliberal economics - was also bad politics.

Jan 26, 2017 | economistsview.typepad.com
Peter K. : January 26, 2017 at 07:28 AM

Sanjait -> Peter K....

Hillary proposed around $1.8 trillion / 10 years in total new spending programs as of early last year, then added more throughout the campaign season.

We've talked about this a number of times before and yet you insist on pretending that infrastructural spending is the only spending because your whole backward ideology is predicated on lying about what Hillary Clinton actually proposed. Seek mental help and stop being such a mendacious twat.

Reply Wednesday, January 25, 2017 at 07:35 PM

Seems like Sanjait is the mendacious twat who gets really angry when proven wrong. He can't argue the facts, like other centrists, so they try to shout you down.

Clinton's bad economics - which is neoliberal economics - is bad politics. If you google Hillary infrastructure spending you get:

https://www.hillaryclinton.com/issues/fixing-americas-infrastructure/

"That's why Hillary Clinton has announced a $275 billion, five-year plan to rebuild our infrastructure-and put Americans to work in the process"

Trump won the election partly on his promises to rebuild the infrastructure bigly. The Senate Democrats have upped the ante with a trillion dollar 10 year plan. That's twice as much as Hillary's plan.

https://www.washingtonpost.com/politics/democrats-set-to-unveil-a-trump-style-infrastructure-plan/2017/01/23/332be2dc-e1b3-11e6-a547-5fb9411d332c_story.html

They know its good politics. The Post article says Trump was thinking a trillion (via tax incentives and private-public partnerships) but his friend is quoted as saying more like $500 billion over ten years - Hillary sized.

Why wasn't Hillary's plan larger? Read Krugman's blog post from yesterday.

http://krugman.blogs.nytimes.com/2017/01/25/reagan-trump-and-manufacturing/

Too much fiscal expansion causes the Fed to raise rates and the dollar to appreciate. Did Hillary or her economics surrogates ever explain this? No. Alan Blinder did say that Hillary's fiscal plan wouldn't be large enough to cause the Fed to alter it's rate hike path.

Krugman says fiscal deficits near full employment causes interest rates to rise, like it's an economic law.

He's missing the middle factor, inflation. Fiscal deficits cause inflation which cause the Fed to raise raise rates.

Oh yeah he left out the Fed also.

I repeated the story about Clinton dropping his middle class spending bill in favor of deficit reduction but of course the neoliberals ignore it.

J.W. Mason:

http://jwmason.org/slackwire/what-does-crowding-out-even-mean/

"The master parable for this story is the 1990s, when the Clinton administration came in with big plans for stimulus, only to be slapped down by Alan Greenspan, who warned that any increase in public spending would be offset by a contractionary shift by the federal reserve. But once Clinton made the walk to Canossa and embraced deficit reduction, Greenspan's fed rewarded him with low rates, substituting private investment in equal measure for the foregone public spending. In the current contest, this means: Any increase in federal borrowing will be offset one for one by a fall in private investment - because the Fed will raise rates enough to make it happen."

Sanjait wasn't even aware that the Fed has switched over to the corridor system and will use IOER to help control inflation as it raises rates. He assumed Dani Rodrik was a woman.

And he presumes to go around and call people names about technical issues that can be debated rationally with reference to the facts?

Peter K. -> pgl... , January 26, 2017 at 08:37 AM

... ... ...

https://www.dissentmagazine.org/article/the-legacy-of-the-clinton-bubble

"In 1992, Bill Clinton campaigned on the promise of a short-term stimulus package. But soon after being elected, he met privately with Alan Greenspan, chair of the Federal Reserve Board, and soon accepted what became known as "the financial markets strategy." It was a strategy of placating financial markets. The stimulus package was sacrificed, taxes were raised, spending was cut-all in a futile effort to keep long-term interest rates from rising, and all of which helped the Democrats lose their majority in the House. In fact, the defeat of the stimulus package set off a sharp decline in Clinton's public approval ratings from which his presidency would never recover.

It is easy to forget that Clinton had other alternatives. In 1993, Democrats in Congress were attempting to rein in the Federal Reserve by making it more accountable and transparent. Those efforts were led by the chair of the House Banking Committee, the late Henry B. Gonzalez, who warned that the Fed was creating a giant casino economy, a house of cards, a "monstrous bubble." But such calls for regulation and transparency fell on deaf ears in the Clinton White House and Treasury.

The pattern was set early. The Federal Reserve became increasingly independent of elected branches and more captive of private financial interests. This was seen as "sound economics" and necessary to keep inflation low. Yet the Federal Reserve's autonomy left it a captive of a financial constituency it could no longer control or regulate. Instead, the Fed would rely on one very blunt policy instrument, its authority to set short-term interest rates. As a result of such an active monetary policy, the nation's fiscal policy was constrained, public investment declined, critical infrastructure needs were ignored. Moreover, the Fed's stop-and-go interest-rate policy encouraged the growth of a bubble economy in housing, credit, and currency markets.

Perhaps the biggest of these bubbles was the inflated U.S. dollar, one of several troubling consequences of the Clinton administration's free-trade policies. Although Clinton spoke from the left on trade issues, he governed from the right and ignored the need for any minimum floor on labor, human rights, or environmental standards in trade agreements. After pushing the North American Free Trade Agreement (NAFTA) through Congress on the strength of Republican votes, Clinton paved the way for China's entry into the World Trade Organization (WTO) only a few years after China's bloody crackdown on pro-democracy demonstrators at Tiananmen Square in Beijing.

During Clinton's eight years in office, the U.S. current account deficit, the broadest measure of trade competitiveness, increased fivefold, from $84 billion to $415 billion. The trade deficit increased most dramatically at the end of the Clinton years. In 1999, the U.S. merchandise trade deficit surpassed $338 billion, a 53 percent increase from $220 billion in 1998.

In early March 2000, Greenspan warned that the current account deficit could only be financed by "ever-larger portfolio and direct foreign investments in the United States, an outcome that cannot continue without limit." The needed capital inflows did continue for nearly eight Bush years. But it was inevitable that the inflows would not be sustained and the dollar would drop. Perhaps the singular success of Bill Clinton was to hand the hot potato to another president before the asset price bubble went bust."

Peter K. -> Peter K.... , January 26, 2017 at 08:39 AM
http://articles.latimes.com/1994-10-30/opinion/op-56424_1_deficit-reduction

"The downward spiral began with Clinton's 1993 abandonment of his original threefold economic program--deficit reduction, economic stimulus and government investment in the nation's physical and human infrastructure. Facing opposition to the last two, Clinton abandoned them and focused on deficit reduction. This painted him into a corner that makes it near impossible to achieve any programmatic progress in this term--and so makes unlikely any hope of a second.

The 1993 story has been cast as the victory of the "deficit hawks," sober economists intent on reducing the gap between federal spending and tax revenues, over the purely political advocates of spending on the investment programs. But the common perception--that the "hawks" represented the responsible economic community, as against the irresponsible politicians--is not true.

Almost every one of the economists in the Clinton Administration had earlier espoused economic policies where stimulus took priority over deficit control. Rightly frightened by the mounting deficits of the Reagan-Bush years, however, by the 1990s they had abandoned their roots for Federal Reserve Chairman Alan Greenspan's "responsible" economics--where reduction of the deficit and fear of inflation were the operative factors."

Peter K. -> Peter K.... , January 26, 2017 at 08:44 AM
http://www.pbs.org/wgbh/americanexperience/features/interview/clinton-reich/

"Now, the irony is that Wall Street had never squawked when the first George Bush was spending like gangbusters or when Ronald Reagan was spending like mad. But the thought was that a Democratic administration has to sort of prove its chops, prove itself capable of being much more fiscally responsible than its Republican predecessors because it's a Democratic administration. Well, to us, to me, to those on my side of the debate, that sounded absurd. I mean, yes, let's satisfy the bond traders to some extent. Obviously, we have to get the deficit down somewhat. But let's not sacrifice the Clinton agenda.

....

Reich: The desire to do it all, to have the Clinton priorities and yet satisfy Wall Street led to this extraordinary effort to go line by line by line through the budget and to try to extract enough. And then the question was, "Well, how much is enough?" Do you bring the budget deficit down from five percent of the gross domestic product down to two and a half percent? Which is, basically, cutting the deficit by half. That's what many of us said we're perfectly fine to do.

Others, who were the deficit hawks, said, "No, no, no, no. You actually have to reduce the absolute amount of the deficit by half. That was your campaign promise, that's what we need to do. That's the only way we're going to satisfy Wall Street."

And in the background, Alan Greenspan, as head of the Fed, was whispering in ears -- Lloyd Bentsen's ear, and I think also the President's ear, "If you don't get this budget deficit down, I am not going to cut short-term interest rates. And if I don't cut short-term interest rates, by the time you face the next election in 1996, this economy is not going to be growing buoyantly, and you may not be re-elected." That's called extortion."

Peter K. -> Peter K.... , January 26, 2017 at 08:47 AM
https://www.jacobinmag.com/2011/08/the-waning-of-the-bond-market-vigilantes/

The Waning of the Bond Market Vigilantes

by Peter Frase

It wasn't so long ago that American politicians lived in fear of the bond market. During the Clinton administration, James Carville famously said that "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody." That phenomenon gave rise to the concept of the "bond market vigilantes," which Krugman loves to employ.

But today, the bond market vigilantes are not much in evidence. Or rather, they are in evidence, but they suddenly seem unable to have much of an impact on US fiscal policy. Bill Gross, of the ludicrously enormous bond fund PIMCO, is running around screaming about the need for more borrowing and more stimulus. But he has no effect, because it turns out that while bond investors have powerful ways of constraining US government borrowing, they have only indirect and weak means of expanding it.

The United States has a large debt that is routinely rolled over, and it generally runs a budget deficit (Clinton interregnum aside). If bond investors start demanding higher interest rates on government debts, this immediately raises the cost of borrowing for the US government. This, in turn, has knock-on effects throughout the economy, as interest rates rise for everyone and economic activity is thereby constrained. For these reasons, the US government has powerful incentives to avoid doing things that cause the interest rate on treasuries to rise.

Today, however, we find ourselves in the opposite situation: what the bond market seems to want most of all is for the US to borrow more money and stimulate the economy. That's the best explanation for the incredibly low yield on Treasury bonds, which is negative in real terms over some time periods. And yet the US is not borrowing more; instead both parties are demanding insane policies that will cause a second recession, ostensibly based on fallacious notions about the magical effects of budget cutting and a nonsensical conception of the relationship between government and household finances.

The problem here is that the power of the bond market is asymmetrical. When the interest rate on Treasuries go up, this immediately makes all of the government's activities more expensive, and hence forces changes in fiscal planning. But when the interest rate falls to near zero, this only presents an opportunity for expanded borrowing, an opportunity that can easily be thrown away if the political system is too insane and dysfunctional to take advantage of it.

Hence the bond vigilantes sit on the sidelines, impotent and hopeless. Just like the rest of us.

...

[Jan 26, 2017] Dean Baker has some interesting Free Market proposals that will make elitist libertarians sputter

Jan 26, 2017 | economistsview.typepad.com
jonny bakho : , January 26, 2017 at 05:15 AM
Dean Baker has some interesting "Free Market" proposals that will make elitist libertarians sputter.
He suggests a vacant property tax, which I see is a good idea, especially in dense urban areas. It takes our city years to get abandoned houses condemned or landlord compliance through the legal system.
I would take it one step further and drastically raise taxes on parking lots. I would not allow religious organizations to exempt their parking lots from this tax. Other buildings, ok, but churches should not be allowed to destroy the tax base and neighborhoods by replacing buildings with parking lots.
jonny bakho -> jonny bakho... , January 26, 2017 at 05:18 AM
I would say that Dean Bakers proposals fit with DeLong's call for better economic policy:

From his comments

"I would note that the "trade deals" did not create international trade. If you want to say that we should have no international trade, be my guest--but Donald Trump will not agree with you. The problem is that he is saying that getting rid of NAFTA and getting tough with China will bring all those good manufacturing jobs back. And that is completely false.

As I say, technology has carried us down from 30% to 12%--and we do not want to hinder that--lousy macro policies have gotten us down from 12% to 9%, and "trade deals" have maybe gotten us down from 9% to 8.6%. If you don't want to hear that, I can't make you..."

I would note that the "trade deals" did not create international trade. If you want to say that we should have no international trade, be my guest--but Donald Trump will not agree with you. The problem is that he is saying that getting rid of NAFTA and getting tough with China will bring all those good manufacturing jobs back. And that is completely false.

http://www.bradford-delong.com/2017/01/nafta-and-other-trade-deals-have-not-gutted-american-manufacturingperiod-live-at-voxcom.html#comments

DrDick -> jonny bakho... , January 26, 2017 at 07:17 AM
Meh. I generally really like Baker, but these are pretty weak tea. I do agree with him that the AMA monopoly needs to be broken.
RC AKA Darryl, Ron -> DrDick... , January 26, 2017 at 07:40 AM
Dean Baker writing about market based reforms for publication by AEI is not the pro-labor Dean Baker that we have come to love and honor. It gets him exposure that he would otherwise not have though.
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[Jan 26, 2017] Neoliberals hate unions and destroyed upward mobility, rasing inequality to the highers level in the US history

Notable quotes:
"... Late last year (December 2016), an interesting academic research paper was released by the National Bureau of Economic Research – The Fading American Dream: Trends in Absolute Income Mobility Since 1940 – which provides stark evidence of the way in which this neo-liberal era is panning out and suppressing the opportunities for the least advantaged. ..."
"... Recently released research is now showing that around 50 per cent of American children born in 1980 have incomes higher than their parents compared to 90 per cent born in 1940. The so-called 'American Dream' is looking like a nightmare. ..."
"... The message from Pen was that the damage was done by the time the child reached their teenage years. While the later stages of Capitalism has found new ways to reinforce the elites which support the continuation of its exploitation and surplus labour appropriation (for example, deregulation, suppression of trade unions, real wage suppression, fiscal austerity), it remains that class differentials, which have always restricted upward mobility. ..."
Jan 26, 2017 | economistsview.typepad.com
RGC : Reply Thursday, January 26, 2017 at 04:45 AM Upward mobility declines sharply as the rich make off with the growth

Posted on Thursday, January 26, 2017 by bill mitchell

Late last year (December 2016), an interesting academic research paper was released by the National Bureau of Economic Research – The Fading American Dream: Trends in Absolute Income Mobility Since 1940 – which provides stark evidence of the way in which this neo-liberal era is panning out and suppressing the opportunities for the least advantaged.

One of the constantly repeating claims made by conservatives is that if governments run deficits they are really undermining the future for their children and their children. The claim is that while the current generation is living it up (deficits are tantamount in this narrative to living a profligate existence), the next generations will have to pay for it via higher taxes and reduced services. It is a bizarre argument given that each generation chooses its own tax burden and we cannot transfer real resources through time. There is truth in the argument that if the current generation imposes terminal damage to our natural environment then we are diminishing the prospects for the future. But that is not the point that the neo-liberals make. Indeed, there is a strong positive relationship between conservative views of fiscal policy (deficits) and the propensity to engage in climate change denial.

Recently released research is now showing that around 50 per cent of American children born in 1980 have incomes higher than their parents compared to 90 per cent born in 1940. The so-called 'American Dream' is looking like a nightmare. Other research has shown that the bottom 50 per cent of the US income distribution have not enjoyed any of the growth since 1980 and that the top-end-of-town has increased its share of income from 12 per cent in 1980s to 20 per cent in 2014.

These shifts are the result of deliberate policy changes and inaction by governments, increasingly co-opted by the rich to serve their interests at the expense of the broader societal well-being. Revolutions have occurred for less.

It was considered the norm of human progress that each generation would leave the next generation better off. As parents we would ensure our children were (collectively) better off.

In his 2012 study of cultural history, The American Dream, Lawrence Samuel reprised the term introduced in 1931 by James Truslow Adams (in his The Epic of America). The two books should be read together to understand the evolution of the thinking about an American identity.

Samuel reflected on the fact that "that the term 'American Dream' was created in the darkest days of the Great Depression was all the more interesting given that many feared it no longer existed".

Times were so bad for many during that period.

Samuel published his book during the GFC, the worst downturn since the Great Depression. He considers there were six eras since the Great Depression marked by different characteristics and circumstance.

But binding the social progress that defines the 'American Dream' was, in the words of the NBER authors the "ideal that children have a higher standard of living than their parents".

We think of our own progress relative to that of our parents.

In recent history, the parents of the baby boomers had endured the Great Depression with it mass unemployment and rising poverty rates, then the Second World War and its aftermath.

Reflecting on that experience, this generation worked through government to ensure there was full employment, broad rights of citizenship with respect to income support, improved public services and reduced income inequality through income redistribution.

Wages growth was strong and proportional with productivity growth and mass education and public health improvements made obvious positive contributions to the growing well-being.

The 1950s and 1960s were not nirvana, but they were a damn site better than the two decades before that and the many before those.

Full employment combined with mass education, in particular, were considered an essential part of the quest for upward mobility

Previous research has shown that US children (a result that transfers across most nations) are pretty much doomed from the start as a result of who their parents are and the resources the parents have at their disposal.

I have written about this before. Please see – Parents are advance secret agents for the class society.

The title of that blog came from the work of Dutch economist Jan Pen, who wrote in his 1971 book – Income Distribution – that public policy had to target disadvantaged children in low-income neighbourhoods at an early age if governments wanted to change the patterns of social and income mobility.

The message from Pen was that the damage was done by the time the child reached their teenage years. While the later stages of Capitalism has found new ways to reinforce the elites which support the continuation of its exploitation and surplus labour appropriation (for example, deregulation, suppression of trade unions, real wage suppression, fiscal austerity), it remains that class differentials, which have always restricted upward mobility.

This also means that as fiscal austerity has further pushed people towards to the bottom of the income distribution that increasing numbers of children will inherit the disadvantage of their parents and this inheritance becomes a vicious circle of poverty and alienation.

In America, research has clearly shown that it is socioeconomic status rather than race which "largely explains gaps that appear to be due to race" (see cited blog for sources).

It is very obvious now that the bias towards fiscal austerity, which has been the hallmark of the neo-liberal era has increased inequality and suppressed dynamic forces in labour markets that promote upward mobility.

By failing to quickly end the most recent downturn (GFC) governments have allowed dynamic forces to multiply which reinforce disadvantage and suppress upward mobility.
While unemployment has been high (and remains high in most nations), the great American economist Arthur Okun considered it to be the 'Tip of the Iceberg'.

The point is that the costs of recession and the resulting persistent unemployment extend well beyond the loss of jobs. Productivity is lower, participation rates are lower, the quality of work suffers and real wages typically fall.

The facts associated with the current downturn are consistent with this general model.

Within this context, Okun outlined his upgrading hypothesis (in the 1960s and 1970s) and the related high-pressure economy model, which provided a coherent rationale for Keynesian demand-stimulus policy positions.

Two references of relevance are Okun, A.M. (1973) 'Upward Mobility in a High-Pressure Economy', Brookings Papers on Economic Activity, 1: 207-252 and Okun, A.M. (1983) Economics for Policymaking, Cambridge, MIT Press.

Arthur Okun (1983: 171) believed that:

unemployment was merely the tip of the iceberg that forms in a cold economy. The difference between unemployment rates of 5 percent and 4 percent extends far beyond the creation of jobs for 1 percent of the labor force. The submerged part of the iceberg includes (a) additional jobs for people who do not actively seek work in a slack labor market but nonetheless take jobs when they become available; (b) a longer workweek reflecting less part-time and more overtime employment; and (c) extra productivity – more output per man-hour – from fuller and more efficient use of labor and capital.

The positive side of this thinking is that disadvantaged groups in the economy were considered to achieve upward mobility as a result of higher economic activity. The saying that was attached to this line of reasoning was "all boats (large or small) rise on the high tide".

Okun's (1973) results are summarised as follows:

The most cyclically sensitive industries have large employment gaps, and were dominated by prime-age males, offered high-paying jobs, offered other remuneration characteristics (fringes) which encouraged long-term attachments between employers and employees, and displayed above-average output per person hour.

In demographic terms, when the employment gap is closed in aggregate, prime-age males exit low-paying industries and take jobs in other higher paying sectors and their jobs are taken mainly by young people.

In the advantaged industries, adult males gain large numbers of jobs but less than would occur if the demographic composition of industry employment remained unchanged following the gap closure. As a consequence, other demographic groups enter these 'good' jobs.

The demographic composition of industry employment is cyclically sensitive. The shift effects are in total estimated (in 1970) to be of the same magnitude as the scale effects (the proportional increases in employment across demographic groups assuming constant shares).

This indicates that a large number of labour market changes (the shifts) are generally of the ladder climbing type within demographic groups from low-pay to higher-pay industries.

So prior to the neo-liberal onslaught and during the period that governments were cogniscant of their responsibilities to maintain full employment (and actively used fiscal and monetary policy to attack high unemployment relatively quickly), a recovery reversed the damage caused by the recession.

The evidence supported the proposition that when the economy is maintained at high levels of employment, workers in low paying sectors (or occupations) also receive income boosts because employers seeking to meet their strong labour demand offer employment and training opportunities to the most disadvantaged in the population. If the economy falters, these groups are the most severely hit in terms of lost income opportunities.

The full employment era (roughly 1945 to the late 1970s) to some extent, therefore, eroded the worst effects of the class differences that we discussed earlier.

Which is one reason why the conservatives had to take control of the state, which had been acting as a mediator in the class struggle – to encourage upward mobility.
The onslaught against full employment and the Welfare State (the hallmark of the social democratic era) began in the early 1970s as well-funded right-wing (so-called 'free market') think tanks started to publish a barrage of propaganda, infiltrated academic institutions, took over the mainstream media, and, even compromised judicial processes (for example, the appointment of Lewis Powell to the US Supreme Court).

The upshot has been that once full employment was abandoned and governments adopted a chronic bias towards fiscal austerity (the belief that fiscal deficits are intrinsically bad), the upgrading benefits that used to accompany growth have been hijacked by the rich and the vast majority of the population now miss out.

In part, this is due to the increased casualisation of the labour market, the suppression of real wages growth, the attack on trade unions, and the shift away from high productivity job creation towards the FIRE sector, which is a largely unproductive sector.

The neo-liberal attack on the role of government in ensuring policy advances the well-being of all has changed the way the distributional system operates – with workers now finding it harder to gain access to real income growth despite contributing more per hour (productivity growth stronger).
Under these circumstances, the old class screening and channelling that the schooling system has provided for the Capitalist system is intensified and inequality accelerates.

We are now starting to see the empirical results of this as cohort studies permit generational comparisons. Shedding light on what has been happening between generations is the task of the NBER paper cited in the Introduction.

The paper by a host of US academics (Raj Chetty, David Grusky, Maximilian Hell, Nathaniel Hendren. Robert Manduca and Jimmy Narang) asks two questions:
First, what fraction of children earn more than their parents today? Second, how have rates of absolute mobility changed over time?

Absolute income mobility is defined as the:

the fraction of children earning or consuming more than their parents.

They seek to answer these questions using "historical data from the Census and CPS cross-sections with panel data for recent birth cohorts from de-identified tax records" that allows them to uniquely bind parent and children incomes.

I will leave it to your interest to explore the techniques they employed. They are very innovative.

Basically they:

  1. "measure income in pre-tax dollars at the household level when parents and children are approximately thirty years old, adjusting for inflation "
  2. "estimate the fraction of children who earn more than their parents in each birth cohort "

The headline findings are:

  1. "we find that rates of absolute upward income mobility in the United States have fallen sharply since 1940".
  2. "the fraction of children earning more than their parents fell from 92% in the 1940 birth cohort to 50% in the 1984 birth cohort."
  3. "Rates of absolute mobility fell the most for children with parents in the middle class."
  4. The finding of a decline in absolute majority is robust across different dimensions (pre-tax, post-transfer; age of child when measured; regions, gender, impacts of immigration, etc).
  5. "Absolute mobility fell in all 50 states between the 1940 and 1980 cohorts, although the rate of decline varied, with the largest declines concentrated in states in the industrial Midwest states such as Michigan and Illinois."

These are Trump's 'rust belts' that he appealed to during the Presidential election.

The following graph is one of many they produce (each offering a different dimension, for example, wage income, family income etc) and "plots the fraction of children earning more than their parents ('absolute mobility') by average by child birth cohort."

So you interpret it as saying that 90 per cent of children born in 1940 will on average have incomes higher than their parents, whereas, only 50 per cent of children born in 1980 will on average have incomes higher than their parents, and so on.

The authors ask: "Why have rates of upward income mobility fallen so sharply over the past half century?"

They offer the following possible reasons:

There have been two important macroeconomic trends that have affected the incomes of children born in the 1980s relative to those born in the 1940s: lower Gross Domestic Product (GDP) growth rates and greater inequality in the distribution of growth

They reject the first, saying that "the slowdown in aggregate economic growth in recent decades, although important, does not explain most of the observed decline in absolute mobility."

Their counterfactual analysis shows that:

increasing GDP growth without changing the current distribution of growth would have modest effects on rates of absolute mobility.

The problem is that:

a large fraction of GDP goes to a small number of high income earners today, higher GDP growth does not substantially increase the number of children who earn more than their parents.

The key takeaway of their research is this:

The key point is that reviving the "American Dream" of high rates of absolute mobility would require more broadly shared economic growth rather than just higher GDP growth rates.

This research is consistent with studies in other nations. For example, see the analysis in my blog – Policy changes needed to arrest decline in fortunes for low-pay British workers.

The point is that the neo-liberal era with widening income inequality, entrenched labour underutilisation, suppressed wages growth and continued attacks on income support systems is producing an unsustainable society.

Eventually, there will be a counterattack as the middle class prospects continue to be eroded. While it might not come from the current generation, the children who are no coming into adulthood have been dealt a very poor hand by their parents.

If the NBER research is correct, then 50 per cent of Americans born in 1980 (now in their mid-1930) are enjoying absolute mobility (relative to their parents), which brings into question the concept of the 'American Dream', a cultural device to maintain social stability and endeavour.

It should not be forgotten that the parents themselves are under attack from this dysfunctional system and the prospects of growing intergenerational wealth through inheritance is becoming a faded reality for many families.

Another perspective is offered in this paper also released in December 2016 by French economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman – : Distributional National Accounts: Methods and Estimates for the United States.

The paper examines the "growth rates for each quantile of the income distribution consistent with macroeconomic growth" in the US since 1913.

I will look at it more closely another day but its major findings are that:

  1. "a sharp divergence in the growth experienced by the bottom 50% versus the rest of the economy."
  2. "The average pre-tax income of the bottom 50% of adults has stagnated since 1980 at about $16,000 per adult (in constant 2014 dollars, using the national income deflator), while average national income per adult has grown by 60% to $64,500 in 2014."
  3. "As a result, the bottom 50% income share has collapsed from about 20% in 1980 to 12% in 2014."
  4. "In the meantime, the average pre-tax income of top 1% adults rose from $420,000 to about $1.3 million, and their income share increased from about 12% in the early 1980s to 20% in 2014."
  5. "The two groups have essentially switched their income shares, with 8 points of national income transferred from the bottom 50% to the top 1%. The top 1% income share is now almost twice as large as the bottom 50% share, a group that is by definition 50 times more numerous. In 1980, top 1% adults earned on average 27 times more than bottom 50% adults before tax while today they earn 81 times more."
  6. "government redistribution has offset only a small fraction of the increase in pre-tax inequality."
  7. "the upsurge of top incomes has mostly been a capital-driven phenomenon since the late 1990s. There is a widespread view that rising income inequality mostly owes to booming wages at the top end, i.e., a rise of the "working rich." Our results confirm that this view is correct from the 1970s to the 1990s. But in contrast to earlier decades, the increase in income concentration over the last fifteen years owes to a boom in the income from equity and bonds at the top. The working rich are either turning into or being replaced by rentiers. Top earners became younger in the 1980s and 1990s but have been growing older since then."

So beware the middle-class. Your children are already losing out but neo-liberal is eating into the parental well-being as well as the financial capitalists prosper.

Conclusion

This situation is obviously unsustainable.

It is time for the Left to stand up and lead the way out of this mess.

Growth and redistribution is needed. Governments have to take on the top-end-of-town. They can start by introducing employment guarantees that provide decent pay (with social wage additions) to anyone, thus eliminating the income insecurity.

Then some serious regulation is required to rein in the financial sector (I would basically eliminate much of it).

The Left are scared to say anything because, in part, their leadership is compromised by relationships with the financial capitalists (for example, the revelations about Hillary Clinton in the leaked E-mails), and, also, because they have a massive inferiority complex when discussing macroeconomics.

They think if they argue that fiscal deficits are usually desirable and should be continuous they will look irresponsible. Well that is because they have allowed the public to be indoctrinated into these erroneous views.

The Left has to launch a massive educational onslaught to redress this knowledge gap as they set about reversing the ravages of neo-liberalism.

My blog is just a little pixel in the phalanx!

That is enough for today!

http://bilbo.economicoutlook.net/blog/?p=35255#more-35255

New Deal democrat -> RGC... , January 26, 2017 at 05:19 AM
Nice article, thanks for posting this.

A brief comment. First, Okun was one smart cookie.

Shorter and nerdier Okun:

1. Wage growth increases as the U6 underemployment rate falls under 10%.

2. As the economy heats up, U6 falls faster than U3, meaning an increasing share of marginal workers get jobs. These marginal workers are disproportionately minority groups.

3. Therefore, full employment tends to increase equality.

4. Unions were good vehicles to keep the labor share high enough that full or nearly full employment happened far more often.

reason -> New Deal democrat... , January 26, 2017 at 06:48 AM
"Unions were good vehicles to keep the labor share high enough that full or nearly full employment happened far more often."

If this is true, isn't a bit of a paradox, since unions are a monopoly and in theory monopolies increase price by restricting supply? It could be true however, that the POLITICAL power of unions meant that full employment was regarded as a higher priority than inflation. (Note unions very much prioritize the interests of workers, even to some extent to the detriment of other poorer sections of the community. Could it have been that this caused a backlash in a western world that has been steadily getting older?)

General note, I'm perhaps an oddity on the left in that I'm not convinced that more union power is necessarily the way forward, no matter how effective it was in the past. I don't see the requirements of the future world as being the same as the requirements of the past.

New Deal democrat -> reason ... , January 26, 2017 at 06:55 AM
I agree that more union power might not be the primary way forward, but in the absence of other effective proposals, it certainly should be one lever.

And yes, it is a paradox. On a micro scale, unions may act to the detriment of other potential workers, but on the macro scale, the effects on full employment may well outweigh that drawback.

DrDick -> reason ... , January 26, 2017 at 07:13 AM
Union power has been the key to worker power and increasing worker share for everyone, even nonunion workers, for a century. I see no reason why that should not be true now. Indeed, we need to expand union protections to a lot of workers who have not traditionally been covered (IT workers, low level professionals, etc.).
RC AKA Darryl, Ron -> reason ... , January 26, 2017 at 07:14 AM
Unions gave us higher wages for labor. Higher wages for labor gave us more spending. More spending gave us more jobs and lower unemployment. More jobs and lower unemployment AND unions gave us higher wages for labor. It is that old virtuous cycle thing until capital and management start pulling at a thread.
Peter K. -> reason ... , January 26, 2017 at 07:43 AM
"General note, I'm perhaps an oddity on the left in that I'm not convinced that more union power is necessarily the way forward, no matter how effective it was in the past. I don't see the requirements of the future world as being the same as the requirements of the past."

I completely disagree and the acceptance of liberals of the destruction of the union movement is a primary reason why things have gone so badly.

Does Krugman ever talk about unions? No.

Does DeLong? No.

What did Obama do for unions?

Denis Drew is right. Maybe it's true that unions are never coming back but then if so we're in big trouble. It will take some sort of calamity to set things right.

Look at Senate Republicans blocking Supreme Court nominations.

If the democratic socialist ever got significant power you could expect a revolt by finance and big business and the one percent.

I've always imagined it would take a general strike to overcome such a capital strike.

My god, look at Canada. They still have unions. Same with Germany.

This fatalism regarding unions is one reason why things are so bad. Unions helped get out the vote among many other things.

One just needs to study labor history. Of course the neoliberals may be right that unions are of the past, but I suspect they're engaged in motivated reasoning.

You can unionize all jobs that can't be offshored.

Peter K. -> Peter K.... , January 26, 2017 at 07:44 AM
I suspect the anti-union sentiment as expressed by reason - and many other well-meaning types - is the result of decades of pro-business anti-union propaganda.

[Jan 26, 2017] Financialization is a key feature of neoliberalism. It refers to the capturing impact of financial markets, institutions, actors, instruments and logics on the real economy, households and daily life

Notable quotes:
"... "Financialization is a key feature of neoliberalism. It refers to the capturing impact of financial markets, institutions, actors, instruments and logics on the real economy, households and daily life. Essentially it has significant implications for the broader patterns and functioning of a (inter)national economy, transforming its fabrics and modificating the mutual embeddedness of state-economy-society." ..."
"... That's why neoliberalism is often called "casino capitalism" ..."
"... Johnson wishes that the wealthy would adopt a greater "spirit of stewardship," an openness to policy change that could include, for instance, a more aggressive tax on inheritance. "Twenty-five hedge-fund managers make more money than all of the kindergarten teachers in America combined," he said. ..."
Jan 26, 2017 | economistsview.typepad.com
ken melvin : , January 25, 2017 at 01:27 PM
Financialization from Wiki:

Greta Krippner of the University of Michigan writes that financialization refers to a "pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production." In the introduction to the 2005 book Financialization and the World Economy, editor Gerald A. Epstein wrote that some scholars have insisted on a much narrower use of the term: the ascendancy of shareholder value as a mode of corporate governance, or the growing dominance of capital market financial systems over bank-based financial systems. Pierre-Yves Gomez and Harry Korine, in their 2008 book Entrepreneurs and Democracy: A Political Theory of Corporate Governance, have identified a long-term trend in the evolution of corporate governance of large corporations and have shown that financialization is one step in this process.

Oleg Komlik asserts that financialization is a state project, stressing that:[2]

"Financialization is a key feature of neoliberalism. It refers to the capturing impact of financial markets, institutions, actors, instruments and logics on the real economy, households and daily life. Essentially it has significant implications for the broader patterns and functioning of a (inter)national economy, transforming its fabrics and modificating the mutual embeddedness of state-economy-society."

Michael Hudson described financialization as "a lapse back into the pre-industrial usury and rent economy of European feudalism" in a 2003 interview:[3]

"only debts grew exponentially, year after year, and they do so inexorably, even when–indeed, especially when–the economy slows down and its companies and people fall below break-even levels. As their debts grow, they siphon off the economic surplus for debt service (...) The problem is that the financial sector's receipts are not turned into fixed capital formation to increase output. They build up increasingly on the opposite side of the balance sheet, as new loans, that is, debts and new claims on society's output and income.

[Companies] are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt. Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding "forced saving" for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending away from goods and services.

....

libezkova -> ken melvin... , January 25, 2017 at 09:35 PM
"Financialization is a key feature of neoliberalism. It refers to the capturing impact of financial markets, institutions, actors, instruments and logics on the real economy, households and daily life."

That's why neoliberalism is often called "casino capitalism"

libezkova : , January 25, 2017 at 05:00 PM
Meanwhile neoliberal "masters of the universe" are buying private jets and create plans to evacuate families to NZ in case pitchforks arrive to their residencies

http://www.newyorker.com/magazine/2017/01/30/doomsday-prep-for-the-super-rich

== quote ==

By January, 2015, Johnson was sounding the alarm: the tensions produced by acute income inequality were becoming so pronounced that some of the world's wealthiest people were taking steps to protect themselves. At the World Economic Forum in Davos, Switzerland, Johnson told the audience, "I know hedge-fund managers all over the world who are buying airstrips and farms in places like New Zealand because they think they need a getaway."

Johnson wishes that the wealthy would adopt a greater "spirit of stewardship," an openness to policy change that could include, for instance, a more aggressive tax on inheritance. "Twenty-five hedge-fund managers make more money than all of the kindergarten teachers in America combined," he said.

"Being one of those twenty-five doesn't feel good. I think they've developed a heightened sensitivity." The gap is widening further. In December, the National Bureau of Economic Research published a new analysis, by the economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman, which found that half of American adults have been "completely shut off from economic growth since the 1970s."

Approximately a hundred and seventeen million people earn, on average, the same income that they did in 1980, while the typical income for the top one per cent has nearly tripled. That gap is comparable to the gap between average incomes in the U.S. and the Democratic Republic of Congo, the authors wrote.

[Jan 26, 2017] But Clintons negative effects were also related to the weakening the only countervailing force remaining on the way of the neoliberalism -- trade unionism. So he played the role of subversive agent in the Democratic Party. His betrayal of trade union political interests and his demoralizing role should be underestimated.

Notable quotes:
"... Most of the major changes he mentions are clearly and explicitly the consequence of policy changes, mostly by Republicans, starting with Reagan: deregulation, lower taxes on the wealthy, a lack of antitrust enforcement, and the like. ..."
Jan 26, 2017 | economistsview.typepad.com
DrDick, January 25, 2017 at 11:07 AM
This is frankly rather disingenuous. Most of the major changes he mentions are clearly and explicitly the consequence of policy changes, mostly by Republicans, starting with Reagan: deregulation, lower taxes on the wealthy, a lack of antitrust enforcement, and the like.

libezkova -> DrDick... January 25, 2017 at 09:29 PM

The first POTUS who cut tax rates was JFK.

sanjait -> DrDick... , January 25, 2017 at 11:20 AM
Read through the link and it's not nearly that simple, especially when you consider the fact that some trends, though plausibly or certainly reinforced through policy, aren't entirely or even primarily caused by policy.
DrDick -> sanjait... , January 25, 2017 at 01:45 PM
I did not say they were the *only* factors, but they are the primary causes. If you look at the timelines and data trends it is pretty clear. Reagan broke the power of the Unions and started deregulation (financialization is a consequence of this), which is the period when the big increases began. Automation plays a secondary role in this. what has happened is that the few industries which are most conducive to automation have remained here (like final assembly of automobiles), while the many, more labor intensive industries (automobile components manufacturing) have been offshored to low wage, not labor or environmental protections countries.
libezkova -> DrDick... , January 25, 2017 at 05:39 PM
Both parties participated in the conversion of the USA into neoliberal society. So it was a bipartisan move.

Clinton did a lot of dirty work in this direction and was later royally remunerated for his betrayal of the former constituency of the Democratic Party and conversion it into "yet another neoliberal party"

Obama actually continued Bush and Clinton work. He talked about 'change we can believe in' while saving Wall street and real estate speculators from jail they fully deserved.

DrDick -> libezkova... , January 25, 2017 at 07:40 PM
Clinton contributed, but the Republicans did all the real heavy lifting. I was in my late 20s and early 30s during Reagan.
libezkova -> DrDick... , January 25, 2017 at 09:25 PM
Very true. Republicans were in the vanguard and did most heavy lifting. That's undeniable.

But Clinton's negative effects were also related to the weakening the only countervailing force remaining on the way of the neoliberalism -- trade unionism. So he played the role of "subversive agent" in the Democratic Party. His betrayal of trade union political interests and his demoralizing role should be underestimated.

[Jan 25, 2017] Reagan, Trump, and Manufacturing

Notable quotes:
"... Krugman dislikes Trump (as do I). He seems motivated to find fault with Trump's policies. In fuzzy things like economics and their intersection with politics it is challenging, and perhaps actually impossible, for most of us to remain balanced. If someone as smart and knowledgeable as Paul Krugman subconsciously decides to dislike a policy, his brain is more than clever enough to invent reasonable economic arguments against the policy. ..."
"... Cognitive bias. Using % of jobs that are manufacturing is relative to what was happening in other job areas: like Reagan building up the military and civil service to buy weapons a tiny part of the growth in that sector was manufacturing. ..."
"... I understand the textbook story is the Fed raises rates when the budget deficit increases. I am not sure if the empirical data supports that though. Perhaps the Fed cares more about inflation than budget deficits and perhaps budget deficits do not directly result in inflation? But if that is correct, what is the basis for Professor Krugman's assertion that Trump's budget will push up interest rates? ..."
"... It's like how Greenspan and Rubin told Clinton he had to drop his middle class spending bill in order to focus on deficit reduction. Greenspan was threatening to raise rates and Clinton bent the knee to the "independent" Fed. ..."
"... Krugman should remember that "Integrity, once sold, is difficult to repurchase - even at 10x the original sales price." ..."
Jan 25, 2017 | economistsview.typepad.com

Reagan, Trump, and Manufacturing : It's hard to focus on ordinary economic analysis amidst this political apocalypse. But ... like it or not the progress of CASE NIGHTMARE ORANGE may depend on how the economy does. So, what is actually likely to happen to trade and manufacturing over the next few years?

As it happens, we have what looks like an unusually good model in the Reagan years... - it's not part of the Reagan legend, but the import quota on Japanese automobiles was one of the biggest protectionist moves of the postwar era.

I'm a bit uncertain about the actual fiscal stance of Trumponomics: deficits will surely blow up, but I won't believe in the infrastructure push until I see it, and given savage cuts in aid to the poor it's not entirely clear that there will be net stimulus . But suppose there is. Then what?

Well, what happened in the Reagan years was "twin deficits": the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.) This led to an accelerated decline in the industrial orientation of the U.S. economy:

012717krugman2-tmagArticle

And people did notice. ...

Again, this happened despite substantial protectionism.

So Trumpism will probably follow a similar course; it will actually shrink manufacturing despite the big noise made about saving a few hundred jobs here and there.

On the other hand, by then the BLS may be thoroughly politicized, commanded to report good news whatever happens.

El Pato de Muerte -> EMichael... , January 25, 2017 at 03:28 PM
See here:
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa107.pdf

Forced Japan to accept restraints on auto exports. The agreement set total Japanese auto exports at 1.68 million
vehicles in 1981-82, 8 percent below 1980 exports. Two years later the level was permitted to rise to 1.85 million.(33)
Clifford Winston of the Brookings Institution found that the import limits have actually cost jobs in the U.S. auto
industry by making it possible for the sheltered American automakers to raise prices and limit production. In 1984,
Winston writes in Blind Intersection? Policy and the Automobile Industry, 32,000 jobs were lost, U.S. production fell
by 300,000 units, and profits for U.S. firms increased $8.9 billion. The quotas have also made the Japanese firms
potentially more formidable rivals because they have begun building assembly plants in the United States.(34) They
also shifted production to larger cars, introducing to American firms competition they did not have before the quotas
were created. In 1984, it was estimated that higher prices for domestic and imported cars cost consumers $2.2 billion a
year.(35) At the height of the dollar's exchange rate with the yen in 1984-85, the quotas were costing American
consumers the equivalent of $11 billion a year

anne -> El Pato de Muerte... , January 25, 2017 at 03:49 PM
https://object.cato.org/sites/cato.org/files/pubs/pdf/pa107.pdf

May 30, 1988

The Reagan Record on Trade: Rhetoric vs. Reality
By Sheldon L. Richman

Executive Summary

When President Reagan imposed a 100 percent tariff on selected Japanese electronics in 1987, he and the press gave the impression that this was an act of desperation. Pictured was a long-forbearing president whose patience was exhausted by the recalcitrant and conniving Japanese. After trying for years to elicit some fairness out of them, went the story, the usually good-natured president had finally had enough.

When newspapers and television networks announced the tariffs, the media reminded the public that such restraints were imposed by a staunch free trader. The less-than-subtle message was that if "Free Trader" Ronald Reagan thought the tariff necessary, then Japan surely deserved it. After more than seven years in office, Ronald Reagan is still widely regarded as a devoted free trader. A typical reference is that of Mark Shields, a Washington Post columnist, to Reagan's "blind devotion to the doctrine of free trade."

If President Reagan has a devotion to free trade, it surely must be blind, because he has been off the mark most of the time. Only short memories and a refusal to believe one's own eyes would account for the view that President Reagan is a free trader. Calling oneself a free trader is not the same thing as being a free trader. Nor does a free-trade position mean that the president, but not Congress, should have the power to impose trade sanctions. Instead, a president deserves the title of free trader only if his efforts demonstrate an attempt to remove trade barriers at home and prevent the imposition of new ones.

By this standard, the Reagan administration has failed to promote free trade. Ronald Reagan by his actions has become the most protectionist president since Herbert Hoover, the heavyweight champion of protectionists.

[ I appreciate this reference, which is in turn extensively referenced. ]

Ed Brown -> EMichael... , January 25, 2017 at 03:29 PM
This is simple. It means instead of shipping low end Toyota Corolla's that were small, manual transmission, no A/C, etc., the Japanese started to make larger, more expensive cars, even luxury cars like Lexis, etc.

If this helps, think of Volkswagen being limited to shipping 1,000 cars to the US. They would probably send us only the top-end Porsches (VW owns that brand) and none of the more middle class cars.

To Anne's point on whether this is an accurate portrayal of what happened: I have no recollection and no knowledge about this.

pgl -> Ed Brown... , January 25, 2017 at 03:53 PM
What really happened is simple. The Japanese car companies got that quota rents (Menzie Chinn documented this recently) from what was effectively a quota on the imports of Japanese cars. American consumers instead imported European cars. Any benefits to US car manufacturing was trivial and totally undo for the aggregate US economy by the massive dollar appreciation. All one has to do is to look at the exchange rate back then and one gets why net exports fell dramatically.
Fred C. Dobbs -> anne... , January 25, 2017 at 04:29 PM
(As in Acura, Lexus, Infinitiluxury brands.)

Japanese manufacturers exported more expensive models in the 1980s due to voluntary export restraints, negotiated by the Japanese government and U.S. trade representatives, that restricted mainstream car sales. ...

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

Acura holds the distinction of being the first Japanese automotive luxury brand. ... In its first few years of existence, Acura was among the best-selling luxury marques in the US. ...

In the late 1980s, the success of the company's first flagship vehicle, the Legend, inspired fellow Japanese automakers Toyota and Nissan to launch their own luxury brands, Lexus and Infiniti, respectively. ...

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

Ed Brown : , January 25, 2017 at 01:52 PM
I am reluctant to disagree with Paul Krugman, as he has forgotten more economics than I'll ever know. But my first thought as I read this was: motivated reasoning. It is quite interesting, and affects all of us, and the brilliant folks seem to be more susceptible to it than the average folks.

Krugman dislikes Trump (as do I). He seems motivated to find fault with Trump's policies. In fuzzy things like economics and their intersection with politics it is challenging, and perhaps actually impossible, for most of us to remain balanced. If someone as smart and knowledgeable as Paul Krugman subconsciously decides to dislike a policy, his brain is more than clever enough to invent reasonable economic arguments against the policy.

Of course, none of this implies that Krugman is actually wrong in this case.

One question for folks. Krugman says "the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.)" I am wondering why a budget deficit has to push up interest rates?

In 2009 we ran a large budget deficit at low interest rates. In WW 2 we did as well (I think, not really sure about this). Is it well established that budget deficits push up interest rates?

Thanks in advance.

ilsm -> Ed Brown... , January 25, 2017 at 02:09 PM
Cognitive bias. Using % of jobs that are manufacturing is relative to what was happening in other job areas: like Reagan building up the military and civil service to buy weapons a tiny part of the growth in that sector was manufacturing.

What else was going on in late 70's early 80's... a lot of growth on service sector.

It is called cherry picking the chart to make a point with non thinkers.

My appropriate post for Krugman follows.

ilsm -> Ed Brown... , January 25, 2017 at 02:28 PM
poor pk decided that correlation is causation.

The answer at the time: US was offshoring bc 'they' made good things and that was their advantage, not Reagan and Volcker!

Labor participation rate exploded after that!

https://fred.stlouisfed.org/series/CIVPART

Interest rates steadily declined from the '83 recovery........... deficits may not have so much?

He might argue against 'protection'...... with logic.

Dan Kervick -> Ed Brown... , January 25, 2017 at 02:49 PM
Right, I think the answer is that budget deficits only push up interest rates if the Fed allows that to happen. The Fed could keep rates low if they wanted by signaling a willingness to buy up as much federal debt as is needed to hit some low target rate. So I think Krugman is, in effect, predicting that they will not do that, and that they will instead counteract the fiscal expansion with tighter monetary policy on the theory that this is needed to counteract potential "overheating".

It's all a racket.

ilsm -> Dan Kervick... , January 25, 2017 at 03:14 PM
I bought a house in 1985, I bet interest rates would go down by taking a 1 year ARM. I did quite well each year it adjusted! I sold it in 1990 and rates were low enough to go fixed conventional on the "trade up".

It is reputed the high rates helped cause the "Volcker" recession in the gray around 82.

Ed Brown -> Dan Kervick... , January 25, 2017 at 03:20 PM
Dan, thank you.

Thinking about it some more. If I understand this correctly, the thought is that deficit spending is stimulative, and the economy is already at full employment, so the Fed will raise interest rates to prevent the economy from "overheating." The increase in rates slows the economy down by two mechanisms:

(1) when the cost of capital is higher, fewer investments get made than when it is lower (say, a business needs to see a higher ROI when interest rates are high than when they are low). (As an aside, outside of the housing market, I don't think this effect is very strong. Real businesses don't change their approach to investment if rates change by, say, 100%; from 2% to 4%. At least, not the ones I have been exposed to, which are generally looking for ~ 15% IRR on investments.)

(2) People globally may be more inclined to hold dollars when the risk-free rate is higher, which increases demand for the currency, which means the currency gets stronger, and exports are less competitive and imports more competitive, counter-acting the stimulus.

The thing I don't like about this line of thought is that it is fatalist. It suggests that fiscal policy really does not matter, it will all be offset by monetary policy. There is no real impact to the economy whether we run huge budget deficits or surpluses. Me not liking it does not mean it is wrong, obviously, but I just don't buy it. When I run into things like this in economics I really start to wonder how much of macro is based on empirical observations and correlations versus 'models.'

I think I ought to take an intro econ course and actually learn something. Or read an introductory macro text book...

anne -> Ed Brown... , January 25, 2017 at 02:49 PM
Krugman says "the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.)" I am wondering why a budget deficit has to push up interest rates?

In 2009 we ran a large budget deficit at low interest rates.... Is it well established that budget deficits push up interest rates?

[ Here then is the relevant matter to be analyzed. ]

anne -> anne... , January 25, 2017 at 03:04 PM
https://fred.stlouisfed.org/graph/?g=cuno

January 15, 2017

Federal Surplus or Deficit [-] as Percent of Gross Domestic Product and Rates on 10-Year Treasury Bond, 1980-2015

Ed Brown -> anne... , January 25, 2017 at 05:43 PM
Anne, thank you. From this plot I see that during Clinton's presidency we went from a budget deficit to a surplus. And interest rates dropped. During the George W. Bush presidency we went from a surplus to a deficit. And interest rates dropped.

There does not appear to be any obvious correlation between the budget deficit and interest rates.

I understand the textbook story is the Fed raises rates when the budget deficit increases. I am not sure if the empirical data supports that though. Perhaps the Fed cares more about inflation than budget deficits and perhaps budget deficits do not directly result in inflation? But if that is correct, what is the basis for Professor Krugman's assertion that Trump's budget will push up interest rates?

anne -> Ed Brown... , January 25, 2017 at 06:11 PM
http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wreck.html

March 11, 2003

A Fiscal Train Wreck
By PAUL KRUGMAN

With war looming, it's time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

From a fiscal point of view the impending war is a lose-lose proposition. If it goes badly, the resulting mess will be a disaster for the budget. If it goes well, administration officials have made it clear that they will use any bump in the polls to ram through more big tax cuts, which will also be a disaster for the budget. Either way, the tide of red ink will keep on rising.

Last week the Congressional Budget Office marked down its estimates yet again. Just two years ago, you may remember, the C.B.O. was projecting a 10-year surplus of $5.6 trillion. Now it projects a 10-year deficit of $1.8 trillion.

And that's way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses. If you take into account - as the C.B.O. cannot - the effects of likely changes in the alternative minimum tax, include realistic estimates of future spending and allow for the cost of war and reconstruction, it's clear that the 10-year deficit will be at least $3 trillion.

So what? Two years ago the administration promised to run large surpluses. A year ago it said the deficit was only temporary. Now it says deficits don't matter. But we're looking at a fiscal crisis that will drive interest rates sky-high.

A leading economist recently summed up one reason why: "When the government reduces saving by running a budget deficit, the interest rate rises." Yes, that's from a textbook by the chief administration economist, Gregory Mankiw.

But what's really scary - what makes a fixed-rate mortgage seem like such a good idea - is the looming threat to the federal government's solvency.... ]

anne -> Ed Brown... , January 25, 2017 at 06:12 PM
Why was Krugman wrong in 2003, and what about the 1980s and all through from there? I am thinking.
Ed Brown -> anne... , January 25, 2017 at 06:20 PM
Yes, thank you for that column from 2003. Yes, Prof. K was correct about the future trend in deficits back then, but incorrect about the future trend in interest rates.

It is certainly conceivable that he is wrong now as well.

anne -> anne... , January 25, 2017 at 03:05 PM
https://fred.stlouisfed.org/graph/?g=cunt

January 15, 2017

Federal Surplus or Deficit [-] as Percent of Gross Domestic Product and Rates on 10-Year Treasury Bond, 1970-2015

pgl -> Ed Brown... , January 25, 2017 at 03:55 PM
Krugman captures very well what happened in the 1980's. He went to work for the CEA hoping to undo this disaster. Of course the political hacks in the Reagan White House did not listen to the CEA. Now he watches people in the Trump White House that are even more insane than these political hacks. You draw whatever conclusion you want but his concerns strike me as real from someone who has been there.
Ed Brown -> pgl... , January 25, 2017 at 04:16 PM
pgl - thank you. I am not drawing any hard and fast conclusions, just trying to learn. I appreciate your comment that is based on both education and experience.

I am still thinking about this Buffett proposal on trade with import certificates. http://fortune.com/2016/04/29/warren-buffett-foreign-trade/ Jared Bernstein mentioned it in passing in an opinion piece in the NY Times yesterday. I put a comment on his website asking him to share more of his thoughts on it, and he said that he will if/when he has time. I hope he does.

anne -> pgl... , January 25, 2017 at 06:14 PM
Krugman captures very well what happened in the 1980's....

[ I am not sure:

https://fred.stlouisfed.org/graph/?g=cupw

January 15, 2017

Real Trade Weighted Price of an American Dollar, * 1980-1988

(Indexed to 1980)

* Major and Broad Currencies

Peter K. -> Ed Brown... , January 25, 2017 at 05:19 PM
A lot of people here who agree with Krugman about everything do "motivated reasoning" as well.
Ed Brown -> Peter K.... , January 25, 2017 at 05:45 PM
We all do it. It is completely unavoidable. I am trying to do it less but I suspect I am not very successful.
Jerry Brown -> Ed Brown... , January 25, 2017 at 06:26 PM
No. Budget deficits for a country such as the US do not push up interest rates. They would in fact lower the interbank rate if not countered by Federal Reserve actions.

If budget deficits added to aggregate demand to the point that the Fed thought its inflation target was in jeopardy, the Fed might raise its target rate of interest in the hopes of quelling demand.

The Fed has almost complete control over the interest rate paid by the Federal government when it decides to issue new debt. WWII is a great example of this. So is our most recent depression.

Ed Brown -> Jerry Brown... , January 25, 2017 at 06:58 PM
If what you say is correct, then what is Krugman's talking about? i am confusEd now.
ilsm : , January 25, 2017 at 02:10 PM
despicable pk who is dealing with?
pgl -> ilsm... , January 25, 2017 at 03:56 PM
So you want a massive increase in our trade deficit. Good to know.
anne : , January 25, 2017 at 02:14 PM
https://fred.stlouisfed.org/graph/?g=culd

January 15, 2017

Percent of Employment in Manufacturing for United States, 1970-2012


https://fred.stlouisfed.org/graph/?g=cul1

January 15, 2017

Percent of Employment in Manufacturing for United States, 1970-2012

(Indexed to 1970)

anne -> anne... , January 25, 2017 at 02:17 PM
https://fred.stlouisfed.org/graph/?g=cul5

January 15, 2017

Percent of Employment in Manufacturing for United States and Germany, 1970-2012


https://fred.stlouisfed.org/graph/?g=cul3

January 15, 2017

Percent of Employment in Manufacturing for United States and Germany, 1970-2012

(Indexed to 1970)

anne -> anne... , January 25, 2017 at 02:24 PM
https://books.google.com/ngrams/graph?content=deindustrialization&year_start=1970&year_end=2000&corpus=15&smoothing=3&share=&direct_url=t1%3B%2Cdeindustrialization%3B%2Cc0

January 25, 2017

Deindustrialization


https://books.google.com/ngrams/graph?content=rust+belt&year_start=1970&year_end=2000&corpus=15&smoothing=3&share=&direct_url=t1%3B%2Crust%20belt%3B%2Cc0

January 25, 2017

Rust belt

anne : , January 25, 2017 at 02:29 PM
http://krugman.blogs.nytimes.com/2016/12/18/will-fiscal-policy-really-be-expansionary/

December 18, 2016

Will Fiscal Policy Really Be Expansionary?
By Paul Krugman

It's now generally accepted that Trumpism will finally involve the kind of fiscal stimulus progressive economists have been pleading for ever since the financial crisis. After all, Republicans are deeply worried about budget deficits when a Democrat is in the White House, but suddenly become fiscal doves when in control. And there really is no question that the deficit will go up.

But will this actually amount to fiscal stimulus? Right now it looks as if Republicans are going to ram through their whole agenda, including an end to Obamacare, privatizing Medicare and block-granting Medicaid, sharp cuts to food stamps, and so on. These are spending cuts, which will reduce the disposable income of lower- and middle-class Americans even as tax cuts raise the income of the wealthy. Given the sharp distributional changes, looking just at the budget deficit may be a poor guide to the macroeconomic impact.

Given the extent to which things are in flux, I can't put numbers on what's likely to happen. But I was able to find matching analyses by the good folks at Center on Budget and Policy Priorities of tax * and spending ** cuts in Paul Ryan's 2014 budget, which may be a useful model of things to come.

If you leave out the magic asterisks - closing of unspecified tax loopholes - that budget was a deficit-hiker: $5.7 trillion in tax cuts over 10 years, versus $5 trillion in spending cuts. The spending cuts involved cuts in discretionary spending plus huge cuts in programs that serve the poor and middle class; the tax cuts were, of course, very targeted on high incomes.

The pluses and minuses here would have quite different effects on demand. Cutting taxes on high incomes probably has a low multiplier: the wealthy are unlikely to be cash-constrained, and will save a large part of their windfall. Cutting discretionary spending has a large multiplier, because it directly cuts government purchases of goods and services; cutting programs for the poor probably has a pretty high multiplier too, because it reduces the income of many people who are living more or less hand to mouth.

Taking all this into account, that old Ryan plan would almost surely have been contractionary, not expansionary.

Will Trumponomics be any different? It would matter if there really were a large infrastructure push, but that's becoming ever less plausible. There will be big tax cuts at the top, but as I said, the push to dismantle the safety net definitely seems to be on. Put it all together, and it's extremely doubtful whether we're talking about net fiscal stimulus.

Now, you might think that someone will explain this to Trump, and that he'll demand a more Keynesian plan. But I have two words for you: Larry Kudlow.

* http://www.cbpp.org/research/the-ryan-budgets-tax-cuts-nearly-6-trillion-in-cost-and-no-plausible-way-to-pay-for-it

** http://www.cbpp.org/research/chairman-ryan-gets-66-percent-of-his-budget-cuts-from-programs-for-people-with-low-or

anne -> anne... , January 25, 2017 at 02:30 PM
December 18, 2016

Bill Black
Kansas City, MO

In looking at economic trends, the other issue to take into account is private lending. Individual debt (credit cards, etc.) is already back up to the levels before the financial crisis and Trump's appointees are determined to deregulate financial institutions, which may contribute to a return to the predatory lending that created the last set of booms and busts. *

* http://krugman.blogs.nytimes.com/2016/12/18/will-fiscal-policy-really-be-expansionary/

anne -> anne... , January 25, 2017 at 06:21 PM
http://krugman.blogs.nytimes.com/2017/01/25/reagan-trump-and-manufacturing/

January 25, 2017

Reagan, Trump, and Manufacturing
By Paul Krugman

It's hard to focus on ordinary economic analysis amidst this political apocalypse. But getting and spending will still consume most of peoples' energy and time; furthermore, like it or not the progress of CASE NIGHTMARE ORANGE may depend on how the economy does. So, what is actually likely to happen to trade and manufacturing over the next few years?

As it happens, we have what looks like an unusually good model in the Reagan years - minus the severe recession and conveniently timed recovery, which somewhat overshadowed the trade story. Leave aside the Volcker recession and recovery, and what you had was a large move toward budget deficits via tax cuts and military buildup, coupled with quite a lot of protectionism - it's not part of the Reagan legend, but the import quota on Japanese automobiles was one of the biggest protectionist moves of the postwar era.

I'm a bit uncertain about the actual fiscal stance of Trumponomics: deficits will surely blow up, but I won't believe in the infrastructure push until I see it, and given savage cuts in aid to the poor it's not entirely clear that there will be net stimulus. * But suppose there is. Then what?

Well, what happened in the Reagan years was "twin deficits": the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.) This led to an accelerated decline in the industrial orientation of the U.S. economy:

[Graph]

And people did notice. Using Google Ngram, we can watch the spread of terms for industrial decline, e.g. here:

[Graph]

And here:

[Graph]

Again, this happened despite substantial protectionism.

So Trumpism will probably follow a similar course; it will actually shrink manufacturing despite the big noise made about saving a few hundred jobs here and there.

On the other hand, by then the Bureau of Labor Statistics may be thoroughly politicized, commanded to report good news whatever happens.

* http://krugman.blogs.nytimes.com/2016/12/18/will-fiscal-policy-really-be-expansionary/

anne -> anne... , January 25, 2017 at 06:24 PM
Whether the analysis is challenged or or accepted, considerable further development is necessary. This is an important essay by Paul Krugman.
Paul Mathis : , January 25, 2017 at 02:56 PM
Real Manufacturing Output for the U.S. is far above its level at the end of the Reagan administration. https://fred.stlouisfed.org/series/OUTMS#0

RMO declines sharply during recessions and the worse the downturn, the harder manufacturing gets hit. Ergo, avoiding recessions is the absolute best policy for manufacturing. Trade and the dollar's value don't have nearly as strong correlations.

Likewise, Real Median Weekly Wages have been rising sharply since 2Q2014 and are now at an all time record high. https://fred.stlouisfed.org/series/OUTMS#0

RMWW rise strongly during sustained expansions of private industry employment. https://fred.stlouisfed.org/series/USPRIV
Trade deficits have little correlation but the correlation with private industry employment growth is strong: 16 million new jobs since 1Q2010.

All of this should be obvious, as Keynes said: "The ideas (about economics) . . . are extremely simple and should be obvious."

point : , January 25, 2017 at 03:09 PM
Paul says:

"Well, what happened in the Reagan years was "twin deficits": the budget deficit pushed up interest rates, which caused a strong dollar, which caused a bigger trade deficit, mainly in manufactured goods (which are still most of what's tradable.)"

which is to say,

"Watch out for the bond vigilantes."

Et tu, Paul?

jonny bakho : , January 25, 2017 at 03:53 PM
Deficit spending would always stimulate an economy except the Fed controls the brakes.
The Fed is especially worried about wage price inflation spirals
When inflation pops its head above target, the Fed slams on the brakes.

At the ZLB, inflation is far below target so the Fed has its foot off the brakes.
Deficit spending is stimulatory because the Fed does not apply the brakes by raising interest rates.
This is textbook economics

pgl -> jonny bakho... , January 25, 2017 at 03:59 PM
The first intelligent comment here. Yes Volcker kept real interest rate very high for a while which led to a dramatic appreciation of the dollar. But even as Volcker took off the monetary brakes to let the economy get back to full employment, real interest rates stayed elevated and the real appreciation was not entirely reversed. So we got a sustained trade deficit even in the face of trade protection. That is the simple point that some here wish to duck.
point -> pgl... , January 25, 2017 at 06:29 PM
"Yes Volcker kept real interest rate very high...".

Except that's not quite Paul's story: "...the budget deficit pushed up interest rates...".

Ed Brown -> jonny bakho... , January 25, 2017 at 06:06 PM
Yes but historically it does not seem like it has worked that way. There does not appear to be an obvious correlation between budget deficits and either (a) interest rates themselves, or (b) the change in interest rates.

It seems like the Fed is acting on inflation signals. It is not so clear that (changes in) budget deficits necessarily result in (changes in) inflation. Unless there is a direct link between budget deficits and inflation it is hard to credibly argue that increasing the budget deficit results in increased inflation results in Federal Reserve raising rates to choke off inflation.

The history of budget deficits and interest rates that Anne showed above don't provide much support for Prof. Krugman's point.

Carol : , January 25, 2017 at 04:24 PM
Potemkin BLS
and jobs

How to run a country a la Putin

Peter K. : , January 25, 2017 at 05:18 PM
Krugman is predicting that the Fed will raise rates to counter Trump's fiscal expansion and will appreciate the dollar. That's what happened with Volcker jacking rates to fight inflation.

He doesn't spell this out exactly.

It's like how Greenspan and Rubin told Clinton he had to drop his middle class spending bill in order to focus on deficit reduction. Greenspan was threatening to raise rates and Clinton bent the knee to the "independent" Fed.

That's when Clinton threw a tantrum about being an "Eisenhower Republican."

The Senate Democrats like Schumer get what the populist backlash is about. That's why they're promising $1 trillion over 10 years in government spending rather than Hillary's $275 over 5 years.

They can do the math. They know what happened in the election. It wasn't just about Comey or the DNC hack. The election shouldn't have been that close.

Peter K. -> Peter K.... , January 25, 2017 at 05:24 PM
"the budget deficit pushed up interest rates" We had large budget deficits during the Great Recession and they didn't push up interest rates. In fact Obama focused too much on deficit reduction.
libezkova : , January 25, 2017 at 07:14 PM
Krugman should remember that "Integrity, once sold, is difficult to repurchase - even at 10x the original sales price."
-->

[Jan 25, 2017] Neoliberalism, computer revolution and tranformation of university education

Notable quotes:
"... Another quibble, the defining of inequality by the single metric of share of income of the 1% is a bit reductive, though only a bit. ..."
"... Sometimes I think that the success of neoliberalism would be impossible without computer revolution. ..."
"... Bargaining power was squashed by neoliberalism by design. So this is not a "natural" development, but an "evil plot" of financial oligarchy, so to speak. In this sense dissolution of the USSR was a huge hit for the US trade unions. ..."
"... Education is now used as the filter for many jobs. So people start to invest in it to get a pass, so to speak. With the neoliberal transformation of universities it now often takes pervert forms such as "diploma mills" or mass production of "Public relations" graduates. ..."
"... Neoliberal transformation of universities into profit centers also played the role in increasing the volume -- they need "customers" much like McDonalds and use misleading advertisements, no entrance exams, and other tricks to lure people in. ..."
Jan 25, 2017 | economistsview.typepad.com
sanjait : Wednesday, January 25, 2017 at 11:31 AM
This is tremendous.

If the world were sane, this is the kind of thinking that would be taking place about inequality. Rather than jumping to simple conclusions based on heavy priors (which is where too much of the "debate" starts and stops), one starts with a broad, open minded and contemplative review that seeks to identify primary causal factors.

That said ... there is a lot that could be quibbled here.

One, it's not always the case that identifying primary causes leads one directly to solutions. Sometimes the solution has little to do with the cause. If, for example, changing climate causes an increase in forest fires, we should consider that as another factor in our evaluation of climate economics, but in terms of strategies for addressing forest fires, we have to find proximate solutions.

Although in practice, certainly we will often have a better understanding of what solutions might be possible and might be effective when we carefully analyze causes. The endeavor of identifying causes is absolutely worthwhile for that reason.

Another quibble, the defining of inequality by the single metric of share of income of the 1% is a bit reductive, though only a bit.

Last note ... I notice international trade is not mentioned here. That doesn't mean it isn't a primary driver, although as I've said many times, I don't think it is a primary driver, and it appears Kenworthy didn't think it even worth mentioning.

sanjait -> sanjait... , January 25, 2017 at 11:41 AM

Although my biggest quibble is that I think Kenworthy missed the big cause entirely: the effect technology has had in making workers fungible.

IT has made communications almost free and made micromanagement of business systems ubiquitous. As a result, firms are no longer dependent on long-tenured workers, or even teams of workers in a particular place. Anything and anyone can be replaced and outsourced (in the broadest sense of the term, not just offshoring to foreign workers), and when costs are high companies do this aggressively.

This change has immeasurably changed the nature of work and the relative bargaining powers of individual workers and even teams of workers. That, I believe, is why education is rising, and doing so in the countries that are most adept and aggressive about business process solutions implementation across many sectors. If I'm right, we will see this trend accelerate very soon in countries that are laggards in this domain, as they finally start operating as resource planned enterprises.

Because this effect is not measured and difficult to measure ... I think it gets overlooked. But if I were a researcher in this field, I'd be looking at ERP adoption trends vs within firm inequality trends and looking for correlations. This would get confounded by firm size but I bet there are ways to tease out the effect.

sanjait -> sanjait... , January 25, 2017 at 11:42 AM
"why education is rising" supposed to say "why INEQUALITY is rising" ...
libezkova -> sanjait... , January 25, 2017 at 06:44 PM
Sanjait,

"the effect technology has had in making workers fungible."

Yes, this is a very good point. Especially computer revolution and related revolution in telecommunications. Starting from "PC revolution" (August 12, 1981) the pace of technological innovation was really breathtaking. Especially in hardware.

Regular smartphone now is more powerful then a mainframe computer of 1971 which would occupy a large room with air conditioning (IBM 360/370 series). So say nothing about early 1960th ("Desk Set" movie with Katharine Hepburn, which was probably the first about displacement of workers by computers, was produced in 1957)

"This change has immeasurably changed the nature of work and the relative bargaining powers of individual workers and even teams of workers. That, I believe, is why education is rising..."

The nature of work in "classic" human fields (agriculture, steel industry, electrical generation, law, etc) was not changed dramatically but the "superstructure" above them did.

Sometimes I think that the success of neoliberalism would be impossible without computer revolution.

Bargaining power was squashed by neoliberalism by design. So this is not a "natural" development, but an "evil plot" of financial oligarchy, so to speak. In this sense dissolution of the USSR was a huge hit for the US trade unions.

Education is now used as the filter for many jobs. So people start to invest in it to get a pass, so to speak. With the neoliberal transformation of universities it now often takes pervert forms such as "diploma mills" or mass production of "Public relations" graduates.

Neoliberal transformation of universities into profit centers also played the role in increasing the volume -- they need "customers" much like McDonalds and use misleading advertisements, no entrance exams, and other tricks to lure people in.

So university education now is a pretty perverted institution too.

[Jan 25, 2017] Most college grads are working jobs that do not require a degree. Indeed many jobs routinely filled by high school graduates when I was young now want a college degree.

Notable quotes:
"... To insist that offshoring and illegal immigration were not partially responsible for the increase in US inequality is gross denial. As with the earlier moves to the southern states, the lives of the illegal immigrants and the workers in Mexico and Asia were improved, but US workers paid a dear price in wage loss. ..."
"... Another huge factor was the financialization that was occurring during this period (perhaps somewhat due the other changes and their effect on the nations politics). ..."
"... Most college grads are working jobs that do not require a degree. Indeed many jobs routinely filled by high school graduates when I was young now want a college degree. Melvin completely nails it. ..."
"... College degree now serves as a filter to cut off unnecessary applicants. That does not means that the college degree by itself is not worth it. There is a value in the college degree beyond job market prospects. In this sense huge inflation of the cost of higher education is a big injustice in itself. ..."
"... My last point would be that, with things like Dynasty trusts, it becomes much easier for the top .01% to maintain their place at the top of the income 'food chain', versus people born into families of more modest means. Those people in the .01% can send their children to the truly best schools in the country, whereas the rest of us go to whatever schools our parents can afford, or however much college debt we're willing to absorb. ..."
Jan 25, 2017 | economistsview.typepad.com
ken melvin : January 25, 2017 at 11:10 AM

Why the surge in inequality? Good question. When did this surge begin? What was going on that might have led to this surge?

Seems a lot of agreement on the 1970s as the beginning. What was going on in the 1970? Beginnings of offshoring to Mexico and Asia (the movement of well paying 'rustbelt' union jobs to the cheap labor southern states had begun earlier with questionable net in that southern labor gained and northern lost), industrial automation began to take off (especially in auto manufacturing – car plants that employed 5k in 1970 were producing more cars with 1.2k by the end of the 70s), but just as significant – about this time, the US began to lose market share to European and Asian manufacturing.

The education thing is a canard. In the 1950s, Detroit employed millions of workers who had less than a high school education; by the late 50s, they demanded a high school diploma; today, they can demand an Associate degree. All apart of the selection process. Higher academic credentials help the individual find a better paying job, but do not in fact create anymore jobs, let alone the well paying assembly line jobs of before.

To insist that offshoring and illegal immigration were not partially responsible for the increase in US inequality is gross denial. As with the earlier moves to the southern states, the lives of the illegal immigrants and the workers in Mexico and Asia were improved, but US workers paid a dear price in wage loss.

Another huge factor was the financialization that was occurring during this period (perhaps somewhat due the other changes and their effect on the nations politics).

In toto, it was a convergence of: loss of market, automation, offshoring, illegal immigrant laborers, this financialization that led to the surge in inequality.

sanjait -> ken melvin... , January 25, 2017 at 11:24 AM
"The education thing is a canard."

Not at all.

The paper above references a book called "The Race between Education and Technology" that provides a useful framing of the issue. Essentially:

"The book argues that technological change, education, and inequality have been involved in a kind of race. During the first eight decades of the twentieth century, the increase of educated workers was higher than the demand for them. This had the effect of boosting income for most people and lowering inequality. However, the reverse has been true since about 1980. This educational slowdown was accompanied by rising inequality. The authors discuss the complex reasons for this, and what might be done to ameliorate it."

However, authors of the paper mentioned in the OP do dismiss education as a major cause of inequality if we are looking at the 1% vs the 99% (rather than a more broad measure).

DrDick -> sanjait... , -1
Most college grads are working jobs that do not require a degree. Indeed many jobs routinely filled by high school graduates when I was young now want a college degree. Melvin completely nails it.

http://www.attn.com/stories/1734/college-graduates-underemployed-working-requirements

http://www.gallup.com/poll/164321/majority-workers-say-job-require-degree.aspx

libezkova -> DrDick... , January 25, 2017 at 05:45 PM
"Most college grads are working jobs that do not require a degree."

College degree now serves as a filter to cut off unnecessary applicants. That does not means that the college degree by itself is not worth it. There is a value in the college degree beyond job market prospects. In this sense huge inflation of the cost of higher education is a big injustice in itself.

Mike S -> ken melvin... , January 25, 2017 at 12:27 PM
I agree that I don't think there was any one single thing which started driving inequality.

You pointed out 'Beginnings of offshoring to Mexico and Asia (the movement of well paying 'rustbelt' union jobs to the cheap labor southern states had begun earlier with questionable net in that southern labor gained and northern lost)'. True, but implicitly those southern states were 'right to work' states which is why the labor was cheaper.

Also, I believe in Thomas Pikkety's book 'Capital in the 21st Century' he pointed out that the top .01% have so much wealth, they can't spend all the income they earn from dividends, so that gets reinvested into more equities (stocks, bonds, et al) which then earn even more dividends.

And when you point out automation, implicit in that is that the owners of the company (either privately or stockholders) will increase their share of the 'pie', so to speak, which gets split between the entrepreneurs and the workers, also increasing the inequality.

My last point would be that, with things like Dynasty trusts, it becomes much easier for the top .01% to maintain their place at the top of the income 'food chain', versus people born into families of more modest means. Those people in the .01% can send their children to the truly best schools in the country, whereas the rest of us go to whatever schools our parents can afford, or however much college debt we're willing to absorb.

[Jan 22, 2017] Neoliberalism may have been in part so successful because it appeals to (and tries to explain many things in terms of) a narrative of competition (and assignment of reward and acknowedlgement) by merit

Neoliberals seem very concerned not to have a label. I posit this is because the founders of the malign ideology didn't want their victims be able to reliably identify them. The deliberately and misleadingly promote the view of the economy as an isolated scientific subject, like the interior of a test tube, and treat politics and policy as a sort of exterior force, that can be isolated from the world of the chemist and pushed off-to-one side. Neoclassic economists consistently and deliberately blinds itself to politics and the dynamics of power, despite the deep entanglement of politics with everything economic. "I look at politics and the economy and see one thing, not two things, and I am astonished at the extent to which economists focus on the part they like to play with intellectually, while deliberately looking away from what is probably the more important part. "
Notable quotes:
"... when left-wing people say that economists are defenders and supporters of the current order of things, they have a point: ignoring power relationships and their impact on the world supports the continued existence of those relationships. ..."
"... Neoliberalism may have been in part so successful because it appeals to (and tries to explain many things in terms of) a narrative of competition (and assignment of reward and acknowedlgement) by merit. ..."
"... Most people, esp. when young (still largely sheltered) or (still) successful, probably have an exaggerated assessment of their own merit (absolute and relative) - often actively instilled and encouraged by an "enabling" environment. ..."
"... It promises a lake Wobegon of sorts where everybody (even though not all!) are above average, and it is finally recognized. ..."
Jan 22, 2017 | economistsview.typepad.com

William Meyer, Saturday, January 21, 2017 at 12:49 PM

What Wren-Lewis misses, I think, is that something I've noticed in my roughly a decade of reading economic blogs on the Internet. Economists have blinkers on. They want to view the economy as an isolated scientific subject, like the interior of a test tube, and treat politics and policy as a sort of exterior force, that can be isolated from the world of the chemist and pushed off-to-one side. It seems fairly clear to me that the two elements--politics and the economy--are obviously continuously co-mingled, and have all sorts of feedback loops running between them.

The discipline really consistently and deliberately blinds itself to politics and the dynamics of power, despite the deep entanglement of politics with everything economic. Wren-Lewis admits that macroeconomists "missed" the impacts of very high financial sector leverage, but finds that now that economists have noticed it, and suggested remedies, that the power of bank lobby prevents those remedies from being enacted. But shouldn't the political power of the finance lobby been a part of economic analysis of the world along with the dangers of the financial sector's use of extreme leverage? Does he think the two phenomena are unrelated?

Shouldn't economics pay more attention to the ongoing attempts of various groups to orient government policy in their favor, just like they pay attention to the trade deficit and GDP numbers?

I look at politics and the economy and see one thing, not two things, and I am astonished at the extent to which economists focus on the part they like to play with intellectually, while deliberately looking away from what is probably the more important part. Its like economists obsessively focus on the part that can be studied via numbers (money) and don't' want to think about the part that is harder to look quantify (political policy). And there is a political issue there, which Mr. Wren-Lewis, keeps ignoring in his defense of "mainstream economics."

The neoclassical economics tendency of not looking at power relationships makes power imbalances and their great influence on economics seem like "givens" or "natural endowments", which is clearly an intellectual sin of omission.

Many people, even within the halls of mainstream economics, note economists are "uncomfortable" with distributional issues.

Whether they like the implication or not, economists need to acknowledge that this discomfort has a profoundly conservative intellectual bias, in the sense that it make the status quo arrangement of society seem "natural" and "normal", when it is obviously humanly constructed and not in any sense "natural." So when left-wing people say that economists are defenders and supporters of the current order of things, they have a point: ignoring power relationships and their impact on the world supports the continued existence of those relationships.

Mr. Wren-Lewis seems like a nice guy, but he needs to take that simple home truth in. I'm not sure why he seems to struggle so with acknowledging it.

KPl, January 21, 2017 at 11:37 PM

"...but failing to ignore their successes,..."

Oh you mean the success of being able to raise asset prices without the growth in wages, make education costly and unaffordable without student loans, not chargeable under bankruptcy, spruce up employment figures by not counting the people who have stopped look for jobs because they cannot find one, make people debt serfs, make savers miserable by keeping interest rates at zero and making them take risks that they may not want to take though it is picking pennies in front of a steamroller, keeping wages stagnant for decades and thus impoverishing people.

The list of successes is endless and you should be glad we are NOT talking about them. Because if we do, the clan called economists might well be torched.

cm -> cm... , January 22, 2017 at 08:40 AM
Neoliberalism may have been in part so successful because it appeals to (and tries to explain many things in terms of) a narrative of competition (and assignment of reward and acknowedlgement) by merit.

Most people, esp. when young (still largely sheltered) or (still) successful, probably have an exaggerated assessment of their own merit (absolute and relative) - often actively instilled and encouraged by an "enabling" environment.

A large part is probably the idea that "markets" are "objective" or at least "impartial" in bringing out and rewarding merit - also technology and "data driven" technocratic management, which are attributed "objectivity". All in the explicitly stated or implied service of impartially recognizing merit and its lack.

It promises a lake Wobegon of sorts where everybody (even though not all!) are above average, and it is finally recognized.

libezkova : , January 22, 2017 at 07:11 PM
"Neoliberalism may have been in part so successful because it appeals to (and tries to explain many things in terms of) a narrative of competition (and assignment of reward and acknowedlgement) by merit."

A very important observation. Thank you !

[Jan 21, 2017] Yellen has changed her colors overnight. Her ugly partisan side is showing

Notable quotes:
"... I do not share your view of Yellen at all. She has changed her colors overnight. Her ugly partisan side is showing. There are less painful ways to stop Trump's policies that she does not agree with than sacrificing the working class. ..."
"... Clear indication that she will revert to a Taylor rule type approach so she can justify raising rates fast to kill the Trump economy. ..."
Jan 21, 2017 | economistsview.typepad.com
Peter K. : January 20, 2017 at 04:28 AM

Hopefully Yellen won't raise interest rates as high as Volcker did in the early 1980s when he was fighting inflation.

There are better less painful ways to fight inflation but the prog neolibs don't want to explore those options. Take it out on the working class with high unemployment.

BenIsNotYoda -> Peter K.... January 20, 2017 at 04:46 AM

I do not share your view of Yellen at all. She has changed her colors overnight. Her ugly partisan side is showing. There are less painful ways to stop Trump's policies that she does not agree with than sacrificing the working class.
BenIsNotYoda -> BenIsNotYoda... , -1
Yellen said last night - "I believe in systematic approach to monetary policy."

Clear indication that she will revert to a Taylor rule type approach so she can justify raising rates fast to kill the Trump economy.

[Jan 21, 2017] The other benefit of Kimball's plan - from a prog neolib viewpoint - is that it would weaken Social Security.

Notable quotes:
"... Wasn't there a recent discussion about how 401(k)s are a sham? ..."
"... Hillary should have campaigned on this policy of diverting savings to Wall Street in order to help exports. This would have gotten more voters to the polls.... Call it a private Wall St. tax on savers. ..."
"... from Miles Kimball the supply-sider ..."
"... how would Brad Setser think about an 8 percent tax on Chinese consumers that the Communist sovereign wealth fund could invest abroad for their retirement? That would boost Wall Street some more. ..."
Jan 21, 2017 | economistsview.typepad.com
Peter K. : , January 20, 2017 at 04:26 AM
"As I explained in my May 14, 2015 column "How Increasing Retirement Saving Could Give America More Balanced Trade":

I talked to Madrian and David Laibson, the incoming chair of Harvard's Economics Department (who has worked with her on studying the effects of automatic enrollment) on the sidelines of a Consumer Financial Protection Bureau research conference last week. Using back-of-the-envelope calculations based on the effects estimated in this research, they agreed that requiring all firms to automatically enroll all employees in a 401(k) with a default contribution rate of 8% could increase the national saving rate on the order of 2 or 3 percent of GDP."

Wasn't there a recent discussion about how 401(k)s are a sham?

Progressive neoliberals....

Hillary should have campaigned on this policy of diverting savings to Wall Street in order to help exports. This would have gotten more voters to the polls.... Call it a private Wall St. tax on savers.

Peter K. -> Peter K.... , January 20, 2017 at 04:26 AM
from Miles Kimball the supply-sider
Peter K. -> Peter K.... , January 20, 2017 at 04:41 AM
how would Brad Setser think about an 8 percent tax on Chinese consumers that the Communist sovereign wealth fund could invest abroad for their retirement? That would boost Wall Street some more.
Peter K. -> Peter K.... , -1
The other benefit of Kimball's plan - from a prog neolib viewpoint - is that it would weaken Social Security.

[Jan 21, 2017] If we look at the numbers for involuntary part-time workers, it dropped from 6.8 million in December of 2014 to 5.6 million in December of 2016.

Jan 21, 2017 | economistsview.typepad.com
anne : January 20, 2017 at 07:53 AM , 2017 at 07:53 AM
http://cepr.net/blogs/beat-the-press/people-are-choosing-to-work-part-time-why-is-that-so-hard-for-economic-reporters-to-understand

January 20, 2017

People are Choosing to Work Part-Time, Why Is that So Hard for Economic Reporters to Understand?

It is really amazing how major news outlets can't seem to find reporters who understand the most basic things about the economy. I guess this is evidence of the skills shortage.

Bloomberg takes the hit today in a piece * discussing areas where the economy is likely to make progress in a Trump administration and areas where it is not. In a middle "muddle through" category, we find "Full-Time Work Is Likely to Stay Elusive for Part-Timers." The story is:

"Trump has highlighted the number of part-time workers in the U.S. economy, saying 'far too many people' are working in positions for which they are overqualified and underpaid. While the proportion of full-time workers in the labor force remains below its pre-recession high, it's made up most of the ground lost during the downturn. But it hasn't budged much in the last two years, even as the job market has gotten tighter. Some economists point to the gig economy as the driving force (pun intended) behind part-timers. Others see a broader shift in the labor market that's left many workers stuck with shorter hours, lower wages and weaker benefits."

Okay, wrong, wrong, and wrong. In its monthly employment survey (the Current Population Survey - CPS), the Bureau of Labor Statistics asks people whether they are working more or less than 35 hours a week. If they are working less than 35 hours they are classified as part-time. The survey then asks the people who are working part-time why they are working part-time. It divides these workers into two categories, people who work part-time for economic reasons (i.e. they could not find full-time jobs) and people who work part-time for non-economic reasons. In other words the second group has chosen to work part-time.

If we look at the numbers for involuntary part-time workers, it dropped from 6.8 million in December of 2014 to 5.6 million in December of 2016. That is a drop of 1.2 million, or almost 18 percent. That would not seem to fit the description of not budging much. Of course Bloomberg may have been adding in the number of people who chose to work part, which grew by 1.4 million over this two year period, leaving little net change in total part-time employment.

Of course there is a world of difference between a situation where people need full-time jobs, but work part-time, because that is the only work they can find and a situation in which people work part-time because they don't want to spend 40 hours a week on the job. Most of us would probably consider it a good thing if people who wanted to spend time with their kids, or did not want to full time for some other reason, had the option to work part-time. This is what in fact has been happening and it has been going on for three years, not two.

Come on Bloomberg folks -- did you ever hear of the Affordable Care Act (a.k.a. "Obamacare")? As a result of Obamacare workers are no longer dependent on employers for health care insurance. This means that many people have opted to work part rather than full time. This has opened up full time jobs ** for people who need them, even though it has left total part-time employment little changed.

In total, the number of people involuntarily working part-time has fallen by 2.2 million since the ACA has been in effect, while the number choosing to work part-time has risen by 2.4 million. The sharpest increase in voluntary part-time employment has been among young mothers *** and older workers **** just below Medicare age.

It is really incredible that this shift from involuntary part-time to voluntary part-time is not more widely known. It is a very important outcome from the ACA.

* https://www.bloomberg.com/graphics/2017-how-well-know-if-trump-is-making-america-great-again/

** http://cepr.net/blogs/cepr-blog/obamacare-and-part-time-work-part-2-involuntary-part-time-employment

*** http://cepr.net/blogs/cepr-blog/the-affordable-care-act-still-family-friendly

**** http://cepr.net/blogs/cepr-blog/obamacare-is-good-for-older-workers-too

-- Dean Baker

libezkova -> anne... , January 20, 2017 at 10:34 AM
My impression here is that in this particular issue Dean Baker is out of touch with reality.

Question: how many people in this 1.2 million drop because they retired at 62 forced to take a half of their SS pension, or left workforce?

Also, can you consider Wal-Mart or Shop Right cashier working 36 hours for $7.5 an hour and without any benefits (as he/she can't afford them) fully employed.

Single mothers are probably the most important category to analyze here.

sanjait -> anne... , January 20, 2017 at 01:33 PM
This is an example of how the libertarian and Republican conceptions of liberty and freedom are so off the mark.

When people can afford to work part time instead of full time to do things like raise children, attain higher education or start companies, that is freedom. When the inaccessibility of health insurance forces them to work full time when they would otherwise prefer not, that is not enhanced freedom.

[Jan 21, 2017] I seriously question the assumption of FOREX adjustments perfectly offsetting policy changes such that the balance of trade remains unchanged

Notable quotes:
"... I seriously question the assumption of FOREX adjustments perfectly offsetting policy changes such that the balance of trade remains unchanged. It seems like an article of faith that things work this way, based on logic, intelligence, and economic analysis based on various models of how the world works. ..."
"... Do economists have solid models that accurately predict the movement of FOREX rates in the first place? I mean, all else being equal, and given no policy changes at all, can economists accurately forecast the exchange rates between, say, Canada and the US over the next 10 years? And, if so, why do these economists have to work for a living? Shouldn't they be enormously wealthy people by now if they possess this level of predictive capabilities? ..."
"... My personal thinking on the matter is to take a more humble approach. Given some solid reasons to believe the proposed border adjustment tax will increase the value of the dollar, but lacking a way to accurately predict FOREX, I would guess that exchange rates would adjust to cancel out only half the policy change. I'll assume trade flows adjust a bit and FOREX rates adjust a bit. And since it is just a guess, I'd be quite cautious in drawing any strong conclusions. ..."
Jan 21, 2017 | economistsview.typepad.com

pgl, Friday, January 20, 2017 at 01:37 AM

Team Trump needs to listen to Miles Kimball:

"border adjustability. In the eurozone, where there is a fixed exchange rate of 1 between the member countries, relying more heavily on a value-added tax-for which international rules allow taxing imports while exempting exports from the tax-and less on other taxes, is understood as a way to get the same effect as devaluing to an exchange rate that makes foreign goods more expensive to people in a country and domestic goods cheaper to foreigners. But in a floating exchange rate setup as the US has, most of the effects of border adjustment can be canceled out by an explicit appreciation in the dollar that cancels out the implicit devaluation from the tax shift. And indeed, such an appreciation of the dollar is exactly what one should expect."

The architect of this Destination Based Cash Flow Tax with "Border Adjustments" (is that like sprinkles on top) is Alan Auerbach and even he admits this. Miles moves onto something else I have been saying:

"A way to push down the value of the dollar and stimulate net exports for a much longer time is to increase saving rates in the US As greater saving pushed down US rates of return, some of that extra saving would wind up in foreign assets, putting extra US dollars in the hands of folks abroad, so they would have US dollars to buy US goods. This effect can be enhanced if the regulations for automatic enrollment are favorable to a substantial portion (say 30%) of the default investment option being in foreign assets. Note that an increase in US saving would tend to push down the natural interest rate, and so needs to be accompanied by the elimination of the zero lower bound in order to avoid making it hard for monetary policy to respond to recessions."

OK – it might not be so easy to lower the natural rate now but back in 1981, real interest rates soared as the Reagan tax cuts lowered national savings. This led to a massive dollar appreciation and a large drop in net exports.

Ed Brown -> pgl... , January 20, 2017 at 07:31 AM
I seriously question the assumption of FOREX adjustments perfectly offsetting policy changes such that the balance of trade remains unchanged. It seems like an article of faith that things work this way, based on logic, intelligence, and economic analysis based on various models of how the world works.

But while this view seems to be held by intelligent people with far more economic education that I will ever have, I am wondering if there is any empirical evidence that supports this reasoning? I am sceptical.

Do economists have solid models that accurately predict the movement of FOREX rates in the first place? I mean, all else being equal, and given no policy changes at all, can economists accurately forecast the exchange rates between, say, Canada and the US over the next 10 years? And, if so, why do these economists have to work for a living? Shouldn't they be enormously wealthy people by now if they possess this level of predictive capabilities?

My personal thinking on the matter is to take a more humble approach. Given some solid reasons to believe the proposed border adjustment tax will increase the value of the dollar, but lacking a way to accurately predict FOREX, I would guess that exchange rates would adjust to cancel out only half the policy change. I'll assume trade flows adjust a bit and FOREX rates adjust a bit. And since it is just a guess, I'd be quite cautious in drawing any strong conclusions.

I welcome comments that would help educate me on this subject. Best wishes to all.

Peter K. -> Ed Brown... , January 20, 2017 at 07:46 AM
As I understand it Peter Dorman agrees with you here:

http://econospeak.blogspot.com/2016/12/paul-krugman-on-protectionism-and-trade.html

As does economics superstar Dean Baker.

PGL replied to Dorman twice, but Dorman ignored him.

JohnH -> Peter K.... , January 20, 2017 at 08:17 AM
I love PK's summary: ".... trade deficits are always a temporary phenomenon, to be followed eventually by surpluses, and vice versa."

After 30 years of trade deficits, I wonder about PK's definition of temporary...

Oh well, in the long run, we're all dead...and the trade deficit will swing to a surplus...

Ed Brown -> JohnH... , January 20, 2017 at 08:28 AM
:-)
Old Opossum's Practical Cat -> Ed Brown... , January 20, 2017 at 08:39 AM
As The Clock Ticks Down

Stand by your data
"
~~Country & Western Song~

Before the opportunity-window slams shut, harvest your data from the market! You need to record a baseline from the last moments of the O'Bummer World. Sure!

You will wish him back, but that is beside the point. We are scientists not wishers.

I wish you
well
!

Ed Brown -> Peter K.... , January 20, 2017 at 08:26 AM
Hello. Thank you for this link. I found this comment by Peter Dornman to be interesting: "And also, yes, any theory that implies a known relationship between macro variables and forex rates is *very* counter-empirical."

If his comment is correct, it makes me wonder about the reliability of Miles Kimball's analysis.

There are certain types of problems we just can't reliably analyze, as they are too complicated, or the underlying physics is subject to extreme sensitivity to accuracy of the inputs (chaos theory, basically). For instance, our ability to make meaningful forecasts of the weather is limited to a few days. Maybe FOREX predictions are like that? If so, we should be cautious about making any strong statements about FOREX adjustments precisely offsetting policy changes.

I mean, doesn't it seem like hubris when you can't predict what a variable will do given no changes to current conditions, but you decide that you can predict *precisely* what it will do if we make changes to current conditions?

JohnH -> Ed Brown... , January 20, 2017 at 07:54 AM
"Do economists have solid models that accurately predict the movement of FOREX rates in the first place?"

Meese-Rogoff showed that exchange rates are disconnected from fundamentals. It's called the 'foreign exchange puzzle.'

Yet pgl keeps insisting on an 'if x then y' approach to most problems. His key variable is interest rates, which are at the root of most every change in pglian universe.

I'm actually surprised that he departs from his rate-centric universe to suggest that Trump might be responsible for something like the fall of the peso, though he stridently rejects the idea that Trump's bully pulpit might shame American companies into keeping more jobs at home.

JohnH -> JohnH... , January 20, 2017 at 07:58 AM
Meese-Rogoff found that f-x rates are a random walk.

[Jan 21, 2017] Disillusioned in Davos

Jan 21, 2017 | economistsview.typepad.com
Larry Summers:
Disillusioned in Davos : Edmund Burke famously cautioned that "the only thing necessary for the triumph of evil is for good men to do nothing." I have been reminded of Burke's words as I have observed the behavior of US business leaders in Davos over the last few days. They know better but in their public rhetoric they have embraced and enabled our new President and his policies.

I understand and sympathize with the pressures they feel. ... Businesses who get on the wrong side of the new President have lost billions of dollars of value in sixty seconds because of a tweet. ...

Yet I am disturbed by (i) the spectacle of financiers who three months ago were telling anyone who would listen that they would never do business with a Trump company rushing to praise the new Administration (ii) the unwillingness of business leaders who rightly take pride in their corporate efforts to promote women and minorities to say anything about Presidentially sanctioned intolerance (iii) the failure of the leaders of global companies to say a critical word about US efforts to encourage the breakup of European unity and more generally to step away from underwriting an open global system (iv) the reluctance of business leaders who have a huge stake in the current global order to criticize provocative rhetoric with regard to China, Mexico or the Middle East (v) the willingness of too many to praise Trump nominees who advocate blatant protection merely because they have a business background.

I have my differences with the new Administration's economic policies and suspect the recent market rally and run of economic statistics is a sugar high. Reasonable people who I respect differ and time will tell. My objection is not to disagreements over economic policy. It is to enabling if not encouraging immoral and reckless policies in other spheres that ultimately bear on our prosperity. Burke was right. It is a lesson of human experience whether the issue is playground bullying, Enron or Europe in the 1930s that the worst outcomes occur when good people find reasons to accommodate themselves to what they know is wrong. That is what I think happened much too often in Davos this week.

JohnH -> Peter K.... , January 20, 2017 at 03:24 PM
Larry Summers lecturing us about bullies! Precious!

"Larry Summers Is An Unrepentant Bully"
http://www.huffingtonpost.com/peter-s-goodman/larry-summers-bully-fed_b_3653387.html

Like so much of the tit-for-tat between Democrats and Republicans, what's OK for to do is NOT OK for you to do!!!

anne : , January 20, 2017 at 12:24 PM
https://books.google.com/books?id=SFNADAAAQBAJ&pg=PT951&lpg=PT951&dq=%22No+man,+who+is+not+inflamed+by+vainglory+into+enthusiasm%22&source=bl&ots=ufx9GiMtls&sig=jJgSGfaCuCQFzBa9KiNBKCoaYgQ&hl=en&sa=X&ved=0ahUKEwjE7YCOxtHRAhWjLMAKHVmSDFAQ6AEIHDAB#v=onepage&q=%22No%20man%2C%20who%20is%20not%20inflamed%20by%20vainglory%20into%20enthusiasm%22&f=false

1770

Thoughts on the Cause of the Present Discontents

No man, who is not inflamed by vainglory into enthusiasm, can flatter himself that his single, unsupported, desultory, unsystematic endeavours are of power to defeat the subtle designs and united Cabals of ambitious citizens. When bad men combine, the good must associate; else they will fall, one by one, an unpitied sacrifice in a contemptible struggle.

-- Edmund Burke

anne -> anne... , -1
Edmund Burke famously cautioned that "the only thing necessary for the triumph of evil is for good men to do nothing."

-- Lawrence Summers

[ Edmund Burke never cautioned this. ]

anne -> Chris G ... , January 20, 2017 at 06:42 PM
Notice the fear of association or community of Milton Friedman:

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

September 13, 1970

The Social Responsibility of Business is to Increase its Profits
By Milton Friedman - New York Times

When I hear businessmen speak eloquently about the "social responsibilities of business in a free-enterprise system," I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned "merely" with profit but also with promoting desirable "social" ends; that business has a "social conscience" and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are–or would be if they or anyone else took them seriously–preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades....

Gibbon1 -> anne... , January 20, 2017 at 07:37 PM
When I used to read Delong's blog before Delong went off on Sanders because Delong thought that Hillary Clinton would give Delongs son a job...

There was economics student that penned a response where he mentioned that the economics profession generally dislikes models with negative externalities. But truly loath models that incorporate positive externalities.

A positive externality is where some action on your part benefits you _and_ benefits some third party.

One can assume Milton Friedman and his followers find that concept revolting indeed.

anne -> anne... , January 20, 2017 at 12:52 PM
While I was not in Davos, I read about the proceedings and meeting in the Western European and Chinese press and was impressed by the community emphasis placed on social justice. Possibly there was considerable individual resistance to the public theme, and Lawrence Summers would readily sense such resistance, but the public theme from the speech by Xi Jinping on was encouraging and portrayed in Western Europe and China as encouraging.
kthomas -> anne... , January 20, 2017 at 02:19 PM
The headline of his post is somewhat misleading. He was not really talking about Davos.
Chris G -> kthomas... , January 20, 2017 at 05:53 PM
Let me rephrase: Name me some Fortune 500 companies who consider potential societal impacts of their actions and, as a result, sometimes make decisions which don't maximize their profits but are the "right" thing to do for the community/their workers/the environment/etc.? What Fortune 500 companies are motivated by things beyond maximizing profits for shareholders?

My point is that corporate leaders who are charged to act to maximize profits will always be cowards when it comes to moral and ethical issues. If their job is to maximize profits. If they don't want to lose their job then that's what they'll do - act to maximize profits. Where would Summers get the idea that they would act any differently? Do the people he's referring to have a track record of choosing the moral high ground over profits? If they do then I could understand surprise and disappointment that they're folding. But they've never had to face that choice before let alone chosen moral high ground over money, have they?

anne -> Chris G ... , January 20, 2017 at 05:55 PM
My point is that corporate leaders who are charged to act to maximize profits will always be cowards when it comes to moral and ethical issues. If their job is to maximize profits. If they don't want to lose their job then that's what they'll do - act to maximize profits. Where would Summers get the idea that they would act any differently? Do the people he's referring to have a track record of choosing the moral high ground over profits? ...

[ Properly argued, sadly. ]

Winslow R. : , January 20, 2017 at 02:02 PM
I recall Summers/Romer with both houses and Obama blowing their chances to do something for the middle/working class.

Summers/Delong said if the stimulus was too small we could always get another later, yet that chance to do something never came and he did nothing.....

I'd like Larry to ponder whether it was he who did nothing.

[Jan 21, 2017] US neocons try to enforce the continuation of neocon foriegh policy with Trump administration

Notable quotes:
"... Running up the flag in Estonia is a Kagan Clinton affair. ..."
"... No Putin is not the Tsar incarnate nor is the US inheriting England and France 1856 protection of Turks in the Balkans. ..."
"... Making a neocon moral point and tripping with WW III over Estonia is neocon war mongering insane. ..."
Jan 21, 2017 | economistsview.typepad.com
ilsm -> im1dc... , January 20, 2017 at 04:41 PM
After the new AG does what should have been done with HRC.

Then Trump can fire the CIA for the muck up in the middle east.

And pull the Mech brigade out of the Balts.

ilsm -> pgl... , January 20, 2017 at 04:43 PM
you are transferring the neocon enterprise on Trump.

Running up the flag in Estonia is a Kagan Clinton affair.

No Putin is not the Tsar incarnate nor is the US inheriting England and France 1856 protection of Turks in the Balkans.

ilsm -> sanjait... , January 20, 2017 at 03:16 PM
Making a neocon moral point and tripping with WW III over Estonia is neocon war mongering insane.

Who are Balts?

Why would US put a brigade of to defend Estonia? What is the strategic significance of Estonia?

There are as few people in Estonia as in New Hampshire and a large number are Russian speaking.

[Jan 21, 2017] The billionaire Warren Buffett to Trump: "I feel that way no matter who is president, the CEO -- which I am -- should have the ability to pick people that help you run a place."

Jan 21, 2017 | economistsview.typepad.com
Peter K. : January 20, 2017 at 11:50 AM

Billionaires have to stick together.

https://www.bloomberg.com/news/articles/2017-01-20/buffett-says-he-supports-trump-s-cabinet-picks-overwhelmingly?bcomANews=true

Buffett Supports Trump on Cabinet Picks 'Overwhelmingly'

by Amanda L Gordon and Noah Buhayar

January 19, 2017, 8:19 PM EST January 20, 2017, 10:12 AM EST

Warren Buffett said he "overwhelmingly" supports President-elect Donald Trump's choices for cabinet positions as the incoming commander-in-chief's selections face confirmation hearings in the U.S. Senate.

"I feel that way no matter who is president," the billionaire Berkshire Hathaway Inc. chairman and chief executive officer said Thursday in New York at the premiere of a documentary about his life. "The CEO -- which I am -- should have the ability to pick people that help you run a place."

"If they fail, then it's your fault and you got to get somebody new," Buffett said. "Maybe you change cabinet members or something."

Buffett, 86, backed Hillary Clinton in the presidential election, stumping for her in Omaha, Nebraska, and headlining fundraisers. The billionaire frequently clashed with Trump and scolded him for not releasing income-tax returns, as major party presidential candidates have done for roughly four decades.

Trump's cabinet picks include Treasury Secretary nominee Steven Mnuchin, a former Goldman Sachs Group Inc. banker; former Exxon Mobil Corp. CEO Rex Tillerson as secretary of state; and retired Marine Corps General James Mattis as Defense secretary.

Since the election, Buffett has struck a more conciliatory tone toward Trump and called for unity. In an interview with CNN in November, he said that people could disagree with the president-elect, but ultimately he "deserves everybody's respect."

Trump's Popularity

That message hasn't resonated. Trump's popularity is the worst for an incoming president in at least four decades, with just 40 percent of Americans saying they have a favorable impression of him, according to a Washington Post-ABC poll published Tuesday. Buffett said on Thursday that the low approval ratings won't matter much.

"It's what you go out with that counts -- 20, 50 years later what people feel you've achieved," Buffett said.

The president-elect has continued his pugnacious style during the transition, picking fights on Twitter with news outlets, automakers, defense contractors, intelligence agencies, Hollywood actress Meryl Streep and civil rights hero-turned-U.S. Congressman John Lewis.

...

JohnH -> Peter K.... , January 20, 2017 at 12:05 PM
Class warfare at its finest...
sanjait -> Peter K.... , January 20, 2017 at 12:54 PM
I wondered how you'd synthesize a way to disagree with Krugman on this one, given how seemingly commonsense and obvious are Krugman's points.

Here's the answer it seems: talk about something else.

John M -> sanjait... , January 20, 2017 at 01:14 PM
The Bush team went further than that, actively sabotaging FBI field agents' investigations of possible upcoming attacks.

Need it be stated that 9/11 did wonders for the Bush Administration?

John M -> pgl... , January 20, 2017 at 01:35 PM
Wonders for the Bush Administration:

* It solved the problem of Democrats beginning to get a spine and going after the Felonious Five (or at least the three with major conflict of interest).

* It bumped Bush's approval rating from 40% to 80%.

* It greatly lowered opposition to Bush's anti-civil-liberties policies, such as creating "1st Amendment Zones".

* It made passage of the Patriot Act possible.

* People were able to smear opposition to the Bush team policies as treasonous.

* It rendered torture, aggressive war, and barbaric imprisonment without due process of law respectable.

Bush Administration sabotaged investigation:

Remember Coleen Rowley who claimed that an FBI superior back in DC rewrote her request for a warrant, to make it less likely that it would be approved? There was also the FBI agent in Arizona who wanted to investigate certain pilot students, but was prohibited.

pgl -> sanjait... , January 20, 2017 at 01:20 PM
Remember the DeLenda Plan? Once we knew the USS Cole was Al Qaeda, it should have been executed. As in the spring of 2001. Alas, it was deferred to after 9/11. Most incompetent crew ever and the Twin Towers fell down taking 3000 people with because of their utter incompetence.
ilsm -> sanjait... , January 20, 2017 at 03:09 PM
Obama presided over 8 more years of Bushco organized murder and good profits for the war mongers.

[Jan 21, 2017] Non-interventionism and as such it is the opposing theory to neoconservatism, especially its Allbright-Kagan-Nuland troika flavor, which actually does not deviate much from so called liberal interventionists (Vishy left) such as Hillary-Samantha Power-Susan Rice troika

Notable quotes:
"... Trump may end their expert preparedness for unending war. ..."
"... Neolib/neocon conartists call their truthful detractors unready or ignorant of unpatriotic or Russian tools. Sore losers. Does not make war mongers right! ..."
Jan 21, 2017 | economistsview.typepad.com
ilsm -> Fred C. Dobbs... January 20, 2017 at 03:34 PM
What sense does it make to tilt with thermonuclear war over a half million Balts' whim?

Outside of the war mongering corporatists who take huge plunder off the US taxpayer.

How about an end to the one worlders?

Fred C. Dobbs said in reply to ilsm... January 20, 2017 at 04:04 PM

Can you come up with a theory of neoisolationism?
libezkova -> Fred C. Dobbs... , January 20, 2017 at 09:44 PM
Let me try. First of all, it is properly called non-interventionism and as such it is the opposing theory to neoconservatism, especially its Allbright-Kagan-Nuland troika flavor, which actually does not deviate much from so called liberal interventionists (Vishy left) such as Hillary-Samantha Power-Susan Rice troika.

It would be nice to put them on trial, because all of then fall under Nuremberg statute for war crimes. But this is a pipe dream in the current USA political climate with it unhinged militarism and jingoism.

Here is something that more or less resembles the definition

http://www.theamericanconservative.com/articles/noninterventionism-a-primer/

== quote ==

Americans have grown understandably weary of foreign entanglements over the last 12 years of open-ended warfare, and they are now more receptive to a noninterventionist message than they have been in decades. According to a recent Pew survey, 52 percent of Americans now prefer that the U.S. "mind its own business in international affairs," which represents the most support for a restrained and modest foreign policy in the last 50 years. That presents a challenge and an opportunity for noninterventionists to articulate a coherent and positive case for what a foreign policy of peace and prudence would mean in practice. As useful and necessary as critiquing dangerous ideas may be, noninterventionism will remain a marginal, dissenting position in policymaking unless its advocates explain in detail how their alternative foreign policy would be conducted.

A noninterventionist foreign policy would first of all require a moratorium on new foreign entanglements and commitments for the foreseeable future. A careful reevaluation of where the U.S. has vital interests at stake would follow. There are relatively few places where the U.S. has truly vital concerns that directly affect our security and prosperity, and the ambition and scale of our foreign policy should reflect that.

A noninterventionist U.S. would conduct itself like a normal country without pretensions to global "leadership" or the temptation of a proselytizing mission. This is a foreign policy more in line with what the American people will accept and less likely to provoke violent resentment from overseas, and it is therefore more sustainable and affordable over the long term.

When a conflict or dispute erupts somewhere, unless it directly threatens the security of America or our treaty allies, the assumption should be that it is not the business of the U.S. government to take a leading role in resolving it.

If a government requests aid in the event of a natural disaster or humanitarian crisis (e.g., famine, disease), as Haiti did following its devastating earthquake in 2010, the U.S. can and should lend assistance - but as a general rule the U.S. should not seek to interfere in other nations' domestic circumstances.

libezkova -> libezkova... , January 20, 2017 at 09:48 PM
Note the female chickenhawks are the most bloodthirsty, overdoing even such chauvinists as McCain.

That actually has its analogy in animal kingdom were female predators are more vicious killers then male, hunting the prey even if they do not feel the hunger (noted especially for lions)

point : , January 20, 2017 at 03:25 PM
Cross-posted from links earlier:

"So there you have it: ... completely unprepared to govern."

Paul means to imply the Obama boys and girls were better prepared? Judging by how well they did, maneuvering us into Larry's secular stagnation, for instance, some may be forgiven to think perhaps that kind of expertise we could do without.

Lost in all the discourse is that this government of ours was designed to be operated by amateurs.

ilsm -> point... , January 20, 2017 at 03:35 PM
Trump may end their expert preparedness for unending war.
ilsm -> point... , January 20, 2017 at 03:39 PM
Neolib/neocon conartists call their truthful detractors unready or ignorant of unpatriotic or Russian tools. Sore losers. Does not make war mongers right!

[Jan 20, 2017] The architect of supply-side economics is now a professor at Columbia University, former University of Chicago economist Robert Mundell is an academic charlatan

Notable quotes:
"... For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan ..."
"... The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do. ..."
Jan 20, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron :

Thanks to New Deal democrat, who made me curious about yesterday's "comment section in re Summers' piece." Then thanks to Ron Waller for his comment which closed with: (Good read: "Robert Mundell, evil genius of the euro".)

https://www.theguardian.com/commentisfree/2012/jun/26/robert-mundell-evil-genius-euro

Robert Mundell, evil genius of the euro

Greg Palast

For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan

The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do.

That progenitor is former University of Chicago economist Robert Mundell. The architect of "supply-side economics" is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell's research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency.

Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:

"They won't even let me have a toilet. They've got rules that tell me I can't have a toilet in this room! Can you imagine?"

As it happens, I can't. But I don't have an Italian villa, so I can't imagine the frustrations of bylaws governing commode placement.

But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.)

"It's very hard to fire workers in Europe," he complained. His answer: the euro.

The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing.

As another Nobelist, Paul Krugman, notes, the creation of the eurozone violated the basic economic rule known as "optimum currency area". This was a rule devised by Bob Mundell.

That doesn't bother Mundell. For him, the euro wasn't about turning Europe into a powerful, unified economic unit. It was about Reagan and Thatcher.

"Ronald Reagan would not have been elected president without Mundell's influence," once wrote Jude Wanniski in the Wall Street Journal. The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, "voodoo economics": the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher.

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics:

"Monetary discipline forces fiscal discipline on the politicians as well."

And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

Thus, we see that (unelected) Prime Minister Mario Monti is demanding labor law "reform" in Italy to make it easier for employers like Mundell to fire those Tuscan plumbers. Mario Draghi, the (unelected) head of the European Central Bank, is calling for "structural reforms" – a euphemism for worker-crushing schemes. They cite the nebulous theory that this "internal devaluation" of each nation will make them all more competitive.

Monti and Draghi cannot credibly explain how, if every country in the Continent cheapens its workforce, any can gain a competitive advantage.
But they don't have to explain their policies; they just have to let the markets go to work on each nation's bonds. Hence, currency union is class war by other means.

The crisis in Europe and the flames of Greece have produced the warming glow of what the supply-siders' philosopher-king Joseph Schumpeter called "creative destruction". Schumpeter acolyte and free-market apologist Thomas Friedman flew to Athens to visit the "impromptu shrine" of the burnt-out bank where three people died after it was fire-bombed by anarchist protesters, and used the occasion to deliver a homily on globalization and Greek "irresponsibility".

The flames, the mass unemployment, the fire-sale of national assets, would bring about what Friedman called a "regeneration" of Greece and, ultimately, the entire eurozone. So that Mundell and those others with villas can put their toilets wherever they damn well want to.

Far from failing, the euro, which was Mundell's baby, has succeeded probably beyond its progenitor's wildest dreams.

[Needless to say, I am not a fan of Robert Mundell's.]

Reply Friday, January 20, 2017 at 07:07 AM Peter K. -> RC AKA Darryl, Ron... , January 20, 2017 at 07:19 AM
Excellent article!

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

Reminded me of a point made by J.W. Mason:

http://jwmason.org/slackwire/what-does-crowding-out-even-mean/

"..It's quite reasonable to suppose that, thanks to dependence on imported inputs and/or demand for imported consumption goods, output can't rise without higher imports. And a country may well run out of foreign exchange before it runs out of domestic savings, finance or productive capacity. This is the idea behind multiple gap models in development economics, or balance of payments constrained growth. It also seems like the direction orthodoxy is heading in the eurozone, where competitiveness is bidding to replace inflation as the overriding concern of macro policy."

Peter K. -> RC AKA Darryl, Ron... , January 20, 2017 at 07:30 AM
I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser.

Like would they advise Greece to boost their national savings rate or doesn't it matter since Germany controls monetary policy?

RC AKA Darryl, Ron said in reply to Peter K.... , January 20, 2017 at 08:58 AM
"I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser."

[Don't know and it sounds like way too much work for me to try to figure out. Savings rate is not a problem for us and it is difficult to see how Greece could realistically increase theirs sufficient to change anything without some other intervention being made first to decrease unemployment and increase output.]

pgl -> RC AKA Darryl, Ron... , January 20, 2017 at 09:47 AM
It is also too much work for PeterK. If he can't cherry pick it, he don't bother.

But note our net national savings rate has been less than 2% for a long, long time.

[Jan 20, 2017] I don't think much of Trump but it is kind of amusing to see the elites, who screwed over most of the population, now having nervous breakdowns.

Jan 20, 2017 | economistsview.typepad.com
Tom aka Rusty -> Fred C. Dobbs... The elites are wetting their pants.

I don't think much of Trump but it is kind of amusing to see the elites, who screwed over most of the population, now having nervous breakdowns.

Therapists in Manhattan and Hollywood will do a booming business. Reply Friday, January 20, 2017 at 07:05 AM Peter K. -> Tom aka Rusty... , January 20, 2017 at 07:14 AM

yeah the elites are getting a taste of the fear regular folks get over losing a job and financial disaster.

The thing is, Trump is very unpopular.

EMichael -> Tom aka Rusty... , January 20, 2017 at 07:20 AM
So, which elites are you talking about?

Just give me an example or two.

Y'know, it is possible to be successful and still spend a lot of time doing the right things for people not as successful as you.

Peter K. -> EMichael... , January 20, 2017 at 07:36 AM
Summers and Krugman. See their most recent columns. I think more of the level-headed elites are thinking/hoping that Trump will be 4 years and out and it will all blow over.
Peter K. -> Peter K.... , January 20, 2017 at 07:38 AM
The really clever ones recognize that their is a populist upsurge worldwide against elite policymaking as Thoma discussed in his column on Davos man.
Tom aka Rusty -> EMichael... , -1
Yes, there are a few of those. I;ve been impressed by some of the things I have heard from the Steyer brothers.

But then there is Bill and Hill, Soros, the Trump cabinet, Rubin/Corzine/Rattner/Summers and a whole unheavenly host.

But not all that many impress me, particularly in Manhattan and California.

[Jan 20, 2017] It's too bad it took getting Donald Trump in the White House to get WaPo to do some serious budget reporting.

Jan 20, 2017 | economistsview.typepad.com
anne : , January 20, 2017 at 05:42 AM
http://cepr.net/blogs/beat-the-press/stop-the-presses-stop-the-presses-washington-post-decides-to-put-numbers-in-context

January 19, 2017

Stop the Presses! Stop the Presses! Washington Post Decides to Put Numbers in Context

They said it couldn't be done. It would be like the Pope converting to Islam, but the Washington Post did the impossible. It headlined an article * on reports that Donald Trump wants to privatize the Corporation for Public Broadcasting and eliminate altogether the National Endowments for the Arts and Humanities:

"Trump reportedly wants to cut cultural programs that make up 0.02 percent of federal spending."

This is an incredible breakthrough. The Post has religiously followed a policy of reporting on the budget by using really big numbers that are virtually meaningless to the vast majority of their readers. One result is that people, including well-educated and liberal people, tend to grossly over-estimate the portion of the budget that goes to things like Temporary Assistance for Needy Families (@ 0.4 percent), foreign aid (@ 0.7 percent), and food stamps (@1.8 percent).

The fact that it uses really big numbers rather than express these items in some context feeds the claims of right-wingers that we are being overtaxed to support these programs. It also contributes to the absurd belief that large numbers of people are not working but rather surviving comfortably on relatively meager benefits.

It's too bad it took getting Donald Trump in the White House to get the paper to do some serious budget reporting.

* https://www.washingtonpost.com/news/the-fix/wp/2017/01/19/trump-reportedly-wants-to-cut-cultural-programs-that-make-up-0-02-percent-of-federal-spending/?utm_term=.f151c67ef7fe

-- Dean Baker

[Jan 20, 2017] Loss of community, feelings of powerlessness, a sense that politics had been drained of meaning

Notable quotes:
"... The American sociologist C. Wright Mills conducted a major study of alienation in modern society with White Collar in 1951, describing how modern consumption-capitalism has shaped a society where you have to sell your personality in addition to your work. Melvin Seeman was part of a surge in alienation research during the mid-20th century when he published his paper, "On the Meaning of Alienation", in 1959 (Senekal, 2010b: 7-8). Seeman used the insights of Marx, Emile Durkheim and others to construct what is often considered a model to recognize the five prominent features of alienation: powerlessness, meaninglessness, normlessness, isolation and self-estrangement (Seeman, 1959).[19] Seeman later added a sixth element (cultural estrangement), although this element does not feature prominently in later discussions of his work. ..."
Jan 20, 2017 | economistsview.typepad.com
Peter K. : , January 19, 2017 at 01:19 PM
https://newrepublic.com/article/138915/jonathan-chait-failure-grown-up-liberalism

Dead Center

Jonathan Chait's new book shows the failure of "grown up" liberalism.

BY TIMOTHY SHENK

January 10, 2017

At the dawning of the Cold War, a worried Arthur Schlesinger Jr. looked out on a bleak horizon. The Soviet Union was a threat, but Schlesinger concluded that the roots of the crisis ran much deeper. "Our lives are empty of belief," he wrote in his 1949 book, The Vital Center. "They are lives of quiet desperation." Figures he looked to for guidance-Kierkegaard, Nietzsche, Camus-would become staples in the rhetoric of student protesters a generation later. So too would the concerns he dwelled upon: loss of community, feelings of powerlessness, a sense that politics had been drained of meaning. Even the poem he selected for his book's epigraph became a touchstone in the turbulent years to come: "Things fall apart; the center cannot hold; / Mere anarchy is loosed upon the world."

...

Any book published in the last month of a president's tenure is forced to reckon with the political scene that will form in his wake. While Chait was prescient on Trumpism in 2012, he underestimated its force in 2016, and was similarly blindsided by the success of Bernie Sanders's campaign. According to Chait, "The case for democratic, pluralistic, incremental, market-friendly governance rooted in empiricism-i.e., liberalism-has never been stronger than now." It is an odd claim to make in a season of populist upheavals. As the most bloodless technocrat should have long ago recognized, no policy achievement is complete without political legitimacy.

Deference to the status quo has always been a consequence of vital centrism. So is a propensity for self-important monologues on pragmatism. Schlesinger described his politics as "less gratifying perhaps than the emotional orgasm of passing resolutions against Franco, monopoly, or sin, but probably more likely to bring about actual results." But sentimental realists are never more utopian than when they try to banish idealism from politics. Democratic leadership does not consist of lecturing voters on what they should want. The intersection of politics and policy, briefing books and ideology, is where transformative candidates stake their claims.

Obama understood that in 2008, and it made him president. The passions inspired by his first run for the White House long ago slipped out of his control. A right-wing version of that democratic spirit gave Trump the presidency, but it could not have happened without Clinton's antiseptic liberalism-Obamaism minus Obama. Now Republicans are poised to eviscerate the achievements Chait celebrates. Reality has broken the realists.

Peter K. -> Peter K.... , January 19, 2017 at 01:19 PM
" But sentimental realists are never more utopian than when they try to banish idealism from politics."
libezkova -> Peter K.... , January 19, 2017 at 06:38 PM
"loss of community, feelings of powerlessness, a sense that politics had been drained of meaning. "

That's called alienation.

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

== quote ==
...German sociologists Georg Simmel and Ferdinand Tönnies wrote critical works on individualization and urbanization. Simmel's The Philosophy of Money describes how relationships become more and more mediated by money. Tönnies' Gemeinschaft and Gesellschaft (Community and Society) is about the loss of primary relationships such as familial bonds in favour of goal-oriented, secondary relationships. This idea of alienation can be observed in some other contexts, although the term may not be as frequently used. In the context of an individual's relationships within society, alienation can mean the unresponsiveness of society as a whole to the individuality of each member of the society. When collective decisions are made, it is usually impossible for the unique needs of each person to be taken into account.

The American sociologist C. Wright Mills conducted a major study of alienation in modern society with White Collar in 1951, describing how modern consumption-capitalism has shaped a society where you have to sell your personality in addition to your work. Melvin Seeman was part of a surge in alienation research during the mid-20th century when he published his paper, "On the Meaning of Alienation", in 1959 (Senekal, 2010b: 7-8). Seeman used the insights of Marx, Emile Durkheim and others to construct what is often considered a model to recognize the five prominent features of alienation: powerlessness, meaninglessness, normlessness, isolation and self-estrangement (Seeman, 1959).[19] Seeman later added a sixth element (cultural estrangement), although this element does not feature prominently in later discussions of his work.

[Jan 20, 2017] Smokescreen created by neoliberal newspeak

Jan 20, 2017 | economistsview.typepad.com
ilsm : , January 19, 2017 at 01:26 PM
Summers is talking to the center right lefties:
libezkova -> ilsm... , January 19, 2017 at 08:32 PM
this is a case study in the corruption of English language by neoliberalsm. Very similar to the same corruption by other ideologies such as Marxism. New "weasel" terms are constantly intoduiced to make it more difficult to understand the reality:

For example:

Old words are re-defined differently as the word "free" in "free market". Free for what and for whom?

You just provided two more equivalences:

[Jan 19, 2017] W ith Trump election the train just left the station .

Notable quotes:
"... What is called "Secular Stagnation" should be properly named "Secular Stagnation of societies which accepted neoliberalism as a polito-economical model". Very similar to what happened with Marxism: broken promised, impoverishment of the majority of population, filthy enrichment, corruption and all forms of degradation at the top. ..."
"... In the USA the level of elite degradation became really visible despite attempt to mask it with jingoism as a smoke screen (look at the candidates of the last Presidential race - the choice was between horrible and terrible) ..."
"... Speaking about the level of demoralization I understand why somebody might hate Trump, but Hillary as alternative ? Give me a break. In this sense wining about Trump inauguration just signify the inability to connect the dots and understand that the last election was what in chess was called Zugzwang. ..."
"... The fact is that neoliberalism as a social system no longer is viewed favorably by the majority of the US population (like Bolshevism before them in the USSR ). In this sense I think that with Trump election "the train just left the station". ..."
Jan 19, 2017 | economistsview.typepad.com

libezkova : January 19, 2017 at 07:27 PM , 2017 at 07:27 PM

Summers is a card carrying neoliberal and a Rubin's boy,. And Rubin was former "Deregulator in chief". Actually Summers performed the role of hired gun for Wall Street ( http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Corruption_of_regulators/silencing_brooksley_born.shtml ).

So he organically can't state the main point: neoliberal ideology is bankrupt and neoliberalism as a social system is close, or may be entered the decline stage.

That's why neoliberal MSM lost large part of their influence. Much like Soviet MSM during Brezhnev's rule.

What is called "Secular Stagnation" should be properly named "Secular Stagnation of societies which accepted neoliberalism as a polito-economical model". Very similar to what happened with Marxism: broken promised, impoverishment of the majority of population, filthy enrichment, corruption and all forms of degradation at the top.

Neoliberal elite ("masters of the universe") is split. The majority is still supporting "change we can believe in" (the slogan courtesy of master of "bait and switch") which means "kick the can down the road". While the other part is flirting with far right movements.

In the USA the level of elite degradation became really visible despite attempt to mask it with jingoism as a smoke screen (look at the candidates of the last Presidential race - the choice was between horrible and terrible)

Trump is just a symptom of a much larger problem. Look what happened when Marxist ideology was discredited and everybody understood that Marxism can't deliver its social promises. And look at the level of degradation of Soviet Politburo before the collapse which resulted is the election of this naïve, "not so bright", deeply provincial, inexperienced politician (Gorbachov). who was also determined "to make the USSR great again". The level of demoralization of the society was pretty acute. Nobody believed the government, the MSM, the Party.

The system was unable to produce leaders of the caliber that can save it. That was one of the reasons why it was doomed (bankruptcy of ideology means among other things that there is nobody to defend it and nationalism works both ways). I think we see a very similar processes in the USA now.

With CIA performing the role of KGB in their efforts to prevent or at least slow down the inevitable changes is the system (although at the end of the day KGB brass was simply bought and stepped aside allowing the Triumph of neoliberalism in the xUSSR space).

Speaking about the level of demoralization I understand why somebody might hate Trump, but Hillary as alternative ? Give me a break. In this sense wining about Trump inauguration just signify the inability to connect the dots and understand that the last election was what in chess was called Zugzwang.

The fact is that neoliberalism as a social system no longer is viewed favorably by the majority of the US population (like Bolshevism before them in the USSR ). In this sense I think that with Trump election "the train just left the station".

[Jan 19, 2017] Fake Economics and the media

Jan 19, 2017 | mainlymacro.blogspot.com
If there is Fake News, is there such a thing as Fake Economics? I thought about this as a result of two studies that have received considerable publicity in the press and broadcast media over the last few weeks. Both, needless to say, involve Brexit. The first are two bits of analysis by 'Change Britain', saying Brexit would generate 400,000 new jobs and "boost the UK by £450 million a week". The second is a more substantial piece of work by economists at the Centre for Business Research (CBR) in Cambridge, which was both very critical of the Treasury's own analysis of the long term costs of Brexit and came up with much smaller estimates of its own for these costs.
Defining exactly what Fake News is can be difficult , although we can point to examples which undoubtedly are fake, in the sense of reporting things to be true when it is clear they are not. Fake News often constitutes made up facts that are designed for a political purpose. You could define Fake economics in a similar way: economic analysis or research that is obviously flawed but whose purpose is to support a particular policy. (Cue left wing heterodox economists to say the whole of mainstream economics is fake economics.) We can equally talk about evidence based policy and its fake version, policy based evidence.

[Jan 18, 2017] FRBSF The Current Economy and the Outlook

Jan 18, 2017 | economistsview.typepad.com
libezkova :
Mathiness and "number racket" are two feature of neoliberalism that are especially damaging.

I like how neoclassical economics works: bought economists operate with fake models that use fake data.

It probably would be more interesting to discuss how US government measures unemployment those days. And all those "not in labor force" tricks.

Just seasonal adjustment make winter figures highly suspect.

Only U6 still has some connections to reality and if this measure shows "close to full employment", you can call any half empty glass "full".

http://unemploymentdata.com/current-u6-unemployment-rate/

== quote ==

Current U-6 Unemployment Rate is 9.1% (BLS) or 13.7% (Gallup)

Current U-6 Unemployment Rate:

Unemployment U6 vs U3 For December 2016 the official Current U-6 unemployment rate was 9.1% up from last month's 9.0% but still below the recent low of 9.3% in April and September and October's 9.2%.

On the other hand the independently produced Gallup equivalent called the "Underemployment Rate" was up to 13.7 in December from 13.0% in November nearing the 13.8% of April. The current differential between Gallup and BLS on supposedly the same data is 4.6%!

jonny bakho : , January 18, 2017 at 05:07 AM
"The labor market remains near its sustainable, full employment level."

This is a hope not a fact
There is plenty of slack if the underemployed move into jobs and we return the 20-50 yr olds to pre-recession participation rates.

pgl -> jonny bakho... , January 18, 2017 at 07:28 AM
Yep. Which is why I focus on the employment to population ratio. We are far from full employment.
John San Vant -> pgl... , January 18, 2017 at 09:54 AM
nope,nope,nope. you don't get how employment to population ratio is calculated. it can't rise and should not rise unless the calculations are adjusted.
John San Vant -> jonny bakho... , January 18, 2017 at 09:52 AM
Sorry, but it is a fact. Capital is at full employment.

Underemployed is cost savings adjustment made 30+ years ago and the pre-recession trend is always the end of the expansion.

urban legend -> John San Vant... , January 18, 2017 at 11:09 AM
Let's see:
SUPPORTING the belief that we are "close" to full employment is the U-3 measure of unemployment, a measure with an arbitrary cut-off that excludes from the official labor force as many people as possible who are not employed but do want jobs -- by requiring (1) an "active" search effort only within the last four weeks, based on (2) a definition of "active" that probably does not fit rational behavior by the unemployed who now have access to comprehensive Internet jobs databases that did not exist 20 years ago. (It is not terribly hard to surmise the institutional interests that are served by keeping the size of the labor force for purposes of determining the official unemployment rate as small as possible.)

NOT SUPPORTING the belief that we are close to full employment:

(1) the lowest employment-to-population ratio in almost half a century;
(2) negating the intellectually-lazy demographic excuse that invariably gets raised to point No. 1, the lowest employment-to-population ratio in 30 years in the prime working age group (25-54), a group that is 99.99% unaffected by the phenomenon of voluntary retirement;
(3) a U-6 (that counts many more of the unemployed in the labor force) that is still three percentage points higher than the low point reached in 2000 (three percentage points is a lot, representing about 7.5 million people who want jobs but are not counted in the labor force for calculating the U-3);
(4) an aggregate growth in full-time jobs of only 9% since the relative high point in 2000 even though the working age population has grown by 20%;
(5) average weeks unemployed among those who are counted as part of the labor force (26 weeks) that is still more than twice as high as it was in 2000 (under 13 weeks) and is still 10 weeks higher than it was before the Great Recession;
(6) involuntary part-time employment still 75% higher than it was in 2000, 33% higher than before the Great Recession;
(7) whereas in 2000, the U.S. was near the top in employment rate among the OECD countries, in 2017 it is close to the bottom; most OECD countries have recovered in their employment rates since the depths of the Great Recession, and many have moved to new levels (even supposedly sick France has a higher employment rate in the 25-54 prime working age group than te U.S.).

With this array of negative date to overcome, it takes a lot of wise monkeys who neither speak, hear nor see any evil to expound a belief that we are close to full employment.

RW said... January 18, 2017 at 07:05 AM

Inflation for the 4th quarter of 2016 is zero -- no change Oct through Dec -- and real interest rates remain near the zero boundary. Republican history WRT governing particularly as it pertains to the economy is sufficiently poor that optimism appears entirely unwarranted. I hear a lot of investors are adjusting their portfolio allocations to favor equities over bonds. Two years ago that was a smart move; now, not so much.

mulp said...

"All else equal, tax cuts boost household and business income."

In 2001, I was rif'd from my 100K++ job and got a $20,000 tax cut.

That tax cut did not boost my household income.

That economists have been bamboozled into thinking this way is beyond my comprehension.

Economies are zero sum. For every action, there is a reaction. Tax cuts mean revenue cuts which means spending cuts and spending cuts mean lower household income.

Very few sectors of the economy are subject to demand price elasticity that results in higher revenue from price reduction due to the quantity increasing explosively from a small reduction in price.

For example, cutting the profit tax by 30% on $100 oil so gasoline falls from $4.05 to $4.00 and thus doubles the quantity of gasoline sold to boost profit taxes is an impossibility.

And cutting the tax on economic profits from restricting oil production to drive up prices and profits can only increase tax revenue if oil production is cut further by cutting jobs so gasoline prices can be increased from $4 to $5 to $6 per gallon.

Since Reagan, economists seem to have self lobotomized so they spout totally illogical nonsense like "All else equal, tax cuts boost household and business income."

Might as well say "if you believe, you can fly when tinker bell hits you with pixie dust."


Reply Wednesday, January 18, 2017 at 11:07 AM

[Jan 18, 2017] The Biggest Changes Obamacare Made, and Those That May Disappear

Jan 18, 2017 | economistsview.typepad.com
Fred C. Dobbs : January 15, 2017 at 08:37 AM , 2017 at 08:37 AM
The Biggest Changes Obamacare Made, and Those That
May Disappear https://nyti.ms/2itydsr via @UpshotNYT
NYT - Margot Sanger-Katz - January 13, 2017

It looks like the beginning of the end for Obamacare as we know it.

After years of vowing to repeal the Affordable Care Act, as it is formally known, Republican lawmakers in both chambers of Congress have now passed a bill that will make it easier to gut the law.

Because they are using a special budget process, Republicans won't be able to repeal all provisions of the health law. But it seems like a good time to look at the major changes Obamacare brought to health care, which of those changes may now disappear, and what might replace them.

An important note: We still don't know the details of a repeal bill, and passage is not guaranteed. But Republicans passed a similar package in 2015, vetoed by President Obama, that provides a rough template. Republicans have also said they hope to make further changes through additional legislation. We'll provide updates when new legislative language arrives, expected in several weeks.

1) Obamacare insured millions through new insurance markets.

The health law reduced the number of uninsured Americans by an estimated 20 million people from 2010 to 2016. One of the primary ways it did so was by creating online markets where people who didn't get insurance through work or the government could shop for a health plan from a private insurer. The law offered subsidies for Americans with lower incomes to help pay their premiums and deductibles.

What would happen? The Republican bill is expected to eliminate the subsidies. This would make insurance unaffordable for millions of Americans and sharply reduce the number who buy their own health coverage.

With many fewer people buying coverage, the insurance markets are likely to become increasingly unstable. Many insurers will stop offering policies, and the remaining customers are likely to be sicker than current Obamacare buyers, a reality that will drive up the cost of insurance for everyone who buys it, and force more people out of the markets. The Urban Institute estimates that the change would cause a total of 22.5 million people to lose their health insurance.

What might replace it? Separate legislation may include some new form of subsidy to help people afford insurance. Plans from House Speaker Paul Ryan and the budget committee chairman Tom Price, President-elect Donald J. Trump's pick to