|Contents||Bulletin||Scripting in shell and Perl||Network troubleshooting||History||Humor|
The image reproduced from the paper "Cheating nature?"by Economist
|News||Recommended books||Recommended Links||Financial_skeptic||Political skeptic||Groupthink||Neoliberalism as a New Form of Corporatism|
|Lysenkoism and politization of science||Harvard Mafia||Cargo Cult Science||Cargo cult programming||IT offshoring Skeptic||Deception||Deception as an art form|
|Obscurantism and Mayberry Machiavelli||Mayberry Machiavellians||Leo Strauss and the Neocons||Pseudoscience and Scientific Press||Pollyanna creep||Belief coercion within religious groups|
|Casino Capitalism||Corruption of Regulators||Neoclassical Pseudo Theories and Crooked and Bought Economists as Fifth Column of Financial Oligarchy||Rational Fools vs. Efficient Crooks: The efficient markets hypothesis||Friedman --founder of Chicago school of deification of market||Supply Side or Trickle down economics||Invisible Hand Hypothesys: The Theory of Self-regulation of the Markets|
|Neoliberal Brainwashing -- Journalism in the Service of the Powerful Few||In Foreign Events Coverage The Guardian Presstitutes Slip Beyond the Reach of Embarrassment||Neo-theocracy as a False Drive to a Simpler Society||Dumbing down america||Information Technology Wonderland||Pseudoscience and Scientific Press||Scientific Fraud|
|Skeptical view on Programmers Health||Secular Humanism||Anti-intellectualism||Skeptical quotes||Humor||Financial Humor||Etc|
|Programmers have a very precise understanding of truth. You can’t lie to a compiler. Try it sometime. Garbage in, garbage out. Booleans, the ones and zeros, trues and falses, make up the world programmers live in. That’s all there is! I think programming is deep, it teaches us about the non-cyber universe we live in. There’s something spiritual about computers, and I want to understand it.|
Science has been misused for political purposes many times in history. However, the most glaring examples of politically motivated pseudoscience happened just recently, in XX century. That means that it is useful to review historic examples of "Zombie ideas" used for political purposes and the pattern that defines that abuse.
The important lesson of XX century is that discredited economic and political ideas, no matter how absurd, don't die as long as they serve well power that be. In a way they are real living dead, sucking blood from humans. Those ideas that should have died long ago, still shamble forward, like Zombies. Usage of such ideas is one of the most dangerous deception schemes practiced by modern elites
It's not easy to write about pseudo science. The problem has to do with the fluid nature of the concept. It has no single, precise meaning and there is little agreement about its constituent elements. But first and foremost it involved subjugation of scientific aims to political goals and deliberate attempt in deception and subsequent cover up. But recently almost all social and economic science became political and all politics involved deception: to say that a politician is not lying is the same as to say that an alcoholic is not drinking. Still there are different degrees of lies and different level of density of the "cloud of deception".
Discredited ideas with political support or "Zombies" can be extremely dangerous for people who oppose them. Lysenkoism probably represents classic early example when an set of obvious lies was supported by repressive apparatus of state and dissenters were prosecuted and sentenced to Gulag. For nearly 45 years, the Soviet government used propaganda to foster unproven theories of agriculture promoted by Trofim Lysenko. Scientists seeking favor with the Soviet hierarchy produced fake experimental data in support of Lysenko’s false claims. Contradicting scientific evidence from the fields of biology and genetics was simply banned. University programs taught only Lysenkoism . This state supported attempt to suppress generics continued for over forty years, until 1964, and even managed to spread to other communist countries, such as China.
What we saw it as a tragedy in Stalin's Russia genetics, we now see it as a farce in USA economics with neo-classical economics flourishing with the supportive guidance of neoliberal state and financial oligarchy.
The whole neoclassical economics is essentially a set of zombie ideas which are kept in the forefront by financial oligarchy. The financial crisis of 2008 buried key ideas of 'free market liberalism' (aka neoliberalism), such as the 'Efficient Markets Hypothesis', yet these zombie ideas still were dug our, dressed and continue to be sold via major newspapers and journals. Much like Lysenkoism in the USSR by CPSU. See
This is a real Faustian bargain for academic scholars. One can trade the independence for political influence, good salary and other perks. It is also helps in the power grab. And despite popular image of scientists, they proved to be as corruptible, if not more corruptible, as anybody else. Historically the scientific community is generally held together and all its affairs are peacefully managed through its joint acceptance of the same fundamental scientific beliefs. Science is best practiced in a voluntary, peaceful and free atmosphere.
But that idyllic arrangement firmly belongs to the past. Now we can talk only about the level of political pressure on scientists via research grants, not so much about presence or absence of such a pressure. What really matters as far as politics and science is concerned is what type of environment the individual scientists have to work in and what degree of freedom they can enjoy.
Historically the situation changed irrevocably since early XX contrary, which signified discovery of atomic particles. It should be understood that the modern scientist, built in the modern "neoliberal" democracies, is at the same time - and it is possible that even in the first place - a political agent, a manipulator. For the unwashed masses a public scientist represent the ultimate carrier of truth for a given discipline, so his opinion have a distinct political weight. And the architects of these systems use this values of scientists to the fullest extent possible. Like we can see with neoclassical economics, scientists have turned into an instrument of cognitive manipulation, when under the guise of science financial oligarchy promote beneficial to itself a false and simplistic picture of the world, which brainwash the masses into "correct" thinking.
In this sense one can say that Lysenkoism represented a natural side effect of shrinking of freedom of the scientific community and growing influence of political power on science. As by Frederick Seitz noted in his The Present Danger To Science and Society
Everyone knows that the scientific community faces financial problems at the present time. If that were its only problem, some form of restructuring and allocation of funds, perhaps along lines well tested in Europe and modified in characteristic American ways, might provide solutions that would lead to stability and balance well into the next century. Unfortunately, the situation is more complex, made so by the fact that the scientific establishment has become the object of controversy from both outside and inside its special domain. The most important aspects of the controversy are of a new kind and direct attention away from matters that are sufficiently urgent to be the focus of a great deal of the community's attention.
The assaults on science from the outside arise from such movements as the ugly form of "political correctness" that has taken root in important portions of our academic community. There are to be found, in addition, certain tendencies toward a home-grown variant of the anti-intellectual Lysenkoism that afflicted science in the Stalinist Soviet Union. So-called fraud cases are being dealt with in new, bureaucratic ways that cut across the traditional methods of arriving at truth in science. From inside the scientific community, meanwhile, there are challenges that go far beyond those that arise from the intense competition for the limited funds that are available to nourish the country's scientific endeavor.
The critical issue of arriving at a balanced approach to funding for science is being subordinated to issues made to seem urgent by unhealthy alliances of scientists and bureaucrats. Science and the integrity of its practitioners are under attack and, increasingly, legislators and bureaucrats shape the decisions that determine which paths scientific research should take. There is, in addition, a sinister tendency, especially in environmental affairs, toward considering the undertaking of expensive projects that are proposed by some scientists to remedy worst-case formulations of problems before the radical and expensive remedies are proven to be needed. They are viewed seriously though they are based on the advice of opportunistic alarmists in science who leap ahead of what is learned from solid research to encourage support for the expensive remedies they perceive to be necessary. The potential for very great damage to science and society is real.
Of course, the rise of 'Lysenkoism' in the Soviet Union in the late 40th of the twentieth century is one of the most tragic pages of the history of science. Trofim Lysenko, a Soviet agronomist, came to prominence as the proponent of a theory of heredity that stood in direct opposition to Mendelianism. The details of this theory need not concern us, except to note that it was 'Larmarckist' in its contention that it is possible for organisms to inherit acquired characteristics. This was wrong and the principles of Mendelianism - the theory of heredity - were well understood by then. But Lysenko theory fitted nicely with the Soviet ideology. Particularly, the idea that acquired characteristics could be inherited held out the promise of the perfectibility of mankind which as strange as it may sound was the necessary precondition to irreversible victory of socialism/communism (later when nationalistic forces tore apart the USSR it became clear that such hopes are completely misplaced).
So the Stalinist state intervened in the pre-exiting scientific struggle by declaring the victor and the consequences, certainly for many of the scientists involved and arguably also for the USSR agriculture, were disastrous. The essence of Lysenkoism is that pseudo-scientific theory became a pseudo-religious cult and the power of state was used to suppress dissidents. Many scientists were exiled; some killed. Unfortunately we cannot dismiss the obviously pernicious use of ideology by Lysenko and his supporters simply as an aberration of the era that is often brushed aside as 'the cult of personality' (with or without naming the personality in question). This proved to be much more dangerous and at the same time remarkably resilient phenomenon that survived the dissolution of the USSR. Actually the situation repeated with the USA economics when anything that was not neo-classic was suppressed was by-and-large similar although this time this time it happened without any killings.
Do not fool yourself that Lysenkoism is irrevocably connected with communist ideology. The link was poorly accidental. In reality Lysenkoism emerged more like a cult which was extremely convenient for the control freaks in high position in government. It's not a secret that a lot of high-level administrators in academic institutions belong to the category of micromanagers and as such they are naturally predisposed to Lysenkoism.
In general "Lysenkovisation of science" occurs when the state tries to control both the methodologies and goals of scientific activity and that happens all over the world, although to different degree.
In the USSR huge bureaucratic institutions such as VASKhNIL and VIEM had been set up with the specific goal to control resources and, especially, scientific press. Part of the reason that Lysenkoism gained official support in the Soviet Union was because the Mendelian approach to genetics contradicted official ideology, in particular, Engels's dialectical materialism. In early 50th, just before his death Stalin began to sense that Lysenkoism can hinder practical science by interfering with the academic atmosphere of toleration of dissent most conducive to scientific accomplishment. He even went as far as to declare that
“no science can develop and proper without the clash of opinions, without freedom of criticism.”
But it was too late...
Other governments are also far from being immune from this kind of tendency to select between scientific theories on the basis of ideology rather than the balance of evidence.
More benign variant of Lysenkoism that does not rely on the power of the state is usually called Cargo Cult Science. Another related term is "Mayberry Machiavellis". A long time ago -- well, actually it was just a year, but it seems like a lot longer than that -- a former Bush advisor John DiIulio got into quite a bit of trouble for revealing to Esquire that the White House did not possess, in any conventional definition of the term, a policy-making process:
...on social policy and related issues, the lack of even basic policy knowledge, and the only casual interest in knowing more, was somewhat breathtaking—discussions by fairly senior people who meant Medicaid but were talking Medicare; near-instant shifts from discussing any actual policy pros and cons to discussing political communications, media strategy, et cetera. Even quite junior staff would sometimes hear quite senior staff pooh-pooh any need to dig deeper for pertinent information on a given issue...
This gave rise to what you might call Mayberry Machiavellis—staff, senior and junior, who consistently talked and acted as if the height of political sophistication consisted in reducing every issue to its simplest, black-and-white terms for public consumption, then steering legislative initiatives or policy proposals as far right as possible.
Dan Gardner - Senior Writer for The Ottawa Citizen writes: "Cabinet meetings were scripted, Mr. O'Neill discovered, by White House staffers who sent advance notes to cabinet secretaries telling them when they were 'supposed to speak, about what, and for how long.'" Is this the shadow of Politburo or what?
There are also strong analogies between Reaganomics and Lysenkoism. Useful discussion is at "The Financial Crisis and the Systemic Failure of Academic Economics"
The Financial Crisis and the Systemic Failure of Academic Economics, by David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, and Thomas Lux: [From the conclusion] ..."We believe that economics has been trapped in a sub-optimal equilibrium in which much of its research efforts are not directed towards the most prevalent needs of society. Paradoxically self-reinforcing feedback effects within the profession may have led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest. Defining away the most prevalent economic problems of modern economies and failing to communicate the limitations and assumptions of its popular models, the economics profession bears some responsibility for the current crisis. It has failed in its duty to society to provide as much insight as possible into the workings of the economy and in providing warnings about the tools it created. It has also been reluctant to emphasize the limitations of its analysis. We believe that the failure to even envisage the current problems of the worldwide financial system and the inability of standard macro and finance models to provide any insight into ongoing events make a strong case for a major reorientation in these areas and a reconsideration of their basic premises."
While at the surface it looks like rent-seeking behavior of dishonest economists the analogy is pretty strong. A broad critique of Neoclassical economics has been put forward in the book Debunking Economics by Steve Keen See, for example:
Dr. Nikolai Bezroukov
If history repeats itself...how incapable must Man be of learning from experience
George Bernard Shaw
Jacob Bronowski (1908-1974),
Feb 15, 2017 | www.improbable.com
by Yoram Bauman 
University of Washington, Seattle, Washington
The cornerstone of Harvard professor N. Gregory Mankiw's introductory economics textbook, Principles of Economics, is a synthesis of economic thought into Ten Principles of Economics (listed in the first table below). A quick perusal of these will likely affirm the reader's suspicions that synthesizing economic thought into Ten Principles is no easy task, and may even lead the reader to suspect that the subtlety and concision required are not to be found in the pen of N. Gregory Mankiw.
I have taken it upon myself to remedy this unfortunate situation. The second table below summarizes my attempt to translate Mankiw's Ten Principles into plain English, and in doing so to provide the uninitiated with an invaluable glimpse of the economic mind at work. Explanations and details can be found in the pages that follow, but the average reader is advised to simply cut out the table below and carry it around for assistance in the (hereafter unlikely) event of confusion about the basic Principles of Economics.
#1. People face tradeoffs.
#2. The cost of something is what you give up to get it.
#3. Rational people think at the margin.
#4. People respond to incentives.
#5. Trade can make everyone better off.
#6. Markets are usually a good way to organize economic activity.
#7. Governments can sometimes improve market outcomes.
#8. A country's standard of living depends on its ability to produce goods and services.
#9. Prices rise when the government prints too much money.
#10. Society faces a short-run tradeoff between inflation and unemployment.
#1. Choices are bad.
#2. Choices are really bad.
#3. People are stupid.
#4. People aren't that stupid.
#5. Trade can make everyone worse off.
#6. Governments are stupid.
#7. Governments aren't that stupid.
#8. Blah blah blah.
#9. Blah blah blah.
#10. Blah blah blah.
Explanations and Details
At first glance, the reader cannot but be impressed by the translation's simplicity and clarity. Accessibility, however, should not be mistaken for shallowness: further study will reveal hidden depths and subtleties that will richly reward the attentive student. Indeed, a moment's reflection will identify any number of puzzles and mysteries. Chief among them is probably this: Why do Principles #8, #9, and #10 have identical translations?
The immediately obvious explanation is that these are macro-economic principles, and that I, as a micro-economist, am ill equipped to understand them, let alone translate them. As is often the case in this complex world we live in, this immediately obvious explanation is also wrong. The true reason I have provided identical translations of "Blah blah blah" for Principles #8, #9, and #10 is that these principles say exactly the same thing, namely, "Blah blah blah." Sometime when you've got a few hours to spare, go and ask an economist -- preferably a macro-economist -- what he or she really means by "standard of living" or "goods and services" or "inflation" or "unemployment" or "short-run" or even "too much." You will soon realize that there is a vast difference between, say, what Principle #10 says -- "Society faces a short-run tradeoff between inflation and unemployment" -- and what Principle #10 means: "Society faces blah between blah and blah." My translations are simply concise renderings of these underlying meanings.
Having cleared up that issue, let us go back to Mankiw's
People face tradeoffs.
TRANSLATION: Choices are bad.
The reasoning behind this translation is obvious. For example, imagine that somebody comes up to you and offers you a choice between a Snickers bar and some M&Ms. You now have a tradeoff, meaning that you have to choose one or the other. And having to trade one thing off against another is bad; President Truman supposedly asked for a one-armed economics advisor because his two-armed economics advisors were always saying, "On the one hand...but on the other hand..."
People who have not received any economics education might be tempted to think that choices are good. They aren't. The (mistaken) idea that choices are good perhaps stems from the (equally mistaken) idea that lack of choices is bad. This is simply not true, as Mancur Olson points out in his book, The Logic of Collective Action: "To say a situation is 'lost' or hopeless is in one sense equivalent to saying it is perfect, for in both cases efforts at improvement can bring no positive results."
Hence my translation of Mankiw's first principle of economics: Choices are bad. This concept can be a little difficult to grasp -- nobody ever said economics was easy -- but the troubled reader will undoubtedly gain clarity from Mankiw's
The cost of something is what you give up to get it.
TRANSLATION: Choices are really bad.
Beyond transforming Mankiw's semantic deathtrap into simplicity itself, this translation has the advantage of establishing a connection between Principle #1 (Choices are bad) and Principle #2 (Choices are really bad).
To continue to deepen the reader's understanding of why choices are bad -- really bad -- let's return to our previous example, in which somebody offers you a choice between a Snickers bar and a package of M&Ms. Suppose, for the sake of argument, that you take the M&Ms. According to Mankiw, the cost of those M&Ms is the Snickers bar that you had to give up to get the M&Ms. Your gain from this situation -- what economists call "economic profit" -- is therefore the difference between the value you gain from getting the M&Ms (say, $.75) and the value you lose from giving up the Snickers bar (say, $.40). In other words, your economic profit is only $.35. Although you value the M&Ms at $.75, having the choice of the Snickers bar reduces your gain by $.40. Hence Principle #2: Choices are really bad.
Indeed, the more choices you have, the worse off you are. The worst situation of all would be somebody coming up to you and offering you a choice between two identical packages of M&Ms. Since choosing one package (which you value at $.75) means giving up the other package (which you also value at $.75), your economic profit is exactly zero! So being offered a choice between two identical packages of M&Ms is in fact equivalent to being offered nothing.
Now, a lay person might be forgiven for thinking that being offered a choice between two identical packages of M&Ms is in fact equivalent to being offered a single package of M&Ms. But economists know better. Being offered a single package of M&M effectively means having to choose between a package of M&Ms (which you value at $.75) and nothing (which you value at $0). Choosing the M&Ms gives you an economic profit of $.75, which is $.75 more than your economic profit when you are offered a choice between two identical packages of M&Ms.
At this point it is worth acknowledging that (1) there may be readers who have failed to grasp the above subtleties in their entirety, and (2) such readers may well be beginning to wonder whether they are, in a word, stupid. Any lingering doubts should be eliminated by the Mankiw's
Rational people think at the margin.
TRANSLATION: People are stupid.
One point that is immediately obvious to the most casual observer with the meanest intelligence is that most people do not think at the margin. For example, most people who buy oranges at the grocery store think like this: "Hmmm, oranges are $.25 each. I think I'll buy half a dozen." They do not think like this: "Hmmm, oranges are $.25 each. I'm going to buy one, because my marginal value exceeds the market price. Now I'm going to buy a second one, because my marginal value still exceeds the market price..." We know most people don't think like this because most people don't fill their shopping baskets one orange at a time!
But we are now led inexorably toward a most unhappy conclusion. If -- as Mankiw says -- rational people think at the margin, and if -- as we all know -- most people do not think at the margin, then most people are not rational. Most people, in other words, are stupid. Hence my translation of the third principle of economics: People are stupid.
Before sinking into despair for the fate of the human race, however, the reader would be wise to consider Mankiw's
People respond to incentives.
TRANSLATION: People aren't that stupid.
The dictionary says that incentive, n., is 1. Something that influences to action; stimulus; encouragement. SYN. see motive.
So what Mankiw is saying here is that people are motivated by motives, or that people are influenced to action by things that influence to action. Now, this may seem to be a bit like saying that tautologies are tautological -- the reader may be thinking that people would have to be pretty stupid to be unmotivated by motives, or to be inactive in response to something that influences to action. But remember Principle #3: People are stupid. Hence the need for Principle #4, to clarify that people aren't that stupid.
Only truly stupid people can fail to understand my translation of Mankiw's
Trade can make everyone better off.
TRANSLATION: Trade can make everyone worse off.
But, the reader may well be asking, isn't the translation of the fifth principle the exact opposite of the principle itself? Of course not.
To see why, first note that "trade can make everyone better off" is patently obviously: if I have a Snickers bar and want M&Ms and you have M&Ms and want a Snickers bar, we can trade and we will both be better off. Surely Mankiw is getting at something deeper than this? Indeed, I believe he is. To see what it is, compare the following phrases:
A: Trade can make everyone better off.
B: Trade will make everyone better off.
Now, Statement B is clearly superior to Statement A. Why, then, does Mankiw use Statement A? It can only be because Statement B is false. By saying that trade can make everyone better off, Mankiw is conveying one of the subtleties of economics: trade can also not make everyone better off. It is a short hop from here to my translation, "Trade can make everybody worse off." (A numerical example can be found in Note #3, below.)
The subtlety evident in Principle #5 is even more clearly visible in the next two principles.
Markets are usually a good way to organize economic activity.
TRANSLATION: Governments are stupid.
Governments can sometimes improve market outcomes.
TRANSLATION: Governments aren't that stupid.
To see the key role that Principle #5 plays in both of these statements, note that the original phrasing of Principle #5 ("Trade can make everyone better off") leads to Principle #6 ("Governments are stupid"). After all, if trade can make everyone better off, what do we need government for? But the translation of Principle #5 ("Trade can make everyone worse off") leads to Principle #7 ("Governments aren't that stupid"). After all, if trade can make everyone worse off, we better have a government around to stop people from trading!
Like the first five principles, Principles #6 and #7 demonstrate the fine distinctions inherent in the economic way of thinking. People are stupid, but not that stupid; trade can make everyone better off, but it can also make everyone worse off; governments are stupid, but not that stupid. Exploring, refining, and delineating these distinctions is the subject matter of upper-level economics classes, doctoral dissertations in economics, and the vast majority of papers in the American Economic Review and other scholarly journals. Should the reader decide to follow this path, the fundamental principles described on the first page of this article will provide invaluable guidance.
Thank you to Ivars Skuja for assistance in taking and preparing the photographs that accompany this article.
1. My own microeconomics text, Quantum Microeconomics, can be found online at <http://www.smallparty.org/quantum>.
2. The exact meanings of the terms "micro" and "macro" may be lost on the reader -- or, more likely, may never have been found in the first place. This should not be cause for concern: absence of these terms from Mankiw's Ten Principles indicates that they are not of fundamental economic importance.
3. Many non-economists (and some economists) are intimidated by numerical examples. To make it easier for those people to recognize that the following is a numerical example, it is formatted in very small type.
Consider a small town with three families. It just so happens that Family #1 needs a snowblower, Family #2 needs a leafblower, and Family #3 needs a lawnmower; each family values their particular need at $200. Fortune appears to be smiling on this town, because it also just so happens that Family #1 owns a leafblower, Family #2 owns a lawnmower, and Family #3 owns a snowblower. These sit unused in their respective garages; each family has no use for its current piece of equipment, and therefore values it at $0.
The situation appears ripe for gains from trade: Family #1 could buy a snowblower from Family #3 for $100, Family #2 could buy a leafblower from Family #1 for $100, and Family #3 could buy a lawnmower from Family #2 for $100. Each family would be $200 better off.
Unfortunately, life in this small town is not so simple; the town is located in a valley that is susceptible to severe air pollution problems. Blowers and mowers emit large quantities of air pollutants, and in fact each blower or mower that is used will make air pollution so bad that hospital bills (for asthma, etc.) will increase by $80 for each family. Three additional blowers and mowers will therefore increase each family's bills by $240.
Two results follow. First, the trades will still take place. For example, Family #1 and Family #3 will both be better off by $100 - $80 = $20 if Family #3 sells Family #1 its snowblower for $100. Second, the three trades together make everyone worse off: each family gains $200 from buying and selling, but loses $240 in hospital bills, for a net loss of $40.
4. To accommodate schools that teach micro and macro separately, Mankiw's Principles of Economics is also published in separate pieces; the accompanying photographs are of the micro piece, Principles of Microeconomics. Note that the same Ten Principles of Economics (some micro, some macro) appear in all versions of the book.
© Copyright 2003 Annals of Improbable Research (AIR)
Feb 15, 2017 | economistsview.typepad.comsanjait -> Jerry Brown... , February 15, 2017 at 10:38 AMEconomists are enormously diverse as a group. Any piece that explicitly or implicitly describes them as being homogeneous is being reductionist at best.DrDick -> sanjait... , February 15, 2017 at 10:51 AM
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.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.Peter K. -> sanjait... , February 15, 2017 at 11:20 AM
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."there is probably mutual blame to be assigned."Jerry Brown -> sanjait... , February 15, 2017 at 11:31 AM
What a masochist.
Stockholm syndrome.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 15, 2017 | economistsview.typepad.comPeter K. -> Jerry Brown... , February 15, 2017 at 05:42 AMI have come around to the idea to the idea that the people and the left have been ill-served by economists. Whether on trade or on other issues, they are used for their supposed expertise to argue against "populist" solutions. "Populist" solutions aren't efficient. Most center-left economists attacked Sanders for being unserious.Mike S -> Peter K.... , February 15, 2017 at 06:01 AM
People no longer trust them after being played.
Krugman and others want it just to be about the blue time versus the red team, Keynesianism versus neoclassical. That's the acceptable frame of debate.
But as the election of Trump has shown, it's more complicated than that.
The left needs better economists. It's nice to see Piketty join the campaign of France's Bernie Sanders, who just beat their center-left Hillary in the Socialist primary. He knows things need to change.
If he had joined Bernie Sanders campaign he would have been attacked by the center-left economists as "unserious" and "populist."
Economists mostly argue from authority and people no longer trust their authority. Smith is suggesting they can fall back on empirics and science to boost their legitimacy only if their science backs the truth. Unfortunately economics is too political.
"The left needs better economists."Tom aka Rusty -> Mike S... , February 15, 2017 at 06:14 AM
Really? Offhand, I can think of Dr Krugman and Joe Stiglitz having won Nobel prizes. How many right wing economists have won a nobel in, say the last 25 years?Krugman was wrong on the impact of trade on US blue collar workers, a more than minor error.pgl -> Tom aka Rusty... , February 15, 2017 at 06:18 AM
But who cares about blue collar workers (except on voting day)?Care to provide a link to where Krugman declared no one would be hurt by a movement to free trade?Peter K. -> pgl... , February 15, 2017 at 07:10 AMKrugman made his career by bashing leftwing "populists" over trade and industrial policy.BenIsNotYoda -> Peter K.... , February 15, 2017 at 07:15 AM
Rustbucket is right.Peter K is absolutely correct here in his criticism. Krugman made the transition in the 90s with the Clinton/Rubin economic regime. Their day is over. Obama embraced the same and we are all paying the price. By shooting down Bernie, they killed their chances in the election. We need a change. and yes, I agree with Noah. Economists should hold their head in shame. Not for not predicting the crisis. But for doing little afterwards than boosting asset prices.pgl -> BenIsNotYoda... , February 15, 2017 at 07:27 AM
Repeat after me - High stock prices do NOT cure cancer."Krugman made the transition in the 90s with the Clinton/Rubin economic regime."Tom aka Rusty -> pgl... , February 15, 2017 at 07:45 AM
Check again - Krugman did not serve in the Clinton White House.Such clever use of language, of course he did not say that exact thing.pgl -> Tom aka Rusty ... , February 15, 2017 at 08:16 AM
You and I both have Rodrik's 1997 both, you know where the exceprt is, so don't be a #$%^.I do have Rodrik's excellent book. Might you tell us which page this alleged statement is?JohnH -> pgl... , February 15, 2017 at 10:33 AMpgl's usual denial: "Care to provide a link to where Krugman declared no one would be hurt by a movement to free trade?"pgl -> JohnH... , February 15, 2017 at 11:04 AM
pgl intentionally ignores the link I posed many times wherein Krugman stated that labor would benefit from China's accession to WTO...3 million jobs lost later, Krugman finally started to rethink his full throated embrace of 'free' trade, but not pgl!
All too often, economists posing as leftists, like PK, champion investor friendly policies, claiming that they will help labor. And then, when people finally start to catch onto the bait and switch, they wonder why people don't trust economists!You provided a link? Really? Where is it?Mike S -> Tom aka Rusty... , February 15, 2017 at 06:24 AMDon't remember when this occurred; maybe you could provide a link. Lots of economists get things wrong occasionally, left and right wingers alike.sanjait -> Tom aka Rusty... , February 15, 2017 at 10:42 AM
But, being wrong occasionally doesn't support your reply. Dr Krugman is still a Nobel laureate.Tom has no idea how much of the loss of blue collar labor demand in recent decades was due to trade policy vs non-policy related trade trends vs technology shifts.DrDick -> Tom aka Rusty... , February 15, 2017 at 10:49 AM
Further, he has no interest in even beginning to attempt to assess the issue.
So I don't think he has any room to talk about who was "wrong" about the impact of trade on workers.
And he is far from alone in this failing.To the extent that he actually was wrong (he did minimize distributional effects in much of his earlier work), he has admitted it and changed his ways.Peter K. -> Mike S... , February 15, 2017 at 07:12 AMStiglitz is good but he didn't stick his neck out and back Bernie Sanders.kthomas -> Peter K.... , February 15, 2017 at 07:29 AM
Krugman is bad in many ways. As I said in my comment, it's not just about Donkeys versus Republicans.(yawn)RC AKA Darryl, Ron -> Mike S... , February 15, 2017 at 09:13 AM"...How many right wing economists have won a nobel in, say the last 25 years?"RGC -> Mike S... , February 15, 2017 at 09:36 AM
[Economists don't designate conservative or liberal when they hand up their shingle, so one must use supply side, Austrian School, and neoclassical orientations as a proxy for conservative ideology. New Keynesian is a little on the fence, say centrist.]
Ronald Coase - 1991
Gary Becker - 1992
Robert Fogel (jointly with Douglass North, but North can only be definitively classified as eclectic with a whiff of neoclassical general equilibrium) -1993
John Harsanyi, John Nash, and Reinhard Selten won jointly in 1994. They were the game theory guys, which along with their theory of non-cooperative games made considerable contributions to utilitarian ethics, which do no always lead to happy endings for broadly shared social welfare. They were NOT conservatives themselves by any stretch of the imagination, but they were not notably liberals either. Crazy people in search of impossible perfection but willing to cut off a few limbs to get there is my impression.
Robert Lucas - 1995 ('nuff said)
Praise the lord, holy Jesus in 1996 William Vickrey and James Mirrlees who ARE actual liberals were award the Nobel "for their fundamental contributions to the economic theory of incentives under asymmetric information," a topic of great interest to conservatives.
Robert Merton (a social scientist) and Myron Sholes (a financial economist) won in 1997 "for a new method to determine the value of derivatives."
I almost had a heart attack when I got to this one. Amartya Sen won in 1998 "for his contributions to welfare economics." Of course he is from India.
Robert Mundell won in 1999 "for his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas." Yep, this is the supply sider that gave the world the EU crisis.
James Heckman "for his development of theory and methods for analyzing selective samples" and Daniel McFadden "for his development of theory and methods for analyzing discrete choice" won jointly in 2000, another case of two liberals getting awarded for research that was of interest to conservatives while being almost entirely unrelated to their own major contributions.
Similarly in 2001, George Akerlof, Michael Spence, and Joseph Stiglitz won jointly "for their analyses of markets with asymmetric information." This one actually had liberal application, but my guess is they got it because conservatives were scratching their heads about where they went wrong with the dot-com bubble.
OK, I got other stuff to do now, but you can take the link and figure it out for yourself. Clearly winning a Nobel still does not make an economists a champion of the liberal political cause. Still to go is Ed Prescott in 2004 if you get my drift.
There is actually a book that discusses this in far greater detail that I only discovered well into my own analysis with Google and Wikipedia, but where I looked the experts that wrote the book had the same judgements and misgivings as I did.
https://books.google.com/books?id=Qoj8CwAAQBAJ&pg=PA114&lpg=PA114&dq=James+Mirrlees+conservative+or+liberal&source=bl&ots=MHH0gXsjSP&sig=q387P51rcY372uI2SjAOZMb9Gvk&hl=en&sa=X&ved=0ahUKEwip4p3jw5LSAhWG8oMKHcOtCAUQ6AEILzAD#v=onepage&q=James%20Mirrlees%20conservative%20or%20liberal&f=falseI agree with Peter K.RC AKA Darryl, Ron -> RGC... , February 15, 2017 at 09:42 AM
The "Nobel prize" was established as 'The Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel".
Some critics argue that the prestige of the Prize in Economics derives in part from its association with the Nobel Prizes, an association that has often been a source of controversy.
Among them is the Swedish human rights lawyer Peter Nobel, a great-grandson of Ludvig Nobel. Nobel criticizes the awarding institution of misusing his family's name, and states that no member of the Nobel family has ever had the intention of establishing a prize in economics.
According to Samuel Brittan of the Financial Times, both of the former Swedish ministers of finance, Kjell-Olof Feldt and Gunnar Myrdal, wanted the prize abolished, saying, "Myrdal rather less graciously wanted the prize abolished because it had been given to such reactionaries as Hayek (and afterwards Milton Friedman)."
Avner Offer's and Gabriel Söderberg's The Nobel factor: the prize in economics, social democracy, and the market turn (Princeton University Press 2016) argues that there has been a dramatic shift in the dominant macroeconomic theories among the academia, and that the creation of the Nobel in 1969 was the cause of this, as it enhanced the prestige of free market ideology and conferred upon it the status of science.
As for right wing winners, check out all the U of Chicago recipients.
The 'Nobel" prize was established by a bank to promote the objectives of banks.
And btw, Krugman is no leftwing economist.Excellent! THANKS!Peter K. -> RGC... , February 15, 2017 at 10:18 AM"I agree with Peter K."
"Science advances one funeral at a time."
- Max Planck
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 programsDavid Lindsay on September 25, 2016 Format: Paperback Verified Purchase
" 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.Brilliant OverviewFang on September 27, 2016 Format: Paperback Verified Purchase
" 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.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 | www.amazon.comAlan Dale on November 27, 2016
5.0 out of 5 stars An Essential Addition to an Essential Body of Work
Of the extraordinarily valuable and informative works for which Mr. Valentine is responsible, his latest, CIA As Organized Crime, may prove to be the best choice as an introduction to the dark realm of America's hidden corruptions and their consequences at home and around the world. This new volume begins with the unlikely but irrevocable framework by which Mr. Valentine's path led to unprecedented access to key Agency personnel whose witting participation is summarized by the chapter title: "How William Colby Gave Me the Keys to the CIA Kingdom."
By illuminating CIA programs and systems of surveillance, control, and assassination utilized against the civilian population of South Vietnam, we are presented with parallels with operations and practices at work today in America's seemingly perpetual war against terror.
Through the policies of covert infiltration and manipulations, illegal alliances, and "brute force" interventions that wreak havoc on designated enemy states, destroy progress and infrastructure under the claim of liberation, degrade the standards of living for people in the perceived hostile nations, "...America's ruling elite empowers itself while claiming it has ensured the safety and prestige of the American people. Sometimes it is even able to convince the public that its criminal actions are 'humanitarian' and designed to liberate the people in nations it destroys."
Mr. Valentine has presented us with a major body of work which includes: The Strength of the Wolf; The Strength of the Pack; The Pheonix Program, to which we may now add The CIA as Organized Crime, and for which we are profoundly indebted.
felixnola on December 6, 2016
5.0 out of 5 stars The Truth About the CIA and What is Instore For You
If you want the inside scoop on the CIA and it's criminal past; this is the book. Additionally, why the Phoenix Program is pertinent for our own times. This book connects the dots.
If you have been wondering why Homeland Security has fusion centers; why the USA Anti-Patriot Act, NDAA and Rex 84 have been passed by Congress; you will get your answer here.
A book every intelligent American needs to read and place in a prominent place in their library. Oh, and don't forget after you read it; spread the word !!! (this book is based upon actual face to face interviews and documents)
Jay Trout on January 2, 2017
5.0 out of 5 stars A crucial tool to understanding present reality. An absolute must read.
Run, don't walk, and get yourself a copy of this book. The author has been warning us for decades about the clear and present danger that is the CIA. I was unaware of Valentine's work for most of those years, perhaps because our media outlets (even the "anti-establishment" ones like Democracy Now and The Intercept) have been compromised. Valentine's work has been suppressed since his ground-breaking book on the Phoenix Program.
Not that I didn't know anything about the sordid history. I knew about MK-Ultra, some of the agency's drug running and empire-building exploits. This work goes much deeper and paints a much bigger picture. The extent of the agency's influence is much greater than I had imagined.
This is not another history book about dirty tricks. It is not just about our insane foreign policy and empire building. The cancer of corruption, of outright crime, has metastasized into every agency of the government right here in the US itself. Those dirty tricks and crimes have become domestic policy- in fusion centers and Homeland Security, in the militarization of local police and in Congress, from Wall Street to Main Street. Border Patrol, the DEA, Justice and State have all been compromised.
Want to know why the DEA is losing the war on drugs, how torture has become policy? Want to know why the government no longer represents your interests? Look no further.
The problem is now. We are the new targets.
Read it and weep, but for God's sake, please read it.
A highly informative and comprehensive book, and a scathing, fearless indictment of government corruption.
I cannot overstate it's importance.
Andrew E. Belshaw on December 6, 2016
Disguising Obama's Dirty War Chapter 22
I just picked up this book and have not read it yet--but I am writing this to CORRECT THE RECORD regarding very basic information.
There are 446 PAGES (not 286, as listed above). 160 Pages is a big difference--obviously, QUALITY is more important than quantity--but I do feel the listing needs be corrected.
The "Inside Look" feature is also cutting off the last 9 chapters of the book, which are as follows:
Chapter 16: Major General Bruce Lawlor: From CIA Officer in Vietnam to Homeland Security Honcho
Chapter 17: Homeland Security: The Phoenix Comes Home to Roost
PART IV: MANUFACTURING COMPLICITY: SHAPING THE AMERICAN WORLDVIEW
Chapter 18: Fragging Bob Kerrey: The CIA and the Need for a War Crimes Tribunal
Chapter 19: Top Secret America Shadow Reward System
Chapter 20: How Government Tries to Mess with Your Mind
Chapter 21: Disguising Obama's Dirty War
Chapter 22: Parallels of Conquest, Past and Present
Chapter 23: Propaganda as Terrorism
Chapter 24: The War on Terror as the Greatest Covert Op Ever
John C. Landon on January 2, 2017
Expose of the CIA mafia
This is a devastating and must-read study of the social and political calamity created by the CIA over the last sixty years. The portrait shows the criminal character of the agency and finally of the government it is said to serve. The portrait is a double shock because it shows not just a sordid corruption but a malevolent 'dark side' mafia-style corruption of american civilization and government. That the CIA controls the drug trade is not the least of the stunning revelations of this history.
Feb 12, 2017 | economistsview.typepad.comFloxo : February 11, 2017 at 01:11 PM , 2017 at 01:11 PMI 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 .anne -> Floxo... , February 11, 2017 at 01:23 PM
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.
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 PMThankyou Anne, here is the reference you requested.anne -> Floxo... , February 12, 2017 at 04:59 AM
https://mainlymacro.blogspot.com.au/2017/01/why-voting-for-article-50-may-ruin-mps.htmlanne -> anne... , February 12, 2017 at 05:01 AM
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....
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-LewisCorrecting:anne -> Floxo... , -1
Mainlymacro can now be linked to directly. There is no need to separate "mainly" and "macro" in posting a link.Interesting response to an interesting argument. I am grateful for this post.libezkova -> anne... , February 12, 2017 at 10:34 AMI 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.
Jan 26, 2017 | newscontent.cctv.comRGC -> RGC... January 26, 2017 at 05:44 AM
The Paradox of Financialized Industrialization
By Michael Friday, October 16, 2015
These remarks were made at the World Congress on Marxism, 2015, at the School of Marxism, Peking University, October 10, 2015. The presentation was part of a debate with Bertell Ollman (NYU). I was honored to be made a permanent Guest Professor at China's most prestigious university.
When I lectured here at the Marxist School six years ago, someone asked me whether Marx was right or wrong. I didn't know how to answer this question at the time, because the answer is so complex. But at least today I can focus on his view of crises.
More than any other economist of his century, Marx tied together the three major kinds of crisis that were occurring. His Theories of Surplus Value explained the two main forms of crises his classical predecessors had pointed to, and which the bourgeois revolutions of 1848 were fought over. These crises were the result of survivals from Europe's feudal epoch of landed aristocracy and banking fortunes.
Financially, Marx pointed to the tendency of debts to grow exponentially, independently of the economy's ability to pay, and indeed faster than the economy itself. The rise in debt and accrual of interest was autonomous from the industrial capital and wage labor dynamics on which Volume I of Capital focused. Debts are self-expanding by purely mathematical rules – the "magic of compound interest."
We can see in America and Europe how interest charges, stock buybacks, debt leveraging and other financial maneuverings eat into profits, deterring investment in plant and equipment by diverting revenue to economically empty financial operations. Marx called finance capital "imaginary" or "fictitious" to the extent that it does not stem from within the industrial economy, and because – in the end – its demands for payment cannot be met. Calling this financial accrual a "void form of capital."  It was fictitious because it consisted of bonds, mortgages, bank loans and other rentier claims on the means of production and the flow of wages, profit and tangible capital investment.
The second factor leading to economic crisis was more long-term: Ricardian land rent. Landlords and monopolists levied an "ownership tax" on the economy by extracting rent as a result of privileges that (like interest) were independent of the mode of production. Land rent would rise as economies became larger and more prosperous. More and more of the economic surplus (profits and surplus value) would be diverted to owners of land, natural resources and monopolies. These forms of economic rent were the result of privileges that had no intrinsic value or cost of production. Ultimately, they would push up wage levels and leave no room for profit. Marx described this as Ricardo's Armageddon.
These two contributing forces to crisis, Marx pointed out, were legacies of Europe's feudal origins: landlords conquering the land and appropriating natural resources and infrastructure; and banks, which remained largely usurious and predatory, making war loans to governments and exploiting consumers in petty usury. Rent and interest were in large part the products of wars. As such, they were external to the means of production and its direct cost (that is, the value of products).
Most of all, of course, Marx pointed to the form of exploitation of wage labor by its employers. That did indeed stem from the capitalist production process. Bertell Ollman has just explained that dynamic so well that I need not repeat it here.
Today's economic crisis in the West: financial and rent extraction, leading to debt deflation Bertell Ollman has described how Marx analyzed economic crisis stemming from the inability of wage labor to buy what it produces. That is the inner contradiction specific to industrial capitalism. As described in Volume I of Capital, employers seek to maximize profits by paying workers as little as possible. This leads to excessive exploitation of wage labor, causing underconsumption and a market glut.
I will focus here on the extent to which today's financial crisis is largely independent of the industrial mode of production. As Marx noted in Volumes II and III of Capital and Theories of Surplus Value, banking and rent extraction are in many ways adverse to industrial capitalism.
Our debate is over how to analyze the crisis the Western economies are in today. To me, it is first and foremost a financial crisis. The banking crisis and indebtedness stems mainly from real estate mortgage loans – and also from the kind of massive fraud that Marx found characteristic of the high finance of his day, especially in canal and railroad financing.
So to answer the question that I was asked about whether Marx was right or wrong, Marx certainly provided the tools needed to analyze the crises that the industrial capitalist economies have been suffering for the past two hundred years.
But history has not worked out the way Marx expected. He expected every class to act in its own class interest. That is the only way to reasonably project the future. The historical task and destiny of industrial capitalism, Marx wrote in the Communist Manifesto, was to free society from the "excrescences" of interest and rent (mainly land and natural resource rent, along with monopoly rent) that industrial capitalism had inherited from medieval and even ancient society. These useless rentier charges on production are faux frais, costs that slow the accumulation of industrial capital. They do not stem from the production process, but are a legacy of the feudal warlords who conquered England and other European realms to found hereditary landed aristocracies. Financial overhead in the form of usury-capital is, to Marx, a legacy of the banking families that built up fortunes by war lending and usury.
Marx's concept of national income differs radically from today's National Income and Product Accounts (NIPA). Every Western economy measures "output" as Gross National Product (GNP). This accounting format includes the Finance, Insurance and Real Estate (FIRE) sector as part of the economy's output. It does this because it treats rent and interest as "earnings," on the same plane as wages and industrial profits – as if privatized finance, insurance and real estate are part of the production process. Marx treated them as external to it. Their income was not "earned," but was "unearned." This concept was shared by the Physiocrats, Adam Smith, John Stuart Mill and other major classical economists. Marx was simply pressing classical economics to its logical conclusion.
The interest of the rising class of industrial capitalists was to free economies from this legacy of feudalism, from the unnecessary faux frais of production – prices in excess of real cost-value. The destiny of industrial capitalism, Marx believed, was to rationalize economies by getting rid of the idle landlord and banking class – by socializing land, nationalizing natural resources and basic infrastructure, and industrializing the banking system – to fund industrial expansion instead of unproductive usury.
If capitalism had achieved this destiny, it would have been left primarily with the crisis between industrial employers and workers discussed in Volume I of Capital: exploiting wage labor to a point where labor could not buy its products. But at the same time, industrial capitalism would be preparing the way for socialism, because industrialists needed to conquer the political stranglehold of the landed aristocracy and the financial power of banking. It needed to promote democratic political reform to overcome the vested interests in control of Parliaments and hence the tax system. Labor's organization and voting power would press its own self-interest and turn capitalism into socialism.
China has indeed exemplified this path. But it has not occurred in the West.
All three kinds of crisis that Marx described are occurring. But the West is now in a chronic depression – what has been called Debt Deflation. Instead of banking being industrialized as Marx expected, industry is being financialized. Instead of democracy freeing economies from land rent, natural resource rent and monopoly rent, the rentiers have fought back and taken control of Western governments, legal systems and tax policy. The result is that we are seeing a lapse back to the pre-capitalist problems that Marx described in Volumes II and III of Capital and Theories of Surplus Value.
This is where the debate between Bertell Ollman and myself centers. My focus is on finance and rent overwhelming industrial capitalism to impose a depression stemming from debt deflation. This over-indebtedness is making the labor/capital problem worse, by weakening labor's political and economic position. To make matters worse, labor parties in the West no longer are fighting over economic issues, as they were prior to World War I.
My differences with Ollman and Roemer: I focus on non-production costs
Bertell follows Marx in focusing on the production sector: hiring labor to produce products, but trying to get as much markup as possible – while underselling rivals. This is Marx's great contribution to the analysis of capitalism and its mode of production – employing wage labor at a profit. I agree with this analysis.
However, my focus is on the causes of today's crisis that are independent and autonomous from production: rentier claims for economic rent, for income without work – "empty" pricing without value. This focus on rent and interest is where I differ from that of Ollman, and also of course from that of Roemer. Any model of the crisis must tie together finance, real estate (and other rent-seeking) as well as industry and employment.
The rising debt overhead can be traced mathematically, as can the symbiosis of the Finance, Insurance and Real Estate (FIRE) sector. But the interactions are too complex to be made into a single economic "model." I am especially worried that Roemer's model might be followed here in China, because it overlooks the most dangerous tendencies threatening China today: Western financial practice and its pro-rentier tax policy.
China has spent the last half-century solving Marx's "Volume I" problem: the relations between labor and its employers, recycling the economic surplus into new means of production to provide more output, higher living standards, and most obviously, more infrastructure (roads, railways, airlines) and housing.
But right now, it is experiencing financial problems from credit creation going into the stock market instead of into tangible capital formation and rising consumption standards. And of course, China has experienced a large real estate boom. Land prices are rising in China, much as they are in the West.
What would Marx have said about this? I think that he would have warned China not to relapse into the pre-capitalist problems of finance funding real estate – turning the rising land rent into interest – and into permitting housing prices to rise without taxing them away.
Soviet planning failed to take the rent-of-location into account when planning where to build housing and factories. But at least the Soviet era did not force labor or industry to pay interest or for rising housing prices. Government banks simply created credit where it was needed to expand the means of production, to build factories, machinery and equipment, homes and office buildings.
What worries me about the political consequences of Roemer's model is that it focuses only on what Marx said about the production sector and employer-labor relations. It does not ask how "endowments" come into being – or how China has changed so radically in the past generation. It therefore neglects the danger of industrial capitalism lapsing back into a rent-and-interest economy. And by the same token, it underplays the threat to China and other socialist economies of adopting the West's surviving pre-feudal practices of predatory Bubble Finance (debt leveraging to raise prices) and wealth in the form of land-rent charges.
These two dynamics – interest and rent – represent a privatization of banking and land that rightly are public utilities. Marx expected industrial capitalism to achieve this transition. Certainly socialist economies must achieve it!
China has no need of foreign bank credit – except to cover the cost of imports and the foreign-exchange cost of investment in other countries. But China's foreign exchange reserves already are large enough to be basically independent of the U.S. dollar and euro. Meanwhile, the American and European economies are suffering from chronic debt deflation and depression that will reduce their ability to serve as markets – for their own producers as well as for China.
Today's debt-wracked economies throw into question just what kind of crisis the capitalist countries are experiencing. Marx's analysis provides the tools to analyze its financial, banking and rent-extraction problems. However, most Marxists still view the 2008 financial and junk mortgage crash as resulting ultimately from industrial employers squeezing wage labor. Finance capital is viewed as a derivative of this exploitation, not as the autonomous dynamic Marx described.
The costs of carrying the rising debt burden (interest, amortization and penalties) deflate the market for commodities by absorbing a growing wedge of disposable business and personal income. This leaves less to be spent on goods and services, causing gluts that lead to crises in which businesses scramble for money. Banks fail as bankruptcy spreads. By depleting markets, finance capital is antithetical to the expansion of profits and tangible physical capital investment.
Despite this sterility, finance capital has achieved dominance over industrial capital. Transfers of property from debtors to creditors – even privatizations of public assets and enterprises – are inevitable as the growth of financial claims surpasses the ability of productive power and earnings to keep pace. Foreclosures follow in the wake of crashes, enabling finance to take over industrial companies and even governments.
China has largely solved the "Volume I" problem – that of expanding its internal market for labor, investing the economic surplus in capital formation and rising living standards. It is confronted by Western economies that have failed to solve this problem, and also have failed to solve the "Volumes II and III" problem: finance and land rent. Yet few Western Marxists have applied his theories to the present downturn and its rentier problem. Following Marx, they view the task of solving this problem to be solved by industrial capitalism, starting with the bourgeois revolutions of 1848.
Already in 1847, Marx's Poverty of Philosophy described the hatred that capitalists felt for landlords, whose hereditary rents siphoned off income to an idle class. Upon being sent copies of Henry George's Progress and Poverty a generation later, in 1881, he wrote to John Swinton that taxing land rent was "a last attempt to save the capitalist regime." He dismissed the book as falling under his 1847 critique of Proudhon: "We understand such economists as Mill, Cherbuliez, Hilditch and others demanding that rent should be handed over to the state to serve in place of taxes. That is a frank expression of the hatred the industrial capitalist bears towards the landed proprietor, who seems to him a useless thing, an excrescence upon the general body of bourgeois production." 
As the program of industrial capital, the land tax movement stopped short of advocating labor's rights and living standards. Marx criticized Proudhon and other critics of landlords by saying that once you get rid of rent (and usurious interest by banks), you will still have the problem of industrialists exploiting wage labor and trying to minimize their wages, drying up the market for the goods they produce. This is to be the "final" economic problem to be solved – presumably long after industrial capitalism has solved the rent and interest problems.
Industrial capitalism has failed to free economies from rentier interest and rent extraction
In retrospect, Marx was too optimistic about the future of industrial capitalism. As noted above, he viewed its historical mission as being to free society from rent and usurious interest. Today's financial system has generated an overgrowth of credit, while high rents are pricing American labor out of world markets. Wages are stagnating, while the One Percent have monopolized the growth in wealth and income since 1980 – and are not investing in new means of production. So we still have the Volume II and III problems, not just a Volume I problem.
We are dealing with multiple organ failure.
Instead of funding new industrial capital formation, the stock and bond markets to transfer ownership of companies, real estate and infrastructure already in place. About 80 percent of bank credit is lent to buyers of real estate, inflating a mortgage bubble. Instead of taxing away the land's rising rental and site value that John Stuart Mill described as what landlords make "in their sleep," today's economies leave rental income "free" to be pledged to banks. The result is that banks now play the role that landlords did in Marx's day: obtaining for themselves the land's rising rental value. This reverses the central thrust of classical political economy by keeping such rent away from government, along with natural resource and monopoly rents.
Industrial economies are being stifled by financial and other rentier dynamics. Rising mortgage debt, student loans, credit card debt, automobile debt and payday loans have made workers afraid to go on strike or even to protest working conditions. To the extent that wages do rise, they must be paid increasingly to creditors (and now to privatized health insurance and drug monopolies), not to buy the consumer goods they produce. Labor's debt dependency thus aggravates the "Volume I" problem of labor's inability to purchase the products it produces. To top matters, when workers seek to join the middle class "homeowner society" by purchasing their homes on mortgage instead of paying rent, the price entails locking themselves into debt serfdom.
Industrial companies profit from labor not only by employing it, but by lending to customers. General Motors made most of its profits for many years by its credit arm, GMAC (General Motors Acceptance Corp.), as did General Electric through its financial arm. Profits made by Macy's and other retailers on their credit card lending sometimes accounted for their entire earnings.
This privatization of rents and their transformation into a flow of interest payments (shifting the tax burden onto wage income and corporate profits) represents a failure of industrial capitalism to free society from the legacies of feudalism.
Marx expected industrial capitalism to act in its own self-interest by industrializing banking, as Germany was doing along the lines that the French reformer Saint-Simon had urged. However, industrial capitalism has failed to break free of pre-industrial usurious banking practice. And in the sphere of tax policy, it has not shifted taxes away from land and natural resource rent. It has inverted the classical reformers' idea of "free markets" as being free from economic rent and predatory moneylending. The slogan now means economies free for the rentier class to extract interest and rent.
Mode of production or mode of parasitism?
Instead of serving industrial capitalism, today's financial sector is bleeding it to death. Instead of seeking profits by employing labor to produce goods at a markup, it doesn't even want to hire labor or engage in the process of production and develop new markets. The epitome of this postindustrial economics is Enron: its' managers wanted no capital at all – no employment, only traders at a desk (and crooked accountants).
Today's characteristic mode of accumulating wealth is more by financial than industrial means: riding the wave of debt-financed asset-price inflation to reap "capital" gains. This seemed unlikely in Marx's era of the gold standard. Yet today, most academic Marxists still concentrate on his "Volume I" crisis, neglecting finance capitalism's failure to free economies from the rentier dynamics surviving from European feudalism and the colonial lands conquered by Europe.
Marxists who went into Wall Street have learned their lessons from Volumes II and III. But academic Marxism has not focused on the FIRE sector – Finance, Insurance and Real Estate. It is as if interest and rent extraction are secondary problems to the dynamics of wage labor.
The great question today is whether post-feudal rentier capitalism will stifle industrial capitalism instead of serving it. The aim of finance is not merely to exploit labor, but to conquer and appropriate industry, real estate and government. The result is a financial oligarchy, neither industrial capitalism nor a tendency to evolve into socialism.
Marx's optimism that industrial capital would subordinate finance to serve its own needs
Having provided a compendium of historical citations describing how parasitic "usury capital" multiplied at compound interest, Marx announced in an optimistic Darwinian tone that the destiny of industrial capitalism was to mobilize finance capital to fund its economic expansion, rendering usury an obsolete vestige of the "ancient" mode of production. It is as if "in the course of its evolution, industrial capital must therefore subjugate these forms and transform them into derived or special functions of itself." Finance capital would be subordinated to the dynamics of industrial capital rather than growing to dominate it. "Where capitalist production has developed all its manifold forms and has become the dominant mode of production," Marx concluded his draft notes for Theories of Surplus Value, "interest-bearing capital is dominated by industrial capital, and commercial capital becomes merely a form of industrial capital, derived from the circulation process." 
Marx expected economies to act in their long-term interest to increase the means of production and avoid unproductive rentier income, underconsumption and debt deflation. Believing that every mode of production was shaped by the technological, political and social needs of economies to advance, he expected banking and finance to become subordinate to these dynamics. "There is no doubt," he wrote, "that the credit system will serve as a powerful lever during the transition from the capitalist mode of production to the production by means of associated labor; but only as one element in connection with other great organic revolutions of the mode of production itself." 
The financial problem would take care of itself as industrial capitalism mobilized savings productively, subordinating finance capital to serve its needs. This already was happening in Germany and France.
It seemed that the banking system's role as allocator of credit would pave the way for a socialist organization of economies. Marx endorsed free trade on the ground that industrial capitalism would transform and modernize the world's backward countries. Instead, it has brought Western rentier finance and privatization of the land and natural resources, and even brought the right to use these country's currencies and financial systems as casinos. And in the advanced creditor nations, failure of the U.S. and European economies to recover from their 2008 financial crisis stems from leaving in place the reckless "junk mortgage" debts, whose carrying charges are absorbing income. Banks were saved instead of industrial economies, whose debts were left in place.
Irving Fisher coined the term debt deflation in 1933. He described it as occurring when debt service (interest and amortization) to pay banks and bondholders diverts income from being spent on consumer goods and new business investment.  Governments use their tax revenues to pay bondholders, cutting back public spending and infrastructure investment, education, health and other social welfare.
No observer of Marx's epoch was so pessimistic as to expect finance capital to overpower industrial capitalism, engulfing economies as the world is seeing today. Discussing the 1857 financial crisis, Marx showed how unthinkable anything like the 2008-09 Bush-Obama bailout of financial speculators seemed to be in his day. "The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values." 
Marx wrote this reductio ad absurdum not dreaming that it would become the Federal Reserve's policy in autumn 2008. The U.S. Treasury paid off all of A.I.G.'s gambles and other counterparty "casino capitalist" losses at taxpayer expense, followed by the Federal Reserve buying junk mortgage packages at par.
Socialist policy regarding financial and tax reform
Marx described the historical destiny of industrial capitalism as being to free economies from unproductive and predatory finance – from speculation, fraud and a diversion of income to pay interest without funding new means of production. On this logic, it should be the destiny of socialist economies to treat bank credit creation as a public function, to be used for public purposes – to increase prosperity and the means of production to give populations a better life. Socialist nations have freed their economies from the internal contradictions of industrial capitalism that stifle wage labor.
China has solved the "Volume I" problem. But it still must deal with the West's unsolved "Volume II and III" problem of privatized finance, land rent and natural resource rent. Western economies seek to extend these neoliberal practices to use finance as a lever to pry away the economic surplus, to finance the transfer of property at interest, and to turn profits, rent, wages and other income into interest.
The failure to socialize banking (or even to complete its industrialization) has become the most glaring economic tragedy of Western industrial capitalism. It became the tragedy of post-Soviet Russia after 1991, letting its natural resources and industrial economy be financialized while failing to tax land and natural resource rent. The commanding heights were sold to domestic oligarchs and Western investors buying on credit with their own banks or in association with Western banks. This bank credit was simply created on computer keyboards. Such credit creation should be a public utility, but it has broken free from public regulation in the West. That credit is now reaching out to China and the post-Soviet economies as a means of appropriating their resources.
The eurozone seems incapable of saving itself from debt deflation, and the United States and Britain likewise are limping along as they de-industrialize. That is what leads them to hope that perhaps socialist China can save them – as long as it remains free of the financial disease. asset stripping and debt deflation. Western neoliberal economists claim that this financialization of erstwhile industrial capitalism is "progress," and even the end of history. Yet having watched China grow while their economies have remained stagnant since 2008 (except for the One Percent), their hope is that socialist China's market can save their financialized economies driven too deeply into debt to recover on their own.
Note: Marx described productive capital investment by the formula M–C–M´, signifying money (M) invested to produce commodities (C) that sell for yet more money (M´). But the growth of "usury capital" – government bond financing for war deficits, and consumer lending (mortgages, personal loans and credit card debt) – consist of the disembodied M–M´, making money simply from money in a sterile operation.
-  In Volume III of Capital (ch. xxx; Chicago 1909: p. 461) and Volume III of Theories of Surplus Value.
-  Karl Marx, The Poverty of Philosophy  (Moscow, Progress Publishers, n.d.): 155.
-  Karl Marx, Theories of Surplus Value III: 468
-  Capital III (Chicago, 1905), p. 713.
-  See Irving Fisher, "The Debt-Deflation Theory of the Great Depression," Econometrica (1933), p. 342. Online at http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf. He used the term to refer to bankruptcies wiped out bank credit and spending power, and hence the ability of economies to invest and hire new workers. I provide a technical discussion in Killing the Host (ISLET 2015), chapter 11, and "Saving, Asset-Price Inflation and Debt Deflation," in The Bubble and Beyond, ch. 11 (ISLET 2012), pp. 297-319.
-  Capital III (Moscow: Foreign Languages Publishing House, 1958), p. 479.
RC AKA Darryl, Ron -> RGC... January 26, 2017 at 07:32 AM
THANKS! It was awesome, Dude and easy enough to read.
Feb 04, 2017 | www.nakedcapitalism.com
From the early days of this website, we've written from time to time about why the "shareholder value" theory of corporate governance was made up by economists and has no legal foundation. It has also proven to be destructive in practice, save for CEO and compensation consultants who have gotten rich from it.
Further confirmation comes from a must-read article in American Prospect by Steven Pearlstein, When Shareholder Capitalism Came to Town. It recounts how until the early 1990s, corporations had a much broader set of concerns, most importantly, taking care of customers, as well as having a sense of responsibility for their employees and the communities in which they operated. Equity is a residual economic claim. As we wrote in 2013:
Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation , not to shareholders in particular ..Equity holders are at the bottom of the obligation chain. Directors do not have a legal foundation for given them preference over other parties that legitimately have stronger economic interests in the company than shareholders do.
And even in the early 1980s, common shares were regarded as a speculative instrument. And rightly so, since shares are a weak and ambiguous legal promise: "You have a vote that we the company can dilute whenever we feel like it. And we might pay you dividends if we make enough money and are in the mood."
However, 1900s raiders who got rich by targeting companies that had gotten fat, defended their storming of the corporate barricades by arguing that their success rested on giving CEOs incentives to operate in a more entrepreneurial manner. In reality, most of the 1980s deals depended on financial engineering rather than operating improvements. Ironically, it was a form of arbitrage that reversed an earlier arb play in the 1960s. Diversified corporations had become popular in the 1960s as a borderline stock market scam. Companies like Teledyne and ITT, that looked like high-fliers and commanded lofty PE multiples, would buy sleepy unrelated businesses with their highly-valued stock. Bizzarely, the stock market would value the earnings of the companies they acquired at the same elevated PE multiples. You can see how easy it would be to build an empire that way.
The 1970s stagflation hit these companies particularly hard, with the result that the whole was worth less than the sum of the parts. This made for an easy formula for takeover artists: buy a conglomerate with as much debt as possible, break it up and sell off the pieces.
But CEOs recognized how the newly-installed leaders of LBO acquisitions got rich through stock awards or option-type compensation. They wanted a piece of the action.
One of their big props to this campaign was the claim that companies existed to promote shareholder value. This had been a minority view in the academic literature in the 1940s and 1950s. Milton Friedman took it up an intellectually incoherent New York Times op-ed in 1970 . Michael Jensen of Harvard Business School and William Meckling of the University of Rochester argued in 1976 that corporate managers needed to have their incentives better aligned with those of shareholders, and the way to do that was to have most of their pay be equity-linked. In the late 1980s, Jensen in a seminal Harvard Business Review article, claimed that executives needed to be paid like entrepreneurs. Jensen has since renounced that view.
Why The Shareholder Value Theory Has No Legal Foundation
Why do so many corporate boards treat the shareholder value theory as gospel? Aside from the power of ideology and constant repetition in the business press, Pearlstein, drawing on the research of Cornell law professor Lynn Stout, describes how a key decision has been widely misapplied:
Let's start with the history. The earliest corporations, in fact, were generally chartered not for private but for public purposes, such as building canals or transit systems. Well into the 1960s, corporations were broadly viewed as owing something in return to the community that provided them with special legal protections and the economic ecosystem in which they could grow and thrive.
Legally, no statutes require that companies be run to maximize profits or share prices. In most states, corporations can be formed for any lawful purpose. Lynn Stout, a Cornell law professor, has been looking for years for a corporate charter that even mentions maximizing profits or share price. So far, she hasn't found one. Companies that put shareholders at the top of their hierarchy do so by choice, Stout writes, not by law
For many years, much of the jurisprudence coming out of the Delaware courts-where most big corporations have their legal home-was based around the "business judgment" rule, which held that corporate directors have wide discretion in determining a firm's goals and strategies, even if their decisions reduce profits or share prices. But in 1986, the Delaware Court of Chancery ruled that directors of the cosmetics company Revlon had to put the interests of shareholders first and accept the highest price offered for the company. As Lynn Stout has written, and the Delaware courts subsequently confirmed, the decision was a narrowly drawn exception to the business–judgment rule that only applies once a company has decided to put itself up for sale. But it has been widely-and mistakenly-used ever since as a legal rationale for the primacy of shareholder interests and the legitimacy of share-price maximization.
How the Shareholder Value Theory Has Been Destructive
The shareholder value theory has proven to be a bust in practice. Here are some of the reasons:
It produces short-termism, underinvestment, and a preoccupation with image management . We wrote in 2005 for the Conference Board Review about how the preoccupation with quarterly earnings led companies to underinvest on a widespread basis . Richard Davies and Andrew Haldane of the Bank of England demonstrated that companies were using unduly high discount rates, which punished long-term investment. Pearlstein provides more confirmation:
A recent study by McKinsey & Company, the blue-chip consulting firm, and Canada's public pension board found alarming levels of short-termism in the corporate executive suite. According to the study, nearly 80 percent of top executives and directors reported feeling the most pressure to demonstrate a strong financial performance over a period of two years or less, with only 7 percent feeling considerable pressure to deliver strong performance over a period of five years or more. It also found that 55 percent of chief financial officers would forgo an attractive investment project today if it would cause the company to even marginally miss its quarterly-earnings target.
As we've stated before, we've been hearing this sort of thing from McKinsey contacts for more than a decade. And the "55 percent" figure likely understates the amount of short-termism. First, even in a presumably anonymous survey, some CFOs might be loath to admit that. Second, for any project big enough to impact quarterly earnings, the CFO is almost certain not to have the final say. So even if his team approves it, it could be nixed by the CEO out of concern for earnings impact.
It empirically produces worse results . We've written from time to time about the concept of obliquity, that in a complex system that is affected by interactions with it, it is impossible to map out a simple path to a goal. As a result, other approaches are typically more successful. From a 2007 Financial Times article by John Kay , who later wrote a book about the concept:
Obliquity gives rise to the profit-seeking paradox: the most profitable companies are not the most profit-oriented. ICI and Boeing illustrate how a greater focus on shareholder returns was self-defeating in its own narrow terms. Comparisons of the same companies over time are mirrored in contrasts between different companies in the same industries. In their 2002 book, Built to Last: Successful Habits of Visionary Companies, Jim Collins and Jerry Porras compared outstanding companies with adequate but less remarkable companies with similar operations.
Merck and Pfizer was one such comparison. Collins and Porras compared the philosophy of George Merck ("We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been") with that of John McKeen of Pfizer ("So far as humanly possible, we aim to get profit out of everything we do").
Collins and Porras also paired Hewlett Packard with Texas Instruments, Procter & Gamble with Colgate, Marriott with Howard Johnson, and found the same result in each case: the company that put more emphasis on profit in its declaration of objectives was the less profitable in its financial statements.
Some more commonly-cited reasons for why a focus on shareholder value hurts performance is that it dampens innovation. Pearlstein describes another, how it demotivates workers:
Perhaps the most ridiculous aspect of shareholder–über-alles is how at odds it is with every modern theory about managing people. David Langstaff, then–chief executive of TASC, a Virginia–based government-contracting firm, put it this way in a recent speech at a conference hosted by the Aspen Institute and the business school at Northwestern University: "If you are the sole proprietor of a business, do you think that you can motivate your employees for maximum performance by encouraging them simply to make more money for you?" Langstaff asked rhetorically. "That is effectively what an enterprise is saying when it states that its purpose is to maximize profit for its investors."
And on a societal level, it erodes social capital and trust, which are the foundations for commerce:
It is our social capital that is now badly depleted. This erosion manifests in the weakened norms of behavior that once restrained the most selfish impulses of economic actors and provided an ethical basis for modern capitalism.
A capitalism in which Wall Street bankers and traders think peddling dangerous loans or worthless securities to unsuspecting customers is just "part of the game," a capitalism in which top executives believe it is economically necessary that they earn 350 times what their front-line workers do, a capitalism that thinks of employees as expendable inputs, a capitalism in which corporations perceive it as both their fiduciary duty to evade taxes and their constitutional right to use unlimited amounts of corporate funds to purchase control of the political system-that is a capitalism whose trust deficit is every bit as corrosive as budget and trade deficits.
As economist Luigi Zingales of the University of Chicago concludes in his recent book, A Capitalism for the People, American capitalism has become a victim of its own success. In the years after the demise of communism, "the intellectual hegemony of capitalism, however, led to complacency and extremism: complacency through the degeneration of the system, extremism in the application of its ideological premises," he writes. "'Greed is good' became the norm rather than the frowned-upon exception. Capitalism lost its moral higher ground."
Many elite professionals are deeply upset with Trump's win. Yet the ideology that he represents is very much in line with the logic of corporate raiders, many of whom, like him, went to Wharton Business School. And many elite professionals, in particular lawyers and consultants, profited handsomely from the adoption of the buccaneer capitalist view of the world and actively enabled much of its questionable thinking and conduct. As CEO pay rose, so to did the pay of top advisers. They couldn't be all that good, after all, if they were in a wildy different income strata.
So as Lambert has warned, unless we hear a different economic and social vision from The Resistance, which looks troubling to have more failed Democratic party influence behind it than either of us like, the best we are likely to get is a restoration. And if you remember the French Revolution, strongman Napoleon was succeeded by the Bourbon Restoration, which then led to the Second Empire under his nephew. So if we want better outcomes, status quo ante is not good enough.
I beg to differ. First, you ignore the fact that equity is a residual claim. Everyone else comes first. Every party that holds more senior instruments than equity, along with other parties that have enforceable claims, like the IRS and those with solid contracts that would give them the rights to damages in certain circumstances, have rights that are more enforceable under the law. You can't overturn that via exchange rules.
Second, Amar Bhide explained in the Harvard Business Review in 1994 why public companies will always have deficient governance. My recap of his main points:Josh Stern , February 3, 2017 at 10:22 am
Disenfranchised shareholders are an inherent feature of liquid stock markets. In 1994, Amar Bhide argued in a Harvard Business Review article that efficient equity markets inevitably led inevitably to deficient corporate governance. Bhide explained that an ambiguous promise like equity is not suitable to be traded on an arm's length basis. Historically, equity investors typically acted like venture capitalists: they knew the owners personally and were involved in the company's affairs. The securities laws of 1933 and 1934 tried to make it safe for distant, transient shareholders to invest by providing for timely, audited financial statements, disclosure of information about top executives and board members, and prohibiting insider trading and other forms of market manipulation.
But that turns out to be inadequate. No outsider can be told enough to make an informed judement about a company's prospects; critical information, like acquisition and plans for new products, must be kept secret until well advanced because they are competitively sensitive. Boards are protected from liability by directors' and officers' insurance (plus hardly anyone even bothers pursuing board members. For instance, have any Lehman board members been sued?). Moreover, only a comparatively small cohort of people are deemed public-company-board worthy. Their incentives are to make nice in their community and not rock the boat, which means not making life difficult for the CEOs, since a nominating committee (of the current board) is responsible for nominating directors, which means the entire process is incestuous.
This system has been fairly impervious to outside challenge. Once in a while, a company is so abysmally run that an activist investor will take up a proxy fight. But that dog seldom catches the car; instead, they might get a bad CEO to exit or force a restructuring. The stock trades up and the rabble-rousers take their winnings and depart. More polite efforts, even by large, powerful shareholders, are much less effective. For instance, some major institutional investors met with Goldman to object to the idea that the firm would pay lavish bonuses for 2009. The session appears to have had no impact.Yves Smith Post author , February 3, 2017 at 7:16 pm
Main categories of complain about "Maximize Shareholder Value":
Category 1 – Other things should get more weight alongside shareholder value – e.g. societal responsibility – this is valid, but not our current topic/issue.
Category 2- Current practices aren't leading to the election of smart, capable BOD members acting primarily for shareholder value in their decision-making including hiring/fire of executives and voting on their proposals. This shown by, among other things, the very high levels of executive compensation relative to profit, the lack of correlation between executive compensation and profit, and the huge severance packages for released executives. This is my topic – what would improve that.
Your points don't seem to fall in those categories. Seniority of debtto equity is a respected feature of the common business landscape, not normally thought of as a problem. Lack of complete information when voting on corporate actions is also a feature of the corporate setup – representational government. It doesn't stand in the way of the possibility of smart, conscientious executives. Other issues like cronyism, bad BODs, etc. are in the way, poor rules, poor communication, lack of interest by short term stakeholders, etc. are viewed as much more problematic.aab , February 3, 2017 at 6:03 am
You are omitting a key point in the post, which is that seeking to maximize shareholder value results in lower returns for shareholders. It is empirically a bad idea.
There are many views as to why this is so, but the biggest are likely the short-termism and obliquity. Electing more outspoken board members won't solve that.
My narrower point was addressing why this notion had never been enshrined in any corporate charter: it would be seen as created undue conflicts regarding directors making sure clearly senior obligations are met. Again, under very well settled law, directors and officers have duties of loyalty and care to the corporation, and those take precedence to serving shareholders. Go read any law firm guide to director duties.readerOfTeaLeaves , February 3, 2017 at 9:02 pm
One picky point: the analogy to Bonaparte really doesn't hold up. We haven't had our French Revolution yet. And I'm rusty on my nineteenth century French history, but I don't think there's much of a valid comparison between him and Trump anyway. "Strong man" is way too vague. Whatever is going on with Trump, he's not a brilliant military tactician and strategist moving into a power vacuum from inside the existing government.
Agree about the "Resistance." But I don't see how the corporate Democrats return to power at this point - I mean real, governing power. Whatever comes next, it won't be that.
I don't know yet whether to hope for oaths on tennis courts or not. That's a really, really last resort, obviously. These people running around punching alt-right Teen Beat cover boys and breaking windows are either fools or something worse.
Also, it's nice to have data to go with my loathing of this "theory." I feel like we need a different word for this stuff, though. All these intersecting economic beliefs that are not based in facts and are easily repudiated by facts can't really be called theories, can they? They're more like belief systems. They were never really about figuring out something about reality. They were always about manipulating behavior through assertion to get desired outcomes, weren't they?Disturbed Voter , February 3, 2017 at 6:56 am
I think that you seriously underestimate Trump. Napoleon excelled in an environment where military success was primary; Trump excels in a mediated environment where PR and imagery are primary. IMVHO, there are some eerie parallels between the two men; whether you like them or not, both men could be characterized by: ambition, vision, vindictiveness, and a willingness obliterate traditional social and political boundaries.
I thought this was particularly brilliant:
Many elite professionals are deeply upset with Trump's win. Yet the ideology that he represents is very much in line with the logic of corporate raiders, many of whom, like him, went to Wharton Business School. And many elite professionals, in particular lawyers and consultants, profited handsomely from the adoption of the buccaneer capitalist view of the world and actively enabled much of its questionable thinking and conduct.
That Wharton Business School model is oblivious to the human needs for: fairness, reciprocity, culture, and the need to penalize duplicity. (I would argue that the Wharton model exalts duplicity, if only to pass it off as some kind of exceptional superpower wielded only by Business Elites.) When you corrode trust, you damage economies.
Trump is the apotheosis of neoliberal economics + junk-bond fueled casino empires in a media environment that worships 'shareholder value' and has lost sight of what genuinely creates sustainable value over the long term.Clearpoint , February 3, 2017 at 8:44 am
Isn't this just a side effect of optimization for one variable? And which variable to optimize is a question of governance? Since the invention of quantifiable economy, and the move from haggling to fixed price, particularly since the invention of monetary valuation in place of barter the mathematics becomes relentless to get the last drop of blood out of whatever turnip you are squeezing. And the invention of spreadsheets makes it that much easier to lean toward the quantitative, over the qualitative. We saw a similar process in "value engineering" in automotive engineering in that case to get the last ounce of weight out of the car, in order to optimize mileage, regardless of less quantifiable values.David Apgar , February 3, 2017 at 1:09 pm
Awesome article. Great explanation of how wall street orchestrated casino capitalism controls today's economy, and in a manner that is detrimental to everyone but the casino operators. Milton Friedman's perverse views on "free markets", have turned the economy into a casino, first by destroying the controls on the money supply, and then by destroying corporate governance and responsibility. And we all know who makes all the money in any casino operation.RBHoughton , February 3, 2017 at 9:15 pm
Agree, awesome article. And interesting Clearpoint addition that the Street has every incentive to orchestrate volatility, to the detriment of many firms' greatest stakeholders, the neglected employees.readerOfTeaLeaves , February 3, 2017 at 9:05 pm
Agreed. I have copied it to all those poor chaps I know who are still in harness.hemeantwell , February 3, 2017 at 9:04 am
Oh, I'd include Greenspan in the List of Dishonorables. Friedman had compadres.readerOfTeaLeaves , February 3, 2017 at 9:26 pm
This question is of central importance, I only wish you'd find reason to bring it up more often. It raises another important question, although one that cannot be addressed so neatly: why has the capitalist project tended to turn away from long term commitments to profit-seeking through the production of (material) commodities?
Was Friedman's short-termist view simply foolish, a mistake that has had very damaging impact but which can be reversed?
Or, was it an idea that somehow picked up on declining opportunities for profit via sales of commodities, as writers like Amin and Harvey variously argue?
Or - and the article skips over this - did Friedman capture the growing political aggressiveness of capital, as capital gradually overcame the Great Fear of the 30s and prepared to mount, as Streeck has argued, a counteroffensive against the constraints of welfare capitalism? Likely all of the above, but in what proportions?oho , February 3, 2017 at 9:16 am
A lot of corporate governance is controlled by legal decisions. These legal decisions are rendered by judges. Future judges are well-socialized into free market views long before they ever hear cases or render judgments. We are seeing this trend continue with the current SCOTUS nomination in the hands of a GOP controlled Congress.
Some of these people truly believe that 'free markets' can somehow 'improve and perfect' Human Nature. (See also: Ayn Rand, 'John Galt', Alan Greenspan) In other words, it's has more than a whiff of Nietzsche's 'Uber-man' ideology in the mix. It's an ideal system for equating human worth with net worth, and justifying vast inequalities in money and power.
Thus does the snake swallow its tail. These judges fail to notice there is a large bump somewhere in the snake's body; at some point, it ate the Golden Goose, and is slowly digesting.John Wright , February 3, 2017 at 9:54 am
index investing/etfs have made things worse. with such a big pool of ownership in passive hands, lots of rubber stamping going onflora , February 3, 2017 at 11:39 am
This does not directly mention the "increase shareholder value" action of a company buying its own stock.
That should be viewed as a red-flag admission from the senior executives that the company doing a share buyback does not see a way to grow its markets, does not see suitable investments for R&D. sees no pressing need to improve corporate infrastructure, sees no reason to train their workers, and can't find suitable acquisitions that would enhance their business.
Effectively, the management team has scoured the globe searching for the best use of their spare cash, and, surprisingly, determined that one financial security, THEIR own company's stock, was the best use of the corporation's cash.
A share buyback plan could be viewed as a warning shot indicating that management lacks ideas and is poorly managing the corporation.
Instead it falls under a "increase shareholder value" tactic.blert , February 4, 2017 at 3:29 pm
+1. Used as an attempt to ward off a hostile takeover stock buybacks might be justifiable. Mostly, however, this usually looks like a simple attempt to prop up prices.Josh Stern , February 3, 2017 at 10:39 am
It is that acme of Liberalism, Warren Buffett that created this fad. At a time when corporate dividends were taxed as ordinary income, whereas a stock price bump would be tax deferred - and ultimately taxed at long term capital gains rates - the scheme was merely tax avoidance. Warren Buffett's entire empire is based on this and other tax avoidence schemes.
Then, coupled with stock options for corporate management, the path was set.caloba , February 3, 2017 at 10:56 am
Common criticisms of "Maximize Shareholder Value: 1) Should give more weight to something else – e.g. societal concerns. 2) Execs – prioritize other things; 3) BOD's prioritize other things, including their personal relationship to execs. Improving corporate governance can, in theory, setup procedures and rules to fix 2) and 3) by making sure BOD's in publicly listed corporations really have the legal power, and by making elections more open, including the selection of the initial selection of BOD candidates. However, this still requires interest from a majority of voting shareholders – it would be better to ask people not interested to not vote at all. (I tried to thread this comment as a reply above but it repeatedly disappeared).flora , February 3, 2017 at 11:30 am
For a UK example of a company choosing not to maximise shareholder value, the disastrous acquisition of HBOS by Lloyds is instructive. Management claimed to be looking through the (ridiculously underestimated) short-term issues to the resulting long-term competitive advantages which the government assured them (falsely) wouldn't subsequently be challenged.
Of the c95% acceptances supporting this lunatic deal, some proportion of the institutional shareholders must have been idiots, a few must have feared for the stability of the banking system were the deal rejected, and a great many must also have been HBOS bondholdersVedant Desai , February 3, 2017 at 11:59 am
"But CEOs recognized how the newly-installed leaders of LBO acquisitions got rich through stock awards or option-type compensation. They wanted a piece of the action. "
The maximize shareholder value ideology in practice looks like maximize CEO compensation and to heck with the company's long term prospects. imo.
Great post. Thanks.John Wright , February 3, 2017 at 12:08 pm
I doubt that any of the CEOs which have said that they are being pressurized to short-termism are actually willing this stupid concept to be removed considering they are the prime benefactor of this.
I believe that supermacy of shareholders interest was originally adopted because they were bearing risk. Shares being an illiquid asset were supposed to be a source of income not capital gain. Due to this shareholders were forced to ensure that short-termism is avoided and corporate governance is adequate. Things started to reverse slowly as liquidity of shares increased gradually.
Presently, when shares can be sold in seconds of owning them, risk a share-holder bear is greatly lower than they beared a century ago. Also , shares are bought for capital gain not income.
Considering relationship between share's liquidity and short-termism , any measure which reduces share's liquidity, for example a high tax on short term capital gain, will greatly reduce both short-termism and corporate governance issues as share holders will be forced to assume the risk they were supposed to bear in exchange of supermacy of their interest.mle detroit , February 3, 2017 at 2:02 pm
HP was mentioned in the above text. I found it interesting to view the old HP Corporate Objectives as published in the HP employee magazine "Measure" in July 1974 See http://www.hp.com/hpinfo/abouthp/histnfacts/publications/measure/pdf/1974_07.pdf ,
pages 7, 8, 9, 10
1. Profit – Objective: to achieve sufficient profit to finance our company growth and to provide the resources we need to achieve our other objectives
2. Customers- Objective: To provide products and services of the greatest possible value to our customers, thereby gaining and holding their respect and loyalty.
3. Fields of Interest- Objective: To enter new fields only when the ideas we have, together with our technical, manufacturing and marketing skills, assure that we can make a needed and profitable contribution to the field.
4. Growth – Objective: To let our growth be limited only by our profits and our ability to develop and produce technical products that satisfy real customer needs.
5. Our people: Objective: To help HP people share in the company's success, which they make possible; to provide job security based on their performance; to recognize their individual achievements; and to insure the personal satisfaction that comes from a sense of accomplishment in their work
6. Management- Objective: To foster initiative and creativity by allowing the individual great freedom of action in attaining well-defined objectives,
7. Citizenship – Objective: To honor our obligations to society by being an economic, intellectual and social asset to each nation and each community in which we operate.
Note, Hewett and Packard, themselves, may have owned 40-50% of the company stock at this time, so they had great control of the company's direction at this time.
No corporate objective about shareholder value even though they were very large shareholders.susan the other , February 3, 2017 at 2:41 pm
Yes, but. I remember someone from UMichigan business school (Gary Hamel, I think) speaking to a group of top 2% Ford Motor Co. execs in the late 1980s. He asked, "Come on, guys how many of you were thinking about shareholder value in the shower this morning?" The room laughed, but one pudgy hand in the back went up. It belonged to Edsel Ford.Expat , February 3, 2017 at 1:48 pm
This takes us back, HP was so honest it almost sounds quaint. And 1974 was just before Reagan's supply side economics stuff in the aftermath of the awful stagflation that hit us after Vietnam.
According to Paul Craig Roberts, supply side was embraced because it was thought to prevent inflation (wage price spiral) and still provide sufficient jobs and products.
He goes on to say that supply-side/trickle-down was a reasonable idea but it was hijacked by Wall Street who took it to heart and then used it to justify offshoring jobs to enhance corporate profits, and eventually shareholder value. Because, as PCR puts it, Wall Street forced companies to get lean and competitive and if they didn't nobody invested in them: aka no shareholders if no timely shareholder value. So it was almost an extortion racket. This was accompanied by all the corporate raiders and the real prosperity of the country was quickly retarded and siphoned off. Great post, thanks Yves.John Wright , February 3, 2017 at 4:20 pm
I have a rather naive question which I should have asked long ago in my one and only finance class at college. Why does it matter if a share price drops all other things being equal? A company sells shares, effectively handing out "residual claims" against cold, hard cash. If the cash is invested in a business – and assuming the business is at least "break-even" plus the risk-free rate of return- other than investor panic and CEO's getting "refreshed" stock options, why would this matter?Yves Smith Post author , February 4, 2017 at 4:55 am
Some reasons are frequently given for preferring a high stock price.
1. A low share price encourages others to acquire the company
2. A high price is good when stock is used as currency to buy other companies.
3. Executive compensation schemes are sometimes tied to stock price.
But if a company is not selling stock to fund current operations, then the stock price could go to zero with no operational effect. The employees who own stock would not be pleased. However, an apparent artificially low price could help with hiring new employees who may be granted low priced options.
Occasionally I see someone claiming a company is being killed by short sellers driving the stock price down. I don't see how this could damage the ongoing operations or cash flow EXCEPT if the company is selling stock to fund operations or is trying to make a truly worthwhile acquisition with their stock.
If a company is doing well and cash flow positive and short sellers drive the stock price down too low, the company should use their cash to buy their shares and squeeze the shorts.
In the case of Hewlett-Packard there was no official stock price set by the investment community for years, as the company waited a few years before doing an IPO.
The company was founded in 1939 and IPO'ed eighteen years later in 1957.
Imagine, operating for 18 years without Wall Street supervision.skippy , February 3, 2017 at 3:22 pm
Agreed with your point and John Wright's explanation. The idea that a stock price must be high is dogma that is never questioned. The big reason is for concern re a low stock price is it is seen as the market voting against management and an invitation for raiders to take the company over.
But otherwise, if a company can raise enough money to fund expansion through its own cash flow (which is the biggest source of investment fund) and debt (the next biggest source), there is no reason to issue more stock (save your point re employee/executive stock options) and hence no reason to care regarding the price.Chuck , February 3, 2017 at 4:28 pm
Equity is a form of HPM these days, for C-corps, which can be used as a tool of pleasure [c-suite bonuses et al] or a weapon of destruction [excuse for diminishing labour and the enviroment].
disheveled . the religion of free markets has become the dominate meme in society and those that benefit the most from it . wellie see history .Yves Smith Post author , February 4, 2017 at 4:58 am
I'm struggling with the short termism argument. The cash flows from equity don't have a maturity. Bonds due. If a company sought to maximize bond holder value, they would minimize risk (and R&D) to make sure sufficient funds were available to pay the bond holders. Equity maximization should be longer term focused than the maximization of limited life securities.Chauncey Gardiner , February 3, 2017 at 6:02 pm
Bonds are simply a promise to pay interest and principal on fixed dates. There is NO value to equity if you don't meet that promise.Josh Ster , February 3, 2017 at 6:04 pm
While it has damaged corporate social responsibilities and banks' and corporations' long-term financial stability, actions taken pursuant to the Shareholder Value optimization model have served well many individuals on Wall Street, at private equity firms, CEOs of large publicly traded corporations, hedge funds, networked board members, their academic and professional servicers, and the political elite
Reflecting back on developments like the dotcom bubble of 1999-2000; the underlying causes of the financial collapse of 2007-09; massive debt-leveraged corporate stock buybacks; socially damaging private equity LBOs; the current volumes of opaque OTC derivatives at large financial institutions; repeated episodes of environmental damage caused by firms in extractive industries seeking short-term financial returns; and the license it provides to exert power over legislation and regulation by those who own and control these corporations in a Citizens United legal framework; etc., it is difficult to see much in the way of redeeming social value in this corporate governance model.Harold , February 4, 2017 at 11:27 am
Topical article highlighting a way to subvert corporate governance: Corrupt US govt. supports secret oil company payments/bribes to corrupt foreign govts., whose autocratic leaders may be major shareholders in the oil company too.
http://www.telesurtv.net/english/news/US-Senate-Guts-Anti-Corruption-Law-for-Big-Oil-Companies-20170203-0011.htmlb1daly , February 4, 2017 at 2:17 am
Not by usury maybe, but wealth came to Renaissance Italy through use of interest , hitherto prohibited. And advances in book keeping. This wealth financed the great artists mentioned by Pound.broadsteve , February 4, 2017 at 5:21 am
Thanks for this post. I always found the notion of "maximizing shareholder value" to be very strange, and counter to common sense. The concept of "stakeholders" always made more sense. For a company to be managed with a focus on the wellbeing of workers, customers, and community, in addition to owners, struck me as being obviously the way it should work. (And sometimes does.)
The idea that parties who happen to own a share of the company should have their interests served above all is counter intuitive, as employees will almost always have a greater stake in the company than any individual owner, if shares are widely distributed.
If you think of an sole proprietor who ventures forth to do business who has made clear to all that his interests are paramount in any transaction, I do not envision customers flocking to such an individual.
The apparent lack of basic decency in corporate/management decisions that we see so often is just hard to reconcile with how most of us intuitively feel about how we see ourselves in the context of our community: most people have a significant level of self interest, but we are always aware of the need to consider the interests of others when we act. Even for something as basic as waiting in line for something.
Somehow people at the elite levels of, finance for example, feel quite OK about heavily prioritizing their own interest above all.
As someone not privy to this social realm, I am just mystified about the social dynamics that, if not encourage this, at least consider it a fine way to do business.
In a small example, from my personal experience, I am a professional user of audio software from Avid. Avid has been losing money year after year. Over the past five years the company as taken actions that have outraged the user base, far more than any other software company I know of. Their forum is over run with vitriolic ranting, from longtime customers. (In fairness, this has abated a bit, as the company has finally been making moves that are sensible, and that meet the needs of the users.)
There have been several rounds of significant layoffs, and the frontline workers bear the brunt of the customers wrath. Morale has been low.
In conversation, a previous employee told me he considered management to be white collar criminals, who were looting the company.
This type of product has a unique feature of having very strong platform lock-in effects. In few other product categories would you see such angry customers continue to buy the products.
Yet the board has been approving generous compensation increases for C level management, and for themselves for the past few years.
I'm fascinated from an everyday, social point of view, how the board and management make these decisions. Do they really think they are doing a good job? From the outside, it appears to me that they do it simply because they can, and have little concern for the long term well being of any of the other stakeholdes.
Does anyone here have insight about the social dynamics that enable this behavior?blert , February 4, 2017 at 3:35 pm
This is something I'd welcome some insights on too as I find certain behaviours and attitudes impossible to understand.
Is it simple greed, stupidity, cynicism, groupthink, false consciousness, sociopathy, the 'attractions' of a certain lifestyle, daddy-didn't-love-them-enough or what that leads certain types to behave the ways they do and seek to justify it? If they acted with a degree of shame or embarrassment, or even full on chutzpah , I'd understand them more, but it's the ordinary types, those who outwardly seem to be of the same species as oneself and otherwise appear to be perfectly normal people that I just don't understand. I can believe almost anything of them, except for the possibility that they actually, genuinely, believe that they are on the right side of things.
I have similar brain fade when it comes to much of what politicians of the Right have to say on most things. So often, and try as I might, I just can't understand how supposedly sentient beings can honestly believe the drivel they come out with, still less have the brass-neck to stand up in public and display just how effing stupid and cynical they are. Feel much the same about all shades of politician but it's far worse on the Right.
At bottom, Control Fraud is the issue.
Word games// rationalizations are used to numb the public - while the crooks loot the collective wealth of the corporation in a systematic way.
It's the ability of the corporate suite to grant itself stock options - in almost unlimited amounts - that's causing the trouble. They are a looting.
MUCH would be solved by just taking such grants in equity out of the equation: make them illegal. Period.
Suddenly, the CEO's desire to juice the price would fade.
Jun 08, 2012 | marketwatch.com
It's been the prevailing economic philosophy of the Republican Party since Ronald Reagan was elected president in 1980.
Supply-side economics held that reducing marginal tax rates would spur economic growth, create jobs and even generate tax revenue for the government.Reuters A statue of former U.S. President Ronald Reagan near the American Embassy in Budapest, Hungary.
And it makes sense in theory: If people keep more of what they make, they would logically work harder, spend more and hire more people, right?
When you listen to supply-siders like Arthur Laffer, Stephen Moore and Larry Kudlow, they always extol the Kennedy-Johnson tax cut of the 1960s and especially President Reagan's tax cuts of the 1980s.
But they rarely mention the 1990s or the 2000s.
Maybe that's because those two decades were almost a perfect controlled experiment that shattered their pet theories: President Bill Clinton raised marginal tax rates and the economy boomed and jobs were plentiful. President George W. Bush cut them and we got only modest job growth.
In fact, there's more and more evidence suggesting that lowering marginal tax rates doesn't create many jobs at all.
Read Howard Gold's earlier take on the failed Bush tax cuts on MoneyShow.com.
For years I've tried to find any economist - left, right, or center - who could estimate the number of jobs created by the Bush tax cuts, but without success.
So, I'm taking a crack at it myself.Tax hikes vs. tax cuts
Using data from the Bureau of Labor Statistics CES survey, I compared the number of jobs created in the years following the balanced budget bill signed by President Clinton in August 1993 and after the second round of Bush tax cuts, which went into effect in May 2003. (Supply-siders think that was the real deal, not the earlier 2001 cuts.)
Nearly 20 million private sector jobs were created from the August 1993 tax increase until the end of the Clinton administration in December 2000. The number following the Bush tax cuts, in a shorter time period (May 2003 to December 2007, when the Great Recession began), was above seven million.
But when I actually counted the jobs created in various industries and eliminated those that clearly had nothing to do with lower marginal tax rates, I was left with a much smaller number: two million at most, a dreadful performance by any measurement.
This isn't an academic exercise. A 20% cut in marginal tax rates, including reducing the top tax rate to 28% from 35%, is a key plank of Republican presidential candidate Mitt Romney's economic growth plan (along with cuts in business taxes and reduced regulation, which I won't cover in this column).
Read Howard Gold's analysis of what Mitt Romney really did at Bain Capital in the Independent Agenda.
One of former Gov. Romney's top economic advisers, Glenn Hubbard, the dean of the Columbia Business School, wasn't available for an interview, nor could the Romney campaign provide another adviser by deadline. Top Bush economist Lawrence Lindsey also wasn't available.
Yet Hubbard, along with former Sen. Phil Gramm (Mr. Banking Deregulation of the late 1990s), penned an op-ed Thursday in the Wall Street Journal comparing the current recession with "the superior job creation and income growth" of - wait for it - the 1980s.
Again, no mention of the Clinton 1990s or the Bush tax cuts, of which Hubbard was a prime architect as chairman of the president's Council of Economic Advisers.
Isn't it curious how so many smart people have such complete amnesia about the last 20 years?
The Clinton delivery
Yet there's a growing consensus that cuts in marginal income-tax rates don't deliver the goods:
Robert Moffitt and Mark Wilhelm found "no evidence" that high-income U.S. taxpayers increased their work hours in response to the 1986 Reagan tax cuts. This undercuts a central premise of supply-side economics, that cutting taxes gives people incentives to work more.
A 2010 report by the nonpartisan Congressional Budget Office found that cutting income taxes produced the least bang for the buck among 11 proposed policy options aimed at boosting employment. David and Christina Romer, economists at the University of California-Berkeley (she was President Obama's CEA chairman), found that changes in marginal tax rates had little effect on U.S. economic growth in the 1920s and 1930s, either.
But the most striking evidence is the glaring contrast between the 1990s and 2000s.
A 2008 study by the liberal Center for American Progress and Economic Policy Institute showed that private investment, GDP, wages, household income, employment and federal revenue all grew faster - sometimes much faster - during the high-tax Clinton years than they did during the low-tax Reagan and Bush eras.
In August 1993, President Clinton signed a law that boosted the top personal income tax rate dramatically, to 39.6% from 31%.
But rather than die out, the nascent economic recovery picked up speed and never looked back. By the time this giant boom ended, the U.S. economy had added nearly 20 million private-sector jobs in every sector from manufacturing to retail trade to finance to information technology.Marginalizing marginal tax rates
Of course, higher taxes didn't cause this boom. That's the whole point: other economic forces were so powerful that marginal tax rates didn't matter.
And they didn't matter a decade later when President Bush signed the second of two tax cuts in May 2003, accelerating the 2001 act's provisions, reducing the top rate to 35%, and cutting capital gains and dividend tax rates.
But something else was brewing: In July 2003, the Federal Reserve cut the federal funds rate to 1% and kept it there for a year.
By doing so, the Fed pumped hot air into a speculative real estate bubble, with far-flung effects. As Martin N. Baily, Susan Lund and Charles Atkins wrote in a 2010 paper for the McKinsey Global Institute:
"From 2003 through the third quarter of 2008, U.S. households extracted $2.3 trillion of equity from their homes in the form of home-equity loans and cash-out refinancings. Nearly 40% of this - $897 billion, an amount bigger than the 2008 U.S. government stimulus package - went directly to finance home improvement or personal consumption." (Italics added.)
The two Bush tax cuts caused an estimated $1 trillion loss of federal tax revenues - and each year the revenue shortfall is an additional $100 billion. It's the gift that keeps on giving.
So, here's how I'm calculating the jobs created by these cuts.
First, to the 7.33 million net new private-sector jobs, I'm adding back a million jobs lost in manufacturing and technology, for about 8.3 million new jobs created.
Job growth under Bill Clinton and George W. Bush
After Clinton tax hike Aug. 1993-Dec. 2000 After Bush tax cut May 2003-Dec. 2007 Total private employment (thousands) 19,586 7,333 Manufacturing 437 (812) Information 1,031 (169) Retail Trade 2,321.4 674 Wholesale Trade 812.9 422.1 Leisure & Hospitality 2,201 1,458 Transportation 887.9 372.1 Finance (incl. real estate finance) 1,008 236 Professional & Business Services 5,300 2,131 Construction 1,986 784 Residential Construction 214.4 295.3 Health & Education Services 2,925 1,971 (Selected categories, may not add up) Source: Bureau of Labor Statistics, CES
Then I'd subtract the two million new jobs in health and education, which grew steadily in both the Clinton and Bush years with no impact from tax policy.
I'd also remove the 400,000 jobs added in residential real estate and home building, obviously a result of lower interest rates and the housing bubble.
Then, I'd subtract two million new jobs in professional and business services, also the result of a structural move to a service economy. Five million of those jobs were added under President Clinton.
That leaves us with four million jobs added in cyclical industries like retail and wholesale trade, leisure and hospitality, transportation and securities, as well as nonresidential construction.
My best guess is that half of those jobs were the result of the housing bubble, cash-out refinancing and rock-bottom interest rates while the rest may have come from the additional animal spirits and cash in consumers' pockets as a result of the Bush tax cuts.
My unscientific estimate, then, is that the Bush tax cuts were responsible for maybe two million jobs at most. Pathetic is an understatement.
I welcome your input and would be glad to revise this number in a future column if you provide a better estimate.
Supply-side economics is not the only economic philosophy that has come up short in the Great Recession. As I wrote here last year, Keynesian stimulus and Friedmanesque monetary policy both haven't done the job.
Read Howard Gold's take on Keynes and Friedman, the economics gods that failed, in MoneyShow.com.
Surely supply-side economics worked better when the top tax rate was slashed from 70% to 28% under President Reagan. It might be more justified at the state level, where crippling tax burdens have made some states uncompetitive. And raising taxes too high would likely hurt growth, so it may work better in reverse.
But clearly this is a theory with diminishing returns that has outlived its usefulness.
Because after the last two decades, believing that cuts in marginal personal tax rates will create jobs and revive our economy is like still believing the sun orbits the earth.
Howard R. Gold is a columnist at MarketWatch and editor at large for MoneyShow.com. Follow him on Twitter @howardrgold and read his commentary on politics and economics at www.independentagenda.com.
Jan 27, 2012 | consortiumnews.com
Exclusive: Any rational assessment of America's economic troubles would identify Ronald Reagan's reckless "supply-side" economics as a chief culprit, but that hasn't stopped Republican presidential hopefuls, led by Newt Gingrich, from selling this discredited theory to a gullible GOP base, reports Robert Parry.
Despite Newt Gingrich's claim that "supply-side" economic theories have "worked," the truth is that America's three-decade experiment with low tax rates on the rich, lax regulation of corporations and "free trade" has been a catastrophic failure, creating massive federal debt, devastating the middle class and off-shoring millions of American jobs.
It has "worked" almost exclusively for the very rich, yet the former House speaker and the three other Republican presidential hopefuls are urging the country to double-down on this losing gamble, often to the cheers of their audiences - like one Florida woman who said she had lost her job and medical insurance but still applauded the idea of more "free-market" solutions.
Former House Speaker Newt Gingrich posing with his third wife, Callista
Gingrich even boasts of his role in pioneering these theories of massive tax cuts favoring the rich, combined with sharp reductions in the role of government. That approach, once famously mocked by George H.W. Bush as "voodoo economics," was supposed to spur businesses to expand production (the "supply side"), thus creating jobs and boosting revenues from all the commercial activity.
"I worked with Ronald Reagan to develop supply-side economics in the late '70s, along with Jack Kemp and Art Laffer and Jude Wanniski and others," Gingrich declared at a recent town hall event. "We ended up passing it into law in '81. At the time it was very bold. People called it 'voodoo economics.' It had one great virtue: it worked."
But that is not what the historical record really shows.
In 1980, I was working as an Associated Press correspondent covering budget and economic issues on Capitol Hill and at the time, the "supply-siders" had two key arguments in their favor: first, the economy had stagnated in the 1970s largely due to oil price shocks, inflation and an aging industrial base.
Their second key advantage was that nobody could say for sure what the results of the "supply-side" experiment would be. There was little empirical data to assess how radical tax cuts would play out in the modern economy. One could make common-sense judgments, as George H.W. Bush had done with his "voodoo" remark, but you couldn't see the future.
No More Mystery
Now, however, with three decades of experience with the experiment, the fallacies of "supply-side" economics are no longer a mystery. For instance, a major obstacle to today's economic recovery has been the absence of "demand-side" consumers, not the availability of money to build more productive capacity.
And the reason that there are fewer consumers is that the Great American Middle Class, which the federal government helped build and nourish from the New Deal through the GI Bill to investments in infrastructure and technology in the Sixties and Seventies, has been savaged over the past three decades.
Though many Americans were able to cover up for their declining economic prospects with excessive borrowing for a while, the Wall Street crash of 2008 exposed the hollowing out of the middle class. So today, businesses are sitting on vast sums of cash some estimates put the amount at about $2 trillion.
And the reasons for this dilemma are now well-known: first, when companies have expanded in recent years, the modern factories have relied on robotics with few humans required; second, the companies put many manufacturing sites offshore so they can exploit cheap labor; and third, the shrinking middle class has meant fewer customers, leaving corporations little motivation to build more factories.
For Americans, this has represented a downward spiral with no end in sight. American workers, whether blue- or white-collar, know that computers and other technological advancements have made many of their old jobs obsolete. And modern communications have allowed even expert service jobs, like computer tech advice, to go to places like India.
While painful to millions of Americans who find their talents treated as surplus, these developments do not by themselves have to be negative. After all, humans have dreamed for centuries about technology freeing them from the grind of tedious work and freeing up society to invest in a higher quality of life, for today's citizens and for posterity.
The problem is that the only practical way for a democratic society to achieve that goal is to have a vibrant government using the tax structure to divert a significant amount of the super-profits from the rich into the public coffers for investments in everything from infrastructure to education to arts and sciences, including research and development for future generations, even possibly Gingrich's "big idea" of a colony on the moon.
In fact, that kind of virtuous cycle was the experience of the United States from the 1930s through the 1970s, with the federal government taxing the top tranches of wealth at up to 90 percent and using those funds to build major electrification projects like the Hoover Dam and the Tennessee Valley Authority, to educate World War II veterans through the GI Bill, to connect the nation through the Interstate Highway system, to launch the Space Program, and to create today's Internet.
Out of those efforts emerged robust economic growth as private corporations took advantage of the nation's modern infrastructure and the technological advancements. Millions of good-paying jobs were created for the world's best-trained work force, giving rise to the Great American Middle Class. The obvious answer was to keep this up, with the government investing in new productive areas, like renewable energy.
Instead, facing economic headwinds in the 1970s, caused in part by rising energy costs, Americans grew anxious about their futures, making them ripe for a new right-wing propaganda campaign demonizing "guv-mint" and telling white men, in particular, that the "free market" was their friend.
Blessed with a talented pitch man named Ronald Reagan, "supply-side" became the new product to sell. After taking office, Reagan pressed for a sharp reduction in the marginal tax rates, slashing the top rates for the wealthy from around 70 percent to 28 percent. Along with the tax cuts, Reagan also initiated an aggressive military buildup.
The results were devastating to the U.S. fiscal position. The federal debt soared, quadrupling during the 12 years of Reagan and Bush Sr. As a percentage of the gross domestic product, federal debt was actually declining in the 1970s, dropping to 26 percent of GDP, before exploding under Reagan, rising to 41 percent by the end of the 1980s. The shared wealth of the country also diverged, with the rich claiming a bigger and bigger piece of the national economic pie.
The nation's debt crisis only began to subside after tax increases were enacted under President George H.W. Bush and President Bill Clinton, with Clinton's tax hike pushing the top marginal rate back up to 39.6 percent. At the time, Gingrich warned that the Clinton tax hike would lead to an economic catastrophe.
The actual result was a booming economy, spurred strongly by the federal government's new "information super-highway," the Internet. The Clinton years also saw low unemployment and a balanced budget by the late 1990s. The debt-to-GDP measure declined from about 43 percent to 33 percent and was on course toward zero within a decade.
Ironically Gingrich also claims credit for that because as House speaker he worked with Clinton on some cost-cutting measures, but Clinton credits the 1993 tax increase, which passed without a single Republican vote, as the key factor in the budget turnaround.
After George W. Bush claimed the White House in 2001, "supply-side" dogma was back in vogue. Bush pushed through more tax cuts mostly for the rich, reducing the top marginal rate to 35 percent and creating an even bigger tax break for investors, cutting the capital gains rate to 15 percent. Combined with Bush's two wars and other policies, the surplus soon disappeared and was replaced by another yawning deficit.
Even as most Americans struggled to hold a job and pay their bills, America's super-rich lived a life of unparalleled luxury. With this concentration of money also had come a concentration of power, as right-wing operatives were hired to build a sophisticated media apparatus and think tanks to push often with populist rhetoric the policies that were dividing the country along the lines of a pampered one percent and a pressured 99 percent.
Many Americans, especially white men, heard their personal grievances echoed in the angry voices of Rush Limbaugh, Sean Hannity, Michael Savage and Glenn Beck all well-compensated propagandists for "the one percent."
Now, looking back over the economic and fiscal history of the past three decades, you might think that few Americans would be fooled again by this sucker bet on "supply-side." But the Tea Partiers and many rank-and-file Republicans seem ready to put what's left of their money back down on the gambling table.
All four remaining Republican hopefuls Mitt Romney, Rick Santorum, Ron Paul and Gingrich have proposed lower tax rates especially on the rich with the same enduring but fanciful faith in "supply-side" economics.
Gingrich has gone so far as to advocate eliminating the capital gains tax entirely. It's already down to 15 percent, meaning that many super-rich, from financier Warren Buffett to Mitt Romney, can live off their investments and pay a lower tax rate than what many middle-class Americans pay on their wages and salaries. In a recent Florida debate, Romney noted he would pay virtually no federal income tax under Gingrich's plan.
The Republicans seem to be counting on the parallel propaganda campaign of demonizing "guv-mint." They're pinning their hopes on an ill-informed electorate (especially white men) siding with "the one percent" over their own working- and middle-class interests.
The GOP hopes also may hinge significantly on how determined some whites are to get the country's first black president out of the White House. Historically, demagogic U.S. politicians have had great success in exploiting racial resentments, although these days often with coded language like Gingrich calling Barack Obama "the food-stamp president."
The Right also has worked diligently to create false narratives to convince many Americans that their hatred of a strong federal government links them to the Founders. Many Tea Partiers have bought into the historical lie that the Founders wrote the Constitution to limit the power of the federal government and to promote "states' rights" the near opposite of what the framers actually were doing.
Led by Virginians Gen. George Washington and James Madison, the Constitutional Convention in 1787 threw out the Articles of Confederation, which had made the states supreme and the federal government a supplicant.
The Constitution reversed that situation, eliminating state "independence" and bestowing national sovereignty onto the federal Republic representing "we the people of the United States." Contrary to the Tea Party's false narrative, the Constitution represented the single biggest assertion of federal power in U.S. history.
When the Tea Partiers dress up in Revolutionary War costumes, they apparently don't know that their notion of a weak central government and state "sovereignty" was anathema to the key framers of the Constitution, especially to Washington who had watched his soldiers suffer under the ineffectual Articles of Confederation.
And, when the Tea Partiers wave their "Don't Tread on Me" flags of a coiled snake, they don't seem to know that the warning was directed at the British Empire and that the banner aimed at fellow Americans was Benjamin Franklin's image of a snake severed into various pieces representing the colonies/states with the admonishment "Join, or Die."
Nevertheless, false narratives and false arguments can be as effective as real ones to a thoroughly misinformed population. Thus, many middle- and working-class Americans still cheer when Newt Gingrich references Ronald Reagan and his "supply-side" economics.
But the failure of Reagan's economic strategy should be obvious to anyone who is not fully deluded by right-wing propaganda. Not only has the national debt skyrocketed over the past three decades, but whatever economic benefits that have been produced have gone overwhelmingly to the wealthy while the nation as a whole has suffered.
[For more on related topics, see Robert Parry's Lost History, Secrecy & Privilege and Neck Deep , now available in a three-book set for the discount price of only $29. For details, click here .]
Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com . His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & 'Project Truth' are also available there.
Dec 21, 2010 | capitalgainsandgames.com
Sam Houston State University historian, writing on the Forbes web site, has a very odd blog post this morning. He criticizes MIT economist Simon Johnson for attributing the term "voodoo economics" to George H.W. Bush. Domitrovic calls it a "myth" that the elder Bush ever uttered those words. "You'd think there'd be a scrap of evidence dating from 1980 in support of this claim. In fact there is none," he says.
Perhaps down in Texas they don't have access to the Los Angeles Times. If one goes to the April 14, 1980 issue and turns to page 20, one will find an articled by Times staff reporter Robert Shogan, entitled, "Bush Ends His Waiting Game, Attacks Reagan." Following is the 4th paragraph from that news report:
"He [Bush] signaled the shift [in strategy] in a speech here [in Pittsburgh] last week when he charged that Reagan had made 'a list of phony promises' on defense, energy and economic policy. And he labeled Reagan's tax cut proposal 'voodoo economic policy' and 'economic madness.'"
I've attached a PDF file of the Times article to this post for the benefit of the skeptical.
Let me just emphasize that the words "voodoo economic policy" are Bush's words. The source is a reputable one that is easily available even at second-tier universities, so I think this counts as pretty strong evidence to anyone with a reasonably open mind. I think even someone with a Ph.D. in history from Harvard might concede that it is at least a scrap of evidence.
I suppose that is one wanted to be pedantic, one could continue to argue that Bush never said the precise words "voodoo economics," that somehow or other "voodoo economic policy" is something completely different. I will allow others to debate the point.
Feb 01, 2017 | economistsview.typepad.comreason : January 31, 2017 at 01:45 AM , 2017 at 01:45 AMRoger Farmer showing that he is part of the problem, not part of the solution again:RC AKA Darryl, Ron -> reason ... , January 31, 2017 at 03:39 AM
He shouldn't humor such complete nonsense with so much respect.
General equilibrium thinking is the enemy of understanding - it requires as the interview shows (and he seems unaware of) a cascade of absurd assumptions. He also seems unaware that a series of unreal assumptions can't cancel out - their effects multiply.One of my finds in economic efficiency is to not read articles by George Farmer. Unlike Greg Mankiw, whom I never read, it is not a hard fast prohibitive rule. I sometimes allow myself to get sucked into reading George Farmer by an enticing title but such actions always come with a pang of guilt.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 31, 2017 at 03:48 AM
One can argue that reading Mankiw or Farmer is useful just to see what others are saying, what other people read, and preventing oneself from isolation in the bubble chamber, but I don't buy that argument. I get enough open mindedness just from Dani Rodrik, Dean Baker, Jared Bernstein, and Menzie Chinn. I used to read Krugman, but that is mostly in the past now with exceptions a little less rare than Farmer. I also skip reading most of the comments once the day gets going.
I am planting my last 25 daffodil bulbs today. It's a bit late. I already have over a dozen coming up from earlier planting. I get up every morning to fix my wife coffee and the just wait around doing this until the sun rises. Practicing good economics is worth more to me now that reading bad economics.Today, I just read Tim Duy. He had nothing stupid to say. I like that.Jerry Brown -> RC AKA Darryl, Ron... , January 31, 2017 at 09:25 AMRon, what about these consecutive sentences from Duy- "That said, the central bank tends to react fairly nimbly to changing economic conditions. It has repeatedly delayed action in response to deteriorating economic or financial conditions."Peter K. -> Jerry Brown... , January 31, 2017 at 10:07 AM
Which one is it? Act nimble, or fail to act? I know what Duy means but I find the sentences contradictory in a humorous way.I don't think it's contradictory.RC AKA Darryl, Ron -> Jerry Brown... , January 31, 2017 at 10:21 AM
The Fed was signaling they were going to "normalize" and raise rates but held off because of unforeseen, changing economic conditions.What Peter K said, at least in the terms that Duy would consider realistic. One can also posit that the Fed failed to do enough or react soon enough in 2006-2007 or a host of other criticisms, but all those criticisms would be out of bounds for central bank behavioral expectations in general and Fed-watcher Tim Duy in specific. Market monetarists are less generous in that respect.Jerry Brown -> RC AKA Darryl, Ron... , January 31, 2017 at 11:18 AMRon (and Peter), I know. I just found the sentences one after the other to be somewhat humorous. Apparently, I have an odd sense of humor :).Jerry Brown -> Jerry Brown... , January 31, 2017 at 11:56 AMEconomists are not noted for their sense of humor and I have a theory that exposure to economists impairs the sense of humor in normal people. I am afraid mine has been badly damaged at this point. Anyone here a lawyer? Maybe we can do a class action suit?Jerry Brown -> Jerry Brown... , January 31, 2017 at 12:04 PMAnne can no doubt provide statistics favorable to our case on this. :)Chris Lowery -> Jerry Brown... , January 31, 2017 at 03:11 PMJerry, you and Ron just made my day! My wife and are in lake Placid celebrating out 47th wedding anniversary, and during our pre-dinner cocktail hour were depressing one another with excerpts from today's news, and then I came across your Ron's comments. We nearly fell of our chairs laughing! Thanks guys, we really needed this!Jerry Brown -> Chris Lowery ... , January 31, 2017 at 04:58 PMDarn it, you wont be able to join as a plaintiff if you keep that up Chris. Falling out of your chair laughing does not demonstrate impaired humor- you will ruin my case! Perhaps you can maintain that you were being very sarcastic? Sarcasm is the last bit of humor to be affected by economism in my theory...Chris Lowery -> Jerry Brown... , January 31, 2017 at 05:27 PM
Congrats to you and the wife on your anniversary!Thanks Jerry! I can modify my story to fit whatever narrative thats helpful. It comes from decades in finance, for which Im still doing penance...JF -> RC AKA Darryl, Ron... , January 31, 2017 at 11:18 AM
Chris LoweryHe neglected to bring illumination to his mention of cash replacing the maturing bond, and where this cash comes from and what happens with the cash in light if the remittance requirements (where excess cash is swept into the Treasury's accounts).Peter K. -> RC AKA Darryl, Ron... , January 31, 2017 at 05:34 AM
They cannot destroy the cash. The redeeming cash will come, in the case of a Treasury bond, from Treasury who must borrow this amount to pay the Fed. If they are permitted to hokd the cash on their books, and not remit, we still have borrowing by the public (and this sweeps excess off of the books of buyers of this new debt) fir it to be placed somewhere if not remitted.
As I have said for quite some time it makes basic common sense to have a mature bond redeemed via an accounting offset with Treasury as this avoids the need to borrow the money just to then have it remitted back to Treasury. And why would the Fed and Treasury not do this??? I would like someone to explain.
For example, why is the Fed doing this now when it could have been redeeming by offset during the Obama administration (lowering the amount of public borrowing but financing the same nominal spending).
This piece by Duy misses the absolutely most critical part of the redemption story."One can argue that reading Mankiw or Farmer is useful just to see what others are saying"RC AKA Darryl, Ron -> Peter K.... , January 31, 2017 at 06:09 AM
You need to read more, Farmer is miles away from the establishment Mankiw. He's more "Post-Keynesian" than "New Keynesian." More Baker than Krugman.
OK for you, but still not for me.Peter K. -> RC AKA Darryl, Ron... , January 31, 2017 at 06:24 AMYes you have such high standards...RC AKA Darryl, Ron -> Peter K.... , January 31, 2017 at 07:18 AMNot what I meant. I have limited time and limited interest. Economics is secondary to politics as it stands. I don't have sufficient means to become more politically involved yet though. So, this is something rather than just nothing, but I cut my losses short. You are younger and apparently more involved in this aspect of thought about the political economy. I am older and more intent on positive action in my remaining time. There is not much new for me to think about that will matter at all to me.Peter K. -> reason ... , January 31, 2017 at 05:31 AMI don't understand the hostility towards Farmer. He seems like an interesting heterodox thinker to me who questions mainstream equilibrium thinking.Jerry Brown -> Peter K.... , January 31, 2017 at 09:43 AMWell the other day Farmer said he rejects the Keynesian concept of Aggregate Demand and the consumption function based on income. And provides no evidence except a recommendation to go and buy his book to find out. That about does it for me.Peter K. -> Jerry Brown... , January 31, 2017 at 10:05 AMFair enough.
Feb 01, 2017 | economistsview.typepad.comChris G : , January 31, 2017 at 03:37 AMGood post by Bellamare on heteroskedasticity. Heteroskedasticity and Its Content - Marc Bellemare Anyone doing regression analysis needs to keep it in mind.RC AKA Darryl, Ron -> Chris G ... , January 31, 2017 at 04:27 AM
No, no, no, no, I don't do it no more. Sometimes in the mornings waiting for the sun to rise then I actually miss my work in SAS language programming. I was always a bigger fan of PROC FASTCLUS than PROC REG, but definitely PROC FASTCLUS with PROC GPLOT presentation color coding the cluster group number assignments in an overlay scatter plot. That is because I could estimate the expected degree of change in activity from the expected change in natural business units or hardware or software making historical data of use only for establishing a baseline, hopefully a clean baseline, rather than for estimating the degree of change itself. I used PROC REG to generate 95% confidence intervals around the linear regression means of predicted data points.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 31, 2017 at 04:40 AMIn my cases the heteroskedasticity was merely considered in the application of outliers from the central cluster(s). Outliers that constituted some type of risk had to be considered discretely, one by one, but only those that with predicted change would overshoot capacity limits. Undershooting was just an isolated outage or collapse in demand and certainly not a capacity risk.Chris G -> RC AKA Darryl, Ron... , January 31, 2017 at 04:56 AMOutlier detection is a whole other kettle of fish. Once upon a time I spent most of my time finding outliers in multivariate data and trying to figure out more effective methods for finding them. (Turns out the world isn't multivariate-normal distributed. Who knew?)RC AKA Darryl, Ron -> Chris G ... , January 31, 2017 at 05:40 AM
For system performance data, which was my domain, an outlier could be an effect on the response variable at the extreme range of the independent variable, or just an unordinary event. The heteroskedasticity type outliers were things like increased CPU overhead at high utilizations, a feature of the MVS IBM mainframe operating system, or elongated service times for Fiber channels and Ethernet or elongated response times for a device having excessive utilization and queueing delays. Outliers could also be bugs or system recovery events as well as work scheduled outside its normal window of operation including systems programmers screwing around in production logical partitions. The heteroskedasticity type outliers were actually my job to prevent and I did a good job of that. My occasional undoing was almost always because of application changes that exceeded the developers expected resource requirements. A couple of times my system programmer coworker that controlled MVS performance misinterpreted a software constraint until it manifested itself in extreme ways for long enough until I was consulted for analysis.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 31, 2017 at 06:29 AM
So what I am getting at is that all exceptions to normal expectations can be considered as outliers, but then those that demonstrate only a difference in the reaction function of the response variable accorded by the range of the independent variable can also be considered heteroskedasticity.
In any case, I am about at the end of my analysis of outliers on my daffodil bulb planting now. I sure hope that I don't encounter any heteroskedasticity with the chain saw later this week.The authors are using a study of heteroskedasticity to inform their forecasting ability. In such a case outliers would be very different from heteroskedasticity in the response variable over certain ranges of the independent variable. In other applications, such as large computer system performance, heteroskedasticity exists as something to be avoided because elongation of response variables follow a hyperbolic curve and we don't want to be kneed by the curve. Classic outliers are to ignored for forecasting even if not solved by protective measures but heteroskedasticity occurs as a response to demand in excess to expected and provisioned. Either resources per business unit of work must be reduced or more resources must be provisioned. In the former case then the historical baseline must be readjusted and in the later capacity limits must be increased.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 31, 2017 at 06:32 AMI would think that there would be an analog to this in money supply and interest rates, but that is outside my domain.Chris G -> RC AKA Darryl, Ron... , January 31, 2017 at 04:47 AM:-)
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 PMcm -> cm... , January 22, 2017 at 08:40 AM"...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.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.libezkova : , January 22, 2017 at 07:11 PM
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."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 22, 2017 | economistsview.typepad.comPeter K, January 22, 2017 at 11:46 AMhttp://rajivsethi.blogspot.com/2016/12/thomas-schelling-methodological.html
Sethi on Shelling:
"Similarly, in bargaining situations, "the sophisticated negotiator may find it difficult to seem as obstinate as a truly obstinate man." And when faced with a threat, it may be profitable to be known to possess "genuine ignorance, obstinacy or simple disbelief, since it may be more convincing to the prospective threatener."
Starting with three classic papers in the same 1982 issue of the Journal of Economic Theory, a large literature in economics has dealt with the implications for rational behavior of interacting with parties who, with small likelihood, may not be rational."
It's why many non-experts believe academic economists' pretensions to science and accuracy is BS.
Like Simon Wren-Lewis's blog-post the other day defending mainstream economics.
It's like they come up with the political answer they want and then rationalize it via math and rhetoric in a way that would make Kellyanne Conway proud.
Jan 22, 2017 | economistsview.typepad.comAttacking Economics is a Diversionary Tactic Simon Wren-Lewis :... ... ..anne -> anne... , January 21, 2017 at 12:39 PM
7. So given all this, why do some continue to attack economists? On the left there are heterodox economists who want nothing less than revolution, the overthrow of mainstream economics. It is the same revolution that their counterparts were saying was about to happen in the early 1970s when I learnt my first economics. They want people to believe that the bowdlerised version of economics used by neoliberals to support their ideology is in fact mainstream economics.
8. The right on the other hand is uncomfortable when evidence based economics conflicts with their politics. Their response is to attack economists. This is not a new phenomenon, as I showed in connection with the famous letter from 364 economists. With austerity they cherry picked the minority of economists who supported it, and then implemented a policy that even some of them would have disagreed with. (Rogoff did not support the cuts in public investment in 2010/11 which did most of the damage to the UK economy.) The media did the rest of the job for them by hardly ever talking about the majority of economists who did not support austerity.
... ... ...anne -> anne... , January 21, 2017 at 02:28 PMSo given all this, why do some continue to attack economists? On the left there are heterodox economists who want nothing less than revolution, the overthrow of mainstream economics. It is the same revolution that their counterparts were saying was about to happen in the early 1970s when I learnt my first economics. They want people to believe that the bowdlerised version of economics used by neoliberals to support their ideology is in fact mainstream economics.
-- Simon Wren-Lewis
[ This is an important criticism that as such can surely be further explained and analyzed at length.
The reference to the work of "heterodox economists" in the 1970s is completely unknown to me and I would be interested in knowing more. After all, I have had a sense that during the 1970s conservative economists, "Chicago School" economists, become distinctly influential both in the field of economics and for policy makers. ]On the left there are heterodox economists who want nothing less than revolution, the overthrow of mainstream economics....pgl -> anne... , January 21, 2017 at 03:21 PM
[ Since my understanding of heterodox economics is that it ranges from cultural to ecological perspectives to various degrees of institutional planning, I do not understand what revolution Simon Wren-Lewis has in mind. Also, again I do not understand what heterodox economics was in the 1970s. ]"heterodox economists" is sort of like "neoliberal". We are talking what political types call a Big Tent. Alas the hyper political types here cast this tent over everyone they might disagree with. Which is sort of Simon's point.William Meyer : , January 21, 2017 at 12:49 PMWhat 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.anne -> William Meyer... , January 21, 2017 at 01:04 PM
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 politcs 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 dont' 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 contined 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.Really fine criticism.pgl -> William Meyer... , January 21, 2017 at 03:23 PM
The sense that the study of economics is a political-economic study appears as a rejection of what is supposed to be technocratic, supposed to be the study of the mechanics of capitalism in a pure frame as though capitalist mechanics were not continually defined. The mechanics of pure capitalism dictates a technocratic politics:
August 10, 2012
My judgment isn't a left-wing judgment: it is a technocratic-political judgment. I speak as a card-carrying neoliberal long-run budget-balancer....
-- Brad DeLongThe point being we cannot ignore the politics? Simon gets the politics but he still tries to get the analysis straight. I find this to be a very important thing to do but then the hyper political types call getting the analysis right lying. Or something like that.William Meyer -> pgl... , January 21, 2017 at 05:26 PMNo, you pretty much seem to be missing my point completely. It's not about getting the economics right and the politics right as two separate exercises, it's about taking seriously the interactions between the two. Who knows, maybe if someone had modelled the positive feedback loops between lobbying expenditures, industry-friendly public policy, and industry profits for, say, the financial industry, someone might have correctly predicted the financial crisis of 2008, and perhaps even predicted that it would also be almost impossible for the government to take the necessary action to correct the problem politically, and that this would result in a sluggish economy post-crisis. Whereas, keeping these issues separate as we currently do makes it pretty much a sure bet that no one will have a very good insight into how the real world will unfold in the future.anne -> William Meyer... , January 21, 2017 at 05:33 PMhttps://www.nytimes.com/2017/01/20/business/dealbook/george-osborne-britain-blackrock-adviser.htmlanne -> William Meyer... , January 21, 2017 at 05:36 PM
January 19, 2017
Former Top British Official to Join BlackRock as an Adviser
By CHAD BRAY
The move by George Osborne, the former chancellor of the Exchequer, is the latest example of British politicians taking financial jobs.https://www.nytimes.com/2017/01/20/business/dealbook/george-osborne-britain-blackrock-adviser.htmlGibbon1 -> pgl... , January 21, 2017 at 06:21 PM
January 19, 2017
Former Top British Official to Join BlackRock as an Adviser
By CHAD BRAY
Other recent moves from Westminster, where Britain's government is based, to the City, as the historical London financial district is known, include:
William Hague, the former British foreign minister, who this week announced that he was joining Citigroup as a senior adviser.
Alistair Darling, a former member of Parliament and the chancellor before Mr. Osborne, joined Morgan Stanley's board of directors last year.
Gordon Brown, the former British prime minister, joined a global advisory board at Pimco last year. The advisory board's members include Ben Bernanke, the former Federal Reserve chairman.
Tony Blair, the British prime minister before Mr. Brown, joined JPMorgan Chase as a part-time senior adviser in 2008.You think what's needed is a perfect plan. You are so wrong because you lack life experience. Tip for the neoliberal pgl from the world of business, engineering, war and politics.pgl -> Gibbon1... , January 22, 2017 at 03:01 AM
A bad plan executed well beats a good plan executed badly.
A perfect plan? Sorry dude but this is a complete misrepresentation of what we "neoliberals" are saying.BenIsNotYoda : , January 21, 2017 at 12:58 PMYou want to know why economists are being attacked. The Yellen Fed is rapidly digressing into a political entity. The Fed is allegedly independent of politics, but Janet Yellen's latest statements leave no doubt that she is more of a political operative than an economist.TrumpisaJew -> BenIsNotYoda... , January 21, 2017 at 02:09 PM
Three months ago, on October 14 2016, Yellen stated the following:
Yellen Cites Benefits to Running Economy Hot for Some Time
Federal Reserve Chairwoman Janet Yellen offered an argument for running the U.S. economy hot for a period to ensure moribund growth doesn't become an entrenched feature of the business landscape. That would mean letting unemployment fall lower and spurring faster growth to boost consumer spending and business investment.
Source: Wall Street Journal
Compare this language to Yellen's statement from last week.
Federal Reserve Chair Janet Yellen backed a strategy for gradually raising interest rates, arguing that the central bank wasn't behind the curve in containing inflation pressures but nevertheless can't afford to allow the economy to run too hot. Still, she saw dangers in permitting the economy to overheat and inflation expectations to get out of control. "Allowing the economy to run markedly and persistently 'hot' would be risky and unwise," she said.
So three months ago, running the economy "hot" was a good idea. But today, it's a massive risk that we cannot afford to take.
What changed in those three months?
Core inflation rose 0.1%. And the US closed 2016 with a sub-2% growth rate for the year. Neither of those would qualify as remotely "hot."
The main change? The GOP took the House, Senate, and White House.
Bear in mind, Yellen's statement came a mere 24 hours after then President-elect Donald Trump commented that the US Dollar was "too strong."
So we have a Fed chair performing a 180% on running a "hot" economy within three months and openly defying the new administration's views on the US Dollar at a time when the data doesn't support any of her claims.
Yellen may be seeing something everyone else is not, but it is difficult to see this as anything other than political hackery.Uh dude, CPI is running at 2.1% yry and will rise further when the 2016 oil "mirage" is removed unless we can get another price collapse. Inflation was firming right under your noise.BenIsNotYoda -> TrumpisaJew... , January 21, 2017 at 02:40 PM
The economy from a monetary pov is indeed running hot. This is what you do not understand. The structural issues deal with the plutocratic tyranny that began under Reagan and the zionist Trump cabal want to take to another level. Jack London called it the Iron Heel.First of all, core CPI (which according to the Fed is a better measure) has been above 2% level since Nov 2015. So CPI inflation around 2% level is NOT NEW NEWS. If rates should rise because of inflation, then why did she not raise them a lot before? Answer - because Obama was in office. The plan was to get HRC into office and run a high pressure economy with low unemployment and high inflation. That all changed when the GOP won. Those are the facts. Yellen is nothing but a disgusting political operative.TrumpisaJew -> BenIsNotYoda... , January 21, 2017 at 02:51 PM
Your handle is offensive. But hey, this is a free country. Or was, till the liberal left decided that the first amendment only applies if you agree with them.liberal left? maybe if you would stop being a fixated little shit and understand how bad "hot" monetary expansions are, you would grow a pair.mulp -> BenIsNotYoda... , January 21, 2017 at 03:02 PM
The Friedman era is over.Yet again, bad economics are behind most Fed related policy proclamations justifying and criticizing Fed policy.BenIsNotYoda -> mulp... , January 21, 2017 at 03:12 PM
Do don't think even Milton Friedman would accept any of it, unless he let politics blind him to what was clear to him in the 50s and 60s.
In the 50s and 60s, he would be debating the cratering velocity, it's causes, and remedies. He would not be blindly calling for increasing or decreasing the growth in money supply.
Scott summer is calling blindly for higher growth in money supply by blindly advocating "NGDP targeting" while ignoring the exporting of "capital" and importing of labor, and ignoring the falling velocity of money.
The two are likely closely tied, in that money created that flows out of the US as "capital" where is pays no workers in the US, thus never adding to US GDP, means the Fed can't boost NGDP.
The reality is the Fed can have no significant impact on the economy by any normal policy moves. Changing the interest rates by purchase and repo trades to US Treasuries at 4% would not impact the economy because of the new market interest rates, but the reaction of interest payers will impact the economy. Everyone assumes higher interest payments will mean less paid to workers, because the way to cut the burden of interest payments is to cut revenue so interest becomes a higher share of revenue. In reality, what is cut is buying goods with future wages and working hard to repay borrowed labor costs. Keynes notes that the individual self interest reaction is both collectively and individually harmful.
The high level of debt from consumption in a growing economy is extremely harmful, yet Fed policy has been promoting job killing debt funded consumption by doing less of what Scott Summer advocates it should do to create jobs.I am not debating policy. Just pointing out how Yellen has changed her colors as soon as her beloved HRC lost.pgl -> BenIsNotYoda... , January 21, 2017 at 03:18 PMShe would claim we are now at full employment. But as you may well know - I think we are far from full employment.BenIsNotYoda -> pgl... , January 21, 2017 at 03:31 PMYou and I are in full agreement that we are NOT at full employment.BenIsNotYoda -> BenIsNotYoda... , January 21, 2017 at 03:32 PMand I am incensed that Yellen would think of raising rates quicker just because Trump won.pgl -> BenIsNotYoda... , January 21, 2017 at 03:36 PMFair enough. I think we are in agreement that monetary policy should be based on the state of the economy and not politics even if we have a genuine disagreement about the state of the economy. But at least you and I are having a principled discussion. Something others here should emulate.anne : , January 21, 2017 at 01:57 PMhttps://en.wikipedia.org/wiki/Heterodox_economicsmulp -> anne... , January 21, 2017 at 02:14 PM
Heterodox economics refers to methodologies or schools of economic thought that are considered outside of "mainstream economics", often represented by expositors as contrasting with or going beyond neoclassical economics. "Heterodox economics" is an umbrella term used to cover various approaches, schools, or traditions. These include socialist, Marxian, institutional, evolutionary, Georgist, Austrian, feminist, social, post-Keynesian (not to be confused with New Keynesian), and ecological economics among others.
Mainstream economics may be called orthodox or conventional economics by its critics. Alternatively, mainstream economics deals with the "rationality–individualism–equilibrium nexus" and heterodox economics is more "radical" in dealing with the "institutions–history–social structure nexus". Many mainstream economists dismiss heterodox economics as "fringe" and "irrelevant", with little or no influence on the vast majority of academic economists in the English-speaking world.Heterodox is in the eye of the beholder.anne -> mulp... , January 21, 2017 at 03:00 PM
It seems mainstream to argue that a high tax rate and costly regulations kill jobs, and that cutting taxes and regulations will create jobs because rewarding higher profits from reducing labor costs far below prices, and eliminating all the labor costs to comply with regulations will create jobs, because lower labor costs mean more workers being paid higher wages.
But can someone explain the mainstream economic theory of reducing labor costs resulting in more workers getting paid more??? Looks like voodoo to me.But can someone explain the mainstream economic theory of reducing labor costs resulting in more workers getting paid more???Gibbon1 -> anne... , January 21, 2017 at 10:43 PM
[ This is precisely what technological progress has allowed since the beginning of the industrial revolution. ]Last 40 years though proves that increase in productivity != high wages.mulp : , January 21, 2017 at 02:08 PM
Echoing Simon, and rehashing my criticisms:anne : , January 21, 2017 at 02:19 PM
I don't see it as attacking economics as science tied to nature, as much as attacking economists who pick one "natural law" and apply it generally far outside the limits for which it applies, ignoring all the other laws that constrain it.
For example demand price theory and elasticity is sound natural law. It's like Boyles Law of gases. Boyles law applies over a range of pressures and temperature for which the gas remains a gas. It has limits, the point the "gas" becomes liquid or solid.
The idea that lower prices will create jobs applies only for a limited range of prices and quantities, but once outside those bound, lower prices MUST KILL JOBS.
The Laffer curve is an elasticity curve that covers the entire range of tax rates. A carbon tax works by moving up the curve to the point zero tax revenue is generated. The higher the tax, the cheaper it is to pay workers to build substitutes that do not burn fossil fuels, and instead of paying taxes, you pay the cheaper payroll of more workers.
Likewise, a high tax rate on economic aka monopoly profits, and on rents, the cheaper paying workers to build tax dodging depreciating capital becomes, which in the long run increases the capital stock, the product quantity, and thus prices are driven to cost eliminating economic profit and economic rents.
The point of high tax rates, tax rates of 50% and up, is not to raise revenue but to cause paying workers for substitutes.
On the other hand, government is a product, the general welfare, so, to increase the quantity of general welfare, tax rates need to be high enough to pay workers. The cost of general welfare is certainly much less than 50% of the economy in the long run, so tax rates are at all points in the lower part of the Laffer curve so lowering rates will reduce the quantity of general welfare that can be produced. And the general welfare is always from paying workers.
So, economists across the board are pretty universally wrong about tax rates and about prices levels, and the impact of raising and lowering them.
At the micro level, the theory is clear. At the micro level, the principle of zero sum is held as a natural law constraint.
Moving to macro does not eliminate any of the natural laws of micro, but instead moves economics from the micro theory of the two body problem, two bodies of mass rotating about each other, to macro theory of the n-body problem of sun, planets, solar systems, galaxies all rotating around each other. At this level, many natural laws come into play, like general relativity in its many forms including imputing mass to energy, going far beyond Newtonian physics, yet not discarding it.
Macro economists have either blindly and wishfully forgotten or ignored fundamental micro laws, or intentionally eliminated them from the macro proclamations to deceive.
When Bernie Sanders argues a carbon tax can pay for vast welfare state benefits, is he intentionally lying, or has he been deceived by self deceiving economists who wishfully seek a free lunch economic system where money comes from nothing?
When Milton Friedman argued in 1970 lower tax rates would generate the same tax revenue and create more jobs and output, was he intentionally lying, or self deceiving himself?
Milton Friedman in arguing against high tax rates made a point of all the jobs and wage income that resulted from the high tax rates, jobs and income he considered wasteful spending promoted by the tax policy. He even noted that the high wage income increased demand for goods and services, consumption he considered wasteful.
So, as the father of the macro economic policy of tax (rate) cuts, how can it be a policy to boost gdp and jobs to cut taxes as Friedman argued?
Trump seems to latch onto simplified macro economic half baked policy ideas an run with them to the max. The economists who crafted the policy statements he has extracted his proclamations from are horrified by what he is doing with their policy proclamations. Proclamations that are half baked and thus violate natural law.
Take the economists at Econlog from which Trump gets a lot of his economics. They are horrified. Yet their economic "theory" clearly does not work. Trade theory in particular. The micro theory of trade exchanges labor for labor, ie, your labor makes goods traded for goods I make with my labor. But trade today swaps labor for capital, so jobs are moved from one nation to another in exchange for reducing the wealth of the other.
Saudi Arabia is the simplest example. It sells it's natural capital and then imports labor goods at prices lower than Saudi workers can hope to produce them, thus killing jobs in Saudi Arabia. The crisis in Saudi Arabia is a lack of opportunity for the Saudi people who are multiplying as if it were still an undeveloped nation with high mortality rate.
Since Reagan, the US has become more like Saudi Arabia, selling off capital to buy cheap goods from less developed economies where labor is relatively cheaper and sending back capital, killing jobs in the process and eliminating economic opportunity to Trump voters.
Milton Friedman argued that this was a good policy because we as a nation were better off from China effectively gifting us cheap goods and that on the whole, the US is better off from jobs lost in the US. He hinted at using the consumer surplus of cheap imports to pay welfare to those who lost jobs, but those advocating job killing trade imbalance also condemn welfare payments, blaming those who lost jobs as being at fault.
So, Trump is going back to micro economics and promising to make sure trade is going to create jobs in the US. But he also grabs onto and clings to the cheap price concept that requires killing jobs. Trump is going to ensure energy is cheap, which means he will never ban oil imports or put a $50 a barrel tariff on oil imports.
What policy could Trump do to create jobs quickly? A $50 a barrel tariff on imported oil, say phase it in over a year, $20 starting April 1, $30 July 1, $40 Oct 1, $50 Jan 1 2018. This time, ExxonMobil will not have high profits from $4 gasoline and heating oil because they will be paying 25,000 more direct workers to drill baby frack, plus ten times as many supporting jobs, as they build assets they can rapidly depreciate or expense to wipe out taxable profits. At the same time, incumbents drillers will return to high gear. If Trump rebates a tariff on exported refined oil products, it would delay NAFTA sanctions as oil products consumed in Mexico and Canada will be cheaper but exports will not be reduced much. On the global market, the results will be devastating with oil prices crashing. Putin would likely target Trump for going to war on the Russian people and economy.
Bernie would likely attack Trump for his policy hiking the price of heating oil to the working poor of Vermont. But you can't pay more American workers without higher energy prices. Vermont's working poor will end up with better pay if energy efficiency investments are made in Vermont because neither Chinese nor Saudi workers can eliminate the need for oil to keep housing warm in Vermont.
And the $50 a barrel tariff on imported oil will generate no revenue for government to spend by 2020 if oil product exports get tariff rebates.https://mainly macro.blogspot.com/2017/01/attacking-economics-is-diversionary.htmlKPl : , January 21, 2017 at 11:37 PM
January 21, 2017
Attacking economics is a diversionary tactic
The financial crisis in the UK was the result of losses by banks on overseas assets, originating from the collapse in the US subprime market. It was not a result of excessive borrowing by UK consumers, firms or our government. As the Bank's Ben Broadbent points out, "Thanks to the international exposure of its banks the UK has been, in some sense, a "net importer" of the financial crisis." This overseas lending caused a crisis because banks were far too highly levered, and so could not absorb these losses and had to be bailed out by the government.
This is why UK macroeconomists failed to pick up the impending crisis. They did routinely monitor personal, corporate and government borrowing, but not the amount of bank leverage. Macroeconomists generally acknowledge that they were at fault in ignoring the crucial role that financial sector leverage can play in influencing the macroeconomy. There has been a huge increase in the amount of research on these finance-macro linkages since the crisis.
But supposing economists had ensured that they knew about the increase in bank leverage and had collectively warned of the dangers of excessive risk taking that this represented. Would it have made any difference? There are good reasons for thinking it would not.
The main evidence for this is what has happened after the crisis. Admati and Hellweg have written persuasively that we need a huge increase in bank capital requirements to bring the 'too big to fail' problem to an end and avoid a future banking crisis, and the work of David Miles in the UK has a similar message. I have not come across an academic economist who seriously dissents from this analysis, but it has no impact on policy at all. The power of the banking lobby is just too strong...."...but failing to ignore their successes,..."DeDude : , January 22, 2017 at 06:51 AM
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.
If you attack the idea of facts, knowledge and expertise, then it becomes a lot easier to manipulate people and society.
Jan 21, 2017 | economistsview.typepad.com
pgl, Friday, January 20, 2017 at 01:37 AMEd Brown -> pgl... , January 20, 2017 at 07:31 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.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.Peter K. -> Ed Brown... , January 20, 2017 at 07:46 AM
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.As I understand it Peter Dorman agrees with you here:JohnH -> Peter K.... , January 20, 2017 at 08:17 AM
As does economics superstar Dean Baker.
PGL replied to Dorman twice, but Dorman ignored him.I love PK's summary: ".... trade deficits are always a temporary phenomenon, to be followed eventually by surpluses, and vice versa."Ed Brown -> JohnH... , January 20, 2017 at 08:28 AM
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...:-)Old Opossum's Practical Cat -> Ed Brown... , January 20, 2017 at 08:39 AMAs The Clock Ticks DownEd Brown -> Peter K.... , January 20, 2017 at 08:26 AM
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
!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."JohnH -> Ed Brown... , January 20, 2017 at 07:54 AM
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?"Do economists have solid models that accurately predict the movement of FOREX rates in the first place?"JohnH -> JohnH... , January 20, 2017 at 07:58 AM
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.Meese-Rogoff found that f-x rates are a random walk.
im1dc -> anne... , January 20, 2017 at 10:11 AM
Jan 21, 2017 | economistsview.typepad.comanne :
"The Ways That Pop Economics Hurt America"libezkova -> im1dc... , January 20, 2017 at 10:36 AM
should properly read
'The Ways That Economists Hurt America'
Even more properlyim1dc -> libezkova... , January 20, 2017 at 11:17 AM
"The Devious Ways That Neoliberal Economists Hurt America"
Milton Friedman is a Neoliberal Economist?pgl -> im1dc... , January 20, 2017 at 11:29 AM
On monetary economics - he is closer to Krugman than to Phil Gramm. But some people here hate Friedman as much as they hate Krugman and they have decided "neoliberal" is the ultimate put down. Even though they have no working definition of "neoliberal".RC AKA Darryl, Ron -> pgl... , January 20, 2017 at 02:25 PM
neoliberal = low taxes + small government + MNC favorable trade deals + financial deregulationRC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 20, 2017 at 02:26 PM
neoliberal = Reagan/Thatcher policyilsm -> RC AKA Darryl, Ron... , January 20, 2017 at 04:46 PM
Wm Clinton/Rubin were Reagan not so lite. Except Bill did not borrow for the war machine.
My observation having been there: Reagan weapons were all busts which laid the ground work for $100B into the F-35 and we got nothing.
Jan 20, 2017 | economistsview.typepad.com
Peter K. : January 20, 2017 at 04:35 AMlibezkova -> Peter K.... , -1
Noah Smith: The Ways That Pop Economics Hurt America - Noah Smith
"So I wonder if economism was really as unrealistic and useless as Kwak seems to imply. Did countries that resisted economism -- Japan, for example, or France [Germany?] -- do better for their poor and middle classes than the U.S.? Wages have stagnated in those countries, and inequality has increased, even as those countries remain poorer than the U.S. Did the U.S.'s problems really all come from economism, or did forces such as globalization and technological change play a part? Cross-country comparisons suggest that the deregulation and tax cuts of the 1980s and 1990s, although ultimately excessive, probably increased economic output somewhat."
Ugh what an awful display of pop economism. Globalization and technology are "impersonal forces." No mention of the rise of inequality or the SecStags. No mention of monetary policy fail in Europe. The biggest lies of economism are the lies of omission.Thank you !
Looks like this concept of "Economism" introduced by James Kwak in his book Economism is very important conceptual tool for understanding the tremendous effectiveness of neoliberal propaganda.
I think it is proper to view Economism as a flavor of Lysenkoism. As such it is not very effective in acquiring the dominant position and suppressing of dissent, but it also can be very damaging.
== quote ==
...When competitive free markets and rational well-informed actors are the baseline assumption, the burden of proof shifts unfairly onto anyone proposing a government policy. For far too many years, free-marketers have gotten away with winning debates by just sitting back and saying "Oh yeah? Show me the market failure!" That deck-stacking has long forced public intellectuals on the left have to work twice as hard as those safely ensconced in think tanks on the free-market right, and given the latter a louder voice in public life than their ideas warrant.
It's also true that simple theories, especially those we learn in our formative years, can maintain an almost unshakeable grip on our thinking.
For example, the basic Econ 101 theory of supply and demand is fine for some products, but it doesn't work very well for labor markets. It is incapable of simultaneously explaining both the small effect of minimum wage increases and the small impact of low-skilled immigration. Some more complicated, advanced theory is called for.
But no matter how much evidence piles up, people keep talking about "the labor supply curve" and "the labor demand curve" as if these are real objects, and to analyze policies -- for example, overtime rules -- using the same old framework.
An idea that we believe in despite all evidence to the contrary isn't a scientific theory -- it's an infectious meme.
Academic economists are unsure about how to respond to the abuse of simplistic econ theories for political ends. On one hand, it gives them enormous prestige. The popularity of simplistic econ ideas has made economists the toast of America's intellectual classes.
It has sustained enormous demand for the undergraduate econ major, which serves, in the words of writer Michael Lewis, as a "standardized test of general intelligence" for future businesspeople. But as Kwak points out, the simple theories promulgated by politicians and on the Wall Street Journal editorial page often bear little resemblance to the sophisticated theories used by real economists.
And when things go wrong -- when the financial system crashes, or millions of workers displaced by Chinese imports fail to find new careers -- it's academic economists who often get blamed, not the blasé and misleading popularizers.
... ... ...
Russia and China have given up communism not because they stopped having working classes, but because it became obvious that their communist systems were keeping them in poverty. And Americans are now starting to question economism because of declining median income, spiraling inequality and a huge financial and economic crisis.
Jan 20, 2017 | economistsview.typepad.comRC 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".)
Robert Mundell, evil genius of the euro
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 AMExcellent article!Peter K. -> RC AKA Darryl, Ron... , January 20, 2017 at 07:30 AM
"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:
"..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."
I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser.RC AKA Darryl, Ron said in reply to Peter K.... , January 20, 2017 at 08:58 AM
Like would they advise Greece to boost their national savings rate or doesn't it matter since Germany controls monetary policy?
"I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser."pgl -> RC AKA Darryl, Ron... , January 20, 2017 at 09:47 AM
[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.]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 19, 2017 | mainlymacro.blogspot.comIf 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 | economistsview.typepad.comlibezkova : , -1Mathiness and "number racket" are two feature of neoliberalism that are especially damaging.jonny bakho : , January 18, 2017 at 05:07 AM
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".
== 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%!"The labor market remains near its sustainable, full employment level."pgl -> jonny bakho... , January 18, 2017 at 07:28 AM
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.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 AMnope,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 AMSorry, but it is a fact. Capital is at full employment.urban legend -> John San Vant... , January 18, 2017 at 11:09 AM
Underemployed is cost savings adjustment made 30+ years ago and the pre-recession trend is always the end of the expansion.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.
"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 | economistsview.typepad.comreason : , January 16, 2017 at 02:03 AMI know I will completely offside with my view on this, but I think the behavioural/rational expectations debate is rather besides the point. The much bigger issues are uncertainty and disequilibrium.pgl -> reason ... , January 16, 2017 at 02:06 AM
Not offside. Spot on.reason -> reason ... , January 16, 2017 at 02:09 AMThe fundamental problem is in trying to model an evolutionary system as though it was a quasi stationary system (with exactly proportional growth).New Deal democrat -> reason ... , January 16, 2017 at 05:31 AMAs I noted the other day, and Johnnny Bakho refers to below, the essence of this problem is that the thing being observed, observes back and adapts.reason -> New Deal democrat... , January 16, 2017 at 07:14 AM
The only kind of model that might work in the long run, is a model that works even after everybody becomes aware of it and adapts their behavior to it.
As to the issue of uncertainty, if we assume that most people operate with formal or informal budgets, anything that causes them to think that their budget is about to increase or decrease is going to change their consumption. And since people *hate* to sustain and realise losses, the change is going to be disproportionately intense if the uncertainty include an possible increase to the downside.No that isn't enough. Sure people might change their behavior as their understanding changes. But other things are changing as well as the behavior. In particular, technology and available resources change.New Deal democrat -> reason ... , January 16, 2017 at 07:38 AM
As I said the system is evolutionary (which means an adaptive system - which includes behavior changes), and evolution is never easy to anticipate, which implies uncertainty. And the existence of uncertainty leads to persistent disequilibrium (as people adopt defensive contingent strategies to cope with uncertainty). The big errors in macro are all associated with the general equilibrium paradigm and the assumptions that come with it.Point taken re technology and resources, although behavioral adaptation is a big part of why models fail.reason -> New Deal democrat... , January 16, 2017 at 08:40 AM
I had a big long response worked out re the biggest endemic problem with "the assumptions that come with" macro's paradigm. Then my iPad decided to randomly pop up a keyboard screen and when I touched to get rid of it, deleted the entire comment!
The screaming at crapified Apple has passed now. I am zen again.P.S. Rational expectations IS an attempt to build in behavioral adaptation. It is just that it turns out not very useful (it is empirically a complete flop).JohnH -> New Deal democrat... , January 16, 2017 at 07:36 AMI thought we were in a time of uncertainty right now due to Trump.New Deal democrat -> JohnH... , January 16, 2017 at 07:39 AM
Anybody see any slowing of the economy? Markets are up.Well-to-do GOPers foreseeing unfettered capitalist nirvana. It will pass.JohnH -> New Deal democrat... , January 16, 2017 at 08:11 AMSo there is 'uncertainty' and 'uncertainty.' Which kind of uncertainty leads to a slower economy? Why wouldn't unknown after-shocks from repealing Obamacare have current economic repercussions?reason -> JohnH... , January 16, 2017 at 08:45 AM
Republicans used to claim that the roll-out of Obamacare was causing economic uncertainty and hurting the economy.
Seems to me that the whole foundation of 'economic uncertainty' is rather shaky, particularly if the promised, disruptive actions of Trump don't cause economic repercussions.Uncertainty (as for instance PK pointed out) can work in different ways in the short and long terms. In the short term it can result in hedging behavior which might actually promote some investment. In the longer term it will push up risk margins which will probably push growth rates down.ilsm -> reason ... , January 16, 2017 at 04:39 AMfootballjonny bakho -> reason ... , January 16, 2017 at 04:49 AMHumans evolved as social animals.point -> reason ... , January 16, 2017 at 06:07 AM
If rational expectations focuses on the individual and ignores that humans act as members of groups, not individuals, then it will not accurately predict human behavior or outcomes.Perhaps your comment is similar to supposing that perhaps "equilibrium" is a not always useful concept when the modeled surface may have multiple local maxima, minima and saddles.reason -> point... , January 16, 2017 at 07:18 AMNope. I think we are trying to model a system converging to an equilibrium that is changing faster than the system can possibly adapt. We should forget all about equilibrium in macro-economics. It only misdirects.libezkova -> reason ... , -1
I once tried to explain this with an analogy to flying a plane - the plane is always sinking and rising and net path the outcome of the sum of different (constantly varying) forces. This is quite distinct for instance, from the way that a boat floats on the ocean (which is much closer to how we are trying to model things today). The stochastic shocks in economic models are like waves on the sea - where the net effect in the end is that the average position remains the same. I don't think the economy is like that.The idea of equilibrium is a neoclassical fallacy. financial sector introduced in the system systemic instability, the positive feedback loop.
Cassidy called it "Utopian economics".
As you wrote in 2015
The problem in thinking here is the equilibrium paradigm. Equilibrium NEVER exists. If there is a glut the price falls below the marginal cost/revenue point, if the seller is desperate enough it falls to zero!
Ignoring disequilibrium dynamics means this obvious (it should be obvious) point is simply ignored. The assumption of general equilibrium leads to the assumption of marginal productivity driving wages. You are not worth what you produce, you are worth precisely what somewhat else would accept to do your job.
"The Virtues and Vices of Equilibrium, and the Future of Financial Economics"
J. Doyne Farmer and John Geanakoplos (2008)
Jan 17, 2017 | economistsview.typepad.comAll those notions like "full employment" (when employment metrics are completely screwed) are very questionable indeed. And role of federal reserve in enforcing neoliberal policies is often underestimated. Greenspan was a neoliberal stooge. A servant of Wall Street.
Peter K. : , January 17, 2017 at 08:02 AMJW Mason remembers a famous episode that the progressive neoliberals would have us forget:
What Does Crowding Out Even Mean?
by J.W. Mason
Posted on January 16, 2017
Paul Krugman is taking some guff for this column where he argues that the US economy is now at potential, or full employment, so any shift in the federal budget toward deficit will just crowd out private demand.
...In the more sophisticated textbooks, this becomes a central bank reaction function - the central bank's actions change from being policy choices, to a fundamental law of the economic universe. 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."
Jan 15, 2017 | economistsview.typepad.comNew Deal democrat : , January 14, 2017 at 05:49 AMThe Stumbling and Mumbling article raises a fundamental point about economics: forecasting *must* inevitably be generally wrong.anne -> New Deal democrat... , January 14, 2017 at 06:57 AM
The reason is that you are predicting human behavior, but the humans under observation also get to observe back! They can and will adapt their behavior based on your forecasts. For example, let's say that everyone knows that I am a 100% accurate economic prognosticator. I forecast that while the economy is doing well now, one year from now there will be a recession.
What do you as a producer or consumer do? Since you know I am 100% accurate, you alter your behavior because you know a recession is coming in one year. Result: the recession comes now! Because you curtailed production or consumption in anticipation of the recession you knew was coming.
But the application is broader. There are two types of economics: positive economics vs. normative economics. Basically, " here is what people do" vs. "here is what people *should* do." The better economics gets at explaining what people actually do, the more people can adapt their behavior based on the accuracy of economics.
Result: the better positive and normative economics get, the more positive and to some extent* normative economics must fail!
(*I think there are some normative concepts that would be correct even if everyone knew about them and acted on them, e.g., efficiently allocating time.)
P.S.: As an aside and a real-world example, I am just finishing a dense 800 page tome on Napoleon. It has been a godsend since the election! As a young general, Napoleon was brilliant, adopting and using the newest and novel tactics and formations advocated by military scholars against his geriatric and monarchically-connected opponents.
But over time his adversaries, especially Tsar Alexander, learned. They appointed more military generals and strategists on merit, adopted Napoleon's reforms, and in a strategy that the Chinese and Japanese (and Karl Rove) would have approved, actually used his strengths against him.
Humans are remarkably cunning chimpanzees. When enough of them learn a strategy, it loses its effectiveness.I am just finishing a dense 800 page tome on Napoleon...New Deal democrat -> anne... , January 14, 2017 at 07:10 AM
[ A mystery tome, that might of course be referenced but where would the mystery be then? ]Napoleon had a blind spot for naval warfare.ilsm -> New Deal democrat... , January 14, 2017 at 07:53 AM
Anne, you have a blind spot for google. ;)
The book is mysteriously titled "Napoleon." The author is Andrew Roberts.von Clauswitz recorded and expanded on a lot of what Napoleon did from a Prussian perspective.libezkova -> ilsm... , January 14, 2017 at 10:17 AM
Sadly US ignore von C and Napoleon's lessons.Very True. Some of his observations stood the test of the time.anne -> New Deal democrat... , January 14, 2017 at 08:16 AM
Such as "War is regarded as nothing but the continuation of state policy with other means."https://www.nytimes.com/2014/11/16/books/review/napoleon-a-life-by-andrew-roberts.html
November 16, 2014
'Napoleon: A Life,' by Andrew Roberts
By DUNCAN KELLY
On July 22, 1789, a week after the storming of the Bastille in Paris, Napoleon Bonaparte wrote to his older brother, Joseph, that there was nothing much to worry about. "Calm will return. In a month." His timing was off, but perhaps he took the misjudgment to heart because he spent the rest of his life trying to bring glory and order to France by building a new sort of empire. By the time he was crowned emperor on Dec. 2, 1804, he could say, "I am the Revolution." It was, according to the historian Andrew Roberts's epically scaled new biography, "Napoleon: A Life," both the ultimate triumph of the self-made man, an outsider from Corsica who rose to the apex of French political life, and simultaneously a "defining moment of the Enlightenment," fixing the "best" of the French Revolution through his legal, educational and administrative reforms. Such broad contours get at what Napoleon meant by saying to his literary hero Goethe at a meeting in Erfurt, "Politics is fate."
Napoleon didn't mean fatalism by this, rather that political action is unavoidable if you want personal and national glory. It requires a mastery of fortune, and a willingness to be ruthless when necessary. If this sounds Machiavellian, that's because it is - Machiavelli's arguments about politics informed Napoleon's self-consciousness, whether in appraising fortune as a woman or a river to be tamed and harnessed, or assuming that in politics it is better to be feared than loved. Such views went hand in hand with the grand visions of politics outlined in the ancient histories and biographies Napoleon revered as a young man. "Bloodletting is among the ingredients of political medicine" was Napoleon's cool if brutal reminder of an ever-present item on his exhausting schedule.
His strategy always included dashing off thousands of letters and plans, in a personal regime calling for little sleep, much haste and a penchant for being read to while taking baths so as not to waste even a minute. He compartmentalized ruthlessly, changing tack between lobbying for more shoes and brandy for the army at one minute, to directing the personal lives of his siblings or writing love letters to the notorious Josephine at another; here ensuring extravagant financial "contributions" from those whom he had vanquished, there discussing the booty to send back to Paris, particularly from the extraordinary expedition in Egypt where his "savants had missed nothing." The personal and the political ran alongside each other in his mind.
Yet when his longtime collaborator but fair-weather political friend, the diplomat Charles-Maurice de Talleyrand, suggested that Napoleon try to make those he conquered learn to love France, Napoleon replied that this was an irrelevance. "Aimer: I don't really know what this means when applied to politics," he said. Still, if grand strategy and national interest lay behind foreign affairs, there were nevertheless personal rules of conduct to uphold. Talleyrand was a party to Napoleon's strategy since supporting his coup d'état against the French Directory in 1799. That was O.K. And by short-selling securities he made millions for himself. But he was called out by Napoleon and dismissed as vice grand elector when found facing both ways politically at a crucial moment.
Napoleon understood those temptations because he was also flexible enough to tilt toward the winning side, regularly supporting any form of local religion that could help him militarily. Nonetheless, Roberts's Napoleon is a soldier, statesman and "bona fide intellectual," who rode his luck for longer than most intellectuals in politics ever do....
Duncan Kelly teaches political thought at the University of Cambridge.
Jan 14, 2017 | economistsview.typepad.comPeter K. -> Peter K.... January 13, 2017 at 07:10 AMReally what SWL is saying he and Krugman are against fiscal expansion because the Fed will negate it with higher interest rates.djb -> Peter K....
"Paul Krugman and I say no, using the following logic. The Fed thinks we are close to full employment, if we use the term to denote the level of employment that keeps inflation constant. Generalised tax cuts (rather than just tax cuts to the very rich) will tend to raise aggregate demand, which will lead inflation to increase. The Fed will therefore raise interest raise rates further to offset this increase in demand before it happens. As a result, the tax cuts will have no impact on demand, but simply make funding investment more expense."
Maybe Trump will then fire Yellen? Did the clever little progressive neoliberals ever consider that?
(Probably not since Obama never mad filling open slots on the FOMC a priority.)
Or he'll swamp her with reflationary nominations to the FOMC.What is full employment is also debatable issue. For example, if workers or a good portion of workers are not earning a living wage, is that full employment?JohnH -> Peter K.... , January 13, 2017 at 08:31 AM
If production is reduced because people cannot afford the products, when in fact we have the capacity and people have the appetites and time to get utility out of the consumption is that full employment?
So full employment definition is a whole field in itselfThomas Ferguson: "Central bankers today irresistibly bring to mind the Wizard of Oz. It's the characters' missing virtues that grab me: a heart, a brain, and courage. Central bankers today lack all three.JohnH -> JohnH... , -1
First, the brain. Two generations ago, almost every economist knew what a catastrophe a deficiency of effective demand could create. And in a real crunch, they knew what to do about that. They realized you couldn't push on a string, so somebody - the government - had to borrow and spend when private markets would not. From the 1980s on, though, the fundamental Keynesian point - the Principle of effective Demand -disappeared in a cloud of statistical double-talk that, when you deconstruct it, turns out to imply estimating potential output as a lagged function of whatever foolish policy is being pursued.
Central bankers didn't take this giant step backwards to pre-Keynesian economics by themselves. In that sense, it's unfair to say they have only themselves to blame. But they swallowed it whole, helped subsidize it, and cheered it on. Now that they have rediscovered that monetary policy can't levitate a broken economy, except by beggaring the neighbors, it's time they admitted their errors and stopped acting like they could control everything...
Next, courage. In the good old days, central bankers were given to heady talk about "taking away the punch bowl" before the party really got going. That may have been mostly rhetoric, but it at least paid lip service to some value bigger than banking...
The Fed took risks to save the banking system, but is already telling us we are close to full employment and professing to be alarmed about "inflation," when anyone can see that banks, insurers, and pension funds are clamoring for rate rises, just as in the 1930s. Both institutions need to start thinking about someone besides the financial community. If they don't, I do not doubt that we will not have seen the last of the anger that Donald Trump and Senator Bernie Sanders mobilized in such disparate ways in the United States..."
Meanwhile 'liberal' worshippers of unsubstantiated 'crowding out' theories are eager to stifle fiscal stimulus by having the Fed take away the punch bowl before the party starts.Link: http://www.nakedcapitalism.com/2017/01/tom-ferguson-monetary-policy-cant-levitate-broken-economy.html
Jan 13, 2017 | economistsview.typepad.comPeter K. -> Peter K.... , January 13, 2017 at 07:10 AMReally what SWL is saying he and Krugman are against fiscal expansion because the Fed will negate it with higher interest rates.djb -> Peter K.... , -1
"Paul Krugman and I say no, using the following logic. The Fed thinks we are close to full employment, if we use the term to denote the level of employment that keeps inflation constant. Generalised tax cuts (rather than just tax cuts to the very rich) will tend to raise aggregate demand, which will lead inflation to increase. The Fed will therefore raise interest raise rates further to offset this increase in demand before it happens. As a result, the tax cuts will have no impact on demand, but simply make funding investment more expense."
Maybe Trump will then fire Yellen? Did the clever little progressive neoliberals ever consider that?
(Probably not since Obama never mad filling open slots on the FOMC a priority.)
Or he'll swamp her with reflationary nominations to the FOMC.what is full employment is also debatable issue
for example, if workers or a good portion of workers are not earning a living wage, is that full employment?
if production is reduced because people cannot afford the products, when in fact we have the capacity and people have the appetites and time to get utility out of the consumption
is that full employment?
so full employment definition is a whole field in itself
Jan 08, 2017 | www.amazon.com
Igor Biryukov on November 1, 2012A cautionary tale
" In America there was once a popular but simplistic image of the Soviet Russia as the Evil Empire destined to fall, precisely because it was unfree and therefore evil. Ronald Reagan who advocated it also once said that the Russian people do not have a word for "freedom". Not so fast -- says Alexei Yurchak. He was born in the Soviet Union and became a cultural anthropologist in California. He employs linguistic structural analysis in very interesting ways. For him, the Soviet Union was once a stable, entrenched, conservative state and the majority of Russian people -- actually myself included -- thought it would last forever. But the way people employ language and read ideologies can change. That change can be undetectable at first, and then unstoppable.
Yurchak's Master-idea is that the Soviet system was an example of how a state can prepare its own demise in an invisible way. It happened in Russia through unraveling of authoritative discourse by Gorbachev's naive but well-meaning shillyshallying undermining the Soviet system and the master signifiers with which the Soviet society was "quilted" and held together. According to Yurchak "In its first three or four years, perestroika was not much more than a deconstruction of Soviet authoritative discourse". This could a cautionary tale for America as well because the Soviet Union shared more features with American modernity than the Americans themselves are willing to admit.
The demise of the Soviet Union was not caused by anti-modernity or backwardness of Russian people. The Soviet experiment was a cousin of Western modernity and shared many features with the Western democracies, in particular its roots in the Enlightenment project. The Soviet Union wasn't "evil" in late stages 1950-1980s. The most people were decent. The Soviet system, despite its flaws, offered a set of collective values. There were many moral and ethical aspects to Soviet socialism, and even though those values have been betrayed by the state, they were still very important to people themselves in their lives. These values were: solidarity, community, altruism, education, creativity, friendship and safety. Perhaps they were incommensurable with the "Western values" such as the rule of law and freedom, but for Russians they were the most important. For many "socialism" was a system of human values and everyday realities which wasn't necessarily equivalent of the official interpretation provided by the state rhetoric.
Yurchak starts with a general paradox within the ideology of modernity: the split between ideological enunciation, which reflects the theoretical ideals of the Enlightenment, and ideological rule, which are the practical concerns of the modern state's political authority. In Soviet Union the paradox was "solved" by means of dogmatic political closure and elevation of Master signifier [Lenin, Stalin, Party] but it doesn't mean the Western democracies are immune to totalitarian temptation to which the Soviet Union had succumbed. The vast governmental bureaucracy and Quango-state are waiting in the shadows here as well, may be ready to appropriate discourse.
It is hard to agree with everything in his book. But it is an interesting perspective. I wish Alexei Yurchak would explore more implications of Roman Jacobson's "poetic function of language" and its connection to Russian experiment in communism. It seems to me, as a Russian native speaker, that Russians put stress on form, sound, and poetics. The English-language tradition prioritizes content and meaning. Can we speak of "Hermeneutics" of the West versus "Poetics" of Russia? Perhaps the tragedy of Russia was under-development of Hermeneutics? How does one explain the feeble attempts to throw a light of reason into the loopy texts and theories of Marks, Lenin, Trotsky and Stalin? Perhaps the Russians read it as a kind of magical text, a poetry, a bad poetry -- not Pasternak or Blok -- but kind of poetry nevertheless?
Nils Gilman on April 23, 2014
A brilliant account of the interior meaning of everyday life for ordinary soviet citizens
Just loved this -- a brilliant study of how everyday citizens (as opposed to active supporters or dissidents) cope with living in a decadent dictatorship, through strategies of ignoring the powerful, focusing on hyperlocal socialities, treating ritualized support for the regime as little more than an annoying chore, and withdrawal into subcultures. Yurchak demolishes the view that the only choices available to late Soviet citizens were either blind support (though his accounts of those figures who chose this path are deeply chilling) or active resistance, while at the same time showing how many of the purported values of Soviet socialism (equality, education, friendship, community, etc) were in fact deeply held by many in the population. While his entire account is a tacit meditation on the manifold unpleasantnesses of living under the Soviet system, Yurchak also makes clear that it was not all unpleasantness and that indeed for some people (such as theoretical physicists) life under Soviet socialism was in some ways freer than for their peers in the West. All of which makes the book function (sotto voce) as an explanation for the nostalgia that many in Russia today feel for Soviet times - something inexplicable to those who claim that Communism was simply and nothing but an evil.
The theoretical vehicle for Yurchak's investigation is the divergence between the performative rather than the constative dimensions of the "authoritative discourse" of the late Soviet regime. One might say that his basic thesis is that, for most Soviet people, the attitude toward the authorities was "They pretend to make statements that corresponded to reality, and we pretend to believe them." Yurchak rightly observes that one can neither interpret the decision to vote in favor of an official resolution or to display a pro-government slogan at a rally as being an unambiguous statement of regime support, nor assume that these actions were directly coerced. People were expected to perform these rituals, but they developed "a complexly differentiating relationship to the ideological meanings, norms, and values" of the Soviet state. "Depending on the context, they might reject a certain meaning, norm or value, be apathetic about another, continue actively subscribing to a third, creatively reinterpret a fourth, and so on." (28-29)
The result was that, as the discourse of the late Soviet period ossified into completely formalist incantations (a process that Yurchak demonstrates was increasingly routinized from the 1950s onwards), Soviet citizens participated in these more for ritualistic reasons than because of fervent belief, which in turn allowed citizens to fill their lives with other sources of identity and meaning. Soviet citizens would go to cafes and talk about music and literature, join a rock band or art collective, take silly jobs that required little effort and thus left room for them to pursue their "interests." The very drabness of the standardizations of Soviet life therefore created new sorts of (admittedly constrained) spaces within which people could define themselves and their (inter)subjective meanings. All of which is to say that the book consists of a dramatic refutation of the "totalitarianism" thesis, demonstrating that despite the totalitarian ambitions of the regime, citizens were continually able to carve out zones of autonomy and identification that transcended the ambitions of the Authoritative discourse.
Jan 08, 2017 | www.zerohedge.comSubmitted by Bryce McBride via Mises Canada,
This past November, the filmmaker Adam Curtis released the documentary Hypernormalisation.
The term comes from Alexei Yurchak's 2006 book Everything was Forever, Until it was No More: The Last Soviet Generation. The book argues that over the last 20 years of the Soviet Union, everyone knew the system wasn't working, but as no one could imagine any alternative, politicians and citizens were resigned to pretending that it was. Eventually this pretending was accepted as normal and the fake reality thus created was accepted as real, an effect which Yurchak termed "hypernormalisation."
Looking at events over the past few years, one wonders if our own society is experiencing the same phenomenon. A contrast with what economic policy-makers term "normalisation" is instructive.
Normalisation is what has historically happened in the wake of financial crises. During the booms that precede busts, low interest rates encourage people to make investments with borrowed money. However, even after all of the prudent investment opportunities have been taken, people continue borrowing to invest in projects and ideas that are unlikely to ever generate profits.
Eventually, the precariousness of some of these later investments becomes apparent. Those that arrive at this realization early sell up, settle their debts and pocket profits, but their selling often triggers a rush for the exits that bankrupts companies and individuals and, in many cases, the banks which lent to them.
In the normalisation which follows (usually held during 'special' bank holidays) auditors and accountants go through financial records and decide which companies and individuals are insolvent (and should therefore go bankrupt) and which are merely illiquid (and therefore eligible for additional loans, pledged against good collateral). In a similar fashion, central bank officials decide which banks are to close and which are to remain open. Lenders made freshly aware of bankruptcy risk raise (or normalise) interest rates and in so doing complete the process of clearing bad debt out of the system. Overall, reality replaces wishful thinking.
While this process is by no means pleasant for the people involved, from a societal standpoint bankruptcy and higher interest rates are necessary to keep businesses focused on profitable investment, banks focused on prudent lending and overall debt levels manageable.
By contrast, the responses of policy-makers to 2008's financial crisis suggest the psychology of hypernormalisation. Quantitative easing (also known as money printing) and interest rate suppression (to zero percent and, in Europe, negative interest rates) are not working and will never result in sustained increases in productivity, income and employment. However, as our leaders are unable to consider alternative policy solutions, they have to pretend that they are working.
To understand why our leaders are unable to consider alternative policy solutions such as interest rate normalization and banking reform one only needs to understand that while such policies would lay the groundwork for a sustained recovery, they would also expose many of the world's biggest banks as insolvent. As the financial sector is a powerful constituency (and a generous donor to political campaigns) the banks get the free money they need, even if such policies harm society as a whole.
As we live in a democratic society, it is necessary for our leaders to convince us that there are no other solutions and that the monetary policy fixes of the past 8 years have been effective and have done no harm.
Statistical chicanery has helped understate unemployment and inflation while global cooperation has served to obscure the currency depreciation and loss of confidence in paper money (as opposed to 'hard money' such as gold and silver) that are to be expected from rampant money printing.
Looking at unemployment figures first, while the unemployment rate is currently very low, the number of Americans of working age not in the labour force is currently at an all-time high of over 95 million people. Discouraged workers who stop looking for work are no longer classified as unemployed but instead become economically inactive, but clearly many of these people really should be counted as unemployed. Similarly, while government statistical agencies record inflation rates of between one and two percent, measures that use methodologies used in the past (such as John Williams' Shadowstats measures) show consumer prices rising at annual rates of 6 to 8 percent. In addition, many people have noticed what has been termed 'shrinkflation', where prices remain the same even as package sizes shrink. A common example is bacon, which used to be sold by the pound but which is now commonly sold in 12 ounce slabs.
Meanwhile central banks have coordinated their money printing to ensure that no major currency (the dollar, the yen, the euro or the Chinese renminbi) depreciates noticeably against the others for a sustained period of time. Further, since gold hit a peak of over $1900 per ounce in 2011, central banks have worked hard to keep the gold price suppressed through the futures market. On more than a few occasions, contracts for many months worth of global gold production have been sold in a matter of a few minutes, with predictable consequences for the gold price. At all costs, people's confidence in and acceptance of the paper (or, more commonly, electronic) money issued by central banks must be maintained.
Despite these efforts people nonetheless sense that something is wrong. The Brexit vote and the election of Donald Trump to the White House represent to a large degree a rejection of the fake reality propagated by the policymaking elite. Increasingly, people recognize that a financial system dependent upon zero percent interest rates is not sustainable and are responding by taking their money out of the banks in favour of holding cash or other forms of wealth. In the face of such understanding and resistance, governments are showing themselves willing to use coercion to enforce acceptance of their fake reality.
The recent fuss over 'fake news' seems intended to remove alternative news and information sources from a population that, alarmingly for those in charge, is both ever-more aware that the system is not working and less and less willing to pretend that it is . Just this month U.S. President Barack Obama signed the Countering Disinformation and Propaganda Act into law. United States, meet your Ministry of Truth.
Meanwhile, in India last month, people were told that the highest denomination bills in common circulation would be 'demonetized' or made worthless as of December 30th. People were allowed to deposit or exchange a certain quantity of the demonetized bills in banks but many people who had accumulated their savings in rupee notes (often the poor who did not have bank accounts) have been ruined. Ostensibly, this demonetization policy was aimed at curbing corruption and terrorism, but it is fairly obvious that its real objective was to force people into the banking system and electronic money. Unsurprisingly, the demonetization drive was accompanied by limits on the quantity of gold people are allowed to hold.
Despite such attempts to influence our thinking and our behaviour, we don't need to resign ourselves to pretending that our system is working when it so clearly isn't. Looking at the eventual fate of the Soviet Union, it should be clear that the sooner we abandon the drift towards hypernormalisation and start on the path to normalisation the better off we will be.DontGive Jan 7, 2017 9:03 PMDoña K TBT or not TBT Jan 8, 2017 12:05 AM
CB's printing is not a bug. It's a feature.
Long debt bitches.Luc X. Ifer TBT or not TBT Jan 8, 2017 12:06 AM
I did not learn anything from that movie. One man's collage of events.
We just take revenge on the system by living well.HRH Feant Jan 7, 2017 9:06 PM
Correct. I seen with sufficient level of comprehending consciousness the last 5 years of it - copy-cat perfection with the current times in US(S)A, terrifying how similar the times are as it is a clear indication of the times to come.malek HRH Feant Jan 7, 2017 11:40 PM
Great article. I think it does describe the USSA at the present time. Everything works until it doesn't.navy62802 Jan 7, 2017 9:14 PM
The funny thing is I had almost identical thoughts just a few days ago. But I was thinking in comparison more of East Germany's last 20 years before they imploded - peacefully, because not a single non-leading-rank person believed any of the official facts anymore (and therefore they even simply ignored orders from high command to crush the Leipzig Monday demonstrations.)christiangustafson Jan 7, 2017 9:17 PM
I'm ok with a world led by Trump and Putin.Eeyores Enigma Jan 7, 2017 9:17 PM
I was just thinking that the whole economic world sees us in a sort of equilibrium at the moment. There will be some adjustments under Trump, but nothing serious. We shall see ..Manipuflation Jan 7, 2017 9:22 PM
Repeat something often enough and it becomes hypernormalised. With that in mind the number of eyes/minds/hits is all that matters. This has been known and exploited for hundreds of years.
That a handful of individuals can have a monopoly over the single most important aspect of whether you live or die is the ultimate success of hypernormalisation. CENTRAL BANKING.wisebastard Jan 7, 2017 9:25 PM
Mrs.M is of the last Soviet generation. Her .gov papers say so. There is never a day when I don't hear something soviet. She still has a her red pioneer ribbon. I have tried to encourage her to write about it on ZH so that we know. Do you think she will? No. She's says that we can't understand what it was like no matter what she says.
Mrs.M was born in 1981 so she has lived an interesting life. I married her in 2004 after much paperwork and $15000. I wanted that female because we got along quite well. She is who I needed with me this and I would do it all over again.
Needless to say, I do not support any aggression towards Russia. And to my fellow Americans, I advise caution because the half you are broke ass fucks and are already ropes with me.
That is the only news anyone needs to know.GeezerGeek Jan 7, 2017 9:34 PM
the monkeys made me think ZH should make a post with monkeys evolving into humans that then de-evolve into Paul KrugmanBabaLooey GeezerGeek Jan 7, 2017 11:05 PM
I recall the joke from the old Soviet Union: "They pretend to pay us, we pretend to work." In the USSA these last few years, Barry pretends to tell the truth. Libtards pretend to believe him.max_leering GeezerGeek Jan 7, 2017 11:35 PM
Wrong. They believe him. Look at the gaggle of libtard/shiteaters at Soetero's Friday night bash at the White House.
Fucks. ALL of them.Salzburg1756 Jan 7, 2017 9:35 PM
Geezer, I'd change only one thing... I believe libtards bought Barry's bullshit hook, line and sinker... it was the rest of us who not-so-subtly were saying WTF!!!JustPastPeacefield Jan 7, 2017 10:06 PM
White Nationalists have lived in the real world for decades; the rest of you need to catch up.evokanivo JustPastPeacefield Jan 7, 2017 10:23 PM
Reagan used to quip that in the Soviet Union, the people pretend to work and the government pretends to pay them. We're not the Soviet Union, but we have become a farce. Next stop - the fall. Followed by chaos, then onto something new. The new elites will just be the old elites, well, the ones that escape the noose.jm Jan 7, 2017 10:14 PM
what noose? you think joe 6p is going to identify the culprits? i think not. "no one saw this coming!!!" is still ringing in my ears from the last time.wwxx jm Jan 8, 2017 6:08 AM
I really don't know how people can keep on getting clicks with this tired crap. It didn't happen in 2008 just get over it. The delusional people are the people that think the world is going to end tomorrow.EndOfDayExit Jan 7, 2017 10:17 PM
Maybe the world has ended, for 95 million? I haven't paid a single Fed income tax dollar in over 8 yrs., for a specific reason, I refuse to support the new normal circus, and quite frankly I would have gotten out during the GWBush regime, but I couldn't afford to at the time.
wwxxBingoBoggins EndOfDayExit Jan 8, 2017 6:15 AM
The real ugly problem with the Soviet Union is that whatever they broke it into isn't working well either. Same with the USSA. No one really knows what to do. Feudalism would probably work, but it is not possible to go back to it. My bet is that we will end up with some form of socialism, universal income and whatever else, just because there is no good alternative for dealing with lots and lots of people who are not needed anymore.NAV Jan 7, 2017 10:23 PM
Do you mean useless eaters or fuckers deserving the guillotine? Russia's problem post collapse was the good ol' USSA and its capitalist, plunderer banking mavens.Yen Cross Jan 7, 2017 11:11 PM
The Soviet Union pushed its old culture to near destruction but failed to establish a new and better culture to replace it, writes Angelo M. Codevilla in "The Rise of Political Correctness," and as a result the U.S.S.R fell, just as America's current "politically correct" and dysfunctional "progressive utopia" will implode.
As such, Codevilla would agree that the US population " is both ever-more aware that the system is not working and less and less willing to pretend that it is."
As for the U.S.S.R., "this step turned out instead to destroy the very basis of Soviet power," writes Codevilla. "[C]ontinued efforts to force people to celebrate the party's ersatz reality, to affirm things that they know are not true and to deny others they know to be true – to live by lies – requires breaking them , reducing them to a sense of fearful isolation, destroying their self-esteem and their capacity to trust others. George Orwell's novel 1984 dramatized this culture war's ends and means : nothing less than the substitution of the party's authority for the reality conveyed by human senses and reason. Big Brother's agent, having berated the hapless Winston for preferring his own views to society's dictates, finished breaking his spirit by holding up four fingers and demanding that Winston acknowledge seeing five.
"Thus did the Soviet regime create dysfunctional, cynical, and resentful subjects. Because Communism confused destruction of 'bourgeois culture' with cultural conquest, it won all the cultural battles while losing its culture war long before it collapsed politically. As Communists identified themselves in people's minds with falsehood and fraud, people came to identify truth with anything other than the officials and their doctrines. Inevitably, they also identified them with corruption and privation. A nd so it was that, whenever the authorities announced that the harvest had been good, the people hoarded potatoes; and that more and more people who knew nothing of Christianity except that the authorities had anathematized it, started wearing crosses."
And if you want to see the ruling class's culture war in action today in America, pick up the latest issues of Vogue Magazine or O, The Oprah Magazine with their multitude of role reversals between whites and minorities. Or check out the latest decisions by the U.S. Supreme Court forcing people to acknowledge that America is not a Christian nation, or making it "more difficult for men, women and children to exist as a family" or demanding via law "that their subjects join them in celebrating the new order that reflects their identity."
As to just how far the ruling class has gone to serve the interests and proclivities of its leaders and to reject the majority's demand for representation, Codevilla notes, "In 2012 no one would have thought that defining marriage between one man and one woman, as enshrined in U.S. law, would brand those who do so as motivated by a culpable psychopathology called 'homophobia,' subject to fines and near-outlaw status. Not until 2015-16 did it occur to anyone that requiring persons with male personal plumbing to use public bathrooms reserved for men was a sign of the same pathology
"On the wholesale level, it is a war on civilization waged to indulge identity politics."
http://www.claremont.org/crb/article/the-rise-of-political-correctness/daveO Yen Cross Jan 8, 2017 12:56 AM
This article is so flawed! People[impoverished] aren't trying to jump over a wall patrolled by guards into Mexico -YET. Tyler, why do you repost shit like this?MASTER OF UNIVERSE Jan 7, 2017 11:28 PM
That's because the Yankees, fleeing high taxes, can move to the sunbelt states w/o freezing. The USA went broke in 2008. Mexico got a head start by 22 years when oil prices collapsed in '86.Yen Cross Jan 7, 2017 11:53 PM
The only way to normalize banking in a contemporary banking paradigm of QE Infinity & Beyond is to start over again without the bankers & accountants that knowingly bet the ranch for a short term gain at the expense of long term profitability. In Japan an honourable businessman/CEO would suicide for bringing this kind of devastation to the company shareholders.
In America they don't give a shit because it is always someone else other than the CEO that takes the fall. 08 was proof that America is not equipped to participate in a Multinational & Multipolar world of business & investment in business. America can't get along in business in this world anymore. Greed has rendered America unemployable as a major market participant in a Globally run network of businesses.
America is the odd man out these days even though the next POTUS promises better management from a business perspective. Whilst the Mafia Cartel bosses trust TrumpO's business savvy the rest of the planet Earth does not.Manipuflation Yen Cross Jan 8, 2017 1:23 AM
Are you kidding me??? >
Hypernormalisation I think we need a few MOAR syllables connected by fake verb/adjective < reverse /destruction- of the English language.BingoBoggins Jan 8, 2017 8:12 AM
Yen, I have a bottle of Bacardi rum here. It was on sale. Should I open it up? We could become experts....well at least I could.:-)To Hell In A Ha... Jan 8, 2017 7:06 AM
A liberal friend laid this movie on me to show me why he supported Hillary. A smart cookie, a PHd teaching English in Japan. A Khazarnazi Jew, he even spent time in Kyiv, Ukraine pre-coup, only mingling with "poets and writers". He went out of his way to tell me how bad the Russians were, informed as he was prior to the rejection of the EU's usurious offer.
He even quite dramatically pulled out the Anti-Semite card. I had to throw Banderas in his face and the US sponsored regime. I had respect for this guy and his knowledge but he just - could - not - let - go the cult assumptions. I finally came to believe Liberal Arts educators are victims of inbred conditioning. In retaliation, he wanted to somehow prove Putin a charlatan or villian and Trump his proxie.
This, after I'd point out his evasion and deflection every time I addressed his bias and belief in the MSM propaganda mantras of racism, misogyny, xenophobia - all the usual labeling bullshit up to insinuating Russia hacked the election. Excerpts from a correspondence wherein I go full asshole on the guy follow. Try and make sense of it if you watch this trash:
HyperNormalization 50:29 Not Ronald Rayguns, or Quadaffi plays along. Say what? They're, i.e. Curtis, assuming what Q thought?
1:15 USSR collapses. No shit. Cronyism in a centralized organization grown too large is inevitable it seems. So the premise has evolved to cultural/societal "management". Right. USSR collapses but let's repeat the same mistakes 'cause "it's different this time". We got us a computer!
Then Fink the failed Squid (how do Squids climb the corporate ladder?) builds one and programs historical data to,,,, forecast? I heard a' this. Let me guess. He couldn't avoid bias, making his models fallacious. Whoops. Well, he does intend to manipulate society, or was that not the goal? Come again? Some authority ran with it and ... captured an entire nation's media, conspired with other like-minded sycophants and their mysterious masters to capture an election by ... I may be getting ahead of myself.
Oh, boy, I have an inkling of where this is going. Perceptions modified by the word, advanced by the herd, in order to capture a vulnerable society under duress, who then pick sides, fool themselves in the process, miss the three hour tour never to live happily ever after on a deserted isle because they eschew (pick a bias here from the list provided). The one you think the "others" have, 'cause, shit, we're above it all, right? " Are we not entertained" is probably not the most appropriate question here.
Point being, Curtis, the BBC documentarian, totally negates the reality of pathological Imperialism as has been practiced by the West over the last half century, causing so many of the effects he so casually eludes to in the Arab Spring, Libya, Syria, Russia, the US and elsewhere. Perhaps the most blatant is this; Curtis asserts that Trump "defeated journalism" by rendering its fact-checking abilities irrelevant. Wikipedia He Hypernormalizes the very audience that believes itself to be enlightened. As for my erstwhile friend, the fucker never once admitted all the people *killed* for the ideals he supported. I finally blew him off for good.jcdenton Jan 8, 2017 7:44 AM
I've been using the term Hypernormalisation to describe aspects of western society for the last 15 years, before Adam Curtis's brilliant BBC documentary Hypernormalisation , afflicting western society and particularly politics. There are lies and gross distortions everywhere in western society and it straddles/effects all races, colours, social classes and the disease is most acute in our politics.
We all know the hypernoprmalisation in politics, as we witness stories everyday on Zerohedge of the disconnect from reality...
BingoBoggins jcdenton Jan 8, 2017 8:20 AM
It is called COGNITIVE DISSONANCE ..
Allow me to quote something here ..
Enter Operation Stillpoint: William Colby, William Casey and Leo Emil Wanta.
At the time it started, President Reagan wanted to get a better handle on ways to keep the Soviets from expansionary tactics used to spread Vladimir Ilyich Ulyanov Lenin's philosophy of communism around the world. He looked to his Special Task Force to provide a means of doing so. One thing was certain: The economy of the Soviets had never been strong and corruption, always present in government and always growing at least as fast as a government grows, made the USSR vulnerable to outside interference just as the United States is today.
According to Gorbachev's Prime Minister, Nikolai Ryzhkov, the "moral [nravstennoe] state of the society" in 1985 was its "most terrifying" feature: "[We] stole from ourselves, took and gave bribes, lied in the reports, in newspapers, from high podiums, wallowed in our lies, hung medals on one another. And all of this – from top to bottom and from bottom to top."
Again, it sounds like today's America, doesn't it?
Foreign Minister Eduard Shevardnadze made equally painful comments about the lawlessness and corruption dominating the Soviet Union. During the winter months of 1984-85, he told Gorbachev that "Everything is rotten. It has to be changed."
"Sometimes people hold a core belief that is very strong," Frantz Fanon said in his 1952 book Black Skin, White Masks (originally published in French as Peau Noire, Masques Blancs). "When they are presented with evidence that works against that belief, the new evidence cannot be accepted. It would create a feeling that is extremely uncomfortable, called cognitive dissonance. And because it is so important to protect the core belief, they will rationalize, ignore and even deny anything that doesn't fit with the core belief."
During their final days as a world power, the Soviet Union allowed cognitive dissonance to rule its better judgment as so many Americans are doing in 2012. The handwriting on the wall was pretty clear for Gorbachev. The Soviet economy was failing. They did none of the necessary things to save their economy. In 2012, the handwriting on the wall is pretty clear for the American people. The economy is failing. The people and the Congress do none of the necessary things to save their economy. Why? Go re-read the definition of cognitive dissonance. That's why. We have a classic fight going on between those who want government to take care of them who will pay the price of lost freedom to get that care, and those who value freedom above all else.
On one day we have 50 state attorneys general suing Bank of America for making fraudulent mortgages, and on the next we have M.F. Global losing billions upon billions of customer dollars because they got mixed with the firm's funds – which is against the law – or we have J.P. Morgan Chase losing $2 billion (or is it $5 billion?) in bad investments. As Eduard Shevardnadze said, "Everything is rotten. It has to be changed." As I would say it, "There is no Rule of Law in America today. There has been no real Rule of Law since George Herbert Walker Bush took office."
No one listened then; no one is listening in America now. The primary reason? Cognitive dissonance. -- Chapter 2, "Wanta! Black Swan, White Hat" (2013)
Okay then, forget what was said in 1985, that was later reported in 2013 ..
Let's fast forward to Oct. 30, 2016 ..
Shall we? I mean, it is a bit MOAR -- relevant!
And, for those that must have further amplification .. (And, some .......... fun!)
https://www.youtube.com/user/fooser77/playlistsVageling jcdenton Jan 8, 2017 9:16 AM
You reminded me I bookmarked this on Chrome, so I dared to venture there to retrieve it;
https://books.google.com/books?id=cbC_AwAAQBAJ&pg=PP21&lpg=PP21&dq=crony...American Gorbachev Jan 8, 2017 10:10 AM
Lee Wanta. I've heard of him before. He was screwed over for some bullshit charges. And the CIA made a firm warning... How long did that dude spent in jail?
Just looked up his story as it was blurry. Cronyism at its finest. So now that I got my refreshing course. Trump stole/adopted (however you want to look at that) his plan and the project the gov (DOT) proposes sucks donkey balls compared to Wanta's.
So where are all the climate hoaxers now by the way? You'd figure they'd be all over this.
to me the PTB are "Japanifying" the u.s. (decades of no growth, near total demoralization of a generation of worker bees (as in, 'things will never get any better, be glad for what little you've got' etc... look what they've done to u.s. millenials just since '08... fooled (crushed) them TWICE already)
But the PTB Plan B is to emulate the USSR with a crackup, replete with fire sale to oligarchs of public assets. They will Japan as long as they can (so it will be difficult to forecast any crackup anymore than six months beforehand). Hope they have a Gorbachev lined up, to limit the bloodshed
Jan 11, 2017 | oecdinsights.orgAndy Haldane , Chief Economist and Executive Director, Monetary Analysis & Statistics, Bank of England
It would be easy to become very depressed at the state of economics in the current environment. Many experts, including economics experts, are simply being ignored. But the economic challenges facing us could not be greater: slowing growth, slowing productivity, the retreat of trade, the retreat of globalisation, high and rising levels of inequality. These are deep and diverse problems facing our societies and we will need deep and diverse frameworks to help understand them and to set policy in response to them. In the pre-crisis environment when things were relatively stable and stationary, our existing frameworks in macroeconomics did a pretty good job of making sense of things.
But the world these days is characterised by features such as discontinuities, tipping points, multiple equilibria, and radical uncertainty. So if we are to make economics interesting and the response to the challenges adequate, we need new frameworks that can capture the complexities of modern societies.
We are seeing increased interest in using complexity theory to make sense of the dynamics of economic and financial systems. For example, epidemiological models have been used to understand and calibrate regulatory capital standards for the largest, most interconnected banks, the so-called "super-spreaders". Less attention has been placed on using complexity theory to understand the overall architecture of public policy – how the various pieces of the policy jigsaw fit together as a whole in relation to modern economic and financial systems. These systems can be characterised as a complex, adaptive " system of systems ", a nested set of sub-systems, each one itself a complex web. The architecture of a complex system of systems means that policies with varying degrees of magnification are necessary to understand and to moderate fluctuations. It also means that taking account of interactions between these layers is important when gauging risk.
Although there is no generally-accepted definition of complexity, that proposed by Herbert Simon in The Architecture of Complexity – "one made up of a large number of parts that interact in a non-simple way" – captures well its everyday essence. The whole behaves very differently than the sum of its parts. The properties of complex systems typically give rise to irregular, and often highly non-normal, statistical distributions for these systems over time. This manifests itself as much fatter tails than a normal distribution would suggest. In other words, system-wide interactions and feedbacks generate a much higher probability of catastrophic events than Gaussian distributions would imply.
For evolutionary reasons of survival of the fittest, Simon posited that "decomposable" networks were more resilient and hence more likely to proliferate. By decomposable networks, he meant organisational structures which could be partitioned such that the resilience of the system as a whole was not reliant on any one sub-element. This may be a reasonable long-run description of some real-world complex systems, but less suitable as a description of the evolution of socio-economic systems. The efficiency of many of today's networks relies on their hyper-connectivity. There are, in the language of economics, significantly increasing returns to scale and scope in a network industry. Think of the benefits of global supply chains and global interbank networks for trade and financial risk-sharing. This provides a powerful secular incentive for non-decomposable socio-economic systems.
Moreover, if these hyper-connected networks do face systemic threat, they are often able to adapt in ways which avoid extinction. For example, the risk of social, economic or financial disorder will typically lead to an adaptation of policies to prevent systemic collapse. These adaptive policy responses may preserve otherwise-fragile socio-economic topologies. They may even further encourage the growth of connectivity and complexity of these networks. Policies to support "super-spreader" banks in a crisis for instance may encourage them to become larger and more complex. The combination of network economies and policy responses to failure means socio-economic systems may be less Darwinian, and hence decomposable, than natural and biological systems.
Andy Haldane addresses OECD New Approaches to Economic Challenges (NAEC) RoundtableVideo Player 00:00 00:00 02:57 Use Up/Down Arrow keys to increase or decrease volume.
What public policy implications follow from this complex system of systems perspective? First, it underscores the importance of accurate data and timely mapping of each layer in the system. This is especially important when these layers are themselves complex. Granular data is needed to capture the interactions within and between these complex sub-systems.
Second, modelling of each of these layers, and their interaction with other layers, is likely to be important, both for understanding system risks and dynamics and for calibrating potential policy responses to them.
Third, in controlling these risks, something akin to the Tinbergen Rule is likely to apply: there is likely to be a need for at least as many policy instruments as there are complex sub-components of a system of systems if risk is to be monitored and managed effectively. Put differently, an under-identified complex system of systems is likely to result in a loss of control, both system-wide and for each of the layers.
In the meantime, there is a crisis in economics. For some, it is a threat. For others it is an opportunity to make a great leap forward, as Keynes did in the 1930s. But seizing this opportunity requires first a re-examination of the contours of economics and an exploration of some new pathways. Second, it is important to look at economic systems through a cross-disciplinary lens. Drawing on insights from a range of disciplines, natural as well as social sciences, can provide a different perspective on individual behaviour and system-wide dynamics.
The NAEC initiative does so, and the OECD's willingness to consider a complexity approach puts the Organisation at the forefront of bringing economic analysis policy-making into the 21 st century.
This article draws on contributions to the OECD NAEC Roundtable on 14 December 2016; The GLS Shackle Biennial Memorial Lecture on 10 November 2016; and " On microscopes and telescopes ", at the Lorentz centre, Leiden, workshop on socio-economic complexity on 27 March 2015.
The OECD organised a Workshop on Complexity and Policy, 29-30 September, OECD HQ, Paris, along with the European Commission and INET. Watch the webcast: 29/09 morning ; 29/09 afternoon ; 30/09 morning
jonny bakho -> Chris G ... , January 12, 2017 at 05:12 AM
Jan 12, 2017 | economistsview.typepad.comChris G : January 12, 2017 at 03:57 AM Re Wolfers: Having an opinion is not the same as being able to predict or infer accurately. (Nominally) informed opinion hasn't performed particularly well with respect to either at the macro level and many see no connection with their lives at the micro level. If people see "expert" opinion as either wrong or irrelevant then they will ignore it. Nature abhors a vacuum so rather adopt experts' stories they'll create their own narrative. Confidence of small business owners that their lot will improve? That's what they'd like to believe and what evidence do they have that it won't? (Stories matter more to most people than facts or models. We ignore that at our peril.)
Chris G -> Chris G ... , January 12, 2017 at 04:10 AMClaudia Sahm's piece is very good. +1 for self-awareness and another +1 for candor.
Small business is optimistic based on current trends with demand improving and people having more money to spend. Their optimism has nothing to do with TrumpPeter K. -> jonny bakho... , -1
Wall Street sees opportunity for profits. Big Tax cuts for the wealthy will inflate stock prices. It reflects the opportunity for short term gains, not long term economic improvement
Economist influence on policy is overrated
Since when have our ruling elites followed advice?
Medical research can thrive in spite of a government of short earth creationists
A key battle is giving cities more control over spending
Local control can better direct infrastructure spending than state agencies concerned with freeways
It is a mistake to look to the Federal Government as savior. Urbanization is the future. Let the cities invest in themselves and stop subsidizing the unsustainable suburban and exurban development.
"It is a mistake to look to the Federal Government as savior. Urbanization is the future. Let the cities invest in themselves and stop subsidizing the unsustainable suburban and exurban development."Fred C. Dobbs -> Chris G ... , January 12, 2017 at 05:49 AM
Why Most Economists Are So Worried About TrumpJulio -> Fred C. Dobbs... , January 12, 2017 at 12:17 PM
http://nyti.ms/2ij9VRP via @UpshotNYT
NYT - Justin Wolfers - January 11
I feared that I might have been talking with an unrepresentative group until I stumbled upon a recent survey of leading academic economists showing a similar pattern. Of the 31 respondents to the University of Chicago's IGM Economic Experts Panel, 28 disagreed with the claim that the "seven actions to protect American workers" in Mr. Trump's 100-day plan would improve the economic prospects of middle-class Americans. The dissenters were two economists who were uncertain, and one who had no opinion.
('recent survey': http://www.igmchicago.org/surveys/100-day-plan )
The pervasive pessimism among professional economists stands in stark contrast with the judgment of financial markets, which rose strongly in the wake of Mr. Trump's election, and have remained buoyant since.
It also puts economists at odds with the judgments of small-business owners. According to the latest survey from the National Federation of Independent Businesses, the balance of members who expect general business conditions to improve has moved drastically. In October, the pessimists who saw business conditions as likely to worsen outnumbered the optimists by seven percentage points; the latest survey from December shows that the optimists now outnumber the pessimists by 50 percentage points. It's an extraordinary shift - one the association described as "stratospheric."
I'm not quite sure how to reconcile these conflicting signals. One possibility is that Mr. Trump remains something of an unknown, and each group is filling in the blanks differently. Small businesses, pleased to see a businessman in the White House, might be tempted to believe the best. By contrast, there's a reason that economics is called the dismal science, and few economists trust politicians - of either stripe - to get things right. Greater uncertainty gives economists a broader canvas upon which to project their pessimism. ...
I don't see where he finds the "conflicting signals".Fred C. Dobbs -> Chris G ... , January 12, 2017 at 05:53 AM
The economists were asked about the prospects for the middle class (Question A) and low-income workers (Question B).
The optimism is all about business conditions.
These two have been divergent forever. The proposed policies are likely to exacerbate the divergence.
JW: ... 'According to the latest survey from the National Federation of Independent Businesses, the balance of members who expect general business conditions to improve has moved drastically.' ...Brick Bootloop -> Chris G ... , January 12, 2017 at 08:07 AM
Small Business Economic TrendsNFIB | NFIB http://www.nfib.com/surveys/small-business-economic-trends/
- Small Business Optimism Skyrocketed in December
- "Expect Better Business Conditions" rises dramatically
Small business optimism rocketed to its highest level since 2004, with a stratospheric 38-point jump in the number of owners who expect better business conditions, according to the monthly National Federation of Independent Business (NFIB) Index of Small Business Optimism, released today.
"We haven't seen numbers like this in a long time," said NFIB President and CEO Juanita Duggan. "Small business is ready for a breakout, and that can only mean very good things for the U.S. economy."
The Index reached 105.8, an increase of 7.4 points. Leading the charge was "Expect Better Business Conditions," which shot up from a net 12 percent in November to a net 50 percent last month. ...
Confidence of small business owners that their lot will improve?
Could *small business confidence index* work same as *odd lot investor's confidence*? Odd lot buying index? The little people registering their wrong opinions? A contrary indicator? Do you see how small business confidence curve has begun to raise a red flag?
Jan 12, 2017 | www.nakedcapitalism.comPosted on January 12, 2017 by Yves Smith By Philip Pilkington, a macroeconomist working in asset management and author of the new book The Reformation in Economics: A Deconstruction and Reconstruction of Economic Theory . The views expressed in this interview are not those of his employer
... ... ...
In my book The Reformation in Economics I take the position that modern economics is more similar to phrenology than it is to, say, physics. This is not at all surprising as it grew up in the same era and out of remarkably similar ideas. But what is surprising is that this is not widely noticed today. What is most tragic, however, is that there is much in economics that can and should be salvaged. While these positive aspects of economics probably do not deserve the title of 'science' they at least provide us with a rational toolkit that can be used to improve political and economic governance in our societies.
The Ideology at the Heart of Modern Economics
The curious thing about modern economics is its almost complete insularity. Its proponents appear to have very little notion of how it applies to the real world. This is not the case in normal sciences. Take physics, for example. It is extremely clear how, say, the inverse squares law applies to experienced reality. In the case of gravitation, for example, the inverse squares law makes experimentally testable predictions about the force exerted by, say, the gravitational pull between the sun and the earth.
Modern economics – by which I mean neoclassical or marginalist economics which relies on the notion of utility-maximisation as its central pillar – completely lacks this capacity to map itself onto the real world. As philosophers of science like Hans Albert have pointed out , the theory of utility-maximisation rules out such mapping a priori , thus rendering the theory completely untestable. Since the theory is untestable it cannot be falsified and this allows economists to simply assume that it is true.
Once the theory is assumed to be true it can then be applied everywhere and anywhere in an entirely uncritical manner. Anything can then be interpreted in terms of utility-maximisation. This is most obvious in popular publications like Freakonomics: A Rogue Economist Explores the Hidden Side of Everything . Such books read in an almost identical way to the fashionable books of 19 th century phrenology. The economists address everything from parenting to crime to the Ku Klux Klan by filtering it through the non-experimental theory of utility-maximisation – a theory that has not and cannot be verified and so the author and reader alike take it entirely on trust.
Such systems of ideas are ideological to the core. They are cooked up independently of the evidence and are then imposed upon the material of experienced reality. We are encouraged to 'read' the world through the interpretive lens of economics – and when we ask for evidence that this lens uncovers factually accurate information we are confounded with circular arguments from the economists.
Large-scale public policy is also filtered through this lens. This is done by constraining the study of macroeconomics – that is, GDP growth, unemployment, inflation and so on – by tying it to the theories of utility-maximisation. All macroeconomics today must be 'microfounded'. This means that it must have microeconomic – read: 'utility-maximising' – foundations. In reality, as I show in the book, these foundations are anything by 'micro'. Rather, what is done is that the entire economy is seen to be dominated by a single uber-utility-maximiser and all the conclusions flow from there.
This may seem like odd stuff but it is built into the theory as a sort of foundational delusion. The arbitrary, non-empirical theory of utility-maximisation assumes primacy to all considerations of actual statistical facts, intuitions about human motivations and even basic assumptions about what should constitute a properly moral view of man. What we end up with is not just a crushing, anti-inquiry ideology but also a lumbering failure of a system of ideas that has no hope in extracting relevant information about the real world.
What Is To Be Done?
Is economics then to be thought of as a failure? Must we scrap economics and try to find other ways to describe and address our economic and political problems? In this regard, my book claims to lay out a new path – albeit one that has been intuitively followed by some economists, most notably those in the heterodox camp. This new path is based on two key interrelated premises.
The first is that we have little insight into what actually motivates human beings. For this reason theories that rest on assumptions about human motivation – like utility-maximisation – must be thrown out and the study of the economy must be undertaken by examining large economic aggregates. In short, micro must be tossed off the throne and the crown must be handed to macro. The second premise is that we must not be overly concerned with highly precise 'models' of the economy. Instead we must take what I have come to call a 'schematic' approach. A schematic approach involves building tools that can be integrated into how we understand the world around us without assuming that these tools provide us with an exact description of this world. This schematic toolkit – which I begin to lay out in the later chapters of the book – can then be used to approach the study of actual economies.
These may seem like rather simple rules. But when applied to economic theory they generate rather radical results. At the same time they greatly constrain the amount of wisdom that we can assume economists to have; given these premises no book like Freakonomics should ever be taken seriously and should probably even be written in the first place. In that sense, they may appear to militate against Enlightenment optimism. This may well be so, but I would argue that they are arrived at through rational Enlightenment-style inquiry and so should be taken seriously even by proponents of Enlightenment Progress. After all, phrenology eventually fell in the face of rationalistic criticism.
In the book some of the issues around uncertainty and free will are also explored. Implicit in some of the book's central criticisms is that societies are not to be understood in a deterministic manner. Unlike billiard balls, social forces are not subject to deterministic laws. In one sense this is unfortunate as it means that our understandings of social and economic processes must always be of a contingent and not-too-precise nature. But on the other hand it is optimistic in the sense that it attributes an agency to human beings to create the world around them that mainstream marginalist economics stripped away by imposing the limited utility-maximiser framework on everyone from Mother Theresa to Hitler.
This also creates an opening for a proper discussion of ethics and morality. Although this is not dealt with directly in the book – it would surely require another ten volumes – the framework does reopen awkward questions surrounding morality and ethics. Some self-professed social scientists, nervous that these questions have been passed to us from the world religions, would prefer to do away with any moral and ethical questions. But this was always a fantasy – even the most hardened anti-ethicist, unless they are serving life for serial-killing, has a system by which they determine right from wrong.
All that I have said here is rather abstract. But a good portion of the book is not and I do not want to give that impression. It contains chapters that deal with inflation, profits, income distribution, income determination, financial markets, interest rates, investment and employment. It is not simply a book of methodology but rather one that tries to also provide the basic building blocks of a theory that can be applied to understand really-existing economies. In this sense, I hope that it is again more optimistic than many mainstream economics books that leave the reader without any capacity to apply the supposed ideas that they have absorbed by reading them beyond mere chest-puffing at dinner parties and moral condemnations of the social safety net.David , January 12, 2017 at 10:12 amPraedor , January 12, 2017 at 3:45 pm
We dont have Departments of Astrology. Just dump it call it business data and stick it in business schools or departments. It is not science or social science it is the worst ever pseudoscience with blood all over its hands see previous post.Alex , January 12, 2017 at 10:22 am
You could call it a branch of political "science" (also not a science). At least it would be honest. Everything proposed or concluded in economics classes will be known to simply be political preferences or ideas, not real or valuable beyond that.Gaylord , January 12, 2017 at 10:49 am
In my perception, giving something an economic value is best explained as being an exercise of moral judgement.Alex , January 12, 2017 at 11:07 am
A holistic understanding of the natural world is needed, therefore I believe the first rule of economics that should override all others is one that would correct the false assumption that humans are separate from our environment and superior to all other species. That separation and illusion of independence, particularly endemic to the European mentality, has caused us to denigrate nature as though we must dominate and subdue it to satisfy our needs and desires, and the result now in full evidence is the wholesale destruction of habitat and ecocide that inevitably lead to omnicide. We have allowed our population to exceed the carrying capacity of the earth and have used technology without regard for the consequences, thus contradicting the meaning of homo sapiens and assuring our extinction.Robert Hahl , January 12, 2017 at 11:20 am
Um, what's your evidence that this is somehow a European mentality?Jamie , January 12, 2017 at 12:19 pm
I think he means "Western" mentality, which seem true enough. Here is a nice piece of phrenology, a portrait of Henry James.
http://n7.alamy.com/zooms/a5fad1324a3b45fe9417ff65912ff8d7/henry-james-american-born-british-novelist-and-writer-1843-1916-most-af8heb.jpgPaul O'Sullivan , January 12, 2017 at 11:25 am
Phillip's comments regarding the "Great Chain of Being" are apropo. This is "Western" in a sense, "Christian" more particularly. It tells the underclass they are special while at the same time justifying and encouraging their subservience (i.e., the underclass is told they are disconnected on the one hand, but totally "connected" (that is, have a "place") on the other hand (which they should not try to rise above)).
The implication that other societies where greater "connection" is somehow recognized are somehow immune to stratification and dominance by a ruling elite, somehow more "wholesome" or "gentle" or "sane", has very little evidence in its favor that I have ever seen. It's rather faddish to criticize "the West" for all the ills of the world. And "the West" certainly has left a trail of suffering and destruction across the face of the planet. But other societies have their own mechanisms for justifying and encouraging subservience. And a religious "feeling" of the connectedness of all things is not a substitute for the scientific insights of the discipline of ecology, brought to us by a "Western" mode of thought and enquiry.
No matter what society we live in, the problem of just governance, the aggrandizement of the elite and the suffering of the masses, remains the same.voislav , January 12, 2017 at 11:25 am
I am though the first two chapters of Philip's book. So far so good – likable prose style and promising subject matter.Larry Y , January 12, 2017 at 11:46 am
What passes for the science of economics has become politicized and scientifically compromised to the point that the only thing that makes sense is to burn it with fire. Data has stopped playing a role in development of economic theory and selected snippets of it are occasionally dragged out only if they support the latest concoction that comes to their mind.
To paraphrase from Yes Minister, real economists don't sully their elevated minds with anything as sordid as data. It's much easier to make a a bunch of unrealistic assumptions, for example "trade deals don't affect trade balance and employment", and just to build their model from there. The fact that these kind of missteps are not stamped out by the profession shows that fire is the only answer.j , January 12, 2017 at 11:47 am
Economics is to ecology as phrenology is to neuroscience?
Always thought the problem was that economics should be descriptive, not prescriptive. Maybe a parallel in how science came out of "natural philosophy".shinola , January 12, 2017 at 12:53 pm
In the book some of the issues around uncertainty and free will are also explored. Implicit in some of the book's central criticisms is that societies are not to be understood in a deterministic manner. Unlike billiard balls, social forces are not subject to deterministic laws.
This seems to me to be an over reaction to the specious nature of current mainstream economics, compounded by a misunderstanding of the role of determinism and uncertainty in physics. What most characterizes physics is not the absence of uncertainty, but the specification of it. Just because the current dominant economic dogma has it wrong is no reason to throw out determinism.
The analogy to billiard balls is a poor analogy to social systems. The physical forces that determine an earthquake, for example, may not allow us to precisely predict the moment in time when the quake will trigger, but that doesn't make earthquakes "non-deterministic". OK, the point is taken that societies are not billiard balls. There is still plenty of room to hope that social forces may be sufficiently specified to allow useful predictions. Throwing out determinism is not a royal road to morality. The moral quandary of the present day is how to reconcile determinism and morality, each of us as individuals and all of us as a society, not to force a choice between them.
Because we are not billiard balls, we do not have to accept that the morality of society is merely the sum of all the individual moralities of all the individuals composing it ("market" morality). We can allow for the social construction of a moral code and the imposition of that code on society's constituent individuals. None of that necessarily takes us outside of determinism. Because previous generations got some of the laws of physics wrong does not mean the laws of physics did not exist at that time. Because current economists make absurd assumptions does not mean no science of economy is possible. But a "non-deterministic" 'science' is no science at all.Generalfeldmarschall von Hindenburg , January 12, 2017 at 2:12 pm
I abandoned Econ. as a major when I was a senior in college (mid 70's) because what was being taught had little to no relationship to what I observed in the real world of human beings (as opposed to the "Homo Economicus" that econ. theory depended on).
My father made the money that paid for my tuition & books through sales. As a sales manager for a major insurance co. he was always looking for recruits who could "sell air conditioners to Eskimos". If, in fact, the "information symmetry" that econ. theory depends on existed, then his job could not have existed.
I was also influenced by an econ. prof. who told me that an econ. degree was worthless unless I wanted to teach it or work for the gov't.
I think most NC readers will understand the "shorthand" phrase "First, assume a can opener"Synoia , January 12, 2017 at 2:32 pm
Elites always invent ideologies, which are like operating systems, in order to maintain control over the minds of their subjects. Economics, great chains of being, Mandate of Heaven. It's all the same.Synoia , January 12, 2017 at 2:35 pm
I agree with the author, but am dismayed as well.
Does he not understand Science and the Scientific method?
Experiment – Repeatable by independent parties, Experiments.
That's Science, That's physics. Read Joule's biography to understand the method.
Economics is NO science because there is no way to conduct an experiment, a repeatable experiment.
In addition the mathematicians have discovered and codified Chaos or Catastrophe Theory, and the attendant Black Swans, in the last 50 years, which provides a solid foundation to understand economics, and its absolute unpredictability.
Because us humans are driven by fear and greed, consequently: Presume a rational actor (economics 101) is invalid.
There is not ONE mention of chaos in this article, which is the governing mathematics behind Economics in the world we inhabit, work, play, are born and die.
There is an old expression: Before putting pen to paper, please engage mind.
End Rant.Bob Stapp , January 12, 2017 at 2:42 pm
If one wants to asserts that humans are rational, please explain the fashion industry.
Or "boys and their toys."Oguk , January 12, 2017 at 4:18 pm
In an even larger sense, we have substituted ideology for religion. Consider capitalism, privatization, democracy, the profit motive, materialism, utility maximisation, and, yes, even the scientific method. We worship these just as ardently as we did the Grecian or Egyptian pantheon of gods in the years b.c.e., and the Christian, Jewish, and Islamic characterizations of god/Allah up to the present era.
The unquestioning acceptance of these belief systems filters our perceptions of reality and blinds us to the infinite number of possibilities that exist outside of those frames of reference. In fact, those systems have indeed become our religion and stepping outside of them frequently incurs the same stigma and scorn formerly accorded to religious heretics who were often burned at the stake. One doesn't need to spend more than a day reading a layperson's guide to quantum mechanics to get an idea of what happens when you set your mind free of those confining boxes.
I highly recommend Morris Berman's book, Coming to Our Senses , where he traces western history from the beginnings of Christendom to the modern day in the context of heresy. (That's a simplistic but reasonably accurate synopsis.) It's a dense read and when I first sat down with it in the early 90s, I could only manage a few pages at a time and then had to take two or three days to digest before coming back for more. I read it again ten years later and it made even more of an impact the second time around. Without exaggerating, I can honestly say that it profoundly shaped my world view to the point that I now view all belief systems skeptically and try to place them in a larger context.
Pilkington's description of economics as an unassailable belief system rings true to me. Not unlike religion (the Crusades, the Inquisition, the Conquistadors, right on up to ISIS), economics has wreaked and is wreaking havoc across the globe. Who knows what wonders await us when we start thinking out of that box.
A schematic approach involves building tools that can be integrated into how we understand the world around us without assuming that these tools provide us with an exact description of this world.
I am perhaps most interested in this. Will look for the book. I always get something from reading Pilkington's posts.
Jan 09, 2017 | www.whitehouse.govA growing literature has documented several indicators of declining] competition in the United States, and economists have begun to explore the links between these trends and rising income inequality (Furman and Orzag 2015). While recent discussions have highlighted rising concentration among producers and monopoly pricing in sellers markets (The Economist 2016), reduced competition can also give employers power to dictate wages-so- called "monopsony" power in the labor market.
While monopoly in product markets and monopsony in labor markets can be related and share some common causes, the latter has some distinct causes and policy implications.
This issue brief explains how monopsony, or wage-setting power, in the labor market can reduce wages, employment, and overall welfare...
Jan 08, 2017 | economistsview.typepad.comRGC : January 07, 2017 at 11:45 AM , 2017 at 11:45 AMBy Asad ZamanRGC -> RGC... , -1
January 7, 2017
P8 Keynesian Complexity
"But no one appears to have understood the fundamental insights of Keynesian complexity: the system as whole does not act as a simple aggregate of the actions of the individual agents within the system. Pre-Keynesian macroeconomics was based centrally on the misunderstanding that the macroeconomy can be understood by scaling up the microeconomic behaviors of individual agents. While Keynes forcefully rejected this thesis, and created a complex system view of the macroeconomy, simple-minded followers failed to understand complexity, and went back to the pre-Keynesian views."
https://weapedagogy.wordpress.com/2017/01/07/p8-keynesian-complexity/Paul Samuelson on Keynes (same link):Libezkova -> RGC... , January 07, 2017 at 01:39 PM
Ironically, failure to understand Keynes led to dismissal and contempt "Paul Samuelson felt he could say that "it is remarkable that so active a brain would have failed to make any contribution to economic theory . .." (cited in John Foster 2006).
Because Samuelson could not understand the complexity of Keynesian theory, he wrote that: "[The General Theory] is a badly written book, poorly organized; any layman who, beguiled by the author's previous reputation, bought the book was cheated of his 5 shillings. It is not well suited for classroom use. It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements. It abounds with mares' nests and confusions: involuntary unemployment, wage units, the equality of savings and investment, the timing of the multiplier, interactions of marginal efficiency upon the rate of interest, forced savings, own rates of interest, and many others. In it the Keynesian system stands out indistinctly, as if the author were hardly aware of its existence or cognizant of its properties; and certainly he is at his worst when expounding its relations to its predecessors."
Samuelson's arrogance in believing that he understood the Keynesian system better than Keynes created the biggest barrier to understanding Keynes for 20th Century economists. Because of his stature, he became the authorized interpreter of Keynes, and very few went back to original writings to try to understand them. Those who did also failed to come to grips with complexity, and as a result, it is impossible to count the variety of interpretations of Keynes - see for example, Backhouse and Bateman. The Keynesian elephant has a huge number of parts, it seems.Thank you for this link and quote.RGC -> RGC... , January 07, 2017 at 02:24 PM
That was my problems with Samuelson too, but I never was able to express is with such a clarity,This blogger is discussing The General Theory chapter by chapter. This post is chapter 2 of 24.anne -> anne... , January 07, 2017 at 10:26 AMhttp://krugman.blogs.nytimes.com/2013/08/20/coalmines-and-aliens-again/anne -> anne... , -1
August 20, 2013
Coalmines and Aliens, Again
By Paul Krugman
Brad DeLong * catches John Cochrane ** being remarkably dense:
"Paul Krugman recommended, with refreshing clarity, that the US government fake an alien invasion so we could spend trillions of dollars building useless defenses. (I'm not exactly sure why he does not call for real defense spending. After all, if building aircraft carriers saved the economy in 1941, and defenses against imaginary aliens would save the economy in 2013, it's not clear why real aircraft carriers have the opposite effect. But I'm still working on the nuances of new-Keynesianism, so I'll let him explain the difference. I'm not a big fan of huge defense spending anyway.)"
As I've explained before, *** the alien thing was a modern riff on Keynes's coalmine thought experiment. **** It's worth quoting that one in full:
"It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly 'wasteful' forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict 'business' principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.
"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."
In a way, I'm amazed by economists who find this sort of thing absurd on its face. Leave macroeconomics on one side: what about the theory of the second best? This theory - which is just basic micro - says that when some markets are distorted, for whatever reason, social costs and benefits across the economy don't correspond to private costs, so that unprofitable, even seemingly wasteful activities can sometimes be beneficial. And an economy in which millions of willing workers can't find work is surely one with massive distortions of some kind.
Oh, and let's always remember that Keyensians like me don't believe that thing like the paradox of thrift and the paradox of flexibility are the way the economy normally works. They're very much exceptional, applying only when interest rates are up against the zero lower bound. Unfortunately, that happens to be the world we're currently living in.
**** https://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter10.htmlA series of superb short essays by Paul Krugman.
Jan 07, 2017 | economistsview.typepad.comRGC : January 07, 2017 at 11:45 AM , 2017 at 11:45 AMBy Asad ZamanRGC -> RGC... , -1
January 7, 2017
P8 Keynesian Complexity
"But no one appears to have understood the fundamental insights of Keynesian complexity: the system as whole does not act as a simple aggregate of the actions of the individual agents within the system. Pre-Keynesian macroeconomics was based centrally on the misunderstanding that the macroeconomy can be understood by scaling up the microeconomic behaviors of individual agents. While Keynes forcefully rejected this thesis, and created a complex system view of the macroeconomy, simple-minded followers failed to understand complexity, and went back to the pre-Keynesian views."
https://weapedagogy.wordpress.com/2017/01/07/p8-keynesian-complexity/Paul Samuelson on Keynes (same link):
Ironically, failure to understand Keynes led to dismissal and contempt "Paul Samuelson felt he could say that "it is remarkable that so active a brain would have failed to make any contribution to economic theory . .." (cited in John Foster 2006).
Because Samuelson could not understand the complexity of Keynesian theory, he wrote that: "[The General Theory] is a badly written book, poorly organized; any layman who, beguiled by the author's previous reputation, bought the book was cheated of his 5 shillings. It is not well suited for classroom use. It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements. It abounds with mares' nests and confusions: involuntary unemployment, wage units, the equality of savings and investment, the timing of the multiplier, interactions of marginal efficiency upon the rate of interest, forced savings, own rates of interest, and many others. In it the Keynesian system stands out indistinctly, as if the author were hardly aware of its existence or cognizant of its properties; and certainly he is at his worst when expounding its relations to its predecessors."
Samuelson's arrogance in believing that he understood the Keynesian system better than Keynes created the biggest barrier to understanding Keynes for 20th Century economists. Because of his stature, he became the authorized interpreter of Keynes, and very few went back to original writings to try to understand them. Those who did also failed to come to grips with complexity, and as a result, it is impossible to count the variety of interpretations of Keynes - see for example, Backhouse and Bateman. The Keynesian elephant has a huge number of parts, it seems.
Jan 03, 2017 | economistsview.typepad.comJF -> Peter K.... January 03, 2017 at 09:46 AMKrugman believes deeply in the ISLM model and cant seem to admit that there are stunning implications to the following :
1. Credit creation and the financialization above the consumer level of this new-money creation is an unlimited privlege held by financial system actors, we saw this blatantly in 2000-2006, so IS is demonstrably not true, the amount of available Investment funds Is unlimited. There is no such thing as loanable funds at the macro level, the financial system can make financial positions then manages the cash liquidity (until ... .).
2. Defining currency as a liability on a set of books for a thing called a central bank and talking about Quantity Theories of Money, are all demonstrably weak notions, at keast in huge economies. The approach by China ignores a lot of this theory in practice as they Spend to improve the economic potential of their people, a ka Keynes. They do care about closing the supply gaps in housing and transport, and clean power, sure, but they care more about helping more and more and more chinese to get a connection to a modernizing economy. Sure wish Krugman cared the same way rather than caring fir the cloture of the ISLM theory. He may have been kinder to Sanders and more challenging of Clinton too.
Krugman is willing to explain that the US can borrow at low rates to build public goods and other assets and get it paid for by returns, but somehow direct Spending, even using phoney debt processes to push the financing outward as the chinese do (which is simply helicopter money) cant do the same.
Right now I see the chinese approaches as undermining credility to monetary theories while it is consistent with Keynes not so the extended theories.
JF -> JF... , January 03, 2017 at 09:59 AMAnd of course I hope I am right for the chinese, no surprise to me if this is the case.anne -> Peter K.... , January 03, 2017 at 10:47 AM
The sky is falling view does come to mind if you believe some of the economic theories, oh look, so much debt. But as Adair wrote this week,and I commented upon it a year or so ago probably, if you dont believe in these theoretic tales you can just erase the 'debt' held by the chinese people via their government when it makes sense, no harm, almost all good.
But I have to say, without the US as its major buyer and without their ability to accumulate dollar-asset in reserve to the level they have, one wonders if there would be less lattitude. This raises the question about why Trump continues to voice that the rug will be pulled out soon. Why? I am pretty sure it isnt because he wants to prove the economic theorests to be right.http://www.nytimes.com/2016/01/08/opinion/when-china-stumbles.htmlanne -> anne... , January 03, 2017 at 10:52 AM
January 7, 2016
When China Stumbles
By Paul Krugman
December 1, 2015
China's Market Crash Means Chinese Supergrowth Could Have Only 5 More Years to Run
By Brad DeLong
Now that 90 days have passed, from the Huffington Post from Last August: China's Market Crash Means Chinese Supergrowth Could Have Only 5 More Years to Run *
Ever since I became an adult in 1980, I have been a stopped clock with respect to the Chinese economy. I have said--always--that Chinese supergrowth has at most ten more years to run, and more probably five or less. There will then, I have said, come a crash--in asset values and expectations if not in production and employment. After the crash, China will revert to the standard pattern of an emerging market economy without successful institutions that duplicate or somehow mimic those of the North Atlantic: its productivity rate will be little more than the 2%/year of emerging markets as a whole, catch-up and convergence to the North Atlantic growth-path norm will be slow if at all, and political risks that cause war, revolution, or merely economic stagnation rather than unexpected but very welcome booms will become the most likely sources of surprises....
* http://www.huffingtonpost.com/brad-delong/china-market-crash-5-years_b_8045742.htmlhttp://www.bradford-delong.com/2016/04/must-read-i-do-not-understand-china-but-it-now-looks-more-likely-than-not-to-me-that-xi-jinpings-rule-will-lose-china.htmlsanjait -> Peter K.... , January 03, 2017 at 11:59 AM
April 5, 2016
I do not understand China. But it now looks more likely than not to me that Xi Jinping's rule will lose China a decade, if not half a century... *
-- Brad DeLong
[ Losing a decade, if not half a century? ]If you want to put money in China given their still extant massive imbalances ... go right ahead.Julio -> sanjait... , January 03, 2017 at 03:54 PM
I'm still predicting a massive slowdown, if not a crash.
The central government in China has a big warchest and a lot of catchup growth that can keep it afloat, but at a macro level there simply must be big adjustments (i.e., investment to consumption demand), which can be put off but not avoided entirely.Why should an adjustment from investment to consumption cause a massive slowdown or a crash?anne -> Julio ... , -1Why should an adjustment from investment to consumption cause a massive slowdown or a crash?
[ No matter, after 40 years of an average 9.7% yearly real Gross Domestic Product growth and 8.6% yearly per capita GDP growth, Western analysts been all but unconcerned with how such growth was managed, especially since no other developing country came anywhere close. Why no other developing country has come close to matching China in growth, I would think, would make for an important extensive study, but evidently not. ]
Jan 02, 2017 | economistsview.typepad.comanne : January 01, 2017 at 01:54 AMhttp://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/anne -> anne... , January 01, 2017 at 01:56 AM
August 8, 2013
Milton Friedman, Unperson
By Paul Krugman
David Glasner * has been making a series of posts on the legacy of Milton Friedman, some of them in response to Scott Sumner; they're interesting if you want to delve into the intellectual history. I'm not personally big on such things - in general, what people thought Keynes or Friedman meant ends up being more important than what they turn out, on close reading, to (maybe, possibly) actually have meant. For what it's worth, I think Glasner makes a good case that Friedman was indeed more or less a Keynesian, or maybe Hicksian - certainly that was the message everyone took from his "Monetary Framework," which was disappointingly conventional. And Friedman's attempts to claim that Keynes added little that wasn't already in a Chicago oral tradition don't hold up well either.
But never mind. What I think is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back, even if that fact drives some economists crazy; Hayek is back in some sense, even if one has the suspicion that many self-proclaimed Austrians bring little to the table but the notion that fiat money is the root of all evil - a deeply anti-Friedmanian position. But Friedman is pretty much absent.
This is hardly what you would have expected not that long ago, when Friedman's reputation bestrode the economic world like a colossus, when Greg Mankiw ** declared Friedman, not Keynes, the greatest economist of the 20th century, when Ben Bernanke concluded a speech praising Friedman *** with the famous line,
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.
"Best wishes for your next ninety years."
So what happened to Milton Friedman?
Part of the answer is that at this point both of Friedman's key contributions to macroeconomics look hard to defend.
First, on monetary policy: Even if you give him a pass on the 3 percent growth in M2 thing, which was abandoned by almost everyone long ago, Friedman was still very much associated with the notion that the Fed can control the money supply, and controlling the money supply is all you need to stabilize the economy. In the wake of the 2008 crisis, this looks wrong from soup to nuts: the Fed can't even control broad money, because it can add to bank reserves and they just sit there; and money in turn bears little relationship to GDP. And in retrospect the same was true in the 1930s, so that Friedman's claim that the Fed could easily have prevented the Great Depression now looks highly dubious.
Second, on inflation and unemployment: Friedman's success, with Phelps, in predicting stagflation was what really pushed his influence over the top; his notion of a natural rate of unemployment, of a vertical Phillips curve in the long run, became part of every textbook exposition. But it's now very clear that at low rates of inflation the Phillips curve isn't vertical at all, that there's an underlying downward nominal rigidity to wages and perhaps many prices too that makes the natural rate hypothesis a very bad guide under depression conditions.
So Friedman's economic analysis has taken a serious hit. But that's not the whole story behind his disappearance; after all, all those economists who have been predicting runaway inflation still have a constituency after being wrong year after year.
Friedman's larger problem, I'd argue, is that he was, when all is said and done, a man trying to straddle two competing world views - and our political environment no longer has room for that kind of straddle.
Think of it this way: Friedman was an avid free-market advocate, who insisted that the market, left to itself, could solve almost any problem. Yet he was also a macroeconomic realist, who recognized that the market definitely did not solve the problem of recessions and depressions. So he tried to wall off macroeconomics from everything else, and make it as inoffensive to laissez-faire sensibilities as possible. Yes, he in effect admitted, we do need stabilization policy - but we can minimize the government's role by relying only on monetary policy, none of that nasty fiscal stuff, and then not even allowing the monetary authority any discretion.
At a fundamental level, however, this was an inconsistent position: if markets can go so wrong that they cause Great Depressions, how can you be a free-market true believer on everything except macro? And as American conservatism moved ever further right, it had no room for any kind of interventionism, not even the sterilized, clean-room interventionism of Friedman's monetarism.
So Friedman has vanished from the policy scene - so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.
* http://uneasy money.com/2013/08/05/second-thoughts-on-friedman/
*** http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/"Uneasymoney" can only be linked to directly by separating "uneasy" and "money."anne :http://krugman.blogs.nytimes.com/2013/08/09/more-on-the-disappearance-of-milton-friedman/Jay : , January 01, 2017 at 08:31 AM
August 9, 2013
More On the Disappearance Of Milton Friedman
By Paul Krugman
It seems that many people misunderstood my post * on Milton Friedman. It was not intended as Friedman-bashing, as a claim that MF was a bad economist; in fact, I'm on record ** declaring Friedman a "great economists' economist". His work aimed primarily at a professional audience - the permanent income theory of consumption, the case for flexible exchange rates, the natural rate (even if it does break down at low inflation), the optimum quantity of money - was often, maybe even usually, brilliant, and will live on.
What isn't living on, however, is Friedman's role as a guiding light for conservative economic policy.
Think about Paul Ryan, who is, like it or not, the leading economic intellectual of the modern GOP. Ryan sometimes drops Friedman's name - but when he does, it's to cite "Capitalism and Freedom," not "A Monetary History of the United States." When it comes to monetary policy, Ryan has said that his views are based on fictional characters in "Atlas Shrugged." No, really.
Or think about the economics rap video of "Keynes versus Hayek" everyone had fun with. Never mind that back in the 30s nobody except Hayek would have considered his views a serious rival to those of Keynes; the real shock should be, what happened to Friedman?
Partly this disappearance reflects real problems with Friedman's analysis. His views on the omnipotence of monetary policy,let alone the adequacy of a simple quantity-of-money rule, haven't withstood the test of time. As far as stabilization policy is concerned, he was indeed, as Brad DeLong archly puts it, a minor post-Hicksian. ***
But the bigger issue, I'd argue, is that modern conservatives can't accept the things Friedman was right about. Take, in particular, his essay on flexible exchange rates, in which he argued that a country that finds its wages and prices out of line should devalue its currency rather than rely on unemployment to push wages down, "until the deflation has run its sorry course." Contrast this with Ryan's declaration that "There is nothing more insidious that a country can do to its citizens than debase its currency."
The point is that Friedman was, when all is said and done, a pragmatist; he leaned right ideologically, but was willing to make room for awkward realities. And these days reality has a well-known liberal bias. Hence, Friedman has become an unperson.
*** http://delong.typepad.com/sdj/2013/08/paul-krugman-milton-friedman-as-a-minor-post-hicksian-noted-for-august-9-2013.html"What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint."pgl -> Jay... , January 01, 2017 at 12:21 PM
What's ironic is if you read Krugman pre-2000 his work as an economist was actually a model of restraint. Then BDS (Bush Derangement Syndrome) kicked in and he turned into a political "science" crank.2000 was when George W. Bush lied his way into office. Krugman called out Bush's lies and was tagged as the Shrill One. Over time - a lot of progressives began to wear being shrill as a badge of honor.Jay -> pgl... , January 01, 2017 at 02:52 PMKind of like Obama, Clinton and the likes lied to intervene in Libya? They hate us for our freedom? No they hate us because we fight proxy wars in their territory and kill innocent civilians. As long as Assad is around Obama can drone bomb innocent people in Yemen and Proggers hail him as a saint.Chris Herbert : , January 01, 2017 at 08:31 AMDoes anyone have any comments about the constitutional monopoly over the money supply awarded to the Treasury? I don't understand what an economist means when he uses the word 'monetarist' to describe a set of ideas, but I do understand what it would mean if the Treasury (or a national Central Bank) stopped issuing debt for net government spending. Why we do issue this debt is beyond my comprehension. It's incredibly expensive, and there are no guidelines that make any sense to me when it comes to what is paid for by deficit spending. That we have piled up $17 trillion or whatever amount of debt when most of it was unnecessary is astonishing.Paul Mathis -> Chris Herbert... , January 01, 2017 at 09:01 AM"the constitutional monopoly over the money supply awarded to the Treasury"RGC -> Chris Herbert... , January 01, 2017 at 09:04 AM
You have heard of bitcoin, right?Why doesn't the Federal Reserve just buy Treasury securities directly from the U.S. Treasury?RGC -> RGC... , January 01, 2017 at 09:24 AM
The Federal Reserve Act specifies that the Federal Reserve may buy and sell Treasury securities only in the "open market."
Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks
Kenneth D. Garbade Federal Reserve Bank of New York
Until 1935, Federal Reserve Banks from time to time purchased short-term securities directly from the United States Treasury to facilitate Treasury cash management operations. The authority to undertake such purchases provided a robust safety net that ensured Treasury could meet its obligations even in the event of an unforeseen depletion of its cash balances. Congress prohibited direct purchases in 1935, but subsequently provided a limited wartime exemption in 1942. The exemption was renewed from time to time following the conclusion of the war but ultimately was allowed to expire in 1981. This paper addresses three questions: 1) Why did Congress prohibit direct purchases in 1935 after they had been utilized without incident for eighteen years, 2) why did Congress provide a limited exemption in 1942 instead of simply removing the prohibition, and 3) why did Congress allow the exemption to expire in 1981?
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr684.pdfPaul KrugmanDeDude -> RGC... , January 01, 2017 at 12:17 PM
Be Ready To Mint That Coin
January 7, 2013 9:05 am
For those new to this, here's the story. First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit - tax and spending bills the president is legally required to implement - and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.
And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can't pass through normal constitutional processes.
Enter the platinum coin. There's a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector's items - but that's not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling - while doing no economic harm at all.
So why not?
http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/?_r=1If the Fed were to buy treasuries directly, then Wall Street would be losing a big fat paycheck for the horrendous work of two keystrokes. That is why Wall Streets little sock puppets in Congress has not done anything.anne -> RGC... , January 01, 2017 at 05:05 PMBy the way, I have been wondering about "demonetization" in India and what that might mean but I have read no convincing analysis so far:DeDude : , January 01, 2017 at 09:38 AM
https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisationRule number one for a populist (popular) communicator of complicated issues is that you lose any and all doubt or granularity. The peeps will immediately lose interest in you and think you know nothing, if you fail to say things with great certainty and great simplicity.RC AKA Darryl, Ron -> DeDude... , January 01, 2017 at 10:28 AM
This is the exact opposite of how you communicate in an academic environment. If a scientist give a talk and fail to acknowledge the weaknesses in the narrative they present; the scientists listening will dismiss him/her as ignorant or a BS artist (and confront them with those weaknesses).Academics at least theoretically seek to discourage group think while politicians seek to cultivate group think. Nonetheless, peer review processes instill group think in academics regardless of intentions. Elite groups only think that they are better when in fact they are hardly any different in essential and existential ways, just in customs, habits, and aesthetics. Individual results may vary though in the general population and among elites.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 10:34 AMIn a democratically electoral republic if the mainstream or status quo is the result of majority opinion then how can the opposition be characterized as populist?DeDude -> RC AKA Darryl, Ron... , January 01, 2017 at 12:06 PM"Elite groups only think that they are better when in fact they are hardly any different"RC AKA Darryl, Ron -> DeDude... , January 01, 2017 at 01:08 PM
A case of false equivalency. There is a huge difference between a process that is constructed to reach a correct conclusion (but fails when inappropriately applied) and a process that has less of a chance of reaching the correct conclusion than a random number pick. Yes there are many examples where the scientific process has failed to reach the correct conclusion (and we know that because eventually it cleansed itself of those conclusions). However there are many more times when the scientific process got things right. That is in contrast to the FoxBot blowhards who seems almost incapable of getting anything right.Intellectual conclusions only matter when they influence real world policy decisions. Real world policy decisions are not governed by science regardless of political control and economics is not deterministic science and often is not even probabilistic science. Of course that is why real world policy decisions are not governed by science. The political influence of wealth, custom and habit, heuristic guidelines obtained from the random walk of history, and popular memes all have more influence over public policy decisions than science.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 02:50 PM
Quasi-science makes for fun social clubs though.When we pursue technocrats, elitists, and oligarchs to advance the cause of socialism we do not get social democracy, but we may get liberal policy aimed at quelling discontent when necessary to prevent a popular uprising. That was the catch-22 omitted from Schumpeter's "Capitalism, Socialism and Democracy". Corporatism does not naturally lead to socialism in republican governments as Joseph Schumpeter said that it would. If we want social democracy then we must start by pursuing the electorate to advance the cause of democracy first.DeDude -> RC AKA Darryl, Ron... , -1"Real world policy decisions are not governed by science regardless of political control"pgl -> DeDude... , January 01, 2017 at 12:24 PM
Another false equivalency...
The real world is not yes/no, black/white. Just because science sometimes get corrupted doesn't mean it always is corrupted. Just because one of our main parties have become addicted to refusing facts and evidence against their narratives doesn't mean that everybody all the time refuse to listen to facts and evidence. I know that the corruption narrative is what keeps you alive and thinking you got it all figured out, but it also is what leads you astray on a regular basis.Milton Friedman once tried to explain to doctors why their precious cartel known as the AMA was a bad idea. One would have thought the doctors would have shot him on the spot. But no - Friedman pitched this as a way to keep away "socialism" aka things like Medicare. The doctors loved it. Of course I thought this was one of his lower moments. BTW - never tell a doctor we should have Medicare for all unless you want to endure a tirade of why they don't make all that much.DeDude -> pgl... , January 01, 2017 at 06:51 PMYes, you got to give Friedman that he was a good salesman. Scientist and economists: mediocre - just to easily addicted to his own narratives. But he was a brilliant salesman.jonny bakho : , January 01, 2017 at 11:15 AMMF proposal to manage economies with monetary policy only and to sideline fiscal and regulatory policy found favors with free market conservatives.pgl -> jonny bakho... , January 01, 2017 at 12:26 PM
Free market rules mean that the greedy are free to market their get rich quick scams to the harm of the rest of us and their own personal enrichment.
Monetary policies such as Volcker's job killing interest rates in 1980 are praised. Fiscal and regulatory policies such as the CAFE standards and subsidies to move away from oil created the Great Moderation, yet are dismissed or worse vilified.
Monetary policy is not saving us from climate change. Fiscal incentives for clean energy and regulation of carbon emissions are the tools that can be applied effectively.
The reformation we need is Post-Monetary with a strong emphasis on the fiscal and regulatory...The free markets do hate fiscal policy or almost anything else that is sensible policy. But if they ever really understood what Friedman was saying about monetary policy - they would turn on him as being some of sort of communist.RC AKA Darryl, Ron -> pgl... , January 01, 2017 at 01:12 PMThen the free markets (sic) do not really understand some of sort of communist either.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 01:16 PM[If pgl would learn to type then I could copy from his comments without getting sic.]Larry : , January 01, 2017 at 04:27 PM
CORRECTION: "...they would turn on him as being some of [sic] sort of communist.""But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications."Chris Herbert : , January 01, 2017 at 06:12 PM
Marvelous irony how well this applies to its author.Still, nothing regarding the monopoly over the money supply. Not addressed. Ignored. That the Treasury can inject debt free money into the money supply, is ignored! That we could have a job guaranteed program is ignored. That we never needed to produce debt for deficit financing is ignored. What the hell!anne -> Chris Herbert... , -1Monopolization of the money supply: I have been wondering about "demonetization" in India and what that might mean but I have read no convincing analysis so far:
Dec 31, 2016 | economistsview.typepad.comJohnH : Ironic isn't it? "Why didn't ... exhibit the same restraint in his role as a public intellectual?
The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy."
Krugman should have stuck to economics...Reply Saturday, December 31, 2016 at 04:38 PM likbez -> JohnH... , -1Yes, this is pretty nasty verdict for Krugman too.
But, in reality, Milton Friedman was an intellectual prostitute of financial oligarchy most of his long life, starting from his days in Mont Pelerin Society ( https://en.wikipedia.org/wiki/Mont_Pelerin_Society) , where he was one of the founders.
So, if the period when he was a good econometrician exists it is limited to pre-war and war years. As he was born in 1912, he was just 33 in 1945. His "A Theory of the Consumption Function" was published in 1957. And "A Monetary History of the United States, 1867–1960" in 1963, when he was already completely crooked.
Mont Pelerin Society was founded in 1947 with the explicit political goal of being hatching place for neoliberal ideology as alternative to communist ideology. He served as a President of this Society from 1970 to 1972.
Capitalism and Freedom that many consider to be neoliberal manifesto similar to Marx and Engels "Manifesto of the Communist Party" was published in 1962.
So what Krugnam is saying is a myth. And he is not an impartial observer. He is a neoliberal himself. I still remember Krugman despicable attacks on John Kenneth Galbraith and his unhealthy fascination with the usage of differential equations in economic modeling, the epitome of mathiness.
Dec 31, 2016 | economistsview.typepad.comPaul Mathis -> anne... , December 31, 2016 at 06:48 PMI have two problems with Prof. K:yuan -> Paul Mathis... , December 31, 2016 at 06:56 PM
1. His refusal to acknowledge the central role of consumption in our economy. As Keynes said, ""Consumption - to repeat the obvious - is the sole end and object of all economic activity." The General Theory, p. 104.
And Adam Smith agreed: "Consumption is the sole end and purpose of all production." The Wealth of Nations, Book IV Chapter VIII, v. ii, p. 660, para. 49.
2. Krugman's refusal to endorse fiscal stimulus unless the economy is at ZLB. That is not only anti-Keynesian, it plays directly into the hands of the debt fear mongers. (Krugman is also worried about the debt.)"Krugman's refusal to endorse fiscal stimulus unless the economy is at ZLB."anne -> Paul Mathis... , December 31, 2016 at 06:57 PM
That is a strawman, and a bad one.
PS: My criticism of Krugman is far more fundamental. I do not believe the profit motive is superior to the mutual benefit motive when it comes to organizing economies.Important criticisms.anne -> Paul Mathis... , December 31, 2016 at 07:00 PMhttps://www.marxists.org/reference/archive/smith-adam/works/wealth-of-nations/book04/ch08.htmanne -> Paul Mathis... , December 31, 2016 at 07:07 PM
An Inquiry into the Nature and Causes of The Wealth of Nations
By Adam Smith
On Systems of Political Economy
Conclusion of the Mercantile System
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch08.htmanne -> Paul Mathis... , -1
The General Theory of Employment, Interest and Money
By John Maynard Keynes
The Propensity to Consume: The Objective Factors
Consumption - to repeat the obvious - is the sole end and object of all economic activity. Opportunities for employment are necessarily limited by the extent of aggregate demand. Aggregate demand can be derived only from present consumption or from present provision for future consumption. The consumption for which we can profitably provide in advance cannot be pushed indefinitely into the future. We cannot, as a community, provide for future consumption by financial expedients but only by current physical output. In so far as our social and business organisation separates financial provision for the future from physical provision for the future so that efforts to secure the former do not necessarily carry the latter with them, financial prudence will be liable to diminish aggregate demand and thus impair well-being, as there are many examples to testify. The greater, moreover, the consumption for which we have provided in advance, the more difficult it is to find something further to provide for in advance, and the greater our dependence on present consumption as a source of demand. Yet the larger our incomes, the greater, unfortunately, is the margin between our incomes and our consumption. So, failing some novel expedient, there is, as we shall see, no answer to the riddle, except that there must be sufficient unemployment to keep us so poor that our consumption falls short of our income by no more than the equivalent of the physical provision for future consumption which it pays to produce to-day.Krugman's refusal to endorse fiscal stimulus unless the economy is at zero lower bound. That is not only anti-Keynesian, it plays directly into the hands of the debt fear mongers. (Krugman is also worried about the debt.)
[ Only correct to a degree, economic weakness is recognized. ]
Dec 31, 2016 | economistsview.typepad.comMathew Kahn:2007 Krugman on Milton Friedman : As you read this direct Paul Krugman quote, do y ou hear this song in the background.
"What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint. As I pointed out earlier, he made great contributions to economic theory by emphasizing the role of individual rationality-but unlike some of his colleagues, he knew where to stop. Why didn't he exhibit the same restraint in his role as a public intellectual?
The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy.
In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed-a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I'd argue, is a counter-counterreformation."
Paul Mathis : , December 31, 2016 at 02:26 PMCounter-reformation? Not exactly.Dan Berg -> Paul Mathis... , December 31, 2016 at 02:38 PM
In an interview with Public Broadcasting System on Oct. 1, 2000, Dr. Milton Friedman said, "Let me emphasize [that] I think Keynes was a great economist. I think his particular theory in The General Theory of Employment, Interest, and Money is a fascinating theory. It's a right kind of a theory. It's one which says a lot by using only a little. So it's a theory that has great potentiality."
Brilliant economist? Not exactly.
For monetarists who believe as Dr. Friedman did that "inflation is always and everywhere a monetary phenomenon," the nearly $4 trillion added to the money supply by the Fed since 2008 should have produced raging hyper-inflation. For Friedman, the answer was not debatable: "A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth." The Counter-Revolution in Monetary Theory (1970).$4 T was not "added to the money supply"anne -> Dan Berg ... , December 31, 2016 at 03:35 PM
For Krugman, this is called being hoisted by one's own petard.https://fred.stlouisfed.org/graph/?g=2VX3 :anne -> Paul Mathis... , December 31, 2016 at 02:44 PM
this graph, which should have been labelled but was not, depicts the monetary base from October 2012 to December 2015 for reasons that are a mystery to me.https://fred.stlouisfed.org/graph/?g=cfmnanne -> anne... , December 31, 2016 at 02:47 PM
January 15, 2016
Adjusted Monetary Base, 2000-2016
January 15, 2016
Adjusted Monetary Base, 2008-2016About $3 trillion was added to the monetary base between 2008 and the beginning of 2015.Dan Berg -> anne... , December 31, 2016 at 05:05 PMso why are you depicting the monetary base if they are such a mystery; and without labels?anne -> anne... , December 31, 2016 at 05:18 PMPerfectly described and drawn graphs depicting more than a $3 trillion increase in the monetary base between 2008 and 2015. Nice and simple as that:anne -> Paul Mathis... , December 31, 2016 at 03:44 PM
January 15, 2016
Adjusted Monetary Base, 2000-2016
January 15, 2016
Adjusted Monetary Base, 2008-2016
Tra la, tra la.http://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/anne -> Paul Mathis... , December 31, 2016 at 05:26 PM
August 8, 2013
Milton Friedman, Unperson
By Paul Krugman
So Friedman has vanished from the policy scene - so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.Do write further on this matter when possible.anne : , December 31, 2016 at 02:39 PMhttp://www.nybooks.com/articles/19857anne -> anne... , December 31, 2016 at 03:00 PM
February 15, 2007
Who Was Milton Friedman?
By Paul Krugman - New York Review of Books
The history of economic thought in the twentieth century is a bit like the history of Christianity in the sixteenth century. Until John Maynard Keynes published The General Theory of Employment, Interest, and Money in 1936, economics-at least in the English-speaking world-was completely dominated by free-market orthodoxy. Heresies would occasionally pop up, but they were always suppressed. Classical economics, wrote Keynes in 1936, "conquered England as completely as the Holy Inquisition conquered Spain." And classical economics said that the answer to almost all problems was to let the forces of supply and demand do their job.
But classical economics offered neither explanations nor solutions for the Great Depression. By the middle of the 1930s, the challenges to orthodoxy could no longer be contained. Keynes played the role of Martin Luther, providing the intellectual rigor needed to make heresy respectable. Although Keynes was by no means a leftist-he came to save capitalism, not to bury it-his theory said that free markets could not be counted on to provide full employment, creating a new rationale for large-scale government intervention in the economy.
Keynesianism was a great reformation of economic thought. It was followed, inevitably, by a counter-reformation. A number of economists played important roles in the great revival of classical economics between 1950 and 2000, but none was as influential as Milton Friedman. If Keynes was Luther, Friedman was Ignatius of Loyola, founder of the Jesuits. And like the Jesuits, Friedman's followers have acted as a sort of disciplined army of the faithful, spearheading a broad, but incomplete, rollback of Keynesian heresy. By the century's end, classical economics had regained much though by no means all of its former dominion, and Friedman deserves much of the credit.
I don't want to push the religious analogy too far. Economic theory at least aspires to be science, not theology; it is concerned with earth, not heaven. Keynesian theory initially prevailed because it did a far better job than classical orthodoxy of making sense of the world around us, and Friedman's critique of Keynes became so influential largely because he correctly identified Keynesianism's weak points. And just to be clear: although this essay argues that Friedman was wrong on some issues, and sometimes seemed less than honest with his readers, I regard him as a great economist and a great man....http://krugman.blogs.nytimes.com/2009/03/02/friedman-and-schwartz-were-wrong/anne -> anne... , December 31, 2016 at 03:17 PM
March 2, 2009
Friedman and Schwartz Were Wrong
By Paul Krugman
It's one of Ben Bernanke's most memorable quotes: at a conference honoring Milton Friedman on his 90th birthday, he said: *
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
He was referring to the Friedman-Schwartz argument that the Fed could have prevented the Great Depression if only it has been more aggressive in countering the fall in the money supply. This argument later mutated into the claim that the Fed caused the Depression, but its original version still packed a strong punch. Basically, it implied that no fundamental reforms of the economy were necessary; all it takes to avoid depressions is for central banks to do their job.
But can we say that recent events appear to disprove that claim? (So did Japan's experience in the 1990s, but that lesson failed to sink in.) What we have now is a Fed that is determined not to "do it again." It has been very aggressive about monetary expansion. Here's one measure of that aggressiveness, banks' excess reserves:
[Bank excess reserves, 1990-2009]
And yet the world economy is still falling off a cliff.
Preventing depressions, it turns out, is a lot harder than we were taught.
January 30, 2016
Excess Reserves of Depository Institutions, 1990-2009
Dec 31, 2016 | economistsview.typepad.com
To belabor what should be obvious: either the wealthy care about having more money or they don't. If lower marginal tax rates are an incentive to produce more, the prospect of personal gain is an incentive to engage in corrupt practices. You can't go all Ayn Rand/Gordon Gekko on the importance of greed as a motivator while claiming that wealth insulates ... from temptation. ...
And this is telling us something significant: namely, that supply-side economic theory is and always was a sham. It was never about the incentives; it was just another excuse to make the rich richer.Anomalous Cowherd : , December 29, 2016 at 11:35 AMIn one sentence, you still can't beat John Kenneth Galbraith's assessment: "The modern conservative is engaged in one of man's oldest exercises in moral philosophy: that is, the search for a superior moral justification for selfishness."DrDick -> Anomalous Cowherd... , December 29, 2016 at 12:31 PM
Nothing is more admirable than the fortitude with which millionaires tolerate the disadvantages of their wealth. -- Nero WolfeYou need to know nothing else to understand the entirety of the conservative edifice.JohnH :"choosing a cabinet of billionaires, because rich men are incorruptible"...kind of like showering ZIRP on the Wall Street banking cartel and letting them how to ration credit to the rest of economy...mostly their wealthy clientele, who use it for stock buy-backs and asset speculation.Gibbon1 : , December 29, 2016 at 12:29 PM
Of course, 'liberal' economists see nothing wrong with trickle down, supply side economics, as long as it's the Wall Street banking cartel who's in charge of it...Why do we need Krugman to tell us this?DrDick -> Gibbon1... , -1*We* do not, but our pandering press does and I think that is Krugman's intended target.JohnH -> pgl...Stiglitz: "I've always said that current monetary policy is not going to work because quantitative easing is based on a variant of trickle-down economics. The lower interest rates have led to a stock-market bubble – to increases in stock-market prices and huge increases in wealth. But relatively little of that's been translated into increased and broad consumer spending."yuan -> JohnH...
But pgl and many other '[neo[liberal' economists just can't get enough of the trickle down monetary policy...all the while they vehemently condemn trickle down tax policy.and few liberal economists have been more skeptical of QE's economic impact than Krugman.ilsm :
PS: bernie, please save me from your bros.You all think Trump can do worse than the sitting cabal adding $660B from Sep 2015 to the federal debt quietly keeping the economy going for the incumbent party?yuan -> ilsm...
The losers think the winners are as crooked as they!when we can borrow over the long-term at 3% and have truly massive infrastructure and clean energy needs we should be borrowing like military Keynesian republicans...
Dec 31, 2016 | www.nytimes.com
Chris G said... > And this is telling us something significant: namely, that supply-side economic theory is and always was a sham.
Urgh. That it is and always a sham is irrelevant. It is THE NARRATIVE that matters! They had a compelling story and they stuck to it. That's how you sell politics in this country.
Trump told a significant fraction of the population that he understood their problems and that he would fix them. He told enough people what they wanted to hear - and did so with a convincing tone - that he got himself elected. That's how you win. You sell people on your vision. If you tell a good story most people aren't going to reality-check it. Sad but true.
On the importance of narrative: Drew Westen, "What Happened to Obama?" - http://www.nytimes.com/2011/08/07/opinion/sunday/what-happened-to-obamas-passion.html
Dec 29, 2016 | economistsview.typepad.comPeter K. : All of the Democratic primary voters somehow believed Hillary Clinton would make a better candidate against Trump than Sanders would.
And now we're stuck with Trump for at least 4 years.
As Saul Bellow once said, "a great deal of intelligence can be invested in ignorance when the need for illusion is strong". Reply Wednesday, December 28, 2016 at 07:09 PM Peter K. -> Peter K.... , December 28, 2016 at 07:11 PMSeriously why should we ever believe these neoliberal centrist Democrats again?likbez -> Peter K.... , December 28, 2016 at 10:09 PM
Why when they were so very, very wrong!
Krugman ASSURED us Clinton was a great candidate who would easily win.Krugman was clearly a neoliberal propagandist on payroll. He should not be even discussed in this context because his columns were so clearly partisan.Cal -> likbez... , -1
As for "Centrist Democrats" (aka Clinton wing of the party) their power is that you have nowhere to go: they rule the Democratic Party and the two party system guarantees that any third party will be either squashed or assimilated.
In no way they need that you believe them: being nowhere to go is enough.
Remember what happened with Sanders supporters during the convention? They were silenced. And then eliminated. That's how this system works.Krugman is a polarizing agent here in RiverCity...to our collective loss IMHO...as you know I don't have the Nobel.Egmont Kakarot-Handtke : , -1
But you might be giving him some hope with that "was"? Clearly he does not need $.
He is writing for our....yes, American, maybe even Global citizenship, which he thinks is in peril. It is. Otherwise I'd be out fishing.
And you? What's in it for you? Are you familiar with the history of political party systems that transition in and out of 2 parties? Is this little forum an example of the 2 party system: pro/con Krugman?
Americans believe crazy things, yet they are outdone by economists
Comment on Catherine Rampell on 'Americans - especially but not exclusively Trump voters - believe crazy, wrong things'#1
Americans are NOT special. Since more than 5000 years people believe things JUST BECAUSE they are absurd - in accordance with Tertullian's famous dictum "credo quia absurdum".#2
As a matter of principle, almost everybody has the right to his own opinion no matter how stupid, crazy, wrong, or absurd; the only exception are scientists. The ancient Greeks started science with the distinction between doxa (= opinion) and episteme (= knowledge). Scientific knowledge is well-defined by material and formal consistency. Knowledge is established by proof, belief or opinion counts for nothing.
Opinion is the currency in the political sphere, knowledge is the currency is the scientific sphere. It is extremely important to keep both spheres separate. Since the founding fathers, though, economists have not emancipated themselves from politics. They claim to do science but they have never risen above the level of opinion, belief, wish-wash, storytelling, soap box propaganda, and sitcom gossip.
The orthodox majority still believes in these Walrasian hard core absurdities: "HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states." (Weintraub)
To be clear: HC2, HC4, HC5 are NONENTITIES like angels, Spiderman, or the Easter Bunny.
The heterodox minority still believes in these ill-defined Keynesian relationships: "Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment."
Until this day, Walrasians, Keynesians, Marxians, Austrians hold to their provable false beliefs and claim to do science. This is absurdity on stilts but it is swallowed hook, line and sinker by every new generation of economics students. Compared to the representative economist the average political sucker is a genius.
#1 The Washington Post
Dec 25, 2016 | www.nakedcapitalism.comBy John Muellbauer, Professor of Economics, Oxford University. Originally published at VoxEU
The failure of the New Keynesian dynamic stochastic general equilibrium models to capture interactions of finance and the real economy has been widely recognised since the Global Crisis. This column argues that the flaws in these models stem from unrealistic micro-foundations for household behaviour and from wrongly assuming that aggregate behaviour mimics a fully informed 'representative agent'. Rather than 'one-size-fits-all' monetary and macroprudential policy, institutional differences between countries imply major differences for monetary policy transmission and policy.
The New Keynesian DSGE models that dominated the macroeconomic profession and central bank thinking for the last two decades were based on several principles.
- The first was formal derivation from micro-foundations, assuming optimising behaviour of consumers and firms with rational or 'model-consistent' expectations of future conditions. For such derivation to result in a tractable model, it was assumed that the behaviour of firms and of consumers corresponded to that of a 'representative' firm and a 'representative' consumer. In turn, this entailed the absence of necessarily heterogeneous credit or liquidity constraints. Another important assumption to obtain tractable solutions was that of a stable long-run equilibrium trend path for the economy. If the economy was never far from such a path, the role of uncertainty would necessarily be limited. Popular pre-financial crisis versions of the model excluded banking and finance, taking as given that finance and asset prices were merely a by-product of the real economy.
- Second, a competitive economy was assumed but with a number of distortions, including nominal rigidities – sluggish price adjustment – and monopolistic competition. This is what distinguished New Keynesian DSGE models from the general equilibrium real business cycle (RBC) models that preceded them. It extended the range of stochastic shocks that could disturb the economy from the productivity or taste shocks of the RBC model. Finally, while some models calibrated (assumed) values of the parameters, where the parameters were estimated, Bayesian system-wide estimation was used, imposing substantial amounts of prior constraints on parameter values deemed 'reasonable'.
The 'Pretence of Knowledge'
The centre-piece of Paul Romer's scathing attack on these models is on the 'pretence of knowledge' (Romer 2016); echoing Caballero (2010), he is critical of the incredible identifying assumptions and 'pretence of knowledge' in both Bayesian estimation and the calibration of parameters in DSGE models. 1
A further symptom of the 'pretence of knowledge' is the assumed 'knowledge' that these parameters are constant over time. A milder critique by Olivier Blanchard (2016) points to a number of failings of DSGE models and recommends greater openness to more eclectic approaches.
As explained in Muellbauer (2016), an even deeper problem, not seriously addressed by Romer or Blanchard, lies in the unrealistic micro-foundations for the behaviour of households embodied in the 'rational expectations permanent income' model of consumption, an integral component of these DSGE models. Consumption is fundamental to macroeconomics both in DSGE models and in the consumption functions of general equilibrium macro-econometric models such as the Federal Reserve's FRB-US. At the core of representative agent DSGE models is the Euler equation for consumption, popularised in the highly influential paper by Hall (1978). It connects the present with the future, and is essential to the iterative forward solutions of these models. The equation is based on the assumption of inter-temporal optimising by consumers and that every consumer faces the same linear period-to-period budget constraint, linking income, wealth, and consumption. Maximising expected life-time utility subject to the constraint results in the optimality condition that links expected marginal utility in the different periods. Under approximate 'certainty equivalence', this translates into a simple relationship between consumption at time t and planned consumption at t +1 and in periods further into the future.
Under these simplifying assumptions, the rational expectations permanent income consumption function can be derived. In the basic form, consumption every period equals permanent non-property income plus permanent property income defined as the real interest rate times the stock of wealth held by consumers at the beginning of each period. Permanent non-property income converts the variable flow of labour and transfer incomes a consumer expects over a lifetime into an amount equally distributed over time.
However, consumers actually face idiosyncratic (household-specific) and uninsurable income uncertainty, and uncertainty interacts with credit or liquidity constraints. The asymmetric information revolution in economics in the 1970s for which Akerlof, Spence and Stiglitz shared the Nobel prize explains this economic environment. Research by Deaton (1991,1992), 2 several papers by Carroll (1992, 2000, 2001, 2014), Ayigari (1994), and a new generation of heterogeneous agent models (e.g. Kaplan et al. 2016) imply that household horizons then tend to be both heterogeneous and shorter – with 'hand-to-mouth' behaviour even by quite wealthy households, contradicting the textbook permanent income model, and hence DSGE models. A second reason for the failure of these DSGE models is that aggregate behaviour does not follow that of a 'representative agent'. Kaplan et al. (2016) show that, with these better micro-foundations, quite different implications follow for monetary policy than in the New Keynesian DSGE models. A third reason is that structural breaks, as shown by Hendry and Mizon (2014), and radical uncertainty further invalidate DSGE models, illustrated by the failure of the Bank of England's DSGE model both during and after the 2008-9 crisis (Fawcett et al. 2015). The failure of the representative agent Euler equation to fit aggregate data 3 is further empirical evidence against the assumptions underlying the DSGE models, while evidence on financial illiteracy (Lusardi 2016) is a problem for the assumption that all consumers optimise.
The Evolving Credit Market Architecture
Of the structural changes, the evolution and revolution of credit market architecture was the single most important. In the US, credit card ownership and instalment credit spread between the 1960s and the 2000s; the government-sponsored enterprises – Fannie Mae and Freddie Mac – were recast in the 1970s to underwrite mortgages; interest rate ceilings were lifted in the early 1980s; and falling IT costs transformed payment and credit screening systems in the 1980s and 1990s. More revolutionary was the expansion of sub-prime mortgages in the 2000s, driven by rise of private label securitisation backed by credit default obligations (CDOs) and swaps.
The 2000 Commodity Futures Modernization Act (CFMA) made derivatives enforceable throughout the US with priority ahead of claims by others (e.g. workers) in bankruptcy. This permitted derivative enhancements for private label mortgage-backed securities (PMBS) so that they could be sold on as highly rated investment grade securities. A second regulatory change was the deregulation of banks and investment banks. In particular, the 2004 SEC decision to ease capital requirements on investment banks increased gearing to what turned out to be dangerous levels and further boosted PMBS, Duca et al (2016). Similar measures to lower required capital on investment grade PMBS increased leverage at commercial banks. These changes occurred in the political context of pressure to extend credit to poor.
The Importance of Debt
A fourth reason for the failure of the New Keynesian DSGE models, linking closely with the previous, is the omission of debt and household balance sheets more generally, which are crucial for understanding consumption and macroeconomic fluctuations. Some central banks did not abandon their large non-DSGE econometric policy models, but these were also defective in that they too relied on the representative agent permanent income hypothesis which ignored shifts in credit constraints and mistakenly lumped all elements of household balance sheets, debt, liquid assets, illiquid financial assets (including pension assets) and housing wealth into a single net worth measure of wealth. 4 Because housing is a consumption good as well as an asset, consumption responds differently to a rise in housing wealth than to an increase in financial wealth (see Aron et al. 2012). Second, different assets have different degrees of 'spendability'. It is indisputable that cash is more spendable than pension or stock market wealth, the latter being subject to asset price uncertainty and access restrictions or trading costs. This suggests estimating separate marginal propensities to spend out of liquid and illiquid financial assets. Third, the marginal effect of debt on spending is unlikely just to be minus that of either illiquid financial or housing wealth. The reason is that debt is not subject to price uncertainty and it has long-term servicing and default risk implications, with typically highly adverse consequences.
The importance of debt was highlighted in the debt-deflation theory of the Great Depression of Fisher (1933). 5 Briefly summarised, his story is that when credit availability expands, it raises spending, debt, and asset prices; irrational exuberance raises prices to vulnerable levels, given leverage; negative shocks can then cause falls in asset prices, increased bad debt, a credit crunch, and a rise in unemployment.
In the 1980s and early 1990s, boom-busts in Norway, Finland, Sweden, and the UK followed this pattern. In the financial accelerator feedback loops that operated in the US sub-prime crisis, falls in house prices increased bad loans and impaired the ability of banks to extend credit. As a result, household spending and residential investment fell, increasing unemployment and reducing incomes, feeding back further into lower asset prices and credit supply.
The transmission mechanism that operated via consumption was poorly represented by the Federal Reserve's FRB-US model and similar models elsewhere. A more relevant consumption function for modelling the financial accelerator is needed, modifying the permanent income model with shorter time horizons, 6 incorporating important shifts in credit lending conditions, and disaggregating household balance sheets into liquid and illiquid elements, debt and housing wealth.
Implications for Macroeconomic Policy Models
To take into account all the feedbacks, a macroeconomic policy model needs to explain asset prices and the main components of household balance sheets, including debt and liquid assets. This is best done in a system of equations including consumption, in which shifts in credit conditions – which have system-wide consequences, sometimes interacting with other variables such as housing wealth – are extracted as a latent variable. 7 The availability of home equity loans, which varies over time and between countries – hardly available in the US of the 1970s or in contemporary Germany, France or Japan – and the also the variable size of down-payments needed to obtain a mortgage, determine whether increases in house prices increase (US and UK) or reduce (Germany and Japan) aggregate consumer spending. This is one of the findings of research I review in Muellbauer (2016). Another important finding is that a rise in interest rates has different effects on aggregate consumer spending depending on the nature of household balance sheets. Japan and Germany differ radically from the US and the UK, with far higher bank and saving deposits and lower household debt levels so that lower interest rates reduce consumer spending. A crucial implication of these two findings is that monetary policy transmission via the household sector differs radically between countries – it is far more effective in the US and UK, and even counterproductive in Japan (see Muellbauer and Murata 2011).
Such models, building in disaggregated balance sheets and the shifting, interactive role of credit conditions, have many benefits: better interpretations of data on credit growth and asset prices helpful for developing early warning indicators of financial crises; better understandings of long-run trends in saving rates and asset prices; and insights into transmission for monetary and macro-prudential policy. Approximate consistency with good theory following the information economics revolution of the 1970s is better than the exact consistency of the New Keynesian DSGE model with bad theory that makes incredible assumptions about agents' behaviour and the economy. Repairing central bank policy models to make them more relevant and more consistent with the qualitative conclusions of the better micro-foundations outlined above is now an urgent task.
 Part of the problem of identification is that the DSGE models throw away long-run information. They do this by removing long-run trends with the Hodrick-Prescott filter, or linear time trends specific to each variable. Identification, which rests on available information, then becomes more difficult, and necessitates 'incredible assumptions'. Often, impulse response functions tracing out the dynamic response of the modelled economy to shocks are highly sensitive to the way the data have been pre-filtered.
 This important research was highly praised in Angus Deaton's 2015 Nobel prize citation: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2015/advanced.html
 See Campbell and Mankiw (1989, 1990) and for even more powerful evidence from the UK, US and Japan; Muellbauer (2010); and micro-evidence from Shea (1995).
 Net worth is defined as liquid assets minus mortgage and non-mortgage debt plus illiquid financial assets plus housing assets, and this assumes that the coefficients are all the same.
 In recent years, several empirical contributions have recognised the importance of the mechanisms described by Fisher (1933). Mian and Sufi (2014) have provided extensive micro-economic evidence for the role of credit shifts in the US sub-prime crisis and the constraining effect of high household debt levels. Focusing on macro-data, Turner (2015) has analysed the role of debt internationally with more general mechanisms, as well as in explaining the poor recovery from the global financial crisis. Jorda et al. (2016) have drawn attention to the increasing role of real estate collateral in bank lending in most advanced countries and in financial crises.
 The FRB-US model does build in shorter average horizons than text-book permanent income. It also has a commendable flexible treatment of expectations, Brayton et al (1997).
 The use of latent variables in macroeconomic modelling has a long vintage. Potential output, and the "natural rate" of unemployment or of interest are often treated as latent variables, for example in the FRB-US model and in Laubach and Williams (2003), and latent variables are often modelled using state space methods. Flexible spline functions can achieve similar estimates. Interaction effects of latent with other variables seem not to have been considered, however. We use the term 'latent interactive variable equation system' (LIVES) to describe the resulting format.Jim Haygood , December 24, 2016 at 9:08 amfresno dan , December 24, 2016 at 12:37 pm
'the omission of debt and household balance sheets more generally'
putting these eclownometric [sic] models at about the same level of technical sophistication as the Newcomen steam engine of 1712, which achieved about one (1) percent thermodynamic efficiency.
'a macroeconomic policy model needs to explain asset prices and household balance sheets. This is best done in a system of equations.'
Yes indeedy. Reminds me of a young poseur at engineering school, who exclaimed during a group study session, "I've got it all jocked out. Now I just need the equations!"craazyboy , December 24, 2016 at 2:04 pm
December 24, 2016 at 9:08 am
' the omission of debt and household balance sheets more generally '
You beat me to it. I have been aware of that for a few years now, but I doubt that one person in a hundred (or a thousand) knows when they listen to some economist on a news program or a business channel that the person speaking thinks that how much debt people have does not substantively affect their spending.
Really, 5 year olds describing how they get toys from Santa have a better grasp of economics than most "economists"TiPs , December 24, 2016 at 9:41 am
If I used or invented an econ model that left out the "consumer", and modeled it with a "consumption agent object" having a single independent input variable being the Fed zero term, zero risk interest rate, I'd be too embarrassed to admit it. I would probably just very quietly make a career change into one of the softer sciences. Maybe writing fictional romance novels, or some such thing.readerOfTeaLeaves , December 24, 2016 at 11:14 am
The worst thing about these types of mea culpas from the mainstream is the cited criticisms from other mainstream economists only. It can only be a valid criticism if it was published in a mainstream journaljsn , December 24, 2016 at 11:45 am
Of the structural changes, the evolution and revolution of credit market architecture was the single most important . In the US, credit card ownership and instalment credit spread between the 1960s and the 2000s; the government-sponsored enterprises – Fannie Mae and Freddie Mac – were recast in the 1970s to underwrite mortgages; interest rate ceilings were lifted in the early 1980s; and falling IT costs transformed payment and credit screening systems in the 1980s and 1990s. More revolutionary was the expansion of sub-prime mortgages in the 2000s, driven by rise of private label securitisation backed by credit default obligations (CDOs) and swaps. The 2000 Commodity Futures Modernization Act (CFMA) made derivatives enforceable throughout the US with priority ahead of claims by others (e.g. workers) in bankruptcy. This permitted derivative enhancements for private label mortgage-backed securities (PMBS) so that they could be sold on as highly rated investment grade securities. A second regulatory change was the deregulation of banks and investment banks . Similar measures to lower required capital on investment grade PMBS increased leverage at commercial banks. These changes occurred in the political context of pressure to extend credit to poor.
That 'political pressure' turned out to be the bait and switch for a system that shifted power via debt creation.
What we have not yet come to terms with are the implications of David Graeber's anthropological insights: how does debt affect social relationships, alter social norms, and affect relationships among individuals?
Debt is a form of power, but by failing to factor this into their equations, the Central Bankers are missing the social, political, and cultural consequences of the profound shifts in 'credit market architecture'. In many respects, this is not about 'money'; it's about power.
After Brexit, Trump, and the emerging upheaval in the EU, it's no longer enough to just 'build better economic models'.
The Central Bankers' models can include all the parameters they can dream up, but until someone starts thinking more clearly about the role and function of money, and the way that 'different kinds of money' create 'different kinds of social relationships', we are all in a world of hurt.
At this point, Central Bankers should also ask themselves what happens - socially, personally - when 'debt' (i.e., financialization) shifts from productivity to predation. That shift accelerated from the 1970s, through the 1990s, into the 2000s.
Allowing anyone to charge interest that is usurious is the modern equivalent of turning a blind eye to slavery.
By enabling outrageous interest, any government hands their hard working taxpayers over to what is essentially unending servitude.
This destroys the political power of any government that engages in such blind stupidity.
Frankly, I'm astonished that it has taken so long for taxpayers to show signs of outrage and revolt.fresno dan , December 24, 2016 at 12:51 pm
Voters in the U.S. react under radical new action retarding constraints:
- IT enhanced agnatology: kick ass propaganda
- Suburbanization: deportation of the working class from the collective action friendly urban geographycraazyboy , December 24, 2016 at 2:23 pm
December 24, 2016 at 11:14 am
I think you have come up with a good insight – I very much agree its about power and not money.
Now, maybe it is just a coincidence, but it is hard for me not to notice that the explosion in consumer credit matches up nicely with the rise in inequality.
And one other thing I would point out – it doesn't take usurious interest rates. If squillionaires have access to unlimited, essentially cost free money in which the distributors of money are guaranteed a profit, NO MATTER HOW MUCH THEY HAVE LOST, while the debts on non-squillionaires are collected with fees, penalties, and to the last dime, than it doesn't matter if interest rates are essentially zero.
Who gets bailed out is not due to logic or accounting that says that the banks' losses have to be made whole, but not home owners – that is an ideology called economics .José , December 24, 2016 at 12:19 pm
I wouldn't downplay how cool the money part is, however. It's no fun making questionable, dodgy loans unless you can charge fees up front and then sell the risk off to a large crowd of suckers. Hence the importance of securitization and other "insurance" type derivatives. Then, if you run out of willing suckers, you need a place to stuff it all, say pension plans and maybe even privatized social security.
But if they allow this to happen in the real world, shouldn't the models have a piece reflecting this behavior as well? Full circle of course, where the "consumer balance sheet" contains his bad debt investment and savings assets* offsetting his liabilities. Then everyone would be more like a bank?
* we still need to model bubble assets – like real estate and stocks. This sounds like it's starting to get tricky!craazyboy , December 24, 2016 at 2:50 pm
"Another important finding is that a rise in interest rates has different effects on aggregate consumer spending depending on the nature of household balance sheets".
This is a point that Warren Mosler and other MMTers have been making since the 1990s: depending on circumstances, lower interest rates may well have contractionary effects and higher interest rates may stimulate the economy.
The tool of choice to fight recessions and control inflation should thus be fiscal instead of monetary policy.
Again, MMT had the analysis right long before mainstream theory started to admit there might be serious problems with its favorite approaches (without ever giving appropriate credit to MMT, of course!).
Very sad!susan the other , December 24, 2016 at 12:25 pm
I think the Samarians knew that 5000 years ago. The Templars certainly knew it 1300 years ago. And most definitely, "modern" European banking knew it 300 years ago.OpenThePodBayDoorsHAL , December 24, 2016 at 2:10 pm
of note to me is just how simplistic Keynesian statistics were/are, based on almost fantasy-assumptions. And that was followed by Stiglitz et al's theory of asymmetric information models. And this above does give us a dose of all the different variables involved in accurately analyzing an economy – an economy that exploded with financialization, but nobody could keep up. As was proven in 2008. It shouldn't be this confusing. "Repairing CB policies to make them more relevant is now an urgent task." I think it is urgent enough to nationalize the banks and start over using a sovereign money model.Plenue , December 24, 2016 at 5:32 pm
Let's take an infinitely complex system (the economy) that is widely affected by human emotion, then we'll leave out the mechanism by which money itself is created and distributed and then let's "model" it.
We'll have two fans of Stalin's communist "command and control" economy (Keynes and Harry Dexter White) pretend they could create a stable system based on Ph.Ds divining future economic and trade flows and then "managing" them by price fixing the price of money. We'll set policy based on the national conditions of the country with the global reserve currency despite the fact that 2/3 of that currency is outside that country. And with a system where trade never settles so massive imbalances can persist indefinitely. Then let's put self-interested private institutions in charge of all money creation and distribution .and we'll be sure their system operates in secret and is never audited. When the system blows up we'll have these central overlords step in as uneconomic buyers of assets with no consideration for asset quality or price, with no economic need to ever sell, and with "unlimited" funds with which to buy more such assets. At the end we'll continue to call the system "capitalism" and we'll continue to call the scrip "money" and hope nobody notices.
End the Fed.Sound of the Suburbs , December 24, 2016 at 2:21 pm
Congress creates the money when it passes budget legislation. The Fed merely enacts their decree.Sound of the Suburbs , December 24, 2016 at 2:23 pm
Economics has long been known as the dismal science.
The IMF forecast Greek GDP would have recovered by 2015 with austerity.
By 2015 it was down 27% and still falling.
The IMF can attract some of the best economists in the world but a technocrat elite trained in a dismal science aren't up to much.
In 2008 the Queen visited the revered economists of the LSE and said "If these things were so large, how come everyone missed it?"
The FED is full of PhDs from America's finest universities but a technocrat elite trained in a dismal science aren't up to much.
The FED will have been looking at the US money supply, let me show you what they missed:
Everything is reflected in the money supply.
The money supply is flat in the recession of the early 1990s.
Then it really starts to take off as the dot.com boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan's loose monetary policy.
When M3 gets closer to the vertical, the black swan is coming and you have a credit bubble on your hands (money = debt).
The mainstream are all trained in neoclassical economics which is spectacularly dismal.
Steve Keen sits outside the mainstream and saw the credit bubble forming in 2005, you can see it in the
US money supply (money = debt).
In 2007, Ben Bernanke could see no problems ahead (dismal).
Irving Fisher looked at the debt inflated asset bubble after the 1929 crash when ideas that markets reached stable equilibriums were beyond a joke.
Fisher developed a theory of economic crises called debt-deflation, which attributed the crises to the bursting of a credit bubble.
Hyman Minsky came up with "financial instability hypothesis" in 1974 and Steve Keen carries on with this work today. The theory is there outside the mainstream.
To understand the theory you have to understand money:
" .. debt does not make society as a whole poorer: one person's debt is another person's asset. So total wealth is unaffected by the amount of debt out there. This is, strictly speaking true only for the world economy as a whole .. " Paul Krugman "End this Depression Now".
This is the neoclassical economic view of money and it's totally wrong and will always leave you blind to events like 2008, e.g.
1929 – US (margin lending into US stocks)
1989 – Japan (real estate)
2008 – US (real estate bubble leveraged up with derivatives for global contagion)
2010 – Ireland (real estate)
2012 – Spain (real estate)
2015 – China (margin lending into Chinese stocks)
Norway, Sweden, Canada and Australia have been letting their real estate bubbles inflate because their mainstream economists and Central Bankers don't know what's coming.
Money and debt are opposite sides of the same coin.
If there is no debt there is no money.
Money is created by loans and destroyed by repayments of those loans.
If you want to understand how money really works:
From the BoE:
"Where does money come from" available from Amazon
You need to understand how money works to understand why austerity doesn't work in balance sheet recessions, the cause of the dire prediction from the IMF that I started with.
You can look at the money supply/debt levels (the same thing) to see how well the economy is doing.
The money supply is contracting – the economy will be doing badly and the risk of this turning into debt deflation is high, there is positive feedback tending to make the situation worse. Debt repayments are larger than the new debt being taken out, the overall level of debt is decreasing.
The money supply is stable – this is stagnation, in the ideal world the money supply should be growing at a steady pace.
The money supply is growing steadily – the ideal.
The money supply is growing very rapidly – you've got a credit bubble on your hands and the "black swan" is near. The FED didn't understand money and debt before 2008 so they missed it.
Richard Koo explains:
Mario is still doing austerity now, no wonder those Italian banks are full of NPLs.
It's too late for Norway, Sweden, Canada and Australia's mainstream economists and Central Bankers, but we need to get this dismal neoclassical economics updated before the whole world descends into debt deflation.
It's almost here, there isn't much time.
Chuck another trillion in to keep this sinking ship afloat Central Bankers, we need to get our technocrat elite up to speed.Sound of the Suburbs , December 24, 2016 at 2:50 pm
Just look at the rate of change of the money supply/debt.
When it's rising rapidly you're in trouble as a credit bubble is forming.
A negative gradient is also a bad sign as it means your money supply is contracting, your economy is in trouble and debt deflation could be on its way.
Economists do waffle.Skip Intro , December 24, 2016 at 2:38 pm
Now Mrs. Yellen, put that on a Post-It note on your desk and you won't make the same mistake as your predecessor.Dick Burkhart , December 25, 2016 at 2:26 am
I am shocked, shocked I tell you, that a model with 'Equilibrium' right in the name fails to predict crises. They could probably do better just aggregating results from a big multi-player version of The Sims.
Better models should start from scratch, assuming non-linearity. They could take the Limits-to-Growth system of nonlinear pde's as a starting point, for example, to get a good handle on long range dynamics. Then add detailed submodels for money and debt, for different countries, for trade, for different economic sectors, etc. Use realistic agent based models where standard models are inadequate.
To do all, start by sending all those economics Ph.D.s back to school in other fields where they know how to do modern applied mathematics.
See original post for references
Dec 19, 2016 | economistsview.typepad.comJames Kwak:
Jeb Hensarling and the Allure of Economism : The Wall Street Journal has a profile up on Mike Crapo and Jeb Hensarling, the key committee chairs (likely in Crapo's case) who will repeal or rewrite the Dodd-Frank Wall Street Reform and Consumer Protection Act. It's clear that both are planning to roll back or dilute many of the provisions of Dodd-Frank, particularly those that protect consumers from toxic financial products and those that impose restrictions on banks (which, together, make up most of the act).
Hensarling is about as clear a proponent of economism -the belief that the world operates exactly as described in Economics 101 models-as you're likely to find. He majored in economics at Texas A&M, where one of his professors was none other than Phil Gramm. Hensarling described his college exposure to economics this way :
"Even though I had grown up as a Republican, I didn't know why I was a Republican until I studied economics. I suddenly saw how free-market economics provided the maximum good to the maximum number, and I became convinced that if I had an opportunity, I'd like to serve in public office and further the cause of the free market."
This is not a unique story...
Introductory economics, and particularly the competitive market model, can be seductive that way. The models are so simple, logical, and compelling that they seem to unlock a whole new way of seeing the world. And, arguably, they do: there are real insights you can gain from a working understanding of supply and demand curves.
The problem, however, is that the people ... forget that the power of a theory in the abstract bears no relationship to its accuracy in practice. ...
Hensarling, who likes to quote market principles in the abstract, doesn't appear to have moved on much from Economics 101. ... This ritual invocation of markets ignores the fact that there is no way to design a contemporary financial system that even remotely resembles the textbook competitive market: perfect information, no barriers to entry, a large number of suppliers such that no supplier can affect the market price, etc. ...
Regulatory policy that presumes well-functioning markets that don't exist is unlikely to work well in the real world. Actually, Bill Clinton and George W. Bush tried that already, and we got the financial crisis. But to people who believe in economism, theory can never be disproved by experience. Hensarling is "always willing to compromise policies to advance principles," he actually said to the Journal . That's a useful trait in an ideologue. It's frightening in the man who will write the rules for our financial system.
yuan : , December 20, 2016 at 11:17 AMso...what kind of bubble will cutting onerous government regulations blow this time?pgl -> yuan... , December 20, 2016 at 11:20 AMI always laugh when Newt Gingrich says we need "rational regulation". His crew has as its prime agenda getting rid of any regulation that is actually rational.yuan -> pgl... , December 20, 2016 at 11:24 AMthe greater the information asymmetry, the easier it is to loot.pgl -> yuan... , December 20, 2016 at 01:25 PMExactly right and a key point.Tom aka Rusty -> pgl... , December 21, 2016 at 08:18 AMLike the 521 page explanation of the new overtime rules?mulp -> Tom aka Rusty... , December 21, 2016 at 12:18 PMThat is required to cover all the common law complexities from civil suits on labor issues being legislated from the Federal bench.pgl : , December 20, 2016 at 11:18 AM
Businesses have resorted to getting judges to legislate their way once their lobbying failed to get Congress to legalize slavery by other names.
Labor is a part of econ 101 that businesses do not understand.
Businesses see labor as black holes sucking all the money it can out of the economy. Consumers, on the other hand, are infinite sources of spending as long as government does not require consumers repay debts. But government does need to put more money in consumer pockets with more and bigger tax cuts.
When I learned econ 1 in secondary school social studies, the money spent at businesses came 100% from wages businesses paid.
A more advanced concept was economic profits were bad because that meant monopoly power restricting supply to consumers to take too much of their money and also pay them less than in an efficient economy.yuan -> pgl... , December 20, 2016 at 11:23 AM"Hensarling is about as clear a proponent of economism -- the belief that the world operates exactly as described in Economics 101 models-as you're likely to find. He majored in economics at Texas A&M, where one of his professors was none other than Phil Gramm."
Gramm never really got the economics of financial institutions. Milton Friedman did as he studies their failures during the Great Depression. We sort of relived this during the 1980's S&L crisis but on a smaller scale. That crisis was driven by ill advised financial deregulation.
Gramm pushed the next round of stupid deregulation which led to the latest crisis. And it seems Team Trump is about to relive the same mistake. Studying overly simplified models that have historically failed us over and over is the height of stupidity.https://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_ActPeter K. -> yuan... , December 20, 2016 at 01:24 PM
"The Gramm–Leach–Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106–102, 113 Stat. 1338, enacted November 12, 1999) is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. With the bipartisan passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. Furthermore, it failed to give to the SEC or any other financial regulatory agency the authority to regulate large investment bank holding companies. The legislation was signed into law by President Bill Clinton."" The legislation was signed into law by President Bill Clinton."Daniel Brockman -> Peter K.... , December 21, 2016 at 11:38 AM
Who was his adviser? Larry Summers.
pgl calls them "progressive."How is it relevant that pgl called (or may have called) Larry Summers and Bill Clinton "progressive"? It's not relevant. Peter K. argues ad hominem.pgl -> yuan... , December 20, 2016 at 01:29 PMSome pest who knows nothing decided to slam Lawrence Summers. Here is something he co-authored with Natasha Sarin which relates to this issue:yuan -> pgl... , December 20, 2016 at 02:03 PM
It is an excellent discussion which you might enjoy. That know nothing will not read it as actual analysis only gets him angry.a good read but i disagree with their suggested approach:pgl -> yuan... , December 20, 2016 at 02:57 PM
"Consideration needs to be given to approaches such as those suggested by Bulow and Klemperer (2015) and
King (2016) that give more weight to market prices as indicators of asset values and that bring automaticity to the restoration of bank capital when it starts to decline."
imo, small enough to fail institutions pose less system risk and are less likely to speculate.I suspect over time we will disagree slightly here and there on specifics but it is a joy to have someone here that gets down to real analysis.anne -> pgl... , December 20, 2016 at 03:09 PM
In my view Sarin-Summers took too tiny a step into something fundamental but often overlooked. The return to equity is a mix of the equity/asset ratio (which needs to go up) aka leverage risk and the issue of operational risk which you are hinting at.
I bet Anne will demand more on what I'm saying here. Tiem to think about how best to present this over at Econospeak as this is a really big deal. Even if it is something Trump's new CEA (Lawrence Kudlow) does not get. Neither does PeterK so maybe he can work for Kudlow - the stupidest man alive (almost).The return to equity is a mix of the equity/asset ratio (which needs to go up) aka leverage risk and the issue of operational risk...Sanjait -> yuan... , December 20, 2016 at 09:48 PM
[ This is important and needs to be described further when time allows. ]Small enough to fail institutions like ... Bear and Lehman?mulp -> pgl... , December 21, 2016 at 12:34 PM
Theory aside, in the real life crisis we had risk built up across the entire system, not just big banks, and when a few midsized firms went under it broke the buck and everything went to hell.
Perhaps more importantly though, it was *consumers'* overleveraging that caused the prolonged depression. The big banks participated in that but didn't have central roles.
"Milton Friedman did as he studies their failures during the Great Depression."Paul Mathis : , December 20, 2016 at 12:45 PM
So, how is it that he promised money market funds would ever be at risk of insolvency and need Fed bailout of credit, and that money market funds would never face bank runs because no one would ever question their safety and solvency?
How is it that he failed to predict Primary Reserve breaking the buck and triggering bank runs on the shadow banks?
I remember the debate over Regulation Q and retail money market funds. I agreed with the big government liberals that it was going to end badly. That it took 37 years is not a surprise to me, but October 2008 was no surprise at all to me. It was forecast by my kind of economists in 1970 based on what happened multiple times before 1935 when sane bankers and economists developed the bank regulation that produced half a century of no bank crisis.
Friedman, on the other hand, argued for deregulation that delivered bank crisis in the late 80s, the 90s multiple times deftly handled by bailouts by both government and by forcing Wall Street banks to do Morgan bailouts, eg LTCM, and the IMF, and then yet again, the bank crisis of the 00s.
Three decades of bank crisis in four decades is hardly evidence Friedman understood banking.For Free Market Ideologues the Great Depression Never HappenedDeDude -> Paul Mathis... , December 20, 2016 at 02:13 PM
Simple question for Jeb H: Why was there a Great Depression when we had budget surpluses every year during the 1920s?
How could the Free Market have failed so completely from 1929 to 1933? We had gold money and regulations were minimal. It was the ideal context for the Free Market and yet the Dow lost 90% of its value. Why has the Dow nearly tripled in value now with Dodd-Frank in force?Those are the inconvenient facts and questions that are willfully ignored in order to avoid uncomfortable shaking of simple narratives.yuan -> Paul Mathis... , December 20, 2016 at 02:14 PMbut banks have under-performed relative to the market as a whole. now that government sachs controls the executive branch this may very well change!Paul Mathis -> yuan... , December 20, 2016 at 02:23 PMBanks Underperformed Because Rates Were Lowpgl -> Paul Mathis... , December 20, 2016 at 02:59 PM
Now that the Fed is raising rates, banks stocks are leading the stock market rally.I'm with yuan on this one. But this is a long story. For today - let me applaud you and yuan for bringing something new and needed here. Debates over actual economic analysis.pgl -> Paul Mathis... , December 20, 2016 at 03:01 PMI have particularly hard on pathetic BofA so I checked:yuan -> Paul Mathis... , December 20, 2016 at 03:02 PM
You have a point on the stock prices as even this welfare queen is finally doing well in the market place."Now that the Fed is raising rates, banks stocks are leading the stock market rally."pgl : , December 20, 2016 at 02:53 PM
i expect profit-generating financial innovation.Not financial regulation but a key issue - Paul Ryan's desire to lie to us on repealing Obamacare has taken a major hit from the CBO:Chris G : , December 20, 2016 at 04:36 PM
Shorter CBO - we are onto your lies Mr. Speaker.Lord save from True Believers like Hensarling.Larry : , December 20, 2016 at 06:12 PMWe got a lot more than the financial crisis from r lying on markets more than government. Yes, regs are necessary (externalities, monopolies, etc) but "the more the merrrier" is not the underlying principle. Read that D/F has > 20k "rules" with >300 "major" rules yet to be written after 6 years of work. The world changes way faster than government can. Regulators need to find much simpler, more general approaches ("less leverage") if they're going to continue to add value.jcb : , December 20, 2016 at 08:12 PMThis is a problem of the teaching of contemporary economics, not of Jed Hensarling. Economists tout simplified classical models as fundamentally correct, teach them in freshman Economics 101, and only admit that they don't approximate reality in Econ 401, for seniors. But most students never take another econ course after 101. The damage is done. Not surprisingly, most young Republicans discover that economic reality is...Free Market and Republican!100panthers : , December 20, 2016 at 09:01 PM
Think maybe it's time to show them that the classical model doesn't really work when they are freshmen, and not complain after they're already in Congress.Agency's '04 Rule Let Banks Pile Up New Debt100panthers : , December 20, 2016 at 09:03 PM
It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.
With that, the five big independent investment firms were unleashed.
In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms' own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.
At Bear Stearns, the leverage ratio - a measurement of how much the firm was borrowing compared to its total assets - rose sharply, to 33 to 1.
http://mobile.nytimes.com/2008/10/03/business/03sec.htmlDo some economists live in Post-truth (errr...Post-eco-history) and not read economic history?reason : , December 21, 2016 at 12:10 AMAh, Texas the home of fundamentalism. Texas basically lives by sticking a big straw in the ground and selling what comes out. That is great until it (as it will) stops working. Texas is a caricature of all that is wrong with mankind.reason -> reason ... , December 21, 2016 at 12:11 AM(P.S. I'm not just talking about oil and gas, but also water.)reason -> reason ... , -1Another way to look at Texas is as the Saudi Arabia of North America. All that is missing is a King. The rest of the USA should get together and give it back to Mexico. Both countries would be better off.
Dec 19, 2016 | economistsview.typepad.com
RGC : December 18, 2016 at 10:13 AM , 2016 at 10:13 AMKeynes BetrayedRGC -> anne... , December 18, 2016 at 10:13 AM
December 18, 2016
" To complete the reconciliation of Keynesian economics with general equilibrium theory, Paul Samuelson introduced the neoclassical synthesis in 1955...
... In this view of the world, high unemployment is a temporary phenomenon caused by the slow adjustment of money wages and money prices. In Samuelson's vision, the economy is Keynesian in the short run, when some wages and prices are sticky. It is classical in the long run when all wages and prices have had time to adjust....
... Although Samuelson's neoclassical synthesis was tidy, it did not have much to do with the vision of the General Theory...
... In Keynes' vision, there is no tendency for the economy to self-correct. Left to itself, a market economy may never recover from a depression and the unemployment rate may remain too high forever. In contrast, in Samuelson's neoclassical synthesis, unemployment causes money wages and prices to fall. As the money wage and the money price fall, aggregate demand rises and full employment is restored, even if government takes no corrective action. By slipping wage and price adjustment into his theory, Samuelson reintroduced classical ideas by the back door-a sleight of hand that did not go unnoticed by Keynes' contemporaries in Cambridge, England. Famously, Joan Robinson referred to Samuelson's approach as 'bastard Keynesianism.'
The New Keynesian agenda is the child of the neoclassical synthesis and, like the IS-LM model before it, New Keynesian economics inherits the mistakes of the bastard Keynesians. It misses two key Keynesian concepts: (1) there are multiple equilibrium unemployment rates and (2) beliefs are fundamental. My work brings these concepts back to center stage and integrates the Keynes of the General Theory with the microeconomics of general equilibrium theory in a new way. "
Prosperity for All: Pages 25-26
[PK supports the neoclassical synthesis]You could meanwhile contemplate Farmer's point that Samuelson and his MIT colleagues "bastardized" Keynes' views when they introduced them to the US.RGC -> RGC... , December 18, 2016 at 10:38 AM
" By slipping wage and price adjustment into his theory, Samuelson reintroduced classical ideas by the back door-a sleight of hand that did not go unnoticed by Keynes' contemporaries in Cambridge, England. Famously, Joan Robinson referred to Samuelson's approach as 'bastard Keynesianism."And then you might contemplate Samuelson's (and MIT colleagues) influence on Krugman, Blanchard, Summers and all the well-publicized mainstream economists.anne -> RGC... , December 18, 2016 at 10:47 AMBy slipping wage and price adjustment into his theory, Samuelson reintroduced classical ideas by the back door-a sleight of hand that did not go unnoticed by Keynes' contemporaries in Cambridge, England. Famously, Joan Robinson referred to Samuelson's approach as 'bastard Keynesianism'.RGC -> anne... , December 18, 2016 at 11:40 AM
-- Roger Farmer
[ A fine place to start thinking. I knew this before and read this again today, but did not think about the argument.
I am grateful for the persistence. ]You might also wonder how it could happen that those "bastard Keynesians", the ones who distorted Keynes' message, came to be the ones who are well publicized, rather than more accurate interpreters.anne -> RGC... , December 18, 2016 at 10:52 AMhttp://mrzine.monthlyreview.org/2009/foster170309p.htmlRGC -> anne... , December 18, 2016 at 12:20 PM
Keynes, Capitalism, and the Crisis
Brian Ashley interviewing John Bellamy Foster
[ I will start here. ]I think that is a good discussion. I also think the major weakness of both Keynes and Marx is that they underestimated the power and resilience of finance. They both thought logic dictated the "euthanasia of the rentier", while we are seeing the rentier growing ever stronger.anne -> RGC... , December 18, 2016 at 12:31 PM
I also think the major weakness of both Keynes and Marx is that they underestimated the power and resilience of finance....anne -> RGC... , -1
[ Really interesting comment, and directly related to a problem I am just now working through and which I can present.
Nice, nice. ]Good grief. There we have a review from the links of Mark Thoma, while I had no idea till now:
December 17, 2016
It's always with great diffidence that I write about macroeconomics. Although I'm in good company in being sceptical about much of macro (see this roundup from Bruegel and this view from Noah Smith, for instance), I'm all too well aware of the limits of my knowledge. So with that warning, here's what I made of Roger Farmer's very interesting new book, Prosperity for All: How To Prevent Financial Crises....
-- Diane Coyle
Dec 18, 2016 | www.nakedcapitalism.comPosted on December 17, 2016 by Yves Smith Cahal Moran is a member of Rethinking Economics, the worldwide student movement to reform the teaching of economics. He is the co-author, with Joe Earle and Zach Ward-Perkins of the book The Econocracy: The Perils of Leaving Economics to the Experts the authors can be followed on their Twitter account @TheEconocracy . Interview conducted by Philip Pilkington, a macroeconomist working in asset management and author of the new book The Reformation in Economics: A Deconstruction and Reconstruction of Economic Theory . The views expressed in this interview are not those of his employer.
PP: Your book starts with a quote from Albert Camus that is, in some ways, rather pessimistic. In it he says that most generations seek to reform the world but that his generation only sought to ensure that the world does not destroy itself. You and I are both of the same generation broadly speaking and I do not think it unfair that our generation is subject to some abuse and often portrayed as narcissistic, video-game obsessed, layabouts. I have always felt that the 'problem generation' are, in fact, the Baby Boomers who tag us with these clichés. It is this generation that rules the world today and this generation that gave birth to The Econocracy. Before we get too much into what The Econocracy is and how it operates, maybe you could briefly talk about this generational issue. Is it something that you have given much thought to and do you identify more so with Camus' generation?
CM: We do not focus on the generational issue too much, but it is really at the heart of the book and of the student movement more generally. Unlike the boomers, we have grown up in a world of economic and political uncertainty, with the financial crisis being the most extreme example of this (yet). The disconnect between this uncertainty and at times chaos and what we saw in the classroom really sowed the seeds for societies like Post-Crash Economics. If the boom had simply continued, perhaps we would have just shrugged our shoulders and got on with it. But we could not ignore what was going on outside the lecture theatre. In this sense, Camus' feeling of a call of duty resonated with us and that's why we chose that quote. However, we try to use this initial pessimism to build a positive vision later on.
PP: Yeah, I know the feeling. It was very hard for me to not think that something was really, really wrong with economics as I took undergraduate classes against the backdrop of the 2007-08 crisis. For me there was a lot of cognitive dissonance. I found it really weird because it seemed to me pretty obvious that economics was the language of power – the language through which our leaders communicated their plans and goals to the rest of us. But what I was learning in class did not seem up to this in any way, shape or form. I think that this is a theme in your book too. Could you explain what you mean by 'The Econocracy' and how it functions?
CM: In the book we give a formal definition of econocracy as "a society in which political goals are defined in terms of their effect on the economy, which is believed to be a distinct system with its own logic that requires experts to manage it. " In other words, the idea of 'the economy' as a separate sphere of life is dominant in politics, and this separate sphere has technical properties which can only be understood through economic expertise. The results are twofold. First, public debates about the economy are conducted in a language that most people simply do not speak – we've tried to look at this this through undertaking polling with Yougov and one of the things we found is that only 12% of respondents said they thought politicians and the media talk about economics in an accessible language.
Second, many key areas of decision making – central banks, international institutions like the IMF & World Bank, competition authorities – are delegated to people with economic expertise on the grounds that they can find what is in some sense a technically 'right' answer to economic problems in their respective domains. The rise of this idea of the economy is reflected in the increase in mentions of 'the economy' in the winning UK political party's manifestos: it was only mentioned once, for the first time, by the Conservatives in 1950, but 5 years later this rose to 10 and in the most recent Conservative party manifesto 'the economy' was mentioned 59 times.
PP: I'm getting the sense that this goes beyond a simple criticism of technocracy and bureaucracy, right? I mean a lot of aspects of society are run based on expertise of some sort or another. But you seem to be getting at something else. Is this related to the fact that, like the Scholastics of the Middle Ages, they have concocted an elite language?
CM: That's absolutely right. One could probably write a book critiquing the technocratic and bureaucratic tendencies of say, lawyers or accountants, but where economics goes one step further is the place it has in public debate. Economists are wheeled out to comment on all sorts of public policy issues: in the news, on the TV, online and so forth. The deference to economic expertise is something that permeates our politics and, through the use of jargon, maths and statistics, serves to exclude non-expert citizens from conversations about issues that often have a direct impact on their lives. As you imply, it is something like an ancient priesthood. In fact, in an earlier draft of the book we made a comparison to ancient medical texts, which were only written in Latin and so created a huge asymmetry between experts and non-experts, which could have awful consequences for the latter. In some senses economics in modern times goes even further than this, because it affects policy on everything from incomes and jobs to healthcare and the environment.
PP: Yes. I've also long thought this. My book is actually about trying to figure out what is pure ideology and mysticism and what is not within the jargon. I suppose that leads us pretty tidily to the title of the second chapter of your book: 'Economics as Indoctrination'. Given that you have this view of economic language – one which I concur with in that I have concluded that maybe 60-80% of formal economic language is ideology – it pretty naturally follows that there will be some attempt to indoctrinate those who wish to speak the language. I guess the natural place to start is to ask you for a flavour of what this indoctrination looks like and then maybe we will move on to what its purposes are and what ends it serves.
CM: It sounds like there's some crossover between our books, and this is something I've noticed with people across the movement. It's great that so many people are independently coming to similar ideas and, I think, a sign that we may just have a point.
We call economics education indoctrination in the book not just because students are presented with only one set of ideas – neoclassical economics – but because they are taught to accept it in an uncritical manner, as if it is all there is to economics. The idea that there might be criticisms of neoclassical economics, other schools of thought, and even the real world are evicted to such an extent that after a while students may find it difficult to think any other way. Keynes said that the real challenge lies in escaping old ways of thinking, and this is something we've all noticed in ourselves after studying economics.
PP: I'd tend to agree. But what I found very interesting about the book was that you looked at how economics education is structured. You paint the picture of a very odd discipline that does not appear to be taught like other disciplines, whether natural or social science. Do you think that there is something distinctly different in this regard and could you describe it briefly?
CM: Economics is definitely a law unto itself. In natural sciences, the culture is very much focused on the empirics: theory has empirical motivations, and you always come back to falsifiable predictions before too long. In other social sciences, the culture is instead focused on debate and the contested nature of knowledge. You learn not to take any of your beliefs for granted. But entering an economics degree feels a bit like being transported to another universe. Students are introduced to a fixed body of knowledge that is presented as if – in the words of one student – it "fell from heaven in an ever-true form". The focus is very much on learning this body of knowledge by rote, building up the neoclassical world from abstract axioms and solving mathematical problems with at best vague and stylised references to the real world they are supposed to represent. The commonly used phrase 'thinking like an economist' really captures the effort to indoctrinate students into this framework.
We did a curriculum review of the final exams and course outlines of 174 modules at 7 Russell Group universities (considered the 'elite' of the UK) to look systematically into how economics students are educated. Our main aim was to look for evidence of critical thinking, pluralism and real world application, all of which we would consider vital to educating the experts of the future. The results were deeply worrying: 76% of final exam questions showed no evidence of critical thinking – that is, formulating an independent, reasoned argument. When only compulsory modules (namely micro and macroeconomics) were included, this figure increased to a staggering 92%. Instead, the majority of marks are given for what we call 'operate a model' questions: working through a model mathematically without asking questions about its applicability. Of those questions which ask students to operate a model, only 3% even attempted a link to the real world. The remainder of the marks were given for simple description questions ('what is the Friedman k% rule?') or multiple choice questions, again neither of which require any critical thinking. All of this is very worrying when you consider the place economic expertise has in society.
PP: It is really very concerning. Although I would imagine that anyone who has actually taken an economics class – as many of the educated public have at some time or other – will not be surprised at what you have found. If you are correct then it seems to logically follow that the experts of the future are being trained to think in a highly abstract manner but that these abstractions need no link to the real world as it exists. What is more, if they are only being given one perspective and are told that this perspective is as true and infallible as the most rigorous of the sciences you are going to get a very high level of confidence in these abstractions by these experts. Have you thought about what this means when these people flow into the elite institutions that control important aspects of our societies? How do you think that it informs and shapes their judgements and what implications do you think this has for the rest of us?
CM: This process is indeed the main way that the econocracy reproduces itself: as the economic experts of the present train the economic experts of the future, this shapes the way the latter approach economic problems when they go on to work at powerful institutions. Broadly speaking, this education shapes the perception of economic experts in two ways. Firstly, they tend to have mechanical view of the world, thinking of economic and social problems as clearly defined technical questions. This allows them to produce clear predictions when addressing even complex political issues. Secondly, they see economics as a separate, value-free sphere which does not require ethical and political debate. Their answers to policy questions have the air of objectivity about them.
To make things more concrete consider cost-benefit analysis, an idea with its roots in economics that's used extensively by major institutions like the Government Economic Service in the UK. This calculates the 'costs' and 'benefits' of different policies by assigning a monetary value to each of them, then provides a clear decision rule: if the benefits outweigh the costs, the policy is a good one. Cost-benefit analysis is used even when the effects of a policy are not obviously monetary, such as the number of trees in an area, or mortality rates, transforming what was a multifaceted problem into a simple, seemingly objective mathematical problem. The result of this is that decisions which could concern a large range of stakeholders are made in a centralised manner behind closed doors, often without the consultation of these stakeholders (except in order to retrieve money values from them, which raises problems in itself).
PP: Right. I see what you mean. So this goes far beyond, say, the blindnesses in the theories that led to, say, economists largely missing the crisis and thinking, to quote Blanchard, that the "state of macro was good" even in the face of such problems. Have you given any consideration to these facts in the book? James Galbraith has a great quote where he says that:
Economists predict disaster where none occurs. They deny the possibility of events that then happen. They oppose the most basic, decent, and sensible reforms, while offering placebos instead. They are always surprised when something untoward (like a recession) actually occurs. And when finally they sense that some position cannot be sustained, they do not re-examine their ideas. Instead, they simply change the subject.
That seems to be another angle by which you might criticise the profession: namely, that they're not actually very good at what they claim to be specialists in. Do you and your co-authors have anything to say about that?
CM: Exactly – economics permeates our political process, from seemingly small examples like cost-benefit analysis to catastrophic events such as the financial crisis. We open the book with the former but later on we move on to several case studies of the latter, including the financial crisis but also broadening our argument to other areas where we think neoclassical economics falls short, like the environment and inequality. The kind of hubris illustrated by economists like Blanchard – as well as Robert Lucas when he claimed "the central problem of depression prevention had been solved" in 2003 – seems quite remarkable to us now, but economists really had convinced themselves that they'd found a simple, technical solution to the business cycle. Making central banks independent from the political process, staffing them with economists and tasking them with using interest rates to manage inflation and growth, along with a fairly hands-off approach to the financial sector (which itself used economic models such as Black-Scholes) seemed to be working. That was, until the theoretical blind spots economists had in the housing market and financial sector was revealed by the near-collapse of both of them.
Quite clearly, the profession has yet to find definitive answers to major economic questions like 'what causes financial crises?' This is completely understandable in itself, as these are difficult questions. But the fact that the profession also has the capacity to convince not only itself but policymakers and politicians that it has solved these problems, and therefore that its ideas should guide public policy, is extremely worrying when it can have such terrible consequences for so many people. And it is worth mentioning those non-neoclassical economists – like Hyman Minsky, Wynne Godley, and Steve Keen – who put the financial sector front and centre of their analysis and made sometimes prescient warnings about crises like the one we've just experienced. Given these examples, it actually puzzles and saddens me that the profession is not willing to accept more intellectual diversity. Galbraith's quote touches on this intellectual inertia, and one of the things we discuss in the book is macroeconomists' attempts to reassert themselves since the financial crisis, some of which have involved some impressive mental gymnastics. One example is Tom Sargent denying altogether that macroeconomists failed to foresee the crisis, which is ironic because he wrote a paper just before the crisis arguing that investors weren't taking enough risk due to their memories of the Great Depression. This kind of retrospective rewriting of history has to be fought if economics is not to slip back into old habits.
PP: The mental contortions are absolutely fascinating. I've noticed three key trends in the profession since the crisis. The first is to talk more about a phenomenon that mainstream economists call 'rational bubbles'. I mean RATIONAL bubbles. That is manifestly a doublethink word, not unlike Orwell's blackwhite. The second is to add Bayesian agents into economics models and saying that this will ensure that these models are robust in future (an absurd claim given the backward-looking nature of Bayesian agents). Bayesian agents, of course, update their beliefs in line with past events - not a bad allegory for the how the modellers see themselves! The final, and most pronounced, is to try to sweep under the carpet the fact that the Efficient Markets Hypothesis makes falsifiable (and falsified!) claims that markets integrate all relevant information and instead try to draw attention to the fact that it also states that no one can beat the markets. The idea seems to be to maintain the theory by saying that it doesn't say what it in fact says and drawing attention to a secondary prediction that it makes. What do you make of this sorry, but I have to say it dishonesty? And do you think that the next generation are by and large swallowing it?
CM: I think the issue is that many economists are stuck in their ways. It's clear these economists have been doing economics a certain way, using a certain framework, for their entire lives, so it's perhaps unsurprising that they can't think any other way. Max Planck said that science advances one funeral at a time, but the especially worrying thing given the research we've done for the book is that the next generation of economic experts are being trained to think in the exact same way. In fact, evidence we present suggests that economics education has actually become more, not less narrow over the past few decades, so if things don't change the situation could get even worse in the future. And as I mentioned earlier, that's nothing against economics students themselves – they have exams to pass, and aren't really given much opportunity to read around and question what they're taught.
The positive thing is that we are seeing these student groups spring up across the world who are all recognising the limitations of their education: the lack of pluralism, critical thinking and empiricism come up again and again in students' complaints. What's more is that we have support from big institutions like the Bank of England, Trade Union Congress and Government Economic Service, who have voiced similar concerns. If you look at things like the movement for gay marriage in the United States, it's clear the politicians were the last to change – when every other sector of civil society had been convinced and they had no choice. Perhaps if change comes to economics, academia will be the last to change – when everyone else demands it.
PP: But surely this is somewhat different from a political issue like gay marriage. Political issues have to do with changing peoples' opinions on some matter or other. That just means putting forward a persuasive argument and then waiting for it to get accepted. What we are dealing with seems like something rather different. Sure, you could convince many that some change needs to come about in the way economics is taught. But that does not produce the means by which to teach it. I think that we saw what happens there with Wendy Carlin's CORE program (an INET-funded attempt at curriculum reform). This was the economists' response to demands for a more integrated and pluralistic course but I saw it - and I think the student movement saw it - as more of the same. Yet I have no doubt that Carlin really did her best to put together something that she thought would address the concerns being raised. The problem is that Carlin et al cannot actually put together something that meets the concerns. I suppose this is a variant on the classic 'who governs the governors': who teaches the teachers.
CM: You are absolutely right about that and the example of CORE is a good one, as it demonstrates perfectly the type of limited reform which can serve as a safety valve against more radical opposition. Carlin and CORE's other proponents view the problem as one with economics education, but not economics itself – she has previously stated that "economics explains our world, economics degrees don't". Interestingly, this rhetoric is similar to the response to calls for reform in economics graduate programs in the US in the 1980s, where the need for more real world application was accepted but it was argued that programs should retain the "core [which] should be regarded as the basic unit in which those things common to all economists should be taught". We repeatedly see this disconnect between the critic's idea of reform and the mainstream's, cemented by the fact that many neoclassical economists simply do not know enough about non-neoclassical ideas to teach them. It is a vicious circle which is inevitably going to reproduce a fundamentally similar education, even if some internal attempts at reform are made along the way.
Thus in CORE the calls for history, real world applications and interdisciplinarity are all, to some degree accepted (even if they are not pursued adequately), while the calls for pluralism and critical thinking are not. The resulting education is perhaps an improvement, but the outcome is similar: instead of saying 'here is neoclassical economics, learn and then (maybe) apply it', the message of CORE is 'here is the real world, here is how neoclassical economics applies to it'. Once more, the idea that the theory and even the history itself might be contested is thrown out of the window and the result is still a narrow education. In fact, we reviewed the University College London exams for the CORE course and found that they showed a slight increase in critical thinking, but were still primarily about regurgitating models and theories. The need for pluralism is made especially apparent here, as learning about alternative ideas immediately makes students re-evaluate what they have already been taught. Students need to know more than one set of ideas if they are to judge which ideas are best suited to explaining a particular situation.
PP: My impression from the book – and please, correct me if I'm wrong – is that you want to bypass this structural constraint by making economics more democratically accessible. Personally, I think that there is a lot of merit to this idea. In my book, as I said, I try to present an ideology-neutral economics – which I think can be done to some limited extent – and what you find with such an economics is that many different worlds are possible. Economics in this regard can be a helpful guide but it cannot tell you much about where you want to go. For this reason I would much prefer to see more democratic input on economic decision-making and much less pontifications from an over-heavy technocracy. That said, however, economics is still a relatively difficult subject. It cannot be picked up without some commitment to study it. How do you square this circle – by which I mean, how do you try to increase the accessibility of economics without watering it down so much that it becomes analytically dysfunctional? And a cheeky, but related question: in the book you rightly draw attention to the fact that economics jargon is over represented in political discourse – how do you ensure that you are not increasing the volume and weight of this jargon through attempts at popularisation?
CM: We definitely view the democratisation of economics as a necessary part of the renewal of the discipline and indeed of politics, but your conception of it as a strategic way to bypass the inertia of the discipline is an interesting idea and something I hadn't thought of explicitly. I suppose this goes back to what I was saying about bottom-up approaches to reform and the value of demanding change from different angles. Unfortunately and as we've seen, one of the main response to Brexit and Trump by elites has simply been to view those who vote for it as ignorant or bigoted. The simple fact is that many peoples' lived experience of 'the economy' is completely different to the top-down, statistical and theoretical views of economists and pundits. Many have experienced huge shifts and declines in their circumstances for decades, neither of which are obvious if you only look at GDP and inflation statistics, or (worse) if you are completely lost in theory.
In the book we introduce the idea of the public interest economist, who has socially aware research topics, a commitment to public engagement and education, and who looks to hold powerful public and private institutions to account. Reconnecting economic experts with the public in this way would be a great way to temper the former's technocratic, top-down tendencies and encourage the experts to understand that people may have different, valid views to them – and this is a gateway to appreciating other approaches more generally. Of course, this doesn't eliminate the need for expertise altogether: our intuition can only go so far, and some things can only be revealed by systematic and empirical study. Economics is difficult, as you point out. But a world in which economic experts are in touch with and can be questioned by the public is one where economic expertise will naturally be more responsive to the needs of said public. We sum it up by saying that we want experts to inform our decisions, but not necessarily to make them for us.
Illustrating the magnitude of the challenge you raise about teaching economics without jargon, I'm going to have to introduce some jargon. In the book we distinguish between formal literacy, where people are taught a fixed body of knowledge; and substantive literacy, where people are encouraged to question the subject matter and form their own independent views. This is the basis for the other pillar of our proposals: citizen economists, non-experts who nevertheless have some baseline level of substantive literacy and are able to engage in economic debates. The starting point for citizen economics is to make connections between peoples' own lives and broader economic problems, encouraging their own input from the start. And an important part of being a citizen economist is not to accept the seeming authority bestowed by the use of jargon and to ask experts to say what they mean in plain language. As a student movement we have already started to put this into practice with citizens' crash courses (evening classes for adults), schools workshops, the public education website ecnmy.org and by supporting the RSA's Citizens' Economic Council, which is seeking to establish more democratic input into economic policy.
PP: Yeah, I think I see what you're saying. Anyway, I suppose we should wrap this up as it's pretty long already. Where do you see this whole thing going from here? Are you optimistic about the future, both in terms of opening up the discipline and in terms of fixing the incredibly serious economic problems that have emerged in the past 30 years?
CM: I am cautiously optimistic about the future, as I think in many ways the debate has been won over whether economics should change – the question is now what form this change should take. On top of changes we have already discussed such as CORE and the position of the Bank of England, we have seen the ESRC put aside a large pot of money for research in new ideas in macroeconomics (the question is whether this money will be used to support CORE type research or more diverse and radical ideas); Manchester council involving citizens more in the decision-making process; the director of the IFS, Paul Johnson, admitting economists' failure to communicate during Brexit; and many more emerging examples that the message is getting across to various sections of civil society. More must certainly be done and it is up to everyone to make sure that the changes are fundamental rather than incremental, but in my eyes it is starting to look possible that economics will evolve from an insular and esoteric discipline into a vibrant, pluralistic public dialogue – and we think that can only be a good thingPat K California , December 17, 2016 at 7:57 amGlassHammer , December 17, 2016 at 10:35 am
"In other social sciences, the culture is instead focused on debate and the contested nature of knowledge. You learn not to take any of your beliefs for granted. But entering an economics degree feels a bit like being transported to another universe. Students are introduced to a fixed body of knowledge that is presented as if – in the words of one student – it "fell from heaven in an ever-true form"."
How on earth did this happen?? Was the teaching of economics always this way? Or did something happen at some point along the way (say, the influence of a particular school of thought, etc.) to create a static curriculum where critical thinking is so undervalued?
"The deference to economic expertise is something that permeates our politics and, through the use of jargon, maths and statistics, serves to exclude non-expert citizens from conversations about issues that often have a direct impact on their lives."
Doesn't this sound exactly like the Clinton campaign? Technocrats all, who say to people like me, "Trust us. We're the EXPERTS. Don't even try to stretch your silly little brains. We know what's best."Steve H. , December 17, 2016 at 11:01 am
If economics is to function as the medium of power than its students must be made to follow blindly. Critical thinking would allow them to undermine it or manipulate it to their own ends.
The students must be made into strict adherents before being granted access to the highest levels of information. By erecting barriers at each level (be it specialized language that must be mastered or learning contigent on prior learning) we can separate the weak from the true adherents.witters , December 17, 2016 at 4:27 pm
Following Adler, economics is not a science, it's a philosophy. At least economics doesn't burn its heretics, it just ignores them. Science is neither immune. Gerald Pollack has written that he was advised to avoid water as a subject of inquiry, or it could kill his career.gepay , December 17, 2016 at 2:04 pm
"At least economics doesn't burn its heretics, it just ignores them." And then "because the market", they die.Dwight , December 17, 2016 at 3:46 pm
This article highlights why I take what positions Naked Capitalism assert seriously. For instance getting input from Clive about the difficulty of the mechanics of Greece leaving the Euro. Or Yves, having knowledge from her father's work about solving problems in the real world. This problem is not just limited to economics. To get a Phd one must basically agree to what you have been taught. To get published one must undergo peer review by people who almost always believe the current mainstream ideas in that field. Remember how the nutrition experts told you margarine was good for you – butter and eggs were bad. Climate science is a good example. Reliance on models that can never be complete. In almost every conversation I have had as a climate skeptic, the strongest believers in the alarmist position rely not on their own understanding but that of experts. And those experts who are alarmist rely almost entirely on computer modeling results to buttress their position. In fact, as a skeptic I could almost rewrite the above article using climate science. In your own mind, try that. As a generalist (non climate scientist) I can read and understand most climate papers if I take the time to learn and understand the jargon as every subfield has its own. it does take a good while with considerable effort. Climate science proclaims to know with certainty what the climate future holds so they should be the experts on public policy that will affect the lives of everyone in the world. "The totally convinced and the totally stupid have too much in common for the resemblance to be accidental." Robert Anton Wilsonbmeisen , December 18, 2016 at 3:33 am
Economists writing about climate change purport to define the optimal reduction in greenhouse gases by tallying up the avoided damage, or the benefit in the cost-benefit analysis, then saying that costs of emission reduction should go no higher than this benefit. Not sure if they are still doing this, but in the past they used the ethically questionable and benefit-lessening assumption that lives in poor countries, where most people would die, should be valued much less than lives in rich countries. Worse, the entire exercise is absurd because the result of the calculation is an emissions reduction that could have no effect on the climate, because emissions don't have a simple effect as with traditional air pollutants for which the analysis was initially developed.skippy , December 17, 2016 at 4:52 pm
As a generalist who works for and with a climate scientist who is at the forefront of his field I am not able to understand essential details of most of his papers because he and his co-authors are in fact physicists and their analyses involve substantially more than modest calculus. Furthermore neither he nor any other of his colleagues whose work I am exposed to have proclaimed that they "know" what the future holds.sufferinsuccotash, normalized , December 17, 2016 at 8:13 am
File under "the creative class" writers à la ToynbeeUahsenaa , December 17, 2016 at 9:26 am
Does anyone have any idea how many economics departments nowadays offer courses in economic history?Terry , December 17, 2016 at 10:46 am
At the UI and when I was at Michigan, they simply don't. Anything remotely like that would be taught in the History department, and then mostly for History grad students.Moneta , December 17, 2016 at 8:15 am
At Cambridge University it was a compulsory course representing 25% of the first year curriculum (this was 1991-92). No idea if it has been downsized since then but given the "new blood" I remember entering the faculty I am pessimistic.susan the other , December 17, 2016 at 11:12 am
I have to agree that when I studied economics, it was theory and barely any practical exercises. Lots of maximization and other But I never took this as gospel. I understood that all these economic models were a product of their time. A framework that would be adapted by those in power to fit their needs.
When my son was born with a disability, I had to turn many 15 minute errands into 2 hour adventures. It became even more evident that efficiency is relative What are we really maximizing anyway? THAT is the key question.
I guess many graduate without any critical thinking. But I tend to think that many graduates of economics like the way the world is set and feel no compulsion to change it.susan the other , December 17, 2016 at 11:20 am
What are we really maximizing anyway? killer question Moneta.jsn , December 18, 2016 at 12:42 am
yes, absolutely. If it is good public policy do it. When you think about it economics doesn't really exist. Society does. And when economics is talked about like society doesn't exist it gets pointless. Just like some stupid software language that does basically nothing. What we need is the courage of our human convictions. I think it was Blyth in an early clip who said more or less, "Just do it." Deficit spend as necessary and the solutions will appear. That's very Zen and I love it. I mean, here's the question, What is the worst that can happen? If there is sufficient money. Great interviewer and interviewee. Thanks NC for this post.Steve H. , December 17, 2016 at 12:32 pm
"Economics doesn't really exist, society does": a super obvious statement that stands in starkest distinction to NeoLib ideology that insists we are all atomistic, isolated individuals. Math and language are epiphenomena to human being that have perverted our self perception nearly to oblivion.craazyman , December 17, 2016 at 5:32 pm
Bayes allows an entry to qualifying bias and uncertainty in conditional probabilities (tree diagrams). It allows an indication that the source is b.s., which is currently relevant.
It's unnecessary in terms of fudging models, we've been quite capable of that without Bayesian modifiers.
The most important bias his theorem clarifies concerns false positives, for example if a drug test is 95% accurate it can still be wrong more than half the time on a positive response.
As always, GIGO.
Economics wil never progress until it has a clearer grasp on the phenomenon of money. Until they do it's the same old GIGO using Newtonian metaphors prettied up with math (or let us say "arithmetic", since it's just basic calculus, linear algebra or probability/statistics).
Not to be demeaning toward Eigenvectors and matrix theory. It's amazing how recent that was