"... 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. ..."
"... 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. ..."
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...
likbez -> JohnH...
Yes, 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.
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...
likbez -> JohnH...
Yes, 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.
"... 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. ..."
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."
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.
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.
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.
anne -> Paul Mathis... , -1
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. ]
"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."
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).
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.
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.
Who Was Milton Friedman?
By Paul Krugman - New York Review of Books
1.
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....
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.
"... 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. ..."
"... "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." ..."
"... 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. ..."
"... 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... ..."
"... 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." ..."
"... 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. ..."
"... 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? ..."
"... The losers think the winners are as crooked as they! ..."
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.
In 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."
Nothing is more admirable than the fortitude with which millionaires tolerate the disadvantages of their wealth. -- Nero
Wolfe
You 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.
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...
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.
yuan -> JohnH...
and few liberal economists have been more skeptical of QE's economic impact than Krugman.
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?
The losers think the winners are as crooked as they!
yuan -> ilsm...
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...
"... And this is telling us something significant: namely, that supply-side economic theory is and always was a sham. ..."
"... 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. ..."
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.
Krugman was clearly a neoliberal propagandist on payroll. He
should not be even discussed in this context because his
columns were so clearly partisan.
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.
Cal -> likbez...
, -1
Krugman is a polarizing agent here in RiverCity...to our
collective loss IMHO...as you know I don't have the Nobel.
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.
"... 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. ..."
"... The centre-piece of Paul Romer's scathing attack on these models is on the 'pretence of knowledge' ..."
"... he is critical of the incredible identifying assumptions and 'pretence of knowledge' in both Bayesian estimation and the calibration of parameters in DSGE models. ..."
"... 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. ..."
"... 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. ..."
"... 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 2000 Commodity Futures Modernization Act (CFMA) made derivatives enforceable throughout the US with priority ahead of claims by others (e.g. workers) in bankruptcy. ..."
"... 2004 SEC decision to ease capital requirements on investment banks increased gearing to what turned out to be dangerous levels ..."
"... 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 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 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. ..."
"... 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!" ..."
"... 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. ..."
"... 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. ..."
"... 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 journal ..."
"... 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. ..."
"... 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. ..."
"... 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. ..."
"... " .. 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". ..."
By 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.
Unrealistic Micro-Foundations
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.
Endnotes
[1] 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.
[3] 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).
[4] 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.
[5] 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.
[6] 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).
[7] 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.
'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!"
' 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"
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.
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 journal
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.
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 .
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!
"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!).
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.
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.
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.
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.
Advanced:
"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.
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.
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.
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.
"... I 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. ..."
"... the greater the information asymmetry, the easier it is to loot. ..."
"... 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. ..."
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.
I 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.
That is required to cover all the common law complexities from civil suits on labor issues being
legislated from the Federal bench.
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.
"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.
"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.[1] The legislation was signed into law by President Bill
Clinton.[2]"
a good read but i disagree with their suggested approach:
"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.
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).
Small enough to fail institutions like ... Bear and Lehman?
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."
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 Happened
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?
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.
We 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.
This 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!
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 Debt
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.
Ah, 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.
Another 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.
"... 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. " ..."
" 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. "
You could meanwhile contemplate Farmer's point that Samuelson
and his MIT colleagues "bastardized" Keynes' views when they
introduced them to the US.
" 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.
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'.
-- Roger Farmer
[ A fine place to start thinking. I knew this before and
read this again today, but did not think about the argument.
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.
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.
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....
"... 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. ..."
"... 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. " ..."
"... 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. ..."
"... 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. ..."
"... 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. ..."
"... 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. ..."
"... 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. ..."
"... 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. ..."
"... 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. ..."
"... I suppose this is a variant on the classic 'who governs the governors': who teaches the teachers. ..."
"... substantive ..."
"... 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. ..."
"... 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. ..."
"... File under "the creative class" writers à la Toynbee ..."
"... 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. ..."
"... "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. ..."
"... Interesting thing I heard the other day, Professor Richard Wolff says he studied economics at three elite universities (Yale, Harvard, and another notable I cannot remember) and never had a course in Karl Marx. Tunnel vision for sure in the field. ..."
"... Answer to question no 2: The jargon that is being used these days by presidents, economists, talk show hosts is beyond my understanding. I have a masters degree. ..."
"... An argot (English pronunciation: /ˈɑːrɡoʊ/; from French argot [aʁˈɡo] 'slang') is a secret language used by various groups-e.g., schoolmates, outlaws, colleagues, among many others-to prevent outsiders from understanding their conversations. The term argot is also used to refer to the informal specialized vocabulary from a particular field of study, occupation, or hobby, in which sense it overlaps with jargon. ..."
"... Is the economics profession simply following the "He who has the gold, makes the rules"? Many other professions service retail customers, such as attorneys and doctors. But how many ordinary citizens ever deal with an economist on any level? ..."
"... If paycheck dependent economists know that powerful politicians, wealthy corporate leaders and wealthy donors in academia are looking over their shoulders, one could expect economists' message to be justify what their "employers" want to do. ..."
"... "Keen was formerly an associate professor of economics at University of Western Sydney, until he applied for voluntary redundancy in 2013, due to the closure of the economics program at the university. ..."
"... You will eat, by and by, when you learn how to bake and how to fry. Chop some wood, It'll do ya good. And you'll eat in that sweet by and by. ..."
"... This interview articulates an extremely important insight when it states that the economy " is believed to be a distinct system with its own logic that requires experts to manage it." ..."
"... This seeming independence of the economic and political systems has largely deceived most of modern social science. This seeming independence is not real, and in fact these spheres are deeply intertwined. ..."
"... As people llike Karl Polyani and Philip Mirowski have maintained, markets are always organized through politics and institutions and one key to understanding this reality is to keep a focus on the promulgation of the rules and regulations of a powerful state that helps to create movements for both regulation and deregulation. ..."
"... It was notable that Cathal failed to mention Marx. I don't think he realizes yet quite how fully indoctrinated he's been – as that humdinger of an analogy (gay marriage – actually a redefinition to normalize surrogacy, a eugenics-by-stealth agenda, hence it's enormous funding by the plutocracy) indicates. The economic can never be separated from the socio-political. ..."
"... Mirowski describes how the "Neoliberal Economic thought collective" captured and now dominates economic doctrine by controlling what and who can publish in the major economic journals. As a result those aspects of Neoclassical Economics remaining are being re-shaped into a Neoliberal mold. I noticed the word "neoliberal" doesn't show up anywhere in this post yet Neoliberal economic policies and rationales dominate policy in the real world. ..."
"... Mirowski points out that Neoliberal economics designs policy to apply market models to every problem based on the doctrine that markets are the most powerful information processing system available to man - a strong form of the Efficient Markets Hypothesis. The Market is the ultimate epistemological device. If the market solution doesn't satisfy the needs of the common man then satisfying those needs is simply contrary to the wisdom of the market. For other problems like externalities they just need to be properly incorporated into the market model to obtain an optimal solution to whatever problem they present. ..."
"... . Putting fins and flashy hubcaps on Neoclassical economics as it morphs into Neoliberal economics is not the answer. ..."
"... The role of Economics is simple: it should inform people of the consequences of certain decisions we make about who gets what. ..."
"... You are right, that is what it should be, unfortunately neoclassical has failed horribly in that regard. It is based on assumptions that are demonstrably false and they are never revisited to see the effect of relaxing them. You might as well be counting angels on a pin. See Roamer's take down of it for starters. ..."
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 thing
"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."
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.
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.
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 Wilson
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.
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.
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.
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.
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.
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.
"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.
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.
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
in the history of math - I mean all the way back to the Greeks, Pythagoras, Archimedes, etc. It's
like it's still brand new!
However, you could say a drawing by Rembrandt is just "basic pen and ink". Indeed on one level
it is. On another level it's an entire self-consistent and revelatory conceptualization of infinite
physical reality. That's the kind of holistic and syntheticistic ideation that economics sorely
lacks.
Not only does it lack this, but the economists don't even know it's there!
whoa you guys rock! that was faster than a New Yoarke minite. Whoa Yves would be proud. I hope
you get a bonus! maybe a few million dollars.
They're not this fast in Denver. That's for sure. All those TV people and all that money they
have and they fkk something up so bad they have to apologize. Wow. that really is screwing up.
Not only that, They're stilll pointing a camera straight at a scene and failing to use cinematic
story telling techniques invented , oh, 80 or 90 years ago!
There should be awards for excellence in fake news. The best fake news is news that's true
in the most profound and highest sense of reality. it's news that captures a truth reality only
approximates. It's hard to avoid Plato even when you try. I didn't mention him, OK? he's just
there. He's usually there, but if you mention him every time it gets boring.
The WaPo is an example of largely fake news written and published by individuals who don't
realize what's true and what's fake. You'd like to think they qualify for a fake news award, given
the fakeiness of what they write (except Redskins coverage which is very good, they have some
good spowtswriters for sure), but they don't because they think they're writing real news. That
should be embarrasing.
Well then, how would somebody advise them to better distinguish fake news from real news? Well,
how does a hawk know what to do to hunt rodents? There's no hawk scientist or hawk school or hawk
instruction manual. they can't even read! But they know exactly what to do. It's like that. Everybody
knows but they pretend to themselves they don't know. That's when the faking starts,
[T]he irony is that for many upper-middle-class white gay men, the argument became that
legal and economic (yes, economic) privileges of marriage were being denied. Fortunately, many
people were able to keep the focus on equality and equal protection of the law, which is political
argument.
On the one hand, yes, absolutely, and it remains a point of contention to this day in the gay
community that the one major victory in recent memory was perfectly amenable to a patriarchal,
capitalist order. People like David Brock and what have you, who saw gay liberation not as a means
to transform society, which is the purpose for which the GLF was created, but rather as a means
to help people like themselves become elites like anyone else.
On the other hand, and perhaps it's just the vulgar Marxist in me, but I recoil at the notion
of separating economics from politics. This is why the phrase political economy even exists, to
represent the notion that all decisions regarding distribution of resources are inherently political.
I find it symptomatic of how entirely defanged class rhetoric is in the US (though the interviewee
is British, I presume) that even the well meaning and critical thinking among us can get away
with pretending that "economics" can somehow be sequestered from political decisions.
I realize that's not the point you're making, but there are moments in the interview when the
subject moves in that direction. As for statistics, Mark Twain reminds us there are three kinds
of lies: lies, damned lies, and statistics–or, as my spouse is fond of saying, "70% of all statistics
are made up."
One place where social needs interfere with monetary policy, aka economics, is deficit spending
wherein the underlying economy is not keeping up (because of economic malpractice usually). So
that's a conflict against the oligarchy because they prevented the necessary jobs and so makes
their money worth less. So, depending which side you are on, politics should have a say (force
the government not to devalue the currency by inflation/deficit spending without a proper economy)
or politics should serve the chronically neglected needs of the general public regardless of preliminary
"inflation" – the inflation here is the most dreaded form of inflation for the rich, of course,
wage inflation. I think the term 'wage inflation' qualifies as an oxymoron, but that's just me.
probably an apocryphal story;
so a guy is playing regularly in a rigged poker game. a friend asked him, "why do you play, you
know they're cheating you"? the guy shrugs, and replies "i don't have a choice, it's the only
game in town".
Interesting thing I heard the other day, Professor Richard Wolff says he studied economics
at three elite universities (Yale, Harvard, and another notable I cannot remember) and never had
a course in Karl Marx. Tunnel vision for sure in the field.
Yikes. I remember being taught Marx in the early 90s . But that was Cambridge ;-) and it was
clearly a dying course as they were struggling to find faculty members.
As one who is well past university age, I am excited to hear that those in the Millenial generation
are organizing this movement. The (intentional?) failure of K-12 education to develop critical
thinking skills and focus solely on standardized testing of fact knowledge has been deeply upsetting
to me as a parent. To see that others have made it through our education system with a well developed
BS detector and are not afraid to use it is welcome news.
I look forward to reading your books!
Answer to question no 2: The jargon that is being used these days by presidents, economists,
talk show hosts is beyond my understanding. I have a masters degree.
I believe Trump gained some
supporters who were angry about the disconnect with the way they talk and the way they needed
to be talked to. Simple language has its own good. That is what Trump did. Trump is just not a
person. There is more to Trump that what it is. He proved so many of these experts wrong and bought
back the simple language and easy straight talk to the forefront. Saying wrong things is attractive
to me. More people relate to Trump in ways that he can say bad things. I relate to him because
we say bad things in our every day life. We go about having a conversation after to correct them.
Its that simple.
After all we are all human beings with little better instincts and rational than animals. Just
because few people can speak politically correct, few can dress like they are supposed to doesn't
mean that every one has to conform. I am excited to read this book.
An argot
(English pronunciation: /ˈɑːrɡoʊ/; from French argot [aʁˈɡo] 'slang') is a secret language used
by various groups-e.g., schoolmates, outlaws, colleagues, among many others-to prevent outsiders
from understanding their conversations. The term argot is also used to refer to the informal specialized
vocabulary from a particular field of study, occupation, or hobby, in which sense it overlaps
with jargon.
Is the economics profession simply following the "He who has the gold, makes the rules"?
Many other professions service retail customers, such as attorneys and doctors. But how many ordinary citizens ever deal with an economist on any level?
While there may be some economists attached to labor unions, for the most part economists are
employed by government, the financial industry, academia or the media.
If paycheck dependent economists know that powerful politicians, wealthy corporate leaders
and wealthy donors in academia are looking over their shoulders, one could expect economists'
message to be justify what their "employers" want to do.
"Keen was formerly an associate professor of economics at University of Western Sydney, until
he applied for voluntary redundancy in 2013, due to the closure of the economics program at the
university.
But he did find another job. "In autumn 2014 he became a professor and Head of the School of Economics, History and Politics
at Kingston University in London." Is there a large job market for skeptical economists?
Nothing's changed in 100 + years. American Yale Professor Irving Fisher "financial transactions
aren't random": Yale Professor Irving Fisher – 1920 2nd edition: "The Purchasing Power of Money"
"If the principles here advocated are correct, the purchasing power of money - or its reciprocal,
the level of prices - depends exclusively on five definite factors:
(1)the volume of money in circulation;
(2) its velocity of circulation;
(3) the volume of bank deposits subject to check;
(4) its velocity; and
(5) the volume of trade.
"Each of these five magnitudes is extremely definite, and their relation to the purchasing
power of money is definitely expressed by an "equation of exchange."
"In my opinion, the branch of economics which treats of these five regulators of purchasing
power ought to be recognized and ultimately will be recognized as an EXACT SCIENCE, capable of
precise formulation, demonstration, and statistical verification."
And the Fed already validated the Fisherian theory: In 1931 a commission was established on
member bank reserve requirements. The commission completed their recommendations after a 7 year
inquiry on Feb. 5, 1938. The study was entitled "Member Bank Reserve Requirements - Analysis of
Committee Proposal"
It's 2nd proposal: "Requirements against debits to deposits"
After a 45 year hiatus, this research paper was "declassified" on March 23, 1983. By the time
this paper was "declassified", required reserves had become a "tax" [sic].
Monetary flows, our means-of-payment money times its transactions velocity of circulation:
Here's my suggestion for educating economists about the fallacy of their assumption that it
is in any way acceptable or even meaningful to put a monetary price on a human life.
Step 1: we ask the economist to place a monetary value on his or her own life in the same way
that they feel so comfortable doing for people who are not them.
Step 2: crowdfund that amount of money.
Step 3: give said money to their next of kin and ask them to kindly follow us out to the woodshed
Ok, so let's call it a thought experiment .but I think that should make clear one
of the many, many things wrong with monetizing the value of everything in existence, as is the
common practice.
Step 1: we ask the economist to place a monetary value on his or her own life . . .
Priceless, or in economist's terms, infinity.
Step 2: crowdfund that amount of money.
Borrow from the Fed. It's fantasy money.
Step 3: give said money to their next of kin and ask them to kindly follow us out to the
woodshed
That would be cruel. They always claim they are the smartest guys in the room, while also claiming
men in manufacturing are low skill or put bluntly, stupid. Can we put them all on an uninhabited
island with a few shovels so they can live the civilized life and dig their own latrine, after
which they can bootstrap themselves to imagined wealth by inventing their own can opener? They
can get there by recycling the shovels, but they would need fire for that.
This interview articulates an extremely important insight when it states that the economy " is
believed to be a distinct system with its own logic that requires experts to manage it."
This seeming independence of the economic and political systems has largely deceived most of
modern social science. This seeming independence is not real, and in fact these spheres are deeply
intertwined.
As people llike Karl Polyani and Philip Mirowski have maintained, markets are always organized
through politics and institutions and one key to understanding this reality is to keep a focus
on the promulgation of the rules and regulations of a powerful state that helps to create movements
for both regulation and deregulation.
It is now imperative that an alternative political movement finally take the time to carefully
examine the nature and role of the State in political and economic life.
As a pre-med student of the mid 1970s, I never took an economics course. Professionally, I
tried to fight the same kind of jargon that baffles the lay public in medicine. And I watched
in horror how my profession became captured.
I struggle to read NC when reading jargon-filled posts. For example, I read about economic
cycles and wonder why that is an acceptable concept.
But I do so because I know that ignorance is not bliss. I know the economy is rigged. Orwellian
economics-speak allows the elite to configure human and social capital in their favor.
Is it time to throw this baby out with the bath water? If so, how do we conceive a baby that
doesn't eventually suckle at the wrong teat?
It was notable that Cathal failed to mention Marx. I don't think he realizes yet quite how fully indoctrinated he's been – as that humdinger of
an analogy (gay marriage – actually a redefinition to normalize surrogacy, a eugenics-by-stealth
agenda, hence it's enormous funding by the plutocracy) indicates. The economic can never be separated from the socio-political.
I think its more general than that. Those that have been airbrushed out of the history of economic
thought are those who never thought of economics as a separate, largely technocratic, discipline
but always as political economy. Marx was just one of these following the tradition of Smith,
Ricardo, Mill etc. Veblen and, to a large extent, Keynes were also following this tradition.
So sad that they lost and Walrasian physics envy ended up splitting economics from its political
context.
."how do you try to increase the accessibility of economics without watering it down so much
that it becomes analytically dysfunctional?"
This question makes no sense in the context of this discussion around the fact that modern
"economics" (theory, courses and practice) is an ideological construct. The suggestion being the
discipline as currently manifested would only become "analytically dysfunctional" if it were "watered
down" ??????
This simplistic, patently failed dogma has become an almost totalitarian "pensee unique" simply
because in coincided perfectly with the interests of the rich and powerful (and therefore those
of their lackeys)
It`s politics stupid!!!!!
Sorry, I realise the (exceptional!) core NC community knows all this as well as anyone
Another quibble. ?technocrats? At the height of the crisis, Italy, for example, had a govt
of "technocrats" foisted on the it. Monti, connections with Goldman?. Technocratic indeed!!!
The last couple of days I've been listening to a series of lectures by Philip Mirowski available
on youtube. When I place Mirowski's ideas in opposition to the ideas expressed in this interview
- the result is very different from the trend I see in the other comments here.
Mirowski describes how the "Neoliberal Economic thought collective" captured and now dominates
economic doctrine by controlling what and who can publish in the major economic journals. As a
result those aspects of Neoclassical Economics remaining are being re-shaped into a Neoliberal
mold. I noticed the word "neoliberal" doesn't show up anywhere in this post yet Neoliberal economic
policies and rationales dominate policy in the real world.
The discussion in the post makes several statements about how economics fails to make predictions
about the real world and fails in designing economic policies to help the common man. Mirowski
points out that Neoliberal economics designs policy to apply market models to every problem based
on the doctrine that markets are the most powerful information processing system available to
man - a strong form of the Efficient Markets Hypothesis. The Market is the ultimate epistemological
device. If the market solution doesn't satisfy the needs of the common man then satisfying those
needs is simply contrary to the wisdom of the market. For other problems like externalities they
just need to be properly incorporated into the market model to obtain an optimal solution to whatever
problem they present.
I don't see how "democratization" of economics teaching or eliminating jargon or deprecating
experts or more emphasis on critical thinking or pointing out the abject failure of economics
in solving economic problems will do much to counter the Neoliberal attack on the economics discipline.
Putting fins and flashy hubcaps on Neoclassical economics as it morphs into Neoliberal economics
is not the answer.
Its a hair ball that needs untangling and not a blowtorch thingy . If you are familiar with Philips past contributions to NC, his blog, social democracy blog
and other media portals you would have a better understanding of the perspective forwarded.
Disheveled . Mirowski does do service here wrt the fundamental methodology and how that frames
the topic, wrt base assumptions [human descriptors] and the extension of them.
The role of Economics is simple: it should inform people of the consequences of certain decisions
we make about who gets what. So if you have a problem with classical economics, you really have
a more fundamental problem. Economics provides many good answers; but don't expect it to also
provide the right questions. A comment above asked 'maximising what?'. Good question, but not
an economics question.
You are right, that is what it should be, unfortunately neoclassical has failed horribly in
that regard. It is based on assumptions that are demonstrably false and they are never revisited
to see the effect of relaxing them. You might as well be counting angels on a pin. See Roamer's
take down of it for starters. https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf
"... I had always thought Hayek made some good critical points about the illusions of socialists/utopians and then chose to ignore the fact that his criticism also applied to his ..."
"... So maybe Hayek didn't overlook the fact that his critique also applied to his utopia. Maybe he knew full well he was misrepresenting what he was selling, engaging in exactly the same propaganda techniques that he attributed to others. ..."
"... A Rovian strategy - conceal your weakness by attacking others on precisely that issue. ..."
"... The Road to Serfdom put out in the US after WWII, which was full of this inflammatory sort of thing that doing anything to ameliorate the harder edges of capitalism put one inexorably on the road to serfdom. ..."
"... In the actual RtS one finds Hayek himself supporting quite a few such amiliorations, most notably social insurance, especially national health insurance well beyond what we even have in the US now with ACA. ..."
"... The problem for lovers of Hayek, and arguably Hayek himself, is that he simply never repudiated this comic book version of his work, even as he and many of his followers got all worked up when people, such as Samuelson, would criticize Hayek for this comic book version of the RtS, pointing out his support for these ameliorations in the original non-comic book version. ..."
"... However, Samuelson in his last remarks on Hayek, which I published in JEBO some years ago, effectively said that Hayek had only himself to blame for this confusion. ..."
"... I have been thinking that maybe both "sides" in our mostly brainwashed America today could agree with the meme of "DRAIN-THE-SWAMP" and hope to see it carried proudly on protest signs by the non-zombies of both sides in the ongoing social upheaval. ..."
"... I agree that "accuse the other side of doing what you are doing" is a familiar ploy of the right. ..."
Sandwichman | December 10, 2016 12:51 am
In his neo-Confederate "Mein Kampf," Whither Solid South ,
Charles Wallace Collins quoted a full paragraph from Hayek's The Road to Serfdom
regarding the emptying out of the meaning of words. My instinct would be not to condemn Hayek
for the politics of those who quote him. Even the Devil quotes Shakespeare.
But after taking another look at the Look magazine
comic book edition of Hayek's tome, I realized that Collins's depiction of full employment
as a sinister Stalinist plot was, after all, remarkably faithful to the
comic-book version of Hayek's argument. With only a little digging, one can readily
infer that what the comic book refers to as "The Plan" is a policy also known as full employment
(or, if you want to get specific, William Beveridge's Full Employment in a Free Society
). "Planners" translates as cartoon Hayek's alias for Keynesian economists and their political
acolytes.
To be sure, Hayek's sole reference to full employment in the book is unobjectionable
- even estimable almost:
That no single purpose must be allowed in peace to have absolute preference over all others
applies even to the one aim which everybody now agrees comes in the front rank: the conquest of
unemployment. There can be no doubt that this must be the goal of our greatest endeavour; even
so, it does not mean that such an aim should be allowed to dominate us to the exclusion of everything
else, that, as the glib phrase runs, it must be accomplished "at any price". It is, in fact, in
this field that the fascination of vague but popular phrases like "full employment" may well lead
to extremely short-sighted measures, and where the categorical and irresponsible "it must be done
at all cost" of the single-minded idealist is likely to do the greatest harm.
Yes, single-minded pursuit at all costs of any
nebulous objective will no doubt be short-sighted and possibly harmful. But is that really
what "the planners" were advocating?
Hayek elaborated his views on full employment policy in a 1945 review of Beveridge's
Full Employment in a Free Society, in which he glibly characterized Keynes's theory of
employment as "all that was needed to maintain employment permanently at a maximum was to secure
an adequate volume of spending of some kind."
Beveridge, Hayek confided, was "an out-and-out planner" who proposed to deal with the difficulty
of fluctuating private investment "by abolishing private investment as we knew it." You see, single-minded
pursuit of any nebulous objective will likely be short-sighted and even harmful unless that
objective is the preservation of the accustomed liberties of the owners of private property, in
which case it must be done at all cost!
Further insight into Hayek's objection to Keynesian full-employment policy can be found in
The Constitution of Liberty . The problem with full employment is those damn unions. On this
matter, he quoted Jacob Viner with approval:
The sixty-four dollar question with respect to the relations between unemployment and full
employment policy is what to do if a policy to guarantee full employment leads to chronic upward
pressure on money wages through the operation of collective bargaining .
and
it is a matter of serious concern whether under modern conditions, even in a socialist country
if it adheres to democratic political procedures, employment can always be maintained at a high
level without recourse to inflation, overt or disguised, or if maintained whether it will not
itself induce an inflationary wage spiral through the operation of collective bargaining
Sharing Viner's anxiety about those damn unions inducing an inflationary wage spiral "through
the operation of collective bargaining" was Professor W, H, Hutt, author of the Theory of
Collective Bargaining, who "[s]hortly after the General Theory appeared
argued that it was a specific for inflation."
Hutt, whose earlier book on collective bargaining "analysed [and heralded] the position of the
Classical economists on the relation between unions and wage determination," had his own
plan for full employment . It appeared in The South African Journal
of Economics in September, 1945 under the title "Full Employment and the Future of Industry."
I am posting a large excerpt from Hutt's eccentric full employment "plan"
here because it makes explicit principles that are tacit in the neo-liberal pursuit of
"non-inflationary growth":
Full employment and a prosperous industry might yet be achieved if what I propose
to call the three "basic principles of employment" determine our planning .
The first basic principle is as follows. Productive resources of all kinds, including
labour, can be fully employed when the prices of the services they render are sufficiently
low to enable the people's existing purchasing power to absorb the full flow of the
product.
To this must be added the second basic principle of employment. When the prices of
productive service have been thus adjusted to permit full employment, the flow of purchasing power,
in the form of wages and the return to property is maximised .
The assertion that unemployment is "voluntary" and can be cured by reducing wages is the classical
assumption that Keynes challenged in the theory of unemployment. Hutt's second principle, that full
employment, achieved by wage cuts, will maximize the total of wages, profit and rent thus would be
not be likely to command "more or less universal assent," as Hutt claimed. But even if it did, Hutt's
stress on maximizing a total , regardless of distribution of that total between wages
and profits, is peculiar. Why would workers be eager to work more hours for
less pay just to generate higher profits? Hutt's principles could only gain "more or
less universal assent" if they were sufficiently opaque that no one could figure out what he was
getting at, which Hutt's subsequent exposition makes highly unlikely.
Hutt's proposed full employment plan consisted of extending the hours of work, postponing retirement
and encouraging married women to stay in the work force. He advertised his idea as a reverse lump-of-labor
strategy. Instead of insisting - as contemporary economists do - that immigrants (older workers,
automation or imports) don't take jobs, Hutt boasted they create jobs, specifically because they
keep wages sufficiently low and thus maximize total returns to property and wages
combined. He may have been wrong but he was consistent. Nor did he conceal his antagonism toward
trade unions and collective bargaining behind hollow platitudes about
inclusive growth .
The U.S. has been following Hutt-like policies for decades now and the
results are in :
For the 117 million U.S. adults in the bottom half of the income distribution, growth has been
non-existent for a generation while at the top of the ladder it has been extraordinarily strong.
Or perhaps Hutt was right and what has held back those at the bottom of the income distribution
is that wages have not been sufficiently low to insure full employment and thus
to maximize total returns to labor and capital. The incontestable thing about Hutt's theory is that
no matter how low wages go, it will always be possible to claim that they didn't go sufficiently
low enough to enable people's purchasing power to absorb the full flow of their services.
coberly , December 10, 2016 11:52 am
I can't claim to know all of what Hayek meant. but I did read one of his books and it was clear
he did not mean what the right has taken him to not only mean, but to have proved.
In any case it is dangerous (and a bit stupid) to base policy on what someone said or is alleged
to have said. Especially economists who claim to have "proved" some "law" of economics.
That said, i wonder if some of what is said here is the result of over-reading what someone
(else) as said: to be concerned with policies "to the exclusion of all else" is not the same as
rejecting the policies while keeping other things in mind. and to recognize the potential of labor
unions to force inflationary levels of wages is not the same as opposing labor unions.
neither the advocates in favor of or those opposed to the extreme understanding of these cautions
–including the authors of them if that is the case - are contributing much to the development
of sane and humane policy.
I had always thought Hayek made some good critical points about the illusions of socialists/utopians
and then chose to ignore the fact that his criticism also applied to his neo-liberal
utopia. But I followed up the passage quoted by Collins and it turns out that Hayek was discussing
a statement made by Karl Mannheim, which he quoted out of context and egregiously misrepresented
-- a classic right-wing propaganda slander technique. So here is Hayek talking about emptying out
the meaning from words and filling them with new content and he is doing just that to the words
of another author.
So maybe Hayek didn't overlook the fact that his critique also applied to his utopia. Maybe
he knew full well he was misrepresenting what he was selling, engaging in exactly the same propaganda
techniques that he attributed to others. By accusing others first of doing what he was doing,
it made it awkward for anyone to point out that he was doing it, too. A Rovian strategy - conceal
your weakness by attacking others on precisely that issue.
One of the problems with Hayek is that there was always this conflict between the "comic book
Hayek" and the more scholarly and careful Hayek. In fact, there really was a comic book version
of The Road to Serfdom put out in the US after WWII, which was full of this inflammatory sort
of thing that doing anything to ameliorate the harder edges of capitalism put one inexorably on
the road to serfdom.
In the actual RtS one finds Hayek himself supporting quite a few such amiliorations,
most notably social insurance, especially national health insurance well beyond what we even have
in the US now with ACA.
The problem for lovers of Hayek, and arguably Hayek himself, is that he simply never repudiated
this comic book version of his work, even as he and many of his followers got all worked up when
people, such as Samuelson, would criticize Hayek for this comic book version of the RtS, pointing
out his support for these ameliorations in the original non-comic book version.
However, Samuelson
in his last remarks on Hayek, which I published in JEBO some years ago, effectively said that
Hayek had only himself to blame for this confusion.
To me it comes down to whether government is structured to serve all or some obfuscated minority
of all. With that as the divider it is easy to decipher Hayek's work and others.
I have been thinking that maybe both "sides" in our mostly brainwashed America today could
agree with the meme of "DRAIN-THE-SWAMP" and hope to see it carried proudly on protest signs by
the non-zombies of both sides in the ongoing social upheaval.
coberly , December 10, 2016 6:41 pm
Sammich
I agree that "accuse the other side of doing what you are doing" is a familiar ploy of the
right.
I don't know what Hayek was really saying, or if he let the comic book version stand because
he was so flattered to have his child receive such adulation, or just because he was in his dotage
and didn't really understand how he was being misrepresented if he was.
but the fun thing to do with Hayek is to point out what he "really" said to those who have
only heard the comic book version
if anyone is still talking about him at all. seems there was a big rush of talk about Hyak
a few years ago and now it has faded.
Sandwichman
:
December 07, 2016 at 12:06 PM
Terence Hutchison concluded his appendix on "Some postulates
of economic liberalism" in Significance and Basic Postulates
of Economic Theory with the admonition, "It is high time to
put these theories [laissez faire and equilibrium doctrines]
firmly back in their place as Utopian constructions." He
cited S. Bauer's 1931 article, "Origine utopique et
métaphorique de la théorie du "laissez faire" et de
l'équilibre naturel."
Prominent in Bauer's discussion is
the role of Baltasar Gracian's Oráculo Manual, which was
translated into French by Amelot de la Houssaie in 1684, in
popularizing both the notion and the term, laissez faire.
Pierre le Pesant Boisguilbert is credited with introducing
the term into political economic thought in a book published
in 1707. It is conceivable that Keynes knew of the Gracian
maxim because he used the image Gracian had used of
tempestuous seas in his famous rejoinder about "the long run"
being "a misleading guide to current affairs."
In his book Hutchinson noted that "several writers have
argued that some such postulate as 'perfect expectations' is
necessary for equilibrium theory." This observation lends a
special note of irony to Gracian's coinage of laissez faire.
In his discussion of Gracian's Oráculo, Jeremy Robbins
highlighted the observation that:
"Gracián's prudence rests firmly on a belief that human
nature is constant... In Gracián's case, human nature is
viewed as a constant in so far as he believes it to act
consistently contrary to reason."
In fact, Robbin's chapter on Gracian is titled "The
Exploitation of Ignorance." Gracian's maxims establish "a
sharp distinction between the elite and the necios [that is,
fools]." Assuming that most people are fools who act contrary
to reason is obviously something quite different from
assuming perfect expectations. For that matter, the prudence
of a courtier seeking to gain power over others is something
quite distinct the foresight required of a policy
professional acting ostensively on behalf of the public
welfare.
That metaphorical and Utopian notions of laissez faire and
natural equilibrium have managed to persist and even prevail
in economics -- impervious to Hutchinson's warning (or
Keynes's) -- is testimony to the perceptiveness of Gracian's
estimate of human nature.
"Let's stop pretending unemployment is voluntary" is the
title for chapter four of Roger Farmer's book,"Prosperity for
All: How to Prevent Financial Crises."
That is not good
enough.
No. Let's stop pretending that the "pretending" is
innocent. Let's stop pretending that it isn't a deliberate
fraud that has been aided and abetted by most of the
economics profession.
If you want to access the dynamical systems literature you
should know the terminology that self-equilibrating systems
have at least one stable equilibrium point with a non-empty
domain of attraction (think downward pointing pendulum). Any
state (set of variables describing the system configuration)
that starts in this domain will end up at the stable
equilibrium point. Non-linear systems can have several
equilibria and some may be unstable as well, in that starting
any small distance from those equilibria results in movement
away from that equilibrium (e.g. an upside down pendulum). It
is not enough to determine if a point is an equilibrium
point, you must also check its stability.
The trouble with this approach is that economics is
describing a system that is not an equilibrium system in the
first place. Economics is describing a system that is
1. Evolutionary
2. Dynamic. (In fact all the measurements are not
measurements of a static state but of movements. Even
apparently static things like asset values or the discounting
sum of flow over time.)
Just in case you don't see the relevance, just think about
what happens if it is not the position that is moving but the
equilibrium point (and worse the equilibrium point is not
known, and perhaps unknowable).
" If the expectations of agents are incompatible or
inconsistent with the equilibrium of the model, then, since
the actions taken or plans made by agents are based on those
expectations, the model cannot have an equilibrium solution.
..."
There is clearly one very important word missing in
this sentence.
Let me try again:
"" If the expectations of ANY agents are incompatible or
inconsistent with the equilibrium of the model, then, since
the actions taken or plans made by agents are based on those
expectations, the model cannot have an equilibrium solution.
..."
Now what at first look seems merely far fetched, just
became laughable.
I'm sorry, but this is very, very important. General
equilibrium is the original sin of economics (especially
Macro-economics). It is where it all went wrong. They should
just drop it, and try to model the dynamic response of agents
and the system to disequilibrium, which inevitably arises
faster than equilibrating forces can possibly work. A more
fundamental way of thinking about this is to realize that
economics deals with transactions and all transactions are
the result of a disequilibrium (at equilibrium all the trades
are already made).
Where did the disequilibrium come from? When you
understand the answer to that, you can understand what drives
the economy. Not before.
"... What I'm against is the attempt to place a person's belief system onto the nation or the world generally. We object to the Soviet Union trying to dominate the world, to communize the world. The United States, I hope, is trying to democratize the world. But I certainly would be very much against trying to Christianize the world or to Islamize it or to Judaize it or anything of the sort. ..."
"... My objection to fundamentalism is not that they are fundamentalists but that essentially they want me to be a fundamentalist, too. ..."
"... Even in societies in which religion is very powerful, there's no shortage of crime and sin and misery and terrible things happening, despite heaven and hell. ..."
@ juliania who asked for clarification about my thoughts about religions in general and Xtians
i particular.
I was raised Catholic and went to Catholic school for 12 years, the last 4 with Jesuits. I
do give the Jesuits credit for teaching me to think.
As I thought more and educated myself further about history I wondered why religions were not
fully relegated to honorable myth after the Enlightenment period. It was clear to me that they
were pushing rules of social organization that were patriarchal and elitist....and still are.
Their enforcement of the rules is beyond hypocritical now and I see many who ascribe to one or
another but in name only. If Xtians leaders and their followers were true to their precepts we
would not have war and the money changers would not exist.....hence my Devils pact theory.
And then as I learned more about the Cosmos we live in I realized the hubris of a species that
creates Gods in their likeness. I explain it to folks this way:
1. Science, which I believe much of, has learned that the Cosmos consists of almost 5% matter,
which we are starting to know some things about but still clueless in many ways.
2. The remaining 95% of the Cosmos the science folk have some theories about but mostly we
are very clueless about that 95%
3. Does it make any sense that our species that is part of the 5% matter of the Cosmos can
discover/create/believe in any deity given our utter ignorance at this point in our existence?
4. I think it takes the utmost hubris to do so and view religions as crutches for those that
can't handle not knowing.
That said, I think that religions have come up with some useful thoughts to help guide society
but should not be thought of as having any more of a clue than the scientists. Religions, IMO,
should be relegated to the wonderful myth they represent in our history, certainly longer than
the 6K years the "serious" Xtians believe. True science, that is based rigorously on rules of
discovery has, IMO, ongoing relevance in our world.
Since I am on this topic and it is an open thread let me share some parts of an interview between
Bill Moyers and Isaac Asimov that speaks more to this subject:
MOYERS: The fundamentalists see you as the very incarnation of the enemy, the epitome of the
secular humanist who opposes God's plan for the universe. In 1984, the American Humanist Society
gave you their Humanist of the Year Award, and you're now president of that organization. Are
you an enemy of religion?
ASIMOV: No, I'm not. What I'm against is the attempt to place a person's belief system onto
the nation or the world generally. We object to the Soviet Union trying to dominate the world,
to communize the world. The United States, I hope, is trying to democratize the world. But I certainly
would be very much against trying to Christianize the world or to Islamize it or to Judaize it
or anything of the sort.
My objection to fundamentalism is not that they are fundamentalists but
that essentially they want me to be a fundamentalist, too. Now, they may say that I believe evolution
is true and I want everyone to believe that evolution is true. But I don't want everyone to believe
that evolution is true, I want them to study what we say about evolution and to decide for themselves.
Fundamentalists say they want to treat creationism on an equal basis. But they can't. It's not
a science. You can teach creationism in churches and in courses on religion.
They would be horrified
if I were to suggest that in the churches they teach secular humanism as an alternate way of looking
at the universe or evolution as an alternate way of considering how life may have started. In
the church they teach only what they believe, and rightly so, I suppose. But on the other hand,
in schools, in science courses, we've got to teach what scientists think is the way the universe
works.
MOYERS: But this is what frightens many believers. They see science as uncertain, always tentative,
always subject to revisionism. They see science as presenting a complex, chilling, and enormous
universe ruled by chance and impersonal laws. They see science as dangerous.
ASIMOV: That is really the glory of science - that science is tentative, that it is not certain,
that it is subject to change. What is really disgraceful is to have a set of beliefs that you
think is absolute and has been so from the start and can't change, where you simply won't listen
to evidence. You say, "If the evidence agrees with me, it's not necessary, and if it doesn't agree
with me, it's false." This is the legendary remark of Omar when they captured Alexandria and asked
him what to do with the library. He said, "If the books agree with the Koran, they are not necessary
and may be burned. If they disagree with the Koran, they are pernicious and must be burned." Well,
there are still these Omar-like thinkers who think all of knowledge will fit into one book called
the Bible, and who refuse to allow it is possible ever to conceive of an error there. To my way
of thinking, that is much more dangerous than a system of knowledge that is tentative and uncertain.
MOYERS: Do you see any room for reconciling the religious view in which the universe is God's
drama, constantly interrupted and rewritten by divine intervention, and the view of the universe
as scientists hold it?
ASIMOV: There is if people are reasonable. There are many scientists who are honestly religious.
Millikan was a truly religious man. Morley of the Michelson-Morley experiment was truly religious.
There were hundreds of others who did great scientific work, good scientific work, and at the
same time were religious. But they did not mix their religion and science. In other words, if
something they understand took place in science, they didn't dismiss it by saying, "Well, that's
what God wants," or "At this point a miracle took place." No, they knew that science is strictly
a construct of the human mind working according to the laws of nature, and that religion is something
that lies outside and may embrace science. You know, if there were suddenly to arise scientific,
confirmable evidence that God exists, then scientists would have no choice but to accept that
fact. On the other hand, the fundamentalists don't admit the possibility of evidence that would
show, for example, that evolution exists. Any evidence you present they will deny if it conflicts
with the word of God as they think it to be. So the chances of compromise are only on one side,
and, therefore, I doubt that it will take place.
MOYERS: What frightens them is something that Dostoevski once said - if God is dead, everything
is permitted.
ASIMOV: That assumes that human beings have no feeling about what is right and wrong. Is the
only reason you are virtuous because virtue is your ticket to heaven? Is the only reason you don't
beat your children to death because you don't want to go to hell? It's insulting to imply that
only a system of rewards and punishments can keep you a decent human being. Isn't it conceivable
a person wants to be a decent human being because that way he feels better?
I don't believe that I'm ever going to heaven or hell. I think that when I die, there will
be nothingness. That's what I firmly believe. That's not to mean that I have the impulse to go
out and rob and steal and rape and everything else because I don't fear punishment. For one thing,
I fear worldly punishment. And for a second thing, I fear the punishment of my own conscience.
I have a conscience. It doesn't depend on religion. And I think that's so with other people, too.
Even in societies in which religion is very powerful, there's no shortage of crime and sin
and misery and terrible things happening, despite heaven and hell. I imagine if you go down death
row, and ask a bunch of murderers who are waiting for execution if they believe in God, they'll
tell you yes. I wouldn't be surprised if the number of people in jail for fraud, for violent crimes,
for everything, includes a smaller percentage of acknowledged atheists than we have in the general
population. So I don't know why one should think that just because you don't want a ticket to
heaven, and you don't fear a ticket to hell, you should be a villain.
One more quote from that Bill Moyer/Isaac Asimov interview and then I will stop
MOYERS: Is it possible that you suffer from an excessive trust in rationality?
ASIMOV: Well, I can't answer that very easily. Perhaps I do, you know. But I can't think of
anything else to trust in. If you can't go by reason, what can you go by? One answer is faith.
But faith in what? I notice there's no general agreement in the world. These matters of faith,
they are not compelling. I have my faith, you have your faith, and there's no way in which I can
translate my faith to you or vice versa. At least, as far as reason is concerned, there's a system
of transfer, a system of rational argument following the laws of logic that a great many people
agree on, so that in reason, there are what we call compelling arguments. If I locate certain
kinds of evidence, even people who disagreed with me to begin with, find themselves compelled
by the evidence to agree. But whenever we go beyond reason into faith, there's no such thing as
compelling evidence. Even if you have a revelation, how can you transfer that revelation to others?
By what system?
""The trouble is not so much that macroeconomists say things that are inconsistent with the facts."
-- that's a clear sign of a cult.
Notable quotes:
"... "The trouble is not so much that macroeconomists say things that are inconsistent with the facts. The real trouble is that other economists do not care that the macroeconomists do not care about the facts. An indifferent tolerance of obvious error is even more corrosive to science than committed advocacy of error." ..."
"... The obvious explanation is ideological. While Simon Wren Lewis cannot prove it was ideological, it is difficult to understand why one would choose to develop theories that ignore some of the existing evidence, in an area that lacks data. There is a reluctance among the majority of economists to admit that some among them may not be following the scientific method but may instead be making choices on ideological grounds. This is the essence of Romer's critique. ..."
"... ...it is all but indistinguishable from Milton Friedman's ideologically-driven description of the macroeconomy. In particular, Milton Friedman's prohibition of fiscal policy is retained with a caveat about the zero-lower bound in recent years. To argue otherwise is to deny Keynes' dictum that 'the ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood.' ..."
"... What I find most egregous in Neo-classicism, is it's failure to accept that people invented government to perform tasks they individually could not. ..."
"... Economics is a foul and pestilent ghetto, an intellectual dead-end akin to Ptolemaic astronomy. The priests will continue adding epicycles to epicycles until they are dragged screaming to the asylum. ..."
"... There is always some revered academic economist readily available to support virtually any political narrative imaginable, even if it's total rubbish. It is truly a "science" for all seasons fostered by reverend figures with authority earned by many years diligent practice in translating gibberish into runes of mathematical formulae. That's more dainty than poking about in sheep guts with a sharp stick, but of little more use in the real world which lies outside the ivied towers. ..."
"... Diligence blesses them with tenure followed by offers to serve private or public patrons perpetually engaged in rent-seeking. These made men (and women) are essentially set for life, regardless of whatever nonsense they may forever promote thereafter. A few are blessed by the good luck of a Nobel which guarantees a prosperous sinecure and unlimited opportunity to promote their own vacuous political narratives masqueraded as "science". ..."
"... This cult enjoys perpetual protection within public and private safe spaces created by their well-heeled paymasters. It is one of a number of deeply attached parasites which cannot be safely excised from the corrupt body of the host without killing it. ..."
"... I should add that neoclassical economics has damaged economics by excluding explicitly the government sector in their models. As a result, the impact of government on the macroeconomy has not been properly understood ..."
"... Do the economists he names really not understand the computer stat model they are using? Are they admitting to making up the fudge factors to make their 'data' fit their (wrong headed) totem pole, supply and demand? I mean, there it is in black and white, by the economists' own words, that their math is just flat out wrong. ..."
"... The economics I learned in the early 1960's seems to work as well now as it did back then. I was lucky enough to be so busy at work in the decades that followed, that I did not have a chance to keep up on the mis-education of the time. When I had the time to start paying more attention to the subject again, I couldn't understand what had happened to the knowledge that I had learned that seemed to explain all that was happening in the economy. ..."
"... The Neolib-Globalist Ministry Of Truth erased it. You must not have got the memo. ..."
"... It's 2016 and some Dismal Scientists are still debating whether "involuntary unemployment" exists. ..."
"... If anything, Philip Mirowski has persuasively argued that neoliberalism requires a powerful State. ..."
"... He has shown that the neoliberal thought collective theorized an elaborate political mobilization, and recognized early on that the creation of a new market is a political process requiring the intervention of organized power. The political will to impose a market required a strong state and elaborate regulation and also that the State would need to expand its economic and political power over time. ..."
"... The neoliberal market had to be imposed it did not just happen. A key issue for the future is defining the nature of the state–whether under neoliberalism or MMT or under Trump or Sanders, or left populist or right populist. ..."
"... Mankiw belongs in the non-ideological camp? I don't see how anybody with a brain could read any of his work past the first page and still hold that view. ..."
"... agreed, Mankiw is an intellectual clown and he has been mis-educating students for decades now. ..."
Romer
kicked off the debate in an essay, stating that for more than three decades, macroeconomics has
gone backwards. He finds that the treatment of identification now is no more credible than in the
early 1970s, but escapes challenge because it is so much more opaque. Macroeconomic theorists dismiss
mere facts by feigning an obtuse ignorance about such simple assertions as "tight monetary policy
can cause a recession." For Romer, the Nobel Prize-winning crop of macroeconomic theorists who transformed
the field in the late 1970s and 1980s - Robert Lucas, Edward Prescott and Thomas Sargent –
are the main people to be held responsible for this this development. Their models attribute fluctuations
in aggregate variables to imaginary causal forces that are not influenced by actions that any
person takes. Especially when it comes to monetary policy, the belief that it has no or little effect
on the economy is disturbing, or as Romer puts it:
"The trouble is not so much that macroeconomists say things that are inconsistent with the
facts. The real trouble is that other economists do not care that the macroeconomists do not care
about the facts. An indifferent tolerance of obvious error is even more corrosive to science than
committed advocacy of error."
... ... ...
Simon Wren-Lewis identifies yet another factor which lies at the heart of macroeconomic criticism:
ideology. As an example he quotes Real Business Cycle (RBC) research from a few decades ago. That
was only made possible because economists chose to ignore evidence about the nature of unemployment
in recessions. There is overwhelming evidence that employment declines in a recession because workers
are fired rather than choosing not to work, and that the resulting increase in unemployment is involuntary
(those fired would have rather retained their job at their previous wage). Both facts are incompatible
with the RBC model. Why would researchers try to build models of business cycles where these cycles
require no policy intervention, and ignore key evidence in doing so? The obvious explanation
is ideological. While Simon Wren Lewis cannot prove it was ideological, it is difficult to understand
why one would choose to develop theories that ignore some of the existing evidence, in an area that
lacks data. There is a reluctance among the majority of economists to admit that some among them
may not be following the scientific method but may instead be making choices on ideological grounds.
This is the essence of Romer's critique.
...it is all but indistinguishable from Milton Friedman's ideologically-driven description
of the macroeconomy. In particular, Milton Friedman's prohibition of fiscal policy is retained with
a caveat about the zero-lower bound in recent years. To argue otherwise is to deny Keynes' dictum
that 'the ideas of economists and political philosophers, both when they are right and when they
are wrong are more powerful than is commonly understood.'
PlutoniumKun, December 6, 2016 at 4:18 am
I can recall my very first lecture in Macroeconomics back in the mid 1980's when the Prof.
freely admitted that macro had very little real world validity as the models simply didn't match
the real world data. He advised us to focus on economic history if we wanted to understand how
the real world worked. That was the only useful thing I learned from three years studying the
subject.
Dr. George W. Oprisko, December 6, 2016 at 7:21 am
I cut y teeth on computer models of rainfall – streamflow relationships. We always started
with constants derived from experimental or theoretical bases
Recently I was asked to critique a paper written by a colleague which reported results of a
numeric model of plankton distribution in the Arabian Sea. In this paper his original constants
based on known relationships gave results which did not agree with reality, so instead of looking
for mistakes in his fundamentals, he massaged the constants until he got agreement. When I pointed
out that he neglected the Somali Current, he was livid. That is, instead of thanking me for pointing
out a glaring deficiency in his methodology, he chose to obfuscate.
I see the same thing prevalent in macro-economics, with the sole exception of Modern Monetary
Theory. I find MMT to be the only variant which concretely explains the real economy.
What I find most egregous in Neo-classicism, is it's failure to accept that people invented
government to perform tasks they individually could not.
iNDY
Jake, December 6, 2016 at 5:24 am
..and none of the economists were held responsible, refused tenure, tried in court or had
their nobel prizes taken away. They continued serving their pay masters or their ideologies and
nothing changed. Life went on, gradually becoming shittier, full of anxiety and ultimately meaningless.
But hey atleast the great information processor is satisfying your utility!
PlutoniumKun,
December 6, 2016 at 6:23 am
One Irish macro professor did quite well after the Irish economic crash (2008) informing everyone
about the correct policy approaches on various public media. His university department had one
of his peer reviewed papers online dating from 2005 which advocated the adoption of US style sub-prime
mortgages as a 'solution' to rising housing costs. Around 2010 the paper was quietly removed from
all servers. I regret not saving a copy so it could be linked to every time he popped up in public.
look for the doi and plug that in here (site does not work in Chrome) http://gen.lib.rus.ec/scimag/index.php
or here http://sci-hub.cc/
The 1st has an author search too, but it isn't as good, but it might work.
I Have Strange Dreams, December 6, 2016 at 5:43 am
Kill it with fire!
Economics is a foul and pestilent ghetto, an intellectual dead-end akin to Ptolemaic astronomy.
The priests will continue adding epicycles to epicycles until they are dragged screaming to the
asylum.
Burn the whole subject to the ground and sow the razed economics departments with salt. Require
economists to ring a bell when approaching the uninfected and cry "unclean! unclean!"
actually belly-laughed – 1st ever belly-laugh from an interweb comment – Bravisimmo!
H/e, can't agree with you re: economics. As a historical and social area of study, it is valid
in my book – even a necessity. Still, my eyes cross lately when I read the latest in economic
"theory" on any scale. Such a dreary and detached subject these days. Rootless and toothless.
Too bad.
Every time a bell rings, an angel gets his wings. That is a called a positive externality in
macroeconomics, and can therefore be defined in an equation. Which makes it thus so.
There is no chance of killing off this mystery cult as long as politicians rely on its ruminations
and incantations to help perpetuate them in office.
There is always some revered academic economist readily available to support virtually
any political narrative imaginable, even if it's total rubbish. It is truly a "science" for all
seasons fostered by reverend figures with authority earned by many years diligent practice in
translating gibberish into runes of mathematical formulae. That's more dainty than poking about
in sheep guts with a sharp stick, but of little more use in the real world which lies outside
the ivied towers.
Economists, like carny balloon sellers, are paid based on volume, not weight. Diligence
blesses them with tenure followed by offers to serve private or public patrons perpetually engaged
in rent-seeking. These made men (and women) are essentially set for life, regardless of whatever
nonsense they may forever promote thereafter. A few are blessed by the good luck of a Nobel which
guarantees a prosperous sinecure and unlimited opportunity to promote their own vacuous political
narratives masqueraded as "science".
This cult enjoys perpetual protection within public and private safe spaces created by
their well-heeled paymasters. It is one of a number of deeply attached parasites which cannot
be safely excised from the corrupt body of the host without killing it.
We live in a post-truth or post-fact world, where truth and fact do not matter.
But the fact is: Keynes has never gone away in the sense that governments have always been
trying to manage the economy with fiscal and monetary policies – which (to me) is the essence
of Keynes and macroeconomics. Most governments run budget deficits to stimulate demand. It is
merely cognitive dissonance of academics to think neoclassical economics only is mainstream and
solely responsible for the GFC, just because to them there is an apparent bias in research funding
at universities.
First, government is such a huge portion of the economy that its actions have huge influence
and therefore the impact has to be managed. Pretending you can have some type of neutral autopilot
is a false idea, but that is the bedrock of economic thinking, that economies have a natural propensity
to equilibrium and that equilibrium is full employment.
Second, it's not done much these days, but the best forms of intervention are ones that are
naturally countercyclical so you don't have politicians wrangling and have pork and election timing
and results and inertia get in the way.
I'm not defending neoclassical economics. In economics, the alternative to a wrong is another
wrong. Governments are politically compelled to intervene. But with the Keynesian economic fallacy,
their interventions make things worse in the long-run. Please visit my blog:
"The Battle of Bretton Woods" is very instructive. Start with two intellectuals (Keynes and
Harry Dexter White) who were big fans of Stalinist Russia's command economy ("I've seen the future and
it works!"). Last time I checked this kind of tomfoolery ("we will raise X number of cows because
we think we'll need leather for Y number of shoes") has been utterly discredited. Implement for
the global currency and trade systems. Fast forward to today where there are massive imbalances,
global currency wars, and a race to zero and beyond that has sucked all demand from the future
to the present and now the past. And the shining answer, the clarion rallying cry, is "we just
need more debt, and we need some new rugs to sweep all the bad debt under".
All while "macro-economists" propagate models that completely misunderstand how money is actually
created and distributed. All I can say is "Forward Soviet!".
Indeed. Gov't is the biggest business in town in every economy, everything else, even giant
corporations, are minuscule players in comparison. This is a large source of dynamical behavior,
the swings and re-balancing as the State throw its weight around in the marketplace.
I should add that neoclassical economics has damaged economics by excluding explicitly
the government sector in their models. As a result, the impact of government on the macroeconomy
has not been properly understood. The empirical facts, without theories or equilibrium assumptions
etc., show the failure of government policy of demand stimulation:
http://www.asepp.com/fiscal-stimulus-of-consumption/
It seems to me that for something to be called "keynesian", it should also mean that the aim
of those policies was to help create robust private demand (though I doubt Keynes was as emotionally
handicapped as today's mainstream bean-counting theorists are, if only because gdp figures didn't
yet dominate macro thinking in the manner they do today, thanks to everyone having received "economics
education" in school); if not, it wolud more fairly be called Marxist, because he was the one
from whom Keynes (indirectly, as he refused to read Marx personally) pilfered his insights. What
matters is whether we've got 'socialism for the rich / incumbents / industrial complexes', or
"socialism" (well, social-democrat, liberal new-dealerism) for the "masses".
Well, I have to say this article reminds me too much of the DNC sole searching over why Hillary
didn't win. Just another room full of wantonly clueless people.
Does start out on a high note where Romer states the problem is economists don't care if they
are winging and slinging BS from their arses same as chimpanzees.
I guess the article coulda ended there. But no.
Noah Smith laments a shortage of macro data – so the who knows how many gigs at FRED are found
wanting and I guess the BLS, etc aren't up to snuff either. Or maybe Noah means they are fabricating
phoney data? Then Noah doubles down on the efficacy of interest rate policy – after 9 years in
the liquidity trap.
[Caution: The following is allegory – we are speaking of the high priestess here.]
We then are treated to JYell and her discovery of the buggy whip. She states there is current
research being done on buggy whips, and more research is necessary. She is able to use big words
to speak of these buggy whips. Some of these words are borrowed from real science – making this
more scientific. Like hysteresis – and even an example for lay-off people. It's possible you may
never work again and add to the long term employment rate! Yikes. Worse yet, their definition
of "long term" is longer than 6 months. After that, 7 months or retire at 30 is all the same to
them. "Heterogeneity" is another good one. For use in polite company. Has an Evil Twin named inequality
and a macro version called crony capitalism. JYell can keep the hits coming!
I'm tired of typing someone else can take up the rest of it.
The complaint about not enough data struck me too; actually economist have vasts amounts of
data to gain insights from and test hypothesis against because economies are well recorded human
endeavours, recorded in actual painful detail thanks to the inexhaustible efforts of statemen
and statewomen to know everything about the populations they control and harvest. Probably more
data-oriented lines of research would lead to progress in macro-economy as a scholarly discipline?
@Ruben – They want more data because the data that exists cannot be explained by their eloquent
mathematical theories, which are based on assumptions that are ridiculous on their face e.g.,
rational expectations and utility maximization. The hope is that additional data will fit the
theories better allowing them to remain comfortably ensconced in their fantasy world of regressions
and p values.
Which is how we get adjustments to CPI based on the premise that CPI is overstating inflation.
Now the hip thing is that productivity is undermeasured because economists don't like what the
numbers are saying, so we can expect an upwards adjustment there as well.
Read Romer's article, twice. Will need a third try to fully get it, but as someone with a modest
background in engineering and engineering mathematics, I still can't quite believe what Romer
is saying. Do the economists he names really not understand the computer stat model they are
using? Are they admitting to making up the fudge factors to make their 'data' fit their (wrong
headed) totem pole, supply and demand? I mean, there it is in black and white, by the economists'
own words, that their math is just flat out wrong.
Now Romer is writing for the inside crowd, as an long time, connected insider himself, so don't
expect an easy read. But he writes quite clearly what is the problem with economics so the main
idea, that macro economics, in rejecting an early model of macro economics (Keynesian) because
said model was based on a few openly stated fudge factors, have spent the last 40 years building
models that are 1. full with even more fudge factors, 2. these fudge factors are never openly
stated, and 3. the new models have given truly disastrous results in the real world (also known
as the US economy, amoung others). Along the way, he names names and steps on some toes. Then
he finishes up with a full charge of how the 'dismal science' is a lying religion, nothing at
all like truth seeking science.
Okay, I'll quit here before I hurt myself. Let someone else slam the keys. (haha)
The economics I learned in the early 1960's seems to work as well now as it did back then.
I was lucky enough to be so busy at work in the decades that followed, that I did not have a chance
to keep up on the mis-education of the time. When I had the time to start paying more attention
to the subject again, I couldn't understand what had happened to the knowledge that I had learned
that seemed to explain all that was happening in the economy.
I was surprised to learn that Yellen had expressed any interest in the people permanently out
of the labor market. I thought all the discussions of interest rates focused almost exclusively
on what in my mind is the unemployment pseudo-rate, which completely ignores those people.
Regardless of which rate is considered, I have never been able to comprehend the mind that
can talk about acceptable levels of unemployment. Acceptable to whom? The people who lose their
homes, and sometimes their neighborhood networks when they have to move, and may with just a little
bad luck slide into still worse conditions? The communities that see more people becoming burglars,
muggers, bank robbers, drug dealers, and prostitutes because only the illegal economy has any
place for them? I have never seen a sustained or general effort to look at the economic consequences
of those events, much less an admission of the immorality of causing so much trouble. It seems
to me that a macroeconomics that divorces itself from those possibly micro concerns will be forever
irrelevant to good policy.
Way back prior to the great Permian-Triassic Extinction, I was fortunate enough to wander around
an Economics Department where I could encounter intellectual dead-ends like Keynes, Marx, Polanyi,
Kalecki, Veblen – all of whom prepared me to pump-gas at the local filling station oh wait!
Having somehow successfully survived the subsequent big-brain epoch, I settled comfortably into
making a modest annual donation to a scholarship fund for budding economists at the olde U. Then
it came to my attention that not only could one still obtain a BA in Economics, but the olde school
was also awarding two different Bachelor on Science degrees in Economics. Breathtaking! Economics,
an actual science! Like for example physics!
I am now in the reduced circumstance of donating only to my old high school in the doubtless vain
hope that the youngsters will study enough science to be able to shoot these aspiring BS cone-heads
to the moon.
It's 2016 and some Dismal Scientists are still debating whether "involuntary unemployment"
exists.
#FacePalm
Perhaps we should deploy them to that Carrier plant to investigate. So thankful for heterodox
voices:
Abba Lerner – Functional Finance
Hyman Minsky – Financial Instability
Wynne Godley – Sectoral Balances
Entire MMT School – Mosler, Wray, Kelton, Tcherneva et al
#ThereIsHope
Gee, why attack the one healthy sector of the economy, the Wealth Defence Industry?
(Why did so much of 'the social-democratic left' go along all this? I think John Rawls gave
them the excuse. He said inequality is great if the worse off are better off under this economic
system than they would be under a more equal one. The poor can therefore protest if they can show
that if we did things more equally they would be better off. The task of the economist today is
to ward this possibility off by ensuring that economic thought is utterly subservient to oligarchic
extraction. It does this by lying – Trickle Down! Rising Tide Lifts all Boats! This has worn out.
So next it does There Is No Alternative! – 'Those Jobs are Never Coming Back', 'Robots!' And finally,
to make really certain, it turns the whole discipline into toadying intellectual fantasy. Romer
homed in on the last.)
"Too much market and too little state invites a backlash."
If anything, Philip Mirowski has persuasively argued that neoliberalism requires a powerful
State.
He has shown that the neoliberal thought collective theorized an elaborate political mobilization,
and recognized early on that the creation of a new market is a political process requiring the
intervention of organized power. The political will to impose a market required a strong state
and elaborate regulation and also that the State would need to expand its economic and political
power over time.
The neoliberal market had to be imposed it did not just happen. A key issue for the future
is defining the nature of the state–whether under neoliberalism or MMT or under Trump or Sanders,
or left populist or right populist.
Mankiw belongs in the non-ideological camp? I don't see how anybody with a brain could
read any of his work past the first page and still hold that view.
I'm imagining them all as engineers on the deck of a half-submerged Titanic, debating about
whether the hull integrity model might perhaps not have been 100% accurate.
Ann Pettifor. give me ann pettifor always. she never puts the cart before the horse, only the
ideological neoliberals try to do that while keeping a straight face – they are quintessential
con artists if there ever were.
Excellent article, except it failed to point out that there are realistic and successful modeling
techniques, in addition to historical studies. These techniques are based on the nonlinear nature
of real world economies. Just use complexity and evolutionary techniques like agent based models
and nonlinear dynamical systems. Nothing new here – I still think that the limits-to-growth models
("system dynamics" = nonlinear dynamical systems) of the early 1970s represent the best mathematical
economics ever done. And the economists' agent based models are just a variation on cellular automata,
which have been used with notable success in other fields for many decades.
The problem is that economists either maintained a deliberate ignorance of such methods, or
have outright rejected them, like Nordhaus with system dynamics. In part this is because these
techniques involve a different mind set: they trade off simplistic models that are easy to understand,
but whose assumptions are demonstrably false, with complexity results that give much better real
world results but have more nuanced narratives.
Ann Pettifor is right about Brexit imo. The belief and the fact is that government is trying
a fast one on the people without being straightforward in its motives or intentions and a major
cause of the discontent and disillusionment seems to stem from the macro-economic error she highlights.
People don't want this mumbo-jumbo any more. The old professions – medicine, accountancy, law
– created jargons of specialist words and phrases (usually Latin) to make their speech and writings
incomprehensible to the hoi polloi. Then in recent decades all sorts of trades have adopted the
same jargon approach to mystifying their work. Enough already! Say what you mean, mean what you
say.
"Nick Bunker points out that in a recent speech, the Federal Reserve Chair Janet Yellen raised
important questions about macroeconomic research in the wake of the Great Recession."
Hint: Citing an ivory-tower twit like J-Yel as "raising important questions" is a huge bullshit
tell. While she was at it, did Janet raise any important questions as to why virtually every highly
credentialed macroeconomist on planet earth completely fail to foresee the global financial crisis
and the massive distortions, in very large part caused by the machinations of the high priests
of those "believers in the power of monetary policy", which portended its coming? But, on to the
bullshit:
"The first area of interest is the influence of aggregate demand on aggregate supply. Yellen
points to research that increasingly finds so-called hysteresis effects in the macroeconomy.
Hysteresis, a term borrowed from physics, is the idea that short-run shocks to the economy
can alter its long-term trend. One example of hysteresis is workers who lose jobs in recessions
and then are not drawn back into the labuor [sic] market but rather permanently locked out,
therefore increasing the long-term unemployment rate."
That's irreversibility, not hysteresis. The latter is a special case of the former, which the
chosen example does not illustrate. An example of hysteresis from my shower's temperature control:
I find the temp is a tad too high, and turn the control a bit toward the cold setting. But I overshoot
my target, and now it's too cold. Nudge back toward hot, but the somewhat-sticky mechanism again
overshoots and lands more or less on the starting "too hot" position. But the water is still too
cold, and I find I have to nudge even further toward hot to fix that. That's hysteresis. In the
context of the recession example, hysteresis would be e.g. if once the E/P ratio had recovered
to its pre-recession level but growth and its correlates remained weaker than expected, say due
to the "recovery jobs" being on average of poorer quality than those which were lost. Kinda like
the current 8-year-long "recovery", come to think of it! But I will admit that glossing over such
messy real-world details like "widespread worker immiseration" with hifalutin terminology-borrowed-form-actual-science
like "hysteresis:" is a great way to make oneself sound important, cloistered there in one's ivory
tower.
"Another open research question that Yellen raises is the influence of "heterogeneity" on aggregate
demand. Ignoring this heterogeneity in the housing market and its effects on economic inequality
seems like something modern macroeconomics needs to resolve."
Ah yes, "needs to resolve" - that implies lots of high-powered academic conferences and PhD
theses. And it's so wonderfully wishy-washy compared to "is something only a joke pretend-scientific
discipline would even need to consider stopping doing, because no self-respecting discipline would
have abandoned assumptions of homogeneity in roughly Year 2 of said discipline's evolutionary
history."
"Yellen raises other areas of inquiry in her speech, including better understanding how the
financial system is linked to the real economy and how the dynamics of inflation are determined.
Hey, when y'all finally "better understand" how this whole "financial system" thingy is linked
to the real economy, by all means do let us know, because it seems like such a linkage might have,
like, "important ramifications", or something. As to inflation, you mean actual inflation, or
the fake measures thereof the folks at the world's central banks make their stock in trade? You
know, for example, "in determining house price inflation we studiously ignore actual house prices
and instead use an artificial metric called Owner's Equivalent Rent, which itself studiously ignores
actual prices renters pay. Ain't it cool?"
Sorry if I sound grumpy, but this article is rather reminiscent of reading US Dem-party insiders
pretending to "soul search" in re. Election 2016. Let's see:
"Another open research question that Team HRC raises is the influence of "heterogeneity" on
voting preference. Ignoring this heterogeneity in the electoral trends and its effects on election
outcomes seems like something modern macroelectorodynamics needs to resolve."
"... he changed American politics forever by demonstrating that style was more important than substance. In fact, he showed that style was everything and substance utterly unimportant. ..."
"... Conservatives used "bracket creep" to convince the middle class that reducing marginal rates on the top tax brackets along with their own would be a good idea, then with the assistance of Democrats replaced the revenue with a huge increase in FICA so that the Social Security Trust Fund could finance the deficit in the rest of the budget. The result was a huge boon to the richest, little difference for the middle class, and a far greater burden for the working poor. ..."
"... Any conversation about who the fantasy-projection "Reagan" was, misses an important reality: He was a hologram, fabricated by a kaleidoscope of various sorts of so-called "conservative" handlers and puppeteers. It was those "puppeteers" who ranged from heartlessly, stunningly "conservative" (destroya-tive), all the way further right to the kind of militaristic, macho, crackpots who have finally emerged from under their rocks at this year's "candidates." ..."
Do not contradict the memories of all the old teabaggers who desperately need the myth of Saint
Ronnie to justify their Greed is Good declining mentality and years.
When Reagan cut-and-ran on Lebanon he showed rare discretion. A lot of the puffery stuff was
B-Movie grade, but there was a lot of cross-the-aisle ventures, too.
He was a politician. The current GOP is just a bunch of white Fundie bullies, actually and
metaphorically (e.g., Carson).
Zepp -> thedono 19 Sep 2015 11:37
Well, compared to Cruz, or Santorum, or Huckabee, he's a moderate. Of course, compared to the
right people, you can describe Mussolini or Khruschev as moderates...
mastermisanthrope 19 Sep 2015 11:37
Lifelong shill
LostintheUS -> William J Rood 19 Sep 2015 11:36
Reagan underwent a political conversion when Nancy broke up his marriage with Jane Wyman and
married him.
The cold war ended while Reagan was president, but he did not win the cold war. His rhetoric
and strategy was wishful thinking - there's no way he could have had the definitive intelligence
about the entire military-political-economic that would have justified the confidence he projected.
He merely lucked out, significantly damaging the US economy by trying (and luckily succeeding)
to out-militarize the soviets.
pretzelattack -> kattw 19 Sep 2015 11:31
both clinton and obama have showed a willingness to "reform social security". try naked capitalism,
there are probably a number of articles in the archives.
LostintheUS -> piethein 19 Sep 2015 11:29
And that the emergency room federally funded program that saved his life was soon after defunded...by
him.
LostintheUS -> pretzelattack 19 Sep 2015 11:28
Many of us saw through him...I noted the senility during his speeches during his first campaign...as
did many people I knew.
Dementia masquerading as politics.
But you can't say anything negative about Saint Ronald!
Peter Davis -> Peter Davis 19 Sep 2015 11:22
I believe Reagan also is responsible for creating the Hollywood notion in American politics
and political thinking that life works just like a movie--with good guys and bad guys. And all
one needs is a gun and you can save the world. That sort of delusional thinking has been at the
heart of the modern GOP ever since.
loljahlol -> ID3732233 19 Sep 2015 11:21
Reagan did not end the Cold War. Brezhnev rule solidified the Soviet death. Their corrupt,
inefficient form of capitalism could not compete with the globalization of Western capitalism.
John78745 19 Sep 2015 11:21
There's not much nuance to Reagan. He was a coward, a bully and a loser. He got hundreds of
U.S. Marines killed then he ran from the terrorists in Beirut and on the Archille Lauro personally
creating the seeds of the morass of terrorists we now live with. He fostered the republican traditions
of sending U.S. jobs overseas at the expense of U.S. taxpayers and of invading helpless, hapless
nations, a tradition so adeptly followed by Bush I & II. He also promised that there would never
be a need for another amnesty.
I guess it's true that he talked mean to the Russians, broke unions, and helped make the military
industrial complex into the insatiable war machine that it is today. Remember murderous Iran-Contra
(a real) scandal where he and his minions worked in secret without congressional authorization
to overthrow a democratically elected government while conspiring to supply arms to the dastardly
Iranians!
We could also say that he bravely fought to save the U.S. from socialized medicine and to expunge
the tradition of free tuition for California students. Whatta hero!
thankgodimanatheist 19 Sep 2015 11:19
Reagan, the acting President, was the worst President since WWII until the Cheney/Bush debacle.
Most of the problems we face today can be directly traced to his voodoo economics, huge deficit
spending, deregulation, and in retrospect disastrous foreign policies.
LostintheUS 19 Sep 2015 11:17
"these days everyone seems to love Ronald."
Absolutely, not true. The farther along we go in time, the more Americans realize the damage
this man and his backers did to America and the world. The inversion of the tax tables, the undoing
of union laws, the polarization of Americans against each other so the plutocrats had no real
opposition and on and on. His camp stole the election in 1980 through making a back door deal
with the Iranian government to hold onto the American hostages until the election when Jimmy Carter
had negotiated an end to the hostage crisis, which was the undoing of Jimmy Carter's administration.
"Behind Carter's back, the Reagan campaign worked out a deal with the leader of Iran's radical
faction - Supreme Leader Ayatollah Khomeini - to keep the hostages in captivity until after the
1980 Presidential election." This is, unquestionably, treason. http://www.truth-out.org/opinion/item/20287-without-reagans-treason-iran-would-not-be-a-problem
No, Reagan marks the downward turn for our country and has resulted in the economic and social
mess we still have not clawed our way back out of. No, Reagan is no hero, he is an American nemesis
and a traitor. Reagan raised taxes three times while slashing the tax rate of the super rich...starting
the downward spiral of the middle-class and the funneling of money toward the 1%. Thus his reputation
as a "tax cutter", yeah, if you were a multi-millionaire.
Never thought of Reagan as the first Shrub but it fits. I wonder if future pundits will sing
the Dub's praises as well. I think I'm gonna be sick for a bit.
kattw -> namora 19 Sep 2015 11:10
Pretzel is maybe talking about the 'strengthen SS' bandwagon? Perhaps? Not entirely sure myself,
but yeah - one of the major democrat platform planks is that SS should NOT be privatized, and
that if people want to invest in stocks, they can do that on their own. The whole point of SS
is to be a mattress full of cash that is NOT vulnerable to the vagaries of the market, and will
always have some cash in it to be used as needed.
SS would be totally secure, too, if congress would stop robbing it for other projects, or pay
back all they've borrowed. As it is, I wish *I* was as broke as republicans claim SS is - I wouldn't
mind having a few billion in the bank.
William J Rood 19 Sep 2015 11:08
Reagan was former president of the Screen Actors' Guild. Obviously, he thought unions for highly
educated workers were great. Meatpackers? Not so much.
RealSoothsayer 19 Sep 2015 11:04
This article does not mention the fact that in his last couple of years as President at least,
his mental state had seriously deteriorated. He could not remember his own policies, names, etc.
CBS' Leslie Stahl should be prosecuted for not being honest with her everyone when she found out.
Peter Davis 19 Sep 2015 11:04
Reagan was a failed president who nonetheless managed to convince people that he was great.
He was a professional actor, after all. And he acted his way into the White House. Most importantly,
he changed American politics forever by demonstrating that style was more important than substance.
In fact, he showed that style was everything and substance utterly unimportant. He was the
figurehead while his handlers did the dirty work of Iran-Contra, ballooning deficits, and tanking
unemployment.
nishville 19 Sep 2015 11:03
For me, he was a pioneer. He was the first sock-puppet president, starting a noble tradition
that reached its climax with W.
mbidding -> hackerkat 19 Sep 2015 11:03
In addition to:
Treasonous traitor when, as a presidential candidate, he negotiated with Khomeini to hold the
hostages till after the election.
Subverter of the Constitution via the Iran-Contra scandal.
Destroyer of social cohesion by turning JFK's famous admonishment of "ask not what your country
can do for you, ask what you can do for your country" on its head with his meme that all evil
emanates from the government and taxation represents stealing rather than a social obligation
for any civilized society that wishes to continue to develop in a sound fashion that lifts all
boats.
Incarcerator in Chief through his tough on crime and war on drugs policies, not to mention
defunding mental health care.
Pisser in Chief through his successful efforts to imbed trickle down economics as the economic
thought du jour which even its original architects, notably Stockman, now confirm is a failed
theory that we nonetheless cling to to this day.
Ignoramus in Chief by gutting real federal financial aid for higher education leading to the
obscene amounts of student debt our college students now incur.
Terrorist creator extraordinaire not only with the creation of the Latin American death squads
you note, but the creation, support, trading, and funding of the mujahedin and Bin Laden himself,
now known as the Taliban, Al Qa'ida, and ISIS, only the most notable among others.
namora -> trholland1 19 Sep 2015 10:59
That is not taking into account his greatest role for which he was ignored for a much deserved
Oscar, Golden Globe or any of the other awards passed out by the entertainment industry, President
of The United States of America. He absolutely nailed that one.
William J Rood 19 Sep 2015 10:58
Conservatives used "bracket creep" to convince the middle class that reducing marginal
rates on the top tax brackets along with their own would be a good idea, then with the assistance
of Democrats replaced the revenue with a huge increase in FICA so that the Social Security Trust
Fund could finance the deficit in the rest of the budget. The result was a huge boon to the richest,
little difference for the middle class, and a far greater burden for the working poor.
Tax brackets could have been indexed to inflation, but that wouldn't have been so great for
Reagans real supporters.
Doueman 19 Sep 2015 10:55
What sad comments by these armchair experts.
They don't gel with my experiences in North America during this period at all. When Reagan
ran for the presidency he was generally ridiculed by much of the press in the US and just about
all of the press in the UK for being a right wing fanatic, a lightweight, too old, uninformed
and even worse an actor. I found this rather curious and watched him specifically on TV in unscripted
scenarios to form my own impression as to how such a person, with supposedly limited abilities,
could possibly run for President of the US. I get a bit suspicious when organisations and individuals
protest and ridicule too much.
My reaction was that he handled himself well and gradually concluded that the mainly Eastern
liberal press in the US couldn't really stomach a California actor since they themselves were
meant to know everything. He actually was pretty well read ( visitors were later astonished to
read his multiple annotations in heavy weight books in his library). He was a clever and astute
union negotiator dealing with some of the toughest Hollywood moguls who would eat most negotiators
for dinner. He had become Governor of California and had done a fine job. I thought it was unlikely
he was the simpleton many portrayed. He couldn't be easily categorised as he embraced many good
aspects of the Democrats and the Republicans. Life wasn't so polarised then.
The US had left leaning Republicans and right wing Democrats. A political party as Churchill
noted was simply a charger to ride into action.
In my view, his presidential record was pretty remarkable. A charming, fair minded charismatic
man without the advantage of a wealthy background or influential family. The world was lucky to
have him.
raffine -> particle 19 Sep 2015 10:50
Reagan's second term was a disaster. But as someone below mentioned, conservative pundits and
their financers engaged in a campaign to make Reagan into a right-wing FDR. The most effective,
albeit bogus, claim on Reagan's behalf was that he had ended the Cold War.
jpsartreny 19 Sep 2015 14:22
Reagan is the shadow governments greatest triumph. After the adolescent Kennedy, egomaniacs
Johnson and Nixon , they needed front guys who followed orders instead .
The experiment with the peanut farmer from Georgia provided disastrous to Zebrew Brzezinski
and the liberals. The conservatives had better luck with a B- movie actor with an great talent
to read of the teleprompter.
RealSoothsayer -> semper12 19 Sep 2015 14:19
How? By talking? Gobachev brought down the USSR with his 'Glasnost' and 'Perestroika' policies.
His vision was what communist China later on achieved: mixed economy that flies a red flag. Reagan
was just an observer, absolutely nothing more. Tito of Yugoslavia was even more instrumental.
Marc Herlands 19 Sep 2015 14:17
IMHO Reagan was the second most successful president, behind FDR and ahead of LBJ. Not that
I liked anything about him, but he moved this country to the right and set the play book. He lowered
taxes on the wealthy, the corporations, capital gains, and estate taxes. He reduced growth in
programs for the poor, and made it impossible to increase their funding after his presidency because
of he left huge federal deficits caused by lowering taxes and increasing outlays on the military.
This Republican playbook still is their way of making sure that the Democrats can't give the poor
more money after they lose power. Also, he enlarged the program for deregulating industries, doing
away with antitrust laws, hindering labor laws, encouraged anti-union behavior, and did nothing
for AIDS research. He was a scoundrel who did a deal with Iran to prevent Carter from being re-elected.
He directly disobeyed Congressional laws not to intervene in Nicaragua. He set the tone for US
interventions after him.
bloggod 19 Sep 2015 14:17
Obama, Clinton, and the Bushes all hope to be forgiven for their unpardonable crimes.
Popularity is created. It is not populism, or informed consent of the pubic as approval for
more of the same collusion.
It is a One Party hoe down.
bloggod -> SigmetSue 19 Sep 2015 14:12
"they"
the indicted Sec of Defense Weinberger; the indicted head of the CIA Casey who "died" as he
was due to testify: Mcfarlane, Abrams, Clair George, Oilyver North, Richard Secord, Albert Hakim
Reagan had no genius, he had Bush-CIA and the Jerry Falwell, Billy Graham, and the "immoral
majority" of anti-abortion war profiteers.
Marios Antoniou Lattimore 19 Sep 2015 13:52
I agree with everything you mentioned, and I intensely dislike Reagan YET the point of the
article wasn't that Reagan was good, it rather points to the fact that Republicans have shifted
so far to the right that Reagan would appear moderate compared to the current batch.
Rainer Jansohn pretzelattack 19 Sep 2015 13:52
Interesting had been his speeches during the Cold War.Scientists have subsumed it under "Social
Religion",a special form of political theology.Simple dialectical:UDSSR the incarnation of the
evil/hell on the other side USA :the country of God himself.A tradition in USA working until now.There
is no separation between government and church as in good old centuries sincetwo centuries resulting
from enlightening per Philosophie/Voltaire/Kant/Hume/Descartes and so on.Look at Obamas speeches/God
is always mixed in!
talenttruth 19 Sep 2015 13:49
Any conversation about who the fantasy-projection "Reagan" was, misses an important reality:
He was a hologram, fabricated by a kaleidoscope of various sorts of so-called "conservative" handlers
and puppeteers. It was those "puppeteers" who ranged from heartlessly, stunningly "conservative"
(destroya-tive), all the way further right to the kind of militaristic, macho, crackpots who have
finally emerged from under their rocks at this year's "candidates."
The fact that Reagan was going ga-ga – definitely in his second term, and likely for part of
the first – was entirely convenient for his Non-Human-Based-Crackpot-Right-Holographers, since
he had was not actually "driven" to vacuousness by a tragic mental condition (dementia) – THAT
change was merely a "short putt" – from his entire previous life.
Regarding his Great Achievement, the collapse of the Soviet Union? After decades of monstrous
over-spending by the USA's Military-Industrial-Complex, the bogus and equally insane USSR finally
bankrupted itself trying to "compete" and fell. Reagan (and his puppeteer handlers), always excellent
at Taking Credit for anything, showed up with exquisite cynical timing, and indeed Took Credit.
Lest anyone forget, Reagan got elected in 1980, via a totally illegal and stunningly immoral
"side deal" with the Iranians, in which they agreed to not release our hostages to make Carter
look like a feeble old man. Then we got Reagan who WAS a "feeble old man" (ESPECIALLY intellectually
and morally). Reagan "won," the hostages were "released" and he of course took credit for that
too.
So all these so-called "candidates" ARE the heirs of all the very worst of Ronald Reagan: they
are all simpleminded, they are totally beholden to Hidden Sociopathic Billionaires hiding behind
various curtains, and they all have NO CLUE what the word "ethics" means. Vacuous, anti-intellectual,
scheming, appealing only to morons, and puppets all. Perfect "Reaganites."
Bill Ehrhorn -> semper12 19 Sep 2015 13:32
It seems that the teabaggers and their ilk give only Reagan credit.
SigmetSue 19 Sep 2015 13:16
They called him the Teflon President because nothing ever stuck. It still doesn't. That was
his genius -- and I'm no fan.
Lattimore 19 Sep 2015 13:13
The article seems to present Reagan as an theatrical figure. I disagree. Reagan, President
of the United States, was a criminal; as such, he was among the most corrupt and anti democratic
person to hold the office POTUS. The fact that he tripled the national debt, raised taxes and
skewed the tax schedules to benifit the wealthy, are comparitively minor.
,,,
Reagan's crimes and anti democratic acts:
1. POTUS: CIA smuggling cocaine into the U.S., passing the drug to wholesalers, who then processed
the drug and distributed crack to Black communities. At the same time Reagan's "War on Crime"
insured that the Black youth who bought "Central Intelligenc Agencie's" cocaine were criminalized
and handed lengthy prison sentences.
2. POTUS supported SOUTH AMERICAN terrorist, and the genocidal atrocities commited by terrorist
in Chili, Guatamala, El Mazote, etc.
3. POTUS supported SOUTH AFRICAN apartheid, and the imprisonment of Nelson Mandela as well. Vetoing
a bill that would express condemnation of South Africa.
4. POTUS sold Arms to Iran.
5. POTUS used taxpayer dollars to influence election outcomes.
6. POTUS rigged government grants to enrich his cronies.
7. POTUS thew mental patients onto the streets.
8. POTUS supported McCarthyism, witch hunts, etc.
9. POTUS created and supported Islamic terrorist--fore runners of al Queada, ISIS, etc.
Niko2 LostintheUS 19 Sep 2015 13:12
I don't have much love for Nancy, but she did not break up this marriage, to be fair. And she
actually got rid off the extreme right wingers in Reagan's administration, like Haig and Regan,
whom she called "extra chromosome republicans". Surely she was a vain and greedy flotus with no
empathy whatsoever for people not in her Bel Air circles (I can easily imagine her, "Do I really
have to go and see these Aids-Babies, I'd rather shop at Rodeo Drive, lose the scheduler") but
she realized at an early stage that hubbies shtick-it-to-the-commies policies would do him no
favour. Maybe she's the unsung heroine of his presidency.
tommydog -> MtnClimber 19 Sep 2015 13:04
The principle subsidies to big oil are probably the strategic oil reserve and subsidies to
low income people for winter heating oil. You can choose which of those you'd like to cut. After
that you're arguing about whether exploration costs should be expensed in the year incurred or
capitalized and amortized over time.
WilliamK 19 Sep 2015 13:03
He was one of J Edgar Hoover's red baiting fascist admiring boys along with Richard Nixon and
Walt Disney used to destroy the labor unions, control the propaganda machine of Hollywood and
used to knuckle under the television networks and undermine as much as possible the New Deal polices
of Franklin Roosevelt. An actor groomed by the General Electric Corporation and their fellow travelers.
"Living better through electricity" was his mantra and he played the role of President to push
forward their right wing agenda. Now we are in new stage in our "political development" in America.
The era of the "reality television star" with Hollywood in bed with the military industrial complex,
selling guns, violence and sex to the fool hardy and their children and prime time television
ads push pharmaceutical drugs, children hear warnings of four hour erections, pop-stars flash
their tits and asses and a billionaire takes center stage as the media cashes in and goes along
for the ride. Yeah Ronnie was a second tier film star and with his little starlet Nancy by his
side become one of America's greatest salesman.
Backbutton 19 Sep 2015 12:57
LOL! Reagan was a walking script renderer, with lines written by others, and a phony because
he was just acting the part of POTUS. His speeches were all crafted, and he had good writers.
He was no Abraham Lincoln.
And now these morons running for office all want to rub off his "great communicator" fix.
Good help America!
Milwaukee Broad 19 Sep 2015 12:49
Ronald Reagan was an actor whom the depressingly overwhelming majority of American voters thought
was a messiah. They so believed in him that they re-elected him to a second term. Nothing positive
whatsoever became of his administration, yet he is still worshiped by millions of lost souls (conservatives).
Have a nice day.
Michael Williams 19 Sep 2015 12:48
The US was the world's leading creditor when Reagan took office. The US was the world's leading
debtor by the time Bush 1 was tossed out of office.
This is what Republicans cannot seem to remember.
All of the other scandals pale in comparison, even as we deal with the blowback from most of
these original, idiotic policies.
Reagan was an actor, mouthing words he barely understood, especially as his dementia progressed.
This is the exact reason the history is so poorly taught in the US.
People might make connections....
Jessica Roth 19 Sep 2015 12:46
Oh, he had holes in his brain long before the dementia. "Facts are stupid things", trees cause
pollution, and so on.
A pathetic turncoat who sold out his original party (the one that kept his dad in work throughout
the Great Depression via a series of WPA jobs) because Nancy allegedly "gave the best head in
Hollywood" and who believed that only 144,000 people were going to Heaven, presumably accounting
for his uncaring treatment of the less-well-off.
His administration was full of corruption, from Richard Allen's $1000 in an envelope (and three
wristwatches) that he claimed was an inappropriate gift for Mrs. Reagan he had "intercepted" and
then "forgotten" to report to William Casey trading over $3,000,000 worth of stocks while CIA
director. (Knowing about changes in the oil market ahead of time sure came in handy.) You had
an attorney general who took a $50,000 "severance payment" (never done before) from the board
of a corporation he resigned from to avoid conflict of interest charges and this was William French
Smith; his successor, Edwin Meese, was the one with real scandals (about the sale of his home).
Hell, Reagan himself put his ranch hand (Dennis LeBlanc) on the federal payroll as an "advisor"
to the Commerce Department. I didn't know the Commerce Dept needed "advice" on clearing wood from
St. Ronnie's ranch, but LeBlanc got a $58,500 salary out of the deal. (Roughly £98,000 at today's
prices.) Nice work if you can get it.
Meanwhile, RR "talked tough" at the Soviets (resulting in the world nearly ending in 1983 due
to a false alarm about a US nuclear attack) while propping up any rightwing dictator they could
find, from the South African racists to Ferdinand and Imelda Marcos (after they had Aquino assassinated
at the airport) to Roberto "Death Squad" D'Aubuisson in El Salvador (the man who masterminded
the assassination of Archbishop Romero while he was performing Mass).
Oh, and while Carter did a nice job of shooting himself in the foot, Reagan benefited in the
election not only from his treasonous dealings with the Iranian hostage-takers (shades of Nixon
making a deal with North Viet Nam to stall the peace talks until after the 1968 elections, promising
them better terms) but through more pedestrian means such as his campaign's stealing of Carter's
briefing book for the campaign's only debate, Reagan being coached for the debate by a supposedly
neutral journalist (George Will, of ABC and The Washington Post), who then went on television
afterwards (in the days when there were only three commercial channels) and "analysed" how successful
Reagan had been in executing his "game plan" and seeming "Presidential" without either Will or
ABC bothering to mention that Will had coached Reagan and designed the "game plan" in question.
The "liberal bias" in the media, no doubt.
Always a joke, only looking slightly better by the dross that has followed him. (Including
Bill "Third Way" Clinton and his over-£50,000,000 in post-Presidential "speaking fees" graft,
and Barack Obama, drone-murderer of children in over a dozen countries and serial-summary-executioner
of U.S. citizens. When Gordon-effing-Brown is the best that's held office on either side of the
Atlantic since 1979, you can see how this planet is in the state it's in.)
pretzelattack DukeofMelbourne 19 Sep 2015 12:45
his stand on russia was inconsistent, and he didn't cause it to collapse. his economic programs
were a failure. his foreign policy generally a disaster. he set the blueprint for the current
mess.
pretzelattack semper12 19 Sep 2015 12:38
a total crock. reagan let murdering thugs run rampant as long as they paid lip service to democracy,
the world over from africa to central america. the ussr watched this coward put 240 marines to
die in lebanon, and then cut and run, exactly the pattern he was so ready to condemn as treason
in others, and was so ready to portray as showing weakness, and you think the ussr was terrified
of him. he was a hollywood actor playing a role, and you bought it.
Tycho1961 19 Sep 2015 12:13
No President exists in a political vacuum. While he was in office, Reagan had a large Democrat
majority in the House of Representatives and a small Republican majority in the Senate. The Supreme
Court was firmly liberal. Whatever his political agenda Reagan knew he had to constructively engage
with people of both parties that were in opposition to him. If he didn't he would suffer the same
fate as Carter, marginalized by even his own party. His greatest strength was as a negotiator.
Reagan's greatest failures were when he tried to be clever and he and his advisors were found
to be rather ham handed about it.
RichardNYC 19 Sep 2015 11:57
The principal legacy of Ronald Reagan is the still prevalent view that corporate interests
supersede individual interests.
Harry Haff 19 Sep 2015 11:45
Reagan did many horrible things while in office, committed felonies and supported murderous
regimes in Central America that murdered tens of thousands of people with the blessing of the
US chief executive. he sold arms to Iran and despoiled the natural environment whenever possible.
But given those horrendous accomplishments, he could not now get a seat at the table with the
current GOP. He would be considered a RINO, that most stupid and inaccurate term, at best, and
a closet liberal somewhere down the line. The current GOP is more to the right than the politicians
in the South after the Civil War.
There is no economics, only political economy. That means that financial oligarchy under liberalism
puts the political pressure and takes measures to have the final say as for who occupy top academic
positions.
Indirect negative selection under neoliberalism (much like in the USSR) occurs on multiple
fronts, but especially via academic schools and indoctrination of students. The proper term for
political pressure of science and creating an academic school that suppressed other is Lysenkoism.
So far this term was not mentioned even once here. But this what we have in the USA. Of course
there are some dissidents, some of them quite vocal, but in no way they can get to the level of
even a department chair.
In best traditions of Lysenkoism such people as Greg Mankiw, Krugman, DeLong and Summers after
getting to their lucrative positions can do tremendous, lasting decades damage. The same is true
for all other prominent neoliberal economists. It's not even about answers given, it is about
questions asked and framework and terminology used.
Fish rots from the head. It is important to understand that essentially the same game (with
minor variations, and far worse remuneration for sycophantism ) was played in the USSR -- the
Communist Party essentially dictated all top academic position assignments, so mostly despicable
sycophants had managed to raise to the top in this environment. Some people who can well mask
their views under the disguise of formal obedience also happened, but were extremely rare. Situation
in the past in the USA was better and such people as Hyman Minsky (who died in 1996) while not
promoted were not actively suppressed either. But He spend only the last decade of his career
under neoliberal regime.
What was really funny, is how quickly in late 80th prominent USSR economists switched to neoliberalism
when the wind (and money) start flowing in this direction.
I would suggest that there are non are trivial links between Soviet political and economic
science and neoclassical economics in the USA -- both are flavors of Lysenkoism.
"... "The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners' interests by levying taxes on imported wheat, thus raising the price of bread at a time when factory-owners were trying to cut wages to be internationally competitive." ..."
I used to respect Krugman during Bush II presidency. His columns at
this time looked like on target for me. No more.
Now I view him as yet another despicable neoliberal shill. I stopped
reading his columns long ago and kind of always suspect his views as
insincere and unscientific. In this particular case the key question is
about maintaining the standard of living which can be done only if
manufacturing even in robotic variant is onshored and profits from it
re-distributed in New Deal fashion. Technology is just a tool. There can
be exception for it but generally attempts to produce everything outside
the US and then sell it in the USA lead to proliferation of McJobs and
lower standard of living. Creating robotic factories in the USA might not
completely reverse the damage, but might be a step in the right
direction. The nations can't exist by just flipping hamburgers for each
other.
Actually there is a term that explains well behavior of people like
Krugman and it has certain predictive value as for the set of behaviors
we observe from them. It is called Lysenkoism and it is about political
control of science.
Yves in her book also touched this theme of political control of
science. It might be a good time to reread it. The key ideas of "ECONned:
How Unenlightened Self Interest Undermined Democracy and Corrupted
Capitalism " are still current.
Another factor in maintaining manufacturing in the USA is what is
referred to as furthering the "next bench syndrome".
This is where one is made aware of a manufacturing problem to solve
due to proximity to the factory floor, and the solution leads to new
profitiable products that can be used both inside/outside the original
factory.
This might be an improved process or an improvement in
manufacturing tooling that had not been anticipated before.
New products will be created with their profits/knowledge flowing
to the country hosting the manufacturing plants.
The USA seems to be on a path of "we can create dollars and buy
anything we want from people anywhere in the world".
Manufacturing dollars and credit rather than real goods might prove
very short sighted if dollars are no longer prized.
Perhaps the TPP, with its ISDS provisions, indicates that powerful
people understand this is coming and want additional wealth extraction
methods from foreign countries.
The author mentions globalization and financialization. But what seems to
be always left out (and given a pass) in these discussions is the role of
central banks and monetary policy.
Central banking policy (always creating more money/credit) lies at the
nexus of almost all that is wrong with modern capitalism and is the
lubricant and fuel that enables financialization's endless growth.
Financialization leads to asset bubbles and deindustrialization. It
hollows out industries. When money/credit are created in ever increasing
quantity, the makeup of how we "work" shifts from goods producing to
"finance".
Then through globalization, what we lack in goods, foreigners who accept
our paper, seem to provide. At least for now. In a closed system,
financialization has its natural limits. But enabled by cross-border trade,
it metastasizes.
In the short run, it appears to be a virtuous circle. We print paper.
They make real stuff. They take our paper. We take their stuff. We feel very
clever.
But over time, wealth inequality grows. Industries are hollowed out. The
banking sector dominates.
And then we get a populist uprising because people realize "something is
wrong".
But mistakenly, they think it's globalization. Or free trade. Or
capitalism. When all along, it's just central banking. Central banks are the
problem. Central bankers are the culprits.
Yes, insofar as they create fiat for the private sector since that is
obviously violation of equal protection under the law in favor of the
banks and the rich.
Otoh, all citizens, their businesses, etc. should be allowed to deal
directly in their nation's fiat in the form of account balances at the
central bank or equivalent and not be limited to unsafe, inconvenient
physical fiat, a.k.a. cash.
Central banks are part of the problem, but not because any of the
things you say. Abandon monetarism, is just wrong, on everything.
CB's do not control the rates effectively during the upturns (they are
just procyclical as they add to savings though higher rates).
CB's "creating money" would mean loanable funds theory is right, but
as it has been demonstrated over and over it's horribly wrong. Banks
suffice themselves to expand credit on upturns, and CB'ers can do nothing
about it. On downturns they cna try, and fail, because the appetite for
credit is just not there. Credit expansion and contraction is endogenous
and apart of of what CB's do, not to speak about all the forms of shadow
money which are the real outliers and trouble makers.
What CB's do, in practice, is to prevent capitalism from collapsing on
crisis, making "bad money" good, by stabilising asset prices. All their
tools are reactive, not pro-active, so they cannot create any condition,
because they react to conditions. They neither set the rates in reality,
nor "create money" that enters the real economy in any meaningful way.
The religion of "central bankism" is part of the problem, but as it is
the religion of "monetarism" (which are the same) on which many of those
ideas are based.
Banks suffice themselves to expand credit on upturns, and CB'ers
can do nothing about it
IDG
Yes, "loans create deposits" but only largely virtual liabilities
wrt to the non-bank private sector. We should fix that by allowing the
non-bank private sector to deal with reserves too then it would be
much more dangerous for banks to create liabilities since bank runs
would be as easy and convenient as writing a check to one's cb account
or equivalent. Of course, government provided deposit insurance could
then be abolished too since accounts at the cb or equivalent are
inherently risk-free.
Our system is a dangerous mess because of privileges for depository
institutions – completely unnecessary privileges given modern
computers and communications.
Breitbart obscurantism + Trump/Bannon misdirection = turkeys vote for
thanksgiving.
Sessions views on race at Justice = curtailed civil rights.
Wilbur Ross pension stripping = privatize Social Security.
DeVos at education = privatize the golden egg of public education.
85% tax credit for private infrastructure spending = fire sale of the public
square (only rich need apply).
3~4 Military generals in the cabinet = enforcement threat for crypto-fascist
state.
McGahn at counsel + Pompeo at CIA = Koch Bros.
Ryan at speaker = privatize Medicare
Welcome to government of the billionaires, by the billionaires, for the
billionaires.
btw, if Giuliani is appointed to a cabinet post, he will have to explain
his foreknowledge of the NY FBI→Kallstrom→Comey connection→to Congress under
oath (if they aren't too afraid to ask).
I worry along with you, but again: When somebody Ms DeVos opens her
mouth people just naturally recoil. Trump doesn't seem to have grasped
the only thing that mattered in his election – you want your enemies to
suck. His appointees are people that suck. Hillary would have appointed
smooth-talkers who could effortlessly move between "private and public"
positions.
PS: Paul Ryan is a good counterexample – people fall for his BS
because he isn't quite a stupid as, say Guiliani. Of course he was
elected, not picked by Trump.
mr reddy solves the riddle of the Great Refusal but doesn't far enough:
certainly mainstream economists were wrong to act as cheerleaders for the
kleptocracy, yet they were also complicit in a material sense by furnishing
all the necessary algorithms to boost the derivatives industry into the
realm of corporate cyber-theft. that genie isn't going back into bottle.
what's in store for us then? economic apartheid. just read what the new team
has been saying about walls, guns, police, military and terrorism. the
bannon plan is for heavily policed gated communities monopolizing vital
resources; high surveillance, rights abatement zones for the proletariat;
and a free-fire wilderness of lumpen gangsters, gun-toting vigilantes,
survivalist cults, etc. competing for subsistence. mad max, only run by
people worse than mel gibson. close to what we already have but once
legislated into existence impossible to reverse without a violent
revolution. once again mr. reddy is correct: hobbes' leviathan is the
negation of social science.
hmmmm .. Trump said quite a few contradictory things during his campaign
and it would seem an error to believe anything a candidate says on either
side of an issue. Have the Koch brothers (who are involved w/Trump) been
particularly unhappy with the numerous billions they've accumulated under
Obama? I expect this regime to be more along the 'different globalization'
side (more a shuffling of the deck chairs on the Titanic). Manufacturing
will be back in relation to the degree – penalties are eliminated on
'repatriated' funds, land is eminent domained on behalf of oligarchs,
private profit is granted primacy over pollution, then build their factories
with public money and abolish the minimum wage. Austerity will continue but
the new con will be private/public partnerships. Don't you want to buy you
friend/family member/neighbor a job? Don't you?
The elite, including the Trump's, are going to continue their actions
until they've taken it all.
Since you mention land you might be interested in the idea of land
value taxation a way to take the land back from the oligarchs an idea
that has been around for a long time assiduously ignored by folks like
Naked Capitalism.
Mr. Fitzgerald, if you search in NC for "land value taxation" you
will see many articles, especially from Mr. Hudson. NC has thoroughly
covered a lot of territory regarding this topic.
Yes you could probably catch us restlessly muttering "Henry
George" in our sleep half the time.
The problem is it's a really, really hard sell. It just sounds
funny. Pittsburgh actually had it until a few years ago when it was
"discovered" and before there was even a discussion the Democratic
mayor and City Council who should have known better had rescinded
it before anybody got a chance to say anything.
" during 2001 after years of underassessment, and the system was
abandoned in favor of the traditional single-rate property tax. The
tax on land in Pittsburgh was about 5.77 times the tax on
improvements."
To be good Russian plants, we do actually need to know things
about Amerika
Anyway, here's the problem: people just voted for a billionaire
how you gonna get this type of taxation approved given the
Pittsburgh example?
It seems to be forgotten that this was a vote against Clinton
and not a vote for Trump. If Trump goes back on his progressive
platform, jobs jobs jobs there will be a backlash so fast that
it will give everyone, especially the billionaires whiplash. Let
them touch one hair on Social Security's head or privatize
Medicare, there will be another big surprise in the mid-term
elections. When the good people of the rust belt find out about
the plans to put rentier tolls on all that public
infrastructure, trust me the pitchforks will come out from their
corners quick as you blink The best laid plans of billionaires
and their lackeys often go awry. The curtain has been lifted. If
Trump thinks he can satisfy the working class by giving another
huge tax break to the .01%, he better think again. They do not
have enough rubber bullets nor pepper spray.
Nah, as long as Trump keeps blaming folks of color, he's
got a good six years. You overestimate the people of Flyover.
Yes, they got hosed by Obama, but they've been electing
Republicans to flog them for 30 years.
It's a hard sell for good reason. Many Americans are land
rich and cash poor. The idea that they'd have to sell property
to pay such a tax offends even the simplest conception of sound
land planning. If a lot more property came on the market at
once, as it would have to under the land tax scheme, we'd be
Japan all over again.
Taxes should be unavoidable to avoid violating equal protection
under the law and land taxes are certainly unavoidable in that land
can't be hidden as income, for example, can be.
Another unavoidable tax, except for the existence of physical
fiat* (notes and coins), would be a tax on fiat, i.e. negative
interest.
*Yet these can be taxed when bought and sold to the central bank
with/for "reserves"**
**Just another name for fiat account balances at the central bank
when the account owners are depository institutions.
Here's a few old fashioned & long derided ideas for taxes:
An Estate Tax of 30% on estates larger than say, 5 million. Yes
I know the US has one, but isn't it suffering death by a
thousand cuts ?
A sales tax (say 30%) on Luxury goods ? If you can afford that
Rolls Royce, you can afford the tax
Tax on financial transactions (ie: a Tobin tax).
I'm sure we could add a couple dozen more tax ideas to the list.
(The idea is not surpluses, but to reduce inequality )
The goal should be to reduce injustice – preferably at its
source. And the source of much injustice is surely government
privileges for private credit creation and other welfare for
the rich such as positive interest paying sovereign debt.
Still, there's previous injustice to deal with so asset
redistribution should be on the table too and that could
include taxing the rich to give to the poor – certainly not
to run a surplus (or even a balanced budget) as you say.
Mainstream analysts don't want to recognize the real problem. They failed
the people have lost their legitimacy to govern.
Not saying Trump is the solution (I'm hoping for a solution from the left
and think that Trump could enable his cronies, but nothing else), but the
Establishment is unworthy to govern.
A solution that most people would consider being from the left but
which is the radical center (taking valid ideas from both left and right)
is land value taxation the wedge issue to tax the various sources of
unearned income (estimated at 40+% of GNP however you determine it) thus
allowing for the elimination of taxation of earned income from wages and
profit from the investment of real capital in the real economy. Taxing
community created land value and making the distinction between earned
and unearned income has been assiduously ignored and avoided by
mainstream economists, most of our vaunted/sainted public intellectuals
and sources like naked capitalism but since all of that has failed there
is nothing to lose by considering what this author, Sanjay Reddy, says is
necessary: "It [social science] can only save itself through
comprehensive reinvention, from the ground up." I suggest that the this
has already been done literally from the ground up by the analysis that
has been around for a very long time that takes land, how its value is
created, who owns it and what happen when you tax its value into account.
Happy day.
We finally made it to the post-modern wasteland. It is pretty weird to
see the post-modern methods used by social scientists for decades to dissect
culture actually manifest in practiced culture.
TINA was definitely an ideology – an idea backed by interest. They were
making fun of Thatcherism last nite on France 24 because it had been so
devastating and now one of the candidates in France is talking her old trash
again. Humor is effective against ideology when all else fails but it takes
a while. But as defined above, we actually do have an alternative – our
current alternative is "illiberal majoritarianism". Sounds a tad negative.
We should just use the word "democracy".
"The Anti-Corn Law League was a successful political movement in
Great Britain aimed at the abolition of the unpopular Corn Laws, which
protected landowners' interests by levying taxes on imported wheat, thus
raising the price of bread at a time when factory-owners were trying to cut
wages to be internationally competitive."
The landowners wanted to increase their profit by charging a higher price
for corn, but this posed a barrier to international free trade in making UK
wage labour uncompetitive by raising the cost of living for workers.
In a free trade world the cost of living needs to be the same in West and
East as this sets the wage levels.
The US has probably been the most successful in making its labour force
internationally uncompetitive with soaring costs of housing, healthcare and
student loan repayments.
These costs all have to be covered by wages and US businesses are now
squealing about the high minimum wage.
US labour can never compete with Eastern labour and will have to be
protected by tariffs.
Free trade has requirements and you must meet them before you can engage
in free trade.
The cost of living needs to be the same in West and East.
Assume, for the sake of argument, that all assets in the West were
equally owned by its citizens? Then wouldn't free trade with the East be
a universal blessing for the citizens of the West and not a curse for
some (actually many) of them?
So the problem is unjust asset distribution? But how could that occur
if our economic system is just? Except it isn't just since government
subsidies for private credit creation are obviously unjust in that the
poor are forced to lend (a deposit is legally a loan) to banks for the
benefit of the rich.
A technical note, to avoid possible confusion: "corn" in British means
wheat and other small grains – a "corn" is a kernel. Maize was not a big
factor in Britain; too far north.
There are two certainties in life – death and taxes.
There are two certainties about new versions of capitalism; they
work well for a couple of decades before failing miserably.
Capitalism mark 1 – Unfettered Capitalism
Crashed and burned in 1929 with a global recession in the 1930s.
The New Deal and Keynesian ideas promised a bright new world.
Capitalism mark 2 – Keynesian Capitalism
Ended with stagflation in the 1970s.
Market led Capitalism ideas promised a bright new world.
Capitalism mark 3 – Unfettered Capitalism – Part 2 (Market led
Capitalism)
Crashed and burned in 2008 with a global recession in the 2010s.
We are missing the vital ingredient.
When the first version of capitalism failed, Keynes was ready with a new
version.
When the second version of capitalism failed, Milton Freidman was waiting
in the wings with his new version of capitalism.
Elites will always flounder around trying to stick with what they know,
it takes someone with creativity and imagination to show the new way when
the old way has failed.
Today we are missing that person with creativity and imagination to lead
us out of the wilderness and
stagnation we have been experiencing since 2008.
1) The work of the Classical Economists and the distinction between
"earned" and "unearned" income, also "land" and "capital" need to be
separated again (conflated in neoclassical economics)
Reading Michael Hudson's "Killing the Host" is a very good start
2) How money and debt really work. Money's creation and destruction on
bank balance sheets.
3) The work of Irving Fisher, Hyman Minsky and Steve Keen on debt
inflated asset bubbles
>The Euro was designed with today's defective economics.
Man I didn't think of that. What comically lousy timing. I do like
this post because it similar to sigh, ok it asserts my belief but
still don't think I'm in an echo chamber here, I actually want people
to know what I think so they can reinforce the good and whittle out
the bad anyway, asserts my belief that "economics" isn't a science
but when used in the best way is a toolkit, here we need an hammer
(austerity), here we need a screwdriver (some tweaking). It isn't one
tool for all jobs for all time.
American's are brainwashed from birth about capitalism and
Milton Freidman may have been as susceptible as the next man.
He may not have realised he was building on a base that had
already been corrupted, the core of neoclassical economics.
The neoclassical economists of the late 19th century buried the
difference between "earned" and "unearned" income.
These economists also conflated "land" and "capital" to cause
further problems that were clear to the Classical Economists
looking out on a world of small state, raw capitalism.
Thorstein Veblen wrote an essay in 1898 "Why is economics not an
evolutionary science?".
Real sciences are evolutionary and old theory is replaced as new
theory comes along and proves the old ideas wrong.
Economics needs a scientific, evolutionary rebuild from the work
of the classical economists.
Most of the UK now dreams of giving up work and living off the
"unearned" income from a BTL portfolio, extracting the "earned"
income of generation rent.
The UK dream is to be like the idle rich, rentier, living off
"unearned" income and doing nothing productive.
This is what happens when stuff goes missing from economics.
Keynes realised wage income was just as important as profit.
Wage income looks after the demand side of the equation and profit
the supply side.
I think we will find he was right, this knowledge has just gone
missing at the moment.
Keynes studied the Great Depression and noted monetary stimulus
lead to a "liquidity trap".
Businesses and investors will not invest without the demand there
to ensure their investment will be worthwhile.
The money gets horded by investors and on company balance sheets as
they won't invest.
Cutting wages to increase profit just makes the demand side of the
equation worse and leads you into debt deflation.
Central Banks today talk about the "savings glut" not realising
this is probably Keynes's "liquidity trap".
It's more missing stuff.
When Keynes was involved in Bretton Woods after the Second World
War they put in mechanisms for recycling the surplus, to keep the
whole thing running.
The assumption today is that capitalism will just reach stable
equilibriums by itself.
The Euro is based on this idea, but Greece has just reached max.
debt and collapsed, it never did reach that stable equilibrium.
Recycling the surplus would probably have worked better.
I disagree that we don't have a ready to go replacement. MMT. We just
have TPTB throwing $$$ around to make sure no one hears about it, much
less does anything.
I believe that our way out of this morass is to start by buying locally.
There are always people who make things and they need to be supported. We
may not get the cheap products, but we can build our communities up
gradually over time. Our standard of living will be different but we will
have our dignity and the means for creating prosperous communities.
I have been a member of a localist group here in AZ. Said group does a
great job of appealing to people from across the political spectrum. And
that is a good example to follow.
"I believe that our way out of this morass is to start by buying
locally."
I very much like the localist movement, and I try very hard to support
it in upstate NY, among other places. The problem with this approach is
that there are simply way too many people for us to painlessly revert
back to an artisanal, agrarian 18th c. lifestyle.
To put this in Empire State terms: we might just be able to
accommodate hundreds of thousands of people who used to work for Kodak,
I.B.M, or Xerox upstate– in new jobs making craft beer or high-quality
string instruments, etc. Yet what do we do with the many millions of
people, who live downstate, who currently work in jobs very dependent on
a globalized economy?
We've seen a few economists posting lately to say that all social
sciences got it wrong, and especially economics. What's curious to me is
that non of the examples given apply to any social science except economics.
Is this the same discipline that refuses to acknowledge the value of
other disciplines and cross-discipline research, ducking for cover behind
the very disciplines it's been snobbing?
'All social sciences' indeed.
The election was less about trump gaining voters in the rust belt than
Clinton losing hers. Romney lost with exactly as many votes as trump got
because 6 million that voted for black Obama preferred to stay home rather
than vote for white Clinton.
All the dems need to do is to run a candidate willing to spend quality time
in the swing states, somebody not totally corrupt and not verbally
advocating confrontation with Russia would also be a big help, though this
already rules out most dem elites.
Of course if trump manages to get a lot of infra built, and gets a lot of
decent jobs, his support in 2020 will grow, maybe to the point only a strong
progressive could beat him.
But today's dem elites will fight tooth and nail to keep real progressives
from controlling the party, as instructed by their corp overlords remember,
bankers might go to jail if the wrong person gets AG. First indication is
Keith on dec 1 can/will big o keep him out?
I liked this 'take' by Prof. Reddy a lot in terms of looking at what
happened to bring us to a Trump Presidency (with an observation that Orange
Duce hasn't YET been sworn in).
But if he thinks that a Tea Party shaped Republican House and Senate and
soon to be skewed Supreme Court aren't about to launch a season of Rent
Taking and Austerity to levels previously only attained in Arthur Laffer's
wet dreams he needs his otherwise rational head examined.
Don't go so excited the "Trump Revolution" like the "Obama Revolution"
will likely end up as "hopeless" for ordinary folk. So for starters Trump's
tax breaks will save the 1% fifteen percent and the rest of us 2 percent!
Already the msm including my local paper are already grinding out the
counter-propaganda against raising tariff barriers for China. The majority
of the electorate are too ignorant to figure much of it out and come 2024
will be voting Ivanka Trump in as president!
If Trump raises MORE(notice that word son) tariffs against China, he
will get a nice uppercut across the forehead when China cancels contracts
one after another and jobs start being lost in the next NBER recession.
His ego can't take that.
He was the Mercers introduction to the elite, nothing more or less. If
anything, the Republicans are more Jewy than ever.
"The dominant economic ideas taken together created a framework in which
deviation from declared orthodoxy would be punished by dynamics unleashed by
globalization and financialization."
IOW, it isn't science; it's political ideology.
The environmental economist Herman Daley traces that back to the very
beginning of the field; he says the earliest economists essentially chose
sides in the contest then raging between landowners (resource based) and
merchants (trade based). That made them propagandists, not referees. And
it's the reason economics, from the beginning, suppressed the distinction
between natural resources, like land, water, and minerals, and human-created
capital. It recognized only two "production factors," when in reality there
are at least three. Marx picked up the same self-serving :"error."
" illiberal majoritarianism"
That's an unfortunate word choice, considering that Trump lost the election
by nearly 2 million votes. It was an extraordinary demonstration of the
defective Electoral College system. Maybe now we'll get some action on the
Popular Vote initiative.
It's important to remember that the rebellion is "illiberal" mainly
because the "liberal" parties refuse to offer a "liberal" populism, aka the
New Deal. You could call it an old, proven idea. Some of us see that as weak
tea, but even that isn't on offer outside the marginalized Left. (This is
the essential point of Thomas Franks' "What's the Matter with Kansas.")
Of course, that's just a further illustration of the author's point.
One of the most insightful chapters in Karl Polanyi's THE GREAT
TRANSFORMATION is about something Karl calls "the discovery of society." It
is the story of how those who wrestled with the fundamental falsehoods of
the "self-regulating market" [our Libertarian friends' dreamworld] had to
begin thinking about how people in their everyday lives actually, really,
incompletely, made a life for themselves in a world defined by trickle-down
economics. It was never a pretty sight, but the lesson was that the
"self-regulating market" was going to be regulated somehow by non-economic
actors with non-economic considerations foremost in mind, like it or not, or
face destruction by human beings whose lives were distorted beyond what
would be tolerated by ordinary people. Most people put up with neoliberal BS
for a generation because that's what most people do, most of the time, even
when they know they're being sold a bunch of horsecr*p. But the limit of
what people will tolerate in a society defined by the false gods of market
capitalism is reached periodically. Trump's victory tells us that one of
these limits has been reached. The question now is, "What are we going to
"discover" about ourselves and about the society we want to live in–and will
we find a way to create it, assuming it's something good?" (Or flee from, if
it turns sour.)
TINA folks will repeat, over and over, that "there is no alternative,"
but that bugaboo has just been smashed. Clinton, Summers, Obama, Rubin,
Schumer, and the many, many lesser lights of Neo-Liberalism have become "old
hat" almost overnight. Let's hope our discovery of society includes a
stronger dose of Reason and Solidarity than would seem to exist in
Trumpworld.
ergo: Less work (at all levels) + increasing population (which includes
some explosive variables, like a large increase of older persons who will
require economic support from fewer younger workers) = a massive increase in
tension re: the struggle for available necessities.
Technology innovation will help with some of this, but the great, looming
problem is: how are billions of idle people with nothing to do going to be
motivated to remain non-disruptive? I can see a massive surveillance state
controlling the "idles"; perhaps new technologies that permit people to jack
their brains into the network for diversion (but how long before people
become desensitized to that?). Will there be a "spiritual" revolution that
is not attached to current dogmatic religions, that values having less,
sharing more, cooperating with others, etc.? Hard to say.
Anyway, it's coming, yet very few policy makers are talking about it.
I'll bet the Pentagon is planning for this scenario, among others.
In twenty years – maybe a few more – we should be able to begin to
migrate away from earth. It will probably be a LONG time before extra-earth
settlements are feasible and sustainable. That said, we here on earth are
going to have our hands full.
Can humanity somehow find ways to overcome its wired propensity for
status reflected by material wealth, and somehow change that status-seeking
to a sharing model that is not top-down?
I've been pondering this for a while. People much smarter than I will
hopefully lead the way. We have our work cut out for us.
"... Grappling with the shock of Donald Trump's election victory, most analysts focus on his appeal to those in the United States who feel left behind, wish to retrieve a lost social order, and sought to rebuke establishment politicians who do not serve their interests. In this respect, the recent American revolt echoes the shock of the Brexit vote in the United Kingdom, but it is of far greater significance because it promises to reshape the entire global order, and the complaisant forms of thought that accompanied it. ..."
"... Ideas played an important role in creating the conditions that produced Brexit and Trump. The 'social sciences' - especially economics - legitimated a set of ideas about the economy that were aggressively peddled and became the conventional wisdom in the policies of mainstream political parties, to the extent that the central theme of the age came to be that there was no alternative. The victory of these ideas in politics in turn strengthened the iron-handed enforcers of the same ideas in academic orthodoxy ..."
"... The role of economics in furnishing the now-rebuked narratives that have reigned for decades in mainstream political parties can be seen in three areas. ..."
"... The combination of globalization and financialization produced a new plutocratic class of owners, managers and those who serviced them in global cities, alongside gentrification of those cities, proleterianization and lumpenization of suburbs, and growing insecurity and casualization of employment for the bulk of the middle and working class. ..."
"... Financialization also led to the near-abandonment of the 'national' industrial economy in favor of global sourcing and sales, and a handsome financial rentier economy built on top of it. Meanwhile, automation trends led to shedding of jobs everywhere, and threaten far more. ..."
"... Third, there is the push for austerity, a recurrent trope of the 'neoliberal' era which, although not favored by all, has played an important role in creating conditions for the rise of popular movements demanding a more expansionary fiscal stance ..."
"... The dominant economic ideas taken together created a framework in which deviation from declared orthodoxy would be punished by dynamics unleashed by globalization and financialization. The system depended not merely on actors having the specific interests attributed to them, but in believing in the theory that said that they did. [This is one of the reasons that Trumpism has generated confusion among economic actors, even as his victory produced an early bout of stock-market euphoria. It does not rebuke neoliberalism so much as replace it with its own heretical version, bastard neoliberalism, an orientation without a theory, whose tale has yet to be written.] ..."
"... Mainstream accounts of politics recognized the role of identities in the form of wooden theories of group mobilization or of demands for representation. However, the psychological and charismatic elements, which can give rise to moments of 'phase transition' in politics, were altogether neglected, and the role of social media and other new methods in politics hardly registered. ..."
"... Trumpism is a crisis for the most prestigious methods of understanding economic and social life, ennobled and enthroned by the metropolitan academy of the last third of a century. It has caused mainstream 'social science' to fall like a house of cards. It can only save itself through comprehensive reinvention, from the ground up. ..."
"... Just one caveat: Neoliberalism is not really market-fetishism, unless fetishism is understood as fake devotion. Neoliberalism is a State ideology of the economy, its central tenet being that the State must directly help the rich, the poor will be better off as a by-product. ..."
"... Remember, though, that neoliberal social sciences now insists that everything is "post fact". "Post fact" society. "Anti intellectualism". And so on. ..."
"... We can look forward to too post-neoliberslism . - which would be liberalism, as the post and neo cancel out. ..."
"... As early as 1967 Greenspan was well known as an academic whore and a Rockefeller Puppet which now is a vast army of dial up opinions. ..."
"... The author mentions globalization and financialization. But what seems to be always left out (and given a pass) in these discussions is the role of central banks and monetary policy. ..."
"... Central banking policy (always creating more money/credit) lies at the nexus of almost all that is wrong with modern capitalism and is the lubricant and fuel that enables financialization's endless growth. ..."
"... Financialization leads to asset bubbles and deindustrialization. It hollows out industries. When money/credit are created in ever increasing quantity, the makeup of how we "work" shifts from goods producing to "finance". ..."
"... Trump doesn't seem to have grasped the only thing that mattered in his election – you want your enemies to suck. His appointees are people that suck. Hillary would have appointed smooth-talkers who could effortlessly move between "private and public" positions. ..."
"... PS: Paul Ryan is a good counterexample – people fall for his BS because he isn't quite a stupid as, say Guiliani. Of course he was elected, not picked by Trump. ..."
"... mr reddy solves the riddle of the Great Refusal but doesn't far enough: certainly mainstream economists were wrong to act as cheerleaders for the kleptocracy, yet they were also complicit in a material sense by furnishing all the necessary algorithms to boost the derivatives industry into the realm of corporate cyber-theft. ..."
"... Mainstream analysts don't want to recognize the real problem: those who failed the people have lost their legitimacy to govern. ..."
"... We finally made it to the post-modern wasteland. It is pretty weird to see the post-modern methods used by social scientists for decades to dissect culture actually manifest in practiced culture. ..."
"... TINA was definitely an ideology – an idea backed by interest. They were making fun of Thatcherism last nite on France 24 because it had been so devastating and now one of the candidates in France is talking her old trash again. Humor is effective against ideology when all else fails but it takes a while. But as defined above, we actually do have an alternative – our current alternative is "illiberal majoritarianism". Sounds a tad negative. We should just use the word "democracy". ..."
"... "The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners' interests by levying taxes on imported wheat, thus raising the price of bread at a time when factory-owners were trying to cut wages to be internationally competitive." ..."
"... The US has probably been the most successful in making its labour force internationally uncompetitive with soaring costs of housing, healthcare and student loan repayments. ..."
"... Today we are missing that person with creativity and imagination to lead us out of the wilderness and stagnation we have been experiencing since 2008. ..."
"... The work of the Classical Economists and the distinction between "earned" and "unearned" income, also "land" and "capital" need to be separated again (conflated in neoclassical economics) Reading Michael Hudson's "Killing the Host" is a very good start ..."
Grappling with the shock of Donald Trump's election victory, most analysts focus on his appeal
to those in the United States who feel left behind, wish to retrieve a lost social order, and sought
to rebuke establishment politicians who do not serve their interests. In this respect, the recent
American revolt echoes the shock of the Brexit vote in the United Kingdom, but it is of far greater
significance because it promises to reshape the entire global order, and the complaisant forms of
thought that accompanied it.
Ideas played an important role in creating the conditions that produced Brexit and Trump.
The 'social sciences' - especially economics - legitimated a set of ideas about the economy that
were aggressively peddled and became the conventional wisdom in the policies of mainstream political
parties, to the extent that the central theme of the age came to be that there was no alternative.
The victory of these ideas in politics in turn strengthened the iron-handed enforcers of the
same ideas in academic orthodoxy .
It is never clear whether ideas or interests are the prime mover in shaping historical events,
but only ideas and interests together can sustain a ruling consensus for a lengthy interval, such
as the historic period of financialization and globalization running over the last 35 years.
The role of economics in furnishing the now-rebuked narratives that have reigned for decades in mainstream
political parties can be seen in three areas.
First, there is globalization as we knew it. Mainstream economics championed corporate-friendly
trade and investment agreements to increase prosperity, and provided the intellectual framework for
multilateral trade agreements. Economics made the case for such agreements, generally rejecting concerns
over labor and environmental standards and giving short shrift to the effects of globalization in
weakening the bargaining power of workers or altogether displacing them; to the need for compensatory
measures to aid those displaced; and more generally to measures to ensure that the benefits of growth
were shared. For the most part, economists casually waved aside such concerns, both in their
theories and in their policy recommendations, treating these matters as either insignificant or as
being in the jurisdiction of politicians. Still less attention was paid to crafting an alternate
form of globalization, or to identifying bases for national economic policies taking a less passive
view of comparative advantage and instead aiming to create it.
Second, there is financialization, which led to increasing disconnection between stock market
performance and the real economy, with large rewards going to firms that undertook asset stripping,
outsourcing, and offshoring. The combination of globalization and financialization produced a new
plutocratic class of owners, managers and those who serviced them in global cities, alongside gentrification
of those cities, proleterianization and lumpenization of suburbs, and growing insecurity and casualization
of employment for the bulk of the middle and working class.
Financialization also led to the near-abandonment of the 'national' industrial economy in favor
of global sourcing and sales, and a handsome financial rentier economy built on top of it. Meanwhile,
automation trends led to shedding of jobs everywhere, and threaten far more.
All of this was hardly noticed by the discipline charged with studying the economy. Indeed, it
actively provided rationales for financialization, in the form of the efficient-markets hypothesis
and related ideas; for concentration of capital through mergers and acquisitions in the form of contestable-markets
theory; for the gentrification of the city through attacks on rent control and other urban policies;
for remaking of labor markets through the idea that unemployment was primarily a reflection of voluntary
leisure preferences, etc. The mainstream political parties, including those historically representing
the working and middle classes, in thrall to the 'scientific' sheen of market fetishism, gambled
that they could redistribute a share of the promised gains and thus embraced policies the effect
of which was ultimately to abandon and to antagonize a large section of their electorate.
Third, there is the push for austerity, a recurrent trope of the 'neoliberal' era which, although
not favored by all, has played an important role in creating conditions for the rise of popular movements
demanding a more expansionary fiscal stance (though they can paradoxically simultaneously disdain
taxation, as with Trumpism). The often faulty intellectual case made by many mainstream economists
for central bank independence, inflation targeting, debt sustainability thresholds, the distortive
character of taxation and the superiority of private provision of services including for health,
education and welfare, have helped to support antagonism to governmental activity. Within this perspective,
there is limited room for fiscal or even monetary stimulus, or for any direct governmental role in
service provision, even in the form of productivity-enhancing investments. It is only the failure
fully to overcome the shipwreck of 2008 that has caused some cracks in the edifice.
The dominant economic ideas taken together created a framework in which deviation from declared
orthodoxy would be punished by dynamics unleashed by globalization and financialization. The system
depended not merely on actors having the specific interests attributed to them, but in believing
in the theory that said that they did. [This is one of the reasons that Trumpism has generated confusion
among economic actors, even as his victory produced an early bout of stock-market euphoria. It does
not rebuke neoliberalism so much as replace it with its own heretical version, bastard neoliberalism,
an orientation without a theory, whose tale has yet to be written.]
Finally, interpretations of politics were too restrictive, conceptualizing citizens' political
choices as based on instrumental and usually economic calculations, while indulging in a wishful
account of their actual conditions - for instance, focusing on low measured unemployment, but ignoring
measures of distress and insecurity, or the indignity of living in hollowed-out communities.
Mainstream accounts of politics recognized the role of identities in the form of wooden theories
of group mobilization or of demands for representation. However, the psychological and charismatic
elements, which can give rise to moments of 'phase transition' in politics, were altogether neglected,
and the role of social media and other new methods in politics hardly registered. As new political
movements (such as the Tea Party and Trumpism in the U.S.) emerged across the world, these were deemed
'populist'-both an admission of the analysts' lack of explanation, and a token of disdain. The essential
feature of such movements - the obscurantism that allows them to offer many things to many people,
inconsistently and unaccountably, while serving some interests more than others - was little explored.
The failures can be piled one upon the other. No amount of quantitative data provided by polling,
'big data', or other techniques comprehended what might be captured through open-eyed experiential
narratives. It is evident that there is a need for forms of understanding that can comprehend the
currents within the human person, and go beyond shallow empiricism. Mainstream social science has
offered few if any resources to understand, let alone challenge, illiberal majoritarianism, now a
world-remaking phenomenon.
Trumpism is a crisis for the most prestigious methods of understanding economic and social life,
ennobled and enthroned by the metropolitan academy of the last third of a century. It has caused
mainstream 'social science' to fall like a house of cards. It can only save itself through comprehensive
reinvention, from the ground up.
I was surprised at how reasonable my plumber's quote was and when l asked him about this, he
said that he couldn't increase his prices or the work would go to 'Eastern Europeans' who continued
to undercut him. Wasn't it plumbing and hairdressing that we got taught about in 1970's economics
classes as not being subject to international competition?
Both plumbing and appliance repair are becoming disassemble and reassemble jobs. You don't
fix a faucet anymore. You just take the old one out and put and new one in because that is cheaper
than repairing. Same with many appliances. Even the repairs are taking out an entire part or circuit
board and no dropping a new one in.
So the skill set now is diagnosis and occasionally brute strength to take apart the old joint.
Yep, those were supposedly "immigrant proof" occupations. Hah! Were we ever wrong!
It turns out that even "skilled labour," into which, much to their dismay, technical occupations
are now included, is subject to wage suppression by importation of cheaper workers. The fact that
there is a H1B visa program at all should tell us something fundamental about the amoral character
of management labour relations in America.
Many business owners who rely on low-skilled labor say the real trouble is too few Mexicans
heading north, not too many. "Without Mexican labor our industry is at a standstill," says Nelson
Braddy Jr., the owner of King of Texas Roofing Co., which is helping build a sprawling new Toyota
North American headquarters in a Dallas suburb. He says he would hire 60 roofers right away if
he could find them. "It's the worst I have seen in my career," he adds.
I think the comments are better than the article, in that the commenters simply state that
the upper class and government are in cahoots to keep wages low.
You are onto something here. I always wondered if the suppression of wages would lead to a
decline in the population of people even willing to learn a task due to a perceived lack of incentive
to make the effort. This would work alongside a seldom mentioned fact; the limits to the supply
of appropriately skilled "foreigners" to perform a task. The resultant mix must be generating
an industry of active recruiters in foreign lands for in demand, for less, skill sets. I would
lay money on the bet that eventually, things will reach the point where criminal activities make
more sense than the miserable jobs on offer.
I know someone who had a small roofing company in Los Angeles.
Some time ago he commented that he had not been able to raise his labor rates in 20 years.
He also had a wry comment about the glass ceiling in roofing, saying that there are no women
in roofing, but there is no apparent societal pressure to break this version of the glass ceiling.
Roofing is a hazardous job, requiring working outside in all types of weather, for low pay.
But if the pay is high enough, even hazardous jobs, with weather exposure, are prized, as one
can witness watching NFL football.
Important to note there's quite a lot of Europeans who stay illegally in the US by entering
on the visa waiver program as tourists and simply overstaying. Irish and eastern Europeans especially.
If you're in the Northeast it's common to see Irishmen working maintenance jobs at buildings here,
or as bartenders or other cash jobs – 90% are going to be out of status. But this issue gets almost
zero media attention.
If I mentioned "colored skin' stands out than those of Europeans, will I be labelled racist?
Whenever there is immigration raid,on an establishment 'brown & blacks'(illegals!) ran out
but NOT the fair skinned Europeans, who were always confident that they won't be affected or bothered!
And they were 100% right!
I'm told by my father that in Berkely Springs, West Virginia, men can get haircuts for as little
as $1.75. Perhaps these are eastern European barbers? More likely it is simply a product of the
crushing desperation we see in our broken economy. But hey, unemployment is under 5% so everything's
fine, right? The dismal science indeed.
Just one caveat: Neoliberalism is not really market-fetishism, unless fetishism is understood
as fake devotion. Neoliberalism is a State ideology of the economy, its central tenet being that
the State must directly help the rich, the poor will be better off as a by-product.
So if the push of the populace is strong enough, a new State ideology of the economy (aka mainstream
economic dogma) would develop around the concepts of Self-suficiency (as opposed to Globalization),
Industrialism (as opposed to Financialization), and Stimulus (as opposed to Austerity). Probably
MMT has something to say about the latter, but what about Self-sufficiency and Industrialism?
its central tenet being that the State must directly help the rich, the poor will be better
off as a by-product. Ruben
Yes, government-subsidized* private credit creation being a (the?) prime example of this.
*e.g. forcing the poorer to lend (a deposit is legally a loan) to banks to lower the borrowing
costs of the more so-called creditworthy, the richer, or else be limited to dealing with unsafe,
inconvenient physical fiat, cash.
The Academy are direct and indirect employees of the State. The Ivy League are direct and indirect
employees of plutocrats (thru the university endowment). The State officials are plutocrats or
more commonly indirect employees of the plutocrats. What is not to like? How can the Academy be
reformed, when it has been oligarchic since Plato (an oligarch) invented it the first Rand Corporation
I want to know when those characters will be sent to the FEMA camps for "re-education?"
Something with a faint affinity to the Cultural Revolution looms.
Reactionaries will be purged. The Markets of Historical Determinism will demand it.
Cut to view of parade down Main Street USA of politicians and business people with computer keyboards
hung around their necks. Many wear signs around their necks proclaiming their crimes. "I facilitated
consumers to buy insurance policies for the ACA," says one. "I front ran the market for Uncle
Sam," says another. The lines of armed guards lining the parade route are there to protect the
penitents, as various short action shots show. The crowd is in an ugly mood. Storm clouds lower
in the distance.
Tell me where you want to go and I'll provide the selective facts and the subjective interpretation
of those facts to reach the desired conclusions = Economists
-- or merely arbitrarily change the cell definitions in excel as Harvard economists Carmen
Reinhart and Kenneth Rogoff.
As early as 1967 Greenspan was well known as an academic whore and a Rockefeller Puppet which
now is a vast army of dial up opinions.
From the article:
"Ideas played an important role in creating the conditions that produced Brexit and Trump. The
'social sciences' - especially economics - legitimated a set of ideas about the economy that were
aggressively peddled and became the conventional wisdom in the policies of mainstream political
parties, to the extent that the central theme of the age came to be that there was no alternative.
The victory of these ideas in politics in turn strengthened the iron-handed enforcers of the same
ideas in academic orthodoxy."
Yesterday I posted a link from Krugman saying that manufacturing CANNOT be restored in the
US.
Not that laws, rules, trade agreements make it difficult, but that something akin to the "arrow
of time" or entropy prevents it – " that there was no alternative." Which is why I so vehemently
disagree with the man. 1st, economics is not a physical science. 2nd, the loss of manufacturing
in this country is due to man made conventions. Men made the rules, men can unmake the rules.
Just like prohibition was thought to be a good idea, but with the passage of time, it was revealed
that whatever benefits arise of not drinking, it is more than offset by the setbacks.
I used to believe in "free trade" – but a thing called reality whacked me upside the head and
disabused me of the notion. Whether GDP is going up fast enough or not, there is overwhelming
evidence that the vast majority of GDP is not distributed to the 90% of the members of society.
Like a lot of things, we did the experiment – it doesn't work, but a few who gain advantage
by that state of affairs want it to continue. The emperor has been exposed as having no clothes,
and once you see the nakedness, you can't unsee it.
of course you could institute that all manufacturng used 1960s technology – or maybe even 1860s,
that would generate even more jobs.
short of doing that, todays higly automated factory will use about tenth of blue collar workforce
than in 1960s with the same productivity but creating much more complex products.
I've seen reshoring happen (into compartively high labour cost country) and it created a thousand
jobs or so. the previus offshoring costed close to five or six thousands iirc.
FD
Because they are paid next to nothing by 1st world standards.
Even so, Chinese policy makers realise they are in a state of "peak labor". Flogging productivity
with a policy of "many hands make project small" has hit it's scaling potential. They understand
that.
I work in the electronics industry and had a minor observation point for some of the outsourcing
of electronics manufacturing from the USA to, primarily, Asia, starting in the late 1980's.
At first USA employees were told not to worry as only excess capacity would be built overseas.
But, that was proven to be an optimistic(?) statement, as even the managers making these statements
also disappeared.
If one looks at the value of raw electronic "ingredients" produced in Asia, for example, Printed
Circuit Boards (PCBs), one can see how much capacity has been built up overseas.
Here are some numbers pulled from report I have access to:
For 2015, 26.5 billion dollars of PCB's were produced in China.
Taiwan and South Korea produce 7.8Billion and 7.3billion respectively.
Even high priced Japan produces 5.36 billion dollars of PCB's
The North American number is 2.846 billion.
China + Japan + Taiwan + South Korea +Other Asia = .51.94 billion vs 2.8 billion in North America.
So Asia produces 18.55 x as much dollar volume of PCBs than North America (Canada + USA)
In my simple minded labor model, when a country allows very free migration of capital overseas,
importation of foreign workers by migration or temporary visas and outsourcing of labor by computer
networks to overseas workers, it seems implausible one would argue that USA wages would not tend
lower in response.
But we have Obama and numerous economists, pushing the Free Trade mantra, via TPP, as good
for American workers.
And a further factor is the US military and State Department strive to make it safer for American
businesses to function anywhere in the world, lowering business risk while pitching increased
national security to the USA population (who bears the military cost).
It will be difficult to bring American manufacturing back, especially when the alleged high
paying white collar college jobs are pushed as the solution to USA wage stagnation.
Steve Keen said similarly in Forbes – that once you offshore an industry it is too expensive
to reinstall, and that some old factory for making furnaces cannot be retooled to make textiles,
etc. even tho' you might have a comparative advantage for doing textiles – sounds like corporate
raiding and big time looting more and more because once you devastate an industry you really cannot
do anything economically with those facilities and those workers.
Which explains why after clever
men like Mitt Romney finish with your corporation's takeover nobody dashes in to re-up something
new. Like pulling a tree out by its roots and then expecting it to grow into some kinda shrub.
Well I like Steve Keen but he and PK are finally on the same page, where neither knows not
what the f he is talking about.
A lot of "offshoring" of the steel industry happened as the US plants themselves were passing
the "invest or wind down" point in their life. Since the US labor force was considered intractable
and foreign governments had much newer facilities the TPTB in steel just punted on US manufacturing.
I am going to try to find a link, but there was a lot of debate between the union and US Steel
(? one of them? ) about building a continuous caster plant in the 70's. Foreign companies had
them, we didn't. I think they didn't, but the point is the, all other things being equal,
any plants of any type of manufacturing go thru the same technological vs ageing cycle, and
the US is as likely to gain "back" - quotes because like continuous casting, it's steelmaking
but not the same as before - an industry as it is to have lost it in the first place. Factories
like to be located where they make sense.
And what is all this about "well they don't need anybody in manufacturing, it's all gonna be
machines now". Yeah, right. Been on a manufacturing floor lately? People have yet to be born that
are going to be working in something called "manufacturing". And if the machines cut the work
need by 10x, we may well need 10x as much stuff as long as it is the right stuff.
Well, if we had universal heathcare and Germanic trade education, but that would require elections
not between carrot-heads and Queen Wannabes.
The author mentions globalization and financialization. But what seems to be always left out
(and given a pass) in these discussions is the role of central banks and monetary policy.
Central banking policy (always creating more money/credit) lies at the nexus of almost all
that is wrong with modern capitalism and is the lubricant and fuel that enables financialization's
endless growth.
Financialization leads to asset bubbles and deindustrialization. It hollows out industries.
When money/credit are created in ever increasing quantity, the makeup of how we "work" shifts
from goods producing to "finance".
Then through globalization, what we lack in goods, foreigners who accept our paper, seem to
provide. At least for now. In a closed system, financialization has its natural limits. But enabled
by cross-border trade, it metastasizes.
In the short run, it appears to be a virtuous circle. We print paper. They make real stuff.
They take our paper. We take their stuff. We feel very clever.
But over time, wealth inequality grows. Industries are hollowed out. The banking sector dominates.
And then we get a populist uprising because people realize "something is wrong".
But mistakenly, they think it's globalization. Or free trade. Or capitalism. When all along,
it's just central banking. Central banks are the problem. Central bankers are the culprits.
Yes, insofar as they create fiat for the private sector since that is obviously violation of
equal protection under the law in favor of the banks and the rich.
Otoh, all citizens, their businesses, etc. should be allowed to deal directly in their nation's
fiat in the form of account balances at the central bank or equivalent and not be limited to unsafe,
inconvenient physical fiat, a.k.a. cash.
Breitbart obscurantism + Trump/Bannon misdirection = turkeys vote for thanksgiving.
Sessions views on race at Justice = curtailed civil rights. Wilbur Ross pension stripping =
privatize Social Security. DeVos at education = privatize the golden egg of public education.
85% tax credit for private infrastructure spending = fire sale of the public square (only rich
need apply).
3~4 Military generals in the cabinet = enforcement threat for crypto-fascist state.
McGahn at counsel + Pompeo at CIA = Koch Bros.
Ryan at speaker = privatize Medicare
Welcome to government of the billionaires, by the billionaires, for the billionaires.
btw, if Giuliani is appointed to a cabinet post, he will have to explain his foreknowledge
of the NY FBI→Kallstrom→Comey connection→to Congress under oath (if they aren't too afraid to
ask).
I worry along with you, but again: When somebody Ms DeVos opens her mouth people just naturally
recoil. Trump doesn't seem to have grasped the only thing that mattered in his election – you
want your enemies to suck. His appointees are people that suck. Hillary would have appointed smooth-talkers
who could effortlessly move between "private and public" positions.
PS: Paul Ryan is a good counterexample – people fall for his BS because he isn't quite a stupid
as, say Guiliani. Of course he was elected, not picked by Trump.
mr reddy solves the riddle of the Great Refusal but doesn't far enough: certainly mainstream
economists were wrong to act as cheerleaders for the kleptocracy, yet they were also complicit
in a material sense by furnishing all the necessary algorithms to boost the derivatives industry
into the realm of corporate cyber-theft.
That genie isn't going back into bottle. what's in store
for us then? economic apartheid. just read what the new team has been saying about walls, guns,
police, military and terrorism. the bannon plan is for heavily policed gated communities monopolizing
vital resources; high surveillance, rights abatement zones for the proletariat; and a free-fire
wilderness of lumpen gangsters, gun-toting vigilantes, survivalist cults, etc. competing for subsistence.
mad max, only run by people worse than mel gibson. close to what we already have but once legislated
into existence impossible to reverse without a violent revolution. once again mr. reddy is correct:
hobbes' leviathan is the negation of social science.
hmmmm .. Trump said quite a few contradictory things during his campaign and it would seem
an error to believe anything a candidate says on either side of an issue. Have the Koch brothers
(who are involved w/Trump) been particularly unhappy with the numerous billions they've accumulated
under Obama? I expect this regime to be more along the 'different globalization' side (more a
shuffling of the deck chairs on the Titanic). Manufacturing will be back in relation to the degree
– penalties are eliminated on 'repatriated' funds, land is eminent domained on behalf of oligarchs,
private profit is granted primacy over pollution, then build their factories with public money
and abolish the minimum wage. Austerity will continue but the new con will be private/public partnerships.
Don't you want to buy you friend/family member/neighbor a job? Don't you?
The elite, including the Trump's, are going to continue their actions until they've taken it
all.
Since you mention land you might be interested in the idea of land value taxation a way to
take the land back from the oligarchs an idea that has been around for a long time assiduously
ignored by folks like Naked Capitalism.
Mr. Fitzgerald, if you search in NC for "land value taxation" you will see many articles, especially
from Mr. Hudson. NC has thoroughly covered a lot of territory regarding this topic.
Yes you could probably catch us restlessly muttering "Henry George" in our sleep half the time.
The problem is it's a really, really hard sell. It just sounds funny. Pittsburgh actually had
it until a few years ago when it was "discovered" and before there was even a discussion the Democratic
mayor and City Council who should have known better had rescinded it before anybody got a chance
to say anything.
" during 2001 after years of underassessment, and the system was abandoned in favor of the
traditional single-rate property tax. The tax on land in Pittsburgh was about 5.77 times the tax
on improvements."
To be good Russian plants, we do actually need to know things about Amerika Anyway, here's the problem: people just voted for a billionaire how you gonna get this type
of taxation approved given the Pittsburgh example?
Mainstream analysts don't want to recognize the real problem: those who failed the people
have lost their legitimacy to govern.
Not saying Trump is the solution (I'm hoping for a solution from the left and think that Trump
could enable his cronies, but nothing else), but the Establishment is unworthy to govern.
A solution that most people would consider being from the left but which is the radical center
(taking valid ideas from both left and right) is land value taxation the wedge issue to tax the
various sources of unearned income (estimated at 40+% of GNP however you determine it) thus allowing
for the elimination of taxation of earned income from wages and profit from the investment of
real capital in the real economy.
Taxing community created land value and making the distinction
between earned and unearned income has been assiduously ignored and avoided by mainstream economists,
most of our vaunted/sainted public intellectuals and sources like naked capitalism but since all
of that has failed there is nothing to lose by considering what this author, Sanjay Reddy, says
is necessary: "It [social science] can only save itself through comprehensive reinvention, from
the ground up."
I suggest that the this has already been done literally from the ground up by
the analysis that has been around for a very long time that takes land, how its value is created,
who owns it and what happen when you tax its value into account. Happy day.
We finally made it to the post-modern wasteland. It is pretty weird to see the post-modern
methods used by social scientists for decades to dissect culture actually manifest in practiced
culture.
TINA was definitely an ideology – an idea backed by interest. They were making fun of Thatcherism
last nite on France 24 because it had been so devastating and now one of the candidates in France
is talking her old trash again. Humor is effective against ideology when all else fails but it
takes a while. But as defined above, we actually do have an alternative – our current alternative
is "illiberal majoritarianism". Sounds a tad negative. We should just use the word "democracy".
"The Anti-Corn Law League was a successful political movement in Great Britain aimed at
the abolition of the unpopular Corn Laws, which protected landowners' interests by levying taxes
on imported wheat, thus raising the price of bread at a time when factory-owners were trying to
cut wages to be internationally competitive."
The landowners wanted to increase their profit by charging a higher price for corn, but this
posed a barrier to international free trade in making UK wage labour uncompetitive by raising
the cost of living for workers. In a free trade world the cost of living needs to be the same in West and East as this sets
the wage levels.
The US has probably been the most successful in making its labour force internationally uncompetitive
with soaring costs of housing, healthcare and student loan repayments.
These costs all have to be covered by wages and US businesses are now squealing about the high
minimum wage. US labour can never compete with Eastern labour and will have to be protected by tariffs. Free trade has requirements and you must meet them before you can engage in free trade.
The cost of living needs to be the same in West and East.
There are two certainties in life – death and taxes.
There are two certainties about new versions of capitalism; they work well for a couple of
decades before failing miserably.
Capitalism mark 1 – Unfettered Capitalism
Crashed and burned in 1929 with a global recession in the 1930s. The New Deal and Keynesian ideas promised a bright new world.
Capitalism mark 2 – Keynesian Capitalism
Ended with stagflation in the 1970s. Market led Capitalism ideas promised a bright new world.
Capitalism mark 3 – Unfettered Capitalism – Part 2 (Market led Capitalism)
Crashed and burned in 2008 with a global recession in the 2010s.
We are missing the vital ingredient. When the first version of capitalism failed, Keynes was ready with a new version. When the second version of capitalism failed, Milton Freidman was waiting in the wings with
his new version of capitalism.
Elites will always flounder around trying to stick with what they know, it takes someone with
creativity and imagination to show the new way when the old way has failed.
Today we are missing that person with creativity and imagination to lead us out of the wilderness
and
stagnation we have been experiencing since 2008.
The work of the Classical Economists and the distinction between "earned" and "unearned"
income, also "land" and "capital" need to be separated again (conflated in neoclassical economics) Reading Michael Hudson's "Killing the Host" is a very good start
How money and debt really work. Money's creation and destruction on bank balance sheets.
The work of Irving Fisher, Hyman Minsky and Steve Keen on debt inflated asset bubbles
>The Euro was designed with today's defective economics.
Man I didn't think of that. What comically lousy timing. I do like this post because it similar
to sigh, ok it asserts my belief but still don't think I'm in an echo chamber here, I actually
want people to know what I think so they can reinforce the good and whittle out the bad anyway,
asserts my belief that "economics" isn't a science but when used in the best way is a toolkit,
here we need an hammer (austerity), here we need a screwdriver (some tweaking). It isn't one tool
for all jobs for all time.
I disagree that we don't have a ready to go replacement. MMT. We just have TPTB throwing $$$
around to make sure no one hears about it, much less does anything.
I am a Marxist economist (Professor of Economics, Mount Holyoke College) and I appreciate Branko
Milanovic's open-mindedness and his efforts in a recent post on his blog to educate economists who
often have a crude and superficial misunderstanding of Marx's labor theory of value.
For context for my comments on Milanovic, I will first say a few words about my interpretation
of Marx's labor theory of value (LTV). In my view, Marx's LTV is primarily a macro theory and
the main question addressed in Marx's macro LTV is the determination of the total profit (or surplus-value)
produced in the capitalist economy as a whole. Profit is the main goal of capitalist economies
and should be a key variable in any theory of capitalism. Marx's theory of the total profit
is that profit is the difference between the value produced by workers and the wages they are paid,
i.e. that profit is produced by the "surplus labor" of workers.
I argue that Marx's "surplus labor" theory of profit has very significant and wide-ranging explanatory
power. Marx's theory provides straight-forward and robust explanations of the following important
phenomena of capitalist economies: conflicts between capitalists and workers over wages, and
over the length of the working day, and over the intensity of labor (i.e. how hard workers work,
which determines in part how much value they produce); endogenous technological change (in order
to reduce necessary labor and increase surplus labor and surplus-value); increasing concentration
of capital and income(i.e. increasing inequality); the trend and fluctuations in the rate of profit
over time; and endogenous cycles due to fluctuations in the rate of profit rate of profit.
(A more complete discussion of the explanatory power of Marx's theory of profit is provided in my
" Marx's Economic Theory: True or False? A Marxian Response to Blaug's Appraisal, " in Moseley (ed.),
Heterodox Economic Theories: True or False?, Edward Elgar, 1995).
This wide-ranging explanatory power of Marx's surplus labor theory of profit is especially impressive
when compared to mainstream economics. In mainstream macroeconomics, there is no theory of
profit at all; profit (or the rate of profit) is not even a variable in the theory! I was shocked
when I realized in graduate school this absence of profit in mainstream macro, and am still shocked
that there is no effort to include profit. Indeed, DSGE models go in the opposite direction
and many models do not even have firms!
Mainsteam micro does have a theory of profit (or interest) – the marginal productivity theory
of distribution – but it is a weak and largely discredited theory. Marginal productivity theory
has been shown by the capital controversy and other criticisms to have insoluble logical problems
(the aggregation problem, reswitching, cannot integrate intermediate goods, etc.). And marginal
productivity theory has very meager explanatory power and explains none of the important phenomena
listed above that are explained by Marx's theory.
Milanovic agrees that Marx's LTV is primarily a macro theory, but he interprets it in this post
as only the assumption that "sum of values will be equal to sum of production prices". And
he continues: "The former is an unobservable quantity so Marx's contention is not falsifiable.
It is therefore an extra-scientific statement that we have to take on faith.
I argue, to the contrary, that Marx's macro LTV is primarily a theory of profit and my conclusion
that Marx's theory is the best theory of profit we have is not based on faith but is instead based
on the standard scientific criterion of empirical explanatory power. It is much more accurate
to say that marginal productivity theory is accepted by mainstream economists on faith, as Charles
Ferguson famously said in his conclusion to the capital controversy.
Now to my comments on Milanovic's three main points:
1. Milanovic's main point is that the LTV is often misinterpreted as a simple micro theory
that assumes that the prices of individual commodities are proportional to the labor-times required
to produce them. Milanovic argues that is not true in a capitalist economy because of the equalization
of the profit rate across industries with unequal ratios of capital to labor, so that according to
Marx's theory, long-run equilibrium prices are determined by the equation: w + d + rK, where
w is wages, d is depreciation and r is the economy-wide rate of profit (missing in this equation
is the cost of intermediate goods, but I will ignore this).
Milanovic emphasizes that Walras and Marshall had essentially the same equation for long-run equilibrium
prices. I agree that all three theories of long-run equilibrium prices have this same form,
but there is an important difference. Marx's theory provides a logically rigorous theory of
the rate of profit in this equation (based on his theory of the total profit discussed above) and
Walras and Marshall just take the rate of profit as given , disguised as an "opportunity cost", and
thus provides no theory of profit at all . Therefore, I think Marx's theory of long-run equilibrium
prices is superior to Walras' and Marshall's in this important sense.
2. Milanovic's second main point is that Marx's theory of long-run equilibrium prices are
"clearly very, very far from derisive statements that the labor theory of value means that people
are just paid for their labor input regardless of what is the 'socially necessary labor' required
to produce a good." I presume that this derisive statement means that workers produce more
value than they are paid and thus are exploited in capitalism. But Branko is mistaken about
this. Marx's theory of long-run equilibrium prices is based on his macro theory of profit according
to which the source of profit is the surplus labor of workers. This conclusion is indeed derisive
and that is the main (non-scientific) reason that Marx's theory of profit is rejected by mainstream
economists in spite of its superior explanatory power.
I know from previous correspondence that Milanovic understands well Marx's "exploitation" theory
of profit, but he seems to overlook the connection between Marx's micro theory of prices of production
and his macro theory of profit.
3. Milanovic's third point is that Marx's labor theory of value is most helpful in understanding
pre-capitalist economies and the relation between capitalism and non-capitalist economies today.
I argue, to the contrary, that Marx's labor theory of value and profit is the best theory we have
to understand the most important phenomena of capitalist economies, including 21 st century capitalism.
It would be one thing if mainstream economics had a robust theory of profit with significant explanation
power. But it has almost no theory of profit. Therefore it would seem to be appropriate
from a scientific point of view that Marx's surplus labor theory of profit should be given more serious
consideration.
Thanks again to Milanovic and I look forward to further discussion.
I used to respect Krugman during Bush II presidency. His columns at this time looked like on target
for me. No more.
Now I view him as yet another despicable neoliberal shill. I stopped reading his
columns long ago and kind of always suspect his views as insincere and unscientific.
In this particular
case the key question is about maintaining the standard of living which can be done only if manufacturing
even in robotic variant is onshored and profits from it re-distributed in New Deal fashion. Technology
is just a tool. There can be exception for it but generally attempts to produce everything outside
the US and then sell it in the USA lead to proliferation of McJobs and lower standard of living.
Creating robotic factories in the USA might not completely reverse the damage, but might be a step
in the right direction. The nations can't exist by just flipping hamburgers for each other.
Actually there is a term that explains well behavior of people like Krugman and it has certain
predictive value as for the set of behaviors we observe from them. It is called Lysenkoism and it
is about political control of science.
Yves in her book also touched this theme of political control of science. It might be a good time
to reread it. The key ideas of "ECONned: How Unenlightened Self Interest Undermined Democracy and
Corrupted Capitalism " are still current.
"... For more than three decades, macroeconomics has gone backwards," the paper began. Romer closed out his argument, some 20 pages later, by accusing a cohort of economists of drifting away from science, more interested in preserving reputations than testing their theories against reality, "more committed to friends than facts." In between, he offers a wicked parody of a modern macro argument: "Assume A, assume B, blah blah blah and so we have proven that P is true ..."
"... The idea that consumers and businesses always make rational choices pervades mainstream economics. Romer thinks that's not only wrong, but may lead to the misleading conclusion that government action can't fix big problems. ..."
"... There is no better place to be writing this than from (nearly) Minneapolis, for the University of Minnesota's economics department is the most devoted coven worshipping the most extreme form of "rational expectations." The most famous cultists have now relocated, but the U. Minnesota economics department remains fanatical in its devotion to rational expectations theory. ..."
"... All of this means that Romer's denunciations were sure to hit home far harder with mainstream and theoclassical economists than anything a heterodox economist could write. ..."
"... What this paragraph reveals is the classic tactic of theoclassical economists – they simply ignore real criticism. Lucas, Prescott, and Sargent all care desperately about Romer's criticism – but they all refuse to engage substantively with his critique. One has to love the arrogance of Sargent in "responding" – without reading – to Romer's critique. Sargent cannot, of course, respond to a critique he has never read so he instead makes a crude attempt to insult Romer, asserting that Romer has not done any scientific work in three decades. ..."
"... The rational expectations purists have been unable to come up with a response to their predictive failures and their false model of human behavior for thirty years. The Bloomberg article does not understand a subtle point about their non-defense defense, as shown in these key passages. ..."
"... What the rational expectations devotees are actually saying is their standard line, which is a radical departure from the scientific method. Their mantra is "it takes a model to beat a model." That mantra violates the scientific method. Their models are designed to embody their rational expectations theory. Those models' predictive ability is pathetic, which means that their theory and models are both falsified and should be rejected. The academic proponents of modern macro models, however, assert that their models are incapable of falsification by testing and predictive failure. This is not science, but theology. ..."
"... V.V. Chari's criticism of Romer is revealing. He complains that Romer does not want to "build on [rational expectation theory's] foundations." Why would Romer want to commit such a pointless act? Romer's point is that rational expectations is a failed theory that needs to be rejected so macroeconomics can move on to useful endeavors. ..."
"... Rational expectations theory has no such empirical foundations. ..."
"... Further, the dynamic stochastic general equilibrium (DSGE) models routinely fail the predictive test and, as Romer details, fail despite the use of dozens of ways in which the models are "gamed" with arbitrary inputs and restrictions that have no theoretical or empirical basis. Chari is right to describe the modern macro model as an "edifice." I would add that it is a baroque edifice top heavy with ornamental features designed to hide its lack of a foundation. Modern macro collapsed as soon as its devotees tried to build without an empirical foundation. ..."
"... The rational expectation devotees respond that predictive failures – no matter how extreme or frequent – cannot falsify their models or their theories. The proponents claim that only a better model, with superior predictive ability can beat their model. ..."
"... Kocherlakota's summary description is appropriately terse. He later explains the dogmatic gloss that devotees place on each of these five points. The "budget constraint," for example, means that nations with sovereign currencies such as the U.S. cannot run deficits, even to fight severe recessions or depressions. Why? Because theoclassical economists are enormous believers in austerity. As Kocherlakota archly phrased the matter, "freshwater" DSGE models were so attractive to theoclassical macro types because their model perfectly tracked their ideology. ..."
"... Specifying household preferences and firm objectives is equally erroneous, as Akerlof and Romer's 1993 article on "Looting" demonstrated. "Firms" do not have "objectives." Employees have "objectives," and the controlling officers' "objectives" are the most powerful drivers of employee behavior. ..."
"... Kocherlakota unintentionally highlighted modern macros' inability to incorporate even massive frauds driving national scandals and banking crises, despite the efforts of Akerlof (1970) (a market for "lemons") and Akerlof and Romer 1993: ("looting") in this passage. ..."
"... If macroeconomics, outside the cult of modern macro, were a car, it would not be "broken." It would be episodically broken when the rational expectations devotees got hold of monetary or fiscal policy. The rational expectations model fails the most fundamental test of a financial model – people trying to make money by anticipating the macroeconomics consequences of changes in monetary and fiscal policy overwhelmingly do not use their models because they are known to have pathetic predictive ability. The alternative models that embrace Keynesian analysis and are not dependent on the fiction of rational expectations function pretty well. The real world macro car, when driven by real world drivers, works OK. Essentially, the rational expectations devotees say that we can never drive the macro "car" because the public will defeat any effort to drive the economy in any direction. Instead, the economy will lurch about n response to random technological "shocks" that cannot be predicted because they occur without any relationship to any public policy choices. ..."
"... I am completely confused about the prediction of "rational choices". Do they include going bankrupt on purpose and letting your investors take the hit, burning your building down for the insurance money, hostile takeover behavior where businesses are run into the ground on purpose, tax strategies, people going on unemployment when they want a vacation from work, and on and on? These are decisions that have a rationale for the people who make them, and they have not been uncommon. Perhaps "economists" are best off observing not predicting "human behavior". ..."
"... I majored in economics. as you go up higher up into the dismal science, the more deranged it gets. The reason they are vague is because they don't know what they are talking about. They don't consider the real world, and as Bill Black's so brilliantly points out, they are in no hurry to out themselves as frauds. ..."
"... thanks, Simon. there must be something in those mental masturbation models for some people. justification for something the 99 % are all paying for most likely ..."
"... In some natural sciences, abandoning equilibrium models and replacing them with dynamic models have led to great progress, and looking at the actual time evolution of economies, there is a great deal of dynamics, such as growth, recessions, demography, natural catastrophes, immigration/emigration, resource discovery and depletion, technological progress. ..."
"... Since our economy has been gradually going casino for so many years, it makes sense that the folks who hold the reigns would make every effort to assure that all their key players adhere to their singular perspectives. ..."
"... The Nobel Memorial Prize in economics promotes the illusion that economics is a science. It is better conceptualized as a literary genre, and economists should be forced to compete with other writers for the prize in literature. ..."
"... Bill Black has a fascinating opinion on unnecessary complexity and I agree with him 200 percent. ..."
"... interesting about Kocherlakota formerly being a rational expectations devotee just the phrase 'rational expectations' is mind boggling as if there were no reaction to any action anywhere. Jack Bogle was on the news this morning laughing about stock picking and saying that every stock picker that makes money is balanced out by another one who loses money and so the only thing that makes money net-net is the long term progress of the market, (or society I would say – and that requires planning). ..."
"... Not one mention of Chaos or Catastrophe Theory, which are theories of systems with non linear feedback (aka: Fear and Greed), which appear to me to be fundamental aspects of Economics, especially the humans who are the Economy. ..."
"... Two slogans I read somewhere recently seem appropriate for theoclassical economics: Ideology is easy, thinking is hard. Belief is belonging. ..."
"... One doesn't have to have read any Reformation theology, but only to have observed more or less casually that human being are scarcely rational even about their own self-interest, and then only self-deceptively. Thomas Frank has commented effectively on that point in the political arena in What's the Matter with Kansas. To wit: Republicans have, he points out, diverted voters attention to social/cultural issues while picking their pockets. Perhaps one might sense an intersection of politics and economics on the latter point. ..."
By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor
of economics and law at the University of Missouri-Kansas City. Jointly published at
New Economic Perspectives
Bloomberg has written an article about the origins of Paul Romer's increasingly famous
critique of modern macroeconomics.
His intention actually had been to write a paper that would celebrate advances in the understanding
of what drives economic growth. But when he sat down to write it in the months before taking over
as the World Bank's chief economist, Romer quickly found his heart wasn't in it. The world economy
wasn't growing much anyway; and the math that many colleagues were using to model it seemed unrealistic.
He watched a documentary about the Church of Scientology, and was struck by how groupthink can
operate.
So, Romer said in an interview at the Bank's Washington headquarters, "I just thought, OK,
I'm going to say what I think. I don't know if I'm the right person, but no one else is going
to say it. So I said it."
The upshot was "The Trouble With Macroeconomics," a scathing critique that landed among Romer's
peers like a grenade.
A bit of background makes the first paragraph more understandable. Romer's specialty is developmental
economics.
There are many economists who have said for years that modern macroeconomics is an abject failure.
But all economists are not equal, and Romer is both an extremely distinguished economist and the
World Bank's chief economist. When he writes that macroeconomics is absurd his position gets vastly
more attention from the field.
The Bloomberg article humorously summarizes Romer's article.
"For more than three decades, macroeconomics has gone backwards," the paper began. Romer
closed out his argument, some 20 pages later, by accusing a cohort of economists of drifting away
from science, more interested in preserving reputations than testing their theories against reality,
"more committed to friends than facts." In between, he offers a wicked parody of a modern macro
argument: "Assume A, assume B, blah blah blah and so we have proven that P is true."
The idea that consumers and businesses always make rational choices pervades mainstream
economics. Romer thinks that's not only wrong, but may lead to the misleading conclusion that
government action can't fix big problems.
There is no better place to be writing this than from (nearly) Minneapolis, for the University
of Minnesota's economics department is the most devoted coven worshipping the most extreme form of
"rational expectations." The most famous cultists have now relocated, but the U. Minnesota economics
department remains fanatical in its devotion to rational expectations theory.
A belief that consumers and businesses always make rational choices does not "pervade mainstream
economics." Mainstream economics is increasingly influenced by reality, particularly in the form
of behavioral economics. Behavioral economics, which has led to multiple Nobel awards, has many currents,
but each of them agrees that consumers and business people typically do not make rational decisions
even in simpler tasks, much less demonstrate the ability to predict the future required by rational
expectations theory. Similarly, even the proponents of modern macroeconomics admit that its predictive
ability – and predictive ability is supposed to be their holy grail of legitimacy – is beyond pathetic.
What is true is that mainstream economics' most egregious errors have come from assuming contrary
to reality in a wide range of contexts that corporate officers, consumers, and investors make optimal
decisions that maximize the firm or the household's utility.
In any real scientific field modern macro would, decades ago, have been abandoned as an abject
failure. Romer, therefore, is not storming some impregnable bulwark of economics. He is calling an
obvious, abject failure an obvious, abject failure. Private sector finance participants typically
believe the academic proponents of rational expectations theory are delusional. Romer is calling
out elites in his profession who have ignored these failures and doubled and tripled-down on their
failed dogmas for decades. This makes the Bloomberg article's title deeply misleading: "The
Rebel Economist Who Blew Up Macroeconomics."
Romer is not a rebel. He did not blow up academic, mainstream macroeconomics – the academic proponents
of modern macroeconomics blew it up decades ago. Romer is mainstream, and he is sympathetic on personal
and ideological grounds to the theoclasscial economist most famous for developing rational expectations
theory. Romer has strongly libertarian views and did his doctoral work under Robert Lucas. Romer
has long been appreciative of Lucas. All of this means that Romer's denunciations were sure to
hit home far harder with mainstream and theoclassical economists than anything a heterodox economist
could write.
The same Bloomberg article made a key factual claim that is literally true but misleading.
What's at stake far exceeds hurt feelings in the ivory tower. Central banks and other policy
makers use the models that Romer says are flawed.
Central banks and private economic forecasters rarely use modern macro models, though they have
begun to use New Keynesian models that are hybrids. They do not do use "freshwater" models because
they are known to have terrible predictive ability and because alternative models not based on rational
expectations have far superior predictive ability. The private financial sector typically does not
rely on modern macro models, even the New Keynesian hybrids. Romer is not saying that the models
are "flawed" – he is explaining that they are inherently failed models. Worse, he is saying that
the designers of the models know they are failed and respond by gimmicking the models by littering
them with myriad assumptions that have no empirical or theoretical basis and are designed to try
to make the models produce less absurd results.
I explained that Romer was far from the first to call out modern academic macroeconomics as a
failure but that he is a prominent mainstream economist. The Bloomberg article's most interesting
reveal was the response by the troika of economists must associated with rational expectations theory
to Romer's article decrying their dogmas.
Lucas and Prescott didn't respond to requests for comments on Romer's paper. Sargent did. He
said he hadn't read it, but suggested that Romer may be out of touch with the ways that rational-expectations
economists have adapted their models to reflect how people and firms actually behave. Sargent
said in an e-mail that Romer himself drew heavily on the school's insights, back when he was "still
doing scientific work in economics 25 or 30 years ago."
What this paragraph reveals is the classic tactic of theoclassical economists – they simply
ignore real criticism. Lucas, Prescott, and Sargent all care desperately about Romer's criticism
– but they all refuse to engage substantively with his critique. One has to love the arrogance of
Sargent in "responding" – without reading – to Romer's critique. Sargent cannot, of course, respond
to a critique he has never read so he instead makes a crude attempt to insult Romer, asserting that
Romer has not done any scientific work in three decades.
The rational expectations purists have been unable to come up with a response to their predictive
failures and their false model of human behavior for thirty years. The Bloomberg article does
not understand a subtle point about their non-defense defense, as shown in these key passages.
Allies of the three Nobelists have been more outspoken, and many of them point out that Romer
- unlike Keynes in the 1930s - doesn't offer a new framework to replace the one he says has failed.
"Burning down the edifice, and saying we'll figure out what we'll build on its foundations
later, just does not seem like a constructive way to proceed," said V. V. Chari, an economics
professor at the University of Minnesota.
Romer's heard that line often, and bristles at it: "I'm saying, 'the car is broken.' And everyone's
saying, 'Romer's a terrible guy, because he couldn't fix the car'."
What the rational expectations devotees are actually saying is their standard line, which
is a radical departure from the scientific method. Their mantra is "it takes a model to beat a model."
That mantra violates the scientific method. Their models are designed to embody their rational expectations
theory. Those models' predictive ability is pathetic, which means that their theory and models are
both falsified and should be rejected. The academic proponents of modern macro models, however, assert
that their models are incapable of falsification by testing and predictive failure. This is not science,
but theology.
V.V. Chari's criticism of Romer is revealing. He complains that Romer does not want to "build
on [rational expectation theory's] foundations." Why would Romer want to commit such a pointless
act? Romer's point is that rational expectations is a failed theory that needs to be rejected so
macroeconomics can move on to useful endeavors.
A "foundation" in such a building metaphor is the deep, well-grounded stone or reinforced concrete
beneath the visible building that is attached to solid bedrock. Rational expectations theory
has no such empirical foundations. It was not based on testing that found that people behaved
in accordance with the theory. Behavioral economics and finance, by contrast, is based on a growing
empirical base – virtually all of which refutes the first three assumptions of the models. Similarly,
the work of Akerlof (1970), Akerlof & Romer (1993), and the work of white-collar criminologists has
falsified each of the first three assumptions of the models.
Further, the dynamic stochastic general equilibrium (DSGE) models routinely fail the predictive
test and, as Romer details, fail despite the use of dozens of ways in which the models are "gamed"
with arbitrary inputs and restrictions that have no theoretical or empirical basis. Chari is right
to describe the modern macro model as an "edifice." I would add that it is a baroque edifice top
heavy with ornamental features designed to hide its lack of a foundation. Modern macro collapsed
as soon as its devotees tried to build without an empirical foundation.
The rational expectation devotees respond that predictive failures – no matter how extreme
or frequent – cannot falsify their models or their theories. The proponents claim that only a better
model, with superior predictive ability can beat their model. That might sound acceptable to
some, but there is a critical unstated twist. The many rival models actually used by the private
sector and central banks that produce far superior predictive ability can never be treated as "better
models" to these devotees because the models with far superior predictive powers reject rational
expectations theory, rational decision-making, and the "budget constraint." To the devotees, only
DSGE models that accept this trio of market fictions are eligible to be acceptable "models." Dr.
Kocherlakota states that acceptable models "share five key features." These five characteristics
define DSGE models.
They specify budget constraints for households, technologies for firms, and resource constraints
for the overall economy. They specify household preferences and firm objectives. They assume forward-looking
behavior for firms and households. They include the shocks that firms and households face. They are
models of the entire macroeconomy.
Kocherlakota's summary description is appropriately terse. He later explains the dogmatic
gloss that devotees place on each of these five points. The "budget constraint," for example, means
that nations with sovereign currencies such as the U.S. cannot run deficits, even to fight severe
recessions or depressions. Why? Because theoclassical economists are enormous believers in austerity.
As Kocherlakota archly phrased the matter, "freshwater" DSGE models were so attractive to theoclassical
macro types because their model perfectly tracked their ideology.
[A]lmost coincidentally-in these models, all government interventions (including all forms
of stabilization policy) are undesirable.
Yes, "almost coincidentally."
Specifying household preferences and firm objectives is equally erroneous, as Akerlof and
Romer's 1993 article on "Looting" demonstrated. "Firms" do not have "objectives." Employees have
"objectives," and the controlling officers' "objectives" are the most powerful drivers of employee
behavior.
As Akerlof and Romer (and every modern crisis) demonstrated, this frequently leads to firm practices
that harm the firm, the consumer, and the shareholders. Such behavior, however, is impossible under
the second assumption, so any model (such as control fraud or "looting") that violates the assumption
is not eligible to be a rival model because it these superior models do not produce "general equilibrium."
The "GE" in a "DSGE" model is general equilibrium, so rival models from economics and criminology
that note that the economy is not a self-correcting apparatus that produces general equilibrium are
ruled out as superior models even though they are superior in that they have an empirical and theoretical
basis and demonstrate far superior predictive results.
Kocherlakota unintentionally highlighted modern macros' inability to incorporate even massive
frauds driving national scandals and banking crises, despite the efforts of Akerlof (1970) (a market
for "lemons") and Akerlof and Romer 1993: ("looting") in this passage.
In the macro models of the 1980s, all mutually beneficial trades occur without delay. This
assumption of frictionless exchange made solving these models easy. However, it also made
the models less compelling.
He then goes on to a delighted description of macro economists now sometimes building in (arbitrary)
lags ("frictions") in the time required to accomplish "all mutually beneficial trades." But what
of the three great fraud epidemics that produced the U.S. financial crisis and the Great Recession?
Sorry, that's not allowed into the "friction" canon. The market model is still one of perfection
(albeit slightly delayed). It does not matter how many massive financial scandals occur in which
the largest UK banks and Wells Fargo deliberately abuse their customers by encouraging them to engage
in transactions that will harm them and make the bankers rich. It doesn't not matter that over ten
million Americans were induced by bankers and their agents to pay excessive interest rates in return
for yield spread premiums (YSP) to the bankers and brokers. None of these things are allowed to happen
in these models. Your better model, which includes such frauds and abuses, is not allowed precisely
because it (a) is better and (b) falsifies the theoclassical ideology underlying "rational expectations"
theory.
The assumption of "forward looking behavior" produces "expectations," which are assumed to be
accurate and rational. Theoclassical proponents claim that we all have the ability to predict vast
aspects of the financial future. While we are not perfect, we are optimal in our forecasts given
the state of knowledge. If your rival model lacks rational expectations, it isn't a real model. Romer
rejects the rational expectations myth, so he is incapable of presenting a superior model to the
devotees of rational expectations.
If macroeconomics, outside the cult of modern macro, were a car, it would not be "broken."
It would be episodically broken when the rational expectations devotees got hold of monetary or fiscal
policy. The rational expectations model fails the most fundamental test of a financial model – people
trying to make money by anticipating the macroeconomics consequences of changes in monetary and fiscal
policy overwhelmingly do not use their models because they are known to have pathetic predictive
ability. The alternative models that embrace Keynesian analysis and are not dependent on the fiction
of rational expectations function pretty well. The real world macro car, when driven by real world
drivers, works OK. Essentially, the rational expectations devotees say that we can never drive the
macro "car" because the public will defeat any effort to drive the economy in any direction. Instead,
the economy will lurch about n response to random technological "shocks" that cannot be predicted
because they occur without any relationship to any public policy choices.
Romer takes particular delight in shredding the pretension to "science" in the model's abuse of
shocks. Again, however, the Bloomberg article seriously misleads in making it appear that
his critique of shocks is novel. Then Minneapolis Fed Chair Dr.
Kocherlakota (formerly chair of the U. Minnesota economics department, where he was a "rational
expectations" devotee) forcefully owned up to the egregious predictive failures of the models. He
acknowledged that "macro models are driven by patently unrealistic shocks."
It is unfortunate that Bloomberg article about Romer's article is weak. It is useful, however,
because its journalistic inquiry allows us to know how deep in their bunker Sargent, Lucas, and Prescott
remain. They still refuse to engage substantively with Romer's critique of not only their failures
but their intellectual dishonesty and cowardice. It is astonishing that multiple economists were
awarded Nobel prizes for creating the increasingly baroque failure of modern macro. In any other
field it would be a scandal that would shake the discipline to the core and cause it to reexamine
how it conducted research and trained faculty. In economics, however, a huge proportion of Nobel
awards have gone to theoclassical economists whose predictions have been routinely falsified and
whose policy recommendations have proven disastrous. Theoclassical economists, with only a handful
of exceptions, express no concern about these failures.
I am completely confused about the prediction of "rational choices". Do they include going
bankrupt on purpose and letting your investors take the hit, burning your building down for the
insurance money, hostile takeover behavior where businesses are run into the ground on purpose,
tax strategies, people going on unemployment when they want a vacation from work, and on and on?
These are decisions that have a rationale for the people who make them, and they have not been
uncommon. Perhaps "economists" are best off observing not predicting "human behavior".
I was fortunate enough to have an econ. prof. (mid 70's) who was also my student counselor
tell me that unless I intended to work for the gov't or teach the subject, a degree in econ. was
pointless. What's taught in class has very little to do with the real world.
Anyone who contends that econ is a "science" rather than philosophy is deluded or just trying
to protect their place in the hierarchy. Seems that "physics envy" is never going away.
I'll see your DSGE model & raise with with the IBGYBG* model; in theory, you should win that
hand but I'll be walking away with the actual money.
*(by the time this blows up) I'll Be Gone & You'll Be Gone
I majored in economics. as you go up higher up into the dismal science, the more deranged
it gets. The reason they are vague is because they don't know what they are talking about. They
don't consider the real world, and as Bill Black's so brilliantly points out, they are in no hurry
to out themselves as frauds.
thanks, Simon. there must be something in those mental masturbation models for some people.
justification for something the 99 % are all paying for most likely
I am not sure which is the greatest shortcoming of the macro-economy theory described by Black:
rational expectations or global equilibrium?
In some natural sciences, abandoning equilibrium models and replacing them with dynamic
models have led to great progress, and looking at the actual time evolution of economies, there
is a great deal of dynamics, such as growth, recessions, demography, natural catastrophes, immigration/emigration,
resource discovery and depletion, technological progress.
I sometimes like to use the analogy of the famous failure of the Tacoma Narrows bridge failure.
The engineers calculated the maximum force that the wind would have on the bridge, but didn't
calculate the dynamic aerodynamic effect as the bridge deck swayed in the wind. The result was
a spectacular failure.
Since our economy has been gradually going casino for so many years, it makes sense that
the folks who hold the reigns would make every effort to assure that all their key players adhere
to their singular perspectives.
The most important of these perspectives is that there is no higher human purpose than to make
a lot of money, in essence, that greed is good.
Thus the problem facing economists worshiping at the altar of "rational expectations" is that
the only rational expectation that is accepted as 'truly rational', is first and foremost, the
love of money.
This leads to problems for businesses, as truly selfish, and money-motivated people are actually
rare, as most people have a wide range of possible motivations working in their lives.
This is why business 'leaders' give prospective employees tests to find the people they can
'trust', which is to say find those who are motivated by money, which is the only motivating factor
our masters find useful.
Of course those who are motivated exclusively by the love of money are also those who believe
that austerity is the proper medicine for the rest of us.
There's one more thing about people who are motivated only by the need to accumulate money,
they also tend to steal anything that isn't tied down.
This doesn't bother FIRE sector employers since they are only concerned to ferret-out those
whose motivations might be polluted by inclinations other than greed.
Anyway, it seems to me that the importance of 'rational expectations' is in predicting the
behavior of FIRE sector employees, not the economy as a whole.
As far as the bulk of humanity goes, the only true 'rational expectation' is that people have
many and varied motivations that make it hard to predict their behavior.
Hey Econ. Prof. – I'll see your DSGE model & raise with my IBGYBG** model. In theory, you'll
win the hand but we'll see who actually walks away the money.
**(by the time this thing blows up) I'll Be Gone, You'll Be Gone
The Nobel Memorial Prize in economics promotes the illusion that economics is a science.
It is better conceptualized as a literary genre, and economists should be forced to compete with
other writers for the prize in literature.
We need to get back to basics, to the real economy of people and necessary supplies to support
people. Model a simple city, with a simple agricultural hinterland. You can know how many bushels
of grain equivalent are necessary for subsistence economy. You can know how many people you have
in the countryside and in the city. You can know how many bushels of grain equivalent are in storage.
You can estimate how much of the economy is barter and how much is cash purchase. You can know
how much money is in circulation, and from those determine what velocity the money needs to have,
to pay for all that bushels of grain equivalent. You don't need calculus, just arithmetic. End
the sophistry and obscurity thru unnecessary complexity.
interesting about Kocherlakota formerly being a rational expectations devotee just the
phrase 'rational expectations' is mind boggling as if there were no reaction to any action anywhere.
Jack Bogle was on the news this morning laughing about stock picking and saying that every stock
picker that makes money is balanced out by another one who loses money and so the only thing that
makes money net-net is the long term progress of the market, (or society I would say – and that
requires planning).
Not one mention of Chaos or Catastrophe Theory, which are theories of systems with non
linear feedback (aka: Fear and Greed), which appear to me to be fundamental aspects of Economics,
especially the humans who are the Economy.
Perhaps an approach to a solution for economists who are rightly disgusted with the continuing
failures of macroeconomics is to confess that economics is theology/philosophy and not science.
Economics lands on the "mammon" side of serving God or mammon.
One doesn't have to have read any Reformation theology, but only to have observed more
or less casually that human being are scarcely rational even about their own self-interest, and
then only self-deceptively. Thomas Frank has commented effectively on that point in the political
arena in What's the Matter with Kansas. To wit: Republicans have, he points out, diverted voters
attention to social/cultural issues while picking their pockets. Perhaps one might sense an intersection
of politics and economics on the latter point.
There is less need to moralize about "sin" than to see it as an heuristic. That is, one might
begin by assuming that businesses and individuals are not only guided by rationality, but to the
contrary are aided by economists, say, of the U of Minnesota ilk, to rely upon the myth of rationality
to cloak fundamental selfishness, which economists have neutered by casting it as "self-interest."
Selfishness is the root of continuing, destructive "irrationality," because it is part of what
defines a root of sin, i.e., missing the mark.
An economics of gratitude for shared abundance would be closer to the mark.
"... What we have been seeing worldwide, from India to the UK to the US, is the rebellion against the inner circle of no-skin-in-the-game policymaking "clerks" and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy league, Oxford-Cambridge, or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think and 5) who to vote for. ..."
"... Indeed one can see that these academic-bureaucrats wanting to run our lives aren't even rigorous, whether in medical statistics or policymaking. They cant tell science from scientism -- in fact in their eyes scientism looks more scientific than real science. (For instance it is trivial to show the following: much of what the Cass-Sunstein-Richard Thaler types -- those who want to "nudge" us into some behavior -- much of what they call "rational" or "irrational" comes from their misunderstanding of probability theory and cosmetic use of first-order models.) They are prone to mistake the ensemble for the linear aggregation of its components as we saw in the chapter extending the minority rule . ..."
"... The Intellectual Yet Idiot is a production of modernity hence has been accelerating since the mid twentieth century, to reach its local supremum today, along with the broad category of people without skin-in-the-game who have been invading many walks of life. Why? Simply, in many countries, the government's role is ten times what it was a century ago (expressed in percentage of GDP). The IYI seems ubiquitous in our lives but is still a small minority and rarely seen outside specialized outlets, social media, and universities -- most people have proper jobs and there are not many opening for the IYI. ..."
"... When Plebeians do something that makes sense to them, but not to him, the IYI uses the term "uneducated". What we generally call participation in the political process, he calls by two distinct designations: "democracy" when it fits the IYI, and "populism" when the plebeians dare voting in a way that contradicts his preferences. While rich people believe in one tax dollar one vote, more humanistic ones in one man one vote, Monsanto in one lobbyist one vote, the IYI believes in one Ivy League degree one-vote, with some equivalence for foreign elite schools, and PhDs as these are needed in the club. ..."
"... More socially, the IYI subscribes to The New Yorker. He never curses on twitter. He speaks of "equality of races" and "economic equality" but never went out drinking with a minority cab driver. Those in the U.K. have been taken for a ride by Tony Blair. The modern IYI has attended more than one TEDx talks in person or watched more than two TED talks on Youtube. Not only will he vote for Hillary Monsanto-Malmaison because she seems electable and some other such circular reasoning, but holds that anyone who doesn't do so is mentally ill. ..."
What we have been seeing worldwide, from India to the UK to the US, is the rebellion against the
inner circle of no-skin-in-the-game policymaking "clerks" and journalists-insiders, that class of
paternalistic semi-intellectual experts with some Ivy league, Oxford-Cambridge, or similar label-driven
education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to
think and 5) who to vote for.
But the problem is the one-eyed following the blind: these self-described members of the "intelligencia"
can't find a coconut in Coconut Island, meaning they aren't intelligent enough to define intelligence
and fall into circularities - but their main skills is capacity to pass exams written by people like
them .
With psychology papers replicating less than 40%, dietary advice reversing after 30 years of fatphobia,
macroeconomic analysis working worse than astrology, the appointment of Bernanke who was less than
clueless of the risks, and pharmaceutical trials replicating at best only 1/3th of the time, people
are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers (or
Montaigne and such filtered classical knowledge) with a better track record than these policymaking
goons.
Indeed one can see that these academic-bureaucrats wanting to run our lives aren't even rigorous,
whether in medical statistics or policymaking. They cant tell science from scientism -- in fact in
their eyes scientism looks more scientific than real science. (For instance it is trivial to show
the following: much of what the Cass-Sunstein-Richard Thaler types -- those who want to "nudge" us
into some behavior -- much of what they call "rational" or "irrational" comes from their misunderstanding
of probability theory and cosmetic use of first-order models.) They are prone to mistake the ensemble
for the linear aggregation of its components as we
saw in the chapter extending the minority rule .
The Intellectual Yet Idiot is a production of modernity hence has been accelerating since the
mid twentieth century, to reach its local supremum today, along with the broad category of people
without skin-in-the-game who have been invading many walks of life. Why? Simply, in many countries,
the government's role is ten times what it was a century ago (expressed in percentage of GDP). The
IYI seems ubiquitous in our lives but is still a small minority and rarely seen outside specialized
outlets, social media, and universities -- most people have proper jobs and there are not many opening
for the IYI.
Beware the semi-erudite who thinks he is an erudite.
The IYI pathologizes others for doing things he doesn't understand without ever realizing it is
his understanding that may be limited. He thinks people should act according to their best interests
and he knows their interests, particularly if they are "red necks" or English non-crisp-vowel class
who voted for Brexit.
When Plebeians do something that makes sense to them, but not to him, the IYI uses the term "uneducated".
What we generally call participation in the political process, he calls by two distinct designations:
"democracy" when it fits the IYI, and "populism" when the plebeians dare voting in a way that contradicts
his preferences. While rich people believe in one tax dollar one vote, more humanistic ones in one
man one vote, Monsanto in one lobbyist one vote, the IYI believes in one Ivy League degree one-vote,
with some equivalence for foreign elite schools, and PhDs as these are needed in the club.
More socially, the IYI subscribes to The New Yorker. He never curses on twitter. He speaks of
"equality of races" and "economic equality" but never went out drinking with a minority cab driver.
Those in the U.K. have been taken for a ride by Tony Blair. The modern IYI has attended more than
one TEDx talks in person or watched more than two TED talks on Youtube. Not only will he vote for
Hillary Monsanto-Malmaison because she seems electable and some other such circular reasoning, but
holds that anyone who doesn't do so is mentally ill.
The IYI has a copy of the first hardback edition of The Black Swan on his shelves, but mistakes
absence of evidence for evidence of absence. He believes that GMOs are "science", that the "technology"
is not different from conventional breeding as a result of his readiness to confuse science with
scientism.
Typically, the IYI get the first order logic right, but not second-order (or higher) effects making
him totally incompetent in complex domains. In the comfort of his suburban home with 2-car garage,
he advocated the "removal" of Gadhafi because he was "a dictator", not realizing that removals have
consequences (recall that he has no skin in the game and doesn't pay for results).
The IYI is member of a club to get traveling privileges; if social scientist he uses statistics
without knowing how they are derived (like Steven Pinker and psycholophasters in general); when in
the UK, he goes to literary festivals; he drinks red wine with steak (never white); he used to believe
that fat was harmful and has now completely reversed; he takes statins because his doctor told him
so; he fails to understand ergodicity and when explained to him, he forgets about it soon later;
he doesn't use Yiddish words even when talking business; he studies grammar before speaking a language;
he has a cousin who worked with someone who knows the Queen; he has never read Frederic Dard, Libanius
Antiochus, Michael Oakeshot, John Gray, Amianus Marcellinus, Ibn Battuta, Saadiah Gaon, or Joseph
De Maistre; he has never gotten drunk with Russians; he never drank to the point when one starts
breaking glasses (or, preferably, chairs); he doesn't know the difference between Hecate and Hecuba;
he doesn't know that there is no difference between "pseudointellectual" and "intellectual" in the
absence of skin in the game; has mentioned quantum mechanics at least twice in the past 5 years in
conversations that had nothing to do with physics; he knows at any point in time what his words or
actions are doing to his reputation.
IYIs have the IYM and BOHICA to contend with and they are coming in Yuge numbers... There is no
escape. Their stats and not so magic algorithms and Faux sheepskins are useless..
Do Economists Promote Ideology as
Science?
: Which is more important in
determining the policy positions of
economists, ideology or evidence? Is
economics, as some assert, little more
than a means of dressing up ideological
arguments in scientific clothing?
This certainly happens, especially among
economists connected to politically
driven think tanks – places like the
Heritage Foundation come to mind.
Economists who work for businesses also
have a tendency to present evidence more
like a lawyer advocating a particular
position than a scientist trying to find
out how the economy really works. But
what about academic economists who are
supposed to be searching for the truth
no matter the political implications?
Can we detect the same degree of bias in
their research and policy positions? ...
rayward :
Thoma's assessment seems fair enough. I'd make the point that, for some
academic economists, no amount of evidence is sufficient to overcome their bias.
"Where's the proof" is the refrain one hears often. And then there's the
question: what is evidence? The availability of lots of data is often used to
"prove" this or that theory, even when the "proof" is contrary to the historical
evidence one can see with her own eyes. Data used as obfuscation rather than
clarification. I appreciate that one historical event following another
historical event does not prove causation, but what's better proof than history.
RogerFox :
, -1
"Shouldn't theory be a guide
when the empirical evidence
is unconvincing one way or
the other?"
No - we don't
allow MDs to prescribe or
treat on the basis of theory
alone. It's unethical for
any professional
practitioner to give advice
that is not supported by
compelling evidence
demonstrating that the
advise is both safe and
effective - 'First, do no
harm.'
To a man, professional
economists shill for the
view that they are morally
free to treat real economies
and real people as their
personal lab rats. As a
group, economists are an
ethically challenged bunch
in this respect, and
probably in other respects
too.
anne ->
RogerFox...
, -1
To a man, professional
economists shill...
[ This
phrase begins a
mean-spirited lie, no matter
how the sentence is
finished. The point of the
malicious post however is
only to be destructive. ]
Avraam Jack Dectis :
, -1
.
Economics is the most
interesting science because
it is not settled and has
great effect upon the
affairs of man.
One of the
things that make it
interesting is the number of
variables that exist in most
economic situations as well
as the strong psychological
and sociological component
to the science, due to its
attempts to predict the
actions of humans, a
hierarchical herd based
status insane animal.
Undoubtedly, the desire
to promote personally
attractive policies is
something everyone must
fight.
On a side note, having
seen this blog referenced
elsewhere and finally
starting to read it
regularly, truly a nice
thing, I notice that Dr.
Thoma and I are the same age
for about three months per
year. I suspect that is
about all we have in common
since I just spent the last
18+ years getting openly and
notoriously poisoned by a
stalker gang, have hit men
following me and am so
unpopular and poorly
connected that I seem
remarkably unable to engage
any law enforcement on the
issue.
Which leads into the next
point-> Is the dynamism of
an economy a function of
freedom of speech, riule of
law, security of the citizen
and so forth. For decades
the USA, as it fought two
opposing powerful systems,
made that case yet now that
no longer seems to be the
case in the USA and in fact
this is confirmed by the
fact that nobody makes that
case convincingly anymore.
Can this deterioration of
culture and embrace of
expediency have a stifling
economic effect?
DeDude :
, -1
Economics as a science is
mainly hurt by two things.
1. The rich plutocrats
have a major stake in
advocating very specific
narratives, so they will
throw large sums behind
those narratives (and the
fight against anything
conflicting with them).
2. Economics does not
have anything resembling the
double blind placebo
controlled trials that help
medicine fight off the
narratives of those with
money and power.
RGC :
, -1
What sort of opinions are
economists allowed to have
if they want tenure, want to
be published in the major
journals or want to make a
living?
Keynes concluded
that government direction
was necessary for a viable
economy. Keynes'
"interpreters" in the US
buried that idea, and thus
became very important
economists - guys like Paul
Samuelson. The first ( and
only) US book to faithfully
represent Keynes' ideas
faded away soon after
publication.
I did not know there was a
debate. Krugman summed it
all up in Peddling
Prosperity. Folks know who
pays the rent, and opine
accordingly.
Syaloch :
, -1
I think problems arise when
economists are called upon
by politicians or the media
to give expert advice.
Within the sciences, "We
don't know the answer to
that" is a perfectly
acceptable response, and in
scientific fields where the
stakes are low that response
is generally accepted by the
public as well. "What is
dark matter made of?" "We
don't know yet, but we're
working on it." But in
politics, where the stakes
are higher, not having a
definitive answer is viewed
as a sign of weakness. How
often do you hear a
politician responding to a
"gotcha" question admit that
they don't know the answer
rather than trying to BS
their way through?
Given the timeliness of
news coverage the media
prefer to consult experts
who offer definitive
answers, especially given
their preference for pro/con
type interviews which
require experts on both
sides of an issue.
Economists who are put on
the spot this way feel
pressured to ditch the error
bars and give unambiguous
answers, even answers based
purely on theory with little
to no empirical backing, and
the more often they do this
the more often they're
invited back.
It is impossible to talk
about economics without
making essentially
ideological distinctions.
Private property and wage
labor are not "natural"
categories. Their adequacy
as human practices therefore
needs to be either defended
or criticized. To simply
take them "as given" is an
ideological waffle that begs
THE question.
Economists thus SHOULD
have, acknowledge and fully
disclose their ideological
biases. When evaluating
evidence they should make
every effort to set aside
and overcome their biases.
And they need to stay humble
about how Sisyphean,
incongruous and incomplete
their attempts at
objectivity are.
Let's not forget that
"The End of Ideology" was a
polemical tract aimed at
designating the ideology of
the managers and symbol
manipulators "above" and
beyond ideology. Similarly,
Marx's brilliant critique of
ideology degenerated into
polemic as its practitioners
adopted the mantle of
"science."
The End of Ideology: On the
Exhaustion of Political
Ideas in the Fifties is a
collection of essays
published in 1960 by Daniel
Bell, who described himself
as a "socialist in
economics, a liberal in
politics, and a conservative
in culture". He suggests
that the older,
grand-humanistic ideologies
derived from the nineteenth
and early twentieth
centuries had been
exhausted, and that new,
more parochial ideologies
would soon arise. He argues
that political ideology has
become irrelevant among
"sensible" people, and that
the polity of the future
would be driven by piecemeal
technological adjustments of
the extant system.
A very big question! Like
"what is the meaning of
life?" At least a
semester-long upper division
seminar course. ;-)
In a
nutshell (to put it
crudely), Marx labelled as
ideologists a cohort of
German followers of Hegel's
philosophy who envisioned
historical progress as the
result of the progressive
refinement of intellectual
ideas. Marx argued instead
that historical change
resulted from struggle
between social classes over
the material conditions of
life, fundamental to which
was the transformation of
nature through human
intervention into means of
subsistence.
Marx labelled as ideologists
a cohort of German followers
of Hegel's philosophy who
envisioned historical
progress as the result of
the progressive refinement
of intellectual ideas. Marx
argued instead that
historical change resulted
from struggle between social
classes over the material
conditions of life,
fundamental to which was the
transformation of nature
through human intervention
into means of subsistence.
[ What a superb introductory
or summary explanation. I
could not be more impressed
or grateful. ]
"And so - though we proceed
slowly because of our
ideologies, we might not
proceed at all without
them."
- Joseph Schumpeter,
"Science and Ideology," The
American Economic Review
39:2 (March 1949), at 359
http://www.jstor.org/stable/1812737
Many guys are not driven by
ideology, rather than
evidence. The problem with
this article is that we
cannot compare with other
professions and say
"economists are more/less
prone to promote ideology
than the average".
All human endeavors are
shaped by "ideology" in many
different ways. What is
important is to be aware of
and explicit about their
influences on our thought
and action.
If there are two sides to an
argument that radically
disagree then it is possible
that both sides may be
ideology, but both sides
cannot be science. Only the
correct argument can be
science. Of course ideology
is a bit too kind of a word
since the incorrect argument
is actually just a con game
by people out to lay claim
on greater unearned wealth.
Economists seem content with
trying to figure out how to
make 'it' work. Far better,
I think, to try and figure
out how it should be.
It was philosophers such as
Hume, Locke, Marx, Smith,
Rawls, ... who asked the
right questions. Laws and
economics come down to us
according to how we think
about such things; they
change when we change the
way we think. Seems we're in
a bit of a philosophical dry
patch, here. Someday, we
will have to develop a
better economic system,
might be now. Likewise,
there are laws rooted in
antiquity that were wrong
then and are wrong still.
"Ideology certainly
influences which questions
academic researchers believe
are the most important, but
there is nothing wrong with
that."
No "experiment" in
economics comes with the
degree of control that
experiments in physical
sciences take for granted,
so there is tremendous room
for ideology to come into
the discussion of whether a
data set really represents
the conditions the model is
supposed to consider. Since
reviewing another
economist's study entails
asking questions those
questions...
DrDick ->
Arne...
, -1
Please describe the
"experimentation" which
takes place in astronomy and
geology. Ideologies also
play important roles in
experimental sciences, such
as biology (for which we
have a lot of evidence.
"... In fact, I would posit that the Ivy League, especially Yale, Princeton, Harvard and MIT, are the principal crime factories in America today. ..."
"... Brownback is in Kansas; UMKC is in Missouri. There is a Kansas City in Kansas, and another Kansas City in Missouri. Missouri is not as red as KS, but it's still a red state. ..."
"... UMKC is part of the state system and most likely receives no funding from the city. It was home to New Letters, a respected literary magazine edited by poet John Ciardi. I hail from Kanasa City and always thought of UMKC as a decent commuter school, mostly catering to the educational needs of adult city dwellers. But the evolution of both the Econ and jazz studies departments lead me to suspect things have changed. Whether that's by design or through organic happenstance I don't know. ..."
"... Couldn't a Marxian analysis of capitalism as a whole also shed some light on this issue? I think Hudson is pretty much right but I think, like Sanders, he's offering a reformist option as opposed to a full on critique of the entire system. ..."
"... Not that a revolution is the option you necessarily want to go with, I just think that Marx's criticism of capitalism has useful information that could help with shaping the perspective here. ..."
Michael
Hudson spends a half hour with Meet the Renegades explaining his views on money, finance, economic
training, rentier capitalism, and how debt overhangs operate. Hudson fans will recognize his regular
themes. This is a good segment for introducing people you know to Hudson and to heterodox economic
ideas.
I've always found it interesting that both Hudson and Bill Black are on the faculty of UMKC,
which is a state university in a pretty conservative state. It's possible that some of the funding
for UMKC comes from the municipality of Kansas City, MO, but that town has never been known as
a hotbed of radical intellectuality either.
Joseph Campbell didn't teach at an Ivy League either. Conformity starts with the faculty in
your own department … and the Ivy League is as status quo and status conscious as it gets.
The Ivy League are not much different than privately held corporations when you consider who
their alma materi are, how much money the alma materi have, and where Ivy League endowments come
from.
In fact, I would posit that the Ivy League, especially Yale, Princeton, Harvard and MIT, are
the principal crime factories in America today.
Please recall that the dood who financed Liberty Lobby and other white supremacist nonsense
was Koch family patriarch, Fred Koch, who was a trustee at MIT. (Ever hear Noam Chomsky complain
about that????? Of course not!)
Ah but is it really an inherently conservative state fiscally, or just socially? That is, are
the people like Brownback appealing to one sort of conservatism and using that to do a "trust
me" on the other sort?
I would say it's not unreasonable for anybody to delegate something they are not so sure of
to somebody they trust for other reasons.
Brownback is in Kansas; UMKC is in Missouri. There is a Kansas City in Kansas, and another
Kansas City in Missouri. Missouri is not as red as KS, but it's still a red state.
UMKC is part of the state system and most likely receives no funding from the city. It was
home to New Letters, a respected literary magazine edited by poet John Ciardi. I hail from Kanasa
City and always thought of UMKC as a decent commuter school, mostly catering to the educational
needs of adult city dwellers. But the evolution of both the Econ and jazz studies departments
lead me to suspect things have changed. Whether that's by design or through organic happenstance
I don't know.
If you are not on the money makers' distribution list, it would make sense to find other ways
to get some of that loot if you can't the traditional way…
You can be conservative in your social values but want change, i.e. liberalism, in the way
the monetary system distributes the money.
The UMKC is also the home of the Kansas City School of Economics, more commonly known as the
MMT School. Neither Hudson nor Black are MMTers per se, but both have grown by their affiliation
with the school.
Thanks for sharing this excellent interview. Watching it I realized the people I actually admire
more than Hudson are his students. They must care more about learning the truth than securing
wealth and job prospects on wall street.
Couldn't a Marxian analysis of capitalism as a whole also shed some light on this issue? I
think Hudson is pretty much right but I think, like Sanders, he's offering a reformist option
as opposed to a full on critique of the entire system.
Not that a revolution is the option you necessarily want to go with, I just think that Marx's
criticism of capitalism has useful information that could help with shaping the perspective here.
I asked Yves Smith at the Dallas meetup last week (paraphrasing) "Do you meet with Michael
Hudson and Bill Black… is the independent media community, or any community, organizing around
Michael Hudson and Bill Black… to not only support and promote Hudson's and Black's perspectives
but to help develop their concepts and 'fine tune' their messaging?" I said to Yves "Hudson and
Black are clearly the leaders we desperately need to rally behind and push into Washington… they
clearly know what needs to be done… a PR machine needs to be developed… to get their messages
out to our families, friends, and acquaintances… unfortunately, the current messaging is not good
enough… I can't get my family, friends, and others to engage and echo the messaging to their family,
friends, etc."
Michael Hudson has been good at repeating his central message… 'by increasing land, monopoly,
and finance rent costs… the 1% are a highly organized mafia methodically looting our economy…
effectively raping, pillaging and consequently destroying every component of our social structures'.
Very unfortunately, Bill Blacks central message seems to have been lost for years now… he doesn't
repeat his central message… 'the crimes must be stopped… there is no alternative… looting criminals
MUST be publicly exposed, investigated, indicted, prosecuted, convicted, punished and their loot
returned to society… by letting cheaters prosper, organized white-collar crime, perpetrated by
the top-most leaders of our public and private institutions, has become an epidemic… the very
fabric of civil society is being destroyed… we have no choice… the criminals must be stopped…
and the only way to do that is to publicly expose, investigate, indict, prosecute, punish, and
take back what is ours'.
In 2008, when I tuned out of the mainstream media and tuned into the independent media, I thought
the messages from Michael Hudson ("they are organized criminals… this is what they're doing…")
and Bill Black ("the criminals must be stopped… here's how we stopped the Savings & Loan criminals…)
would resonate and become common knowledge. I quickly discovered that it didn't even resonate
with close family and friends. Why???
I will send out this video… Michael Hudson at his best, speaking-wise. I don't expect to get
any reaction… why?… very frustrated…
Amen. Once you start noticing, it becomes hard to stop. In looking hard for a silver lining
to the current election storm clouds, public awareness of the MSM seems to have nudged a few toward
slightly more objectivity, although I may just be wishing for that after media fatigue ;)
"... Well I'm sure there's many reasons but one has to be because religion was a good way of saying "I haven't got a fucking clue" without losing face. And we're obsessed with keeping face. ..."
"... That's all religion really is. It fills the gaps in human knowledge and as the gaps become fewer we become less religious. ..."
"... The issue of course is humans collectively know a lot of stuff but individually we only know a very specific amount of stuff. There's a lot of stuff on the internet these days which we can access and (skim) read but that's not to say we understand any of it or can critically assess it. ..."
Well I'm sure there's many reasons but one has to be because religion was a good way of saying
"I haven't got a fucking clue" without losing face. And we're obsessed with keeping face.
That's all religion really is. It fills the gaps in human knowledge and as the gaps become
fewer we become less religious.
Now we probably shouldn't get too far ahead of ourselves and say we've closed all of the gaps
(we've barely left our neck of the woods) but there is certainly the sense that humans know a
lot of stuff.
The issue of course is humans collectively know a lot of stuff but individually we only know
a very specific amount of stuff. There's a lot of stuff on the internet these days which we can
access and (skim) read but that's not to say we understand any of it or can critically assess
it.
Which brings me to Trump. Religion is not as popular these days because we've all got a bit
cocky and think we know everything because we can Google it. But we still have massive gaps in
our knowledge.
Trump panders to the same gaps in our knowledge that religion once did. Trump has the answers.
Clinton is the problem. We know this apparently. Just like we once knew there was a god.
As a general rule we should stick to what we know rather than what we perceive since perception
can be so misleading (good old common sense). We should also be deeply suspicious when someone
comes to us with answers especially when those answers are actually in the form of nothing in
particular and criticising everyone else.
Just for one second put aside what you think you know about the world and the "elite" and stick
to what you actually know about Trump. Sexual assault anyone?
"...That is, even central banks that follow some kind of Taylor rule in a flexible inflation-targeting
regime are susceptible to the knowledge problem...
The biggest information challenge comes from attempting to measure the output gap in real
time. The output gap is the difference between the economy's actual and potential level of output
and is subject to two big measurement problems.
First, real-time output data generally get revised and often on the same order of magnitude
as the estimated output gap itself.
Second, potential output estimates are based on trends that rely on ever-changing endpoints.
Orphanides finds the latter problem to be the biggest contributor to real-time misperceptions
of the output gap. This means that even if real-time data improved such that there were fewer
revisions, there would still be a sizable problem measuring the real-time output gap."
Conservative ideologues tell us government/central planners are inefficient because of the
"knowledge problem." Well so are private sector central planners. See the big banks and the housing
bubble/financial crisis. Or Samsung and its exploding Note 7. Or Volkswagon and its cheating on
benchmark tests.
This "output gap" is another rightwing diversion. It is useful to them precisely because it
is impossible to measure and therefore people can argue about it ad infinitum.
Meanwhile we have a lot of people who can't get a decent job at a living wage. That can
be easily measured and it could be easily remedied. And it is what average people actually care
about. So they want to make sure that isn't discussed. They want to discuss something with no
clear answer instead.
"Former Fed Vice Chairman Alan Blinder said he's skeptical that fiscal policy will be loosened
a great deal if Clinton wins the election, as seems likely based on recent voter surveys.
"She is promising not to make budget deficits bigger by her programs," said Blinder, who is
now a professor at Princeton University. "Whatever fiscal stimulus there is ought to be small
enough for the Fed practically to ignore it.""
Blinder is skeptical that Clinton will do enough to force the Fed to modulate their plans,
even though PGL and Sanjait tell us otherwise.
Clinton's infrastructure plans should be "substantially" larger as Krugman and Summers write.
This would help close the output gap. This would help with the job market and increasing incomes
and lowering personal debt loads.
But PGL can't admit this because he's a petulant child who thinks Germany still uses the Deutsche
Mark.
"The recent decision by the Fed to raise interest rates is the latest example of the rigged
economic system. Big bankers and their supporters in Congress have been telling us for years that
runaway inflation is just around the corner. They have been dead wrong each time. Raising interest
rates now is a disaster for small business owners who need loans to hire more workers and Americans
who need more jobs and higher wages. As a rule, the Fed should not raise interest rates until
unemployment is lower than 4 percent. Raising rates must be done only as a last resort - not to
fight phantom inflation."
"... An important essay indeed in that ideological influence is pervasive in writing by economists, which should be no problem as such, but economists should be aware of ideological influence in the work that they do. The problem is being unaware that work is ideological, so that the work is presented as simple truth allowing for no alternative presentation and argument. ..."
"... RBC economists are very well compensated for saying that no government intervention is needed in the economy, as are those saying that minimum wages harm employment. ..."
"... Actually a lot of academics are not exactly paid that well. This crowd does this sort as a religion. The problem is that those of us who never accepted perfect markets and instant market clearing were closed out of publications for 30 years. Now if RBC explained the real world - fine. But it had zero explanation for the last 9 years. ..."
"... Mankiw is paid well. ..."
"... Krugman is paid well. ..."
"... Speaking as an academic, in the university system with the lowest paid faculty in the nation, I am well aware of that. It is not the academic salaries, but the research grants and consulting contracts that matter here. ..."
"... Upton Sinclair is always right. ..."
"... "I suspect there is a reluctance among the majority of economists to admit that some among them may not be following the scientific method but may instead be making choices on ideological grounds." ..."
"... The RBC crowd is arrogant enough to argue that Keynes was practicing junk science. They knew his writings and just ignored it. ..."
"... That US economists are completely clueless is obvious to anyone who travels around the world. That free trade economies such as the US are complete basket cases is obvious to anyone who visits mercantilist economies such as Singapore, Japan, Israel etc. US trained economists only have prestige because the masses don't know how backward and poverty-stricken the US has become under the policies they relentlessly justify and apologize for. ..."
Being honest about ideological influence in economics : Noah Smith has an
article that talks about Paul Romer's recent
critique
of macroeconomics. ... He says the fundamental problem with macroeconomics is lack of data,
which is why disputes seem to take so long to resolve. That is not in my view the whole story.
If we look at the rise of Real Business Cycle (RBC) research a few decades ago, that was only
made possible because economists chose to ignore evidence about the nature of unemployment in
recessions. There is overwhelming evidence that in a recession employment declines because workers
are fired rather than choosing not to work, and that the resulting increase in unemployment is
involuntary (those fired would have rather retained their job at their previous wage). Both facts
are incompatible with the RBC model.
In the RBC model there is no problem with recessions, and no role for policy to attempt to
prevent them or bring them to an end. The business cycle fluctuations in employment they generate
are entirely voluntary. RBC researchers wanted to build models of business cycles that had nothing
to do with sticky prices. Yet here again the evidence was quite clear...
Why would researchers try to build models of business cycles where these cycles required no
policy intervention, and ignore key evidence in doing so? The obvious explanation is ideological.
I cannot prove it was ideological, but it is difficult to understand why - in an area which as
Noah says suffers from a lack of data - you would choose to develop theories that ignore some
of the evidence you have. The fact that, as I argue
here , this bias may have expressed itself in the insistence on following a particular methodology
at the expense of others does not negate the importance of that bias. ...
I suspect there is a reluctance among the majority of economists to admit that some among them
may not be following the scientific method but may instead be making choices on ideological grounds.
This is the essence of Romer's critique, first in his own area of growth economics and then for
business cycle analysis. Denying or marginalizing the problem simply invites critics to apply
to the whole profession a criticism that only applies to a minority.
An important essay indeed in that ideological influence is pervasive in writing by economists,
which should be no problem as such, but economists should be aware of ideological influence in
the work that they do. The problem is being unaware that work is ideological, so that the work
is presented as simple truth allowing for no alternative presentation and argument.
The point of Sophocles Oedipus cycle for Sophocles and for Freud was found in the Oracle at Delphi
with which the cycle begins. The inscription at Delphi read "Know Thyself."
Know your ideological bent or leaning. The tragedy of Oedipus was in not knowing himself.
Under Fidel Castro's rule Cuba bucked the historical trend--moving not toward but far away
from political democracy.
Under Fidel Castro it looks as though Cuba lost two generations of economic growth --
generations that other neighboring economies like Mexico, Costa Rica, and Puerto Rico made
very good use of. The only good thing you can say about Castro is that Cuba continued to have
the social indicators of a middle-income country even as it became a poor one.
It was always incomprehensible that an anti-Democratic dictator who managed to turn a
middle-income country into a poor one would have fans. Yet there are still people in the class
not of stooges looking for their Stalin, but fools who have found their Fidel.
-- Brad DeLong
[ Importantly, the economics here happen to be wildly wrong but is there any concern about
how Cuba actually fared in real per capita growth relative to Mexico, Costa Rica or Puerto
Rico since 1971 when record keeping begins?
Since 1971, real per capita GDP in Cuba has grown faster than real per capita GDP in Mexico, Guatemala,
El Salvador, Nicaragua, Costa Rica and Panama, faster than in Puerto Rico, Jamaica, Trinidad and
Bermuda, faster than in Colombia, Venezuela, Brazil and Argentina, faster than in Ecuador, Bolivia,
Uruguay and Paraguay, faster than in Spain and Portugal.
Real per capita growth in the Dominican Republic and Chile alone among Spanish or Portuguese
language countries has been faster than in Cuba.
Since 1971, real per capita GDP in Cuba has also grown faster than real per capita GDP in Peru...
Correcting:
Since 1971, real per capita GDP in Cuba has grown slightly slower than real per capita GDP
in Paraguay...
Completing:
Since 1971, real per capita GDP in Cuba has grown faster than real per capita GDP in Mexico,
Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama, faster than in Puerto Rico,
Jamaica, Trinidad and Bermuda, faster than in Colombia, Venezuela, Peru, Brazil and Argentina,
faster than in Ecuador, Bolivia and Uruguay, faster than in Spain and Portugal.
Real per capita growth in the Dominican Republic, Chile and Paraguay alone among Spanish or
Portuguese language countries has been faster than in Cuba.
RBC economists are very well compensated for saying that no government intervention is needed
in the economy, as are those saying that minimum wages harm employment.
Actually a lot of academics are not exactly paid that well. This crowd does this sort as a religion.
The problem is that those of us who never accepted perfect markets and instant market clearing
were closed out of publications for 30 years. Now if RBC explained the real world - fine. But
it had zero explanation for the last 9 years.
I write "a lot" and you read "all". More evidence that my internet stalker flunked pre-K. BTW
- Mankiw is not part of the RBC crowd but PeterK is too stupid to know that. Geesh.
Lord - what a stupid comment. Krugman does make his believes against evidence. I see this is another
post you did not bother to read before posting one of your patented pointless rants.
Speaking as an academic, in the university system with the lowest paid faculty in the nation,
I am well aware of that. It is not the academic salaries, but the research grants and consulting
contracts that matter here.
Speaking as an academic, in the university system with the lowest paid faculty in the nation,
I am well aware of that. It is not the academic salaries, but the research grants and consulting
contracts that matter here.
RBC economists are very well compensated for saying that no government intervention is needed
in the economy, as are those saying that minimum wages harm employment.
Real business-cycle theory (RBC theory) are a class of New Classical macroeconomics models
in which business-cycle fluctuations to a large extent can be accounted for by real (in contrast
to nominal) shocks. Unlike other leading theories of the business cycle, RBC theory sees business
cycle fluctuations as the efficient response to exogenous changes in the real economic environment.
That is, the level of national output necessarily maximizes expected utility, and governments
should therefore concentrate on long-run structural policy changes and not intervene through discretionary
fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.
According to RBC theory, business cycles are therefore "real" in that they do not represent
a failure of markets to clear but rather reflect the most efficient possible operation of the
economy, given the structure of the economy.
"I suspect there is a reluctance among the majority of economists to admit that some among them
may not be following the scientific method but may instead be making choices on ideological grounds."
How is the ridiculous RBC theory different from saying, as many prominent economists do, that
presidents do not significantly influence economic growth and job creation?
Thus, I have heard repeatedly that FDR, Reagan, Clinton and Obama should not get credit for
the economic recoveries and job creation that occurred during their presidencies. Likewise, Hoover,
Carter and the Bushes should not be blamed for the economic debacles that occurred during their
presidencies. Apparently, these were all just real business cycles that no president has responsibility
for.
Of course voters do not agree at all, re-electing all of the "lucky" presidents while throwing
out all of the "unlucky" ones. For example, Carter, who is now regarded as a good president, was
buried in a massive landslide: 489-49 by a second rate actor who was regarded as a fool by many.
(Trump will outperform Carter!)
Either RBC is correct or presidents and their policies do matter a lot. Economists have to
decide where they stand.
The RBC crowd never really got that much into politics. Of course assuming markets always clear
and are perfect in every other way is a silly way to model a real world economy.
"you would choose to develop theories that ignore some of the evidence you have". It first this
New Classical/RBC crowd put forth all sorts of fancy new econometrics thinking if you looked at
the data the right way, their model would be confirmed. Only problem is their model says aggregate
demand can have only very transitional effects but the data show persistent effects. Shocks in
other words have sustained real effects.
So when their model was shown to be faulty by the evidence, they gave up on econometrics and
turned to calibration which is just fancy math designed to hide the failure of their models.
SWL continues noting David Card's research on the effects of increases in minimum wages:
'As Card points out in the interview his research involved no advocacy, but was simply about
examining empirical evidence. So the friends that he lost objected not to the policy position
he was taking, but to him uncovering and publishing evidence. Suppressing or distorting evidence
because it does not give the answer you want is almost a definition of an illegitimate science.'
Greg Mankiw searches high and low for anything that goes along with his view that higher wage
floors lead to less employment demand. Of course this kind of bias favors people like Donald Trump
who built that DC hotel under budget by ignoring the minimum wage laws.
Much of the economic models debates hinge on "sticky wages" which are irrefutable from all empirics.
What I haven't seen yet though is a sound testable hypothesis that supports the empirical observation.
In other words, we know by empirics it's true, but we really don't yet know why its true or true
in most, but certainly not all cases -- e.g. Greece recently for example. Many suppositions have
been described but none have to my knowledge been put into the form of testable hypothesis to
suppot the suppositions with "scientific" methods..
How does the relate to RBC models and ideology embedded in models?
RBC ignores the empirics for what can be said to be ideological reasons. But models which include
those observations have no hypothesis proven to support the observations either, so then those
models are equally using unscientific methods in their construction, which just so happens to
support a different ideological position.
I don't disagree at all that models must use observations in their construction but it doesn't
put those models at any greater scientific method advantage.
"It appears, therefore, that we have a sort of asymmetry on the two sides of the critical level
above which true inflation sets in. For a contraction of effective demand below the critical level
will reduce its amount measured in cost-units; whereas an expansion of effective demand beyond
this level will not, in general, have the effect of increasing its amount in terms of cost-units.
"This result follows from the assumption that the factors of production, and in particular
the workers, are disposed to resist a reduction in their money-rewards, and that there is no corresponding
motive to resist an increase. This assumption is, however, obviously well founded in the facts,
due to the circumstance that a change, which is not an all-round change, is beneficial to the
special factors affected when it is upward and harmful when it is downward.
"If, on the contrary, money-wages were to fall without limit whenever there was a tendency
for less than full employment, the asymmetry would, indeed, disappear. But in that case there
would be no resting-place below full employment until either the rate of interest was incapable
of falling further or wages were zero.
"In fact we must have some factor, the value of which in terms of money is, if not fixed, at
least sticky, to give us any stability of values in a monetary system.
"The view that any increase in the quantity of money is inflationary (unless we mean by inflationary
merely that prices are rising) is bound up with the underlying assumption of the classical theory
that we are always in a condition where a reduction in the real rewards of the factors of production
will lead to a curtailment in their supply." The General Theory, pp. 303-304.
yes, Keynes supposition, among other was precisely what I was referring to by knowing the observation
is true but not why it is.
Everybody knows it is true by observation that the sun rises in the east and settles in the
west 1x in roughly 24 hours give or take a winter/summer trend change. But it took an awfully
long time before Copernicus figured out why that was the case... and from his theory testable
hypothesis were developed to show that the hypothesis were confirmed.
With sticky wages we don't know why. E.G.
Wages will not go below [this level] because [insert testable hypothesis]. A testable hypothesis
takes the form
Lower Bound of Wage = [insert independent measurable variables and their relationships here]
As I said, lower bounds to wages are empirically observed. Now show why in repeatable results
with the equations using the independent variables that apply under the conditions imposed by
he hypothesis.
Until that is the observation is used in models because it suits ones interest to do so...
i.e. they like the results of the models better. It isn't a scientifically founded model... the
assumption is no better than rational expectations.
"If, on the contrary, money-wages were to fall without limit whenever there was a tendency
for less than full employment, . . . there would be no resting-place below full employment until
either the rate of interest was incapable of falling further or wages were zero."
Absent sticky wages, at ZLB interest, wages would fall to zero whenever there was a tendency
for less than full employment and nobody works for zero wages.
RBC also ignores anything that would explain why we have recessions at all. Its assumption that
markets instantly clear is key to their model but we know that markets are not so perfect.
A few years ago I would have suggested otherwise. But recent research notes you are right. Obama's
CEA is noting this but he will not be President for long. Our next President needs to take this
head on. Trump won't. Will Clinton? We will see.
"There is overwhelming evidence that in a recession employment declines because workers are fired
rather than choosing not to work, and that the resulting increase in unemployment is involuntary"
see Keynes called it involuntary unemployment NOT cyclical unemployment
as all the politicians are saying now a days, words mean something
Simon-Wren Lewis is making a common mistake as I see it. The limitations and assumptions of a
model should not be conflated with evidence against the model. Not considering certain types of
data is a limitation of a model; not evidence against that model. If an RBC model does not include
certain types of data, then the best approach is to try and understand that data and attempt to
show how it fits into the existing model. Another model should be considered only when certain
limitations appear intractable. Because there are almost always lots of ways to model the same
problem, at least in the social sciences, if you create a new model every time you come across
a limitation, you'll end up running around in circles.
This makes no sense to me. So how about explaining what you meant with real world examples? I
choose the examples of involuntary unemployment and wage stickiness, and the effects of raising
the minimum wage.
"The limitations and assumptions of a model should not be conflated with evidence against the
model."
I don't think this is what SWL is saying and am fairly certain it is not what Romer is saying:
The problem is not limitation or contradiction, it is central variables assumed to confer verisimilitude
that cannot and assumptions considered true that are not.
The assumptions of the model are false and therefore should be construed as evidence against
using the model. I'm saying that's faulty reasoning.
The "my model is better than your model" argument is not a good way to approach problems at
a theoretical level. It's sometimes okay at an applied level. One thing that's hard to wrap one's
head around is that a model can still be useful even when its assumptions are false. When data
is sparse, all useful theories will have to rely on false or incomplete assumptions. Usually a
better approach is to extend rather than start over to keep people from running in too many different
directions.
"Not considering certain types of data is a limitation of a model; not evidence against that
model. If an RBC model does not include certain types of data, then the best approach is to try
and understand that data and attempt to show how it fits into the existing model"
Henry Carey - a real American economist, sadly forgotten to history : , -1
That US economists are completely clueless is obvious to anyone who travels around the world.
That free trade economies such as the US are complete basket cases is obvious to anyone who visits
mercantilist economies such as Singapore, Japan, Israel etc. US trained economists only have prestige
because the masses don't know how backward and poverty-stricken the US has become under the policies
they relentlessly justify and apologize for.
Paul Krugman's recent posts have been most peculiar. Several have looked uncomfortably like special
pleading for political figures he likes, notably Hillary Clinton. He has, in my judgement, stooped
rather far down in attacking people well below him in the public relations food chain
Perhaps the most egregious and clearest cut case is his refusal to address the substance of a
completely legitimate, well-documented article by David Dayen outing Krugman, and to a lesser degree,
his fellow traveler Mike Konczal, in abjectly misrepresenting Sanders' financial reform proposals
The Krugman that was early to stand up to the Iraq War, who was incisive before and during the
crisis has been very much in absence since Obama took office. It's hard to understand the loss of
intellectual independence. That may not make Krugman any worse than other Democratic party apparatchiks,
but he continues to believe he is other than that, and the lashing out at Dayen looks like a wounded
denial of his current role. Krugman and Konczal need to be seen as what they are: part of the Vichy
Left brand cover for the Democratic party messaging apparatus. Krugman, sadly, has chosen to diminish
himself for a not very worthy cause.
The Walloon mouse : ...Instead of decrying people's stupidity and ignorance in rejecting trade
deals, we should try to understand why such deals lost legitimacy in the first place. I'd put
a large part of the blame on mainstream elites and trade technocrats who pooh-poohed ordinary
people's concerns with earlier trade agreements.
The elites minimized distributional concerns, though they turned out to be significant for
the most directly affected communities. They oversold aggregate gains from trade deals, though
they have been smallish since at least NAFTA. They said sovereignty would not be diminished though
it clearly was in some instances. They claimed democratic principles would not be undermined,
though they are in places. They said there'd be no social dumping though there clearly is at times.
They advertised trade deals (and continue to do so) as "free trade" agreements, even though Adam
Smith and David Ricardo would turn over in their graves if they read, say, any of the TPP chapters.
And because they failed to provide those distinctions and caveats now trade gets tarred with
all kinds of ills even when it's not deserved. If the demagogues and nativists making nonsensical
claims about trade are getting a hearing, it is trade's cheerleaders that deserve some of the
blame.
One more thing. The opposition to trade deals is no longer solely about income losses. The
standard remedy of compensation won't be enough -- even if carried out. It's about fairness, loss
of control, and elites' loss of credibility. It hurts the cause of trade to pretend otherwise.
... ... ..
Trump would propose and/or enact, he listed the following six:
"A Constitutional Amendment to impose term limits on all members of Congress."
"A hiring freeze on all federal employees."
"A requirement that for every new federal regulation, 2 existing regulations must be eliminated."
"A 5-year ban on White House and Congressional officials becoming lobbyists after they leave government."
"A lifetime ban on White House officials lobbying on behalf of a foreign government."
"A complete ban on foreign lobbyists raising money for American elections."
"
~~WWW~
Lot of reform is needed but may be
The forgotten spirit of American protectionism : , -1
The free traders have human economic history precisely inverted. Countries that practice protectionism
almost uniformly become wealthy and technologically advanced. Countries that don't become or remain
terribly sad, poverty-stricken producers of worthless raw materials and desperate labor migrants.
This has been true at least going back to Byzantium and its economic conquest by Genoa and Venice.
That the US thrived pre-1970 free trade is no coincidence. There is no alternative to protectionism.
Free trade = no industry = no money = no future.
I think he is trying to talk about soft neoliberalism vs rejection of neoliberalism as discredited
economics dogma and ideology. I think like Marxism neoliberalism has religious elements in it (as in
"secular religion") so will not go away completely much like obscure religious cults does not dissapper
they on a given date second coming of Christ did not happen.
Notable quotes:
"... new research showing that policies like public housing , welfare and public education spending are more beneficial than conservatives have recognized in decades past. ..."
"... But there are not one, but two big trends in liberal economic thinking. One wants to modify the economic thinking of the past few decades, and the other wants to rip it up. I expect to see a lot of the economic debate in the coming years play out not between the left and right, but between these two strains of thought. ..."
"... The New Center-Left Consensus is attractive to academics and policy wonks. It draws on an eclectic mix of mainstream economic theory, empirical studies and historical experience. It refuses to assume, as many conservatives and libertarians do, that free markets are always the best unless there is a glaring case for government intervention. ..."
In 2015, Forbes writer Adam Ozimek
suggested that a "new liberal consensus" is forming in the economic-policy world. The data back
him up. Many economics professors now
tend to favor government intervention in the economy more than the general public. And the profession's
biggest public stars, from Paul Krugman to Thomas Piketty to Joseph Stiglitz, are now more likely
to lean
to the left than to the right. Meanwhile, I've tried to document the flood of new research
showing that policies like
public housing ,
welfare and public education
spending are more beneficial than conservatives have recognized in decades past.
But there are not one, but two big trends in liberal economic thinking. One wants to
modify the economic thinking of the past few decades, and the other wants to rip it up. I expect
to see a lot of the economic debate in the coming years play out not between the left and right,
but between these two strains of thought.
The research and people I've been writing about fit into what we might call the New Center-Left
Consensus. This strain of thought is based on data and empiricism. Support for higher minimum wages,
for example,
has grown among economists because a large amount of careful
empirical analysis has
shown that minimum wage hikes don't usually cause sizable immediate disruptions in local labor markets.
These economists aren't ignorant of the basic theory of labor supply and demand -- the kind that
every undergrad econ student is forced to learn. They just realize that
it might not be the right theory in this case.
The New Center-Left Consensus is attractive to academics and policy wonks. It draws on an
eclectic mix of mainstream economic theory, empirical studies and historical experience. It refuses
to assume, as many conservatives and libertarians do, that free markets are always the best unless
there is a glaring case for government intervention. It's more willing to entertain all kinds
of ways that government can improve the economy, from welfare to infrastructure spending to regulation,
but it also recognizes that these won't always work. It embraces a philosophy of careful experimentation.
Sometimes the new center-left is even in favor of deregulation -- for example, loosening
zoning restrictions and reducing
occupational licensing . It's not ideologically opposed to the free market.
The best evangelist of the New Center-Left Consensus might be President Barack Obama. In an amazingly
well-informed
editorial in the Economist, he recently laid out a comprehensive picture of the economy and policy.
I have little doubt that Obama's understanding was heavily informed by his chief economic adviser,
Jason Furman ,
who has become a titan of center-left policy advocacy. Obama mixes a healthy respect for capitalism
with a desire to use government to temper the market's excesses.
But there's a second strain of progressive economic thinking that is gaining attention and strength.
This alternative could be called the New Heterodox Explosion. It's basically a movement to purge
mainstream economics from progressive policy-making and thought.
The New Heterodox Explosion rose in large part out of strongly left-leaning intellectual circles,
particularly sociology, the humanities and other disciplines outside economics. It has also found
a home in some economics departments in other countries (most notably the U.K.). Recently, it has
started to permeate blogs and the media.
The new website Evonomics , for example, is
heavily devoted to strongly worded critiques of the entire edifice of modern [neoliberal] economics
and it's where the work of many of the most outspoken champions of the New Heterodox Explosion appears.
These include evolutionary biologist David Sloan Wilson, activist and venture capitalist Nick Hanauer,
speechwriter Eric Liu and Eric Beinhocker of the Institute for New Economic Thinking. In a spate
of recent blog posts and editorials, these thinkers have
advocated replacing mainstream economic theory with thinking based on evolution, and/or on complexity
theory.
Though it's difficult to boil down these critiques to a few sentences, one basic theme of Wilson,
Hanauer, et al.'s thinking is that modern economics is based on selfishness. Mainstream theories
model human beings as atomistic individuals pursuing their own wants. But, say these Evonomics writers,
people are social beings who care a lot about their fellow humans, and are also deeply embedded in
larger social structures and organizations like communities, nations and cultures.
I'm sympathetic to this point of view. I'm not at all sure that economies can be completely understood
by looking at individual decisions, any more than I'm certain the growth of a tree can be understood
simply by looking at the motions of the particles in the leaves and roots. And I do wish that economists
dedicated a lot more thought and attention to the phenomena they call "
externalities "
and "
social preferences ."
But I'm also very wary of applying the Evonomics ideas to policy-making without a lot more work.
First, the connection to evolution and complexity theory often seems less than solid. Nobody
really knows if economies evolve the way organisms do. And efforts to connect complexity theory
to economics, led by the Santa Fe Institute
, have been going on for quite some time without any dramatic breakthroughs.
So while the New Center-Left Consensus is fully formed and ready for application in the real world,
the New Heterodox Explosion is still in its infancy. Center-left ideas have tons of very careful
academic empirical work behind them, while those wishing to tear up economics and start over are
still working mostly with broad analogies. I hope that the New Heterodox Explosion -- which of course
extends far beyond the few writers and ideas I've cited in this post -- becomes a rich source of
new and innovative economic ideas. But it still has a long way to go to match the intellectual heft
of the center-left.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and
its owners.
Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony
Brook University, and he blogs at Noahpinion.
"... "deep state" - the Washington-Wall-Street-Silicon-Valley Establishment - is a far greater threat to liberty than you think ..."
"... Yes, there is another government concealed behind the one that is visible at either end of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country according to consistent patterns in season and out, connected to, but only intermittently controlled by, the visible state whose leaders we choose. ..."
"... Cultural assimilation is partly a matter of what psychologist Irving L. Janis called "groupthink," the chameleon-like ability of people to adopt the views of their superiors and peers. This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating biennial budgeting, making grand bargains or invading countries. Then, after a while, all the town's cool kids drop those ideas as if they were radioactive. As in the military, everybody has to get on board with the mission, and questioning it is not a career-enhancing move. The universe of people who will critically examine the goings-on at the institutions they work for is always going to be a small one. As Upton Sinclair said, "It is difficult to get a man to understand something when his salary depends upon his not understanding it." ..."
Steve Sailer links to this
unsettling
essay by former career Congressional staffer Mike Lofgren, who says the "deep state" - the
Washington-Wall-Street-Silicon-Valley Establishment - is a far greater threat to liberty than you
think. The partisan rancor and gridlock in Washington conceals a more fundamental and pervasive
agreement.
Excerpts:
These are not isolated instances of a contradiction; they have been so pervasive that they
tend to be disregarded as background noise. During the time in 2011 when political warfare over
the debt ceiling was beginning to paralyze the business of governance in Washington, the United
States government somehow summoned the resources to overthrow Muammar Ghaddafi's regime in Libya,
and, when the instability created by that coup spilled over into Mali, provide overt and covert
assistance to French intervention there. At a time when there was heated debate about continuing
meat inspections and civilian air traffic control because of the budget crisis, our government
was somehow able to commit $115 millionto keeping a civil war going in Syria and to pay
at least
£100m to the United Kingdom's Government Communications Headquarters to buy influence over
and access to that country's intelligence. Since 2007, two bridges carrying interstate highways
have collapsed due to inadequate maintenance of infrastructure, one killing 13 people. During
that same period of time, the government spent
$1.7 billion constructing a building in Utah that is the size of 17 football fields. This
mammoth structure is intended to allow the National Security Agency to store a
yottabyte of information, the largest numerical designator computer scientists have coined.
A yottabyte is equal to 500 quintillion pages of text. They need that much storage to archive
every single trace of your electronic life.
Yes, there is another government concealed behind the one that is visible at either end
of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country
according to consistent patterns in season and out, connected to, but only intermittently controlled
by, the visible state whose leaders we choose. My analysis of this phenomenon is not
an exposé of a secret, conspiratorial cabal; the state within a state is hiding mostly in plain
sight, and its operators mainly act in the light of day. Nor can this other government be accurately
termed an "establishment." All complex societies have an establishment, a social network committed
to its own enrichment and perpetuation. In terms of its scope, financial resources and sheer global
reach, the American hybrid state, the Deep State, is in a class by itself. That said, it is neither
omniscient nor invincible. The institution is not so much sinister (although it has highly sinister
aspects) as it is relentlessly well entrenched. Far from being invincible, its failures, such
as those in Iraq, Afghanistan and Libya, are routine enough that it is only the Deep State's protectiveness
towards its higher-ranking personnel that allows them to escape the consequences of their frequent
ineptitude.
More:
Washington is the most important node of the Deep State that has taken over America, but it
is not the only one. Invisible threads of money and ambition connect the town to other nodes.
One is Wall Street, which supplies the cash that keeps the political machine quiescent and operating
as a diversionary marionette theater. Should the politicians forget their lines and threaten the
status quo, Wall Street floods the town with cash and lawyers to help the hired hands remember
their own best interests. The executives of the financial giants even have de facto criminal immunity.
On March 6, 2013, testifying before the Senate Judiciary Committee,
Attorney General Eric Holder stated the following: "I am concerned that the size of some of
these institutions becomes so large that it does become difficult for us to prosecute them when
we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will
have a negative impact on the national economy, perhaps even the world economy." This, from the
chief law enforcement officer of a justice system that has practically
abolished the constitutional right to
trial for poorer defendants charged with certain crimes. It is not too much to say that Wall
Street may be the ultimate owner of the Deep State and its strategies, if for no other reason
than that it has the money to reward government operatives with a second career that is lucrative
beyond the dreams of avarice - certainly beyond the dreams of a salaried government employee.
[3]
The corridor between Manhattan and Washington is a well trodden highway for the personalities
we have all gotten to know in the period since the massive deregulation of Wall Street: Robert
Rubin, Lawrence Summers, Henry Paulson, Timothy Geithner and many others. Not all the traffic
involves persons connected with the purely financial operations of the government: In 2013, General
David Petraeus
joined KKR (formerly Kohlberg Kravis Roberts) of 9 West 57th Street, New York, a private equity
firm with $62.3 billion in assets. KKR specializes in management buyouts and leveraged finance.
General Petraeus' expertise in these areas is unclear. His ability to peddle influence, however,
is a known and valued commodity. Unlike Cincinnatus, the military commanders of the Deep State
do not take up the plow once they lay down the sword. Petraeus also obtained a sinecure as a non-resident
senior fellow at theBelfer
Center for Science and International Affairs at Harvard. The Ivy League is, of course, the
preferred bleaching tub and charm school of the American oligarchy.
Lofgren goes on to say that Silicon Valley is a node of the Deep State too, and that despite the
protestations of its chieftains against NSA spying, it's a vital part of the Deep State's apparatus.
More:
The Deep State is the big story of our time. It is the red thread that runs through the war
on terrorism, the financialization and deindustrialization of the American economy, the rise of
a plutocratic social structure and political dysfunction. Washington is the headquarters of the
Deep State, and its time in the sun as a rival to Rome, Constantinople or London may be term-limited
by its overweening sense of self-importance and its habit, as Winwood Reade said of Rome, to "live
upon its principal till ruin stared it in the face."
... I would love to see a study comparing the press coverage from 9/11 leading up to the Iraq War
with press coverage of the gay marriage issue from about 2006 till today. Specifically, I'd be curious
to know about how thoroughly the media covered the cases against the policies that the Deep State
and the Shallow State decided should prevail. I'm not suggesting a conspiracy here, not at all. I'm
only thinking back to how it seemed so obvious to me in 2002 that we should go to war with Iraq,
so perfectly clear that the only people who opposed it were fools or villains. The same consensus
has emerged around same-sex marriage. I know how overwhelmingly the news media have believed this
for some time, such that many American journalists simply cannot conceive that anyone against same-sex
marriage is anything other than a fool or a villain. Again, this isn't a conspiracy; it's in the
nature of the thing. Lofgren:
Cultural assimilation is partly a matter of what psychologist
Irving L. Janis called
"groupthink," the chameleon-like ability of people to adopt the views of their superiors and peers.
This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating
biennial budgeting, making grand bargains or invading countries. Then, after a while, all the
town's cool kids drop those ideas as if they were radioactive. As in the military, everybody has
to get on board with the mission, and questioning it is not a career-enhancing move. The universe
of people who will critically examine the goings-on at the institutions they work for is always
going to be a small one. As Upton Sinclair said, "It is difficult to get a man to understand something
when his salary depends upon his not understanding it."
A more elusive aspect of cultural assimilation is the sheer dead weight of the ordinariness
of it all once you have planted yourself in your office chair for the 10,000th time. Government
life is typically not some vignette from an Allen Drury novel about intrigue under the
Capitol dome. Sitting and staring at the clock on the off-white office wall when it's 11:00 in
the evening and you are vowing never, ever to eat another piece of takeout pizza in your life
is not an experience that summons the higher literary instincts of a would-be memoirist. After
a while, a functionary of the state begins to hear things that, in another context, would be quite
remarkable, or at least noteworthy, and yet that simply bounce off one's consciousness like pebbles
off steel plate: "You mean the
number of terrorist groups we are fighting is classified?" No wonder so few people are whistle-blowers, quite apart from the vicious
retaliation whistle-blowing often provokes: Unless one is blessed with imagination and a fine
sense of irony, growing immune to the curiousness of one's surroundings is easy. To paraphrase
the inimitable Donald Rumsfeld, I didn't know all that I knew, at least until I had had a couple
of years away from the government to reflect upon it.
When all you know is the people who surround you in your professional class bubble and your social
circles, you can think the whole world agrees with you, or should. It's probably not a coincidence
that the American media elite live, work, and socialize in New York and Washington, the two cities
that were attacked on 9/11, and whose elites - political, military, financial - were so genuinely
traumatized by the events.
Anyway, that's just a small part of it, about how the elite media manufacture consent. Here's
a final quote, one from
the Moyers interview with Lofgren:
BILL MOYERS: If, as you write, the ideology of the Deep State is not democrat
or republican, not left or right, what is it?
MIKE LOFGREN: It's an ideology. I just don't think we've named it. It's a
kind of corporatism. Now, the actors in this drama tend to steer clear of social issues. They
pretend to be merrily neutral servants of the state, giving the best advice possible on national
security or financial matters. But they hold a very deep ideology of the Washington consensus
at home, which is deregulation, outsourcing, de-industrialization and financialization. And they
believe in American exceptionalism abroad, which is boots on the ground everywhere, it's our right
to meddle everywhere in the world. And the result of that is perpetual war.
This can't last. We'd better hope it can't last. And we'd better hope it unwinds peacefully.
"... The corridor between Manhattan and Washington is a well trodden highway for the personalities we have all gotten to know in the period since the massive deregulation of Wall Street: Robert Rubin, Lawrence Summers, Henry Paulson, Timothy Geithner and many others. ..."
"... General Petraeus' expertise in these areas is unclear. His ability to peddle influence, however, is a known and valued commodity. ..."
"... Petraeus also obtained a sinecure as a non-resident senior fellow at the Belfer Center for Science and International Affairs at Harvard. The Ivy League is, of course, the preferred bleaching tub and charm school of the American oligarchy. ..."
"... The Cathedral has no central administrator, but represents a consensus acting as a coherent group that condemns other ideologies as evil. ..."
"... "you believe that morality has been essentially solved, and all that's left is to work out the details." ..."
"... Cultural assimilation is partly a matter of what psychologist Irving L. Janis called "groupthink," the chameleon-like ability of people to adopt the views of their superiors and peers. This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating biennial budgeting, making grand bargains or invading countries. Then, after a while, all the town's cool kids drop those ideas as if they were radioactive. As in the military, everybody has to get on board with the mission, and questioning it is not a career-enhancing move. The universe of people who will critically examine the goings-on at the institutions they work for is always going to be a small one. As Upton Sinclair said, "It is difficult to get a man to understand something when his salary depends upon his not understanding it. ..."
"... A more elusive aspect of cultural assimilation is the sheer dead weight of the ordinariness of it all once you have planted yourself in your office chair for the 10,000th time. ..."
"... No wonder so few people are whistle-blowers, quite apart from the vicious retaliation whistle-blowing often provokes: Unless one is blessed with imagination and a fine sense of irony, growing immune to the curiousness of one's surroundings is easy. To paraphrase the inimitable Donald Rumsfeld, I didn't know all that I knew, at least until I had had a couple of years away from the government to reflect upon it. ..."
"... It's probably not a coincidence that the American media elite live, work, and socialize in New York and Washington, ..."
"... It's a kind of corporatism. ..."
"... They pretend to be merrily neutral servants of the state, giving the best advice possible on national security or financial matters. But they hold a very deep ideology of the Washington consensus at home, which is deregulation, outsourcing, de-industrialization and financialization. ..."
"... And they believe in American exceptionalism abroad, which is boots on the ground everywhere, it's our right to meddle everywhere in the world. And the result of that is perpetual war. ..."
The corridor between Manhattan and Washington is a well trodden highway for the personalities
we have all gotten to know in the period since the massive deregulation of Wall Street: Robert
Rubin, Lawrence Summers, Henry Paulson, Timothy Geithner and many others.
Not all the traffic involves persons connected with the purely financial operations of the
government: In 2013, General David Petraeus
joined KKR (formerly Kohlberg Kravis Roberts) of 9 West 57th Street, New York, a private equity
firm with $62.3 billion in assets. KKR specializes in management buyouts and leveraged finance.
General Petraeus' expertise in these areas is unclear. His ability to peddle influence, however,
is a known and valued commodity. Unlike Cincinnatus, the military commanders of the Deep
State do not take up the plow once they lay down the sword. Petraeus also obtained a sinecure
as a non-resident senior fellow at the
Belfer Center for Science and International Affairs at Harvard. The Ivy League is, of course,
the preferred bleaching tub and charm school of the American oligarchy.
Lofgren goes on to say that Silicon Valley is a node of the Deep State too, and that despite the
protestations of its chieftains against NSA spying, it's a vital part of the Deep State's apparatus.
More:
The Deep State is the big story of our time. It is the red thread that runs through the war
on terrorism, the financialization and deindustrialization of the American economy, the rise of
a plutocratic social structure and political dysfunction. Washington is the headquarters of the
Deep State, and its time in the sun as a rival to Rome, Constantinople or London may be term-limited
by its overweening sense of self-importance and its habit, as Winwood Reade said of Rome, to "live
upon its principal till ruin stared it in the face."
The Cathedral - The self-organizing consensus of Progressives and Progressive ideology
represented by the universities, the media, and the civil service. A term
coined by blogger Mencius Moldbug. The Cathedral has no central administrator, but represents
a consensus acting as a coherent group that condemns other ideologies as evil. Community
writers have enumerated the
platform of Progressivism as women's suffrage, prohibition, abolition, federal income tax,
democratic election of senators, labor laws, desegregation, popularization of drugs, destruction
of traditional sexual norms, ethnic studies courses in colleges, decolonization, and gay marriage.
A defining feature of Progressivism is that "you believe that morality has been essentially
solved, and all that's left is to work out the details." Reactionaries see Republicans as
Progressives, just lagging 10-20 years behind Democrats in their adoption of Progressive norms.
You don't have to agree with the Neoreactionaries on what they condemn - women's suffrage? desegregation?
labor laws? really?? - to acknowledge that they're onto something about the sacred consensus that
all Right-Thinking People share. I would love to see a study comparing the press coverage from 9/11
leading up to the Iraq War with press coverage of the gay marriage issue from about 2006 till today.
Specifically, I'd be curious to know about how thoroughly the media covered the cases against the
policies that the Deep State and the Shallow State decided should prevail. I'm not suggesting a conspiracy
here, not at all. I'm only thinking back to how it seemed so obvious to me in 2002 that we should
go to war with Iraq, so perfectly clear that the only people who opposed it were fools or villains.
The same consensus has emerged around same-sex marriage. I know how overwhelmingly the news media
have believed this for some time, such that many American journalists simply cannot conceive that
anyone against same-sex marriage is anything other than a fool or a villain. Again, this isn't a
conspiracy; it's in the nature of the thing. Lofgren:
Cultural assimilation is partly a matter of what psychologist
Irving L. Janis called
"groupthink," the chameleon-like ability of people to adopt the views of their superiors and peers.
This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating
biennial budgeting, making grand bargains or invading countries. Then, after a while, all the
town's cool kids drop those ideas as if they were radioactive. As in the military, everybody has
to get on board with the mission, and questioning it is not a career-enhancing move. The universe
of people who will critically examine the goings-on at the institutions they work for is always
going to be a small one. As Upton Sinclair said, "It is difficult to get a man to understand something
when his salary depends upon his not understanding it."
A more elusive aspect of cultural assimilation is the sheer dead weight of the ordinariness
of it all once you have planted yourself in your office chair for the 10,000th time. Government
life is typically not some vignette from an Allen Drury novel about intrigue under the
Capitol dome. Sitting and staring at the clock on the off-white office wall when it's 11:00 in
the evening and you are vowing never, ever to eat another piece of takeout pizza in your life
is not an experience that summons the higher literary instincts of a would-be memoirist.
After a while, a functionary of the state begins to hear things that, in another context, would
be quite remarkable, or at least noteworthy, and yet that simply bounce off one's consciousness
like pebbles off steel plate: "You mean the
number of terrorist groups we are fighting is classified?" No wonder so few people
are whistle-blowers, quite apart from the vicious retaliation whistle-blowing often provokes:
Unless one is blessed with imagination and a fine sense of irony, growing immune to the curiousness
of one's surroundings is easy. To paraphrase the inimitable Donald Rumsfeld, I didn't know all
that I knew, at least until I had had a couple of years away from the government to reflect upon
it.
When all you know is the people who surround you in your professional class bubble and your social
circles, you can think the whole world agrees with you, or should. It's probably not a coincidence
that the American media elite live, work, and socialize in New York and Washington, the two
cities that were attacked on 9/11, and whose elites - political, military, financial - were so genuinely
traumatized by the events.
Anyway, that's just a small part of it, about how the elite media manufacture consent. Here's
a final quote, one from
the Moyers interview with Lofgren:
BILL MOYERS: If, as you write, the ideology of the Deep State is not democrat or republican,
not left or right, what is it?
MIKE LOFGREN: It's an ideology. I just don't think we've named it. It's a kind of
corporatism. Now, the actors in this drama tend to steer clear of social issues. They
pretend to be merrily neutral servants of the state, giving the best advice possible on national
security or financial matters. But they hold a very deep ideology of the Washington consensus
at home, which is deregulation, outsourcing, de-industrialization and financialization.
And they believe in American exceptionalism abroad, which is boots on the ground everywhere,
it's our right to meddle everywhere in the world. And the result of that is perpetual war.
This can't last. We'd better hope it can't last. And we'd better hope it unwinds peacefully.
I, for one, remain glad that so many of us Americans are armed. When the Deep State collapses
- and it will one day - it's not going to be a happy time.
Questions to the room: Is a Gorbachev for the Deep State conceivable? That is, could you foresee
a political leader emerging who could unwind the ideology and apparatus of the Deep State, and not
only survive, but succeed? Or is it impossible for the Deep State to allow such a figure to thrive?
Or is the Deep State, like the Soviet system Gorbachev failed to reform, too entrenched and too far
gone to reform itself? If so, what then?
"'Many people in Silicon Valley have become
obsessed with the simulation hypothesis, the argument that what we experience
as reality is in fact fabricated in a computer,' Tad Friend wrote in the New
Yorker piece. 'Two tech billionaires have gone so far as to secretly engage
scientists to work on breaking us out of the simulation'" [
Mic
].
In other words, ginormous capital investment decisions affecting the world's
economy are being made by lunatics with far too much time on their hands, and
much more money than sense.
flora
October 7, 2016 at 3:44 pm
re: Guillotine Watch (and "Watch" is very apt in this context).
The Silicon Valley simulation hypothesis is a modern version of the Clockwork
Universe theory.
Man creates a new technology that roughly models some aspect of the natural
world. Some men then insist the natural world in fact models the technology,
instead of the other way around. The more things change….
"'Many people in Silicon Valley have become obsessed with the simulation
hypothesis, the argument that what we experience as reality is in fact
fabricated in a computer,'
Tad Friend
Reminds me of a nightmare I had once. I was in Hell. It really wasn't so bad
– just about 120F or so and humid! But being a resourceful chap I started
trying to dig my way out. I got about 10 feet down when the bottom fell out and
I could see below me a lake of fire – stretching as far as I could see.
So if we are in a simulation, the goal should not be try to escape it –
impossible – but to pass whatever test we are being subjected to.
Shorter: Some people have more dollars than sense.
"... Krugman is such a deplorable hack. I know we are supposed to accept bribe-taking politicians and the economy run by looting robber barons. But can't we even have a goddamn fourth estate? ..."
"... The way Krugman murders journalism ethics by outright campaigning for one of the most corrupt politicians in American history is outrageous. Barfing up her disgusting campaign memes verbatim as if he's coordinating his columns with her war room. ..."
"... If you're a scientist you would know that economics does not remotely resemble a science. One familiar with the history of math and science will notice that their development (based on discovered facts) forms a tree-like structure. One discovery branches out to more discoveries. The growth is therefore exponential. ..."
Sure...Krugman will occasionally pay lip service to green energy.
The problem is that 'liberal' economists tend to keep separate silos for green energy and infrastructure.
Question is, why do they refuse to connect the dots between climate change mitigation, green
energy, fiscal stimulus, and lots of jobs? And why do they prioritize more road and bridges, which
will only make climate change worse?
Krugman is an abhorrent neoliberal hack (as well as Hillary stooge).
Who actually understand very little about climate change clearly being non-specialist without
any training of physics and geophysics. He is a second rate neoclassical economist with penchant
for mathiness (and a very talented writer).
The key question here is Clinton warmongering and the threat of nuclear war with Russia. Washington
neocon chichenhawks became recently realty crazy. Obama looks completely important and does not
control anything.
I think this is more immediate threat then climate change.
Oil depletion (which already started and will be in full force in a couple of decades) might
take care about climate change as period of "cheap oil" (aka "oil age") probably will last less
then 100 years and as such is just a blip in Earth history.
End of cheap oil also might lead to natural shrinking of human population -- another factor
in the global climate change and a threat to natural ecosystems.
Hillary is the fracking Queen. Claiming she's a champion of the environment is as ridiculous portraying
Donald Trump a feminist.
Obomba is another pretender on the environment. The Paris Agreement commits to absolutely nothing
but more talk at a future time. China signed on and is still keeping its commitment to do absolutely
nothing to reduce emissions until 2030. (By the time the West has exported the lion share of its
emissions to the country in a pointless GHG emissions shell game; emission per capita have skyrocketed
since 2002! a 25% increase!)
Krugman is such a deplorable hack. I know we are supposed to accept bribe-taking politicians
and the economy run by looting robber barons. But can't we even have a goddamn fourth estate?
The way Krugman murders journalism ethics by outright campaigning for one of the most corrupt
politicians in American history is outrageous. Barfing up her disgusting campaign memes verbatim
as if he's coordinating his columns with her war room.
So to all the pretend liberals out there who offer the people nothing more than more corruption,
lies, war-profiteering and public trust liquidation: you deserve Trump. And I pray that you get
him. (After him, a New Deal; and the 'me generation,' the Void.)
If you're a scientist you would know that economics does not remotely resemble a science.
One familiar with the history of math and science will notice that their development (based on
discovered facts) forms a tree-like structure. One discovery branches out to more discoveries.
The growth is therefore exponential.
Economic history does not follow this pattern.
With science there are paradigm shifts that occur with groundbreaking discoveries like the
theories of relativity and quantum mechanics. The Friedmanian paradigm shift was founded on jettisoning
all the enormously successful work Keynes accomplished and digging up failed 19th century ideology,
repeating disastrous history.
Even psychology follows the pattern. Although it began with a lot of unsubstantiated Aristotelian
philosophizing, it was a starting point from which a significant body of definite knowledge and
medical treatments developed. A real social science. (Not perfect. It was recently discovered
that about 50% of published psychological experiments were not reproducible.)
As an anthropologist you should know about cliques and group-think. Have an inkling of how
corruption could gradually develop and spread among upper-echelon cliques to the point where the
government, the economy, the courts and the news media become captured by the upper class. Understand
how cowards would rather look the other way than take a stand and deal with it: "see no evil,
hear no evil, speak no evil."
As an anthropologist, I can assert with confidence that you are babbling about things you do not
really understand at all. I have issues with a lot of economics, but you are completely incoherent.
Completely incoherent? Then it should be easy enough for you to tear apart what I wrote. It was
certainly easy enough for me to tear into Krugman's crass political pandering. But all you got
is lame generalizations. Stock insults that could be said about anything.
What issues do you have with "a lot of economics?" I bet you can't come up with anything. Come
on. Out with it! Say something intelligent about anything, if you are at all capable, Mr. Dick.
I have yet to read anything from you that indicates you have any knowledge about anything.
It is Dr. Dick, since I have a Ph.D. If you ever read the comments on this blog, you would know
full well what those issues are, since I have raised them here many times. For a start the assumption
of "rational actors" (only partially true), the assumption of economic maximization (people maximize
many different things which affect their economic choices), and the assumption of "rational markets"
(this ignores pervasive information assymetry and active deceit).
"... I got tired of lambasting macroeconomics a while ago, and the "macro wars" mostly died down in the blogosphere around when the recovery from the Great Recession kicked in. But recently, there have been a number of respected macroeconomists posting big, comprehensive criticisms of the way academic macro gets done. Some of these criticisms are more forceful than anything we bloggers blogged about back in the day! ..."
"... First, there's Paul Romer's latest, " The Trouble With Macroeconomics ". The title is an analogy to Lee Smolin's book " The Trouble With Physics ". Romer basically says that macro (meaning business-cycle theory) has become like the critics' harshest depictions of string theory - a community of believers, dogmatically following the ideas of revered elders and ignoring the data. The elders he singles out are Bob Lucas, Ed Prescott, and Tom Sargent. ..."
"... In response to the observation that the shocks [in DSGE models] are imaginary, a standard defense invokes Milton Friedman's (1953) methodological assertion from unnamed authority that "the more significant the theory, the more unrealistic the assumptions (p.14)." More recently, "all models are false" seems to have become the universal hand-wave for dismissing any fact that does not conform to the model that is the current favorite. ..."
"... We [macroeconomists] tend to view research as being the process of posing a question and delivering a pretty precise answer to that question...The research agenda that I believe we need is very different. It's hugely messy work. We need...to build a more evidence-based modeling of financial institutions. We need...to learn more about how people actually form expectations. We need [to use] firm-based information about residual demand functions to learn more about product market structure. At the same time, we need to be a lot more flexible in our thinking about models and theory, so that they can be firmly grounded in this improved empirical understanding. ..."
"... This is a somewhat misleading way of putting it, but it allows me to illustrate some important points about 'unrealistic' assumptions. In real world modelling in Physics 'unrealistic' assumptions are ubiquitous. What matters is not literal realism of assumptions but robustness.of conclusions. ..."
"... Simplifying assumptions are context specific, ie ad hoc, and never axiomatic.The ad hoc nature of simplifying assumptions is a feature, not a bug as the above example illustrates. ..."
"... Robustness is critical. As we move from our simplifying assumptions towards greater realism/precision, the conclusion should not change in any material way, and we use the simplifications because the gain in accuracy of the conclusions is not worth the added complexity and consequent loss of tractability in the model. ..."
"... This is indeed excellent. The three criteria for evaluating assumptions/simplifications, the precise definition of ad hoc, and the crystal-clear example of point mass for orbits vs rotation. ..."
"... So, we are witnessing a battle between a declining DSGE scam and ascending "Realistic assumptions" scam. ..."
"... Both approaches are worthless, but I guess it will give an excuse to macroeconomists why they are useless: we just used the wrong paradigm, now we are switching to the new one. Just many more years of research is needed and we will be ready. Science!, as they say. ..."
"... Science, IEHO, has three touchstones. Coherence - your model and its assumptions should not contradict each other or lead to contradictory conclusions. Consilience - a good theory has a broad reach for explaining reality. Consensus - a theory which is coherent and consilient should lead to a consensus among practicioners. It is only within a strong consensus that people can talk to each other and extend the field. ..."
"... It appears that macro misses out on a number of these. ..."
"... "Romer basically says that macro (meaning business-cycle theory)" ..."
"... In either case, I think this is another big problem with macro, its obsession with business cycles as opposed to long-term thriving and prosperity. eg, Gerald Friedman got tied in knots by this; he was trying to use "stimulus" thinking and arguments to talk about about multi-decadal possibilities. ..."
"... I'm fond of observing that in addition to "cargo cult science", macroeconomics has often been likened to a religion. What religions do when the mainstream becomes intolerable for one reason or another is schism. Then after a number of years what used to be the mainstream dies out and the former schismatics become the mainstream. ..."
"... Psychology went through this kind of crisis some years ago when the scientists split off from the clinicians, and created the Association for Psychological Science to contrast with the clinically-oriented American Psychological Association (the APA is the one that publishes the unscientific but influential Diagnostic and Statistical Manual). ..."
"... In order to be scientific, the standard method is to actually try predicting. Prediction is messy and provably fails to converge to any possible theory, but there are other authentic sciences that have this same theoretical limitation, like meteorology. This doesn't prevent meteorologists from constructing theories which make predictions that demonstrably get better and better year after year. ..."
"... For twenty years Romer has been implying (and recently saying) that economists who don't accept endogenous growth theory have abandoned the canons of science and are either blind or indifferent to the truth. Over the same twenty years he seems to have produced very little theoretical work, while his targets have remained working economists. (Why, after all, should anyone continue to do theory, since Romer has discovered the truth?) ..."
I got tired of lambasting macroeconomics a while ago, and the "macro wars" mostly died down in
the blogosphere around when the recovery from the Great Recession kicked in. But recently, there
have been a number of respected macroeconomists posting big, comprehensive criticisms of the way
academic macro gets done. Some of these criticisms are more forceful than anything we bloggers blogged
about back in the day! Anyway, I thought I'd link to a couple here.
First, there's Paul Romer's latest, "
The Trouble
With Macroeconomics ". The title is an analogy to Lee Smolin's book "
The Trouble With Physics ". Romer basically says that macro (meaning business-cycle theory) has
become like the critics' harshest depictions of string theory - a community of believers, dogmatically
following the ideas of revered elders and ignoring the data. The elders he singles out are Bob Lucas,
Ed Prescott, and Tom Sargent.
Romer says that it's obvious that monetary policy affects the real economy, because of the Volcker
recessions in the early 80s, but that macro theorists have largely ignored this fact and continued
to make models in which monetary policy is ineffectual. He says that modern DSGE models are no better
than old pre-Lucas Critique simultaneous-equation models, because they still take lots of assumptions
to identify the models, only now the assumptions are hidden instead of explicit. Romer points to
distributional assumptions, calibration, and tight Bayesian priors as ways of hiding assumptions
in modern DSGE models. He cites
an interesting
2009 paper by Canova and Sala that tries to take DSGE model estimation seriously and finds (unsurprisingly)
that identification is pretty difficult.
As a solution, Romer suggests chucking formal modeling entirely and going with more general, vague
but flexible ideas about policy and the macroeconomy, supported by simple natural experiments and
economic history.
Romer's harshest zinger (and we all love harsh zingers) is this:
In response to the observation that the shocks [in DSGE models] are imaginary, a standard
defense invokes Milton Friedman's (1953) methodological assertion from unnamed authority that
"the more significant the theory, the more unrealistic the assumptions (p.14)." More recently,
"all models are false" seems to have become the universal hand-wave for dismissing any fact that
does not conform to the model that is the current favorite.
The noncommittal relationship with the truth revealed by these methodological evasions...goes
so far beyond post-modern irony that it deserves its own label. I suggest "post-real."
Ouch. He also calls various typical DSGE model elements names like "phlogiston", "aether", and "caloric".
Fun stuff
. (Though I do think he's too harsh on string theory, which often is just a kind of math that
physicists do to keep themselves busy, and has no danger of hurting anyone, unlike macro theory.)
Meanwhile, a few weeks earlier, Narayana Kocherlakota wrote a post called "
On the Puzzling Prevalence of Puzzles ". The basic point was that since macro data is fairly
sparse, macroeconomists should have lots of competing models that all do an equally good job of matching
the data. But instead, macroeconomists pick a single model they like, and if data fails to fit the
model they call it a "puzzle". He writes:
To an outsider or newcomer, macroeconomics would seem like a field that is haunted by its lack
of data...In the absence of that data, it would seem like we would be hard put to distinguish
among a host of theories...[I]t would seem like macroeconomists should be plagued by underidentification...
But, in fact, expert macroeconomists know that the field is actually plagued by failures to fit
the data – that is, by overidentification.
Why is the novice so wrong? The answer is the role of a priori restrictions in macroeconomic theory...
The mistake that the novice made is to think that the macroeconomist would rely on data alone
to build up his/her theory or model. The expert knows how to build up theory from a priori restrictions
that are accepted by a large number of scholars...[I]t's a little disturbing how little empirical
work underlies some of those agreed-upon theory-driven restrictions – see p. 711 of Lucas (JMCB,
1980) for a highly influential example of what I mean.
In fact, Kocherlakota and Romer are complaining about much the same thing: the overuse of unrealistic
assumptions. Basically, they say that macroeconomists, as a group, have gotten into the habit of
assuming stuff that just isn't true. In fact, this is what the Canova and Sala
paper
says too, in a much more technical and polite way:
Observational equivalence, partial and weak identification problems are widespread and typically
produced by an ill-behaved mapping between the structural parameters and the coefficients of the
solution.
That just means that the model elements aren't actually real things.
(This critique resonates with me. From day 1, the thing that always annoyed me about macro was how
people made excuses for assumptions that were either unverifiable or just flatly contradictory to
micro data. The usual excuse was the "
pool player analogy " - the idea that the pieces of a model don't have to match micro data as
long as the resulting model matches macro data. I'm not sure that's how Milton Friedman wanted his
metaphor to be used, but that seems to be the way it does get used. And when the models didn't
match macro data either, the excuse was "all models are wrong," which really just seems to be a way
of saying "the modeler gets to choose which macro facts are used to validate his theory". It seemed
that to a large extent, macro modelers were just allowed to do whatever they wanted, as long as their
papers won some kind of behind-the-scenes popularity contest. But I digress.)
So what seems to unite the new heavyweight macro critics is an emphasis on realism . Basically,
these people are challenging the idea, very common in econ theory, that models shouldn't worry about
being realistic. (Paul Pfleiderer is another economist who has recently made
a similar complaint , though not in the context of macro.) They're not saying that economists
need 100% perfect realism - that's the kind of thing you only get in physics, if anywhere. As
Paul
Krugman and
Dani Rodrik have emphasized, even the people advocating for more realism acknowledge that there's
some ideal middle ground. But if Romer, Kocherlakota, etc. are to be believed, macroeconomists aren't
currently close to that optimal interior solution.
Updates
Olivier Blanchard is a bet less forceful, but he's definitely also
one of the new heavyweight
critics . Among his problems with DSGE models, at least as they're currently done, are 1. "unappealing"
assumptions that are "at odds with what we know about consumers and firms", and 2. "unconvincing"
estimation methods, including calibration and tight Bayesian priors. Sounds pretty similar to Romer.
Meanwhile,
Kocherlakota
responds to Romer . He agrees with Romer's criticism of unrealistic macro assumptions, but he
dismisses the idea that Lucas, Prescott, and Sargent are personally responsible for the problems.
Instead, he says it's about the incentives in the research community. He writes:
We [macroeconomists] tend to view research as being the process of posing a question and delivering
a pretty precise answer to that question...The research agenda that I believe we need is very
different. It's hugely messy work. We need...to build a more evidence-based modeling of financial
institutions. We need...to learn more about how people actually form expectations. We need [to
use] firm-based information about residual demand functions to learn more about product market
structure. At the same time, we need to be a lot more flexible in our thinking about models and
theory, so that they can be firmly grounded in this improved empirical understanding.
Kocherlakota says that this isn't a "sociological" issue, but I think most people would call it that.
Since journals and top researchers get to decide what constitutes "good" research, it seems to me
that to get the changes in focus Kocherlakota wants, a sociological change is exactly what would
be required.
Kocherlakota now has another post describing
how
he thinks macro ought to be done . Basically, he thinks researchers - as a whole, not just on
their own! - should start with toy models to facilitate thinking, then gather data based on what
the toy models say is important, then build formal "serious" models from the ground up to match that
data. He contrasts this with the current approach of tweaking existing models.
My question
is: Who is going to enforce this change? If a few established researchers start doing things
the way Kocherlakota wants, they'll certainly still get published (because they're famous old people),
but will the young folks follow? How likely is it that established researchers en masse are going
to switch to doing things this way, and demanding that young researchers do the same, and using their
leverage as reviewers, editors, and PhD advisers to make that happen? This doesn't seem like the
kind of change that can be brought about by a few young smart rebels forcing everyone else to recognize
the value of their approach - the existing approach, which Kocherlakota dislikes, already succeeds
in getting publication and prestige, so the rebels would simply coexist alongside the old approach,
rather than overthrowing it. How could this cultural change be put into effect?
Also: Romer
now has a follow-up
to his original post, defending his original post against the critics. This part stood out to
me as particularly persuasive:
The whine I hear regularly from the post-real crowd is that "it is really, really hard to do research
on macro so you shouldn't criticize any of our models unless you can produce one that is better."
This is just post-real Calvinball used as a shield from criticism. Imagine someone saying to a
mathematician who finds an error in a theorem that is false, "you can't criticize the proof until
you come up with valid proof." Or try this one on and see how it feels: "You can't criticize the
claim that vaccines cause autism unless you can come up with a better explanation for autism."
Sounds right to me. The old like that "it takes a theory to kill a theory" just seems wrong to me.
Sometimes all it takes is evidence.
I've already commented at lenght on Romer at
Mark Thoma's. So I'll just use something you wrote on physics to make a tangential comment
on unrealistic assumptions.
"They're not saying that economists need 100% perfect realism - that's the kind of thing
you only get in physics, if anywhere"
This is a somewhat misleading way of putting it, but it allows me to illustrate some important
points about 'unrealistic' assumptions. In real world modelling in Physics 'unrealistic' assumptions are ubiquitous. What matters is
not literal realism of assumptions but robustness.of conclusions.
Consider a point-mass. There is no such thing. Yet it is a perfectly legitimate simplifying
assumption about a planet if you are interested in studying its orbit around its sun. It is not
a legitimate assumption if you are interested in studying a planet's rotation about its axis
The most important points underlying such simplifying assumptions are:
1. Simplifying assumptions are context specific, ie ad hoc, and never axiomatic.The ad hoc
nature of simplifying assumptions is a feature, not a bug as the above example illustrates.
2. Robustness is critical. As we move from our simplifying assumptions towards greater realism/precision,
the conclusion should not change in any material way, and we use the simplifications because the
gain in accuracy of the conclusions is not worth the added complexity and consequent loss of tractability
in the model.
3. Out of sample performance of the model.
* Richard Feynman:
"...in order to understand physical laws you must understand that they are all some kind of
approximation.
The trick is the idealizations. To an excellent approximation of perhaps one part in 10^10,
the number of atoms in the chair does not change in a minute, and if we are not too precise we
may idealize the chair as a definite thing; in the same way we shall learn about the characteristics
of force, in an ideal fashion, if we are not too precise. One may be dissatisfied with the approximate
view of nature that physics tries to obtain (the attempt is always to increase the accuracy of
the approximation), and may prefer a mathematical definition; but mathematical definitions can
never work in the real world. A mathematical definition will be good for mathematics, in which
all the logic can be followed out completely, but the physical world is complex, as we have indicated
in a number of examples, such as those of the ocean waves and a glass of wine. When we try to
isolate pieces of it, to talk about one mass, the wine and the glass, how can we know which is
which, when one dissolves in the other? The forces on a single thing already involve approximation,
and if we have a system of discourse about the real world, then that system, at least for the
present day, must involve approximations of some kind.
This system is quite unlike the case of mathematics, in which everything can be defined, and
then we do not know what we are talking about. In fact, the glory of mathematics is that we do
not have to say what we are talking about. The glory is that the laws, the arguments, and the
logic are independent of what "it" is.
Indeed. That was part of the reason for redundantly using the phrase :) . The other reason
was that the usage is strictly accurate. ad hoc = for this particular purpose (Shorter OED)
It is difficult to see how simplifying assumptions underlying real world models can be anything
but ad hoc (context-specific)
For a mathematician to object to ad hoc statements would be understandable, but for someone
concerned with real world modelling to do so is mind-boggling.
It is worth pointing out that the economists who do so object have never in their life built
a model that works, for any definition of 'works' acceptable anywhere outside economics.
This is indeed excellent. The three criteria for evaluating assumptions/simplifications, the
precise definition of ad hoc, and the crystal-clear example of point mass for orbits vs rotation.
I'd like to bring in my pet bailiwick, accounting. Our (national) accounting systems are rife
with assumptions and simplifications - they are economic models. (Or in Feynman's excellent
term, "idealizations.") And those assumptions are effectively invisible to almost everyone. If
I had a nickel for every time I've heard "it's an accounting identity" as if that was somehow
synonymous with "truth"...
Just one example, relating to a rather important economic measure - income:
The national-accounting sages know that the appropriateness of this basic conceptual construct
is a very open question. But that fact is invisible to almost everyone. National accounts could
be depicted quite differently (yes, with everything still balancing).
Economists' thinking is completely owned by the conceptual constructs, the idealizations, embodied
in our national-accounting structures. And they frequently display zero understanding of the constructs
that they are (we are) using to think with.
I've been critical of you in the past, but that is a really good comment, 100% on the ball.
But I will add that the simplifying assumption you used to illustrate your point, may not be true,
but it is nearly true (without the scales being considered). And many simplifying assumptions
used in economics are not nearly true.
Informally we might - and sometimes do - say that the assumption (point-mass) is 'nearly true',
but it is not quite correct. It is an idealization that satisfies criterion (2): robustness, and
the resulting model satisfies criterion (3); out-of-sample performance.
Of course this is very different from the sort of assumptions common in economics which are
often patently false - and this is the critical point - making them more realistic materially
changes the conclusions ie the assumptions in the models fail to satisfy the robustness criterion.
And, at least in DSGE/RBC macro to talk of in-sample fit or out-of-sample performance of the resulting
model would imply a libelous misuse of the terms.
Actually, as Romer notes, the situation in economics is often even worse.with assumptions being
not merely false ( with non-robust conclusions) but entirely meaningless in terms of real world
observables. Assumptions of the sort that are deservedly derisively dismissed as not even wrong
in every scientific or engineering discipline.
It's not just an argument about having models with realistic assumptions. It is also an argument
about the extent to which mathematics and models can usefully provide the answers we need to know.
Basically we are going back to Keynes's (1937) arguments about the limitations of "pretty and
polite techniques". Edgeworth was also very much aware of the limitations of mathematics in economics.
And so have many others, for a long time.
I have been critical of Romer in the past. His growth theory for me does not answer the critical
questions that I think are the most important into understanding why certain countries get on
to a growth curve and others do not. But I now really have to admire his honesty.
It is not true that we do not have a lot of macro data. The National Accounts contain scores
of (largely stock-flow consistent) data. The point is: one of the big failures of DSGE economists
is their failureto establish a measurement system which produces data consistent with the DSGE
models. Keynes, who even established his own government statistical office, the present day ONS,
and, in a more indirect sense, Smith, Marshall as well and Veblen did establish systems of measurement
to measure data consistent with their models and ideas. Read Mitra Kahn http://openaccess.city.ac.uk/1276/
or my efforts
DSGE economists never bothered to do this. Weird (well, not that weird - taking account of
real life data would have meant taking unemployment and the government serious... Or the fact
that the National Accounts identities only hold for nominal variables, not for deflated real variables).
Anyway - as there is no system of DSGE consistent measurement of the macro-economy it can't be
called a valid science.There are however systems consistent with the ideas of Keynes and Veblen...
So, we are witnessing a battle between a declining DSGE scam and ascending "Realistic assumptions"
scam.
Both approaches are worthless, but I guess it will give an excuse to macroeconomists why
they are useless: we just used the wrong paradigm, now we are switching to the new one. Just many
more years of research is needed and we will be ready. Science!, as they say.
I'm curious how many economists are simply too blind to understand that this will lead nowhere
and how many are simply cynical beyond belief.
I just don't understand the mentality. Wouldn't you like to do something productive? Like produce
actual knowledge? Can you guys be satisfied with infinite curve fitting?
Science, IEHO, has three touchstones. Coherence - your model and its assumptions should not contradict each other or lead to contradictory
conclusions. Consilience - a good theory has a broad reach for explaining reality. Consensus - a theory which is coherent and consilient should lead to a consensus among practicioners.
It is only within a strong consensus that people can talk to each other and extend the field.
It appears that macro misses out on a number of these.
"Romer basically says that macro (meaning business-cycle theory)"
Are you equating macro with business-cycle theory, or are you saying that Romer does?
In either case, I think this is another big problem with macro, its obsession with business
cycles as opposed to long-term thriving and prosperity. eg, Gerald Friedman got tied in knots
by this; he was trying to use "stimulus" thinking and arguments to talk about about multi-decadal
possibilities.
" (Though I do think he's too harsh on string theory, which often is just a kind of math that
physicists do to keep themselves busy, and has no danger of hurting anyone, unlike macro theory.)"
I find it hard to believe Noah understands string theory well enough to justify such a strong
opinion of it only existing to keep theorists employed. As much as I like "The Trouble With Physics"
those reading should keep in mind that Lee Smolin acknowledges that maybe there is something to
string theory.
And again, the focus of string theory in theoretical physics is harmful to the expansion of
knowledge and economic growth if too many brains not only barked up the wrong tree - nothing wrong
with that - but *continued* to bark up the wrong tree for years, ignoring other paths of understanding
physics, which is Smolin's main point.
I'm fond of observing that in addition to "cargo cult science", macroeconomics has often
been likened to a religion. What religions do when the mainstream becomes intolerable for one
reason or another is schism. Then after a number of years what used to be the mainstream dies
out and the former schismatics become the mainstream.
Psychology went through this kind of crisis some years ago when the scientists split off
from the clinicians, and created the Association for Psychological Science to contrast with the
clinically-oriented American Psychological Association (the APA is the one that publishes the
unscientific but influential Diagnostic and Statistical Manual).
All that heterodox economists need to do is gain some self-confidence and stop calling themselves
derogatory names. That won't make them scientific, but it'll be a step in the right direction.
In order to be scientific, the standard method is to actually try predicting. Prediction is
messy and provably fails to converge to any possible theory, but there are other authentic sciences
that have this same theoretical limitation, like meteorology. This doesn't prevent meteorologists
from constructing theories which make predictions that demonstrably get better and better year
after year.
Why don't all these macro critics stop publishing in "unscientific" mainstream journals and
setup their own J.Econ.Sci. that has rigorous scientific standards? Many of them have tenure or
non-academic jobs (e.g. Roemer) and don't need to kowtow to committees who care only about established
impact factors. It's been done elsewhere. It wasn't so long ago that one of the most prestigious
biology journals Cell, was just an upstart new face on the block. All it takes is a strong editor
and a pool of like-minded peer reviewers.
I think Paul Romer's self-serving ad hominem attacks should be identified as just that. One
would hardly blame the older generation of Nobel laureates of conspiring to deny economic pre-eminence
to Romer - look at how he behaves! - but I think they probably have better things to do.
I admit I haven't completely digested Romer's latest thunderbolt - I'm basing my comments more
on Romer's "mathiness" series of a year ago. In that case, I went back and read the "mathy" papers
that Romer was attacking. Mathy they were, but the Lucas and Moll paper at least was very clear
about why it didn't see increasing returns-to-scale in growth models convincing: the intellectual
property-driven economic sector just isn't, in their view, big enough. (BTW, that's almost exactly
the same argument made by William Nordhaus against the AI "singularity" folks: it could happen,
but none of today's macroeconomic data suggest that it is happening.)
To come back to the current discussion, I have no particular sympathy with the Lucas-Prescott-Sargent
rational expectations / microfoundations / real business cycle approach - but the needed discussion
of the defects of RBC has been underway for some time. And note that Romer's opening distillation
of RBC makes its problems all about a supposed "exogenous" component, for which the subtext is
that RBC's authors don't accept Romer's "endogenous" growth theory.
For twenty years Romer has been implying (and recently saying) that economists who don't accept
endogenous growth theory have abandoned the canons of science and are either blind or indifferent
to the truth. Over the same twenty years he seems to have produced very little theoretical work,
while his targets have remained working economists. (Why, after all, should anyone continue to
do theory, since Romer has discovered the truth?)
I wish Romer well at the World Bank. There is no doubt that his ideas around urbanization,
for example, will bring an important and updated perspective to a development bank. But the very
move suggest to me that the World Bank has not failed to note Romer's ability to propagandize
an economic agenda - and that it values his political skills as much as his reputation as an economic
theorist.
It's easy to poke holes in existing methodology, but it's much more difficult to come up with
viable alternatives and solutions. Do those who knock DSGE models really think we should go back
to 1970's macro and reuse old-school Keynesian models? The empirical evidence against Keynesian
multipliers is overwhelming (See Ramey for an overview). Methodologically, Keynesian models make
just as many implausible, ad hoc assumptions as DSGE models, if not more. Their forecast accuracy
is no better; private forecasters are mostly selling stories and scenarios, not forecasts that
in any way will prove ex post to be accurate.
I think you are repeating - and it is a good reminder - the classic Mark Blaug argument that
economists should not abandon the "best available" theory (even if its deficiencies are manifest)
if there is no better replacement. I have no problem with that.
However, I think the discussion right now is about those manifest defects. And there are stirrings
about what comes next. Noah has blogged several times on the new "empirical turn". And the Keynesians,
who have never gone away, may yet stand up a rehabilitated theory. For a usable business cycle
theory, there are really three tests to satisfy:
1) Normal forecasting capability (as you mention);
2) Convincing comparative statics on the effects of monetary or fiscal intervention. (RBC omitted
this almost by definition.)
3) Some ability to detect pressures that are building toward a major shock. (I call this 'the
Cassandra feature', since the predictions are unlikely to be believed or heeded.) Whether any
model could really offer this is open to question, but it's a real question. The Fed always talks
about "risks to the economy", but is the perception of those risks coming from the model? How
did Warren Buffet know that the pile of financial derivatives would collapse, but bankers and
regulators and economists not know it? One answer, at least for economists, is that rational expectations
theory forces prediction of any kind of discontinuity completely out of the model. That part of
Paul Romer's complaint seems to me to be valid.
"... There is indeed a wing of heterodox economics that is anti-mathematical. Known as "Critical Realism" and centred on the work of Tony Lawson at Cambridge UK, it attributes the failings of economics to the use of mathematics itself... ..."
"... Steve also offers some useful criticism of Milton Friedman's ideas about how to evaluate a model's empirical success ( I agree ). ..."
"... The problem with 'heterodox economics' is that it is self-definition in terms of the other. It says 'we are not them' - but says nothing about what we are. This is because it includes everything outside of the mainstream, from reasonably well-defined and coherent schools of thought such as Post Keynesians, Marxists and Austrians, to much more nebulous and ill-defined discontents of all hues. To put it bluntly, a broad definition of 'people who disagree with mainstream economics' is going to include a lot of cranks. People will place the boundary between serious non-mainstream economists and cranks differently, depending on their perspective. ..."
"... Aside from rejecting standard neoclassical economics, the Marxists and the Austrians don't have a great deal in common. ..."
"... Noah seems to define heterodox economics as 'non-mathematical' economics. This is inaccurate. There is much formal modelling outside of the mainstream. ..."
"... Noah's post unfortunately seems to have elicited some rather defensive responses from the heterodox community, along the lines of " But we DO like mathematics! " or even, " Actually our mathematics is better than yours ". But this is to buy into Noah's core proposition. The heterodox economics community should - and, to be fair, in most cases does - reject it outright. Economics is not, and cannot be , exclusively mathematical...There is no need for the heterodox economic community to be defensive about vagueness. ..."
The other day I wrote
a Bloomberg View post arguing that heterodox macroeconomics is not in any better shape than mainstream
macroeconomics. As you might expect, this drew some lively responses.
One or two of the responses seemed to be arguing against the title of my post, rather than
the contents. That's understandable, since titles are important. In this case, though, it probably
detracted from the debate a great deal. The Bloomberg title people are good, and they usually get
things right, but once in a while the title they choose doesn't quite capture the point I'm trying
to make. This was one of those cases. The title they gave my post was "Economics Without Math Is
Trendy, But It Doesn't Add Up." But actually, this wasn't what I was arguing. My point about non-mathy
models wasn't that these are bad, useless, or inferior. It was that they're different from
mathy models, and so comparing non-mathy models with mathy ones is an apples-to-oranges comparison.
Both types of models have their uses, but you can't really compare one to the other. I make that
pretty clear in the text of
my post , but most of the people who responded tended to focus more on the title. Oh well. These
things happen.
Anyway, on to some of the responses. The numbering here is arbitrary, corresponding to the order
in which the tabs were open on my browser. (Note: The ordering has changed; see #4.)
Response 1: Steve Keen
First, we have
a
response by Steve Keen . Steve, unlike others, did get the point I was making about mathy vs.
non-mathy models (Thanks, Steve!), and had some good commentary on the subject:
There is indeed a wing of heterodox economics that is anti-mathematical. Known as "Critical
Realism" and centred on the work of Tony Lawson at Cambridge UK, it attributes the failings of
economics to the use of mathematics itself...
What Noah might not know is that many heterodox economists are critical of this approach as well.
In response to
a paper by Lawson that effectively defined "Neoclassical" economics as any economics that
made use of mathematics (which would define me as a Neoclassical!), Jamie Morgan edited a book
of replies to Lawson entitled
What is Neoclassical Economics? (including a chapter by me). While the authors agreed with
Lawson's primary point that economics has suffered from favouring apparent mathematical elegance
above realism, several of us asserted that mathematical analysis is needed in economics, if only
for the reason that Noah gave in his article[.]
Steve also offers some useful criticism of Milton Friedman's ideas about how to evaluate a model's
empirical success (
I agree ).
Steve also makes the useful point that linearization critically hampers many mainstream models
(
I agree ).
Steve points out that non-mathy models can make qualitative forecasts. That's true. However, my
point was that these are often a lot less actionable than quantitative forecasts. A non-mathy model
might tell you that private-sector debt is dangerous, but it might not tell you how much of
it is dangerous, or how dangerous. For that, you'd need some kind of mathy model. Steve definitely
seems to get this point too, though, so I'm not disagreeing.
Steve then discusses overfitting of data, and points out that many mainstream models do this too.
That's certainly true, although I think DSGE models tend to be a lot more parsimonious than SFC models
or stuff like FRB/US. Actually, overfitting is one of the big criticisms of the most popular DSGE
models in use at central banks.
Steve then addresses the idea that heterodox models are similar to mainstream ones. I never said
they were, although I said there are some similarities between the FRB/US model and Wynne Godley-type
SFC models. In fact, there are some similarities, though there are also differences. But in general,
most heterodox models are very different from most mainstream models.
Steve also discusses my (admittedly too brief) mention of agent-based models, and has some good
comments:
Largely speaking, this is true - if you want to use these models for macroeconomic forecasting.
But they are useful for illustrating an issue that the mainstream avoids: "emergent properties".
A population, even of very similar entities, can generate results that can't be extrapolated from
the properties of any one entity taken in isolation...Neoclassical economists unintentionally
proved this about isolated consumers as well, in what is known as the Sonnenschein-Mantel-Debreu
theorem. But they have sidestepped its results ever since...Multi-agent modelling may not lead
to a new policy-oriented theory of macroeconomics. But it acquaints those who do it with the phenomenon
of emergent properties - that an aggregate does not function as a scaled-up version of the entities
that comprise it. That's a lesson that Neoclassical economists still haven't absorbed.
I think this is right. Agent-based models have so far served as a demonstration of the fragility
of representative agent models. In the future, they might be much more than that.
So anyway, I'd say I pretty much agree with Steve's response. Good stuff. (Though
this person on Reddit had some problems with it.)
Response 2: Ari Andricopolous
Ari
has a response as well . His response comes in the form of a list of things that he thinks macro
models should not include. The list is:
Microfoundations
Neoliberal_rationality/
Loanable funds
Interest rate effects
The financial sector
It's pretty clear that the last item on this list is misplaced, since Ari thinks one should
include the financial sector in models.
Whether macro models should be microfounded is a big open question, but I'd like to note that
by saying they shouldn't be, Ari is saying that agent-based models are bad. Agent-based models are
as microfounded as they come.
As for rationality, I kind of disagree...humans observe and learn and adapt (OK, some more than
others, I'll grant). Even though perfect rationality is probably pretty unrealistic, to insist that
models totally ignore human observation, learning, and adaptation seems very dangerous for the realism
of any model.
As for the loanable funds thing...yeah, OK, sure.
Response 3: Jo Michell
Jo Michell's response might have been the first to go up, but it's later on this list because...the
numbering is arbitrary!
Jo, which I believe is short for "Jörmungandr", has a helpful diagram of the "schools" of macroeconomic
thought. He also pushes back on the notion that "heterodox" is a useful classification at all:
The problem with 'heterodox economics' is that it is self-definition in terms of the other.
It says 'we are not them' - but says nothing about what we are. This is because it includes everything
outside of the mainstream, from reasonably well-defined and coherent schools of thought such as
Post Keynesians, Marxists and Austrians, to much more nebulous and ill-defined discontents of
all hues. To put it bluntly, a broad definition of 'people who disagree with mainstream economics'
is going to include a lot of cranks. People will place the boundary between serious non-mainstream
economists and cranks differently, depending on their perspective.
Another problem is that these schools of thought have fundamental differences. Aside from
rejecting standard neoclassical economics, the Marxists and the Austrians don't have a great deal
in common.
This is a good and useful point. My Bloomberg post really did bite off more than it could chew. My
point was that there wasn't something better and more successful out there that by rights ought to
already have displaced the (unsuccessful) mainstream approach. But in making that point, I touched
on a number of different types of alternatives that aren't really closely connected. And I left out
others (for example, Steve Keen's own work, and the Austrians).
Jo, unfortunately, appears to have gotten tripped up by the title:
Noah seems to define heterodox economics as 'non-mathematical' economics. This is inaccurate.
There is much formal modelling outside of the mainstream.
Well, no, I don't define it that way, otherwise I wouldn't have discussed SFC models and agent-based
models in my post.
Jo goes on to make some good points about mainstream models, and some of the problems they encounter.
Response 4: Frances Coppola
Frances Coppola, whom I cited in my Bloomberg post,
also has
a response . I responded to this post earlier, but Frances changed it, so I moved my response
down to #4.
Frances still seems to misunderstand my post somewhat, and to have been tripped up by the title:
Noah's core proposition is that economics has no validity unless it is expressed in mathematical
terms. He says that economics without mathematics doesn't add up.
Actually, I didn't make such a claim. Nor do I believe it.
What I wrote was:
Broad idea-sketching is certainly a valuable activity. If theorists get lost in the specifics
of their models, they can blind themselves to truly new hypotheses and mechanisms that would let
them make big, radical changes. I do think this has happened to some degree in mainstream macro...But
that doesn't mean that broad idea-sketching is a replacement for formal models. It's not an apples-to-apples
comparison.
My point is that although non-mathematical econ is often valuable, it's not comparable to mathematical
econ. Both have their place. But to say that a non-quantitative theory was successful at predicting
the Great Recession, while a quantitative theory failed, is to hold the two theories to very different
standards, since "predict" means different things for quantitative theories than it does for non-quantitative
theories.
Frances goes on to discuss some of the limitations of purely quantitative models. She's broadly
right. She then criticizes some heterodox theorists who, in her opinion, focus too much on math:
Noah's post unfortunately seems to have elicited some rather defensive responses from the
heterodox community, along the lines of "
But we DO like mathematics! " or even, "
Actually our mathematics is better than yours ". But this is to buy into Noah's core proposition.
The heterodox economics community should - and, to be fair, in most cases does - reject it outright.
Economics is not,
and cannot be , exclusively mathematical...There is no need for the heterodox economic community
to be defensive about vagueness.
Again, Frances demonstrates a deep misunderstanding of my thesis. I never said that econ theory should
be exclusively mathematical, nor do I believe it. This confusion is partly the result of the title,
and partly the result of me just not explaining my thesis well enough.
Anyway, those are the responses I've seen. Thanks to everyone who took the time to respond!
"... While much ignorance is really the absence of knowledge, ignorance can also be produced by warriors in ongoing economic, political and cultural battles. ..."
I have been wanting to share this book review I did in 2009 and I guess now is as good a time
as any....
AGNOTOLOGY Book Review
What is Agnotology? What does the Agnotology book say about it? What does Agnotology have to
do with capitalism?
Agnotology [The Making & Unmaking of Ignorance] is a book (collection of essays) edited by Robert
N Proctor and Londa Schiebinger
What is Agnotology? It is defined as a term to describe the cultural production of ignorance
(and its study)
This term is being forwarded by Robert N. Proctor and others interested in the timely study
of ignorance with focus on the manufactured sort. The book begins with a preface by Robert N Proctor
who is a professor of History of Science at Stanford University. The subsequent essays are grouped
into three Parts:
I ) Secrecy, Selection, and Suppression
II ) Lost Knowledge, Lost Worlds
III ) Theorizing Ignorance
Professor Proctor's prime example of agnotology centers on the tobacco industry. He touts a
quote from an internal 1969 Brown & Williamson Tobacco Company memo saying, "Doubt is our product."
when showing how this industry had the audacity to spend profits from its customers to brainwash
them into believing that there was doubt that smoking causes cancer.
The 4 essayists in part I of the book provide similar manufacturing of ignorance insights in
areas of censorship, environmental science, public health and women's orgasms.
The 3 essayists in Part II of the book focus on showing how western society has suppressed
medicinal plant knowledge for abortions because they were against them, how the American white
man trivialized and ignored the indigenous fossil knowledge of the American Indians and lastly
about ignorance in Archeology.
The 4 essayists in Part III of the book expand on the theories of ignorance in ways that are
daunting to understand completely let alone summarize. Suffice to say that terms like bounded
rationality, confirmation bias, patriarchy, ethnocentrism, social memory, and the evolution of
the Precautionary Principle in relation to Risk Management are discussed, analyzed and postulated
about.
While much ignorance is really the absence of knowledge, ignorance can also be produced
by warriors in ongoing economic, political and cultural battles.
Other examples of agnotology are "intelligent design" or faith based political economies, resistance
to global warming, the car centered transportation culture...and of course whether unregulated
investment banking is toxic or not.
Pride of ignorance is the biggest impediment for critical thinking individuals to overcome
with efforts that appeal to simplistic economic euphemisms like free markets good/ govt regulation
bad. The biggest lies are that totally unrestrained corporatism and "free" markets are best and
bigger is better. Having faith that the economic fundamentals are supportive of the American dream
is akin to so many individuals seemingly unable to evolve beyond Enlightenment understanding of
the various religion myths.
One of the concepts that is missing in discussions is that the maximization of self-interest
is rarely consistent with the maximization of social interest. A forum is need to reconcile the
conflicts between self and social economic interests.
The unstated paradox of Agnotology is that it is the basis of more study of an obvious problem
that rational people would consider antisocial behavior, which is what the big complaint is of
agnotology claimants. The further frustration is that these studies do not include any proscriptions
about making the efforts to propagate disinformation criminal.
psychohistorian@26 - Fascinating. Ponerology. Agnotology. So many books, so much evil, so little
time. Proctor's book is now at the top of my wish list. Thanks for posting that.
Agnotology--"... term to describe the cultural production of ignorance (and its study)"
Indeed, that includes the compulsion to lie. The USG in 1972/3 sent out the Pioneer 10 and
11 space probes with picture-drawings of male and female humans. The female genitals were erased
because certain humans were ashamed of nudity. Have a look:
The idea of Pioneer 10 and 11 was demonstrate, should any intelligent beings in interstellar
space discover the probes, what a lying civilization Earth had spawned?
Creating ignorance is often the result of fixed-ideas being implanted into infants by the age
of 3. The child henceforth is blocked from rational thinking in many areas. Indeed, the child
is unaware that notions and mental movies are doing his "thinking".
"... Most junior-level academics are on two-year contracts. The pay is not that great, there are usually no relocation programs since junior-level academics having a family is considered a dire waste of resources and if one wants to procure something one has to go to meetings with 20++ people who all also want theirs if someone else is getting some. All of these meetings are about managing a flock of spoiled children were a few are being given sweets. Most lower level academics (in the career sense) eventually "fail out" to private business and settle down once they realize that they will never make tenure, not even at a lower ranking university. This usually happens at the age of 30 or so. ..."
"... Very few get full tenure. For those few finally becoming a tenured professor there is *still* the everlasting scrabbling for external funding, perpetual fights with other colleges over internal funding (now at a much higher level and against people truly skilled in the art, said skills acquired through years of dedicated effort in "undoing the competition"), and of course for space, resources and the good students. ..."
"... A few tenured professors can do like Tolkien did: "Fuck this bullshit business, I'll just be writing books which totally tangentially involves my specialty and teach, so they can't sack me". ..."
You can dress up what is happening in all sorts of ways. When democracy has been stolen, when
the political class has been bought and paid for by a small controlling elite, you have a decline
into third world economics. The incentives to start businesses in the US have gone because of
the worship of the large corporations who are able to pay for the necessary lobbying so that laws
are skewed in their favour.
I guess when you sit in the safety of an academic institution, facing up to nothing more challenging
than dreaming up ways to either provide intellectual cover for the plunder, or find ways to increase
your take of the available government grants, then what you get is the nonsense above.
There is a very obvious paradigm shift going on which the article goes nowhere near. To do
of course means that you would cease to be one of the 'insiders' or useful idiots.
Obviously, you have never been employed in an academic institution: Unless one is a tenured
professor there is no such thing as "safety" in academics.
Most junior-level academics are on two-year contracts. The pay is not that great, there
are usually no relocation programs since junior-level academics having a family is considered
a dire waste of resources and if one wants to procure something one has to go to meetings with
20++ people who all also want theirs if someone else is getting some. All of these meetings are
about managing a flock of spoiled children were a few are being given sweets. Most lower level
academics (in the career sense) eventually "fail out" to private business and settle down once
they realize that they will never make tenure, not even at a lower ranking university. This usually
happens at the age of 30 or so.
Very few get full tenure. For those few finally becoming a tenured professor there is *still*
the everlasting scrabbling for external funding, perpetual fights with other colleges over internal
funding (now at a much higher level and against people truly skilled in the art, said skills acquired
through years of dedicated effort in "undoing the competition"), and of course for space, resources
and the good students.
A few tenured professors can do like Tolkien did: "Fuck this bullshit business, I'll just
be writing books which totally tangentially involves my specialty and teach, so they can't sack
me".
Others will whore themselves out to whoever pays for specific results and maybe end up in a
think-tank at 10x or even 50x the academic salary.
Most will just find a way to muddle through and enjoy what they are getting.
"... The moment Science and Innovation became the mistreated handmaidens of the monopolistic cartels which dominate today's economy they were effectively neutered and drugged under the influence of money and petty privilege. ..."
"... Big capital is not fond of innovation nor does it tolerate discovery. Science and Innovation are anathema to the the doctrine of maximizing profits on capital already invested. While we enjoy the benefits of neoliberal "Free Markets" we should expect that no more than a trickle of discovery and innovation might ooze between the cracks. ..."
"... The ability of capital to buy academic researchers and use them as tools is really amazing. On the level, which Academician Lysenko did not even dreamed off. ..."
"... I think this can be considered as a modern flavor of Lysenkoism. ..."
Have discoveries and developments in science and innovation reached a point of diminishing returns?
I don't think so - at least not of necessity. The moment Science and Innovation became the mistreated
handmaidens of the monopolistic cartels which dominate today's economy they were effectively neutered
and drugged under the influence of money and petty privilege.
Big capital is not fond of innovation
nor does it tolerate discovery. Science and Innovation are anathema to the the doctrine of maximizing
profits on capital already invested. While we enjoy the benefits of neoliberal "Free Markets" we should
expect that no more than a trickle of discovery and innovation might ooze between the cracks.
"The moment Science and Innovation became the mistreated
handmaidens of the monopolistic cartels which dominate today's economy
they were effectively neutered and drugged under the influence of
money and petty privilege."
This is a great observation -- Thank you.
The ability of capital to buy academic researchers and use them as
tools is really amazing. On the level, which Academician Lysenko did not
even dreamed off.
I think this can be considered as a modern flavor of Lysenkoism.
"... Trump isn't attempting to appeal to neocons or neoliberals. (New Classical or New Keynesian.) That's Hillary's job. So losing this guy (neocon Bush economist) means nothing. ..."
"... Accusations of corruption against Hillary are ridiculous! Have you ever listened to Hillary's voice? Her speeches are like music to the ears! The only reason why corporations across various industrial complexes - financial, healthcare, private prison, military, Big Oil, etc. - pay Hillary $250k a speech is because they can afford to. The rest of society - the moochers - can only dream of being wealthy enough to enjoy a Hillary speech! ..."
"... I'm so tired of people hating on the rich and disparaging the Clintons' 'democratic innovation' techniques. They are clearly nothing more than envious ingrates and ignoramuses! ..."
"... All of the neoclassical tax cutting over the past 35 years has only provided a net benefit to the upper class. Only 30% of the US economy is related to international trade. So very little of the debt created with tax cuts has trickled down into trade deficits. ..."
"... But trade-liberalization/outsourcing policies, on the other hand, explain how a trade deficit has an accompanying budget deficit (according to the Twin Deficits hypothesis.) If a country is spending more on imports than it is earning in exports it will have to borrow the money to pay for them. ..."
"... Trump's absurd tax cuts would only benefit the top 20%. They would not increase demand for imports or increase the trade deficit. All of this money would be in the form of whopping budget deficits and growing government debt. It would be a spectacular failure. A better one than what Hillary would bring: because the Republicans would be on the hook for it. (If Hillary wins, the Democrats are on the hook for a 12 year Great Recession by 2020. That kicks the New Deal can down the road to 2024.) ..."
"... Sanders supporters dislike Republicans more than Hillary supporters do according to polls. They're not going to go for trickle-down economics. Sanders's message was that the problem with the economy and political system are people like Trump. That's why he proposed a significant financial transaction tax. Sanders supporters agree with Sanders, Dean Baker and Jared Bernstein that corporate trade deals could be made more fair. ..."
"... "Corporate" trade deals aren't the issue. It is capital markets. Republicans wants a total abolition of regulations on capital markets. Not only will Trumps deficits need more foreign finance, he will gut the economy to bring that foreign finance in or gut the economy if it doesn't come in if he trade saber rattles. The only other option is much such large government spending cuts, that creates a recession as well creating capital flight. ..."
"... Mankiw reveals like Krugman he's never been to East Asia, nor is he the least bit curious about why the US developed in the first place. If he had studied economic development or East Asia he would know that blistering high interest rates (+50%) were common in the East Asian countries during their periods of stunning growth. Rising interest rates from the reduced flow of capital would also be associated with - for the first time in 40 years -- positive incentives to invest in US tradable goods production. ..."
"... Watch Charles Ferguson's Inside Job for information on how morally and financially compromised US economists are. ..."
"... And Mankiw does this specifically in the context of offering support to idiotic Republican policies, to pander to the Republican mandarins who hire him every 4 years as economic adviser to their Presidential candidate (and to sell more textbooks at Red-state schools). ..."
"... Why does Mankiw think he deserves to sell his own ass like a two-bit prison whore, while Navarro and Ross can't? ..."
Trump isn't attempting to appeal to neocons or neoliberals. (New Classical or New Keynesian.)
That's Hillary's job. So losing this guy (neocon Bush economist) means nothing.
This argument against Trump's economic plan would appear to be nonsensical. Interest rates
are not marked to international markets. They are set by the central bank to manage demand and
inflation. (According to 'orthodox' economics, protectionism would negatively affect GDP and put
a downward pressure on demand, inflation and interest rates. So this argument is doubly senseless.)
I can't imagine that many economists understand international trade or they wouldn't be in
favor of the highly mercantlist global economy that free-trade globalization has produced.
The 35 years of trade deficits the US has run with undeveloped mercantilist countries is a
triple whammy: 1) jobs, production and investment flow out of the country reducing GDP, real incomes
and demand; 2) the trade deficit has an accompanying budget deficit (according to the Twin Deficits
hypothesis); this creates rising government debt; spending cuts further depress demand; 3) for
every dollar that flows out of the country from imported goods, a dollar must flow back into the
country in the form of foreign investment (i.e. debt owed to foreign countries.)
This process is certainly no Carnot engine. Simply a linear process of wealth being transferred
from one source to another (much of it in debt.) A process that is quickly running out of steam.
My impression is that only a return to the progressive Keynesian New Deal era (that began with
FDR and ended with Reagan) can prevent the global economy from collapsing into fascist revolutions
and world war. (Repeating the history of the 1930s; Trump would make a better Herbert Hoover than
Hillary, that's for sure.)
Accusations of corruption against Hillary are ridiculous! Have you ever listened to Hillary's
voice? Her speeches are like music to the ears! The only reason why corporations across various
industrial complexes - financial, healthcare, private prison, military, Big Oil, etc. - pay Hillary
$250k a speech is because they can afford to. The rest of society - the moochers - can only dream
of being wealthy enough to enjoy a Hillary speech!
I'm so tired of people hating on the rich and disparaging the Clintons' 'democratic innovation'
techniques. They are clearly nothing more than envious ingrates and ignoramuses!
All of the neoclassical tax cutting over the past 35 years has only provided a net benefit
to the upper class. Only 30% of the US economy is related to international trade. So very little
of the debt created with tax cuts has trickled down into trade deficits.
But trade-liberalization/outsourcing policies, on the other hand, explain how a trade deficit
has an accompanying budget deficit (according to the Twin Deficits hypothesis.) If a country is
spending more on imports than it is earning in exports it will have to borrow the money to pay
for them.
Clearly any form of non-regulated stimulus (tax cuts or income redistribution) that primes
anemic demand by putting more money in the hands of the bottom 80% will produce a bigger trade
deficit. The only way to eliminate a trade deficit with a mercantilist country is with tariffs.
If Trump's plan is to raise GDP by eliminating the trade deficit with some form of regulatory
measures, then clearly this could not raise the trade deficit.
Trump's absurd tax cuts would only benefit the top 20%. They would not increase demand
for imports or increase the trade deficit. All of this money would be in the form of whopping
budget deficits and growing government debt. It would be a spectacular failure. A better one than
what Hillary would bring: because the Republicans would be on the hook for it. (If Hillary wins,
the Democrats are on the hook for a 12 year Great Recession by 2020. That kicks the New Deal can
down the road to 2024.)
Sanders supporters dislike Republicans more than Hillary supporters do according to polls.
They're not going to go for trickle-down economics. Sanders's message was that the problem with
the economy and political system are people like Trump. That's why he proposed a significant financial
transaction tax. Sanders supporters agree with Sanders, Dean Baker and Jared Bernstein that corporate
trade deals could be made more fair.
Ben Groves -> Peter K.... , -1
"Corporate" trade deals aren't the issue. It is capital markets. Republicans wants a total
abolition of regulations on capital markets. Not only will Trumps deficits need more foreign finance,
he will gut the economy to bring that foreign finance in or gut the economy if it doesn't come
in if he trade saber rattles. The only other option is much such large government spending cuts,
that creates a recession as well creating capital flight.
Sanders doesn't support deregulated capital markets, he can swagger about 'trade'.
Saigo Takamori : , -1
Mankiw reveals like Krugman he's never been to East Asia, nor is he the least bit curious
about why the US developed in the first place. If he had studied economic development or East
Asia he would know that blistering high interest rates (+50%) were common in the East Asian countries
during their periods of stunning growth. Rising interest rates from the reduced flow of capital
would also be associated with - for the first time in 40 years -- positive incentives to invest
in US tradable goods production.
US economists are paid to confuse people and be confused. Watch Charles Ferguson's Inside
Job for information on how morally and financially compromised US economists are.
No wonder the US is an economic basket case on the cusp of becoming a third world country.
Thanks economists! You guys have the best advice! Free trade and comparative advantage are real
winners! Just ask Haiti, the second most open economy in the Americas after the US.
I've watched Mankiw, on video, on several occasions, make patently false claims about economic
policy based on first-year macro that's completely and utterly disproven at even a third-year
level.
And Mankiw does this specifically in the context of offering support to idiotic Republican
policies, to pander to the Republican mandarins who hire him every 4 years as economic adviser
to their Presidential candidate (and to sell more textbooks at Red-state schools).
Why does Mankiw think he deserves to sell his own ass like a two-bit prison whore, while
Navarro and Ross can't?
The crisis exposed some serious flaws in our economic thinking. It has highlighted the need to
look at economic policy with more critical, fresh approaches. It has also revealed the limitations
of existing tools for structural analysis in factoring in key linkages, feedbacks and trade-offs
– for example between growth, inequality and the environment.
We should seize the opportunity to develop a new understanding of the economy as a highly complex
system that, like any complex system, is constantly reconfiguring itself in response to multiple
inputs and influences, often with unforeseen or undesirable consequences. This has many implications.
It suggests policymakers should be constantly vigilant and more humble about their policy prescriptions,
act more like navigators than mechanics, and be open to systemic risks, spillovers, strengths, weaknesses,
and human sensitivities. This demands a change in our mind-sets, and in our textbooks. As John Kenneth
Galbraith once said, "the conventional view serves to protect us from the painful job of thinking."
This is why at the OECD we launched an initiative called New Approaches to Economic Challenges
(NAEC). With this initiative we want to understand better how the economy works, in all its complexity,
and design policies that reflect this understanding. Our aim is to consider and address the unintended
consequences of policies, while developing new approaches that foster more sustainable and inclusive
growth.
Complexity is a common feature of a growing number of policy issues in an increasingly globalised
world employing sophisticated technologies and running against resource constraints.
The report of the OECD Global Science Forum (2009) on Applications of Complexity Science for Public
Policy reminds us of the distinction between complicated and complex systems. Traditional science
(and technology) excels at the complicated, but is still at an early stage in its understanding of
complex phenomena like the climate.
For example, the complicated car can be well understood using normal engineering analyses. An
ensemble of cars travelling down a highway, by contrast, is a complex system. Drivers interact and
mutually adjust their behaviours based on diverse factors such as perceptions, expectations, habits,
even emotions. To understand traffic, and to build better highways, set speed limits, install automatic
radar systems, etc., it is helpful to have tools that can accommodate non-linear and collective patterns
of behaviour, and varieties of driver types or rules that might be imposed. The tools of complexity
science are needed in this case. And we need better rules of the road in a number of areas.
This is not an academic debate. The importance of complexity is not limited to the realm of academia.
It has some powerful advocates in the world of policy. Andy Haldane at the Bank of England has thought
of the global financial system as a complex system and focused on applying the lessons from other
network disciplines – such as ecology, epidemiology, and engineering – to the financial sphere. More
generally, it is clear that the language of complexity theory – tipping points, feedback, discontinuities,
fat tails – has entered the financial and regulatory lexicon. Haldane has shown the value of adopting
a complexity lens, providing insights on structural vulnerabilities that built up in the financial
system. This has led to policy suggestions for improving the robustness of the financial system.
Closer to home, Bill White, Chairman of our Economic and Development Review Committee (EDRC) has
been an ardent advocate of thinking about the economy as a complex system. He has spoken in numerous
OECD meetings – in part as an explanation and in part as a warning – that systems build up as a result
of cumulative processes, can have highly unpredictable dynamics and can demonstrate significant non-linearity.
As a result Bill has urged policymakers to accept more uncertainty and be more prudent. He also urged
economists to learn some exceedingly simple but important lessons from those that have studied or
work with complex systems such as biologists, botanists, anthropologists, traffic controllers, and
military strategists.
Perhaps the most important insight of complexity is that policymakers should stop pretending that
an economy can be controlled. Systems are prone to surprising, large-scale, seemingly uncontrollable,
behaviours. Rather, a greater emphasis should be placed on building resilience, strengthening policy
buffers and promoting adaptability by fostering a culture of policy experimentation.
At the OECD, we are starting to embrace complexity. For several years we have been mapping the
trade "genome" with our Trade in Value Added (TiVA) database to explain the commercial interconnections
between countries.
We have examined the possibilities for coupling economic and other systems models, for example
environmental (climate) and societal (inequalities). Our work on the Costs of Inaction and Resource
Constraints: Implications for Long-term Growth (CIRCLE) is a key example of linking bio-physical
models and economic models to gauge the impact of environmental degradation and climate change on
the economy.
We are also looking at governing complex systems in areas as diverse as education and international
trade policy. And we are looking at the potential for tapping big data – an indispensable element
of complexity modelling approaches. But there remains much to do to fully enrich our work with the
perspectives of complexity.
The OECD is delighted to work with strong partners – the Institute for New Economic Thinking (INET)
Oxford, and the European Commission to help policy-makers advance the use of complex systems thinking
to address some of the most difficult challenges.
An important question remains. How can the insights and methods of complexity science be applied
to assist policymakers as they tackle difficult problems in areas such as environmental protection,
financial regulation, sustainability or urban development?
At the Workshop on Complexity and Policy on 29-30 September at the OECD, we will help find the
answer – stimulate new thinking, new policy approaches and ultimately better policies for better
lives.
[Sometimes when it seems like you are just howling at the moon there really is a new day coming.]
I think it is both correct,
and entirely wrong-headed.
Firstly, we have not believed that the economy can be controlled (we were just trying
to steer it) - the guiding principle was that it didn't need to be controlled which is something
completely different. It also falls into the trap of talking about "the economy" as though
the economy was an organism that had its own purposes, rather than as a set of institutions
that ultimately exist to serve human beings (a job which it achieves with quite varying
degrees of success). I won't say this approach is necessarily bound to fail, I just doubt
that it will be alone sufficient.
The OECD is one of those institutions.
Yep, they have plenty of their own assumptions. Complexity has been mentioned here before.
Exactly what they mean is indeterminable from the general principles mentioned, but examples
are worthwhile. You might read them to mean be cautious about leaps of faith such as financial
deregulation because bad stuff CAN happen.
"...Perhaps the most important
insight of complexity is that policymakers should stop pretending that an economy can be
controlled. Systems are prone to surprising, large-scale, seemingly uncontrollable, behaviours.
Rather, a greater emphasis should be placed on building resilience, strengthening policy
buffers and promoting adaptability by fostering a culture of policy experimentation..."
[In context I took this more to mean that economic models are probabilistic at best rather
than deterministic rather than that it said policy makers in the OECD were performing central
planning of the economy, which everyone knows is not true.]
Firstly, we have not believed
that the economy can be controlled (we were just trying to steer it) - the guiding principle
was that it didn't need to be controlled which is something completely different. It also
falls into the trap of talking about "the economy" as though the economy was an organism
that had its own purposes, rather than as a set of institutions that ultimately exist to
serve human beings (a job which it achieves with quite varying degrees of success)....
Re: Stop pretending that an economy can be controlled -
OECD Insights
"The crisis exposed some serious flaws in
our economic thinking. It has highlighted the need to look
at economic policy with more critical, fresh approaches.
It has also revealed the limitations of existing tools for
structural analysis in factoring in key linkages,
feedbacks and trade-offs – for example between growth,
inequality and the environment.
We should seize the opportunity to develop a new
understanding of the economy as a highly complex system
that, like any complex system, is constantly reconfiguring
itself in response to multiple inputs and influences,
often with unforeseen or undesirable consequences. This
has many implications. It suggests policymakers should be
constantly vigilant and more humble about their policy
prescriptions, act more like navigators than mechanics,
and be open to systemic risks, spillovers, strengths,
weaknesses, and human sensitivities. This demands a change
in our mind-sets, and in our textbooks. As John Kenneth
Galbraith once said, "the conventional view serves to
protect us from the painful job of thinking."
..................................
Complex systems such as chemical processes are managed by
feedback control systems that specify a desired output and
then measure deviation from that control point (the error
signal) to adjust the inputs and thus return to the
desired setpoint.
I have promoted the use of control theory concepts in
economics before. From a previous post:
Auto-control:
Did you ever think about how you keep the temperature
in your house at a comfortable level even though the
weather is unpredictable and can change a lot?
Well, maybe the level of the economy could be controlled
on similar principles. Maybe economists could borrow from
the control theory that is employed in air conditioning
thermostats.
For example, if we wanted to maintain full employment we
could adjust inputs in a similar manner to the way heat
and cooling is adjusted in your house. Just as heat is
added when the temperature gets too low, government jobs
could be added when private employment falls short. When
the temperature starts to get too high ( full employment
is achieved), heat could be sucked out ( no more jobs
would be added and/or higher taxes could be imposed) to
cool things off.
This is an appealing analogy because, like the weather,
the economy is inherently unpredictable and, like the air
conditioning in your house, you could keep things
comfortable without the need of forecasting the
unknowable.
So maybe economists should forsake their DSGE models and
instead study control theory.
...................
In my view such approaches are not promoted because they
require central control by the state and our elite
establishment quashes such threats to their dominance.
That is why Keynes' conclusions were subverted:
"The context is as follows: in an interview with the
leftist British journalist Kingsley Martin (1897–1969) in
the New Statesman of January 1939, Keynes – commenting on
the need for a new interventionist economic system and at
the same time the need to avoid the authoritarianism of
the Fascist and communist states – said this:
"The question is whether we are prepared to move out of
the nineteenth-century laissez faire state into an era of
liberal socialism, by which I mean a system where we can
act as an organized community for common purposes and to
promote social and economic justice, whilst respecting and
protecting the individual-his freedom of choice, his
faith, his mind and its expression, his enterprise and his
property." (Moggridge 1982: 500 = Keynes and Martin 1939:
123).
............
Many people now accept that we have traveled the wrong
path since the 1950's. I would submit that economists
would do well to go back to the ideas of Keynes, Kalecki,
Lerner and perfect those concepts within a framework of
automatic stabilization. This would be greatly facilitated
if some prominent economists would have the guts to say
again what Keynes was saying in the 30's.
What would a recommended reading of or about Abba Lerner
be? Though Lerner is frequently mentioned, I still have no
idea where to begin reading. Would this do?
The Lerner symmetry theorem is a result used in
international trade theory, which states that, based on an
assumption of a zero balance of trade (that is, the value
of exported goods equals the value of imported goods for a
given country), an ad valorem import tariff (a percentage
of value or an amount per unit) will have the same effects
as an export tax. The theorem is based on the observation
that the effect on relative prices is the same regardless
of which policy (ad valorem tariffs or export taxes) is
applied.
The theorem was developed by economist Abba P. Lerner
in 1936.
Functional Finance and Full Employment: Lessons from
Lerner for Today?
By Mathew Forstater
The Asian Crisis, with the fallout in Latin America and
the transition economies; the Russian default; continuing
troubles in Japan; weaknesses in the structure of the new
European EMU; volatility on Wall Street; deflationary
pressures in the global economy: recent economic
developments invite a reconsideration of some of our most
deeply held beliefs concerning economic theory and public
policy. Even within the hallowed halls of mainstream
economics, voices of dissent can be heard. Paul Krugman,
Joseph Stiglitz, and Jeffrey Sachs are among those whose
recent proclamations indicate that we have entered a
period in which orthodox views are being openly
questioned, creating an atmosphere characterized by a
crisis of confidence.
Such periods of impending crisis and open expressions
of self-doubt, questioning our most deeply held beliefs
about the way the world works, creates a climate in which
the ideas of the great unorthodox thinkers of the past may
be revisited. The work of those who in the past dedicated
their lives to formulating solutions to the challenges of
modern capitalist economies may contain lessons applicable
to the contemporary situation. It is in this spirit that
this paper revisits the early works of Abba Lerner,
outlining fifteen such lessons regarding macroeconomic
theory and policy, as fresh in the context of the current
scene as they were some five decades ago when they were
first formulated.
Lesson #1: Full employment, price stability, and a
decent standard of living for all are fundamental
macroeconomic goals, and it is the responsibility of the
state to promote their attainment.
Lesson #2: Policies should be judged on their ability
to achieve the goals for which they are designed and not
on any notion of whether they are "sound" or otherwise
comply with the dogmas of traditional economics.
Lesson #3: "Money Is a Creature of the State"
Lesson #4: Taxing is not a funding operation.
Lesson #5: Government Borrowing is not a funding
operation.
Lesson #6: The primary purpose of taxation is to
influence the behavior of the public.
Lesson #7: The primary purpose of government bond sales
is to regulate the overnight interest rate.
Lesson #8: Bond sales logically follow from, rather
than precede, government spending....
Functional Finance: Monetary and Fiscal Policy for
Sovereign Currencies
By L. Randall Wray
Today we will lay out Abba Lerner's approach to policy.
In the 1940s he came up with what he called the functional
finance approach to policy.
Lerner's Functional Finance Approach. Lerner posed two
principles:
First Principle: if domestic income is too low,
government needs to spend more. Unemployment is sufficient
evidence of this condition, so if there is unemployment it
means government spending is too low.
Second Principle: if the domestic interest rate is too
high, it means government needs to provide more "money",
mostly in the form of bank reserves.
The idea is pretty simple. A government that issues its
own currency has the fiscal and monetary policy space to
spend enough to get the economy to full employment and to
set its interest rate target where it wants. (We will
address exchange rate regimes later; a fixed exchange rate
system requires a modification to this claim.) For a
sovereign nation, "affordability" is not an issue-it
spends by crediting bank accounts with its own IOUs,
something it can never run out of.If there is unemployed
labor, government can always afford to hire it-and by
definition, unemployed labor is willing to work for money.
Lerner realized that this does not mean government
should spend as if the "sky is the limit"-runaway spending
would be inflationary (and, as discussed many times, it
does not presume that government spending won't affect the
exchange rate). When Lerner first formulated the
functional finance approach (in the early 1940s),
inflation was not a major concern-the US had recently
lived through deflation in the Great Depression. However,
over time, inflation became a serious concern, and Lerner
proposed a form of wage and price controls to constrain
inflation that he believed would result as the economy
nears full employment. Whether or not that would be an
effective and desired way of attenuating inflation
pressures is not our concern here. The point is that
Lerner was only arguing that government should use its
spending power with a view to moving the economy toward
fullemployment-while recognizing that it might have to
adopt measures to fight inflation.
Lerner rejected the notion of "sound finance"-that is
the belief that government ought to run its finances as if
it were like a household or a firm. He could see no reason
for the government to try to balance its budget annually,
over the course of a business cycle, or ever. For Lerner,
"sound" finance (budget balancing) was not "functional"-it
did not help to achieve the public purpose (including, for
example, full employment). If the budget were occasionally
balanced, so be it; but if it never balanced, that would
be fine too. He also rejected any attempt to keep a budget
deficit below any specific ratio to GDP, as well as any
arbitrary debt to GDP ratio. The "correct" deficit would
be the one that achieves full employment.
Similarly the "correct" debt ratio would be the one
consistent with achieving the desired interest rate
target. This follows from his second principle: if
government issues too much debt, it has by the same token
issued too few bank reserves and cash. The solution is for
the treasury and central bank to stop selling bonds,and,
indeed, for the central bank to engage in open market
purchases (buying treasuries by crediting the selling
banks with reserves). That will allow the overnight rate
to fall as banks obtain more reserves and the public gets
more cash.
Essentially, the second principle just says that
government ought to let the banks,households, and firms
achieve the portfolio balance between "money" (reserves
and cash) and bonds desired. It follows that government
bond sales are not really a "borrowing" operation required
to let the government deficit spend. Rather, bond sales
are really part of monetary policy, designed to help the
central bank to hit its interest rate target. All of that
is consistent with the modern money view advanced
previously....
It seems to me this line from Wren-Lewis is the biggie as far
as the Great Recession/Longer Depression is concerned:
"A
recession initiated by a financial crisis is also likely to
see consumers reducing their own borrowing, and so
(erroneous) analogies between governments and households
resonate."
In 2008/9 the public was (rightly) convinced that the
collapse was due to deflation of a financial bubble blown up
by many years of excessive private borrowing and debt-fueled
over-consumption: too much credit card debt; too much
borrowing against (inflated) home values; two much
speculative gambling with, and ponzi profiting from, cutesy
and overvalued financial instruments. That correct,
instinctive evaluation of the situation was backed up by
numbers showing that the total private debt to GDP ratio had
reached a level unseen since 1928, and by the sudden
discovery of the many analyses of many experienced, sober,
but neglected financial observers who had been predicting
some kind of collapse for years.
Since the public was thus primed to believe that, going
forward, the private economy had to reduce its overall debt
load, it was very easy to convince them that governments,
being just another part of the overall economy, had to do the
same thing.
But what Wren-Lewis doesn't seem to mention is that the
public had already been primed by decades of Norquistian,
Petersonian and Rubinite deficit-hectors, debt-despairers and
entitlement-exterminators to believe that our deficits were a
very bad thing, that government was too big, and that we were
headed for a "fiscal train wreck" because of our
undisciplined budgets and government spending. They were thus
easily convinced that the financial crisis also had something
to to with the problems alleged by this bipartisan team of
budget Casandras all finally coming a-cropper.
We had endless cadres of Republican politicians promoting
hysteria over the public debt and also decrying the very size
of government, whether deficit-financed or not.
We had Bill Clinton running around bragging about his
"reinvention" (shrinking) of government and his dot-com
boom-assisted surprise surplus.
We had Joe Biden telling everyone that the financial
collapse was caused by "putting two wars on a credit card".
We had the Concord Coalition and the Peterson Institute
gearing up their zombies for the Fix the Debt onslaught that
eventually saddled us with an economic discourse driven by a
stupid budget-reduction commission in the middle a deep
recession!
Hatred of governments and their spending habits had
already given us years of gradually building stagnation due
to declining public investment and a consequent secular shift
from capital formation to consumption. But the voters saw
only that all of the Serious People in both parties were
strongly in favor of this "disciplined" decimation of
government. So why in the world wouldn't they end up
supporting its continuation?
"... Most workers suffer serious consequences when they mess up on their jobs. Custodians get fired
if the toilet is not clean. Dishwashers lose their job when they break too many dishes, but not all
workers are held accountable for the quality of their work. ..."
"... At the top of the list of people who need not be competent to keep their job are economists.
Unlike workers in most occupations, when large groups of economists mess up they can count on the media
covering up their mistakes and insisting it was just impossible to understand what was going on. ..."
Economists Keep Getting It Wrong Because the Media Coverup Their Mistakes
Most workers suffer serious consequences when they mess up on their jobs. Custodians get
fired if the toilet is not clean. Dishwashers lose their job when they break too many dishes,
but not all workers are held accountable for the quality of their work.
At the top of the list of people who need not be competent to keep their job are economists.
Unlike workers in most occupations, when large groups of economists mess up they can count on
the media covering up their mistakes and insisting it was just impossible to understand what was
going on.
This is first and foremost the story of the housing bubble. While it was easy * to recognize
that the United States and many other countries were seeing massive bubbles that were driving
their economies, which meant that their collapse would lead to major recessions, the vast majority
of economists insisted there was nothing to worry about.
The bubbles did burst, leading to a financial crisis, double-digit unemployment in many countries,
and costing the world tens of trillions of dollars of lost output. The media excused this extraordinary
failure by insisting that no one saw the bubble and that it was impossible to prevent this sort
of economic and human disaster. Almost no economists suffered any consequences to their career
as a result of this failure. The "experts" who determined policy in the years after the crash
were the same people who completely missed seeing the crash coming.
We are now seeing the same story with trade. The New York Times has a major magazine article
** on the impact of trade on the living standards of workers in the United States and other wealthy
countries. The subhead tells readers:
"Trade is under attack in much of the world, because economists failed to anticipate the accompanying
joblessness, and governments failed to help."
Of course many economists did not anticipate the negative impact of trade, but of course many
of us did. The negative impact was entirely predictable and predicted. (Here are a few from Center
for Economic and Policy Research, *** **** ***** there are many more books and papers from my
friends at the Economic Policy Institute.) The argument is straightforward: trade policy has been
designed to put manufacturing workers in direct competition with low paid workers in the developing
world. This costs jobs and puts downward pressure on the wages of these workers. It also puts
downward pressure on the wages of less-educated workers more generally, as displaced manufacturing
workers seek jobs in retail and other sectors. Stagnating wages and increasing inequality are
the predicted result of this pattern of trade, not a surprising outcome.
If economists were like custodians and dishwashers, the failure to recognize this obvious outcome
of trade policy would have put them out on the street. Instead, we get major news outlets like
the New York Times, telling us this is all a remarkable surprise. No one could have seen that
trade would have bad outcomes for large segments of the workforce. Rather than lose their jobs,
economists can still draw comfortable six figure salaries as they tell reporters how it was impossible
for them to understand the economy.
Economic theory tells us that if economists don't face consequences for completely messing
up on the job then they have no incentive to get things right. If the custodian never pays any
price for not cleaning the toilet, then they won't clean the toilet. In the same way, if the media
and the country always grant a "who could have known" amnesty to large chunks of the economics
profession when it gets things completely wrong, then there is no reason to expect that economists
will ever get things right. All they have to do is say the same things as other elite economists
say, and if it turns out to be wrong, the NYT will just run major news articles explaining that
no one could have known better.
There is one other important point that needs emphasis here. There was nothing inherent to
trade that required growing inequality, it was the structure of trade policy that gave us this
result. There are millions of very bright ambitious people in the developing world who would be
very happy to study to meet U.S. standards and work as doctors, dentists, lawyers and other professionals
in the United States. We could have designed trade agreements to facilitate this process.
The result would be massive economic gains in the form of lower cost health care, dental care,
legal services and other professionals services. In the case of physicians alone, if the increased
supply brought the pay of our doctors down to the levels of Western Europe and Canada, we would
save close to $100 billion a year. This comes to roughly $700 a year in savings for every family
in the United States. And, this would lead to a reduction in inequality.
Our elite economists have chosen not to discuss this sort of trade opening. (They also rarely
discuss reducing rather than increasing protectionist barriers like patents and copyrights.) These
issues are discussed in more depth in my forthcoming book, "Rigged: How Globalization and the
Rules of the Modern Economy Were Structured to Make the Rich Richer" (coming to a website near
year in October). But the key point here is that economists should know better, and if they were
doing their job, they did.
"The argument is straightforward: trade policy has been designed to put manufacturing workers
in direct competition with low paid workers in the developing world. This costs jobs and puts
downward pressure on the wages of these workers. It also puts downward pressure on the wages of
less-educated workers more generally, as displaced manufacturing workers seek jobs in retail and
other sectors. Stagnating wages and increasing inequality are the predicted result of this pattern
of trade, not a surprising outcome."
This is surprising to PGL and Krugman who argue the Fed will just adjust to keep full employment
or at least that's what the models tell them.
Dean is talking about protectionism for drug companies, doctors etc. and free trade for the rest
of us. On this score he is exactly right and I have said so many times. This is a very different
issue from the macroeconomic ones. I would accuse you of once again misrepresenting what I have
said. But to be fair - you are too stupid to get these distinctions so maybe you are not lying.
I do wish I had a smarter internet stalker.
Tom aka Rusty -> anne... , -1
Baker get the diagnosis correct.
Baker's standard solutions do very little for blue collar workers. Having a cheaper doctor
and lawyer don't help much for the unemployed and underemployed.
Simon Wren-Lewis has an excellent new paper * trying to
explain the widespread resort to austerity in the face of a
liquidity trap, which is exactly the moment when such
policies do the most harm. His bottom line is that
"austerity was the result of right-wing opportunism,
exploiting instinctive popular concern about rising
government debt in order to reduce the size of the state."
I think this is right; but I would emphasize more than he
does the extent to which both the general public and Very
Serious People always assume that reducing deficits is the
responsible thing to do. We have some polling from the 1930s,
showing a strong balanced-budget bias even then:
[Chart]
I think Simon would say that this is consistent with his
view that large deficits grease the rails for deficit phobia,
since Franklin Roosevelt's administration did run up deficits
and debt that were unprecedented for peacetime. But has there
ever been a time when the public favored bigger deficits?
Meanwhile, as someone who was in the trenches during the
US austerity fights, I was struck by how readily mainstream
figures who weren't especially right-wing in general got
sucked into the notion that debt reduction was THE central
issue. Ezra Klein documented this phenomenon ** with respect
to Bowles-Simpson: ***
"For reasons I've never quite understood, the rules of
reportorial neutrality don't apply when it comes to the
deficit. On this one issue, reporters are permitted to openly
cheer a particular set of highly controversial policy
solutions. At Tuesday's Playbook breakfast, for instance,
Mike Allen, as a straightforward and fair a reporter as
you'll find, asked Simpson and Bowles whether they believed
Obama would do 'the right thing' on entitlements - with 'the
right thing' clearly meaning 'cut entitlements.' "
Meanwhile, as Brad Setser points out, the International
Monetary Fund - whose research department has done heroic
work puncturing austerity theories and supporting a broadly
Keynesian view of macroeconomics - is, in practice, pushing
for fiscal contraction **** almost everywhere.
Again, this doesn't exactly contradict Simon's argument,
but maybe suggests that there is a bit more to it.
Austerity is defined as a fiscal contraction that causes a
significant increase in aggregate unemployment. For the
global economy, or an economy with a flexible exchange rate,
or a monetary union as a whole, an increase in unemployment
following a fiscal consolidation can and should be avoided
because monetary policy can normally offset the demand impact
of the consolidation. The tragedy of global austerity after
2010 was that fiscal consolidation was not delayed until
monetary policy was able to do this.
An individual member of a currency union that requires a
greater fiscal contraction than the union as a whole cannot
use its own monetary policy to offset the impact of fiscal
consolidation. Even in this case, however, a sharp and deep
fiscal contraction is unlikely to be optimal. Providing this
economy is in a union where the central bank acts as a
sovereign lender of last resort, a more gradual fiscal
adjustment is likely to minimise the unemployment cost.
As the theory behind these propositions is simple and
widely accepted, the interesting question is why global
austerity happened. Was austerity an unfortunate accident, or
is there a more general political economy explanation for why
it occurred? Answering this question is vital to avoid the
next global recession being followed by yet more austerity.
The answer is that politicians and pundits have a flawed
understanding of inflation and its relationship to
hyperinflation.
Some economists promoted a seriously flawed interpretation of
the 1970s stagflation that solidified myths about inflation.
As Max Planck said, "Science advances one funeral at a time."
We need the current generation of economists and their failed
models to be replaced by a new generation that does not
suffer from the same mythology.
Peter K. -> anne...
, -1
If one just read Krugman or Kevin Drum you wouldn't
understand how Bill Clinton declared "the era of Big
Government is over" or how after he was first elected he
listened to his top two economic advisers Robert Rubin and
Alan Greenspan and dropped his middle class spending campaign
promise in favor of deficit reduction.
Greenspan promised Clinton lower rates in exchange for
reducing government. Clinton ended "welfare as we knew it."
But Greenspan didn't regulate this increase in private
investment. It led to the tech-stock bubble and a shadow
banking system which was susceptible to a banking panic.
According to Hillary, Bush's tax cuts caused the housing
bubble and Great Recession. It's a little more complicated.
But this cuts against Krugman and Drum's narrative that the
Clinton years were nothing but awesome.
Summers told Brooksley Born that derivatives shouldn't be
regulated b/c the market is magic.
Obama reinforced the narrative that government should
tighten its belt during hard times like households do. This
is exactly wrong.
Maybe it's understandable for politicians to pander for
short-term political expediency but it's hurts the long-term
ideological conflict.
There's the right and there's the left and Obama and
Clinton tried to straddle the two ideologies which just
waters down the left's appeal and pull.
That's why the millennials and more progressive workers
aren't as excited for Hillary's candidacy. That's why Sanders
energized them.
Now I agree with Sanders that a Trump Presidency would be
a disaster, but this doesn't preclude me from correcting
Krugman's outlook as some center-leftists would insist in
their binary thinking.
It seems to me this line from Wren-Lewis is the biggie as far
as the Great Recession/Longer Depression is concerned:
"A
recession initiated by a financial crisis is also likely to
see consumers reducing their own borrowing, and so
(erroneous) analogies between governments and households
resonate."
In 2008/9 the public was (rightly) convinced that the
collapse was due to deflation of a financial bubble blown up
by many years of excessive private borrowing and debt-fueled
over-consumption: too much credit card debt; too much
borrowing against (inflated) home values; two much
speculative gambling with, and ponzi profiting from, cutesy
and overvalued financial instruments. That correct,
instinctive evaluation of the situation was backed up by
numbers showing that the total private debt to GDP ratio had
reached a level unseen since 1928, and by the sudden
discovery of the many analyses of many experienced, sober,
but neglected financial observers who had been predicting
some kind of collapse for years.
Since the public was thus primed to believe that, going
forward, the private economy had to reduce its overall debt
load, it was very easy to convince them that governments,
being just another part of the overall economy, had to do the
same thing.
But what Wren-Lewis doesn't seem to mention is that the
public had already been primed by decades of Norquistian,
Petersonian and Rubinite deficit-hectors, debt-despairers and
entitlement-exterminators to believe that our deficits were a
very bad thing, that government was too big, and that we were
headed for a "fiscal train wreck" because of our
undisciplined budgets and government spending. They were thus
easily convinced that the financial crisis also had something
to to with the problems alleged by this bipartisan team of
budget Casandras all finally coming a-cropper.
We had endless cadres of Republican politicians promoting
hysteria over the public debt and also decrying the very size
of government, whether deficit-financed or not.
We had Bill Clinton running around bragging about his
"reinvention" (shrinking) of government and his dot-com
boom-assisted surprise surplus.
We had Joe Biden telling everyone that the financial
collapse was caused by "putting two wars on a credit card".
We had the Concord Coalition and the Peterson Institute
gearing up their zombies for the Fix the Debt onslaught that
eventually saddled us with an economic discourse driven by a
stupid budget-reduction commission in the middle a deep
recession!
Hatred of governments and their spending habits had
already given us years of gradually building stagnation due
to declining public investment and a consequent secular shift
from capital formation to consumption. But the voters saw
only that all of the Serious People in both parties were
strongly in favor of this "disciplined" decimation of
government. So why in the world wouldn't they end up
supporting its continuation?
Exactly. This all having started with the 70s arrival of
monetarism, essentially a gold standard with no gold. While
no one really paid attention to gold standard (depressionary)
budgeting until Clinton I, the rhetoric was being put into
place such that, even today, the Democrats still hail
Clinton's "balanced budget" disaster as if it were God's
gift, when in reality it was the kickoff to consumers
cannibalizing the home equity just to keep pace, and the
ultimate reason the 2008 crash was so severe on household
spending. Hillary Clinton; be forewarned.
If governmental fat cats and billionaire lobbyists would
spend more time at fixing the obvious, they would have less
time for looting the public treasure. Do you see how they
could have prevented the HD, Hoboken disaster?
They could have removed the overpowered transformers that
oversupplied coulombs to the Catenary wire that supplied
current to the Pantograph of the Hoboken train that just now
crashed into the station full of passengers. All the
transformers at the end of the line should be scaled down to
prevent this sort of disaster, plus all the transformers near
a curves in the roadbed should be scaled back to prevent
excess power from speeding train up enough to jump the track.
No!
You can't always depend on the engineer's judgment to
prevent these disasters. Can't always depend on
high-tech-safety devices to prevent! Hell! High-tech can be
hacked by the North Koreans. You need to change the deep
infrastructure of power available.
Most people have a flawed understanding of inflation.
Sustainable inflation means BOTH wages and prices go up.
Most people think of inflation only in terms of price
increases so we get: Prices go up, wages stay the same: BAD.
A minimum level of inflation is necessary to allow relative
prices and wages to reset smoothly.
Prices and wages are sticky downward.
It is unsustainable for a business to deflate prices below
fixed costs.
A price can be reset downward by inflation (if inflation is
high enough) erosion and thus is less likely to be below
fixed costs.
Businesses don't cut wages of employees, they layoff
employees.
Businesses don't only cut prices, they cut production.
Workers with leverage and fixed payments cannot afford to
work for less.
Inflation allows relative wages to deflate without causing
issues with fixed payments.
Everyone agrees that deflation is bad because it is
associated with lower output and higher unemployment.
Inflation and deflation are a continuum. Inflation that is
too low is only marginally better than deflation.
Inflation must be high enough to absorb relative price resets
demanded by the majority of economic shocks or the process of
resetting wages and prices will be extended and be a
continued drag on an economy.
The evidence clearly suggests that US inflation in the 21st
Century has been much too low. A higher inflation target is
clearly necessary.
People misunderstand hyperinflation.
Hyperinflation is associated with an increased money supply.
The increased money supply is an effect of hyperinflation not
its cause.
Under hyperinflation, an economy needs increasingly larger
amounts of currency for transactions, so governments print
more money to meet demand.
Hyperinflation is caused by loss of confidence in a
currency.
Under hyperinflation, the risk of complete loss of buying
power of a currency factors into the price that vendors are
willing to accept for goods and services.
Example: In the 1865 US, Confederate currency hyper inflated,
not because too much was printed, but because the Confederate
government was facing elimination and the currency no longer
being honored. 90 percent of the currency could have been
eliminated and prices still would have hyperinflated.
Major Myths:
Printing money does not cause hyperinflation, loss of
confidence does.
A higher rate of inflation does not make hyperinflation more
likely.
A lower rate of inflation is NOT always better for an economy
than a higher rate.
Politicians and pundits need to unlearn these inflation
myths.
DrDick -> pgl...
, -1
Krugman makes some good points, adding to Wren Lewis's
excellent observations. I would point out, however, that
neither of them acknowledges that most of our media are
economic and policy illiterates and incapable of
understanding the issues, while the general public has been
sold on the idiocy that national budgets are just like
household budgets (mostly by that same illiterate media).
Perusing
Palgrave's Dictionary of Political Economy from 1894 alerted me to the odd interaction
of a pair of distinctions. The first distinction was between the study of "what is" and "what ought
to be." The second distinction was between "economic science" (or "economics") and "political economy."
Economic science presumably distinguished itself from political economy by its strict focus on describing
"what is" rather than on prescribing "what ought to be."
Palgrave's explains the latter distinction to have been at least partly motivated by the confusion
that arose over just what kind of laws -- legal or natural -- so-called "laws of political economy"
were. Even after the attempt at rebranding, however:
"...even well-educated persons still occasionally speak of "laws of political economy" as being
"violated" by the practice of statesmen, trades-unions and other individuals and bodies.
You can't "break" scientific laws. They are simply generalized descriptions of fact. A flying airplane
doesn't break the law of gravity. It conforms to a more comprehensive complex of physical laws. The
law of gravity isn't the only law.
Palgrave's Dictionary further noted that the "great complexity and variety of circumstance
which surround every economic problem are such as to render the enunciation of general laws, on a
large scale, barely possible and if possible barely useful."
So the whole "positive" economics rigamarole wasn't just about methodological rigor. It was a
purification ritual to rid the political economist of the stigma of dogma. Economists
who invoke the violation of so-called laws aren't only forfeiting any legitimate claim to
economic science. They are contaminating their profession with atavistic hokum.
Speaking of atavistic hokum, I have been trying to track down ANY accessible published
record of a trade unionist or advocate of the reduction of the hours of labor EVER overtly
expressing the belief that there is a fixed amount of work to be done or a certain quantity of labor
to be performed or whatever synonymous equivalent. There is none.
There is a reasonable explanation for this absence of evidence. The alleged false belief is expressed
in abstract language that was not vernacular to the people accused of harbouring it. It's the wrong
answer to a question workers never asked themselves.
False belief requires two conditions to be fulfilled: 1. the idea is false and 2. it is believed
by someone to be true. The matrix below shows the possible states of belief and falsehood. An idea
does not have to be true to be "not false" and it doesn't have to be believed to be false to be "not
believed to be true." The fallacy claim asserts a simplistic (and false!) polarization in which the
beliefs of the "unenlightened" are "the opposite" of economic orthodoxy.
In an 1861 letter to the Times of London "A Master Builder" alleged that George Potter,
secretary of the carpenters' union, and his associates had "absurdly argued that there was only a
certain amount of work to be done" during a 1859 strike and lock-out of the London building trades.
There is a detailed report on the 1859 strike in an 1860 report on
Trades' Societies and Strikes published by the National Association for the Promotion of
Social Science. The 23-page account presents several items of correspondence from Potter outlining
the union's position with not a hint of a lump in the load. The "certain amount of work to be done"
was what Mr. Master Builder thought he heard when he mentally translated Potter's argument
into his own capitalistic patois .
There was something else interesting in the 685-page document -- an overarching controversy about
whether or not labor was a commodity just like any other and therefore whether or not unions violated the laws of political economy by trying to regulate wages and hours
of work. The employers who maintained this were pretty dogmatic about it. "Rates of wages cannot
be settled by mediation, but must be left to the free operation of supply and demand." It's the law!
This was not simply political economy It was vulgar political economy of the most self-serving
and disingenuous kind. One has no difficulty whatsoever finding multiple evocations by employers
of the so-called laws of political economy but the elusive lump remains "one of the most tenaciously
held and generally least articulated of trade union beliefs."
Least articulated? Least articulated is an understatement. Try NEVER articulated. There
is no there there. The alleged false belief is a pure projection by the laws-of-political-economy
crowd onto the unbeliever. The
eighth annual report of the New York Bureau of Labor Statistics for the year 1890 contains the
responses of over 600 labor union locals to the question of whether and why they support an eight-hour
day. Not one claims there is only a certain quantity of work to be done.
Below is an example of what an overt statement of the theory of the lump of labor looks like.
It is not from a trade union manifesto or a pamphlet of the eight-hour day movement. It is from a
propaganda tract put out by Nassau Senior's crew of Whig-Benthamites in defense of their New Poor
Laws, which abolished outdoor relief and established the workhouse test:
The fact is, there is a certain quantity of work to be done, and the question is who ought to
do it -- those who live by their labour, and their labour only, or those who have thrown themselves
on public charity.
Can anyone find such an unequivocal articulation of the false belief by a trade unionist? Of course
not. It's not the way that workers talk about their work. Work is not an abstract, disembodied
quantity to those who do it. It is part of a lived experience. "A certain quantity of work to
be done" is political economy speak, plain and simple. It's ceteris paribus and "all else
being equal."
Paradoxically, for old school vulgarians there both is and is not a certain quantity
of work to be done. There is a certain quantity of work to be done when it comes to disparaging
the idea that workers might increase wages their through collective action:
There is a certain quantity of work to be done, and a certain number of hands to do it; if there
be much work and comparatively few hands, wages will rise; if little work and an excess of hands,
wages will fall. It is self-evident that combinations and strikes cannot alter this law. They
can neither increase capital, nor diminish population; and, therefore, it is utterly impossible,
in the very nature of things, that they ever can procure a permanent rise of wages.
But there isn't a certain amount of work when it comes to explaining why such foolish action
isn't even necessary:
There is, say they, a certain quantity of labour to be performed. This used to be performed by
hands, without machines, or with very little help from them... The principle itself is false.
There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not
hemmed in by great walls, beyond which it cannot go. By bringing our goods cheaper and better
to market, we open new markets, we get new customers, we encrease the quantity of labour necessary
to supply these, and thus we are encouraged to push on, in hope of still new advantages. A cheap
market will always be full of customers.
Five years ago I compiled a database of over 500 instances of the claim in books and journal articles
between 1890 and 2010 (
Excel file ). That's 500 claims without a single overt statement of the false belief from an
alleged believer. Six claimants (about one percent) named culprits whose argument "arguably depends
upon..." "makes an error equivalent to..." "indicates a belief..." "seems hopelessly involved in..."
"is an example of the strange conclusions to which one may be carried by clinging clinging firmly
to..." and "are driven by implicit assumptions." Each of those turns out to be a false alarm -- an
uncharitable, speculative inference. Five hundred boys crying "wolf" and not a single wolf to be
seen?
This is an astonishing performance. This compulsion to repeat is not "careless" or "dogmatic."
It's neurotic.
The patient cannot remember the whole of what is repressed in him, and what he cannot remember
may be precisely the essential part of it.. He is obliged to repeat the repressed material as
a contemporary experience instead of remembering it as something in the past.
The atavistic return of the repressed "laws of political economy" conforms faithfully to a description
toward the end of chapter 3 of Beyond the Pleasure Principle where Freud talks about the experiences
of "people with whom every human relationship ends in the same way" and gives as a "singularly affecting"
final example the events in a romantic epic, in which the hero, Tancred, repeatedly slays his beloved,
Clorinda, each time she reappears in a different guise. In this example, as Gavriel Reisner notes,
Freud reverses the compulsion to repeat, showing how we will sometimes injure others in order
to avoid injuring ourselves. Freud concludes that we often project the internal, masochistic drive
as the external, sadistic drive, victimizing others to redirect an intent toward self-victimization.
The utilitarian political economists styled themselves advocates for "the greatest good for the greatest
number" and viewed opponents as apologists for narrow special interests. The supposed laws they discovered,
which operated through isolated exchanges between individuals in the market, vindicated a system
of natural liberty and consequently freedom entailed obedience to those laws. Collective action and
collective bargaining violated the laws of individual exchange, resulting in sub-optimal outcomes.
Such perversity could only be motivated by false beliefs. The false beliefs of the adversary were
presumably the opposite of the true beliefs of the faithful: trade unions operated through tyranny
and their bizzaro-world political economy assumed that less output meant more income.
Reality discredited that polemic of political economy and calmer heads sought to rebrand the enterprise
as economics. The ersatz laws were scaled back to tendencies, which operated within the admittedly
abstract ceteris paribus pound of the economist's static model. Real life and the evolution
of economic relations operated outside the ceteris paribus pound but maybe the static model
could shed light on dynamic economic activity.
It was no longer fashionable to denounce "The Evils of Collective Bargaining in Trades' Unions"
(Thomas Cree, 1898) because it was increasingly understood that the so-called laws of supply and
demand operated quite differently with regard to the peculiar commodity of labor power (Richard Ely,
1886):
While those who sell other commodities are able to influence the price by a suitable regulation
of production, so as to bring about a satisfactory relation between supply and demand, the purchaser
of labor has it in his own power to determine the price of this commodity and the other conditions
of sale.
But even as old-guard political economy was being gradually displaced by rebranded economics in the
universities, employers' associations and business journalism emerged to propound and propagate the
old-time religion. The break with quasi-scientific, quasi-legalistic, quasi-religious pseudo-laws
was ambivalent, the reconciliation surreptitious. Employers' associations told the college teachers
what to teach. Textbooks served up a smorgasbord of the obsolescent and the innovative.
In this twilight of science and superstition, the fallacy claim offered uncertain economists a
distinctive advantage. It enabled them to continue to denounce violations of the laws of political
economy without actually having to specify which laws were being violated. That left them
exempt from any obligation to justify the validity of defunct laws. The burden of proof deftly shifted
and the providence of economic science affirmed, albeit by default.
Economic science thus gets to have its "what is" humility... and eat its "what ought to be" hubris
too! Evidence be damned.
That there was one particular offense singled out for condemnation by the self-appointed economic
police is suggested by the example given in Palgrave's Dictionary for the common confusion
between the legislative and scientific senses of law: "Thus it is often said that to regulate the
hours of labour, or to introduce differential import duties, is to break economic law." The anachronism
of such a view should require no explanation. The hours of labor are regulated.
Any proposal to repeal the Fair Labor Standards Act of 1938 on the grounds that it "breaks economic
law" would no doubt be laughed at by Paul Krugman, David Autor, Jonathan Portes or Alan Manning.
But, inadvertently, that is precisely the historical grammar of their lump-of-labor fallacy taunt.
Although there is no logical imperative that links the law-breaking claim to the fallacy claim, they
have been inseparably paired in usage from their inception. To invoke the latter is either to imply
the former or it is a non sequitur.
At long last, economists, have you no scientific self-respect ? On this labor day, 2016,
would you still insist that regulating of the hours of work breaks the laws of economics? Posted
by
Sandwichman at
12:00 AM
"Everybody except Joan Robinson agrees about capital theory." -- Robert Solow (as paraphrased
by Robinson)
An essential text in my researches on mercantilism, usury and bills of exchange is Raymond de Roover's
Gresham on Foreign Exchange, which just happens to be stored in part of SFU's library that
is under construction and thus inaccessible. The immediate unavailability of that book, however,
led to a fortuitous discovery.
I browsed in the call number section of the library's general collection where de Roover's book
would have been and Robert Leeson's Ideology and the International Economy caught my eye.
I flipped through the book and noticed on page 19 the delicious quote from Joan Robinson that, "the
free-trade doctrine is just a more subtle form of mercantilism."
The quote is from a 1966 lecture, "The New Mercantilism" that is included in a collection of essays,
Contributions to Modern Economics, which also contains "Capital Theory Up-to-Date," a 1970
review of C. E. Ferguson's The Neoclassical Theory of Production and Distribution, in which
Robinson reprises her parody of neo-Walrasian, neo-neoclassical capital "
leets. " Leets is steel spelled backward and
makes its debut in "Equilibrium Growth Models," Robinson's 1961 review of James Meade's Neo-Classical
Theory of Economic Growth. This allegedly ectoplasmic representation of capital is, in a nutshell, the crux of the "Cambridge
capital controversy," which Robinson launched with her 1952 challenge, "I leave it to those who draw
production functions to say what marginal productivity and the elasticity of substitution mean when
labour and capital are the factors of production." Looking back, in 1978, on her 1952 essays and
the "long struggle to escape... habitual modes of thought and expression," Robinson stressed that
"it was precisely from the concept of equilibrium that Keynes was struggling to escape..." Contrarily,
though:
"...textbook teaching in the department of so-called macro theory was an attempt to push Keynes
into short-term equilibrium. ... The grand neoclassical synthesis (now known as bastard Keynesianism)
was a more ambitious attempt to reduce the General Theory to a system of equilibrium."
In responding to Robinson's leets critique, Robert Solow began by acknowledging "much truth" to the
objection that "the usual production functions, allowing for more or less substitutability between
capital and labor, attribute to 'capital' a degree of malleability which contradicts common observation."
He then distinguished between the "econometrically-minded person" who would view the overly malleable
capital as a "specification error" and others -- presumably including Robinson -- who judge it to
be "a doctrinal error; and its consequence is a kind of Fall from Grace." Seven years later, Robinson
had this to say about "doctrinal disputes":
Many economists, nowadays, who are interested in practical questions are impatient of doctrinal
disputes. What does it matter, they are inclined to say, let him have his leets, what harm does
it do? But the harm that the neo-neoclassicals have done is, precisely, to block off economic
theory from any discussion of practical questions.
If one is concerned about actual unemployment in an actual economy, Robinson later
explained, one "has to discuss it in terms of processes taking place in actual history. The concept
of equilibrium is incompatible with history. It is a metaphor based on movements in space applied
to processes taking place in time." In other words, it is not just some kind of ethereal affectation
to object to the concept of equilibrium -- it is an argument with irrevocable real-world consequences.
The failure of what Robinson dismissed as "bastard Keynesianism" also had real-world doctrinal
consequences. "In the era of stagflation, this notion [that equilibrium growth can be achieved through
fiscal and monetary 'fine tuning'] has been discredited and the quantity theory of money is blossoming
afresh amongst its ruins." This 'blossoming,' incidentally, was not something Robinson welcomed.
Well, my interlibrary loan of de Roover's Gresham on Foreign Exchange has arrived, so I'm
off up the hill to pick it up.
To be continued...
"... [Dave Elder-Vass accepted my invitation to write a response to my discussion of his recent
book, ..."
"... Profit and Gift in the Digital Economy ..."
"... ). Elder-Vass is Reader in sociology at Loughborough University and author as well of ..."
"... The Causal Power of Social Structures: Emergence, Structure and Agency ..."
"... The Reality of Social Construction ..."
"... , discussed ..."
"... . Dave has emerged as a leading voice in the philosophy of social science, especially in the
context of continuing developments in the theory of critical realism. Thanks, Dave!] ..."
"... Profit and Gift in the Digital Economy ..."
"... Financial Times ..."
"... the argument for Pareto optimality of real market systems is patently false, but it continues
to be trotted out constantly. ..."
We need to move on from existing theories of the economy
Let me begin by thanking Dan Little for his very perceptive review of my book
Profit and Gift in the Digital Economy . As he rightly says, it's more ambitious than
the title might suggest, proposing that we should see our economy not simply as a capitalist market
system but as a collection of "many distinct but interconnected practices". Neither the traditional
economist's focus on firms in markets nor the Marxist political economist's focus on exploitation
of wage labour by capital is a viable way of understanding the real economy, and the book takes
some steps towards an alternative view.
Both of those perspectives have come to narrow our view of the economy in multiple dimensions.
Our very concept of the economy has been derived from the tradition that began as political economy
with Ricardo and Smith then divided into the Marxist and neoclassical traditions (of course there
are also others, but they are less influential). Although these conflict radically in some respects
they also share some problematic assumptions, and in particular the assumption that the contemporary
economy is essentially a capitalist market economy, characterised by the production of commodities
for sale by businesses employing labour and capital. As Gibson-Graham argued brilliantly in their
book
The End Of Capitalism (As We Knew It): A Feminist Critique of Political Economy , ideas seep
into the ways in which we frame the world, and when the dominant ideas and the main challengers
agree on a particular framing of the world it is particularly difficult for us to think outside
of the resulting box. In this case, the consequence is that even critics find it difficult to
avoid thinking of the economy in market-saturated terms.
The most striking problem that results from this (and one that Gibson-Graham also identified)
is that we come to think that only this form of economy is really viable in our present circumstances.
Alternatives are pie in the sky, utopian fantasies, which could never work, and so we must be
content with some version of capitalism – until we become so disillusioned that we call for its
complete overthrow, and assume that some vague label for a better system can be made real and
worthwhile by whoever leads the charge on the Bastille. But we need not go down either of these
paths once we recognise that the dominant discourses are wrong about the economy we already have.
To see that, we need to start defining the economy in functional terms: economic practices
are those that produce and transfer things that people need, whether or not they are bought and
sold. As soon as we do that, it becomes apparent that we are surrounded by non-market economic
practices already. The book highlights digital gifts – all those web pages that we load without
payment, Wikipedia's free encyclopaedia pages, and open source software, for example. But in some
respects these pale into insignificance next to the household and family economy, in which we
constantly produce things for each other and transfer them without payment. Charities, volunteering
and in many jurisdictions the donation of blood and organs are other examples.
If we are already surrounded by such practices, and if they are proliferating in the most dynamic
new areas of our economy, the idea that they are unworkably utopian becomes rather ridiculous.
We can then start to ask questions about what forms of organising are more desirable ethically.
Here the dominant traditions are equally warped. Each has a standard argument that is trotted
out at every opportunity to answer ethical questions, but in reality both standard arguments operate
as means of suppressing ethical discussions about economic questions. And both are derived from
an extraordinarily narrow theory of how the economy works.
For the mainstream tradition, there is one central mechanism in the economy: price equilibration
in the markets, a process in which prices rise and fall to bring demand and supply into balance.
If we add on an enormous list of tenuous assumptions (which economists generally admit are unjustified,
and then continue to use anyway), this leads to the theory of Pareto optimality of market outcomes:
the argument that if we used some other system for allocating economic benefits some people would
necessarily be worse off. This in turn becomes the central justification for leaving allocation
to the market (and eliminating 'interference' with the market).
There are many reasons why this argument is flawed. Let me mention just one. If even one market
is not perfectly competitive, but instead is dominated by a monopolist or partial monopolist,
then even by the standards of economists a market system does not deliver Pareto optimality, and
an alternative system might be more efficient. And in practice capitalists constantly strive to
create monopolies, and frequently succeed! Even the Financial Times recognises this:
in today's issue (Sep 15 2016) Philip Stevens argues, "Once in a while capitalism has to be rescued
from the depredations of, well, capitalists. Unconstrained, enterprise curdles into monopoly,
innovation into rent-seeking. Today's swashbuckling "disrupters" set up tomorrow's cosy cartels.
Capitalism works when someone enforces competition; and successful capitalists do not much like
competition".
So the argument for Pareto optimality of real market systems is patently false, but it
continues to be trotted out constantly. It is presented as if it provides an ethical justification
for the market economy, but its real function is to suppress discussion of economic ethics: if
the market is inherently good for everyone then, it seems, we don't need to worry about the ethics
of who gets what any more.
The Marxist tradition likewise sees one central mechanism in the economy: the extraction of
surplus from wage labour by capitalists. Their analysis of this mechanism depends on the labour
theory of value, which is no more tenable that mainstream theories of Pareto optimality (for reasons
I discuss in the book). Marxists consistently argue as if any such extraction is ethically reprehensible.
Marx himself never provides an ethical justification for such a view. On the contrary, he claims
that this is a scientific argument and disowns any ethical intent. Yet it functions in just the
same way as the argument for Pareto optimality: instead of encouraging ethical debate about who
should get what in the economy, Marxists reduce economic ethics to the single question of the
need to prevent exploitation (narrowly conceived) of productive workers.
We need to sweep away both of these apologetics, and recognise that questions of who gets what
are ethical issues that are fundamental to justice, legitimacy, and political progress in contemporary
societies. And that they are questions that don't have easy 'one argument fits all' answers. To
make progress on them we will have to make arguments about what people need and deserve that recognise
the complexity of their social situations. But it doesn't take a great deal of ethical sophistication
to recognise that the 1% have too much when many in the lower deciles are seriously impoverished,
and that the forms of impoverishment extend well beyond underpaying for productive labour.
I'm afraid that I have written much more than I intended to, and still said very little about
the steps I've taken in the book towards a more open and plausible way of theorising how the economy
works. I hope that I've at least added some more depth to the reasons Dan picked out for attempting
that task.
"This in turn becomes the central justification for leaving allocation to the market (and eliminating
'interference' with the market)."
Krugman is a neoliberal, although a softer, kinder neoliberal much better than Mankiw, Cowen
or the Republicans.
"pgl -> Peter K....
Please find me a Krugman discussion where he says nothing can be done about income inequality.
This is so straw man that the winds have blown this stupid lie away.
Wisdom, Courage and the Economy
by Paul Krugman
AUG. 15, 2016
It's fantasy football time in political punditry, as commentators try to dismiss Hillary Clinton's
dominance in the polls - yes, Clinton Derangement Syndrome is alive and well - by insisting that
she would be losing badly if only the G.O.P. had nominated someone else. We will, of course, never
know. But one thing we do know is that none of Donald Trump's actual rivals for the nomination
bore any resemblance to their imaginary candidate, a sensible, moderate conservative with good
ideas.
Let's not forget, for example, what Marco Rubio was doing in the memorized sentence he famously
couldn't stop repeating: namely, insinuating that President Obama is deliberately undermining
America. It wasn't all that different from Donald Trump's claim that Mr. Obama founded ISIS. And
let's also not forget that Jeb Bush, the ultimate establishment candidate, began his campaign
with the ludicrous assertion that his policies would double the American economy's growth rate.
Which brings me to my main subject: Mrs. Clinton's economic vision, which she summarized last
week. It's very much a center-left vision: incremental but fairly large increases in high-income
tax rates, further tightening of financial regulation, further strengthening of the social safety
net.
It's also a vision notable for its lack of outlandish assumptions. Unlike just about everyone
on the Republican side, she isn't justifying her proposals with claims that they would cause a
radical quickening of the U.S. economy. As the nonpartisan Tax Policy Center put it, she's "a
politician who would pay for what she promises."
So here's my question: Is the modesty of the Clinton economic agenda too much of a good thing?
Should accelerating U.S. economic growth be a bigger priority?
For while the U.S. has done reasonably well at recovering from the 2007-2009 financial crisis,
longer-term economic growth is looking very disappointing. Some of this is just demography, as
baby boomers retire and growth in the working-age population slows down. But there has also been
a somewhat mysterious decline in labor force participation among prime-age adults and a sharp
drop in productivity growth.
The result, according to the Congressional Budget Office, is that the growth rate of potential
G.D.P. - what the economy could produce at full employment - has declined from around 3.5 percent
per year in the late 1990s to around 1.5 percent now. And some people I respect believe that trying
to get that rate back up should be a big goal of policy.
But as I was trying to think this through, I realized that I had Reinhold Niebuhr's famous
Serenity Prayer running through my head: "Grant me the serenity to accept the things I cannot
change, courage to change the things I can, and wisdom to know the difference." I know, it's somewhat
sacrilegious applied to economic policy, but still.
After all, what do we actually know how to do when it comes to economic policy? We do, in fact,
know how to provide essential health care to everyone; most advanced countries do it. We know
how to provide basic security in retirement. We know quite a lot about how to raise the incomes
of low-paid workers.
I'd also argue that we know how to fight financial crises and recessions, although political
gridlock and deficit obsession has gotten in the way of using that knowledge.
On the other hand, what do we know about accelerating long-run growth? According to the budget
office, potential growth was pretty stable from 1970 to 2000, with nothing either Ronald Reagan
or Bill Clinton did making much obvious difference. The subsequent slide began under George W.
Bush and continued under Mr. Obama. This history suggests no easy way to change the trend.
Now, I'm not saying that we shouldn't try. I'd argue, in particular, for substantially more
infrastructure spending than Mrs. Clinton is currently proposing, and more borrowing to pay for
it. This might significantly boost growth. But it would be unwise to count on it.
Meanwhile, I don't think enough people appreciate the courage involved in focusing on things
we actually know how to do, as opposed to happy talk about wondrous growth.
When conservatives promise fantastic growth if we give them another chance at Bushonomics,
one main reason is that they don't want to admit how much they would have to cut popular programs
to pay for their tax cuts. When centrists urge us to look away from questions of distribution
and fairness and focus on growth instead, all too often they're basically running away from the
real issues that divide us politically.
So it's actually quite brave to say: "Here are the things I want to do, and here is how I'll
pay for them. Sorry, some of you will have to pay higher taxes." Wouldn't it be great if that
kind of policy honesty became the norm?
"For while the U.S. has done reasonably well at recovering from the 2007-2009 financial crisis,"
Reasonably well?
"Now, I'm not saying that we shouldn't try. I'd argue, in particular, for substantially more
infrastructure spending than Mrs. Clinton is currently proposing, and more borrowing to pay for
it. "
Then why was he for Hillary over Bernie Sanders who did campaign on substantially more infrastructure
spending?
Instead Krugman argues that we need to lower our hopes and expectations.
"According to the budget office, potential growth was pretty stable from 1970 to 2000, with
nothing either Ronald Reagan or Bill Clinton did making much obvious difference. "
So the market price mechanism rules and we government can't do much?
"So here's my question: Is the modesty of the Clinton economic agenda too much of a good thing?
Should accelerating U.S. economic growth be a bigger priority?"
Her agenda is unambitious. It is "center-left" as Krugman puts it which is partly why her poll
numbers are in the dumps.
" It's very much a center-left vision: incremental but fairly large increases in high-income
tax rates, further tightening of financial regulation, further strengthening of the social safety
net."
Point me to a blog post where Krugman spells out exactly where he explains how Clinton proposes
to do things.
President Trump has proposed a $25000 standard deduction for each of us, but $50,000 for married
couples who prove that they have consummated. Hey! IRS Agents like to watch.
Can you see how this minimum federal standard-deduction is de-fang-ed by lower state-standard-deduction?
Tell me something!
When state minimum wage is $5 / hour but federal minimum wage is $9 / hour, does employer hiring
in same state have to pay $5 or $9? Do you see how that works?
State's rights are dissolved by the federal statute.
This dissolution of state's rights means that Congress could as easily pass a law to establish
minimum standard-deduction for all state's income tax collection. Tell me something else!
Would such a minimum standard deduction on all state income tax collection cause any unemployment?
Would it bankrupt any small businesses?
Of course not! By contrast, the federal minimum wage regulation does cause unemployment, does
close down some employers of entry level workers, a danger to employment and poverty.
Economics is all about opportunity costs. The opportunity cost of federal minimum wage is the
possibility of federal minimum standard deduction, a more harmless subsidy.
State's rights are dissolved by the federal statute.
This dissolution of state's rights means that Congress could as easily pass a law to establish
minimum standard-deduction for all state's income tax collection. Tell me something else!
Would such a minimum standard deduction on all state income tax collection cause any unemployment?
Would it bankrupt any small businesses?
Of course not! By contrast, the federal minimum wage regulation does cause unemployment, does
close down some employers of entry level workers, a danger to employment and poverty.
[ Ah, understood. A clever and important argument that I am thinking through. Like the rational
for the federal Earned Income Tax Credit. ]
The United States federal earned income tax credit or earned income credit (EITC) is a refundable
tax credit for low- to moderate-income working individuals and couples, particularly those with
children. The amount of EITC benefit depends on a recipient's income and number of children. For
a person or couple to claim one or more persons as their qualifying child, requirements such as
relationship, age, and shared residency must be met. In the 2013 tax year, working families, if
they have children, with annual incomes below $37,870 to $51,567 (depending on the number of dependent
children) may be eligible for the federal EITC. Childless workers who have incomes below about
$14,340 ($19,680 for a married couple) can receive a very small EITC benefit.
Growth is a fixed investment. The investments have been made. Especially older societies, consumption
and leisure become more important the nature of purchases change.
I see Space Exploration as the only thing that will change that narrative. That would probably
create another computer revolution, industrial revolution kind of change. People just aren't into
it thought. People are happy with the dopamine economy and just want to get high.
"Second, less relevant to Sims but very relevant to other helicopter people, a deficit ultimately
financed by inflation is just as much of a burden on households as one ultimately financed by
ordinary taxes, because inflation is a kind of tax on money holders. From a Ricardian point of
view, there's no difference.
So I'm trying to figure out exactly what Sims is saying. What, ahem, is his model?"
Inflation hits people with savings who don't have debt.
Inflation helps people with debt by eating away at the principle. Inflation signals tight job
markets with growing incomes as well. That's why you have price pressures. That's why low inflation
and loose job markets can be just as bad as deflation.
Who taxes hit depends on how the government has set up its tax system. Some people and corporations
like Apple, Mitt Romney and presumably Trump pay little in taxes.
Capitalism was invented by Sephardic Jews who immigrated to Iberia in the 15th and 16th century.
They eventually invented market based economy.
By 1600's they had a swirling business sector located in Amsterdam and William the Orange spread
it into England during the latter 17th century, creating the Bank of England in 1694 and became
the worlds central bank via commodity money.
There is nothing to see here people. It is ponzi scheme and nothing more. Capitalism has only
made it because of liberalism. You have to be open to market expansion and have the resources
to make it work. It is why "konservatism" is a farce. One, the konservatives were the ones that
pushed the decaying "feudal" aristocracy to merge with the merchant caste in the first place and
create the bourgeois, despite the aristocracy being the birth place of most of the technology
we have now. This morphed into what we call capitalism. Basically the Jews are the Parasites(Finance),
"Whites"(the capitalists, which has a abnormal % of homosexuals) the Host and the non-whites the
cattle(mass famines and genocide during the 19th and 20th century are what really powered the
manpower behind anti-capitalism. Aka the British Empire led to 150 million deaths globally. All
global fraternities and organizations like the Skull in Bones to the Council of Foreign relations
are a conservative institutions. Yet, those cons won't admit it. As Butler said about his Pacific
"campaigns" is is all about spreading capitalism. It is indeed a racket.
These same forces are what created "Protestantism" and "Mormanism", which were a global financed
movement. First led by Catholic turncoat Martin Luther, who was financed by the Jews, then run
by Jewish John Cohen(Calvin) who spread the judeo-christian revolution globally. This also led
to the farce of "sovereignty" nonsense Mormons have tried to use in the last 40 years to push
a plutocracy. Then the other bible thumpers caught on. Destroy the nation, bring on the market
totalitarianism. Dumb sheep.
This is what we have long been used to from Mr. Groves. Ramblings in this style pretty much comment
on their own merit and don't need to be graced with rebuttals, as that implies an acknowledgement
that at some level a sort of identifiable argument was made.
"America's economic performance peaked in the late 1990s, and erosion in crucial economic indicators
such as the rate of economic growth, productivity growth, job growth, and investment began well
before the Great Recession.
Workforce participation, the proportion of Americans in the productive workforce, peaked in
1997. With fewer working-age men and women in the workforce, per-capita income for the U.S. is
reduced.
Median real household income has declined since 1999, with incomes stagnating across virtually
all income levels. Despite a welcome jump in 2015, median household income remains below the peak
attained in 1999, 17 years ago. Moreover, stagnating income and limited job prospects have disproportionately
affected lower-income and lower-skilled Americans, leading inequality to rise."
and something I have been going hoarse saying:
"The U.S. lacks an economic strategy, especially at the federal level. The implicit strategy
has been to trust the Federal Reserve to solve our problems through monetary policy."
the charts alone are worth the effort to check out this excellent study.
" Neither the traditional economist's focus on firms in markets nor the Marxist political economist's
focus on exploitation of wage labour by capital is a viable way of understanding the real economy,
and the book takes some steps towards an alternative view. "
Why did East Asia become Star Trek instead of the US? Why didn't the hopeful visions of mid-1960's
America become reality for the Americans? Read Ha Joon Chang if you want to know why East Asia
is on track to be as rich as the US/USSR portrayed in 2001 Space Odyssey. Western provincialism,
or perhaps the corruption of economists by looting banks (as documented by Charles Ferguson) has
led Western economists to offer really, really terrible advice to their own governments: free
trade forever, don't worry about massive deindustrialization, there will be new jobs, there's
no chance the US ends up like Mali.
One of the big problems of economics is how little of our society it explains. Exactly how many
people of either sex actually sit down and decide to have children based on a return on investment
calculation? How many people spend time with their friends and families based on some kind of
maximization function? When you visit a dying friend or family member at the hospital is this
the result of some gift exchange calculus? What about the time one spends listening to music,
watching a baseball game or browsing Facebook?
It might help to start with anthropology and think about human societies and their organization.
Start with something like the Lynds' Middletown books to get away from the implicit exoticism
that the term anthropology invokes. Societies have certain basic functions: raising children,
caring for those who cannot care for themselves, earning a living, spending free time, recognizing
one's place in the universe, participating in civil society and so on. Economics only looks at
a tiny piece of this, just part of the earning a living section. It's as if chemists never studied
anything except hydrogen molecules.
Economics really does need some new thinking. Starting with Pareto optimality is simply the
argument that we live in the best of all possible worlds. It is so transparently bogus that it
is hard to believe that anyone ever took it seriously. Oil lamps were hard on torch makers and
the automobile destroyed the buggy whip business. We need an economic system to regulate the production
and allocation of goods and services, but we also need child custody laws and burial customs.
I'm a capitalist at heart, but I view capitalism as I view fire. There is nothing quite like
fire for cooking food, lighting the dark, scaring wild animals, firing pottery and so on, but
fire also needs to be carefully controlled, constantly monitored and subject to societal sanction.
Economics fashions itself (or is being fashioned) as a science, and as such has to restrict itself
to measurable, identifiable, and (in principle) predictable phenomena.
What you are describing is more in the realm of philosophy, psychology, and moral judgement.
The problem starts when the economics profession and related occupations (business media, etc.)
pretend to have identified "market mechanisms" as the unifying theory of society and world, including
"explaining" social dynamics in terms of "objective/rational" market transactions and motivations.
But the desire for grand unified theories and "whole truths" is ever strong, lending credence
and support to such efforts.
Now is the time to push for my leisure theory of value. All goods and services traded in the economy
are intermediate goods, and value is actually created during leisure time!
The sugar industry paid scientists in the 1960s to downplay the link
between sugar and heart disease and promote saturated fat as the culprit
instead.
The internal sugar industry documents, recently discovered by a
researcher at UCSF and published Monday in JAMA Internal Medicine,
suggest that five decades of research into the role of nutrition and
heart disease may have been largely shaped by the sugar industry.
A trade group called the Sugar Research Foundation, known today as
the Sugar Association, paid three Harvard scientists the equivalent of
about $50,000 in today's dollars to publish a 1967 review of sugar, fat
and heart research.
The studies used in the review were handpicked by the sugar group.
The article, published in the prestigious
New England Journal of
Medicine
, minimized the link between sugar and heart health and cast
aspersions on the role of saturated fat.
One of the scientists paid by the sugar industry was D. Mark Hegsted,
who went on to become the head of nutrition at the USDA, where in 1977
he helped draft the forerunner to the government's dietary guidelines.
Shocked? That was decades ago. But today, the sugar industry is
STILL
paying politicians for ironclad protection from competition:
Imports of sugar into the United States are governed by tariff-rate
quotas (TRQs), which allow a certain quantity of sugar to enter the
country under a low tariff [meaning the rest is walled out].
USDA establishes the annual quota volumes for each federal fiscal
year (beginning October 1) and the U.S. Trade Representative allocates
the TRQs among countries.
It can go both ways though. The WHO managed to
declare glyphosate 'probably carcinogenic' by expressly
ignoring the substantial evidence to the contrary.
I think that falls under "buying scientists".
There is no global warming and glyphosate is
better for you than juice, just like fracking
water prevents cavities.
also not sure you understand
straw manning, I referred directly
to haygoods comment, re buying science,
you brought up the ancillary/irrelevant
glyphosate.
Sugar is socially poisonous, at
the least, see diabetes
Image result for straw manning
"A straw man is a common form of
argument and is an informal fallacy
based on giving the impression of
refuting an opponent's argument,
while actually refuting an argument
that was not advanced by that opponent."
haygood didn't say anything about
glyphosate, it's relevant to sugar
how?
http://www.nature.com/news/debate-rages-over-herbicide-s-cancer-risk-1.18794
from the link…"Finally, the
two bodies looked at different
evidence. EFSA assessed some
studies conducted by industry
groups that were excluded from
the IARC analysis. The IARC
team looked only at evidence
that is in the public domain
and available to independent
scientists to review, says Kathryn
Guyton, a senior toxicologist
at the IARC and one of the authors
of its glyphosate study2."
what's that? the pro glyphosate
used industry science? Say it
ain't so!
Also…"Firstly, the two bodies
were not assessing exactly the
same thing. EFSA looked only
at glyphosate, whereas IARC
looked at both the chemical
itself and the products it is
used in. EFSA says that some
studies have shown genotoxic
effects (DNA damage) from products
containing glyphosate and some
have not, and it is likely that
some of these effects are down
to other compounds in these
products, rather than glyphosate
itself."
and last but not least..does
efsa think glyphosate is safe?".Not
entirely. EFSA revised existing
limits on safe daily doses for
exposure to glyphosate. It also
proposes - for the first time
in the European Union - that
there should be a limit on how
much glyphosate is safe for
a person to ingest in a short
period of time."
like ambrits comment on codes
vs. what contractors actually
do (there's the right way, and
there's the way we're doing
it)you're trusting those pesticide
applicators measuring skills
and concern for others health
more than i do.
It's not the main chlorinated
pesticides in Agent Orange
that fokks us veterans and
Vietnamese over, it's the
stuff that gets produced
in side reactions, molecules
like 2,3,7,8-dibenzodioxins
and -dibenzofurans. Which
strongly bioaccumulate and
kind of hang around forever.
As do the other shitbits
spewed out by Our Imperial
Forces, like depleted uranium
with its mix of go-alongs,
and so on…
Fundamental point is that we humans, taken as
a bunch, are pretty much worthless as participants
in "The Great Disney Circle of Life…" Not just worthless,
but actively "disruptive" and patently destructive.
Sugar bad, now FL counties spraying shit to try
to ":control" Aeides aegiptii mosquitoes that "carry
the Deadly Zika Virus" and thereby kill off all
kinds of pollinators. Because middle class, or some
shit…
I'd say doing things like completely ignoring
a multi-decade USDA study that found no harmful
effects resulted from contact with glyphosate reveals
bias and a lack of genuine desire to honestly appraise
the evidence. And even in the absence (rather, absent
from the WHO review) of evidence that the stuff
isn't harmful, the evidence that it is dangerous
that they included was pitiful at best. And this
is presumably the best 'proof' they could scrounge
up.
"... The deficit obsession that governments have shown since 2010 has helped produce a recovery that has been far too slow, even in the US. ..."
"... The Zero Lower Bound (ZLB) raises an acute problem for what I call the consensus assignment (leaving macroeconomic stabilisation to an independent, inflation targeting central bank), but add in austerity and you get major macroeconomic costs. ICBs appear to rule out the one policy (money financed fiscal expansion) that could combat both the ZLB and deficit obsession. ..."
Simon Wren-Lewis has a follow-up to his recent post on central bank independence:
The 'strong case' critically examined : Perhaps it was too unconventional
setting out an argument (against independent central banks, ICBs) that
I did not agree with, even though I made it abundantly clear that was what
I was doing. It was too much for one blogger, who reacted by deciding that
I did agree with the argument, and sent a series of tweets that are best
forgotten. But my reason for doing it was also clear enough from the final
paragraph. The problem it addresses is real enough, and the problem appears
to be linked to the creation of ICBs.
The deficit obsession that governments have shown since 2010 has
helped produce a recovery that has been far too slow, even in the US.
It would be nice if we could treat that obsession as some kind of aberration,
never to be repeated, but unfortunately that looks way too optimistic.
The Zero Lower Bound (ZLB) raises an acute problem for what I call
the consensus assignment (leaving macroeconomic stabilisation to an independent,
inflation targeting central bank), but add in austerity and you get major
macroeconomic costs. ICBs appear to rule out the one policy (money financed
fiscal expansion) that could combat both the ZLB and deficit obsession.
I wanted to put that point as strongly as I could. Miles Kimball does
something similar
here , although without the fiscal policy perspective ...
Skipping ahead (and omitting quite a bit of the argument):
... The basic flaw with my strong argument against ICBs is that the ultimate
problem (in terms of not ending recessions quickly) lies with governments.
There would be no problem if governments could only wait until the recession
was over (and interest rates were safely above the ZLB) before tackling
their deficit, but the recession was not over in 2010. Given this failure
by governments, it seems odd to then suggest that the solution to this problem
is to give governments back some of the power they have lost. Or to put
the same point another way, imagine the Republican Congress in charge of
US monetary policy.
But if abolishing ICBs is not the answer to the very real problem I set
out, does that mean we have to be satisfied with the workarounds? One possibility
that a few economists
like Miles Kimball have argued for is to effectively abolish paper money
as we know it, so central banks can set negative interest rates. Another
possibility is that the government (in its saner moments) gives ICBs
the power to undertake helicopter money.
Both are complete solutions to
the ZLB problem rather than workarounds. Both can be accused of endangering
the value of money. But note also that both proposals gain strength from
the existence of ICBs: governments are highly unlikely to ever have the
courage to set negative rates, and ICBs stop the flight times of helicopters
being linked to elections.
These are big (important and complex) issues. There should be no taboos
that mean certain issues cannot be raised in polite company. I still think
blog posts are the best medium we have to discuss these issues, hopefully
free from distractions like partisan politics.
"... We don't get to do many controlled experiments in economics, so history is mainly what we have to go on. ..."
"... What did orthodox salt-water macroeconomists believe about disinflation on the eve of the Paul Volcker contraction? As it happens, we have an excellent source document: James Tobin's "Stabilization Policy Ten Years After," * presented at Brookings in early 1980. ..."
"... Unemployment shot up faster than in Tobin's simulation, then came down faster, because the Fed didn't follow the simple rule he assumed. But the basic shape - a clockwise spiral, with inflation coming down thanks to a period of very high unemployment - was very much in line with what standard Keynesian macro said would happen. ..."
"... trade between any two regional economies is roughly proportional to the product of their GDPs and inversely related to distance. Neat. ..."
We don't get to do many controlled experiments in economics, so history
is mainly what we have to go on. Unfortunately, many people who imagine
that they know how the economy works go with what they think they heard
about history, not with what actually happened. And I'm not just talking
about the great unwashed; quite a few well-known economists seem not to
have heard about FRED, or at least haven't picked up the habit of doing
a quick scan of the actual data before making assertions about facts.
And there's one decade in particular where people are weirdly unaware
of the realities: the 1980s. A lot of this has to do with Reaganolatry:
the usual suspects have repeated so often that it was a time of extraordinary,
incredible success that I often encounter liberals who believe that something
special must have happened, that somehow the events were at odds with what
the prevailing macroeconomic models of the time said would happen.
But nothing special happened, aside from the unexpected willingness of
the Federal Reserve to impose incredibly high unemployment in order to bring
inflation down.
What did orthodox salt-water macroeconomists believe about disinflation
on the eve of the Paul Volcker contraction? As it happens, we have an excellent
source document: James Tobin's "Stabilization Policy Ten Years After," *
presented at Brookings in early 1980. Among other things, Tobin laid out
a hypothetical disinflation scenario based on the kind of Keynesian model
people like him were using at the time (which was also the model laid out
in the Dornbusch-Fischer and Robert Gordon textbooks).
These models included
an expectations-augmented Phillips curve, ** with no long-run tradeoff between
inflation and unemployment - but expectations were assumed to adjust gradually
based on experience, rather than changing rapidly via forward-looking assessments
of Fed policy.
This was, of course, the kind of model the Chicago School dismissed scathingly
as worthy of nothing but ridicule, and which was more or less driven out
of the academic literature, even as it continued to be the basis of a lot
of policy analysis.
So here was Tobin's picture:
[Picture]
Here's what actually happened:
[Graph]
Unemployment shot up faster than in Tobin's simulation, then came down
faster, because the Fed didn't follow the simple rule he assumed. But the
basic shape - a clockwise spiral, with inflation coming down thanks to a
period of very high unemployment - was very much in line with what standard
Keynesian macro said would happen. On the other hand, there was no sign
whatsoever of the kind of painless disinflation rational-expectations models
suggested would happen if the Fed credibly announced its disinflation plans.
Now that's fun: Adam Davidson tells us * about trade in the ancient Near
East, as documented by archives found in Kanesh - and reports that the volume
of trade between Kanesh and various trading partners seems to fit a gravity
equation: trade between any two regional economies is roughly proportional
to the product of their GDPs and inversely related to distance. Neat.
But what does the seemingly universal applicability of the gravity equation
tell us? Davidson suggests that it's an indication that policy can't do
much to shape trade. That's not where I would have gone, and it's not where
those who have studied the issue closely ** have gone.
Here's my take: Think about two cities with the same per capita GDP -
we can relax that assumption in a minute. They will trade if residents of
city A find things being sold by residents of city B that they want, and
vice versa.
So what's the probability that an A resident will find a B resident with
something he or she wants? Applying what one of my old teachers used to
call the principle of insignificant reason, a good first guess would be
that this probability is proportional to the number of potential sellers
- B's population.
And how many such desirous buyers will there be? Again applying insignificant
reason, a good guess is that it's proportional to the number of potential
buyers - A's population.
So other things equal we would expect exports from B to A to be proportional
to the product of their populations.
What if GDP per capita isn't the same? You can think of this as increasing
the "effective" population, both in terms of producers and in terms of consumers.
So the attraction is now the product of the GDPs.
Is there anything surprising about the fact that this relationship works
pretty well? A bit. Standard pre-1980 trade theory envisaged countries specializing
in accord with their comparative advantage - England does cloth, Portugal
wine. And these models suggest that how much countries trade should have
a lot to do with whether they are similar or not. Cloth exporters shouldn't
be selling much to each other, but should instead do their trading with
wine exporters. In reality, however, there's basically no sign of any such
effect: even seemingly similar countries trade about as much as a gravity
equation says they should.
Calibrated models of trade have long dealt with this reality, somewhat
awkwardly, with the so-called Armington assumption, *** which simply assumes
that even the apparently same good from different countries is treated by
consumers as a differentiated product - a banana isn't just a banana, it's
an Ecuador banana or a Saint Lucia banana, which are imperfect substitutes.
The new trade theory some of us introduced circa 1980 - or as some now call
it, the "old new trade theory" - does a bit more, and possibly better, by
introducing monopolistic competition and increasing returns to explain why
even similar countries produce differentiated products.
And there's also a puzzle about both the effect of distance and the effect
of borders, both of which seem larger than concrete costs can explain. Work
continues.
Does any of this suggest the irrelevance of trade policy? Not really.
Changes in trade policy do have obvious effects on how much countries trade.
Look at what happened when Mexico opened up starting in the late 1980s,
as compared with Canada, which was fairly open all along - and which, like
Mexico, mainly trades with the US:
[Graph]
So what does gravity tell us? Simple Ricardian comparative advantage
is clearly incomplete; the process of international trade is subtler, with
invisible as well as visible costs. Not trivial, but not too unsettling.
And gravity models are very useful as a benchmark for assessing other effects.
One morning, just before dawn, an old man named Assur-idi loaded up two
black donkeys. Their burden was 147 pounds of tin, along with 30 textiles,
known as kutanum, that were of such rare value that a single garment cost
as much as a slave. Assur-idi had spent his life's savings on the items,
because he knew that if he could convey them over the Taurus Mountains to
Kanesh, 600 miles away, he could sell them for twice what he paid.
At the city gate, Assur-idi ran into a younger acquaintance, Sharrum-Adad,
who said he was heading on the same journey. He offered to take the older
man's donkeys with him and ship the profits back. The two struck a hurried
agreement and wrote it up, though they forgot to record some details. Later,
Sharrum-Adad claimed he never knew how many textiles he had been given.
Assur-idi spent the subsequent weeks sending increasingly panicked letters
to his sons in Kanesh, demanding they track down Sharrum-Adad and claim
his profits.
These letters survive as part of a stunning, nearly miraculous window
into ancient economics. In general, we know few details about economic life
before roughly 1000 A.D. But during one 30-year period - between 1890 and
1860 B.C. - for one community in the town of Kanesh, we know a great deal.
Through a series of incredibly unlikely events, archaeologists have uncovered
the comprehensive written archive of a few hundred traders who left their
hometown Assur, in what is now Iraq, to set up importing businesses in Kanesh,
which sat roughly at the center of present-day Turkey and functioned as
the hub of a massive global trading system that stretched from Central Asia
to Europe. Kanesh's traders sent letters back and forth with their business
partners, carefully written on clay tablets and stored at home in special
vaults. Tens of thousands of these records remain. One economist recently
told me that he would love to have as much candid information about businesses
today as we have about the dealings - and in particular, about the trading
practices - of this 4,000-year-old community.
Trade is central to every key economic issue we face. Whether the subject
is inequality, financial instability or the future of work, it all comes
down to a discussion of trade: trade of manufactured goods with China, trade
of bonds with Europe, trade over the Internet or enabled by mobile apps.
For decades, economists have sought to understand how trade works. Can we
shape trade to achieve different outcomes, like a resurgence of manufacturing
or a lessening of inequality? Or does trade operate according to fairly
fixed rules, making it resistant to conscious planning?
Economists, creating models of trade, have faced a challenge, because
their data have derived exclusively from the modern world. Are their models
universal or merely reflections of our time? It's a crucial question, because
many in our country would like to change our trading system to protect American
jobs and to improve working conditions here and abroad. The archives of
Kanesh have proved to be the greatest single source of information about
trade from an entirely premodern milieu.
In a beautifully detailed new book - ''Ancient Kanesh,'' written by a
scholar of the archive, Mogens Trolle Larsen, to be published by Cambridge
University Press later this year - we meet dozens of the traders of Kanesh
and their relatives back home in Assur. Larsen has been able to construct
family trees, detailing how siblings and cousins, parents and spouses, traded
with one another and often worked against one another. We meet struggling
businessmen, like Assur-idi, and brilliant entrepreneurs, like Shalim-Assur,
who built a wealthy dynasty that lasted generations. In 2003, while covering
the war in Iraq, I traveled to many ancient archaeological sites; the huge
burial mounds, the carvings celebrating kings as relatives to the gods,
all gave the impression of a despotic land in which a tiny handful of aristocrats
and priests enjoyed dictatorial control. But the Kanesh documents show that
at least some citizens had enormous power over their own livelihoods, achieving
wealth and power through their own entrepreneurial endeavors.
The details of daily life are amazing, but another scholar, Gojko Barjamovic,
of Harvard, realized that the archive also offered insight into something
potentially more compelling. Many of the texts enumerate specific business
details: the price of goods purchased and sold, the interest ate on debt,
the costs of transporting goods and the various taxes in the many city-states
that the donkey caravans passed on the long journey from Assur to Kanesh.
Like most people who have studied Kanesh, Barjamovic is an Assyriologist,
an expert in ancient languages and culture. Earlier this year, he joined
some economists, as well as some other Assyriologists and archaeologists,
on a team that analyzed Kanesh's financial statistics. The picture that
emerged of economic life is staggeringly advanced. The traders of Kanesh
used financial tools that were remarkably similar to checks, bonds and joint-stock
companies. They had something like venture-capital firms that created diversified
portfolios of risky trades. And they even had structured financial products:
People would buy outstanding debt, sell it to others and use it as collateral
to finance new businesses. The 30 years for which we have records appear
to have been a time of remarkable financial innovation....
Multipliers: What We Should Have Known
By Paul Krugman
There's a very nice interview * with Olivier Blanchard, who is leaving
the International Monetary Fund, in which among other things Olivier says
the right thing about changing one's mind:
"With respect to outside, the issue I have been struck by is how to indicate
a change of views without triggering headlines of 'mistakes,' 'Fund incompetence,'
and so on. Here, I am thinking of fiscal multipliers. The underestimation
of the drag on output from fiscal consolidation was not a 'mistake' in the
way people think of mistakes, e.g. mixing up two cells in an excel sheet.
It was based on a substantial amount of prior evidence, but evidence which
turned out to be misleading in an environment where interest rates are close
to zero and monetary policy cannot offset the negative effects of budget
cuts. We got a lot of flak for admitting the underestimation, and I suspect
we shall continue to get more flak in the future. But, at the same time,
I believe that we, the Fund, substantially increased our credibility, and
used better assumptions later on. It was painful, but it was useful."
Indeed. There are a lot of people out there whose idea of a substantive
argument is "you used to say X, now you say Y" - never mind the reasons
why you changed your view, and whether it was right to do so.It's important
not to fall into the trap of being afraid to let new evidence or analysis
speak.
One thing I would say, however, is that on this particular issue the
Fund should have known better. Olivier says that the evidence "turned out
to be misleading in an environment where interest rates are close to zero
and monetary policy cannot offset the negative effects of budget cuts",
but didn't we know that? I certainly did. **
And let me also beat one of my favorite drums: the prediction that multipliers
would be much larger in a liquidity trap came out of IS-LMish macro (or,
to be fair, New Keynesian models) and has been overwhelmingly confirmed
by experience. So this was yet another victory for Keynesian analysis, the
success story nobody will believe.
Barry Eichengreen and Kevin O'Rourke have lately been scoring a series
of research coups, based on the combination of historical perspective and
a global view. Most famously, they showed that on a global basis the first
year of the current crisis was every bit as severe * as the first year of
the Great Depression.
Now they and collaborators have a new piece on policy effects, ** especially
fiscal multipliers.
The background here is that there are two problems with estimating multipliers
relevant to our current situation. First, you need to look at what happens
under liquidity-trap conditions - and except in Japan,these haven't prevailed
anywhere since the 1930s. The second is that in the United States, fiscal
policy was never forceful enough to provide a useful natural experiment.
We didn't have a really big fiscal expansion until World War II; and WWII
isn't a good experiment because the surge in defense spending was accompanied
by government policies that suppressed private demand, such as rationing
and restrictions on investment. (I really, really don't understand why this
point has been so hard to get across.)
What E&R do here is use a broad international cross-section to overcome
this problem. This works because a number of countries had major military
buildups during the 1930s - fiscal expansions that can be regarded as exogenous
to the economic situation, since they were
"driven above all by Hitler's rearmament programmes and other nations'
efforts to match the Nazis in this sphere, and by one-off events like Italy's
war in Abyssinia."
What do E&R find? Initial fiscal multipliers of 2 or more, although they
shrink over time. Yes, fiscal expansion is expansionary.
So how does the decade of the 1980s end up being perceived as a defeat
for Keynesians? To see it that way you have to systematically misrepresent
both what happened to the economy and what people like Tobin were saying
at the time. In reality, Tobinesque economics looks very good in the light
of events.
In economics, the Phillips curve is a historical inverse relationship
between rates of unemployment and corresponding rates of inflation that
result in an economy. Stated simply, decreased unemployment, (i.e. increased
levels of employment) in an economy will correlate with higher rates of
inflation.
"... Science and scientists are now heavily politicized. A lot of them are just political charlatans spreading nonsense for money and abusing mathematics, using it as smoke screen to hide their disgraceful actions. Take for example neoclassical economists. ..."
"... Many scientists now have connections and receive funding from military industrial complex or other industrial lobbies which also affects objectivity. ..."
"... Scientists with integrity of Rutherford are extinct. Now this is "He who pays the piper calls the tune" all over the science. ..."
"... That does not exclude objectivity, but it now can never be taken for granted. Scientific schools struggles can now well be the struggles of influence groups standing behind particular groups of scientists. The attitude should be like in the Russian proverb that Reagan used to love so much: "Trust but verify" ..."
"... How about such thing as Lysenkoism? Is not this a cancer for science, from which there is essentially cures are as difficult to obtain and are as destructive as for regular cancer. ..."
"... IMHO you can view neoclassical economics as a cancer or a modern version of Lysenkoism (and a very successful, dominant one), if you wish (with due apologies to "strict" supply-demand equilibrium believers; of course, in a long run everything comes to equilibrium, but in a long run we all are dead ;-). ..."
"... How the existence and success of Lysenkoism ( let's say in the form of neoclassical economics ) correlates with your optimism about modern science and scientists ? That is the question to be answered. ..."
Science and scientists are now heavily politicized. A lot of them
are just political charlatans spreading nonsense for money and abusing mathematics,
using it as smoke screen to hide their disgraceful actions. Take for example
neoclassical economists.
Many scientists now have connections and receive funding from military
industrial complex or other industrial lobbies which also affects objectivity.
Scientists with integrity of Rutherford are extinct. Now this is
"He who pays the piper calls the tune" all over the science.
As such most of them (outside few fields yet not politicized enough,
like pure mathematics ) became the same prostitutes for the elite as journalists.
That does not exclude objectivity, but it now can never be taken
for granted. Scientific schools struggles can now well be the struggles
of influence groups standing behind particular groups of scientists. The
attitude should be like in the Russian proverb that Reagan used to love
so much: "Trust but verify"
"But…when it comes to fossil fuels, the political pressure is coming
from the fossil fuel industry, to suppress the truth about it's problems."
I believe that to be just flat out wrong. The fossil fuel industry will
get along just fine, it is baked in the cake from the standpoint the entirety
of our worlds civilization is based on fossil fuels. The advancement of
our civilization required it, the continuation of our civilization requires
it
(at least in the short and medium terms.) That may/will in change in
time because of the depletion of resources and the increasing cost to recover,
but as Ron and others have pointed out, not until we have consumed every
last drop of recoverable oil, nat gas and coal. Best case it will be photo
finish to see if the world can roll out renewables before the impact of
peak oil to seriously wreck havoc on the worlds economy and standard of
living for those around when it happens. To the degree there is political
pressure, I would suggest you try to understand the business side of the
issues as they relate to the tax structures for local and state finances
and even on a federal level. I suppose you have paid the gasoline tax that
keeps roads in repair? I think you understand that oil and gas held in private
hands are considered real property right?
Everyone who owns minerals, just like the lands the oil and gas sits
under, have a vested interest in the value and are taxed providing income
to a great number of people including school systems all across our state.
The business interest and employment in all aspects of the production, transportation,
refining, and distribution. The motor car companies, the mechanics, the
quick stops all across the country. The vested interest in the status quo
are far reaching and are seen widely as a benefit. The idea that if just
Exxon and the Koch brothers would just shut up everything would be hunky-dory
is beyond naive!
How about such thing as Lysenkoism? Is not this a cancer for science,
from which there is essentially cures are as difficult to obtain and are
as destructive as for regular cancer.
IMHO you can view neoclassical economics as a cancer or a modern
version of Lysenkoism (and a very successful, dominant one), if you wish
(with due apologies to "strict" supply-demand equilibrium believers; of
course, in a long run everything comes to equilibrium, but in a long run
we all are dead ;-).
How the existence and success of Lysenkoism ( let's say in the form
of neoclassical economics ) correlates with your optimism about modern science
and scientists ? That is the question to be answered.
"... The scholarly publishing world has become quite a racket. I work at a small
community college and our monograph budget has been eaten away over the years due
to the high & continually increasing costs of subscriptions to academic journals,
trade and general magazines. ..."
"... In 2015, Elsevier reported a profit margin of approximately 37% on revenues
of £2.070 billion. ..."
"... I'm sensing a resurgence of the conversation, what with trade pacts and
digital rights and whatnot. How can an abstraction have wants? Information may be
very cheap to reproduce but takes energy to maintain. ..."
As a librarian in Canada, I can tell you that my profession has long
advocated for open access to scholarly research. There are many institutions
with policies that ask or expect their faculty to publish in open access
journal or institutional repositories.
https://en.m.wikipedia.org/wiki/Open_access
The scholarly publishing world has become quite a racket. I work
at a small community college and our monograph budget has been eaten away
over the years due to the high & continually increasing costs of subscriptions
to academic journals, trade and general magazines.
It is crazy that libraries in public institutions are paying so much
money to access research funded wholy or in part by themselves or other
public institutions. Advocating for open access and advising faculty about
their options and advocating that they not give away copyright to big publishers
like Wiley and Elsevier is part of what many academic librarians do these
days.
I'm sensing a resurgence of the conversation, what with trade pacts
and digital rights and whatnot. How can an abstraction have wants? Information
may be very cheap to reproduce but takes energy to maintain.
"... By Daniela Gabor is associate professor in economics at the University of the West of England, Bristol. Originally published at the Institute for New Economic Thinking website ..."
"... For a detailed account see Gabor, D. (2016) The (impossible) repo trinity : the political economy of repo markets, Review of International Political Economy, doi 10.1080/09692290.2016.1207699 ..."
Since the 1980s, central banks have been increasingly freed from
fiscal dominance , the obligation to monetize government debt. The new regime of monetary dominance
celebrated the (price) stability benefits of insulating scientific monetary policy from poorly theorized,
highly politicized fiscal policy. Yet the growing dominance of the 'monetary science, fiscal
alchemy' view in both academia and
policy circles played a critical role in the rapid rise of shadow banking. The untold story of shadow
banking is the story of (failed) attempts to separate monetary from fiscal policy, and of the bordeland
that connects them, mapped onto the
repo market .
While the state withdrew from economic life, privatizing state-owned enterprises or state banks,
and putting macroeconomic governance in the hands of independent central banks, its role in financial
life grew bigger. Sovereign debt evolved into the cornerstone of modern financial systems, used as
benchmark for pricing private assets, for hedging and
as base asset for credit creation via shadow banking . The state's role as debt issuer, passive
and systemic at once, has been reliant, beyond the arithmetic of budget deficits, on the intricate
workings of the repo trinity.
The repo trinity captures a consensus in central bank circles emerging after the 1998 Russian
crisis, the first systemic crisis of collateral-intensive finance, that financial stability requires
liquid government bond markets and liberalized repo markets (fig. 1).
Figure 1 The repo trinity
The repo-government bond market nexus took shape in the 1980s. In the US, securities dealers
preferred repos to secured lending against collateral because market convention treated repos
as outright sales and repurchases of collateral that allowed dealers to re-use collateral for a wide
range of activities (short-selling, hedging, selling to a third party). When bankruptcy courts decided
that repos would be subjected to automatic stay rules, Paul Volcker, then the Federal Reserve chairperson,
successfully lobbied Congress to exempt repos with US Treasuries (UST) and agency securities collateral.
Then, Salomon Brothers short-squeezed the UST market in 1991 by becoming the only repo supplier of
a two-year note. This allowed Salomon to fund securities through repo transactions at exceptionally
low rates. The ensuing public enquiry into the Salomon scandal showed little appetite for regulating
repos. Rather, the Fed and the Treasury
introduced new practices to fix gaps in repo plumbing, celebrating repos as innovative, liquidity
enhancing instruments that would support the state in the post fiscal-dominance era.
The UST blueprint diffused rapidly to Europe. Pressured to adjust to a world of independent central
banks, market-based financing and global competition for liquidity, European states embarked on a
project of creating modern government bond markets, with
modernity understood to mean the structural features of the US government bond market: regular
auctions, market-making based on primary dealers and a liberalised repo market.
Central banks were at first divided on the benefits of opening up repo markets. While Banque de
France followed the US Fed in assuming a catalyst role for the repo-sovereign bond market nexus,
Bundesbank and Bank of England worried that deregulated repo markets would unleash structural changes
in finance that could undermine the conduct of monetary policy and financial stability. In the architecture
of the US government bond market, the Bundesbank saw the conditions nurturing
short-term , fragile finance.
Seeking to keep banks captive on the uncollateralized segment of interbank markets, Bundesbank imposed
reserve requirements on repo liabilities. In parallel, as government's fiscal agent, Bundesbank followed
a conservative strategy, with irregular auctions, issuance concentrated at long maturities and repo
rules that increased the costs of funding bunds via repos. German banks responded by moving (bund)
repo activities to London and warned that France's open repo strategy would make it into the benchmark
sovereign issuer for the Euroarea. For similar reasons, the Bank of England exercised strict control
over the repo gilt market for 10 years after the 1986 Big Bang liberalisation of financial markets.
Under intense pressure from the financial industry and Ministries of Finance, the two central banks
liberalized repo markets by 1997.
As the fragilities of the new, collateral-intensive world became apparent in the 1998 Russian
crisis, central banks working together in the Committee on the Global Financial System subscribed
to the policy goals of the repo trinity. The
CGFS argued that financial
stability in market-based finance required global safe assets, issued in government bond markets,
in turn 'lubricated' by free repo markets with carefully designed (but not regulated) risk management
regimes.
In pursuing the objectives of the repo trinity, central banks helped consolidate the critical
role that sovereign bonds play in modern financial markets. Throughout the 2000s, the shortage of
US government bonds saw the trinity extended to include securitization markets, while the Euro project
galvanized consensus for a European repo trinity, whereby central banks encouraged the European banks
dominating the repo market to treat all Euro sovereign debt as high-quality
collateral
.
After Lehman, central banks and the Financial Stability Board recognized the impossible nature
of the repo trinity, attributing cyclical leverage, fire sales and elusive liquidity in collateral
markets, including government bond markets, to free repo markets. Central banks, with the
Bank of England leading the way, now accept that financial stability means supporting liquidity
in collateral markets in times of stress rather than supporting banking institutions as in the traditional
lender of last resort (LOLR) model. Paradoxically, LOLR support, implemented through repo loans,
can
destabilize (shadow) banks where central banks' collateral framework follows collateral market
valuations (figure 2).
Figure 2 The impossible repo trinity
The quiet revolution in crisis central banking that involves direct support for core markets may
appear like, but does not entail a return to, fiscal dominance. Rather, it creates
financial dominance , defined
as asymmetric support for falling asset prices. While financial dominance should be addressed by
direct regulatory interventions, the quest for biting repo rules has so far proved illusive. The
precise impact of Basel III liquidity and leverage rules is yet to be determined, whereas the failed
attempts to include repos in the European
Financial
Transactions Tax and the FSB's watered-down repo proposals suggest that (countercyclical) collateral
rules are only possible once states design alternative models of organizing their sovereign debt
markets. Paradoxically, new initiatives in Europe suggest that a return to the repo trinity is rather
more likely: the Capital Market Union plans to create Simple, Transparent and Standardized (
STS ) securitisation again illustrate the catalyst role that central banks choose to play in
market-driven solutions to safe asset shortages.
For a detailed account see Gabor, D. (2016)
The (impossible)
repo trinity : the political economy of repo markets, Review of International Political Economy,
doi 10.1080/09692290.2016.1207699
Uhhh. The article is one of the rare "too short, wish it was longer" breed.
I'll hazard a remark: how can securitization be "transparent" if, as one of the articles yesterday
discussed, central banks intervene to support banks so as to allow them to avoid having the market
deliver a price verdict on asset value?
Any time you let central banks like the Federal Bank of NY create money from debt; bankruptcy
is on the horizon. This has only been proven true for around five thousand years.
For a recent example have a look at the difference in government debt in Canada now verses
when it had a public banking system.
"Throughout the 2000s, the shortage of US government bonds saw the trinity extended to include
securitization markets,"
This started treating asset based securities similar to US Treasuries
Also this:
"fire sales and elusive liquidity in collateral markets, including government bond markets,"
I don't think the European government bond market can be treated as sovereign government bonds
as they don't have that guarantee of backing from a central bank.
----
Quite simply, US Treasuries can be put to much better use than supporting asset prices and
other financial products.
Repos hide risk and makes it possible to increase leverage. Why would anyone but financial
institutions want that?
But since financial institutions rule all then I suppose that repos will continue and as a gesture
of goodwill (dressed up as something else) they'll just become more and more complex – those (high)
fees for the professionals enabling the practice has to be justified somehow…
"... The values and ideology represented in the Economics textbook Bill Black analyzed didn't arise in a vacuum. The points Black lists reflect the ideology, values, ethics and interests of a narrow segment of our society who have accumulated enormous personal wealth through a variety of extra-legal and illegal mechanisms, and who use a small portion of that wealth to fund "Economics Chairs" in our public and private universities; economics "think tanks"; and speeches, books, consulting engagements, and board memberships for "prominent economists". ..."
"... Mankiw is a shill/useful idiot for his oligarchs patrons. #11 explains the idiocy of the previous 10. ..."
"... Did the banks which loaned billions to the gas frackers of North Dakota know that production would exceed demand and cause a crash? Perhaps the loan officer might have such concern, but would more likely be most concerned with his/her own bottom line – a meme Yves explores in Econned. ..."
"... Newly-printed money CAN cause inflation, but WHERE the price rises happen depends greatly on the pockets in which the money lands. ..."
"... stocks, real estate, luxury goods, premium educations, etc. ..."
"... This kind of ignorant cluelessness is pretty prevalent among the oligarchy and its supporters like Mankiw. Just like that guy in Davos who simply couldn't understand why there's so much social unrest in the world today. They live in a completely different world. ..."
"... My first exposure to Mankiw's principles was actually an early version of the talk by Yoram Bauman in this video. It hits several of the points Mr. Black makes and is also pretty funny. It definitely demonstrates how Mankiw attempts to cloak his biases in supposedly neutral terms. ..."
"... I doubt Mankiw will accept 100% estate tax on the justification that the cost of bequests is zero to the recipient. (and thus a 100% estate tax doesn't incur large costs on the recipient) ..."
"... My paper lists four principles claimed to be at the core of modern economics by Mankiw and then shows how all four principles are false: Amir-ud-Din, Rafi and Zaman, Asad, Failures of the 'Invisible Hand' (July 15, 2013). Forum for Social Economics, Vol. 45, Iss. 1, 2016. Available at SSRN: http://ssrn.com/abstract=2293940 or http://dx.doi.org/10.2139/ssrn.2293940 ..."
By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate
professor of economics and law at the University of Missouri-Kansas City. Jointly published with
New Economic Perspectives
This is the second column in a series on the N. Gregory Mankiw's myths and dogmas that he spreads
in his economic textbooks. The first column exposed the two (contradictory) meta-myths that begin
his preface. This column de-mythologizes Mankiw's unprincipled "
principles " of economics – the ten commandments of theoclassical economics' priestly caste.
Some of these principles, correctly hedged, could be unobjectionable, but in each case Mankiw dogmatically
insists on pushing them to such extremes that they become Mankiw myths.
To understand Mankiw's mythical 10 commandments, one must understand "Mankiw morality" – a morality
that remains hidden in each of his textbooks. Few people understand how radically theoclassical economics
has moved in the last thirty years. Milton Friedman famously argued that CEOs should operate exclusively
in the interest of shareholders. Mankiw, however, is a strong supporter of the view that CEOs will
not only defraud customers, but also shareholders and creditors by looting the firm. "[I]t would
be irrational for savings and loans [CEOs] not to loot." "Mankiw morality" decrees that if you have
an incentive as CEO to loot, and fail to do so, you are not moral – you are insane. Mankiw morality
was born in Mankiw's response as discussant to George Akerlof and Paul Romer's famous 1993 article
"Looting: The Economic Underworld of Bankruptcy for Profit."
Mankiw's textbooks preach the wonders of the indefensible a system he has helped design to allow
elite CEOs to loot the shareholders with impunity – the antithesis of Friedman's stated goal. Mankiw
morality helps create the "criminogenic environments" that produce the epidemics of "control fraud"
that drive our recurrent, intensifying financial crises. It is essential to interpret Mankiw's ten
myths in light of his unacknowledged immoral views about how CEOs will and should respond to incentives
to rig the system against the firm's consumers, employees, creditors, and shareholders. His textbooks
religiously avoid any disclosure of Mankiw morality or its implications for perverting his ten commandments
into an unethical and criminogenic dogma that optimizes the design of a criminogenic environment.
Mankiw's myths
People Face Tradeoffs. To get one thing, you have to give up something else.
Making decisions requires trading off one goal against another.
This can be true, but Mankiw pushes his principle to the point that it becomes a myth. Life
is filled with positive synergies and externalities. If you study logic or white-collar criminology
you will make yourself a far better economist. You may trade off hours of study, but not "goals."
If your "goal" is to become a great economist you will not be "trading off one goal against another"
if you become a multidisciplinary scholar – you will strongly advance your goal. If you study
diverse research methods you will be a far better economist than if you study only econometrics.
The Cost of Something is What You Give Up to Get It. Decision-makers have
to consider both the obvious and implicit costs of their actions.
"Opportunity costs" are an important and useful economic concept, but Mankiw's definition sneaks
ideological baggage into both sentences that turns his principle into multiple myths. Mankiw implicitly
assumes fraud and other forms of theft out of existence in the first sentence. "Cost" is often
not measured in economics by "what you give up to get it." If your inherit a home that lacks fire
insurance and immediately burns down there is a cost to you (and society) even though you gave
up nothing to inherit the home. If the CEO loots "his" firm he gave up nothing to get the millions,
but if he loses those millions he will consider it to have a "cost." Theoclassical economists
have a primitive tribal taboo against even using the "f" word (fraud).
Decision-makers frequently ignore the "costs of their actions." There is nothing in economic
theory or experience that supports the claim that the "decision-makers" "have" to consider costs.
It is rare that decision-makers must do – or not do – anything.
It is likely that Mankiw means that optimization requires decision-makers to "consider" all
"costs of their actions," but that too is a myth. Theoclassical optimization requires perfect,
cost-free information, pure "rationality," and no externalities. None of these conditions exist.
Car buyers have no means of knowing the costs of buying a particular car. If they bought a GM
car the ignition mechanism defect could cause the driver to lose the ability to control the car
– turning it into an unguided missile hurtling down (or off) a highway at 70 mph. The car buyer
does not know of the defect, does not know who will be driving when the defect becomes manifest,
does not know who the passengers will be, and does not know who and what else could be injured
or damaged as a result of the defect. The theoclassical view is that the buyer who "considers"
the costs of buying his defective car to others (negative externalities) and pays more money to
buy a car that minimizes those negative externalities is not acting ethically, but irrationally.
It is typically cheaper (for the producer, not society) to produce goods of inferior (but difficult
to observe) quality. The inability of the consumer to "consider" even the true costs to the consumer
and the consumer's loved ones of these hidden defects means that economists began warning 46 years
ago that "market forces" could become criminogenic. George Akerlof's 1970 article on markets for
"lemons" even coined the term "Gresham's" dynamic to describe the process. A Gresham's dynamic
is a leading form of a criminogenic environment.
[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty,
therefore, lies not only in the amount by which the purchaser is cheated; the cost also must
include the loss incurred from driving legitimate business out of existence.
Akerlof was made a Nobel laureate in economics in 2001 for this body of work. Economics is
the only field in which someone would write a textbook ignoring a Nobel laureate whose work has
proven unusually accurate on such a critical point. There is only one reason to exclude this reality
from Mankiw's myths – Akerlof's work falsifies Mankiw's myths, so Akerlof's work disappears from
Mankiw's principles, as does the entire concept of fraud.
Rational People Think at the Margin . A rational decision-maker takes action
if and only if the marginal benefit of the action exceeds the marginal cost.
The mythical nature of this principle flows from the multiple errors I have described. Mankiw
is being deliberately disingenuous. Theoclassical economics does not claim, for example, that
a firm produces a product "only if the marginal benefit of the action exceeds the marginal cost."
Theoclassical economists claim that a firm sells a product "only if the marginal benefit of the
action to the seller exceeds the marginal cost to the seller." The seller ignores social costs
and benefits.
For the sake of brevity, I will summarize that Mankiw's third principle is a myth for five
reasons known to every economist. First, it implicitly assumes out of existence positive and negative
externalities, which means that supposedly rational, self-interested decision-makers he postulates,
even if they had perfect, cost-free information, would not contract to maximize social welfare.
Second, as Mankiw morality implicitly admits, the actual optimization principle under theoclassical
economics would be determined by the marginal benefits and costs of an action to the decision-maker
– the CEO – not the firm, and certainly not society. Theoclassical economists, however, refuse
to admit that explicitly, so it disappears from Mankiw's 10 commandments.
Third, the information provided by CEOs is often not simply incomplete and costly, but deliberately
deceptive. Where information is merely incomplete, consumers may pay far more for a product than
they will benefit from the purchase. Where the seller provides deceptive information about quality,
the buyer and members of the public may be harmed or even killed. The CEO may also be looting
"his" firm as well as the customers. Mankiw has implicitly assumed perfect, cost-free information
and implicitly assumed that fraud does not exist.
Fourth, conflating rationality with optimization of personal costs and benefits is wrong on
multiple grounds. It defines ethical behavior as "irrational" where the consumer or CEO takes
into account social costs and benefits and protects the interests of others in an altruistic manner.
Everything we know from behavioral economics also makes clear that humans are not "rational" in
the manner predicted by theoclassical economics. Mankiw has implicitly assumed out of existence
thirty years of economic research on how people actually behave and make decisions.
Fifth, firms with monopoly power, according to theoclassical economics, maximize their profits
by deliberately reducing production to a point that the social cost of producing the marginal
unit is less than the marginal benefit to the consumer. Mankiw has implicitly assumed away monopolies.
People Respond to Incentives. Behavior changes when costs or benefits change.
I have responded to this myth in a
prior article . The implications of his fourth principle in conjunction with Mankiw morality
are devastating for theoclassical economics. CEOs create the incentives and understand how "behavior
changes" among their agents, employees, and subordinate officers in response to those incentives.
Under theoclassical principles this will unambiguously lead "rational" CEOs to set incentives
to rig the system in favor of the CEO. Because fraud and abuse creates a "sure thing" that is
certain to enrich the CEO, Mankiw's fourth commandment predicts that control frauds led by CEOs
will be ubiquitous. Fortunately, many CEOs are ethical and remain ethical unless they are subjected
to a severe Gresham's dynamic. As a result, Mankiw's commandments over-predict the incidence of
fraud and abuse by CEOs. Similarly, experiments demonstrate that humans frequently act in altruistic
manners despite financial incentives to act unfairly.
Trade Can Make Everyone Better Off .
Trade allows each person to specialize in the activities he or she does best. By trading with
others, people can buy a greater variety of goods or services.
See my
article on faux "trade deals" that exposes this myth.
Markets Are Usually a Good Way to Organize Economic Activity .
Households and firms that interact in market economies act as if they are guided by an "invisible
hand" that leads the market to allocate resources efficiently. The opposite of this is economic
activity that is organized by a central planner within the government.
Again, the key interaction under theoclassical theory is between CEO and consumers, employees,
creditors, shareholders, and the general public. "Markets" are vague constructs and they work
best when ethical and legal provisions reduce fraud to minor levels. When these ethical and legal
institutions are not extremely effective against fraud, the incentives created by the market can
be so perverse that they create a criminogenic environment that produces epidemic levels of fraud.
Mankiw's myth is to describe only one possible incentive and treat it as the sole possibility
other than what he falsely describes as "the opposite" – a government planner. The opposite incentive
to the so-called "invisible hand" is the Gresham's dynamic. Mankiw mythically presents the government
as the threat to an effective economy rather than an institution that is essential to producing
and enforcing the rule of law that prevents a Gresham's dynamic.
Governments Can Sometimes Improve Market Outcomes .
When a market fails to allocate resources efficiently, the government can change the outcome through
public policy. Examples are regulations against monopolies and pollution.
The myth here is that government only has a desirable role where there is a "market fail[ure]."
Mankiw treats "markets" as the norm and implicitly assumes that the government normally has nothing
to do with making markets succeed. Even conservative classical economists admitted that the rule
of law was essential to an effective economy and required an effective government. Well-functioning
governments always improve "market outcomes." Indeed, they are typically essential to making possible
well-functioning "markets."
Mankiw also fails to explain that "markets" will be fictional and massively distort resource
allocation (that is what a hyper-inflated bubble does) when there is an epidemic of control fraud.
As I have explained, Mankiw's own principles predict (indeed, over-predict) that deregulated "markets"
will frequently prove so criminogenic that they will produce epidemics of control fraud.
A Country's Standard of Living Depends on Its Ability to Produce Goods and Services.
Countries whose workers produce a large quantity of goods and services per unit of time
enjoy a high standard of living. Similarly, as a nation's productivity grows, so does its average
income.
First, the CEOs of sectors such as finance that are immensely unproductive – so unproductive
that they cause enormous losses rather than growth, and receive exceptional income because they
loot. Income is often based not on productivity, but on the CEOs' wealth and economic and political
power that allows them to rig the economy. A nation's standard of living also depends on its employment
levels, which can be crushed by economic policies such as austerity.
The issue is not what happens to "average income," but what happens to median income, wealth,
the income and wealth of the lowest quartile or particular minorities, and to income and wealth
inequality. A nation can have high average productivity, yet have poor performance for decades
in these other critical measures.
Consider what has happened to the folks who tried to do everything right to boost their productivity
according to the theoclassical economic "experts'" advice. This is what has happened to Latino
and black households where a head of the household has at least a college degree. The source is
economists at the extremely conservative
St. Louis Fed .
Hispanic and black families headed by someone with a four-year college degree, on the other
hand, typically fared significantly worse than Hispanic and black families without college
degrees. This was true both during the recent turbulent period (2007-2013) as well as during
a two-decade span ending in 2013 (the most recent data available).
White and Asian college-headed families generally fared much better than their less-educated
counterparts. The typical Hispanic and black college-headed family, on the other hand, lost
much more wealth than its less-educated counterpart. Median wealth declined by about 72 percent
among Hispanic college-grad families versus a decline of only 41 percent among Hispanic families
without a college degree. Among blacks, the declines were 60 percent versus 37 percent.
One of the reasons that college-educated Latino and black families lost so much wealth compared
to their white and Asian-American counterparts is that they were more likely to get their degrees
from the for-profit colleges that theoclassical economists touted – colleges that frequently provided
a very expensive and very poor education, often involving defrauding the students. Another reason
that college-educated Latino and black families lost so much wealth compared to their white and
Asian-American counterparts is that they were far more likely to be the victims of predatory home
lending – an activity for which theoclassical economists served as the primary apologists.
Mankiw also ignores critical factors that determine "a country's standard of living." Yes,
China reports higher growth, but it is also operating in an unsustainable fashion that has destroyed
much of its environment and threatens to be a major contributor to the global suicide strategy
of causing severe climate change.
Prices Rise When the Government Prints Too Much Money . When a government
creates large quantities of the nation's money, the value of the money falls. As a result, prices
increase, requiring more of the same money to buy goods and services.
No, and Mankiw knew this was a myth when he wrote it. First, "prices rise" for many reasons.
Pharmaceutical prices rise because hedge fund managers take over pharma firms or encourage others
to do so in order to increase prices on existing drugs by hundreds, sometimes thousands of percent.
Prices rise because accounting control fraud recipes hyper-inflated the largest bubble in history
in U.S. real estate. Prices rise because of cartels. Prices rise because oil cartels cause oil
shocks. Prices rise due to real bottlenecks, e.g., shortages of a skill or material.
Inflation has not risen, indeed general price levels have often fallen (deflation) despite
record creation of money by central banks and private banks. Theoclassical economists have regularly
predicted hyper-inflation. As Paul Krugman emphasizes, virtually none of them even admits their
serial prediction failures.
Society Faces a Short-Run Tradeoff Between Inflation and Unemployment . Reducing
inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding
the short-run effects of changes in taxes, government spending and monetary policy.
Mankiw ends his ten myths with a series of myths. Foolish, counterproductive austerity often
causes inflation to fall to harmfully low – even negative (deflation) – levels that can lead to
prolonged recessions that cause severe damage to people and economies. Stimulus provides a win-win
that improves economic growth and reduces human suffering without causing harmful inflation.
A nation is able to operate at extremely high levels of employment without producing harmful
inflation. Mankiw is a partisan Republican. When Republican presidents in the modern era are faced
with recessions they junk their theoclassical dogmas and adopt stimulus programs, though they
generally do so largely through the economically inefficient and less effective means of slashing
tax rates for the wealthy.
Democrats: Please Renounce Mankiw's Myths
Unlike the Republicans, who always rise above their theoclassical principles when their president
is in office and faces a recession, the "New Democrats" are the ones who seem to have drunk the theoclassical
Kool-Aid and strive endlessly to create the self-inflicted wound of austerity when they are in power.
New Democrats also love to bash Republican presidents for running deficits even when those deficits
produced no harmful inflation and helped produce recovery. It is sensible and honest to point out
that tax cuts for the wealthy are a far less effective form of stimulus and to present and support
superior alternatives such as job guarantee and infrastructure programs. It would be superb if Democrats
were to point out that by far the most effective, prompt means of cutting taxes to stimulate the
economy in response to a recession is to cease collecting the Social Security taxes for several years.
It is not fine to praise Bill Clinton for taking the harmful step of running a budget surplus or
to bash Republicans because they – correctly – increased fiscal stimulus (and therefore the short-term
deficit) in response to a recession.
Democrats also need to stop spreading the myth that Bill Clinton was an economic marvel. He was
the luckiest president in history in terms of timing. His economic "success" was the product of two
of the largest bubbles in history (the dot.com and real estate bubbles). The real estate bubble is
the only thing that prevented his dot.com bubble from causing an economic collapse during his term.
The real estate bubble was so enormous that it made it easy for the fraudulent CEOs to "roll" (refinance)
the fraudulent loans they made, which helped cause the bubble to hyper-inflate. The saying in the
trade is "a rolling loan gathers no loss." This meant that the bubble was Bill Clinton and George
Bush's bubble, but it collapsed on George Bush's watch so Clinton gets the credit for the high employment
produced by the twin bubbles and Bush gets the blame for the massive unemployment that a massive
bubble will create when it collapses (if it is not replaced by an even larger bubble).
The pots are calling the kettles black; standard politics, redundancy easily replaced by automation.
You do know that Bernie isn't going after Hillary because he has his skeletons, especially
in the medical university complex, don't you. Ever live in Vermont. You did notice that Hillary
just threatened him, to the core of his argument.
This… "Energy is information, most of which humans ignore."…and this… "Public Education policies
are disgusting to anyone who really wants to learn…" are the important elements although I would
add that humans don't ignore so much as don't know/are not taught, and I would say Public education
has been purposefully corroded to the point of disgusting.
Pharmaceutical prices rise because hedge fund managers take over pharma firms or encourage
others to do so in order to increase prices on existing drugs by hundreds, sometimes thousands
of percent. Prices rise because accounting control fraud recipes hyper-inflated the largest bubble
in history in U.S. real estate. Prices rise because of cartels. Prices rise because oil cartels
cause oil shocks. Prices rise due to real bottlenecks, e.g., shortages of a skill or material.
- Bill Black
----–
All of these examples treat relative price rises in the affected sector, not the general
inflation which saw the U.S. CPI increase by a factor of ten (10) since 1950. Hedge funds and
cartels couldn't do that, no matter how successful they were in increasing their share of the
pie.
The same logic is used by union busters to claim that "greedy labor unions" cause inflation
- an equally false notion. Labor can increase its share of national income at the expense of corporate
profit, but it cannot cause a general inflation.
This unprecedented secular inflation did, however, coincide with government bonds surpassing
gold as the Federal Reserve's largest holding in 1945, and with the dollar's gold link being severed
in 1971.
Bill Black evidently hews to the scholarly tradition of the eminent Argentine economist and
former central banker Mercedes Marcó del Pont:
"It is totally false to say that the printing more money generates inflation; price increases
are generated by other phenomena like supply and external sector's behaviour," said Marcó del
Pont.
I would argue that the real estate bubble caused genuine inflation because it was a credit
bubble, but I agree on your other points. Intuitively I think of inflation as a rise in prices
without a corresponding rise in (average) affordability. It's why a Big Mac today can cost multiple
times what it did 30 years ago without being any less affordable for the average customer.
Mankiw's definition isn't precisely wrong but it's oversimplified. He doesn't address the role
of banks in money creation, he doesn't define money (what about credit?) he doesn't discuss the
factors that might cause government to print more or less money, and he doesn't say how much is
too much. Without more rigor than he provides, it's only useful as a plausibility argument after
the fact.
Regarding Black's comment:
Inflation has not risen, indeed general price levels have often fallen (deflation) despite
record creation of money by central banks and private banks.
I would say this was because they were doing it during the deflation of a credit bubble on
a large enough scale that money creation by the government was a drop in the bucket by comparison,
and that was what caused deflation. Which again points to the importance of defining terms and
operating constraints (why couldn't the government print money on a massive scale to compensate?
What are the drawbacks and limitations on that approach?)
Economists do love to make doomsday hyperinflation predictions that never seem to pan out.
As far as I can tell, that's because they think that the economy is inherently unstable and will
lapse naturally into massive inflation (see: wage-price spiral) or some other disastrous state
without the wise guiding hand of a central banker to prevent it. There seems to be very little
evidence of this actually happening in reality, and the few genuine examples of hyperinflation
(Weimar, Zimbabwe) have typically resulted from a collapse in production coupled with debts denominated
in other currencies that (a) considerably exceed the country's ability to pay and (b) require
the attempt to be made anyway.
Notice that Mankiw managed to say nothing about "Economic instability or deflation, and eventually
economic depression, is caused when the government prints TOO LITTLE money", which is actually
true and happens quite reliably.
If it is physically impossible for something to occur, it won't, and finance be damned.
Economics is first and foremost a branch of the physical sciences, though most economists have
forgotten this.
Supply and demand.
Unintended consequences.
High productivity does not create high wages. High wages create high productivity. If you
spend a lot of money on water-conservation technology at the base of Niagara Falls, will it
increase the economic value of water there?
The physical utility of a commodity (including labor) is not related to its economic value.
Adam Smith did get something right.
Nothing in this universe can grow exponentially for very long. Societies with sustained
high fertility rates will always be miserably poor, and only societies that have first reduced
their fertility rate can hope to become rich.
A (more-or-less) free market is indeed a powerful and essential optimization mechanism
("the invisible hand") but it is nonlinear. Like all such nonlinear optimization mechanisms,
it can and does get stuck in local minima and require external directed efforts to move to
a more optimal solution. This is basic math.
Inflation occurs when prices go up. That's it.
"Capitalism" guarantees neither poverty nor prosperity. The market is neutral. Even as
the laws of physics are obeyed equally well by a building that stands tall as by one that collapses
into a heap of rubble, the laws of the market are also obeyed in miserably poor Bangladesh
as well as in prosperous Switzerland. With 100 desperate people competing for every job, wages
for the many will be low and profits for the few will be high. And vice versa. Blaming "capitalism"
for poverty is silly, as if I threw someone off a cliff and then blamed the law of gravity
for their death. Trying to deny market forces is equally silly, like trying to legislate gravity
out of existence. It simply must be worked with.
"Free to choose to own or employ slaves", "Free trade includes the ability of big corporations
to restrict trade to maximize their profits", "Free to buy politicians and have them loot the
public treasury in your interest" … Strict libertarianism is logically incoherent and ethically
vile.
I quibble with 6 & 8. "A more or less free market" is a well regulated market. How much "more
free" or "less free" a market needs to be to best distribute its product depends entirely on its
particular conditions and vagaries. The insinuation that a market should be "stuck in a local
minima" before oversight can improve its performance echoes Mankiw's 7th misconstruction, that
(in Bill Black's words) "government only has a desirable role when there is a market failure."
I especially disagree that markets are neutral. Markets exist at the pleasure of the Capitalists
who create and smother them for profit. Capitalists are forever cajoling "market opportunities"
out from under every rock they can turn over. They invent, shape, split, combine, dissect, analyze,
produce, reproduce, abandon, corner and strangle markets in pursuit of lucre. There is no market
for Ford electric cars in California beyond the handful required by statute, despite ample demand,
because individuals at Ford have determined that creating that particular market will eat into
the personal profit they might extract from other markets. "Efficient" markets, that only return
a gazilionth of a point on investment because of optimal competition, cease to be because the
margin is too low to justify the hassle or the capital risk. Switching gears, labor markets in
Bangladesh & Switzerland exist when Capitalists decide to hire workers. Hirees agree to be paid
what Capitalists choose to pay, whether "freely" or under the duress of the State.
There is no market equivalent to gravity or the law of planetary motion. The model of supply
and demand is a hypothetical post rationalization of a shifting negotiation – while it's helpful
to a degree, supply/demand doesn't make "lawfull" (or useful) predictions until demand nears infinity
(see health care: "how much will that be, doc?" – "how much have you got?", or housing: "how much
can you borrow from a fractional reserve player who lends without risk and won't verify your income?")
As the local monopolists of violence, States can engage markets as they see fit. They can supply
(Volkswagon & the post office), demand (food stamps, R&D grants), regulate, open (ACA) or close
them (pharmaceutical imports) to their hearts desire. Good or bad outcomes depend entirely on
the wisdom of the policy.
Whoa. Exhale. To be sure, I inhaled. Too many words when I should just say:
Nice.
Its good we agree that policy should be just and compassionate.
The values and ideology represented in the Economics textbook Bill Black analyzed didn't
arise in a vacuum. The points Black lists reflect the ideology, values, ethics and interests of
a narrow segment of our society who have accumulated enormous personal wealth through a variety
of extra-legal and illegal mechanisms, and who use a small portion of that wealth to fund "Economics
Chairs" in our public and private universities; economics "think tanks"; and speeches, books,
consulting engagements, and board memberships for "prominent economists".
This matter is really about whose values will control government economic policy and law.
Excellent analysis. Thank you, Bill Black, for all you do and have done.
I see much of the underlying theory of classical economics as simplifications that make the
math easier. One of my favorite examples of misallocation of resources was the market for Burbank
Russet potatoes in 2001. Basically, producers wanted $6.50 per hundredweight for spuds. The big
buyer, Simplot offered farmers $4.50 pre-season. Many farmers decided to wait until harvest, hoping
the spot market would give them a better price. I should also mention that in Idaho, farmers not
wishing to plant in a given year, could sell their water to other farmers, or to the federal government
which uses the water to help salmon and to produce hydropower. Thus, producing potatoes carried
the opportunity cost of water leasing. But leasing water leasing to the federal government is
culturally taboo in the ag. community. 2001 was a dry year and most of the ag. water was consumed
growing spuds.
The outcome was a banner year in production, driving the spot market price to $0.50 per hundredweight,
far less than the cost of production. Many acres of potatoes were plowed under – a total loss
– to everyone.
My point is – there is no way to know, in advance, what the price of a commodity will be in
the future unless you know, or can limit, the rate of production and control demand.
Did the banks which loaned billions to the gas frackers of North Dakota know that production
would exceed demand and cause a crash? Perhaps the loan officer might have such concern, but would
more likely be most concerned with his/her own bottom line – a meme Yves explores in Econned.
I suppose I am a bit defensive of classical microeconomics because it is elegant. But I am
also terribly suspicious of its answers because one never has either the information or the control
to be anywhere near as certain as the calculus would suggest.
On point #9: "Prices Rise When the Government Prints Too Much Money". Recent inflation data
suggests it's a myth. But if restated as "When government prints money, prices rise on the goods
and services that the people who receive the money tend to buy", then it's NOT a myth.
That was the whole problem with the Federal Reserve's damned QE efforts. They printed gobs
of money, and it all landed in the pockets of the wealthy. The stuff they buy (stocks, real estate,
luxury goods, premium educations, etc.) has seen prices rise MUCH faster than nominal inflation.
And the people who didn't get any of the newly printed money (i.e., most of us)… Well, these sad
folks couldn't afford to spend any more than before, so anybody who attempted to impose prices
hikes on low-end consumer goods saw a loss of sales volume.
Newly-printed money CAN cause inflation, but WHERE the price rises happen depends greatly
on the pockets in which the money lands.
stocks, real estate, luxury goods, premium educations, etc.
But it's hard to produce more of those, so with an increase in money chasing them their prices
will rise. If the government handed money to poor people, they would buy food, clothes, cars,
televisions, etc. In other words, things that society can produce more of. That's my read, anyway.
Partially. Prices for good where quantities are truly fixed (like acres of land in San Francisco)
can rise sharply when extra money pours in.
But even when there is opportunity to increase production, manufacturers must purchase equipment
(like farm equipment for more food) or hire more workers (thereby tightening the labor market
and pushing wages up). These result in price hikes. More modest price hikes than San Francisco
real estate, but still real hikes. It's the classic supply vs. demand curve from classic microeconomics.
That said, "QE to the people" is certainly less objectionable than the "QE to the bankers and
the 1%" that we've seen over the past five years. Prices would go up, but people would get to
buy more things they want or need, and hiring would likely go up as well. [And at a minimum, there
needs to be at least *some* growth in the money supply to keep up with population growth. Otherwise
we see deflation and the ability to become wealthier by hoarding cash.]
"Here is a fact that you might not have heard from the Occupy Wall Street crowd: The incomes
at the top of the income distribution have fallen substantially over the past few years.
"According to the most recent IRS data, between 2007 and 2009, the 99th percentile income
(AGI, not inflation-adjusted) fell from $410,096 to $343,927. The 99.9th percentile income
fell from $2,155,365 to $1,432,890. During the same period, median income fell from $32,879
to $32,396."
This kind of ignorant cluelessness is pretty prevalent among the oligarchy and its supporters
like Mankiw. Just like that guy in Davos who simply couldn't understand why there's so much social
unrest in the world today. They live in a completely different world.
The big difference being that $70k to the 99th percentile means the difference between a new
Beemer this year or next while $500 for the median family means choosing which child goes hungry
for the second half of December.
And of course, Anonymous's excellent point. You are cherry picking old data based on a stock
market and real estate bubble crash. Median income families don't "own" real estate and certainly
don't own stocks.
Mankiw is either psychotic or was gleefully obfuscating when he presenting that out-dated analysis.
I say Kill the Rich and feed their bodies to the poor. It's not a solution at all (and I am
rich myself) but it would be deeply, deeply satisfying!
My first exposure to Mankiw's principles was actually an early version of the talk by Yoram
Bauman in this video. It hits
several of the points Mr. Black makes and is also pretty funny. It definitely demonstrates how
Mankiw attempts to cloak his biases in supposedly neutral terms.
As for number 6, I couldn't disagree with you more. Organisational power is dependent on it
being enforced BY THE GOVERNMENT. Without that coercion, individuals would find other solutions
for the want provided for by that particular organisation. I would suggest that you look at the
history of Pennsylvania circa 1681-1690 or Moresnet (in what is now Aachen) circa 1816 until the
end of WWI to understand what is possible when the free market really operates.
I am actually a returning undergrad student and starting an econ course next week. I just
looked at the text book… and its Mankiw. Should be a fun semester.
Don't argue with the PR. You need to be strategic. Regurgitate the BS but be sure to read enough
corrective material that the toxins don't infect your brain.
I doubt Mankiw will accept 100% estate tax on the justification that the cost of bequests
is zero to the recipient. (and thus a 100% estate tax doesn't incur large costs on the recipient)
Greenspan phony "Shocked disbelief" reminds classic "...I am shocked - shocked, there is gambling
going on in this establishment...." "...here are your winnings..." exchange between Humphrey Bogart
& Claude Rains in Casablanca. Compare with "... "Those of us who have looked to the self-interest
of lending institutions to protect shareholders' equity, myself included, are in a state of shocked
disbelief," he said. ..."
Notable quotes:
"... "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," ..."
"... Greenspan spurned the Republican acolytes trying desperately to defend the faith and blame the crisis on the Community Reinvestment Act and the powerful lobby of poor people who forced powerless banks to do reckless things. ..."
"... Private greed, not public good, caused this catastrophe: "The evidence now suggests, but only in retrospect, that this market evolved in a manner which if there were no securitization, it would have been a much smaller problem and, indeed, very unlikely to have taken on the dimensions that it did. It wasn't until the securitization became a significant factor, which doesn't occur until 2005, that you got this huge increase in demand for subprime loans, because remember that without securitization, there would not have been a single subprime mortgage held outside of the United States, that it's the opening up of this market which created a huge demand from abroad for subprime mortgages as embodied in mortgage-backed securities. ..."
"... But having admitted the failure of his faith, Greenspan could not abandon it. Credit default swaps had to be "restrained," he admitted. Those who create mortgages should be mandated to retain a piece of them to insure responsible lending. Otherwise, the old faith still applied. No new regulations were needed, because the markets "for the indefinite future will be far more restrained than would any currently contemplated new regulatory regime." ..."
"... The only Guantanamo that the United States has any business running is a concentration camp for the hundreds of wall street executives and their cronies in Bushland that conspired to defraud the American people from their hard earned dollar. ..."
"... There are no free markets in America, any more than there is free lunch. ..."
"... So it wasn't the military-industrial complex that did us in after all . . . ..."
"... It's clear from comments on this contribution that few readers of Truthout believe Alan Greenspan's sorry testimony before Congress. What has faith in something to do with enforcing the policies of fiduciary responsibility already on the books? All these so-called "experts" on capitalism are now coming out to say "I'm sorry." Well, I won't be sorry for them until they are held monetarily and criminally responsible for their actions, inept or not. ..."
"... If it looks like class warfare, as David Harvey, author of Neoliberalism, has stated, call it class warfare and act accordingly. ..."
"... it doesn't take a genius to understand that when financial instruments are created based on crap (subprime mortgages), that eventually problems will occur with those instruments. In fact, Greenspan and his cronies knew that, which is why they resisted these instruments being regulated by the SEC or even the CFTC. ..."
"... Sounds like the "maestro" hit a flat note in his orchestra of greed and deregulation. ..."
"... Did anybody even bother to consult the Math PhDs who created these instruments to run possible scenarios -- just in case? why bother when you know you can scare congress, the president and the treasury and ultimately the people into bailing your ass out of worldwide collapse? ..."
"... Shocked Disbelief is a ploy. When they were all riding high, they didn't give a crap. They were going to come out richer than hell anyway. ..."
"... Where's Ayn Rand when you need her? Give me a break Mr Greenspan. Never let history and reality get in the way of the big unregulated celebration of greed like we have had since "Saint Ronald Wilson Reagan", and the other "Free Market" "government is the problem" ideologues ..."
"... What about the 1994 Act of Congress that required the Fed to monitor and regulate derivatives? The Act Greenspan ignored? ..."
"... "...I am shocked - shocked, there is gambling going on in this establishment...." "...here are your winnings..." exchange between Humphrey Bogart & Claude Rains in Casablanca ..."
by: Robert Borosage, The Campaign for America's Future
On October 23, former Federal Reserve Chairman Alan Greenspan testified before a House Oversight
and Government Reform Committee hearing on the role of federal regulators in the current financial
crisis.
It marks the end of an era. Alan Greenspan, the maestro, defender of the market fundamentalist faith,
champion of deregulation, celebrator of exotic banking inventions, admitted Thursday in a hearing
before Rep. Henry Waxman's House Committee and Oversight and Government Reform that he got it wrong.
"Those of us who have looked to the self-interest of lending institutions to protect shareholders'
equity, myself included, are in a state of shocked disbelief," he said.
As to the fantasy that banks could regulate themselves, that markets self-correct, that modern
risk management enforced prudence: "The whole intellectual edifice, however, collapsed in the summer
of last year."
Greenspan spurned the Republican acolytes trying desperately to defend the faith and blame
the crisis on the Community Reinvestment Act and the powerful lobby of poor people who forced powerless
banks to do reckless things. Greenspan dismissed that goofiness in response to a question from
one of its right-wing purveyors, Rep. Todd Platts, R-Pa., noting that subprime loans grew to a crisis
only as the unregulated shadow financial system securitized mortgages, marketed them across the world,
and pressured brokers to lower standards to generate a larger supply to meet the demand. Private
greed, not public good, caused this catastrophe:
"The evidence now suggests, but only in retrospect, that this market evolved in a manner which
if there were no securitization, it would have been a much smaller problem and, indeed, very unlikely
to have taken on the dimensions that it did. It wasn't until the securitization became a significant
factor, which doesn't occur until 2005, that you got this huge increase in demand for subprime
loans, because remember that without securitization, there would not have been a single subprime
mortgage held outside of the United States, that it's the opening up of this market which created
a huge demand from abroad for subprime mortgages as embodied in mortgage-backed securities.
But having admitted the failure of his faith, Greenspan could not abandon it. Credit default
swaps had to be "restrained," he admitted. Those who create mortgages should be mandated to retain
a piece of them to insure responsible lending. Otherwise, the old faith still applied. No new regulations
were needed, because the markets "for the indefinite future will be far more restrained than would
any currently contemplated new regulatory regime."
Now hung over from their bender, the banks could be depended upon to remain sober "for the indefinite
future." Or until taxpayers' money relieves their headaches, and they are free to party once more.
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Comments
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Sun, 10/26/2008 - 23:37 - Captain America (not verified)
The only Guantanamo that the United States has any business running is a concentration camp
for the hundreds of wall street executives and their cronies in Bushland that conspired to defraud
the American people from their hard earned dollar.
What they did dwarfs the damage caused to this country by 911, (no disrespect for the many
innocents who died). However, here, every single citizen is a victim of fraud and corruption on
a scale that was heretofore inconceivable. Greenspan, Bush and now Paulson have done more than
Bin Laden and his hordes could do in a 100 years.
By the way, if you protest YOU wind up locked up for being un-American. What happened America
?
There are no free markets in America, any more than there is free lunch. The game was always
fixed and Greenspan was the ultimate shill for the fixers. The past thirty years have been an orgy
of greed with common sense shoved aside for the sake of uncommon expediency. Americans became infatuated
by arcane formulas and dense incomprehensible mathematics to the point that they forget simple arithmetic.
America wake up it was only a dream, and a bad one at that.
It's clear from comments on this contribution that few readers of Truthout believe Alan Greenspan's
sorry testimony before Congress. What has faith in something to do with enforcing the policies
of fiduciary responsibility already on the books? All these so-called "experts" on capitalism
are now coming out to say "I'm sorry." Well, I won't be sorry for them until they are held monetarily
and criminally responsible for their actions, inept or not. The truth is as plain as the
nose on your face: Greenspan, the Federal Reserve, the investment banks, the Bush administration
and several members of Congress unobtrusively acted to consciously and knowingly to rob the national
treasury for the sake of capitalism's sacred cow: capital accumulation on behalf of the nation's
political and economic elite. If it looks like class warfare, as David Harvey, author of Neoliberalism,
has stated, call it class warfare and act accordingly.
We have heard statements like "the mathematical models used for knowing the behavior of derivatives
based on subprime mortgages were too difficult to understand", etc. But it doesn't take a
genius to understand that when financial instruments are created based on crap (subprime mortgages),
that eventually problems will occur with those instruments. In fact, Greenspan and his cronies
knew that, which is why they resisted these instruments being regulated by the SEC or even the
CFTC. And this is why they turned a blind eye to many of the rating agencies giving many
of these instruments AAA ratings. I am sure that a real investigation will reveal numerous instances
of fraudulent activity in conjunction with this debacle. Those perpetrators must be identified
and brought to justice. While this will not fix our current problem, it hopefully should serve
as a deterrent to those who would in the future attempt to again engage in such activities.
Sun, 10/26/2008 - 08:13 - Robert Iserbyt (not verified)
Well here you have it a confessional lie from the biggest fraud perpetrator in the history of
American finance Why the markets ever listened to this criminal in the first place is evidence
that our entire nation should be required to take a full year of real unfettered economics just
in case they don't understand what is going on now. All the pundits on MSNBC and all the talking
heads should be removed from the airwaves. The Bailout what will that do? the answer lies before
you.
Sounds like the "maestro" hit a flat note in his orchestra of greed and deregulation.
Come on, do you really think we are all so stupid to buy into the story that you couldn't predict
a melt down knowing that those writing the subprimes held no responsibility for their actions?
That's like giving a "get out of jail card" to someone who just created a felony! Did anybody
even bother to consult the Math PhDs who created these instruments to run possible scenarios --
just in case? why bother when you know you can scare congress, the president and the treasury
and ultimately the people into bailing your ass out of worldwide collapse?
I'm a former real estate broker and my son is a mortgage broker. From about 2004 through the beginning
of this "greatest financial crisis since '29", we frequently talked on the phone about the disaster
which would ensue when the real estate value appreciation stopped, and people were no longer fueling
the economy with money borrowed against their equity, and the sub-prime loan fiasco would end.
We knew it would be disastrous, and both of us were astonished that neither the FED nor congress
was willing to say or do anything about it. Anyone who has witnessed over the years the cycle
of boom/bust/boom/bust in the real estate market knew that after eleven years of unprecedented
"boom" -- '96 through '2007 -- the "bust" would be like an earthquake. Paulson and Greenspan and
their ilk now denying that they suspected this is just is just their lying to protect the GOP
which was benefitting from the booming economy. They should both end up in prison, with all of
the GOP members of congress who have had their hands in the cash register.
Dance clown, dance. First you were against the FED until you became head of the FED. Then you
were for trickle down economics and letting the "system" regulate itself until you saw the inevitable
destruction it caused. Dance clown, dance. You should be the first one sent to prison under the
"Un-American activities act". The arrogance of your testimony before the committee was appalling.
You honestly couldn't believe you were wrong !!!
This is like telling the Fox to watch the Hens and then walking away and trusting him to do the
right thing. Government has to return to regulation and see that there is no hanky, Banky going
on anymore. Monopolies have to be busted up, like the Communication industry's, the Drug industries
and any other Corporations that control to much of the way the Country operates. No more Outsourcing
any Government duties.
Where's Ayn Rand when you need her? Give me a break Mr Greenspan. Never let history and reality
get in the way of the big unregulated celebration of greed like we have had since "Saint Ronald
Wilson Reagan", and the other "Free Market" "government is the problem" ideologues. We can
spend trillions on war and corporate bailouts, but we can't have a single payer health system?
We can't rebuild our infrastructure? Say it again- give me a break!
"...I am shocked - shocked, there is gambling going on in this establishment...." "...here
are your winnings..." exchange between Humphrey Bogart & Claude Rains in Casablanca
"... By Gerald Friedman, Professor of Economics, University of Massachusetts, Amherst. A version of this post first appeared at the Institute for New Economic Thinking website ..."
"... Lesser Depression ..."
"... The reason why elite economists and politicians were so angry at my analysis of Sanders' proposals was that it disrupted a consensus that nothing can be done by government to improve the performance of the economy. After all, if things are already as good as they can be, it is irresponsible pie-in-the-sky to even suggest to the general public that we can do better. Instead, the task of economists and other policy elites becomes to explain to the general public why they should accept stagnant incomes and rising inequality, and applaud the anemic growth of recent years as the best possible outcome. But the real danger of such thinking is that it leaves liberals like Hillary Clinton with few policy options to offer in response to the siren song of demagogues like Donald Trump. The self-proclaimed "responsible" elite economists see their role as to persuade the public that nothing can be done, in the hope of heading off the challenge of those who would capitalize on the electorate's appetite for change. They have to slap down critics. "Responsible" elite economists have to keep the party of "good arithmetic" from overpromising at all costs. It should not surprise us, though, that those whose living standards have suffered most from stagnant growth are more inclined to believe politicians promising change. ..."
"... John Maynard Keynes showed how active government policy can raise employment and output; his followers, including Joan Robinson and Nicholas Kaldor, showed how full employment encourages further investments and leads businesses to find ways to raise labor productivity to match increasing product demand. New Deal American economists, such as Rexford Tugwell and John Maurice Clark, showed how active government policy can raise growth rates with investments in infrastructure, in public services, in human capital development, and in research and development. By listening to these ideas, economists associated with liberal American politics helped produce 25 years of relatively rapid and egalitarian growth after World War II. Abandoning these ideas, we have suffered 30 years of relatively slow growth and rising inequality, culminating in the current Lesser Depression. ..."
"... I had dinner last night with two excellent people who happen to be doing well at this time. They could not comprehend why anyone would be voting for Trump, whom they saw as a dangerous lunatic. They have supported Sanders and voted for him in the NY primary, but are absolutely going to vote for Clinton in the Fall. What I view as the credible case against Clinton has not reached them with any strength or registered at all. I was asked (because I had said nothing while they talked–I hate this kind of confrontation) what problem people could have with Hillary? I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that. ..."
"... HRC's recap of Reaganite Latin America policy is her most vile achievement. If anything demonstrates a continuity of imperialist strategy across administrations, that's it. ..."
"... " I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that." ..."
"... I run into this all the time. Utter and complete foreign policy illiteracy, particularly from otherwise politically correct millennials who know so little that Hillary gets a complete pass. ..."
"... This is a common story and illustrates that our current detachment from the world around us and our fellow citizens is coming to an end. We are being forced out of our individual bubbles. Modern corporations have supplied the populations of the world with abundance of goods, but in order to accomplish this feat, have destroyed and are destroying the cultural glue, if you will, that holds society together. ..."
"... TINA will be maintained by propaganda and physical force. We see that the propaganda is starting to weaken because the contradictions of the message can no longer be hidden. The destruction is too widespread and the inequality can no longer be hidden. You can hollow out a social system only so much before it collapses. The collapses we are witnessing is the promise of democracy. A collapse of the ideals of moderation and compromise. ..."
"... We are entering a phase of civil war. It is still carried out in a polite manner and intellectually, the discussion is still couched in Orwellian doublespeak. However, criticisms of the ruling elite are becoming more straightforward and more people are waking up to the fact that the system is rigged against them. ..."
"... This civil war is a battle over leadership. It is a battle to demand good government instead of no government. It is a battle to demand a government for and by the people. A battle for the common good. Evaluated not in some abstract terms like "trickle down" economics, but direct support and action. The hearts and minds of the population was won over long ago to wholeheartedly support capitalism and private ownership of the world's resources. This is proving to be a disaster. ..."
"... Supporters of unfettered capitalism know only one way. Privatization of ALL the worlds resources and potential. They showed their hand in 2008 with the bailouts and implementation of austerity policies. In their minds, there is no turning back. To compromise means failure. For them, TINA is real and logical. This is the perspective of owners of capital. They gain strength and advantage from seeming to compromise, but in the end know they can always reverse course and regain private control. Subterfuge and force allows the resilience of capitalism as the reigning social order. ..."
"... Jonathan Haidt is a psychologist, sometimes featured in the New York Times, who apparently believes the capability of people to be convinced by reasoned argument is not strong. From my limited reading of his work, he suggests that humans are instinctive beings who, when they have strong beliefs, their reasoning powers are used to justify these beliefs, not to cast doubt about these beliefs. ..."
"... For example, I believe HRC is little more than a well-connected and well traveled mediocrity, with a record of few positives and many egregious negatives that justifies this assessment. I view her as potentially more damaging to the USA, as President, than Trump. ..."
"... Successful big ideas and big projects require cheap abundant energy, resources and intelligent design. It'll be mighty funny when the Keynesians finally implement their plan to overhaul the national highway infrastructure, creating tons of high paying jobs and speeding up the economy–right when our access to cheap oil collapses. That's dumb design at its finest, yet this sort of thing is almost certainly the best that the lobotomized Keynesian planners will be able to think up and do. ..."
"... A truly innovative program to get the economy moving in a positive direction would be to outlaw personal vehicles and rebuild the nation's railway network. ..."
"... I share your antipathy toward freeways. I remember the big Freeway they built in Fresno when I was a child, destroying hundreds, if not thousands of modest homes (we had to move from a grand rental to a dilapidated house that cost more – were the landlords behind getting rid of a surplus of houses????) – to save maybe – maybe at the most 3 minutes in transit time over driving an existing surface street. Jobs were part of the rationale. ..."
"... "Sorry, nothing more can be done for you." TINA. ..."
The ferocious
reaction
to my
assessment
that Senator Bernie Sanders' economic and health care proposals could create long-term economic
growth shows how mainstream economists who view themselves as politically liberal in America have
abandoned progressive politics to embrace a political economy of despair. Rationalizing personal
disappointment and embracing market-centric economic theories according to which government can do
little more than fuss around the edges, their conclusions - and the political leadership that embraces
them - have little to offer millions of angry ordinary people for whom the economy simply isn't working.
It has certainly been a rough seven years for the economists in the Obama Administration. While
avoiding a Great Depression, the Administration has presided over what Paul Krugman and Brad DeLong
call a "
Lesser Depression ." One might almost forgive them for a certain defeatism after seven
years of painfully slow economic recovery, and the dismay of seeing urgently needed programs blocked
by the Republican congressional majority. After so many compromises and let-downs, perhaps it is
easier to tell those who expect more that it just can't happen. There is comfort in the Thatcherite
phrase, "There Is No Alternative" (TINA).
Combined with orthodox neoclassical microeconomics, however, rationalization has produced a toxic
political economy that abandons progressive ideals and surrenders political space to xenophobes and
the populist rightwing (see: Donald Trump). The mainstream economists who have attacked my embrace
of Keynesian economics have abandoned, in practice, the notion that government can effectively intervene
in the economy to raise levels of employment, and to promote economic growth and equity. Instead,
they have returned to pre-Keynesian Classical thinking, where the very suggestion that government
action can raise growth rates or wages is taken to be obviously wrong. Criticisms of the
orthodox model and its conservative policies are deemed worthy of scorn, to be dismissed tout
court because they are obviously at variance not only with textbook economics, but with what
we need to believe in order to accept failure .
The mechanism of economic policy paralysis among the liberals who espouse market-centric economics
works like this: If we accept the (flawed) premise that the total supply of goods and services equals
total demand, then we can agree with the Congressional Budget Office (CBO) that potential output
is best measured by observing actual output. And, with that - presto! - unemployment magically disappears,
and we no longer suffer from slow growth. Conveniently align growth projections with the otherwise-disappointing
performance during the Lesser Depression, and, as the CBO has done, estimates of potential growth
now equal actual growth: Instead of the 3 percent average annual growth of the 1959-2007 period,
not to mention the 4 percent growth 1947-73, we are now told to accept 2 percent growth not as a
disappointment, but as recognition of an unfortunate necessity. Such reevaluations say to policy
elites, "Hey, we are doing as well as can be expected." To the general public, the message is: "Sorry,
nothing more can be done for you." TINA.
The reason why elite economists and politicians were so angry at my analysis of Sanders' proposals
was that it disrupted a consensus that nothing can be done by government to improve the performance
of the economy. After all, if things are already as good as they can be, it is irresponsible pie-in-the-sky
to even suggest to the general public that we can do better. Instead, the task of economists and
other policy elites becomes to explain to the general public why they should accept stagnant incomes
and rising inequality, and applaud the anemic growth of recent years as the best possible outcome.
But the real danger of such thinking is that it leaves liberals like Hillary Clinton with few policy
options to offer in response to the siren song of demagogues like Donald Trump. The self-proclaimed
"responsible" elite economists see their role as to persuade the public that nothing can be done,
in the hope of heading off the challenge of those who would capitalize on the electorate's appetite
for change. They have to slap down critics. "Responsible" elite economists have to keep the party
of "good arithmetic" from overpromising at all costs. It should not surprise us, though, that those
whose living standards have suffered most from stagnant growth are more inclined to believe politicians
promising change.
It was only by rejecting classical economics that Franklin Roosevelt was able to save the American
economy and bring about a revolution in social policy. And only by rejecting the new classical economics
and the policy of so-called responsible elite economists can Clinton meet our current economic crisis.
John Maynard Keynes showed how active government policy can raise employment and output; his
followers, including Joan Robinson and Nicholas Kaldor, showed how full employment encourages further
investments and leads businesses to find ways to raise labor productivity to match increasing product
demand. New Deal American economists, such as Rexford Tugwell and John Maurice Clark, showed how
active government policy can raise growth rates with investments in infrastructure, in public services,
in human capital development, and in research and development. By listening to these ideas, economists
associated with liberal American politics helped produce 25 years of relatively rapid and egalitarian
growth after World War II. Abandoning these ideas, we have suffered 30 years of relatively slow growth
and rising inequality, culminating in the current Lesser Depression.
The debate over my little report showed how mainstream economics has left us with a smugly certain
macroeconomics lacking in imagination, and offering no effective policies to move beyond economic
stagnation and escalating inequality. If these economists cannot do better, then we risk more than
personal disappointment; we gamble our liberal political economy against the likes of Donald Trump
and Ted Cruz. Hillary Clinton can do better. And Americans deserve better.
A very bold thing for a man like this to say. I know he will be criticized (vilified?) for
his misplaced belief that Clinton can "do better", but considering who this man is and where he
is coming from, condemning him at this stage of the game would be churlish. He's taken on The
Bigs and the stifling orthodoxy they embody and for that we owe him.
I had dinner last night with two excellent people who happen to be doing well at this time.
They could not comprehend why anyone would be voting for Trump, whom they saw as a dangerous lunatic.
They have supported Sanders and voted for him in the NY primary, but are absolutely going to vote
for Clinton in the Fall. What I view as the credible case against Clinton has not reached them
with any strength or registered at all. I was asked (because I had said nothing while they talked–I
hate this kind of confrontation) what problem people could have with Hillary? I said: Libya, Ukraine,
and Nicaragua. They really didn't know what I was talking about and although I spoke up for why
I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know
any of the details and we left it at that.
I've had many similar recent encounters. I find that if I ask for a positive reason to vote
Clinton, the first three or four reasons they raise can be dismissed by single phrase references
to past betrayals, Sister Solja, End of Welfare, Nafta etc. and the next few by scandals, Lewensky
or what should be scandals as you mentioned. As a rule after four or five tries I get to watch
them self censor before each subsequent try and don't have to make any negative claims myself.
I doubt I've changed minds, but they no longer doubt mine.
I think that was a slip, but an historically correct one I can completely sympathize with.
HRC's recap of Reaganite Latin America policy is her most vile achievement. If anything
demonstrates a continuity of imperialist strategy across administrations, that's it.
" I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking
about and although I spoke up for why I thought this made her a neocon like the ones that surrounded
Dubya, they simply didn't know any of the details and we left it at that."
I run into this all the time. Utter and complete foreign policy illiteracy, particularly
from otherwise politically correct millennials who know so little that Hillary gets a complete
pass.
This is a common story and illustrates that our current detachment from the world around
us and our fellow citizens is coming to an end. We are being forced out of our individual bubbles.
Modern corporations have supplied the populations of the world with abundance of goods, but in
order to accomplish this feat, have destroyed and are destroying the cultural glue, if you will,
that holds society together.
TINA will be maintained by propaganda and physical force. We see that the propaganda is
starting to weaken because the contradictions of the message can no longer be hidden. The destruction
is too widespread and the inequality can no longer be hidden. You can hollow out a social system
only so much before it collapses. The collapses we are witnessing is the promise of democracy.
A collapse of the ideals of moderation and compromise.
We are entering a phase of civil war. It is still carried out in a polite manner and intellectually,
the discussion is still couched in Orwellian doublespeak. However, criticisms of the ruling elite
are becoming more straightforward and more people are waking up to the fact that the system is
rigged against them.
This civil war is a battle over leadership. It is a battle to demand good government instead
of no government. It is a battle to demand a government for and by the people. A battle for the
common good. Evaluated not in some abstract terms like "trickle down" economics, but direct support
and action. The hearts and minds of the population was won over long ago to wholeheartedly support
capitalism and private ownership of the world's resources. This is proving to be a disaster.
Supporters of unfettered capitalism know only one way. Privatization of ALL the worlds
resources and potential. They showed their hand in 2008 with the bailouts and implementation of
austerity policies. In their minds, there is no turning back. To compromise means failure. For
them, TINA is real and logical. This is the perspective of owners of capital. They gain strength
and advantage from seeming to compromise, but in the end know they can always reverse course and
regain private control. Subterfuge and force allows the resilience of capitalism as the reigning
social order.
I bring up the notion of a civil war because these ideas are too important to be left to chance.
In America, the citizenry has been complacent with their lot in life and so have lost control
over their fate. As the world changes around them, they desperately attempt to hold onto their
position while not realizing they are supporting their own impoverishment. Speaking ideas of the
common good -for ALL- and notions of public ownership of land, natural resources, citizens natural
rights to jobs, basic income, and healthcare divide family and friends. Those who are comfortable
don't want to cause trouble and those feeling the pressures brought down upon them by an unrelenting
system are too weak and fearful to act.
In a sense, the revolution has already begun. It is the revolution to convince people that
there is a better and different way to live our lives.
Jonathan Haidt is a psychologist, sometimes featured in the New York Times, who apparently
believes the capability of people to be convinced by reasoned argument is not strong. From my
limited reading of his work, he suggests that humans are instinctive beings who, when they have
strong beliefs, their reasoning powers are used to justify these beliefs, not to cast doubt about
these beliefs.
This can explain why attempting to convince someone to change their political/religious beliefs
is fated to be largely futile.
For example, I believe HRC is little more than a well-connected and well traveled mediocrity,
with a record of few positives and many egregious negatives that justifies this assessment. I
view her as potentially more damaging to the USA, as President, than Trump.
Per Haidt, maybe my beliefs are instinctive and I am willfully blind to all of Clinton's accomplishments
over the last 40 years.
I think that if there are to be any Keynesian big ideas and projects that will help lift us
out of this stagnation, they will much more likely come from a Trump Administration than a Clinton
one.
Successful big ideas and big projects require cheap abundant energy, resources and intelligent
design. It'll be mighty funny when the Keynesians finally implement their plan to overhaul the
national highway infrastructure, creating tons of high paying jobs and speeding up the economy–right
when our access to cheap oil collapses. That's dumb design at its finest, yet this sort of thing
is almost certainly the best that the lobotomized Keynesian planners will be able to think up
and do.
A truly innovative program to get the economy moving in a positive direction would be to
outlaw personal vehicles and rebuild the nation's railway network. But this society isn't
even anywhere close to having something so useful on its agenda. So we'll do some Keynesian program,
funnel the few remaining resources we have left down into some stupid dead end rathole, and then
in a couple of years we'll be envious here in America of the extravagant lifestyles that the Mexicans
are leading. Hell Trump's wall will be a lot more useful keeping the Mexicans in who are trying
to flee. That is the end result of Keynesian programs in a delusional society with bass-ackward
priorities. Way more harm than good.
I share your antipathy toward freeways. I remember the big Freeway they built in Fresno
when I was a child, destroying hundreds, if not thousands of modest homes (we had to move from
a grand rental to a dilapidated house that cost more – were the landlords behind getting rid of
a surplus of houses????) – to save maybe – maybe at the most 3 minutes in transit time over driving
an existing surface street. Jobs were part of the rationale.
I have been gone 20 years, and they had gone on a real freeway building tear while I was gone.
The whole city crisscrossed with freeways laid out as if someone had thrown a bowl of spaghetti
on a map – apparently so every neighborhood can enjoy the sound of traffic.
Really, Fresno is just not that physically big to justify all these freeways. And with its
high unemployment and no real "center" there aren't any places with traffic congestion anyway
– but you get these dubious justifications that millions of dollars are wasted because an implausible
auto trip is 4 minutes longer without the freeway….
There seems to be a developing narrative that the Obama Administration has just been brimming
with big ideas that have been thwarted by evil Republicans.
I don't remember it this way. I do remember an Obama Administration that turned to austerity
shortly after the 2009 stimulus, and one that has been patting itself on the back all along about
what a great job it has done.
"All across America, families are tightening their belts and making hard choices. Now, Washington
must show that same sense of responsibility."
President Obama, April 2009(!)
Now that the pictures we snapped of Obama are finally beginning to develop, where we thought
we had photographed his lush jungle, we're now seeing just a single thin sapling planted for "the
future." And Clinton will soon have a picture of her snapped at this sad tree, with her big lying
smile.
I don't think Friedman is saying this, unless Rex Tugwell has been secretly disinterred and
is serving under Obama. The capitalist ideological counteroffensive that got going in the 70s
has been hegemonically successful. Friedman doesn't acknowledge that enough, he instead focuses
on what sounds more like disciplinary politics.
This type of article or perhaps, all articles about the Economy, deal with the Economy as a
substance to which people are appended as accidents. The economy is the sum total of the effort
of the people and if the people think that enjoying this very present is preferable to an effort
to build a future nothing can be done about it. It is the mind of the people that has to be changed.
Wars are very good mechanisms for that.
I can't remember if I got this link from an NC comment, or elsewhere. In any case, it's a scary
read: "The 14 Defining Characteristics of Facism," augmented by a selection from "They Thought
They Were Free." http://rense.com/general37/fascism.htm
Brings Obama and HRC to mind just as much as Trump, if not more.
"The ferocious reaction to my assessment that Senator Bernie Sanders' economic and health care
proposals could create long-term economic growth shows how mainstream economists who view themselves
as politically liberal in America have abandoned progressive politics to embrace a political economy
of despair."
==========================
Here is the problem: "a political economy of despair" – accepting that economists are a real
objective academic discipline is a BIG mistake – the idea that these technocrats, who never seem
to recognize how much fraud, rent seeking, and capture of the political system
((because the people paying them don't WANT THEM TO)),
decides things like how much inequality there is, which than decides how much demand there is,
and NOT knowing, and apparently NOT WANTING TO KNOW, that it is a POLITICAL economy, and politics
decides how resources are often allocated.
We can have single payer heath care if we choose it and free college education (it wasn't all
that long ago that I went to a CA college essentially for free). HOW is it college used to be
free when GDP was less than 1/6 of what it is now??????
It just doesn't make sense that we used to be able to afford free college and we can't now. It
is a POLITICAL decision – when Krugman says Sanders plan is "too expensive" Krugman is making
a political decision – not some objective scientific assessment. And if he is not even smart enough
to ponder why it used to be free and it is not free now – well, theres your problem right there!
Nice to see this article. When I talk about economics, most people who know anything, only
know what someone on TV tells them, so they often question, well who agrees with you? Nice to
have another name to list.
And then…
"Sorry, nothing more can be done for you." TINA.
Of course for those at the tippy-top, "How can I help you today?"
Economic Models Must Account for Who Has the Power''
: Nobel Prize
winning economist
Joseph
Stiglitz recently highlighted
two schools of thought on how income
is distributed to different groups of people in the economy. Which
school is correct has important implications for our understanding of
the forces that have caused the rise in inequality, and for the
policies needed to reverse this trend. It also relates to another
controversy that has flamed up recently, how economics should be
taught in principles of economics courses. ...
And according to Sraffa's
side in the Cambridge capital controversy labour and capital
do not receive their marginal products, which leaves the
distribution of income to some extent socially or politically
determined.
Now please make a donation to Project Syndicate, and check
out Robert Skidelsky at the same site.
Excellent. It will be taught in graduate school, long after
the little ones have been indoctrinated in reactionary
thought be Econ 101.
P.S. The school of thought that
accepts inequality as a Teh Awesome result of merit cannot
explain why inherited wealth should be allowed to accumulate
- another aspect of how power writes the economic rules.
"It will be taught in graduate school, long after the little
ones have been indoctrinated in reactionary thought be Econ
101."
Joan Robinson's writing on market power was required
reading when I was in graduate school. My undergrad profs
touched on this issue but not as much. I wonder if Greg
Mankiw teaches market imperfections to his undergrad students
at Harvard.
"I wonder if Greg Mankiw teaches market imperfections to his
"undergrad students at Harvard."
According to theoclassical
doctrine, all market imperfections are the result of gummint
innerference. Left to themselves, markets hum with music of
the perfect spheres.
We are way past just one or the other of those explanations
being true. Opportunities come in many forms, but just not
for many people. Competition becomes limited in the womb and
then they go from there. Better schools across all zip codes
and public day care with universal pre-K would be a start.
Even that is doomed to the catch-22 of making a better
informed public requires a better informed public to demand
being better informed. Down east they say "You can't get thar
from here."
I was fortunate enough to grow up in Prince
William County VA in the late sixties just as it was
beginning to boom from growth proximate to the DC Beltway. We
had a new and progressive school system even relative to
NoVA. Still by the 7th grade it was evident to me that the
pedagogy related to reality in dogmatic POVs that were only
relevant to the next generation of yuppie kids that had
gotten a half step advantage in some various way from their
parents.
My half step came from an unusual source though. My dad
was illiterate and my mom only finished the 8th grade, but
they were stoics with exceedingly powerful work ethics
transferred more by their example of excellence in every
menial thing that they did rather than by belittling and
cajoling me. My dad was the best hunter, the most successful
fisherman, grew the most beautiful and bountiful garden, and
was self-sufficient in caring for his car and home. His
position with the state highway department was limited by his
illiteracy to maintenance superintendent, but due to his
ability he still got to supervise the construction of roads
and bridges without the benefit of commensurate pay.
My mom was the best cook, kept the cleanest house, and as
at home day care for a few friends was the best a dealing
with troubled children from potty training to outbursts of
anger. It was a tough act to follow. Furthermore it did not
fit the status quo mold that public schools were designed to
reinforce. My half step freed me to reject the intellectual
authority of my instructors even though their administrative
authority was still sacrosanct in my home. I did well in
school and even better on tests eking by to enter the Honor
Society and passing the SAT test well enough to qualify for
Mensa, but I dropped out of college first semester mostly
just to relocate away from home to find a job in the city.
So, I got drafted and went to Viet Name, but was lucky enough
to survive and develop a successful career in IT systems
management large systems capacity planning and performance
management. The best break that I got was being laid off in
June 2015 with a severance package good enough to afford me a
retirement income equal after the change in expenses from
leaving the professional world behind to what I had been
making while working.
The moral to my story is that one can despise our
education system and still do very well by themselves with
it. One can reject our higher education and still do very
well by themselves without it. One can despise our corporate
"meritocracy" system and still have a successful career and
maybe even a comfortable retirement, but the ladder has been
raised for the latter. How anyone can be successful in school
and/or in career without recognizing their own half step
advantage or recognizing the intellectually and morally
vacant institutions that they traversed in their journey is
deeply puzzling to me.
P.S. I had the good fortune to relocate from Prince William
County to Orange County VA in summer 1966 before my senior
year in high school when my dad cashed out his state
retirement fund saving to start an electric motor/ john boat
livery and concession stand at Lake Orange, a VA Game and
Fisheries Commission state fishing lake.
The high school teachers were probably just as intelligent as
in Manassas Park, but far more socially challenged at least
in the academic curriculum. Still, the kids with that half
step from their successful parents did well enough to attend
decent colleges, but academic performance overall was much
lower than it had been in Manassas Park back in Prince
William County. The kids in Orange with really successful
parents all attended private prep schools.
P.P.S. Relative to the thread topic then we have a fairly
rigid establishment that favors the haves and keeps the
have-nots at bay. Monopoly rents are just one of the
luxurious rent extracting tools of an aristocracy of social
exclusion. Bankers, proto-industrialists, and slave owners
established the meme of republicanism as the conservative
power that protects us all from tyranny of the majority, but
perhaps a little too well. More importantly they established
the US Constitution as a nearly inviolable foundation for
preserving their world view of well-deserved elite privilege.
And they did it all in the name of democracy while showing
Thomas Paine the door.
It's a cool rainy day in central VA. Being retired and
primarily a person of outdoor interests then today I have an
abundance of time to waste. And commenting on the EV blog
sure beats a colonoscopy, which is what I will be getting
this time next week :<)
John Kenneth Galbraith used to write about countervailing
power. Unfortunately Galbraith has been pretty much consigned
to the dustbin. Even when he was writing, economics courses
did not talk about his ideas much...I guess he did not use
enough math symbols.
Business has long understood the
concept of what I'll call leverage points...critical
intellectual property, experience, and know how. Control of
these critical factors is a key to pricing power and
profitability. As one example, Symbol Technologies dominated
the handheld bar code scanner market for years, not because
they had superior technology or marketing, but because they
held the patent on the trigger, which was critical to
activating the scanner for reading. Their market power
affected not only competitors but suppliers and customers as
well.
Leverage points like this are commonplace in business
today. Yet I'm not aware that economics, with its orientation
towards competitive markets, has ever tried to model this
common behavior or even dealt with it.
Likewise, businesses have also understood the importance
of market and marketing channel domination to their long term
survival and profitability. Firms who fail to dominate must
specialize. These concepts are considered elementary in
business schools. Yet I don't know that economists have ever
managed (or even tried) to incorporate them into their
models.
It might help if more economists took business courses to
understand how the game is played...
I still say that until economists can reach consensus on the
objective of an economy, they remain divided on the
objective. Simply defining it as "for the general good" is a
cop-out --- and economists and everybody else know this full
well. Define what "general good means"....then see if
consensus can be reached. I seriously conclude this cannot be
done, since only by compromises can they reach consensus, and
this means defining the objective in subjective, vague
terms... just like "the general good" is vague and
subjective.
The cop-out used by economists is at the heart
of what Thomas' blog subject is about: Policy makers .. i.e.
gov't decides the objectives of an economy, which is to say
that economic power defines it. And of course economic power
will define it to maintain and extend their economic
power.... and at the very least to minimize any erosion
thereof.
So one must wonder how, if gov't is controlled by economic
power, that gov't will NOT insure the maintenance and
extension of that economic power? Is it possible in a
democracy defined by the U.S. constitution to significantly
reduce the economic power of those who have it? The
constitution in fact makes it impossible.
Even when congress occasionally finds a large enough
majority to make law to erode or reduce economic power in
gov't, the constitution enables 5 people in robes to deem it
unconstitutional OR the next congress, or the next will make
law that erode or reduce the effect of prior congress's law(s)
that reduced or eroded economic power.
If this were not the case we'd long since have had
universal single payer health care, strong labor unions, tax
policies that don't give unearned income a huge break, and
don't give offshore income an out by not taxing it until its
"repatriated", welfare systems that don't keep people in
poverty, and an educational system that provide free & equal
education to all (not one that gives communities, county's,
and States with the highest incomes & property values the
best education and everybody else with a lesser one.
Nor, will I add would it be possible to rape the nation's
environment by contaminating the nation's rivers, soils, and
the air with green-house gases .. not just "paying" fines
after the fact for doing so or putting low cost "caps" on
green-house gas emissions.
So what does "the general good" actually mean? Economists
can't agree on it, nor the means of achieving it of course
nor can policy makers.... and this is the fundamental problem
not being addressed.
One comment: You wrote "...individuals are
rewarded according to their contributions to the economic
well being of society. Those who contribute the most to the
production of the goods and services we all enjoy receive the
highest rewards and climb to the top of the income
distribution." I would add that having power includes being
able to dictate that rewards are allotted according to
economic contributions as opposed to other contributions. Cue
my go-to Chris Lasch quote: "... individuals cannot learn to
speak for themselves at all, much less come to an intelligent
understanding of their happiness and well-being, in a world
in which there are no values except those of the market....
the market tends to universalize itself. It does not easily
coexist with institutions that operate according to
principles that are antithetical to itself: schools and
universities, newspapers and magazines, charities, families.
Sooner or later the market tends to absorb them all. It puts
an almost irresistible pressure on every activity to justify
itself in the only terms it recognizes: to become a business
proposition, to pay its own way, to show black ink on the
bottom line. It turns news into entertainment, scholarship
into professional careerism, social work into the scientific
management of poverty. Inexorably it remodels every
institution in its own image."
"... Alternative theories would have led to very different policies. For instance, the tax cut in 2001 and 2003 under President Bush. Economists that are very widely respected were cutting taxes at the top, increasing inequality in our society when what we needed was just the opposite. Most of the models used by economists ignored inequality. They pretended that macroeconomy was unaffected by inequality. I think that was totally wrong. The strange thing about the economics profession over the last 35 year is that there has been two strands: One very strongly focusing on the limitations of the market, and then another saying how wonderful markets were. Unfortunately too much attention was being paid to that second strand. ..."
"... ditto...everyone from Tyler Cohen to Mark Perry of the AEI does daily posts about the markets working for everything...a daily "Market Failure in Everything" would provide a useful alternative to that point of view... ..."
"... Nobel-prize winner Joseph Stiglitz said monetary policies have exacerbated inequality and need to be redirected to better target getting money flowing into economies and helping small and medium-size businesses. ..."
"... policies such as quantitative easing were a "version of trickle-down economics" and the subsequent increase in asset prices only affected the wealthiest in society ..."
"... "The key problem is the access of credit to small and medium-size enterprises, is getting that flow of money into the real economy," Stiglitz said. It's "nice to have a stock market bubble if you have a lot of stock. But if you are in the bottom 80 percent of America, you have a little stock and you can feel a little good about the stock going up. But let's face it, the overwhelming bulk of our stock market is owned by the 1 percent." ..."
"... Oh my god. He lumps in Bernanke with Greenspan. What are the Fed worshippers going to do now? Their deity is under attack from Stiglitz. Of course it is nothing but fact that bernanke denied that bubbles in real estate were possible OR that a bubble could become s problem for the economy. Hats off to Stiglitz. ..."
"... How much more evidence do we need that the current trickle down monetary policy has failed? "The weak growth for the quarter puts this recovery even further behind any prior recovery at the same stage. After eight and a quarter years, the economy is only 10.1 percent larger than its pre-recession level of output. A more typical recovery would have seen at least twice as much growth." ..."
...White: ... To what extent do you feel economist and economic theory
is culpable for the crisis? What is the role of an economist going
forward?
Stiglitz: The prevalent ideology-when I say prevalent it's not all
economists- held that markets were basically efficient, that they were
stable. You had people like Greenspan and Bernanke saying things like
"markets don't generate bubbles." They had precise models that were
precisely wrong and gave them confidence in theories that led to the
policies that were responsible for the crisis, and responsible for the
growth in inequality.
Alternative theories would have led to very
different policies. For instance, the tax cut in 2001 and 2003 under
President Bush. Economists that are very widely respected were cutting
taxes at the top, increasing inequality in our society when what we
needed was just the opposite. Most of the models used by economists
ignored inequality. They pretended that macroeconomy was unaffected by
inequality. I think that was totally wrong. The strange thing about
the economics profession over the last 35 year is that there has been
two strands: One very strongly focusing on the limitations of the
market, and then another saying how wonderful markets were.
Unfortunately too much attention was being paid to that second strand.
What can we do about it? We've had this very strong strand that is
focused on the limitations and market imperfections. A very large
fraction of the younger people, this is what they want to work on.
It's very hard to persuade a young person who has seen the Great
Recession, who has seen all the problems with inequality, to tell them
inequality is not important and that markets are always efficient.
They'd think you're crazy. ...
When I first started blogging, I used to do posts with the title
"Market Failure in Everything." as a counter to "the prevalent ideology."
Maybe I should revive something similar.
ditto...everyone from Tyler Cohen to Mark Perry of the
AEI does daily posts about the markets working for
everything...a daily "Market Failure in Everything" would
provide a useful alternative to that point of view...
Nothing about Ricardian Equivalence or RBC fallacies.
While
inequality is certainly important for consumption demand, PCE
has not been a significant problem in the recovery. OTOH,
reduction of the federal budget deficit explains virtually
all of the deficient demand we have experienced. Obama and
the Dems bought into RE and are paying the price now.
"Nobel-prize winner Joseph Stiglitz said monetary policies have exacerbated inequality
and need to be redirected to better target getting money
flowing into economies and helping small and medium-size
businesses.
In a Bloomberg Television interview Tuesday with Francine
Lacqua and Michael McKee in New York, he said policies such
as quantitative easing were a "version of trickle-down
economics" and the subsequent increase in asset prices only
affected the wealthiest in society.
"The key problem is the access of credit to small and
medium-size enterprises, is getting that flow of money into
the real economy," Stiglitz said. It's "nice to have a stock
market bubble if you have a lot of stock. But if you are in
the bottom 80 percent of America, you have a little stock and
you can feel a little good about the stock going up. But
let's face it, the overwhelming bulk of our stock market is
owned by the 1 percent."
Stiglitz's comments come as some central banks around the
world are being forced to delve deeper into their policy
tools to help support their economies. As policy makers
struggle to find a way out of the economic malaise, some have
even raised the idea of helicopter money, which aims to
direct cash straight to consumers.
The Columbia University professor, who said the Federal
Reserve can do more to "channel" money to small companies and
the economy, was also critical of negative rates. This is
partly because of their potential impact on lending.
"The dangers of negative interest rates -- if you don't
manage it extraordinarily well; some countries are doing it
reasonably well, some are not -- is that it actually weakens
the banking system," he said. "If it weakens the banking
system, the banks are going to provide even less credit.
While it might have some effect on financial markets, in
terms of what we really should be concerned about, which is
the flow of credit to businesses, that's not working."
http://www.bloomberg.com/news/articles/2016-04-26/stiglitz-says-misdirected-monetary-policies-increased-inequality
What's the point of low interest rates, if they only serve
the interests of Wall Street banks and their wealthy
clientele? Oh, right! That IS the point. And most economists
are just fine with that.
Oh my god. He lumps in Bernanke with Greenspan. What are
the Fed worshippers going to do now? Their deity is under
attack from Stiglitz. Of course it is nothing but fact that
bernanke denied that bubbles in real estate were possible OR
that a bubble could become s problem for the economy. Hats
off to Stiglitz.
Falling Investment and Rising Trade Deficit Lead to Weak
First Quarter
By Dean Baker
Health care costs remain well-contained, barely growing as
a share of GDP.
GDP grew at just a 0.5 percent annual rate in the first
quarter. This weak quarter, combined with the 1.4 percent
growth rate in the 4th quarter, gave the weakest two quarter
performance since the 3rd and 4th quarters of 2012 when the
economy grew at just a 0.3 percent annual rate.
Growth was held down by both a sharp drop in
non-residential investment and a further rise in the trade
deficit. Equipment investment fell at an 8.6 percent annual
rate, while construction investment dropped at a 10.7 percent
annual rate. The latter is not a surprise, given the
overbuilding in many areas of the country. The drop in
equipment investment was undoubtedly in part driven by the
worsening trade situation, as many factories curtailed
investment plans as U.S.-made products lost out to foreign
competition, weakening demand growth. There was also a drop
in information processing equipment, indicating that those
who are expecting that robots will replace us all will have
to wait a bit longer.
The rise in the trade deficit was due to a 2.6 percent
drop in exports, as imports were nearly flat for the quarter.
Trade subtracted 0.34 percentage points from growth for the
quarter.
Consumption continued to grow at a modest 1.9 percent
annual rate, adding 1.27 percentage points to growth.
Consumption growth was held down in part by weaker demand for
new cars, which subtracted 0.33 percentage points from growth
for the quarter. This was the second consecutive decline in
the sector. It is likely that car purchases will be up
somewhat in future quarters.
The savings rate for the quarter was 5.2 percent, which is
up slightly from the 5.0 percent from the prior three
quarters and the 4.8 percent rates from 2013 and 2014, before
people started saving their oil dividends. But seriously,
there may be some modest room for this rate to decline, but
for the most part consumption growth will depend on income
growth going forward.
Health care services added 0.26 percentage points to
growth, its smallest contribution since a reported decline in
the first quarter of 2014. Spending in the sector remains
well contained, growing at just a 3.8 percent annual rate
over the last quarter and by 4.4 percent over the last year
in nominal spending.
Housing grew at a 14.8 percent annual rate, adding 0.49
percentage points to growth. Housing has being growing at a
double digit rate since the fourth quarter of 2014. While the
sector is likely to continue to grow in subsequent quarters,
the pace is almost certain to slow.
The government sector was a modest positive in the
quarter, growing at a 1.2 percent rate. State and local
spending increased at a 2.9 percent annual rate, more than
offsetting a 1.6 percent drop in federal spending, all of it
on the military side. Future quarters are likely to show
comparable growth, although the composition may be somewhat
different.
A slower rate of inventory accumulation reduced growth by
0.33 percentage points, as final sales of domestic product
grew at a 0.9 percent rate. This is the third consecutive
quarter in which the pace of inventory accumulation slowed,
although the current pace is not especially low. It is likely
that inventories will grow somewhat more quickly in the rest
of the year, being at least a small positive in the growth
story.
The weak growth for the quarter puts this recovery even
further behind any prior recovery at the same stage. After
eight and a quarter years, the economy is only 10.1 percent
larger than its pre-recession level of output. A more typical
recovery would have seen at least twice as much growth.
[Graph]
On the whole this is a weak report. The headline 0.5
percent figure probably overstates the weakness somewhat, but
it is not a good sign when two consecutive quarters have an
average growth rate of less than 1.0 percent. Inflation
remains well under control, although there was a modest
uptick in the rate of inflation shown by the core personal
consumption expenditure deflator to 1.7 percent over the last
year. Nonetheless, with an economy barely growing and an
inflation rate that remains below target, it is difficult to
envision the Federal Reserve raising interest rates further
any time soon.
How much more evidence do we need that the current trickle
down monetary policy has failed? "The weak growth for the
quarter puts this recovery even further behind any prior
recovery at the same stage. After eight and a quarter years,
the economy is only 10.1 percent larger than its
pre-recession level of output. A more typical recovery would
have seen at least twice as much growth."
Market failures aren't really market failures but market
responses to market conditions. They are failures only in the
sense that something deemed bad (e.g., falling home prices)
is the market response. An extreme example is what's being
called secular stagnation, which is just the market response
to the shift of an enormous volume of production and income
from the U.S. and Europe to China and other like places with
much higher levels of inequality and savings. It's a market
failure only in the sense that something bad (wage
stagnation, slow economic growth) happened in the U.S. and
Europe. Those responsible for the shift in production and
income to China et al. (i.e., U.S. and European business
executives) were either ignorant of the likely market
response or didn't care as long as it increased profits (via
lower costs). But that's not a market failure, it's an
executive failure.
Peter, -1
"I think almost surely both Hillary and Bernie Sanders are
very very committed to a pro-equality agenda, and the
differences are more in details, more in one's confidence in
their ability to execute this in a political context."
Disappointing. I guess we'll find out if he's right. Also his
suggestion that the economy would have done just as well with
no QEs is very disappointing.
"Stiglitz: I think they were right. They originally said,
"When we hit 6 percent that's full employment." Now they know
that 4.9 isn't full employment, there's weak labor market.
They should have focused more on improving the channel of
credit to make sure that money was going to small and
medium-sized enterprises They should have said to the
bank-like some other countries have done-if you want access
to the Fed window you have to be lending to SMEs. "
Which was Bernie's suggestion. Hillary has said nothing.
Many people now agree that cults frequently psychologically manipulate their membership to ensure
conformity and control. Steve Hassan's excellent book "Combating Cult Mind-Control" is a great starting
point. The following points come from numerous sources. Not all of these are found in every cult
but enough of them are found in most cults to make them very frightening places that inflict deep
psychological damage on their membership.
1. Submission to Leadership - Leaders tend to be absolute, prophets of God, God Himself, specially
anointed apostle, or just a strong, controlling, manipulative person who demands submission even
if changes or conflicts occur in ideology or behavior.
2. Polarized World View - The group is all that is good; everything outside is bad.
3. Feeling Over Thought - Emotions, intuitions, mystical insights are promoted as more important
than rational conclusions.
4. Manipulation of Feelings - Techniques designed to stimulate emotions, usually employing group
dynamics to influence responses.
5. Denigration of Critical Thinking - Can go so far as to characterize any independent thought
as selfish, and rational use of intellect as evil.
6. Salvation or Fulfillment can only be realized in the group.
7. End Justifies the Means - Any action or behavior is justifiable as long as it furthers the
group's goals. The group (leader) becomes absolute truth and is above all man-made laws.
8. Group Over Individual - The group's concerns supersede an individual's goals, needs, aspirations,
and concerns. Conformity is the key.
9. Warnings of severe or supernatural sanctions for defection or even criticism of the cult -
This can go so far as to apply to negative or critical thought about the group or its leaders.
10. Severing of Ties with Past, Family, Friends, Goals, and Interests - Especially if they are
negative towards or impede the goals of the group.
11. Barratrous Abuse - Some cults use "cult lawyers' to sue ex-cult members and critics often
using fabricated evidence and causing financial stress by repeated trivial law suits. The cult's
aim is not so much to win the lawsuit (though they often do) as to harass and intimidate their critics
into silence.
Cult Conversion Techniques
Conversion into a cult is usually the result of two interacting dynamics. The first is the personal
vulnerability of the potential recruit. This vulnerability may be enhanced by, but not limited to,
transitional situations such as divorce, abuse, job or career change, moving away from home or leaving
college, an illness, or death of a loved one.
The second dynamic are the tactics used to convert, indoctrinate (brainwash) and hold the members.
Some groups attempt a radical and rapid conversion over an intensive week-end or week, such as The
Forum or Scientology. Others have a more subtle approach which may take weeks or months, such as
the Jehovah's Witnesses. The following are techniques of unethical thought reform and mind control:
The importance of cognitive dissonance
Any person will act so as to reduce conflict between their thoughts, their emotions and their
behavior. When these things are at odds with each other a person experiences 'dissonance" (the opposite
of harmony). Cognitive dissonance is when what a person knows is right is at odds with either what
they feel is right or what they are doing. Cults quickly move to control four key areas of a person's
life during the conversion process -
Behavior - by intense involvement in activity and isolation from others. Behavior is closely prescribed
and carefully supervised.
Emotions - a new recruit is often "love bombed" and greeted enthusiastically and told they are
very special. They are made to feel that everyone in the cult loves them and that "nothing could
be wrong with such a loving group of people". However this does not last. Emotions are sent on a
roller coaster and the only hope of emotional stability is total conformity and pleasing the cult
leadership.
Thought - indoctrination, extended "teaching sessions", memorization of cult dogma, "auditing
sessions" where inner secrets are revealed and thought processes exposed - all are a part of attempts
at thought control so that the thought life of the convert is taken up entirely with the group.
Information - isolation from peers, TV, radio, newspapers, (often labeled as "Satanic") and careful
control of associations ensures that little or no material critical of the cult reaches the new recruit
during the conversion process.
The combination of all these factors make it very likely that if the new recruit stays in the
cult for any length of time they will come to believe in it utterly. We are not as objective as we
like to think and when all these powerful forces combine then very intelligent people will be "converted"
but not by God.
A Quick List of Nasty Practices
1. A Focus on felt needs, defects, with exaggerated promises of fulfillment.
2. Rigid Control of Time and Activities - Often physically and emotionally draining activities
leaving little time for reflection, questioning and privacy.
3. Information Control - Cutting off or denigrating outside sources of information especially
if it is critical of the group. This can also include misrepresentation and information overload.
4. Language Manipulation - Ascribing new "inside" meanings in ordinary words or the use of an
exclusive vocabulary subtly moving a person to want to become an insider.
5. Discouraging Critical, Rational Thought and Questions - For instance, comments like, "Satan
is the cause of all doubt; he wants to keep you from the Truth", or, "one must move beyond the cognitive
left-brain and get in touch with one's higher self, his right-brain, intuitive self for true knowledge".
6. Instruction and Repetition in Trance Induction Techniques - These include progressive relaxation,
chanting, hypnosis, meditation, trance states, guided imagery or visualization, deep breathing exercises,
all of which make a person highly suggestible, often unable to distinguish between fantasy and reality,
and can cause psychopathology such as relaxation induced anxiety.
7. Confession Sessions - Promoting full disclosure of all secret sins, thoughts, temptations which
can become a powerful tool to manipulate, blackmail, and emotionally bond people to the leader or
group. It is actually a depersonalization or stripping of the inner self , a forced submission to
the group.
8. Guilt, Fear - Weapons used to maintain group loyalty, suppress questions and defections.
9. Control of Sexuality and Intimacy within the Cult - This may extend to marriage decisions (Moonies),
sexual relations, promiscuity (Children of God), group sex (New Age Therapy groups), child sex, adultery,
and polygamy (Branch-Davidians).
10. Excessive Financial Obligations - More and more money is needed to attain higher degrees of
spirituality (Scientology), or complete submission to God requires one to give up everything to the
group or leader (pp. 26-29).
The more points of ideology and conversion methodology that are in place, and the degree of intensity
of their application is proportionate to the effect and damage of mind control.
These factors tend to make normal evangelism, or even dialogue, much more difficult. Therefore,
some people have looked to deprogrammers or exit-counselors to help break the mental head-locks of
their loved ones in an attempt to rescue them from the cult.
Can an Orthodox Christian Group Get Like This ?
Yes they can!!! Just because the theology is straight down the line does not mean the behavior
will be. I was in a mission society that in a particular place under the influence of a leader with
a great deal of charisma and authority became "cultic" for a year or so. That has been corrected
but much damage was done.
Some Christian groups start off great -like the "children of God' and end up utterly wrong and
evil. The church needs strong leaders, but they must always be accountable to Scripture and to other
wise Christians.
We must allow people to be critical, to think for themselves and to understand scripture freely
apart from the dictates of any leader. we must allow a great deal of emotional and intellectual freedom
and renounce our desires to control others if we are to have healthy churches where people rejoice
in the Truth.
This article may be freely reproduced for non-profit ministry purposes but may not be sold in
any way. For permission to use articles in your ministry, e-mail the editor, John Edmiston at[email protected].
In Does Science Advance One Funeral at a Time?
(NBER Working
Paper No. 21788
), Pierre Azoulay, Christian Fons-Rosen, and Joshua S. Graff Zivin explore
the famous quip by physicist Max Planck. They show that the premature deaths
of elite scientists affect the dynamics of scientific discovery. Following
such deaths, scientists who were not collaborators with the deceased stars
become more visible, and they advance novel ideas through increased publications
within the field of the deceased star. These "emerging stars" are often
scientists who were not previously active within that field. The results
suggest that outsiders to a specific scientific field are reluctant to challenge
a research star who is viewed as a leader within that field.
The authors tracked the publication records of scientists - both collaborators
and non-collaborators - before and after a "research superstar" died. To
narrow the scope of their study, they focused on academics in the life sciences,
a sector which is heavily supported by National Institutes of Health funding
and produces a high volume of research. They established a list of 12,935
elite scientists using criteria such as the amount of research funding received,
publication citations, number of patents, membership in prestigious organizations,
and career awards and prizes. They then examined records of 452 of those
elite scientists who died prematurely - before retiring or becoming administrators
- between 1975 and 2003. Publication data was gathered from the National
Library of Medicine's PubMed service, which indexes and tracks articles
by research topics, names of authors and coauthors, citations, related articles,
and other information from 40,000 publications.
The findings confirm previous work showing that the number of articles by
collaborators decreased substantially - by about 40 percent - after the
death of a star scientist. Publication activity by non-collaborators increased
by an average of 8 percent after the death of an elite scientist. By five
years after the death, this activity of non-collaborators fully offset the
productivity decline of collaborators. "These additional contributions are
disproportionately likely to be highly cited," the researchers found. "They
are also more likely to be authored by scientists who were not previously
active in the deceased superstar's field."
Few of the deceased scientists served as editors of academic journals or
on committees overseeing the issuance of research grants, so the researchers
rule out the possibility that the deceased scientists used their influence
to limit who could or could not publish their work or receive grants within
their field. Instead, they say, the evidence suggests that outsiders were
reluctant to challenge the leadership within research areas in which an
elite scientist was active. While entry occurs after a star's passing, it
is not monolithic. Key collaborators left behind can regulate entry into
the field through the control of intellectual, social, and resource barriers.
"While coauthors suffer after the passing of a superstar, it is not simply
the case that star scientists in a competing lab assume the leadership mantle,"
the authors conclude. "Rather, the boost comes largely from outsiders who
appear to tackle the mainstream questions within the field but by leveraging
newer ideas that arise in other domains. This intellectual arbitrage is
quite successful - the new articles represent substantial contributions,
at least as measured by long-run citation impact."
"... In Flint the agencies paid to protect these people weren't solving the problem. They were the problem. What faculty person out there is going to take on their state, the Michigan Department of Environmental Quality, and the U.S. Environmental Protection Agency? ..."
"... I don't blame anyone, because I know the culture of academia. You are your funding network as a professor. You can destroy that network that took you 25 years to build with one word. I've done it. When was the last time you heard anyone in academia publicly criticize a funding agency, no matter how outrageous their behavior? We just don't do these things. ..."
"... If an environmental injustice is occurring, someone in a government agency is not doing their job. Everyone we wanted to partner said, Well, this sounds really cool, but we want to work with the government. We want to work with the city. And I'm like, You're living in a fantasy land, because these people are the problem. ..."
The Chronicle of Higher Education, By Steve
Kolowich February 02, 2016
Q. Do you have any sense that perverse incentive structures prevented
scientists from exposing the problem in Flint sooner?
A. Yes, I do. In Flint the agencies paid to protect these people
weren't solving the problem. They were the problem. What faculty person
out there is going to take on their state, the Michigan Department of
Environmental Quality, and the U.S. Environmental Protection Agency?
I don't blame anyone, because I know the culture of academia.
You are your funding network as a professor. You can destroy that network
that took you 25 years to build with one word. I've done it. When was
the last time you heard anyone in academia publicly criticize a funding
agency, no matter how outrageous their behavior? We just don't do these
things.
If an environmental injustice is occurring, someone in a government
agency is not doing their job. Everyone we wanted to partner said, Well,
this sounds really cool, but we want to work with the government. We
want to work with the city. And I'm like, You're living in a fantasy
land, because these people are the problem.
In recent years, Yale University's Dan Kahan has lead an interdisciplinary team of scholars in what
they call the Cultural Cognition Project,
exploring why individuals often abandon logic when it comes to forming beliefs about contentious
social, political and science issues: gun control, vaccine safety, climate change, fracking, biotechnology--there
is a long list.
Kahan and his fellow researchers suggest that many of our most strongly held positions, while
dressed in the garb of independent critical thinking, rationality and science, are actually rooted,
irrationally, in the tribal-like beliefs of our fellow ideological travelers, our extended families
who give form to our cultural identities.
"... The case for additional public investment is as strong in the UK (and Germany ) as it is in the US. Yet since 2010 it appeared the government thought otherwise. ..."
"... However since the election George Osborne seems to have had a change of heart. ... ..."
The economic case for investing when the cost of borrowing is so cheap (particularly when the
government can issue 30 year fixed interest debt) is overwhelming. I had guessed the majority
would be pretty large just by personal observation. Economists who are not known for their anti-austerity
views, like
Ken Rogoff, tend to support additional public investment.
Thanks to a
piece by Mark Thoma I now have some evidence. His article is actually about ideological bias
in economics, and is well worth reading on that account, but it uses results from the ChicagoBooth
survey of leading US economists. I have used this survey's results on the impact of fiscal policy
before, but they have
asked a similar question about public investment. It is
"Because the US has underspent on new projects, maintenance, or both, the federal government
has an opportunity to increase average incomes by spending more on roads, railways, bridges
and airports."
Not one of the nearly 50 economists surveyed disagreed with this statement. What was interesting
was that the economists were under no illusions that the political process in the US would be
such that some bad projects would be undertaken as a result (see the follow-up question). Despite
this, they still thought increasing investment would raise incomes.
The case for additional public investment is as strong in the UK (and
Germany)
as it is in the US. Yet since 2010 it appeared the government thought otherwise. ...
However since the election George Osborne seems to have had a change of heart. ...
"... It should never be forgotten that the conservative orthodoxy -- of low taxes on the wealthiest, deregulation of finance, small govt deficits, and the need for inequality to spur individual initiative -- was also economics departments orthodoxy for decades. Economists put their imprimatur on this whole mess, with VERY few exceptions. ..."
"... 70% of the population STILL believes that federal deficits are a big problem, and also believes that this is standard economic orthodoxy. Until the crash, most people were ready to accept some degree of privatization of Social Security, and Martin Feldstein pushed on this repeatedly with no counterargument from the economics departments. The Clinton economic team was instrumental in pushing financial deregulation, upon the supposed orthodoxy that it is good for the economy. Even the worst nonsense in Friedmans Capitalism and Freedom and Free to Choose barely saw any push-back from other economists in the op-ed pages. ..."
"... Reaganomics was approved by most economists either through mood affiliation or intellectual incompetence. That 70% currently includes college graduates who took economics classes and traders on Wall Street. ..."
"... Nonsense. Polls of profession economists opinions abound. Reaganomics/neoliberalism has predominated in economics until recently. On a few big issues (notably, on whether the size of federal deficits as % of GDP should be reduced) the split remained even. ..."
It should never be forgotten that the "conservative orthodoxy" -- of low taxes on the wealthiest,
deregulation of finance, small gov't deficits, and the need for inequality to spur individual
initiative -- was also "economics departments orthodoxy" for decades. Economists put their imprimatur
on this whole mess, with VERY few exceptions.
It's been a first-rate intellectual scandal, perpetrated by some of the biggest names in the
economics racket, and with most of the lesser lights tagging along, for fear of ostracism.
And most of them STILL don't have a clear view of what the real problems are.
70% of the population STILL believes that federal deficits are a big problem, and also believes
that this is standard economic orthodoxy. Until the crash, most people were ready to accept some
degree of privatization of Social Security, and Martin Feldstein pushed on this repeatedly with
no counterargument from the economics departments. The Clinton economic team was instrumental
in pushing financial deregulation, upon the supposed orthodoxy that it is good for the economy.
Even the worst nonsense in Friedman's "Capitalism and Freedom" and "Free to Choose" barely saw
any push-back from other economists in the op-ed pages.
"Conservative orthodoxy" can be laid squarely at the feet of the economics departments, up
until the crash. If the ones who are supposed to know better, don't make a concerted effort to
refute the tons of nonsense spouted in the name of economics, then they should resign their tenure.
It most certainly WAS taken as the orthodoxy. Reaganomics was approved by most economists
either through mood affiliation or intellectual incompetence. That 70% currently includes college
graduates who took economics classes and traders on Wall Street.
"Reaganomics was approved by most economists either through mood affiliation or intellectual incompetence."
Not even remotely true. Criticized by liberal economists. Blasted by the conservative economists
who refused to work for the Reagan White House. Even blasted by a young Greg Mankiw but that is
before he drank the Bush Kool Aid.
Lee - your claim here is just wrong. And the more you defend it, the worse it gets.
Nonsense. Polls of profession economists' opinions abound. Reaganomics/neoliberalism has predominated
in economics until recently. On a few big issues (notably, on whether the size of federal deficits
as % of GDP should be reduced) the split remained even.
(1992 -- responses from 464 US economists):
"A large federal budget deficit has an adverse
effect on the economy" 78.7% agree (includes 'agree with provisos').
"The money supply is a more important target that interest rates for monetary policy" 56.7%
agree.
"As the USSR moves toward a market economy. a rapid and total reform (i.e., "going cold turkey")
would result in a better outcome than a slow transition" 57.6% agree.
"A minimum wage increases unemployment among young and unskilled workers" 78.9% agree.
"An economy in short-run equilibrium at a real GNP below potential GNP has a self-correcting
mechanism that will eventually return it to potential GNP" 50.8% agree.
"Changes in aggregate demand affect real GNP in the short run but not in the long run" 52.8%
agree.
"Lower marginal income tax rates reduce leisure and increase work effort" 55.4% agree. (Alston
et al., "is there a global economic consensus?" AEA Papers and Proceedings, 1992)
"... Sometimes … demand is restricted by the fact that nobody has any money in their pocket. ..."
"... the only takeaway is that most economists are nothing more than rancid witch doctors doing
backflips to skirt the basic explanation that aggregate demand has been deliberately sabotaged. ..."
"... Modern neoliberal economics is just an ideology not a science. It exists to justify the current
distribution of wealth with pseudoscientific nonsense written in abstruse mathematical language. Milton
Friedman was to economics what T.D. Lysenko was to Soviet biology. Pseudoscience in service to the ruling
class. ..."
"... [Economists are] clueless about the real world because their fat paycheck magically appears
in their bank account, while producing nothing. ..."
By Ashoka Mody, Professor of Economics at Princeton. Originally published at
Project
Syndicate
For starters, world trade is growing at an anemic annual rate of 2%, compared to 8% from 2003
to 2007. Whereas trade growth during those heady years far exceeded that of world GDP, which averaged
4.5%, lately, trade and GDP growth rates have been about the same. Even if GDP growth outstrips growth
in trade this year, it will likely amount to no more than 2.7%.
The question is why. According to Christina and David Romer of the University of California, Berkeley,
the aftershocks of modern financial crises – that is, since World War II –
fade after 2-3 years . The Harvard economists
Carmen Reinhart
and Kenneth
Rogoff say that it takes
five years
for a country to dig itself out of a financial crisis. And, indeed, the financial dislocations
of 2007-2008 have largely receded. So what accounts for the sluggish economic recovery?
One
popular explanation lies in the fuzzy notion of "secular stagnation": long-term depressed demand
for goods and services is undermining incentives to invest and hire. But demand would remain weak
only if people lacked confidence in the future. The only logical explanation for this enduring lack
of confidence, as Northwestern University's Robert Gordon has
painstakingly documented
and argued , is slow productivity growth.
Before the crisis – and especially from 2003 to 2007 – slow productivity growth was being obscured
by an illusory sense of prosperity in much of the world. In some countries – notably, the United
States, Spain, and Ireland – rising real-estate prices, speculative construction, and financial risk-taking
were mutually reinforcing. At the same time, countries were amplifying one another's growth through
trade.
Central to the global boom was China, the rising giant that flooded the world with cheap exports,
putting a lid on global inflation. Equally important, China imported a huge volume of commodities,
thereby bolstering many African and Latin American economies, and purchased German cars and machines,
enabling Europe's largest economy to keep its regional supply chains humming.
This dynamic reversed around March 2008, when the US rescued its fifth-largest investment bank,
Bear Sterns, from collapse. With the eurozone banks also deeply implicated in the subprime mortgage
mess and desperately short of US dollars, America and much of Europe began a remorseless slide into
recession. Whereas in the boom years, world trade had spread the bounty, it was now spreading the
malaise. As each country's GDP growth slowed, so did its imports, causing its trading partners' growth
to slow as well.
The US economy began to emerge from its recession in the second half of 2009, thanks largely to
aggressive monetary policy and steps to stabilize the financial system. Eurozone policymakers, by
contrast, rejected
monetary stimulus and implemented
fiscal
austerity measures , while ignoring the deepening distress of their banks. The eurozone thus
pushed the world into a second global recession.
Just when that recession seemed to have run its course, emerging economies began to unravel. For
years, observers had been touting the governance and growth-enhancing reforms that these countries'
leaders had supposedly introduced. In October 2012, the IMF
celebrated
emerging economies' "resilience." As if on cue, that facade began to crumble, revealing an inconvenient
truth: factors like high commodity prices and massive capital inflows had been concealing serious
economic weaknesses, while legitimizing a culture of
garish inequality and rampant corruption .
These problems are now being compounded by the growth slowdown in China, the fulcrum of global
trade. And the worst is yet to come. China's huge industrial overcapacity and property glut needs
to be wound down; the hubris driving its global acquisitions must be reined in; and its corruption
networks have to be dismantled.
In short, the factors that dragged down the global economy in 2015 will persist – and in some
cases even intensify – in the new year. Emerging economies will remain weak. The eurozone, having
enjoyed a temporary reprieve from austerity, will be constrained by listless global trade. Rising
interest rates on corporate bonds portend
slower growth in
the US. China's collapsing asset values could trigger financial turbulence. And policymakers are
adrift, with little political leverage to stem these trends.
The IMF should stop forecasting renewed growth and issue a warning that the global economy will
remain weak and vulnerable unless world leaders act energetically to spur innovation and growth.
Such an effort is long overdue.
ArkansasAngie , January 6, 2016 at 6:17 am
"But demand would remain weak only if people lacked confidence in the future"
Sometimes … demand is restricted by the fact that nobody has any money in their pocket.
James Levy, January 6, 2016 at 6:45 am
Is he kidding:
The only logical explanation for this enduring lack of confidence, as Northwestern University's
Robert Gordon has painstakingly documented and argued, is slow productivity growth.
Real wages for a hefty percentage of the population haven't risen since 1971. Most people are
treading water or losing ground. Over 90% of the modest gains since the 2008 crash have gone to
1% or less of the population. But the problem is productivity! And this guy has a tenured job
at Princeton. Standards for employment there must include smug self-assurance, ideological blinders,
and the inability to assimilate any facts not cogent to people richer than you are.
Jim Haygood, January 6, 2016 at 11:37 am
If Princeton's most illustrious alumnus can finally make some serious loot in the private sector,
soon the author will be toiling at the Bernanke School of Economics.
Skippy, January 6, 2016 at 8:18 am
Productivity is the cocaine of the labour pool, like the old cocaine ad of the 80s in Calif
[during the epidemic].
White square room about 6M X 6M, top shelf sale executive sort doing laps like a con and the
verse goes like…. I do cocaine because I'm more productive… so I make more money… so I can do
more cocaine… over and over and with each litany increases his speed until a blur….
Skippy…. the end is a wrung out wretch sitting on the step of some low socioeconomic apt talking
about losing, wife, kids, job, everything…. w burnt out dopamine receptors as a lullaby till morte'
efschumacher, January 6, 2016 at 8:50 am
Here in the US:it's not like there's a shortage of work to be done to fix the massively inappropriate
national infrastructure – to make it human sustainable – I mean for the 'little people'. There
is of course the perennial lack of congressional vision and long term planning. There lies a huge
root of the problem.
RabidGandhi, January 6, 2016 at 9:12 am
Is this meant as a good cop/bad cop contrast piece with the Ann Pettifor post?
Here, I gave up any hope of Mody being at all earnest when he cited Rogoff and Reinhart (!!!).
Then the rest of the article completely self-destructs: weak productivity and insufficient innovation
are the issue?
When combined with yesterday's NYT article on inequality, the only takeaway is that most
economists are nothing more than rancid witch doctors doing backflips to skirt the basic explanation
that aggregate demand has been deliberately sabotaged.
Stephen Gardner, January 6, 2016 at 9:33 am
Modern neoliberal economics is just an ideology not a science. It exists to justify the
current distribution of wealth with pseudoscientific nonsense written in abstruse mathematical
language. Milton Friedman was to economics what T.D. Lysenko was to Soviet biology. Pseudoscience
in service to the ruling class.
cnchal, January 6, 2016 at 9:43 am
. . . the only takeaway is that most economists are nothing more than rancid witch doctors
doing backflips to skirt the basic explanation that aggregate demand has been deliberately sabotaged.
They are the useless eaters. [Economists are] clueless about the real world because their
fat paycheck magically appears in their bank account, while producing nothing.
Here is Mody
The US economy began to emerge from its recession in the second half of 2009, thanks
largely to aggressive monetary policy and steps to stabilize the financial system.
Totally clueless.
susan the other, January 6, 2016 at 2:02 pm
"Lack of confidence" – let me count the ways. This is a phrase to match every vacuous denial
of human economic chaos ever pontificated. Yuck.
"... [The financial crisis is worse than thought …] ..."
"... – Yes Prime Minister, A Real Partnership ..."
"... Economists: purveyors of fictions upon which the superstructure of organized robbery is raised. ..."
"... "Market Failure" is the name that economists who believe that the market cannot ever fail use when the market fails. ..."
"... "Economists put decimal points in their forecasts to show that they have a sense of humour" ..."
"... "Did you ever think that making a speech on economics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else." ..."
A6: None. They're all waiting for the unseen hand of the market to correct the lighting disequilibrium.
tony, December 30, 2015 at 6:12 am
Q: What do you call an economist that makes a prediction?
A: Wrong.
ben, December 30, 2015 at 3:28 pm
Two economists are walking on the street. They notice a pile of horseshit, and the older
one says to the younger one: "I'll pay you twenty thousand if you eat that." The younger one
ponders for a moment, then agrees and eats it. They walk a bit more and run into another pile
of horse feces. So the younger one tells the elder: "I'll pay you twenty thousand if you eat
that!". The older economist considers the offer and starts eating. After a while the younger
economists stops and asks: "What was the point of this? We both ate a pile shit and neither of
us got richer." The older one answers: "What are you talking about? We both produced and
received twenty thousand worth in income and services."
GDP. Great deposits of poo.
Clive, December 31, 2015 at 5:41 am
"This economy is really terrible."
"How bad is the economy?"
"The economy is so bad, this year oysters are making fake pearls…"
"The economy is so bad, organised crime just laid off 10 judges…"
(and so on)
Paul Jonker-Hoffrén, December 30, 2015 at 7:27 am
"Knock Knock!"
"Who's there?"
"It's Return to Growth!"
Two years later…
"Knock Knock!"
"Who's there?"
"It's Return to Growth!"
And ad finitum…
Clive, December 30, 2015 at 6:21 am
"Knock Knock"
"Who's there?"
"Janet Yellen"
"Well there's no need to shout, I heard you knocking"
Joaquin Closet, December 30, 2015 at 7:42 am
The number of economists is the only thing that contradicts the Law of Supply and Demand.
craazyboy, December 30, 2015 at 9:00 am
Q: How many economists does it take to change a light bulb?
A: Three. A micro-economist to hold the ladder, a macro-economist to rotate the room, and a
university economist to develop the math model and forecast how long it will take.
Ulysses, December 30, 2015 at 9:56 am
A mathematician, an accountant and an economist apply for the same job at an oil company.
The interviewer calls in the mathematician and asks "What do two plus two equal?" The
mathematician replies "Four." The interviewer asks "Four, exactly?" The mathematician looks at
the interviewer hard and says "Yes, four, exactly."
Then the interviewer calls in the accountant and asks the same question "What do two plus two
equal?" The accountant says "On average, four – give or take ten percent, but on average,
four."
Then the interviewer calls in the economist and poses the same question "What do two plus two
equal?" The economist gets up, locks the door, closes the shade, sits down next to the
interviewer and says, "What do you want it to equal"?
Paul Tioxon, December 30, 2015 at 10:02 am
What do you call a cruise ship sinking with 500 PhD economists chained below deck?
A good start.
allan, December 30, 2015 at 10:03 am
Frederic Mishkin.
Yves Smith, December 30, 2015 at 4:32 pm
Oh, that is good!
Paul
An economist is someone who will tell you tomorrow why what they predicted yesterday didn't happen
today.
An economist, a physicist, and an engineer are stranded on an island with a can of food, and no
opener.
The engineer says, "Let's smash the can open with a rock and eat". The physicist replies, "Naw, that's going to splatter the food all over the place. Let's light a
fire, the expanding gases will force the can to pop open and presto: warm food!" The economist says, "Bad idea: the can will explode and the food will be all over the place. Now…
let's assume we have a can opener…."
Blue Meme
A physician, an engineer, and an economist were discussing who among them belonged to the oldest
profession. The physician said, "Remember, on the sixth day God took a rib from Adam and fashioned
Eve, making him the first surgeon. Therefore, medicine is the oldest profession."
The engineer replied, "But, before that, God created the heavens and earth from chaos, thus he
was the first engineer. Therefore, engineering is an older profession than medicine."
Then, the economist spoke up. "Yes," he said, "But who do you think created the chaos?"
aj
The First Law of Economists: For every economist, there exists an equal and opposite economist. The Second Law of Economists: They're both wrong.
fresno dan
Pareto's law of optimal economic theory: an economic theory has reached an optimal state when no other economist can make it wronger
pat b
The Third Law of Economists : The two economists theories don't add up.
twonine
"Economics is extremely useful as a form of employment for economists." ― John Kenneth Galbraith
gordon
JKG has some excellent one-liners. My favourite:
"The trouble with competition is that in the end somebody wins."
Joe Hill
"Again, since I'm not an economist I really have no idea what the wrong solution is."
~ @RudyHavenstein
Ramanan
[The financial crisis is worse than thought …]
James Hacker: Bernard, Humphrey should have seen this coming and warned me.
Bernard Woolley: I don't think Sir Humphrey understands economics, Prime Minister;
he did read Classics, you know.
James Hacker: What about Sir Frank? He's head of the Treasury!
Bernard Woolley: Well I'm afraid he's at an even greater disadvantage in understanding
economics: he's an economist.
Economists: purveyors of fictions upon which the superstructure of organized robbery is raised. (apologies to Ambrose Bierce)
Synoia
Q: What do you call an Economist who tells the truth?
A: Unemployed.
Ivy
If you laid all the economists end to end,
it would probably be a good thing.
They still wouldn't reach a conclusion.
ben
A farmer and two bankers are shipwrecked on an island. Two weeks later help finally arrives. The
bankers greet their rescuer who remarks how well they look.
BankerA: "we realised the potential of the natural resources on this island were tremendous".
BankerB: "I created some fiat money, we divided it up. I lent BankerA ten times my share for a
coconut farm startup, he invested ten times his share in an accountancy startup."
Rescuer: "well that's amazing, only where is it all, I don't see any produce – how did you actually
survive?"
BankerA: "We each used our debt to invest in futures given the fertile land it was clear the land
could generate wealth once labour was applied. We both realised significant paper profits. Oh and
we ate the farmer"
--
Bankers live off our backs.
Nortino
What did the supply curve say to the demand curve?
If you shift a little to the right, I'll give you some more of what you want.
_________
Why did the economist cross the road?
Because his models predicted he would.
TG
"Market Failure" is the name that economists who believe that the market cannot ever fail use
when the market fails.
Synoia
Hmm, it seems you should take your own advice to heart. :-)
What is a person called who claims to predict the future and has a history of 100% failure
in predictions?
a) A Charlatan b) An Economist c) A prophet
afreeman
In the same vein: econ entropy: money invented from hot air evaporates, what do you expect?
How many economists does it take to screw in a lightbulb?
Only one, but the lightbulb has to be hanging from the ceiling. Because economists can only screw
things up.
Minnie Mouse
It takes one economist to change a light bulb and take the entire power grid down.
James McFadden
"Did you ever think that making a speech on economics is a lot like pissing down your leg?
It seems hot to you, but it never does to anyone else." Lyndon Johnson
The Last but not LeastTechnology is dominated by
two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt.
Ph.D
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