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As is clear from his "Capitalism and Freedom" book Milton Friedman in his late years became a dangerous, completely blind to science ideologue, a corrupt academic who is ready for many to commit anything that the patrons in financial oligarchy wanted.
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Friedman's use of his position as the darling of irresponsible financiers to promote pseudo-scientific justification of their behavior, and Greenspan's used his position to implement Friedman's recommendations. While it's too late to try Friedman, Greenspan really needa to be held accountable least in order to prevent others of their kind from gaining respect and influence. There were actually two Friedmans. Early and late.
Since 1963 he was not a scientist, but a regular corrupt politician with a high academic degree, working for financial oligarchy and relentlessly promoting neoliberal views.
I think he also helped to invent "mathematical masturbation" or more correctly using mathematics as a propaganda tool so common in modern economics when a model is so detached from the reality (and ususally does not take into account accuracy of input data, which is typical for Krugman) that it becomes a perversion in style of medieval deliberations "How many angels can dance on the head of a pin?"
See also http://economistsview.typepad.com/economistsview/2006/12/friedman_and_ga.html
"...Yes, governments sometimes fail, but unfettered markets are a certain prescription for failure. Galbraith made this case better than most. ...
Galbraith's penetrating insights into the nature of capitalism - as it is lived, not as it is theorized in simplistic models - has enhanced our understanding of the market economy. ... [His passing] has left a gap in our intellectual life: Who will stand up against the economics establishment to articulate an economic vision that is both in touch with reality and comprehensible to ordinary citizens?..."
[Laughed best:]
"...Friedman used the same strategy of "testing the evidence" when it came to Mr. Galbraith's criticisms. For example, the evidence failed to support Galbraith's contention that big business can manipulate customers at will or ignore stockholders because of its size and power..."
[I wonder if Mark Skousen still believes that today?]
Several of Milton Friedman interviews are available on YouTube. See for example Milton Friedman. In this interview his sophistry about minimum wages is really primitive, distasteful and intellectually dishonest. Acting as a plain-vanilla propagandist. I think that he understands the level of corruption he was engaged in, but just find it beneficial to promote this simplistic ramble. In reality it is not minimum wages, but the army of illegal immigrants as well as offshoring of manufacturing that have negative effect of low qualified pool of laborers. Illegal immigrants are in essence a modern age slaves and wide use of their labor produces the effects he referred to. How he can ignore this and other important effects is belong me and discredit academic credential of Chicago School better then any direct critique. Also listen his simplistic assessment of Great Depression and think about the current economic situation. All-in-all in this interview he comes as an intellectual lightweight, almost Kudlow-level (which is as close to the floor, as one can get). His advocacy of Wild West capitalism and reckless deregulation did a lot harm to the country and now chickens come home to roost. And how the question about possibility to preserve savings in fiat money regime became another "interesting question."
In his December 23rd, 2008 post RIP Chicago School of Economics: 1976-2008 by Barry Ritholtz aptly summarized the dominant sentiment about this pseudo science:
Some time ago, I asked if “Milton Friedman was the next economist whose once lauded reputation may soon slide ?”Turns out it happened much quicker than expected. A long Bloomberg piece, Friedman Would Be Roiled as Chicago Disciples Rue Repudiation, discusses the tarnishment of the Chicago school of thought.
Its long overdue. From the efficient-market theories, to the concept of man as rational profit maximizers, much of the edifice that is was the Chicago school of economics is based on a foundation that is false, disproven or otherwise questionable.
I first encountered the Chicago theory in law school. The Chicagoists somehow read into law a market efficiency component that was never there. I recoiled against it — not because of the libertarianism, which I embraced. Rather, it seemed a backdoor way to circumvent democracy, and force into the legal system rules that were never debated, voted on, or agreed to by a representative government. I found the extremist legal theories of Judges like Richard Posner and Frank Easterbrook intellectually repulsive. They were undemocratic, anti-representative government. When I told a professor that the law and economics movement was an attempt at a political coup, he laughed and said, try to stop it.
I disliked the neoclassical price theory. It was authoritarian, a worship of a form of mob rule outside of the usual legal channels. The view that regulation and other government intervention is always inefficient compared to a free market has now been made laughable. Its always the extremists that seem to control a discipline or school of thought. If I have any dogma, its extremism in all forms is undesirable (I know, radical, huh)
If there is one silver lining in the entire collapse, its that this group of intellectual charlatans have been revealed as utterly wanting. Oh, there will be some pushback by the Chicagoans. (Watch the comments for the cute little protests from law students who never practiced a day in their lives, and the biz school kiddies who never executed a single trade).
Anyway, here’s an excerpt from today’s Bloomberg:
“When Friedman’s Platonic ideas of free-market virtues are put into practice, they have too often generated a systemic orgy of competitive greed — whose remedies, ironically, entail countermeasures of nationalization,” Marshall Sahlins, an emeritus professor of anthropology, said during the debate, speaking in a room adorned with murals of female students parading through the campus in medieval gowns. Sahlins, 77, noted a few weeks later socialist and capitalist countries alike are regulating or nationalizing financial institutions in a rebuff to Friedman.
Off campus, the global meltdown is stirring anti-Chicago economists, who were voices in the wilderness during decades of lax government oversight of markets. Joseph Stiglitz, who won one of Columbia’s economics Nobels, says the approach of Friedman and his followers helped cause today’s turmoil.
‘Bears the Blame’ “The Chicago School bears the blame for providing a seeming intellectual foundation for the idea that markets are self- adjusting and the best role for government is to do nothing,” says Stiglitz, 65, who received his Nobel in 2001.
University of Texas economist James Galbraith says Friedman’s ideology has run its course. He says hands-off policies were convenient for American capitalists after World War II as they vied with government-favored labor unions at home and Soviet expansion overseas.
“The inability of Friedman’s successors to say anything useful about what’s happening in financial markets today means their influence is finished,” he says.
Instead, Galbraith, 56, says policy-makers are rediscovering the ideas of his father, Harvard professor John Kenneth Galbraith, and economist John Maynard Keynes of the University of Cambridge. Keynes, who died in 1946, argued that governments should spend to combat the unemployment that free markets tolerate. Galbraith, who died in 2006, rejected mathematical models and technical analyses as divorced from reality.”
That’s the phrase that best sums up the Chicago School: “Divorced from Reality.”
Chicago School repudiation? Good riddance!
The most popular pseudo-academic theory that was propagated by Chicago school for the last few decades was monetarism. The most popular exposition of Market fundamentalism was in Milton Friedman "Capitalism and Freedom".
The essence is that we have finally reached the culmination of economic theory and all that's left is to tune the machine. The ultimate realization of western perfection is pure free market Capitalism. The villains of the scenario are unions, intellectuals, environmentalists and government regulators who gum up the wheels of progress. Fueling the market engine is relentless optimism and there are few superlatives too vicious to be cast on those who express doubt. CEO's are hard working heroes moving the engine while blue collar workers are parasites sucking away needed capital. As George Lakoff would say this is the construction of a Frame, attempting to move from concept to common knowledge. Frames are powerful indeed and most people if given a choice between retaining a Frame or accepting new contrary evidence will keep the Frame and throw out the evidence. Leaving no doubt about his opinion on the matter Thomas Frank declares, "the New Economy is a fraud". It's a Vox Populi where billionaires are victimized by `elitist' union workers and the crime de jour is political correctness.
Crisis of 2008-2009 was the punch line when all those hip gen-X investors watched their brand new fortunes go up in smoke and that burned Chicago school authority. The heyday of the bull market are over, real wages went down, jobs became less secure and downsizing became fashionable for CEO's who want a quick stock pop. In the end it became painfully clear that companies, auditors and analysts were all working against the best interest of the small investor. The market was to be the new means for wealth redistribution as everyone had access to the market money tree but when the chips were cashed in the wealth disparity in America grew beyond anything seen in the last 70 years.
Pro-business, pro-globalization propaganda as well as the endless stream of articles in business magazines praising the new paradigm abruptly ended in 2009 when everybody understood that days of reckoning are close.
Often silly, pseudoscientific, marketing theories that were being expounded became joke they always were.
There also pretty menacing aspect of Milton Friedman legacy:
"Inspired by Friedman’s ideas, Ronald Reagan, Margaret Thatcher, and many other government leaders began to dismantle the government restrictions and regulations that had been built up over the preceding decades.... Latin America sharply reduced its trade barriers and privatized its state-owned firms."
You gotta love it! Reagan, Thatcher and "many others." What about Uncle Miltie's own favorite latin lover? Augusto? What about Uncle Miltie's role in counseling the Generalísimo? He got the invisible hand to do it's own favorite magic trick of making inconvenient people invisible by making them.... wait for it.... DISAPPEAR!
Hence the phenomenon in Pinochet's Chile of the DESAPARECIDOS.
I guess it's just not cool any more to mention this part of Uncle Miltie's story.
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Aug 22, 2020 | www.unz.com
Franz , says: August 21, 2020 at 7:25 am GMT
@ThreeCranes trol -- China had already agreed to play ball, but was still gathering the infrastructure. S. Korea and a few other nations took the work in the meantime.Meantime, as Sam Francis (RIP) noted in the early nineties, Main Street USA turned into dollar stores and flea markets and retail dumps and fast food pits.
Yes, nations that make things control the future. They also develop consumer economies. Thus in a few more years stuff made in China be beyond the price range of the average American.
Milton and Chile: https://www.theguardian.com/commentisfree/cifamerica/2010/mar/03/chile-earthquake
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Aug 18, 2017 | www.theguardian.com
The word ["neoliberalism"] has become a rhetorical weapon, but it properly names the reigning ideology of our era – one that venerates the logic of the market and strips away the things that make us human.
Last summer, researchers at the International Monetary Fund settled a long and bitter debate over "neoliberalism": they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism . In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a "neoliberal agenda" for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.
Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics . In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left's traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality.
Neoliberalism: the idea that swallowed the world – podcast
Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it's a meaningless insult: they're the ones most meaningfully insulted by it.) But "neoliberalism" is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses.
Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But "neoliberalism" indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.
Still peering through the lens, you see how, no less than the welfare state, the free market is a human invention. You see how pervasively we are now urged to think of ourselves as proprietors of our own talents and initiative, how glibly we are told to compete and adapt. You see the extent to which a language formerly confined to chalkboard simplifications describing commodity markets (competition, perfect information, rational behaviour) has been applied to all of society, until it has invaded the grit of our personal lives, and how the attitude of the salesman has become enmeshed in all modes of self-expression.
In short, "neoliberalism" is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.
No sooner had neoliberalism been certified as real, and no sooner had it made clear the universal hypocrisy of the market, than the populists and authoritarians came to power. In the US, Hillary Clinton, the neoliberal arch-villain, lost – and to a man who knew just enough to pretend he hated free trade . So are the eyeglasses now useless? Can they do anything to help us understand what is broken about British and American politics? Against the forces of global integration, national identity is being reasserted, and in the crudest possible terms. What could the militant parochialism of Brexit Britain and Trumpist America have to do with neoliberal rationality? What possible connection is there between the president – a freewheeling boob – and the bloodless paragon of efficiency known as the free market?
It isn't only that the free market produces a tiny cadre of winners and an enormous army of losers – and the losers, looking for revenge, have turned to Brexit and Trump. There was, from the beginning, an inevitable relationship between the utopian ideal of the free market and the dystopian present in which we find ourselves; between the market as unique discloser of value and guardian of liberty, and our current descent into post-truth and illiberalism.
Moving the stale debate about neoliberalism forward begins, I think, with taking seriously the measure of its cumulative effect on all of us, regardless of affiliation. And this requires returning to its origins, which have nothing to do with Bill or Hillary Clinton. There once was a group of people who did call themselves neoliberals, and did so proudly, and their ambition was a total revolution in thought. The most prominent among them, Friedrich Hayek, did not think he was staking out a position on the political spectrum, or making excuses for the fatuous rich, or tinkering along the edges of microeconomics.
He thought he was solving the problem of modernity: the problem of objective knowledge. For Hayek, the market didn't just facilitate trade in goods and services; it revealed truth. How did his ambition collapse into its opposite – the mind-bending possibility that, thanks to our thoughtless veneration of the free market, truth might be driven from public life altogether?
When the idea occurred to Friedrich Hayek in 1936, he knew, with the conviction of a "sudden illumination", that he had struck upon something new. "How can the combination of fragments of knowledge existing in different minds," he wrote, "bring about results which, if they were to be brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?"
This was not a technical point about interest rates or deflationary slumps. This was not a reactionary polemic against collectivism or the welfare state. This was a way of birthing a new world. To his mounting excitement, Hayek understood that the market could be thought of as a kind of mind.
Adam Smith's "invisible hand" had already given us the modern conception of the market: as an autonomous sphere of human activity and therefore, potentially, a valid object of scientific knowledge. But Smith was, until the end of his life, an 18th-century moralist. He thought the market could be justified only in light of individual virtue, and he was anxious that a society governed by nothing but transactional self-interest was no society at all. Neoliberalism is Adam Smith without the anxiety.
That Hayek is considered the grandfather of neoliberalism – a style of thought that reduces everything to economics – is a little ironic given that he was such a mediocre economist. He was just a young, obscure Viennese technocrat when he was recruited to the London School of Economics to compete with, or possibly even dim, the rising star of John Maynard Keynes at Cambridge.
The plan backfired, and Hayek lost out to Keynes in a rout. Keynes's General Theory of Employment, Interest and Money, published in 1936, was greeted as a masterpiece. It dominated the public discussion, especially among young English economists in training, for whom the brilliant, dashing, socially connected Keynes was a beau idéal . By the end of the second world war, many prominent free-marketers had come around to Keynes's way of thinking, conceding that government might play a role in managing a modern economy. The initial excitement over Hayek had dissipated. His peculiar notion that doing nothing could cure an economic depression had been discredited in theory and practice. He later admitted that he wished his work criticising Keynes would simply be forgotten.
... Hayek built into neoliberalism the assumption that the market provides all necessary protection against the one real political danger: totalitarianism. To prevent this, the state need only keep the market free.
This last is what makes neoliberalism "neo". It is a crucial modification of the older belief in a free market and a minimal state, known as "classical liberalism". In classical liberalism, merchants simply asked the state to "leave us alone" – to laissez-nous faire. Neoliberalism recognised that the state must be active in the organisation of a market economy. The conditions allowing for a free market must be won politically, and the state must be re-engineered to support the free market on an ongoing basis.
That isn't all: every aspect of democratic politics, from the choices of voters to the decisions of politicians, must be submitted to a purely economic analysis. The lawmaker is obliged to leave well enough alone – to not distort the natural actions of the marketplace – and so, ideally, the state provides a fixed, neutral, universal legal framework within which market forces operate spontaneously. The conscious direction of government is never preferable to the "automatic mechanism of adjustment" – ie the price system, which is not only efficient but maximises liberty, or the opportunity for men and women to make free choices about their own lives.
As Keynes jetted between London and Washington, creating the postwar order, Hayek sat pouting in Cambridge. He had been sent there during the wartime evacuations; and he complained that he was surrounded by "foreigners" and "no lack of orientals of all kinds" and "Europeans of practically all nationalities, but very few of real intelligence".
Stuck in England, without influence or respect, Hayek had only his idea to console him; an idea so grand it would one day dissolve the ground beneath the feet of Keynes and every other intellectual. Left to its own devices, the price system functions as a kind of mind. And not just any mind, but an omniscient one: the market computes what individuals cannot grasp. Reaching out to him as an intellectual comrade-in-arms, the American journalist Walter Lippmann wrote to Hayek, saying: "No human mind has ever understood the whole scheme of a society At best a mind can understand its own version of the scheme, something much thinner, which bears to reality some such relation as a silhouette to a man."
It is a grand epistemological claim – that the market is a way of knowing, one that radically exceeds the capacity of any individual mind. Such a market is less a human contrivance, to be manipulated like any other, than a force to be studied and placated. Economics ceases to be a technique – as Keynes believed it to be – for achieving desirable social ends, such as growth or stable money. The only social end is the maintenance of the market itself. In its omniscience, the market constitutes the only legitimate form of knowledge, next to which all other modes of reflection are partial, in both senses of the word: they comprehend only a fragment of a whole and they plead on behalf of a special interest. Individually, our values are personal ones, or mere opinions; collectively, the market converts them into prices, or objective facts.
... ... ...
The more Hayek's idea expands, the more reactionary it gets, the more it hides behind its pretence of scientific neutrality – and the more it allows economics to link up with the major intellectual trend of the west since the 17th century. The rise of modern science generated a problem: if the world is universally obedient to natural laws, what does it mean to be human? Is a human being simply an object in the world, like any other? There appears to be no way to assimilate the subjective, interior human experience into nature as science conceives it – as something objective whose rules we discover by observation.
... ... ...
More than anyone, even Hayek himself, it was the great postwar Chicago economist Milton Friedman who helped convert governments and politicians to the power of Hayek's Big Idea. But first he broke with two centuries of precedent and declared that economics is "in principle independent of any particular ethical position or normative judgments" and is "an 'objective' science, in precisely the same sense as any of the physical sciences". Values of the old, mental, normative kind were defective, they were "differences about which men can ultimately only fight". There is the market, in other words, and there is relativism.
Markets may be human facsimiles of natural systems, and like the universe itself, they may be authorless and valueless. But the application of Hayek's Big Idea to every aspect of our lives negates what is most distinctive about us. That is, it assigns what is most human about human beings – our minds and our volition – to algorithms and markets, leaving us to mimic, zombie-like, the shrunken idealisations of economic models. Supersizing Hayek's idea and radically upgrading the price system into a kind of social omniscience means radically downgrading the importance of our individual capacity to reason – our ability to provide and evaluate justifications for our actions and beliefs.
As a result, the public sphere – the space where we offer up reasons, and contest the reasons of others – ceases to be a space for deliberation, and becomes a market in clicks, likes and retweets. The internet is personal preference magnified by algorithm; a pseudo-public space that echoes the voice already inside our head. Rather than a space of debate in which we make our way, as a society, toward consensus, now there is a mutual-affirmation apparatus banally referred to as a "marketplace of ideas". What looks like something public and lucid is only an extension of our own pre-existing opinions, prejudices and beliefs, while the authority of institutions and experts has been displaced by the aggregative logic of big data. When we access the world through a search engine, its results are ranked, as the founder of Google puts it, "recursively" – by an infinity of individual users functioning as a market, continuously and in real time.
... ... ...
According to the logic of Hayek's Big Idea, these expressions of human subjectivity are meaningless without ratification by the market – as Friedman said, they are nothing but relativism, each as good as any other. When the only objective truth is determined by the market, all other values have the status of mere opinions; everything else is relativist hot air. But Friedman's "relativism" is a charge that can be thrown at any claim based on human reason. It is a nonsense insult, as all humanistic pursuits are "relative" in a way the sciences are not. They are relative to the (private) condition of having a mind, and the (public) need to reason and understand even when we can't expect scientific proof. When our debates are no longer resolved by deliberation over reasons, then the whimsies of power will determine the outcome.
This is where the triumph of neoliberalism meets the political nightmare we are living through now. "You had one job," the old joke goes, and Hayek's grand project, as originally conceived in 30s and 40s, was explicitly designed to prevent a backslide into political chaos and fascism. But the Big Idea was always this abomination waiting to happen. It was, from the beginning, pregnant with the thing it was said to protect against. Society reconceived as a giant market leads to a public life lost to bickering over mere opinions; until the public turns, finally, in frustration to a strongman as a last resort for solving its otherwise intractable problems.
... ... ...
What began as a new form of intellectual authority, rooted in a devoutly apolitical worldview, nudged easily into an ultra-reactionary politics. What can't be quantified must not be real, says the economist, and how do you measure the benefits of the core faiths of the enlightenment – namely, critical reasoning, personal autonomy and democratic self-government? When we abandoned, for its embarrassing residue of subjectivity, reason as a form of truth, and made science the sole arbiter of both the real and the true, we created a void that pseudo-science was happy to fill.
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Jan 15, 2017 | economistsview.typepad.com
Peter K. : January 14, 2017 at 08:15 AM , 2017 at 08:15 AMA while back Thoma linked to a Basil Halperin blog post on economics. Someone emailed the link to Scott Sumner who really liked it.Jerry Brown -> Peter K.... , -1http://www.themoneyillusion.com/?p=32250
Basil Halperin on the logic behind NGDP targeting
by Scott SumnerJan. 13, 2017
James Alexander directed me to a recent post by Basil Halperin, which is one of the best blog posts that I have read in years. (I was actually sent this material before Christmas, but it sort of fell between the cracks.)
Basil starts off discussing a program for distributing excess food production from manufacturers to food banks.
The problem was one of distributed versus centralized knowledge. While Feeding America had very good knowledge of poverty rates around the country, and thus could measure need in different areas, it was not as good at dealing with idiosyncratic local issues.
Food banks in Idaho don't need a truckload of potatoes, for example, and Feeding America might fail to take this into account. Or maybe the Chicago regional food bank just this week received a large direct donation of peanut butter from a local food drive, and then Feeding America comes along and says that it has two tons of peanut butter that it is sending to Chicago.
To an economist, this problem screams of the Hayekian knowledge problem. Even a benevolent central planner will be hard-pressed to efficiently allocate resources in a society since it is simply too difficult for a centralized system to collect information on all local variation in needs, preferences, and abilities.
One option would simply be to arbitrarily distribute the food according to some sort of central planning criterion. But there is a better way:
This knowledge problem leads to option two: market capitalism. Unlike poorly informed central planners, the decentralized price system – i.e., the free market – can (often but not always) do an extremely good job of aggregating local information to efficiently allocate scarce resources. This result is known as the First Welfare Theorem.
Such a system was created for Feeding America with the help of four Chicago Booth economists in 2005. Instead of centralized allocation, food banks were given fake money – with needier food banks being given more – and allowed to bid for different types of food in online auctions. Prices are thus determined by supply and demand. . . .
By all accounts, the system has worked brilliantly. Food banks are happier with their allocations; donations have gone up as donors have more confidence that their donations will actually be used. Chalk one up for economic theory.
Basil points out that while that solves one problem, there is still the issue of determining "monetary policy", i.e. how much fake money should be distributed each day?
Here's the problem for Feeding America when thinking about optimal monetary policy. Feeding America wants to ensure that changes in prices are informative for food banks when they bid. In the words of one of the Booth economists who helped design the system:
"Suppose I am a small food bank; I really want a truckload of cereal. I haven't bid on cereal for, like, a year and a half, so I'm not really sure I should be paying for it. But what you can do on the website, you basically click a link and when you click that link it says: This is what the history of prices is for cereal over the last 5 years. And what we wanted to do is set up a system whereby by observing that history of prices, it gave you a reasonable instinct for what you should be bidding."
That is, food banks face information frictions: individual food banks are not completely aware of economic conditions and only occasionally update their knowledge of the state of the world. This is because obtaining such information is time-consuming and costly.
Relating this to our question of optimal monetary policy for the food bank economy: How should the fake money supply be set, taking into consideration this friction?
Obviously, if Feeding America were to randomly double the supply of (fake) money, then all prices would double, and this would be confusing for food banks. A food bank might go online to bid for peanut butter, see that the price has doubled, and mistakenly think that demand specifically for peanut butter has surged.
This "monetary misperception" would distort decision making: the food bank wants peanut butter, but might bid for a cheaper good like chicken noodle soup, thinking that peanut butter is really scarce at the moment.
Clearly, random variation in the money supply is not a good idea. More generally, how should Feeding America set the money supply?
One natural idea is to copy what real-world central banks do: target inflation.
Basil then explains why NGDP targeting is likely to be superior to inflation targeting, using a Lucas-type monetary misperceptions model.
III. Monetary misperceptions
I demonstrate the following argument rigorously in a formal mathematical model in a paper, "Monetary Misperceptions: Optimal Monetary Policy under Incomplete Information," using a microfounded Lucas Islands model. The intuition for why inflation targeting is problematic is as follows.Suppose the total quantity of all donations doubles.
You're a food bank and go to bid on cheerios, and find that there are twice as many boxes of cheerios available today as yesterday. You're going to want to bid at a price something like half as much as yesterday.
Every other food bank looking at every other item will have the same thought. Aggregate inflation thus would be something like -50%, as all prices would drop by half.
As a result, under inflation targeting, the money supply would simultaneously have to double to keep inflation at zero. But this would be confusing: Seeing the quantity of cheerios double but the price remain the same, you won't be able to tell if the price has remained the same because
(a) The central bank has doubled the money supply
or
(b) Demand specifically for cheerios has jumped up quite a bitIt's a signal extraction problem, and rationally you're going to put some weight on both of these possibilities. However, only the first possibility actually occurred.
This problem leads to all sorts of monetary misperceptions, as money supply growth creates confusions, hence the title of my paper.
Inflation targeting, in this case, is very suboptimal. Price level variation provides useful information to agents.
IV. Optimal monetary policy
As I work out formally in the paper, optimal policy is instead something close to a nominal income (NGDP) target. Under log utility, it is exactly a nominal income target. (I've written about nominal income targeting before more critically here.). . . Feeding America, by the way, does not target constant inflation. They instead target "zero inflation for a given good if demand and supply conditions are unchanged." This alternative is a move in the direction of a nominal income target.
V. Real-world macroeconomic implications
I want to claim that the information frictions facing food banks also apply to the real economy, and as a result, the Federal Reserve and other central banks should consider adopting a nominal income target. Let me tell a story to illustrate the point.Consider the owner of an isolated bakery. Suppose one day, all of the customers seen by the baker spend twice as much money as the customers from the day before.
The baker has two options. She can interpret this increased demand as customers having come to appreciate the superior quality of her baked goods, and thus increase her production to match the new demand. Alternatively, she could interpret this increased spending as evidence that there is simply more money in the economy as a whole, and that she should merely increase her prices proportionally to account for inflation.
Economic agents confounding these two effects is the source of economic booms and busts, according to this model. This is exactly analogous to the problem faced by food banks trying to decide how much to bid at auction.
To the extent that these frictions are quantitatively important in the real world, central banks like the Fed and ECB should consider moving away from their inflation targeting regimes and toward something like a nominal income target, as Feeding America has.
The paper he links to contains a rigorous mathematical model that shows the advantages of NGDP targeting. He doesn't claim NGDP targeting is always optimal, but any paper that did would actually be less persuasive, as it would mean the model was explicitly constructed to generate that result. Instead the result flows naturally from the Lucas-style archipelago model, where each trader is on their own little island observing local demand conditions before aggregate (NGDP conditions). This is the sort of approach I used in my first NGDP futures targeting paper, where futures markets aggregated all of this local demand (i.e. velocity) information. However Basil's paper is light years ahead of where I was in 1989.
I can't recommend him highly enough. I'm told he recently got a BA from Chicago, which suggests he may be another Soltas, Wang or Rognlie, one of those people who makes a mark at a very young age. He seems to combine George Selgin-type economic intuition (even citing a lovely Selgin metaphor at the end of his post) with the sort of highly technical skills required in modern macroeconomics.
Commenters often ask (taunt?) me with the question, "Where is the rigorous model for market monetarism". I don't believe any single model can incorporate all of the insights from any half decent school of thought, but Basil's model certainly provides the sort of rigorous explanation of NGDP targeting that people seem to demand.
Basil has lots of other excellent posts, and over the next few weeks and months I will have more posts responding to some of the points he makes (which to his credit, include criticism of NGDP targeting–he's no ideologue.)
I like Scott Sumner's blog The Money Illusion and think his idea of NGDP level targeting is a good idea as far as monetary policy. I don't share his supreme confidence in the ability of monetary policy by itself to solve problems in deficient aggregate demand. But he is always interesting to read.
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jonny bakho: January 13, 2017 at 03:23 AMWhat Friedman got wrong is not including current income.pgl -> jonny bakho... , January 13, 2017 at 05:59 AM
People with high income spend a fraction of that income and save the rest.
Their demand is met, so the additional income mostly goes to savings.
People with low income spend everything and still have unmet demands
Additional income for them will go to meet those unmet demands (like fixing a toothache or replacing bald tires).Friedman was biased against fiscal intervention in an economy and sought evidence to argue against such policies
Our model for funding infrastructure is broken. Federal funding means project that are most needed by cities can be overlooked while projects that would destroy cities are funded. Federal infrastructure funding destroyed city neighborhoods leaving the neighboring areas degraded. Meanwhile, necessary projects such as a new subway tunnel from NJ to Manhattan are blocked by States who are ok if the city fails and growth moves to their side of the river. Money should go directly to the cities. Infrastructure should be build to serve the people who live, walk and work there, not to allow cars to drive through at high speeds as the engineers propose. This infrastructure harms cities and becomes a future tax liability that cannot be met if the built infrastructure it encourages is not valuable enough to support maintenance. We are discovering that unlike our cities where structures can increase in value, strip malls decline in value, often to worthlessness. Road building is increasingly mechanized and provides less employment per project than in the past. Projects such as replacing leaking water pipes require more labor.
"Friedman was biased against fiscal intervention in an economy and sought evidence to argue against such policies". You get this from his permanent income hypothesis??? It is the same basic idea as Modligiani's life cycle model who certainly was not biased against fiscal interventions.jonny bakho -> pgl... , January 13, 2017 at 06:20 AMNo, from the whole of Friedman's work.pgl -> jonny bakho... , January 13, 2017 at 06:31 AM
Finding alternatives to fiscal tools for economic management is a central theme.
His permanent income hypothesis was used as a bludgeon against fiscal policy use.
Economic management by monetary policy has hit its limits."Economic management by monetary policy has hit its limits."jonny bakho -> pgl... , January 13, 2017 at 08:44 AMIf you want to bring up his entire body of work - you might note what he said about Japan's period at the zero lower bound. Same thing Krugman has said. So are you going to tell us Krugman opposed the use of fiscal stimulus?
From PK:New Deal democrat said in reply to pgl... , January 13, 2017 at 05:15 AM"I had some graphics problems with my previous post on this subject - it turns out that what looks like a permanent link at the BOJ website isn't; plus I had some more to say about the subject.
So: David Wessel quoted what Milton Friedman said about Japan in 1998, and interpreted it as meaning that Friedman would favor quantitative easing now. I think that's right. And just to be clear, I also favor QE - largely because it might help some, and seems to be just about the only policy lever still available in the face of political reality.
But I think it's also important to note that Friedman was all wrong about Japan - and that you can argue that he was also wrong about the Great Depression, for the same reason.
For what Friedman argued, both for Japan in the 1990s and America in the 1930s, was that all the central bank needed to do was more - push out those reserves into the banking system. This would raise the money supply, and a higher money supply would have the usual effects.
But the Bank of Japan tried that - and found that pushing more reserves into the banks didn't even lead to rapid growth in the money supply, let alone end the problem of deflation."
http://krugman.blogs.nytimes.com/2010/10/29/more-on-friedmanjapan/
A central bank can make matters worse by tightening. But they cannot fight fiscal austerity at the ZLB. Fiscal and monetary policy need to be pushing in the same direction.
I thought Noah Smith's article was excellent, for once. Clearly and concisely lays out the data and its implications for theory. Even if I accept that your criticism that he doesn't accurately state the underlying theory is valid.pgl -> New Deal democrat... , January 13, 2017 at 05:41 AMWe will now see if the adage about Econ vs. physics is true ("when data contradicts theory, physics throws out the theory. Econ throws out the data.")
I think the data can be explained by taking regency and hedging one's bets into account. People on average tend to spend what they think is sustainable (they budget!) but they hedge their bets against being wrong. Either a positive or negative shock will not just change the ability to spend short-term, but may also effect how they calculate long term sustainability.
Thus - in hindsight - people may overreact to a short term shock. James Hamilton has found this with regard to sudden changes in gas prices. The report Smith discusses finds it with regard to both unemployment and the termination of unemployment insurances. When the shock hits, you don't know if it is permanent or not. So you recalibrate. Btw, this also works for positive shocks. People don't spend gas price savings until about a year into lower prices, when they begin to believe the windfall might be more long-lasting.
Everything Noah said there was noted in a 1980 lecture by James Tobin that I had the pleasure of attending. In a word - nothing new.New Deal democrat said in reply to pgl... , January 13, 2017 at 06:00 AMI.e., the adage about econ vs. physics has already been shown to be true.jonny bakho said in reply to pgl... , January 13, 2017 at 06:22 AMMaybe nothing new, but plainly much that has been forgotten or no longer taught.pgl -> jonny bakho... , January 13, 2017 at 06:32 AMI grant some people teach Ricardian Equivalence as if it were gospel but most economists do talk about borrowing constrained households.kthomas -> pgl... , January 13, 2017 at 06:46 AMMilton is almost as controversial as Marx. Marx had a more realistic, a more grounded world-view. Marx knew damn-well that his ideals were just that. That we should all share in the fruits of our combined labor was to Marx, a way of achieving perfection. Pure idealism and he knew.point -> pgl... , January 13, 2017 at 07:10 AMFriedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention.
I have no data and no theory to offer against Friedman's hypothesis, but it sure feels like there is good reason to doubt it.JohnH -> pgl... , January 13, 2017 at 07:37 AMThe reason I say so is that this mental behavior of converting income and expense streams into present value sums, making long term assets and liabilities on the current personal balance sheet, is extremely rare in my experience.
I'm not talking about just among regular working Joe's either. I'm talking about people with plenty of excess income: fund managers and CEOs. If anyone should be able to habitually do the math it should be these guys. But let me assert, if you want to rub elbows in that crowd, a nearly certain way to distinguish yourself is to walk into the room with these PVs at your fingertips. You may be totally alone.
The idea that less endowed people will do it is just giggles.
Further, it does not take much thought in this direction to analyze the expected net worth position of people along the existing income distribution. It would appear the income level at which one may be able to expect to fund lifetime liabilities is near the 80th percentile. That people below that level may be able to smooth their required consumption though temporary borrowing is just more giggles.
What's curious here is that while Friedman (and many policymakers) may assume that most people's consumption isn't affected by how much they earn, they are totally convinced that their spending levels are immediately and dramatically affected by changes in their wealth!pgl : , January 13, 2017 at 01:37 AMThe wealth effect is one of the pillars of trickle down monetary policy. Proponents claim that lower interest rates drive asset prices up, making the wealthy FEEL wealthier again...and presto they start consuming again, igniting economic growth.
It would be very interesting to chart the course of wealthy people's spending in response to changes in income and wealth. The results may prove Friedman right at the upper end of the income scale--the wealthy, having more than they know what to do with, may well ride out stormy periods by maintaining their consumption via borrowing and sale of some assets.
If Friedman's theory does apply to wealthy people, it would undermine a fundamental justification for trickle down monetary policy and help explain why the economic recovery has been so anemic---policy decisions where targeted at the wrong end of the income scale...at people who wouldn't boost consumption (the wealthy) instead of at those who would boost consumption.
Once again, it would appear that deeply entrenched economic 'theories' are designed to help the wealthy...without much empirical evidence.
Simon Wren Lewis leaves open the possibility that an increase in aggregate demand can increase real GDP as we may not be at full employment (I'd change that from "may not be" to "are not") but still comes out against tax cuts for the rich with this:New Deal democrat said in reply to pgl... , January 13, 2017 at 05:19 AM"There is a very strong case for more public sector investment on numerous grounds. But that investment should go to where it is most needed and where it will be of most social benefit"
Exactly but alas Team Trump ain't listening.
A little off topic, but I've taken a further look at whether and by how much a decline in the unemployment rate coaxes people back into the labor force. I think we can make a good back of the envelope estimate. Also: further evidence of the importance of the cost of daycare. I will probably post next week.pgl -> New Deal democrat... , January 13, 2017 at 05:43 AMYep. As the economy gets stronger, it does seem the labor force participation rate goes up. This is why I focus more on the employment to population ratio and less on the unemployment rate.John Williams -> New Deal democrat... , January 13, 2017 at 08:23 AMIsn't there a scale issue here? The unemployment rate is an attribute of populations, but the unemployed mostly look for work locally, and for work they think they can do. That is, they respond more at the level of individual opportunityNew Deal democrat -> John Williams... , -1When I put up my posts I will link to them here. That will probably give you a better feel for questions to ask.
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sanjait : , January 13, 2017 at 01:09 AMI just read through the Zingales, Schiller, Smith and Wren-Lewis pieces.pgl -> sanjait... , January 13, 2017 at 02:07 AMThey all make what I would consider to be obvious points, though all are arguably worth repeating, as they are widely not accepted.
Let's see. Zingales does not like crony capitalism whereas Schiller praises LBJ's Great Society. I think most progressives agree with both.Libezkova -> sanjait... , January 13, 2017 at 04:37 AMThere is nothing common between articles of Zingales and Schiller.pgl : , January 13, 2017 at 01:32 AMMy impression is that Schiller might lost his calling: he might achieve even greater success as a diplomat, if he took this career. He managed to tell something important about incompatibility of [the slogan] "Make America Great Again" with neoliberalism without offending anybody. Which is a pretty difficult thing to do.
Zingalles is just another Friedman-style market fundamentalist. Nothing new and nothing interesting.
Noah Smith is wrong here: "This idea is important because it meant that we shouldn't expect fiscal stimulus to have much of an effect. Government checks are a temporary form of income, so Friedman's theory predicts that it won't change spending patterns, as advocates such as John Maynard Keynes believed."jonny bakho -> pgl... , January 13, 2017 at 03:23 AMFriedman's view about consumption demand is the same as the Life Cycle Model (Ando and Modligiani). OK - these models do predict that tax rebates should not affect consumption. And yes there are households who are borrower constrained so these rebates do impact their consumption.
But this is not the only form of fiscal stimulus. Infrastructure investment would increase aggregate demand even under the Friedman view of consumption. This would hold even under the Barro-Ricardian version of this theory. OK - John Cochrane is too stupid to know this. And I see Noah in his rush to bash Milton Friedman has made the same mistake as Cochrane.
What Friedman got wrong is not including current income. People with high income spend a fraction of that income and save the rest. Their demand is met, so the additional income mostly goes to savings.pgl : , January 13, 2017 at 01:37 AMPeople with low income spend everything and still have unmet demands. Additional income for them will go to meet those unmet demands (like fixing a toothache or replacing bald tires).
Friedman was biased against fiscal intervention in an economy and sought evidence to argue against such policies
Our model for funding infrastructure is broken. Federal funding means project that are most needed by cities can be overlooked while projects that would destroy cities are funded.
Federal infrastructure funding destroyed city neighborhoods leaving the neighboring areas degraded. Meanwhile, necessary projects such as a new subway tunnel from NJ to Manhattan are blocked by States who are ok if the city fails and growth moves to their side of the river.
Money should go directly to the cities. Infrastructure should be build to serve the people who live, walk and work there, not to allow cars to drive through at high speeds as the engineers propose. This infrastructure harms cities and becomes a future tax liability that cannot be met if the built infrastructure it encourages is not valuable enough to support maintenance.
We are discovering that unlike our cities where structures can increase in value, strip malls decline in value, often to worthlessness. Road building is increasingly mechanized and provides less employment per project than in the past. Projects such as replacing leaking water pipes require more labor.
Simon Wren Lewis leaves open the possibility that an increase in aggregate demand can increase real GDP as we may not be at full employment (I'd change that from "may not be" to "are not") but still comes out against tax cuts for the rich with this:Libezkova : January 13, 2017 at 03:45 AM"There is a very strong case for more public sector investment on numerous grounds. But that investment should go to where it is most needed and where it will be of most social benefit"
Exactly but alas Team Trump ain't listening.
Re: Milton Friedman's Cherished Theory Is Laid to Rest - Bloomberg ViewJulio -> Libezkova...Friedman was not simply wrong. The key for understanding Friedman is that he was a political hack, not a scientist.
His main achievement was creation (partially for money invested in him and Mont Pelerin Society by financial oligarchy) of what is now called "neoliberal rationality": a pervert view of the world, economics and social processes that now still dominates in the USA and most of Western Europe. It is also a new mode of "govermentability".
Governmentality is distinguished from earlier forms of rule, in which national wealth is measured as the size of territory or the personal fortune of the sovereign, by the recognition that national economic well-being is tied to the rational management of the national population. Foucault defined governmentality as:
"the ensemble formed by the institutions, procedures, analyses, and reflections, the calculations and tactics that allow the exercise of this very specific albeit complex form of power, which has as its target population, as its principle form of knowledge political economy and as its technical means, apparatuses of security"
Here is Wendy Brown analysis of "neoliberal rationality": http://lchc.ucsd.edu/cogn_150/Readings/brown.pdf
== quote ===
A liberal political order may harbor either liberal or Keynesian economic policies -- it may lean in the direction of maximizing liberty (its politically "conservative" tilt) or of maximizing equality (its politically "liberal" tilt), but in contemporary political parlance, it is no more or less a liberal democracy because of one leaning or the other.
Indeed, the American convention of referring to advocates of the welfare state as political liberals is especially peculiar, given that American conservatives generally hew more closely to both the classical economic and the political doctrines of liberalism -- it turns the meaning of liberalism in the direction of liberality rather than liberty.
For our purposes, what is crucial is that the liberalism in what has come to be called neoliberalism refers to liberalism's economic variant, recuperating selected pre-Keynesian assumptions about the generation of wealth and its distribution, rather than to liberalism as a political doctrine, as a set of political institutions, or as political practices. The neo in neoliberalism, however, establishes these principles on a significantly different analytic basis from those set forth by Adam Smith, as will become clear below. Moreover, neoliberalism is not simply a set of economic policies; it is not only about facilitating free trade, maximizing corporate profits, and challenging welfarism.
Rather, neoliberalism carries a social analysis that, when deployed as a form of governmentality, reaches from the soul of the citizen-subject to education policy to practices of empire. Neoliberal rationality, while foregrounding the market, is not only or even primarily focused on the economy; it involves extending and disseminating market values to all institutions and social action, even as the market itself remains a distinctive player.
... ... ...
1. The political sphere, along with every other dimension of contemporary existence, is submitted to an economic rationality; or, put the other way around, not only is the human being configured exhaustively as homo economicus, but all dimensions of human life are cast in terms of a market rationality. While this entails submitting every action and policy to considerations of profitability, equally important is the production of all human and institutional action as rational entrepreneurial action, conducted according to a calculus of utility, benefit, or satisfaction against a microeconomic grid of scarcity, supply and demand, and moral value-neutrality. Neoliberalism does not simply assume that all aspects of social, cultural, and political life can be reduced to such a calculus; rather, it develops institutional practices and rewards for enacting this vision. That is, through discourse and policy promulgating its criteria, neoliberalism produces rational actors and imposes a market rationale for decision making in all spheres.
Importantly, then, neoliberalism involves a normative rather than ontological claim about the pervasiveness of economic rationality and it advocates the institution building, policies, and discourse development appropriate to such a claim. Neoliberalism is a constructivist project: it does not presume the ontological givenness of a thoroughgoing economic rationality for all domains of society but rather takes as its task the development, dissemination, and institutionalization of such a rationality. This point is further developed in (2) below.
2. In contrast with the notorious laissez-faire and human propensity to "truck and barter" stressed by classical economic liberalism, neoliberalism does not conceive of either the market itself or rational economic behavior as purely natural. Both are constructed-organized by law and political institutions, and requiring political intervention and orchestration. Far from flourishing when left alone, the economy must be directed, buttressed, and protected by law and policy as well as by the dissemination of social norms designed to facilitate competition, free trade, and rational economic action on the part of every member and institution of society.
In Lemke's account, "In the Ordo-liberal scheme, the market does not amount to a natural economic reality, with intrinsic laws that the art of government must bear in mind and respect; instead, the market can be constituted and kept alive only by dint of political interventions. . . . [C]ompetition, too, is not a natural fact. . . . [T]his fundamental economic mechanism can function only if support is forthcoming to bolster a series of conditions, and adherence to the latter must consistently be guaranteed by legal measures" (193).
The neoliberal formulation of the state and especially of specific legal arrangements and decisions as the precondition and ongoing condition of the market does not mean that the market is controlled by the state but precisely the opposite. The market is the organizing and regulative principle of the state and society, along three different lines:
- The state openly responds to needs of the market, whether through monetary and fiscal policy, immigration policy, the treatment of criminals, or the structure of public education. In so doing, the state is no longer encumbered by the danger of incurring the legitimation deficits predicted by 1970s social theorists and political economists such as Nicos Poulantzas, Jürgen Habermas, and James O'Connor.6 Rather, neoliberal rationality extended to the state itself indexes the state's success according to its ability to sustain and foster the market and ties state legitimacy to such success. This is a new form of legitimation, one that "founds a state," according to Lemke, and contrasts with the Hegelian and French revolutionary notion of the constitutional state as the emergent universal representative of the people. As Lemke describes Foucault's account of Ordo-liberal thinking, "economic liberty produces the legitimacy for a form of sovereignty limited to guaranteeing economic activity . . . a state that was no longer defined in terms of an historical mission but legitimated itself with reference to economic growth" (196).
- The state itself is enfolded and animated by market rationality: that is, not simply profitability but a generalized calculation of cost and benefit becomes the measure of all state practices. Political discourse on all matters is framed in entrepreneurial terms; the state must not simply concern itself with the market but think and behave like a market actor across all of its functions, including law. 7
- Putting (a) and (b) together, the health and growth of the economy is the basis of state legitimacy, both because the state is forthrightly responsible for the health of the economy and because of the economic rationality to which state practices have been submitted. Thus, "It's the economy, stupid" becomes more than a campaign slogan; rather, it expresses the principle of the state's legitimacy and the basis for state action-from constitutional adjudication and campaign finance reform to welfare and education policy to foreign policy, including warfare and the organization of "homeland security."
3. The extension of economic rationality to formerly noneconomic domains and institutions reaches individual conduct, or, more precisely, prescribes the citizen-subject of a neoliberal order. Whereas classical liberalism articulated a distinction, and at times even a tension, among the criteria for individual moral, associational, and economic actions (hence the striking differences in tone, subject matter, and even prescriptions between Adam Smith's Wealth of Nations and his Theory of Moral Sentiments), neoliberalism normatively constructs and interpellates individuals as entrepreneurial actors in every sphere of life.
It figures individuals as rational, calculating creatures whose moral autonomy is measured by their capacity for "self-care"-the ability to provide for their own needs and service their own ambitions. In making the individual fully responsible for her- or himself, neoliberalism equates moral responsibility with rational action; it erases the discrepancy between economic and moral behavior by configuring morality entirely as a matter of rational deliberation about costs, benefits, and consequences.
But in so doing, it carries responsibility for the self to new heights: the rationally calculating individual bears full responsibility for the consequences of his or her action no matter how severe the constraints on this action-for example, lack of skills, education, and child care in a period of high unemployment and limited welfare benefits.
Correspondingly, a "mismanaged life," the neoliberal appellation for failure to navigate impediments to prosperity, becomes a new mode of depoliticizing social and economic powers and at the same time reduces political citizenship to an unprecedented degree of passivity and political complacency.
The model neoliberal citizen is one who strategizes for her- or himself among various social, political, and economic options, not one who strives with others to alter or organize these options. A fully realized neoliberal citizenry would be the opposite of public-minded; indeed, it would barely exist as a public. The body politic ceases to be a body but is rather a group of individual entrepreneurs and consumers . . . which is, of course, exactly how voters are addressed in most American campaign discourse.8
Other evidence for progress in the development of such a citizenry is not far from hand: consider the market rationality permeating universities today, from admissions and recruiting to the relentless consumer mentality of students as they consider university brand names, courses, and services, from faculty raiding and pay scales to promotion criteria. 9
Or consider the way in which consequential moral lapses (of a sexual or criminal nature) by politicians, business executives, or church and university administrators are so often apologized for as "mistakes in judgment," implying that it was the calculation that was wrong, not the act, actor, or rationale.
The state is not without a project in the making of the neoliberal subject. It attempts to construct prudent subjects through policies that organize such prudence: this is the basis of a range of welfare reforms such as workfare and single-parent penalties, changes in the criminal code such as the "three strikes law," and educational voucher schemes.
Because neoliberalism casts rational action as a norm rather than an ontology, social policy is the means by which the state produces subjects whose compass is set entirely by their rational assessment of the costs and benefits of certain acts, whether those acts pertain to teen pregnancy, tax fraud, or retirement planning. The neoliberal citizen is calculating rather than rule abiding, a Benthamite rather than a Hobbesian.
The state is one of many sites framing the calculations leading to social behaviors that keep costs low and productivity high. This mode of governmentality (techniques of governing that exceed express state action and orchestrate the subject's conduct toward himor herself) convenes a "free" subject who rationally deliberates about alternative courses of action, makes choices, and bears responsibility for the consequences of these choices. In this way, Lemke argues, "the state leads and controls subjects without being responsible for them"; as individual "entrepreneurs" in every aspect of life, subjects become wholly responsible for their well-being and citizenship is reduced to success in this entrepreneurship (201).
Neoliberal subjects are controlled through their freedom-not simply, as thinkers from the Frankfurt School through Foucault have argued, because freedom within an order of domination can be an instrument of that domination, but because of neoliberalism's moralization of the consequences of this freedom. Such control also means that the withdrawal of the state from certain domains, followed by the privatization of certain state functions, does not amount to a dismantling of government but rather constitutes a technique of governing; indeed, it is the signature technique of neoliberal governance, in which rational economic action suffused throughout society replaces express state rule or provision.
Neoliberalism shifts "the regulatory competence of the state onto 'responsible,' 'rational' individuals [with the aim of] encourag[ing] individuals to give their lives a specific entrepreneurial form" (Lemke, 202).
4. Finally, the suffusion of both the state and the subject with economic rationality has the effect of radically transforming and narrowing the criteria for good social policy vis-à-vis classical liberal democracy. Not only must social policy meet profitability tests, incite and unblock competition, and produce rational subjects, it obeys the entrepreneurial principle of "equal inequality for all" as it "multiples and expands entrepreneurial forms with the body social" (Lemke, 195). This is the principle that links the neoliberal governmentalization of the state with that of the social and the subject.
Taken together, the extension of economic rationality to all aspects of thought and activity, the placement of the state in forthright and direct service to the economy, the rendering of the state tout court as an enterprise organized by market rationality, the production of the moral subject as an entrepreneurial subject, and the construction of social policy according to these criteria might appear as a more intensive rather than fundamentally new form of the saturation of social and political realms by capital. That is, the political rationality of neoliberalism might be read as issuing from a stage of capitalism that simply underscores Marx's argument that capital penetrates and transforms every aspect of life-remaking everything in its image and reducing every value and activity to its cold rationale.
All that would be new here is the flagrant and relentless submission of the state and the individual, the church and the university, morality, sex, marriage, and leisure practices to this rationale. Or better, the only novelty would be the recently achieved hegemony of rational choice theory in the human sciences, self-represented as an independent and objective branch of knowledge rather than an expression of the dominance of capital. Another reading that would figure neoliberalism as continuous with the past would theorize it through Weber's rationalization thesis rather than Marx's argument about capital.
The extension of market rationality to every sphere, and especially the reduction of moral and political judgment to a cost-benefit calculus, would represent precisely the evisceration of substantive values by instrumental rationality that Weber predicted as the future of a disenchanted world. Thinking and judging are reduced to instrumental calculation in Weber's "polar night of icy darkness"-there is no morality, no faith, no heroism, indeed no meaning outside the market.
I agree with this. But I think it's extraordinarily wordy, and fails to emphasize the deification of private property which is at the root of it.
anne -> Libezkova... January 13, 2017 at 05:10 AM
Chris G :http://lchc.ucsd.edu/cogn_150/Readings/brown.pdf
January, 2003
Neoliberalism and the End of Liberal Democracy
By Wendy BrownLibezkova -> anne... January 13, 2017 at 05:43 AMBrown - who I haven't read much of but like what I have - sounds a lot like Lasch.
Brown:
"The extension of market rationality to every sphere, and especially the reduction of moral and political judgment to a cost-benefit calculus, would represent precisely the evisceration of substantive values by instrumental rationality that Weber predicted as the future of a disenchanted world. Thinking and judging are reduced to instrumental calculation in Weber's "polar night of icy darkness"-there is no morality, no faith, no heroism, indeed no meaning outside the market."
Lasch in Revolt of the Elites:
"... 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."
The Revolt of the Elites and the Betrayal of Democracy Paperback – January 17, 1996anne -> anne...by Christopher Lasch
https://www.amazon.com/Revolt-Elites-Betrayal-Democracy/dp/0393313719
Correcting:May, 1992
Communitarianism or Populism? The Ethic of Compassion and the Ethic of Respect
By Christopher Lasch
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kthomas -> pgl... January 13, 2017 at 06:46 AM , 2017 at 06:46 AM
Milton is almost as controversial as Marx. Marx had a more realistic, a more grounded world-view. Marx knew damn-well that his ideals were just that. That we should all share in the fruits of our combined labor was to Marx, a way of achieving perfection. Pure idealism and he knew.point -> pgl... , January 13, 2017 at 07:10 AM
Friedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention.I have no data and no theory to offer against Friedman's hypothesis, but it sure feels like there is good reason to doubt it.JohnH -> pgl... , January 13, 2017 at 07:37 AMThe reason I say so is that this mental behavior of converting income and expense streams into present value sums, making long term assets and liabilities on the current personal balance sheet, is extremely rare in my experience.
I'm not talking about just among regular working Joe's either. I'm talking about people with plenty of excess income: fund managers and CEOs. If anyone should be able to habitually do the math it should be these guys. But let me assert, if you want to rub elbows in that crowd, a nearly certain way to distinguish yourself is to walk into the room with these PVs at your fingertips. You may be totally alone.
The idea that less endowed people will do it is just giggles.
Further, it does not take much thought in this direction to analyze the expected net worth position of people along the existing income distribution. It would appear the income level at which one may be able to expect to fund lifetime liabilities is near the 80th percentile. That people below that level may be able to smooth their required consumption though temporary borrowing is just more giggles.
What's curious here is that while Friedman (and many policymakers) may assume that most people's consumption isn't affected by how much they earn, they are totally convinced that their spending levels are immediately and dramatically affected by changes in their wealth!Julio -> JohnH... , -1The wealth effect is one of the pillars of trickle down monetary policy. Proponents claim that lower interest rates drive asset prices up, making the wealthy FEEL wealthier again...and presto they start consuming again, igniting economic growth.
It would be very interesting to chart the course of wealthy people's spending in response to changes in income and wealth. The results may prove Friedman right at the upper end of the income scale--the wealthy, having more than they know what to do with, may well ride out stormy periods by maintaining their consumption via borrowing and sale of some assets.
If Friedman's theory does apply to wealthy people, it would undermine a fundamental justification for trickle down monetary policy and help explain why the economic recovery has been so anemic---policy decisions where targeted at the wrong end of the income scale...at people who wouldn't boost consumption (the wealthy) instead of at those who would boost consumption.
Once again, it would appear that deeply entrenched economic 'theories' are designed to help the wealthy...without much empirical evidence.
I think the fundamental pillar of such "thinking" is:JohnH -> JohnH... , January 13, 2017 at 10:00 AM- Poor people are motivated to work and be virtuous by their lack of money, so they must be kept hungry;
- Rich people are motivated to work and be virtuous by money, so they must be kept rich."The idea of a wealth effect doesn't stand up to economic data. The stock market boom in the late 1990s helped increase the wealth of Americans, but it didn't produce a significant change in consumption, according to David Backus, a professor of economics and finance at New York University. Before the stock market reversed itself, "you didn't see a big increase in consumption," says Backus. "And when it did reverse itself, you didn't see a big decrease."JohnH -> Sanjait... , January 13, 2017 at 12:13 PM
http://www.slate.com/articles/news_and_politics/hey_wait_a_minute/2008/06/debunking_the_wealth_effect.htmlYet that didn't stop Bernanke from citing the Wealth Effect as one of the justifications for trickle down monetary policy: "higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htmThe 'wealth effect' is just more poppycock, neoliberal theory designed to enrich the wealthy and deprive others of prosperity. Yet pgl subscribes to the theory!
As expected, promoters of trickle down monetary policy defend the debunked wealth effect as an primary tool for stimulating economic growth...but reject Noah Smith's point that poor people reduce consumption during recessions, making them a more reasonable policy target for restoring consumption during demand deficient times.
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Jan 13, 2017 | economistsview.typepad.com
Friedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention.kthomas -> pgl... January 13, 2017 at 06:46 AM , 2017 at 06:46 AM
Milton is almost as controversial as Marx. Marx had a more realistic, a more grounded world-view. Marx knew damn-well that his ideals were just that. That we should all share in the fruits of our combined labor was to Marx, a way of achieving perfection. Pure idealism and he knew.point -> pgl... , January 13, 2017 at 07:10 AM
Friedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention.I have no data and no theory to offer against Friedman's hypothesis, but it sure feels like there is good reason to doubt it.JohnH -> pgl... , January 13, 2017 at 07:37 AMThe reason I say so is that this mental behavior of converting income and expense streams into present value sums, making long term assets and liabilities on the current personal balance sheet, is extremely rare in my experience.
I'm not talking about just among regular working Joe's either. I'm talking about people with plenty of excess income: fund managers and CEOs. If anyone should be able to habitually do the math it should be these guys. But let me assert, if you want to rub elbows in that crowd, a nearly certain way to distinguish yourself is to walk into the room with these PVs at your fingertips. You may be totally alone.
The idea that less endowed people will do it is just giggles.
Further, it does not take much thought in this direction to analyze the expected net worth position of people along the existing income distribution. It would appear the income level at which one may be able to expect to fund lifetime liabilities is near the 80th percentile. That people below that level may be able to smooth their required consumption though temporary borrowing is just more giggles.
What's curious here is that while Friedman (and many policymakers) may assume that most people's consumption isn't affected by how much they earn, they are totally convinced that their spending levels are immediately and dramatically affected by changes in their wealth!Julio -> JohnH... , -1The wealth effect is one of the pillars of trickle down monetary policy. Proponents claim that lower interest rates drive asset prices up, making the wealthy FEEL wealthier again...and presto they start consuming again, igniting economic growth.
It would be very interesting to chart the course of wealthy people's spending in response to changes in income and wealth. The results may prove Friedman right at the upper end of the income scale--the wealthy, having more than they know what to do with, may well ride out stormy periods by maintaining their consumption via borrowing and sale of some assets.
If Friedman's theory does apply to wealthy people, it would undermine a fundamental justification for trickle down monetary policy and help explain why the economic recovery has been so anemic---policy decisions where targeted at the wrong end of the income scale...at people who wouldn't boost consumption (the wealthy) instead of at those who would boost consumption.
Once again, it would appear that deeply entrenched economic 'theories' are designed to help the wealthy...without much empirical evidence.
I think the fundamental pillar of such "thinking" is:JohnH -> JohnH... , January 13, 2017 at 10:00 AM- Poor people are motivated to work and be virtuous by their lack of money, so they must be kept hungry;
- Rich people are motivated to work and be virtuous by money, so they must be kept rich."The idea of a wealth effect doesn't stand up to economic data. The stock market boom in the late 1990s helped increase the wealth of Americans, but it didn't produce a significant change in consumption, according to David Backus, a professor of economics and finance at New York University. Before the stock market reversed itself, "you didn't see a big increase in consumption," says Backus. "And when it did reverse itself, you didn't see a big decrease."JohnH -> Sanjait... , January 13, 2017 at 12:13 PM
http://www.slate.com/articles/news_and_politics/hey_wait_a_minute/2008/06/debunking_the_wealth_effect.htmlYet that didn't stop Bernanke from citing the Wealth Effect as one of the justifications for trickle down monetary policy: "higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htmThe 'wealth effect' is just more poppycock, neoliberal theory designed to enrich the wealthy and deprive others of prosperity. Yet pgl subscribes to the theory!
As expected, promoters of trickle down monetary policy defend the debunked wealth effect as an primary tool for stimulating economic growth...but reject Noah Smith's point that poor people reduce consumption during recessions, making them a more reasonable policy target for restoring consumption during demand deficient times.
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Jan 02, 2017 | economistsview.typepad.com
anne : January 01, 2017 at 01:54 AMhttp://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/anne -> anne... , January 01, 2017 at 01:56 AMAugust 8, 2013
Milton Friedman, Unperson
By Paul KrugmanDavid Glasner * has been making a series of posts on the legacy of Milton Friedman, some of them in response to Scott Sumner; they're interesting if you want to delve into the intellectual history. I'm not personally big on such things - in general, what people thought Keynes or Friedman meant ends up being more important than what they turn out, on close reading, to (maybe, possibly) actually have meant. For what it's worth, I think Glasner makes a good case that Friedman was indeed more or less a Keynesian, or maybe Hicksian - certainly that was the message everyone took from his "Monetary Framework," which was disappointingly conventional. And Friedman's attempts to claim that Keynes added little that wasn't already in a Chicago oral tradition don't hold up well either.
But never mind. What I think is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back, even if that fact drives some economists crazy; Hayek is back in some sense, even if one has the suspicion that many self-proclaimed Austrians bring little to the table but the notion that fiat money is the root of all evil - a deeply anti-Friedmanian position. But Friedman is pretty much absent.
This is hardly what you would have expected not that long ago, when Friedman's reputation bestrode the economic world like a colossus, when Greg Mankiw ** declared Friedman, not Keynes, the greatest economist of the 20th century, when Ben Bernanke concluded a speech praising Friedman *** with the famous line,
"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.
"Best wishes for your next ninety years."
So what happened to Milton Friedman?
Part of the answer is that at this point both of Friedman's key contributions to macroeconomics look hard to defend.
First, on monetary policy: Even if you give him a pass on the 3 percent growth in M2 thing, which was abandoned by almost everyone long ago, Friedman was still very much associated with the notion that the Fed can control the money supply, and controlling the money supply is all you need to stabilize the economy. In the wake of the 2008 crisis, this looks wrong from soup to nuts: the Fed can't even control broad money, because it can add to bank reserves and they just sit there; and money in turn bears little relationship to GDP. And in retrospect the same was true in the 1930s, so that Friedman's claim that the Fed could easily have prevented the Great Depression now looks highly dubious.
Second, on inflation and unemployment: Friedman's success, with Phelps, in predicting stagflation was what really pushed his influence over the top; his notion of a natural rate of unemployment, of a vertical Phillips curve in the long run, became part of every textbook exposition. But it's now very clear that at low rates of inflation the Phillips curve isn't vertical at all, that there's an underlying downward nominal rigidity to wages and perhaps many prices too that makes the natural rate hypothesis a very bad guide under depression conditions.
So Friedman's economic analysis has taken a serious hit. But that's not the whole story behind his disappearance; after all, all those economists who have been predicting runaway inflation still have a constituency after being wrong year after year.
Friedman's larger problem, I'd argue, is that he was, when all is said and done, a man trying to straddle two competing world views - and our political environment no longer has room for that kind of straddle.
Think of it this way: Friedman was an avid free-market advocate, who insisted that the market, left to itself, could solve almost any problem. Yet he was also a macroeconomic realist, who recognized that the market definitely did not solve the problem of recessions and depressions. So he tried to wall off macroeconomics from everything else, and make it as inoffensive to laissez-faire sensibilities as possible. Yes, he in effect admitted, we do need stabilization policy - but we can minimize the government's role by relying only on monetary policy, none of that nasty fiscal stuff, and then not even allowing the monetary authority any discretion.
At a fundamental level, however, this was an inconsistent position: if markets can go so wrong that they cause Great Depressions, how can you be a free-market true believer on everything except macro? And as American conservatism moved ever further right, it had no room for any kind of interventionism, not even the sterilized, clean-room interventionism of Friedman's monetarism.
So Friedman has vanished from the policy scene - so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.
* http://uneasy money.com/2013/08/05/second-thoughts-on-friedman/
** http://gregmankiw.blogspot.com/2006/11/milton-friedman.html
*** http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/
"Uneasymoney" can only be linked to directly by separating "uneasy" and "money."anne :http://krugman.blogs.nytimes.com/2013/08/09/more-on-the-disappearance-of-milton-friedman/Jay : , January 01, 2017 at 08:31 AMAugust 9, 2013
More On the Disappearance Of Milton Friedman
By Paul Krugman
It seems that many people misunderstood my post * on Milton Friedman. It was not intended as Friedman-bashing, as a claim that MF was a bad economist; in fact, I'm on record ** declaring Friedman a "great economists' economist". His work aimed primarily at a professional audience - the permanent income theory of consumption, the case for flexible exchange rates, the natural rate (even if it does break down at low inflation), the optimum quantity of money - was often, maybe even usually, brilliant, and will live on.
What isn't living on, however, is Friedman's role as a guiding light for conservative economic policy.
Think about Paul Ryan, who is, like it or not, the leading economic intellectual of the modern GOP. Ryan sometimes drops Friedman's name - but when he does, it's to cite "Capitalism and Freedom," not "A Monetary History of the United States." When it comes to monetary policy, Ryan has said that his views are based on fictional characters in "Atlas Shrugged." No, really.
Or think about the economics rap video of "Keynes versus Hayek" everyone had fun with. Never mind that back in the 30s nobody except Hayek would have considered his views a serious rival to those of Keynes; the real shock should be, what happened to Friedman?
Partly this disappearance reflects real problems with Friedman's analysis. His views on the omnipotence of monetary policy,let alone the adequacy of a simple quantity-of-money rule, haven't withstood the test of time. As far as stabilization policy is concerned, he was indeed, as Brad DeLong archly puts it, a minor post-Hicksian. ***
But the bigger issue, I'd argue, is that modern conservatives can't accept the things Friedman was right about. Take, in particular, his essay on flexible exchange rates, in which he argued that a country that finds its wages and prices out of line should devalue its currency rather than rely on unemployment to push wages down, "until the deflation has run its sorry course." Contrast this with Ryan's declaration that "There is nothing more insidious that a country can do to its citizens than debase its currency."
The point is that Friedman was, when all is said and done, a pragmatist; he leaned right ideologically, but was willing to make room for awkward realities. And these days reality has a well-known liberal bias. Hence, Friedman has become an unperson.
* http://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/
** http://www.nybooks.com/articles/archives/2007/feb/15/who-was-milton-friedman/?pagination=false
"What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint."pgl -> Jay... , January 01, 2017 at 12:21 PMWhat's ironic is if you read Krugman pre-2000 his work as an economist was actually a model of restraint. Then BDS (Bush Derangement Syndrome) kicked in and he turned into a political "science" crank.
2000 was when George W. Bush lied his way into office. Krugman called out Bush's lies and was tagged as the Shrill One. Over time - a lot of progressives began to wear being shrill as a badge of honor.Jay -> pgl... , January 01, 2017 at 02:52 PMKind of like Obama, Clinton and the likes lied to intervene in Libya? They hate us for our freedom? No they hate us because we fight proxy wars in their territory and kill innocent civilians. As long as Assad is around Obama can drone bomb innocent people in Yemen and Proggers hail him as a saint.Chris Herbert : , January 01, 2017 at 08:31 AMDoes anyone have any comments about the constitutional monopoly over the money supply awarded to the Treasury? I don't understand what an economist means when he uses the word 'monetarist' to describe a set of ideas, but I do understand what it would mean if the Treasury (or a national Central Bank) stopped issuing debt for net government spending. Why we do issue this debt is beyond my comprehension. It's incredibly expensive, and there are no guidelines that make any sense to me when it comes to what is paid for by deficit spending. That we have piled up $17 trillion or whatever amount of debt when most of it was unnecessary is astonishing.Paul Mathis -> Chris Herbert... , January 01, 2017 at 09:01 AM"the constitutional monopoly over the money supply awarded to the Treasury"RGC -> Chris Herbert... , January 01, 2017 at 09:04 AMYou have heard of bitcoin, right?
Why doesn't the Federal Reserve just buy Treasury securities directly from the U.S. Treasury?RGC -> RGC... , January 01, 2017 at 09:24 AMThe Federal Reserve Act specifies that the Federal Reserve may buy and sell Treasury securities only in the "open market."
https://www.federalreserve.gov/faqs/money_12851.htm
.................
Direct Purchases of U.S. Treasury Securities by Federal Reserve BanksKenneth D. Garbade Federal Reserve Bank of New York
Abstract
Until 1935, Federal Reserve Banks from time to time purchased short-term securities directly from the United States Treasury to facilitate Treasury cash management operations. The authority to undertake such purchases provided a robust safety net that ensured Treasury could meet its obligations even in the event of an unforeseen depletion of its cash balances. Congress prohibited direct purchases in 1935, but subsequently provided a limited wartime exemption in 1942. The exemption was renewed from time to time following the conclusion of the war but ultimately was allowed to expire in 1981. This paper addresses three questions: 1) Why did Congress prohibit direct purchases in 1935 after they had been utilized without incident for eighteen years, 2) why did Congress provide a limited exemption in 1942 instead of simply removing the prohibition, and 3) why did Congress allow the exemption to expire in 1981?
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr684.pdf
Paul KrugmanDeDude -> RGC... , January 01, 2017 at 12:17 PM
Be Ready To Mint That Coin
January 7, 2013 9:05 am
.....................
For those new to this, here's the story. First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit - tax and spending bills the president is legally required to implement - and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can't pass through normal constitutional processes.
Enter the platinum coin. There's a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector's items - but that's not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling - while doing no economic harm at all.
So why not?
http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/?_r=1
If the Fed were to buy treasuries directly, then Wall Street would be losing a big fat paycheck for the horrendous work of two keystrokes. That is why Wall Streets little sock puppets in Congress has not done anything.anne -> RGC... , January 01, 2017 at 05:05 PMBy the way, I have been wondering about "demonetization" in India and what that might mean but I have read no convincing analysis so far:DeDude : , January 01, 2017 at 09:38 AMhttps://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation
Rule number one for a populist (popular) communicator of complicated issues is that you lose any and all doubt or granularity. The peeps will immediately lose interest in you and think you know nothing, if you fail to say things with great certainty and great simplicity.RC AKA Darryl, Ron -> DeDude... , January 01, 2017 at 10:28 AMThis is the exact opposite of how you communicate in an academic environment. If a scientist give a talk and fail to acknowledge the weaknesses in the narrative they present; the scientists listening will dismiss him/her as ignorant or a BS artist (and confront them with those weaknesses).
Academics at least theoretically seek to discourage group think while politicians seek to cultivate group think. Nonetheless, peer review processes instill group think in academics regardless of intentions. Elite groups only think that they are better when in fact they are hardly any different in essential and existential ways, just in customs, habits, and aesthetics. Individual results may vary though in the general population and among elites.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 10:34 AMIn a democratically electoral republic if the mainstream or status quo is the result of majority opinion then how can the opposition be characterized as populist?DeDude -> RC AKA Darryl, Ron... , January 01, 2017 at 12:06 PM"Elite groups only think that they are better when in fact they are hardly any different"RC AKA Darryl, Ron -> DeDude... , January 01, 2017 at 01:08 PMA case of false equivalency. There is a huge difference between a process that is constructed to reach a correct conclusion (but fails when inappropriately applied) and a process that has less of a chance of reaching the correct conclusion than a random number pick. Yes there are many examples where the scientific process has failed to reach the correct conclusion (and we know that because eventually it cleansed itself of those conclusions). However there are many more times when the scientific process got things right. That is in contrast to the FoxBot blowhards who seems almost incapable of getting anything right.
Intellectual conclusions only matter when they influence real world policy decisions. Real world policy decisions are not governed by science regardless of political control and economics is not deterministic science and often is not even probabilistic science. Of course that is why real world policy decisions are not governed by science. The political influence of wealth, custom and habit, heuristic guidelines obtained from the random walk of history, and popular memes all have more influence over public policy decisions than science.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 02:50 PMQuasi-science makes for fun social clubs though.
When we pursue technocrats, elitists, and oligarchs to advance the cause of socialism we do not get social democracy, but we may get liberal policy aimed at quelling discontent when necessary to prevent a popular uprising. That was the catch-22 omitted from Schumpeter's "Capitalism, Socialism and Democracy". Corporatism does not naturally lead to socialism in republican governments as Joseph Schumpeter said that it would. If we want social democracy then we must start by pursuing the electorate to advance the cause of democracy first.DeDude -> RC AKA Darryl, Ron... , -1"Real world policy decisions are not governed by science regardless of political control"pgl -> DeDude... , January 01, 2017 at 12:24 PMAnother false equivalency...
The real world is not yes/no, black/white. Just because science sometimes get corrupted doesn't mean it always is corrupted. Just because one of our main parties have become addicted to refusing facts and evidence against their narratives doesn't mean that everybody all the time refuse to listen to facts and evidence. I know that the corruption narrative is what keeps you alive and thinking you got it all figured out, but it also is what leads you astray on a regular basis.
Milton Friedman once tried to explain to doctors why their precious cartel known as the AMA was a bad idea. One would have thought the doctors would have shot him on the spot. But no - Friedman pitched this as a way to keep away "socialism" aka things like Medicare. The doctors loved it. Of course I thought this was one of his lower moments. BTW - never tell a doctor we should have Medicare for all unless you want to endure a tirade of why they don't make all that much.DeDude -> pgl... , January 01, 2017 at 06:51 PMYes, you got to give Friedman that he was a good salesman. Scientist and economists: mediocre - just to easily addicted to his own narratives. But he was a brilliant salesman.jonny bakho : , January 01, 2017 at 11:15 AMMF proposal to manage economies with monetary policy only and to sideline fiscal and regulatory policy found favors with free market conservatives.pgl -> jonny bakho... , January 01, 2017 at 12:26 PMFree market rules mean that the greedy are free to market their get rich quick scams to the harm of the rest of us and their own personal enrichment.
Monetary policies such as Volcker's job killing interest rates in 1980 are praised. Fiscal and regulatory policies such as the CAFE standards and subsidies to move away from oil created the Great Moderation, yet are dismissed or worse vilified.
Monetary policy is not saving us from climate change. Fiscal incentives for clean energy and regulation of carbon emissions are the tools that can be applied effectively.
The reformation we need is Post-Monetary with a strong emphasis on the fiscal and regulatory...
The free markets do hate fiscal policy or almost anything else that is sensible policy. But if they ever really understood what Friedman was saying about monetary policy - they would turn on him as being some of sort of communist.RC AKA Darryl, Ron -> pgl... , January 01, 2017 at 01:12 PMThen the free markets (sic) do not really understand some of sort of communist either.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 01:16 PM[If pgl would learn to type then I could copy from his comments without getting sic.]Larry : , January 01, 2017 at 04:27 PMCORRECTION: "...they would turn on him as being some of [sic] sort of communist."
"But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications."Chris Herbert : , January 01, 2017 at 06:12 PMMarvelous irony how well this applies to its author.
Still, nothing regarding the monopoly over the money supply. Not addressed. Ignored. That the Treasury can inject debt free money into the money supply, is ignored! That we could have a job guaranteed program is ignored. That we never needed to produce debt for deficit financing is ignored. What the hell!anne -> Chris Herbert... , -1Monopolization of the money supply: I have been wondering about "demonetization" in India and what that might mean but I have read no convincing analysis so far:https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation
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Oct 06, 2016 | economistsview.typepad.com
RC AKA Darryl, Ron : Thursday, October 06, 2016 at 04:04 AM
RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 04:06 AM[If Vice Chairman Stanley Fischer is not a strictly orthodox monetarist then I cannot see any reason for anyone else to be one. ]
...But, second, the virtues of sound monetary policy notwithstanding, we must not forget, as former Fed Chairman Ben Bernanke reminded us on numerous occasions, that "monetary policy is not a panacea."17
For instance, as I mentioned recently elsewhere, policies to boost productivity growth and the longer-run potential of the economy are more likely to be found in effective fiscal and regulatory measures than in central bank actions.18
Some combination of improved public infrastructure, better education, more encouragement for private investment, and more-effective regulation is likely to promote faster growth, which would increase the natural rate of interest and, thus, reduce the probability that we may find ourselves again struggling to avoid Keynes's infamous liquidity trap. If the natural rate can be lifted by appropriate policies, the economic near-stagnation that many countries have experienced in recent years may well turn out not to be that secular after all.
[A truly orthodox monetarist believes that monetary policy IS a panacea, that counter-cyclical fiscal policy is inflationary and debt expanding such that it should never be used.]
[Oops!]JF -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 05:01 AMRE: Low Interest Rates
http://www.federalreserve.gov/newsevents/speech/fischer20161005a.htm
Notice that Fishers remedies do not include policy actions to support increased consumption/demand apparently believing that Investment is done for what purpose? Could he not have said that people might increase Investment in productive purposes if they felt they could sell their produced offerings profitably. Then I would like him to say that the creation of credit is not productive as it comes almost costlessly (a corporate bond, even a mortgage contract cost little to produce), the same with a govt bond or govt currency, or the electronic registration of a stock, or the creation of derived financial instruments defined by ink on paper.RC AKA Darryl, Ron -> JF... , Thursday, October 06, 2016 at 05:37 AMInputs like labor, equipment and supplies of materials produce offerings, but financial assets need almost none of these inputs. We need much more flow going to getting real offerings marketed. But why does investing-wherewithal take such risks in hoping to organize all these inputs and marketing efforts when the huge volumes of high trading frequency lead to returns of added wherewithal coming to comfortable offices anywhere, to be churned again in the trading of non-production based financial things.
Have central banks (and others in the financial asset trading club) become so distanced from the production economics of Wicksall and Keynes that they can no longer even talk about basic demand for goods and services as a reason to Invest?
How about a set of remarks focused on aggregate demand for real offerings.
How about a set of remarks focused on how to redirect the economic wherewithal churning about in the financial asset trading marketplaces and convert more and more of this wherewithal into taking risks on real production and marketing businesses (more than ample supply of wherewithal now). The central bank leaders could talk more about how they can serve in making this conversion happen well, in coordination with other public policies such as those that help support more basic demand and happier more dynamic animal spirits in society, so to speak.
Can we replace Fisher with a deputy who sees everything first via the lens of demand side thinking followed by labor market considerations, long before they see solutions coming from "encouraging private investment" in financial assets?
Vice Chairman Stanley Fischer is a very conventional orthodox establishment economist, just not a strictly orthodox monetarist. I was in no way lauding Fischer other than by just spelling his last name correctly. However he can serve as a benchmark that distinguishes orthodox establishment economics from the even more narrow and rigid orthodox monetarism.JF -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 06:12 AMMy misspelling was not intended as a passive aggressive disrespect. But of course I called for his replacement, and I did this to bring attention to matters important to me, not just as an ad hominem attack on Mr. Fischer.JF -> JF... , Thursday, October 06, 2016 at 06:15 AMI do not want more policies to encourage capital formation and husbandry, nor do I want managers of capital to use public means or subsidues so they can get better educated workforces and eak more out of them so their capital is further favored (of course there are public good reasons for public effirts here, but its purposes are not just to encourage more investment because it is further subsidized), and the same with public efforts to build better infrastructure if the idea of 'better' is because it subsidizes investors (not perhaps because it makes society safer to have a more reilient and efficient energy delivery system that also helps with climate change concerns too), or better regulation of the financial system so its risks are spread better and investors are encouraged to trade even more in them. So here I've taken each of Fischers recommendations and addressed them, pointing out how these statements can be seen as supporting the investing class nit the real economy of demand side considerations about economics.
Perhaps the Deputy Director didn't intend for these remarks to be read that way. After all he talked about Wicksell, and I'm pretty sure his views were tied to the world of real production, anf Fischer even talked about production. So maybe I'm too willing to read with suspicion, or he is not cautious enough in his writing, or he needs to be replaced (because I read this the way he meant it).
IMHO.
Typepad disease.Peter K. -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 06:13 AMConventional orthodox establishment economists worry about inflation even after they deliver 1.6 percent growth for 2016.marcus nunes -> Peter K.... , -1And they insist monetary policy doesn't work well which is somewhat of a contradiction as they're worrying about inflation and monetary policy working too well.
If you read the Sept. 2008 minutes of the FOMC they are worrying about inflation 48 hours after Lehman failed and the implosion of the financial system. Just 8 years ago and they don't seem to have learned.
Fischer has gone ga ga!
http://ngdp-advisers.com/fischer-fed-pursuing-sound-monetary-policy-good-70s-now-really/
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Oct 06, 2016 | economistsview.typepad.com
JohnH -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 07:51 AM
Noah Smith from yesterday: "Most of the profession does believe in the power of monetary policy. The dominant form of macroeconomic model for at least a decade has been so-called New Keynesian models, which say that interest rates play a very large role in stabilizing the economy. These are also the dominant form of modern macro model in use at central banks...Now, the big question is whether faith in monetary policy might have been misplaced. The seemingly small effects of quantitative easing, and the difficulty of dealing with very low interest rates, are causing some macroeconomists to cast about for alternatives to the New Keynesian paradigm.
This illustrates the real fundamental problem with macroeconomics -- the lack of good evidence."
https://www.bloomberg.com/view/articles/2016-10-04/breaking-the-spell-that-grips-economicsIt sure seems like the economics profession is confused, very confused. Sadly, that will not keep them from demagoguing their favorite policy and insulting those who dare to point out the obvious problems and mistakes.
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EMichael said in reply to Ron Waller, September 07, 2015 at 09:52 AM
Ron Waller said in reply to EMichael, September 07, 2015 at 10:27 AMI see no purpose in comparing the present with a period of time so vastly different from the present.
EMichael said in reply to Ron Waller, September 07, 2015 at 10:35 AMYes the laws of physics change every 35 years too.
The reason the Friedmanian era turned out to be vastly different from the Keynesian era was because the neoclassical economic reforms were colossal failures.
Tax cuts did not pay for themselves or create prosperity, they created skyrocketing government debt. Deregulation didn't create prosperity, but produced numerous disasters including financial meltdowns. Free-trade exported wealth and jobs and killed real income growth. Modern Monetary Theology brought back pre-Keynesian boom-to-bust business cycles, drove down real incomes and the employment rate (now expect a decade before the economy can recover from a recession.)
Nothing in the history of the universe has failed more than neoclassical ideology. If one is to call that failure, one would have to redefined the word failure to include all other failures that pale by comparison.
But according to the Medieval Barbers, their policies were a resounding success. Anyone who questions them is a philistine. Thankfully, these modern high priests aren't able to burn dissenters at the stake like their forebears.
Bruce Webb said in reply to EMichael, September 07, 2015 at 11:02 AMNo, the Laws of Physics do not change.
Economic facts do. Are you trying to state there has not been a sea change in the world economy since the post WWII era?
Sorry, but Japan, China and Europe are an awful lot different than they were in 1950. And that is not saying that I disagree with everything you say. Actually, I agree with a lot of it.
But thinking solutions lie in the policies of the 50s and 60s ignore that the problems that exist did not exist in the 50s and the 60s.
EMichael said in reply to Bruce Webb, September 07, 2015 at 01:33 PM"But thinking solutions lie in the policies of the 50s and 60s ignore that the problems that exist did not exist in the 50s and the 60s."
EMichael there is a logical hole here. I am not sure I disagree with you on the substance but there is a coherent argument that the problems that exist NOW are precisely BECAUSE of changes away from the polices of the 50s and 60s. And that the reason we didn't have the same problems then is that the policies prevented them. And that a change back to those policies would serve to ameliorate them.
What you would need to do to rescue your argument is to prove that current problems could NOT have existed in the 50's and 60's, that there is something unique to today's problems that make them resistant to yesterday's solutions.
I am not saying you couldn't do that. Merely that you haven't attempted it. Instead you present a circular argument. What EXACTLY about today's problems make them incurable by yesterday's solutions?
cm said in reply to Bruce Webb, September 08, 2015 at 09:51 AMThe main thing that did not exist in the US was competition for labor. Free trade is a marvelous thing when you are the only one selling.
Take a look at trade balances from that period and the last couple of decades.
You can almost trace the trade balance changes to the changes(or lack of changes) to the income of the vast majority of Americans.
People in here(and myself) talk about the need for a tighter labor market. And we applaud the actions that create one. But I am almost totally committed to the idea that the only way to create a tight labor market is protectionism. We have to protect our workers.
Of course there is a price to be paid, but I think the increased costs of some goods will be overwhelmed by the benefits to be gained by a tight labor market.
Then again, we would be harming other countries trying to move into a industrialized state. But the last time I looked, none of them were helping me pay for SS; or Medicare; or education; or the keep the street lights working.
I know it is not politically correct, but charity begins at home. Especially in a home which has seen such decline in only three or four decades.
Ron Waller said in reply to EMichael, September 07, 2015 at 11:14 AMEconomic policy doesn't happen in a vacuum. Before the 90's there was no internet. There were its precursors of a sort, e.g. fax and data transmission over the phone, and computer networks/links based on that (90's comms technology existed but only in the lab or at the high end). In the post-WW2 decades, there weren't built out telephone networks at the national and international level, only few high end players could arrange to make instant international calls. Even electrification wasn't completed.
This meant obviously more bottlenecks and more intermediation and control, barriers to globally distributed operations, and in addition everything happened at a slower speed.
In addition most of the world, including large parts of Europe and the US, was agricultural or sparsely populated and un"developed".
In the decades after, the "second" and "third" world invested big time in education and technological development. It really took off when international business logistics and global IT/telecom became ubiquitous, and "first world" companies eagerly "helped" build the offshore know-how.
Peter K. said in reply to EMichael, September 07, 2015 at 01:27 PMGeneralizations don't identify any problems, provide any solutions, justify failed policies or rule out successful policies. Japan and Europe are in hot water because of bad economic policy. (Not demand-side Keynesian economic policy.)
China is in hot water because neoclassical reforms have killed demand in the Western economy. Its economy is founded on importing more and more Western jobs and manufacturing, not to mention GHG emissions.
It's only a matter of time before the entire house of cards collapses. Then people will be looking to the 1930s for policy solutions
EMichael said in reply to Peter KI agree with the others. To say that the economy was different back then is to minimize the manner in which policy has changed for the worse.
I don't think fundamentally the laws of economics have changed that much because of technology or globalization or vague "productivity changes."
This is like being like Martin Feldstein who says we should be happy with what we got. No policy has changed much to the worse since the 1950s and 1960s. For one thing unions have been politically destroyed.
likbez said in reply to Ron WallerNot the laws of economics, the facts. Y'know the old Keynes thing(supposedly):
"When the facts change, I change my mind. What do you do, sir?"
I'll give you one change.
In the 70's China had almost no foreign exchange reserves. Now they have around $4 Trillion.
That is a real fact. And the reasons behind it are obvious.
Reply September 07, 2015 at 01:40 PM"Krugan's free-trade ideology rhetoric shows he's more New Keynesian (neoclassical synthesis) than Keynesian. More neoliberal than liberal."
Very true. Thank you
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September 06, 2015 | Economist's ViewPart of an essay by David Warsh:
... For the old lions, Paul Samuelson and Milton Friedman, the '80s meant a bittersweet departure from the center stage of economics after forty years of dominating the scene. The two had entered their sixties; neither was out of steam. But the leaders of the next generation had become apparent: Lucas, in macroeconomics; Kenneth Arrow in nearly everything else.
The election of Ronald Reagan was a triumph for Friedman; they had known each other since Friedman spent a quarter at the University of California at Los Angeles, shortly after Reagan had been elected Governor of California.He was invited to lecture in China. And the international success of Free to Choose kept Friedman in the public eye.
But Paul Volcker took a different approach to monetary policy from the one Friedman advocated, and Friedman's forecasts became markedly worse. The editorial page of The Wall Street Journal adopted as its champion Friedman's long-time rival in currency matters, Robert Mundell, now teaching at Columbia University, and went all in for Mundell's young associate, consultant Arthur Laffer. A research appointment at the Federal Reserve Bank of San Francisco was not the same platform as the University of Chicago. Friedman still had his membership on the President's Economic Policy Board, but after he "savaged" Volcker to his face before the president in a meeting in 1983, both men lost influence. Pointing a finger at Volcker, Friedman said (according to Newsweek's account), "because of the policies of the Fed under that man we have had an inflationary surge in the money supply that is going to have to be corrected." Volcker was not reappointed. Edward Nelson, of the Federal Reserve Bank of St. Louis is writing a scientific biography of Friedman. It will make interesting reading when it is done.
In March 1981, Friedman wrote his Newsweek column in the form of a letter to Philip Handler, president of the National Academy of Sciences, advocating major cuts in the budget of the National Science Foundation, as a step towards the abolition of the NSF. The Reagan administration had proposed sharp cuts in the economics program. Friedman argued the government shouldn't pay for any scientific research. True, the NSF had funded much good science; but it had paid for much bad science, too, including, he wrote, overmuch mathematical economics. The great scientists of the past had done without NSF funding. Einstein did his work in a government patent office; general relativity might never have made it past a peer-review panel. "The innovative ideas that have stirred controversy in economics since NSF funding of economics began two decades ago owe little or nothing to NSF funding," he wrote.
Thus did Friedman dismiss the agency that Paul Samuelson had brought to life in 1945. Perhaps more important, by extension he dismissed the program of government fellowships, awarded by competitive exam, that had sent Samuelson to graduate school in 1935, all expenses paid – and countless others since, many of them as impecunious as Friedman had been in 1932. The NSF ran similar programs in mathematics and many ciences, and the principle had been extended, by Sen. Jacob Javits (R-NY) to humanities. NSF research grants funding had helped build the Massachusetts Institute of Technology into a powerhouse to rival Harvard, and played a similar role at many other public and private universities.
No Samuelson column followed Friedman's. Samuelson never wrote again for Newsweek . He resigned the column he written for fifteen years. When, many years later, I asked him about his timing, he firmly denied that it had anything to do with Friedman's column, and wrote me a letter for the file the next day repeating what he had said. I have always wondered if he sought to defuse the matter out of habit. That he and Friedman had remained on civil terms for seventy-five years was clearly a source of pride, though privately he grew less tolerant of his rival after 1980.
Samuelson, too, was in mild recession in the '80s. Keynesian economics hadn't yet rebounded from the biting criticism of the New Classicals in the '70s. Tensions were growing within the MIT department over appointments and the direction of future research. Samuelson formally retired in 1985, at 70, to make room for others. He had plenty to engage his professional attention. Commodities Corp., which had discovered such natural traders as Paul Tudor Jones and Bruce Kovner, was winding down, but Samuelson's interest in Warren Buffet's Berkshire Hathaway was gearing up. The Vanguard Group, whose godfather he had been ever since founder John Bogle introduced the first index fund, was thriving. Samuelson's friends and colleagues James Tobin, Franco Modigliani, and Robert Solow received Nobel Prizes.
Young Lions at Large
To the young lions of Keynesian economics in the '80s, rational- expectations macroeconomics and real business cycle theory posed a considerable bar. To work in the new traditions required a considerable investment in new tools and mathematical techniques, and, even fully teched-up, didn't seem to speak very directly to policy. A strong corps of economists went to work to fashion a "new Keynesian" version of the latest general equilibrium economics. But gradually one rising star of saltwater economics after another left academia for a policy job.
Martin Feldstein, of Harvard University, was the first. As something of an acolyte of Milton Friedman, Feldstein was never very high in salinity, but he demonstrated plenty of professional backbone as Chairman of the Council of Economic Advisers under Ronald Reagan for two years in the early days of the controversies over deficits before returning in 1984 to Harvard and his position as president of the National Bureau of Economic Research. Stanley Fischer, of MIT, was next, wrapping up a highly successful research career in order to serve as chief economist of the World Bank (a path that led to leadership positions in the International Monetary Fund, governor of the Bank of Israel and, currently, vice chairman of the Fed). Lawrence Summers, Feldstein's student, served as campaign economist to Democratic candidate Michael Dukakis in the 1988 presidential campaign and succeeded Fischer at the World Bank before joining the Clinton administration, where he advanced to Secretary of the Treasury.
Soon the flood was on: Jeffrey Sachs, Joseph Stiglitz, Olivier Blanchard, Kenneth Rogoff, Gregory Mankiw, Glen Hubbard, and Christina Romer were among those MIT- or Harvard-trained economists who served in government jobs or NGO positions. Paul Krugman retooled as a journalist. Lists of MIT and Harvard graduates in high positions in European, South American, and Asian governments were even longer. Did this differ in kind, and not degree, from the trajectory of academic economists dating back to to the New Frontier, if not the New Deal? I think so.
In 2006, Harvard's Mankiw, in an article for the Journal of Economic Perspectives argued, as I did in a book, that the differences in interests among economists were best understood as being similar to those between scientists and engineers. The early macroeconomists, led by Samuelson and Friedman, had resembled engineers seeking to solve practical problems, Mankiw wrote; macroeconomists of the past several decades, led by Tjalling Koopmans, Jacob Marschak, Kenneth Arrow, and others had been more interested in developing analytic tools and establishing theoretical principles. Their students the '80s had joined teams along similar lines. "Recently Paul Romer, of New York University, introduced a different distinction to elucidate some of the controversies in present-day macro – between bench science and clinical medicine. Both analogies will get plenty of elaboration in future years, for this is what changed in kind in the '80s: economics developed a clinical/engineering wing.
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likbez said...chris herbert said...Due to his role in neoliberal transformation of Chile after Pinochet coup of 1973, Friedman can be viewed as a one of the first economic hitman for multinationals, member of organized crime disguised as an economist. According to the 1975 report of a United States Senate Intelligence Committee investigation, the Chilean economic plan was prepared in collaboration with the CIA. In 1987 45% of Chile's population was below poverty line. From Wikipedia:
==Start of quote ===
Milton Friedman gave some lectures advocating free market economic policies in Universidad Católica de Chile. In 1975, two years after the coup, he met with Pinochet for 45 minutes, where the general "indicated very little indeed about his own or the government's feeling" and the president asked Friedman to write him a letter laying out what he thought Chile's economic policies should be, which he also did.[26] To stop inflation, Friedman proposed reduction of government deficits that had increased in the past years and a flat commitment by government that after six months it will no longer finance government spending by creating money. He proposed relief of cases of real hardship among poorest classes.[2] In October 1975 the New York Times columnist Anthony Lewis declared that "the Chilean junta's economic policy is based on the ideas of Milton Friedman…and his Chicago School".[26]
=== End of quote ===In her book The Shock Doctrine, Naomi Klein criticized Friedman's recipe for neoliberal scheme of the economic rape of the countries under disguise of transformation toward "free" market economics -- the neoliberal restructuring that followed the military coups in several countries using suspiciously similar schemes. She suggested that the primary role of neoliberalism was to be an ideological cover for capital accumulation by multinationals. Chilean economist Orlando Letelier considered that the main driving force behind Pinochet's dictatorship violence toward opponents was the level of opposition to Chicago School policies in Chile.
And Friedman himself was a coward who never personally acknowledged his role in the events. After a 1991 speech on drug legalization, Friedman answered a question on his involvement with the Pinochet regime, saying that he was never an advisor to Pinochet (also mentioned in his 1984 Iceland interview), but that only his students (Chicago boys) were involved.
He was followed by Harvard mafia with their economic rape of Russia in early 90th. Probably also prepared in collaboration with the CIA...
It is interesting that the paper does not mention Galbraith who was important opponent of Friedman (see "Friedman on Galbraith, and on curing the British disease", 1977) . In those two lectures Friedman disagrees with Galbraith's four most popular works: "Countervailing Power," "The Great Crash of 1929," "The Affluent Society," and "The New Industrial State". Friedman consistently repeats the neoliberal dogma that it is unfettered free market, with minimal rules and regulations, is the best economic system.
So it might be useful to distinguish between two instances of Friedman: the first is Friedman before "Capitalism and Freedom" and the second is after. Friedman after Capitalism and Freedom is a pitiful figure of a prostitute to power that be.
bakho said...The best observation was the one by Wojnilower that the animals in the zoo were let out of their cages.. They are still roaming around, not yet put back in their regulatory cages. The list of financial crises beginning in the 1980s looks as bad and as frequent as those of the 1800s. Technology gives a sheen to the past 35 years or so, but underneath there's been immense intellectual damage. A degradation of morals and honesty. Today, greed is good. I'll be gone, you'll be gone (IBGUBG), rules politics and finance today. The animals are still lose, more trouble will visit the Kingdom.
bakho said...Interesting history lesson.
Needs more links.
Friedman's spat with Volcker:In Friedman's view, Volcker was too vulnerable to political pressures from Congress and the White House, Condemned by liberals and conservatives for plunging the country into recession and worried that continued high interest rates would cause massive default by Third World debtors, Volcker in mid-1982 shifted his sights away from the monetarist approach, loosening the Fed's targets for money growth and restoring interest-rate manipulation as a policy tool. In the five months before the November 1984 elections, the Fed increased the money supply to bring down interest rates and thus fuel the recovery to better Reagan's chances at re-election. After Reagan's reelection victor in November, the Fed again tightened the money supply, "This is not monetarist policy," Friedman says, "The key element of monetarism is to define what you are going to do and then stick with it."
For any Fed chairman, Friedman thinks, the temptation to linker with money-supply targets is probably irresistible. According to the monetarist doctrine, the Fed chairman's job is purely technical, "a matter of every month looking at the money base and making sure it increases by about a quarter of one percent," Friedman explains, "If the Fed chairman were to do a good job, he would become an unknown, a faceless bureaucrat."
Cooper, M. H. (1987). Economics after Reaganomics. Editorial research reports 1987 (Vol. II). Washington, DC: CQ Press. Retrieved from http://library.cqpress.com/cqresearcher/cqresrre1987082100
I wonder if so many of the young economist went into policy because the people involved: Volcker, Friedman, Laffer etc were pretty clueless and made bad predictions.
Just how wrong was Friedman?
DARPA turned the internet over to NSF and NSF spun it off into a large commercial engine.NSF funds high risk investment, the kind that most corporations cannot. High risk research means many projects that don'r pan out, a small pool of winners and a handful that hit jackpot. It takes a large organization with very deep pockets to fund enough high risk research over long periods to have a good likelihood of getting a large hit. Industry cannot fund at that level, government can.
Another example: NSF funded obscure biochemistry into esoteric research on enzymes that could degrade DNA. That research became the foundation of genetic engineering. Who could have known?
pgl said in reply to Paine ...
Warsh did write an incredible amount of BS in this silly essay. I didn't think Mundell ever endorsed Laffer's stupid cocktail napkin.
Lafayette said...
REAGANOMICS
From WikiP: {According to Keynesian economists, a combination of deficit spending and the lowering of interest rates slowly led to economic recovery. However, conservatives insist that the significantly lower tax rates caused the recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984.}
Even Reagan, a good friend of Friedman, when push-came-to-shove, indulged is stimulus spending to get his presidency out of the deep-doodoo.
Which the Replicants stonewalled in 2010 when a Great Recession was in full sway, but the PotUS was a Democrat ...pgl said in reply to Lafayette...
Wikipedia gets another wrong. It was Reagan's 1981 tax cut (deficit spending) that led Volcker to do round 2 of his tight money. Volcker kept trying to make a deal withe White House - reverse the fiscal stimulus in exchange for lower interest rates. The White House did not even know what was going on. And Wikipedia does not either.
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My recent post on realism in the social realm generated quite a bit of commentary, which I'd like to address here.
Brad Delong offered an incredulous response -- he seems to think that any form of scientific realism is ridiculous (link). He refers to the predictive success of Ptolemy's epicycles, and then says, "But just because your theory is good does not mean that the entities in your theory are "really there", whatever that might mean...." I responded on Twitter: "Delong doesn't like scientific realism -- really? Electrons, photons, curvature of space - all convenient fictions?" The position of instrumentalism is intellectually untenable, in my opinion -- the idea that scientific theories are just convenient computational devices for summarizing a range of observations. It is hard to see why we would have confidence in any complex technology depending on electricity, light, gravity, the properties of metals and semiconductors, if we didn't think that our scientific theories of these things were approximately true of real things in the world. So general rejection of scientific realism seems irrational to me. But the whole point of the post was that this reasoning doesn't extend over to the social sciences very easily; if we are to be realists about social entities, it needs to be on a different basis than the overall success of theories like Keynsianism, Marxism, or Parsonian sociology. They just aren't that successful!
There were quite a few comments (71) when Mark Thoma reposted this piece on economistsview. A number of the commentators were particularly interested in the question of the realism of economic knowledge. Daniel Hausman addresses the question of realism in economics in his article on the philosophy of economics in the Stanford Encyclopedia of Philosophy (link):
Economic methodologists have paid little attention to debates within philosophy of science between realists and anti-realists (van Fraassen 1980, Boyd 1984), because economic theories rarely postulate the existence of unobservable entities or properties, apart from variants of "everyday unobservables," such as beliefs and desires. Methodologists have, on the other hand, vigorously debated the goals of economics, but those who argue that the ultimate goals are predictive (such as Milton Friedman) do so because of their interest in policy, not because they seek to avoid or resolve epistemological and semantic puzzles concerning references to unobservables.Examples of economic concepts that commentators seemed to think could be interpreted realistically include concepts such as "economic disparity". But this isn't a particularly arcane or unobservable theoretical concept. There is a lot of back-and-forth on the meaning of investment in Keynes's theory -- is it a well-defined concept? Is it a concept that can be understood realistically? The question of whether economics consists of a body of theory that might be interpreted realistically is a complicated one. Many technical economic concepts seem not to be referential; instead, they seem to be abstract concepts summarizing the results of large numbers of interactions by economic agents.
The most famous discussion of realism in economics is that offered by Milton Friedman in relation to the idea of economic rationality (Essays in Positive Economics); he doubts that economists need to assume that real economic actors do so on the basis of economic rationality. Rather, according to Friedman this is just a simplifying assumption to allow us to summarize a vast range of behavior. This is a hard position to accept, though; if agents are not making calculating choices about costs and benefits, then why should we expect a market to work in the ways our theories say it should? (Here is a good critique by Bruce Caldwell of Friedman's instrumentalism; link.)
And what about the concept of a market itself? Can we understand this concept realistically? Do markets really exist? Maybe the most we can say is something like this: there are many social settings where stuff is produced and exchanged. When exchange is solely or primarily governed by the individual self-interest of the buyers and sellers, we can say that a market exists. But we must also be careful to add that there are many different institutional and social settings where this condition is satisfied, so there is great variation across the particular "market settings" of different societies and communities. As a result, we need to be careful not to reify the concept of a market across all settings.
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Sep 04, 2015 | Stephen Williamson New Monetarist Economics
So, within economics, is macro unusual? Of course not. Indeed, the whole emphasis of post-1970 macroeconomics is to do it like everyone else. Before 1970, no one would have been discussing macro and Dixit-Stiglitz in the same sentence. Should economics work like physics? Of course not. We're studying very different problems requiring very different methods. Why would you expect economists to behave like physicists?
What's my bottom line? Romer is just leading us through an unproductive conversation - one that's not going to persuade anyone of anything.
Anonymous, September 4, 2015 at 4:42 PM
Anonymous September 4, 2015 at 5:38 PM"Romer is just leading us through an unproductive conversation - one that's not going to persuade anyone of anything."
It's almost as if Romer is wandering around testing the waters seeing how far he can push things before he actually says what he wants to say coherently.
Constantine Alexandrakis, September 4, 2015 at 6:16 PMPersonally, I think he senses that RE/New Classicalism is in decline, not comprehending why, struggling to understand, looking for scapegoats (Solow, tribal behaviour, mathiness) and is essentially mourning its demise.
Henry.
Steve, Solow agrees with you on Romer's contribution.https://www.minneapolisfed.org/publications/the-region/interview-with-robert-solow
Norman, September 5, 2015 at 4:45 AM
Actually, Romer doesn't argue that physicists are not tribalists – he just asserts it, on the basis of a thought experiment based on two particular statements. It may well be true that there is a lot of consensus on the particular physics statements in his post, but no doubt you could also find a couple of statements in economics that most economists agree about. For evidence of tribalism in physics, google "superstring controversy," or at a more personal level, Newton and Hooke, Einstein and Lenard.
Or read Kuhn famous book on The Structure of Scientific Revolutions, in which he argues persuasively (or shows definitively, for those who prefer), that "Competition between segments of the scientific community [tribes?] is the only historical process that ever actually results in the rejection of one previously accepted theory or in the adoption of another," though at the same time, most progress comes from working within an established paradigm. My own intuition is that economics if very much like physics in both those respects.
As to how tribalism has arisen in economics, the answer is easy: economists are people, and people are tribal. Search the psychology of "ingroup bias".
