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Krugman on the future of econ

by geezer in Paris Fri Sep 25th, 2009 at 06:04:25 AM EST

I admire Krugman as a halfway house for those still suffering from Uncle Miltie withdrawal. I quote this piece to note, however, the careful wording he uses to poke holes in the Chicago boys, and also to note the apparent limits to his own willingness to accept the failure of Market Capialism, as well as his unwillingness to see it as a system of predation, rather than efficient production and distribution.

Perhaps he's keeping his head down?

Diary bump by afew


What happened to the economics profession? And where does it go from here?

As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn't sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession's failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.

Economists sell a product, and their market is the tiny social group who hang out in the rarefied atmosphere of the banking industry and wall street's highest peaks. They also sell to themselves--each other.
They are rewarded for producing a product that pleases, and penalized for heresy or obscenity, such as suggesting that, when dealing with human needs markets fail as often as they work, or that the complexity of human society and needs dwarfs their most ambitious theorizing. The longer this process goes on, the more self-contained and insular becomes this circular process, the more divorced from human realities it becomes, until it just floats off and becomes a fantasy world, like the Chicago School.
Any analysis of the many examples of the times when the chicago-style market doctrine has been allowed to be the base for real-world policy shows it's disastrous consequences. Clearly, the bubble has slipped it's tether, in a way so fundamental that even the reasonable suggestions of Paul Krugman are, in the medium run, mere band-aids. Krugman steps gingerly on this sore spot:

Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets -- especially financial markets -- that can cause the economy's operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don't believe in regulation.

Nowhere in these remarks is there a hint of the stark reality of the system as a technology of predation, or the role of economists in enabling this. Nowhere does Krugman even mention the clear relationship between the increasing maldistribution of wealth and a host of social and technical ills- a relationship that reveals the real nature of--or perhaps the results of-- the profession as of late.

It's much harder to say where the economics profession goes from here. But what's almost certain is that economists will have to learn to live with messiness.

So ---that's IT, paul? Messiness. The world will indeed be "messier"-- what a prissy way to describe it.

That is, they will have to acknowledge the importance of irrational and often unpredictable behavior, face up to the often idiosyncratic imperfections of markets and accept that an elegant economic "theory of everything" is a long way off. In practical terms, this will translate into more cautious policy advice -- and a reduced willingness to dismantle economic safeguards in the faith that markets will solve all problems.

Pouf, Paul. The safeguards are gone already. There is no willingness to build more, yet. Witness the total disappearance of "banking reform" from the agenda, or the new round of mind-boggling bonuses about to be bestowed on the faithful.

Trust the market. Yes, economists admitted that there were cases in which markets might fail, of which the most important was the case of "externalities" -- costs that people impose on others without paying the price, like traffic congestion or pollution. But the basic presumption of "neoclassical" economics (named after the late-19th-century theorists who elaborated on the concepts of their "classical" predecessors) was that we should have faith in the market system.

This faith was, however, shattered by the Great Depression.Actually, even in the face of total collapse some economists insisted that whatever happens in a market economy must be right: "Depressions are not simply evils," declared Joseph Schumpeter in 1934 -- 1934! They are, he added, "forms of something which has to be done."

I think this event will hardly alter the fundamental beliefs and pronouncements of the academic economists. After all, a good case can be made that from the point of view of the top predators, this system worked very well--they got the dough and the power, which was, after all, the whole point, n'est pas?

Here's the the key thing that I think the boys in the towers and penthouses don't want to face:

Globalized markets and neoliberal economic policy has, since the supremacy of Uncle Miltie's ideas, actually shrunk the world economic pie, when viewed per-capita, and decimated the resource base as well as introducing environmental changes that loom over us all like a wolf outside the burrow of a rabbit. Yes- they got the dough,---for now. But, like any predator who strips the game from the range, they are in for a nasty surprise.

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European Tribune - Krugman on the future of econ
Globalized markets and neoliberal economic policy has, since the supremacy of Uncle Miltie's ideas, actually shrunk the world economic pie, when viewed per-capita
When viewed per-capita, population growth and conservative cultures that believe more population is always better are as much to blame.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Fri Sep 11th, 2009 at 07:02:02 AM EST
True, Mig, particularly in Africa. But my point relates to the raft of interesting studies emerging that show a negative result from applying the free-market capitalism that is at the heart of the chicago school to economies in stress. Even the showpieces like Chile under Pinochet are revealing that only when the Chicago theology of the IMF or world bank was ignored or overtly violated did real growth occur. The effect in many economies dwarfs the effect of population growth. See Indonesia, for example. Chicago Cocktail is more toxic than the Malthusian Malt, it would seem.
Shame Obama failed to get the point when he lived there, or when he went back.


Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 11th, 2009 at 07:22:34 AM EST
[ Parent ]
geezer in Paris:
interesting studies emerging that show a negative result from applying the free-market capitalism that is at the heart of the chicago school to economies in stress
You're gonna love this
The IMF has gone to Latvia which is the most seriously indebted of the post-Soviet economies, and saying you have too many people who are using medical care.  They've just cut back the hospital budget by 50%, they're saying you have to let the old people die.  They've cut back the schooling by 50%.  They say you cannot afford to educate your population.  If you want an education, you must leave the country.  They're saying essentially that Latvians have to cut their population by one third in the next couple of years.


En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Fri Sep 11th, 2009 at 08:37:10 AM EST
[ Parent ]
They've cut a lot, but it wouldn't surprise me at all if the budget, as well as salaries, in real terms are still higher than they were in, say, 2005. Shock horror.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Sep 11th, 2009 at 11:23:06 AM EST
[ Parent ]
Data?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Sep 14th, 2009 at 02:10:16 PM EST
[ Parent ]
Nope, sorry. But given how fast their GDP grew during the 2000's, spending on services should have grown fast as well. After all, a 20 % decline in GDP is roughly equal to two years of 10 % growth.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Sep 16th, 2009 at 11:03:08 PM EST
[ Parent ]
Link? Sounds horrible.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 11th, 2009 at 01:59:49 PM EST
[ Parent ]
Click on 'this'.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Sun Sep 13th, 2009 at 09:24:38 AM EST
[ Parent ]
Mig, link's broke.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Mon Sep 14th, 2009 at 02:56:21 AM EST
[ Parent ]
Doesn't it take you to this comment by Cat?
Been a helluva week. Beans again tonight. Yum.

Hudson | BAR | 9 Sep 2009

Michael Hudson: I'm dealing with two countries which are sort of the wave of the future, Iceland and Latvia, that have so much debt beyond their ability to pay that the result for one thing is emigration.  A lot of Icelanders are emigrating,  The people in Iceland and Latvia are running down their savings accounts in order to try to keep trying pay the interest on their houses that are falling in price.  They're trying to keep up living standards although their family members are being laid off.  First of all they dissipate the savings they have, paying them out to creditors, and finally to survive they're leaving the country.  So you have depopulation, falling birth rates, rising death rates.


En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Sep 14th, 2009 at 04:39:19 AM EST
[ Parent ]
Uh... Global per capita income has risen a lot for the last 20 years. Really. So has lifetimes. Health has improved.

It's an unfortunate fact that the same isn't true for America, but America is just a marginal sliver of humanity. About 5 %.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Sep 11th, 2009 at 11:21:26 AM EST
[ Parent ]
There's no question global per capita income has risen.  (Although the existence of inflation lowers the PPP, over time, of that income.)

The distribution curve of that income, however, has shifted as well.  

The result has been 'them who had, got more. Them who hadn't, got less.'  This result can be used to demonstrate the existence and influence of positive feedback loops in the global economy.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Sep 11th, 2009 at 12:21:00 PM EST
[ Parent ]
'them who had, got more. Them who hadn't, got less.'

Not in the developing world. Or Europe. Or anywhere but the US/Anglo-saxon world.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Sep 11th, 2009 at 12:24:46 PM EST
[ Parent ]
At this point we need data.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Sun Sep 13th, 2009 at 09:28:59 AM EST
[ Parent ]
Well, go look at Rosling.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Sep 16th, 2009 at 11:03:28 PM EST
[ Parent ]
Rosling's data has the weakness that it uses aggregates instead of medians.

It also uses measures - such as GDP - that are just as much measures of how monetized an economy is as they are of how much economic activity there is.

The part of this that growth that's likely to not be a figment of the data collection methods occurred in China - which deliberately rejected the mainstream economists' advice.

(And part of China's wealth was not created - it was redistributed from the US with the dismantling of the American industrial plant. One may have varying opinions on the morals of that exercise and whether it alters the way the statistics should be presented, but it deserves a footnote at least.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 17th, 2009 at 05:37:20 AM EST
[ Parent ]
We've discussed this before, and while the median argument certainly carries weight in GDP, it doesn't in health/age. Furthermore, it's just silly to say the median wealth hasn't increased in Chinindia either, anyone who visited 30 years ago and went back now might just as well think they've come to the Moon.

Even further, we do not see a redistribution from Americans to Chinese whereas

  1. American average wealth has been growing, not shrinking.

  2. American median wealth has been stagnating, not shrinking.


Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Sep 17th, 2009 at 12:43:26 PM EST
[ Parent ]
The process has been the one called economic growth, one that you, being far more competent in economic matters than me, should be acquaintanced with.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Sep 17th, 2009 at 12:46:57 PM EST
[ Parent ]
Much of said growth has been phony. We don't yet know precisely how much, but it is not beyond the realm of possibility that it will turn out to be more than 100 %.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 17th, 2009 at 02:06:10 PM EST
[ Parent ]
Median wealth certainly has increased in China. Less so in India, but still noticeably.

I'll give you that the point was sloppily made. It should not read that the current economic regime has "made Joe Median in every country worse off" - rather it should read that the current economic regime has "made Joe Median in every country that actually adhered to it worse off."

Health and age I'll grant you, assuming that they actually say what you recall that they say.

As for the American incomes, the real median income has shrunk according to the inflation index that was used before Ronnie Raygun started the tradition of playing games with the basket of goods. And we will see how much the average has grown or shrunk after the Bush Depression and the next oil shock or two are over.

(And of course American income is not quite the same thing as American wealth. It is perfectly possible to have growing incomes and declining wealth by selling out your assets. But I don't know any good measure of national wealth.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 17th, 2009 at 02:18:38 PM EST
[ Parent ]
IIRC, average height in the US is shrinking. Height being a function of genes and nutrition/health, this should be a sign of decreasing health.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Sep 22nd, 2009 at 09:40:39 AM EST
[ Parent ]
Or a sign of more and smaller immigrants...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Tue Sep 22nd, 2009 at 11:22:58 AM EST
[ Parent ]
I forget the details, but the studies I saw 5-10 years ago do take account of that, and rule it out. And it only applies to the US and not to Europe.
by gk (gk (gk quattro due due sette @gmail.com)) on Fri Sep 25th, 2009 at 07:25:17 AM EST
[ Parent ]
Exactly.
One of the loops is:
As distribution of capital peaks in a tiny percentage on the right,  multiple effects occur, such as media control, electoral distortions such lobbyistas as economic and political godfathers, etc. etc.---which accelerates the concentration of capital on the right, which accelerates the---- around it goes---right up to the point where your consumption side of the equation collapses. Like -now.

"Ah, ---did we do that?"

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 11th, 2009 at 02:09:04 PM EST
[ Parent ]
It may be that the "reducto ad adsurdum" of this process is not that one individual has all the money, but rather that trading programs run by financial corporations representing a tiny oligarchy play games between themselves with all of the money.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 13th, 2009 at 10:05:07 AM EST
[ Parent ]
Global per capita income has risen a lot for the last 20 years

But in the USA inflation adjusted income for the bottom 80% has been stagnant for that period and most of the gains have gone to the top 2-3%.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 11th, 2009 at 12:54:34 PM EST
[ Parent ]
I know. That's why I said this applied to pretty much everyone but the Anglo-Saxon world.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Sep 11th, 2009 at 01:06:20 PM EST
[ Parent ]
Watch that basing etimates of prosperity on "average" numbers. Gets slippery.
The same maldistribution trend seems present in the many economies that have quaffed heavily the chicago elixir. those with a longer history of addiction show the same deterioration of median income.  

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 11th, 2009 at 02:14:13 PM EST
[ Parent ]

Priceless: How The Federal Reserve Bought The Economics Profession

The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.

This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too.

"The Fed has a lock on the economics world," says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. "There is no room for other views, which I guess is why economists got it so wrong."

One critical way the Fed exerts control on academic economists is through its relationships with the field's gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll -- and the rest have been in the past.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Sep 11th, 2009 at 08:52:06 AM EST
But this is only one chain of causality in a self-reproducing system, since the Fed judges what economics is suitable for its largesse on the basis of criteria created within high status mainstream economics itself.

Its WeSaySo Corp., except in academics ... the WeSaySo School of Economics. The Fed rewards the right economists for being right, and what constitutes being right is not giving defensible cause and effect explanations of what is happening in the economy - but rather using the tools that are known by the right economists sufficiently well that the right economists say that your work is of interest. That largesse then provides funding for doctoral research at the best schools and the next generation of the right economists are born.

And they each are right because the WeSaySo School says they are right, and collectively they are the WeSaySo School.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 11th, 2009 at 11:38:07 AM EST
[ Parent ]
Once again I must say--exactly. The production of a "Knowledge product" which satisfies several needs, but need not have much to do with that larger world outside the bubble.

Needs?
-- The legitimization, in a quite theatrical sense, of the entire group of priests,and

-- A needed balm to those uneasy consciences, residing in those fine minds, --that itch which says, "Oh, shit, we really fucked it up." One can just refer back to the priests and say, "well, THEY said it'd work out just fine!"

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 11th, 2009 at 02:22:15 PM EST
[ Parent ]
... to be wrong alongside a large crowd who were also wrong than to be right all alone.

NEQ, BTW.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 11th, 2009 at 04:18:05 PM EST
[ Parent ]
And not just the Fed, but the National Science Foundation as well! (As the results of Paul Davidson's grant application show.)

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 25th, 2009 at 10:19:14 AM EST
[ Parent ]
Maybe, but Federal Reserve independence works both ways in this case.  Some of the more progressive and market-skeptical economists can be found working there in stable jobs or getting their start there, publishing papers critical of monetarist economics and even becoming politically active in the community in progressive work such as the effort to fund early childhood eduction (The Minneapolis Fed's chief economist leveraging the work of Nobel laureatte and Chicagoan James Heckman to organize for the restructuring of America education, for example).

The Fed is just not known for encouraging intellectual conformity -- the opposite, actually is true. It's not the lack of economists at the Fed who missed the boat on the current crisis. It was the political inability of Fed and Treasury policymakers to use the alternative findings of some of its own economists who have challenged predominant views.

Rather, its the intellectual vapidity among Wall Street bankers like the one quoted who fail to read the non-mainstream work of Fed and other economists who don't get quoted in Times as often that is the source of intellectual conformity in the financial industry. Chicago school school rock stars have had more credibility with bankers and policymakers than the Fed's own economists have.

by santiago on Fri Sep 11th, 2009 at 01:28:40 PM EST
[ Parent ]
"It was the political inability of Fed and Treasury policymakers to use the alternative findings of some of its own economists who have challenged predominant views."

Also true.

What happened to the mavericks- the regional fed presidents who dared to open their mouth and call a spade a shovel was that their words fell into the ocean and caused barely a ripple---and changed nothing. Except perhaps their career prospects?

And actually, though there were some brave dissenters among the fed, it seems that the rule of the day was to follow orders and duck.

 

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 11th, 2009 at 02:31:19 PM EST
[ Parent ]
'Regional Fed presidents' are, in fact, political appointees (there are exceptions when academics are appointed, such as current SF and STL presidents, but they are not the norm). And in politics, you do lose your head for sticking out - unless you happen to be right at a time of extraordinary crisis and happen to be appointed a leader, which doesn't happen often.

On 'economic' side of the Fed, the pressures are very small. And mostly they could be traced to Greenspan's authority, which now counts for very little. On most of things Krugman disagrees with, there were - and now are in ever greater numbers - people at the Fed working on alternative models.

The real problem is that as Plank remarked, "science progresses one funeral at a time". Life expectancy has increased dramatically, make your own conclusions.

by Sargon on Sat Sep 12th, 2009 at 09:31:42 AM EST
[ Parent ]
... of the FRB, which is elected by Banks in three tiers to represent Banks, Industry and the Public - of course, as anytime when one electorate elects representatives "for" another group, they can all be considered to be representing the Banks in the three tiers of large, medium and small.

The Board of Governors has to approve the appointment, but the appointment is in the hand of the individual Federal Reserve Bank board.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Sep 12th, 2009 at 11:45:46 AM EST
[ Parent ]
And you could count an appointment in interests of a particular pressure group a political appointment.
by Sargon on Sun Sep 13th, 2009 at 06:27:06 AM EST
[ Parent ]
... positions, they are elected by member banks. So I count all the various "types" of board members elected by the three classes of banks as representing those banks.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Sep 13th, 2009 at 07:25:34 PM EST
[ Parent ]
The purpose of stimulus - Paul Krugman Blog - NYTimes.com
Given the way the official business cycle dating committee dates recessions, this probably means that the recession -- again, as officially defined -- is over.

...

And the purpose of stimulus is, first and foremost, to mitigate unemployment. The fact that the economy may be technically in recovery is irrelevant.

Unfortunately, as soon as GDP stops contracting for a quarter it will be back to business as usual, regardless of the rate of long-term unemployment. If Serious People™ are not listening to Krugman now what makes him think they will once we start growing™ again?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Fri Sep 11th, 2009 at 09:14:47 AM EST
... Australia ... ABC Radio National PM Opposition Attacks School Spending (mp3)

Perhaps paradoxically - or perhaps not ...

... since the fairly new Rudd government moved early and dramatically (for the scale of the Ozzie economy) to stimulus, before the Ozzy economy was in recession, Australia's downturn may end up being only a quarter, and might not even be counted as a recession - and that success compared to the rest of the world (and the Oz public is more generally aware of the ROW than the US public) provides added political clout to the government's efforts to keep the stimulus going through the early recovery phase until the economy reaches the point of declining unemployment.

Meanwhile, the "jobless recovery" phase is already being used by Republicans to attack the Stimulus, the majority of which has not yet been spent, and that will make it difficult to have the third round of infrastructure oriented and especially New Energy Economy Stimulus spending that we really need.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 11th, 2009 at 11:45:51 AM EST
[ Parent ]
"Third round?"

Right.

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 11th, 2009 at 02:37:13 PM EST
[ Parent ]
... the second round was $500b in spending spread across three years and $280b in tax cuts mostly focused on the current year.

Of course, the tax cuts were not such weak tools in the face of a strong decline in propensity to consume.

The US can adopt a policy now of ongoing stagnation, with official recovery but not fast enough to generate employment growth the outpaces growth in the labor force.

We can adopt a purely government consumption oriented stimulus, to see our current account deficit slide right back to the unsustainable rates of the entire Resident Bush recovery.

Or we can adopt an investment oriented stimulus, providing essential infrastructure for establishment of a new energy economy, relying on government and private investment as the primary injections for growth in economic activity.

Since debt-financed consumption has played out as a source of injections of aggregate demand, and we have a declining industrial base from which to pursue net exports, even if we reversed from a import-growth policies to export-growth policies, that leaves government spending and investment, and the most direct opportunity to use the one to promote the other is establishment of a New Energy Economy.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 11th, 2009 at 04:14:05 PM EST
[ Parent ]
In Oz Rudd is in power and he and Steve Keen are pretty much on the same page.  That page most definitely is not out of the Neo-Classical Economics playbook.  Steve was one of the speakers at The Whitlam Institute, along with Guy Debelle, Assistant Governor (Financial Markets) of the Reserve Bank of Australia since 2007 with a PhD in Economics from MIT in 1993. The subject was the GFC and Steve preceded Guy Debelle.  After Keen's presentation Debelle came on and said, "well, I guess I don't know anything about economics, then." Very interesting.  

Things are a bit different in Oz just now.  They are likely to have their problems now that China has ceased stockpiling commodities, but, at present, they have a government and a leader that have a functional attitude and approach to economics and economists like Keen have influence.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 11th, 2009 at 08:31:06 PM EST
[ Parent ]
Could you diary the Australian example?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Sep 14th, 2009 at 04:58:30 AM EST
[ Parent ]
Perhaps he's keeping his head down?

He is maintaining his viability within the system.  While his "Nobel" is secure, even his position at Princeton could be vulnerable were he to assume the role of daily de-bunker of economic BS.  He would be up against the thousand most prestigious economist that the Fed could buy or rent. Krugman, Stiglitz, J. K. Gailbraith, Simon Johnson and others are at the wrong points in their careers.  What is needed is someone who would be willing and able to be Secretary of Treasury or Fed President, be the lightning rod and lead the actual effort for reform.  Then Krugman et al could effectively form an economic "council of elders" who would serve as the ground rod for the lightning rod. Any suggestions?  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 11th, 2009 at 10:29:09 AM EST
On the reappointment of Ben Bernanke - Paul Krugman Blog - NYTimes.com
That said, Ben Bernanke's performance over the past year deserves praise, and there's nobody I'd rather have in his position. Congratulations, Ben.
'Nuff said.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Fri Sep 11th, 2009 at 10:53:54 AM EST
[ Parent ]
Yeah, I didn't notice that one, or forgot about it. Drop PK from the group. He mostly wants to peck around the edges.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 11th, 2009 at 11:50:16 AM EST
[ Parent ]
And he wouldn't want to lose his column in the NYT.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 11th, 2009 at 12:56:48 PM EST
[ Parent ]
... understand that there are actual alternatives out there - while at the same time, mastering the skillset required for those alternatives would imply substantial downtime that at his stage in his career he may not feel he has, and with his quasi-Nobel prize under his belt, would feel no pressure to acquire.

So a fairly tame in-house critic.

It is, indeed, quite a tradition for leading lights of the WeSaySo School to come out with critiques of the mathematical focus and calls for more recognition of the importance of history and institutions ... late in their career, and indeed often in retirement addresses.

It is far more rare for leading lights of the WeSaySo School to actually come out and say, "the reason for the excessive elevation of mathematical technique combined with disappointing results is that Economics is not practiced as a Science, and until it is, it will continue to fail, no matter how well funded it is by the establishment."

That kind of statement would be a bit ... radical.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 11th, 2009 at 11:50:39 AM EST
[ Parent ]
Good Idea. I nominate Dr. Harvey P. Kevlar (known as "Dr. Bulletproof") for Sec. Treas., and his pupil Alfred Asbestos for Council of economic advisers.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 11th, 2009 at 02:40:22 PM EST
[ Parent ]
Yeah, we need leaders to emerge faster than the assassins can kill them. ---I'll forgo the winky-face.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 11th, 2009 at 04:10:45 PM EST
[ Parent ]
In this rare instance, I must disagree, ARGeezer. He is indeed keeping his head down, and to do otherwise would indeed be risky, but there is a time for risk. Simon Johnson, Galbraith and Stiglitz are all willing to step up to the plate. He'd hardly be alone- damned good company, in fact. And if he truly has the power of his convictions--if he's sure he's right, it's past time to be less timid, I think.
One of the consensuses that emerged for me during the Paris meetup this time is a reasonably wide agreement that there's another big dip coming. Another opportunity--and Krugman could truly do it. It seems to me that it's just exactly the RIGHT time in his career, as the others you mentioned seem to see.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Mon Sep 14th, 2009 at 03:14:16 AM EST
[ Parent ]
He could have kept his head down without publicly congratulating Ben Bernanke on his re-appointment, as Mig noted.  That was something sufficiently obnoxious that I turned away and suppressed the memory until I was reminded.  I suspect Bruce might be right.  He doesn't realize that there are alternatives, and if There Is No Alternative perhaps Bernanke is the best option for the Fed.

Pecking around the edges will not suffice this time. At a minimum the ability of Money to buy Power in Washington must be broken and the extent to which that has occurred, the extent to which that has led to the GFC and the disastrous consequences that has had for all but the wealthiest two or three percent of US citizens must be made clear to the electorate. That would be a truly radical change. If >50% of those who bother to vote in the following presidential election still vote to re-establish the ancien regime, then our society, our economy and the future of our polity are truly FUBAR.  If we cannot even muster the collective will and courage to attempt such a change, which I fear, then that confirms how truly FUBAR we have been every since:

(Pick One)

A. the 2008 Primaries;

B. Bush & Co. stole the 2000 election;

C. Clinton failed to push through health care reform;

D. The Fall of the Berlin Wall;

E. The election of Ron Reagan;

F. Watergate and its aftermath;

G. LBJ decided to escalate in Vietnam;

H. The Kennedy Assassination;

I. Truman decided not to run again in 1952;

J. Adam ate the apple.    

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 25th, 2009 at 11:00:37 AM EST
[ Parent ]
ARGeezer:

how truly FUBAR we have been every since:

(Pick One)

Ah, the Narrative Fallacy...

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Thu Oct 22nd, 2009 at 04:19:00 AM EST
[ Parent ]
I very much like the notion of capitalism as a system of predation and it is, in fact, part of some of the academic oriented work that I engage in in policy studies.  However this statement seems clearly wrong (although impossible to measure):

Globalized markets and neoliberal economic policy has, since the supremacy of Uncle Miltie's ideas, actually shrunk the world economic pie, ...

Although numbers of people living in poverty have surely increased since 1950, with the bulk of population growth occurring in vast perimetral slums of the rapidly urbanizing third world, this does not mean that that economic pie has shrunk.  It more likely means the opposite -- the pie has grown which has allowing an expansion of the world's life support systems to include about twice as many people as it did in 1950, including many more of them living at much higher living standards in terms of material consumption than had ever been possible before.  

Such a system might not be sustainable for more than a century or so, but I think it is much more likely that a capitalist system will continue under modest policy changes to control for overuse of limited resources, as it has since the system started transforming Europe in the 18th and 19th centuries.  

I like to think of modernity this way:  Imagine a history where the pirates in big sailing ships of the 17th and 18th centuries actually managed to gain enough power to rule in some places and began rearranging political institutions to suit their need to keep soldiers and priests out of their personal and commercial affairs.  What kind of world would they create and what kind of new political discourse would support it, and how different would that world be from the one we actually have today?  Remember too that not everything about pirate life is necessarily so bad.

by santiago on Fri Sep 11th, 2009 at 10:39:34 AM EST
santiago:
 Remember too that not everything about pirate life is necessarily so bad.

...If you're a pirate.

Historically, that's probably not a bad analogy. Unfortunately the pirates - at least some of them - realised that piracy continued to be morally reprehensible.

And your suggestion that capitalism will constrain resource overconsumption automatically is not just wishful thinking, but in direct conflict with both the piracy and predation models.

Capitalism does not have a switch marked 'Stop when you have enough' because the whole point of capitalism is that the concept of 'enough' is forbidden by economic statute.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 11th, 2009 at 11:03:20 AM EST
[ Parent ]
It's not that capitalism, an abstract explanation for one of the "great forces" that drives social organization in the current era, will constrain itself.  Rather, as John Galbraith spent much of his career explaining, liberal reactions to the damages that capitalism causes on people and nature will constrain it through collective actions of various kinds.  Such actions led to the development of the welfare state and labor laws, and there is good reason to expect, or at least hope, that collective action can constrain natural resource depletion too.
by santiago on Fri Sep 11th, 2009 at 12:05:15 PM EST
[ Parent ]
Rather, as John Galbraith spent much of his career explaining, liberal reactions to the damages that capitalism causes on people and nature will constrain it through collective actions of various kinds.

And we have all seen how effective that has been since 1980. The intellectual climate and culture in which J.K. Gailbraith worked did perform those functions.  It was the purpose of the libertarian, NCE and Friedmanite policies of the 80s to discredit and inhibit those impulses. This was, in part, accomplished by the highly successful demonization of the very word "liberal" in the "minds" of much of middle America.  I am sure that MF would like to be judged solely on the basis of his economic policies, but he cannot be properly understood without also including his political policy prescriptions, including the "Shock Doctrine."  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 11th, 2009 at 08:48:38 PM EST
[ Parent ]
It's important to note, however, that the real author of "shock doctrine" as applied to eastern Europe in the 19990's was Jeffrey Sachs, a known Keynesian when it comes to his work in macroeconomics and development economics. When trying to see if two different versions of how the world works are true, it's helpful to separate the thoughts from people and their other biases. (In ethnography you learn that lots of truthful things can be said by people who engage in truly reprehensible acts, for example.) But that's why I interpreted Uncle Miltie to mean "neoliberalism" and not "monetarism" in this diary, even though neoliberalism as a development framework is completely consistent with Keynes theory of how the world works.
by santiago on Sun Sep 13th, 2009 at 01:51:18 AM EST
[ Parent ]
It would seem that, to paraphrase, "There are no Keynesians now" in the sense that the success of Friedmanite and NCE policy advocates in enabling world wide capital flows and transnational corporations, along with international regulatory arbitrage, etc. has overwhelmed Keynes' original model.  Bruce McF has commented to this effect. What we have now are various flavors of neo-Keynesians and post-Keynesians. Where Sachs lies on that spectrum I will leave to those more knowledgeable on the literature.

As to Keynes and "neo-liberalism" I will note that one of the most favored ploys for dealing with Keynes by the defenders of Neo-Classical Economics, at least since Samuelson, has been to rebuild Keynes' General Theory but to incorporate the flawed micro-economic assumptions which Keynes had avoided but which are so dear to NCE. Then when problems arise they will say, "See, Keynes is no better than Mainstream Analysis."  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 13th, 2009 at 10:28:04 AM EST
[ Parent ]
Keynes IS mainstream analysis.  It's important not to forget that.  Keynes' professor was Marshall himself -- the founder of neo-classicism, and Keynes provides most of what economics students still learn in textbooks today (the IS-LM curves that Hicks introduced when applying math to Keynes).  Monetarism is a subset of Keynesian thinking, which is a subset of mainstream, neo-classical thinking.  Each builds substantially on previous work and assumes the same basic propositions about how the world works. Those propositions make up the basis for mainstream economic thought.  

For comparison, Marx assumes pretty much the same world as does Adam Smith and Ricardo do (which is why Marx is considered one of the classical economists).  But Marx's work led to a fundamentally different explanation for how people, goods, and resources relate to each other in a way that is not consistent with the neo-classical explanations of Marshall, Keynes, and Friedman.

Neo-liberalism is not an economic school so much as it is a policy-analysis school.  Neo-liberalism accepts as true the fundemantal world views of mainstream, neo-classical economics, which includes both Keynes and Friedman, as well as Krugman.  There is substantial disagreement about policy among neo-liberals, but those disagreements are not about the basic assumptions of how the world works.  Instead they are disagreements about whether efficiency trumps equity or vice versa.  

by santiago on Sun Sep 13th, 2009 at 12:49:35 PM EST
[ Parent ]
santiago
Monetarism is a subset of Keynesian thinking, which is a subset of mainstream, neo-classical thinking.

That is the obtuse view of the current Mainstream. Neo-Classical Economics is built on equilibrium analysis which rendered it virtually useless during the period of market dynamics from 1929 to WW II.  Keynes never went there.  Hicks' IS-LM curves were an early effort to rebuild Keynes in the image of NCE and then call the result Keynes.  Steve Keen has a good analysis of this here, quoted in part below :
Macroeconomic theory, which is the real focus of interest now that the GFC has brought "The Great Moderation" to a close, is just as bad. For decades it has been dominated by what is known as the IS-LM model, which most economists believe was developed by Keynes.

It wasn't. Its original author was John Hicks, a conservative opponent of Keynes's at the time, and he developed the model as a means to interpret Keynes from a neoclassical point of view. The model emasculated what was original in Keynes's General Theory, and this bowdlerised version of Keynes was then demolished by Friedman in the 1970s to usher in the Monetarist phase.

Monetarism has come and gone, but the IS-LM model still underpins most of the models used by Treasuries and Central Banks around the world.

Which is a curious thing, since one person who argued emphatically that this model should be abandoned was... John Hicks. As so often happens in economics, a "young turk" found wisdom in his old age, and realised that his model was untenable.

Then follows a discussion of the assumptions inherent in the IS-LM model, in which the model's omission of a model for the labor market on the basis that, if the IS and the LM models are in equilibrium, the labor market must be in equilibrium. To which Keen responds:

If the economy is "on" it's IS curve, so that the goods market is in equilibrium, but "off" its LM curve...then the third "missing" market must also be in disequilibrium. So the IS-LM model is only valid if the economy is in equilibrium--at which point, of course, there's no role for policy: "if it ain't in disequilibrium, don't fix it"

Keen then goes back to Hick's recantation:
After repeated discussions with non-orthodox economists--especially Paul Davidson, the editor of the Journal of Post Keynesian Economics--John Hicks came to appreciate this point, and in 1979 explicitly rejected the model:

"I accordingly conclude that the only way in which IS-LM analysis usefully survives--as anything more than a classroom gadget, to be superseded, later on, by something better--is in application to a particular class of causal analysis, where the use of equilibrium methods... is not inappropriate... [but] When one turns to questions of policy, the use of equilibrium methods is still more suspect..." Hicks (1981, pp. 152-153)

So the father of IS-LM analysis justifiably disowned his child three decades ago--and yet the teaching of macroeconomics still centres on this model, and it forms the core of most neoclassical models of the macroeconomy.


This is not to say that those in the modern MSE are deliberately obtuse....  
 

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 13th, 2009 at 01:37:11 PM EST
[ Parent ]
Yes, I am well aware of the Hicks and equilibrium debates regarding Keynes. But the existence of both support the larger point that Keynes is THE mainstream, even if he might have been somewhat wrongly interpreted by Hick's attempt to apply the elegance of Pythagorean geometry to his general theory. I don't think that you can really read the General Theory, however, and come away with the idea that Keynes didn't think in terms of equilibrium. As Marshall's student, equilibrium was the core of his training, and if he didn't buy it anymore, he would have explicitly rejected it. So I haven't found the arguments that Keynes was somehow offering something radically different (in the way that Marx offered something different) to be very convincing.  Keynes was able to look at equilibrium as a work in progress rather than an assumption which geometric proof (which is what Hicks was attempting) of his work requires.

To be honest, I don't find Keen's analysis all that convincing either.  Maybe I'll have to read more of what he's written, but I have some doubts about whether he's really ever read the original General Theory either.

by santiago on Sun Sep 13th, 2009 at 05:19:33 PM EST
[ Parent ]
I would encourage you to read further in Steve Keynes.  You will find him quite familiar with the literature from the original sources back to the Middle Ages. He is a student of Minski and is working on a dynamic model.  Much of his work, including his PhD thesis is on his web site.

Enjoy.  You should be able to appreciate it, if not thoroughly agree with it.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 13th, 2009 at 10:04:46 PM EST
[ Parent ]
I'll look into Keens. Thanks.
by santiago on Mon Sep 14th, 2009 at 12:10:02 AM EST
[ Parent ]
Steve Keens, not Keynes, of course.  An apropos similarity of pronunciations, none-the-less!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 14th, 2009 at 10:14:07 AM EST
[ Parent ]
And STILL I screwed up his name!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 14th, 2009 at 10:17:22 AM EST
[ Parent ]
santiago:
Monetarism is a subset of Keynesian thinking, which is a subset of mainstream, neo-classical thinking.
Keynes' thinking is not a subset of Marshall's thinking but at times an update, at times an extension, and at times an overhaul.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Sep 14th, 2009 at 04:48:57 AM EST
[ Parent ]
"But that's why I interpreted Uncle Miltie to mean "neoliberalism" and not "monetarism" in this diary,---"

Right. That was, of course, my intent.

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Mon Sep 14th, 2009 at 03:17:55 AM EST
[ Parent ]
Globalization policies were not in force in the 1950's or 1960's. In the 1950's and 1960's, instead of the focus on increasing wealth flows, the focus was on increasing trade in finished goods ... and growing trade in finished goods faster than wealth flows is the opposite of globalization.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Sep 11th, 2009 at 11:52:39 AM EST
[ Parent ]
I mean 1950 to refer to Milton Friedman's era, more or less, which is the argument that the diarist brought up. (Although Friedman really only gained a political following in the 1960's.) But also, 1950 is around the time that Third World intellectuals place the beginning of the modern American era of globalization with Truman's famous speech about America's new policy intentions in the post war world to spread prosperity to the "underdeveloped" (first official use of the term to describe regions that had not yet been subjected to capitalism and urbanization) areas of the world based on the American models of liberal self-governance and market economics, rather than the European model of colonial imperialism.
by santiago on Fri Sep 11th, 2009 at 12:14:49 PM EST
[ Parent ]
Friedman did not really begin to get traction outside of the Chicago School until the mid to late 60s.  One of his first great shock doctrine successes was the overthrow of Allene in Chile in the early 70s. It is my understanding that the stagflation that accompanied the oil shocks of the 70s was what provided an opening for  his monetarist theories on the national stage in the USA. That was after Time Magazine's cover in 1965 had famously proclaimed: "We are all Keynesians now."

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 11th, 2009 at 02:31:31 PM EST
[ Parent ]
As I mentioned, after the murder of Allende, Chile's dictator became a model pupil for Uncle Miltie, but time has shown the failure of his ideas there to be pretty deep, for all the reasons already stated.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Fri Sep 11th, 2009 at 02:44:52 PM EST
[ Parent ]
Most of what Friedman got his Nobel prize for was really just an expansion of Keynesian theory of macroeconomics.  His libertarian political views, influenced by the Austrian School, do not take away from the basic truths that his monetarist work uncovered and that most Keynesian-thinking economists today, such as Krugman and deLong, accept as true.  Keynes' basic insight regarding the relationship between inflation and demand for money was to introduce the idea that a primary function of money is to retain wealth, i.e., that it is part of the market for investments.  This meant that demand for money, and thus inflation, must also be related to demand for another form of holding wealth -- interest-bearing bonds. Keynes reasoned that people sold bonds and held cash when outlooks for bonds' ability to retain wealth declined, such as during a severe recession.  

Friedman's addition to Keynes was to further generalize Keynes' work beyond just bonds and include all income producing assets in the relationship for money demand and inflation.  He demonstrated this by showing that people not only sold bonds to hold cash in a crisis, but they also sold shares of stocks in businesses. The policy implications of both Keynes and Friedman are that central banks must let cash flow into the financial system in order to satiate demand for cash as people sell off assets.  Friedman's libertarian political bias led him to conclude that fiscal expansion -- financing current government spending through debt -- was therefore unnecessary, but that is not a critical part of monetarism.  He thought that central banks could solve most recession problems merely by providing cash when people were spooked away from holding assets. Since there was no major depression between Keynes and now, Friedman's hypothesis seemed to work during the minor recessions that were experienced. Liberals such as Paul Volcker and conservatives such as Alan Greenspan and Bernanke were all monetarists regarding central bank policy. And since central banks have zero authority over fiscal policy, there is really very little policy difference between having a Keynesian or a monetarist philosophy in a central banker -- they both advocate the same thing, to expand the money supply during recessions.

The issue regarding this diary is not Friedman's views of monetary policy at all, but neo-liberalism, and Friedman's criticism of neo-liberalism was that it wasn't liberal enough, a view that started to gain academic traction with the Chicago and Austrian School libertarian theories just after WWII and the great Depression.

by santiago on Fri Sep 11th, 2009 at 04:19:20 PM EST
[ Parent ]
If you meant to refer to Milton Friedman's era, that does not change the question in any material way - Milton Friedman's era was not Bretton Woods, which involved pegged exchanges rates and substantial restrictions on corporate wealth flows across international border - and therefore substantially restricted exercise of transnational corporate power.

It is commonplace to talk as if the key point of globalization is reducing barriers to trade, but of course that is not the feature that distinguishes either the first or second periods of globalization - its the wealth flows across international borders that distinguish the periods of globalization.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 11th, 2009 at 03:47:42 PM EST
[ Parent ]
I was more referring to the advent of neo-liberalism, which had it's rebirth after the war in the Austrian School in which Friedman was educated, and which shared in the progressive, market-liberalism outlook provided by Truman's speech.  

The diarist talked about "Uncle Miltie", probably and mistakenly, implying that monetarism as philosophy for dealing with monetary policy goes hand-in-hand with advocacy for market-liberalization in much of the world, in contrast to Keynes.  This isn't really true.  Monetarism, as it regards implications for monetary policy, is an addition-to, not an alternative-to, Keynsian insights into the relationship between markets for money and assets and inflation. (Both advocate expansion of money supply during recessions for mostly the same reasons -- satiate demands for cash as people sell other assets.) So I meant "neo-liberal" when I said "Friedman," referring instead to Friedman's advocacy of market liberalization as a political philosophy.

Especially in the third world, intellectuals look, rightly or wrongly, at 1950 as the breakpoint year of the new, market-liberalization regime of American ascendancy. That's more or less when the world started becoming politically organized around the new discourse of liberal democratic governance and property rights instead of the European, colonial-style of international capitalism. The fact that those policies didn't get fully implemented until a few decades later doesn't change the fact that the path toward those policies started getting formed when Americans realized at the end of World War II that they were now the custodians of capitalism and began to consciously shape it domestically and internationally at that time.

As far as globalization is concerned, the question that I'm interested in is whether the cross-border flows of wealth, migration, trade, and information could ever occur at levels we now see without a common political discourse, which means, really a common polity, even if it's a loose one. In other words, could globalization of the kind observed since 1980 even happen without being under the umbrella of an imperial protector of some sort?  If not, the implication may be radical changes in international relationships of all kinds if the US were to decline and not be replaced in some form by a like-minded custodian of capitalism.

by santiago on Fri Sep 11th, 2009 at 04:50:16 PM EST
[ Parent ]
... disagreement between General Theory arguments regarding the benefits of restraints on flow of wealth across international borders and the Monetarist arguments regarding the benefits of unfettered flows of wealth across international borders ...

... the neo-liberal dominance in international economic policy, as opposed to the construction of the neo-liberal stance in academia, was primarily with the fall of Bretton Woods in the 1970's.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Sep 11th, 2009 at 08:49:13 PM EST
[ Parent ]
... the collapse of the first period of globalization and the rise of the trading blocs coincided with the UK being passed by one economy, the US, and challenged by several others, including Germany in the US and Japan in the Western Pacific Rim.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Sep 11th, 2009 at 08:51:03 PM EST
[ Parent ]
But the empirical question is this: where, geographically, were flows of wealth, people, and trade more evident in any period of globalization?  

If such flows were more prevalent in areas of dominance by one particular political system -- nomos is the German word for it [WWII era sociologist Carl Schmitt and current American sociologist George Steinmetz) (for example, the anglo area, or the german area, the Japanese area, etc. prewar, to be followed by the American and Russian areas postwar), then that would be evidence in favor of a theory that globalization requires a predominant, imperial-style political authority to exist.  Evidence that such flows occur between nomos areas  rather within them would indicate that a decline of US power should not result in a decline in cross-border or cross-regional flows of wealth, people, communication, or trade.

My hypothesis is that we should see more such flows within a region of common political discourse than between such regions, and that is largely why the era of Pax Americana has resulted in the current globalization experience.  Most of the world has become part of the American-anglo region, thus allowing such flows to increase.  Tom Friedman and Amartya Sen (to name two completely disparate sources) take the opposite view -- that globalization is an independent historical social force in its own right and that as such it determines political systems rather than being determined by it.

by santiago on Sat Sep 12th, 2009 at 11:53:55 AM EST
[ Parent ]
First you have to get the patterns of the flows down. In the first period of globalization evolving into the period of the trading blocks, statistical cluster analysis clearly shows up the rise of the trading blocs - comparing external accounts shows the decline of wealth flows relative to trade flows.

Mind, I'm not sure whether there is the data available to do the same for the rise of Pax Brittania, which would be the closer analogue to the collapse of Bretton Woods and the second rise of globalization of wealth.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Sep 12th, 2009 at 12:55:20 PM EST
[ Parent ]
And that's what an "imperial hypothesis" such as that in world systems theory would predict -- flows increase within trading blocks more than between them.  What a pax brittania or a pax american suggests are larger, super blocs of transnational relationships within which other blocs may also exist.

I think you (and I know others, particularly within economics) might by implying rather more importance to Bretton Woods as an implementation of policy than it really deserves regarding its effects on globalization.

by santiago on Sun Sep 13th, 2009 at 01:05:21 PM EST
[ Parent ]
And that's what an "imperial hypothesis" such as that in world systems theory would predict -- flows increase within trading blocks more than between them.

The question, though, it what is the meaning of "trading bloc" if its only the one - if the patterns of preferential trading relationships do not actually form into distinct clusters, and so few distinct trading blocs can be seen and the majority of trade is not occurring within the blocs?

Arguing over whether the trading blocs increased in importance in the early 1900's or whether the trading blocs emerged in the early 1900's are mostly semantic arguments - arguments over the meanings of the terms employed, rather than arguments over what was actually happening. They are different ways of pointing to the same actual phenomena.

As far as the impact of the globalization of flows of wealth across international borders, the difference between the Bretton Woods period between the end of WWII and the US abandoning pegged exchange rates in the 1970's, and the floating exchange rate period to the present (or perhaps to 2008 - it often takes structural changes several years to unfold) is dramatic.

And of course advocates of unfettered flows of corporate wealth across national borders persistently throw out the growth of trade after WWII as if the explosion of international capital flows from the mid-1970's is just more of the same - as if trade in goods and flows of financial wealth across borders are essentially the same kind of economic transactions.

One wonders, though, at the coincidence that the two long cycles where the Atlantic trading system was wealthier than the East Asia / Western Pacific trading system were the two long cycles dominated by fossil-fuel energy regimes - the heights of the "Age of Coal" and the "Age of Oil".


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Sep 13th, 2009 at 01:34:16 PM EST
[ Parent ]
I think I see where you are coming from -- that there is something substantially different about trade in goods and flows of wealth, contrary to what trade theorists like Bhagwati (and maybe even Krugman) say.  

There are also other measures of globalization, however: flows of migrants and communication as well as cross border political participation. I don't think we can say that any metric is necessarily a more important indicator of more or less transnational flow, however So I think it is better to simply document all of those categories of relationships and call an increase in globalization a case where we see an increase in cross border relationships of many types, though not necessarily all.  We should be able to look at a timeline graph tracking flows of various measures of wealth, goods, services, people, communications (written correspondence, phone calls, or bandwidth) and transnational political activity (dual citizenship, participation of diaspora in home country affairs, etc.) and say, "yeah, I see peaks and valleys in the magnitude of transnational relationships between people."

Such graphs already exist, but my question is whether those changes in magnitudes of relationships have anything to do with another kind of relationship between people -- power.  Specifically, are such flows dependent upon the existence of dominant political authority or consensus of some kind that allows such risks to be taken, or can they also occur in absence a dominant political authority?  Could transnational relationships between China and India, for example, ever really be as great as those between either one of those countries and the metropolitan core nations of the US and EU which, due to colonial history, include both China and India in their trading periphery? If so, under what conditions?  Fossil fuels may be one place to look.

by santiago on Sun Sep 13th, 2009 at 04:59:38 PM EST
[ Parent ]
... whether globalization is being discussed as some kind of force of nature and whether its being discussed as a deliberate policy choice.

The TINA (There Is No Alternative) crowd very much prefer to discuss it as if it were the former, despite the quite dramatic changes in policy that took place over the period which are clear causal explanations for the changes.

Note that being a core economy in the previous century was about being a core producer of productive equipment. The US, Germany and Japan were central core economies in the latter third of the 20th C. largely because we were all self-sufficient (though of course not autarkic) machine tools manufacturers.

There is, in other words, three distinctive kinds of power - coercive power, or force; economic power, or wealth; and social power, or influence. Sanction, reward, and identification all have an influence in the reproduction of international trading systems, as well as in the evolution of changes in their structures.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Sep 13th, 2009 at 06:29:49 PM EST
[ Parent ]
I agree, and I found it very troubling when Amartya Sen declared himself solidly within the "force of nature" camp in his defense of globalization.

In power, however, there are some groups that end up being able to exert all three kinds of power at the same time in radically asymmetrical ways, and we often categorize those groups historically as empires. Can large magnitudes of transnational relationships even exist outside of the protective umbrella of an empire-like power?  Sen says yes they can, and he expects the experience of India to prove it even as the US declines as a power and no replacement rises to take its place as a global empire.  I have my doubts.

If Sen is right, the decline of American power will be a liberating thing for most other countries of the world, economically and otherwise.  But if he's not, then it could be a very catastrophic thing for many people when the economic life support system required to keep so many people alive in the dense urban experience of modern life becomes impaired or threatened. If trade, migrant remittances, and wealth transfers were suddenly reduced for a sustained period of time (such is not actually the case in the current great recession), would we see massive experiences of famine concurrently in many places in the world, for example?

by santiago on Sun Sep 13th, 2009 at 07:48:40 PM EST
[ Parent ]
That's precisely the conditions for the rise of trading blocs - out from under the umbrella of system governed by the rules required to play along with a single hegemonic, even if short of dominant, power, it becomes necessary to govern through associations that are sufficiently exclusive so that free riders can be punished by exclusion from the group.

The response to formation of a bloc sufficiently exclusive for bloc membership to justify the contribution to maintaining the bloc is the formation of a counter-bloc, and then we're away to the races.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Sep 13th, 2009 at 09:24:05 PM EST
[ Parent ]
Yes, exactly. But that means we can call one such bloc the "global bloc" governed by an association such as the agreements and commitments around the WTO and allied institutions. Within that global bloc are others such as the EU and NAFTA, but I don't think we can deny that the US, at least since WWII, has been the principal actor in creating and governing the institutions that allow for the global bloc to exist up to this point or at least recently.  The US, taking over from Britain, has created and maintained the discourse around liberal democratic governance and commerce which has been so compelling that even communist ruled regimes in China and Vietnam have had to embrace what they can of that discourse in order to grow in power. Truman's term, "underdeveloped" is but one example of that discursive power over policy options that an empire commands in an international system.

The question is how dependent still is the institutional governance of the global bloc to the continued political power of the US? Could substantial inter-bloc relationships and flows continue at today's levels in the event of a significant, sustained decline in power of the US?  If not, who gains and who loses, or how can catastrophe be averted through international cooperation?

by santiago on Mon Sep 14th, 2009 at 12:08:01 AM EST
[ Parent ]
Can one of you diary this exchange and its context?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Sep 14th, 2009 at 04:47:15 AM EST
[ Parent ]
That's what I mean by a semantic dispute - to say a global bloc is a contradiction in terms if there is no exclusion from the global bloc, but rather an effort to roll everyone into it.

What would seem to be the three prospective blocs would be focused around North America, the EU and China/Japan - as seen in the ASEAN Plus Three process.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Sep 14th, 2009 at 10:58:36 AM EST
[ Parent ]
Not so.  A global bloc can make membership dependent upon accepting the discourse, if not quite all of the rules, of the bloc.  If everyone is a member (not quite everyone is in today 's world) it doesn't mean that they could not have been excluded had they not sacrificed some level of their own interests to the interests of the leaders of the bloc -- they submitted in order to gain membership.  That's how power is exercised in all groups. I advance that participation in the current world trade and wealth creation regime has required at least some level of submission on the part of China, Vietnam, Latin America, and even parts of the US polity to the interests of the "Washington Consensus."
by santiago on Mon Sep 14th, 2009 at 11:28:28 AM EST
[ Parent ]
At the point of development you describe a more appropriate term might be "global regime".

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 14th, 2009 at 01:39:21 PM EST
[ Parent ]
... unless there's are rival blocs, what's the point of referring to the trading system as a trade bloc?

That is what is different about times when there are trade blocs - the rivalry between different trade blocs.

Sure, you can call the times when there are not trade blocs "single trade bloc", but then you are forced to reinvent new words to mean what trade bloc originally meant.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Sep 14th, 2009 at 01:42:21 PM EST
[ Parent ]
I'm not sure why you think rivalry is a necessary component of trade blocs. (Or are you suggesting that we use a more general term like "trading system" unless we are specifically referring to rivalries.? In which case, then we are just arguing semantics.) Maybe membership in blocs has nothing to do with rivalry but is rather  because of political expediency when trying to create policies that allow for freer trade in a world that competes for attention with other policy priorities.  Why wasn't the US or Canada made part of the EU, for example, or the Netherlands or Germany or Japan made part of NAFTA?  
by santiago on Mon Sep 14th, 2009 at 02:39:09 PM EST
[ Parent ]
... bloc that did not involve rivalry.

You are making bloc nothing but a synonym for a system, something with an inside and an outside.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Sep 14th, 2009 at 03:38:04 PM EST
[ Parent ]
NAFTA is such a bloc, if by "involving rivalry" you mean as I do, that it is not dependent upon rivalry with non-members to justify its existence.  If the entire world were someday absorbed within NAFTA, then I guess at that time it would not make sense to think of bloc as a meaningful way to categorize it beyond what the word "system" can do, but the essential benefits of NAFTA as such to its members would not change because of that.  As long as you can point to insiders and outsiders, "bloc" is a meaningful word to compare similar categories of groups. Blocs, therefore, can also exist within other blocs.  The WTO can be usefully considered a bloc if one is talking about how nations go about creating institutions for multilateral associations for the purpose of trade and compared to the EU, NAFTA, or the less formal Yen bloc.  All of the latter exist within the larger WTO bloc.  
by santiago on Mon Sep 14th, 2009 at 04:25:30 PM EST
[ Parent ]
... of NAFTA as a trade bloc would be an example.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Sep 14th, 2009 at 10:21:36 PM EST
[ Parent ]
... 'bloc' as a synonym for 'international system' instead of in its normal meaning of a particular type of international system. There is already a perfectly good word, "system", for what you are describing, and calling every trade system a "trade bloc" means that you need a new word to mean what "bloc" normally means.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Sep 14th, 2009 at 01:44:47 PM EST
[ Parent ]
I only use the term "bloc" to connect it to your concept of the importance of blocs in explaining globalization (at least as far as I understand what you are saying).  By using it I advance the notion that the current international system is, in its essence, an American trading bloc. Another word for that system is "empire," and not all nations are included in it.  Iran, North Korea, and, for example are excluded from full membership.  China, Laos, and Vietnam were too until recently, and the entire "2nd world" was for a time as well.  There might be specific analytical reasons to not use the words "blocs," "systems," or "empires" interchangeably, and maybe one of those reasons is your point, but in my question regarding globalization and the dependence or not on American political power for its continuation it is important to see the analytical similarities between the three concepts more than the differences.  
by santiago on Mon Sep 14th, 2009 at 02:21:03 PM EST
[ Parent ]
During the 1950s goods production in the industrialized world was soaked-up by a rising population (consumer consumption) coupled with re-industrialization of the European nations (producer consumption) most of whom had their factories destroyed/heavily damaged by the bombing campaigns of World War 2.  Together, these combined in creating a consumption demand in excess of manufacturing capability.

'If you build it, they will buy it,' in other words.

In this environment 'globalization' cannot be as destructively affective as it has become.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Sep 11th, 2009 at 12:31:26 PM EST
[ Parent ]
I love the Predator-Prey Model to describe the current economic system because it's so darn useful.  (I'm an American.  I have to be pragmatic.  It's in my jeans.  :-)  Both sides of the hyphen are capable of (almost) infinite expansion as the analysis deepens and there are feedback loops - positive and negative - within each side as well as across the hyphen.  

On the meta-side, there's a solid body of knowledge regarding the Model's semantics.  For example, we know the Verhulst logistic equation (under continual population growth) bifurcates and, once past the Feigenbaum Number, goes Chaotic giving rise to all sorts of interesting results; one such is a mathematical disassociation between the populations of Predator and Prey -- from a linear causal perspective.  In other words, the number of predators can increase, dramatically, even tho' the number of prey have fallen below the absolute level required to support predation numbers before the system went haywire.

The implications for Economics are staggering.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Sep 11th, 2009 at 12:13:06 PM EST
[ Parent ]
That's really interesting, but I wonder what it would look like if you added a rodent, or scavenger, to the mix in that model?  It is difficult to visit any of the vast suburban slums of places like Mexico City, Shanghai, or Cairo, just to name a few, and not come away with the idea that humans are as capable of adapting to their environment and living as rodent scavengers on the scraps left behind by capitalist forces as are rats, deer, squirrels, raccoons, coyotes, birds, and other animals.
by santiago on Fri Sep 11th, 2009 at 01:03:41 PM EST
[ Parent ]
The Predator-Prey paradigm only goes so far.  Doesn't even mention, much less consider, the influence of Mutual Aid which is a big factor in economic activity.  

Like any tool, it breaks if you use it wrong!  :-)

Now it is possible to expand to a "Economic Ecology Model" that would include such things as scavenging, parasitism, symbiosis, Mutual Aid, and so on.

You can get a 'feel' for the field of Bioeconomics here.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Fri Sep 11th, 2009 at 05:04:22 PM EST
[ Parent ]
Mutual Aid is very much not part of the model.

This isn't to say it doesn't exist - it very much does.

But when you have a model which assumes predation and sees it as a moral benefit, mutual aid is either ignored, minimised, or considered an aberration.

How many people know that the full name of Origin of Species is

On the Origin of Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life?

Politically this comes down to two completely polarised world views - one which assumes predation and Victorian, or perhaps fascist-libertarian, notions of eugenics and competition, and one which welcomes cooperation and mutual aid.

If this seems extreme - well, fascist-libertarianism is certainly that. And there seems to be a disturbing amount of it among the so-called rich and famous.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Sep 12th, 2009 at 08:27:29 PM EST
[ Parent ]
I call it the Predator-Prey Model for two reasons:

  1.  It stems from the well known Verhulst Logisitic Equations and all the work done with them.  Notably the Canadian Lynx/Snow Hare population studies.

  2.  It shocks people out of their normal frame of reference, their usual group of mental associations, to refer to banks as "predators" whose "prey"  are interest paying debtors.  ;-)


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sat Sep 12th, 2009 at 10:02:48 PM EST
[ Parent ]
In fact, in predator/prey relationships found in nature mutual aid often figures in as a defense mechanism amongst the prey, especially herd animals, but also with primates, including man.  Also with prey species, such as wolves and lions.

In the current economic application, the predators are cooperatively using governmental capture to disable defense mechanisms amongst the prey via legislation such as bankruptcy "reform" and deregulation.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 13th, 2009 at 01:34:05 AM EST
[ Parent ]
It seems to me that conventional economics ignores two key aspects of conventional financial capital:

(a) Profit maximisation - the teeth of the predator;

(b) Deficit basis of money created as interest-bearing debt.

There are some economists who have realised that the predatory role of the agent completely invalidates conventional assumptions.

Centre for the Study of Capital Markets Dysfunctionality

Few actually understand that profit maximisation is by definition a cause - if not the cause - of retail price inflation. Wherever an enterprise raises prices in order to maximise or even maintain profits, that is by definition inflationary.

On the other hand, the deficit basis of money is IMHO the cause of asset price inflation.

As far as I know, there is no school of Economics which distinguishes between the credit = money which is needed for the circulation of goods and services and the creation of production assets, and the credit which is tied up in productive assets, particularly secured credit such as mortgage loans.

In my view the solutions are:

(a) disintermediation, which gets rid of profit (as opposed to shared surplus); and

(b) "asset basis" for currencies, ie units redeemable for value, such as energy or location rental.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Sep 13th, 2009 at 03:56:21 AM EST
[ Parent ]
Mandatory reference: Mutual Aid: A Factor of Evolution

Written partly in response to Social Darwinism and in particular to Thomas H. Huxley's Nineteenth Century essay, "The Struggle for Existence," Kropotkin's book drew on his experiences in scientific expeditions in Siberia to illustrate the phenomenon of cooperation. After examining the evidence of cooperation in nonhuman animals, "savages," "barbarians," in medieval cities, and in modern times, he concludes that cooperation and mutual aid are as important in the evolution of the species as competition and mutual strife, if not more so.


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Mon Sep 14th, 2009 at 05:02:26 PM EST
[ Parent ]
ATinNM:
The implications for Economics are staggering.

yes

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Sat Sep 12th, 2009 at 03:33:35 AM EST
[ Parent ]
The implications for Economics are staggering.

More predators + less prey --> predators preying on each other.  This is consistent with the merger and acquisition pattern in the financial sector for the last 30 years.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Sep 12th, 2009 at 06:02:54 PM EST
[ Parent ]
Not only the financial sector---
Retail shows the same pattern strongly, and there seems to be a pattern within the pattern. Think Walmart.

Capitalism searches out the darkest corners of human potential, and mainlines them.
by geezer in Paris (risico at wanadoo(flypoop)fr) on Mon Sep 14th, 2009 at 12:34:11 PM EST
[ Parent ]
And the car industry, until the current collapse and downfall of the giants. And media, and probably many, many more sectors.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Mon Sep 14th, 2009 at 05:08:15 PM EST
[ Parent ]
This is an essential feature of the business cycle, and not for the past 30 years. Veblen was writing about it over 100 years ago.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Mon Sep 14th, 2009 at 06:23:27 PM EST
[ Parent ]
ATinNM:
we know the Verhulst logistic equation (under continual population growth) bifurcates and, once past the Feigenbaum Number, goes Chaotic giving rise to all sorts of interesting results; one such is a mathematical disassociation between the populations of Predator and Prey
Correct me if I'm wrong, but basically this is relevant to the predator/prey model from the perspective that the discrete model is fundamental and the continuous one is an approximation.

Because the logistic [continuous differential] equation is not chaotic whereas the iterated [discrete] logistic map is.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Sep 25th, 2009 at 09:08:27 AM EST
[ Parent ]
Here is a rare defence of the Chicago freshwater school.
by das monde on Sun Sep 13th, 2009 at 07:02:53 AM EST
.. Robert Lucas with the caption, "Robert Lucas devised the standard model for studying economic systems.", in the wake of the utter failure of Lucas-style models to be able to either predict or explain financial catastrophe that modern monetary theory with balanced stock/flow models both predicted and continue to explain ...

... betrays a major blind spot.

This is not economic theory that tried to offer scientific explanations and failed. Its economic theory that placed any priority on trying to offer scientific explanation. "Being influential" is sufficient justification - "offering valid cause and effect explanations of how the economy works" need not apply.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Sep 13th, 2009 at 01:40:48 PM EST
[ Parent ]
I presume you meant: "economic theory that never placed any priority on trying to offer scientific explanation."

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 14th, 2009 at 01:42:49 PM EST
[ Parent ]
To say nothing of the fact that RATEX, even if it were true, wouldn't demonstrate what Lucas and his disciples think it would demonstrate.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Sep 25th, 2009 at 07:53:17 AM EST
[ Parent ]
So ---that's IT, paul? Messiness. The world will indeed be "messier"-- what a prissy way to describe it.

I think you're attacking Krugman on this point with a lot of bluster and very little reason, geezer.  It's fair to get at Krugman over the field's failures on advocacy as it relates to wealth distribution and a healthy macroeconomy (on that economics has failed miserably over the last thirty years), but Krugman's right on this: Setting aside the intellectually dishonest in the field -- and that's unfortunately a very, very large group (real business cycle theorists), but it's a different problem -- many well-meaning economists have spent years kidding themselves trying to capture everything in pretty little models when the truth is that macroeconomics is messy.  

Which, in turn, has allowed the intellectually dishonest to hide their lies in the mainstreaming of elegent models.

You could argue, from a modeling perspective, that messiness is the fundamental point of divergence between Keynesianism and RBC.  Reintroducing messiness has a lot to do with discrediting free-marketeers at their foundation, which is how you begin the work of building up the new regime.

Money matters.  Messiness matters.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Sep 25th, 2009 at 07:51:14 AM EST
I have a first degree in economics (although somewhat faded now), and you guys are all way over my head, with references to studies/acedemics/theories of whom I have never heard.

Are you all professional economists ( either private sector or academia)?

Is Eurotrib the equivalent of a gay bar for closet keynsians?

What's going on?

by senilebiker on Fri Sep 25th, 2009 at 08:40:02 AM EST
LOL. Closet Keynesians with red underwear. I don't claim to understand that much of it either, but then my business is sadly misunderstood here too. But there is two-way learning going on ;-)

You can't be me, I'm taken
by Sven Triloqvist on Fri Sep 25th, 2009 at 09:13:21 AM EST
[ Parent ]
LOL

One nice thing about the crisis is that the academics don't need to be in the closet anymore.  I think Krugman, DeLong, et al, have clearly -- finally -- launched an all-out assault on the other side.

Here's a good one.  It's brief and needs moremeat to it, but the truth is that Krugman has nailed it by saying the freshwater economists have been so focused inward for the last 30 years that they've completely lost touch with reality.  And the response is the same one you got from the Austrians when Keynes disposed of them 70 years ago: Pure rage.

The personal attacks on Krugman, Christie Romer, and others should tell you all you need to know.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Sep 25th, 2009 at 09:24:33 AM EST
[ Parent ]
I followed your link, and thought they must be from the Adam Smith fan club.

Are they really teaching economics to undergrad and grad students?

A triumph of ideology over empirical science. The probably think  the world is 6000 years old too.

by senilebiker on Fri Sep 25th, 2009 at 11:38:36 AM EST
[ Parent ]
Comparisons with these clowns are, I think, quite unfair to Adam Smith.

Yes, they really are teaching students.  Not good schools, at least in Prescott's case (working on a mocking diary on Prescott for just this reason).  But still.

The strange thing to me is that I studied under a Prescott guy, and I'm fairly confident he'd be punching holes in Prescott's argument all over the place.  Fortunately, crappy professors don't necessarily doom good students.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Sep 25th, 2009 at 12:23:03 PM EST
[ Parent ]
spent his career at the "freshwater" University of Minnesota, which is one of the top economics schools in the world, by most rankings in academia anyway. It is also famous (or infamous if you're from the "saltwater" schools) for being the most rigorous program mathematically.  It's where all the engineering undergrads who decide they want to be economists go. (I got my MS in ag economics there when Prescott was still there, well before he won his Nobel, and no, I am not a gifted mathematician like many of my cohort were.)

However, contrary to what Krugman says that Prescott says about "freshwater programs, Keynes has always been an important, if sometimes alternative, part of the curriculum there, and almost all of its current macroeconomic professors got their degrees from Keynes-friendly schools.  Prescott, interestingly, did not get hired to teach macroeconomics, although he did do such work for the Minneapolis Fed, whose research department leads the whole Fed in intellectual production. Prescott is an industrial engineer by training and academic orientation, and one of the reasons Krugman attacks him so is that Krugman and other Keynesians feel he epitomizes the misunderstanding of many in the field that good math doesn't necessarily make for good social science, because a mathematical proof of something marks the beginning, not the end, of intellectual inquiry in social science.

Prescott left Minnesota mostly because his wife retired from the Minnesota-based company where she worked and the University failed to provide the department with the increased funding for graduate students that he had requested for the department as part of his contract negotiations when he had been rehired by Minnesota after a one-year stint at Chicago. He wanted to cash in on Arizona's compensation-offer-he-couldn't-refuse as he went into retirement years, and the climate and year-round golf season in Arizona -- popular with many well-to-do men retirees was a big attraction for him too. (Minneapolis-Saint Paul is the third coldest major metropolitan area in the world, and retirement migration from the region is common.)  Minnesota remains, however, his intellectual home and the place where he left his intellectual mark.

by santiago on Sat Sep 26th, 2009 at 12:35:19 PM EST
[ Parent ]
Where did Prescott end up, U of A or  ASU?  Much better climate in Tucson than Phoenix, and the U of A is the state's flagship university.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Sep 26th, 2009 at 07:14:35 PM EST
[ Parent ]
He's at the very large sized, though not yet "top 20," Carey business school at ASU in Tempe.  Not where I'd want to retire to, but lots of northerners do, nonetheless.
by santiago on Sun Sep 27th, 2009 at 02:14:54 PM EST
[ Parent ]
Phoenix is twice the size of Tucson and ASU probably has private endowments to match.  Summers in Minnesota would be nice for an Arizona retiree.  My father-in-law, a redhead and life-long Tacoma resident and mother-in-law visited us there in August in the '70s.  He was about 50 at the time.  We had warned them about the summer weather.  One day we went early to the El Conquistador Mall, shopped and had lunch.  When we exited the Mall and he stepped into the 105F sunlit exterior I thought he was going to have a heat stroke! They think they are having a heat wave in Tacoma when the temperature goes above 85.  But in Tucson it is, as they say, "a dry heat", with humidity usually below 15%, often in single digits.  Not so much in Phoenix, due to irrigation.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Sep 27th, 2009 at 05:51:50 PM EST
[ Parent ]
I understand the desperation against the constant nonsense of utility units and efficiency.... but capitalism does not need to be an ugly beast wihtout control... we can keep the beast under control: the beast is imaginative so we can use it for "invention" purposes.. we have just to control it  (very high taxes for the uber rich, unions,.. and other option that we still must discover).

But, at the end of the day it is certainly posible to describe the economic system as a very complex system with two , three forur  equilibrium points.. or maybe without equilibrium but which stays close to equilibrium sometimes... what we must undersand is how to keep it there and make this equilbirium point more just with time.

And I give Krugman credit for this: an Energy technology revolution (using the beast) due to global warming regulations, a messy approach to economics focused specially on the strong irrationality and animal spirits of financial markets and strong union movement would probably do the trick.

And the only thing I would add to the pool is a huge tax to the uber-wealthy via direct income taxes and a tobin tax to spread income arund the world and create a larger middle class.  This is the most difficult platform to adopt because of the nonsense about efficiency (which I find extrmelly short-sighted.. something efficient now can be absolutely awful and inefficient down the road.. and one can get more efficiency sometimes via short-periods of inefficiency, so much so that the "idea of efficiency" in microeconomics is the most stupid concept I have read in any first course textbook on any discipline)

However, global warming laws, strong banking regulation, messy Keynessian economics departments (and the corresponding fiscal stimilus consensus when we are heading towards recessions) is probably good enough to save the planet and increase the world-middle class in umbers and in power. If only.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 25th, 2009 at 09:54:37 AM EST
It appears that you are using "The Beast" as a metaphor for the creative aspects of Capitalism.  The problem is that the capitalist system has matured, in the Anglo world especially.  This means that all values have been reduced to prices and profits. The existing myth of Capitalism is now a shining mask for a very ugly reality that has now extended its control to all aspects of our society and lives.  That would be bad enough, but profits and prices cannot be challenged and yet are insufficient to insure even the survival of our society over the next century.

You are correct that significant elements of Capitalism can and should be retained.  But the sole and total domination of profit must be broken and replaced with one that values human life and its possible future over profit in the short and medium term. Sadly, such endeavors quickly degenerate into shouting matches between "choice" and "life", etc. etc.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 25th, 2009 at 11:19:00 AM EST
[ Parent ]
Hopefully, one day... yes, profit could be out and we would keep on inventing..but as delong said, the Beast forced the most important inventions of the last two centuries.. I hope we can keep it... and while we make the transition the Krugman platform is fine.

In any case, the transition is not that far off, as soon as you include other metrics different than GDP, as some world economists are proposing, you can talk about prices and profits but with another completely dimension/framework. Still, I am not partiuclarly optimistic nor pessimistic. I am optimistic becasue I think capitalism has a tendency to avoid catastrohpe just in time... I am pessimsitic about "other metrics" because an Energy revolution saves both capitalism and the type of planet we need without any need for the more humane economic metrics... so I doubt it will be forthcoming.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Sep 25th, 2009 at 10:08:20 PM EST
[ Parent ]
kcurie:
Hopefully, one day... yes, profit could be out and we would keep on inventing..but as delong said, the Beast forced the most important inventions of the last two centuries.. I hope we can keep it... and while we make the transition the Krugman platform is fine.

The logic of Peer to Peer transactions is that there is no profit. Shared surplus, yes, but no profit to rentier intermediaries.

Peer to Peer Finance will evolve and spread virally, I believe.

Credit intermediaries are as obsolete as music intermediaries, and they will either evolve to service provision or wither on the vine.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Sep 26th, 2009 at 05:25:41 AM EST
[ Parent ]
that's another good one indeed. Another econometrics for the government (not GDP) and peer to peer for finance. That would be awesome...

I am jut not as optimistic as you.. there are more changes of an energy revolution and a new strong union ovement than this huge transoframtions we propose.. but who knows, it is only my opinion.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat Sep 26th, 2009 at 07:39:50 AM EST
[ Parent ]
ChrisCook:
The logic of Peer to Peer transactions is that there is no profit. Shared surplus, yes, but no profit to rentier intermediaries.
The problem with profit is not the rentier intermediaries but the notion of a "rate of return", let alone the notion of an "acceptable rate of return".

I have not seen you disown the notion of the rate of return.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Thu Oct 22nd, 2009 at 04:16:38 AM EST
[ Parent ]
kcurie:
as delong said, the Beast forced the most important inventions of the last two centuries..
According to Veblen in The Theory of Business Enterprise, invention is totally incidental to the pursuit of business and business delays rather than accelerates the application of new technological discoveries.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Thu Oct 22nd, 2009 at 04:14:58 AM EST
[ Parent ]
There's an important line of enquiry to explore in that antithesis.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Oct 22nd, 2009 at 04:21:50 AM EST
[ Parent ]
The reason I haven't diaried that book yet is that I'd want to quote the entire thing.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
by Migeru (migeru at eurotrib dot com) on Thu Oct 22nd, 2009 at 05:53:39 AM EST
[ Parent ]
Reading some interesting posters on Chicago in O'Hare airport on the way back from Europe there was a comment which stuck with me: "Founding [the Chicago school of economics] was my best investment ever." -- Rockefeller.
by njh on Tue Sep 29th, 2009 at 08:18:00 AM EST


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