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Milton Friedman -- a hired gun for Deification of Market

News Political Economy of Casino Capitalism Recommended Links Fifth Column of Financial Oligarchy: Chicago School of Market Fundamentalism John Kenneth Galbraith Hyman Minsky Recommended Blogs
Critique of neoclassical economics Supply side Lysenkoism Trickle down economics Rational expectations scam Monetarism Criminal negligence in financial regulation Financial Sector Induced Systemic Instability
Helicopter Ben Bush Clinton Jeffrey Sachs and "shock therapy" racket Corruption of Regulators Phil Gramm Greenspan: Grey Cardinal of Washington
Ronald Reagan: modern prophet of profligacy Rubinism Lawrence Summers Sandy Weill Martin Feldstein Financial Humor Etc

As is clear from his "Capitalism and Freedom" book Milton Friedman in his late years became a dangerous, completely blind to science ideologue, a corrupt academic who is ready for many to commit anything that the patrons in financial oligarchy wanted.

Friedman's use of his position as the darling of irresponsible financiers to promote pseudo-scientific justification of their behavior, and Greenspan's used his position to implement Friedman's recommendations. While it's too late to try Friedman, Greenspan really needa to be held accountable least in order to prevent others of their kind from gaining respect and influence.  There were actually two Friedmans. Early and late.

Since 1963 he was not a scientist, but a regular corrupt politician with a high academic degree, working for financial oligarchy and relentlessly promoting neoliberal views.

I think he also helped to invent "mathematical masturbation" or more correctly using mathematics as a propaganda tool so common in modern economics when a model is so detached from the reality (and ususally does not take into account accuracy of input data, which is typical for Krugman) that it becomes a perversion in style of medieval deliberations "How many angels can dance on the head of a pin?"

See also http://economistsview.typepad.com/economistsview/2006/12/friedman_and_ga.html

"...Yes, governments sometimes fail, but unfettered markets are a certain prescription for failure. Galbraith made this case better than most. ...

Galbraith's penetrating insights into the nature of capitalism - as it is lived, not as it is theorized in simplistic models - has enhanced our understanding of the market economy. ... [His passing] has left a gap in our intellectual life: Who will stand up against the economics establishment to articulate an economic vision that is both in touch with reality and comprehensible to ordinary citizens?..."

[Laughed best:]

"...Friedman used the same strategy of "testing the evidence" when it came to Mr. Galbraith's criticisms. For example, the evidence failed to support Galbraith's contention that big business can manipulate customers at will or ignore stockholders because of its size and power..."

[I wonder if Mark Skousen still believes that today?]

Several of Milton Friedman interviews are available on YouTube. See for example Milton Friedman. In this interview his sophistry about minimum wages is really primitive, distasteful and intellectually dishonest. Acting as a plain-vanilla propagandist.  I think that he understands the level of corruption he was engaged in, but just find it beneficial to promote this simplistic ramble. In reality it is not minimum wages, but the army of illegal immigrants as well as offshoring of manufacturing that have negative effect of low qualified pool of laborers. Illegal immigrants are in essence a modern age slaves and wide use of their labor produces the effects he referred to. How he can ignore this and other important effects is belong me and discredit academic credential of Chicago School better then any direct critique. Also listen his simplistic assessment of Great Depression and think about the current economic situation. All-in-all in this interview he comes as an intellectual lightweight, almost Kudlow-level (which is as close to the floor, as one can get). His advocacy of Wild West capitalism and reckless deregulation did a lot harm to the country and now chickens come home to roost. And how the question about possibility to preserve savings in fiat money regime became another "interesting question."

In his December 23rd, 2008 post RIP Chicago School of Economics: 1976-2008 by Barry Ritholtz aptly summarized the dominant sentiment about this pseudo science:

Some time ago, I asked if “Milton Friedman was the next economist whose once lauded reputation may soon slide ?”

Turns out it happened much quicker than expected. A long Bloomberg piece, Friedman Would Be Roiled as Chicago Disciples Rue Repudiation, discusses the tarnishment of the Chicago school of thought.

Its long overdue. From the efficient-market theories, to the concept of man as rational profit maximizers, much of the edifice that is was the Chicago school of economics is based on a foundation that is false, disproven or otherwise questionable.

I first encountered the Chicago theory in law school. The Chicagoists somehow read into law a market efficiency component that was never there. I recoiled against it — not because of the libertarianism, which I embraced. Rather, it seemed a backdoor way to circumvent democracy, and force into the legal system rules that were never debated, voted on, or agreed to by a representative government. I found the extremist legal theories of Judges like Richard Posner and Frank Easterbrook intellectually repulsive. They were undemocratic, anti-representative government. When I told a professor that the law and economics movement was an attempt at a political coup, he laughed and said, try to stop it.

I disliked the neoclassical price theory. It was authoritarian, a worship of a form of mob rule outside of the usual legal channels. The view that regulation and other government intervention is always inefficient compared to a free market has now been made laughable. Its always the extremists that seem to control a discipline or school of thought. If I have any dogma, its extremism in all forms is undesirable (I know, radical, huh)

If there is one silver lining in the entire collapse, its that this group of intellectual charlatans have been revealed as utterly wanting. Oh, there will be some pushback by the Chicagoans. (Watch the comments for the cute little protests from law students who never practiced a day in their lives, and the biz school kiddies who never executed a single trade).

Anyway, here’s an excerpt from today’s Bloomberg:

When Friedman’s Platonic ideas of free-market virtues are put into practice, they have too often generated a systemic orgy of competitive greed — whose remedies, ironically, entail countermeasures of nationalization,” Marshall Sahlins, an emeritus professor of anthropology, said during the debate, speaking in a room adorned with murals of female students parading through the campus in medieval gowns. Sahlins, 77, noted a few weeks later socialist and capitalist countries alike are regulating or nationalizing financial institutions in a rebuff to Friedman.

Off campus, the global meltdown is stirring anti-Chicago economists, who were voices in the wilderness during decades of lax government oversight of markets. Joseph Stiglitz, who won one of Columbia’s economics Nobels, says the approach of Friedman and his followers helped cause today’s turmoil.

‘Bears the Blame’ “The Chicago School bears the blame for providing a seeming intellectual foundation for the idea that markets are self- adjusting and the best role for government is to do nothing,” says Stiglitz, 65, who received his Nobel in 2001.

University of Texas economist James Galbraith says Friedman’s ideology has run its course. He says hands-off policies were convenient for American capitalists after World War II as they vied with government-favored labor unions at home and Soviet expansion overseas.

“The inability of Friedman’s successors to say anything useful about what’s happening in financial markets today means their influence is finished,” he says.

Instead, Galbraith, 56, says policy-makers are rediscovering the ideas of his father, Harvard professor John Kenneth Galbraith, and economist John Maynard Keynes of the University of Cambridge. Keynes, who died in 1946, argued that governments should spend to combat the unemployment that free markets tolerate. Galbraith, who died in 2006, rejected mathematical models and technical analyses as divorced from reality.”

That’s the phrase that best sums up the Chicago School: “Divorced from Reality.”

Chicago School repudiation? Good riddance!

The most popular pseudo-academic theory that was propagated by Chicago school for the last few decades was monetarism. The most popular exposition of Market fundamentalism was in Milton Friedman "Capitalism and Freedom".

The essence is that we have finally reached the culmination of economic theory and all that's left is to tune the machine. The ultimate realization of western perfection is pure free market Capitalism. The villains of the scenario are unions, intellectuals, environmentalists and government regulators who gum up the wheels of progress. Fueling the market engine is relentless optimism and there are few superlatives too vicious to be cast on those who express doubt. CEO's are hard working heroes moving the engine while blue collar workers are parasites sucking away needed capital. As George Lakoff would say this is the construction of a Frame, attempting to move from concept to common knowledge. Frames are powerful indeed and most people if given a choice between retaining a Frame or accepting new contrary evidence will keep the Frame and throw out the evidence. Leaving no doubt about his opinion on the matter Thomas Frank declares, "the New Economy is a fraud". It's a Vox Populi where billionaires are victimized by `elitist' union workers and the crime de jour is political correctness.

Crisis of 2008-2009 was the punch line when all those hip gen-X investors watched their brand new fortunes go up in smoke and that burned Chicago school authority. The heyday of the bull market are over, real wages went down, jobs became less secure and downsizing became fashionable for CEO's who want a quick stock pop. In the end it became painfully clear that companies, auditors and analysts were all working against the best interest of the small investor. The market was to be the new means for wealth redistribution as everyone had access to the market money tree but when the chips were cashed in the wealth disparity in America grew beyond anything seen in the last 70 years.

Pro-business, pro-globalization propaganda as well as the endless stream of articles in business magazines praising the new paradigm abruptly ended in 2009 when everybody understood that days of reckoning are close.

Often silly, pseudoscientific, marketing theories that were being expounded became joke they always were.

There also pretty menacing aspect of Milton Friedman legacy:

"Inspired by Friedman’s ideas, Ronald Reagan, Margaret Thatcher, and many other government leaders began to dismantle the government restrictions and regulations that had been built up over the preceding decades.... Latin America sharply reduced its trade barriers and privatized its state-owned firms."

You gotta love it! Reagan, Thatcher and "many others." What about Uncle Miltie's own favorite latin lover? Augusto? What about Uncle Miltie's role in counseling the Generalísimo? He got the invisible hand to do it's own favorite magic trick of making inconvenient people invisible by making them.... wait for it.... DISAPPEAR!

Hence the phenomenon in Pinochet's Chile of the DESAPARECIDOS.

I guess it's just not cool any more to mention this part of Uncle Miltie's story.


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[Sep 19, 2017] Neoliberalism: the idea that swallowed the world by Stephen Metcalf

Highly recommended!
Notable quotes:
"... The word ["neoliberalism"] has become a rhetorical weapon, but it properly names the reigning ideology of our era – one that venerates the logic of the market and strips away the things that make us human. ..."
"... Last summer, researchers at the International Monetary Fund settled a long and bitter debate over "neoliberalism": they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism ..."
"... The paper gently called out a "neoliberal agenda" for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality. ..."
"... In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left's traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality. ..."
"... Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market ..."
"... Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But "neoliberalism" indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals. ..."
"... In short, "neoliberalism" is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity. ..."
"... No sooner had neoliberalism been certified as real, and no sooner had it made clear the universal hypocrisy of the market, than the populists and authoritarians came to power ..."
"... Against the forces of global integration, national identity is being reasserted, and in the crudest possible terms. What could the militant parochialism of Brexit Britain and Trumpist America have to do with neoliberal rationality? ..."
"... It isn't only that the free market produces a tiny cadre of winners and an enormous army of losers – and the losers, looking for revenge, have turned to Brexit and Trump. There was, from the beginning, an inevitable relationship between the utopian ideal of the free market and the dystopian present in which we find ourselves; ..."
"... That Hayek is considered the grandfather of neoliberalism – a style of thought that reduces everything to economics – is a little ironic given that he was such a mediocre economist. ..."
"... This last is what makes neoliberalism "neo". It is a crucial modification of the older belief in a free market and a minimal state, known as "classical liberalism". In classical liberalism, merchants simply asked the state to "leave us alone" – to laissez-nous faire. Neoliberalism recognised that the state must be active in the organisation of a market economy. The conditions allowing for a free market must be won politically, and the state must be re-engineered to support the free market on an ongoing basis. ..."
"... Hayek had only his idea to console him; an idea so grand it would one day dissolve the ground beneath the feet of Keynes and every other intellectual. Left to its own devices, the price system functions as a kind of mind. And not just any mind, but an omniscient one: the market computes what individuals cannot grasp. Reaching out to him as an intellectual comrade-in-arms, the American journalist Walter Lippmann wrote to Hayek, saying: "No human mind has ever understood the whole scheme of a society At best a mind can understand its own version of the scheme, something much thinner, which bears to reality some such relation as a silhouette to a man." ..."
"... The only social end is the maintenance of the market itself. In its omniscience, the market constitutes the only legitimate form of knowledge, next to which all other modes of reflection are partial, in both senses of the word: they comprehend only a fragment of a whole and they plead on behalf of a special interest. Individually, our values are personal ones, or mere opinions; collectively, the market converts them into prices, or objective facts. ..."
"... According to the logic of Hayek's Big Idea, these expressions of human subjectivity are meaningless without ratification by the market ..."
"... ociety reconceived as a giant market leads to a public life lost to bickering over mere opinions; until the public turns, finally, in frustration to a strongman as a last resort for solving its otherwise intractable problems. ..."
"... What began as a new form of intellectual authority, rooted in a devoutly apolitical worldview, nudged easily into an ultra-reactionary politics ..."
Aug 18, 2017 | www.theguardian.com

The word ["neoliberalism"] has become a rhetorical weapon, but it properly names the reigning ideology of our era – one that venerates the logic of the market and strips away the things that make us human.

Last summer, researchers at the International Monetary Fund settled a long and bitter debate over "neoliberalism": they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism . In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a "neoliberal agenda" for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics . In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left's traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality.

Neoliberalism: the idea that swallowed the world – podcast

Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it's a meaningless insult: they're the ones most meaningfully insulted by it.) But "neoliberalism" is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses.

Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But "neoliberalism" indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

Still peering through the lens, you see how, no less than the welfare state, the free market is a human invention. You see how pervasively we are now urged to think of ourselves as proprietors of our own talents and initiative, how glibly we are told to compete and adapt. You see the extent to which a language formerly confined to chalkboard simplifications describing commodity markets (competition, perfect information, rational behaviour) has been applied to all of society, until it has invaded the grit of our personal lives, and how the attitude of the salesman has become enmeshed in all modes of self-expression.

In short, "neoliberalism" is not simply a name for pro-market policies, or for the compromises with finance capitalism made by failing social democratic parties. It is a name for a premise that, quietly, has come to regulate all we practise and believe: that competition is the only legitimate organising principle for human activity.

No sooner had neoliberalism been certified as real, and no sooner had it made clear the universal hypocrisy of the market, than the populists and authoritarians came to power. In the US, Hillary Clinton, the neoliberal arch-villain, lost – and to a man who knew just enough to pretend he hated free trade . So are the eyeglasses now useless? Can they do anything to help us understand what is broken about British and American politics? Against the forces of global integration, national identity is being reasserted, and in the crudest possible terms. What could the militant parochialism of Brexit Britain and Trumpist America have to do with neoliberal rationality? What possible connection is there between the president – a freewheeling boob – and the bloodless paragon of efficiency known as the free market?

It isn't only that the free market produces a tiny cadre of winners and an enormous army of losers – and the losers, looking for revenge, have turned to Brexit and Trump. There was, from the beginning, an inevitable relationship between the utopian ideal of the free market and the dystopian present in which we find ourselves; between the market as unique discloser of value and guardian of liberty, and our current descent into post-truth and illiberalism.

Moving the stale debate about neoliberalism forward begins, I think, with taking seriously the measure of its cumulative effect on all of us, regardless of affiliation. And this requires returning to its origins, which have nothing to do with Bill or Hillary Clinton. There once was a group of people who did call themselves neoliberals, and did so proudly, and their ambition was a total revolution in thought. The most prominent among them, Friedrich Hayek, did not think he was staking out a position on the political spectrum, or making excuses for the fatuous rich, or tinkering along the edges of microeconomics.

He thought he was solving the problem of modernity: the problem of objective knowledge. For Hayek, the market didn't just facilitate trade in goods and services; it revealed truth. How did his ambition collapse into its opposite – the mind-bending possibility that, thanks to our thoughtless veneration of the free market, truth might be driven from public life altogether?


When the idea occurred to Friedrich Hayek in 1936, he knew, with the conviction of a "sudden illumination", that he had struck upon something new. "How can the combination of fragments of knowledge existing in different minds," he wrote, "bring about results which, if they were to be brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?"

This was not a technical point about interest rates or deflationary slumps. This was not a reactionary polemic against collectivism or the welfare state. This was a way of birthing a new world. To his mounting excitement, Hayek understood that the market could be thought of as a kind of mind.

Adam Smith's "invisible hand" had already given us the modern conception of the market: as an autonomous sphere of human activity and therefore, potentially, a valid object of scientific knowledge. But Smith was, until the end of his life, an 18th-century moralist. He thought the market could be justified only in light of individual virtue, and he was anxious that a society governed by nothing but transactional self-interest was no society at all. Neoliberalism is Adam Smith without the anxiety.

That Hayek is considered the grandfather of neoliberalism – a style of thought that reduces everything to economics – is a little ironic given that he was such a mediocre economist. He was just a young, obscure Viennese technocrat when he was recruited to the London School of Economics to compete with, or possibly even dim, the rising star of John Maynard Keynes at Cambridge.

The plan backfired, and Hayek lost out to Keynes in a rout. Keynes's General Theory of Employment, Interest and Money, published in 1936, was greeted as a masterpiece. It dominated the public discussion, especially among young English economists in training, for whom the brilliant, dashing, socially connected Keynes was a beau idéal . By the end of the second world war, many prominent free-marketers had come around to Keynes's way of thinking, conceding that government might play a role in managing a modern economy. The initial excitement over Hayek had dissipated. His peculiar notion that doing nothing could cure an economic depression had been discredited in theory and practice. He later admitted that he wished his work criticising Keynes would simply be forgotten.

... Hayek built into neoliberalism the assumption that the market provides all necessary protection against the one real political danger: totalitarianism. To prevent this, the state need only keep the market free.

This last is what makes neoliberalism "neo". It is a crucial modification of the older belief in a free market and a minimal state, known as "classical liberalism". In classical liberalism, merchants simply asked the state to "leave us alone" – to laissez-nous faire. Neoliberalism recognised that the state must be active in the organisation of a market economy. The conditions allowing for a free market must be won politically, and the state must be re-engineered to support the free market on an ongoing basis.

That isn't all: every aspect of democratic politics, from the choices of voters to the decisions of politicians, must be submitted to a purely economic analysis. The lawmaker is obliged to leave well enough alone – to not distort the natural actions of the marketplace – and so, ideally, the state provides a fixed, neutral, universal legal framework within which market forces operate spontaneously. The conscious direction of government is never preferable to the "automatic mechanism of adjustment" – ie the price system, which is not only efficient but maximises liberty, or the opportunity for men and women to make free choices about their own lives.

As Keynes jetted between London and Washington, creating the postwar order, Hayek sat pouting in Cambridge. He had been sent there during the wartime evacuations; and he complained that he was surrounded by "foreigners" and "no lack of orientals of all kinds" and "Europeans of practically all nationalities, but very few of real intelligence".

Stuck in England, without influence or respect, Hayek had only his idea to console him; an idea so grand it would one day dissolve the ground beneath the feet of Keynes and every other intellectual. Left to its own devices, the price system functions as a kind of mind. And not just any mind, but an omniscient one: the market computes what individuals cannot grasp. Reaching out to him as an intellectual comrade-in-arms, the American journalist Walter Lippmann wrote to Hayek, saying: "No human mind has ever understood the whole scheme of a society At best a mind can understand its own version of the scheme, something much thinner, which bears to reality some such relation as a silhouette to a man."

It is a grand epistemological claim – that the market is a way of knowing, one that radically exceeds the capacity of any individual mind. Such a market is less a human contrivance, to be manipulated like any other, than a force to be studied and placated. Economics ceases to be a technique – as Keynes believed it to be – for achieving desirable social ends, such as growth or stable money. The only social end is the maintenance of the market itself. In its omniscience, the market constitutes the only legitimate form of knowledge, next to which all other modes of reflection are partial, in both senses of the word: they comprehend only a fragment of a whole and they plead on behalf of a special interest. Individually, our values are personal ones, or mere opinions; collectively, the market converts them into prices, or objective facts.

... ... ...

The more Hayek's idea expands, the more reactionary it gets, the more it hides behind its pretence of scientific neutrality – and the more it allows economics to link up with the major intellectual trend of the west since the 17th century. The rise of modern science generated a problem: if the world is universally obedient to natural laws, what does it mean to be human? Is a human being simply an object in the world, like any other? There appears to be no way to assimilate the subjective, interior human experience into nature as science conceives it – as something objective whose rules we discover by observation.

... ... ...

More than anyone, even Hayek himself, it was the great postwar Chicago economist Milton Friedman who helped convert governments and politicians to the power of Hayek's Big Idea. But first he broke with two centuries of precedent and declared that economics is "in principle independent of any particular ethical position or normative judgments" and is "an 'objective' science, in precisely the same sense as any of the physical sciences". Values of the old, mental, normative kind were defective, they were "differences about which men can ultimately only fight". There is the market, in other words, and there is relativism.

Markets may be human facsimiles of natural systems, and like the universe itself, they may be authorless and valueless. But the application of Hayek's Big Idea to every aspect of our lives negates what is most distinctive about us. That is, it assigns what is most human about human beings – our minds and our volition – to algorithms and markets, leaving us to mimic, zombie-like, the shrunken idealisations of economic models. Supersizing Hayek's idea and radically upgrading the price system into a kind of social omniscience means radically downgrading the importance of our individual capacity to reason – our ability to provide and evaluate justifications for our actions and beliefs.

As a result, the public sphere – the space where we offer up reasons, and contest the reasons of others – ceases to be a space for deliberation, and becomes a market in clicks, likes and retweets. The internet is personal preference magnified by algorithm; a pseudo-public space that echoes the voice already inside our head. Rather than a space of debate in which we make our way, as a society, toward consensus, now there is a mutual-affirmation apparatus banally referred to as a "marketplace of ideas". What looks like something public and lucid is only an extension of our own pre-existing opinions, prejudices and beliefs, while the authority of institutions and experts has been displaced by the aggregative logic of big data. When we access the world through a search engine, its results are ranked, as the founder of Google puts it, "recursively" – by an infinity of individual users functioning as a market, continuously and in real time.

... ... ...

According to the logic of Hayek's Big Idea, these expressions of human subjectivity are meaningless without ratification by the market – as Friedman said, they are nothing but relativism, each as good as any other. When the only objective truth is determined by the market, all other values have the status of mere opinions; everything else is relativist hot air. But Friedman's "relativism" is a charge that can be thrown at any claim based on human reason. It is a nonsense insult, as all humanistic pursuits are "relative" in a way the sciences are not. They are relative to the (private) condition of having a mind, and the (public) need to reason and understand even when we can't expect scientific proof. When our debates are no longer resolved by deliberation over reasons, then the whimsies of power will determine the outcome.

This is where the triumph of neoliberalism meets the political nightmare we are living through now. "You had one job," the old joke goes, and Hayek's grand project, as originally conceived in 30s and 40s, was explicitly designed to prevent a backslide into political chaos and fascism. But the Big Idea was always this abomination waiting to happen. It was, from the beginning, pregnant with the thing it was said to protect against. Society reconceived as a giant market leads to a public life lost to bickering over mere opinions; until the public turns, finally, in frustration to a strongman as a last resort for solving its otherwise intractable problems.

... ... ...

What began as a new form of intellectual authority, rooted in a devoutly apolitical worldview, nudged easily into an ultra-reactionary politics. What can't be quantified must not be real, says the economist, and how do you measure the benefits of the core faiths of the enlightenment – namely, critical reasoning, personal autonomy and democratic self-government? When we abandoned, for its embarrassing residue of subjectivity, reason as a form of truth, and made science the sole arbiter of both the real and the true, we created a void that pseudo-science was happy to fill.

... ... ...

[Jan 15, 2017] Basil Halperin on the logic behind NGDP targeting

Jan 15, 2017 | economistsview.typepad.com
Peter K. : January 14, 2017 at 08:15 AM , 2017 at 08:15 AM
A while back Thoma linked to a Basil Halperin blog post on economics. Someone emailed the link to Scott Sumner who really liked it.

http://www.themoneyillusion.com/?p=32250

Basil Halperin on the logic behind NGDP targeting
by Scott Sumner

Jan. 13, 2017

James Alexander directed me to a recent post by Basil Halperin, which is one of the best blog posts that I have read in years. (I was actually sent this material before Christmas, but it sort of fell between the cracks.)

Basil starts off discussing a program for distributing excess food production from manufacturers to food banks.

The problem was one of distributed versus centralized knowledge. While Feeding America had very good knowledge of poverty rates around the country, and thus could measure need in different areas, it was not as good at dealing with idiosyncratic local issues.

Food banks in Idaho don't need a truckload of potatoes, for example, and Feeding America might fail to take this into account. Or maybe the Chicago regional food bank just this week received a large direct donation of peanut butter from a local food drive, and then Feeding America comes along and says that it has two tons of peanut butter that it is sending to Chicago.

To an economist, this problem screams of the Hayekian knowledge problem. Even a benevolent central planner will be hard-pressed to efficiently allocate resources in a society since it is simply too difficult for a centralized system to collect information on all local variation in needs, preferences, and abilities.

One option would simply be to arbitrarily distribute the food according to some sort of central planning criterion. But there is a better way:

This knowledge problem leads to option two: market capitalism. Unlike poorly informed central planners, the decentralized price system – i.e., the free market – can (often but not always) do an extremely good job of aggregating local information to efficiently allocate scarce resources. This result is known as the First Welfare Theorem.

Such a system was created for Feeding America with the help of four Chicago Booth economists in 2005. Instead of centralized allocation, food banks were given fake money – with needier food banks being given more – and allowed to bid for different types of food in online auctions. Prices are thus determined by supply and demand. . . .

By all accounts, the system has worked brilliantly. Food banks are happier with their allocations; donations have gone up as donors have more confidence that their donations will actually be used. Chalk one up for economic theory.

Basil points out that while that solves one problem, there is still the issue of determining "monetary policy", i.e. how much fake money should be distributed each day?

Here's the problem for Feeding America when thinking about optimal monetary policy. Feeding America wants to ensure that changes in prices are informative for food banks when they bid. In the words of one of the Booth economists who helped design the system:

"Suppose I am a small food bank; I really want a truckload of cereal. I haven't bid on cereal for, like, a year and a half, so I'm not really sure I should be paying for it. But what you can do on the website, you basically click a link and when you click that link it says: This is what the history of prices is for cereal over the last 5 years. And what we wanted to do is set up a system whereby by observing that history of prices, it gave you a reasonable instinct for what you should be bidding."

That is, food banks face information frictions: individual food banks are not completely aware of economic conditions and only occasionally update their knowledge of the state of the world. This is because obtaining such information is time-consuming and costly.

Relating this to our question of optimal monetary policy for the food bank economy: How should the fake money supply be set, taking into consideration this friction?

Obviously, if Feeding America were to randomly double the supply of (fake) money, then all prices would double, and this would be confusing for food banks. A food bank might go online to bid for peanut butter, see that the price has doubled, and mistakenly think that demand specifically for peanut butter has surged.

This "monetary misperception" would distort decision making: the food bank wants peanut butter, but might bid for a cheaper good like chicken noodle soup, thinking that peanut butter is really scarce at the moment.

Clearly, random variation in the money supply is not a good idea. More generally, how should Feeding America set the money supply?

One natural idea is to copy what real-world central banks do: target inflation.

Basil then explains why NGDP targeting is likely to be superior to inflation targeting, using a Lucas-type monetary misperceptions model.

III. Monetary misperceptions
I demonstrate the following argument rigorously in a formal mathematical model in a paper, "Monetary Misperceptions: Optimal Monetary Policy under Incomplete Information," using a microfounded Lucas Islands model. The intuition for why inflation targeting is problematic is as follows.

Suppose the total quantity of all donations doubles.

You're a food bank and go to bid on cheerios, and find that there are twice as many boxes of cheerios available today as yesterday. You're going to want to bid at a price something like half as much as yesterday.

Every other food bank looking at every other item will have the same thought. Aggregate inflation thus would be something like -50%, as all prices would drop by half.

As a result, under inflation targeting, the money supply would simultaneously have to double to keep inflation at zero. But this would be confusing: Seeing the quantity of cheerios double but the price remain the same, you won't be able to tell if the price has remained the same because
(a) The central bank has doubled the money supply
or
(b) Demand specifically for cheerios has jumped up quite a bit

It's a signal extraction problem, and rationally you're going to put some weight on both of these possibilities. However, only the first possibility actually occurred.

This problem leads to all sorts of monetary misperceptions, as money supply growth creates confusions, hence the title of my paper.

Inflation targeting, in this case, is very suboptimal. Price level variation provides useful information to agents.

IV. Optimal monetary policy
As I work out formally in the paper, optimal policy is instead something close to a nominal income (NGDP) target. Under log utility, it is exactly a nominal income target. (I've written about nominal income targeting before more critically here.)

. . . Feeding America, by the way, does not target constant inflation. They instead target "zero inflation for a given good if demand and supply conditions are unchanged." This alternative is a move in the direction of a nominal income target.

V. Real-world macroeconomic implications
I want to claim that the information frictions facing food banks also apply to the real economy, and as a result, the Federal Reserve and other central banks should consider adopting a nominal income target. Let me tell a story to illustrate the point.

Consider the owner of an isolated bakery. Suppose one day, all of the customers seen by the baker spend twice as much money as the customers from the day before.

The baker has two options. She can interpret this increased demand as customers having come to appreciate the superior quality of her baked goods, and thus increase her production to match the new demand. Alternatively, she could interpret this increased spending as evidence that there is simply more money in the economy as a whole, and that she should merely increase her prices proportionally to account for inflation.

Economic agents confounding these two effects is the source of economic booms and busts, according to this model. This is exactly analogous to the problem faced by food banks trying to decide how much to bid at auction.

To the extent that these frictions are quantitatively important in the real world, central banks like the Fed and ECB should consider moving away from their inflation targeting regimes and toward something like a nominal income target, as Feeding America has.

The paper he links to contains a rigorous mathematical model that shows the advantages of NGDP targeting. He doesn't claim NGDP targeting is always optimal, but any paper that did would actually be less persuasive, as it would mean the model was explicitly constructed to generate that result. Instead the result flows naturally from the Lucas-style archipelago model, where each trader is on their own little island observing local demand conditions before aggregate (NGDP conditions). This is the sort of approach I used in my first NGDP futures targeting paper, where futures markets aggregated all of this local demand (i.e. velocity) information. However Basil's paper is light years ahead of where I was in 1989.

I can't recommend him highly enough. I'm told he recently got a BA from Chicago, which suggests he may be another Soltas, Wang or Rognlie, one of those people who makes a mark at a very young age. He seems to combine George Selgin-type economic intuition (even citing a lovely Selgin metaphor at the end of his post) with the sort of highly technical skills required in modern macroeconomics.

Commenters often ask (taunt?) me with the question, "Where is the rigorous model for market monetarism". I don't believe any single model can incorporate all of the insights from any half decent school of thought, but Basil's model certainly provides the sort of rigorous explanation of NGDP targeting that people seem to demand.

Basil has lots of other excellent posts, and over the next few weeks and months I will have more posts responding to some of the points he makes (which to his credit, include criticism of NGDP targeting–he's no ideologue.)

Jerry Brown -> Peter K.... , -1
I like Scott Sumner's blog The Money Illusion and think his idea of NGDP level targeting is a good idea as far as monetary policy. I don't share his supreme confidence in the ability of monetary policy by itself to solve problems in deficient aggregate demand. But he is always interesting to read.

[Jan 14, 2017] Friedman was biased against fiscal intervention in an economy and sought evidence to argue against such policies

Notable quotes:
"... But I think it's also important to note that Friedman was all wrong about Japan - and that you can argue that he was also wrong about the Great Depression, for the same reason. ..."
"... For what Friedman argued, both for Japan in the 1990s and America in the 1930s, was that all the central bank needed to do was more - push out those reserves into the banking system. This would raise the money supply, and a higher money supply would have the usual effects. ..."
"... But the Bank of Japan tried that - and found that pushing more reserves into the banks didn't even lead to rapid growth in the money supply, let alone end the problem of deflation." ..."
"... A central bank can make matters worse by tightening. But they cannot fight fiscal austerity at the ZLB. Fiscal and monetary policy need to be pushing in the same direction. ..."
"... "when data contradicts theory, physics throws out the theory. Econ throws out the data.") ..."
"... Friedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention. ..."
Jan 14, 2017 | economistsview.typepad.com
jonny bakho: January 13, 2017 at 03:23 AM
What Friedman got wrong is not including current income.
People with high income spend a fraction of that income and save the rest.
Their demand is met, so the additional income mostly goes to savings.
People with low income spend everything and still have unmet demands
Additional income for them will go to meet those unmet demands (like fixing a toothache or replacing bald tires).

Friedman was biased against fiscal intervention in an economy and sought evidence to argue against such policies

Our model for funding infrastructure is broken. Federal funding means project that are most needed by cities can be overlooked while projects that would destroy cities are funded. Federal infrastructure funding destroyed city neighborhoods leaving the neighboring areas degraded. Meanwhile, necessary projects such as a new subway tunnel from NJ to Manhattan are blocked by States who are ok if the city fails and growth moves to their side of the river. Money should go directly to the cities. Infrastructure should be build to serve the people who live, walk and work there, not to allow cars to drive through at high speeds as the engineers propose. This infrastructure harms cities and becomes a future tax liability that cannot be met if the built infrastructure it encourages is not valuable enough to support maintenance. We are discovering that unlike our cities where structures can increase in value, strip malls decline in value, often to worthlessness. Road building is increasingly mechanized and provides less employment per project than in the past. Projects such as replacing leaking water pipes require more labor.

pgl -> jonny bakho... , January 13, 2017 at 05:59 AM
"Friedman was biased against fiscal intervention in an economy and sought evidence to argue against such policies". You get this from his permanent income hypothesis??? It is the same basic idea as Modligiani's life cycle model who certainly was not biased against fiscal interventions.
jonny bakho -> pgl... , January 13, 2017 at 06:20 AM
No, from the whole of Friedman's work.
Finding alternatives to fiscal tools for economic management is a central theme.
His permanent income hypothesis was used as a bludgeon against fiscal policy use.
Economic management by monetary policy has hit its limits.
pgl -> jonny bakho... , January 13, 2017 at 06:31 AM
"Economic management by monetary policy has hit its limits."

If you want to bring up his entire body of work - you might note what he said about Japan's period at the zero lower bound. Same thing Krugman has said. So are you going to tell us Krugman opposed the use of fiscal stimulus?

jonny bakho -> pgl... , January 13, 2017 at 08:44 AM
From PK:

"I had some graphics problems with my previous post on this subject - it turns out that what looks like a permanent link at the BOJ website isn't; plus I had some more to say about the subject.

So: David Wessel quoted what Milton Friedman said about Japan in 1998, and interpreted it as meaning that Friedman would favor quantitative easing now. I think that's right. And just to be clear, I also favor QE - largely because it might help some, and seems to be just about the only policy lever still available in the face of political reality.

But I think it's also important to note that Friedman was all wrong about Japan - and that you can argue that he was also wrong about the Great Depression, for the same reason.

For what Friedman argued, both for Japan in the 1990s and America in the 1930s, was that all the central bank needed to do was more - push out those reserves into the banking system. This would raise the money supply, and a higher money supply would have the usual effects.

But the Bank of Japan tried that - and found that pushing more reserves into the banks didn't even lead to rapid growth in the money supply, let alone end the problem of deflation."

http://krugman.blogs.nytimes.com/2010/10/29/more-on-friedmanjapan/

A central bank can make matters worse by tightening. But they cannot fight fiscal austerity at the ZLB. Fiscal and monetary policy need to be pushing in the same direction.

New Deal democrat said in reply to pgl... , January 13, 2017 at 05:15 AM
I thought Noah Smith's article was excellent, for once. Clearly and concisely lays out the data and its implications for theory. Even if I accept that your criticism that he doesn't accurately state the underlying theory is valid.

We will now see if the adage about Econ vs. physics is true ("when data contradicts theory, physics throws out the theory. Econ throws out the data.")

I think the data can be explained by taking regency and hedging one's bets into account. People on average tend to spend what they think is sustainable (they budget!) but they hedge their bets against being wrong. Either a positive or negative shock will not just change the ability to spend short-term, but may also effect how they calculate long term sustainability.

Thus - in hindsight - people may overreact to a short term shock. James Hamilton has found this with regard to sudden changes in gas prices. The report Smith discusses finds it with regard to both unemployment and the termination of unemployment insurances. When the shock hits, you don't know if it is permanent or not. So you recalibrate. Btw, this also works for positive shocks. People don't spend gas price savings until about a year into lower prices, when they begin to believe the windfall might be more long-lasting.

pgl -> New Deal democrat... , January 13, 2017 at 05:41 AM
Everything Noah said there was noted in a 1980 lecture by James Tobin that I had the pleasure of attending. In a word - nothing new.
New Deal democrat said in reply to pgl... , January 13, 2017 at 06:00 AM
I.e., the adage about econ vs. physics has already been shown to be true.
jonny bakho said in reply to pgl... , January 13, 2017 at 06:22 AM
Maybe nothing new, but plainly much that has been forgotten or no longer taught.
pgl -> jonny bakho... , January 13, 2017 at 06:32 AM
I grant some people teach Ricardian Equivalence as if it were gospel but most economists do talk about borrowing constrained households.
kthomas -> pgl... , January 13, 2017 at 06:46 AM
Milton is almost as controversial as Marx. Marx had a more realistic, a more grounded world-view. Marx knew damn-well that his ideals were just that. That we should all share in the fruits of our combined labor was to Marx, a way of achieving perfection. Pure idealism and he knew.

Friedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention.

point -> pgl... , January 13, 2017 at 07:10 AM
I have no data and no theory to offer against Friedman's hypothesis, but it sure feels like there is good reason to doubt it.

The reason I say so is that this mental behavior of converting income and expense streams into present value sums, making long term assets and liabilities on the current personal balance sheet, is extremely rare in my experience.

I'm not talking about just among regular working Joe's either. I'm talking about people with plenty of excess income: fund managers and CEOs. If anyone should be able to habitually do the math it should be these guys. But let me assert, if you want to rub elbows in that crowd, a nearly certain way to distinguish yourself is to walk into the room with these PVs at your fingertips. You may be totally alone.

The idea that less endowed people will do it is just giggles.

Further, it does not take much thought in this direction to analyze the expected net worth position of people along the existing income distribution. It would appear the income level at which one may be able to expect to fund lifetime liabilities is near the 80th percentile. That people below that level may be able to smooth their required consumption though temporary borrowing is just more giggles.

JohnH -> pgl... , January 13, 2017 at 07:37 AM
What's curious here is that while Friedman (and many policymakers) may assume that most people's consumption isn't affected by how much they earn, they are totally convinced that their spending levels are immediately and dramatically affected by changes in their wealth!

The wealth effect is one of the pillars of trickle down monetary policy. Proponents claim that lower interest rates drive asset prices up, making the wealthy FEEL wealthier again...and presto they start consuming again, igniting economic growth.

It would be very interesting to chart the course of wealthy people's spending in response to changes in income and wealth. The results may prove Friedman right at the upper end of the income scale--the wealthy, having more than they know what to do with, may well ride out stormy periods by maintaining their consumption via borrowing and sale of some assets.

If Friedman's theory does apply to wealthy people, it would undermine a fundamental justification for trickle down monetary policy and help explain why the economic recovery has been so anemic---policy decisions where targeted at the wrong end of the income scale...at people who wouldn't boost consumption (the wealthy) instead of at those who would boost consumption.

Once again, it would appear that deeply entrenched economic 'theories' are designed to help the wealthy...without much empirical evidence.

pgl : , January 13, 2017 at 01:37 AM
Simon Wren Lewis leaves open the possibility that an increase in aggregate demand can increase real GDP as we may not be at full employment (I'd change that from "may not be" to "are not") but still comes out against tax cuts for the rich with this:

"There is a very strong case for more public sector investment on numerous grounds. But that investment should go to where it is most needed and where it will be of most social benefit"

Exactly but alas Team Trump ain't listening.

New Deal democrat said in reply to pgl... , January 13, 2017 at 05:19 AM
A little off topic, but I've taken a further look at whether and by how much a decline in the unemployment rate coaxes people back into the labor force. I think we can make a good back of the envelope estimate. Also: further evidence of the importance of the cost of daycare. I will probably post next week.
pgl -> New Deal democrat... , January 13, 2017 at 05:43 AM
Yep. As the economy gets stronger, it does seem the labor force participation rate goes up. This is why I focus more on the employment to population ratio and less on the unemployment rate.
John Williams -> New Deal democrat... , January 13, 2017 at 08:23 AM
Isn't there a scale issue here? The unemployment rate is an attribute of populations, but the unemployed mostly look for work locally, and for work they think they can do. That is, they respond more at the level of individual opportunity
New Deal democrat -> John Williams... , -1
When I put up my posts I will link to them here. That will probably give you a better feel for questions to ask.

[Jan 13, 2017] Neoliberalism vs Make America Great Again slogan

Notable quotes:
"... Our model for funding infrastructure is broken. Federal funding means project that are most needed by cities can be overlooked while projects that would destroy cities are funded. ..."
"... The neo in neoliberalism, however, establishes these principles on a significantly different analytic basis from those set forth by Adam Smith, as will become clear below. Moreover, neoliberalism is not simply a set of economic policies; it is not only about facilitating free trade, maximizing corporate profits, and challenging welfarism. ..."
"... But in so doing, it carries responsibility for the self to new heights: the rationally calculating individual bears full responsibility for the consequences of his or her action no matter how severe the constraints on this action-for example, lack of skills, education, and child care in a period of high unemployment and limited welfare benefits. ..."
"... A fully realized neoliberal citizenry would be the opposite of public-minded; indeed, it would barely exist as a public. The body politic ceases to be a body but is rather a group of individual entrepreneurs and consumers . . . ..."
"... consider the market rationality permeating universities today, from admissions and recruiting to the relentless consumer mentality of students as they consider university brand names, courses, and services, from faculty raiding and pay scales to promotion criteria. ..."
"... The extension of market rationality to every sphere, and especially the reduction of moral and political judgment to a cost-benefit calculus, would represent precisely the evisceration of substantive values by instrumental rationality that Weber predicted as the future of a disenchanted world. Thinking and judging are reduced to instrumental calculation in Weber's "polar night of icy darkness"-there is no morality, no faith, no heroism, indeed no meaning outside the market. ..."
Jan 13, 2017 | economistsview.typepad.com
sanjait : , January 13, 2017 at 01:09 AM
I just read through the Zingales, Schiller, Smith and Wren-Lewis pieces.

They all make what I would consider to be obvious points, though all are arguably worth repeating, as they are widely not accepted.

pgl -> sanjait... , January 13, 2017 at 02:07 AM
Let's see. Zingales does not like crony capitalism whereas Schiller praises LBJ's Great Society. I think most progressives agree with both.
Libezkova -> sanjait... , January 13, 2017 at 04:37 AM
There is nothing common between articles of Zingales and Schiller.

My impression is that Schiller might lost his calling: he might achieve even greater success as a diplomat, if he took this career. He managed to tell something important about incompatibility of [the slogan] "Make America Great Again" with neoliberalism without offending anybody. Which is a pretty difficult thing to do.

Zingalles is just another Friedman-style market fundamentalist. Nothing new and nothing interesting.

pgl : , January 13, 2017 at 01:32 AM
Noah Smith is wrong here: "This idea is important because it meant that we shouldn't expect fiscal stimulus to have much of an effect. Government checks are a temporary form of income, so Friedman's theory predicts that it won't change spending patterns, as advocates such as John Maynard Keynes believed."

Friedman's view about consumption demand is the same as the Life Cycle Model (Ando and Modligiani). OK - these models do predict that tax rebates should not affect consumption. And yes there are households who are borrower constrained so these rebates do impact their consumption.

But this is not the only form of fiscal stimulus. Infrastructure investment would increase aggregate demand even under the Friedman view of consumption. This would hold even under the Barro-Ricardian version of this theory. OK - John Cochrane is too stupid to know this. And I see Noah in his rush to bash Milton Friedman has made the same mistake as Cochrane.

jonny bakho -> pgl... , January 13, 2017 at 03:23 AM
What Friedman got wrong is not including current income. People with high income spend a fraction of that income and save the rest. Their demand is met, so the additional income mostly goes to savings.

People with low income spend everything and still have unmet demands. Additional income for them will go to meet those unmet demands (like fixing a toothache or replacing bald tires).

Friedman was biased against fiscal intervention in an economy and sought evidence to argue against such policies

Our model for funding infrastructure is broken. Federal funding means project that are most needed by cities can be overlooked while projects that would destroy cities are funded.

Federal infrastructure funding destroyed city neighborhoods leaving the neighboring areas degraded. Meanwhile, necessary projects such as a new subway tunnel from NJ to Manhattan are blocked by States who are ok if the city fails and growth moves to their side of the river.

Money should go directly to the cities. Infrastructure should be build to serve the people who live, walk and work there, not to allow cars to drive through at high speeds as the engineers propose. This infrastructure harms cities and becomes a future tax liability that cannot be met if the built infrastructure it encourages is not valuable enough to support maintenance.

We are discovering that unlike our cities where structures can increase in value, strip malls decline in value, often to worthlessness. Road building is increasingly mechanized and provides less employment per project than in the past. Projects such as replacing leaking water pipes require more labor.

pgl : , January 13, 2017 at 01:37 AM
Simon Wren Lewis leaves open the possibility that an increase in aggregate demand can increase real GDP as we may not be at full employment (I'd change that from "may not be" to "are not") but still comes out against tax cuts for the rich with this:

"There is a very strong case for more public sector investment on numerous grounds. But that investment should go to where it is most needed and where it will be of most social benefit"

Exactly but alas Team Trump ain't listening.

Libezkova : January 13, 2017 at 03:45 AM
Re: Milton Friedman's Cherished Theory Is Laid to Rest - Bloomberg View

Friedman was not simply wrong. The key for understanding Friedman is that he was a political hack, not a scientist.

His main achievement was creation (partially for money invested in him and Mont Pelerin Society by financial oligarchy) of what is now called "neoliberal rationality": a pervert view of the world, economics and social processes that now still dominates in the USA and most of Western Europe. It is also a new mode of "govermentability".

Governmentality is distinguished from earlier forms of rule, in which national wealth is measured as the size of territory or the personal fortune of the sovereign, by the recognition that national economic well-being is tied to the rational management of the national population. Foucault defined governmentality as:

"the ensemble formed by the institutions, procedures, analyses, and reflections, the calculations and tactics that allow the exercise of this very specific albeit complex form of power, which has as its target population, as its principle form of knowledge political economy and as its technical means, apparatuses of security"

Here is Wendy Brown analysis of "neoliberal rationality": http://lchc.ucsd.edu/cogn_150/Readings/brown.pdf

== quote ===

A liberal political order may harbor either liberal or Keynesian economic policies -- it may lean in the direction of maximizing liberty (its politically "conservative" tilt) or of maximizing equality (its politically "liberal" tilt), but in contemporary political parlance, it is no more or less a liberal democracy because of one leaning or the other.

Indeed, the American convention of referring to advocates of the welfare state as political liberals is especially peculiar, given that American conservatives generally hew more closely to both the classical economic and the political doctrines of liberalism -- it turns the meaning of liberalism in the direction of liberality rather than liberty.

For our purposes, what is crucial is that the liberalism in what has come to be called neoliberalism refers to liberalism's economic variant, recuperating selected pre-Keynesian assumptions about the generation of wealth and its distribution, rather than to liberalism as a political doctrine, as a set of political institutions, or as political practices. The neo in neoliberalism, however, establishes these principles on a significantly different analytic basis from those set forth by Adam Smith, as will become clear below. Moreover, neoliberalism is not simply a set of economic policies; it is not only about facilitating free trade, maximizing corporate profits, and challenging welfarism.

Rather, neoliberalism carries a social analysis that, when deployed as a form of governmentality, reaches from the soul of the citizen-subject to education policy to practices of empire. Neoliberal rationality, while foregrounding the market, is not only or even primarily focused on the economy; it involves extending and disseminating market values to all institutions and social action, even as the market itself remains a distinctive player.

... ... ...

1. The political sphere, along with every other dimension of contemporary existence, is submitted to an economic rationality; or, put the other way around, not only is the human being configured exhaustively as homo economicus, but all dimensions of human life are cast in terms of a market rationality. While this entails submitting every action and policy to considerations of profitability, equally important is the production of all human and institutional action as rational entrepreneurial action, conducted according to a calculus of utility, benefit, or satisfaction against a microeconomic grid of scarcity, supply and demand, and moral value-neutrality. Neoliberalism does not simply assume that all aspects of social, cultural, and political life can be reduced to such a calculus; rather, it develops institutional practices and rewards for enacting this vision. That is, through discourse and policy promulgating its criteria, neoliberalism produces rational actors and imposes a market rationale for decision making in all spheres.

Importantly, then, neoliberalism involves a normative rather than ontological claim about the pervasiveness of economic rationality and it advocates the institution building, policies, and discourse development appropriate to such a claim. Neoliberalism is a constructivist project: it does not presume the ontological givenness of a thoroughgoing economic rationality for all domains of society but rather takes as its task the development, dissemination, and institutionalization of such a rationality. This point is further developed in (2) below.

2. In contrast with the notorious laissez-faire and human propensity to "truck and barter" stressed by classical economic liberalism, neoliberalism does not conceive of either the market itself or rational economic behavior as purely natural. Both are constructed-organized by law and political institutions, and requiring political intervention and orchestration. Far from flourishing when left alone, the economy must be directed, buttressed, and protected by law and policy as well as by the dissemination of social norms designed to facilitate competition, free trade, and rational economic action on the part of every member and institution of society.

In Lemke's account, "In the Ordo-liberal scheme, the market does not amount to a natural economic reality, with intrinsic laws that the art of government must bear in mind and respect; instead, the market can be constituted and kept alive only by dint of political interventions. . . . [C]ompetition, too, is not a natural fact. . . . [T]his fundamental economic mechanism can function only if support is forthcoming to bolster a series of conditions, and adherence to the latter must consistently be guaranteed by legal measures" (193).
The neoliberal formulation of the state and especially of specific legal arrangements and decisions as the precondition and ongoing condition of the market does not mean that the market is controlled by the state but precisely the opposite. The market is the organizing and regulative principle of the state and society, along three different lines:

  1. The state openly responds to needs of the market, whether through monetary and fiscal policy, immigration policy, the treatment of criminals, or the structure of public education. In so doing, the state is no longer encumbered by the danger of incurring the legitimation deficits predicted by 1970s social theorists and political economists such as Nicos Poulantzas, Jürgen Habermas, and James O'Connor.6 Rather, neoliberal rationality extended to the state itself indexes the state's success according to its ability to sustain and foster the market and ties state legitimacy to such success. This is a new form of legitimation, one that "founds a state," according to Lemke, and contrasts with the Hegelian and French revolutionary notion of the constitutional state as the emergent universal representative of the people. As Lemke describes Foucault's account of Ordo-liberal thinking, "economic liberty produces the legitimacy for a form of sovereignty limited to guaranteeing economic activity . . . a state that was no longer defined in terms of an historical mission but legitimated itself with reference to economic growth" (196).
  2. The state itself is enfolded and animated by market rationality: that is, not simply profitability but a generalized calculation of cost and benefit becomes the measure of all state practices. Political discourse on all matters is framed in entrepreneurial terms; the state must not simply concern itself with the market but think and behave like a market actor across all of its functions, including law. 7
  3. Putting (a) and (b) together, the health and growth of the economy is the basis of state legitimacy, both because the state is forthrightly responsible for the health of the economy and because of the economic rationality to which state practices have been submitted. Thus, "It's the economy, stupid" becomes more than a campaign slogan; rather, it expresses the principle of the state's legitimacy and the basis for state action-from constitutional adjudication and campaign finance reform to welfare and education policy to foreign policy, including warfare and the organization of "homeland security."

3. The extension of economic rationality to formerly noneconomic domains and institutions reaches individual conduct, or, more precisely, prescribes the citizen-subject of a neoliberal order. Whereas classical liberalism articulated a distinction, and at times even a tension, among the criteria for individual moral, associational, and economic actions (hence the striking differences in tone, subject matter, and even prescriptions between Adam Smith's Wealth of Nations and his Theory of Moral Sentiments), neoliberalism normatively constructs and interpellates individuals as entrepreneurial actors in every sphere of life.

It figures individuals as rational, calculating creatures whose moral autonomy is measured by their capacity for "self-care"-the ability to provide for their own needs and service their own ambitions. In making the individual fully responsible for her- or himself, neoliberalism equates moral responsibility with rational action; it erases the discrepancy between economic and moral behavior by configuring morality entirely as a matter of rational deliberation about costs, benefits, and consequences.

But in so doing, it carries responsibility for the self to new heights: the rationally calculating individual bears full responsibility for the consequences of his or her action no matter how severe the constraints on this action-for example, lack of skills, education, and child care in a period of high unemployment and limited welfare benefits.

Correspondingly, a "mismanaged life," the neoliberal appellation for failure to navigate impediments to prosperity, becomes a new mode of depoliticizing social and economic powers and at the same time reduces political citizenship to an unprecedented degree of passivity and political complacency.

The model neoliberal citizen is one who strategizes for her- or himself among various social, political, and economic options, not one who strives with others to alter or organize these options. A fully realized neoliberal citizenry would be the opposite of public-minded; indeed, it would barely exist as a public. The body politic ceases to be a body but is rather a group of individual entrepreneurs and consumers . . . which is, of course, exactly how voters are addressed in most American campaign discourse.8

Other evidence for progress in the development of such a citizenry is not far from hand: consider the market rationality permeating universities today, from admissions and recruiting to the relentless consumer mentality of students as they consider university brand names, courses, and services, from faculty raiding and pay scales to promotion criteria. 9

Or consider the way in which consequential moral lapses (of a sexual or criminal nature) by politicians, business executives, or church and university administrators are so often apologized for as "mistakes in judgment," implying that it was the calculation that was wrong, not the act, actor, or rationale.

The state is not without a project in the making of the neoliberal subject. It attempts to construct prudent subjects through policies that organize such prudence: this is the basis of a range of welfare reforms such as workfare and single-parent penalties, changes in the criminal code such as the "three strikes law," and educational voucher schemes.

Because neoliberalism casts rational action as a norm rather than an ontology, social policy is the means by which the state produces subjects whose compass is set entirely by their rational assessment of the costs and benefits of certain acts, whether those acts pertain to teen pregnancy, tax fraud, or retirement planning. The neoliberal citizen is calculating rather than rule abiding, a Benthamite rather than a Hobbesian.

The state is one of many sites framing the calculations leading to social behaviors that keep costs low and productivity high. This mode of governmentality (techniques of governing that exceed express state action and orchestrate the subject's conduct toward himor herself) convenes a "free" subject who rationally deliberates about alternative courses of action, makes choices, and bears responsibility for the consequences of these choices. In this way, Lemke argues, "the state leads and controls subjects without being responsible for them"; as individual "entrepreneurs" in every aspect of life, subjects become wholly responsible for their well-being and citizenship is reduced to success in this entrepreneurship (201).

Neoliberal subjects are controlled through their freedom-not simply, as thinkers from the Frankfurt School through Foucault have argued, because freedom within an order of domination can be an instrument of that domination, but because of neoliberalism's moralization of the consequences of this freedom. Such control also means that the withdrawal of the state from certain domains, followed by the privatization of certain state functions, does not amount to a dismantling of government but rather constitutes a technique of governing; indeed, it is the signature technique of neoliberal governance, in which rational economic action suffused throughout society replaces express state rule or provision.

Neoliberalism shifts "the regulatory competence of the state onto 'responsible,' 'rational' individuals [with the aim of] encourag[ing] individuals to give their lives a specific entrepreneurial form" (Lemke, 202).

4. Finally, the suffusion of both the state and the subject with economic rationality has the effect of radically transforming and narrowing the criteria for good social policy vis-à-vis classical liberal democracy. Not only must social policy meet profitability tests, incite and unblock competition, and produce rational subjects, it obeys the entrepreneurial principle of "equal inequality for all" as it "multiples and expands entrepreneurial forms with the body social" (Lemke, 195). This is the principle that links the neoliberal governmentalization of the state with that of the social and the subject.

Taken together, the extension of economic rationality to all aspects of thought and activity, the placement of the state in forthright and direct service to the economy, the rendering of the state tout court as an enterprise organized by market rationality, the production of the moral subject as an entrepreneurial subject, and the construction of social policy according to these criteria might appear as a more intensive rather than fundamentally new form of the saturation of social and political realms by capital. That is, the political rationality of neoliberalism might be read as issuing from a stage of capitalism that simply underscores Marx's argument that capital penetrates and transforms every aspect of life-remaking everything in its image and reducing every value and activity to its cold rationale.

All that would be new here is the flagrant and relentless submission of the state and the individual, the church and the university, morality, sex, marriage, and leisure practices to this rationale. Or better, the only novelty would be the recently achieved hegemony of rational choice theory in the human sciences, self-represented as an independent and objective branch of knowledge rather than an expression of the dominance of capital. Another reading that would figure neoliberalism as continuous with the past would theorize it through Weber's rationalization thesis rather than Marx's argument about capital.

The extension of market rationality to every sphere, and especially the reduction of moral and political judgment to a cost-benefit calculus, would represent precisely the evisceration of substantive values by instrumental rationality that Weber predicted as the future of a disenchanted world. Thinking and judging are reduced to instrumental calculation in Weber's "polar night of icy darkness"-there is no morality, no faith, no heroism, indeed no meaning outside the market.

Julio -> Libezkova...

I agree with this. But I think it's extraordinarily wordy, and fails to emphasize the deification of private property which is at the root of it.

anne -> Libezkova... January 13, 2017 at 05:10 AM

http://lchc.ucsd.edu/cogn_150/Readings/brown.pdf

January, 2003

Neoliberalism and the End of Liberal Democracy
By Wendy Brown

Chris G :

Brown - who I haven't read much of but like what I have - sounds a lot like Lasch.

Brown:

"The extension of market rationality to every sphere, and especially the reduction of moral and political judgment to a cost-benefit calculus, would represent precisely the evisceration of substantive values by instrumental rationality that Weber predicted as the future of a disenchanted world. Thinking and judging are reduced to instrumental calculation in Weber's "polar night of icy darkness"-there is no morality, no faith, no heroism, indeed no meaning outside the market."

Lasch in Revolt of the Elites:

"... Individuals cannot learn to speak for themselves at all, much less come to an intelligent understanding of their happiness and well-being, in a world in which there are no values except those of the market.... The market tends to universalize itself. It does not easily coexist with institutions that operate according to principles that are antithetical to itself: schools and universities, newspapers and magazines, charities, families. Sooner or later the market tends to absorb them all. It puts an almost irresistible pressure on every activity to justify itself in the only terms it recognizes: to become a business proposition, to pay its own way, to show black ink on the bottom line. It turns news into entertainment, scholarship into professional careerism, social work into the scientific management of poverty. Inexorably it remodels every institution in its own image."

Libezkova -> anne... January 13, 2017 at 05:43 AM
The Revolt of the Elites and the Betrayal of Democracy Paperback – January 17, 1996

by Christopher Lasch

https://www.amazon.com/Revolt-Elites-Betrayal-Democracy/dp/0393313719

anne -> anne...
Correcting:

https://www.theworkingcentre.org/course-content/2717-communitarianism-or-populism-ethic-compassion-and-ethic-respect

May, 1992

Communitarianism or Populism? The Ethic of Compassion and the Ethic of Respect
By Christopher Lasch

[Jan 13, 2017] Friedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention.

Notable quotes:
"... "The idea of a wealth effect doesn't stand up to economic data. The stock market boom in the late 1990s helped increase the wealth of Americans, but it didn't produce a significant change in consumption, according to David Backus, a professor of economics and finance at New York University. Before the stock market reversed itself, "you didn't see a big increase in consumption," says Backus. "And when it did reverse itself, you didn't see a big decrease." ..."
"... Yet that didn't stop Bernanke from citing the Wealth Effect as one of the justifications for trickle down monetary policy: "higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion." https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htm ..."
"... The 'wealth effect' is just more poppycock, neoliberal theory designed to enrich the wealthy and deprive others of prosperity. ..."
Jan 13, 2017 | economistsview.typepad.com

kthomas -> pgl... January 13, 2017 at 06:46 AM , 2017 at 06:46 AM

Milton is almost as controversial as Marx. Marx had a more realistic, a more grounded world-view. Marx knew damn-well that his ideals were just that. That we should all share in the fruits of our combined labor was to Marx, a way of achieving perfection. Pure idealism and he knew.


Friedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention.

point -> pgl... , January 13, 2017 at 07:10 AM
I have no data and no theory to offer against Friedman's hypothesis, but it sure feels like there is good reason to doubt it.

The reason I say so is that this mental behavior of converting income and expense streams into present value sums, making long term assets and liabilities on the current personal balance sheet, is extremely rare in my experience.

I'm not talking about just among regular working Joe's either. I'm talking about people with plenty of excess income: fund managers and CEOs. If anyone should be able to habitually do the math it should be these guys. But let me assert, if you want to rub elbows in that crowd, a nearly certain way to distinguish yourself is to walk into the room with these PVs at your fingertips. You may be totally alone.

The idea that less endowed people will do it is just giggles.

Further, it does not take much thought in this direction to analyze the expected net worth position of people along the existing income distribution. It would appear the income level at which one may be able to expect to fund lifetime liabilities is near the 80th percentile. That people below that level may be able to smooth their required consumption though temporary borrowing is just more giggles.

JohnH -> pgl... , January 13, 2017 at 07:37 AM
What's curious here is that while Friedman (and many policymakers) may assume that most people's consumption isn't affected by how much they earn, they are totally convinced that their spending levels are immediately and dramatically affected by changes in their wealth!

The wealth effect is one of the pillars of trickle down monetary policy. Proponents claim that lower interest rates drive asset prices up, making the wealthy FEEL wealthier again...and presto they start consuming again, igniting economic growth.

It would be very interesting to chart the course of wealthy people's spending in response to changes in income and wealth. The results may prove Friedman right at the upper end of the income scale--the wealthy, having more than they know what to do with, may well ride out stormy periods by maintaining their consumption via borrowing and sale of some assets.

If Friedman's theory does apply to wealthy people, it would undermine a fundamental justification for trickle down monetary policy and help explain why the economic recovery has been so anemic---policy decisions where targeted at the wrong end of the income scale...at people who wouldn't boost consumption (the wealthy) instead of at those who would boost consumption.

Once again, it would appear that deeply entrenched economic 'theories' are designed to help the wealthy...without much empirical evidence.

Julio -> JohnH... , -1
I think the fundamental pillar of such "thinking" is:

- Poor people are motivated to work and be virtuous by their lack of money, so they must be kept hungry;
- Rich people are motivated to work and be virtuous by money, so they must be kept rich.

JohnH -> JohnH... , January 13, 2017 at 10:00 AM
"The idea of a wealth effect doesn't stand up to economic data. The stock market boom in the late 1990s helped increase the wealth of Americans, but it didn't produce a significant change in consumption, according to David Backus, a professor of economics and finance at New York University. Before the stock market reversed itself, "you didn't see a big increase in consumption," says Backus. "And when it did reverse itself, you didn't see a big decrease."
http://www.slate.com/articles/news_and_politics/hey_wait_a_minute/2008/06/debunking_the_wealth_effect.html

Yet that didn't stop Bernanke from citing the Wealth Effect as one of the justifications for trickle down monetary policy: "higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htm

The 'wealth effect' is just more poppycock, neoliberal theory designed to enrich the wealthy and deprive others of prosperity. Yet pgl subscribes to the theory!

JohnH -> Sanjait... , January 13, 2017 at 12:13 PM
As expected, promoters of trickle down monetary policy defend the debunked wealth effect as an primary tool for stimulating economic growth...but reject Noah Smith's point that poor people reduce consumption during recessions, making them a more reasonable policy target for restoring consumption during demand deficient times.

[Jan 13, 2017] 2017 at 06:46 AM

Notable quotes:
"... "The idea of a wealth effect doesn't stand up to economic data. The stock market boom in the late 1990s helped increase the wealth of Americans, but it didn't produce a significant change in consumption, according to David Backus, a professor of economics and finance at New York University. Before the stock market reversed itself, "you didn't see a big increase in consumption," says Backus. "And when it did reverse itself, you didn't see a big decrease." ..."
"... Yet that didn't stop Bernanke from citing the Wealth Effect as one of the justifications for trickle down monetary policy: "higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion." https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htm ..."
"... The 'wealth effect' is just more poppycock, neoliberal theory designed to enrich the wealthy and deprive others of prosperity. ..."
Jan 13, 2017 | economistsview.typepad.com
Friedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention.

kthomas -> pgl... January 13, 2017 at 06:46 AM , 2017 at 06:46 AM

Milton is almost as controversial as Marx. Marx had a more realistic, a more grounded world-view. Marx knew damn-well that his ideals were just that. That we should all share in the fruits of our combined labor was to Marx, a way of achieving perfection. Pure idealism and he knew.


Friedman largely believed his own BS, and turned a blind eye to most moral arguments. This, to me, is the heartless neoliberal that some our fellow posters are so oft to mention.

point -> pgl... , January 13, 2017 at 07:10 AM
I have no data and no theory to offer against Friedman's hypothesis, but it sure feels like there is good reason to doubt it.

The reason I say so is that this mental behavior of converting income and expense streams into present value sums, making long term assets and liabilities on the current personal balance sheet, is extremely rare in my experience.

I'm not talking about just among regular working Joe's either. I'm talking about people with plenty of excess income: fund managers and CEOs. If anyone should be able to habitually do the math it should be these guys. But let me assert, if you want to rub elbows in that crowd, a nearly certain way to distinguish yourself is to walk into the room with these PVs at your fingertips. You may be totally alone.

The idea that less endowed people will do it is just giggles.

Further, it does not take much thought in this direction to analyze the expected net worth position of people along the existing income distribution. It would appear the income level at which one may be able to expect to fund lifetime liabilities is near the 80th percentile. That people below that level may be able to smooth their required consumption though temporary borrowing is just more giggles.

JohnH -> pgl... , January 13, 2017 at 07:37 AM
What's curious here is that while Friedman (and many policymakers) may assume that most people's consumption isn't affected by how much they earn, they are totally convinced that their spending levels are immediately and dramatically affected by changes in their wealth!

The wealth effect is one of the pillars of trickle down monetary policy. Proponents claim that lower interest rates drive asset prices up, making the wealthy FEEL wealthier again...and presto they start consuming again, igniting economic growth.

It would be very interesting to chart the course of wealthy people's spending in response to changes in income and wealth. The results may prove Friedman right at the upper end of the income scale--the wealthy, having more than they know what to do with, may well ride out stormy periods by maintaining their consumption via borrowing and sale of some assets.

If Friedman's theory does apply to wealthy people, it would undermine a fundamental justification for trickle down monetary policy and help explain why the economic recovery has been so anemic---policy decisions where targeted at the wrong end of the income scale...at people who wouldn't boost consumption (the wealthy) instead of at those who would boost consumption.

Once again, it would appear that deeply entrenched economic 'theories' are designed to help the wealthy...without much empirical evidence.

Julio -> JohnH... , -1
I think the fundamental pillar of such "thinking" is:

- Poor people are motivated to work and be virtuous by their lack of money, so they must be kept hungry;
- Rich people are motivated to work and be virtuous by money, so they must be kept rich.

JohnH -> JohnH... , January 13, 2017 at 10:00 AM
"The idea of a wealth effect doesn't stand up to economic data. The stock market boom in the late 1990s helped increase the wealth of Americans, but it didn't produce a significant change in consumption, according to David Backus, a professor of economics and finance at New York University. Before the stock market reversed itself, "you didn't see a big increase in consumption," says Backus. "And when it did reverse itself, you didn't see a big decrease."
http://www.slate.com/articles/news_and_politics/hey_wait_a_minute/2008/06/debunking_the_wealth_effect.html

Yet that didn't stop Bernanke from citing the Wealth Effect as one of the justifications for trickle down monetary policy: "higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
https://www.federalreserve.gov/newsevents/other/o_bernanke20101105a.htm

The 'wealth effect' is just more poppycock, neoliberal theory designed to enrich the wealthy and deprive others of prosperity. Yet pgl subscribes to the theory!

JohnH -> Sanjait... , January 13, 2017 at 12:13 PM
As expected, promoters of trickle down monetary policy defend the debunked wealth effect as an primary tool for stimulating economic growth...but reject Noah Smith's point that poor people reduce consumption during recessions, making them a more reasonable policy target for restoring consumption during demand deficient times.

[Jan 02, 2017] Milton Friedman, Unperson

Notable quotes:
"... If the Fed were to buy treasuries directly, then Wall Street would be losing a big fat paycheck for the horrendous work of two keystrokes. That is why Wall Streets little sock puppets in Congress has not done anything. ..."
"... Academics at least theoretically seek to discourage group think while politicians seek to cultivate group think. Nonetheless, peer review processes instill group think in academics regardless of intentions. Elite groups only think that they are better when in fact they are hardly any different in essential and existential ways, just in customs, habits, and aesthetics. Individual results may vary though in the general population and among elites. ..."
"... In a democratically electoral republic if the mainstream or status quo is the result of majority opinion then how can the opposition be characterized as populist? ..."
"... When we pursue technocrats, elitists, and oligarchs to advance the cause of socialism we do not get social democracy, but we may get liberal policy aimed at quelling discontent when necessary to prevent a popular uprising. That was the catch-22 omitted from Schumpeter's "Capitalism, Socialism and Democracy". Corporatism does not naturally lead to socialism in republican governments as Joseph Schumpeter said that it would. If we want social democracy then we must start by pursuing the electorate to advance the cause of democracy first. ..."
"... But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. ..."
"... Still, nothing regarding the monopoly over the money supply. Not addressed. Ignored. That the Treasury can inject debt free money into the money supply, is ignored! That we could have a job guaranteed program is ignored. That we never needed to produce debt for deficit financing is ignored. What the hell! ..."
Jan 02, 2017 | economistsview.typepad.com
anne : January 01, 2017 at 01:54 AM
http://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/

August 8, 2013

Milton Friedman, Unperson
By Paul Krugman

David Glasner * has been making a series of posts on the legacy of Milton Friedman, some of them in response to Scott Sumner; they're interesting if you want to delve into the intellectual history. I'm not personally big on such things - in general, what people thought Keynes or Friedman meant ends up being more important than what they turn out, on close reading, to (maybe, possibly) actually have meant. For what it's worth, I think Glasner makes a good case that Friedman was indeed more or less a Keynesian, or maybe Hicksian - certainly that was the message everyone took from his "Monetary Framework," which was disappointingly conventional. And Friedman's attempts to claim that Keynes added little that wasn't already in a Chicago oral tradition don't hold up well either.

But never mind. What I think is really interesting is the way Friedman has virtually vanished from policy discourse. Keynes is very much back, even if that fact drives some economists crazy; Hayek is back in some sense, even if one has the suspicion that many self-proclaimed Austrians bring little to the table but the notion that fiat money is the root of all evil - a deeply anti-Friedmanian position. But Friedman is pretty much absent.

This is hardly what you would have expected not that long ago, when Friedman's reputation bestrode the economic world like a colossus, when Greg Mankiw ** declared Friedman, not Keynes, the greatest economist of the 20th century, when Ben Bernanke concluded a speech praising Friedman *** with the famous line,

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

"Best wishes for your next ninety years."

So what happened to Milton Friedman?

Part of the answer is that at this point both of Friedman's key contributions to macroeconomics look hard to defend.

First, on monetary policy: Even if you give him a pass on the 3 percent growth in M2 thing, which was abandoned by almost everyone long ago, Friedman was still very much associated with the notion that the Fed can control the money supply, and controlling the money supply is all you need to stabilize the economy. In the wake of the 2008 crisis, this looks wrong from soup to nuts: the Fed can't even control broad money, because it can add to bank reserves and they just sit there; and money in turn bears little relationship to GDP. And in retrospect the same was true in the 1930s, so that Friedman's claim that the Fed could easily have prevented the Great Depression now looks highly dubious.

Second, on inflation and unemployment: Friedman's success, with Phelps, in predicting stagflation was what really pushed his influence over the top; his notion of a natural rate of unemployment, of a vertical Phillips curve in the long run, became part of every textbook exposition. But it's now very clear that at low rates of inflation the Phillips curve isn't vertical at all, that there's an underlying downward nominal rigidity to wages and perhaps many prices too that makes the natural rate hypothesis a very bad guide under depression conditions.

So Friedman's economic analysis has taken a serious hit. But that's not the whole story behind his disappearance; after all, all those economists who have been predicting runaway inflation still have a constituency after being wrong year after year.

Friedman's larger problem, I'd argue, is that he was, when all is said and done, a man trying to straddle two competing world views - and our political environment no longer has room for that kind of straddle.

Think of it this way: Friedman was an avid free-market advocate, who insisted that the market, left to itself, could solve almost any problem. Yet he was also a macroeconomic realist, who recognized that the market definitely did not solve the problem of recessions and depressions. So he tried to wall off macroeconomics from everything else, and make it as inoffensive to laissez-faire sensibilities as possible. Yes, he in effect admitted, we do need stabilization policy - but we can minimize the government's role by relying only on monetary policy, none of that nasty fiscal stuff, and then not even allowing the monetary authority any discretion.

At a fundamental level, however, this was an inconsistent position: if markets can go so wrong that they cause Great Depressions, how can you be a free-market true believer on everything except macro? And as American conservatism moved ever further right, it had no room for any kind of interventionism, not even the sterilized, clean-room interventionism of Friedman's monetarism.

So Friedman has vanished from the policy scene - so much so that I suspect that a few decades from now, historians of economic thought will regard him as little more than an extended footnote.

* http://uneasy money.com/2013/08/05/second-thoughts-on-friedman/

** http://gregmankiw.blogspot.com/2006/11/milton-friedman.html

*** http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/

anne -> anne... , January 01, 2017 at 01:56 AM
"Uneasymoney" can only be linked to directly by separating "uneasy" and "money."
anne :
http://krugman.blogs.nytimes.com/2013/08/09/more-on-the-disappearance-of-milton-friedman/

August 9, 2013

More On the Disappearance Of Milton Friedman

By Paul Krugman

It seems that many people misunderstood my post * on Milton Friedman. It was not intended as Friedman-bashing, as a claim that MF was a bad economist; in fact, I'm on record ** declaring Friedman a "great economists' economist". His work aimed primarily at a professional audience - the permanent income theory of consumption, the case for flexible exchange rates, the natural rate (even if it does break down at low inflation), the optimum quantity of money - was often, maybe even usually, brilliant, and will live on.

What isn't living on, however, is Friedman's role as a guiding light for conservative economic policy.

Think about Paul Ryan, who is, like it or not, the leading economic intellectual of the modern GOP. Ryan sometimes drops Friedman's name - but when he does, it's to cite "Capitalism and Freedom," not "A Monetary History of the United States." When it comes to monetary policy, Ryan has said that his views are based on fictional characters in "Atlas Shrugged." No, really.

Or think about the economics rap video of "Keynes versus Hayek" everyone had fun with. Never mind that back in the 30s nobody except Hayek would have considered his views a serious rival to those of Keynes; the real shock should be, what happened to Friedman?

Partly this disappearance reflects real problems with Friedman's analysis. His views on the omnipotence of monetary policy,let alone the adequacy of a simple quantity-of-money rule, haven't withstood the test of time. As far as stabilization policy is concerned, he was indeed, as Brad DeLong archly puts it, a minor post-Hicksian. ***

But the bigger issue, I'd argue, is that modern conservatives can't accept the things Friedman was right about. Take, in particular, his essay on flexible exchange rates, in which he argued that a country that finds its wages and prices out of line should devalue its currency rather than rely on unemployment to push wages down, "until the deflation has run its sorry course." Contrast this with Ryan's declaration that "There is nothing more insidious that a country can do to its citizens than debase its currency."

The point is that Friedman was, when all is said and done, a pragmatist; he leaned right ideologically, but was willing to make room for awkward realities. And these days reality has a well-known liberal bias. Hence, Friedman has become an unperson.

* http://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/

** http://www.nybooks.com/articles/archives/2007/feb/15/who-was-milton-friedman/?pagination=false

*** http://delong.typepad.com/sdj/2013/08/paul-krugman-milton-friedman-as-a-minor-post-hicksian-noted-for-august-9-2013.html

Jay : , January 01, 2017 at 08:31 AM
"What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint."

What's ironic is if you read Krugman pre-2000 his work as an economist was actually a model of restraint. Then BDS (Bush Derangement Syndrome) kicked in and he turned into a political "science" crank.

pgl -> Jay... , January 01, 2017 at 12:21 PM
2000 was when George W. Bush lied his way into office. Krugman called out Bush's lies and was tagged as the Shrill One. Over time - a lot of progressives began to wear being shrill as a badge of honor.
Jay -> pgl... , January 01, 2017 at 02:52 PM
Kind of like Obama, Clinton and the likes lied to intervene in Libya? They hate us for our freedom? No they hate us because we fight proxy wars in their territory and kill innocent civilians. As long as Assad is around Obama can drone bomb innocent people in Yemen and Proggers hail him as a saint.
Chris Herbert : , January 01, 2017 at 08:31 AM
Does anyone have any comments about the constitutional monopoly over the money supply awarded to the Treasury? I don't understand what an economist means when he uses the word 'monetarist' to describe a set of ideas, but I do understand what it would mean if the Treasury (or a national Central Bank) stopped issuing debt for net government spending. Why we do issue this debt is beyond my comprehension. It's incredibly expensive, and there are no guidelines that make any sense to me when it comes to what is paid for by deficit spending. That we have piled up $17 trillion or whatever amount of debt when most of it was unnecessary is astonishing.
Paul Mathis -> Chris Herbert... , January 01, 2017 at 09:01 AM
"the constitutional monopoly over the money supply awarded to the Treasury"

You have heard of bitcoin, right?

RGC -> Chris Herbert... , January 01, 2017 at 09:04 AM
Why doesn't the Federal Reserve just buy Treasury securities directly from the U.S. Treasury?

The Federal Reserve Act specifies that the Federal Reserve may buy and sell Treasury securities only in the "open market."

https://www.federalreserve.gov/faqs/money_12851.htm
.................
Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks

Kenneth D. Garbade Federal Reserve Bank of New York

Abstract

Until 1935, Federal Reserve Banks from time to time purchased short-term securities directly from the United States Treasury to facilitate Treasury cash management operations. The authority to undertake such purchases provided a robust safety net that ensured Treasury could meet its obligations even in the event of an unforeseen depletion of its cash balances. Congress prohibited direct purchases in 1935, but subsequently provided a limited wartime exemption in 1942. The exemption was renewed from time to time following the conclusion of the war but ultimately was allowed to expire in 1981. This paper addresses three questions: 1) Why did Congress prohibit direct purchases in 1935 after they had been utilized without incident for eighteen years, 2) why did Congress provide a limited exemption in 1942 instead of simply removing the prohibition, and 3) why did Congress allow the exemption to expire in 1981?

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr684.pdf

RGC -> RGC... , January 01, 2017 at 09:24 AM
Paul Krugman
Be Ready To Mint That Coin
January 7, 2013 9:05 am
.....................
For those new to this, here's the story. First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit - tax and spending bills the president is legally required to implement - and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.

And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can't pass through normal constitutional processes.

Enter the platinum coin. There's a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector's items - but that's not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling - while doing no economic harm at all.

So why not?

http://krugman.blogs.nytimes.com/2013/01/07/be-ready-to-mint-that-coin/?_r=1

DeDude -> RGC... , January 01, 2017 at 12:17 PM
If the Fed were to buy treasuries directly, then Wall Street would be losing a big fat paycheck for the horrendous work of two keystrokes. That is why Wall Streets little sock puppets in Congress has not done anything.
anne -> RGC... , January 01, 2017 at 05:05 PM
By the way, I have been wondering about "demonetization" in India and what that might mean but I have read no convincing analysis so far:

https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation

DeDude : , January 01, 2017 at 09:38 AM
Rule number one for a populist (popular) communicator of complicated issues is that you lose any and all doubt or granularity. The peeps will immediately lose interest in you and think you know nothing, if you fail to say things with great certainty and great simplicity.

This is the exact opposite of how you communicate in an academic environment. If a scientist give a talk and fail to acknowledge the weaknesses in the narrative they present; the scientists listening will dismiss him/her as ignorant or a BS artist (and confront them with those weaknesses).

RC AKA Darryl, Ron -> DeDude... , January 01, 2017 at 10:28 AM
Academics at least theoretically seek to discourage group think while politicians seek to cultivate group think. Nonetheless, peer review processes instill group think in academics regardless of intentions. Elite groups only think that they are better when in fact they are hardly any different in essential and existential ways, just in customs, habits, and aesthetics. Individual results may vary though in the general population and among elites.
RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 10:34 AM
In a democratically electoral republic if the mainstream or status quo is the result of majority opinion then how can the opposition be characterized as populist?
DeDude -> RC AKA Darryl, Ron... , January 01, 2017 at 12:06 PM
"Elite groups only think that they are better when in fact they are hardly any different"

A case of false equivalency. There is a huge difference between a process that is constructed to reach a correct conclusion (but fails when inappropriately applied) and a process that has less of a chance of reaching the correct conclusion than a random number pick. Yes there are many examples where the scientific process has failed to reach the correct conclusion (and we know that because eventually it cleansed itself of those conclusions). However there are many more times when the scientific process got things right. That is in contrast to the FoxBot blowhards who seems almost incapable of getting anything right.

RC AKA Darryl, Ron -> DeDude... , January 01, 2017 at 01:08 PM
Intellectual conclusions only matter when they influence real world policy decisions. Real world policy decisions are not governed by science regardless of political control and economics is not deterministic science and often is not even probabilistic science. Of course that is why real world policy decisions are not governed by science. The political influence of wealth, custom and habit, heuristic guidelines obtained from the random walk of history, and popular memes all have more influence over public policy decisions than science.

Quasi-science makes for fun social clubs though.

RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 02:50 PM
When we pursue technocrats, elitists, and oligarchs to advance the cause of socialism we do not get social democracy, but we may get liberal policy aimed at quelling discontent when necessary to prevent a popular uprising. That was the catch-22 omitted from Schumpeter's "Capitalism, Socialism and Democracy". Corporatism does not naturally lead to socialism in republican governments as Joseph Schumpeter said that it would. If we want social democracy then we must start by pursuing the electorate to advance the cause of democracy first.
DeDude -> RC AKA Darryl, Ron... , -1
"Real world policy decisions are not governed by science regardless of political control"

Another false equivalency...

The real world is not yes/no, black/white. Just because science sometimes get corrupted doesn't mean it always is corrupted. Just because one of our main parties have become addicted to refusing facts and evidence against their narratives doesn't mean that everybody all the time refuse to listen to facts and evidence. I know that the corruption narrative is what keeps you alive and thinking you got it all figured out, but it also is what leads you astray on a regular basis.

pgl -> DeDude... , January 01, 2017 at 12:24 PM
Milton Friedman once tried to explain to doctors why their precious cartel known as the AMA was a bad idea. One would have thought the doctors would have shot him on the spot. But no - Friedman pitched this as a way to keep away "socialism" aka things like Medicare. The doctors loved it. Of course I thought this was one of his lower moments. BTW - never tell a doctor we should have Medicare for all unless you want to endure a tirade of why they don't make all that much.
DeDude -> pgl... , January 01, 2017 at 06:51 PM
Yes, you got to give Friedman that he was a good salesman. Scientist and economists: mediocre - just to easily addicted to his own narratives. But he was a brilliant salesman.
jonny bakho : , January 01, 2017 at 11:15 AM
MF proposal to manage economies with monetary policy only and to sideline fiscal and regulatory policy found favors with free market conservatives.

Free market rules mean that the greedy are free to market their get rich quick scams to the harm of the rest of us and their own personal enrichment.

Monetary policies such as Volcker's job killing interest rates in 1980 are praised. Fiscal and regulatory policies such as the CAFE standards and subsidies to move away from oil created the Great Moderation, yet are dismissed or worse vilified.

Monetary policy is not saving us from climate change. Fiscal incentives for clean energy and regulation of carbon emissions are the tools that can be applied effectively.

The reformation we need is Post-Monetary with a strong emphasis on the fiscal and regulatory...

pgl -> jonny bakho... , January 01, 2017 at 12:26 PM
The free markets do hate fiscal policy or almost anything else that is sensible policy. But if they ever really understood what Friedman was saying about monetary policy - they would turn on him as being some of sort of communist.
RC AKA Darryl, Ron -> pgl... , January 01, 2017 at 01:12 PM
Then the free markets (sic) do not really understand some of sort of communist either.
RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 01, 2017 at 01:16 PM
[If pgl would learn to type then I could copy from his comments without getting sic.]

CORRECTION: "...they would turn on him as being some of [sic] sort of communist."

Larry : , January 01, 2017 at 04:27 PM
"But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications."

Marvelous irony how well this applies to its author.

Chris Herbert : , January 01, 2017 at 06:12 PM
Still, nothing regarding the monopoly over the money supply. Not addressed. Ignored. That the Treasury can inject debt free money into the money supply, is ignored! That we could have a job guaranteed program is ignored. That we never needed to produce debt for deficit financing is ignored. What the hell!
anne -> Chris Herbert... , -1
Monopolization of the money supply: I have been wondering about "demonetization" in India and what that might mean but I have read no convincing analysis so far:

https://en.wikipedia.org/wiki/2016_Indian_banknote_demonetisation

[Oct 06, 2016] Monetary policy is not a panacea

Notable quotes:
"... Some combination of improved public infrastructure, better education, more encouragement for private investment, and more-effective regulation is likely to promote faster growth, which would increase the natural rate of interest and, thus, reduce the probability that we may find ourselves again struggling to avoid Keynes's infamous liquidity trap. If the natural rate can be lifted by appropriate policies, the economic near-stagnation that many countries have experienced in recent years may well turn out not to be that secular after all. ..."
"... A truly orthodox monetarist believes that monetary policy IS a panacea, that counter-cyclical fiscal policy is inflationary and debt expanding such that it should never be used. ..."
Oct 06, 2016 | economistsview.typepad.com

RC AKA Darryl, Ron : Thursday, October 06, 2016 at 04:04 AM

[If Vice Chairman Stanley Fischer is not a strictly orthodox monetarist then I cannot see any reason for anyone else to be one. ]

...But, second, the virtues of sound monetary policy notwithstanding, we must not forget, as former Fed Chairman Ben Bernanke reminded us on numerous occasions, that "monetary policy is not a panacea."17

For instance, as I mentioned recently elsewhere, policies to boost productivity growth and the longer-run potential of the economy are more likely to be found in effective fiscal and regulatory measures than in central bank actions.18

Some combination of improved public infrastructure, better education, more encouragement for private investment, and more-effective regulation is likely to promote faster growth, which would increase the natural rate of interest and, thus, reduce the probability that we may find ourselves again struggling to avoid Keynes's infamous liquidity trap. If the natural rate can be lifted by appropriate policies, the economic near-stagnation that many countries have experienced in recent years may well turn out not to be that secular after all.

[A truly orthodox monetarist believes that monetary policy IS a panacea, that counter-cyclical fiscal policy is inflationary and debt expanding such that it should never be used.]

RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 04:06 AM
[Oops!]

RE: Low Interest Rates

http://www.federalreserve.gov/newsevents/speech/fischer20161005a.htm

JF -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 05:01 AM
Notice that Fishers remedies do not include policy actions to support increased consumption/demand apparently believing that Investment is done for what purpose? Could he not have said that people might increase Investment in productive purposes if they felt they could sell their produced offerings profitably. Then I would like him to say that the creation of credit is not productive as it comes almost costlessly (a corporate bond, even a mortgage contract cost little to produce), the same with a govt bond or govt currency, or the electronic registration of a stock, or the creation of derived financial instruments defined by ink on paper.

Inputs like labor, equipment and supplies of materials produce offerings, but financial assets need almost none of these inputs. We need much more flow going to getting real offerings marketed. But why does investing-wherewithal take such risks in hoping to organize all these inputs and marketing efforts when the huge volumes of high trading frequency lead to returns of added wherewithal coming to comfortable offices anywhere, to be churned again in the trading of non-production based financial things.

Have central banks (and others in the financial asset trading club) become so distanced from the production economics of Wicksall and Keynes that they can no longer even talk about basic demand for goods and services as a reason to Invest?

How about a set of remarks focused on aggregate demand for real offerings.

How about a set of remarks focused on how to redirect the economic wherewithal churning about in the financial asset trading marketplaces and convert more and more of this wherewithal into taking risks on real production and marketing businesses (more than ample supply of wherewithal now). The central bank leaders could talk more about how they can serve in making this conversion happen well, in coordination with other public policies such as those that help support more basic demand and happier more dynamic animal spirits in society, so to speak.

Can we replace Fisher with a deputy who sees everything first via the lens of demand side thinking followed by labor market considerations, long before they see solutions coming from "encouraging private investment" in financial assets?

RC AKA Darryl, Ron -> JF... , Thursday, October 06, 2016 at 05:37 AM
Vice Chairman Stanley Fischer is a very conventional orthodox establishment economist, just not a strictly orthodox monetarist. I was in no way lauding Fischer other than by just spelling his last name correctly. However he can serve as a benchmark that distinguishes orthodox establishment economics from the even more narrow and rigid orthodox monetarism.
JF -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 06:12 AM
My misspelling was not intended as a passive aggressive disrespect. But of course I called for his replacement, and I did this to bring attention to matters important to me, not just as an ad hominem attack on Mr. Fischer.

I do not want more policies to encourage capital formation and husbandry, nor do I want managers of capital to use public means or subsidues so they can get better educated workforces and eak more out of them so their capital is further favored (of course there are public good reasons for public effirts here, but its purposes are not just to encourage more investment because it is further subsidized), and the same with public efforts to build better infrastructure if the idea of 'better' is because it subsidizes investors (not perhaps because it makes society safer to have a more reilient and efficient energy delivery system that also helps with climate change concerns too), or better regulation of the financial system so its risks are spread better and investors are encouraged to trade even more in them. So here I've taken each of Fischers recommendations and addressed them, pointing out how these statements can be seen as supporting the investing class nit the real economy of demand side considerations about economics.

Perhaps the Deputy Director didn't intend for these remarks to be read that way. After all he talked about Wicksell, and I'm pretty sure his views were tied to the world of real production, anf Fischer even talked about production. So maybe I'm too willing to read with suspicion, or he is not cautious enough in his writing, or he needs to be replaced (because I read this the way he meant it).

IMHO.

JF -> JF... , Thursday, October 06, 2016 at 06:15 AM
Typepad disease.
Peter K. -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 06:13 AM
Conventional orthodox establishment economists worry about inflation even after they deliver 1.6 percent growth for 2016.

And they insist monetary policy doesn't work well which is somewhat of a contradiction as they're worrying about inflation and monetary policy working too well.

If you read the Sept. 2008 minutes of the FOMC they are worrying about inflation 48 hours after Lehman failed and the implosion of the financial system. Just 8 years ago and they don't seem to have learned.

marcus nunes -> Peter K.... , -1
Fischer has gone ga ga!
http://ngdp-advisers.com/fischer-fed-pursuing-sound-monetary-policy-good-70s-now-really/

[Oct 06, 2016] Most of the profession does believe in the power of monetary policy.

Oct 06, 2016 | economistsview.typepad.com

JohnH -> RC AKA Darryl, Ron... , Thursday, October 06, 2016 at 07:51 AM

Noah Smith from yesterday: "Most of the profession does believe in the power of monetary policy. The dominant form of macroeconomic model for at least a decade has been so-called New Keynesian models, which say that interest rates play a very large role in stabilizing the economy. These are also the dominant form of modern macro model in use at central banks...

Now, the big question is whether faith in monetary policy might have been misplaced. The seemingly small effects of quantitative easing, and the difficulty of dealing with very low interest rates, are causing some macroeconomists to cast about for alternatives to the New Keynesian paradigm.

This illustrates the real fundamental problem with macroeconomics -- the lack of good evidence."
https://www.bloomberg.com/view/articles/2016-10-04/breaking-the-spell-that-grips-economics

It sure seems like the economics profession is confused, very confused. Sadly, that will not keep them from demagoguing their favorite policy and insulting those who dare to point out the obvious problems and mistakes.

[Sep 09, 2015] Neoclassical economic reforms were colossal failures

"...The reason the Friedmanian era turned out to be vastly different from the Keynesian era was because the neoclassical economic reforms were colossal failures."
"...Nothing in the history of the universe has failed more than neoclassical ideology. If one is to call that failure, one would have to redefined the word failure to include all other failures that pale by comparison. But according to the Medieval Barbers, their policies were a resounding success. Anyone who questions them is a philistine. Thankfully, these modern high priests aren't able to burn dissenters at the stake like their forebears. "
"..."Krugan's free-trade ideology rhetoric shows he's more New Keynesian (neoclassical synthesis) than Keynesian. More neoliberal than liberal.""
"...Modern Monetary Theology brought back pre-Keynesian boom-to-bust business cycles, drove down real incomes and the employment rate (now expect a decade before the economy can recover from a recession.) "
"...China is in hot water because neoclassical reforms have killed demand in the Western economy. Its economy is founded on importing more and more Western jobs and manufacturing, not to mention GHG emissions. "

EMichael said in reply to Ron Waller, September 07, 2015 at 09:52 AM

I see no purpose in comparing the present with a period of time so vastly different from the present.

Ron Waller said in reply to EMichael, September 07, 2015 at 10:27 AM

Yes the laws of physics change every 35 years too.

The reason the Friedmanian era turned out to be vastly different from the Keynesian era was because the neoclassical economic reforms were colossal failures.

Tax cuts did not pay for themselves or create prosperity, they created skyrocketing government debt. Deregulation didn't create prosperity, but produced numerous disasters including financial meltdowns. Free-trade exported wealth and jobs and killed real income growth. Modern Monetary Theology brought back pre-Keynesian boom-to-bust business cycles, drove down real incomes and the employment rate (now expect a decade before the economy can recover from a recession.)

Nothing in the history of the universe has failed more than neoclassical ideology. If one is to call that failure, one would have to redefined the word failure to include all other failures that pale by comparison.

But according to the Medieval Barbers, their policies were a resounding success. Anyone who questions them is a philistine. Thankfully, these modern high priests aren't able to burn dissenters at the stake like their forebears.

EMichael said in reply to Ron Waller, September 07, 2015 at 10:35 AM

No, the Laws of Physics do not change.

Economic facts do. Are you trying to state there has not been a sea change in the world economy since the post WWII era?

Sorry, but Japan, China and Europe are an awful lot different than they were in 1950. And that is not saying that I disagree with everything you say. Actually, I agree with a lot of it.

But thinking solutions lie in the policies of the 50s and 60s ignore that the problems that exist did not exist in the 50s and the 60s.

Bruce Webb said in reply to EMichael, September 07, 2015 at 11:02 AM

"But thinking solutions lie in the policies of the 50s and 60s ignore that the problems that exist did not exist in the 50s and the 60s."

EMichael there is a logical hole here. I am not sure I disagree with you on the substance but there is a coherent argument that the problems that exist NOW are precisely BECAUSE of changes away from the polices of the 50s and 60s. And that the reason we didn't have the same problems then is that the policies prevented them. And that a change back to those policies would serve to ameliorate them.

What you would need to do to rescue your argument is to prove that current problems could NOT have existed in the 50's and 60's, that there is something unique to today's problems that make them resistant to yesterday's solutions.

I am not saying you couldn't do that. Merely that you haven't attempted it. Instead you present a circular argument. What EXACTLY about today's problems make them incurable by yesterday's solutions?

EMichael said in reply to Bruce Webb, September 07, 2015 at 01:33 PM

The main thing that did not exist in the US was competition for labor. Free trade is a marvelous thing when you are the only one selling.

Take a look at trade balances from that period and the last couple of decades.

You can almost trace the trade balance changes to the changes(or lack of changes) to the income of the vast majority of Americans.

People in here(and myself) talk about the need for a tighter labor market. And we applaud the actions that create one. But I am almost totally committed to the idea that the only way to create a tight labor market is protectionism. We have to protect our workers.

Of course there is a price to be paid, but I think the increased costs of some goods will be overwhelmed by the benefits to be gained by a tight labor market.

Then again, we would be harming other countries trying to move into a industrialized state. But the last time I looked, none of them were helping me pay for SS; or Medicare; or education; or the keep the street lights working.

I know it is not politically correct, but charity begins at home. Especially in a home which has seen such decline in only three or four decades.

cm said in reply to Bruce Webb, September 08, 2015 at 09:51 AM

Economic policy doesn't happen in a vacuum. Before the 90's there was no internet. There were its precursors of a sort, e.g. fax and data transmission over the phone, and computer networks/links based on that (90's comms technology existed but only in the lab or at the high end). In the post-WW2 decades, there weren't built out telephone networks at the national and international level, only few high end players could arrange to make instant international calls. Even electrification wasn't completed.

This meant obviously more bottlenecks and more intermediation and control, barriers to globally distributed operations, and in addition everything happened at a slower speed.

In addition most of the world, including large parts of Europe and the US, was agricultural or sparsely populated and un"developed".

In the decades after, the "second" and "third" world invested big time in education and technological development. It really took off when international business logistics and global IT/telecom became ubiquitous, and "first world" companies eagerly "helped" build the offshore know-how.

Ron Waller said in reply to EMichael, September 07, 2015 at 11:14 AM

Generalizations don't identify any problems, provide any solutions, justify failed policies or rule out successful policies. Japan and Europe are in hot water because of bad economic policy. (Not demand-side Keynesian economic policy.)

China is in hot water because neoclassical reforms have killed demand in the Western economy. Its economy is founded on importing more and more Western jobs and manufacturing, not to mention GHG emissions.

It's only a matter of time before the entire house of cards collapses. Then people will be looking to the 1930s for policy solutions

Peter K. said in reply to EMichael, September 07, 2015 at 01:27 PM

I agree with the others. To say that the economy was different back then is to minimize the manner in which policy has changed for the worse.

I don't think fundamentally the laws of economics have changed that much because of technology or globalization or vague "productivity changes."

This is like being like Martin Feldstein who says we should be happy with what we got. No policy has changed much to the worse since the 1950s and 1960s. For one thing unions have been politically destroyed.

EMichael said in reply to Peter K

Not the laws of economics, the facts. Y'know the old Keynes thing(supposedly):

"When the facts change, I change my mind. What do you do, sir?"

I'll give you one change.

In the 70's China had almost no foreign exchange reserves. Now they have around $4 Trillion.

That is a real fact. And the reasons behind it are obvious.

Reply September 07, 2015 at 01:40 PM
likbez said in reply to Ron Waller

"Krugan's free-trade ideology rhetoric shows he's more New Keynesian (neoclassical synthesis) than Keynesian. More neoliberal than liberal."

Very true. Thank you

[Sep 07, 2015] The Thirty-Year Boom

September 06, 2015 | Economist's View

Part of an essay by David Warsh:

... For the old lions, Paul Samuelson and Milton Friedman, the '80s meant a bittersweet departure from the center stage of economics after forty years of dominating the scene. The two had entered their sixties; neither was out of steam. But the leaders of the next generation had become apparent: Lucas, in macroeconomics; Kenneth Arrow in nearly everything else.

The election of Ronald Reagan was a triumph for Friedman; they had known each other since Friedman spent a quarter at the University of California at Los Angeles, shortly after Reagan had been elected Governor of California.He was invited to lecture in China. And the international success of Free to Choose kept Friedman in the public eye.

But Paul Volcker took a different approach to monetary policy from the one Friedman advocated, and Friedman's forecasts became markedly worse. The editorial page of The Wall Street Journal adopted as its champion Friedman's long-time rival in currency matters, Robert Mundell, now teaching at Columbia University, and went all in for Mundell's young associate, consultant Arthur Laffer. A research appointment at the Federal Reserve Bank of San Francisco was not the same platform as the University of Chicago. Friedman still had his membership on the President's Economic Policy Board, but after he "savaged" Volcker to his face before the president in a meeting in 1983, both men lost influence. Pointing a finger at Volcker, Friedman said (according to Newsweek's account), "because of the policies of the Fed under that man we have had an inflationary surge in the money supply that is going to have to be corrected." Volcker was not reappointed. Edward Nelson, of the Federal Reserve Bank of St. Louis is writing a scientific biography of Friedman. It will make interesting reading when it is done.

In March 1981, Friedman wrote his Newsweek column in the form of a letter to Philip Handler, president of the National Academy of Sciences, advocating major cuts in the budget of the National Science Foundation, as a step towards the abolition of the NSF. The Reagan administration had proposed sharp cuts in the economics program. Friedman argued the government shouldn't pay for any scientific research. True, the NSF had funded much good science; but it had paid for much bad science, too, including, he wrote, overmuch mathematical economics. The great scientists of the past had done without NSF funding. Einstein did his work in a government patent office; general relativity might never have made it past a peer-review panel. "The innovative ideas that have stirred controversy in economics since NSF funding of economics began two decades ago owe little or nothing to NSF funding," he wrote.

Thus did Friedman dismiss the agency that Paul Samuelson had brought to life in 1945. Perhaps more important, by extension he dismissed the program of government fellowships, awarded by competitive exam, that had sent Samuelson to graduate school in 1935, all expenses paid – and countless others since, many of them as impecunious as Friedman had been in 1932. The NSF ran similar programs in mathematics and many ciences, and the principle had been extended, by Sen. Jacob Javits (R-NY) to humanities. NSF research grants funding had helped build the Massachusetts Institute of Technology into a powerhouse to rival Harvard, and played a similar role at many other public and private universities.

No Samuelson column followed Friedman's. Samuelson never wrote again for Newsweek . He resigned the column he written for fifteen years. When, many years later, I asked him about his timing, he firmly denied that it had anything to do with Friedman's column, and wrote me a letter for the file the next day repeating what he had said. I have always wondered if he sought to defuse the matter out of habit. That he and Friedman had remained on civil terms for seventy-five years was clearly a source of pride, though privately he grew less tolerant of his rival after 1980.

Samuelson, too, was in mild recession in the '80s. Keynesian economics hadn't yet rebounded from the biting criticism of the New Classicals in the '70s. Tensions were growing within the MIT department over appointments and the direction of future research. Samuelson formally retired in 1985, at 70, to make room for others. He had plenty to engage his professional attention. Commodities Corp., which had discovered such natural traders as Paul Tudor Jones and Bruce Kovner, was winding down, but Samuelson's interest in Warren Buffet's Berkshire Hathaway was gearing up. The Vanguard Group, whose godfather he had been ever since founder John Bogle introduced the first index fund, was thriving. Samuelson's friends and colleagues James Tobin, Franco Modigliani, and Robert Solow received Nobel Prizes.

Young Lions at Large

To the young lions of Keynesian economics in the '80s, rational- expectations macroeconomics and real business cycle theory posed a considerable bar. To work in the new traditions required a considerable investment in new tools and mathematical techniques, and, even fully teched-up, didn't seem to speak very directly to policy. A strong corps of economists went to work to fashion a "new Keynesian" version of the latest general equilibrium economics. But gradually one rising star of saltwater economics after another left academia for a policy job.

Martin Feldstein, of Harvard University, was the first. As something of an acolyte of Milton Friedman, Feldstein was never very high in salinity, but he demonstrated plenty of professional backbone as Chairman of the Council of Economic Advisers under Ronald Reagan for two years in the early days of the controversies over deficits before returning in 1984 to Harvard and his position as president of the National Bureau of Economic Research. Stanley Fischer, of MIT, was next, wrapping up a highly successful research career in order to serve as chief economist of the World Bank (a path that led to leadership positions in the International Monetary Fund, governor of the Bank of Israel and, currently, vice chairman of the Fed). Lawrence Summers, Feldstein's student, served as campaign economist to Democratic candidate Michael Dukakis in the 1988 presidential campaign and succeeded Fischer at the World Bank before joining the Clinton administration, where he advanced to Secretary of the Treasury.

Soon the flood was on: Jeffrey Sachs, Joseph Stiglitz, Olivier Blanchard, Kenneth Rogoff, Gregory Mankiw, Glen Hubbard, and Christina Romer were among those MIT- or Harvard-trained economists who served in government jobs or NGO positions. Paul Krugman retooled as a journalist. Lists of MIT and Harvard graduates in high positions in European, South American, and Asian governments were even longer. Did this differ in kind, and not degree, from the trajectory of academic economists dating back to to the New Frontier, if not the New Deal? I think so.

In 2006, Harvard's Mankiw, in an article for the Journal of Economic Perspectives argued, as I did in a book, that the differences in interests among economists were best understood as being similar to those between scientists and engineers. The early macroeconomists, led by Samuelson and Friedman, had resembled engineers seeking to solve practical problems, Mankiw wrote; macroeconomists of the past several decades, led by Tjalling Koopmans, Jacob Marschak, Kenneth Arrow, and others had been more interested in developing analytic tools and establishing theoretical principles. Their students the '80s had joined teams along similar lines. "Recently Paul Romer, of New York University, introduced a different distinction to elucidate some of the controversies in present-day macro – between bench science and clinical medicine. Both analogies will get plenty of elaboration in future years, for this is what changed in kind in the '80s: economics developed a clinical/engineering wing.

... ... ...

likbez said...

Due to his role in neoliberal transformation of Chile after Pinochet coup of 1973, Friedman can be viewed as a one of the first economic hitman for multinationals, member of organized crime disguised as an economist. According to the 1975 report of a United States Senate Intelligence Committee investigation, the Chilean economic plan was prepared in collaboration with the CIA. In 1987 45% of Chile's population was below poverty line. From Wikipedia:

==Start of quote ===
Milton Friedman gave some lectures advocating free market economic policies in Universidad Católica de Chile. In 1975, two years after the coup, he met with Pinochet for 45 minutes, where the general "indicated very little indeed about his own or the government's feeling" and the president asked Friedman to write him a letter laying out what he thought Chile's economic policies should be, which he also did.[26] To stop inflation, Friedman proposed reduction of government deficits that had increased in the past years and a flat commitment by government that after six months it will no longer finance government spending by creating money. He proposed relief of cases of real hardship among poorest classes.[2] In October 1975 the New York Times columnist Anthony Lewis declared that "the Chilean junta's economic policy is based on the ideas of Milton Friedman…and his Chicago School".[26]
=== End of quote ===

In her book The Shock Doctrine, Naomi Klein criticized Friedman's recipe for neoliberal scheme of the economic rape of the countries under disguise of transformation toward "free" market economics -- the neoliberal restructuring that followed the military coups in several countries using suspiciously similar schemes. She suggested that the primary role of neoliberalism was to be an ideological cover for capital accumulation by multinationals. Chilean economist Orlando Letelier considered that the main driving force behind Pinochet's dictatorship violence toward opponents was the level of opposition to Chicago School policies in Chile.

And Friedman himself was a coward who never personally acknowledged his role in the events. After a 1991 speech on drug legalization, Friedman answered a question on his involvement with the Pinochet regime, saying that he was never an advisor to Pinochet (also mentioned in his 1984 Iceland interview), but that only his students (Chicago boys) were involved.

He was followed by Harvard mafia with their economic rape of Russia in early 90th. Probably also prepared in collaboration with the CIA...

It is interesting that the paper does not mention Galbraith who was important opponent of Friedman (see "Friedman on Galbraith, and on curing the British disease", 1977) . In those two lectures Friedman disagrees with Galbraith's four most popular works: "Countervailing Power," "The Great Crash of 1929," "The Affluent Society," and "The New Industrial State". Friedman consistently repeats the neoliberal dogma that it is unfettered free market, with minimal rules and regulations, is the best economic system.

So it might be useful to distinguish between two instances of Friedman: the first is Friedman before "Capitalism and Freedom" and the second is after. Friedman after Capitalism and Freedom is a pitiful figure of a prostitute to power that be.

chris herbert said...

The best observation was the one by Wojnilower that the animals in the zoo were let out of their cages.. They are still roaming around, not yet put back in their regulatory cages. The list of financial crises beginning in the 1980s looks as bad and as frequent as those of the 1800s. Technology gives a sheen to the past 35 years or so, but underneath there's been immense intellectual damage. A degradation of morals and honesty. Today, greed is good. I'll be gone, you'll be gone (IBGUBG), rules politics and finance today. The animals are still lose, more trouble will visit the Kingdom.

bakho said...

Interesting history lesson.
Needs more links.
Friedman's spat with Volcker:

In Friedman's view, Volcker was too vulnerable to political pressures from Congress and the White House, Condemned by liberals and conservatives for plunging the country into recession and worried that continued high interest rates would cause massive default by Third World debtors, Volcker in mid-1982 shifted his sights away from the monetarist approach, loosening the Fed's targets for money growth and restoring interest-rate manipulation as a policy tool. In the five months before the November 1984 elections, the Fed increased the money supply to bring down interest rates and thus fuel the recovery to better Reagan's chances at re-election. After Reagan's reelection victor in November, the Fed again tightened the money supply, "This is not monetarist policy," Friedman says, "The key element of monetarism is to define what you are going to do and then stick with it."

For any Fed chairman, Friedman thinks, the temptation to linker with money-supply targets is probably irresistible. According to the monetarist doctrine, the Fed chairman's job is purely technical, "a matter of every month looking at the money base and making sure it increases by about a quarter of one percent," Friedman explains, "If the Fed chairman were to do a good job, he would become an unknown, a faceless bureaucrat."

Cooper, M. H. (1987). Economics after Reaganomics. Editorial research reports 1987 (Vol. II). Washington, DC: CQ Press. Retrieved from http://library.cqpress.com/cqresearcher/cqresrre1987082100

I wonder if so many of the young economist went into policy because the people involved: Volcker, Friedman, Laffer etc were pretty clueless and made bad predictions.

bakho said...

Just how wrong was Friedman?
DARPA turned the internet over to NSF and NSF spun it off into a large commercial engine.

NSF funds high risk investment, the kind that most corporations cannot. High risk research means many projects that don'r pan out, a small pool of winners and a handful that hit jackpot. It takes a large organization with very deep pockets to fund enough high risk research over long periods to have a good likelihood of getting a large hit. Industry cannot fund at that level, government can.

Another example: NSF funded obscure biochemistry into esoteric research on enzymes that could degrade DNA. That research became the foundation of genetic engineering. Who could have known?

pgl said in reply to Paine ...

Warsh did write an incredible amount of BS in this silly essay. I didn't think Mundell ever endorsed Laffer's stupid cocktail napkin.

Lafayette said...

REAGANOMICS

From WikiP: {According to Keynesian economists, a combination of deficit spending and the lowering of interest rates slowly led to economic recovery. However, conservatives insist that the significantly lower tax rates caused the recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984.}

Even Reagan, a good friend of Friedman, when push-came-to-shove, indulged is stimulus spending to get his presidency out of the deep-doodoo.
Which the Replicants stonewalled in 2010 when a Great Recession was in full sway, but the PotUS was a Democrat ...

pgl said in reply to Lafayette...

Wikipedia gets another wrong. It was Reagan's 1981 tax cut (deficit spending) that led Volcker to do round 2 of his tight money. Volcker kept trying to make a deal withe White House - reverse the fiscal stimulus in exchange for lower interest rates. The White House did not even know what was going on. And Wikipedia does not either.

[Sep 05, 2015] Range of reactions to realism about the social world by Daniel Little

My recent post on realism in the social realm generated quite a bit of commentary, which I'd like to address here.

Brad Delong offered an incredulous response -- he seems to think that any form of scientific realism is ridiculous (link). He refers to the predictive success of Ptolemy's epicycles, and then says, "But just because your theory is good does not mean that the entities in your theory are "really there", whatever that might mean...." I responded on Twitter: "Delong doesn't like scientific realism -- really? Electrons, photons, curvature of space - all convenient fictions?" The position of instrumentalism is intellectually untenable, in my opinion -- the idea that scientific theories are just convenient computational devices for summarizing a range of observations. It is hard to see why we would have confidence in any complex technology depending on electricity, light, gravity, the properties of metals and semiconductors, if we didn't think that our scientific theories of these things were approximately true of real things in the world. So general rejection of scientific realism seems irrational to me. But the whole point of the post was that this reasoning doesn't extend over to the social sciences very easily; if we are to be realists about social entities, it needs to be on a different basis than the overall success of theories like Keynsianism, Marxism, or Parsonian sociology. They just aren't that successful!

There were quite a few comments (71) when Mark Thoma reposted this piece on economistsview. A number of the commentators were particularly interested in the question of the realism of economic knowledge. Daniel Hausman addresses the question of realism in economics in his article on the philosophy of economics in the Stanford Encyclopedia of Philosophy (link):

Economic methodologists have paid little attention to debates within philosophy of science between realists and anti-realists (van Fraassen 1980, Boyd 1984), because economic theories rarely postulate the existence of unobservable entities or properties, apart from variants of "everyday unobservables," such as beliefs and desires. Methodologists have, on the other hand, vigorously debated the goals of economics, but those who argue that the ultimate goals are predictive (such as Milton Friedman) do so because of their interest in policy, not because they seek to avoid or resolve epistemological and semantic puzzles concerning references to unobservables.

Examples of economic concepts that commentators seemed to think could be interpreted realistically include concepts such as "economic disparity". But this isn't a particularly arcane or unobservable theoretical concept. There is a lot of back-and-forth on the meaning of investment in Keynes's theory -- is it a well-defined concept? Is it a concept that can be understood realistically? The question of whether economics consists of a body of theory that might be interpreted realistically is a complicated one. Many technical economic concepts seem not to be referential; instead, they seem to be abstract concepts summarizing the results of large numbers of interactions by economic agents.

The most famous discussion of realism in economics is that offered by Milton Friedman in relation to the idea of economic rationality (Essays in Positive Economics); he doubts that economists need to assume that real economic actors do so on the basis of economic rationality. Rather, according to Friedman this is just a simplifying assumption to allow us to summarize a vast range of behavior. This is a hard position to accept, though; if agents are not making calculating choices about costs and benefits, then why should we expect a market to work in the ways our theories say it should? (Here is a good critique by Bruce Caldwell of Friedman's instrumentalism; link.)

And what about the concept of a market itself? Can we understand this concept realistically? Do markets really exist? Maybe the most we can say is something like this: there are many social settings where stuff is produced and exchanged. When exchange is solely or primarily governed by the individual self-interest of the buyers and sellers, we can say that a market exists. But we must also be careful to add that there are many different institutional and social settings where this condition is satisfied, so there is great variation across the particular "market settings" of different societies and communities. As a result, we need to be careful not to reify the concept of a market across all settings.

[Sep 05, 2015] Tribes

"...Personally, I think he senses that RE/New Classicalism is in decline, not comprehending why, struggling to understand, looking for scapegoats (Solow, tribal behaviour, mathiness) and is essentially mourning its demise."
"...read Kuhn famous book on The Structure of Scientific Revolutions, in which he argues persuasively (or shows definitively, for those who prefer), that "Competition between segments of the scientific community [tribes?] is the only historical process that ever actually results in the rejection of one previously accepted theory or in the adoption of another," though at the same time, most progress comes from working within an established paradigm. My own intuition is that economics if very much like physics in both those respects. "
Sep 04, 2015 | Stephen Williamson New Monetarist Economics

So, within economics, is macro unusual? Of course not. Indeed, the whole emphasis of post-1970 macroeconomics is to do it like everyone else. Before 1970, no one would have been discussing macro and Dixit-Stiglitz in the same sentence. Should economics work like physics? Of course not. We're studying very different problems requiring very different methods. Why would you expect economists to behave like physicists?

What's my bottom line? Romer is just leading us through an unproductive conversation - one that's not going to persuade anyone of anything.

Anonymous, September 4, 2015 at 4:42 PM

"Romer is just leading us through an unproductive conversation - one that's not going to persuade anyone of anything."

It's almost as if Romer is wandering around testing the waters seeing how far he can push things before he actually says what he wants to say coherently.

Anonymous September 4, 2015 at 5:38 PM

Personally, I think he senses that RE/New Classicalism is in decline, not comprehending why, struggling to understand, looking for scapegoats (Solow, tribal behaviour, mathiness) and is essentially mourning its demise.

Henry.

Constantine Alexandrakis, September 4, 2015 at 6:16 PM
Steve, Solow agrees with you on Romer's contribution.

https://www.minneapolisfed.org/publications/the-region/interview-with-robert-solow

Norman, September 5, 2015 at 4:45 AM

Actually, Romer doesn't argue that physicists are not tribalists – he just asserts it, on the basis of a thought experiment based on two particular statements. It may well be true that there is a lot of consensus on the particular physics statements in his post, but no doubt you could also find a couple of statements in economics that most economists agree about. For evidence of tribalism in physics, google "superstring controversy," or at a more personal level, Newton and Hooke, Einstein and Lenard.

Or read Kuhn famous book on The Structure of Scientific Revolutions, in which he argues persuasively (or shows definitively, for those who prefer), that "Competition between segments of the scientific community [tribes?] is the only historical process that ever actually results in the rejection of one previously accepted theory or in the adoption of another," though at the same time, most progress comes from working within an established paradigm. My own intuition is that economics if very much like physics in both those respects.

As to how tribalism has arisen in economics, the answer is easy: economists are people, and people are tribal. Search the psychology of "ingroup bias".

[Sep 04, 2015] What Happened to the Moral Center of American Capitalism?

"...The fact that he believes that capitalism has or ever had a "moral center" (other than "greed is good!") is absolutely touching in its naivete."
.
"...The prototype and kickstarter for capitalist industry was sugar plantation slavery (15th century, Madeira, Canary Islands)"
The latest from Robert Reich begins with:
What Happened to the Moral Center of American Capitalism? : An economy depends fundamentally on public morality; some shared standards about what sorts of activities are impermissible because they so fundamentally violate trust that they threaten to undermine the social fabric.

It is ironic that at a time the Republican presidential candidates and state legislators are furiously focusing on private morality – what people do in their bedrooms, contraception, abortion, gay marriage – we are experiencing a far more significant crisis in public morality.

We've witnessed over the last two decades in the United States a steady decline in the willingness of people in leading positions in the private sector – on Wall Street and in large corporations especially – to maintain minimum standards of public morality. They seek the highest profits and highest compensation for themselves regardless of social consequences.

CEOs of large corporations now earn 300 times the wages of average workers. Wall Street moguls take home hundreds of millions, or more. Both groups have rigged the economic game to their benefit while pushing downward the wages of average working people.

By contrast, in the first three decades after World War II – partly because America went through that terrible war and, before that, the Great Depression – there was a sense in the business community and on Wall Street of some degree of accountability to the nation.

It wasn't talked about as social responsibility, because it was assumed to be a bedrock of how people with great economic power should behave.

CEOs did not earn more than 40 times what the typical worker earned. Profitable firms did not lay off large numbers of workers. Consumers, workers, and the community were all considered stakeholders of almost equal entitlement. The marginal income tax on the highest income earners in the 1950s was 91%. Even the effective rate, after all deductions and tax credits, was still well above 50%.

Around about the late 1970s and early 1980s, all of this changed dramatically. ...[continue]...

Peter K. said...
Krugman speculated it started when sports fans began discussing star baseball players' salaries. CEOs went Galt and asked why not us also?

Workers are just inputs like fixed capital nothing more.

What's good for GE and Goldman Sachs - profits - is good for America.

DeLong asks the more central question. When did business leaders decide that growth, aggregate demand and full employment wasn't in the interest of their companies?

In the 1950 and 1960s they were in favor of a high-pressured economy. That changed.

Maybe it was the 1970s and "take this job and shove it."

Peter K. said in reply to Peter K....

They also forget about the Great Depression as it faded from memory.

And the Cold War ended. Would they risk Western nations like Greece and Spain going to the other side because of sky high unemployment? No they'd govern them with military dictatorships.

Ben Groves said in reply to Peter K....

US investment/capital markets were semi-nationalized from WWII into the mid-70's. The whole basis was to fight the Nazis then Soviets. The economic crisis of the mid-70's, detente and excessive growth beyond cohort changed things. For all the 79-89 hype, the cold war died with that global economic crisis of the 1970's as the Soviet Union never recovered and China bailed.

Business view was that the pre-WWII order needed to be restored. I think many people mistake the 50's and 60's as "normal", but they weren't. They were a time of war.

Peter K. said in reply to Ben Groves...

"War is the health of the state."

We need an invasion from aliens.

mulp said in reply to Ben Groves...

Well, given the US has been at war since Reagan, elected because Carter would not go to war, how do you explain the punishment of workers to reverse the glorifying of workers from the 30s through even the 70s??

It was not war that made the period before 1980 better over all, but the understanding that consumers could only spend as much as they were paid, and the problem for a corporation seeking to grow was making sure all the other corporations paid their employees well.

By the end of the 80s, the iconic corporations of the 60s in terms of growth and loyalty to employees were criticized by free lunch MBAs for sticking with the old ways of treating employees as assets because they were being creamed by competitors who treated employees as liabilities. Eg, IBM was badly managed because it was not screwing its workers like Dell, HP was doomed because it was not firing all its US factory workers and contracting with Asia factories.

You see, the MBAs were teaching that US workers are liabilities to replaced with the cheapest non US workers and the US consumer needs to be mined for ever more dollars of spending. And if consumers were not spending enough, the problem was they were taxed too much, so the calls for tax cuts to put money in consumer pockets so consumers could shop 24 by 7.

Before 1980, everything was zero sum. If you want that $1000 car or boat, you had to first earn $1000, unless the manufacturer float you a loan with a threat of the repo man. That meant manufacturers needed every consumer to have a job. And every dollar paid to workers came back to them in consumer spending. And government was the same way - if you wanted better roads, you first had to agree to taxes to pay for it.

After 1980, the idea economies were zero sum were thrown in the trash can. Want something, borrow and spend. Republicans would get government out of the way of the loan sharks. The loan sharks became bank owners and got rid of their enforcers, turning that over to Congress. Think of all the debt you can not shed but that government collects by force by the IRS and attaching your Social Security benefit.

Once consumers could borrow and spend, workers are now purely liabilities. Get rid of them.

In the real world, the ivory tower of business and economics is not able to be applied 100% or even 20%, but that even 20% of the connection between payroll and business sales is lost means an ever deepening pit of debt.

Federal debt declined from before the end of WWII as a burden on GDP until Reagan and then it grew as if the US were waging a war larger than the Korean war or Vietnam war or WWI or maybe the Civil war.

With the exception of the Clinton years which were not free of war, the budget has looked like a major war was going on.

DrDick said...

The fact that he believes that capitalism has or ever had a "moral center" (other than "greed is good!") is absolutely touching in its naivete.

Paine said in reply to DrDick...

Sweet bobby

bakho said in reply to DrDick...

Indeed. Greedy "Malefactors of Great Wealth" don't become wealthy by fair play. Nothing obtained by workers was ever got without a fight. Many bloody union battles over dead bodies won worker's rights. Once the unions lost power, workers went backward.

mulp said in reply to bakho...

And union leaders were all choir boys....

raping their members like priests.

As a liberal, I can play the game of name calling, character assassination, etc.

How do you think it is that there are capitalists with loyal workers? Do you think there are capitalists who understand that economies are zero sum and that you can't have customers wealthier than employees are wealthy?

I see lots of worker advocates who seem to think that every worker can be paid $1000 and only pay $500 for everything produced.

Paine said in reply to mulp...

Reading this is like chewing glue

DrDick said in reply to Paine ...

Which he was obviously huffing while writing it.

Paine said in reply to Paine ...

A system is not judged by its functioning components but by its malfunction components and the emergent failures of the system of components
U know that

Social production systems often grow and develop

they re not zero sum !


They produce a social surplus when functioning well

That social surplus gets ex appropriated by an exploiter class in class systems

The primary producers may add 1000 in value and receive only 600 of that value as compensation

Suggesting radicals or at least some radicals want more then one hundred percent of the social product for the producers themselves is blatant Tom foolery

bakho said in reply to mulp...

"How do you think it is that there are capitalists with loyal workers?"

The same way plantation owners had "loyal slaves". Loyalty lasted until Sherman's boys came and said, "You are free and if you show us where the silverware is hid, we'll split it with you."

Loyalty only goes as far as the next better offer.

anne said...

Assuming there was at least a superficial acknowledgement of a "moral center of American capitalism," that surface acceptance was methodically worn away from the 1970s on. An early sign of the wearing away and the need to turn away from a moral center of capitalism came with this article in 1970:

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

September 13, 1970

The Social Responsibility of Business is to Increase its Profits
By Milton Friedman - New York Times

The carefully cultivated "Chicago Boys" not long after the article in the New York Times even gained a country to play with, Chile.

anne said in reply to anne...

http://www.nytimes.com/2015/07/24/opinion/paul-krugman-the-mit-gang.html

July 23, 2015

If you don't know what I'm talking about, the term "Chicago boys" was originally used to refer to Latin American economists, trained at the University of Chicago, who took radical free-market ideology back to their home countries. The influence of these economists was part of a broader phenomenon: The 1970s and 1980s were an era of ascendancy for laissez-faire economic ideas and the Chicago school, which promoted those ideas....

-- Paul Krugman

Paine said in reply to anne...

A charming little toad that Milty

Swallow him and die of his poisons

Paine said in reply to Paine ...

Street value of milty's elixir: Oligopolistic Corporate free range capitalism

Sandwichman said...

1. The prototype and kickstarter for capitalist industry was sugar plantation slavery (15th century, Madeira, Canary Islands)

2. Slavery was extolled by Southern slaveowner aristocratic "ethics and theology" as the pinnacle of bible-based Western Civilization.

3. After defeat of the Confederacy, the neo-Confederate heirs of the old slaveowner plutocrats rewrote history to deny that the South fought the Civil War to retain slavery.

4. The big lie of "Lost Cause" neo-Confederacy is the secret sauce of the Republican Party "Southern strategy" emulated by the "centrism" of the Democrats.

5. What happened to the "moral center" of American Capitalism?

6. Just what "moral center" are you referring to, Bob?

Sandwichman said in reply to Sandwichman...

John Cairnes, 1862:

"in spite of elaborate attempts at mystification, the real cause of the war and the real issue at stake are every day forcing themselves into prominence with a distinctness which cannot be much longer evaded. Whatever we may think of the tendencies of democratic institutions, or of the influence of territorial magnitude on the American character, no theory framed upon these or upon any other incidents of the contending parties, however ingeniously constructed, will suffice to conceal the fact, that it is slavery which is at the bottom of this quarrel, and that on its determination it depends whether the Power which derives its strength from slavery shall be set up with enlarged resources and increased prestige, or be now once for all effectually broken."

Ben Groves said in reply to Sandwichman...

Don't forget about 1600's Amsterdam. That was the kickstarter for finance capitalism. William the Orange exported it to the Brits and the rest is history. The link between the 2 is indeed "bible based".

Sandwichman said in reply to Sandwichman...

James Henley Thornwell:

"The parties in this conflict are not merely abolitionists and slaveholders - they are atheists, socialists, communists, red republicans, jacobins, on one side, and the friends of order and regulated freedom on the other. In one word, the world is the battleground - Christianity and Atheism the combatants; and the progress of humanity at stake."

Ben Groves said in reply to Sandwichman...

Thornwell was a Rothschilds bagman fwiw. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the Rothschilds business interests.

That is why quotes never workout. You create a dialect when it is all personal motive. Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

anne said in reply to anne...

Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

[ I am waiting for the documentation of the many socialists who thought.... ]

Paine said in reply to anne...

Socialist is a very eclectic catch all term Anne

Some socialist by self description probably believed in human sacrifice

Oh ya that was us Stalinists

anne said in reply to Paine ...

http://economistsview.typepad.com/economistsview/2015/09/what-happened-to-the-moral-center-of-american-capitalism.html#comment-6a00d83451b33869e201b7c7c9199f970b

September 4, 2015

Ben Groves said in reply to Sandwichman...

Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

[ I know precisely what I have been asking for. I am still waiting for the documentation of the many socialists who thought.... ]

anne said in reply to Ben Groves...

Thornwell was a ----------- bagman for what it's worth. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the ----------- business interests.

[ Again, where is the documentation, the "----------- bagman" documentation, to what I consider simply calumny? ]

Sandwichman said in reply to Ben Groves...

Wikipedia:

James Henley Thornwell (December 9, 1812 – August 1, 1862) was an American Presbyterian preacher and religious writer from the U.S. state of South Carolina. During the American Civil War, Thornwell supported the Confederacy and preached a doctrine that claimed slavery to be morally right and justified by the tenets of Christianity.

"Thornwell, in the words of Professor Eugene Genovese, attempted "to envision a Christian society that could reconcile-so far as possible in a world haunted by evil-the conflicting claims of a social order with social justice and both with the freedom and dignity of the individual."

Sandwichman said in reply to Sandwichman...

The "cornerstone speech"

https://en.wikipedia.org/wiki/Cornerstone_Speech

"The ideas entertained at the time of the formation of the old Constitution," says the Vice President of the Southern Confederacy [Alexander Stephens],

"...were that the enslavement of the African race was in violation of the laws of nature; that it was wrong in principle, socially, morally, and politically. Our new government is founded on exactly opposite ideas; its foundations are laid, its corner-stone rests, upon the great truth that the negro is not equal to the white man; that slavery-subordination to the superior race-is his natural and moral condition. This our Government is the first in the history of the world based upon this great physical, philosophical, and moral truth. It is upon this our social fabric is firmly planted, and I cannot permit myself to doubt the ultimate success of the full recognition of this principle throughout the civilized and enlightened world.... This stone which was rejected by the first builders 'is become the chief stone of the corner' in our new edifice."

Sandwichman said in reply to Sandwichman...

Harry Jaffa: "this remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy."

But not just the Jim Crow South, also the enduring white supremacy that permeates and dominates the American (incarceration nation) political discourse under code word dog whistles like "law and order" and orchestrated abhorrence of "political correctness".

Where is the "moral center" of a cesspool whose "cornerstone" is hatred? Ask Dante.

Mike Sparrow said in reply to Sandwichman...

True, but accepting Jim Crow allowed the capitalists to expand down south slowly but surely. By 1950 the south was becoming industrialized and Jim Crow was under attack. Their agriculture had been automated. Jim Crow just delayed history.

The problem I think people have with white neo-confeds is not so much "black slavery", but that white's were basically being starved and living standards reduced by the same system. The 1% of white's made it big with a global system at the expense of country. The anti-confeds are basically in a race war against what they see as foreign invasion. While the neo-confeds think they are protecting white "traditions" that really aren't really traditional to the white population as a whole. It is a good reason why socialists who patriot nationalism and organic unity can't unite with them. What they view as "white" is different. It leads toward political divide and conquer.

Paine said in reply to Mike Sparrow...

Jim crow delayed southern development

Only if you abstract from the northern social formation that hatched and husbanded it. For 100 years
Much as the slave system was husband by unionist northerns for 80 years

Paine said in reply to Paine ...

One could talk of a moral core to capitalists like thadeus Stevens
But the north ended reconstruction not because of southern white resistance
But because nothing more was need at that time and level of development
Of the north and of the union

Paine said in reply to Paine ...

The Grant years were like a sign in the sun and a sign in the moon

The sympathetic nations of Ameriika would remain in mortal struggle

Race Injustice would rule to the horizon of time and space

Paine said in reply to Paine ...

We would and will live side by side and yet turn away from each other
One side in torment the other in wrath

Sandwichman said in reply to Sandwichman...

I think it would be useful to cite the whole paragraph of Harry Jaffa's comment on the cornerstone speech. Who was Harry Jaffa, anyway? Some politically correct Marxist America hater? Jaffa was the guy who wrote Barry Goldwater's 1964 Republican nomination acceptance speech. You know, "Extremism in defense of liberty is no vice; moderation in pursuit of justice is no virtue." That's who.

"This remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy. From the end of Reconstruction until after World War Il, the idea of racial inequality gripped the territory of the former Confederacy-and not only of the former Confederacy-more profoundly than it had done under slavery. Nor is its influence by any means at an end. Stephens's prophecy of the Confederacy's future resembles nothing so much as Hitler's prophecies of the Thousand-Year Reich. Nor are their theories very different. Stephens, unlike Hitler, spoke only of one particular race as inferior. But the principle ot racial domination, once established, can easily be extended to fit the convenience of the self-anointed master race or class, whoever it may be."

Paine said in reply to Sandwichman...

The battle between the declaration of independence and the constitution

Sandwichman said in reply to Sandwichman...

A MEASURING ROD FOR TEXT-BOOKS

"The Committee respectfully urges all authorities charged with the selection of text-books for colleges, schools and all scholastic institutions to measure all books offered for adoption by this "Measuring Bod" and adopt none which do not accord full justice to the South. And all library authorities in the Southern States are requested to mark all books in their collections which do not come up to the same measure, on the title page thereof, "Unjust to the South."

Reject a book that says the South fought to hold her slaves.

Reject a book that speaks of the slaveholder of the South as cruel and unjust to his slaves.

Sandwichman said in reply to Sandwichman...

"How the Negroes Lived Under Slavery

"Life among the Negroes of Virginia in slavery times was generally happy. The Negroes went about in a cheerful manner making a living for themselves and for those for whom they worked. They were not so unhappy as some Northerners thought they were, nor were they so happy as some Southerners claimed. The Negroes had their problems and their troubles. But they were not worried by the furious arguments going on between Northerners and Southerners over what should be done with them. In fact, they paid little attention to these arguments."

What's a "coffle"? http://tinyurl.com/pkdxuvq

anne said in reply to Sandwichman...

Excellent series of posts.

anne said in reply to Sandwichman...

http://www.nytimes.com/2014/10/05/books/review/the-half-has-never-been-told-by-edward-e-baptist.html

October 4, 2014

A Brutal Process
By ERIC FONER

THE HALF HAS NEVER BEEN TOLD
Slavery and the Making of American Capitalism
By Edward E. Baptist

For residents of the world's pre-­eminent capitalist nation, American historians have produced remarkably few studies of capitalism in the United States. This situation was exacerbated in the 1970s, when economic history began to migrate from history to economics departments, where it too often became an exercise in scouring the past for numerical data to plug into computerized models of the economy. Recently, however, the history of American capitalism has emerged as a thriving cottage industry. This new work portrays capitalism not as a given (something that "came in the first ships," as the historian Carl Degler once wrote) but as a system that developed over time, has been constantly evolving and penetrates all aspects of society.

Slavery plays a crucial role in this literature....


Eric Foner is the DeWitt Clinton professor of history at Columbia.

DrDick said in reply to Sandwichman...

As Sydney Mintz showed, capitalism was founded on and made possible by slavery.

Paine said in reply to DrDick...

Marx sounds this theme powerfully in his chapter in Kap I
on primitive or primal accumulation

Sandwichman said in reply to Paine ...

Sounded the theme... but then failed to develop it. Maybe it was too obvious in those days, soon after the Civil War and before the "measuring rod" of neo-Confederate censorship rewrote history.

anne said in reply to Sandwichman...

http://www.common-place.org/vol-10/no-03/baptist/

April, 2010

Toxic Debt, Liar Loans, and Securitized Human Beings
The Panic of 1837 and the fate of slavery
By Edward E. Baptist

Early in the last decade, an Ayn Rand disciple named Alan Greenspan, who had been trusted with the U.S. government's powers for regulating the financial economy, stated his faith in the ability of that economy to maintain its own stability: "Recent regulatory reform coupled with innovative technologies has spawned rapidly growing markets for, among other products, asset-backed securities, collateral loan obligations, and credit derivative default swaps. These increasingly complex financial instruments have contributed, especially over the recent stressful period, to the development of a far more flexible, efficient, and hence resilient financial system than existed just a quarter-century ago."

At the beginning of this decade, in the wake of the failure of Greenspan's faith to prevent the eclipse of one economic order of things, Robert Solow, another towering figure in the economics profession, reflected on Greenspan's credo and voiced his suspicion that the financialization of the U.S. economy over the last quarter-century created not "real," but fictitious wealth: "Flexible maybe, resilient apparently not, but how about efficient? How much do all those exotic securities, and the institutions that create them, buy them, and sell them, actually contribute to the 'real' economy that provides us with goods and services, now and for the future?" ...

chris herbert said...

I don't think Capitalism has much to do with morality. Capitalists employed 8 year olds and a workweek of 60 hours at subsistence pay was the norm. Even today, look what American capitalists do to their employees in the Far East! Adam Smith figured that capitalism improved people's lives unintentionally. Not much of a moral statement, that one. That's why capitalism fails so miserably if not tightly regulated. Democracy, on the other hand, has pretty well defined moral foundations; Liberty, rights, equality etc. etc. Social democracies, in my opinion, have a stronger tether to the moral side of Democracy than we currently have here in the U.S. Our moral tether was shredded by the political right turn accomplished in the 1980s under Reagan. A similar degradation began in the U.K. about the same time under Thatcher. Oddly enough, that 30 plus year period between the end of WWII and 1980, was a period of strong progressive policy making. Pro labor laws, steeply progressive tax rates, voting rights, sensible retirement funding and Medicare for the elderly were all products of that time period. Maybe it was all an anomaly. A brief period of egalitarian ideals that created a middle class and produced a manufacturing hegemon. No longer. We are a military hegemon now. We are no longer a Democracy either. Most people haven't realized it; most especially working men and women who freely give up their rights and protections by voting for Republicans. We have the government we deserve. We are the most entertained and least informed citizens of any of the rich countries.

Paine said in reply to chris herbert...

Exploitation has a morality

All that exists must be torn apart
Rest is sin
The future is blocked only by the present

Faust

Peter K. said...

Off topic but everyone's favorite subject: monetary policy.

http://macromarketmusings blogspot.com/2015/09/revealed-preferences-fed-inflation.html

http://tinyurl.com/povj6qe

Friday, September 4, 2015

Revealed Preferences: Fed Inflation Target Edition
by David Beckworth

Over the past six years the Fed's preferred measure of the price level, the core PCE, has averaged 1.5 percent growth. That is well below the Fed's explicit target of 2 percent inflation. Why this consistent shortfall?

Some Fed officials are asking themselves this very question. A recent Wall Street Journal article reporting from the Jackson Hole Fed meetings led with this opening sentence: "central bankers aren't sure they understand how inflation works anymore". The article goes on to highlight some deep soul searching being done by central bankers in the Wyoming mountains. It is good to see our monetary authorities engaged in deep introspection, but let me give them a suggestion. Dust off your revealed preference theory textbooks and see what they can tell you about the low inflation of the past six years.

To that end, and as a public service to you our beleaguered Fed officials, let me provide some material to consider. First consider your inflation forecasts that go into making the central tendency consensus forecasts at the FOMC meetings. The figures below show the evolution of these forecasts for the current year, one-year ahead, and two-years ahead. There is an interesting pattern that emerges from these figures as you expand the forecast horizon: 2 percent becomes a upper bound.

....

So rest easy dear Fed official. No need for any existential angst. According to revealed preferences, you are still driving core inflation--which ignores supply shocks like changes in oil prices--it is just that you have a roughly 1%-2% core inflation target corridor rather than a 2% target. So even though you may not realize it, you are doing a bang up job keeping core inflation in your target corridor."

Peter K. said in reply to Peter K....

Our Neo-Classsical single equilibrium friend Don Kervack says the economy "naturally" healed itself despite unprecedented fiscal austerity, a trade deficit and strong dollar.

I don't buy it. Economics isn't broken. Politics is.

The center-left party for the job class should be calling up the Fed and asking "WTF?"

SomeCallMeTim said...

In the mid-1970s, at some universities economics was still called 'political economy', micro began with consideration of equity vs. efficiency, and the legitimacy of countercyclical social programs wasn't so widely questioned.

Was there a loss of nerve, at least in the U.S., following the Vietnam War, the 1973 oil shock, and the following recession that led to a quantum shift in generosity of spirit / belief in children exceeding their parents material well-being (or as politicians would later put it, voting one's fears instead of one's hopes)?

Second Best said...

http://www.counterpunch.org/2015/08/21/the-plague-of-american-authoritarianism/

The Plague of American Authoritarianism

by Henry Giroux

Authoritarianism in the American collective psyche and in what might be called traditional narratives of historical memory is always viewed as existing elsewhere.

Viewed as an alien and demagogic political system, it is primarily understood as a mode of governance associated with the dictatorships in Latin America in the 1970s and, of course, in its most vile extremes, with Hitler's poisonous Nazi rule and Mussolini's fascist state in the 1930s and 1940s. These were and are societies that idealized war, soldiers, nationalism, militarism, political certainty, fallen warriors, racial cleansing, and a dogmatic allegiance to the homeland.[i] Education and the media were the propaganda tools of authoritarianism, merging fascist and religious symbols with the language of God, family, and country, and were integral to promoting servility and conformity among the populace. This script is well known to the American public and it has been played out in films, popular culture, museums, the mainstream media, and other cultural apparatuses. Historical memory that posits the threat of the return of an updated authoritarianism turns the potential threat of the return of authoritarianism into dead memory. Hence, any totalitarian mode of governance is now treated as a relic of a sealed past that bears no relationship to the present. The need to retell the story of totalitarianism becomes a frozen lesson in history rather than a narrative necessary to understanding the present

Hannah Arendt, the great theorist of totalitarianism, believed that the protean elements of totalitarianism are still with us and that they would crystalize in different forms.[ii] Far from being a thing of the past, she believed that totalitarianism "heralds as a possible model for the future."[iii] Arendt was keenly aware that the culture of traditionalism, an ever present culture of fear, the corporatization of civil society, the capture of state power by corporations, the destruction of public goods, the corporate control of the media, the rise of a survival-of-the-fittest ethos, the dismantling of civil and political rights, the ongoing militarization of society, the "religionization of politics,"[iv] a rampant sexism, an attack on labor, an obsession with national security, human rights abuses, the emergence of a police state, a deeply rooted racism, and the attempts by demagogues to undermine critical education as a foundation for producing critical citizenry were all at work in American society. For Arendt, these anti-democratic elements in American society constituted what she called the "sand storm," a metaphor for totalitarianism.[v]

Historical conjunctures produce different forms of authoritarianism, though they all share a hatred for democracy, dissent, and human rights. It is too easy to believe in a simplistic binary logic that strictly categorizes a country as either authoritarian or democratic and leaves no room for entertaining the possibility of a mixture of both systems. American politics today suggests a more updated if not different form of authoritarianism or what some have called the curse of totalitarianism. In this context, it is worth remembering what Huey Long said in response to the question of whether America could ever become fascist: "Yes, but we will call it anti-fascist." [vi] Long's reply indicates that fascism is not an ideological apparatus frozen in a particular historical period, but as Arendt suggested a complex and often shifting theoretical and political register for understanding how democracy can be subverted, if not destroyed, from within.

(more at link above)

Anonymous said...

1) Gut all regulation in the name of free markets.
2) Sprinkle with the fairy dust of zero or negative real interest rates.
3) Let it rip.

I mean the moral fiber of society. this had a big hand in it.

Anonymous said in reply to Anonymous...

If anyone thinks incentives have nothing to do with deteriorating moral fiber, you are delusional.

ezra abrams said...

Is this the same RR who crossed a picket line at huff post, or someplace like that ?
cause ya know, his views are just so critical...
as my dad use to say, a scab never has to worry bout getting by, he can always steal from blind mens cups

and liberals wonder why blue collars hate hi falutin people

anne said in reply to ezra abrams...

Where is the precise reference to this nastiness?

Since Robert Reich provides his essays to any publication through a Creative Commons license, I cannot imagine how he could have crossed any picket line. Any essay by Reich can be used on any Internet site.

Returning now to the nastiness....

ilsm said...

Thuglican Jesus, thuglican God......

Factitious values based on thuglican God ordained "lesser people" should be property and the 98% exploited for the chosen .01%.......

See Sandwichman at Angry Bear.

cm said...

I suspect the moral center has been declared as a cost center, and not only yesterday.

[Sep 04, 2015] Four-fifths of the Economy is a Complete Waste of Time

EconoSpeak

Four-fifths of the "Economy" is a Complete Waste of Time

There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"
Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory. -- Paul Romer, "The Assumptions in Growth Theory"
Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.
As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'

Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.

Name one.

Carry on, growth theorists.

[Sep 04, 2015] An Indicator of Tribalism in Macroeconomics by Paul Romer

Paul Romer just want personal recognition and posts junk. It's not tribalism, it is complete subservience to financial oligarchy.
"...Peer review matters when peers matter. Peers matter when neither government nor markets can guide progress. When peers don't matter tribalism takes over to redefine 'progress' into a conundrum of redundant repetitive Orwellian loops that allow anything to mean anything."
Sep 03, 2015 Paul Romer

Second Best said...


An Indicator of Tribalism in Macroeconomics - Paul Romer

'If we replace statements 1 and 2 with statements 3 and 4, we could construct a comparable measure of tribalism in physics. If we did, I suspect that we would find little tribalism there. I suspect that in comparison, this indicator would reveal that macroeconomists are very tribal.

The positive question that this assessment prompts is how this tribalism emerged in macroeconomics. To me, this is what makes the recent intellectual history of the field so interesting.'

---

The normative question is should anyone be allowed to don the credentials of an 'economist' and reduce the entire discipline to a sophmoric smattering of random thoughts that just happen to fill a particular tribal 'objectivist' standard?

Peer review matters when peers matter. Peers matter when neither government nor markets can guide progress. When peers don't matter tribalism takes over to redefine 'progress' into a conundrum of redundant repetitive Orewellian loops that allow anything to mean anything.

[Sep 03, 2015] Economics Has a Math Problem - Noah Smith

Comment from Economist's View Links for 09-02-15

Dan Kervick said...

Noah Smith:

"Econ developed as a form of philosophy and then added math later, becoming basically a form of mathematical philosophy."

Interesting! And true I think.

My own academic background was in analytic philosophy, and we too used and studied those various technical models of decision-making under uncertainty that the economists love. The difference is that philosophers use those tools to address purely conceptual puzzles and conundrums about the behavior of idealized super-rational agents in conceptually possible circumstances that are generally quite distant from actual world people and behavior: circumstances such as Newcomb problems or the Sleeping Beauty Problem.

When I first began to look into economics, I was surprised to learn how similar it was to philosophy in its tools and arguments. The difference was that economists put forward the same conceptual idealizations as descriptions of *the actual world*!

My impression is that a lot of economists are people who wandered into the field from math, theoretical physics and philosophy. Despite the fact that economics pretends to be a behavioral or social science, these wanderers from the other conceptual realms of the academy lack the empirical discipline to be real scientists, and aren't really terribly interested in the understanding and studying the behavior of actual human beings and societies. So they gravitate toward the areas of the field in which pulling sophisticated and rigorous conceptually fantasies out of one's butt is admired and glorified. These are the glamour pusses who intimidate everyone else with displays of pure mathematical and conceptual intelligence, and seem to lord it over the field and define the ground for pertinent discussion.

I have read a lot of interesting papers over the past few years that were based on serious data. But doing that kind of work doesn't seem to be the way you get famous in economics.

[Aug 31, 2015] The Case for Realism in the Social Realm

"...So there is nothing to choose. Current economics consists of political economics, which is scientifically worthless, and theoretical economics, which is logically and materially inconsistent. Luckily, Jackson Hole shows: economists are clueless but never speechless."
"...We will understand that there are real social processes, mechanisms, and powers; that they derive from the actions and agency of actors; and that these processes can be traced out through fairly direct sociological and historical research. And we will understand too that claims about the reality of "capitalism", the world financial system, or fascism are to be understood less weightily than they first appear. Capitalism exists in a time and place; but it is understood to be an ensemble of relations and actions by the people of the time."
Aug 31, 2015 | Economist's View

RC AKA Darryl, Ron -> djb...

[Yes, I know mine is exactly 6.25 inches because I measured it, but I can only guess that yours is shorter because there is no way that I am ever going to measure it :http://economistsview.typepad.com/economistsview/2015/08/us-inflation-developments.html

Egmont Kakarot-Handtke said...

Always clueless, never speechless
Comment on 'U.S. Inflation Developments'

For a dispassionate observer Stanley Fischer's speech and the tidal wave of blog comments makes it pretty clear that there is an intellectual black hole where something like a true economic theory should be.

There is absolutely no use in entering into the morass of conflicting nonsense. Here are two fixpoints to secure some orientation.

• Inflation theory has never risen much above the commonplace Quantity Theory. The QT is plausible but ultimately untenable. The correct formula for the overall price level is given herehttps://commons.wikimedia.org/wiki/File:AXEC64.pngfor details see (2015, eq. (12)).

• Alternative macroeconomic approaches like Krugman's IS-LM are fundamentally flawed since Keynes and Hicks (2014) without any economist ever spotting the provable formal defect.

So there is nothing to choose. Current economics consists of political economics, which is scientifically worthless, and theoretical economics, which is logically and materially inconsistent. Luckily, Jackson Hole shows: economists are clueless but never speechless.

Egmont Kakarot-Handtke

References
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392856
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624350

RC AKA Darryl, Ron -> RC AKA Darryl, Ron...

[WOW! Typepad really screwed up that post. Here is what it dropped.

Keynes' definitions are debatable. I am in no way advocating the comment from yesterday's 'U.S. Inflation Developments' thread that I copy here nor its linked academic papers. I am actually defending Little's poorly written paper on this thread because there is a cogent point buried in his muddled over elaborated treatise on the distinctions between physical and social sciences. After reviewing the following and considering the sources of the actual "metrics" used in macro (e.g., interest, GDP, unemployment) then you might ask whether formalization or usefulness are the more important goals for macroeconomics.

For my part, then I find no fault in a heuristic approach as long as we know where we are trying to go. I am a huge fan of Keynes.]

RogerFox said...

"First, there are no theories in the social sciences that have the predictive and explanatory success of the physical sciences ..."

That admission necessarily puts the sword to social science theorizing, including interventionist macro, as an ethical guide to real world decision-making - the intervenors themselves admit they don't know whether the consequences of their interventions will make things worse or better.

Away with all the charlatans who insist on meddling anyway.

ilsm -> RogerFox...

Admission? Nah!

But there are no pentagon theories for war that can be relied upon.

See Vietnam, Iraq three times, Afghanistan.......

Fox admission only applies if you ignore reality.

djb -> RogerFox...

Yes RogerFox

Daniel Little who represents all people who have ever studied economics has let the cat out of the bag

That economists don't know anything

We were all hoping no one would notice, but of course, you are too sharp for us

Now of course it is probably too difficult for your shrunken brain to understand that your laissez faire philosophy is an economic concept, the results of which be studied and tested

But that's alright you got us

DAMN !!!

Peter K. -> RogerFox...

"interventionist macro,"

How can macro not be interventionist? In the middle of Krugman's latest blog post, he writes:

"What determines where we end up on that curve? Monetary policy. The Fed sets interest rates, whether it wants to or not - even a supposed hands-off policy has to involve choosing the level of the monetary base somehow, which means that it's a monetary policy choice."

"the intervenors themselves admit they don't know whether the consequences of their interventions will make things worse or better."

Not so, it's often easy to judge result.

What is Mr. Fox's school of thought? Know-nothingism? The Austrian school?

Peter K. -> Peter K....

https://en.wikipedia.org/wiki/Know_Nothing

"The immigration of large numbers of Irish and German Catholics to the United States in the period between 1830 and 1860 made religious differences between Catholics and Protestants a political issue. Violence occasionally erupted at the polls. Protestants alleged that Pope Pius IX had put down the failed liberal Revolutions of 1848 and that he was an opponent of liberty, democracy and Republicanism. One Boston minister described Catholicism as "the ally of tyranny, the opponent of material prosperity, the foe of thrift, the enemy of the railroad, the caucus, and the school."

"The origin of the "Know Nothing" term was in the semi-secret organization of the party. When a member was asked about its activities, he was supposed to reply, "I know nothing." Outsiders called them "Know-Nothings", and the name stuck."

One can imagine an old-timey Donald Trump railing against Irish and German immigrants.

Lafayette said...

{We will understand that there are real social processes, mechanisms, and powers; that they derive from the actions and agency of actors; and that these processes can be traced out through fairly direct sociological and historical research. And we will understand too that claims about the reality of "capitalism", the world financial system, or fascism are to be understood less weightily than they first appear. Capitalism exists in a time and place; but it is understood to be an ensemble of relations and actions by the people of the time.}

Good point.

Capitalism is a mechanism, a tool. All outcomes depend upon how it is employed in a given socioeconomic context.

Have all property owned by the state, then all profits will also be owned by the state, since individuals will receive only income. Of course, they tried that (calling it commune-ism), and it worked very badly.

Having property owned by individuals is just as bad if said properties generate Income that trickles-up to Wealth, then is used to manipulate political outcomes that favor uniquely a certain class of individuals. (Which, for lack of a better word, we can call "Plutocrats".)

Who then, because they think they are good-parents, leave their riches to their children thus extending dynastically the inherent Income Disparity into Wealth Disparity. That's not the case? Then why does Domhoff show this class breakdown of Net Worth (Wealth - Debt) in 2010:
Top 1% Next 19% Bottom 80%
35.4% .....53.5% .....11.1%

No wonder the relatively poorer classes remain poor. Because if you don't have the educational qualifications (vocational, college, university) to scramble into the next class breakdown (the 20Percenters), then forget of any pretense to an existence without constant worry about how solid your job-prospects will be throughout your lifetime.

And, with that, any social coverage for either illness or pension, etc. - ad nauseam.

ilsm -> Lafayette...

Capitalism is a tool [scam] to keep useful fools asking for more flogging.

likbez -> Lafayette...

"Capitalism is a mechanism, a tool. All outcomes depend upon how it is employed in a given socioeconomic context."

I think outcomes can be by-and-large predicted from the form of social relations capitalism enforces. Looks like Marx prediction about increasing misery of the proletariat (or bottom 80%, if you wish) holds, despite temporary reversal of the trend in 1945-1985.

Yes, the current form of capitalism which is neoliberalism is a tool, but it is a tool only for financial oligarchy. The tool of oppression to be exact.

For workers of Asian sweatshops and Mexican maquiladoras and probably for a large part of Americans who face shrinking working hours (with the redefinition what full employment means -- now it does not mean 40 hours a week) and push into contractors without any social protection and McJobs, it is more of a prison then a tool.

Here we get into the concept of countervailing force. Without countervailing force capitalism inevitably degrades into horrible, comparable with feudalism and slavery level of oppression of human beings. And in a way it creates such forces by the mere fact of its existence. In this sense the collapse of the USSR, while improved fortunes of top 20% in the USSR region, was a huge blow to lower 80% of Americans.

Despite Margaret Thatcher pronouncement about TINA, now mankind (including large part of commenters of this blog ;-) is trying to find another viable countervailing force that can held neoliberalism in check.

Very high oil prices might do the trick, as they will reverse globalization but they also can lead to the collapse of Western civilization as we know it.

Some countries, like several in Latin America, try to revive elements of socialism on a new (post USSR crash) level, some elements of religious fundamentalism (with the most strong trends in Islam and Catholicism), some like Russia and China -- elements of state capitalism.

But those development should be probably be understood in the context of the reaction on neoliberalism, not as completely independent developments.

EugenR said...

You speak here about Social sciences about economic factors that drive the society, about the political power in the society, and out there it is not relevant at all. Out there in the other half of the world, which is banging on the doors of your world, the main agenda is tribalism, cultural and ethical belonging.

The leading agenda of these people, in the other half of the world is the faith in their local tribal myths. Their myth is not about God and submission to it, but about conspiracy theory of being victims. Victims of whom? Not of political and spiritual leaders from their tribes, who dragged them to the desperate existential problems. Not against the belief system, that pushes them to legitimize self imposed slavery, submission to the cruelest authority, and above all faith causing self imposed ignorance to knowledge. They don't see themselves victims of those among them, who by using force and violence, actively oppose learning and adaptation of modern teachings about social justice, political correctness, ethical systems of morality, legality, equality, fraternity.

No! They will chose to be stuck in their old belief system familiar to them. Ancient tribal stories full of contradictions, indoctrinating and legitimating hatred, murder of the different, slavery, inequality, female discrimination, minority suppression, racism, etc. All these values, that created the political social systems and brought all this destruction in their homeland, from where they try in these days to run away, still remains to be THEIR value system. They will blame all the "others" who caused them their misery. The European colonists, the US Imperialists, the Zionists, the infidels, the homosexuals, the women exposing their natural beauty to admiration of man and women, the atheists, the scientists who still stick to their rational way of thinking, etc. But most of all will be hated those who gave them hand, when they most needed it, the humanitarian volunteers, because they are the first others, whom they encounter, when they exited from their burning world of destruction, and hate.

They will start a fight against all the ideas of Western philosophers from Descartes to the post modernists, who seemingly successfully brought to the awareness of most of the "Western world" population the idea of human-centralism, following the disastrous WWII caused by similar myth imitators . After they settle down in their now homes, they will not torn their "Holly books", indoctrinating hate and violent action against the humanists, who put in front of their God the human being. They will not torn the burqa, the symbol of women's submission to arrogant male domination upon the women. Their spiritual leaders, when they will stand up in their legal or illegal houses of "GOD", and point to those who have to be hated. And it is not to hard to guess who they will be.

RC AKA Darryl, Ron -> EugenR...

Colonialism breeds reactionary radicalism among indigenous souls. On a grand scale nations do eventually reap a bit more than they sewed. Call it karma for lack of a better word.

EugenR -> RC AKA Darryl, Ron...

You are right, colonialism was a creepy, disastrous idea, even if at certain stage of human history it helped in the development of human understanding of the realities of the world. In the late nineteen century it became a very lousy business, and partially brought the first world war. Still to blame the Western colonialism that ended more than 50 years ago, for all the misery of Africa and the Arab world is just self deception...

ilsm said...

Observations on economics are blurred by the con artists and snake oil salesmen ruining civil society.

Observer and instrument effects are symptoms.

Peter K. said...

"If this is the approach we take, then our claims about what is "real" in the social realm will be more modest that some have thought. We will understand that there are real social processes, mechanisms, and powers; that they derive from the actions and agency of actors; and that these processes can be traced out through fairly direct sociological and historical research."

It's all shorthand. What needs to be kept in mind is that words and phrases are shorthand and don't really capture the concept or "real thing" they are relating between the person who employs them and the listener or reader. Math and equations too obviously are shorthand. You can follow the word or phrase with qualifying sentences to specify and clarify what you mean by it.

So when we talk about inflation, or full employment or "real" full employment or potential GDP or the Wicksellian Natural Rate or expected inflation, they are often contested concepts because they are shorthand and don't apply in an obvious manner to something "real" out there we can touch.

Because of all of this, people disagree on some basic ideas about the social realm. Monetary policy doesn't work they say. Fiscal policy doesn't work they say. Even if most of the smart, objective, honest, knowledgeable people you meet - or dead authors you read - say otherwise.

Just look at Mr. Fox. Language (shorthand) and contestable ideas bend easily to those under the influence of power, privilege and money.

[Aug 12, 2015]The Macroeconomic Divide

"...Too much of macro is ideologically driven conjecture, or worse. None of it rises to the level of demonstrated reliability necessary to ethically inform decision-making. Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level - that will permit the profession to at long last begin to honor its highest ethical duty ... 'First, do no harm.'"
Economist's View
Paul Krugman:
Trash Talk and the Macroeconomic Divide: ... In Lucas and Sargent, much is made of stagflation; the coexistence of inflation and high unemployment is their main, indeed pretty much only, piece of evidence that all of Keynesian economics is useless. That was wrong, but never mind; how did they respond in the face of strong evidence that their own approach didn't work?
Such evidence wasn't long in coming. In the early 1980s the Federal Reserve sharply tightened monetary policy; it did so openly, with much public discussion, and anyone who opened a newspaper should have been aware of what was happening. The clear implication of Lucas-type models was that such an announced, well-understood monetary change should have had no real effect, being reflected only in the price level.
In fact, however, there was a very severe recession - and a dramatic recovery once the Fed, again quite openly, shifted toward monetary expansion.
These events definitely showed that Lucas-type models were wrong, and also that anticipated monetary shocks have real effects. But there was no reconsideration on the part of the freshwater economists; my guess is that they were in part trapped by their earlier trash-talking. Instead, they plunged into real business cycle theory (which had no explanation for the obvious real effects of Fed policy) and shut themselves off from outside ideas. ...

RogerFox said...

Both sides in this macro cat-fight have succeeded in demolishing the credibility of their opponents, at the expense of being demolished themselves - meaning none of them are left standing in the eyes of anyone except their own partisan groupies, who are well-represented on this site. That's nothing but good.

Too much of macro is ideologically driven conjecture, or worse. None of it rises to the level of demonstrated reliability necessary to ethically inform decision-making. Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level - that will permit the profession to at long last begin to honor its highest ethical duty ... 'First, do no harm.'

RC AKA Darryl, Ron said in reply to RogerFox...

Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level - that will permit the profession to at long last begin to honor its highest ethical duty ... 'First, do no harm.'

[That is some pretty ironic BS that you are totin' around. The profession does a very good job of NOT intervening in things that any one with half a brain should understand. How on earth do you think the 2008 financial crisis ever even happened? Economists could not intervene because they had black swans squatting on their hands, particularly those economist like Greenspan and Bernanke that were actually in a position to do something to prevent the crisis. Krugman wrote some articles warning about the risk, but undersold his case even to himself. Only Mike Stathis (an investments adviser and trader - not an economist) formally warned (in America's Financial Apocalypse: How to Profit from the Next Great Depression. 2006. ISBN 978-0-9755776-5-3) of the full scope of the coming disaster and that formal warning came a bit late and was almost entirely ignored. Nouriel Roubini (a.k.a. Doctor Doom), who is an economist, ran Stathis a close second on getting it correct. Dean Baker, also an economist, was in there too. It was entirely ignored by Greenspan and Bernanke, although I believe they knew what was going to happen but would rather clean up the mess than stop the party and get blamed for the fallout.

After the crisis several economists recognized the scale of the necessary stimulus to get the economy back on track, but a world of idiots, some of whom you may know, precluded an adequate response to prevent prolonged high unemployment.

Are you a market trader or just a rich man's tool? Anything else would make you just a plain ol' fool.]

DrDick said in reply to RogerFox...

"Both sides in this macro cat-fight have succeeded in demolishing the credibility of their opponents"

You, on the other hand. never had any credibility to begin with.

"Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level"

You might take your own advice, as it is evident that you know nothing about economics or policy.

Peter K. said in reply to RogerFox...

Partisan groupies? Nope. We're the objective ones in this discussion.

Mr. Fox has no criteria upon which to judge and measure things, so of course he has no basis to criticize.

"First do no harm." How can you tell that harm has been done when you don't believe in anything?

You automatically believe that taking no action and the sin of omission is the better choice? But you have no basis on which to make that assumption.

"First do no harm" when it comes to government policy is conservative propaganda.

Paine said in reply to RogerFox...

If rog refuses to entertain any notion of macro nautic efficacy

He. Has taken his position
And perhaps he ought to be left to
sit on it
as long as he likes

However

If he has a test of say Lerner's
fiscal injections model he'd like to propose
A test that if past would change is mind

> Paine said in reply to Paine ...

Cockney takes over
when I sez his
it comes out is

RogerFox said in reply to Paine ...

I don't have a dog in this fight - but I do know that it's dangerously irresponsible and unprofessional to offer advice, or act on it, unless there is adequate evidence to justify the opinion that the advice will not plausibly make the situation worse than it is otherwise destined to be. The compiled track record of all theories of macro demonstrate that none of them yet meet that test - and this ongoing internecine cat-fight has done much to reinforce that view IMO.

Academics need to understand what real economy people who give advice professionally know very well - that an idea or theory could well be right and beneficial isn't enough to justify acting on it without proper consideration to the consequences should the approach prove to be wrong. Candidly assessing down-side risks seems to be anathema to all academics - almost as if they regard the entire matter as some sort of affront to their dignity.

The Crash of '08 and the Crash of '29 both happened, with academic macro-mavens leading us straight into both of them - eyes wide shut. Better for everyone if they'd just kept their mouths shut too.

pgl:

"In the early 1980s the Federal Reserve sharply tightened monetary policy; it did so openly, with much public discussion, and anyone who opened a newspaper should have been aware of what was happening. The clear implication of Lucas-type models was that such an announced, well-understood monetary change should have had no real effect, being reflected only in the price level.In fact, however, there was a very severe recession - and a dramatic recovery once the Fed, again quite openly, shifted toward monetary expansion. These events definitely showed that Lucas-type models were wrong, and also that anticipated monetary shocks have real effects."

Note Krugman is referring to the 2nd Volcker monetary restraint which happened under Reagan's watch. Rusty needs to get his calendar out as he thinks this was all Carter. Actually Volcker was following the advise of JohnH. How did the early 1980's work out for workers?

Back in 1982/3 I heard some economist seriously saying that this recession was due to some notion that people still had high expected inflation. When I asked them WTF - they response was the Reagan deficits.

Yes macroeconomics confuses some people terribly. Look at a lot of the comments here for how confused some people get.

Paine said in reply to pgl...

Confused or partisan ?

Egmont Kakarot-Handtke said...

No divide
Comment on 'The Macroeconomic Divide'

Keynes's employment function was indeed incomplete (2012). So far, Lucas/Sargent had a point. But the NAIRU expectation-wish-wash was even worse. So far, Krugman has a point. The deeper reason is that economics not only has no valid employment theory but that it is a failed science.

Neither the loudspeakers of the profession nor the representative economists of the various schools have a clue about how the actual economy works. What unites the camps is scientific incompetence.*

Egmont Kakarot-Handtke

References
Kakarot-Handtke, E. (2012). Keynes's Employment Function and the Gratuitous Phillips Curve Desaster. SSRN Working Paper Series, 2130421: 1–19. URL http://ssrn.com/abstract=2130421

*For details see the cross-references
http://axecorg.blogspot.com/2015/07/incompetence-cross-references.html

[Aug 03, 2015] Freshwater's Wrong Turn

"... This reminds me of the "we create reality" stuff from the neo-cons. Maybe it's just more infection of Straussian "ethics" at UofC (see Shadia Drury).
Aug 2, 2015 | Economist's View

Paul Krugman follows up on Paul Romer's latest attack on "mathiness":

Freshwater's Wrong Turn (Wonkish): Paul Romer has been writing a series of posts on the problem he calls "mathiness", in which economists write down fairly hard-to-understand mathematical models accompanied by verbal claims that don't actually match what's going on in the math. Most recently, he has been recounting the pushback he's getting from freshwater macro types, who seem him as allying himself with evil people like me - whereas he sees them as having turned away from science toward a legalistic, adversarial form of pleading.
You can guess where I stand on this. But in his latest, he notes some of the freshwater types appealing to their glorious past, claiming that Robert Lucas in particular has a record of intellectual transparency that should insulate him from criticism now. PR replies that Lucas once was like that, but no longer, and asks what happened.
Well, I'm pretty sure I know the answer. ...

It's hard to do an extract capturing all the points, so you'll likely want to read the full post, but in summary:

So what happened to freshwater, I'd argue, is that a movement that started by doing interesting work was corrupted by its early hubris; the braggadocio and trash-talking of the 1970s left its leaders unable to confront their intellectual problems, and sent them off on the path Paul now finds so troubling.

Recent tweets, email, etc. in response to posts I've done on mathiness reinforce just how unwilling many are to confront their tribalism. In the past, I've blamed the problems in macro on, in part, the sociology within the profession (leading to a less than scientific approach to problems as each side plays the advocacy game) and nothing that has happened lately has altered that view.

Posted by Mark Thoma on Sunday, August 2, 2015 at 11:54 AM in Economics, Macroeconomics, Methodology | Permalink Comments (20)

pgl said...
When I first heard this Lucas island - also known as Friedman-Phelps - story about business cycles being driven by unanticipated inflation, it initially stuck me as interested. Then I thought about the fact that the Rational Expectations version would have trouble explaining why nominal shocks affect real events for more than a few months.

No - it did not take long to realize that this nice neat model could not explain the real world. But what we usually got back then is a large parade of statistical techniques that just confused matters even more.

At which I began to wonder what I was interested in macroeconomics in the first place.

eightnine2718281828mu5 said in reply to pgl...
---
the braggadocio and trash-talking of the 1970s left its leaders unable to confront their intellectual problems
---

iow, assigning a higher value to their accumulated research (reputation?) than it was actually worth.

sticky prices indeed.

RC AKA Darryl, Ron said in reply to eightnine2718281828mu5...
:<)

[For most of us then:]

"...Freedom's just another word for nothing left to lose
Nothing don't mean nothing honey, if it ain't free
Feeling good was easy, Lord, when he sang the blues
You know, feeling good was good enough for me
Good enough for me and my Bobby McGee..."
ARTIST: Kris Kristofferson
TITLE: Me and Bobby McGee

*

[For most of them then freedom is just a matter of low-regulation low-tax supply side economic policy. TO which end their statistics demand many degrees of "freedom" and they have taken increasingly more extensive "freedoms" with their theories ever since Uncle Milty taught us about "Capitalism and Freedom," why the initial conclusions reached by Keynes were all wrong, and why monetarism was sacred. (barf)

I remember the 1970's well. The terminal punctuation was Reagan's election in 1980. When I was drafted in 1969 I still retained some hope, although much diminished since MLK was murdered a year earlier. By the time I returned from Viet Nam it was just one slap in the face after another. All our (the social movement that happened alongside the hippies) hopes from the 60's were dashed. Blacks were to be "locked" into ghettos by public policy and the working class was to be sacrificed on the alter of corporatism one merger or outsource at a time. ]

anne said...

https://en.wikipedia.org/wiki/Real_business_cycle_theory

Real business cycle theory models (RBC theory) are a class of New classical macroeconomics models in which business cycle fluctuations to a large extent can be accounted for by real (in contrast to nominal) shocks. Unlike other leading theories of the business cycle, RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility, and governments should therefore concentrate on long-run structural policy changes and not intervene through discretionary fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.

anne said in reply to anne...
http://krugman.blogs.nytimes.com/2014/02/17/the-trouble-with-being-abstruse-slightly-wonkish/

February 17, 2014

The Trouble With Being Abstruse (Slightly Wonkish)
By Paul Krugman

Political scientists who write clearly for a broader audience are upset * with Nick Kristof ** for saying that political scientists no longer write for a broader audience. I'm not going to get into that fight. I do want to register one point, however: In my field there is indeed a problem with abstruseness, with the many academics who never even try to put their thoughts in plain language.

And what is the nature of that problem? It's not that laypeople don't understand what the academics are saying. It is, instead, that the academics themselves don't understand what they're saying.

Don't get me wrong: I like mathematical modeling. Mathematical modeling is a friend of mine. Math can be a powerful clarifying tool. So, in some cases, can jargon, which used right can both save time and add clarity to the discussion. If I talk about Dixit-Stiglitz preferences, or for that matter the zero lower bound, technically trained economists immediately know whereof I speak, where plain English would both take longer and leave room for misunderstanding.

But it's really important to step away from the math and drop the jargon every once in a while, and not just as a public service. Trying to explain what you're doing intuitively isn't just for the proles; it's an important way to check on yourself, to be sure that your story is at least halfway plausible.

Take real business cycle theory – I know it's a horse I beat a lot, but it's not dead, and it's a prime example within economics of what I have in mind. I still want to spend at least some time explaining that theory to my undergrads, so I've been looking for a simple, intuitive explanation by an RBC theorist of what's going on. And I haven't been able to find one!

I mean, I could do it myself. Strip the story down to basics – make it a steady-state model, not a growth model, and drop the capital accumulation; what you're left with is fluctuations in the marginal productivity of labor, which have a magnified impact on output because workers choose to work less when the technology is bad and more when the technology is good. As I've written before someplace, it's the story of a farmer who stays inside when it's raining and puts in extra hours when the sun is shining.

But the RBC theorists never seem to go there; it's right into calibration and statistical moments, with never a break for intuition. And because they never do the simple version, they don't realize (or at any rate don't admit to themselves) how fundamentally silly the whole thing sounds, how much it's at odds with lived experience.

I once talked to a theorist (not RBC, micro) who said that his criterion for serious economics was stuff that you can't explain to your mother. I would say that if you can't explain it to your mother, or at least to your non-economist friends, there's a good chance that you yourself don't really know what you're doing.

Math is good. Sometimes jargon is good, too. But plain language and simple intuition are important to keep you grounded.

* http://crookedtimber.org/2014/02/16/look-who-nick-kristofs-saving-now/

** http://www.nytimes.com/2014/02/16/opinion/sunday/kristof-professors-we-need-you.html

mulp said in reply to anne...
Freshwater economists, free lunch economists, speak very clearly.

Its too good to be true which makes everyone who wants a free lunch to believe it.

For example, free lunch economists say lower prices are achieved by lower wages, fewer workers, tax cuts, and higher profits, which creates wealth, and the unemployed and working poor spend more using money the will never pay back because of the wealth effect, with mathiness to backup their claims.

What they never do is put them all together like I have done so the words are revealed as nonsense and the math is 1+2-3 = 10 and thus obviously bogus.

Note fresh water economists NEVER state that consumer spending is driven by wage income, as in real wage income, not the income from capital gains which sorta lots like wages but is really rent seeking aka private tax on the savings of workers.

How can lower wages to get lower prices ever result in higher GDP without lots of debt that can never be repaid?

Lafayette said in reply to anne...
TO APE ONE ANOTHER

{PK: with the many academics who never even try to put their thoughts in plain language.}

Ha! I like that!

Tis True. How many times do we see the word "exogenous". Many. How often, "endogenous"? Never.

Anybody for a hard look at the "endogenous" factors causing economic cyclicity? How about the human ability to "ape" one another's consumer habits that builds patterns increasing in intensity - until the "bubble" bursts? ("Cyclicity"? Wow! Nice word? Hardly used! Here we go again!!!;^)

Like lemmings falling off a cliff - cyclic in nature but deadly in consequence.

DeDude said...
When your math is incompatible with the observations from the real world - its the math that's wrong. I don't have a 3 page formula, but just trust me on this one.
GeorgeK said...
You will find the answers to all your questions in this book
http://www.amazon.com/Wiser-Getting-Beyond-Groupthink-Smarter/dp/1422122999/ref=sr_1_1?s=books&ie=UTF8&qid=1438554831&sr=1-1&keywords=Group+think+getting+beyond

bakho said...

Science advances one funeral at a time. - Max Planck

They are too invested in their mistakes to accept criticism.
The next generation of economists will accept that they were wrong.

likbez said...
Before becoming columnist Krugman was mathiness practioner ;-)

reason said...

Anne
"That is, the level of national output necessarily maximizes expected utility"

We could stop right there. Clear nonsense. (You can always INCREASE utility by redistributing from rich to poor - at least with any sensible definition of utility.

See this discussion
http://crookedtimber.org/2015/07/24/utilitarianism-with-the-potentially-left-wing-bits-stripped-out/comment-page-2/

Egmont Kakarot-Handtke said...

Here it comes: the sexit
Comment on 'Freshwater's Wrong Turn'

There is political economics and theoretical economics. In political economics it suffices to tell a plausible story, in theoretical economics scientific standards are observed. Because economists since Adam Smith pursued these two hares simultaneously, coherence got eventually lost. As a result, economists never developed a theory about how the market economy works that satisfies the scientific criteria of material and formal consistency (Klant, 1994, p. 31).

Economics is a failed science. Therefore, Paul Romer is in for a second big surprise. Until now he thought: "As you would expect from an economist, the normative assertion in 'X is wrong because it undermines the scientific method' is based on what I thought would be a shared premise ..."

Now he learns: "In conversations with economists who are sympathetic to the freshwater economists ... it has become clear that freshwater economists do not share this premise. What I did not anticipate was their assertion that economists do not follow the scientific method, so it is not realistic or relevant to make normative statements of the form 'we ought to behave like scientists'."

What is the difference between political and theoretical economics?

"A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent." (Haack, 1997, p. 1)

The fact of the matter is that theoretical economics has from the very beginning been hijacked by the agenda pushers of political economics. Smith and Mill were agenda pushers against feudalism. Marx and Keynes were agenda pushers and so were Hayek and Friedman. However, all these economists insisted that they were doing science. This has changed now: "... the evidence ... suggests that freshwater economists differ sharply from other economists."

The freshwater economists simply state the obvious, that is, that they are committed to politics and not to science. This marks the beginning of a voluntary scientific exit (sexit for short). What Romer has not yet realized is that most saltwater economists have to leave through the same door.

Egmont Kakarot-Handtke

References
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL http://www.csicop.org/si/show/science_scientism_and_anti-science_in_the_age_of_preposterism.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.

lagarita said...

This reminds me of the "we create reality" stuff from the neo-cons. Maybe it's just more infection of Straussian "ethics" at UofC (see Shadia Drury).

Lafayette said in reply to lagarita...

APART FROM BERNIE

{"we create reality"}

Their entire existence revolves around such vapid, empty simplisms because they have no theoretical substance to their politics. It is either their lack of intelligence or their selfish perfidy that reduces their theoretical foundation of political views.

They are hooked on the fallacy of wealth-creation as the sole credible goal/consequence of an economy. Piketty put that thought to shame in his work on Income Disparity, as did Domhoff on Wealth Disparity. The statistical facts (ie., the "numbers") could not be more clear.

What should bother us most is not only the generation of enormous wealth, and the influence it has on a moneyed electoral system, but the dynastic tendency of such riches. The Koch Bros are already the first generation - will we be contending with the political antics of second, or third, or fourth generations?

The last time historically that happened in Europe, called Inheritance Aristocracy, it all came apart in bloodshed.

And yet the better notion of Social Justice, which supposes that all humans are created with the equal right to fairness and equitability, has taken decades upon decades to come to the fore.

It is still no where near dominating political thought in America. Apart from Bernie, that is ...

Lafayette said...
LOOK IN THE MIRROR

{the braggadocio and trash-talking of the 1970s}

Of the 1970s?

This type is still the mainstay of American parlance, whether political or business or just blogging. The aggressiveness of the language employed knows no bounds.

The intent in commentary, whether verbal or written, whether political or otherwise, is overly combative and largely "ad hominem". The real subject of controversy is lost in the personalization of the rebuttals. The issues that largely determine the political consensus thus become secondary and confused.

Really 'n truly puerile ... like the children they were and they remain, particularly in politics. Propelled by one and only one goal - to win, win, win.

And without politics or politicians, what is a democracy? It's an autocracy. With them, its a manifested willfulness by a moneyed few to dominate electoral outcomes - and we are pawns in the game.

My point? As an electorate, the people we chose to represent us personify as well the kind of people we are. So, complaining about the politicos in LaLaLand on the Potomac is useless.

Seeking someone to blame? Look in the mirror ...

[Jul 30, 2015] How A Pork Bellies Trader And Milton Friedman Created The Greatest Trading Casino In World History

"...In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman."
.
"...The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile."
.
"..."It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters,""
.
"..."When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold", With, then as now, less than an ounce of gold per person on Earth, a third grader had arithmetic skills enough to know this was a ridiculous claim."
economistsview.typepad.com
Jul 21, 2015 | Zero Hedge

"I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.

In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.

Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.

Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.

As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.

Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.

During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.

Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.

In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.

A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.

Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.

Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.

It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.

THE PORK-BELLY PITS: WHERE THE AGE OF SPECULATIVE FINANCE STARTED

Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.

At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.

The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.

Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.

The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.

When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.

Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.

The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.

Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.

Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.

THE LUNCH AT THE WALDORF-ASTORIA THAT OPENED THE FUTURES

According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."

Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."

The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."

In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.

Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.

Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.

As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.

After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."

"It's a wonderful idea," Friedman told him. "You must do it!"

Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"

He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.

Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.

In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

*****

Source: The Great Deformation by David Stockman

falak pema

Hahaha, for the FIRST time I see a post here on ZH where the "profoundly erroneous monetarist doctrine" of Milton Friedman gets blamed for what follows : the greatest monetary sin of the West (after the gold exchange standard according to Jacques Rueff).

The Friedmanite floating rate regime is what started the instability in the world monetary casino and yes the futures market did the rest.

Yipeeee, we have it right there. The monetary SIN laid out here at ZH and it had NOTHING to do with Keynesian plays. The Casino was a PURE product of the CHICAGO school so dear to Hayek. Who approved the supply side "liberalisation" of Reaganomics that followed.

ZH has vindicated that very important piece of the puzzle in the global financial time line of our present age.

Now Keynes's ghost can rest in piece. Monetarism will have to carry its own Cross on its Golgothan march.


The Delicate Genius

I think there may be a middle you're excluding...

falak pema

May be a middle called Nixonian petrodollar anchoring. But that did not change the Casino mantra. It just anchored "our money your problem" to Saud's Oil guzzler.

All that did was to suck the Oil into the fiat bonanza world.

Something the Sauds don't appreciate anymore as the Fiat pile is making Pax Americana fragile and it cannot zero hedge its support of Sunni Saudi hubris. It has to HEDGE with IRAN...now having showed its resilience after 40 years of confronting the USA.

C'mon Genius don't just mumble in your libertarian beard, put up or shut up.

hxc

Not all monetarists are chicagoan. They became book cookers for Keynesian discretionary policy... Hence NK's, New Classicals, "market monetarists," et cetera. Friedman's been reduced to the guy in the back room, wearing a green visor and rigging up Keynes' insane monetary system.

Check it out

The Perversion of Monetarism

MASTER OF UNIVERSE

Agreed, but only because you know more than I do when it comes to Economics, and because I always thought that cocksucker Freidman, and the Chicago School, were crooked snakes-in-the-grass all along. And frankly, Z/H does kind of beat on Keynes a bit too much sometimes, but the SOB is dead, so who cares anyhow. Historiography has a nothing to do with reality in this day and age, methinks.

falak pema

1946 Keynes dies. 1965 De Gaulle starts talking about "exorbitant privilege" and US hubris.

At the end of the 60s the London Gold club that tries to bridge French concerns about US spending profiglacy (Vietnam war, great society) and US balance of trade deterioration, collapses. Harold Wilson caves in to "gnomes of Zurich" and London loses pivotal role with a devalued £.

By 1969 the French have put the fear of God up Nixon when a french gunboat arrives reclaiming French gold deposited in NY. SO...1971 and Nixon makes the plunge.

You can say what you like about Keynes. He had nothing to do with Nixon/Johnson's spending spree which made gold revoke inevitable. It was not his philosophy which was à la mode in 1969 but the Chicago school.

MASTER OF UNIVERSE

From what I have read about Keynes he was appropriately characterized as 'brilliant'. Of course, no amount of Keynesian Stimulus could have shut down the Bear Stearns bear raid, or the Lehman Bros. Chapter 11. Ergo, the downfall of Freidman's orthodoxy was bound to occur as soon as Glass-Steagall deregulation provided the leverage via the FCC. Since the exemption on leverage for Bear Stearns it took five years to melt down to a systemic Worldwide intractable problem. Keynes was right about CB intervention, but he had no way of knowing that certain fundamentals would be altered beyond logic of failsafe.

p.s. thanks for going into detail on history. I always appreciate historical background given my background in Experimental Psychology/Personality/Biography/Historiography and Sociology.

withglee

Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar.

Oh really? What would you have done ... with the street price of gold at over $70, the official price at $35, and the French choosing to be compensated in gold rather than dollars, as they were supposedly the same thing.

What would you have done?

knukles

Another reason the Chitown Loop banks were not supportive of Melamed's currency futures ideas was that the Harris primarily was at the time "the" Bulge Bracket Big Swinging US Based Dick of the cash and forward 4X markets as well as one of the largest financers of the futures businesses on the CME and CBoT. They saw Leo not as a product extension, but a threat to their dominance.

withglee

When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold,

With, then as now, less than an ounce of gold per person on Earth, a third grader had arithmetic skills enough to know this was a ridiculous claim.

armageddon addahere

Everybody acts like Nixon closing the gold window was the beginning of something. It wasn't. It was the end. At that point the US had been spending money like water overseas for everything from the Marshall Plan, Volkswagens and Japanese transistor radios to the Korean and Vietnam wars. There was a net inflow of gold during the depression and WW2, but after that there was a steady outflow all through the fifties and sixties.

The whole world wanted American dollars, and a lot of it got turned in for American gold. The gold was nearly gone. At the rate it was going, the last ounce would leave Fort Knox in less than two years. They had no choice but to end the convertability of gold - sooner or later. Nixon's only choice was to take action and make a smooth transition or let everything go to hell at once.

most-interesting-frog-world

Bear

"The Great Deformation by David Stockman" ... This is the most remarkable treatise on economic history ever written. If you haven't read it you are still in the dark.You will continue to see many excerpts from this book on ZH ... and well deserved.

David Stockman should be given a Nobel Prize for Economics ... for exposing Economics as the insanity it is and fully captive to politics.

[Jul 20, 2015] The Rivals (Samuelson and Friedman)

Jul 20, 2015 | Economist's View

pgl said...

If one ever had the pleasure of talking with Milton Friedman - he could do theory and math with the best of them. But he had a keen sense of history. Samuelson was the brilliant mathematician but he also had a keen sense of figuring how the math applied to the real world. There were both very different in style but were also incredibly influential as they were both incredibly honest. One might not always agree with their points of view but one does owe them a fair read. For example the gold bugs who think Friedman is one of them have no clue what he has written on monetary economics. The best of the liberal economists today - Bernanke and Krugman - say they learned a lot from Friedman.

Whereas believers in the role of markets owe a lot to Samuelson even if his Stopler-Samuelson theorem shows there are also losers from free trade. Something I don't think Greg Mankiw ever got.

RC AKA Darryl, Ron -> pgl... Sunday, July 19, 2015 at 11:28 AM

When your yardstick is Greg Mankiw or John Cochrane then indeed Milton Friedman was a genius of the highest order, but not compared to Keynes.

pgl -> RC AKA Darryl, Ron... Sunday, July 19, 2015 at 11:40 AM

So true. Cochrane could not hold Friedman's shoes. And Mankiw pushed through that 2001 tax cut. When Bush invited Friedman to lunch at the White House he was shocked when Friedman cussed out the Administration for its fiscal irresponsibility.

ilsm -> pgl... Sunday, July 19, 2015 at 12:41 PM

Friedman was an actuarial. Warsh attributed to some of his WW II efforts to work done in Dept. of Ag by W Edwards Deming for selecting hybrid corn.

Actuaries are certainly into history.

What strikes me is how supply side was "sold" by the pop econ of PBS, Milton and Reagan.

How many of the older generation used Samuelson, many who preferred math were brought over.

pgl -> ilsm... Sunday, July 19, 2015 at 12:22 PM

Don't blame the stupidity of Laffer on Friedman. Friedman like a lot of smart conservatives refused to work within the Reagan Administration. Laffer was the main reason.

mulp -> pgl... Sunday, July 19, 2015 at 12:42 PM

But he NEVER damned them for citing him as their authority in all their disastrous economic and social policies.

If Reagan failed to make Friedman very publically join the Democrats to fight Reagan, Friedman simply had no conscience. Tens of millions imprisoned in the war on drugs, and Friedman said nothing. He rationalized the free lunch economics of Reagan's economists who cited Friedman. HW called them voodoo economics, because how does supply get sold if workers have less money to buy it?

Reagan delivered tax cuts to millions of workers - when you lose a high paying union job, your taxes go down a lot. Losing a high paying job does not increase consumer spending or tax revenues.

Second Best -> pgl... Sunday, July 19, 2015 at 10:33 PM

Friedman always viewed free markets and free politics (a democracy) as fundamentally inconsistent because there was always a strong incentive to co-opt markets with government interference. Usually this is seen in terms of excess regulation on behalf of consumers but he also meant companies using regulation to suppress competitors (see doctor licensing in the article). Friedman also said corporations should not be in the business of funding non-business activities like the arts and such for similar reasons.

It was a prescient but possible unintended insight on the current state of omnipotent invasive corporate power from which there is no escape. It is not clear where Friedman would draw (or retract) the lines today between private and public. For example he strongly supported charter schools funded with vouchers which clearly endorses education as a business enterprise because it adds more choices, but many have failed.

Bruce Webb -> Second Best... Sunday, July 19, 2015 at 01:31 PM

"Friedman always viewed free markets and free politics (a democracy) as fundamentally inconsistent because there was always a strong incentive to co-opt markets with government interference."

So when Friedman titled his influential popular book Capitalism and Freedom he was actually defining the latter term in specifically anti-democratic terms?
http://butler-bowdon.com/Milton-Friedman-Capitalism-And-Freedom

Good to know. And actually validates most left critiques of Friedman given his proven willingness to be chummy with Right wing dictators.
https://en.wikipedia.org/wiki/Miracle_of_Chile

Though I don't think that supporters of Freshwater Econ are supposed to say any of this out loud.

ScentOfViolets -> pgl... Monday, July 20, 2015 at 07:32 AM

Friedman honest?!? HAHAHAHAHAHAHA! While he did contribute to basic econ theory -- and we are all heavily in his debt for those contributions -- on the public policy side he was anything but. As anyone who has even a cursory knowledge of history knows. His debating style was contemptible.

likbez -> ScentOfViolets... Sunday, July 19, 2015 at 04:18 PM

Friedman was early neoliberal and "Capitalism and Freedom" was/is a pitiful (probably paid) neoliberal propaganda.

It can't be classified as a honest work. Otherwise Friedman looks imbecilic. And it was all downhill after that. His support of Pinochet was criminal.

=== Quote ===
During 1975, two years after the military coup that brought military dictator President Augusto Pinochet to power and ended the government of Salvador Allende, the economy of Chile experienced a severe crisis. Friedman and Arnold Harberger accepted an invitation of a private Chilean foundation to visit Chile and speak on principles of economic freedom.[82]
... ... ...
In an April 21, 1975, letter to Pinochet, Friedman considered the "key economic problems of Chile are clearly ... inflation and the promotion of a healthy social market economy".[84] He stated that "There is only one way to end inflation: by drastically reducing the rate of increase of the quantity of money ..." and that "... cutting government spending is by far and away the most desirable way to reduce the fiscal deficit, because it ... strengthens the private sector thereby laying the foundations for healthy economic growth".[84] As to how rapidly inflation should be ended, Friedman felt that "for Chile where inflation is raging at 10–20% a month ... gradualism is not feasible. It would involve so painful an operation over so long a period that the patient would not survive." Choosing "a brief period of higher unemployment..." was the lesser evil.. and that "the experience of Germany, ... of Brazil ..., of the post-war adjustment in the U.S. ... all argue for shock treatment". In the letter Friedman recommended to deliver what the shock approach with "... a package to eliminate the surprise and to relieve acute distress" and "... for definiteness let me sketch the contents of a package proposal ... to be taken as illustrative" although his knowledge of Chile was "too limited to enable [him] to be precise or comprehensive". He listed a "sample proposal" of 8 monetary and fiscal measures including "the removal of as many as obstacles as possible that now hinder the private market. For example, suspend ... the present law against discharging employees". He closed, stating "Such a shock program could end inflation in months". His letter suggested that cutting spending to reduce the fiscal deficit would result in less transitional unemployment than raising taxes.

Sergio de Castro, a Chilean Chicago School graduate, became the nation's Minister of Finance in 1975. During his six-year tenure, foreign investment increased, restrictions were placed on striking and labor unions, and GDP rose yearly.[85] A foreign exchange program was created between the Catholic University of Chile and the University of Chicago. Many other Chicago School alumni were appointed government posts during and after the Pinochet years; others taught its economic doctrine at Chilean universities. They became known as the Chicago Boys.[

=== end of quote ===

In his late year Friedman became a political hack. Look at the nonsense he sported in his interviews that are available on Youtube if you wish.

BTW he renounced monetarism (which was the cornerstone of early neoliberalism) in his late years. That's probably the only positive thing one can say about his late years.

It looks strange to me that such people as John Kenneth Galbraith actually have pretty high opinion about Friedman, but that probably can be explained by the value of his early work.

anne said... Monday, July 20, 2015 at 05:10 PM

When Keynes died, in April 1946, The Times of London gave him the best farewell since Nelson after Trafalgar: "To find an economist of comparable influence one would have to go back to Adam Smith." A few years later, Alvin Hansen, of Harvard University, Keynes' leading disciple in the United States, wrote , "It may be a little too early to claim that, along with Darwin's Origin of Species and Marx's Capital, The General Theory is one of the most significant books which have appeared in the last hundred years. … But… it continues to gain in importance."

In fact, the influence of Keynes' book, as opposed to the vision of "macroeconomics" at the heart of it, and the penumbra of fame surrounding it, already had begun its downward arc....

-- David Warsh

[ Of course, the work of Keynes has been as influential as the work of Smith. Of course, "The General Theory" was and continues to be "one of the most significant books which have appeared in the last hundred years."

David Warsh apparently is unable to tell the difference between researched ideas that are of lasting significance and influence and political-economic policy that may conflict with the ideas in question because policy makers may have motives other than fair-minded meticulous researchers.

That an Angela Merkel may have no interest in the work of Keynes is in no way a reflection of work of Keynes. The work of Darwin is still absurdly dismissed by a range of political leaders. ]

RC AKA Darryl, Ron -> anne...Sunday, July 19, 2015 at 11:57 AM

Yep, policy makers needed "financialization" to complete their vision of post-war wealth consolidation. Keynes' General Theory was much less amicable to financialization, consolidation, and free-markets fundamentalism than was the neo-classical synthesis of Samuelson or the free-market monetarism of Friedman.

Davis X. Machina -> RC AKA Darryl, Ron... Sunday, July 19, 2015 at 12:10 PM

It's Hegel-in-reverse.

First the synthesis (the General Theory), then the Aufhebung (Niederhebung?), then the antitheses?

ilsm -> anne... Sunday, July 19, 2015 at 12:40 PM

I find David Warsh [since he used to write for the Boston Sunday Globe] always worth the read, whether I agree or not. He provokes thought.

anne -> ilsm... Sunday, July 19, 2015 at 12:24 PM

David Warsh is always thoughtful and worth careful reading, but at times worth arguing with.

anne -> anne... Sunday, July 19, 2015 at 12:44 PM

Interestingly and importantly enough, there has been ample application of monetary policy to limit or spur economic growth over the course of several business cycles since the 1970s when the work of Milton Friedman began to be regarded by policy makers as more significant than the fiscal policy applications through the business cycle supported by Paul Samuelson.

However, cases in which fiscal policy has been used successfully through the business cycle, especially successfully in fostering growth, have been remarkably little regarded by policy makers in general no matter the success.

Friedman may be more influential than Samuelson among policy makers in general, but that does not make for Friedman being more right than Samuelson or for either replacing the ideas of Keynes on business cycle management.

Noahpinion The cruel trick played by history on Milton Friedman

Well, everyone is talking about this, so...

Paul Krugman wrote a blog post saying that Milton Friedman's influence has been largely forgotten in macro policy debates. Steve Williamson lists a number of ways in which Friedman's influence is central to modern macro. Williamson has the right of it; Friedman's ideas are deeply embedded in the macro theories we use to think about stabilization policy. Furthermore - and Williamson doesn't say this - almost all of our macro policy discussions these days center around Quantitative Easing, a toolpopularized, and arguably invented, by Friedman.

Three later posts by Krugman (post 1, post 2, post 3) get it right, I think. Friedman hasn't disappeared from policy discourse; he's disappeared from right-wing policy discourse.

Friedman's ideas are pretty close to the mainstream New Keynesian idea of the macroeconomy - the kind of thing promoted by Mike Woodford, Smets and Wouters, Greg Mankiw, and Miles Kimball. New Keynesian models use consumption smoothing, monetary policy rules, and a NAIRU with a downward-sloping short-run Phillips curve - all Friedman ideas. And in New Keynesian models, monetary policy reigns supreme; only at the zero lower bound is monetary policy possibly ineffective. That's a very Friedman idea too. Furthermore, as mentioned above, the policy of Quantitative Easing - which takes us beyond the New Keynesian framework - was whatFriedman explicitly suggested for Japan.

Now notice that Quantitative Easing, and the Fed in general, are reviled by the American right. Rick Perry famously threatened to do physical harm to Ben Bernanke for "printing more money". Ron and Rand Paul are famous for decrying QE and Bernanke, as are right-wing darlings like Peter Schiff. Bernanke is as devoted a Friedman disciple as exists.

Meanwhile, more sober conservative economist types, like Martin Feldstein and Allan Meltzer, are also extremely dubious of QE. And of course the Wall Street Journal is forever warning about the dangers of inflation from the policy.

So the American right, whether of the populist fire-breathing type or the staid, WSJ type, despises the ideas of Milton Friedman. What they support looks a lot closer to "Austrian" economics, which Friedman explicitly denigrated.

But the right frequently uses and abuses the name of Milton Friedman. People like Rand Paul seem to identify Friedman with the concept of hard money. This is probably because Friedman was known for opposing inflationary policy in the 70s. The right remembers that policy position, but has no concept of the theory that underlie it. (They also probably remember Friedman's libertarian-conservative political leanings, and his debates with Old Keynesians like Tobin.)

Actually, a funny true story of the Friedman (Tom, not Milton) variety: I was taking a taxi back from the 2013 AEA Meeting, and the taxi driver told me that we needed to "stop all this government money printing" and "go back to the policies of Milton Friedman". including "going back on the gold standard". I told him that Friedman invented Quantitative Easing, and said the Depression could have been prevented by printing money and going off the gold standard. He refused to believe me.

So essentially, the right thinks Friedman was an Austrian! This is pretty much confirmed by the fact that Rand Paul's first choice for Fed chair would be Friedrich Hayek, and his second choice would be Friedman.

I can only imagine how Friedman must be turning in his grave. His academic legacy is probably what he would have wanted...but his political legacy has been to be conflated with some of his most bitter intellectual opponents, to have their ideas ascribed to him, and to have his own ideas reviled by the people on his own side of the political spectrum. It's as if Ronald Reagan were to be remembered mainly as a proponent of tax increases and Soviet appeasement, simply because he raised taxes in 1982 and signed arms control treaties with the USSR.

The moral of this story should be clear to all economists: If you choose to get involved in politics and public policy debates, your position in those debates will determine your popular legacy, and your academic ideas will be remembered only in academia. That is the price you will inevitably pay.

[Aug 17, 2013] 'Never Channel the Ghosts of Dead Economists as a Substitute for Analysis'

Nick Rowe checks in with David Laidler:

David Laidler goes meta on "What would Milton have said?": I tried to persuade David Laidler to join us in the econoblogosphere, especially given recent arguments about Milton Friedman. I have not yet succeeded, but David did say I could use these two paragraphs from his email:

However - re. the "what Milton would have said" debate- When I was just getting started in the UK, I got thoroughly fed up with being told "what Maynard [Keynes] would have said" -- always apparently that the arguments of people like me were nonsense and therefore didn't have to be addressed in substance. I took a vow then never to channel the ghosts of dead economists as a substitute for analysis, and still regard it as binding!
MF was a big supporter of QE for Japan at the end of the '90s. I know that, because one of his clearest expressions of the view was in response to a question I put to him on a video link at a BofC conference. But so was Allan Meltzer at that time, and he is now(a) virulently opposed to QE for the US and (b) on the record (New York Times, Nov. 4th 2010 "Milton Friedman vs. the Fed.")as being sure that Milton would have agreed with him. In my personal view (a) demonstrates that even as wise an economist as Meltzer can sometimes give dangerous policy advice, and (b) shows that he knows how to deploy pure speculation to make a rhetorical splash when he does so. Who could possibly know what Milton would have said?He isn't here.

David Laidler is probably the person best qualified to answer the question "What would Milton have said?", and that's his answer.

Speaking of Meltzer and substitutes for analysis, his last op-ed warns yet again about inflation. Mike Konczal responds:

Denialism and Bad Faith in Policy Arguments, by Mike Konczal: Here's the thing about Allan Meltzer: he knows. Or at least he should know. It's tough to remember that he knows when he writes editorials like his latest, "When Inflation Doves Cry." This is a mess of an editorial, a confused argument about why huge inflation is around the corner. "Instead of continuing along this futile path, the Fed should end its open-ended QE3 now... Those who believe that inflation will remain low should look more thoroughly and think more clearly. "
But he knows. Because here's Meltzer in 1999 with "A Policy for Japanese Recovery": "Monetary expansion and devaluation is a much better solution. An announcement by the Bank of Japan and the government that the aim of policy is to prevent deflation and restore growth by providing enough money to raise asset prices would change beliefs and anticipations."
He knows that there's an actual debate, with people who are "thinking clearly," about monetary policy at the zero lower bound as a result of Japan. He participated in it. So he must have been aware of Ben Bernanke, Paul Krugman, Milton Friedman, Michael Woodford, and Lars Svensson all also debating it at the same time. But now he's forgotten it. In fact, his arguments for Japan are the exact opposite of what they are now for the United States. ...
The problem here isn't that Meltzer may have changed his mind on his advice for Japan. If that's the case, I'd love to read about what led to that change. The problem is one of denialism, where the person refuses to acknowledge the actually existing debate, and instead pantomimes a debate with a shadow. It involves the idea of a straw man, but sometimes it's simply not engaging at all. For Meltzer, the extensive debate about monetary policy at the zero lower bound is simply excised from the conversation, and people who only read him will have no clue that it was ever there.
There's also another dimension that I think is even more important, which is whether or not the argument, conclusions, or suggestions are in good faith. ...

Rodrik: Milton Friedman's Magical Thinking

Dani Rodrik argues that Milton Friedman leaves "an ambiguous and puzzling legacy":

Milton Friedman's Magical Thinking, by Dani Rodik, Commentary, Project Syndicate: Next year will mark the 100th anniversary of Milton Friedman's birth. Friedman ... will be remembered primarily as the visionary who provided the intellectual firepower for free-market enthusiasts..., and as the éminence grise behind the dramatic shift in the economic policies that took place after 1980.
At a time when skepticism about markets ran rampant, Friedman explained in clear, accessible language that private enterprise is the foundation of economic prosperity. ... He railed against government regulations that encumber entrepreneurship and restrict markets. ...
Inspired by Friedman's ideas, Ronald Reagan, Margaret Thatcher, and many other government leaders began to dismantle the government restrictions and regulations that had been built up over the preceding decades. China moved away from central planning and allowed markets to flourish... Latin America sharply reduced its trade barriers and privatized its state-owned firms. When the Berlin Wall fell in 1990, there was no doubt as to which direction the former command economies would take: towards free markets.
But Friedman also produced a less felicitous legacy. ... In effect, he presented government as the enemy of the market. He therefore blinded us to the evident reality that all successful economies are, in fact, mixed...
The Friedmanite perspective greatly underestimates the institutional prerequisites of markets. Let the government simply enforce property rights and contracts, and – presto! – markets can work their magic. In fact,... markets ... are not self-creating, self-regulating, self-stabilizing, or self-legitimizing. Governments must invest in transport and communication networks; counteract asymmetric information, externalities, and unequal bargaining power; moderate financial panics and recessions; and respond to popular demands for safety nets and social insurance. ... [And] Given China's economic success, it is hard to deny the contribution made by the government's industrialization policies.
Free-market enthusiasts' place in the history of economic thought will remain secure. But thinkers like Friedman leave an ambiguous and puzzling legacy, because it is the interventionists who have succeeded in economic history, where it really matters.

Devin

in reply to Winston Smith...

Kinda like with the Reagan mythology. Try breaking the news to a member of the loony right that Reagan raised taxes on multiple occasions, withdrew troops from a foreign country in response to a terrorist attack, and signed the nation's first cap and trade law. The likely response is eyes squeezed shut, hands firmly clamped over ears, and repeated shouts of "I'm not listening!! I'm not listening!!"

It amazes me how the loony right can seize on a figure to defend stances that very person actually opposed in reality. And don't get me started on their take on Jesus...

anne:

For 30 years, China showed that government policies can strangle economic growth. Then they made a dramatic shift toward less government control of the economy, and the patient immediately recovered. Miracle!

[Actually, China is now an instance of immensely successful central economic policy planning. We both severely criticize China for economic controls while failing to understand just how successful the controls have been through the selective economic liberalizing and opening.

Chinese planners handled the Asian currency crises and recession from 1997 on and the international recession from 2007 remarkably well but we have noticed mainly in terms of criticism and surely not by learning how if only for the sake of advancing economic development theory.]

anne:

in reply to Larry... Among the remarkable aspects of Chinese planned development policy, has been the selective and successful use of price controls to ease and reconcile economic tensions. However, price controls should not work and when China has begun to use them immediately analysts have written that the controls will be self-defeating, causing bottlenecks and the like.

So controls on the price of fuel during planting and harvest times to ease costs for farmers, should mean fuel will flow away from farmers. However, fuel price controls have worked for farmers and we need to know how and be politically able to study the matter.

Similarly, we need to look carefully at how Hong Kong has successful handled property price increases for decades and think about China proper in this regard currently. Will China be able to limit speculative property price increases? Hong Kong has been able to for quite a while.

ilsm:

Risk is averse to property rights to MBS/CDS' so government must underwrite wall st gambling.

Panics on wall st, and Berlin. Socialized risk. Capital devoted to gambling (finance), not making things or employing the non owners.

The fresh water school emerged to combat the New Deal.

Hayek and Mises were imported to argue against Keynes.

Friedman (with Anna Schwartz) cooked his research, and pandered to the folks Reagan sold the snake oil for.

#OWS will address all this as it evolves.

Darryl FKA Ron:
in reply to ilsm...

This link is old and timely now:

http://www.chomsky.info/onchomsky/19990401.htm

As much as the little Noam resonated with me on participatory democracy, I have always been a bit tepid towards him on his extreme anti-capitalist views. My position has always leaned more towards the Roosevelts with less favor towards short term destructive capitalism while preserving a investment driven forward looking economy; i.e., slow money with high internal investment instead of fast money with consolidation and speculation. However, the intellectual capture by neoliberalism has left little choice now with so much damage already done. It was easier to have other hopes in the early seventies, but they seem too remote now.

sam
The Gulf Oil Spill is almost a perfect illustration of what happens when you decrease regulation that was already there or have unenforced regulation due to regulatory capture all in the name of increasing share prices which is the philosophy of the world that morons like Friedman envisioned.

In an obituary of Friedman in Time magazine, the writer remarked an instance where Friedman couldn't believe that people would jaywalk. He could not understand why people would risk their lives to save a few seconds of time. In other words, like most economists, he was mad at the fact that people behave in irrational ways. He was mad that his model of how people should behave did not agree with how people really behaved. So instead of changing the model to fit the world, he's one of those people who wanted to change the world to fit the model.

How is this in anyway considered science?

And Milton Friedman, and the policies enacted due to his influence which probably ended up destroying millions and millions of lives both literally and figuratively is the perfect example of such thinking.

Darryl

FKA: in reply to sam... Milton Friedman was vertically challenged, so he needed to maintain relevance after his Nobel and stagflation achievements, which he found by appealing more and more to populist sentiments than intellectual discipline. Like ilsm commented above, Uncle Milty found his true calling in ranting and pandering for his masters.

DrDick

So economists are finally recognizing what we anthropologists have known for decades. Markets cannot exist in the absence of strong and effective government regulation.

sam said in reply to DrDick...

Remember that in medicine, doctors used to kill more patients than otherwise up until the twentieth century and only very recently have doctors practiced evidence-based medicine.

I can only imagine, to my horror, how much longer it will take for the economics establishment to quit the practice of blood-letting (unrestrained free markets/ bogus mathematics/ weak predictive powers of models/ etc.).

I studied economics and these are some of the things I heard from my Professors:

My professors in other majors such as Physics and Math and Computer Science never made such arrogant statements with nothing to back it up.

IMO, economists are the most arrogant group of nerds ever gathered on the face of the earth with nothing substantial to back it up.

joel oldy:

"Inspired by Friedman's ideas, Ronald Reagan, Margaret Thatcher, and many other government leaders began to dismantle the government restrictions and regulations that had been built up over the preceding decades.... Latin America sharply reduced its trade barriers and privatized its state-owned firms."

You gotta love it! Reagan, Thatcher and "many others." What about Uncle Miltie's own favorite latin lover? Augusto? What about Uncle Miltie's role in counseling the Generalísimo? He got the invisible hand to do it's own favorite magic trick of making inconvenient people invisible by making them.... wait for it.... DISAPPEAR!

Hence the phenomenon in Pinochet's Chile of the DESAPARECIDOS.

I guess it's just not cool any more to mention this part of Uncle Miltie's story.

anne:

We should by the way learn a little about the demonstrations that have been going on for months now in Chile over public services, especially so about public school access. My too limited understanding is that services such as education were increasingly turned private in Chile or created as private, and the class divide that this has in turn created is now being seriously challenged.

I seldom find this mentioned in the New York Times however. A little in the Guardian, but only a little. Where to look closely?

edward ericson jr. : It was nothin' personal, understand. Just business.

ken melvin:

Free Markets! Free Markets! Get your Truly Free Markets here! What is meant when they say that we need free markets? What is a free market economy? Maybe we don't even know what they mean. Seems, lots of people who wanted to tell us what it meant got together and called themselves an institute, so, in our quest to know what a free market is let's look only to Wikipedia and Merriam Webster lest we be unduly influenced by those who would tell us what to think.

ken melvin

Wikipedia:

A free market is a market free from state intervention. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts. It is the opposite of a controlled market, in which the state directly regulates how goods, services and labor may be used, priced, or distributed, rather than relying on the mechanism of supply and demand. Advocates of a free market traditionally consider the term to imply that the means of production is under private, and not state control or co-operative ownership. This is the contemporary use of the term "free market" by economists and in popular culture; the term has had other uses historically. A free-market economy is one within which all markets are unregulated by any parties other than market participants. In its purest form, the government plays a neutral role in its administration and legislation of economic activity, neither limiting it (by regulating industries or protecting them from internal/external market pressures) nor actively promoting it (by owning economic interests or offering subsidies to businesses or R&D).

Webster : an economic market operating by free competition

ken melvin

Appears that maybe Webster doesn't know, or doesn't want to say. Wiki tells us that a really really free market is one free from state intervention; again, this deity. Is this what is meant when they say that markets need be free? I suspect so. If of a more rational bent, we might be inclined to consider variations on the common usage, i.e., where state holds some right to intervene, imposes some regulation, and can impose and collect taxes though even such would put markets on a par with government.

Are the markets for cocaine, heroin, and methamphetamines free markets? With little or no regulation or effective intervention by the state; surely these are good models of free markets. The developing black market for body parts, a good model?

[Sep 24, 2011] The False Dichotomy of Greed

naked capitalism

By Sell on News, a macro equities analyst. Cross posted from MacroBusiness

The Euro crisis appears to be developing into something similar to the 1980s Latin American debt crisis when the idea that, to quote Walter Wriston, who ran First National City/ Citibank from the 1960s into the 1980s it was assumed that: "countries don't go out of business." The Latin American leadership demonstrated that they, in effect, could, by defaulting. As a number of bloggers at MacroBusiness have pointed out, government finances are not like household finances, although they are often seen that way. That much is well understood in the financial community, although perhaps not as well in the wider public.

What is not acknowledged in the financial community is the assumption implicit in Wriston's comment: that governments can be seen like a business. It is the conflation of the two that is at the heart of the growing problems in the financial system, and it is driven mainly by political prejudice. The political right, ever since Ronald Reagan, has identified government as the "problem". A slippery piece of rhetoric because surely it is "bad government that is the problem." But it became a carefully crafted and heavily funded message that has eventually become ubiquitous - its reductio ad absurdum is the Tea Party movement. Business good, government bad. Ergo, government should become more like business. The centre left, especially fools like Tony Blair, enthusiastically embraced the idea that government should become more like business, ending up with current day absurdities such as seeing students in the education system as "customers" (absurd because these customers, by definition, do not know what value is, unlike normal business transactions).

That is the nonsense we now live in and it is the key to why governments have abrogated their responsibility to govern in the financial system. Financial deregulation was really the ceding of governments' responsibility to set the rules, handing it over to traders, who set their own rules. "Greedism" as Paul Krugman puts it, took over.

So, to return to the Euro crisis, viewed through a longer lens the current instability is related to this conflation of government and business, the emergence of what Phillip Bobbitt in "The Shield of Achilles" calls the "market state". The Economist described the Euro's travails thus:

An alternative diagnosis explains the continuing chaos by pointing out that an implicit assumption behind Europe's financial integration-that sovereign debtwas risk-free-has been overturned, and no one knows what to assume instead.

The euro project was founded on a rule that there would be "no bail-outs" of governments' debt. But, as an analysis by Peter Boone and Simon Johnson of the Peterson Institute points out, its financial plumbing developed in a way that suggested the opposite. Initially the ECB treated all sovereign bonds equally. Even when it decided to take credit ratings into account, the ECB's practices discouraged banks from clear distinctions between sovereign bonds.

Yes, we are back with Wriston's "governments don't go out of business". But of course, they are not in business, ever. And they can become insolvent.

My suspicion is that we are at a turning point in this long period of a priori demonization of government. It is true that the anti-government argument was not without its merits, especially when seen in historical context of high levels of state control. Having no government is often better than bad government. Legislation and regulation is frequently counter productive. Incentives in private organizations are often clearer than in public organizations, lending the former a certain efficiency, at least some of the time (although, as we have seen, these private incentive methods can be easily corrupted).

The problem was the exaggeration. Business is not essentially "good", nor government "bad". For one thing, businesses routinely fail to last. Governments must last. In an area like infrastructure, which needs to last many decades, using businesses, most of which will fail in under ten years, is asking for trouble.

The malign effects of the exaggeration become most obvious in the financial system, where governments must govern. Finance is rules, governments must rule. But the rulers have left the building and those who should be ruled, the private players, have been allowed to set their own rules. Krugman and Robin Wells, in a review of a book "Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present, by Jeff Madrick" (Knopf) describe how Milton Friedman popularized the anti-government mantra:

In Friedman's worldview, free markets were the solution to practically every problem – health care, product safety, bank regulation, financial speculation and so on. And Friedman squarely blamed government for the Great Depression, a view that is at odds with the data. (Although it is almost certainly true that mistakes by the Fed made the situation worse.) As Madrick quotes him, "The Great Depression, like most other periods of severe unemployment, was produced by government management rather than by inherent instability of the private economy." Replace "Great Depression" with "the financial crisis and its aftermath," and it could be US house of representatives speaker, John Boehner, today, rather than Friedman in 1962, speaking these words. Like Reagan, Friedman proclaimed a creed of greedism  (our term) – that unchecked self-interest furthers the common good.

That is the problem, Krugman and Wells ask why it was allowed to occur:

There are a lot of villains in this story – so many that by the end of the book we were, frankly, suffering from a bit of outrage fatigue. But why have villains triumphed so repeatedly?

The proximate answer, clearly, is the abdication of regulatory oversight. From junk bonds to derivatives to sub-prime mortgages, regulators either turned a blind eye or were impeded by business interests and politicians – Democrat as well as Republican. Undoubtedly the most outrageous act – and the most economically damaging to the country – was Greenspan's refusal to use regulatory powers at his disposal to rein in the exploding subprime market, despite being warned repeatedly that a catastrophe was brewing. Like Reagan and Friedman, Greenspan firmly believed in greedism; in his view, the financial markets could do no wrong.

Yet if the problem was lack of oversight, that leads to another question: Why did the regulators abdicate – and keep abdicating despite repeated financial disasters? This is perhaps the most frustrating aspect of Madrick's otherwise excellent book: we get a lot of the what, but not much of the why. Madrick's character-centered narrative makes it seem as if the triumph of greed was the result of a series of contingent events: the inflation of the 1970s, the exploitation of that inflation by Reagan and Friedman, the wheeling and dealing of the likes of Sandy Weill, and the diffidence of Jimmy Carter and Bill Clinton. Yet surely there must have been deeper forces at work.

Krugman and Wells go for a political explanation, for which there may be some merit, although one senses it is a bit irrelevant:

We have argued elsewhere (and are not unique in doing so) that white backlash – especially Southern white backlash – against the civil rights movement transformed American politics, creating the opportunity for a major push to undermine the New Deal. Also, it's hard to make sense of the growing ability of bankers to get the rules rewritten in their favor without talking about the role of money in politics, and how that role has metastasized over the past 30 years. There's another book to be written here – perhaps less personality-centered and hence less entertaining than Madrick's, but one that gets at the forces that made the reign of financial villains possible.

Whatever the deeper story, however, Madrick's subtitle gets it right: what we have experienced is, in a very real sense, the triumph of Wall Street and the decline of America. Despite what some academics (primarily in business schools) claimed, the vast sums of money channeled through Wall Street did not improve America's productive capacity by "efficiently allocating capital to its best use". Instead, it diminished the country's productivity by directing capital on the basis of financial chicanery, outrageous compensation packages and bubble-infected stock price valuations.

My suspicion is that it has mainly been intellectual fashion, fanned with the backing of any number of corporate backed think tanks spewing out "research" that was anything but real research; rather pro-business propaganda. A sort of flat earthism, helped by some unsavory support from those who benefit the most. But in the end its supreme illogic is catching up with it. When the contradictions of greedism only affected peripheral economies, such as Latin America and Asia, then those "other countries" could safely be blamed. But now it is affecting the major developed economies of Europe and the US, and it is becoming harder to avoid the obvious conclusion. It is not a choice between no government or bad government. It is a choice between bad government or good government.

[Sep 23, 2011] Philip Pilkington: The History of Greed – An Interview with Jeff Madrick

Jeff Madrick is a journalist, economic policy consultant and analyst. He is also the editor of Challenge magazine, which seeks to give alternative views on economics issues, as well as a visiting professor of humanities at The Cooper Union, director of policy research at the Schwartz Center for Economic Policy Analysis, The New School, a senior fellow at the Roosevelt Institute and the author of numerous books. His latest book, The Age of Greed, is available from Amazon.

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

Philip Pilkington: Your book The Age of Greed is a detailed historical survey of some of the key figures that facilitated - broadly speaking - the transition away from the progressive, government-regulated economy of the post-war years and toward the finance-driven, deregulated economy in which we now live. In this interview I don't want to focus on all the figures that crop up in the book as that is done so there in great detail. Instead I want to explore the broad sweep of this history focusing both on some of the more recognizable of these figures and on the actual cultural, political and economic shift that took place over this period.

So, let's begin.

Your story really begins in the early 1970s. In those years there were a number of figures - most of them somewhat obscure - who held beliefs or ideologies that, while quite idiosyncratic at the time, have come to dominate the debate today. These are, to boil them down somewhat, ideologies that eschew government involvement in capitalist economies and emphasize the role of the individual in society rather than the role of the society in the individual. In the book you say that these ideologies were long dormant in the US. How far back would you trace them in the form we know them today? Where were they hiding? And why did they begin to stir in the early 1970s?

Jeff Madrick: America has long been a more individualistic nation than most European nations, or even the other North American nations, Canada and Mexico. This has become a dangerous cliché among historians, but I think it is largely true. The reason I say it is dangerous is that the role of community and government in America has been generally underestimated. As I wrote in an earlier book, 'The Case for Big Government', community and government investment in education, infrastructure, sanitation and so on were immense. Beyond that, there were long-standing regulations in America that enabled it to grow more equitably – notably, regulations on sales of land that made it more accessible to poorer Americans.

Nevertheless, the availability of land and resources enabled many Americans to make it on their own. They believed they did it without government, especially when looking back nostalgically. They also interpreted their 18th century break from Britain ever after as a renunciation of powerful central government.

Thus, in important ways, the return to individualistic, anti-government attitudes did have profound antecedents in the national character. Progressivism got its start in the late 1800s in the US, but the strong individualistic bent suppressed social policies, nevertheless. European nations adopted Social Security systems, for example, but the US did not. These individualistic characteristics had been partly set aside by the ravages of the Depression, but not completely. America refused to adopt a nationalized health insurance program, for example.

It is often forgotten that the social policies of the Johnson era were also hard to win. The war on poverty and the civil rights movement were not moments of bipartisan agreement. In this regard, I don't know where President Obama gets his sense of history, or how thing were done in America.

The turn against progressivism in the 1970s was mostly the result of economic crisis. But it was an easier battle to win ideologically – or that is, for people like me, to lose – than realized because of America's past. It was mostly economically driven, if not entirely. Many disliked the Johnson Great Society, for example. They also became increasingly skeptical of Washington with the Vietnam War and Watergate.

But the rise of inflation and unemployment in the mid-1970s so severely set back the American economy and frightened people that they needed new explanations – and scapegoats. Not only did inflation soar while the economy generated inadequate jobs, but the trade and budget deficit also rose and people saw an invasion by Japanese, German and other products in their everyday lives.

It is not an exaggeration to say that America panicked. They gravitated towards the simple views of men like Milton Friedman, who blamed government for their discomfort and insecurities. Businessmen were quick to join them, beating down government intervention wherever they could. And older line progressives fought back weakly.

In 1973, Ronald Reagan, as government of California, tried to have an amendment to the state constitution adopted that would permanently cut the state income tax. Voters defeated it soundly. Some thought Reagan's political career was over. In the next five years, economic panic took hold and Friedman's simple, anti-government ideas became compelling as explanations.

By 1978, Californians now voted overwhelmingly for Proposition 13, which cut property taxes sharply. A successful nationwide tax revolt got underway. Progressive only five years earlier, and still believing in social programs, the nation's attitudes changed. This change was not yet the work of right-wing think tanks and moneyed lobbyists; they were just starting to organize. It was the attitude of the people that changed and set the change for a regression in social policies and deregulation of finance and other industries.

PP: You mention Milton Friedman. It would be hard to understate his importance. The impression I got from your book is that this anti-government movement was largely fragmented and dispersed before Friedman came along. It was him that lent serious intellectual weight to the movement and gave it the sort of policy prescriptions and theoretical sanction that it needed to rally its troops.

Yet, I cannot get over the impression that Friedman was not so much rejuvenating economic theory with new ideas as much as he was reinventing something that had been discredited decades before hand - or, at least, so many thought. Could you talk a little bit about this?

JM: There were other intellectual forces out there, not least of them Ayn Rand. And there was always a strong conservative undercurrent. William Buckley was one of its leaders. Von Hayek's 1944 book, The Road to Serfdom, was influential. It was a best seller.

But Friedman's work was eventually thought of as very serious and congealed the movement. Its basic assumptions were hardly original at all. You are right. He basically resurrected the old classical and neo-classical lines of thought about market economies and then profoundly over-simplified them. His very accessible and even compelling book, Capitalism and Freedom, was influential partly because it was so understandable. He seemed to provide an answer. It basically said competition and freely set prices will cure most social ills to the extent they can be cured at all. Government will almost always make matters worse.

But there was nothing in Friedman that wasn't already fundamentally in Adam Smith. He did update those notions and attached somewhat far-fetched ideas to them about the value and power of the money supply, which in truth cannot even be controlled. The nation's obsessive focus on inflation was also his doing. Many, including Democratic economists, thought he proved his point. I think he did not, and that theories like the natural rate of unemployment, the foundation of the inflation obsession, will be dismissed fully in time. But he gave the movement intellectual credibility and he was wonderfully articulate, to boot. In truth, his intellectual contributions will not live, however.

PP: That certainly raises a lot of questions about our present moment. It seems that many economists - at least those in the media and in the public eye - have become entrenched in their positions rather than responding to circumstances which have clearly changed. But we'll discuss this later in the interview.

For the moment, let's shift back to the politics of the era in question. The presidency of Jimmy Carter represents for many post-war liberalism in its death throes. Underneath the shift in economic policies - Carter, for example, led the charge on deregulation and had misgivings about running budget deficits for social programs - there was a deeper moral or even existential crisis of establishment liberalism. This crisis was clearly manifest in Carter's famous 'malaise speech'. That speech was famously criticised by the cultural historian Christopher Lasch - whose work was supposed to have served as an inspiration for the speech - for making it seem that the president was asking working Americans to give up some of the gains they had made in the post-war years to facilitate less consumption.

You say in the book that the fracturing of the liberal project was largely due to the inflation shocks of the 1970s. Do you think that it can really be held fully responsible for the sense of hopelessness - of malaise, even - that overcame the liberal establishment in those years?

JM: I actually think explains a great deal of it. As growth sputtered, there was less money for social projects. Meantime, the liberals did not seem to have an answer for inflation. In fact, they did but they could not stick to their guns because it required a long-term strategy of slowly unwinding inflation. That was probably politically infeasible. Too often, when something doesn't work in time to have political potency, people abandon their ideas. Strong non-inflationary growth would have brought more people out of poverty and provided enough money for a national healthcare plan.

But the liberal project had some fallacies – the fallacies of excess. Unions did push wages too high in some areas and created an inflexible economy in some industries. Other non-union salaries followed suit. Some liberals could not face the need to reduce the wage share of the economy. This was their problem.

Carter was a fiscal conservative, mostly a true blue Republican in this regard. He tempered it with true caring about the poor and unemployed. He had an unimaginative response to what he saw as an age of limits. We wanted too much, such as oil, and this caused inflation. Let's want less. Not a strong message, really, and it was wrong.

But if there had been no serious inflation, the progressive tendencies may have survived their enemies – especially those who thought any social programs were giveaways to the lazy and unworthy.

PP: Correct me if I'm wrong but I believe that there was much buzz about wage and price controls in the liberal establishment of the era. Nixon, of course, had given them a half-hearted shot in the early 70s but the innate conservatism of his economic advisers had ensured that they couldn't be used effectively. My feeling is that these would have worked if given half a chance – after all they had been remarkably effective under Galbraith in the far more extreme environment of WWII. So, why weren't these taken as a serious policy option by the liberal establishment of the era? Surely they would have been a 'quick political fix' if there ever was one.

JM: Wage and price controls had already been developed before 1971, when Nixon imposed them. But Democrats still were favourably on balance. John Kenneth Galbraith had imposed the controls as part of his government duties during World War II. The nation also had some success with them in the Korean War. Paul Volcker, then a key economic advisor for Nixon, definitely favoured them but Nixon stepped on the gas by huge fiscal spending to drive up the economy when he had the freeze so that he could get re-elected.

His wage-price freeze simply was not a serious attempt. He then undid them too abruptly. The Democrats considered them in the Carter term and did indeed impose 'guidelines'. These could have worked if they had been willing to stick with them but Carter wasn't willing and the nation was changing, as I noted. Market solutions, not government interference was generally gaining the upper hand ideologically and the Democratic economists never fought back with sufficient determination.

PP: But that means the solutions were there if the Democrats wanted them and they were well aware of them. That they didn't pick them up and put them into practice means there must have been some sort of cultural shift or moral malaise; it seems to me that this is the only thing that can explain liberals' flakiness in this period. Maybe your point about the Watergate scandal and the Vietnam War destroying confidence in government might explain this reluctance to wield power? Could you talk a bit more about this?

JM: Yes, as I have been saying there was a cultural anti-government shift in opinion and in the media. This is my main point. Liberals could have fought against it but did not. It wouldn't even have necessarily worked politically. They would have been pushed out of office unless they were persistent and determined. They were not. In fact, many Democratic economists had strong doubts, already participating in the shift towards laissez-faire attitudes.

The 'malaise' was really just simple pessimism. Nothing had seemed to work for years to solve the economic problem of inflation. Carter actually never used the word 'malaise' in his speech – but the key point is that he was no good at puncturing the pessimism. Reagan, the mythmaker, was remarkably good at it.

PP: That was going to be my next question. Reagan was, of course, a master orator and a man of considerable charisma and charm. Nevertheless, even without considering his personal qualities, his message seemed to resonate with the times. Could you talk a little about Reagan and how he 'clicked' with the American public at this important moment in history?

JM: Well, it is important to remember that he didn't click national at first at all. He won in California as governor at a time when the state was disturbed about racial issues and the Berkeley free speech movement. He talked tough and his opponent did not take him fully seriously. Then he governed not quite as conservatively as he talked.
What he did best was to understand the concerns of working people, which was his heritage. He didn't believe – and this is widely misunderstood and misreported – in Friedmanite self-interest. He believed in individuals – that hard work would pay off and we could make our own lives.

He kept trying to get the presidential nomination – in 1968 and then again in 1976 – and failed. But while he failed, he did countless radio speeches – short essays – which forced him to develop his opinions in many areas. He understood the value of a simple story with a cathartic climax. He was conscious enough of his intentions to write this in so many words.

But he was always a Manichean over-simplifier. There was, as in Hollywood, always a bad guy. Early, when he was a New Dealer, business was the bad guy. In the 1950s, he switched; government became the bad guy. As of course was the Soviet Union in international affairs.

When the nation's views turned in the 1970s, he exploited this well. He stuck to his guns for more than twenty years and his moment came. He radically cut taxes and regulatory staffs, and extended the angry attitude of Americans towards government to tragic ends.

PP: You say that his popularity in California was disturbed by racial issues and the free speech movement – in essence, California was disturbed by what have come to be known as the 'sixties'. Do you think that the 'sixties' and the attitudes that grew out of them had wider and broader cultural effects? Do you think they helped facilitate the turn to Reagan's rhetoric of 'individual responsibility', responsibilities rather than rights; in short, the turn to conservatism?

JM: Yes, there was a reaction to the new social policies and 'looser' lifestyle of the Sixties. The social policies had many angry – they mostly helped people of colour, it was thought, or ne'er do wells. There has always been that strain in American politics, this time tinged with racism because of the Civil Rights Act and integration. Also, liberals went too far with busing.

But the catalyst was still the bad economy. There always would have been a pendulum swing, but it probably would have been modest as baby boomers became adults with families.
PP: Let's move on to Alan Greenspan. In your book you portray Greenspan as a rather mediocre figure, as far as ideas and economics goes. This runs counter to the narrative we're all used to - the narrative of the 'master of the universe' with his finger firmly on the pulse of the world economy. You portray Greenspan as a savvy political player and a free-market ideologue in the crudest of sense, but little more than that. Could you talk about this a little bit?

JM: I certainly would not call Greenspan mediocre. He was a competent Wall Street economist with great talent for networking, assessing the political winds, and positioning himself in a niche where there was little competition – that is to say, articulate Republican economists in the 1970s. He could talk persuasively to businessmen and politicians alike.

But he was, as I say, a Wall Street economist who did not have a sophisticated model of the economy, but instead a by-the-pants model. He also an ideologue with a simplistic notion about laissez-faire economics that he partly derived from the views of Ayn Rand. He suppressed these views, but as his reputation rose, he became more confident that less regulation of financial markets was ideal.

It was based on the most simple ideas about the moderating value of competition. They were decidedly pro-business which, as I explain in the book was probably a leaning he had since childhood. As a Fed chairman, he was intent on suppressing inflation above all other things, also a reflexive Republican attitude.

His actions to keep rates down in the late 1990s have been misinterpreted. He kept them down less because he believed in a new economy than his fears about the financial crises over Long-Term Capital Management and Russia.

In the end, he had more to do with the financial crisis than any other single individual because he refused to regulate and oversee the financial community properly. He insisted derivatives needed no serious regulation. This was purely ideological. He approved of the merger that resulted in Citigroup. He had no idea of the level of risk on Wall Street that he more than anyone else was responsible for.

PP: Perhaps I shouldn't have used the term 'mediocre'. My impression from your book was that Greenspan was not much of a theoretical economist – as you say, he was more of a 'hands on' kind of guy with an overarching ideology. Do you think that this led his policy in many ways? Purely practical people tend to only pay attention to flaws in a system when things start to go wrong – should such a person truly been in charge of the Federal Reserve?

JM: I don't think you have to be a theoretical economist to run the Fed. Greenspan didn't get a PhD but even that need not be an obstacle. He was an ideologue who suppressed his ideology. His one fight was against inflation. He was determined to be as good as Volcker at beating it down. Like most Republicans, he wanted to show that he was tough. His economic analysis was more ground in day to day changes in the economy with little sense of economic dynamics or Keynesian disequilibria or long-term damaging equlibria. For these more subtle concepts, he'd have no sympathy. My personal view is that he was guided by the bond rate. If it went up fast, it meant there were inflationary expectations which he was determined to beat down. He overkilled on inflation, of course. But he also backed off in the late 1990s. Many attributed this to his prescience about the New Economy, regarding which he had sophomoric views. He kept rates down, instead, because of the economic crises in Asia, Long term capital management and in Russia. He suppressed his ideology for a while but as the adulation for him increased, he became increasingly ideological – much to the detriment of us all. He was more responsible for this crisis than anyone else by far. And that was purely down to his ideology.

PP: Okay, let's move onto Clinton. I was surprised he wasn't included in your book. Carter was there but not Clinton. Yet, Clinton's administration oversaw some of the most substantial deregulation of any period which culminated in the elimination of Glass-Steagall. Clinton also oversaw what some might consider


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JM: I talk about Clinton quite a bit in the book, as you know. More deregulation occurred during his administration than others. But much of the story is familiar. I tell this story through Wall Street and Alan Greenspan. In particular I discuss how Bob Rubin and Larry Summers convinced Clinton that any surplus be put back into the bond market. I also cite Clinton's claim that it was the end of the era of big govt.

But the big trends were already underway when he took office. Clinton did not stop them. The mania for budget balancing really began in the 70s. It intensified in the 80s with the Reagan deficits. George HW Bush was determined to tame them and had a tax increase passed. Then came Clinton's tax cuts and they seemed to work.

Meanwhile Greenspan raised interest rates unnecessarily, akin to a kind of shock therapy. Rates came down and a boom got underway, supported more by financial asset inflation than was realized. Ever the fantasist, Greenspan pinned it on high technology and allowed rates to fall more. But Clinton, only and always trying to get credit, attributed it to the tax increase and a balanced budget. Rubin believed that this reduced the crowding out of private borrowing. Never mind all the financial crises in Asia, Wall Street and Russia. Greenspan just stepped on the gas, lowering rates and all the while alluding to a new economy which was at best partly true. Under Clinton the Democrats became the Wall Street party and his refusal to support regulation of derivatives in 1994 and 1999, under the guidance of Rubin, the former Goldman Sachs co-chief, and Larry summers, the former Keynesian, eventually led to a terrible debacle. They greatly admired Alan Greenspan and never crossed him. Keep in mind, much of the Democratic congress went along. Wall Street got a hold of Washington – and they never let go.

PP: Sorry, I should have said that you didn't give Clinton a section in the book - of course you do talk about his policies.

I want to talk a little more about the balanced budget. The notion that a budget should be balanced all the time appears to me farcical. Not simply from an economic perspective but also from an historical perspective. Most of the time most developed countries run deficits - if they didn't they wouldn't have stocks of public debt. There is, in my mind, without a doubt a link between unbalanced government budgets and capitalist economies.

Yet, the idea of balanced budget has been something of a millstone around the necks of liberals and progressives since at least as far back as Roosevelt. Why do they let the other side lead the debate in this instance? Why do they cling to balanced budgets when it seems so obvious that unbalanced budgets are the historical norm?

JM: Quickly, balancing budgets goes back much farther than FDR. After all, excessive government expenditure, especially on war, has brought down many governments over the centuries. Modern theory suggests budgets should be balanced over the course of the business cycle – not all the time. I don't agree they need be balanced over the cycle, though. I think there is probably an endemic insufficiency of demand due to inadequate wages, so a persistent, if not constant deficit makes sense. Also public investment will have a positive rate of return – usually.

But balancing the budget is a political football. The Right demands it. They always claim it leads to inflation and crowding out. The Democrats like it when the Republicans run a deficit as under Reagan and George W Bush. There is both hypocrisy and bad economics involved in the whole deficit discussion, unfortunately.

PP: I'd tend to agree with pretty much all of that.

Moving on to the present day after all that was built over this era has collapsed in upon itself, what do you think the future holds? I mean that both from the perspective of regulation - I note that Regulation Q, the bypassing of which you portray in the book as a pivotal moment, just two months ago was cut back to allow interest to be paid on checking accounts. And then there's the issue of actual economic growth which seems mired due to government reluctance to pick up the mantle after beating themselves down all these years?

In these respects what do you make of this brave new world?

JM: I find it hard to believe that more policymakers, editorial writers and pundits don't ask whether Wall Street should have as central a purpose in our economy as many take for granted. We should be asking whether Wall Street – that is, the financial community – is justified at all in its present size. The main question my book raises is whether the financial sector does more harm than good. Those who are for re-regulating of Wall Street, including Dodd-Frank and the Obama administration, have never gotten to first principles though. The regulation as proposed will not adequately cut the Street down to size. The institutions should be cut in size and streamlined along product lines that reduce conflicts of interest. Those that take federally guaranteed deposits should be ring-fenced. Those that underwrite or privately place securities should not take deposits and have no access to the Fed discount window. Speculation has to be seriously limited to small institutions through the use of higher capital requirements.

At the same time, a few legal actions have been taken against unethical practices on Wall Street. It is remarkable that so few criminal charges have been made, and that civil cases are settled through relatively small fines to avoid going to court. Fraud law, both legislative and common law (tested by brining cases), must also change.

Without adequate changes that ensure that Wall Street channels money to productive uses, America will have a hard time getting money where it is needed in the economy.

In the meantime, this administration believes that all it needs do is to revitalize finance and credit and this would re-inflate the economy. At the same time no serious attempt was made to make mortgage holders whole – at least in some degree – which is a tragedy.

People are frustrated. A mid-July survey found that most Americans believed Wall Street did more harm than good. My book is about showing how that happened – and indeed, without doing a statistical analysis, I think the book shows that it did happen.

Pair this with the mistaken assumption that fiscal austerity is required to re-structure the US economy, and we probably face a very hard time ahead.

Other nations, on the other hand, have asked the question about the purpose of finance and proposed more stringent solutions, such as the Vickers Commission. Maybe that's a start.

An Interview With Paul Samuelson, Part One - Conor Clarke

Milton Friedman?

Milton Friedman. Friedman had a solid MV = PQ doctrine from which he deviated very little all his life. By the way, he's about as smart a guy as you'll meet. He's as persuasive as you hope not to meet. And to be candid, I should tell you that I stayed on good terms with Milton for more than 60 years. But I didn't do it by telling him exactly everything I thought about him. He was a libertarian to the point of nuttiness. People thought he was joking, but he was against licensing surgeons and so forth. And when I went quarterly to the Federal Reserve meetings, and he was there, we agreed only twice in the course of the business cycle. .

That's asking for a question. What were the two agreements?

When the economy was going up, we both gave the same advice, and when the economy was going down, we gave the same advice. But in between he didn't change his advice at all. He wanted a machine. He wanted a machine that spit out M0 basic currency at a rate exactly equal to the real rate of growth of the system. And he thought that would stabilize things.

Well, it was about the worst form of prediction that various people who ran scores on this -- and I remember a very lengthy Boston Federal Reserve study -- thought possible. Walter Wriston, at that time one of the most respected bankers in the country and in the world fired his whole monetarist, Friedmaniac staff overnight, because they were so off the target.

But Milton Friedman had a big influence on the profession -- much greater than, say, the influence of Friedrich Hayek or Von Mises. Friedman really changed the environment. I don't know whether you read the newspapers, but there's almost an apology from Ben Bernanke that we didn't listen more to Milton Friedman.

But anyway. The craze that really succeeded the Keynesian policy craze was not the monetarist, Friedman view, but the [Robert] Lucas and [Thomas] Sargent new-classical view. And this particular group just said, in effect, that the system will self regulate because the market is all a big rational system.

Economist's View The Bond War

bakho says...

The "inflation that everyone was worried about in the 1970s was a wage-price inflation spiral. Back then the unions were powerful enough to force wages higher and we were closer to full employment. Where is the push for higher wages? How long will it take to create enough new jobs to return to full employment?

No wage inflation- no spiral.

If the model "assumes" full employment, then inflation would be possible. GIGO (Garbage In - Garbage Out) The problem with Friedmanomics is it fails to measure important factors and include them in the models. This leads them to make bad conclusions about what is influencing the economy.

One Market Under God: Extreme Capitalism, Market Populism, and the End of Economic Democracy (Paperback)

Totalicorporatism, January 21, 2008

doomsdayer520 (Pennsylvania) - See all my reviews

This book was published in 2000 as an up-to-date expose on the then-ascendant corporate bubble which had not yet crashed and burned. Now the book is an informative history of the roots of a politically ruinous American epidemic - regular folks believing that the interests of the privileged classes are the same as their own. Thomas Frank is very adept at finding the nonsense and contradictions of the American political scene (especially in the much better "What's the Matter with Kansas" a few years later) and he provides a great amount of insight into the forces that turned us into worshippers of the same power players who destroy our livelihoods. Most of the book deals with the 1990s, when corporations graduated from villains in the eyes of the public to bastions of democracy. This was accomplished with relentless rhetoric in the press and politics about the unassailable greatness of markets, and the widespread ignorant use of the epithet "elitist" for anyone who disagreed with corporate dogma, regardless of whether the critics were regular citizens or the targets were influence-buying and job-destroying plutocrats. We have let it happen by falling for hogwash about how corporations think they represent the people and how the incorruptible market will lead us to utopia.

But aside from these great basic insights, overall this book is too polemical for its own good, as Frank's goal was clearly to rile up the masses. Unfortunately he falls into sarcasm and proselytizing far too often. A related issue is the book's massive repetitiveness, as Frank piles on point after point that merely regurgitate the main thesis that was advanced believably long before, while the chapters on academia and journalism are somewhat useful but stray pretty far from the main narrative of corporate hegemony. (As a graduate student who has been forced to digest cultural studies, and as a media researcher, I can also say that Frank's tirades against those subjects are pretty narrow, though I tend to agree with them in principle.) Most annoyingly, Frank often makes his points by merely deconstructing large numbers of ridiculous and obscure books that are even more outdated than this one.

It's totally easy for the thinking American to agree with Frank's polemics whole-heartedly and to demand more equality in the political and economic spheres. But this book makes its main points early on and then simply beats them to death. And one major component of Frank's argument is completely missing - why have thinking citizens let this happen? We can blame the corporations and politicians for spouting nonsense, but that nonsense will go nowhere unless people swallow it voluntarily. [~doomsdayer520~]

Solid thoughtful, nails our national policy failures in a big way, August 2, 2006

By Robert D. Steele (Oakton, VA United States) - See all my reviews

This is a very serious book, one that any candidate for President would do well to read, especially so the centrist candidates willing to announce that both the Democratic and Republican parties have sold the public into slavery to corporate fascism.

In summary, the author documents in detail how the Reagan Revolution, and especially the firing of the air traffic controllers and the wrongful use of military air traffic controllers as "union busting" scabs, eliminated the counter-vailing force of labor unions, at the same time that government deregulated and abdicated its responsibility for a social safety net, the media converted into advertising with a "news hole," and corporations lost all moral and social standards.

He deconstructs the "New Economy" in persuasive detail and caused me to re-evaluate some of my earlier readings, especially of Kevin Kelly and others in the WIRED generation who articulate with blind faith the democratic value of the network, but fail to see, as Robert Samuelson and this author would have us understand, that outsourcing is union busting, and the actual effect of the network has been to make it possible for corporations to outsource middle class jobs while importing poverty through illegal immigration. The net loser is the Nation, because one of its most important sources of national power, an educated engaged citizenry, is being sold short.

The author is brutally on target when he points out that corporations have achieved a slight of hand in disconnecting labor from the value of created wealth, claiming much more management value (to the point that CEOs make 400 to 1000 times what their workers make, up from 25 times long ago). He also points out that the democratization of the stock market is code for what Mark Lewis called, in "Liar's Poker," "exploding the client. The smart money rides the early surge and then sells out to the middle class dreamers, who end up losing 80-90% of their value over time.

I have a note in the flyleaf that this book is "quite extraordinary, almost breathtaking in scope, with a compelling array of well-ordered facts."

Overall, while many will not like the term "corporate fascism" and the author prefers to use "extreme capitalism" while others discuss immoral and predatory capitalism, or "class war" (see my review of Faux's "The Global Class War" and, somewhat less solid but still good, Pabast's "Armed Madhouse" (dispatches from the front lines of the global class war). The sorry reality is that Americans have been lulled to sleep like sheep for a slaughter, and do not seem to appreciate the fact that there has been a MASSIVE theft of public capital through what this author calls "the Wall Street tax" on America.

The greatest strength of the book is how the author documents the calculated and comprehensive manner in which Wall Street and the evangelical right came together to turn reality on its head, and persuade everyone including blue collar workers that it was okay to break the social contract with labor, and that what is good for Wall Street is good for America and its workers. In fact, as the author points out repeatedly, when workers get laid off, Wall Street stocks go up. His entire review reminds one of Noam Chomsky and Edward Herman's classic "Manufacturing Consent." Public relations has been used in a classic manner by American corporations, to include penetration of teen-age sub-cultures and the manipulation of teen-age desires. In Europe they consider public relations to be, according to this author, advanced corporate lying.

The author draws an excellent connection between the "blind faith" that keeps the corporate illusion of free trade on the table, and the "blind faith" that led Dick Cheney to depose George Bush and invade Iraq without regard to the policy process, accountability, or reality. America is in the grip of a very destructive combination of corporate ideology, religious ideology, and political ideology.

The author is properly and comprehensively critical of the media for failing to do its job. Journalists, a few exceptions aside, have become "filler." The author excels at picking Tom Friedman apart, and at mocking the Wall Street Journal for idiocy in print.

The book ends on a sobering note, where the author points out that reality has a way of unmasking ideological pretensions in a most painful manner. He specifically suggests that George Bush Junior (he does not mention Cheney) will go the way of Herbert Hoover in the history books. Reality--that's what one White House staffer is reported to have said had no relevance, because this White House "creates its own reality." Yes it does--a reality of greed and theft and immorality at the top, poverty and disease at the bottom, and a loss of American honor around the world.

First class thinking and writing. A really strong book.

Enlightening romp through a decade of idiocy, May 7, 2006

By Aaron Swartz - See all my reviews

From John Perry Barlow to Virginia Postrel, from _Liberation Management_ to _Who Moved My Cheese?_, from dot-com millionaires to cult stud academics, Thomas Frank summarizes, contextualizes, and debunks a decade's worth of pro-business propaganda. The major theme, he argues, was the concept of "market populism", the notion that The Market was far more democratic than actual democracies, doing whatever their copious focus groups had determined the people wanted. Frank, a serious supporter of genuine democracy, skewers their absurd myths and provides some insight into the harm they did to working people.
The Democracy Bubble, January 16, 2006

By M. Hogan (Midwest) - See all my reviews

If there were two overall themes guiding this book, I'd say it was these:

During the late 1990s, it was pretty obvious that a rising tide was not lifting all boats. And for a very long time now, conservative and many liberal economists, business owners, investors, business writers and assorted pundits have equated democracy with the ebbs and flows of the free market.

I've never read What's The Matter With Kansas or The Baffler before. My introducation to Frank came through this book with it's marathon chapters, sometimes repetative thesis', and thoroughly damning evidence of our nation's continuing problems with a form of tulip mania and the delusion that a janitor/schoolteacher/truck driver playing the stock market with a few shares has economic parity with someone like Warren Buffett.

The title itself is an interesting look at the subject matter here: free market economics has long been a dogma among Americans. We are told time and time again that collective bargaining, state investment, and regulations over wages will lead us down the path to destruction. Also, supposedly, if we allow the foxes to guard the henhouse, someday we can all be rich.

Frank points out that this isn't a new ideology but it has become more and less popular over time. The end of the 20th century resembled the beginning more than any other time; the middle class was slowly eroding and obscene wealth consoled obscene lack of wealth with idea that even if you're living in poverty, you can just make a couple of smart investments, spend wisely, and the idea of the American Dream will be fulfilled and you'll get wealthy.
This might all seem painfully obvious, but Frank deserves credit for actually documenting it.

Revelations, October 12, 2005

By Panopticonman "panopticonman" (Brooklyn, NY USA) -

In ONE MARKET UNDER GOD, Thomas Frank brilliantly unpacks the self-serving ideology of the corporatocracy. As he did in CONQUEST OF COOL and WHAT HAPPENED TO KANSAS, he examines the many self-serving narratives of the corporate state, showing how each story supports a pseudo-populist philosophy designed to whip up anti-elitist sentiments in order to better serve the interests of that elite.

Legitimacy, since the Great Crash, had, until fairly recently been a fairly daunting problem for business. Now, as Frank points out, with the children of the Depression passing away, the corporatocracy and its junior partners in government have been emboldened to portray themselves as the heirs to Populism, Progressivism, and the New Deal, to advertise themselves as the vanguard of a revolutionary movement, a movement which through the millennial workings of the market is clearing the way for a new birth of freedom in the U.S.A., and throughout the world.

Frank notes, for instance, that throughout the 90s Americans were told that average working stiff could easily become the "millionaire next door," and further, that the average guy was much better off owning stock than relying on his pension or Social Security to see him through his golden years. So pervasive did this free market farrago become in the media, that even now, well after the New Economy bubble burst, many still hear it as gospel, believe that inevitably everything must be privatized. So cunning has the pro-business rhetoric of the corporate state become that the average American blames himself for not being "entrepreneurial" enough, when instead Frank says he should be working to reverse the corporatocracy's 30-year rollback of worker's and citizen's rights.

A profoundly funny writer with a razor-sharp satiric edge, Frank will have you laughing out loud at the transparent self-serving cant of the corporatocracy and their handmaidens in the media, academia, and government. Frank knows his history, and clearly sees through the latest lies of that great unregenerate beast, redder now in tooth and claw than ever before.

The moral fabric of the marketplace, October 9, 2005

By Headbang8 (Bogenhausen, Munich) - See all my reviews

Frank is right on the money, no doubt about it. "Free-markets" and democracies aren't the same thing. Even the freest of markets can be bought, whereas democracies can't be...or can they?

He documents the creepy cultural trends that have made us accept the marketplace as our ersatz democracy, why we've given up on the real version, and whom these trends really serve.

Is modern culture really a tool used by the powers that be to undo the New Deal? It makes sense.

I say this in the full knowledge that Frank devotes an entire chapter to my profession, in "The Brand and the Intellectual". When I finished reading it, I thought, "I deserved that!"

Brilliant!, October 7, 2005

By L. Vila-Henninger "Luis" (Seattle, Wa) - See all my reviews

Frank is verbose, but aside from this, his book is brilliant. In an age where Friedman and others are seen as "experts," Frank is extremely refreshing. It is nice to read a nuanced analysis instead of rhetoric.

Vox Populi for Billionaires, July 20, 2005

By E. David Swan (South Euclid, Ohio USA) - See all my reviews

There is a new conventional wisdom being constructed in the last few decades that we have finally reached the culmination of economic theory and all that's left is to tune the machine. The ultimate realization of western perfection is pure free market Capitalism. The villains of the scenario are unions, intellectuals, environmentalists and government regulators who gum up the wheels of progress. Fueling the market engine is relentless optimism and there are few superlatives too vicious to be cast on those who express doubt. CEO's are hard working heroes moving the engine while blue collar workers are parasites sucking away needed capital. As George Lakoff would say this is the construction of a Frame, attempting to move from concept to common knowledge. Frames are powerful indeed and most people if given a choice between retaining a Frame or accepting new contrary evidence will keep the Frame and throw out the evidence. Leaving no doubt about his opinion on the matter Thomas Frank declares, "the New Economy is a fraud". It's a Vox Populi where billionaires are victimized by `elitist' union workers and the crime de jour is political correctness.

A lot has happened since `One Market, Under God' was published including that little market correction in 2000. Thanks to bad timing Thomas Frank's book sets up the joke but misses out on the punch line when all those hip gen-X investors watched their brand new fortunes go up in smoke. However, the book is timely enough to point out that during the heyday of the bull market real wages went down, jobs became less secure and downsizing became fashionable for CEO's who want a quick stock pop. It also seems clear that a system that can be done in by mere pessimism is built on a very shaky foundation. There is a `New Afterword' chapter that gives Thomas Frank a chance to offer up some post 2000 commentary. In the end it became painfully clear that companies, auditors and analysts were all working against the best interest of the small investor. The market was to be the new means for wealth redistribution as everyone had access to the market money tree but when the chips were cashed in the wealth disparity in America grew beyond anything seen in the last 70 years.

"One Market, Under God" chronicles just about every pro-business, pro-globalization propaganda ad released in the 90's as well as the endless stream of articles in business magazines praising the new paradigm. Mr. Franks takes a critical look at the often silly, bordering on pseudoscientific, marketing theories that were being expounded. Unfortunately the book sometimes degenerates into one long sarcastic sneer aimed at all things business. There are no heroes of the book just manipulators, fools and greedy CEO's. Thomas Frank's later book, `What's the Matter with Kansas' was one of the best social commentaries I've ever read so I felt a bit disappointed with this one. Still, it's a fascinating look at how society can be manipulated and swept up into a frenzy of greed to the point where we give up our own self interests.

One Market Under God: Extreme Capitalism, Market Populism, and the End of Economic Democracy by Thomas Frank (Paperback - September 18, 2001)

The Conquest of Cool: Business Culture, Counterculture, and the Rise of Hip Consumerism by Thomas Frank (Paperback - December 1, 1998)


What's the Matter with Kansas? How Conservatives Won the Heart of America by Thomas Frank (Hardcover - June 1, 2004)


The Wrecking Crew: How Conservatives Rule by Thomas Frank (Hardcover - August 5, 2008)



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