Softpanorama
May the source be with you, but remember the KISS principle ;-)

Contents Bulletin Scripting in shell and Perl Network troubleshooting History Humor


The image reproduced from the paper "Cheating nature?"by Economist

Science, PseudoScience and Society

Advance of Zombie ideas in XX and XXI centuries

News Recommended books Recommended Links Financial_skeptic Political skeptic Groupthink Neoliberalism as a New Form of Corporatism
Lysenkoism and politization of science Harvard Mafia Cargo Cult Science Cargo cult programming IT offshoring Skeptic Deception Deception as an art form
Obscurantism and Mayberry Machiavelli Mayberry Machiavellians Leo Strauss and the Neocons Pseudoscience and Scientific Press Pollyanna creep Belief coercion within religious groups  
Casino Capitalism Corruption of Regulators Neoclassical Pseudo Theories and Crooked and Bought Economists as Fifth Column of Financial Oligarchy Rational Fools vs. Efficient Crooks: The efficient markets hypothesis Friedman --founder of Chicago school of deification of market Supply Side or Trickle down economics Invisible Hand Hypothesys: The Theory of Self-regulation of the Markets
Neoliberal Brainwashing -- Journalism in the Service of the Powerful Few In Foreign Events Coverage The Guardian Presstitutes Slip Beyond the Reach of Embarrassment Neo-theocracy as a False Drive to a Simpler Society Dumbing down america Information Technology Wonderland Pseudoscience and Scientific Press Scientific Fraud
Skeptical view on Programmers Health Secular Humanism Anti-intellectualism Skeptical quotes Humor Financial Humor Etc
  Programmers have a very precise understanding of truth. You can’t lie to a compiler. Try it sometime. Garbage in, garbage out. Booleans, the ones and zeros, trues and falses, make up the world programmers live in. That’s all there is! I think programming is deep, it teaches us about the non-cyber universe we live in. There’s something spiritual about computers, and I want to understand it.

Nick Geoghegan

Science has been misused for political purposes many times in history. However, the most glaring examples of politically motivated pseudoscience happened just recently, in XX century. That means that it is useful to review historic examples of "Zombie ideas" used for political purposes and the pattern that defines that abuse.

The important lesson of XX century is that discredited economic and political ideas, no matter how absurd,  don't die as long as they serve well power that be.  In a way they are real living dead, sucking blood from humans.  Those ideas that should have died long ago, still shamble forward, like Zombies. Usage of such ideas is one of the most dangerous deception schemes practiced  by modern elites

It's not easy to write about pseudo science. The problem has to do with the fluid nature of the concept. It has no single, precise meaning and there is little agreement about its constituent elements. But first and foremost it involved subjugation of scientific aims to political goals and deliberate attempt in deception and subsequent cover up. But recently almost all social and economic science became political and all politics involved deception: to say that a politician is not lying is the same as to say that an alcoholic is not drinking. Still there are different degrees of lies and different level of density of the "cloud of deception".

Discredited ideas with political support or "Zombies" can be extremely dangerous for people who oppose them.  Lysenkoism probably represents classic early example when an set of obvious lies was supported by repressive apparatus of state and dissenters were prosecuted and sentenced to Gulag.  For nearly 45 years, the Soviet government used propaganda to foster unproven theories of agriculture promoted by Trofim Lysenko. Scientists seeking favor with the Soviet hierarchy produced fake experimental data in support of Lysenko’s false claims. Contradicting scientific evidence from the fields of biology and genetics was simply banned. University programs taught only Lysenkoism . This state supported attempt to suppress generics  continued for over forty years, until 1964, and even managed to spread to other communist countries, such as  China.

What we saw it as a tragedy in Stalin's Russia genetics, we now see it as a farce in USA economics with neo-classical economics flourishing with the supportive guidance of neoliberal state and financial oligarchy.

The whole neoclassical economics is essentially a set of zombie ideas which are kept in the forefront by financial oligarchy. The financial crisis of 2008 buried key ideas of  'free market liberalism' (aka neoliberalism), such as the 'Efficient Markets Hypothesis', yet these zombie ideas still were dug our, dressed and continue to be sold via major newspapers and journals. Much like Lysenkoism in the USSR by CPSU. See

This is  a real Faustian bargain for academic scholars. One can trade the independence for political influence, good salary and other perks. It is also helps in the power grab. And despite popular image of scientists, they proved to be as corruptible, if not more corruptible, as anybody else. Historically the scientific community is generally held together and all its affairs are peacefully managed through its joint acceptance of the same fundamental scientific beliefs. Science is best practiced in a voluntary, peaceful and free atmosphere.

But that idyllic arrangement firmly belongs to  the past. Now we can talk only about the level of political pressure on scientists via research grants, not so much about presence or absence of such a pressure.  What really matters as far as politics and science is concerned is what type of environment the individual scientists have to work in and what degree of freedom they can enjoy.

Historically the situation changed irrevocably since early XX contrary, which signified discovery of atomic particles.  It should be understood that the modern scientist, built in the modern "neoliberal" democracies, is at the same time - and it is possible that even in the first place - a political agent, a manipulator. For the unwashed masses a public scientist represent the ultimate carrier of truth for a given discipline, so his opinion have a distinct political weight. And the architects of these systems use this values of scientists to the fullest extent possible. Like we can see with neoclassical economics, scientists have turned into an instrument of cognitive manipulation, when  under the guise of science financial oligarchy promote beneficial to itself a false and simplistic picture of the world, which brainwash the masses into "correct" thinking.

In this sense one can say that Lysenkoism represented a natural side effect of  shrinking of freedom of the scientific community and growing influence of political power on science. As by Frederick Seitz noted in his The Present Danger To Science and Society

Everyone knows that the scientific community faces financial problems at the present time. If that were its only problem, some form of restructuring and allocation of funds, perhaps along lines well tested in Europe and modified in characteristic American ways, might provide solutions that would lead to stability and balance well into the next century. Unfortunately, the situation is more complex, made so by the fact that the scientific establishment has become the object of controversy from both outside and inside its special domain. The most important aspects of the controversy are of a new kind and direct attention away from matters that are sufficiently urgent to be the focus of a great deal of the community's attention.

The assaults on science from the outside arise from such movements as the ugly form of "political correctness" that has taken root in important portions of our academic community. There are to be found, in addition, certain tendencies toward a home-grown variant of the anti-intellectual Lysenkoism that afflicted science in the Stalinist Soviet Union. So-called fraud cases are being dealt with in new, bureaucratic ways that cut across the traditional methods of arriving at truth in science. From inside the scientific community, meanwhile, there are challenges that go far beyond those that arise from the intense competition for the limited funds that are available to nourish the country's scientific endeavor.

The critical issue of arriving at a balanced approach to funding for science is being subordinated to issues made to seem urgent by unhealthy alliances of scientists and bureaucrats. Science and the integrity of its practitioners are under attack and, increasingly, legislators and bureaucrats shape the decisions that determine which paths scientific research should take. There is, in addition, a sinister tendency, especially in environmental affairs, toward considering the undertaking of expensive projects that are proposed by some scientists to remedy worst-case formulations of problems before the radical and expensive remedies are proven to be needed. They are viewed seriously though they are based on the advice of opportunistic alarmists in science who leap ahead of what is learned from solid research to encourage support for the expensive remedies they perceive to be necessary. The potential for very great damage to science and society is real.

Of course, the rise of 'Lysenkoism' in the Soviet Union in the late 40th of the twentieth century is one of the most tragic pages of the history of science.  Trofim Lysenko, a Soviet agronomist, came to prominence as the proponent of a theory of heredity that stood in direct opposition to Mendelianism. The details of this theory need not concern us, except to note that it was 'Larmarckist' in its contention that it is possible for organisms to inherit acquired characteristics.  This was wrong and the principles of Mendelianism - the theory of heredity - were well understood by then. But Lysenko theory fitted nicely with the Soviet ideology. Particularly, the idea that acquired characteristics could be inherited held out the promise of the perfectibility of mankind which as strange as it may sound was the necessary precondition to irreversible victory of socialism/communism (later when nationalistic forces  tore apart the USSR  it became clear that such hopes are completely misplaced). 

So the Stalinist state intervened in the pre-exiting scientific struggle by declaring the victor and the consequences, certainly for many of the scientists involved and arguably also for the USSR agriculture, were disastrous.  The essence of Lysenkoism is that pseudo-scientific theory became a pseudo-religious cult and the power of state was used to suppress dissidents. Many scientists were exiled; some killed. Unfortunately we cannot dismiss the obviously pernicious use of ideology by Lysenko and his supporters simply as an aberration of the era that is often brushed aside as 'the cult of personality' (with or without naming the personality in question). This proved to be much more dangerous and at the same time remarkably resilient phenomenon that survived the dissolution of the USSR. Actually the situation repeated with the USA economics when anything that was not neo-classic was suppressed was by-and-large similar although this time this time it happened without any killings.

Do not fool yourself that Lysenkoism is irrevocably connected with communist ideology. The link was poorly accidental. In reality Lysenkoism emerged more like a cult which was extremely convenient for the control freaks in high position in government. It's not a secret that a lot of high-level administrators in academic institutions belong to the category of micromanagers and as such they are naturally predisposed to Lysenkoism.  

In general "Lysenkovisation of  science" occurs when the state tries to control both the methodologies and goals of scientific activity and that happens all over the world, although to different degree.

In the USSR huge bureaucratic institutions such as VASKhNIL and VIEM had been set up with the specific goal to control resources and, especially, scientific press.  Part of the reason that Lysenkoism gained official support in the Soviet Union was because the Mendelian approach to genetics contradicted official ideology, in particular, Engels's dialectical materialism. In early 50th, just before his death Stalin began to sense that Lysenkoism can hinder practical science by interfering with the academic atmosphere of toleration of dissent most conducive to scientific accomplishment. He even went as far as to declare that

“no science can develop and proper without the clash of opinions, without freedom of criticism.”

But it was too late...

Other governments are also far from being immune from this kind of tendency to select between scientific theories on the basis of ideology rather than the balance of evidence.

More benign variant of Lysenkoism that does not rely on the power of the state is usually called Cargo Cult ScienceAnother related term is "Mayberry Machiavellis". A long time ago -- well, actually it was just a year, but it seems like a lot longer than that -- a former Bush advisor John DiIulio got into quite a bit of trouble for revealing to Esquire that the White House did not possess, in any conventional definition of the term, a policy-making process:

...on social policy and related issues, the lack of even basic policy knowledge, and the only casual interest in knowing more, was somewhat breathtaking—discussions by fairly senior people who meant Medicaid but were talking Medicare; near-instant shifts from discussing any actual policy pros and cons to discussing political communications, media strategy, et cetera. Even quite junior staff would sometimes hear quite senior staff pooh-pooh any need to dig deeper for pertinent information on a given issue...

This gave rise to what you might call Mayberry Machiavellis—staff, senior and junior, who consistently talked and acted as if the height of political sophistication consisted in reducing every issue to its simplest, black-and-white terms for public consumption, then steering legislative initiatives or policy proposals as far right as possible.

Dan Gardner - Senior Writer for The Ottawa Citizen writes: "Cabinet meetings were scripted, Mr. O'Neill discovered, by White House staffers who sent advance notes to cabinet secretaries telling them when they were 'supposed to speak, about what, and for how long.'" Is this the shadow of Politburo or what?

There are also strong analogies between Reaganomics and Lysenkoism. Useful discussion is at  "The Financial Crisis and the Systemic Failure of Academic Economics"

The Financial Crisis and the Systemic Failure of Academic Economics, by David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, and Thomas Lux: [From the conclusion] ..."We believe that economics has been trapped in a sub-optimal equilibrium in which much of its research efforts are not directed towards the most prevalent needs of society. Paradoxically self-reinforcing feedback effects within the profession may have led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest. Defining away the most prevalent economic problems of modern economies and failing to communicate the limitations and assumptions of its popular models, the economics profession bears some responsibility for the current crisis. It has failed in its duty to society to provide as much insight as possible into the workings of the economy and in providing warnings about the tools it created. It has also been reluctant to emphasize the limitations of its analysis. We believe that the failure to even envisage the current problems of the worldwide financial system and the inability of standard macro and finance models to provide any insight into ongoing events make a strong case for a major reorientation in these areas and a reconsideration of their basic premises."

While at the surface it looks like rent-seeking behavior of dishonest economists the analogy is pretty strong. A broad critique of Neoclassical economics has been put forward in the book Debunking Economics by Steve Keen  See, for example:

Dr. Nikolai Bezroukov


Top updates

Softpanorama Switchboard
Softpanorama Search


NEWS CONTENTS

Old News ;-)

2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

If history repeats itself...how incapable must Man be of learning from experience

George Bernard Shaw

"No science is immune to the infection of politics and the corruption of power."

Jacob Bronowski (1908-1974),
British scientist, author.
Encounter (London, July 1971).

[Dec 02, 2016] Economists View Some Concrete Proposals for Economists and the Media

Dec 02, 2016 | economistsview.typepad.com
likbez : December 02, 2016 at 09:47 AM
There is no economics, only political economy. That means that financial oligarchy under liberalism puts the political pressure and takes measures to have the final say as for who occupy top academic positions.

Indirect negative selection under neoliberalism (much like in the USSR) occurs on multiple fronts, but especially via academic schools and indoctrination of students. The proper term for political pressure of science and creating an academic school that suppressed other is Lysenkoism.

So far this term was not mentioned even once here. But this what we have in the USA. Of course there are some dissidents, some of them quite vocal, but in no way they can get to the level of even a department chair.

In best traditions of Lysenkoism such people as Greg Mankiw, Krugman, DeLong and Summers after getting to their lucrative positions can do tremendous, lasting decades damage. The same is true for all other prominent neoliberal economists. It's not even about answers given, it is about questions asked and framework and terminology used.

Fish rots from the head. It is important to understand that essentially the same game (with minor variations, and far worse remuneration for sycophantism ) was played in the USSR -- the Communist Party essentially dictated all top academic position assignments, so mostly despicable sycophants had managed to raise to the top in this environment. Some people who can well mask their views under the disguise of formal obedience also happened, but were extremely rare. Situation in the past in the USA was better and such people as Hyman Minsky (who died in 1996) while not promoted were not actively suppressed either. But He spend only the last decade of his career under neoliberal regime.

What was really funny, is how quickly in late 80th prominent USSR economists switched to neoliberalism when the wind (and money) start flowing in this direction.

Such despicable academic charlatans, who previously swear to dogmas of Marxism, were very receptive of foreign grants, conferences trips and cash :-). Much like Summers was receptive for sky high honorarium from various banks (see http://www.prosebeforehos.com/article-of-the-day/04/10/the-corruption-of-larry-summers/ )

I would suggest that there are non are trivial links between Soviet political and economic science and neoclassical economics in the USA -- both are flavors of Lysenkoism.

[Nov 30, 2016] Trumpism Has Dealt a Mortal Blow to Orthodox Economics and 'Social Science' naked capitalism

Notable quotes:
"... "The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners' interests by levying taxes on imported wheat, thus raising the price of bread at a time when factory-owners were trying to cut wages to be internationally competitive." ..."
Nov 30, 2016 | www.nakedcapitalism.com
likbez November 26, 2016 at 10:37 pm

I used to respect Krugman during Bush II presidency. His columns at this time looked like on target for me. No more.

Now I view him as yet another despicable neoliberal shill. I stopped reading his columns long ago and kind of always suspect his views as insincere and unscientific. In this particular case the key question is about maintaining the standard of living which can be done only if manufacturing even in robotic variant is onshored and profits from it re-distributed in New Deal fashion. Technology is just a tool. There can be exception for it but generally attempts to produce everything outside the US and then sell it in the USA lead to proliferation of McJobs and lower standard of living. Creating robotic factories in the USA might not completely reverse the damage, but might be a step in the right direction. The nations can't exist by just flipping hamburgers for each other.

Actually there is a term that explains well behavior of people like Krugman and it has certain predictive value as for the set of behaviors we observe from them. It is called Lysenkoism and it is about political control of science.

See, for example:
https://en.wikipedia.org/wiki/Lysenkoism
http://www.softpanorama.org/Skeptics/lysenkoism.shtml

Yves in her book also touched this theme of political control of science. It might be a good time to reread it. The key ideas of "ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism " are still current.

John Wright November 27, 2016 at 9:34 am

Another factor in maintaining manufacturing in the USA is what is referred to as furthering the "next bench syndrome".

This is where one is made aware of a manufacturing problem to solve due to proximity to the factory floor, and the solution leads to new profitiable products that can be used both inside/outside the original factory.

This might be an improved process or an improvement in manufacturing tooling that had not been anticipated before.

New products will be created with their profits/knowledge flowing to the country hosting the manufacturing plants.

The USA seems to be on a path of "we can create dollars and buy anything we want from people anywhere in the world".

Manufacturing dollars and credit rather than real goods might prove very short sighted if dollars are no longer prized.

Perhaps the TPP, with its ISDS provisions, indicates that powerful people understand this is coming and want additional wealth extraction methods from foreign countries.

Boris November 27, 2016 at 4:44 pm

We got ECONned all right.

It goes back to the late 1800's.

Excerpts from The Corruption of Economics

http://www.politicaleconomy.org/gaffney.htm

http://masongaffney.org/links.html

Henry George and The Reconstruction Of Capitalism
by Dr. Robert V. Andelson

http://schalkenbach.org/on-line-library/works-by-robert-v-andelson/henry-george-and-the-reconstruction-of-capitalism/

Beyond Left and Right

http://www.henrygeorge.org/isms.htm

Actus Purus November 26, 2016 at 10:35 am

The author mentions globalization and financialization. But what seems to be always left out (and given a pass) in these discussions is the role of central banks and monetary policy.

Central banking policy (always creating more money/credit) lies at the nexus of almost all that is wrong with modern capitalism and is the lubricant and fuel that enables financialization's endless growth.

Financialization leads to asset bubbles and deindustrialization. It hollows out industries. When money/credit are created in ever increasing quantity, the makeup of how we "work" shifts from goods producing to "finance".

Then through globalization, what we lack in goods, foreigners who accept our paper, seem to provide. At least for now. In a closed system, financialization has its natural limits. But enabled by cross-border trade, it metastasizes.

In the short run, it appears to be a virtuous circle. We print paper. They make real stuff. They take our paper. We take their stuff. We feel very clever.

But over time, wealth inequality grows. Industries are hollowed out. The banking sector dominates.

And then we get a populist uprising because people realize "something is wrong".

But mistakenly, they think it's globalization. Or free trade. Or capitalism. When all along, it's just central banking. Central banks are the problem. Central bankers are the culprits.

BecauseTradition November 26, 2016 at 4:56 pm

Central banks are the problem. Actus Purus

Yes, insofar as they create fiat for the private sector since that is obviously violation of equal protection under the law in favor of the banks and the rich.

Otoh, all citizens, their businesses, etc. should be allowed to deal directly in their nation's fiat in the form of account balances at the central bank or equivalent and not be limited to unsafe, inconvenient physical fiat, a.k.a. cash.

IDG November 27, 2016 at 4:12 am

Central banks are part of the problem, but not because any of the things you say. Abandon monetarism, is just wrong, on everything.

CB's do not control the rates effectively during the upturns (they are just procyclical as they add to savings though higher rates).

CB's "creating money" would mean loanable funds theory is right, but as it has been demonstrated over and over it's horribly wrong. Banks suffice themselves to expand credit on upturns, and CB'ers can do nothing about it. On downturns they cna try, and fail, because the appetite for credit is just not there. Credit expansion and contraction is endogenous and apart of of what CB's do, not to speak about all the forms of shadow money which are the real outliers and trouble makers.

What CB's do, in practice, is to prevent capitalism from collapsing on crisis, making "bad money" good, by stabilising asset prices. All their tools are reactive, not pro-active, so they cannot create any condition, because they react to conditions. They neither set the rates in reality, nor "create money" that enters the real economy in any meaningful way.

The religion of "central bankism" is part of the problem, but as it is the religion of "monetarism" (which are the same) on which many of those ideas are based.

BecauseTradition November 27, 2016 at 9:40 am

Banks suffice themselves to expand credit on upturns, and CB'ers can do nothing about it IDG

Yes, "loans create deposits" but only largely virtual liabilities wrt to the non-bank private sector. We should fix that by allowing the non-bank private sector to deal with reserves too then it would be much more dangerous for banks to create liabilities since bank runs would be as easy and convenient as writing a check to one's cb account or equivalent. Of course, government provided deposit insurance could then be abolished too since accounts at the cb or equivalent are inherently risk-free.

Our system is a dangerous mess because of privileges for depository institutions – completely unnecessary privileges given modern computers and communications.

Actus Purus November 27, 2016 at 9:42 am

In other words, another "pass" for central banks. It's not their fault. It's just the economy. It's how "markets" work.

stefan November 26, 2016 at 10:38 am

Get ready for real kleptocracy.

Breitbart obscurantism + Trump/Bannon misdirection = turkeys vote for thanksgiving.
Sessions views on race at Justice = curtailed civil rights.
Wilbur Ross pension stripping = privatize Social Security.
DeVos at education = privatize the golden egg of public education.
85% tax credit for private infrastructure spending = fire sale of the public square (only rich need apply).
3~4 Military generals in the cabinet = enforcement threat for crypto-fascist state.
McGahn at counsel + Pompeo at CIA = Koch Bros.
Ryan at speaker = privatize Medicare

Welcome to government of the billionaires, by the billionaires, for the billionaires.

btw, if Giuliani is appointed to a cabinet post, he will have to explain his foreknowledge of the NY FBI→Kallstrom→Comey connection→to Congress under oath (if they aren't too afraid to ask).

a different chris November 26, 2016 at 9:15 pm

I worry along with you, but again: When somebody Ms DeVos opens her mouth people just naturally recoil. Trump doesn't seem to have grasped the only thing that mattered in his election – you want your enemies to suck. His appointees are people that suck. Hillary would have appointed smooth-talkers who could effortlessly move between "private and public" positions.

PS: Paul Ryan is a good counterexample – people fall for his BS because he isn't quite a stupid as, say Guiliani. Of course he was elected, not picked by Trump.

Robert Dannin November 26, 2016 at 10:41 am

mr reddy solves the riddle of the Great Refusal but doesn't far enough: certainly mainstream economists were wrong to act as cheerleaders for the kleptocracy, yet they were also complicit in a material sense by furnishing all the necessary algorithms to boost the derivatives industry into the realm of corporate cyber-theft. that genie isn't going back into bottle. what's in store for us then? economic apartheid. just read what the new team has been saying about walls, guns, police, military and terrorism. the bannon plan is for heavily policed gated communities monopolizing vital resources; high surveillance, rights abatement zones for the proletariat; and a free-fire wilderness of lumpen gangsters, gun-toting vigilantes, survivalist cults, etc. competing for subsistence. mad max, only run by people worse than mel gibson. close to what we already have but once legislated into existence impossible to reverse without a violent revolution. once again mr. reddy is correct: hobbes' leviathan is the negation of social science.

Waldenpond November 26, 2016 at 11:39 am

hmmmm .. Trump said quite a few contradictory things during his campaign and it would seem an error to believe anything a candidate says on either side of an issue. Have the Koch brothers (who are involved w/Trump) been particularly unhappy with the numerous billions they've accumulated under Obama? I expect this regime to be more along the 'different globalization' side (more a shuffling of the deck chairs on the Titanic). Manufacturing will be back in relation to the degree – penalties are eliminated on 'repatriated' funds, land is eminent domained on behalf of oligarchs, private profit is granted primacy over pollution, then build their factories with public money and abolish the minimum wage. Austerity will continue but the new con will be private/public partnerships. Don't you want to buy you friend/family member/neighbor a job? Don't you?

The elite, including the Trump's, are going to continue their actions until they've taken it all.

Wendell Fitzgerald November 26, 2016 at 1:06 pm

Since you mention land you might be interested in the idea of land value taxation a way to take the land back from the oligarchs an idea that has been around for a long time assiduously ignored by folks like Naked Capitalism.

JEHR November 26, 2016 at 5:35 pm

Mr. Fitzgerald, if you search in NC for "land value taxation" you will see many articles, especially from Mr. Hudson. NC has thoroughly covered a lot of territory regarding this topic.

a different chris November 26, 2016 at 9:24 pm

Yes you could probably catch us restlessly muttering "Henry George" in our sleep half the time.

The problem is it's a really, really hard sell. It just sounds funny. Pittsburgh actually had it until a few years ago when it was "discovered" and before there was even a discussion the Democratic mayor and City Council who should have known better had rescinded it before anybody got a chance to say anything.

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

" during 2001 after years of underassessment, and the system was abandoned in favor of the traditional single-rate property tax. The tax on land in Pittsburgh was about 5.77 times the tax on improvements."

To be good Russian plants, we do actually need to know things about Amerika

Anyway, here's the problem: people just voted for a billionaire how you gonna get this type of taxation approved given the Pittsburgh example?

Allegorio November 26, 2016 at 11:24 pm

It seems to be forgotten that this was a vote against Clinton and not a vote for Trump. If Trump goes back on his progressive platform, jobs jobs jobs there will be a backlash so fast that it will give everyone, especially the billionaires whiplash. Let them touch one hair on Social Security's head or privatize Medicare, there will be another big surprise in the mid-term elections. When the good people of the rust belt find out about the plans to put rentier tolls on all that public infrastructure, trust me the pitchforks will come out from their corners quick as you blink The best laid plans of billionaires and their lackeys often go awry. The curtain has been lifted. If Trump thinks he can satisfy the working class by giving another huge tax break to the .01%, he better think again. They do not have enough rubber bullets nor pepper spray.

Michael November 27, 2016 at 3:38 am

Nah, as long as Trump keeps blaming folks of color, he's got a good six years. You overestimate the people of Flyover. Yes, they got hosed by Obama, but they've been electing Republicans to flog them for 30 years.

Lambert Strether November 27, 2016 at 12:22 pm

Speaking of blaming

I love the Democrat attitude that "Democrats can never fail. They can only be failed," in this case by approximately 50% of the population.

Anonymous November 27, 2016 at 2:53 pm

It's a hard sell for good reason. Many Americans are land rich and cash poor. The idea that they'd have to sell property to pay such a tax offends even the simplest conception of sound land planning. If a lot more property came on the market at once, as it would have to under the land tax scheme, we'd be Japan all over again.

BecauseTradition November 27, 2016 at 11:41 am

Taxes should be unavoidable to avoid violating equal protection under the law and land taxes are certainly unavoidable in that land can't be hidden as income, for example, can be.

Another unavoidable tax, except for the existence of physical fiat* (notes and coins), would be a tax on fiat, i.e. negative interest.

*Yet these can be taxed when bought and sold to the central bank with/for "reserves"**
**Just another name for fiat account balances at the central bank when the account owners are depository institutions.

animalogic November 28, 2016 at 1:11 am

Here's a few old fashioned & long derided ideas for taxes:
An Estate Tax of 30% on estates larger than say, 5 million. Yes I know the US has one, but isn't it suffering death by a thousand cuts ?
A sales tax (say 30%) on Luxury goods ? If you can afford that Rolls Royce, you can afford the tax
Tax on financial transactions (ie: a Tobin tax).
I'm sure we could add a couple dozen more tax ideas to the list. (The idea is not surpluses, but to reduce inequality )

BecauseTradition November 28, 2016 at 9:17 am

but to reduce inequality ) animalogic

The goal should be to reduce injustice – preferably at its source. And the source of much injustice is surely government privileges for private credit creation and other welfare for the rich such as positive interest paying sovereign debt.

Still, there's previous injustice to deal with so asset redistribution should be on the table too and that could include taxing the rich to give to the poor – certainly not to run a surplus (or even a balanced budget) as you say.

Altandmain November 26, 2016 at 11:47 am

Mainstream analysts don't want to recognize the real problem. They failed the people have lost their legitimacy to govern.

Not saying Trump is the solution (I'm hoping for a solution from the left and think that Trump could enable his cronies, but nothing else), but the Establishment is unworthy to govern.

Wendell Fitzgerald November 26, 2016 at 1:24 pm

A solution that most people would consider being from the left but which is the radical center (taking valid ideas from both left and right) is land value taxation the wedge issue to tax the various sources of unearned income (estimated at 40+% of GNP however you determine it) thus allowing for the elimination of taxation of earned income from wages and profit from the investment of real capital in the real economy. Taxing community created land value and making the distinction between earned and unearned income has been assiduously ignored and avoided by mainstream economists, most of our vaunted/sainted public intellectuals and sources like naked capitalism but since all of that has failed there is nothing to lose by considering what this author, Sanjay Reddy, says is necessary: "It [social science] can only save itself through comprehensive reinvention, from the ground up." I suggest that the this has already been done literally from the ground up by the analysis that has been around for a very long time that takes land, how its value is created, who owns it and what happen when you tax its value into account. Happy day.

Oregoncharles November 27, 2016 at 1:37 pm

I recognize the concept, but suggesting some sources would help follow up on your point.

Michael November 27, 2016 at 3:38 am

I still have no idea what the point of an economist who didn't raise a flag before the 2007 crisis is.

Why would any of them retain their jobs?

Lambert Strether November 27, 2016 at 12:07 pm

The same goes for The Blob.

Rosario November 26, 2016 at 12:45 pm

We finally made it to the post-modern wasteland. It is pretty weird to see the post-modern methods used by social scientists for decades to dissect culture actually manifest in practiced culture.

susan the other November 26, 2016 at 1:14 pm

TINA was definitely an ideology – an idea backed by interest. They were making fun of Thatcherism last nite on France 24 because it had been so devastating and now one of the candidates in France is talking her old trash again. Humor is effective against ideology when all else fails but it takes a while. But as defined above, we actually do have an alternative – our current alternative is "illiberal majoritarianism". Sounds a tad negative. We should just use the word "democracy".

pzoellner November 26, 2016 at 2:36 pm

Excellent thinking. Thanks to all

Sound of the Suburbs November 26, 2016 at 2:39 pm

The problem with free trade, a historical lesson:

"The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners' interests by levying taxes on imported wheat, thus raising the price of bread at a time when factory-owners were trying to cut wages to be internationally competitive."

The landowners wanted to increase their profit by charging a higher price for corn, but this posed a barrier to international free trade in making UK wage labour uncompetitive by raising the cost of living for workers.

In a free trade world the cost of living needs to be the same in West and East as this sets the wage levels.

The US has probably been the most successful in making its labour force internationally uncompetitive with soaring costs of housing, healthcare and student loan repayments.

These costs all have to be covered by wages and US businesses are now squealing about the high minimum wage.

US labour can never compete with Eastern labour and will have to be protected by tariffs.

Free trade has requirements and you must meet them before you can engage in free trade.

The cost of living needs to be the same in West and East.

BecauseTradition November 27, 2016 at 12:32 pm

Assume, for the sake of argument, that all assets in the West were equally owned by its citizens? Then wouldn't free trade with the East be a universal blessing for the citizens of the West and not a curse for some (actually many) of them?

So the problem is unjust asset distribution? But how could that occur if our economic system is just? Except it isn't just since government subsidies for private credit creation are obviously unjust in that the poor are forced to lend (a deposit is legally a loan) to banks for the benefit of the rich.

Oregoncharles November 27, 2016 at 1:31 pm

A technical note, to avoid possible confusion: "corn" in British means wheat and other small grains – a "corn" is a kernel. Maize was not a big factor in Britain; too far north.

Otherwise, good point.

Sound of the Suburbs November 26, 2016 at 2:43 pm

There are two certainties in life – death and taxes.

There are two certainties about new versions of capitalism; they work well for a couple of decades before failing miserably.

Capitalism mark 1 – Unfettered Capitalism

Crashed and burned in 1929 with a global recession in the 1930s.
The New Deal and Keynesian ideas promised a bright new world.

Capitalism mark 2 – Keynesian Capitalism

Ended with stagflation in the 1970s.
Market led Capitalism ideas promised a bright new world.

Capitalism mark 3 – Unfettered Capitalism – Part 2 (Market led Capitalism)

Crashed and burned in 2008 with a global recession in the 2010s.

We are missing the vital ingredient.

When the first version of capitalism failed, Keynes was ready with a new version.

When the second version of capitalism failed, Milton Freidman was waiting in the wings with his new version of capitalism.

Elites will always flounder around trying to stick with what they know, it takes someone with creativity and imagination to show the new way when the old way has failed.

Today we are missing that person with creativity and imagination to lead us out of the wilderness and
stagnation we have been experiencing since 2008.

Sound of the Suburbs November 26, 2016 at 2:45 pm

What is missing from today's economics?

1) The work of the Classical Economists and the distinction between "earned" and "unearned" income, also "land" and "capital" need to be separated again (conflated in neoclassical economics)

Reading Michael Hudson's "Killing the Host" is a very good start

2) How money and debt really work. Money's creation and destruction on bank balance sheets.

3) The work of Irving Fisher, Hyman Minsky and Steve Keen on debt inflated asset bubbles

4) The work of Richard Koo on dealing with balance sheet recessions
https://www.youtube.com/watch?v=8YTyJzmiHGk

5) The realisation that markets have two modes of operation:

a) Price discovery
b) Bigger fool mode, where everyone rides the bubble for capital gains

There may be more

The Euro was designed with today's defective economics.
Oh dear, no wonder it's going wrong.

a different chris November 26, 2016 at 9:29 pm

>The Euro was designed with today's defective economics.

Man I didn't think of that. What comically lousy timing. I do like this post because it similar to sigh, ok it asserts my belief but still don't think I'm in an echo chamber here, I actually want people to know what I think so they can reinforce the good and whittle out the bad anyway, asserts my belief that "economics" isn't a science but when used in the best way is a toolkit, here we need an hammer (austerity), here we need a screwdriver (some tweaking). It isn't one tool for all jobs for all time.

Sound of the Suburbs November 27, 2016 at 1:24 pm

American's are brainwashed from birth about capitalism and Milton Freidman may have been as susceptible as the next man.

He may not have realised he was building on a base that had already been corrupted, the core of neoclassical economics.

The neoclassical economists of the late 19th century buried the difference between "earned" and "unearned" income.

These economists also conflated "land" and "capital" to cause further problems that were clear to the Classical Economists looking out on a world of small state, raw capitalism.

Thorstein Veblen wrote an essay in 1898 "Why is economics not an evolutionary science?".

Real sciences are evolutionary and old theory is replaced as new theory comes along and proves the old ideas wrong.

Economics needs a scientific, evolutionary rebuild from the work of the classical economists.

Most of the UK now dreams of giving up work and living off the "unearned" income from a BTL portfolio, extracting the "earned" income of generation rent.

The UK dream is to be like the idle rich, rentier, living off "unearned" income and doing nothing productive.

This is what happens when stuff goes missing from economics.

Keynes realised wage income was just as important as profit.
Wage income looks after the demand side of the equation and profit the supply side.
I think we will find he was right, this knowledge has just gone missing at the moment.

Keynes studied the Great Depression and noted monetary stimulus lead to a "liquidity trap".
Businesses and investors will not invest without the demand there to ensure their investment will be worthwhile.
The money gets horded by investors and on company balance sheets as they won't invest.
Cutting wages to increase profit just makes the demand side of the equation worse and leads you into debt deflation.
Central Banks today talk about the "savings glut" not realising this is probably Keynes's "liquidity trap".
It's more missing stuff.

When Keynes was involved in Bretton Woods after the Second World War they put in mechanisms for recycling the surplus, to keep the whole thing running.

The assumption today is that capitalism will just reach stable equilibriums by itself.

The Euro is based on this idea, but Greece has just reached max. debt and collapsed, it never did reach that stable equilibrium.

Recycling the surplus would probably have worked better.

Science is evolutionary for a reason.

Michael November 27, 2016 at 3:40 am

Energy and true scarcity in the form of the biosphere are still missing from today's economics.

BecauseTradition November 27, 2016 at 2:37 pm

Ethical fiat and credit creation are missing and have been for centuries.

UserFriendly November 26, 2016 at 8:09 pm

I disagree that we don't have a ready to go replacement. MMT. We just have TPTB throwing $$$ around to make sure no one hears about it, much less does anything.

Barry disch November 26, 2016 at 5:16 pm

Well written concentrated synopsis of how our economy has evolved over the last 35 years.

JEHR November 26, 2016 at 5:39 pm

I believe that our way out of this morass is to start by buying locally. There are always people who make things and they need to be supported. We may not get the cheap products, but we can build our communities up gradually over time. Our standard of living will be different but we will have our dignity and the means for creating prosperous communities.

Arizona Slim November 26, 2016 at 6:29 pm

I have been a member of a localist group here in AZ. Said group does a great job of appealing to people from across the political spectrum. And that is a good example to follow.

Ulysses November 27, 2016 at 7:06 am

"I believe that our way out of this morass is to start by buying locally."

I very much like the localist movement, and I try very hard to support it in upstate NY, among other places. The problem with this approach is that there are simply way too many people for us to painlessly revert back to an artisanal, agrarian 18th c. lifestyle.

To put this in Empire State terms: we might just be able to accommodate hundreds of thousands of people who used to work for Kodak, I.B.M, or Xerox upstate– in new jobs making craft beer or high-quality string instruments, etc. Yet what do we do with the many millions of people, who live downstate, who currently work in jobs very dependent on a globalized economy?

Greg November 26, 2016 at 11:25 pm

We've seen a few economists posting lately to say that all social sciences got it wrong, and especially economics. What's curious to me is that non of the examples given apply to any social science except economics.

Is this the same discipline that refuses to acknowledge the value of other disciplines and cross-discipline research, ducking for cover behind the very disciplines it's been snobbing?
'All social sciences' indeed.

John k November 27, 2016 at 12:53 am

The election was less about trump gaining voters in the rust belt than Clinton losing hers. Romney lost with exactly as many votes as trump got because 6 million that voted for black Obama preferred to stay home rather than vote for white Clinton.
All the dems need to do is to run a candidate willing to spend quality time in the swing states, somebody not totally corrupt and not verbally advocating confrontation with Russia would also be a big help, though this already rules out most dem elites.

Of course if trump manages to get a lot of infra built, and gets a lot of decent jobs, his support in 2020 will grow, maybe to the point only a strong progressive could beat him.
But today's dem elites will fight tooth and nail to keep real progressives from controlling the party, as instructed by their corp overlords remember, bankers might go to jail if the wrong person gets AG. First indication is Keith on dec 1 can/will big o keep him out?

LifeIsLikeABeanstalk November 27, 2016 at 2:17 am

I liked this 'take' by Prof. Reddy a lot in terms of looking at what happened to bring us to a Trump Presidency (with an observation that Orange Duce hasn't YET been sworn in).

But if he thinks that a Tea Party shaped Republican House and Senate and soon to be skewed Supreme Court aren't about to launch a season of Rent Taking and Austerity to levels previously only attained in Arthur Laffer's wet dreams he needs his otherwise rational head examined.

Schofield November 27, 2016 at 9:22 am

Don't go so excited the "Trump Revolution" like the "Obama Revolution" will likely end up as "hopeless" for ordinary folk. So for starters Trump's tax breaks will save the 1% fifteen percent and the rest of us 2 percent! Already the msm including my local paper are already grinding out the counter-propaganda against raising tariff barriers for China. The majority of the electorate are too ignorant to figure much of it out and come 2024 will be voting Ivanka Trump in as president!

GregoryA November 28, 2016 at 12:44 am

If Trump raises MORE(notice that word son) tariffs against China, he will get a nice uppercut across the forehead when China cancels contracts one after another and jobs start being lost in the next NBER recession. His ego can't take that.

He was the Mercers introduction to the elite, nothing more or less. If anything, the Republicans are more Jewy than ever.

Oregoncharles November 27, 2016 at 1:09 pm

"The dominant economic ideas taken together created a framework in which deviation from declared orthodoxy would be punished by dynamics unleashed by globalization and financialization."

IOW, it isn't science; it's political ideology.

The environmental economist Herman Daley traces that back to the very beginning of the field; he says the earliest economists essentially chose sides in the contest then raging between landowners (resource based) and merchants (trade based). That made them propagandists, not referees. And it's the reason economics, from the beginning, suppressed the distinction between natural resources, like land, water, and minerals, and human-created capital. It recognized only two "production factors," when in reality there are at least three. Marx picked up the same self-serving :"error."

Oregoncharles November 27, 2016 at 1:20 pm

" illiberal majoritarianism"
That's an unfortunate word choice, considering that Trump lost the election by nearly 2 million votes. It was an extraordinary demonstration of the defective Electoral College system. Maybe now we'll get some action on the Popular Vote initiative.

It's important to remember that the rebellion is "illiberal" mainly because the "liberal" parties refuse to offer a "liberal" populism, aka the New Deal. You could call it an old, proven idea. Some of us see that as weak tea, but even that isn't on offer outside the marginalized Left. (This is the essential point of Thomas Franks' "What's the Matter with Kansas.")

Of course, that's just a further illustration of the author's point.

Paul Hirschman November 27, 2016 at 1:57 pm

One of the most insightful chapters in Karl Polanyi's THE GREAT TRANSFORMATION is about something Karl calls "the discovery of society." It is the story of how those who wrestled with the fundamental falsehoods of the "self-regulating market" [our Libertarian friends' dreamworld] had to begin thinking about how people in their everyday lives actually, really, incompletely, made a life for themselves in a world defined by trickle-down economics. It was never a pretty sight, but the lesson was that the "self-regulating market" was going to be regulated somehow by non-economic actors with non-economic considerations foremost in mind, like it or not, or face destruction by human beings whose lives were distorted beyond what would be tolerated by ordinary people. Most people put up with neoliberal BS for a generation because that's what most people do, most of the time, even when they know they're being sold a bunch of horsecr*p. But the limit of what people will tolerate in a society defined by the false gods of market capitalism is reached periodically. Trump's victory tells us that one of these limits has been reached. The question now is, "What are we going to "discover" about ourselves and about the society we want to live in–and will we find a way to create it, assuming it's something good?" (Or flee from, if it turns sour.)

TINA folks will repeat, over and over, that "there is no alternative," but that bugaboo has just been smashed. Clinton, Summers, Obama, Rubin, Schumer, and the many, many lesser lights of Neo-Liberalism have become "old hat" almost overnight. Let's hope our discovery of society includes a stronger dose of Reason and Solidarity than would seem to exist in Trumpworld.

Phil November 28, 2016 at 3:33 am

Here's the deal:
Automation is hallowing out work *at all levels*. Don't believe me? Read this.
http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf
Summary:
http://www.eng.ox.ac.uk/about/news/new-study-shows-nearly-half-of-us-jobs-at-risk-of-computerisation

Add to the above:
Projected population increases, worldwide -including some demographic vertical projections
http://www.pewresearch.org/fact-tank/2014/02/03/10-projections-for-the-global-population-in-2050/

ergo: Less work (at all levels) + increasing population (which includes some explosive variables, like a large increase of older persons who will require economic support from fewer younger workers) = a massive increase in tension re: the struggle for available necessities.

Technology innovation will help with some of this, but the great, looming problem is: how are billions of idle people with nothing to do going to be motivated to remain non-disruptive? I can see a massive surveillance state controlling the "idles"; perhaps new technologies that permit people to jack their brains into the network for diversion (but how long before people become desensitized to that?). Will there be a "spiritual" revolution that is not attached to current dogmatic religions, that values having less, sharing more, cooperating with others, etc.? Hard to say.

Anyway, it's coming, yet very few policy makers are talking about it. I'll bet the Pentagon is planning for this scenario, among others.

In twenty years – maybe a few more – we should be able to begin to migrate away from earth. It will probably be a LONG time before extra-earth settlements are feasible and sustainable. That said, we here on earth are going to have our hands full.

Can humanity somehow find ways to overcome its wired propensity for status reflected by material wealth, and somehow change that status-seeking to a sharing model that is not top-down?

I've been pondering this for a while. People much smarter than I will hopefully lead the way. We have our work cut out for us.

I don't have any answers

[Nov 26, 2016] Trumpism Has Dealt a Mortal Blow to Orthodox Economics and Social Science

Notable quotes:
"... Grappling with the shock of Donald Trump's election victory, most analysts focus on his appeal to those in the United States who feel left behind, wish to retrieve a lost social order, and sought to rebuke establishment politicians who do not serve their interests. In this respect, the recent American revolt echoes the shock of the Brexit vote in the United Kingdom, but it is of far greater significance because it promises to reshape the entire global order, and the complaisant forms of thought that accompanied it. ..."
"... Ideas played an important role in creating the conditions that produced Brexit and Trump. The 'social sciences' - especially economics - legitimated a set of ideas about the economy that were aggressively peddled and became the conventional wisdom in the policies of mainstream political parties, to the extent that the central theme of the age came to be that there was no alternative. The victory of these ideas in politics in turn strengthened the iron-handed enforcers of the same ideas in academic orthodoxy ..."
"... The role of economics in furnishing the now-rebuked narratives that have reigned for decades in mainstream political parties can be seen in three areas. ..."
"... The combination of globalization and financialization produced a new plutocratic class of owners, managers and those who serviced them in global cities, alongside gentrification of those cities, proleterianization and lumpenization of suburbs, and growing insecurity and casualization of employment for the bulk of the middle and working class. ..."
"... Financialization also led to the near-abandonment of the 'national' industrial economy in favor of global sourcing and sales, and a handsome financial rentier economy built on top of it. Meanwhile, automation trends led to shedding of jobs everywhere, and threaten far more. ..."
"... Third, there is the push for austerity, a recurrent trope of the 'neoliberal' era which, although not favored by all, has played an important role in creating conditions for the rise of popular movements demanding a more expansionary fiscal stance ..."
"... The dominant economic ideas taken together created a framework in which deviation from declared orthodoxy would be punished by dynamics unleashed by globalization and financialization. The system depended not merely on actors having the specific interests attributed to them, but in believing in the theory that said that they did. [This is one of the reasons that Trumpism has generated confusion among economic actors, even as his victory produced an early bout of stock-market euphoria. It does not rebuke neoliberalism so much as replace it with its own heretical version, bastard neoliberalism, an orientation without a theory, whose tale has yet to be written.] ..."
"... Mainstream accounts of politics recognized the role of identities in the form of wooden theories of group mobilization or of demands for representation. However, the psychological and charismatic elements, which can give rise to moments of 'phase transition' in politics, were altogether neglected, and the role of social media and other new methods in politics hardly registered. ..."
"... Trumpism is a crisis for the most prestigious methods of understanding economic and social life, ennobled and enthroned by the metropolitan academy of the last third of a century. It has caused mainstream 'social science' to fall like a house of cards. It can only save itself through comprehensive reinvention, from the ground up. ..."
"... Neoliberalism -> c(Globalization, Financialization, Austerity) ..."
"... Just one caveat: Neoliberalism is not really market-fetishism, unless fetishism is understood as fake devotion. Neoliberalism is a State ideology of the economy, its central tenet being that the State must directly help the rich, the poor will be better off as a by-product. ..."
"... Remember, though, that neoliberal social sciences now insists that everything is "post fact". "Post fact" society. "Anti intellectualism". And so on. ..."
"... We can look forward to too post-neoliberslism . - which would be liberalism, as the post and neo cancel out. ..."
"... As early as 1967 Greenspan was well known as an academic whore and a Rockefeller Puppet which now is a vast army of dial up opinions. ..."
"... The author mentions globalization and financialization. But what seems to be always left out (and given a pass) in these discussions is the role of central banks and monetary policy. ..."
"... Central banking policy (always creating more money/credit) lies at the nexus of almost all that is wrong with modern capitalism and is the lubricant and fuel that enables financialization's endless growth. ..."
"... Financialization leads to asset bubbles and deindustrialization. It hollows out industries. When money/credit are created in ever increasing quantity, the makeup of how we "work" shifts from goods producing to "finance". ..."
"... Trump doesn't seem to have grasped the only thing that mattered in his election – you want your enemies to suck. His appointees are people that suck. Hillary would have appointed smooth-talkers who could effortlessly move between "private and public" positions. ..."
"... PS: Paul Ryan is a good counterexample – people fall for his BS because he isn't quite a stupid as, say Guiliani. Of course he was elected, not picked by Trump. ..."
"... mr reddy solves the riddle of the Great Refusal but doesn't far enough: certainly mainstream economists were wrong to act as cheerleaders for the kleptocracy, yet they were also complicit in a material sense by furnishing all the necessary algorithms to boost the derivatives industry into the realm of corporate cyber-theft. ..."
"... Mainstream analysts don't want to recognize the real problem: those who failed the people have lost their legitimacy to govern. ..."
"... We finally made it to the post-modern wasteland. It is pretty weird to see the post-modern methods used by social scientists for decades to dissect culture actually manifest in practiced culture. ..."
"... TINA was definitely an ideology – an idea backed by interest. They were making fun of Thatcherism last nite on France 24 because it had been so devastating and now one of the candidates in France is talking her old trash again. Humor is effective against ideology when all else fails but it takes a while. But as defined above, we actually do have an alternative – our current alternative is "illiberal majoritarianism". Sounds a tad negative. We should just use the word "democracy". ..."
"... "The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners' interests by levying taxes on imported wheat, thus raising the price of bread at a time when factory-owners were trying to cut wages to be internationally competitive." ..."
"... The US has probably been the most successful in making its labour force internationally uncompetitive with soaring costs of housing, healthcare and student loan repayments. ..."
"... Today we are missing that person with creativity and imagination to lead us out of the wilderness and stagnation we have been experiencing since 2008. ..."
"... The work of the Classical Economists and the distinction between "earned" and "unearned" income, also "land" and "capital" need to be separated again (conflated in neoclassical economics) Reading Michael Hudson's "Killing the Host" is a very good start ..."
Nov 26, 2016 | www.nakedcapitalism.com
By Sanjay Reddy, Associate Professor of Economics, The New School for Social Research. Originally published at the Institute for New Economic Thinking website

Grappling with the shock of Donald Trump's election victory, most analysts focus on his appeal to those in the United States who feel left behind, wish to retrieve a lost social order, and sought to rebuke establishment politicians who do not serve their interests. In this respect, the recent American revolt echoes the shock of the Brexit vote in the United Kingdom, but it is of far greater significance because it promises to reshape the entire global order, and the complaisant forms of thought that accompanied it.

Ideas played an important role in creating the conditions that produced Brexit and Trump. The 'social sciences' - especially economics - legitimated a set of ideas about the economy that were aggressively peddled and became the conventional wisdom in the policies of mainstream political parties, to the extent that the central theme of the age came to be that there was no alternative. The victory of these ideas in politics in turn strengthened the iron-handed enforcers of the same ideas in academic orthodoxy .

It is never clear whether ideas or interests are the prime mover in shaping historical events, but only ideas and interests together can sustain a ruling consensus for a lengthy interval, such as the historic period of financialization and globalization running over the last 35 years. The role of economics in furnishing the now-rebuked narratives that have reigned for decades in mainstream political parties can be seen in three areas.

First, there is globalization as we knew it. Mainstream economics championed corporate-friendly trade and investment agreements to increase prosperity, and provided the intellectual framework for multilateral trade agreements. Economics made the case for such agreements, generally rejecting concerns over labor and environmental standards and giving short shrift to the effects of globalization in weakening the bargaining power of workers or altogether displacing them; to the need for compensatory measures to aid those displaced; and more generally to measures to ensure that the benefits of growth were shared. For the most part, economists casually waved aside such concerns, both in their theories and in their policy recommendations, treating these matters as either insignificant or as being in the jurisdiction of politicians. Still less attention was paid to crafting an alternate form of globalization, or to identifying bases for national economic policies taking a less passive view of comparative advantage and instead aiming to create it.

Second, there is financialization, which led to increasing disconnection between stock market performance and the real economy, with large rewards going to firms that undertook asset stripping, outsourcing, and offshoring. The combination of globalization and financialization produced a new plutocratic class of owners, managers and those who serviced them in global cities, alongside gentrification of those cities, proleterianization and lumpenization of suburbs, and growing insecurity and casualization of employment for the bulk of the middle and working class.

Financialization also led to the near-abandonment of the 'national' industrial economy in favor of global sourcing and sales, and a handsome financial rentier economy built on top of it. Meanwhile, automation trends led to shedding of jobs everywhere, and threaten far more.

All of this was hardly noticed by the discipline charged with studying the economy. Indeed, it actively provided rationales for financialization, in the form of the efficient-markets hypothesis and related ideas; for concentration of capital through mergers and acquisitions in the form of contestable-markets theory; for the gentrification of the city through attacks on rent control and other urban policies; for remaking of labor markets through the idea that unemployment was primarily a reflection of voluntary leisure preferences, etc. The mainstream political parties, including those historically representing the working and middle classes, in thrall to the 'scientific' sheen of market fetishism, gambled that they could redistribute a share of the promised gains and thus embraced policies the effect of which was ultimately to abandon and to antagonize a large section of their electorate.

Third, there is the push for austerity, a recurrent trope of the 'neoliberal' era which, although not favored by all, has played an important role in creating conditions for the rise of popular movements demanding a more expansionary fiscal stance (though they can paradoxically simultaneously disdain taxation, as with Trumpism). The often faulty intellectual case made by many mainstream economists for central bank independence, inflation targeting, debt sustainability thresholds, the distortive character of taxation and the superiority of private provision of services including for health, education and welfare, have helped to support antagonism to governmental activity. Within this perspective, there is limited room for fiscal or even monetary stimulus, or for any direct governmental role in service provision, even in the form of productivity-enhancing investments. It is only the failure fully to overcome the shipwreck of 2008 that has caused some cracks in the edifice.

The dominant economic ideas taken together created a framework in which deviation from declared orthodoxy would be punished by dynamics unleashed by globalization and financialization. The system depended not merely on actors having the specific interests attributed to them, but in believing in the theory that said that they did. [This is one of the reasons that Trumpism has generated confusion among economic actors, even as his victory produced an early bout of stock-market euphoria. It does not rebuke neoliberalism so much as replace it with its own heretical version, bastard neoliberalism, an orientation without a theory, whose tale has yet to be written.]

Finally, interpretations of politics were too restrictive, conceptualizing citizens' political choices as based on instrumental and usually economic calculations, while indulging in a wishful account of their actual conditions - for instance, focusing on low measured unemployment, but ignoring measures of distress and insecurity, or the indignity of living in hollowed-out communities.

Mainstream accounts of politics recognized the role of identities in the form of wooden theories of group mobilization or of demands for representation. However, the psychological and charismatic elements, which can give rise to moments of 'phase transition' in politics, were altogether neglected, and the role of social media and other new methods in politics hardly registered. As new political movements (such as the Tea Party and Trumpism in the U.S.) emerged across the world, these were deemed 'populist'-both an admission of the analysts' lack of explanation, and a token of disdain. The essential feature of such movements - the obscurantism that allows them to offer many things to many people, inconsistently and unaccountably, while serving some interests more than others - was little explored. The failures can be piled one upon the other. No amount of quantitative data provided by polling, 'big data', or other techniques comprehended what might be captured through open-eyed experiential narratives. It is evident that there is a need for forms of understanding that can comprehend the currents within the human person, and go beyond shallow empiricism. Mainstream social science has offered few if any resources to understand, let alone challenge, illiberal majoritarianism, now a world-remaking phenomenon.

Trumpism is a crisis for the most prestigious methods of understanding economic and social life, ennobled and enthroned by the metropolitan academy of the last third of a century. It has caused mainstream 'social science' to fall like a house of cards. It can only save itself through comprehensive reinvention, from the ground up.

KK November 26, 2016 at 5:41 am

I was surprised at how reasonable my plumber's quote was and when l asked him about this, he said that he couldn't increase his prices or the work would go to 'Eastern Europeans' who continued to undercut him. Wasn't it plumbing and hairdressing that we got taught about in 1970's economics classes as not being subject to international competition?

rd November 26, 2016 at 9:49 am

Both plumbing and appliance repair are becoming disassemble and reassemble jobs. You don't fix a faucet anymore. You just take the old one out and put and new one in because that is cheaper than repairing. Same with many appliances. Even the repairs are taking out an entire part or circuit board and no dropping a new one in.

So the skill set now is diagnosis and occasionally brute strength to take apart the old joint.

ambrit November 26, 2016 at 9:58 am

Yep, those were supposedly "immigrant proof" occupations. Hah! Were we ever wrong!

It turns out that even "skilled labour," into which, much to their dismay, technical occupations are now included, is subject to wage suppression by importation of cheaper workers. The fact that there is a H1B visa program at all should tell us something fundamental about the amoral character of management labour relations in America.

fresno dan November 26, 2016 at 3:42 pm

ambrit

November 26, 2016 at 9:58 am

http://www.marketwatch.com/story/shortage-of-mexican-workers-is-hurting-us-businesses-2016-11-25

Many business owners who rely on low-skilled labor say the real trouble is too few Mexicans heading north, not too many. "Without Mexican labor our industry is at a standstill," says Nelson Braddy Jr., the owner of King of Texas Roofing Co., which is helping build a sprawling new Toyota North American headquarters in a Dallas suburb. He says he would hire 60 roofers right away if he could find them. "It's the worst I have seen in my career," he adds.

========================================================
The CEPR also talks about low wages
http://cepr.net/blogs/beat-the-press/what-happened-to-job-killing-robots-businesses-complain-about-shortage-of-low-skilled-workers?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+beat_the_press+%28Beat+the+Press%29

I think the comments are better than the article, in that the commenters simply state that the upper class and government are in cahoots to keep wages low.

ambrit November 26, 2016 at 4:39 pm

You are onto something here. I always wondered if the suppression of wages would lead to a decline in the population of people even willing to learn a task due to a perceived lack of incentive to make the effort. This would work alongside a seldom mentioned fact; the limits to the supply of appropriately skilled "foreigners" to perform a task. The resultant mix must be generating an industry of active recruiters in foreign lands for in demand, for less, skill sets. I would lay money on the bet that eventually, things will reach the point where criminal activities make more sense than the miserable jobs on offer.

John Wright November 26, 2016 at 5:04 pm

I know someone who had a small roofing company in Los Angeles.

Some time ago he commented that he had not been able to raise his labor rates in 20 years.

He also had a wry comment about the glass ceiling in roofing, saying that there are no women in roofing, but there is no apparent societal pressure to break this version of the glass ceiling.

Roofing is a hazardous job, requiring working outside in all types of weather, for low pay.

But if the pay is high enough, even hazardous jobs, with weather exposure, are prized, as one can witness watching NFL football.

The Cleaner November 26, 2016 at 8:01 pm

I don't think these were considered "immigrant proof" as much as "outsourcing proof" which makes sense if you think about it.

Sandy November 26, 2016 at 10:12 am

Important to note there's quite a lot of Europeans who stay illegally in the US by entering on the visa waiver program as tourists and simply overstaying. Irish and eastern Europeans especially. If you're in the Northeast it's common to see Irishmen working maintenance jobs at buildings here, or as bartenders or other cash jobs – 90% are going to be out of status. But this issue gets almost zero media attention.

sunny129 November 26, 2016 at 5:12 pm

'But this issue gets almost zero media attention'

If I mentioned "colored skin' stands out than those of Europeans, will I be labelled racist?

Whenever there is immigration raid,on an establishment 'brown & blacks'(illegals!) ran out but NOT the fair skinned Europeans, who were always confident that they won't be affected or bothered! And they were 100% right!

Seen it, been there and fed up with it!

Dignan November 26, 2016 at 2:38 pm

I'm told by my father that in Berkely Springs, West Virginia, men can get haircuts for as little as $1.75. Perhaps these are eastern European barbers? More likely it is simply a product of the crushing desperation we see in our broken economy. But hey, unemployment is under 5% so everything's fine, right? The dismal science indeed.

His Grace November 26, 2016 at 5:47 am

Bravo!

Ruben November 26, 2016 at 6:20 am

Neoliberalism -> c(Globalization, Financialization, Austerity)

Just one caveat: Neoliberalism is not really market-fetishism, unless fetishism is understood as fake devotion. Neoliberalism is a State ideology of the economy, its central tenet being that the State must directly help the rich, the poor will be better off as a by-product.

So if the push of the populace is strong enough, a new State ideology of the economy (aka mainstream economic dogma) would develop around the concepts of Self-suficiency (as opposed to Globalization), Industrialism (as opposed to Financialization), and Stimulus (as opposed to Austerity). Probably MMT has something to say about the latter, but what about Self-sufficiency and Industrialism?

BecauseTradition November 26, 2016 at 10:26 am

its central tenet being that the State must directly help the rich, the poor will be better off as a by-product. Ruben

Yes, government-subsidized* private credit creation being a (the?) prime example of this.

*e.g. forcing the poorer to lend (a deposit is legally a loan) to banks to lower the borrowing costs of the more so-called creditworthy, the richer, or else be limited to dealing with unsafe, inconvenient physical fiat, cash.

Disturbed Voter November 26, 2016 at 8:33 am

The Academy are direct and indirect employees of the State. The Ivy League are direct and indirect employees of plutocrats (thru the university endowment). The State officials are plutocrats or more commonly indirect employees of the plutocrats. What is not to like? How can the Academy be reformed, when it has been oligarchic since Plato (an oligarch) invented it the first Rand Corporation

cnchal November 26, 2016 at 8:46 am

Who knew that destroying little people's lives would finally have consequences?

Prrresidennntt Trrrummppp (just rolls off the tongue) can have a field day.

When do the mass firings of inept economists begin? Starting with Larry "Pretty Air" Summers and all the rest of the Haaaarvaaard asshats.

ambrit November 26, 2016 at 10:01 am

I want to know when those characters will be sent to the FEMA camps for "re-education?" Something with a faint affinity to the Cultural Revolution looms.

ambrit November 26, 2016 at 4:46 pm

Reactionaries will be purged. The Markets of Historical Determinism will demand it.
Cut to view of parade down Main Street USA of politicians and business people with computer keyboards hung around their necks. Many wear signs around their necks proclaiming their crimes. "I facilitated consumers to buy insurance policies for the ACA," says one. "I front ran the market for Uncle Sam," says another. The lines of armed guards lining the parade route are there to protect the penitents, as various short action shots show. The crowd is in an ugly mood. Storm clouds lower in the distance.

cocomaan November 26, 2016 at 8:47 am

Remember, though, that neoliberal social sciences now insists that everything is "post fact". "Post fact" society. "Anti intellectualism". And so on.

Synoia November 26, 2016 at 11:30 am

We can look forward to too post-neoliberslism . - which would be liberalism, as the post and neo cancel out.

Damian November 26, 2016 at 9:27 am

Tell me where you want to go and I'll provide the selective facts and the subjective interpretation of those facts to reach the desired conclusions = Economists

-- or merely arbitrarily change the cell definitions in excel as Harvard economists Carmen Reinhart and Kenneth Rogoff.

As early as 1967 Greenspan was well known as an academic whore and a Rockefeller Puppet which now is a vast army of dial up opinions.

fresno dan November 26, 2016 at 9:31 am

From the article:
"Ideas played an important role in creating the conditions that produced Brexit and Trump. The 'social sciences' - especially economics - legitimated a set of ideas about the economy that were aggressively peddled and became the conventional wisdom in the policies of mainstream political parties, to the extent that the central theme of the age came to be that there was no alternative. The victory of these ideas in politics in turn strengthened the iron-handed enforcers of the same ideas in academic orthodoxy."

Yesterday I posted a link from Krugman saying that manufacturing CANNOT be restored in the US.
Not that laws, rules, trade agreements make it difficult, but that something akin to the "arrow of time" or entropy prevents it – " that there was no alternative." Which is why I so vehemently disagree with the man. 1st, economics is not a physical science. 2nd, the loss of manufacturing in this country is due to man made conventions. Men made the rules, men can unmake the rules.

Just like prohibition was thought to be a good idea, but with the passage of time, it was revealed that whatever benefits arise of not drinking, it is more than offset by the setbacks.
I used to believe in "free trade" – but a thing called reality whacked me upside the head and disabused me of the notion. Whether GDP is going up fast enough or not, there is overwhelming evidence that the vast majority of GDP is not distributed to the 90% of the members of society.

Like a lot of things, we did the experiment – it doesn't work, but a few who gain advantage by that state of affairs want it to continue. The emperor has been exposed as having no clothes, and once you see the nakedness, you can't unsee it.

vlade November 26, 2016 at 12:45 pm

of course you could institute that all manufacturng used 1960s technology – or maybe even 1860s, that would generate even more jobs.
short of doing that, todays higly automated factory will use about tenth of blue collar workforce than in 1960s with the same productivity but creating much more complex products.
I've seen reshoring happen (into compartively high labour cost country) and it created a thousand jobs or so. the previus offshoring costed close to five or six thousands iirc.

fresno dan November 26, 2016 at 3:45 pm

vlade
November 26, 2016 at 12:45 pm

Than why are so many Chinese employed doing it

Optimader November 26, 2016 at 6:15 pm

FD
Because they are paid next to nothing by 1st world standards.
Even so, Chinese policy makers realise they are in a state of "peak labor". Flogging productivity with a policy of "many hands make project small" has hit it's scaling potential. They understand that.

https://roboticsandautomationnews.com/2016/09/23/chinese-whispers-the-most-populous-nation-on-earth-wants-to-replace-millions-of-human-workers-with-industrial-robots-it-plans-to-manufacture/7353/

John Wright November 26, 2016 at 1:07 pm

I work in the electronics industry and had a minor observation point for some of the outsourcing of electronics manufacturing from the USA to, primarily, Asia, starting in the late 1980's.

At first USA employees were told not to worry as only excess capacity would be built overseas.

But, that was proven to be an optimistic(?) statement, as even the managers making these statements also disappeared.

If one looks at the value of raw electronic "ingredients" produced in Asia, for example, Printed Circuit Boards (PCBs), one can see how much capacity has been built up overseas.

Here are some numbers pulled from report I have access to:

For 2015, 26.5 billion dollars of PCB's were produced in China.

Taiwan and South Korea produce 7.8Billion and 7.3billion respectively.

Even high priced Japan produces 5.36 billion dollars of PCB's

The North American number is 2.846 billion.

China + Japan + Taiwan + South Korea +Other Asia = .51.94 billion vs 2.8 billion in North America.

So Asia produces 18.55 x as much dollar volume of PCBs than North America (Canada + USA)

In my simple minded labor model, when a country allows very free migration of capital overseas, importation of foreign workers by migration or temporary visas and outsourcing of labor by computer networks to overseas workers, it seems implausible one would argue that USA wages would not tend lower in response.

But we have Obama and numerous economists, pushing the Free Trade mantra, via TPP, as good for American workers.

And a further factor is the US military and State Department strive to make it safer for American businesses to function anywhere in the world, lowering business risk while pitching increased national security to the USA population (who bears the military cost).

It will be difficult to bring American manufacturing back, especially when the alleged high paying white collar college jobs are pushed as the solution to USA wage stagnation.

susan the other November 26, 2016 at 1:07 pm

Steve Keen said similarly in Forbes – that once you offshore an industry it is too expensive to reinstall, and that some old factory for making furnaces cannot be retooled to make textiles, etc. even tho' you might have a comparative advantage for doing textiles – sounds like corporate raiding and big time looting more and more because once you devastate an industry you really cannot do anything economically with those facilities and those workers.

Which explains why after clever men like Mitt Romney finish with your corporation's takeover nobody dashes in to re-up something new. Like pulling a tree out by its roots and then expecting it to grow into some kinda shrub.

a different chris November 26, 2016 at 9:09 pm

Well I like Steve Keen but he and PK are finally on the same page, where neither knows not what the f he is talking about.

A lot of "offshoring" of the steel industry happened as the US plants themselves were passing the "invest or wind down" point in their life. Since the US labor force was considered intractable and foreign governments had much newer facilities the TPTB in steel just punted on US manufacturing. I am going to try to find a link, but there was a lot of debate between the union and US Steel (? one of them? ) about building a continuous caster plant in the 70's. Foreign companies had them, we didn't. I think they didn't, but the point is the, all other things being equal, any plants of any type of manufacturing go thru the same technological vs ageing cycle, and the US is as likely to gain "back" - quotes because like continuous casting, it's steelmaking but not the same as before - an industry as it is to have lost it in the first place. Factories like to be located where they make sense.

And what is all this about "well they don't need anybody in manufacturing, it's all gonna be machines now". Yeah, right. Been on a manufacturing floor lately? People have yet to be born that are going to be working in something called "manufacturing". And if the machines cut the work need by 10x, we may well need 10x as much stuff as long as it is the right stuff.

Well, if we had universal heathcare and Germanic trade education, but that would require elections not between carrot-heads and Queen Wannabes.

nothing but the truth November 26, 2016 at 9:26 pm

hang on. why can manufacturing work in germany but not in the US?

Actus Purus November 26, 2016 at 10:35 am

The author mentions globalization and financialization. But what seems to be always left out (and given a pass) in these discussions is the role of central banks and monetary policy.

Central banking policy (always creating more money/credit) lies at the nexus of almost all that is wrong with modern capitalism and is the lubricant and fuel that enables financialization's endless growth.

Financialization leads to asset bubbles and deindustrialization. It hollows out industries. When money/credit are created in ever increasing quantity, the makeup of how we "work" shifts from goods producing to "finance".

Then through globalization, what we lack in goods, foreigners who accept our paper, seem to provide. At least for now. In a closed system, financialization has its natural limits. But enabled by cross-border trade, it metastasizes.

In the short run, it appears to be a virtuous circle. We print paper. They make real stuff. They take our paper. We take their stuff. We feel very clever.

But over time, wealth inequality grows. Industries are hollowed out. The banking sector dominates.

And then we get a populist uprising because people realize "something is wrong".

But mistakenly, they think it's globalization. Or free trade. Or capitalism. When all along, it's just central banking. Central banks are the problem. Central bankers are the culprits.

BecauseTradition November 26, 2016 at 4:56 pm

Central banks are the problem. Actus Purus

Yes, insofar as they create fiat for the private sector since that is obviously violation of equal protection under the law in favor of the banks and the rich.

Otoh, all citizens, their businesses, etc. should be allowed to deal directly in their nation's fiat in the form of account balances at the central bank or equivalent and not be limited to unsafe, inconvenient physical fiat, a.k.a. cash.

stefan November 26, 2016 at 10:38 am

Get ready for real kleptocracy.

Breitbart obscurantism + Trump/Bannon misdirection = turkeys vote for thanksgiving.

Sessions views on race at Justice = curtailed civil rights. Wilbur Ross pension stripping = privatize Social Security. DeVos at education = privatize the golden egg of public education. 85% tax credit for private infrastructure spending = fire sale of the public square (only rich need apply).
3~4 Military generals in the cabinet = enforcement threat for crypto-fascist state.

McGahn at counsel + Pompeo at CIA = Koch Bros.

Ryan at speaker = privatize Medicare

Welcome to government of the billionaires, by the billionaires, for the billionaires.

btw, if Giuliani is appointed to a cabinet post, he will have to explain his foreknowledge of the NY FBI→Kallstrom→Comey connection→to Congress under oath (if they aren't too afraid to ask).

a different chris November 26, 2016 at 9:15 pm

I worry along with you, but again: When somebody Ms DeVos opens her mouth people just naturally recoil. Trump doesn't seem to have grasped the only thing that mattered in his election – you want your enemies to suck. His appointees are people that suck. Hillary would have appointed smooth-talkers who could effortlessly move between "private and public" positions.

PS: Paul Ryan is a good counterexample – people fall for his BS because he isn't quite a stupid as, say Guiliani. Of course he was elected, not picked by Trump.

Robert Dannin November 26, 2016 at 10:41 am

mr reddy solves the riddle of the Great Refusal but doesn't far enough: certainly mainstream economists were wrong to act as cheerleaders for the kleptocracy, yet they were also complicit in a material sense by furnishing all the necessary algorithms to boost the derivatives industry into the realm of corporate cyber-theft.

That genie isn't going back into bottle. what's in store for us then? economic apartheid. just read what the new team has been saying about walls, guns, police, military and terrorism. the bannon plan is for heavily policed gated communities monopolizing vital resources; high surveillance, rights abatement zones for the proletariat; and a free-fire wilderness of lumpen gangsters, gun-toting vigilantes, survivalist cults, etc. competing for subsistence. mad max, only run by people worse than mel gibson. close to what we already have but once legislated into existence impossible to reverse without a violent revolution. once again mr. reddy is correct: hobbes' leviathan is the negation of social science.

Waldenpond November 26, 2016 at 11:39 am

hmmmm .. Trump said quite a few contradictory things during his campaign and it would seem an error to believe anything a candidate says on either side of an issue. Have the Koch brothers (who are involved w/Trump) been particularly unhappy with the numerous billions they've accumulated under Obama? I expect this regime to be more along the 'different globalization' side (more a shuffling of the deck chairs on the Titanic). Manufacturing will be back in relation to the degree – penalties are eliminated on 'repatriated' funds, land is eminent domained on behalf of oligarchs, private profit is granted primacy over pollution, then build their factories with public money and abolish the minimum wage. Austerity will continue but the new con will be private/public partnerships. Don't you want to buy you friend/family member/neighbor a job? Don't you?

The elite, including the Trump's, are going to continue their actions until they've taken it all.

Wendell Fitzgerald November 26, 2016 at 1:06 pm

Since you mention land you might be interested in the idea of land value taxation a way to take the land back from the oligarchs an idea that has been around for a long time assiduously ignored by folks like Naked Capitalism.

JEHR November 26, 2016 at 5:35 pm

Mr. Fitzgerald, if you search in NC for "land value taxation" you will see many articles, especially from Mr. Hudson. NC has thoroughly covered a lot of territory regarding this topic.

a different chris November 26, 2016 at 9:24 pm

Yes you could probably catch us restlessly muttering "Henry George" in our sleep half the time.

The problem is it's a really, really hard sell. It just sounds funny. Pittsburgh actually had it until a few years ago when it was "discovered" and before there was even a discussion the Democratic mayor and City Council who should have known better had rescinded it before anybody got a chance to say anything.

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

" during 2001 after years of underassessment, and the system was abandoned in favor of the traditional single-rate property tax. The tax on land in Pittsburgh was about 5.77 times the tax on improvements."

To be good Russian plants, we do actually need to know things about Amerika Anyway, here's the problem: people just voted for a billionaire how you gonna get this type of taxation approved given the Pittsburgh example?

Altandmain November 26, 2016 at 11:47 am

Mainstream analysts don't want to recognize the real problem: those who failed the people have lost their legitimacy to govern.

Not saying Trump is the solution (I'm hoping for a solution from the left and think that Trump could enable his cronies, but nothing else), but the Establishment is unworthy to govern.

Wendell Fitzgerald November 26, 2016 at 1:24 pm

A solution that most people would consider being from the left but which is the radical center (taking valid ideas from both left and right) is land value taxation the wedge issue to tax the various sources of unearned income (estimated at 40+% of GNP however you determine it) thus allowing for the elimination of taxation of earned income from wages and profit from the investment of real capital in the real economy.

Taxing community created land value and making the distinction between earned and unearned income has been assiduously ignored and avoided by mainstream economists, most of our vaunted/sainted public intellectuals and sources like naked capitalism but since all of that has failed there is nothing to lose by considering what this author, Sanjay Reddy, says is necessary: "It [social science] can only save itself through comprehensive reinvention, from the ground up."

I suggest that the this has already been done literally from the ground up by the analysis that has been around for a very long time that takes land, how its value is created, who owns it and what happen when you tax its value into account. Happy day.

Rosario November 26, 2016 at 12:45 pm

We finally made it to the post-modern wasteland. It is pretty weird to see the post-modern methods used by social scientists for decades to dissect culture actually manifest in practiced culture.

susan the other November 26, 2016 at 1:14 pm

TINA was definitely an ideology – an idea backed by interest. They were making fun of Thatcherism last nite on France 24 because it had been so devastating and now one of the candidates in France is talking her old trash again. Humor is effective against ideology when all else fails but it takes a while. But as defined above, we actually do have an alternative – our current alternative is "illiberal majoritarianism". Sounds a tad negative. We should just use the word "democracy".

Sound of the Suburbs November 26, 2016 at 2:39 pm

The problem with free trade, a historical lesson:

"The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners' interests by levying taxes on imported wheat, thus raising the price of bread at a time when factory-owners were trying to cut wages to be internationally competitive."

The landowners wanted to increase their profit by charging a higher price for corn, but this posed a barrier to international free trade in making UK wage labour uncompetitive by raising the cost of living for workers. In a free trade world the cost of living needs to be the same in West and East as this sets the wage levels.

The US has probably been the most successful in making its labour force internationally uncompetitive with soaring costs of housing, healthcare and student loan repayments.

These costs all have to be covered by wages and US businesses are now squealing about the high minimum wage. US labour can never compete with Eastern labour and will have to be protected by tariffs. Free trade has requirements and you must meet them before you can engage in free trade.

The cost of living needs to be the same in West and East.

Sound of the Suburbs November 26, 2016 at 2:43 pm

There are two certainties in life – death and taxes.

There are two certainties about new versions of capitalism; they work well for a couple of decades before failing miserably.

Capitalism mark 1 – Unfettered Capitalism

Crashed and burned in 1929 with a global recession in the 1930s.
The New Deal and Keynesian ideas promised a bright new world.

Capitalism mark 2 – Keynesian Capitalism

Ended with stagflation in the 1970s.
Market led Capitalism ideas promised a bright new world.

Capitalism mark 3 – Unfettered Capitalism – Part 2 (Market led Capitalism)

Crashed and burned in 2008 with a global recession in the 2010s.

We are missing the vital ingredient. When the first version of capitalism failed, Keynes was ready with a new version. When the second version of capitalism failed, Milton Freidman was waiting in the wings with his new version of capitalism.

Elites will always flounder around trying to stick with what they know, it takes someone with creativity and imagination to show the new way when the old way has failed.

Today we are missing that person with creativity and imagination to lead us out of the wilderness and stagnation we have been experiencing since 2008.

Sound of the Suburbs November 26, 2016 at 2:45 pm

What is missing from today's economics?

  1. The work of the Classical Economists and the distinction between "earned" and "unearned" income, also "land" and "capital" need to be separated again (conflated in neoclassical economics) Reading Michael Hudson's "Killing the Host" is a very good start
  2. How money and debt really work. Money's creation and destruction on bank balance sheets.
  3. The work of Irving Fisher, Hyman Minsky and Steve Keen on debt inflated asset bubbles
  4. The work of Richard Koo on dealing with balance sheet recessions https://www.youtube.com/watch?v=8YTyJzmiHGk
  5. The realisation that markets have two modes of operation: a) Price discovery b) Bigger fool mode, where everyone rides the bubble for capital gains

There may be more

The Euro was designed with today's defective economics. Oh dear, no wonder it's going wrong.

a different chris November 26, 2016 at 9:29 pm

>The Euro was designed with today's defective economics.

Man I didn't think of that. What comically lousy timing. I do like this post because it similar to sigh, ok it asserts my belief but still don't think I'm in an echo chamber here, I actually want people to know what I think so they can reinforce the good and whittle out the bad anyway, asserts my belief that "economics" isn't a science but when used in the best way is a toolkit, here we need an hammer (austerity), here we need a screwdriver (some tweaking). It isn't one tool for all jobs for all time.

UserFriendly November 26, 2016 at 8:09 pm

I disagree that we don't have a ready to go replacement. MMT. We just have TPTB throwing $$$ around to make sure no one hears about it, much less does anything.

[Nov 26, 2016] EconoSpeak Comments on Milanovic on Marx

Nov 26, 2016 | econospeak.blogspot.com

I am a Marxist economist (Professor of Economics, Mount Holyoke College) and I appreciate Branko Milanovic's open-mindedness and his efforts in a recent post on his blog to educate economists who often have a crude and superficial misunderstanding of Marx's labor theory of value.

For context for my comments on Milanovic, I will first say a few words about my interpretation of Marx's labor theory of value (LTV). In my view, Marx's LTV is primarily a macro theory and the main question addressed in Marx's macro LTV is the determination of the total profit (or surplus-value) produced in the capitalist economy as a whole. Profit is the main goal of capitalist economies and should be a key variable in any theory of capitalism. Marx's theory of the total profit is that profit is the difference between the value produced by workers and the wages they are paid, i.e. that profit is produced by the "surplus labor" of workers.

I argue that Marx's "surplus labor" theory of profit has very significant and wide-ranging explanatory power. Marx's theory provides straight-forward and robust explanations of the following important phenomena of capitalist economies: conflicts between capitalists and workers over wages, and over the length of the working day, and over the intensity of labor (i.e. how hard workers work, which determines in part how much value they produce); endogenous technological change (in order to reduce necessary labor and increase surplus labor and surplus-value); increasing concentration of capital and income(i.e. increasing inequality); the trend and fluctuations in the rate of profit over time; and endogenous cycles due to fluctuations in the rate of profit rate of profit. (A more complete discussion of the explanatory power of Marx's theory of profit is provided in my " Marx's Economic Theory: True or False? A Marxian Response to Blaug's Appraisal, " in Moseley (ed.), Heterodox Economic Theories: True or False?, Edward Elgar, 1995).

This wide-ranging explanatory power of Marx's surplus labor theory of profit is especially impressive when compared to mainstream economics. In mainstream macroeconomics, there is no theory of profit at all; profit (or the rate of profit) is not even a variable in the theory! I was shocked when I realized in graduate school this absence of profit in mainstream macro, and am still shocked that there is no effort to include profit. Indeed, DSGE models go in the opposite direction and many models do not even have firms!

Mainsteam micro does have a theory of profit (or interest) – the marginal productivity theory of distribution – but it is a weak and largely discredited theory. Marginal productivity theory has been shown by the capital controversy and other criticisms to have insoluble logical problems (the aggregation problem, reswitching, cannot integrate intermediate goods, etc.). And marginal productivity theory has very meager explanatory power and explains none of the important phenomena listed above that are explained by Marx's theory.

Milanovic agrees that Marx's LTV is primarily a macro theory, but he interprets it in this post as only the assumption that "sum of values will be equal to sum of production prices". And he continues: "The former is an unobservable quantity so Marx's contention is not falsifiable. It is therefore an extra-scientific statement that we have to take on faith.

I argue, to the contrary, that Marx's macro LTV is primarily a theory of profit and my conclusion that Marx's theory is the best theory of profit we have is not based on faith but is instead based on the standard scientific criterion of empirical explanatory power. It is much more accurate to say that marginal productivity theory is accepted by mainstream economists on faith, as Charles Ferguson famously said in his conclusion to the capital controversy.

Now to my comments on Milanovic's three main points:

1. Milanovic's main point is that the LTV is often misinterpreted as a simple micro theory that assumes that the prices of individual commodities are proportional to the labor-times required to produce them. Milanovic argues that is not true in a capitalist economy because of the equalization of the profit rate across industries with unequal ratios of capital to labor, so that according to Marx's theory, long-run equilibrium prices are determined by the equation: w + d + rK, where w is wages, d is depreciation and r is the economy-wide rate of profit (missing in this equation is the cost of intermediate goods, but I will ignore this).

Milanovic emphasizes that Walras and Marshall had essentially the same equation for long-run equilibrium prices. I agree that all three theories of long-run equilibrium prices have this same form, but there is an important difference. Marx's theory provides a logically rigorous theory of the rate of profit in this equation (based on his theory of the total profit discussed above) and Walras and Marshall just take the rate of profit as given , disguised as an "opportunity cost", and thus provides no theory of profit at all . Therefore, I think Marx's theory of long-run equilibrium prices is superior to Walras' and Marshall's in this important sense.

2. Milanovic's second main point is that Marx's theory of long-run equilibrium prices are "clearly very, very far from derisive statements that the labor theory of value means that people are just paid for their labor input regardless of what is the 'socially necessary labor' required to produce a good." I presume that this derisive statement means that workers produce more value than they are paid and thus are exploited in capitalism. But Branko is mistaken about this. Marx's theory of long-run equilibrium prices is based on his macro theory of profit according to which the source of profit is the surplus labor of workers. This conclusion is indeed derisive and that is the main (non-scientific) reason that Marx's theory of profit is rejected by mainstream economists in spite of its superior explanatory power.

I know from previous correspondence that Milanovic understands well Marx's "exploitation" theory of profit, but he seems to overlook the connection between Marx's micro theory of prices of production and his macro theory of profit.

3. Milanovic's third point is that Marx's labor theory of value is most helpful in understanding pre-capitalist economies and the relation between capitalism and non-capitalist economies today. I argue, to the contrary, that Marx's labor theory of value and profit is the best theory we have to understand the most important phenomena of capitalist economies, including 21 st century capitalism.

It would be one thing if mainstream economics had a robust theory of profit with significant explanation power. But it has almost no theory of profit. Therefore it would seem to be appropriate from a scientific point of view that Marx's surplus labor theory of profit should be given more serious consideration.

Thanks again to Milanovic and I look forward to further discussion.

[Nov 26, 2016] Lysenkoism in the USA: Krugman and other neoliberal economists role in suppression of science.

likbez

I used to respect Krugman during Bush II presidency. His columns at this time looked like on target for me. No more.

Now I view him as yet another despicable neoliberal shill. I stopped reading his columns long ago and kind of always suspect his views as insincere and unscientific. In this particular case the key question is about maintaining the standard of living which can be done only if manufacturing even in robotic variant is onshored and profits from it re-distributed in New Deal fashion. Technology is just a tool. There can be exception for it but generally attempts to produce everything outside the US and then sell it in the USA lead to proliferation of McJobs and lower standard of living. Creating robotic factories in the USA might not completely reverse the damage, but might be a step in the right direction. The nations can't exist by just flipping hamburgers for each other.

Actually there is a term that explains well behavior of people like Krugman and it has certain predictive value as for the set of behaviors we observe from them. It is called Lysenkoism and it is about political control of science.

See, for example:
https://en.wikipedia.org/wiki/Lysenkoism
http://www.softpanorama.org/Skeptics/lysenkoism.shtml

Yves in her book also touched this theme of political control of science. It might be a good time to reread it. The key ideas of "ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism " are still current.

[Nov 21, 2016] Bill Black Bloomberg Notices Paul Romers Indictment of Macroeconomics naked capitalism

Notable quotes:
"... For more than three decades, macroeconomics has gone backwards," the paper began. Romer closed out his argument, some 20 pages later, by accusing a cohort of economists of drifting away from science, more interested in preserving reputations than testing their theories against reality, "more committed to friends than facts." In between, he offers a wicked parody of a modern macro argument: "Assume A, assume B, blah blah blah and so we have proven that P is true ..."
"... The idea that consumers and businesses always make rational choices pervades mainstream economics. Romer thinks that's not only wrong, but may lead to the misleading conclusion that government action can't fix big problems. ..."
"... There is no better place to be writing this than from (nearly) Minneapolis, for the University of Minnesota's economics department is the most devoted coven worshipping the most extreme form of "rational expectations." The most famous cultists have now relocated, but the U. Minnesota economics department remains fanatical in its devotion to rational expectations theory. ..."
"... All of this means that Romer's denunciations were sure to hit home far harder with mainstream and theoclassical economists than anything a heterodox economist could write. ..."
"... What this paragraph reveals is the classic tactic of theoclassical economists – they simply ignore real criticism. Lucas, Prescott, and Sargent all care desperately about Romer's criticism – but they all refuse to engage substantively with his critique. One has to love the arrogance of Sargent in "responding" – without reading – to Romer's critique. Sargent cannot, of course, respond to a critique he has never read so he instead makes a crude attempt to insult Romer, asserting that Romer has not done any scientific work in three decades. ..."
"... The rational expectations purists have been unable to come up with a response to their predictive failures and their false model of human behavior for thirty years. The Bloomberg article does not understand a subtle point about their non-defense defense, as shown in these key passages. ..."
"... What the rational expectations devotees are actually saying is their standard line, which is a radical departure from the scientific method. Their mantra is "it takes a model to beat a model." That mantra violates the scientific method. Their models are designed to embody their rational expectations theory. Those models' predictive ability is pathetic, which means that their theory and models are both falsified and should be rejected. The academic proponents of modern macro models, however, assert that their models are incapable of falsification by testing and predictive failure. This is not science, but theology. ..."
"... V.V. Chari's criticism of Romer is revealing. He complains that Romer does not want to "build on [rational expectation theory's] foundations." Why would Romer want to commit such a pointless act? Romer's point is that rational expectations is a failed theory that needs to be rejected so macroeconomics can move on to useful endeavors. ..."
"... Rational expectations theory has no such empirical foundations. ..."
"... Further, the dynamic stochastic general equilibrium (DSGE) models routinely fail the predictive test and, as Romer details, fail despite the use of dozens of ways in which the models are "gamed" with arbitrary inputs and restrictions that have no theoretical or empirical basis. Chari is right to describe the modern macro model as an "edifice." I would add that it is a baroque edifice top heavy with ornamental features designed to hide its lack of a foundation. Modern macro collapsed as soon as its devotees tried to build without an empirical foundation. ..."
"... The rational expectation devotees respond that predictive failures – no matter how extreme or frequent – cannot falsify their models or their theories. The proponents claim that only a better model, with superior predictive ability can beat their model. ..."
"... Kocherlakota's summary description is appropriately terse. He later explains the dogmatic gloss that devotees place on each of these five points. The "budget constraint," for example, means that nations with sovereign currencies such as the U.S. cannot run deficits, even to fight severe recessions or depressions. Why? Because theoclassical economists are enormous believers in austerity. As Kocherlakota archly phrased the matter, "freshwater" DSGE models were so attractive to theoclassical macro types because their model perfectly tracked their ideology. ..."
"... Specifying household preferences and firm objectives is equally erroneous, as Akerlof and Romer's 1993 article on "Looting" demonstrated. "Firms" do not have "objectives." Employees have "objectives," and the controlling officers' "objectives" are the most powerful drivers of employee behavior. ..."
"... Kocherlakota unintentionally highlighted modern macros' inability to incorporate even massive frauds driving national scandals and banking crises, despite the efforts of Akerlof (1970) (a market for "lemons") and Akerlof and Romer 1993: ("looting") in this passage. ..."
"... If macroeconomics, outside the cult of modern macro, were a car, it would not be "broken." It would be episodically broken when the rational expectations devotees got hold of monetary or fiscal policy. The rational expectations model fails the most fundamental test of a financial model – people trying to make money by anticipating the macroeconomics consequences of changes in monetary and fiscal policy overwhelmingly do not use their models because they are known to have pathetic predictive ability. The alternative models that embrace Keynesian analysis and are not dependent on the fiction of rational expectations function pretty well. The real world macro car, when driven by real world drivers, works OK. Essentially, the rational expectations devotees say that we can never drive the macro "car" because the public will defeat any effort to drive the economy in any direction. Instead, the economy will lurch about n response to random technological "shocks" that cannot be predicted because they occur without any relationship to any public policy choices. ..."
"... I am completely confused about the prediction of "rational choices". Do they include going bankrupt on purpose and letting your investors take the hit, burning your building down for the insurance money, hostile takeover behavior where businesses are run into the ground on purpose, tax strategies, people going on unemployment when they want a vacation from work, and on and on? These are decisions that have a rationale for the people who make them, and they have not been uncommon. Perhaps "economists" are best off observing not predicting "human behavior". ..."
"... I majored in economics. as you go up higher up into the dismal science, the more deranged it gets. The reason they are vague is because they don't know what they are talking about. They don't consider the real world, and as Bill Black's so brilliantly points out, they are in no hurry to out themselves as frauds. ..."
"... thanks, Simon. there must be something in those mental masturbation models for some people. justification for something the 99 % are all paying for most likely ..."
"... In some natural sciences, abandoning equilibrium models and replacing them with dynamic models have led to great progress, and looking at the actual time evolution of economies, there is a great deal of dynamics, such as growth, recessions, demography, natural catastrophes, immigration/emigration, resource discovery and depletion, technological progress. ..."
"... Since our economy has been gradually going casino for so many years, it makes sense that the folks who hold the reigns would make every effort to assure that all their key players adhere to their singular perspectives. ..."
"... The Nobel Memorial Prize in economics promotes the illusion that economics is a science. It is better conceptualized as a literary genre, and economists should be forced to compete with other writers for the prize in literature. ..."
"... Bill Black has a fascinating opinion on unnecessary complexity and I agree with him 200 percent. ..."
"... interesting about Kocherlakota formerly being a rational expectations devotee just the phrase 'rational expectations' is mind boggling as if there were no reaction to any action anywhere. Jack Bogle was on the news this morning laughing about stock picking and saying that every stock picker that makes money is balanced out by another one who loses money and so the only thing that makes money net-net is the long term progress of the market, (or society I would say – and that requires planning). ..."
"... Not one mention of Chaos or Catastrophe Theory, which are theories of systems with non linear feedback (aka: Fear and Greed), which appear to me to be fundamental aspects of Economics, especially the humans who are the Economy. ..."
"... Two slogans I read somewhere recently seem appropriate for theoclassical economics: Ideology is easy, thinking is hard. Belief is belonging. ..."
"... One doesn't have to have read any Reformation theology, but only to have observed more or less casually that human being are scarcely rational even about their own self-interest, and then only self-deceptively. Thomas Frank has commented effectively on that point in the political arena in What's the Matter with Kansas. To wit: Republicans have, he points out, diverted voters attention to social/cultural issues while picking their pockets. Perhaps one might sense an intersection of politics and economics on the latter point. ..."
Nov 21, 2016 | www.nakedcapitalism.com

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published at New Economic Perspectives

Bloomberg has written an article about the origins of Paul Romer's increasingly famous critique of modern macroeconomics.

His intention actually had been to write a paper that would celebrate advances in the understanding of what drives economic growth. But when he sat down to write it in the months before taking over as the World Bank's chief economist, Romer quickly found his heart wasn't in it. The world economy wasn't growing much anyway; and the math that many colleagues were using to model it seemed unrealistic. He watched a documentary about the Church of Scientology, and was struck by how groupthink can operate.

So, Romer said in an interview at the Bank's Washington headquarters, "I just thought, OK, I'm going to say what I think. I don't know if I'm the right person, but no one else is going to say it. So I said it."

The upshot was "The Trouble With Macroeconomics," a scathing critique that landed among Romer's peers like a grenade.

A bit of background makes the first paragraph more understandable. Romer's specialty is developmental economics.

There are many economists who have said for years that modern macroeconomics is an abject failure. But all economists are not equal, and Romer is both an extremely distinguished economist and the World Bank's chief economist. When he writes that macroeconomics is absurd his position gets vastly more attention from the field.

The Bloomberg article humorously summarizes Romer's article.

"For more than three decades, macroeconomics has gone backwards," the paper began. Romer closed out his argument, some 20 pages later, by accusing a cohort of economists of drifting away from science, more interested in preserving reputations than testing their theories against reality, "more committed to friends than facts." In between, he offers a wicked parody of a modern macro argument: "Assume A, assume B, blah blah blah and so we have proven that P is true."

The idea that consumers and businesses always make rational choices pervades mainstream economics. Romer thinks that's not only wrong, but may lead to the misleading conclusion that government action can't fix big problems.

There is no better place to be writing this than from (nearly) Minneapolis, for the University of Minnesota's economics department is the most devoted coven worshipping the most extreme form of "rational expectations." The most famous cultists have now relocated, but the U. Minnesota economics department remains fanatical in its devotion to rational expectations theory.

A belief that consumers and businesses always make rational choices does not "pervade mainstream economics." Mainstream economics is increasingly influenced by reality, particularly in the form of behavioral economics. Behavioral economics, which has led to multiple Nobel awards, has many currents, but each of them agrees that consumers and business people typically do not make rational decisions even in simpler tasks, much less demonstrate the ability to predict the future required by rational expectations theory. Similarly, even the proponents of modern macroeconomics admit that its predictive ability – and predictive ability is supposed to be their holy grail of legitimacy – is beyond pathetic. What is true is that mainstream economics' most egregious errors have come from assuming contrary to reality in a wide range of contexts that corporate officers, consumers, and investors make optimal decisions that maximize the firm or the household's utility.

In any real scientific field modern macro would, decades ago, have been abandoned as an abject failure. Romer, therefore, is not storming some impregnable bulwark of economics. He is calling an obvious, abject failure an obvious, abject failure. Private sector finance participants typically believe the academic proponents of rational expectations theory are delusional. Romer is calling out elites in his profession who have ignored these failures and doubled and tripled-down on their failed dogmas for decades. This makes the Bloomberg article's title deeply misleading: "The Rebel Economist Who Blew Up Macroeconomics."

Romer is not a rebel. He did not blow up academic, mainstream macroeconomics – the academic proponents of modern macroeconomics blew it up decades ago. Romer is mainstream, and he is sympathetic on personal and ideological grounds to the theoclasscial economist most famous for developing rational expectations theory. Romer has strongly libertarian views and did his doctoral work under Robert Lucas. Romer has long been appreciative of Lucas. All of this means that Romer's denunciations were sure to hit home far harder with mainstream and theoclassical economists than anything a heterodox economist could write.

The same Bloomberg article made a key factual claim that is literally true but misleading.

What's at stake far exceeds hurt feelings in the ivory tower. Central banks and other policy makers use the models that Romer says are flawed.

Central banks and private economic forecasters rarely use modern macro models, though they have begun to use New Keynesian models that are hybrids. They do not do use "freshwater" models because they are known to have terrible predictive ability and because alternative models not based on rational expectations have far superior predictive ability. The private financial sector typically does not rely on modern macro models, even the New Keynesian hybrids. Romer is not saying that the models are "flawed" – he is explaining that they are inherently failed models. Worse, he is saying that the designers of the models know they are failed and respond by gimmicking the models by littering them with myriad assumptions that have no empirical or theoretical basis and are designed to try to make the models produce less absurd results.

I explained that Romer was far from the first to call out modern academic macroeconomics as a failure but that he is a prominent mainstream economist. The Bloomberg article's most interesting reveal was the response by the troika of economists must associated with rational expectations theory to Romer's article decrying their dogmas.

Lucas and Prescott didn't respond to requests for comments on Romer's paper. Sargent did. He said he hadn't read it, but suggested that Romer may be out of touch with the ways that rational-expectations economists have adapted their models to reflect how people and firms actually behave. Sargent said in an e-mail that Romer himself drew heavily on the school's insights, back when he was "still doing scientific work in economics 25 or 30 years ago."

What this paragraph reveals is the classic tactic of theoclassical economists – they simply ignore real criticism. Lucas, Prescott, and Sargent all care desperately about Romer's criticism – but they all refuse to engage substantively with his critique. One has to love the arrogance of Sargent in "responding" – without reading – to Romer's critique. Sargent cannot, of course, respond to a critique he has never read so he instead makes a crude attempt to insult Romer, asserting that Romer has not done any scientific work in three decades.

The rational expectations purists have been unable to come up with a response to their predictive failures and their false model of human behavior for thirty years. The Bloomberg article does not understand a subtle point about their non-defense defense, as shown in these key passages.

Allies of the three Nobelists have been more outspoken, and many of them point out that Romer - unlike Keynes in the 1930s - doesn't offer a new framework to replace the one he says has failed.

"Burning down the edifice, and saying we'll figure out what we'll build on its foundations later, just does not seem like a constructive way to proceed," said V. V. Chari, an economics professor at the University of Minnesota.

Romer's heard that line often, and bristles at it: "I'm saying, 'the car is broken.' And everyone's saying, 'Romer's a terrible guy, because he couldn't fix the car'."

What the rational expectations devotees are actually saying is their standard line, which is a radical departure from the scientific method. Their mantra is "it takes a model to beat a model." That mantra violates the scientific method. Their models are designed to embody their rational expectations theory. Those models' predictive ability is pathetic, which means that their theory and models are both falsified and should be rejected. The academic proponents of modern macro models, however, assert that their models are incapable of falsification by testing and predictive failure. This is not science, but theology.

V.V. Chari's criticism of Romer is revealing. He complains that Romer does not want to "build on [rational expectation theory's] foundations." Why would Romer want to commit such a pointless act? Romer's point is that rational expectations is a failed theory that needs to be rejected so macroeconomics can move on to useful endeavors.

A "foundation" in such a building metaphor is the deep, well-grounded stone or reinforced concrete beneath the visible building that is attached to solid bedrock. Rational expectations theory has no such empirical foundations. It was not based on testing that found that people behaved in accordance with the theory. Behavioral economics and finance, by contrast, is based on a growing empirical base – virtually all of which refutes the first three assumptions of the models. Similarly, the work of Akerlof (1970), Akerlof & Romer (1993), and the work of white-collar criminologists has falsified each of the first three assumptions of the models.

Further, the dynamic stochastic general equilibrium (DSGE) models routinely fail the predictive test and, as Romer details, fail despite the use of dozens of ways in which the models are "gamed" with arbitrary inputs and restrictions that have no theoretical or empirical basis. Chari is right to describe the modern macro model as an "edifice." I would add that it is a baroque edifice top heavy with ornamental features designed to hide its lack of a foundation. Modern macro collapsed as soon as its devotees tried to build without an empirical foundation.

The rational expectation devotees respond that predictive failures – no matter how extreme or frequent – cannot falsify their models or their theories. The proponents claim that only a better model, with superior predictive ability can beat their model. That might sound acceptable to some, but there is a critical unstated twist. The many rival models actually used by the private sector and central banks that produce far superior predictive ability can never be treated as "better models" to these devotees because the models with far superior predictive powers reject rational expectations theory, rational decision-making, and the "budget constraint." To the devotees, only DSGE models that accept this trio of market fictions are eligible to be acceptable "models." Dr. Kocherlakota states that acceptable models "share five key features." These five characteristics define DSGE models.

They specify budget constraints for households, technologies for firms, and resource constraints for the overall economy. They specify household preferences and firm objectives. They assume forward-looking behavior for firms and households. They include the shocks that firms and households face. They are models of the entire macroeconomy.

Kocherlakota's summary description is appropriately terse. He later explains the dogmatic gloss that devotees place on each of these five points. The "budget constraint," for example, means that nations with sovereign currencies such as the U.S. cannot run deficits, even to fight severe recessions or depressions. Why? Because theoclassical economists are enormous believers in austerity. As Kocherlakota archly phrased the matter, "freshwater" DSGE models were so attractive to theoclassical macro types because their model perfectly tracked their ideology.

[A]lmost coincidentally-in these models, all government interventions (including all forms of stabilization policy) are undesirable.

Yes, "almost coincidentally."

Specifying household preferences and firm objectives is equally erroneous, as Akerlof and Romer's 1993 article on "Looting" demonstrated. "Firms" do not have "objectives." Employees have "objectives," and the controlling officers' "objectives" are the most powerful drivers of employee behavior.

As Akerlof and Romer (and every modern crisis) demonstrated, this frequently leads to firm practices that harm the firm, the consumer, and the shareholders. Such behavior, however, is impossible under the second assumption, so any model (such as control fraud or "looting") that violates the assumption is not eligible to be a rival model because it these superior models do not produce "general equilibrium." The "GE" in a "DSGE" model is general equilibrium, so rival models from economics and criminology that note that the economy is not a self-correcting apparatus that produces general equilibrium are ruled out as superior models even though they are superior in that they have an empirical and theoretical basis and demonstrate far superior predictive results.

Kocherlakota unintentionally highlighted modern macros' inability to incorporate even massive frauds driving national scandals and banking crises, despite the efforts of Akerlof (1970) (a market for "lemons") and Akerlof and Romer 1993: ("looting") in this passage.

In the macro models of the 1980s, all mutually beneficial trades occur without delay. This assumption of frictionless exchange made solving these models easy. However, it also made the models less compelling.

He then goes on to a delighted description of macro economists now sometimes building in (arbitrary) lags ("frictions") in the time required to accomplish "all mutually beneficial trades." But what of the three great fraud epidemics that produced the U.S. financial crisis and the Great Recession? Sorry, that's not allowed into the "friction" canon. The market model is still one of perfection (albeit slightly delayed). It does not matter how many massive financial scandals occur in which the largest UK banks and Wells Fargo deliberately abuse their customers by encouraging them to engage in transactions that will harm them and make the bankers rich. It doesn't not matter that over ten million Americans were induced by bankers and their agents to pay excessive interest rates in return for yield spread premiums (YSP) to the bankers and brokers. None of these things are allowed to happen in these models. Your better model, which includes such frauds and abuses, is not allowed precisely because it (a) is better and (b) falsifies the theoclassical ideology underlying "rational expectations" theory.

The assumption of "forward looking behavior" produces "expectations," which are assumed to be accurate and rational. Theoclassical proponents claim that we all have the ability to predict vast aspects of the financial future. While we are not perfect, we are optimal in our forecasts given the state of knowledge. If your rival model lacks rational expectations, it isn't a real model. Romer rejects the rational expectations myth, so he is incapable of presenting a superior model to the devotees of rational expectations.

If macroeconomics, outside the cult of modern macro, were a car, it would not be "broken." It would be episodically broken when the rational expectations devotees got hold of monetary or fiscal policy. The rational expectations model fails the most fundamental test of a financial model – people trying to make money by anticipating the macroeconomics consequences of changes in monetary and fiscal policy overwhelmingly do not use their models because they are known to have pathetic predictive ability. The alternative models that embrace Keynesian analysis and are not dependent on the fiction of rational expectations function pretty well. The real world macro car, when driven by real world drivers, works OK. Essentially, the rational expectations devotees say that we can never drive the macro "car" because the public will defeat any effort to drive the economy in any direction. Instead, the economy will lurch about n response to random technological "shocks" that cannot be predicted because they occur without any relationship to any public policy choices.

Romer takes particular delight in shredding the pretension to "science" in the model's abuse of shocks. Again, however, the Bloomberg article seriously misleads in making it appear that his critique of shocks is novel. Then Minneapolis Fed Chair Dr. Kocherlakota (formerly chair of the U. Minnesota economics department, where he was a "rational expectations" devotee) forcefully owned up to the egregious predictive failures of the models. He acknowledged that "macro models are driven by patently unrealistic shocks."

It is unfortunate that Bloomberg article about Romer's article is weak. It is useful, however, because its journalistic inquiry allows us to know how deep in their bunker Sargent, Lucas, and Prescott remain. They still refuse to engage substantively with Romer's critique of not only their failures but their intellectual dishonesty and cowardice. It is astonishing that multiple economists were awarded Nobel prizes for creating the increasingly baroque failure of modern macro. In any other field it would be a scandal that would shake the discipline to the core and cause it to reexamine how it conducted research and trained faculty. In economics, however, a huge proportion of Nobel awards have gone to theoclassical economists whose predictions have been routinely falsified and whose policy recommendations have proven disastrous. Theoclassical economists, with only a handful of exceptions, express no concern about these failures.

This entry was posted in Dubious statistics , Economic fundamentals , Guest Post , Macroeconomic policy , Market inefficiencies , Ridiculously obvious scams , The dismal science

Portia November 21, 2016 at 11:32 am

I am completely confused about the prediction of "rational choices". Do they include going bankrupt on purpose and letting your investors take the hit, burning your building down for the insurance money, hostile takeover behavior where businesses are run into the ground on purpose, tax strategies, people going on unemployment when they want a vacation from work, and on and on? These are decisions that have a rationale for the people who make them, and they have not been uncommon. Perhaps "economists" are best off observing not predicting "human behavior".

shinola November 21, 2016 at 11:47 am

I was fortunate enough to have an econ. prof. (mid 70's) who was also my student counselor tell me that unless I intended to work for the gov't or teach the subject, a degree in econ. was pointless. What's taught in class has very little to do with the real world.

Anyone who contends that econ is a "science" rather than philosophy is deluded or just trying to protect their place in the hierarchy. Seems that "physics envy" is never going away.

I'll see your DSGE model & raise with with the IBGYBG* model; in theory, you should win that hand but I'll be walking away with the actual money.

*(by the time this blows up) I'll Be Gone & You'll Be Gone

Simon November 21, 2016 at 12:17 pm

Portia,

I majored in economics. as you go up higher up into the dismal science, the more deranged it gets. The reason they are vague is because they don't know what they are talking about. They don't consider the real world, and as Bill Black's so brilliantly points out, they are in no hurry to out themselves as frauds.

Portia November 21, 2016 at 12:37 pm

thanks, Simon. there must be something in those mental masturbation models for some people. justification for something the 99 % are all paying for most likely

diptherio November 21, 2016 at 3:14 pm

The reason they are vague is because they don't know what they are talking about

Which also explains about 90% of the math

beth November 21, 2016 at 12:43 pm

Thanks again, Bill. A thanks to Paul Romer and Bloomberg too. How long will it take for the NYT , FT, The Guardian and WSJ to understand?

Do $$$ make one "smart?" /sarc

Ruben November 21, 2016 at 12:51 pm

I am not sure which is the greatest shortcoming of the macro-economy theory described by Black: rational expectations or global equilibrium?

In some natural sciences, abandoning equilibrium models and replacing them with dynamic models have led to great progress, and looking at the actual time evolution of economies, there is a great deal of dynamics, such as growth, recessions, demography, natural catastrophes, immigration/emigration, resource discovery and depletion, technological progress.

Jim A November 21, 2016 at 1:14 pm

I sometimes like to use the analogy of the famous failure of the Tacoma Narrows bridge failure. The engineers calculated the maximum force that the wind would have on the bridge, but didn't calculate the dynamic aerodynamic effect as the bridge deck swayed in the wind. The result was a spectacular failure.

Watt4Bob November 21, 2016 at 1:01 pm

Since our economy has been gradually going casino for so many years, it makes sense that the folks who hold the reigns would make every effort to assure that all their key players adhere to their singular perspectives.

The most important of these perspectives is that there is no higher human purpose than to make a lot of money, in essence, that greed is good.

Thus the problem facing economists worshiping at the altar of "rational expectations" is that the only rational expectation that is accepted as 'truly rational', is first and foremost, the love of money.

This leads to problems for businesses, as truly selfish, and money-motivated people are actually rare, as most people have a wide range of possible motivations working in their lives.

This is why business 'leaders' give prospective employees tests to find the people they can 'trust', which is to say find those who are motivated by money, which is the only motivating factor our masters find useful.

Of course those who are motivated exclusively by the love of money are also those who believe that austerity is the proper medicine for the rest of us.

There's one more thing about people who are motivated only by the need to accumulate money, they also tend to steal anything that isn't tied down.

This doesn't bother FIRE sector employers since they are only concerned to ferret-out those whose motivations might be polluted by inclinations other than greed.

Anyway, it seems to me that the importance of 'rational expectations' is in predicting the behavior of FIRE sector employees, not the economy as a whole.

As far as the bulk of humanity goes, the only true 'rational expectation' is that people have many and varied motivations that make it hard to predict their behavior.

shinola November 21, 2016 at 1:21 pm

Speaking of "going casino"

Hey Econ. Prof. – I'll see your DSGE model & raise with my IBGYBG** model. In theory, you'll win the hand but we'll see who actually walks away the money.

**(by the time this thing blows up) I'll Be Gone, You'll Be Gone

shinola November 21, 2016 at 1:41 pm

sorry for the repeat – prior disappeared then re-appeared nearly 2 hour later ???

dutch November 21, 2016 at 1:04 pm

The Nobel Memorial Prize in economics promotes the illusion that economics is a science. It is better conceptualized as a literary genre, and economists should be forced to compete with other writers for the prize in literature.

Disturbed Voter November 21, 2016 at 1:10 pm

We need to get back to basics, to the real economy of people and necessary supplies to support people. Model a simple city, with a simple agricultural hinterland. You can know how many bushels of grain equivalent are necessary for subsistence economy. You can know how many people you have in the countryside and in the city. You can know how many bushels of grain equivalent are in storage. You can estimate how much of the economy is barter and how much is cash purchase. You can know how much money is in circulation, and from those determine what velocity the money needs to have, to pay for all that bushels of grain equivalent. You don't need calculus, just arithmetic. End the sophistry and obscurity thru unnecessary complexity.

madame de farge November 21, 2016 at 3:20 pm

Bill Black has a fascinating opinion on unnecessary complexity and I agree with him 200 percent.

susan the other November 21, 2016 at 1:11 pm

interesting about Kocherlakota formerly being a rational expectations devotee just the phrase 'rational expectations' is mind boggling as if there were no reaction to any action anywhere. Jack Bogle was on the news this morning laughing about stock picking and saying that every stock picker that makes money is balanced out by another one who loses money and so the only thing that makes money net-net is the long term progress of the market, (or society I would say – and that requires planning).

Synoia November 21, 2016 at 1:45 pm

Not one mention of Chaos or Catastrophe Theory, which are theories of systems with non linear feedback (aka: Fear and Greed), which appear to me to be fundamental aspects of Economics, especially the humans who are the Economy.

To me that is a large omission.

Another Anon November 21, 2016 at 1:55 pm

Two slogans I read somewhere recently seem appropriate for theoclassical economics: Ideology is easy, thinking is hard. Belief is belonging.

Robin Kash November 21, 2016 at 1:57 pm

Perhaps an approach to a solution for economists who are rightly disgusted with the continuing failures of macroeconomics is to confess that economics is theology/philosophy and not science. Economics lands on the "mammon" side of serving God or mammon.

One doesn't have to have read any Reformation theology, but only to have observed more or less casually that human being are scarcely rational even about their own self-interest, and then only self-deceptively. Thomas Frank has commented effectively on that point in the political arena in What's the Matter with Kansas. To wit: Republicans have, he points out, diverted voters attention to social/cultural issues while picking their pockets. Perhaps one might sense an intersection of politics and economics on the latter point.

There is less need to moralize about "sin" than to see it as an heuristic. That is, one might begin by assuming that businesses and individuals are not only guided by rationality, but to the contrary are aided by economists, say, of the U of Minnesota ilk, to rely upon the myth of rationality to cloak fundamental selfishness, which economists have neutered by casting it as "self-interest." Selfishness is the root of continuing, destructive "irrationality," because it is part of what defines a root of sin, i.e., missing the mark.

An economics of gratitude for shared abundance would be closer to the mark.

diptherio November 21, 2016 at 4:28 pm

Here's the link to the paper by Romer:

http://www.law.yale.edu/system/files/area/workshop/leo/leo16_romer.pdf

[Nov 21, 2016] Nassim Taleb Exposes The Worlds Intellectual-Yet-Idiot Class

Notable quotes:
"... What we have been seeing worldwide, from India to the UK to the US, is the rebellion against the inner circle of no-skin-in-the-game policymaking "clerks" and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy league, Oxford-Cambridge, or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think and 5) who to vote for. ..."
"... Indeed one can see that these academic-bureaucrats wanting to run our lives aren't even rigorous, whether in medical statistics or policymaking. They cant tell science from scientism -- in fact in their eyes scientism looks more scientific than real science. (For instance it is trivial to show the following: much of what the Cass-Sunstein-Richard Thaler types -- those who want to "nudge" us into some behavior -- much of what they call "rational" or "irrational" comes from their misunderstanding of probability theory and cosmetic use of first-order models.) They are prone to mistake the ensemble for the linear aggregation of its components as we saw in the chapter extending the minority rule . ..."
"... The Intellectual Yet Idiot is a production of modernity hence has been accelerating since the mid twentieth century, to reach its local supremum today, along with the broad category of people without skin-in-the-game who have been invading many walks of life. Why? Simply, in many countries, the government's role is ten times what it was a century ago (expressed in percentage of GDP). The IYI seems ubiquitous in our lives but is still a small minority and rarely seen outside specialized outlets, social media, and universities -- most people have proper jobs and there are not many opening for the IYI. ..."
"... When Plebeians do something that makes sense to them, but not to him, the IYI uses the term "uneducated". What we generally call participation in the political process, he calls by two distinct designations: "democracy" when it fits the IYI, and "populism" when the plebeians dare voting in a way that contradicts his preferences. While rich people believe in one tax dollar one vote, more humanistic ones in one man one vote, Monsanto in one lobbyist one vote, the IYI believes in one Ivy League degree one-vote, with some equivalence for foreign elite schools, and PhDs as these are needed in the club. ..."
"... More socially, the IYI subscribes to The New Yorker. He never curses on twitter. He speaks of "equality of races" and "economic equality" but never went out drinking with a minority cab driver. Those in the U.K. have been taken for a ride by Tony Blair. The modern IYI has attended more than one TEDx talks in person or watched more than two TED talks on Youtube. Not only will he vote for Hillary Monsanto-Malmaison because she seems electable and some other such circular reasoning, but holds that anyone who doesn't do so is mentally ill. ..."
Nov 21, 2016 | www.zerohedge.com
Authored by Nassim Nichaolss Taleb via Medium.com,

What we have been seeing worldwide, from India to the UK to the US, is the rebellion against the inner circle of no-skin-in-the-game policymaking "clerks" and journalists-insiders, that class of paternalistic semi-intellectual experts with some Ivy league, Oxford-Cambridge, or similar label-driven education who are telling the rest of us 1) what to do, 2) what to eat, 3) how to speak, 4) how to think and 5) who to vote for.

But the problem is the one-eyed following the blind: these self-described members of the "intelligencia" can't find a coconut in Coconut Island, meaning they aren't intelligent enough to define intelligence and fall into circularities - but their main skills is capacity to pass exams written by people like them .

With psychology papers replicating less than 40%, dietary advice reversing after 30 years of fatphobia, macroeconomic analysis working worse than astrology, the appointment of Bernanke who was less than clueless of the risks, and pharmaceutical trials replicating at best only 1/3th of the time, people are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers (or Montaigne and such filtered classical knowledge) with a better track record than these policymaking goons.

Indeed one can see that these academic-bureaucrats wanting to run our lives aren't even rigorous, whether in medical statistics or policymaking. They cant tell science from scientism -- in fact in their eyes scientism looks more scientific than real science. (For instance it is trivial to show the following: much of what the Cass-Sunstein-Richard Thaler types -- those who want to "nudge" us into some behavior -- much of what they call "rational" or "irrational" comes from their misunderstanding of probability theory and cosmetic use of first-order models.) They are prone to mistake the ensemble for the linear aggregation of its components as we saw in the chapter extending the minority rule .

The Intellectual Yet Idiot is a production of modernity hence has been accelerating since the mid twentieth century, to reach its local supremum today, along with the broad category of people without skin-in-the-game who have been invading many walks of life. Why? Simply, in many countries, the government's role is ten times what it was a century ago (expressed in percentage of GDP). The IYI seems ubiquitous in our lives but is still a small minority and rarely seen outside specialized outlets, social media, and universities -- most people have proper jobs and there are not many opening for the IYI.

Beware the semi-erudite who thinks he is an erudite.

The IYI pathologizes others for doing things he doesn't understand without ever realizing it is his understanding that may be limited. He thinks people should act according to their best interests and he knows their interests, particularly if they are "red necks" or English non-crisp-vowel class who voted for Brexit.

When Plebeians do something that makes sense to them, but not to him, the IYI uses the term "uneducated". What we generally call participation in the political process, he calls by two distinct designations: "democracy" when it fits the IYI, and "populism" when the plebeians dare voting in a way that contradicts his preferences. While rich people believe in one tax dollar one vote, more humanistic ones in one man one vote, Monsanto in one lobbyist one vote, the IYI believes in one Ivy League degree one-vote, with some equivalence for foreign elite schools, and PhDs as these are needed in the club.

More socially, the IYI subscribes to The New Yorker. He never curses on twitter. He speaks of "equality of races" and "economic equality" but never went out drinking with a minority cab driver. Those in the U.K. have been taken for a ride by Tony Blair. The modern IYI has attended more than one TEDx talks in person or watched more than two TED talks on Youtube. Not only will he vote for Hillary Monsanto-Malmaison because she seems electable and some other such circular reasoning, but holds that anyone who doesn't do so is mentally ill.

The IYI has a copy of the first hardback edition of The Black Swan on his shelves, but mistakes absence of evidence for evidence of absence. He believes that GMOs are "science", that the "technology" is not different from conventional breeding as a result of his readiness to confuse science with scientism.

Typically, the IYI get the first order logic right, but not second-order (or higher) effects making him totally incompetent in complex domains. In the comfort of his suburban home with 2-car garage, he advocated the "removal" of Gadhafi because he was "a dictator", not realizing that removals have consequences (recall that he has no skin in the game and doesn't pay for results).

The IYI is member of a club to get traveling privileges; if social scientist he uses statistics without knowing how they are derived (like Steven Pinker and psycholophasters in general); when in the UK, he goes to literary festivals; he drinks red wine with steak (never white); he used to believe that fat was harmful and has now completely reversed; he takes statins because his doctor told him so; he fails to understand ergodicity and when explained to him, he forgets about it soon later; he doesn't use Yiddish words even when talking business; he studies grammar before speaking a language; he has a cousin who worked with someone who knows the Queen; he has never read Frederic Dard, Libanius Antiochus, Michael Oakeshot, John Gray, Amianus Marcellinus, Ibn Battuta, Saadiah Gaon, or Joseph De Maistre; he has never gotten drunk with Russians; he never drank to the point when one starts breaking glasses (or, preferably, chairs); he doesn't know the difference between Hecate and Hecuba; he doesn't know that there is no difference between "pseudointellectual" and "intellectual" in the absence of skin in the game; has mentioned quantum mechanics at least twice in the past 5 years in conversations that had nothing to do with physics; he knows at any point in time what his words or actions are doing to his reputation.

But a much easier marker: he doesn't deadlift.

Wrascaly Wabbit Nov 9, 2016 8:58 AM ,
Welcome to a brave new world!
monk27 Nov 9, 2016 2:07 PM ,
Taleb is one of the very few really cool intellectuals . And he writes excellent books...
KuriousKat Nov 20, 2016 6:25 PM ,
IYIs have the IYM and BOHICA to contend with and they are coming in Yuge numbers... There is no escape. Their stats and not so magic algorithms and Faux sheepskins are useless..

Open wide..here we come.

We are the Mothers of Invention.

pachanguero Nov 20, 2016 7:07 PM ,
Lawyers are the tools of the NWO. Never produce anything but rule over you....

[Nov 12, 2016] Do Economists Promote Ideology as Science?

Nov 12, 2016 | economistsview.typepad.com
Economist's View Do Economists Promote Ideology as Science

My latest column:

Do Economists Promote Ideology as Science? : Which is more important in determining the policy positions of economists, ideology or evidence? Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing?
This certainly happens, especially among economists connected to politically driven think tanks – places like the Heritage Foundation come to mind. Economists who work for businesses also have a tendency to present evidence more like a lawyer advocating a particular position than a scientist trying to find out how the economy really works. But what about academic economists who are supposed to be searching for the truth no matter the political implications? Can we detect the same degree of bias in their research and policy positions? ...

rayward :

Thoma's assessment seems fair enough. I'd make the point that, for some academic economists, no amount of evidence is sufficient to overcome their bias. "Where's the proof" is the refrain one hears often. And then there's the question: what is evidence? The availability of lots of data is often used to "prove" this or that theory, even when the "proof" is contrary to the historical evidence one can see with her own eyes. Data used as obfuscation rather than clarification. I appreciate that one historical event following another historical event does not prove causation, but what's better proof than history.

RogerFox : , -1
"Shouldn't theory be a guide when the empirical evidence is unconvincing one way or the other?"

No - we don't allow MDs to prescribe or treat on the basis of theory alone. It's unethical for any professional practitioner to give advice that is not supported by compelling evidence demonstrating that the advise is both safe and effective - 'First, do no harm.'

To a man, professional economists shill for the view that they are morally free to treat real economies and real people as their personal lab rats. As a group, economists are an ethically challenged bunch in this respect, and probably in other respects too.

anne -> RogerFox... , -1
To a man, professional economists shill...

[ This phrase begins a mean-spirited lie, no matter how the sentence is finished. The point of the malicious post however is only to be destructive. ]

Avraam Jack Dectis : , -1
.
Economics is the most interesting science because it is not settled and has great effect upon the affairs of man.

One of the things that make it interesting is the number of variables that exist in most economic situations as well as the strong psychological and sociological component to the science, due to its attempts to predict the actions of humans, a hierarchical herd based status insane animal.

Undoubtedly, the desire to promote personally attractive policies is something everyone must fight.

On a side note, having seen this blog referenced elsewhere and finally starting to read it regularly, truly a nice thing, I notice that Dr. Thoma and I are the same age for about three months per year. I suspect that is about all we have in common since I just spent the last 18+ years getting openly and notoriously poisoned by a stalker gang, have hit men following me and am so unpopular and poorly connected that I seem remarkably unable to engage any law enforcement on the issue.

Which leads into the next point-> Is the dynamism of an economy a function of freedom of speech, riule of law, security of the citizen and so forth. For decades the USA, as it fought two opposing powerful systems, made that case yet now that no longer seems to be the case in the USA and in fact this is confirmed by the fact that nobody makes that case convincingly anymore.

Can this deterioration of culture and embrace of expediency have a stifling economic effect?

DeDude : , -1
Economics as a science is mainly hurt by two things.

1. The rich plutocrats have a major stake in advocating very specific narratives, so they will throw large sums behind those narratives (and the fight against anything conflicting with them).

2. Economics does not have anything resembling the double blind placebo controlled trials that help medicine fight off the narratives of those with money and power.

RGC : , -1
What sort of opinions are economists allowed to have if they want tenure, want to be published in the major journals or want to make a living?

Keynes concluded that government direction was necessary for a viable economy. Keynes' "interpreters" in the US buried that idea, and thus became very important economists - guys like Paul Samuelson. The first ( and only) US book to faithfully represent Keynes' ideas faded away soon after publication.

http://news.stanford.edu/pr/93/931011Arc3112.html

pete : , -1
I did not know there was a debate. Krugman summed it all up in Peddling Prosperity. Folks know who pays the rent, and opine accordingly.
Syaloch : , -1
I think problems arise when economists are called upon by politicians or the media to give expert advice.

Within the sciences, "We don't know the answer to that" is a perfectly acceptable response, and in scientific fields where the stakes are low that response is generally accepted by the public as well. "What is dark matter made of?" "We don't know yet, but we're working on it." But in politics, where the stakes are higher, not having a definitive answer is viewed as a sign of weakness. How often do you hear a politician responding to a "gotcha" question admit that they don't know the answer rather than trying to BS their way through?

Given the timeliness of news coverage the media prefer to consult experts who offer definitive answers, especially given their preference for pro/con type interviews which require experts on both sides of an issue. Economists who are put on the spot this way feel pressured to ditch the error bars and give unambiguous answers, even answers based purely on theory with little to no empirical backing, and the more often they do this the more often they're invited back.

Sandwichman : , November 03, 2015 at 08:47 AM
It is impossible to talk about economics without making essentially ideological distinctions. Private property and wage labor are not "natural" categories. Their adequacy as human practices therefore needs to be either defended or criticized. To simply take them "as given" is an ideological waffle that begs THE question.

Economists thus SHOULD have, acknowledge and fully disclose their ideological biases. When evaluating evidence they should make every effort to set aside and overcome their biases. And they need to stay humble about how Sisyphean, incongruous and incomplete their attempts at objectivity are.

Let's not forget that "The End of Ideology" was a polemical tract aimed at designating the ideology of the managers and symbol manipulators "above" and beyond ideology. Similarly, Marx's brilliant critique of ideology degenerated into polemic as its practitioners adopted the mantle of "science."

anne -> Sandwichman ... , November 03, 2015 at 08:56 AM
Really excellent, and why I am immediately wary of self-described "technocrats."
anne -> Sandwichman ... , November 03, 2015 at 08:58 AM
https://en.wikipedia.org/wiki/The_End_of_Ideology

The End of Ideology: On the Exhaustion of Political Ideas in the Fifties is a collection of essays published in 1960 by Daniel Bell, who described himself as a "socialist in economics, a liberal in politics, and a conservative in culture". He suggests that the older, grand-humanistic ideologies derived from the nineteenth and early twentieth centuries had been exhausted, and that new, more parochial ideologies would soon arise. He argues that political ideology has become irrelevant among "sensible" people, and that the polity of the future would be driven by piecemeal technological adjustments of the extant system.

anne -> Sandwichman ... , November 03, 2015 at 09:00 AM
What precisely is "Marx's critique of ideology ?"
Sandwichman said in reply to anne... , November 03, 2015 at 09:54 AM
A very big question! Like "what is the meaning of life?" At least a semester-long upper division seminar course. ;-)

In a nutshell (to put it crudely), Marx labelled as ideologists a cohort of German followers of Hegel's philosophy who envisioned historical progress as the result of the progressive refinement of intellectual ideas. Marx argued instead that historical change resulted from struggle between social classes over the material conditions of life, fundamental to which was the transformation of nature through human intervention into means of subsistence.

anne -> Sandwichman ... , November 03, 2015 at 10:26 AM
Marx labelled as ideologists a cohort of German followers of Hegel's philosophy who envisioned historical progress as the result of the progressive refinement of intellectual ideas. Marx argued instead that historical change resulted from struggle between social classes over the material conditions of life, fundamental to which was the transformation of nature through human intervention into means of subsistence.

[ What a superb introductory or summary explanation. I could not be more impressed or grateful. ]

anne -> Sandwichman ... , November 03, 2015 at 10:27 AM
I intend to quote this passage, crediting and thanking you.
DrDick -> Sandwichman ... , November 03, 2015 at 11:02 AM
Well said. I would add "markets" to that list of rleatively recent cultural constructs that needs greater scrutiny.
Chuck : , November 03, 2015 at 09:10 AM
"And so - though we proceed slowly because of our ideologies, we might not proceed at all without them."
- Joseph Schumpeter, "Science and Ideology," The American Economic Review 39:2 (March 1949), at 359
http://www.jstor.org/stable/1812737
Sandwichman said in reply to Chuck... , November 03, 2015 at 10:09 AM
Indeed.
Ignacio : , November 03, 2015 at 10:11 AM
Many guys are not driven by ideology, rather than evidence. The problem with this article is that we cannot compare with other professions and say "economists are more/less prone to promote ideology than the average".
DrDick -> Ignacio... , November 03, 2015 at 11:04 AM
All human endeavors are shaped by "ideology" in many different ways. What is important is to be aware of and explicit about their influences on our thought and action.
RC AKA Darryl, Ron : , November 03, 2015 at 11:12 AM
Yes.
RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron... , November 03, 2015 at 11:24 AM
If there are two sides to an argument that radically disagree then it is possible that both sides may be ideology, but both sides cannot be science. Only the correct argument can be science. Of course ideology is a bit too kind of a word since the incorrect argument is actually just a con game by people out to lay claim on greater unearned wealth.
ken melvin : , November 03, 2015 at 11:22 AM
Economists seem content with trying to figure out how to make 'it' work. Far better, I think, to try and figure out how it should be.
It was philosophers such as Hume, Locke, Marx, Smith, Rawls, ... who asked the right questions. Laws and economics come down to us according to how we think about such things; they change when we change the way we think. Seems we're in a bit of a philosophical dry patch, here. Someday, we will have to develop a better economic system, might be now. Likewise, there are laws rooted in antiquity that were wrong then and are wrong still.
RC AKA Darryl, Ron said in reply to ken melvin... , November 03, 2015 at 11:25 AM
Exactly! They all know what they are doing. Some of them are just trying to do the wrong thing.
Arne : , November 03, 2015 at 12:12 PM
"Ideology certainly influences which questions academic researchers believe are the most important, but there is nothing wrong with that."

No "experiment" in economics comes with the degree of control that experiments in physical sciences take for granted, so there is tremendous room for ideology to come into the discussion of whether a data set really represents the conditions the model is supposed to consider. Since reviewing another economist's study entails asking questions those questions...

DrDick -> Arne... , -1
Please describe the "experimentation" which takes place in astronomy and geology. Ideologies also play important roles in experimental sciences, such as biology (for which we have a lot of evidence.

http://www.amazon.com/Anne-Fausto-Sterling/e/B001ILMB3E

http://www.nature.com/news/let-s-think-about-cognitive-bias-1.18520

http://annals.org/article.aspx?articleid=733696

[Nov 06, 2016] Michael Hudson on Meet the Renegades

Notable quotes:
"... In fact, I would posit that the Ivy League, especially Yale, Princeton, Harvard and MIT, are the principal crime factories in America today. ..."
"... Brownback is in Kansas; UMKC is in Missouri. There is a Kansas City in Kansas, and another Kansas City in Missouri. Missouri is not as red as KS, but it's still a red state. ..."
"... UMKC is part of the state system and most likely receives no funding from the city. It was home to New Letters, a respected literary magazine edited by poet John Ciardi. I hail from Kanasa City and always thought of UMKC as a decent commuter school, mostly catering to the educational needs of adult city dwellers. But the evolution of both the Econ and jazz studies departments lead me to suspect things have changed. Whether that's by design or through organic happenstance I don't know. ..."
"... Couldn't a Marxian analysis of capitalism as a whole also shed some light on this issue? I think Hudson is pretty much right but I think, like Sanders, he's offering a reformist option as opposed to a full on critique of the entire system. ..."
"... Not that a revolution is the option you necessarily want to go with, I just think that Marx's criticism of capitalism has useful information that could help with shaping the perspective here. ..."
Nov 05, 2016 | www.nakedcapitalism.com
Michael Hudson spends a half hour with Meet the Renegades explaining his views on money, finance, economic training, rentier capitalism, and how debt overhangs operate. Hudson fans will recognize his regular themes. This is a good segment for introducing people you know to Hudson and to heterodox economic ideas.

EndOfTheWorld November 5, 2016 at 5:52 am

I've always found it interesting that both Hudson and Bill Black are on the faculty of UMKC, which is a state university in a pretty conservative state. It's possible that some of the funding for UMKC comes from the municipality of Kansas City, MO, but that town has never been known as a hotbed of radical intellectuality either.

Distrubed Voter November 5, 2016 at 6:21 am

Joseph Campbell didn't teach at an Ivy League either. Conformity starts with the faculty in your own department … and the Ivy League is as status quo and status conscious as it gets.

craazyboy November 5, 2016 at 8:43 am

The Ivy League are not much different than privately held corporations when you consider who their alma materi are, how much money the alma materi have, and where Ivy League endowments come from.

sgt_doom November 5, 2016 at 1:31 pm

In fact, I would posit that the Ivy League, especially Yale, Princeton, Harvard and MIT, are the principal crime factories in America today.

Please recall that the dood who financed Liberty Lobby and other white supremacist nonsense was Koch family patriarch, Fred Koch, who was a trustee at MIT. (Ever hear Noam Chomsky complain about that????? Of course not!)

a different chris November 5, 2016 at 8:40 am

Ah but is it really an inherently conservative state fiscally, or just socially? That is, are the people like Brownback appealing to one sort of conservatism and using that to do a "trust me" on the other sort?

I would say it's not unreasonable for anybody to delegate something they are not so sure of to somebody they trust for other reasons.

EndOfTheWorld November 5, 2016 at 11:11 am

Brownback is in Kansas; UMKC is in Missouri. There is a Kansas City in Kansas, and another Kansas City in Missouri. Missouri is not as red as KS, but it's still a red state.

Randy November 5, 2016 at 8:53 am

UMKC is part of the state system and most likely receives no funding from the city. It was home to New Letters, a respected literary magazine edited by poet John Ciardi. I hail from Kanasa City and always thought of UMKC as a decent commuter school, mostly catering to the educational needs of adult city dwellers. But the evolution of both the Econ and jazz studies departments lead me to suspect things have changed. Whether that's by design or through organic happenstance I don't know.

Moneta November 5, 2016 at 8:59 am

If you are not on the money makers' distribution list, it would make sense to find other ways to get some of that loot if you can't the traditional way…

You can be conservative in your social values but want change, i.e. liberalism, in the way the monetary system distributes the money.

Steve H. November 5, 2016 at 10:47 am

Thank Warren Mosler, wouldn't be there without his direct support.

EndOfTheWorld November 5, 2016 at 7:32 am

Well, little UMKC can claim to be pretty much "cutting edge" in economics with these two stalwarts on their faculty.

Benedict@Large November 5, 2016 at 9:32 am

The UMKC is also the home of the Kansas City School of Economics, more commonly known as the MMT School. Neither Hudson nor Black are MMTers per se, but both have grown by their affiliation with the school.

Amateur Socialist November 5, 2016 at 9:14 am

Thanks for sharing this excellent interview. Watching it I realized the people I actually admire more than Hudson are his students. They must care more about learning the truth than securing wealth and job prospects on wall street.

susan the other November 5, 2016 at 11:04 am

fun to learn how Hudson fired Greenspan way back when

EndOfTheWorld November 5, 2016 at 11:08 am

lol "Free trade" is Orwellian word usage.

King Arthur November 5, 2016 at 11:49 am

Couldn't a Marxian analysis of capitalism as a whole also shed some light on this issue? I think Hudson is pretty much right but I think, like Sanders, he's offering a reformist option as opposed to a full on critique of the entire system.

Not that a revolution is the option you necessarily want to go with, I just think that Marx's criticism of capitalism has useful information that could help with shaping the perspective here.

BecauseTradition November 5, 2016 at 12:29 pm

The solution is write down the debt. Michael Hudson

Why not Steve Keen's "A Modern Jubilee" since non-debtors have been cheated by the system too?

Steve in Dallas November 5, 2016 at 12:46 pm

I asked Yves Smith at the Dallas meetup last week (paraphrasing) "Do you meet with Michael Hudson and Bill Black… is the independent media community, or any community, organizing around Michael Hudson and Bill Black… to not only support and promote Hudson's and Black's perspectives but to help develop their concepts and 'fine tune' their messaging?" I said to Yves "Hudson and Black are clearly the leaders we desperately need to rally behind and push into Washington… they clearly know what needs to be done… a PR machine needs to be developed… to get their messages out to our families, friends, and acquaintances… unfortunately, the current messaging is not good enough… I can't get my family, friends, and others to engage and echo the messaging to their family, friends, etc."

Michael Hudson has been good at repeating his central message… 'by increasing land, monopoly, and finance rent costs… the 1% are a highly organized mafia methodically looting our economy… effectively raping, pillaging and consequently destroying every component of our social structures'.

Very unfortunately, Bill Blacks central message seems to have been lost for years now… he doesn't repeat his central message… 'the crimes must be stopped… there is no alternative… looting criminals MUST be publicly exposed, investigated, indicted, prosecuted, convicted, punished and their loot returned to society… by letting cheaters prosper, organized white-collar crime, perpetrated by the top-most leaders of our public and private institutions, has become an epidemic… the very fabric of civil society is being destroyed… we have no choice… the criminals must be stopped… and the only way to do that is to publicly expose, investigate, indict, prosecute, punish, and take back what is ours'.

In 2008, when I tuned out of the mainstream media and tuned into the independent media, I thought the messages from Michael Hudson ("they are organized criminals… this is what they're doing…") and Bill Black ("the criminals must be stopped… here's how we stopped the Savings & Loan criminals…) would resonate and become common knowledge. I quickly discovered that it didn't even resonate with close family and friends. Why???

I will send out this video… Michael Hudson at his best, speaking-wise. I don't expect to get any reaction… why?… very frustrated…

Ivy November 5, 2016 at 1:35 pm

Amen. Once you start noticing, it becomes hard to stop. In looking hard for a silver lining to the current election storm clouds, public awareness of the MSM seems to have nudged a few toward slightly more objectivity, although I may just be wishing for that after media fatigue ;)

[Nov 03, 2016] Why did humans invent gods?

Notable quotes:
"... Well I'm sure there's many reasons but one has to be because religion was a good way of saying "I haven't got a fucking clue" without losing face. And we're obsessed with keeping face. ..."
"... That's all religion really is. It fills the gaps in human knowledge and as the gaps become fewer we become less religious. ..."
"... The issue of course is humans collectively know a lot of stuff but individually we only know a very specific amount of stuff. There's a lot of stuff on the internet these days which we can access and (skim) read but that's not to say we understand any of it or can critically assess it. ..."
Nov 03, 2016 | www.theguardian.com
Fred1 4h ago

Why did humans invent gods?

Well I'm sure there's many reasons but one has to be because religion was a good way of saying "I haven't got a fucking clue" without losing face. And we're obsessed with keeping face.

That's all religion really is. It fills the gaps in human knowledge and as the gaps become fewer we become less religious.

Now we probably shouldn't get too far ahead of ourselves and say we've closed all of the gaps (we've barely left our neck of the woods) but there is certainly the sense that humans know a lot of stuff.

The issue of course is humans collectively know a lot of stuff but individually we only know a very specific amount of stuff. There's a lot of stuff on the internet these days which we can access and (skim) read but that's not to say we understand any of it or can critically assess it.

Which brings me to Trump. Religion is not as popular these days because we've all got a bit cocky and think we know everything because we can Google it. But we still have massive gaps in our knowledge.

Trump panders to the same gaps in our knowledge that religion once did. Trump has the answers. Clinton is the problem. We know this apparently. Just like we once knew there was a god.

As a general rule we should stick to what we know rather than what we perceive since perception can be so misleading (good old common sense). We should also be deeply suspicious when someone comes to us with answers especially when those answers are actually in the form of nothing in particular and criticising everyone else.

Just for one second put aside what you think you know about the world and the "elite" and stick to what you actually know about Trump. Sexual assault anyone?

[Oct 29, 2016] Output gap is is subject to two big measurement problems

Oct 29, 2016 | economistsview.typepad.com

Peter K. : October 29, 2016 at 07:11 AM

David Beckworth on the "knowledge problem."

"...That is, even central banks that follow some kind of Taylor rule in a flexible inflation-targeting regime are susceptible to the knowledge problem...

The biggest information challenge comes from attempting to measure the output gap in real time. The output gap is the difference between the economy's actual and potential level of output and is subject to two big measurement problems.

  1. First, real-time output data generally get revised and often on the same order of magnitude as the estimated output gap itself.
  2. Second, potential output estimates are based on trends that rely on ever-changing endpoints.

Orphanides finds the latter problem to be the biggest contributor to real-time misperceptions of the output gap. This means that even if real-time data improved such that there were fewer revisions, there would still be a sizable problem measuring the real-time output gap."

Conservative ideologues tell us government/central planners are inefficient because of the "knowledge problem." Well so are private sector central planners. See the big banks and the housing bubble/financial crisis. Or Samsung and its exploding Note 7. Or Volkswagon and its cheating on benchmark tests.

RGC -> Peter K.... , October 29, 2016 at 08:23 AM

This "output gap" is another rightwing diversion. It is useful to them precisely because it is impossible to measure and therefore people can argue about it ad infinitum.

Meanwhile we have a lot of people who can't get a decent job at a living wage. That can be easily measured and it could be easily remedied. And it is what average people actually care about. So they want to make sure that isn't discussed. They want to discuss something with no clear answer instead.

Peter K. -> RGC... , October 29, 2016 at 09:31 AM
There is a clear answer. Inflation is low and there's an output gap. Yes maybe it's hard to get a precise number but we have a general idea.

I suppose you want us on the Gold Standard, another rightwing diversion, because according to you monetary policy doesn't work at all.

Peter K. -> RGC... , October 29, 2016 at 09:45 AM
I find it much more telling:

"Former Fed Vice Chairman Alan Blinder said he's skeptical that fiscal policy will be loosened a great deal if Clinton wins the election, as seems likely based on recent voter surveys.

"She is promising not to make budget deficits bigger by her programs," said Blinder, who is now a professor at Princeton University. "Whatever fiscal stimulus there is ought to be small enough for the Fed practically to ignore it.""

http://www.bloomberg.com/news/articles/2016-10-25/fed-inclined-to-raise-rates-if-next-president-pumps-up-budget

Blinder is skeptical that Clinton will do enough to force the Fed to modulate their plans, even though PGL and Sanjait tell us otherwise.

Clinton's infrastructure plans should be "substantially" larger as Krugman and Summers write. This would help close the output gap. This would help with the job market and increasing incomes and lowering personal debt loads.

But PGL can't admit this because he's a petulant child who thinks Germany still uses the Deutsche Mark.

Peter K. -> Peter K.... , October 29, 2016 at 09:46 AM
As Bernie Sanders wrote last December:

"The recent decision by the Fed to raise interest rates is the latest example of the rigged economic system. Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time. Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages. As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort - not to fight phantom inflation."

http://www.nytimes.com/2015/12/23/opinion/bernie-sanders-to-rein-in-wall-street-fix-the-fed.html

[Oct 27, 2016] Being Honest about Ideological Influence in Economics

Notable quotes:
"... An important essay indeed in that ideological influence is pervasive in writing by economists, which should be no problem as such, but economists should be aware of ideological influence in the work that they do. The problem is being unaware that work is ideological, so that the work is presented as simple truth allowing for no alternative presentation and argument. ..."
"... RBC economists are very well compensated for saying that no government intervention is needed in the economy, as are those saying that minimum wages harm employment. ..."
"... Actually a lot of academics are not exactly paid that well. This crowd does this sort as a religion. The problem is that those of us who never accepted perfect markets and instant market clearing were closed out of publications for 30 years. Now if RBC explained the real world - fine. But it had zero explanation for the last 9 years. ..."
"... Mankiw is paid well. ..."
"... Krugman is paid well. ..."
"... Speaking as an academic, in the university system with the lowest paid faculty in the nation, I am well aware of that. It is not the academic salaries, but the research grants and consulting contracts that matter here. ..."
"... Upton Sinclair is always right. ..."
"... "I suspect there is a reluctance among the majority of economists to admit that some among them may not be following the scientific method but may instead be making choices on ideological grounds." ..."
"... The RBC crowd is arrogant enough to argue that Keynes was practicing junk science. They knew his writings and just ignored it. ..."
"... That US economists are completely clueless is obvious to anyone who travels around the world. That free trade economies such as the US are complete basket cases is obvious to anyone who visits mercantilist economies such as Singapore, Japan, Israel etc. US trained economists only have prestige because the masses don't know how backward and poverty-stricken the US has become under the policies they relentlessly justify and apologize for. ..."
Oct 27, 2016 | economistsview.typepad.com
Simon Wren-Lewis:
Being honest about ideological influence in economics : Noah Smith has an article that talks about Paul Romer's recent critique of macroeconomics. ... He says the fundamental problem with macroeconomics is lack of data, which is why disputes seem to take so long to resolve. That is not in my view the whole story.

If we look at the rise of Real Business Cycle (RBC) research a few decades ago, that was only made possible because economists chose to ignore evidence about the nature of unemployment in recessions. There is overwhelming evidence that in a recession employment declines because workers are fired rather than choosing not to work, and that the resulting increase in unemployment is involuntary (those fired would have rather retained their job at their previous wage). Both facts are incompatible with the RBC model.

In the RBC model there is no problem with recessions, and no role for policy to attempt to prevent them or bring them to an end. The business cycle fluctuations in employment they generate are entirely voluntary. RBC researchers wanted to build models of business cycles that had nothing to do with sticky prices. Yet here again the evidence was quite clear...

Why would researchers try to build models of business cycles where these cycles required no policy intervention, and ignore key evidence in doing so? The obvious explanation is ideological. I cannot prove it was ideological, but it is difficult to understand why - in an area which as Noah says suffers from a lack of data - you would choose to develop theories that ignore some of the evidence you have. The fact that, as I argue here , this bias may have expressed itself in the insistence on following a particular methodology at the expense of others does not negate the importance of that bias. ...

I suspect there is a reluctance among the majority of economists to admit that some among them may not be following the scientific method but may instead be making choices on ideological grounds. This is the essence of Romer's critique, first in his own area of growth economics and then for business cycle analysis. Denying or marginalizing the problem simply invites critics to apply to the whole profession a criticism that only applies to a minority.

anne : October 26, 2016 at 10:52 AM
An important essay indeed in that ideological influence is pervasive in writing by economists, which should be no problem as such, but economists should be aware of ideological influence in the work that they do. The problem is being unaware that work is ideological, so that the work is presented as simple truth allowing for no alternative presentation and argument.
anne -> anne... , October 26, 2016 at 11:03 AM
From the influence of The Economist:

http://www.bradford-delong.com/2016/04/must-read-i-do-not-understand-china-but-it-now-looks-more-likely-than-not-to-me-that-xi-jinpings-rule-will-lose-china.html

April 5, 2016

I do not understand China. But it now looks more likely than not to me that Xi Jinping's rule will lose China a decade, if not half a century... *

* http://www.economist.com/news/china/21695923-his-exercise-power-home-xi-jinping-often-ruthless-there-are-limits-his

-- Brad DeLong

anne -> anne... , October 26, 2016 at 11:04 AM
Again, on the influence of The Economist:

https://twitter.com/barryeisler/status/789620951663063040

Barry Eisler ‏@barryeisler

This could be a poster for a horror movie. But it's just the sane, sober, centrist @TheEconomist, doing what they do best

https://pbs.twimg.com/media/CvVLw8PVYAAaLQX.jpg

5:14 PM - 21 Oct 2016

anne -> kthomas... , October 26, 2016 at 11:32 AM
The point of Sophocles Oedipus cycle for Sophocles and for Freud was found in the Oracle at Delphi with which the cycle begins. The inscription at Delphi read "Know Thyself."

Know your ideological bent or leaning. The tragedy of Oedipus was in not knowing himself.

kthomas -> anne... , October 26, 2016 at 11:59 AM
The original "know thyself" was for warriors. For if you do not know yourself (or your limitations), how can you possibly defeat an enemy?

The later Greek philosophers took it to heart, I suppose.

anne -> kthomas... , October 26, 2016 at 05:23 PM
Interesting, but Freud surely took "know thyself" to heart.
anne -> anne... , October 26, 2016 at 02:09 PM
http://www.bradford-delong.com/2016/08/fidel-castros-85th-birthday.html

August 14, 2016

It's Fidel Castro's 90th Birthday!

Under Fidel Castro's rule Cuba bucked the historical trend--moving not toward but far away from political democracy.

Under Fidel Castro it looks as though Cuba lost two generations of economic growth -- generations that other neighboring economies like Mexico, Costa Rica, and Puerto Rico made very good use of. The only good thing you can say about Castro is that Cuba continued to have the social indicators of a middle-income country even as it became a poor one.

It was always incomprehensible that an anti-Democratic dictator who managed to turn a middle-income country into a poor one would have fans. Yet there are still people in the class not of stooges looking for their Stalin, but fools who have found their Fidel.

-- Brad DeLong

[ Importantly, the economics here happen to be wildly wrong but is there any concern about how Cuba actually fared in real per capita growth relative to Mexico, Costa Rica or Puerto Rico since 1971 when record keeping begins?

The concern seem to be entirely ideological. ]

anne -> anne... , October 26, 2016 at 02:11 PM
https://fred.stlouisfed.org/graph/?g=6Ea6

August 4, 2014

Real per capita Gross Domestic Product for Brazil, Mexico and Cuba, 1971-2013

(Percent change)


https://research.stlouisfed.org/fred2/graph/?g=2P3h

August 4, 2014

Real per capita Gross Domestic Product for Mexico and Cuba, 1971-2013

(Indexed to 1971)

anne -> anne... , October 26, 2016 at 03:05 PM
Since 1971, real per capita GDP in Cuba has grown faster than real per capita GDP in Mexico, Guatemala, El Salvador, Nicaragua, Costa Rica and Panama, faster than in Puerto Rico, Jamaica, Trinidad and Bermuda, faster than in Colombia, Venezuela, Brazil and Argentina, faster than in Ecuador, Bolivia, Uruguay and Paraguay, faster than in Spain and Portugal.

Real per capita growth in the Dominican Republic and Chile alone among Spanish or Portuguese language countries has been faster than in Cuba.

anne -> anne... , October 26, 2016 at 03:13 PM
Being forgetful:

Since 1971, real per capita GDP in Cuba has also grown faster than real per capita GDP in Honduras...

Data for Haiti begin in 1999, but sadly Haiti has been continually beset since then.

anne -> anne... , October 26, 2016 at 03:36 PM
Being forgetful again:

Since 1971, real per capita GDP in Cuba has also grown faster than real per capita GDP in Peru...

Correcting:

Since 1971, real per capita GDP in Cuba has grown slightly slower than real per capita GDP in Paraguay...

Completing:

Since 1971, real per capita GDP in Cuba has grown faster than real per capita GDP in Mexico, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama, faster than in Puerto Rico, Jamaica, Trinidad and Bermuda, faster than in Colombia, Venezuela, Peru, Brazil and Argentina, faster than in Ecuador, Bolivia and Uruguay, faster than in Spain and Portugal.

Real per capita growth in the Dominican Republic, Chile and Paraguay alone among Spanish or Portuguese language countries has been faster than in Cuba.

DrDick : , October 26, 2016 at 11:08 AM
RBC economists are very well compensated for saying that no government intervention is needed in the economy, as are those saying that minimum wages harm employment.
pgl -> DrDick... , October 26, 2016 at 12:33 PM
Actually a lot of academics are not exactly paid that well. This crowd does this sort as a religion. The problem is that those of us who never accepted perfect markets and instant market clearing were closed out of publications for 30 years. Now if RBC explained the real world - fine. But it had zero explanation for the last 9 years.
Peter K. -> pgl... , October 26, 2016 at 12:58 PM
"RBC economists are very well compensated for saying that no government intervention is needed in the economy"

"Actually a lot of academics are not exactly paid that well."

Mankiw is paid well.

pgl -> Peter K.... , October 26, 2016 at 02:49 PM
I write "a lot" and you read "all". More evidence that my internet stalker flunked pre-K. BTW - Mankiw is not part of the RBC crowd but PeterK is too stupid to know that. Geesh.
JohnH -> pgl... , October 26, 2016 at 01:17 PM
Krugman is paid well. At least his ideological basis is clear...'liberal.'
http://nypost.com/2014/04/17/cuny-to-pay-economist-paul-krugman-225000/
pgl -> JohnH... , October 26, 2016 at 01:51 PM
Lord - what a stupid comment. Krugman does make his believes against evidence. I see this is another post you did not bother to read before posting one of your patented pointless rants.
JohnH -> pgl... , October 26, 2016 at 02:27 PM
Love it: "Krugman does make his believes against evidence."

pgl doesn't even bother to read his own rants before he sends them...

pgl -> JohnH... , October 26, 2016 at 02:49 PM
Make - mark. Wow - you actually read something finally.
DrDick -> pgl... , October 26, 2016 at 04:57 PM
Speaking as an academic, in the university system with the lowest paid faculty in the nation, I am well aware of that. It is not the academic salaries, but the research grants and consulting contracts that matter here.
anne -> DrDick... , October 26, 2016 at 05:25 PM
Speaking as an academic, in the university system with the lowest paid faculty in the nation, I am well aware of that. It is not the academic salaries, but the research grants and consulting contracts that matter here.

[ Understood and important. ]

anne -> pgl... , October 26, 2016 at 05:24 PM
The problem is that those of us who never accepted perfect markets and instant market clearing were closed out of publications for 30 years....

[ Interesting and important. ]

anne -> DrDick... , October 26, 2016 at 05:21 PM
RBC economists are very well compensated for saying that no government intervention is needed in the economy, as are those saying that minimum wages harm employment.

[ Important. ]

DrDick -> anne... , October 27, 2016 at 07:27 AM
Upton Sinclair is always right.
anne : , October 26, 2016 at 11:11 AM
https://en.wikipedia.org/wiki/Real_business-cycle_theory

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

According to RBC theory, business cycles are therefore "real" in that they do not represent a failure of markets to clear but rather reflect the most efficient possible operation of the economy, given the structure of the economy.

Sandwichman : , October 26, 2016 at 11:40 AM
"I suspect there is a reluctance among the majority of economists to admit that some among them may not be following the scientific method but may instead be making choices on ideological grounds."

Cogito ergo [I suspect] sum.

Julio -> Sandwichman ... , October 26, 2016 at 12:42 PM
Wait, wait, it's not "sum". What is the Latin for "publish"?
Paul Mathis : , October 26, 2016 at 11:49 AM
How is the ridiculous RBC theory different from saying, as many prominent economists do, that presidents do not significantly influence economic growth and job creation?

Thus, I have heard repeatedly that FDR, Reagan, Clinton and Obama should not get credit for the economic recoveries and job creation that occurred during their presidencies. Likewise, Hoover, Carter and the Bushes should not be blamed for the economic debacles that occurred during their presidencies. Apparently, these were all just real business cycles that no president has responsibility for.

Of course voters do not agree at all, re-electing all of the "lucky" presidents while throwing out all of the "unlucky" ones. For example, Carter, who is now regarded as a good president, was buried in a massive landslide: 489-49 by a second rate actor who was regarded as a fool by many. (Trump will outperform Carter!)

Either RBC is correct or presidents and their policies do matter a lot. Economists have to decide where they stand.

pgl -> Paul Mathis... , October 26, 2016 at 12:31 PM
The RBC crowd never really got that much into politics. Of course assuming markets always clear and are perfect in every other way is a silly way to model a real world economy.
pgl : , October 26, 2016 at 12:29 PM
Trump bragged today that he built this Washington DC hotel under budget. It seems he did by hiring undocumented workers at less than minimum wages:

https://www.washingtonpost.com/news/post-politics/wp/2016/10/26/clinton-slams-trump-for-using-undocumented-labor-to-build-d-c-hotel/

Maybe Greg Mankiw now likes TrumpEconomics.

pgl : , October 26, 2016 at 12:37 PM
"you would choose to develop theories that ignore some of the evidence you have". It first this New Classical/RBC crowd put forth all sorts of fancy new econometrics thinking if you looked at the data the right way, their model would be confirmed. Only problem is their model says aggregate demand can have only very transitional effects but the data show persistent effects. Shocks in other words have sustained real effects.

So when their model was shown to be faulty by the evidence, they gave up on econometrics and turned to calibration which is just fancy math designed to hide the failure of their models.

pgl : , October 26, 2016 at 12:41 PM
SWL continues noting David Card's research on the effects of increases in minimum wages:

'As Card points out in the interview his research involved no advocacy, but was simply about examining empirical evidence. So the friends that he lost objected not to the policy position he was taking, but to him uncovering and publishing evidence. Suppressing or distorting evidence because it does not give the answer you want is almost a definition of an illegitimate science.'

Greg Mankiw searches high and low for anything that goes along with his view that higher wage floors lead to less employment demand. Of course this kind of bias favors people like Donald Trump who built that DC hotel under budget by ignoring the minimum wage laws.

Longtooth : , October 26, 2016 at 01:05 PM
Much of the economic models debates hinge on "sticky wages" which are irrefutable from all empirics. What I haven't seen yet though is a sound testable hypothesis that supports the empirical observation. In other words, we know by empirics it's true, but we really don't yet know why its true or true in most, but certainly not all cases -- e.g. Greece recently for example. Many suppositions have been described but none have to my knowledge been put into the form of testable hypothesis to suppot the suppositions with "scientific" methods..

How does the relate to RBC models and ideology embedded in models?

RBC ignores the empirics for what can be said to be ideological reasons. But models which include those observations have no hypothesis proven to support the observations either, so then those models are equally using unscientific methods in their construction, which just so happens to support a different ideological position.

I don't disagree at all that models must use observations in their construction but it doesn't put those models at any greater scientific method advantage.

Paul Mathis -> Longtooth... , October 26, 2016 at 01:39 PM
Keynes Explains Sticky Wages (and Inflation)

"It appears, therefore, that we have a sort of asymmetry on the two sides of the critical level above which true inflation sets in. For a contraction of effective demand below the critical level will reduce its amount measured in cost-units; whereas an expansion of effective demand beyond this level will not, in general, have the effect of increasing its amount in terms of cost-units.

"This result follows from the assumption that the factors of production, and in particular the workers, are disposed to resist a reduction in their money-rewards, and that there is no corresponding motive to resist an increase. This assumption is, however, obviously well founded in the facts, due to the circumstance that a change, which is not an all-round change, is beneficial to the special factors affected when it is upward and harmful when it is downward.

"If, on the contrary, money-wages were to fall without limit whenever there was a tendency for less than full employment, the asymmetry would, indeed, disappear. But in that case there would be no resting-place below full employment until either the rate of interest was incapable of falling further or wages were zero.

"In fact we must have some factor, the value of which in terms of money is, if not fixed, at least sticky, to give us any stability of values in a monetary system.

"The view that any increase in the quantity of money is inflationary (unless we mean by inflationary merely that prices are rising) is bound up with the underlying assumption of the classical theory that we are always in a condition where a reduction in the real rewards of the factors of production will lead to a curtailment in their supply." The General Theory, pp. 303-304.

pgl -> Paul Mathis... , October 26, 2016 at 01:53 PM
The RBC crowd is arrogant enough to argue that Keynes was practicing junk science. They knew his writings and just ignored it.
Longtooth -> Paul Mathis... , October 27, 2016 at 01:35 AM
yes, Keynes supposition, among other was precisely what I was referring to by knowing the observation is true but not why it is.

Everybody knows it is true by observation that the sun rises in the east and settles in the west 1x in roughly 24 hours give or take a winter/summer trend change. But it took an awfully long time before Copernicus figured out why that was the case... and from his theory testable hypothesis were developed to show that the hypothesis were confirmed.

With sticky wages we don't know why. E.G.

Wages will not go below [this level] because [insert testable hypothesis]. A testable hypothesis takes the form

Lower Bound of Wage = [insert independent measurable variables and their relationships here]

As I said, lower bounds to wages are empirically observed. Now show why in repeatable results with the equations using the independent variables that apply under the conditions imposed by he hypothesis.

Until that is the observation is used in models because it suits ones interest to do so... i.e. they like the results of the models better. It isn't a scientifically founded model... the assumption is no better than rational expectations.

Paul Mathis -> Longtooth... , October 27, 2016 at 06:30 AM
Keynes' Testable Hypothesis:

"If, on the contrary, money-wages were to fall without limit whenever there was a tendency for less than full employment, . . . there would be no resting-place below full employment until either the rate of interest was incapable of falling further or wages were zero."

Absent sticky wages, at ZLB interest, wages would fall to zero whenever there was a tendency for less than full employment and nobody works for zero wages.

Keynes says this proposition is true.

pgl -> Longtooth... , October 26, 2016 at 01:52 PM
RBC also ignores anything that would explain why we have recessions at all. Its assumption that markets instantly clear is key to their model but we know that markets are not so perfect.
rdy : , October 26, 2016 at 02:11 PM
This same problem (the near religious belief that markets are always perfect) occurs with anti-trust enforcement and regulatory issues.
pgl -> rdy... , October 26, 2016 at 02:53 PM
A few years ago I would have suggested otherwise. But recent research notes you are right. Obama's CEA is noting this but he will not be President for long. Our next President needs to take this head on. Trump won't. Will Clinton? We will see.
pgl : , October 26, 2016 at 03:07 PM
Now this is honest. LeBron and Nike tell us to "come out of nowhere". You are not supposed to be here. What an awesome statement:

http://thespun.com/nba/lebron-james-nike-commercial-new-here-i-am

djb : , October 26, 2016 at 03:38 PM
"There is overwhelming evidence that in a recession employment declines because workers are fired rather than choosing not to work, and that the resulting increase in unemployment is involuntary"

see Keynes called it involuntary unemployment NOT cyclical unemployment

as all the politicians are saying now a days, words mean something

David Condon : , October 26, 2016 at 03:51 PM
Simon-Wren Lewis is making a common mistake as I see it. The limitations and assumptions of a model should not be conflated with evidence against the model. Not considering certain types of data is a limitation of a model; not evidence against that model. If an RBC model does not include certain types of data, then the best approach is to try and understand that data and attempt to show how it fits into the existing model. Another model should be considered only when certain limitations appear intractable. Because there are almost always lots of ways to model the same problem, at least in the social sciences, if you create a new model every time you come across a limitation, you'll end up running around in circles.
ScentOfViolets -> David Condon... , October 26, 2016 at 04:14 PM
This makes no sense to me. So how about explaining what you meant with real world examples? I choose the examples of involuntary unemployment and wage stickiness, and the effects of raising the minimum wage.
RW -> David Condon... , October 26, 2016 at 04:21 PM
"The limitations and assumptions of a model should not be conflated with evidence against the model."

I don't think this is what SWL is saying and am fairly certain it is not what Romer is saying: The problem is not limitation or contradiction, it is central variables assumed to confer verisimilitude that cannot and assumptions considered true that are not.

David Condon -> RW... , October 27, 2016 at 10:27 AM
Or to put your argument another way:

The assumptions of the model are false and therefore should be construed as evidence against using the model. I'm saying that's faulty reasoning.

The "my model is better than your model" argument is not a good way to approach problems at a theoretical level. It's sometimes okay at an applied level. One thing that's hard to wrap one's head around is that a model can still be useful even when its assumptions are false. When data is sparse, all useful theories will have to rely on false or incomplete assumptions. Usually a better approach is to extend rather than start over to keep people from running in too many different directions.

Longtooth -> David Condon... , October 27, 2016 at 01:52 AM
Then what value the model?

Re: Your supposition / assertion:

"Not considering certain types of data is a limitation of a model; not evidence against that model. If an RBC model does not include certain types of data, then the best approach is to try and understand that data and attempt to show how it fits into the existing model"

Henry Carey - a real American economist, sadly forgotten to history : , -1
That US economists are completely clueless is obvious to anyone who travels around the world. That free trade economies such as the US are complete basket cases is obvious to anyone who visits mercantilist economies such as Singapore, Japan, Israel etc. US trained economists only have prestige because the masses don't know how backward and poverty-stricken the US has become under the policies they relentlessly justify and apologize for.

[Oct 22, 2016] Why Trade Deals Lost Legitimacy

Oct 22, 2016 | economistsview.typepad.com

Dani Rodrik:

The Walloon mouse : ...Instead of decrying people's stupidity and ignorance in rejecting trade deals, we should try to understand why such deals lost legitimacy in the first place. I'd put a large part of the blame on mainstream elites and trade technocrats who pooh-poohed ordinary people's concerns with earlier trade agreements.

The elites minimized distributional concerns, though they turned out to be significant for the most directly affected communities. They oversold aggregate gains from trade deals, though they have been smallish since at least NAFTA. They said sovereignty would not be diminished though it clearly was in some instances. They claimed democratic principles would not be undermined, though they are in places. They said there'd be no social dumping though there clearly is at times. They advertised trade deals (and continue to do so) as "free trade" agreements, even though Adam Smith and David Ricardo would turn over in their graves if they read, say, any of the TPP chapters.

And because they failed to provide those distinctions and caveats now trade gets tarred with all kinds of ills even when it's not deserved. If the demagogues and nativists making nonsensical claims about trade are getting a hearing, it is trade's cheerleaders that deserve some of the blame.

One more thing. The opposition to trade deals is no longer solely about income losses. The standard remedy of compensation won't be enough -- even if carried out. It's about fairness, loss of control, and elites' loss of credibility. It hurts the cause of trade to pretend otherwise.

El Chapo Guapo -> DrDick... October 22, 2016 at 11:22 AM , 2016 at 11:22 AM

... ... ..
Trump would propose and/or enact, he listed the following six:

"A Constitutional Amendment to impose term limits on all members of Congress."
"A hiring freeze on all federal employees."
"A requirement that for every new federal regulation, 2 existing regulations must be eliminated."
"A 5-year ban on White House and Congressional officials becoming lobbyists after they leave government."
"A lifetime ban on White House officials lobbying on behalf of a foreign government."
"A complete ban on foreign lobbyists raising money for American elections."
"
~~WWW~

Lot of reform is needed but may be

The forgotten spirit of American protectionism : , -1
The free traders have human economic history precisely inverted. Countries that practice protectionism almost uniformly become wealthy and technologically advanced. Countries that don't become or remain terribly sad, poverty-stricken producers of worthless raw materials and desperate labor migrants. This has been true at least going back to Byzantium and its economic conquest by Genoa and Venice.

That the US thrived pre-1970 free trade is no coincidence. There is no alternative to protectionism. Free trade = no industry = no money = no future.

[Oct 22, 2016] Liberals Compete for the Soul of Economics

I think he is trying to talk about soft neoliberalism vs rejection of neoliberalism as discredited economics dogma and ideology. I think like Marxism neoliberalism has religious elements in it (as in "secular religion") so will not go away completely much like obscure religious cults does not dissapper they on a given date second coming of Christ did not happen.
Notable quotes:
"... new research showing that policies like public housing , welfare and public education spending are more beneficial than conservatives have recognized in decades past. ..."
"... But there are not one, but two big trends in liberal economic thinking. One wants to modify the economic thinking of the past few decades, and the other wants to rip it up. I expect to see a lot of the economic debate in the coming years play out not between the left and right, but between these two strains of thought. ..."
"... The New Center-Left Consensus is attractive to academics and policy wonks. It draws on an eclectic mix of mainstream economic theory, empirical studies and historical experience. It refuses to assume, as many conservatives and libertarians do, that free markets are always the best unless there is a glaring case for government intervention. ..."
Oct 22, 2016 | www.bloomberg.com
In 2015, Forbes writer Adam Ozimek suggested that a "new liberal consensus" is forming in the economic-policy world. The data back him up. Many economics professors now tend to favor government intervention in the economy more than the general public. And the profession's biggest public stars, from Paul Krugman to Thomas Piketty to Joseph Stiglitz, are now more likely to lean to the left than to the right. Meanwhile, I've tried to document the flood of new research showing that policies like public housing , welfare and public education spending are more beneficial than conservatives have recognized in decades past.

But there are not one, but two big trends in liberal economic thinking. One wants to modify the economic thinking of the past few decades, and the other wants to rip it up. I expect to see a lot of the economic debate in the coming years play out not between the left and right, but between these two strains of thought.

The research and people I've been writing about fit into what we might call the New Center-Left Consensus. This strain of thought is based on data and empiricism. Support for higher minimum wages, for example, has grown among economists because a large amount of careful empirical analysis has shown that minimum wage hikes don't usually cause sizable immediate disruptions in local labor markets. These economists aren't ignorant of the basic theory of labor supply and demand -- the kind that every undergrad econ student is forced to learn. They just realize that it might not be the right theory in this case.

The New Center-Left Consensus is attractive to academics and policy wonks. It draws on an eclectic mix of mainstream economic theory, empirical studies and historical experience. It refuses to assume, as many conservatives and libertarians do, that free markets are always the best unless there is a glaring case for government intervention. It's more willing to entertain all kinds of ways that government can improve the economy, from welfare to infrastructure spending to regulation, but it also recognizes that these won't always work. It embraces a philosophy of careful experimentation. Sometimes the new center-left is even in favor of deregulation -- for example, loosening zoning restrictions and reducing occupational licensing . It's not ideologically opposed to the free market.

The best evangelist of the New Center-Left Consensus might be President Barack Obama. In an amazingly well-informed editorial in the Economist, he recently laid out a comprehensive picture of the economy and policy. I have little doubt that Obama's understanding was heavily informed by his chief economic adviser, Jason Furman , who has become a titan of center-left policy advocacy. Obama mixes a healthy respect for capitalism with a desire to use government to temper the market's excesses.

But there's a second strain of progressive economic thinking that is gaining attention and strength. This alternative could be called the New Heterodox Explosion. It's basically a movement to purge mainstream economics from progressive policy-making and thought.

The New Heterodox Explosion rose in large part out of strongly left-leaning intellectual circles, particularly sociology, the humanities and other disciplines outside economics. It has also found a home in some economics departments in other countries (most notably the U.K.). Recently, it has started to permeate blogs and the media.

The new website Evonomics , for example, is heavily devoted to strongly worded critiques of the entire edifice of modern [neoliberal] economics and it's where the work of many of the most outspoken champions of the New Heterodox Explosion appears. These include evolutionary biologist David Sloan Wilson, activist and venture capitalist Nick Hanauer, speechwriter Eric Liu and Eric Beinhocker of the Institute for New Economic Thinking. In a spate of recent blog posts and editorials, these thinkers have advocated replacing mainstream economic theory with thinking based on evolution, and/or on complexity theory.

Though it's difficult to boil down these critiques to a few sentences, one basic theme of Wilson, Hanauer, et al.'s thinking is that modern economics is based on selfishness. Mainstream theories model human beings as atomistic individuals pursuing their own wants. But, say these Evonomics writers, people are social beings who care a lot about their fellow humans, and are also deeply embedded in larger social structures and organizations like communities, nations and cultures.

I'm sympathetic to this point of view. I'm not at all sure that economies can be completely understood by looking at individual decisions, any more than I'm certain the growth of a tree can be understood simply by looking at the motions of the particles in the leaves and roots. And I do wish that economists dedicated a lot more thought and attention to the phenomena they call " externalities " and " social preferences ."

But I'm also very wary of applying the Evonomics ideas to policy-making without a lot more work. First, the connection to evolution and complexity theory often seems less than solid. Nobody really knows if economies evolve the way organisms do. And efforts to connect complexity theory to economics, led by the Santa Fe Institute , have been going on for quite some time without any dramatic breakthroughs.

So while the New Center-Left Consensus is fully formed and ready for application in the real world, the New Heterodox Explosion is still in its infancy. Center-left ideas have tons of very careful academic empirical work behind them, while those wishing to tear up economics and start over are still working mostly with broad analogies. I hope that the New Heterodox Explosion -- which of course extends far beyond the few writers and ideas I've cited in this post -- becomes a rich source of new and innovative economic ideas. But it still has a long way to go to match the intellectual heft of the center-left.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

[Oct 16, 2016] The Deep State

Notable quotes:
"... "deep state" - the Washington-Wall-Street-Silicon-Valley Establishment - is a far greater threat to liberty than you think ..."
"... Yes, there is another government concealed behind the one that is visible at either end of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country according to consistent patterns in season and out, connected to, but only intermittently controlled by, the visible state whose leaders we choose. ..."
"... Cultural assimilation is partly a matter of what psychologist Irving L. Janis called "groupthink," the chameleon-like ability of people to adopt the views of their superiors and peers. This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating biennial budgeting, making grand bargains or invading countries. Then, after a while, all the town's cool kids drop those ideas as if they were radioactive. As in the military, everybody has to get on board with the mission, and questioning it is not a career-enhancing move. The universe of people who will critically examine the goings-on at the institutions they work for is always going to be a small one. As Upton Sinclair said, "It is difficult to get a man to understand something when his salary depends upon his not understanding it." ..."
Feb 28, 2014 | The American Conservative

Steve Sailer links to this unsettling essay by former career Congressional staffer Mike Lofgren, who says the "deep state" - the Washington-Wall-Street-Silicon-Valley Establishment - is a far greater threat to liberty than you think. The partisan rancor and gridlock in Washington conceals a more fundamental and pervasive agreement.

Excerpts:

These are not isolated instances of a contradiction; they have been so pervasive that they tend to be disregarded as background noise. During the time in 2011 when political warfare over the debt ceiling was beginning to paralyze the business of governance in Washington, the United States government somehow summoned the resources to overthrow Muammar Ghaddafi's regime in Libya, and, when the instability created by that coup spilled over into Mali, provide overt and covert assistance to French intervention there. At a time when there was heated debate about continuing meat inspections and civilian air traffic control because of the budget crisis, our government was somehow able to commit $115 million to keeping a civil war going in Syria and to pay at least £100m to the United Kingdom's Government Communications Headquarters to buy influence over and access to that country's intelligence. Since 2007, two bridges carrying interstate highways have collapsed due to inadequate maintenance of infrastructure, one killing 13 people. During that same period of time, the government spent $1.7 billion constructing a building in Utah that is the size of 17 football fields. This mammoth structure is intended to allow the National Security Agency to store a yottabyte of information, the largest numerical designator computer scientists have coined. A yottabyte is equal to 500 quintillion pages of text. They need that much storage to archive every single trace of your electronic life.

Yes, there is another government concealed behind the one that is visible at either end of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country according to consistent patterns in season and out, connected to, but only intermittently controlled by, the visible state whose leaders we choose. My analysis of this phenomenon is not an exposé of a secret, conspiratorial cabal; the state within a state is hiding mostly in plain sight, and its operators mainly act in the light of day. Nor can this other government be accurately termed an "establishment." All complex societies have an establishment, a social network committed to its own enrichment and perpetuation. In terms of its scope, financial resources and sheer global reach, the American hybrid state, the Deep State, is in a class by itself. That said, it is neither omniscient nor invincible. The institution is not so much sinister (although it has highly sinister aspects) as it is relentlessly well entrenched. Far from being invincible, its failures, such as those in Iraq, Afghanistan and Libya, are routine enough that it is only the Deep State's protectiveness towards its higher-ranking personnel that allows them to escape the consequences of their frequent ineptitude.

More:

Washington is the most important node of the Deep State that has taken over America, but it is not the only one. Invisible threads of money and ambition connect the town to other nodes. One is Wall Street, which supplies the cash that keeps the political machine quiescent and operating as a diversionary marionette theater. Should the politicians forget their lines and threaten the status quo, Wall Street floods the town with cash and lawyers to help the hired hands remember their own best interests. The executives of the financial giants even have de facto criminal immunity. On March 6, 2013, testifying before the Senate Judiciary Committee, Attorney General Eric Holder stated the following: "I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy." This, from the chief law enforcement officer of a justice system that has practically abolished the constitutional right to trial for poorer defendants charged with certain crimes. It is not too much to say that Wall Street may be the ultimate owner of the Deep State and its strategies, if for no other reason than that it has the money to reward government operatives with a second career that is lucrative beyond the dreams of avarice - certainly beyond the dreams of a salaried government employee. [3]

The corridor between Manhattan and Washington is a well trodden highway for the personalities we have all gotten to know in the period since the massive deregulation of Wall Street: Robert Rubin, Lawrence Summers, Henry Paulson, Timothy Geithner and many others. Not all the traffic involves persons connected with the purely financial operations of the government: In 2013, General David Petraeus joined KKR (formerly Kohlberg Kravis Roberts) of 9 West 57th Street, New York, a private equity firm with $62.3 billion in assets. KKR specializes in management buyouts and leveraged finance. General Petraeus' expertise in these areas is unclear. His ability to peddle influence, however, is a known and valued commodity. Unlike Cincinnatus, the military commanders of the Deep State do not take up the plow once they lay down the sword. Petraeus also obtained a sinecure as a non-resident senior fellow at theBelfer Center for Science and International Affairs at Harvard. The Ivy League is, of course, the preferred bleaching tub and charm school of the American oligarchy.

Lofgren goes on to say that Silicon Valley is a node of the Deep State too, and that despite the protestations of its chieftains against NSA spying, it's a vital part of the Deep State's apparatus. More:

The Deep State is the big story of our time. It is the red thread that runs through the war on terrorism, the financialization and deindustrialization of the American economy, the rise of a plutocratic social structure and political dysfunction. Washington is the headquarters of the Deep State, and its time in the sun as a rival to Rome, Constantinople or London may be term-limited by its overweening sense of self-importance and its habit, as Winwood Reade said of Rome, to "live upon its principal till ruin stared it in the face."

Read the whole thing.

... I would love to see a study comparing the press coverage from 9/11 leading up to the Iraq War with press coverage of the gay marriage issue from about 2006 till today. Specifically, I'd be curious to know about how thoroughly the media covered the cases against the policies that the Deep State and the Shallow State decided should prevail. I'm not suggesting a conspiracy here, not at all. I'm only thinking back to how it seemed so obvious to me in 2002 that we should go to war with Iraq, so perfectly clear that the only people who opposed it were fools or villains. The same consensus has emerged around same-sex marriage. I know how overwhelmingly the news media have believed this for some time, such that many American journalists simply cannot conceive that anyone against same-sex marriage is anything other than a fool or a villain. Again, this isn't a conspiracy; it's in the nature of the thing. Lofgren:

Cultural assimilation is partly a matter of what psychologist Irving L. Janis called "groupthink," the chameleon-like ability of people to adopt the views of their superiors and peers. This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating biennial budgeting, making grand bargains or invading countries. Then, after a while, all the town's cool kids drop those ideas as if they were radioactive. As in the military, everybody has to get on board with the mission, and questioning it is not a career-enhancing move. The universe of people who will critically examine the goings-on at the institutions they work for is always going to be a small one. As Upton Sinclair said, "It is difficult to get a man to understand something when his salary depends upon his not understanding it."

A more elusive aspect of cultural assimilation is the sheer dead weight of the ordinariness of it all once you have planted yourself in your office chair for the 10,000th time. Government life is typically not some vignette from an Allen Drury novel about intrigue under the Capitol dome. Sitting and staring at the clock on the off-white office wall when it's 11:00 in the evening and you are vowing never, ever to eat another piece of takeout pizza in your life is not an experience that summons the higher literary instincts of a would-be memoirist. After a while, a functionary of the state begins to hear things that, in another context, would be quite remarkable, or at least noteworthy, and yet that simply bounce off one's consciousness like pebbles off steel plate: "You mean the number of terrorist groups we are fighting is classified?" No wonder so few people are whistle-blowers, quite apart from the vicious retaliation whistle-blowing often provokes: Unless one is blessed with imagination and a fine sense of irony, growing immune to the curiousness of one's surroundings is easy. To paraphrase the inimitable Donald Rumsfeld, I didn't know all that I knew, at least until I had had a couple of years away from the government to reflect upon it.

When all you know is the people who surround you in your professional class bubble and your social circles, you can think the whole world agrees with you, or should. It's probably not a coincidence that the American media elite live, work, and socialize in New York and Washington, the two cities that were attacked on 9/11, and whose elites - political, military, financial - were so genuinely traumatized by the events.

Anyway, that's just a small part of it, about how the elite media manufacture consent. Here's a final quote, one from the Moyers interview with Lofgren:

BILL MOYERS: If, as you write, the ideology of the Deep State is not democrat or republican, not left or right, what is it?

MIKE LOFGREN: It's an ideology. I just don't think we've named it. It's a kind of corporatism. Now, the actors in this drama tend to steer clear of social issues. They pretend to be merrily neutral servants of the state, giving the best advice possible on national security or financial matters. But they hold a very deep ideology of the Washington consensus at home, which is deregulation, outsourcing, de-industrialization and financialization. And they believe in American exceptionalism abroad, which is boots on the ground everywhere, it's our right to meddle everywhere in the world. And the result of that is perpetual war.

This can't last. We'd better hope it can't last. And we'd better hope it unwinds peacefully.

[Oct 16, 2016] The Cathedral -- The self-organizing ideological consensus represented by the universities, the media, and the civil service

Notable quotes:
"... The corridor between Manhattan and Washington is a well trodden highway for the personalities we have all gotten to know in the period since the massive deregulation of Wall Street: Robert Rubin, Lawrence Summers, Henry Paulson, Timothy Geithner and many others. ..."
"... General Petraeus' expertise in these areas is unclear. His ability to peddle influence, however, is a known and valued commodity. ..."
"... Petraeus also obtained a sinecure as a non-resident senior fellow at the Belfer Center for Science and International Affairs at Harvard. The Ivy League is, of course, the preferred bleaching tub and charm school of the American oligarchy. ..."
"... The Cathedral has no central administrator, but represents a consensus acting as a coherent group that condemns other ideologies as evil. ..."
"... "you believe that morality has been essentially solved, and all that's left is to work out the details." ..."
"... Cultural assimilation is partly a matter of what psychologist Irving L. Janis called "groupthink," the chameleon-like ability of people to adopt the views of their superiors and peers. This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating biennial budgeting, making grand bargains or invading countries. Then, after a while, all the town's cool kids drop those ideas as if they were radioactive. As in the military, everybody has to get on board with the mission, and questioning it is not a career-enhancing move. The universe of people who will critically examine the goings-on at the institutions they work for is always going to be a small one. As Upton Sinclair said, "It is difficult to get a man to understand something when his salary depends upon his not understanding it. ..."
"... A more elusive aspect of cultural assimilation is the sheer dead weight of the ordinariness of it all once you have planted yourself in your office chair for the 10,000th time. ..."
"... No wonder so few people are whistle-blowers, quite apart from the vicious retaliation whistle-blowing often provokes: Unless one is blessed with imagination and a fine sense of irony, growing immune to the curiousness of one's surroundings is easy. To paraphrase the inimitable Donald Rumsfeld, I didn't know all that I knew, at least until I had had a couple of years away from the government to reflect upon it. ..."
"... It's probably not a coincidence that the American media elite live, work, and socialize in New York and Washington, ..."
"... It's a kind of corporatism. ..."
"... They pretend to be merrily neutral servants of the state, giving the best advice possible on national security or financial matters. But they hold a very deep ideology of the Washington consensus at home, which is deregulation, outsourcing, de-industrialization and financialization. ..."
"... And they believe in American exceptionalism abroad, which is boots on the ground everywhere, it's our right to meddle everywhere in the world. And the result of that is perpetual war. ..."
Feb 28, 2014 | The American Conservative

From: The Deep State By Rod Dreher

The corridor between Manhattan and Washington is a well trodden highway for the personalities we have all gotten to know in the period since the massive deregulation of Wall Street: Robert Rubin, Lawrence Summers, Henry Paulson, Timothy Geithner and many others.

Not all the traffic involves persons connected with the purely financial operations of the government: In 2013, General David Petraeus joined KKR (formerly Kohlberg Kravis Roberts) of 9 West 57th Street, New York, a private equity firm with $62.3 billion in assets. KKR specializes in management buyouts and leveraged finance. General Petraeus' expertise in these areas is unclear. His ability to peddle influence, however, is a known and valued commodity. Unlike Cincinnatus, the military commanders of the Deep State do not take up the plow once they lay down the sword. Petraeus also obtained a sinecure as a non-resident senior fellow at the Belfer Center for Science and International Affairs at Harvard. The Ivy League is, of course, the preferred bleaching tub and charm school of the American oligarchy.

Lofgren goes on to say that Silicon Valley is a node of the Deep State too, and that despite the protestations of its chieftains against NSA spying, it's a vital part of the Deep State's apparatus. More:

The Deep State is the big story of our time. It is the red thread that runs through the war on terrorism, the financialization and deindustrialization of the American economy, the rise of a plutocratic social structure and political dysfunction. Washington is the headquarters of the Deep State, and its time in the sun as a rival to Rome, Constantinople or London may be term-limited by its overweening sense of self-importance and its habit, as Winwood Reade said of Rome, to "live upon its principal till ruin stared it in the face."

Read the whole thing.

Steve Sailer says that the Shallow State is a complement to the Deep State. The Shallow State is, I think, another name for what the Neoreactionaries call "The Cathedral," defined thus:

The Cathedral - The self-organizing consensus of Progressives and Progressive ideology represented by the universities, the media, and the civil service. A term coined by blogger Mencius Moldbug. The Cathedral has no central administrator, but represents a consensus acting as a coherent group that condemns other ideologies as evil. Community writers have enumerated the platform of Progressivism as women's suffrage, prohibition, abolition, federal income tax, democratic election of senators, labor laws, desegregation, popularization of drugs, destruction of traditional sexual norms, ethnic studies courses in colleges, decolonization, and gay marriage. A defining feature of Progressivism is that "you believe that morality has been essentially solved, and all that's left is to work out the details." Reactionaries see Republicans as Progressives, just lagging 10-20 years behind Democrats in their adoption of Progressive norms.

You don't have to agree with the Neoreactionaries on what they condemn - women's suffrage? desegregation? labor laws? really?? - to acknowledge that they're onto something about the sacred consensus that all Right-Thinking People share. I would love to see a study comparing the press coverage from 9/11 leading up to the Iraq War with press coverage of the gay marriage issue from about 2006 till today. Specifically, I'd be curious to know about how thoroughly the media covered the cases against the policies that the Deep State and the Shallow State decided should prevail. I'm not suggesting a conspiracy here, not at all. I'm only thinking back to how it seemed so obvious to me in 2002 that we should go to war with Iraq, so perfectly clear that the only people who opposed it were fools or villains. The same consensus has emerged around same-sex marriage. I know how overwhelmingly the news media have believed this for some time, such that many American journalists simply cannot conceive that anyone against same-sex marriage is anything other than a fool or a villain. Again, this isn't a conspiracy; it's in the nature of the thing. Lofgren:

Cultural assimilation is partly a matter of what psychologist Irving L. Janis called "groupthink," the chameleon-like ability of people to adopt the views of their superiors and peers. This syndrome is endemic to Washington: The town is characterized by sudden fads, be it negotiating biennial budgeting, making grand bargains or invading countries. Then, after a while, all the town's cool kids drop those ideas as if they were radioactive. As in the military, everybody has to get on board with the mission, and questioning it is not a career-enhancing move. The universe of people who will critically examine the goings-on at the institutions they work for is always going to be a small one. As Upton Sinclair said, "It is difficult to get a man to understand something when his salary depends upon his not understanding it."

A more elusive aspect of cultural assimilation is the sheer dead weight of the ordinariness of it all once you have planted yourself in your office chair for the 10,000th time. Government life is typically not some vignette from an Allen Drury novel about intrigue under the Capitol dome. Sitting and staring at the clock on the off-white office wall when it's 11:00 in the evening and you are vowing never, ever to eat another piece of takeout pizza in your life is not an experience that summons the higher literary instincts of a would-be memoirist.

After a while, a functionary of the state begins to hear things that, in another context, would be quite remarkable, or at least noteworthy, and yet that simply bounce off one's consciousness like pebbles off steel plate: "You mean the number of terrorist groups we are fighting is classified?" No wonder so few people are whistle-blowers, quite apart from the vicious retaliation whistle-blowing often provokes: Unless one is blessed with imagination and a fine sense of irony, growing immune to the curiousness of one's surroundings is easy. To paraphrase the inimitable Donald Rumsfeld, I didn't know all that I knew, at least until I had had a couple of years away from the government to reflect upon it.

When all you know is the people who surround you in your professional class bubble and your social circles, you can think the whole world agrees with you, or should. It's probably not a coincidence that the American media elite live, work, and socialize in New York and Washington, the two cities that were attacked on 9/11, and whose elites - political, military, financial - were so genuinely traumatized by the events.

Anyway, that's just a small part of it, about how the elite media manufacture consent. Here's a final quote, one from the Moyers interview with Lofgren:

BILL MOYERS: If, as you write, the ideology of the Deep State is not democrat or republican, not left or right, what is it?

MIKE LOFGREN: It's an ideology. I just don't think we've named it. It's a kind of corporatism. Now, the actors in this drama tend to steer clear of social issues. They pretend to be merrily neutral servants of the state, giving the best advice possible on national security or financial matters. But they hold a very deep ideology of the Washington consensus at home, which is deregulation, outsourcing, de-industrialization and financialization.

And they believe in American exceptionalism abroad, which is boots on the ground everywhere, it's our right to meddle everywhere in the world. And the result of that is perpetual war.

This can't last. We'd better hope it can't last. And we'd better hope it unwinds peacefully.

I, for one, remain glad that so many of us Americans are armed. When the Deep State collapses - and it will one day - it's not going to be a happy time.

Questions to the room: Is a Gorbachev for the Deep State conceivable? That is, could you foresee a political leader emerging who could unwind the ideology and apparatus of the Deep State, and not only survive, but succeed? Or is it impossible for the Deep State to allow such a figure to thrive? Or is the Deep State, like the Soviet system Gorbachev failed to reform, too entrenched and too far gone to reform itself? If so, what then?

[Oct 08, 2016] Guillotine Watch: Some billionaries have more dollars than sense.

Oct 08, 2016 | www.nakedcapitalism.com

"'Many people in Silicon Valley have become obsessed with the simulation hypothesis, the argument that what we experience as reality is in fact fabricated in a computer,' Tad Friend wrote in the New Yorker piece. 'Two tech billionaires have gone so far as to secretly engage scientists to work on breaking us out of the simulation'" [ Mic ]. In other words, ginormous capital investment decisions affecting the world's economy are being made by lunatics with far too much time on their hands, and much more money than sense.

flora October 7, 2016 at 3:44 pm

re: Guillotine Watch (and "Watch" is very apt in this context).
The Silicon Valley simulation hypothesis is a modern version of the Clockwork Universe theory.

Man creates a new technology that roughly models some aspect of the natural world. Some men then insist the natural world in fact models the technology, instead of the other way around. The more things change….

MyLessThanPrimeBeef October 7, 2016 at 4:24 pm

The one possible conclusion is that the human brain is defective.

That means, even the smartest humans are not that smart.

BecauseTradition October 7, 2016 at 5:41 pm

"'Many people in Silicon Valley have become obsessed with the simulation hypothesis, the argument that what we experience as reality is in fact fabricated in a computer,' Tad Friend

Reminds me of a nightmare I had once. I was in Hell. It really wasn't so bad – just about 120F or so and humid! But being a resourceful chap I started trying to dig my way out. I got about 10 feet down when the bottom fell out and I could see below me a lake of fire – stretching as far as I could see.

So if we are in a simulation, the goal should not be try to escape it – impossible – but to pass whatever test we are being subjected to.

Shorter: Some people have more dollars than sense.

[Oct 08, 2016] Krugman is an abhorrent neoliberal hack and Hillary stooge

Notable quotes:
"... Krugman is such a deplorable hack. I know we are supposed to accept bribe-taking politicians and the economy run by looting robber barons. But can't we even have a goddamn fourth estate? ..."
"... The way Krugman murders journalism ethics by outright campaigning for one of the most corrupt politicians in American history is outrageous. Barfing up her disgusting campaign memes verbatim as if he's coordinating his columns with her war room. ..."
"... If you're a scientist you would know that economics does not remotely resemble a science. One familiar with the history of math and science will notice that their development (based on discovered facts) forms a tree-like structure. One discovery branches out to more discoveries. The growth is therefore exponential. ..."
Oct 08, 2016 | economistsview.typepad.com
JohnH -> pgl... , Friday, October 07, 2016 at 06:44 PM
Sure...Krugman will occasionally pay lip service to green energy.

The problem is that 'liberal' economists tend to keep separate silos for green energy and infrastructure.

Question is, why do they refuse to connect the dots between climate change mitigation, green energy, fiscal stimulus, and lots of jobs? And why do they prioritize more road and bridges, which will only make climate change worse?

Sure sounds like the usual hypocrisy to me...

nikbez -> JohnH... , Saturday, October 08, 2016 at 03:45 PM
Krugman is an abhorrent neoliberal hack (as well as Hillary stooge).

Who actually understand very little about climate change clearly being non-specialist without any training of physics and geophysics. He is a second rate neoclassical economist with penchant for mathiness (and a very talented writer).

The key question here is Clinton warmongering and the threat of nuclear war with Russia. Washington neocon chichenhawks became recently realty crazy. Obama looks completely important and does not control anything.

I think this is more immediate threat then climate change.

Oil depletion (which already started and will be in full force in a couple of decades) might take care about climate change as period of "cheap oil" (aka "oil age") probably will last less then 100 years and as such is just a blip in Earth history.

End of cheap oil also might lead to natural shrinking of human population -- another factor in the global climate change and a threat to natural ecosystems.

supersaurus : , Friday, October 07, 2016 at 09:56 AM
@Sandwichman: it isn't illegal to be an idiot in this country (USA), hence "almost".
Sandwichman -> supersaurus... , Friday, October 07, 2016 at 10:00 AM
It is, however, often illegal to not be an idiot.
Ron Waller -> pgl... , Friday, October 07, 2016 at 12:29 PM
Hillary is the fracking Queen. Claiming she's a champion of the environment is as ridiculous portraying Donald Trump a feminist.

Obomba is another pretender on the environment. The Paris Agreement commits to absolutely nothing but more talk at a future time. China signed on and is still keeping its commitment to do absolutely nothing to reduce emissions until 2030. (By the time the West has exported the lion share of its emissions to the country in a pointless GHG emissions shell game; emission per capita have skyrocketed since 2002! a 25% increase!)

Krugman is such a deplorable hack. I know we are supposed to accept bribe-taking politicians and the economy run by looting robber barons. But can't we even have a goddamn fourth estate?

The way Krugman murders journalism ethics by outright campaigning for one of the most corrupt politicians in American history is outrageous. Barfing up her disgusting campaign memes verbatim as if he's coordinating his columns with her war room.

So to all the pretend liberals out there who offer the people nothing more than more corruption, lies, war-profiteering and public trust liquidation: you deserve Trump. And I pray that you get him. (After him, a New Deal; and the 'me generation,' the Void.)

pgl -> DrDick... , Friday, October 07, 2016 at 12:44 PM
I think he consumed too much of the byproduct from fracking. Dirty dangerous business.
Ron Waller -> pgl... , Friday, October 07, 2016 at 01:24 PM
You two must be economists. Never anything intelligent to say.
DrDick -> Ron Waller ... , Friday, October 07, 2016 at 01:39 PM
Actually, I am a cultural anthropologist. I must say that there are no signs of intelligent life on you planet.
Ron Waller -> DrDick... , Friday, October 07, 2016 at 02:40 PM
If you're a scientist you would know that economics does not remotely resemble a science. One familiar with the history of math and science will notice that their development (based on discovered facts) forms a tree-like structure. One discovery branches out to more discoveries. The growth is therefore exponential.

Economic history does not follow this pattern.

With science there are paradigm shifts that occur with groundbreaking discoveries like the theories of relativity and quantum mechanics. The Friedmanian paradigm shift was founded on jettisoning all the enormously successful work Keynes accomplished and digging up failed 19th century ideology, repeating disastrous history.

Even psychology follows the pattern. Although it began with a lot of unsubstantiated Aristotelian philosophizing, it was a starting point from which a significant body of definite knowledge and medical treatments developed. A real social science. (Not perfect. It was recently discovered that about 50% of published psychological experiments were not reproducible.)

As an anthropologist you should know about cliques and group-think. Have an inkling of how corruption could gradually develop and spread among upper-echelon cliques to the point where the government, the economy, the courts and the news media become captured by the upper class. Understand how cowards would rather look the other way than take a stand and deal with it: "see no evil, hear no evil, speak no evil."

DrDick -> Ron Waller ... , Friday, October 07, 2016 at 04:28 PM
As an anthropologist, I can assert with confidence that you are babbling about things you do not really understand at all. I have issues with a lot of economics, but you are completely incoherent.
Ron Waller -> DrDick... , Friday, October 07, 2016 at 05:21 PM
Completely incoherent? Then it should be easy enough for you to tear apart what I wrote. It was certainly easy enough for me to tear into Krugman's crass political pandering. But all you got is lame generalizations. Stock insults that could be said about anything.

What issues do you have with "a lot of economics?" I bet you can't come up with anything. Come on. Out with it! Say something intelligent about anything, if you are at all capable, Mr. Dick. I have yet to read anything from you that indicates you have any knowledge about anything.

DrDick -> Ron Waller ... , Saturday, October 08, 2016 at 06:36 AM
It is Dr. Dick, since I have a Ph.D. If you ever read the comments on this blog, you would know full well what those issues are, since I have raised them here many times. For a start the assumption of "rational actors" (only partially true), the assumption of economic maximization (people maximize many different things which affect their economic choices), and the assumption of "rational markets" (this ignores pervasive information assymetry and active deceit).
nikbez -> DrDick... , Saturday, October 08, 2016 at 03:48 PM
"I must say that there are no signs of intelligent life on you planet."

That's good :-) Thank you !

[Oct 07, 2016] Noahpinion The new heavyweight macro critics

Notable quotes:
"... I got tired of lambasting macroeconomics a while ago, and the "macro wars" mostly died down in the blogosphere around when the recovery from the Great Recession kicked in. But recently, there have been a number of respected macroeconomists posting big, comprehensive criticisms of the way academic macro gets done. Some of these criticisms are more forceful than anything we bloggers blogged about back in the day! ..."
"... First, there's Paul Romer's latest, " The Trouble With Macroeconomics ". The title is an analogy to Lee Smolin's book " The Trouble With Physics ". Romer basically says that macro (meaning business-cycle theory) has become like the critics' harshest depictions of string theory - a community of believers, dogmatically following the ideas of revered elders and ignoring the data. The elders he singles out are Bob Lucas, Ed Prescott, and Tom Sargent. ..."
"... In response to the observation that the shocks [in DSGE models] are imaginary, a standard defense invokes Milton Friedman's (1953) methodological assertion from unnamed authority that "the more significant the theory, the more unrealistic the assumptions (p.14)." More recently, "all models are false" seems to have become the universal hand-wave for dismissing any fact that does not conform to the model that is the current favorite. ..."
"... We [macroeconomists] tend to view research as being the process of posing a question and delivering a pretty precise answer to that question...The research agenda that I believe we need is very different. It's hugely messy work. We need...to build a more evidence-based modeling of financial institutions. We need...to learn more about how people actually form expectations. We need [to use] firm-based information about residual demand functions to learn more about product market structure. At the same time, we need to be a lot more flexible in our thinking about models and theory, so that they can be firmly grounded in this improved empirical understanding. ..."
"... This is a somewhat misleading way of putting it, but it allows me to illustrate some important points about 'unrealistic' assumptions. In real world modelling in Physics 'unrealistic' assumptions are ubiquitous. What matters is not literal realism of assumptions but robustness.of conclusions. ..."
"... Simplifying assumptions are context specific, ie ad hoc, and never axiomatic.The ad hoc nature of simplifying assumptions is a feature, not a bug as the above example illustrates. ..."
"... Robustness is critical. As we move from our simplifying assumptions towards greater realism/precision, the conclusion should not change in any material way, and we use the simplifications because the gain in accuracy of the conclusions is not worth the added complexity and consequent loss of tractability in the model. ..."
"... This is indeed excellent. The three criteria for evaluating assumptions/simplifications, the precise definition of ad hoc, and the crystal-clear example of point mass for orbits vs rotation. ..."
"... So, we are witnessing a battle between a declining DSGE scam and ascending "Realistic assumptions" scam. ..."
"... Both approaches are worthless, but I guess it will give an excuse to macroeconomists why they are useless: we just used the wrong paradigm, now we are switching to the new one. Just many more years of research is needed and we will be ready. Science!, as they say. ..."
"... Science, IEHO, has three touchstones. Coherence - your model and its assumptions should not contradict each other or lead to contradictory conclusions. Consilience - a good theory has a broad reach for explaining reality. Consensus - a theory which is coherent and consilient should lead to a consensus among practicioners. It is only within a strong consensus that people can talk to each other and extend the field. ..."
"... It appears that macro misses out on a number of these. ..."
"... "Romer basically says that macro (meaning business-cycle theory)" ..."
"... In either case, I think this is another big problem with macro, its obsession with business cycles as opposed to long-term thriving and prosperity. eg, Gerald Friedman got tied in knots by this; he was trying to use "stimulus" thinking and arguments to talk about about multi-decadal possibilities. ..."
"... I'm fond of observing that in addition to "cargo cult science", macroeconomics has often been likened to a religion. What religions do when the mainstream becomes intolerable for one reason or another is schism. Then after a number of years what used to be the mainstream dies out and the former schismatics become the mainstream. ..."
"... Psychology went through this kind of crisis some years ago when the scientists split off from the clinicians, and created the Association for Psychological Science to contrast with the clinically-oriented American Psychological Association (the APA is the one that publishes the unscientific but influential Diagnostic and Statistical Manual). ..."
"... In order to be scientific, the standard method is to actually try predicting. Prediction is messy and provably fails to converge to any possible theory, but there are other authentic sciences that have this same theoretical limitation, like meteorology. This doesn't prevent meteorologists from constructing theories which make predictions that demonstrably get better and better year after year. ..."
"... For twenty years Romer has been implying (and recently saying) that economists who don't accept endogenous growth theory have abandoned the canons of science and are either blind or indifferent to the truth. Over the same twenty years he seems to have produced very little theoretical work, while his targets have remained working economists. (Why, after all, should anyone continue to do theory, since Romer has discovered the truth?) ..."
Oct 02, 2016 | noahpinionblog.blogspot.com
I got tired of lambasting macroeconomics a while ago, and the "macro wars" mostly died down in the blogosphere around when the recovery from the Great Recession kicked in. But recently, there have been a number of respected macroeconomists posting big, comprehensive criticisms of the way academic macro gets done. Some of these criticisms are more forceful than anything we bloggers blogged about back in the day! Anyway, I thought I'd link to a couple here.

First, there's Paul Romer's latest, " The Trouble With Macroeconomics ". The title is an analogy to Lee Smolin's book " The Trouble With Physics ". Romer basically says that macro (meaning business-cycle theory) has become like the critics' harshest depictions of string theory - a community of believers, dogmatically following the ideas of revered elders and ignoring the data. The elders he singles out are Bob Lucas, Ed Prescott, and Tom Sargent.

Romer says that it's obvious that monetary policy affects the real economy, because of the Volcker recessions in the early 80s, but that macro theorists have largely ignored this fact and continued to make models in which monetary policy is ineffectual. He says that modern DSGE models are no better than old pre-Lucas Critique simultaneous-equation models, because they still take lots of assumptions to identify the models, only now the assumptions are hidden instead of explicit. Romer points to distributional assumptions, calibration, and tight Bayesian priors as ways of hiding assumptions in modern DSGE models. He cites an interesting 2009 paper by Canova and Sala that tries to take DSGE model estimation seriously and finds (unsurprisingly) that identification is pretty difficult.

As a solution, Romer suggests chucking formal modeling entirely and going with more general, vague but flexible ideas about policy and the macroeconomy, supported by simple natural experiments and economic history.

Romer's harshest zinger (and we all love harsh zingers) is this:

In response to the observation that the shocks [in DSGE models] are imaginary, a standard defense invokes Milton Friedman's (1953) methodological assertion from unnamed authority that "the more significant the theory, the more unrealistic the assumptions (p.14)." More recently, "all models are false" seems to have become the universal hand-wave for dismissing any fact that does not conform to the model that is the current favorite.
The noncommittal relationship with the truth revealed by these methodological evasions...goes so far beyond post-modern irony that it deserves its own label. I suggest "post-real."
Ouch. He also calls various typical DSGE model elements names like "phlogiston", "aether", and "caloric". Fun stuff . (Though I do think he's too harsh on string theory, which often is just a kind of math that physicists do to keep themselves busy, and has no danger of hurting anyone, unlike macro theory.)

Meanwhile, a few weeks earlier, Narayana Kocherlakota wrote a post called " On the Puzzling Prevalence of Puzzles ". The basic point was that since macro data is fairly sparse, macroeconomists should have lots of competing models that all do an equally good job of matching the data. But instead, macroeconomists pick a single model they like, and if data fails to fit the model they call it a "puzzle". He writes:

To an outsider or newcomer, macroeconomics would seem like a field that is haunted by its lack of data...In the absence of that data, it would seem like we would be hard put to distinguish among a host of theories...[I]t would seem like macroeconomists should be plagued by underidentification...
But, in fact, expert macroeconomists know that the field is actually plagued by failures to fit the data – that is, by overidentification.
Why is the novice so wrong? The answer is the role of a priori restrictions in macroeconomic theory...
The mistake that the novice made is to think that the macroeconomist would rely on data alone to build up his/her theory or model. The expert knows how to build up theory from a priori restrictions that are accepted by a large number of scholars...[I]t's a little disturbing how little empirical work underlies some of those agreed-upon theory-driven restrictions – see p. 711 of Lucas (JMCB, 1980) for a highly influential example of what I mean.
In fact, Kocherlakota and Romer are complaining about much the same thing: the overuse of unrealistic assumptions. Basically, they say that macroeconomists, as a group, have gotten into the habit of assuming stuff that just isn't true. In fact, this is what the Canova and Sala paper says too, in a much more technical and polite way:
Observational equivalence, partial and weak identification problems are widespread and typically produced by an ill-behaved mapping between the structural parameters and the coefficients of the solution.
That just means that the model elements aren't actually real things.
(This critique resonates with me. From day 1, the thing that always annoyed me about macro was how people made excuses for assumptions that were either unverifiable or just flatly contradictory to micro data. The usual excuse was the " pool player analogy " - the idea that the pieces of a model don't have to match micro data as long as the resulting model matches macro data. I'm not sure that's how Milton Friedman wanted his metaphor to be used, but that seems to be the way it does get used. And when the models didn't match macro data either, the excuse was "all models are wrong," which really just seems to be a way of saying "the modeler gets to choose which macro facts are used to validate his theory". It seemed that to a large extent, macro modelers were just allowed to do whatever they wanted, as long as their papers won some kind of behind-the-scenes popularity contest. But I digress.)
So what seems to unite the new heavyweight macro critics is an emphasis on realism . Basically, these people are challenging the idea, very common in econ theory, that models shouldn't worry about being realistic. (Paul Pfleiderer is another economist who has recently made a similar complaint , though not in the context of macro.) They're not saying that economists need 100% perfect realism - that's the kind of thing you only get in physics, if anywhere. As Paul Krugman and Dani Rodrik have emphasized, even the people advocating for more realism acknowledge that there's some ideal middle ground. But if Romer, Kocherlakota, etc. are to be believed, macroeconomists aren't currently close to that optimal interior solution.


Updates

Olivier Blanchard is a bet less forceful, but he's definitely also one of the new heavyweight critics . Among his problems with DSGE models, at least as they're currently done, are 1. "unappealing" assumptions that are "at odds with what we know about consumers and firms", and 2. "unconvincing" estimation methods, including calibration and tight Bayesian priors. Sounds pretty similar to Romer.

Meanwhile, Kocherlakota responds to Romer . He agrees with Romer's criticism of unrealistic macro assumptions, but he dismisses the idea that Lucas, Prescott, and Sargent are personally responsible for the problems. Instead, he says it's about the incentives in the research community. He writes:

We [macroeconomists] tend to view research as being the process of posing a question and delivering a pretty precise answer to that question...The research agenda that I believe we need is very different. It's hugely messy work. We need...to build a more evidence-based modeling of financial institutions. We need...to learn more about how people actually form expectations. We need [to use] firm-based information about residual demand functions to learn more about product market structure. At the same time, we need to be a lot more flexible in our thinking about models and theory, so that they can be firmly grounded in this improved empirical understanding.
Kocherlakota says that this isn't a "sociological" issue, but I think most people would call it that. Since journals and top researchers get to decide what constitutes "good" research, it seems to me that to get the changes in focus Kocherlakota wants, a sociological change is exactly what would be required.

Kocherlakota now has another post describing how he thinks macro ought to be done . Basically, he thinks researchers - as a whole, not just on their own! - should start with toy models to facilitate thinking, then gather data based on what the toy models say is important, then build formal "serious" models from the ground up to match that data. He contrasts this with the current approach of tweaking existing models.

My question is: Who is going to enforce this change? If a few established researchers start doing things the way Kocherlakota wants, they'll certainly still get published (because they're famous old people), but will the young folks follow? How likely is it that established researchers en masse are going to switch to doing things this way, and demanding that young researchers do the same, and using their leverage as reviewers, editors, and PhD advisers to make that happen? This doesn't seem like the kind of change that can be brought about by a few young smart rebels forcing everyone else to recognize the value of their approach - the existing approach, which Kocherlakota dislikes, already succeeds in getting publication and prestige, so the rebels would simply coexist alongside the old approach, rather than overthrowing it. How could this cultural change be put into effect?

Also: Romer now has a follow-up to his original post, defending his original post against the critics. This part stood out to me as particularly persuasive:

The whine I hear regularly from the post-real crowd is that "it is really, really hard to do research on macro so you shouldn't criticize any of our models unless you can produce one that is better."
This is just post-real Calvinball used as a shield from criticism. Imagine someone saying to a mathematician who finds an error in a theorem that is false, "you can't criticize the proof until you come up with valid proof." Or try this one on and see how it feels: "You can't criticize the claim that vaccines cause autism unless you can come up with a better explanation for autism."
Sounds right to me. The old like that "it takes a theory to kill a theory" just seems wrong to me. Sometimes all it takes is evidence.

Herman 7:21 PM

I've already commented at lenght on Romer at Mark Thoma's. So I'll just use something you wrote on physics to make a tangential comment on unrealistic assumptions.

"They're not saying that economists need 100% perfect realism - that's the kind of thing you only get in physics, if anywhere"

This is a somewhat misleading way of putting it, but it allows me to illustrate some important points about 'unrealistic' assumptions. In real world modelling in Physics 'unrealistic' assumptions are ubiquitous. What matters is not literal realism of assumptions but robustness.of conclusions.

Consider a point-mass. There is no such thing. Yet it is a perfectly legitimate simplifying assumption about a planet if you are interested in studying its orbit around its sun. It is not a legitimate assumption if you are interested in studying a planet's rotation about its axis

The most important points underlying such simplifying assumptions are:

1. Simplifying assumptions are context specific, ie ad hoc, and never axiomatic.The ad hoc nature of simplifying assumptions is a feature, not a bug as the above example illustrates.

2. Robustness is critical. As we move from our simplifying assumptions towards greater realism/precision, the conclusion should not change in any material way, and we use the simplifications because the gain in accuracy of the conclusions is not worth the added complexity and consequent loss of tractability in the model.

3. Out of sample performance of the model.

* Richard Feynman:

"...in order to understand physical laws you must understand that they are all some kind of approximation.

The trick is the idealizations. To an excellent approximation of perhaps one part in 10^10, the number of atoms in the chair does not change in a minute, and if we are not too precise we may idealize the chair as a definite thing; in the same way we shall learn about the characteristics of force, in an ideal fashion, if we are not too precise. One may be dissatisfied with the approximate view of nature that physics tries to obtain (the attempt is always to increase the accuracy of the approximation), and may prefer a mathematical definition; but mathematical definitions can never work in the real world. A mathematical definition will be good for mathematics, in which all the logic can be followed out completely, but the physical world is complex, as we have indicated in a number of examples, such as those of the ocean waves and a glass of wine. When we try to isolate pieces of it, to talk about one mass, the wine and the glass, how can we know which is which, when one dissolves in the other? The forces on a single thing already involve approximation, and if we have a system of discourse about the real world, then that system, at least for the present day, must involve approximations of some kind.

This system is quite unlike the case of mathematics, in which everything can be defined, and then we do not know what we are talking about. In fact, the glory of mathematics is that we do not have to say what we are talking about. The glory is that the laws, the arguments, and the logic are independent of what "it" is.

[ Feynman Lectures Vol.I Ch.12 ]

JW Mason 9:39 AM

These are good observations. The way "ad hoc" has become a decisive argument against a model, at least in macro, is a symptom of the problem.

Herman 4:10 PM

Indeed. That was part of the reason for redundantly using the phrase :) . The other reason was that the usage is strictly accurate. ad hoc = for this particular purpose (Shorter OED)

It is difficult to see how simplifying assumptions underlying real world models can be anything but ad hoc (context-specific)

For a mathematician to object to ad hoc statements would be understandable, but for someone concerned with real world modelling to do so is mind-boggling.

It is worth pointing out that the economists who do so object have never in their life built a model that works, for any definition of 'works' acceptable anywhere outside economics.

Steve Roth 10:23 AM

This is indeed excellent. The three criteria for evaluating assumptions/simplifications, the precise definition of ad hoc, and the crystal-clear example of point mass for orbits vs rotation.

I'd like to bring in my pet bailiwick, accounting. Our (national) accounting systems are rife with assumptions and simplifications - they are economic models. (Or in Feynman's excellent term, "idealizations.") And those assumptions are effectively invisible to almost everyone. If I had a nickel for every time I've heard "it's an accounting identity" as if that was somehow synonymous with "truth"...

Just one example, relating to a rather important economic measure - income:

http://unstats.un.org/unsd/nationalaccount/rissue.asp?rID=3

The national-accounting sages know that the appropriateness of this basic conceptual construct is a very open question. But that fact is invisible to almost everyone. National accounts could be depicted quite differently (yes, with everything still balancing).

Economists' thinking is completely owned by the conceptual constructs, the idealizations, embodied in our national-accounting structures. And they frequently display zero understanding of the constructs that they are (we are) using to think with.

reason 4:05 AM

Herman,

I've been critical of you in the past, but that is a really good comment, 100% on the ball. But I will add that the simplifying assumption you used to illustrate your point, may not be true, but it is nearly true (without the scales being considered). And many simplifying assumptions used in economics are not nearly true.

Herman 4:42 PM

Informally we might - and sometimes do - say that the assumption (point-mass) is 'nearly true', but it is not quite correct. It is an idealization that satisfies criterion (2): robustness, and the resulting model satisfies criterion (3); out-of-sample performance.

Of course this is very different from the sort of assumptions common in economics which are often patently false - and this is the critical point - making them more realistic materially changes the conclusions ie the assumptions in the models fail to satisfy the robustness criterion. And, at least in DSGE/RBC macro to talk of in-sample fit or out-of-sample performance of the resulting model would imply a libelous misuse of the terms.

Herman 4:53 PM

... cont

Actually, as Romer notes, the situation in economics is often even worse.with assumptions being not merely false ( with non-robust conclusions) but entirely meaningless in terms of real world observables. Assumptions of the sort that are deservedly derisively dismissed as not even wrong in every scientific or engineering discipline.

Anonymous 6:26 AM

It's not just an argument about having models with realistic assumptions. It is also an argument about the extent to which mathematics and models can usefully provide the answers we need to know. Basically we are going back to Keynes's (1937) arguments about the limitations of "pretty and polite techniques". Edgeworth was also very much aware of the limitations of mathematics in economics. And so have many others, for a long time.

I have been critical of Romer in the past. His growth theory for me does not answer the critical questions that I think are the most important into understanding why certain countries get on to a growth curve and others do not. But I now really have to admire his honesty.

I wish him all the best at the World Bank.

NK.

Anonymous 6:47 AM

It is not true that we do not have a lot of macro data. The National Accounts contain scores of (largely stock-flow consistent) data. The point is: one of the big failures of DSGE economists is their failureto establish a measurement system which produces data consistent with the DSGE models. Keynes, who even established his own government statistical office, the present day ONS, and, in a more indirect sense, Smith, Marshall as well and Veblen did establish systems of measurement to measure data consistent with their models and ideas. Read Mitra Kahn http://openaccess.city.ac.uk/1276/ or my efforts

https://www.researchgate.net/publication/304988655_Models_and_measurement_in_economics_2_A_short_overview_of_conceptual_differences_between_neoclassical_macro_models_and_the_national_accounts

DSGE economists never bothered to do this. Weird (well, not that weird - taking account of real life data would have meant taking unemployment and the government serious... Or the fact that the National Accounts identities only hold for nominal variables, not for deflated real variables). Anyway - as there is no system of DSGE consistent measurement of the macro-economy it can't be called a valid science.There are however systems consistent with the ideas of Keynes and Veblen...

Merijn Knibbe

Krzys 3:35 PM

So, we are witnessing a battle between a declining DSGE scam and ascending "Realistic assumptions" scam.

Both approaches are worthless, but I guess it will give an excuse to macroeconomists why they are useless: we just used the wrong paradigm, now we are switching to the new one. Just many more years of research is needed and we will be ready. Science!, as they say.

I'm curious how many economists are simply too blind to understand that this will lead nowhere and how many are simply cynical beyond belief.

I just don't understand the mentality. Wouldn't you like to do something productive? Like produce actual knowledge? Can you guys be satisfied with infinite curve fitting?

EliRabett 7:53 PM

Science, IEHO, has three touchstones. Coherence - your model and its assumptions should not contradict each other or lead to contradictory conclusions. Consilience - a good theory has a broad reach for explaining reality. Consensus - a theory which is coherent and consilient should lead to a consensus among practicioners. It is only within a strong consensus that people can talk to each other and extend the field.

It appears that macro misses out on a number of these.

Steve Roth 10:26 AM

"Romer basically says that macro (meaning business-cycle theory)"

Are you equating macro with business-cycle theory, or are you saying that Romer does?

In either case, I think this is another big problem with macro, its obsession with business cycles as opposed to long-term thriving and prosperity. eg, Gerald Friedman got tied in knots by this; he was trying to use "stimulus" thinking and arguments to talk about about multi-decadal possibilities.

Todd Kreider 12:57 PM

" (Though I do think he's too harsh on string theory, which often is just a kind of math that physicists do to keep themselves busy, and has no danger of hurting anyone, unlike macro theory.)"

I find it hard to believe Noah understands string theory well enough to justify such a strong opinion of it only existing to keep theorists employed. As much as I like "The Trouble With Physics" those reading should keep in mind that Lee Smolin acknowledges that maybe there is something to string theory.

And again, the focus of string theory in theoretical physics is harmful to the expansion of knowledge and economic growth if too many brains not only barked up the wrong tree - nothing wrong with that - but *continued* to bark up the wrong tree for years, ignoring other paths of understanding physics, which is Smolin's main point.

G3 McK 10:24 PM

I'm fond of observing that in addition to "cargo cult science", macroeconomics has often been likened to a religion. What religions do when the mainstream becomes intolerable for one reason or another is schism. Then after a number of years what used to be the mainstream dies out and the former schismatics become the mainstream.

Psychology went through this kind of crisis some years ago when the scientists split off from the clinicians, and created the Association for Psychological Science to contrast with the clinically-oriented American Psychological Association (the APA is the one that publishes the unscientific but influential Diagnostic and Statistical Manual).

All that heterodox economists need to do is gain some self-confidence and stop calling themselves derogatory names. That won't make them scientific, but it'll be a step in the right direction.

In order to be scientific, the standard method is to actually try predicting. Prediction is messy and provably fails to converge to any possible theory, but there are other authentic sciences that have this same theoretical limitation, like meteorology. This doesn't prevent meteorologists from constructing theories which make predictions that demonstrably get better and better year after year.

Why don't all these macro critics stop publishing in "unscientific" mainstream journals and setup their own J.Econ.Sci. that has rigorous scientific standards? Many of them have tenure or non-academic jobs (e.g. Roemer) and don't need to kowtow to committees who care only about established impact factors. It's been done elsewhere. It wasn't so long ago that one of the most prestigious biology journals Cell, was just an upstart new face on the block. All it takes is a strong editor and a pool of like-minded peer reviewers.

Tom Barson 9:33 AM

I think Paul Romer's self-serving ad hominem attacks should be identified as just that. One would hardly blame the older generation of Nobel laureates of conspiring to deny economic pre-eminence to Romer - look at how he behaves! - but I think they probably have better things to do.

I admit I haven't completely digested Romer's latest thunderbolt - I'm basing my comments more on Romer's "mathiness" series of a year ago. In that case, I went back and read the "mathy" papers that Romer was attacking. Mathy they were, but the Lucas and Moll paper at least was very clear about why it didn't see increasing returns-to-scale in growth models convincing: the intellectual property-driven economic sector just isn't, in their view, big enough. (BTW, that's almost exactly the same argument made by William Nordhaus against the AI "singularity" folks: it could happen, but none of today's macroeconomic data suggest that it is happening.)

To come back to the current discussion, I have no particular sympathy with the Lucas-Prescott-Sargent rational expectations / microfoundations / real business cycle approach - but the needed discussion of the defects of RBC has been underway for some time. And note that Romer's opening distillation of RBC makes its problems all about a supposed "exogenous" component, for which the subtext is that RBC's authors don't accept Romer's "endogenous" growth theory.

For twenty years Romer has been implying (and recently saying) that economists who don't accept endogenous growth theory have abandoned the canons of science and are either blind or indifferent to the truth. Over the same twenty years he seems to have produced very little theoretical work, while his targets have remained working economists. (Why, after all, should anyone continue to do theory, since Romer has discovered the truth?)

I wish Romer well at the World Bank. There is no doubt that his ideas around urbanization, for example, will bring an important and updated perspective to a development bank. But the very move suggest to me that the World Bank has not failed to note Romer's ability to propagandize an economic agenda - and that it values his political skills as much as his reputation as an economic theorist.

Anonymous 7:11 PM

It's easy to poke holes in existing methodology, but it's much more difficult to come up with viable alternatives and solutions. Do those who knock DSGE models really think we should go back to 1970's macro and reuse old-school Keynesian models? The empirical evidence against Keynesian multipliers is overwhelming (See Ramey for an overview). Methodologically, Keynesian models make just as many implausible, ad hoc assumptions as DSGE models, if not more. Their forecast accuracy is no better; private forecasters are mostly selling stories and scenarios, not forecasts that in any way will prove ex post to be accurate.

Tom Barson 8:44 AM

I think you are repeating - and it is a good reminder - the classic Mark Blaug argument that economists should not abandon the "best available" theory (even if its deficiencies are manifest) if there is no better replacement. I have no problem with that.

However, I think the discussion right now is about those manifest defects. And there are stirrings about what comes next. Noah has blogged several times on the new "empirical turn". And the Keynesians, who have never gone away, may yet stand up a rehabilitated theory. For a usable business cycle theory, there are really three tests to satisfy:
1) Normal forecasting capability (as you mention);
2) Convincing comparative statics on the effects of monetary or fiscal intervention. (RBC omitted this almost by definition.)
3) Some ability to detect pressures that are building toward a major shock. (I call this 'the Cassandra feature', since the predictions are unlikely to be believed or heeded.) Whether any model could really offer this is open to question, but it's a real question. The Fed always talks about "risks to the economy", but is the perception of those risks coming from the model? How did Warren Buffet know that the pile of financial derivatives would collapse, but bankers and regulators and economists not know it? One answer, at least for economists, is that rational expectations theory forces prediction of any kind of discontinuity completely out of the model. That part of Paul Romer's complaint seems to me to be valid.

[Oct 07, 2016] Heterodox macro - a reply to some replies

Notable quotes:
"... There is indeed a wing of heterodox economics that is anti-mathematical. Known as "Critical Realism" and centred on the work of Tony Lawson at Cambridge UK, it attributes the failings of economics to the use of mathematics itself... ..."
"... Steve also offers some useful criticism of Milton Friedman's ideas about how to evaluate a model's empirical success ( I agree ). ..."
"... The problem with 'heterodox economics' is that it is self-definition in terms of the other. It says 'we are not them' - but says nothing about what we are. This is because it includes everything outside of the mainstream, from reasonably well-defined and coherent schools of thought such as Post Keynesians, Marxists and Austrians, to much more nebulous and ill-defined discontents of all hues. To put it bluntly, a broad definition of 'people who disagree with mainstream economics' is going to include a lot of cranks. People will place the boundary between serious non-mainstream economists and cranks differently, depending on their perspective. ..."
"... Aside from rejecting standard neoclassical economics, the Marxists and the Austrians don't have a great deal in common. ..."
"... Noah seems to define heterodox economics as 'non-mathematical' economics. This is inaccurate. There is much formal modelling outside of the mainstream. ..."
"... Noah's post unfortunately seems to have elicited some rather defensive responses from the heterodox community, along the lines of " But we DO like mathematics! " or even, " Actually our mathematics is better than yours ". But this is to buy into Noah's core proposition. The heterodox economics community should - and, to be fair, in most cases does - reject it outright. Economics is not, and cannot be , exclusively mathematical...There is no need for the heterodox economic community to be defensive about vagueness. ..."
Aug 20, 2016 | noahpinionblog.blogspot.com

The other day I wrote a Bloomberg View post arguing that heterodox macroeconomics is not in any better shape than mainstream macroeconomics. As you might expect, this drew some lively responses.

One or two of the responses seemed to be arguing against the title of my post, rather than the contents. That's understandable, since titles are important. In this case, though, it probably detracted from the debate a great deal. The Bloomberg title people are good, and they usually get things right, but once in a while the title they choose doesn't quite capture the point I'm trying to make. This was one of those cases. The title they gave my post was "Economics Without Math Is Trendy, But It Doesn't Add Up." But actually, this wasn't what I was arguing. My point about non-mathy models wasn't that these are bad, useless, or inferior. It was that they're different from mathy models, and so comparing non-mathy models with mathy ones is an apples-to-oranges comparison. Both types of models have their uses, but you can't really compare one to the other. I make that pretty clear in the text of my post , but most of the people who responded tended to focus more on the title. Oh well. These things happen.

Anyway, on to some of the responses. The numbering here is arbitrary, corresponding to the order in which the tabs were open on my browser. (Note: The ordering has changed; see #4.)

Response 1: Steve Keen

First, we have a response by Steve Keen . Steve, unlike others, did get the point I was making about mathy vs. non-mathy models (Thanks, Steve!), and had some good commentary on the subject:

There is indeed a wing of heterodox economics that is anti-mathematical. Known as "Critical Realism" and centred on the work of Tony Lawson at Cambridge UK, it attributes the failings of economics to the use of mathematics itself...
What Noah might not know is that many heterodox economists are critical of this approach as well. In response to a paper by Lawson that effectively defined "Neoclassical" economics as any economics that made use of mathematics (which would define me as a Neoclassical!), Jamie Morgan edited a book of replies to Lawson entitled What is Neoclassical Economics? (including a chapter by me). While the authors agreed with Lawson's primary point that economics has suffered from favouring apparent mathematical elegance above realism, several of us asserted that mathematical analysis is needed in economics, if only for the reason that Noah gave in his article[.]
Steve also offers some useful criticism of Milton Friedman's ideas about how to evaluate a model's empirical success ( I agree ).

Steve also makes the useful point that linearization critically hampers many mainstream models ( I agree ).

Steve points out that non-mathy models can make qualitative forecasts. That's true. However, my point was that these are often a lot less actionable than quantitative forecasts. A non-mathy model might tell you that private-sector debt is dangerous, but it might not tell you how much of it is dangerous, or how dangerous. For that, you'd need some kind of mathy model. Steve definitely seems to get this point too, though, so I'm not disagreeing.

Steve then discusses overfitting of data, and points out that many mainstream models do this too. That's certainly true, although I think DSGE models tend to be a lot more parsimonious than SFC models or stuff like FRB/US. Actually, overfitting is one of the big criticisms of the most popular DSGE models in use at central banks.

Steve then addresses the idea that heterodox models are similar to mainstream ones. I never said they were, although I said there are some similarities between the FRB/US model and Wynne Godley-type SFC models. In fact, there are some similarities, though there are also differences. But in general, most heterodox models are very different from most mainstream models.

Steve also discusses my (admittedly too brief) mention of agent-based models, and has some good comments:

Largely speaking, this is true - if you want to use these models for macroeconomic forecasting. But they are useful for illustrating an issue that the mainstream avoids: "emergent properties". A population, even of very similar entities, can generate results that can't be extrapolated from the properties of any one entity taken in isolation...Neoclassical economists unintentionally proved this about isolated consumers as well, in what is known as the Sonnenschein-Mantel-Debreu theorem. But they have sidestepped its results ever since...Multi-agent modelling may not lead to a new policy-oriented theory of macroeconomics. But it acquaints those who do it with the phenomenon of emergent properties - that an aggregate does not function as a scaled-up version of the entities that comprise it. That's a lesson that Neoclassical economists still haven't absorbed.
I think this is right. Agent-based models have so far served as a demonstration of the fragility of representative agent models. In the future, they might be much more than that.

So anyway, I'd say I pretty much agree with Steve's response. Good stuff. (Though this person on Reddit had some problems with it.)


Response 2: Ari Andricopolous

Ari has a response as well . His response comes in the form of a list of things that he thinks macro models should not include. The list is:

  1. Microfoundations
  2. Rationality
  3. Loanable funds
  4. Interest rate effects
  5. The financial sector

It's pretty clear that the last item on this list is misplaced, since Ari thinks one should include the financial sector in models.

Whether macro models should be microfounded is a big open question, but I'd like to note that by saying they shouldn't be, Ari is saying that agent-based models are bad. Agent-based models are as microfounded as they come.

As for rationality, I kind of disagree...humans observe and learn and adapt (OK, some more than others, I'll grant). Even though perfect rationality is probably pretty unrealistic, to insist that models totally ignore human observation, learning, and adaptation seems very dangerous for the realism of any model.

As for the loanable funds thing...yeah, OK, sure.


Response 3: Jo Michell

Jo Michell's response might have been the first to go up, but it's later on this list because...the numbering is arbitrary!

Jo, which I believe is short for "Jörmungandr", has a helpful diagram of the "schools" of macroeconomic thought. He also pushes back on the notion that "heterodox" is a useful classification at all:

The problem with 'heterodox economics' is that it is self-definition in terms of the other. It says 'we are not them' - but says nothing about what we are. This is because it includes everything outside of the mainstream, from reasonably well-defined and coherent schools of thought such as Post Keynesians, Marxists and Austrians, to much more nebulous and ill-defined discontents of all hues. To put it bluntly, a broad definition of 'people who disagree with mainstream economics' is going to include a lot of cranks. People will place the boundary between serious non-mainstream economists and cranks differently, depending on their perspective.
Another problem is that these schools of thought have fundamental differences. Aside from rejecting standard neoclassical economics, the Marxists and the Austrians don't have a great deal in common.
This is a good and useful point. My Bloomberg post really did bite off more than it could chew. My point was that there wasn't something better and more successful out there that by rights ought to already have displaced the (unsuccessful) mainstream approach. But in making that point, I touched on a number of different types of alternatives that aren't really closely connected. And I left out others (for example, Steve Keen's own work, and the Austrians).

Jo, unfortunately, appears to have gotten tripped up by the title:

Noah seems to define heterodox economics as 'non-mathematical' economics. This is inaccurate. There is much formal modelling outside of the mainstream.
Well, no, I don't define it that way, otherwise I wouldn't have discussed SFC models and agent-based models in my post.

Jo goes on to make some good points about mainstream models, and some of the problems they encounter.

Response 4: Frances Coppola

Frances Coppola, whom I cited in my Bloomberg post, also has a response . I responded to this post earlier, but Frances changed it, so I moved my response down to #4.

Frances still seems to misunderstand my post somewhat, and to have been tripped up by the title:

Noah's core proposition is that economics has no validity unless it is expressed in mathematical terms. He says that economics without mathematics doesn't add up.
Actually, I didn't make such a claim. Nor do I believe it. What I wrote was:
Broad idea-sketching is certainly a valuable activity. If theorists get lost in the specifics of their models, they can blind themselves to truly new hypotheses and mechanisms that would let them make big, radical changes. I do think this has happened to some degree in mainstream macro...But that doesn't mean that broad idea-sketching is a replacement for formal models. It's not an apples-to-apples comparison.
My point is that although non-mathematical econ is often valuable, it's not comparable to mathematical econ. Both have their place. But to say that a non-quantitative theory was successful at predicting the Great Recession, while a quantitative theory failed, is to hold the two theories to very different standards, since "predict" means different things for quantitative theories than it does for non-quantitative theories.

Frances goes on to discuss some of the limitations of purely quantitative models. She's broadly right. She then criticizes some heterodox theorists who, in her opinion, focus too much on math:

Noah's post unfortunately seems to have elicited some rather defensive responses from the heterodox community, along the lines of " But we DO like mathematics! " or even, " Actually our mathematics is better than yours ". But this is to buy into Noah's core proposition. The heterodox economics community should - and, to be fair, in most cases does - reject it outright. Economics is not, and cannot be , exclusively mathematical...There is no need for the heterodox economic community to be defensive about vagueness.
Again, Frances demonstrates a deep misunderstanding of my thesis. I never said that econ theory should be exclusively mathematical, nor do I believe it. This confusion is partly the result of the title, and partly the result of me just not explaining my thesis well enough.

Anyway, those are the responses I've seen. Thanks to everyone who took the time to respond!

[Oct 06, 2016] While much ignorance is really the absence of knowledge, ignorance can also be produced by warriors in ongoing economic, political and cultural battles

Notable quotes:
"... While much ignorance is really the absence of knowledge, ignorance can also be produced by warriors in ongoing economic, political and cultural battles. ..."
Oct 06, 2016 | www.moonofalabama.org

psychohistorian | Oct 2, 2016 11:57:54 PM | 26

I have been wanting to share this book review I did in 2009 and I guess now is as good a time as any....

AGNOTOLOGY Book Review

What is Agnotology? What does the Agnotology book say about it? What does Agnotology have to do with capitalism?
Agnotology [The Making & Unmaking of Ignorance] is a book (collection of essays) edited by Robert N Proctor and Londa Schiebinger

What is Agnotology? It is defined as a term to describe the cultural production of ignorance (and its study)

This term is being forwarded by Robert N. Proctor and others interested in the timely study of ignorance with focus on the manufactured sort. The book begins with a preface by Robert N Proctor who is a professor of History of Science at Stanford University. The subsequent essays are grouped into three Parts:
I ) Secrecy, Selection, and Suppression
II ) Lost Knowledge, Lost Worlds
III ) Theorizing Ignorance

Professor Proctor's prime example of agnotology centers on the tobacco industry. He touts a quote from an internal 1969 Brown & Williamson Tobacco Company memo saying, "Doubt is our product." when showing how this industry had the audacity to spend profits from its customers to brainwash them into believing that there was doubt that smoking causes cancer.

The 4 essayists in part I of the book provide similar manufacturing of ignorance insights in areas of censorship, environmental science, public health and women's orgasms.

The 3 essayists in Part II of the book focus on showing how western society has suppressed medicinal plant knowledge for abortions because they were against them, how the American white man trivialized and ignored the indigenous fossil knowledge of the American Indians and lastly about ignorance in Archeology.

The 4 essayists in Part III of the book expand on the theories of ignorance in ways that are daunting to understand completely let alone summarize. Suffice to say that terms like bounded rationality, confirmation bias, patriarchy, ethnocentrism, social memory, and the evolution of the Precautionary Principle in relation to Risk Management are discussed, analyzed and postulated about.

While much ignorance is really the absence of knowledge, ignorance can also be produced by warriors in ongoing economic, political and cultural battles.

Other examples of agnotology are "intelligent design" or faith based political economies, resistance to global warming, the car centered transportation culture...and of course whether unregulated investment banking is toxic or not.

Pride of ignorance is the biggest impediment for critical thinking individuals to overcome with efforts that appeal to simplistic economic euphemisms like free markets good/ govt regulation bad. The biggest lies are that totally unrestrained corporatism and "free" markets are best and bigger is better. Having faith that the economic fundamentals are supportive of the American dream is akin to so many individuals seemingly unable to evolve beyond Enlightenment understanding of the various religion myths.

One of the concepts that is missing in discussions is that the maximization of self-interest is rarely consistent with the maximization of social interest. A forum is need to reconcile the conflicts between self and social economic interests.

The unstated paradox of Agnotology is that it is the basis of more study of an obvious problem that rational people would consider antisocial behavior, which is what the big complaint is of agnotology claimants. The further frustration is that these studies do not include any proscriptions about making the efforts to propagate disinformation criminal.

PavewayIV | Oct 3, 2016 12:43:34 AM | 28
psychohistorian@26 - Fascinating. Ponerology. Agnotology. So many books, so much evil, so little time. Proctor's book is now at the top of my wish list. Thanks for posting that.

You can find the complete Preface here

chu teh | Oct 3, 2016 2:07:34 AM | 31
Agnotology--"... term to describe the cultural production of ignorance (and its study)"

Indeed, that includes the compulsion to lie. The USG in 1972/3 sent out the Pioneer 10 and 11 space probes with picture-drawings of male and female humans. The female genitals were erased because certain humans were ashamed of nudity. Have a look:

https://en.wikipedia.org/wiki/File:Pioneer_plaque.svg

The idea of Pioneer 10 and 11 was demonstrate, should any intelligent beings in interstellar space discover the probes, what a lying civilization Earth had spawned?

Creating ignorance is often the result of fixed-ideas being implanted into infants by the age of 3. The child henceforth is blocked from rational thinking in many areas. Indeed, the child is unaware that notions and mental movies are doing his "thinking".

[Oct 05, 2016] Most junior-level academics are on two-year contracts. The pay is not that great, there are usually no relocation programs since junior-level academics having a family is considered a dire waste of resources

Notable quotes:
"... Most junior-level academics are on two-year contracts. The pay is not that great, there are usually no relocation programs since junior-level academics having a family is considered a dire waste of resources and if one wants to procure something one has to go to meetings with 20++ people who all also want theirs if someone else is getting some. All of these meetings are about managing a flock of spoiled children were a few are being given sweets. Most lower level academics (in the career sense) eventually "fail out" to private business and settle down once they realize that they will never make tenure, not even at a lower ranking university. This usually happens at the age of 30 or so. ..."
"... Very few get full tenure. For those few finally becoming a tenured professor there is *still* the everlasting scrabbling for external funding, perpetual fights with other colleges over internal funding (now at a much higher level and against people truly skilled in the art, said skills acquired through years of dedicated effort in "undoing the competition"), and of course for space, resources and the good students. ..."
"... A few tenured professors can do like Tolkien did: "Fuck this bullshit business, I'll just be writing books which totally tangentially involves my specialty and teach, so they can't sack me". ..."
Oct 05, 2016 | www.nakedcapitalism.com
Si October 4, 2016 at 1:26 pm

You can dress up what is happening in all sorts of ways. When democracy has been stolen, when the political class has been bought and paid for by a small controlling elite, you have a decline into third world economics. The incentives to start businesses in the US have gone because of the worship of the large corporations who are able to pay for the necessary lobbying so that laws are skewed in their favour.

I guess when you sit in the safety of an academic institution, facing up to nothing more challenging than dreaming up ways to either provide intellectual cover for the plunder, or find ways to increase your take of the available government grants, then what you get is the nonsense above.

There is a very obvious paradigm shift going on which the article goes nowhere near. To do of course means that you would cease to be one of the 'insiders' or useful idiots.

fajensen October 5, 2016 at 6:59 am

Obviously, you have never been employed in an academic institution: Unless one is a tenured professor there is no such thing as "safety" in academics.

Most junior-level academics are on two-year contracts. The pay is not that great, there are usually no relocation programs since junior-level academics having a family is considered a dire waste of resources and if one wants to procure something one has to go to meetings with 20++ people who all also want theirs if someone else is getting some. All of these meetings are about managing a flock of spoiled children were a few are being given sweets. Most lower level academics (in the career sense) eventually "fail out" to private business and settle down once they realize that they will never make tenure, not even at a lower ranking university. This usually happens at the age of 30 or so.

Very few get full tenure. For those few finally becoming a tenured professor there is *still* the everlasting scrabbling for external funding, perpetual fights with other colleges over internal funding (now at a much higher level and against people truly skilled in the art, said skills acquired through years of dedicated effort in "undoing the competition"), and of course for space, resources and the good students.

A few tenured professors can do like Tolkien did: "Fuck this bullshit business, I'll just be writing books which totally tangentially involves my specialty and teach, so they can't sack me".

Others will whore themselves out to whoever pays for specific results and maybe end up in a think-tank at 10x or even 50x the academic salary.

Most will just find a way to muddle through and enjoy what they are getting.

Si October 5, 2016 at 11:38 am

Firstly, yes I have.

Secondly I think your summary of who makes it to tenure is pretty accurate and sums up what it takes to get there and to stay there.

I was commenting on the mind-set of the people who wrote the article and their indulgence in a framing which misses so much that it beggars belief.

[Oct 05, 2016] The moment Science and Innovation became the mistreated handmaidens of the monopolistic cartels which dominate today's economy they were effectively neutered and drugged under the influence of money and petty privilege

Notable quotes:
"... The moment Science and Innovation became the mistreated handmaidens of the monopolistic cartels which dominate today's economy they were effectively neutered and drugged under the influence of money and petty privilege. ..."
"... Big capital is not fond of innovation nor does it tolerate discovery. Science and Innovation are anathema to the the doctrine of maximizing profits on capital already invested. While we enjoy the benefits of neoliberal "Free Markets" we should expect that no more than a trickle of discovery and innovation might ooze between the cracks. ..."
"... The ability of capital to buy academic researchers and use them as tools is really amazing. On the level, which Academician Lysenko did not even dreamed off. ..."
"... I think this can be considered as a modern flavor of Lysenkoism. ..."
Oct 05, 2016 | www.nakedcapitalism.com

Jeremy Grimm October 5, 2016 at 3:03 pm

Have discoveries and developments in science and innovation reached a point of diminishing returns? I don't think so - at least not of necessity. The moment Science and Innovation became the mistreated handmaidens of the monopolistic cartels which dominate today's economy they were effectively neutered and drugged under the influence of money and petty privilege.

Big capital is not fond of innovation nor does it tolerate discovery. Science and Innovation are anathema to the the doctrine of maximizing profits on capital already invested. While we enjoy the benefits of neoliberal "Free Markets" we should expect that no more than a trickle of discovery and innovation might ooze between the cracks.

likbez October 5, 2016 at 5:42 pm
Jeremy.

"The moment Science and Innovation became the mistreated handmaidens of the monopolistic cartels which dominate today's economy they were effectively neutered and drugged under the influence of money and petty privilege."

This is a great observation ! Thank you.

The ability of capital to buy academic researchers and use them as tools is really amazing. On the level, which Academician Lysenko did not even dreamed off.

I think this can be considered as a modern flavor of Lysenkoism.

[Oct 04, 2016] Trumponomics

Notable quotes:
"... Trump isn't attempting to appeal to neocons or neoliberals. (New Classical or New Keynesian.) That's Hillary's job. So losing this guy (neocon Bush economist) means nothing. ..."
"... Accusations of corruption against Hillary are ridiculous! Have you ever listened to Hillary's voice? Her speeches are like music to the ears! The only reason why corporations across various industrial complexes - financial, healthcare, private prison, military, Big Oil, etc. - pay Hillary $250k a speech is because they can afford to. The rest of society - the moochers - can only dream of being wealthy enough to enjoy a Hillary speech! ..."
"... I'm so tired of people hating on the rich and disparaging the Clintons' 'democratic innovation' techniques. They are clearly nothing more than envious ingrates and ignoramuses! ..."
"... All of the neoclassical tax cutting over the past 35 years has only provided a net benefit to the upper class. Only 30% of the US economy is related to international trade. So very little of the debt created with tax cuts has trickled down into trade deficits. ..."
"... But trade-liberalization/outsourcing policies, on the other hand, explain how a trade deficit has an accompanying budget deficit (according to the Twin Deficits hypothesis.) If a country is spending more on imports than it is earning in exports it will have to borrow the money to pay for them. ..."
"... Trump's absurd tax cuts would only benefit the top 20%. They would not increase demand for imports or increase the trade deficit. All of this money would be in the form of whopping budget deficits and growing government debt. It would be a spectacular failure. A better one than what Hillary would bring: because the Republicans would be on the hook for it. (If Hillary wins, the Democrats are on the hook for a 12 year Great Recession by 2020. That kicks the New Deal can down the road to 2024.) ..."
"... Sanders supporters dislike Republicans more than Hillary supporters do according to polls. They're not going to go for trickle-down economics. Sanders's message was that the problem with the economy and political system are people like Trump. That's why he proposed a significant financial transaction tax. Sanders supporters agree with Sanders, Dean Baker and Jared Bernstein that corporate trade deals could be made more fair. ..."
"... "Corporate" trade deals aren't the issue. It is capital markets. Republicans wants a total abolition of regulations on capital markets. Not only will Trumps deficits need more foreign finance, he will gut the economy to bring that foreign finance in or gut the economy if it doesn't come in if he trade saber rattles. The only other option is much such large government spending cuts, that creates a recession as well creating capital flight. ..."
"... Mankiw reveals like Krugman he's never been to East Asia, nor is he the least bit curious about why the US developed in the first place. If he had studied economic development or East Asia he would know that blistering high interest rates (+50%) were common in the East Asian countries during their periods of stunning growth. Rising interest rates from the reduced flow of capital would also be associated with - for the first time in 40 years -- positive incentives to invest in US tradable goods production. ..."
"... Watch Charles Ferguson's Inside Job for information on how morally and financially compromised US economists are. ..."
"... And Mankiw does this specifically in the context of offering support to idiotic Republican policies, to pander to the Republican mandarins who hire him every 4 years as economic adviser to their Presidential candidate (and to sell more textbooks at Red-state schools). ..."
"... Why does Mankiw think he deserves to sell his own ass like a two-bit prison whore, while Navarro and Ross can't? ..."
Sep 29, 2016 | economistsview.typepad.com

Ron Waller -> DrDick...

Trump isn't attempting to appeal to neocons or neoliberals. (New Classical or New Keynesian.) That's Hillary's job. So losing this guy (neocon Bush economist) means nothing.

This argument against Trump's economic plan would appear to be nonsensical. Interest rates are not marked to international markets. They are set by the central bank to manage demand and inflation. (According to 'orthodox' economics, protectionism would negatively affect GDP and put a downward pressure on demand, inflation and interest rates. So this argument is doubly senseless.)

I can't imagine that many economists understand international trade or they wouldn't be in favor of the highly mercantlist global economy that free-trade globalization has produced.

The 35 years of trade deficits the US has run with undeveloped mercantilist countries is a triple whammy: 1) jobs, production and investment flow out of the country reducing GDP, real incomes and demand; 2) the trade deficit has an accompanying budget deficit (according to the Twin Deficits hypothesis); this creates rising government debt; spending cuts further depress demand; 3) for every dollar that flows out of the country from imported goods, a dollar must flow back into the country in the form of foreign investment (i.e. debt owed to foreign countries.)

This process is certainly no Carnot engine. Simply a linear process of wealth being transferred from one source to another (much of it in debt.) A process that is quickly running out of steam.

My impression is that only a return to the progressive Keynesian New Deal era (that began with FDR and ended with Reagan) can prevent the global economy from collapsing into fascist revolutions and world war. (Repeating the history of the 1930s; Trump would make a better Herbert Hoover than Hillary, that's for sure.)

Ron Waller -> sanjait... , -1
Accusations of corruption against Hillary are ridiculous! Have you ever listened to Hillary's voice? Her speeches are like music to the ears! The only reason why corporations across various industrial complexes - financial, healthcare, private prison, military, Big Oil, etc. - pay Hillary $250k a speech is because they can afford to. The rest of society - the moochers - can only dream of being wealthy enough to enjoy a Hillary speech!

I'm so tired of people hating on the rich and disparaging the Clintons' 'democratic innovation' techniques. They are clearly nothing more than envious ingrates and ignoramuses!

Ron Waller -> spencer... , -1
This is putting the cart before the horse.

All of the neoclassical tax cutting over the past 35 years has only provided a net benefit to the upper class. Only 30% of the US economy is related to international trade. So very little of the debt created with tax cuts has trickled down into trade deficits.

But trade-liberalization/outsourcing policies, on the other hand, explain how a trade deficit has an accompanying budget deficit (according to the Twin Deficits hypothesis.) If a country is spending more on imports than it is earning in exports it will have to borrow the money to pay for them.

Clearly any form of non-regulated stimulus (tax cuts or income redistribution) that primes anemic demand by putting more money in the hands of the bottom 80% will produce a bigger trade deficit. The only way to eliminate a trade deficit with a mercantilist country is with tariffs.

If Trump's plan is to raise GDP by eliminating the trade deficit with some form of regulatory measures, then clearly this could not raise the trade deficit.

Trump's absurd tax cuts would only benefit the top 20%. They would not increase demand for imports or increase the trade deficit. All of this money would be in the form of whopping budget deficits and growing government debt. It would be a spectacular failure. A better one than what Hillary would bring: because the Republicans would be on the hook for it. (If Hillary wins, the Democrats are on the hook for a 12 year Great Recession by 2020. That kicks the New Deal can down the road to 2024.)

Peter K. -> pgl... , Thursday, September 29, 2016 at 01:27 PM
Sanders supporters dislike Republicans more than Hillary supporters do according to polls. They're not going to go for trickle-down economics. Sanders's message was that the problem with the economy and political system are people like Trump. That's why he proposed a significant financial transaction tax. Sanders supporters agree with Sanders, Dean Baker and Jared Bernstein that corporate trade deals could be made more fair.
Ben Groves -> Peter K.... , -1
"Corporate" trade deals aren't the issue. It is capital markets. Republicans wants a total abolition of regulations on capital markets. Not only will Trumps deficits need more foreign finance, he will gut the economy to bring that foreign finance in or gut the economy if it doesn't come in if he trade saber rattles. The only other option is much such large government spending cuts, that creates a recession as well creating capital flight.

Sanders doesn't support deregulated capital markets, he can swagger about 'trade'.

Saigo Takamori : , -1
Mankiw reveals like Krugman he's never been to East Asia, nor is he the least bit curious about why the US developed in the first place. If he had studied economic development or East Asia he would know that blistering high interest rates (+50%) were common in the East Asian countries during their periods of stunning growth. Rising interest rates from the reduced flow of capital would also be associated with - for the first time in 40 years -- positive incentives to invest in US tradable goods production.

US economists are paid to confuse people and be confused. Watch Charles Ferguson's Inside Job for information on how morally and financially compromised US economists are.

No wonder the US is an economic basket case on the cusp of becoming a third world country. Thanks economists! You guys have the best advice! Free trade and comparative advantage are real winners! Just ask Haiti, the second most open economy in the Americas after the US.

vic twente : , -1
This is rich coming from Mankiw.

I've watched Mankiw, on video, on several occasions, make patently false claims about economic policy based on first-year macro that's completely and utterly disproven at even a third-year level.

And Mankiw does this specifically in the context of offering support to idiotic Republican policies, to pander to the Republican mandarins who hire him every 4 years as economic adviser to their Presidential candidate (and to sell more textbooks at Red-state schools).

Why does Mankiw think he deserves to sell his own ass like a two-bit prison whore, while Navarro and Ross can't?

[Oct 01, 2016] The conventional [neoliberal] view serves to protect us from the painful job of thinking

Oct 01, 2016 | economistsview.typepad.com

RC AKA Darryl, Ron : September 30, 2016 at 07:16 AM

RE: Stop pretending that an economy can be controlled

[Wow, this is interesting. I wonder what reason, Sandwichman, and cm think of this?]

http://oecdinsights.org/2016/09/29/stop-pretending-that-an-economy-can-be-controlled/

Angel Gurría, OECD Secretary-General

The crisis exposed some serious flaws in our economic thinking. It has highlighted the need to look at economic policy with more critical, fresh approaches. It has also revealed the limitations of existing tools for structural analysis in factoring in key linkages, feedbacks and trade-offs – for example between growth, inequality and the environment.

We should seize the opportunity to develop a new understanding of the economy as a highly complex system that, like any complex system, is constantly reconfiguring itself in response to multiple inputs and influences, often with unforeseen or undesirable consequences. This has many implications. It suggests policymakers should be constantly vigilant and more humble about their policy prescriptions, act more like navigators than mechanics, and be open to systemic risks, spillovers, strengths, weaknesses, and human sensitivities. This demands a change in our mind-sets, and in our textbooks. As John Kenneth Galbraith once said, "the conventional view serves to protect us from the painful job of thinking."

This is why at the OECD we launched an initiative called New Approaches to Economic Challenges (NAEC). With this initiative we want to understand better how the economy works, in all its complexity, and design policies that reflect this understanding. Our aim is to consider and address the unintended consequences of policies, while developing new approaches that foster more sustainable and inclusive growth.

Complexity is a common feature of a growing number of policy issues in an increasingly globalised world employing sophisticated technologies and running against resource constraints.

The report of the OECD Global Science Forum (2009) on Applications of Complexity Science for Public Policy reminds us of the distinction between complicated and complex systems. Traditional science (and technology) excels at the complicated, but is still at an early stage in its understanding of complex phenomena like the climate.

For example, the complicated car can be well understood using normal engineering analyses. An ensemble of cars travelling down a highway, by contrast, is a complex system. Drivers interact and mutually adjust their behaviours based on diverse factors such as perceptions, expectations, habits, even emotions. To understand traffic, and to build better highways, set speed limits, install automatic radar systems, etc., it is helpful to have tools that can accommodate non-linear and collective patterns of behaviour, and varieties of driver types or rules that might be imposed. The tools of complexity science are needed in this case. And we need better rules of the road in a number of areas.

This is not an academic debate. The importance of complexity is not limited to the realm of academia. It has some powerful advocates in the world of policy. Andy Haldane at the Bank of England has thought of the global financial system as a complex system and focused on applying the lessons from other network disciplines – such as ecology, epidemiology, and engineering – to the financial sphere. More generally, it is clear that the language of complexity theory – tipping points, feedback, discontinuities, fat tails – has entered the financial and regulatory lexicon. Haldane has shown the value of adopting a complexity lens, providing insights on structural vulnerabilities that built up in the financial system. This has led to policy suggestions for improving the robustness of the financial system.

Closer to home, Bill White, Chairman of our Economic and Development Review Committee (EDRC) has been an ardent advocate of thinking about the economy as a complex system. He has spoken in numerous OECD meetings – in part as an explanation and in part as a warning – that systems build up as a result of cumulative processes, can have highly unpredictable dynamics and can demonstrate significant non-linearity. As a result Bill has urged policymakers to accept more uncertainty and be more prudent. He also urged economists to learn some exceedingly simple but important lessons from those that have studied or work with complex systems such as biologists, botanists, anthropologists, traffic controllers, and military strategists.

Perhaps the most important insight of complexity is that policymakers should stop pretending that an economy can be controlled. Systems are prone to surprising, large-scale, seemingly uncontrollable, behaviours. Rather, a greater emphasis should be placed on building resilience, strengthening policy buffers and promoting adaptability by fostering a culture of policy experimentation.

At the OECD, we are starting to embrace complexity. For several years we have been mapping the trade "genome" with our Trade in Value Added (TiVA) database to explain the commercial interconnections between countries.

We have examined the possibilities for coupling economic and other systems models, for example environmental (climate) and societal (inequalities). Our work on the Costs of Inaction and Resource Constraints: Implications for Long-term Growth (CIRCLE) is a key example of linking bio-physical models and economic models to gauge the impact of environmental degradation and climate change on the economy.

We are also looking at governing complex systems in areas as diverse as education and international trade policy. And we are looking at the potential for tapping big data – an indispensable element of complexity modelling approaches. But there remains much to do to fully enrich our work with the perspectives of complexity.

The OECD is delighted to work with strong partners – the Institute for New Economic Thinking (INET) Oxford, and the European Commission to help policy-makers advance the use of complex systems thinking to address some of the most difficult challenges.

An important question remains. How can the insights and methods of complexity science be applied to assist policymakers as they tackle difficult problems in areas such as environmental protection, financial regulation, sustainability or urban development?

At the Workshop on Complexity and Policy on 29-30 September at the OECD, we will help find the answer – stimulate new thinking, new policy approaches and ultimately better policies for better lives.


[Sometimes when it seems like you are just howling at the moon there really is a new day coming.]

Reply Friday, September 30, 2016 at 07:16 AM reason -> RC AKA Darryl, Ron... , Friday, September 30, 2016 at 07:39 AM
I think it is both correct, and entirely wrong-headed.

Firstly, we have not believed that the economy can be controlled (we were just trying to steer it) - the guiding principle was that it didn't need to be controlled which is something completely different. It also falls into the trap of talking about "the economy" as though the economy was an organism that had its own purposes, rather than as a set of institutions that ultimately exist to serve human beings (a job which it achieves with quite varying degrees of success). I won't say this approach is necessarily bound to fail, I just doubt that it will be alone sufficient.

RC AKA Darryl, Ron said in reply to reason ... , Friday, September 30, 2016 at 08:01 AM
The OECD is one of those institutions. Yep, they have plenty of their own assumptions. Complexity has been mentioned here before.

Exactly what they mean is indeterminable from the general principles mentioned, but examples are worthwhile. You might read them to mean be cautious about leaps of faith such as financial deregulation because bad stuff CAN happen.

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron... , Friday, September 30, 2016 at 08:58 AM
"...Perhaps the most important insight of complexity is that policymakers should stop pretending that an economy can be controlled. Systems are prone to surprising, large-scale, seemingly uncontrollable, behaviours. Rather, a greater emphasis should be placed on building resilience, strengthening policy buffers and promoting adaptability by fostering a culture of policy experimentation..."

[In context I took this more to mean that economic models are probabilistic at best rather than deterministic rather than that it said policy makers in the OECD were performing central planning of the economy, which everyone knows is not true.]

anne -> reason ... , -1
Firstly, we have not believed that the economy can be controlled (we were just trying to steer it) - the guiding principle was that it didn't need to be controlled which is something completely different. It also falls into the trap of talking about "the economy" as though the economy was an organism that had its own purposes, rather than as a set of institutions that ultimately exist to serve human beings (a job which it achieves with quite varying degrees of success)....

[ Nice. ]

RGC : , Friday, September 30, 2016 at 08:09 AM
Re: Stop pretending that an economy can be controlled - OECD Insights

"The crisis exposed some serious flaws in our economic thinking. It has highlighted the need to look at economic policy with more critical, fresh approaches. It has also revealed the limitations of existing tools for structural analysis in factoring in key linkages, feedbacks and trade-offs – for example between growth, inequality and the environment.

We should seize the opportunity to develop a new understanding of the economy as a highly complex system that, like any complex system, is constantly reconfiguring itself in response to multiple inputs and influences, often with unforeseen or undesirable consequences. This has many implications. It suggests policymakers should be constantly vigilant and more humble about their policy prescriptions, act more like navigators than mechanics, and be open to systemic risks, spillovers, strengths, weaknesses, and human sensitivities. This demands a change in our mind-sets, and in our textbooks. As John Kenneth Galbraith once said, "the conventional view serves to protect us from the painful job of thinking."
..................................
Complex systems such as chemical processes are managed by feedback control systems that specify a desired output and then measure deviation from that control point (the error signal) to adjust the inputs and thus return to the desired setpoint.

I have promoted the use of control theory concepts in economics before. From a previous post:

Auto-control:

Did you ever think about how you keep the temperature in your house at a comfortable level even though the weather is unpredictable and can change a lot?
Well, maybe the level of the economy could be controlled on similar principles. Maybe economists could borrow from the control theory that is employed in air conditioning thermostats.
For example, if we wanted to maintain full employment we could adjust inputs in a similar manner to the way heat and cooling is adjusted in your house. Just as heat is added when the temperature gets too low, government jobs could be added when private employment falls short. When the temperature starts to get too high ( full employment is achieved), heat could be sucked out ( no more jobs would be added and/or higher taxes could be imposed) to cool things off.
This is an appealing analogy because, like the weather, the economy is inherently unpredictable and, like the air conditioning in your house, you could keep things comfortable without the need of forecasting the unknowable.
So maybe economists should forsake their DSGE models and instead study control theory.
...................
In my view such approaches are not promoted because they require central control by the state and our elite establishment quashes such threats to their dominance. That is why Keynes' conclusions were subverted:

"The context is as follows: in an interview with the leftist British journalist Kingsley Martin (1897–1969) in the New Statesman of January 1939, Keynes – commenting on the need for a new interventionist economic system and at the same time the need to avoid the authoritarianism of the Fascist and communist states – said this:

"The question is whether we are prepared to move out of the nineteenth-century laissez faire state into an era of liberal socialism, by which I mean a system where we can act as an organized community for common purposes and to promote social and economic justice, whilst respecting and protecting the individual-his freedom of choice, his faith, his mind and its expression, his enterprise and his property." (Moggridge 1982: 500 = Keynes and Martin 1939: 123).
............
Many people now accept that we have traveled the wrong path since the 1950's. I would submit that economists would do well to go back to the ideas of Keynes, Kalecki, Lerner and perfect those concepts within a framework of automatic stabilization. This would be greatly facilitated if some prominent economists would have the guts to say again what Keynes was saying in the 30's.


anne -> RGC... , Friday, September 30, 2016 at 08:23 AM
What would a recommended reading of or about Abba Lerner be? Though Lerner is frequently mentioned, I still have no idea where to begin reading. Would this do?

http://www.levyinstitute.org/pubs/wp272.pdf

July, 1999

Functional Finance and Full Employment: Lessons from Lerner for Today?
By Mathew Forstater

pgl -> anne... , Friday, September 30, 2016 at 08:41 AM
Lerner wrote a lot. But his comment reminded me of the Functional Finance piece so I think you got the right one.
pgl -> anne... , Friday, September 30, 2016 at 08:44 AM
Lerner's Symmetry Theorem was noted the other day:

http://www2.econ.iastate.edu/classes/econ355/choi/lerner.htm

Of course this related to Navarro's nonsense on VAT and trade so I doubt this was the paper relevant here.

anne -> pgl... , Friday, September 30, 2016 at 08:52 AM
https://en.wikipedia.org/wiki/Lerner_symmetry_theorem

The Lerner symmetry theorem is a result used in international trade theory, which states that, based on an assumption of a zero balance of trade (that is, the value of exported goods equals the value of imported goods for a given country), an ad valorem import tariff (a percentage of value or an amount per unit) will have the same effects as an export tax. The theorem is based on the observation that the effect on relative prices is the same regardless of which policy (ad valorem tariffs or export taxes) is applied.

The theorem was developed by economist Abba P. Lerner in 1936.

anne -> RGC... , -1
http://www.levyinstitute.org/pubs/wp272.pdf

July, 1999

Functional Finance and Full Employment: Lessons from Lerner for Today?
By Mathew Forstater

The Asian Crisis, with the fallout in Latin America and the transition economies; the Russian default; continuing troubles in Japan; weaknesses in the structure of the new European EMU; volatility on Wall Street; deflationary pressures in the global economy: recent economic developments invite a reconsideration of some of our most deeply held beliefs concerning economic theory and public policy. Even within the hallowed halls of mainstream economics, voices of dissent can be heard. Paul Krugman, Joseph Stiglitz, and Jeffrey Sachs are among those whose recent proclamations indicate that we have entered a period in which orthodox views are being openly questioned, creating an atmosphere characterized by a crisis of confidence.

Such periods of impending crisis and open expressions of self-doubt, questioning our most deeply held beliefs about the way the world works, creates a climate in which the ideas of the great unorthodox thinkers of the past may be revisited. The work of those who in the past dedicated their lives to formulating solutions to the challenges of modern capitalist economies may contain lessons applicable to the contemporary situation. It is in this spirit that this paper revisits the early works of Abba Lerner, outlining fifteen such lessons regarding macroeconomic theory and policy, as fresh in the context of the current scene as they were some five decades ago when they were first formulated.

Lesson #1: Full employment, price stability, and a decent standard of living for all are fundamental macroeconomic goals, and it is the responsibility of the state to promote their attainment.

Lesson #2: Policies should be judged on their ability to achieve the goals for which they are designed and not on any notion of whether they are "sound" or otherwise comply with the dogmas of traditional economics.

Lesson #3: "Money Is a Creature of the State"

Lesson #4: Taxing is not a funding operation.

Lesson #5: Government Borrowing is not a funding operation.

Lesson #6: The primary purpose of taxation is to influence the behavior of the public.

Lesson #7: The primary purpose of government bond sales is to regulate the overnight interest rate.

Lesson #8: Bond sales logically follow from, rather than precede, government spending....

RGC -> anne... , Friday, September 30, 2016 at 08:53 AM
This has some history:

MMP Blog #31: FUNCTIONAL FINANCE: Monetary and Fiscal Policy for Sovereign Currencies
Posted on January 8, 2012

By L. Randall Wray

http://neweconomicperspectives.org/2012/01/mmp-blog-31-functional-finance-monetary.html

anne -> RGC... , Friday, September 30, 2016 at 09:13 AM
http://neweconomicperspectives.org/2012/01/mmp-blog-31-functional-finance-monetary.html

January 8, 2012

Functional Finance: Monetary and Fiscal Policy for Sovereign Currencies
By L. Randall Wray

Today we will lay out Abba Lerner's approach to policy. In the 1940s he came up with what he called the functional finance approach to policy.

Lerner's Functional Finance Approach. Lerner posed two principles:

First Principle: if domestic income is too low, government needs to spend more. Unemployment is sufficient evidence of this condition, so if there is unemployment it means government spending is too low.

Second Principle: if the domestic interest rate is too high, it means government needs to provide more "money", mostly in the form of bank reserves.

The idea is pretty simple. A government that issues its own currency has the fiscal and monetary policy space to spend enough to get the economy to full employment and to set its interest rate target where it wants. (We will address exchange rate regimes later; a fixed exchange rate system requires a modification to this claim.) For a sovereign nation, "affordability" is not an issue-it spends by crediting bank accounts with its own IOUs, something it can never run out of.If there is unemployed labor, government can always afford to hire it-and by definition, unemployed labor is willing to work for money.

Lerner realized that this does not mean government should spend as if the "sky is the limit"-runaway spending would be inflationary (and, as discussed many times, it does not presume that government spending won't affect the exchange rate). When Lerner first formulated the functional finance approach (in the early 1940s), inflation was not a major concern-the US had recently lived through deflation in the Great Depression. However, over time, inflation became a serious concern, and Lerner proposed a form of wage and price controls to constrain inflation that he believed would result as the economy nears full employment. Whether or not that would be an effective and desired way of attenuating inflation pressures is not our concern here. The point is that Lerner was only arguing that government should use its spending power with a view to moving the economy toward fullemployment-while recognizing that it might have to adopt measures to fight inflation.

Lerner rejected the notion of "sound finance"-that is the belief that government ought to run its finances as if it were like a household or a firm. He could see no reason for the government to try to balance its budget annually, over the course of a business cycle, or ever. For Lerner, "sound" finance (budget balancing) was not "functional"-it did not help to achieve the public purpose (including, for example, full employment). If the budget were occasionally balanced, so be it; but if it never balanced, that would be fine too. He also rejected any attempt to keep a budget deficit below any specific ratio to GDP, as well as any arbitrary debt to GDP ratio. The "correct" deficit would be the one that achieves full employment.

Similarly the "correct" debt ratio would be the one consistent with achieving the desired interest rate target. This follows from his second principle: if government issues too much debt, it has by the same token issued too few bank reserves and cash. The solution is for the treasury and central bank to stop selling bonds,and, indeed, for the central bank to engage in open market purchases (buying treasuries by crediting the selling banks with reserves). That will allow the overnight rate to fall as banks obtain more reserves and the public gets more cash.

Essentially, the second principle just says that government ought to let the banks,households, and firms achieve the portfolio balance between "money" (reserves and cash) and bonds desired. It follows that government bond sales are not really a "borrowing" operation required to let the government deficit spend. Rather, bond sales are really part of monetary policy, designed to help the central bank to hit its interest rate target. All of that is consistent with the modern money view advanced previously....

anne -> RGC... , -1
Properly edited link:

https://pro.creditwritedowns.com/2012/01/monetary-and-fiscal-policy-for-sovereign-currencies.html

January 9, 2012

Functional Finance: Monetary and Fiscal Policy for Sovereign Currencies
By L. Randall Wray

[Sep 29, 2016] A recession initiated by a financial crisis cause consumers to reduce their own borrowing, so erroneous analogies between governments and households resonate

Sep 29, 2016 | economistsview.typepad.com

pgl : , A recession initiated by a financial crisis cause consumers to reduce their own borrowing, so erroneous analogies between governments and households resonate

Simon Wren Lewis (Mainly Macro) highlights his new paper on why some supported austerity even if it was a disaster. Krugman's latest adds more.
Dan Kervick -> pgl... , Thursday, September 29, 2016 at 05:21 AM
It seems to me this line from Wren-Lewis is the biggie as far as the Great Recession/Longer Depression is concerned:

"A recession initiated by a financial crisis is also likely to see consumers reducing their own borrowing, and so (erroneous) analogies between governments and households resonate."

In 2008/9 the public was (rightly) convinced that the collapse was due to deflation of a financial bubble blown up by many years of excessive private borrowing and debt-fueled over-consumption: too much credit card debt; too much borrowing against (inflated) home values; two much speculative gambling with, and ponzi profiting from, cutesy and overvalued financial instruments. That correct, instinctive evaluation of the situation was backed up by numbers showing that the total private debt to GDP ratio had reached a level unseen since 1928, and by the sudden discovery of the many analyses of many experienced, sober, but neglected financial observers who had been predicting some kind of collapse for years.

Since the public was thus primed to believe that, going forward, the private economy had to reduce its overall debt load, it was very easy to convince them that governments, being just another part of the overall economy, had to do the same thing.

But what Wren-Lewis doesn't seem to mention is that the public had already been primed by decades of Norquistian, Petersonian and Rubinite deficit-hectors, debt-despairers and entitlement-exterminators to believe that our deficits were a very bad thing, that government was too big, and that we were headed for a "fiscal train wreck" because of our undisciplined budgets and government spending. They were thus easily convinced that the financial crisis also had something to to with the problems alleged by this bipartisan team of budget Casandras all finally coming a-cropper.

We had endless cadres of Republican politicians promoting hysteria over the public debt and also decrying the very size of government, whether deficit-financed or not.

We had Bill Clinton running around bragging about his "reinvention" (shrinking) of government and his dot-com boom-assisted surprise surplus.

We had Joe Biden telling everyone that the financial collapse was caused by "putting two wars on a credit card".

We had the Concord Coalition and the Peterson Institute gearing up their zombies for the Fix the Debt onslaught that eventually saddled us with an economic discourse driven by a stupid budget-reduction commission in the middle a deep recession!

Hatred of governments and their spending habits had already given us years of gradually building stagnation due to declining public investment and a consequent secular shift from capital formation to consumption. But the voters saw only that all of the Serious People in both parties were strongly in favor of this "disciplined" decimation of government. So why in the world wouldn't they end up supporting its continuation?

ken melvin -> Dan Kervick... , -1
Very good.

[Sep 29, 2016] Economists Keep Getting It Wrong Because the Media Coverup Their Mistakes

Notable quotes:
"... Most workers suffer serious consequences when they mess up on their jobs. Custodians get fired if the toilet is not clean. Dishwashers lose their job when they break too many dishes, but not all workers are held accountable for the quality of their work. ..."
"... At the top of the list of people who need not be competent to keep their job are economists. Unlike workers in most occupations, when large groups of economists mess up they can count on the media covering up their mistakes and insisting it was just impossible to understand what was going on. ..."
Sep 29, 2016 | economistsview.typepad.com

anne : September 29, 2016 at 05:18 AM , September 29, 2016 at 05:18 AM

http://cepr.net/blogs/beat-the-press/economists-keep-getting-it-wrong-because-the-media-coverup-their-mistakes

September 29, 2016

Economists Keep Getting It Wrong Because the Media Coverup Their Mistakes

Most workers suffer serious consequences when they mess up on their jobs. Custodians get fired if the toilet is not clean. Dishwashers lose their job when they break too many dishes, but not all workers are held accountable for the quality of their work.

At the top of the list of people who need not be competent to keep their job are economists. Unlike workers in most occupations, when large groups of economists mess up they can count on the media covering up their mistakes and insisting it was just impossible to understand what was going on.

This is first and foremost the story of the housing bubble. While it was easy * to recognize that the United States and many other countries were seeing massive bubbles that were driving their economies, which meant that their collapse would lead to major recessions, the vast majority of economists insisted there was nothing to worry about.

The bubbles did burst, leading to a financial crisis, double-digit unemployment in many countries, and costing the world tens of trillions of dollars of lost output. The media excused this extraordinary failure by insisting that no one saw the bubble and that it was impossible to prevent this sort of economic and human disaster. Almost no economists suffered any consequences to their career as a result of this failure. The "experts" who determined policy in the years after the crash were the same people who completely missed seeing the crash coming.

We are now seeing the same story with trade. The New York Times has a major magazine article ** on the impact of trade on the living standards of workers in the United States and other wealthy countries. The subhead tells readers:

"Trade is under attack in much of the world, because economists failed to anticipate the accompanying joblessness, and governments failed to help."

Of course many economists did not anticipate the negative impact of trade, but of course many of us did. The negative impact was entirely predictable and predicted. (Here are a few from Center for Economic and Policy Research, *** **** ***** there are many more books and papers from my friends at the Economic Policy Institute.) The argument is straightforward: trade policy has been designed to put manufacturing workers in direct competition with low paid workers in the developing world. This costs jobs and puts downward pressure on the wages of these workers. It also puts downward pressure on the wages of less-educated workers more generally, as displaced manufacturing workers seek jobs in retail and other sectors. Stagnating wages and increasing inequality are the predicted result of this pattern of trade, not a surprising outcome.

If economists were like custodians and dishwashers, the failure to recognize this obvious outcome of trade policy would have put them out on the street. Instead, we get major news outlets like the New York Times, telling us this is all a remarkable surprise. No one could have seen that trade would have bad outcomes for large segments of the workforce. Rather than lose their jobs, economists can still draw comfortable six figure salaries as they tell reporters how it was impossible for them to understand the economy.

Economic theory tells us that if economists don't face consequences for completely messing up on the job then they have no incentive to get things right. If the custodian never pays any price for not cleaning the toilet, then they won't clean the toilet. In the same way, if the media and the country always grant a "who could have known" amnesty to large chunks of the economics profession when it gets things completely wrong, then there is no reason to expect that economists will ever get things right. All they have to do is say the same things as other elite economists say, and if it turns out to be wrong, the NYT will just run major news articles explaining that no one could have known better.

There is one other important point that needs emphasis here. There was nothing inherent to trade that required growing inequality, it was the structure of trade policy that gave us this result. There are millions of very bright ambitious people in the developing world who would be very happy to study to meet U.S. standards and work as doctors, dentists, lawyers and other professionals in the United States. We could have designed trade agreements to facilitate this process.

The result would be massive economic gains in the form of lower cost health care, dental care, legal services and other professionals services. In the case of physicians alone, if the increased supply brought the pay of our doctors down to the levels of Western Europe and Canada, we would save close to $100 billion a year. This comes to roughly $700 a year in savings for every family in the United States. And, this would lead to a reduction in inequality.

Our elite economists have chosen not to discuss this sort of trade opening. (They also rarely discuss reducing rather than increasing protectionist barriers like patents and copyrights.) These issues are discussed in more depth in my forthcoming book, "Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer" (coming to a website near year in October). But the key point here is that economists should know better, and if they were doing their job, they did.

* http://cepr.net/documents/publications/housing_2002_08.pdf

** http://www.nytimes.com/2016/09/29/business/economy/more-wealth-more-jobs-but-not-for-everyone-what-fuels-the-backlash-on-trade.html

*** http://cepr.net/documents/publications/trade_2008_01.pdf

**** http://cepr.net/documents/publications/faf_2006_11.pdf

***** http://cepr.net/documents/publications/trade_2001_10_03.pdf

-- Dean Baker

Paine -> anne... , Thursday, September 29, 2016 at 06:47 AM
Dean is a dream

I'll leave it at that !

Peter K. -> Paine... , Thursday, September 29, 2016 at 06:56 AM
the job class happy warrior
Peter K. -> anne... , Thursday, September 29, 2016 at 06:56 AM
"The argument is straightforward: trade policy has been designed to put manufacturing workers in direct competition with low paid workers in the developing world. This costs jobs and puts downward pressure on the wages of these workers. It also puts downward pressure on the wages of less-educated workers more generally, as displaced manufacturing workers seek jobs in retail and other sectors. Stagnating wages and increasing inequality are the predicted result of this pattern of trade, not a surprising outcome."

This is surprising to PGL and Krugman who argue the Fed will just adjust to keep full employment or at least that's what the models tell them.

pgl -> Peter K.... , Thursday, September 29, 2016 at 07:07 AM
Dean is talking about protectionism for drug companies, doctors etc. and free trade for the rest of us. On this score he is exactly right and I have said so many times. This is a very different issue from the macroeconomic ones. I would accuse you of once again misrepresenting what I have said. But to be fair - you are too stupid to get these distinctions so maybe you are not lying. I do wish I had a smarter internet stalker.
Tom aka Rusty -> anne... , -1
Baker get the diagnosis correct.

Baker's standard solutions do very little for blue collar workers. Having a cheaper doctor and lawyer don't help much for the unemployed and underemployed.

[Sep 29, 2016] A General Theory Of Austerity

Sep 29, 2016 | economistsview.typepad.com

anne : September 29, 2016 at 04:45 AM , September 29, 2016 at 04:45 AM

http://krugman.blogs.nytimes.com/2016/09/29/a-general-theory-of-austerity/

September 29, 2016

A General Theory Of Austerity?
By Paul Krugman

Simon Wren-Lewis has an excellent new paper * trying to explain the widespread resort to austerity in the face of a liquidity trap, which is exactly the moment when such policies do the most harm. His bottom line is that

"austerity was the result of right-wing opportunism, exploiting instinctive popular concern about rising government debt in order to reduce the size of the state."

I think this is right; but I would emphasize more than he does the extent to which both the general public and Very Serious People always assume that reducing deficits is the responsible thing to do. We have some polling from the 1930s, showing a strong balanced-budget bias even then:

[Chart]

I think Simon would say that this is consistent with his view that large deficits grease the rails for deficit phobia, since Franklin Roosevelt's administration did run up deficits and debt that were unprecedented for peacetime. But has there ever been a time when the public favored bigger deficits?

Meanwhile, as someone who was in the trenches during the US austerity fights, I was struck by how readily mainstream figures who weren't especially right-wing in general got sucked into the notion that debt reduction was THE central issue. Ezra Klein documented this phenomenon ** with respect to Bowles-Simpson: ***

"For reasons I've never quite understood, the rules of reportorial neutrality don't apply when it comes to the deficit. On this one issue, reporters are permitted to openly cheer a particular set of highly controversial policy solutions. At Tuesday's Playbook breakfast, for instance, Mike Allen, as a straightforward and fair a reporter as you'll find, asked Simpson and Bowles whether they believed Obama would do 'the right thing' on entitlements - with 'the right thing' clearly meaning 'cut entitlements.' "

Meanwhile, as Brad Setser points out, the International Monetary Fund - whose research department has done heroic work puncturing austerity theories and supporting a broadly Keynesian view of macroeconomics - is, in practice, pushing for fiscal contraction **** almost everywhere.

Again, this doesn't exactly contradict Simon's argument, but maybe suggests that there is a bit more to it.

* http://www.bsg.ox.ac.uk/sites/www.bsg.ox.ac.uk/files/documents/BSG-WP-2016-014.pdf

** https://www.washingtonpost.com/news/wonk/wp/2013/02/20/the-problem-with-alan-simpson/

*** https://en.wikipedia.org/wiki/National_Commission_on_Fiscal_Responsibility_and_Reform

*** http://blogs.cfr.org/setser/2016/08/22/imf-cannot-quit-fiscal-consolidation-in-asian-surplus-countries/

anne -> anne... , Thursday, September 29, 2016 at 04:50 AM
http://www.bsg.ox.ac.uk/sites/www.bsg.ox.ac.uk/files/documents/BSG-WP-2016-014.pdf

May, 2016

A General Theory of Austerity
By Simon Wren-Lewis

Abstract

Austerity is defined as a fiscal contraction that causes a significant increase in aggregate unemployment. For the global economy, or an economy with a flexible exchange rate, or a monetary union as a whole, an increase in unemployment following a fiscal consolidation can and should be avoided because monetary policy can normally offset the demand impact of the consolidation. The tragedy of global austerity after 2010 was that fiscal consolidation was not delayed until monetary policy was able to do this.

An individual member of a currency union that requires a greater fiscal contraction than the union as a whole cannot use its own monetary policy to offset the impact of fiscal consolidation. Even in this case, however, a sharp and deep fiscal contraction is unlikely to be optimal. Providing this economy is in a union where the central bank acts as a sovereign lender of last resort, a more gradual fiscal adjustment is likely to minimise the unemployment cost.

As the theory behind these propositions is simple and widely accepted, the interesting question is why global austerity happened. Was austerity an unfortunate accident, or is there a more general political economy explanation for why it occurred? Answering this question is vital to avoid the next global recession being followed by yet more austerity.

jonny bakho -> anne... , Thursday, September 29, 2016 at 05:43 AM
The answer is that politicians and pundits have a flawed understanding of inflation and its relationship to hyperinflation.
Some economists promoted a seriously flawed interpretation of the 1970s stagflation that solidified myths about inflation.

As Max Planck said, "Science advances one funeral at a time." We need the current generation of economists and their failed models to be replaced by a new generation that does not suffer from the same mythology.

Peter K. -> anne... , -1
If one just read Krugman or Kevin Drum you wouldn't understand how Bill Clinton declared "the era of Big Government is over" or how after he was first elected he listened to his top two economic advisers Robert Rubin and Alan Greenspan and dropped his middle class spending campaign promise in favor of deficit reduction.

Greenspan promised Clinton lower rates in exchange for reducing government. Clinton ended "welfare as we knew it."

But Greenspan didn't regulate this increase in private investment. It led to the tech-stock bubble and a shadow banking system which was susceptible to a banking panic.

According to Hillary, Bush's tax cuts caused the housing bubble and Great Recession. It's a little more complicated. But this cuts against Krugman and Drum's narrative that the Clinton years were nothing but awesome.

Summers told Brooksley Born that derivatives shouldn't be regulated b/c the market is magic.

Obama reinforced the narrative that government should tighten its belt during hard times like households do. This is exactly wrong.

Maybe it's understandable for politicians to pander for short-term political expediency but it's hurts the long-term ideological conflict.

There's the right and there's the left and Obama and Clinton tried to straddle the two ideologies which just waters down the left's appeal and pull.

That's why the millennials and more progressive workers aren't as excited for Hillary's candidacy. That's why Sanders energized them.

Now I agree with Sanders that a Trump Presidency would be a disaster, but this doesn't preclude me from correcting Krugman's outlook as some center-leftists would insist in their binary thinking.

pgl : , Thursday, September 29, 2016 at 01:41 AM
Simon Wren Lewis (Mainly Macro) highlights his new paper on why some supported austerity even if it was a disaster. Krugman's latest adds more. mainly macro Why was austerity once so popular
Dan Kervick -> pgl... , Thursday, September 29, 2016 at 05:21 AM
It seems to me this line from Wren-Lewis is the biggie as far as the Great Recession/Longer Depression is concerned:

"A recession initiated by a financial crisis is also likely to see consumers reducing their own borrowing, and so (erroneous) analogies between governments and households resonate."

In 2008/9 the public was (rightly) convinced that the collapse was due to deflation of a financial bubble blown up by many years of excessive private borrowing and debt-fueled over-consumption: too much credit card debt; too much borrowing against (inflated) home values; two much speculative gambling with, and ponzi profiting from, cutesy and overvalued financial instruments. That correct, instinctive evaluation of the situation was backed up by numbers showing that the total private debt to GDP ratio had reached a level unseen since 1928, and by the sudden discovery of the many analyses of many experienced, sober, but neglected financial observers who had been predicting some kind of collapse for years.

Since the public was thus primed to believe that, going forward, the private economy had to reduce its overall debt load, it was very easy to convince them that governments, being just another part of the overall economy, had to do the same thing.

But what Wren-Lewis doesn't seem to mention is that the public had already been primed by decades of Norquistian, Petersonian and Rubinite deficit-hectors, debt-despairers and entitlement-exterminators to believe that our deficits were a very bad thing, that government was too big, and that we were headed for a "fiscal train wreck" because of our undisciplined budgets and government spending. They were thus easily convinced that the financial crisis also had something to to with the problems alleged by this bipartisan team of budget Casandras all finally coming a-cropper.

We had endless cadres of Republican politicians promoting hysteria over the public debt and also decrying the very size of government, whether deficit-financed or not.

We had Bill Clinton running around bragging about his "reinvention" (shrinking) of government and his dot-com boom-assisted surprise surplus.

We had Joe Biden telling everyone that the financial collapse was caused by "putting two wars on a credit card".

We had the Concord Coalition and the Peterson Institute gearing up their zombies for the Fix the Debt onslaught that eventually saddled us with an economic discourse driven by a stupid budget-reduction commission in the middle a deep recession!

Hatred of governments and their spending habits had already given us years of gradually building stagnation due to declining public investment and a consequent secular shift from capital formation to consumption. But the voters saw only that all of the Serious People in both parties were strongly in favor of this "disciplined" decimation of government. So why in the world wouldn't they end up supporting its continuation?

ken melvin -> Dan Kervick... , Thursday, September 29, 2016 at 06:28 AM
Very good.
Benedict@Large -> Dan Kervick... , Thursday, September 29, 2016 at 06:38 AM
+1

Exactly. This all having started with the 70s arrival of monetarism, essentially a gold standard with no gold. While no one really paid attention to gold standard (depressionary) budgeting until Clinton I, the rhetoric was being put into place such that, even today, the Democrats still hail Clinton's "balanced budget" disaster as if it were God's gift, when in reality it was the kickoff to consumers cannibalizing the home equity just to keep pace, and the ultimate reason the 2008 crash was so severe on household spending. Hillary Clinton; be forewarned.

Hobroken -> Dan Kervick... , Thursday, September 29, 2016 at 08:03 AM
Hatred of governments and their spending habits
"

If governmental fat cats and billionaire lobbyists would spend more time at fixing the obvious, they would have less time for looting the public treasure. Do you see how they could have prevented the HD, Hoboken disaster?

They could have removed the overpowered transformers that oversupplied coulombs to the Catenary wire that supplied current to the Pantograph of the Hoboken train that just now crashed into the station full of passengers. All the transformers at the end of the line should be scaled down to prevent this sort of disaster, plus all the transformers near a curves in the roadbed should be scaled back to prevent excess power from speeding train up enough to jump the track. No!

You can't always depend on the engineer's judgment to prevent these disasters. Can't always depend on high-tech-safety devices to prevent! Hell! High-tech can be hacked by the North Koreans. You need to change the deep infrastructure of power available.

Get back to work,

Governmental
goof-off-s
!

jonny bakho -> pgl... , Thursday, September 29, 2016 at 05:24 AM
Most people have a flawed understanding of inflation.
Sustainable inflation means BOTH wages and prices go up.
Most people think of inflation only in terms of price increases so we get: Prices go up, wages stay the same: BAD.

A minimum level of inflation is necessary to allow relative prices and wages to reset smoothly.
Prices and wages are sticky downward.
It is unsustainable for a business to deflate prices below fixed costs.
A price can be reset downward by inflation (if inflation is high enough) erosion and thus is less likely to be below fixed costs.
Businesses don't cut wages of employees, they layoff employees.
Businesses don't only cut prices, they cut production.
Workers with leverage and fixed payments cannot afford to work for less.
Inflation allows relative wages to deflate without causing issues with fixed payments.
Everyone agrees that deflation is bad because it is associated with lower output and higher unemployment.
Inflation and deflation are a continuum. Inflation that is too low is only marginally better than deflation.
Inflation must be high enough to absorb relative price resets demanded by the majority of economic shocks or the process of resetting wages and prices will be extended and be a continued drag on an economy.
The evidence clearly suggests that US inflation in the 21st Century has been much too low. A higher inflation target is clearly necessary.

People misunderstand hyperinflation.
Hyperinflation is associated with an increased money supply.
The increased money supply is an effect of hyperinflation not its cause.
Under hyperinflation, an economy needs increasingly larger amounts of currency for transactions, so governments print more money to meet demand.

Hyperinflation is caused by loss of confidence in a currency.
Under hyperinflation, the risk of complete loss of buying power of a currency factors into the price that vendors are willing to accept for goods and services.
Example: In the 1865 US, Confederate currency hyper inflated, not because too much was printed, but because the Confederate government was facing elimination and the currency no longer being honored. 90 percent of the currency could have been eliminated and prices still would have hyperinflated.

Major Myths:
Printing money does not cause hyperinflation, loss of confidence does.
A higher rate of inflation does not make hyperinflation more likely.
A lower rate of inflation is NOT always better for an economy than a higher rate.
Politicians and pundits need to unlearn these inflation myths.

DrDick -> pgl... , -1
Krugman makes some good points, adding to Wren Lewis's excellent observations. I would point out, however, that neither of them acknowledges that most of our media are economic and policy illiterates and incapable of understanding the issues, while the general public has been sold on the idiocy that national budgets are just like household budgets (mostly by that same illiterate media).

[Sep 26, 2016] The Outlaws of Political Economy

Sep 26, 2016 | econospeak.blogspot.com

EconoSpeak

Perusing Palgrave's Dictionary of Political Economy from 1894 alerted me to the odd interaction of a pair of distinctions. The first distinction was between the study of "what is" and "what ought to be." The second distinction was between "economic science" (or "economics") and "political economy." Economic science presumably distinguished itself from political economy by its strict focus on describing "what is" rather than on prescribing "what ought to be."

Palgrave's
explains the latter distinction to have been at least partly motivated by the confusion that arose over just what kind of laws -- legal or natural -- so-called "laws of political economy" were. Even after the attempt at rebranding, however:
"...even well-educated persons still occasionally speak of "laws of political economy" as being "violated" by the practice of statesmen, trades-unions and other individuals and bodies.
You can't "break" scientific laws. They are simply generalized descriptions of fact. A flying airplane doesn't break the law of gravity. It conforms to a more comprehensive complex of physical laws. The law of gravity isn't the only law.

Palgrave's Dictionary further noted that the "great complexity and variety of circumstance which surround every economic problem are such as to render the enunciation of general laws, on a large scale, barely possible and if possible barely useful."

So the whole "positive" economics rigamarole wasn't just about methodological rigor. It was a purification ritual to rid the political economist of the stigma of dogma. Economists who invoke the violation of so-called laws aren't only forfeiting any legitimate claim to economic science. They are contaminating their profession with atavistic hokum.

Speaking of atavistic hokum, I have been trying to track down ANY accessible published record of a trade unionist or advocate of the reduction of the hours of labor EVER overtly expressing the belief that there is a fixed amount of work to be done or a certain quantity of labor to be performed or whatever synonymous equivalent. There is none.

There is a reasonable explanation for this absence of evidence. The alleged false belief is expressed in abstract language that was not vernacular to the people accused of harbouring it. It's the wrong answer to a question workers never asked themselves.

False belief requires two conditions to be fulfilled: 1. the idea is false and 2. it is believed by someone to be true. The matrix below shows the possible states of belief and falsehood. An idea does not have to be true to be "not false" and it doesn't have to be believed to be false to be "not believed to be true." The fallacy claim asserts a simplistic (and false!) polarization in which the beliefs of the "unenlightened" are "the opposite" of economic orthodoxy.

In an 1861 letter to the Times of London "A Master Builder" alleged that George Potter, secretary of the carpenters' union, and his associates had "absurdly argued that there was only a certain amount of work to be done" during a 1859 strike and lock-out of the London building trades. There is a detailed report on the 1859 strike in an 1860 report on Trades' Societies and Strikes published by the National Association for the Promotion of Social Science. The 23-page account presents several items of correspondence from Potter outlining the union's position with not a hint of a lump in the load. The "certain amount of work to be done" was what Mr. Master Builder thought he heard when he mentally translated Potter's argument into his own capitalistic patois .

There was something else interesting in the 685-page document -- an overarching controversy about whether or not labor was a commodity just like any other and therefore whether or not unions violated the laws of political economy by trying to regulate wages and hours of work. The employers who maintained this were pretty dogmatic about it. "Rates of wages cannot be settled by mediation, but must be left to the free operation of supply and demand." It's the law!

This was not simply political economy It was vulgar political economy of the most self-serving and disingenuous kind. One has no difficulty whatsoever finding multiple evocations by employers of the so-called laws of political economy but the elusive lump remains "one of the most tenaciously held and generally least articulated of trade union beliefs."

Least articulated? Least articulated is an understatement. Try NEVER articulated. There is no there there. The alleged false belief is a pure projection by the laws-of-political-economy crowd onto the unbeliever. The eighth annual report of the New York Bureau of Labor Statistics for the year 1890 contains the responses of over 600 labor union locals to the question of whether and why they support an eight-hour day. Not one claims there is only a certain quantity of work to be done.

Below is an example of what an overt statement of the theory of the lump of labor looks like. It is not from a trade union manifesto or a pamphlet of the eight-hour day movement. It is from a propaganda tract put out by Nassau Senior's crew of Whig-Benthamites in defense of their New Poor Laws, which abolished outdoor relief and established the workhouse test:

The fact is, there is a certain quantity of work to be done, and the question is who ought to do it -- those who live by their labour, and their labour only, or those who have thrown themselves on public charity.
Can anyone find such an unequivocal articulation of the false belief by a trade unionist? Of course not. It's not the way that workers talk about their work. Work is not an abstract, disembodied quantity to those who do it. It is part of a lived experience. "A certain quantity of work to be done" is political economy speak, plain and simple. It's ceteris paribus and "all else being equal."

Paradoxically, for old school vulgarians there both is and is not a certain quantity of work to be done. There is a certain quantity of work to be done when it comes to disparaging the idea that workers might increase wages their through collective action:

There is a certain quantity of work to be done, and a certain number of hands to do it; if there be much work and comparatively few hands, wages will rise; if little work and an excess of hands, wages will fall. It is self-evident that combinations and strikes cannot alter this law. They can neither increase capital, nor diminish population; and, therefore, it is utterly impossible, in the very nature of things, that they ever can procure a permanent rise of wages.
But there isn't a certain amount of work when it comes to explaining why such foolish action isn't even necessary:
There is, say they, a certain quantity of labour to be performed. This used to be performed by hands, without machines, or with very little help from them... The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not hemmed in by great walls, beyond which it cannot go. By bringing our goods cheaper and better to market, we open new markets, we get new customers, we encrease the quantity of labour necessary to supply these, and thus we are encouraged to push on, in hope of still new advantages. A cheap market will always be full of customers.
Five years ago I compiled a database of over 500 instances of the claim in books and journal articles between 1890 and 2010 ( Excel file ). That's 500 claims without a single overt statement of the false belief from an alleged believer. Six claimants (about one percent) named culprits whose argument "arguably depends upon..." "makes an error equivalent to..." "indicates a belief..." "seems hopelessly involved in..." "is an example of the strange conclusions to which one may be carried by clinging clinging firmly to..." and "are driven by implicit assumptions." Each of those turns out to be a false alarm -- an uncharitable, speculative inference. Five hundred boys crying "wolf" and not a single wolf to be seen?

This is an astonishing performance. This compulsion to repeat is not "careless" or "dogmatic." It's neurotic.

The patient cannot remember the whole of what is repressed in him, and what he cannot remember may be precisely the essential part of it.. He is obliged to repeat the repressed material as a contemporary experience instead of remembering it as something in the past.
The atavistic return of the repressed "laws of political economy" conforms faithfully to a description toward the end of chapter 3 of Beyond the Pleasure Principle where Freud talks about the experiences of "people with whom every human relationship ends in the same way" and gives as a "singularly affecting" final example the events in a romantic epic, in which the hero, Tancred, repeatedly slays his beloved, Clorinda, each time she reappears in a different guise. In this example, as Gavriel Reisner notes,
Freud reverses the compulsion to repeat, showing how we will sometimes injure others in order to avoid injuring ourselves. Freud concludes that we often project the internal, masochistic drive as the external, sadistic drive, victimizing others to redirect an intent toward self-victimization.
The utilitarian political economists styled themselves advocates for "the greatest good for the greatest number" and viewed opponents as apologists for narrow special interests. The supposed laws they discovered, which operated through isolated exchanges between individuals in the market, vindicated a system of natural liberty and consequently freedom entailed obedience to those laws. Collective action and collective bargaining violated the laws of individual exchange, resulting in sub-optimal outcomes. Such perversity could only be motivated by false beliefs. The false beliefs of the adversary were presumably the opposite of the true beliefs of the faithful: trade unions operated through tyranny and their bizzaro-world political economy assumed that less output meant more income.

Reality discredited that polemic of political economy and calmer heads sought to rebrand the enterprise as economics. The ersatz laws were scaled back to tendencies, which operated within the admittedly abstract ceteris paribus pound of the economist's static model. Real life and the evolution of economic relations operated outside the ceteris paribus pound but maybe the static model could shed light on dynamic economic activity.

It was no longer fashionable to denounce "The Evils of Collective Bargaining in Trades' Unions" (Thomas Cree, 1898) because it was increasingly understood that the so-called laws of supply and demand operated quite differently with regard to the peculiar commodity of labor power (Richard Ely, 1886):

While those who sell other commodities are able to influence the price by a suitable regulation of production, so as to bring about a satisfactory relation between supply and demand, the purchaser of labor has it in his own power to determine the price of this commodity and the other conditions of sale.
But even as old-guard political economy was being gradually displaced by rebranded economics in the universities, employers' associations and business journalism emerged to propound and propagate the old-time religion. The break with quasi-scientific, quasi-legalistic, quasi-religious pseudo-laws was ambivalent, the reconciliation surreptitious. Employers' associations told the college teachers what to teach. Textbooks served up a smorgasbord of the obsolescent and the innovative.

In this twilight of science and superstition, the fallacy claim offered uncertain economists a distinctive advantage. It enabled them to continue to denounce violations of the laws of political economy without actually having to specify which laws were being violated. That left them exempt from any obligation to justify the validity of defunct laws. The burden of proof deftly shifted and the providence of economic science affirmed, albeit by default.

Economic science thus gets to have its "what is" humility... and eat its "what ought to be" hubris too! Evidence be damned.



That there was one particular offense singled out for condemnation by the self-appointed economic police is suggested by the example given in Palgrave's Dictionary for the common confusion between the legislative and scientific senses of law: "Thus it is often said that to regulate the hours of labour, or to introduce differential import duties, is to break economic law." The anachronism of such a view should require no explanation. The hours of labor are regulated.

Any proposal to repeal the Fair Labor Standards Act of 1938 on the grounds that it "breaks economic law" would no doubt be laughed at by Paul Krugman, David Autor, Jonathan Portes or Alan Manning. But, inadvertently, that is precisely the historical grammar of their lump-of-labor fallacy taunt. Although there is no logical imperative that links the law-breaking claim to the fallacy claim, they have been inseparably paired in usage from their inception. To invoke the latter is either to imply the former or it is a non sequitur.

At long last, economists, have you no scientific self-respect ? On this labor day, 2016, would you still insist that regulating of the hours of work breaks the laws of economics? Posted by Sandwichman at

[Sep 26, 2016] Equilibrium and Information Literacy

Sep 23, 2016 | econospeak.blogspot.com
"Everybody except Joan Robinson agrees about capital theory." -- Robert Solow (as paraphrased by Robinson)
An essential text in my researches on mercantilism, usury and bills of exchange is Raymond de Roover's Gresham on Foreign Exchange, which just happens to be stored in part of SFU's library that is under construction and thus inaccessible. The immediate unavailability of that book, however, led to a fortuitous discovery.

I browsed in the call number section of the library's general collection where de Roover's book would have been and Robert Leeson's Ideology and the International Economy caught my eye. I flipped through the book and noticed on page 19 the delicious quote from Joan Robinson that, "the free-trade doctrine is just a more subtle form of mercantilism."

The quote is from a 1966 lecture, "The New Mercantilism" that is included in a collection of essays, Contributions to Modern Economics, which also contains "Capital Theory Up-to-Date," a 1970 review of C. E. Ferguson's The Neoclassical Theory of Production and Distribution, in which Robinson reprises her parody of neo-Walrasian, neo-neoclassical capital " leets. " Leets is steel spelled backward and makes its debut in "Equilibrium Growth Models," Robinson's 1961 review of James Meade's Neo-Classical Theory of Economic Growth.

This allegedly ectoplasmic representation of capital is, in a nutshell, the crux of the "Cambridge capital controversy," which Robinson launched with her 1952 challenge, "I leave it to those who draw production functions to say what marginal productivity and the elasticity of substitution mean when labour and capital are the factors of production." Looking back, in 1978, on her 1952 essays and the "long struggle to escape... habitual modes of thought and expression," Robinson stressed that "it was precisely from the concept of equilibrium that Keynes was struggling to escape..." Contrarily, though:

"...textbook teaching in the department of so-called macro theory was an attempt to push Keynes into short-term equilibrium. ... The grand neoclassical synthesis (now known as bastard Keynesianism) was a more ambitious attempt to reduce the General Theory to a system of equilibrium."
In responding to Robinson's leets critique, Robert Solow began by acknowledging "much truth" to the objection that "the usual production functions, allowing for more or less substitutability between capital and labor, attribute to 'capital' a degree of malleability which contradicts common observation." He then distinguished between the "econometrically-minded person" who would view the overly malleable capital as a "specification error" and others -- presumably including Robinson -- who judge it to be "a doctrinal error; and its consequence is a kind of Fall from Grace." Seven years later, Robinson had this to say about "doctrinal disputes":
Many economists, nowadays, who are interested in practical questions are impatient of doctrinal disputes. What does it matter, they are inclined to say, let him have his leets, what harm does it do? But the harm that the neo-neoclassicals have done is, precisely, to block off economic theory from any discussion of practical questions.
If one is concerned about actual unemployment in an actual economy, Robinson later explained, one "has to discuss it in terms of processes taking place in actual history. The concept of equilibrium is incompatible with history. It is a metaphor based on movements in space applied to processes taking place in time." In other words, it is not just some kind of ethereal affectation to object to the concept of equilibrium -- it is an argument with irrevocable real-world consequences.

The failure of what Robinson dismissed as "bastard Keynesianism" also had real-world doctrinal consequences. "In the era of stagflation, this notion [that equilibrium growth can be achieved through fiscal and monetary 'fine tuning'] has been discredited and the quantity theory of money is blossoming afresh amongst its ruins." This 'blossoming,' incidentally, was not something Robinson welcomed.

Well, my interlibrary loan of de Roover's Gresham on Foreign Exchange has arrived, so I'm off up the hill to pick it up. To be continued...

[Sep 16, 2016] We Need to Move on from Existing Theories of the Economy

Notable quotes:
"... [Dave Elder-Vass accepted my invitation to write a response to my discussion of his recent book, ..."
"... Profit and Gift in the Digital Economy ..."
"... ). Elder-Vass is Reader in sociology at Loughborough University and author as well of ..."
"... The Causal Power of Social Structures: Emergence, Structure and Agency ..."
"... The Reality of Social Construction ..."
"... , discussed ..."
"... . Dave has emerged as a leading voice in the philosophy of social science, especially in the context of continuing developments in the theory of critical realism. Thanks, Dave!] ..."
"... Profit and Gift in the Digital Economy ..."
"... Financial Times ..."
"... the argument for Pareto optimality of real market systems is patently false, but it continues to be trotted out constantly. ..."
Sep 16, 2016 | economistsview.typepad.com
by Dave Elder-Vass at Understanding Society: September 15, 2016
Guest post by Dave Elder-Vass : [Dave Elder-Vass accepted my invitation to write a response to my discussion of his recent book, Profit and Gift in the Digital Economy ( link ). Elder-Vass is Reader in sociology at Loughborough University and author as well of The Causal Power of Social Structures: Emergence, Structure and Agency and The Reality of Social Construction , discussed here and here . Dave has emerged as a leading voice in the philosophy of social science, especially in the context of continuing developments in the theory of critical realism. Thanks, Dave!]

We need to move on from existing theories of the economy

Let me begin by thanking Dan Little for his very perceptive review of my book Profit and Gift in the Digital Economy . As he rightly says, it's more ambitious than the title might suggest, proposing that we should see our economy not simply as a capitalist market system but as a collection of "many distinct but interconnected practices". Neither the traditional economist's focus on firms in markets nor the Marxist political economist's focus on exploitation of wage labour by capital is a viable way of understanding the real economy, and the book takes some steps towards an alternative view.

Both of those perspectives have come to narrow our view of the economy in multiple dimensions. Our very concept of the economy has been derived from the tradition that began as political economy with Ricardo and Smith then divided into the Marxist and neoclassical traditions (of course there are also others, but they are less influential). Although these conflict radically in some respects they also share some problematic assumptions, and in particular the assumption that the contemporary economy is essentially a capitalist market economy, characterised by the production of commodities for sale by businesses employing labour and capital. As Gibson-Graham argued brilliantly in their book The End Of Capitalism (As We Knew It): A Feminist Critique of Political Economy , ideas seep into the ways in which we frame the world, and when the dominant ideas and the main challengers agree on a particular framing of the world it is particularly difficult for us to think outside of the resulting box. In this case, the consequence is that even critics find it difficult to avoid thinking of the economy in market-saturated terms.

The most striking problem that results from this (and one that Gibson-Graham also identified) is that we come to think that only this form of economy is really viable in our present circumstances. Alternatives are pie in the sky, utopian fantasies, which could never work, and so we must be content with some version of capitalism – until we become so disillusioned that we call for its complete overthrow, and assume that some vague label for a better system can be made real and worthwhile by whoever leads the charge on the Bastille. But we need not go down either of these paths once we recognise that the dominant discourses are wrong about the economy we already have.

To see that, we need to start defining the economy in functional terms: economic practices are those that produce and transfer things that people need, whether or not they are bought and sold. As soon as we do that, it becomes apparent that we are surrounded by non-market economic practices already. The book highlights digital gifts – all those web pages that we load without payment, Wikipedia's free encyclopaedia pages, and open source software, for example. But in some respects these pale into insignificance next to the household and family economy, in which we constantly produce things for each other and transfer them without payment. Charities, volunteering and in many jurisdictions the donation of blood and organs are other examples.

If we are already surrounded by such practices, and if they are proliferating in the most dynamic new areas of our economy, the idea that they are unworkably utopian becomes rather ridiculous. We can then start to ask questions about what forms of organising are more desirable ethically. Here the dominant traditions are equally warped. Each has a standard argument that is trotted out at every opportunity to answer ethical questions, but in reality both standard arguments operate as means of suppressing ethical discussions about economic questions. And both are derived from an extraordinarily narrow theory of how the economy works.

For the mainstream tradition, there is one central mechanism in the economy: price equilibration in the markets, a process in which prices rise and fall to bring demand and supply into balance. If we add on an enormous list of tenuous assumptions (which economists generally admit are unjustified, and then continue to use anyway), this leads to the theory of Pareto optimality of market outcomes: the argument that if we used some other system for allocating economic benefits some people would necessarily be worse off. This in turn becomes the central justification for leaving allocation to the market (and eliminating 'interference' with the market).

There are many reasons why this argument is flawed. Let me mention just one. If even one market is not perfectly competitive, but instead is dominated by a monopolist or partial monopolist, then even by the standards of economists a market system does not deliver Pareto optimality, and an alternative system might be more efficient. And in practice capitalists constantly strive to create monopolies, and frequently succeed! Even the Financial Times recognises this: in today's issue (Sep 15 2016) Philip Stevens argues, "Once in a while capitalism has to be rescued from the depredations of, well, capitalists. Unconstrained, enterprise curdles into monopoly, innovation into rent-seeking. Today's swashbuckling "disrupters" set up tomorrow's cosy cartels. Capitalism works when someone enforces competition; and successful capitalists do not much like competition".

So the argument for Pareto optimality of real market systems is patently false, but it continues to be trotted out constantly. It is presented as if it provides an ethical justification for the market economy, but its real function is to suppress discussion of economic ethics: if the market is inherently good for everyone then, it seems, we don't need to worry about the ethics of who gets what any more.

The Marxist tradition likewise sees one central mechanism in the economy: the extraction of surplus from wage labour by capitalists. Their analysis of this mechanism depends on the labour theory of value, which is no more tenable that mainstream theories of Pareto optimality (for reasons I discuss in the book). Marxists consistently argue as if any such extraction is ethically reprehensible. Marx himself never provides an ethical justification for such a view. On the contrary, he claims that this is a scientific argument and disowns any ethical intent. Yet it functions in just the same way as the argument for Pareto optimality: instead of encouraging ethical debate about who should get what in the economy, Marxists reduce economic ethics to the single question of the need to prevent exploitation (narrowly conceived) of productive workers.

We need to sweep away both of these apologetics, and recognise that questions of who gets what are ethical issues that are fundamental to justice, legitimacy, and political progress in contemporary societies. And that they are questions that don't have easy 'one argument fits all' answers. To make progress on them we will have to make arguments about what people need and deserve that recognise the complexity of their social situations. But it doesn't take a great deal of ethical sophistication to recognise that the 1% have too much when many in the lower deciles are seriously impoverished, and that the forms of impoverishment extend well beyond underpaying for productive labour.

I'm afraid that I have written much more than I intended to, and still said very little about the steps I've taken in the book towards a more open and plausible way of theorising how the economy works. I hope that I've at least added some more depth to the reasons Dan picked out for attempting that task.

Peter K. :
, Thursday, September 15, 2016 at 01:37 PM
"This in turn becomes the central justification for leaving allocation to the market (and eliminating 'interference' with the market)."

Krugman is a neoliberal, although a softer, kinder neoliberal much better than Mankiw, Cowen or the Republicans.

"pgl -> Peter K....

Please find me a Krugman discussion where he says nothing can be done about income inequality. This is so straw man that the winds have blown this stupid lie away.

Reply Thursday, September 15, 2016 at 12:59 PM"

http://www.nytimes.com/2016/08/15/opinion/wisdom-courage-and-the-economy.html

Wisdom, Courage and the Economy
by Paul Krugman
AUG. 15, 2016

It's fantasy football time in political punditry, as commentators try to dismiss Hillary Clinton's dominance in the polls - yes, Clinton Derangement Syndrome is alive and well - by insisting that she would be losing badly if only the G.O.P. had nominated someone else. We will, of course, never know. But one thing we do know is that none of Donald Trump's actual rivals for the nomination bore any resemblance to their imaginary candidate, a sensible, moderate conservative with good ideas.

Let's not forget, for example, what Marco Rubio was doing in the memorized sentence he famously couldn't stop repeating: namely, insinuating that President Obama is deliberately undermining America. It wasn't all that different from Donald Trump's claim that Mr. Obama founded ISIS. And let's also not forget that Jeb Bush, the ultimate establishment candidate, began his campaign with the ludicrous assertion that his policies would double the American economy's growth rate.

Which brings me to my main subject: Mrs. Clinton's economic vision, which she summarized last week. It's very much a center-left vision: incremental but fairly large increases in high-income tax rates, further tightening of financial regulation, further strengthening of the social safety net.

It's also a vision notable for its lack of outlandish assumptions. Unlike just about everyone on the Republican side, she isn't justifying her proposals with claims that they would cause a radical quickening of the U.S. economy. As the nonpartisan Tax Policy Center put it, she's "a politician who would pay for what she promises."

So here's my question: Is the modesty of the Clinton economic agenda too much of a good thing? Should accelerating U.S. economic growth be a bigger priority?

For while the U.S. has done reasonably well at recovering from the 2007-2009 financial crisis, longer-term economic growth is looking very disappointing. Some of this is just demography, as baby boomers retire and growth in the working-age population slows down. But there has also been a somewhat mysterious decline in labor force participation among prime-age adults and a sharp drop in productivity growth.

The result, according to the Congressional Budget Office, is that the growth rate of potential G.D.P. - what the economy could produce at full employment - has declined from around 3.5 percent per year in the late 1990s to around 1.5 percent now. And some people I respect believe that trying to get that rate back up should be a big goal of policy.

But as I was trying to think this through, I realized that I had Reinhold Niebuhr's famous Serenity Prayer running through my head: "Grant me the serenity to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference." I know, it's somewhat sacrilegious applied to economic policy, but still.

After all, what do we actually know how to do when it comes to economic policy? We do, in fact, know how to provide essential health care to everyone; most advanced countries do it. We know how to provide basic security in retirement. We know quite a lot about how to raise the incomes of low-paid workers.

I'd also argue that we know how to fight financial crises and recessions, although political gridlock and deficit obsession has gotten in the way of using that knowledge.

On the other hand, what do we know about accelerating long-run growth? According to the budget office, potential growth was pretty stable from 1970 to 2000, with nothing either Ronald Reagan or Bill Clinton did making much obvious difference. The subsequent slide began under George W. Bush and continued under Mr. Obama. This history suggests no easy way to change the trend.

Now, I'm not saying that we shouldn't try. I'd argue, in particular, for substantially more infrastructure spending than Mrs. Clinton is currently proposing, and more borrowing to pay for it. This might significantly boost growth. But it would be unwise to count on it.

Meanwhile, I don't think enough people appreciate the courage involved in focusing on things we actually know how to do, as opposed to happy talk about wondrous growth.

When conservatives promise fantastic growth if we give them another chance at Bushonomics, one main reason is that they don't want to admit how much they would have to cut popular programs to pay for their tax cuts. When centrists urge us to look away from questions of distribution and fairness and focus on growth instead, all too often they're basically running away from the real issues that divide us politically.

So it's actually quite brave to say: "Here are the things I want to do, and here is how I'll pay for them. Sorry, some of you will have to pay higher taxes." Wouldn't it be great if that kind of policy honesty became the norm?

Peter K. -> Peter K.... , Thursday, September 15, 2016 at 01:39 PM
"For while the U.S. has done reasonably well at recovering from the 2007-2009 financial crisis,"

Reasonably well?

"Now, I'm not saying that we shouldn't try. I'd argue, in particular, for substantially more infrastructure spending than Mrs. Clinton is currently proposing, and more borrowing to pay for it. "

Then why was he for Hillary over Bernie Sanders who did campaign on substantially more infrastructure spending?

Instead Krugman argues that we need to lower our hopes and expectations.

"According to the budget office, potential growth was pretty stable from 1970 to 2000, with nothing either Ronald Reagan or Bill Clinton did making much obvious difference. "

So the market price mechanism rules and we government can't do much?

Neoliberal.

Peter K. -> Peter K.... , Thursday, September 15, 2016 at 01:41 PM
No queue PGL to tell us that Krugman was saying something that he obviously wasn't.

What is Hillary going to try to do about inequality and distributional issues?

Family leave? Raise taxes on the rich?

Anything else besides minor tweaks and tax incentives?

A public option for health care?

Peter K. -> Peter K.... , Thursday, September 15, 2016 at 01:44 PM
"So here's my question: Is the modesty of the Clinton economic agenda too much of a good thing? Should accelerating U.S. economic growth be a bigger priority?"

Her agenda is unambitious. It is "center-left" as Krugman puts it which is partly why her poll numbers are in the dumps.

" It's very much a center-left vision: incremental but fairly large increases in high-income tax rates, further tightening of financial regulation, further strengthening of the social safety net."

Point me to a blog post where Krugman spells out exactly where he explains how Clinton proposes to do things.

He doesn't.

Far East Famine017 said in reply to Peter K.... , Thursday, September 15, 2016 at 01:46 PM

Raise taxes on the rich?

Anything else besides minor tweaks and tax
"

President Trump has proposed a $25000 standard deduction for each of us, but $50,000 for married couples who prove that they have consummated. Hey! IRS Agents like to watch.

Peter K. -> Far East Famine017... , Thursday, September 15, 2016 at 01:54 PM
How does one prove consummation? Video? Pelvic exams? Bedsheets?
Far East Famine017 said in reply to Peter K.... , Thursday, September 15, 2016 at 06:24 PM

Tell them what you are about to tell them!

Tell them!

Tell them what you have told them!

But first you have to get their attention. Sorry about the consummation voyeur rib, but getting folks to listen is one of the primary concerns here.

An attention

getting
device
!

anne -> Far East Famine017... , Thursday, September 15, 2016 at 02:54 PM
Crazy gibberish encourages more of the same and is destructive. The name alone is destructive. The content is mean nonsense. Enough.
Far East Famine017 said in reply to anne... , Thursday, September 15, 2016 at 06:16 PM

a $25000 standard deduction
"

Can you see how this minimum federal standard-deduction is de-fang-ed by lower state-standard-deduction? Tell me something!

When state minimum wage is $5 / hour but federal minimum wage is $9 / hour, does employer hiring in same state have to pay $5 or $9? Do you see how that works?

State's rights are dissolved by the federal statute.

This dissolution of state's rights means that Congress could as easily pass a law to establish minimum standard-deduction for all state's income tax collection. Tell me something else!

Would such a minimum standard deduction on all state income tax collection cause any unemployment? Would it bankrupt any small businesses?

Of course not! By contrast, the federal minimum wage regulation does cause unemployment, does close down some employers of entry level workers, a danger to employment and poverty.

Economics is all about opportunity costs. The opportunity cost of federal minimum wage is the possibility of federal minimum standard deduction, a more harmless subsidy.

Get
it
!

anne -> Far East Famine017... , Thursday, September 15, 2016 at 06:25 PM
State's rights are dissolved by the federal statute.

This dissolution of state's rights means that Congress could as easily pass a law to establish minimum standard-deduction for all state's income tax collection. Tell me something else!

Would such a minimum standard deduction on all state income tax collection cause any unemployment? Would it bankrupt any small businesses?

Of course not! By contrast, the federal minimum wage regulation does cause unemployment, does close down some employers of entry level workers, a danger to employment and poverty.

[ Ah, understood. A clever and important argument that I am thinking through. Like the rational for the federal Earned Income Tax Credit. ]

I am grateful. ]

anne -> Far East Famine017... , Thursday, September 15, 2016 at 06:27 PM
https://en.wikipedia.org/wiki/Earned_income_tax_credit

The United States federal earned income tax credit or earned income credit (EITC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends on a recipient's income and number of children. For a person or couple to claim one or more persons as their qualifying child, requirements such as relationship, age, and shared residency must be met. In the 2013 tax year, working families, if they have children, with annual incomes below $37,870 to $51,567 (depending on the number of dependent children) may be eligible for the federal EITC. Childless workers who have incomes below about $14,340 ($19,680 for a married couple) can receive a very small EITC benefit.

Ben Groves -> Peter K.... , Thursday, September 15, 2016 at 02:26 PM
Growth is a fixed investment. The investments have been made. Especially older societies, consumption and leisure become more important the nature of purchases change.

I see Space Exploration as the only thing that will change that narrative. That would probably create another computer revolution, industrial revolution kind of change. People just aren't into it thought. People are happy with the dopamine economy and just want to get high.

Peter K. : , Thursday, September 15, 2016 at 01:52 PM
Krugman:

"Second, less relevant to Sims but very relevant to other helicopter people, a deficit ultimately financed by inflation is just as much of a burden on households as one ultimately financed by ordinary taxes, because inflation is a kind of tax on money holders. From a Ricardian point of view, there's no difference.

So I'm trying to figure out exactly what Sims is saying. What, ahem, is his model?"

Inflation hits people with savings who don't have debt.

Inflation helps people with debt by eating away at the principle. Inflation signals tight job markets with growing incomes as well. That's why you have price pressures. That's why low inflation and loose job markets can be just as bad as deflation.

Who taxes hit depends on how the government has set up its tax system. Some people and corporations like Apple, Mitt Romney and presumably Trump pay little in taxes.

Krugman the neoliberal.

Ben Groves : , Thursday, September 15, 2016 at 02:21 PM
Capitalism was invented by Sephardic Jews who immigrated to Iberia in the 15th and 16th century. They eventually invented market based economy.

By 1600's they had a swirling business sector located in Amsterdam and William the Orange spread it into England during the latter 17th century, creating the Bank of England in 1694 and became the worlds central bank via commodity money.

There is nothing to see here people. It is ponzi scheme and nothing more. Capitalism has only made it because of liberalism. You have to be open to market expansion and have the resources to make it work. It is why "konservatism" is a farce. One, the konservatives were the ones that pushed the decaying "feudal" aristocracy to merge with the merchant caste in the first place and create the bourgeois, despite the aristocracy being the birth place of most of the technology we have now. This morphed into what we call capitalism. Basically the Jews are the Parasites(Finance), "Whites"(the capitalists, which has a abnormal % of homosexuals) the Host and the non-whites the cattle(mass famines and genocide during the 19th and 20th century are what really powered the manpower behind anti-capitalism. Aka the British Empire led to 150 million deaths globally. All global fraternities and organizations like the Skull in Bones to the Council of Foreign relations are a conservative institutions. Yet, those cons won't admit it. As Butler said about his Pacific "campaigns" is is all about spreading capitalism. It is indeed a racket.

These same forces are what created "Protestantism" and "Mormanism", which were a global financed movement. First led by Catholic turncoat Martin Luther, who was financed by the Jews, then run by Jewish John Cohen(Calvin) who spread the judeo-christian revolution globally. This also led to the farce of "sovereignty" nonsense Mormons have tried to use in the last 40 years to push a plutocracy. Then the other bible thumpers caught on. Destroy the nation, bring on the market totalitarianism. Dumb sheep.

anne -> Ben Groves... , Thursday, September 15, 2016 at 02:41 PM
Do you understand that this writing is crazily, horridly, violently prejudiced, madly anti-Semitic? Do you understand just how clinically mad this is?

This writing reflects a need for professional help. Such help is available and should immediately be sought.

This prejudice reflects a dangerous illness. Do seek assistance.

Do not write like this ever again.

cm -> anne... , Thursday, September 15, 2016 at 10:48 PM
This is what we have long been used to from Mr. Groves. Ramblings in this style pretty much comment on their own merit and don't need to be graced with rebuttals, as that implies an acknowledgement that at some level a sort of identifiable argument was made.
BenIsNotYoda : , Thursday, September 15, 2016 at 03:49 PM
Harvard Study pooh poohs the recovery:

https://www.scribd.com/document/324137454/Harvard-Study-on-US-Economy-Under-Obama#from_embed

Choice excerpts:

"America's economic performance peaked in the late 1990s, and erosion in crucial economic indicators such as the rate of economic growth, productivity growth, job growth, and investment began well before the Great Recession.

Workforce participation, the proportion of Americans in the productive workforce, peaked in 1997. With fewer working-age men and women in the workforce, per-capita income for the U.S. is reduced.

Median real household income has declined since 1999, with incomes stagnating across virtually all income levels. Despite a welcome jump in 2015, median household income remains below the peak attained in 1999, 17 years ago. Moreover, stagnating income and limited job prospects have disproportionately affected lower-income and lower-skilled Americans, leading inequality to rise."

and something I have been going hoarse saying:

"The U.S. lacks an economic strategy, especially at the federal level. The implicit strategy has been to trust the Federal Reserve to solve our problems through monetary policy."

the charts alone are worth the effort to check out this excellent study.

Paine : , Thursday, September 15, 2016 at 06:09 PM
I really like this


" Neither the traditional economist's focus on firms in markets nor the Marxist political economist's focus on exploitation of wage labour by capital is a viable way of understanding the real economy, and the book takes some steps towards an alternative view. "


It is the quintessence of heterodox ambitions

Publius : , Thursday, September 15, 2016 at 07:58 PM
Why did East Asia become Star Trek instead of the US? Why didn't the hopeful visions of mid-1960's America become reality for the Americans? Read Ha Joon Chang if you want to know why East Asia is on track to be as rich as the US/USSR portrayed in 2001 Space Odyssey. Western provincialism, or perhaps the corruption of economists by looting banks (as documented by Charles Ferguson) has led Western economists to offer really, really terrible advice to their own governments: free trade forever, don't worry about massive deindustrialization, there will be new jobs, there's no chance the US ends up like Mali.
kaleberg : , Thursday, September 15, 2016 at 08:45 PM
One of the big problems of economics is how little of our society it explains. Exactly how many people of either sex actually sit down and decide to have children based on a return on investment calculation? How many people spend time with their friends and families based on some kind of maximization function? When you visit a dying friend or family member at the hospital is this the result of some gift exchange calculus? What about the time one spends listening to music, watching a baseball game or browsing Facebook?

It might help to start with anthropology and think about human societies and their organization. Start with something like the Lynds' Middletown books to get away from the implicit exoticism that the term anthropology invokes. Societies have certain basic functions: raising children, caring for those who cannot care for themselves, earning a living, spending free time, recognizing one's place in the universe, participating in civil society and so on. Economics only looks at a tiny piece of this, just part of the earning a living section. It's as if chemists never studied anything except hydrogen molecules.

Economics really does need some new thinking. Starting with Pareto optimality is simply the argument that we live in the best of all possible worlds. It is so transparently bogus that it is hard to believe that anyone ever took it seriously. Oil lamps were hard on torch makers and the automobile destroyed the buggy whip business. We need an economic system to regulate the production and allocation of goods and services, but we also need child custody laws and burial customs.

I'm a capitalist at heart, but I view capitalism as I view fire. There is nothing quite like fire for cooking food, lighting the dark, scaring wild animals, firing pottery and so on, but fire also needs to be carefully controlled, constantly monitored and subject to societal sanction.

cm -> kaleberg ... , Thursday, September 15, 2016 at 11:02 PM
Economics fashions itself (or is being fashioned) as a science, and as such has to restrict itself to measurable, identifiable, and (in principle) predictable phenomena.

What you are describing is more in the realm of philosophy, psychology, and moral judgement.

The problem starts when the economics profession and related occupations (business media, etc.) pretend to have identified "market mechanisms" as the unifying theory of society and world, including "explaining" social dynamics in terms of "objective/rational" market transactions and motivations.

But the desire for grand unified theories and "whole truths" is ever strong, lending credence and support to such efforts.

reason : , -1
Now is the time to push for my leisure theory of value. All goods and services traded in the economy are intermediate goods, and value is actually created during leisure time!

[Sep 14, 2016] Slot-machine "science":

Sep 14, 2016 | www.nakedcapitalism.com
Jim Haygood , September 12, 2016 at 3:13 pm

Slot-machine "science":

The sugar industry paid scientists in the 1960s to downplay the link between sugar and heart disease and promote saturated fat as the culprit instead.

The internal sugar industry documents, recently discovered by a researcher at UCSF and published Monday in JAMA Internal Medicine, suggest that five decades of research into the role of nutrition and heart disease may have been largely shaped by the sugar industry.

A trade group called the Sugar Research Foundation, known today as the Sugar Association, paid three Harvard scientists the equivalent of about $50,000 in today's dollars to publish a 1967 review of sugar, fat and heart research.

The studies used in the review were handpicked by the sugar group. The article, published in the prestigious New England Journal of Medicine , minimized the link between sugar and heart health and cast aspersions on the role of saturated fat.

One of the scientists paid by the sugar industry was D. Mark Hegsted, who went on to become the head of nutrition at the USDA, where in 1977 he helped draft the forerunner to the government's dietary guidelines.

http://www.nytimes.com/2016/09/13/well/eat/how-the-sugar-industry-shifted-blame-to-fat.html

Shocked? That was decades ago. But today, the sugar industry is STILL paying politicians for ironclad protection from competition:

Imports of sugar into the United States are governed by tariff-rate quotas (TRQs), which allow a certain quantity of sugar to enter the country under a low tariff [meaning the rest is walled out].

USDA establishes the annual quota volumes for each federal fiscal year (beginning October 1) and the U.S. Trade Representative allocates the TRQs among countries.

http://www.fas.usda.gov/programs/sugar-import-program

Buying scientists - profitable
Buying politicians - priceless

Plenue , September 12, 2016 at 3:45 pm

It can go both ways though. The WHO managed to declare glyphosate 'probably carcinogenic' by expressly ignoring the substantial evidence to the contrary.

tegnost , September 12, 2016 at 4:59 pm

I think that falls under "buying scientists". There is no global warming and glyphosate is better for you than juice, just like fracking water prevents cavities.

Plenue , September 12, 2016 at 5:14 pm

So do you strawman often?

tegnost , September 12, 2016 at 5:17 pm

no but I'm really obnoxious, how bout some links for that irrefutable science

tegnost , September 12, 2016 at 5:38 pm

also not sure you understand straw manning, I referred directly to haygoods comment, re buying science, you brought up the ancillary/irrelevant glyphosate.
Sugar is socially poisonous, at the least, see diabetes
Image result for straw manning
"A straw man is a common form of argument and is an informal fallacy based on giving the impression of refuting an opponent's argument, while actually refuting an argument that was not advanced by that opponent."
haygood didn't say anything about glyphosate, it's relevant to sugar how?

tegnost , September 12, 2016 at 6:11 pm

http://www.nature.com/news/debate-rages-over-herbicide-s-cancer-risk-1.18794
from the link…"Finally, the two bodies looked at different evidence. EFSA assessed some studies conducted by industry groups that were excluded from the IARC analysis. The IARC team looked only at evidence that is in the public domain and available to independent scientists to review, says Kathryn Guyton, a senior toxicologist at the IARC and one of the authors of its glyphosate study2."
what's that? the pro glyphosate used industry science? Say it ain't so!
Also…"Firstly, the two bodies were not assessing exactly the same thing. EFSA looked only at glyphosate, whereas IARC looked at both the chemical itself and the products it is used in. EFSA says that some studies have shown genotoxic effects (DNA damage) from products containing glyphosate and some have not, and it is likely that some of these effects are down to other compounds in these products, rather than glyphosate itself."
and last but not least..does efsa think glyphosate is safe?".Not entirely. EFSA revised existing limits on safe daily doses for exposure to glyphosate. It also proposes - for the first time in the European Union - that there should be a limit on how much glyphosate is safe for a person to ingest in a short period of time."
like ambrits comment on codes vs. what contractors actually do (there's the right way, and there's the way we're doing it)you're trusting those pesticide applicators measuring skills and concern for others health more than i do.

JTMcPhee , September 12, 2016 at 6:36 pm

It's not the main chlorinated pesticides in Agent Orange that fokks us veterans and Vietnamese over, it's the stuff that gets produced in side reactions, molecules like 2,3,7,8-dibenzodioxins and -dibenzofurans. Which strongly bioaccumulate and kind of hang around forever. As do the other shitbits spewed out by Our Imperial Forces, like depleted uranium with its mix of go-alongs, and so on…

Fundamental point is that we humans, taken as a bunch, are pretty much worthless as participants in "The Great Disney Circle of Life…" Not just worthless, but actively "disruptive" and patently destructive. Sugar bad, now FL counties spraying shit to try to ":control" Aeides aegiptii mosquitoes that "carry the Deadly Zika Virus" and thereby kill off all kinds of pollinators. Because middle class, or some shit…

Plenue , September 12, 2016 at 7:49 pm

https://www.youtube.com/watch?feature=player_embedded&v=pkxS7BHjHVk

I'd say doing things like completely ignoring a multi-decade USDA study that found no harmful effects resulted from contact with glyphosate reveals bias and a lack of genuine desire to honestly appraise the evidence. And even in the absence (rather, absent from the WHO review) of evidence that the stuff isn't harmful, the evidence that it is dangerous that they included was pitiful at best. And this is presumably the best 'proof' they could scrounge up.

tegnost , September 12, 2016 at 9:18 pm

your link is a youtube?
science comes in papers
but then i'd be able to track the funding, wouldn't I?
and the issue was "buying science"

[Sep 12, 2016] The Strong Case Against Central Bank Independence Critically Examined

Notable quotes:
"... The deficit obsession that governments have shown since 2010 has helped produce a recovery that has been far too slow, even in the US. ..."
"... The Zero Lower Bound (ZLB) raises an acute problem for what I call the consensus assignment (leaving macroeconomic stabilisation to an independent, inflation targeting central bank), but add in austerity and you get major macroeconomic costs. ICBs appear to rule out the one policy (money financed fiscal expansion) that could combat both the ZLB and deficit obsession. ..."
Sep 12, 2016 | economistsview.typepad.com
Simon Wren-Lewis has a follow-up to his recent post on central bank independence:
The 'strong case' critically examined : Perhaps it was too unconventional setting out an argument (against independent central banks, ICBs) that I did not agree with, even though I made it abundantly clear that was what I was doing. It was too much for one blogger, who reacted by deciding that I did agree with the argument, and sent a series of tweets that are best forgotten. But my reason for doing it was also clear enough from the final paragraph. The problem it addresses is real enough, and the problem appears to be linked to the creation of ICBs.

The deficit obsession that governments have shown since 2010 has helped produce a recovery that has been far too slow, even in the US. It would be nice if we could treat that obsession as some kind of aberration, never to be repeated, but unfortunately that looks way too optimistic.

The Zero Lower Bound (ZLB) raises an acute problem for what I call the consensus assignment (leaving macroeconomic stabilisation to an independent, inflation targeting central bank), but add in austerity and you get major macroeconomic costs. ICBs appear to rule out the one policy (money financed fiscal expansion) that could combat both the ZLB and deficit obsession.

I wanted to put that point as strongly as I could. Miles Kimball does something similar here , although without the fiscal policy perspective ...

Skipping ahead (and omitting quite a bit of the argument):

... The basic flaw with my strong argument against ICBs is that the ultimate problem (in terms of not ending recessions quickly) lies with governments. There would be no problem if governments could only wait until the recession was over (and interest rates were safely above the ZLB) before tackling their deficit, but the recession was not over in 2010. Given this failure by governments, it seems odd to then suggest that the solution to this problem is to give governments back some of the power they have lost. Or to put the same point another way, imagine the Republican Congress in charge of US monetary policy.

But if abolishing ICBs is not the answer to the very real problem I set out, does that mean we have to be satisfied with the workarounds? One possibility that a few economists like Miles Kimball have argued for is to effectively abolish paper money as we know it, so central banks can set negative interest rates. Another possibility is that the government (in its saner moments) gives ICBs the power to undertake helicopter money. Both are complete solutions to the ZLB problem rather than workarounds. Both can be accused of endangering the value of money. But note also that both proposals gain strength from the existence of ICBs: governments are highly unlikely to ever have the courage to set negative rates, and ICBs stop the flight times of helicopters being linked to elections.

These are big (important and complex) issues. There should be no taboos that mean certain issues cannot be raised in polite company. I still think blog posts are the best medium we have to discuss these issues, hopefully free from distractions like partisan politics.

Posted by Mark Thoma on Tuesday, March 8, 2016 at 12:24 AM in Economics , Fiscal Policy , Monetary Policy , Politics | Permalink Comments (28)

[Sep 12, 2016] Neoliberal pseudo theories vs tobin

Notable quotes:
"... We don't get to do many controlled experiments in economics, so history is mainly what we have to go on. ..."
"... What did orthodox salt-water macroeconomists believe about disinflation on the eve of the Paul Volcker contraction? As it happens, we have an excellent source document: James Tobin's "Stabilization Policy Ten Years After," * presented at Brookings in early 1980. ..."
"... Unemployment shot up faster than in Tobin's simulation, then came down faster, because the Fed didn't follow the simple rule he assumed. But the basic shape - a clockwise spiral, with inflation coming down thanks to a period of very high unemployment - was very much in line with what standard Keynesian macro said would happen. ..."
"... trade between any two regional economies is roughly proportional to the product of their GDPs and inversely related to distance. Neat. ..."
Sep 02, 2015 | economistsview.typepad.com

anne said...

http://krugman.blogs.nytimes.com/2015/09/01/the-triumph-of-backward-looking-economics/

September 1, 2015

The Triumph of Backward-Looking Economics

By Paul Krugman

We don't get to do many controlled experiments in economics, so history is mainly what we have to go on. Unfortunately, many people who imagine that they know how the economy works go with what they think they heard about history, not with what actually happened. And I'm not just talking about the great unwashed; quite a few well-known economists seem not to have heard about FRED, or at least haven't picked up the habit of doing a quick scan of the actual data before making assertions about facts.

And there's one decade in particular where people are weirdly unaware of the realities: the 1980s. A lot of this has to do with Reaganolatry: the usual suspects have repeated so often that it was a time of extraordinary, incredible success that I often encounter liberals who believe that something special must have happened, that somehow the events were at odds with what the prevailing macroeconomic models of the time said would happen.

But nothing special happened, aside from the unexpected willingness of the Federal Reserve to impose incredibly high unemployment in order to bring inflation down.

What did orthodox salt-water macroeconomists believe about disinflation on the eve of the Paul Volcker contraction? As it happens, we have an excellent source document: James Tobin's "Stabilization Policy Ten Years After," * presented at Brookings in early 1980. Among other things, Tobin laid out a hypothetical disinflation scenario based on the kind of Keynesian model people like him were using at the time (which was also the model laid out in the Dornbusch-Fischer and Robert Gordon textbooks).

These models included an expectations-augmented Phillips curve, ** with no long-run tradeoff between inflation and unemployment - but expectations were assumed to adjust gradually based on experience, rather than changing rapidly via forward-looking assessments of Fed policy.

This was, of course, the kind of model the Chicago School dismissed scathingly as worthy of nothing but ridicule, and which was more or less driven out of the academic literature, even as it continued to be the basis of a lot of policy analysis.

So here was Tobin's picture:

[Picture]

Here's what actually happened:

[Graph]

Unemployment shot up faster than in Tobin's simulation, then came down faster, because the Fed didn't follow the simple rule he assumed. But the basic shape - a clockwise spiral, with inflation coming down thanks to a period of very high unemployment - was very much in line with what standard Keynesian macro said would happen. On the other hand, there was no sign whatsoever of the kind of painless disinflation rational-expectations models suggested would happen if the Fed credibly announced its disinflation plans.

anne said...

http://krugman.blogs.nytimes.com/2015/09/01/gravity/

September 1, 2015

Gravity
By Paul Krugman

Now that's fun: Adam Davidson tells us * about trade in the ancient Near East, as documented by archives found in Kanesh - and reports that the volume of trade between Kanesh and various trading partners seems to fit a gravity equation: trade between any two regional economies is roughly proportional to the product of their GDPs and inversely related to distance. Neat.

But what does the seemingly universal applicability of the gravity equation tell us? Davidson suggests that it's an indication that policy can't do much to shape trade. That's not where I would have gone, and it's not where those who have studied the issue closely ** have gone.

Here's my take: Think about two cities with the same per capita GDP - we can relax that assumption in a minute. They will trade if residents of city A find things being sold by residents of city B that they want, and vice versa.

So what's the probability that an A resident will find a B resident with something he or she wants? Applying what one of my old teachers used to call the principle of insignificant reason, a good first guess would be that this probability is proportional to the number of potential sellers - B's population.

And how many such desirous buyers will there be? Again applying insignificant reason, a good guess is that it's proportional to the number of potential buyers - A's population.

So other things equal we would expect exports from B to A to be proportional to the product of their populations.

What if GDP per capita isn't the same? You can think of this as increasing the "effective" population, both in terms of producers and in terms of consumers. So the attraction is now the product of the GDPs.

Is there anything surprising about the fact that this relationship works pretty well? A bit. Standard pre-1980 trade theory envisaged countries specializing in accord with their comparative advantage - England does cloth, Portugal wine. And these models suggest that how much countries trade should have a lot to do with whether they are similar or not. Cloth exporters shouldn't be selling much to each other, but should instead do their trading with wine exporters. In reality, however, there's basically no sign of any such effect: even seemingly similar countries trade about as much as a gravity equation says they should.

Calibrated models of trade have long dealt with this reality, somewhat awkwardly, with the so-called Armington assumption, *** which simply assumes that even the apparently same good from different countries is treated by consumers as a differentiated product - a banana isn't just a banana, it's an Ecuador banana or a Saint Lucia banana, which are imperfect substitutes. The new trade theory some of us introduced circa 1980 - or as some now call it, the "old new trade theory" - does a bit more, and possibly better, by introducing monopolistic competition and increasing returns to explain why even similar countries produce differentiated products.

And there's also a puzzle about both the effect of distance and the effect of borders, both of which seem larger than concrete costs can explain. Work continues.

Does any of this suggest the irrelevance of trade policy? Not really. Changes in trade policy do have obvious effects on how much countries trade. Look at what happened when Mexico opened up starting in the late 1980s, as compared with Canada, which was fairly open all along - and which, like Mexico, mainly trades with the US:

[Graph]

So what does gravity tell us? Simple Ricardian comparative advantage is clearly incomplete; the process of international trade is subtler, with invisible as well as visible costs. Not trivial, but not too unsettling. And gravity models are very useful as a benchmark for assessing other effects.

* http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html

** https://www2.bc.edu/~anderson/GravitySlides.pdf

*** http://wits.worldbank.org/wits/wits/witshelp/Content/SMART/Demand%20side%20the%20Armington.htm

anne -> anne...

http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html

August 29, 2015

The V.C.s of B.C.
By ADAM DAVIDSON

One morning, just before dawn, an old man named Assur-idi loaded up two black donkeys. Their burden was 147 pounds of tin, along with 30 textiles, known as kutanum, that were of such rare value that a single garment cost as much as a slave. Assur-idi had spent his life's savings on the items, because he knew that if he could convey them over the Taurus Mountains to Kanesh, 600 miles away, he could sell them for twice what he paid.

At the city gate, Assur-idi ran into a younger acquaintance, Sharrum-Adad, who said he was heading on the same journey. He offered to take the older man's donkeys with him and ship the profits back. The two struck a hurried agreement and wrote it up, though they forgot to record some details. Later, Sharrum-­Adad claimed he never knew how many textiles he had been given. Assur-idi spent the subsequent weeks sending increasingly panicked letters to his sons in Kanesh, demanding they track down Sharrum-Adad and claim his profits.

These letters survive as part of a stunning, nearly miraculous window into ancient economics. In general, we know few details about economic life before roughly 1000 A.D. But during one 30-year period - between 1890 and 1860 B.C. - for one community in the town of Kanesh, we know a great deal. Through a series of incredibly unlikely events, archaeologists have uncovered the comprehensive written archive of a few hundred traders who left their hometown Assur, in what is now Iraq, to set up importing businesses in Kanesh, which sat roughly at the center of present-day Turkey and functioned as the hub of a massive global trading system that stretched from Central Asia to Europe. Kanesh's traders sent letters back and forth with their business partners, carefully written on clay tablets and stored at home in special vaults. Tens of thousands of these records remain. One economist recently told me that he would love to have as much candid information about businesses today as we have about the dealings - and in particular, about the trading practices - of this 4,000-year-old community.

Trade is central to every key economic issue we face. Whether the subject is inequality, financial instability or the future of work, it all comes down to a discussion of trade: trade of manufactured goods with China, trade of bonds with Europe, trade over the Internet or enabled by mobile apps. For decades, economists have sought to understand how trade works. Can we shape trade to achieve different outcomes, like a resurgence of manufacturing or a lessening of inequality? Or does trade operate according to fairly fixed rules, making it resistant to conscious planning?

Economists, creating models of trade, have faced a challenge, because their data have derived exclusively from the modern world. Are their models universal or merely reflections of our time? It's a crucial question, because many in our country would like to change our trading system to protect American jobs and to improve working conditions here and abroad. The archives of Kanesh have proved to be the greatest single source of information about trade from an entirely premodern milieu.

In a beautifully detailed new book - ''Ancient Kanesh,'' written by a scholar of the archive, Mogens Trolle Larsen, to be published by Cambridge University Press later this year - we meet dozens of the traders of Kanesh and their relatives back home in Assur. Larsen has been able to construct family trees, detailing how siblings and cousins, parents and spouses, traded with one another and often worked against one another. We meet struggling businessmen, like Assur-idi, and brilliant entrepreneurs, like Shalim-Assur, who built a wealthy dynasty that lasted generations. In 2003, while covering the war in Iraq, I traveled to many ancient archaeological sites; the huge burial mounds, the carvings celebrating kings as relatives to the gods, all gave the impression of a despotic land in which a tiny handful of aristocrats and priests enjoyed dictatorial control. But the Kanesh documents show that at least some citizens had enormous power over their own livelihoods, achieving wealth and power through their own entrepreneurial endeavors.

The details of daily life are amazing, but another scholar, Gojko Barjamovic, of Harvard, realized that the archive also offered insight into something potentially more compelling. Many of the texts enumerate specific business details: the price of goods purchased and sold, the interest ate on debt, the costs of transporting goods and the various taxes in the many city-states that the donkey caravans passed on the long journey from Assur to Kanesh. Like most people who have studied Kanesh, Barjamovic is an Assyriologist, an expert in ancient languages and culture. Earlier this year, he joined some economists, as well as some other Assyriologists and archaeologists, on a team that analyzed Kanesh's financial statistics. The picture that emerged of economic life is staggeringly advanced. The traders of Kanesh used financial tools that were remarkably similar to checks, bonds and joint-stock companies. They had something like venture-capital firms that created diversified portfolios of risky trades. And they even had structured financial products: People would buy outstanding debt, sell it to others and use it as collateral to finance new businesses. The 30 years for which we have records appear to have been a time of remarkable financial innovation....

anne said...

http://krugman.blogs.nytimes.com/2015/09/01/multipliers-what-we-should-have-known/

September 1, 2015

Multipliers: What We Should Have Known
By Paul Krugman

There's a very nice interview * with Olivier Blanchard, who is leaving the International Monetary Fund, in which among other things Olivier says the right thing about changing one's mind:

"With respect to outside, the issue I have been struck by is how to indicate a change of views without triggering headlines of 'mistakes,' 'Fund incompetence,' and so on. Here, I am thinking of fiscal multipliers. The underestimation of the drag on output from fiscal consolidation was not a 'mistake' in the way people think of mistakes, e.g. mixing up two cells in an excel sheet. It was based on a substantial amount of prior evidence, but evidence which turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. We got a lot of flak for admitting the underestimation, and I suspect we shall continue to get more flak in the future. But, at the same time, I believe that we, the Fund, substantially increased our credibility, and used better assumptions later on. It was painful, but it was useful."

Indeed. There are a lot of people out there whose idea of a substantive argument is "you used to say X, now you say Y" - never mind the reasons why you changed your view, and whether it was right to do so.It's important not to fall into the trap of being afraid to let new evidence or analysis speak.

One thing I would say, however, is that on this particular issue the Fund should have known better. Olivier says that the evidence "turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts", but didn't we know that? I certainly did. **

And let me also beat one of my favorite drums: the prediction that multipliers would be much larger in a liquidity trap came out of IS-LMish macro (or, to be fair, New Keynesian models) and has been overwhelmingly confirmed by experience. So this was yet another victory for Keynesian analysis, the success story nobody will believe.

* http://www.imf.org/external/pubs/ft/survey/so/2015/RES083115A.htm

** http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/

anne -> anne...

http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/

November 10, 2009

Depression Multipliers
By Paul Krugman

Barry Eichengreen and Kevin O'Rourke have lately been scoring a series of research coups, based on the combination of historical perspective and a global view. Most famously, they showed that on a global basis the first year of the current crisis was every bit as severe * as the first year of the Great Depression.

Now they and collaborators have a new piece on policy effects, ** especially fiscal multipliers.

The background here is that there are two problems with estimating multipliers relevant to our current situation. First, you need to look at what happens under liquidity-trap conditions - and except in Japan,these haven't prevailed anywhere since the 1930s. The second is that in the United States, fiscal policy was never forceful enough to provide a useful natural experiment. We didn't have a really big fiscal expansion until World War II; and WWII isn't a good experiment because the surge in defense spending was accompanied by government policies that suppressed private demand, such as rationing and restrictions on investment. (I really, really don't understand why this point has been so hard to get across.)

What E&R do here is use a broad international cross-section to overcome this problem. This works because a number of countries had major military buildups during the 1930s - fiscal expansions that can be regarded as exogenous to the economic situation, since they were

"driven above all by Hitler's rearmament programmes and other nations' efforts to match the Nazis in this sphere, and by one-off events like Italy's war in Abyssinia."

What do E&R find? Initial fiscal multipliers of 2 or more, although they shrink over time. Yes, fiscal expansion is expansionary.

* http://www.voxeu.org/index.php?q=node/3421

** http://www.econ.berkeley.edu/~eichengr/great_dep_great_cred_11-09.pdf

So how does the decade of the 1980s end up being perceived as a defeat for Keynesians? To see it that way you have to systematically misrepresent both what happened to the economy and what people like Tobin were saying at the time. In reality, Tobinesque economics looks very good in the light of events.

* http://www.brookings.edu/~/media/Projects/BPEA/1980-1/1980a_bpea_tobin.PDF

** http://en.wikipedia.org/wiki/Phillips_curve

In economics, the Phillips curve is a historical inverse relationship between rates of unemployment and corresponding rates of inflation that result in an economy. Stated simply, decreased unemployment, (i.e. increased levels of employment) in an economy will correlate with higher rates of inflation.

[Sep 09, 2016] He who pays the piper calls the tune all over the science

See also http://www.scientificamerican.com/article/the-economist-has-no-clothes/ The Economist Has No Clothes. Unscientific assumptions in economic theory are undermining efforts to solve environmental problems
Notable quotes:
"... Science and scientists are now heavily politicized. A lot of them are just political charlatans spreading nonsense for money and abusing mathematics, using it as smoke screen to hide their disgraceful actions. Take for example neoclassical economists. ..."
"... Many scientists now have connections and receive funding from military industrial complex or other industrial lobbies which also affects objectivity. ..."
"... Scientists with integrity of Rutherford are extinct. Now this is "He who pays the piper calls the tune" all over the science. ..."
"... That does not exclude objectivity, but it now can never be taken for granted. Scientific schools struggles can now well be the struggles of influence groups standing behind particular groups of scientists. The attitude should be like in the Russian proverb that Reagan used to love so much: "Trust but verify" ..."
"... How about such thing as Lysenkoism? Is not this a cancer for science, from which there is essentially cures are as difficult to obtain and are as destructive as for regular cancer. ..."
"... IMHO you can view neoclassical economics as a cancer or a modern version of Lysenkoism (and a very successful, dominant one), if you wish (with due apologies to "strict" supply-demand equilibrium believers; of course, in a long run everything comes to equilibrium, but in a long run we all are dead ;-). ..."
"... How the existence and success of Lysenkoism ( let's say in the form of neoclassical economics ) correlates with your optimism about modern science and scientists ? That is the question to be answered. ..."
peakoilbarrel.com
likbez , 06/19/2016 at 11:50 am
Nick,

You are way too quick to dismiss TT concerns. He has some strong points.

Moreover I think you never heard about Lysenkoism, right ?

Science and scientists are now heavily politicized. A lot of them are just political charlatans spreading nonsense for money and abusing mathematics, using it as smoke screen to hide their disgraceful actions. Take for example neoclassical economists.

Many scientists now have connections and receive funding from military industrial complex or other industrial lobbies which also affects objectivity.

Scientists with integrity of Rutherford are extinct. Now this is "He who pays the piper calls the tune" all over the science.

As such most of them (outside few fields yet not politicized enough, like pure mathematics ) became the same prostitutes for the elite as journalists.

That does not exclude objectivity, but it now can never be taken for granted. Scientific schools struggles can now well be the struggles of influence groups standing behind particular groups of scientists. The attitude should be like in the Russian proverb that Reagan used to love so much: "Trust but verify"

texas tea , 06/19/2016 at 5:34 pm

NickG

"But…when it comes to fossil fuels, the political pressure is coming from the fossil fuel industry, to suppress the truth about it's problems."

I believe that to be just flat out wrong. The fossil fuel industry will get along just fine, it is baked in the cake from the standpoint the entirety of our worlds civilization is based on fossil fuels. The advancement of our civilization required it, the continuation of our civilization requires it

(at least in the short and medium terms.) That may/will in change in time because of the depletion of resources and the increasing cost to recover, but as Ron and others have pointed out, not until we have consumed every last drop of recoverable oil, nat gas and coal. Best case it will be photo finish to see if the world can roll out renewables before the impact of peak oil to seriously wreck havoc on the worlds economy and standard of living for those around when it happens. To the degree there is political pressure, I would suggest you try to understand the business side of the issues as they relate to the tax structures for local and state finances and even on a federal level. I suppose you have paid the gasoline tax that keeps roads in repair? I think you understand that oil and gas held in private hands are considered real property right?

Everyone who owns minerals, just like the lands the oil and gas sits under, have a vested interest in the value and are taxed providing income to a great number of people including school systems all across our state. The business interest and employment in all aspects of the production, transportation, refining, and distribution. The motor car companies, the mechanics, the quick stops all across the country. The vested interest in the status quo are far reaching and are seen widely as a benefit. The idea that if just Exxon and the Koch brothers would just shut up everything would be hunky-dory is beyond naive!

likbez , 06/19/2016 at 12:03 pm

How about such thing as Lysenkoism? Is not this a cancer for science, from which there is essentially cures are as difficult to obtain and are as destructive as for regular cancer.

IMHO you can view neoclassical economics as a cancer or a modern version of Lysenkoism (and a very successful, dominant one), if you wish (with due apologies to "strict" supply-demand equilibrium believers; of course, in a long run everything comes to equilibrium, but in a long run we all are dead ;-).

How the existence and success of Lysenkoism ( let's say in the form of neoclassical economics ) correlates with your optimism about modern science and scientists ? That is the question to be answered.

See also the post above

http://peakoilbarrel.com/north-dakota-down-over-70000-bpd-in-april/#comment-573372

[Sep 01, 2016] The scholarly publishing world has become quite a racket.

Notable quotes:
"... The scholarly publishing world has become quite a racket. I work at a small community college and our monograph budget has been eaten away over the years due to the high & continually increasing costs of subscriptions to academic journals, trade and general magazines. ..."
"... In 2015, Elsevier reported a profit margin of approximately 37% on revenues of £2.070 billion. ..."
"... I'm sensing a resurgence of the conversation, what with trade pacts and digital rights and whatnot. How can an abstraction have wants? Information may be very cheap to reproduce but takes energy to maintain. ..."
Sep 01, 2016 | www.nakedcapitalism.com
Cynthia , September 1, 2016 at 2:20 am

As a librarian in Canada, I can tell you that my profession has long advocated for open access to scholarly research. There are many institutions with policies that ask or expect their faculty to publish in open access journal or institutional repositories. https://en.m.wikipedia.org/wiki/Open_access

The scholarly publishing world has become quite a racket. I work at a small community college and our monograph budget has been eaten away over the years due to the high & continually increasing costs of subscriptions to academic journals, trade and general magazines.

It is crazy that libraries in public institutions are paying so much money to access research funded wholy or in part by themselves or other public institutions. Advocating for open access and advising faculty about their options and advocating that they not give away copyright to big publishers like Wiley and Elsevier is part of what many academic librarians do these days.

Jim Haygood , August 31, 2016 at 8:05 pm

Upload a paper, starve an Elsevier:

In 2015, Elsevier reported a profit margin of approximately 37% on revenues of £2.070 billion.

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

"Knowledge wants to be free."

Cynthia , September 1, 2016 at 2:26 am

The phrase is "Information wants to be free". Here's an interesting origin story: https://backchannel.com/the-definitive-story-of-information-wants-to-be-free-a8d95427641c#.fbf9cq38l

Steve H. , September 1, 2016 at 10:30 am

That's a wonderful story, Cynthia, thank you.

I'm sensing a resurgence of the conversation, what with trade pacts and digital rights and whatnot. How can an abstraction have wants? Information may be very cheap to reproduce but takes energy to maintain.

Excellent back and forth between Woz and Brand.

[Aug 14, 2016] How the Fed Promoted Financial Dominance and Shadow Banking by Promoting Repo

Notable quotes:
"... By Daniela Gabor is associate professor in economics at the University of the West of England, Bristol. Originally published at the Institute for New Economic Thinking website ..."
"... For a detailed account see Gabor, D. (2016) The (impossible) repo trinity : the political economy of repo markets, Review of International Political Economy, doi 10.1080/09692290.2016.1207699 ..."
www.nakedcapitalism.com

... ... ...

By Daniela Gabor is associate professor in economics at the University of the West of England, Bristol. Originally published at the Institute for New Economic Thinking website

Since the 1980s, central banks have been increasingly freed from fiscal dominance , the obligation to monetize government debt. The new regime of monetary dominance celebrated the (price) stability benefits of insulating scientific monetary policy from poorly theorized, highly politicized fiscal policy. Yet the growing dominance of the 'monetary science, fiscal alchemy' view in both academia and policy circles played a critical role in the rapid rise of shadow banking. The untold story of shadow banking is the story of (failed) attempts to separate monetary from fiscal policy, and of the bordeland that connects them, mapped onto the repo market .

While the state withdrew from economic life, privatizing state-owned enterprises or state banks, and putting macroeconomic governance in the hands of independent central banks, its role in financial life grew bigger. Sovereign debt evolved into the cornerstone of modern financial systems, used as benchmark for pricing private assets, for hedging and as base asset for credit creation via shadow banking . The state's role as debt issuer, passive and systemic at once, has been reliant, beyond the arithmetic of budget deficits, on the intricate workings of the repo trinity.

The repo trinity captures a consensus in central bank circles emerging after the 1998 Russian crisis, the first systemic crisis of collateral-intensive finance, that financial stability requires liquid government bond markets and liberalized repo markets (fig. 1).

Figure 1 The repo trinity

gabbor-f1

The repo-government bond market nexus took shape in the 1980s. In the US, securities dealers preferred repos to secured lending against collateral because market convention treated repos as outright sales and repurchases of collateral that allowed dealers to re-use collateral for a wide range of activities (short-selling, hedging, selling to a third party). When bankruptcy courts decided that repos would be subjected to automatic stay rules, Paul Volcker, then the Federal Reserve chairperson, successfully lobbied Congress to exempt repos with US Treasuries (UST) and agency securities collateral. Then, Salomon Brothers short-squeezed the UST market in 1991 by becoming the only repo supplier of a two-year note. This allowed Salomon to fund securities through repo transactions at exceptionally low rates. The ensuing public enquiry into the Salomon scandal showed little appetite for regulating repos. Rather, the Fed and the Treasury introduced new practices to fix gaps in repo plumbing, celebrating repos as innovative, liquidity enhancing instruments that would support the state in the post fiscal-dominance era.

The UST blueprint diffused rapidly to Europe. Pressured to adjust to a world of independent central banks, market-based financing and global competition for liquidity, European states embarked on a project of creating modern government bond markets, with modernity understood to mean the structural features of the US government bond market: regular auctions, market-making based on primary dealers and a liberalised repo market.

Central banks were at first divided on the benefits of opening up repo markets. While Banque de France followed the US Fed in assuming a catalyst role for the repo-sovereign bond market nexus, Bundesbank and Bank of England worried that deregulated repo markets would unleash structural changes in finance that could undermine the conduct of monetary policy and financial stability. In the architecture of the US government bond market, the Bundesbank saw the conditions nurturing short-term , fragile finance. Seeking to keep banks captive on the uncollateralized segment of interbank markets, Bundesbank imposed reserve requirements on repo liabilities. In parallel, as government's fiscal agent, Bundesbank followed a conservative strategy, with irregular auctions, issuance concentrated at long maturities and repo rules that increased the costs of funding bunds via repos. German banks responded by moving (bund) repo activities to London and warned that France's open repo strategy would make it into the benchmark sovereign issuer for the Euroarea. For similar reasons, the Bank of England exercised strict control over the repo gilt market for 10 years after the 1986 Big Bang liberalisation of financial markets. Under intense pressure from the financial industry and Ministries of Finance, the two central banks liberalized repo markets by 1997.

As the fragilities of the new, collateral-intensive world became apparent in the 1998 Russian crisis, central banks working together in the Committee on the Global Financial System subscribed to the policy goals of the repo trinity. The CGFS argued that financial stability in market-based finance required global safe assets, issued in government bond markets, in turn 'lubricated' by free repo markets with carefully designed (but not regulated) risk management regimes.

In pursuing the objectives of the repo trinity, central banks helped consolidate the critical role that sovereign bonds play in modern financial markets. Throughout the 2000s, the shortage of US government bonds saw the trinity extended to include securitization markets, while the Euro project galvanized consensus for a European repo trinity, whereby central banks encouraged the European banks dominating the repo market to treat all Euro sovereign debt as high-quality collateral .

After Lehman, central banks and the Financial Stability Board recognized the impossible nature of the repo trinity, attributing cyclical leverage, fire sales and elusive liquidity in collateral markets, including government bond markets, to free repo markets. Central banks, with the Bank of England leading the way, now accept that financial stability means supporting liquidity in collateral markets in times of stress rather than supporting banking institutions as in the traditional lender of last resort (LOLR) model. Paradoxically, LOLR support, implemented through repo loans, can destabilize (shadow) banks where central banks' collateral framework follows collateral market valuations (figure 2).

Figure 2 The impossible repo trinity

gabbor-f2

The quiet revolution in crisis central banking that involves direct support for core markets may appear like, but does not entail a return to, fiscal dominance. Rather, it creates financial dominance , defined as asymmetric support for falling asset prices. While financial dominance should be addressed by direct regulatory interventions, the quest for biting repo rules has so far proved illusive. The precise impact of Basel III liquidity and leverage rules is yet to be determined, whereas the failed attempts to include repos in the European Financial Transactions Tax and the FSB's watered-down repo proposals suggest that (countercyclical) collateral rules are only possible once states design alternative models of organizing their sovereign debt markets. Paradoxically, new initiatives in Europe suggest that a return to the repo trinity is rather more likely: the Capital Market Union plans to create Simple, Transparent and Standardized ( STS ) securitisation again illustrate the catalyst role that central banks choose to play in market-driven solutions to safe asset shortages.

For a detailed account see Gabor, D. (2016) The (impossible) repo trinity : the political economy of repo markets, Review of International Political Economy, doi 10.1080/09692290.2016.1207699

ArkansasAngie , August 13, 2016 at 7:49 am

Intrinsically, that is authoritative … fascism,

Can't trust politicians or voters to make the right choices.

That's not a slippery slope … it's a dad gum cliff

Take decision making away from politicians and their constituents and place it in the hands of unelected yahoos.

That's a bridge to far …IMHO

Where have we seen these seeds? Why the European Union.

A troika coming to your town?

hemeantwell , August 13, 2016 at 7:59 am

Uhhh. The article is one of the rare "too short, wish it was longer" breed.

I'll hazard a remark: how can securitization be "transparent" if, as one of the articles yesterday discussed, central banks intervene to support banks so as to allow them to avoid having the market deliver a price verdict on asset value?

beene , August 13, 2016 at 8:57 am

Any time you let central banks like the Federal Bank of NY create money from debt; bankruptcy is on the horizon. This has only been proven true for around five thousand years.

For a recent example have a look at the difference in government debt in Canada now verses when it had a public banking system.

financial matters , August 13, 2016 at 8:37 am

I think this is an important point:

"Throughout the 2000s, the shortage of US government bonds saw the trinity extended to include securitization markets,"

This started treating asset based securities similar to US Treasuries

Also this:

"fire sales and elusive liquidity in collateral markets, including government bond markets,"

I don't think the European government bond market can be treated as sovereign government bonds as they don't have that guarantee of backing from a central bank.

----

Quite simply, US Treasuries can be put to much better use than supporting asset prices and other financial products.

The first target should be unemployment.

Jesper , August 13, 2016 at 12:53 pm

Repos hide risk and makes it possible to increase leverage. Why would anyone but financial institutions want that?
But since financial institutions rule all then I suppose that repos will continue and as a gesture of goodwill (dressed up as something else) they'll just become more and more complex – those (high) fees for the professionals enabling the practice has to be justified somehow…

sunny129 , August 13, 2016 at 5:21 pm

More complex invites, less transparency, more instability and volatility!

Until RESET or forced of gravity of reversion to the mean, over power the CBers, this charade will go on!

nothing but the truth , August 13, 2016 at 5:01 pm

the forced identity between credit and currency is the root of a lot problems.

it should not be the taxpayer funded mandate of the the govt to enforce this identity.

[Jul 20, 2016] Bill Black: Mankiws Mythical Ten Commandments of Theoclassical Economics

Notable quotes:
"... Democrats: Please Renounce Mankiw's Myths ..."
"... Mankiw is a propagandist. ..."
"... The values and ideology represented in the Economics textbook Bill Black analyzed didn't arise in a vacuum. The points Black lists reflect the ideology, values, ethics and interests of a narrow segment of our society who have accumulated enormous personal wealth through a variety of extra-legal and illegal mechanisms, and who use a small portion of that wealth to fund "Economics Chairs" in our public and private universities; economics "think tanks"; and speeches, books, consulting engagements, and board memberships for "prominent economists". ..."
"... Mankiw is a shill/useful idiot for his oligarchs patrons. #11 explains the idiocy of the previous 10. ..."
"... Did the banks which loaned billions to the gas frackers of North Dakota know that production would exceed demand and cause a crash? Perhaps the loan officer might have such concern, but would more likely be most concerned with his/her own bottom line – a meme Yves explores in Econned. ..."
"... Newly-printed money CAN cause inflation, but WHERE the price rises happen depends greatly on the pockets in which the money lands. ..."
"... stocks, real estate, luxury goods, premium educations, etc. ..."
"... This kind of ignorant cluelessness is pretty prevalent among the oligarchy and its supporters like Mankiw. Just like that guy in Davos who simply couldn't understand why there's so much social unrest in the world today. They live in a completely different world. ..."
"... My first exposure to Mankiw's principles was actually an early version of the talk by Yoram Bauman in this video. It hits several of the points Mr. Black makes and is also pretty funny. It definitely demonstrates how Mankiw attempts to cloak his biases in supposedly neutral terms. ..."
"... I doubt Mankiw will accept 100% estate tax on the justification that the cost of bequests is zero to the recipient. (and thus a 100% estate tax doesn't incur large costs on the recipient) ..."
"... My paper lists four principles claimed to be at the core of modern economics by Mankiw and then shows how all four principles are false: Amir-ud-Din, Rafi and Zaman, Asad, Failures of the 'Invisible Hand' (July 15, 2013). Forum for Social Economics, Vol. 45, Iss. 1, 2016. Available at SSRN: http://ssrn.com/abstract=2293940 or http://dx.doi.org/10.2139/ssrn.2293940 ..."
May 17, 2016 | nakedcapitalism.com

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published with New Economic Perspectives

This is the second column in a series on the N. Gregory Mankiw's myths and dogmas that he spreads in his economic textbooks. The first column exposed the two (contradictory) meta-myths that begin his preface. This column de-mythologizes Mankiw's unprincipled " principles " of economics – the ten commandments of theoclassical economics' priestly caste. Some of these principles, correctly hedged, could be unobjectionable, but in each case Mankiw dogmatically insists on pushing them to such extremes that they become Mankiw myths.

To understand Mankiw's mythical 10 commandments, one must understand "Mankiw morality" – a morality that remains hidden in each of his textbooks. Few people understand how radically theoclassical economics has moved in the last thirty years. Milton Friedman famously argued that CEOs should operate exclusively in the interest of shareholders. Mankiw, however, is a strong supporter of the view that CEOs will not only defraud customers, but also shareholders and creditors by looting the firm. "[I]t would be irrational for savings and loans [CEOs] not to loot." "Mankiw morality" decrees that if you have an incentive as CEO to loot, and fail to do so, you are not moral – you are insane. Mankiw morality was born in Mankiw's response as discussant to George Akerlof and Paul Romer's famous 1993 article "Looting: The Economic Underworld of Bankruptcy for Profit."

Mankiw's textbooks preach the wonders of the indefensible a system he has helped design to allow elite CEOs to loot the shareholders with impunity – the antithesis of Friedman's stated goal. Mankiw morality helps create the "criminogenic environments" that produce the epidemics of "control fraud" that drive our recurrent, intensifying financial crises. It is essential to interpret Mankiw's ten myths in light of his unacknowledged immoral views about how CEOs will and should respond to incentives to rig the system against the firm's consumers, employees, creditors, and shareholders. His textbooks religiously avoid any disclosure of Mankiw morality or its implications for perverting his ten commandments into an unethical and criminogenic dogma that optimizes the design of a criminogenic environment.

Mankiw's myths

  1. People Face Tradeoffs. To get one thing, you have to give up something else. Making decisions requires trading off one goal against another.

    This can be true, but Mankiw pushes his principle to the point that it becomes a myth. Life is filled with positive synergies and externalities. If you study logic or white-collar criminology you will make yourself a far better economist. You may trade off hours of study, but not "goals." If your "goal" is to become a great economist you will not be "trading off one goal against another" if you become a multidisciplinary scholar – you will strongly advance your goal. If you study diverse research methods you will be a far better economist than if you study only econometrics.

  2. The Cost of Something is What You Give Up to Get It. Decision-makers have to consider both the obvious and implicit costs of their actions.

    "Opportunity costs" are an important and useful economic concept, but Mankiw's definition sneaks ideological baggage into both sentences that turns his principle into multiple myths. Mankiw implicitly assumes fraud and other forms of theft out of existence in the first sentence. "Cost" is often not measured in economics by "what you give up to get it." If your inherit a home that lacks fire insurance and immediately burns down there is a cost to you (and society) even though you gave up nothing to inherit the home. If the CEO loots "his" firm he gave up nothing to get the millions, but if he loses those millions he will consider it to have a "cost." Theoclassical economists have a primitive tribal taboo against even using the "f" word (fraud).

    Decision-makers frequently ignore the "costs of their actions." There is nothing in economic theory or experience that supports the claim that the "decision-makers" "have" to consider costs. It is rare that decision-makers must do – or not do – anything.

    It is likely that Mankiw means that optimization requires decision-makers to "consider" all "costs of their actions," but that too is a myth. Theoclassical optimization requires perfect, cost-free information, pure "rationality," and no externalities. None of these conditions exist. Car buyers have no means of knowing the costs of buying a particular car. If they bought a GM car the ignition mechanism defect could cause the driver to lose the ability to control the car – turning it into an unguided missile hurtling down (or off) a highway at 70 mph. The car buyer does not know of the defect, does not know who will be driving when the defect becomes manifest, does not know who the passengers will be, and does not know who and what else could be injured or damaged as a result of the defect. The theoclassical view is that the buyer who "considers" the costs of buying his defective car to others (negative externalities) and pays more money to buy a car that minimizes those negative externalities is not acting ethically, but irrationally.

    It is typically cheaper (for the producer, not society) to produce goods of inferior (but difficult to observe) quality. The inability of the consumer to "consider" even the true costs to the consumer and the consumer's loved ones of these hidden defects means that economists began warning 46 years ago that "market forces" could become criminogenic. George Akerlof's 1970 article on markets for "lemons" even coined the term "Gresham's" dynamic to describe the process. A Gresham's dynamic is a leading form of a criminogenic environment.

    [D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.

    Akerlof was made a Nobel laureate in economics in 2001 for this body of work. Economics is the only field in which someone would write a textbook ignoring a Nobel laureate whose work has proven unusually accurate on such a critical point. There is only one reason to exclude this reality from Mankiw's myths – Akerlof's work falsifies Mankiw's myths, so Akerlof's work disappears from Mankiw's principles, as does the entire concept of fraud.

  3. Rational People Think at the Margin . A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost.

    The mythical nature of this principle flows from the multiple errors I have described. Mankiw is being deliberately disingenuous. Theoclassical economics does not claim, for example, that a firm produces a product "only if the marginal benefit of the action exceeds the marginal cost." Theoclassical economists claim that a firm sells a product "only if the marginal benefit of the action to the seller exceeds the marginal cost to the seller." The seller ignores social costs and benefits.

    For the sake of brevity, I will summarize that Mankiw's third principle is a myth for five reasons known to every economist. First, it implicitly assumes out of existence positive and negative externalities, which means that supposedly rational, self-interested decision-makers he postulates, even if they had perfect, cost-free information, would not contract to maximize social welfare.

    Second, as Mankiw morality implicitly admits, the actual optimization principle under theoclassical economics would be determined by the marginal benefits and costs of an action to the decision-maker – the CEO – not the firm, and certainly not society. Theoclassical economists, however, refuse to admit that explicitly, so it disappears from Mankiw's 10 commandments.

    Third, the information provided by CEOs is often not simply incomplete and costly, but deliberately deceptive. Where information is merely incomplete, consumers may pay far more for a product than they will benefit from the purchase. Where the seller provides deceptive information about quality, the buyer and members of the public may be harmed or even killed. The CEO may also be looting "his" firm as well as the customers. Mankiw has implicitly assumed perfect, cost-free information and implicitly assumed that fraud does not exist.

    Fourth, conflating rationality with optimization of personal costs and benefits is wrong on multiple grounds. It defines ethical behavior as "irrational" where the consumer or CEO takes into account social costs and benefits and protects the interests of others in an altruistic manner. Everything we know from behavioral economics also makes clear that humans are not "rational" in the manner predicted by theoclassical economics. Mankiw has implicitly assumed out of existence thirty years of economic research on how people actually behave and make decisions.

    Fifth, firms with monopoly power, according to theoclassical economics, maximize their profits by deliberately reducing production to a point that the social cost of producing the marginal unit is less than the marginal benefit to the consumer. Mankiw has implicitly assumed away monopolies.

  4. People Respond to Incentives. Behavior changes when costs or benefits change.

    I have responded to this myth in a prior article . The implications of his fourth principle in conjunction with Mankiw morality are devastating for theoclassical economics. CEOs create the incentives and understand how "behavior changes" among their agents, employees, and subordinate officers in response to those incentives. Under theoclassical principles this will unambiguously lead "rational" CEOs to set incentives to rig the system in favor of the CEO. Because fraud and abuse creates a "sure thing" that is certain to enrich the CEO, Mankiw's fourth commandment predicts that control frauds led by CEOs will be ubiquitous. Fortunately, many CEOs are ethical and remain ethical unless they are subjected to a severe Gresham's dynamic. As a result, Mankiw's commandments over-predict the incidence of fraud and abuse by CEOs. Similarly, experiments demonstrate that humans frequently act in altruistic manners despite financial incentives to act unfairly.

  5. Trade Can Make Everyone Better Off .
    Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services.

    See my article on faux "trade deals" that exposes this myth.

  6. Markets Are Usually a Good Way to Organize Economic Activity .
    Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government.

    Again, the key interaction under theoclassical theory is between CEO and consumers, employees, creditors, shareholders, and the general public. "Markets" are vague constructs and they work best when ethical and legal provisions reduce fraud to minor levels. When these ethical and legal institutions are not extremely effective against fraud, the incentives created by the market can be so perverse that they create a criminogenic environment that produces epidemic levels of fraud. Mankiw's myth is to describe only one possible incentive and treat it as the sole possibility other than what he falsely describes as "the opposite" – a government planner. The opposite incentive to the so-called "invisible hand" is the Gresham's dynamic. Mankiw mythically presents the government as the threat to an effective economy rather than an institution that is essential to producing and enforcing the rule of law that prevents a Gresham's dynamic.

  7. Governments Can Sometimes Improve Market Outcomes .
    When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution.

    The myth here is that government only has a desirable role where there is a "market fail[ure]." Mankiw treats "markets" as the norm and implicitly assumes that the government normally has nothing to do with making markets succeed. Even conservative classical economists admitted that the rule of law was essential to an effective economy and required an effective government. Well-functioning governments always improve "market outcomes." Indeed, they are typically essential to making possible well-functioning "markets."

    Mankiw also fails to explain that "markets" will be fictional and massively distort resource allocation (that is what a hyper-inflated bubble does) when there is an epidemic of control fraud. As I have explained, Mankiw's own principles predict (indeed, over-predict) that deregulated "markets" will frequently prove so criminogenic that they will produce epidemics of control fraud.

  8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services. Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation's productivity grows, so does its average income.

    First, the CEOs of sectors such as finance that are immensely unproductive – so unproductive that they cause enormous losses rather than growth, and receive exceptional income because they loot. Income is often based not on productivity, but on the CEOs' wealth and economic and political power that allows them to rig the economy. A nation's standard of living also depends on its employment levels, which can be crushed by economic policies such as austerity.

    The issue is not what happens to "average income," but what happens to median income, wealth, the income and wealth of the lowest quartile or particular minorities, and to income and wealth inequality. A nation can have high average productivity, yet have poor performance for decades in these other critical measures.

    Consider what has happened to the folks who tried to do everything right to boost their productivity according to the theoclassical economic "experts'" advice. This is what has happened to Latino and black households where a head of the household has at least a college degree. The source is economists at the extremely conservative St. Louis Fed .

    Hispanic and black families headed by someone with a four-year college degree, on the other hand, typically fared significantly worse than Hispanic and black families without college degrees. This was true both during the recent turbulent period (2007-2013) as well as during a two-decade span ending in 2013 (the most recent data available).

    White and Asian college-headed families generally fared much better than their less-educated counterparts. The typical Hispanic and black college-headed family, on the other hand, lost much more wealth than its less-educated counterpart. Median wealth declined by about 72 percent among Hispanic college-grad families versus a decline of only 41 percent among Hispanic families without a college degree. Among blacks, the declines were 60 percent versus 37 percent.

    One of the reasons that college-educated Latino and black families lost so much wealth compared to their white and Asian-American counterparts is that they were more likely to get their degrees from the for-profit colleges that theoclassical economists touted – colleges that frequently provided a very expensive and very poor education, often involving defrauding the students. Another reason that college-educated Latino and black families lost so much wealth compared to their white and Asian-American counterparts is that they were far more likely to be the victims of predatory home lending – an activity for which theoclassical economists served as the primary apologists.

    Mankiw also ignores critical factors that determine "a country's standard of living." Yes, China reports higher growth, but it is also operating in an unsustainable fashion that has destroyed much of its environment and threatens to be a major contributor to the global suicide strategy of causing severe climate change.

  9. Prices Rise When the Government Prints Too Much Money . When a government creates large quantities of the nation's money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services.

    No, and Mankiw knew this was a myth when he wrote it. First, "prices rise" for many reasons. Pharmaceutical prices rise because hedge fund managers take over pharma firms or encourage others to do so in order to increase prices on existing drugs by hundreds, sometimes thousands of percent. Prices rise because accounting control fraud recipes hyper-inflated the largest bubble in history in U.S. real estate. Prices rise because of cartels. Prices rise because oil cartels cause oil shocks. Prices rise due to real bottlenecks, e.g., shortages of a skill or material.

    Inflation has not risen, indeed general price levels have often fallen (deflation) despite record creation of money by central banks and private banks. Theoclassical economists have regularly predicted hyper-inflation. As Paul Krugman emphasizes, virtually none of them even admits their serial prediction failures.

  10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment . Reducing inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding the short-run effects of changes in taxes, government spending and monetary policy.

    Mankiw ends his ten myths with a series of myths. Foolish, counterproductive austerity often causes inflation to fall to harmfully low – even negative (deflation) – levels that can lead to prolonged recessions that cause severe damage to people and economies. Stimulus provides a win-win that improves economic growth and reduces human suffering without causing harmful inflation.

    A nation is able to operate at extremely high levels of employment without producing harmful inflation. Mankiw is a partisan Republican. When Republican presidents in the modern era are faced with recessions they junk their theoclassical dogmas and adopt stimulus programs, though they generally do so largely through the economically inefficient and less effective means of slashing tax rates for the wealthy.

Democrats: Please Renounce Mankiw's Myths

Unlike the Republicans, who always rise above their theoclassical principles when their president is in office and faces a recession, the "New Democrats" are the ones who seem to have drunk the theoclassical Kool-Aid and strive endlessly to create the self-inflicted wound of austerity when they are in power. New Democrats also love to bash Republican presidents for running deficits even when those deficits produced no harmful inflation and helped produce recovery. It is sensible and honest to point out that tax cuts for the wealthy are a far less effective form of stimulus and to present and support superior alternatives such as job guarantee and infrastructure programs. It would be superb if Democrats were to point out that by far the most effective, prompt means of cutting taxes to stimulate the economy in response to a recession is to cease collecting the Social Security taxes for several years. It is not fine to praise Bill Clinton for taking the harmful step of running a budget surplus or to bash Republicans because they – correctly – increased fiscal stimulus (and therefore the short-term deficit) in response to a recession.

Democrats also need to stop spreading the myth that Bill Clinton was an economic marvel. He was the luckiest president in history in terms of timing. His economic "success" was the product of two of the largest bubbles in history (the dot.com and real estate bubbles). The real estate bubble is the only thing that prevented his dot.com bubble from causing an economic collapse during his term. The real estate bubble was so enormous that it made it easy for the fraudulent CEOs to "roll" (refinance) the fraudulent loans they made, which helped cause the bubble to hyper-inflate. The saying in the trade is "a rolling loan gathers no loss." This meant that the bubble was Bill Clinton and George Bush's bubble, but it collapsed on George Bush's watch so Clinton gets the credit for the high employment produced by the twin bubbles and Bush gets the blame for the massive unemployment that a massive bubble will create when it collapses (if it is not replaced by an even larger bubble).

Selected Skeptical Comments
ke , May 17, 2016 at 1:10pm

The pots are calling the kettles black; standard politics, redundancy easily replaced by automation.

You do know that Bernie isn't going after Hillary because he has his skeletons, especially in the medical university complex, don't you. Ever live in Vermont. You did notice that Hillary just threatened him, to the core of his argument.

Jef , May 17, 2016 at 11:2am

Ke – Very insightful!

This… "Energy is information, most of which humans ignore."…and this… "Public Education policies are disgusting to anyone who really wants to learn…" are the important elements although I would add that humans don't ignore so much as don't know/are not taught, and I would say Public education has been purposefully corroded to the point of disgusting.

Left in Wisconsin , May 17, 2016 at 11:5am

Democrats: Please Renounce Mankiw's Myths

Good one.

Jim Haygood , May 17, 2016 at 12:14pm

"Prices rise" for many reasons.

Pharmaceutical prices rise because hedge fund managers take over pharma firms or encourage others to do so in order to increase prices on existing drugs by hundreds, sometimes thousands of percent. Prices rise because accounting control fraud recipes hyper-inflated the largest bubble in history in U.S. real estate. Prices rise because of cartels. Prices rise because oil cartels cause oil shocks. Prices rise due to real bottlenecks, e.g., shortages of a skill or material.

- Bill Black

----–

All of these examples treat relative price rises in the affected sector, not the general inflation which saw the U.S. CPI increase by a factor of ten (10) since 1950. Hedge funds and cartels couldn't do that, no matter how successful they were in increasing their share of the pie.

The same logic is used by union busters to claim that "greedy labor unions" cause inflation - an equally false notion. Labor can increase its share of national income at the expense of corporate profit, but it cannot cause a general inflation.

This unprecedented secular inflation did, however, coincide with government bonds surpassing gold as the Federal Reserve's largest holding in 1945, and with the dollar's gold link being severed in 1971.

Bill Black evidently hews to the scholarly tradition of the eminent Argentine economist and former central banker Mercedes Marcó del Pont:

"It is totally false to say that the printing more money generates inflation; price increases are generated by other phenomena like supply and external sector's behaviour," said Marcó del Pont.

http://tinyurl.com/jk5d64w

This from a country that lopped thirteen (13) zeros off its currency in the past century.

*takes another bong hit and blows a fat smoke ring*

ChrisPacific , May 17, 2016 at 6:35pm

I would argue that the real estate bubble caused genuine inflation because it was a credit bubble, but I agree on your other points. Intuitively I think of inflation as a rise in prices without a corresponding rise in (average) affordability. It's why a Big Mac today can cost multiple times what it did 30 years ago without being any less affordable for the average customer.

Mankiw's definition isn't precisely wrong but it's oversimplified. He doesn't address the role of banks in money creation, he doesn't define money (what about credit?) he doesn't discuss the factors that might cause government to print more or less money, and he doesn't say how much is too much. Without more rigor than he provides, it's only useful as a plausibility argument after the fact.

Regarding Black's comment:

Inflation has not risen, indeed general price levels have often fallen (deflation) despite record creation of money by central banks and private banks.

I would say this was because they were doing it during the deflation of a credit bubble on a large enough scale that money creation by the government was a drop in the bucket by comparison, and that was what caused deflation. Which again points to the importance of defining terms and operating constraints (why couldn't the government print money on a massive scale to compensate? What are the drawbacks and limitations on that approach?)

Economists do love to make doomsday hyperinflation predictions that never seem to pan out. As far as I can tell, that's because they think that the economy is inherently unstable and will lapse naturally into massive inflation (see: wage-price spiral) or some other disastrous state without the wise guiding hand of a central banker to prevent it. There seems to be very little evidence of this actually happening in reality, and the few genuine examples of hyperinflation (Weimar, Zimbabwe) have typically resulted from a collapse in production coupled with debts denominated in other currencies that (a) considerably exceed the country's ability to pay and (b) require the attempt to be made anyway.

Nathanael , May 21, 2016 at 8:0am

Notice that Mankiw managed to say nothing about "Economic instability or deflation, and eventually economic depression, is caused when the government prints TOO LITTLE money", which is actually true and happens quite reliably.

Mankiw is a propagandist.

TG , May 17, 2016 at 12:59pm

The true laws of economics:

  1. If it is physically impossible for something to occur, it won't, and finance be damned. Economics is first and foremost a branch of the physical sciences, though most economists have forgotten this.
  2. Supply and demand.
  3. Unintended consequences.
  4. High productivity does not create high wages. High wages create high productivity. If you spend a lot of money on water-conservation technology at the base of Niagara Falls, will it increase the economic value of water there?
  5. The physical utility of a commodity (including labor) is not related to its economic value. Adam Smith did get something right.
  6. Nothing in this universe can grow exponentially for very long. Societies with sustained high fertility rates will always be miserably poor, and only societies that have first reduced their fertility rate can hope to become rich.
  7. A (more-or-less) free market is indeed a powerful and essential optimization mechanism ("the invisible hand") but it is nonlinear. Like all such nonlinear optimization mechanisms, it can and does get stuck in local minima and require external directed efforts to move to a more optimal solution. This is basic math.
  8. Inflation occurs when prices go up. That's it.
  9. "Capitalism" guarantees neither poverty nor prosperity. The market is neutral. Even as the laws of physics are obeyed equally well by a building that stands tall as by one that collapses into a heap of rubble, the laws of the market are also obeyed in miserably poor Bangladesh as well as in prosperous Switzerland. With 100 desperate people competing for every job, wages for the many will be low and profits for the few will be high. And vice versa. Blaming "capitalism" for poverty is silly, as if I threw someone off a cliff and then blamed the law of gravity for their death. Trying to deny market forces is equally silly, like trying to legislate gravity out of existence. It simply must be worked with.
  10. "Free to choose to own or employ slaves", "Free trade includes the ability of big corporations to restrict trade to maximize their profits", "Free to buy politicians and have them loot the public treasury in your interest" … Strict libertarianism is logically incoherent and ethically vile.
bdy , May 18, 2016 at 12:3am

Nice.

I quibble with 6 & 8. "A more or less free market" is a well regulated market. How much "more free" or "less free" a market needs to be to best distribute its product depends entirely on its particular conditions and vagaries. The insinuation that a market should be "stuck in a local minima" before oversight can improve its performance echoes Mankiw's 7th misconstruction, that (in Bill Black's words) "government only has a desirable role when there is a market failure."

I especially disagree that markets are neutral. Markets exist at the pleasure of the Capitalists who create and smother them for profit. Capitalists are forever cajoling "market opportunities" out from under every rock they can turn over. They invent, shape, split, combine, dissect, analyze, produce, reproduce, abandon, corner and strangle markets in pursuit of lucre. There is no market for Ford electric cars in California beyond the handful required by statute, despite ample demand, because individuals at Ford have determined that creating that particular market will eat into the personal profit they might extract from other markets. "Efficient" markets, that only return a gazilionth of a point on investment because of optimal competition, cease to be because the margin is too low to justify the hassle or the capital risk. Switching gears, labor markets in Bangladesh & Switzerland exist when Capitalists decide to hire workers. Hirees agree to be paid what Capitalists choose to pay, whether "freely" or under the duress of the State.

There is no market equivalent to gravity or the law of planetary motion. The model of supply and demand is a hypothetical post rationalization of a shifting negotiation – while it's helpful to a degree, supply/demand doesn't make "lawfull" (or useful) predictions until demand nears infinity (see health care: "how much will that be, doc?" – "how much have you got?", or housing: "how much can you borrow from a fractional reserve player who lends without risk and won't verify your income?")

As the local monopolists of violence, States can engage markets as they see fit. They can supply (Volkswagon & the post office), demand (food stamps, R&D grants), regulate, open (ACA) or close them (pharmaceutical imports) to their hearts desire. Good or bad outcomes depend entirely on the wisdom of the policy.

Whoa. Exhale. To be sure, I inhaled. Too many words when I should just say:

Nice.

Its good we agree that policy should be just and compassionate.

Chauncey Gardiner , May 17, 2016 at 1:12pm

The values and ideology represented in the Economics textbook Bill Black analyzed didn't arise in a vacuum. The points Black lists reflect the ideology, values, ethics and interests of a narrow segment of our society who have accumulated enormous personal wealth through a variety of extra-legal and illegal mechanisms, and who use a small portion of that wealth to fund "Economics Chairs" in our public and private universities; economics "think tanks"; and speeches, books, consulting engagements, and board memberships for "prominent economists".

This matter is really about whose values will control government economic policy and law.

Excellent analysis. Thank you, Bill Black, for all you do and have done.

Lumpenproletariat , May 17, 2016 at 1:16pm

#11

Mankiw is a shill/useful idiot for his oligarchs patrons. #11 explains the idiocy of the previous 10.

steelhead23 , May 17, 2016 at 2:45pm

I see much of the underlying theory of classical economics as simplifications that make the math easier. One of my favorite examples of misallocation of resources was the market for Burbank Russet potatoes in 2001. Basically, producers wanted $6.50 per hundredweight for spuds. The big buyer, Simplot offered farmers $4.50 pre-season. Many farmers decided to wait until harvest, hoping the spot market would give them a better price. I should also mention that in Idaho, farmers not wishing to plant in a given year, could sell their water to other farmers, or to the federal government which uses the water to help salmon and to produce hydropower. Thus, producing potatoes carried the opportunity cost of water leasing. But leasing water leasing to the federal government is culturally taboo in the ag. community. 2001 was a dry year and most of the ag. water was consumed growing spuds.

The outcome was a banner year in production, driving the spot market price to $0.50 per hundredweight, far less than the cost of production. Many acres of potatoes were plowed under – a total loss – to everyone.

My point is – there is no way to know, in advance, what the price of a commodity will be in the future unless you know, or can limit, the rate of production and control demand.

Did the banks which loaned billions to the gas frackers of North Dakota know that production would exceed demand and cause a crash? Perhaps the loan officer might have such concern, but would more likely be most concerned with his/her own bottom line – a meme Yves explores in Econned.

I suppose I am a bit defensive of classical microeconomics because it is elegant. But I am also terribly suspicious of its answers because one never has either the information or the control to be anywhere near as certain as the calculus would suggest.

Mike Thorne , May 17, 2016 at 4:01pm

On point #9: "Prices Rise When the Government Prints Too Much Money". Recent inflation data suggests it's a myth. But if restated as "When government prints money, prices rise on the goods and services that the people who receive the money tend to buy", then it's NOT a myth.

That was the whole problem with the Federal Reserve's damned QE efforts. They printed gobs of money, and it all landed in the pockets of the wealthy. The stuff they buy (stocks, real estate, luxury goods, premium educations, etc.) has seen prices rise MUCH faster than nominal inflation. And the people who didn't get any of the newly printed money (i.e., most of us)… Well, these sad folks couldn't afford to spend any more than before, so anybody who attempted to impose prices hikes on low-end consumer goods saw a loss of sales volume.

Newly-printed money CAN cause inflation, but WHERE the price rises happen depends greatly on the pockets in which the money lands.

Jeff Z , May 17, 2016 at 6:24pm

Excellent Point!

TK421 , May 17, 2016 at 6:32pm

stocks, real estate, luxury goods, premium educations, etc.

But it's hard to produce more of those, so with an increase in money chasing them their prices will rise. If the government handed money to poor people, they would buy food, clothes, cars, televisions, etc. In other words, things that society can produce more of. That's my read, anyway.

Mike Thorne , May 18, 2016 at 8:2am

Partially. Prices for good where quantities are truly fixed (like acres of land in San Francisco) can rise sharply when extra money pours in.

But even when there is opportunity to increase production, manufacturers must purchase equipment (like farm equipment for more food) or hire more workers (thereby tightening the labor market and pushing wages up). These result in price hikes. More modest price hikes than San Francisco real estate, but still real hikes. It's the classic supply vs. demand curve from classic microeconomics.

That said, "QE to the people" is certainly less objectionable than the "QE to the bankers and the 1%" that we've seen over the past five years. Prices would go up, but people would get to buy more things they want or need, and hiring would likely go up as well. [And at a minimum, there needs to be at least *some* growth in the money supply to keep up with population growth. Otherwise we see deflation and the ability to become wealthier by hoarding cash.]

dao , May 17, 2016 at 5:07pm

This was Mankiw's "response" to OWS back in 2011:

"Here is a fact that you might not have heard from the Occupy Wall Street crowd: The incomes at the top of the income distribution have fallen substantially over the past few years.

"According to the most recent IRS data, between 2007 and 2009, the 99th percentile income (AGI, not inflation-adjusted) fell from $410,096 to $343,927. The 99.9th percentile income fell from $2,155,365 to $1,432,890. During the same period, median income fell from $32,879 to $32,396."

This kind of ignorant cluelessness is pretty prevalent among the oligarchy and its supporters like Mankiw. Just like that guy in Davos who simply couldn't understand why there's so much social unrest in the world today. They live in a completely different world.

TK421 , May 17, 2016 at 6:33pm

And since then, nearly every penny of income gains has gone to the 1%.

Expat , May 18, 2016 at 2:3am

The big difference being that $70k to the 99th percentile means the difference between a new Beemer this year or next while $500 for the median family means choosing which child goes hungry for the second half of December.

And of course, Anonymous's excellent point. You are cherry picking old data based on a stock market and real estate bubble crash. Median income families don't "own" real estate and certainly don't own stocks.

Mankiw is either psychotic or was gleefully obfuscating when he presenting that out-dated analysis.

I say Kill the Rich and feed their bodies to the poor. It's not a solution at all (and I am rich myself) but it would be deeply, deeply satisfying!

Jayinbmore , May 18, 2016 at 8:5am

My first exposure to Mankiw's principles was actually an early version of the talk by Yoram Bauman in this video. It hits several of the points Mr. Black makes and is also pretty funny. It definitely demonstrates how Mankiw attempts to cloak his biases in supposedly neutral terms.

Erwin Gordon , May 18, 2016 at 10:2am

As for number 6, I couldn't disagree with you more. Organisational power is dependent on it being enforced BY THE GOVERNMENT. Without that coercion, individuals would find other solutions for the want provided for by that particular organisation. I would suggest that you look at the history of Pennsylvania circa 1681-1690 or Moresnet (in what is now Aachen) circa 1816 until the end of WWI to understand what is possible when the free market really operates.

Nontraditional Student , May 19, 2016 at 6:2am

I am actually a returning undergrad student and starting an econ course next week. I just looked at the text book… and its Mankiw. Should be a fun semester.

Yves Smith , May 19, 2016 at 8:2am

Don't argue with the PR. You need to be strategic. Regurgitate the BS but be sure to read enough corrective material that the toxins don't infect your brain.

Patrick , May 20, 2016 at 5:19pm

I doubt Mankiw will accept 100% estate tax on the justification that the cost of bequests is zero to the recipient. (and thus a 100% estate tax doesn't incur large costs on the recipient)

Asad Zaman , July 13, 2016 at 10:1am

My paper lists four principles claimed to be at the core of modern economics by Mankiw and then shows how all four principles are false: Amir-ud-Din, Rafi and Zaman, Asad, Failures of the 'Invisible Hand' (July 15, 2013). Forum for Social Economics, Vol. 45, Iss. 1, 2016. Available at SSRN: http://ssrn.com/abstract=2293940 or http://dx.doi.org/10.2139/ssrn.2293940

[Jun 18, 2016] Greenspan Shocked Disbelief

Greenspan phony "Shocked disbelief" reminds classic "...I am shocked - shocked, there is gambling going on in this establishment...." "...here are your winnings..." exchange between Humphrey Bogart & Claude Rains in Casablanca. Compare with "... "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," he said. ..."
Notable quotes:
"... "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," ..."
"... Greenspan spurned the Republican acolytes trying desperately to defend the faith and blame the crisis on the Community Reinvestment Act and the powerful lobby of poor people who forced powerless banks to do reckless things. ..."
"... Private greed, not public good, caused this catastrophe: "The evidence now suggests, but only in retrospect, that this market evolved in a manner which if there were no securitization, it would have been a much smaller problem and, indeed, very unlikely to have taken on the dimensions that it did. It wasn't until the securitization became a significant factor, which doesn't occur until 2005, that you got this huge increase in demand for subprime loans, because remember that without securitization, there would not have been a single subprime mortgage held outside of the United States, that it's the opening up of this market which created a huge demand from abroad for subprime mortgages as embodied in mortgage-backed securities. ..."
"... But having admitted the failure of his faith, Greenspan could not abandon it. Credit default swaps had to be "restrained," he admitted. Those who create mortgages should be mandated to retain a piece of them to insure responsible lending. Otherwise, the old faith still applied. No new regulations were needed, because the markets "for the indefinite future will be far more restrained than would any currently contemplated new regulatory regime." ..."
"... The only Guantanamo that the United States has any business running is a concentration camp for the hundreds of wall street executives and their cronies in Bushland that conspired to defraud the American people from their hard earned dollar. ..."
"... There are no free markets in America, any more than there is free lunch. ..."
"... So it wasn't the military-industrial complex that did us in after all . . . ..."
"... It's clear from comments on this contribution that few readers of Truthout believe Alan Greenspan's sorry testimony before Congress. What has faith in something to do with enforcing the policies of fiduciary responsibility already on the books? All these so-called "experts" on capitalism are now coming out to say "I'm sorry." Well, I won't be sorry for them until they are held monetarily and criminally responsible for their actions, inept or not. ..."
"... If it looks like class warfare, as David Harvey, author of Neoliberalism, has stated, call it class warfare and act accordingly. ..."
"... it doesn't take a genius to understand that when financial instruments are created based on crap (subprime mortgages), that eventually problems will occur with those instruments. In fact, Greenspan and his cronies knew that, which is why they resisted these instruments being regulated by the SEC or even the CFTC. ..."
"... Sounds like the "maestro" hit a flat note in his orchestra of greed and deregulation. ..."
"... Did anybody even bother to consult the Math PhDs who created these instruments to run possible scenarios -- just in case? why bother when you know you can scare congress, the president and the treasury and ultimately the people into bailing your ass out of worldwide collapse? ..."
"... Shocked Disbelief is a ploy. When they were all riding high, they didn't give a crap. They were going to come out richer than hell anyway. ..."
"... Where's Ayn Rand when you need her? Give me a break Mr Greenspan. Never let history and reality get in the way of the big unregulated celebration of greed like we have had since "Saint Ronald Wilson Reagan", and the other "Free Market" "government is the problem" ideologues ..."
"... What about the 1994 Act of Congress that required the Fed to monitor and regulate derivatives? The Act Greenspan ignored? ..."
"... "...I am shocked - shocked, there is gambling going on in this establishment...." "...here are your winnings..." exchange between Humphrey Bogart & Claude Rains in Casablanca ..."
Oct 24, 2008 | truthout.org

by: Robert Borosage, The Campaign for America's Future

On October 23, former Federal Reserve Chairman Alan Greenspan testified before a House Oversight and Government Reform Committee hearing on the role of federal regulators in the current financial crisis.

It marks the end of an era. Alan Greenspan, the maestro, defender of the market fundamentalist faith, champion of deregulation, celebrator of exotic banking inventions, admitted Thursday in a hearing before Rep. Henry Waxman's House Committee and Oversight and Government Reform that he got it wrong.

"Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief," he said.

As to the fantasy that banks could regulate themselves, that markets self-correct, that modern risk management enforced prudence: "The whole intellectual edifice, however, collapsed in the summer of last year."

Greenspan spurned the Republican acolytes trying desperately to defend the faith and blame the crisis on the Community Reinvestment Act and the powerful lobby of poor people who forced powerless banks to do reckless things. Greenspan dismissed that goofiness in response to a question from one of its right-wing purveyors, Rep. Todd Platts, R-Pa., noting that subprime loans grew to a crisis only as the unregulated shadow financial system securitized mortgages, marketed them across the world, and pressured brokers to lower standards to generate a larger supply to meet the demand. Private greed, not public good, caused this catastrophe:

"The evidence now suggests, but only in retrospect, that this market evolved in a manner which if there were no securitization, it would have been a much smaller problem and, indeed, very unlikely to have taken on the dimensions that it did. It wasn't until the securitization became a significant factor, which doesn't occur until 2005, that you got this huge increase in demand for subprime loans, because remember that without securitization, there would not have been a single subprime mortgage held outside of the United States, that it's the opening up of this market which created a huge demand from abroad for subprime mortgages as embodied in mortgage-backed securities.

But having admitted the failure of his faith, Greenspan could not abandon it. Credit default swaps had to be "restrained," he admitted. Those who create mortgages should be mandated to retain a piece of them to insure responsible lending. Otherwise, the old faith still applied. No new regulations were needed, because the markets "for the indefinite future will be far more restrained than would any currently contemplated new regulatory regime."

Now hung over from their bender, the banks could be depended upon to remain sober "for the indefinite future." Or until taxpayers' money relieves their headaches, and they are free to party once more.


IN ACCORDANCE WITH TITLE 17 U.S.C. SECTION 107, THIS MATERIAL IS DISTRIBUTED WITHOUT PROFIT TO THOSE WHO HAVE EXPRESSED A PRIOR INTEREST IN RECEIVING THE INCLUDED INFORMATION FOR RESEARCH AND EDUCATIONAL PURPOSES. TRUTHOUT HAS NO AFFILIATION WHATSOEVER WITH THE ORIGINATOR OF THIS ARTICLE NOR IS TRUTHOUT ENDORSED OR SPONSORED BY THE ORIGINATOR.

"VIEW SOURCE ARTICLE" LINKS ARE PROVIDED AS A CONVENIENCE TO OUR READERS AND ALLOW FOR VERIFICATION OF AUTHENTICITY. HOWEVER, AS ORIGINATING PAGES ARE OFTEN UPDATED BY THEIR ORIGINATING HOST SITES, THE VERSIONS POSTED ON TO MAY NOT MATCH THE VERSIONS OUR READERS VIEW WHEN CLICKING THE "VIEW SOURCE ARTICLE" LINKS.

Comments

This is a moderated forum. It may take a little while for comments to go live.

The only Guantanamo that the

Sun, 10/26/2008 - 23:37 - Captain America (not verified)

The only Guantanamo that the United States has any business running is a concentration camp for the hundreds of wall street executives and their cronies in Bushland that conspired to defraud the American people from their hard earned dollar.

What they did dwarfs the damage caused to this country by 911, (no disrespect for the many innocents who died). However, here, every single citizen is a victim of fraud and corruption on a scale that was heretofore inconceivable. Greenspan, Bush and now Paulson have done more than Bin Laden and his hordes could do in a 100 years.

By the way, if you protest YOU wind up locked up for being un-American. What happened America ?

There are no free markets in

Sun, 10/26/2008 - 19:27 - pink elephant (not verified)

There are no free markets in America, any more than there is free lunch. The game was always fixed and Greenspan was the ultimate shill for the fixers. The past thirty years have been an orgy of greed with common sense shoved aside for the sake of uncommon expediency. Americans became infatuated by arcane formulas and dense incomprehensible mathematics to the point that they forget simple arithmetic. America wake up it was only a dream, and a bad one at that.

So it wasn't the

Sun, 10/26/2008 - 19:07 - Anonymous (not verified)

So it wasn't the military-industrial complex that did us in after all . . .

It's clear from comments on

Sun, 10/26/2008 - 15:40 - afrothethics (not verified)

It's clear from comments on this contribution that few readers of Truthout believe Alan Greenspan's sorry testimony before Congress. What has faith in something to do with enforcing the policies of fiduciary responsibility already on the books? All these so-called "experts" on capitalism are now coming out to say "I'm sorry." Well, I won't be sorry for them until they are held monetarily and criminally responsible for their actions, inept or not. The truth is as plain as the nose on your face: Greenspan, the Federal Reserve, the investment banks, the Bush administration and several members of Congress unobtrusively acted to consciously and knowingly to rob the national treasury for the sake of capitalism's sacred cow: capital accumulation on behalf of the nation's political and economic elite. If it looks like class warfare, as David Harvey, author of Neoliberalism, has stated, call it class warfare and act accordingly.

We have heard statements

Sun, 10/26/2008 - 10:11 - DJK (not verified)

We have heard statements like "the mathematical models used for knowing the behavior of derivatives based on subprime mortgages were too difficult to understand", etc. But it doesn't take a genius to understand that when financial instruments are created based on crap (subprime mortgages), that eventually problems will occur with those instruments. In fact, Greenspan and his cronies knew that, which is why they resisted these instruments being regulated by the SEC or even the CFTC. And this is why they turned a blind eye to many of the rating agencies giving many of these instruments AAA ratings. I am sure that a real investigation will reveal numerous instances of fraudulent activity in conjunction with this debacle. Those perpetrators must be identified and brought to justice. While this will not fix our current problem, it hopefully should serve as a deterrent to those who would in the future attempt to again engage in such activities.

Well here you have it a

Sun, 10/26/2008 - 08:13 - Robert Iserbyt (not verified)

Well here you have it a confessional lie from the biggest fraud perpetrator in the history of American finance Why the markets ever listened to this criminal in the first place is evidence that our entire nation should be required to take a full year of real unfettered economics just in case they don't understand what is going on now. All the pundits on MSNBC and all the talking heads should be removed from the airwaves. The Bailout what will that do? the answer lies before you.

Sounds like the "maestro"

Sun, 10/26/2008 - 02:02 - Anonymous (not verified)

Sounds like the "maestro" hit a flat note in his orchestra of greed and deregulation. Come on, do you really think we are all so stupid to buy into the story that you couldn't predict a melt down knowing that those writing the subprimes held no responsibility for their actions? That's like giving a "get out of jail card" to someone who just created a felony! Did anybody even bother to consult the Math PhDs who created these instruments to run possible scenarios -- just in case? why bother when you know you can scare congress, the president and the treasury and ultimately the people into bailing your ass out of worldwide collapse?

I'm a former real estate

Sun, 10/26/2008 - 00:24 - two7five7one (not verified)

I'm a former real estate broker and my son is a mortgage broker. From about 2004 through the beginning of this "greatest financial crisis since '29", we frequently talked on the phone about the disaster which would ensue when the real estate value appreciation stopped, and people were no longer fueling the economy with money borrowed against their equity, and the sub-prime loan fiasco would end. We knew it would be disastrous, and both of us were astonished that neither the FED nor congress was willing to say or do anything about it. Anyone who has witnessed over the years the cycle of boom/bust/boom/bust in the real estate market knew that after eleven years of unprecedented "boom" -- '96 through '2007 -- the "bust" would be like an earthquake. Paulson and Greenspan and their ilk now denying that they suspected this is just is just their lying to protect the GOP which was benefitting from the booming economy. They should both end up in prison, with all of the GOP members of congress who have had their hands in the cash register.

Dance clown, dance. First

Sat, 10/25/2008 - 23:48 - mysterioso (not verified)

Dance clown, dance. First you were against the FED until you became head of the FED. Then you were for trickle down economics and letting the "system" regulate itself until you saw the inevitable destruction it caused. Dance clown, dance. You should be the first one sent to prison under the "Un-American activities act". The arrogance of your testimony before the committee was appalling. You honestly couldn't believe you were wrong !!!

Shocked disbelief, my foot.

Sat, 10/25/2008 - 23:35 - slw (not verified)

Shocked disbelief, my foot. Many of us predicted EXACTLY this outcome.

This is like telling the Fox

Sat, 10/25/2008 - 22:43 - topview (not verified)

This is like telling the Fox to watch the Hens and then walking away and trusting him to do the right thing. Government has to return to regulation and see that there is no hanky, Banky going on anymore. Monopolies have to be busted up, like the Communication industry's, the Drug industries and any other Corporations that control to much of the way the Country operates. No more Outsourcing any Government duties.

Shocked Disbelief is a ploy.

Sat, 10/25/2008 - 22:00 - radline9 (not verified)

Shocked Disbelief is a ploy. When they were all riding high, they didn't give a crap. They were going to come out richer than hell anyway.

Where's Ayn Rand when you

Sat, 10/25/2008 - 20:53 - anglohistorian (not verified)

Where's Ayn Rand when you need her? Give me a break Mr Greenspan. Never let history and reality get in the way of the big unregulated celebration of greed like we have had since "Saint Ronald Wilson Reagan", and the other "Free Market" "government is the problem" ideologues. We can spend trillions on war and corporate bailouts, but we can't have a single payer health system? We can't rebuild our infrastructure? Say it again- give me a break!

What about the 1994 Act of

Sat, 10/25/2008 - 20:41 - Jtmonrow (not verified)

What about the 1994 Act of Congress that required the Fed to monitor and regulate derivatives? The Act Greenspan ignored?

"...I am shocked - shocked,

Sat, 10/25/2008 - 20:29 - Anonymous (not verified)

"...I am shocked - shocked, there is gambling going on in this establishment...." "...here are your winnings..." exchange between Humphrey Bogart & Claude Rains in Casablanca

This would be the same

Sat, 10/25/2008 - 19:50 - dtroutma (not verified)

This would be the same "shocked disbelief" expressed by Willie Sutton's mother?

shouldn't Greenspan give his

Sat, 10/25/2008 - 18:06 - Anonymous (not verified)

shouldn't Greenspan give his salary and bonus back to taxpayers?

[May 20, 2016] Gerald Friedman: How the Dogmatic Despair of Mainstream Economists Brought You Donald Trump

Notable quotes:
"... By Gerald Friedman, Professor of Economics, University of Massachusetts, Amherst. A version of this post first appeared at the Institute for New Economic Thinking website ..."
"... Lesser Depression ..."
"... The reason why elite economists and politicians were so angry at my analysis of Sanders' proposals was that it disrupted a consensus that nothing can be done by government to improve the performance of the economy. After all, if things are already as good as they can be, it is irresponsible pie-in-the-sky to even suggest to the general public that we can do better. Instead, the task of economists and other policy elites becomes to explain to the general public why they should accept stagnant incomes and rising inequality, and applaud the anemic growth of recent years as the best possible outcome. But the real danger of such thinking is that it leaves liberals like Hillary Clinton with few policy options to offer in response to the siren song of demagogues like Donald Trump. The self-proclaimed "responsible" elite economists see their role as to persuade the public that nothing can be done, in the hope of heading off the challenge of those who would capitalize on the electorate's appetite for change. They have to slap down critics. "Responsible" elite economists have to keep the party of "good arithmetic" from overpromising at all costs. It should not surprise us, though, that those whose living standards have suffered most from stagnant growth are more inclined to believe politicians promising change. ..."
"... John Maynard Keynes showed how active government policy can raise employment and output; his followers, including Joan Robinson and Nicholas Kaldor, showed how full employment encourages further investments and leads businesses to find ways to raise labor productivity to match increasing product demand. New Deal American economists, such as Rexford Tugwell and John Maurice Clark, showed how active government policy can raise growth rates with investments in infrastructure, in public services, in human capital development, and in research and development. By listening to these ideas, economists associated with liberal American politics helped produce 25 years of relatively rapid and egalitarian growth after World War II. Abandoning these ideas, we have suffered 30 years of relatively slow growth and rising inequality, culminating in the current Lesser Depression. ..."
"... I had dinner last night with two excellent people who happen to be doing well at this time. They could not comprehend why anyone would be voting for Trump, whom they saw as a dangerous lunatic. They have supported Sanders and voted for him in the NY primary, but are absolutely going to vote for Clinton in the Fall. What I view as the credible case against Clinton has not reached them with any strength or registered at all. I was asked (because I had said nothing while they talked–I hate this kind of confrontation) what problem people could have with Hillary? I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that. ..."
"... HRC's recap of Reaganite Latin America policy is her most vile achievement. If anything demonstrates a continuity of imperialist strategy across administrations, that's it. ..."
"... " I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that." ..."
"... I run into this all the time. Utter and complete foreign policy illiteracy, particularly from otherwise politically correct millennials who know so little that Hillary gets a complete pass. ..."
"... This is a common story and illustrates that our current detachment from the world around us and our fellow citizens is coming to an end. We are being forced out of our individual bubbles. Modern corporations have supplied the populations of the world with abundance of goods, but in order to accomplish this feat, have destroyed and are destroying the cultural glue, if you will, that holds society together. ..."
"... TINA will be maintained by propaganda and physical force. We see that the propaganda is starting to weaken because the contradictions of the message can no longer be hidden. The destruction is too widespread and the inequality can no longer be hidden. You can hollow out a social system only so much before it collapses. The collapses we are witnessing is the promise of democracy. A collapse of the ideals of moderation and compromise. ..."
"... We are entering a phase of civil war. It is still carried out in a polite manner and intellectually, the discussion is still couched in Orwellian doublespeak. However, criticisms of the ruling elite are becoming more straightforward and more people are waking up to the fact that the system is rigged against them. ..."
"... This civil war is a battle over leadership. It is a battle to demand good government instead of no government. It is a battle to demand a government for and by the people. A battle for the common good. Evaluated not in some abstract terms like "trickle down" economics, but direct support and action. The hearts and minds of the population was won over long ago to wholeheartedly support capitalism and private ownership of the world's resources. This is proving to be a disaster. ..."
"... Supporters of unfettered capitalism know only one way. Privatization of ALL the worlds resources and potential. They showed their hand in 2008 with the bailouts and implementation of austerity policies. In their minds, there is no turning back. To compromise means failure. For them, TINA is real and logical. This is the perspective of owners of capital. They gain strength and advantage from seeming to compromise, but in the end know they can always reverse course and regain private control. Subterfuge and force allows the resilience of capitalism as the reigning social order. ..."
"... Jonathan Haidt is a psychologist, sometimes featured in the New York Times, who apparently believes the capability of people to be convinced by reasoned argument is not strong. From my limited reading of his work, he suggests that humans are instinctive beings who, when they have strong beliefs, their reasoning powers are used to justify these beliefs, not to cast doubt about these beliefs. ..."
"... For example, I believe HRC is little more than a well-connected and well traveled mediocrity, with a record of few positives and many egregious negatives that justifies this assessment. I view her as potentially more damaging to the USA, as President, than Trump. ..."
"... Successful big ideas and big projects require cheap abundant energy, resources and intelligent design. It'll be mighty funny when the Keynesians finally implement their plan to overhaul the national highway infrastructure, creating tons of high paying jobs and speeding up the economy–right when our access to cheap oil collapses. That's dumb design at its finest, yet this sort of thing is almost certainly the best that the lobotomized Keynesian planners will be able to think up and do. ..."
"... A truly innovative program to get the economy moving in a positive direction would be to outlaw personal vehicles and rebuild the nation's railway network. ..."
"... I share your antipathy toward freeways. I remember the big Freeway they built in Fresno when I was a child, destroying hundreds, if not thousands of modest homes (we had to move from a grand rental to a dilapidated house that cost more – were the landlords behind getting rid of a surplus of houses????) – to save maybe – maybe at the most 3 minutes in transit time over driving an existing surface street. Jobs were part of the rationale. ..."
"... "Sorry, nothing more can be done for you." TINA. ..."
"... "How can I help you today?" ..."
May 19, 2016 | nakedcapitalism.com

By Gerald Friedman, Professor of Economics, University of Massachusetts, Amherst. A version of this post first appeared at the Institute for New Economic Thinking website

The ferocious reaction to my assessment that Senator Bernie Sanders' economic and health care proposals could create long-term economic growth shows how mainstream economists who view themselves as politically liberal in America have abandoned progressive politics to embrace a political economy of despair. Rationalizing personal disappointment and embracing market-centric economic theories according to which government can do little more than fuss around the edges, their conclusions - and the political leadership that embraces them - have little to offer millions of angry ordinary people for whom the economy simply isn't working.

It has certainly been a rough seven years for the economists in the Obama Administration. While avoiding a Great Depression, the Administration has presided over what Paul Krugman and Brad DeLong call a " Lesser Depression ." One might almost forgive them for a certain defeatism after seven years of painfully slow economic recovery, and the dismay of seeing urgently needed programs blocked by the Republican congressional majority. After so many compromises and let-downs, perhaps it is easier to tell those who expect more that it just can't happen. There is comfort in the Thatcherite phrase, "There Is No Alternative" (TINA).

Combined with orthodox neoclassical microeconomics, however, rationalization has produced a toxic political economy that abandons progressive ideals and surrenders political space to xenophobes and the populist rightwing (see: Donald Trump). The mainstream economists who have attacked my embrace of Keynesian economics have abandoned, in practice, the notion that government can effectively intervene in the economy to raise levels of employment, and to promote economic growth and equity. Instead, they have returned to pre-Keynesian Classical thinking, where the very suggestion that government action can raise growth rates or wages is taken to be obviously wrong. Criticisms of the orthodox model and its conservative policies are deemed worthy of scorn, to be dismissed tout court because they are obviously at variance not only with textbook economics, but with what we need to believe in order to accept failure .

The mechanism of economic policy paralysis among the liberals who espouse market-centric economics works like this: If we accept the (flawed) premise that the total supply of goods and services equals total demand, then we can agree with the Congressional Budget Office (CBO) that potential output is best measured by observing actual output. And, with that - presto! - unemployment magically disappears, and we no longer suffer from slow growth. Conveniently align growth projections with the otherwise-disappointing performance during the Lesser Depression, and, as the CBO has done, estimates of potential growth now equal actual growth: Instead of the 3 percent average annual growth of the 1959-2007 period, not to mention the 4 percent growth 1947-73, we are now told to accept 2 percent growth not as a disappointment, but as recognition of an unfortunate necessity. Such reevaluations say to policy elites, "Hey, we are doing as well as can be expected." To the general public, the message is: "Sorry, nothing more can be done for you." TINA.

The reason why elite economists and politicians were so angry at my analysis of Sanders' proposals was that it disrupted a consensus that nothing can be done by government to improve the performance of the economy. After all, if things are already as good as they can be, it is irresponsible pie-in-the-sky to even suggest to the general public that we can do better. Instead, the task of economists and other policy elites becomes to explain to the general public why they should accept stagnant incomes and rising inequality, and applaud the anemic growth of recent years as the best possible outcome. But the real danger of such thinking is that it leaves liberals like Hillary Clinton with few policy options to offer in response to the siren song of demagogues like Donald Trump. The self-proclaimed "responsible" elite economists see their role as to persuade the public that nothing can be done, in the hope of heading off the challenge of those who would capitalize on the electorate's appetite for change. They have to slap down critics. "Responsible" elite economists have to keep the party of "good arithmetic" from overpromising at all costs. It should not surprise us, though, that those whose living standards have suffered most from stagnant growth are more inclined to believe politicians promising change.

It was only by rejecting classical economics that Franklin Roosevelt was able to save the American economy and bring about a revolution in social policy. And only by rejecting the new classical economics and the policy of so-called responsible elite economists can Clinton meet our current economic crisis.

John Maynard Keynes showed how active government policy can raise employment and output; his followers, including Joan Robinson and Nicholas Kaldor, showed how full employment encourages further investments and leads businesses to find ways to raise labor productivity to match increasing product demand. New Deal American economists, such as Rexford Tugwell and John Maurice Clark, showed how active government policy can raise growth rates with investments in infrastructure, in public services, in human capital development, and in research and development. By listening to these ideas, economists associated with liberal American politics helped produce 25 years of relatively rapid and egalitarian growth after World War II. Abandoning these ideas, we have suffered 30 years of relatively slow growth and rising inequality, culminating in the current Lesser Depression.

The debate over my little report showed how mainstream economics has left us with a smugly certain macroeconomics lacking in imagination, and offering no effective policies to move beyond economic stagnation and escalating inequality. If these economists cannot do better, then we risk more than personal disappointment; we gamble our liberal political economy against the likes of Donald Trump and Ted Cruz. Hillary Clinton can do better. And Americans deserve better.

James Levy , May 19, 2016 at 6:31 am

A very bold thing for a man like this to say. I know he will be criticized (vilified?) for his misplaced belief that Clinton can "do better", but considering who this man is and where he is coming from, condemning him at this stage of the game would be churlish. He's taken on The Bigs and the stifling orthodoxy they embody and for that we owe him.

I had dinner last night with two excellent people who happen to be doing well at this time. They could not comprehend why anyone would be voting for Trump, whom they saw as a dangerous lunatic. They have supported Sanders and voted for him in the NY primary, but are absolutely going to vote for Clinton in the Fall. What I view as the credible case against Clinton has not reached them with any strength or registered at all. I was asked (because I had said nothing while they talked–I hate this kind of confrontation) what problem people could have with Hillary? I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that.

so , May 19, 2016 at 7:10 am

Sad. There is them and there are us. Empathy. Hard to have when your busy all the time.

jsn , May 19, 2016 at 7:16 am

I've had many similar recent encounters. I find that if I ask for a positive reason to vote Clinton, the first three or four reasons they raise can be dismissed by single phrase references to past betrayals, Sister Solja, End of Welfare, Nafta etc. and the next few by scandals, Lewensky or what should be scandals as you mentioned. As a rule after four or five tries I get to watch them self censor before each subsequent try and don't have to make any negative claims myself.

I doubt I've changed minds, but they no longer doubt mine.

Torsten , May 19, 2016 at 7:54 am

I would have first pointed to Honduras. And Haiti:

https://www.washingtonpost.com/blogs/post-partisan/wp/2016/03/10/hillary-clinton-needs-to-answer-for-her-actions-in-honduras-and-haiti/

What did she do in Nicaragua?

hemeantwell , May 19, 2016 at 8:01 am

I think that was a slip, but an historically correct one I can completely sympathize with.

HRC's recap of Reaganite Latin America policy is her most vile achievement. If anything demonstrates a continuity of imperialist strategy across administrations, that's it.

bowserhead , May 19, 2016 at 8:46 am

" I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that."

I run into this all the time. Utter and complete foreign policy illiteracy, particularly from otherwise politically correct millennials who know so little that Hillary gets a complete pass.

Norb , May 19, 2016 at 9:01 am

This is a common story and illustrates that our current detachment from the world around us and our fellow citizens is coming to an end. We are being forced out of our individual bubbles. Modern corporations have supplied the populations of the world with abundance of goods, but in order to accomplish this feat, have destroyed and are destroying the cultural glue, if you will, that holds society together.

TINA will be maintained by propaganda and physical force. We see that the propaganda is starting to weaken because the contradictions of the message can no longer be hidden. The destruction is too widespread and the inequality can no longer be hidden. You can hollow out a social system only so much before it collapses. The collapses we are witnessing is the promise of democracy. A collapse of the ideals of moderation and compromise.

We are entering a phase of civil war. It is still carried out in a polite manner and intellectually, the discussion is still couched in Orwellian doublespeak. However, criticisms of the ruling elite are becoming more straightforward and more people are waking up to the fact that the system is rigged against them.

This civil war is a battle over leadership. It is a battle to demand good government instead of no government. It is a battle to demand a government for and by the people. A battle for the common good. Evaluated not in some abstract terms like "trickle down" economics, but direct support and action. The hearts and minds of the population was won over long ago to wholeheartedly support capitalism and private ownership of the world's resources. This is proving to be a disaster.

Supporters of unfettered capitalism know only one way. Privatization of ALL the worlds resources and potential. They showed their hand in 2008 with the bailouts and implementation of austerity policies. In their minds, there is no turning back. To compromise means failure. For them, TINA is real and logical. This is the perspective of owners of capital. They gain strength and advantage from seeming to compromise, but in the end know they can always reverse course and regain private control. Subterfuge and force allows the resilience of capitalism as the reigning social order.

I bring up the notion of a civil war because these ideas are too important to be left to chance. In America, the citizenry has been complacent with their lot in life and so have lost control over their fate. As the world changes around them, they desperately attempt to hold onto their position while not realizing they are supporting their own impoverishment. Speaking ideas of the common good -for ALL- and notions of public ownership of land, natural resources, citizens natural rights to jobs, basic income, and healthcare divide family and friends. Those who are comfortable don't want to cause trouble and those feeling the pressures brought down upon them by an unrelenting system are too weak and fearful to act.

In a sense, the revolution has already begun. It is the revolution to convince people that there is a better and different way to live our lives.

John Wright , May 19, 2016 at 10:11 am

Jonathan Haidt is a psychologist, sometimes featured in the New York Times, who apparently believes the capability of people to be convinced by reasoned argument is not strong. From my limited reading of his work, he suggests that humans are instinctive beings who, when they have strong beliefs, their reasoning powers are used to justify these beliefs, not to cast doubt about these beliefs.

This can explain why attempting to convince someone to change their political/religious beliefs is fated to be largely futile.

For example, I believe HRC is little more than a well-connected and well traveled mediocrity, with a record of few positives and many egregious negatives that justifies this assessment. I view her as potentially more damaging to the USA, as President, than Trump.

Per Haidt, maybe my beliefs are instinctive and I am willfully blind to all of Clinton's accomplishments over the last 40 years.

human , May 19, 2016 at 10:48 am

ROTFLMAO

david s , May 19, 2016 at 6:51 am

I think that if there are to be any Keynesian big ideas and projects that will help lift us out of this stagnation, they will much more likely come from a Trump Administration than a Clinton one.

jgordon , May 19, 2016 at 7:47 am

Successful big ideas and big projects require cheap abundant energy, resources and intelligent design. It'll be mighty funny when the Keynesians finally implement their plan to overhaul the national highway infrastructure, creating tons of high paying jobs and speeding up the economy–right when our access to cheap oil collapses. That's dumb design at its finest, yet this sort of thing is almost certainly the best that the lobotomized Keynesian planners will be able to think up and do.

A truly innovative program to get the economy moving in a positive direction would be to outlaw personal vehicles and rebuild the nation's railway network. But this society isn't even anywhere close to having something so useful on its agenda. So we'll do some Keynesian program, funnel the few remaining resources we have left down into some stupid dead end rathole, and then in a couple of years we'll be envious here in America of the extravagant lifestyles that the Mexicans are leading. Hell Trump's wall will be a lot more useful keeping the Mexicans in who are trying to flee. That is the end result of Keynesian programs in a delusional society with bass-ackward priorities. Way more harm than good.

fresno dan , May 19, 2016 at 10:11 am

I share your antipathy toward freeways. I remember the big Freeway they built in Fresno when I was a child, destroying hundreds, if not thousands of modest homes (we had to move from a grand rental to a dilapidated house that cost more – were the landlords behind getting rid of a surplus of houses????) – to save maybe – maybe at the most 3 minutes in transit time over driving an existing surface street. Jobs were part of the rationale.

I have been gone 20 years, and they had gone on a real freeway building tear while I was gone. The whole city crisscrossed with freeways laid out as if someone had thrown a bowl of spaghetti on a map – apparently so every neighborhood can enjoy the sound of traffic.

Really, Fresno is just not that physically big to justify all these freeways. And with its high unemployment and no real "center" there aren't any places with traffic congestion anyway – but you get these dubious justifications that millions of dollars are wasted because an implausible auto trip is 4 minutes longer without the freeway….

david s , May 19, 2016 at 6:55 am

There seems to be a developing narrative that the Obama Administration has just been brimming with big ideas that have been thwarted by evil Republicans.

I don't remember it this way. I do remember an Obama Administration that turned to austerity shortly after the 2009 stimulus, and one that has been patting itself on the back all along about what a great job it has done.

"All across America, families are tightening their belts and making hard choices. Now, Washington must show that same sense of responsibility."
President Obama, April 2009(!)

Akronite , May 19, 2016 at 7:56 am

Now that the pictures we snapped of Obama are finally beginning to develop, where we thought we had photographed his lush jungle, we're now seeing just a single thin sapling planted for "the future." And Clinton will soon have a picture of her snapped at this sad tree, with her big lying smile.

hemeantwell , May 19, 2016 at 8:09 am

I don't think Friedman is saying this, unless Rex Tugwell has been secretly disinterred and is serving under Obama. The capitalist ideological counteroffensive that got going in the 70s has been hegemonically successful. Friedman doesn't acknowledge that enough, he instead focuses on what sounds more like disciplinary politics.

flora , May 19, 2016 at 8:22 am

Great post. Thanks.

JLCG , May 19, 2016 at 8:26 am

This type of article or perhaps, all articles about the Economy, deal with the Economy as a substance to which people are appended as accidents. The economy is the sum total of the effort of the people and if the people think that enjoying this very present is preferable to an effort to build a future nothing can be done about it. It is the mind of the people that has to be changed. Wars are very good mechanisms for that.

Carla , May 19, 2016 at 9:14 am

I can't remember if I got this link from an NC comment, or elsewhere. In any case, it's a scary read: "The 14 Defining Characteristics of Facism," augmented by a selection from "They Thought They Were Free." http://rense.com/general37/fascism.htm

Brings Obama and HRC to mind just as much as Trump, if not more.

sinbad66 , May 19, 2016 at 10:05 am

Read "Democracy, Incorporated" by Sheldon Wolin: http://www.amazon.com/Democracy-Incorporated-Managed-Inverted-Totalitarianism/dp/069114589X/ref=sr_1_1?ie=UTF8&qid=1463666525&sr=8-1&keywords=democracy+incorporated

Explains it all….

fresno dan , May 19, 2016 at 9:57 am

"The ferocious reaction to my assessment that Senator Bernie Sanders' economic and health care proposals could create long-term economic growth shows how mainstream economists who view themselves as politically liberal in America have abandoned progressive politics to embrace a political economy of despair."
==========================

Here is the problem: "a political economy of despair" – accepting that economists are a real objective academic discipline is a BIG mistake – the idea that these technocrats, who never seem to recognize how much fraud, rent seeking, and capture of the political system
((because the people paying them don't WANT THEM TO)),
decides things like how much inequality there is, which than decides how much demand there is, and NOT knowing, and apparently NOT WANTING TO KNOW, that it is a POLITICAL economy, and politics decides how resources are often allocated.
We can have single payer heath care if we choose it and free college education (it wasn't all that long ago that I went to a CA college essentially for free). HOW is it college used to be free when GDP was less than 1/6 of what it is now??????
It just doesn't make sense that we used to be able to afford free college and we can't now. It is a POLITICAL decision – when Krugman says Sanders plan is "too expensive" Krugman is making a political decision – not some objective scientific assessment. And if he is not even smart enough to ponder why it used to be free and it is not free now – well, theres your problem right there!

Punxsutawney , May 19, 2016 at 10:22 am

Nice to see this article. When I talk about economics, most people who know anything, only know what someone on TV tells them, so they often question, well who agrees with you? Nice to have another name to list.

And then…

"Sorry, nothing more can be done for you." TINA.

Of course for those at the tippy-top, "How can I help you today?"

[May 20, 2016] Economic Models Must Account for Power Relationships

economistsview.typepad.com
I have a new column:
Economic Models Must Account for Who Has the Power'' : Nobel Prize winning economist Joseph Stiglitz recently highlighted two schools of thought on how income is distributed to different groups of people in the economy. Which school is correct has important implications for our understanding of the forces that have caused the rise in inequality, and for the policies needed to reverse this trend. It also relates to another controversy that has flamed up recently, how economics should be taught in principles of economics courses. ...

Posted by Mark Thoma on Tuesday, May 17, 2016 at 06:09 AM in Economics , Market Failure | Permalink Comments (22)

!-- View blog reactions

--> !-- -->

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post. anne :
, Tuesday, May 17, 2016 at 06:27 AM
Excellent approach, incisive writing.
kthomas -> anne... , Tuesday, May 17, 2016 at 10:55 AM
Im suprised you are so enamoured of Stiglitz. He does not put up with BS.

Still, you are right. As usual.

DrDick : , Tuesday, May 17, 2016 at 06:50 AM
Awesome. Thanks for this.
Adamski : , Tuesday, May 17, 2016 at 07:22 AM
Good one from the Stig, also.

And according to Sraffa's side in the Cambridge capital controversy labour and capital do not receive their marginal products, which leaves the distribution of income to some extent socially or politically determined.

Now please make a donation to Project Syndicate, and check out Robert Skidelsky at the same site.

New Deal democrat : , Tuesday, May 17, 2016 at 08:21 AM
Excellent. It will be taught in graduate school, long after the little ones have been indoctrinated in reactionary thought be Econ 101.

P.S. The school of thought that accepts inequality as a Teh Awesome result of merit cannot explain why inherited wealth should be allowed to accumulate - another aspect of how power writes the economic rules.

pgl -> New Deal democrat... , Tuesday, May 17, 2016 at 09:33 AM
"It will be taught in graduate school, long after the little ones have been indoctrinated in reactionary thought be Econ 101."

Joan Robinson's writing on market power was required reading when I was in graduate school. My undergrad profs touched on this issue but not as much. I wonder if Greg Mankiw teaches market imperfections to his undergrad students at Harvard.

two beers -> pgl... , Tuesday, May 17, 2016 at 09:42 AM
"I wonder if Greg Mankiw teaches market imperfections to his "undergrad students at Harvard."

According to theoclassical doctrine, all market imperfections are the result of gummint innerference. Left to themselves, markets hum with music of the perfect spheres.

pgl -> two beers... , Tuesday, May 17, 2016 at 11:52 AM
"theoclassical doctrine". My new favorite term. Excellent and thanks.
RC AKA Darryl, Ron : , Tuesday, May 17, 2016 at 08:25 AM
We are way past just one or the other of those explanations being true. Opportunities come in many forms, but just not for many people. Competition becomes limited in the womb and then they go from there. Better schools across all zip codes and public day care with universal pre-K would be a start. Even that is doomed to the catch-22 of making a better informed public requires a better informed public to demand being better informed. Down east they say "You can't get thar from here."

I was fortunate enough to grow up in Prince William County VA in the late sixties just as it was beginning to boom from growth proximate to the DC Beltway. We had a new and progressive school system even relative to NoVA. Still by the 7th grade it was evident to me that the pedagogy related to reality in dogmatic POVs that were only relevant to the next generation of yuppie kids that had gotten a half step advantage in some various way from their parents.

My half step came from an unusual source though. My dad was illiterate and my mom only finished the 8th grade, but they were stoics with exceedingly powerful work ethics transferred more by their example of excellence in every menial thing that they did rather than by belittling and cajoling me. My dad was the best hunter, the most successful fisherman, grew the most beautiful and bountiful garden, and was self-sufficient in caring for his car and home. His position with the state highway department was limited by his illiteracy to maintenance superintendent, but due to his ability he still got to supervise the construction of roads and bridges without the benefit of commensurate pay.

My mom was the best cook, kept the cleanest house, and as at home day care for a few friends was the best a dealing with troubled children from potty training to outbursts of anger. It was a tough act to follow. Furthermore it did not fit the status quo mold that public schools were designed to reinforce. My half step freed me to reject the intellectual authority of my instructors even though their administrative authority was still sacrosanct in my home. I did well in school and even better on tests eking by to enter the Honor Society and passing the SAT test well enough to qualify for Mensa, but I dropped out of college first semester mostly just to relocate away from home to find a job in the city. So, I got drafted and went to Viet Name, but was lucky enough to survive and develop a successful career in IT systems management large systems capacity planning and performance management. The best break that I got was being laid off in June 2015 with a severance package good enough to afford me a retirement income equal after the change in expenses from leaving the professional world behind to what I had been making while working.

The moral to my story is that one can despise our education system and still do very well by themselves with it. One can reject our higher education and still do very well by themselves without it. One can despise our corporate "meritocracy" system and still have a successful career and maybe even a comfortable retirement, but the ladder has been raised for the latter. How anyone can be successful in school and/or in career without recognizing their own half step advantage or recognizing the intellectually and morally vacant institutions that they traversed in their journey is deeply puzzling to me.

RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 08:35 AM
P.S. I had the good fortune to relocate from Prince William County to Orange County VA in summer 1966 before my senior year in high school when my dad cashed out his state retirement fund saving to start an electric motor/ john boat livery and concession stand at Lake Orange, a VA Game and Fisheries Commission state fishing lake.
The high school teachers were probably just as intelligent as in Manassas Park, but far more socially challenged at least in the academic curriculum. Still, the kids with that half step from their successful parents did well enough to attend decent colleges, but academic performance overall was much lower than it had been in Manassas Park back in Prince William County. The kids in Orange with really successful parents all attended private prep schools.
RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 08:47 AM
P.P.S. Relative to the thread topic then we have a fairly rigid establishment that favors the haves and keeps the have-nots at bay. Monopoly rents are just one of the luxurious rent extracting tools of an aristocracy of social exclusion. Bankers, proto-industrialists, and slave owners established the meme of republicanism as the conservative power that protects us all from tyranny of the majority, but perhaps a little too well. More importantly they established the US Constitution as a nearly inviolable foundation for preserving their world view of well-deserved elite privilege. And they did it all in the name of democracy while showing Thomas Paine the door.
anne -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 08:54 AM
Interesting and really nicely described.
RC AKA Darryl, Ron -> anne... , Tuesday, May 17, 2016 at 10:06 AM
It's a cool rainy day in central VA. Being retired and primarily a person of outdoor interests then today I have an abundance of time to waste. And commenting on the EV blog sure beats a colonoscopy, which is what I will be getting this time next week :<)

TMI? Yeah, tell me about it.

BigBozat -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 12:00 PM
"Down east they say "You can't get thar from here."

Actually, they say "Ya cain't get thay-uh frum he-yah." And they usually pre-pend a big, fullsome "Ayuh".

RC AKA Darryl, Ron -> BigBozat... , Thursday, May 19, 2016 at 05:09 AM
THANKS! In any case, they are often correct :<)
Dan Kervick : , Tuesday, May 17, 2016 at 08:50 AM
Jonathan Nitzan and Shimshon Bichler have developed an account of capitalism over sever years summarized by the slogan "Capital as Power."

http://www.capitalaspower.com/

two beers : , Tuesday, May 17, 2016 at 09:58 AM
There is no Nobel Prize in economics.
JohnH : , Tuesday, May 17, 2016 at 10:16 AM
John Kenneth Galbraith used to write about countervailing power. Unfortunately Galbraith has been pretty much consigned to the dustbin. Even when he was writing, economics courses did not talk about his ideas much...I guess he did not use enough math symbols.

Business has long understood the concept of what I'll call leverage points...critical intellectual property, experience, and know how. Control of these critical factors is a key to pricing power and profitability. As one example, Symbol Technologies dominated the handheld bar code scanner market for years, not because they had superior technology or marketing, but because they held the patent on the trigger, which was critical to activating the scanner for reading. Their market power affected not only competitors but suppliers and customers as well.

Leverage points like this are commonplace in business today. Yet I'm not aware that economics, with its orientation towards competitive markets, has ever tried to model this common behavior or even dealt with it.

Likewise, businesses have also understood the importance of market and marketing channel domination to their long term survival and profitability. Firms who fail to dominate must specialize. These concepts are considered elementary in business schools. Yet I don't know that economists have ever managed (or even tried) to incorporate them into their models.

It might help if more economists took business courses to understand how the game is played...

Denis Drew : , Tuesday, May 17, 2016 at 11:16 AM
Re-organize labor -- make union busting a MARKET WARPING (not job firing) felony ...

... re-make America into one big Costco.

Longtooth : , Tuesday, May 17, 2016 at 12:36 PM
I still say that until economists can reach consensus on the objective of an economy, they remain divided on the objective. Simply defining it as "for the general good" is a cop-out --- and economists and everybody else know this full well. Define what "general good means"....then see if consensus can be reached. I seriously conclude this cannot be done, since only by compromises can they reach consensus, and this means defining the objective in subjective, vague terms... just like "the general good" is vague and subjective.

The cop-out used by economists is at the heart of what Thomas' blog subject is about: Policy makers .. i.e. gov't decides the objectives of an economy, which is to say that economic power defines it. And of course economic power will define it to maintain and extend their economic power.... and at the very least to minimize any erosion thereof.

So one must wonder how, if gov't is controlled by economic power, that gov't will NOT insure the maintenance and extension of that economic power? Is it possible in a democracy defined by the U.S. constitution to significantly reduce the economic power of those who have it? The constitution in fact makes it impossible.

Even when congress occasionally finds a large enough majority to make law to erode or reduce economic power in gov't, the constitution enables 5 people in robes to deem it unconstitutional OR the next congress, or the next will make law that erode or reduce the effect of prior congress's law(s) that reduced or eroded economic power.

If this were not the case we'd long since have had universal single payer health care, strong labor unions, tax policies that don't give unearned income a huge break, and don't give offshore income an out by not taxing it until its "repatriated", welfare systems that don't keep people in poverty, and an educational system that provide free & equal education to all (not one that gives communities, county's, and States with the highest incomes & property values the best education and everybody else with a lesser one.

Nor, will I add would it be possible to rape the nation's environment by contaminating the nation's rivers, soils, and the air with green-house gases .. not just "paying" fines after the fact for doing so or putting low cost "caps" on green-house gas emissions.

So what does "the general good" actually mean? Economists can't agree on it, nor the means of achieving it of course nor can policy makers.... and this is the fundamental problem not being addressed.

Denis Drew : , Tuesday, May 17, 2016 at 02:32 PM
Make America one big Costco -- re-unionize.
Chris G : , -1
Nice column.

One comment: You wrote "...individuals are rewarded according to their contributions to the economic well being of society. Those who contribute the most to the production of the goods and services we all enjoy receive the highest rewards and climb to the top of the income distribution." I would add that having power includes being able to dictate that rewards are allotted according to economic contributions as opposed to other contributions. Cue my go-to Chris Lasch quote: "... individuals cannot learn to speak for themselves at all, much less come to an intelligent understanding of their happiness and well-being, in a world in which there are no values except those of the market.... the market tends to universalize itself. It does not easily coexist with institutions that operate according to principles that are antithetical to itself: schools and universities, newspapers and magazines, charities, families. Sooner or later the market tends to absorb them all. It puts an almost irresistible pressure on every activity to justify itself in the only terms it recognizes: to become a business proposition, to pay its own way, to show black ink on the bottom line. It turns news into entertainment, scholarship into professional careerism, social work into the scientific management of poverty. Inexorably it remodels every institution in its own image."

[Apr 30, 2016] Michael Hudson The Wall Street Economy is Draining the Real Economy naked capitalism

Notable quotes:
"... An interview by Gordon T. Long of the Financial Repression Authority. Originally published at his website ..."
"... Treasury Bulletin ..."
"... Federal Reserve Bulletin ..."
"... Business Cycles ..."
"... Canada In the New Monetary Order ..."
"... "secular stagnation" means it's all a cycle ..."
"... One of the most important distinctions that investors have to understand is the difference between secular and cyclical trends…Let us begin with definitions from the Encarta® World English Dictionary: ..."
"... Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time ..."
"... Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly ..."
"... Secular stagnation is when the predators of finance have eaten too many sheeple. ..."
"... Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to have happened yet consistently. ..."
"... Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal, which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt with Nike gear. ..."
www.nakedcapitalism.com
April 29, 2016 by Yves Smith An interview by Gordon T. Long of the Financial Repression Authority. Originally published at his website

GORDON LONG: Thank you for joining us. I'm Gordon Long with the Financial Repression Authority. It's my pleasure to have with me today Dr. Michael Hudson Professor Hudson's very well known in terms of the FIRE economy to-I think, to a lot of our listeners, or at least he's recognized by many as fostering that concept. A well known author, he has published many, many books. Welcome, Professor Hudson.

MICHAEL HUDSON: Yes.

LONG: Let's just jump into the subject. I mentioned the FIRE economy cause I know that I have always heard it coming from yourself-or, indirectly, not directly, from yourself. Could you explain to our listeners what's meant by that terminology?

HUDSON: Well it's more than just people getting fired. FIRE is an acronym for Finance, Insurance and Real Estate. Basically that sector is about assets, not production and consumption. And most people think of the economy as being producers making goods and services and paying labor to produce them – and then, labour is going to buy these goods and services. But this production and consumption economy is surrounded by the asset economy: the web of Finance, Insurance, and Real Estate of who owns assets, and who owes the debts, and to whom.

LONG: How would you differentiate it (or would you) with what's often referred to as financialization, or the financialization of our economy? Are they one and the same?

HUDSON: Pretty much. The Finance, Insurance, and Real Estate sector is dominated by finance. 70 to 80% of bank loans in North America and Europe are mortgage loans against real estate. So instead of a landowner class owning property clean and clear, as they did in the 19 th century, now you have a democratization of real estate. 2/3 or more of the population owns their own home. But the only way to buy a home, or commercial real estate, is on credit. So the loan-to-value ratio goes up steadily. Banks lend more and more money to the real estate sector. A home or piece of real estate, or a stock or bond, is worth whatever banks are willing to lend against it

As banks loosen their credit terms, as they lower their interest rates, take lower down payments, and lower amortization rates – by making interest-only loans – they are going to lend more and more against property. So real estate is bid up on credit. All this rise in price is debt leverage. So a financialized economy is a debt-leveraged economy, whether it's real estate or insurance, or buying an education, or just living. And debt leveraging means that a larger proportion of assets are represented by debt. So debt equity ratios rise. But financialization also means that more and more of people's income and corporate and government tax revenue is paid to creditors. There's a flow of revenue from the production-and-consumption economy to the financial sector.

LONG: I don't know if you know Richard Duncan. He was with the IMF, etc, and lives in Thailand. He argues right now that capitalism is no longer functioning, and really what he refers to what we have now is "creditism." Because in capitalism we have savings that are reinvested into productive assets that create productivity, which leads to a higher level of living. We're not doing that. We have no savings and investments. Credit is high in the financial sector, but it's not being applied to productive assets. Is he valid in that thinking?

HUDSON: Not as in your statement. It's confused.

LONG: Okay.

HUDSON: There's an enormous amount of savings. Gross savings. The savings we have that are mounting up are just about as large as they've ever been – about, 18-19% of the US economy. They're counterpart is debt. Most savings are lent out to borrowers se debt. Basically, you have savers at the top of the pyramid, the 1% lending out their savings to the 99%. The overall net savings may be zero, and that's what your stupid person from the IMF meant. But gross savings are much higher. Now, the person, Mr. Duncan, obviously-I don't know what to say when I hear this nonsense. Every economy is a credit economy.

Let's start in Ancient Mesopotamia. The group that I organized out of Harvard has done a 20-study of the origins of economic structuring in the Bronze Age, even the Neolithic, and the Bronze Age economy – 3200 BC going back to about 1200 BC. Suppose you're a Babylonian in the time of Hammurabi, about 1750 BC, and you're a cultivator. How do you buy things during the year? Well, if you go to the bar, to an ale woman, what she'd do is write down the debt that you owe. It was to be paid on the threshing floor. The debts were basically paid basically once a year when the income was there, on the threshing floor when the harvest was in. If the palace or the temples would advance animals or inputs or other public services, this would be as a debt. It was all paid in grain, which was monetized for paying debts to the palace, temples and other creditors.

The IMF has this Austrian theory that pretends that money began as barter and that capitalism basically operates on barter. This always is a disinformation campaign. Nobody believed this in times past, and it is a very modern theory that basically is used to say, "Oh, debt is bad." What they really mean is that public debt is bad. The government shouldn't create money, the government shouldn't run budget deficits but should leave the economy to rely on the banks. So the banks should run and indebt the economy.

You're dealing with a public relations mythology that's used as a means of deception for most people. You can usually ignore just about everything the IMF says. If you understand money you're not going to be hired by the IMF. The precondition for being hired by the IMF is not to understand finance. If you do understand finance, you're fired and blacklisted. That's why they impose austerity programs that they call "stabilization programs" that actually are destabilization programs almost wherever they're imposed.

LONG: Is this a lack of understanding and adherence to the wrong philosophy, or how did we get into this trap?

HUDSON: We have an actively erroneous view, not just a lack of understanding. This is not by accident. When you have an error repeated year after year after year, decade after decade after decade, it's not really insanity doing the same thing thinking it'll be different. It's sanity. It's doing the same thing thinking the result will be the same again and again and again. The result will indeed be austerity programs, making budget deficits even worse, driving governments further into debt, further into reliance on the IMF. So then the IMF turns them to the knuckle breakers of the World Bank and says, "Oh, now you have to pay your debts by privatization". It's the success. The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's part of the program, not a bug.

LONG: Where does this lead us? What's the roadmap ahead of us here?

HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing the 99%.

LONG: Well I think most people, without understanding economics, would instinctively tell you they think that's what's happening right now, in some way.

HUDSON: Right. As long as you can avoid studying economics you know what's happened. Once you take an economics course you step into brainwashing. It's an Orwellian world.

LONG: I think you said it perfectly well there. Exactly. It gets you locked into the wrong way of thinking as opposed to just basic common sense. Your book is Killing the Host . What was the essence of its message? Was it describing exactly what we're talking about here?

HUDSON: Finance has taken over the industrial economy, so that instead of finance becoming what it was expected to be in the 19 th century, instead of the banks evolving from usurious organizations that leant to governments, mainly to wage war, finance was going to be industrialized. They were going to mobilize savings and recycle it to finance the means of production, starting with heavy industry. This was actually happening in Germany in the late 19 th century. You had the big banks working with government and industry in a triangular process. But that's not what's happening now. After WW1 and especially after WW2, finance reverted to its pre-industrial form. Instead of allying themselves with industry, as banks were expected to do, banks allied themselves with real estate and monopolies, realizing that they can make more money off real estate.

The bank spokesman David Ricardo argued against the landed interest in 1817, against land rent. Now the banks are all in favor of supporting land rent, knowing that today, when people buy and sell property, they need credit and pay interest for it. The banks are going to get all the rent. So you have the banks merge with real estate against industry, against the economy as a whole. The result is that they're part of the overhead process, not part of the production process.

LONG: There's a sense that there's a crisis lying ahead in the next year, two years, or three years. The mainstream economy's so disconnected from Wall Street economy. What's your view on that?

HUDSON: It's not disconnected at all. The Wall Street economy has taken over the economy and is draining it. Under what economics students are taught as Say's Law, the economy's workers are supposed to use their income to buy what they produce. That's why Henry Ford paid them $5 a day, so that they could afford to buy the automobiles they were producing.

LONG: Exactly.

HUDSON: But Wall Street is interjecting itself into the economy, so that instead of the circular flow between producers and consumers, you have more and more of the flow diverted to pay interest, insurance and rent. In other words, to pay the FIRE sector. It all ends up with the financial sector, most of which is owned by the 1%. So, their way of formulating it is to distract attention from today's debt quandary by saying it's just a cycle, or it's "secular stagnation." That removes the element of agency – active politicking by the financial interests and Wall Street lobbyists to obtain all the growth of income and wealth for themselves. That's what happened in America and Canada since the late 1970s.

LONG: What does an investor do today, or somebody who's looking for retirement, trying to save for the future, and they see some of these things occurring. What should they be thinking about? Or how should they be protecting themselves?

HUDSON: What all the billionaires and the heavy investors do is simply try to preserve their wealth. They're not trying to make money, they're not trying to speculate. If you're an investor, you're not going to outsmart Wall Street billionaires, because the markets are basically fixed. It's the George Soros principle. If you have so much money, billions of dollars, you can break the Bank of England. You don't follow the market, you don't anticipate it, you actually make the market and push it up, like the Plunge Protection Team is doing with the stock market these days. You have to be able to control the prices. Insiders make money, but small investors are not going to make money.

Since you're in Canada, I remember the beginning of the 1960s. I used to look at the Treasury Bulletin and Federal Reserve Bulletin figures on foreign investment in the US stock market. We all used to laugh at Canada especially. The Canadians don't buy stocks until they're up to the very top, and then they lose all the money by holding these stocks on the downturn. Finally, when the market's all the way at the bottom, Canadians decide to begin selling because they finally can see a trend. So they miss the upswing until they decide to buy at the top once again. It's hilarious to look at how Canada has performed in the US bond market, and they did the same in the silver market. I remember when silver was going up to $50. The Canadians said, "Yes, we can see the trend now!" and they began to buy it. They lost their shirts. So, basically, if you're a Canadian investor, move.

LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.

HUDSON: I'd think so. Once they get in, you know the bubble's over.

LONG: Absolutely on that one. What are you currently writing? What is your current focus now?

HUDSON: Well, I just finished a book. You mentioned Killing the Host . My next book will be out in about three months: J is for Junk Economics . It began as a dictionary of terms, so I can provide people with a vocabulary. As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms. If you look at the television reports on the market, they say that any loss in the stock market isn't a loss, it's "profit taking". And when they talk about money. the stock market rises – "Oh that's good news." But it's awful news for the short sellers it wipes out. Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening. For instance, "secular stagnation" means it's all a cycle. Even the idea of "business cycles": Nobody in the 19 th century used the word "business cycle". They spoke about "crashes". They knew that things go up slowly and then they plunge very quickly. It was a crash. It's not the sine curve that you have in Josef Schumpeter's book on Business Cycles . It's a ratchet effect: slow up, quick down. A cycle is something that is automatic, and if it's a cycle and you have leading and lagging indicators as the National Bureau of Economic Research has. Then you'd think "Oh, okay, everything that goes up will come down, and everything that goes down will come up, just wait your turn." And that means governments should be passive.

Well, that is the opposite of everything that's said in classical economics and the Progressive Era, when they realized that economies don't recover by themselves. You need a-the government to step in, you need something "exogenous," as economist say. You need something from outside the system to revive it. The covert idea of this business cycle analysis is to leave out the role of government. If you look at neoliberal and Austrian theory, there's no role for government spending, and no role of public investment. The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19 th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit. It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions. Obviously these financialized charges are factored into the price system and raise the cost of living and doing business.

LONG: Well, Michael, we're-I thank you for the time, and we're up against our hard line. I know we didn't have as much time as we always like, so we have to break. Any overall comments you'd like to leave with our listeners who might be interested this school of economics?

HUDSON: Regarding the downturn we're in, we're going into a debt deflation. The key of understanding the economy is to look at debt. The economy has to spend more and more money on debt service. The reason the economy is not recovering isn't simply because this is a normal cycle. And It's not because labour is paid too much. It's because people are diverting more and more of their income to paying their debts, so they can't afford to buy goods. Markets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking. Instead of using their earnings to reinvest and hire more labour to increase production, companies are using their earnings for stock buybacks and dividend payouts to raise the share price so that the managers can take their revenue in the form of bonuses and stocks and live in the short run. They're leaving their companies as bankrupt shells, which is pretty much what hedge funds do when they take over companies.

So the financialization of companies is the reverse of everything Adam Smith, John Stuart Mill, and everyone you think of as a classical economist was saying. Banks wrap themselves in a cloak of classical economics by dropping history of economic thought from the curriculum, which is pretty much what's happened. And Canada-I know since you're from Canada, my experience there was that the banks have a huge lobbying power over government. In 1979, I wrote for the IRPP Institute there on Canada In the New Monetary Order . At that time the provinces of Canada were borrowing money from Switzerland and Germany because they could borrow it at much lower interest rates. I said that this was going to be a disaster, and one that was completely unnecessary. If Canadian provinces borrow in Francs or any other foreign currency, this money goes into the central bank, which then creates Canadian dollars to spend. Why not have the central bank simply create these dollars without having Swiss francs, without having German marks? It's unnecessary to have an intermediary. But the more thuggish banks, like the Bank of Nova Scotia, said, "Oh, that way's the road to serfdom." It's not. Following the banks and the Austrian School of the banks' philosophy, that's the road to serfdom. That's the road to debt serfdom. It should not be taken now. It lets universities and the government be run by neoliberals. They're a travesty of what real economics is all about.

LONG: Michael, thank you very much. I learned a lot, appreciate it; certainly appreciate how important it is for us to use the right words on the right subject when we're talking about economics. Absolutely agree with you. Talk to you again?

HUDSON: Going to be here.

LONG: Thank you for the time.

Donald , April 29, 2016 at 7:33 am

Interesting, but after insulting Duncan, Hudson says the banks stopped partnering with industry and went into real estate, which sounded like what Duncan said.

I mention this because for a non- expert like myself it is sometimes difficult to tell when an expert is disagreeing with someone for good reasons or just going off half- cocked. I followed what Hudson said about the evils of the IMF, but didn't see where Duncan had defended any of that, unless it was implicit in saying that capitalism used to function better.

Alejandro , April 29, 2016 at 9:06 am

Michael Hudson from the interview;

"As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms…."Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening."

May consider it's about recognizing and deciphering the "doublespeak", "newspeak", "fedspeak", "greenspeak" etc, whether willing or unwitting…using words for understanding and clarifying as opposed to misleading and confusing…dialectic as opposed to sophistry.

Michael Hudson , April 29, 2016 at 9:54 am

What I objected to was the characterization of today's situation as "financialization." I explained that financialization is the FIRST stage - when finance WORKS. We are now in the BREAKDOWN of financialization - toward the "barter" stage.
Treating "finance" as an end stage rather than as a beginning stage overlooks the dynamics of breakdown. It is debt deflation. First profits fall, and as that occurs, rents on commercial property decline. This is already widespread here in New York, from Manhattan (8th St. near NYU is half empty) to Queens (Austin St. in Forest Hills.).

Leonard C.Tekaat , April 29, 2016 at 12:19 pm

I wrote an article you might be interested in reading. It outlines a tax policy which would help prevent what you are discussing in your article. The abuse of credit to receive rents and long term capital gains.

The title is "Congress Financialized Our Economy And Created Financial Crisis & More Poverty" Go to http://www.taxpolicyusa.wordpress.com

SomeCallMeTim , April 29, 2016 at 5:23 pm

Thank you for another eye-opening exposition. My political economy education was negative (counting a year of Monetarism and Austrian Economics around 1980), so I appreciate your interviews as correctives.

From your interview answer to the question about what we, the 99+% should do,I gathered only that we should not try to beat the market. Anything more than that?

Skippy , April 29, 2016 at 8:33 pm

From my understanding, post Plaza banking lost most of its traditional market to the shadow sector, as a result, expanded off into C/RE and increasingly to Financialization of everything sundry.

Disheveled Marsupial… interesting to note Mr. Hudson's statement about barter, risk factors – ?????

Eduardo Quince , April 29, 2016 at 7:41 am

"secular stagnation" means it's all a cycle

Actually not.

One of the most important distinctions that investors have to understand is the difference between secular and cyclical trends…Let us begin with definitions from the Encarta® World English Dictionary:

Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time

Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly

Excerpted from: http://contrarianinvestorsjournal.com/?p=405#

cnchal , April 29, 2016 at 8:30 am

Secular stagnation from http://lexicon.ft.com/Term?term=secular-stagnation

Secular stagnation is a condition of negligible or no economic growth in a market-based economy . When per capita income stays at relatively high levels, the percentage of savings is likely to start exceeding the percentage of longer-term investments in, for example, infrastructure and education, that are necessary to sustain future economic growth. The absence of such investments (and consequently of the economic growth) leads to declining levels of per capita income (and consequently of per capita savings). With the reduced percentage savings rate converging with the reduced investment rate, economic growth comes to a standstill – ie, it stagnates. In a free economy, consumers anticipating secular stagnation, might transfer their savings to more attractive-looking foreign countries. This would lead to a devaluation of their domestic currency, which would potentially boost their exports, assuming that the country did have goods or services that could be exported.

Persistent low growth, especially in Europe, has been attributed by some to secular stagnation initiated by stronger European economies, such as Germany, in the past few years.

Words. What they mean depends on who's talking.

Secular stagnation is when the predators of finance have eaten too many sheeple.

MikeNY , April 29, 2016 at 9:57 am

Secular stagnation is when the predators of finance have eaten too many sheeple.

This.

digi_owl , April 29, 2016 at 7:44 am

Sad to see Hudson parroting the line about banks lending out savings…

Alejandro , April 29, 2016 at 9:18 am

That's not what he said. Re-read or re-listen, please.

Enquiring Mind , April 29, 2016 at 9:02 am

Hudson says

Markets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking.

Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to have happened yet consistently.

Perhaps he meant to say that markets are going to shrink as the debt deflation becomes more evident?

tegnost , April 29, 2016 at 9:52 am

I think what it means is it's getting harder to squeeze the blood out of the turnip

Synoia , April 29, 2016 at 10:06 am

What Turnip? Its become a stone, fossilized..

rfdawn , April 29, 2016 at 10:52 am

Yes, I think we are into turnip country now. Figure 1 in this prior article looks clear enough – even if you don't like the analysis that went with it. Wealth inequality still climbs but income inequality has plateaued since Clinton I. Whatever the reasons for that, the 1% should be concerned – where is the ROI?

ke , April 29, 2016 at 10:22 am

Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal, which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt with Nike gear.

ke , April 29, 2016 at 12:49 pm

Labor has no problem with multiwhatever presidents, geneticists, psychologists, or economists, trying to hunt down and replace labor, in or out of turn, but none are going to be any more successful than the others. Trump is being employed to bypass the middle class and cut a deal. There is no deal. Labor is always going to pay males to work and their wives to raise children. Obviously, the majority will vote for a competing economy, and it is welcome to do so, but if debt works so well, why is the majority voting to kidnap our kids with public healthcare and education policies.

meeps , April 29, 2016 at 5:36 pm

I'm not sure I heard an answer to the question of what people, who might be trying to save for the future or plan for retirement, can do? Is the point that there isn't anything? Because I'm definitely between rocks and hard places…

Robert Coutinho , April 29, 2016 at 9:29 pm

Yeah, he basically said there is no good savings plan. Big-money interests have rigged the rules and are now manipulating the market (this used to be the definition of what was NOT allowed). Thus, they use computer algorithms to squeeze small amounts out of the market millions of times. This means that the "investments" are nothing of the sort. You don't "invest" in something for milliseconds. He said that the 1% are mostly just trying to hold on to what they have. Very few trust the rigged markets.

ke ,