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).

[Jan 21, 2017] I seriously question the assumption of FOREX adjustments perfectly offsetting policy changes such that the balance of trade remains unchanged

Notable quotes:
"... I seriously question the assumption of FOREX adjustments perfectly offsetting policy changes such that the balance of trade remains unchanged. It seems like an article of faith that things work this way, based on logic, intelligence, and economic analysis based on various models of how the world works. ..."
"... Do economists have solid models that accurately predict the movement of FOREX rates in the first place? I mean, all else being equal, and given no policy changes at all, can economists accurately forecast the exchange rates between, say, Canada and the US over the next 10 years? And, if so, why do these economists have to work for a living? Shouldn't they be enormously wealthy people by now if they possess this level of predictive capabilities? ..."
"... My personal thinking on the matter is to take a more humble approach. Given some solid reasons to believe the proposed border adjustment tax will increase the value of the dollar, but lacking a way to accurately predict FOREX, I would guess that exchange rates would adjust to cancel out only half the policy change. I'll assume trade flows adjust a bit and FOREX rates adjust a bit. And since it is just a guess, I'd be quite cautious in drawing any strong conclusions. ..."
Jan 21, 2017 | economistsview.typepad.com

pgl, Friday, January 20, 2017 at 01:37 AM

Team Trump needs to listen to Miles Kimball:

"border adjustability. In the eurozone, where there is a fixed exchange rate of 1 between the member countries, relying more heavily on a value-added tax-for which international rules allow taxing imports while exempting exports from the tax-and less on other taxes, is understood as a way to get the same effect as devaluing to an exchange rate that makes foreign goods more expensive to people in a country and domestic goods cheaper to foreigners. But in a floating exchange rate setup as the US has, most of the effects of border adjustment can be canceled out by an explicit appreciation in the dollar that cancels out the implicit devaluation from the tax shift. And indeed, such an appreciation of the dollar is exactly what one should expect."

The architect of this Destination Based Cash Flow Tax with "Border Adjustments" (is that like sprinkles on top) is Alan Auerbach and even he admits this. Miles moves onto something else I have been saying:

"A way to push down the value of the dollar and stimulate net exports for a much longer time is to increase saving rates in the US As greater saving pushed down US rates of return, some of that extra saving would wind up in foreign assets, putting extra US dollars in the hands of folks abroad, so they would have US dollars to buy US goods. This effect can be enhanced if the regulations for automatic enrollment are favorable to a substantial portion (say 30%) of the default investment option being in foreign assets. Note that an increase in US saving would tend to push down the natural interest rate, and so needs to be accompanied by the elimination of the zero lower bound in order to avoid making it hard for monetary policy to respond to recessions."

OK – it might not be so easy to lower the natural rate now but back in 1981, real interest rates soared as the Reagan tax cuts lowered national savings. This led to a massive dollar appreciation and a large drop in net exports.

Ed Brown -> pgl... , January 20, 2017 at 07:31 AM
I seriously question the assumption of FOREX adjustments perfectly offsetting policy changes such that the balance of trade remains unchanged. It seems like an article of faith that things work this way, based on logic, intelligence, and economic analysis based on various models of how the world works.

But while this view seems to be held by intelligent people with far more economic education that I will ever have, I am wondering if there is any empirical evidence that supports this reasoning? I am sceptical.

Do economists have solid models that accurately predict the movement of FOREX rates in the first place? I mean, all else being equal, and given no policy changes at all, can economists accurately forecast the exchange rates between, say, Canada and the US over the next 10 years? And, if so, why do these economists have to work for a living? Shouldn't they be enormously wealthy people by now if they possess this level of predictive capabilities?

My personal thinking on the matter is to take a more humble approach. Given some solid reasons to believe the proposed border adjustment tax will increase the value of the dollar, but lacking a way to accurately predict FOREX, I would guess that exchange rates would adjust to cancel out only half the policy change. I'll assume trade flows adjust a bit and FOREX rates adjust a bit. And since it is just a guess, I'd be quite cautious in drawing any strong conclusions.

I welcome comments that would help educate me on this subject. Best wishes to all.

Peter K. -> Ed Brown... , January 20, 2017 at 07:46 AM
As I understand it Peter Dorman agrees with you here:

http://econospeak.blogspot.com/2016/12/paul-krugman-on-protectionism-and-trade.html

As does economics superstar Dean Baker.

PGL replied to Dorman twice, but Dorman ignored him.

JohnH -> Peter K.... , January 20, 2017 at 08:17 AM
I love PK's summary: ".... trade deficits are always a temporary phenomenon, to be followed eventually by surpluses, and vice versa."

After 30 years of trade deficits, I wonder about PK's definition of temporary...

Oh well, in the long run, we're all dead...and the trade deficit will swing to a surplus...

Ed Brown -> JohnH... , January 20, 2017 at 08:28 AM
:-)
Old Opossum's Practical Cat -> Ed Brown... , January 20, 2017 at 08:39 AM
As The Clock Ticks Down

Stand by your data
"
~~Country & Western Song~

Before the opportunity-window slams shut, harvest your data from the market! You need to record a baseline from the last moments of the O'Bummer World. Sure!

You will wish him back, but that is beside the point. We are scientists not wishers.

I wish you
well
!

Ed Brown -> Peter K.... , January 20, 2017 at 08:26 AM
Hello. Thank you for this link. I found this comment by Peter Dornman to be interesting: "And also, yes, any theory that implies a known relationship between macro variables and forex rates is *very* counter-empirical."

If his comment is correct, it makes me wonder about the reliability of Miles Kimball's analysis.

There are certain types of problems we just can't reliably analyze, as they are too complicated, or the underlying physics is subject to extreme sensitivity to accuracy of the inputs (chaos theory, basically). For instance, our ability to make meaningful forecasts of the weather is limited to a few days. Maybe FOREX predictions are like that? If so, we should be cautious about making any strong statements about FOREX adjustments precisely offsetting policy changes.

I mean, doesn't it seem like hubris when you can't predict what a variable will do given no changes to current conditions, but you decide that you can predict *precisely* what it will do if we make changes to current conditions?

JohnH -> Ed Brown... , January 20, 2017 at 07:54 AM
"Do economists have solid models that accurately predict the movement of FOREX rates in the first place?"

Meese-Rogoff showed that exchange rates are disconnected from fundamentals. It's called the 'foreign exchange puzzle.'

Yet pgl keeps insisting on an 'if x then y' approach to most problems. His key variable is interest rates, which are at the root of most every change in pglian universe.

I'm actually surprised that he departs from his rate-centric universe to suggest that Trump might be responsible for something like the fall of the peso, though he stridently rejects the idea that Trump's bully pulpit might shame American companies into keeping more jobs at home.

JohnH -> JohnH... , January 20, 2017 at 07:58 AM
Meese-Rogoff found that f-x rates are a random walk.

[Jan 21, 2017] The Devious Ways That Neoliberal Economists Hurt America

Jan 21, 2017 | economistsview.typepad.com
anne :
im1dc -> anne... , January 20, 2017 at 10:11 AM
"The Ways That Pop Economics Hurt America"

should properly read

'The Ways That Economists Hurt America'

libezkova -> im1dc... , January 20, 2017 at 10:36 AM
Even more properly

"The Devious Ways That Neoliberal Economists Hurt America"

im1dc -> libezkova... , January 20, 2017 at 11:17 AM
Milton Friedman is a Neoliberal Economist?
pgl -> im1dc... , January 20, 2017 at 11:29 AM
On monetary economics - he is closer to Krugman than to Phil Gramm. But some people here hate Friedman as much as they hate Krugman and they have decided "neoliberal" is the ultimate put down. Even though they have no working definition of "neoliberal".
RC AKA Darryl, Ron -> pgl... , January 20, 2017 at 02:25 PM
neoliberal = low taxes + small government + MNC favorable trade deals + financial deregulation
RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , January 20, 2017 at 02:26 PM
neoliberal = Reagan/Thatcher policy
ilsm -> RC AKA Darryl, Ron... , January 20, 2017 at 04:46 PM
Wm Clinton/Rubin were Reagan not so lite. Except Bill did not borrow for the war machine.

My observation having been there: Reagan weapons were all busts which laid the ground work for $100B into the F-35 and we got nothing.

[Jan 20, 2017] What is Economism and why it is so damaging

Jan 20, 2017 | economistsview.typepad.com

Peter K. : January 20, 2017 at 04:35 AM

Noah Smith: The Ways That Pop Economics Hurt America - Noah Smith

"So I wonder if economism was really as unrealistic and useless as Kwak seems to imply. Did countries that resisted economism -- Japan, for example, or France [Germany?] -- do better for their poor and middle classes than the U.S.? Wages have stagnated in those countries, and inequality has increased, even as those countries remain poorer than the U.S. Did the U.S.'s problems really all come from economism, or did forces such as globalization and technological change play a part? Cross-country comparisons suggest that the deregulation and tax cuts of the 1980s and 1990s, although ultimately excessive, probably increased economic output somewhat."

Ugh what an awful display of pop economism. Globalization and technology are "impersonal forces." No mention of the rise of inequality or the SecStags. No mention of monetary policy fail in Europe. The biggest lies of economism are the lies of omission.

libezkova -> Peter K.... , -1
Thank you !

Looks like this concept of "Economism" introduced by James Kwak in his book Economism is very important conceptual tool for understanding the tremendous effectiveness of neoliberal propaganda.

I think it is proper to view Economism as a flavor of Lysenkoism. As such it is not very effective in acquiring the dominant position and suppressing of dissent, but it also can be very damaging.

https://www.bloomberg.com/view/articles/2017-01-19/the-ways-that-pop-economics-hurt-america

== quote ==

...When competitive free markets and rational well-informed actors are the baseline assumption, the burden of proof shifts unfairly onto anyone proposing a government policy. For far too many years, free-marketers have gotten away with winning debates by just sitting back and saying "Oh yeah? Show me the market failure!" That deck-stacking has long forced public intellectuals on the left have to work twice as hard as those safely ensconced in think tanks on the free-market right, and given the latter a louder voice in public life than their ideas warrant.

It's also true that simple theories, especially those we learn in our formative years, can maintain an almost unshakeable grip on our thinking.

For example, the basic Econ 101 theory of supply and demand is fine for some products, but it doesn't work very well for labor markets. It is incapable of simultaneously explaining both the small effect of minimum wage increases and the small impact of low-skilled immigration. Some more complicated, advanced theory is called for.

But no matter how much evidence piles up, people keep talking about "the labor supply curve" and "the labor demand curve" as if these are real objects, and to analyze policies -- for example, overtime rules -- using the same old framework.

An idea that we believe in despite all evidence to the contrary isn't a scientific theory -- it's an infectious meme.

Academic economists are unsure about how to respond to the abuse of simplistic econ theories for political ends. On one hand, it gives them enormous prestige. The popularity of simplistic econ ideas has made economists the toast of America's intellectual classes.

It has sustained enormous demand for the undergraduate econ major, which serves, in the words of writer Michael Lewis, as a "standardized test of general intelligence" for future businesspeople. But as Kwak points out, the simple theories promulgated by politicians and on the Wall Street Journal editorial page often bear little resemblance to the sophisticated theories used by real economists.

And when things go wrong -- when the financial system crashes, or millions of workers displaced by Chinese imports fail to find new careers -- it's academic economists who often get blamed, not the blasé and misleading popularizers.

... ... ...

Russia and China have given up communism not because they stopped having working classes, but because it became obvious that their communist systems were keeping them in poverty. And Americans are now starting to question economism because of declining median income, spiraling inequality and a huge financial and economic crisis.

[Jan 20, 2017] The architect of supply-side economics is now a professor at Columbia University, former University of Chicago economist Robert Mundell is an academic charlatan

Notable quotes:
"... For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan ..."
"... The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do. ..."
Jan 20, 2017 | economistsview.typepad.com
RC AKA Darryl, Ron :

Thanks to New Deal democrat, who made me curious about yesterday's "comment section in re Summers' piece." Then thanks to Ron Waller for his comment which closed with: (Good read: "Robert Mundell, evil genius of the euro".)

https://www.theguardian.com/commentisfree/2012/jun/26/robert-mundell-evil-genius-euro

Robert Mundell, evil genius of the euro

Greg Palast

For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan

The idea that the euro has "failed" is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do.

That progenitor is former University of Chicago economist Robert Mundell. The architect of "supply-side economics" is now a professor at Columbia University, but I knew him through his connection to my Chicago professor, Milton Friedman, back before Mundell's research on currencies and exchange rates had produced the blueprint for European monetary union and a common European currency.

Mundell, then, was more concerned with his bathroom arrangements. Professor Mundell, who has both a Nobel Prize and an ancient villa in Tuscany, told me, incensed:

"They won't even let me have a toilet. They've got rules that tell me I can't have a toilet in this room! Can you imagine?"

As it happens, I can't. But I don't have an Italian villa, so I can't imagine the frustrations of bylaws governing commode placement.

But Mundell, a can-do Canadian-American, intended to do something about it: come up with a weapon that would blow away government rules and labor regulations. (He really hated the union plumbers who charged a bundle to move his throne.)

"It's very hard to fire workers in Europe," he complained. His answer: the euro.

The euro would really do its work when crises hit, Mundell explained. Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing.

As another Nobelist, Paul Krugman, notes, the creation of the eurozone violated the basic economic rule known as "optimum currency area". This was a rule devised by Bob Mundell.

That doesn't bother Mundell. For him, the euro wasn't about turning Europe into a powerful, unified economic unit. It was about Reagan and Thatcher.

"Ronald Reagan would not have been elected president without Mundell's influence," once wrote Jude Wanniski in the Wall Street Journal. The supply-side economics pioneered by Mundell became the theoretical template for Reaganomics – or as George Bush the Elder called it, "voodoo economics": the magical belief in free-market nostrums that also inspired the policies of Mrs Thatcher.

Mundell explained to me that, in fact, the euro is of a piece with Reaganomics:

"Monetary discipline forces fiscal discipline on the politicians as well."

And when crises arise, economically disarmed nations have little to do but wipe away government regulations wholesale, privatize state industries en masse, slash taxes and send the European welfare state down the drain.

Thus, we see that (unelected) Prime Minister Mario Monti is demanding labor law "reform" in Italy to make it easier for employers like Mundell to fire those Tuscan plumbers. Mario Draghi, the (unelected) head of the European Central Bank, is calling for "structural reforms" – a euphemism for worker-crushing schemes. They cite the nebulous theory that this "internal devaluation" of each nation will make them all more competitive.

Monti and Draghi cannot credibly explain how, if every country in the Continent cheapens its workforce, any can gain a competitive advantage.
But they don't have to explain their policies; they just have to let the markets go to work on each nation's bonds. Hence, currency union is class war by other means.

The crisis in Europe and the flames of Greece have produced the warming glow of what the supply-siders' philosopher-king Joseph Schumpeter called "creative destruction". Schumpeter acolyte and free-market apologist Thomas Friedman flew to Athens to visit the "impromptu shrine" of the burnt-out bank where three people died after it was fire-bombed by anarchist protesters, and used the occasion to deliver a homily on globalization and Greek "irresponsibility".

The flames, the mass unemployment, the fire-sale of national assets, would bring about what Friedman called a "regeneration" of Greece and, ultimately, the entire eurozone. So that Mundell and those others with villas can put their toilets wherever they damn well want to.

Far from failing, the euro, which was Mundell's baby, has succeeded probably beyond its progenitor's wildest dreams.

[Needless to say, I am not a fan of Robert Mundell's.]

Reply Friday, January 20, 2017 at 07:07 AM Peter K. -> RC AKA Darryl, Ron... , January 20, 2017 at 07:19 AM
Excellent article!

"It puts monetary policy out of the reach of politicians," he said. "[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business."

Reminded me of a point made by J.W. Mason:

http://jwmason.org/slackwire/what-does-crowding-out-even-mean/

"..It's quite reasonable to suppose that, thanks to dependence on imported inputs and/or demand for imported consumption goods, output can't rise without higher imports. And a country may well run out of foreign exchange before it runs out of domestic savings, finance or productive capacity. This is the idea behind multiple gap models in development economics, or balance of payments constrained growth. It also seems like the direction orthodoxy is heading in the eurozone, where competitiveness is bidding to replace inflation as the overriding concern of macro policy."

Peter K. -> RC AKA Darryl, Ron... , January 20, 2017 at 07:30 AM
I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser.

Like would they advise Greece to boost their national savings rate or doesn't it matter since Germany controls monetary policy?

RC AKA Darryl, Ron said in reply to Peter K.... , January 20, 2017 at 08:58 AM
"I wonder how this fits with the national savings rate discussion of Miles Kimball and Brad Setser."

[Don't know and it sounds like way too much work for me to try to figure out. Savings rate is not a problem for us and it is difficult to see how Greece could realistically increase theirs sufficient to change anything without some other intervention being made first to decrease unemployment and increase output.]

pgl -> RC AKA Darryl, Ron... , January 20, 2017 at 09:47 AM
It is also too much work for PeterK. If he can't cherry pick it, he don't bother.

But note our net national savings rate has been less than 2% for a long, long time.

[Jan 19, 2017] Fake Economics and the media

Jan 19, 2017 | mainlymacro.blogspot.com
If there is Fake News, is there such a thing as Fake Economics? I thought about this as a result of two studies that have received considerable publicity in the press and broadcast media over the last few weeks. Both, needless to say, involve Brexit. The first are two bits of analysis by 'Change Britain', saying Brexit would generate 400,000 new jobs and "boost the UK by £450 million a week". The second is a more substantial piece of work by economists at the Centre for Business Research (CBR) in Cambridge, which was both very critical of the Treasury's own analysis of the long term costs of Brexit and came up with much smaller estimates of its own for these costs.
Defining exactly what Fake News is can be difficult , although we can point to examples which undoubtedly are fake, in the sense of reporting things to be true when it is clear they are not. Fake News often constitutes made up facts that are designed for a political purpose. You could define Fake economics in a similar way: economic analysis or research that is obviously flawed but whose purpose is to support a particular policy. (Cue left wing heterodox economists to say the whole of mainstream economics is fake economics.) We can equally talk about evidence based policy and its fake version, policy based evidence.

[Jan 18, 2017] FRBSF The Current Economy and the Outlook

Jan 18, 2017 | economistsview.typepad.com
libezkova : , -1
Mathiness and "number racket" are two feature of neoliberalism that are especially damaging.

I like how neoclassical economics works: bought economists operate with fake models that use fake data.

It probably would be more interesting to discuss how US government measures unemployment those days. And all those "not in labor force" tricks.

Just seasonal adjustment make winter figures highly suspect.

Only U6 still has some connections to reality and if this measure shows "close to full employment", you can call any half empty glass "full".

http://unemploymentdata.com/current-u6-unemployment-rate/

== quote ==

Current U-6 Unemployment Rate is 9.1% (BLS) or 13.7% (Gallup)

Current U-6 Unemployment Rate:

Unemployment U6 vs U3 For December 2016 the official Current U-6 unemployment rate was 9.1% up from last month's 9.0% but still below the recent low of 9.3% in April and September and October's 9.2%.

On the other hand the independently produced Gallup equivalent called the "Underemployment Rate" was up to 13.7 in December from 13.0% in November nearing the 13.8% of April. The current differential between Gallup and BLS on supposedly the same data is 4.6%!

jonny bakho : , January 18, 2017 at 05:07 AM
"The labor market remains near its sustainable, full employment level."

This is a hope not a fact
There is plenty of slack if the underemployed move into jobs and we return the 20-50 yr olds to pre-recession participation rates.

pgl -> jonny bakho... , January 18, 2017 at 07:28 AM
Yep. Which is why I focus on the employment to population ratio. We are far from full employment.
John San Vant -> pgl... , January 18, 2017 at 09:54 AM
nope,nope,nope. you don't get how employment to population ratio is calculated. it can't rise and should not rise unless the calculations are adjusted.
John San Vant -> jonny bakho... , January 18, 2017 at 09:52 AM
Sorry, but it is a fact. Capital is at full employment.

Underemployed is cost savings adjustment made 30+ years ago and the pre-recession trend is always the end of the expansion.

urban legend -> John San Vant... , January 18, 2017 at 11:09 AM
Let's see:
SUPPORTING the belief that we are "close" to full employment is the U-3 measure of unemployment, a measure with an arbitrary cut-off that excludes from the official labor force as many people as possible who are not employed but do want jobs -- by requiring (1) an "active" search effort only within the last four weeks, based on (2) a definition of "active" that probably does not fit rational behavior by the unemployed who now have access to comprehensive Internet jobs databases that did not exist 20 years ago. (It is not terribly hard to surmise the institutional interests that are served by keeping the size of the labor force for purposes of determining the official unemployment rate as small as possible.)

NOT SUPPORTING the belief that we are close to full employment:

(1) the lowest employment-to-population ratio in almost half a century;
(2) negating the intellectually-lazy demographic excuse that invariably gets raised to point No. 1, the lowest employment-to-population ratio in 30 years in the prime working age group (25-54), a group that is 99.99% unaffected by the phenomenon of voluntary retirement;
(3) a U-6 (that counts many more of the unemployed in the labor force) that is still three percentage points higher than the low point reached in 2000 (three percentage points is a lot, representing about 7.5 million people who want jobs but are not counted in the labor force for calculating the U-3);
(4) an aggregate growth in full-time jobs of only 9% since the relative high point in 2000 even though the working age population has grown by 20%;
(5) average weeks unemployed among those who are counted as part of the labor force (26 weeks) that is still more than twice as high as it was in 2000 (under 13 weeks) and is still 10 weeks higher than it was before the Great Recession;
(6) involuntary part-time employment still 75% higher than it was in 2000, 33% higher than before the Great Recession;
(7) whereas in 2000, the U.S. was near the top in employment rate among the OECD countries, in 2017 it is close to the bottom; most OECD countries have recovered in their employment rates since the depths of the Great Recession, and many have moved to new levels (even supposedly sick France has a higher employment rate in the 25-54 prime working age group than te U.S.).

With this array of negative date to overcome, it takes a lot of wise monkeys who neither speak, hear nor see any evil to expound a belief that we are close to full employment.

RW said... January 18, 2017 at 07:05 AM

Inflation for the 4th quarter of 2016 is zero -- no change Oct through Dec -- and real interest rates remain near the zero boundary. Republican history WRT governing particularly as it pertains to the economy is sufficiently poor that optimism appears entirely unwarranted. I hear a lot of investors are adjusting their portfolio allocations to favor equities over bonds. Two years ago that was a smart move; now, not so much.

mulp said...

"All else equal, tax cuts boost household and business income."

In 2001, I was rif'd from my 100K++ job and got a $20,000 tax cut.

That tax cut did not boost my household income.

That economists have been bamboozled into thinking this way is beyond my comprehension.

Economies are zero sum. For every action, there is a reaction. Tax cuts mean revenue cuts which means spending cuts and spending cuts mean lower household income.

Very few sectors of the economy are subject to demand price elasticity that results in higher revenue from price reduction due to the quantity increasing explosively from a small reduction in price.

For example, cutting the profit tax by 30% on $100 oil so gasoline falls from $4.05 to $4.00 and thus doubles the quantity of gasoline sold to boost profit taxes is an impossibility.

And cutting the tax on economic profits from restricting oil production to drive up prices and profits can only increase tax revenue if oil production is cut further by cutting jobs so gasoline prices can be increased from $4 to $5 to $6 per gallon.

Since Reagan, economists seem to have self lobotomized so they spout totally illogical nonsense like "All else equal, tax cuts boost household and business income."

Might as well say "if you believe, you can fly when tinker bell hits you with pixie dust."


Reply Wednesday, January 18, 2017 at 11:07 AM

[Jan 18, 2017] The idea of equilibrium is a neoclassical fallacy as financial sector introduces the positive feedback loop leading to system instability

Jan 18, 2017 | economistsview.typepad.com
reason : , January 16, 2017 at 02:03 AM
I know I will completely offside with my view on this, but I think the behavioural/rational expectations debate is rather besides the point. The much bigger issues are uncertainty and disequilibrium.

http://noahpinionblog.blogspot.de/2017/01/cracks-in-anti-behavioral-dam.html

pgl -> reason ... , January 16, 2017 at 02:06 AM
Not offside. Spot on.
reason -> reason ... , January 16, 2017 at 02:09 AM
The fundamental problem is in trying to model an evolutionary system as though it was a quasi stationary system (with exactly proportional growth).
New Deal democrat -> reason ... , January 16, 2017 at 05:31 AM
As I noted the other day, and Johnnny Bakho refers to below, the essence of this problem is that the thing being observed, observes back and adapts.

The only kind of model that might work in the long run, is a model that works even after everybody becomes aware of it and adapts their behavior to it.

As to the issue of uncertainty, if we assume that most people operate with formal or informal budgets, anything that causes them to think that their budget is about to increase or decrease is going to change their consumption. And since people *hate* to sustain and realise losses, the change is going to be disproportionately intense if the uncertainty include an possible increase to the downside.

reason -> New Deal democrat... , January 16, 2017 at 07:14 AM
No that isn't enough. Sure people might change their behavior as their understanding changes. But other things are changing as well as the behavior. In particular, technology and available resources change.

As I said the system is evolutionary (which means an adaptive system - which includes behavior changes), and evolution is never easy to anticipate, which implies uncertainty. And the existence of uncertainty leads to persistent disequilibrium (as people adopt defensive contingent strategies to cope with uncertainty). The big errors in macro are all associated with the general equilibrium paradigm and the assumptions that come with it.

New Deal democrat -> reason ... , January 16, 2017 at 07:38 AM
Point taken re technology and resources, although behavioral adaptation is a big part of why models fail.

I had a big long response worked out re the biggest endemic problem with "the assumptions that come with" macro's paradigm. Then my iPad decided to randomly pop up a keyboard screen and when I touched to get rid of it, deleted the entire comment!

The screaming at crapified Apple has passed now. I am zen again.

reason -> New Deal democrat... , January 16, 2017 at 08:40 AM
P.S. Rational expectations IS an attempt to build in behavioral adaptation. It is just that it turns out not very useful (it is empirically a complete flop).
JohnH -> New Deal democrat... , January 16, 2017 at 07:36 AM
I thought we were in a time of uncertainty right now due to Trump.

Anybody see any slowing of the economy? Markets are up.

New Deal democrat -> JohnH... , January 16, 2017 at 07:39 AM
Well-to-do GOPers foreseeing unfettered capitalist nirvana. It will pass.
JohnH -> New Deal democrat... , January 16, 2017 at 08:11 AM
So there is 'uncertainty' and 'uncertainty.' Which kind of uncertainty leads to a slower economy? Why wouldn't unknown after-shocks from repealing Obamacare have current economic repercussions?

Republicans used to claim that the roll-out of Obamacare was causing economic uncertainty and hurting the economy.

Seems to me that the whole foundation of 'economic uncertainty' is rather shaky, particularly if the promised, disruptive actions of Trump don't cause economic repercussions.

reason -> JohnH... , January 16, 2017 at 08:45 AM
Uncertainty (as for instance PK pointed out) can work in different ways in the short and long terms. In the short term it can result in hedging behavior which might actually promote some investment. In the longer term it will push up risk margins which will probably push growth rates down.
ilsm -> reason ... , January 16, 2017 at 04:39 AM
football
jonny bakho -> reason ... , January 16, 2017 at 04:49 AM
Humans evolved as social animals.
If rational expectations focuses on the individual and ignores that humans act as members of groups, not individuals, then it will not accurately predict human behavior or outcomes.
point -> reason ... , January 16, 2017 at 06:07 AM
Perhaps your comment is similar to supposing that perhaps "equilibrium" is a not always useful concept when the modeled surface may have multiple local maxima, minima and saddles.
reason -> point... , January 16, 2017 at 07:18 AM
Nope. I think we are trying to model a system converging to an equilibrium that is changing faster than the system can possibly adapt. We should forget all about equilibrium in macro-economics. It only misdirects.

I once tried to explain this with an analogy to flying a plane - the plane is always sinking and rising and net path the outcome of the sum of different (constantly varying) forces. This is quite distinct for instance, from the way that a boat floats on the ocean (which is much closer to how we are trying to model things today). The stochastic shocks in economic models are like waves on the sea - where the net effect in the end is that the average position remains the same. I don't think the economy is like that.

libezkova -> reason ... , -1
The idea of equilibrium is a neoclassical fallacy. financial sector introduced in the system systemic instability, the positive feedback loop.

Cassidy called it "Utopian economics".

As you wrote in 2015

reason :

The problem in thinking here is the equilibrium paradigm. Equilibrium NEVER exists. If there is a glut the price falls below the marginal cost/revenue point, if the seller is desperate enough it falls to zero!

Ignoring disequilibrium dynamics means this obvious (it should be obvious) point is simply ignored. The assumption of general equilibrium leads to the assumption of marginal productivity driving wages. You are not worth what you produce, you are worth precisely what somewhat else would accept to do your job.

See also

"The Virtues and Vices of Equilibrium, and the Future of Financial Economics"
J. Doyne Farmer and John Geanakoplos (2008)
http://cowles.econ.yale.edu/~gean/art/p1274.pdf

[Jan 17, 2017] Is Krugman another economic charlatan like Mankiw?

Jan 17, 2017 | economistsview.typepad.com
All those notions like "full employment" (when employment metrics are completely screwed) are very questionable indeed. And role of federal reserve in enforcing neoliberal policies is often underestimated. Greenspan was a neoliberal stooge. A servant of Wall Street.

Peter K. : , January 17, 2017 at 08:02 AM

JW Mason remembers a famous episode that the progressive neoliberals would have us forget:

http://jwmason.org/slackwire/what-does-crowding-out-even-mean/

What Does Crowding Out Even Mean?
by J.W. Mason
Posted on January 16, 2017

Paul Krugman is taking some guff for this column where he argues that the US economy is now at potential, or full employment, so any shift in the federal budget toward deficit will just crowd out private demand.

...

...In the more sophisticated textbooks, this becomes a central bank reaction function - the central bank's actions change from being policy choices, to a fundamental law of the economic universe. The master parable for this story is the 1990s, when the Clinton administration came in with big plans for stimulus, only to be slapped down by Alan Greenspan, who warned that any increase in public spending would be offset by a contractionary shift by the federal reserve. But once Clinton made the walk to Canossa and embraced deficit reduction, Greenspan's fed rewarded him with low rates, substituting private investment in equal measure for the foregone public spending. In the current contest, this means: Any increase in federal borrowing will be offset one for one by a fall in private investment - because the Fed will raise rates enough to make it happen."

...

[Jan 15, 2017] The Stumbling and Mumbling article raises a fundamental point about economics: forecasting *must* inevitably be generally wrong.

Notable quotes:
"... But the application is broader. There are two types of economics: positive economics vs. normative economics. Basically, " here is what people do" vs. "here is what people *should* do." The better economics gets at explaining what people actually do, the more people can adapt their behavior based on the accuracy of economics. ..."
"... "War is regarded as nothing but the continuation of state policy with other means." ..."
Jan 15, 2017 | economistsview.typepad.com
New Deal democrat : , January 14, 2017 at 05:49 AM
The Stumbling and Mumbling article raises a fundamental point about economics: forecasting *must* inevitably be generally wrong.

The reason is that you are predicting human behavior, but the humans under observation also get to observe back! They can and will adapt their behavior based on your forecasts. For example, let's say that everyone knows that I am a 100% accurate economic prognosticator. I forecast that while the economy is doing well now, one year from now there will be a recession.

What do you as a producer or consumer do? Since you know I am 100% accurate, you alter your behavior because you know a recession is coming in one year. Result: the recession comes now! Because you curtailed production or consumption in anticipation of the recession you knew was coming.

But the application is broader. There are two types of economics: positive economics vs. normative economics. Basically, " here is what people do" vs. "here is what people *should* do." The better economics gets at explaining what people actually do, the more people can adapt their behavior based on the accuracy of economics.

Result: the better positive and normative economics get, the more positive and to some extent* normative economics must fail!

(*I think there are some normative concepts that would be correct even if everyone knew about them and acted on them, e.g., efficiently allocating time.)

P.S.: As an aside and a real-world example, I am just finishing a dense 800 page tome on Napoleon. It has been a godsend since the election! As a young general, Napoleon was brilliant, adopting and using the newest and novel tactics and formations advocated by military scholars against his geriatric and monarchically-connected opponents.

But over time his adversaries, especially Tsar Alexander, learned. They appointed more military generals and strategists on merit, adopted Napoleon's reforms, and in a strategy that the Chinese and Japanese (and Karl Rove) would have approved, actually used his strengths against him.

Humans are remarkably cunning chimpanzees. When enough of them learn a strategy, it loses its effectiveness.

anne -> New Deal democrat... , January 14, 2017 at 06:57 AM
I am just finishing a dense 800 page tome on Napoleon...

[ A mystery tome, that might of course be referenced but where would the mystery be then? ]

New Deal democrat -> anne... , January 14, 2017 at 07:10 AM
Napoleon had a blind spot for naval warfare.
Anne, you have a blind spot for google. ;)

The book is mysteriously titled "Napoleon." The author is Andrew Roberts.

ilsm -> New Deal democrat... , January 14, 2017 at 07:53 AM
von Clauswitz recorded and expanded on a lot of what Napoleon did from a Prussian perspective.

Sadly US ignore von C and Napoleon's lessons.

libezkova -> ilsm... , January 14, 2017 at 10:17 AM
Very True. Some of his observations stood the test of the time.

Such as "War is regarded as nothing but the continuation of state policy with other means."

anne -> New Deal democrat... , January 14, 2017 at 08:16 AM
https://www.nytimes.com/2014/11/16/books/review/napoleon-a-life-by-andrew-roberts.html

November 16, 2014

'Napoleon: A Life,' by Andrew Roberts
By DUNCAN KELLY

On July 22, 1789, a week after the storming of the Bastille in Paris, Napoleon Bonaparte wrote to his older brother, Joseph, that there was nothing much to worry about. "Calm will return. In a month." His timing was off, but perhaps he took the misjudgment to heart because he spent the rest of his life trying to bring glory and order to France by building a new sort of empire. By the time he was crowned emperor on Dec. 2, 1804, he could say, "I am the Revolution." It was, according to the historian Andrew Roberts's epically scaled new biography, "Napoleon: A Life," both the ultimate triumph of the self-made man, an outsider from Corsica who rose to the apex of French political life, and simultaneously a "defining moment of the Enlightenment," fixing the "best" of the French Revolution through his legal, educational and administrative reforms. Such broad contours get at what Napoleon meant by saying to his literary hero Goethe at a meeting in Erfurt, "Politics is fate."

Napoleon didn't mean fatalism by this, rather that political action is unavoidable if you want personal and national glory. It requires a mastery of fortune, and a willingness to be ruthless when necessary. If this sounds Machiavellian, that's because it is - Machiavelli's arguments about politics informed Napoleon's self-consciousness, whether in appraising fortune as a woman or a river to be tamed and harnessed, or assuming that in politics it is better to be feared than loved. Such views went hand in hand with the grand visions of politics outlined in the ancient histories and biographies Napoleon revered as a young man. "Bloodletting is among the ingredients of political medicine" was Napoleon's cool if brutal reminder of an ever-present item on his exhausting schedule.

His strategy always included dashing off thousands of letters and plans, in a personal regime calling for little sleep, much haste and a penchant for being read to while taking baths so as not to waste even a minute. He compartmentalized ruthlessly, changing tack between lobbying for more shoes and brandy for the army at one minute, to directing the personal lives of his siblings or writing love letters to the notorious Josephine at another; here ensuring extravagant financial "contributions" from those whom he had vanquished, there discussing the booty to send back to Paris, particularly from the extraordinary expedition in Egypt where his "savants had missed nothing." The personal and the political ran alongside each other in his mind.

Yet when his longtime collaborator but fair-weather political friend, the diplomat Charles-Maurice de Talleyrand, suggested that Napoleon try to make those he conquered learn to love France, Napoleon replied that this was an irrelevance. "Aimer: I don't really know what this means when applied to politics," he said. Still, if grand strategy and national interest lay behind foreign affairs, there were nevertheless personal rules of conduct to uphold. Talleyrand was a party to Napoleon's strategy since supporting his coup d'état against the French Directory in 1799. That was O.K. And by short-selling securities he made millions for himself. But he was called out by Napoleon and dismissed as vice grand elector when found facing both ways politically at a crucial moment.

Napoleon understood those temptations because he was also flexible enough to tilt toward the winning side, regularly supporting any form of local religion that could help him militarily. Nonetheless, Roberts's Napoleon is a soldier, statesman and "bona fide intellectual," who rode his luck for longer than most intellectuals in politics ever do....


Duncan Kelly teaches political thought at the University of Cambridge.

[Jan 14, 2017] What is full employment is also debatable issue

Notable quotes:
"... What is full employment is also debatable issue. For example, if workers or a good portion of workers are not earning a living wage, is that full employment? ..."
"... If production is reduced because people cannot afford the products, when in fact we have the capacity and people have the appetites and time to get utility out of the consumption is that full employment? ..."
"... Central bankers today irresistibly bring to mind the Wizard of Oz. It's the characters' missing virtues that grab me: a heart, a brain, and courage. Central bankers today lack all three. ..."
"... The Fed took risks to save the banking system, but is already telling us we are close to full employment and professing to be alarmed about "inflation," when anyone can see that banks, insurers, and pension funds are clamoring for rate rises, just as in the 1930s. Both institutions need to start thinking about someone besides the financial community. If they don't, I do not doubt that we will not have seen the last of the anger that Donald Trump and Senator Bernie Sanders mobilized in such disparate ways in the United States..." ..."
Jan 14, 2017 | economistsview.typepad.com
Peter K. -> Peter K.... January 13, 2017 at 07:10 AM

Really what SWL is saying he and Krugman are against fiscal expansion because the Fed will negate it with higher interest rates.

"Paul Krugman and I say no, using the following logic. The Fed thinks we are close to full employment, if we use the term to denote the level of employment that keeps inflation constant. Generalised tax cuts (rather than just tax cuts to the very rich) will tend to raise aggregate demand, which will lead inflation to increase. The Fed will therefore raise interest raise rates further to offset this increase in demand before it happens. As a result, the tax cuts will have no impact on demand, but simply make funding investment more expense."

Maybe Trump will then fire Yellen? Did the clever little progressive neoliberals ever consider that?

(Probably not since Obama never mad filling open slots on the FOMC a priority.)

Or he'll swamp her with reflationary nominations to the FOMC.

djb -> Peter K....
What is full employment is also debatable issue. For example, if workers or a good portion of workers are not earning a living wage, is that full employment?

If production is reduced because people cannot afford the products, when in fact we have the capacity and people have the appetites and time to get utility out of the consumption is that full employment?

So full employment definition is a whole field in itself

JohnH -> Peter K.... , January 13, 2017 at 08:31 AM
Thomas Ferguson: "Central bankers today irresistibly bring to mind the Wizard of Oz. It's the characters' missing virtues that grab me: a heart, a brain, and courage. Central bankers today lack all three.

First, the brain. Two generations ago, almost every economist knew what a catastrophe a deficiency of effective demand could create. And in a real crunch, they knew what to do about that. They realized you couldn't push on a string, so somebody - the government - had to borrow and spend when private markets would not. From the 1980s on, though, the fundamental Keynesian point - the Principle of effective Demand -disappeared in a cloud of statistical double-talk that, when you deconstruct it, turns out to imply estimating potential output as a lagged function of whatever foolish policy is being pursued.

Central bankers didn't take this giant step backwards to pre-Keynesian economics by themselves. In that sense, it's unfair to say they have only themselves to blame. But they swallowed it whole, helped subsidize it, and cheered it on. Now that they have rediscovered that monetary policy can't levitate a broken economy, except by beggaring the neighbors, it's time they admitted their errors and stopped acting like they could control everything...

Next, courage. In the good old days, central bankers were given to heady talk about "taking away the punch bowl" before the party really got going. That may have been mostly rhetoric, but it at least paid lip service to some value bigger than banking...

The Fed took risks to save the banking system, but is already telling us we are close to full employment and professing to be alarmed about "inflation," when anyone can see that banks, insurers, and pension funds are clamoring for rate rises, just as in the 1930s. Both institutions need to start thinking about someone besides the financial community. If they don't, I do not doubt that we will not have seen the last of the anger that Donald Trump and Senator Bernie Sanders mobilized in such disparate ways in the United States..."

Meanwhile 'liberal' worshippers of unsubstantiated 'crowding out' theories are eager to stifle fiscal stimulus by having the Fed take away the punch bowl before the party starts.

JohnH -> JohnH... , -1
Link: http://www.nakedcapitalism.com/2017/01/tom-ferguson-monetary-policy-cant-levitate-broken-economy.html

[Jan 13, 2017] what is full employment is also debatable issue

Jan 13, 2017 | economistsview.typepad.com
Peter K. -> Peter K.... , January 13, 2017 at 07:10 AM
Really what SWL is saying he and Krugman are against fiscal expansion because the Fed will negate it with higher interest rates.

"Paul Krugman and I say no, using the following logic. The Fed thinks we are close to full employment, if we use the term to denote the level of employment that keeps inflation constant. Generalised tax cuts (rather than just tax cuts to the very rich) will tend to raise aggregate demand, which will lead inflation to increase. The Fed will therefore raise interest raise rates further to offset this increase in demand before it happens. As a result, the tax cuts will have no impact on demand, but simply make funding investment more expense."

Maybe Trump will then fire Yellen? Did the clever little progressive neoliberals ever consider that?

(Probably not since Obama never mad filling open slots on the FOMC a priority.)

Or he'll swamp her with reflationary nominations to the FOMC.

djb -> Peter K.... , -1
what is full employment is also debatable issue

for example, if workers or a good portion of workers are not earning a living wage, is that full employment?

if production is reduced because people cannot afford the products, when in fact we have the capacity and people have the appetites and time to get utility out of the consumption

is that full employment?

so full employment definition is a whole field in itself

[Jan 13, 2017] They pretend to make statements that corresponded to reality, and we pretend to believe them.

Notable quotes:
"... For him, the Soviet Union was once a stable, entrenched, conservative state and the majority of Russian people -- actually myself included -- thought it would last forever. But the way people employ language and read ideologies can change. That change can be undetectable at first, and then unstoppable. ..."
Jan 08, 2017 | www.amazon.com

Igor Biryukov on November 1, 2012

A cautionary tale

" In America there was once a popular but simplistic image of the Soviet Russia as the Evil Empire destined to fall, precisely because it was unfree and therefore evil. Ronald Reagan who advocated it also once said that the Russian people do not have a word for "freedom". Not so fast -- says Alexei Yurchak. He was born in the Soviet Union and became a cultural anthropologist in California. He employs linguistic structural analysis in very interesting ways. For him, the Soviet Union was once a stable, entrenched, conservative state and the majority of Russian people -- actually myself included -- thought it would last forever. But the way people employ language and read ideologies can change. That change can be undetectable at first, and then unstoppable.

Yurchak's Master-idea is that the Soviet system was an example of how a state can prepare its own demise in an invisible way. It happened in Russia through unraveling of authoritative discourse by Gorbachev's naive but well-meaning shillyshallying undermining the Soviet system and the master signifiers with which the Soviet society was "quilted" and held together. According to Yurchak "In its first three or four years, perestroika was not much more than a deconstruction of Soviet authoritative discourse". This could a cautionary tale for America as well because the Soviet Union shared more features with American modernity than the Americans themselves are willing to admit.

The demise of the Soviet Union was not caused by anti-modernity or backwardness of Russian people. The Soviet experiment was a cousin of Western modernity and shared many features with the Western democracies, in particular its roots in the Enlightenment project. The Soviet Union wasn't "evil" in late stages 1950-1980s. The most people were decent. The Soviet system, despite its flaws, offered a set of collective values. There were many moral and ethical aspects to Soviet socialism, and even though those values have been betrayed by the state, they were still very important to people themselves in their lives. These values were: solidarity, community, altruism, education, creativity, friendship and safety. Perhaps they were incommensurable with the "Western values" such as the rule of law and freedom, but for Russians they were the most important. For many "socialism" was a system of human values and everyday realities which wasn't necessarily equivalent of the official interpretation provided by the state rhetoric.

Yurchak starts with a general paradox within the ideology of modernity: the split between ideological enunciation, which reflects the theoretical ideals of the Enlightenment, and ideological rule, which are the practical concerns of the modern state's political authority. In Soviet Union the paradox was "solved" by means of dogmatic political closure and elevation of Master signifier [Lenin, Stalin, Party] but it doesn't mean the Western democracies are immune to totalitarian temptation to which the Soviet Union had succumbed. The vast governmental bureaucracy and Quango-state are waiting in the shadows here as well, may be ready to appropriate discourse.

It is hard to agree with everything in his book. But it is an interesting perspective. I wish Alexei Yurchak would explore more implications of Roman Jacobson's "poetic function of language" and its connection to Russian experiment in communism. It seems to me, as a Russian native speaker, that Russians put stress on form, sound, and poetics. The English-language tradition prioritizes content and meaning. Can we speak of "Hermeneutics" of the West versus "Poetics" of Russia? Perhaps the tragedy of Russia was under-development of Hermeneutics? How does one explain the feeble attempts to throw a light of reason into the loopy texts and theories of Marks, Lenin, Trotsky and Stalin? Perhaps the Russians read it as a kind of magical text, a poetry, a bad poetry -- not Pasternak or Blok -- but kind of poetry nevertheless?

Nils Gilman on April 23, 2014

A brilliant account of the interior meaning of everyday life for ordinary soviet citizens

Just loved this -- a brilliant study of how everyday citizens (as opposed to active supporters or dissidents) cope with living in a decadent dictatorship, through strategies of ignoring the powerful, focusing on hyperlocal socialities, treating ritualized support for the regime as little more than an annoying chore, and withdrawal into subcultures. Yurchak demolishes the view that the only choices available to late Soviet citizens were either blind support (though his accounts of those figures who chose this path are deeply chilling) or active resistance, while at the same time showing how many of the purported values of Soviet socialism (equality, education, friendship, community, etc) were in fact deeply held by many in the population. While his entire account is a tacit meditation on the manifold unpleasantnesses of living under the Soviet system, Yurchak also makes clear that it was not all unpleasantness and that indeed for some people (such as theoretical physicists) life under Soviet socialism was in some ways freer than for their peers in the West. All of which makes the book function (sotto voce) as an explanation for the nostalgia that many in Russia today feel for Soviet times - something inexplicable to those who claim that Communism was simply and nothing but an evil.

The theoretical vehicle for Yurchak's investigation is the divergence between the performative rather than the constative dimensions of the "authoritative discourse" of the late Soviet regime. One might say that his basic thesis is that, for most Soviet people, the attitude toward the authorities was "They pretend to make statements that corresponded to reality, and we pretend to believe them." Yurchak rightly observes that one can neither interpret the decision to vote in favor of an official resolution or to display a pro-government slogan at a rally as being an unambiguous statement of regime support, nor assume that these actions were directly coerced. People were expected to perform these rituals, but they developed "a complexly differentiating relationship to the ideological meanings, norms, and values" of the Soviet state. "Depending on the context, they might reject a certain meaning, norm or value, be apathetic about another, continue actively subscribing to a third, creatively reinterpret a fourth, and so on." (28-29)

The result was that, as the discourse of the late Soviet period ossified into completely formalist incantations (a process that Yurchak demonstrates was increasingly routinized from the 1950s onwards), Soviet citizens participated in these more for ritualistic reasons than because of fervent belief, which in turn allowed citizens to fill their lives with other sources of identity and meaning. Soviet citizens would go to cafes and talk about music and literature, join a rock band or art collective, take silly jobs that required little effort and thus left room for them to pursue their "interests." The very drabness of the standardizations of Soviet life therefore created new sorts of (admittedly constrained) spaces within which people could define themselves and their (inter)subjective meanings. All of which is to say that the book consists of a dramatic refutation of the "totalitarianism" thesis, demonstrating that despite the totalitarian ambitions of the regime, citizens were continually able to carve out zones of autonomy and identification that transcended the ambitions of the Authoritative discourse.

[Jan 13, 2017] Hypernormalisation

Notable quotes:
"... Normalisation is what has historically happened in the wake of financial crises. During the booms that precede busts, low interest rates encourage people to make investments with borrowed money. However, even after all of the prudent investment opportunities have been taken, people continue borrowing to invest in projects and ideas that are unlikely to ever generate profits. ..."
"... Eventually, the precariousness of some of these later investments becomes apparent. Those that arrive at this realization early sell up, settle their debts and pocket profits, but their selling often triggers a rush for the exits that bankrupts companies and individuals and, in many cases, the banks which lent to them. ..."
"... By contrast, the responses of policy-makers to 2008's financial crisis suggest the psychology of hypernormalisation. Quantitative easing (also known as money printing) and interest rate suppression (to zero percent and, in Europe, negative interest rates) are not working and will never result in sustained increases in productivity, income and employment. However, as our leaders are unable to consider alternative policy solutions, they have to pretend that they are working. ..."
"... Statistical chicanery has helped understate unemployment and inflation while global cooperation has served to obscure the currency depreciation and loss of confidence in paper money (as opposed to 'hard money' such as gold and silver) that are to be expected from rampant money printing. ..."
"... The recent fuss over 'fake news' seems intended to remove alternative news and information sources from a population that, alarmingly for those in charge, is both ever-more aware that the system is not working and less and less willing to pretend that it is . Just this month U.S. President Barack Obama signed the Countering Disinformation and Propaganda Act into law. United States, meet your Ministry of Truth. ..."
"... Great article. I think it does describe the USSA at the present time. Everything works until it doesn't. ..."
"... The funny thing is I had almost identical thoughts just a few days ago. But I was thinking in comparison more of East Germany's last 20 years before they imploded - peacefully, because not a single non-leading-rank person believed any of the official facts anymore (and therefore they even simply ignored orders from high command to crush the Leipzig Monday demonstrations.) ..."
"... I'm ok with a world led by Trump and Putin. ..."
"... I recall the joke from the old Soviet Union: "They pretend to pay us, we pretend to work." In the USSA these last few years, Barry pretends to tell the truth. Libtards pretend to believe him. ..."
"... Wrong. They believe him. Look at the gaggle of libtard/shiteaters at Soetero's Friday night bash at the White House. ..."
"... Reagan used to quip that in the Soviet Union, the people pretend to work and the government pretends to pay them. We're not the Soviet Union, but we have become a farce. Next stop - the fall. Followed by chaos, then onto something new. The new elites will just be the old elites, well, the ones that escape the noose. ..."
"... The real ugly problem with the Soviet Union is that whatever they broke it into isn't working well either. ..."
"... Russia's problem post collapse was the good ol' USSA and its capitalist, plunderer banking mavens. ..."
"... The only way to normalize banking in a contemporary banking paradigm of QE Infinity & Beyond is to start over again without the bankers & accountants that knowingly bet the ranch for a short term gain at the expense of long term profitability. In Japan an honourable businessman/CEO would suicide for bringing this kind of devastation to the company shareholders. ..."
"... In America they don't give a shit because it is always someone else other than the CEO that takes the fall. ..."
"... This, after I'd point out his evasion and deflection every time I addressed his bias and belief in the MSM propaganda mantras of racism, misogyny, xenophobia - all the usual labeling bullshit up to insinuating Russia hacked the election ..."
"... I've been using the term Hypernormalisation to describe aspects of western society for the last 15 years, before Adam Curtis's brilliant BBC documentary Hypernormalisation , afflicting western society and particularly politics. There are lies and gross distortions everywhere in western society and it straddles/effects all races, colours, social classes and the disease is most acute in our politics. ..."
"... We all know the hypernoprmalisation in politics, as we witness stories everyday on Zerohedge of the disconnect from reality ..."
"... It is called COGNITIVE DISSONANCE .. ..."
"... "When they are presented with evidence that works against that belief, the new evidence cannot be accepted. It would create a feeling that is extremely uncomfortable, called cognitive dissonance. And because it is so important to protect the core belief, they will rationalize, ignore and even deny anything that doesn't fit with the core belief." ..."
"... During their final days as a world power, the Soviet Union allowed cognitive dissonance to rule its better judgment as so many Americans are doing in 2012. The handwriting on the wall was pretty clear for Gorbachev. The Soviet economy was failing. They did none of the necessary things to save their economy. In 2012, the handwriting on the wall is pretty clear for the American people. The economy is failing. The people and the Congress do none of the necessary things to save their economy. Why? Go re-read the definition of cognitive dissonance. That's why. We have a classic fight going on between those who want government to take care of them who will pay the price of lost freedom to get that care, and those who value freedom above all else. ..."
"... to me the PTB are "Japanifying" the u.s. (decades of no growth, near total demoralization of a generation of worker bees (as in, 'things will never get any better, be glad for what little you've got' etc... look what they've done to u.s. millenials just since '08... fooled (crushed) them TWICE already) ..."
"... But the PTB Plan B is to emulate the USSR with a crackup, replete with fire sale to oligarchs of public assets. ..."
Jan 08, 2017 | www.zerohedge.com
Submitted by Bryce McBride via Mises Canada,

This past November, the filmmaker Adam Curtis released the documentary Hypernormalisation.

https://www.youtube.com/embed/-fny99f8amM

The term comes from Alexei Yurchak's 2006 book Everything was Forever, Until it was No More: The Last Soviet Generation. The book argues that over the last 20 years of the Soviet Union, everyone knew the system wasn't working, but as no one could imagine any alternative, politicians and citizens were resigned to pretending that it was. Eventually this pretending was accepted as normal and the fake reality thus created was accepted as real, an effect which Yurchak termed "hypernormalisation."

Looking at events over the past few years, one wonders if our own society is experiencing the same phenomenon. A contrast with what economic policy-makers term "normalisation" is instructive.

Normalisation is what has historically happened in the wake of financial crises. During the booms that precede busts, low interest rates encourage people to make investments with borrowed money. However, even after all of the prudent investment opportunities have been taken, people continue borrowing to invest in projects and ideas that are unlikely to ever generate profits.

Eventually, the precariousness of some of these later investments becomes apparent. Those that arrive at this realization early sell up, settle their debts and pocket profits, but their selling often triggers a rush for the exits that bankrupts companies and individuals and, in many cases, the banks which lent to them.

In the normalisation which follows (usually held during 'special' bank holidays) auditors and accountants go through financial records and decide which companies and individuals are insolvent (and should therefore go bankrupt) and which are merely illiquid (and therefore eligible for additional loans, pledged against good collateral). In a similar fashion, central bank officials decide which banks are to close and which are to remain open. Lenders made freshly aware of bankruptcy risk raise (or normalise) interest rates and in so doing complete the process of clearing bad debt out of the system. Overall, reality replaces wishful thinking.

While this process is by no means pleasant for the people involved, from a societal standpoint bankruptcy and higher interest rates are necessary to keep businesses focused on profitable investment, banks focused on prudent lending and overall debt levels manageable.

By contrast, the responses of policy-makers to 2008's financial crisis suggest the psychology of hypernormalisation. Quantitative easing (also known as money printing) and interest rate suppression (to zero percent and, in Europe, negative interest rates) are not working and will never result in sustained increases in productivity, income and employment. However, as our leaders are unable to consider alternative policy solutions, they have to pretend that they are working.

To understand why our leaders are unable to consider alternative policy solutions such as interest rate normalization and banking reform one only needs to understand that while such policies would lay the groundwork for a sustained recovery, they would also expose many of the world's biggest banks as insolvent. As the financial sector is a powerful constituency (and a generous donor to political campaigns) the banks get the free money they need, even if such policies harm society as a whole.

As we live in a democratic society, it is necessary for our leaders to convince us that there are no other solutions and that the monetary policy fixes of the past 8 years have been effective and have done no harm.

Statistical chicanery has helped understate unemployment and inflation while global cooperation has served to obscure the currency depreciation and loss of confidence in paper money (as opposed to 'hard money' such as gold and silver) that are to be expected from rampant money printing.

Looking at unemployment figures first, while the unemployment rate is currently very low, the number of Americans of working age not in the labour force is currently at an all-time high of over 95 million people. Discouraged workers who stop looking for work are no longer classified as unemployed but instead become economically inactive, but clearly many of these people really should be counted as unemployed. Similarly, while government statistical agencies record inflation rates of between one and two percent, measures that use methodologies used in the past (such as John Williams' Shadowstats measures) show consumer prices rising at annual rates of 6 to 8 percent. In addition, many people have noticed what has been termed 'shrinkflation', where prices remain the same even as package sizes shrink. A common example is bacon, which used to be sold by the pound but which is now commonly sold in 12 ounce slabs.

Meanwhile central banks have coordinated their money printing to ensure that no major currency (the dollar, the yen, the euro or the Chinese renminbi) depreciates noticeably against the others for a sustained period of time. Further, since gold hit a peak of over $1900 per ounce in 2011, central banks have worked hard to keep the gold price suppressed through the futures market. On more than a few occasions, contracts for many months worth of global gold production have been sold in a matter of a few minutes, with predictable consequences for the gold price. At all costs, people's confidence in and acceptance of the paper (or, more commonly, electronic) money issued by central banks must be maintained.

Despite these efforts people nonetheless sense that something is wrong. The Brexit vote and the election of Donald Trump to the White House represent to a large degree a rejection of the fake reality propagated by the policymaking elite. Increasingly, people recognize that a financial system dependent upon zero percent interest rates is not sustainable and are responding by taking their money out of the banks in favour of holding cash or other forms of wealth. In the face of such understanding and resistance, governments are showing themselves willing to use coercion to enforce acceptance of their fake reality.

The recent fuss over 'fake news' seems intended to remove alternative news and information sources from a population that, alarmingly for those in charge, is both ever-more aware that the system is not working and less and less willing to pretend that it is . Just this month U.S. President Barack Obama signed the Countering Disinformation and Propaganda Act into law. United States, meet your Ministry of Truth.

Meanwhile, in India last month, people were told that the highest denomination bills in common circulation would be 'demonetized' or made worthless as of December 30th. People were allowed to deposit or exchange a certain quantity of the demonetized bills in banks but many people who had accumulated their savings in rupee notes (often the poor who did not have bank accounts) have been ruined. Ostensibly, this demonetization policy was aimed at curbing corruption and terrorism, but it is fairly obvious that its real objective was to force people into the banking system and electronic money. Unsurprisingly, the demonetization drive was accompanied by limits on the quantity of gold people are allowed to hold.

Despite such attempts to influence our thinking and our behaviour, we don't need to resign ourselves to pretending that our system is working when it so clearly isn't. Looking at the eventual fate of the Soviet Union, it should be clear that the sooner we abandon the drift towards hypernormalisation and start on the path to normalisation the better off we will be.

DontGive Jan 7, 2017 9:03 PM

CB's printing is not a bug. It's a feature.

Long debt bitches.

Doña K TBT or not TBT Jan 8, 2017 12:05 AM

I did not learn anything from that movie. One man's collage of events.

We just take revenge on the system by living well.

Luc X. Ifer TBT or not TBT Jan 8, 2017 12:06 AM

Correct. I seen with sufficient level of comprehending consciousness the last 5 years of it - copy-cat perfection with the current times in US(S)A, terrifying how similar the times are as it is a clear indication of the times to come.

HRH Feant Jan 7, 2017 9:06 PM

Great article. I think it does describe the USSA at the present time. Everything works until it doesn't.

malek HRH Feant Jan 7, 2017 11:40 PM

The funny thing is I had almost identical thoughts just a few days ago. But I was thinking in comparison more of East Germany's last 20 years before they imploded - peacefully, because not a single non-leading-rank person believed any of the official facts anymore (and therefore they even simply ignored orders from high command to crush the Leipzig Monday demonstrations.)

navy62802 Jan 7, 2017 9:14 PM

I'm ok with a world led by Trump and Putin.

christiangustafson Jan 7, 2017 9:17 PM

Great piece!

I was just thinking that the whole economic world sees us in a sort of equilibrium at the moment. There will be some adjustments under Trump, but nothing serious. We shall see ..

Eeyores Enigma Jan 7, 2017 9:17 PM

Repeat something often enough and it becomes hypernormalised. With that in mind the number of eyes/minds/hits is all that matters. This has been known and exploited for hundreds of years.

That a handful of individuals can have a monopoly over the single most important aspect of whether you live or die is the ultimate success of hypernormalisation. CENTRAL BANKING.

Manipuflation Jan 7, 2017 9:22 PM

Mrs.M is of the last Soviet generation. Her .gov papers say so. There is never a day when I don't hear something soviet. She still has a her red pioneer ribbon. I have tried to encourage her to write about it on ZH so that we know. Do you think she will? No. She's says that we can't understand what it was like no matter what she says.

Mrs.M was born in 1981 so she has lived an interesting life. I married her in 2004 after much paperwork and $15000. I wanted that female because we got along quite well. She is who I needed with me this and I would do it all over again.

Needless to say, I do not support any aggression towards Russia. And to my fellow Americans, I advise caution because the half you are broke ass fucks and are already ropes with me.

That is the only news anyone needs to know.

wisebastard Jan 7, 2017 9:25 PM

the monkeys made me think ZH should make a post with monkeys evolving into humans that then de-evolve into Paul Krugman

GeezerGeek Jan 7, 2017 9:34 PM

I recall the joke from the old Soviet Union: "They pretend to pay us, we pretend to work." In the USSA these last few years, Barry pretends to tell the truth. Libtards pretend to believe him.

BabaLooey GeezerGeek Jan 7, 2017 11:05 PM

Wrong. They believe him. Look at the gaggle of libtard/shiteaters at Soetero's Friday night bash at the White House.

http://www.breitbart.com/big-hollywood/2017/01/07/stars-obamas-white-hou...

Fucks. ALL of them.

max_leering GeezerGeek Jan 7, 2017 11:35 PM

Geezer, I'd change only one thing... I believe libtards bought Barry's bullshit hook, line and sinker... it was the rest of us who not-so-subtly were saying WTF!!!

Salzburg1756 Jan 7, 2017 9:35 PM

White Nationalists have lived in the real world for decades; the rest of you need to catch up.

JustPastPeacefield Jan 7, 2017 10:06 PM

Reagan used to quip that in the Soviet Union, the people pretend to work and the government pretends to pay them. We're not the Soviet Union, but we have become a farce. Next stop - the fall. Followed by chaos, then onto something new. The new elites will just be the old elites, well, the ones that escape the noose.

evokanivo JustPastPeacefield Jan 7, 2017 10:23 PM

what noose? you think joe 6p is going to identify the culprits? i think not. "no one saw this coming!!!" is still ringing in my ears from the last time.

jm Jan 7, 2017 10:14 PM

I really don't know how people can keep on getting clicks with this tired crap. It didn't happen in 2008 just get over it. The delusional people are the people that think the world is going to end tomorrow.

wwxx jm Jan 8, 2017 6:08 AM

Maybe the world has ended, for 95 million? I haven't paid a single Fed income tax dollar in over 8 yrs., for a specific reason, I refuse to support the new normal circus, and quite frankly I would have gotten out during the GWBush regime, but I couldn't afford to at the time.

wwxx

EndOfDayExit Jan 7, 2017 10:17 PM

The real ugly problem with the Soviet Union is that whatever they broke it into isn't working well either. Same with the USSA. No one really knows what to do. Feudalism would probably work, but it is not possible to go back to it. My bet is that we will end up with some form of socialism, universal income and whatever else, just because there is no good alternative for dealing with lots and lots of people who are not needed anymore.

BingoBoggins EndOfDayExit Jan 8, 2017 6:15 AM

Do you mean useless eaters or fuckers deserving the guillotine? Russia's problem post collapse was the good ol' USSA and its capitalist, plunderer banking mavens.

NAV Jan 7, 2017 10:23 PM

The Soviet Union pushed its old culture to near destruction but failed to establish a new and better culture to replace it, writes Angelo M. Codevilla in "The Rise of Political Correctness," and as a result the U.S.S.R fell, just as America's current "politically correct" and dysfunctional "progressive utopia" will implode.

As such, Codevilla would agree that the US population " is both ever-more aware that the system is not working and less and less willing to pretend that it is."

As for the U.S.S.R., "this step turned out instead to destroy the very basis of Soviet power," writes Codevilla. "[C]ontinued efforts to force people to celebrate the party's ersatz reality, to affirm things that they know are not true and to deny others they know to be true – to live by lies – requires breaking them , reducing them to a sense of fearful isolation, destroying their self-esteem and their capacity to trust others. George Orwell's novel 1984 dramatized this culture war's ends and means : nothing less than the substitution of the party's authority for the reality conveyed by human senses and reason. Big Brother's agent, having berated the hapless Winston for preferring his own views to society's dictates, finished breaking his spirit by holding up four fingers and demanding that Winston acknowledge seeing five.

"Thus did the Soviet regime create dysfunctional, cynical, and resentful subjects. Because Communism confused destruction of 'bourgeois culture' with cultural conquest, it won all the cultural battles while losing its culture war long before it collapsed politically. As Communists identified themselves in people's minds with falsehood and fraud, people came to identify truth with anything other than the officials and their doctrines. Inevitably, they also identified them with corruption and privation. A nd so it was that, whenever the authorities announced that the harvest had been good, the people hoarded potatoes; and that more and more people who knew nothing of Christianity except that the authorities had anathematized it, started wearing crosses."

And if you want to see the ruling class's culture war in action today in America, pick up the latest issues of Vogue Magazine or O, The Oprah Magazine with their multitude of role reversals between whites and minorities. Or check out the latest decisions by the U.S. Supreme Court forcing people to acknowledge that America is not a Christian nation, or making it "more difficult for men, women and children to exist as a family" or demanding via law "that their subjects join them in celebrating the new order that reflects their identity."

As to just how far the ruling class has gone to serve the interests and proclivities of its leaders and to reject the majority's demand for representation, Codevilla notes, "In 2012 no one would have thought that defining marriage between one man and one woman, as enshrined in U.S. law, would brand those who do so as motivated by a culpable psychopathology called 'homophobia,' subject to fines and near-outlaw status. Not until 2015-16 did it occur to anyone that requiring persons with male personal plumbing to use public bathrooms reserved for men was a sign of the same pathology

"On the wholesale level, it is a war on civilization waged to indulge identity politics."

http://www.claremont.org/crb/article/the-rise-of-political-correctness/

Yen Cross Jan 7, 2017 11:11 PM

This article is so flawed! People[impoverished] aren't trying to jump over a wall patrolled by guards into Mexico -YET. Tyler, why do you repost shit like this?

daveO Yen Cross Jan 8, 2017 12:56 AM

That's because the Yankees, fleeing high taxes, can move to the sunbelt states w/o freezing. The USA went broke in 2008. Mexico got a head start by 22 years when oil prices collapsed in '86.

MASTER OF UNIVERSE Jan 7, 2017 11:28 PM

The only way to normalize banking in a contemporary banking paradigm of QE Infinity & Beyond is to start over again without the bankers & accountants that knowingly bet the ranch for a short term gain at the expense of long term profitability. In Japan an honourable businessman/CEO would suicide for bringing this kind of devastation to the company shareholders.

In America they don't give a shit because it is always someone else other than the CEO that takes the fall. 08 was proof that America is not equipped to participate in a Multinational & Multipolar world of business & investment in business. America can't get along in business in this world anymore. Greed has rendered America unemployable as a major market participant in a Globally run network of businesses.

America is the odd man out these days even though the next POTUS promises better management from a business perspective. Whilst the Mafia Cartel bosses trust TrumpO's business savvy the rest of the planet Earth does not.

Yen Cross Jan 7, 2017 11:53 PM

Are you kidding me??? >

Hypernormalisation I think we need a few MOAR syllables connected by fake verb/adjective < reverse /destruction- of the English language.

Manipuflation Yen Cross Jan 8, 2017 1:23 AM

Yen, I have a bottle of Bacardi rum here. It was on sale. Should I open it up? We could become experts....well at least I could.:-)

BingoBoggins Jan 8, 2017 8:12 AM

A liberal friend laid this movie on me to show me why he supported Hillary. A smart cookie, a PHd teaching English in Japan. A Khazarnazi Jew, he even spent time in Kyiv, Ukraine pre-coup, only mingling with "poets and writers". He went out of his way to tell me how bad the Russians were, informed as he was prior to the rejection of the EU's usurious offer.

He even quite dramatically pulled out the Anti-Semite card. I had to throw Banderas in his face and the US sponsored regime. I had respect for this guy and his knowledge but he just - could - not - let - go the cult assumptions. I finally came to believe Liberal Arts educators are victims of inbred conditioning. In retaliation, he wanted to somehow prove Putin a charlatan or villian and Trump his proxie.

This, after I'd point out his evasion and deflection every time I addressed his bias and belief in the MSM propaganda mantras of racism, misogyny, xenophobia - all the usual labeling bullshit up to insinuating Russia hacked the election. Excerpts from a correspondence wherein I go full asshole on the guy follow. Try and make sense of it if you watch this trash:

HyperNormalization 50:29 Not Ronald Rayguns, or Quadaffi plays along. Say what? They're, i.e. Curtis, assuming what Q thought?

1:15 USSR collapses. No shit. Cronyism in a centralized organization grown too large is inevitable it seems. So the premise has evolved to cultural/societal "management". Right. USSR collapses but let's repeat the same mistakes 'cause "it's different this time". We got us a computer!

Then Fink the failed Squid (how do Squids climb the corporate ladder?) builds one and programs historical data to,,,, forecast? I heard a' this. Let me guess. He couldn't avoid bias, making his models fallacious. Whoops. Well, he does intend to manipulate society, or was that not the goal? Come again? Some authority ran with it and ... captured an entire nation's media, conspired with other like-minded sycophants and their mysterious masters to capture an election by ... I may be getting ahead of myself.

Oh, boy, I have an inkling of where this is going. Perceptions modified by the word, advanced by the herd, in order to capture a vulnerable society under duress, who then pick sides, fool themselves in the process, miss the three hour tour never to live happily ever after on a deserted isle because they eschew (pick a bias here from the list provided). The one you think the "others" have, 'cause, shit, we're above it all, right? " Are we not entertained" is probably not the most appropriate question here.

Point being, Curtis, the BBC documentarian, totally negates the reality of pathological Imperialism as has been practiced by the West over the last half century, causing so many of the effects he so casually eludes to in the Arab Spring, Libya, Syria, Russia, the US and elsewhere. Perhaps the most blatant is this; Curtis asserts that Trump "defeated journalism" by rendering its fact-checking abilities irrelevant. Wikipedia He Hypernormalizes the very audience that believes itself to be enlightened. As for my erstwhile friend, the fucker never once admitted all the people *killed* for the ideals he supported. I finally blew him off for good.

To Hell In A Ha... Jan 8, 2017 7:06 AM

I've been using the term Hypernormalisation to describe aspects of western society for the last 15 years, before Adam Curtis's brilliant BBC documentary Hypernormalisation , afflicting western society and particularly politics. There are lies and gross distortions everywhere in western society and it straddles/effects all races, colours, social classes and the disease is most acute in our politics.

We all know the hypernoprmalisation in politics, as we witness stories everyday on Zerohedge of the disconnect from reality...

jcdenton Jan 8, 2017 7:44 AM

It is called COGNITIVE DISSONANCE ..

Allow me to quote something here ..

Enter Operation Stillpoint: William Colby, William Casey and Leo Emil Wanta.

At the time it started, President Reagan wanted to get a better handle on ways to keep the Soviets from expansionary tactics used to spread Vladimir Ilyich Ulyanov Lenin's philosophy of communism around the world. He looked to his Special Task Force to provide a means of doing so. One thing was certain: The economy of the Soviets had never been strong and corruption, always present in government and always growing at least as fast as a government grows, made the USSR vulnerable to outside interference just as the United States is today.

According to Gorbachev's Prime Minister, Nikolai Ryzhkov, the "moral [nravstennoe] state of the society" in 1985 was its "most terrifying" feature: "[We] stole from ourselves, took and gave bribes, lied in the reports, in newspapers, from high podiums, wallowed in our lies, hung medals on one another. And all of this – from top to bottom and from bottom to top."

Again, it sounds like today's America, doesn't it?

Foreign Minister Eduard Shevardnadze made equally painful comments about the lawlessness and corruption dominating the Soviet Union. During the winter months of 1984-85, he told Gorbachev that "Everything is rotten. It has to be changed."

"Sometimes people hold a core belief that is very strong," Frantz Fanon said in his 1952 book Black Skin, White Masks (originally published in French as Peau Noire, Masques Blancs). "When they are presented with evidence that works against that belief, the new evidence cannot be accepted. It would create a feeling that is extremely uncomfortable, called cognitive dissonance. And because it is so important to protect the core belief, they will rationalize, ignore and even deny anything that doesn't fit with the core belief."

COGNITIVE DISSONANCE

During their final days as a world power, the Soviet Union allowed cognitive dissonance to rule its better judgment as so many Americans are doing in 2012. The handwriting on the wall was pretty clear for Gorbachev. The Soviet economy was failing. They did none of the necessary things to save their economy. In 2012, the handwriting on the wall is pretty clear for the American people. The economy is failing. The people and the Congress do none of the necessary things to save their economy. Why? Go re-read the definition of cognitive dissonance. That's why. We have a classic fight going on between those who want government to take care of them who will pay the price of lost freedom to get that care, and those who value freedom above all else.

On one day we have 50 state attorneys general suing Bank of America for making fraudulent mortgages, and on the next we have M.F. Global losing billions upon billions of customer dollars because they got mixed with the firm's funds – which is against the law – or we have J.P. Morgan Chase losing $2 billion (or is it $5 billion?) in bad investments. As Eduard Shevardnadze said, "Everything is rotten. It has to be changed." As I would say it, "There is no Rule of Law in America today. There has been no real Rule of Law since George Herbert Walker Bush took office."

No one listened then; no one is listening in America now. The primary reason? Cognitive dissonance. -- Chapter 2, "Wanta! Black Swan, White Hat" (2013)

Okay then, forget what was said in 1985, that was later reported in 2013 ..

Let's fast forward to Oct. 30, 2016 ..

Shall we? I mean, it is a bit MOAR -- relevant!

https://youtu.be/8tYTSR9gheQ

And, for those that must have further amplification .. (And, some .......... fun!)

https://www.youtube.com/user/fooser77/playlists

BingoBoggins jcdenton Jan 8, 2017 8:20 AM

You reminded me I bookmarked this on Chrome, so I dared to venture there to retrieve it;

https://books.google.com/books?id=cbC_AwAAQBAJ&pg=PP21&lpg=PP21&dq=crony...

Vageling jcdenton Jan 8, 2017 9:16 AM

Lee Wanta. I've heard of him before. He was screwed over for some bullshit charges. And the CIA made a firm warning... How long did that dude spent in jail?

Just looked up his story as it was blurry. Cronyism at its finest. So now that I got my refreshing course. Trump stole/adopted (however you want to look at that) his plan and the project the gov (DOT) proposes sucks donkey balls compared to Wanta's.

So where are all the climate hoaxers now by the way? You'd figure they'd be all over this.

American Gorbachev Jan 8, 2017 10:10 AM

to me the PTB are "Japanifying" the u.s. (decades of no growth, near total demoralization of a generation of worker bees (as in, 'things will never get any better, be glad for what little you've got' etc... look what they've done to u.s. millenials just since '08... fooled (crushed) them TWICE already)

But the PTB Plan B is to emulate the USSR with a crackup, replete with fire sale to oligarchs of public assets. They will Japan as long as they can (so it will be difficult to forecast any crackup anymore than six months beforehand). Hope they have a Gorbachev lined up, to limit the bloodshed

[Jan 12, 2017] From economic crisis to crisis in economics

Notable quotes:
"... Andy Haldane , Chief Economist and Executive Director, Monetary Analysis & Statistics, ​Bank of England ..."
"... The Architecture of Complexity ..."
"... Andy Haldane addresses OECD New Approaches to Economic Challenges (NAEC) Roundtable ..."
"... This article draws on contributions to the OECD NAEC Roundtable on 14 December 2016; ..."
"... The GLS Shackle Biennial Memorial Lecture ..."
"... on 10 November 2016; and " ..."
"... On microscopes and telescopes ..."
"... ", at the Lorentz centre, Leiden, workshop on socio-economic complexity on 27 March 2015. ..."
Jan 11, 2017 | oecdinsights.org
Andy Haldane , Chief Economist and Executive Director, Monetary Analysis & Statistics, ​Bank of England

It would be easy to become very depressed at the state of economics in the current environment. Many experts, including economics experts, are simply being ignored. But the economic challenges facing us could not be greater: slowing growth, slowing productivity, the retreat of trade, the retreat of globalisation, high and rising levels of inequality. These are deep and diverse problems facing our societies and we will need deep and diverse frameworks to help understand them and to set policy in response to them. In the pre-crisis environment when things were relatively stable and stationary, our existing frameworks in macroeconomics did a pretty good job of making sense of things.

But the world these days is characterised by features such as discontinuities, tipping points, multiple equilibria, and radical uncertainty. So if we are to make economics interesting and the response to the challenges adequate, we need new frameworks that can capture the complexities of modern societies.

We are seeing increased interest in using complexity theory to make sense of the dynamics of economic and financial systems. For example, epidemiological models have been used to understand and calibrate regulatory capital standards for the largest, most interconnected banks, the so-called "super-spreaders". Less attention has been placed on using complexity theory to understand the overall architecture of public policy – how the various pieces of the policy jigsaw fit together as a whole in relation to modern economic and financial systems. These systems can be characterised as a complex, adaptive " system of systems ", a nested set of sub-systems, each one itself a complex web. The architecture of a complex system of systems means that policies with varying degrees of magnification are necessary to understand and to moderate fluctuations. It also means that taking account of interactions between these layers is important when gauging risk.

Although there is no generally-accepted definition of complexity, that proposed by Herbert Simon in The Architecture of Complexity – "one made up of a large number of parts that interact in a non-simple way" – captures well its everyday essence. The whole behaves very differently than the sum of its parts. The properties of complex systems typically give rise to irregular, and often highly non-normal, statistical distributions for these systems over time. This manifests itself as much fatter tails than a normal distribution would suggest. In other words, system-wide interactions and feedbacks generate a much higher probability of catastrophic events than Gaussian distributions would imply.

For evolutionary reasons of survival of the fittest, Simon posited that "decomposable" networks were more resilient and hence more likely to proliferate. By decomposable networks, he meant organisational structures which could be partitioned such that the resilience of the system as a whole was not reliant on any one sub-element. This may be a reasonable long-run description of some real-world complex systems, but less suitable as a description of the evolution of socio-economic systems. The efficiency of many of today's networks relies on their hyper-connectivity. There are, in the language of economics, significantly increasing returns to scale and scope in a network industry. Think of the benefits of global supply chains and global interbank networks for trade and financial risk-sharing. This provides a powerful secular incentive for non-decomposable socio-economic systems.

Moreover, if these hyper-connected networks do face systemic threat, they are often able to adapt in ways which avoid extinction. For example, the risk of social, economic or financial disorder will typically lead to an adaptation of policies to prevent systemic collapse. These adaptive policy responses may preserve otherwise-fragile socio-economic topologies. They may even further encourage the growth of connectivity and complexity of these networks. Policies to support "super-spreader" banks in a crisis for instance may encourage them to become larger and more complex. The combination of network economies and policy responses to failure means socio-economic systems may be less Darwinian, and hence decomposable, than natural and biological systems.

Andy Haldane addresses OECD New Approaches to Economic Challenges (NAEC) Roundtable

Video Player 00:00 00:00 02:57 Use Up/Down Arrow keys to increase or decrease volume.

What public policy implications follow from this complex system of systems perspective? First, it underscores the importance of accurate data and timely mapping of each layer in the system. This is especially important when these layers are themselves complex. Granular data is needed to capture the interactions within and between these complex sub-systems.

Second, modelling of each of these layers, and their interaction with other layers, is likely to be important, both for understanding system risks and dynamics and for calibrating potential policy responses to them.

Third, in controlling these risks, something akin to the Tinbergen Rule is likely to apply: there is likely to be a need for at least as many policy instruments as there are complex sub-components of a system of systems if risk is to be monitored and managed effectively. Put differently, an under-identified complex system of systems is likely to result in a loss of control, both system-wide and for each of the layers.

In the meantime, there is a crisis in economics. For some, it is a threat. For others it is an opportunity to make a great leap forward, as Keynes did in the 1930s. But seizing this opportunity requires first a re-examination of the contours of economics and an exploration of some new pathways. Second, it is important to look at economic systems through a cross-disciplinary lens. Drawing on insights from a range of disciplines, natural as well as social sciences, can provide a different perspective on individual behaviour and system-wide dynamics.

The NAEC initiative does so, and the OECD's willingness to consider a complexity approach puts the Organisation at the forefront of bringing economic analysis policy-making into the 21 st century.

Useful links

This article draws on contributions to the OECD NAEC Roundtable on 14 December 2016; The GLS Shackle Biennial Memorial Lecture on 10 November 2016; and " On microscopes and telescopes ", at the Lorentz centre, Leiden, workshop on socio-economic complexity on 27 March 2015.

The OECD organised a Workshop on Complexity and Policy, 29-30 September, OECD HQ, Paris, along with the European Commission and INET. Watch the webcast: 29/09 morning ; 29/09 afternoon ; 30/09 morning

[Jan 12, 2017] If people see "expert" opinion as either wrong or irrelevant then they will ignore it. Nature abhors a vacuum so rather adopt experts' stories they'll create their own narrative.

Jan 12, 2017 | economistsview.typepad.com
Chris G : January 12, 2017 at 03:57 AM

Re Wolfers: Having an opinion is not the same as being able to predict or infer accurately. (Nominally) informed opinion hasn't performed particularly well with respect to either at the macro level and many see no connection with their lives at the micro level. If people see "expert" opinion as either wrong or irrelevant then they will ignore it. Nature abhors a vacuum so rather adopt experts' stories they'll create their own narrative. Confidence of small business owners that their lot will improve? That's what they'd like to believe and what evidence do they have that it won't? (Stories matter more to most people than facts or models. We ignore that at our peril.)

Chris G -> Chris G ... , January 12, 2017 at 04:10 AM
Claudia Sahm's piece is very good. +1 for self-awareness and another +1 for candor.
jonny bakho -> Chris G ... , January 12, 2017 at 05:12 AM
Small business is optimistic based on current trends with demand improving and people having more money to spend. Their optimism has nothing to do with Trump
Wall Street sees opportunity for profits. Big Tax cuts for the wealthy will inflate stock prices. It reflects the opportunity for short term gains, not long term economic improvement
Economist influence on policy is overrated
Since when have our ruling elites followed advice?
Medical research can thrive in spite of a government of short earth creationists
A key battle is giving cities more control over spending
Local control can better direct infrastructure spending than state agencies concerned with freeways
It is a mistake to look to the Federal Government as savior. Urbanization is the future. Let the cities invest in themselves and stop subsidizing the unsustainable suburban and exurban development.
Peter K. -> jonny bakho... , -1
"It is a mistake to look to the Federal Government as savior. Urbanization is the future. Let the cities invest in themselves and stop subsidizing the unsustainable suburban and exurban development."

Social Darwinism!

Fred C. Dobbs -> Chris G ... , January 12, 2017 at 05:49 AM
Why Most Economists Are So Worried About Trump
http://nyti.ms/2ij9VRP via @UpshotNYT
NYT - Justin Wolfers - January 11

I feared that I might have been talking with an unrepresentative group until I stumbled upon a recent survey of leading academic economists showing a similar pattern. Of the 31 respondents to the University of Chicago's IGM Economic Experts Panel, 28 disagreed with the claim that the "seven actions to protect American workers" in Mr. Trump's 100-day plan would improve the economic prospects of middle-class Americans. The dissenters were two economists who were uncertain, and one who had no opinion.

('recent survey': http://www.igmchicago.org/surveys/100-day-plan )

The pervasive pessimism among professional economists stands in stark contrast with the judgment of financial markets, which rose strongly in the wake of Mr. Trump's election, and have remained buoyant since.

It also puts economists at odds with the judgments of small-business owners. According to the latest survey from the National Federation of Independent Businesses, the balance of members who expect general business conditions to improve has moved drastically. In October, the pessimists who saw business conditions as likely to worsen outnumbered the optimists by seven percentage points; the latest survey from December shows that the optimists now outnumber the pessimists by 50 percentage points. It's an extraordinary shift - one the association described as "stratospheric."

I'm not quite sure how to reconcile these conflicting signals. One possibility is that Mr. Trump remains something of an unknown, and each group is filling in the blanks differently. Small businesses, pleased to see a businessman in the White House, might be tempted to believe the best. By contrast, there's a reason that economics is called the dismal science, and few economists trust politicians - of either stripe - to get things right. Greater uncertainty gives economists a broader canvas upon which to project their pessimism. ...

Julio -> Fred C. Dobbs... , January 12, 2017 at 12:17 PM
I don't see where he finds the "conflicting signals".

The economists were asked about the prospects for the middle class (Question A) and low-income workers (Question B).

The optimism is all about business conditions.

These two have been divergent forever. The proposed policies are likely to exacerbate the divergence.

Fred C. Dobbs -> Chris G ... , January 12, 2017 at 05:53 AM
JW: ... 'According to the latest survey from the National Federation of Independent Businesses, the balance of members who expect general business conditions to improve has moved drastically.' ...

Small Business Economic TrendsNFIB | NFIB http://www.nfib.com/surveys/small-business-economic-trends/

Small business optimism rocketed to its highest level since 2004, with a stratospheric 38-point jump in the number of owners who expect better business conditions, according to the monthly National Federation of Independent Business (NFIB) Index of Small Business Optimism, released today.

"We haven't seen numbers like this in a long time," said NFIB President and CEO Juanita Duggan. "Small business is ready for a breakout, and that can only mean very good things for the U.S. economy."

The Index reached 105.8, an increase of 7.4 points. Leading the charge was "Expect Better Business Conditions," which shot up from a net 12 percent in November to a net 50 percent last month. ...

Brick Bootloop -> Chris G ... , January 12, 2017 at 08:07 AM
Confidence of small business owners that their lot will improve?
"

Could *small business confidence index* work same as *odd lot investor's confidence*? Odd lot buying index? The little people registering their wrong opinions? A contrary indicator? Do you see how small business confidence curve has begun to raise a red flag?

Think, My
People
!

[Jan 12, 2017] Philip Pilkington: To What Extent Is Economics an Ideology and to What Extent Is It a Useful Theory?

Notable quotes:
"... By Philip Pilkington, a macroeconomist working in asset management and author of the new book The Reformation in Economics: A Deconstruction and Reconstruction of Economic Theory . The views expressed in this interview are not those of his employer ..."
"... The Reformation in Economics ..."
"... Once the theory is assumed to be true it can then be applied everywhere and anywhere in an entirely uncritical manner. Anything can then be interpreted in terms of utility-maximisation. This is most obvious in popular publications like Freakonomics: A Rogue Economist Explores the Hidden Side of Everything ..."
"... To paraphrase from Yes Minister, real economists don't sully their elevated minds with anything as sordid as data. It's much easier to make a a bunch of unrealistic assumptions, for example "trade deals don't affect trade balance and employment", and just to build their model from there. The fact that these kind of missteps are not stamped out by the profession shows that fire is the only answer. ..."
"... I abandoned Econ. as a major when I was a senior in college (mid 70's) because what was being taught had little to no relationship to what I observed in the real world of human beings (as opposed to the "Homo Economicus" that econ. theory depended on). ..."
Jan 12, 2017 | www.nakedcapitalism.com
Posted on January 12, 2017 by Yves Smith By Philip Pilkington, a macroeconomist working in asset management and author of the new book The Reformation in Economics: A Deconstruction and Reconstruction of Economic Theory . The views expressed in this interview are not those of his employer

... ... ...

In my book The Reformation in Economics I take the position that modern economics is more similar to phrenology than it is to, say, physics. This is not at all surprising as it grew up in the same era and out of remarkably similar ideas. But what is surprising is that this is not widely noticed today. What is most tragic, however, is that there is much in economics that can and should be salvaged. While these positive aspects of economics probably do not deserve the title of 'science' they at least provide us with a rational toolkit that can be used to improve political and economic governance in our societies.

The Ideology at the Heart of Modern Economics

The curious thing about modern economics is its almost complete insularity. Its proponents appear to have very little notion of how it applies to the real world. This is not the case in normal sciences. Take physics, for example. It is extremely clear how, say, the inverse squares law applies to experienced reality. In the case of gravitation, for example, the inverse squares law makes experimentally testable predictions about the force exerted by, say, the gravitational pull between the sun and the earth.

Modern economics – by which I mean neoclassical or marginalist economics which relies on the notion of utility-maximisation as its central pillar – completely lacks this capacity to map itself onto the real world. As philosophers of science like Hans Albert have pointed out , the theory of utility-maximisation rules out such mapping a priori , thus rendering the theory completely untestable. Since the theory is untestable it cannot be falsified and this allows economists to simply assume that it is true.

Once the theory is assumed to be true it can then be applied everywhere and anywhere in an entirely uncritical manner. Anything can then be interpreted in terms of utility-maximisation. This is most obvious in popular publications like Freakonomics: A Rogue Economist Explores the Hidden Side of Everything . Such books read in an almost identical way to the fashionable books of 19 th century phrenology. The economists address everything from parenting to crime to the Ku Klux Klan by filtering it through the non-experimental theory of utility-maximisation – a theory that has not and cannot be verified and so the author and reader alike take it entirely on trust.

Such systems of ideas are ideological to the core. They are cooked up independently of the evidence and are then imposed upon the material of experienced reality. We are encouraged to 'read' the world through the interpretive lens of economics – and when we ask for evidence that this lens uncovers factually accurate information we are confounded with circular arguments from the economists.

Large-scale public policy is also filtered through this lens. This is done by constraining the study of macroeconomics – that is, GDP growth, unemployment, inflation and so on – by tying it to the theories of utility-maximisation. All macroeconomics today must be 'microfounded'. This means that it must have microeconomic – read: 'utility-maximising' – foundations. In reality, as I show in the book, these foundations are anything by 'micro'. Rather, what is done is that the entire economy is seen to be dominated by a single uber-utility-maximiser and all the conclusions flow from there.

This may seem like odd stuff but it is built into the theory as a sort of foundational delusion. The arbitrary, non-empirical theory of utility-maximisation assumes primacy to all considerations of actual statistical facts, intuitions about human motivations and even basic assumptions about what should constitute a properly moral view of man. What we end up with is not just a crushing, anti-inquiry ideology but also a lumbering failure of a system of ideas that has no hope in extracting relevant information about the real world.

What Is To Be Done?

Is economics then to be thought of as a failure? Must we scrap economics and try to find other ways to describe and address our economic and political problems? In this regard, my book claims to lay out a new path – albeit one that has been intuitively followed by some economists, most notably those in the heterodox camp. This new path is based on two key interrelated premises.

The first is that we have little insight into what actually motivates human beings. For this reason theories that rest on assumptions about human motivation – like utility-maximisation – must be thrown out and the study of the economy must be undertaken by examining large economic aggregates. In short, micro must be tossed off the throne and the crown must be handed to macro. The second premise is that we must not be overly concerned with highly precise 'models' of the economy. Instead we must take what I have come to call a 'schematic' approach. A schematic approach involves building tools that can be integrated into how we understand the world around us without assuming that these tools provide us with an exact description of this world. This schematic toolkit – which I begin to lay out in the later chapters of the book – can then be used to approach the study of actual economies.

These may seem like rather simple rules. But when applied to economic theory they generate rather radical results. At the same time they greatly constrain the amount of wisdom that we can assume economists to have; given these premises no book like Freakonomics should ever be taken seriously and should probably even be written in the first place. In that sense, they may appear to militate against Enlightenment optimism. This may well be so, but I would argue that they are arrived at through rational Enlightenment-style inquiry and so should be taken seriously even by proponents of Enlightenment Progress. After all, phrenology eventually fell in the face of rationalistic criticism.

In the book some of the issues around uncertainty and free will are also explored. Implicit in some of the book's central criticisms is that societies are not to be understood in a deterministic manner. Unlike billiard balls, social forces are not subject to deterministic laws. In one sense this is unfortunate as it means that our understandings of social and economic processes must always be of a contingent and not-too-precise nature. But on the other hand it is optimistic in the sense that it attributes an agency to human beings to create the world around them that mainstream marginalist economics stripped away by imposing the limited utility-maximiser framework on everyone from Mother Theresa to Hitler.

This also creates an opening for a proper discussion of ethics and morality. Although this is not dealt with directly in the book – it would surely require another ten volumes – the framework does reopen awkward questions surrounding morality and ethics. Some self-professed social scientists, nervous that these questions have been passed to us from the world religions, would prefer to do away with any moral and ethical questions. But this was always a fantasy – even the most hardened anti-ethicist, unless they are serving life for serial-killing, has a system by which they determine right from wrong.

All that I have said here is rather abstract. But a good portion of the book is not and I do not want to give that impression. It contains chapters that deal with inflation, profits, income distribution, income determination, financial markets, interest rates, investment and employment. It is not simply a book of methodology but rather one that tries to also provide the basic building blocks of a theory that can be applied to understand really-existing economies. In this sense, I hope that it is again more optimistic than many mainstream economics books that leave the reader without any capacity to apply the supposed ideas that they have absorbed by reading them beyond mere chest-puffing at dinner parties and moral condemnations of the social safety net.

David , January 12, 2017 at 10:12 am

We dont have Departments of Astrology. Just dump it call it business data and stick it in business schools or departments. It is not science or social science it is the worst ever pseudoscience with blood all over its hands see previous post.

Praedor , January 12, 2017 at 3:45 pm

You could call it a branch of political "science" (also not a science). At least it would be honest. Everything proposed or concluded in economics classes will be known to simply be political preferences or ideas, not real or valuable beyond that.

Alex , January 12, 2017 at 10:22 am

In my perception, giving something an economic value is best explained as being an exercise of moral judgement.

Gaylord , January 12, 2017 at 10:49 am

A holistic understanding of the natural world is needed, therefore I believe the first rule of economics that should override all others is one that would correct the false assumption that humans are separate from our environment and superior to all other species. That separation and illusion of independence, particularly endemic to the European mentality, has caused us to denigrate nature as though we must dominate and subdue it to satisfy our needs and desires, and the result now in full evidence is the wholesale destruction of habitat and ecocide that inevitably lead to omnicide. We have allowed our population to exceed the carrying capacity of the earth and have used technology without regard for the consequences, thus contradicting the meaning of homo sapiens and assuring our extinction.

Alex , January 12, 2017 at 11:07 am

Um, what's your evidence that this is somehow a European mentality?

Robert Hahl , January 12, 2017 at 11:20 am

I think he means "Western" mentality, which seem true enough. Here is a nice piece of phrenology, a portrait of Henry James.

http://n7.alamy.com/zooms/a5fad1324a3b45fe9417ff65912ff8d7/henry-james-american-born-british-novelist-and-writer-1843-1916-most-af8heb.jpg

Jamie , January 12, 2017 at 12:19 pm

Phillip's comments regarding the "Great Chain of Being" are apropo. This is "Western" in a sense, "Christian" more particularly. It tells the underclass they are special while at the same time justifying and encouraging their subservience (i.e., the underclass is told they are disconnected on the one hand, but totally "connected" (that is, have a "place") on the other hand (which they should not try to rise above)).

The implication that other societies where greater "connection" is somehow recognized are somehow immune to stratification and dominance by a ruling elite, somehow more "wholesome" or "gentle" or "sane", has very little evidence in its favor that I have ever seen. It's rather faddish to criticize "the West" for all the ills of the world. And "the West" certainly has left a trail of suffering and destruction across the face of the planet. But other societies have their own mechanisms for justifying and encouraging subservience. And a religious "feeling" of the connectedness of all things is not a substitute for the scientific insights of the discipline of ecology, brought to us by a "Western" mode of thought and enquiry.

No matter what society we live in, the problem of just governance, the aggrandizement of the elite and the suffering of the masses, remains the same.

Paul O'Sullivan , January 12, 2017 at 11:25 am

I am though the first two chapters of Philip's book. So far so good – likable prose style and promising subject matter.

voislav , January 12, 2017 at 11:25 am

What passes for the science of economics has become politicized and scientifically compromised to the point that the only thing that makes sense is to burn it with fire. Data has stopped playing a role in development of economic theory and selected snippets of it are occasionally dragged out only if they support the latest concoction that comes to their mind.

To paraphrase from Yes Minister, real economists don't sully their elevated minds with anything as sordid as data. It's much easier to make a a bunch of unrealistic assumptions, for example "trade deals don't affect trade balance and employment", and just to build their model from there. The fact that these kind of missteps are not stamped out by the profession shows that fire is the only answer.

Larry Y , January 12, 2017 at 11:46 am

Economics is to ecology as phrenology is to neuroscience?

Always thought the problem was that economics should be descriptive, not prescriptive. Maybe a parallel in how science came out of "natural philosophy".

j , January 12, 2017 at 11:47 am

In the book some of the issues around uncertainty and free will are also explored. Implicit in some of the book's central criticisms is that societies are not to be understood in a deterministic manner. Unlike billiard balls, social forces are not subject to deterministic laws.

This seems to me to be an over reaction to the specious nature of current mainstream economics, compounded by a misunderstanding of the role of determinism and uncertainty in physics. What most characterizes physics is not the absence of uncertainty, but the specification of it. Just because the current dominant economic dogma has it wrong is no reason to throw out determinism.

The analogy to billiard balls is a poor analogy to social systems. The physical forces that determine an earthquake, for example, may not allow us to precisely predict the moment in time when the quake will trigger, but that doesn't make earthquakes "non-deterministic". OK, the point is taken that societies are not billiard balls. There is still plenty of room to hope that social forces may be sufficiently specified to allow useful predictions. Throwing out determinism is not a royal road to morality. The moral quandary of the present day is how to reconcile determinism and morality, each of us as individuals and all of us as a society, not to force a choice between them.

Because we are not billiard balls, we do not have to accept that the morality of society is merely the sum of all the individual moralities of all the individuals composing it ("market" morality). We can allow for the social construction of a moral code and the imposition of that code on society's constituent individuals. None of that necessarily takes us outside of determinism. Because previous generations got some of the laws of physics wrong does not mean the laws of physics did not exist at that time. Because current economists make absurd assumptions does not mean no science of economy is possible. But a "non-deterministic" 'science' is no science at all.

shinola , January 12, 2017 at 12:53 pm

I abandoned Econ. as a major when I was a senior in college (mid 70's) because what was being taught had little to no relationship to what I observed in the real world of human beings (as opposed to the "Homo Economicus" that econ. theory depended on).

My father made the money that paid for my tuition & books through sales. As a sales manager for a major insurance co. he was always looking for recruits who could "sell air conditioners to Eskimos". If, in fact, the "information symmetry" that econ. theory depends on existed, then his job could not have existed.

I was also influenced by an econ. prof. who told me that an econ. degree was worthless unless I wanted to teach it or work for the gov't.
I think most NC readers will understand the "shorthand" phrase "First, assume a can opener"

Generalfeldmarschall von Hindenburg , January 12, 2017 at 2:12 pm

Elites always invent ideologies, which are like operating systems, in order to maintain control over the minds of their subjects. Economics, great chains of being, Mandate of Heaven. It's all the same.

Synoia , January 12, 2017 at 2:32 pm

I agree with the author, but am dismayed as well.

Rant Warning:

Does he not understand Science and the Scientific method?

Hypothesis
Thesis
Experiment – Repeatable by independent parties, Experiments.
Proof.

That's Science, That's physics. Read Joule's biography to understand the method.

Economics is NO science because there is no way to conduct an experiment, a repeatable experiment.

In addition the mathematicians have discovered and codified Chaos or Catastrophe Theory, and the attendant Black Swans, in the last 50 years, which provides a solid foundation to understand economics, and its absolute unpredictability.

Because us humans are driven by fear and greed, consequently: Presume a rational actor (economics 101) is invalid.

There is not ONE mention of chaos in this article, which is the governing mathematics behind Economics in the world we inhabit, work, play, are born and die.

There is an old expression: Before putting pen to paper, please engage mind.

End Rant.

Synoia , January 12, 2017 at 2:35 pm

If one wants to asserts that humans are rational, please explain the fashion industry.

Or "boys and their toys."

Bob Stapp , January 12, 2017 at 2:42 pm

In an even larger sense, we have substituted ideology for religion. Consider capitalism, privatization, democracy, the profit motive, materialism, utility maximisation, and, yes, even the scientific method. We worship these just as ardently as we did the Grecian or Egyptian pantheon of gods in the years b.c.e., and the Christian, Jewish, and Islamic characterizations of god/Allah up to the present era.

The unquestioning acceptance of these belief systems filters our perceptions of reality and blinds us to the infinite number of possibilities that exist outside of those frames of reference. In fact, those systems have indeed become our religion and stepping outside of them frequently incurs the same stigma and scorn formerly accorded to religious heretics who were often burned at the stake. One doesn't need to spend more than a day reading a layperson's guide to quantum mechanics to get an idea of what happens when you set your mind free of those confining boxes.

I highly recommend Morris Berman's book, Coming to Our Senses , where he traces western history from the beginnings of Christendom to the modern day in the context of heresy. (That's a simplistic but reasonably accurate synopsis.) It's a dense read and when I first sat down with it in the early 90s, I could only manage a few pages at a time and then had to take two or three days to digest before coming back for more. I read it again ten years later and it made even more of an impact the second time around. Without exaggerating, I can honestly say that it profoundly shaped my world view to the point that I now view all belief systems skeptically and try to place them in a larger context.

Pilkington's description of economics as an unassailable belief system rings true to me. Not unlike religion (the Crusades, the Inquisition, the Conquistadors, right on up to ISIS), economics has wreaked and is wreaking havoc across the globe. Who knows what wonders await us when we start thinking out of that box.

Oguk , January 12, 2017 at 4:18 pm

A schematic approach involves building tools that can be integrated into how we understand the world around us without assuming that these tools provide us with an exact description of this world.

I am perhaps most interested in this. Will look for the book. I always get something from reading Pilkington's posts.

[Jan 09, 2017] Labor Market Monopsony

Notable quotes:
"... reduced competition can also give employers power to dictate wages-so- called "monopsony" power in the labor market. ..."
"... While monopoly in product markets and monopsony in labor markets can be related and share some common causes, the latter has some distinct causes and policy implications. ..."
"... This issue brief explains how monopsony, or wage-setting power, in the labor market can reduce wages, employment, and overall welfare ..."
Jan 09, 2017 | www.whitehouse.gov
A growing literature has documented several indicators of declining] competition in the United States, and economists have begun to explore the links between these trends and rising income inequality (Furman and Orzag 2015). While recent discussions have highlighted rising concentration among producers and monopoly pricing in sellers markets (The Economist 2016), reduced competition can also give employers power to dictate wages-so- called "monopsony" power in the labor market.

While monopoly in product markets and monopsony in labor markets can be related and share some common causes, the latter has some distinct causes and policy implications.

This issue brief explains how monopsony, or wage-setting power, in the labor market can reduce wages, employment, and overall welfare...

[Jan 08, 2017] Samuelson bastard Keynesianism

Jan 08, 2017 | economistsview.typepad.com
RGC : January 07, 2017 at 11:45 AM
, 2017 at 11:45 AM
By Asad Zaman
January 7, 2017

P8 Keynesian Complexity
................
"But no one appears to have understood the fundamental insights of Keynesian complexity: the system as whole does not act as a simple aggregate of the actions of the individual agents within the system. Pre-Keynesian macroeconomics was based centrally on the misunderstanding that the macroeconomy can be understood by scaling up the microeconomic behaviors of individual agents. While Keynes forcefully rejected this thesis, and created a complex system view of the macroeconomy, simple-minded followers failed to understand complexity, and went back to the pre-Keynesian views."
........................
https://weapedagogy.wordpress.com/2017/01/07/p8-keynesian-complexity/

RGC -> RGC... , -1
Paul Samuelson on Keynes (same link):

Ironically, failure to understand Keynes led to dismissal and contempt "Paul Samuelson felt he could say that "it is remarkable that so active a brain would have failed to make any contribution to economic theory . .." (cited in John Foster 2006).

Because Samuelson could not understand the complexity of Keynesian theory, he wrote that: "[The General Theory] is a badly written book, poorly organized; any layman who, beguiled by the author's previous reputation, bought the book was cheated of his 5 shillings. It is not well suited for classroom use. It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements. It abounds with mares' nests and confusions: involuntary unemployment, wage units, the equality of savings and investment, the timing of the multiplier, interactions of marginal efficiency upon the rate of interest, forced savings, own rates of interest, and many others. In it the Keynesian system stands out indistinctly, as if the author were hardly aware of its existence or cognizant of its properties; and certainly he is at his worst when expounding its relations to its predecessors."

Samuelson's arrogance in believing that he understood the Keynesian system better than Keynes created the biggest barrier to understanding Keynes for 20th Century economists. Because of his stature, he became the authorized interpreter of Keynes, and very few went back to original writings to try to understand them. Those who did also failed to come to grips with complexity, and as a result, it is impossible to count the variety of interpretations of Keynes - see for example, Backhouse and Bateman. The Keynesian elephant has a huge number of parts, it seems.

Libezkova -> RGC... , January 07, 2017 at 01:39 PM
Thank you for this link and quote.

That was my problems with Samuelson too, but I never was able to express is with such a clarity,

RGC -> RGC... , January 07, 2017 at 02:24 PM
This blogger is discussing The General Theory chapter by chapter. This post is chapter 2 of 24.
anne -> anne... , January 07, 2017 at 10:26 AM
http://krugman.blogs.nytimes.com/2013/08/20/coalmines-and-aliens-again/

August 20, 2013

Coalmines and Aliens, Again
By Paul Krugman

Brad DeLong * catches John Cochrane ** being remarkably dense:

"Paul Krugman recommended, with refreshing clarity, that the US government fake an alien invasion so we could spend trillions of dollars building useless defenses. (I'm not exactly sure why he does not call for real defense spending. After all, if building aircraft carriers saved the economy in 1941, and defenses against imaginary aliens would save the economy in 2013, it's not clear why real aircraft carriers have the opposite effect. But I'm still working on the nuances of new-Keynesianism, so I'll let him explain the difference. I'm not a big fan of huge defense spending anyway.)"

As I've explained before, *** the alien thing was a modern riff on Keynes's coalmine thought experiment. **** It's worth quoting that one in full:

"It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly 'wasteful' forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict 'business' principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.

"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing."

In a way, I'm amazed by economists who find this sort of thing absurd on its face. Leave macroeconomics on one side: what about the theory of the second best? This theory - which is just basic micro - says that when some markets are distorted, for whatever reason, social costs and benefits across the economy don't correspond to private costs, so that unprofitable, even seemingly wasteful activities can sometimes be beneficial. And an economy in which millions of willing workers can't find work is surely one with massive distortions of some kind.

Oh, and let's always remember that Keyensians like me don't believe that thing like the paradox of thrift and the paradox of flexibility are the way the economy normally works. They're very much exceptional, applying only when interest rates are up against the zero lower bound. Unfortunately, that happens to be the world we're currently living in.

* http://delong.typepad.com/sdj/2013/08/paul-krugman-prepare-for-alien-invasion-and-spend-our-way-to-economic-recovery.html

** http://johnhcochrane.blogspot.com/2013/01/more-new-keynesian-paradoxes.html

*** http://krugman.blogs.nytimes.com/2011/08/24/coalmines-and-aliens/

**** https://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter10.html

anne -> anne... , -1
A series of superb short essays by Paul Krugman.

[Jan 07, 2017] Samuelson bastard Keynesianism

Jan 07, 2017 | economistsview.typepad.com
RGC : January 07, 2017 at 11:45 AM , 2017 at 11:45 AM
By Asad Zaman
January 7, 2017

P8 Keynesian Complexity
................
"But no one appears to have understood the fundamental insights of Keynesian complexity: the system as whole does not act as a simple aggregate of the actions of the individual agents within the system. Pre-Keynesian macroeconomics was based centrally on the misunderstanding that the macroeconomy can be understood by scaling up the microeconomic behaviors of individual agents. While Keynes forcefully rejected this thesis, and created a complex system view of the macroeconomy, simple-minded followers failed to understand complexity, and went back to the pre-Keynesian views."
........................
https://weapedagogy.wordpress.com/2017/01/07/p8-keynesian-complexity/

RGC -> RGC... , -1
Paul Samuelson on Keynes (same link):

Ironically, failure to understand Keynes led to dismissal and contempt "Paul Samuelson felt he could say that "it is remarkable that so active a brain would have failed to make any contribution to economic theory . .." (cited in John Foster 2006).

Because Samuelson could not understand the complexity of Keynesian theory, he wrote that: "[The General Theory] is a badly written book, poorly organized; any layman who, beguiled by the author's previous reputation, bought the book was cheated of his 5 shillings. It is not well suited for classroom use. It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements. It abounds with mares' nests and confusions: involuntary unemployment, wage units, the equality of savings and investment, the timing of the multiplier, interactions of marginal efficiency upon the rate of interest, forced savings, own rates of interest, and many others. In it the Keynesian system stands out indistinctly, as if the author were hardly aware of its existence or cognizant of its properties; and certainly he is at his worst when expounding its relations to its predecessors."

Samuelson's arrogance in believing that he understood the Keynesian system better than Keynes created the biggest barrier to understanding Keynes for 20th Century economists. Because of his stature, he became the authorized interpreter of Keynes, and very few went back to original writings to try to understand them. Those who did also failed to come to grips with complexity, and as a result, it is impossible to count the variety of interpretations of Keynes - see for example, Backhouse and Bateman. The Keynesian elephant has a huge number of parts, it seems.

[Jan 03, 2017] Some problems with ISLM model

Jan 03, 2017 | economistsview.typepad.com
JF -> Peter K.... January 03, 2017 at 09:46 AM
Krugman believes deeply in the ISLM model and cant seem to admit that there are stunning implications to the following :

1. Credit creation and the financialization above the consumer level of this new-money creation is an unlimited privlege held by financial system actors, we saw this blatantly in 2000-2006, so IS is demonstrably not true, the amount of available Investment funds Is unlimited. There is no such thing as loanable funds at the macro level, the financial system can make financial positions then manages the cash liquidity (until ... .).

2. Defining currency as a liability on a set of books for a thing called a central bank and talking about Quantity Theories of Money, are all demonstrably weak notions, at keast in huge economies. The approach by China ignores a lot of this theory in practice as they Spend to improve the economic potential of their people, a ka Keynes. They do care about closing the supply gaps in housing and transport, and clean power, sure, but they care more about helping more and more and more chinese to get a connection to a modernizing economy. Sure wish Krugman cared the same way rather than caring fir the cloture of the ISLM theory. He may have been kinder to Sanders and more challenging of Clinton too.

Krugman is willing to explain that the US can borrow at low rates to build public goods and other assets and get it paid for by returns, but somehow direct Spending, even using phoney debt processes to push the financing outward as the chinese do (which is simply helicopter money) cant do the same.

Right now I see the chinese approaches as undermining credility to monetary theories while it is consistent with Keynes not so the extended theories.

 

JF -> JF... , January 03, 2017 at 09:59 AM

And of course I hope I am right for the chinese, no surprise to me if this is the case.

The sky is falling view does come to mind if you believe some of the economic theories, oh look, so much debt. But as Adair wrote this week,and I commented upon it a year or so ago probably, if you dont believe in these theoretic tales you can just erase the 'debt' held by the chinese people via their government when it makes sense, no harm, almost all good.

But I have to say, without the US as its major buyer and without their ability to accumulate dollar-asset in reserve to the level they have, one wonders if there would be less lattitude. This raises the question about why Trump continues to voice that the rug will be pulled out soon. Why? I am pretty sure it isnt because he wants to prove the economic theorests to be right.

anne -> Peter K.... , January 03, 2017 at 10:47 AM
http://www.nytimes.com/2016/01/08/opinion/when-china-stumbles.html

January 7, 2016

When China Stumbles
By Paul Krugman


http://www.bradford-delong.com/2015/12/ever-since-i-became-an-adult-in-1980-i-have-been-a-stopped-clock-with-respect-to-the-chinese-economy-i-have-said-alw.html

December 1, 2015

China's Market Crash Means Chinese Supergrowth Could Have Only 5 More Years to Run
By Brad DeLong

Now that 90 days have passed, from the Huffington Post from Last August: China's Market Crash Means Chinese Supergrowth Could Have Only 5 More Years to Run *

Ever since I became an adult in 1980, I have been a stopped clock with respect to the Chinese economy. I have said--always--that Chinese supergrowth has at most ten more years to run, and more probably five or less. There will then, I have said, come a crash--in asset values and expectations if not in production and employment. After the crash, China will revert to the standard pattern of an emerging market economy without successful institutions that duplicate or somehow mimic those of the North Atlantic: its productivity rate will be little more than the 2%/year of emerging markets as a whole, catch-up and convergence to the North Atlantic growth-path norm will be slow if at all, and political risks that cause war, revolution, or merely economic stagnation rather than unexpected but very welcome booms will become the most likely sources of surprises....


* http://www.huffingtonpost.com/brad-delong/china-market-crash-5-years_b_8045742.html

anne -> anne... , January 03, 2017 at 10:52 AM
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

[ Losing a decade, if not half a century? ]

sanjait -> Peter K.... , January 03, 2017 at 11:59 AM
If you want to put money in China given their still extant massive imbalances ... go right ahead.

I'm still predicting a massive slowdown, if not a crash.

The central government in China has a big warchest and a lot of catchup growth that can keep it afloat, but at a macro level there simply must be big adjustments (i.e., investment to consumption demand), which can be put off but not avoided entirely.

Julio -> sanjait... , January 03, 2017 at 03:54 PM
Why should an adjustment from investment to consumption cause a massive slowdown or a crash?
anne -> Julio ... , -1
Why should an adjustment from investment to consumption cause a massive slowdown or a crash?

[ No matter, after 40 years of an average 9.7% yearly real Gross Domestic Product growth and 8.6% yearly per capita GDP growth, Western analysts been all but unconcerned with how such growth was managed, especially since no other developing country came anywhere close. Why no other developing country has come close to matching China in growth, I would think, would make for an important extensive study, but evidently not. ]

[Jan 02, 2017] Milton Friedman, Unperson

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

August 8, 2013

Milton Friedman, Unperson
By Paul Krugman

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

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

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

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

"Best wishes for your next ninety years."

So what happened to Milton Friedman?

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

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

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

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

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

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

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

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

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

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

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

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

August 9, 2013

More On the Disappearance Of Milton Friedman

By Paul Krugman

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

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

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

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

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

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

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

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

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

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

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

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

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

You have heard of bitcoin, right?

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

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

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

Kenneth D. Garbade Federal Reserve Bank of New York

Abstract

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

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

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

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

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

So why not?

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

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

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

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

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

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

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

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

Quasi-science makes for fun social clubs though.

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

Another false equivalency...

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

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

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

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

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

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

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

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

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

Marvelous irony how well this applies to its author.

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

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

[Dec 31, 2016] Milton Friedman was intellectual prostitute of financial oligarchy most of his long life, starting from his days in Mont Pelerin Society

Dec 31, 2016 | economistsview.typepad.com
JohnH :

Ironic isn't it? "Why didn't ... exhibit the same restraint in his role as a public intellectual?

The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy."

Krugman should have stuck to economics...

Reply Saturday, December 31, 2016 at 04:38 PM likbez -> JohnH... , -1
Yes, this is pretty nasty verdict for Krugman too.

But, in reality, Milton Friedman was an intellectual prostitute of financial oligarchy most of his long life, starting from his days in Mont Pelerin Society ( https://en.wikipedia.org/wiki/Mont_Pelerin_Society) , where he was one of the founders.

So, if the period when he was a good econometrician exists it is limited to pre-war and war years. As he was born in 1912, he was just 33 in 1945. His "A Theory of the Consumption Function" was published in 1957. And "A Monetary History of the United States, 1867–1960" in 1963, when he was already completely crooked.

Mont Pelerin Society was founded in 1947 with the explicit political goal of being hatching place for neoliberal ideology as alternative to communist ideology. He served as a President of this Society from 1970 to 1972.

Capitalism and Freedom that many consider to be neoliberal manifesto similar to Marx and Engels "Manifesto of the Communist Party" was published in 1962.

So what Krugnam is saying is a myth. And he is not an impartial observer. He is a neoliberal himself. I still remember Krugman despicable attacks on John Kenneth Galbraith and his unhealthy fascination with the usage of differential equations in economic modeling, the epitome of mathiness.

[Dec 31, 2016] Problems with Krugman as an economist is that he, as a neoliberal, believes that profit motive is superior to the mutual benefit motive all the time.

Notable quotes:
"... My criticism of Krugman is far more fundamental. I do not believe the profit motive is superior to the mutual benefit motive when it comes to organizing economies. ..."
Dec 31, 2016 | economistsview.typepad.com
Paul Mathis -> anne... , December 31, 2016 at 06:48 PM
I have two problems with Prof. K:

1. His refusal to acknowledge the central role of consumption in our economy. As Keynes said, ""Consumption - to repeat the obvious - is the sole end and object of all economic activity." The General Theory, p. 104.

And Adam Smith agreed: "Consumption is the sole end and purpose of all production." The Wealth of Nations, Book IV Chapter VIII, v. ii, p. 660, para. 49.

2. Krugman's refusal to endorse fiscal stimulus unless the economy is at ZLB. That is not only anti-Keynesian, it plays directly into the hands of the debt fear mongers. (Krugman is also worried about the debt.)

yuan -> Paul Mathis... , December 31, 2016 at 06:56 PM
"Krugman's refusal to endorse fiscal stimulus unless the economy is at ZLB."

That is a strawman, and a bad one.

PS: My criticism of Krugman is far more fundamental. I do not believe the profit motive is superior to the mutual benefit motive when it comes to organizing economies.

anne -> Paul Mathis... , December 31, 2016 at 06:57 PM
Important criticisms.
anne -> Paul Mathis... , December 31, 2016 at 07:00 PM
https://www.marxists.org/reference/archive/smith-adam/works/wealth-of-nations/book04/ch08.htm

1776

An Inquiry into the Nature and Causes of The Wealth of Nations
By Adam Smith

On Systems of Political Economy

Conclusion of the Mercantile System

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.

anne -> Paul Mathis... , December 31, 2016 at 07:07 PM
https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch08.htm

1935

The General Theory of Employment, Interest and Money
By John Maynard Keynes

The Propensity to Consume: The Objective Factors

Consumption - to repeat the obvious - is the sole end and object of all economic activity. Opportunities for employment are necessarily limited by the extent of aggregate demand. Aggregate demand can be derived only from present consumption or from present provision for future consumption. The consumption for which we can profitably provide in advance cannot be pushed indefinitely into the future. We cannot, as a community, provide for future consumption by financial expedients but only by current physical output. In so far as our social and business organisation separates financial provision for the future from physical provision for the future so that efforts to secure the former do not necessarily carry the latter with them, financial prudence will be liable to diminish aggregate demand and thus impair well-being, as there are many examples to testify. The greater, moreover, the consumption for which we have provided in advance, the more difficult it is to find something further to provide for in advance, and the greater our dependence on present consumption as a source of demand. Yet the larger our incomes, the greater, unfortunately, is the margin between our incomes and our consumption. So, failing some novel expedient, there is, as we shall see, no answer to the riddle, except that there must be sufficient unemployment to keep us so poor that our consumption falls short of our income by no more than the equivalent of the physical provision for future consumption which it pays to produce to-day.

anne -> Paul Mathis... , -1
Krugman's refusal to endorse fiscal stimulus unless the economy is at zero lower bound. That is not only anti-Keynesian, it plays directly into the hands of the debt fear mongers. (Krugman is also worried about the debt.)

[ Only correct to a degree, economic weakness is recognized. ]

[Dec 31, 2016] Economists View 2007 Krugman on Milton Friedman

Dec 31, 2016 | economistsview.typepad.com
Mathew Kahn:
2007 Krugman on Milton Friedman : As you read this direct Paul Krugman quote, do y ou hear this song in the background.

"What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint. As I pointed out earlier, he made great contributions to economic theory by emphasizing the role of individual rationality-but unlike some of his colleagues, he knew where to stop. Why didn't he exhibit the same restraint in his role as a public intellectual?

The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy.

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed-a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I'd argue, is a counter-counterreformation."

Paul Mathis : , December 31, 2016 at 02:26 PM

Counter-reformation? Not exactly.

In an interview with Public Broadcasting System on Oct. 1, 2000, Dr. Milton Friedman said, "Let me emphasize [that] I think Keynes was a great economist. I think his particular theory in The General Theory of Employment, Interest, and Money is a fascinating theory. It's a right kind of a theory. It's one which says a lot by using only a little. So it's a theory that has great potentiality."

Brilliant economist? Not exactly.

For monetarists who believe as Dr. Friedman did that "inflation is always and everywhere a monetary phenomenon," the nearly $4 trillion added to the money supply by the Fed since 2008 should have produced raging hyper-inflation. For Friedman, the answer was not debatable: "A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth." The Counter-Revolution in Monetary Theory (1970).

Dan Berg -> Paul Mathis... , December 31, 2016 at 02:38 PM
$4 T was not "added to the money supply"

https://fred.stlouisfed.org/graph/?g=2VX3

For Krugman, this is called being hoisted by one's own petard.

anne -> Dan Berg ... , December 31, 2016 at 03:35 PM
https://fred.stlouisfed.org/graph/?g=2VX3 :

this graph, which should have been labelled but was not, depicts the monetary base from October 2012 to December 2015 for reasons that are a mystery to me.

anne -> Paul Mathis... , December 31, 2016 at 02:44 PM
https://fred.stlouisfed.org/graph/?g=cfmn

January 15, 2016

Adjusted Monetary Base, 2000-2016


https://fred.stlouisfed.org/graph/?g=cfmq

January 15, 2016

Adjusted Monetary Base, 2008-2016

anne -> anne... , December 31, 2016 at 02:47 PM
About $3 trillion was added to the monetary base between 2008 and the beginning of 2015.
Dan Berg -> anne... , December 31, 2016 at 05:05 PM
so why are you depicting the monetary base if they are such a mystery; and without labels?
anne -> anne... , December 31, 2016 at 05:18 PM
Perfectly described and drawn graphs depicting more than a $3 trillion increase in the monetary base between 2008 and 2015. Nice and simple as that:

https://fred.stlouisfed.org/graph/?g=cfmn

January 15, 2016

Adjusted Monetary Base, 2000-2016


https://fred.stlouisfed.org/graph/?g=cfmq

January 15, 2016

Adjusted Monetary Base, 2008-2016

Tra la, tra la.

anne -> Paul Mathis... , December 31, 2016 at 03:44 PM
http://krugman.blogs.nytimes.com/2013/08/08/milton-friedman-unperson/

August 8, 2013

Milton Friedman, Unperson
By Paul Krugman

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

anne -> Paul Mathis... , December 31, 2016 at 05:26 PM
Do write further on this matter when possible.
anne : , December 31, 2016 at 02:39 PM
http://www.nybooks.com/articles/19857

February 15, 2007

Who Was Milton Friedman?
By Paul Krugman - New York Review of Books

1.

The history of economic thought in the twentieth century is a bit like the history of Christianity in the sixteenth century. Until John Maynard Keynes published The General Theory of Employment, Interest, and Money in 1936, economics-at least in the English-speaking world-was completely dominated by free-market orthodoxy. Heresies would occasionally pop up, but they were always suppressed. Classical economics, wrote Keynes in 1936, "conquered England as completely as the Holy Inquisition conquered Spain." And classical economics said that the answer to almost all problems was to let the forces of supply and demand do their job.

But classical economics offered neither explanations nor solutions for the Great Depression. By the middle of the 1930s, the challenges to orthodoxy could no longer be contained. Keynes played the role of Martin Luther, providing the intellectual rigor needed to make heresy respectable. Although Keynes was by no means a leftist-he came to save capitalism, not to bury it-his theory said that free markets could not be counted on to provide full employment, creating a new rationale for large-scale government intervention in the economy.

Keynesianism was a great reformation of economic thought. It was followed, inevitably, by a counter-reformation. A number of economists played important roles in the great revival of classical economics between 1950 and 2000, but none was as influential as Milton Friedman. If Keynes was Luther, Friedman was Ignatius of Loyola, founder of the Jesuits. And like the Jesuits, Friedman's followers have acted as a sort of disciplined army of the faithful, spearheading a broad, but incomplete, rollback of Keynesian heresy. By the century's end, classical economics had regained much though by no means all of its former dominion, and Friedman deserves much of the credit.

I don't want to push the religious analogy too far. Economic theory at least aspires to be science, not theology; it is concerned with earth, not heaven. Keynesian theory initially prevailed because it did a far better job than classical orthodoxy of making sense of the world around us, and Friedman's critique of Keynes became so influential largely because he correctly identified Keynesianism's weak points. And just to be clear: although this essay argues that Friedman was wrong on some issues, and sometimes seemed less than honest with his readers, I regard him as a great economist and a great man....

anne -> anne... , December 31, 2016 at 03:00 PM
http://krugman.blogs.nytimes.com/2009/03/02/friedman-and-schwartz-were-wrong/

March 2, 2009

Friedman and Schwartz Were Wrong
By Paul Krugman

It's one of Ben Bernanke's most memorable quotes: at a conference honoring Milton Friedman on his 90th birthday, he said: *

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

He was referring to the Friedman-Schwartz argument that the Fed could have prevented the Great Depression if only it has been more aggressive in countering the fall in the money supply. This argument later mutated into the claim that the Fed caused the Depression, but its original version still packed a strong punch. Basically, it implied that no fundamental reforms of the economy were necessary; all it takes to avoid depressions is for central banks to do their job.

But can we say that recent events appear to disprove that claim? (So did Japan's experience in the 1990s, but that lesson failed to sink in.) What we have now is a Fed that is determined not to "do it again." It has been very aggressive about monetary expansion. Here's one measure of that aggressiveness, banks' excess reserves:

[Bank excess reserves, 1990-2009]

And yet the world economy is still falling off a cliff.

Preventing depressions, it turns out, is a lot harder than we were taught.

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

anne -> anne... , December 31, 2016 at 03:17 PM
https://fred.stlouisfed.org/graph/?g=cfmx

January 30, 2016

Excess Reserves of Depository Institutions, 1990-2009

[Dec 31, 2016] Greed Springs Eternal

Notable quotes:
"... You can't go all Ayn Rand/Gordon Gekko on the importance of greed as a motivator while claiming that wealth insulates ... from temptation. ... ..."
"... And this is telling us something significant: namely, that supply-side economic theory is and always was a sham. It was never about the incentives; it was just another excuse to make the rich richer. ..."
"... "The modern conservative is engaged in one of man's oldest exercises in moral philosophy: that is, the search for a superior moral justification for selfishness." ..."
"... choosing a cabinet of billionaires, because rich men are incorruptible"...kind of like showering ZIRP on the Wall Street banking cartel and letting them how to ration credit to the rest of economy...mostly their wealthy clientele, who use it for stock buy-backs and asset speculation. ..."
"... Of course, 'liberal' economists see nothing wrong with trickle down, supply side economics, as long as it's the Wall Street banking cartel who's in charge of it... ..."
"... Stiglitz: "I've always said that current monetary policy is not going to work because quantitative easing is based on a variant of trickle-down economics. The lower interest rates have led to a stock-market bubble – to increases in stock-market prices and huge increases in wealth. But relatively little of that's been translated into increased and broad consumer spending." ..."
"... But pgl and many other '[neo[liberal' economists just can't get enough of the trickle down monetary policy...all the while they vehemently condemn trickle down tax policy. ..."
"... You all think Trump can do worse than the sitting cabal adding $660B from Sep 2015 to the federal debt quietly keeping the economy going for the incumbent party? ..."
"... The losers think the winners are as crooked as they! ..."
Dec 31, 2016 | economistsview.typepad.com

To belabor what should be obvious: either the wealthy care about having more money or they don't. If lower marginal tax rates are an incentive to produce more, the prospect of personal gain is an incentive to engage in corrupt practices. You can't go all Ayn Rand/Gordon Gekko on the importance of greed as a motivator while claiming that wealth insulates ... from temptation. ...

And this is telling us something significant: namely, that supply-side economic theory is and always was a sham. It was never about the incentives; it was just another excuse to make the rich richer.

Anomalous Cowherd : , December 29, 2016 at 11:35 AM
In one sentence, you still can't beat John Kenneth Galbraith's assessment: "The modern conservative is engaged in one of man's oldest exercises in moral philosophy: that is, the search for a superior moral justification for selfishness."

Nothing is more admirable than the fortitude with which millionaires tolerate the disadvantages of their wealth. -- Nero Wolfe

DrDick -> Anomalous Cowherd... , December 29, 2016 at 12:31 PM
You need to know nothing else to understand the entirety of the conservative edifice.
JohnH :
"choosing a cabinet of billionaires, because rich men are incorruptible"...kind of like showering ZIRP on the Wall Street banking cartel and letting them how to ration credit to the rest of economy...mostly their wealthy clientele, who use it for stock buy-backs and asset speculation.

Of course, 'liberal' economists see nothing wrong with trickle down, supply side economics, as long as it's the Wall Street banking cartel who's in charge of it...

Gibbon1 : , December 29, 2016 at 12:29 PM
Why do we need Krugman to tell us this?
DrDick -> Gibbon1... , -1
*We* do not, but our pandering press does and I think that is Krugman's intended target.
JohnH -> pgl...
Stiglitz: "I've always said that current monetary policy is not going to work because quantitative easing is based on a variant of trickle-down economics. The lower interest rates have led to a stock-market bubble – to increases in stock-market prices and huge increases in wealth. But relatively little of that's been translated into increased and broad consumer spending."
http://www.theglobeandmail.com/opinion/munk-debates/joseph-stiglitz-current-monetary-policy-is-not-going-to-work/article24346548/

But pgl and many other '[neo[liberal' economists just can't get enough of the trickle down monetary policy...all the while they vehemently condemn trickle down tax policy.

yuan -> JohnH...
and few liberal economists have been more skeptical of QE's economic impact than Krugman.

http://www.marketwatch.com/story/krugman-meh-is-grade-fed-gets-on-qe-2015-11-09

PS: bernie, please save me from your bros.

ilsm :
You all think Trump can do worse than the sitting cabal adding $660B from Sep 2015 to the federal debt quietly keeping the economy going for the incumbent party?

The losers think the winners are as crooked as they!

yuan -> ilsm...
when we can borrow over the long-term at 3% and have truly massive infrastructure and clean energy needs we should be borrowing like military Keynesian republicans...

[Dec 31, 2016] Supply-side economic theory is and always was a sham

Notable quotes:
"... And this is telling us something significant: namely, that supply-side economic theory is and always was a sham. ..."
"... That it is and always a sham is irrelevant. It is THE NARRATIVE that matters! They had a compelling story and they stuck to it. That's how you sell politics in this country. ..."
Dec 31, 2016 | www.nytimes.com

Chris G said... > And this is telling us something significant: namely, that supply-side economic theory is and always was a sham.

Urgh. That it is and always a sham is irrelevant. It is THE NARRATIVE that matters! They had a compelling story and they stuck to it. That's how you sell politics in this country.

Trump told a significant fraction of the population that he understood their problems and that he would fix them. He told enough people what they wanted to hear - and did so with a convincing tone - that he got himself elected. That's how you win. You sell people on your vision. If you tell a good story most people aren't going to reality-check it. Sad but true.

On the importance of narrative: Drew Westen, "What Happened to Obama?" - http://www.nytimes.com/2011/08/07/opinion/sunday/what-happened-to-obamas-passion.html

[Dec 29, 2016] Krugman was clearly a neoliberal propagandist on payroll. His columns are clearly partisan.

Dec 29, 2016 | economistsview.typepad.com
Peter K. :

All of the Democratic primary voters somehow believed Hillary Clinton would make a better candidate against Trump than Sanders would.

And now we're stuck with Trump for at least 4 years.

Good job.

As Saul Bellow once said, "a great deal of intelligence can be invested in ignorance when the need for illusion is strong". Reply Wednesday, December 28, 2016 at 07:09 PM Peter K. -> Peter K.... , December 28, 2016 at 07:11 PM

Seriously why should we ever believe these neoliberal centrist Democrats again?

Why when they were so very, very wrong!

Krugman ASSURED us Clinton was a great candidate who would easily win.

likbez -> Peter K.... , December 28, 2016 at 10:09 PM
Krugman was clearly a neoliberal propagandist on payroll. He should not be even discussed in this context because his columns were so clearly partisan.

As for "Centrist Democrats" (aka Clinton wing of the party) their power is that you have nowhere to go: they rule the Democratic Party and the two party system guarantees that any third party will be either squashed or assimilated.

In no way they need that you believe them: being nowhere to go is enough.

Remember what happened with Sanders supporters during the convention? They were silenced. And then eliminated. That's how this system works.

Cal -> likbez... , -1
Krugman is a polarizing agent here in RiverCity...to our collective loss IMHO...as you know I don't have the Nobel.
But you might be giving him some hope with that "was"? Clearly he does not need $.

He is writing for our....yes, American, maybe even Global citizenship, which he thinks is in peril. It is. Otherwise I'd be out fishing.

And you? What's in it for you? Are you familiar with the history of political party systems that transition in and out of 2 parties? Is this little forum an example of the 2 party system: pro/con Krugman?

Egmont Kakarot-Handtke : , -1
Americans believe crazy things, yet they are outdone by economists
Comment on Catherine Rampell on 'Americans - especially but not exclusively Trump voters - believe crazy, wrong things'#1

Americans are NOT special. Since more than 5000 years people believe things JUST BECAUSE they are absurd - in accordance with Tertullian's famous dictum "credo quia absurdum".#2

As a matter of principle, almost everybody has the right to his own opinion no matter how stupid, crazy, wrong, or absurd; the only exception are scientists. The ancient Greeks started science with the distinction between doxa (= opinion) and episteme (= knowledge). Scientific knowledge is well-defined by material and formal consistency. Knowledge is established by proof, belief or opinion counts for nothing.

Opinion is the currency in the political sphere, knowledge is the currency is the scientific sphere. It is extremely important to keep both spheres separate. Since the founding fathers, though, economists have not emancipated themselves from politics. They claim to do science but they have never risen above the level of opinion, belief, wish-wash, storytelling, soap box propaganda, and sitcom gossip.

The orthodox majority still believes in these Walrasian hard core absurdities: "HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states." (Weintraub)

To be clear: HC2, HC4, HC5 are NONENTITIES like angels, Spiderman, or the Easter Bunny.

The heterodox minority still believes in these ill-defined Keynesian relationships: "Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment."

Until this day, Walrasians, Keynesians, Marxians, Austrians hold to their provable false beliefs and claim to do science. This is absurdity on stilts but it is swallowed hook, line and sinker by every new generation of economics students. Compared to the representative economist the average political sucker is a genius.

Egmont Kakarot-Handtke

#1 The Washington Post
https://www.washingtonpost.com/news/rampage/wp/2016/12/28/americans-especially-but-not-exclusively-trump-voters-believe-crazy-wrong-things/?utm_term=.3b8eabe9eb3d
#2 Wikipedia
https://en.wikipedia.org/wiki/Credo_quia_absurdum

[Dec 25, 2016] Why Central Bank Models Failed and How to Repair Them

Notable quotes:
"... Popular pre-financial crisis versions of the model excluded banking and finance, taking as given that finance and asset prices were merely a by-product of the real economy. ..."
"... The centre-piece of Paul Romer's scathing attack on these models is on the 'pretence of knowledge' ..."
"... he is critical of the incredible identifying assumptions and 'pretence of knowledge' in both Bayesian estimation and the calibration of parameters in DSGE models. ..."
"... A further symptom of the 'pretence of knowledge' is the assumed 'knowledge' that these parameters are constant over time. A milder critique by Olivier Blanchard (2016) points to a number of failings of DSGE models and recommends greater openness to more eclectic approaches. ..."
"... The equation is based on the assumption of inter-temporal optimising by consumers and that every consumer faces the same linear period-to-period budget constraint, linking income, wealth, and consumption. ..."
"... In the basic form, consumption every period equals permanent non-property income plus permanent property income defined as the real interest rate times the stock of wealth held by consumers at the beginning of each period. Permanent non-property income converts the variable flow of labour and transfer incomes a consumer expects over a lifetime into an amount equally distributed over time. ..."
"... However, consumers actually face idiosyncratic (household-specific) and uninsurable income uncertainty, and uncertainty interacts with credit or liquidity constraints. ..."
"... The 2000 Commodity Futures Modernization Act (CFMA) made derivatives enforceable throughout the US with priority ahead of claims by others (e.g. workers) in bankruptcy. ..."
"... 2004 SEC decision to ease capital requirements on investment banks increased gearing to what turned out to be dangerous levels ..."
"... Similar measures to lower required capital on investment grade PMBS increased leverage at commercial banks. These changes occurred in the political context of pressure to extend credit to poor. ..."
"... The importance of debt was highlighted in the debt-deflation theory of the Great Depression of Fisher (1933). 5 Briefly summarised, his story is that when credit availability expands, it raises spending, debt, and asset prices; irrational exuberance raises prices to vulnerable levels, given leverage; negative shocks can then cause falls in asset prices, increased bad debt, a credit crunch, and a rise in unemployment. ..."
"... In the financial accelerator feedback loops that operated in the US sub-prime crisis, falls in house prices increased bad loans and impaired the ability of banks to extend credit. As a result, household spending and residential investment fell, increasing unemployment and reducing incomes, feeding back further into lower asset prices and credit supply. ..."
"... The transmission mechanism that operated via consumption was poorly represented by the Federal Reserve's FRB-US model and similar models elsewhere. ..."
"... Reminds me of a young poseur at engineering school, who exclaimed during a group study session, "I've got it all jocked out. Now I just need the equations!" ..."
"... I have been aware of that for a few years now, but I doubt that one person in a hundred (or a thousand) knows when they listen to some economist on a news program or a business channel that the person speaking thinks that how much debt people have does not substantively affect their spending. ..."
"... If I used or invented an econ model that left out the "consumer", and modeled it with a "consumption agent object" having a single independent input variable being the Fed zero term, zero risk interest rate, I'd be too embarrassed to admit it. I would probably just very quietly make a career change into one of the softer sciences. Maybe writing fictional romance novels, or some such thing. ..."
"... The worst thing about these types of mea culpas from the mainstream is the cited criticisms from other mainstream economists only. It can only be a valid criticism if it was published in a mainstream journal ..."
"... That 'political pressure' turned out to be the bait and switch for a system that shifted power via debt creation. ..."
"... What we have not yet come to terms with are the implications of David Graeber's anthropological insights: how does debt affect social relationships, alter social norms, and affect relationships among individuals? ..."
"... Debt is a form of power, but by failing to factor this into their equations, the Central Bankers are missing the social, political, and cultural consequences of the profound shifts in 'credit market architecture'. In many respects, this is not about 'money'; it's about power. ..."
"... The Central Bankers' models can include all the parameters they can dream up, but until someone starts thinking more clearly about the role and function of money, and the way that 'different kinds of money' create 'different kinds of social relationships', we are all in a world of hurt. ..."
"... Now, maybe it is just a coincidence, but it is hard for me not to notice that the explosion in consumer credit matches up nicely with the rise in inequality. ..."
"... " .. debt does not make society as a whole poorer: one person's debt is another person's asset. So total wealth is unaffected by the amount of debt out there. This is, strictly speaking true only for the world economy as a whole .. " Paul Krugman "End this Depression Now". ..."
Dec 25, 2016 | www.nakedcapitalism.com
By John Muellbauer, Professor of Economics, Oxford University. Originally published at VoxEU

The failure of the New Keynesian dynamic stochastic general equilibrium models to capture interactions of finance and the real economy has been widely recognised since the Global Crisis. This column argues that the flaws in these models stem from unrealistic micro-foundations for household behaviour and from wrongly assuming that aggregate behaviour mimics a fully informed 'representative agent'. Rather than 'one-size-fits-all' monetary and macroprudential policy, institutional differences between countries imply major differences for monetary policy transmission and policy.

The New Keynesian DSGE models that dominated the macroeconomic profession and central bank thinking for the last two decades were based on several principles.

  1. The first was formal derivation from micro-foundations, assuming optimising behaviour of consumers and firms with rational or 'model-consistent' expectations of future conditions. For such derivation to result in a tractable model, it was assumed that the behaviour of firms and of consumers corresponded to that of a 'representative' firm and a 'representative' consumer. In turn, this entailed the absence of necessarily heterogeneous credit or liquidity constraints. Another important assumption to obtain tractable solutions was that of a stable long-run equilibrium trend path for the economy. If the economy was never far from such a path, the role of uncertainty would necessarily be limited. Popular pre-financial crisis versions of the model excluded banking and finance, taking as given that finance and asset prices were merely a by-product of the real economy.
  2. Second, a competitive economy was assumed but with a number of distortions, including nominal rigidities – sluggish price adjustment – and monopolistic competition. This is what distinguished New Keynesian DSGE models from the general equilibrium real business cycle (RBC) models that preceded them. It extended the range of stochastic shocks that could disturb the economy from the productivity or taste shocks of the RBC model. Finally, while some models calibrated (assumed) values of the parameters, where the parameters were estimated, Bayesian system-wide estimation was used, imposing substantial amounts of prior constraints on parameter values deemed 'reasonable'.

The 'Pretence of Knowledge'

The centre-piece of Paul Romer's scathing attack on these models is on the 'pretence of knowledge' (Romer 2016); echoing Caballero (2010), he is critical of the incredible identifying assumptions and 'pretence of knowledge' in both Bayesian estimation and the calibration of parameters in DSGE models. 1

A further symptom of the 'pretence of knowledge' is the assumed 'knowledge' that these parameters are constant over time. A milder critique by Olivier Blanchard (2016) points to a number of failings of DSGE models and recommends greater openness to more eclectic approaches.

Unrealistic Micro-Foundations

As explained in Muellbauer (2016), an even deeper problem, not seriously addressed by Romer or Blanchard, lies in the unrealistic micro-foundations for the behaviour of households embodied in the 'rational expectations permanent income' model of consumption, an integral component of these DSGE models. Consumption is fundamental to macroeconomics both in DSGE models and in the consumption functions of general equilibrium macro-econometric models such as the Federal Reserve's FRB-US. At the core of representative agent DSGE models is the Euler equation for consumption, popularised in the highly influential paper by Hall (1978). It connects the present with the future, and is essential to the iterative forward solutions of these models. The equation is based on the assumption of inter-temporal optimising by consumers and that every consumer faces the same linear period-to-period budget constraint, linking income, wealth, and consumption. Maximising expected life-time utility subject to the constraint results in the optimality condition that links expected marginal utility in the different periods. Under approximate 'certainty equivalence', this translates into a simple relationship between consumption at time t and planned consumption at t +1 and in periods further into the future.

Under these simplifying assumptions, the rational expectations permanent income consumption function can be derived. In the basic form, consumption every period equals permanent non-property income plus permanent property income defined as the real interest rate times the stock of wealth held by consumers at the beginning of each period. Permanent non-property income converts the variable flow of labour and transfer incomes a consumer expects over a lifetime into an amount equally distributed over time.

However, consumers actually face idiosyncratic (household-specific) and uninsurable income uncertainty, and uncertainty interacts with credit or liquidity constraints. The asymmetric information revolution in economics in the 1970s for which Akerlof, Spence and Stiglitz shared the Nobel prize explains this economic environment. Research by Deaton (1991,1992), 2 several papers by Carroll (1992, 2000, 2001, 2014), Ayigari (1994), and a new generation of heterogeneous agent models (e.g. Kaplan et al. 2016) imply that household horizons then tend to be both heterogeneous and shorter – with 'hand-to-mouth' behaviour even by quite wealthy households, contradicting the textbook permanent income model, and hence DSGE models. A second reason for the failure of these DSGE models is that aggregate behaviour does not follow that of a 'representative agent'. Kaplan et al. (2016) show that, with these better micro-foundations, quite different implications follow for monetary policy than in the New Keynesian DSGE models. A third reason is that structural breaks, as shown by Hendry and Mizon (2014), and radical uncertainty further invalidate DSGE models, illustrated by the failure of the Bank of England's DSGE model both during and after the 2008-9 crisis (Fawcett et al. 2015). The failure of the representative agent Euler equation to fit aggregate data 3 is further empirical evidence against the assumptions underlying the DSGE models, while evidence on financial illiteracy (Lusardi 2016) is a problem for the assumption that all consumers optimise.

The Evolving Credit Market Architecture

Of the structural changes, the evolution and revolution of credit market architecture was the single most important. In the US, credit card ownership and instalment credit spread between the 1960s and the 2000s; the government-sponsored enterprises – Fannie Mae and Freddie Mac – were recast in the 1970s to underwrite mortgages; interest rate ceilings were lifted in the early 1980s; and falling IT costs transformed payment and credit screening systems in the 1980s and 1990s. More revolutionary was the expansion of sub-prime mortgages in the 2000s, driven by rise of private label securitisation backed by credit default obligations (CDOs) and swaps.

The 2000 Commodity Futures Modernization Act (CFMA) made derivatives enforceable throughout the US with priority ahead of claims by others (e.g. workers) in bankruptcy. This permitted derivative enhancements for private label mortgage-backed securities (PMBS) so that they could be sold on as highly rated investment grade securities. A second regulatory change was the deregulation of banks and investment banks. In particular, the 2004 SEC decision to ease capital requirements on investment banks increased gearing to what turned out to be dangerous levels and further boosted PMBS, Duca et al (2016). Similar measures to lower required capital on investment grade PMBS increased leverage at commercial banks. These changes occurred in the political context of pressure to extend credit to poor.

The Importance of Debt

A fourth reason for the failure of the New Keynesian DSGE models, linking closely with the previous, is the omission of debt and household balance sheets more generally, which are crucial for understanding consumption and macroeconomic fluctuations. Some central banks did not abandon their large non-DSGE econometric policy models, but these were also defective in that they too relied on the representative agent permanent income hypothesis which ignored shifts in credit constraints and mistakenly lumped all elements of household balance sheets, debt, liquid assets, illiquid financial assets (including pension assets) and housing wealth into a single net worth measure of wealth. 4 Because housing is a consumption good as well as an asset, consumption responds differently to a rise in housing wealth than to an increase in financial wealth (see Aron et al. 2012). Second, different assets have different degrees of 'spendability'. It is indisputable that cash is more spendable than pension or stock market wealth, the latter being subject to asset price uncertainty and access restrictions or trading costs. This suggests estimating separate marginal propensities to spend out of liquid and illiquid financial assets. Third, the marginal effect of debt on spending is unlikely just to be minus that of either illiquid financial or housing wealth. The reason is that debt is not subject to price uncertainty and it has long-term servicing and default risk implications, with typically highly adverse consequences.

The importance of debt was highlighted in the debt-deflation theory of the Great Depression of Fisher (1933). 5 Briefly summarised, his story is that when credit availability expands, it raises spending, debt, and asset prices; irrational exuberance raises prices to vulnerable levels, given leverage; negative shocks can then cause falls in asset prices, increased bad debt, a credit crunch, and a rise in unemployment.

In the 1980s and early 1990s, boom-busts in Norway, Finland, Sweden, and the UK followed this pattern. In the financial accelerator feedback loops that operated in the US sub-prime crisis, falls in house prices increased bad loans and impaired the ability of banks to extend credit. As a result, household spending and residential investment fell, increasing unemployment and reducing incomes, feeding back further into lower asset prices and credit supply.

The transmission mechanism that operated via consumption was poorly represented by the Federal Reserve's FRB-US model and similar models elsewhere. A more relevant consumption function for modelling the financial accelerator is needed, modifying the permanent income model with shorter time horizons, 6 incorporating important shifts in credit lending conditions, and disaggregating household balance sheets into liquid and illiquid elements, debt and housing wealth.

Implications for Macroeconomic Policy Models

To take into account all the feedbacks, a macroeconomic policy model needs to explain asset prices and the main components of household balance sheets, including debt and liquid assets. This is best done in a system of equations including consumption, in which shifts in credit conditions – which have system-wide consequences, sometimes interacting with other variables such as housing wealth – are extracted as a latent variable. 7 The availability of home equity loans, which varies over time and between countries – hardly available in the US of the 1970s or in contemporary Germany, France or Japan – and the also the variable size of down-payments needed to obtain a mortgage, determine whether increases in house prices increase (US and UK) or reduce (Germany and Japan) aggregate consumer spending. This is one of the findings of research I review in Muellbauer (2016). Another important finding is that a rise in interest rates has different effects on aggregate consumer spending depending on the nature of household balance sheets. Japan and Germany differ radically from the US and the UK, with far higher bank and saving deposits and lower household debt levels so that lower interest rates reduce consumer spending. A crucial implication of these two findings is that monetary policy transmission via the household sector differs radically between countries – it is far more effective in the US and UK, and even counterproductive in Japan (see Muellbauer and Murata 2011).

Such models, building in disaggregated balance sheets and the shifting, interactive role of credit conditions, have many benefits: better interpretations of data on credit growth and asset prices helpful for developing early warning indicators of financial crises; better understandings of long-run trends in saving rates and asset prices; and insights into transmission for monetary and macro-prudential policy. Approximate consistency with good theory following the information economics revolution of the 1970s is better than the exact consistency of the New Keynesian DSGE model with bad theory that makes incredible assumptions about agents' behaviour and the economy. Repairing central bank policy models to make them more relevant and more consistent with the qualitative conclusions of the better micro-foundations outlined above is now an urgent task.

Endnotes

[1] Part of the problem of identification is that the DSGE models throw away long-run information. They do this by removing long-run trends with the Hodrick-Prescott filter, or linear time trends specific to each variable. Identification, which rests on available information, then becomes more difficult, and necessitates 'incredible assumptions'. Often, impulse response functions tracing out the dynamic response of the modelled economy to shocks are highly sensitive to the way the data have been pre-filtered.

[2] This important research was highly praised in Angus Deaton's 2015 Nobel prize citation: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2015/advanced.html

[3] See Campbell and Mankiw (1989, 1990) and for even more powerful evidence from the UK, US and Japan; Muellbauer (2010); and micro-evidence from Shea (1995).

[4] Net worth is defined as liquid assets minus mortgage and non-mortgage debt plus illiquid financial assets plus housing assets, and this assumes that the coefficients are all the same.

[5] In recent years, several empirical contributions have recognised the importance of the mechanisms described by Fisher (1933). Mian and Sufi (2014) have provided extensive micro-economic evidence for the role of credit shifts in the US sub-prime crisis and the constraining effect of high household debt levels. Focusing on macro-data, Turner (2015) has analysed the role of debt internationally with more general mechanisms, as well as in explaining the poor recovery from the global financial crisis. Jorda et al. (2016) have drawn attention to the increasing role of real estate collateral in bank lending in most advanced countries and in financial crises.

[6] The FRB-US model does build in shorter average horizons than text-book permanent income. It also has a commendable flexible treatment of expectations, Brayton et al (1997).

[7] The use of latent variables in macroeconomic modelling has a long vintage. Potential output, and the "natural rate" of unemployment or of interest are often treated as latent variables, for example in the FRB-US model and in Laubach and Williams (2003), and latent variables are often modelled using state space methods. Flexible spline functions can achieve similar estimates. Interaction effects of latent with other variables seem not to have been considered, however. We use the term 'latent interactive variable equation system' (LIVES) to describe the resulting format.

Jim Haygood , December 24, 2016 at 9:08 am

'the omission of debt and household balance sheets more generally'

putting these eclownometric [sic] models at about the same level of technical sophistication as the Newcomen steam engine of 1712, which achieved about one (1) percent thermodynamic efficiency.

'a macroeconomic policy model needs to explain asset prices and household balance sheets. This is best done in a system of equations.'

Yes indeedy. Reminds me of a young poseur at engineering school, who exclaimed during a group study session, "I've got it all jocked out. Now I just need the equations!"

fresno dan , December 24, 2016 at 12:37 pm

Jim Haygood
December 24, 2016 at 9:08 am

' the omission of debt and household balance sheets more generally '

You beat me to it. I have been aware of that for a few years now, but I doubt that one person in a hundred (or a thousand) knows when they listen to some economist on a news program or a business channel that the person speaking thinks that how much debt people have does not substantively affect their spending.

Really, 5 year olds describing how they get toys from Santa have a better grasp of economics than most "economists"

craazyboy , December 24, 2016 at 2:04 pm

If I used or invented an econ model that left out the "consumer", and modeled it with a "consumption agent object" having a single independent input variable being the Fed zero term, zero risk interest rate, I'd be too embarrassed to admit it. I would probably just very quietly make a career change into one of the softer sciences. Maybe writing fictional romance novels, or some such thing.

TiPs , December 24, 2016 at 9:41 am

The worst thing about these types of mea culpas from the mainstream is the cited criticisms from other mainstream economists only. It can only be a valid criticism if it was published in a mainstream journal

readerOfTeaLeaves , December 24, 2016 at 11:14 am

Of the structural changes, the evolution and revolution of credit market architecture was the single most important . In the US, credit card ownership and instalment credit spread between the 1960s and the 2000s; the government-sponsored enterprises – Fannie Mae and Freddie Mac – were recast in the 1970s to underwrite mortgages; interest rate ceilings were lifted in the early 1980s; and falling IT costs transformed payment and credit screening systems in the 1980s and 1990s. More revolutionary was the expansion of sub-prime mortgages in the 2000s, driven by rise of private label securitisation backed by credit default obligations (CDOs) and swaps. The 2000 Commodity Futures Modernization Act (CFMA) made derivatives enforceable throughout the US with priority ahead of claims by others (e.g. workers) in bankruptcy. This permitted derivative enhancements for private label mortgage-backed securities (PMBS) so that they could be sold on as highly rated investment grade securities. A second regulatory change was the deregulation of banks and investment banks . Similar measures to lower required capital on investment grade PMBS increased leverage at commercial banks. These changes occurred in the political context of pressure to extend credit to poor.

That 'political pressure' turned out to be the bait and switch for a system that shifted power via debt creation.

What we have not yet come to terms with are the implications of David Graeber's anthropological insights: how does debt affect social relationships, alter social norms, and affect relationships among individuals?

Debt is a form of power, but by failing to factor this into their equations, the Central Bankers are missing the social, political, and cultural consequences of the profound shifts in 'credit market architecture'. In many respects, this is not about 'money'; it's about power.

After Brexit, Trump, and the emerging upheaval in the EU, it's no longer enough to just 'build better economic models'.

The Central Bankers' models can include all the parameters they can dream up, but until someone starts thinking more clearly about the role and function of money, and the way that 'different kinds of money' create 'different kinds of social relationships', we are all in a world of hurt.

At this point, Central Bankers should also ask themselves what happens - socially, personally - when 'debt' (i.e., financialization) shifts from productivity to predation. That shift accelerated from the 1970s, through the 1990s, into the 2000s.

Allowing anyone to charge interest that is usurious is the modern equivalent of turning a blind eye to slavery.

By enabling outrageous interest, any government hands their hard working taxpayers over to what is essentially unending servitude.

This destroys the political power of any government that engages in such blind stupidity.

Frankly, I'm astonished that it has taken so long for taxpayers to show signs of outrage and revolt.

jsn , December 24, 2016 at 11:45 am

Voters in the U.S. react under radical new action retarding constraints:

  1. IT enhanced agnatology: kick ass propaganda
  2. Suburbanization: deportation of the working class from the collective action friendly urban geography
fresno dan , December 24, 2016 at 12:51 pm

readerOfTeaLeaves

December 24, 2016 at 11:14 am

I think you have come up with a good insight – I very much agree its about power and not money.

Now, maybe it is just a coincidence, but it is hard for me not to notice that the explosion in consumer credit matches up nicely with the rise in inequality.

And one other thing I would point out – it doesn't take usurious interest rates. If squillionaires have access to unlimited, essentially cost free money in which the distributors of money are guaranteed a profit, NO MATTER HOW MUCH THEY HAVE LOST, while the debts on non-squillionaires are collected with fees, penalties, and to the last dime, than it doesn't matter if interest rates are essentially zero.

Who gets bailed out is not due to logic or accounting that says that the banks' losses have to be made whole, but not home owners – that is an ideology called economics .

craazyboy , December 24, 2016 at 2:23 pm

I wouldn't downplay how cool the money part is, however. It's no fun making questionable, dodgy loans unless you can charge fees up front and then sell the risk off to a large crowd of suckers. Hence the importance of securitization and other "insurance" type derivatives. Then, if you run out of willing suckers, you need a place to stuff it all, say pension plans and maybe even privatized social security.

But if they allow this to happen in the real world, shouldn't the models have a piece reflecting this behavior as well? Full circle of course, where the "consumer balance sheet" contains his bad debt investment and savings assets* offsetting his liabilities. Then everyone would be more like a bank?

* we still need to model bubble assets – like real estate and stocks. This sounds like it's starting to get tricky!

José , December 24, 2016 at 12:19 pm

"Another important finding is that a rise in interest rates has different effects on aggregate consumer spending depending on the nature of household balance sheets".

This is a point that Warren Mosler and other MMTers have been making since the 1990s: depending on circumstances, lower interest rates may well have contractionary effects and higher interest rates may stimulate the economy.

The tool of choice to fight recessions and control inflation should thus be fiscal instead of monetary policy.

Again, MMT had the analysis right long before mainstream theory started to admit there might be serious problems with its favorite approaches (without ever giving appropriate credit to MMT, of course!).

Very sad!

craazyboy , December 24, 2016 at 2:50 pm

I think the Samarians knew that 5000 years ago. The Templars certainly knew it 1300 years ago. And most definitely, "modern" European banking knew it 300 years ago.

susan the other , December 24, 2016 at 12:25 pm

of note to me is just how simplistic Keynesian statistics were/are, based on almost fantasy-assumptions. And that was followed by Stiglitz et al's theory of asymmetric information models. And this above does give us a dose of all the different variables involved in accurately analyzing an economy – an economy that exploded with financialization, but nobody could keep up. As was proven in 2008. It shouldn't be this confusing. "Repairing CB policies to make them more relevant is now an urgent task." I think it is urgent enough to nationalize the banks and start over using a sovereign money model.

OpenThePodBayDoorsHAL , December 24, 2016 at 2:10 pm

Let's take an infinitely complex system (the economy) that is widely affected by human emotion, then we'll leave out the mechanism by which money itself is created and distributed and then let's "model" it.
We'll have two fans of Stalin's communist "command and control" economy (Keynes and Harry Dexter White) pretend they could create a stable system based on Ph.Ds divining future economic and trade flows and then "managing" them by price fixing the price of money. We'll set policy based on the national conditions of the country with the global reserve currency despite the fact that 2/3 of that currency is outside that country. And with a system where trade never settles so massive imbalances can persist indefinitely. Then let's put self-interested private institutions in charge of all money creation and distribution .and we'll be sure their system operates in secret and is never audited. When the system blows up we'll have these central overlords step in as uneconomic buyers of assets with no consideration for asset quality or price, with no economic need to ever sell, and with "unlimited" funds with which to buy more such assets. At the end we'll continue to call the system "capitalism" and we'll continue to call the scrip "money" and hope nobody notices.

End the Fed.

Plenue , December 24, 2016 at 5:32 pm

*sigh*

Congress creates the money when it passes budget legislation. The Fed merely enacts their decree.

Sound of the Suburbs , December 24, 2016 at 2:21 pm

Economics has long been known as the dismal science.

The IMF forecast Greek GDP would have recovered by 2015 with austerity.
By 2015 it was down 27% and still falling.

The IMF can attract some of the best economists in the world but a technocrat elite trained in a dismal science aren't up to much.

In 2008 the Queen visited the revered economists of the LSE and said "If these things were so large, how come everyone missed it?"

The FED is full of PhDs from America's finest universities but a technocrat elite trained in a dismal science aren't up to much.

The FED will have been looking at the US money supply, let me show you what they missed:

http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg

Everything is reflected in the money supply.

The money supply is flat in the recession of the early 1990s.

Then it really starts to take off as the dot.com boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan's loose monetary policy.

When M3 gets closer to the vertical, the black swan is coming and you have a credit bubble on your hands (money = debt).

The mainstream are all trained in neoclassical economics which is spectacularly dismal.

Steve Keen sits outside the mainstream and saw the credit bubble forming in 2005, you can see it in the
US money supply (money = debt).

In 2007, Ben Bernanke could see no problems ahead (dismal).

Irving Fisher looked at the debt inflated asset bubble after the 1929 crash when ideas that markets reached stable equilibriums were beyond a joke.

Fisher developed a theory of economic crises called debt-deflation, which attributed the crises to the bursting of a credit bubble.

Hyman Minsky came up with "financial instability hypothesis" in 1974 and Steve Keen carries on with this work today. The theory is there outside the mainstream.

To understand the theory you have to understand money:

" .. debt does not make society as a whole poorer: one person's debt is another person's asset. So total wealth is unaffected by the amount of debt out there. This is, strictly speaking true only for the world economy as a whole .. " Paul Krugman "End this Depression Now".

This is the neoclassical economic view of money and it's totally wrong and will always leave you blind to events like 2008, e.g.

1929 – US (margin lending into US stocks)
1989 – Japan (real estate)
2008 – US (real estate bubble leveraged up with derivatives for global contagion)
2010 – Ireland (real estate)
2012 – Spain (real estate)
2015 – China (margin lending into Chinese stocks)

Norway, Sweden, Canada and Australia have been letting their real estate bubbles inflate because their mainstream economists and Central Bankers don't know what's coming.

Money and debt are opposite sides of the same coin.
If there is no debt there is no money.
Money is created by loans and destroyed by repayments of those loans.

If you want to understand how money really works:

From the BoE:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Advanced:
"Where does money come from" available from Amazon

You need to understand how money works to understand why austerity doesn't work in balance sheet recessions, the cause of the dire prediction from the IMF that I started with.

You can look at the money supply/debt levels (the same thing) to see how well the economy is doing.

The money supply is contracting – the economy will be doing badly and the risk of this turning into debt deflation is high, there is positive feedback tending to make the situation worse. Debt repayments are larger than the new debt being taken out, the overall level of debt is decreasing.

The money supply is stable – this is stagnation, in the ideal world the money supply should be growing at a steady pace.

The money supply is growing steadily – the ideal.

The money supply is growing very rapidly – you've got a credit bubble on your hands and the "black swan" is near. The FED didn't understand money and debt before 2008 so they missed it.

Richard Koo explains:
https://www.youtube.com/watch?v=8YTyJzmiHGk

Mario is still doing austerity now, no wonder those Italian banks are full of NPLs.

It's too late for Norway, Sweden, Canada and Australia's mainstream economists and Central Bankers, but we need to get this dismal neoclassical economics updated before the whole world descends into debt deflation.

It's almost here, there isn't much time.

Chuck another trillion in to keep this sinking ship afloat Central Bankers, we need to get our technocrat elite up to speed.

Sound of the Suburbs , December 24, 2016 at 2:23 pm

In brief:

Just look at the rate of change of the money supply/debt.

When it's rising rapidly you're in trouble as a credit bubble is forming.

A negative gradient is also a bad sign as it means your money supply is contracting, your economy is in trouble and debt deflation could be on its way.

Economists do waffle.

Sound of the Suburbs , December 24, 2016 at 2:50 pm

Now Mrs. Yellen, put that on a Post-It note on your desk and you won't make the same mistake as your predecessor.

Skip Intro , December 24, 2016 at 2:38 pm

I am shocked, shocked I tell you, that a model with 'Equilibrium' right in the name fails to predict crises. They could probably do better just aggregating results from a big multi-player version of The Sims.

Dick Burkhart , December 25, 2016 at 2:26 am

Better models should start from scratch, assuming non-linearity. They could take the Limits-to-Growth system of nonlinear pde's as a starting point, for example, to get a good handle on long range dynamics. Then add detailed submodels for money and debt, for different countries, for trade, for different economic sectors, etc. Use realistic agent based models where standard models are inadequate.

To do all, start by sending all those economics Ph.D.s back to school in other fields where they know how to do modern applied mathematics.

See original post for references

[Dec 21, 2016] Jeb Hensarling and the Allure of Economism

Notable quotes:
"... I always laugh when Newt Gingrich says we need "rational regulation". His crew has as its prime agenda getting rid of any regulation that is actually rational. ..."
"... the greater the information asymmetry, the easier it is to loot. ..."
"... Gramm pushed the next round of stupid deregulation which led to the latest crisis. And it seems Team Trump is about to relive the same mistake. Studying overly simplified models that have historically failed us over and over is the height of stupidity. ..."
Dec 19, 2016 | economistsview.typepad.com
James Kwak:

Jeb Hensarling and the Allure of Economism : The Wall Street Journal has a profile up on Mike Crapo and Jeb Hensarling, the key committee chairs (likely in Crapo's case) who will repeal or rewrite the Dodd-Frank Wall Street Reform and Consumer Protection Act. It's clear that both are planning to roll back or dilute many of the provisions of Dodd-Frank, particularly those that protect consumers from toxic financial products and those that impose restrictions on banks (which, together, make up most of the act).

Hensarling is about as clear a proponent of economism -the belief that the world operates exactly as described in Economics 101 models-as you're likely to find. He majored in economics at Texas A&M, where one of his professors was none other than Phil Gramm. Hensarling described his college exposure to economics this way :

"Even though I had grown up as a Republican, I didn't know why I was a Republican until I studied economics. I suddenly saw how free-market economics provided the maximum good to the maximum number, and I became convinced that if I had an opportunity, I'd like to serve in public office and further the cause of the free market."

This is not a unique story...

Introductory economics, and particularly the competitive market model, can be seductive that way. The models are so simple, logical, and compelling that they seem to unlock a whole new way of seeing the world. And, arguably, they do: there are real insights you can gain from a working understanding of supply and demand curves.

The problem, however, is that the people ... forget that the power of a theory in the abstract bears no relationship to its accuracy in practice. ...

Hensarling, who likes to quote market principles in the abstract, doesn't appear to have moved on much from Economics 101. ... This ritual invocation of markets ignores the fact that there is no way to design a contemporary financial system that even remotely resembles the textbook competitive market: perfect information, no barriers to entry, a large number of suppliers such that no supplier can affect the market price, etc. ...

Regulatory policy that presumes well-functioning markets that don't exist is unlikely to work well in the real world. Actually, Bill Clinton and George W. Bush tried that already, and we got the financial crisis. But to people who believe in economism, theory can never be disproved by experience. Hensarling is "always willing to compromise policies to advance principles," he actually said to the Journal . That's a useful trait in an ideologue. It's frightening in the man who will write the rules for our financial system.

yuan : , December 20, 2016 at 11:17 AM

so...what kind of bubble will cutting onerous government regulations blow this time?
pgl -> yuan... , December 20, 2016 at 11:20 AM
I always laugh when Newt Gingrich says we need "rational regulation". His crew has as its prime agenda getting rid of any regulation that is actually rational.
yuan -> pgl... , December 20, 2016 at 11:24 AM
the greater the information asymmetry, the easier it is to loot.
pgl -> yuan... , December 20, 2016 at 01:25 PM
Exactly right and a key point.
Tom aka Rusty -> pgl... , December 21, 2016 at 08:18 AM
Like the 521 page explanation of the new overtime rules?
mulp -> Tom aka Rusty... , December 21, 2016 at 12:18 PM
That is required to cover all the common law complexities from civil suits on labor issues being legislated from the Federal bench.

Businesses have resorted to getting judges to legislate their way once their lobbying failed to get Congress to legalize slavery by other names.

Labor is a part of econ 101 that businesses do not understand.

Businesses see labor as black holes sucking all the money it can out of the economy. Consumers, on the other hand, are infinite sources of spending as long as government does not require consumers repay debts. But government does need to put more money in consumer pockets with more and bigger tax cuts.

When I learned econ 1 in secondary school social studies, the money spent at businesses came 100% from wages businesses paid.

A more advanced concept was economic profits were bad because that meant monopoly power restricting supply to consumers to take too much of their money and also pay them less than in an efficient economy.

pgl : , December 20, 2016 at 11:18 AM
"Hensarling is about as clear a proponent of economism -- the belief that the world operates exactly as described in Economics 101 models-as you're likely to find. He majored in economics at Texas A&M, where one of his professors was none other than Phil Gramm."

Gramm never really got the economics of financial institutions. Milton Friedman did as he studies their failures during the Great Depression. We sort of relived this during the 1980's S&L crisis but on a smaller scale. That crisis was driven by ill advised financial deregulation.

Gramm pushed the next round of stupid deregulation which led to the latest crisis. And it seems Team Trump is about to relive the same mistake. Studying overly simplified models that have historically failed us over and over is the height of stupidity.

yuan -> pgl... , December 20, 2016 at 11:23 AM
https://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act


"The Gramm–Leach–Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106–102, 113 Stat. 1338, enacted November 12, 1999) is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. With the bipartisan passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. Furthermore, it failed to give to the SEC or any other financial regulatory agency the authority to regulate large investment bank holding companies.[1] The legislation was signed into law by President Bill Clinton.[2]"

Peter K. -> yuan... , December 20, 2016 at 01:24 PM
" The legislation was signed into law by President Bill Clinton."

Who was his adviser? Larry Summers.

pgl calls them "progressive."

Daniel Brockman -> Peter K.... , December 21, 2016 at 11:38 AM
How is it relevant that pgl called (or may have called) Larry Summers and Bill Clinton "progressive"? It's not relevant. Peter K. argues ad hominem.
pgl -> yuan... , December 20, 2016 at 01:29 PM
Some pest who knows nothing decided to slam Lawrence Summers. Here is something he co-authored with Natasha Sarin which relates to this issue:

https://www.brookings.edu/bpea-articles/have-big-banks-gotten-safer/

It is an excellent discussion which you might enjoy. That know nothing will not read it as actual analysis only gets him angry.

yuan -> pgl... , December 20, 2016 at 02:03 PM
a good read but i disagree with their suggested approach:

"Consideration needs to be given to approaches such as those suggested by Bulow and Klemperer (2015) and
King (2016) that give more weight to market prices as indicators of asset values and that bring automaticity to the restoration of bank capital when it starts to decline."

imo, small enough to fail institutions pose less system risk and are less likely to speculate.

pgl -> yuan... , December 20, 2016 at 02:57 PM
I suspect over time we will disagree slightly here and there on specifics but it is a joy to have someone here that gets down to real analysis.

In my view Sarin-Summers took too tiny a step into something fundamental but often overlooked. The return to equity is a mix of the equity/asset ratio (which needs to go up) aka leverage risk and the issue of operational risk which you are hinting at.

I bet Anne will demand more on what I'm saying here. Tiem to think about how best to present this over at Econospeak as this is a really big deal. Even if it is something Trump's new CEA (Lawrence Kudlow) does not get. Neither does PeterK so maybe he can work for Kudlow - the stupidest man alive (almost).

anne -> pgl... , December 20, 2016 at 03:09 PM
The return to equity is a mix of the equity/asset ratio (which needs to go up) aka leverage risk and the issue of operational risk...

[ This is important and needs to be described further when time allows. ]

Sanjait -> yuan... , December 20, 2016 at 09:48 PM
Small enough to fail institutions like ... Bear and Lehman?

Theory aside, in the real life crisis we had risk built up across the entire system, not just big banks, and when a few midsized firms went under it broke the buck and everything went to hell.

Perhaps more importantly though, it was *consumers'* overleveraging that caused the prolonged depression. The big banks participated in that but didn't have central roles.

mulp -> pgl... , December 21, 2016 at 12:34 PM
"Milton Friedman did as he studies their failures during the Great Depression."

So, how is it that he promised money market funds would ever be at risk of insolvency and need Fed bailout of credit, and that money market funds would never face bank runs because no one would ever question their safety and solvency?

How is it that he failed to predict Primary Reserve breaking the buck and triggering bank runs on the shadow banks?

I remember the debate over Regulation Q and retail money market funds. I agreed with the big government liberals that it was going to end badly. That it took 37 years is not a surprise to me, but October 2008 was no surprise at all to me. It was forecast by my kind of economists in 1970 based on what happened multiple times before 1935 when sane bankers and economists developed the bank regulation that produced half a century of no bank crisis.

Friedman, on the other hand, argued for deregulation that delivered bank crisis in the late 80s, the 90s multiple times deftly handled by bailouts by both government and by forcing Wall Street banks to do Morgan bailouts, eg LTCM, and the IMF, and then yet again, the bank crisis of the 00s.

Three decades of bank crisis in four decades is hardly evidence Friedman understood banking.

Paul Mathis : , December 20, 2016 at 12:45 PM
For Free Market Ideologues the Great Depression Never Happened

Simple question for Jeb H: Why was there a Great Depression when we had budget surpluses every year during the 1920s?

How could the Free Market have failed so completely from 1929 to 1933? We had gold money and regulations were minimal. It was the ideal context for the Free Market and yet the Dow lost 90% of its value. Why has the Dow nearly tripled in value now with Dodd-Frank in force?

DeDude -> Paul Mathis... , December 20, 2016 at 02:13 PM
Those are the inconvenient facts and questions that are willfully ignored in order to avoid uncomfortable shaking of simple narratives.
yuan -> Paul Mathis... , December 20, 2016 at 02:14 PM
but banks have under-performed relative to the market as a whole. now that government sachs controls the executive branch this may very well change!
Paul Mathis -> yuan... , December 20, 2016 at 02:23 PM
Banks Underperformed Because Rates Were Low

Now that the Fed is raising rates, banks stocks are leading the stock market rally.

pgl -> Paul Mathis... , December 20, 2016 at 02:59 PM
I'm with yuan on this one. But this is a long story. For today - let me applaud you and yuan for bringing something new and needed here. Debates over actual economic analysis.
pgl -> Paul Mathis... , December 20, 2016 at 03:01 PM
I have particularly hard on pathetic BofA so I checked:

https://finance.yahoo.com/quote/BAC?ltr=1

You have a point on the stock prices as even this welfare queen is finally doing well in the market place.

yuan -> Paul Mathis... , December 20, 2016 at 03:02 PM
"Now that the Fed is raising rates, banks stocks are leading the stock market rally."


i expect profit-generating financial innovation.

pgl : , December 20, 2016 at 02:53 PM
Not financial regulation but a key issue - Paul Ryan's desire to lie to us on repealing Obamacare has taken a major hit from the CBO:

https://www.cbo.gov/publication/52351

Shorter CBO - we are onto your lies Mr. Speaker.

Chris G : , December 20, 2016 at 04:36 PM
Lord save from True Believers like Hensarling.
Larry : , December 20, 2016 at 06:12 PM
We got a lot more than the financial crisis from r lying on markets more than government. Yes, regs are necessary (externalities, monopolies, etc) but "the more the merrrier" is not the underlying principle. Read that D/F has > 20k "rules" with >300 "major" rules yet to be written after 6 years of work. The world changes way faster than government can. Regulators need to find much simpler, more general approaches ("less leverage") if they're going to continue to add value.
jcb : , December 20, 2016 at 08:12 PM
This is a problem of the teaching of contemporary economics, not of Jed Hensarling. Economists tout simplified classical models as fundamentally correct, teach them in freshman Economics 101, and only admit that they don't approximate reality in Econ 401, for seniors. But most students never take another econ course after 101. The damage is done. Not surprisingly, most young Republicans discover that economic reality is...Free Market and Republican!

Think maybe it's time to show them that the classical model doesn't really work when they are freshmen, and not complain after they're already in Congress.

100panthers : , December 20, 2016 at 09:01 PM
Agency's '04 Rule Let Banks Pile Up New Debt
It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.

With that, the five big independent investment firms were unleashed.

In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms' own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.

At Bear Stearns, the leverage ratio - a measurement of how much the firm was borrowing compared to its total assets - rose sharply, to 33 to 1.

http://mobile.nytimes.com/2008/10/03/business/03sec.html

100panthers : , December 20, 2016 at 09:03 PM
Do some economists live in Post-truth (errr...Post-eco-history) and not read economic history?
reason : , December 21, 2016 at 12:10 AM
Ah, Texas the home of fundamentalism. Texas basically lives by sticking a big straw in the ground and selling what comes out. That is great until it (as it will) stops working. Texas is a caricature of all that is wrong with mankind.
reason -> reason ... , December 21, 2016 at 12:11 AM
(P.S. I'm not just talking about oil and gas, but also water.)
reason -> reason ... , -1
Another way to look at Texas is as the Saudi Arabia of North America. All that is missing is a King. The rest of the USA should get together and give it back to Mexico. Both countries would be better off.

[Dec 19, 2016] Keynes Betrayed

Notable quotes:
"... The New Keynesian agenda is the child of the neoclassical synthesis and, like the IS-LM model before it, New Keynesian economics inherits the mistakes of the bastard Keynesians. It misses two key Keynesian concepts: (1) there are multiple equilibrium unemployment rates and (2) beliefs are fundamental. My work brings these concepts back to center stage and integrates the Keynes of the General Theory with the microeconomics of general equilibrium theory in a new way. " ..."
Dec 19, 2016 | economistsview.typepad.com

RGC : December 18, 2016 at 10:13 AM , 2016 at 10:13 AM

Keynes Betrayed
December 18, 2016

" To complete the reconciliation of Keynesian economics with general equilibrium theory, Paul Samuelson introduced the neoclassical synthesis in 1955...

... In this view of the world, high unemployment is a temporary phenomenon caused by the slow adjustment of money wages and money prices. In Samuelson's vision, the economy is Keynesian in the short run, when some wages and prices are sticky. It is classical in the long run when all wages and prices have had time to adjust....

... Although Samuelson's neoclassical synthesis was tidy, it did not have much to do with the vision of the General Theory...

... In Keynes' vision, there is no tendency for the economy to self-correct. Left to itself, a market economy may never recover from a depression and the unemployment rate may remain too high forever. In contrast, in Samuelson's neoclassical synthesis, unemployment causes money wages and prices to fall. As the money wage and the money price fall, aggregate demand rises and full employment is restored, even if government takes no corrective action. By slipping wage and price adjustment into his theory, Samuelson reintroduced classical ideas by the back door-a sleight of hand that did not go unnoticed by Keynes' contemporaries in Cambridge, England. Famously, Joan Robinson referred to Samuelson's approach as 'bastard Keynesianism.'

The New Keynesian agenda is the child of the neoclassical synthesis and, like the IS-LM model before it, New Keynesian economics inherits the mistakes of the bastard Keynesians. It misses two key Keynesian concepts: (1) there are multiple equilibrium unemployment rates and (2) beliefs are fundamental. My work brings these concepts back to center stage and integrates the Keynes of the General Theory with the microeconomics of general equilibrium theory in a new way. "

Prosperity for All: Pages 25-26

http://www.rogerfarmer.com/rogerfarmerblog/2016/12/17/keynes-betrayed

[PK supports the neoclassical synthesis]

RGC -> anne... , December 18, 2016 at 10:13 AM
You could meanwhile contemplate Farmer's point that Samuelson and his MIT colleagues "bastardized" Keynes' views when they introduced them to the US.

" By slipping wage and price adjustment into his theory, Samuelson reintroduced classical ideas by the back door-a sleight of hand that did not go unnoticed by Keynes' contemporaries in Cambridge, England. Famously, Joan Robinson referred to Samuelson's approach as 'bastard Keynesianism."

RGC -> RGC... , December 18, 2016 at 10:38 AM
And then you might contemplate Samuelson's (and MIT colleagues) influence on Krugman, Blanchard, Summers and all the well-publicized mainstream economists.
anne -> RGC... , December 18, 2016 at 10:47 AM
By slipping wage and price adjustment into his theory, Samuelson reintroduced classical ideas by the back door-a sleight of hand that did not go unnoticed by Keynes' contemporaries in Cambridge, England. Famously, Joan Robinson referred to Samuelson's approach as 'bastard Keynesianism'.

-- Roger Farmer

[ A fine place to start thinking. I knew this before and read this again today, but did not think about the argument.

I am grateful for the persistence. ]

RGC -> anne... , December 18, 2016 at 11:40 AM
You might also wonder how it could happen that those "bastard Keynesians", the ones who distorted Keynes' message, came to be the ones who are well publicized, rather than more accurate interpreters.
anne -> RGC... , December 18, 2016 at 10:52 AM
http://mrzine.monthlyreview.org/2009/foster170309p.html

2009

Keynes, Capitalism, and the Crisis
Brian Ashley interviewing John Bellamy Foster

[ I will start here. ]

RGC -> anne... , December 18, 2016 at 12:20 PM
I think that is a good discussion. I also think the major weakness of both Keynes and Marx is that they underestimated the power and resilience of finance. They both thought logic dictated the "euthanasia of the rentier", while we are seeing the rentier growing ever stronger.

anne -> RGC... , December 18, 2016 at 12:31 PM
I also think the major weakness of both Keynes and Marx is that they underestimated the power and resilience of finance....

[ Really interesting comment, and directly related to a problem I am just now working through and which I can present.

Nice, nice. ]

anne -> RGC... , -1
Good grief. There we have a review from the links of Mark Thoma, while I had no idea till now:

http://www.enlightenmenteconomics.com/blog/index.php/2016/12/rescuing-macroeconomics/

December 17, 2016

Rescuing macroeconomics?

It's always with great diffidence that I write about macroeconomics. Although I'm in good company in being sceptical about much of macro (see this roundup from Bruegel and this view from Noah Smith, for instance), I'm all too well aware of the limits of my knowledge. So with that warning, here's what I made of Roger Farmer's very interesting new book, Prosperity for All: How To Prevent Financial Crises....

-- Diane Coyle

[Dec 18, 2016] The Econocracy An Interview with Cahal Mora naked capitalism

Notable quotes:
"... Cahal Moran is a member of Rethinking Economics, the worldwide student movement to reform the teaching of economics. He is the co-author, with Joe Earle and Zach Ward-Perkins of the book ..."
"... The Econocracy: The Perils of Leaving Economics to the Experts ..."
"... the authors can be followed on their Twitter account ..."
"... @TheEconocracy ..."
"... . Interview conducted by Philip Pilkington, a macroeconomist working in asset management and author of the new book ..."
"... The Reformation in Economics: A Deconstruction and Reconstruction of Economic Theory ..."
"... . The views expressed in this interview are not those of his employer. ..."
"... In the book we give a formal definition of econocracy as "a society in which political goals are defined in terms of their effect on the economy, which is believed to be a distinct system with its own logic that requires experts to manage it. " ..."
"... Economists are wheeled out to comment on all sorts of public policy issues: in the news, on the TV, online and so forth. The deference to economic expertise is something that permeates our politics and, through the use of jargon, maths and statistics, serves to exclude non-expert citizens from conversations about issues that often have a direct impact on their lives. As you imply, it is something like an ancient priesthood. In fact, in an earlier draft of the book we made a comparison to ancient medical texts, which were only written in Latin and so created a huge asymmetry between experts and non-experts, which could have awful consequences for the latter. In some senses economics in modern times goes even further than this, because it affects policy on everything from incomes and jobs to healthcare and the environment. ..."
"... I suppose that leads us pretty tidily to the title of the second chapter of your book: 'Economics as Indoctrination'. Given that you have this view of economic language – one which I concur with in that I have concluded that maybe 60-80% of formal economic language is ideology – it pretty naturally follows that there will be some attempt to indoctrinate those who wish to speak the language. I guess the natural place to start is to ask you for a flavour of what this indoctrination looks like and then maybe we will move on to what its purposes are and what ends it serves. ..."
"... We call economics education indoctrination in the book not just because students are presented with only one set of ideas – neoclassical economics – but because they are taught to accept it in an uncritical manner, as if it is all there is to economics. ..."
"... Keynes said that the real challenge lies in escaping old ways of thinking, and this is something we've all noticed in ourselves after studying economics. ..."
"... This process is indeed the main way that the econocracy reproduces itself: as the economic experts of the present train the economic experts of the future, this shapes the way the latter approach economic problems when they go on to work at powerful institutions. Broadly speaking, this education shapes the perception of economic experts in two ways. Firstly, they tend to have mechanical view of the world, thinking of economic and social problems as clearly defined technical questions. This allows them to produce clear predictions when addressing even complex political issues. Secondly, they see economics as a separate, value-free sphere which does not require ethical and political debate. Their answers to policy questions have the air of objectivity about them. ..."
"... Economists predict disaster where none occurs. They deny the possibility of events that then happen. They oppose the most basic, decent, and sensible reforms, while offering placebos instead. They are always surprised when something untoward (like a recession) actually occurs. And when finally they sense that some position cannot be sustained, they do not re-examine their ideas. Instead, they simply change the subject. ..."
"... Making central banks independent from the political process, staffing them with economists and tasking them with using interest rates to manage inflation and growth, along with a fairly hands-off approach to the financial sector (which itself used economic models such as Black-Scholes) seemed to be working. That was, until the theoretical blind spots economists had in the housing market and financial sector was revealed by the near-collapse of both of them. ..."
"... I suppose this is a variant on the classic 'who governs the governors': who teaches the teachers. ..."
"... substantive ..."
"... If economics is to function as the medium of power than its students must be made to follow blindly. Critical thinking would allow them to undermine it or manipulate it to their own ends. ..."
"... The students must be made into strict adherents before being granted access to the highest levels of information. By erecting barriers at each level (be it specialized language that must be mastered or learning contigent on prior learning) we can separate the weak from the true adherents. ..."
"... Following Adler, economics is not a science, it's a philosophy. At least economics doesn't burn its heretics, it just ignores them. Science is neither immune. Gerald Pollack has written that he was advised to avoid water as a subject of inquiry, or it could kill his career. ..."
"... File under "the creative class" writers à la Toynbee ..."
"... When you think about it economics doesn't really exist. Society does. And when economics is talked about like society doesn't exist it gets pointless. Just like some stupid software language that does basically nothing. What we need is the courage of our human convictions. I think it was Blyth in an early clip who said more or less, "Just do it." Deficit spend as necessary and the solutions will appear. That's very Zen and I love it. I mean, here's the question, What is the worst that can happen? If there is sufficient money. Great interviewer and interviewee. Thanks NC for this post. ..."
"... "Economics doesn't really exist, society does": a super obvious statement that stands in starkest distinction to NeoLib ideology that insists we are all atomistic, isolated individuals. Math and language are epiphenomena to human being that have perverted our self perception nearly to oblivion. ..."
"... Interesting thing I heard the other day, Professor Richard Wolff says he studied economics at three elite universities (Yale, Harvard, and another notable I cannot remember) and never had a course in Karl Marx. Tunnel vision for sure in the field. ..."
"... Answer to question no 2: The jargon that is being used these days by presidents, economists, talk show hosts is beyond my understanding. I have a masters degree. ..."
"... An argot (English pronunciation: /ˈɑːrɡoʊ/; from French argot [aʁˈɡo] 'slang') is a secret language used by various groups-e.g., schoolmates, outlaws, colleagues, among many others-to prevent outsiders from understanding their conversations. The term argot is also used to refer to the informal specialized vocabulary from a particular field of study, occupation, or hobby, in which sense it overlaps with jargon. ..."
"... Is the economics profession simply following the "He who has the gold, makes the rules"? Many other professions service retail customers, such as attorneys and doctors. But how many ordinary citizens ever deal with an economist on any level? ..."
"... If paycheck dependent economists know that powerful politicians, wealthy corporate leaders and wealthy donors in academia are looking over their shoulders, one could expect economists' message to be justify what their "employers" want to do. ..."
"... "Keen was formerly an associate professor of economics at University of Western Sydney, until he applied for voluntary redundancy in 2013, due to the closure of the economics program at the university. ..."
"... You will eat, by and by, when you learn how to bake and how to fry. Chop some wood, It'll do ya good. And you'll eat in that sweet by and by. ..."
"... This interview articulates an extremely important insight when it states that the economy " is believed to be a distinct system with its own logic that requires experts to manage it." ..."
"... This seeming independence of the economic and political systems has largely deceived most of modern social science. This seeming independence is not real, and in fact these spheres are deeply intertwined. ..."
"... As people llike Karl Polyani and Philip Mirowski have maintained, markets are always organized through politics and institutions and one key to understanding this reality is to keep a focus on the promulgation of the rules and regulations of a powerful state that helps to create movements for both regulation and deregulation. ..."
"... It was notable that Cathal failed to mention Marx. I don't think he realizes yet quite how fully indoctrinated he's been – as that humdinger of an analogy (gay marriage – actually a redefinition to normalize surrogacy, a eugenics-by-stealth agenda, hence it's enormous funding by the plutocracy) indicates. The economic can never be separated from the socio-political. ..."
"... Mirowski describes how the "Neoliberal Economic thought collective" captured and now dominates economic doctrine by controlling what and who can publish in the major economic journals. As a result those aspects of Neoclassical Economics remaining are being re-shaped into a Neoliberal mold. I noticed the word "neoliberal" doesn't show up anywhere in this post yet Neoliberal economic policies and rationales dominate policy in the real world. ..."
"... Mirowski points out that Neoliberal economics designs policy to apply market models to every problem based on the doctrine that markets are the most powerful information processing system available to man - a strong form of the Efficient Markets Hypothesis. The Market is the ultimate epistemological device. If the market solution doesn't satisfy the needs of the common man then satisfying those needs is simply contrary to the wisdom of the market. For other problems like externalities they just need to be properly incorporated into the market model to obtain an optimal solution to whatever problem they present. ..."
"... . Putting fins and flashy hubcaps on Neoclassical economics as it morphs into Neoliberal economics is not the answer. ..."
"... The role of Economics is simple: it should inform people of the consequences of certain decisions we make about who gets what. ..."
"... You are right, that is what it should be, unfortunately neoclassical has failed horribly in that regard. It is based on assumptions that are demonstrably false and they are never revisited to see the effect of relaxing them. You might as well be counting angels on a pin. See Roamer's take down of it for starters. ..."
Dec 18, 2016 | www.nakedcapitalism.com
Posted on December 17, 2016 by Yves Smith Cahal Moran is a member of Rethinking Economics, the worldwide student movement to reform the teaching of economics. He is the co-author, with Joe Earle and Zach Ward-Perkins of the book The Econocracy: The Perils of Leaving Economics to the Experts the authors can be followed on their Twitter account @TheEconocracy . Interview conducted by Philip Pilkington, a macroeconomist working in asset management and author of the new book The Reformation in Economics: A Deconstruction and Reconstruction of Economic Theory . The views expressed in this interview are not those of his employer.

PP: Your book starts with a quote from Albert Camus that is, in some ways, rather pessimistic. In it he says that most generations seek to reform the world but that his generation only sought to ensure that the world does not destroy itself. You and I are both of the same generation broadly speaking and I do not think it unfair that our generation is subject to some abuse and often portrayed as narcissistic, video-game obsessed, layabouts. I have always felt that the 'problem generation' are, in fact, the Baby Boomers who tag us with these clichés. It is this generation that rules the world today and this generation that gave birth to The Econocracy. Before we get too much into what The Econocracy is and how it operates, maybe you could briefly talk about this generational issue. Is it something that you have given much thought to and do you identify more so with Camus' generation?

CM: We do not focus on the generational issue too much, but it is really at the heart of the book and of the student movement more generally. Unlike the boomers, we have grown up in a world of economic and political uncertainty, with the financial crisis being the most extreme example of this (yet). The disconnect between this uncertainty and at times chaos and what we saw in the classroom really sowed the seeds for societies like Post-Crash Economics. If the boom had simply continued, perhaps we would have just shrugged our shoulders and got on with it. But we could not ignore what was going on outside the lecture theatre. In this sense, Camus' feeling of a call of duty resonated with us and that's why we chose that quote. However, we try to use this initial pessimism to build a positive vision later on.

PP: Yeah, I know the feeling. It was very hard for me to not think that something was really, really wrong with economics as I took undergraduate classes against the backdrop of the 2007-08 crisis. For me there was a lot of cognitive dissonance. I found it really weird because it seemed to me pretty obvious that economics was the language of power – the language through which our leaders communicated their plans and goals to the rest of us. But what I was learning in class did not seem up to this in any way, shape or form. I think that this is a theme in your book too. Could you explain what you mean by 'The Econocracy' and how it functions?

CM: In the book we give a formal definition of econocracy as "a society in which political goals are defined in terms of their effect on the economy, which is believed to be a distinct system with its own logic that requires experts to manage it. " In other words, the idea of 'the economy' as a separate sphere of life is dominant in politics, and this separate sphere has technical properties which can only be understood through economic expertise. The results are twofold. First, public debates about the economy are conducted in a language that most people simply do not speak – we've tried to look at this this through undertaking polling with Yougov and one of the things we found is that only 12% of respondents said they thought politicians and the media talk about economics in an accessible language.

Second, many key areas of decision making – central banks, international institutions like the IMF & World Bank, competition authorities – are delegated to people with economic expertise on the grounds that they can find what is in some sense a technically 'right' answer to economic problems in their respective domains. The rise of this idea of the economy is reflected in the increase in mentions of 'the economy' in the winning UK political party's manifestos: it was only mentioned once, for the first time, by the Conservatives in 1950, but 5 years later this rose to 10 and in the most recent Conservative party manifesto 'the economy' was mentioned 59 times.

PP: I'm getting the sense that this goes beyond a simple criticism of technocracy and bureaucracy, right? I mean a lot of aspects of society are run based on expertise of some sort or another. But you seem to be getting at something else. Is this related to the fact that, like the Scholastics of the Middle Ages, they have concocted an elite language?

CM: That's absolutely right. One could probably write a book critiquing the technocratic and bureaucratic tendencies of say, lawyers or accountants, but where economics goes one step further is the place it has in public debate. Economists are wheeled out to comment on all sorts of public policy issues: in the news, on the TV, online and so forth. The deference to economic expertise is something that permeates our politics and, through the use of jargon, maths and statistics, serves to exclude non-expert citizens from conversations about issues that often have a direct impact on their lives. As you imply, it is something like an ancient priesthood. In fact, in an earlier draft of the book we made a comparison to ancient medical texts, which were only written in Latin and so created a huge asymmetry between experts and non-experts, which could have awful consequences for the latter. In some senses economics in modern times goes even further than this, because it affects policy on everything from incomes and jobs to healthcare and the environment.

PP: Yes. I've also long thought this. My book is actually about trying to figure out what is pure ideology and mysticism and what is not within the jargon. I suppose that leads us pretty tidily to the title of the second chapter of your book: 'Economics as Indoctrination'. Given that you have this view of economic language – one which I concur with in that I have concluded that maybe 60-80% of formal economic language is ideology – it pretty naturally follows that there will be some attempt to indoctrinate those who wish to speak the language. I guess the natural place to start is to ask you for a flavour of what this indoctrination looks like and then maybe we will move on to what its purposes are and what ends it serves.

CM: It sounds like there's some crossover between our books, and this is something I've noticed with people across the movement. It's great that so many people are independently coming to similar ideas and, I think, a sign that we may just have a point.

We call economics education indoctrination in the book not just because students are presented with only one set of ideas – neoclassical economics – but because they are taught to accept it in an uncritical manner, as if it is all there is to economics. The idea that there might be criticisms of neoclassical economics, other schools of thought, and even the real world are evicted to such an extent that after a while students may find it difficult to think any other way. Keynes said that the real challenge lies in escaping old ways of thinking, and this is something we've all noticed in ourselves after studying economics.

PP: I'd tend to agree. But what I found very interesting about the book was that you looked at how economics education is structured. You paint the picture of a very odd discipline that does not appear to be taught like other disciplines, whether natural or social science. Do you think that there is something distinctly different in this regard and could you describe it briefly?

CM: Economics is definitely a law unto itself. In natural sciences, the culture is very much focused on the empirics: theory has empirical motivations, and you always come back to falsifiable predictions before too long. In other social sciences, the culture is instead focused on debate and the contested nature of knowledge. You learn not to take any of your beliefs for granted. But entering an economics degree feels a bit like being transported to another universe. Students are introduced to a fixed body of knowledge that is presented as if – in the words of one student – it "fell from heaven in an ever-true form". The focus is very much on learning this body of knowledge by rote, building up the neoclassical world from abstract axioms and solving mathematical problems with at best vague and stylised references to the real world they are supposed to represent. The commonly used phrase 'thinking like an economist' really captures the effort to indoctrinate students into this framework.

We did a curriculum review of the final exams and course outlines of 174 modules at 7 Russell Group universities (considered the 'elite' of the UK) to look systematically into how economics students are educated. Our main aim was to look for evidence of critical thinking, pluralism and real world application, all of which we would consider vital to educating the experts of the future. The results were deeply worrying: 76% of final exam questions showed no evidence of critical thinking – that is, formulating an independent, reasoned argument. When only compulsory modules (namely micro and macroeconomics) were included, this figure increased to a staggering 92%. Instead, the majority of marks are given for what we call 'operate a model' questions: working through a model mathematically without asking questions about its applicability. Of those questions which ask students to operate a model, only 3% even attempted a link to the real world. The remainder of the marks were given for simple description questions ('what is the Friedman k% rule?') or multiple choice questions, again neither of which require any critical thinking. All of this is very worrying when you consider the place economic expertise has in society.

PP: It is really very concerning. Although I would imagine that anyone who has actually taken an economics class – as many of the educated public have at some time or other – will not be surprised at what you have found. If you are correct then it seems to logically follow that the experts of the future are being trained to think in a highly abstract manner but that these abstractions need no link to the real world as it exists. What is more, if they are only being given one perspective and are told that this perspective is as true and infallible as the most rigorous of the sciences you are going to get a very high level of confidence in these abstractions by these experts. Have you thought about what this means when these people flow into the elite institutions that control important aspects of our societies? How do you think that it informs and shapes their judgements and what implications do you think this has for the rest of us?

CM: This process is indeed the main way that the econocracy reproduces itself: as the economic experts of the present train the economic experts of the future, this shapes the way the latter approach economic problems when they go on to work at powerful institutions. Broadly speaking, this education shapes the perception of economic experts in two ways. Firstly, they tend to have mechanical view of the world, thinking of economic and social problems as clearly defined technical questions. This allows them to produce clear predictions when addressing even complex political issues. Secondly, they see economics as a separate, value-free sphere which does not require ethical and political debate. Their answers to policy questions have the air of objectivity about them.

To make things more concrete consider cost-benefit analysis, an idea with its roots in economics that's used extensively by major institutions like the Government Economic Service in the UK. This calculates the 'costs' and 'benefits' of different policies by assigning a monetary value to each of them, then provides a clear decision rule: if the benefits outweigh the costs, the policy is a good one. Cost-benefit analysis is used even when the effects of a policy are not obviously monetary, such as the number of trees in an area, or mortality rates, transforming what was a multifaceted problem into a simple, seemingly objective mathematical problem. The result of this is that decisions which could concern a large range of stakeholders are made in a centralised manner behind closed doors, often without the consultation of these stakeholders (except in order to retrieve money values from them, which raises problems in itself).

PP: Right. I see what you mean. So this goes far beyond, say, the blindnesses in the theories that led to, say, economists largely missing the crisis and thinking, to quote Blanchard, that the "state of macro was good" even in the face of such problems. Have you given any consideration to these facts in the book? James Galbraith has a great quote where he says that:

Economists predict disaster where none occurs. They deny the possibility of events that then happen. They oppose the most basic, decent, and sensible reforms, while offering placebos instead. They are always surprised when something untoward (like a recession) actually occurs. And when finally they sense that some position cannot be sustained, they do not re-examine their ideas. Instead, they simply change the subject.

That seems to be another angle by which you might criticise the profession: namely, that they're not actually very good at what they claim to be specialists in. Do you and your co-authors have anything to say about that?

CM: Exactly – economics permeates our political process, from seemingly small examples like cost-benefit analysis to catastrophic events such as the financial crisis. We open the book with the former but later on we move on to several case studies of the latter, including the financial crisis but also broadening our argument to other areas where we think neoclassical economics falls short, like the environment and inequality. The kind of hubris illustrated by economists like Blanchard – as well as Robert Lucas when he claimed "the central problem of depression prevention had been solved" in 2003 – seems quite remarkable to us now, but economists really had convinced themselves that they'd found a simple, technical solution to the business cycle. Making central banks independent from the political process, staffing them with economists and tasking them with using interest rates to manage inflation and growth, along with a fairly hands-off approach to the financial sector (which itself used economic models such as Black-Scholes) seemed to be working. That was, until the theoretical blind spots economists had in the housing market and financial sector was revealed by the near-collapse of both of them.

Quite clearly, the profession has yet to find definitive answers to major economic questions like 'what causes financial crises?' This is completely understandable in itself, as these are difficult questions. But the fact that the profession also has the capacity to convince not only itself but policymakers and politicians that it has solved these problems, and therefore that its ideas should guide public policy, is extremely worrying when it can have such terrible consequences for so many people. And it is worth mentioning those non-neoclassical economists – like Hyman Minsky, Wynne Godley, and Steve Keen – who put the financial sector front and centre of their analysis and made sometimes prescient warnings about crises like the one we've just experienced. Given these examples, it actually puzzles and saddens me that the profession is not willing to accept more intellectual diversity. Galbraith's quote touches on this intellectual inertia, and one of the things we discuss in the book is macroeconomists' attempts to reassert themselves since the financial crisis, some of which have involved some impressive mental gymnastics. One example is Tom Sargent denying altogether that macroeconomists failed to foresee the crisis, which is ironic because he wrote a paper just before the crisis arguing that investors weren't taking enough risk due to their memories of the Great Depression. This kind of retrospective rewriting of history has to be fought if economics is not to slip back into old habits.

PP: The mental contortions are absolutely fascinating. I've noticed three key trends in the profession since the crisis. The first is to talk more about a phenomenon that mainstream economists call 'rational bubbles'. I mean RATIONAL bubbles. That is manifestly a doublethink word, not unlike Orwell's blackwhite. The second is to add Bayesian agents into economics models and saying that this will ensure that these models are robust in future (an absurd claim given the backward-looking nature of Bayesian agents). Bayesian agents, of course, update their beliefs in line with past events - not a bad allegory for the how the modellers see themselves! The final, and most pronounced, is to try to sweep under the carpet the fact that the Efficient Markets Hypothesis makes falsifiable (and falsified!) claims that markets integrate all relevant information and instead try to draw attention to the fact that it also states that no one can beat the markets. The idea seems to be to maintain the theory by saying that it doesn't say what it in fact says and drawing attention to a secondary prediction that it makes. What do you make of this sorry, but I have to say it dishonesty? And do you think that the next generation are by and large swallowing it?

CM: I think the issue is that many economists are stuck in their ways. It's clear these economists have been doing economics a certain way, using a certain framework, for their entire lives, so it's perhaps unsurprising that they can't think any other way. Max Planck said that science advances one funeral at a time, but the especially worrying thing given the research we've done for the book is that the next generation of economic experts are being trained to think in the exact same way. In fact, evidence we present suggests that economics education has actually become more, not less narrow over the past few decades, so if things don't change the situation could get even worse in the future. And as I mentioned earlier, that's nothing against economics students themselves – they have exams to pass, and aren't really given much opportunity to read around and question what they're taught.

The positive thing is that we are seeing these student groups spring up across the world who are all recognising the limitations of their education: the lack of pluralism, critical thinking and empiricism come up again and again in students' complaints. What's more is that we have support from big institutions like the Bank of England, Trade Union Congress and Government Economic Service, who have voiced similar concerns. If you look at things like the movement for gay marriage in the United States, it's clear the politicians were the last to change – when every other sector of civil society had been convinced and they had no choice. Perhaps if change comes to economics, academia will be the last to change – when everyone else demands it.

PP: But surely this is somewhat different from a political issue like gay marriage. Political issues have to do with changing peoples' opinions on some matter or other. That just means putting forward a persuasive argument and then waiting for it to get accepted. What we are dealing with seems like something rather different. Sure, you could convince many that some change needs to come about in the way economics is taught. But that does not produce the means by which to teach it. I think that we saw what happens there with Wendy Carlin's CORE program (an INET-funded attempt at curriculum reform). This was the economists' response to demands for a more integrated and pluralistic course but I saw it - and I think the student movement saw it - as more of the same. Yet I have no doubt that Carlin really did her best to put together something that she thought would address the concerns being raised. The problem is that Carlin et al cannot actually put together something that meets the concerns. I suppose this is a variant on the classic 'who governs the governors': who teaches the teachers.

CM: You are absolutely right about that and the example of CORE is a good one, as it demonstrates perfectly the type of limited reform which can serve as a safety valve against more radical opposition. Carlin and CORE's other proponents view the problem as one with economics education, but not economics itself – she has previously stated that "economics explains our world, economics degrees don't". Interestingly, this rhetoric is similar to the response to calls for reform in economics graduate programs in the US in the 1980s, where the need for more real world application was accepted but it was argued that programs should retain the "core [which] should be regarded as the basic unit in which those things common to all economists should be taught". We repeatedly see this disconnect between the critic's idea of reform and the mainstream's, cemented by the fact that many neoclassical economists simply do not know enough about non-neoclassical ideas to teach them. It is a vicious circle which is inevitably going to reproduce a fundamentally similar education, even if some internal attempts at reform are made along the way.

Thus in CORE the calls for history, real world applications and interdisciplinarity are all, to some degree accepted (even if they are not pursued adequately), while the calls for pluralism and critical thinking are not. The resulting education is perhaps an improvement, but the outcome is similar: instead of saying 'here is neoclassical economics, learn and then (maybe) apply it', the message of CORE is 'here is the real world, here is how neoclassical economics applies to it'. Once more, the idea that the theory and even the history itself might be contested is thrown out of the window and the result is still a narrow education. In fact, we reviewed the University College London exams for the CORE course and found that they showed a slight increase in critical thinking, but were still primarily about regurgitating models and theories. The need for pluralism is made especially apparent here, as learning about alternative ideas immediately makes students re-evaluate what they have already been taught. Students need to know more than one set of ideas if they are to judge which ideas are best suited to explaining a particular situation.

PP: My impression from the book – and please, correct me if I'm wrong – is that you want to bypass this structural constraint by making economics more democratically accessible. Personally, I think that there is a lot of merit to this idea. In my book, as I said, I try to present an ideology-neutral economics – which I think can be done to some limited extent – and what you find with such an economics is that many different worlds are possible. Economics in this regard can be a helpful guide but it cannot tell you much about where you want to go. For this reason I would much prefer to see more democratic input on economic decision-making and much less pontifications from an over-heavy technocracy. That said, however, economics is still a relatively difficult subject. It cannot be picked up without some commitment to study it. How do you square this circle – by which I mean, how do you try to increase the accessibility of economics without watering it down so much that it becomes analytically dysfunctional? And a cheeky, but related question: in the book you rightly draw attention to the fact that economics jargon is over represented in political discourse – how do you ensure that you are not increasing the volume and weight of this jargon through attempts at popularisation?

CM: We definitely view the democratisation of economics as a necessary part of the renewal of the discipline and indeed of politics, but your conception of it as a strategic way to bypass the inertia of the discipline is an interesting idea and something I hadn't thought of explicitly. I suppose this goes back to what I was saying about bottom-up approaches to reform and the value of demanding change from different angles. Unfortunately and as we've seen, one of the main response to Brexit and Trump by elites has simply been to view those who vote for it as ignorant or bigoted. The simple fact is that many peoples' lived experience of 'the economy' is completely different to the top-down, statistical and theoretical views of economists and pundits. Many have experienced huge shifts and declines in their circumstances for decades, neither of which are obvious if you only look at GDP and inflation statistics, or (worse) if you are completely lost in theory.

In the book we introduce the idea of the public interest economist, who has socially aware research topics, a commitment to public engagement and education, and who looks to hold powerful public and private institutions to account. Reconnecting economic experts with the public in this way would be a great way to temper the former's technocratic, top-down tendencies and encourage the experts to understand that people may have different, valid views to them – and this is a gateway to appreciating other approaches more generally. Of course, this doesn't eliminate the need for expertise altogether: our intuition can only go so far, and some things can only be revealed by systematic and empirical study. Economics is difficult, as you point out. But a world in which economic experts are in touch with and can be questioned by the public is one where economic expertise will naturally be more responsive to the needs of said public. We sum it up by saying that we want experts to inform our decisions, but not necessarily to make them for us.

Illustrating the magnitude of the challenge you raise about teaching economics without jargon, I'm going to have to introduce some jargon. In the book we distinguish between formal literacy, where people are taught a fixed body of knowledge; and substantive literacy, where people are encouraged to question the subject matter and form their own independent views. This is the basis for the other pillar of our proposals: citizen economists, non-experts who nevertheless have some baseline level of substantive literacy and are able to engage in economic debates. The starting point for citizen economics is to make connections between peoples' own lives and broader economic problems, encouraging their own input from the start. And an important part of being a citizen economist is not to accept the seeming authority bestowed by the use of jargon and to ask experts to say what they mean in plain language. As a student movement we have already started to put this into practice with citizens' crash courses (evening classes for adults), schools workshops, the public education website ecnmy.org and by supporting the RSA's Citizens' Economic Council, which is seeking to establish more democratic input into economic policy.

PP: Yeah, I think I see what you're saying. Anyway, I suppose we should wrap this up as it's pretty long already. Where do you see this whole thing going from here? Are you optimistic about the future, both in terms of opening up the discipline and in terms of fixing the incredibly serious economic problems that have emerged in the past 30 years?

CM: I am cautiously optimistic about the future, as I think in many ways the debate has been won over whether economics should change – the question is now what form this change should take. On top of changes we have already discussed such as CORE and the position of the Bank of England, we have seen the ESRC put aside a large pot of money for research in new ideas in macroeconomics (the question is whether this money will be used to support CORE type research or more diverse and radical ideas); Manchester council involving citizens more in the decision-making process; the director of the IFS, Paul Johnson, admitting economists' failure to communicate during Brexit; and many more emerging examples that the message is getting across to various sections of civil society. More must certainly be done and it is up to everyone to make sure that the changes are fundamental rather than incremental, but in my eyes it is starting to look possible that economics will evolve from an insular and esoteric discipline into a vibrant, pluralistic public dialogue – and we think that can only be a good thing

Pat K California , December 17, 2016 at 7:57 am

"In other social sciences, the culture is instead focused on debate and the contested nature of knowledge. You learn not to take any of your beliefs for granted. But entering an economics degree feels a bit like being transported to another universe. Students are introduced to a fixed body of knowledge that is presented as if – in the words of one student – it "fell from heaven in an ever-true form"."

How on earth did this happen?? Was the teaching of economics always this way? Or did something happen at some point along the way (say, the influence of a particular school of thought, etc.) to create a static curriculum where critical thinking is so undervalued?

"The deference to economic expertise is something that permeates our politics and, through the use of jargon, maths and statistics, serves to exclude non-expert citizens from conversations about issues that often have a direct impact on their lives."

Doesn't this sound exactly like the Clinton campaign? Technocrats all, who say to people like me, "Trust us. We're the EXPERTS. Don't even try to stretch your silly little brains. We know what's best."

GlassHammer , December 17, 2016 at 10:35 am

If economics is to function as the medium of power than its students must be made to follow blindly. Critical thinking would allow them to undermine it or manipulate it to their own ends.

The students must be made into strict adherents before being granted access to the highest levels of information. By erecting barriers at each level (be it specialized language that must be mastered or learning contigent on prior learning) we can separate the weak from the true adherents.

Steve H. , December 17, 2016 at 11:01 am

Following Adler, economics is not a science, it's a philosophy. At least economics doesn't burn its heretics, it just ignores them. Science is neither immune. Gerald Pollack has written that he was advised to avoid water as a subject of inquiry, or it could kill his career.

witters , December 17, 2016 at 4:27 pm

"At least economics doesn't burn its heretics, it just ignores them." And then "because the market", they die.

gepay , December 17, 2016 at 2:04 pm

This article highlights why I take what positions Naked Capitalism assert seriously. For instance getting input from Clive about the difficulty of the mechanics of Greece leaving the Euro. Or Yves, having knowledge from her father's work about solving problems in the real world. This problem is not just limited to economics. To get a Phd one must basically agree to what you have been taught. To get published one must undergo peer review by people who almost always believe the current mainstream ideas in that field. Remember how the nutrition experts told you margarine was good for you – butter and eggs were bad. Climate science is a good example. Reliance on models that can never be complete. In almost every conversation I have had as a climate skeptic, the strongest believers in the alarmist position rely not on their own understanding but that of experts. And those experts who are alarmist rely almost entirely on computer modeling results to buttress their position. In fact, as a skeptic I could almost rewrite the above article using climate science. In your own mind, try that. As a generalist (non climate scientist) I can read and understand most climate papers if I take the time to learn and understand the jargon as every subfield has its own. it does take a good while with considerable effort. Climate science proclaims to know with certainty what the climate future holds so they should be the experts on public policy that will affect the lives of everyone in the world. "The totally convinced and the totally stupid have too much in common for the resemblance to be accidental." Robert Anton Wilson

Dwight , December 17, 2016 at 3:46 pm

Economists writing about climate change purport to define the optimal reduction in greenhouse gases by tallying up the avoided damage, or the benefit in the cost-benefit analysis, then saying that costs of emission reduction should go no higher than this benefit. Not sure if they are still doing this, but in the past they used the ethically questionable and benefit-lessening assumption that lives in poor countries, where most people would die, should be valued much less than lives in rich countries. Worse, the entire exercise is absurd because the result of the calculation is an emissions reduction that could have no effect on the climate, because emissions don't have a simple effect as with traditional air pollutants for which the analysis was initially developed.

bmeisen , December 18, 2016 at 3:33 am

As a generalist who works for and with a climate scientist who is at the forefront of his field I am not able to understand essential details of most of his papers because he and his co-authors are in fact physicists and their analyses involve substantially more than modest calculus. Furthermore neither he nor any other of his colleagues whose work I am exposed to have proclaimed that they "know" what the future holds.

skippy , December 17, 2016 at 4:52 pm

File under "the creative class" writers à la Toynbee

sufferinsuccotash, normalized , December 17, 2016 at 8:13 am

Does anyone have any idea how many economics departments nowadays offer courses in economic history?

Uahsenaa , December 17, 2016 at 9:26 am

At the UI and when I was at Michigan, they simply don't. Anything remotely like that would be taught in the History department, and then mostly for History grad students.

Terry , December 17, 2016 at 10:46 am

At Cambridge University it was a compulsory course representing 25% of the first year curriculum (this was 1991-92). No idea if it has been downsized since then but given the "new blood" I remember entering the faculty I am pessimistic.

Moneta , December 17, 2016 at 8:15 am

I have to agree that when I studied economics, it was theory and barely any practical exercises. Lots of maximization and other But I never took this as gospel. I understood that all these economic models were a product of their time. A framework that would be adapted by those in power to fit their needs.

When my son was born with a disability, I had to turn many 15 minute errands into 2 hour adventures. It became even more evident that efficiency is relative What are we really maximizing anyway? THAT is the key question.

I guess many graduate without any critical thinking. But I tend to think that many graduates of economics like the way the world is set and feel no compulsion to change it.

susan the other , December 17, 2016 at 11:12 am

What are we really maximizing anyway? killer question Moneta.

susan the other , December 17, 2016 at 11:20 am

yes, absolutely. If it is good public policy do it. When you think about it economics doesn't really exist. Society does. And when economics is talked about like society doesn't exist it gets pointless. Just like some stupid software language that does basically nothing. What we need is the courage of our human convictions. I think it was Blyth in an early clip who said more or less, "Just do it." Deficit spend as necessary and the solutions will appear. That's very Zen and I love it. I mean, here's the question, What is the worst that can happen? If there is sufficient money. Great interviewer and interviewee. Thanks NC for this post.

jsn , December 18, 2016 at 12:42 am

"Economics doesn't really exist, society does": a super obvious statement that stands in starkest distinction to NeoLib ideology that insists we are all atomistic, isolated individuals. Math and language are epiphenomena to human being that have perverted our self perception nearly to oblivion.

Steve H. , December 17, 2016 at 12:32 pm

Bayes allows an entry to qualifying bias and uncertainty in conditional probabilities (tree diagrams). It allows an indication that the source is b.s., which is currently relevant.

It's unnecessary in terms of fudging models, we've been quite capable of that without Bayesian modifiers.

The most important bias his theorem clarifies concerns false positives, for example if a drug test is 95% accurate it can still be wrong more than half the time on a positive response.

As always, GIGO.

craazyman , December 17, 2016 at 5:32 pm

Economics wil never progress until it has a clearer grasp on the phenomenon of money. Until they do it's the same old GIGO using Newtonian metaphors prettied up with math (or let us say "arithmetic", since it's just basic calculus, linear algebra or probability/statistics).

Not to be demeaning toward Eigenvectors and matrix theory. It's amazing how recent that was in the history of math - I mean all the way back to the Greeks, Pythagoras, Archimedes, etc. It's like it's still brand new!

However, you could say a drawing by Rembrandt is just "basic pen and ink". Indeed on one level it is. On another level it's an entire self-consistent and revelatory conceptualization of infinite physical reality. That's the kind of holistic and syntheticistic ideation that economics sorely lacks.

Not only does it lack this, but the economists don't even know it's there!

craazyman , December 17, 2016 at 5:33 pm

Moderbation alert!

craazyman , December 17, 2016 at 6:52 pm

whoa you guys rock! that was faster than a New Yoarke minite. Whoa Yves would be proud. I hope you get a bonus! maybe a few million dollars.

They're not this fast in Denver. That's for sure. All those TV people and all that money they have and they fkk something up so bad they have to apologize. Wow. that really is screwing up. Not only that, They're stilll pointing a camera straight at a scene and failing to use cinematic story telling techniques invented , oh, 80 or 90 years ago!

There should be awards for excellence in fake news. The best fake news is news that's true in the most profound and highest sense of reality. it's news that captures a truth reality only approximates. It's hard to avoid Plato even when you try. I didn't mention him, OK? he's just there. He's usually there, but if you mention him every time it gets boring.

The WaPo is an example of largely fake news written and published by individuals who don't realize what's true and what's fake. You'd like to think they qualify for a fake news award, given the fakeiness of what they write (except Redskins coverage which is very good, they have some good spowtswriters for sure), but they don't because they think they're writing real news. That should be embarrasing.

Well then, how would somebody advise them to better distinguish fake news from real news? Well, how does a hawk know what to do to hunt rodents? There's no hawk scientist or hawk school or hawk instruction manual. they can't even read! But they know exactly what to do. It's like that. Everybody knows but they pretend to themselves they don't know. That's when the faking starts,

Steve H. , December 17, 2016 at 9:00 pm

: Everybody knows but they pretend to themselves they don't know.

Teddy: So you lie to yourself to be happy. There's nothing wrong with that. We all do it. [Memento, 2000]

Nice to see u back, craazyman, you were a kinda Terran it up for a bit there.

Uahsenaa , December 17, 2016 at 12:59 pm

[T]he irony is that for many upper-middle-class white gay men, the argument became that legal and economic (yes, economic) privileges of marriage were being denied. Fortunately, many people were able to keep the focus on equality and equal protection of the law, which is political argument.

On the one hand, yes, absolutely, and it remains a point of contention to this day in the gay community that the one major victory in recent memory was perfectly amenable to a patriarchal, capitalist order. People like David Brock and what have you, who saw gay liberation not as a means to transform society, which is the purpose for which the GLF was created, but rather as a means to help people like themselves become elites like anyone else.

On the other hand, and perhaps it's just the vulgar Marxist in me, but I recoil at the notion of separating economics from politics. This is why the phrase political economy even exists, to represent the notion that all decisions regarding distribution of resources are inherently political. I find it symptomatic of how entirely defanged class rhetoric is in the US (though the interviewee is British, I presume) that even the well meaning and critical thinking among us can get away with pretending that "economics" can somehow be sequestered from political decisions.

I realize that's not the point you're making, but there are moments in the interview when the subject moves in that direction. As for statistics, Mark Twain reminds us there are three kinds of lies: lies, damned lies, and statistics–or, as my spouse is fond of saying, "70% of all statistics are made up."

susan the other , December 17, 2016 at 2:41 pm

One place where social needs interfere with monetary policy, aka economics, is deficit spending wherein the underlying economy is not keeping up (because of economic malpractice usually). So that's a conflict against the oligarchy because they prevented the necessary jobs and so makes their money worth less. So, depending which side you are on, politics should have a say (force the government not to devalue the currency by inflation/deficit spending without a proper economy) or politics should serve the chronically neglected needs of the general public regardless of preliminary "inflation" – the inflation here is the most dreaded form of inflation for the rich, of course, wage inflation. I think the term 'wage inflation' qualifies as an oxymoron, but that's just me.

Lambert Strether , December 17, 2016 at 1:27 pm

> "externality," what they really mean is "how the costs get transferred onto you."

Reminds me of the saying that if you're at a poker table and you don't know who the sucker is, it's you (if I have that right; I don't play poker).

pretzelattack , December 17, 2016 at 3:41 pm

probably an apocryphal story; so a guy is playing regularly in a rigged poker game. a friend asked him, "why do you play, you know they're cheating you"? the guy shrugs, and replies "i don't have a choice, it's the only game in town".

Michael C , December 17, 2016 at 9:24 am

Interesting thing I heard the other day, Professor Richard Wolff says he studied economics at three elite universities (Yale, Harvard, and another notable I cannot remember) and never had a course in Karl Marx. Tunnel vision for sure in the field.

Terry , December 17, 2016 at 10:59 am

Yikes. I remember being taught Marx in the early 90s . But that was Cambridge ;-) and it was clearly a dying course as they were struggling to find faculty members.

pretzelattack , December 17, 2016 at 3:42 pm

i took a course in marxism, iirc it was in the philosophy department. maybe economics in general belongs there, too.

Beans , December 17, 2016 at 10:02 am

As one who is well past university age, I am excited to hear that those in the Millenial generation are organizing this movement. The (intentional?) failure of K-12 education to develop critical thinking skills and focus solely on standardized testing of fact knowledge has been deeply upsetting to me as a parent. To see that others have made it through our education system with a well developed BS detector and are not afraid to use it is welcome news.
I look forward to reading your books!

Brooklinite , December 17, 2016 at 11:13 am

Answer to question no 2: The jargon that is being used these days by presidents, economists, talk show hosts is beyond my understanding. I have a masters degree.

I believe Trump gained some supporters who were angry about the disconnect with the way they talk and the way they needed to be talked to. Simple language has its own good. That is what Trump did. Trump is just not a person. There is more to Trump that what it is. He proved so many of these experts wrong and bought back the simple language and easy straight talk to the forefront. Saying wrong things is attractive to me. More people relate to Trump in ways that he can say bad things. I relate to him because we say bad things in our every day life. We go about having a conversation after to correct them. Its that simple.

After all we are all human beings with little better instincts and rational than animals. Just because few people can speak politically correct, few can dress like they are supposed to doesn't mean that every one has to conform. I am excited to read this book.

paul , December 17, 2016 at 11:43 am

An argot (English pronunciation: /ˈɑːrɡoʊ/; from French argot [aʁˈɡo] 'slang') is a secret language used by various groups-e.g., schoolmates, outlaws, colleagues, among many others-to prevent outsiders from understanding their conversations. The term argot is also used to refer to the informal specialized vocabulary from a particular field of study, occupation, or hobby, in which sense it overlaps with jargon.

A good investment

John Wright , December 17, 2016 at 11:51 am

Is the economics profession simply following the "He who has the gold, makes the rules"? Many other professions service retail customers, such as attorneys and doctors. But how many ordinary citizens ever deal with an economist on any level?

While there may be some economists attached to labor unions, for the most part economists are employed by government, the financial industry, academia or the media.

If paycheck dependent economists know that powerful politicians, wealthy corporate leaders and wealthy donors in academia are looking over their shoulders, one could expect economists' message to be justify what their "employers" want to do.

The case of skeptical economist Steve Keen may indicate the requirement to stay on message to stay employed https://en.wikipedia.org/wiki/Steve_Keen

"Keen was formerly an associate professor of economics at University of Western Sydney, until he applied for voluntary redundancy in 2013, due to the closure of the economics program at the university.

But he did find another job. "In autumn 2014 he became a professor and Head of the School of Economics, History and Politics at Kingston University in London." Is there a large job market for skeptical economists?

Spencer , December 17, 2016 at 1:24 pm

Nothing's changed in 100 + years. American Yale Professor Irving Fisher "financial transactions aren't random": Yale Professor Irving Fisher – 1920 2nd edition: "The Purchasing Power of Money"

"If the principles here advocated are correct, the purchasing power of money - or its reciprocal, the level of prices - depends exclusively on five definite factors:

(1)the volume of money in circulation;
(2) its velocity of circulation;
(3) the volume of bank deposits subject to check;
(4) its velocity; and
(5) the volume of trade.

"Each of these five magnitudes is extremely definite, and their relation to the purchasing power of money is definitely expressed by an "equation of exchange."

"In my opinion, the branch of economics which treats of these five regulators of purchasing power ought to be recognized and ultimately will be recognized as an EXACT SCIENCE, capable of precise formulation, demonstration, and statistical verification."

And the Fed already validated the Fisherian theory: In 1931 a commission was established on member bank reserve requirements. The commission completed their recommendations after a 7 year inquiry on Feb. 5, 1938. The study was entitled "Member Bank Reserve Requirements - Analysis of Committee Proposal"

It's 2nd proposal: "Requirements against debits to deposits"

http://bit.ly/1A9bYH1

After a 45 year hiatus, this research paper was "declassified" on March 23, 1983. By the time this paper was "declassified", required reserves had become a "tax" [sic].

Monetary flows, our means-of-payment money times its transactions velocity of circulation:

http://monetaryflows.blogspot.com/2010/07/monetary-flows-mvt-1921-1950.html

The surrogate statistic for money flows after the G.6 debit and demand deposit turnover release was discontinued in 1996 (it under weights velocity)

1/1/2016 ,,,,, 0.068
2/1/2016 ,,,,, 0.020 stocks bottom
3/1/2016 ,,,,, 0.043
4/1/2016 ,,,,, 0.041
5/1/2016 ,,,,, 0.045
6/1/2016 ,,,,, 0.073
7/1/2016 ,,,,, 0.109
8/1/2016 ,,,,, 0.111
9/1/2016 ,,,,, 0.112
10/1/2016,,,,, 0.039
11/1/2016 ,,,,, 0.105
12/1/2016,,,,, 0.124 stocks peak
1/1/2017 ,,,,, 0.093
2/1/2016 ,,,,, 0.063
3/1/2016 ,,,,, 0.068
4/1/2016 ,,,,, 0.046

diptherio , December 17, 2016 at 1:33 pm

Here's my suggestion for educating economists about the fallacy of their assumption that it is in any way acceptable or even meaningful to put a monetary price on a human life.

Step 1: we ask the economist to place a monetary value on his or her own life in the same way that they feel so comfortable doing for people who are not them.

Step 2: crowdfund that amount of money.

Step 3: give said money to their next of kin and ask them to kindly follow us out to the woodshed

Ok, so let's call it a thought experiment .but I think that should make clear one of the many, many things wrong with monetizing the value of everything in existence, as is the common practice.

cnchal , December 17, 2016 at 3:54 pm

Step 1: we ask the economist to place a monetary value on his or her own life . . .

Priceless, or in economist's terms, infinity.

Step 2: crowdfund that amount of money.

Borrow from the Fed. It's fantasy money.

Step 3: give said money to their next of kin and ask them to kindly follow us out to the woodshed

That would be cruel. They always claim they are the smartest guys in the room, while also claiming men in manufacturing are low skill or put bluntly, stupid. Can we put them all on an uninhabited island with a few shovels so they can live the civilized life and dig their own latrine, after which they can bootstrap themselves to imagined wealth by inventing their own can opener? They can get there by recycling the shovels, but they would need fire for that.

diptherio , December 17, 2016 at 4:21 pm

As the old Joe Hill song goes:

You will eat, by and by,
when you learn how to bake and how to fry.
Chop some wood,
It'll do ya good.
And you'll eat in that sweet by and by.

https://www.youtube.com/watch?v=M2tyW-68iik

Jim , December 17, 2016 at 1:51 pm

This interview articulates an extremely important insight when it states that the economy " is believed to be a distinct system with its own logic that requires experts to manage it."

This seeming independence of the economic and political systems has largely deceived most of modern social science. This seeming independence is not real, and in fact these spheres are deeply intertwined.

As people llike Karl Polyani and Philip Mirowski have maintained, markets are always organized through politics and institutions and one key to understanding this reality is to keep a focus on the promulgation of the rules and regulations of a powerful state that helps to create movements for both regulation and deregulation.

It is now imperative that an alternative political movement finally take the time to carefully examine the nature and role of the State in political and economic life.

Kris Alman , December 17, 2016 at 2:02 pm

As a pre-med student of the mid 1970s, I never took an economics course. Professionally, I tried to fight the same kind of jargon that baffles the lay public in medicine. And I watched in horror how my profession became captured.

I struggle to read NC when reading jargon-filled posts. For example, I read about economic cycles and wonder why that is an acceptable concept.

But I do so because I know that ignorance is not bliss. I know the economy is rigged. Orwellian economics-speak allows the elite to configure human and social capital in their favor.

Is it time to throw this baby out with the bath water? If so, how do we conceive a baby that doesn't eventually suckle at the wrong teat?

Damson , December 17, 2016 at 4:11 pm

It was notable that Cathal failed to mention Marx. I don't think he realizes yet quite how fully indoctrinated he's been – as that humdinger of an analogy (gay marriage – actually a redefinition to normalize surrogacy, a eugenics-by-stealth agenda, hence it's enormous funding by the plutocracy) indicates. The economic can never be separated from the socio-political.

JustAnObserver , December 17, 2016 at 9:06 pm

I think its more general than that. Those that have been airbrushed out of the history of economic thought are those who never thought of economics as a separate, largely technocratic, discipline but always as political economy. Marx was just one of these following the tradition of Smith, Ricardo, Mill etc. Veblen and, to a large extent, Keynes were also following this tradition.

So sad that they lost and Walrasian physics envy ended up splitting economics from its political context.

Sue Madden , December 17, 2016 at 2:16 pm

."how do you try to increase the accessibility of economics without watering it down so much that it becomes analytically dysfunctional?"

This question makes no sense in the context of this discussion around the fact that modern "economics" (theory, courses and practice) is an ideological construct. The suggestion being the discipline as currently manifested would only become "analytically dysfunctional" if it were "watered down" ??????

This simplistic, patently failed dogma has become an almost totalitarian "pensee unique" simply because in coincided perfectly with the interests of the rich and powerful (and therefore those of their lackeys)

It`s politics stupid!!!!!

Sorry, I realise the (exceptional!) core NC community knows all this as well as anyone

Another quibble. ?technocrats? At the height of the crisis, Italy, for example, had a govt of "technocrats" foisted on the it. Monti, connections with Goldman?. Technocratic indeed!!!

Jeremy Grimm , December 18, 2016 at 12:17 am

The last couple of days I've been listening to a series of lectures by Philip Mirowski available on youtube. When I place Mirowski's ideas in opposition to the ideas expressed in this interview - the result is very different from the trend I see in the other comments here.

Mirowski describes how the "Neoliberal Economic thought collective" captured and now dominates economic doctrine by controlling what and who can publish in the major economic journals. As a result those aspects of Neoclassical Economics remaining are being re-shaped into a Neoliberal mold. I noticed the word "neoliberal" doesn't show up anywhere in this post yet Neoliberal economic policies and rationales dominate policy in the real world.

The discussion in the post makes several statements about how economics fails to make predictions about the real world and fails in designing economic policies to help the common man. Mirowski points out that Neoliberal economics designs policy to apply market models to every problem based on the doctrine that markets are the most powerful information processing system available to man - a strong form of the Efficient Markets Hypothesis. The Market is the ultimate epistemological device. If the market solution doesn't satisfy the needs of the common man then satisfying those needs is simply contrary to the wisdom of the market. For other problems like externalities they just need to be properly incorporated into the market model to obtain an optimal solution to whatever problem they present.

I don't see how "democratization" of economics teaching or eliminating jargon or deprecating experts or more emphasis on critical thinking or pointing out the abject failure of economics in solving economic problems will do much to counter the Neoliberal attack on the economics discipline. Putting fins and flashy hubcaps on Neoclassical economics as it morphs into Neoliberal economics is not the answer.

skippy , December 18, 2016 at 3:45 am

Its a hair ball that needs untangling and not a blowtorch thingy . If you are familiar with Philips past contributions to NC, his blog, social democracy blog and other media portals you would have a better understanding of the perspective forwarded.

I would sort two birds with one link – http://socialdemocracy21stcentury.blogspot.com.au/2013/07/philip-pilkington-blog-fixing-economists.html

Disheveled . Mirowski does do service here wrt the fundamental methodology and how that frames the topic, wrt base assumptions [human descriptors] and the extension of them.

Tim , December 18, 2016 at 12:50 am

The role of Economics is simple: it should inform people of the consequences of certain decisions we make about who gets what. So if you have a problem with classical economics, you really have a more fundamental problem. Economics provides many good answers; but don't expect it to also provide the right questions. A comment above asked 'maximising what?'. Good question, but not an economics question.

UserFriendly , December 18, 2016 at 1:03 am

You are right, that is what it should be, unfortunately neoclassical has failed horribly in that regard. It is based on assumptions that are demonstrably false and they are never revisited to see the effect of relaxing them. You might as well be counting angels on a pin. See Roamer's take down of it for starters.
https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf

[Dec 11, 2016] Comic Book Hayek The Planners Promise Utopia

Notable quotes:
"... I had always thought Hayek made some good critical points about the illusions of socialists/utopians and then chose to ignore the fact that his criticism also applied to his ..."
"... So maybe Hayek didn't overlook the fact that his critique also applied to his utopia. Maybe he knew full well he was misrepresenting what he was selling, engaging in exactly the same propaganda techniques that he attributed to others. ..."
"... A Rovian strategy - conceal your weakness by attacking others on precisely that issue. ..."
"... The Road to Serfdom put out in the US after WWII, which was full of this inflammatory sort of thing that doing anything to ameliorate the harder edges of capitalism put one inexorably on the road to serfdom. ..."
"... In the actual RtS one finds Hayek himself supporting quite a few such amiliorations, most notably social insurance, especially national health insurance well beyond what we even have in the US now with ACA. ..."
"... The problem for lovers of Hayek, and arguably Hayek himself, is that he simply never repudiated this comic book version of his work, even as he and many of his followers got all worked up when people, such as Samuelson, would criticize Hayek for this comic book version of the RtS, pointing out his support for these ameliorations in the original non-comic book version. ..."
"... However, Samuelson in his last remarks on Hayek, which I published in JEBO some years ago, effectively said that Hayek had only himself to blame for this confusion. ..."
"... I have been thinking that maybe both "sides" in our mostly brainwashed America today could agree with the meme of "DRAIN-THE-SWAMP" and hope to see it carried proudly on protest signs by the non-zombies of both sides in the ongoing social upheaval. ..."
"... I agree that "accuse the other side of doing what you are doing" is a familiar ploy of the right. ..."
Dec 11, 2016 | angrybearblog.com

Sandwichman | December 10, 2016 12:51 am
In his neo-Confederate "Mein Kampf," Whither Solid South , Charles Wallace Collins quoted a full paragraph from Hayek's The Road to Serfdom regarding the emptying out of the meaning of words. My instinct would be not to condemn Hayek for the politics of those who quote him. Even the Devil quotes Shakespeare.

But after taking another look at the Look magazine comic book edition of Hayek's tome, I realized that Collins's depiction of full employment as a sinister Stalinist plot was, after all, remarkably faithful to the comic-book version of Hayek's argument. With only a little digging, one can readily infer that what the comic book refers to as "The Plan" is a policy also known as full employment (or, if you want to get specific, William Beveridge's Full Employment in a Free Society ). "Planners" translates as cartoon Hayek's alias for Keynesian economists and their political acolytes.


To be sure, Hayek's sole reference to full employment in the book is unobjectionable - even estimable almost:

That no single purpose must be allowed in peace to have absolute preference over all others applies even to the one aim which everybody now agrees comes in the front rank: the conquest of unemployment. There can be no doubt that this must be the goal of our greatest endeavour; even so, it does not mean that such an aim should be allowed to dominate us to the exclusion of everything else, that, as the glib phrase runs, it must be accomplished "at any price". It is, in fact, in this field that the fascination of vague but popular phrases like "full employment" may well lead to extremely short-sighted measures, and where the categorical and irresponsible "it must be done at all cost" of the single-minded idealist is likely to do the greatest harm.

Yes, single-minded pursuit at all costs of any nebulous objective will no doubt be short-sighted and possibly harmful. But is that really what "the planners" were advocating?

Hayek elaborated his views on full employment policy in a 1945 review of Beveridge's Full Employment in a Free Society, in which he glibly characterized Keynes's theory of employment as "all that was needed to maintain employment permanently at a maximum was to secure an adequate volume of spending of some kind."

Beveridge, Hayek confided, was "an out-and-out planner" who proposed to deal with the difficulty of fluctuating private investment "by abolishing private investment as we knew it." You see, single-minded pursuit of any nebulous objective will likely be short-sighted and even harmful unless that objective is the preservation of the accustomed liberties of the owners of private property, in which case it must be done at all cost!

Further insight into Hayek's objection to Keynesian full-employment policy can be found in The Constitution of Liberty . The problem with full employment is those damn unions. On this matter, he quoted Jacob Viner with approval:

The sixty-four dollar question with respect to the relations between unemployment and full employment policy is what to do if a policy to guarantee full employment leads to chronic upward pressure on money wages through the operation of collective bargaining .

and

it is a matter of serious concern whether under modern conditions, even in a socialist country if it adheres to democratic political procedures, employment can always be maintained at a high level without recourse to inflation, overt or disguised, or if maintained whether it will not itself induce an inflationary wage spiral through the operation of collective bargaining

Sharing Viner's anxiety about those damn unions inducing an inflationary wage spiral "through the operation of collective bargaining" was Professor W, H, Hutt, author of the Theory of Collective Bargaining, who "[s]hortly after the General Theory appeared argued that it was a specific for inflation."

Hutt, whose earlier book on collective bargaining "analysed [and heralded] the position of the Classical economists on the relation between unions and wage determination," had his own plan for full employment . It appeared in The South African Journal of Economics in September, 1945 under the title "Full Employment and the Future of Industry." I am posting a large excerpt from Hutt's eccentric full employment "plan" here because it makes explicit principles that are tacit in the neo-liberal pursuit of "non-inflationary growth":

Full employment and a prosperous industry might yet be achieved if what I propose to call the three "basic principles of employment" determine our planning .

The first basic principle is as follows. Productive resources of all kinds, including labour, can be fully employed when the prices of the services they render are sufficiently low to enable the people's existing purchasing power to absorb the full flow of the product.

To this must be added the second basic principle of employment. When the prices of productive service have been thus adjusted to permit full employment, the flow of purchasing power, in the form of wages and the return to property is maximised .

continued .

The assertion that unemployment is "voluntary" and can be cured by reducing wages is the classical assumption that Keynes challenged in the theory of unemployment. Hutt's second principle, that full employment, achieved by wage cuts, will maximize the total of wages, profit and rent thus would be not be likely to command "more or less universal assent," as Hutt claimed. But even if it did, Hutt's stress on maximizing a total , regardless of distribution of that total between wages and profits, is peculiar. Why would workers be eager to work more hours for less pay just to generate higher profits? Hutt's principles could only gain "more or less universal assent" if they were sufficiently opaque that no one could figure out what he was getting at, which Hutt's subsequent exposition makes highly unlikely.

Hutt's proposed full employment plan consisted of extending the hours of work, postponing retirement and encouraging married women to stay in the work force. He advertised his idea as a reverse lump-of-labor strategy. Instead of insisting - as contemporary economists do - that immigrants (older workers, automation or imports) don't take jobs, Hutt boasted they create jobs, specifically because they keep wages sufficiently low and thus maximize total returns to property and wages combined. He may have been wrong but he was consistent. Nor did he conceal his antagonism toward trade unions and collective bargaining behind hollow platitudes about inclusive growth .

The U.S. has been following Hutt-like policies for decades now and the results are in :

For the 117 million U.S. adults in the bottom half of the income distribution, growth has been non-existent for a generation while at the top of the ladder it has been extraordinarily strong.

Or perhaps Hutt was right and what has held back those at the bottom of the income distribution is that wages have not been sufficiently low to insure full employment and thus to maximize total returns to labor and capital. The incontestable thing about Hutt's theory is that no matter how low wages go, it will always be possible to claim that they didn't go sufficiently low enough to enable people's purchasing power to absorb the full flow of their services.

coberly , December 10, 2016 11:52 am

I can't claim to know all of what Hayek meant. but I did read one of his books and it was clear he did not mean what the right has taken him to not only mean, but to have proved.

In any case it is dangerous (and a bit stupid) to base policy on what someone said or is alleged to have said. Especially economists who claim to have "proved" some "law" of economics.

That said, i wonder if some of what is said here is the result of over-reading what someone (else) as said: to be concerned with policies "to the exclusion of all else" is not the same as rejecting the policies while keeping other things in mind. and to recognize the potential of labor unions to force inflationary levels of wages is not the same as opposing labor unions.

neither the advocates in favor of or those opposed to the extreme understanding of these cautions –including the authors of them if that is the case - are contributing much to the development of sane and humane policy.

Sandwichman , December 10, 2016 12:40 pm

I had always thought Hayek made some good critical points about the illusions of socialists/utopians and then chose to ignore the fact that his criticism also applied to his neo-liberal utopia. But I followed up the passage quoted by Collins and it turns out that Hayek was discussing a statement made by Karl Mannheim, which he quoted out of context and egregiously misrepresented -- a classic right-wing propaganda slander technique. So here is Hayek talking about emptying out the meaning from words and filling them with new content and he is doing just that to the words of another author.

So maybe Hayek didn't overlook the fact that his critique also applied to his utopia. Maybe he knew full well he was misrepresenting what he was selling, engaging in exactly the same propaganda techniques that he attributed to others. By accusing others first of doing what he was doing, it made it awkward for anyone to point out that he was doing it, too. A Rovian strategy - conceal your weakness by attacking others on precisely that issue.

Barkley Rosser , December 10, 2016 1:21 pm

One of the problems with Hayek is that there was always this conflict between the "comic book Hayek" and the more scholarly and careful Hayek. In fact, there really was a comic book version of The Road to Serfdom put out in the US after WWII, which was full of this inflammatory sort of thing that doing anything to ameliorate the harder edges of capitalism put one inexorably on the road to serfdom.

In the actual RtS one finds Hayek himself supporting quite a few such amiliorations, most notably social insurance, especially national health insurance well beyond what we even have in the US now with ACA.

The problem for lovers of Hayek, and arguably Hayek himself, is that he simply never repudiated this comic book version of his work, even as he and many of his followers got all worked up when people, such as Samuelson, would criticize Hayek for this comic book version of the RtS, pointing out his support for these ameliorations in the original non-comic book version.

However, Samuelson in his last remarks on Hayek, which I published in JEBO some years ago, effectively said that Hayek had only himself to blame for this confusion.

psychohistorian , December 10, 2016 3:08 pm

To me it comes down to whether government is structured to serve all or some obfuscated minority of all. With that as the divider it is easy to decipher Hayek's work and others.

I have been thinking that maybe both "sides" in our mostly brainwashed America today could agree with the meme of "DRAIN-THE-SWAMP" and hope to see it carried proudly on protest signs by the non-zombies of both sides in the ongoing social upheaval.

coberly , December 10, 2016 6:41 pm

Sammich

I agree that "accuse the other side of doing what you are doing" is a familiar ploy of the right.

I don't know what Hayek was really saying, or if he let the comic book version stand because he was so flattered to have his child receive such adulation, or just because he was in his dotage and didn't really understand how he was being misrepresented if he was.

but the fun thing to do with Hayek is to point out what he "really" said to those who have only heard the comic book version

if anyone is still talking about him at all. seems there was a big rush of talk about Hyak a few years ago and now it has faded.

[Dec 11, 2016] It is high time to put laissez faire and equilibrium doctrines firmly back in their place as Utopian constructions

Dec 11, 2016 | economistsview.typepad.com
Sandwichman : December 07, 2016 at 12:06 PM Terence Hutchison concluded his appendix on "Some postulates of economic liberalism" in Significance and Basic Postulates of Economic Theory with the admonition, "It is high time to put these theories [laissez faire and equilibrium doctrines] firmly back in their place as Utopian constructions." He cited S. Bauer's 1931 article, "Origine utopique et métaphorique de la théorie du "laissez faire" et de l'équilibre naturel."

Prominent in Bauer's discussion is the role of Baltasar Gracian's Oráculo Manual, which was translated into French by Amelot de la Houssaie in 1684, in popularizing both the notion and the term, laissez faire. Pierre le Pesant Boisguilbert is credited with introducing the term into political economic thought in a book published in 1707. It is conceivable that Keynes knew of the Gracian maxim because he used the image Gracian had used of tempestuous seas in his famous rejoinder about "the long run" being "a misleading guide to current affairs."

In his book Hutchinson noted that "several writers have argued that some such postulate as 'perfect expectations' is necessary for equilibrium theory." This observation lends a special note of irony to Gracian's coinage of laissez faire. In his discussion of Gracian's Oráculo, Jeremy Robbins highlighted the observation that:

"Gracián's prudence rests firmly on a belief that human nature is constant... In Gracián's case, human nature is viewed as a constant in so far as he believes it to act consistently contrary to reason."

In fact, Robbin's chapter on Gracian is titled "The Exploitation of Ignorance." Gracian's maxims establish "a sharp distinction between the elite and the necios [that is, fools]." Assuming that most people are fools who act contrary to reason is obviously something quite different from assuming perfect expectations. For that matter, the prudence of a courtier seeking to gain power over others is something quite distinct the foresight required of a policy professional acting ostensively on behalf of the public welfare.

That metaphorical and Utopian notions of laissez faire and natural equilibrium have managed to persist and even prevail in economics -- impervious to Hutchinson's warning (or Keynes's) -- is testimony to the perceptiveness of Gracian's estimate of human nature.

In the long run, we are all Baroque...

http://econospeak.blogspot.ca/2014/09/in-long-run-we-are-all-baroque.html anne -> Sandwichman ... , December 07, 2016 at 04:12 PM

Meticulously done, I am slowly learning how to approach your writing much to my satisfaction. I understand the argument and agree.
Sandwichman : , December 07, 2016 at 01:31 PM
"Let's stop pretending unemployment is voluntary" is the title for chapter four of Roger Farmer's book,"Prosperity for All: How to Prevent Financial Crises."

That is not good enough.

No. Let's stop pretending that the "pretending" is innocent. Let's stop pretending that it isn't a deliberate fraud that has been aided and abetted by most of the economics profession.

Sandwichman -> Sandwichman ... , December 07, 2016 at 01:36 PM
Why did they do it?

Because "equilibrium" is their shiny expert's meal ticket. Without it, they are nobody special with nothing valuable to sell to the Rich and Powerful.

fledermaus -> Sandwichman ... , December 07, 2016 at 03:31 PM
It is amusing to see a bunch of economists with physics envy totally disregard entropy w/r/t their vaunted "equilibrium" hypothesis.
Sandwichman -> fledermaus... , December 07, 2016 at 03:41 PM
It may be amusing the first time. After a while it just gets tedious.
Tom in MN : , December 07, 2016 at 03:43 PM
If you want to access the dynamical systems literature you should know the terminology that self-equilibrating systems have at least one stable equilibrium point with a non-empty domain of attraction (think downward pointing pendulum). Any state (set of variables describing the system configuration) that starts in this domain will end up at the stable equilibrium point. Non-linear systems can have several equilibria and some may be unstable as well, in that starting any small distance from those equilibria results in movement away from that equilibrium (e.g. an upside down pendulum). It is not enough to determine if a point is an equilibrium point, you must also check its stability.
reason -> Tom in MN... , December 09, 2016 at 07:27 AM
The trouble with this approach is that economics is describing a system that is not an equilibrium system in the first place. Economics is describing a system that is
1. Evolutionary
2. Dynamic. (In fact all the measurements are not measurements of a static state but of movements. Even apparently static things like asset values or the discounting sum of flow over time.)
reason -> reason... , December 09, 2016 at 07:30 AM
Just in case you don't see the relevance, just think about what happens if it is not the position that is moving but the equilibrium point (and worse the equilibrium point is not known, and perhaps unknowable).
reason : , December 08, 2016 at 12:32 AM
" If the expectations of agents are incompatible or inconsistent with the equilibrium of the model, then, since the actions taken or plans made by agents are based on those expectations, the model cannot have an equilibrium solution. ..."

There is clearly one very important word missing in this sentence.

Let me try again:

"" If the expectations of ANY agents are incompatible or inconsistent with the equilibrium of the model, then, since the actions taken or plans made by agents are based on those expectations, the model cannot have an equilibrium solution. ..."

Now what at first look seems merely far fetched, just became laughable.

reason -> reason ... , -1
I'm sorry, but this is very, very important. General equilibrium is the original sin of economics (especially Macro-economics). It is where it all went wrong. They should just drop it, and try to model the dynamic response of agents and the system to disequilibrium, which inevitably arises faster than equilibrating forces can possibly work. A more fundamental way of thinking about this is to realize that economics deals with transactions and all transactions are the result of a disequilibrium (at equilibrium all the trades are already made).

Where did the disequilibrium come from? When you understand the answer to that, you can understand what drives the economy. Not before.

[Dec 11, 2016] Azimov: What Im against is the attempt to place a persons belief system onto the nation or the world generally. We object to the Soviet Union trying to dominate the world, to communize the world.

Notable quotes:
"... What I'm against is the attempt to place a person's belief system onto the nation or the world generally. We object to the Soviet Union trying to dominate the world, to communize the world. The United States, I hope, is trying to democratize the world. But I certainly would be very much against trying to Christianize the world or to Islamize it or to Judaize it or anything of the sort. ..."
"... My objection to fundamentalism is not that they are fundamentalists but that essentially they want me to be a fundamentalist, too. ..."
"... Even in societies in which religion is very powerful, there's no shortage of crime and sin and misery and terrible things happening, despite heaven and hell. ..."
Dec 06, 2016 | moonofalabama.org
psychohistorian
@ juliania who asked for clarification about my thoughts about religions in general and Xtians i particular.

I was raised Catholic and went to Catholic school for 12 years, the last 4 with Jesuits. I do give the Jesuits credit for teaching me to think.

As I thought more and educated myself further about history I wondered why religions were not fully relegated to honorable myth after the Enlightenment period. It was clear to me that they were pushing rules of social organization that were patriarchal and elitist....and still are. Their enforcement of the rules is beyond hypocritical now and I see many who ascribe to one or another but in name only. If Xtians leaders and their followers were true to their precepts we would not have war and the money changers would not exist.....hence my Devils pact theory.

And then as I learned more about the Cosmos we live in I realized the hubris of a species that creates Gods in their likeness. I explain it to folks this way:

1. Science, which I believe much of, has learned that the Cosmos consists of almost 5% matter, which we are starting to know some things about but still clueless in many ways.

2. The remaining 95% of the Cosmos the science folk have some theories about but mostly we are very clueless about that 95%

3. Does it make any sense that our species that is part of the 5% matter of the Cosmos can discover/create/believe in any deity given our utter ignorance at this point in our existence?

4. I think it takes the utmost hubris to do so and view religions as crutches for those that can't handle not knowing.

That said, I think that religions have come up with some useful thoughts to help guide society but should not be thought of as having any more of a clue than the scientists. Religions, IMO, should be relegated to the wonderful myth they represent in our history, certainly longer than the 6K years the "serious" Xtians believe. True science, that is based rigorously on rules of discovery has, IMO, ongoing relevance in our world.

Since I am on this topic and it is an open thread let me share some parts of an interview between Bill Moyers and Isaac Asimov that speaks more to this subject:

MOYERS: The fundamentalists see you as the very incarnation of the enemy, the epitome of the secular humanist who opposes God's plan for the universe. In 1984, the American Humanist Society gave you their Humanist of the Year Award, and you're now president of that organization. Are you an enemy of religion?

ASIMOV: No, I'm not. What I'm against is the attempt to place a person's belief system onto the nation or the world generally. We object to the Soviet Union trying to dominate the world, to communize the world. The United States, I hope, is trying to democratize the world. But I certainly would be very much against trying to Christianize the world or to Islamize it or to Judaize it or anything of the sort.

My objection to fundamentalism is not that they are fundamentalists but that essentially they want me to be a fundamentalist, too. Now, they may say that I believe evolution is true and I want everyone to believe that evolution is true. But I don't want everyone to believe that evolution is true, I want them to study what we say about evolution and to decide for themselves.

Fundamentalists say they want to treat creationism on an equal basis. But they can't. It's not a science. You can teach creationism in churches and in courses on religion.

They would be horrified if I were to suggest that in the churches they teach secular humanism as an alternate way of looking at the universe or evolution as an alternate way of considering how life may have started. In the church they teach only what they believe, and rightly so, I suppose. But on the other hand, in schools, in science courses, we've got to teach what scientists think is the way the universe works.

MOYERS: But this is what frightens many believers. They see science as uncertain, always tentative, always subject to revisionism. They see science as presenting a complex, chilling, and enormous universe ruled by chance and impersonal laws. They see science as dangerous.

ASIMOV: That is really the glory of science - that science is tentative, that it is not certain, that it is subject to change. What is really disgraceful is to have a set of beliefs that you think is absolute and has been so from the start and can't change, where you simply won't listen to evidence. You say, "If the evidence agrees with me, it's not necessary, and if it doesn't agree with me, it's false." This is the legendary remark of Omar when they captured Alexandria and asked him what to do with the library. He said, "If the books agree with the Koran, they are not necessary and may be burned. If they disagree with the Koran, they are pernicious and must be burned." Well, there are still these Omar-like thinkers who think all of knowledge will fit into one book called the Bible, and who refuse to allow it is possible ever to conceive of an error there. To my way of thinking, that is much more dangerous than a system of knowledge that is tentative and uncertain.

MOYERS: Do you see any room for reconciling the religious view in which the universe is God's drama, constantly interrupted and rewritten by divine intervention, and the view of the universe as scientists hold it?

ASIMOV: There is if people are reasonable. There are many scientists who are honestly religious. Millikan was a truly religious man. Morley of the Michelson-Morley experiment was truly religious. There were hundreds of others who did great scientific work, good scientific work, and at the same time were religious. But they did not mix their religion and science. In other words, if something they understand took place in science, they didn't dismiss it by saying, "Well, that's what God wants," or "At this point a miracle took place." No, they knew that science is strictly a construct of the human mind working according to the laws of nature, and that religion is something that lies outside and may embrace science. You know, if there were suddenly to arise scientific, confirmable evidence that God exists, then scientists would have no choice but to accept that fact. On the other hand, the fundamentalists don't admit the possibility of evidence that would show, for example, that evolution exists. Any evidence you present they will deny if it conflicts with the word of God as they think it to be. So the chances of compromise are only on one side, and, therefore, I doubt that it will take place.

MOYERS: What frightens them is something that Dostoevski once said - if God is dead, everything is permitted.

ASIMOV: That assumes that human beings have no feeling about what is right and wrong. Is the only reason you are virtuous because virtue is your ticket to heaven? Is the only reason you don't beat your children to death because you don't want to go to hell? It's insulting to imply that only a system of rewards and punishments can keep you a decent human being. Isn't it conceivable a person wants to be a decent human being because that way he feels better?

I don't believe that I'm ever going to heaven or hell. I think that when I die, there will be nothingness. That's what I firmly believe. That's not to mean that I have the impulse to go out and rob and steal and rape and everything else because I don't fear punishment. For one thing, I fear worldly punishment. And for a second thing, I fear the punishment of my own conscience. I have a conscience. It doesn't depend on religion. And I think that's so with other people, too.

Even in societies in which religion is very powerful, there's no shortage of crime and sin and misery and terrible things happening, despite heaven and hell. I imagine if you go down death row, and ask a bunch of murderers who are waiting for execution if they believe in God, they'll tell you yes. I wouldn't be surprised if the number of people in jail for fraud, for violent crimes, for everything, includes a smaller percentage of acknowledged atheists than we have in the general population. So I don't know why one should think that just because you don't want a ticket to heaven, and you don't fear a ticket to hell, you should be a villain.

psychohistorian, Dec 4, 2016 8:23:42 PM | 108
One more quote from that Bill Moyer/Isaac Asimov interview and then I will stop

MOYERS: Is it possible that you suffer from an excessive trust in rationality?

ASIMOV: Well, I can't answer that very easily. Perhaps I do, you know. But I can't think of anything else to trust in. If you can't go by reason, what can you go by? One answer is faith. But faith in what? I notice there's no general agreement in the world. These matters of faith, they are not compelling. I have my faith, you have your faith, and there's no way in which I can translate my faith to you or vice versa. At least, as far as reason is concerned, there's a system of transfer, a system of rational argument following the laws of logic that a great many people agree on, so that in reason, there are what we call compelling arguments. If I locate certain kinds of evidence, even people who disagreed with me to begin with, find themselves compelled by the evidence to agree. But whenever we go beyond reason into faith, there's no such thing as compelling evidence. Even if you have a revelation, how can you transfer that revelation to others? By what system?

[Dec 07, 2016] Macroeconomics in the Crossfire (Again)

""The trouble is not so much that macroeconomists say things that are inconsistent with the facts." -- that's a clear sign of a cult.
Notable quotes:
"... "The trouble is not so much that macroeconomists say things that are inconsistent with the facts. The real trouble is that other economists do not care that the macroeconomists do not care about the facts. An indifferent tolerance of obvious error is even more corrosive to science than committed advocacy of error." ..."
"... The obvious explanation is ideological. While Simon Wren Lewis cannot prove it was ideological, it is difficult to understand why one would choose to develop theories that ignore some of the existing evidence, in an area that lacks data. There is a reluctance among the majority of economists to admit that some among them may not be following the scientific method but may instead be making choices on ideological grounds. This is the essence of Romer's critique. ..."
"... ...it is all but indistinguishable from Milton Friedman's ideologically-driven description of the macroeconomy. In particular, Milton Friedman's prohibition of fiscal policy is retained with a caveat about the zero-lower bound in recent years. To argue otherwise is to deny Keynes' dictum that 'the ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood.' ..."
"... What I find most egregous in Neo-classicism, is it's failure to accept that people invented government to perform tasks they individually could not. ..."
"... Economics is a foul and pestilent ghetto, an intellectual dead-end akin to Ptolemaic astronomy. The priests will continue adding epicycles to epicycles until they are dragged screaming to the asylum. ..."
"... There is always some revered academic economist readily available to support virtually any political narrative imaginable, even if it's total rubbish. It is truly a "science" for all seasons fostered by reverend figures with authority earned by many years diligent practice in translating gibberish into runes of mathematical formulae. That's more dainty than poking about in sheep guts with a sharp stick, but of little more use in the real world which lies outside the ivied towers. ..."
"... Diligence blesses them with tenure followed by offers to serve private or public patrons perpetually engaged in rent-seeking. These made men (and women) are essentially set for life, regardless of whatever nonsense they may forever promote thereafter. A few are blessed by the good luck of a Nobel which guarantees a prosperous sinecure and unlimited opportunity to promote their own vacuous political narratives masqueraded as "science". ..."
"... This cult enjoys perpetual protection within public and private safe spaces created by their well-heeled paymasters. It is one of a number of deeply attached parasites which cannot be safely excised from the corrupt body of the host without killing it. ..."
"... I should add that neoclassical economics has damaged economics by excluding explicitly the government sector in their models. As a result, the impact of government on the macroeconomy has not been properly understood ..."
"... Do the economists he names really not understand the computer stat model they are using? Are they admitting to making up the fudge factors to make their 'data' fit their (wrong headed) totem pole, supply and demand? I mean, there it is in black and white, by the economists' own words, that their math is just flat out wrong. ..."
"... The economics I learned in the early 1960's seems to work as well now as it did back then. I was lucky enough to be so busy at work in the decades that followed, that I did not have a chance to keep up on the mis-education of the time. When I had the time to start paying more attention to the subject again, I couldn't understand what had happened to the knowledge that I had learned that seemed to explain all that was happening in the economy. ..."
"... The Neolib-Globalist Ministry Of Truth erased it. You must not have got the memo. ..."
"... It's 2016 and some Dismal Scientists are still debating whether "involuntary unemployment" exists. ..."
"... If anything, Philip Mirowski has persuasively argued that neoliberalism requires a powerful State. ..."
"... He has shown that the neoliberal thought collective theorized an elaborate political mobilization, and recognized early on that the creation of a new market is a political process requiring the intervention of organized power. The political will to impose a market required a strong state and elaborate regulation and also that the State would need to expand its economic and political power over time. ..."
"... The neoliberal market had to be imposed it did not just happen. A key issue for the future is defining the nature of the state–whether under neoliberalism or MMT or under Trump or Sanders, or left populist or right populist. ..."
"... Mankiw belongs in the non-ideological camp? I don't see how anybody with a brain could read any of his work past the first page and still hold that view. ..."
"... agreed, Mankiw is an intellectual clown and he has been mis-educating students for decades now. ..."
Dec 07, 2016 | www.nakedcapitalism.com

Romer kicked off the debate in an essay, stating that for more than three decades, macroeconomics has gone backwards. He finds that the treatment of identification now is no more credible than in the early 1970s, but escapes challenge because it is so much more opaque. Macroeconomic theorists dismiss mere facts by feigning an obtuse ignorance about such simple assertions as "tight monetary policy can cause a recession." For Romer, the Nobel Prize-winning crop of macroeconomic theorists who transformed the field in the late 1970s and 1980s - Robert Lucas, Edward Prescott and Thomas Sargent – are the main people to be held responsible for this this development. Their models attribute fluctuations in aggregate variables to imaginary causal forces that are not influenced by actions that any person takes. Especially when it comes to monetary policy, the belief that it has no or little effect on the economy is disturbing, or as Romer puts it:

"The trouble is not so much that macroeconomists say things that are inconsistent with the facts. The real trouble is that other economists do not care that the macroeconomists do not care about the facts. An indifferent tolerance of obvious error is even more corrosive to science than committed advocacy of error."

... ... ...

Simon Wren-Lewis identifies yet another factor which lies at the heart of macroeconomic criticism: ideology. As an example he quotes Real Business Cycle (RBC) research from a few decades ago. That was only made possible because economists chose to ignore evidence about the nature of unemployment in recessions. There is overwhelming evidence that employment declines in a recession because workers are fired rather than choosing not to work, and that the resulting increase in unemployment is involuntary (those fired would have rather retained their job at their previous wage). Both facts are incompatible with the RBC model. Why would researchers try to build models of business cycles where these cycles require no policy intervention, and ignore key evidence in doing so? The obvious explanation is ideological. While Simon Wren Lewis cannot prove it was ideological, it is difficult to understand why one would choose to develop theories that ignore some of the existing evidence, in an area that lacks data. There is a reluctance among the majority of economists to admit that some among them may not be following the scientific method but may instead be making choices on ideological grounds. This is the essence of Romer's critique.

...it is all but indistinguishable from Milton Friedman's ideologically-driven description of the macroeconomy. In particular, Milton Friedman's prohibition of fiscal policy is retained with a caveat about the zero-lower bound in recent years. To argue otherwise is to deny Keynes' dictum that 'the ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood.'


PlutoniumKun, December 6, 2016 at 4:18 am

I can recall my very first lecture in Macroeconomics back in the mid 1980's when the Prof. freely admitted that macro had very little real world validity as the models simply didn't match the real world data. He advised us to focus on economic history if we wanted to understand how the real world worked. That was the only useful thing I learned from three years studying the subject.


Dr. George W. Oprisko, December 6, 2016 at 7:21 am

I cut y teeth on computer models of rainfall – streamflow relationships. We always started with constants derived from experimental or theoretical bases

Recently I was asked to critique a paper written by a colleague which reported results of a numeric model of plankton distribution in the Arabian Sea. In this paper his original constants based on known relationships gave results which did not agree with reality, so instead of looking for mistakes in his fundamentals, he massaged the constants until he got agreement. When I pointed out that he neglected the Somali Current, he was livid. That is, instead of thanking me for pointing out a glaring deficiency in his methodology, he chose to obfuscate.

I see the same thing prevalent in macro-economics, with the sole exception of Modern Monetary Theory. I find MMT to be the only variant which concretely explains the real economy.

What I find most egregous in Neo-classicism, is it's failure to accept that people invented government to perform tasks they individually could not.

iNDY

Jake, December 6, 2016 at 5:24 am

..and none of the economists were held responsible, refused tenure, tried in court or had their nobel prizes taken away. They continued serving their pay masters or their ideologies and nothing changed. Life went on, gradually becoming shittier, full of anxiety and ultimately meaningless. But hey atleast the great information processor is satisfying your utility!

PlutoniumKun,

December 6, 2016 at 6:23 am


One Irish macro professor did quite well after the Irish economic crash (2008) informing everyone about the correct policy approaches on various public media. His university department had one of his peer reviewed papers online dating from 2005 which advocated the adoption of US style sub-prime mortgages as a 'solution' to rising housing costs. Around 2010 the paper was quietly removed from all servers. I regret not saving a copy so it could be linked to every time he popped up in public.

UserFriendly, December 6, 2016 at 3:01 pm

If you bookmarked it: https://archive.org/web/

or if it was a research papser, find it here: https://scholar.google.com/

look for the doi and plug that in here (site does not work in Chrome) http://gen.lib.rus.ec/scimag/index.php or here http://sci-hub.cc/
The 1st has an author search too, but it isn't as good, but it might work.

I Have Strange Dreams, December 6, 2016 at 5:43 am

Kill it with fire!

Economics is a foul and pestilent ghetto, an intellectual dead-end akin to Ptolemaic astronomy. The priests will continue adding epicycles to epicycles until they are dragged screaming to the asylum.

Burn the whole subject to the ground and sow the razed economics departments with salt. Require economists to ring a bell when approaching the uninfected and cry "unclean! unclean!"

makedoanmend December 6, 2016 at 7:58 am

"unclean! unclean!"

actually belly-laughed – 1st ever belly-laugh from an interweb comment – Bravisimmo!

H/e, can't agree with you re: economics. As a historical and social area of study, it is valid in my book – even a necessity. Still, my eyes cross lately when I read the latest in economic "theory" on any scale. Such a dreary and detached subject these days. Rootless and toothless. Too bad.

best

Steve H. December 6, 2016 at 9:23 am

Every time a bell rings, an angel gets his wings. That is a called a positive externality in macroeconomics, and can therefore be defined in an equation. Which makes it thus so.

bh2 December 6, 2016 at 1:19 pm

There is no chance of killing off this mystery cult as long as politicians rely on its ruminations and incantations to help perpetuate them in office.

There is always some revered academic economist readily available to support virtually any political narrative imaginable, even if it's total rubbish. It is truly a "science" for all seasons fostered by reverend figures with authority earned by many years diligent practice in translating gibberish into runes of mathematical formulae. That's more dainty than poking about in sheep guts with a sharp stick, but of little more use in the real world which lies outside the ivied towers.

Economists, like carny balloon sellers, are paid based on volume, not weight. Diligence blesses them with tenure followed by offers to serve private or public patrons perpetually engaged in rent-seeking. These made men (and women) are essentially set for life, regardless of whatever nonsense they may forever promote thereafter. A few are blessed by the good luck of a Nobel which guarantees a prosperous sinecure and unlimited opportunity to promote their own vacuous political narratives masqueraded as "science".

This cult enjoys perpetual protection within public and private safe spaces created by their well-heeled paymasters. It is one of a number of deeply attached parasites which cannot be safely excised from the corrupt body of the host without killing it.

Lyonwiss December 6, 2016 at 6:31 am

We live in a post-truth or post-fact world, where truth and fact do not matter.

But the fact is: Keynes has never gone away in the sense that governments have always been trying to manage the economy with fiscal and monetary policies – which (to me) is the essence of Keynes and macroeconomics. Most governments run budget deficits to stimulate demand. It is merely cognitive dissonance of academics to think neoclassical economics only is mainstream and solely responsible for the GFC, just because to them there is an apparent bias in research funding at universities.

Yves Smith Post author December 6, 2016 at 6:39 am

Have to tell you I don't agree entirely.

First, government is such a huge portion of the economy that its actions have huge influence and therefore the impact has to be managed. Pretending you can have some type of neutral autopilot is a false idea, but that is the bedrock of economic thinking, that economies have a natural propensity to equilibrium and that equilibrium is full employment.

Second, it's not done much these days, but the best forms of intervention are ones that are naturally countercyclical so you don't have politicians wrangling and have pork and election timing and results and inertia get in the way.

Lyonwiss December 6, 2016 at 6:57 am

I'm not defending neoclassical economics. In economics, the alternative to a wrong is another wrong. Governments are politically compelled to intervene. But with the Keynesian economic fallacy, their interventions make things worse in the long-run. Please visit my blog:

http://www.asepp.com/keynesian-fallacy-collapse/

OpenThePodBayDoorsHAL December 6, 2016 at 3:19 pm

"The Battle of Bretton Woods" is very instructive. Start with two intellectuals (Keynes and Harry Dexter White) who were big fans of Stalinist Russia's command economy ("I've seen the future and it works!"). Last time I checked this kind of tomfoolery ("we will raise X number of cows because we think we'll need leather for Y number of shoes") has been utterly discredited. Implement for the global currency and trade systems. Fast forward to today where there are massive imbalances, global currency wars, and a race to zero and beyond that has sucked all demand from the future to the present and now the past. And the shining answer, the clarion rallying cry, is "we just need more debt, and we need some new rugs to sweep all the bad debt under".

All while "macro-economists" propagate models that completely misunderstand how money is actually created and distributed. All I can say is "Forward Soviet!".

Ruben December 6, 2016 at 9:17 am

Indeed. Gov't is the biggest business in town in every economy, everything else, even giant corporations, are minuscule players in comparison. This is a large source of dynamical behavior, the swings and re-balancing as the State throw its weight around in the marketplace.

diptherio December 6, 2016 at 10:33 am

the bedrock of economic thinking, that economies have a natural propensity to equilibrium and that equilibrium is full employment

And, of course, "full employment" is defined as whatever level of employment actually exists 'cause science!

Lyonwiss December 6, 2016 at 3:52 pm

I should add that neoclassical economics has damaged economics by excluding explicitly the government sector in their models. As a result, the impact of government on the macroeconomy has not been properly understood. The empirical facts, without theories or equilibrium assumptions etc., show the failure of government policy of demand stimulation: http://www.asepp.com/fiscal-stimulus-of-consumption/

Foppe December 6, 2016 at 7:02 am

It seems to me that for something to be called "keynesian", it should also mean that the aim of those policies was to help create robust private demand (though I doubt Keynes was as emotionally handicapped as today's mainstream bean-counting theorists are, if only because gdp figures didn't yet dominate macro thinking in the manner they do today, thanks to everyone having received "economics education" in school); if not, it wolud more fairly be called Marxist, because he was the one from whom Keynes (indirectly, as he refused to read Marx personally) pilfered his insights. What matters is whether we've got 'socialism for the rich / incumbents / industrial complexes', or "socialism" (well, social-democrat, liberal new-dealerism) for the "masses".

craazyboy December 6, 2016 at 8:23 am

Well, I have to say this article reminds me too much of the DNC sole searching over why Hillary didn't win. Just another room full of wantonly clueless people.

Does start out on a high note where Romer states the problem is economists don't care if they are winging and slinging BS from their arses same as chimpanzees.

I guess the article coulda ended there. But no.

Noah Smith laments a shortage of macro data – so the who knows how many gigs at FRED are found wanting and I guess the BLS, etc aren't up to snuff either. Or maybe Noah means they are fabricating phoney data? Then Noah doubles down on the efficacy of interest rate policy – after 9 years in the liquidity trap.

[Caution: The following is allegory – we are speaking of the high priestess here.]

We then are treated to JYell and her discovery of the buggy whip. She states there is current research being done on buggy whips, and more research is necessary. She is able to use big words to speak of these buggy whips. Some of these words are borrowed from real science – making this more scientific. Like hysteresis – and even an example for lay-off people. It's possible you may never work again and add to the long term employment rate! Yikes. Worse yet, their definition of "long term" is longer than 6 months. After that, 7 months or retire at 30 is all the same to them. "Heterogeneity" is another good one. For use in polite company. Has an Evil Twin named inequality and a macro version called crony capitalism. JYell can keep the hits coming!

I'm tired of typing someone else can take up the rest of it.

craazyboy December 6, 2016 at 8:30 am

oops. Editor asleep again. sole s/b soul. Or maybe not.

Ruben December 6, 2016 at 9:06 am

The complaint about not enough data struck me too; actually economist have vasts amounts of data to gain insights from and test hypothesis against because economies are well recorded human endeavours, recorded in actual painful detail thanks to the inexhaustible efforts of statemen and statewomen to know everything about the populations they control and harvest. Probably more data-oriented lines of research would lead to progress in macro-economy as a scholarly discipline?

John Zelnicker December 6, 2016 at 9:40 am

@Ruben – They want more data because the data that exists cannot be explained by their eloquent mathematical theories, which are based on assumptions that are ridiculous on their face e.g., rational expectations and utility maximization. The hope is that additional data will fit the theories better allowing them to remain comfortably ensconced in their fantasy world of regressions and p values.

fledermaus December 6, 2016 at 2:37 pm

Which is how we get adjustments to CPI based on the premise that CPI is overstating inflation. Now the hip thing is that productivity is undermeasured because economists don't like what the numbers are saying, so we can expect an upwards adjustment there as well.

Barry December 6, 2016 at 12:52 pm

One of the problems with all that data is that events not recorded or whose price can't be measured are defined as not really real.

H. Alexander Ivey December 6, 2016 at 9:16 am

I'll take up my keys then.

Read Romer's article, twice. Will need a third try to fully get it, but as someone with a modest background in engineering and engineering mathematics, I still can't quite believe what Romer is saying. Do the economists he names really not understand the computer stat model they are using? Are they admitting to making up the fudge factors to make their 'data' fit their (wrong headed) totem pole, supply and demand? I mean, there it is in black and white, by the economists' own words, that their math is just flat out wrong.

Now Romer is writing for the inside crowd, as an long time, connected insider himself, so don't expect an easy read. But he writes quite clearly what is the problem with economics so the main idea, that macro economics, in rejecting an early model of macro economics (Keynesian) because said model was based on a few openly stated fudge factors, have spent the last 40 years building models that are 1. full with even more fudge factors, 2. these fudge factors are never openly stated, and 3. the new models have given truly disastrous results in the real world (also known as the US economy, amoung others). Along the way, he names names and steps on some toes. Then he finishes up with a full charge of how the 'dismal science' is a lying religion, nothing at all like truth seeking science.

Okay, I'll quit here before I hurt myself. Let someone else slam the keys. (haha)

Steven Greenberg December 6, 2016 at 8:34 am

The economics I learned in the early 1960's seems to work as well now as it did back then. I was lucky enough to be so busy at work in the decades that followed, that I did not have a chance to keep up on the mis-education of the time. When I had the time to start paying more attention to the subject again, I couldn't understand what had happened to the knowledge that I had learned that seemed to explain all that was happening in the economy.

craazyboy December 6, 2016 at 6:10 pm

The Neolib-Globalist Ministry Of Truth erased it. You must not have got the memo.

Katharine December 6, 2016 at 10:05 am

I was surprised to learn that Yellen had expressed any interest in the people permanently out of the labor market. I thought all the discussions of interest rates focused almost exclusively on what in my mind is the unemployment pseudo-rate, which completely ignores those people.

Regardless of which rate is considered, I have never been able to comprehend the mind that can talk about acceptable levels of unemployment. Acceptable to whom? The people who lose their homes, and sometimes their neighborhood networks when they have to move, and may with just a little bad luck slide into still worse conditions? The communities that see more people becoming burglars, muggers, bank robbers, drug dealers, and prostitutes because only the illegal economy has any place for them? I have never seen a sustained or general effort to look at the economic consequences of those events, much less an admission of the immorality of causing so much trouble. It seems to me that a macroeconomics that divorces itself from those possibly micro concerns will be forever irrelevant to good policy.

chuck roast December 6, 2016 at 11:50 am

Way back prior to the great Permian-Triassic Extinction, I was fortunate enough to wander around an Economics Department where I could encounter intellectual dead-ends like Keynes, Marx, Polanyi, Kalecki, Veblen – all of whom prepared me to pump-gas at the local filling station oh wait!
Having somehow successfully survived the subsequent big-brain epoch, I settled comfortably into making a modest annual donation to a scholarship fund for budding economists at the olde U. Then it came to my attention that not only could one still obtain a BA in Economics, but the olde school was also awarding two different Bachelor on Science degrees in Economics. Breathtaking! Economics, an actual science! Like for example physics!
I am now in the reduced circumstance of donating only to my old high school in the doubtless vain hope that the youngsters will study enough science to be able to shoot these aspiring BS cone-heads to the moon.

ChrisAtRU December 6, 2016 at 1:17 pm

It's 2016 and some Dismal Scientists are still debating whether "involuntary unemployment" exists.

#FacePalm

Perhaps we should deploy them to that Carrier plant to investigate. So thankful for heterodox voices:
Abba Lerner – Functional Finance
Hyman Minsky – Financial Instability
Wynne Godley – Sectoral Balances
Entire MMT School – Mosler, Wray, Kelton, Tcherneva et al
#ThereIsHope

witters December 6, 2016 at 4:03 pm

Gee, why attack the one healthy sector of the economy, the Wealth Defence Industry?

(Why did so much of 'the social-democratic left' go along all this? I think John Rawls gave them the excuse. He said inequality is great if the worse off are better off under this economic system than they would be under a more equal one. The poor can therefore protest if they can show that if we did things more equally they would be better off. The task of the economist today is to ward this possibility off by ensuring that economic thought is utterly subservient to oligarchic extraction. It does this by lying – Trickle Down! Rising Tide Lifts all Boats! This has worn out. So next it does There Is No Alternative! – 'Those Jobs are Never Coming Back', 'Robots!' And finally, to make really certain, it turns the whole discipline into toadying intellectual fantasy. Romer homed in on the last.)

Jim December 6, 2016 at 4:28 pm

"Too much market and too little state invites a backlash."

If anything, Philip Mirowski has persuasively argued that neoliberalism requires a powerful State.

He has shown that the neoliberal thought collective theorized an elaborate political mobilization, and recognized early on that the creation of a new market is a political process requiring the intervention of organized power. The political will to impose a market required a strong state and elaborate regulation and also that the State would need to expand its economic and political power over time.

The neoliberal market had to be imposed it did not just happen. A key issue for the future is defining the nature of the state–whether under neoliberalism or MMT or under Trump or Sanders, or left populist or right populist.

ChrisPacific December 6, 2016 at 5:29 pm

Mankiw belongs in the non-ideological camp? I don't see how anybody with a brain could read any of his work past the first page and still hold that view.

I'm imagining them all as engineers on the deck of a half-submerged Titanic, debating about whether the hull integrity model might perhaps not have been 100% accurate.

Robert NYC December 7, 2016 at 2:22 pm

agreed, Mankiw is an intellectual clown and he has been mis-educating students for decades now.

susan the other December 6, 2016 at 5:43 pm

Ann Pettifor. give me ann pettifor always. she never puts the cart before the horse, only the ideological neoliberals try to do that while keeping a straight face – they are quintessential con artists if there ever were.

Dick Burkhart December 6, 2016 at 10:00 pm

Excellent article, except it failed to point out that there are realistic and successful modeling techniques, in addition to historical studies. These techniques are based on the nonlinear nature of real world economies. Just use complexity and evolutionary techniques like agent based models and nonlinear dynamical systems. Nothing new here – I still think that the limits-to-growth models ("system dynamics" = nonlinear dynamical systems) of the early 1970s represent the best mathematical economics ever done. And the economists' agent based models are just a variation on cellular automata, which have been used with notable success in other fields for many decades.

The problem is that economists either maintained a deliberate ignorance of such methods, or have outright rejected them, like Nordhaus with system dynamics. In part this is because these techniques involve a different mind set: they trade off simplistic models that are easy to understand, but whose assumptions are demonstrably false, with complexity results that give much better real world results but have more nuanced narratives.

RBHoughton December 6, 2016 at 10:17 pm

Ann Pettifor is right about Brexit imo. The belief and the fact is that government is trying a fast one on the people without being straightforward in its motives or intentions and a major cause of the discontent and disillusionment seems to stem from the macro-economic error she highlights.

People don't want this mumbo-jumbo any more. The old professions – medicine, accountancy, law – created jargons of specialist words and phrases (usually Latin) to make their speech and writings incomprehensible to the hoi polloi. Then in recent decades all sorts of trades have adopted the same jargon approach to mystifying their work. Enough already! Say what you mean, mean what you say.

ewmayer December 7, 2016 at 4:06 am

"Nick Bunker points out that in a recent speech, the Federal Reserve Chair Janet Yellen raised important questions about macroeconomic research in the wake of the Great Recession."

Hint: Citing an ivory-tower twit like J-Yel as "raising important questions" is a huge bullshit tell. While she was at it, did Janet raise any important questions as to why virtually every highly credentialed macroeconomist on planet earth completely fail to foresee the global financial crisis and the massive distortions, in very large part caused by the machinations of the high priests of those "believers in the power of monetary policy", which portended its coming? But, on to the bullshit:

"The first area of interest is the influence of aggregate demand on aggregate supply. Yellen points to research that increasingly finds so-called hysteresis effects in the macroeconomy. Hysteresis, a term borrowed from physics, is the idea that short-run shocks to the economy can alter its long-term trend. One example of hysteresis is workers who lose jobs in recessions and then are not drawn back into the labuor [sic] market but rather permanently locked out, therefore increasing the long-term unemployment rate."

That's irreversibility, not hysteresis. The latter is a special case of the former, which the chosen example does not illustrate. An example of hysteresis from my shower's temperature control: I find the temp is a tad too high, and turn the control a bit toward the cold setting. But I overshoot my target, and now it's too cold. Nudge back toward hot, but the somewhat-sticky mechanism again overshoots and lands more or less on the starting "too hot" position. But the water is still too cold, and I find I have to nudge even further toward hot to fix that. That's hysteresis. In the context of the recession example, hysteresis would be e.g. if once the E/P ratio had recovered to its pre-recession level but growth and its correlates remained weaker than expected, say due to the "recovery jobs" being on average of poorer quality than those which were lost. Kinda like the current 8-year-long "recovery", come to think of it! But I will admit that glossing over such messy real-world details like "widespread worker immiseration" with hifalutin terminology-borrowed-form-actual-science like "hysteresis:" is a great way to make oneself sound important, cloistered there in one's ivory tower.

"Another open research question that Yellen raises is the influence of "heterogeneity" on aggregate demand. Ignoring this heterogeneity in the housing market and its effects on economic inequality seems like something modern macroeconomics needs to resolve."

Ah yes, "needs to resolve" - that implies lots of high-powered academic conferences and PhD theses. And it's so wonderfully wishy-washy compared to "is something only a joke pretend-scientific discipline would even need to consider stopping doing, because no self-respecting discipline would have abandoned assumptions of homogeneity in roughly Year 2 of said discipline's evolutionary history."

"Yellen raises other areas of inquiry in her speech, including better understanding how the financial system is linked to the real economy and how the dynamics of inflation are determined.

Hey, when y'all finally "better understand" how this whole "financial system" thingy is linked to the real economy, by all means do let us know, because it seems like such a linkage might have, like, "important ramifications", or something. As to inflation, you mean actual inflation, or the fake measures thereof the folks at the world's central banks make their stock in trade? You know, for example, "in determining house price inflation we studiously ignore actual house prices and instead use an artificial metric called Owner's Equivalent Rent, which itself studiously ignores actual prices renters pay. Ain't it cool?"

Sorry if I sound grumpy, but this article is rather reminiscent of reading US Dem-party insiders pretending to "soul search" in re. Election 2016. Let's see:

"Another open research question that Team HRC raises is the influence of "heterogeneity" on voting preference. Ignoring this heterogeneity in the electoral trends and its effects on election outcomes seems like something modern macroelectorodynamics needs to resolve."

UserFriendly December 7, 2016 at 4:13 am

Paragraph 2

1970s and 1980s - Robert Lucas, Edward Prescott and Thomas Sargent – are the main people to be held responsible for this this development.

Is there something I can say to make sure the automod snags me when I'm pointing out a typo so you don't have to keep the comment?

[Dec 04, 2016] The myth of Ronald Reagan: pragmatic moderate or radical conservative?

Notable quotes:
"... he changed American politics forever by demonstrating that style was more important than substance. In fact, he showed that style was everything and substance utterly unimportant. ..."
"... Conservatives used "bracket creep" to convince the middle class that reducing marginal rates on the top tax brackets along with their own would be a good idea, then with the assistance of Democrats replaced the revenue with a huge increase in FICA so that the Social Security Trust Fund could finance the deficit in the rest of the budget. The result was a huge boon to the richest, little difference for the middle class, and a far greater burden for the working poor. ..."
"... Any conversation about who the fantasy-projection "Reagan" was, misses an important reality: He was a hologram, fabricated by a kaleidoscope of various sorts of so-called "conservative" handlers and puppeteers. It was those "puppeteers" who ranged from heartlessly, stunningly "conservative" (destroya-tive), all the way further right to the kind of militaristic, macho, crackpots who have finally emerged from under their rocks at this year's "candidates." ..."
The Guardian


cgoodwood 19 Sep 2015 11:40

Do not contradict the memories of all the old teabaggers who desperately need the myth of Saint Ronnie to justify their Greed is Good declining mentality and years.

When Reagan cut-and-ran on Lebanon he showed rare discretion. A lot of the puffery stuff was B-Movie grade, but there was a lot of cross-the-aisle ventures, too.

He was a politician. The current GOP is just a bunch of white Fundie bullies, actually and metaphorically (e.g., Carson).

Zepp -> thedono 19 Sep 2015 11:37

Well, compared to Cruz, or Santorum, or Huckabee, he's a moderate. Of course, compared to the right people, you can describe Mussolini or Khruschev as moderates...

mastermisanthrope 19 Sep 2015 11:37

Lifelong shill

LostintheUS -> William J Rood 19 Sep 2015 11:36

Reagan underwent a political conversion when Nancy broke up his marriage with Jane Wyman and married him.

LostintheUS 19 Sep 2015 11:33

Here is the Reagan administration in a five second video clip:
https://www.youtube.com/watch?v=NR3RqMMIwD4

LostintheUS -> inchoateruffian 19 Sep 2015 11:32

Here is the video clip where Don Regan (former CEO of Merrill Lynch) tells PRESIDENT Reagan to "speed it up".

https://www.youtube.com/watch?v=NR3RqMMIwD4

RightSaid -> ID3732233 19 Sep 2015 11:31

The cold war ended while Reagan was president, but he did not win the cold war. His rhetoric and strategy was wishful thinking - there's no way he could have had the definitive intelligence about the entire military-political-economic that would have justified the confidence he projected. He merely lucked out, significantly damaging the US economy by trying (and luckily succeeding) to out-militarize the soviets.

pretzelattack -> kattw 19 Sep 2015 11:31

both clinton and obama have showed a willingness to "reform social security". try naked capitalism, there are probably a number of articles in the archives.

LostintheUS -> piethein 19 Sep 2015 11:29

And that the emergency room federally funded program that saved his life was soon after defunded...by him.

LostintheUS -> pretzelattack 19 Sep 2015 11:28

Many of us saw through him...I noted the senility during his speeches during his first campaign...as did many people I knew.

pretzelattack -> 4Queeen4country 19 Sep 2015 11:27

thatcher said of reagan "bit of a dim bulb..."

Jim Loftus 19 Sep 2015 11:26

Dementia masquerading as politics.
But you can't say anything negative about Saint Ronald!

Peter Davis -> Peter Davis 19 Sep 2015 11:22

I believe Reagan also is responsible for creating the Hollywood notion in American politics and political thinking that life works just like a movie--with good guys and bad guys. And all one needs is a gun and you can save the world. That sort of delusional thinking has been at the heart of the modern GOP ever since.

loljahlol -> ID3732233 19 Sep 2015 11:21

Reagan did not end the Cold War. Brezhnev rule solidified the Soviet death. Their corrupt, inefficient form of capitalism could not compete with the globalization of Western capitalism.

John78745 19 Sep 2015 11:21

There's not much nuance to Reagan. He was a coward, a bully and a loser. He got hundreds of U.S. Marines killed then he ran from the terrorists in Beirut and on the Archille Lauro personally creating the seeds of the morass of terrorists we now live with. He fostered the republican traditions of sending U.S. jobs overseas at the expense of U.S. taxpayers and of invading helpless, hapless nations, a tradition so adeptly followed by Bush I & II. He also promised that there would never be a need for another amnesty.

I guess it's true that he talked mean to the Russians, broke unions, and helped make the military industrial complex into the insatiable war machine that it is today. Remember murderous Iran-Contra (a real) scandal where he and his minions worked in secret without congressional authorization to overthrow a democratically elected government while conspiring to supply arms to the dastardly Iranians!

We could also say that he bravely fought to save the U.S. from socialized medicine and to expunge the tradition of free tuition for California students. Whatta hero!

thankgodimanatheist 19 Sep 2015 11:19

Reagan, the acting President, was the worst President since WWII until the Cheney/Bush debacle.

Most of the problems we face today can be directly traced to his voodoo economics, huge deficit spending, deregulation, and in retrospect disastrous foreign policies.


LostintheUS 19 Sep 2015 11:17

"these days everyone seems to love Ronald."

Absolutely, not true. The farther along we go in time, the more Americans realize the damage this man and his backers did to America and the world. The inversion of the tax tables, the undoing of union laws, the polarization of Americans against each other so the plutocrats had no real opposition and on and on. His camp stole the election in 1980 through making a back door deal with the Iranian government to hold onto the American hostages until the election when Jimmy Carter had negotiated an end to the hostage crisis, which was the undoing of Jimmy Carter's administration.

"Behind Carter's back, the Reagan campaign worked out a deal with the leader of Iran's radical faction - Supreme Leader Ayatollah Khomeini - to keep the hostages in captivity until after the 1980 Presidential election." This is, unquestionably, treason. http://www.truth-out.org/opinion/item/20287-without-reagans-treason-iran-would-not-be-a-problem

No, Reagan marks the downward turn for our country and has resulted in the economic and social mess we still have not clawed our way back out of. No, Reagan is no hero, he is an American nemesis and a traitor. Reagan raised taxes three times while slashing the tax rate of the super rich...starting the downward spiral of the middle-class and the funneling of money toward the 1%. Thus his reputation as a "tax cutter", yeah, if you were a multi-millionaire.

Check this out for a synopsis of the damage: http://www.dailykos.com/story/2011/02/10/942453/-How-Ronald-Reagan-s-Policies-Destroyed-the-United-States#

namora -> nogapsallowed 19 Sep 2015 11:15

Never thought of Reagan as the first Shrub but it fits. I wonder if future pundits will sing the Dub's praises as well. I think I'm gonna be sick for a bit.

kattw -> namora 19 Sep 2015 11:10

Pretzel is maybe talking about the 'strengthen SS' bandwagon? Perhaps? Not entirely sure myself, but yeah - one of the major democrat platform planks is that SS should NOT be privatized, and that if people want to invest in stocks, they can do that on their own. The whole point of SS is to be a mattress full of cash that is NOT vulnerable to the vagaries of the market, and will always have some cash in it to be used as needed.

SS would be totally secure, too, if congress would stop robbing it for other projects, or pay back all they've borrowed. As it is, I wish *I* was as broke as republicans claim SS is - I wouldn't mind having a few billion in the bank.

William J Rood 19 Sep 2015 11:08

Reagan was former president of the Screen Actors' Guild. Obviously, he thought unions for highly educated workers were great. Meatpackers? Not so much.

RealSoothsayer 19 Sep 2015 11:04

This article does not mention the fact that in his last couple of years as President at least, his mental state had seriously deteriorated. He could not remember his own policies, names, etc. CBS' Leslie Stahl should be prosecuted for not being honest with her everyone when she found out.

Peter Davis 19 Sep 2015 11:04

Reagan was a failed president who nonetheless managed to convince people that he was great. He was a professional actor, after all. And he acted his way into the White House. Most importantly, he changed American politics forever by demonstrating that style was more important than substance. In fact, he showed that style was everything and substance utterly unimportant. He was the figurehead while his handlers did the dirty work of Iran-Contra, ballooning deficits, and tanking unemployment.

nishville 19 Sep 2015 11:03

For me, he was a pioneer. He was the first sock-puppet president, starting a noble tradition that reached its climax with W.

mbidding -> hackerkat 19 Sep 2015 11:03

In addition to:

Treasonous traitor when, as a presidential candidate, he negotiated with Khomeini to hold the hostages till after the election.

Subverter of the Constitution via the Iran-Contra scandal.

Destroyer of social cohesion by turning JFK's famous admonishment of "ask not what your country can do for you, ask what you can do for your country" on its head with his meme that all evil emanates from the government and taxation represents stealing rather than a social obligation for any civilized society that wishes to continue to develop in a sound fashion that lifts all boats.

Incarcerator in Chief through his tough on crime and war on drugs policies, not to mention defunding mental health care.

Pisser in Chief through his successful efforts to imbed trickle down economics as the economic thought du jour which even its original architects, notably Stockman, now confirm is a failed theory that we nonetheless cling to to this day.

Ignoramus in Chief by gutting real federal financial aid for higher education leading to the obscene amounts of student debt our college students now incur.

Terrorist creator extraordinaire not only with the creation of the Latin American death squads you note, but the creation, support, trading, and funding of the mujahedin and Bin Laden himself, now known as the Taliban, Al Qa'ida, and ISIS, only the most notable among others.

namora -> trholland1 19 Sep 2015 10:59

That is not taking into account his greatest role for which he was ignored for a much deserved Oscar, Golden Globe or any of the other awards passed out by the entertainment industry, President of The United States of America. He absolutely nailed that one.

William J Rood 19 Sep 2015 10:58

Conservatives used "bracket creep" to convince the middle class that reducing marginal rates on the top tax brackets along with their own would be a good idea, then with the assistance of Democrats replaced the revenue with a huge increase in FICA so that the Social Security Trust Fund could finance the deficit in the rest of the budget. The result was a huge boon to the richest, little difference for the middle class, and a far greater burden for the working poor.

Tax brackets could have been indexed to inflation, but that wouldn't have been so great for Reagans real supporters.

Doueman 19 Sep 2015 10:55

What sad comments by these armchair experts.

They don't gel with my experiences in North America during this period at all. When Reagan ran for the presidency he was generally ridiculed by much of the press in the US and just about all of the press in the UK for being a right wing fanatic, a lightweight, too old, uninformed and even worse an actor. I found this rather curious and watched him specifically on TV in unscripted scenarios to form my own impression as to how such a person, with supposedly limited abilities, could possibly run for President of the US. I get a bit suspicious when organisations and individuals protest and ridicule too much.

My reaction was that he handled himself well and gradually concluded that the mainly Eastern liberal press in the US couldn't really stomach a California actor since they themselves were meant to know everything. He actually was pretty well read ( visitors were later astonished to read his multiple annotations in heavy weight books in his library). He was a clever and astute union negotiator dealing with some of the toughest Hollywood moguls who would eat most negotiators for dinner. He had become Governor of California and had done a fine job. I thought it was unlikely he was the simpleton many portrayed. He couldn't be easily categorised as he embraced many good aspects of the Democrats and the Republicans. Life wasn't so polarised then.

The US had left leaning Republicans and right wing Democrats. A political party as Churchill noted was simply a charger to ride into action.

In my view, his presidential record was pretty remarkable. A charming, fair minded charismatic man without the advantage of a wealthy background or influential family. The world was lucky to have him.

raffine -> particle 19 Sep 2015 10:50

Reagan's second term was a disaster. But as someone below mentioned, conservative pundits and their financers engaged in a campaign to make Reagan into a right-wing FDR. The most effective, albeit bogus, claim on Reagan's behalf was that he had ended the Cold War.

jpsartreny 19 Sep 2015 14:22

Reagan is the shadow governments greatest triumph. After the adolescent Kennedy, egomaniacs Johnson and Nixon , they needed front guys who followed orders instead .

The experiment with the peanut farmer from Georgia provided disastrous to Zebrew Brzezinski and the liberals. The conservatives had better luck with a B- movie actor with an great talent to read of the teleprompter.

RealSoothsayer -> semper12 19 Sep 2015 14:19

How? By talking? Gobachev brought down the USSR with his 'Glasnost' and 'Perestroika' policies. His vision was what communist China later on achieved: mixed economy that flies a red flag. Reagan was just an observer, absolutely nothing more. Tito of Yugoslavia was even more instrumental.

Marc Herlands 19 Sep 2015 14:17

IMHO Reagan was the second most successful president, behind FDR and ahead of LBJ. Not that I liked anything about him, but he moved this country to the right and set the play book. He lowered taxes on the wealthy, the corporations, capital gains, and estate taxes. He reduced growth in programs for the poor, and made it impossible to increase their funding after his presidency because of he left huge federal deficits caused by lowering taxes and increasing outlays on the military. This Republican playbook still is their way of making sure that the Democrats can't give the poor more money after they lose power. Also, he enlarged the program for deregulating industries, doing away with antitrust laws, hindering labor laws, encouraged anti-union behavior, and did nothing for AIDS research. He was a scoundrel who did a deal with Iran to prevent Carter from being re-elected. He directly disobeyed Congressional laws not to intervene in Nicaragua. He set the tone for US interventions after him.


bloggod 19 Sep 2015 14:17

Obama, Clinton, and the Bushes all hope to be forgiven for their unpardonable crimes.

Popularity is created. It is not populism, or informed consent of the pubic as approval for more of the same collusion.

It is a One Party hoe down.

bloggod -> SigmetSue 19 Sep 2015 14:12

"they"

the indicted Sec of Defense Weinberger; the indicted head of the CIA Casey who "died" as he was due to testify: Mcfarlane, Abrams, Clair George, Oilyver North, Richard Secord, Albert Hakim

Reagan had no genius, he had Bush-CIA and the Jerry Falwell, Billy Graham, and the "immoral majority" of anti-abortion war profiteers.


Marios Antoniou Lattimore 19 Sep 2015 13:52

I agree with everything you mentioned, and I intensely dislike Reagan YET the point of the article wasn't that Reagan was good, it rather points to the fact that Republicans have shifted so far to the right that Reagan would appear moderate compared to the current batch.

Rainer Jansohn pretzelattack 19 Sep 2015 13:52

Interesting had been his speeches during the Cold War.Scientists have subsumed it under "Social Religion",a special form of political theology.Simple dialectical:UDSSR the incarnation of the evil/hell on the other side USA :the country of God himself.A tradition in USA working until now.There is no separation between government and church as in good old centuries sincetwo centuries resulting from enlightening per Philosophie/Voltaire/Kant/Hume/Descartes and so on.Look at Obamas speeches/God is always mixed in!

talenttruth 19 Sep 2015 13:49

Any conversation about who the fantasy-projection "Reagan" was, misses an important reality: He was a hologram, fabricated by a kaleidoscope of various sorts of so-called "conservative" handlers and puppeteers. It was those "puppeteers" who ranged from heartlessly, stunningly "conservative" (destroya-tive), all the way further right to the kind of militaristic, macho, crackpots who have finally emerged from under their rocks at this year's "candidates."

The fact that Reagan was going ga-ga – definitely in his second term, and likely for part of the first – was entirely convenient for his Non-Human-Based-Crackpot-Right-Holographers, since he had was not actually "driven" to vacuousness by a tragic mental condition (dementia) – THAT change was merely a "short putt" – from his entire previous life.

Regarding his Great Achievement, the collapse of the Soviet Union? After decades of monstrous over-spending by the USA's Military-Industrial-Complex, the bogus and equally insane USSR finally bankrupted itself trying to "compete" and fell. Reagan (and his puppeteer handlers), always excellent at Taking Credit for anything, showed up with exquisite cynical timing, and indeed Took Credit.

Lest anyone forget, Reagan got elected in 1980, via a totally illegal and stunningly immoral "side deal" with the Iranians, in which they agreed to not release our hostages to make Carter look like a feeble old man. Then we got Reagan who WAS a "feeble old man" (ESPECIALLY intellectually and morally). Reagan "won," the hostages were "released" and he of course took credit for that too.

So all these so-called "candidates" ARE the heirs of all the very worst of Ronald Reagan: they are all simpleminded, they are totally beholden to Hidden Sociopathic Billionaires hiding behind various curtains, and they all have NO CLUE what the word "ethics" means. Vacuous, anti-intellectual, scheming, appealing only to morons, and puppets all. Perfect "Reaganites."

Bill Ehrhorn -> semper12 19 Sep 2015 13:32

It seems that the teabaggers and their ilk give only Reagan credit.

SigmetSue 19 Sep 2015 13:16

They called him the Teflon President because nothing ever stuck. It still doesn't. That was his genius -- and I'm no fan.


Lattimore 19 Sep 2015 13:13

The article seems to present Reagan as an theatrical figure. I disagree. Reagan, President of the United States, was a criminal; as such, he was among the most corrupt and anti democratic person to hold the office POTUS. The fact that he tripled the national debt, raised taxes and skewed the tax schedules to benifit the wealthy, are comparitively minor.
,,,
Reagan's crimes and anti democratic acts:
1. POTUS: CIA smuggling cocaine into the U.S., passing the drug to wholesalers, who then processed the drug and distributed crack to Black communities. At the same time Reagan's "War on Crime" insured that the Black youth who bought "Central Intelligenc Agencie's" cocaine were criminalized and handed lengthy prison sentences.
2. POTUS supported SOUTH AMERICAN terrorist, and the genocidal atrocities commited by terrorist in Chili, Guatamala, El Mazote, etc.
3. POTUS supported SOUTH AFRICAN apartheid, and the imprisonment of Nelson Mandela as well. Vetoing a bill that would express condemnation of South Africa.
4. POTUS sold Arms to Iran.
5. POTUS used taxpayer dollars to influence election outcomes.
6. POTUS rigged government grants to enrich his cronies.
7. POTUS thew mental patients onto the streets.
8. POTUS supported McCarthyism, witch hunts, etc.
9. POTUS created and supported Islamic terrorist--fore runners of al Queada, ISIS, etc.

Niko2 LostintheUS 19 Sep 2015 13:12

I don't have much love for Nancy, but she did not break up this marriage, to be fair. And she actually got rid off the extreme right wingers in Reagan's administration, like Haig and Regan, whom she called "extra chromosome republicans". Surely she was a vain and greedy flotus with no empathy whatsoever for people not in her Bel Air circles (I can easily imagine her, "Do I really have to go and see these Aids-Babies, I'd rather shop at Rodeo Drive, lose the scheduler") but she realized at an early stage that hubbies shtick-it-to-the-commies policies would do him no favour. Maybe she's the unsung heroine of his presidency.

tommydog -> MtnClimber 19 Sep 2015 13:04

The principle subsidies to big oil are probably the strategic oil reserve and subsidies to low income people for winter heating oil. You can choose which of those you'd like to cut. After that you're arguing about whether exploration costs should be expensed in the year incurred or capitalized and amortized over time.

WilliamK 19 Sep 2015 13:03

He was one of J Edgar Hoover's red baiting fascist admiring boys along with Richard Nixon and Walt Disney used to destroy the labor unions, control the propaganda machine of Hollywood and used to knuckle under the television networks and undermine as much as possible the New Deal polices of Franklin Roosevelt. An actor groomed by the General Electric Corporation and their fellow travelers. "Living better through electricity" was his mantra and he played the role of President to push forward their right wing agenda. Now we are in new stage in our "political development" in America. The era of the "reality television star" with Hollywood in bed with the military industrial complex, selling guns, violence and sex to the fool hardy and their children and prime time television ads push pharmaceutical drugs, children hear warnings of four hour erections, pop-stars flash their tits and asses and a billionaire takes center stage as the media cashes in and goes along for the ride. Yeah Ronnie was a second tier film star and with his little starlet Nancy by his side become one of America's greatest salesman.


Backbutton 19 Sep 2015 12:57

LOL! Reagan was a walking script renderer, with lines written by others, and a phony because he was just acting the part of POTUS. His speeches were all crafted, and he had good writers.

He was no Abraham Lincoln.

And now these morons running for office all want to rub off his "great communicator" fix.

Good help America!

Milwaukee Broad 19 Sep 2015 12:49

Ronald Reagan was an actor whom the depressingly overwhelming majority of American voters thought was a messiah. They so believed in him that they re-elected him to a second term. Nothing positive whatsoever became of his administration, yet he is still worshiped by millions of lost souls (conservatives).

Have a nice day.


Michael Williams 19 Sep 2015 12:48

The US was the world's leading creditor when Reagan took office. The US was the world's leading debtor by the time Bush 1 was tossed out of office.

This is what Republicans cannot seem to remember.

All of the other scandals pale in comparison, even as we deal with the blowback from most of these original, idiotic policies.

Reagan was an actor, mouthing words he barely understood, especially as his dementia progressed.

This is the exact reason the history is so poorly taught in the US.
People might make connections....

Jessica Roth 19 Sep 2015 12:46

Oh, he had holes in his brain long before the dementia. "Facts are stupid things", trees cause pollution, and so on.

A pathetic turncoat who sold out his original party (the one that kept his dad in work throughout the Great Depression via a series of WPA jobs) because Nancy allegedly "gave the best head in Hollywood" and who believed that only 144,000 people were going to Heaven, presumably accounting for his uncaring treatment of the less-well-off.

His administration was full of corruption, from Richard Allen's $1000 in an envelope (and three wristwatches) that he claimed was an inappropriate gift for Mrs. Reagan he had "intercepted" and then "forgotten" to report to William Casey trading over $3,000,000 worth of stocks while CIA director. (Knowing about changes in the oil market ahead of time sure came in handy.) You had an attorney general who took a $50,000 "severance payment" (never done before) from the board of a corporation he resigned from to avoid conflict of interest charges and this was William French Smith; his successor, Edwin Meese, was the one with real scandals (about the sale of his home).

Hell, Reagan himself put his ranch hand (Dennis LeBlanc) on the federal payroll as an "advisor" to the Commerce Department. I didn't know the Commerce Dept needed "advice" on clearing wood from St. Ronnie's ranch, but LeBlanc got a $58,500 salary out of the deal. (Roughly £98,000 at today's prices.) Nice work if you can get it.

Meanwhile, RR "talked tough" at the Soviets (resulting in the world nearly ending in 1983 due to a false alarm about a US nuclear attack) while propping up any rightwing dictator they could find, from the South African racists to Ferdinand and Imelda Marcos (after they had Aquino assassinated at the airport) to Roberto "Death Squad" D'Aubuisson in El Salvador (the man who masterminded the assassination of Archbishop Romero while he was performing Mass).

Oh, and while Carter did a nice job of shooting himself in the foot, Reagan benefited in the election not only from his treasonous dealings with the Iranian hostage-takers (shades of Nixon making a deal with North Viet Nam to stall the peace talks until after the 1968 elections, promising them better terms) but through more pedestrian means such as his campaign's stealing of Carter's briefing book for the campaign's only debate, Reagan being coached for the debate by a supposedly neutral journalist (George Will, of ABC and The Washington Post), who then went on television afterwards (in the days when there were only three commercial channels) and "analysed" how successful Reagan had been in executing his "game plan" and seeming "Presidential" without either Will or ABC bothering to mention that Will had coached Reagan and designed the "game plan" in question. The "liberal bias" in the media, no doubt.

Always a joke, only looking slightly better by the dross that has followed him. (Including Bill "Third Way" Clinton and his over-£50,000,000 in post-Presidential "speaking fees" graft, and Barack Obama, drone-murderer of children in over a dozen countries and serial-summary-executioner of U.S. citizens. When Gordon-effing-Brown is the best that's held office on either side of the Atlantic since 1979, you can see how this planet is in the state it's in.)

pretzelattack DukeofMelbourne 19 Sep 2015 12:45

his stand on russia was inconsistent, and he didn't cause it to collapse. his economic programs were a failure. his foreign policy generally a disaster. he set the blueprint for the current mess.


pretzelattack semper12 19 Sep 2015 12:38

a total crock. reagan let murdering thugs run rampant as long as they paid lip service to democracy, the world over from africa to central america. the ussr watched this coward put 240 marines to die in lebanon, and then cut and run, exactly the pattern he was so ready to condemn as treason in others, and was so ready to portray as showing weakness, and you think the ussr was terrified of him. he was a hollywood actor playing a role, and you bought it.


Tycho1961 19 Sep 2015 12:13

No President exists in a political vacuum. While he was in office, Reagan had a large Democrat majority in the House of Representatives and a small Republican majority in the Senate. The Supreme Court was firmly liberal. Whatever his political agenda Reagan knew he had to constructively engage with people of both parties that were in opposition to him. If he didn't he would suffer the same fate as Carter, marginalized by even his own party. His greatest strength was as a negotiator. Reagan's greatest failures were when he tried to be clever and he and his advisors were found to be rather ham handed about it.


RichardNYC 19 Sep 2015 11:57

The principal legacy of Ronald Reagan is the still prevalent view that corporate interests supersede individual interests.


Harry Haff 19 Sep 2015 11:45

Reagan did many horrible things while in office, committed felonies and supported murderous regimes in Central America that murdered tens of thousands of people with the blessing of the US chief executive. he sold arms to Iran and despoiled the natural environment whenever possible. But given those horrendous accomplishments, he could not now get a seat at the table with the current GOP. He would be considered a RINO, that most stupid and inaccurate term, at best, and a closet liberal somewhere down the line. The current GOP is more to the right than the politicians in the South after the Civil War.

[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:

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....