Search This Blog

Wednesday, December 21, 2011

Policy Thought in Support of the 99%

The focus of the self-termed 99% (or at least the 1% on the streets that say they represent the rest of us) has been income inequality, and there is little doubt that income inequalities have grown over the last few decades.  However, the remedies put forth by some, when they do offer up remedies, are usually focused on traditional taxation: tax the rich and give to the poor - it seems our prescriptions to problems haven't much changed from the days of Robin Hood.

There are other options which are seldom if ever discussed.  One thought that comes to mind is specific to charitable donations.  Every year, particularly around this time of year, billions of dollars of private charitable donations are provided: often to the those in the lower and mid-lower rungs of the 99%.  Individuals alone contribute to over $200B every year in charitable giving, often matched by corporate contributions.

Our federal government provides a healthy deduction on many kinds of charitable giving, but some research shows that we as a society would get a bigger bang for our buck if the subsidy were a match (similar to the above stated corporate match).  And in fact, even a modest match might encourage private citizens, often those wealthy enough to do so, to give more.

So, instead of a deduction, and perhaps as a political solution to get around arguments of class warfare etc., the federal government could instead encourage the private market to ramp up what they already do every year.  The government could honor, with all the full force and faith that our government can provide, a match on every dollar of contribution made to certain charities that benefit the poor or down-trodden.  This helps the poor like a tax cut would, albeit through a charity organization; it helps the rich by increasing satisfaction to a cause they already celebrate; it helps government by partially deflecting arguments of class warfare - after all the government is simply mirroring the actions of the private market and the 'revenue' isn't coming from increasing taxes on the rich.

The revenue could at least partially come from eliminating the need for a charitable deduction (money that ordinarily would go back in the rich guy's pocket) and replacing 100% that program with a matching program (where the money would go to the poor guy's pocket - but a poor guy of the rich guy's choosing!).  Personally, I'd be in favor of putting new dollars into this kind of a project for at least a time, since there is no sign at this point that government spending is causing any serious inflation - though I understand that might be political suicide.

There could be issues politically with setting up a federal matching program, not the least of which would be deciding what charities could be supported in this manner.  There would, for example, need to be a minimum threshold by which the private citizenry would have to contribute to a particular cause for the match to kick-in.  IE., if one crazy nut donates to the 'poor satanist's society' or some such thing, the government would not match that obviously.  But, I suspect since the government already has a list of 501c3 non-profits that many corporation feel comfortable in allowing their employees to associate with, this picking and choosing may not be too difficult.

All this is not to suggest that I disagree that certain persons should be paying their fair share of taxes (and they aren't).  But it is a suggestion given our political reality and given the pressing immediate need for a solution.

UPDATE: further research shows that this kind of idea is already on the table.  Must admit, I haven't heard much about it though.  Also, the match discussed in the article seems rather week.  I'd suggest a much more substantial match.  It appears that I'm not alone in that.  Anyone else?

Thursday, December 15, 2011

Jobs Guarantee

Heteconomist has a nice discussion about the so-called jobs guarantee idea being put forth by MMT  adherents.

I would like to suggest that Kalecki's list of possible reasons why some might have reservations about a jobs guarantee program is sorely incomplete.

His three reasons, as Heteconomist lists them:
The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. (emphasis in original)

All three of the above, one could argue, point purely to a conservative political-ideological point of view. According to Kalecki, it seems the uneasiness some might feel stems from three uneasy free-market invasions:

1. government sector vs. private sector
2. spending type a vs. spending type b
3. labor vs. capitalist

But I'm uneasy with the idea of jobs guarantee; and while I might have some discomfort along the lines of the above (to varying degrees), my true discomfort stems from some additional reasons given our existing government structure (including but not limited to):

1. Final decisions (running the business/employment programs, deciding what programs are best to do and what aren't etc) would be made by politicians. One must merely observe today's political environment to see that, absent a Utopian government, the logistics of such an operation, even if attempted with public-private resources, would likely fail in the long-term. How would these decisions be made? Who gets hired where, and based on what?

2. Unemployment, while unsavory, does serve a purpose. It weeds out the bad-acting laborers in good times. It's the bad times that is of concern - it's during deep recessions that even the average-actors are weeded out of the labor market. JG assumes that the recessionary environment is the norm or majority, when one can argue it is not. Why should the government guarantee jobs to bad actors (drug abusers, truant former employees, abusive former employees, lazy former employees)? Why should the good actors have to work to find a good job comparably? If I'm the good actor, who potentially values stability over wage, why wouldn't I reduce efforts to improve myself or advance my skills, and just take the government freebie? Related, if unemployment is pushed more toward 0% (2% or whatever) as an employer or last resort, the adult now has lesser incentive to re-skill or re-educate themselves - something a dynamic economy must do to survive.

I haven't closed my mind to the JG idea, but until someone attempts to formulate an extremely detailed plan, as opposed to just talking esoterically and abstractly as I've seen on blogs and in some MMT papers, then I have serious doubt that this jobs guarantee idea will ever be taken too seriously by anyone outside of academia or halls of philosophy.

Thursday, December 1, 2011

Is there a way out?

Did Minsky see a solution to our economic problems? Focus on the last paragraph of the following link: It seems he had a similar opinion 30 years ago that I do today - that there is no real solution right now so long as our political environment stays the way it is. And if you read closely, he suggests that that is unlikely to change unless our teachers of today (our academic economists and teachers of future leaders) wise up to reality. This suggests to me a slow process that must start with challenging the 'official' or mainstream economics of the day. Read the whole thing as it's one of my favorite Minsky publications.

Tuesday, November 29, 2011

MMT Update

Been following some interesting back and forth regarding MMT at Winterspeak.com (see below - the comments are public so I feel ok in re-posting them. It's not my intent to remove from context but I truly feel they epitomize the main back-and-forth re: MMT). I am thankful that the MMTers are finally having a discussion on the points that are causing the confusion - the "should/could" instead of "does". As I observe this from afar it becomes apparent that most MMTers prefer to start with the abstract theory and make 'should/could' assumptions about how the Treasury interacts with the Fed (namely consolidating their operations) - assumptions that at least in some cases are factually inaccurate. When one points out the inaccuracies, the response is, "that's a political problem, not an economic one." And then, you are back to my basic beef with MMT in that you cannot, ever, separate political institutions from economic institutions. The only reason the US is a monopoly of its fiat currency is due to the political institutions. So, ignoring real barriers upfront to a 'should/could' philosophy makes ones theory rather moot, in my opinion. This will become even more of a reality as the Fed is continued to be scrutinized for its actions and calls for audits are mandated.

But I am still learning this new and seemingly more realistic way of thinking about the government's role in money. Is my beef for style than substance? Commenters....please discuss.

One specific thought, reading the comments shows that perhaps the focus is existing solely on the interaction on the spending side of the coin - whether its a style disagreement or a substance disagreement. But I'm much more concerned about any real barriers on the tax side of the coin. What if the government made an error and released too much money. According to MMT, taxes could be raised to effectively remove it from the system. But taxation is political and SOLELY in the hands of the executive and legislative branches....

UPDATE - ongoing discussion

JKH said...
(The following is not directed at Dan K.’s articulate comment; it is rather a broad observation.)

I could almost get more value from reading “market monetarist” posts these days than from witnessing the blogosphere train wreck of tortured conceptualizations that has become "MMT”.

MMT has valuable insights into the nature of the monetary system. But it is ineffective as a platform for conceptual exposition of the monetary system. It seems incapable of distinguishing consistently between factual and counterfactual monetary operations. It seems intent on conflating these two parallel modes of analysis, with such stuff as “the government neither has nor doesn’t have money”.

It is not logically possible to present any interpretation of a monetary system that does not reference explicit institutional design assumptions. Monetary systems don’t exist without specific institutional design. In this regard, there are facts of actual prevailing design, and there are counterfactuals, and there are differences between those two things.

It is certainly possible to design an institutional monetary configuration in which “the government neither has nor doesn’t have money”. But the existing system as it is designed does not have this property.

I’d love to see MMT turned upside down in its expositional approach. But the MMT’ers are a small group, with a thoughtful investment in their chosen presentation, so I don’t expect this sort of change to happen. And understandably, like most of us, they probably don’t appreciate criticism at a fundamental level.

6:29 AM

Neil Wilson said...
"But the existing system as it is designed does not have this property."

It does when you consolidate the balance sheet of the government sector and 'zoom out'.

It very much depends what level of abstraction you are working on at the time.

I do this all the time when designing systems. Sometimes I'm zoomed out ignoring the specifics, and sometimes I'm zoomed in dealing with the nitty gritty - often below the level you talk about (how do transaction records get from A to B in a timely and secure fashion?).

Sticking at one level of abstraction, or constraining yourself by the 'current design' is a huge mistake.

What we can learn from the 'current design' we largely have. Now to explore what the new design should be to deliver the required goals.

7:42 AM

JKH said...
Neil,

I'm aware of the abstraction. It's not a question of constraining one's view. It's about being clear on the starting facts.

If you consolidate all of the balance sheets in the world, what you end up with is a single balance sheet. On the left is all of the real assets of the world. On the right is a global net worth valuation of them.

All financial claims net out in such a consolidated view. But the conclusion from that is not that I "neither have nor don't have money".

Such a conclusion would be the height of silliness (unless you assume a design change to barter).

Yet it's the same point.

winterspeak said...
JKH: I think that's an excellent way to put things. The Federal Reserve is the currency issuer, not the Federal Government.

To what degree those two entities are truly distinct is a worthy topic, but fundamentally political, not economic.

10:41 PM

A Ridiculous Response From About.com

Ridiculousness here.

I'm removing about.com as a link on my blog - I liked it better when it was run by Mike Moffatt.

Whether or not students were 'right' to walk out of class is beside the point - the point it seems that Ms. Beggs can't see. Value judgement are inescapable in the economics of real life. Half of the so-called 'positive statements' in economics are really just normative statements disguised by bad and unrealistic assumptions.

I agree the students don't quite perhaps articulate their own beef very well, but the point about Adam Smith vs. Keynes, as I read it, was more to point out the broad fact that Mankiw teaches a specific ideology, at the expense of alternatives - not just Keynes'. And the Keynesianism he does teach is arguably not the Keyensianism that Keynes would have taught himself. (See distinction between Post-Keynesian economics and so-called New-Keynesian economics).

And now for my shameless plug: anti-mankiw

Sunday, November 27, 2011

Agreeing and Disagreeing with Steve Keen

Steve Keen interview here

I agree that the crisis is due to a Minskian debt bubble....
I disagree that the solution is necessarily to write off the debt per capita with new money.

He is asked directly about the moral hazard problem and he simply restates what he always says - the is was a systematic problem not an individual problem and therefore moral hazard, implication being, shouldn't matter. There are two things, as I see it, wrong with that.

1. Moral hazard doesn't care if a problem is systematic or individual or not - it only matters what people think. And, as the interviewer notes, many people would think that 'bad actors' would be given the same handouts that the 'good actors' are given. To some, that's not fair - and that creates moral hazard moreover in so far as 'bad' debtors have some blame. And what about those that have no debts at all - Do they get nothing? ... which brings me to my next point.

2. Keen makes the assumption that creditors should take full blame for the systematic failure. This is not obvious to me. Credit / loans are a multiple-party transaction and while one can argue that relatively speaking the creditors should have known better and have more power in the relationship and therefore more responsibility, the fact nevertheless remains that many debtors should have known better and demanded funds well beyond their means. I find it somewhat ironic that Keen doesn't agree on this point since circuit theory explains that credit money expands, and bubbles are formed, due in part for the the demand for it.

I believe Prof. Keen is correct that the financial failure was a structural failure - but the structure arises from behavior of individuals and institutions, not some amorphous blob immune to moral hazard.

"Everyone gets a boost because we are not trying to boost individuals...."

It's that kind of statement that makes it clear to me that Keen has no ready answer for the question of fairness and moral hazard. I respect Prof. Keen and agree with him on many points, but I can't agree with his prescription on it's face.

Wednesday, November 16, 2011

"Teaching Amidst a Crisis" - A Personal Experience

We at anti-mankiw have recently blogged about how one might incorporate pluralist teaching tools in economics. The introductory paragraph links to a blog post by Prof. Mankiw posted in 2009 basically outlining how he believes introductory econ texts should remain status quo - which by definition, means that he believes nothing new has been learned from the crisis that students should know about.

I thought I'd relate my personal teaching experience to expand upon the anti-mankiw post at a more personal level.

First, I don't use Mankiw's textbooks to teach my intro macroeconomics class. I did - once upon a time - just before the financial meltdown. Then that event happened, and I, having been already fairly heavily exposed and interested in heterodox concepts outside of the classroom decided that I would be doing my students a disservice by continuing to teach from a textbook written by an author who is so blindly and ideologically biased.

Deciding on a main textbook to use is actually a fairly daunting and complicated process though. There exists imop no textbook that incorporates pluralist/heterodox concepts in a student-friendly way where I could use just one textbook. There are good heterodox publications, but they are devoid of pictures, and/or obviously published on a severe budget-constraint: the sorts of books that only the most dedicated students could sink their teeth into. I teach a night class so most of my students have full-time jobs - so I need a text that is going to be formatted and written in an inviting way. So, years ago I decided the best way to teach my students was to find a mainstream textbook that did not have the same philosophy as Mankiw - published by someone who learned something from the finanaical crisis - who thinks current events are useful learning and teaching moments. And, I would use free-of-charge supplemental materials from various other sources, to create 'heterodox modules' to teach along-side the mainstream text.

The mainstream text I use today is Robert Hall and Marc Lieberman's Principles text. Why do I like it so much better than Mankiw's text (note: I have no loyalties to this text, so if anyone has any other options, I'm constantly re-evaluating)? Because every other chapter has been expanded with new topics since the crisis: interest rate spreads, ARRA stimulus, 'too big to fail', unorthodox monetary policy, housing market as it relates to macro, etc. These authors, while still thoroughly mainstream and therefore missing huge chunks of true economic thought, at least learned that their previous edition was missing something crucial, and in some cases included unfortunate assumptions that they incorrectly assumed to be simplifying ones.

Here's my favorite example. In their 4th edition, Hall and Lieberman say the following in the 'money' chapter:

Fortunately the details and complexities of measuring money are not important for a basic understanding of the monetary system and monetary policy.

I always hated that quote. Sounds very Mankiwian doesn't it. But then, in the fifth edition published in 2010, that quote vanishes. Makes me smile.

As mentioned, I use numerous supplemental materials in my class - which is helpful to engage different kinds of students. I also use supplemental portions of a heterodox text and the aforementioned main text. It of course has its drawbacks as, ideally, I'd like to use just one text. In some cases, students have to read duplicated concepts - parts where the mainstream text and the heterodox supplements overlap. But to me it's worth it. For one, I feel better about myself because I feel I'm being academically honest. And two, many students really get it. And when I say get it, I mean they graduate my class less like neo-classical robots and more like well-rounded, well-educated individuals.

Saturday, November 5, 2011

Neo-Chartalism Reconsidered

I was forwarded a link to recent paper by post-Keynesian Marc Lavoie. I was forwarded it in part because my blog is cited in the paper as an outside observer (totally true) - which is pretty cool.

I must admit, it has me taking a second glance at MMT theory, frankly, because his paper is the first to calmly explain (at least one piece of) MMT in a way that doesn't alienate, and in a way that bridges some of the language gaps and misleading or just factually wrong (given common usage of terms) statements by MMTers. Ahh the power of words....

Some 'aha!' passages:
Another problematic statement is that the government has to run deficits, at least over the long run, for the public to get access to larger cash balances (high powered money). As Wray (1998, p. 123) puts it, “persistent deficits are the expected norm”, that is, “normally, taxes in the aggregate will have to be less than total government spending due to preferences of the public to hold some reserves of fiat money” (Wray 1998, p. 81). If the government was running persistent surpluses, the public would “run out of net money hoards” (Wray 1998, p. 79). While I would certainly agree that government deficits in a growing environment are appropriate, as it provides the private sector with safe assets, which can grow in line with private, presumably less safe, assets, it is an entirely different matter that government deficits are needed because there is a need for cash.

Even if the government keeps running balanced budgets, central bank money can be provided whenever the central bank makes advances to the private sector. Wray (1998, p. 79-80) himself recognizes this, as he later adds that “a surplus on the Treasury’s account is possible as long as the central bank injects reserves through purchases of assets or through loans of reserves”. Presumably, what he has in mind, as we will see soon, is that total government expenditures include “spending” by the central bank, when the central bank purchases private assets or claims on the private sector and adds them to the asset side of its balance sheet. But this is an odd way to define government spending.While this terminology problem is easy to solve, things may not be so simple with the oft-made statement that “government spends first”, a statement that, of course, has some relationship with the causal sequence mentioned when discussing the links of neo-chartalism with circuit theory. This expression comes back like a leitmotiv on many of the blogs devoted to modern monetary theory, but it can also be found in academic writings: “Government spends simply by crediting a private sector bank account at the central bank. Operationally, this process is independent of any prior revenue, including taxing or borrowing” (Mitchell and Muysken 2008, p. 209); “The government spends simply by writing Treasury cheques or by crediting private bank accounts” (Tcherneva 2006, p. 78). These statements are at best misleading. They skip one fundamental step that makes incomprehensible the leitmotiv sentence that “government spends first”. Any agent must have funds in a banking account. Before being able to spend, the Treasury must somehow replenish its deposit account at the central bank (or at private banks).

This step is often skipped because neo-chartalists prefer to consolidate the central bank and the federal government into one entity, the State. Now, in itself, such a consolidation is not illogical. Other authors, such as Godley (1999B), have on occasion consolidated the central bank with the government. But such an integration may not be appropriate for the purpose….

The purpose of this whole exercise is to show that there is no point in making the counter-intuitive claim that securities and taxes do not finance the expenditures of central governments with a sovereign currency. Even in the case of the US federal government, securities need to be issued when the government deficit-spends, and these securities initially need to be purchased by the private financial sector….

...neo-chartalism carries some excess baggage, which must be gotten rid of. In trying to convince economists and the public that there are no financial constraints to expansionary fiscal policies, besides artificial constraints erected by politicians or bureaucrats that believe in mainstream theories and in the principles of sound finance, neochartalists end up using arguments that become counter-productive. There is nothing or very little to be gained in arguing that government can spend by simply crediting a bank account; tha tgovernment expenditures must precede tax collection; that the creation of high powered money requires government deficits in the long run; that central bank advances can be assimilated to a government expenditure; or that taxes and issues of securities do not finance government expenditures. All these counter-intuitive claims are mostly based on a logic that relies on the consolidation of the financial activities of the government with the operations of the central bank, thus modifying standard terminology. I believe that such a consolidation leads to the avoidance of crucial steps in the analysis of the nexus between the government activities and the clearing and settlement system to which the central bank partakes, and hence leads to confusion and misunderstandings. And so do references to a leveraged vertical component of the money supply.

It's important to note that Lavoie's paper focuses only on the fiscal/monetary settlements relationship with MMT. Some of the other ideas of MMTers (like a government-mandated and set fully employed workforce - employment targeting) are still quite a bit harder to swallow, but I'll continue to keep an open mind.

Finally, Lavoie's paper is an exercise in positive economics, not normative economics. For me, it is still an altogether different (and potentially more important) question whether we should be using strong fiscal policy tools to guide an economy, regardless of whether or not there are any direct financial constraints, as there most certainly are other constraints that need be considered, not the least of which are logistical (politics) and the reality that fiscal policy has been shown to be very messy in practice, and one need to be very careful about discussing fiscal policy in the vacuum of a research paper. That is, at the end of the day we will likely still have the debate about the merits of functional finance.

Friday, November 4, 2011

anti-Mankiw

I am coordinating with a group of economics grad students and other friends of the social science in a new blog.

A goal will be to expose, as a determined group, the inadequate present academic discourse in economics, as propagated by economics faculties worldwide that have been brainwashed by people like Prof. N. Gregory Mankiw. And along the way, we hope to propose a newer, better, more inclusive and less bad-assumption laden discourse.

Wednesday, November 2, 2011

Fed Statement

US Fed to US citizens: "yeahhhh, we got nothing."

Meanwhile,

How Do Financial Investors Make Choices?

Let's assume a somewhat unsophisticated, though intelligent, investor. Do these investors make decisions to invest significant dollars in up-starts based on job commitment announcements by politicians? A Butler University economist thinks so. I'm skeptical - I would like to think that even the most unsophisticated, risk-taking investor would not make a decision in large part or solely based on the words of politicians. And, I certainly know of no study that shows otherwise. For his part, the Governor suggests if some investors do make decisions based on politicians' hopes, that's their own problem. Discuss.

Thursday, October 27, 2011

Occupy Indy

This should be my last post providing an update about Occupy Indy. I say this because Occupy Indy has apparently disbanded. As predicted, their leaderless cabal of people of no more than 5 at a time which have been camped out by the Statehouse for the last couple weeks is gone as of this weekend. Also, their 'official' (as official as a website not agreed to by 100% consensus can be) website hasn't been updated with any new posts in 2 weeks.

http://occupyindy.blogspot.com/

So, no known physical presence, no known up-to-date online presence = failure of message and of leadership.

Or, maybe I'm wrong and the group has dwindled down to such a small number that they've gone 'underground'. Doesn't strike me as particularly effective either way. Though evidence suggests this may be the case as there is another website (message board) that does have some recent activity on it.

According to one post on the board (by "Sanni"), they are planning on meeting at the Statehouse at 3 today to talk about a recent arrest - they didn't elaborate at the time I read the post as to who was arrested or why....

Here's a smattering of other recent board posts under "Events/Action", which obviously aims to tackle the major issues of our times:

I am thinking about setting up a freestyle instrument playing session on friday at 8pm.I know a really talented electric guitar player who can come out and just freestyle play it will be amazing I will work on a flyer and try to get more people to come play different instruments. Any Thoughts on this?? - guest

Its the Saturday before Halloween so let's celebrate! Bring the kids, we'll have safe trick or treating and maybe some surprises! Join us every Saturday at 12 noon for Solidarity Saturdays to show support for the Occupation of Wall Street to Main Street USA.- RDK1974

we dont have to vote to plan events. We can plan whatever we want. We can vote on whether the whole group will support the event but we as individuals can plan whatever we want. So please keep planning once the plans come together then we can present the plans and make sure the group as a whole endorse them but we do not need there vote to plan something thats the point of working groups.................. to plan and organize things............... then put them up for a vote after they are planned and there is something to vote on....... - guest

A poetry slam is a competitive event where poets go up against each other in rounds or do head to head competitions. It's very organized and fun and awesome.
That said, unless someone is planning all of that, this is not a poetry slam. It is an open mic reading. Please fix this. It is misleading to people who may show up expecting a slam. - DJ Shiva

Monday, October 24, 2011

Some economic development thoughts

Indiana is going to have a new Gov. in about a year. Since I have worked in economic development for over 6 years now, I have noticed a couple related improvement points that I think would truly expand Indiana's economy. These are just personal thoughts and unrelated to any policies or representations made or being made by the IEDC leadership (ie. I'm not speaking for IEDC).

1. Merge the Indiana Economic Development Corporation with the State Dept. of Workforce Development.

Consider DWD's goals:
Aggressively empower Indiana workers to become a highly-skilled, competitive workforce.
(On a daily basis, we will continue to) Raise everyone (workforce) up a level.

Consider IEDC's goals
The IEDC focuses its efforts on growing and retaining businesses in Indiana and attracting new business to the State....leverages Indiana's central location, pro-business environment, low tax rate, and skilled workforce to attract and support new business investment, create new jobs, and keep Indiana competitive in the 21st Century economy.

In other words, each entity represents half of the labor market. DWD attempts to improve the labor supply, and the IEDC attempts to improve the labor demand? Why should we expect that two separate agencies with two separate leaderships and two separate strategies, etc., should be able to work at top efficiency toward the same goal of expanding and improving the overall labor market of the State? Both agencies have made increased efforts to communicate with each other over the past few years, but there in my opinion is going to exist a wall that one cannot pass without a merge. I would, however, put unemployment benefits and insurance onto a separate agency - to me, unemployment insurance does not develop the workforce. It ensures a part of the labor force the ability to survive difficult times but it is certainly not a State development tool.

2. IEDC/DWD/State should adopt, via legislation, a grant that was at one time pursued by Mitch Daniels before the recession hit full gear: Hoosier Hope Scholarships. Another similar option would be to follow Maine's example and provide the benefit as a tax credit: read

Sunday, October 23, 2011

Questioning Ron Paul

Today on Meet the Press, Paul directly related the marked reduction in government spending from 1945 and the years after to a growing post-war economy.

While it is true private investment started increasing to higher levels in the latter part of the 40's, it is not at all clear that that is due to the spending cuts of the government from post-WWII. The US economy really didn't hit it's stride until the 1950s. And certainly, for the first 3 years immediately after the War, GDP growth was negative or stagnant. And even the 1950s there were three significant recessions suggesting that the growth that occurred in the 50s was is spurts. Indeed, the dramatic growth in living standards really didn't occur until the 60s.



So, take Dr. Paul's comments with a grain of salt as there are lots of economic changes that occurred between the end of the War and the early 50s that can explain the relative good times of the 1950s-1960s including a dramatically growing and changing manufacturing sector (and an increased move out of agriculture) and a booming suburban housing market. And particularly with regard to the housing boom, perhaps the biggest explanation is a post-Keynesian one: the rapid increase in the late 50s and onward of non-revolving credit used to buy durable goods (the stuff put in those new cookie cutter homes and the cars in the driveways). The crux of Paul's argument is that the reduced spending of the government from 1945 onward freed up resources for the private sector. But with the onset of heavy uses of credit, citizens didn't need present-day resources, they could borrow from future-day resources instead. And thus began our credit-heavy economy.

This point is key so I will restate: in our modern economy, we use uncertain future resources to finance growth, not present resources. To quote Minsky, this is why "stability is unstable."

Friday, October 21, 2011

US Double Exports in 5 years? (by end of 2015?)

Obama proposed we would.

He recently signed some free-trade agreements toward this end.

But I remember thinking at the time he mentioned this how incredibly unlikely doing that would be. The linked article above says the administration says we are well on our way? Well, 1.5 years later, and I would say we are not at all on our way. According to foreign trade figures from the US Census Bureau, we are on track to roughly hit a little over $2 trillion by the end of this year. The US exported about $1.6 trillion in 2009. So, after a year and a half, we can say exports have increased by about 12% during that time - and that is even giving Obama the benefit of the doubt since a good deal of that increase is just due to the slow overall economic recovery since 2009. We are, after all, essentially back to pre-recession levels. Given the continuing uncertainty of recovery, if Obama does get re-elected, he has really put himself in quite a spot and a goal that is unlikely to be realized.

But, if I'm proved wrong, I'll own up to it ;)

Friday, October 14, 2011

OWS update

In Indy:
What started as a rally of nearly 1,000 people last Saturday, is now represented by a trickle of people, with usually no more than 4 or 5 persons 'occupying' the front of the Statehouse at any one time. After one week, the only official statement from the ragtag group is:
"We at Occupy Indianapolis are gathering in FULL SUPPORT of the Occupy Wall Street movement in NYC."
The Indy group hasn't really received much (if any?) national notice. Part of the issue it seems to me is that this Indy group is much more tepid and cautious compared to groups in NY, Seattle, etc. I'm not saying that's good or bad, but I'm providing a reason as to their seemingly low media-draw. The other (big) problem is that this group seems to equate democracy with 'full consensus' (or near full, 9/10 or other variation), which is, on its face, a ridiculous idea. One dissenter can raise their arms in an "X" of objection and they are back to square one. This is not the way ideas happen. That's not even how a workable democracy happens, let alone a republic.

In NY:
Meanwhile, arrests, bottle throwing, and arguabe police brutality are happening elsewhere. Still no specific agreement on major topics are leading the movement, and the only major agreement seems to be one emotion: anger.

IMOP, the majority of that anger is being directed at banks, and indirectly or directly, at our government for enabling them with bailouts. This makes sense. As the financial crisis escalated our government spent or loaned millions of dollars to save the banks - their argument being that if they didn't, it would severely hurt Joe-average. The problem as I see it is that they did that and then Joe-average got hurt anyway, with persistently high unemployment and stagnant wages coupled with rising costs. Meanwhile, banks and other corporations see record profits.

Seems to me that OWS is having trouble converting that fact into a policy statement. I've already suggested a few specific areas / or statements they should focus on, but since they have no leadership and aren't really moving the ball forward, I suppose I'll keep throwing them more bones until one of them picks it up (and as I've said before, I have no interest in being a 'leader' of this local group at this point because I have too many concerns about their existing formation, and because I've got enough stuff on my plate, and because as I've stated before - hippies scare me).

So here's another:
How about we demand our economic and finance educators to teach, and our governments to focus on, things that enhance social well-being and standards of living other than GDP. One of the things I discuss in my macro class is the limitation of GDP which most textbooks usually just gloss over or ignore. GDP is suppose to measure all the stuff that's produced or equivalently spent or equivalently earned as income in the economy over a given time-frame.

The major issues with GDP from the output perspective is just because it's produced doesn't mean it's doing anybody any good (if it's sitting in a warehouse somewhere), and if it is produced it could be doing more harm than good (off-shore deep sea drilling that is left un-regulated).

From a spending perspective, as hopefully everyone has learned, not all spending of a given $1 is created equal, but GDP assumes it is because it assumes everything is priced perfectly. Unregulated housing markets, stock markets, oil markets etc. are prone to bubbles and bursts. And when coupled with 'too big to fail', mean eventual systematic failures when credit tightens up.

From an income perspective, GDP doesn't care if you are poor or rich. It doesn't care if income growth comes from profits or from workers wages. But most Americans care. Most Americans have some problems where failed CEO's or bailed out bankers earn multi-million dollar severance or bonuses, while workers are expected to work more and earn less.

So all this means that GDP, while a useful measure, should be taken with a grain of salt. Schools and governments need to incorporate other measures of human development (and they do exist) into their models - portray a more accurate picture to students, the media, and the world.

So OWS, there's another idea of substance. I urge you to spend less time playing koombaya and expressing Utopian generalities and more time discussing real things that we can change.

Good luck.

Tuesday, October 11, 2011

Why Can't We Be Friends: Post-Keynesians and Austrians

I've been thinking about something lately, and it has to do with what I believe to be a significant overlap in the theories of Post-keynesian economics and Austrian economics. They both have radically different prescriptions, but their rhetoric is very similar.

Austrians blame the monopoly power of the Federal Reserve fractional system for artificially keeping interest rates low, in the presence of economic uncertainty, causing mal-investment and credit bubbles that eventually crash.

Post-Keynesians blame the failure of the private markets for engaging in increasingly speculative and illegal behaviors, in the presence of economic uncertainty, at various times, causing unsustainable investment and credit bubbles that eventually crash.

Similar talk yet all I hear from post-Keynesians is how 'off base' the Austrians are about the endogeneity of credit money. In fact though, while money creation to fund a bubble may indeed be demand driven, the fact nevertheless remains that it is the Fed that accommodates that demand to maintain an interest rate target. Post-Keynesians tend to focus their efforts at regulating the private banking practices but don't spend much time thinking about how the Fed itself may need to be regulated.

Similar talk yet all I hear from the Austrians is almost a disturbing fervor to get the government out of everything - including money. Go on the gold standard, have a 100% reserve requirement, reduce systematic risks in our financial system thereby reducing the likelihood of mal-ivestement. In fact though, the private market is at least equal to be blamed for their own 'irrationality'. The Austrians, opposite the post-Keynesians, think that all can be solved by changing the nature of the Fed (or elimination of it's power altogether).

Point is, even though the two schools blame different things or focus on what may be considered divergent prescriptions, the meat of their analysis are markedly similar. The focus on uncertainty and on credit booms and busts seem to be really two sides of a similar coin. And by the way, there is no logic that suggests both couldn't be a little bit 'correct.' After all, the private market would likely be less likely to fail if the Fed didn't accommodate its failures, but focusing just on the Fed ignores the larger systematic problem of private market failures and excessive risk taking (or perhaps perversely, the Austrian prescription ensures too little risk be taken).

Ok, so maybe friendship is too much to ask for, but Post-Keynesians and Austrians, in the interest of being true pluralists, could at least learn from each other

Saturday, October 8, 2011

Direction of Occupy Wall Street

What I hope the direction goes:

1. Toward holding mainstream media accountable for what they report. In my opinion, and this may be heavy-handed for some, but I believe media outlets should be required by law to cite specific allegations made in Op-Eds etc., and or to severely limit Op-Eds in general (not to be confused with opinions sent in by the public).

2. Toward a newer better kind of financial reform than what the Obama administration passed 2 years ago. What we need is to break-up big banks NOW, like we did Ma Bell. We need more strict financial leverage and capital requirements to prevent the systematic risks many financial institutions increased during the crisis. We need to get the Fed out of the business of fine-tuning (playing) with base interest rates. They think they do the economy good when in fact they just act to help the private sector hide bubble formations by accommodating risky loans. I am not in favor of full 'rule' requirements, but nor am I in favor of full 'discretion' which is what we have now. To this end I hope the movement focuses on the causes of the disease (academic economists and finance persons who ignored reality for decades in favor of training future generations the same faulty science).

3. We need to demand a different kind of Congress - one where rules of the House don't dominate the needs and demands of the people. This is the trickiest thing to change and something I at least think we need to have a real dialog about.

Where I hope the direction doesn't:

1. I hope it doesn't disintegrate into an Obama-coddling liberal (spending) love-fest. I hope it isn't just about class warfare or short-sighted robbing Trump to pay Bob the Builder. Playing games with tax policy is not helpful. I would love for the bad bankers etc. (tax the rich) to pay up for destroying the economy, but at some point we have to stop focusing on the past and move on toward preventing it in the future.

2. I hope it doesn't serve to bash capitalism beyond what is called for. The problem is not capitalism per se in relation to other economies. The problem is how we teach capitalism to our young. We teach everything in terms of 'profit-maximization' and short-sighted 'utility-maximization' and we hope that our students come out well-rounded persons for society? That just doesn't make sense. We could instead teach a kind of moral capitalism. Where the good of the individual is at least in part based on the good of society as a whole. Are humans inherently greedy, sure to a degree, but our teachings certainly don't do anything to temper that - it actually exacerbates it.

Thursday, October 6, 2011

Right To Work

Members debated today at the Statehouse about this year's biggest topic: whether or not to make Indiana a 'right to work' state. My employer, being an economic development corporation and all, has taken a strong stance in favor of right to work. I've been somewhat agnostic on the issue until recently. Having done a little research on both the pro and con side, I have yet to find an argument that makes much sense on the con side.

I've personally spoken with site consultants who echo the sentiments of those in favor of right to work that Indiana is automatically taken off the 'potential' list for many business expansions simply because we are not right to work. Beyond that, there is what I believe to be hard evidence that Unions, having once been important and vital to our economy, have become too big and greedy. IE, the pendulum has swung too far.... Whether it's the GM stamping plant in Indy, or the collapse of Kokomo during the Great Recession where Union gardeners were paid $30 an hour to mow the lawn, the evidence shows that Unions have pushed too hard.

But even if you disagree, there is something un-American about forcing non-union employees to pay Union agency fees (if a contract exists). If I'm a worker, I shouldn't be forced to join a union (and that is true by law), but I also shouldn't be forced to pay union dues should I decide not to join the union. Part of the problem is that the collective bargaining agreements are typically broadly executed for the entire operations, not specific to just its union members. This whole right to work issue wouldn't be an issue if the benefits would just be provided to the Union members. The alternative of setting different wage and benefit programs for union vs. non-union employees is often costly which is why businesses shy away from it, but it would solve this RTW issue.

Beyond that though, it seems to me that RTW laws help keep unions more honest and more competitive as opposed to being secretive and conducting business in smokey rooms with union leaders. ...All because they have to try that much harder to get people to sign on to their Union to get the fee.

Having said all this, I for one do not trust the statistics that RTW States are that much more economically well off because of it than their non-RTW counterparts. Correlation does not equal causation and any study I've seen just hasn't adequately accounted for that complexity.

Anyway, I'm open to debate on this issue. But, really, I don't see how Unions have much of a leg to stand on this.

Monday, October 3, 2011

Why I Will Attend "Occupy Indianapolis"

1. Because I'm pretty sure the laid back cops of Indy will be unlikely to pepper-spray me.
2. Because I feel like I should at least add to a voice, despite that voice lacking a harmony of message, to indicate my disgust with the following:

a. How our political system has turned into a beauty contest of talking heads, who do a lot of talking from their asses. We need to get monetary influence out of congress sure, but that's unlikely to happen completely and that frankly is not the only problem. More than that, we need to completely remake congress - these 'rules' of the game are obviously broken. End the filibustering sound bites. I no longer want to vote, not because I ever thought my marginal vote added much, but because I used to think that it was a social obligation toward a social good. I now feel otherwise.

b. How our major media outlets have grown weak and complacent. You know there is something wrong with Jon Stewart provides more information than Fox News. I for one think that the main reason that many persons my age are turning to independent bloggers and certain foreign media is because ours have simply turned into an extension of our politics. See above.

c. How our mainstream economics has been allowed to be taught and function with assumptions that have no basis in reality. The collective 'we' have brainwashed generations that our markets operate smoothly, and when they don't it's just a brief thing that we can overcome with a little spending here or there. Ignore how crazy 'money' and 'finance' has gotten, ignore how certain banks and investment managers can cause a crisis and then profit from it (see a above as well). I for one don't think everything that happens on Wall St. is bad. Particularly since our policies reward those that have bad behavior. We need to blame the teachers of the faulty doctrine, not the followers.

I may be only person with an economics background in attendance. I like to think that this will add a level of diversity. I can't relate at all to hippies, in fact, they scare the shit out of me. But I can relate to the generally discontented per my points above. And it will be those with whom I will stand.

I only wish I could stay indefinitely... but then, I must earn a living... and like most Americans, I only care so much.... I think that says something about my weakness... and I think it says something about our country's

Occupy - if but for a time.

Friday, September 30, 2011

Mankiw...just effing annoys me

This is 'new' to him?
Why am I even surprised by this. I mean...I should expect this complete lack of common sense. The concept of psychological pricing has been researched for decades in marketing, behavioral econ, and psychology literature. The fact that an economist who is suppose to understand how consumers make decisions with prices has little/no knowledge of this kind of research is just so astounding to me - it makes me so pissed off because it just provides that much more evidence that many of our mainstream economists just really don't care about reality, at all.

Monday, September 26, 2011

Change Government, but How?

I agree. But what is the incentive to do so? I've said before that change -real change- is next to impossible in our politics since there is no incentive to do so. What is the incentive for our congress to shoot itself in the foot? Congress doesn't has to change, precisely because it is dysfunctional. Those of us really disgusted have given up voting or caring, and those of us left voting seem to take enjoyment or revel in the partisan cycles. The only one that can truly change the rules of the game is congress, but since congress is the one that created the existing rules, and seems to thrive on it despite so-called public opinion, it seems a rather impossible task, short of outright public protest - which so far has been surprisingly muted.

Thursday, September 22, 2011

The Evolution and Stability of Over-confidence

For decades, heterodox economists have respected and studied the power of uncertainty on bubbles and bursts - and finally, after (during?) the Great Recession, the mainstream is paying it the attention it deserves.

Here's the same topic from an evolutionary biological perspective. Take a dash of history, and a healthy chunk of game theory, and you have one interesting read!

Take THAT Rational Agent Theory!

Wednesday, September 21, 2011

Fed's Twist and Shout - Booed by Investors

We don't presently, and haven't since the early part of the Great Recession, had an interest rate problem (and even then, it was really the spread that was the problem - essentially 'twists' are designed to correct such spreads b/w long term and short term interest rates - but that is really no longer a huge issue as both rates are really low). We have an uncertainty, a political, a labor (not just demand - but structural I believe), an expectations, and a fiscal problem - none of which is going to be resolved anytime soon. And none of which is likely to be significantly affected by such a move. IE - the Fed's new 'twist' may cause a back sprain, but it certainly isn't going to relieve any tension in our markets. My point - Dear America, short of a direct hiring program for our nations unemployed a la FDR (which has its own host of problems and after-effects), the government can do NOTHING but wait. ...(or start really fixing things it can fix, like its politics, fiscal problems....)

Tuesday, September 20, 2011

How Did Europe Get Into This Mess?

Long answer here.

Short answer: in forming the European Union, it guaranteed each country a common currency and monetary policy (via the European Central Bank)... but in doing so forgot to create a common fiscal policy / manager.

What this means is that politicians in the various European countries can create more and more debt (like Greece) or can remain relatively austere (like Germany) - all individually. But if one or more of them get in-debted 'too much', the monetary authority can't do much to help them without hurting others, and since there is no one fiscal authority, these large deviations can't be prevented in the first place and long-term austerity measures can't be enforced upfront for the good of the bloc.

On a related note, unless they fix that bigger issue in the future, unlike US which has a moral hazard with helping certain industries and groups of people (auto, banks) at the expense of others, Europe actually has a similar moral hazard but pitting country against country - which is a much more scary problem.

Monday, September 19, 2011

Don't Deny Us Gingers, Just Price Us Accordingly

Apparently the supply vastly exceeds the demand for my fellow ginger sperms.

Well, ok, but this is bound to happen, and happen alot, because apparently they don't charge differently for different characteristics...

Oh, they'll charge you more for 'washed' semen (at $125 - whatever the hell that means) versus unwashed ($100) at the cheap level and they'll charge extra for flat profile info, but they don't charge less for redheads and more for those with brown eyes, for example.

If you have an over-supply, basic economics says you should just cut your price (pay redheads less to deposit and charge those who want ginger-sperm less to get it), rather than turn people away at the door!

Link between crime and inflation?

Richard Rosenfeld says yes, a positive one:
"A key mechanism linking inflation to crime is the price of stolen goods," he adds. "Price increases make cheap, stolen goods more attractive and therefore strengthen incentives for those who supply the underground markets with stolen goods. The reverse occurs when inflation is low."

Color me wrong, but I have a hard time buying the fact that today's too-stupid-to-wear-a-mask robbers and killers are really spending that much time thinking about the inflation rate of the economy. I can maybe see this as a factor for certain commodities during potential bubble formation (like Gold for example), but to say total / aggregated crime rates move with inflation seems quite a bit far-fetched to me. Especially, since inflation has been on the up-tick over the past year or so....

Monday, September 12, 2011

Fisher and Debt Deflation

Since I wince a little when I see a heavily politicized New Keynesian talk about Debt Deflation (largely developed by those less rigid post-Keynesians), I thought I'd post something from the man himself.

As an aside, perhaps I shouldn't be worried, but it is a bit scary to see the New Keynesians trying to twist the flashlight of works done years ago by more open-minded and outside the box thinkers. I suppose it could be a good thing when the mainstream recognizes these oft-ignored ideas, but one wonders if they do so only to try to incorporate into their old-school toolbox. Equilibrium, mathematical convergence equations, and Hyman Minsky? Hmmm....just sounds odd to me. But the paper certainly sounds interesting and worth a read.

I will say after perusing a few things I see problems with right off the bat:
1. The paper is mistaken to shrug off ever increasing foreign debt obligations (to China etc) as not being a potential problem.

2. The model seemingly ignores the imperfect relationship between spending and employment, particularly in a globalized economy where spending can lead to more foreign employment.

3. The paper seems to treat fiscal spending as some sort of aggregate value, while failing to recognize the realistic limitations and potential mis-allocation (in an Austrian vein) or just good old long-run waste that might accrue.

4. The authors, and certainly Krugman, don't express any concern for moral hazard (which is really the main point of the argument against fiscal stimulus).

...Lots more stuff they are going to need to answer for....

Friday, September 9, 2011

Permanent Vs. Temporary Tax Cuts, and Take Tax Changes Out of Government Hands

One thing I wish economists would stop teaching is that there is a real difference between temporary and so-called permanent tax cuts.

In a text book where there are no politicians, there are no 'procedures', and there is not concept of dynamic change over time, that may be true: but in reality that is NEVER true.

A President/Congress today could pass a 'permanent' tax cut, only to be wiped out by a future President/Congress

A 'temporary' tax cut today can be extended tomorrow, and then extended the day after that, and so on....

So in reality, due to (political) uncertainy, which textbook economics doesn't consider at all, there is no real difference to a "rational" person between a 'temporary' or 'permanent' tax cut. The only thing that differs is the subjective probability that each individual gives as to whether or not a cut today will exist tomorrow. And that 'probability' is not define-able in any real sense and even if it were, it would be subject to change on an almost daily basis.

I should point out that economists 50 years ago did recognize this distinction, but over time, in the media and in the classroom, I have observed economics teachers 'assume' that just because something is labeled permanent, that the masses will think it is permanent, etc. That is not the case and I think the degree to which that assumption is roughly valid changes over time. In our present time, I would argue that the assumption is not at all a representation of reality, given how divided we are as a nation on issues of taxation and debt, and how uncertain everyone is about the future of our economy.

By the way, this is one reason I don't believe that tax cuts should be used as stimulus in the Keynesian tradition, ever. It just adds to the uncertainty. If I were redesigning the US (which we really need), the first thing I would redesign is congress and the second thing I would redesign is our tax system to make it so that it can never be used as a political or short-term economic 'tool' - in favor of a more static tax system with static rate(s).

Indeed, a major problem is that government has control to change taxes and spending at their whim (and can borrow from the future). If government were limited to just being able to change spending, and have a given long-run tax system, things would be much clearer. Government could spend, for a given level of tax revenue out of their control and in instances where revenue fell short, they would borrow but their future revenues would be completely controlled by the private economy now and into the future. This would provide incentive to government to borrow more efficiently and live within means. Large projects of course could still be financed with borrowing and solvency in the future would depend entirely on the solvency of the private market-driven tax revenues. Why should government be able to control the value of its costs and its revenues. No other entity on Earth can do that.

If it didn't have this duel control, people wouldn't be worried about whether they would be taxed more in the future or not and whether the government would remain solvent; they'd be worried solely about whether or not the government would remain solvent - providing an incentive to people to actually participate in their government.

Technically speaking people would still have to worry about inflation, but discussion of the so-called 'independence' of our central banking system at present, is for another time ;)

Thursday, September 8, 2011

Obama Speech Live blog

American Jobs Act

7:13 "Everything in this bill will be paid for"....ok ...when...and by whom and how does that effect the 'stimulus'???

7:15 "Payroll tax cut" ....ok already knew that....tried that...historically low impact on spending and jobs growth.

7:16: Classic "build in America" line...really pulls at your patriotic heartstrings don't it.

7:18: Government will cut red tape to infrastructure projects....this is interesting, but it kind of sounds like an oxymoron.

7:20: Part of money will be to hire public teachers....ok, my question is where and how is it decided where there are 'enough' teachers...the whole idea that you can never have enough teachers is idiotic.

7:21: Another year of unemployment insurance...hot button topic for sure. Doubt this would pass congress.

7:22: Love the calling out of Republicans signing that stupid oath...best line so far.

7:24: Answers where the money comes from. As expected he is going to pay it from the future.

7:27: We need a fairer tax code...yeah...I've seen that movie too. Show me the action.

7:28: I paraphrase: 'We can have our cake and eat it too, but we may need to vomit some of it up later.'

7:31: Cut screen to who I should have voted for....

7:32: I paraphrase: 'Dear businesses, please love me. Patriotism, Amurica, hell yeah!'

7:33: Obama says "America" for 1,323rd time

7:34: I paraphrase: 'Governments wastes money with unecessary regulations, that's why I've spent money to create this new government committee to study ....'

7:36: More "America," "Race to the Top," "Story of America" fluff

7:37: THERE's the Lincoln reference...knew it was gonna be him or Reagan.

7:39: "Could or could not" is not the issue, "should or should not" is the issue.

7:40: "The next election is 14 months away..." Yeah, and I feel like we are damned if we do and damned if do the other.

7:42: Set the stage for the next few months....apparently our government is going to be debating a 'stimulus' that, in the end, won't amount to anything anyway.

Obama Presidency: the Confusing, the Desperate, and the Dead

Update post-speech:
Apparently Obama has upped the ante and the actual bill will be closer to $450B. That still doesn't substantially affect my thoughts below, but just to be accurate....


President Obama, hours from now, will outline his new 'stimulus' plan. The plan, which has already been released as a draft, will amount to a mini-ARRA package (you remember, the first $800B stimulus). The new plan is roughly half payroll tax cuts and unemployment benefits, and half new spending.

This new 'jobs' plan comes mere weeks after Obama, though motivated to do so politically due to the persistence of Republicans, passed a huge 2 Trillion-dollar+ spending cut package just to increase the Federal debt ceiling to account for past spending! So this got me thinking...wait a minute. So we want to decrease spending and then a few weeks later we want to increase spending??? = CONFUSING to the average American

Now, it's difficult to say how much that passed spending cut will amount to year-by-year, but some fellow econ geeks (like these guys) suggest that nearly $200B will be cut by 2013 year-end due to the debt ceiling bill. Meanwhile, Obama is going to propose to increase spending by $300B. You can do the math folks. But, in essence, the $300B, according to some economists (according to Krugman a while back, a $300B stimulus would decrease unemployment by about 1%) the effect on GDP and employment would be negligible. So, you can imagine that a NET $100B will be worthless and a complete waste of time. This is beside the fact that, as I've posted before, spending does not mean employment! Fiscal stimulus on paper is a lot different than fiscal stimulus in practice. Just because the money is spent doesn't mean it will continue to flow through the economy. Our financial system is a bit stronger than 2009, but it's still not up to par. And spending money doesn't happen over night. Often it has to flow through State governments and bureaucracies and then private bureaucracies and pass X number of 'conditions' before the shovel can actually hit the dirt. It's just not an effective economic tool in general.

Obama, as we have all learned, is at his lowest point ever, and what that means is that he is DESPERATE. He will do anything to try to get himself out of this hole that he, with plenty of help from Republicans, has dug himself. He likely, being a good ole' fashion Keynesian, would have preferred a much bigger stimulus, but I'm sure his advisers have suggested that would be political suicide.

All this does not bode well for the man, or his Presidency. Some of this is his own fault: his failure to lead the health debate until it got too far out of hand, his failure to communicate a singular and common message to the people, his lack of prioritization, etc. But much of this too is the fault of our political system in general. Our dichotomy-politics breeds an us versus them environment. It's an environment where some extreme Republicans resort to hate speech and chants of 'socialism', and extreme Democrats resort to similar hate speech (think Andre Carson) and chants of 'idiocy'. It all means that Obama's Presidency is DEAD at this point, and that, barring some real change and hope, our political system itself may not be far behind.

Thursday, August 11, 2011

Why We Are Still In Recession

Who cares about double-dip. We never left. Why? because you can't get out of a recession without consumers/labor income growth. While productivity has grown over the last few years, labor's share of national income continues to plummet. This implies that others (capitalists / profit-makers) are 'out of their recession' but consumers and laborers are not.

The BLS has a nice publication here.

Ordinarily a low cyclical labor share isn't necessarily a problem because firms can use profits to invest in new business ventures and eventually lower the unemployment rate and provide more compensation in a recovery. The problem here of course is that firms are too busy paying off past debts from poor decisions made a decade ago, or too skittish to do anything substantial with their profits at the moment. So that, in combination with the low labor share of income is like a double-whammy for consumers and laborers who see the haves continue to have and the have-nots continuing to have nothing.



Tuesday, August 9, 2011

My Take On the Fed Announcement That Sent Stocks Down

The Dow was up about 200 points before the Fed announcement, and then promptly moved negative. The Fed announced it would hold interest rates (at least to the degree it thinks they can control them) at historic lows through mid-2013. The Fed was hoping this concreteness might reduce some jitters about uncertainty, but here is my take on what Wall Street heard:

"The economy is even crappier than we thought, and crappier than many private economists think. So, we are going to continue to do the same impotent thing we've been doing for the past 3 years in hopes that somehow it will magically improve the next 2."

UPDATE:
I post this in then the Dow bounces back up 200 points.... Maybe it's not just the Fed doesn't know what to do.... ;)

Friday, August 5, 2011

Love this post

If you haven't, please head over and check out Daniel MacDonald's blog.

I particularly am loving this post.

Monday, August 1, 2011

Sad Sad World

It's a sad sad world, in economics circles at least, when one of the so-called leaders in economic education encourages (or at least implies) it's ok to keep your nose buried in your differential equations (and HIS textbooks I'm sure) as opposed to occasionally peeking up at the real world.

I'd just like to say, the whole concept of economic bubbles (one of the major causes of our most recent crisis) was not learned from a textbook Dr. Mankiw.

BTW, the most 'influential' research is the same as saying, most 'popular' which is code for "mainstream of mainstream economics." And as we all know, mainstream economics often ignores reality. How about all the fringe research in behavioral and pluralist economics. Oh that's right, it's been ignored for decades....

Saturday, July 30, 2011

Who's Worse: Spending Obsessed Keynesians or Austerity Obsessed Tea Partiers?

I just can't decide which is worse, Kindergarten Keynesians like Paul Krugman - blind to the present disconnect between spending and jobs and to the irrationality of thinking our sin can be our sole savior, or one-minded Tea Partiers - blind to anything other than their own ideology at the expense of economic stability.

Friday, July 29, 2011

On Economic Definitions: Recession

Media's definition: 2 consecutive quarters of negative GDP growth
Economists' definition: Whenever the NBER says so....
And then there's reality:

Thursday, July 28, 2011

Debt Debates: Who's to Blame

You could blame Republicans for not compromising

You could blame Tea Partiers for their ideological wall

But you'd be blaming the wrong persons

No, ultimate blame lies with one group: mainstream economics

Why? Where do the tea partiers and the conservative Republicans get this deep underlying notion that economic efficiency (ignoring inconvenient truths like externalities and fairness) is the goal our society should aspire to at all costs? Where do they get the mistaken notion that keeping taxes marginally lower is more important than reducing uncertainty for jobs and business growth? Where do they get the notion that growth can and should be pursued with a complete blind eye to issues of equity and fairness? Where do they get the notion that national income can be looked at in aggregate to be a barometer of economic well-being - as long as profits are rising, things must be going well....?

Where else, but those that taught them - mainstream economics professors across this country that continue to turn a blind eye to the real, full picture - including matters that other economists have been shunned for decades for trying to discuss.

So, if anyone is to be blamed or should feel ashamed it should be mainstream textbook authors that conceal real truth with half truths; and it should be teachers that can't pick their face up out of a glossy text to recognize that ability is as important as willingness - forever getting lost in the assumptions; and it should be researchers who hide behind differential equations and so called 'simulation' models; and it should be students that take it all in without blinking.

Welcome to our future.

Heed the warning, economists.

Friday, July 22, 2011

Various Causes of Mortgage Crisis

An interesting read.... (hat tip to Mankiw)

But, one thing I've learned that may have helped exacerbate the bubble (if one believes that theory - which I do)that I don't see really mentioned here is the fact that banks and loan originators often had direct and overly 'cohercive' relationship with residential appraisers, to the point where appraisers were often 'encouraged' to basically comp, say, home values associated with a higher-priced nearby neighborhood to what they are supposed to be appraising - to inflate the size of value/loan. And by the way, this was fairly common knowledge prior to the explosion of the crisis. . Luckily, the Dodd-Frank financial reform act has accounted for this and essentially is pushing the industry toward the use of middlemen....appraisal management companies that stand between the banks and the appraisers. More here.

Wednesday, July 20, 2011

How much of China's GDP is pirated?

A story tells about a fake Apple store.

I've had friends that have traveled to China tell me similar stories (in addition to the horrible working conditions, dangerous chemicals used in production, etc)

According to the U.S. Government Accountability Office, "Chinese" goods represent 77% of pirated goods seized in the United States.

All these issues and the currency manipulation....

When are we going to get real with this country? And what is the answer to my posed topic title question? Well I've seen blog posts and magazine articles say that roughly 8% of their GDP is due to 'fake' manufacturing. I don't necessarily buy that number because I can't find the study behind it....

Monday, July 18, 2011

Wednesday, July 13, 2011

What IS the disconnect b/w Spending and Jobs?

I am still thinking on this topic. The standard Keynesian line, which I am right now listening to a summary of on today's Diane Rehm Show, is that pumping money via spending or unemployment benefits increases spending which increases jobs. The former can be shown to be true, but the last connection - that between spending and jobs is a bit more suspect. It certainly hasn't materialized during this 'expansion'. We stand still at 9.2% unemployment while spending has increased over the past 2 years and as corporate profits have risen to historic highs.

So where are the jobs? If Keynesianism can't come up with a theory to connect spending to jobs DIRECTLY, then they have no real theory at all. Standard macro textbooks have no theory, other than that 'spending is too low' and that more spending will create more jobs. But never is that actual mechanism explained anywhere. And as I've pointed out in a previous post, even John Keynes himself was vague on this meachanism - preferring to assume it to be true that of course spending would lead to more jobs. The New Keynesians say that prices and wages must adjust before employment starts moving - well it's been 4 years and wages (and to a lesser degree until recently, prices) have been flat, so what is the problem?

Here's what I see reality as being: Spending leads to more spending which, in connection with an already weak labor market and productivity gains (at the expense of employees and the unemployed) lead to higher profits. That's as far as we can get today with mainstream economics. How do you get from higher profits and spending to higher employment, other than the passage of time and allowing the normal long-run profit expectation mechanism, or at the other extreme, direct hiring programs to lead to jobs creation - both of which come with costs.

Regardless, (mainstream) New Keynesianism has a lot more explaining to do because right now, the theory is rather lackluster. I've heard some sympathetic to this concern slighly revise their logic to say, "well, ok, Keynesianism is often only good at preventing further free-fall and not so good and driving out of recessions absent a huge spending package (war)...." Well, I'm sorry, but I'm sick of people creating conveniently made-up realities to match their models. I want an economics to look at reality and try to explain it - as a (former) fellow economist, I say to economists to get your nose out of calculus books and simulated equations and start paying attention to reality.

Friday, July 8, 2011

World Economics Association

I'm a little late in the game, but I'd like to mention that the World Economic Association was launched a couple months ago - a conglomeration of heterodox / open / pluralist economic thinkers. (Read the manifesto here)  It looks like it could be a legitimate platform to conglomerate some of the various pluralist factions.  I just joined.

Tuesday, July 5, 2011

How to fix America's dependency on foreign goods

First, one has to admit there a dependency and that such a dependency has some problems.
I admit there is, and I do think there are problems when we rely on China and Vietnam and Thailand etc. for many of our goods.   Largest amongst these is the environmental issues that arise from shipping relatively cheap goods across oceans and all the non-monetized costs that the Earth ends up sucking up.

Recently Indy Star Op Ed columnist Matthew Tully wrote: "each beer mug or towel made elsewhere is a job that doesn't exist here..."  
That's the kind of rhetoric you hear from populists and expect from uninformed columnist (like this).  Of course we know that is not true.  Buying cheap goods from others affords us make and sell other kinds of goods through specialization - and that requires and utilizes a whole other kind of labor pool.   Arguably, it affords us a more advanced labor pool.  So Tully goes overboard and over-sells the argument and offers no good solutions.   Only that he wishes someone would "start a dialog."  YOU ARE A REPORTER with a 'major' newspaper - why don't YOU start a real dialog talking about solutions....  But since you didn't here's some of my ideas:

With the exception of perhaps China, our over-reliance on (cheap) foreign goods is NOT their problem - it's solely our problem.  Also, our problem is not mainly the buying of foreign goods, it is the unnecessary/irrational buying of goods, period.  So, first, we (the US) need to get off our high horse and recognize our addiction.

How do we do that?  Well, we need to educate, re-educate, and shift people's priorities.   First, we need to mandate business and finance courses as much if not more than we mandate science and English - in all levels of education.  We need to teach students the value of savings, prudent investment, worthy spending, entrepreneurship, environmental concerns, retirement, etc. WAY earlier than we presently do.  Stop making money an adult issue.  It's not.

I know....now you are thinking.  "Hippie!  How are we gonna pay for all those new programs."  Well, simmer down son and let me tell ya.  I actually have two ideas.  First, we could replace out-dated / unnecessary education programs.  Spelling comes to mind, as does shop...but there may be others.  Second, and this has to do with the "re" part of "re-education," we need to eliminate or scale-back some of our entitlement programs.

OK OK sit down and stop gasping.  Yes, we need to.  I didn't used to think that.  I used to be as much of a liberal as the next guy wearing a tweed jacket, but not anymore.  I've learned via working in government, and observing activity in the economy that people EXPECT things to be GIVEN to them.   Students think As are deserved even if they miss 1/4 of the classes (happens all the time to me - I'm not joking), old or poor people expect hundreds of thousands of dollars in medicare and medicaid and social security, rich people expect big tax breaks from Republicans and the ability to cheat on their wives undisturbed, Chrysler expects to be bailed out when they go bankrupt again in 20 years.... All this means we need to own up to the fact that we have trained the average citizen to expect  that they can buy a house on credit that is way out of their means, that they can run a ponzi scheme unfettered, that they can buy a $400 watch from Wal-Mart meanwhile collecting unemployment benefits.   The problem, my fellow Americans, is that we buy shit we don't need, with money we don't have, from often-times shady States that have no problem feeding our addictions.   One way to reduce the addiction is to reduce the expected high - and the best way to do that is to cut some of it off, and re-educate.

Monday, June 6, 2011

WAIT!  But ...but... I have a really high GDP/capita!  ...Money doesn't always buy happiness you say?
 Now I'm depressed. 

Yours,
US of A

Saturday, April 30, 2011

Or perhaps economics will remain a discipline that forgets most of what it once knew and allows itself to be continually distracted, confused, and in denial. If that were that to happen, we would all be worse off.

Keep talking reality Prof. Delong.....you may be the only one in with any clout in mainstream economics doing so....

Monday, April 4, 2011

Changing the NCAA

I would suggest that Becker / Posner doesn't go far enough.  To me, we need to call a spade a spade and recognize that the really good players - the Division I players - are going to college for sport, not for knowledge.  With that in mind, Division I athletes should be, as Becker / Posner allows, able to collect large sums of money and scholarship for their play.  However, we should destroy this false idea that athletes are or should be academics.  It boils down to this - college is the pro recruiting ground, and if you can't take the basketball out of the college, you've gotta take the college out of the basketball.

Players should be forced to devote themselves solely to the athletics department - to prepare themselves to specialize in what they probably were going to anyway.  Granted, not everyone goes pro from Division I play at college, but those that don't often take careers not far removed (little league coaches!).  Colleges of course can still maintain the lower divisions to intermingle with academics - with pay restrictions of course.  Think of that as the intramural (for fun) league(s).  The average GPA of college sportsmen is atrocious - it's no wonder.  Even Butler, the highest GPA in the business is averaging a lowly B.

Tuesday, March 22, 2011

Reviving Macroeconomics

I hope Prof. Stiglitz is correct that there can be some serious movement on reform (or reviving as I prefer).  But, to write the entire article and not mention or give credit to the heterodox post-Keynesian economists who have for years had these credit models at the ready (and were largely ignored), is inexcusable.

I am skeptical that reform can occur from the inside (mainstream).  The 2 main reasons why economics isn't economics anymore:  one, the early economic thinkers (Smith, Hume, Marx etc) weren't tied to the God of mathematics.  Mainstream economists treat math, and all of its boundaries, like a crack addiction.   More importantly, economics isn't economics anymore - much of it appears to be politics - colored with an economics pen.  The major economists that the average person or politician listens to are really political themselves (Krugman, Mankiw etc....all have a political philosophy).  It's easy to create a few assumptions (since that's the problem of being tied to math) which of course give you the answer that makes your inner politician smile.  So the classical 'economists' assume some things about rationality etc. and wow - lo and behold if we leave the market alone, it works.  Keynesian economists make some assumptions about markets breaking and lo and behold, we need government.  I am not delusional  - economics doesn't create ones politics, politics creates ones economics - unfortunately all too often.

Friday, February 4, 2011

When Jobs Stats Are Meaningless - and When the Media Confuses

...Typically always true from November - January imop.
But this one is particularly f***ed up. 

News is reporting that according to BLS only 36,000 jobs were added in January (about 1/4 of what was expected).

Meanwhile, BLS reports the unemployment rate falls by another 0.4% - 2 months in a row - to 9.0%.

Not only of course do we have the holiday season confounding the trends from Dec-January, but we have the huge storms that have racked the country in the past few weeks that may be messing things up.

In any case, it is important to note that BLS reports 2 surveys:
The first is the household survey (which surveys people, duh) - that is where we get the unemployment rate.
The other survey is for businesses and the government - that is where news organizations usually report jobs gained or lost.  (36,000 more employed in Jan. compared to Dec. 2010)

The unemployment rate simply cannot be compared to establishment based employment payroll changes because the two numbers come from 2 completely different surveys, measuring slightly different things:

Reported change in civilian employment from Dec. 2010 to Jan. 2011 (private): 117,000
HOUSEHOLD SURVEY

Reported change in total private non-farm employment from Dec. 2010 to Jan. 2011: 36,000
ESTABLISHMENT SURVEY

The unemployment rate comes from the survey of the former statistic, not the latter.  Media does everyone a dis-service by not pointing this out.

The household data shows a very large drop in the labor force (almost 500,000 people) compared to a much lesser drop between November and December - undoubtedly a misleading number due to the holiday season.

So, you know what you should do with all these news reports and the January statistics?  Throw them in the garbage, and wait for February and March.

Monday, January 31, 2011

You Can Believe in the Terribleness of Bubbles and Bursts, or That We Are Facing Mainly Cyclical Unemployment Only, But Not Both

Today I'm giving a lecture on unemployment - and a portion of it will be devoted to this year's hot debate about whether or not our unemployment situation is mainly a cyclical or structural problem.  Many economists, even those in the mainstream who have always been loathe to think about the importance of bubbles and their formation, believe that one of the causes of the crisis or at least one of the aides of it was the forming of the housing bubble over the previous decades.   Many of these same economists say though that our unemployment problem is mostly just good ole' 'not enough demand' cyclical unemployment.  My questions is, and this is aimed at Krugman, if it was wrong for the Fed in 2002 to create one bubble to 'correct' the burst of the other, why is it correct today?  You can't believe bubbles (of the scale we had seen peaking in 2007) are bad, and then essentially opt to throw more money at it and potentially re-inflate it or a new one.  Bubbles are, by definition, structural issues - and their implosion creates structural deficits of employment etc.

There is but one conclusion:  Krugman and his ilk either don't really believe bubbles and bursts (either in the vein of Austrian or in the vein of Minsky) are all that scary for economics, or he is simply choosing to ignore the structural problems and unemployment they cause because it doesn't fit his ideology.   Seems likely to me that there is a mix of structural and cyclical unemployment going on - whether one egged on the other, I don't know - but regardless, you can't fight bubbles and cyclical unemployment at the same time.

By easing one, you risk creating or enhancing the other - that is the problem economists now face.

Thursday, January 20, 2011

Brad Delong, in denouncing unexciting alternatives, promotes the same unexciting alternatives...

Brad posts about the Obama administration's apparent lack of exciting ideas. 

In it, he promotes 4 ways the administration could have (could still) improved employment:

  1. Expansionary fiscal policy: convince congress to appropriate more money and borrow-and-spend.
  2. Expansionary monetary policy: staff up the Federal Reserve with governors who believed that large-scale quantitative easing and inflation, price level, and nominal GDP targeting were worth attempting.
  3. Use the TARP and the Treasury's powers to offer bank guarantees to engage in large-scale quantitative easing by the executive branch.
  4. Focus on putting into place long-run policies to balance the federal budget, and hope that their passage induces the confidence fairy to show up.
Maybe I'm daft, but didn't the Bush and Obama (combined) administrations do all 4 already?  They did the fiscal policy (ARRA), the Fed has been aggressively using non-traditional monetary tools, they already have been supporting banks and given bank profits recently I don't think bank lending is the crux of the problem anymore anyway, and hasn't Obama already touted his long-run sense of balance?

Delong offers up no exciting alternatives - he's no different than Obama.  

I may disagree with them, but you can't deny some post-Keynesian's alternative of direct government hiring of unemployed persons - it's an exciting idea.   What about mandating a temporary national wage re-structuring to try and get the invisible hand working again?  What about taking the money out of China that they stole from the US through their deceptive currency policies?   What about taking the unused ARRA / TARP monies and using it to fund appropriate (re)education programs to help with some of the potential structural unemployment potentially underlying our present problem.   

I don't necessarily support all the above ideas - in fact, some of them may be bad ideas - but they are different - they are exciting.   Obama, Delong, Krugman - they all just want the same old kindergarten Keynesian spending.  And while I may have even been somewhat sympathetic to that in the past, I've learned since this recession, that the government not only shouldn't but literally CAN'T simply rely on the Keynesian multiplier to lead us out of the depths - our government simply isn't set up to do that correctly.  It is too beholden to interests and lobbyists, it is too inefficient, it is too slow....